By Sven Olson
A ruling by the U.S. District Court for the District of Columbia on July 23rd ruled that stem cell therapies offered by Regenerative Sciences Inc. of Broomfield, Colorado meet the definition of a regulated drug. The ruling could allow the Food and Drug Administration (FDA) to crackdown on other clinics offering untested adult stem cell treatments in the United States. The Colorado clinic used stem cells extracted from a patient’s own bone marrow to treat bone and joint injuries. In their argument the clinic said its treatment was a medical procedure and not subject to federal oversight. In the 2010 suit seeking to block the company from selling the treatment, the U.S. government argued that because the company’s stem cells are more than “minimally manipulated” and use reagents that cross state lines, the cells are an FDA-regulated biological drug.
On Aug. 24th, the U.S. Circuit Court of Appeals for the District of Columbia upheld a lower court decision throwing out a lawsuit that challenged federal funding for embryonic stem cell research, despite complaints the work relies on destroyed human embryos. Opponents claimed the National Institutes of Health was violating the 1996 Dickey-Wicker law that prohibits taxpayer financing for work that harms an embryo. Chief Judge, David B. Sentelle, stated in the ruling, “Dickey-Wicker permits federal funding of research projects that utilize already-derived ESCs — which are not themselves embryos — because no ‘human embryo or embryos are destroyed’ in such projects.” Judge Sentelle pointed out that the same argument was made by the plaintiff the last time the court reviewed the issue. “Therefore, unless they have established some ‘extraordinary circumstance,’ the law of the case is established and we will not revisit the issue.”
With these regulatory decisions out of the way, the suppressed growth of stem cell research and stem cell therapies can now move forward with confidence which will allow its full potential to shine through. It is now possible to see unheralded growth in the sector with the following companies, such as Johnson & Johnson (NYSE:JNJ) and Baxter International Inc. (NYSE:BAX), along with smaller biotech companies, such as NeoStem Inc. (NYSEAMEX:NBS) and Dendreon Corporation (NASDAQ:DNDN) leading the way potentially for investors and for the medical community.
However, stem cell therapies are a relatively new field, and an investor must be cautious when investing in these small companies. Dendreon Corp.’s (DNDN) recent plunge from $17.00 a share to just over $4.00 a share on less than stellar sales of Provenge, their cell therapy treatment for advanced prostate cancer, is just one example of how investors look upon a biotech company. They may see not where they are today, but what they estimate profits will be in the future– where one piece of good news can send the stock skyrocketing upward, while one piece of not-so-good news (like Provenge’s slow sales) can send a stock plummeting back down to earth.
While volatility is a major hurdle for investors, there are other issues an investor needs to understand when looking at a company developing stem cell therapies: Does the prospective company have an infrastructure in place to manufacture stem cells? Due to the years of governments’ banning research and use of stem cells, very little infrastructure has been developed by large health care companies. Instead, they utilized their funds toward more conventional treatments. Building a stem cell manufacturing facility with a highly trained staff is very expensive and, at this time, stem cell therapy is more expensive than conventional treatment. However, there are companies, both large and small, that have taken the gamble that the government will understand that stem cell therapies have an important place in the healthcare industry. And some of the companies that have jumped in have developed numerous cell therapies in various phases of testing, and are seeing positive results that may just save lives and bring profits to investors who invest their money in those companies.
Baxter International, Inc. (BAX), a pioneer in intravenous drips, added stem cell research into their diversified company back in 2007 when they began trials on stems cells known as CD34+ designed to increase exercise capacity in patients with chronic myocardial ischemia (CMI), a coronary artery disease. The treatment, known as autologous stem cell therapy, harvests stem cells from the patient’s own bone marrow. Blood is then drawn and blood components are separated. Everything, but the mononuclear cells, which include stem cells CD34+, is returned to the patient’s body. Baxter’s CEO, Robert Parkinson, characterized the trials as a “wild card,” but with the understanding that, if they could coax stem cells to grow into healthy heart tissue, it would not only save lives, but represents a $1 billion market opportunity for the company.
