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Can Pluristem Therapeutics Corner the Acute Radiation Syndrome Market?

- By Joshua Rodriguez

I love the smell of a potentially great micro-cap stock in the morning. And when that potential gem is cash rich, is advancing a late-stage pivotal trial and has a consistent blessing from the Food and Drug Administration to perpetuate its late-stage trials, then that smell can transform into a fully-baked and appetizing investment opportunity. For those that like stocks on the go, Pluristem Therapeutics Inc. (PSTI) has a pipeline that is already churning out statistically significant results and is well on its way to becoming a richly valued, premium stock. Investors just need to pay attention to how the entire stock's recipe may come together in 2017.

Pluristem Therapeutics is radiating

Pluristem is not a newcomer to the small-cap investor. For some time now, investors have both cheered and sneered at the company, throwing darts at management for feeling too much of the company is being given away to greedy institutional investors, causing excessive dilution and a depressed share price. For small-cap investors, such frustration can be a regular experience during their trading career. They should get used to that feeling, however, because in the small-cap biotech space, raising money is an essential component of growth. Unfortunately, when the accredited investors that supply the funds sense a weakness, they circle like vultures and bask in the opportunity to take advantage of vulnerable prey.

Consider Pluristem for instance. The company raised over $17 million in late January, closing on a stock-and-warrant deal facilitated by H.C. Wainwright & Co. that added roughly 14 million shares to the share count, excluding warrants, at a price of $1.225 per share. What had shareholders a bit up in arms, however, is that before the announcement of the deal, the share price was trading just over 23% higher than where the terms settled. Whereas loose lips sink ships, the same is true about stock purchase deals. Even deals covered under non-disclosure agreements often see share price and market capitalization significantly depreciate while the financial terms are being negotiated. Such deflating coincidences have become commonplace in a market that is highly regulated to prevent these leaks from happening. But like most bureaucratic issues, the SEC will pick and choose where the enforcement rules may apply.

As is the case in many of these financing transactions, however, the crammed down share price is a mere blip on the screen and, as investors in Pluristem have noticed, the PPS has just about recovered all of the discount offered by H.C. Wainwright. The price performance leaves new investors happy and perhaps begins to help management make amends with those shareholders who were temporarily set back in personal portfolio valuations.

Now, with "coincidences" a part of unrepentant history, investors should focus on the parts of the company's machine that have been consistently reporting significant achievements and realize that at some point in the relative near term, the share price will catch up to what Pluristem is doing to create shareholder value.

Focus on acute radiation syndrome (ARS)

Pluristem has a broad pipeline and several products are progressing quickly through clinical and regulatory hurdles. Investors may be wise to focus their near-term attention to the company's proven clinical ability to treat acute radiation syndorme (ARS) however.

Acute radiation syndrome is an illness caused by irradiation of the entire body (or most of the body) by a high dose of penetrating radiation in a very short period, with exposure being as little as a matter of minutes. A drug indicated for the treatment of the syndrome can be extremely lucrative, while, of course, serving a vital medical purpose for people exposed to radiation, past, present or future. As a testament to the importance of a viable treatment, Amgen (AMGN) was granted a $157 million contract from the Biomedical Advanced Research and Development Authority (BARDA), an office of the U.S. Department of Health and Human Services. For Amgen, its blockbuster drug, Neupogen, became the first FDA-approved drug to treat radiation-induced myelosuppression following a nuclear or high-level radiation incident, leading to the potential hematopoietic syndrome of ARS.

BARDA was clearly endorsing the Amgen product, making Neupogen a necessary tool in their ARS treatment arsenal. Other companies were recognized as well. Throughout 2016, BARDA purchased more than $65 million worth of Leukine from Sanofi (SNY) as part of its buildup of leukocyte growth factor products to treat radiation-borne illness. What may be the key differentiating factor between the three companies, however, is the FDA has not specifically approved either Neupogen or Leukine for the treatment of ARS. Pluristem, on the other hand, is on the verge of getting its drug (PLX-R18) specifically indicated to treat ARS, which may offer an enormous financial windfall for the stock by producing the only drug specifically indicated to deal with the syndrome.

While government agencies' off-label use to treat ARS is an opportunistic and forward-thinking safeguard, having the option to purchase an approved and indicated drug can encourage an immediate replacement, putting Pluristem in a position to be the prime benefactor from world governments building an inventory stockpile of PLX-R18.

The ARS market and defense of it

With the Trump administration vowing to rebuild the U.S. military, Pluristem is positioned to reap the benefits from not only an increased military budget, but also from the need to secure a necessary inventory of treatments to ward off potential radiation and biothreat hazards. With Pluristem already moving toward FDA approval for PLX-R18, the company is in a position to generate significant returns provided by an over-$600 million defense budget, with increases of more than $50 million designated to ensure the availability of specific medical treatment for U.S. military, citizens and guests of the country. A deliberate attack is not the only source of concern by the way. While both nuclear and dirty bomb attacks are part of a terrorist's playbook, accidental exposure to acute radiation levels is also possible though natural catastrophes similar to the one witnessed at the Fukushima nuclear power facility in Japan, which melted down in March of 2011. In that instance, the results were devastating to both the country and its population, with acute exposure a grave concern for hundreds of thousands of Japanese citizens.

For investors and, more importantly, for people who may receive similar exposure to radiation, PLX-R18 could very well serve as the drug of choice to treat the illness. While every person should hope that such a desperate need for PLX-R18 never arises, that is not to say multiple countries around the world should not be prepared to treat large-scale population counts.

