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Trying to find companies that represent the future of the biotech segment is what every investor is constantly looking for. The hard part is trying to find the right company--a company that does not over dilute shareholders, which spends its money wisely, and has an actual legitimate shot at becoming a large revenue and profit producing company. Too many small cap biotech companies show promising technology, but have bad stock and financial structures. The key in small cap investing is finding companies that structure their business with the main goal of both financial growth and technological advancement. Antares Pharma (ATRS) is my largest holding because I believe it is one of the best small cap business opportunities I have ever seen. For this article, I believe the company I am going to talk about meets the criteria that many small cap investors look for.

Pluristem Therapeutics Inc. (PSTI) ($3.20, market cap: $143.42M) is a developer of placenta-based cell therapies. The Company's patented PLX (PLacental eXpanded) cells are a drug delivery platform that releases a cocktail of therapeutic proteins in response to a host of local and systemic inflammatory and ischemic diseases.

PLX cells are grown using the company's proprietary 3D micro-environmental technology and are an "off-the-shelf" product that requires no tissue matching prior to administration. Pluristem is focusing on the use of PLX cells administered locally to treat systemic diseases and potentially obviating the need to use the intravenous route. Data from two phase I/II studies indicate that Pluristem's first PLX product candidate, PLX-PAD, is safe and potentially effective for the treatment of end stage peripheral artery disease when given locally. Additionally, Pluristem is developing PLX-PAD for cardiac ischemia; PLX-BMP for Acute Radiation Exposure; Bone Marrow Transplant Failure and Chemotherapy induced Bone Marrow Aplasia; PLX-ORTHO for orthopedic indications; and PLX-PAH for Pulmonary Hypertension in collaboration with United Therapeutics. Pluristem's pre-clinical animal models have demonstrated PLX cells are also potentially effective in other inflammatory/ischemic indications, including diastolic heart failure, inflammatory bowel disease, neuropathic pain and pulmonary fibrosis. Pluristem has a strong patent portfolio; GMP certified manufacturing and research facilities, as well as strategic relationships with major research institutions.

The company's main technology, The PluriX Bioreactor System is designed to be a system of stromal cell cultures and substrates that create an artificial physiological environment where adherent stromal cells (ASCs) can grow and reproduce outside of the human body. Unlike conventional two-dimensional (2D) culturing methods, the Company's PluriX Bioreactor creates a three-dimensional (3D) microenvironment that closely resembles the structure and function of the body's bone marrow environment. By mimicking the natural environment that exists within human bones, the system tricks stem cells into growing and reproducing in the same way they would in living organs. Because the size and scale of the PluriX Bioreactor is larger than that of human bone marrow, stem cell growth can be greatly expanded.

The company believes that intramuscular administration, which means that the cells are administered locally to the muscle and not systemically, may be suitable for a number of different clinical indications. Such indications include peripheral artery disease, or PAD, critical limb ischemia, or CLI (the end stage of PAD), intermittent claudication, or IC (a subset of PAD), muscle injuries, thromboangiitis obliterans, or Buerger's disease, neuropathic pain, wound healing, orthopedic injuries and acute myocardial infarction. Under an exclusive license agreement, or the United Agreement, with United, the company plans to participate in the development and commercialization of a PLX cell-based product for the treatment of pulmonary arterial hypertension, or PAH.

On June 20th, the company said it has been in contact with drug makers to set up partnerships for its flagship blood-circulation disease treatment, PLX-PAD.

After completing two initial clinical trials involving different forms of peripheral artery disease, or PAD, Pluristem plans to start a late-stage study in 2013 of PLX-PAD's effectiveness in the disease's critical limb ischemia stage.

Pluristem Chief Executive Officer Zami Aberman remarked in a phone interview with Bloomberg BusinessWeek:

We are talking to more than one of the larger pharmaceutical companies about the possibility of out licensing our treatment,. We are not under pressure as we are sitting on about $40 million in cash, but if the deal is good enough, we'll take it.

On July 18th, the company announced that CPC Clinical Research will be managing the company's upcoming Phase II clinical trial for its proprietary stem-cell therapy in the treatment of peripheral artery disease. Pluristem said that CPC is a specialist in conducting clinical trials for the condition.

On May 9th, 2012, the company announced that a seven year-old girl suffering from an aplastic bone marrow whose condition was rapidly deteriorating is now experiencing a reversal of her condition with a significant increase in her red cells, white cells, and platelets following the intramuscular injection of the company's PLacental eXpanded (PLX) cells. Aplastic bone marrow is a disease where the patient has no blood-forming hematopoietic stem cells in the bone marrow. I found a YouTube video on this story as well for investors to take a look at. This kind of break-thru clearly indicates the company's tech works.

Stem cell technology is the wave of the future, but as I mentioned in the opening paragraph of this article, a company's stock structure and financial position has the greatest effect on whether or not we will see strong stock price appreciation now and in the future. Excessive warrants, bad financing, and burning too much cash will cause a stagnant stock price.

Zalicus Inc. (ZLCS) has a promising drug pipeline which includes Synavive, a glucocorticoid prednisolone product candidate, which is in Phase IIb clinical trial for the treatment of rheumatoid arthritis; Z160, an N-type calcium channel blocker that has completed Phase I clinical trial to treat neuropathic and inflammatory pain; and Z944, an oral T-type calcium channel blocker, which is in Phase I clinical trial for the treatment of various chronic pain conditions.

However, Zalicus constantly dilutes shareholders and seems to mis-manage money--in my opinion. Many Zalicus shareholders bought the stock on its promising pipeline, but to date, most are holding a bag because the company just continually raises capital on the backs of investors-- a strong negative and the main reason I will not write positively about the company until when and if they stop engaging in what I believe to be excessive dilution.

