Manufacturing is the key to the vast potential of stem cells.
And the manufacturing operations of Orange County’s most prominent entry in the field are expected to remain here after its sale to a publicly traded company in New York.
That’s the word from OC stem-cell pioneer Hans Keirstead, who is in the process of selling his Irvine-based California Stem Cell Inc. to NeoStem Inc. in a stock deal worth at least $34 million and that could be as high as $124 million with milestones and royalties.
California Stem Cell is using stem cells gathered from tumors to develop treatments for cancer and other diseases.
NeoStem develops stem cell therapies for heart disease, cancer and other maladies.
It plans to keep California Stem Cell intact in Irvine, including local manufacturing, Keirstead said last week.
The deal is expected to close in May.
NeoStem is “the right partner in a true strategic sense in that the greatest challenge in the commercialization of stem cells and clinical development of stem cell technology is manufacturing,” Keirstead said.
California Stem Cell expects a relatively brisk pace for its third-phase trial and could be ready to commercialize in late 2016 or early 2017, pending Food and Drug Administration approval, according to Keirstead.
Funding
The company sought funding as the third-stage clinical trial drew closer.
“I was faced with the task of raising significant funding to support my clinical trials that we were recently approved for,” Keirstead said. “This pipeline of clinical activity is clearly very expensive and a level of fundraising that was above and beyond what I had done in the past with angel investors.”
California Stem Cell also looked at an initial public offering and private placement with “blue chips,” according to Keirstead.
The company hired Minneapolis-based investment bank Piper Jaffray LLC when Keirstead took over the chief executive’s position to assist in option selection.
The company was exploring all three “with a preference for strategics,” Keirstead said, mentioning that he was selective with potential strategic partners.
The search was basically successful, he said.
NeoStem does its own manufacturing through its Progenitor Cell Therapy subsidiary. Progenitor has collaborated with more than 100 companies—including Seattle-based biotech Dendreon Corp., which has a plant in Seal Beach.
Keirstead said that ensuring integrity and capability on manufacturing can make or break a stem-cell enterprise.
“This is something that has dogged the industry in this sector,” he said. “Look at Geron.”
Menlo Park-based Geron Corp. ended its spinal cord injury stem-cell program in 2011 in the wake of manufacturing and other problems.
“Every [stem cell] company you can think of—manufacturing is the thing that either brought it down or posed huge barriers in its path,” Keirstead said. “NeoStem was founded on a base of manufacturing expertise. I thought I had built the world’s best manufacturing facility for stem cells, and then I saw what [NeoStem] had done, and I thought, ‘OK, they appreciate that the primary block [to commercialization] is manufacturing capacity and expertise.’ ”
“I really see [the deal] as a means to advance my company by a decade, frankly,” Keirstead added.
California Stem Cell is getting ready to perform a third-stage clinical trial of its Melapuldencel-T therapy for melanoma, or skin cancer. The FDA designated it as a “fast-track” trial, which facilitates and expedites review of new drugs for treating serious or life-threatening conditions.
NeoStem was California Stem Cell’s top choice as a strategic partner.
“I didn’t go shop this in a formal sense,” Keirstead said, adding that several other companies had interest in buying California Stem Cell but that talks didn’t advance to a competitive bid process.
“Value-Add Partner”
“The terms that we agreed to with NeoStem were fair,” Kierstead said. “Really, my priority in the process was getting a value-add partner. For me, I put the patients first, and I found a partner who was, in my view, most resourced to get these treatments to market the fastest.”
NeoStem is traded on the Nasdaq exchange and had a recent market value of about $190 million.
The company has second-phase trials of under way stem cells for heart disease and a first-phase trial for diabetes. It posted a $28.7 million loss on revenue of $14.7 million in 2013.
“NeoStem has been built upon a series of strategic acquisitions that created an infrastructure with strong development, regulatory and manufacturing expertise in cell therapy,” Dr. Robin Smith, NeoStem’s chief executive, said in a news release. “By adding a late-stage technology, such as Melapuldencel-T, we enhance our ability to add value for our shareholders.”
Some on Wall Street had predicted that NeoStem would be raising capital rather than making a deal.
Vernon Bernardino, who follows NeoStem for New York-based MLV Co., said he expected NeoStem to raise money as progress is made on the heart and diabetes programs.
NeoStem had $46 million in cash as of Dec. 31, and Bernardino said that “appears sufficient to maintain operations into 2015.”
California Stem Cell, which was founded in 2005 and has 34 workers, plans to retain its original name for now but will take the NeoStem name eventually.
“In many ways, NeoStem was a more mature version of California Stem Cell in that they had focused on manufacturing and had a platform technology, in their case, a couple of them,” said Keirstead, who is staying on as California Stem Cell’s president because “you can’t have two CEOs. It’s a different playground for me, being an executive in a public company.”
The move means a major departure for Keirstead, who had been a professor at the University of California-Irvine, where he taught since 2000 and was founding director of the Sue and Bill Gross Stem Cell Research Center. He had already taken a leave of absence from his teaching position to become California Stem Cell’s chief executive and resigned from the school just prior to the NeoStem deal.
“It breaks my heart to be stepping away in many ways,” he said. “I just loved UCI, and I still do—and I intend to maintain very close ties with the Reeve-Irvine Research Center and the stem cell research center.”
