Cell Therapy Outlook Starting To Match Clinical Results

by: The Swiss Trader

Last week, NeoStem, Inc (NBS) had some very encouraging developments. It released its quarterly report and also updated investors on its clinical trial for AMR-001, as it continues to prove itself as a leader and innovator in the cell therapies space. However, NeoStem is not alone, as there are many companies in the space that are progressing in clinical trials, seeking approvals, and earning the support of governments for the treatment of life-threatening diseases. Therefore, as we progress into the next few years, cell therapies and the results of clinical studies will be watched closely by government and both the private and public sectors. As a result, I suggest looking at some of the announcements from NeoStem over the last week and then dig into the current state of regenerative medicine and the support that its progress is earning.

AMR-001: No Safety Issues

If Baxter's (NYSE:BAX) CD34+ cardiovascular cell therapy is any indication of the success NBS investors can expect from AMR-001, then the future is looking quite bright. Yet, despite the fact that both therapies are meeting endpoints and treating conditions that no other therapy effectively conquers, there is always some underlying fear that the DSMB may cut a cell therapy trial short; seeing as how the U.S. has no approved treatments with a cell therapy as the main component, it puts NBS in a very exclusive group.

As the trial progresses, safety will be an area that is watched with significant interest because safety issues having the ability to end a trial abruptly. Yet, according to the company, "the first external review of our Phase 2 trial data confirms that there are no safety signals that would preclude the trial from continuing as planned." Thus, NBS can proceed, and investors will wait patiently till 2013 for the trial's interim results; and judging by Baxter's incredible success, AMR-001 should perform well in this study. If so, it's poised to enter a large market to treat an unmet medical need, with revenue potential that exceeds $1 billion.

Pharmacy Divesture

The sale of the company's 51% stake in the Erye Chinese generic pharmacy is much larger for NeoStem than what most investors realize, and during the company's several key developments last week, it spent a considerable amount of time discussing the financial impact. When the company invested in Erye, it was buying into the Chinese economic boom, but did not plan for the competition that existed in the market. Hence, investors speculated that it would earn very little in compensation for its large stake in the company.

Yet, besides the return of shares, the company was also given $12.3 million in cash and, most importantly, eliminated over $35 million of short- and long-term debt obligations, which is crucial for a biotechnology company of NBS' size. It also frees the company from having such a large presence in China. The company can now focus on its U.S. projects and will have the leverage on its balance sheet, with less debt and more cash to avoid rounds of financing in the immediate future.

PCT Business

In this most recent quarter, NeoStem added the Phase 3 company, SOTIO, to its list of clients in the PCT manufacturing segment. PCT is considered the leader in this particular space, with over 55,000 square ft. of manufacturing capabilities, located in both New Jersey and California. And although NBS is a developmental company, and its revenue is minimal, it still increased revenue by 82% in the PCT business, which shows that it is a growing segment of the business.

Cell Therapy Developments

So far 2012 has been an incredible year for cell therapy companies in terms of breakthroughs and performance, as most of the major companies in the space have performed exceptionally well. NeoStem is not the only player in the space with company-changing developments. Aastrom Biosciences (ASTM) recently initiated its Phase 3 REVIVE-CLI trial of ixymyelocel-T for patients with critical limb ischemia (NYSE:CLI). StemCells (STEM) initiated a Phase 1/2 trial for dry AMD and announced preclinical data regarding the company's HuCNS-SC cells - which showed efficacy in patients with Alzheimer's disease.

Yet, the company creating similar excitement to NeoStem is Pluristem Therapeutics (NASDAQ:PSTI), a company that has announced many developments that have led to a one-month rally of more than 90%. The company has applied for the approval of its bone marrow drug in the U.S., as well as entering into studies in other regions around the globe, such as India and Germany. The company, which has partnered with CPC Clinical Research, is making strides towards approval and, much like NeoStem, hopes to join Osiris Therapeutics (NASDAQ:OSIR) in having an approved treatment with a cell therapy as the main component (which OSIR achieved earlier this year).

Regenerative Medicine At A Glance

The regenerative medicine space is a somewhat young industry that presents the possibility of finding a cure for diseases that were previously untreated, or simply managed. The healthcare system consists of an aging population, and with a growing healthcare burden, it seems reasonable that the approval of cell therapies could be a part of our immediate future. Already we are seeing a change in government outlook, as many governments and economies invest millions into the research of cell therapy and regenerative medicine.

For the first time, regenerative medicine is more than skin cream; instead, it has become medical therapies that treat or cure cardiovascular and degenerative diseases. With the number of companies beginning clinical studies for cell therapies, investors should feel optimistic, as companies such as those discussed may be the most noted; but, there are many in the space that look poised to benefit, including NeoStem, a company with a diversified presence with its manufacturing, storage, and preservation of cells.

The cell therapy industry is a more risky investment, yet presents the potential for a large return. At this point, the data proves efficiency for many of the top candidates, therefore, leaving the question regarding approvals and regulator acceptance as the only relevant discussion. Some countries are already warming up to the idea of using cell therapies to treat unmet medical needs, seeing as how we recently saw the first approval with OSIR's Prochymal.

The Tissue Engineering and Regenerative Medicine International Society (TERMIS) is the world's largest professional organization for tissue engineers; and it just recently announced the results from a survey of 37 organizations for public and private sectors. The results showed that government remains highly invested in regenerative medicine, with more than 55% investing over $5 million in the space. In addition to strong government support, both the public and private sectors showed an increase in interest and investments in the space.

NeoStem and the other companies in this article represent the primary investment interest as new cutting-edge successful therapies. In fact, TERMIS showed that musculoskeletal disorders are the most interesting indication for cell therapies, followed by cardiovascular disorders. This reflects the majority of investments, and also informs investors of where innovation is present.

As we progress into the next few years, several companies will inch closer to regulatory decisions, and the space itself will be determined by the outcome of candidates such as Baxter's CD34+ cell therapy and the regulatory acceptance of Osiris' Prochymal. It will be an interesting space to watch, but with key developments and progress that continue to shine, it does appear the future is bright for innovating cell therapies.

Disclosure: I am long BAX, NBS.