Seeking Alpha
Long/short equity, research analyst, biotech, healthcare
Profile| Send Message|
( followers)

Penny bio stocks are in many ways like lottery tickets, especially for investors lacking a strong scientific background. A common theme among these stocks is for management to promise investors that their developmental drug candidate(s) will radically alter the medical landscape, whereby generating multiples of billions in future revenues. At the same time, the management teams of penny bios all too often mislead investors into believing that massive dilution isn't a concern because they have secured grant monies, private funding, or similar non-dilutive sources of funding. And the story generally ends with the company diluting shareholders after a short run-up in the stock (see e.g.s, ACTC, HEB, INO, etc.), despite their previous statements to the contrary.

Nevertheless, investors still flock to penny bio stocks because they have the potential to double or even quadruple in a short period of time. With this in mind, I would like to bring the stem cell stock Neostem (NASDAQ:NBS) to the attention of speculative biotech investors, and discuss the scientific merits of their Amorcyte clinical program (AMR-001). I believe Neostem has clearly set itself apart from other penny biostocks from both a business and a scientific perspective, which has already been touched on by a number of previous articles. Even so, there has been a dearth of articles giving an in-depth overview of Neostem's Amorcyte program for the treatment of cardiovascular disease, which will be the primary value driver for the company over the next 2-3 years.

Indeed, I would venture that the failure of this particular clinical program would severely hamper the company from raising funding for their other cell-based therapies. As such, it is critical for investors to have clear understanding of the relevant scientific basis for why Neostem has decided to lead its pipeline with the development of AMR-001, and the prospects for AMR-001's clinical success. In this article, I provide an overview of Neostem's Amorcyte program, and then discuss why Neostem will likely be amongst the first in the stem cell sector to monetize this revolutionary technology.

Amorcyte Program

Amorcyte is a clinical development-stage cell therapy company focusing on novel treatments for cardiovascular disease. Its lead product candidate, AMR-001, for the preservation of heart muscle function and the prevention of major adverse cardiac events following acute myocardial infarction, has completed Phase I clinical trials demonstrating feasibility, safety and biologic activity at a threshold dose. This is the first prospective stem cell trial in AMI ever conducted that has established a significant relationship between dose and effect. Amorcyte began patient enrollment in 1Q-2012 for a Phase II clinical trial designed to show the therapy's potential to improve perfusion, preserve cardiac function and prevent adverse clinical outcomes. Results are expected in the second half of 2013.

Market Opportunity

Approximately 800,000 events of acute myocardial infarction occur in the US each year and, despite all of the advances in medicine and intervention, about 20% or approximately 160,000 patients have a ST-Elevation MI (STEMI) resulting in a reduced Left Ventricular Ejection Fraction (LVEF) of less than 50%. That means 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, and are the target population for AMR-001. This population represents an accessible market of over $1.2 billion annually for AMR-001.

Prior Clinical Studies Strongly Favor a Positive Clinical Outcome for AMR-001

Some of the most compelling evidence that AMR-001 will eventually see its way through the perilous clinical trial process comes from a number of meta-analyses for similar types of trials. A recent meta-analysis of randomized controlled trials by Clifford et al. 2012 showed, for example, that stem cell treatment significantly improved left ventricular ejection fraction (LVEF) (WMD 2.87, 95% CI 2.00 to 3.73) over the short-term in patients suffering from AMI. Moreover, this improvement in LVEF was maintained over the long-term of 12 to 61 months (WMD 3.75, 95% CI 2.57 to 4.93). Even so, this study failed to find a statistically significant improvement in mortality, which the authors suggest could be the result of large heterogeneity in terms of the methods or patient populations used by these studies. Interestingly, several additional meta-analysis over the past six years have come to similar conclusions, i.e. bone marrow derived stem cells do have a clinical benefit in terms of improving global heart function over the short and long term. Why this improvement in heart function is not associated with a subsequent decrease in mortality is still an open question.

Another interesting study that bodes well for AMR-001 is Assmus et al. 2009. This study performed a two year follow up on 204 patients enrolled in a double-blind, placebo - controlled multicenter clinical trial designed to assess the clinical outcome for intracoronary administration of autologous progenitor cells in patients with acute myocardial infarction (AMI). The main takeaway from this study was that at two years myocardial infarction or necessity for revascularization was significantly reduced in the group treated with CD34+ compared to placebo (HR 0.58; 95%CI 0.36 - 0.94, p = 0.025). Moreover, the recurrence of myocardial infarction and rehospitalization for heart failure was significantly reduced in the treatment compared to the placebo group (HR 0.26; 95%CI 0.085 - 0.77, p = 0.015). Simply put, CD34+ cells showed a clinically relevant benefit for patients that had suffered an AMI, and this result is particularly important because the trial size and design is highly similar to what a Phase III trial for AMR-001 would look like (i.e., double-blind, placebo-controlled).

Conclusion

In sum, the previous clinical data strongly supports a positive outcome for AMR-001, and this is likely the reason why Neostem has decided to lead its cell-therapy pipeline with AMR-001 in the first place. In effect, the company has already seen the exact same approach work in a number of randomized trials, and even in a double-blind, placebo-controlled trial performed at multiple centers. Neostem's management therefore has the benefit of this large database to feel confident that AMR-001 will eventually reach the commercialization phase of its lifecycle, and investors should share their confidence based on these published data. Indeed, there are few drug candidates in recent memory that have provided investors with such a promising preview of the road to come. Overall, I believe the evidence thus far clearly points to bone marrow derived stem cells becoming an integral part of the standard care for AMI patients, and potentially for heart disease patients in general. Neostem is therefore grossly undervalued at current levels, and should really start to make a nice move northwards as the Phase II trial for AMR-001 progresses.

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

Source: Will AMR-001 Lead Neostem To The Promised Land?