Most cells in the human body are particular to one type of organ or function: skin cells, liver cells, or heart-muscle cells, for instance. Stem cells, however, are essentially a blank canvas that can develop into any type of cell. This in turn gives them vast life-saving potential, as a recent project at Imperial College London illustrates. Researchers grew stem cells in a gel and managed to transform them into patches of heart muscle measuring three by two centimetres. These patches could be used to strengthen the heart muscle in patients who have just had a heart attack. This technique would be a major breakthrough, since heart failure affects nearly one million people in Britain alone and the only way of reversing the damage caused by a heart attack is by carrying out a full heart transplant.
We're not there yet. So far researchers have only implanted stem-cell heart patches in rabbits, but these experiments have been successful. Damaged left ventricles in the rabbits' hearts recovered within weeks of the operation. The implanted patches adapted seamlessly, with blood vessels growing into them. The next step will be clinical trials on humans.
The 2012 breakthrough
Only a few years ago there was only one source of stem cells: embryos that had been donated or aborted for research. This ethically fraught situation can now be avoided thanks to a technological breakthrough recognised by the award of the 2012 Nobel Prize for Medicine to Sir John Gurdon of the UK and Shinya Yamanaka of Japan. They discovered that mature, specialised cells that is, the normal cells that make up our body can be reprogrammed to become immature stem cells that is, ones capable of developing into any tissue of the body. For example, human skin cells can be reprogrammed to become stem cells, and then form nerve cells, or heart muscle cells and so on. This discovery caused textbooks to be rewritten and has created new opportunities to study diseases and develop new methods for diagnosis and effective therapy. These reprogrammed cells are called induced pluripotent stem cells (iPSCs) and, together with embryonic and umbilical-cord blood cells, comprise the three main types of stem cell capable of developing into other cells.
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The two stem-cell treatments so far
The only stem-cell therapies currently approved by America's Food and Drug Administration (FDA) are the use of cells from bone marrow or umbilical-cord blood. Both are rich in blood stem cells that can be used to treat cancers of the blood and bone marrow, together with certain inherited or acquired bone-marrow or immune-system disorders.
There are some extraordinary examples of lives being saved by bone-marrow transplants. The procedure involves removing the patient's stem cells and replacing them with stem cells from a matching donor. These then attach themselves to the patient's bone marrow and start making new blood cells. (The donor's transplanted bone marrow is replaced by the donor's body in four to six weeks.) A few years ago a radiographer at Sheffield hospital who had joined the bone-marrow registry was told she was a match for a nine-year-old boy in Chile with a rare form of leukaemia whose only hope of survival was a bone-marrow transplant. She agreed to donate and his life was saved. Since up to 70% of patients with leukaemia or lymphoma do not have a match within their family, lives are saved by finding someone else who is a match.
The potential in umbilical cords
The alternative to bone-marrow transplants is the use of umbilical-cord blood containing haematopoietic stem cells, immature blood-forming cells found in blood and bone marrow. These cells change into the red or white blood cells and platelets your body needs to remain healthy. In patients with bone-marrow disease this process doesn't work properly and cord blood is a potential source of the replacement tissue needed by patients with bone-marrow disease or those who contract leukaemia, lymphoma, or certain disorders of the blood and immune systems such as sickle-cell disease. The first successful cord blood transplant was carried out on a boy in 1988 and since then more than 25,000 such transplants have taken place worldwide on patients using matching cord blood from a blood bank.
Chemotherapy and high doses of radiation used to kill cancer cells also kill all a patient's stem cells and stop the bone marrow making blood cells. That is another situation where transplanted stem cells are used: higher doses of chemotherapy or radiation can then be used to kill cancers, since the stem cells that are killed will be replaced.
Some parents arrange to have their baby's cord blood cryogenically preserved so that, should the baby contract blood cancer later on, its own cord blood is available for treatment. This means the cord blood is a perfect match rather than the close match hopefully achieved from a blood bank. This is a key consideration for ethnic-minority groups, for whom cord blood banks may have few donors so patients may be unable to find a match.
Cord blood has two main advantages over bone-marrow transplants. Firstly, it is available for immediate use from a blood bank rather than waiting to find a donor and arranging for transplant and, secondly, there is less chance of the patient contracting graft versus host disease (GvHD), a devastating complication of some bone-marrow transplants that kills almost 80% of all affected children.
