Introduction: The forgotten promises of stem cell research
Since the discovery of stem cells, researchers have shown high ambitions in plans and projects to ensure better human health. And indeed, stem cells - which are basically universal human building blocks - can be a solution to many existing problems. Most of the life forms start at some point as a single cell, which will then divide into two, four, etc., to finally form the organism. For example, the human body is made up of approximately 37.2 trillion cells. In the early human development stage, cells can divide into different forms, such as blood-, muscle- or liver cell. These highly adaptable cells are called stem cells. When the body grows older over time, certain areas might get injured or lose function, therefore, replacing them with fresh new highly adaptable cells might be an unlimited source for regenerative medicine. For further scientific explanations, check out this source and these papers.
Stem cells have shown to help patients' lives in various areas. The more fascinating side of the story is that stem cell has high potential to become a solution for various diseases, such as spinal injury (structural injury), sickle cell (a genetic disorder), and also Leukemia (cancer). Patients are experiencing significant regenerative results, which are almost unknown to existing therapies. Patient testimonies can be accessed in this recruiting website for stem cell clinical trials.
However, most progress is much slower than promised. While new therapies might show initial success regulation, trial and adaptation are the velocity depending factors. Therefore, many projects have not survived the startup phase. While the hype around stem cell has been declined, many players remained in the field and have pushed through crucial clinical phases. With new approvals, it's possible that we will see major shifts in the biotech/pharmaceutical space around this new technology platform.
By examining several companies that have made real progress in late-stage clinical trials and are close to/already have commercially available products in this field, we identified Pluristem Therapeutics (PSTI) as a good investment opportunity at the recent price level.
Pluristem Therapeutics - the hidden niche player
Pluristem Therapeutics Inc. is a leading regenerative biotech company developing novel placenta-based cell therapies. The company has reported robust clinical trial results in several indications for its patented PLX cell product candidates and is currently conducting late-stage clinical trials in other indications. Specifically, Pluristem has entered into a collaboration with NASA to evaluate the potential of Pluristem's PLX cell therapies in preventing and treating medical conditions caused during space missions. Besides, its PLX-PAD candidate is currently in Phase 3 clinical trial for two indications: Critical Limb Ischemia (CLI) and Hip Fracture (HF).
These two Phase 3 trials are expected to be finished by May 2020 and July 2021, respectively. Moreover, the study in CLI was granted Fast Track Designation by the FDA - a designation to facilitate the development and expedite the review of drugs to treat serious conditions and unmet medical needs. Thus, it increases the possibility of a priority review by the FDA of PLX-PAD cells.
In Feb 2019, Pluristem has announced a positive meeting with the FDA to clear regulatory pathways for the approval of PLX-R18. The drug was granted orphan drug status to treat acute radiation. This event marks the success of the company's developments. Because of its huge potential benefit for medical purposes, PLX-R18 has received special attention from the NIAID and NASA. Through collaboration with NIAID, Pluristem is able to work more closely with regulators and pass the regulation process. Furthermore, the stem cell platform of the company is very different from existing alternatives and has the potential to make a breakthrough in the medical field.
"PLX-R18 has been studied in Phase I and II-equivalent studies conducted and funded by NIAID via the FDA Animal Rule Pathway. Results from these studies showed that PLX-R18 supports the recovery of the bone marrow and increases survival rates. PLX-R18 has been granted an Investigational New Drug application (IND) and an orphan drug designation by the FDA for the treatment of ARS." Source
However, Pluristem Therapeutics' shares have recently experienced a sharp decline as a result of the announcement of issuing new shares. Specifically, the company has announced an underwritten offering and direct offering to raise about $20M for "research and product development activities, clinical trial activities, investment in capital equipment and for working capital and other general corporate purposes". The 28 571 429 new shares result in 16% dilution (total number of shares outstanding are 149.76 million), which in turns brings the market cap down to $92.84 M (06 May 2019), compared to approx. $160 M in the last-year period.
While it is clear that the company will need further investments due to the high cost of phase 3 trials, especially in the US, the market seems to overreact towards this event. With strong results in the last trials, it is very likely that the two indications in Pluristem's portfolio will pass Phase 3. The company also managed to capture several important funding from the European Research fund Horizon 2020, NIH, DOD, NASA and has peer review articles in Nature (one of the highest impact peer review publisher). With this impressive track record, the company stands a good chance to succeed and therefore might bring in enormous shareholder value. The recent price level is a good entry point, providing a good risk/reward profile.
