A Stem-Cell Primer

While President George Bush is adamantly opposed to establishing new embryonic stem-cell lines, states including California, Connecticut, and most recently Illinois have passed laws allowing public funding of stem cells.

While most of the money goes to researchers at academic institutions, companies working on stem-cell therapies should also benefit from the increased spending. They could take advantage of the money directly by setting up collaborations with academic labs, but they could also benefit by using the knowledge gained by researchers to their advantage. Here's an initial look at some of the companies that should be able to profit from the increased public spending.

But first, what is a stem cell?
There are essentially two kinds of stem cells: embryonic and adult. All the cells in your body originated from a single cell. The process of creating skin, muscle, and all the other types of cells is known as differentiation.

As the name implies, embryonic stem cells (ESCs) come from embryos. Just like an embryo, ESCs have the ability to become any type of cell, if given the right signals to differentiate.

Adult stem cells are partially differentiated cells on their way to becoming certain types of cells. For instance, hematopoietic stem cells are capable of creating the different types of blood cells, but couldn't become a skin or a lung cell.

Advancing the science
There are a lot of companies working on different aspects of stem cell research. Here's some highlights from a couple to get you started on your research:

Geron (Nasdaq: GERN  ) is working with ESCs to try to repair tissue damaged because of disease or injury. Its most promising work has been developing cells to regenerate spinal cords, which it expects to begin testing on humans next year, and the heart, for which it recently published preclinical data.

StemCells (Nasdaq: STEM  ) is also working on therapies for regenerating spinal cords, but it has decided to focus on adult stem cells derived from brain tissue. It has also discovered adult stem cells that are precursors to liver and pancreas cells, which could be used to treat disease in those organs.

Osiris Therapeutics (Nasdaq: OSIR  ) has one product on the market, Osteocel, which contains bone stem cells and is used by orthopedic surgeons to mend bones. It's not a pure stem-cell product, but it's a nice first step. The company's lead clinical candidate, Prochymal, is in phase 3 trials for steroid-refractory acute Graft vs. Host Disease (GVHD).

Preparing for the future
There are stem cells all over one's body and even in umbilical cords. Whether stem cells from umbilical cords can be useful for treating the diseases discussed above later in the life of the newly born child is anyone's guess -- in case you're wondering, my guess is yes, although maybe not in my lifetime. Currently the cord blood may be useful for children if they develop some blood based diseases such as leukemia.

ViaCell (Nasdaq: VIAC  ) is trying to take advantage of people's optimism about stem cells with its ViaCord umbilical cord blood storage service. The business plan is fairly straightforward: The company collects blood from umbilical cords and stores it -- for a fee -- until it's needed and, more importantly, there's actually a method to use stem cells to the patients' advantage.

ViaCell has yet to make a profit because of the high costs of advertising to all those expectant mothers, plus trying to push stem-cell research further along by running research of its own. But it looks as though things are about to turn around for the company. The advertisements are paying off -- sales are up -- and it's cutting back on costs, including research and development, in the hopes of becoming profitable in the first half of next year.

The biggest risk with ViaCell and its archrival, Cryo-Cell, is that they're banking on stem cells being useful for something. ViaCell will only be able to continue to make a profit if parents believe that paying for storage will help their little John or Jane in the future. Thus, more than anything, I'd say the news about stem cells will drive sales and thus the stock price of this company.

A safer play
I know what you're thinking: "The word 'safe' shouldn't be anywhere in an article about stem cells, unless it's referring to where the companies should keep the large stash of cash they use to finance their burn rates." But one company should be able to make money off stem cells even if a stem-cell drug is never developed.

Invitrogen (Nasdaq: IVGN  ) designs and sells reagents to laboratories, including a wide array of products to help researchers grow and differentiate stem cells. One of its newest offerings, STEMPRO hESC SFM, is a revolutionary medium that allows embryonic stem cells to grow while maintaining their pluripotency -- the ability for them to become different types of cells. Both companies and academic researchers will use the medium to grow stem cells in the laboratory.

The stem-cell reagents aren't going to blow the top off Invitrogen's revenue -- it is a rather large company, after all. But for an investor who wanted to be involved in stem-cell research without worrying that the technology might never come to fruition, this would be a good company to investigate further.

Long-term investment
A stem-cell drug is still far from a sure thing. But then, so were biotech drugs in the 1970s. That hasn't kept investors in Genentech (NYSE: DNA  ) or Amgen (Nasdaq: AMGN  ) from making a lot of money over the years. The key is to realize that you're investing in an unproven technology. If you take a long-term approach and keep the sector to a reasonable fraction of your portfolio, stem cells could do more than just extend your life -- they could also make it more profitable.

Need a little help finding the best emerging technologies? Check out the latest stocks we've picked for the Fool's market-beatingRule Breakers newsletter. Take a look at all our recommendations with a free 30-day trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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