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What Stephen Hawking Missed: Small Biotechs Developing Promising Cell Therapies for Devastating Disease
Interview

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Jason McCarthy In the second of a two-part series exploring the disruptive cell therapy space, Maxim Group analyst Jason McCarthy takes a look at small-cap companies targeting big-ticket indications and their potential to drive blockbuster value for both patients and investors.

The Life Sciences Report: In the first part of our discussion, we talked about companies working in the cell therapy space that have been acquired by larger pharmas. Now, let's talk about some of the smaller companies working in the space. There's a list of them. Which do you like best?

Jason McCarthy: I will break it down into therapeutic categories, because they are different. If we look at the stem cell therapy space, which I described earlier as being a laggard in terms of valuation as compared to CAR-T and gene therapy, you can include Cytori Therapeutics Inc. (CYTX:NASDAQ), Athersys Inc. (ATHX:NASDAQ), Mesoblast Ltd. (MESO:NASDAQ; MSB:ASX) and BrainStorm Cell Therapeutics Inc. (BCLI:NASDAQ), as well as Capricor Therapeutics (CAPR:NASDAQ).

Cytori ran a Phase 3 trial for an autologous cell therapy for Raynaud syndrome associated with scleroderma, where you can't close your hand due to fibrotic buildup, poor blood flow and a host of other factors. It's unbelievably painful for patients. We've seen data out to almost three years from a French study of this cell therapy demonstrating efficacy, safety and durability. The company will probably do a bridging study or run another clinicaI trial to reach approval.

Athersys is in stroke. Its cell therapy, MultiStem, in a prior Phase 2 trial, didn't meet its primary endpoints. But when you look at the specific times when clinicians administered MultiStem to patients who had undergone a stroke, the data were significant. What drives that? The therapy's not actually fixing the stroke, right? Once you have a stroke, you're in the hospital; you're going to get a clot buster with a tissue plasminogen activator or mechanical reperfusion. What happens after that is a big problem that's not being addressed, and that I think is misunderstood in the space. It's a hyperimmune response followed by immune depletion. This is why, over a relatively short period of time, stroke patients decline and never recover. MultiStem actually restores the immune homeostasis, if you would. It gets patients past that hyper- and hypoimmune response, and actually drives excellent outcomes in stroke.

Athersys is running two Phase 3 trials right now. The first one is in Japan with its partner, Healios KK (4593:TYO). The second one is going to start here in the U.S. soon. But in terms of valuation, the company's sitting at $200M.

Mesoblast is in four Phase 3 trials, in heart failure, graft versus host disease (GvHD), rheumatoid arthritis, and back pain. Can you imagine using a cell therapy—a one-time injection into your back—and then not needing to use painkillers, given there's a huge opioid crisis worldwide? If the therapy can extend life in heart failure, it would be incredible, and Phase 2 data suggest that it can. The company's already gotten approvals for GvHD. This is a real company that's stuck at a $400M valuation, whereas Kite Pharma and Juno Therapeutics, which have been acquired by large pharmas, were at $12B and $10B. There's a huge valuation gap, in my opinion.

The fourth company in cell therapy is Brainstorm, which is flying under the radar with a cell therapy for Lou Gehrig's disease (amyotrophic lateral sclerosis/ALS). It's in a phase 3 trial, and plans to have interim data this June and topline data in 2019. From the ice bucket challenge to the passing of Steven Hawking recently, ALS has emerged as a really significant problem that's going unaddressed. Cell therapy really could be the answer, where even gene therapy and other approaches have not worked. We've seen good data from Brainstorm. Again, undervalued.

Capricor is another really interesting name. It was developing a cell therapy for heart failure, and in that study, it found its therapy could increase the heart muscle and increase skeletal muscle. It made a lot of sense for the company to then move into Duchenne muscular dystrophy (DMD).

And Capricor's shown some good Phase 1/2 data in DMD. It's moving into a Phase 2 trial that could serve as a registration study. The company serves as a comp to Sarepta Therapeutics Inc. (SRPT:NASDAQ). Sarepta's exon-skipping technology, Exondys 51 (eteplirsen), while approved, was only done in 12 patients in a nonrandomized trial with a wide range of endpoints. Capricor's trial will enroll 84 patients, is randomized and has a "hard" endpoint in upper body strength measures. In addition, Capricor has the opportunity to use its cell therapy for the entire DMD population, whereas Sarepta is stuck to a very niche sliver of DMD.

These are the current names in cell therapy—but what's important to note is that each of these companies is the proverbial leader in its space—Athersys in stroke, Cytori in scleroderma, Mesoblast in heart failure and several other indications, Brainstorm in ALS and Capricor in DMD.

TLSR: Are other companies doing compelling work in the cell therapy or gene therapy space?

JM: Omeros Corp. (OMER:NASDAQ) is an interesting name. Omeros is a revenue-generating company selling a product that surgeons use for optical procedures called Omidria. It is generating $50M+ a year and growing.

