The relationship between investor money and progress in a nascent field such as regenerative medicine is an imperative every company must deal with. Sadly, there is more money to be raised if the prospect of a successful therapy or application can be made to sound closer rather than further away, appealing not to niche markets but rather the broadest possible. Given the competitive market for new capital once a company has gone public, the years between stock market listing and successful therapy, which in truth can exceed the years played in the major leagues by a hall of fame third baseman, have got to be compressed if possible in the collective investor psyche through good old fashioned public relations.
Until about six months ago, our vote for the top public and investor relations prize would have gone to Cytori Therapeutics with Biotime Inc. and its charismatic leader, Dr. Michael West coming in a close second.
Of note from an investment point of view regardless of public and investor relations by a company: There is still only one widely used stem cell therapy, the use of bone marrow generated stem cells to replace an immune system destroyed by chemotherapy in various blood cancers. We'll talk more about where the other broad approaches seem to be, relative to broader or less broad applications, in future posts. But for now it's sufficient, for example, to note that Cytori, which has a current market capitalization of 185 million at this writing (down from about 260 million about a month ago) has yet to demonstrate that the therapy for which its adipose stem cell extraction and processing machine is designed works in the long term better than alternative approaches.
But the real prize, the big winner, in the pure business, marketing and public relations approach to potential stem cell therapy is a company called Neostem, which as a result of a recent reverse buy out is basically a Chinese drug company now listed on the American stock exchange.
Not that there is anything necessarily wrong with Chinese drug companies except that the standards against which they work and the transparency of the development process are not the best in the world by any stretch. And this is enough to suggest a careful approach without even mentioning the involvement of the Chinese government in all things stem cell within its borders.
In 2009, Neostem, listed on the American Stock Exchange, acquired a OTC listed company called China Biopharmaceuticals Holdings, Inc. With this acquisition came a 51% interest in Suzhou Erye Pharmaceuticals Company Ltd., a Chinese drug manufacturer. The other 49% of Erye is owned by Suzhou Erye Economy and Trading Co. Ltd.. The effect of this acquisition, which looks a bit like a reverse merger, was the movement of 51% of a Chinese pharmaceutical company -- even at 51% of Eyre, it is much larger than Neostem -- to the American Stock Exchange. In the process of accomplishing that and as a direct result of the 'acquisition' by Neostem, Eric H.C. Wei and a company controlled by Mr. Wei, Rim Asia Capital Partners, own approximately 53% of Neostem.
And what was Neostem (current market cap: $118 million) doing prior to this acquisition of a Chinese drug company? The company was building investor and market confidence by providing few results in two areas:
1. They owned and continue to own the world wide rights to something called VSEL technology. What is VSEL technology, you ask? It is something described only as very small embryonic-like stem cells found in bone marrow. The company suggests great promise for these cells. But in the years since the licensing, as far as we can tell very little has actually been done with the cells, with the result that very little has been shown or accomplished.
2. Neostem owns and is expanding adult stem cell collection centers in the U.S. They are the only company in the business of collecting adult stem cells and there is probably good reason for that. While embryonic stem cells are pluripotent, adult stem cells are not. Additionally, no one knows whether the use of a person's own stem cells collected at age 25 are one whit better than those collected at age 35 or when the procedure requiring autologous stem cells becomes necessary. Additionally, there is the possibility of using induced pluripotent stem cells which are embryonic-like stem cells made from adult stem cells of any age. So the question has to be asked: why store adult stem cells?
But in the process of publicizing these approaches while generating precious little revenue, Neostem has even managed to get the blessing of the Vatican:
May 26 /PRNewswire-FirstCall/ -- In a press briefing in New York, Reverend Tomasz Trafny of the Vatican's Pontifical Council for Culture announced what he characterized as the Vatican's first-ever contractual collaboration with an outside commercial venture to advance stem cell research – adult stem cell research. Reverend Trafny also revealed that the Pontifical Council for Culture through its charitable foundation STOQ International, is making an economic commitment of one million dollars to start its collaboration with NeoStem (NYSE Amex: NBS), an international biopharmaceutical company with operations in the US and China. Dr. Robin Smith, CEO of NeoStem, made the announcement along with Reverend Trafny.
Who are we to argue with this. We do suggest, however, that any investors reading this use caution here and read the 10k with great care.
