NBS SEEKING ALPHA ARTICLE //NeoStem: The Best Upside In An

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Oct 9, 2012 at 9:19 AM

[b]NBS >> SEEKING ALPHA ARTICLE //NeoStem: The Best Upside In An Innovating Space[/b]
October 7, 2012
by: Henry Kawabe
| about: NBS, includes: BAX, CUR, OSIR, STEM
Disclosure: I am long NBS. (More...)

There is one change in the medical arena that investors are going to have to embrace, or at least accept: cell
therapy. In 2012, some of the best performing stocks in biotechnology have been in cell therapy. Already, we have
crossed a number of barriers. We've seen the first approved product with a cell therapy as a main component: Osiris
Therapeutics' (OSIR) Prochymal. Shares of Neuralstem (CUR) have nearly doubled in the last month alone as its
cell therapy showed a benefit of motor function in paralysis, a benefit never before reached. StemCells (STEM) has
also been a big-time performer following data that its cell therapy restored memory and enhanced synaptic function in
Alzheimer's disease. And if that's not enough, Baxter (BAX) recently reached endpoints never before conquered,
increasing exercise capacity and reducing angina due to chronic myocardial ischemia. The takeaway: It has been an
incredible year, and with such breakthrough data, it is only getting better.
In biotechnology, we've seen a number of novel therapeutics with crucial data as we inch closer to curing and
effectively treating life-threatening diseases. Cell therapy has been at the forefront of this movement - it has provided
proof of concept curing some of today's most deadly degenerative diseases - but is still in its early stages of
development.
With only one approved product that has a cell therapy as its main component, the potential for new treatments and
the outlook for those treatments is at an all-time high. The valuation for companies in this space is particularly
attractive, perhaps greater than in any other industry within biotechnology. The reason for attractive valuations is due
to skepticism among some who have yet to embrace the benefits of cell therapy. These people may believe that we'll
never see a large diversified product line of cell therapies, or that regulators will never accept the benefits of cell
therapy. However, this argument doesn't make sense, because countries around the globe are spending more on cell
therapies than at any point in our history. There is a significant cost benefit to cell therapies, not to mention
efficiency, that will replace inefficient therapeutics that are being used to treat degenerative diseases. For this reason,
we will see approvals in the cell therapy arena. We will see cheaper and more efficient therapies to treat diseases
that have limited or no current treatments, and this will occur because of clinical results, and over a period of several
years.
So how should investors play the growth of this space? Investors could invest in a company such as CUR or STEM.
But these companies are still early in the clinical process, and are more likely to benefit from the approvals of other
cell therapies; they will trade with far less upside than later-stage companies with similar valuations. You could invest
in the first approved cell therapy and OSIR. However, its product Prochymal is more of a "door opener" and not a
large revenue-producing product. The difficult aspect to finding a good investment is that there are a lot of cell therapy
companies with a lack of diversification-or only one significant product of growth-and we must assume that, despite
their promise, it may take a few years for cell therapies to gain full acceptance and reach full potential. So after
searching throughout the entire space, and reading 100s of reviews, business plans, and assessing market potential,
I feel confident that the best play in the space is NeoStem Inc. (NBS).
NeoStem
NeoStem is a $105 million market capitalization company with expertise and a presence that stretches far beyond
the norm of cell therapy and developmental-stage companies. The company operates in several segments, with a
diversified presence in the space, and has been a great investment in 2012, with an 81% return over the last six
months. The stock has returned a gain of more than 10% over the last month, but is now trading very close to its
support, therefore indicating short-term upside. Unlike most biotechnology companies of its size, NeoStem has

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