High But Well-Managed Risk, This Company Is One To Watch Out For

Apr.28.13 | About: BioTime, Inc (BTX)

BioTime (NYSEMKT:BTX) initially grabbed my attention because of its steadily rising stock, and then kept me hooked by revealing the clever management of a risky venture. Being in the stem cell business involves uncertainty anyway, but to be associated with human embryonic stem cells brings with it more challenge and risk. BioTime realizes the need for lots of research in the stem cells area and dissemination of disease-related information, and is involved in furthering such activities apart from developing therapeutics. As far as developing treatments is concerned, the company is attacking diverse disorders at the same go, while keeping itself protected from risk as far as possible.

Company with a pioneer and visionary at the helm

Michael D. West, Ph.D., has been serving as the CEO of BioTime since 2007. He is a stem cell pioneer who visualized the potential of stem cells in curing several people with various diseases, especially those associated with aging. He sponsored the first-ever harvesting of stem cells from an embryo.

However, as he mentions in an exclusive interview to Life Extension Magazine in November 2003, he realizes the sort of controversy-ridden field he is working in. There is opposition from the religious community because the use of stem cells, especially embryonic stem cells, seems equivalent to religious blasphemy to many people. However, Dr. West, in an attempt to dispel the notions of such people, explains that the human embryonic stem cells come from the embryo when it is simply a ball of cells that has not attached itself to the uterus and has not begun to develop. Also, the cells have "potential immortality" in the sense that these cells are not programmed to age and can replicate indefinitely.

What the company does

BioTime is involved in developing treatments in the field of regenerative medicine, which is basically repairing and regenerating the tissues in the human body that have been damaged due to age-related diseases. Their scientists have been and are currently involved in research pertaining to embryonic stem cells, adult stem cells, induced pluripotent stem cells, and therapeutic cloning.

The company not only works on developing treatments to disease, but also provides products that other institutions and companies can use for research purposes. The company has a wide variety of stem cell lines, hydrogels, culture media and differentiation kits, as well as a human gene database and a human disease database that the company markets to the scientific community.

The company's business model

BioTime's business model is what strikes me as most impressive. The company is involved in a high-risk venture with uncertainty not only surrounding the efficacy of its products but also the public acceptance of the therapies it is trying to develop. However, they have figured out ways to keep their revenues coming and protecting their business from risks.

It is interesting that the company has decided to sell products that help with research in the stem cells area. Additionally, the company makes available to the market its products called GeneCards and MalaCards, which are databases on human genes and human diseases, respectively. To me this shows that the company realizes and wants to contribute to the great deal of research required in this field. Commercially, being in the business of providing stem cell lines and other research products gives the company a relatively steady source of income. It also allows it to market certain saleable products that it creates in the course of developing stem cell therapies.

Along with providing research products, the company also develops therapies in various specialties such as neurodegenerative diseases, cancer, cardiovascular diseases and orthopaedic ailments. However, these therapies are not developed by BioTime, the parent company; instead, there are subsidiaries for each of these specialties, which focus on the specialized treatments. Since using stem cells to develop these therapies brings with it unique challenges and risks, I think it is wise that the company has created subsidiaries for each specialty. The various subsidiaries include OncoCyte, OrthoCyte, ReCyte, ES Cell International, CellCure and LifeMap.

The creation of subsidiaries keeps the parent company safe from the failures, liabilities and risks that come along with the research and marketing of therapies in each of these separate disease areas. Also, the consequences of major failures at one therapy division do not directly impact the others. The management at each of the subsidiaries work independently and with focus in a single area. BioTime would also find it easier to sell off any off any of the unprofitable subsidiaries at any time, than it would a division of the parent company. The legal, and financial advantages available, all make the formation of subsidiaries a wise choice on part of BioTime in managing its business.

Financials

This $194.6 million company has a long way to go before it transitions to profit, but the company is on the right track towards making it happen. The company's revenues have increased in general over the years, however, operating expenses have also been on the rise. The company's total revenues for FY 2012 have been $3.9 million, which is an 11.7% decrease from last year. Much of the revenue decrease has been due to a decrease in sales of blood volume expanders in the U.S. The company states that in the near future it will depend upon the revenue from the sale of their research products, database subscriptions and advertising revenues, royalties from the sales of blood volume expanders, and research grants as their main revenue sources. During 2012, BioTime received $4,253,474 of cash in their operations from royalty revenues, research grant payments, sale of research products, subscription and advertisement revenues and foreign grants.

Conclusion

BioTime is a company with a great vision and the scientific expertise as well as commercial sense required to make it a success. The company's stock rose recently with the news of the UCLA partnership for development of stroke treatment, and the collaboration with Appistry for marketing reports containing GeneCards and MalaCards data to clinicians and researchers.

Overall, the likelihood of success of stem cell therapies is yet to be determined, but the current level of information certainly suggests that there is a great deal of promise in them. BioTime is not only focused on marketing therapies, but also increasing the research done in the field of stem cells. This would help in speedier education and acceptance of the stem cell therapies by people as they hear and learn more about the field. In my opinion, this company has the potential to become a long-term winner and should be within any biotech investor's radar.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.