A StemCell First

Stem cell research has generated a lot of controversy, but one thing is sure: The stock of StemCells (Nasdaq: STEM), a development-stage company at the forefront of adult stem cell research, has been on a tear since before the last election. From an Oct. 1 close of $1.56 (yes, a penny stock!), the stock has soared fourfold.

Today's news is that the company filed its first Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) seeking approval to use adult human brain cells in clinical work to develop a treatment for Batten disease -- a  rare genetic disorder affecting the central nervous systems of children.

The company proposes using its proprietary neural cell therapy product, HuCNS-SC, in the research. Approval by the FDA would make StemCells the first to test a purified composition of human neural stem cells in the lab in an attempt to find a potential therapeutic agent.

Wall Street welcomed the news, sending the stock up 37% in afternoon trading to a new 52-week high.

To the company's credit, its representatives are calling attention to the risks at this stage. With statements such as, "We are exploring new territory, which dictates that we proceed with due caution," and "It is only a first step...," StemCells is making it clear that this application is not a fast pipeline to sure profits.

The stock has already benefited from a ballot initiative passed by California voters in last November's election. Proposition 71 approved "funds of approximately $295 million annually for 10 years, beginning with 2005," for stem cell research. With Palo Alto, Calif.-based StemCells' IND in place, this funding could not have come at a better time.

Investors seeing only green would do well to read the commentary fellow writer Charly Travers wrote on stem cells and consider his words: "Stem cell research is in its infancy with numerous problems that need to be overcome through years of basic research. Commercialized products are a long way off, and the reality is they may never come."

StemCells may have beat competitors Geron (Nasdaq: GERN) and Aastrom Biosciences (Nasdaq: ASTM) in making the first such IND filing. That's important progress, and this news may be music to the ears of the risk-tolerant crowd. Conservative investors, meanwhile, would be wise to consider StemCells' long-term funding needs and lack of Phase I clinical trial results, before investing their hard-earned dollars.

The Motley Fool is investors talking to investors. Join in the discussion of Geron, or biotechnology in general, on the Motley Fool discussion boards.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.