EFTA01092032.pdf

M GROUP EQUITY RESEARCH INDUSTRY REPORT .►uly S. 2013 Regenerative Cell Therapy: Autologous versus allogeneic is the wrong question? It's pre-clinical, manufacturing, and clinical data that drive safety. Companies mentioned include: Athersys, Inc. (ATHX) - $1.68 - Buy Baxter (BAX)- $69.88 - NR Capricor (private) Cardio3 Biosciences (private) Cytomedix (CMXI) - $0.42 - NR Cytori Therapeutics (CY7X)- $2.43 - Buy Dendreon (DNDN) - $4.48- Sell > "What the eyes see and the ears hear, the mind believes" — IntellicellBioScience (SVFC)-$0.05 - NR Harry Houdini. In the wake of Pluristem's clinical hold, some Lonw (LONN.VX)- CHF72.30 -NR investors have been asking if there are implications for other Mesoblast Ltd. (MBLTY)- $25.14 - Buy allogeneic companies. NeoStem closed its presentation at the NeoStem, Inc. (A1B5)- $0.57— NR Alliance for Regenerative Medicine (ARM) conference in April Osiris (OSIR) - $10.40— NR 2013, with a slide that autologous cells are safe. Well, that Pfizer (PFE) — $27.97 — NR depends? Were the autologous cells manipulated, enriched, Pluristem (PSTI)— $2.98 - Hold exposed to media, or expanded? The NeoStem product is Tens Pharmaceuticals (TEVA) - $38.94 - Buy •Closing prices (7/05/20B) "manipulated." In this report, we review the safety data for allogeneic cells and claims from autologous companies like More clinical trials are taking place with allogeneic NeoStem that allogeneic cells are less safe or not safe. In fact, cells. which we believe is due to a good safety profile, we believe this is misdirection on the part of autologous 'o(1--the shelf' convenience. andlower COGS companies. SO 4S > Manipulation? Generally speaking, both autologous and 40 allogeneic cells are manipulated. The definition of manipulation 4" 3. 30 varies from minimally manipulated to manipulated, but it is a 2s misnomer to claim that no manipulation occurs. g so > The clinical hold on Pluristem has become fodder for some who a to want to raise the allo safety question. We spoke with Athersys and Mesoblast (allogeneic cells), and both companies told us 0 A4.110/0130110 morneic that they have had zero immune-related AE's. All of these .&wmee cumuatinat, guy ad Magni companies (allogeneic and autologous) are using different cell types, isolation procedures, product composition, and delivery. anon Kolbert Both types are manipulated. Athersys has safely delivered doses of more than 1 billion cells systemically with no reported immune reactions. Mesoblast has tested its products in hundreds of patients with no alto-related AEs. The only company on the landscape that we see that is truly minimally manipulated is IntelliCell Bioscience (SVFC). ➢Our conclusion: We believe both allogeneic and autologous with few exceptions qualify as manipulated products; therefore, the safety of both products must be assessed in pre-clinical, manufacturing, and clinical studies. We believe both allogeneic and autologous products will be approved for various indications. Most importantly, if the outcome is initially binary (it works or it doesn't), then patient convenience and cost of goods are likely to be major market factors. In this case, allogeneic has multiple advantages over the autologous process, which is more expensive and less patient friendly. Maxim Group LLC 405 Lexington Avenue New York, NY 10174 — SEE PAGE 25 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS EFTA01092032  Biotechnology — Regenerative Medicine INVESTMENT SUMMARY I The discussion in regenerative medicine has more recently and increasingly—(and shortsightedly in our opinion) been focused on the debate of safety of autologous versus allogeneic. We believe Pluristem's clinical hold is not an allogeneic problem but a Pluristem problem. The company is using a cryopreserved formulation of its placental-derived cells. This formulation includes DMSO as a preservative and albumin in a light saline solution. DMSO is an immune stimulator, (commonly used). It's possible that the immune response seen in the patients is due to the formulation versus the cells, themselves. We don't have the data yet to know the cause of the immune reaction in the Pluristem patient that triggered their clinical hold. We have spent some time discussing risk with the allogeneic CEOs, as some of the autologous companies have attempted to maximize the risk of the allogeneic approach. We see this as a scare tactic that's not based on science. Mesoblast and Athersys have reported no immune responses associated with their allogeneic cell therapies. In fact, Pluristem, Mesoblast, and Athersys use different cell types and process them differently. Mesoblast is using mesenchymal precursor cells (MPCs), and Athersys is using multipotent adult progenitor cells (MAPCs). Both MPCs and MAPCs are isolated from the bone marrow, while Pluristem uses placental-derived