AgeX Therapeutics (AGE) is an interesting company in the up-and-coming longevity space. This article will take a look at the science behind their current development programs as well as the leading figures and stakeholders in the company. AgeX is certainly a very risky bet, both because of the low probability of any preclinical asset eventually gaining approval and because it is unclear whether the company has the financial resources to develop their current pipeline assets. Despite that, I do believe the potential reward of success could be tremendous for investors, and the continued vote of confidence from a major longevity investment company is meaningful in my opinion. At this time, my model does justify potentially taking a small, speculative position in the company while it is trading under $1/share, but nothing more than that until AgeXs outlook becomes clearer.

AgeX was founded in 2017 as a subsidiary of BioTime, Inc., a cell therapy biotech now known as Lineage Cell Therapeutics (LCTX). In 2018, AgeX was spun out from BioTime in connection with a public offering for AgeX, with BioTime shareholders receiving 1 share of AgeX for every 10 shares of BioTime they owned. Since that time, AgeX has operated as an independent, publicly-traded company.

AgeXs focus as a company is to develop therapies that target biological aging. AgeX intends to do this primarily through 2 major technologiesPureStem and inducible tissue regeneration ((iTR)). PureStem is a technology platform used to generate young pluripotent stem cell-derived cellular therapies for use in treating the degenerative diseases of aging. iTR is literally intended to reverse the age of human cells back to the very beginning of life by restoring the capacity of tissues to regenerate following injury, a process which is lost with aging.

Although AgeX is less than 3 years old, several members of its management have been involved in research related to AgeXs developmental technology for decades. For example, the companys CEO, Michael D. West, Ph.D., invented the PureStem and iTR technologies which are based on over 25 years of his research. Dr. West has written multiple books and scientific papers on stem cells and aging in general and is widely considered a pioneer in the field.

In addition to Dr. West, noted longevity researcher Aubrey de Grey, Ph.D., is also involved as the VP for New Technology Development. Dr. de Grey is the Chief Scientific Officer for the SENS Research Foundation which has spun out numerous anti-aging companies over the years, and he commonly appears in mainstream media outlets discussing longevity research. Dr. de Grey is perhaps most widely known for his ideas about the longevity escape velocity, the idea that at some point in the future, technology may reach a point where for each year you are alive, longevity research is able to add more than one additional year to your lifespan, essentially rendering humans immortal aside from accidents, homicides, etc.

AgeXs 3 current assets in the pipelineeach of which utilizes PureStem or iTRare all still in preclinical workup. This means a tremendous amount of cash will be required before any of these therapies even have the potential of bringing in revenue.

Figure 1: AgeXs Pipeline (source: AgeX website)

Even if successful, each of these preclinical assets could still be a decade and $100+ million away from FDA approval (source: The Pharmagellan Guide to Biotech Forecasting & Valuation). Given that at year-end 2019 the company only had $2.35 million in cash and equivalents, AgeX has a lot of capital raising to do to have any shot at realizing their technologys potential.

AgeX has several possible ways to get this much-needed capital. AgeX could certainly raise capital by selling additional shares on the open market, diluting current shareholders. Im sure some of this will take place but given the companys current market cap is barely over $32 million, it might be difficult for the company to get even close to the necessary amount through this method alone. That being said, anyone considering an investment in AgeX needs to be soberly aware of the likelihood of substantial dilution over the coming years.

For its part, AgeX is clearly aware of its current capital constraints and has made several moves aimed towards alleviating at least some of their near-term liquidity problems. In late 2019, AgeX incorporated a subsidiary specifically for the development of iTR, Reverse Bioengineering, Inc. This structural change is interesting, primarily because AgeX explicitly says in their corporate presentation regarding the creation of Reverse Bioengineering that the new company may take on third-party equity investment. If Reverse Bioengineering does take on early-stage venture funding, it could help AgeX to afford the development of iTR, but its again another obvious potential way that an investor in AgeX may have their interest in future iTR profits diluted.

A possible source of ongoing financial support for AgeX is its relationship with Juvenescence Limited, a holding company for biotechs involved in the longevity space. Juvenescence bought a 45.8% stake in AgeX shortly before the company was spun out from BioTime. This transaction was for 14.4 million shares at $3 each its certainly not a bad sign that a company with as much experience in longevity as Juvenescence thought AgeX shares were worth more than 3x the level at which they are currently trading. Thus, Juvenescence has a clear and significant interest in the success of AgeX. In 2019, Juvenescence agreed to provide AgeX with a $2 million unsecured loan. With a 2019 full year loss of over $12.5 million though, AgeX was still in need of money.

