Uneak White's Personal Brand Exploration Presentation
Pluristem Initiation BUY - $8 Target
1. EQUITY RESEARCH
INITIATION
Biotechnology Initiation Buy
July 24, 2012
Closing Price 7/24/2012 $3.18
Pluristem Therapeutics Inc.
12-Month Target Price:
52-Week Range:
$8.00
$1.98-$3.85
(PSTI – NASDAQ – $3.18)
Market Cap (M): $139 Pluristem: A Unique Allogeneic Product
Shares O/S (M): 43,713
Float (M): 39,342 We are initiating coverage of Pluristem Therapeutics Inc.
Avg. Vol. (000) 223 with a Buy rating and $8.00 price target. We believe that
Cash & Cash Equivilents (M) Q1-2012 38,629 PSTI is a well-positioned company with a unique product and a
Debt (M) $0 strong SWOT (strengths, weaknesses, opportunities, and threats)
Dividend/Yield: $0.00/0.00% product analysis that we expect to progress solidly over the next
Risk Profile: Speculative year as a global phase II trial begins in intermittent claudication
Revenues 2017 2018 (IC).
CLI $181 $347 United Therapeutics has opted in. In June 2011, Pluristem
signed a license with United Therapeutics (UTHR, $49.87, Not
Rated) for the development of PLX cells in pulmonary disorders.
FYE: December GAAP EPS P/E The license agreement initiated at $7M and includes an
2011A $ (0.35) nm additional $37.5M in regulatory milestones, as well as other
2012E $ (0.31) nm attractive elements. We believe this could be one of many
2013E $ (0.42) nm therapeutically focused deals to come.
2014E $ (0.43) nm
2015E $ (0.31) nm Clinical programs are getting ready to begin. In July,
2016E $ 0.04 71.4 Pluristem announced (in anticipation of the start of the phase II
2017E $ 1.66 1.9 study in IC) that the company has selected CPC Clinical
2018E $ 3.30 1.0 Research for trial support services related to enrolling and
sustaining clinical sites. The IC study population will be
comprised of ~150 patients (Fontaine class IIb/Rutherford
category 2-3) in a dose-escalation, placebo-controlled, double-
blinded study.
Great manufacturing system. Pluristem utilizes Placental
eXpanded (PLX cells) in the treatment of a variety of
inflammatory and ischemic conditions. The company has
developed a manufacturing system which utilizes a bioreactor
that allows the growth of cells in a 3D culturing methodology
and the process is designed to simulate a range of ischemic
conditions which allows the product to be tailored for specific
indications (such as PAD, CLI, ARS, PAH, and even
orthopedics). The system itself is designed to be very efficient
translating into high manufacturing margins.
Model assumptions. We assume Pluristem enters the critical
Source: Edgar as of 07/24/2012 limb ischemia (CLI) market in 2016. We are not assuming any
Jason Kolbert (212) 895-3516 other revenues as part of our model; however, we believe that it
jkolbert@maximgrp.com is extremely likely that Pluristem will advance multiple
programs into the clinic later this year and next.
Compelling valuation. We provide three valuation metrics –
FCF, discounted EPS, and sum of the parts – and are modeling
PSTI out to 2018. We only assume success in CLI and have not
included milestones or deal revenues related to United
Therapeutics or other new partners. This derives a 2018 EPS
number of $3.30, which we discount at 30% and equallyweight
the three metrics to derive an $8.00 price target.
Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com
SEE PAGES 24 - 26 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS
2. Pluristem Therapeutics (PSTI)
CORPORATE PROFILE
Pluristem Therapeutics (PSTI)
MATAM Advanced Technology Park #20
Haifa 31905 Israel
Phone: (972) 74-710+7171
Web site: www.pluristem.com
Investment Risks:
Senior Management:
Zami Aberman, President and CEO. Mr. Aberman, Clinical trial risk
“Zami,” joined Pluristem in September 2005 and Manufacturing and product quality
changed the company’s strategy towards cellular SWOT Risk. (strengths,
therapeutics. Mr. Aberman’s vision to use the maternal weaknesses, opportunities, and
threats) as Pluristem is likely to be
section of the placenta (decidua) as a source for cell the second cell-based product in the
therapy, combined with Pluristem’s 3D culturing CLI marketplace.
technology, led to the development of company-unique The potential need to raise
products. Mr. Aberman brings to Pluristem a keen sense additional capital
of business and entrepreneurship.
Yaky Yanay, Chief Financial Officer, Prior to joining (PLEASE SEE PAGES 19, 23-25 FOR A
Pluristem, Mr. Yanay was the Chief Financial Officer of MORE DETAILED OUTLINE OF OUR
Elbit Vision Systems Ltd., before which he served as “INVESTMENT RISKS”)
manager of audit groups of the technology sector at Ernst
& Young Israel. He holds a bachelor's degree with Institutional Ownership: 20%
honors in business administration and accounting and is a Inside Ownership: 14%
Certified Public Accountant in Israel. Shares Short: 0.5M
Company Background. Pluristem Therapeutics Inc. Balance Sheet Summary: $MM
(PSTI) is a leading developer of placenta-based cell (As of Mar 31, 2012)
therapies. The company's patented PLX (PLacental Cash & Restricted Cash: $40
eXpanded) cells drug delivery platform releases a Long-Term Debt: (M) $0.0
cocktail of therapeutic proteins in response to a variety of Quarterly Burn Rate ($3-4)
local and systemic inflammatory diseases. PLX cells are
grown using the company’s proprietary 3D micro- Analysts Following the Co.: 4
environmental technology and are an off-the-shelf (Excluding Maxim Group)
product that require no tissue matching or immune-
suppression treatment prior to administration. The PLX-
PAD comprehensive clinical development plan has been
recognized by both the EMA and FDA, targeting a sub-
population of 20-million patients of the peripheral artery
disease (PAD) market.
