Modern medicine is a result of centuries of observations, theories, hypotheses and experimentation. Many of the dramatic changes in our medical history have been sudden and often accidental while others are a product of years of surmising and the subsequent trial and error. Mankind is in the process of making its most abrupt revolution in medicine yet by focusing on a most amazing approach.
This approach goes well beyond the last few decades of small molecule and chemically-synthesized compounds that are often designed to merely fight symptoms or to fight the immediate disease itself and not the cause of the disease/ailment or even aid longer-term recovery or prevention of recurrence. The new era has two major approaches with each deserving its own spotlight. The new, novel and creative source of these two approaches with one focusing primarily on injury treatment and tissue regeneration while the other focuses on protecting the body from its own self destruction due to cancer has been under our noses the whole time.
We marvel at our chemical synthesis processes, our logic and deduction to fight injury and disease and our medical devices we tout as being the result of our creative genius and modern technology. Meanwhile, the solution to both the fight against cancer and the fight against injury and other cellular damage has been with us the entire time in the form of our own human body.
The immunotherapy approach to fighting cancer has been evolving rapidly with Dendreon's Provenge leading the charge with the first cancer vaccine approved by the FDA. This approach and the subsequent therapies and trials following all utilize our immunity system by teaching it that cancer cancers are foreign and should be attacked, just as viruses and bacteria should be. This is a growing area and is beginning to prove itself to be both legitimate and significant in its applications and is ushering in an entirely new era in the fight against cancer instead of the traditional chemotherapy, radiotherapy and surgery, each with their own successes but each with its own drawbacks.
Stem Cell Therapy
As this approach gains more traction, modern medicine is also beginning to take more note of another novel tool at their disposal in our own human body, regenerative medicine and more specifically cell therapy. Like the immunotherapy approach to helping the body by teaching it what it should fight and destroy from within, cell therapy helps the body by moving the powerful stem cells located in some areas (largely bone marrow) and moving them to areas of need. The source of these cells may be from within (autologous) or from an outside source (allogeneic). These cells may be either directly transplanted from one area to another or may be altered in an intermediate step to coax the cells into differentiating into the proper type of cell needed at the point of insertion for regeneration and repair.
Investor Opportunity is Phenomenal
Both the immunotherapy companies and stem cell companies are beginning to garner much attention by investors and large pharmaceuticals. However, the stem cell companies appear to be the more undervalued of the two and a great value investment as the increasing attention due to trial successes will likely begin driving the stock prices in the sector higher despite the degrading overall markets. The demand for goods and services in many sectors of the economy may wane as consumers cut costs. Meanwhile, the demand for health care is a fixed cost and one that only continues to grow as the population increases and ages.
There are many stem cell companies with potential to have successful trials and growth through their own clinicals and subsequent marketing or licensing of their approved therapies. As with much of the biotech sector, the risks are typically obvious with a great deal of loss for ill-conceived investments and much upside for the correct decisions. One relatively unknown company whose growth potential appears to be unrealized is actually one of the biggest players in the field, NeoStem (NBS), an adult stem cell company. NeoStem's Progenitor Cell Therapy (PCT) division was actually involved in the manufacturing of the now-famous Dendreon's (DNDN) Provenge (immunotherapy approach) during its clinicals. The company has a host of other deals with customers such as Johnson & Johnson (JNJ), Baxter (BAX) and many others. As a supplier for each of these customers, not only has the company benefited from the obvious revenue from each of these, but it has also grown its knowledge base by manufacturing over 30,000 cell products.
The experience, knowledge and revenue generated by being a valued source of cellular products for these companies is giving NeoStem exposure to potential pharmaceutical partners/suitors as well as knowledge as it grows its own pipeline, most notably their Amorcyte division's ARM-001. NeoStem initiated enrollment in their PreSERVE phase II stem cell therapy of AMR-001 for myocardial infarction on January 25th of this year. An autologous bone marrow derived cell therapy enriched for CD+34 cells, AMR-001 is administered 5-11 days after stent placement. The purpose of the treatment is to aid the body's natural repair mechanism by supplying the CD+34 stem cells that will aid in generating new blood vessels that will supply much needed oxygen and nutrients to facilitate repair and survival of cardiomyocytes (cells that comprise cardiac muscle), thus preserving heart function. With over 800K myocardial infarction events in the U.S. annually, and 20% of those having so much damage to their heart muscle tissue that the remaining muscle cannot compensate for the lost functionality, the area of need and associated market is huge for AMR-001. The phase II trial is just getting underway, and anything is possible with the upcoming data. If the data is as impressive as the phase I appeared to be, the upside for this small biotech can be great. A poor response, although a definite negative for the company and its current lead product, doesn't offer as much downside as the value in the company is currently more in its manufacturing sector (PCT) than their own pipeline.
NeoStem's undervalued price is rapidly garnering attention as the stock price has soared over 33% since an April 10th dip due to a recent stock offering. This offering and the grossly oversold state it still resides at offers investors a likely phenomenal entry point into one of the most exciting and dynamic companies in not only the stem cell sector, but also the entire biotech field. The company has many notable catalysts coming up in 2012 and 2013 with deals coming in the forms of manufacturing contracts in their PCT division, updates on enrollment and interim data in their Amorcyte division's AMR-001 and a likely sale of their 51% stake in their Chinese subsidiary, Suzhou Erye Pharmaceutical.
Time will only tell if, when and how much the sale of Suzhou will provide in terms of added cash to the company's cash base. The potential sale of Suzhou, the $6 million offering in March and the company's growing manufacturing contracts are each contributing to the bottom line and will likely soon create an even more solid stem cell company still currently in development phase but yet generating revenue to benefit share holders with increased earnings and additional money for financing their own clinicals.
The risk obviously, in so many biotechs is largely offset here as their own pipeline is actually not the biggest source of optimism and revenue. However, the company does need to streamline somewhat to start generating a solid profit. A Suzhou sale announcement would be a welcome event as the company needs to streamline more and focus more on its core cell therapy divisions as well as the obvious cash infusion (amount yet to be determined or even hinted at in PR's). Investors are expecting the company to sell its stake in the Chinese pharmacy and for the proceeds to create a significant cash position for the company to develop its cell therapies. If for some reason this sale did not occur it would be a blow to the company, as it needs to abandon that aspect of the business and focus on the PCT and clinical development of its products.
The value for this biotech is not solely based on hope and "potential sales" of an approved product in the future like many or even most biotechs, but rather it is based also on current manufacturing contracts as well as an upcoming divestiture. In fact, the only sizeable risks that I can identify are the questions surrounding the sale of its stake in the generic pharmacy to provide cash and in terms of its manufacturing business the company must show that clients are willing to sign long-term contracts that provide continuous revenue even after approval.
The risks with all biotechs are generally the same in the developmental phase. Since AMR-001 is a new class of treatments investors must always question how accepting regulators will be to new therapies. Yet with approvals in cell therapy already being seen and more biotechnology companies choosing to focus on cell therapies it appears NeoStem is perfectly positioned to capitalize on the growing interest in the space, assuming that the space continues to grow.
The headlines for NeoStem, Inc. should be exciting and potentially profitable for investors in the upcoming weeks, months and even years with steady and sustained growth likely due to a growing sector growing more dependent on it. Any positive outcomes on their clinicals are simply "icing on the cake". Investors making a proper entry into this sector's "cake" may fare very well in the short, mid and long-term; with or without icing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.