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Stem cell industry update: 2012 to 2016 reveals accelerated investment, but market capitalization and earnings lag
ARTICLE IN PRESS Cytotherapy, 2017; ■■: ■■–■■
Stem cell industry update: 2012 to 2016 reveals accelerated investment, but market capitalization and earnings lag
MITCHELL NG1,*, SIMON SONG2,*, NICOLAS S. PIUZZI1,3, KENNETH NG4, CHUKWUWEIKE GWAM5, MICHAEL A. MONT1 & GEORGE F. MUSCHLER1 1
Cleveland Clinic, Department of Orthopedic Surgery, Cleveland, Ohio, USA, 2Duke University, Department of Biomedical Engineering, Durham, North Carolina, USA, 3Instituto Universitario del Hospital Italiano de Buenos Aires, Buenos Aires, Argentina, 4State University of NewYork Downstate Medical Center, College of Medicine, Brooklyn, NewYork, USA, and 5Rubin Institute for Advanced Orthopedics, Center for Joint Preservation and Replacement, Sinai Hospital of Baltimore, Baltimore, Maryland, USA Abstract Treatments based on stem cells have long been heralded for their potential to drive the future of regenerative medicine and have inspired increasing medical and business interest. The stem cell therapy market has been expanding since 2012, but earnings and profitability still lag the broader health care sector (compounded annual growth rate in annual financing of 31.5% versus 13.4%, respectively). On the basis of historical financial data, approximately $23 billion has been invested in stem cell companies since 1994, with more than 80% of this raised from 2011 through 2016. This reflects a marked acceleration in capital investment, as companies began late-stage clinical trials, initiate partnerships or are acquired by large pharmaceutical companies. All of these data reflect a field that is emerging from infancy, which will demand more time and capital to mature. This update is relevant to researchers, clinicians and investors who wish to quantify the potential in this field. Key Words: cellular therapy, market analysis, stem cell market
Introduction Interest in regenerative medicine continues to increase, particularly, work focused on developing cellbased therapies to repair or regenerate damaged tissue [1]. There appears to be growing optimism that stem cell–based therapies may revolutionize disease treatment [2]. This confidence may be enhanced by promising findings made in the research field that were disseminated to the public without acknowledgment of the persisting obstacles and challenges [2]. Cell therapies in various forms are being marketed widely and sold as treatments, sometimes without evidence of clinical efficacy from clinical trials and narrowly skirting regulatory guidelines that can variably seem vague, arbitrary, negotiable, biologically capricious or unenforceable [3]. Although there is evidence that support many clinical application of stem cell therapies, major hurdles remain in translating basic science discoveries into safe, clinically proven and rationally regulated treatment modalities.
We are in the early phase of clinical development in the stem cell field. Biotechnology companies are grounded in stem cell biology but become responsible for translating basic stem cell biology into reliable products.This includes the substantial fundraising that is needed to gather evidence of clinical safety and efficacy through clinical trials. The valuation of these companies is largely based on the strength of their intellectual property position, the clarity of their regulatory path, the size of the market they may serve and therapeutic promise or magnitude of impact their product might achieve. Previous studies of the stem cell market place have been directed toward characterizing size and growth [4–6]. The market for stem cell therapies was valued at $2.7 billion in 2010 with the majority of revenue coming from bone marrow–derived products [7]. A market analysis of Q4 2012 and Q1 2013 revealed strong progress in commercialization and translation of cell therapy companies, indicated by a calculated cell therapy index (CTI) of companies with market
*These authors contributed equally to this work. Correspondence: George F. Muschler, MD, Department of Orthopaedic Surgery and Biomedical Engineering, Cleveland Clinic, 9500 Euclid Avenue, Cleveland, OH 44195, USA. E-mail: [email protected] (Received 19 April 2017; accepted 15 July 2017) ISSN 1465-3249 Copyright © 2017 International Society for Cellular Therapy. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.jcyt.2017.07.006
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capitalizations greater than $50 million [8]. A separate study reported data through mid-2011 indicating a tissue engineering and stem cell industry expenditure of $3.6 billion, with orthopedics comprising the largest individual share at 49% or $1.7 billion in [6]. Up to this point, the metrics included in these academic studies have been largely limited to comparisons of stem cell companies by market capitalization, revenue and projected growth. To the best of our knowledge, however, there have been no analyses of the underlying financial metrics responsible for these overall numbers (e.g., price-to-earnings ratio, earnings before interest/taxes/depreciation/amortization aka EBITDA, and capital raise breakdown). Therefore, this study comprehensively analyzed the stem cell market from a financial perspective. Our primary aims were to (i) provide a 2012–2016 update of the stem cell market size and growth using the stem cell therapy index (SCTI); (ii) analyze historical stem cell investment data, including characterization of the quantity and type of investment (e.g., debt/senior notes, convertibles, preferred equity, common stock) into stem cell companies relative to other health care industries (e.g., diagnostics, small molecules, medical devices); and (iii) identify key events and important clinical developments that helped drive this expansion. Methods Update of the stem cell market size and growth from 2012 to 2016 by calculation of Stem Cell Therapy Index The Stem CellTherapy Index (SCTI) is a 23-company index composed of primarily U.S.-exchange-listed publicly traded companies that have at least one stem cell therapy either currently marketed or in development (inclusion criteria), with a cutoff of a market capitalization of $50 million to ensure a certain level of liquidity (exclusion criteria) (Supplemental Table S1). The remainder of the SCTI inclusion–exclusion criteria are analogous to the CTI, which was constructed to analyze the cell therapy industry’s progress in 2012–2013 [8], whereas our constructed SCTI focuses on the stem cell therapy subsector and reflects developments from 2012 to 2016. Furthermore, financial metrics such as (i) revenue; (ii) EBITDA, a measure of profitability; and (iii) price to earnings ratio (P/E ratio) are also provided for each company as a basic financial summary. All financial information was obtained from publicly accessible sources (Bloomberg,Yahoo Finance, Google Finance) and adhered to industry-standard definitions found in resources such as Investments [9] or Investopedia. Information on the pipeline and product characteristics are from BioCentury IQ (BCIQ) and the websites of individual companies. In line with previous literature [8], and due to a lack of available data, no
differentiation was made within companies that added portfolio cell therapy products that are not “stem cells,” such as T cells. Instead, we relied out inclusion– exclusion criteria to appropriately define companies for analysis. To construct the SCTI from January 2, 2012, to December 30, 2016, the daily returns of each company in the index were computed and equally weighed, with the index starting at 1000. For comparison, two wellestablished biotechnology exchange-traded funds (ETFS), the NYSE Arca Biotechnology Index (INDEXNYSEGIS: BTK) and the NASDAQ Biotechnology Index (INDEXNASDAQ: NBI) were normalized to begin at 1000 and also plotted for the same duration to serve as a baseline comparison for volatility and the effect of macroeconomic trends and healthcare specific catalysts.The NASDAQ and NYSE indices are among biotech’s most trusted and were previously used for baseline comparison against the cell therapy index CTI [8]. Initially, there were instances where the stock price of one company would increase by more than 1000% in 1 day; for Vericel Corporation (Ann Arbor, Michigan, USA), on October 16, 2013, the company announced a 1-for-20 reverse stock split. For Capricor Therapeutics (Beverly Hills, California, USA), on November 22, 2013, the company announced the completed merger between Capricor, Inc., and Nile Therapeutics (San Francisco, California, USA). To reflect that the short-term volatility in stock performance was not due to a perceived increase in profitability or value, these outlier daily returns were omitted from the performance of the SCTI. Financing data on stem cell therapy market and other health care industries All data were obtained from the BioCentury (BCIQ; https://www.biocentury.com), a database primarily designed for and subscribed by biotechnology/ pharmaceutical companies and investors. BCIQ integrates more than 20 years of BioCentury’s analysis of public and private companies in the health care space and contains information on drug pipelines and major developments and news, along with fundraising efforts across a variety of asset classes. For this study, a geographic filter was applied so that only companies in the United States were considered, and another filter was applied for therapeutic modality to separate data for stem cell therapies (subset of Cell Therapy), diagnostics, small molecules and medical devices subsectors. The purpose of gathering financial data on financing patterns in stem cell therapy and similar emerging subfields was to determine whether these fields have grown at a faster rate than more mature segments of the overall health care industry, which encompasses
ARTICLE IN PRESS Stem cell industry update pharmaceutical products, vaccines, peptides and other fields. The compounded annual growth rate (CAGR) is provided for both the cumulative and annual financing amount, calculated as [final/initial](1/(n – 1)), where n is the number of years. To better understand the composition of investors and financings in the stem cell therapy market, the total aggregate amount fundraised was categorized into various asset classes, such as venture capital (VC), convertible securities, common stock and warrants, initial public offering (IPOs), rights offerings and units, debt and senior notes and other categories. All data were acquired from the BCIQ database, which provided the amount raised and transaction type for all public and private companies under the geographic filter (United States only) and therapeutic modality filter (stem cell therapy subcategory for the cell therapy). Compilation of relevant financial and clinical developments Unless otherwise stated, organization-specific information was sourced from official press releases through credible news sources such as globenewswire.com, a NASDAQ OMX Group subsidiary or businesswire.com, a Berkshire Hathaway company, during the period of January 1, 2012, to December 31, 2016. Results Update of stem cell market size and SCTI performance from 2012 to 2016 From 2012 to 2016, 98.6% appreciation of SCTI From January 2, 2012, to December 30, 2016, the SCTI appreciated from a standardized original
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value of 1000 to 1985.62 at the end of the period (98.6% overall return), compared with the NYSE BTK and the NBI reaching 2784.59 (178.5%) and 2532.84 (153.3%), respectively (Figure 1). In terms of volatility, the SCTI had a standard deviation of 497.96 over this time period, which was much smaller than the volatility of BTK (806.32) and NBI (742.75).