Data from two Phase I clinical trials indicate that
Pluristem’s first PLX product, PLX-PAD, is safe and
potentially effective for the treatment of end-stage PAD.
Pluristem’s pre-clinical animal models have
demonstrated that PLX cells are also potentially effective
in nerve pain and muscle damage when administered
locally and in inflammatory bowel disease, MS, and
stroke when administered systemically. Pluristem has a
strong patent portfolio, company-owned GMP certified
manufacturing and research facilities, strategic
relationships with major research institutions, and a
seasoned management team.
Maxim Group LLC 2
3. Pluristem Therapeutics, Inc. (PSTI)
COMPANY OVERVIEW
Pluristem Therapeutics is a biotherapeutics company formed in 2003 and focused on the
development of allogeneic, non-embryonic, adult stem cell-based cellular therapies that are
derived from the human placenta for the treatment of degenerative, ischemic, and autoimmune
disorders. These PLX products (Placental eXpanded) are off-the-shelf, ready-to-use products that
do not require histocompatibility matching or immunosuppression. The company is initially
focused on advancing its lead clinical candidate, PLX-PAD, for treatment of critical limb
ischemia and IC. In addition, the company is evaluating programs to address unmet needs in
orthopedics, bone marrow transplantation neuropathic and inflammatory pain, inflammatory
bowel disease, muscle trauma stroke, and multiple sclerosis. Pluristem’s headquarters, research
and development laboratory, and manufacturing facility (cGMP approved), are located in Haifa,
Israel.
Exhibit 1. Upcoming Catalysts for Pluristem
Product Event Tim ing Significance
PLX-Critical Limb Ischemia Phase I data released 2011 completed
PLX-Critical Limb Ischemia Phase II/III Program Begins 2013 +
PLX-Claudication Begin PII study Q4-2012 +
PLX - Buerger's Disease Begin PII study, "orphan - fast pathw ay" to marketplace (Jump to PIII?) 2H-2013 +
Muscle Injury - Hip Replacement Phase I/II -submitted to the PEI for approval 2H-2012 +
PLX-Orthopedic Begin PII study 2H-2012 +
Ischemic Heart Disaese, Diastolic HF Begin PII study tbd
PLX-Stroke Begin PII study tbd
PLX-Bone Marrow Transplantation/GvHD/ARS Begin PII study tbd
PLX-Multiple Sclerosis Begin PII study tbd
PLX-Pulmponary Hypertension Begin PI (w ith United Therapeutics) study 2H-2012
IV Administration Formulation and Biodistribution Development 2012 +
Rheumatoid Arthritis Phase II Study 2014 +
IBD Phase II Study 2014 +
Stock Significance Scale: + of moderate importance; ++ higher level; +++ highly
Source: Maxim estimates
Exhibit 2. Pluristem’s Development Pipeline
Source: Pluristem
Maxim Group LLC 3
4. Pluristem Therapeutics, Inc. (PSTI)
Financials. In February 2011, Pluristem raised approximately $40 million from a public offering.
In June 2011, the company entered into an exclusive license agreement with United Therapeutics
for the use of our PLX cells to develop and commercialize a cell-based product for the treatment
of PAH. We estimate that the company has approximately $40 million in cash and cash assets
and will spend approximately $15 million in 2012.
The license agreement allows United exclusive worldwide licensing rights for the development
and commercialization of PLX cell-based product to treat PAH. Under the terms of the
agreement, Pluristem was paid $7 million upfront (in August 2011), and there may be up to $37.5
million in regulatory milestones along with reimbursement of up to $10 million for certain
expenses related to the possible establishment of a manufacturing facility in North America. In
addition, United will cover all development costs. Following commercialization of the product,
United will pay a royalty and agree to purchase commercial supplies of the developed product
from Pluristem at a specified margin over cost.
Intellectual property (IP). In 2007, Pluristem purchased patents covering the PluriX Bioreactor
System from the “Technion-Israel Institute of Technology” and the “Weizmann Institute of
Science,” replacing an earlier license – U.S. Patent 6,911,201, issued 6/28/05 – “Method of
producing undifferentiated hematopoietic stem cells using a stationary phase plug-flow
bioreactor.” The company currently has a total of 20 granted patents with 76 applications
pending for production, process, and therapeutic uses. The expiration dates of these patents, based
on filing dates, range from 2019 to 2030. We note that Pluristem can protect its product based on
both IP and several levels of trade secrets and know-how.