cells. Athersys has delivered more than 1 billion cells safely to multiple patients in their Phase H stroke trial. Mesoblast has treated hundreds of patients with no reported immune related AE's. We have not seen any evidence so far pointing toward these allogeneic cells (from Mesoblast and Athersys) as being unsafe. Osiris Prochymal is another example of a safe (approved) allogeneic product. To really understand the allogeneic vs. autologous debate, we need to look at how the products are derived. Regardless of the source (allogeneic or autologous) of the cells, the cells are put through a series of manipulations before they are delivered back into the patient. We consider the purifying of the cells a technique used by most cell therapy products as a manipulation. For example both Baxter and NeoStem, enrich their products for CD34+ cells. These process select cells with either, and, or antibody-magnetic bead process (a column); hence, in the eyes of the FDA the cells have been manipulated. Furthermore, these cells are stored in different formulations of various mediums before being injected back into the patients. With each manufacturing process step, there is a chance of variability that can induce an immune response in a patient. This variability is inherent in all isolated stem cells, whether they are autologous or allogeneic. Therefore, a stringent quality control of the manufacturing steps and release criteria are needed as early as the pre-clinical stage to demonstrate the safety of the cells. The only process that we are aware of that truly qualifies as minimally manipulated (both are autologous) is depending on definitions, the Cytori (CYTX) process (which does add an enzyme that is later removed, so technically it does not qualify) leaving the IntelliCell Bioscience process (which adds nothing, is done on-site, (sonification to separate cells and create a stromal vascular fraction) and is then checked for contamination and "quality controlled" before being returned to the patient) all within an hour. The cells never leave the premises. This process does appear to meet current FDA guidelines as "minimally manipulated" and as such likely falls under "practice of medicine" guidelines. The issue by how clinicians are able to treat patients today continues to surface. To that end we take a moment to try to understand what are the current specific regulations that allow IntelliCellBioScience to operate and treat patients. IntelliCell's position on the legaUregulatory status of SVFC (stromal vascular fraction cells) is that the product is a human cell, tissue, and cellular and tissue-based product ("HCT/Ps") and is regulated under the regulations created under 21 C.F.R. § 1271. The Company maintains that the SVFC product fall within the exemption from FDA regulation found under 21 C.F.R. § 1271.15(b). This is because the HCT/Ps are removed from and reintroduced into the same patient during the same surgical procedure as that term is used in the practice of medicine. The cells that are reintroduced are exactly the same cells (i.e., "such cells") as the cells removed from the autologous patient. Thus, the SVFC product falls under an exemption to FDA regulation. Maxim Group LLC 2 EFTA01092033  Biotechnology — Regenerative Medicine The SVFC product and the procedures used for the product are similar to those used in autologous bone marrow aspirate transplants, skin grafts, knee ligament replacement, and cardiac bypass procedures. FDA regulation of the SVFC product as a drug would require consistent interpretation and application of the regulatory requirements, and would mandate that these other medical products and procedures should also be regulated as drugs requiring FDA pre-approval. Alternatively, even if the SVFC product is not exempt under 21 C.F.R. 1271.15(b), the company maintains that it meets the requirements in 21 C.F.R. § 1271.10(a) for regulation solely under PHS Act § 361 and Part 1271 as a "361 HCT/P" and not as a drug, device, and/or biologic requiring an approved application. Under that section of the regulation, HCT/Ps that are from an autologous source, minimal manipulation, and for homologous use, and do not include added components (with some minor exceptions) are exempt from FDA pre-approval as a drug. Under these guidelines IntelliCell Bioscience is empowering clinicians to treat patients today for everything from orthopedic injuries to multiple sclerosis. The company has treated over 300 patients and in some cases with dramatic results. We went so far as to review patients stories and case histories, publications and even met with the company's attorneys (ex-FDA reviewers) to understand the definitions of minimally manipulated and the legal guidelines by which the company's process allows physicians to treat patients. We left believing that this is the only company, at the