How to Profit from Stem Cell R&D - Barron's

 |  Includes: CYTX, GERN, KOOL, OSIR, STEM
by: SA Eli Hoffmann

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

COVER STORY: Stem Cells' Powerful Promise by Kopin Tan

Summary: Stem cell research has already garnered the attention of big investors and major drug producers. Companies like Genzyme (GENZ) say they are on the lookout for small, promising companies to buy: Merck (NYSE:MRK) is funding Geron (NASDAQ:GERN). GE (NYSE:GE) bought the rights to ThermoGenesis' (NASDAQ:KOOL) stem cell extraction/storage devices. And Boston Scientific has a joint venture with a private heart disease treatment developer. Investors playing the sector should be wary of one-trick companies that over-pump developing technologies to secure funding. Some promising names:

  • StemCells (NASDAQ:STEM), which got the first FDA test approval for human neural stem cell research for its Phase 1 Batten trial (see the article for a description of the disease and a thus-far successful test). The disease affects only four in a million, so blockbuster potential is zero, but the Stem Cell Flow Chart 06 05 2007company says it could have substantial impact on other research areas. At $2.50, downside risk is somewhat capped; Batten results aren't due out until late 2008.
  • Osiris Therapeutics' (NASDAQ:OSIR) bone-regeneration treatment already brought in $8.3 million in revenue in 2006, but test costs mean they are still losing money. Its heart-disease and Chron's disease treatments have had promising early test results. One analyst says shares are worth $19-22 based on 2011e earnings because of the broad potential of heart treatment. At a current $15, some of this has already been factored in.
  • Geron is sponsoring promising research and may get the first FDA approval on testing with human embryonic stem cells, but the company already trades at a steep price.
  • Companies that facilitate stem cell research may be less risky bets, such as KOOL, which may ultimately be acquired by GE or Biomet (Pending:BMET). Cytori Therapeutics (NASDAQ:CYTX) hopes to get U.S. approval for a machine that extracts stem cells from fat.

Related Links: Geron, StemCells, and Aastrom Gain On Stem Cell StudyOsiris: Promising Stem Cell Research, Questionable ManagementOsiris and Aastrom: the Best Stem Cell PlaysStem Cell Stocks Jump on New Congress Promise