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Why Pluristem Therapeutics Inc. (PSTI) Is So Undervalued – The Market Is Ignoring Manufacturing

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The entirety of the long investment game comes down to being able to accurately spot the undervalued. Undervaluation exists for many reasons. In biotech it’s often a simple matter of lack of awareness in the market of a given company with promise. It’s easy enough to just find those and call them undervalued, but obviously it doesn’t always work that way. It’s not as simple as a game of stock hide-and-seek.

But sometimes, a company we find suffers not only from a general lack of awareness, but from a more fundamental misunderstanding of its structure even among the investors that take notice.

Market Exclusive has been following Pluristem Therapeutics Inc. (NASDAQ:PSTI) since July, and for reasons that we will detail below, we see the stock as extremely undervalued, and we don’t use that phrase flippantly, or often. Following a crucial $30 million investment in the company by leading Chinese healthcare-focused venture capital firm Innovative Medical, a subsidiary of China’s $11 billion ZSVC, our staff had the opportunity to speak with President & COO Yaky Yanay, from whom we learned much about the company’s structure, future, and prospects, including why a Chinese VC would pour so much money into what is now a $120 million small cap company.

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Pluristem is an Israeli Nasdaq-listed Phase III-ready biotech developing placental cell-based therapies for critical unmet needs. Like many of the stocks we cover, it is developing stage with a promising pipeline, but the problem is that’s where most stop with their analysis. Unlike most of the young pharmaceutical firms we analyze, Pluristem’s capital resources go far beyond its treatment pipeline. What makes Pluristem stand out and what most simply overlook is that it controls its own proprietary manufacturing technology for the pipeline that it is developing.

In order to produce the placental cells that are the core of its pipeline, Pluristem must tailor each cell line to a specific indication, and it does this through 3D manufacturing technology. While the tech is precise and complicated, the concept is simple. Cells from donated human placentas are cultured in 3D incubators meant to mimic the environment of the human body, with each group of cells “poked and prodded” so to speak in such a way as to have them produce the desired cytokines for a given indication. Pluristem is currently pursuing several different ones, three of which are fast approaching Phase III.

Pluristem has in the past been approached by established pharma companies to provide contract manufacturing services making use of this tech, but has steadfastly and repeatedly refused the CMO path. It has other ambitions, which we’ll get to shortly, but just the fact that it has this capability theoretically, means that its manufacturing capabilities alone gives it high value. Cells have been cultured in Petri dishes for 70 years. This method is hopelessly outdated, and Pluristem’s patented manufacturing facilities may constitute a paradigm shift for the whole cell therapy industry.

Why is Pluristem so undervalued?

Right now Pluristem Therapeutics Inc. (NASDAQ:PSTI) is only a $120 million company. This is exceedingly small considering that it is Phase III ready, a single pivotal trial that has the go-ahead from regulators in the United States, Europe, and most recently the United Kingdom (with a separate pivotal OKed by regulators in Japan), has $63 million in cash on its balance sheet following the Innovative Medical investment that valued its shares at a 15% premium to market even now, and has its own manufacturing capabilities. Rarely will you see this magnitude of a market misread.

Its lead pipeline candidate is called PLX-PAD (placental expanded cells) for critical limb ischemia. This condition results from a clogged circulatory system in the legs, for which the only currently available treatment is revascularization, a complicated and costly procedure that not all sufferers are candidates for. The condition generally deteriorates to the point where amputation is necessary, and death is unfortunately common for those who cannot undergo revascularization surgery.

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