Analysis of stem cell financing patterns and capital raise transactions since 1994 Stem cell financing since 2012 accounts for 81.7% of cumulative total raised Since inception, there has been a total of approximately $23 billion raised to finance ventures in the stem cell therapy sector. The distribution demonstrated a marked acceleration, especially during the last 4 years. Before 2000, $146 million was raised (0.6% of total), $908 million was raised from 2000 to 2005 (3.9% of total), $3.02 billion was raised from 2006 to 2010 (13.1% of total), and $18.93 billion was raised from 2011 to 2016 (82.3% of total) (Figure 2). In the comparable time frame for the SCTI analysis, 2012 to 2016, approximately $18.79 billion was raised (81.7% of total) for the stem cell therapy sector. Given that the 2011 aggregate fundraising amount is negligible (only $143 million), the 2011–2016 time period accurately estimates the 2012–2016 time frame captured by the SCTI. Overall, these results indicate a rapid acceleration of stem cell financing, which suggests increased interest and growing confidence in the long-term upside of such therapies.
Figure 1. Performance of SCTI versus the NASDAQ NBI and NYSE BTK indices.
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Figure 2. Stem cell industry financing timeline.
Distribution of stem cell financing sources since 1994 Since 1994, stem cell therapy companies have raised approximately $8.25 billion through different transaction types such as venture capital seed funding ($3.15 billion or 38.2%), direct public offerings and followon transactions ($2.92 billion or 35.4%), IPOs ($435.6 million or 5.3%), convertible securities ($524.1 million or 6.4%), and common stock and warrants ($302.7 million or 3.7%) (Figure 3, Table I). Companies with market capitalizations greater than $10 billion were excluded from the analysis because, if included, such results would be skewed heavily toward debt/senior notes as the most prevalent type of transaction; for example, Celgene (Summit, New Jersey, USA) alone raised $14.75 billion in debt across five tranches from 2010 to 2015, which constituted approximately 64% of the $23.0 billion raised by the stem cell companies
that fit both the geographic and therapeutic modality filters on BCIQ. In the absence of the Celgene transactions, the stem cell therapy capital raise breakdown largely comprises two categories of transactions: (1) direct public offerings, follow-on transactions, and IPOs account for 40.7% of the $8.25 billion in this data set, and are all equity-based transactions; (2) venture capital financing is 38.2% of the capital raised (Figure 3). Compared with similar segments of the health care industry, such as medical devices and diagnostics, stem cell therapy companies have raised capital at a faster rate relative to the overall industry, which includes mature segments such as pharmaceuticals and vaccines. From 1994 to 2016, stem cell companies raised approximately $23 billion, which is approximately 5% of the total health care sector’s $456.5 billion
Figure 3. Total capital raised across the stem cell therapy sector for various types of transactions.
ARTICLE IN PRESS Stem cell industry update Table I. Total capital raised across stem cell therapy sector for various types of transactions.
Type of financing
Amount raised
% of Total raised
Debt and senior notes Venture capital Direct public offering/follow on Convertibles IPO Common stock and warrants Rights offering and units Warrant exercise Preferred equity Equity-based line of credit Total raised
$746.5 $3,153.1 $2,920.2 $524.1 $435.6 $302.7 $99.4 $56.9 $10.7 $1.5 $8250.6
9.0 38.2 35.4 6.4 5.3 3.7 1.2 0.7 0.1 0.0 100.0
fundraising total and still less than that of other segments such as diagnostics ($69 billion, or 15.1%) and small molecules ($168 billion, or 36.8%). Medical devices companies only raised $14 billion in this period (3.1% of total health care industry) but attracted greater amounts of capital than stem cell companies
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in 1994 to 1999 ($329 million vs. $146 million) and 2000 to 2005 ($2.9 billion vs. $900 million, respectively). Accelerated growth of stem cell market relative to overall health care sector In the most recent period, 2011 to 2016, stem cell therapy companies raised $18.9 billion, which is a 130-fold increase in the amount raised in 1994 to 1999 ($146 million), and is approximately 21 times and 6.3 times larger than the amount raised from 2000 to 2005 ($908 million) and 2006 to 2010 ($3.018 billion), respectively (Figure 2). In contrast, when comparing 2011 to 2016 fundraising amounts to that of 1994–1999, diagnostics experienced a 100-fold increase, small molecules increased by 49 times, medical devices increased by 29 times, and the overall health care market increased by 8 times (Table II).The annual and cumulative CAGR in financings for the stem cell therapy sector are 31.5% and 44.8% respectively; such values are comparable to other segments (medical devices, small molecules, diagnostics) within health care
Table II. Total capital raised by stem cell therapy companies and other segments of the health care industry, 1994–2016. Year
Stem cell therapy
Diagnostics
Small molecules
Medical devices
Total health care
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
$5 $12 $38 $37 $10 $45 $356 $3 $18 $410 $5 $115 $1,166 $184 $57 $93 $1,518 $143 $1,722 $1,996 $3,180 $9,403 $2,485 $23,001
$4 $159 $262 $43 $30 $68 $1,396 $203 $865 $447 $455 $617 $2,049 $787 $631 $993 $3,376 $9,771 $6,938 $2,004 $10,794 $16,380 $10,734 $69,007
$206 $205 $560 $460 $244 $653 $3,936 $881 $3,523 $2,085 $4,036 $4,538 $10,525 $6,714 $2,499 $5,992 $7,607 $19,089 $8,767 $9,760 $21,397 $39,385 $15,010 $168,073
$5 $0 $82 $66 $14 $163 $463 $100 $2 $60 $72 $2,228 $243 $260 $89 $263 $413 $530 $3,934 $430 $979 $1,869 $1,728 $13,994
$2,098 $3,684 $6,414 $5,434 $4,196 $5,980 $30,328 $13,040 $10,046 $15,852 $18,400 $16,464 $23,709 $22,121 $9,622 $17,981 $24,458 $33,357 $23,647 $23,619 $43,740 $64,765 $37,577 $456,532
Period
Stem cell therapy
Diagnostics
Small molecules
Medical devices
Total
$146 $908 $3,018 $18,929 $23,001 5.0% 31.5% 44.8%
$566 $3,983 $7,837 $56,621 $69,007 15.1% 40.4% 52.2%
$2,329 $19,000 $33,336 $113,409 $168,073 36.8% 20.5% 33.8%
$329 $2,925 $1,269 $9,471 $13,994 3.1% 29.4% 41.7%
$27,806 $104,130 $97,892 $226,704 $456,532 100.0% 13.4% 26.4%
1994–1999 2000–2005 2006–2010 2011–2016 Total % of total Annual CAGR Cumulative CAGR
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but larger than the growth rates for the overall health care market (13.4% and 26.4%, respectively). Discussion These data demonstrate an accelerating growth of investment into the stem cell companies relative to the overall health care sector, but with delayed earnings, and the financial distribution profile of an earlystage health care industry (venture capital financing and equity transactions accounting for approximately 80% of total capital raised). Analyzing the stem cell market from a financial perspective is relevant not only to health care investors but also to researchers and physicians who collaborate together and with industry to advance the field from the bench to the bedside. This study is not without limitations. Given the difficulties associated with aggregating data and information regarding private transactions for companies, it is possible that the BioCentury database has excluded a small number of results and companies because, before 2005, there was a shortage of digitalized data [10]. Once inclusion–exclusion criteria were established, no distinction was made within stem cell companies that may have added additional non– stem cell therapy products to diversify their portfolio (e.g., CAR T-cell therapies) due to a lack of available financial data and in line with previous literature [8]. The details of many private and smaller transactions are often not disclosed, and the filters for therapeutic modality allow for cross-categorization for companies that have multiple lead indications or therapeutic focuses. For instance, we chose to exclude companies with market capitalizations below $50 million because of their thinly traded nature, low volume of equity, decreased financial disclosure due to over the counter (OTC) exchange listing, and overall small market share, in line with previous literature [8]. This being said, we acknowledge that future research analyzing these nano-cap stocks would be required for the purposes of identifying early-stage potential hidden gems with strong product pipelines. Indeed, a fraction of these nano-cap companies are eventually positioned as future acquisition targets, and/ or expand gaining momentum for research and development and further capital raising. Progress in health care is intricately connected with financial investment, given the high upfront costs required to discover, characterize, develop and market new compounds and therapies [11]. The fact that 82.3% of cumulative financial investment into all stem cell therapies companies has occurred in just the past 5 years, there is strong evidence that the investment rate is exponentially increasing. Our cumulative CAGR results indicate that this investment rate in cell therapies far outpaces that of the overall health care sector
