Cell therapy stocks outperformed the market in 2012, and now with progressing clinical studies there are certain stocks that have jumped to a large extent to begin 2013. Osiris Therapeutics (OSIR) has had the greatest year, with a near 100% gain, but has lost nearly 2% of its value in the last five sessions. Meanwhile, other stocks in the space have rallied with rather impressive gains during the same short period. This may indicate that investors are loading up on cell therapy stocks for the upcoming year and diversifying their portfolio with the stocks they believe will see the greatest performance. I am shining a spotlight on the following stocks-ones that I feel might see large gains throughout 2013.
5 Day Return*
1 Year Return
Advanced Cell Technology (ACTC.OB)
*Dec 31 - Jan 7
With the exception of Advanced Cell Technology, all of these stocks have performed well over the last year, although the large gains from the last five sessions are also incorporated into the one-year performance. The space itself has experienced a series of breakthroughs over the last year, and these are a few of the companies that investors believe may lead the charge in developing cell therapy products. The fact that most of these have performed so well in 2013 may be a good indication that investors are buying into this industry for the year, as I mentioned earlier. Let us take a look at the movement for each stock.
Advanced Cell Technology
Advanced Cell Technology has seen the greatest gain in value following an aggressive period of buying by the company's insiders. The company announced that it will be presenting at the Biotech Showcase; it also presented data for its dry-age-related macular degeneration (dry AMD) and Stargardt's macular dystrophy (SMD) treatments. According to the company, no safety issues were reported and there was evidence of engraftment and function using the treatment. In early trials the company's treatment has shown improvements in improving vision. Now halfway through its clinical study, the results are beginning to be noticed. This is a stock that has seen volatility over the last year, but has an opportunity to build awareness for both itself and the industry if its cell therapy continues to improve vision.
Advanced Cell Technology has earned less than $500k of revenue over the last 12 months while posting a net loss of more than $30 million. In the nine months ending 09/30/2012, the company lost $11.56 million from operations, but continues to earn cash from financing activities, $6.72 million in the nine-month period. As of the end of the third quarter, the company had a cash position of $8.25 million and recently entered into a $35 million stock purchase agreement with Lincoln Park Capital. Taking into account the lower costs and improved margins, the company should be fine to fund its operations short-term, but I'd still watch for financing at some point this year.
StemCells' shares have risen over 20% so far in 2012 without the company posting any news, so it can be inferred that the move was most likely related to the performance of Advanced Cell Technology. StemCells has performed well all year as a favorite of retail investors. The company recently initiated a Phase I/II trial for the treatment of dry-age-related macular degeneration using its HuCNS-SC product. Currently there are no approved treatments for this condition. The positive news from Advanced Cell might have created excitement for StemCells investors, since both are attempting to treat the same disease. The increased momentum surrounding this company is more centered on the treatment of Alzheimer's disease using its human neural stem cells. StemCells presented data for an animal study back in June showing that its stem cells-increased synaptic density and memory in these animal models. These results more than doubled the stock, and investors have been optimistic ever since.
The company had over $21 million in cash according to its most recent earnings report. In addition the company recently received an award for up to $20 million to develop HuCNS-SC, meaning StemCells has a fairly large cash position. The company's revenue, $1.70 million, is not large enough to drastically impact its margins, and in the last nine months the company burnt nearly $15 million in operating activities alone. StemCells lost 9% of its value after reporting its last earnings report, as the firm appeared to spend much more than investors expected. I urge investors to pay close attention to the spending tendencies of StemCells as it now prepares for much larger and much more expensive studies in 2013. The company should have enough cash and funding to operate for the next year, but keep in mind, this is an organization in the very early stages of development that will require much funding to finish its product development.
Much like StemCells, it looks as though Neuralstem rose due to a technical or industry-wide rally. The company had no news, but continues to be a favorite of retail investors because of its progress at treating Lou Gherig's disease (ALS), among other diseases. Neuralstem recently rallied towards the end of December following the completion of its Phase I trial for ALS. The trial enrolled just 18 patients with the goal of proving the product to be safe, which it did. However, there was one patient whose progression of the disease improved, which is unprecedented in treating this disease. As a result, there has been a lot of buzz surrounding this company, as it has also shown signs of successfully treating paralysis in an animal study earlier this year.
Neuralstem is a firm that has managed to show progress in the spending of cash in recent months. The organization has lost just under $10 million during the last 12 months, including a loss of $6 million during the last 12 months from operating activities. However, Neuralstem is just now beginning its larger study, meaning costs will rise; and as of now it has less than $10 million in cash on its balance sheet. The company raised $7 million in a direct offering back in September, the day after announcing data on its paralyzed rat study that caused its stock to double. With two expensive studies in countries outside the U.S. that will increase its $2.1 million per quarter burn rate, I'd watch for a period of financing at some point in the near future.
NeoStem is not a traditional cell therapy company; hence its trend does not always follow the space. It does have a large and developing cell therapy segment, but also is involved in the manufacturing of cells. Accordingly, it was news regarding its manufacturing segment that caused its shares to rise, along with an upgrade by RedChip Research. One of the company's clients has been Hackensack University Medical Center since 1999, and on Monday the two extended the services agreement. Hackensack has become a leader in the North Eastern region of the U.S. in cell research and storage; it's a win for NeoStem to continue this relationship. NeoStem has also been in the spotlight due to the company finding a therapeutic dose of 10 million cells for its Phase II cell therapy product that treats acute myocardial infarction. The company has also seen remarkable progress in the development of its VSELs product line, which is entering clinical studies and will be tested on various indications.
NeoStem has had a busy couple of months following its most recent quarter. At at the end of the quarter, NeoStem had just $7.9 million in cash. But in November the company divested its generic pharmacy, which then added $12.3 million in cash along with eliminating $33 million in debt. This move not only cuts the company's costs, but also gives NeoStem more cash to avoid financing. Furthermore, NeoStem is the only one of these companies that produces sizable revenue, through its manufacturing segment (PCT Cell Therapy Services). The company posted revenue of $4.43 million last quarter, growth of more than 100%; and with clients in late stage studies, this revenue should continue to grow in 2013. In the last 12 months, NeoStem has seen operating cash flow of ($7.63 million) and has significantly improved its margins. For this reason, the company should perform with more efficiency and more revenue growth in 2013, preventing further dilution while conducting its studies.
This group of cell therapy organizations is transforming the medical community and, if successful, each is positioned to enter a large market. Yet we must acknowledge that with cell therapy being a fairly new focus in medicine, it's likely that not all of these organizations will be successful in clinical trials. Advanced Cell and NeoStem are in later stages of development while Neuralstem and StemCells remain highly promising earlier phase companies. Thus, an investment in any of these companies is determined based on your understanding of the technology and risk tolerance. Investors will learn much more about each company in the next year. Judging by recent performance, I think it's very likely that several of these stocks will be trading much higher as their developments continue.
Disclosure: I am long NBS.