Pluristem is showing great promise in PLX-R18, and investors should be cheering the near-term potential for the drug to be approved. For those who do not understand the science behind the drug, it is relatively straightforward. Acute and intense exposure to radiation results in a depletion of immature parenchymal stem cells in particular tissues in the body. The depletion of these cells carries the potential of damaging bone marrow, which then leads to the inability of the body to produce the blood cells necessary to fight infection. The company believes its PLX-R18 therapy is the perfect antidote based on its stem cell origin, which has demonstrated the ability to boost platelet production as well as red and white blood cell production, all key components to fighting serious and progressive infections.

During the non-human studies, animals deliberately exposed to high levels of radiation showed a 100% recovery rate when treated with PLX-R18. Comparably, only 30% of animals addressed in the control placebo group recovered. Also important to note is that of the animals treated with PLX-R18 therapy, bone marrow blood-induced cell production returned to normal within 48 hours of being injected with Pluristem's drug. With respect given to the animals that gave their lives in the name of science, it should be noted that PLX-R18's statistically significant results during this trial are an incredibly exciting achievement for the company.

Data expected in first half of 2017

Here is where it gets even better. Pluristem is projected to release data on the study during the first half of 2017. Thus, already being about a third of the way through the year, these results are imminent. The National Institutes of Health is in the process of completing its dose-finding study in large animals and is expected to complete its assessment to determine proper dosing in humans in the immediate future. As Pluristem has told investors, the ARS trials testing for PLX-R18 efficacy cannot be expanded to include human patients for ethical reasons. Therefore, the potential antidote falls under the "Animal Rule," which can allow for FDA approval without the need for human testing.

While PLX-R18 may be fast-tracked for ARS approval, the FDA has recently cleared the company to conduct an additional phase I trial in humans for the treatment of hematopoietic recovery following bone marrow transplants, in which the company plans to treat the possible side effects of radiation exposure and chemotherapy treatment. This study will be recruiting and enrolling patients during 2017.

The National Institute of Allergy and Infectious Diseases has already communicated to Pluristem that once the optimum dosage of PLX-R18 is established, it plans to move into a pivotal and final trial under the animal rule, giving the drug accelerated hopes for FDA approval indicated specifically to treat ARS. With substantial trial coverage costs being absorbed by the government agencies involved, the company may benefit from additional indications proven as benefits of PLX-R18, which boosts the marketing and revenue position for Pluristem substantially without risking valuable capital resources.

It is important to note that Amgen's Neupogen was also approved for its indication through the animal rule, offering incentive and precedent for the FDA to lean toward fast-track approval for this important drug.

Cash, a great shot on goal and a needed drug

Pluristem is sitting in the catbird seat on several fronts. The company raised significant funds at the beginning of the year. While shareholders took a brief hit, the shares have recovered and the company is now in an ideal position to capitalize from PLX-R18. Beyond PLX-R18, the company has a robust pipeline with late-stage trials in progress that can attract partnership, grant and license deals in the near term.

The stock has consistent liquidity, trading more than 500,000 shares per day over the last 30 days. The stock price had been whipped around while the fundraising was in process, but shares have been on a nice uptrend over the past week of trading. Closing at $1.47 a share on Friday with a market cap of $141.22 million, the value given may not currently reflect the actual and potential value the stock may realize within the next few months. The fact Pluristem is on the verge of gaining approval through an animal rule study, requiring no human trials, should be enough to pique investor interest.

Although the company has over 100 million shares outstanding, it should not raise too many eyebrows because even that high share count is not likely to keep a lid on the intrinsic value for long. The company trades in an orderly manner, has prominent bankers on its side and a broad and impressive IP portfolio. The opportunity generated from PLX-R18 may be hugely profitable on its own. But when the accretive promise of the company's pipeline and pending phase III trials are factored in, at these levels investors should not fear that they have bought Pluristem shares at the top of the market.

Significant value can be immediately created through FDA approval, additional government funding for study and trial purposes and through the high likelihood of large-scale purchases by countries throughout the world needing to store an antidote to the growing terroristic threat faced around the globe.

Here lies the opportunity. At current price levels, the revenue generated by Amgen from its off-label indication to treat radiation illness is almost equal to Pluristem's total market cap. Because of the likelihood of PLX-R18's approval, coupled with the strong cash position and late-stage pipeline trials, being a long-term investor may be a prudent choice. While we should all hope an antidote to a deliberate nuclear-based attack is never needed, the requirement to be prepared offers a different sentiment. All countries must be ready to treat its citizens against a growing threat from hostile actors, as well as from natural disaster.

As investors, seeking out opportunity and investing based on sound fundamentals, an attractive and relevant product and the likelihood that a company's product will never go out of style are all criteria that should be considered when determining if an investment opportunity offers both near and long-term value. For those looking at Pluristem, the result of investing on those three criteria alone delivers a trifecta of reasons to consider the stock.

In an increasingly hostile world, Pluristem may indeed offer generations' worth of protection for a host of patient indications. At the very least, it may provide a relative sense of comfort to those who have been exposed to intense radiation or live in proximity to a nuclear facility. As of now, this stock is not too hot to handle and, at these price levels, the potential opportunity certainly warrants investor consideration.

Disclosure: This article reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or to be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover. While I seek to uncover emerging companies that I feel have true value and potential, it's important that investors assign an appropriate time horizon to each of their investments, understanding that emerging companies need time to mature. I am long PSTI and may purchase additional shares within the next 72 hours.

[This article was originally featured on CNA Finance]

This article first appeared on GuruFocus.