Pluristem Therapeutics, Inc.

Initiating Report

A leading developer of placenta-based cell therapy products

| October 1, 2014

Investment Summary
Key data
Sector
Rating
Target Price
Current Market Price
52 Week Low/52 Week High

Biotechnology
BUY
$21.00
$2.86
$2.58/$4.63

Nasdaq Composite Index

4,555

3-mth avg. volume (in 000s)

108.1

Market Cap (in mn)

$198.1

Shares Outstanding (in mn)

69.3

Employees

165

Debt

Patents Granted

30

Patents Pending

100

Source: Yahoo Finance as of October 1, 2014 and

publicly available company documents

Company Description: Pluristem

Therapeutics Inc. is a leading developer
of placenta-based cell therapies. The
Company's patented PLX (PLacental
eXpanded) cells are a drug delivery
platform that releases a cocktail of
therapeutic proteins in response to local
and
systemic
inflammatory
and
ischemic diseases. These diseases
collectively cost the U.S. healthcare
system tens of billions of dollars. PLX
cells are grown using the Company's
proprietary 3D expansion technology
and are an "off-the-shelf" product that
requires no tissue matching prior to
administration. Pluristem has a strong
intellectual property position, Companyowned, GMP certified manufacturing
and
research
facilities,
strategic
relationships
with
pharmaceutical
companies
and
major
research
institutions,
and
a
seasoned
management team.

We initiate coverage of Pluristem Therapeutics, Inc. (NASDAQ: PSTI) with a

BUY rating and a $21.00/share fair value estimate, based on our Discounted
Cash Flow valuation methodology. Accordingly, PSTIs shares should trade
at a 590% premium to its current valuation. Our BUY rating is based on the
following:
PSTI is currently pursuing the development of its PLX cells for 12 different
indications that are in various stages of development, from preclinical to
Phase II, throughout the world.
The companys proprietary 3-dimensional cell growth methods and
manufacturing facility have an estimated $1 billion worth of production
capacity per year, setting PSTI apart from the rest of the cell therapy
market.
United Therapeutics (NASDAQ:UTHR) has licensed the exclusive global
rights to PLX cells for the treatment of pulmonary arterial hypertension
(PAH) in a deal valued at over $55 million.
CHA Bio&Diostech (KOSDAQ: 085660) has licensed the rights to PLX
cells for the treatment of peripheral artery disease (PAD) in South Korea,
with deal terms including a 50/50 joint venture, CHA covering all costs of
clinical trials and subsequently sharing post-commercialization profits
equally with PSTI.
The U.S. National Institutes of Health are working with PSTI on a
development program for PLX cells in the treatment of acute radiation
syndrome (ARS).
Major Risks to our valuation include the following:
Currently, PSTI does not have marketable products with associated
revenues, although it does have two out-licensing deals, one of which has
already contributed upfront payments to PSTI.

Larger, later stage clinical trials may not produce results that are
favorable as the companys pre-clinical and earlier stage trials.

Key Financial Data

FY12

FY13

FY14

Cash and Equivalents (in 000s)

$,9389

$9,323

$9,407

Short Term Investments (in 000s)

$49,412

$44,890

$28,420

Total Assets (in 000s)

$47,420

$68,316

$74,023

Total Stockholder Equity (in 000s)

$37,742

$57,466

$62,123

Source: Company Reports

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Investment Merits

PSTI cell therapies address $27.5 billion

global market......

3D manufacturing process with $1 billion

production capacity......

United Therapeutics CEO says PSTIs cell

therapy is the most transformative of
United Therapeutics products in Phase I
trials......

One of the largest healthcare companies in

South Korea partners with PSTI......

