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News out of University College London discussed how scientists are using bone marrow from a man who lost his nose due to skin cancer to grow a new nose…on his arm. Though it sounds futuristic and somewhat comical, it is actually all part of a newer branch of therapies called regenerative medicine, which has already seen regrown thyroid cells in mice models and recently researchers at Japan's Kyoto University announced they successfully grew human kidney tissue from stem cells. What the Japanese team was able to do was take stem cells and program them to act as any of the 200 different cell types in the human body - in this case, cells that are found in kidney tissue - and were able to replicate human kidney tissue.

Stem cell therapies, though growing rapidly, are still in their infantile stages due to years of government regulations barring stem cell research. However in March of 2009, with the Obama administration's executive order - Removing Barriers to Responsible Scientific Research Involving Human Stem Cells - the field of regenerative medicine has plowed forward with companies large and small developing new therapies to treat diseases like kidney failure, heart disease, and cancers. Below are three companies that I believe have potential in the coming year to be leaders in stem cell therapies and bring in gains for investors.

Baxter International, Inc. (NYSE:BAX) was actually one of the first companies to research potential stem cell therapies. In 2007 it began trials on CD34+ stems cells, which are normally found in the umbilical cord or in bone marrow. CD34+ stem cells were used in treating patients who suffered from chronic myocardial ischemia ((NYSE:CMI)), a most severe form of coronary artery disease, which causes significant long-term heart muscle damage and disabling the sufferer greatly. Baxter used the patients' own CD34+ stem cells, harvested from their bone marrow, with an aim to use the stem cells to repair heart tissue that was damaged due to lack of oxygen. On the heels of a successful Phase II study, which provided evidence that by leveraging the body's own natural repair mechanisms the treatments were able to improve exercise capacity and reduce chest pain in patients who exhausted other conventional treatment options, Baxter's CD34+ cell therapy entered its Phase III trial to evaluate the efficacy and safety of the cells to increase exercise capacity in 450 patients with CMI. These patients were considered the sickest of heart patients and experienced chest pain from even the slightest physical exertion. Interestingly, Baxter does not have a stem cell manufacturing division, so it turned to the top stem cell developer and manufacturer, Progenitor Cell Therapy (PCT), a subsidiary of NeoStem (NASDAQ:NBS), as its contract manufacturer for the Phase III stem cell trial.

Stem cell therapies are a very small part of Baxter's extensive pipeline of products. However, according to Baxter's CEO Robert Parkinson, who early on characterized the trials as a "wild card," if successful, the company's cell therapy would not only save lives, but also represent a $1 billion market opportunity. Baxter is a $37 billion market cap company, and enjoyed a 26% rise year-over-year in its stock. On Thursday, January 24th, the company reported 4th quarter earnings of $1.26 per share, meeting consensus estimates and up $0.09 over the same quarter last year. The company announced revenues of $3.75 billion, beating consensus estimates of $3.72 billion, and quarterly revenue rose 4.4% on a year-over-year basis. Baxter sees 2013 earnings of $4.60 to $4.70 a share based on 10% sales growth adding in its acquisition of Gambro AB, which is expected to close in the second quarter. On January 16th, in a research note to investors, BMO Capital Markets reiterated an outperform rating for Baxter with a target price of $75.00 per share. On January 21st analysts at RBC Capital also reiterated an outperform rating and a target price of $70.00 per share. Baxter closed Friday January 25th at $67.78 per share. I've been long on Baxter for some time, it is a profitable company with a low P/E ratio, has a good dividend, and has a strong pipeline of drugs on the market and in various stages of testing. I believe that for long term growth Baxter will continue to be a safe and profitable investment.

I look for big things from NeoStem this year due to its ownership of stem cell manufacturer and developer Progenitor Cell Therapy (PCT) plus its own ongoing trials of what could be two very successful and very profitable stem cell therapies being developed by the company's other divisions. The first is Amorcyte's PreSERVE AMR-001, which is in Phase I and Phase II trials for an autologous bone marrow-derived, CD34+ selected stem cell therapy designed to preserve heart muscle and prevent major adverse cardiac events following acute myocardial infarction (AMI). The trials utilize the patient's own bone marrow CD34+ and CXCR4+ cells that are then enriched using the company's patented process, to increase potency. The Phase I trial showed that AMR-001 preserved heart muscle function when a therapeutic dose of 10 million cells or more was administered, whereas 30% to 40% of patients not receiving a therapeutic dose suffered deterioration in heart muscle function.

If AMR-001 sounds familiar, it should - it's similar to Baxter CD34+ trials that NeoStem's PCT is currently manufacturing. Though similar, there are some differences: Baxter uses just CD34+ while AMR-001 uses both CD34+ and CRX4+ stem cells. The reason AMR-001 uses two types of stem cells comes from the understanding that when the body tissue is under ischemic stress a distress signal is induced in an attempt to rescue the damaged tissue, and this begins the process of mobilization not just CD34+, but also CXR4+ stem cells in an attempt to heal the damage. With the application of Baxter's therapy, the cells are injected directly into the heart, while with NeoStem's therapy the cells are infused into the infarct-related artery and mobilize the stem cells at the area of injury where they are needed. With the addition of CXR4+ stem cells and the infusion into the infarct-related artery, AMR-001 may actually be a more promising treatment.

