Placenta Based Stem Cells: The Investment of the Future is Now Print E-mail
By Scott Matusow, Contributor   
Monday, 23 July 2012 06:26
icon_stockresearchTrying to find companies that represent the future of the biotech sector can be tricky for investors. The sector currently leads the market because Food and Drug Administration (FDA) regulatory guidance is changing, with restrictions easing, and new guidelines being proposed and implemented.


The Obama Administration's 2011 directive towards the agency jump started aggressive investor speculation in the sector-- especially small cap developmental companies. Orphan drug designated medical devices, and subcutaneous self-injector medical devices all are benefiting from the progression of change currently occurring.

The difficulty comes in trying to find the right company-- a company that does not over dilute shareholders, spends its money wisely, and has a legitimate shot at becoming a large revenue and profit producing company. Too many small cap biotech companies show promising technology, but have bad stock and financial structures. The key in small cap biotech investing is finding companies that structure their business with the main goal of both financial growth and technological advancement.

Antares Pharma (ATRS) is my largest holding because it fits the current regulatory changes occurring-- subcutaneous self-injection medical devices. I invested last year in Antares because I did my due diligence (DD) using all the factors mentioned above. I invested in Antares when it was $2.25 a share. As of this writing, its current stock price is $5.32.

Pluristem Therapeutics Inc. (NASDAQ:PSTI) is a company that should greatly benefit from the latest progression of regulatory evolution.

Pluristem is a developer of placenta-based cell therapies. The company’s patented PLX (PLacental eXpanded) cells are a drug delivery platform that releases a cocktail of therapeutic proteins in response to a host of local and systemic inflammatory and ischemic diseases.

PLX cells are grown using the company's proprietary 3D micro-environmental technology and are an "off-the-shelf" product that requires no tissue matching prior to administration. Pluristem is focusing on the use of PLX cells administered locally to treat systemic diseases and potentially obviating the need to use the intravenous route. Data from two phase I/II studies indicate that Pluristem's first PLX product candidate, PLX-PAD, is safe and potentially effective for the treatment of end stage peripheral artery disease when given locally. Additionally, Pluristem is developing PLX-PAD for cardiac ischemia; PLX-BMP for Acute Radiation Exposure; Bone Marrow Transplant Failure and Chemotherapy induced Bone Marrow Aplasia; PLX-ORTHO for orthopedic indications; and PLX-PAH for Pulmonary Hypertension in collaboration with United Therapeutics. Pluristem's pre-clinical animal models have demonstrated PLX cells are also potentially effective in other inflammatory/ischemic indications, including diastolic heart failure, inflammatory bowel disease, neuropathic pain and pulmonary fibrosis. Pluristem has a strong patent portfolio; GMP certified manufacturing and research facilities, as well as strategic relationships with major research institutions.

The company's main technology, The PluriX Bioreactor System is designed to be a system of stromal cell cultures and substrates that create an artificial physiological environment where adherent stromal cells (ASCs) can grow and reproduce outside of the human body. Unlike conventional two-dimensional (2D) culturing methods, the Company's PluriX Bioreactor creates a three-dimensional (3D) microenvironment that closely resembles the structure and function of the body's bone marrow environment. By mimicking the natural environment that exists within human bones, the system tricks stem cells into growing and reproducing in the same way they would in living organs. Because the size and scale of the PluriX Bioreactor is larger than that of human bone marrow, stem cell growth can be greatly expanded.

The company believes that intramuscular administration, which means that the cells are administered locally to the muscle and not systemically, may be suitable for a number of different clinical indications. Such indications include peripheral artery disease (PAD), critical limb ischemia (CLI- end stage of PAD), intermittent claudication (IC), muscle injuries, Buerger’s disease, neuropathic pain, wound healing, orthopedic injuries, and acute myocardial infarction.  Under an exclusive license agreement, or the United Agreement, with United, the company plans to participate in the development and commercialization of a PLX cell-based product for the treatment of pulmonary arterial hypertension, or PAH.

On August 22, 2011, the U.S. Food and Drug Administration (FDA) designated Pluristem's PLX cells orphan status for the treatment of thromboangiitis obliterans (Buerger's disease). The Company also announced that a concurrent application in Europe at the EMA's Committee for Orphan Medicinal Products is pending. Buerger's Disease is a rare and severe disease affecting the blood vessels of the extremities. It is characterized by inflammation and clotting of the vessels that result in a reduced blood flow to these areas. Severe pain and ulcers or necrosis of the extremities may occur, which may lead to amputation. Buerger's Disease affects approximately 50,000 patients in the United States and Europe. As there are no established treatments available, there is a strong medical need for the development of drugs for this indication. Various sources estimate the market for the treatment of Buerger's disease to be approximately $2.5 billion.

After completing two initial clinical trials involving different forms of peripheral artery disease, or PAD, Pluristem plans to start a late-stage study in 2013 of PLX-PAD's effectiveness in the disease's critical limb ischemia stage.

