10 Biotechs in Stem Cells that Could Profit Under the Democrats

by: Ketan Desai

Editor's note: This article was corrected on June 1.

Democrats and stem cells -- a budding romance. Pundits opine that this will be the year of the Democrats, at least as far as Congress is concerned. Conventional wisdom holds that pharmaceutical stocks suffer under the Democrats due to concerns over pricing and liberal drug importation.

However, one subset that may do well under the Democrats is biotechnology companies that deal with stem cells. This is based on the rationale that Democrats may be more favorably inclined to this line of therapy than Republicans since they are not as opposed to stem cells.

Stem cells are progenitor cells that, at least in theory, can differentiate into any cell type in the body. This ability to become whatever is needed is an invaluable resource where regeneration of the original tissue or organ is important. Examples include intra-articular tissues for osteoarthritis, heart muscles for heart failure or heart attacks, and neural tissues for various neurological disorders including Parkinsons Disease.

There are two sources of stem cells: adults and embryos. There are several differences between adult stem cells [ASC] and embryonic stem cells [ESC]. Embryonic stem cells are pluripotential, meaning that they can differentiate into any cell type. This makes them an excellent starting point, but can lead to problems if cells differentiate into unwanted tissue. For example, stem cells implanted into the brain of an Alzheimers patient could differentiate into muscle or bone instead of neural tissue (giving new meaning to the phrase bone head or muscle head, but I digress). However, unregulated and uncontrolled proliferation of embryonic stem cells could lead to cancer--something that concerns the FDA and clinicians alike.

In contrast, adult stem cells are mutlipotential, differentiating along their lines of origin. So neural ASCs would only form neural tissue, though not always the exact neural tissue required. Another difference is that ASCs, unlike ESCs, cannot proliferate for long periods outside the body without differentiating. This limits manufacturing options for ASC, but not for ESC.

The table below lists the status of some ASC companies:

Aladgaen, not listed above, is an ASC company in the clinic, and is about to file an IPO. I was not able to obtain sufficient information on it - hence it is not listed above.

Some companies involved in ESC research include:

Of the companies mentioned above, Osiris (NASDAQ:OSIR) is the most advanced, with marketed products, a deal with Genzyme (GENZ), a large grant from the Department of Defense for acute radiation sickness, and a marketing deal for osteocel. It has done better than most other stem cell companies that have lost up to 70% of their value over the past year. Still, Zacks rates it a hold.

Before buying any company, one must do one's own due diligence. Important factors to take into account include ASC versus ESC, technology, cash reserves, burn rate, stage of development, and management. Pay particular notice to management - a bad management team can destroy a good product. It is particularly important in this industry, so look at what the management has done in the past and how successful they were at it before they became senior management at the company you're considering. My picks to consider seriously would include OSIR and ASTM.

Disclosure: I have consulted for Athersys in the past. In order to avoid a conflict of Interest I have not included it in my picks to consider seriously.

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