If I had been given a penny for every time someone asked me what stock will be tomorrows' Apple or Google, I'd have at least seven or eight pennies. But my answer has always been the same; I have no idea. If you really pushed me for an answer I'd say the next super stock might come from the biotech sector. Perhaps a company at the cutting edge of innovation with potentially thousands of patents and hundreds of possible future indications. So where does one start to look?
There is no area of medicine more cutting edge, controversial or potentially more life changing than stem cell therapy. Stem cell therapy has the potential to change the face of medicine forever, as significant as the discoveries of Edward Jenner (the father of immunology) and the development of the smallpox vaccine.
Advanced Cell Technologies (ACTC.OB) (soon to move to NASDAQ) is an emerging biotech company that is leading the way in the development of stem cell technology and the field of regenerative medicine. It is developing a treatment for Macular Degeneration, which is a condition that usually affects the older population and is the major cause of visual impairment in the over 50's. It results in loss of vision in the central area of the retina (the macular area) and comes in either dry or wet forms. The global market is enormous and growing rapidly due to rising longevity. ACT's CEO, Gary Rabin, recently stated the following on the company's website (Click here for full statement):
"As you are undoubtedly aware, last July we initiated the first-ever clinical trials using a cell therapy derived from human embryonic stem cells (hESCs) to treat various forms of macular degeneration. The end goal for our clinical trials is to test whether or not the retinal pigment epithelial (RPE) cells we make from hESCs are capable of homing to sites of injury in the retina, replacing the native RPE cells that are lost to disease, and ultimately reestablishing the function of this layer of cells in protecting photoreceptors from cell death, i.e. slowing or halting progressive vision loss. One of our ongoing trials is for Stargardt's Macular Dystrophy (SMD, aka Stargardt's Disease) and the other is for Dry Age-Related Macular Degeneration (Dry AMD). Last month we also initiated a European clinical trial for Stargardt's Disease. That same week, we also published some exciting - albeit very preliminary data - relating to the patients treated last July, in The Lancet.
To date, we have treated one patient with Dry AMD (at University College of Los Angeles, UCLA) and a total of four patients with SMD (three at UCLA, and one at the Moorfields Eye Hospital in London). The recent treatment of the two SMD patients at UCLA represents the entire first cohort of patients for this initial dose of cells in the SMD trial. We are pleased to have both trials underway and delighted with the results we have reported so far."
ACT just announced in a press release that the Data and Safety Monitoring Board (DSMB) have approved an increase in RPE Dosage for Stargardt's disease patients from 50,000 retinal pigment epithelial cells to 100,000 cells to be injected.
Phase 1/2 clinical data was published in The Lancet in January of this year. Results were reported for two patients, the first in each of the Phase 1/2 clinical trials. In addition to showing no adverse safety issues, structural evidence confirmed that the hESC-derived cells survived and continued to persist during the study period reported. Both patients had measurable improvements in their vision that persisted for more than four months.
At four months following treatment, no apparent rejection was observed in either patient at any time. Detailed clinical and diagnostic laboratory assessments were performed at multiple post-transplantation evaluations. Abnormal growth would be considered a significant safety concern for stem-cell based therapies. Results reported indicate that stem cell differentiation was well controlled in these patients. No adverse safety signals were detected.
Engraftment and increasing pigmentation was shown to be successful in the stem cell transplantation for the patient with SMD. Engraftment and increasing pigmentation were not detected in the dry AMD patient. However, both patients showed some visual improvement at the four-month follow-up period.
Measuring visual improvement in patients with very low vision is difficult and no regulatory consensus exists regarding on how best to measure visual changes in these patients. As reported in The Lancet, the visual acuity of the Stargardt's patient improved from hand motions to 20/800 vision. Before treatment, the patient was unable to read any letter on a visual acuity chart. However by two weeks post-transplantation the patient was able to start reading letters. At three months the patient could read five letters in the treated eye. This is a very promising start.
