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Neostem, Inc. ($NBS) - WBB Securities Report


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NeoStem, Inc. (AMEX: NBS; Stock Twits: $NBS) is engaged in the development and manufacturing of cell-based therapies in the U.S. Its January 2011 acquisition of Progenitor Cell Therapy, LLC ("PCT") is central to the Company's strategic mission of capturing the paradigm shift to cell therapy.

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Neostem, Inc. ($NBS) - WBB Securities Report

  1. 1. WBB Securities, LLC Stephen G. Brozak (908) 518-7610 Neostem, Inc. (NBS) (08/16/2011) Upgrading from Hold to Speculative Buy and adjusting Price Target to $1.40 Rating Legend: Strong Buy-Should be aggressively purchased. Buy-Should be purchased on market weakness. Hold-Fairly valued. Sell-Stock should be sold on market strength. Sell Short-Should be aggressively sold. Speculative Buy – For aggressive accounts Current Price $0.74 12-Month Trading Range $0.60-$2.15 Market Capitalization (Mil) $69.56 Shares Outstanding (Mil) 94.00* 12-Month Price and Trading Volume Avg. Daily Volume 464,966 L. T. Debt (Mil) $5.9 You Gotta Have Heart Dividend/Yield N/AOn July 14, 2011, NeoStem, Inc. (NBS) announced an Book Value P/S 0.83agreement to acquire Amorcyte, Inc., a company focusingon discovering novel treatments for cardiovascular NASDAQ Composite 2,555.20disease. Amorcyte’s lead product candidate, AMR-001, S&P 500 1,204.49has completed a Phase I study of acute myocardial 12 Month Target Price $1.40infarction (AMI) patients and expects to begin a Phase II Source: QUODD *146 Million Shares Fully Dilutedstudy by 1Q 2012 or earlier with a mid 2013 readout of Cash EPS 2010 2011 2012results. Q1 (0.12)A (0.14)A Q2 (0.11)A (0.13)AAMR-001 consists of a patient’s own bone marrow cells Q3 (0.13)A(bone-marrow derived mononuclear cells), processed in Q4 (0.10)Afacilities of Progenitor Cell Therapy, LLC (an NBS-owned Year (0.46)A (0.55)E (0.44)Esubsidiary) to create CD34+CXCR4+-rich pharmaceutical-grade cells. These cells are reinjected through coronary P/E NM NM NMarteries into damaged areas of the heart 6 to 11 days after EPS Growth NM NM NMthe patient experiences an (AMI). The CD34+ cells are FY Rev. (Mil) 69.8A 10.0E** 15.0E** **Exclusive ofthen able to have an anti-apoptotic effect in addition to a FY:DEC Suzhou Erye Revs See Page 4 for Management Biographiespositive angiogenic effect in the area around the infractedtissue (the peri-infarct zone). The CXCR4 receptors on the cells allow them to home in on areas thatare ischemic, thus allowing the cells to concentrate where needed rather than randomly dispersethroughout the bloodstream. This is essentially a mechanism for damage control, in which the heartcan preserve as much viable tissue as possible, and in doing so, prevent the classic progression toCongestive Heart Failure and death that is seen in severe heart attack patients. This is a one-timetreatment that holds promise to reduce continuing damage to heart muscle after an AMI, to reducepatient care cost over time and to improve quality of life for those patients who are significantlyaffected by ischemic heart disease.
