Cell therapy has produced some solid gains in biotechnology during the last six months, as data, regulatory support and investor confidence have been at all-time highs. The industry consists of companies with breakthrough therapies that have already produced favorable results in 2012, and last week we saw several big announcements from companies in the industry. I am looking at news from the space, and what it means moving forward for these select companies.
First, StemCells (STEM) fell nearly 9% on Friday after reporting its third quarter earnings. The company posted a decline in operating expenses, but the losses were still more than investors expected. The company posted a loss of $0.54, but the Street was expecting a loss of $0.17. Its $247,000 in revenue was also short of expectations, which were $430,000.
Despite StemCells' loss, the stock is still trading with gains of 120% in 2012. The company has created a lot of buzz in cell therapy thanks to its Alzheimer's disease cell therapy restoring memory and enhancing synaptic function in two animal models.
While StemCells traded lower, Neuralstem (CUR) traded higher by 11% last week. The stock traded higher in anticipation of earnings, but then traded flat on Friday despite announcing lower costs. Neuralstem is yet another company with a potentially novel therapy that is being tested to treat paralysis, and may work on other indications. The company will eventually have to seek a larger amount of money to continue testing once advanced human trials begin. Neuralstem recently raised $9.85 million in a secondary stock offering, but most investors understand that more financing will be needed at a later time.
The big loser last week was Pluristem Therapeutics (PSTI); it lost 19% of its value in the final three days of the week. The catalyst that led to its fall was a report from Bloomberg that two of the three patients that were given the company's stem cells have died. The company immediately responded by saying that the patient in question was not part of its program, and that they learned of the patient's death at the discretion of her family and physician. As an investor, it is easy to form an opinion, but in regards to this matter, it is best to wait and see if any additional facts develop.
Despite the downward pressure on shares of PSTI, the company did have some good news. It announced the completion of its large-scale cell therapy formulation for commercial and clinical trial use. Personally, I think the manufacturing facility is a little premature. However, it is a sign of confidence on behalf of the company; hopefully it's not too costly.
While Pluristem is using its manufacturing facilities to produce PLX cells, NeoStem (NBS) is without question the leader in this manufacturing space, with several late stage clients in addition to manufacturing its own cells. The company continues to grow sales, cut costs, improve its balance sheet, and on Monday the company s CEO talked about these facts.
NeoStem will announce earnings this week, and if current trends in cell therapy continue, then we should see cost cuts. During its last quarter, the company grew revenue by more than 50% while significantly cutting its operating loss. The company continues to operate more effectively and has made many strides in strengthening its balance sheet during the last several months, by adding nearly $13 million in cash to its balance sheet, removing $33 million in debt, and redeeming Series E Preferred stock to eliminate selling pressure (which should be in effect).
In spite of these developments the cell therapy space continues to be among the most promising in biotechnology. The companies I've discussed are creating therapies that don't just treat diseases, but could cure diseases that have no alternative treatments. The Bloomberg article regarding Pluristem was negative towards the perception of cell therapy, but it is not a reflection of the entire space. Osiris Therapeutics (OSIR) already has an approved product with a cell therapy as the main component. And new data on NeoStem's AMR-001 was recently published by the International Scholarly Research Network, showing zero deterioration in heart muscle function in patients receiving 10 million cells or more, which was an improvement of 30%-40% better than those without. As a result, this data from NeoStem and the approval of Osiris' Prochymal shows that certain cell therapies are already proven to be effective.
In my opinion, NeoStem does remain the most promising of the cell therapy companies. Both Neuralstem and StemCells show great promise but both are still in such early phases of development, thus anything could change. NeoStem is in a Phase 2 trial, and its recent announcement of data shows a clear benefit to using its cells, and the success of Baxter's (BAX) trial further validates the likelihood of success for NeoStem.
Osiris Therapeutics does have an approved product, but the marketing potential is conservative, and the company's market capitalization is over $300 million. Meanwhile, NeoStem, StemCells, Neuralstem, and Pluristem all have billion dollar products, and despite gains, remain attractively valued. Yet regardless of which company presents the most upside, this is a space that should appreciate by a large degree in the coming years. And with trials starting to begin, data on the horizon, and the potential for approvals in the near future, the large upside could be sooner rather than later.
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.