Accordingly on March 30, 2020, AgeX entered into another loan agreement with Juvenescence, with an immediate $500 thousand being disbursed to AgeX. There are 2 big differences with this loan facility though. First, the loan could be for as much as $8 million. Second, however, any amount loaned in excess of the first $500 thousand will this time be secured by AgeXs assets as well as the fact that Juvenescence can force AgeX to implement a cost reduction plan that could entail significant reductions in staffing and research and development activities. Further loans could even cause AgeX to have to issue additional shares to Juvenescence.

This sort of loan would cause me substantial concern if Juvenescence didnt have a large equity interest in AgeX. As it is though, Juvenescence stands to benefit too much from AgeXs potential success to use the terms of such a loan facility for its short-term benefit and AgeXs detriment. Its also worth noting that the CEO of Juvenescence is on AgeXs board. While AgeXs cash situation is certainly something to watch closely, my fears are assuaged somewhat that a well-funded company like Juvenescence is incentivized to help AgeX develop and commercialize its technology.

One early way AgeX could potentially monetize its technology is through licensing and partnerships. In fact, this is listed as item number 1 in the business strategy section of the companys recent 10-K, where AgeX says they hope to bring in early revenue streams this way. There is already some limited evidence of this strategy bearing fruit.

First, AgeX has partnered with ImStem Biotechnology, Inc. for the use of its pluripotent stem cell lines in developing an investigational therapy for multiple sclerosis. Imstem recently announced that an FDA clinical hold had been lifted and their IND was accepted. This should lead to the initiation of a Phase 1 trial for the therapy this year.

Also, involvement by Juvenescence may help to cross-pollinate AgeX technology with that of its other portfolio companies. One such example of this already taking place is with Lygenesis, a company focused on organ regeneration. Lygenesis is apparently exploring the use of AgeX technology to eliminate the need for immunosuppression in recipients of Lygenesis organ therapies. This is exactly the type of use that will hopefully increase demand for AgeXs UniverCyte technology.

AgeX will also realize some near-term income from its LifeMap Sciences subsidiary. This subsidiary sells the rights on a subscription basis to the GeneCards Database Suite, which is an integrated biomedical knowledgebase of human genes, variants, proteins, cells, biological pathways, diseases, and the relationships between them. The service currently has over 3.5 million users including users from more than 45 major biopharma companies. This income, however, will likely never offset more than a fraction of the companys total expenses, as it only brought in $1.3 million and $1.2 million in subscription revenue in 2019 and 2018 respectively.

Garnering a substantial amount of partnerships and accompanying revenue is certainly something that could de-risk the value proposition for AgeX. While nothing you can really hang your hat on, its worth noting that management said in their November letter to shareholders that they hope to announce several collaborations in the coming months.

AgeX has a number of cell-based technologies that, from the outside looking in, appear to be a little further along in the development process than iTR. As discussed immediately above, AgeXs stem cell technology looks ripe for partnerships, and each such partnership would provide critical additional data and experience to help move along AgeXs own proprietary assets.

The first of their cell-based technologies is PureStem, AgeXs allogeneic cell therapy platform that is based on human embryonic progenitors, cells in state of development between stem cells and adult cells. The company says these PureStem cells are distinct from competitors stem cell products because they would be commercialized as off-the-shelf products, be pure and industrially scalable, have lower cost of goods per unit, be amenable to traditional pharma supply chain logistics, and have the potential for acceptable reimbursement prices.

Figure 2: Diagram Depicting PureStem Clinical Use (source: corporate presentation)

AgeX says PureStem could have higher clinical adoption because of these expected cost savings and more simplified processes than with autologous stem cell technologies, where an individual is treated only with their own stem cells.

A second AgeX technology, UniverCyte, is what would allow for universal, off-the-shelf stem cell products. Based on the mechanism by which a fetus is protected from its hosts immune system, UniverCyte is a proprietary method for making cell that are off-the-shelf compatible with basically any recipient. The licensing possibilities for such a technology seem virtually endless, and I will certainly be watching for any such developments in the coming months.

AgeX is developing 2 proprietary assets utilizing their stem cell technology. Their lead pipeline asset, AGEX-BAT1, looks to brown fat to help with type 2 diabetes. Brown fat or brown adipose tissue (BAT) is thought to be prevalent in young people but slowly goes away as they age. BAT is far more metabolically active than the typical white fat that has negative consequences for the body, and experimental evidence in mice has shown that increased levels of BAT in older mice led to weight loss and increased insulin sensitivity.

