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Geron's Stem Cell Bust Leaves Investors Holding the Bag

MENLO PARK, Calif. ( TheStreet) -- Geron's (GERN - Get Report) decision to shut down its embryonic stem cell research programs is a blow to the controversial research field and a painful reminder that only dreamers and fools invest in embryonic stem cell stocks.

For 21 years, Geron has lured investors with the promise of turning embryonic stem cells into new tissue or organs that one day might help paraplegics walk, cure diseases like diabetes and Parkinson's and prevent heart attacks.

But other than participating in some of the pioneering stem-cell lab research in the late 1990s, Geron's efforts in the field have proved futile. Geron's accumulated deficit approaches $700 million; its publicly traded stock has been a perpetual loser over 15 years, with only fleeting moments of speculative-fueled gains.

Shares of Geron were down 19% to $1.78 Tuesday, close to an all-time low. Geron's ignominious reputation as a serial money-raiser that only succeeded in leaving investors holding the bag may forever tarnish the entire embryonic stem cell field in Wall Street's eyes. The risk it too great, the payoff (if it ever comes) is too far off.

StemCells (STEM - Get Report) and Advanced Cell Technology (ACTC), Geron's competitors in the stem cell field, will suffer (not that they were doing all the well to begin with) and it's hard to envision much investor demand for new stem-cell companies wishing or hoping to tap the public equity markets any time soon.

Advanced Cell Technology is conducting a clinical trial using stem cells to cure vision loss caused by macular degeneration. The company also trades on the bulletin boards with a balance sheet bloated with 1.6 billion outstanding shares.

John Scarlett, Geron's newly appointed CEO, insisted in interviews Monday that the company’s decision to exit the stem cell business was not an indictment of the entire field but was more a company-specific business decision. By dropping its stem cell programs, Geron can conserve cash and focus instead on funding its experimental cancer drugs, Scarlett said.

But does anyone believe that Geron would jettison stem-cell research if the ongoing clinical trial in spinal cord injury were helping patient recover neurological or motor function?

So far, four paralyzed patients have received injections of embryonic stem cell-derived nerve cells into their spinal cords. No safety problems have been reported to date, but Scarlett also acknowledged to the New York Times that there was "no signs" the stem cell therapy was helping patients either.

Geron will not enroll any further patients in the spinal cord study as part of its decision to exit the stem cell field. The company hopes to find another company to acquire or license its stem cell programs.

Dreamers and fools, step right up.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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