(44.8% versus 26.4%). However, the distribution of the investments seen in the stem cell industry remains heavily aggregated around early-stage, high-risk investments such as venture capital financing, equitybased securities from IPO transactions and followon offerings, and warrants and other units. This distribution reflects typical early-stage development of a new market, in which start-ups and small-cap companies raise capital through alliances with larger companies (standard mergers and acquisitions activity) rather than with internal funds (through capital markets) [12]. Although there were no official data available detailing whether a capital raise was due to true clinical progress, there is significant precedence in prior biotech trends that suggest this is the case. Simply said, in general for high-risk early-stage companies to continue raising additional external capital from prospective investors through partnerships/ equity sale, they need to demonstrate proof-ofconcept and at least partially reach predicted clinical milestones [13]. Although investment into the stem cell industry has increased, this growth has not been matched by similar growth rates in market capitalization or earnings. From 2012 to 2016, the SCTI, as a measure of market size, appreciated 98.6%, while baseline BTK and NBI appreciated 178.5% and 153.3%, respectively. In summary, although there may have been increased financial investment into the stem cell industry, this growth rate has not been matched by similar growth rates in market capitalization or earnings.This lag in return reflects the persistent immaturity of the industry and both the time required and ongoing uncertainty regarding the pathways through which future therapies will be evaluated and regulated by the U.S. Food and Drug Administration (FDA) or approved and reimbursed by health care payers. Such marked increases in investment reflect an overall optimistic market sentiment for such therapies, and it is important to note that such valuations may not reflect the current intrinsic value for such companies. Given strong increases in capital raises, a distinct gap between stem cell therapy candidates and subsequent commercialization has risen with the potential for a stem cell therapy “bubble”—a rapid increase in asset prices followed by a rapid contraction. To this end, factors such as regulatory approval, safety/efficacy data and the pharmacodynamics for these individualized treatments must be closely monitored long-term to definitively assert that the stem cell industry has matured for good [5]. Financial perspective The financial analysis of the stem cell therapy market suggests that a critical mass of opportunity and capital
ARTICLE IN PRESS Stem cell industry update may finally be materializing. The first wave of stem cell biotech companies that emerged in the 1980s to 1990s have struggled due to a combination of factors, particularly insufficient access to capital, lack of favorable regulation and in some cases uncertainty or disputes over conflicting or obstructing patent positions (Figure 2, Table I). Those early trailblazers that are still solvent have ongoing concerns for such small-cap companies such as Vericel Corporation (NASDAQ:VCEL; Ann Arbor, Michigan, USA), Caladrius Biosciences (NASDAQ: CLBS; New York, New York, USA) and Osiris Therapeutics (NASDAQ: OSIR; Columbia, Maryland, USA). As an indication of the field’s struggles, earlier in 2016, the eponymous stem cell industry pioneer, StemCells, Inc. (Newark, New Jersey, USA), terminated its Phase II pathway study for HuCNS-SC human neural stem cells in spinal cord injury due to a lack of demonstrated efficacy and function at a 1-year checkpoint, and subsequently merged with the private Israeli company Microbot Medical Ltd (Newark, California, USA). Other companies of the old guard have been acquired: Ocata Therapeutics, Inc. (NASDAQ: OCAT; Santa Monica, California, USA) sold itself to Astellas Pharma, Inc. (OTCPK: ALPMF; Northbrook, Illinois, USA) for $379 million in February 2016, and Geron Corp. (NASDAQ: GERN; Menlo Park, California, USA), the company responsible for the very first commercial stem cell trial in the United States, abandoned its stem cell assets in 2011 and divested them to BioTime, Inc. (NYSEMKT: BTX; Alameda, California, USA). The second wave of stem cell companies emerged after 2000, and includes a variety of companies based outside of the US, in locations such as Europe, Australia, and Israel.This group includes companies such as Mesoblast Limited (NASDAQ: MESO; Melbourne, Australia),TiGenix (NASDAQ:TIG; Leuven, Belgium), and Cytori Therapeutics (NASDAQ: CYTX; San Diego, California, USA), which have experienced some degree of clinical and commercial success as shown by approved products such as Cytori’s PureGraft, and benefitted from increased investor appetite for companies in the stem cell therapy field (Figure 2).The stark contrast in the amount of capital raised between stem cell therapy companies from 1994 to 1999 ($146 million) and the most recent period 2011 to 2016 ($18,9 billion) indicates that not only are accredited investors and other individuals interested in the equity, but established VC funds and “smart money” are beginning to enter the market. Furthermore, from 2002 to 2008, the FDA did not approve any cell-based therapies [14]. During the first half of this period, fundraising efforts were lackluster, with a cumulative total of only $1.05 billion from 1994 to 2005 before the stem cell therapy sector
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registered its first year of a fundraising haul greater than $1 billion in 2006 ($1.17 billion). The Great Recession hindered fundraising from 2007 to 2011 as companies struggled to access capital, but the stem cell therapy fundraising recovered from 2012, with this sector raising more than a billion dollars each year (Table II). Intuitively, from an investor standpoint, stem cell companies are primarily financed by venture capital seed funding and equity-based transactions (Figure 3) because equity is riskier but has potential for greater upside associated with the company’s growth and profitability. By most traditional valuation metrics, the industry is in its commercial infancy because priceto-earnings ratios and EBITDA figures are negative, indicating that the majority of stem cell therapy companies have not reached profitability, and there is a dearth of commercialized therapies. As a result, debt is not a large component of the capital structure because these companies do not have stable financial profiles that produce enough cash flow to service interest and justify leverage. In addition, the investor profile and risk tolerance of the stem cell therapy market is fundamentally different from the large-cap companies that mutual funds and risk-averse investors consider. Large institutional investors are often restricted by portfolio composition guidelines and also limits on risk; many of the companies in the SCTI are too thinly traded, not liquid and too small (<$1 billion in market cap) to be considered. Volatility may be lower given the smaller trading volumes associated with penny stock companies and the lack of institutional investors following for these small companies in the stem cell therapy space. This could explain some of the difference in the SCTI’s performance compared with the NASDAQ NBI and NYSE BTK indices. General macroeconomic trends and health care industry–specific news appear to affect SCTI and NBI/ BTK to a comparable degree given the similar shape between the 3 indices. For example, in the second half of 2015, the biotechnology and overall health care sector plummeted due to presidential candidate Hillary Clinton’s Tweet regarding price gouging in the specialty drug market [15]; the NBI initially dropped the index by 4.7% during intraday trading, and the overall sector suffered a prolonged downturn as investors were uncertain what actions a potential Clinton administration would take against pharmaceutical companies [16]. Since those events that transpired in August 2015, the NBI has traded near 2600 from February to June 2016; the BTK has exhibited similar price movements and marginally stronger recovery since the index’s 52-week lows in February 2016. The SCTI index performed similarly in this period, dropping from a local maximum of 2305.78 on August 31, 2015, to
