In the world of speculative biotech, one company that is clearly on the cutting edge is Advanced Cell Technology (ACTC.OB). This biotechnology company is focused on the development and commercialization of human embryonic and adult stem cell technology in the field of regenerative medicine. In terms of ongoing clinical trials, the company's main focus revolves around its three macular degeneration trials, two in the U.S. and one in Europe.
As with any small biotech company, like ACT, it takes a great amount of time and research to get enough meaningful data to see if one should invest. Reading SEC filings, listening to conference calls, and viewing corporate presentations provides a great deal of insight, but that is not enough. Sometimes you just have to go straight to the source, and that is what we did with our first interview (July 2012) with Mr. Gary Rabin, Chairman and CEO. Since then, there have been many changes at the company both at the internal and external level. For example, ACT has secured a new source of funding, moved the macular degeneration trials forward, and postponed a planned reverse stock split. With so many major new developments, I once again reached out to Mr. Rabin to answer some tough questions. Below is the interview in its entirety that was completed on January 28.
Michael - Since last we talked there have been several developments with the company. One of the most important was the $35 million funding commitment from Lincoln Park Capital. How important was this deal to ACT, and what was the appeal of Lincoln Park, in particular?
Gary - Lincoln Park had been calling on us actively for over a year to do a deal. They had done an awful lot of due diligence on us, and we did the same on them. We really wanted to get the company out of the cycle of doing financings at huge discounts to market. When you look at the Lincoln Park financing, it is really at no discount to market other than the intraday volatility of the stock. That is a big difference when compared to the financings we had done previously.
One of the things that I think is important to understand is that Lincoln Park is going to be a long term holder of the stock. Also this is the first time in the history of the company that we had a major entity that is buying the stock in the form of new capital. Every financing that the company had done in the past was structured in a way that was noticeably dilutive to the stock. We really needed to get away from that kind of investor. Ultimately what we want is new issues of equity to be financed by our investors, which will be made up of our existing shareholders and new institutional investors. We just can't do that until we get off the bulletin board.
The Lincoln Park financing is such a huge step forward in terms of what the company had done in the past. You just cannot underestimate the importance of that, especially when people look at the company from a financial standpoint. The next time we do financing, it will be with a fundamental group of investors that support the actual business of the company.
Michael - Another major development for the company was the decision to not complete the reverse split of the common stock. Can you give us any more insight as to how you arrived at this decision?
Gary - First we should understand that the stock performed horribly after we announced that we weren't going to do the split. I recognize that there is a small, but vocal, group of investors that think the reverse split and the NASDAQ listing is not a good thing. Those people are wrong.
The reason we did not wind up doing the reverse split and the up-listing last year was that we had not settled with the SEC and CAMOFI. We needed to get these things done to get the NASDAQ listing approved. I promised the shareholder base that I would not do a reverse split without the up-listing. It is critical that we get up-listed and off of the bulletin boards.
The bulletin boards are no place for a legitimate, world-class biotech company. There are many reasons for this. The primary reason is that when one is sitting in a room with a really sophisticated institutional investor, it is impossible to get them to invest if you are on the bulletin boards. You have to spend the first ten minutes of the meeting trying to explain why you are a legitimate company but your stock trades on the bulletin boards.
It is critical that we get listed on NASDAQ. It will change the way the company does its financing. It will get us out of having to worry about being in the financing business. I spend a highly disproportionate amount of my time focused on getting the company financed. This is not how world-class biotech companies should operate. I want to take advantage of all the enthusiasm of our existing shareholders and attract other investors to the stock. Once we are on the NASDAQ and we are trading, hypothetically-speaking, for $5 or more, the stock will be marginable and institutionally-investable. The buying power that will be available to us once we are off the bulletin boards is just so enormous.
As we meet with institutional investors trying to educate them, we hear the same thing over and over. They state that if the stock were listed on the NASDAQ they would be buyers right now. When you really look at it, how many ways can you play the macular degeneration market as a pure-play opportunity, given the magnitude of that market? There is really only one way, and that is us. We are so differentiated from the other equities that are available in the market. When we are speaking at these conferences, time and time again the big biotech and pharma companies come up to us and say that we are the only game in town. They say that it must be exciting, and you should feel great about that. We do, but I would feel better if the stock price was higher. It is good to know, though, that we are so widely regarded as a world-class biotech company.
Michael - In our last interview we discussed potential partnerships for ACT and its programs. You mentioned that you want to make sure that the company has the most potential parties at the table before doing a deal. How is that process going?
