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Regenerative medicine, which consists of tissue engineering, cell therapies, and healing therapies, is still in its infancy, but is a fast-growing segment in the medical field. The market for regenerative medicine continues to grow worldwide; according to BCC Research, it is expected to accelerate at roughly 12% annually, from $3.8 billion in 2011 to $6.6 billion in 2016. Regenerative medicine has already shown the potential to repair and replace damaged cells, tissues, and organs by using specially grown stem cells. Through regenerative medicine, researchers have developed therapies to heal injuries such as skin burns and broken bones, and from heart disease to organs damaged by cancers. This is a very exciting field for patients and investors as the government and biotech companies are spending hundreds of millions of dollars for stem cell research and development with the goal to not only repair, but in the future actually grow new body parts from heart valves to kidneys. To date, the majority of regenerative products are mostly in the field of orthopedics; but that is changing as biopharmaceutical companies are developing new treatments, which are in pre-clinical or early clinical evaluation stages including tissue engineering, stem-cell biology, nanoscience, and bioengineering-all with the goal of repairing cells, tissues and organs. I believe that selecting the top companies in the regenerative medicine field, an investor can capture returns that will exceed the performance of the S&P 500. In this article, I want to present the following three small cap companies that I feel have the most upside potential in 2013. The companies are all developing stem cell therapies and could experience share price growth in the next 12 months.

The first company I like is NeoStem (NASDAQ:NBS), a biopharmaceutical company that both contracts manufacturers' stem cells while developing its own line of stem cell therapies. Through its subsidiary, Progenitor Cell Therapy (PCT), NeoStem is manufacturing stem cells for some of the largest biopharmaceutical companies in the field today, including Baxter (NYSE:BAX) and Johnson & Johnson (NYSE:JNJ). On January 16th the company announced it entered into a manufacturing services agreement with the British company, Adaptimmune, to manufacture its NYESO-1c259-T cell therapy to fight cancer. In choosing PCT, Adaptimmune felt confident of its extensive experience with technology transfer, process qualification, and GMP manufacturing, and saw PCT would be an asset in developing its T-cell therapy for the U.S. market. James Noble, CEO of Adaptimmune, commented on PCT: "PCT's impressive level of experience in the burgeoning field of cell therapy, combined with their flexible capacity and professionalism, are among the reasons we selected them for this critical role for our T cell product." The service agreement shows that PCT continues to expand its customer base as the leader in contract producing and manufacturing of an increasingly wide range of stem cell therapies.

Though the contract manufacturing of stem cells plays a major factor in NeoStem's success and revenue, I find that its own stem cell therapies in development could potentially be what propels the company into high profits. An example is its very small embryonic-like stem cells (VSEL) technology, which is based on stem cells found in bone marrow that have properties similar to embryonic stem cells, hence the name. These bone marrow stem cells open the possibility of being able to act in a similar manner as embryonic stem cells, but do not have the ethical or moral issues or some of the negative biological effects associated with embryonic stem cells. NeoStem, working with the University of Michigan, demonstrated that VSELs were able to regenerate bone in mice models, and the company has seen progress with animal models in healing wounds. VSEL Technology, though in its early stages of development, has the potential of developing cells that actually differentiate into the desired tissue and can create real cellular regeneration. On January 15th the company announced that University of Michigan's Dr. Aaron Havens won the Milo Hellman Research Award from the American Association of Orthodontists for his research in collaboration with NeoStem that demonstrated bone regeneration capabilities of human VSELs™ stem cells in a mouse model. The article, "Human Very Small Embryonic-Like Cells Generate Skeletal Structures, In Vivo," published in Stem Cells showed the expanding therapeutic potential of NeoStem's proprietary regenerative cell therapy product. NeoStem expects to begin studies treating patients with periodontitis sometime in 2013.

The other stem cell therapy that should be of interest to both patients and investors is being developed through the company's other subsidiary, Amorcyte, and is a CD34+ CXCR4+ stem cell therapy, AMR-001. It is designed to preserve heart muscle and prevent major adverse cardiac events following acute myocardial infarction (AMI). In a 2012 Phase I trial, Amorcyte was able to demonstrate that AMR-001 preserved heart muscle function when a therapeutic dose of 10 million cells or more were administered, whereas 30% to 40% of patients not receiving a therapeutic dose suffered deterioration in heart muscle function. AMR-001 began Phase 2 trials last year enrolling 160 patients at more than 40 clinical sites, to prevent major adverse cardiac events following AMI. The company anticipates completing enrollment in 2013 with six months initial data readout near the end of the year.

For a company that has a successful manufacturing unit in PCT-and potentially blockbuster therapies-I see the company as undervalued, as NeoStem has a market cap of only $98 million. Company revenue, due to PCT's stem cell manufacturing, rose 98% for the first nine months of 2012 compared to the same period in 2011; total revenue in 2011 was $73.7 million. Strengthening the bottom line, last November the company disposed of its sluggish investment in its Chinese drug operations, Erye, eliminating $30 million in debt, but adding $12.3 million in cash while allowing NeoStem to focus on its developing cell therapies and its PCT business. On Thursday, January 17th the stock closed at $0.60, midway between its 52-week high and low. The stock has lost ground over the past six months, which to me would trigger a good buying opportunity as I expect some positive announcements on both VSEL and AMR-001, and can see the stock moving upward and testing new highs.

