A personal interest often is key to finding financial support for controversial stem cell research
By Terri Somers Tuesday, January 02 2007, 12:45 AM

INVESTORS WANTED


Times are tough for biotechnology companies hoping to raise private investment capital.

Venture capital firms generally wait longer - until a product is more fully developed - before they are willing to risk their money in biotech.

That makes it almost impossible for companies working on human embryonic stem cell research to find financing because...

so much is unknown about how those few cells morph into the more than 200 cell types in the body.

Using human embryonic stem cells to develop cures and treatments for Parkinson's disease, heart disease, cancers and other ailments is still decades away, say those in the field.

Worldwide, only about a dozen companies are building a business based on human embryonic stem cells, and only three of those are publicly traded: Geron in Menlo Park, Calif., Advanced Cell Technology in Alameda, Calif., and Stem Cell Sciences in Edinburgh, Scotland.

Executives at several of the companies say the key to tapping funds at such an early stage is either finding someone with deep pockets and a personal passion for curing disease or possessing a unique technology to address a potentially huge market.

Given the current business climate and the political and moral debate surrounding human embryonic stem cells in the United States, people in the business don't expect more competition to pop up soon.

"For a company to find financial support in this field, there has to be a large market and clinical need; that's why we are focusing on diabetes," said Edward Baetge, chief scientific officer at Novocell, one of two San Diego companies working with human embryonic stem cells.

Novocell recently announced that it has figured out how to use human embryonic stem cells to create insulin-producing pancreatic cells in a petri dish. The company hopes this discovery is a giant step in its effort to create a treatment for Type 1 diabetes, a progressive disease in which the body's immune system attacks the pancreas and its ability to secrete insulin and other hormones that regulate blood sugar.

Although Novocell has found some investors who believe in it, promising science does not typically beget enough investor interest to support a business, Baetge said.

"You really need visionaries who believe that if they support the company long enough, it will produce results that will revolutionize medicine," Baetge said. "That's why there aren't a lot of stem cell companies."

There were enough visionaries in the public markets of Europe to allow Stem Cell Sciences to list its shares on the London Stock Exchange's Alternative Investment Market. The company grows, differentiates and purifies embryonic stem cells, which it sells to research labs.

Geron trades on the Nasdaq market and reported $175 million cash on its balance sheet at the end of the last quarter. Besides its stem cell program, it also is developing cancer therapies.

Advanced Cell Technology, which raised $8 million in private financing in January 2005 and did a reverse merger a month later to become publicly traded, had $13.1 million in cash and cash equivalents at the end of the last quarter. Its shares trade on the over-the-counter market.

Novocell, which is private, has raised about $33 million since 2004, when it was formed by the merger of three companies, Chief Executive Alan Lewis said.

Federal funding in the United States is limited to human embryonic stem cell lines that were created before August 2001. Most of those lines are not pure enough to be used in humans.

Because the companies are working on therapies, they are using lines not approved for federal funding. That makes them ineligible for federal small-business grants and loans and forces them to look for philanthropic grants and academic collaborations to stretch their budgets.

Novocell has received grants from the National Juvenile Diabetes Research Foundation.

Advanced Cell Technology also has received grants from patient advocacy groups. It moved its corporate headquarters from Massachusetts to Alameda this year to make itself eligible to apply for funding from California's $3 billion stem cell research funding initiative.

The other San Diego company doing stem cell work, Stemagen, was founded by Samuel Wood, an in vitro fertilization specialist. Wood is using his own money, along with funds from undisclosed partners, to keep the six-person company running.

"I saw too many excellent quality embryos (left over after the in vitro fertilization process) being discarded," Wood said.

He concedes that alone does not make for a good business plan. He is driven by passion and experience, having watched his mother die of a diabetes-related illness. The father of one of his business partner's died of Lou Gehrig's disease, or amyotrophic lateral sclerosis, a fatal neurodegenerative disease.

Wood and his partners were not content to wait two years for a change in administrations in Washington. They were frustrated watching legal challenges stall California's stem cell initiative.

Stemagen has made several embryonic stem cell lines, which they donate to research institutions internationally.

"One of the reasons progress in this field has been slow is because the availability of high quality embryonic stem cell lines is so scarce," Wood said.

Stemagen wants to help fill that need.

The company also is attempting to make embryonic stem cell lines that have the genetic makeup of a specific patient, even though the egg used in the process did not come from that patient.

This process, called somatic cell nuclear transfer, was thought to have been perfected by South Korean scientist Woo Suk Hwang, until his studies were shown to be fraudulent last year.

Not many researchers have experience with this cell cloning process, but Wood found a scientist at Monash University in Australia, Andrew French, who has done the procedure an estimated 10,000 times on animal eggs and cells.

Wood said that the company has received several million dollars in initial funding, which is adequate for its currently planned activities.

The financial spigot appeared to be off for a while at Advanced Cell Technology. Telephone service was shut off and employees weren't being paid at one point, said Chief Science Officer Robert Lanza. He credits new management with reviving the company.

Lanza frequently receives letters from patients and their relatives who hope the company's research into macular degeneration strikes gold. They make him even more frustrated with the funding limits in the United States.

"There's more money spent on a tire for a B-52 than there is invested in our entire company, and we are involved in something that has the potential to revolutionize medicine," Lanza said.

So why start a company at this point?

"We're filling a void," Lanza said.

The void occurred at nonprofit research labs in the wake of federal funding restrictions.