AgeX intends to create BAT with its PureStem technology and use it as a therapy in diabetic patients. The metabolic activity of brown fat is a popular idea and research topic currently, so this idea has some support outside of just AgeX. It certainly would be a big deal to AgeX if successful because the overall diabetes therapy market is huge projected to be about $59 billion by 2025.

The second stem cell therapy currently in the pipeline is AGEX-VASC1, a program to develop vascular progenitors for use in treating ischemic heart disease. The idea is to deliver vascular progenitors made from AgeX pluripotent stem cells into ischemic heart tissue to regenerate collateral circulation in patients with coronary artery disease. AgeX is hoping to begin preclinical animal testing soon. Again this is a huge potential market, but as with most of AgeXs potential, it is years away from being realized if ever.

iTR would be revolutionary as this seems to be the first attempt at getting a true cellular regeneration or reprogramming technology into the clinic and then eventually onto market if all goes well. iTR would truly turn back the clock for treated cells to a non-diseased, younger state rather than just treating symptoms.

iTR utilizes small molecules to turn on regeneration of cells. The human body can only naturally regenerate certain cells and even then, only in a limited capacity. The novel approach taken by iTR may trigger complete regeneration of cells, and potentially organs and limbs. The premise behind iTR is that embryonic cells have a capacity for regeneration that is lost at the embryonic to fetal transition. With this loss, humans can no longer generate new cells or repair damaged cells to maintain a peak physical condition. The aim of iTR is to return an aged cell back to a youthful state, without crossing over to pluripotency, the point where stem cells have yet to differentiate or become a particular type of cell.

Company researchers and collaborators recently published that they reverted cells from a 114-year old back to pluripotent stems cells via iTR technology. Despite how promising it looks, iTR remains in the preclinical phase though. Its extremely hard to quantify the potential value of such a technology, but the one certain thing is that the road to a marketed iTR product will be a long and expensive one.

Even though any such value is incredibly speculative given that AgeX having an approved drug is likely a decade or more away, I attempted to assign a present value to the potential future cash flows AgeX could receive from their 3 current pipeline assets. All of the markets for these potential therapies are extremely competitive ones with numerous current therapies and doubtless many others that will come out long before AgeXs do.

Accordingly, I modeled a fairly low 10% peak market share despite how transformative AgeXs therapies could ultimately be. Also, I only gave AgeXs therapies a 5% overall chance of reaching the market given their extremely early and novel nature and especially the fact that none of them have reached the clinic yet. Below are charts showing my models for each of these pipeline therapies:

Figure 3: My Present Value Estimates for AGEX-BAT1, AGEX-VASC1, and AGEX-iTR1547 (source: data from AgeXs 10-K and my calculations based on them)

As you can see in Figure 3, even though any cash flow from the pipeline is many years away, there is still a good bit of present value to each of these assets because of how large potential market size is likely to be. I then subtracted out my estimates of expenses, which were $117 million each for R&D for the 3 main therapies and SG&A expenses scaled up from the current level to eventually being 35% of revenue once these therapies hit the market.

Figure 4: My Fair Value Estimate for AgeX (source: data from AgeXs 10-K and my calculations based on them)

My best attempt at a fair value estimate for AgeX at present is about $1.31 per share. Although this is now 50% above current levels, as you can see from Figure 5 AgeX was trading at roughly my fair value estimate before the recent broader market sell-off.

Figure 5: AgeX Stock Chart (source: finviz)

In theory, this suggests the company is presently undervalued and could even have meaningful short-term upside. Its worth noting though the far higher risk of loss of capital though when trading a company with no assets in the clinic and as little cash as AgeX versus the later stage biopharma stocks I more commonly invest in and write about. Although I have a great deal of respect for many of those involved in the company and personally find this area of development fascinating and compelling, I'm holding off on it as an investment at this time while I continue to watch the company with great interest.

AgeX has an extremely long road ahead of it. While my model does suggest some potential upside, I consider the company to be in the ballpark of fair value even at these low levels because of the high amount of uncertainty in their pipeline and their cash-strapped balance sheet. The only reason in my mind that justifies holding any position here is that AgeX seems to have novel and potentially lucrative technology that could result in partnerships which might quickly change the companys outlook. Any substantial rise in the share price though without a partnership, improvement to the balance sheet, or major pipeline progress would be a reason to sell in my opinion.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Im not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor the timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself without notification. The thesis that I presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as a recommendation to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. You are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance as financial circumstances are individualized.

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AgeX Therapeutics: Revolutionary Potential But Extremely Early - Seeking Alpha