Shares of companies developing stem cell therapies surged Wednesday on news that the federal government has cleared 13 new stem cell lines for testing, bringing to a close nearly a decade of restrictions.
The news from the National Institutes of Health should provide some relief to companies that have been squeezed by limited funding from both the federal government and the private sector.
"For the first time all these programs that have been held in check by the closed stem cell policy can move forward," said Steve Brozak, president and analyst with WBB Securities, an investment brokerage focused on drug and biotech companies.
President Obama lifted the Bush-era ban on federal funding for new stem cell research last spring. However, more than $21 million worth of funding was on hold until the NIH named new stem cell lines that are ethically appropriate for testing.
The prior policy had limited taxpayer-funded research to about 21 stem cell lines, those already in existence as of August 2001. Experts say the new batch of lines are far more promising candidates for successful research.
Wednesday's announcement had been expected for months and represents more of a symbolic positive for industry than a real financial gain. Federal research grants are almost exclusively distributed to academic research centers and will not flow directly to companies.
Most stem cell companies, which are primarily startups, will continue to struggle financially as funding from the venture capital market has been decimated by the economic downturn.
But Brozak said the new system for distributing federal funds would allow smaller academic researchers to compete for federal funding, increasing the chance of a breakthrough discovery.
"The old system was more akin to feeding the obese," said Brozak. "The new system will provide subsistence to everyone who has scientific merit."
Despite the difficult outlook for the sector, investors lined up behind the major companies in the field, sending shares higher in afternoon trading.
Shares of industry leader Geron Corp. rose 60 cents, or 12.9 percent, to $6.14 in afternoon trading.
Geron had a headstart in development of stem cell therapies thanks to a powerful intellectual property position. The company helped finance researchers at the University of Wisconsin who first isolated human embryonic stem cells in 1998.
Embryonic stem cells are early-stage cells capable of morphing into any of the more than 220 cell types in the human body.
Shares of StemCells Inc. rose 26 cents, or 24 percent, to $1.34. The Palo Alto, Calif.-based company focuses on adult stem cells, which can be gathered from a person's skin, but the company's stock still responds to news about embryonic stem cells.