Cell therapy is an industry with a lot of promise; there are numerous companies with developing pipelines, good data, and products that could treat large unmet medical needs. One of the more focused areas in this space seems to be in treating cardiovascular disorders, as there is a belief that strengthening or repairing such muscles associated with cardiovascular disease could lead to an improved quality of life. In particular, two companies with a strong presence and even larger upside in treating such diseases are Athersys (NASDAQ:ATHX) and NeoStem (NASDAQ:NBS), and both might very well have a bright future.
Cardiovascular Disease: A Very Important & Lucrative Segment
When a patient has a heart attack, or congestive heart failure, there isn't a pill that can be given that will completely eliminate the risk of future attacks or even death associated with a prior heart attack. The reason is because with many of these diseases, significant damage to the heart is caused, which would need to be repaired. It is this concept that paves the way for regenerative medicine, an approach that could yield billions annually due to cardiovascular disease being the number one killer in the U.S. To me, this is the most promising segment in cell therapy, an enormous unmet medical need.
Of the many cell therapy companies, Athersys and NeoStem are considered leaders in the cardiovascular disease arena, specifically, in treating acute myocardial infarction (AMI), a severe heart attack that affects 200,000 people annually in the U.S., of the 1.3 million total who have heart attacks. LifeSci Advisors estimate this to be a $55 billion market that's up for grabs.
Athersys is developing a proprietary off-the-shelf cell product called MultiStem, which is composed of multipotent adult progenitor cells (MAPCs) that are harvested from bone marrow. Athersys is testing MultiStem in a number of healthcare segments, including inflammatory and immune, cardiovascular, and neurological diseases, ranging from preclinical to Phase 2 in clinical testing.
One of Athersys's early programs is in treating acute myocardial infarction. In a Phase 1 program MultiStem proved safe and well tolerated, and also showed improvements in mean left ventricular ejection fraction (LVEF), considered the more severe of heart attacks, in its three different dose cohorts of 20 million, 50 million, and 100 million cells per patient. In these three cohorts, improvements in LVEF of 23.4% to greater than 25% was identified. As a result, Athersys is expected to begin a Phase 2 study this year.
NeoStem already has a Phase 2 product, AMR-001, which is comprised of bone marrow derived CD34+/CXCR4+ cells that are selected to treat damaged heart muscles following an AMI. In December 2013, NeoStem completed enrollment for its Phase 2 trial and is expected to present data in the third quarter of this year, which serves as a major catalyst for the company.
In its Phase 1 dose-escalation trial, AMR-001 was proven safe while NeoStem found a threshold dose and an optimal time of administration. In that study of 31 patients, no deterioration of heart muscle function was identified with 10 million cells as compared to those treated with fewer than 5 million cells, 35% of whom had a decrease in ejection fraction at 6 months post heart attack. This clearly shows 10 million cells to be a threshold dose, something that NeoStem is attempting to replicate in its Phase 2 trial, which will include 160 patients.
With that said, Athersys is still young in the developmental process -- although AMI is one of its more advanced programs -- meaning it hasn't really discussed its market opportunity with MultiStem. However, NeoStem estimates that AMR-001 could generate sales of over $1 billion annually, and even more if the product is proven successful in treating congestive heart failure.
Two Good Investments, and With Diversity
Athersys and NeoStem both look promising at the surface in treating AMI and other cardiovascular disorders. Yet, despite this promise in a very large market, what makes both so attractive for investors is the level of diversity that's present.
Athersys investors would most certainly point to the market opportunity in treating ischemic stroke. In theory, MultiStem could be used to treat ischemic strokes 36 hours following the event, which would be an advantage over the 3-hour window for current treatments. Also in theory, MultiStem would work to essentially unclog these clots that block blood flow to the brain, and investors are excited about the market opportunity present. Indirectly, this market opportunity further fuels my interest in the AMI indication, as two million people annually in the U.S. suffer from a stroke, and only 5% (or so) receive therapy. Thus, we're talking about a 100,000 patient population in the U.S., not nearly as large an indication as heart attacks, and also an indication where competition exists (if MultiStem proves successful).
For biotechnology investors, diversification is always sought but not always achieved with investments. Oftentimes, an investment in a company is the process of placing all your confidence in one indication to succeed, which is what makes biotechnology a make or break industry. However, with Athersys and NeoStem, this is not the case.
NeoStem has diversified its pipeline differently than Athersys, as the latter is mostly developing a single product for many uses; NeoStem operates in four different segments that do not relate.