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approximately a trading range of 1800 to 2100 between the months of February and June (Figure 1). Notable clinical developments in 2016 A variety of clinical events have occurred that have influenced the performance of SCTI, and become landmarks in the progress of the stem cell field.TiGenix (NASDAQ: TIG; Leuven, Belgium) is a valuable case study that profiles a stem cell therapy company with increasing commercial promise. In March 2016, TiGenix announced the first successful large-scale Phase III trial using formulation Cx601, comprising adipose-derived allogeneic mesenchymal stromal cells for the treatment of Crohn fistulas, with primary endpoints met at 24 and 52 weeks [17]. To capitalize on investor interest and favorable market sentiment, TiGenix closed its IPO of 2.3 million American Depository Shares (ADSs) in December 2016, raised $35.65 million in gross proceeds and broadened its potential investor base by trading on the NASDAQ exchange. This combination of scientific and business development progress has attracted the attention of Takeda Pharmaceuticals (approximately $35.5 billion market cap; Osaka, Japan), which exercised its option to develop Cx601 in both Japan and Canada in December 2016 and also made a €10 million equity investment in TiGenix for an approximately 4.5% ownership stake in the company. On a similar note, Mesoblast is another example of how clinical trial success has resulted in interest from larger pharmaceutical companies that are relying more heavily on acquisitions to replenish their drug pipelines and increase prospects for growth. This marked shift in pharmaceuticals has had ramifications. In February 2016, Mesoblast announced that its proprietary mesenchymal stem cell product, MSC-100-IV, demonstrated clinically meaningful responses and increased survival in children with corticosteroid-refractory acute graft-versus-host disease (aGvHD) [18].The company has several other clinical trials in Phase II/III in its pipeline for indications such as rheumatoid arthritis and chronic low back pain. Mallinckrodt PLC (NYSE: MNK; Staines-upon-Thames, United Kingdom) acquired a 5% stake in Mesoblast for $21.6 million and obtained exclusive negotiation rights for the two stem cell therapy candidates for treating lower back pain and graft-versus-host disease. In tandem with these business developments, stem cell therapies are being proposed for a wide variety of conditions such as Parkinson disease, with the California-based company International Stem Cell Corporation (OTCMKTS: ISCO; Carlsbad, California, USA) enrolling patients in its Phase I trial of a proprietary ISC-hpNSC treatment, which consists of neural stem cells derived from human parthenogenetic
stem cells, to musculoskeletal indications. Asterias Biotherapeutics (NYSEMKT: AST: Menlo Park, California) is pursuing a Phase I/IIa clinical trial the effectiveness of the Company’s AST-OPC1 cells that are oligodendrocyte progenitors for spinal cord injuries. Ultimately, these data and events reaffirm the growing market and corporate interest in the stem cell therapy field, as mature pharmaceutical companies seek out the new platforms to galvanize the industry. Companies are rapidly investing in existing stem cell companies and products since the viability of these high-risk clinical trials is still uncertain, and transactions are judged on the basis of potential instead of proven commercial success. With the passage of the 21st Century Cures Act, which expanded the FDA’s program of expedited approval for breakthrough medical technologies [19], it is entirely feasible for a blockbuster groundbreaking emerging stem cell therapy to emerge onto the market. Conclusion There has been increasing investor interest in the stem cell field since the 1990s, but the potential of the sector has not fully materialized into tangible value yet. Given the performance of the SCTI from 2012 to 2016, the market capitalization (value) and profitability of stem cell companies trailed that of the overall health care market; the SCTI appreciated 98.6%, whereas the BTK and NBI appreciated 178.5% and 153.3%, respectively. Furthermore, an analysis of historical financing data and the composition of financing transactions in the stem cell therapy sector reflects the infancy of the field. Approximately 82.3% of the $23 billion invested into stem cell companies has occurred over the past 5 years, and venture capital financing and equity-based transactions (IPO, common stock and warrants, public offering and follow on) comprise approximately 83% of the capital raise. Recent clinical and business developments demonstrate advancing maturity in the form of late-stage clinical trials, partnerships and licensing ventures and acquisitions by large pharmaceutical peers. It is important to consider the possibility that strong optimistic sentiment as indicated by such rapid increases in financing, deal flow may not reflect the current intrinsic value for such companies and further monitoring is required to ensure stem cell therapy company growth is not a “bubble.” Ultimately, the stem cell market may yet emerge and be on the verge of galvanizing the field of regenerative medicine and the broader health care market. References [1] Ehnert S, Glanemann M, Schmitt A, Vogt S, Shanny N, Nussler NC, et al. The possible use of stem cells in
ARTICLE IN PRESS Stem cell industry update
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regenerative medicine: dream or reality? Langenbecks Arch Surg 2009;394:985–97. doi:10.1007/s00423-009-0546-0. Taylor-Weiner H, Graff Zivin J. Medicine’s wild west—unlicensed stem-cell clinics in the United States. N Engl J Med 2015;373:985–7. doi:10.1056/NEJMp1504560. Turner L, Knoepfler P. Selling stem cells in the USA: assessing the direct-to-consumer industry. Cell Stem Cell 2016;19:154– 7. doi:10.1016/j.stem.2016.06.007. Syed BA, Evans JB. Stem cell therapy market. Nat Rev Drug Discov 2013;12:185–6. doi:10.1038/nrd3953. Lysaght MJ, Jaklenec A, Deweerd E. Great expectations: private sector activity in tissue engineering, regenerative medicine, and stem cell therapeutics. Tissue Eng Part A 2008;14:305–15. doi:10.1089/tea.2007.0267. Jaklenec A, Stamp A, Deweerd E, Sherwin A, Langer R. Progress in the tissue engineering and stem cell industry: “are we there yet?”. Tissue Eng Part B Rev 2012;18:155–66. doi:10.1089/ten.TEB.2011.0553. Lee S, Kwon T, Chung EK, Lee JW. The market trend analysis and prospects of scaffolds for stem cells. Biomater Res 2014;18:11. doi:10.1186/2055-7124-18-11. Mason C, Mason J, Culme-Seymour EJ, Bonfiglio GA, Reeve BC. Cell therapy companies make strong progress from October 2012 to March 2013 amid mixed stock market sentiment. Cell Stem Cell 2013;12:644–7. doi:10.1016/ j.stem.2013.05.017. Bodie Z, Kane A, Marcus AJ. Investments. 10th ed. NewYork: McGraw-Hill/Irwin; 2011. Petravick S, Gillett J. Financial reporting on the World Wide Web—ProQuest. Manag Account 1996;78(1):26. Funtleyder L. Healthcare investing: profiting from the new world of pharma, biotech, and health care services. NewYork: McGraw-Hill Professional; 2009. Lerner J, Shane H, Tsai A. Do equity financing cycles matter? Evidence from biotechnology alliances. J Financ Econ 2003; 67:411–46. doi:10.1016/S0304-405X(02)00256-8.
