Pluristem’s $32 Million Raise Puts Them in a New League Print E-mail
By Sharon di Stefano, Equity Brief   
Tuesday, 18 September 2012 03:08
icon_closerlookIn an otherwise choppy market, Pluristem Therapeutics (NASDAQ:PSTI) issued new shares with a new and noteworthy underwriter, declining other big name banks, raising enough money to give them at least five years of cash at their current burn rate. A comfortable capital position of $70 million plus puts Pluristem in another league, one where investors don’t live and die on every quarter’s balance sheet, wondering if the money runs out before product goes commercial.

From the stock’s action in the last several months, it is clear investors recognize that Pluristem’s unique platform technology has the potential for tremendous value in a lucrative range of medical markets – the very large and the very small. The company wins both ways. If successful in treating peripheral artery disease (PAD) and its companion condition intermittent claudication (IC), markets number in the billions of dollars, where a troubled drug, Plavix, currently reigns despite a mounting litany of patient and doctor complaints.  With orphan diseases, for which Pluristem has two potential indications, success means new treatments for otherwise overlooked markets with the ability to command a premium price.

Pluristem’s newfound status calls for a valuation model. Counting only potential future revenues from PAD, IC, aplastic anemia, Buerger’s disease, IPF, PAH, muscle regeneration and various aspects of heart function, where clinical trials exist in different phases, and burdening the earnings model with forward operating expenses that reflect robust research and development spend, a direct sales effort and taxes, the company is projected to turn profitable in 2015. Extending the model one more year with reasonable sales growth assumptions produces a healthy increase in EPS, to which a forward PE multiple in line with profitable biotechs Biogen Idec (NASDAQ:BIIB) and Amgen, Inc. (NASDAQ:AMGN) is applied, along with a discount rate adjusted liberally for risk. A subsequent discounted cash flow analysis shows that shares should be trading at $10, today.

We all understand that biotechs sometimes have widely different valuations, justified or not. Osiris Therapeutics (NASDAQ:OSIR), for example, carries over a $300 million market capitalization and trades at $9.50 per share, primarily on the strength of a recent Canadian approval for its stem cell drug for graft-versus-host disease, a potentially small market of $260 million. It is likely that managed care plans here would resist a switch from generic cyclosporine or methotrexate, if and when Prochymal is approved by the FDA. Contrast this company’s prospects, current and future, with Pluristem’s, whose first potential indication would enter a blockbuster market, PAD, with other large markets not far behind. In this instance alone, and there are numerous others, Pluristem is very cheap.


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