By MATTHEW PERRONEWASHINGTON (AP) ¿ Shares of companies developing stem cell therapies surged Friday evening on word that President Obama on Monday is expected to overturn restrictions that have choked funding for academic stem cell research. President Obama pledged on the campaign trail to overturn the 2001 policy, which bans government funds for research that involves harvesting new embryonic stem cells. President George W. Bush, who set the policy, said the process is immoral because it destroys human embryos. Industry executives have awaited an executive order from Obama to restore federal funding for the research. But some speculated the withdrawal of former Sen. Tom Daschle for the position of Secretary of Health and Human Services stalled the administration's plans. A senior administration official said Friday the president will hold an event Monday at the White House to announce the move. The official spoke on condition of anonymity because the policy had not yet been publicly announced Friday. "This is a very strong and powerful signal that we have a very user-friendly administration for stem cell research, and that will be hugely important going forward," said Richard Garr, president and CEO of Neuralstem Inc, a company working to develop a stem cell therapy for Lou Gehrig's disease.
Shares of Neuralstem and other biotech companies working with stem cells surged in after-hours trading. News of the Obama policy change was expected and analysts have stressed the change is more a symbolic positive for industry than a real financial driver. Federal research grants are almost exclusively distributed to government agencies and academic research centers and would not flow directly to companies. Most stem cell companies, which are primarily startups, will still have to raise their own funding from the venture capital market, which has been decimated by the economic meltdown. The Biotechnology Industry Organization said recently nearly half of its companies have less than one year of cash remaining. As developers of a sometimes controversial, fledgling science, stem cell companies are especially vulnerable to downturns in the capital markets. The Food and Drug Administration has yet to approve any therapy using embryonic stem cells, and the $150 million "stem cell market" consists entirely of equipment used to study the technology, according to research firm TriMark Publications. Despite the difficult outlook for the sector, investors viewed the Obama announcement as a vote of confidence and sent company shares higher in after-hours trading.
Industry leader Geron Corp. rose $1.33, or 34.4 percent, to $5.20. In January the Menlo Park, Calif.-based company became the first firm to receive federal approval to begin human studies of an embryonic stem cell therapy. 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. With investors nervous about the future regulatory outlook for embryonic stem cells, many companies have turned to working with adult stem cells. Though they don't have the same morphing capabilities as embryonic cells, adult stem cells are less controversial because they don't involve the destruction of human embryos. Rockville, Md.-based Neuralstem is currently seeking FDA approval for human studies using adult stem cells. While Friday's news does not benefit his firm directly, CEO Garr said he hoped the change would spur positive relationships with federal regulators. "When you have the tone at the top change from adversarial to friendly, you hope it will have an impact on the urgency FDA staffers feels towards reviewing these therapies, and interacting with the industry," Garr said.
Shares of Neuralstem rose 19 cents, or 22 percent, to $1.05 in afterhours trading. Other stem cell companies trading higher Friday included Columbia, Md.-based Osiris Therapeutics Inc. and San Diego-based Cytori Therapeutics Inc.