(CYTX) U.S. Government Stem Cell Policy Confusion Creates Opportunity

On Monday, August 23, 2010, the Federal District Court for the District of Columbia issued a temporary injunction on President Obama’s 2009 executive order that expanded federal funding for embryonic stem cell research, returning to order the previous ban enforced by the Bush administration in 2001. The news immediately halts National Institutes of Health (NIH) funding at academic and private research labs on embryonic stem cells. The ruling was a surprise, as several research programs had already initiated work under President Obama’s executive order.

Controversy surrounding research using embryonic stem cells has grown since the NIH studies concluded in August 2000 that “…research involving human pluripotent stem cells…promises new treatments and possible cures for many debilitating diseases and injuries Incorporatedluding Parkinson’s disease, diabetes, heart disease, multiple sclerosis, burns and spinal cord injuries.”  This hypothesis led to considerable interest by researchers on human embryonic stem cells development given their ability to differentiate into any type of cell. Potential treatments to debilitating disease could be developed from human embryonic stem cell lines.

However, the creation of a human embryonic stem cell line requires the destruction of a human embryo. Those oppose to human embryonic stem cell research argue the rights and status of the embryo as an early-aged human life, and the fundamental assertion that life begins when the sperm cell fertilizes an egg cell to form a single cell.   Along this line. embryonic stem cell creation is murder.

The stock market has been closely following the debate over the past decade. The development of potential breakthrough products for Parkinson’s disease, diabetes, heart disease and multiple sclerosis are all billion-dollar opportunities. Accordingly, when President Obama signed his executive order, stem cell stocks soared on the news. And on August 23rd when a federal court judge reversed the decision, stem cell stocks sank. A basket of stem cell stocks we follow at Zacks declined by 5.5% on Tuesday, August 24, 2010.

Surprisingly, within the bathwater of the 5-plus percent decline in the stem cell index are several companies with no involvement in human embryonic stem cell development. Several companies with adult stem cell development programs, derived from autologous adipose tissue or bone marrow, were down substantially on the court ruling.

  • Cytori Therapeutics (CYTX) was down over 6%. Cytori’s Celution System, a point-of-care medical device designed for processing and creating adipose-derived stem and regenerative cells (ADRCs) is currently approved for sale in Europe and Asia, and in late-stage trials in the U.S.  Cytori’s ADRCs are created from a patient’s own fat cells (autologous) in a simple liposuction procedure.  No embryonic stem cells come into play. In clinical trials, Cytori’s ADRCs have been shown to improve fat grafting for plastic and reconstructive surgery procedures Incorporatedluding breast reconstruction, facial rejuvenation, and other soft tissue defects, as well as in the treatment of certain chronic wounds. Cytori is also exploring the potential for ADRCs for the treatment of acute myocardial infarction.
  • Aastrom Biosciences (ASTM) was down just under 5% on the news. Aastrom is developing an autologous cell therapy product extracted from adult bone marrow. No embryonic stem cells are involved. Clinical data presented by Aastrom has shown encouraging outcomes in the treatment of critical limb ischemia (CLI), an advanced form of peripheral artery disease (PAD), and dilated cardiomyopathy (DCM), a server form of heart failure.
  • StemCells, Inc. (STEM) was down over 6%. StemCells is engaged in the research and development of stem cell therapeutics and enabling technologies for use in targeting diseases of the central nervous system (CNS) and Liver.  The company’s stem cell products are derived from non-embryonic sources Incorporatedluding the brain and liver of adult patients.  StemCells also has a suite of specialty cell culture products for use in assay platforms for use in pharmaceutical research, drug discovery, and development.  No controversy here.
  • International Stem Cell Corp (ISCO) was down just under 4%. ISC is developing a new stem cell technology called parthenogenesis for the treatment of retinal degeneration, diabetes, liver diseases, neuro-degenerative diseases and spinal cord injuries. The company’s technology uses unfertilized human eggs to create its parthenogenetic stem cells (hpSC). This eliminates the potential controversy with destroying an early-stage human life.

We believe the market has jumped to inaccurate conclusions that re-imposing the federal ban on embryonic stem cell research is bad for all stem cell stocks. It creates no such impediment to business at Cytori, Aastrom, StemCells and ISC. These companies are involved in non-controversial areas of stem-cell research. And, most are well-funded regardless of federal research availability. Cytori held $38 million in cash on hand at the end of the second quarter.  Aastrom and StemCells, Inc. held $19 million and $31 million, respectively.

For additional information on Cytori Therapeutics and Aastrom Biosciences, please see our research reports available on Zacks.com or contact your Zacks Institutional Sales representative.  Jason Napodano, CFA

Zacks Investment Research

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