The biotech sector can be intimidating to some investors. If you firmly believe in the maxim buy what you know, what do you do if you know practically nothing about modern medical treatments and drugs?
If you are willing to spend the time it takes to wade through medical jargon, you can learn what you need to know. If you have no idea what a clinical trial is, you will have to learn. If you know nothing about the USFDA (United States Food and Drug Administration), you can learn what you need to know.
It is not necessary to be a medical expert to invest in biotech shares. You can learn what you do not know through online searches of specific terms you do not understand as well as looking for company-specific news items and industry-related items as you learn more.
Our first order of business is to understand what this company does. For that, we begin with the Mesoblast website. On the home page, we see the following description of the company’s business:
• Mesoblast Limited (ASX: MSB; OTC ADR: MBLTY) is the world’s leading stgeloper of innovative biological products for the broad field of regenerative medicine.
• Mesoblast’s commercial strategy is based on its unique proprietary adult mesenchymal precursor cells.
• The company’s lead products will target cardiovascular conditions, diabetes, inflammatory conditions of lungs and joints, eye diseases, bone marrow cancers, bone fractures, cartilage degeneration and musculoskeletal conditions.
• Mesoblast and global biopharmaceutical company Cephalon Inc. have established a strategic alliance to commercialise adult stem cell products for degenerative conditions of the cardiovascular and central nervous systems. The alliance also extends to products for augmenting bone marrow transplantation in cancer patients.
The home page also points to a chronological listing of news releases and analyst reports. Before we get into those, there are two terms in the business overview statement we need to research – regenerative medicine, and mesenchymal precursor cells.
Regenerative Medicine and Mesenchymal Precursor cells
Regenerative medicine uses healthy cells to repair or replace damaged cells. Disease and a variety of other disorders lead to deterioration and/or destruction of cell tissue. With this breakthrough technology, healthy cells from different sources have the potential to “regenerate” damaged tissue.
Here is a simple way to describe precursor cells. Think of a cell that contains the structures that will grow into functional body parts, like limbs and other organs. They do this by dividing and multiplying. These are found in embryos and in adults. Mesenchymal refers to where they are found in an embryo. In adults, they are found in bone marrow and scientists are finding they exist in the brain and heart as well.
From their business description, we know Mesoblast uses adult stem cells, avoiding the controversy over using embryos as a source. We also know their initial targets, beginning with cardiovascular disease. Finally, we learn they have formed a partnership with industry leader Cephalon. We will need to learn some details about that alliance.
Moving on to the company overview section, we learn a little history. The company acquired an American biotech firm called Angioblast. A brief Internet search detour reveals the fact that this company holds a US patent on a process for using mesenchymal precursor cells.
December 2010 also saw the company enter into the alliance with Cephalon, where Cephalon will fund late stage stgelopment costs, and sales and marketing costs.
The Cephalon partnership is impressive evidence of the potential of this company. In effect, Cephalon did its own due diligence research, just as you are doing, and made a major investment.
Market participants agreed with that assessment, as shown in the following one-year share price chart for MSB. Note that the sharp spike up in share price corresponds with the timing of these twin announcements – the acquisition of Angioblast and the Cephalon alliance.
While the story behind the numbers at this point appears bright, let us press on to two issues analysts agree are important predictors of biotech success – the pipeline and clinical trials.
Pipeline and Clinical Trials
We click on Clinical Trials section and cannot find what we want, although buried in an FAQ (Frequently Asked Questions) section is a link to a site too technical to be of much use. So we try again. In the Investor section, we find a recent presentation made to an equity forum.
There we find twelve lead products in various stages of stgelopment. Six are in formal USFDA Phase 2 clinical trials, with two ready to begin Phase 3. Although the picture now appears even brighter, the final question is can this company deliver on its potential.
Management is one key to the answer. From the annual report, we see the management team is well credentialed and has relevant experience. However, a more important indicator is their record of accomplishment so far. Look at the timing of market announcements in the news section of the website and you will see the natural progression of some very solid decisions.
The Angioblast merger was gradual and the Cephalon alliance eliminates funding concerns. A brief search for news about Cephalon reveals the fact they are the target of a hostile takeover.
Mesoblast’s management immediately issued a press release showing how its interests would be protected even if Cephalon were to be taken over.
Another issue to consider is competition. We have only scratched the surface here, but if you continue your education about the field of regenerative medicine, you will learn the potential is enormous and there are many players in the field.
An industry related search yielded something you will not find on the MSB site. There is another company out there with a competitive patent. Here is a quote we found on stemcelldigest.net:
• Osiris has patents on mesenchymal stem cells (MSCs) obtained from bone marrow. Angioblast has a patent that covers a method of preparing mesenchymal precursor cells by selecting for cells that express the marker STRO-1. Interestingly, this patent apparently does not refer to a source for the MSCs, which raises a question about overlap with the Osiris patent.
The competitor’s name is Osiris, ticker symbol OSIR, and it trades on the US NASDAQ exchange. A direct competitor is not necessarily a reason to stay away from MSB. It simply means Osiris bears close watching.
Investing in any speculative biotech requires an ongoing commitment of time and effort. The more you read and learn, the better your investment decisions will be. The Mesoblast website offers a unique opportunity you do not often find. They have over thirty analyst reports on their shares, dating back to 2009. Happy reading!
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