Research is gathering pace
The FDA has approved several firms to begin clinical trials of promising stem-cell therapies. In the US there are 18 phase-III clinical trials of stem-cell treatments in progress and funded by the industry. Phase III is the third and final stage of clinical trials before a drug is submitted for approval. The conditions being treated are multiple myeloma, leukaemia, Crohn's disease, heart failure and colorectal cancer. A further 60 active stem-cell projects are in earlier stages of clinical trials. Some research focuses on drugs that treat any complications arising from stem-cell treatment.
The drug pipelines of several biotech companies active in this field highlight the progress being made in harnessing stem cells to treat serious diseases. Our first example is an Australian company, Mesoblast, which has a proprietary cell-technology platform used as the basis of a number of stem-cell treatments now in advanced clinical trials.
These include Revascor for moderate to advanced congestive heart failure, now in phase III; MPC-06-ID, also in phase III for chronic lower back pain due to disc degeneration; and Remestemcel-L for acute GvHD. There are also phase-II trials in progress of MPC-300-IV for chronic inflammatory conditions and also for diabetic nephropathy (chronic loss of kidney function in diabetics).
Encouraging results have been reported with Remestemcel-L for acute GvHD. At day 180 of the phase-III trial, the survival rate was 69% of the entire trial group compared with historical figures of 10%-30% for patients with the disease who fail to respond to the conventional steroid treatment.
The small US firm BrainStorm Cell Therapeutics concentrates on stem-cell treatments for neurological diseases. The company has developed a platform called NurOwn that can harvest stem cells from a patient's bone marrow and use them to produce the necessary quantities of modified stem cells to act against neurodegenerative diseases. BrainStorm has one phase-III clinical trial enrolling patients for progressive motor neurone disease. There is no cure and most patients only live for three to ten years after diagnosis (Stephen Hawking famously lived on for much longer). The group also has a phase-II trial for progressive multiple sclerosis and pre-clinical studies for Parkinson's and Huntingdon's diseases, all using its NurOwn platform.
Fate Therapeutics is a larger company concentrating on treatments for cancer. It uses pluripotent stem cells (iPSCs , the discovery of which was acknowledged by the 2012 Nobel prize) to make immunotherapies to target cancers. It has clinical trials in progress on treatments for both blood cancers and solid tumours. Fate has entered into collaborations with Ono Pharmaceutical and Juno Therapeutics (acquired by biopharma giant Celgene in early 2018; Celgene is at present being acquired by Bristol-Myers Squibb).
How to invest in the theme
Stem-cell treatments are still in the early stages so investment in pure stem-cell companies is bound to be risky. Since the US is the clear world leader in biotech, we inevitably focus mainly on American companies. The three main options are to invest in a stem-cell therapy company (usually relatively small); in a larger biotech company that has some stem-cell activities; or in a "picks-and-shovels" company, that is, one that provides equipment and consumables needed by firms involved in stem-cell research and development.
A good example of a picks-and-shovels play is Thermo Fisher Scientific, which provides everything from single tools to integrated system solutions. Thermo Fisher is the leading supplier to scientific and research organisations. Pharmaceutical and biotechnology firms comprise its leading end-market, so stem-cell-related products/systems are necessarily a modest portion of revenue.
Some large pharmaceutical and biotech companies have small stem-cell activities, but these are not yet significant in revenue or profit terms. Examples are Fate's collaboration with Ono Pharma and Smith & Nephew's $660m acquisition of Canada's Osiris Therapeutics, which produces a drug for GvHD. Investors are more likely to benefit from Big Biopharma through investments in medium-sized stem-cell companies that prove to be the recipients of bids after the publication of encouraging late-phase clinical trial results.
How to assess the middle of the market
Typical medium-sized companies involved in stem-cell research of some kind include Fate Therapeutics and Sangamo Therapeutics, with market values around $1.3bn; Vericel and Mesoblast, in the range of $500m to $900m; Athersys & Cellular Biomedicine Group, worth between $200m to $300m; and BrainStorm Cell Therapeutics, with a market capitalisation of $100m. All these companies made a loss in 2018 and all had modest or negligible revenues. Only Fate and Sangamo had net cash of more than $100m at the end of the year; Sangamo had $400m and Fate $185m.