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[13] Danzon PM, Nicholson S, Pereira NS. Productivity in pharmaceutical–biotechnology R&D: the role of experience and alliances. J Health Econ 2005;24:317–39. doi:10.1016/ j.jhealeco.2004.09.006. [14] Diment D. IBISWorld Industry Report OD4040 - Cell Therapy in the US, Generating growth: More funding for R & D will spur strong revenue gains. 2016. [15] Edney A. Clinton’s Attacks on Drug Prices Leave Health Stocks Reeling. Bloomberg; 2016. Available from: https:// www.bloomberg.com/news/articles/2016-08-24/clinton-s -attacks-on-drug-pricing-leave-health-stocks-reeling. [Accessed 14 April 2017]. [16] Nisen M. Biotech Shouldn’t Sweat the Election So Much. Bloomberg; 2016. Available from: https://www.bloomberg .com/gadfly/articles/2016-10-19/clinton-vs-trump-biotech -investors-worry-too-much. [Accessed 14 April 2017]. [17] de la Portilla F, Alba F, García-Olmo D, Herrerías JM, González FX, Galindo A. Expanded allogeneic adipose-derived stem cells (eASCs) for the treatment of complex perianal fistula in Crohn’s disease: results from a multicenter phase I/IIa clinical trial. Int J Colorectal Dis 2013;28:313–23. doi:10 .1007/s00384-012-1581-9. [18] Kurtzberg J, Prockop SE, Prasad VK, Chaudhury S, Teira P, Nemecek E, et al. Treatment with human mesenchymal stem cells (remestemcel-L) is effective in pediatric patients with refractory acute graft versus host disease. Biol Blood Marrow Transplant 2017;21:S338–9. doi:10.1016/j.bbmt.2014.11.539. [19] Avorn J, Kesselheim AS. The 21st century cures act—will it take us back in time? N Engl J Med 2015;372:2473–5. doi:10.1056/NEJMp1506964.
Appendix: Supplementary material Supplementary data to this article can be found online at doi:10.1016/j.jcyt.2017.07.006.
Stem cell industry update: 2012 to 2016 reveals accelerated investment, but market capitalization and earnings lag
MITCHELL NG1,*, SIMON SONG2,*, NICOLAS S. PIUZZI1,3, KENNETH NG4, CHUKWUWEIKE GWAM5, MICHAEL A. MONT1 & GEORGE F. MUSCHLER1 1
Cleveland Clinic, Department of Orthopedic Surgery, Cleveland, Ohio, USA, 2Duke University, Department of Biomedical Engineering, Durham, North Carolina, USA, 3Instituto Universitario del Hospital Italiano de Buenos Aires, Buenos Aires, Argentina, 4State University of NewYork Downstate Medical Center, College of Medicine, Brooklyn, NewYork, USA, and 5Rubin Institute for Advanced Orthopedics, Center for Joint Preservation and Replacement, Sinai Hospital of Baltimore, Baltimore, Maryland, USA Abstract Treatments based on stem cells have long been heralded for their potential to drive the future of regenerative medicine and have inspired increasing medical and business interest. The stem cell therapy market has been expanding since 2012, but earnings and profitability still lag the broader health care sector (compounded annual growth rate in annual financing of 31.5% versus 13.4%, respectively). On the basis of historical financial data, approximately $23 billion has been invested in stem cell companies since 1994, with more than 80% of this raised from 2011 through 2016. This reflects a marked acceleration in capital investment, as companies began late-stage clinical trials, initiate partnerships or are acquired by large pharmaceutical companies. All of these data reflect a field that is emerging from infancy, which will demand more time and capital to mature. This update is relevant to researchers, clinicians and investors who wish to quantify the potential in this field. Key Words: cellular therapy, market analysis, stem cell market
Introduction Interest in regenerative medicine continues to increase, particularly, work focused on developing cellbased therapies to repair or regenerate damaged tissue [1]. There appears to be growing optimism that stem cell–based therapies may revolutionize disease treatment [2]. This confidence may be enhanced by promising findings made in the research field that were disseminated to the public without acknowledgment of the persisting obstacles and challenges [2]. Cell therapies in various forms are being marketed widely and sold as treatments, sometimes without evidence of clinical efficacy from clinical trials and narrowly skirting regulatory guidelines that can variably seem vague, arbitrary, negotiable, biologically capricious or unenforceable [3]. Although there is evidence that support many clinical application of stem cell therapies, major hurdles remain in translating basic science discoveries into safe, clinically proven and rationally regulated treatment modalities.
We are in the early phase of clinical development in the stem cell field. Biotechnology companies are grounded in stem cell biology but become responsible for translating basic stem cell biology into reliable products.This includes the substantial fundraising that is needed to gather evidence of clinical safety and efficacy through clinical trials. The valuation of these companies is largely based on the strength of their intellectual property position, the clarity of their regulatory path, the size of the market they may serve and therapeutic promise or magnitude of impact their product might achieve. Previous studies of the stem cell market place have been directed toward characterizing size and growth [4–6]. The market for stem cell therapies was valued at $2.7 billion in 2010 with the majority of revenue coming from bone marrow–derived products [7]. A market analysis of Q4 2012 and Q1 2013 revealed strong progress in commercialization and translation of cell therapy companies, indicated by a calculated cell therapy index (CTI) of companies with market
*These authors contributed equally to this work. Correspondence: George F. Muschler, MD, Department of Orthopaedic Surgery and Biomedical Engineering, Cleveland Clinic, 9500 Euclid Avenue, Cleveland, OH 44195, USA. E-mail: [email protected] (Received 19 April 2017; accepted 15 July 2017) ISSN 1465-3249 Copyright © 2017 International Society for Cellular Therapy. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.jcyt.2017.07.006
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capitalizations greater than $50 million [8]. A separate study reported data through mid-2011 indicating a tissue engineering and stem cell industry expenditure of $3.6 billion, with orthopedics comprising the largest individual share at 49% or $1.7 billion in [6]. Up to this point, the metrics included in these academic studies have been largely limited to comparisons of stem cell companies by market capitalization, revenue and projected growth. To the best of our knowledge, however, there have been no analyses of the underlying financial metrics responsible for these overall numbers (e.g., price-to-earnings ratio, earnings before interest/taxes/depreciation/amortization aka EBITDA, and capital raise breakdown). Therefore, this study comprehensively analyzed the stem cell market from a financial perspective. Our primary aims were to (i) provide a 2012–2016 update of the stem cell market size and growth using the stem cell therapy index (SCTI); (ii) analyze historical stem cell investment data, including characterization of the quantity and type of investment (e.g., debt/senior notes, convertibles, preferred equity, common stock) into stem cell companies relative to other health care industries (e.g., diagnostics, small molecules, medical devices); and (iii) identify key events and important clinical developments that helped drive this expansion. Methods Update of the stem cell market size and growth from 2012 to 2016 by calculation of Stem Cell Therapy Index The Stem CellTherapy Index (SCTI) is a 23-company index composed of primarily U.S.-exchange-listed publicly traded companies that have at least one stem cell therapy either currently marketed or in development (inclusion criteria), with a cutoff of a market capitalization of $50 million to ensure a certain level of liquidity (exclusion criteria) (Supplemental Table S1). The remainder of the SCTI inclusion–exclusion criteria are analogous to the CTI, which was constructed to analyze the cell therapy industry’s progress in 2012–2013 [8], whereas our constructed SCTI focuses on the stem cell therapy subsector and reflects developments from 2012 to 2016. Furthermore, financial metrics such as (i) revenue; (ii) EBITDA, a measure of profitability; and (iii) price to earnings ratio (P/E ratio) are also provided for each company as a basic financial summary. All financial information was obtained from publicly accessible sources (Bloomberg,Yahoo Finance, Google Finance) and adhered to industry-standard definitions found in resources such as Investments [9] or Investopedia. Information on the pipeline and product characteristics are from BioCentury IQ (BCIQ) and the websites of individual companies. In line with previous literature [8], and due to a lack of available data, no
