Neostem: Investing In The Potential Success Of Cell Therapy

| About: Caladrius Biosciences, (CLBS)

Over the last several months I have taken a particular interest in cancer stem cell therapies. The primary reason for my interest has been great results from a large number of candidates that are testing the boundaries of cancer treatment, with this therapy, in clinical trials. As a result I decided to invest in the future success of this therapy and buy stock in companies that I feel present the most amount of upside potential. Both stocks that I purchased use stem cell treatments in oncology, which is the primary area of treatment that has led to the majority of optimism surrounding the possibilities of cell therapy.

However, oncology is only one area in a very broad range of cell therapies that are now being developed to treat a variety of health problems. The therapy itself is showing great results and could very well have a long lasting effect on the medical community. Therefore I have been trying to familiarize myself with the various treatments and determine how the advancements of cell therapy could affect the biotechnology industry over the next several years.

Adult stem cells are probably something you learned about in high school biology class (depending on your age). They are the foundation for every organ, tissue and cell in the human body. Its job is to regenerate and then repair tissue, which basically means it's your body's self- healing mechanism. What you didn't learn in high school biology class is that therapies that incorporate cell treatments would become the focal point of discussion, criticism, and ultimately save lives in multiple fields in the medical arena. Scientists around the world now believe these therapies could do everything from reverse the effects of aging to fighting off cancer and even make hearts stronger and more durable. What's so incredible is that we are just now starting to scratch the surface of cell therapy, and don't fully understand its capabilities.

As of now the two most advanced fields in cell therapy have been in sports and oncology. In sports, athletes are going to extreme lengths for stem cell procedures, which often include complex procedures in foreign parts of the world (read about sports and cell treatments click here). These athletes believe cell therapies can repair cartilage, bones, tendons, and muscles much faster than surgical procedures. This theory has been validated by both its results and the opinions of medical professionals throughout the globe. Yet, the most advanced field in cell research is perhaps oncology, with several companies treating cancer via cancer stem cells (CSCs).

If adult stem cells are the body's way of healing, and its foundation, then cancer stem cells would be the foundation for cancer growth. This very simple theory has led to numerous advancements in the field of oncology, and now even more advancements in how we treat other diseases not related to cancer. The advancements in oncology with CSCs can be used in other areas of cell treatment, because the characteristics of cancerous cells and normal cells are very similar. CSCs generate tumors through the process of self-renewal, make treatment very difficult as a result of its ability to multiply and survive the way a normal cell would survive. Therefore, in the field of oncology, scientists have found that by targeting the CSCs they can stop the spread of the disease, and destroy it, at the root of the problem. We are now finding that other diseases can be treated with the same theory and that cell therapies can be used for more than just regenerative medicine.

As an investor you may be wondering how the advancements in stem cell therapies impact you. The answer is actually quite simple: if companies continue to innovate and research the possibilities of this therapy it could lead to a new way of treating a variety of diseases, which could create a new breed of powerhouse biotechnology companies. Even the larger, more dominant companies in biotechnology are turning their attention to stem cell therapies. Companies such as Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ), and Baxter (NYSE:BAX) are testing the limits of this industry with potential that appears limitless.

As an avid biotechnology follower I am always looking for the "next big thing" or a treatment that could become so transcendent that it changes the way we view medicine, surgery, or a specific disease. However, with cell therapy, the field is so broad and is still so relatively fresh that we don't yet know which treatments will be successful, and show progress over the conventional methods of treatment. We already know that treatments in oncology and cell regeneration have been particularly successful, but it is very likely that upcoming data will suggest that cell therapy can be effective in other areas of treatment that were previously unknown. So basically, I am looking for ways to capitalize on the new-found demand for this treatment concept. As I mentioned before, the problem is that research is still relatively new and the FDA is still slow to accept its many benefits. Therefore, I need a good way to diversify cell therapy into my portfolio so that its success and future advancements will allow me to profit.

One route an investor may take to profit from the advancements in cell therapy is to invest in oncology (which is what I have done). It is definitely the most advanced field in cell therapy and there are a great number of companies developing vaccines, with incredible results, that treat cancer by targeting cancer stem cells. There are stocks such as Celldex (NASDAQ:CLDX), Vical Incorporated (NASDAQ:VICL), and ImmunoCellular Therapeutics (NYSEMKT:IMUC) which show great promise with exciting drugs that could be revolutionary to oncology, but are still in development. Then there are larger companies with other drugs such as Hospira (NYSE:HSP), that are also placing a significant amount of emphasis on this therapy.

My decision to invest in oncology was the best decision for my portfolio, because fit with my other biotechnology investments. However, there are other ways that investors can invest in the potential success of this industry. One possible route might be in companies that have segments in the manufacturing of cell therapies, which gives investors total access to all cell therapies. It is a relatively new concept that has been under-the-radar and somewhat confusing to investors, but could offer upside potential if cell therapy continues to produce strong results. This is also an area that is rarely discussed, therefore since my goal is to identify various segments in cell therapy, I will take some time to look at the manufacturing of cell therapies.

