Three biotech penny shares to watch

Diabetes is on the rise. Companies working to counter its effects stand to make big profits. Here, Tom Bulford looks at three small-cap biotech companies aiming to do just that.

This a tale of three great penny shares competing to save thousands of patients every year from a very grim fate foot amputation.

Last week I watched a stomach-churning short video. It showed a surgeon scraping stuff out of somebody's blood vessel. I was reminded of a fisherman I saw on holiday scraping the guts from a freshly caught fish.

In fact, when you come down to it, most forms of medical intervention are little more than a rather tricky form of plumbing. But still they achieve more than just unblocking the drains. In this particular instance the procedure could have saved the patient from having his foot amputated a surprisingly common procedure, as it turns out.

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Every thirty seconds somebody somewhere has a foot amputated and the number is rising steadily. The cause of this is usually diabetes, and diabetes is becoming ever more widespread. Already over 200 million people worldwide have diabetes and that number is forecast to increase by 50% over the next fifteen years. Diabetes produces foot ulcers; in extreme cases, the only answer is amputation.

Fortunately, new solutions may be on the way, and in my travels through the world of penny shares I have encountered three interesting companies that are all working on this problem.

Three penny shares racing to save our feet

One of these is Reneuron (LSE: RENE), a specialist in stem cell research. Its most advanced programme is for patients suffering from the after-effects of a stroke, who it believes can be assisted by the injection of stem cells into that part of the brain that is malfunctioning.

So far as gangrenous feet, or 'peripheral arterial disease', is concerned, Reneuron intends to take stem cells from elsewhere in the patient's body, inject them into those parts of the foot that have effectively seized up, and encourage them back to life. Reneuron has already conducted some encouraging experiments on mice, and hopes to start human trials next year.

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An alternative is offered by Clearstream Technologies (LSE: CTN), an Irish maker of stents which, once inserted into blood vessels via a catheter, hold them open. These are normally used around the heart but there is growing interest in their use for peripheral parts of the body.

The problem with the foot is that the arteries that run through the ankle are very narrow and often badly calcified (clogged up). What Clearstream has come up with is a thin but super strong catheter than can twist and turn its way through these narrow arteries, allowing the blood to flow through to the foot.

Last week I came across a third contestant in the battle to save our feet. This is Tissue Regenix (LSE: TRS), a Leeds-based company that believes that the best method for replacing worn out body parts is to grow new ones from our own cells.

The starting point is to take a piece of animal or human tissue that matches that which needs replacing. The next step is then to strip the cells from this tissue to leave a 'scaffold' that has biomechanical properties but, crucially, does not provoke an immune response from the body, with the risk that it will be rejected altogether. Once implanted into the body, the patient's own cells will populate this flexible scaffold and it will even grow with the body, a potentially major benefit in surgery on children.

How to back the right medical tearaway

Tissue Regenix uses research work done by the University of Leeds' Institute of Medical and Biological Engineering. They recently produced a report entitled '50 Active Years After 50'. It turns out that more than half of the babies born today in the UK can expect to live to be 100, But, while good health and medicine may keep them alive, some parts of the body the joints, spine, teeth, and heart are not always designed to last that long.

Tissue Regenix believes that the regeneration of body parts could be the answer, and it is this vision that has inspired investors to give it a fancy valuation.

Having launched on AIM in June at 5p, the share price has risen to 16p to give it a valuation of some £70m. This seems plenty for a company that is yet to produce any meaningful revenue. And it compares with the £22m valuation given to Reneuron, another business yet to make a sale. Clearstream, on the other hand, is expecting to record sales of some £15m and record a profit in the new financial year, and yet is valued at just £12m.

Sometimes, in their excitement over futuristic technologies, investors seem to lose sight of valuations.

This article is taken from Tom Bulford's free twice-weekly email The Penny Sleuth

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.

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