Who Will Win The Stem Cell Race?
Long/Short Equity, Tech, Biotech
Seeking Alpha Analyst Since 2013
The miracle of Stem Cell Technology has been around for decades, but only recently is it being recognized as a very real solution to our growing healthcare crisis. During an interview with the Burrill Report, Dr. Gil Van Bokkelen, the Chairman of the Alliance for Regenerative Medicine, elaborated on the reasons why Regenerative Medicine Stem Cell Therapy appears to be the best solution to the mushrooming healthcare crisis.
Dr. Van Bokkelen reported that in the next 16 years the over 65 population will explode 80% from 40 to 72 million people. These numbers are important to understand because, as we age, we become more susceptible to a host of chronic diseases; and healthcare costs rise dramatically. It's clear we need treatments that work better, but we also need treatments that are vastly cheaper. Stem Cell Therapy is quickly looking like a real answer.
Dozens of Stem Cell companies are working day and night to be a big winner in this exciting space. Unfortunately, many will fail, most will be mediocre, and only a handful will make it to the winner's circle. Investors can only make wise choices if they are armed with knowledge of the key criteria that will help determine each company's fate. Five better known and peer related companies are analyzed and compared with the following six key criteria for success.
Strength of Supporting Clinical Data
Supporting data from completed clinical trials are the most basic driver of valuations.
Autologous versus Allogenic
Autologous transplants harvest stem cells from the patient's own body and are therefore viewed as safe. On the other hand, allogenic transplants harvest stem cells from a different person and therefore have risks associated with immune response complications.
Since allogenic transplants use cells from a different person, they are likely to cause longer and costlier clinical trials, be riskier to patients, and riskier to investors in the event of a failed trial. Autologous stem cell transplants with cells harvested from the patients themselves are safe and less risky overall. Study results published by JAMA showed autologous stem cell transplants to be safer and more effective than allogenic stem cell transplants.
Cost
Allogenic stem cells are expensive because they require cryogenic storage and special handling. Also, concerning fat derived stem cells, the addition and safe removal of the required costly enzyme to separate them from the fat cells has not been factored into any FDA, BLA, PMA regulated trials to date. Autologous stem cells are also expensive if they are processed in a GMP lab and then implanted in the donor at a later date. However, if autologous stem cells are harvested, processed, and implanted without the concerning enzymatic process, and if the entire procedure is done in only a short time at the bedside point of care, it will cost far less than existing methods and can save the patient and the physician a great deal of time.
Yield of Healthy Stem Cells Delivered To Patient
Not yet recognized by the industry, but nonetheless a major concern, is the actual number of healthy cells delivered to the patient during the procedure. In common industry practice today, close to 60% of stem cells transplanted into patients are damaged or dead from the harvesting, processing, and implanting procedures. These damaged or dead cells result in less effective treatments.
When cells are being harvested and implanted, they are subjected to high velocities and pressures in the walls of the needles, tubes, and catheters. The result is that large numbers of cells are destroyed or damaged as they collide into each other and into the walls of the equipment pathways. Procedures and equipment using the sciences of physics, hydraulics, and polymers can minimize this loss and optimize treatments substantially because a greater number of healthy stem cells can then be delivered.
Bone Marrow, Blood or Fat?
Each stem cell company focuses on harvesting stem cells from bone marrow, blood, or fat. The advantages of fat or blood are relative ease of harvest. The disadvantages to blood are the costly protein based drug to mobilize the cells from the bone marrow into the blood system and for fat, the costly and undesirable use of enzymes to harvest the stem cells. There is also the yet established safety of the enzymes used to separate the stem cells from fat being potentially harmful to the patient. Bone marrow on the other hand, is the most commonly studied, and the most predictable.
