Experts Reflect on the Promise of the Cell Therapy Sector MISCELLANEOUS, SPECIAL GUEST QUARTERS | STREETWISE REPORTS | THE LIFE SCIENCES REPORT | DECEMBER 29, 2013 4:21 PM Once upon a time the magic pill was penicillin. It was Marie Curie’s miraculous radium. It was Jonas Salk’s polio vaccine.
These days it is the stem cell.
New ways to treat and cure disease often meet with skepticism, but the ones that work eventually secure the respect of investors, practitioners and patients, moving into both the medical paradigm and the marketplace. If the researchers working in the stem cell field—and the analysts covering the field—are right, regenerative medicine is knocking on the door of the paradigm. Once it wins entry, the rewards for investors could be extraordinary.
The Life Sciences Report interviewed a number of analysts and experts covering the regenerative medicine field in 2013. These experts described how stem cells could transform the treatment of many modern plagues, including heart disease and cancer, spinal cord injuries and central nervous system disorders, inflammatory and autoimmune diseases. The innovative biotechs that analysts discussed were primarily small- or micro-cap companies, with the potential to return multiples on investment.
The experts also reflected on the bigger picture, sharing insights that might help investors navigate this new and complex realm.
We’ll start with the why. Why should investors include stem cell companies in their portfolios? Steve Brozak, president of WBB Securities, didn’t mince words about his enthusiasm for the sector.
“For the first time in the history of medicine, instead of providing a drug treatment that ‘addresses a problem,’ we can actually harness the body’s own immune system to provide the treatment,” Brozak told The Life Sciences Report in January. “It’s always been feasible theoretically, but now we’re starting to see that it is possible. The cells provide treatment rather than molecules: That’s the differentiator. There is still a place for traditional treatments, but that model will no longer be tenable.”
Asked whether cell technologies might offer the greatest growth potential in all of life sciences for investors, Brozak was equally passionate: “I believe that cell technologies have the potential to be the greatest breakthrough in all of healthcare, and in all of medical understanding as we know it. I’m not telling you that it’s going to be a smooth path, because nothing ever is. But yes, that’s a very easy statement to make.”
“I believe that cell technologies have the potential to be the greatest breakthrough in all of healthcare. —Steve Brozak”
Gil Van Bokkelen, CEO of cell therapy company Athersys Inc. (ATHX:NASDAQ) and past-chairman of the Alliance for Regenerative Medicine (ARM), explained the promise of stem cell therapies this way in a February interview: “Administering cells can be a dynamic, druglike event, where the cells don’t permanently engraft but are around for days to weeks to help with tissue repair and healing, then clear the body as would a drug or traditional biologic. Then there is the potential to actually augment, replace or regenerate certain types of tissue. These are an incredibly powerful set of capabilities that, frankly, you could never reasonably expect to achieve using traditional, pharmaceutical-based approaches in most areas.
“The stem cell field is unquestionably undervalued right now,” Van Bokkelen went on to say. “But I think that will change as more evidence comes to light. It’s going to be based on clinical data and tangible partnerships, which are what I think will be the biggest drivers.”
Geoff MacKay, current chairman of the Alliance for Regenerative Medicine and CEO of Organogenesis Inc., a private cell therapy company, is also understandably optimistic about the sector. In an April interview, he attributed the relatively low valuation of companies in the cell therapy space to the industry’s youth.
“Very few companies are coming out of phase 3 and into the realm of being valued based on revenue and profit. But there is reason to be confident,” MacKay said, citing emerging investments by big pharmaceutical companies in the space, and the recent acquisitions of smaller, private cell therapy companies by larger companies. “With all the clinical activity and early investment by a critical mass of pharma, we have the beginnings of an industry that’s transforming itself.” And the current successes of a handful of companies in the sector, such as regenerative medicine’s big player, Mesoblast Ltd. (MSB:ASE; MBLTY:OTCPK), “are signs of a growing confidence in the industry.”
“Once a company has a label and a claim, as well as supporting intellectual property, it then has a real commercial product. —Jason Kolbert”
Despite their potential, most experts concede that companies in the stem cell space have lagged in terms of valuation, getting little respect from a market more focused on big pharmas with products on the market and/or a pipeline stuffed with therapies in phase 3 studies. In an August interview, George Zavoico, senior analyst and managing director with MLV & Co., attributed some of the Street’s disinterest to the fact that many of these companies “were going for small, niche disease indications that didn’t have particularly large market potential.
“Only recently have some of these companies begun targeting broader indications,” Zavoico said, listing intermittent claudication, failed bone marrow transplantation and preeclampsia as examples. “While many of these trials are still in phase 1, some have progressed into phase 2 and phase 3. When these studies come to fruition, and if the results are positive, I can see this sector getting far more respect, with a corresponding increase in valuations.”
It’s not just the market that has been slow to pick up on stem cell companies and their therapies. Big pharma has yet to enter the stem cell space in any meaningful way. Kevin DeGeeter, director with Ladenburg Thalmann & Co., observed in his May 2013 interview that this could be due, in part, to the wide variety of approaches and indications being addressed.
“The overriding issues for big pharmas have tended to fall into three major categories,” DeGeeter said. First, there is the question of whether cell therapy companies can “scale up production to serve large markets in a cost-effective way.” That’s a particular issue for companies focused on autologous cell therapy products (using cells derived from and then readministered to the same patient).
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