STEM CELL THERAPY RUSSIAN IPO – CERTAIN CONSIDERATIONS

THIS POST WAS ORIGINALLY PUBLISHED FEBRUARY 01, 2007

GLOBAL IPOs
Stem cell companies have their own love for stock markets. When these companies evaluate and develop their long-term plans they clearly understand the necessity of investment attraction. Thus, the most viable way is to look into capital markets – public or private. In many cases they address these markets even though they do not require immediate financing. The reason is very simple – continuation of development and R&D efforts is the subject of survival. If it happens that at a certain stage there would be no money – the business is instantly dead.
It is essential that for IPO or private placement the company should fit into market requirements. The number of such companies is limited – that is why the IPO list is rather short. We have tried to collect some data for recent IPOs of the sector and here what it looks like:

When evaluating the data we may notice one common thing there – all the companies suffer losses at the time of IPO. Small profit from preparations sales cannot cover the R&D expenses. Thus,
- GERON CORPORATION – the largest as to it capitalization company. Since it started operations in 1990 till 2006 - the losses amounted to $ 369.6 mln.
-VIA CELL. As for December 31, 2005 – losses of $ 101.6 mln.
-AASTROM. Since 1989 till 2006 – $ 141 mln.
-OSIRIS. Since April 2002 till December 31, 2005 – losses of $ 142.5 mln.
At the same time all the companies are planning their losses for the upcoming years.
Thus, from the investor point of view, all companies of the stem cell sector, despite of their losses and no profit – are still very attractive. Just look at the IPOs results.
When analyzing the trading pattern, one can easily notice the great deal of volatility of stem cell companies’ stock. These facts may change drastically volumes and prices:
-public announcements on the R&D results, business development, technological innovations or new products;
-changes in the governmental regulations of the sector and the industry;
-public announcements of M&A;
-public discussions on ethics, morality and safety of the applied technologies;
-news on the competitors’ success;
-news on the process of the clinical research work;
-publications of financials, that show the company’s profits and losses.
Thus, summarizing all the above, there are two accepted ways to invest – short-termed (speculative) and strategic. Strategic investment oriented at 3-5 years will definitely lead to greater results. Both ways are extremely attractive.

STEM CELL THERAPY RUSSIAN IPO – CERTAIN CONSIDERATIONS

 THIS POST WAS ORIGINALLY PUBLISHED FEBRUARY 04, 2007

BRIEF OVERVIEW OF THE RUSSIAN STEM CELL THERAPY MARKET
In Russia the stem cell therapy is not developed as it should be. This is the result of the following reasons:
- a weak regulatory environment;
- methodological and technical level is not appropriate.
The market volume in Russia is far less than in the United States and in Europe. Human body and animal stem cell transplantations are done in a number of clinics and medical centers aimed at physical revitalization and correction of the hormonal status. However, the most widespread are the services associated with cord blood banking - collection and storage of the stem cells that are found in newborn's umbilical cord. Some statistical data available tell that in 2005 about 1,000 families used this service. Presently only 10 companies are officially licensed for such activity. Basically these are small entities that usually are set up at different medical institutions. These companies are typical Russian ones that are run in majority by the doctors themselves and lack international business vision. Thus the following are characteristic for them:
- the companies that perform stem cell therapy per se are very scarce;
- absence of transparent business structure;
- a vague ownership structure;
- complicated financial reporting;
- extremely tight budget;
- although there are no official data on profitability, but according to some estimates it is rather low.

As of mid-2006 the government regulatory body, Roszdravnadzor, issued as much as 5 permits for comprehensive clinical trials valid for one year. The permits require mandatory patient’s consent, while the trials shall be made free of charge. Generally speaking, stem cell clinical trials are conducted in 9 institutions:
- State Scientific Research Institute of Transplantology and Artificial Organs of Minzdravsotsrazvitiya of Russia,
- Center of Medical and Biology Technologies,
- N.N. Blokhin State Russian Oncology Scientific Center
- “Neurovita” LLC “Clinic of Revitalizing and Invertional Neurology and Therapy;
- Russian Medical Academy of Sciences Hematology Scientific Center,
- “Institute of the Stem Cell” LLC,
- “Pyramida Clinical group”,
- Russian Medical Academy of Sciences “Scientific Center of Obstetrics, Gynecology and Perinatal Medicine”,
- N.F. Gamaleya State Scientific Research Institute of Epidemiology and Microbiology.

From the commercial point of view only one company is public and has more or less proper structure of business - listed on the RTS stock exchange – OJSC “Institute of Stem Cells”. However, this shows the typical approach of the Russian investment community. Although the company is officially listed, there was not a single transaction during the last 52 weeks.
Summarizing the brief overview from the investment point of view:
- existing Russian companies are not that developed as compared to their peers internationally;
- investments in these companies are scarce;
- profitability is very low;
- the chances for successful IPO in Russia for stem cell therapy companies currently are very low.

STEM CELL THERAPY RUSSIAN IPO – CERTAIN CONSIDERATIONS – PART I

THIS POST WAS ORIGINALLY PUBLISHED JANUARY 31, 2007

WHY FINANCE?
Global Market. Stem cell therapy statistics makes possible to evaluate market situation in the nearest future. Globally, the 2005 cell therapy market was estimated at $ 26.6M, in 2010 it is expected to amount $ 56.2 M and in 2015 - $ 96.3M. Actually these numbers are much higher when we take into account beauty preparations, supplementary bio complexes and veterinary.
In the USA about 20,000 stem cells transplantations take place. Globally (esp. in Europe) – about 40,000. World market of stem cells technologies dealing with the bone marrow operations is estimated to be more than $ 400M. Stem cell therapy market varies in the USA and Europe from $ 100M to 150M, making totally $ 200-300M.
Stem cell therapy companies have basically the same business risk factors as the bio-tech industry:

1. Changes in regulatory restrictions, made by the governments of the countries where the companies are located (especially regarding the issues of stem cells provision)
2. Ethic and other considerations regarding application of stem cells; this may result in decline of the demand
3. Time-consuming process of development of preparations
4. Time, effort and expenses required for the certification of products
5. Success in clinical research
6. Readiness of the market to the commercial success of each company’s products
7. As a rule companies working in this sector do not have possibilities to organize sales, marketing and distribution
8. Dependency on the third parties in the production of components and provision of raw materials
9.  Competitiveness: the necessity to timely and fast developments and responses to the changes going on in the technologies and on the market
10. Safety in IP and copyright
11. High possibility of legal claims.

Recently the number of the world companies involved in stem cell therapy has multiplied in manifold – about 500. It is obvious, as the part of bio-tech industry, cell therapy is extremely money-consuming, the one that requires constant flow of financing. Currently the sector is fragmented and relatively low financed. As the rule the proceeds are used for the following purposes:
-scientific R&D of new products and clinical trials;
- acquiring regulatory approvals;
-R&D on commercial production of preparations;
-establishment, commencement and operations of facilities for clinical trials and for subsequent sales;
-purchasing essential technologies, proprietary rights, and/or business;
-expansion of the sales list by means of licensing, cooperation or acquisitions;
-IP support and protection;
Generally the companies of this sector are financed by:
-government’s programs;
-private funds and grants;
-initial public offerings – IPOs