Integrated Products or Not
No stem cell company today offers everything needed to perform an autologous stem cell transplant at the bedside or point of care. This makes it difficult for physicians to source and schedule all of the equipment to be at their disposal at a scheduled time. It also raises the cost of the procedure because the patient's harvested stem cells will require costly handling and frozen storage. Some companies offer the catheters or the harvesting equipment; some companies offer the equipment needed to separate the stem cells from the harvested blood, bone marrow, or fat; some companies offer the allogenic stem cells, and so on.
Athersys, Inc. (ATHX) uses an allogenic cell product called MultiStem where the cells are isolated from donor bone marrow. The positives are: Athersys focuses on large markets of Inflammatory, Cardiac, and Neurological disorders and is in partnerships with Pfizer for Irritable Bowel Disease and Bristol Myers. These positives could lead to large milestone payments. The number of patients completing clinical trials is obscured by low visibility on the Athersys web site, but the number appears to be small and under 200.
Athersys is offering shares to raise about $20 million and is expected to close soon. Athersys is starting a Phase II trial for ischemic stroke but it will take several years before Phase III trials will be completed. Safety will be an extremely important endpoint, and allogenic cells (cells from a different person) have a long way to go to prove safety to the FDA. Athersys has been granted EU Orphan Drug status.
Athersys does not offer an integrated package solution, does not optimize the yield of stem cell delivery, and has a high cost of goods. The VP of manufacturing for Athersys reported their cost excluding overhead and R&D at between $5,000 and $10,000 per dose making their product very expensive.
Cytori (CYTX) Uses point-of-care autologous adipose (fat) derived stem cells. The cells are harvested at the bedside and processed through Cytori's centrifuge equipment and disposable medical devices called the Celution System.
Positives are: autologous procedure at bedside, government grants, and $8.7 million in device sales. Cytori announced that Lorem Vascular, a new Australian company, will pay as much as $531 million to license southeast Asian rights to their stem cell therapy. The rights cover therapeutic use of the Cytori Cell Therapy in China, Hong Kong, Malaysia, Singapore, and Australia. This partnership signals the strength of the Asian and Australian markets for stem cell therapeutics.
Negatives are low number of clinical trial patient data. Only 41 patients completed trials to date. Cytori's use of fat cells requires adding an enzyme to harvest the stem cells; and that enzyme has not yet been demonstrated to be safe, potentially prolonging clinical trials. Cytori appears to have abandoned clinical trials in the cardiac space and is only officially pursuing soft tissue and cosmetic surgery indications. Cytori does not offer an integrated package solution, does not optimize the yield of stem cell delivery, and has a high cost of goods.
Mesoblast (MSB.AX) appears to be in the lead today with the strongest clinical pipeline and over $300 million in cash. The company has only a small number of patients who have completed clinical trials, but is expected to have data from over 2,000 patients in the next few years. Mesoblast has a strong manufacturing partnership with Lonza. The company recently reported mildly successful top line results from their Phase II trial for diabetes. The trial included 61 patients, and the results indicated only a slight improvement of 7% of the hemoglobin A1c (HbA1c) in 63% of the high dose patients compared to placebo.
Their Achilles heel continues to be the high cost of goods with respect to the allogenic product followed by surviving large-scale risky Phase III studies. Other negatives are the fact that only 102 patients have been studied for safety thus far and that frozen cells have a freeze-thawing problem affecting their viability and potency. Mesoblast does not offer an integrated package solution, does not optimize the yield of stem cell delivery, and has a high cost of goods.
NeoStem (NBS) has three types of cell products: (1) AMR-001, the Amorcyte product to treat Acute Myocardial Infarction is about to enter phase II using a bone marrow selected cell from the patient, (2) VSELS which are also from the patient (autologous) but are still in pre-clinical development, and (3) Treg immunomodulator cells licensed from BD/Athelos which will be used to modulate immune responses in immune diseases.