differentiation was made within companies that added portfolio cell therapy products that are not “stem cells,” such as T cells. Instead, we relied out inclusion– exclusion criteria to appropriately define companies for analysis. To construct the SCTI from January 2, 2012, to December 30, 2016, the daily returns of each company in the index were computed and equally weighed, with the index starting at 1000. For comparison, two wellestablished biotechnology exchange-traded funds (ETFS), the NYSE Arca Biotechnology Index (INDEXNYSEGIS: BTK) and the NASDAQ Biotechnology Index (INDEXNASDAQ: NBI) were normalized to begin at 1000 and also plotted for the same duration to serve as a baseline comparison for volatility and the effect of macroeconomic trends and healthcare specific catalysts.The NASDAQ and NYSE indices are among biotech’s most trusted and were previously used for baseline comparison against the cell therapy index CTI [8]. Initially, there were instances where the stock price of one company would increase by more than 1000% in 1 day; for Vericel Corporation (Ann Arbor, Michigan, USA), on October 16, 2013, the company announced a 1-for-20 reverse stock split. For Capricor Therapeutics (Beverly Hills, California, USA), on November 22, 2013, the company announced the completed merger between Capricor, Inc., and Nile Therapeutics (San Francisco, California, USA). To reflect that the short-term volatility in stock performance was not due to a perceived increase in profitability or value, these outlier daily returns were omitted from the performance of the SCTI. Financing data on stem cell therapy market and other health care industries All data were obtained from the BioCentury (BCIQ; https://www.biocentury.com), a database primarily designed for and subscribed by biotechnology/ pharmaceutical companies and investors. BCIQ integrates more than 20 years of BioCentury’s analysis of public and private companies in the health care space and contains information on drug pipelines and major developments and news, along with fundraising efforts across a variety of asset classes. For this study, a geographic filter was applied so that only companies in the United States were considered, and another filter was applied for therapeutic modality to separate data for stem cell therapies (subset of Cell Therapy), diagnostics, small molecules and medical devices subsectors. The purpose of gathering financial data on financing patterns in stem cell therapy and similar emerging subfields was to determine whether these fields have grown at a faster rate than more mature segments of the overall health care industry, which encompasses
ARTICLE IN PRESS Stem cell industry update pharmaceutical products, vaccines, peptides and other fields. The compounded annual growth rate (CAGR) is provided for both the cumulative and annual financing amount, calculated as [final/initial](1/(n – 1)), where n is the number of years. To better understand the composition of investors and financings in the stem cell therapy market, the total aggregate amount fundraised was categorized into various asset classes, such as venture capital (VC), convertible securities, common stock and warrants, initial public offering (IPOs), rights offerings and units, debt and senior notes and other categories. All data were acquired from the BCIQ database, which provided the amount raised and transaction type for all public and private companies under the geographic filter (United States only) and therapeutic modality filter (stem cell therapy subcategory for the cell therapy). Compilation of relevant financial and clinical developments Unless otherwise stated, organization-specific information was sourced from official press releases through credible news sources such as globenewswire.com, a NASDAQ OMX Group subsidiary or businesswire.com, a Berkshire Hathaway company, during the period of January 1, 2012, to December 31, 2016. Results Update of stem cell market size and SCTI performance from 2012 to 2016 From 2012 to 2016, 98.6% appreciation of SCTI From January 2, 2012, to December 30, 2016, the SCTI appreciated from a standardized original
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value of 1000 to 1985.62 at the end of the period (98.6% overall return), compared with the NYSE BTK and the NBI reaching 2784.59 (178.5%) and 2532.84 (153.3%), respectively (Figure 1). In terms of volatility, the SCTI had a standard deviation of 497.96 over this time period, which was much smaller than the volatility of BTK (806.32) and NBI (742.75).
Analysis of stem cell financing patterns and capital raise transactions since 1994 Stem cell financing since 2012 accounts for 81.7% of cumulative total raised Since inception, there has been a total of approximately $23 billion raised to finance ventures in the stem cell therapy sector. The distribution demonstrated a marked acceleration, especially during the last 4 years. Before 2000, $146 million was raised (0.6% of total), $908 million was raised from 2000 to 2005 (3.9% of total), $3.02 billion was raised from 2006 to 2010 (13.1% of total), and $18.93 billion was raised from 2011 to 2016 (82.3% of total) (Figure 2). In the comparable time frame for the SCTI analysis, 2012 to 2016, approximately $18.79 billion was raised (81.7% of total) for the stem cell therapy sector. Given that the 2011 aggregate fundraising amount is negligible (only $143 million), the 2011–2016 time period accurately estimates the 2012–2016 time frame captured by the SCTI. Overall, these results indicate a rapid acceleration of stem cell financing, which suggests increased interest and growing confidence in the long-term upside of such therapies.
Figure 1. Performance of SCTI versus the NASDAQ NBI and NYSE BTK indices.
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Figure 2. Stem cell industry financing timeline.
Distribution of stem cell financing sources since 1994 Since 1994, stem cell therapy companies have raised approximately $8.25 billion through different transaction types such as venture capital seed funding ($3.15 billion or 38.2%), direct public offerings and followon transactions ($2.92 billion or 35.4%), IPOs ($435.6 million or 5.3%), convertible securities ($524.1 million or 6.4%), and common stock and warrants ($302.7 million or 3.7%) (Figure 3, Table I). Companies with market capitalizations greater than $10 billion were excluded from the analysis because, if included, such results would be skewed heavily toward debt/senior notes as the most prevalent type of transaction; for example, Celgene (Summit, New Jersey, USA) alone raised $14.75 billion in debt across five tranches from 2010 to 2015, which constituted approximately 64% of the $23.0 billion raised by the stem cell companies
that fit both the geographic and therapeutic modality filters on BCIQ. In the absence of the Celgene transactions, the stem cell therapy capital raise breakdown largely comprises two categories of transactions: (1) direct public offerings, follow-on transactions, and IPOs account for 40.7% of the $8.25 billion in this data set, and are all equity-based transactions; (2) venture capital financing is 38.2% of the capital raised (Figure 3). Compared with similar segments of the health care industry, such as medical devices and diagnostics, stem cell therapy companies have raised capital at a faster rate relative to the overall industry, which includes mature segments such as pharmaceuticals and vaccines. From 1994 to 2016, stem cell companies raised approximately $23 billion, which is approximately 5% of the total health care sector’s $456.5 billion
Figure 3. Total capital raised across the stem cell therapy sector for various types of transactions.
ARTICLE IN PRESS Stem cell industry update Table I. Total capital raised across stem cell therapy sector for various types of transactions.
