Stem cell breakthrough drives share gains for now

The news that stem cells can now be created without destroying human embryos has sparked a fresh wave of investor interest in stem cell companies, driving double-digit share increases.

Earlier this week, separate teams of US and Japanese scientists revealed that they had managed to re-programme adult cells to revert them back to an embryonic state.

Both scientific teams managed to produce undifferentiated cells by injecting specific genes into a mature human cell, which caused the cell to regress into embryo-like cells.

The teams then demonstrated that, under the right conditions, the newly created cells could be turned into nerve, heart and other types of human tissue.

Lower costs could mean bigger profits

The renewed investor interest in commercial stem cell companies, following the scientific breakthrough, has come with the realisation that not using human egg cells will significantly lower the cost and speed up the time of stem cell research.

The method also opens up the therapeutic uses to more patients, as well as side-stepping the vexed ethical issues around creating and destroying human embryos, which has stifled US investment in the field.

Some of the biggest share price winners on the back of the news have been Advanced Cell Technology, StemCells, Aastrom Biosciences and Chemokine Therapeutics, the most mature companies operating in the space.

Runners and riders

Advanced Cell Technology already carries out cell-reprogramming as one of its three research strands, making it the most obvious beneficiary among commercial stem cell companies. The Los Angeles-based group saw its shares climb 18% by the close of day on Wednesday to $0.29, ahead of the Thanksgiving holiday.

Shares in StemCells, the largest company operating in the space, also rode the upward surge of sentiment, closing 16% higher on Wednesday at $2.08. This provided a welcome boon for the company that earlier this month reported widening third quarter losses of $7.15m.

Aastrom Biosciences, which has four different stem cell treatments in its research portfolio, saw its shares rise by 12% to $0.91, while Chemokine shares finished 9% higher at C$0.35.

Embryonic companies

Considering Chemokine’s shares have already fallen back to their original levels before the news, the interest could prove to be short lived. Despite the sudden interest in the companies, none of them can boast a particularly advanced pipeline, all of which remain high risk, even after the new breakthrough.

StemCells is enrolling patients into its phase I trial to treat Batten Disease, its only non-research stage programme. Similarly, only one of Chemokine’s two products, CTCE-9908, is in the clinic. The treatment, which inhibits the growth and spread of cancer cells from the primary tumour, is also in phase I.

ACT, through its acquisition of Mytogen in September, has completed a phase I mytoblast treatment for heart failure and is currently enrolling patients into the phase II study. ACT intends taking the treatment all the way through to phase III.

The most clinically advanced of all the companies is Aastrom, with its phase II bone regeneration product, which is expected to move into Phase III by the beginning of next year. The group also has three other products, including two preclinical products and treatment for blocked blood vessels in phase I.

As such, it is not surprising that the immaturity of the companies is reflected in their share prices, all but one trades under a dollar.

Jam tomorrow?

In reality, despite the current flurry of excitement over the break through by the US and Japanese scientists, the new technique is unlikely to have an impact on any commercial programme for several years.

This long time line means that many of the companies currently operating in the space – who are on average burning cash at a rate of $5m every three months - will be looking for several rounds of funding before investors see any real payback.

It also means that the recent share price gains are unlikely to be repeated for a while. So those investors who are piling into the stocks now should prepare to hunker down for a long wait and not be too disappointed if their holdings are diluted over the years by future fund-raising.