StemSource acquired by San Diego company.

StemSource Inc., a three-year-old company that develops clinical applications for stem cells, has been acquired by MacroPore Biosurgery Inc. in a move that could bring regeneration technology into doctor's offices for the treatment of patients in less than two years.

Thousand Oaks-based StemSource and San Diego-based MacroPore completed the deal earlier in November. Under the terms of the agreement, MacroPore, which had been a lead investor in StemSource, acquired the remaining outstanding shares of the company in exchange for about 1.44 million shares of its stock.

With the merger, StemSource gets access to capital, technology and a distribution system that could hasten the company's time to market with cell therapies.

"Obviously, it expands their capital," said Donald Phinney, associate professor at Tulane Center for Gene Therapy and a member of the StemSource scientific advisory board. "You can imagine it takes a huge amount of resources and it's difficult for any small biotech company to make those hurdles."

Many of the companies pursuing stem cell research are focused on critical, complex diseases such as Parkinson's or diabetes. A cure for these ailments would surely bring fame and fortune to the company that found it, but most believe the science is years away from such achievements.

In contrast, StemSource has focused on smaller bites of the biotech apple, pursuing more readily attainable goals that can yield marketable therapies in a relatively, short period of time.

As an example, Phinney pointed to the company's work on treating incontinence by implanting fat tissue to strengthen the muscles involved with that disorder.

"They're targeting something very straightforward, and I think that makes tremendous sense, rather than tackle some huge disease that's very complicated," Phinney said.

Also unlike other stem cell companies, StemSource works not with cells from fetuses but with cells extracted from adult fat tissue. For its part, the company sees a multitude of uses for its cells, from the relatively simple such as post-operative breast reconstruction for cancer patients to repairing damage done by heart, liver and bone diseases.

"Our targets initially are to remake lost soft tissue or fat tissue," said Dr. Marc H. Hedrick, former chairman; CEO and medical director of StemSource, who now becomes chief scientist and medical director of the merged company as well as a member of its board. "And we're very interested in heart regeneration, liver regeneration and bone regeneration. Our goal is to give surgeons the tools to take these tough clinical problems and use stem cells to help treat them."

Three components are needed before stem cells can be used in regenerative therapies: the cells themselves; a scaffold, or device for the cells to grow on so they can be-shaped for the end use; and chemical compounds such as proteins that send signals to the cells to tell them what to do.

StemSource has the academic expertise in cell technology and MacroPore has developed scaffold technology along with expertise at navigating the regulatory environment to bring products to market.

MacroPore, which also makes polymer implants, distributes its products through Medtronic Inc. and its own international sales force.

"For the first time in a small company, we're bringing two of the three aspects of regenerative medicine together," said Hedrick. "By leveraging their regulatory expertise and our basic science, we're going to be able to bring stem cell therapies to the clinic within the next 18 to 24 months."

StemSource was working on its second round of funding, seeking $4 million to $6 million, when it was approached by MacroPore.

"One of the main issues for us was dilution," said Hedrick. "To raise money, you're giving up a tremendous amount of the company. It's an environment that is not friendly to venture investing right now, and this technology does require a fair amount of investment to bring it to market."

Five-year-old MacroPore is traded on the Frankfurt Stock Exchange, giving the San Diego-based company far greater access to capital for investment.

In the third quarter ended Sept. 30, 2002, MacroPore reported a loss of $3 million on a 135.9-percent spike in revenues to $3.3 million. That compares with a net loss of $2.7 million on revenues of $1.9 million for the comparable period last year.

MacroPore's shares have been trading in the high-3 euros to mid-4 euros range, roughly equivalent to the high-$3 range to the mid-$4 range over the past year.

At the same time, MacroPore has an established sales force with offices in Japan and Europe, giving StemSource immediate access to those markets.

"It was a combination of funding and the infrastructure they already have," said Hedrick.

StemSource will retain its Thousand Oaks facility, a 15,000-square-foot building where its laboratory is housed.

Chris Calhoun, CEO of MacroPore, retains that title in the merged company.

StemSource employees have either been retained full time or on a consulting basis, Hedrick said.