Time to Buy Into Stem Cells?

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Much to the chagrin of speculative investors, I haven't been all that excited about stem cell companies (see here and here, for instance). It's not that I don't think stem cells have potential -- they do -- but potential can't fund your retirement.

However, a couple of recent developments have me keeping a closer eye on stem cell companies. I'm not buying yet, but they're looking more appetizing than ever before.

Full speed ahead
Preclinical data is nice and a necessary step in drug development, but making mice walk again doesn't exactly tell you whether the drug works in humans. The market for treating mice with stem cells is fairly limited, I would imagine.

Fortunately, quite a few companies have gotten past the preclinical stage over the past few months. After much delay, Geron (Nasdaq: GERN  ) announced that the Food and Drug Administration had released the clinical hold on GRNOPC1, which will treat patients with acute spinal cord injuries.

In August, Neuralstem announced it was ready to begin clinical trials of its stem cell therapy for chronic spinal cord injury in the U.S. StemCells (Nasdaq: STEM  ) is headed overseas to test its HuCNS-SC in patients with chronic spinal cord injuries. The drugmaker received the green light from the Swiss authorities last month.

We're still years away from phase 3 data, let alone an FDA approval, but the progress is better than nothing.

Big brother's buying
In another sign that investors should be paying attention, larger drugmakers are starting to enter the space, albeit in limited fashion.

GlaxoSmithKline has a partnership with Harvard Stem Cell Institute, and Pfizer (NYSE: PFE  ) established a group to study potential treatments.

About a year ago, Pfizer licensed tiny Athersys' MultiStem for treating inflammatory bowel disease (IBD). It wasn't a major investment; Pfizer only spent $6 million to gain access to the treatment. The pharma giant will have to pay for all the early clinical trials, but the drugmaker is only on the hook for milestones of up to $105 million and royalties if the drug is commercialized.

Cephalon (Nasdaq: CEPH  ) announced last month that it was buying a 20% stake in Australian stem cell company Mesoblast; the two would develop stem cell treatments for cardiovascular and central nervous system disorders. Between the upfront payment and an equity stake, Cephalon is investing $350 million, and that's not pocket change, especially for a drugmaker the size of Cephalon.

If Billy jumped off a bridge ...
Your mom was right. Just because larger drugmakers are showing increased interest in stem cells doesn't mean they're a buy right now. Pharma doesn't always get it right.

After Merck (NYSE: MRK  ) bought Sirna Therapeutics in 2006, its closest rival in the RNAi space, Alnylam Pharmaceuticals (Nasdaq: ALNY  ) , ballooned into a $1.4 billion company. Since then, the industry has made slow progress toward bringing RNAi drugs through the clinic, and Alnylam's shares have come back to earth. Investors following Merck's lead may eventually be winners, but it's going to take awhile.

Here's another way to look at it: Large pharma companies have multiple drugs in development and stem cells make a small portion of their portfolio. They can afford to take on the risk because if it blows up or takes an extended amount of time to develop, it won't affect the pipeline all that much. If you are going to invest in stem cell companies, it would be wise to keep it to the same small portion of your portfolio.

Watchlist time

Being the last day of January, there's still time to add a New Year's resolution: keeping a closer eye on stem cell companies. I'm not recommending buying just yet, but keeping abreast of the news will help you realize when you should jump in. You can use the Fool's free watchlist feature to help keep the stocks on your radar. Click below to start following these stem cell stocks:

Pfizer is a Motley Fool Inside Value selection. GlaxoSmithKline is a Motley Fool Global Gains recommendation. The Fool owns shares of GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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

Read/Post Comments (7) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 31, 2011, at 7:33 PM, PeyDaFool wrote:

    No mention of Advanced Cell Therapeutics? How can you have this discussion without ACTC?

  • Report this Comment On January 31, 2011, at 9:26 PM, jlminer wrote:

    i agree - actc has 2/3 of the fda approved trials and no mention of Advanced Cell Tecnology? this must have been researched extensively prior to publishing - NOT.

  • Report this Comment On January 31, 2011, at 9:36 PM, daddon wrote:

    Nobody wants a piece of ACTC. Not paying attention boys!

  • Report this Comment On January 31, 2011, at 9:49 PM, topsecret10 wrote:

    You forgot one more NBS Neostem :)

  • Report this Comment On February 01, 2011, at 11:20 AM, btown819 wrote:


    Based on my analysis, I think Mesoblast and Athersys are the leaders in this area. Athersys has similar results to Mesoblast in the heart attack area using animal models. Athersys uses adult stem cells of a different type than Mesoblast but that are also allogeneic... so I don't think patent infringement will be an issue for either company, although results generally seem similar for their respective products. Athersys also has successfully produced their prospective product on a commercial level in large quantities (something I'm not sure Mesoblast has done yet, but is by no means impossible). Check out Athersys and let us know your thoughts. Athersys's product is scheduled to enter Phase II this year, so it is a bit behind mesoblast in that regard.

  • Report this Comment On February 01, 2011, at 1:30 PM, ICanFool wrote:

    ASTM under the Radar.... not mentioned. If they are in Phase2/3 does it count? If they already got Orphan Drug status, does it become irrelevant? Oh Ya they are not drug companies they are just BioTech ... I wonder whichFool/Idiot wrote this article? Did this idiot/Motleyfool who wrote see ?

    Did he read ?

    First Patient, First Doctor Patel ... Best in everything 29-Dec-10 09:14 am

    to make almost dead people walking again..

    If ASTM does not have proven technology, no Fool reading this should anytime Read any thing any Motley Fool writes. Amen.

  • Report this Comment On February 01, 2011, at 9:20 PM, NanoORBust wrote:

    Pluristem (PSTI) has been on the rise but still with a very small market cap. It has been compared to Mesoblast. Recent drop is temporary and shook out traders but the share offering should get the big boys on board.

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