AMR-001 Phase II Trial in AMI (Heart Attack) Enrolling
Exiting China Stem Cell Therapy & Pharma Markets
Downgrading to Speculative Buy – Terminating Coverage
Download Full 25-Page Report with Important Disclosures: NBS Downgrade 04-20-12
1.) AMR-001 Phase II Trial for AMI Enrolling: Amorcyte (a subsidiary of NeoStem) is currently enrolling the PreSERVE Phase II trial for acute myocardial infarction (AMI). The study is a 160-patient, multicenter, randomized, double-blind, placebo-controlled clinical trial to evaluate the safety and efficacy of infarct-related artery infusion of AMR-001, an autologous bone marrow derived cell therapy enriched for CD34+ cells. Progenitor Cell Therapy (also a NeoStem subsidiary) will support the manufacturing, product supply, and logistics for the trial. The AMI Phase II trial is expected to complete enrollment with top-line data 6 months after the last patient is treated or mid-2013. (see Amorcyte AMR-001)
2.) Exiting China Stem Cell Therapy Market: Although China’s regulatory environment had previously been more accepting of cellular based therapies, in December 2011, the Chinese Ministry of Health announced that companies using stem cells must register their clinical activities and asked local health authorities to halt unapproved use of stem cells in their regions. They also asked for a moratorium on new clinical trials and that patients in existing clinical trials should not be charged. As a result of this and other factors, NeoStem has determined to take steps to restrict, and expects to ultimately eliminate, its regenerative medicine business in the PRC. (see China Corporate Structure & Suzhou Erye Pharmaceuticals Businesses)
3.) Exiting Erye as China Pharma Sales Decline 4th Quarter in a Row: Pricing pressure in China continues to adversely impact Erye’s sales with an overall decline of 24% in 2011 due to pricing. Further medical insurance cuts are expected to reduce some of Erye’s drugs by as much as 50% to 75%. In addition, government curbs on antibiotics may add additional sales pressures in the future. NeoStem continues to explore strategic alternatives to sell their 51% interest in Erye. Although a number of issues can hamper a sale, including the 49% shareholders, we have modeled a sale of NeoStem’s interest in Erye in Q3. (see China Corporate Structure & Suzhou Erye Pharmaceuticals Businesses)
4.) Additional $6M in Cash Raised: On April 5th, NeoStem raised gross proceeds of $6.8M by selling 17M units (1 share and 1 warrant) for $0.40 per unit with the warrant having an exercise price of $0.51. We believe this serves as a cash cushion until the Erye sale has been finalized. (see Recent Financing Activity)
5.) Downgrading to Speculative Buy – Reducing Target to $0.40: The headwinds of both new regulatory and financial pressures in China have been adversely effecting NeoStem’s strategic position in that region. Unfortunately, the China situation has deteriorated faster than NeoStem can transition to cellular therapeutics company. As such, we believe the upside to the AMR-001 trial, with results expected in 2013, are currently outweighed by the current issues in China that need to be resolved combined with the company’s capital requirements during this transition. Therefore, we are downgrading NeoStem to Speculative Buy (from Strong Buy) and reducing our price target to $0.40 (from $4.00) based on a 35x multiple on projected 2017 earnings and discounted 45% (up from 30%) to adjust for risk. In addition, we are also terminating coverage as we reallocate our research resources toward nearer-term investment opportunities.
Download Full 25-Page Report with Important Disclosures: NBS Downgrade 04-20-12