If the double dose of cells injected increases vision markedly, then expect some major media attention in the months ahead. This should move the stock from its lowly $0.08 pps. Their move to the NASDAQ market should help attract further investment attention.
However, the stem cell sector has already proved somewhat challenging for some companies. Originally the leading player in the stem cell sector was Geron (NASDAQ:GERN), who pioneered trials for oligodendrocyte progenitor cells for the treatment of spinal cord injuries, a higher risk area of stem cell research. They withdrew from the stem cell field citing funding issues and the need to focus on their core business in experimental cancer therapies.
Can ACT navigate the stormy waters better? The immediate risk to ACT is the amount of debt they carry ($60m in total liabilities) and their ability to raise more cash in the future. They sit on over $13m in cash from the start of the year. Of course there are no guarantees where funding is concerned, but I believe they have a reasonable chance of being able to fund their near term future (assuming forthcoming results remain positive) for three reasons:
- The nature of the potential ground breaking therapies and multiple indications the therapies could treat should attract enough speculative investors bearing in mind that ACT owns or licenses more than 150 patents and patent applications relating to regenerative medicine, including broad intellectual property (NYSE:IP) holdings around its embryo-safe single-cell blastomere technique and its stem cell-derived RPE program, as well as significant IP holdings related to induced pluripotent stem cells.
- The Chairman and CEO, Gary Rabin, had a twenty-three year career in finance that primarily encompassed investment management and capital raising, targeting small-cap and emerging growth companies. This is the type of experience vital for a CEO of a small emerging biotech company.
- ACT will be moving to NASDAQ exchange from the OTCBB this year assuming shareholders vote for the reverse stock split to get the stock price to above $1 required for NASDAQ listing requirements. Usually a reverse stock split reflects a troubled past for any company if it's already listed on a major exchange (usually either because the market cap has dropped below the exchanges' limit or the stock is trading below a dollar for a certain amount of time) but for a BB stock it's certainly a positive step and reflects their ambition and expectations. Moving to the NASDAQ should help garner the attention of potential investors, hedge funds and will get analyst coverage.
On their website the CEO states the following about the trials and their future:
"I will never forget the moment I learned that the company's Investigational New Drug Application (NYSE:IND) for its human clinical trial for Stargardt's Macular Dystrophy (SMD) had been approved by the FDA. It was clear then that ACT truly was on the road to potentially making medical history. So much has happened in the interim that it is hard to believe that happened only a bit over one year ago, in late November, 2010!
Shortly after that, our IND for Dry Age Related Macular Degeneration (Dry AMD) was also approved. The brief time since then has been a whirlwind of activity in preparation for the clinical trials, and we were enormously pleased and proud to start them in July, at the first site, UCLA's Jules Stein Eye Institute (JSEI).
Part of what makes research and development in the regenerative medicine sector so exciting is that it involves sailing into largely uncharted waters. ACT's two trials are the only ongoing human embryonic stem cell-based trials, period. We are quite literally creating a new area of medicine. This means there is tremendous pressure on us to "get it right." The responsibility to provide the first-ever validation for this enormously promising new sector rests entirely on our shoulders."
ACT are certainly fascinating company to follow, in theory they could pave the way for a total directional change in how we treat a multiple of maladies, but they are a long way off getting any therapy approved and there are many speed bumps ahead. ACT is perhaps the definitive high risk/high reward stock and only for investors who can afford to lose their capital. However, I expect a strong run on the stock when it transfers to the NASDAQ market, as investors who normally don't touch bulletin board stocks take interest. Also I expect a lot of media attention this year as the company provides updates on their patient trials. This will be a roller-coaster ride, a speculative stock like this could move 100% in a few days and so it's not for those with a weak disposition.
So will ACT be the Apple of 2030? The odds are not high, however for a long-term biotech investor having a speculative small holding in a leading company in potentially the most game changing area of medicine makes sense. If the therapy works and a treatment can eventually be commercialized, then expect an extraordinary long-term payout.
Disclosure: I am long ACTC.OB.
Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to the investors to make the correct decision after necessary research.