NeoStem has AMR-001 for cardiovascular disorders like AMI and congestive heart failure, which is its most advanced program, but then it's developing T-cell therapies to treat autoimmune conditions. These T-cells, also called Tregs, are natural regulators tied to the development of diseases like steroid resistant asthma and type 1 diabetes (T1D) and other autoimmune disorders, which develop when the balance is disrupted. NeoStem's Treg platform restores this balance, and in a small 12 patient trial conducted in Poland, all patients had a stabilization in their c peptide levels, and 20% of T1D patients were able to get off insulin, which could be a medical breakthrough (a cure) if proven successful in larger trials (more about Tregs can be read here).
NeoStem's third business is the development of very-small embryonic-like stem cells (VSELs), which are hoping to aid in tissue regeneration in diseases that range from wound healing to nerve regeneration. The philosophy behind VSELs is that they share the same regenerative abilities of fetal cells without the moral dilemmas that come with using human embryos; NeoStem has received countless grants from other organizations and even an endorsement from the Vatican.
NeoStem's fourth business is PCT, a revenue-generating contract manufacturing segment that has grown rapidly over the last two years with about a dozen new clients during this period. Currently, all of PCT's clients are in the developmental stage, but one commercial contract could create revenue of up to $200 million annually for PCT, giving this segment a lot of fundamental upside. Additionally, this internal manufacturing capability enables the company to more cost effectively and efficiently develop their own internal programs.
Which is Better?
With all things considered, Athersys and NeoStem are two companies operating in many of the same industries as leaders in the developmental space. However, these companies differ in their strategic approach to treat diseases of aging: Athersys with MultiStem and NeoStem with its four segments. Therefore, which company presents the greatest investment opportunity?
With NeoStem and Athersys having market caps of $190 million and $240 million, respectively, there is an enormous amount of upside if either of these companies can prove their pipelines successful. And considering the volume of preclinical biotech IPOs with billion-dollar valuations in the last year along with many bubble-like valuations in the industry, I don't think either Athersys or NeoStem present a great deal of downside risk, nor would I imply that either are overvalued in any way, shape, or form.
Yet, personally, the investment of choice between the two comes down to which approach I find most effective from a clinical point-of-view, and this leads me to NeoStem. Now, Athersys has some very loyal bulls who take offense to any pessimism whatsoever, therefore allow me to stress that I'm not bashing Athersys and further believe that it has a great deal of potential. However, what I find alarming is that nearly all of Athersys's $240 million market capitalization is tied almost completely to MultiStem.
Furthermore, most logical investors would acknowledge that as cell therapy grows and gains momentum in biotechnology, there are going to be winners and losers emerging. Hence, as data matures, Athersys faces a huge risk if MultiStem is proven unsuccessful in its larger indications, such as AMI or ischemic stroke, while AMR-001 is only a portion of the NeoStem equation. In addition, I think that under normal market circumstances, not the bubble-like premiums that we're currently experiencing, I think Athersys is fairly valued based on the data known regarding MultiStem. Specifically, there are a couple of things I find worrisome, such as the fact that Phase 1 patients are often handpicked, and in metrics-- like mean wall motion in treating AMI-- MultiStem's data was meaningful but not statistically significant. This fact concerns me leading into larger trials for what I believe is the single most important space (cardiovascular disease) in cell therapy, a space that such therapies should be able to control within the next decade.
With that said, I think AMR-001 is significantly undervalued and well-positioned for market success. If AMR-001 is only 25% of the NeoStem story, then that means it's worth less than $50 million based on the company's market capitalization. And with $1.3 billion in peak sales, this means the upside on positive Phase 2 data is absolutely enormous. Since we have data with a confirmed threshold dose, investors should feel rather confident going into the data announcement in the third quarter.
Finally, in determining an investment, the likelihood of a marketing success is also important. In treating AMI, MultiStem uses a catheter while AMR-001 is injected. Clearly, AMR-001 has an easy-to-administer approach, one that can be used by any physician, which then increases its likelihood of commercial success and also saves on additional costs that may arise in connection to a complicated delivery method. Overall, these things combined provide NeoStem with a tremendous amount of upside potential and limited downside, making a good investment in cell therapy.
Looking ahead to the rest of this year, 2014 could be very lucrative for investors of Athersys and NeoStem. Furthermore, these are two companies that should be commended for their research and development. Athersys has developed a single product with links to treating a wide array of indications; and by having partnerships with Pfizer and RTI Biologics, its science is even more validated. NeoStem has managed to create and develop a line of innovating products to treat diseases with three completely different approaches that could be game-changing to medicine if proven successful, along with a safety net in the revenue-generating PCT business.
Furthermore, with both companies being leaders/visionaries in the segment, each company has a first-in-line advantage in a cell therapy industry that could go mainstream in the near future. This means Athersys and NeoStem have the opportunity to be transcendent and generate billions of dollars by treating large patient populations that lack viable treatment options. As a result, I'd say keep these companies on your radar. And don't be surprised to look back in 5 years to realize that one, if not both, are leaders in treating cardiovascular disease with large pipelines and billions in annual sales.