Pluristem Poised To Benefit From The Evolution of Regulatory Requirements
(Thomson Reuters ONE) -
By Scott Matusow, Contributor
Trying 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 hard part is 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.
The full report on PSTI is available at:
http://www.biomedreports.com
Healthcare investors and Biotech traders interested in accessing BioMedReports'
new complete database of clinical trials and upcoming FDA and world-wide
regulatory decisions which can be used to make more profitable trades and see
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Datum: 23.07.2012 - 13:26 Uhr
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