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Regeneus, an Australian regenerative medicine company, has entered into an collaboration with a major Japanese firm to manufacture its stem cell therapy Progenza, a move that may accelerate approval and that has a pair of analysts optimistic about the company's future.

Regeneus Ltd.'s (RGS:ASX) collaborative agreement is with Asahi Glass (ASGLY), a major Japanese firm well known for its enterprise in glass, chemicals, high-tech materials, and biotech that is expanding into the regenerative medicine sphere. The agreement, announced on Dec. 29, 2016, calls for an upfront payment from AGC to Regeneus of $5.5 million, with milestone payments totaling $11 million.

The agreement establishes a "50/50 joint venture for exclusive clinical development and commercialisation of Progenza for osteoarthritis and all inflammatory conditions for Japanese market," according to the company.

In addition, the company stated that, "Regeneus will also be entitled, through its 50% interest in the joint venture, to its share of upfront license fees, milestone payments and royalties from sublicensing the development and commercialisation of Progenza for osteoarthritis and all other clinical indications in Japan."

"We welcome the deal, which strengthens Regeneus's balance sheet and provides significant validation for the Progenza technology and IP (intellectual property)," Edison analyst Dennis Hulme wrote in a Jan. 29, 2017, research report.

The partnership with AGC represents a validation of Regeneus' stem cell platform technology, which was "thoroughly reviewed during the due diligence process," Hulme wrote. "This validation, combined with AGC's existing relationships with pharma and healthcare companies, should strengthen Regeneus's position as it engages with potential partners for clinical development and commercialisation of Progenza in Japan (as part of the JV) and in other markets."

"This is a nicely designed deal," analyst Colin Novick of CJ PARTNERS told The Life Sciences Report in an interview published on Feb. 1. "Regeneus gets the upfront payments and the milestone payments from AGC, but it also gets a portion of subsequent milestone payments and upfront payments from any pharmaceutical company that it teams up with for the commercialization rights."

Acknowledging that "the name doesn't really spell it out for you," Novick explained that "AGC is Japan's largest biologics CMO (contract manufacturing organization). AGC is basically saying it would like to expand its CMO offerings from a simple biologics manufacturing capacity to regenerative medicine."

"As part of a 10-year strategic vision established in February 2016, AGC has designated life sciences as one of three high value-added strategic businesses where it will aim for high growth in targeted markets," Hulme wrote. The company has made a number of deals to facilitate this vision, including the Regeneus JV. Other major Japanese firms that have expanded into the regenerative medicine space include Fujifilm Holdings Corp. (4901:TYO) (FUJIY), Shiseido Company Ltd. (4911:TYO) (SSDOY), Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCMKTS; 4502:TYO), and Nikon Corp. (7731:TYO), according to Novick.

Japan has emerged as a frontrunner in the field of regenerative medicine following legislation enacted in 2014 that accelerates approval for use of stem cell products in the country once those products have demonstrated safety and efficacy, which is possible after Phase 2 trials.

The 21st Century Cures Act, recently signed into law in the United States, also "will allow the US FDA to grant accelerated approval to regenerative medicine products, and will give the FDA wide discretion in creating new approaches to regenerative medicine," Hulme wrote.

"Recent regulatory change in Japan offers a potential fast path to market for Progenza, [the company's] off-the-shelf human stem cell product, which is currently in a Phase I trial," Hulme elaborated. "Regeneus's strategy is to focus on early-stage product development and to seek partners that will undertake the later stages of clinical development."

The analyst expects that, once "technology transfer and GMP manufacture of Progenza by AGC" is completed, a Phase 2 study in osteoarthritis in Japan might begin in Q3/19. Hulme calls Progenza the company's "most valuable product."

Both Hulme and Novick commented on the inclusion of cell secretions, a feature "unique" to Progenza. Hulme noted, "Evidence from animal studies indicates that the secretions provide an immediate anti-inflammatory effect when Progenza is injected into a diseased or damaged joint."

According to Hulme, the upfront payment from AGC, as well as the anticipated milestones, give Regeneus a "stronger balance sheet to fund development" of its other pipeline products, including a human cancer vaccine and veterinary compounds including CryoShot and Kvax.

"AGC is a world-class technology driven multinational company headquartered in Tokyo with a clear vision and strategic priority to grow its life science business. This makes AGC an ideal fit for us," Regeneus CEO John Martin stated in the company release announcing the deal. "As a leading manufacturer of biopharmaceutical products in Japan with recent acquisitions of manufacturing capability in Europe and the USA, AGC is well placed to expand into the fast-growing market for manufacturing regenerative medicine products."