moment that qualifies with a process that meets current guidelines. The next step in our research process was to review the current published and unpublished data comparing the safety of the allogeneic cells. Some of these studies have included side-by-side comparisons of the allogeneic and autologous cells. In our literature search we also came across numerous examples of blood transfusions (hundreds of thousands that have been accomplished "allogenically" with little to no immune reaction concerns. Conversely there are also multiple examples of autologous transfusions that have resulted in immune reactions. This goes to our point that it is the process and handling that has everything to do with the safety of such procedures. Hare et. al published data in JAMA on POSEIDON—one of the first trials comparing allogeneic versus autologous bone marrow-derived mesenchymal stem cells delivered by transendocardial injection in patients with ischemic cardiomyopathy (ICM) I. In the trial, 30 patients were randomized between an allogeneic and autologous arm. The patients were further assigned to three increasing dose levels of 20, 100, and 200M cells. The primary endpoint of the study was the 30-day event rate of predefined treatment emergent serious adverse events (SAE). One patient in each group had an SAE (hospitalization for heart failure) in 30 days. Three patients in the allogeneic group and nine patients in the autologous group experienced adverse events (AEs). Over the 12-month period, 10 patients in the allogeneic group and 11 patients in the autologous group experienced AEs. Major adverse cardiac events (MACE) for the 12-month period occurred in three patients in the allogeneic group and four in the autologous group. Overall, both treatments demonstrated reduced infarct size, improved ventricular remodeling, and similar safety profiles. This data mirrors what Mesoblast has seen with its own side-by-side comparison of allogeneic and autologous MPC. In pre-clinical studies, Mesoblast has shown that sheep had an identical stromal receptor found in humans, making the sheep an ideal preclinical model for Mesoblast's MPC product (for human studies, Mesoblast isolated MPC cells with a stromal receptor). When allogeneic and autologous MPC were used for treatment, the company found that there was no difference in efficacy. I Hare, et. al. Comparison of allogeneic vs. autologous bone marrow-derived mesenchymal stem cells delivered by transendocardial injection in patients with ischemic cardiomyopathy. 2012. JAMA 308(22). Maxim Group LLC 3 EFTA01092034  Biotechnology — Regenerative Medicine In addition, Mesoblast performed two pilot studies in cardiac and orthopedic indications in which autologous and allogeneic cells were generated in a similar fashion. The only difference was that the cell and all other manufacturing variables were the same. These side-by-side studies showed no immunogenicity concerns, and the efficacy was same between autologous and allogeneic cells. Athersys has also shown that, when used side by side, MultiStem derived from allogeneic or autologous cells did not show any differences in safety or efficacy. In addition, Athersys's many collaborators, including Pfizer, have demonstrated the safety of allogeneic (and xenogeneic) MultiStem in immune- competent animal models of disease and injury. Capricor, Inc. (private) is a unique company in the cardiovascular space. The company has transitioned from an autologous to an allogeneic model based on a vision of commercialization and COGS, combined with the science that suggests allogeneic is equally safe and even potentially more effective than autologous. The company uses homologous-tissue-derived stem cells (cardiac). It isolates progenitor cells from an allogeneic heart that is destined to become cardiac cells. In its phase I "CADUCES" trial, Capricor has shown its autologous cardiosphere-derived stem cells (CDC) reduce infarct size and generate new myocardium, in principle repairing the heart. However, Capricor found the autologous method cumbersome (manufacturing). Mechanistically, the company reasoned that it is the cell cytokines that were affecting the local environment and not the cells themselves. As such, allogeneic should work as well—and, thus far, that reasoning has proved valid. The safety of allogeneic cells is not just limited to pre-clinical studies but has been validated in clinical trials in multiple indications in cardiovascular, autoimmune, and neurological conditions. Interestingly, the majority of the studies registered on clinicaltrials.gov use allogeneic stem cells (-44). In contrast, only —29 studies are using autologous stem cell therapy. We believe the reason for such interest in allogeneic treatment is due to its safety, efficacy, and, most importantly, convenience as an "off-the-shelf' treatment. The safety