Asterias Biotherapeutics Inc (NYSEMKT: AST)
Bulls are the beast of the midway, magnificent animals that exhibit strength, speed, and agility. And, even when subjected to torturous and antiquated demonstrations, they maneuver with confidence and style, slowing down but rarely submitting without cause.
Demonstrating both strength and durability, Asterias Biotherapeutics is my bull stock of the week, and, regardless of the fact that AST has realized an over 30% pop to its market cap last week, the company is just beginning to hit its stride. On Monday, AST easily held its gains, a strong signal of strength.
Running With Asterias
I get comments from readers that sometimes play critic to my bull stocks of the week. Many of them have the mindset that once a stock has had a run, similar to the one we are witnessing in AST, it is time to sell and move on. Look, I never argue with an investor taking a profit, and I have never known an investor to go broke in doing so. However, while the strategy may be prudent, it is not always the best decision when building a portfolio based on a long-term horizon, say 2-4 years.
So, with AST being in bull mode for the past few trading sessions, for some, the idea of getting to the safe side of the street and allowing the bull to run past is understandable. If any of you have ever watched the running of the bulls in Pamplona, Spain, you will notice several intriguing tendencies of the participants.
Some run behind the bull. They are having a great time just like the others, but they are more or less safe from the stampede. They steer clear of the risk and remain isolated from danger.
The next group of people run alongside of the bulls, adding some personal risk. Realistically, though, they are technically on the sidelines of the run, relatively safe from being gored by the antagonized beasts.
And finally, there are the brave few that run ahead of the bulls, jockeying for position as they maintain the level of speed necessary to remain ahead of the pack, but close enough to keep an eye on the developments of the run.
Asterias investors are faced with a similar scenario. With AST in bull mode, investors are faced with the decision to either run with the bull or hide in the back. For Raging Bull readers, AST provides all of the right reasons to consider running with the bull.
Is AST Starting A Stampede?
Asterias is putting the pieces together for what can turn out to be an enormous opportunity for investors. The 30% gains witnessed during the past few trading days is relatively meaningless to a long-term investor, unless some of the gains were cashed out to purchase a triple baconator with cheese in honor of the bull that made you the money. And, hey, that’s acceptable as a short-term reward.
However, for those investors that are willing to stay in the run and not subject themselves to taxable short-term gains each time the stock moves up 30%, the bull run may be far from over. And when we look at the full plate of opportunity at AST, the decision to keep running makes total sense.
Regardless of whether AST is just now starting its run or is gaining momentum for a full out stampede, investors need to become familiar with the impetus for the rally. Moreover, once investors digest all of the data, the analyses may reinforce the decision to stay ahead of the pack.
Asterias Led By Distinguished Professionals
In order to fully endorse a stock, it is vital to look from the top down. As investors are well aware, the best laid plans, coupled with poor management, usually lead to being featured in my Penny Ante column rather than the Raging Bull. But at AST, investors are in good hands.
AST is lead by Steve Cartt, who led Questcor on their remarkable run from 35¢ a share to a stunning share price of $93.58 – the price at which Questcor was acquired by Mallinckrodt. Thus, the remarkable advance was not a round trip elevator ride back to the bottom. Management delivered some serious shareholder gains.
Additionally, Mr. Cartt has surrounded himself with phenomenal talent, inclusive of the former Questcor CEO and top executives from the likes of Geron, InVivo, and Mallinckrodt. Once investors vet management and are satisfied with the pedigree, they can look forward, in confidence, to the strategies and initiatives actually being implemented and achieved.
AST has a well qualified and proven management team that is certainly capable of advancing the vision.
What Will AST Do?
Now, with a strong management in place, the question then becomes, “What will the company do to increase shareholder value?” Great question, and I have some answers.
First, AST is well on the way to delivering additional and statistically significant data in their AST-OPC1 trial to treat patients with severe spinal cord injury. Additionally, AST is continuing, as well as advancing, studies in treating both AML and lung cancer. And, while all three are significant value drivers in the mid to long term, I want to focus almost solely on the AST-OPC1 trial that is treating the patients with severe spinal cord injury.
Asterias is already a recognized leader in the SCI space, delivering a meaningful and robust therapeutic benefit to patients. So much so, in fact, that the California Institute of Regenerative Medicine awarded AST with a $14.3 million dollar grant to advance the AST-OPC1 study. To date, the company’s AST-OPC1 pluripotent stem cell platform has shown no seriously adverse safety events in either of its two previous cohorts. Even more importantly, the trial has demonstrated early signs of efficacy from the phase I/II treatment. It’s important to note that the trial was designed to demonstrate safety and tolerability, so the efficacy results offer a significant advantage to the on-going trials from both a time and financial standpoint.
Those results emanated from earlier phase I/IIa trial. Subsequent to those stellar results, on 11/14/16, AST announced that they have treated their first patient in their AST-OPC1 dose escalation trial, treating a patient with the maximum dose of 20 million cells in its SciStar clinical trial. The trial is being conducted at Santa Clara Valley Medical Center in California. The company further announced the dosing of a 10 million cell treatment in its AIS-B trial patient cohort.