Another company I find to have good investment potential is Pluristem Therapeutics, Inc. (NASDAQ:PSTI), a development-stage bio-therapeutics company out of Haifa, Israel. Pluristem is developing a pipeline of ready-to-use stem cells derived from discarded human placenta, which takes the controversial aspect out of the equation that embryonic stem cells carry. The cells, which are grown using the company's proprietary 3D micro-environmental technology and are an "off-the-shelf" product that require no tissue matching prior to administration, are known as PLacental eXpanded (PLX) cells, and are derived using PSTI's proprietary PluriX therapy, and has shown success in both in vitro and in animal studies as a treatment to reduce fibrosis. On January 15th the company announced that the medical regulatory body for biological medicinal products for Germany approved a Phase II study using PLX-PAD cells in patients suffering from intermittent claudication caused by atherosclerosis of the lower extremity arteries. The Phase II trials in Germany, which are to evaluate the safety and efficacy of two doses of PLX-PAD cells versus placebo, administered via intramuscular injections, come on the heels of the U.S. Phase II clinical trials that began in early September 2012. There are approximately 14 million people who suffer from claudication, and treating the disease at this time costs approximately $2.5 billion annually.

Pluristem has a market cap of $198.6 million, and is well off its 52-week high of $5.00 per share. The stock took a downward turn after the company announced a secondary public offering of common stocks and warrants in mid-September, then slid again after the announcement on December 26th that the company agreed to sell $95 million worth of stock through MLV & Co., LLC. On a positive note the company announced the next day that it initiated the final validation steps for its new "state-of-the-art" manufacturing facility. Zami Aberman, Chairman and CEO, called the facility, "the world's first commercial cell therapy manufacturing facility." And added: "Assuming the PLX cells product candidates are successfully developed and approved by the regulators, we believe that the new facility would have the capacity to produce PLX cells for the treatment of over 150,000 patients annually estimated by Pluristem at $1 billion in production value. Additionally, as clinical trials are approved by regulators for additional indications, our new facility will enable us to supply PLX cells to conduct these trials in parallel." PSTI closed on Thursday, January 17th at $3.32 per share. This is a development-stage company and has no sales, so the stock moves up or down on news. I think with its funding completed investors can focus on the company's PLX products and future ability to manufacture stem cells at its new facility. I believe the stock now has an excellent entry price and, if good results come from either its manufacturing end or its development end, the company has the potential this year to exceed its previous 52-week high.

The third company, Neuralstem, Inc. (NYSEMKT:CUR), is a development-stage biopharmaceutical company commercializing treatments for central nervous system diseases. The company has had an excellent run, almost tripling its stock price since its mid-August lows after announcing a secondary public offering of 6 million shares at $0.40 cents per share. On Monday, January 14th the company announced that it received approval from the U.S. Food and Drug Administration (FDA) to begin a Phase I safety trial of its lead stem cell therapy candidate, NSI-566, for chronic spinal cord injury patients. The FDA gave the approval after the company reported late last year that rats that were given NSI-566, seven days after suffering an ischemic stroke, showed improvement in motor and neurological tests. The open-label, multi-site study will be conducted with eight patients who are completely paralyzed at or below their spinal cord injuries. The study has two main objectives: The first is to determine the safety and toxicity of human spinal stem cell transplantation for the treatment of paralysis and related symptoms due to chronic spinal cord injury. The secondary objective is to evaluate graft survival in the transplant site by MRI, as well as the effectiveness of transient immunosuppression. "This is the real deal," Richard Garr, CEO of Neuralstem, commented. "We have compelling data. Cells are surviving, grafting and doing what we would expect they would do." Approximately 11,000 people in the U.S. suffer spinal cord injuries each year, and today there are approximately 250,000 people in the U.S. who are spinal cord injured; 52% are considered paraplegic and 47% quadriplegic. Paul Tobin, president and CEO of the National Spinal Cord Injury Association, commented that Neuralstem's therapy could be a tremendous step and appears to be worth exploring, though he cautioned that the industry is "far from a cure yet." Neuralstem is also administering patients in China with NSI-566 to treat paralysis from stroke, and will begin trials in Korea later in the summer.

Neuralstem has a market cap of $89 million, and closed on Thursday, January 17th at $1.33 per share. YTD the stock has risen over 20%, and analysts at Aegis Capital raised its 12-month price target from $3.50 to $4.00. I think Neuralstem has what might become an excellent therapy for spinal cord injuries, and though the stock might still be at a good entry point, I'm not sure that I agree with Aegis Capital's target price; but I do think that it does have room to rise if more positive news on its stem cell therapy is announced.

According to the 2011 U.S. National Academy of Sciences Report, 104 million patients could benefit from regenerative medicine including cardiovascular suffers, people with autoimmune diseases, and diabetics. That is a market with tremendous upside potential for investors. I see a strong growth potential in companies developing stem cell therapies; however, the industry is still in its infantile stage and the larger players will most likely gobble most of the small development stem cell companies up. The three companies I profiled all have a varied degree of speculation, but also have a high degree of producing successful products. All three still have good entry prices, though of the three I would choose NeoStem as my first choice due to its revenue stream with its PCT manufacturing, its stem cell therapies that have shown promise in early testing, and due to my opinion of it being an undervalued company.

Source: 3 Regenerative Medicine Companies That Could Deliver In 2013