BioTransplant

(BTRN)

, a tiny biotech firm based just outside Boston, is developing a novel treatment that "re-educates" a patient's immune system to combat cancer and a host of other diseases and which may also one day radically improve organ and tissue transplants.

Still, BioTransplant is flying below Wall Street's radar, thanks to the sagging biotech sector and the fact that much of its work is in early testing. Positive research results helped the shares jump 90% in two weeks, but the company still trades at around $6 per share, with a $70 million market capitalization -- a pittance compared to biotech's marquee names.

But the company is expected to report steady progress on its treatments in the coming months. Add that to a well-timed acquisition and a potentially lucrative alliance with another biotech drug maker, and BioTransplant may make some noise.

"With all the inflated valuations given to biotech companies these days, BioTransplant is as good as it gets," says Dr. Jonathan Schlakman, a Philadelphia radiologist who has also consulted for biotech hedge funds. Schlakman is long BioTransplant.

The BioTransplant story starts with a simple premise: Two immune systems can be better than one. The problem, of course, is that immune systems don't mix. Recipients of donor organs and tissue face a constant threat of rejection, and must take a lifetime course of anti-rejection drugs that have their own nasty side effects.

But BioTransplant is using an experimental antibody called Medi-507 to mix the immune systems of a patient and a donor in a way that prevents rejection and also boosts the patient's ability to kill cancer cells in the blood.

The novel treatment has already been used successfully on two patients at

Massachusetts General Hospital

, which is working with BioTransplant on the research. Each patient was critically ill, suffering from multiple myeloma, a cancer of the bone marrow. To make things worse, the cancer had invaded the patients' kidneys, causing them to fail.

"These patients were terminally ill," explains Elliott Lebowitz, BioTransplant's CEO. Their kidneys couldn't take the strain of chemotherapy and they were too sick for a kidney transplant.

Each received a double transplant of bone marrow and a kidney after receiving mild chemotherapy and a treatment with Medi-507.

The antibody allowed the two immune systems to become one, which not only began killing cancer cells in the blood, but also prevented rejection of the transplanted kidney.

BioTransplant announced April 19 that the two patients have kept their new kidneys without taking anti-rejection drugs and have been free of myeloma for two and half years and six months, respectively. Further clinical trials will begin later this year

"This is the first time that this has ever been done," said A. Benedict Cosimi, chief of the transplantation unit of Massachusetts General Hospital and a

Harvard Medical School

professor. "We know that tolerance can develop and that some patients have been able to discontinue immunosuppressive therapy but didn't know why. This is the first deliberate upfront effort to create tolerance."

Schlakman describes it in more human terms. "I met one of the patients and it's hard to find a more compelling story," he says. "

Before the treatment this woman was bedridden from the cancer and on dialysis because of kidney failure. She was dying.

"

After the treatment, she had no signs of myeloma and the kidney transplant was working," he adds. "She wasn't taking any immunosuppressive drugs and she felt fine. In fact, she drove me home from the meeting. That's an astounding thing."

BioTransplant plans on presenting results from the two patients at the

Transplant 2001 Meeting

on May 14. CEO Liebowitz says the initial development focus of the treatment -- referred to as the AlloMune System -- will be on cancers of the blood. But eventually, he believes the treatment could be expanded for use on all types of transplant surgeries where rejection is a hazard.

Biotech is littered with the carcasses of companies that showed early promise, only to wither and die when their products failed late-stage testing. That's the big hurdle for BioTransplant on Wall Street. Even if all goes well with the AlloMune System, a filing for approval with the

U.S. Food and Drug Administration

is still at least two or three years away.

One hedge fund manager, who's given BioTransplant the once-over, passed on the investment. "The company is too small and I don't know if they've proven the technology really works," he says.

But BioTransplant also has a short-term revenue story to tell. The company is poised to acquire

Eligix

, a privately held company with a device that can be used to eliminate cancer cells from bone marrow. The device was cleared for sale in Europe in February, and on April 30, BioTransplant announced the start of late-stage testing in the U.S., a precursor to approval here.

BioTransplant has also licensed its Medi-507 antibody to biopharmaceutical firm

Medimmune

(MEDI)

, which has reported positive test results as a treatment for psoriasis. If approved, BioTransplant will receive royalties from Medimmune for Medi-507, estimated to about 10% of sales, a relatively lucrative deal, according to biotech analyst Matt Kaplan of

Punk Ziegel & Co.

, a boutique investment bank and the only firm offering official coverage of the company. (

Lazard Freres

reportedly is picking up coverage next week.)

"BioTransplant is an under-appreciated stock that gets practically no attention from Wall Street even though it has a number of products in development that could bring in near-term and long-term revenue," says Kaplan, who recently initiated coverage with a buy rating. His firm hasn't done banking for BioTransplant.

And that revenue, combined with more positive news from its development to use mixed immune systems to fight cancer and reduce transplant rejection, could be the pop that gets BioTransplant noticed by investors.

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