Investors in stem cells companies seem to have finally realized that federal funding of stem cell research isn't all that important for companies developing stem cell therapies -- at least for most of them.

On Friday, a federal appeals panel overturned a 2010 ruling by a federal judge that banned the National Institutes of Health from funding embryonic stem cell research. The appeals court had already put a stay on the earlier ruling, so the funding was already continuing.

The ruling is very important for academics, but most of the research being done at stem cell companies is funded by the companies' coffers. The companies will indirectly benefit from the advancement of the field, but whether the government funds research at universities doesn't matter all that much to their clinical programs.

Unlike with previous rulings, investors didn't go crazy -- with one exception.


Share Increase (Decrease)

Geron (Nasdaq: GERN)


StemCells (Nasdaq: STEM)


Cytori Therapeutics (Nasdaq: CYTX)


Pluristem Therapeutics (Nasdaq: PSTI)




Aastrom Biosciences (Nasdaq: ASTM)




Source: Capital IQ, a division of Standard & Poor's.

Investors in StemCells are somewhat justified in their exuberance over the ruling. In addition to developing stem cell therapies for spinal cord injuries and other disorders, StemCells sells reagents that help scientists grow stem cells. Like Life Technologies (Nasdaq: LIFE), which sells similar products, StemCells reagent sales would be severely hurt if the ban had gone through. Long term, the value of StemCells should be tied to its clinical therapies, but in the short term, revenue from reagents sales is helpful.

This isn't the end of the fight over federal funding. There will likely be appeals to the full appeals court and all the way to the Supreme Court, but hopefully this is the end of overreactions by investors.

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Motley Fool Rule Breakers is always on the hunt for hot drug stocks and other cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription. Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. We Fools may not 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.