Japan is the stem cell capital of the world. From the Nobel winning efforts of Shinya Yamanaka in the field of mature to pluripotent stem cell reprogramming, to the STAP scandal and its suicide tarnished fallout, if there’s something to talk about in the sector, chances are it happened first in Japan.

Japan’s development of the stem cell space is being encouraged by government policy in the country targeting the promotion of stem cell research and development activity. The Japanese government put into effect a raft of new laws in November 2014, designed to incentivize the industry.

The Japanese Pharmaceuticals, Medical Devices, and Other Therapeutic Products Act (PMDAct) allows conditional and time-limited approval for regenerative medical products based on the ensured safety and estimated efficacy in small-scale clinical trials. In other words, it’s far quicker and easier to take a stem cell treatment to market in Japan than it is anywhere else in the world due to relaxed government regulation. For the companies operating in the Japanese stem cell sphere, this is clearly a huge advantage. It’s also an advantage to those looking to pick up an exposure to the space, with a number of US listed companies establishing operational locations in Japan to take advantage of the legal environment and framework.

Here are two potential exposures to the stem cell space, each of which benefits from a Japanese operational presence.

Let’s kick things off with Astellas. In May 2016, and following its acquisition of then development stage stem cell biotech Ocata, Astellas formed what it now calls the Astellas Institute for Regenerative Medicine (AIRM). The AIRM is actually headquartered in Massachusetts, but its primary research team is in Tsukuba, Japan. Just as Japan is a hot spot for stem cell research globally, Tsukuba is a sort of unofficial hot spot for the sector in Japan.

What’s Astellas working on? Since its operations are rooted in its acquisition of Ocata, the AIRM’s primary focus is the continuation of the Ocata programs – specifically, regenerative treatments in ophthalmology. The two lead indications, and the only two that Astellas lists as ongoing in its latest pipeline report, are Stargardt’s disease (SD) and dry age-related macular degeneration (AMD). These are essentially the same condition, with slight variations based on the age of the patient.

The company’s treatment is rooted in what’s called the retinal pigment epithelial cell, or RPE. In our eyes, we have photoreceptor cells, which can be further broken down into rods and cones. Rods deal with low light images and have no color recognition, but they allow us to see in the dark because they only require low light to operate. Cones are responsible for photopic, or high light, vision, and can recognize color. Rods and cones require a blood supply, and this is the role of the RPE cells. If the RPE deteriorates, the photoreceptors don’t get the blood they need, and vision deteriorates. Both Stargardt’s and dry AMD are the deterioration of the RPE layer at the back of a patient’s eye, with the former being associated with younger and the latter with older patient populations.

Astellas’ program is working on the regeneration the RPE layer in both SD and AMD sufferers. How? By introducing stem cells to the layer, and allowing these cells to mature into RPE cells.

The program showed some good results in a Phase I run by Ocata, and now the AIRM is pushing through a Phase II in Japan and the US. From a timeline perspective, since Astellas took over the Ocata program things have gone pretty quiet. It’s a notoriously long-winded process to harvest pluripotent stem cells so chances are we are looking at a 3 to 5-year study rather than a quick turnaround. It’s worth keeping an eye on, however. If Astellas can demonstrate its ability to regenerate RPE cells in both SD and AMD patients, the potential wider indications are far beyond ophthalmology in scope. To keep an eye on perspective here in terms of value, Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) increased in value by over a factor of 10 thanks largely to its EYLEA treatment for wet AMD, a much rarer form of AMD with similar symptoms.

This is a pretty risk-mitigated exposure to the Japanese stem cell space, since Astellas has such a wide portfolio of products and R&D candidates. Next, let’s take a look at what we might consider a direct allocation.

Pluristem Therapeutics Inc. (NASDAQ:PSTI)

Pluristem has taken a very different approach to stem cell therapy, in that it uses stem cells derived from the placenta right after the birth of a baby. The main difference is that these cells are stromal cells, which have a far lower immunogenicity than, say, the cells Astellas is using. This means they are not normally affected by the immune system in any capacity.

Low immunogenicity means that there doesn’t need to be any immune matching before use. Cells with high immunogenicity would get recognized by the host immune system as foreign, and attacked. In traditional stem cell therapy, therefore, physicians need to carefully match donor cells with a host so as not to evoke an immune response. The placenta must have low immunogenicity because it protects two different immune systems – mother’s and baby’s – from attacking each other.

With Pluristem’s treatments, this matching isn’t necessary, and so the indications it targets are easier to go at from a logistical standpoint. This reduces trial time, cost etc., and should speed up the path to commercialization considerably. Couple this with the rapid regulatory pathway in Japan, and that path becomes even shorter.

Pluristem is going after many indications right now, but one of the lead targets is a condition called critical limb ischemia. CLI is when fatty substances build up in the walls of the arteries generally in the legs and cause blockages. There are around 1.7 million CLI sufferers in the US, Europe and Japan, and prognosis is poor as things stand. The majority of patients with any sort of severe form of the condition will require amputation and many will die. It’s an unmet need, and it costs the US somewhere in the region of $10 billion annually.

Phase I data from two trials has led to the acceptance of Pluristem and its treatment – called PLX-PAD into accelerated regulatory programs in both Japan and Europe. It’s the only treatment in the world that is in both programs. What does this mean? For both, it means that the company likely won’t need Phase III data before it can pick up preliminary approval in Japan and possibly Europe. Instead, a pivotal trial demonstrating safety, and then an approval application combining the efficacy data from both the Phase I’s and the safety and efficacy data from the Phase II’s. This results in obvious cost and time savings. Both trials are expected to kick off before the close of this year, meaning Pluristem could be targeting marketing approval in both Europe and Japan by early 2018, with enough cash on its balance sheet to get there to boot.