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Aastrom Biosciences, Inc. (ASTM)
Aastrom Biosciences: Breaking On Through To The Other Side
Being on the cusp of where scientific endeavors and political battles meet certainly puts any company on the proverbial hot seat. As a result, Aastrom Biosciences, incorporated in 1989, has seen its fair share of financial turmoil over the course of the last five years. The reason: the company is involved in adult stem cell research, which happens to be a rather sore topic up on Capitol Hill. How can Aastrom overcome daunting political hurdles to provide direly-needed medicines and procedures to millions of Americans who face incurable diseases, cancers and other ailments?
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Company financials for Aastrom are somewhat tricky. Unlike manufacturing, oil refining or semiconductors the medical research field depends heavily on whether the Food and Drug Administration (FDA) will approve of new drugs and treatments. Research is a capital-intensive endeavor, and new drugs can often cost hundreds of millions to develop. Thus, stock prices hinge on FDA decisions, as well as news developments pertaining to university research. Thus, the aforementioned report out of the University of California – Irvine was a big boost to Aastrom's stock. The company is a relatively small player with a market cap of $242m (industry leader: $10bn), and has not been profitable as of late. This is expected to change within the next few years, as treatments currently being developed move toward market. Despite being small, the company has posted a share growth of 760% over the last three years, while major competitors like Laboratory Corp. of America Holdings (LH: Charts, News, Offers) (42%), OSI Pharmaceuticals (OSIP: Charts, News, Offers) (75%) and Quest Diagnostics (DGX: Charts, News, Offers) (66%) have not performed nearly as well. It is quite possible that the increase has come from speculation, especially since the company is three times as risky as the market as a whole (beta) and its short interest ratio is at 3.7. General consensus states that a short interest above 2.0 is an indicator that stock prices are expected to increase.
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Congressional midterm elections are rapidly approaching. While this does not have a seemingly outright effect upon Aastrom, it does have heavy influence on the company's future. The Republican Party, which currently controls both houses of Congress, is facing sagging national approval ratings following troubles with the Iraq war, rising oil prices and the federal response to Hurricane Katrina. While stem cell research is certainly not on the forefront of policy nearly as much as immigration, Social Security and discretionary spending reform, it can easily be used as a diversionary topic. The good news for Aastrom is that the company specializes in adult stem cell research, which tends to garner much higher approval than embryonic stem cell research.
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What could happen, if Republicans continue an anti-embryonic stem cell push, is a boost for adult stem cell research companies. If regulations are relaxed, inherently allowing the development of embryonic research, Aastrom would have to ensure that it branches out to include embryos. According to the National Institute of Health (NIH), “Certain kinds of adult stem cells seem to have the ability to differentiate into a number of different cell types, given the right conditions.” Embryonic cells, however, are almost a blank slate since they can form into many different types of cells. If adult stem cell development into key cell types (brain, liver, etc.) can be controlled in the laboratory, these cells may become the basis of therapies for many serious common diseases. Aastrom is developing Tissue Repair Cells (TRC) for the treatment of severe bone fractures, ischemic vascular disease, jaw reconstruction, and spine fusion, all of which have high market demand. Recent laboratory tests at the University of California – Irvine showed that stem cell treatments allowed semi-paralyzed mice usage of their limbs. This has been a serious boost to profit potential.
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Profile |
Aastrom Biosciences, Inc. is developing automated clinical systems designed to enable therapeutic procedures using living cells in the treatment of cancer and other diseases and in the restoration of normal tissues. The AastromReplicell Cell Production System, the company's leading product, is currently in multi-site U.S. clinical trials for the production of either bone marrow or umbilical cord blood cells to mitigate the toxicity of aggressive chemotherapy used to treat cancer and other blood disorders.
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