Rewards, Risk in Cell Therapy

 | Jun 20, 2013 | 1:00 PM EDT
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The cell therapy space has a lot of potential. There are companies within the space that are developing therapeutics to treat diseases that affect millions with no cure or proven treatment. Results have been surprisingly strong so far, although one must expect a few hiccups along the way.

One of those hiccups was with Pluristem Therapeutics (PSTI), a stock that rallied 300% in the two years prior to September 2012. It has declined more than 15% since June 4. The stock's loss is in response to news that one of its Phase 2 trials has been suspended. Apparently, one of the patients being treated for artery disease had a "serious allergic reaction." This is the first reported incident, and who knows whether or not it has anything to do with the company's PLX cells.

The company did say in its press release that this particular patient had multiple diseases, and was already discharged by the hospital. Yet, the FDA is making a big deal of the event, so maybe Pluristem is not telling us something -- or the FDA is being extremely careful with this trial.

If I had to guess, I'd go with caution on behalf of the FDA. Pluristem is developing its PLX cells to treat peripheral arterial disease, a condition that affects 4.3% of the U.S. population over 50-years old. Thus, it could be lucrative for the company.

Yet, PLX cells are first extracted from the placenta where they are then grown in the company's proprietary bioreactor system. To me, there is nothing wrong with this approach. But when a company starts making therapies from human waste, you are going to encounter a prudent regulatory environment and possible ethical concerns.

Just look at Neuralstem (CUR). Here's a company with a cell product, NSI-566RSC, where patients responded extremely well in the treatment of Lou Gehrig's disease, or ALS. This would be a legitimate medical breakthrough. These same cells were used on paralyzed rats and resulted in observed motor function.

In January 2013, Neuralstem received approval by the FDA to conduct a Phase 1 safety trial in paralyzed patients. In April, the FDA finally approved its Phase 2 ALS trial. The FDA has been particularly careful with Neuralstem, as the source of the product is taken from both the spinal cord and the brain. As a result, Neuralstem began studying the product in both China and Mexico, as the FDA was uncooperative. To me, this makes the investment outlook extraordinarily risky – regardless of how effective -- as the FDA might abruptly shut down the trial with one reported incidence.

What's the moral of the story? It doesn't matter how promising a new therapy is or seems -- if the FDA does not like it there could be problems. That makes things riskier. If you want to invest in cell therapy, then invest in those companies that are taking extra precautions and are developing the products with ethics in mind.

Frankly, almost all of these small cell therapy companies show promise, but with any new therapeutic approach, the FDA is going to approach with skepticism. It will not take chances with a patient's life. Therefore, if you are going to invest in the space, a company such as NeoStem (NBS) might make sense. This is a company that has developed its cell therapy products in a way to where no ethical issues could ever arise.

Aside from working with the Vatican in the Stem for Life Foundation, its lead product is derived from bone marrow, which is quite common. The product is used to repair the heart following an acute myocardial infarction -- an indication that could generate sales north of $1.2 billion, according to the company. The product also resulted in no deteriorations of heart muscle function when patients were treated with 10 million cells.

Its other product, VSELs, uses a Nobel Prize winning technology, reverting cells to an embryonic state; the most effective form. With these approaches creating no moral dilemmas, it might be your best long-term bet, assuming you seek an investment in cell therapy.

This is a risky space, but one that is growing more popular by the quarter. All three companies highlighted have products with blockbuster potential, and trade with market caps that could lead to gains like Sarepta Therapeutic (SRPT). While several of these companies will succeed, many will fail, and one of the key determinants will be the moral dilemmas that are avoided with an approval.

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