of the allogeneic MSCs has also been documented in a meta-analysis of published and clinical trials. Lalu et. al recently published results of a systemic review of clinical trials that used MSCs to evaluate their safety=. The authors reviewed 2,347 publications and 37 clinical trials. These studies recruited a total of 1,012 participants with clinical conditions ranging from cardiovascular diseases to autoimmune diseases, as well as healthy volunteers. The authors found that eight of the studies were randomized control trials and had enrolled 321 participants. The randomized control trials showed no association between acute infusional toxicity, organ system complications, infection, death or malignancy. Overall, the allogeneic MSC clinical trials have shown to be safe. This drives us to our first conclusion: When allogeneic and autologous cells of the same phenotype are compared side by side, they show similar efficacy and safety profiles. In addition, a meta-analysis shows overall safety of the MSCs. Therefore, the argument on safety and efficacy of autologous vs. allogeneic has no scientific basis, in our opinion. Manipulation exists for both autologous and allogeneic cells? Mesoblast and Cardio3 Bioscience (private) use bone-marrow-derived cells for treatment of heart failure; however, the end product used in patients is markedly different. Mesoblast uses allogeneic expanded MPC, while Cardio3 uses autologous bone marrow-derived mesenchymal cells treated with cardiopoietc growth factors. 2 Lalu et. al. Safety of Cell Therapy with Mesenchymal Stromal cells (SafeCell): A systematic review and meta- analysis of clinical trials. (2012) PLOS one, 7(10). Maxim Group LLC 4 EFTA01092035  Biotechnology — Regenerative Medicine Mesoblast believes that the best solution is a single potent cell type that is multi-factorial in its ability to regulate inflammation and neoangiogenesis. The company has shown that its MPCs can respond and act according to what the tissue is demanding. In the cardiac space, MPCs appear to stimulate angiogenesis (revascularization of the heart muscle) and, as a result, enhance the survival of cardiac cells. At the same time, the cells are also modulating the local immune system by polarizing pro-inflammatory cells toward a non-inflammatory state and activated T cells toward regulatory T cells. Cardio3's C-Cure differentiates autologous bone marrow mesenchymal stem cells toward cardiopoietic cells by treatment with the cardiopoietic growth factors. The C-Cure cells proliferate, engraft, and differentiate into heart muscle cells. The cells also have an indirect effect through the release of trophic factors. In a phase II trial, the treatment showed significant improvement in both a 6-minute walk test and Left Ventricular Ejection Fraction (LVEF) versus baseline. C-Cure is in a European phase III "CHART-I" trial to treat CHF secondary to ischemic cardiomyapathy. The company expects to obtain an IND in the United States by mid-2014 for a phase III CHART-2 trial. This drives us to our next conclusion: Both Mesoblast and Cardio3's starting material is bone marrow cells. Where Mesoblast isolates MPCs, Cardio3 drives the mesenchymal stem cells toward cardiopoietic cell differentiation. Both methods use different manufacturing techniques to generate the product. While Cardio3 is an autologous product, the original product has been modified to differentiate ex-vivo into cardiopoietic cells. Is this newly-derived differentiated autologous cell safer than the starting material? That can only be answered in the preclinical and clinical studies. Mesoblast has shown in preclinical and clinical trials that its cells are not only safe but efficacious, and so has Cardio3. Therefore, the differentiationfactor between these two markedly different cells is their efficacy in the patients. Is one cell type (autologous vs. allogeneic) more efficacious than another? We believe companies like NeoStem are trying to maximize the risk of allogeneic approaches using misdirection from the real issues of SWOT (strengths, weakness, opportunities, and threats). We look at the pros and cons of allogeneic vs. autologous models based on the science and data. The discussion in cell therapy is being directed toward the safety of the cell source rather than the science behind the cell source. We believe that this is a grave mistake since each product is unique with its own pros and cons for their indications. Exhibit 1. All cells contain the same genetic information; however, the identity of distinct cells is established at epigenetic levels (consisting of chemical changes to the DNA and histone). These "histone signatures" determine which genes are turned on or off. A recent paper in the Cell Reports showed that muscle stem cells from old mice had different histone signatures than the young mice3. What this