Biotech Stock Mailbag: Neostem

BOSTON ( TheStreet) -- Welcome to the Biotech Stock Mailbag: Memorial Day 2010 edition.

Preston M. kicks things off, asking, " Adam, I appreciate your critical eye when it comes to evaluating drug stocks. What do you think of Neostem (NBS), which seems to be doing quite well these days and is generating a lot of buzz? Thanks."

To learn about Neostem -- and to understand why I'd be wary about sinking investment dollars into the company -- read Neostem's most recent 10-K annual report filed with the Securities and Exchange Commission. Read the SEC filing first -- before you visit Neostem's web site, before you read the company's press releases, and before you visit the stock message boards.

Neostem runs a money-losing adult stem cell collection business. Basically, this service harvests stem cells from the blood of healthy adults and stores them for later personal medical use. Think of this business as a cord-blood bank for adults -- except smaller and less successful. Outside of bone marrow/stem cell transplants for blood cancers, there are no approved medical uses for adult stem cells. No one has yet figured out a way to trick adult stems cells into growing new heart tissue or curing diabetes. Adult stem cells aren't remotely close to stopping Alzheimer's or Parkinson's disease.

Accordingly, Neostem generated only $178,400 in revenue from the stem-cell banking business in 2009, according to its annual report.
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Neostem is looking ahead to day when scientists might figure out a way for adult stem cells to play a broader role in disease cure. Towards that end, Neostem licensed some early university research involving VSELs, or very small embryonic-like stem cells. These are adult stem cells that appear to have some of the regenerative properties of embryonic stem cells. VSEL research isn't even out of the lab yet, which means any potential drugs or treatments are many years -- and tens of millions of dollars -- away. Read the 10-K; the clinical and regulatory risks and warnings are in there.

The partnership announced this week between the Catholic Church and Neostem to support VSEL research was nothing more than a publicity stunt. Unless divine intervention brings about a scientific miracle, VSELs are just one of numerous, early research efforts using adult stem cells which may or may not work. For investors, it's nothing more than a lottery ticket. Need a reminder of the risk? Look at Neostem adult stem cell competitors Cytori Therapeutics ( CYTX) and Osiris Therapeutics ( OSIR). Placing any significant market value on VSELs seems foolish to me.

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