  2. 2. NBS’s product has particular promise given that it is an autologous product, and thus avoids the manynegative consequences that plague allogeneic products. AMR-001’s administration is worthhighlighting. First, it utilizes the homing potential granted by the CXCR4 receptors, allowing for a largerpercentage of cells to remain where they can be effective. Second, AMR-001 is administered via theIRA (Infarct Related Artery), and thus is performed in an identical manner as the original coronarycauterization. This allows for ease of use, consistent deployment of cells and avoids the potential risksarising from intra-cardiac injections of cells.NBS has conducted favorable phase I clinical trials that make AMR-001 an ideal candidate for furthertrials. The company has a well thought out phase II clinical trial planned that is intended to show clearclinical efficacy in enrolled patients.Heart disease is the leading cause of death in the United States. Over 1 million Americans suffer AMIseach year, with a significant proportion of them having significant cardiac dysfunction. This number isexpanded many fold when international markets are considered. Thus we believe AMR-001 haspotential to serve a large worldwide population. Given the grim statistics of AMIs in the U.S. and thepromise of AMR-001 to provide benefit to these patients, we are raising our rating on NBS toSpeculative Buy with a 12-Month Price Target of $1.40 AMR-001 TrialsPhase I StudyThe Phase I study was conducted by the Emory University School of Medicine under PrincipalInvestigator Dr. Arshed Quyummi, M.D., Professor of Medicine and Cardiology. This studyperformed autologous intracoronary infusions of bone-marrow derived CD34+ cells in patients withsignificant cardiac dysfunction post-STEMI. Treatment was administered in the golden period of 6to 9 days after infarct-related artery stent placement. Patients were dosed at four dose levels in thissafety and tolerability study. The secondary objective of the study was to assess the effect oncardiac function and cardiac perfusion in the infarcted area.Primary outcome measures for the Phase I study were cardiac function at two time points (3 and 6months follow-up), compared to baseline measures obtained prior to CD34+ cell product infusion.Secondary outcome measures include perfusion of the infarct region at 6 months follow-upcompared to baseline measures obtained prior to CD34+ cell product infusion. The study alsoestablished a threshold dose of 10 million cells injected per patient.Inclusion criteria were: Patients age 18 - 75 years Acute ST elevation myocardial infarction meeting ACC/AHA criteria, with symptoms of chest pain within 3 days of admission. Criteria include ST elevation > 1mm in limb leads or 2 mm in two or more precordial leads and increased levels of troponin, CPK MB or both) NYHA heart failure class of I, II or III 2
  3. 3. Phase II StudyThe Phase II trial will include 150 patients, 75 of whom will be treated with AMR-001 and 75 willreceive a placebo. To be a candidate for this trial, the patient must have had experienced a STEMI,have undergone cardiac stent placement (which is standard of care), and after 96 hours haveundergone a cardiac magnetic resonance exam that demonsrates an ejection fraction of less thanor equal to 48 percent in addition to abnormal cardiac wall motion.Treated patients will receive a dose greater than 10 million cells, two to four-times the thresholddose established in the Phase I trial. Of note, treatment doses of up to 5 to 10 times that amountare permitted by FDA in this study.The study is expected to be completed in one year and will measure clinically-significant end-points.Six month measurements will include coronary perfusion, preservation of heart muscle function andquality of life. In years one, two and three, patients will be followed for major cardiac events,including heart failure, myocardial infarction and death.AMR-001’s phase II trial will be considered successful if positive end-points of heart function areobserved. These will be quantified by maintenance of ejection fraction, improved wall motion,increased myocardial contractility, and improved heart volumes in the treated group versus thecontrol group. This should also be met by improvement in quality of life (QoL) without safety signals.Should all measures trend positively NeoStem hopes to initiate a pivotal study prior to 2 and 3 yearMACE read-outs upon which point a Phase II/III study may qualify as a supporting trial for approval. Other NBS InitiativesIn addition to AMR-001, NBS operates within three distinct business segments: the U.S. market foradult stem cells, the China market for adult stem cells, and the China market for pharmaceuticals.U.S. Adult Stem CellsIn the U.S., NBS provides stem cell collection, processing and storage services through a networkof centers primarily in the Southern California and Northeastern U.S. NBS allows healthy individualsto donate their own stem cells to be used therapeutically later in life. The therapeutic applications forwhich the stem cells would be used are under each collection center’s discretion. NBS does notparticipate in any clinical decision-making in the U.S. Progenitor Cell Therapy; LLC provides thecommercial collection and processing services.On April 27, 2010, NBS announced the launch of a new adult stem cell collection center andresearch and development laboratory in Cambridge, Massachusetts. The company now has anetwork of collection centers in the U.S.NBS licensed Very Small Embryonic-Like (VSEL) technology from the University of Louisville toresearch and develop potential diagnostic and therapeutic products based on very small embryonic-like stem cells, found in bone marrow. The company believes vast therapies could be developedfrom VSEL technology including those for cardiovascular, neural and ophthalmic diseases. VSELtechnology holds the promise as a naturally pluripotent cell and has the potential to move theregenerative adult stem cell space to the next level of therapeutic value. 3
