Taglich Brothers – ANALYST INSIGHTS

Analyst Insight: 
Why Invest in Stem Cell Companies?


By: Gary Weber

By now, virtually all of us have been exposed to news reports about stem cells. But exactly what are stem cells, anyway? Let’s start with the basics. In order to get from a single cell—the fertilized egg—to a human being made up of trillions of cells, the two processes of cell division and cell differentiation must occur. For one cell to become trillions, many cell divisions (each of which involves one cell dividing into two) must obviously take place. But since it is also obvious that all cells of the human body are not identical to each other, the process of differentiation, whereby the descendant cells are different from the ancestor cells, must also occur. Differentiation occurs because external chemical cues, interacting with the genes of a cell, can cause two descendant cells to be slightly different from their immediate ancestor cell and from each other. Because the external chemical cues to which a cell is exposed depend on the exact physical location of the given cell, different cells of an embryo or fetus are exposed to different chemical cues, and thus differentiate into different types of cells. This is how a single fertilized egg cell eventually gives rise to brain cells, blood cells, heart cells, skin cells, muscle cells, etc.

Because a fertilized egg cell has the ability, through repeated cycles of cell division and differentiation, to eventually give rise to all of the cell types in a human body, as well as to the cells of the structures, such as the placenta, needed to support the developing fetus, the fertilized egg cell is said to be totipotent. At the other end of the spectrum are cells that, for lack of a better word, we can call “non-potent.” An example of a “non-potent” cell might be a cheek cell, scraped from the inside of someone’s mouth and placed into a culture dish. If this cell were induced to divide in the culture dish, it would give rise to two cheek cells, and then these two cells would each give rise to two more cheek cells, and so on…. Even if the cultured cheek cells were exposed to chemical cues in an attempt to induce them to divide and differentiate into different types of cells, such as heart cells, brain cells, or muscle cells, the only type of cell that would result from any further divisions would be more cheek cells. A cheek cell simply does not have the ability to ever give rise to any type of cells besides other cheek cells, i.e., we can call it “non-potent.” Its exact opposite, in terms of the characteristic of “potency,” is the totipotent fertilized egg cell, which can give rise to all different types of cells, including all of the specialized cells of the human body as well as the cells of the placenta and other structures needed to support a developing fetus. Because of its ability to give rise to every different type of cell needed to make a human being, i.e., because of its totipotency, a fertilized egg can be considered to be the ultimate stem cell.

Soon after an egg cell is fertilized, it will divide into two cells. Like the original fertilized egg cell, the two descendant cells are totipotent, because if they are separated, each of them is capable of developing into a human being, i.e. they can give rise to all of the specialized cells present in a person as well as to the cells of the placenta and other tissues needed to support the developing fetus. But after some more cycles of cell division occur, the cells are no longer totipotent. A few days after an egg is fertilized, the cycles of cell division gives rise to a ball of cells, called a blastocyst. The blastocyst is made up of an outer cell layer and an inner cell mass. The cells of the outer cell layer are not totipotent; neither are the cells of the inner cell mass. The cells of the outer cell layer are capable of giving rise to the cells of the placenta and other tissues needed to support the developing fetus, but are not capable of giving rise to any other types of cells, such as brain cells, muscle cells, etc. The cells of the inner cell mass are capable of giving rise to all of the specialized cells of the human body, but are not capable of giving rise to the cells of the placenta and other tissues necessary to support the fetus. Because none of the cells of the blastocyst are capable of giving rise to all of the specialized cells that make up a human being as well as to the cells of the placenta and other fetal support structures, none of these cells are totipotent. We will ignore the cells of the outer layer of the blastocyst, but we will call the cells of the inner cell mass of the blastocyst pluripotent, because these cells are capable of giving rise to all of the types of specialized cells that make up the body, except for the cells of the fetal support structures. Since these cells are pluripotent, they are stem cells. And to give a general definition, stem cells are cells that when in a culture dish can divide indefinitely (giving rise to more stem cells), but when exposed to the proper external chemical cues, can divide and differentiate into many different cell types. Totipotent stem cells can divide and differentiate into all cell types, whereas pluripotent stem cells can divide and differentiate into virtually all cell types.

The pluripotent stem cells of the inner cell mass of the blastocyst continue to divide and differentiate, eventually giving rise to a fully formed human being. Through many cycles of cell division and differentiation, the pluripotent stem cells give rise to “non-potent” specialized cells, such as brain cells, muscle cells, blood cells, liver cells, etc. Somewhere within those many cycles of cell division, there are a number of different types of “intermediate” cells. These intermediate cells are partially specialized, in that each type of “intermediate” cell can give rise only to a certain subset of specialized cell types, rather than to virtually all cell types, as can the pluripotent stem cells. For example, a certain type of “intermediate” cell can give rise to the different kinds of blood cells, such as red blood cells, white blood cells, and platelets, while another type of “intermediate” cell can give rise to the cells of the different kinds of connective tissue, such as muscle, cartilage, bone, and fat. These “intermediate” cells are called multipotent stem cells. There are some types of multipotent stem cells, which besides being present in fetuses are also present in children and adults. For example, we all need to have blood stem cells in our bone marrow, in order to constantly replenish our red blood cells, white blood cells, and platelets.

In light of the vital role that stem cells play in the development of a fully formed human being or other animal from a fertilized egg, it is apparent that stem cells have been in existence throughout hundreds of millions of years of evolutionary history. So why have they suddenly become such a big deal? Well, over the past few years, it has become very obvious to medical researchers that stem cells are almost definitely going to play a tremendous role in the advancement of medical science. In fact, the impact that stem cells are expected to have on the field of medicine should be at least on the scale of the medical improvements that were brought about when vaccines and antibiotics became standard tools of medical practice.

