How to Invest in Stem Cell Companies | eHow

By eHow Contributor

There are some good reasons to be cautiously optimistic about looking at stem cell companies as investment opportunities. Pres. Obama has already removed Bush administration restrictions on federal funding of controversial embryonic stem cell research, for example. Washington lawmakers have introduced legislation to futher loosen restrictions. Some stem cell companies are likely to benefit from that in the form of National Institutes of Health and other federal research grants, though perhaps not as much as universities and other biomedical research institutions. But remember that most stem cell companies are working with stem cells derived from other sources: fat tissue, umbilical cord blood, placentas, amniotic fluid, induced pluripotent stem (iPS) cells derived from tissues like skin, etc. One company actively involved in embryonic stem cell research is Geron Corp., which in January 2009 announced that the U.S. Food and Drug Administration had finally lifted a seven-month hold on its application for clinical trials of a human embryonic stem cell-based treatment that can be applied within seven to 14 days of acute spinal cord injuries. But some analysts were less than impressed with the announcement, noting that it will be a long time (summer 2009) before the trial starts. And there's no guarantee the Phase I safety trial will succeed and move on to Phase II. Some analysts have been very critical of the company, noting that its only real success has been in raising money, not bringing drugs to market. (This can be said of a lot of stem cell companies.)

But Geron is only one of 27 companies involved in stem cell research that are conducting or recruiting for clinical trials in a wide range of diseases and disorders. (Another 60+ companies aren't even close to testing a therapy on humans.) Fourteen of the 27 are publicly traded, here and abroad. With that in mind, here are some tips if you are interested in investing in stem cell research companies sooner or later.

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Start watching these companies closely, paying attention to the progress of their clinical trials, their financial health, strategic research partnerships, etc. Go to their Web sites and add yourself to the press release or financial report distribution list. (There's a link in the Resources section below to a Web page that provides contact and clinical trial information on both the public and private companies with products being tested in the clinic.)

Pay close attention to companies that are in partnerships with bigger, more established pharmaceutical firms with deep pockets. Pfizer, for example, is actively embracing smaller companies with promising technologies or products (like stem cells for research). Pfizer already has arrangements with companies like Stem Cell Sciences (UK) and EyeCyte (U.S.), and more may be in the works. PerkinElmer bought and absorbed ViaCell in 2007. Watch for developments involving GlaxoSmithKline in the future. Biomedical research supply company Invitrogen (now Life Technologies) last year took a minority position in a stem cell company called Q Therapeutics.

Remember that most stem cell research companies are at the preclinical (animal research) stage (or are just emerging from that stage) and have no products on the market. Their revenue, if any, is derived from licensing of patented technology, from venture capital and public financing, from "milestone" payments related to research partnerships, and from research grants. So the old rule of thumb about sales and earnings doubling every decade is inappropriate in this context.

No matter what companies you're interested in, pay attention to another old rule of thumb: stay away from companies that are too heavily in debt, even if the debt is held by inside shareholders.

Take a close look at the management. It's always good when top executives are major stock owners. They have a real incentive to get the company growing and keep it growing.

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How to Invest in Stem Cell Companies | eHow