StemCells CEO Writes Letter To Shareholders, Identifies Upcoming Catalysts

| About: Microbot Medical (MBOT)

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Shares of stem cell research company StemCells Inc. (STEM) were down 28% during the 2013 calendar year. That poor performance has fired up chief executive officer Martin McGlynn. Recently, McGlynn wrote a letter to shareholders discussing the poor performance of the company's shares. Investors have plenty to take away from his letter and should be eyeing this speculative name once again.

The biggest takeaway from the letter is the company's timeline for upcoming studies. Here is a look at some important dates shared from McGlynn:

· 1H 2014: Initiate Phase II efficacy trial in spinal cord treatment

· 2014: Initiate Phase II efficacy trial in AMD

· 2015: Interim results of proof of concept trials on both AMD and spinal cord injuries

· 2016: The company plans to file an IND for the safety and efficacy of HuCNS-SC cells to restore memory loss in Alzheimer's patients.

StemCells began Phase I/II trials for its spinal cord treatment in September of 2011. The trials, taking place in Switzerland, have seen 8 of the planned 12 subjects begin dosing. To date, three of the subjects have had the completed study. Two of the three have regained partial or full sensation below the site of the injury 12 months after treatment from StemCells. This study is expected to expand to the United States and Canada to get a wider base of subjects and to further comply with FDA approval later down the road. McGlynn had this to say on the spinal cord focus:

"We are confident that we will wrap up enrollment in Q1 2014, which should pave the way for the controlled Phase II efficacy trial that we plan to initiate in the middle of 2014."

In October of 2012, the first patient was enrolled in StemCells FDA Phase I trial for age related macular degeneration, also known as AMD. Age related macular degeneration remains the leading cause of blindness in people over the age of 65. In the United States, there are currently 8 million diagnosed people with AMD. That number is expected to double by 2020. There is no current approved treatment for dry-AMD, which StemCells continues to work on. The company has dosed 7 of the planned 16 patients in the current trial. StemCells will also initiate a Phase II efficacy study later this year for its AMD treatment.

Aside from its more well-known trials for AMD and spinal cord injuries, StemCells continues to work on a variety of treatments for genetic disorders. The company has completed and published two Phase I trials for the rare genetic diseases Neuronal Ceroid Lipofusinosis (also known as Batten's Disease) and Pelizaeus Merzbacher's Disease (also known as PMD). The company believes;

"these studies have shown that we can safely transplant up to one billion cells into the brain of an infant or a child."

Due to the rare nature of PMD, StemCells continues to push through with trials and attempt to have the FDA expedite trials. The company recently met with the FDA to discuss future plans. The company discussed the design of a Phase II trial and possible ways to gain approval for treatment. This is a smart move by StemCells in my opinion. With no approved treatment options and the rare nature of the disease, the FDA will want a treatment option and StemCells willingness to cooperate and tailor a trial to the FDA could greatly improve the chances of an approval.

Perhaps the most exciting play on StemCells stock is its Alzheimer's Disease pipeline. Over 5 million Americans suffer from Alzheimer's and that number is expected to double by 2050. The memory loss disease could cost over $1 trillion by 2050 from consumers and insurance companies. StemCells was awarded a $19.3 million loan from the California Institute for Regenerative Medicine. The loan is forgivable if a drug is never approved. In 2013, StemCells received its first portion of this special loan in the amount of $3.8 million. In January, StemCells will receive the second part of this loan in the amount of $3.8 million, which will help in the continued funding of trials relating to Alzheimer's Disease. Previously, StemCells planned on filing an IND by mid-2017 for its Alzheimer's treatment. The company now plans on filing by mid-2016, moving up the potential for this blockbuster treatment by a year.

One of the best moves by StemCells in 2013 was not discussed in McGlynn's letter to shareholders, but I believe it is worth mentioning. In October, StemCells acquired a patent portfolio that will help its future. The deal gives StemCells ownership of several patents that it already had exclusive worldwide licenses to, but relieves the company from paying any milestones or royalties in the future:

"The portfolio broadly claims the manufacture and proliferation of purified populations of human neural stem cell and their use as therapeutics and as tools for drug discovery."

To pay for the patents, StemCells issued 139,548 shares of stock, which was valued at $192,576 at the day of the announcement. One patent, which is valid through 2024, claims;

"use of human neural stem cells to remydinate endogenous host cells, such as to treat spinal cord injury."

Although the patents are broad, StemCells has the potential to keep its future dominance in the stem cell market and possibly see royalties from competitors along the way. After acquiring the patents, StemCells sued rival Neuralstem Inc. (NYSEMKT:CUR) for infringement on six of the patents. Neuralstem fought to have four of the six removed by the USPTO, but was denied. The denial by the USPTO likely means StemCells has a strong case and could see damages or potential royalties on any approved Neuralstem treatments. While this isn't the main reason to invest in StemCells, it certainly is worth watching in the future.

It doesn't take a biotechnology expert to see that there is blockbuster potential for StemCells going forward. McGlynn reminds investors of the potential with this;

"If we succeed in bringing our HuCNS-SC cells to market for even one of these indications, we believe it will be very meaningful to patients, shareholders and society at large."

StemCells Inc. was the first company to complete a United States clinical trial using human neural stem cells. StemCells is also the only company with a pipeline that addresses disorders in all three key regions of CNS: spinal cord, eye, and brain. The stem cell market continues to be a high risk, high reward for both companies and investors. Celgene entered into a deal with stem cell company OncoMed (NASDAQ:OMED) for up to $3.3 billion. Other stem cell companies like Geron (NASDAQ:GERN) and Osiris (NASDAQ:OSIR) have sold off their stem cell divisions to focus on less risky options.

Shares of StemCells are up 109% since my initial recommendation in 2012. In that article I reminded investors that:

"With the company not expected to post a profit the next several fiscal years, investors need to be patient. StemCells represents a great chance to buy a breakthrough company at a lottery ticket price."

I believe shares are poised for a big breakout in 2014, due to several trial results. The proof of concept studies in both spinal cord injury and AMD will also lead to the all-important Phase III trials going forward. Take a chance with this stock priced under $2 and reap the possible benefits in several years.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STEM 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.

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