AOL FINANCE
DAILYFINANCE.COM
Inside Wall Street:
This Tiny Stem Cell Biotech Has the
Vatican's Backing
By GENE MARCIAL Posted 7:30 AM 03/07/11
The fiery subject of medicine based on human stem cells usually evokes roiling controversy,
often generating more questions than answers. So, stem cell therapies have yet to catch on
among investors -- and on Wall Street. No wonder a tiny company like NeoStem (NBS), which
focuses on stem cell research and its medical applications, continues to be underappreciated, if
not ignored.
And yet it has attracted several big-name investors that are intrigued by some unexpected events,
including the Catholic Church's surprising embrace of NeoStem's research and NeoStem's
foothold in China's vast health care market. The Vatican has decided to pledge $1 million in
NeoStem, a biopharmaceutical company developing proprietary cellular therapies. NeoStem is
aiming to become a single source for the collection, storage and manufacture of adult stem cells -
- rather than embryonic stem cells from aborted fetuses -- for cell-based medicine and
regenerative science.
What's the Vatican's interest in NeoStem? In particular, the Church is very interested in the
company's work on adult stem cells, and what they imply on theological and philosophical
grounds.
"A Fundamental Shift"
"It's the Vatican's first-ever contractual collaboration with an outside commercial venture to
advance adult stem-cell research," says Rev. Tomasz Trafny, of the Vatican's Pontifical Council
for Culture. In a public statement in New York last May when the Vatican quietly made public
its involvement with NeoStem, Rev. Trafny said the Vatican's charitable foundation, STOQ
International, will make a commitment of $1 million to start its collaboration with NeoStem. It
will spearhead, he said, an educational campaign to generate awareness of the "cultural relevance
1
of such a fundamental shift in medical treatment options, particularly with regard to the impact
on theological and ethical issues."
Explaining further, Rev. Trafny said the initiative will partner NeoStem's and the Vatican's
charitable organizations to expand research and raise awareness toward adult stem cell therapies,
and to explore their clinical application in the field of regenerative medicine, as well as the
cultural impact of such research.
Considering the potential implications of scientific investigation, medical applicability and the
cultural impact of research on adult stem cells, "we view the collaboration with NeoStem as a
critical effort," says Rev. Trafny. "We are particularly excited about NeoStem's VSEL [very
small embryonic-like] stem cells technology," he adds.
VSEL stem cells have physical characteristics typically found in embryonic stem cells. In 2007,
NeoStem acquired a technology focused on VSELs that has an ability to detect cells found in
different types of tissues that could interact with a specific organ to help in repairing damaged or
diseased tissues.
A Three-Day Conference in Rome
The Vatican isn't the only big backer. On Jan. 13, the U.S. Defense Department awarded
NeoStem $1.7 million to help fund the company's research in using its VSEL technology for the
treatment of osteoporosis and improve bone health. One of the highlights of the Vatican-
NeoStem partnership will be a three-day international conference, to be held at the Vatican in
November, on adult stem cell research, including NeoStem's VSEL stem cell technology.
"This technology opens the door to the possibility of achieving the positive benefits associated
with embryonic stem cells without the ethical or moral dilemmas and other negative effects
associated with embryonic stem cells," says Dr. Robin Smith, NeoStem's chairman and CEO. For
more than 40 years, she says, physicians have been using adult stem cells to treat various blood
cancers. But only recently, she notes, has the promise of using adult stem cells to treat other
diseases begun to be realized.
The Vatican-NeoStem collaboration hasn't yet generated much enthusiasm from Wall Street or
the medical community. But it did nudge some large U.S. institutional investors to take a look at
NeoStem. Among those that have bought its shares are BlackRock Institutional Trust, which has
acquired a 1.22% stake; D.E. Shaw, which purchased 0.91%; State Street Global Advisors,
which now owns 0.60%; Northern Trust Investment, with 0.33%; and Vanguard Group with
0.24%.
Rising 12-Month Targets
"We think an investment in NeoStem is a good way to participate in the growing potential of
stem cells, where a significant breakthrough could happen over the next five years," says Shiv
Kapoor, biotech analyst at investment firm Morgan Joseph. And it's also a great way to benefit,
through NeoStem, from the large and growing Chinese health care market, he adds. In 2009,
2
NeoStem acquired 51% of Suzhou Erye Pharmaceuticals in China, which produces a series of
antibiotics, including penicillin and cephlasporins. Suzhou in 2009 generated revenues of $11
million and $6 million in earnings. "We expect the Chinese pharmaceutical business to grow at
least 20% over the next decade," says Kapoor.
NeoStem is licensed to use stem cell-based orthopedic technology in Asia and has now set up a
program in China to offer orthopedic treatments using adult stem cells through a network of
hospitals. "NeoStem is developing one of the best cell therapy platforms in the industry," which
includes stem cell storage, banking, and autologous stem cell-based treatments, says Kapoor. He
rates NeoStem's stock, now trading at $1.49 a share, a buy with a 12-month target of $3.50.
Yale Jen, biotech analyst at investment firm Maxim Group, also rates NeoStem a buy, but with a
higher 12-month price target of $5 a share. The stock remains undervalued, says Jen, based on
the increasing revenues generated by its stem cell operations in China and the advancement of its
VSEL technology.
An Enhanced Portfolio of Services
NeoStem has now become a global one-stop-shop on cell therapy, says CEO Smith, as a result of
its January acquisition of Progenitor Cell Therapy, a privately owned cell therapy company that
owns cell manufacturing and storage facilities. As a contract manufacturer, Progenitor was a big
factor in the success of Dendreon (DNDN) in its manufacture of Provenge, the first autologous
cellular immunotherapy to get U.S. Food and Drug Administration approval for the treatment of
metastatic prostate cancer. Provenge has since become a blockbuster drug.
The purchase of Progenitor enhances NeoStem's portfolio of services and allows the in-house
development of all stages of regenerative therapeutics, notes Reni Benjamin, biotech analyst at
investment firm Rodman & Renshaw. He says that on a sum-of-the-parts analysis, NeoStem,
which he rates as outperform, is worth $3 a share.
The company's regenerative medicine franchise, he adds, provides it with "a blockbuster
potential." He figures that although NeoStem will remain in the red through 2011, revenues have
ballooned. They jumped from $11.6 million in 2009 to an estimated $69.9 million in 2010. For
2011, Benjamin forecasts revenues will leap even more, to $93.4 million.
There's little doubt that NeoStem will start attracting more institutional and individual investors
seeking to participate in the still-evolving field of stem-cell therapies. As NeoStem solidifies its
leading role in that still underappreciated sector, it seems likely to emerge as a suitable way to
invest in the nascent field of stem cell therapy.
See full article from DailyFinance: http://srph.it/fJsPpn
3