means is that the older mice have more stop signals (genes locked in off position) than go signals (on position). In layman's terms, with age, changes in histone signatures are linked to the functional decline of stem cells. A younger stem cell has potential to express and seem ready to become all kinds of different tissue cells compared to its older stem cells, which are more restricted. Source: Liu, L es al. Cell 20133 Liu. L. et al. Chromatin Modifications as Determinants of Muscle Stern Cell Quiescence and chronological aging. (2013) Cell Reports. (4). Maxim Group LLC 5 EFTA01092036  Biotechnology — Regenerative Medicine Another report from a paper in Nature showed that the accrual of DNA damage from ageing in hematopoietic stem cells of mice may result in functional decline and contribute to the diminished capacity of aged tissues to return to homeostasis after an injury (such as heart attack)4. These studies will need to be confirmed in humans, but if they show the same conclusion as in animal studies, it will have a profound effect on development of autologous versus allogeneic treatments in cardiovascular space. This brings us to our next conclusion: Autologous companies like NeoStein use hematopoietic stem cells (purified CD34+)for their treatment. The autologous stem cells are great in your 20s, but when you need a cell therapy in your 60s or 70s, will these stem cells with "stop signals" be ofany use? On the other hand, Mesoblast's MPCs from a healthy 20-year-old have "go signals" and are off the shelf ready to home to the affected area and ameliorate disease condition. Compare all of this (plus, no patient discomfort)for an off- the-shelf, readily available product to companies like NeoStem, which require two additional return trips to the hospital, one to harvest the product (12 bone punctures withfour needle pulls on each puncture), which requires extracting 300cc's of bone marrow—and then processing it and returning to the patients (which must be within 72 hours). Are autologous and allogeneic therapeutics in competition? Not necessarily. We believe that these two broad therapeutics are distinct, and they even may be complimentary in some indications. Exhibit 2. A classic example of an ischemic stroke A stroke occurs when blood flow to the brain is interrupted This can occur due to either ischemia (lack of blood flow) caused by blockage (thrombosis, embolism) or a hemorrhage (rupture of blood vessel in the brain). Loss of blood in the brain results in cell death, causing neurological deficit, which is usually unilateral (affecting one side of the body) and triggers the inability to move one or more limbs, understand, speak, or see on one side of the visual field. Source: Athersys and Mayo Foundation The only approved viable therapy today is recombinant tissue plasminogen activator (rtPA). It has limitations, as it must be administered within three to four hours of the initial ischemic stroke. If administered after this time, it can cause or exacerbate cerebral bleeding (i.e. hemorrhage), resulting in a worsening of damage or even death. As such, it is only used on —5% to 8% of treatable patients. 4 Rossi. DJ. et. al. Deficiencies in DNA damage repair limit the function of hematopoietic stem cells with age. (2007) Nature (447). 725-729 Maxim Group LLC 6 EFTA01092037  Biotechnology — Regenerative Medicine Exhibit 3. Phase of injury and changes in tissue architecture targeted by cell therapy Chronic Acute Stroke Stroke 4C 30.4—> hrOMbOlySIS Regeneration Nnurogonosts Angoogenesis t t Pap Grc'Mh factors GYM scar inintators P.Iyalto mthIntors lateneemantil S Tissue At nl0t MultiStem Treatment plasminogen inthefers/ Tiunr..mr activator Time .4 hez lig Clays 53-Igclesys CAMS 54tgle FDAappreved Phasell Phasell Source: Maxim Group modified from Sinden et at imr. .1 of Stroke. (2012)S A stroke injury is a progressive injury. In the early days of the stroke after acute injury, there is inflammation; at later point in time, there is delayed neuronal cell death. Therefore, a treatment for a stroke patient would be multi-modal and would require different approaches. In the early acute phase of stroke (72 hours post stroke), there is an increase in inflammation and vascular response. Athersys's cell therapy MultiStem is administered during this time period. The hope is that MultiStem can shift the immune system into repair mode (e.g. through stimulation of reparative Tregs and M2 macrophages). Days after stroke, there is a delayed neuronal death. Cytomedix's cell therapy (autologous ALDH bright cells, or "ALDIP" cells) is administered during this window, since it promotes tissue protection and repair through angiogenesis and neurogenesis. These approaches are dramatically different—so much so that they may even be complimentary. MultiStem is given systemically in a large dose (possibly >billion