By Dr. George Huang

Stem cells are a biologic marvel and a political football.

Because stem cells never die and they have the ability to evolve into nearly all cell types, they are the leading source of groundbreaking medical advances. For example, researchers hope to transform stem cells into heart cells, which could be injected into heart-attack patients to repair the damage.

In the lab, scientists have pulled off virtual miracles with stem cells. Rats with crushed spinal cords are able to walk again after growing new neurons. Mice with diabetes grow new pancreas cells that secrete insulin. Such results have spurred hope in patients with debilitating diseases.

Famously, Christopher Reeves, the actor who played Superman, believed stem cells could cure his spinal cord injury, perhaps allowing him to walk again. He died before he got his chance... And we are still at least a decade away from translating the science of stem cells from lab to clinic.

But that hasn't stopped shady biotech executives from preying on the hopes and dreams of dying patients... and gullible investors.

I thought the Vanda management team was either crazy or brilliant. I figured their chances of success were less than 1 in 1,000. Apparently, so did Kevin Tang.

Company Market Cap Years of Cash Left

Geron (GERN) $640 million 4
Osiris (OSIR) $400 million 2
Stem Cells (STEM) $200 million 2
Aastrom (ASTM) $65 million 1
Let's take Geron for example.

Geron opened shop in 1992. Since then, it has burned through $500 million of investor money with absolutely nothing to show.

This year, the company made headlines after getting clearance from the FDA to conduct the first-ever human stem cell trial. But the trial will enroll only eight to 10 patients with severed spinal cords. And leading stem-cell experts have strong objections to the trial...

The animal data that led to the FDA clearance was suspect. A few rats did regain some walking ability after stem-cell treatment. But they had less-severe spinal injuries than many would-be trial participants. And the results came from a small number of animals. Scientists also worry the injected stem cells may grow out of control, form a tumor, and kill patients.

I hope the trial works for the sake of patients and the advancement of science. But I think the odds of success are miniscule.

Nevertheless, Geron's stock doubled in January on the trial news. And management didn't waste any time. No sooner had the stock jumped than it issued more shares to naïve investors, raising $43 million and diluting existing shareholders by 10%.

But not all investors are suckers. The numbers of smart investors shorting Geron and companies like it have steadily climbed. If you have a higher risk tolerance, I suggest you join them.

Good investing,

George Huang