Pluristem’s Patent Portfolio:
A propriety expansion method for 3D Stromal Cells
Composition of matter claims on the cells
The therapeutic use of PLX cells for the treatment of a large variety of medical
conditions
Selection criteria for determination of cells suitable for administration.
Bull case. Bulls argue that Pluristem is a fast follower to a company like Aastrom Biosciences
(ASTM-$2.00-Buy Rated), which is now pursuing a pivotal program in critical limb ischemia.
The differences between the companies are significant in that Pluristem utilizes an allogeneic
approach with autologous-like properties. Immuno-privileged cells are derived from the unique
environment of the placenta. Cell vitality becomes a strategic advantage and translates in terms of
potency. In fact, there is a wealth of antidotal information that suggests young cells (placental)
are more potent and vibrant than autologous cells from older patients with co-morbidities. Given
the positive results that others in the space have seen (Aastrom), we believe that PLX cells should
do just as well – if not better. The company also has excellent pre-clinical and Phase I clinical
data that suggest PLX cells down-regulate local inflammation while creating neovascularization
of local tissue. We do not believe that cellular based integration of the host graft is required to
impact the disease (CLI), and that it is these localized paracrine mechanisms that are responsible
for the efficacy seen. Value creation tends to occur in small capitalized biotechnology companies
once proof of concept is established. Early proof of concept (POC) from the current Phase I
safety studies suggests the PLX cells are active. The next step is a larger Phase II/III study, which
could begin in 2H13 with POC data in early 2015. Given the unmet medical need in CLI and the
value of an off-the-shelf, allogeneic therapy, we believe Pluristem could see a significant rise in
valuation on positive Phase II interim data. The Phase II study for IC should start in 3Q12, with
POC data in early 2014.
Maxim Group LLC 4
5. Pluristem Therapeutics, Inc. (PSTI)
Bear case. Bears will point out that Pluristem is an early-stage stem cell company with nothing
but Phase I safety data. It is unknown if the PLX cells will show efficacy in any indication, much
less critical limb ischemia, due to its high hurdles. Proof of concept data is still two years away.
Bears likely also have concerns about the company’s small size and its ability to run Global (EU
and U.S.) programs. Given the prior failures [such as Sanofi-Aventis’ (SNA, $66.90, NR)
AMARIS trial in CLI] and the ambiguous results from Aastrom’s Phase II study, CLI hurdles
remain high. Phase II trials are not typically powered high enough to draw statistically valid
conclusions that can predict results in the larger and highly variable CLI population.
Our take. We believe that Pluristem is on the right track. We see the SWOT (strengths,
weaknesses, opportunities, and threats) as quite favorable for the company. We believe the 3D
bio-reactor is an exciting technology, as well as the cell source (maternal, placental derived).
Clinically, the stock needs time, but we believe that fundamental valuation is low given the
potential across multiple indications. We also believe that Pluristem will benefit as other
companies’ trials advance, creating a surrogate proof of concept for PSTI.
INVESTMENT SUMMARY AND CONCLUSION
We are initiating coverage of Pluristem
Pluristem: The SWOT Looks Good Therapeutics (PSTI) with a Buy Rating and
a 12-month target price of $8.00
PLURISTEM’S MANUFACTURING PROCESS
Exhibit 3.Schematic drawing of placenta as source of adherent stromal cells (ASC)
Source: www.edward.org/.../ graphics/images/es/17010.jpg
Maxim Group LLC 5
6. Pluristem Therapeutics, Inc. (PSTI)
Pluristem develops adherent stromal cells (ASC). The cells are (1) extracted from human
placentas received from schedule caesarean sections following childbirth. ASCs are stromal cells
that have surface markers resembling mesenchymal stem cells. The stem cells are obtained from
the maternal side of the placenta, rather than the fetal side, as the company believes the cells on
the maternal side have greater immunomodulatory capability. Placentas are (2) processed,
ensuring lack of contamination and removal of any immune cells, and expanded in two-
dimensional technology. The cells are then (3) cultured on a polystyrene fibrous matrix in a three-
dimensional reactor called the PluriX Bioreactor System, which replicates the natural
environment. This proprietary expansion method permits highly controlled expansion of large
quantities of cells. The expanded cells, referred to as Placental eXpanded cells or PLX, are
recovered from the culture, packaged, and (4) cryopreserved ready-to-use in liquid nitrogen for
later use. The entire process takes about eight weeks, yielding sufficient cells from one placenta
to treat about 10,000 patients (each dose is ~300 million cells). Among the differentiating factors
for Pluristem’s technology are the unique source of cells and the method of manufacturing.
Exhibit 4. PLX Cells’ Manufacturing Process
The cells are extracted from the maternal side of the placenta and ultimately grown in a 3D
bioreactor, designed to create a three-dimensional environment.
