Hemostemix Transforming Limbs to Life

There are some incredible deals in biotech that have been overlooked by investors. Hemostemix (HMTXF: OTCMKTS) has award-winning technology in stem cell therapy and is targeting some of the largest indications in regenerative medicine, but a litigation cloud has masked the true value of their platform technology which houses a number of late-stage assets. Since 2020 the company has been fighting for its survival and for now, the coast really does look clear. First, it had to deal with Aspire and enforceability provisions related to its licensing agreement. Then it had to fight a secondary lawsuit to get access to its data that the bad actor was essentially holding out for ransom. Instead of getting into the nitty-gritty of why the company ultimately prevailed, suffice it to say they won in April 2022, which means a very large value inflection point is on the horizon. Phase 3 ready assets in critical limb ischemia are worth many multiples of its current market capitalization of $14 million.

Regenerative Medicine Market

The regenerative medicine market is under constant expansion. Most of the focus was on cancer therapeutics but that has since expanded greatly. Other degenerative diseases like diabetes and heart disease have seen growing uses for stem cell therapy. There are also lung disorders like COPD and vascular dementia. The premier asset purchase in this field of research was the Bristol Myers Squibb (BMY: NYSE) acquisition of MyoKardia for $13.1 billion in cash in October 2020. In heart failure, their lead candidate mavacamten showed 63% improved on NYHA heart disease classification and that 27% improved by two classesMyoKardia was not alone in essentially reversing heart disease. Dr, Kit Arom published a 41 patient study in the Asian Cardiovascular and Thoracic Annals. These were end-stage patients that were essentially transplant candidates, which means they were much sicker than those being treated for coronary artery bypass. On average 180 days after injection, these patients improved from an NYHA mean score of 2.69 to 1.63 (p<.05) in the Dilated Cardiomyopathy group. Their NYHA mean score was 3.0 and improved to 1.94 (p<.05) in the Ischemic Cardiomyopathy group. This study rivaled MyoKardia in results which means the valuation of this indication alone should be at a discount to the $13.1 billion. The only measurable difference was that MyoKardia had phase 3 results versus Hemostemix phase 2 results. A 98% market discount for a more powerful and safer therapy means that Hemostemix represents amazing value.

Value of Limb Preservation

A subset within the regenerative medicine market is Critical Limb Ischemia (CLI). This is a large market whereby 5 million limbs are amputated every year. Having a treatment that reduces the number of amputations translates into a big market. With many of these degenerative diseases, the flow of oxygen to the limbs over time gets fainter and fainter. As the arterials narrow so does the flow of oxygen and eventually, the limbs are unable to grow new vasculature and then the tissue starts to rot on the person. Stem cell therapy is known to address this indication by stimulating arterial growth. Hemostemix lead drug candidate APC-01 has completed 3 clinical trials and the last one was a 4.5-year follow-up on CLI. This showed healing in 83% of ulcers over a prolonged period of time.

Litigation Clouds Platform Potential

Hemostemix owns 91 patents across five patent families. Since its inception in 2006, the company raised $55 million in capital. With so many possible approvals in a number of indications, the IP is extremely undervalued on a cost of research basis when compared to the existing market cap of $14 million. The litigation has clearly clouded the market potential of the science. In 2017 an unethical management team was able to take control of the company with the idea that they were going to legally snatch the technology by creating a structure that would put the intellectual property in jeopardy. They moved it from Israel into their FL corporation. Then they crafted a loan to own that was secured by the worldwide licensing of the technology. They were planning on defaulting on the loan and allowing their FL corporation to end up with the intellectual property essentially stripping it away from shareholders. Fortunately, the co-founder of the company stepped in and challenged these tactics and prevailed on April 12, 2022.

Financial Analysis

Dilution is always a concern in biotech companies, but Hemostemix does have a number of warrants at the $.20 and $.40 strike price from recent financings. Should the volume and stock price rise, this could be a non-dilutive funding event. They have close to 51 million warrants at a $.5875 average strike price. They have 125 million shares fully diluted. They have no active clinical trial there is no established burn rate so it’s hard to characterize what it is. Based on the last quarterly report they have approximately $400K of quarterly burn now that the litigation is solved. On February 28, 2022 they did an offering at $.14 and raised approximately $1.20 million. They also raised another $2.75 million at $.175. Its reasonable to conclude that they have at least $3.6 million in cash on hand and the coming catalysts could create enough liquidity to encourage the warrant exercise and help fund the expected trials.

Catalysts

The phase 2 CLI readout is due in the coming month. Results are expected to be very good and allow for a pivotal phase 3 which should have an impact on valuation. Phase 2 assets for this indication could easily hit the $250 million plus price level. They are also going after other indications of type 1 diabetes and an orphan designation for the spinal cord treatment. The upcoming phase 2 was 3 years in the making so there could be a run closer to the announcement date.

Summary

For biotech investors, Hemostemix checks all the boxes. The management is solid and battle-tested both legally and on the regulatory front with 3 completed clinical trials to their credit. The technology platform works and is very robust with over 500 treatments since inception and plans to expand to 7 more indications. Topline data analysis from a phase 2 trial is expected this summer and could be a boon to the stock price as results confirm the success of the autologous stem cell platform technology. The company also has enough funding to reach another major milestone, but there is the potential for dilution as they look to raise another $5.0 million. Regardless of how dilutive the next round of financing may be, the company is grossly undervalued on both the CLI indication and heart disease. They also have other indications that could create enormous upside in terms of shareholder equity.

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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.