In assessing this type of company for investment, the quality of the pipeline and the presence of big biopharmaceutical partnerships are two key factors. The quality of the pipeline is important when a company needs to raise more funds, as most of them will need to do before their lead drugs can complete phase-III trials, gain approval and be launched on the market to bring in reliable cash flows. Big biopharmaceutical partnerships are invaluable for accessing US and world markets and therefore growing revenues rapidly.
The main risk for these early stage companies is the failure of a late-stage clinical trial. That can lead to a sharp share-price fall, just as a successful result, particularly for a phase-III trial, can lead to a sharp rise. The share-price fall will be catastrophic if the company only has one or two late-stage pipeline options and one or both of these fails. We now briefly describe the clinical pipelines of several medium-sized stem-cell biotechs.
The drugs that could become bestsellers
Fate Therapeutics has one candidate FT500 in early clinical trials against solid tumours and four other candidates at the pre-clinical stage. FT500 is the first iPSC-derived cell line approved by the FDA for trials. Fate collaborates with Ono Pharma and Celgene. Sangamo has collaborations with Gilead, Pfizer, Sanofi and Shire, and has projects in gene therapy and gene editing as well as cell therapy.It has five clinical trials in progress, but these are in phases I and II.
Vericel has two cell-therapy products marketed in the US one for treating cartilage defects in the knee and the other for permanent skin replacement for serious deep burns. Revenues of $91m were recorded for 2018. The company has an exclusive licence agreement with MediWound, a small biotech that specialises in wound and burn care, and is looking for partners to market its products outside the US. Three clinical trials are in progress on cartilage repair and treatments for severe burns. It reduced its losses to $2.8m in the first quarter of 2019 from $7.7m the year before and achieved positive cash flow.
Mesoblast has partnerships with Takeda Pharma and JCR Pharma of Japan, Lonza of Switzerland and Tasly of China. Mesoblast has one marketed product Temcell for GvHD approved in Japan with three pipeline candidates in phase III and three in phase II.
Athersys has one project in phase III and three in phase II. The most advanced is the phase-III programme for ischaemic stroke (when arteries to your brain become blocked), the leading cause of disability in developed countries. The trial is mainly in Europe and North America.
Cellular Biomedicine is a Chinese company listed on Nasdaq with negligible 2018 revenues, but with two phase-II stem cell trials in progress for knee osteoarthritis. BrainStorm has one phase-III programme for motor neurone disease, one for MS in phase II and three at the pre-clinical stage.
The stocks to research now
Stem-cell treatments, then, clearly have huge potential and this is an area that biotech investors should watch carefully since it is likely to lead to blockbuster products in the next few years. However, investing in the mainly early stage companies is risky because almost all the biotechs involved are making losses and promising phase-III clinical trials can fail, causing serious share-price falls. However, a successful phase-III clinical trial can have a very positive effect on a biotech's share price and may also lead to a takeover bid.
My favourite biotechs of the ones mentioned above are Fate Therapeutics (Nasdaq: FATE) and Sangamo Therapeutics (Nasdaq: SGMO), which are the largest, both with Big Pharma collaborators, Sangamo having many more clinical trials. Then there are Mesoblast (Sydney: MSB) with one marketed product, a strong pipeline with three phase-III trials and Big Pharma collaborators; and Vericel (Nasdaq: VCEL), which has one marketed product and came close to profitability in the first quarter.
Consider also Athersys (Nasdaq: ATHX) for its important stroke treatment in phase-III trials, and possibly BrainStorm Cell Therapeutics (Nasdaq: BCLI) for its phase-II MS treatment. A lower-risk option is Thermo Fisher Scientific (NYSE: TMO), the equipment supplier for pharma and biotech firms trading on a 2020 price/earnings ratio of 22.
For decades, Dr Mike Tubbs worked on the 'inside' of corporate giants such as Xerox, Battelle and Lucas. Working in the research and development departments, he learnt what became the key to his investing. Knowledge which gave him a unique perspective on the stock markets.
Dr Tubbs went on to create the R&D Scorecard which was presented annually to the Department of Trade & Industry and the European Commission. It was a guide for European businesses on how to improve prospects using correctly applied research and development.
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