cells) prior to 48 hours post injury to modulate inflammation, while the Cytomedix therapy is given locally 13-19 days after stroke in a small dose, targeting the brain. Athersys's MultiStem is given at the earliest time, just days after stroke. Being an allogeneic product, it can be produced and is readily available. The mechanism of MultiStem appears to be primarily through immunomodulation, which is most likely occurring through its sequestering of immune cells in the spleen after stroke. The choice of intravenous injection makes an ideal delivery for administration of the increased number of cells. We believe the window of opportunity for MultiStem treatment is also ideal, since the patient will already be hospitalized and the therapy does not require either patients' cells or an invasive inoculation. Most importantly, cell therapy does not require immunosuppression with treatment. Unlike Athersys, Cytomedix's ALD-401 cell therapy is dependent on autologous unexpanded ALDH& cells. The ALDFIk cells are administered through intracarotid infusion, and the theoretical treatment window for Cytomedix is longer compared to Athersys. The ALD-401 mechanism of action is not immunomodulation like Athersys' MultiStem. Cytomedix actually suggests that its cells would be of no benefit if given right after stroke. Since ALD-401 promotes angiogenesis, we believe the timing of intervention makes sense. After 13-19 days post stroke, the cells can initiate angiogenesis and tissue regeneration. We see MultiStem and ALD-401 as complimentary treatments—MultiStem is immunomodulatory and is given to curb the inflammatory peak prior to 72 hours post stroke, while ALD- 401 promotes angiogenesis and is given 2 weeks post stroke when angiogenesis and tissue regeneration can occur. How about in cardiovascular disease: Is timing of the treatment a factor? The autologous companies will argue that one should wait some period of time for the hypoxic signals to peak so that cells can appropriately home to the heart. Delivering cells too early minimizes their effect as they become destroyed in the ensuing cytokine—inflammatory chaos of the initial ischemic event. We find this argument flawed. 5 Sinden et. al. Stem cells in stroke treatment: the promise and the challenges. Intr. J of Stroke. (2012)7 (5): 426-434 Maxim Group LLC 7 EFTA01092038  Biotechnology — Regenerative Medicine The inflammatory cascade creates secondary damage that, if turned off, effectively limits consequential damage. That's exactly what allogeneic cells do, but that's only their first mission. These cells persist for weeks. They do home along the same SDF-1 gradient and will follow as the hypoxic signal (hypoxic induced factor or HIF) builds. The cells are in effect "on board" and ready to respond as needed. Also, the SDF-1 gradient naturally is only expressed for the first few days, a time frame that is more suited for an "off-the-shelf' allogeneic treatment than the autologous treatment. This drives us to our next conclusion: It is unknown whether most of the damage occurs initially or over time, and the reality is probably that it is a deadly combination of both—the immediate inflammatory cascade and the secondary ischemic stress. We believe that, in certain indications, allogeneic may be more preferable (such as in an acute phase in stroke with Athersys' MultiStem), while autologous cells may be snore appropriate later in time (such as weeks after stroke). The clinical data will drive these conclusions. We believe clinical trial strategy is important. Mesoblast is the leader in cardiovascular space. With its partner Teva, the company is preparing to launch a global phase III program in congestive heart failure (CHF) (n=1,700). Mesoblast believes that a single potent cell type that is multi-factorial in its ability to regulate inflammation and neoangiogenesis is the best solution. Mesoblast and Teva are planning for a two- year, $130 million program. Cytori believes it may be possible to do single, modestly sized clinical trial (consistent with the PMA guidelines). We believe that NeoStem will need to do two large pivotal trials (because these are processed, or manipulated, cells in a non-orphan setting) and will have to raise —$150M for a phase III trial. Given the SWOT analysis for NeoStem's products, we believe this level of financing will be a difficult challenge. This drives us to our next conclusion: We believe that, eventually, we will see both autologous and allogeneic treatments approved, but each will need to show its benefits. If the allogeneic and autologous therapies are equivalent for most regenerative indications (which our key opinion leaders believe is most likely), the COGS and patient convenience will become critical factors. We believe that's the reason for Barter's decision to look for buyers for its cell therapy division. By