For decades, the federal government has funded basic biomedical research through the National Institutes of Health. Money is disbursed through research grants awarded to investigators at universities and academic institutes. The funding also is used to pay the salaries and expenses of scientists at the NIH's many bodies, such as the National Cancer Institute.

It is typically these government-funded researchers who uncover the first clues for a new therapy to treat disease. One such discovery could be a target in the body that plays a role in disease, such as a hormone that helps regulate blood sugar.

Universities and private labs then sell these discoveries to private industry, such as biotechnology companies, which pour millions of dollars into figuring out how to make a drug that mimics the hormone that helps control blood sugar.

It is private industry that has the experience in formulating drugs and running clinical trials.

Limiting the stem cell lines on which private labs can work has choked the research pipeline, scientists said. Advanced Cell Technology is doing its best to pick up some of that slack, at least in its area of expertise, Lanza said.

Another benefit to a company performing basic research is that its scientists can concentrate on one particular area, and one particular problem, he said. The goal of all that work is commercialization.

Academia is not as focused and its funding is for hypothesis-driven, or "what if?" research, not commercialization, Lanza said.

The entire human embryonic stem cell field is now watching Geron, a publicly traded San Francisco company that is widely expected to be the first to put a therapy into human clinical trials.

In the second half of 2007, Geron plans to ask the Food and Drug Administration for approval to begin trials for its treatment for spinal cord injury, Chief Executive Tom Okarma said.

Geron wants to treat people whose spines have been crushed, causing paralysis, with oligodendrocyte progenitor cells grown from human embryonic stem cells. The oligodendrocyte progenitor cells support neurons in the brain and spine by sheathing them in myelin, a fat that helps neurons transmit signals.

Experiments in rats with injured spines show that transplants of these cells help restore movement. And Okarma said his company has done experiments showing the immune system won't react negatively and attack the implanted cells as foreign bodies.

"We hope Geron gets into the clinic and is successful in its first embryonic program because one clinical success will change the ethical debate ... even in the U.S.," said Simon Best, a British biotechnology executive who is past chairman of the international Biotechnology Industry Organization's ethics board.

Others in the industry worry that problems with Geron's human trials could indirectly hurt everyone in the field, by giving ammunition to those who oppose the research.

Geron takes its pioneer role seriously.

"We've poured over $110 million into the (stem cell) platform since ... 1995, so we have an 11-year track record supporting the work," Okarma said.

That investment has included sponsoring the research of several scientists in academic labs. They include Hans Keirstead at the University of Southern California, whose work on spinal injuries has led to the planned clinical trials, and James Thomson at the University of Wisconsin.

Thomson is the scientist who patented the process for deriving stem cells from an embryo and growing them in a petri dish to form a stem cell line. His patents, which now number three, require any researcher in the United States working with human embryonic stem cells to pay a fee to the University of Wisconsin. If a foreign researcher or company wants to use human embryonic stem cells to make a product and wants to sell that product in the United States, they must buy a license from the University of Wisconsin.

In exchange for its investment in Thomson, Geron was given the exclusive rights to use embryonic stem cells to study the creation of neural cell therapies, cardiomyocytes for heart disease, pancreatic islet cells for diabetes, and blood producing cells.

Companies that want to delve into those areas must obtain a license from Geron.

Scientists around the world complain that the patents are too broad, giving the university too much influence on the work others are pursuing.

"One could speculate that if the current restrictions on U.S. federal stem cell funding would be liberalized, the market for our stem cells would grow, at least among academics," said Mikael Englund of Cellartis, a Swedish company selling embryonic stem cell lines to drug discovery companies.

"For Cellartis ... (the conditions) that have the greatest impact on our business are clearly the patent and licensing issues," Englund said.

Okarma, Geron's CEO, defended his company's intellectual property rights.

"When we started, there wasn't anything," Okarma said. "Our investors had to take all the risk in hopes that we would get the IP. This whole empire was created on our nickel."


SIDEBAR

Stem cell companies, worldwide

Copley News Service

Company; Location; Ownership; Scientific focus

- Advanced Cell; Alameda, Calif., publicly traded; produces human embryonic stem cell lines and is using their regenerative abilities to develop treatments for macular degeneration and other diseases

- Axordia Limited; Sheffield, England; private; produces human embryonic stem cell lines and is developing drug discovery tools and treatments for cardiovascular disease, diabetes and Parkinson's disease

- Cellartis AB; Goteborg, Sweden; private; produces human embryonic stem cell lines, the medium in which they can be grown and drug discovery tools

- ES Cell; Singapore; private; produces human embryonic stem cell lines and is developing treatments for diabetes and cardiovascular disease

- Geron; Menlo Park, Calif.; publicly traded; is developing treatment for spinal cord injury, Parkinson's disease, heart disease, diabetes, osteoporosis and blood diseases

- Lifeline Cell; Walkersville, Md.; private; developing cells for transplantation that provoke rejection by the immune system

- Novocell; San Diego; private; developing a treatment for diabetes by creating insulin producing pancreatic cells

- Stemagen; San Diego; private; is producing new stem cell lines and working on a technique to make patient specific stem cell lines

- Cellular Dynamics; Madison, Wisc.; private; uses human embryonic stem cell derives cells to test the toxicity of possible new drugs

- Stem Cell Sciences; Edinburgh, Scotland; private; is producing human embryonic stem cell lines

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