Geron’s Stock Spikes on Cell Growth News

The stock of a small California biotechnology firm, Geron Corp., climbed to record levels Friday on news that company-backed scientists have grown human stem cells in the laboratory--a discovery hailed as a first step toward producing transplant organs on demand.

The Menlo Park, Calif.-based company financed the university research and has licensed the technology, which made front-page headlines this week and was featured on news programs throughout the country.

However, company officials point out that the most exciting potential uses for the scientific breakthrough are likely to be many years away.

Analysts say it is common for biotech stock prices to shoot up following significant news, only to drop after a sober assessment is made of the difficulties in bringing new medical treatments to market.

The analysts call the phenomenon a “news bump”--a sudden change in value following publication of new findings in major scientific journals. In this case, University of Wisconsin researchers Corp. published their findings in the respected journal Science, which was released after the markets closed Thursday.

The many news stories generated a spurt of enthusiasm in the stock, which more than doubled in value Friday before settling down to a close of $17.18 per share--up 74% from Thursday’s close. For a small company with just 12 million shares outstanding, the sales volume was enormous: 41 million shares changed hands Friday.

The “stem cells” are taken from early-stage embryos, where they would normally be transformed into all the tissue types of the human body. If scientists can learn to direct those changes in the laboratory, the cells could in theory be used to repair damaged brain or heart tissue--or perhaps to grow complete donor organs.

“It’s a breakthrough piece of science that received quite a bit of publicity, not necessarily generated by the company,” said Thomas J. Dietz, managing director of PacificGrowth Equities. “But the devil is in the details. It will take a tremendous amount of additional work and discoveries to turn what looks like a very promising discovery into a commercial product. It has happened on multiple occasions in this industry, where you’ve had very lofty valuations that have been unsubstantiated.”

David Greenwood, Geron’s chief financial officer, acknowledged that practical applications of the discovery could be a decade or more away. “New therapeutics need more development,” he said, and must win regulatory approval from the Food and Drug Administration. But he said the company has “a more immediate marketing possibility” in supplying cells for research and licensing the new technology to other biotech and pharmaceutical companies.

Since Geron went public in 1996, it has enjoyed sudden bursts of interest in its stock following publication of scientific discoveries. For example, in January, the company trumpeted findings, published in Science, showing that normal human cells could be “immortalized” using a naturally occurring enzyme called telomerase. The share price shot up by more than 40%, only to fall back to well below pre-publication levels.

Karen Bernstein, editor of the trade publication BioCentury, said that “there is certainly short-term money to be made [on such announcements]. . . . But if you run the charts, the prices come down over a period of time, back where they were before, if there is nothing to sustain those high numbers.”

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GROWTH SPURT

For a chart on Geron’s performance, see Stock Watch, C4