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NOVEMBER 15, 2004
By Sarah Lacy Stem-Cell Stocks: Fact vs. Fancy California voters' decision to fund research has lifted share prices. Trouble is, not one of those outfits will see the benefit anytime soon Forgive Tom Okarma if he's a bit testy these days. Sure, the passing of California's Proposition 71 on Nov. 2 has created $3 billion dollars of potential grants for Okarma's field, embryonic stem-cell research. That dwarfs the $25 million now available each year through the National Institutes of Health. But the news has created a firestorm of press calls, misconceptions, and confusion which the CEO of Silicon Valley-based Geron (GERN ) has been navigating with increasing impatience. "The politicization of this has created a whole field of overnight experts who have no clue what they are talking about," he says. "Most of them have never seen an embryonic stem cell." INVESTOR EUPHORIA. Stem cells have yet to morph into, say, brain or skin cells. Taken from human embryos, they can become nearly any kind of cell in the body, and they reproduce indefinitely. While adult stem cells, usually extracted from bone marrow, are similar, their ability to reproduce is limited reproduce, as is the kind and range of cells they can become. Scientists hope embryonic stem cells hold the key to remedies for now-untreatable diseases like Alzheimer's and Parkinson's. In addition to the debate about the benefits of stem-cell research, there's a whole different controversy brewing: Who will benefit from California's voter-mandated infusion of cash? The immediate answer isn't Geron or other stem-cell outfits, such as StemCells (STEM ) in Palo Alto or Aastrom Biosciences (ASTM ) in Ann Arbor (Mich.). Nor is it the venture capitalists who donated a good portion of the $25 million used in the campaign to get the measure passed. It's academic and research institutions like Stanford University, the University of California, and the Salk Institute for Biological Studies in San Diego. Between the, they're expected to receive the lion's share of California's funding plan. That hasn't stopped investors from getting carried away. Shares of Geron, StemCells, and Aastrom soared in the weeks leading up to the election. They got an extra bump on Oct. 25, after California's Governor Arnold Schwarzenegger endorsed the proposition. StemCells's stock consistently traded under $2 before October. By Nov. 1, it had more than doubled, to $4.28. MAKING HAY. Bear in mind, of the three outfits, only Geron works with embryonic stem cells. StemCells and Aastrom focus their research on adult stem cells. Neither has any intention of getting into embryonic stem-cell research, and since Aastrom has no employees in California, it wouldn't be eligible for state funding. Investors seem at least to have figured out that much. Aastrom shares were going for $1 in late-day trading on Nov. 12, down from their $1.44 peak on Oct. 25. As for the other two outfits, their Wall Street joy ride continues. Geron was at $6.98 on Nov. 12, while StemCells, hit by profit-taking in the days after the election, commanded $2.82 -- down on the highs it hit at the start of the month, but still well above the levels at which it had languished through most of 2004. All three have taken advantage of the hype to pad their coffers. Aastrom raised $10 million in private funding Oct. 27 and StemCells raised $22.5 million from similar sources Nov.1. Geron announced on Nov. 11 that it is selling 6.5 million shares with a view to raising $40 million. They were savvy business moves. For little companies in the research-intensive biotech industry, plenty of money in the bank means a much-improved chance of staying in business long enough to get a product out the door.
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