default, this does not bode wellfor NeoStem, which has a similar cell therapy and the same high COGS. If all things are equal (efficacy and safety), then manufacturing is the critical factor. There are multiple late-stage clinical trials underway evaluating the use of stem cells as a therapeutic to either arrest the progression of heart disease or to even reverse disease. Some of these trials include Mesoblast's trial evaluating purified bone marrow cells (MPCs), Athersys' MAPC, Osiris's expanded mesenchymal stem cells (MSC), and Capricor's cardiosphere-derived stem cells (CDC). These are cells in a bottle, or allogeneic sources. In this case, the cells are initially developed from a donor source, processed at a cGMP factor, and cryopreserved. These cells are in effect an active biological therapeutic—an off-the-shelf ready product with zero patient discomfort. The cost of goods of a mass-produced, allogeneic product is likely to be the lowest in the industry. Some of the companies with autologous therapies are using bone marrow harvest—for Baxter, a small dose at 50cc; for NeoStem, it is large at >300cc of bone marrow. Cytomedix is also using bone marrow to isolate ALDH bright cells. The use of adipose tissue (fat) by Cytori has come into focus as a rich source of cells that can be harvested via liposuction. More recently, Cardio3 Biosciences (private) uses bone marrow cells that have been treated with the cardiopoietic growth factors. These methods are all autologous—your own cells, but manipulated. Generally speaking, autologous methods are expensive as they involve offsite processing of the cells—in some cases, in cultures (expanded), and in other cases, enriched for a specific cell type. In the case of adipose stem cells, they are processed "while you wait" (on site in an hour or less), and at a very low cost of goods. But, in general the allogeneic cells have the lowest cost in the industry versus a custom-produced, offsite-manufactured product, which will likely have the highest cost of goods. Maxim Group LLC 8 EFTA01092039  Biotechnology — Regenerative Medicine However, not all companies have strategies in place to move from clinical stages to commercialization. As we have mentioned, variability in any step of the process can lead to an immune response. This is true for manufacturing both allogeneic and autologous therapies. For allogeneic companies, manufacturing will be a critical success factor. Mesoblast and Athersys both appear to have well placed manufacturing strategies. Mesoblast's clinical trial and commercial product are being produced by Lonza (Singapore), and we know that Athersys is also working with Lonza. Our understanding is that Lonza is now producing clinical supply for Mesoblast. As such, there is little concern in product manufacturing or "tech transfer," which has been accomplished. This is critical since variability in any step of the process can lead to an "immune reaction." We know that the Mesoblast cell line is a precursor MSC, is very potent, and is expanded, with tight controls in place. We also know that with Lonza, Mesoblast has developed certain strategic tax advantages that complement its manufacturing process, thinking ahead towards commercialization. Athersys (also working with Lonza) has a robust process in place. Athersys is prepared to develop systemic high-dose therapy (cell doses> 1 billion). In this regard, Athersys believes it is in a strong position to treat certain conditions (GvHD and stroke) in which high-dose systemic therapy is needed to develop a consistent effect. From prospective of treatment, these products are truly "off-the-shelf' ready and can be delivered to the patient with no prior intervention. We expect COGS to be below $1,000 per dose. We believe that Baxter has concerns regarding the treatment paradigm (autologous) and the cost of goods sold. Dendreon's problems have been keenly watched by major pharma and biotech companies that shun the concept of personalized autologous therapy. Once identified as candidates for therapy, patients need to have their cells extracted and processed. This process requires aphaeresis (single site), manufacturing at a central location (which is labor- and process-intensive), and a subsequent return to the clinical site for patient injection. We estimate this process at a commercial scale to be $10,000 per unit or higher. We believe NeoStem has similar issues to Baxter. NeoStem utilizes an autologous selected bone marrow cell (CD34+), where CXCR4 is a chemokine receptor specific for stromal derived factor-1 (SDF-1). As such, these cells can home along an SDF-I gradient to the infarct. The cells are delivered into the infarct related artery (IRA) with the hope that they then drive new blood vessel formation (positively impacting or arresting the progression of the infarct size). The product