It seems as if almost no sector is safe in the present market, but for investors who are looking for long-term value/growth plays, the recent selloff may have opened significant opportunity within stem cell stocks.

Stem Cell Basics
Stem cells are the building blocks of our body's ability to organically reproduce and/or evolve on a cellular level, to grow and heal. They are special because they can specialize into various cell types, including muscle and nerve cells, while retaining the ability to reproduce through cellular division. These two properties make them very valuable in research.

Stem cell research is often thought of as a "new science", appearing only in the last 10 years; however, stem cell research has actually been around for almost 50 years. In the 1960s Ernest McCulloch joined forces with James Till at the Ontario Cancer Institute in Canada, where the hematologist and biophysicist began experimenting on mice to see if bone marrow cells would reproduce in irradiated mice. The duo observed positive results in the spleens of their patients and in 1963, published their results in Nature.

Since that first experiment the science has slowly grown, and controversy has grown with it. Objection to the research focuses on the use, and destruction, of human embryonic stem cells and the possibility that the research could lead to human cloning.

Implications to Medicine and Investors
While on a recent trip to the mid-west, I had the opportunity to visit with Dan Busse, a physician and medical advisory board member of Regenerative Sciences in Broomfield, Colorado, a private bio-medical firm utilizing stem cells to create a non-surgical treatment option for people suffering from pain in their bones, joints, tendons/ligaments and lower back due to in acute injury or chronic degeneration.

In my conversation with Busse, I was surprised to learn of the progress and development not only at Regenerative Sciences, but within the industry as a whole.

While stem cells apply to many different aspects of medicine (including cardiology and cancer treatment, for example), Regenerative Sciences (RSI) primarily focuses on tissue regeneration in the orthopedic arena. The firm is on the cutting edge of changing medical care as we know it.

Stem cells can not only aid in healing after major surgery, but in some cases, completely replace the need for surgery altogether. "This is an exciting time to be involved in the stem cell field," Busse said. "At Regenerative Sciences, our successful regeneration of cartilage, bone, lumbar discs, and soft tissue has relieved the pain of people who were otherwise counseled to have major surgeries. This is the beginning of an era where the use of stem cells in a "needle in, needle out" procedure can spare the pain, expense, complications, and recovery time involved with traditional surgery." (To learn more about investing in this area, be sure to check out our Biotechnology Industry Handbook.)

Stem Cells for Wall Street
Looking into the public space of stem cells, the arena is still fairly new when it comes to the good old bottom line, as witnessed in companies like StemCells (Nasdaq:STEM) posting widening quarterly losses. In the second quarter of 2008, the company announced a loss of $6.7 million, or 8 cents per share, versus $5.7 million, or 7 cents per share in the same quarter last year.

Small stem cell companies face significant difficulty in the present environment in both public acceptance and within the development of their sciences, as well. However, as the sector progresses, it's likely that giants like Amgen (Nasdaq:AMGN) and Celgene (Nasdaq:CELG) will begin to sincerely wade in. One of the most prolific companies in the space is ThermoGenesis (Nasdaq:KOOL). In early September ThermoGenesis actually posted blowout earnings in the fourth quarter ended June 30, 2008. In all, the company announced $7.2 million in revenue for the quarter, a whopping 104% increase over the previous year. During the quarterly earnings announcement, the company also disclosed a fresh distribution partnership with Celling Technologies for the former's MarrowXpress product line.

When looking at the above stocks, investors may want to be wary of Amgen, as the stock is trading with potentially top-heavy price-to-earnings and price-to-sales multiples of 17.8 and 3.4, respectively. Investors should also note that Celgene is presently trading with a price-to-sales ratio of 13.

Bottom Line on ThermoGenesis
On Wednesday October 15, ThermoGenesis actually surged 22% even in the midst of a larger 8.47% decline in the Nasdaq. On Thursday, October 16, however, the stock gave back 15.6% of the previous day's gains. With the stock having been beaten down to just above $1 over the past few weeks, jittery investors are buying and selling the stock at the slightest sign of volatility. However, at current prices, the company could easily be a viable takeover candidate for larger conglomerates in the space, something investors who can handle extra risk, may want to know.

This volatile sector can provide huge gains, but there's also lots of downside. Read The Ups And Downs Of Biotechnology.

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Tickers in this Article: AMGN, CELG, KOOL, STEM

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