By Deborah Finestone
Dow Jones Newswires

NEW YORK -- Shares of companies that do stem cell research dropped Wednesday after California voters passed a ballot measure to provide $3 billion in funding for research, as investors take profits from a recent run-up in the company's stocks.

"Investors are taking the approach to buy on the rumor and sell on the news," Rodman & Renshaw analyst Ren Benjamin said.

Shares of StemCells Inc. (STEM), of Sunnyvale, Calif.; Geron Corp. (GERN), of Menlo Park, Calif.; and Aastrom Biosciences Inc. (ASTM), of Ann Arbor, Mich.; have posted strong gains since early October as media reports increased about California's Proposition 71, which will provide $3 billion in state funding over 10 years, Benjamin said.

At about 12:45 p.m. EST on the Nasdaq Stock Market, shares of Geron were down 77 cents, or 9.8%, at $7.15 a share. StemCells shares were down 80 cents, or 19%, at $3.31 a share, while Aastrom stock dropped 22 cents, or 16% to $1.17 a share.

"These companies may not benefit directly from Prop 71, but there's excitement in the space with more research and more dollars," Mr. Benjamin said.

A to-be-formed committee will dole out the grants to companies and academic research institutions.

Glee in the field may also be tempered by President Bush's re-election, because of his limited support of stem cell research during his first term.

"Prop 71 is clearly a positive step forward for stem-cell research and development," said Geron Chief Financial Officer David Greenwood. "It's an extraordinary commitment to funding research on a very large scale."

Geron spends about $15 million, or half its budget, on stem-cell research and has spent more than $80 million to date, he said. The company relies on investor capital for funding, and he wouldn't rule out applying for grants funded by the proposition.

"I hope funding goes to foster new academic research at universities, and we'd be delighted to collaborate with academic groups to get grants," Mr. Greenwood said.

Besides helping individual companies and academia make discoveries, the funding will really be important in commercializing and increasing the scale of therapies to meet unmet needs, Needham & Co. analyst Mark Monane said.

He also noted that a lot of the money will go to academic organizations because there are more of them.

StemCells noted that while the company would welcome funding from the proposition, and had received grants from the National Institutes of Health - the only other major source of funds for stem cell research - the company is funded primarily by shareholders.

"Prop 71 funds will help California build upon its leadership in the field," company officials said in a prepared statement. There is also hope it will help dissolve barriers that have discouraged young scientists from entering the field.

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