begins with approximately a 300 cc bone marrow aspirate (12 needle stocks, four pulls on each needle) and is then sent to the company's manufacturing plant, where the product is enriched for the presence of CD34+CXCR4+ cells. The turnaround time has a 72-hour window. The COGS are likely the highest versus the other companies mentioned, at commercial scale of at least $10,000 per unit. Cytori is an exception to high COGS in autologous therapy. Cytori processes autologous cell locally— that is, patient samples processed on site at the hospital and then immediately delivered back to the patient. This is the Cytori process, in which patients undergo a modest liposuction and then cells are processed and returned. We estimate the COGS of this process to be a minimal $250-$500 per unit. We estimate the process time to be approximately one hour. This drives us to our next conclusion: If a single homogeneous cell therapy is proven clinically to be the best treatment modality in cardiovascular disease, than allogeneic wins over autologous based on cost of goods, off-the-shelf availability (no waiting or processing), high consistency (homogeneity gives MPC batch-to-batch consistency), andpatient convenience. If heterogeneous is best, Cytori is ideally positioned. So what does all of this mean? NeoStem has said "autologous cells are safe," suggesting that allogeneic are not. We believe neither claim is true and both are misleading. We assert that, based on the available pre- clinical and clinical data, allogeneic cells are neither more nor less safe than autologous. Maxim Group LLC 9 EFTA01092040  Biotechnology — Regenerative Medicine Allogeneic and autologous are two broad subtypes of cell therapy. Each company with allogeneic and autologous products uses different sources of cells—whether bone marrow, cardiac stem cells, reprogrammed bone marrow cells, or placental cells. These cells are all manipulated differently giving them variability. Hence, an immune response in Pluristem's placental-derived cells does not lead to a problem for all allogeneic cells, in our opinion. This is simply a Pluristem problem. So far, Mesoblast and Athersys have seen zero serious adverse events with their cells. Strong pre-clinical and clinical data—not just from Mesoblast and Athersys, but other companies and institutions—has shown that allogeneic cells are well tolerated in thousands of patients, efficacious, and, most importantly, safe. Autologous and allogeneic cells (we believe) act trophically and not directly. If this is true, and the cell types that companies like Mesoblast and Athersys are working with are potent and not immunogenic, than the allo companies have several strategic advantages. 1. Lower cost of goods 2. Off the shelf, readily available. No waiting for your cells. 3. No patient discomfort in any way, shape, or form. .Nlaxim Group LLC 111 EFTA01092041  Biotechnology — Regenerative Medicine Exhibit 4. Some of the approaches of public companies in cardiology and other indications Company Cell Type Source Type and COGS NI linulac luring Dv % v !uplift: tit Status cGMP Phase II trial for Multipotent adult Single Allogeneic- manufacturing ulcerative colitis. Progenitor Cells Donor, universal able to produce Phase II trial for Athe rsys (MAPC), expanded ex- Expanded compatibility, millions of doses Stroke. Phase I proof vivio and highly in culture LOW COGS from a single batch of concenpt in MI enriched of cells processed completed Validated industrial scale CD34+ GCSF derrived Adult Autologous adult production, Baxter Messenchymal stem peripheral Phase Ill trial in CMI cells, High COGS millions of doses cells blood of cells from a singel donor cell type selected ALDHR bright cells Adult bone Autologous adult for ALDHbright. Cytomedix isolated from bone Phase II trial for stroke marrow cells, High COGS Cells are not marrow expanded on-site in 60 Adherrent stromal cells Adipose Autologous adult minutes or less, Phase Ill trial in STEMI. Cytori (ASC) derived from tissue cells, Low COGS minimal Phase II in CMI adipose tissue, on site manipulation Large Production facility in Highly selected Singapore where precursor MSC cells that Single Allogeneic- cells are expanded Large Phase III are immune-priviledged Donor, universal Nlesoblast and tightly (n=1703) in CHF. Phase and believed to be up to Expanded compatibility, monitored for II in AMI 10,OOOx potency than in culture LOW COGS passages. Cell type MSC's selected with mAb technology Cells are harvested from Bone marrow derived bone marrow for >300cc (invasive uptoprocessed. > Cells procedure) and Adult bone Autologous adult are over NeoSte in processed with 72 hours marrow Phase II in STEM! cells, High COGS 24-72 hours and life from harvest to >300cc returned to return. Process enriches patient. Cells are CD34+CXCR4+ cell type enriched for CD34+CXCR4+ cells