2012 Stem Cell Standouts And The Outlook For 2013

Includes: CLBS, OSIR, PSTI
by: The Swiss Trader

The year ahead looks to be promising for the emerging stem cell therapy companies. With an exciting year behind it with multiple promising press releases, positive data presented and even the first official regulatory approval for marketing, I believe the sector has proven itself to be investment worthy with not quite as much risk or speculation as in the past, although there is much work yet to be done in trials. There are three standout companies that I believe have promising therapies that deserve additional research for their potential. Below are summaries of promising companies that had a great year behind them. In each section, I have expressed my own opinion as to the company's investment potential, but I recommend readers doing additional research to confirm or deny my own personal conclusions.

NeoStem (NBS) announced the extension of intellectual property protection for its lead product candidate, AMR-001, with the issue of U.S. patent number 8,343,485 with the title of "Compositions and methods of Vascular Injury Repair." The company advises that this is the third U.S. patent for AMR-001 and protects "further expansion of its CD34+ chemotactic stem cell product composition claim as well as method of sourcing and administration of cells claims." AMR-001 is being developed at Amorcyte, LLC, which was acquired by NeoStem in October 2011. Amorcyte is working on a cell therapy for cardiovascular disease treatment and has begun enrolling patients in a Phase 2 trial to investigate the efficacy of the treatment in preserving heart function after a heart attack has occurred. The company's website states that roughly 800,000 myocardial infarction events occur in the United States annually and, despite all the progress in medicine, around 20% or 160,000 patients have an ST-Elevation MI (STEMI) resulting in a reduced Left Ventricular Ejection Fraction (LVEF) of less than 50%. It goes on to explain that "their MI was big enough and their heart so damaged that the remaining heart muscle could not compensate for the damaged heart tissues and, over time, the hearts starts to fail. These patients are at significant risk of downstream adverse events including congestive heart failure, re-current MI, significant arrhythmias, premature death or acute coronary syndrome." This is the target market for AMR-001, and it presents a market opportunity in excess of $1.2 billion annually for the treatment.

The solution for the problem, according to the company, should "improve microvascular density (perfusion) to rescue at-risk cardiomyocytes from hibernation and apoptosis, preserve heart muscle function, prevent downstream MACE and improve QOL & longevity." The website goes on to explain that after STEMI, adverse left ventricular remodeling results in an average medical burden of over $50,000 per patient, per year of life. If the patients LVEF declines below 40%, then the cost per year escalates for the balance of the patient's lifetime. AMR-001 can prevent the decline in LVEF, and limit adverse left ventricular remodeling with its negative consequences. This will allow the company to earn strong margins while simultaneously reducing healthcare costs substantially. NeoStem is preparing to evaluate ARM-001 via a Phase I clinical trial to treat congestive heart failure (CHF), which affects over 5 million people in the U.S., with an addition of 550,000 patients every year. Patient enrollment for the Phase I trial is projected to commence in 2013. Because of the very large target patient market, this would mean quite a significant market for AMR-001. Positive results announced from the trial would be a strong catalyst for the stock price, which gives investors more data to look forward to. In a sector in which stock price is driven by "potential targeted market size" or "percent chance at meeting its primary endpoints," the additional trial should help keep the company's investors interested and gives the company's pipeline some additional diversity to guard against the downside risks associated with a single indication pipeline.

In addition to the potential of AMR-001, there are other good reasons to consider an investment in this company. Unlike many other early-stage development companies, NeoStem generates stable and consistent revenues from its Progenitor Cell Therapy (PCT) contract development and manufacturing organization (CDMO) business. This division provides a range of services for the design and development of cell therapy products (CTPs) by other companies. Thus far, the PCT business boasts more than 100 satisfied customers over the last 12 years, and the division could earn substantial revenue streams from products that are successfully commercialized. This reduces the risk of the investment and, if you are looking for a promising biotech stock, you should give this one serious consideration. Fundamentally the company appears strong with a growing revenue stream quarter over quarter and a solid cash position.

Osiris Therapeutics (NASDAQ:OSIR) rewarded investors well in 2012. Earlier in the year, it became the first company to obtain approval for a product with a stem cell therapy as the main component. However, a sober look at the company reveals less cause for optimism in the future. I believe that the market has been overly optimistic and that there are significant investment risks. I would certainly look elsewhere for more promising stem cell plays. Osiris has developed its cell therapy product, Prochymal, and received approval in both Canada and New Zealand for the treatment of graft-vs-host disease (GvHD) in children. With biosurgery and therapeutics being the company's two business divisions, Osiris does not boast impressive numbers. The company's biosurgery business generated just over $2 million during its last quarter and should generate only about $15 million during 2013. Certainly, this is not the business that drives investor sentiment and the current market capitalization.