1 2
2D
3D
3
4
Like Athersys (ATHX-$1.50-Buy Rated), Osiris (OSIR, $9.33, NR), and Mesoblast (MBLTY-,
$29.95, Buy), Pluristem uses allogeneic cells that can be expanded in culture and used off-the-
shelf without tissue matching or immunosuppression. We believe Pluristem’s three-dimensional
bioreactor manufacturing technology is one of the company’s key differentiators, allowing it to
expand cells more efficiently under a fully controlled, more natural environment (3D versus 2D),
designed to be like the body itself. No external growth factors are used, resulting in a natural cell
growth cycle. The process is designed to keep the number of cell doublings below 25, keeping the
cells young. The process is protected by a U.S. patent (6,911,201). The company currently has a
total of 20 granted patents and about 80 applications pending for production, process, and
therapeutic uses. The system capacity is significant [a 75-liter bioreactor is equivalent to 20,000
tissue (2D) culture flasks]. The 3D bioreactor technology enables the change of the cells’
secretion to include different products from the placenta and control the secretion of anti-
inflammatory and pro-angiogenic cytokines dedicated to different indications. The company
employs a variety of QC measures that ensure consistency between batches across placentas.
Maxim Group LLC 6
7. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 5. Adherent Stromal Cells
Left: Microscopic visualization (x40) of placenta-derived ASCs at the 2D growth phase; Center:
Placenta-derived ASCs homing on a carrier in the 3D growth phase (electronic microscope); and
Right: The carrier
Source: Pluristem
Is the PLX Product Cost Effective? Pluristem has stated that, upon scale up, its cost of goods
(manufacturing only) will allow pharmaceutical margins to the product. Average dosing is
expected to be close to 300 million cells. Given the high efficiency of the 3D bioreactor, it’s
likely that one placenta could result in enough products for 10,000 patients.
Why PLX Cells? PLX cells are non-immunogenic; hence, they can be used for transplant
without donor matching. In addition, they appear to possess immunosuppressive properties and
can down-regulate production of pro-inflammatory cytokines and prevent proliferation of pro-
inflammatory cells (refer to Exhibit 9). In a mixed lymphocyte reaction (MLR) test of Pluristem’s
placental stem cells with blood from any donor, the stem cells neither attack nor get attacked by
donor cells. This implies that transplanted PLX cells are unlikely to cause graft vs. host disease or
be rejected. In fact, experimental data has demonstrated that, following administration, cells
responded to the local environment by secreting anti-inflammatory and pro-angiogenic cytokines
that down-regulate inflammatory markers, resulting in the formation of new capillaries. The PLX
cells have a life expectancy of just a few weeks and are then cleared from the body.
Mesenchymal Cells (MSC) General Characteristics: Phenotype. Positive markers: CD105,
CD73, CD90, and CD29 are highly expressed by PLX cells. Negative markers include
hematopoietic markers (CD45, CD34, CD19, CD14, and HLA-DR), and the endothelial marker
CD31. MHC class I: Intermediate levels of HLA major histocompatiility complex molecules.
HLA class II antigens: Do not express HLA class II antigens on the cell surface. Do not express
co-stimulatory molecules, which are typically expressed by antigen presenting cells (APCs) such
as CD80, CD86, and CD40.
Maxim Group LLC 7
8. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 6. Mechanism of Action
Endothelial cell proliferation
Inflammatory Environment
Decrease T cell
proliferation
Decrease
IL-10 INF-g inflammatory
Ischemic Environment
TNFa signals
IL-6
IDO IL-17A
TGFb IL-1b
HGF bFGF PLX
Ang-1
VEGF
HGF
PlGF
VEGF
bFGF Ang-1
Source: Pluristem
Exhibit 7. PLX Storage
PLX cells are stored in ready-to-use vials or cryogenic bags. The cells have at least one-year
stability. We also are aware that other allogeneic makers have had quality control problems in
the thawing of cells. We see Pluristem as reducing variations by supplying users with a dedicated
device (or equivalent methods). Cells are then kept at room temperature prior to administration
(up to 2 hours). Administration is with a standard needle.
Source: Pluristem
Maxim Group LLC 8
9. Pluristem Therapeutics, Inc. (PSTI)
PLX-PAD/CLI
Critical limb ischemia (CLI) is a devastating end-stage form of peripheral arterial disease (PAD)
– a vascular disease caused by obstruction of large arteries in the lower extremities, resulting in
progressive reduction of blood flow to the extremities (feet, legs, and hands). The patient suffers
skin ulcers and sores, as well as severe pain caused by ischemia, tissue loss, or ischemic
neuropathy. The Sage Group (a research think tank) estimates that there are more than 2.8
million CLI patients and as many as 18 million suffering from PAD in the United States, with an
incidence that is growing with an aging population. The condition remains a highly unmet
medical need; up to 40% of the CLI population are characterized as “no-option” patients. This
group is ineligible for further revascularization and may require amputation within the first year.
Major amputation can increase the wound size, cause difficulty in wound healing (due to age),
lead to the development of gangrene, increase mortality/morbidity, and much more, making it a
very unattractive alternative.
Exhibit 8. Dosing and Administration
Pluristem has demonstrated that local dosing for CLI offers significant advantages. The cells are
believed to exert their effect and get cleared in a few weeks post-dosing.
Source: Pluristem
Exhibit 9. PLX Cell Migration and Fate
Below is an example of biodistribution of PLX-PAD cells in Balb/C mice following intra-
muscular (IM) and intra-venous (IV).
