A NEW YOU: Investing in Regenerative Medicine

Spray-on skin.  Lab-grown ears.  Human tissue grown in a petri dish.  We're going deep into sci-fi territory (and it is already happening).

Regenerative medicine is an emerging field that provides treatments to repair, regenerate, or replace damaged cells and tissue.  The applications include therapies for Alzheimers, diabetes, cancer, and spinal injuries.

In the next few years, we may see dozens of new therapies hit the market.  Here are a few leading companies: 

Osiris Therapeutics (ticker:  OSIR) has a robust research effort and is approaching profitability.  Product revenues have quadrupled over the previous year.   Osiris currently has $36 million in cash – enough to fund the company for three years at the current burn rate.  Some of their products are just now hitting the market, while others are still going through clinical trials.

• Graphix:  A 3-dimensional cellular mesh that can be applied directly to damaged skin.  It is a high-tech bandage -- loaded with multi-potent stem cells and growth factors which stimulate tissue growth while lowering the risks of inflammation, scarring, and infection.   Competing products include Organogenesis’ Apligraf.
• Prochymal :  The only stem cell therapy currently designated by the FDA as both an Orphan Drug and a Fast Track product.  In is currently undergoing Phase 3 trials for Crohn’s disease and acute Graft-versus-host disease (GvHD) – a common complication of bone marrow and tissue transplants.  Prochymal is also being explored for the regeneration of heart and lung cells.
• Chrondogen:  Currently in Phase II studies for arthritis, Chrondogen is a therapy used for the prevention of arthritis and the regeneration of meniscus cartilage in the knee.

Heart attack and stroke are two of the most common causes of disability in the U.S.  Both create irreversible cellular damage due to lack of oxygen – damage that could eventually be healed through advances in regenerative medicine.

Athersys (ATHX) is another company with interesting prospects and a partnership with Pfizer (PFE).  Like most new stem cell treatments, they focus on cells harvested from bone marrow.  Their MultiStem product is being tested for the rebuilding of tissue for stroke victims, with Phase II trial results to be released this fall.  The big advantage of this product is that it can be used successfully within several days of a stroke.

Tissue Plasminogen Activator (tPA), is an existing treatment for ischemic stroke, but needs to be administered within a much smaller window of time (four hours).  As a result, less than 2% of all patients receive it, leaving 680,000 patients per year that could benefit from Athersys’ treatment.

Most regenerative health care companies are using stem cells as a sort of cellular therapy.  They create proteins and factors that train the body’s naturally surrounding cells to respond differently to stress.  For example, stem cells can signal other cells to focus on growth instead of inflammation, or building scar tissue.  After a few days, the newly introduced stem cells often leave the body by normal elimination.

A more radical technique is to grow patient stem cells on a bio-compatible scaffolding to create new body tissues and organs.   By using a patient’s own cells and growing them on the scaffold, the risk of tissue rejection is greatly reduced.  Up to this point, researchers at various institutions have successfully “grown” replacement windpipes, noses, ears, and bladders.   More sophisticated body parts, such as hearts and lungs, will require coordinating the growth of multiple tissue types.

Harvard Bioscience (HBIO) builds bioreactors that provide developing cells with just the right combination of oxygen, nutrients, and chemicals.  This “mechanical womb” could eventually be used to produce customized organs.

Organovo (ONVO) takes this just one step further, with its process of 3-D bioprinting.   No scaffolding is required here – tissues are printed and connected layer by layer.  Organovo has recently partnered with Autodesk (ADSK) to build 3-D design software for custom biological printing.

How close are we to print-on-demand parts?  Not very – the company’s main current technical challenge is the proper alignment of blood vessels in samples thicker than 20 cell layers.   It will be at least several years before Organovo will enroll in full clinical trials for transplantable organs.

Meanwhile, it is focusing on developing in vitro tissue samples to speed up the research and discovery process for conventional drug companies, including Pfizer and United Therapeutics (UTHR).

What does this all mean for investors?

The science is exciting and progress is being made, but regenerative healthcare is still in its infancy.   This is a perfect example of “hurry up and wait.”  Stem cell therapies, for example, have been the “next  big thing” for well over a decade.   Bioprinting is the hottest new technology, but the hype still far exceeds reality.   Put together your watch lists and get familiar with the key players in the industry.

Of the 30 publicly-traded stocks in the ARM Regenerative Medicine Index, only Mesoblast (MBLTY) has a market cap over one-billion dollars.  So, we’re looking at a collection of development-stage companies that are bleeding cash with years to go before they have revenues (much less profitability).   This usually ends in dilution when additional shares are issued to raise much-needed  funding.

Nonetheless, companies like Osiris Therapeutics are finally getting treatments approved and on the market.

From this perspective, many of these stocks are more speculation than investment.  Biotech stocks have the highest volatility of any market sector; they can be endlessly exciting and frustrating.

For those willing to take the risk, the reasonable approach here is to keep new holdings small and to use limit orders to get the best pricing.  Dip a toe in this water before jumping in.

(Disclosure: Information contained herein is for educational purposes only and is not to be considered a recommendation to buy or sell any security or investment advice. Mr. Lee is the Founder of Strategic Foresight Investments, a registered investment advisor.  As of May 21, 2013 the author does not own shares of any companies mentioned in this article.)