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It wasn't that long ago when NeoStem (NASDAQ:NBS) would announce new patents, new clients, or significant revenue growth, yet would trade flat or even lower. I suppose the company got tired of its stock not appreciating with the company's progress, and reversed its stock to appeal to a larger investor pool. Immediately following, I predicted that the split would add significant value, and the stock has nearly doubled in just two months following its reverse-split. While much of these gains are simply due to the stock being cheap prior to its reverse, the company has had several key developments. So, can NeoStem continue its remarkable rally?

Making the Right Hires

Initially, after NeoStem's reverse-split, gains were naturally created as the $100 million company went from trading at $0.53 to over $5.00, thus appealing to investors who would've never looked twice at a $0.53 stock.

Then, the next wave of gains came with two high-profile executive hires. First, NeoStem promoted Dr. Douglas Losordo - the developer of Baxter's (NYSE:BAX) Phase III CD34+ cell therapy product, which is often compared to NeoStem's Phase II product - from its Scientific Advisory Board to NeoStem's Chief Medical Officer. This was a big win for NeoStem because Dr. Losordo is widely considered the most knowledgeable in the development of CD34+ cells, thus adding value to NeoStem's most promising clinical product, AMR-001.

Next, the company hired Stephen Potter as the Executive Vice President to aid in the growth of PCT and the commercialization of AMR-001. Potter was previously at Osiris and led its Biosurgery segment. Overall, both Potter and Losordo were great hires for NeoStem, being leaders in cell therapy.

Another Catalyst Emerges

Like I said, it was the reverse-split itself and new hires that drove gains. In the last week, it has been a collection of catalysts from analyst upgrades to noteworthy research reports surrounding a promising technology called VSELs.

On September 8, NeoStem announced a collaboration with three well-known experts in the field of asthma research to help determine appropriate endpoints for a trial in steroid resistant asthma. Clearly, asthma is a large market, costing the United States $56 billion a year, and the optimism stems from NeoStem having yet another clinical endeavor.

This new clinical endeavor is NeoStem's Regulatory T cell platform, or Treg, to treat autoimmune disorders. If successful, this is a huge market opportunity for NeoStem, including both asthma and type 1 diabetes. Currently, NeoStem is getting the team in place and preparing for clinical studies, which will then give the company more diversity.

Finally, on Monday September 16, NeoStem announced that it obtained worldwide licensing rights to three families of patents covering its Treg platform. In total, this gives NeoStem 22 patents to develop Treg. As a result of this news, NeoStem traded higher, but then a combination of profit taking and a negative Seeking Alpha article pushed the stock lower.

VSELs Sparking A Rally

On September 12 we saw a big jump with a slew of headlines including an initiation of coverage by MLV and a $16.00 price target. However, the company also received a $148,000 grant from the National Institute of Arthritis and Musculoskeletal and Skin Diseases for the development of VSELs to treat skin wounds, which could increase to $1.5 million in grants.

While $148,000 may seem small, it is yet another reputable organization to support the development of VSELs. This is a big win for NeoStem as the number of government grants and the literature that supports the existence of VSELs continue to become more robust. Not to mention, the following day, NeoStem received another grant from the National Institute of Dental & Craniofacial Research for $1.22 million, further showing the organizations that are involved with the development of this program.

The Emergence of VSELs

Not too long ago, there were some who questioned whether or not VSELs (very small embryonic-like stem cells) were real. In theory, VSELs are cells that are extracted from bone marrow that have the regenerative capabilities of embryonic cells. In cell therapy, embryonic cells are the most effective in terms of regenerative ability, but also controversial by nature. Therefore, successful development of VSELs and their existence could be a true medical breakthrough, and could be used to treat a multitude of diseases.

Personally, I have spent quite a bit of time researching VSELs, and have reached out to several key opinion leaders in the development of VSELs. In particular, Dr. Diane Krause of Yale, Dr. Deepa Bhartiya of Stanford, and Michigan's Russell Taichman all told me that they had been able to identify VSELs when asked. In fact, Dr. Krause is fairly confident that VSELs will be identified on a large scale, and believes that any current controversy is due to the method of collecting and identifying the cells.

Dr. Bhartiya identified the cells in: cord blood; Wharton's jelly; human, mouse and bovine bone marrow; sheep, rabbit, monkey, mouse and human ovary; mouse, sheep and human testis; mouse uterus; mouse pancreas and heart; human amniotic membrane, amniotic fluid and placenta. Taichman added that his lab has isolated murine VSELs, and that his team has published two peer reviewed papers on their function in generating skeletal tissues.

Nonetheless, VSELs have remained a driving force behind NeoStem's stock, and that's why the final weekly catalyst, a study published in Nature, is so important. According to the study, published September 11, scientists were able to reprogram mature cells in mice. This reverting process is what won Shinya Yamanaka the Nobel Prize, and is one of the reasons that investors have become optimistic regarding new advancements in cell therapy.

Yamanaka's findings were that cells could be reprogrammed back into an embryonic stage. This was important to the advancement of VSELs, which are also based on altering and identifying embryonic-like cells within the body. Moreover, Yamanaka's study was done on mice, which also concluded that many connections between both mice and human cell development exist, thus suggesting that a mouse study could be indicative of future success. The Nature study simply adds on top of these findings, but found that reprogrammed mature cells might be even more effective than embryonic cells, and that one day regeneration could take place within a patient's body.

Final Thoughts

Clearly, it was a good week for NeoStem's VSELs, which created significant value. One of the reasons is because NeoStem's grant and award money for the development of VSELs, including a partnership with the Vatican, is so robust that very little investor money shall be spent on its study. Therefore, positive developments from VSELs are weighed heavily on the company's stock, despite it being the most underdeveloped of any NeoStem programs.

In addition to VSELs, NeoStem also has AMR-001, which treats patients following an acute myocardial infarction. Last year the company announced that not one patient experienced a deterioration of heart muscle function when treated with 10 million cells, compared to 30-40% when treated with fewer than 10 million cells. Moreover, the remarkably similar characteristics between AMR-001 and Baxter's Phase III product give NeoStem a great shot at success with this product, due to Baxter reaching endpoints never before seen (explained here). Hence, investors are quite optimistic regarding this Phase II program, a therapy that could create sales over $1 billion a year.

Finally, there is NeoStem's PCT, a manufacturing business that works with the likes of Baxter, ImmunoCellular Therapeutics (NYSEMKT:IMUC), and SOTIO among others. During its last quarter, sales increased by more than 70% year-over-year, on top of a year where sales doubled.

As a result, with all programs in mind the future for NeoStem is looking bright. The company is hiring top talent, advancing clinical trials, and there is large sales potential in several of the key clinical programs. Last year in particular was a period of frustration, but since the company reversed its stock, investors have enjoyed mostly green days. And with Phase II data within the next year and more VSEL developments to come, I see no reason that NeoStem's value won't continue to soar.

Source: NeoStem Continues To Soar Behind A Slew Of Key Developments