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NeoStem (NASDAQ:NBS) is a dynamic company with impressive growth due to an increasing customer base and revenue via its Progenitor Cell Therapy (PCT) division. PCT is a contract development and manufacturing organization (CDMO) with manufacturing, regulatory, and commercialization expertise for stem cell and immunotherapy therapeutics development. The division has been experiencing solid growth and revenue with the potential to really turn heads once any of its manufactured products garners a regulatory approval. This regulatory approval would necessitate larger scale commercial level manufacturing rather than the smaller scale clinical trial production runs it has largely manufactured products for in the past. While awaiting the breakthrough product approval and large volume scale-up in the PCT division, NeoStem is also making great strides in its Amorcyte division's AMR-001 stem cell therapy. This therapy is expected to complete enrollment in a phase II trial evaluating its effectiveness for the treatment of damaged heart muscle following acute myocardial infarction (AMI).

Untouted But Not Forgotten:

While the PCT and Amorcyte divisions have been in the spotlight, and the company's own VSELs have been garnering attention as well, I believe huge potential exists in the company's almost-forgotten Athelos division. On July 15th, NeoStem announced a collaboration with the University of California, San Francisco and the laboratories of Jeffrey Bluestone, PhD, and Qizhi Tang, PhD, for the development of human regulatory T cells (termed Tregs) for the treatment of type 1 diabetes (T1D) (with 340 million diagnosed worldwide), steroid resistant asthma (affecting over 60 million worldwide) and organ transplant rejection (in the U.S. 11,579 organ transplants were performed in the first 5 months of 2013). With little fanfare, share price was virtually unchanged, and the news appears to have been largely ignored. However, I believe investors and even the healthcare sector should pay a bit more attention to the collaboration as evidence of success in these indications could rapidly begin turning heads in the near future.

Although the human immune system has a significant function in fighting disease, it can often go awry and cause issues such as autoimmune diseases, sepsis and inflammation. Regulatory T cells are an important part of our immune response as they help to mediate and even suppress immune response. If properly utilized, it is believed that this type of immune suppression can be utilized to regulate and even cure autoimmune diseases such as type 1 diabetes, multiple sclerosis, rheumatoid arthritis and a host of other diseases in which the immune system appears to have a difficult time distinguishing between normal, healthy tissue and diseased tissues or pathogens that it is designed to attack. Although there is currently not an FDA-approved therapy utilizing regulatory T cells, I believe NeoStem's expertise in stem cell therapy, particularly in the PCT CDMO facility, helps give it an added advantage over much of the industry.

A May 9th letter to shareholders from CEO, Robin Smith, mentioned the Athelos division and its likely Tregs indications including graft versus host disease (GVHD), type 1 diabetes and multiple sclerosis. Noteworthy in the announcement was the statement "Phase I work is ongoing globally under several independent physician INDs, including Dr. P. Trzonkowski, Dr. Jeffrey Bluestone and Dr. Rob Negrin, results of which will inform NeoStem's future clinical direction." With this in mind, proof of concept and a possible affirmative safety profile may be inferred with the subsequent July 15th announcement of plans in place to tackle the type 1 diabetes indication, steroid resistant asthma and organ transplant trials via phase II and phase Ia/IIb clinicals in the near future.

Investment Catalysts:

NeoStem already has an exciting future ahead with significant catalysts abounding due to increasing contracts in its PCT division. Each of these contracts has the potential to capture one of its manufactured products a regulatory approval which could provide for dramatically increased sales over its largely clinical-trial scale contracts it currently holds. Although it would be tempting to attempt to time an investment for the potential share price run up to a regulatory decision, significant catalysts in the form of surprise contracts or contract extensions as well as evidence of increasing growth in the division could be large share price movers once announced and positively affect share price before such a share price run up is anticipated. Enrollment completion in Amorcyte's AMR-001 for the treatment of damaged heart muscle following AMI will also be a significant catalyst with additional investor interest increasing up to the date of the expected topline data 6-8 months after the last patient is enrolled according to the letter to shareholders.

Each of the aforementioned potential catalysts for the imminent or near future should continue to garner attention for NeoStem. I believe much additional share price upside is possible due to the highly underexposed and untouted Athelos division pipeline. It is my opinion that phase II initiation in either of the Treg targeted indications could provide for tremendous interest with enrollment announcement, interim data, enrollment completion and topline data all significant share price catalysts. The company will be targeting largely unmet and significant areas of need, with significant potential with real or perceived success in the interim.

Financials:

NeoStem reported out its Q2, 2013 financials on Thursday, August 8th. The company reported out 3 and 6 month's revenue as of June 30th of $4.4 million and $6.9 million with net losses in the same period of $8.6 million and $17.5 million, respectively. NeoStem ended Q2 with $14.7 million in cash and recently added to that cash position with an additional $3.9 million through warrant exercises and issuance of stock as announced on June 30th. An 8K worthy of deeper review, I implore interested investors to view the contents closely in order to ascertain the company's potential in their portfolios. A dynamic company, Q2 events mentioned included but were not limited to:

  1. Enrolled 120 patients in the AMR-001 phase II trial evaluating its potential to repair heart damage after AMI with enrollment completion in 2013.
  2. The aforementioned collaboration agreement for the development of the company's regulatory T cells for the treatment of type 1 diabetes (the steroid-resistant asthma indication was mentioned in the release as well, but not singled out in the "Important Highlights and Developments" portion of the PR).
  3. 1-for-10 reverse stock split and subsequent uplisting from NYSE to the NASDAQ exchange.
  4. New executive vice president and chief medical officer.
  5. The PCT division contracted with two new clients, including an un-named "large pharmaceutical company" entering the cell therapy sector (revelation of which company this is could also be construed as a potentially significant catalyst).
  6. Expanded the international patent portfolio which the company states could accelerate commercialization (once approved) and increase regional partnering (licensing/sales) opportunities.

Like most development-phase pharmaceuticals, NeoStem certainly runs the risk of failure in any of its current or upcoming trials. I believe the company's current $141 million market capitalization as of market close on Monday, August 12th is a value for current entry in this author's opinion. NeoStem's PCT division, although not yet offsetting costs the company incurs as a result of clinical trials and other events underway, appears to be on the cusp of obtaining additional contracts for clinical-trial level product manufacturing as well as the potential for commercialization level production in the future. This potential revenue gives the company added appeal for investors a bit wary of investing in companies of this valuation with no current-approved product for marketing. Multiple expected and unknown catalysts lie in wait and could significantly impact share price with the downside protected a bit due to the more stable PCT division. I advise much additional research into this promising company before opening any type of investment position. The months and years ahead could reap huge rewards for investors if events unfold as I expect them to in each or any of its dynamic divisions.

Source: NeoStem's Athelos Could Begin Garnering Attention