In what might be a very exciting therapy that is in pre-clinical development, NeoStem is testing bone marrow stem cells that have properties that are similar to embryonic stem cells. Thus, these bone marrow stem cells are called very small embryonic-like stem cells (VSELs). NeoStem's team was able demonstrate that VSEL stem cells were able to regenerate bone in a mouse model, and progress has been noted with animal models in healing wounds. This is big news and NeoStem intends to utilize the similar advantages of embryonic stem cells that VSEL stem cells offer, but without the associated political baggage that embryonic stem cells carry. As noted earlier in the article, researchers at Japan's Kyoto University successfully grew kidney tissue from stem cells. VSEL technology also has the potential of developing stem cells that actually differentiate into the target tissue and can create real cellular regeneration. NeoStem expects to begin studies with the University of Michigan on VSEL technology in treating patients with periodontitis sometime in 2013.

A T-cell therapy is another interesting product being developed by NeoStem's subsidiary, Athelos. In an 80% - 20% partnership with the medical technology giant, Becton-Dickinson (BDX), the T-cell therapy is currently in two Phase I clinical trials. The first is for treating autoimmune conditions including asthma and type 1 diabetes. The second trial is for treating graft versus host disease - a complication that can occur after a stem cell or bone marrow transplant in which the newly transplanted donor cells attack the host's body. The T-cell therapy is designed to restore immune balance by enhancing T-regulatory cell number and function. Though in its early stages, if this stem cell therapy shows positive results it could be another possible strong product in development for NeoStem.

What I like about NeoStem is even though it is a small developing biopharmaceutical company with a market cap of $98 million, it acts like a much bigger company with its fingers in many different stem cell technologies along with a world class stem cell manufacturing and developing division. NeoStem is actually down year-over-year just over 16%, which to me puts the stock at an even more attractive purchase price. Revenues grew 98% in the first 3 quarters of 2012 compared to the same quarters of 2011. In November NeoStem completed the sale of its Chinese drug manufacturer, Erye, receiving $12,280,000 in cash while removing $30 million debt off its balance sheet and allowing the company to focus on what it does best - stem cell development and manufacturing. Though the company still operates at a loss, I foresee this company will continue to grow, especially if news on the various therapies continues to be positive. I am long on NeoStem and believe that at its current price of $0.61 per share the stock is an excellent entry price.

Cytori Therapeutics (NASDAQ:CYTX) develops cell therapies based on autologous adipose-derived regenerative cells (ADRCs) to treat cardiovascular disease and repair soft tissue defects. Unlike Baxter or NeoStem, Cytori's stem cell therapy utilizes the patient's adipose tissue-body fat cells. Body fat is one of the richest cell sources, and through Cytori's patented and proprietary Celution system, the company claims it can make the patient's cells available in real time. Cytori has two clinical trials using its Celution technology. The PRECISE trial consists of 27 patients who suffer from CMI. The 18-month data was able to demonstrate a statistically significant improvement in cardiac functional capacity and a lower cardiac mortality in cell-treated patients. The second is the APOLLO trial for AMI. In reporting the trial's 18-month outcome results from the 14 patients, results showed a consistent, substantial reduction in the size of injury to the heart and improvement in the amount of blood the heart could pump.

Cytori, a $160 million market cap company, saw its stock rise considerably in September 2012 to $4.94 per share when the company announced it was awarded a contract with the US Department of Health and Human Services' Biomedical Advanced Research and Development Authority. The contract, which guarantees $4.7 million over two years, is for developing a cell therapy to treat thermal burns combined with radiation injury, and is focused on evaluating and creating a new countermeasure for thermal burns following a mass-casualty event. In total the contract is worth up to $106 million. However, in mid-December when the company announced a public offering of 7,020,000 shares of its common stock at $2.85 per share, the stock quickly worked its way back down. On Thursday, January 24th, Cytori closed at $2.72 per share. Clearly the stock rose on over-exuberance stemming from the government contract only to come crashing back down to realistic numbers, which was factored in with the public offering. I think the stock now has a good entry price, and if its stem cell products continue to show progress I can see the stock testing its previous highs at some point this year.

According to BCC Research, in 2011 the global stem cell market was valued at $3.8 billion. By 2016 it is projected to be a $6.6 billion market. The report also pointed out that the stem cell market is still at an early, experimental stage, with one main exception: The use of stem cells taken from a patient's own bone marrow to treat diseases, which BCC Research called bone marrow therapy, is well established. I point that out because the two companies that I believe have the most potential for success and profits are already using bone marrow derived stem cells, Baxter and NeoStem. Baxter is by far the safer bet of the two; it is a well-established company. But if one wants a higher risk/reward option, NeoStem would be the company I would choose.

Source: Profit Growth On The Horizon For Investors Of 3 Companies Advancing Regenerative Medicine