Probably the most important factor that makes Pluristem outstanding from competitors is its state-of-the-art technology. The existing autologous stem cell therapies require HLA-matching, meaning that one's stem cell cannot be used for the treatment of others unless they are extensively matched. This raises a problem: the person that has stored stem cell may not need to use it, while the other that hasn't stored may face a serious health problem, but finds no matching cell. Thus, pre-manufactured stem cell products might be a good solution. This is where Pluristem shows its core strength. The company possesses a technology to use placenta-derived stem cell that doesn't require HLA-matching, meaning that its products can be produced in the lab before deploying. In contrast to autologous stem cell products, placenta-derived stem cells need not be harvested from patients. With this technology, the cost of the upscaling is much less.
"This is possible because of the cells' low immunogenicity and immune-modulatory properties. Accumulated data from multiple in vitro and in vivo experiments indicate that these cells have the capacity to release soluble biomolecules, such as cytokines, chemokines and growth factors, which act in a paracrine or endocrine manner to facilitate healing of damaged tissue. The secreted therapeutic factors reach the target tissue through the bloodstream and initiate the healing process, while the cells remain in the muscle into which they were injected." source
The potential market for Critical Limb Ischemia
Risk factors of CLI are smoking, advanced age, high cholesterol, high blood pressure, diabetes, obesity, genetic preposition towards cardiovascular diseases and a sedentary lifestyle. These are typical problems in the modern world. A study has shown that CLI raises 1-year amputation rates of approximately 12% and mortality rates of 50% and 70% at 5 and 10 years after diagnosis, respectively. The main treatment methods are revascularization or amputation. Due to the regenerative nature of stem cells, Pluristem has found an impressive answer to this problem. So far we have data from two phase I trials conducted in the US and Germany. Although this phase I trials should only demonstrate drug acceptance and dose-finding, the data have shown that the pooled amputation-free survival rate at six months and one year was 96% and 85%, respectively. The normal rate would be 30%-35% amputation and 25% mortality after 1 year.
Rutherford Categories 4 and 5 are not candidates for revascularization.
Pluristem is targeting at the so-called Rutherford 5 category patients with its phase 3 trials in CLI. Furthermore, the company has conducted a phase 2 trial in IC, which is a less critical form of ischemia for category 4 patients. For more information about the Rutherford categorization, please visit this article. Pluristem sees a total market opportunity of nearly $ 15 B per year.
Potential Market for Hip fracture
Hip fracture is the second indication, which Pluristem is aiming at. This problem most often occurs as a result of a fall and is a serious threat for elderly people. Women have a higher disposition due to their weaker bone structure. In 1990 the numbers of hip fracture cases for men and women were 338000 and 917000, equivalent to around 1.26 million people worldwide. These numbers are destined to rise year by year as the average population age rises. By 2050, 6 million cases for hip fracture are estimated worldwide. A study in 2001 found that in the US, 30% of total hospitalized patients were suffering from a hip fracture. Pluristem estimates that the annual treatment costs are between $10 - $15B annually alone in the US with a rising tendency.
These are the results from the conducted Phase I/II study of Pluristem in cooperation with a famous German hospital - Charite. Patients who have undergone a total hip replacement due to osteoarthritis were injected during the surgery with either 150 million or 300 million PLX-PAD cells or placebo. The primary endpoint was the change of the strength of the gluteus medius muscle six months after surgery, while secondary endpoint was the change of muscle volume of the muscle six months after surgery measured by magnetic resonance imaging (MRI). The data have shown that the company has met both given endpoints with impressive results compared to placebo. Patients, who have received the stem cell have in average 3 times more gluteus medius muscle volume and 5 times more strength.
Acute radiation syndrome
The market opportunity for acute radiation syndrome is quite difficult to estimate. Studies in animals and human shows that irradiation over 1 Gy can harm the human body. High irradiation sources are nuclear power plants, radiologic device, dirty bombs, space travel, and nuclear weapon. Pluristem's products have shown to increase significant survival rates in animal tests, but it is unclear how much of the product will be purchased by the government as a safety measurement. While this indication is certainly important for mankind, these nuclear threats are not acute. However, if the company manages to close crucial contracts in the near term, more funding for the crucial phase III trials can be secured.
