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How to Invest in Stem Cell Sciences

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Small companies like Pluristem Therapeutics and Aastrom Biosciences are early in development but offer promising opportunities.

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Stem cell science may seem more like science fiction than reality, but plenty of biotech and pharmaceutical ventures in this space that once seemed like they would never come to fruition are showing signs of life.

These companies are actively collecting patents and conducting clinical trials in an effort to turn the miraculous into actuality. Earlier this week the Israeli stem cell company Pluristem Therapeutics (PSTI) received a patent in Europe on its core 3D cell expansion technology. The company already has patents on the technology in the US.

"Investors have largely ignored the stem cell space because the technical challenges have seemed insurmountable. However, we would compare the stem cell arena today to the field of monoclonal antibodies a few years ago," says Jason Kolbert, an analyst at National Securities. "Today, several billion-dollar blockbuster antibodies are on the market and almost 200 monoclonal antibodies are in development for a wide variety of diseases."

There are a few things you need to know if you're going to invest in this space. First, the technology is far from perfect and it will be five years before any of these companies will enter serious late-stage development on their stem cell technology. It will be hard to tell which of these companies are going to come out ahead in the end, but there are a few criteria that you should consider when looking at their approaches to the science.

Stem cells come in two forms: autologous or from your own body, and allogeneic or from a young, healthy donor. Some donations come from embryos, others from placentas, and others from adult bone marrow. Companies like Geron (GERN), Osiris Therapeutics (OSIR), Athersys (ATHX), and Pluristem are working with allogeneic cells, while Aastrom Biosciences (ASTM), Cytori Therapeutics (CYTX), and Neostem (NBS) are using autologous cells.

The next thing to consider is whether the company is trying to graft stem cells into a patient's body that will stay in the body and reproduce or if the company is injecting stem cells into the body that will be flushed out once they stimulate the existing tissue. These two approaches make a huge difference because there is a larger likelihood that cells that stay in the body could continue to reproduce uncontrollably and result in cancerous growths called teratomas.

Kolbert says that investors can expect to see some exciting data coming out of the space over the next few years as clinical trials reach phases II and III. "Aastrom seems to be leading the way clinically," says Kolbert. He expects to see some interesting data in treatments for stroke, Myocardial infarction, and bone marrow transplants coming from Athersys over the next two years.

Geron and Osiris have had some setbacks of late. Late last year, Osiris presented data from two phase III trials in graft versus host disease, or GvHD, which occurs when a patient's body rejects donor cells. The results didn't meet the primary goals of the study and the company is currently talking with the FDA to figure out a new path for the technology. Meanwhile, one of Geron's treatments caused the development of cysts, raising flags with the FDA.

"A key consideration for investors is the fact the entire stem cell sector is capitalized at $1.6 billion. If the three market leaders are excluded, it is under $500 million, for a space with the potential to revolutionize medicine as we know it today," says Kolbert. "The three largest companies represent approximately 63% of this value, with the other 12 companies contributing the rest. Hence, a basket approach may also be an attractive means to invest in this space, instead of attempting to pick winners and losers."
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No positions in stocks mentioned.

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