Positives are NeoStem is generating over $14 million in revenues and has over $50 million in cash reserves. The negatives are that they have very little clinical experience with their products, having studied only 31 patients to date, but they did just complete enrollment for 160 patients in a phase II trial for AMR-001. Results are expected in Q3/Q4 2014. Given their small number of clinical trials, it is difficult to justify their large burn rate. Their procedure requires ex-hospital GMP lab processing and manipulation. Amorcyte appears high risk due to a somewhat competing product clinical trial, Miltenyi, that was recently halted by the sponsor. NeoStem does not offer an integrated package solution, does not optimize the yield of stem cell delivery, and has a high cost of goods.
ThermoGenesis (KOOL) is a leading stem cell device company with over $18 million in revenues. ThermoGenesis management is proposing to merge with TotiPotentRX, a private company with rich Stem Cell Therapeutic clinical experience, strong results, and valuable industry partnerships with world healthcare leaders. ThermoGenesis filed its S4 disclosing the merger and is seeking shareholder approval to consummate the merger in February 2014. Shareholders are expected to approve the merger because it will establish the newly merged company as CESCA Therapeutics, (Clinical Excellence In Stem Cell Applications) which will then become one of the best-positioned Stem Cell companies in the industry. Another reason shareholders are likely to approve the merger is that valuations for a device company are substantially lower than for a therapeutics company (which CESCA will be post merger). Valuations for device companies are typically 2 to 3 times revenues whereas valuations for therapeutics companies are typically between 10 and 20 times revenues.
Post merger, ThermoGenesis (CESCA) will have a strong clinical pipeline of 8 therapeutics treating Acute Myocardial Infarction, Stroke, Osteoarthritis, Critical Limb Eschemia, Non-healing ulcers, Avascular Necrosis, and Non-union of fractured bones. TotiPotentRX has impressive early clinical results from AMI, CLI and Non-union fractures. Over 20,000 patients have been treated using ThermoGenesis proprietary products.
TotiPotentRX has treated approximately 550 patients across 8 clinical indications and is an exclusive Regenerative Medicine provider to Fortis, the largest healthcare company in Asia with 10,000 inpatient beds and 15,000 outpatients daily. Fortis serves as an embedded CRO providing CESCA the potential to get new stem cell treatments approved faster and cheaper than the competition. Imaging analysis for CESCA trials is partnered with physicians from some of the world's leading imaging entities, including, Cedars Sinai.
ThermoGenesis combined with TotiPotentRX (CESCA Therapeutics) uses bone marrow in autologous transplants. CESCA will be the only company offering a fully integrated kit in one small inexpensive box for the physician to perform successful procedures in 60 to 90 minutes. ThermoGenesis combined with TotiPotentRX (CESCA Therapeutics) will be the only company offering proprietary equipment and procedures to optimize the number of healthy stem cells delivered to patients during their procedure. This is expected to enhance results well beyond industry performance. The Life Sciences Report on December 13th, claimed CESCA Therapeutics will be a biotech growth name.
The only negative is the common industry-wide problem of not having adequate cash to support trials and operations. The company's cash position is expected to grow rapidly from here because the stem cell space is so attractive to investors and because ThermoGenesis and TotiPotentRX (CESCA Therapeutics) will enjoy a strong position post merger. Stem Cell Therapeutics companies are not having difficulty raising capital.
Key Criteria For Success
ATHX |
CYTX |
MSB |
NBS |
KOOL |
|
Supporting Clinical Data |
Small |
Small |
Med |
Small |
Med |
Autologous |
No |
Yes |
No |
Yes |
Yes |
Cost |
High |
High |
High |
High |
Low |
Fully Integrated Solution |
No |
No |
No |
No |
Yes |
Bone Marrow |
Yes |
No |
Yes |
Yes |
Yes |
Optimized Stem Cell Yield |
No |
No |
No |
No |
Yes |
The race is on, and investors are placing their bets. The prize is big but not without risk, and hopefully this information will help investors understand the risks better and make better informed investment choices leading to better returns.
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