The dose escalation was supported by the Data Monitoring Committee after review of the data presented by AST, confirming the safety and tolerability of the treatment in patients. In a press release, AST also confirmed that the efficacy targets expected at the six month period were, in fact, achieved within a three month period. This data suggested that the AST-OPC1 early dose responses were met with strong indication of an early and efficable therapeutic benefit in patients.
The great news for investors is that the expectations have been bolstered by comments from the Chief of the Rehabilitation Center at SCVMC, who said, “The early efficacy results presented in September from the 10 million cell AIS-A cohort were quite encouraging, and we’re looking forward to seeing if those meaningful functional improvements are maintained through six months and beyond. We are also looking forward to seeing the results in patients from the higher 20 million cell AST-OPC1 dose, as well as results in the first AIS-B patients.”
Based on extensive pre-clinical research, AST believes that the 20 million dose cohort will be the dosing range where optimal clinical improvement may be observed. Thus, investors now have a front row seat to witness the next milestone.
Early Results Indicate Strong Potential For Success
Not only has the AST-OPC1 trial proven to be safe and tolerable,the company has reported strong efficacy results from its phase I/IIa trial. These results should be extremely encouraging for investors.
Although the trial was predominantly a safety trial, consistent with most phase I/IIa trials, the efficacy results were remarkable. After receiving a short course of low-dose immunosuppression drugs, patients were treated in a ten million cell cohort.
Five of the patients treated had neurologically complete thoracic spinal cord injury. In September, AST reported that, of those five patients treated in the SciStar trial, at Day 90 all of the patients had shown at least one motor level improvement, and the efficacy target of at least two of the patients achieving a two motor level of improvement on at least one side of their body was already achieved.
The results are not subjective, by the way. They are measured in strict accordance using the ISNCSCI neurological classification scale which is used to quantify the functional status of patients who have severe spinal cord injury. The improvements are significant.
While a one motor level improvement is certainly significant, a two motor level improvement is a huge milestone. The two level increase is correlated with significant increases in functional ability and can provide independence for patients, allowing them to care for themselves by being restored hand and arm function.
During the earnings release call on 11/14/16, AST had a guest patient, Lucas, on the call to offer some insight from a patients point of view. Lucas received a 10 million cell treatment dose and told the conference call audience that he has achieved clear evidence of an increase of at least two motor functions, is now enjoying a significant increase in the use of his fingers and hands, actually typing 35 words a minute, and has distinct motor skill control between individual fingers. Lucas calls the transition remarkable, having the ability to prepare and drink his own glass of water and take care of himself in a physical sense, and he looks forward to his future ability to gain employment and live a relatively normal life.
Additional data is being scheduled for release in early 2017 and 2018.
Potential Market For Treatment
Spinal cord injury affects an estimated 17,000 patients per year, with a lifetime treatment cost in excess of $5 million dollars, based on the average age of the patient being 25 years old. With no approved therapies, the early data from AST places them in an enviable position to treat a significant portion of the market, providing increased mobility, further independence, and improved quality of life. The savings to the medical and insurance industries should not be underestimated, with billions in potential savings being realized throughout those two sectors alone.
AST expects that it can treat over 9000 patients per year affected by SCI – 4000 directly and an additional 5000 through product label expansion. This market represents an over $2 billion dollar per year opportunity for AST, and this amount does not include the opportunity for label expansion or the benefit from their two additional on-going trials to treat AML and lung disease.
Continuing The Bull Run At Asterias
While the stock has enjoyed a recent rip higher, the data being released is not a sell-the-news event. With AST an under-the-radar stock, investors appear to now be taking advantage of an opportunity to purchase shares at low levels, most likely based on data presented at both conferences and sponsored press releases. While no bull run is a straight shot to the moon, AST is clearly positioned to continue its trend higher, despite the potential for short-term pullback’s related to general market instability and volatility during the U.S. government’s transition process.
However, with that said, AST stock is moving higher on merit rather than hype. What was initially a safety trial actually produced meaningful and relevant efficacy data. The measurements and evidence from a scientific standpoint are indisputable, as demonstrated by the biological functions within the spinal cord that are being restored post treatment.
With 100% of the trial patients exhibiting motor skill improvement of at least one motor level, the results are unequivocal. Several of the patients demonstrating motor level improvement had not yet reached the 90-day evaluation period, another testament to the early efficacy of the treatment.
Asterias is just now beginning the 20 million cell cohort, and this is the dosage at which management expects to see the most beneficial improvement. With safety concerns all but muted at this point, the opportunity for even greater efficacy results is well within reach for AST.
While AST is just now entering the most pivotal portion of the trial, the results of the two and ten million cell cohorts are already remarkable, eliminating some of the near-term headline risk. Investors must keep in mind that AST is not a one trick pony, and the expanded labeling of their cell therapies can be enormously diversifying for their overall pipeline, creating additional shareholder value in the future.
Investors don’t need to run behind or to the side of Asteria. Being out front may be a great place to be in the coming months. Expect some ordinary stock market gyrations to occur, and understand that bull runs make higher highs and higher lows. It’s part of the bull process.
In the meantime, taking into account the published data and the fact that AST stock is trading “strong like bull,” I am staying long on the stock and will pay less attention to the noise being made from the sidelines.
[Image Courtesy of Flickr]