Type of financing
Amount raised
% of Total raised
Debt and senior notes Venture capital Direct public offering/follow on Convertibles IPO Common stock and warrants Rights offering and units Warrant exercise Preferred equity Equity-based line of credit Total raised
$746.5 $3,153.1 $2,920.2 $524.1 $435.6 $302.7 $99.4 $56.9 $10.7 $1.5 $8250.6
9.0 38.2 35.4 6.4 5.3 3.7 1.2 0.7 0.1 0.0 100.0
fundraising total and still less than that of other segments such as diagnostics ($69 billion, or 15.1%) and small molecules ($168 billion, or 36.8%). Medical devices companies only raised $14 billion in this period (3.1% of total health care industry) but attracted greater amounts of capital than stem cell companies
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in 1994 to 1999 ($329 million vs. $146 million) and 2000 to 2005 ($2.9 billion vs. $900 million, respectively). Accelerated growth of stem cell market relative to overall health care sector In the most recent period, 2011 to 2016, stem cell therapy companies raised $18.9 billion, which is a 130-fold increase in the amount raised in 1994 to 1999 ($146 million), and is approximately 21 times and 6.3 times larger than the amount raised from 2000 to 2005 ($908 million) and 2006 to 2010 ($3.018 billion), respectively (Figure 2). In contrast, when comparing 2011 to 2016 fundraising amounts to that of 1994–1999, diagnostics experienced a 100-fold increase, small molecules increased by 49 times, medical devices increased by 29 times, and the overall health care market increased by 8 times (Table II).The annual and cumulative CAGR in financings for the stem cell therapy sector are 31.5% and 44.8% respectively; such values are comparable to other segments (medical devices, small molecules, diagnostics) within health care
Table II. Total capital raised by stem cell therapy companies and other segments of the health care industry, 1994–2016. Year
Stem cell therapy
Diagnostics
Small molecules
Medical devices
Total health care
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
$5 $12 $38 $37 $10 $45 $356 $3 $18 $410 $5 $115 $1,166 $184 $57 $93 $1,518 $143 $1,722 $1,996 $3,180 $9,403 $2,485 $23,001
$4 $159 $262 $43 $30 $68 $1,396 $203 $865 $447 $455 $617 $2,049 $787 $631 $993 $3,376 $9,771 $6,938 $2,004 $10,794 $16,380 $10,734 $69,007
$206 $205 $560 $460 $244 $653 $3,936 $881 $3,523 $2,085 $4,036 $4,538 $10,525 $6,714 $2,499 $5,992 $7,607 $19,089 $8,767 $9,760 $21,397 $39,385 $15,010 $168,073
$5 $0 $82 $66 $14 $163 $463 $100 $2 $60 $72 $2,228 $243 $260 $89 $263 $413 $530 $3,934 $430 $979 $1,869 $1,728 $13,994
$2,098 $3,684 $6,414 $5,434 $4,196 $5,980 $30,328 $13,040 $10,046 $15,852 $18,400 $16,464 $23,709 $22,121 $9,622 $17,981 $24,458 $33,357 $23,647 $23,619 $43,740 $64,765 $37,577 $456,532
Period
Stem cell therapy
Diagnostics
Small molecules
Medical devices
Total
$146 $908 $3,018 $18,929 $23,001 5.0% 31.5% 44.8%
$566 $3,983 $7,837 $56,621 $69,007 15.1% 40.4% 52.2%
$2,329 $19,000 $33,336 $113,409 $168,073 36.8% 20.5% 33.8%
$329 $2,925 $1,269 $9,471 $13,994 3.1% 29.4% 41.7%
$27,806 $104,130 $97,892 $226,704 $456,532 100.0% 13.4% 26.4%
1994–1999 2000–2005 2006–2010 2011–2016 Total % of total Annual CAGR Cumulative CAGR
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but larger than the growth rates for the overall health care market (13.4% and 26.4%, respectively). Discussion These data demonstrate an accelerating growth of investment into the stem cell companies relative to the overall health care sector, but with delayed earnings, and the financial distribution profile of an earlystage health care industry (venture capital financing and equity transactions accounting for approximately 80% of total capital raised). Analyzing the stem cell market from a financial perspective is relevant not only to health care investors but also to researchers and physicians who collaborate together and with industry to advance the field from the bench to the bedside. This study is not without limitations. Given the difficulties associated with aggregating data and information regarding private transactions for companies, it is possible that the BioCentury database has excluded a small number of results and companies because, before 2005, there was a shortage of digitalized data [10]. Once inclusion–exclusion criteria were established, no distinction was made within stem cell companies that may have added additional non– stem cell therapy products to diversify their portfolio (e.g., CAR T-cell therapies) due to a lack of available financial data and in line with previous literature [8]. The details of many private and smaller transactions are often not disclosed, and the filters for therapeutic modality allow for cross-categorization for companies that have multiple lead indications or therapeutic focuses. For instance, we chose to exclude companies with market capitalizations below $50 million because of their thinly traded nature, low volume of equity, decreased financial disclosure due to over the counter (OTC) exchange listing, and overall small market share, in line with previous literature [8]. This being said, we acknowledge that future research analyzing these nano-cap stocks would be required for the purposes of identifying early-stage potential hidden gems with strong product pipelines. Indeed, a fraction of these nano-cap companies are eventually positioned as future acquisition targets, and/ or expand gaining momentum for research and development and further capital raising. Progress in health care is intricately connected with financial investment, given the high upfront costs required to discover, characterize, develop and market new compounds and therapies [11]. The fact that 82.3% of cumulative financial investment into all stem cell therapies companies has occurred in just the past 5 years, there is strong evidence that the investment rate is exponentially increasing. Our cumulative CAGR results indicate that this investment rate in cell therapies far outpaces that of the overall health care sector
(44.8% versus 26.4%). However, the distribution of the investments seen in the stem cell industry remains heavily aggregated around early-stage, high-risk investments such as venture capital financing, equitybased securities from IPO transactions and followon offerings, and warrants and other units. This distribution reflects typical early-stage development of a new market, in which start-ups and small-cap companies raise capital through alliances with larger companies (standard mergers and acquisitions activity) rather than with internal funds (through capital markets) [12]. Although there were no official data available detailing whether a capital raise was due to true clinical progress, there is significant precedence in prior biotech trends that suggest this is the case. Simply said, in general for high-risk early-stage companies to continue raising additional external capital from prospective investors through partnerships/ equity sale, they need to demonstrate proof-ofconcept and at least partially reach predicted clinical milestones [13]. Although investment into the stem cell industry has increased, this growth has not been matched by similar growth rates in market capitalization or earnings. From 2012 to 2016, the SCTI, as a measure of market size, appreciated 98.6%, while baseline BTK and NBI appreciated 178.5% and 153.3%, respectively. In summary, although there may have been increased financial investment into the stem cell industry, this growth rate has not been matched by similar growth rates in market capitalization or earnings.This lag in return reflects the persistent immaturity of the industry and both the time required and ongoing uncertainty regarding the pathways through which future therapies will be evaluated and regulated by the U.S. Food and Drug Administration (FDA) or approved and reimbursed by health care payers. Such marked increases in investment reflect an overall optimistic market sentiment for such therapies, and it is important to note that such valuations may not reflect the current intrinsic value for such companies. Given strong increases in capital raises, a distinct gap between stem cell therapy candidates and subsequent commercialization has risen with the potential for a stem cell therapy “bubble”—a rapid increase in asset prices followed by a rapid contraction. To this end, factors such as regulatory approval, safety/efficacy data and the pharmacodynamics for these individualized treatments must be closely monitored long-term to definitively assert that the stem cell industry has matured for good [5]. Financial perspective The financial analysis of the stem cell therapy market suggests that a critical mass of opportunity and capital
