It wasn't that many years ago that Celgene (CELG) was a $38.00 per share stock with a market cap of $17 billion - that was April 18th 2009. Today it sits at its all-time high at $160.58 per share with a market cap of $66 billion. The company has risen greatly by acquiring quality companies and developing novel treatments making it a multinational powerhouse with six successful drugs on the market. According to the company there are about 300 clinical trials at major medical centers using compounds from Celgene for indications including solid tumor cancers, multiple myeloma, myelodysplastic syndromes, chronic lymphocyte leukemia (CLL), non-Hodgkin's lymphoma (NHL), myelofibrosis, small cell lung cancer and prostate cancer. The company owns or licenses over 800 patents or pending patents worldwide, and has a number of indications in regulatory filing, and eight indications in phase 3 trials.
I use Celgene as an example because it reminds me of a much smaller company that has such great potential that it may well one day rise from its $143 million market cap to a billion-dollar plus company. The company is NeoStem (NBS) and it is on the forefront of developing and manufacturing stem cells for various chronic diseases such as heart disease and autoimmune diseases. Now, to make it clear, I am not saying that NeoStem and Celgene are exactly the same and will have the same outcome - but I am pointing out that Celgene rose via quality products and smart acquisitions and it appears that NeoStem has followed this philosophy with smart acquisitions: four subsidiaries all of which are developing or manufacturing quality products for the stem cell market. And what makes this company valuable is that it is at the forefront of stem cell development, a market that is expected to reach $119.15 billion by 2018, according to a new report published in August 2013 by Transparency Market Research.
Both Companies Developing Autoimmune Platforms
What attracts me to both companies is that each is developing novel treatments for diseases that affect millions of people worldwide - autoimmune diseases. According to a report by Global Industry Analysts, Inc., the autoimmune therapeutic disease market is expected to reach $77 billion by 2017. These diseases include the systemic autoimmune diseases therapeutic market - which include rheumatoid arthritis, psoriasis and lupus - along with the localized autoimmune diseases therapeutic market - which include, multiple sclerosis, inflammatory bowel disease and Type I diabetes - in sum expected to reach $69 billion by 2019. These numbers do not include the asthma therapeutic market, estimated to reach a value of $21.6 billion by 2019, and appears to have a common pathophysiologic mechanism as autoimmune conditions.
Celgene - Oral Autoimuine Drug Apremilast Shows Great Potential
Celgene's novel drug, apremilast, a small-molecule selective inhibitor of phosphodiesterase 4 (PDE4) for the treatment of psoriatic arthritis and other autoimmune diseases, has the potential to be a billion-dollar blockbuster drug. The company will present results from three phase 3 investigational trials evaluating the treatment of patients with psoriasis, psoriatic arthritis and Behcet's disease at the American College of Rheumatology Association of Rheumatology Health Professionals annual meeting in San Diego, October 25-31. Earlier this year, Celgene filed with the U.S. Food and Drug Administration (FDA) for approval of apremilast as a treatment for psoriatic arthritis. The updated data showed that 31.3% of patients had at least a 20% reduction in pain after 16 weeks of treatment. After 52 weeks, 63% of patients experienced a reduction in pain.
The company expects apremilast to go head to head against Abbott Laboratories' (ABT) highly successful drug Humira, an injectable biologic drug for psoriatic arthritis. And while apremilast's earlier June update from a phase 3 trial was not stellar, it did show similar efficacy and safety compared to Humira. But what may give apremilast an advantage is that the drug is taken orally as opposed to Humira, which requires an injection. Humira's peak sales are estimated to reach roughly $11.2 billion in 2016, before declining due to oral alternatives, such as Celgene's apremilast or Pfizer's Xeljanz. Celgene sales projections for apremilast for 2017 are between $1.5 billion and $2 billion, which would make it another successful drug alongside its growing breast cancer drug, Abraxane. And while some analysts see those numbers as lofty, they do expect the drug to gain FDA approval.
Celgene stock has more than doubled year to date, and has a relatively high PE ratio for its sector - 44.97. But Celgene continues to perform, and most analysts still see the stock as a buy while none see it as a sell. The company's revenue growth rose 17% over the same quarter the previous year outpacing the industry average of 9%. In September the FDA approved the uses of Abraxane for treatment in patients with late-stage (metastatic) pancreatic cancer. Abraxane sales totaled $427 million in 2012, and now has the potential to double as estimates for the pancreatic cancer treatment market in the U.S. is expected to grow to $829 million by 2019. And while Celgene stock is at its 52-week high, there is little reason given its late stage pipeline and successful products that the stock should not continue to rise.