24 hrs post injection 3-4 days post injection 6 days post injection
IM IV IM IV IM IV
Source: Pluristem
PLX cells in this study were stably infected with a lentiviral construct expressing the luciferase
gene under the CMV promoter. Two weeks post infection, 2x106 cells were injected into Balb/C
mice. Injected cells were monitored using the IVIS Lumina Imaging System. Results show that
PLX cells injected IM are retained only at the site of injection and persist for less than a week in
Balb/C mice. Cells injected intravenously traveled to the lungs and returned to the site of injury.
Maxim Group LLC 9
10. Pluristem Therapeutics, Inc. (PSTI)
Phase I safety and efficacy clinical trial results. Pluristem has conducted two Phase I studies,
which began enrolling patients in the summer of 2009. The studies were designed to evaluate the
safety of PLX cells and included accessing the patient’s immunological profile before and after
the local administration of the PLX cells. Efficacy parameters were assessed at five different
doses. These studies were performed in parallel in Europe and the United States.
Three-month follow-up data was reported for 21 patients across the two studies. The first group
in Germany consisted of 15 patients (10 males and 5 females, ages 40-80) undergoing three
therapeutic courses. The second group in the United States consisted of 6 all male patients (ages
51-70) undergoing a single dose.
The patients were all qualified as afflicted with CLI in two open-label, dose-escalation, Phase I
studies conducted at Duke University Medical Center, Stanford University Medical Center, the
Center for Therapeutic Angiogenesis in Birmingham, Alabama, and St. Franziskus Hospital,
supported by the Charité - University Medicine Berlin.
The results: safety endpoints
No significant unfavorable effects due to the administration of PLX cells were reported.
One major amputation was reported in the PLX (PAD) high-dose group and was
determined to be unrelated to the administration of PLX cells. This case represented 4.7%
of all patients treated in this study and compares to historical data that indicates a 35-40%
major amputation rate in CLI patients per year (but statistics in such a small study have
little meaning). The study showed 85% Amputation Free Survival (AFS) after 12 month.
None of the patients developed an anti-HLA antibody response and no specific anti-PLX
HLA class-I or class-II antibodies were detected in the patients tested. This indicates
PLX-PAD cells are immune competent and can be given to the patient “off-the-shelf”
without a need for matching.
Immunological profiles demonstrated a rise in anti-inflammatory and angiogenic protein
secretion post-dosing, suggesting PLX-PAD cells function to deliver appropriate
therapeutic proteins in response to the ischemic, inflammatory process of CLI.
The results: efficacy parameters
Across all doses, 13 patients (62%) demonstrated an improvement in the ankle-brachial
index (ABI), a measure of blood flow. Eleven patients receiving the intermediate dose
demonstrated a statistically significant improvement from baseline (P=0.033).
Across all doses, 13 patients (62%) demonstrated an improvement in the Transcutaneous
Oxygen Pressure (TcPO2), a measure of tissue oxygenation. This improvement was
statistically significant in the European study where the distribution of injections was
higher (P=0.05).
Across all doses, 17 patients (81%) demonstrated an improvement in ABI, TBI, or
TcPO2.
Across all doses, 17 patients (81%) demonstrated a statistically significant improvement
from baseline in the King’s College Score for Quality of Life (QoL) assessment (P<
0.001). Eleven patients receiving the intermediate doses demonstrated the best
improvement from baseline in the QoL score (P< 0.001).
Across all doses, 15 patients (71%) demonstrated an improvement from baseline in the
reduction of pain as measured by using the VAS. This improvement was statistically
significant in the European study where the distribution of injections was higher
(P=0.013).
Maxim Group LLC 10
11. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 10. Individual Results – Proof of Concept?
Individual patient examples suggest cells impact the progression of disease.
Source: Pluristem
Exhibit 11. Allo-Immunogenicity in Vitro
None of the patients showed T-cell presentation to PLX cells at treatment. None of the patients
developed T-cell sensitization to PLX after therapy (1-4 weeks). Specific cellular sensitization to
PLX cells was not detected.
IFN-g ELISPOT w ith addition of PLX-PAD cells
no alloresponse donor
1-7
to allo-PLX-PAD (resp.)
responder responder responder responder responder
+
medium
+
allo- APC
+ +
allo-PLX-1M allo-PLX-1M
+
allo-PLX-1M
Read out:
(negative (positive (1:5) (1:10) (1:50) cytokine release
control) control) (ELISPOT)
In vitro: PLX-PAD cells do not trigger cell-mediated Th1-like cells by allogeneic
non-HLA matched T cells in normal donors
Source: Pluristem
Maxim Group LLC 11
12. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 12. Immunodepression
PLX injection causes a transient-dose dependent immunodepression. There was no
immunosuppression in injected patients (immunoparalysis).
Source: Pluristem
Immunological conclusions. The trials demonstrated that there were no PLX-PAD related
serious adverse events. No patients developed an anti-HLA antibody response and no specific
anti-PLX-HLA class-I or class-II antibodies were detected in the tested patients. There was no
alloreactive T cell response to PLX cells. Evidence for systemic immunomodulation was
demonstrated with transient reduction in the expression of HLA-DR/CD14+. There was no severe
immunosuppression in injected patients (immunoparalysis). In vivo data confirmed the in vitro
data.
