The results of a Phase III study of Novartis' (NVS) experimental drug, serelaxin (RLX030), to treat congestive heart failure (CHF) was found to reduce deaths by 37% compared to placebo, and has consistently shown to improve CHF symptoms such as dyspnea. The clinical trial results were published in the European Heart Journal and presented at the European Society of Cardiology (ESC) congress in Amsterdam on September 2nd. Serelaxin, a form of a natural occurring human hormone, relaxes blood vessels and eases stress on the heart and other organs. In June the U.S. Food and Drug Administration (FDA) designated serelaxin as a 'breakthrough' therapy, meaning the Swiss pharmaceutical giant will have a higher level of contact with the FDA during the review process, and should also see a shorter review process. Novartis has submitted serelaxin for approval with regulatory agencies around the world.
This drug could be a big step in extending the quality of life for some 20 million CHF sufferers, and sales are projected to continue to rise at 2.3% annually. Given the number of people affected by CHF combined with the positive results, serelaxin may be the next blockbuster drug for Novartis. Analysts at Jefferies expect serelaxin to generate peak sales of $1.5 billion a year.
Interestingly, if Novartis' drug that relaxes the blood vessels and eases stress on the heart has the potential to generate such sales, a treatment that has the potential to grow new blood vessels and reverse the restriction of blood supply, stopping the heart tissue from further deterioration, should also generate sales of $1.5 billion, if not more. And that's why I'm also watching NeoStem (NBS), a small biotechnical company out of NY that is developing such a treatment via its stem cell therapy-- AMR-001-- that is currently in Phase II clinical trials. AMR-001 therapy has shown to increase micro vascular blood flow in the heart muscle by angiogenesis, which is the development and formation of new blood vessels. This means that AMR-001 has the potential to reverse post-heart attack induced restriction of blood supply and rescue tissue from eventual cell death.
Unlike earlier embryotic stem cells that came with the political and ethical implications baggage, AMR-001 utilizes autologous bone marrow-derived stem cells, in this case CD34+/CXCR4+ cells. CD34+/CXCR4+ cells are what the body mobilizes during a heart attack in an attempt to rescue the damaged tissue. AMR-001 is being developed via NeoStem's subsidiary, Amorcyte, which is gearing up to begin a Phase I clinical trial of AMR-001 in stopping the progression of congestive heart failure.
NeoStem may be a small company, but make no mistake about it: This company has the potential to develop a big footprint in both the regenerative medicine and the intelligent property (IP) market with its growing patent estate. NeoStem's stem cell subsidiaries include Progenitor Cell Therapy (PCT), a contract stem cell manufacturer with a client list that includes some of the largest pharmaceutical companies on the globe, and is developing a therapy AMR-001 to treat patients after they have a STEMI (ST eleved myocardial infarction). Additionally, though its subsidiary Athelos, which is developing therapies in collaboration with the giant medical supply company Becton Dickinson (BDX) using regulatory T cells, or "Tregs", to treat a number of the immune system diseases including type 1 diabetes and steroid resistant asthma positions Neostem to grow and compete with some of the larger biopharmaceutical companies, like Baxter (BAX) or Celgene (CELG).
What intrigues me about Athelos is, while it's developing drugs to treat two of the most common diseases in the world, it has secured the rights to a broad patent estate within the Treg field. Owning IP rights has become a lucrative business. Billions of dollars are being spent to amass portfolios, and IP companies that control the rights to use proprietary technology create revenue by charging upfront licensing fees, ongoing royalty fees, and suing companies that may have infringed on their property. And with Athelos and AMR-001, NeoStem looks to build a dominant IP portfolio within the field of cell therapy to protect its cutting edge technologies, which include 31 issued patents and 54 pending patent applications.
Novartis stock is up almost 18% year-to-date closing near its 52-week high of $75.73, but I think the stock has plenty of room to continue to grow. The company has a pipeline of almost 60 new drugs in various stages of testing that should carry the company beyond 2017. Its generic pharmaceuticals division, Sandoz, continues to grow as net revenues in 2012 accounted for 15% of Novartis' sales, including $8.5 billion in net sales in the U.S. The company also has an excellent yield for income investors at 3.25%.
And while I believe Novartis is an excellent company to have in one's long-term portfolio, I do like the growth potential that NeoStem offers though the risk is higher. With Amorcyte, Athelos, and PCT, NeoStem has positioned itself to be one of the more vertically integrated companies in the growing stem cell therapy market, which is projected to reach $5.1 billion in 2014.
NeoStem had previously flown under the radar, but now boasts a $154.8 million market cap since its strategic reverse split, raising the stock price to over $5.00 per share and leading to the company's jump to the NASDAQ. This should make NeoStem look a lot more attractive to new investors, including institutional and hedge funds that were unable to invest in companies with stocks below $1.00. And while I'm not ready to call NeoStem the next Celgene (which has risen over 1380% in the last ten years), I believe the stock has a strong potential for gains over the next 6 to 18 months as its stem cell therapies continue along the development process.