Neostem - Novel Autoimmune Stem Cell Platforms Could Be Worth Billions
NeoStem, with its four divisions - Progenitor Cell Therapy (PCT), Amorcyte, Athelos and VSEL- has become a diversified stem cell company. PCT boasts its profitable and growing stem cell contract manufacturing and Amorcyte is in phase 2 studies of the stem cell platform, AMR-001, for patients following an acute myocardial infarction. Though both segments have garnered most of the attention, I postulate its lesser-known subsidiary, Athelos, with its Tregs cell platform, to be perhaps the hidden gem of the company. Athelos, which is in a partnership with global medical technology company Becton Dickinson (BDX), is developing a platform based on regulatory T cells (Tregs) to treat diseases of the immune system.
The body's immune system is designed to fight diseases, but when the immune system malfunctions it can cause autoimmune diseases such as type 1 diabetes, multiple sclerosis, rheumatoid arthritis, sepsis, asthma and inflammation. Tregs are designed to maintain order in the immune system by enforcing a dominant negative regulation on other immune cells. In simple terms Tregs tell the other T cells what to do and how to react, and when Treg cells malfunction they send the wrong information to the other T cells and the body over reacts and attacks healthy tissues in the body, thus causing autoimmune diseases.
Most drugs today treat the symptoms of autoimmune diseases but not the underlying issue - Tregs. Athelos's Treg platform is designed to treat the underlying issue, faulty regulatory T cells that are sending the wrong signal to the body, thus causing such aforementioned diseases. The Tregs stem cell platform utilizes modified Treg cells that have been previously shown to increase T-cell quantities and function. What makes the Treg cell platform unique is that the goal is to go beyond treating the symptoms, but retraining the T cells to actually cure the underlying disease.
Currently NeoStem's Treg cell platform is undergoing clinical trials for type 1 diabetes, a disease that affects roughly three million Americans. The company is expecting to enter phase 2 trials in 2014 consisting of 90-120 patients, and is expecting completion in 12 months from the beginning of the trial. Athelos is also conducting a phase 1 study for steroid resistant asthma, a disease affecting 60 million people worldwide. NeoStem has secured the rights to a broad patent estate within the Treg field, covering isolation, activation, expansion and methods of treating or preventing certain conditions and/or diseases using Tregs.
While a drug platform that is able to treat type 1 diabetes and steroid resistant asthma may well be worth a billion dollars, there is more to the Tregs platform, which is why I consider Athelos the hidden gem of the company. If the Treg platform proves successful in treating the underlying issue of type 1 diabetes and steroid resistant asthma, there is no reason why the platform could not be extended to treat the underlying issues that cause other autoimmune diseases such as psoriatic arthritis or MS. And extending the platform to battle other disease appears to be in the company's future plans. NeoStem is already evaluating extending the platform to fight type 2 diabetes, accounting for roughly 95% of the estimated 347 million diabetics worldwide.
As stated earlier, NeoStem has a market capitalization of $142 million, which to me is a bargain considering the potential revenue that could be generated if just one of its platforms gains approval. These platforms are developed to treat some of the most common chronic diseases known to man. If one wants to analyze what a late stage platform can do for a development stage company, one need only look at MannKind (MNKD), which has more than doubled as it entered late stage tests of an inhalable insulin powder for controlling type 2 diabetes and now has a market cap of $1.56 billion. NeoStem is developing platforms that could have an effect on millions of people - and that is why I predict that if either Athelos's Treg platform or Amorcyte's AMR-001 platform is successful, NeoStem should become a billion-dollar company.
NeoStem's stock took a solid hit when the company announced a public offering of 5 million shares at $7.00 per share, to raise capital for research on stem cell therapies, but has since rebounded to close on Friday, October 18th, at $7.02 per share. The public offering along with cash already on its balance sheet provides NeoStem with roughly $60 million of working capital - more than enough to last through a year's burn rate - and should squelch any concerns of further stock dilution in the near future.
Celgene has had an incredibly successful run, and with its product pipeline and acquisitions I foresee the company will continue to grow. There are rumors of a bidding war between Celgene and Teva Pharmaceuticals for Receptos (RCPT), a biopharmaceutical company developing novel treatments for autoimmune disease. The rumor is that bids were between $700 - $800 million. If these rumors are true and Celgene acquires Receptos, it would bolster Celgene's autoimmune drug pipeline.
While NeoStem is a small company, it is developing platforms in one of the fastest growing segments - stem cell therapies. Each platform the company develops has the potential of being billion-dollar products. Another factor that could raise the value of the stock is that there is only 13% instructional ownership - and as the company grows, interest from other institutional investors should propel the stock higher. I believe that NeoStem is undervalued based on what it is developing. As the drug platforms continue through the trial phase, the stock will gain momentum ... and investors who practiced patience will be well rewarded.