Biotechs Placing Bets On Cell Therapy Success

| About: Pluristem Therapeutics, (PSTI)

Are you convinced that cell therapy is a viable process which can be used to treat diseases?

Several companies, including Lonza AG (OTCPK:LZAGF), Mesoblast (MBLTY.PK), Pluristem (NASDAQ:PSTI) and others, are convinced.

In a recent press release, dated September 26, 2011, Lonza agreed to construct a manufacturing facility exclusively to produce Mesoblast’s bone marrow-derived mesenchymal stem cells (MSCs).

Additionally Mesobast will have exclusive access to Lonza’s cell therapy facilities in Singapore, subject to certain exceptions. Lonza’s CEO, Stefan Borgas, is quoted as saying, “Lonza is very excited to work under this significant relationship with leading cell therapy company Mesoblast. The cell therapy market is anticipated to become a major growth industry with the potential to mirror the grown we have seen in monoclonal antibodies over the past 20 years."

That Lonza, one of the world's leading suppliers to the pharmaceutical, healthcare and life science industries, is committed to this project certainly appears to go a long way in lending credibility to the cell therapy industry.

Still, as I pointed out in my previous report about the cancer immunotherapy space, investors are challenged to find the right companies to support in a field which has become more crowded and in which a wide range of broad trends become roadblocks. Issues critical to making cell therapeutics manufacturing more economical, and any number of other technical issues must be overcome to facilitate the regulatory pathway for these new treatments.

In my opinion, it appears that Lonza will likely be mass-producing Mesoblast’s cells via a 2D method (petri dishes and tissue flasks).

One reason for this is because Pluristem holds the exclusive patents and essentially has a monopoly on the expansion of MSC’s in a three dimensional (3D) manner, no matter where these MSCs come from.

Does it make sense to think that the only way Lonza or anyone else would be able to grow cells in a 3D manner is to either acquire Pluristem or sign some kind of licensing agreement with them?

Pluristem has come up with a way of protecting its IP position in expanding cells in a 3D method – bar coding. In other works, Pluristem is able to assay a competitor’s cell product and tell if the cell in that product were grown in a 3D or 2D manner. This is very important for Pluristem if the 2D manufactures need to resort to 3D manufacturing to produce the necessary number of cells for their product in a cost effective way.

Most believe manufacturing cells in a 2D manner is not nearly as efficient as expanding cells tree dimensionally, and that is an opinion which Lonza may, in fact, share.

Some say the industry average for the cost of manufacturing cells in a 2 D manner is approximately $20 million. On the other hand, Pluristem indicates it will be able to manufacture cells at a cost of approximately $1 million when they scale up, a process they have already embarked upon.

This translates into Pluristem’s cost being approximately 5% of those entities manufacturing cells in a 2D manner. There is a big difference when millions of cells are needed for a dose. For example, Pluristem’s cell dose in its upcoming critical limb ischemia (CLI) trial is 300 million cells. This translates to a cost of approximately $300 while that same number of cells manufactured in a 2D manner would cost approximately $6,000.

If commercial quantities of cells can be manufactured in a 2D manner, the cost of doing so may become prohibitive, depending on reimbursement issues.

Some believe Lonza is selecting a specific cell type from the bone marrow for eventual mass production, so that this cell type is the same for all products produced for Mesoblast. On the other hand, because Pluristem uses the placenta as its source of raw material, the game is changed. Coupled with its proprietary 3D bioreactor for mass-production, it would be able to produce different cell types based on their cytokine secretion and not just surface markers.

Some industry observers believe Lonza has not proven batch-to-batch consistency to the satisfaction of regulators for the cells that they are producing for Mesoblast. On the other hand, we know that Pluristem has already accomplished this.

I believe bone marrow-derived cells may not be able to be administered to the same patient repeatedly form the same bone marrow source.. I have not been able to identify any bone marrow-based company - like Athersys (NASDAQ:ATHX), Osiris (NASDAQ:OSIR) or Mesoblast - that has attempted this and the literature indicates antibodies form against these bone marrow derived cells when it was tried in aniumal models. On the other hand, Pluristem has successfully demonstrated they can re-dose patients with their placental-derived cells from the same batch. There are obvious ramifications as I believe cells will need to be re-administered for most indications.

The bottom line is that Pluristem is not just a cell therapeutics company, but also a company poised to succeed as a cell manufacturing company. It placental raw material source and 3D manufacturing method may actually be the most efficient way to mass produce differentiated MSCs. I believe this is why United Therapeutics (NASDAQ:UTHR) approached Pluristem for an indication that Pluristem had no in vitro or animal data for.

I believe astute investors who have an interest in the cell therapy space should take advantage of the fact that Pluristem shares were recently punished for focusing on scaling up the cell manufacturing portion of their business in order to have commercial grade cells for further clinical trials. This has resulted in a huge discrepancy in the market value of Pluristem ($100M) and Mesoblast ($2.3B). Pluristem currently has approximately $50M in cash, which is approximately 50% of its market value.

Does it not make sense to accumulate Pluristem’s common stock at these levels?

Going from innovation to large scale manufacturing, Pluristem is certainly a stock to consider.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.