NeoStem: A Stem Cell Leader Making All The Right Moves

Aug. 5.13 | About: Caladrius Biosciences, (CLBS)

I have tried to share my enthusiasm about stem cell therapy and the companies pioneering the use of stem cells in medicine, but aside from my love of the science, it has been hard to justify investing in the cause. A study of NeoStem (NBS) and their business model seems to offer more than just hope for the scientific community and after finding out more, investors might want to take notice. Like so many, I have a personal interest in stem cell therapy and despite many critics in the scientific and investment communities, I remain hopeful after reviewing NeoStem.

What separates NeoStem from other stem cell companies that I have written about in the past? There are several key areas where NeoStem separates itself from the crowd of the likes of ACT (ACTC.OB), Neuralstem (NYSEMKT:CUR), Pluristem Therapeutics (NASDAQ:PSTI), or even Osiris Therapeutics (NASDAQ:OSIR). NeoStem, like so many in this field, has so much more ground to cover and trials to get through, but it is their approach to manufacturing, research and promotion of the field as a whole that seems to set them apart.

The Vatican Relationship

What makes NeoStem's relationship with the Vatican so profound? There has been an ethical dilemma ongoing in the world for supporting stem cell therapy and NeoStem's endorsement by the Vatican validates the company's practices and procedures as being culturally acceptable. This traditional institution with about 1.2 billion members worldwide has long been slow to adapt to change and that makes this endorsement a big deal for NeoStem. Since NeoStem is involved in the manufacturing of cellular matter in addition to the use of it in research, this establishes the company as an ethical leader of the field.

Monsignor Tomasz Trafny, Vatican spokesman, alluded to the strict requirements the Vatican had in selecting a partner in this crowded field. He noted that NeoStem has never used embryonic stem cells, had a willingness to share knowledge and allow access to its labs, and has demonstrated an interest in cultural issues, which all were of great interest to the Vatican. The Vatican and Stem for Life Foundation collaboration also came with $1 million in funding and the potential for more in the future.

The Vatican has also included NeoStem in its annual "International Adult Stem Cell Conference: Regenerative Medicine -- A Fundamental Shift in Science and Culture" to help promote stem cell research. Although some scientists questioned the format and content of this conference, the goal of raising awareness for the validity and social acceptance of stem cell research continues to be the overall theme and goal which can often be overlooked.

Progenitor Cell Therapy (PCT)

Revenue in this field is not easy to come by and NeoStem not only generates revenue through Progenitor Cell Therapy, but has been increasing its revenue as well. PCT is NeoStem's manufacturing and contract development services arm that looks to provide others in the field with an economic supply of cellular material and knowledge of good manufacturing practices (GMPs). PCT uses these GMP guidelines to manufacture dendritic cells, stem cells and T-cells for use in stem cell therapy procedures within the scientific community.

PCT generated over $2.5 million in revenue during the first quarter of 2013, and according to one optimistic analyst, Vernon Bernardino of Brinson Patrick Securities, this figure could reach over $15 million in this current year. NeoStem has recently initiated PCT service agreements with Sentien Biotechnologies, Inc., ImmunoCellular Therapeutics (NYSEMKT:IMUC), Hackensack University Medical Center (John Theurer Cancer Center), MedStar Georgetown University Hospital and SOTIO (initiated late 2012) for development of stem cell material or cellular therapy services. Of equal importance are existing contracts with companies entering later stages of trials that will require more material and further increase PCT's revenue.

As stem cell therapy continues to evolve, PCT's advantages of lowering NeoStem's research costs and providing revenue from the competition, becomes more pronounced. The ethical stamp of approval from the Vatican helps strengthen PCT's role as a supplier. The revenue potential is not too bad either. According to NeoStem CEO Dr. Robin Smith, the potential marketplace from contract manufacturing could one day exceed $5 billion in a marketplace where PCT is already an established leader.

Lead Candidate, AMR-001, Has Huge Potential

PCT might lay the foundation to NeoStem's future, but the Amorcyte program is what might be of greater interest to investors. NeoStem's lead cellular therapy candidate, AMR-001, is currently in Phase II trials for the repair of heart muscle following acute myocardial infarction (AMI) or heart attack. Current statistics show that there are about 800,000 events of AMI that occur each year in the U.S. alone, and poor diets, stress, and lack of exercise only seem to be capable of pushing this figure higher. In about 20% of these cases, heart muscle is damaged enough to lead to further heart complications and even complete loss of function or death. AMR-001 is a stem cell therapy that repairs heart muscle and restores heart muscle function. Clinical data has been extremely positive and the potential marketplace for AMR-001 is estimated at $1.2 billion annually.

Currently, NeoStem's Phase II PreSERVE trial for AMR-001 has enrolled 108 patients. NeoStem is treating patients who have suffered a heart attack or AMI and is also testing AMR-001 for cases of vascular injury and vascular insufficiency. NeoStem is expanding coverage to include ischemic conditions like congestive heart failure and traumatic brain injury. Thus far, no patients have exhibited a deterioration of heart function following a maximum dose of 10 million cells and there is plenty of research to support a successful outcome with AMR-001.