A quick glance at the financial status
Although cash and cash equivalents are slightly higher compared to the last fiscal year, the large decrease in short-term bank deposits shows that the company is running out of cash and thus needs additional funding for its future studies, especially when taking into account the high expenses in Phase 3 clinical trials.
(Source: SEC Filing)
Similar to previous periods, the main cost-driver is R&D. This makes sense since the company is still in the development phase of its main products. Once PLX-PAD passes Phase 3 trial (expected in 2020), R&D expenses will be significantly reduced. Pluristem also managed to reduce its general and administrative expenses to offset the increase in the spending for R&D, therefore, the operating loss only increases by $2.7M. Investors should not worry about the $10M higher net loss compared to last-year period. In fact, the company received a one-time income in 2018 following the sale of its remaining investment in the CHA shares, resulting in a gain in the financial income of $7.8M. Since it was a one-time gain, it is normal to see the result to decline in the following period.
(Source: SEC Filing)
From over $33 million in available cash as of March 31, 2018, the company used up $22.8M in cash after twelve months, while managing to slightly increase other current assets. Thus, together with the current $10.5M, the intended additional funding of $20M will give Pluristem approx. $30.5M cash on hands. With the current quarterly expenses of roughly $10M, this would be sufficient for the company to run its operation until March 2020. While the funding is notably too short to complete the trials, this might be a tactic of the management team to prevent further dilution for investors. Even though the company has a comparable low perspective at this moment, new preliminary Phase III results can catapult share price in the future and then it is easier to raise capital or find strategic partners with more leverage on hand. One thing to note is that Pluristem was awarded approximately $8.9M grant as part of the European Union's Horizon 2020, which would help to lengthen the time before the company has to seek for more funds.
Comparing Pluristem to other biotech companies
Compared to other biotech companies, Pluristem has a reasonable market capitalization, which makes it an attractive goal for quantitative driven investors. Note here, that valuation based on PE ratio or EV/EBITA doesn't really fit for biotech companies. However, the bigger the market cap, the more expectation is behind a company. Acquiring shares at a reasonable price is a good strategy to succeed in the long term.
Comparison to other late-stage stem cell companies
Pluristem Therapeutics (Allogenic PLX)
Athersys (ATHX)(Allogenic MultiStem)
Mesoblast (MESO)(Allogenic TEMCELL®)
$ 97.12 M
$ 84.89 M
$ 247.13 M
$ 86.68 M
$ 77.89 M
$ 196.11 M
$ 31 M
$ 0.942 M
$ 51.02 M
$ 92.02 M
Clinical stage Phase 3 and the estimated study completion date
Phase 3 ARS
Orphan drug status
Approved in Japan
PDUFA in 2019/2020
The first thing to note from this comparison is that all four companies mentioned above are very close to reaching their goal of commercializing stem cell products, which is, in general, a big gain for humanity. However, they are pursuing different indications and often bring new breakthrough therapies superior to other methods. Also because of the different indications, these companies are not direct competitors. Mesoblast has three targeted indications, with one successful Phase 3 trial in aGVHD and is currently discussing with the FDA about the drug approval process. Its market capitalization is five times that of Pluristem. Brain cell therapeutics has only one phase III trial and has nearly the same market cap as Pluristem. From our point of view, the current market entry for Pluristem is attractive, as the company has significant upside if it manages to produce good clinical results.
Pluristem has a strength with its scientific potential. However, the company also faces the risk of failing in Phase III trials. Nevertheless, the company has two candidates in Phase III trial with great market potential, so even if one fails, the other success will still be enough for a jump in the share price.
Another more important aspect is that the company is pushing the market towards regenerative stem cell therapies, which will change the pharmaceutical landscape in the long run. While most of the existing pharmaceutical player is pushing against uncharted diseases such as Cancer, Parkinson, and NASH, the fact is that the human boy is not created for eternality and is not able to regenerate after a certain age. Pluristem has proven, that its stem cell platform is able to cure the disease, but also to speed up the regeneration process. This is an admirable target for modern medicine, which does not only prolong patients' lives but also provides greater health quality.
In conclusion, we see that Pluristem has a strong scientific potential and would provide solutions to huge unmet medical needs. If its candidates successfully pass Phase 3 trials, we can expect the company to launch its product by 2021, since it already received priority for fast track designation by the FDA. Moreover, even if the company succeeds in only one indication, we can still expect the share price to double from this current level. Therefore, it could be an attractive investment opportunity and long-term investors could take advantage of the current low price.
Disclosure: I am/we are long PSTI. 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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