Advanced Cell Technology: Took A Hit Or Preparing To Throw A Knockout Blow?

Feb.19.14 | About: Ocata Therapeutics, (OCAT)

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Advanced Cell Technology (SYMBOL: ACTC) just can't catch an ounce of respect. Just recently, comments from an unnamed PhD surfaced in a Seeking Alpha article, written by Esekla, that suggested the strength of the patent portfolio related to ACTC's pluripotent cell program might be severely compromised. And, a cited source, Nature, refers to ACTC taking a "hit", but that statement was based on the recent SEC and legal settlements, not the patents.

However, for an unnamed, unpublished, undocumented provider of illicit material, the "secret PhD" can certainly pack a punch. But, since Esekla did not link a PhD to such patent compromising comments related to iPSC cells, pluropotency studies or to any studies that can substantiate quotes from the good doctor, it's difficult for me to give too much validity to his assertions. I do, however, respect Esekla's protection of his sources identity. Reminds me of a political story from the 1970s.

After all, telling a large audience that the patent portfolio of Advanced Cell is at risk of being severely deleveraged and subject to losing its cross licensing capacity is scary, even for a guy like me, who does not believe in monsters.

And, although the patent strength of Advanced Cell came into question, the PhD supported his assertion with, he "could think of at least three groups that have already replicated human cells, but, they had been thrown out of scientific meetings for looking crazy." Sounds fishy to me, as well, especially in that the "groups" he relied upon were admittedly dismissed by scientific peers.

Surely, these scientists presented their revolutionary results to a peer panel, filled with detailed and well documented data, scientifically sound durability analysis, safety and tolerability data and statistical evidence of the reliability of the replication. If not, I can see why they were thrown out of the meetings. How loud the esteemed panel laughed, I don't know, but, the presentation must have been quite flawed, especially because such a study would have normally been highly embraced.

When I was young, I once placed a drop of dirty dishwater onto a slide. I watched as the cells multiplied. Then I sprayed the slide with a common cleanser and all of the cells appeared to have died. I told my father that I think I might have cured cancer. But, he told me that what I did was not science, rather it was junk science.

Perhaps what the scientists that reviewed the claims of these "three groups" came to was the same conclusion as my father did with me, it simply did not follow the rules of good science and therefore cannot be relied upon.

But, lets assume that what these guys claimed was true. How would that effect Advanced Cell patents? After all, if a single aspect of prior art in a patent is violated, then the patent in its entirely is considered to be violated. I am sure that the good PhD has a full understanding of the intricacies of patent law in order for him to jump to such a pronounced conclusion about ACTC patents.

Advanced Cell received a broad patent back in July of 2012, patent #2005325753, that protects both hESC and pluropotent cells. It addresses primarily the rpe cells that are generated from the plutipotent cells. It also protects method, procedure and pharmaceutical formulation of cells derived from the pluripotent cells.

So, even if the claims of our good doctor are to be relied upon, we must then ask him to cross reference the groups data to the applicable patent to make sure that his clinical friends are not simply spinning the proverbial petri dish. The information in Nature did not address the complexities in patent law and enforcement. The article provided broad and generalized statements.

The real issue of patent protection related to the study of iPSC by Advanced Cell, is that not too many others have even tried to lay claim as an innovator of iPSC science. Stanford University has done some studies of iPS cells to hopefully use in future stem cell based treatments, but, other than them I can't find a legitimate study that has amassed at least a primary level of data and published research.

No doubt that the patent landscape might become a bit messy, but, the best bet is to play with the company that has published papers, has accumulated statistical and measurable data and has peer reviewed studies that have been published in prestigious journals.

In fact, I did a simple search using the terms "iSPC induced pluripotent stem cells" and guess who was the first company name to populate the search results. Drum roll, please...yes, ACTC.

Look, I am not trying to say that Advanced Cell will have a stroll in the park to maintain and protect its leadership position in iPSC science. But, I am willing to speculate that as this science becomes more interesting to universities and private institutions, that there will be friendly license and collaborations, rather than long, drawn out court battles whereby a private study can be forced to cease and desist while the courts take multi year look at the challenged patent.

Even with that said, any threat to the patent portfolio of ACTC is years away. Perhaps the PhD assumed that we understood that ACTC looks strong for the next ten years and that his comments were referring to a decade away. I would be happy to interview him once I get his name.

The FDA is not a friendly neighbor to anyone and the hurdles to get into this field are going to be extremely high, not to mention Uncle Sam, who remains inconsistent and relentless in continuing to change the rules of the game on a regular basis.

True, patents will be challenged, but, they always are. Advanced Cell will be smart to defend the ones they think are vital to company success and most likely collaborate with others to protect broad issues of a particular patent without giving up its overall scope.

Scientists, from what I can detect, are not patent trolls. Scientists stay in the clinic and the CEOs take care of the business. The better the CEO and patent team, the less obstruction to the clinic and the current studies.

ACTC acquired over 26 patents in 2008 and has continued to add patents to their portfolio. These patents are intertwined in so many directions, that the tentacles from one can reach to the next patent, protecting source, origination and procurement of the cells.

Advanced Cell is still the only company that I have found, with statistical relevance, that procures cells without destruction to the human embryo. Until that method is duplicated, Advanced Cell is sitting in a very strong position.

Keep in mind that pre clinical stage companies rely on existing science to further their own cause. Rocking the boat this early would benefit nobody.

I did a search to see if Dr. Lanza or any other scientist at ACTC has ever been kicked out of a scientific meeting because the peers thought that they were crazy. I could not find a link.

I then tried to search whether any of the Advanced Cell technology patents are in risk, relying on published papers, articles and journal opinions. Again, I could not find a link to such an idea. There were some well written blogs, but, not a scientific journal that lends such an opinion.

Then, I looked at patents in general. I found that the stem cell itself is not a patentable commodity. The method and use of that cell related to clinical research study and data is patentable. But, the puzzle is that the two are not necessarily easy to separate. And, it is in that maze of legal mumbo jumbo that ACTC will find its solace, at least for a material amount of time.

Perhaps the associates of the unnamed PhD might in fact have come across a scientific breakthrough, but, since they were admittedly laughed out of the room, my guess is that as of now, ACTC is in pretty strong shape.

Advanced Cell has traded over 500 million shares since January 1, 2014. The volume strength still trades at ten times prior averages. I wrote about it in January and I will repeat it here. In my opinion, ACTC is on the verge of history, with top line data to be released any day. Volume will always precede price, that much is a given. Volatility expected, I remain committed to my belief that ACTC is well positioned and will be protected in its resources and patent portfolio.

Infringement does little good to any scientist at this early stage of pluripotent science. Being hit with an injunction would be a death knell to a study, potentially putting an end to millions of dollars and thousands of hours of research. I , therefore, disagree with my fellow contributor in his theory that ACTC will take a hit as it relates to patents, legal settlements not withstanding.

I do agree with him, however, that ACTC can hit a home run with its AMD and SMD studies. At least we can agree on that.

I am certain that he, and his PhD friend, would also be inclined to agree that if top line data is as good as I think it will be, it will be a knockout punch to the doubters.

I'll stay long on ACTC, let the lawyers figure out the messy parts.

Disclosure: I am long ACTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.