It’s been a tough December for Caladrius Biosciences Inc (NASDAQ:CLBS) shareholders, the stock losing nearly 30% of its valuation throughout December. The mystery is that there was no fundamental or news-driven justification for the decline. The end of the year is typically a period when retail investors unload their losing positions in order to take advantage of the savings afforded by a tax write-off, and with the company having had a pretty rough twelve months to December, chances are this sort of selling has played into the end of year decline. A strategy that value investors often use is to identify those companies that have fallen victim to tax loss selling, but which aren’t down due to any fundamental development, and to take a position ahead of a market realignment.
As we head into the New Year, Caladrius is trading just ahead of its 52-week low, and looks poised for an upside reversal. Caladrius is a New Jersey-based biotech with a focus on the stem cell space. Specifically, through its subsidiary PCT, the company develops and manufactures stem cells to be sold into the stem cell clinical development space. Essentially, PCT is a contract manufacturing organization (CMO) for the stem cell sector.
The sector is really taking off right now, and with the recent implementation of the 21st-Century Cures Act (a large portion of which is devoted to the promotion and support of stem cell therapy development), 2017 should bring with it a wave of companies – large and small – seeking to develop their own stem cell assets. We saw a similar phenomenon in Japan, when the government took a supportive stance on stem cell development back in 2013, and we’ll see the same trend in the US in the wake of Cures. Each of these new entrants into the space will need a batch of stem cells with which, or from which, they can develop their preclinical and clinical assets, and PCT has spent the last twelve months becoming the go to CMO for exactly this sort of stem cell batch manufacturing. In other words, it’s in the right place, at very much the right time.
Outside of its CMO operations, the company also has a drug called CLBS03 in its pipeline. The drug is under investigation as part of a phase 2 trial in a recent onset type 1 diabetes indication, and picked up fast-track designation from the FDA in July 2016. Its mechanism of action is rooted in what are called tregs. Tregs are a natural part of the human immune system and regulate the activity of T effector cells. When these tregs don’t function properly, they instruct T effector cells to attack the body’s own cells, and in the case of type 1 diabetes, to attack insulin-producing pancreatic beta cells. This creates a lack of insulin and – in turn – causes the condition. CLBS03is an ex-vivo produced batch of working Tregs, bundled into a drug and administered intravenously.
The phase 2 is something of a slow burner, even with fast track designation, but the designation should allow for some degree of expedited catalysts between now and the March 2019 estimated primary completion date.
Looking at the company’s balance sheet, cash on hand at last count (September 30, 2016) came in at $18.6 million, so this removes any near-term dilution risk. Debt at the same count was $6.5 million, so easily serviceable, and essentially negated by the cash balance.
Bottom line here is that Caladrius should be heading up now that tax loss selling is over. PCT revenues are sure to expand on the back of both organic stem cell industry expansion, and that sparked by the 21st-Century Cures Act. Couple this with the fact that Caladrius is slowly but surely pushing a potentially game changing diabetes therapy along the development pathway, and it is hard to see anything but upside on the company’s current market capitalization.