Potential returns may be years away, and society’s moral concerns make investors nervous
SEATTLE — Whoever learns to control embryonic stem cells that can morph into healthy human cells could be standing on a gold mine: Four million Americans have damaged brain cells from Alzheimer’s, and a million people each year suffer tissue damage from heart attacks.
No one doubts that those people — and millions more who suffer from Parkinson’s, diabetes or stroke — would pay big money to restore their quality of life. But that powerful profit motive hasn’t pushed stem-cell research quickly toward development of new treatments.
Despite the progress — in February a team of South Korean researchers showed that they could clone human embryos and harvest their stem cells — building a business in the field is tough. Investors in the pharmaceutical and Biotechnology industries aren’t committing billions of dollars, largely because society hasn’t clearly decided whether the research is moral.
With the stem-cell research in its infancy and massive government funding constrained by a policy enacted in August 2001, industry experts say the field is too risky, the business model too vague. Researchers don’t know how to control embryonic stem cells, for example, so they will become heart cells instead of cancer cells, and they don’t know how do it cheaply, conveniently or consistently enough to make it a viable business.
Some startups have failed, unable to raise cash. To the industry, the efficiency isn’t there. The South Koreans’ work is a breakthrough, but the group got only one cloned embryo to produce stem cells, out of 240 attempts.
Chuck Murry, a human-embryonic-stem-cell researcher at the University of Washington who has used the cells to grow human heart tissue in rats, believes it could take 20 years before the first stem-cell-based treatment could arrive — five to 10 years to get ready for tests in humans and then several years in human testing.
Murry’s next step — a tricky one, he said — is to show that human heart tissue from stem cells can repair the heart’s lost functions in animals. He’s filing patents on the work but hasn’t been bombarded with calls from investors, he said.
“The typical venture capitalist has a horizon of getting a return on investment in about three years, with some exceptions,” Murry said. “This kind of stuff, the benefits of it, are much further off.”
There are some exceptions — companies that say the world of stem cells is closer to human testing than many believe.
Geron, a tiny 14-year-old biotech company in Menlo Park, Calif., is the world leader in embryonic stem-cell research. The company believes it will be cleared to start the first stem-cell therapy in human tests next year, possibly for spinal-cord injury.
David Greenwood, Geron’s chief financial officer, said the company believes it can build its business by adding a centralized factory to mass-produce standardized embryonic human cells. If a patient’s immune system is suppressed, he said, the standardized cells could be transplanted into random patients without being rejected by their immune systems.
The company decided to go that route, Greenwood said, because it would cost too much to take a personalized approach. In that technique, a patient’s own skin cells could be scraped off, the nucleus of DNA taken out and cloned in a lab dish to make a “therapeutic clone” that could produce stem cells. Those cells could regenerate, for example, spinal-cord cells that are a patient’s identical genetic match, cells that, in theory, wouldn’t be rejected by the immune system. But the logistics don’t yet make sense, Greenwood said.
“The problem is, you have to have a therapeutic you can deliver at a reasonable cost so we can charge a reasonable cost,” Greenwood said. “If you can say to a patient, ‘We can help you. Do you have $200,000?’, that’s not going to be helpful for most people. We believe we have to operate within the current parameters of health insurance.”
Investors have not shown a willingness to jump at the idea, either. Geron stock has fallen from a high of $75 to around $10, and the company has laid off many to save money. The tide will turn, Greenwood said, and pharmaceutical investment will flood in once Geron gets approval from the Food and Drug Administration to start human tests.
The debate over ethics is one of the risks scaring away investment. Each year, Congress considers an outright ban on all human cloning, for reproductive or therapeutic research. The FDA has said it will consider allowing stem-cell therapies to be tested on a case-by-case basis, but it hasn’t given the green light for a trial.
The National Institutes of Health provides grants for work on about a dozen kinds of embryonic cells, but supplies are not abundant, and scientists say they need more to understand how cells from multiple embryos — not just the few approved by the federal government — react in experiments to prove their theories.
The obstacles aren’t entirely about money or regulation. Science can be difficult.
Tony Blau, a stem-cell researcher at the UW, said it is “extremely laborious” to keep the embryonic cells growing, well-nourished and stable in the lab so they don’t die or turn into a cell type with less potential. Researchers need to know how to channel the stem cells to create a specific kind of cell, how to test whether they’re pure, and how to develop drugs that could serve as a sort of antidote in case infused stem cells started creating something dangerous, such as cancer.
Big companies, Blau said, want to know that their drugs will be almost completely stable, standard, pure and consistent, because they can behave differently if they aren’t. Stem cells never will achieve that kind of standardization, Blau said, because living cells are more complex than chemically synthesized drugs. That fact discourages pharmaceutical companies.
Small biotech companies have more scientific interest, Blau said, but in many cases, “they don’t have the money.”
Doug Williams, chief scientific officer of Seattle Genetics, said the long-term potential of the stem-cell business is intriguing but is not on the radar screens of most companies. Companies like his are judged by investors on the odds that their experimental products will reach the market — and provide a return on investment — within five years.
Before investing serious money, Williams said, companies can’t just be wowed by the science but have to think early on about how much it would cost to make the product and how convenient it would be to give to patients. Re-infusing cells is much more complicated than a pill or an injection.
Most shudder at the idea of cloning to reproduce people, but it is conceivable that a few people wealthy enough to afford it could want to be cloned or could want to replace a lost child or loved one with a genetically identical twin. The question is whether market demand could push it ahead despite the objections of scientists and physicians who consider it unethical.
“That’s not where the market is — the market is in curing diseases with huge populations,” said Robert Nelsen, a managing director with Arch Venture Partners in Seattle. His firm hasn’t invested in the work and is nervous about doing so until the debates are settled and more-compelling scientific evidence emerges.
Bob Overell, a venture capitalist with Frazier Healthcare Ventures in Seattle, said investors are intrigued by the potential of stem-cell treatments but are reluctant to invest.
“There’s a point at which we have to decide as a country if this is something we want to happen,” Overell said. “If it is, we’ll have to look at how to regulate it appropriately and put a ban on certain kinds of work. Otherwise, it’s not worth the risk.”