  4. 4. China Adult Stem CellsNBS’s Chinese adult stem cell efforts include creating a separate China-based stem cell operation,constructing a new research and development laboratory and processing facility in Beijing that willcompliment PCT’s CMO operations as well. In addition, NBS is today providing stem cell therapiesto a network of hospitals and obtaining stem cell product licenses in regenerative medicine.To develop its regenerative medicine pipeline in China, NBS acquired an exclusive license in Asiafrom Regenerative Sciences, Inc. for a procedure called Regenexx™. The Regenexx procedureinvolves extracting mesenchymal stem cells from the bone marrow to potentially treat variousmusculoskeletal diseases. The company has partnered with Shandong Wendeng OrthopedicHospital to treat patients with adult stem cell therapies and conduct clinical research in orthopedicapplications.NBS has also in-licensed certain technologies from Vincent Giampapa, M.D. for skin rejuvenationtherapies based on autologous adult stem cells. The company intends to eventually launch a rangeof anti-aging and cosmetic applications in China.China PharmaceuticalsIn October 2009, NBS completed a merger China Biopharmaceuticals Holdings, Inc., and as aresult, acquired a 51 percent stake in Suzhou Erye Pharmaceuticals Company Ltd. Erye is aChinese pharmaceutical company primarily focused on the manufacturing and distribution ofgeneric antibiotic products throughout China. ValuationOur valuation of NBS is based on a sum of the parts analysis. We believe NBS’s greatest asset isits Amorcyte Phase II clinical technology at $100M. We also believe that the Suzhou EryePharmaceuticals assets have a value of $30M at a minimum. Using a three-times sales model forProgenitor Cell Therapy, we add an additional $30M. We use a value of $20M for the NBS (VSEL)technology and finally a $20M price for both cash and remaining assets. Assuming a fully dilutedshare count of 146 million shares, we arrive at our adjusted 12-month price target of $1.40 pershare. Management BiographiesRobin L. Smith – Chairman & CEO, M.D., MBA, joined as Chairman of the Advisory Board inSeptember 2005 and, effective June 2, 2006, became the Chief Executive Officer and Chairman ofthe Board. Dr. Smith received a medical degree from Yale University and a master’s degree inbusiness administration from the Wharton School. From 2000 to 2003, Dr. Smith served asPresident and Chief Executive Officer of IP2M, a multi-platform media company specializing inhealthcare. From 1998 to 2000, she was Executive Vice President and Chief Medical Officer forHealthHelp, Inc., a National Radiology Management company. She currently serves on the Boardof Trustees of the NYU Medical Center Board, is a member of the Board of Directors for the NewYork University Hospital for Joint Diseases, and serves on the Board of Choose Living. Dr. Smith isthe President and serves on the Board of Directors of The Stem for Life Foundation. 4
  5. 5. Larry A. May, Chief Financial Officer since January 2006. Mr. May, joined Neostem inSeptember 2003 to assist with licensing activities. He worked for Amgen from 1983 until 1998 inseveral positions of increasing responsibility, becoming Vice President/Treasurer in 1997. From1998 to 2000, Mr. May served as the Senior Vice President, Finance and Chief Financial Officer ofBiosource International, Inc. From 2000 to 2003, Mr. May served as the Chief Financial Officer ofSaronyx, Inc. From August 2003 to January 2005, Mr. May served as the Chief Financial Officer ofNS California. In March 2005, Mr. May was appointed CEO of NS California and in May 2005 hewas elected to the Board of Directors of NS California. He received a Bachelor of Science degree inBusiness Administration & Accounting in 1971 from the University of Missouri.Catherine M. Vaczy, Vice President and General Counsel since April 2005. From 1997 through2003, Ms. Vaczy held various senior positions at ImClone Systems Incorporated, most recently asits Vice President, Legal and Associate General Counsel. From 1988 through 1996, Ms. Vaczyserved as a corporate attorney at the New York City law firm of Ross & Hardies. Ms. Vaczy isSecretary and serves on the Board of Directors of The Stem for Life Foundation. Ms. Vaczyreceived a Bachelor of Arts degree in 1983 from Boston College and a Juris Doctor from St. John’sUniversity School of Law in 1988.Jason Kolbert, Vice President of Strategic Business Development, MBA was formerly amanaging director of National Securities where he founded the firms biotechnology research effort.He spent the past 16 years on Wall Street as an analyst, both managing biotechnology dedicatedinvestments (buy-side) and covering biotechnology companies (sell-side). Prior to his career onWall Street he spent several years in the pharmaceutical industry with Schering-Plough in Japan.Mr. Kolbert has an undergraduate degree in Chemistry (New Paltz) and an MBA in Finance(University of New Haven).Ian Zhang, President of NeoStem China and Managing Director since September 2010. Heheld management and scientific positions in healthcare and biotechnology industries for the pastten years. Since January 2008, he held the position of Head of Corporate Development and Headof Integration for Asia Pacific at the Life Technology Corporation. In those positions, Mr. Zhang wasresponsible for strategic