But what we see in Omeros—and I think what investors miss—is that instead of benchmarking this company quarter-to-quarter on its Omidria revenue (which, by the way, continues to grow), the Omidria revenue is really a means to an end. The company has an antibody, OMS721, that could be a better complement-blocking antibody than Alexion Pharmaceuticals Inc.'s (ALXN:NASDAQ) Soliris. And it has three Phase 3 trials going on right now. In our opinion, the antibody is not being valued, and is not reflected in the stock today. That's where the real potential for Omeros lies.

Actinium Pharmaceuticals Inc. (ATNM:NYSE.MKT) falls in between CAR-T and gene therapy. It's in the much-less-talked-about space of bone marrow transplants. We always view CAR-T as a bridge to bone marrow transplant, which is the only definitive cure for many of the blood cancers. The problem in the space is that the chemotherapies used to try to ablate a patient's bone marrow don't really work. And unless the marrow is completely ablated, they cannot get a bone marrow transplant. Unfortunately, they can pass away within six months.

Actinium has taken an antibody and labeled it with a radioisotope. This can wipe bone marrow out so quickly that it is actually significantly improving the overall survival and outcomes in leukemia patients by allowing the patients to get to and receive better bone marrow transplants. Actinium has shown this in a Phase 2 trial. It is now in a Phase 3 trial that's going to have interim efficacy data this year, with topline data next year. And the company is using this platform with other radioisotopes to extend into all kinds of blood cancers, from multiple myeloma to earlier-stage acute myeloid leukemia and myelodysplastic syndromes. This could really change the paradigm in bone marrow transplant, and save a lot more lives by getting more people to transplant.

ADMA Biologics Inc. (ADMA:NASDAQ) also falls into this space. ADMA develops intravenous immunoglobulin (IVIG). If you have no immunity, you are susceptible to infection. To mitigate that, there's a whole big business where companies pool plasma to get antibodies from the general population and infuse it into patients. That keeps people from getting potentially life-threatening infections.

ADMA has a very specialized IVIG focused on antibodies targeting respiratory syncytial virus (RSV). It's a major health concern, particularly for people who have no immunity, like those with primary immune deficiency diseases (PIDDs) or bone marrow transplants. Many types of immune-suppressed or immune-depleting patients need an IVIG. And RSV, believe it not, is more deadly than flu. There are as many, if not more, cases of RSV than there are of flu.

With its RSV-specific IVIG, ADMA is certainly positioned to be a significant player in the IVIG space. The company is in the process of completing resubmission of its biologics license application, and we expect that in 2018. This could be on the market as early as H1/19.

TLSR: Are there other companies you can mention that are out front in their fields?

JM: There are a few. But there is one that I think goes unsung, and that's BioLife Solutions Inc. (BLFS:NASDAQ). BioLife Solutions sells media—a special sauce if you would—that you grow stem cells in, you grow CAR-T-cells in, you grow any cells in. And it's also used for freezing and shipping.

While you can buy media from Thermo Fisher Scientific Inc. (TMO:NYSE) or other companies, the media are not highly specialized. What I mean by that is—and I worked in my own lab for many years—a lot of companies and institutions make homebrew, cook up their own media. Everybody has a secret recipe that they think works. What you find out is, once you freeze and unfreeze your cells, the viability of the cells is down—they're dying. And the cells you're left with that actually function are compromised. Some cells actually change what they're doing, and that's because the medium is not balanced. It's not the right medium.

BioLife has developed media that mitigates these problems, and is selling it to almost all the major players in the stem cell space, in the CAR-T space, and even in the gene therapy space. We view it as a tangential play to CAR-T, gene therapy, or stem cell therapy because once you start using BioLife's media, it's basically baked into your clinical development. You're not likely going to change media as you move through clinical trials and commercialization. We see this company growing as the cell therapy space grows.

There are also other names in cancer, outside the pizzazz of immune oncology, CAR-T and checkpoint inhibitors, which have overshadowed other more traditional therapies for cancer. People blindly think chemotherapies are going away because we have CAR-T. That is fiction. They are not going away. Radiation is not going away. Small molecules, chemotherapies and new methods for radiation are emerging, and some companies are really leading the resurgence of these types of therapies.

One of them is IsoRay Inc. (ISR:NYSE.MKT). It has an element called cesium-131, which is a faster-hitting, short-acting radiotherapy that can kill cancer cells in a more controlled way, limiting the off-target effects on healthy tissue. The new management team that's come onboard over the last two years has shifted the entire company, and is bringing back brachytherapy—seeds laced with cesium-131. These are used for prostate cancer and all different kinds of solid tumors. And this company, by the way, could shift the paradigm in brain cancer.

Brain cancer is so devastating. Patients often die, including children, inside of a year. CAR-T, checkpoint antibodies and vaccines are all going after brain cancer. But what is forgotten, in my opinion, is that before you get to these kinds of treatments, every single patient is going to have brain surgery. They're going to have their tumors resected, and then radiation followed by chemotherapy. What ends up happening is, after surgery, patients have to wait 30 to 40 days before they can do anything else, including getting external-beam radiation, chemotherapy or CAR-T, which is even farther down the road.