Gary - It is safe to say that if you talk to any biotech/pharma company that has an interest in ophthalmology, you will not find one of them that does not know every detail about our trials. In fact, we are at the point that we are almost pushing back, saying that we are not ready to give out the amount of due diligence material that they are asking for. This year we are going to finish Phase I of the macular degeneration trial. You need to look at biotech companies and what deals they are able to get upfront in the middle of Phase I versus Phase II, or later. The dollar values we are talking about are massive. You are not just talking about adding a zero, you are talking about adding a huge amount of value.
We want to make sure we keep these guys very excited, while at the same time not leaving value on the table. With that said, there are lots of areas where I am focused on getting partnership opportunities for the company in the next year. Those are primarily the platelet and megakaryocytes projects. People have seen some of the excitement in our Multiple Sclerosis model as it relates to the power of the cells as compared to adult stem cells. Partnering for some of these programs with massive indications makes sense for us. There are areas where we are focused on creating partnerships that will bring additional creditability to the company in both the investing and healthcare communities.
We do not want to give up the "Golden Goose" in January of 2013 when we are so close to having Phase I done and starting Phase II. I have been clear that we do not want to partner the RPE program too early. We just cannot leave that much value on the table when you are going after markets this big. A small percentage of the market share of these massive degenerative diseases, with reasonable reimbursement rates, calculates into enormous revenue figures. With this program we have to make sure that people understand the efficacy. We need to advance the ball through Phase I and start Phase II. This is when you see these big changes in valuations from the pharmaceutical companies.
Michael - Many small stem cell companies have been getting lots of press lately. For example, Neuralstem, Inc. (NYSEMKT:CUR) announced that it received approval from the FDA to commence a Phase I safety trial for chronic spinal cord injury patients. BioTime, Inc. (NYSEMKT:BTX) announced that it has an agreement with Geron Corporation (NASDAQ:GERN) to acquire the intellectual property and patents related to Geron's human embryonic stem (HES) cell programs. Do you feel that stem cell companies are starting to become more mainstream in the healthcare sector for investors?
Gary - It's interesting that you mention those two companies. Spinal cord injury is a horrible disease/condition, and it would be wonderful if someone could go after that.
The truth is that there are about ten cell therapy products on the market right now. The cell therapy market is becoming a real industry; there is no question about that. When you talk to the big pharmaceutical companies, they all recognize the opportunity in cell therapy versus vaccines and molecules. There is just no question that this is an industry that is going to be big. We feel that we have the best opportunities and the biggest markets, when compared to the companies that you mentioned above. We also have the best business model and cost infrastructure with our off-the-shelf product. Another advantage is the scalability of our therapy. We can provide this with prices that are reasonable to both the company and the final end user. With all this going for us, these other programs just don't compare.
I'm not saying that these are not good programs. I think what Neuralstem, for example, has done is wonderful, and I wish them the best. ACT is just thinking on a much bigger scale.
Michael - Looking at ACT's macular degeneration trials we see that you were going after very late-stage patients with very little visual acuity. In your latest press release you stated that your protocol was changed and now the company is going to begin to treat patients at earlier stages of the disease. Why the change and how does this change the structure and meaning of the trials?
Gary - First let me say that when we talk about very little visual acuity, we are talking about massive areas of atrophy in the field of vision. This means that very little photoreceptor rescue is possible. When one gets to this stage of visual acuity the photoreceptors are dead. Remember that photoreceptors have a long period of atrophy and non-function before they actually die.
With the protocol change we will be able to include patients with earlier stages of the disease. In these patients we want to find areas where there are less broad fields of atrophy. The plan is to rescue the photoreceptors that are in this dormant - rather than dead - stage. We think that this could give us some really remarkable visual acuity results. We have already seen some really cool visual acuity results with our RPE cells. We have seen engraftment, survival, and function in our current patient population. These cells are sticking around for long periods of time. We think this is going to be a big opportunity for us.
By the way, these new patients are not really our target market. Our target market is the much more early stage patients, when the disease is first identified. That is the point at which you want to get these people treated.
Michael - So much attention has been focused on the macular degeneration trials, but lately there seems to have been a change. In your latest presentation and blog post there has been significant discussion of your blood components program. New Scientist magazine has even selected your Induced Pluripotent Stem ((NYSEARCA:IPS)) cell-derived human platelet program as one of the 10 ideas that will shape the year, calling it "revolutionary." What are the time frames we are looking at for this program?
Gary - One thing that you must understand is that when I came into the company I shut down lots of programs. This company was off in so many absurd directions. Now we have become much more focused, with the RPE side of the business front and center.
