Pat McKeough responds to many requests from members of his Inner Circle for specific advice about specific stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week we had a question from an Inner Circle member about two stocks that carry the name of one of the world’s most prestigious universities. Harvard Bioscience, founded in 1901 in the basement of Harvard Medical School, makes products for research laboratories. Less than a year ago, it spun off Harvard Apparatus, which is involved in the development of regenerated organs for transplant. Pat examines the two businesses and the prospects these two speculative stocks present to investors. Q: Pat: I realize these two stocks are speculative, but what do you think of them: Harvard Bioscience and Harvard Apparatus Regenerative Technology? A: Harvard Bioscience Inc. (symbol HBIO on Nasdaq; www.harvardbioscience.com) develops, makes and sells a wide range of products for bioscience research laboratories. Dr. William T. Porter founded Harvard Bioscience in 1901 to make equipment for teaching his physiology classes. The company initially made these products in the basement of the Harvard Medical School. It changed its name to Harvard Bioscience Inc. in 2000, when it sold shares to the public and listed on the Nasdaq exchange. In 2001, Harvard University took Harvard Bioscience to court to stop the company from using the Harvard name. However, the dispute was settled in 2003. Now, both Harvard Bioscience and Harvard Apparatus Regenerative Technology (see below) use the Harvard name and logos under license from Harvard University. Harvard Bioscience’s products include laboratory fluidics equipment, such as blood pumps that simulate a heart; small-animal ventilators for advanced respiratory studies; and neuroscience products, including mazes and treadmills with monitoring and recording functions. The company has 20 wholly owned subsidiaries, as well as the rights to a number of trade names, including Hoefer, GeneMachines, Biochrom, Warner, BTX and Denville Scientific. It mainly increases its sales by acquiring other related firms and adding their products to its distribution network. On November 1, 2013, the company spun off Harvard Apparatus Regenerative Technology, freeing up significant cash flow; Harvard Bioscience had been spending $6 million a year to sustain this subsidiary, which has not yet generated any revenue. The company has recently brought in a number of cost-cutting measures. As a result, it now expects to earn $0.26 a share in 2014, up 18.2% from $0.22 in 2013.
Spinoff’s first product is replacement for trachea damaged by cancer or trauma
Harvard Apparatus Regenerative Technology (symbol HART on Nasdaq; www.harvardapparatusregen.com), aims to develop regenerated organs for transplant, with an initial focus on the trachea. As mentioned above, Harvard Bioscience spun off Harvard Apparatus on November 1, 2013. That’s when it handed out one share of the company for every four Harvard Bioscience shares held. Harvard Apparatus’s first product, the HART-Trachea, aims to replace or repair a trachea that has been damaged by cancer or physical trauma. The company’s technology uses a plastic trachea that’s bathed in a solution containing stem cells from the patient’s bone marrow. These cells are then given physical or chemical cues to create major components in the regenerated organ, including epithelium (layers of cells that line hollow organs and glands), muscle cells, blood vessels and nerves. Using stem cells from the patient’s own body eliminates the need for drugs that suppress the immune system. The company’s technology has been used in eight human trachea transplants to date, but these procedures were completed on compassionate grounds with patients whose advanced conditions would not have qualified them for regular clinical trials; regulators have not yet approved Harvard Apparatus’s products for commercial use. Harvard Apparatus’s biotechnology also holds some promise with regard to the esophagus, after a research team in Sweden recently used the company’s products to transplant regenerated esophagi into rats. The researchers created the bioengineered organs by using esophagi from rats and removing all the cells, rather than using a plastic frame. They then reseeded the organ with cells from the rats’ bone marrow, which started to show organ-specific characteristics within three weeks. The cultured tissues were then used to replace segments of the rats’ esophagi. All the rats survived, and after two weeks the researchers found indications of the organs’ major components in the regenerated graft: epithelium, muscle cells, blood vessels and nerves. Harvard Apparatus still needs to conduct full clinical trials and win approval for its organs from the U.S. Food and Drug Administration The stock has jumped from around $4 in February 2014, but the company’s market cap is still just $59.6 million. In the Inner Circle Q&A, Pat considers Harvard Bioscience’s immediate growth prospects in the wake of the spinoff of Harvard Apparatus. He also looks at the progress of early clinical trials for Harvard Apparatus and whether its shares can keep on rising. He concludes with his clear buy-hold-sell advice on these two stocks. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members What do you think is more important for biomedical stocks—to develop a one-of-a-kind product or treatment that will be hard to replicate? Or to work in an area that attracts a great deal of attention and funding, like cancer or heart disease? Have you had any big successes with biomedical stocks?
