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Cephalon takes stake in stem cell developer

Cephalon Inc., a biopharmaceutical-maker, is banking on help from Down Under to help boost its product line in the coming years.

Cephalon Inc., a biopharmaceutical-maker, is banking on help from Down Under to help boost its product line in the coming years.

Cephalon, of Frazer, said it would take a 20 percent stake in an Australian company for rights to commercialize stem cell therapies for cardiovascular and nervous-system conditions, including heart failure and Parkinson's disease.

An initial payment of $130 million in cash to Mesoblast Ltd., plus a purchase of $220 million in Mesoblast stock and a promise of milestone payments of up to $1.7 billion, make the potential value of the deal $2.1 billion.

Cephalon's chief operating officer, J. Kevin Buchi, said the deal strengthened his company's late-stage pipeline of products under development.

Cephalon has been eager to diversify its product offerings. The company had 2009 revenue of $2.19 billion. Its top seller is the sleep-disorder drug Provigil, but several companies are vigorously challenging the Provigil patent.

Terms of the deal with Mesoblast give Cephalon exclusive rights to market products based on Mesoblast's adult stem cell technology. Mesoblast will retain manufacturing rights.

Adult stem cell therapies do not carry the social and political baggage attached to research with embryonic stem cells, which involves destruction of human embryos.

Mesoblast chief executive officer Silviu Itescu called the deal "the largest ever in the regenerative-medicine sector."

Mesoblast is developing adult stem cell treatments for degenerative conditions of the cardiovascular and central nervous systems, including congestive heart failure, heart attacks, and Parkinson's and Alzheimer's diseases. The partnership also includes some cancer treatments, the companies said.

"People have found that Mesoblast stem cells could be useful in regrowing lost cells in the central nervous system," said Stuart Roberts, a health-care analyst at Southern Cross Equities Ltd., of Sydney, Australia. "There is a hint that you could use stem cells in that area, and the payoff is outstanding if it works."

The companies said Mesoblast would retain rights to develop, manufacture, and commercialize adult stem cell products for bone and cartilage applications, diabetes, eye diseases, and inflammatory and immunologic conditions.

Cephalon employs 4,000 around the world. Its chairman and CEO, Frank Baldino Jr., remains on a medical leave of absence.

The deal was announced after U.S. markets closed Tuesday. Wednesday, Cephalon shares closed down 3.09 percent at $63.64. American depositary receipts in Mesoblast were up $3, or 17.39 percent, at $20.25.