The valuation of the company more than doubled upon Prochymal's approval because of the expectation of significant revenues, and it would be fair to conclude that most of the valuation is due to Prochymal. However, the expectation seems to be unrealistic if you consider the size of the market and the incidence of graft-vs-host disease (GvHD) in children in New Zealand and Canada. The Office of Rare Diseases classifies GvHD as a rare disease, and a disease is considered rare when it affects only 1 per 2,000 people. The occurrence of GvHD is about 1-9 out of 100,000 people. With an approval only for children and for two countries with a combined population of fewer than 40 million, one can easily gather that Prochymal's market potential has some major limitations. The numbers will restrict the potential eligible patients to somewhere between 1,000 and 3,500, even with the most favorable assumptions. Revenues for 2013 are unlikely to exceed $30 million.

Osiris concentrates on developing stem cell treatments that produce the equivalent of living skin because of the capability of stem cells to grow into any type of cell. Because of this ability, stem cell treatment has the potential to be used for a wide range of applications, from treating chronic wounds or burns to bone tissue repair and skin grafts. The company uses what are called adult "mesenchymal" stem cells that are suitable for the creation of living skin because these cells can be treated like blocks from a Lego set and rearranged into a number of different types of cells. However, this is well in the future and cannot compensate in the short term for the disappointing potential of Prochymal. The other problem that I can see is a financial one and concerns over the availability of cash. The company has a yearly cash burn rate of around $20 million, and it currently has $41 million compared to $60 million in the previous year. Fundamentally the revenue potential in approved markets cannot sustain the growth figures in share price that investors enjoyed last year. All in all, this is a stock that you should avoid buying at this point in time, in my opinion.

Pluristem Therapeutics (NASDAQ:PSTI) is a developer of placenta-based cell therapies. Its patented PLX (PLacental eXpanded) platform is a drug delivery system that delivers therapeutic proteins to treat a range of local and systemic inflammatory and ischemic diseases. PLX cells are grown with the help of its proprietary 3D micro-environmental technology and require no tissue matching before administration. The PLX cells are administered locally to treat systemic diseases, and eliminate the need to use the intravenous route.

Pluristem recently announced that the Paul-Ehrlich-Institute (PEI), the medical regulatory body for biological medicinal products for Germany, has approved the company's request to begin a Phase 2 study using PLX-PAD cells to treat patients suffering from Intermittent Claudication (IC). IC is a type of Peripheral Artery Disease (PAD) caused by atherosclerosis of arteries in the lower extremity with accompanying symptoms including muscle pain, aching, cramping, numbness or a sense of fatigue in the calf muscle during exercise. With total incidence in the US of roughly 14 million patients, U.S. cost due to IC is roughly $2.5 billion in terms of immediate healthcare costs alone, not to mention incidental costs such as lost work time or productivity. According to the company:

"Pluristem's IC Phase II is a randomized, placebo-controlled trial that will evaluate the safety and efficacy of two doses of PLX-PAD cells versus placebo, administered via intramuscular injections. The study protocol is comprised of approximately 150 patients with IC: Fontaine class IIb, Rutherford category 2-3. The primary efficacy end point of the trial is the change in the maximal walking distance from baseline during an exercise treadmill test. Secondary endpoints are hemodynamic and quality of life measurements. Safety parameters are also being assessed."

The company has also recently announced that it has taken possession of its new state-of-the-art facility after starting the process of product validation in January 2013 and is shifting its manufacturing process to this location. The new facility will enable the company to produce large quantities of PLX cells using its patented 3D bioreactor technology. In addition, the new manufacturing facility will allow the company to produce different PLX candidates with the capability of producing over 150,000 doses every year. Pluristem develops and manufactures cell therapy products in collaboration with companies like United Therapeutics (NASDAQ:UTHR) or with research and clinical institutions. PLX cells can be used to support bone marrow transplantation and in treating bone marrow suppression caused by radiation and chemotherapy. However, much clinical work needs to be completed to validate the PLX platform. Pluristem appears to have a solid technology platform and a sizable market to capture, but the regulatory hurdles and clinical trials are still in early stages.

Because of the high investment risk associated with the startup of the new manufacturing facility, I would not recommend a buy until investors have seen the facility fully validated and have seen more tangible evidence of growth potential from the company's investment in the facility. I would rate Pluristem as a "hold but watch closely," and recommend investors watch for more company developments before risking capital.

Disclosure: I am long NBS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.