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Brian Nichols, NicholsToday (510 clicks)
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If you're a NeoStem (NBS) investor, your eyes and ears are most likely glued to any developments that involve the Phase 2 clinical trial of AMR-001. The company has a huge data announcement planned this year, one that could cause performance similar to what we saw with peer Osiris Therapeutics (OSIR) last year. Due to this excitement, many have seemingly forgotten about PCT, a segment of NeoStem's business that could be just as lucrative for the company.

PCT Has A Lot To Offer

AMR-001 has dominated the headlines as of late and is largely responsible for NeoStem's one-month 21% gain. Like most biotechs, NeoStem's stock is likely to trade higher in anticipation of data. In the process, PCT has taken a backseat to AMR-001 in the last few months, despite being a segment that fully supports the valuation of NeoStem with incredible upside.

PCT is a revenue-generating business owned by NeoStem. It is a contract service business that provides research, development, engineering, and manufacturing to a wide array of clients. Dr. Robert Preti, a renowned executive, runs this business. I recently had the chance to speak with Dr. Preti about PCT, which might help investors to realize the upside potential that lies in this often-forgotten segment.

Dr. Preti explains the benefit of PCT as giving clients the ability to, "cost- effectively outsource their pre-clinical, clinical and commercial development, manufacturing and cell storage operations." Some might wonder "why" development stage organizations, Fortune 500 biotechnology, pharmaceutical and medical product companies, as well as leading academic research institutions would use PCT-- and the answer lies in PCT's expertise, scale, and state-of-the-art facilities.

PCT has two facilities located at opposite ends of the U.S. that total more than 55,000 square feet. It has been operating for more than 15 years and has performed over 30,000 cell therapy procedures. Hence, it is a leading business in this particular industry of the market. But, the question investors want to have answered is: How will PCT grow and is there a real demand for these services?

How Large Can This Business Grow?

This question leads to the investment upside in NeoStem, regardless of AMR-001. PCT has many well-known clients. PCT is working with companies such as Atherysis, Coronado and IMUC, Kite Pharma, various research institutions and a biotechnology company (SOTIO) with a product in Phase 3 developing a next generation immunotherapy for the treatment of cancer. During their clinical development, PCT manufactured for Dendreon (DNDN) when Provenge was in clinical trials. Then, once FDA approved, Dendreon decided to manufacture its own product and build elaborate facilities. But we all saw the result of that decision, as Dendreon recently closed its largest Morris Plains facility.

The events surrounding Dendreon are a testament as to why companies should stick with a contract manufacturer as opposed to bringing manufacturing in house when a therapy is launched into the market in order to control costs. Dendreon took a large bet to manufacture a single product; naturally, it is cheaper to manufacture a couple of dozen products.

I asked Dr. Preti why PCT has grown so much in the last couple years and his response, "PCT has developed a reputation for delivery of its services in a client-focused and highly effective manner. We are known for our technical expertise and our deep scientific understanding of the cell therapy products."

Essentially, PCT is becoming well known within the industry, and its growth reflects this as well as the emergence of the regenerative medicine industry.

Thankfully, PCT has the potential to become significantly larger. I asked Dr. Preti, "How much revenue could these partnerships ultimately create, long term?" His response, "PCT has the potential to grow rapidly as the industry develops and products are approved. Commercial contracts will give PCT the potential to generate 100s of millions of dollars."

You heard it right! All of these partnerships that PCT is establishing are of products in various stages of clinical development. Depending on the job itself, and the work involved, a preclinical product might earn PCT just $50,000 annually, but a high-complexity Phase 3 product could earn PCT $4 to $10 million. Hence, the longer the partnership is the more PCT earns from its ventures, which is why these dozen or so partnerships over the last two years should continue to pay dividends to PCT and, in turn, NeoStem investors. Then, as Dr. Preti notes, a commercial product could generate more than $100 million and even more if the product is highly complex. As such, PCT can become a segment of NeoStem that could generate a lot of revenue and drive the stock significantly higher in the years ahead.

Conclusion

When we talk about AMR-001 and its meaning to NeoStem's stock, investors pay close attention to its peak sales potential, which analysts estimate to be near $1.2 billion. If successful, NeoStem's stock could soar many times higher.

With that said, NeoStem already has a blockbuster product, one that is growing fast and has exceptional upside potential. That "product" is called PCT.

In many ways, PCT's cell manufacturing business is a young and underdeveloped space; but as we've seen in the last two years, its future is brightening very quickly. Hence, PCT stands out as a real gem-- and is perhaps the most undervalued and underappreciated asset of any biotechnology company in the market. Thus, expect large gains driven from this segment in the years ahead.

Source: Could PCT Be NeoStem's Breakout Star?