IsoRay has partnered with GT Medical Technologies Inc., a private company, which makes a product called GammaTile. It's putting its cesium-131 seeds in little tiles that are then placed in the tumor resection bed during the surgery process. There's no waiting around for 30 days for the tumor to grow back, which it does—we can see this via radiographic images. The seeds get rid of any residual tumor tissue that might be in the tumor bed and give patients better outcomes.

The company is just getting started. It plans to file for a 510(k) in the next month or two, and it'll be on the market likely later this year, or in 2019. But IsoRay, and what it's doing in the brain cancer space, is very undervalued, and investors should be paying attention to this company.

TLSR: What should investors consider when looking at cell therapy companies? Are there milestones to look for in particular?

JM: What drives biotech is data. Data drives valuation because these companies don't generate revenues, at least not yet. Clinical trial readouts make or break the valuation. It's a catalyst-driven space. I think what investors are looking for is the clinical stage of the company—are you in Phase 1, are you in Phase 2?; the type of therapy—is it CAR-T, is it some other form of T-cell therapy with a natural killer cell?; and when does your data read out. That's how companies are benchmarked. Data are the milestones. Approvals, of course, are milestones too, but those are far away for a lot of these companies, outside of Juno, Kite and bluebird.

TLSR: What do you think 2018 looks like in terms of new developments in the field, either in terms of investment opportunities or the science?

JM: I'll start with CAR-T. It's "CAR-T," but you're talking about T-cell therapy. And T-cell therapy includes T-cell receptors, CARs, natural killer cell receptors and other variations of manipulating the T-cells to attack cancer. What I would look for in this space are the ways that companies, including Kite, Juno and bluebird, are altering cell therapies to either improve efficacy or reduce any safety issues. That's going to allow them to move to earlier lines of therapy. For a relapsed/refractory population, I think the tolerability of more risk is baked in because the prognosis of these patients is so poor. To move to earlier lines of therapy, which is where the real blockbuster potential of CAR-T and other T-cell therapies is, you're going to need to use gene editing, change your cell composition, and do other manipulations.

For gene therapy companies, we're going to start seeing more long-term data this year and next year. That's something the investment community is looking for. We're also looking for movement in the immune-oncology space into combination therapies. They're already there, but we're looking for data to emerge in 2018, and that's an opportunity.

And from the cell therapy/stem cell therapy side, we're going to see heart failure data from Mesoblast. We're going to see more data from Cytori, and maybe the start of another trial. We'll see data from Brainstorm. I think 2018 and 2019 could be watershed years for cell therapy.

TLSR: Finally, is there anything else investors should consider when looking at this field?

JM: In terms of cell therapy first, excluding CAR-T, we're looking for data. In my view, companies like Mesoblast in heart failure, and Cytori in scleroderma and Raynaud's, and Brainstorm in ALS, and Athersys in stroke—they are not looking for cures. These diseases are not curable, not yet. That could be a long way away, if ever. When you look at cell therapy, you need to change your thinking away from the idea of clinical trial readouts that are curative. That's not what we're focused on. We're focused on changing the trajectory of the disease.

If an ALS patient is declining less with Brainstorm's cell therapy, what's the value in that, not only from a monetary perspective for the company and its investors, but also for the patient? Same thing for heart failure—for a class 3 or class 4 heart failure patient, extending that patient's life by three, four or five years, and with good quality of life—what's the value of that, to the company but also to the patient? Scleroderma is devastating. These patients lose the function of their hands and their feet. The value is in relieving them for many years, improving quality of life. Considering cell therapy, you really need to look at altering the course of disease and not necessarily narrowly focus on curing disease.

I also think the valuation gap between CAR-T and gene therapy and cell therapy needs to be closed. Athersys' valuation is $200M. Its partner, Healios in Japan, has over a billion-dollar valuation, yet Healios' lead program is Athersys' lead program. It doesn't make a whole lot of sense. The cell therapy space has been overshadowed by CAR-T and gene therapy. The whole cell therapy space, in my view, is undervalued. Pivotal Phase 3 data for a lot of these companies are coming, and investors should be watching what these companies are doing because the valuations are cheap and these are blockbuster-size indications.

One last thing: When investors look at gene therapy, CAR-T, and cell therapy in general, I think they're looking at them individually. I think that's the wrong way to look at it. I think you need to look at them as one gigantic shift in the medical paradigm, and they overlap each other. That gap needs to close, from oncology to autoimmune diseases to rare genetic diseases; it doesn't matter what your disease indication is.

TLSR: Thank you, Jason.

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Disclosure:
1) Tracy Salcedo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Jason McCarthy: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: Mesoblast, Cytori, BrainStorm Cell Therapeutics, Abeona, IsoRay, BioLife Solutions, ADMA Biologics, Omeros, Actinium, Athersys. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.




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