Stem cell studies won't sway Big Pharma: experts

NEW YORK (CNNMoney.com) -- The recent breakthroughs in stem cell research, where adult cells were "reprogrammed" to act like embryonic stem cells, are too early-stage to have much influence on Big Pharma's venture capital investments, experts say.

"[The new studies] are really early-stage so I don't think it's really changing the landscape," said Eun Yang, biotech analyst for Jefferies & Co. "I doubt that it's going to chase away a lot of the Big Pharma money. But I'm not sure that people are going to start pouring money into this venture."

Two separate teams of researchers, one from the University of Wisconsin in Madison and the other from Kyoto University in Japan, said on Tuesday that they discovered how to reprogram adult cells to mimic the activity of embryonic stem cells.

If this new technology continues to work in later-stage studies, it could theoretically sidestep the controversial use of human embryonic stem cells, which have attracted the ire of the pro-life lobby. In 2001, President Bush limited federal funding for human embryonic stem cell research to only those lines that existed at the time, and in June of 2007 he vetoed a Congressional effort to lift these restrictions.

Biotech stocks were volatile in Tuesday trading, after the researchers published their findings in Science and Cell. The stock for Geron Corp., (Charts) the only publicly-traded company that works with human embryonic stem cells, dropped 6 percent. But stock activity was mixed among those biotechs that use stem cells from adult human tissue: Cytori Therapeutics' (Charts) stock went up;Osiris Therapeutics (Charts) and Stemcells Inc. (Charts) went down.

But this stock reaction isn't going to mirror the activities of Big Pharma venture capital investors, analysts say. So far, Novocell Inc., a privately-held biotech specializing in human embryonic stem cells, is one of the biggest recipients of venture capital investment, to the tune of $25 million from Johnson & Johnson (Charts, Fortune 500) in July.

"[Novocell] would make an interesting acquisition target if J&J wanted to rapidly enter the sector," said Dr. Cathy Prescott, director of the biotech consulting company Biolatris, in an email to CNNMoney.com. "[If Novocell's experiments] make good progress in the clinic then I would predict that the company would be able to raise future capital."

In September, Celerex Corp., which is traded over-the-counter, raised $38 million from investors that included Roche and Novartis (Charts), said Prescott. Also, Roche, AstraZeneca (Charts) and GlaxoSmithKline (Charts) have all shown an interest in using stem cell technology not to produce drugs, but to test drug toxicity during the experimental stage.

Going forward, the big players like Pfizer Inc., (Charts, Fortune 500) Merck & Co., Inc., (Charts, Fortune 500) Schering-Plough (Charts, Fortune 500) are more interested in short-term pay-off than early-stage experiments, said Jan David Wald, analyst for Stanford Group Co.

"Right now, those [reprogramming] trials are pretty much basic science and it's going to take a while for that basic sciences to translate into anything that's clinically useful," said Wald of Stanford "There are nearer opportunities for investors interested in stem cells."

The opportunities include a late-stage experimental technology from Cytori, which uses stem cells from a patient's own fat for breast reconstruction. Next year, Cytori could be marketing this process in Europe and could begin human experiments in the United States, said Wald.

Geron and the privately-held Advanced Cell Technology are among the more advanced stem cell biotechs, though they're years away from getting products on the market. Both of these companies use human embryonic stem cells and are trying to get approval from the Food and Drug Administration to begin testing in humans in the United States next year.

"The reprogramming activity is very early and therapeutics will take several years to develop," said Prescott of Biolatris. "However, there will no doubt be shorter-term products that may represent an attractive business proposition to investors. I believe that investors will be pragmatic, evaluating the business proposition independent of the source of cells."

For the time being, Prescott believes that scientists will continue to research both human embryonic stem cell technology and reprogramming, until later-stage developments are made in either technology.

"Hopefully, with more exposure to the arguments in favor of both approaches, the market will settle down and continue to support these pioneering companies," said Prescott.