NEW YORK (CNNfn) - Shares of biotechnology company Geron Corp. skyrocketed more than 74 percent Friday as investors tried to cash in on the latest medical breakthrough.
Menlo Park, Calif.-based Geron's stock (GERN) jumped 7-5/16 to 17-3/16 after reports that research it funded had reproduced in the laboratory human "stem cells." Earlier, the stock had surged to 24-1/2 on news of the discovery, which one analyst called the "holy grail" of molecular biology.
Stem cells are blank cells that can develop into virtually any kind of cell in the human body. Most cells have a specific function -- liver cells, skin cells, brain cells and so forth -- and once they have taken on this function, in a process called differentiation, they can't be adapted for any other function. Stem cells, however, have not gone through the differentiation process.
"These cells will rapidly let us study human processes in a way we couldn't before," John Gearhart, the University of Wisconsin at Madison scientist who headed up the project for the company, said.
By isolating stem cells in a laboratory, scientists theoretically could grow new heart cells to repair damage from heart attacks, new liver cells to treat hepatitis and new red blood cells for cancer patients.
Geron funded and owns the license to the research.
Buying frenzy overdone?
Although analysts agree the discovery is significant, some contend Friday's buying frenzy could be premature.
"Historically, it takes a long time for great science to become a great product," Hambrecht & Quist LLC biotech analyst Richard Van Broek said, adding that most discoveries take as many as five to 12 years to develop into commercial products.
In fact, the stem cell discovery is at one of the earliest stages of development, with animal -- let alone human -- trials many years away.
Most biotechnology companies that make it past clinical trials still must spend millions of dollars and countless years trying to convince the Food and Drug Administration of their product's safety and efficacy.
Investors could draw lessons from the experience of EntreMed Inc. The once little-known Rockville, Md. biotechnology company saw its stock soar more 330 percent in May after reporting it had found a cure for cancer in laboratory mice. At one point, the company's shares climbed as high as 85, but Friday the stock (ENMD) closed at 31-3/4, up 3-7/16. EntreMed 's product has not yet been tested on humans.
Like EntreMed, Van Broek expects Geron to surrender some of its stock gains over the course of the next few weeks, adding that Friday's news of a breakthrough took on a "life of its own" in the market.
But the buying frenzy may not have been completely unfounded.
"Although the full implications of the discovery are not yet concrete, this is a very exciting breakthrough," J.P. Morgan vice president Franklin Berger, who covers biotechnology, said.
Although Geron, like most biotech companies, is not exactly profitable, the company's latest breakthrough could lead to corporate partnerships and subsequently, to all-important research and development funding.
"They haven't made money in the past and probably won't make any in the future," Hambrecht's Van Broek said. "But that's no indictment of Geron by any stretch." In other words, earning and revenues may be the wrong way to gauge the value of Geron's stock.
But J.P. Morgan's Berger admits an investment in Geron and the biotech sector overall is not for the weak of heart.
"The further you are from a commercial product, the riskier it is," Berger said. But he was quick to point out that the biotech environment has changed drastically since the late 1980s and early 1990s, when speculators invested heavily in the volatile sector only to watch it collapse.
"Biotech shares have been stronger for quite some time," he said, adding the sector has "matured" since the 1980s as experts from the more experienced pharmaceutical industry have crossed over into biotechnology.
Berger said Geron's success is only the beginning of a trend, with several hundred Phase 3 studies awaiting FDA approval. In the 1980s, most studies were at the less advanced Phase 1 and 2 levels.
"Do not think this is the end of it," Berger said. "This is a very, very exciting time in terms of biotech."
-- by staff writer Nicole Jacoby