Exhibit 13. Angiogenic Growth Factors
VEGF
bFGF
PlGF
HGF
IL-6
Source: medicineworld.org/.../ angiogenesis-9421.jpg
Maxim Group LLC 12
13. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 14. Secretion of Angiogenic Factors
Secretion of VEGF by PLX under normoxia (green) and hypoxia: Different placenta-derived
adherent cells were cultured for 24 hours under normal or hypoxic conditions.
Source: Pluristem
Exhibit 15. HUVEC Proliferation and PlGF Secretion
70
,000
500
60
,000
HUVEC
50
,000 HUVEC+ PLX 400
No of Cells
PlGF
PlGF (pg/ml)
40
,000
300
30
,000
200
20
,000
100
10
,000
0 0
PLX HUVEC HUVEC+PLX HUVEC HUVEC+PLX
HUVEC 10000
, HUVEC ,50000
Source: Pluristem
What do the results mean? The results suggest that PLX cells are safe and show an efficacy
signal. The trials pave the way for a larger Phase II proof-of-concept study. The company now
intends to pursue a larger study with both the U.S. Food and Drug Administration (FDA) and
European Medicines Agency (EMA). We know that active discussions are ongoing to determine
the optimal study design. We also see the potential for the company to design a Phase II study
that can be expanded to a registrational study. As such, Pluristem can try to close the gap on the
competitive field with Aastrom (now in a pivotal trial in CLI).
What kind of size and power is needed for the Phase II program? We know that the phase II
trial in IC will be in 132 patients. For CLI, we expect a larger trial that can be expanded to a
pivotal one. If the CLI study generates positive results, we would look for the expansion to a
registrational design (n=600) pivotal trial.
Maxim Group LLC 13
14. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 16. CLI Phase I/II Approved by the FDA and EMA
Prior data suggests that PLX-PAD is safe, improves quality of life, and is a potentially effective
treatment for limb ischemia. Phase I/II results demonstrated an 85% AFS (amputation-free
survival rate). The planned next-generation trial (n=132) is approved by the FDA, and the
company is planning to pursue a SPA (special protocol assessment) for the pivotal trial in CLI
and Buerger’s disease.
Source: Pluristem
Financial modeling assumptions – IC & CLI. According to the company, the phase II IC trial
(n=132) should begin soon (2H12), and we expect the start of the PII/III trial in 1H13, depending
on how quickly the new manufacturing facility is operational and validated. If this is the case, we
could see a product approval and launch by 2016. Based on the cost of other biologics and an
understanding of the cost saving of preventing some of the downstream complications related to
CLI, we would assume pricing in the $30,000 range.
Exhibit 17. CLI Market Model
U.S. PAD, CLI, Target Market 2012 2013 2014 2015 2016 2017 2018
14 MLN "PAD " at baseline '000: 14,235 14,455 14,669 14,878 15,082 15,280 15,473
Market Size Growth (Annual) 1.5% 1.5% 1.4% 1.4% 1.3% 1.3%
% Progress to CLI 7000% 7% 7% 7% 7% 7% 7%
1 MLN CLI at baseline 996,417 1,011,821 1,026,843 1,041,485 1,055,747 1,048,371 1,083,143
% with No Options 50% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
CLI Patients with No Medical Options 498,208 505,910 513,422 520,742 527,874 524,185 541,572
% with Tissue Loss 50% 50% 50% 50% 50% 50% 50%
CLI Patients with Tissue Loss (subset of No Options) 249,104 252,955 256,711 260,371 263,937 262,093 270,786
% viable for Therapy (insurance, co-morbidities) et al 50% 50% 50% 50% 50% 50% 50%
CLI Target Patient Population 124,552 126,478 128,355 130,186 131,968 131,046 135,393
Market Share Penetration (PLX) 0% 0.0% 0% 0% 1% 2% 10%
Number of Procedures 0 0 0 0 994 13,392 25,053
Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Price per Procedure $ 30,036 30,041 30,053 30,065 $ 30,077 30,089 $ 30,101
Price Growth 0% 0% 0% 0% 0% 0%
U.S. Annual Sales ('000) $ - $ - $ - $ - $ 29,888 $ 402,961 $ 754,114
% Growth 1248% 87%
Source: Maxim
Maxim Group LLC 14
15. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 18.Other Possible Indications: The Field Could Be Unlimited
Source: Pluristem
Exhibit 19. PLX’s Therapeutic Effect
PLX’s therapeutic effect relates to the cell’s capability to respond to environmental signals within
the patient’s body by secretion of different proteins. PLX cell do not engraft and gradually
disappear from the patient’s body within a few weeks
Source: Maxim
On June 19, 2011, Pluristem entered into an exclusive license agreement with United
Therapeutics for the use of its PLX cells to develop and commercialize a cell-based product for
the treatment of pulmonary hypertension (PAH). The license agreement provides that United
Therapeutics will receive exclusive worldwide license rights for the development and
commercialization of Pluristem’s PLX cell-based product to treat PAH.