ARTICLE IN PRESS Stem cell industry update may finally be materializing. The first wave of stem cell biotech companies that emerged in the 1980s to 1990s have struggled due to a combination of factors, particularly insufficient access to capital, lack of favorable regulation and in some cases uncertainty or disputes over conflicting or obstructing patent positions (Figure 2, Table I). Those early trailblazers that are still solvent have ongoing concerns for such small-cap companies such as Vericel Corporation (NASDAQ:VCEL; Ann Arbor, Michigan, USA), Caladrius Biosciences (NASDAQ: CLBS; New York, New York, USA) and Osiris Therapeutics (NASDAQ: OSIR; Columbia, Maryland, USA). As an indication of the field’s struggles, earlier in 2016, the eponymous stem cell industry pioneer, StemCells, Inc. (Newark, New Jersey, USA), terminated its Phase II pathway study for HuCNS-SC human neural stem cells in spinal cord injury due to a lack of demonstrated efficacy and function at a 1-year checkpoint, and subsequently merged with the private Israeli company Microbot Medical Ltd (Newark, California, USA). Other companies of the old guard have been acquired: Ocata Therapeutics, Inc. (NASDAQ: OCAT; Santa Monica, California, USA) sold itself to Astellas Pharma, Inc. (OTCPK: ALPMF; Northbrook, Illinois, USA) for $379 million in February 2016, and Geron Corp. (NASDAQ: GERN; Menlo Park, California, USA), the company responsible for the very first commercial stem cell trial in the United States, abandoned its stem cell assets in 2011 and divested them to BioTime, Inc. (NYSEMKT: BTX; Alameda, California, USA). The second wave of stem cell companies emerged after 2000, and includes a variety of companies based outside of the US, in locations such as Europe, Australia, and Israel.This group includes companies such as Mesoblast Limited (NASDAQ: MESO; Melbourne, Australia),TiGenix (NASDAQ:TIG; Leuven, Belgium), and Cytori Therapeutics (NASDAQ: CYTX; San Diego, California, USA), which have experienced some degree of clinical and commercial success as shown by approved products such as Cytori’s PureGraft, and benefitted from increased investor appetite for companies in the stem cell therapy field (Figure 2).The stark contrast in the amount of capital raised between stem cell therapy companies from 1994 to 1999 ($146 million) and the most recent period 2011 to 2016 ($18,9 billion) indicates that not only are accredited investors and other individuals interested in the equity, but established VC funds and “smart money” are beginning to enter the market. Furthermore, from 2002 to 2008, the FDA did not approve any cell-based therapies [14]. During the first half of this period, fundraising efforts were lackluster, with a cumulative total of only $1.05 billion from 1994 to 2005 before the stem cell therapy sector
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registered its first year of a fundraising haul greater than $1 billion in 2006 ($1.17 billion). The Great Recession hindered fundraising from 2007 to 2011 as companies struggled to access capital, but the stem cell therapy fundraising recovered from 2012, with this sector raising more than a billion dollars each year (Table II). Intuitively, from an investor standpoint, stem cell companies are primarily financed by venture capital seed funding and equity-based transactions (Figure 3) because equity is riskier but has potential for greater upside associated with the company’s growth and profitability. By most traditional valuation metrics, the industry is in its commercial infancy because priceto-earnings ratios and EBITDA figures are negative, indicating that the majority of stem cell therapy companies have not reached profitability, and there is a dearth of commercialized therapies. As a result, debt is not a large component of the capital structure because these companies do not have stable financial profiles that produce enough cash flow to service interest and justify leverage. In addition, the investor profile and risk tolerance of the stem cell therapy market is fundamentally different from the large-cap companies that mutual funds and risk-averse investors consider. Large institutional investors are often restricted by portfolio composition guidelines and also limits on risk; many of the companies in the SCTI are too thinly traded, not liquid and too small (<$1 billion in market cap) to be considered. Volatility may be lower given the smaller trading volumes associated with penny stock companies and the lack of institutional investors following for these small companies in the stem cell therapy space. This could explain some of the difference in the SCTI’s performance compared with the NASDAQ NBI and NYSE BTK indices. General macroeconomic trends and health care industry–specific news appear to affect SCTI and NBI/ BTK to a comparable degree given the similar shape between the 3 indices. For example, in the second half of 2015, the biotechnology and overall health care sector plummeted due to presidential candidate Hillary Clinton’s Tweet regarding price gouging in the specialty drug market [15]; the NBI initially dropped the index by 4.7% during intraday trading, and the overall sector suffered a prolonged downturn as investors were uncertain what actions a potential Clinton administration would take against pharmaceutical companies [16]. Since those events that transpired in August 2015, the NBI has traded near 2600 from February to June 2016; the BTK has exhibited similar price movements and marginally stronger recovery since the index’s 52-week lows in February 2016. The SCTI index performed similarly in this period, dropping from a local maximum of 2305.78 on August 31, 2015, to
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approximately a trading range of 1800 to 2100 between the months of February and June (Figure 1). Notable clinical developments in 2016 A variety of clinical events have occurred that have influenced the performance of SCTI, and become landmarks in the progress of the stem cell field.TiGenix (NASDAQ: TIG; Leuven, Belgium) is a valuable case study that profiles a stem cell therapy company with increasing commercial promise. In March 2016, TiGenix announced the first successful large-scale Phase III trial using formulation Cx601, comprising adipose-derived allogeneic mesenchymal stromal cells for the treatment of Crohn fistulas, with primary endpoints met at 24 and 52 weeks [17]. To capitalize on investor interest and favorable market sentiment, TiGenix closed its IPO of 2.3 million American Depository Shares (ADSs) in December 2016, raised $35.65 million in gross proceeds and broadened its potential investor base by trading on the NASDAQ exchange. This combination of scientific and business development progress has attracted the attention of Takeda Pharmaceuticals (approximately $35.5 billion market cap; Osaka, Japan), which exercised its option to develop Cx601 in both Japan and Canada in December 2016 and also made a €10 million equity investment in TiGenix for an approximately 4.5% ownership stake in the company. On a similar note, Mesoblast is another example of how clinical trial success has resulted in interest from larger pharmaceutical companies that are relying more heavily on acquisitions to replenish their drug pipelines and increase prospects for growth. This marked shift in pharmaceuticals has had ramifications. In February 2016, Mesoblast announced that its proprietary mesenchymal stem cell product, MSC-100-IV, demonstrated clinically meaningful responses and increased survival in children with corticosteroid-refractory acute graft-versus-host disease (aGvHD) [18].The company has several other clinical trials in Phase II/III in its pipeline for indications such as rheumatoid arthritis and chronic low back pain. Mallinckrodt PLC (NYSE: MNK; Staines-upon-Thames, United Kingdom) acquired a 5% stake in Mesoblast for $21.6 million and obtained exclusive negotiation rights for the two stem cell therapy candidates for treating lower back pain and graft-versus-host disease. In tandem with these business developments, stem cell therapies are being proposed for a wide variety of conditions such as Parkinson disease, with the California-based company International Stem Cell Corporation (OTCMKTS: ISCO; Carlsbad, California, USA) enrolling patients in its Phase I trial of a proprietary ISC-hpNSC treatment, which consists of neural stem cells derived from human parthenogenetic
stem cells, to musculoskeletal indications. Asterias Biotherapeutics (NYSEMKT: AST: Menlo Park, California) is pursuing a Phase I/IIa clinical trial the effectiveness of the Company’s AST-OPC1 cells that are oligodendrocyte progenitors for spinal cord injuries. Ultimately, these data and events reaffirm the growing market and corporate interest in the stem cell therapy field, as mature pharmaceutical companies seek out the new platforms to galvanize the industry. Companies are rapidly investing in existing stem cell companies and products since the viability of these high-risk clinical trials is still uncertain, and transactions are judged on the basis of potential instead of proven commercial success. With the passage of the 21st Century Cures Act, which expanded the FDA’s program of expedited approval for breakthrough medical technologies [19], it is entirely feasible for a blockbuster groundbreaking emerging stem cell therapy to emerge onto the market. Conclusion There has been increasing investor interest in the stem cell field since the 1990s, but the potential of the sector has not fully materialized into tangible value yet. Given the performance of the SCTI from 2012 to 2016, the market capitalization (value) and profitability of stem cell companies trailed that of the overall health care market; the SCTI appreciated 98.6%, whereas the BTK and NBI appreciated 178.5% and 153.3%, respectively. Furthermore, an analysis of historical financing data and the composition of financing transactions in the stem cell therapy sector reflects the infancy of the field. Approximately 82.3% of the $23 billion invested into stem cell companies has occurred over the past 5 years, and venture capital financing and equity-based transactions (IPO, common stock and warrants, public offering and follow on) comprise approximately 83% of the capital raise. Recent clinical and business developments demonstrate advancing maturity in the form of late-stage clinical trials, partnerships and licensing ventures and acquisitions by large pharmaceutical peers. It is important to consider the possibility that strong optimistic sentiment as indicated by such rapid increases in financing, deal flow may not reflect the current intrinsic value for such companies and further monitoring is required to ensure stem cell therapy company growth is not a “bubble.” Ultimately, the stem cell market may yet emerge and be on the verge of galvanizing the field of regenerative medicine and the broader health care market. References [1] Ehnert S, Glanemann M, Schmitt A, Vogt S, Shanny N, Nussler NC, et al. The possible use of stem cells in
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Appendix: Supplementary material Supplementary data to this article can be found online at doi:10.1016/j.jcyt.2017.07.006.