Pluristem on the other hand, does not engage in excessive dilution. According to the company's latest 10Q, during the past nine months, 218,373 warrants were exercised in consideration for $383,253, and 231,692 warrants were exercised on a cashless basis resulting in the net issuance of 116,913 shares of stock-- very little dilution. Comparing this to other developmental bio pharmas, and we can clearly see Pluristem is not dumping shares on investors.

Instead, during the past 9 months, the company received approximately $904,000 from the Israeli Office of the Chief Scientist (OCS) towards its research and development expenses. The OCS has supported its activity over the past six years. In April 2012, Pluristem received the OCS's approval of the seventh year grant in the amount of NIS 11.8 million (approximately $3.1 million) for participation in R&D expenses occurred during the period from March 1, 2012 through December 31, 2012. According to the OCS grant terms, the company is required to pay royalties at a rate of 3% - 5% on sales of products and services derived from technology developed using this and other OCS grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required.

Pluristem shows a pattern similar to a company I wrote about in the past, BioDelivery Sciences International (BDSI). BDSI has not engaged in excessive dilution upon its shareholders, and has excellent management. At the time I wrote the article, BDSI's stock price was $2.57 a share. Its current stock price is $4.96 a share, trading very close to its 52 week high of $5.19.

My price target opinion at the time I wrote my article on BDSI was:

Short term: $3.05
Mid-term: $4.00
Longer mid-term (6-11 months) $5.00

Pluristem has even greater upside potential, once it gets the proper coverage. The company's tech might reach the market faster than normal, under accelerated compassionate use. Short sellers might want consider this factor along with the fact the company does not engage in shareholder dilution before considering taking a short position here. Additionally, the company displays a management team who has shown in its actions a commitment to stay anti-dilutive while maintaining proper working capital--shareholder friendly.

Balance Sheet

Total Cash (mrq):

39.54M

Total Cash Per Share (mrq):

0.88

Total Debt (mrq):

0.00

Total Debt/Equity (mrq):

N/A

Current Ratio (mrq):

8.54

Book Value Per Share (mrq):

0.85

Cash Flow Statement

Operating Cash Flow (TTM):

-4.50M

Levered Free Cash Flow :

-4.21M

Notice, the cash burn is very low in comparison to its cash on hand. The company also stated in its latest 10Q that is has enough working capital to last thru 2014, so dilution is off the table here.

Avg Vol (3 month):

157,533

Avg Vol (10 day):

190,725

Shares Outstanding:

44.82M

Float:

40.32M

% Held by Insiders:

10.05%

% Held by Institutions:

1.00%

I would like to see a bit more insider ownership, but the 10% number is decent. I strongly encourage small cap fund managers to consider Pluristem based on its strong speculative value and anti-dilutive business dealings. I see far too many fund managers put money into companies with promising technology, but with marginal management that continually dilutes the shareholders-- a losing proposition for small cap fund managers. The long term prospects here are going to take some time, but within 5 years, this stock could be selling for over $80 a share, if not higher.

Another company similar to Pluristem, StemCells Inc. (STEM), shows some technological promise but is getting low on money, and might have to engage in a secondary offering--shareholder dilution. Shareholder dilution under specific circumstances can actually be a good thing, so this is not to bash on STEM, but I think Pluristem shows more promise for the short and midterm price appreciation potential.

I was also recently taking a strong look at Complete Genomics Inc. (GNOM) which develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Its Complete Genomics Analysis platform combines its proprietary human genome sequencing technology with informatics and data management software to provide customers with data that is ready to be used for genome-based research.

GNOM also shows promise in a different segment from stem cell treatments, but like many other small cap companies, it burns far too much cash and looks to me that it will have to engage in a secondary offering soon. In fact, from its last 10k, the company flatly states that they are running out of money.

Pluristem, while carrying the common risks of small cap biotech, carries far less which equates to less downside potential, and much more upside potential.

I strongly feel investors willing to tie up money for a few years should see massive multi-bagger gains here. One such example of patience in long term investing paying off recently is Arena Pharma (ARNA). Long time Arena investors waited it out for years on the hope that Arena would eventually get its weight loss drug Belviq (Formerly known as Lorcaserin) approved. Just this year, the stock price was under $2 a share, but on approval of its long awaited anti-Obesity drug, the stock soared to as high as $13.50 a share before pulling back to where it trades currently--$9.98. On a side note, Arena's sell-off the other day on Vivus's (VVUS) approval of Qsymia was unwarranted. I believe Arena is in a much better market position than Vivus moving forward. Fund managers might want to re-think their positions in Vivus, whose drug Qsymia will have a very limited market share due the heavy restrictions placed on the potential sales of the drug.

I strongly feel once the investment community does its due diligence on Pluristem, it should see the massive long term potential here.

My price target opinions:

Short-term, 1 day to 3 months: $5.00

Mid-term, 3 months to 1 year: $5.00-$7.00

Long-term, 5 years: $50 to $80 a share.

Source: Stem Cell Therapy: The Investment Of The Future

Additional disclosure: Family holds PSTI stock. DISCLAIMER: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Trading stocks are risky--always be sure to know and understand your risk tolerance as in any given trade/investment you can incur substantial financial loss. By reading this article, you agree and understand that I am not giving recommendations on stocks to trade. Any trade you make-- wins, losses, or break even--are entirely your decision and responsibility. You also agree and understand that I have no material insider information--just opinions. Always do you own complete due diligence before buying and selling any stock, and/or consult with a licensed qualified broker dealer and/or certified financial adviser.