(Editors' Note: This article covers micro-cap stocks. Please be aware of the risks associated with these stocks.)
Yesterday, the NASDAQ Biotechnology index (NBI) dropped 3% in reaction to the sell-off in the broader market. Even larger, more stable pharmaceutical companies (those valued at $10B or higher) were down an average of 1.69% by the closing bell. Smaller biotech stocks, valued between $300M-$2B, fared even worse - dropping about 3.23% on average. The pain was experienced across all subsectors of the biotech industry, reflecting the macroeconomic factors that induced yesterday's bearishness.
Stem cell developers, which have been underperformers in 2013, were not spared either despite their recent unpopularity.
This article will discuss some of stem cell companies that were adversely affected by yesterday's trading. We will also identify catalysts that could lead to significant change in the share prices of these companies within the next year.
Pluristem (NASDAQ: PSTI) - This is a rapidly growing and important stem cell company, although it serves as a great example of the unpopularity of stem cell stocks this year. PSTI dropped 5.4% in yesterday's trading on high volume, bringing the stock's YTD performance decisively into the red (-6.6%).
Pluristem grows stem cell lines out of placental stem cells using a special bioreactor designed by the company to create and later harvest what are known as PLX cells. These PLX cells are being studied in a number of disease indications, and can be catered specifically for indications. This includes peripheral artery disease (PAD) indications - critical limb ischemia, and intermittent claudication. PLX cells are also being investigated for muscle injuries.
The stock's most significant near-term upside potential will likely come with progress in the company's trials. One is the big multi-center phase II trial for intermittent claudication, which is currently recruiting patients. This is also going to be a long trial, although completion of enrollment and the promise of interim data next year should spark some interest. Closer in time is the hip repair trial, where PLX cells are expected to improve patient function after 26 weeks. This should provide multiple data-based catalysts throughout 2014.
Neuralstem (NASDAQ: CUR) - the popularity of this stem cell company is increasing this year, along with its valuation. Within the last year, CUR has moved from $.52/share to yesterday's closing price of $1.62/share - a gain of ~212%. Yesterday, Neuralstem dropped 4.14% to $1.62/share - roughly 17% off its 52-week high of $1.96/share.
A number of things have pushed Neuralstem higher this year, although the majority of the credit should be given to the finalized Phase I data that the company presented at The American Association of Neurological Surgeons Annual Meeting in late April (link). This was an early stage trial that tested the company's line of stem cells - NSI-566 - in patients with Lou Gehrig's disease/ALS (Amytrophic Lateral Sclerosis).
The results of a Phase I trial were discussed in further detail in this note, from May 21st 2013 (link):
"The trial, which was conducted on 15 patients with ALS, started in early 2010 and concluded only recently. According to PI Eva Feldman in a recent Neuralstem press release, 6 of the patients in the study experienced stability, slow progression, or even improved disease course 700 to 850 days after implantation with NSI-566 cells. The remaining 9 saw no noticeable improvements, while 6 patients died of ALS within the first few months after the surgery."
Although early stage, the data were very encouraging and seem to allow CUR to stay comfortably in the $1.40-1.70 range. The Phase II ALS trial is undergoing enrollment now, and could provide early data in H1 of next year to potentially induce another rally. A safety study (Phase I) for NSI-566 in the spinal cord injury indication was also approved and will start enrolling in the near future.
Brainstorm Cell Therapeutics (NASDAQ:BCLI) - this Israeli stem cell company has been relatively quiet, although activity is beginning to pick up after a recent public offering. BCLI dropped 2.5% in yesterday's trading, and is currently ~28% off its 52-week highs of .27/share.
In July, the company received orphan drug designation in the European Union for NurOwn in the treatment of ALS (Amytrophic Lateral Sclerosis) (link), and has made significant progress in its 12 patient Phase IIa dose-escalation trial at the Hadassah Medical Center in Israel. The most recent group was treated with a 50% higher dose of NurOwn cells relative to the previous, which should allow the company to better calibrate its dosing for the upcoming US Phase II trial.
The company held a conference call on August 14th to discuss its status, although new details on the Israeli trial were not given for legal reasons. It was confirmed that the company's recent raise should be sufficient to set up larger Phase II trials in the US. The company does have to finish its IND application for NurOwn, although this expected to finish quite smoothly due to the prior approval of other stem cell treatments of ALS (specifically NSI-566).
Brainstorm is significantly cheaper than its peers in terms of valuation, likely because of the uncertainty surrounding this company and its status as a more "foreign" company. This could change once the company makes a bigger presence in the United States with Phase II development.
BioTime (NYSE: BTX) - this complicated "multi-purpose" cell company erased a substantial chunk of its gains with a 5.50% drop yesterday.
The company is comprised of 9 subsidiary companies based in four different countries, and may be best known for its acquisition of Geron's former stem cell assets. Most of its potential is locked in early-stage development programs, although the company already generates some revenues through the sale of research products and stem cells.
BTX could see significant movement in reaction to upcoming catalysts that could add significantly to the underlying value of the company. After years of development, the company is close to launching a cell delivery device known as HyStem-Rx, which aims to deliver stem cells in a manner that wouldn't kill them soon after injection. Hystem is scheduled for introduction into Europe through CE marking (it is a device) - possibly as early as 2014.
Stem Cells Inc. (NASDAQ: STEM) - STEM has managed to hold its ground throughout the year, although it is back to square one after yesterday's 2.38% drop. The company grew a line of neural stem cells derived from brain tissue designated as HuCNS-SC. These cells are being developed for a variety of neuron-related disorders, with the most mature development programs currently being in spinal cord injury and Pelizaeus-Merzbacher Disease (PMD). The company can also sell cells to generate side revenues.
Upcoming events for STEM include the continuation and eventual completion of enrollment into the Phase I/II spinal cord injury trial, which has just been expanded into Canada. This trial will look for minor improvements in an expected total of 12 patients recovering 3-12 months after spinal cord injuries, and may have interim data to present soon.
Investors should also look for development in PMD patients that the company is following (link). There should also be much greater investor excitement for the recently initiated Alzheimer's disease program due to the sheer size of that indication and the preclinical data in support of HuCNS-SC.
Notes on Biotech Risk:
Investors should realize that unprofitable biotechnology companies in the development stage experience particularly high volatility, are speculative, and do hold significant risk for loss of wealth. Investors believe that the company's valuation will increase more over time than the rate at which the company will burn cash, which is why the high risks are taken.
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. I have no business relationship with any company whose stock is mentioned in this article.