The Biotech Mailbag is open for business. Linda K. writes:

"I was disappointed that President Obama made no mention of stem cells in his speech Tuesday night. Why hasn't he lifted the federal stem cell research ban yet? If or when he does, how much money do you expect to flow into stem cell companies?"

Great questions. I can't answer the first one, although Obama is likely to take action to lift the federal research ban (or, more accurately, the ban on federal funding) for stem cell research. This is an issue he campaigned on and one that actually has quite a bit of bipartisan support, so I expect it to happen soon.

The second question is interesting because I think there is a misperception out there among retail investors that Obama re-instituting federal dollars into stem cell research is going to open a monetary floodgate that will cause big large amounts of cash to flow directly into commercial or publicly traded stem cell companies like

Geron

(GERN) - Get Report

,

Advanced Cell Technologies

(ACTC.PK)

or

StemCells

(STEM)

.

That's not going to happen.

The funding of scientific research at the federal level is managed by the National Institutes of Health. A vast majority of NIH funding goes to academia, not commercial enterprises, and that's not likely to change when it comes to allocating federal monies for stem cell research, according to Michael Werner, president of The Werner Group, a Washington, D.C.-based medical consulting and lobbying group.

"There is little money from the NIH that goes directly into the hands of commercial entities," says Werner, who counts stem cell companies as clients.

Geron, StemCells or the other publicly traded stem cell companies can benefit indirectly, however, if the federal dollars flowing into academia spur more private investment into commercial stem cell efforts, Werner adds.

The funding balance at the

California Institute for Regenerative Medicine

is similar. Of the $693 million in funding for stem cell research distributed to date, only seven grants have gone to commercial stem cell companies, according to CIRM spokesman Don Gibbons.

Peter S. writes, "Appreciate your thoughts on

Novelos Therapeutics

(NVLT.OB)

. It appears to me that the fate of Novelos is contingent on the results of the ongoing Phase III trial of NOV-002 in non-small cell lung cancer, which is expected in late 2009. If the trial is successful, and since Novelos retained the U.S. rights, do you expect the company to be in a favorable position to negotiate commercialization with a potential U.S. partner? Lastly, can you see any rational reason why the valuation of this stock is so low, given that we are dealing with a late stage phase III trial which appears to have a good chance of success?"

I took a look at the past clinical data on NOV-002. There isn't much of it (at least from U.S.-based studies) and the data that do exist don't inspire much confidence in a positive result from the ongoing phase III study.

Novelos is a thinly traded bulletin board stock trading at 40 cents on Thursday. There's usually a good (bad) reason to explain why stocks trade on the bulletin boards. As such, investors should tread very lightly.

Peter's optimism about NOV-002 may come from the drug's use in Russia as an adjunct to chemotherapy. From Novelos' Web site, however, it's not clear whether NOV-002's use in Russia, where it's sold by another company under the brand name Glutoxim, was ever tested in a study that would meet U.S. drug approval standards.

The clinical work on NOV-002 conducted here isn't promising. A controlled, randomized phase II study of chemotherapy plus/minus NOV-002 in 44 patients with newly diagnosed non-small cell lung cancer was conducted in 2005. One of two groups of patients treated with NOV-002 plus chemotherapy showed a higher tumor response than patients treated with chemo alone that was statistically significant.

The other group of NOV-002-treated patients did not benefit similarly.

The study didn't report any kind of survival-benefit data, which is the only data that really matters when it comes to getting drugs approved as a first-line treatment for non-small cell lung cancer. The poster detailing the phase II data also suggests the trial was conducted at a single cancer clinic, which introduces the risk of patient recruitment bias.

On this rather flimsy data, Novelos apparently launched a pivotal phase III study of NOV-002 in November 2006. The study uses the same design as the previous study, but with an improvement in median survival as the primary endpoint. Enrollment in this study was completed last March, and results are expected later this year.

The odds are greatly stacked against success here, and not only because the previous data aren't very good. Note that the study doesn't include use of

Genentech's

( DNA) Avastin, which has quickly become a standard of care in non-small cell lung cancer based on a study that showed the drug prolonged survival.

Even if the NOV-002 study is somehow successful, the drug isn't likely to beat the survival benefit posted by Avastin, which means NOV-002 is obsolete even before it gets to the starting gate.

On a related note, a quiz:

Guess how many drugs are approved for the treatment of non-small cell lung cancer? Answer: 9

How many drugs today are in phase III studies for non-small cell lung cancer? Answer: 18!

How many drugs today are in phase II studies for non-small cell lung cancer? Answer: 56!!

The take-away message here is that non-small cell lung cancer is a very crowded and highly competitive market. That makes handicapping the success of one experimental lung cancer drug over another extremely difficult.

It's good to keep these numbers in mind the next time you consider investing in a drug company whose ticket to fame is a non-small cell lung cancer drug.

If you're wondering, the data on the lung cancer drugs above comes from

BioMedTracker.com

, a biotech and drug industry research service.

Barry P. asks, "Could you list the biotech companies that have fast track or orphan status for their products?"

Receiving a fast-track designation from the FDA for a drug in development is meaningless. Once upon a time, fast-track status was supposed to help speed life-saving drugs to the market by allowing companies to accelerate regulatory submissions and have more direct interactions with regulators.

But over the years, it's been shown that "fast track" drugs are no more likely to receive approval than drugs without the moniker. And worse, the fast-track designation was co-opted by unscrupulous drug companies to mislead investors into believing that fast-track status somehow meant that the FDA was blessing a drug -- and therefore implying that approval was more likely.

Nonsense. I wrote about the

fast-track bamboozle

in 2003. More recently, the

Cleveland Plain Dealer

wrote a lengthy investigative series on how fast-track drug status helps day traders more than anyone else. For some reason, I can't find the series on the newspaper's Web site, but a good summary of the stories (including a quote from yours truly) can be found

here

.

Orphan drug status does have some real value. Congress passed the Orphan Drug Act in 1983 to encourage companies to develop drugs for rare diseases, defined as disorders affecting less than 200,000 people. Under the law, a company that develops an orphan drug gets seven years of market exclusivity as well as a variety of tax breaks. Europe has a similar law.

Again using BioMedTracker, I ran a screen for biotech and drug companies with orphan drugs in phase II or phase III studies.

The screen came back with more than 100 companies. I don't have the space to list them all here, but they include

Amicus Therapeutics

(FOLD) - Get Report

,

BioCryst Pharmaceuticals

(BCRX) - Get Report

,

NPS Pharmaceuticals

(NPSP)

,

Seattle Genetics

(SGEN) - Get Report

and

Vical

(VCAL)

.

If you want a more complete list, email me with "orphan" in the subject line and I'll send you something. Better yet, subscribe to BioMedTracker yourself for access to a complete and searchable database of drug timelines and clinical data. It's a great research tool.

At the time of publication, Feuerstein's Biotech Select model portfolio was long Genentech.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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to send him an email.