Biotech Firm Sets Sights On Bigger Investors
Advanced Cell Technology is preparing to take a leap of faith in its own science.
The Marlborough-based biotech company wants to escape penny stock status, and it hopes initial results from its human trial to treat diseases of the eye using cells derived from human embryonic stem cells will help.
ACT is making a play for the Nasdaq through what some investors deem a risky move: a reverse stock split.
An affirmative vote from shareholders later this month would authorize the company to consolidate its nearly 2 billion shares, thereby raising the price of each share proportionally. The move could help catapult ACT onto the world's second-largest stock exchange and attract larger investors and more capital to finance regulatory trials.
ACT brings in some revenue from licensing fees, filings show, but it has lost $213.7 million since 2007. Losses have increased as its trials have ramped up over the past year.
ACT's stock trades on the OTC Bulletin Board at around 9 cents. The company needs to attain and maintain a minimum share price of $1 to get on - and stay on - the Nasdaq.
CEO Gary Rabin believes it's time to build on that momentum.
"We've finally gotten to this point now where the company has these very promising, but of course early, results," Rabin said in an interview. "And we want to build off of that as a springboard to transition from a company that was only investable from a retail perspective to something that is more institutionally investable."
But reverse splits can be risky and generally indicate a stock will underperform in the near term. A 2008 study by faculty at Emory University of 1,600 companies that reverse split their stocks found that they underperformed the market by 50 percent for three years.
Future trial results will also be crucial for the company if it gets to the Nasdaq, where a higher stock price means there is much farther to fall.
The Science
ACT is developing treatments for Stargardt's macular dystrophy and dry age-related macular degeneration, which deteriorate layers of cells in the back of the eye. ACT derives replacement cells, known as retinal pigment epithelium (RPE) cells, from embryonic stem cells.
The cells are injected within a liquid medium into the eye, where the RPE cells repopulate the diminished cell layer.
That's the idea, anyway. And initial results have been positive.
Two legally blind patients experienced increased clearness of vision, or visual acuity, after they received injections into their eyes, according to the medical journal The Lancet, which published initial results in January. ACT researchers were excited to find that the RPE cells were locating the proper place in the eye on which to engraft themselves, Rabin said.
Getting those cells to locate to the right spot in the eye is no easy task, said Joseph Laning, senior director of the Massachusetts Stem Cell Bank and Registry at UMass Medical School in Worcester.
"Most people have the idea that you just make stem cells and throw them in and they'll find the hurt tissue," Laning said.
Laning is pulling for ACT. He said that for the field of stem cell medicine to take off, someone needs to get through trials with a commercial treatment from embryonic stem cells.
"A lot of the road isn't paved," he said. "What we really need, I think, is someone to make it to the end and actually get a therapy out there."
The Challenges Ahead
Rabin acknowledges there are still trials to get through before the company can think about scaling up and commercializing a treatment. But he told investors at a recent conference that an eventual commercial treatment would be scalable and could likely be performed without an overnight stay by the patient. Doses would be manufactured at ACT's Marlborough facility, which has about 30 employees.
ACT also faces challenges in attracting larger investors. For one, it trades on the bulletin board, which contains penny stocks many institutional investors aren't interested in.
"As the company stands today, it's really not investable from an institutional investor perspective because of the significant number of shares and the fact that it's a bulletin board stock," Rabin said.
ACT has nearly 2 billion outstanding shares of common stock. Rabin attributed that high number to "highly dilutive financings" the company has done in the past. The company also reached a legal settlement in December that required it to issue 240.5 million additional shares.
As if escaping penny stock status is not hard enough, doing it in biotech, and especially through stem cell-based therapies, is even harder.
Many larger health care investors view the field of embryonic stem cell treatment as an early-stage industry, said Joseph Pantginis, senior biotech analyst for Roth Capital Partners.
ACT is only the second company in history to receive U.S. Food and Drug Administration approval to commence a human trial using the cells. The first, California-based Geron Corp., abandoned its stem cell business in 2011.
"It all comes down to clinical data," Pantginis said. "When I look at the stem cell space, from both the scientific and medical community and also the investment community, I think it's really still viewed as a science experiment."
He could not comment on ACT specifically because he does not cover them.
That's another challenge for OTC Bulletin Board companies. They get little attention from analysts.
Rabin said there are no guarantees of success, but he said he believes ACT could be a target for bigger investors based on conversations he has had with a number of them.
Another benefit of a Nasdaq listing would be less stock volatility, Rabin said.
ACT's share price spiked to 15 cents in January when The Lancet detailed its initial trial results. But it quickly retreated back to its current level.
Rabin thinks it would have been a different story if ACT had been trading on the Nasdaq at the time of the announcement.
"I think the initial spike wouldn't have been so high, but I don't think we would have seen the selloff like this," he said. "You wouldn't see this sort of volatility."
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