Mesoblast (NASDAQOTH: MBLTY), an Australia-based regenerative medicine company, recently announced the acquisition of Osiris Therapeutics' (NASDAQ: OSIR) entire culture-expanded mesenchymal stem cell, or MSC, business. News of the acquisition has given Mesoblast shares, which have struggled over the past year, a significant boost. This is not surprising, given that the acquisition makes strategic sense.

The acquisition
Under the terms of the agreement, Mesoblast will make an upfront payment of $35 million to acquire the MSC business of Osiris Therapeutics. Mesoblast will pay $20 million in cash and the remaining $15 million in stock. In addition, the company will pay $15 million to Osiris in cash in six months. Osiris may also receive up to $50 million in milestone payments if future late-stage clinical or regulatory targets are met.

The acquisition will provide Mesoblast with access to Osiris' two leading products, Prochymal and Chondrogen. Prochymal has already received orphan drug designation and fast track status from the Food and Drug Administration. The therapy has also received conditional approval in Canada and New Zealand for the treatment of children with acute GvHD. Prochymal is also under trial for Crohn's disease. In fact, Mesoblast has said that a major driver for the acquisition was its evaluation of the ongoing, 330-patient phase 3 trial in those with Crohn's disease, who have failed other biologic agents.

In addition, Mesoblast will acquire 110 granted patents, which include 48 in the U.S., 21 in Europe, and 9 in Japan. As a result, the company will have a strong patent profile with various applications.

Investors like the deal
Judging by the performance of Mesoblast shares since the announcement of the acquisition on Oct. 10, it seems that investors like the deal. Prior to the announcement, Mesoblast shares had fallen more than 24% in the past year. However, the stock has gained more than 10% since Oct. 10.

Mesoblast investors certainly believe that the transaction will create significant value going forward. I think they are right. The acquisition will be beneficial to Mesoblast. According to Professor Silviu Itescu, CEO of Mesoblast, the many commercial and strategic benefits of this transaction firm the company's leadership position in the global regenerative medicine industry.

Deal creates synergies
Mesoblast mainly focuses on multiple potential stem cells, which are known as MPCs (precursor). MPCs, which are generally available in the bone marrow or tissues, can be multiplied to large numbers and used to treat a variety of diseases. However, MPCs are in limited numbers and therefore isolating them from other blood cells is a complicated process.

MSCs, on the other hand, are usually found in adult bone marrow and can separate into various connective tissues. MSCs have multiple applications and higher potential in treating various complicated diseases, including rare diseases.

The acquisition of Osiris' MSC business will complement Mesoblast's technology platform. Moreover, there is increasing focus on the development of biologic products using stem cells. The market for both embryonic and adult stem cells has a significant potential and is expected to continue to grow in coming years. According to Vision Gain, stem cells therapy market is expected to reach $10.7 billion by 2017. As a result, several companies are investing in the development of stem cell derived biologics.

Conclusion
The acquisition of Osiris' MSC business makes Mesoblast well-positioned to create a leadership position in regenerative medicine. It will enable Mesoblast to develop products for unmet medical needs. The acquisition also strengthens Mesoblast's patent portfolio, and Mesoblast could be set for brighter days ahead.