RAY DIRKS Research: PSTI update Jan 24, 2011 by Ray Dirks
Posted on admin on January 23, 2011 // Leave Your Comment
RAY DIRKS Research Update PSTI January 24, 2011
By Ray Dirks

RAY DIRKS Research reiterates Buy recommendation of Pluristem (NASDAQ: PSTI) for significant capital appreciation in the near future.

Valuation Discrepancy Justifies Aggressive Buy Recommendation for PSTI

Updated price target Jan 24, 2011
Pluristem Therapeutics, Inc (NASDAQ: PSTI)

Current Price Per Share: $ 2.76

12 Month Price Target: $10.00

24 Month Price Target: $17.00

On January 3, 2011, I issued a note reiterating a BUY recommendation on Pluristem Therapeutics, Inc. (NASDAQ:PSTI) pointing out the discrepancy in valuation between PSTI and Mesoblast Limited (MSB.AX). On January 3rd PSTI’s and MSB’s market was approximately $35 million and $745 million respectively, due in part to the announcement of a collaboration between MSB and Cephalon (NASDAQ: CEPH) potentially valued at over $1.9 billion The note and details of the transaction can be seen at: http://www.cpreports.com/?p=781

PSTI and MSB are both cell therapy companies and are considered comparables. PSTI, an American company with headquarters in Haifa Israel, uses the Human placenta (afterbirth) as a source of their therapeutic cells while MSB, an Australian company, uses bone marrow as their source of cells. Additionally, PSTI grows their cells in-house in a proprietary bioreactor while it is felt that MSB outsources the expansion of their cells where they are grown in Petri dishes or tissue flasks.

At the time of the January 3rd note, PSTI had completed two Phase I/IIa trials in the US and Germany using their PLX-PAD cell product in peripheral artery disease (PAD) while MSB was entering Phase III trials for the use of their cells as an alternative to bone marrow transplantation in hematological malignancies and in Phase II trials for orthopedic and cardiovascular indications.

On January 18, 2011 PSTI announced the successful completion of a parallel scientific advisory process with the European Medical Agencies (EMA) and the U.S. Food and Drug Administration (FDA) regarding the Company’s planned clinical development program for PLX-PAD. Based on the positive feedback from the EMA and FDA, Pluristem is now advancing towards two clinical studies with PLX-PAD: a joint FDA-EMA Phase II/III study for critical limb ischemia (CLI) and a Phase II study for intermittent claudication (IC), both diseases being subsets of PAD.

From my viewpoint, both PSTI and MSB now have products entering Phase III pivotal trials. However, the discrepancy in valuation between the two companies is still quite large. PSTI and MSB currently have market values of approximately $70 million and $900 million respectively. MSB, therefore, is almost 12.5 times larger than PSTI. Although MSB does have the collaboration in place with CEPH, I believe it is just a matter of time before PSTI also has one or more collaborations in place. Therefore, I am recommending investors take advantage of this valuation discrepancy before it ceases to exist.

PLX Cells May Fill the Void in the Neuropathic Pain Market

I had breakfast with management of Pluristem Therapeutics last week and the discussion turned towards the next indication the Company will focus on using their proprietary PLX cells. PLX cells are placental-derived mesenchymal stromal cells grown via a proprietary three dimensional (3D) technology. Pluristem is actively working on the use of PLX cells for Intermittent Claudication (IC) where a Phase II trial will begin in the spring and Critical Limb Ischemia (CLI) where a Phase II/III trial will begin in the fall.

The Company indicated that their PLX cells are essentially a sophisticated drug delivery vehicle for diseases where there is an “ischemic/inflammatory” element. The Company is considering neuropathic pain as a next indication after PAD because neuropathic pain has a significant “ischemic-inflammatory” element, PLX cells have shown to be extremely effective for neuropathic pain in animal studies, the cells can be easily injected locally for this indication, and the Company can go immediately into Phase II clinical trials.

Neuropathic pain is a chronic condition caused by inflammatory diseases such diabetes, viral infections and chemotherapy. The market for neuropathic pain has been estimated to increase from $6 billion in 2008 to $9.7 billion in 2018 worldwide.

My hypothesis is that Pluristem’s PLX cells may be able to fill the void in the neuropathic pain market created by the failure of anti-nerve growth factors. On December 28, 2010, it was announced that the U.S. Food and Drug Administration (FDA) notified Johnson & Johnson (NYSE:JNJ) that the development program for their drug fulranumab had been put on hold over concerns that this drug and others in the class of compounds categorized as the anti-nerve growth factors (NGF) may be associated with a condition representing either rapidly progressive osteoarthritis or a disease known as osteonecrosis. These conditions may result in the need for total joint replacement. Similar drugs in this class that are under development by AstraZeneca PLC (NYSE:AZN) and Regeneron Pharmaceuticals (NASDAQ: REGN) have also reportedly been put on hold.

Pluristem’s PLX cells treat neuropathic pain via a different mechanism of action than nerve-growth inhibitors, acting by secreting a blend of therapeutic proteins in response to signals sent by inflamed, ischemic tissue. Pluristem, together with its scientific collaborators and experts in the field, have performed preclinical studies in two animal models of inflammatory and neuropathic pain. Inflammation was induced via chemicals in a rat model and PLX cells were injected locally into the inflamed area two days later with pain levels assessed daily. A second model involved a chronic constriction injury (CCI) of the sciatic nerve in the mouse where PLX cells were subsequently injected. The results of these experiments showed that treatment with Pluristem’s PLX cells had a dramatic beneficial effect on pain. In the first model, animals injected with PLX cells achieved a reduction in pain, which was achieved and maintained longer than with standard opiate treatments. In the second model, PLX cells injected at the nerve injury site attenuated both mechanical and thermal sensitivity.

I am raising my price targets based on:

1. I am recommending investors take advantage of the valuation discrepancy between PSTI and MSB.AX before it ceases to exist

2. Studies suggest that Pluristem’s proprietary PLX cells can be a viable new therapy for the treatment of neuropathic and inflammatory pain. PLX cells may fill the void in the development of new products for neuropathic pain and ergo, my recommendation.

3. On January 18, 2011 PSTI announced the successful completion of a parallel scientific advisory process with the European Medical Agencies (EMA) and the U.S. Food and Drug Administration (FDA) regarding the Company’s planned clinical development program for PLX-PAD. Based on the positive feedback from the EMA and FDA, Pluristem is now advancing towards two clinical studies with PLX-PAD: a joint FDA-EMA Phase II/III study for critical limb ischemia (CLI) and a Phase II study for intermittent claudication (IC), both diseases being subsets of PAD.

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