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Biotech / Medical
Market Playground: Regenerative Medicine Continues to Show G
An SI Board Since October 2012
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Market Playground: Regenerative Medicine Continues to Show Great Advancements and May Lead Investors to Healthy Profits

Nice piece featuring BAX, NBS, LLY

By Glen S. Woods

Regenerative medicine therapies are showing great promise in reversing the damage due to heart failure, Parkinson’s disease, leukemia, osteoarthritis, Alzheimer’s, and other diseases and injuries. Stem cell therapies are extending lives and adding a better quality of living to many patients. Though the US had been slow in joining in the now $50 billion worldwide regenerative medicine market, there were and still are US companies, like giants Baxter International Inc. (NYSE:BAX), Johnson & Johnson (NYSE:JNJ), and Eli Lilly & Co. (NYSE:LLY), who are actively developing regenerative medicine therapies along with their more conventional portfolios of medicines in various phases of testing. There are also small companies that concentrate predominately on regenerative medicine, such as NeoStem Inc. (NYSEAMEX:NBS). Large or small, these companies are making headway in restructuring the way medicine will be developed in the future. Below are a few companies that are leaders in regenerative therapies, and are worth a closer look for investment consideration.

Baxter International Inc. (NYSE:BAX), one of the early pioneers in stem cell research and development, continues to find success in its stem cell trials. Already in Phase III clinical trials, the company’s CD34+ stem cells for use with patients who suffer from chronic myocardial ischemia (CMI), a severe form of coronary artery disease causing long term damage to the heart, and in many cases having disabling effects, is showing great promise. Through the trials and multiple studies, Baxter’s CD34+ stem cell therapy has been able to repair the damaged heart muscles, increase blood flow, improve the test patient’s ability to exercise, and reduce episodes of angina. This is especially important because of the positive results that CD34+ have shown on patients with deteriorating conditions where conventional medical treatments, balloon angioplasty or other surgical procedures, and open-heart surgery have not shown significant improvement.

Baxter has also found positive results in its Phase II clinical trials in halting the progression of Alzheimer’s for as long as three years, in a trial of 16 patients, with its drug Gammagard. The company is expecting Phase III results in early 2013 on 390 patients. The positive results come on the heels of Pfizer’s Inc. (NYSE:PFE) and Johnson & Johnson’s (NYSE:JNJ) much touted Alzheimer’s drug, bapineuzumab, that did not live up to the hype, and further development will be discontinued. Bapineuzumab failed to provide a benefit in a second late-stage clinical trial.

Baxter reported $1.12 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.11. The company’s revenue for the quarter was up 1.0% on a year-over-year basis. Analysts expect that Baxter International will post $4.53 EPS for the current fiscal year. A number of other analysts have set an “outperform” rating on the stock, including equities researchers at Raymond James with a target price of $64.00. JPMorgan Chase reiterated an “overweight” rating and has a $65.00 price target on the stock. With a market cap of $33.89 billion, the company’s common shares closed on Tuesday at $60.48, down $1.34 after testing of its 52 week high of $61.98. Baxter has had a solid run since early May after flirting with its 52 week low. The question is: Does this company have more steam to push through its 52-week high? The consensus is it does, but not by all that much. However, Baxter over the years has proven to be a strong stock to have in one’s portfolio; and if the company’s stem cell therapy and Alzheimer’s drug continues to show promise and can be added to the list of products, that would reaffirm Baxter as a good long-term investment.

Eli Lilly & Co. (NYSE:LLY), on the other hand, hit a 52-week high of $50.99 per share after it announced results from its Phase III Expedition studies in patients with mild-to-moderate Alzheimer’s disease. The results showed that patients taking solanezumab demonstrated a slowing of cognitive decline compared with a placebo. Although not specifically a regenerative therapy, it is a monoclonal antibody that helps to slow the degenerative effects of the debilitating disease and is included due to the indication targeted utilizing antibodies of a humanized source. Though doctors did call the results encouraging, it is probably not good enough to gain Food and Drug Administration (FDA) approval without another study to confirm there is a benefit. Trading volume tripled as over 28 million shares changed hands on this $58.93 billion market cap company. Even though Lilly stock is at its 52 week high, its P/E at 14.07 is lower than most of the major biotechnology companies, and its yearly dividend at $3.86 is above the sector average of $3.69. It also has liquidity of roughly $9.8 billion, and for 12 months that ended on June 30, 2012, Lilly generated $3.2 billion of discretionary cash flow. But Lilly has its challenges—last October its patent protection for the anti-psychotic, Zyprexa, expired along with its $5 billion in sales. By the end of June 2012, more than 95% of the U.S. market was buying generic Zyprexa. Also the late-stage trial testing its lung cancer drug, Alimta, failed to meet the main study goal of improving overall survival of patients. At this time, the company has 12 products in Phase III development, mostly for cancer and other chronic diseases; and though there is always uncertainty in these trials, there is a good chance that some of these drugs will be able to be added to the company portfolio and generate revenues. Last month USB analysts raised the target price on Lilly from $42.00 to $45.00, and the stock shot past that target. Is there more short term upside potential? Perhaps, but at $52.00 it might be wise to wait for a dip before jumping in.