initiatives in the region to build capabilities and capture growth, identifyingkey investment markets in China and other regions, and managing acquisition and integration.Before that, he was President and General Manager of Dynal Biotech (Beijing) Ltd, a wholly ownedsubsidiary of Invitrogen serving the clinical transplant diagnostic market as well as medical researchinstitutions and government agencies. Mr. Zhang holds a Ph. D. in biotechnology from SimonFraser University and a MBA from the University of Chicago.Andrew L. Pecora, Chief Medical Officer, Progenitor Cell Therapy, M.D., F.A.C.P. since March1999. He is scheduled to join the Board of Directors for NeoStem pending Board approval. Dr.Pecora currently serves as Vice President of Cancer Services and Chief Innovations Officer of theJohn Theurer Cancer Center at Hackensack University Medical Center, and Co-Managing Partnerof the Northern New Jersey Cancer Center (NNJCC), which is a private physicians practice groupaffiliated with HUMC.Dr. Pecora currently serves as Chairman of the Board of Directors of Tetralogics, a private venturefunded Biotechnology Company developing small molecules for cancer therapy and on the Boardof directors of Cancer Genetics, a private venture funded cancer Diagnostics Company. Dr. Pecorais a Professor of Medicine at the University of Medicine and Dentistry of New Jersey. He serves on 5
  6. 6. the Board of Directors for the American Society for Blood and Marrow Transplantation. In addition,he has also served on the Board of Directors for the International Society of Hematotherapy andGraft Engineering, now the International Society for Cellular Therapy; the Accreditation Committeeof the Affiliated Physicians Network; and as an Inspector for the Foundation for Accreditation ofHematopoietic Cell Therapy.Dr. Pecora received his medical degree from the University of Medicine and Dentistry of NewJersey, graduating with honors. He went on to complete his medical education in internal medicineat New York Hospital and in hematology and oncology at Memorial Sloan-Kettering Cancer Center,both in New York City. He is board certified in internal medicine, hematology, and oncology.Robert A. Preti, President and Chief Scientific Officer, Progenitor Cell Therapy, Ph.D. sinceMarch 1999. Dr. Preti is PCTs Co-Founder, President, and Chief Scientific Officer, and a memberof the Companys Board of Managers. Previous positions held by Dr. Preti include Scientific andLaboratory Director of Hackensack University Medical Centers stem cell processing and researchlaboratory and Scientific Director of the Clinical Services Division at the New York Blood Center.Dr. Preti is a founding member of the International Society for Cellular Therapies, formerly theInternational Society for Hematotherapy and Graft Engineering, served on its Executive Committeeand Board of Directors for 10 years, and serves on the Editorial Board for the society’sjournal, Cytotherapy. He currently serves in his fourth term as Director for the AABB. Dr. Pretireceived his Doctor of Philosophy degree from New York University, graduating with distinction. 6
  7. 7. Distribution of Ratings and Disclosure of Banking Relationships: The following table shows WBB’sratings distribution expressed as a percentage of all securities rated as of the end of the mostrecent calendar quarter, as well as the percentage of subject companies within each rating categoryfor whom WBB has provided investment banking services within the previous 12 months. Percentage of Percentage of Covered Securities Banking Clients Buy 68.4% 11.5% Hold 10.5% 0% Sell 21.1% 0% The research analyst who is primarily responsible for the research contained in this research report and whose name is listed on this report: (1) attest that all of the views expressed in this research report accurately reflect that of the research analysts personal views about any and all of the securities and issuers that are the subject of this research report; and (2) attest that no part of the research analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analysts in this research report. All WBB Securities, LLC ("WBB") employees, including research associates, receive compensation that is based in part upon the overall performance of the firm, including revenues generated by WBBs investment banking department, but not directly related to those revenues. Although information herein has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Opinions and estimates may be changed or withdrawn without notice. This report is not intended as an offer or solicitation, or as the basis for any contract, for the purchase or sale of any security, loan or other instrument. We or our affiliates or persons associated with us or such affiliates (“Associated Persons”) do not now, but may in the future: maintain a long or short position in securities, loans or other instruments referred to herein or in other securities, loans or instruments of issuers named herein, or in related derivatives; purchase or sell, make a market in, or buy or sell on a principle basis, or engage in other transactions involving such securities, loans or instruments of such issuers; and/or provide investment banking, credit, or other services to any issuers named herein. The authors of this report and the officers of WBB do not now, but may in the future own options, rights or warrants to purchase any of the securities of the issuer whose securities are recommended, unless the extent of ownership is nominal. The past performance of securities, loans or other instruments does not guarantee or predict future performance. This report may not be reproduced or circulated without our written authority. 7