What's All the Fuss About Stem Cells?

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It's a brave new world, and we have Sweden to thank for it.

Over the weekend, Swedish researchers announced the successful transplant of an artificial trachea to a patient whose own organ had been ravaged by cancer. The kicker: This "artificial" trachea was composed of the patient's own tissue, grown from stem cells excised from his nose and bone marrow, and implanted on a synthetic framework structure. Being cut from the same cloth as the patient himself, the organ therefore has no risk of rejection by the patient's immune system.

Stem-cell investors went wild over the news, sending shares of R&D shops including Geron (Nasdaq: GERN  ) , Cytori Therapeutics (Nasdaq: CYTX  ) , Aastrom Biosciences (Nasdaq: ASTM  ) , and of course StemCells itself up as much as 20%. Most of these stocks have since given up their gains, with only Cytori holding on to most of its pop.

And that makes you wonder who was right: the folks who piled into stem-cell stocks on news of Sweden's miracle meatball, or the folks who dumped the stock post-pop?

Bull thesis
Bulls will argue that each of these companies becomes more valuable now that the utility of stem cells has been proven. Big Pharma is starting to dip its toe into the stem-cell sea, as research efforts by GlaxoSmithKline (NYSE: GSK  ) and Pfizer (NYSE: PFE  ) lend credibility to the therapy.

Bear thesis
Bears, however, will argue that while Sweden's announcement is certainly good news (for one patient in particular), we've known about the promise of stem cells for years. Problem is, the promise of stem cells has remained just that: a promise, and one as yet unfulfilled for investors. None of Geron, Cytori, Aastrom, or Stem Cells is currently profitable. Wall Street doesn't see any chance of a change next year, either.

Foolish takeaway
I'm all in favor of stem-cell research, so long as it's confined to adult stem cells such as the ones used so successfully in Sweden. But I'm not prepared to sacrifice my entire investment in furtherance of the research. I'd rather own a company with the financial wherewithal to survive, unaided, until someone develops a viable business model involving stem cells. PerkinElmer (NYSE: PKI  ) , for example, bought out my own personal favorite stem-cell company, ViaCell, four years ago.

Unlike the R&D shops, PE actually has a P/E. It costs just 8.1 times earnings, and Wall Street has it pegged for 12% long-term growth. If stem cells are the future, I'll bet PerkinElmer will be around to see it.

Think PerkinElmer is too boring or too diversified? Think there's more profit to be made in unprofitable pioneers like Geron? Make the research easier on yourself, and add 'em to your Fool Watchlist.

Fool contributor Rich Smith does not own shares of (or short) any company named above.

The Motley Fool owns shares of GlaxoSmithKline. Motley Fool newsletter services have recommended buying shares of Pfizer and GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (7)

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 July 14, 2011, at 6:30 PM, 123spot wrote:

    Curious as to why only interested in adult stem cells and not also embryonic stem cells.

  • Report this Comment On July 14, 2011, at 6:43 PM, Superfeeed wrote:

    What you say is dead on. Validation of the technology has not happened and thus has caused main stream investors, both retail and commercial to stay away. Geron Corps hESC-GRNOP-1 drug for spinal cord injuries has an uphill climb to prove 100% its cells are responsible. ONLY one Company, Advanced Cell Technology ACTC will be able to provide investors/Big Pharma what they want "proof" A picture is worth a thousand words? How much is a before an after picture worth of a Bruch's membrane showing ACT's hRPE cells attaching to it using Optical coherence tomography (OCT) in the hands of state of the art UCLA? No mention of ACT because it is a pennystock? tisk tisk. it is a well funded pennystock with 66% of the approved FDA human hESC clinicals and it is the next HGSI or DNDN.



  • Report this Comment On July 26, 2011, at 8:16 PM, sluggo47 wrote:

    The reason you are only for adult stem cell research is because your like does not depend upon it...............yet. Very short sighted and probably a fundamentalist Christian Rightest.

  • Report this Comment On July 29, 2011, at 11:05 AM, lcwilliam wrote:

    Rich Smith - we've now added you to the list of individuals who will refuse a cure for your inevitable future diseases (no one is healthy forever) if the cure comes from embryonic stem cells.

    Wait until you're in the 40% of the population that will have cancer, or when your children have a life threatening condition, or... you'll wish embryonic stem cell research hadn't been slowed by articles like yours.

  • Report this Comment On December 01, 2011, at 1:42 PM, englishdk wrote:

    "The Fool" identified Geron as a Wall Street Gem about 3 months ago when it was trading at about 5.00/ share based on approval of a embryonic stem cell trial. Now the stock is trading at 1.74. In a progress report to the FDA 3 weeks ago, Geron noted no adverse effects were onserved in the treated patients. Three days later, Geron's CEO announced the company would abandon all stem cell research as well as the clinical trial sending stock prices down 70%.. I would advise traders to not base values of corporations in stem cell research on corporate announced progress.

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