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  • Cellular Biomedicine Has Multiple Near-Term Catalysts 0 comments
    Oct 3, 2013 9:13 AM | about stocks: CBMG, XBI, CLDX, SRPT

    The biotechnology space has long been a favorite for investors, with the SPDR S&P Biotech ETF (NYSE: XBI) jumping nearly 40% over the past 52 weeks. Driven by increased healthcare spending and an aging demographic, the fund holds companies like Celldex Therapeutics Inc. (NASDAQ: CLDX) and Sarepta Therapeutics Inc. (NASDAQ: SRPT), which provide immunotherapies and RNA-based treatments for numerous underlying conditions.

    Often times, the biggest upside for investors in the biotechnology space comes from the regulatory approval of certain drugs or devices in various countries. While there is certainly a large risk ahead of such approvals, success can often send shares significantly higher over a short period of time. The industry has also seen a lot of mergers and acquisitions ("M&A") that have helped rapidly unlock value in smaller companies in the space.

    In this article, we'll take a look at a relatively small player in the biotechnology space, Cellular Biomedicine Group Inc. (OTC Markets: CBMG), and why investors may want to take a second look at the stock ahead of several key upcoming catalysts.

    Initially Focused on KOA & HCC in China

    Cellular Biomedicine is a $34 million development stage biotechnology company developing safe and effective cellular medicine therapies for indications that represent large and unmet needs in China. With both in-house and licensed technologies, management is primarily focused on treating knee osteoarthritis ("KOA") and hepatocellular carcinoma ("HCC"), which affects 15 million and 300,000 patients each year, respectively, with no effective current treatments.

    The company's cancer technology, Tumor Cell Targeted Dentritic Cell ("TC-DC") successfully completed a U.S. FDA Phase II clinical trial for Metastatic Melanoma, which means that the data can be used in its analogous Chinese SFDA Phase I/II clinical trial for HCC. Meanwhile, its KOA treatment is based on adipose-derived mesenchymal progenitor cells ("huMPCs") have already shown positive results in early clinical trials, as we will discuss later in this article.

    Management plans to develop and manufacture these drugs in its two U.S. Food and Drug Administration ("FDA") Good Manufacturing Practice ("GMP") compliant manufacturing facilities in Wuxi and Shanghai, China. This existing infrastructure should help the firm rapidly monetize its therapies under development, as well as potentially generate incremental revenues by manufacturing cell technologies developed by partners and other parties.

    Low-Risk Clinical Trials with Early Success

    Cellular Biomedicine's KOA and HCC programs are relatively low risk, compared to many emerging cell therapies. With regards to HCC, its licensed TC-DC technology has already proven successful in U.S. Phase II clinical trials for a related cancer, as discussed above. Management completed patient enrollment for its Phase I liver cancer trial in late-August and expects the study to be completed by the fourth quarter of this year.

    With regards to its KOA treatment, Phase I/IIa clinical trial interim results showed a significant improvement from the baseline in clinical scores for SF-36, NRS-11 and WOMAC osteoarthritis indices with no serious adverse events. Management expects the trial to be completed by the fourth quarter of this year, with a subsequent Phase II clinical trial planned afterwards. With over 50 million Chinese suffering from osteoarthritis, these results are quite promising.

    In both HCC and KOA, the company has multiple near-term catalysts that could unlock value, while the risks associated with the clinical trials appear quite low. Investors could see significant upside and greater attention when the full KOA clinical trial results are published and the initial HCC Phase I results come in during the fourth quarter. Notably, these clinical trials also tend to progress faster in China than in the U.S., with larger addressable patient populations.

    Healthcare M&A, Regulations & More

    Chinese M&A has also been growing at a healthy clip, with transactions increasing 35% year over year to $7.4 billion with the number of transactions rising 8% to 178 during the first eight months of 2013, according to Dealogic data. Approximately $1.1 billion worth of deals involved American firms targeting Chinese healthcare firms in order to gain traction in the market, which bodes well for established companies in key growing market segments.

    China's healthcare market has also benefited from an increase in spending and margin improvements driven by public and private forces. The National Development and Reform Commission is working to remove the ceiling of drug prices and implement new pricing schemes designed to stabilize the industry. Sales of pharmaceuticals are projected to rise 18% to over 1 trillion yuan this year, while biomedicine margins have improved to 45.1% amid the strength.

    Combined, these catalysts bode well for companies like Cellular Biomedicine, which has a promising platform of translational cellular medicine products targeting chronic diseases afflicting the aging population and internationally compliant manufacturing facilities.

    Potential Investment Opportunity

    Cellular Biomedicine has the opportunity to become a leading translational cellular medicine platform in China, with its growing pipeline backed by strong clinical results and its internationally compliant manufacturing capabilities. With KOA and HCC data expected during the fourth quarter of this year, investors have numerous upcoming catalysts to look forward to that could unlock significant long-term value, including the growing M&A in the space.

    For more information, please see the following resources:

    1. Company Website

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: TDM Financial is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies. For full disclosure please visit: secfilings.com/Disclaimer.aspx

    Themes: Biotech, Cellular Medicine, M A Stocks: CBMG, XBI, CLDX, SRPT
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