NeoStem Inc. (NYSEAMEX:NBS), a $105 million market cap company out of New York City, NY, has positioned itself as one of the leaders in the regenerative medicine market, and the go-to stem cell provider and manufacturer for other high-profile companies in the biopharmaceutical sector, such as Baxter International Inc. (NYSE:BAX), Johnson & Johnson (NYSE:JNJ), and Dendreon Corporation (NASDAQ:DNDN). Through NeoStem’s subsidiary, Progenitor Cell Therapy (PCT), it has stem cell manufacturing plants on both coasts, plus one of the most experienced staffs in the field, saving other companies the cost of building a plant and training personnel. NeoStem’s subsidiary, Amorcyte, is developing a CD34+ CXCR4+ stem cell therapy, PreSERVE AMR-001, developed to preserve heart muscle and prevent major adverse cardiac events following acute myocardial infarction (AMI), commonly referred to as a heart attack. Its Phase II clinical trials will enroll 160 patients at more than 40 clinical sites.

On September 10th, NeoStem announced it received notification that claims granted with AMR-001 have now also been granted by the Japanese Patent Office. Japan represents another major market and a significant opportunity, as Robin L. Smith, M.D., Chairman and CEO of NeoStem, pointed out: “Heart disease is the second most prevalent cause of mortality in Japan, according to a meta-analysis published by the American Heart Association. A long-term study (MIYAGI – AMI Registry Study) showed that the incidence of AMI in Japan has significantly increased over the last thirty years, from 7.4 per 100,000 persons/year in 1979 to 27.0 in 2008. Furthermore, Japan’s large population of 127 million, together with its wealth makes it a market that can adopt novel therapeutics like AMR-001 that can potentially extend and improve quality of life as a standard of care.”

NeoStem is developing its new VSEL Technology program therapy and, if successful, VSEL may make the company even more attractive to investors. VSEL Technology has provided compelling evidence that bone marrow contains a heterogeneous population of stem cells that have properties similar to those of an embryonic stem cell. Dr. Mariusz Ratajczak, M.D., Ph.D., head of the Stem Cell Biology Program at the James Graham Brown Cancer Center at the University of Louisville and co-inventor of VSEL Technology, who heads up the program, stated in a 2012 interview, “Very small embryonic like stem cells (VSELs) are purified from adult tissues and are potential sources of stem cells for application in regenerative medicine and stem cell therapies. In contrast to embryonic stem cells, their derivation does not require destruction of embryos, and thus are non-controversial from an ethical point of view.”

This finding opens the possibility of bringing some of the key advantages that come along with embryonic stem cells without the baggage of the ethical or moral dilemmas. The potential of VSEL Technology, although still in early stages of development, has attracted a range of high-quality partners and supporters from the Department of Defense, to the U.S. Army Medical Research and Materiel Command, to the National Institutes of Health — and even the Vatican chose NeoStem as its exclusive partner in its adult stem cell research and awareness initiative in part based on VSEL Technology.

In the last 6 months, NeoStem stock has more than doubled; though it has dipped as of late to close on Friday at $0.68 per share, and roared back on Monday after a promising VSEL Technology announcement. In the press release, it was noted that implanted VSEL cells generated human bone when transplanted into burr holes made in the cranial bones of SCID mice. If the stock’s dips (especially Friday’s to 0.68) are due to profit taking, then NeoStem, with its diversified stem cell product line, might just be the best bet when it comes to investing in a development stem cell company. Current entry can still be construed as favorable with the company holding at the 0.70 support with the next support at 0.60. But as always, caution is advised: NeoStem showed a loss of $20.59 million in the second quarter. This is a small biotech company still operating in the red, and pretty much trades on the potential of what is believed to be future sales (like most development-phase companies). On Tuesday, investment analysts at Chardan Capital initiated coverage with a “buy” recommendation and a price target of $2.00 per share. Judging by the company’s own pipeline of product and other companies that are contracting with NeoStem through its PCT division, the potential seems to be predominantly on the upward side.

Disclosure: Long NBS
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