Pluristem wants to be ready to market PLX-PAD as soon as it receives regulatory approval, Chief Executive Officer Zami Aberman said in a phone interview with Bloomberg BusinessWeek, without identifying potential partners.

From the phone interview, Zami Aberman remarked;

"We are talking to more than one of the larger pharmaceutical companies about the possibility of out licensing our treatment,. We are not under pressure as we are sitting on about $40 million in cash, but if the deal is good enough, we'll take it."

On July 18th, the company announced that CPC Clinical Research will be managing the company's upcoming Phase II clinical trial for its proprietary stem-cell therapy in the treatment of peripheral artery disease. Pluristem said that CPC is a specialist in conducting clinical trials for the condition.

On May 9th, 2012, the company announced that a seven year-old girl suffering from an aplastic bone marrow whose condition was rapidly deteriorating is now experiencing a reversal of her condition with a significant increase in her red cells, white cells, and platelets following the intramuscular injection of the company's PLX cells. Aplastic bone marrow is a disease where the patient has no blood-forming hematopoietic stem cells in the bone marrow. I found more on this story at proactiveinvestors.com, and also listened to an in-depth interview with William R. Prather RPh, MD, Senior VP of corporate development at Pluristem that should interest investors.

Because of these developments, the company's platform might reach the market faster than normal under newly proposed accelerated compassionate use bills.  In addition, it is likely that the FDA will grant orphan drug status and allow compassionate use with PLX for aplastic bone marrow.

The FDA has allowed Ariad Pharma (NASDAQ:ARIA) compassionate use of Ponatinib under its newer guidelines. Ponatinib is currently in a pivotal Phase II clinical trial as a treatment for patients with chronic myeloid leukemia (CML) or Philadelphia positive acute lymphoblastic leukemia (Ph+ALL), whose cancers are resistant to such drugs as Bristol-Myers Squibb's (NYSE:BMY) Sprycel or Novartis's (NYSE:NVS) Tasigna.

Ponatinib is a multi-targeted tyrosine-kinase inhibitor--the primary target for ponatinib is BCR-ABL, an abnormal tyrosine kinase that is the hallmark of CML and Ph+ALL. CML is characterized by an excessive and unregulated production of white blood cells by the bone marrow due to a genetic abnormality that produces the BCR-ABL protein.

While Ponatinib has been helping some people, it has not helped others--In other words, Ponatinib is a therapeutic drug, while Pluristem's placenta based stem cell technology might be an actual cure.

The cost of healthcare in the US must be mitigated-- the current U.S. Administration realizes this as do big pharma. This may compel fund managers and retail investors alike, to position their portfolios for this change. Pluristem has the ability to potentially cure, not treat, a laundry list of afflictions and in doing so reduce the financial burden that accompanies lifelong prescription use. Many believe stem cells are to medicine what ColdFusion would be to energy. The type of breakthrough that would forever revolutionize the standard of care and reduce the cost, the kind of leap we have seen only a few times in history. The ability to cure leukemia using cells cultivated not from a donor but a placenta would be on par to what the Internet meant to communication, or what internal combustion was to transportation. In short, this isn't a weight loss drug or acne cream--this is a platform with extreme upside, and I believe big pharma realizes this. Opportunities to invest in world changing technologies at the ground floor come few times in a generation. One need only look at firms like Apple (NYSE:AAPL), Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), and (NYSE:IBM) to see examples of innovators that caused paradigm shifts in their respective industries.

Stem cell technology is the wave of the future, but a company's stock structure and financial position has the greatest effect on whether or not we will see strong stock price appreciation now and in the future. Excessive warrants, bad financing, and burning too much cash will cause a stagnant stock price.

Another more subtle side effect that companies with a poor financial situation experience is what the CEO's comment referred to above. He says they are speaking with "more than one of the larger pharmaceutical companies" regarding partnerships. However, since they have treated the shareholders cash in a responsible manner, they are not under pressure to sign a deal that isn't lucrative. Here is where a number of small Pharma companies are susceptible to being taken advantage of and are forced to "give away" their great products at times. The big kids on the block understand if a smaller company is struggling for money. If so, the deals presented may be much lower quality because that is business, trying not to offer more money than is necessary. In this case, Pluristem is far from desperate with $40 million in cash and an otherwise strong balance sheet. This puts them in a great position when sitting at the negotiating table.

Another thing that is nice to have when looking to make a deal is a great product with multi-billion dollar potential. Pluristem's PLX cells for peripheral artery disease (PAD) may be just that.

A big reason I feel large Pharma will be lining up to make a deal for this drug with Pluristem is that there doesn't appear to be a great solution for people suffering from this condition. The market is dominated by Plavix, made by Bristol Myers Squibb and Sanofi (SNY). Plavix (clopidrogel) is a medication used to help prevent the platelets in the body from forming blood clots. It is used to decrease the risk of a heart attack/stroke. Also, patients can use this after a heart attack or stroke to help prevent another from occurring.

