Pfizer Swings for the Fences

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Just like investors need to swing for the fences once in a while, pharmaceutical companies sometimes have to look for the next big thing even if it's a long shot.

Enter Pfizer's (NYSE: PFE  ) license of a stem cell product, MultiStem, from tiny Athersys. And by tiny, I mean really tiny, as in $19-million-market-cap small before the announcement. That's well below my radar, so kudos to Pfizer for not blowing it off like the rest of us investors.

Having a big pharma partner validate its technology has caused Athersys to more than quadruple, as I write, over the last two days.

MultiStem is being tested in several conditions, but Pfizer's license is specifically for the treatment of inflammatory bowel disease (IBD), a group of conditions that includes ulcerative colitis and Crohn's disease. The license is only costing Pfizer $6 million up front because the technology is still relatively unproven, having not entered clinical trials for IBD yet. Athersys can get milestones of up to $105 million and royalties as the drug passes through clinical trials and is commercialized.

Pfizer will pay for the phase 1 and 2 trials. Then, if it gets that far, Athersys will have the option of co-developing the drug -- sharing profits and losses -- or letting Pfizer proceed on its own and take the milestones and royalty payments.

Unlike traditional stem cell companies like Geron (Nasdaq: GERN  ) that are developing stem cells to regenerate tissue, MultiStem uses donated bone marrow cells to produce a product that promotes healing of the tissue through cell signaling. Essentially it has a more drug-like profile as the stem cells are cleared from the body.

Stem cells aren't particularly new to large pharma. GlaxoSmithKline (NYSE: GSK  ) has a partnership with Harvard Stem Cell Institute and many companies, including Pfizer, Johnson & Johnson (NYSE: JNJ  ) , Abbott Labs (NYSE: ABT  ) , and sanofi-aventis (NYSE: SNY  ) , teamed up to develop stem cells to help predict side effects.

But Pfizer seems to have taken a particular liking to stem cells, having established a unit to study them last year. If you're going to follow Pfizer's lead and invest in stem cell companies, I'd suggest you also follow its lead and keep your investments in stem cell technology to a very small fraction of your portfolio.

Pfizer is a Motley Fool Inside Value selection. Johnson & Johnson is an Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.

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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