The past few decades have given us spectacular advances in the fields of molecular biology, cell biology, and genetics. These advances have brought us to the point where we can begin to manipulate stem cells. The manipulation of stem cells opens up the possibility of completely curing and treating many medical conditions, diseases, and injuries for which current treatments are either nonexistent or less-than-satisfactory. For example, people who have myocardial infarctions (heart attacks) are left with areas of heart muscle that are no longer functioning. But by utilizing stem cells, we may be able to grow new functioning heart muscle cells to replace the patient’s damaged tissue. And taken to the extreme, we may even be able to grow whole new hearts for patients who require heart transplants. Similarly, we should be able to grow new kidneys, livers, lungs, or any other organs for patients who require transplants of those organs.

Type I diabetes (also known as insulin-dependent diabetes or juvenile onset diabetes) is caused by the malfunction or destruction of the pancreatic cells which are responsible for producing insulin. Stem cells could be used to grow new insulin-producing pancreatic cells for type I diabetes patients, curing them so that they do not have to inject themselves with insulin for the rest of their lives. Parkinson’s disease is due to the death of certain brain cells that produce dopamine, one of the neurotransmitters that brain cells use to communicate with each other. With stem cells, it may be possible to cure Parkinson’s disease by growing the appropriate type of brain cells for the patient. Similarly, it is thought that Alzheimer’s disease is caused by the death of certain brain cells that produce certain neurotransmitters. Thus, it may be possible to cure Alzheimer’s disease by inducing stem cells to develop into the appropriate type of brain cells. Stroke victims often suffer disabilities as a result of brain cell death that occurred during the stroke. Stem cells could be used to grow and replace the cells that have died, curing stroke victims of their disabilities.

Using stem cells, it could be possible to cure patients who are paralyzed, by growing the nerve cells needed to replace those that have been injured. Amyotrophic lateral sclerosis, also known as Lou Gehrig’s disease, is due to the death of the nerve cells that innervate the muscles. While, the disease is currently untreatable, stem cells may provide the means to a total cure. It should also be possible to use stem cells to grow new skin for burn victims. The list of potential medical applications for stem cells is seemingly endless, and the results should be impressive enough to truly constitute a revolution in the practice of medicine.

There is already limited use of stem cells in treating patients today. Some cancer patients require bone marrow transplants. These transplants involve blood stem cells (which normally reside in the bone marrow), which are needed to allow the patients to continue to produce red blood cells, white blood cells, and platelets. Bone marrow transplants involve multipotent stem cells, derived from adults, rather than pluripotent stem cells, derived from embryos. For most of the body’s specialized cell types, however, the multipotent stem cells which could develop into those cell types have not yet been discovered. So at the present time, only pluripotent stem cells, which can develop into virtually any type of specialized cell, hold the promise of generating all of the cell types needed to cure many of the diseases and medical conditions that are currently incurable. In addition, because pluripotent stem cells are found earlier along the cell differentiation pathway than are multipotent stem cells, pluripotent stem cells may turn out to be much more amenable to the manipulation necessary to induce them to develop into the cells, tissues, and organs necessary to best meet a given patient’s needs.

Like stem cells, the subject of cloning is often subject to the media spotlight. One aspect of cloning technology, called somatic cell nuclear transfer, may turn out to play a very important role in the future therapeutic uses of stem cells. A somatic cell is any cell of the body except for a cell whose sole function is to give rise to the next generation, i.e., a sperm cell or an egg cell. Somatic cell nuclear transfer involves taking the nucleus (the central part of the cell, where virtually all of the cell’s genetic information is located) from a body cell and transplanting it into an egg cell that is from a different person than the body cell and from which the nucleus has been removed. The egg cell is then stimulated to divide and develop into a blastocyst, from which pluripotent stem cells could be taken. When the nucleus that was donated in the process comes from a patient’s cell, the stem cells created by the process will be essentially genetically identical to the patient’s own cells. Then any cells, tissues, or organs that are grown from these pluripotent stem cells should not elicit any type of rejection by the patient’s immune system after they are transplanted into the patient. Thus, somatic cell nuclear transfer may very well provide a way to generate stem cells that are perfectly tailored to each individual patient.

There are currently three publicly traded companies in the United States that are actively engaged in stem cell research: Geron Corporation (NasdaqNM: GERN), Stem Cells, Inc. (NasdaqNM: STEM), and Aastrom Biosciences, Inc. (NasdaqNM: ASTM). While there will undoubtedly be other participants emerging over the next few years, one or more of these three companies, which already have experience in the field and which, through patent protection, have amassed intellectual property portfolios consisting of various aspects of stem cell technology, may very well turn out to be among the successful leaders as the stem cell field reaches the commercialization stage. While it is impossible to know with certainty which companies involved in an emerging technology will ultimately be successful, an investment in a portfolio consisting of shares of Geron Corporation, Stem Cells, Inc., and Aastrom Biosciences Inc., could turn out to be a very profitable investment, indeed. And no matter which companies eventually wind up making the most money, one thing of which we can be certain is that with the incredible advances that stem cell research will bring to the field of medicine, we all benefit greatly from this amazing technology.


The above views and comments are solely the views and comments of the analyst and should not be construed as the views and comments of Taglich Brothers, Inc., our affiliates, or any officer, director or stockholder.


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