Plavix works by helping to thin the blood. This can put users at risk for hemorrhage. Bleeding can occur inside the body while taking Plavix.

An additional downside of Plavix is it generally has to be taken for life, which is not particularly pleasant considering the constant risk of life-threatening bleeding.

Another company trying to seize the opportunity here is AstraZeneca (AZN). Last week, the company announced plans to take its heart drug Brilinta to the multi-billion dollar growth industry of PAD.

With the technology to provide relief for several diseases including the PAD detailed above, Pluristem has amazing upside potential once it gets the proper coverage.

Short sellers might want consider this factor along with the fact the company does not engage in shareholder dilution before considering taking a short position here. Additionally, the company displays a management team who has shown in its actions a commitment to stay anti-dilutive while maintaining proper working capital--shareholder friendly.

Balance Sheet 

Total Cash (mrq):

39.54M

Total Cash Per Share (mrq):

0.88

Total Debt (mrq):

0.00

Total Debt/Equity (mrq):

N/A

Current Ratio (mrq):

8.54

Book Value Per Share (mrq):

0.85

Cash Flow Statement 

Operating Cash Flow (TTM):

-4.50M

Levered Free Cash Flow :

-4.21M

The cash burn here is very low--the company also stated in its latest 10Q that is has enough working capital to last thru 2014, so dilution is off the table here.

Pluristem has an attractive market cap to equity ratio, which compares favorably to many of its peers.    Choosing a small biotech, especially in stem cells, can be challenging as investors must look at technology and market viability as well as the probability of dilution.  In addition, you have to look at cash, assets, and liabilities since earnings are typically theoretical at this stage.  The point is a company may have a viable drug or treatment with huge earnings potential, but, if their balance sheet is a mess, it’s unlikely to create returns for investors.  

Pluristem, market cap: $151.49M. Shareholder equity: $43.42M. Cap to equity ratio: 3.48 to 1.

Advanced cell technology (OTC BB:ACTC), market cap: $172.14M. Shareholder equity: $46.12M. Cap to equity ratio: n/a.

Aastrom Biosciences inc. (NASDAQ:ASTM), market cap: $77.12M. Shareholder equity: $12.97M. Cap to equity ratio: n/a.

Cytori Therapeutics Inc. (NASDAQ:CYTX), market cap: $146.72M. Shareholder equity: $9.9M. Cap to equity ratio: 14.82

Avg Vol (3 month):

157,533

Avg Vol (10 day):

190,725

Shares Outstanding:

44.82M

Float:

40.32M

% Held by Insiders:

10.05%

% Held by Institutions:

1.00%

I encourage small cap fund managers to consider Pluristem based on its strong speculative value and anti-dilutive business dealings. I see far too many fund managers put money into companies with promising technology, but with marginal management that continually dilutes the shareholders-- a losing proposition for small cap fund managers. The long term prospects here are going to take some time, but within 5 years, this stock could be selling for over $80 a share   or higher if management correctly executes its business model.

Another company similar to Pluristem, StemCells Inc. (NASDAQ:STEM), shows some technological promise, but they are low on cash, and may have to engage in a secondary offering soon-- potentially causing shareholder dilution. Shareholder dilution under specific circumstances can actually be a good thing if management shows it is handling money correctly, but needs more to properly address clinical trials, regulatory filings, and necessary expenses. However, many small cap developmental bios have management that mis-handle money, causing the company to be in constant need to turning to capital markets and investors to raise more.

Another example of a company with cutting edge technology is Complete Genomics Inc. (NASDAQ:GNOM), which develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Its Complete Genomics Analysis platform combines its proprietary human genome sequencing technology with informatics and data management software to provide customers with data that is ready to be used for genome-based research.

GNOM also shows promise in a different segment from stem cell treatments, but like StemCells Inc., it burns far too much cash and also may have to engage in a secondary offering soon. In fact, from its last 10k, the company flatly states that they are running out of money.

Pluristem, while carrying some of the common risks of small cap biotech,  has much more upside potential than what is typical.

Investors willing to tie up money for a few years could see massive multi-bagger gains here. Once the investment community does its due diligence on Pluristem,  they should see the long term potential here.

Price target opinions: 

Short-term, 1 day to 3 months: $6.00

Mid-term, 3 months to 1 year: $6.00-$15.00

Long-term, 5 years: $50 +


Disclosure: I am long ATRS and a family trust holds PSTI stock.

DISCLAIMER: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Trading stocks are risky--always be sure to know and understand your risk tolerance as in any given trade/investment you can incur substantial financial loss. By reading this article, you agree and understand that I am not giving recommendations on stocks to trade. Any trade you make-- wins, losses, or break even--are entirely your decision and responsibility. You also agree and understand that I have no material insider information--just opinions. Always do you own complete due diligence before buying and selling any stock, and/or consult with a licensed qualified broker dealer and/or certified financial adviser.




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