Dr. Douglas Losordo, director of cardiovascular research and regenerative medicine at Northwestern University, which is leading a Baxter-funded clinical trial that aims to use stem cells to repair heart tissue damaged by a lack of oxygen, explained, “There are stem cells all over the body. There’s a lot of enthusiasm because they’re like a repair kit for the body — pre-installed by the manufacturer… These cells are like an injury response unit — they appear on the scene when there’s trouble.” Patients participating in Losordo’s trial have previously failed to respond to surgery and drugs. They are considered the sickest heart patients and experience chest pain from even the slightest physical exertion.
It appears as though Baxter’s “wild card” gamble is paying off. Earlier this year, Baxter’s CD34+ cell therapy entered its Phase III stem cell trial to evaluate the efficacy and safety of the cells to increase exercise capacity in patients with chronic myocardial ischemia (CMI). Baxter has selected NeoStem-owned Progenitor Cell Therapy (PCT) as the contract manufacturer for the 450 patients that will be in the Phase III stem cell trial. Contracting out the study seems to be a prudent move for Baxter considering it does not have a stem cell manufacturing capability at this time; nor would it make financial sense to build a manufacturing facility when PCT has one already operational with one of the most highly qualified and knowledgeable staffs available.
NeoStem (NBS), a leading stem cell research company, acquired PCT in January 2011, in what seemed to be a wise acquisition. The acquisition added the commercial operations of PCT’s manufacturing base and the value of being one of the few facilities available for contracting in the expanding cell therapy industry. It is the combination of PCT’s core expertise in manufacturing and NeoStem’s extensive research and development capability through its subsidiaries, Amorcyte and Athelos, that should position the company to be a leader in cell therapy development. Acquiring these companies was clearly a smart move for NeoStem and their investors; the manufacturing of stem cells appears to be the more profitable end of the business, and the diversity will only help the company to generate revenue while its own pipeline is still in various stages of development.
NeoStem has manufactured over 30,000 cell products for companies such as Johnson & Johnson (JNJ) and Dendreon. Through Athelos, they are engaged in collaboration with Becton, Dickinson and Co. (NYSE:BDX), the giant medical supply company, exploring the earlier stage clinical development of a T-cell therapy for autoimmune conditions. In July, NeoStem announced that SOTIO, LLC has chosen PCT to manufacture clinical products for their U.S. part of a global pivotal Phase III clinical trial for an autologous dendritic cell vaccine, expected to launch in early 2013 (subject to FDA approval).
Through Amorcyte, NeoStem is developing AMR-001, a therapy enriched for CD34+CXCR4+ cells. AMR-001 is an autologous bone marrow-derived stem cell treatment that is designed to prevent additional major adverse cardiac events following acute myocardial infarction (AMI). Similar to Baxter’s CD-42+ therapy, Amorcyte is enrolling patients in a Phase II trial to investigate AMR-001′s efficacy in preserving heart function after an AMI. NeoStem plans to begin a Phase I clinical trial over the next year to investigate AMR-001′s utility in stopping the progression of congestive heart failure and the associated comorbidities of that disease.
Given that this is an election year and that there is a chance of a political party change, one may wonder how the change may affect future stem cell research. Chances are, if Gov. Romney wins his presidential bid, he will be looking at a split congress, which could mean gridlock in Washington. Through stem cell trials, quality of life has been increased for many, and lives have been saved. It would be very difficult for any administration to put an end to research for stem cell treatments given that the Federal courts have already ruled favorable on a number of stem cell practices. So the question is, “which stem cell companies show the most promise?” There is no doubt that the large cap companies, such as Baxter, Johnson & Johnson, and Becton-Dickinson, with their stability, slow growth, and good dividends, are sure bets. However, for more bang for your investment dollar, it would seem that choosing the very company that those large cap companies selected to manufacture their product, NeoStem, could be a better bet. With a market cap of $108 million, NeoStem may be a bargain, trading roughly 21 % below its 52 week high. Although the company showed a loss of $20.59 million in the Q2, one must remember: The stock of a small biotech company with no earnings moves not by what sales are today, but what one expects it to sell down the line– and judging by the companies that are contracting their stem cell manufacturing to NeoStem, it may just be a matter of time before NeoStem rewards their investors by moving solidly upward.