Saturday, December 18, 2010

Private Cord Blood Banking Companies? Risks and Rewards of Investing

This is an equity investment focused article. It is adapted from a previous article which was intended to educate potential umbilical cord blood donors. However, the key moot points are the same. This article focuses on the investment proposition that private cord blood banking companies offer to a long term investors. Publicly listed companies like Cryo Save (UK listing), Cryo Cell International, Lifebank Corp, Cord Blood America Inc are active in this space. As are privately listed companies such as Cord Blood Registry (CBR Systems) and Virgin Health Bank (UK)

Superficially, they are great investments. They offer a long term recurring revenue business model, are highly cash generative and profitable and -via potential medical technological advances-offer significant upside possibilities to their top line growth prospects.

However, I think it fair to conclude that there is a significant risk to these assumptions. Particularly, as they depend upon future developments rather than current technologies. Future cord blood stem cell research developments may not necessarily be advantageous to their business models.

Let's look at the issues.


Therapies, Cures and Benefits of Cord Blood Banking

Cord blood is rich in the type of stem cells that make it a viable substitute for bone marrow transplantation. According to Broxmeyer (2010) the range of treatments that can be done with cord blood include many of the same variety as are treated with bone marrow and this includes acute and chronic myeloid and lymphoid leukemias, myelodysplastic, a variety of solid tumors.

Furthermore, ongoing research into stem cell therapies is raising hope for a number of future treatments.

There are two main types of stem cells which are richly stored in umbilical cord blood.

Mesenchymal Stem Cells

Mesenchymal stem cells, or MSCs, according to CELS (2007) can differentiate into cells controlling growth in bone,muscle, fat, and tendon. All of which make them ideal for use in tissue engineering. In fact, there are a number of products on the market or in trials which use MSCs for things like wound repair,cosmetics,orthopaedics, cardiac and immuno-modulatory solutions.

They offer the opportunity for future therapies. However, according to Prockop (2009), they are-despite intensive research and observation- not the best understood of stem cells. Scientists have a limited understanding of how they function and how they help tissue repair. This throws some doubt onto their future usage.

Also, MSCs might not be the only source of cells for this type of therapy: Prockop writes
"endothelial cells, or alternatively activated macrophages, mast cells, or dendritic cells may produce the same or greater therapeutic benefits as MSCs. It is also possible that therapies with the proteins or cytokines produced by activated MSCs or related cells may be more practical than cell therapies. However, they may be singularly powerful therapeutic agents. We cannot exclude the possibility that MSCs may have a unique ability to monitor the microenvironment of injured tissues and respond appropriately."
This suggests a degree of uncertainty over the usage of MSCs and therefore the importance of storing it in cord blood.

Haematopoietic Stem Cells

Haematopoietic stem cells, or HSCs, are more immediately useful. There have been over 20,000 cord blood transplants treatments done. However, according to CELS (2007) one of the problems is that cord blood is low in volume (75-100ml) and therefore has a limited number of HSC.

 "the use of cord blood HSC is therefore limited to children under 40kg. This means that currently in private banks the success rates for older children and young adults will be low."

This is backed up by Chao et al (2004) and by Hofmeister et al (2007):
"Owing to a limited number of stem cells available in a typical UCB unit and delayed engraftment when compared to marrow or mobilized peripheral blood, the prime focus for this therapy continues to be the pediatric patient. Nevertheless this form of transplant is emerging as a viable alternative in adults, provided there are sufficient cells in the UCB unit and the patient is a small to average-sized adult."
HSC transplants are limited to small adults and children. Moreover, according to CELS (2007) the chance of having to use it is small. They estimate that the probability of a child requiring cord blood for a haematological condition is as low as 1 in 200,000.

The challenge is for scientists to expand the small number of cord blood HSC in the lab, so that they could be used to treat adults. However, as Broxmeyer (2010) notes:

"Investigators have been trying to ex-vivo expand human HSCs for years, but have not succeeded in a clinically meaningful way.. ...Expansion of human HSCs ex-vivo.. ..remains a fertile, if not yet realistically accomplished, area of investigation."
Another solution, could be dual cord transplants, which could reduce the comparative advantage of private cord blood banking. Hofmeister et al (2007) note that alongside clinical trials for HSC expansion, a number of other clinical trials are taking place in order to support the use of dual cord blood units. The outcome is unclear
"This is occurring at the same time that other clinical trials exploring the use of dual UCB units as the transplant source. Although dual cord transplants may supplant our need for HSC expansion, it remains to be determined if this approach will minimize relapse and optimize immune reconstitution as compared to that seen after a living related or unrelated donor transplant. Until this is clarified, expansion studies should continue"
Private or Public Cord Blood Banking?

According to sources, the benefits of private cord blood banking, although hugely exciting, are largely in the future and contain a degree of uncertainty. If technology advances to offer HSC ex vivo expansion and extended MSC therapy then private cord blood banking will be the winner.

However, if other sources of stem cells (aside from cord blood) turn out to be the key to developing therapies than this industry faces severe structural challenges. Similarly, if dual cord transplants (in order to achieve HSC expansion) are the future than the benefits of private cord blood banking are challenged.

The consequencies for the publicly lisated private cord blood companies are obvious.





Sources:

Broxmeyer, H.E., "Cord blood hematopoietic stem cell transplantation" (May 26, 2010), StemBook, ed. The Stem Cell Research Community, StemBook

CELS Business Services Ltd "Expert's Report:Cryo-Save Group NV" Cryo-Save Website (2007)

Chao, Emerson,Weinberg "Stem Cell Transplantation (Cord Blood Transplants) Haematology page 354-359, (2004)

Prockop, Dawin J. " Repair of Tissues by Adult Stem/Progenitor Cells (MSCs):Contoversies,Myths and" American Society of Gene Therapy (2007)

Hofmeister, CC. et al "Ex vivo expansion of umbilical cord blood stem cells for transplantation: growing knowledge from the hematopoietic niche" Bone Marrow Transplantation (2007)