The field of 'regenerative medicine' has seen some incredible advances, and the market is set to take off, says Marc Lichtenfeld. Here, he explains how to play the sector and tips four potential winners.
Grab your crystal ball... we're going to jump into the healthcare sector and try to look into the future. Let's spring forward ten years and ask a simple question: with technological improvements, what medical advances will be routine procedures?
Unfortunately, as optimistic as I am about new therapies for cancer, I'm pretty sure there won't be a full cure. Same goes for heart disease and diabetes.
However, come 2020, I suspect that it won't be unusual to be able to re-grow tissue, organs and perhaps even limbs. And it will come courtesy of game-changing - not to mention life-changing - progress in one particular medical field...
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The regenerative medicine market is set to explode. In 2008, the market was approximately $1.5 billion. In 2013, it's expected to generate revenue of $118 billion, according to Life Science Intelligence.
Some of the advances in this field are already incredible. For example, doctors are growing organs in labs and transplanting them in humans. Soldiers injured in wars are able to re-grow muscle and even achieve mobility and sensitivity with body parts transplanted from cadavers.
And trials are ongoing across the globe, applying regenerative medicine principles to spinal chord injuries, organ failure, cosmetic procedures and a host of other uses.
The world of stem cell research is enjoying equally amazing progress. Stem cells that are injected directly into the spinal chord and brain may help ALS and stroke patients. And early clinical trials are showing that patients who receive an injection of their own stem cells suffer less damage to their heart after a heart attack.
Industry expert, Robin Young, says that by 2015 "virtually every surgeon in the United States will be incorporating stem cells in either autologous, allograft or cultured forms into their practices."
So how do you play the regenerative medicine sector?
Investing in regenerative medicine: the right way and wrong way
There are a few different ways that you can try to identify potential winners in the regenerative medicine field.
The shot-in-the-dark method
If you're familiar with my many biotech columns here at Investment U, you'll know that the sector can be a high-risk/high-reward proposition.
However, if you're right and stumble upon the next great company, a small investment could end up making you rich. That's the case with stem cell companies, so one way to pinpoint companies in the field is to look for those that are in early-stage clinical trials.
Just do a search for stem cell stocks and you'll likely find that almost all of them will have some early studies. The best hope is that these firms are either bought out or actually have some incredible new treatment that will be proven in a few years. However, the likelihood for success is low.
The mammoth odds method
Few stem cell companies make it past the early trial stage, so later-stage studies are harder to find.
For example, Clinicaltrials.gov, the government's database of clinical trials, lists 3,050 trials involving stem cells. But only 186 of them are in Phase III. Even worse... of those 186, only one involved a publicly traded company that was studying the effect of injected stem cells (as opposed to studying various forms of chemotherapy after a stem cell transplant).
That company is Bioheart (OTC: BHRT), which is currently in a Phase II/III trial for congestive heart failure.
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The beyond-the-trial method
A better way to play the regenerative medicine sector is to look for companies whose businesses don't depend on the success of a clinical trial.
For example, there are companies that produce and sell stem cell lines and products to researchers. Millipore (NYSE: MIL) is one of them. It sells a variety of life science tools, including those used in regenerative medicine. The firm is being acquired by German drug maker Merck KGaA. Sigma-Aldrich (Nasdaq: SIAL) has a similar business model to Millipore's.
'Research' your way to regenerative profits
Perhaps the best way to invest in the regenerative medicine field at the moment is to go for contract research organisations (CROs), such as Charles River Laboratories (NYSE: CRL).
These companies run clinical trials for other firms. Charles River Labs and other CROs are involved in a wide range of trials, including stem cell therapies.
Investing in a CRO or equipment company lets you participate in the expansion of the regenerative medicine market without making what is often an all-or-nothing bet on some of the earlier-stage companies.
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Of course, if you do want to swing for the fences with earlier-stage stem cell companies, be sure to spread your risk among several stocks and keep your investments small, as it's still a speculative area.
Over the next ten years, however, I suspect regenerative medicine companies and their investors will make a lot of money. I thought by 2010 we'd have cool stuff like jet packs and flying cars. Yet I still seem to be walking and driving everywhere!
By 2020, I doubt we'll be able to fly to the doctor's office. But we may be able to get new kidneys grown from our own cells, lessen the damage from a heart attack, or even walk after a spinal chord injury. All thanks to the cutting-edge technology in the field of regenerative medicine.
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