NeoStem: A Promising Investment Candidate In Stem Cell Treatment

| About: Caladrius Biosciences, (CLBS)

If you are a serious investor in biotech stocks and are looking to invest in the very promising area of stem cell treatment, it is important to have an understanding of the important elements in the design, development, and commercialization of cell therapy products (CTPs). Unlike the manufacture of pharmaceuticals, which can be carried out in bulk at a single location, CTPs often require networks of different processes such as manufacture and clinical treatment at geographically dispersed locations. This is due to the fact that many stem cells are often removed from the patients' own bodies (autologous), grown and differentiated (usually at a separate location), and then returned to their bodies at the point of treatment. Even the allogeneic (removed from donors) stem cell therapies often require the cells to be manufactured (at times on demand) at other locations and then shipped quickly to the clinics where the treatment is to occur. Like pharmaceuticals, developers that are manufacturing and commercializing cell therapy products have to consider many factors such as transforming scientific knowledge into treatment, designing, developing, and conducting clinical trials-- and protecting their intellectual property. Among the major obstacles in achieving the goal of bringing the therapy to the market successfully and profitably are accruing patients for clinical trials, meeting goals set for the trials, market penetration and acceptance, and recruiting and training staff. The best way to get around the manufacturing and marketing obstacles is to keep commercialization in mind at every stage of the therapy development process.

The Logistics of Delivery of Final Products to the Clinics

One of the key areas of focus is therapy delivery, which, in the context of CTP treatments, goes well beyond just shipping the final product. Delivery is a complex series of processes encompassing the manufacture and shipping from the manufacturing site, storage at the clinical site, formulation at the clinical site, and the administration to the patients. CTP products come in various forms, with some for universal use, and others being patient-specific. They may come in the form of fresh or frozen treatments with the latter requiring the appropriate storage facilities. But the majority of these treatments are administered on a per patient basis, and the treatments will be effective and profitable only if they can be delivered efficiently and consistently.

In direct delivery, the product is shipped fresh from the manufacturer and can be administered directly to the patient. No processing or storage is required at the clinical site. Direct delivery is the simplest and most streamlined method, but it comes at a price. CTP manufacturing on a per patient basis can never achieve the costs that can be achieved in bulk manufacturing by the economies of scale. Moreover, there are logistical issues to be overcome as manufacturing facilities may need to be dispersed geographically in order to meet patient need in a timely manner. The multi-step delivery process is more complicated because it involves clinical site manufacturing and, prior to being administered to patients, frozen products must be thawed before being further cultured or manipulated. This creates risk as well as the use of more resources which will multiply with the addition of each new clinical site. But, it does overcome some of the disadvantages of direct delivery.

A Viable Contract Manufacturer Solution to Delivery

Due to the limitations of both delivery models, neither is very suitable for a large-scale operation for commercial viability. But, there is an alternative which combines the best of both methods. Shifting approaches in the multi-delivery process to a contract manufacturer would greatly reduce the requirements and demands at clinical sites, and for the developer. This way, CTPs can be manufactured in bulk, stored and processed, then formulated on a per patient basis and sent to the clinical site for administration. The use of a hybrid delivery system and a contract manufacturer will greatly ease resource demands on the therapy developer.

Based on my research, NeoStem (NBS) is the only cell therapy company in existence today that provides this integrated support to CTP treatment developers. The division known as Progenitor Cell Therapy (PCT) provides a wide range of services in this space. PCT has manufactured more than 30,000 CTPs which have been administered to more than 5,000 patients, and it has worked with more than 100 clients worldwide over the past 12 years. PCT has more than 65,000 ft.² of manufacturing and research space and is well-equipped to carry out its operations. PCT understands the importance of commercialization throughout the development process and has implemented its own business model in active clinical trials.

NeoStem Investment as Exposure to the Stem Cell Sector's Growth

The company provides its services on a flat fee basis during clinical trials with the option to enter into regular contract manufacturing on a royalty basis once the treatment has received the necessary regulatory approvals. This creates the prospect of large revenue streams if the treatment is successful in the market. Meanwhile, the services provided for clinical trials ensure a steady revenue stream to finance the company's other activities. Of course, the developer could use PCT only for the trials and then create its own facilities. But this would be an expensive and complicated process because of the necessity of building the proper facilities and having the right staff. Furthermore, there is no way of to accurately forecast the demand. There are lessons to be learned from the story of Dendreon (NASDAQ:DNDN) and its drug Provenge. NeoStem provided the support for Provenge throughout the clinical trials, but once it was approved, Dendreon decided to build its own manufacturing facilities. Dendreon has still been unable to make a profit and, in an effort to cut costs, has recently announced the closure of its New Jersey manufacturing facility and the retrenchment of 40% of its staff. It could have saved money by sticking with NeoStem.

NeoStem Investment as an Exposure to Exciting Clinical Trials

In addition to the PCT business, NeoStem's most promising therapy is aimed at preventing major cardiac problems following acute myocardial infarction (AMI), an area that is potentially a multibillion-dollar business. According to the American Heart Association, of the approximately 800,000 people who suffer AMI every year, 20% suffer from a condition called ST segment elevation myocardial infarction (STEMI) which leads to a progressive deterioration of the heart function. These patients are being targeted in an ongoing PreSERVE trial with the company recently receiving recommendation by the Data Safety Monitoring Board (DSMB) to continue the trial.

Another promising area for the company is its very small embryonic-like stem cells (VSEL) technology, which could be critical to advanced cellular regeneration. This treatment for degenerative diseases is at a very early stage, but it obviously has potential and has received some impressive backing. The National Institute of Allergy and Infectious Diseases has provided a grant of almost $600,000 for two years for the development of VSEL Technology for radiation exposure. The Department of Defense has granted the company more than $1.7 million in funding for research in osteoporosis treatment with VSEL technology. VSEL's have multiple applications such as liver regeneration, bone regeneration in osteoporosis, and the healing of chronic wounds. The concept behind this technology is to develop treatments for degenerative diseases without the ethical and moral problems of using stem cells extracted from embryos. NeoStem's treatment consists of using stem cells extracted from bone marrow. These stem cells have similar characteristics as embryonic stem cells in terms of differentiation potential, without the ethical issues being involved. According to my findings, NeoStem is the first company to conduct significant research in this technology.

Concluding Remarks

Investing in biotech companies is risky, but there are several mitigating factors in this particular case. First, there is the contract manufacturing business that provides a steady revenue stream with the possibility of large revenue streams from many of its customers that are late-stage CPT developers that NeoStem is supporting when approvals are received. This revenue stream provides funding and prevents unnecessary dilution of the existing equity. Secondly, both the CPT treatment being developed and the VSEL technology could potentially be blockbusters, though there is still much development ahead before potential commercialization. I believe NeoStem is one of the more promising biotech companies, and I would recommend investing in this company if it fits your investment approach and risk tolerance. The stem cell sector is growing and maturing. NeoStem could be a solid investment choice to experience the growth of the sector via its cell manufacturing facilities and to have exposure to early-stage clinical trials in a potential blockbuster market in treating acute myocardial infarction.

Disclosure: I am long NBS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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