The Bull Case For Pluristem Therapeutics

| About: Pluristem Therapeutics, (PSTI)
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Development of stem cell technology is one of the most important achievements of this century. One of the problems that the technology faced was that the cell culture process created degradation in the quality of their therapeutic ability. Now, Pluristem Therapeutics, Inc. (NASDAQ:PSTI) has a proprietary technology that creates a natural seeming environment for cell culture, making them more robust while also less expensive to generate. For a company that is trading at less than $200 million today, this technology can potentially generate over $200 million in global revenues in the next 5 years. This fact alone makes me very bullish on Pluristem.

Company Overview

Pluristem, a $180 million biotech company, develops cell therapy products using proprietary stem cell production technology. The company has a wide range of potential product candidates in different development stages for various indications. The company was founded in 2001 by Dr. Shai Meretzki, who holds the PluriX technology patents, and is also widely regarded as one of the foremost researchers in the stem cell field. The company is currently run by Zami Aberman, who is a veteran in managing companies in the high technology industry. While I am not privy to all necessary information, it is my understanding that when a great scientist who has founded a company with a great technology passes on the mantle to a great management team, that company, more often than not, does well.

Pluristem Technology

Pluristem has a proprietary tissue culture technique known as PluriX three dimensional (3D) technology. This bioreactor process allows the placenta-derived cells to grow in a natural environment and enables to produce large quantities of high quality clinical grade cells. These cells are known as Placental eXpanded or PLX cells and can be used for the treatment of peripheral artery disease (PAD), neuropathic pain, bone marrow diseases, orthopedic injuries, and other cardiovascular disorders. Currently, the company has major therapeutic advantage with its first product PLX-PAD indicated for patients suffering from PAD, including intermittent claudication (IC), critical limb ischemia (CLI) and Buerger's disease. For the latter, the FDA granted it orphan drug status, which comes with a host of advantages.

Pluristem PluriX vs. Two Dimensional (2D) Tissue Culture Process

In 2D tissue culture, cells are grown in a flat dish made of stiff and unnatural plastic. Cells stick to the plastic surface and form an abnormal binding to proteins, thereby becoming denatured in the synthetic surface. This minimizes the potency of cells to fight against various diseases. In addition, the 2D process is labor intensive and needs large infrastructure as well as high overhead costs. Compared to 2D tissue culture, the 3D method includes multilayer interactions: cells attach to one another and form a natural culture environment. It improves the production efficiency with higher product consistency and quality. Pluristem owns the technology as well as harvesting devices and therefore, it is less dependent on external parties to procure stem cells. For those who understand the logistics of the industry, that will rightly appear to be a major advantage.

IP Portfolio

For a small company, Pluristem has very important patents covering generation and composition of stem cells using the 3D process, as well as therapeutic patents and those for culture and use of cells. In all, it has 150 granted and filed patents around the world, 22 of which are granted in various countries, 3 of them in the USA. Here's a list of their granted patents.

Pluristem Clinical Programs

A large number of biotech and pharma companies are currently focusing on development of target specific medications. Pluristem, however, believes that products that are developed from the human body can be incorporated through any medium rather than being target specific. Biologically, in cell therapy, whenever a drug is administered into the body, it develops a self curing effect in patients' body due to its mechanism of action. That is the way stem cells function and that is how Pluristem develops cell therapy products.

In PAD therapy, Pluristem has two clinical studies in advanced stages with its PLX-PAD cells: Phase II/III study for CLI and Phase II study for IC. In addition, the company also has phase II candidates in hip replacement and Phase I in bone marrow therapy. Most pipeline candidates are intended to be used intramuscularly and have yet to be evaluated for other modes of administration. Pluristem has partnered with United Therapeutics to develop stem cells therapy for pulmonary diseases and that too as IV infusion. Assuredly, this move will expand opportunity for the company's stem cells therapies in a different mode of administration.

Therapeutics Industry

Peripheral artery disease (PAD)

About 18 million people in the U.S. had PAD in 2010 according to the Sage Group 2012 report. The prevalence rate for PAD continues to increase with the ageing population and is likely to be more than 21 million by 2020. PAD usually occurs with increasing fat in artery walls that lead to blockage, and reduce blood flow as well as oxygen to lower extremities of the legs. Mostly, it occurs in the femoral artery and is popularly known as femoral artery (fem-pop) disease. PAD also has symptoms that range from calf pain on exercise (Intermittent claudication) to chronic cases such as CLI and Buerger's disease. If untreated, the disease leads to severe results like amputation of legs from unavailability of oxygen to femoral arteries.

