Type 1 Diabetes May Soon Meet Its Match

GuruFocus.com

- By Matt Winkler

A quiet revolution is happening in health care, and it has nothing to do with political reform. It has to do with diabetes.

This disease is responsible for nearly 10% of U.S. annual health care spend, the only single disease responsible for a double-digit chunk of this sector that is spiraling out of control.

Last month we reviewed three companies, each with a decent chance of significantly reducing type 2 diabetes treatment costs with new technologies. But despite the encouraging advances, the prospect of a cure for type 2 is still far off. For type 1 diabetes (T1D), though, the prospects for something close to a cure are much more encouraging.


Unlike type 2 diabetes which is caused by pancreatic overload, T1D is an autoimmune disease triggered in early childhood. It affects about 1 in 300 people in the U.S., which puts the total U.S. patient population at around 1 million, compared to the approximately 29 million type 2 patients. The market is much smaller, but because the cause of T1D is much better understood, a cure is in principle achievable.

On that front, news came out earlier this week that Caladrius Biosciences Inc. (CLBS) enrolled the 70th patient in its 111-patient T1D Phase 2 T-Rex study. That enrollment triggered a $2.5 million cash payment from previous private placements and brought cash and equivalents levels to over $60 million. Amazingly, this is nearly twice the company's current market cap. It doesn't take a guru to know that at a market cap at half cash levels, there is something anomalous in the valuation of the company.

It's testing a T1D treatment that is designed for recent onset patients from within 100 days of their initial T1D diagnosis, before the beta cells of the pancreas have been too damaged. The treatment, known as CLBS03, extracts regulatory immune cells from the patient, proliferates them and reinjects them into the patient in an attempt to rebalance the immune system and stop the autoimmunity against the pancreas before the organ is too severely damaged to salvage.

The trial is double blind so no data yet, but interim data should be available early next year on the first 56 patients already enrolled. A previous European Union study of 22 patients aged 5-18, though, did show that eight achieved either remission or complete insulin independence after one year after a single infusion.

Trading at half cash, though, does warrant investor caution. A case can be made on both the bullish and bearish sides in explaining this fact. It's either atypical undervaluation, or market makers may have doubts about the treatment. Bottom line, though, if interim data are positive early next year and replicate earlier trials, shares will probably appreciate significantly. If data are discouraging, then it will turn out that a valuation at half cash levels was actually fair in retrospect. Either way, with its balance sheet so strong and cash not an issue, it is the interim results that will decide where the stock is headed over the next two quarters.

Disclosure: Long Caladrius Biosciences.

This article first appeared on GuruFocus.