Neostem: A Misunderstood Company

Two companies in particular that I looked at are Neostem (NBS) and Aastrom Biosciences (ASTM). Both companies are valued particularly low, and are what I consider to be misunderstood companies. Particularly, NBS is misunderstood, the main reason being a lack of effectiveness on management's part to communicate its vision. I believe this to be true because of my own experiences in trying to identify catalysts and potential revenue for this company. It's not an easy task. Yet, it could be another way to invest in the success and future breakthroughs of cell therapy. I am not saying that Neostem is the best investment in cell therapy, I am simply suggesting that it has strong connections to the entirety of the industry, and the therapy's success, with manufacturing, along with a developmental segment of its own.

One of the primary reasons that I mention Neostem while discussing cell therapy is because it is one of the major players in the industry. This may seem strange for those of you who have heard of the company, because it has a market cap of less than $40 million! As I said, it is misunderstood to a large degree, one reason being the complexity of its business. Most don't realize that the company is an industry leader in commercial cell therapy manufacturing, with virtually every cell type. It has manufactured more than 30,000 cell therapy products and delivered over 6,000 cell therapies to patients for more than 100 clients worldwide. Therefore, it has its hand in just about everything related to cell therapy, which makes it a good candidate for discussion when looking at the possibility of the therapy.

The exciting catalyst for NBS, and other companies alike, is that it has manufacturing contracts with several companies in the biotechnology space that are developing some form of treatment related to cell therapy. For example, NBS manufactured Dendreon's (NASDAQ:DNDN) Provenge for the last seven years, and has contracts with several late stage companies in which it receives either upfront revenue or backend revenue following the approval of a drug (if the company signs a long-term manufacturing deal). The company has a large list of diversified companies that use its services for manufacturing purposes, which makes it well diversified in the space, and because of a recent acquisition it has more manufacturing space to handle the growth of cell therapy.

In 2011 the company's position in the manufacturing of cell therapies became much larger when it acquired Progenitor Cell Therapy (PCT). This acquisition gave the company an industry leader and a decade of experience and research within this field. Its services now reach companies such as Pfizer, Johnson & Johnson, Hospira, ImmunoCellular Therapeutics, and Baxter among many others. So far, there have been few approvals, but with most treatments still being new concepts, it makes sense that these treatments would still be in the clinical phase, although mostly late phase. As a result, the revenue from these contracts are minimal due to the majority of the contracts being an option for royalties for discounted manufacturing, which reflects confidence in the contracts and the therapies being manufactured in its plants (such as with Islet Bioscience). Nonetheless, the company's manufacturing business PCT still returns $8-$10 million in revenue, and should return more if the candidates begin to gain approvals.

The company's partnerships are plentiful and could pay off once candidates are awarded approvals, yet some are more interesting than others, such as Baxter. First, it is important to know that Neostem is much more than just a company that manufactures cell therapies. It also has a generic pharmacy business in China, it does cell storage, and has a cell therapy segment of its own that develops candidates (which is why the company is so confusing). The reason its contract with Baxter is so interesting is because Baxter chose to utilize PCT for its Phase III cell therapy product, despite NBS having a similar candidate.

Baxter's Phase III candidate is very similar to Neostem's Phase II candidate AMR-001: Both use CD 34+ cells, which works by increasing microvascular blood flow in the myocardium via neoangiogenesis, thereby reversing post-infarct ischemia and rescuing tissue from hibernation and preventing eventual death. The fact that Baxter is using Neostem for manufacturing purposes should validate that Neostem's theory of using CD 34+ cells with its own drug could be effective in patients with Acute Myocardial Infarction. Conditions such as Acute Myocardial Infarction are yet to be tested with any level of success using cell therapy. I find it interesting that NeoStem, a company that has seen every cell type and its success, is focusing on this condition, when it sees the results of oncology drugs such as ImmunoCellular Therapetics' ICT-107. I think it speaks volumes to the potential of a particular drug when a company that is very familiar with all cell therapies chooses to focus on only one.

The ideas and theories behind cell therapy have a long way to go before gaining full acceptance among both investors and the FDA. Several of these treatments are both complex and lack adequate research, yet it's still hard to ignore the early developments surrounding the success of cell therapies in the treatment of multiple conditions. Neostem is a good example of a company that is involved in the advancements of this field in nearly every possible way. It is a company that is yet to trade with any level of momentum, compared to other developmental biotechnology stocks in the field of oncology. It is impossible to know the total worth of the company or its contracting deals, but one analyst in particular valued the potential of its lead candidate at $1.2 billion.

The company looks well positioned for the advancements in this industry. It has already announced that there are buyers for its generic business in China (a segment that doesn't seem to fit into its long-term strategy) which has a value equal to or greater than its current market cap. It also has more than 30 patents and 90 pending in an industry where patents could be precious and could be in great need for large pharma. Like I said, Neostem is nothing more than an example of a company that is highly involved in the advancements of cell therapy. There are similar companies but none with as diversified of a business model and a manufacturing presence so large. It is a very complex business, one that I am still trying to understand. If the manufacturing of cell therapies is a business that you believe could grow with the advancements in cell therapy then I urge you to research and learn more about all the companies within the space. There are many companies involved in the future of cell therapy, and Neostem is just one example of another company besides those in oncology that is well positioned if cell therapy continues to produce strong results.

Disclosure: I am long IMUC.

Additional disclosure: The material in this article is for informational purposes only. It should not be used to make any investment decision without first consulting your money manager.