12 Indications that collectively address $27.5 billion market: PSTI is

currently pursuing the development of its PLX cells for 12 different
indications that are in various stages of development, from preclinical to
Phase II, throughout the world. Treatments for cardiovascular,
hematological, pulmonary, orthopedic, and pregnancy indications are being
clinically developed by PSTI and its licensees. In Q1 2014 the Company
reported that its Phase I/II trial for treating muscle injury met all primary
safety and efficacy endpoints. PLX-PAD treated patients displayed a 500%
improvement over the placebo group in the primary efficacy endpoint. The
results provide evidence that PLX cells may be efficacious in the treatment of
orthopedic injuries including muscles and tendons. In November 2011 the
Company reported that its Phase I/II trial for treating critical limb ischemia
(CLI) reduced the risk of amputation by 59% compared to historical data.
The results provide evidence that PLX cells may be efficacious in the
treatment of peripheral artery disease (PAD).
Off-the-shelf cell therapy that is mass produced for specific
indications is significant advantage in the market: PSTIs proprietary
three dimensional cell growth and production methods set it apart from the
rest of the cell therapy market. PSTIs cell manufacturing methods enable
controlled production of a large quantity of different cell products for specific
indications. High quality, homogeneous, commercial-grade cell batches are
produced at a price that yields high gross margins. The companys facility,
which recently gained approval from the health authorities of Germany, the
U.S., European Union, Australia, Israel, and South Korea, has the capacity
to produce PLX cells for the treatment of over 150,000 patients annually, an
estimated $1 billion in production value. The Companys point of care
thawing device provides uniformity of administration, making PLX cells an
off-the-shelf cell therapy.
Out-licensing deal with United Therapeutics valued at over $55 million
addresses $3.3 billion market: United Therapeutics (NASDAQ:UTHR), a
$6.5 billion market cap big pharma company, has licensed the exclusive
global rights to PLX cells for the treatment of pulmonary arterial hypertension
(PAH). PSTI has received a $7 million upfront payment, has the potential to
earn up to $38 million more in milestone payments, and up to $10 million
towards establishing a manufacturing plant in the USA, plus royalties on
gross profits upon regulatory approval.
United Therapeutics is now
conducting a Phase I study of PLX cells for the treatment of PAH in
Australia. PAH, a cardiovascular disease, is incurable and fatal. It is a huge
market size, yet only a handful of drugs have been developed to treat the
disease. The global market for PAH therapies was $3.3 billion in 2011 and
grew at a CAGR of 40% from 2002. This means if PSTI captured even 1% of
the PAH market upon approval, this one indication alone would contribute
$30 million in annual revenues.
Licensing & JV Agreement with CHA Bio&Diostech of South Korea:
CHA Bio&Diostech (KOSDAQ: 085660) has licensed the rights to PLX cells
for the treatment of peripheral artery disease (PAD) in South Korea. Per the
terms of the agreement, a 50/50 joint venture will be established, with CHA
covering all costs of clinical trials and subsequently sharing postcommercialization profits equally with PSTI.

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NIAID is conducting its second study of PLX-RAD cells in the treatment of

ARS: The U.S. National Institute of Allergy and Infectious Diseases (NIAID),
U.S. National Institutes of Health assessing
PLX-RAD cells for its stockpile of ARS
medicine in case of nuclear catastrophe.....

part of the U.S. National Institutes of Health (NIH), is conducting a

mechanism-of-action study of PSTIs PLX-RAD cells for the treatment of
acute radiation syndrome (ARS). The study aims to investigate the effect of
PLX-RAD cells on animals receiving total body irradiation. ARS represents a
constellation of signs and symptoms that occur between several minutes and
several weeks after exposure to high doses of ionizing radiation. ARS
involves multiple organs, including hematological and gastrointestinal
systems. The hematological syndrome follows damage to the bone marrow
and is characterized by severe decreases in red and white blood cell and
platelet counts, which can lead to infection, bleeding and death. The NIAID
studies would provide important data to the U.S. government for its Project
BioShield and its purchase of national stockpiles of medical
countermeasures to nuclear threats.

Investment Risks

No revenues from approved products.......

No cell therapies sourced from placental

tissues have yet to be approved by the
FDA

Several companies now have cell therapies

in clinical trials..

No products have been approved for sale: Although PSTI is developing

therapies for 12 different indications, none has been approved for marketing
yet. The high cost of clinical trials and the time required to meet regulatory
approval could take years. The company may need to raise additional capital
to fund these trials. To date, some of PSTIs studies have been paid for by its
big pharma partners. If PSTIs cell therapies do not generate favourable
clinical results, the companys partners may look to either stop funding trials
or terminate their licensing agreements.
Regulatory risk: PSTIs cell therapies are derived from the placenta. To
date, the FDA has not any approved cell transplants using manipulated cells
derived from placental tissue for any indication.
Competitive risk: Several companies are developing cell therapies that are
in various stages of clinical development. Some of these companies are
comparable in size to PSTI and others are much larger, better funded
pharma companies. One or more of these companies may come to market
with a cell therapy to treat one or more of the indications for which PSTI
currently has therapies in development.

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Active Clinical Programs

4 clinical programs targeting $27.5 billion

market

Near Term Catalysts

Several investment triggers upcoming for

the balance of 2014 and first half of
2015.....

Outlook

....so, our verdict is a BUY on this one

With several clinical programs in place, we expect PSTI may achieve clinical
results that would trigger additional milestone payments to the company from
its big pharma partners. We projected an income statement based on PSTIs
clinical programs assuming each product would capture up to 1% market
share for each respective indicaiton. The resulting estimated EPS was
subjected to standard corporate tax rates.
Accordingly, we estimate EPS of $0.40 in 2017 and EPS of $1.25 in 2018.
We used a discount rate of 15% and a P/E multiple of 25.

Valuation
Our valuation methodology yields a fair value of $21/share, implying a 590%
premium to the current market price. Accordingly, we initiate coverage of
PSTI with a BUY rating.

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Disclosures:
The analysts contributing to this report do not hold any shares of PSTI. Additionally, the analysts contributing to this report certify that the views
expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. AcceleronEquity.net certifies that no part of any
analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report.
Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe
to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. This report should not be used as a complete analysis of the
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securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and
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Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months.
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