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Banking 60% on the Day the World Changed: FDA Approves Geron to Test Embryonic Stem Cells on Humans

January 24, 2009 | About:
“The doctors told us my Dad had two months to live. We were counting down days in our head. But they told us there was one option. It was called a ‘stem cell rescue’…Long story short, it’s been two years and my Dad’s doing fine.”

That’s what a friend of mine told me a few months back. He saw some of the research we were doing on the silently emerging boom in stem cells and wanted to let me know how stem cell research had already yielded something very special for his family.

It was just one example of what was coming in the stem cells. Of course, stem cell research is still in its early stages of life. It’s been going on for 40 years and we’ve learned a lot, but it’s been mired in adolescence over the last few years. There are still a lot of bugs to work out and there’s no telling how long it will take.

All that may have changed today…

Earlier this morning the FDA gave the “go ahead” for stem cell biotech firm Geron (GERN) to test embryonic stem cells on humans.

Geron shares soared on the news. They topped out with a gain of 60% a few hours after the news was released. The unbridled euphoria didn’t last. Geron stock closed up about 35%. That’s a good bit less than from its earlier highs.

The big question now is how do we make money off of this - safely?

Sam Brannan or an Overpriced Lottery Ticket

The next leg in the Stem Cell Gold Rush starts today. I wouldn’t run out on Monday and buy everything stem cell related though (I’ll explain why this run-up probably won’t last in a moment). There will be big ups and downs. And the window of time is still fairly wide open. But now is the time to start figuring everything out and to develop a plan.

It’s times like these, when the pundits all of a sudden realize, “hey, this stem cell thing is real this time,” and investors start nibbling away into the sector, that I remember the California Gold Rush.

Do you remember who made a lot of money in that fiasco?

Most of the prospectors went broke. Sure, the occasional one found a big nugget, but the lucky ones were the minority.

The big winner of it all was Sam Brannan. He’s the one credited with kicking off the gold rush by telling everyone he knew about it. He ensured word about the gold discovery “leaked” back East to how rich people were getting in California. He also owned the general store beside Sutter’s Mill.

He didn’t pan for gold hoping to strike it rich. He took the safe route and sold pans, pickaxes, and everything else to the herd of miners who came. As a result, he was the richest man in California at the time.

Meanwhile, the prospectors would stake their claim (or buy one at a highly inflated price). They would toil away.

When a race is fueled by hope and greed, failure and economic ruin usually waits at the finish line.

That’s why when I look at Geron shares today, all I see is nonsense. Geron’s market cap climbed to more than $550 million.

Yes, Geron has a lot going for it and could work out very, very well. It has many different stem cell therapies in development. It’s run by world-class doctors who have been studying stem cells for years. And it is early to stem cells. So it has a head start in the race.

At the end of the day, at this point in time, it’s nothing more than a lottery ticket. And in a bear market, I’m not going to pay $550 million for a lottery ticket. After all, there’s a very good chance we’ll be able to buy Geron shares later and for less. That’s because the market is missing one very big thing when it comes to stem cells.

The Missing Link

When there’s a big rush for anything (dot-coms, gold, oil, etc.) I prefer to use the “Sam Brannan Strategy.” Selling the picks and shovels is the best way to go. It’s much, much safer. And, chances are, you’re going to make just as much money, if not more. That’s because the herd, rushing in today at what is bound to be a short-term high, doesn’t know about the “missing link”.

The reason stem cell therapies aren’t in widespread use is because no one really knows how it all works.

Whether they work or not shouldn’t be a worry. We know stem cells work. Paralyzed mice have gained some movement back. Blind people can see again. The most important thing, before stem cell therapies can go mainstream, is figuring out exactly how they actually work.

The “Great Unknown” is how a stem cell chooses which type of cell it will become. For instance, embryonic stem cells are programmed to divide and specialize. From one basic cell, they grow into pancreatic, skin, and nerve cells.

When the “how” and the “why” is figured out, it’s off to the races. That’s why I’m looking into who’s providing the picks and shovels of stem cell research for those trying to figure out the “how” and the “why.” That’s the big prize over the next few years.

Don’t worry though; there will be ample time to get into the coming stem cell boom. But you won’t find any Wall Street analyst report or company conference call...it’s a bit more subtle.

Stem Cells vs. Oil: The Winner is…

As a publisher and owner of a business which only survives by providing information people want, when they want, and of better quality than others, I can keep a close eye on web traffic, TV ratings, and lots of other things.

I do this because I need to know what most people want to know about. The side benefit is that I know what most people want to know about. As we’ve watched time and time again, most people are terrible investors.

That’s why I can release some research on the fate of oil (for instance in Prospects for an Oil Recovery - by the way, thanks for the compliments/critiques everyone) it will set a record for “most viewed” article on our website. But when I write about stem cells, there’s hardly any reaction.

The herd doesn’t want to make money. They want to follow what’s hot. In a way, they’re fighting the last war. And that strategy doesn’t work in the military or in the stock market.

The next round of quadruple-digit gainers will be in stem cells and other areas we’ve been looking at. Despite today’s news, not too many people are watching. Oil still gets all the attention. Although I’m sure you’re going to make A LOT more money in the right stem cell and medical research stocks than you ever will in oil.

Fine with me. That means more for us.

Exclusive: Stem Cell Insider

The world is changing rapidly and while everyone is focusing on the negative (granted, there are some scary things out there – i.e. if one trade barrier goes up against China, economically speaking, it’s ALL OVER), we’ll be searching out the true opportunities on our way to true financial independence. So, I’d like to tell you what we’ve got lined up for you tomorrow.

As some of you know, I’m actively involved in the venture capital industry. I’m an advisor to a couple of boutique investment banks (not ones that leverage themselves to hilt on risky loans).

There are a lot of benefits from this. It forces me to stay two steps ahead of everyone else. It gives me an inside track to where the private investment dollars are going, many times years before the IPO’s start hitting the mainstream media. It also gives me access to entrepreneurs who are looking for money to expand their (some of the time) already successful businesses.

Occasionally, I can convince them to go “on record” with me. A few weeks ago I did just that. And I’ve had a conversation with a doctor who has successfully built a business supplying the “picks & shovels” to the stem cell research industry.

Again, the world is changing rapidly and, one way or another, we’re going to stay one step ahead of the herd.

I probably don’t say this enough, but thanks for coming along.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

www.q1publishing.com

P.S. I realize we were going to look at companies which are ramping up their advertising and expansion efforts to turn this recession into opportunity today. Given the stem cell news yesterday and the fact my exclusive conversation a doctor whose been researching stem cells for years (and who has built a nice little company supporting this boom) is almost completely transcribed, I figured we might as well cover this now. We’ll get back to who’s making the right moves now, early next week.

About the author:

Andrew Mickey
Gregory Speicher is an Ohio-based investor. His career has primarily been in technology start-ups and small growth companies, including an Inc. 500 Company which he cofounded. He also holds several patents. He received his bachelor's degree in philosophy Magna Cum Laude from the University of St. Thomas in Rome, Italy, and attended the MBA Program at the Wharton School of the University of Pennsylvania. He has attended Professor Bruce Greenwald's Value Investing Executive Education Course at Columbia University and continues to read and study widely in the field of value investing. Visit his website: GregSpeicher.com

Visit Andrew Mickey's Website


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