Maxim Group LLC 15
16. Pluristem Therapeutics, Inc. (PSTI)
The license agreement provides for the following consideration payable to Pluristem: (1) an
upfront payment of $7M (paid in August 2011, which includes a $5M non-refundable upfront
payment and $2M refundable advance payment on the development); (2) up to $37.5M upon
reaching certain regulatory milestones with respect to the development of a product to treat PAH;
(3) reimbursement of up to $10M of certain company expenses if the company establishes a
manufacturing facility in North America upon meeting certain milestones; (4) reimbursement of
all costs in connection with the development of the product; and (5) following commercialization
of the product, royalties and the purchase of commercial supplies of the developed product from
the company at a specified margin over the company’s cost.
Exhibit 20. PSTI-UTHR Economic Collaboration
Source: Pluristem
Exhibit 21. Case Study: Pluristem announced earlier this year that its PLX cells had saved the
life of a seven year-old girl suffering from aplastic bone marrow and who had undergone two
failed bone marrow transplants. With her condition rapidly deteriorating her doctors injected
Pluristem's PLX cells intramuscularly, following which the girl experienced a reversal of her
condition with a significant increase in her red blood cells, white blood cells and platelets.
Source: Pluristem
Maxim Group LLC 16
17. Pluristem Therapeutics, Inc. (PSTI)
As a result of this experience, Pluristem announced that it is now preparing to apply to the U.S.
Food and Drug Administration for approval of its PLacentaleXpanded (PLX) cells for the
treatment of aplastic bone marrow as an Orphan Drug. Gaining Orphan Drug status approval is
part of Pluristem's strategy for penetrating the bone marrow recovery market, starting with
treatment of aplastic anemia, a disease in which bone marrow greatly decreases or stops
production of blood cells and strikes five to ten people in every million. Orphan Drug Status in
the U.S. helps the company to accelerate the path to full FDA approval. Pluristem is also planning
to file for a similar designation in Europe and global territories.
A note on Orphan status: Gaining Orphan Drug Status carries multiple potential benefits,
including the possibility of an expedited regulatory process, availability of grant money, certain
tax credits and seven years of market exclusivity. In August 2011, Pluristem successfully applied
for, and received, Orphan Drug Status from the FDA for its PLX cell therapy in the treatment of
Buerger's disease.
Exhibit 22. Product Differentiation Message: It’s important for us to understand that Pluristem
sees its PLX allogeneic cells as being able to be modified (based on various manufacturing
criteria) and, as such, translate into multiple products in multiple indications. The company
presents this in the graphic below.
Source: Pluristem
Maxim Group LLC 17
18. Pluristem Therapeutics, Inc. (PSTI)
VALUATION
We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and model
PSTI out to 2018. We only assume success in CLI and have not included milestone or deal
revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number
of $3.30, which we discount at 30% (large) and equally weight the three metrics to derive an
$8.00 price target.
Exhibit 23. FCF Model: Assume a 30% Discount Factor and Include Future CLI Revenues
Average $ 7.8
Price Target $ 9.9
Year 2017
DCF Valuation Using FCFF (mln):
units (millions - $) 2012E 2013E 2014E 2015E 2016E 2017E 2018E
EBIT (14,088) (18,496) (19,238) (15,348) 2,714 97,235 200,574
Tax Rate 0% 0% 0% 10% 16% 23% 26%
EBIT(1-t) (14,088) (18,496) (19,238) (13,745) 2,275 74,977 148,380
- Cap Expenditures (996) - - - - - -
+ Depreciation 393 432 476 523 575 633 696
- Change in NWC
Free Cash Flow to Firm (FCFF) (12,699) (18,064) (18,762) (13,222) 2,851 75,610 149,076
PV of FCFF (47,152) (51,592) (41,221) (22,345) 3,706 75,610 114,674
Discount Rate 30%
Long Term Growth Rate 1%
Terminal Cash Flow 519,197
Terminal Value YE2010 399,382
NPV 431,063
NPV-Debt -
Shares out (thousands) 1Q-12E 43,713 March 2012
NPV Per Share 9.9
Source: Maxim estimates
Source: Maxim Group
Exhibit 24. Discounted EPS Model: Based on 2018 EPS of $3.30, a PE of 15x, and a 30%
Discount Factor
Current Year 2012 Discount Rate and Earnings Multiple Varies, Year is Constant
Year of EPS 2018 2018 EPS
Earnings Multiple 15 10.2 20% 25% 30% 35% 40% 45%
Discount Factor 30% 10 $11.04 $8.64 $6.83 $5.45 $4.38 $ 3.55
Selected Year EPS $ 3.30 15 $16.56 $12.97 $10.25 $8.17 $6.57 $ 5.32
NPV $ 10.2 20 $22.09 $17.29 $13.66 $10.89 $8.76 $ 7.10
Source: Maxim estimates Earnings 25 $27.61 $21.61 $17.08 $13.62 $10.95 $ 8.87
PlusNet Cash Per Share Multiple 30 $33.13 $25.93 $20.49 $16.34 $13.14 $ 10.64
Share Price $ 10.25 35 $38.65 $30.25 $23.91 $19.07 $15.33 $ 12.42
40 $44.17 $34.58 $27.33 $21.79 $17.52 $ 14.19