CLI: Around 4 million people from the U.S. suffer from CLI and the prevalence continues to grow with increasing cases of diabetic, hypertension and obesity. Amputation rates are high at nearly 40% in CLI patients and previous studies estimates that around there are 160,000 - 200,000 amputations per year in the U.S. Though anti-platelets therapies or endovascular surgery can be useful for some patients with PAD, however, it is estimated that such procedures are not suitable in approximately 25% of CLI cases. Currently, only 15% CLI patients are treated as per the Sage Group 2012 report, so, unmet needs are very high.

IC and Buerger's disease: IC is an acute form of PAD that usually happens due to calf pain on exercise. Approximately 7 million people suffer from IC with an annual incidence of 4.1 to 12.9 per 1000 men and 3.3 to 8.2 per 1000 women. Buerger's disease is a rare and severe disease of blood vessels which has no FDA approved therapy for treatment.

Market Opportunity for Pluristem

Based on products in clinical stages, it is expected that Pluristem's PLX-PAD will enter the market either in 2017 or 2018 for CLI and Buerger's disease, and in 2018 for IC. Considering the prevalence of PAD, there is a large potential market out there for Pluristem. Pluristem expects to generate CLI sales of $55-60 million by 2018.


Market opportunity for CLI by 2017-2018



No. of CLI patients in the US



Treated population (15%)



Unmet needs



Target patients in the US (around 50%)



Target patients including the US & EU



Patient with no treatment options (25%)



Mortality rate per year (20%)



Market Opportunity



Penetration rate



Patients with PLX-PAD therapies



Annual cost per patient ($)



PLX-PAD sales for CLI ($ in Millions)



In addition, the same product will make revenues of $30-35 million from IC and $15-20 million from Buerger's disease by 2018. Overall, Pluristem's PLX-PAD expects to generate revenue of $90-100 million including the U.S. and EU.


Opportunity for other PAD by 2018


Buerger's disease

No. of patients



Unmet needs (20%)



Penetration rate



PLX-PAD therapies



Annual cost per patient ($)



PLX-PAD sales ($ in Millions)



PLX-PAD sales ($ in Millions) in 2018



Pluristem mostly derives revenue from the united agreement and license fees that are based on the estimated development period of around 6.5 years. In 3Q, 2013, revenues were $0.19 million compared to $0.23 million last year. As most products are in development stages, the company invests majority of its fund in research and development. Due to increase in expenses related to clinical and pre-clinical studies, the expenses have increased significantly. In 3Q, 2013, R&D expenses increased by 71% to nearly $5.0 million, resulting in negative earnings. Net loss was $5.7 million or $0.10 per share compared to net loss of $4.2 million or $0.09 per share in 3Q, 2012. The company is yet to realize profit as nearly all products are in development stages and funds are used to carry out development activities. In the last nine months period, the company already used $12 million of cash in its operation.

Pluristem, however, has a strong balance sheet. As of March 31, 2013, Pluristem has $61.1 million current assets including $27.8 million cash, $23 million short-term deposit and $9 million marketable securities. The company also had working capital surplus of $55.3 million, shareholder's equity of $64 million and no external borrowings. This is a company in the classic R&D stage that has managed its cash well, and resorted to no external borrowing to fund itself. As someone who has closely seen the insides of quite a few small companies in my career, I am always inspired by this sort of money management from developing companies.


Clinical success and approval: Most Pluristem products are either in advanced or early stages. That is always an investment risk. However, the fact that the FDA has given orphan status for multiple indications tells me that most of the company's pipeline will see the light of the day.

Financing: Currently, Pluristem has sufficient funds to support itself; however, increase in R&D costs and more time in regulatory approval will burn available funds. I am not aware of any major funding coming its way.

Competition: The cell therapeutics industry is subject to rapid changes in technology. Pluristem is a small company and will face the brunt of such changes. In this industry, one either develops technologies fast or chances become obsolete.

Investment Highlights

Pluristem's PLX-PAD has completed a parallel scientific advisory process with the EMA and the FDA. The product moved to an advanced trail stage and is likely to be a promising candidate to help millions of PAD patients. Positive results and grants can help strengthen the company's therapeutic position. Pluristem has enough cash to support operations for 2 years at the least. As there is no liability, it can focus and invest only on its development activities without worrying about debt. Investors looking for early stage developing companies will find Pluristem very promising.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PSTI over the next 72 hours. 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.