As an example of something we're working on in terms of the RPE program, at present, when we ship our cells to the doctors they are in a non-biocompatible media. This means the doctor can't take the cells, thaw them and then inject. There has to be some cell prep work on the doctor's side. That might work in a trial, but it is not a commercially-scalable solution from our perspective. We need to make this look like a real pharmacy product.
One of the biggest initiatives that I have the manufacturing teams working on, then, is to figure out how to ship the cells in a biocompatible medium. Our goal is to ensure that all the physician has to do is thaw the cells and place them into an injector device. Being needle-ready will make this so much more scalable for everyone. It means that all the retinal surgeons will be able to do this quite easily. You will not need a cell prep center. This will make a huge difference for this product. This is a major project for us on the RPE side. Now this frees up the research side to focus on some of these other really exciting things we have in the works.
On the blood side we are able to create vials of red blood cells and platelets. Let's look at the platelets first. Right now we are getting a small number of platelets from each megakaryocyte. To make this commercially-scalable we need to change that production rate logarithmically. We need to get to the point where you could make a thousand platelets out of a megakaryocyte like the body will naturally do. This is the kind of scale up work we are doing. This is what we will be doing this year and next year for that program.
We have a pre-IND [Investigational New Drug Application] meeting with the FDA scheduled for early March. Through that meeting, we intend to figure out exactly what they want in terms of material for the IND filing, as well as the timing. We are cutting out new ground here. If all goes well, we will complete the IND filing this year and get moving on the patient's side of the study.
The results we have seen to date for the preclinical studies dealing with the platelets show that they are identical in every respect to normal human platelets. This is the most important thing. Our platelets have to be treated by the body in the exact same way that normal human platelets are. This is a huge development. You have to understand that so much of this stuff is out of our hands. We have gained lots of creditability through our other programs with the FDA, but we are cutting out lots of new ground here.
Michael - ACT ended the third quarter of 2012 with $42 million in cash and available draw-downs under an equity line. You have about a $16 million burn rate, so that funds the company into early 2015. Does that give ACT enough breathing room to advance most of the desired projects on the books?
Gary - I think that one of the great things about the company is that Dr. Lanza and his team can make significant advances with very limited budgets. You are talking about a scientific team that is basically intact from the days when the company could not make payroll. This is a pretty efficient organization in terms of research, development, and manufacturing. We do a lot with a little. Once we can get into our new space by late summer or early fall, we will have a new lab, clean room, and equipment. This is going to make a huge difference. We will be able to run simultaneous things through the labs and clean rooms. Now we cannot do this because we do not have the space. Due to this change, I am very comfortable with our cash balances.
This new space we have taken on gives us so much more flexibility at a really reasonable price. We are paying so little for this space that is really outstanding. This should free up lots of opportunities for us. As for our projects, we do not see a limit being placed on us based upon the available capital. Our RPE program is our main focus and we will not deviate from that. We are advancing the ball at the right pace, and we will focus on the things that will make us the most money in the future.
Michael - You have assembled a very impressive board of directors with a diversity of talents and backgrounds. Could you tell us anything about any special projects the board might be working on or how the company has benefited from this newly-assembled team thus far?
Gary - We just had a big project going on with the company and the board. It was to put together the company's first ever strategic plan. Last week we got the board's approval to begin implementing this strategic plan. We will be laying out some of the key aspects of this plan for investors over the coming months. It was a colossal effort by both the board and the company to get this done so we can really focus on the future.
The amount of talent on our board of directors is incredible. I would challenge any biotech company to come up with a more resourceful, thoughtful, intelligent, and sophisticated board than the one we have in place now. These guys just impress me at every turn.
This strategic plan is a big deal. Obviously augmenting the management team of the company with plans to commercialize these projects was one of the components of this plan. Getting on the NASDAQ, bringing in operating officer kind of people, as well as a chief financial officer is also a big component of the plan.
In terms of other things the board is working on we turn to Dr. Langer. With his presence and his scientific review, there is a great exposure as to how really remarkable our science is. We are gaining lots of traction within the scientific community. This is just one more example of how the board is really helping us.
First, I would like to once again thank Mr. Rabin for taking the time to participate in this interview. He answered every question in a thoughtful manner and was very generous with his time. Finally, I would like to make it clear that I was not compensated by ACT or anyone else to compose this article. I am a simple shareholder in this company, a contributor to Seeking Alpha, and nothing more. My intent here is straightforward, and that is to gather as much information as I can for myself and those interested in this company.
Disclosure: I am long ACTC.OB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.