Score One for the Microcaps? Intrexon to Acquire Medistem for $26 Million

Andrew Klips |

There are plenty of pundits out there that knock micro and small-cap stocks, turning the phrase “penny stock” into something evil, often times unfairly. Yes, it is true that there have been plenty of scams, usually run through pinksheet companies, but it is equally true that the number of legitimate companies listed on the OTC exchange vastly outweigh the number of “scams.” Let's also not forget that there have been more than one occasion that investors have been bilked out of billions for majors as well.

Anyway, it’s always great to see juniors matriculate to senior exchanges, strike partnerships with their bigger peers, land a big contract, or even become an acquisition target like Medistem, Inc. (MEDS) did today.  A true definition of a microcap stock, Medistem closed trading on Thursday at 86 cents per share, equating to a market capitalization of $12.3 million. The stock was about as thinly traded as they come, with an average daily volume of 3,900 shares over the past three months, according to Yahoo Finance.

It was only this year that the company tasked itself to become a fully reporting company and in November accomplished that milestone to move from the pinksheets to an OTCQB listing with OTC Markets Group.

Medistem is focused on Endometrial Regenerative Cells (ERCs) and is developing ERC-124, a universal donor adult stem cell product for several indications. ERCs have the ability to support angiogenesis and can differentiate into a variety of different tissues, including, but not limited to, lung, pancreatic, heart and brain. Broadly speaking, one of the tremendous advantages of regenerative medicine is that there is a growing body of research suggesting that it can be utilized to target some of the most deadly and expensive conditions that have evaded traditional pharmaceuticals, such as stroke, diabetes, congestive heart failure and neurological diseases.

The company is evaluating ERCs for congestive heart failure in a Phase II trial, administering ERCs to patients hearts via a catheter-based procedure. A Phase I trial of ERC-124 as a new therapeutic candidate for critical limb ischemia (CLI) is being conducted in China in partnership with Chinese conglomerate Shanghai Jia Fu Medical Apparatus Inc. Stateside, the U.S. Food and Drug Administration has approved the commencement of a Phase I trial of ERC-124 for CLI that essentially mirrors the overseas trial protocol. The company is also collaborating with Dr. Reza Abdi, a transplant nephrologist at Brigham and Women’s Hospital and Assistant Professor of Medicine at Harvard University, on research that could support clinical trials for diabetes patients.

The technology may not have been compelling enough to get shares changing hands quickly on Wall Street, but it grabbed the attention of Intrexon Corp. (XON) , a $2-billion NYSE company that wants to integrate the Medistem technology with its synthetic biology platforms to engineer new cell-based therapeutics.

On Friday, the companies reported that they have signed a definitive agreement in which Intrexon will acquire Medistem for about $26 million. Shareholders of Medistem will receive 37 cents in cash and $1.08 in Intrexon stock for each share held. The deal represents a 51-percent premium to the closing price on MEDS on Thursday.

"We look forward to further refining ERCs to produce proteins and bioactive RNAs, both of which hold great promise to be used as therapeutics to treat conditions such as cardiovascular disease and cancer," said Dr. Sam Broder, Senior VP of Intrexon’s Health Sector, in a statement today. "Through the use of our synthetic biology platforms, we anticipate unlocking the power of ERCs to safely advance therapeutic development from proof of concept to clinical research," the doctor added.

Okay, so maybe it wasn’t a multi-billion-dollar deal or the Holy Grail of buyouts, but for early investors in Medistem, the investment delivered a solid return, considering the stock didn’t break above 60 cents a share until 2012.  Just goes to show that there are good, little companies running around the OTC world.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
XON Intrexon Corporation 29.95 1.67 5.91 1,408,437
SHECF Shin-Etsu Chemical Co. Ltd. 74.33 0.00 0.00 0

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