Multiple populations of stem cells have been indicated to potentially participate in regeneration of injured organs. Especially, embryonic stem cells (ESC) and recently inducible pluripotent stem cells (iPS) receive a marked attention from scientists and clinicians for regenerative medicine because of their high proliferative and differentiation capacities. Despite that ESC and iPS cells are expected to give rise into multiple regenerative applications when their side effects are overcame during appropriate preparation procedures, in fact their most recent application of human ESC may, however, reside in their use as a tool in drug development and disease modeling. This review focuses on the applications of stem cells in pharmaceutical biotechnology. We discuss possible relevance of pluripotent cell stem populations in developing physiological models for any human tissue cell type useful for pharmacological, metabolic and toxicity evaluation necessary in the earliest steps of drug development. The present models applied for preclinical drug testing consist of primary cells or immortalized cell lines that show limitations in terms of accessibility or relevance to their in vivo counterparts. The availability of renewable human cells with functional similarities to their in vivo counterparts is the first landmark for a new generation of cell-based assays. We discuss the approaches for using stem cells as valuable physiological targets of drug activity which may increase the strength of target validation and efficacy potentially resulting in introducing new safer remedies into clinical trials and the marketplace. Moreover, we discuss the possible applications of stem cells for elucidating mechanisms of disease pathogenesis. The knowledge about the mechanisms governing the development and progression of multitude disorders which would come from the cellular models established based on stem cells, may give rise to new therapeutical strategies for such diseases. All together, the applications of various cell types derived from patient specific pluripotent stem cells may lead to targeted drug and cellular therapies for certain individuals.