45 $49.69 $38.90 $30.74 $24.51 $19.71 $ 15.97
Source: Maxim Group
Maxim Group LLC 18
19. Pluristem Therapeutics, Inc. (PSTI)
Exhibit 25. Sum of the Parts
Pluristem Sum of the Parts LT Gr Discount Rate Yrs. to Mkt % Success Peak Sales MM's Term Val
PLX-CLI / IC / Buerger's Disease 1% 30% 5 65% $500 $1,724
NPV $2.07
PLX-Orthopedic 1% 30% 7 0% $100 $345
NPV $0.00
PLX-RA 1% 30% 7 0% $100 $345
NPV $0.00
PLX-Inflammatory Bowel Disease 1% 30% 7 0% $100 $345
NPV $0.00
PLX-Stroke 1% 30% 7 0% $100 $345
NPV $0.00
PLX-BMT / GvHS /ARS 1% 30% 7 50% $100 $345
NPV $0.19
PLX-Multiple Sclerosis 1% 30% 9 0% $100 $345
NPV $0.00
Grants 2% 30% 0 100% $2 $7
NPV $0.05
Net Margin 30%
MM Shrs OS 44
Total $2
Net Cash/Shr $0.88
Grand Total $3.19
Source: Maxim estimates
Exhibit 26. Comparable Companies vs. PSTI
Market Cap Cash ($MM) Enterprise R&D ($MM)
Com pany Nam e Ticker Share Price
($MM) Q1-2012 Value ($MM) Q2-2010
Athersys ATHX $1.57 $46 $10 $36
Aastrom ASTM $1.97 $76 $27 $49
Advanced Cell Technology ACTC $0.08 $166 $10 $156
Bioheart BHRT $0.03 $4 $0 $4
CytoMedix CMXI $1.35 $98 $8 $90
Cytori Therapeutics CYTX $2.64 $144 $35 $109
Geron GERN $1.65 $220 $10 $210
Mesoblast MBLTY-5 $30.64 $1,743 $240 $1,503
Neostem NBS $0.66 $91 $5 $91
Neuralstem CUR $0.94 $49 $5 $44
Opexa OPXA $0.75 $16 $5 $11
Osiris Therapeutics OSIR $9.49 $320 $42 $278
Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119
Stem Cells STEM $1.40 $39 $11 $28
Average (s) $4.03 $226 $32 $195
Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119
Share price as of 7.19.2012 Source: Maxim and Thomson Reuters
The competitive landscape. For the most part, the regenerative medicine side of the stem cell
space is a micro-capitalized group of companies with early-stage products. Overall, the space is
undercapitalized, with a few noted exceptions: This includes Australian stem cell company
Mesoblast, with $240 million on the balance sheet and multiple late-stage programs. Most of the
companies on this list have Phase I programs or are just beginning Phase II. The noted exceptions
include Aastrom (now in Phase III), Osiris (failed prior Phase III trials in GvHD and currently in
a Phase III trial in Crohn’s disease), Mesoblast (about to begin Phase III trials in cardiac
indications), and Baxter (BAX, $54.96, NR), also in a Phase III cell therapy trial for angina, or
heart pain.
Maxim Group LLC 19
20. Pluristem Therapeutics, Inc. (PSTI)
Mesoblast is highly valued versus the pack, likely a result of the Cephalon partnership deal. Note
that Cephalon has since been acquired by Teva Pharmaceuticals (TEVA, $40.49, NR). In 2010,
Cephalon executed a partnership with Mesoblast, in which the company received $130 million
from Cephalon for certain therapy rights. In addition, Cephalon agreed to pay for all the clinical
trials while Mesoblast retains the rights to manufacturing commercial supplies of the stem-cell
products to be marketed by Cephalon.
Osiris has a partnership with Genzyme, which has been acquired by Sanofi-Aventis. Under the
terms of the original agreement, Genzyme made a $130 million up-front payment (two in
sequence). Osiris also had the potential to receive a total of up to $1.25 billion in milestone
payments from Genzyme. The status of the partnership is currently in dispute.
We believe the stem cell space holds great potential and is highly undervalued, and that we could
see valuations rise as some of the companies commercialize products over the next few years. We
believe Pluristem could be one of the leaders.
FUNDAMENTAL RISKS
Data risk. The outcome of current clinical trials in critical limb ischemia and other indications
could fail to demonstrate efficacy or could show a safety (toxicity) risk, halting clinical
development.
Developmental risk. Successfully managing multiple clinical trials is a risk. Trials can take
longer than expected to enroll. Trial costs often exceed budgets. Standards of care can change,
rendering a great trial design obsolete.
Regulatory risk. Pluristem must be able to obtain the approval of the FDA and other external
bodies (EMA) before commercial sales of the product candidates commence in the United States.
Solid trial results are critical, but so is proper filing and interaction with the regulatory agencies
such as the FDA, EMA, or Koseisho (Japan).
Commercial risk. Pluristem has no commercial infrastructure and will need to develop one or
partner prior to commercialization.
Competitive landscape. Pluristem is not alone its current indications in critical limb ischemia or
PAD.
IP risk. Pluristem has a strong patent portfolio but still faces many challenges from a wide range
of competitors.
Financing risk. Pluristem is not yet a profitable company. As such, it will need to raise
additional capital or partner to complete clinical trials and commercialize its product portfolio.
Maxim Group LLC 20