Baxter Healthcare (NYSE:BAX), a PCT client, has a similar therapy in Phase III trials and additional support comes from Clifford et al. 2012 trials that show significant improvements in short and long term left ventricle ejection fraction following stem cell therapy in AMI patients.

VSELs and Athelos T-cell Programs Are Long-Term Drivers

Very small embryonic-like cells have become a target of criticism from many in the scientific community, with critics questioning the cells' ability to become pluripotent or differentiate into different cellular germ layer lineages. This essentially brings into question their capability of offering hope in the field of regenerative medicine.

It is worth noting that in 2012, the prestigious Nobel Prize in Physiology and Medicine was awarded to John B. Gurdon and Shinja Yamanaka for discovering that mature cells could become pluripotent. Another study by a group of mostly Yale University School of Medicine researchers found that VSELs from the murine bone marrow could differentiate into epithelial cells of the lung. There is plenty of evidence to support VSELs and their effectiveness, and NeoStem's Chief Medical Officer, Dr. Andrew Pecora, remains unfazed:

'We encourage the critical review being done by independent laboratories to define the pluripotent potential of VSELs. We respect and acknowledge the call for more definitive assessment of the biologic properties of VSELs. Independent investigators in preclinical models have demonstrated the regenerative potential of VSELs. We will continue to support preclinical and early clinical studies to further assess the regenerative potential of VSELs,' said Dr. Pecora.

Although NeoStem has faced plenty of criticism for going through with VSELs research at this early stage, the approach is of optimism and acceptance of the risk in order to advance the field. Funding from the National Institute of Allergy and Infectious Diseases (NIAID) for treating cases of radiation exposure helps strengthen their resolve. NeoStem also has many patents for VSEL isolation and purification to give them even more of a reason to further VSELs research. NeoStem is currently studying VSELs in five areas for regenerating tissues, potentially treating macular degeneration, liver regeneration and bone regeneration in addition to the NIAID studies for treating exposure to radiation.

The Athelos T-cell program is aimed at treating a wide range of immune mediated diseases by acting to increase the number of T-regulatory cells in order to achieve immune balance in patients. The Athelos program is concentrating on treating graft vs. host disease, Type 1 diabetes, multiple sclerosis and allergic conditions that result from T-cell imbalance. NeoStem recently entered a collaboration with the University of California San Francisco to develop regulatory T-cells for the treatment of Type 1 diabetes, steroid resistant asthma and organ transplant rejection. NeoStem already holds the exclusive rights to 21 issued patents related primarily to methods of isolating, purifying, and expanding T-regulatory cells.

The Company Has Solid Guidance

NeoStem added Stephen Potter to its board of directors in February and just recently appointed him executive vice president of the company -- former senior vice president of operations and corporate development for Osiris Therapeutics -- and also added Dr. Douglas Losordo, who developed Baxter's cell therapy product, to NeoStem's Scientific Advisory Board. CEO Dr. Smith was recognized as a finalist for the Ernst & Young Entrepreneur of The Year Award for 2013 in the New York region and has been at the helm for over seven years.

Analyst coverage so far appears to be positive as NeoStem recently received an upgrade from conservative Aegis Capital with a buy rating while Brinson Patrick Securities has already initiated a buy with a high price target on NeoStem's shares. Aegis Capital considers NeoStem to be an undervalued play based on the strong potential of its four different platforms. The recent switch to the Nasdaq stock market and reverse split only help better position NeoStem's stock for the long term. The switch to Nasdaq helps enhance exposure, especially to institutional shareholders, according to Dr. Smith.

Financial Position and Outlook

NeoStem has about $20 million in cash to advance its agenda and recently completed a stock offering with an overallotment option. The first quarter of 2013 did produce a loss of about $6.2 million (excluding non-cash charges), but PCT revenues keep increasing and should eventually catch up with the cash burn. As with most biotechs, the trials take time and cost money and dilution can be a major concern. NeoStem does have a good deal of funding to help out with research and carries a modest amount of debt ($3.69 million), so the position might not be solid, but is better than many in this field.

NeoStem has plenty of value to offer investors with PCT, VSELs technology, AMR-001 and the Athelos T-cell program. Stem cell therapy is still a risky play, but NeoStem appears to be set up for the future as stem cell therapy evolves. The greater risk seems to be stem cell therapy itself, but the Vatican endorsement helps pave the way for further understanding with governments and concerned citizens about the benefits and value of these therapies. Despite all the risk, NeoStem has some strong drivers for future growth and has done the right things to warrant some consideration from investors. If you have the tolerance for risk and are looking for a leader in this field, you might want to add NeoStem to your watchlist.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NBS over 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.