Investor's Business Daily
Patience An Asset In Stem Cell Work
Friday September 29, 7:00 pm ET
Peter Benesh
On July 19, President Bush issued his first and only veto since taking
office. He quashed a bill from Congress that would
have loosened restrictions on federal funds for embryonic stem cell
research.
The president's position is that because stem cell extraction destroys
the embryo, it ends a human life. So Bush blocked
legislation to expand federal funding of embryonic stem cell research,
putting him at odds with those who support more
funding -- including many Republicans.
The debate will be on some voters' minds in the Nov. 7 midterm
elections. Among those paying close attention are firms trying
to advance stem cell research -- and their shareholders' interests.
There's more than politics at play, says analyst Jose Haresco of
Merriman Curhan. Many scientists believe stem cells can halt
or reverse degenerative ailments such as Parkinson's, Lou Gehrig's
disease, multiple sclerosis and Alzheimer's. The broad
term is regenerative medicine.
Even damaged heart tissue might be regenerated by stem cells, Haresco
says. "It's not science fiction anymore."
While there are many types of stem cells -- including adult, umbilical
cord and autologous (the patient's own) -- much of the
media focus is on embryonic stem cells.
Embryonic cells are the most useful in medicine. They're also the most
controversial because of the political debate.
At least one company, Advanced Cell Technology, figures it can acquire
embryonic stem cells without crossing moral
boundaries.
Advanced Cell is an over-the-counter stock pursuing an Amex listing.
Using a technology similar to one used by in vitro
fertilization clinics, the firm has adapted a method to determine the
genetic health of embryos before they're implanted.
"It does not harm embryos," said Chief Executive William Caldwell.
He hopes the nondestructive technique will get the firm around the
federal funding ban.
Political Science
Federal money would give firms like Advance Cell a big boost, Haresco
says. One reason is that investors -- especially
institutional investors -- are hanging back from companies that develop
stem cell therapies.
"(Investors) want clinical trials and advanced phase two data first,"
Haresco said.
Big pharmaceutical firms and major biotechs are holding back as well,
Caldwell says. "While all of them have stem cell
development labs someplace in the bowels of their organizations, they
are not putting capital into the sector."
These companies are nervous about the political and ethical climate
associated with the science, he says. The same holds true
for venture capital firms.
"VCs will take any risks -- except political," Caldwell said.
Despite the political fallout, there's plenty of research going on.
Foundations and other private funding sources are keeping
the work going. So are a handful of states, with California in the
lead. But there, too, politics has intruded.
California voters approved a 10-year, $3 billion stem cell research
fund in 2004. But because the money is tied up in a
wrangle about oversight, Republican Gov. Arnold Schwarzenegger tapped
the state's general fund for $150 million to finance
research.
Reflecting GOP tension, Schwarzenegger made the move on July 20 -- the
day after Bush's veto.
In 2005, the National Institutes of Health, which finances most basic
drug research in the U.S., committed $40 million to
stem cell research. The money was spread among 150 projects in the U.S.
and abroad, most of it bound for universities.
If $40 million seems like a paltry sum, NIH officials say there's a
reason.
"It reflects the fact that the field is young," said Jim Battey,
chairman of the agency's stem cell task force.
Caldwell doesn't want to hear it. He calls the $40 million federal
contribution "a travesty."
With little in the way of federal money available, Advanced Cell was
forced to move to where the state money is. In February
the company relocated its headquarters to Alameda, Calif., from
Massachusetts.
"If you're going to survive, you must be close to the capital,"
Caldwell said.
Empty Street
Plenty of other companies are trying to turn the stem cell therapy
business into a success.
StemCells (NASDAQ:STEM - News), which develops therapeutics to treat
damaged or deteriorating organ systems, has followed a
path away from embryonic stem cells in developing a treatment for
Batten's disease, a rare genetic disorder in children that
is always fatal. Using nonembryonic human stem cells, the firm is about
to launch a phase one trial on six children.
Targeting Batten's might seem odd, considering that as few as 600
Americans suffer from the condition. But StemCells Chief
Executive Martin McGlynn says doing so is the best way to make use of
available money and leverage the technology into other
diseases.
The challenge is convincing others, including Wall Street, of the
long-term payoff. McGlynn says institutional investors are
starting to pay attention to his firm, but the stock is still a
laggard. It trades for around $2 and has been trending down
for more than a year.
Nevertheless, McGlynn holds out hope that the tide will turn. "The more
the story becomes clinical as opposed to scientific,
the easier it is for the Street to embrace it."
A handful of firms are moving into various clinical-trial phases.
Aastrom Biosciences (NASDAQ:ASTM - News) is running a phase
two trial of its bone repair technology based on adult stem cells.
Osiris Therapeutics (NASDAQ:OSIR - News) has a phase three trial of its
stem cell drug for a life-threatening immune
condition that can hit cancer patients after a bone marrow transplant.
ViaCell (NASDAQ:VIAC - News) is monitoring subjects who received its
stem cell treatment for post-chemo-radiation blood
cancer patients. The stem cells in the phase one trial came from
umbilical cord blood.
Aastrom, Osiris and ViaCell have had a hard time earning much love from
Wall Street. Aastrom's stock costs about $1, while
ViaCell's is about $4. Osiris, which went public at 11 on Aug. 4,
trades near 10.
One reason for optimism is that regenerative medicine has been proved
effective in at least one common procedure: the bone
marrow transplant. Patients with leukemia and lymphoma have stem cells
extracted from their own marrow, then re-injected
after radiation or chemotherapy has killed all the cancerous cells in
their blood.
Killing the cancer also kills the body's immune system. By using stem
cells from the patients' own marrow, they'll recover
their full immune systems, says Larry Couture, senior vice president
and founding director of the Center for Applied
Technology Development at City of Hope Cancer Center.
He says advances in these and other therapies might help soften
resistance to federal funding of embryonic stem cell
research.
"It's difficult to stop science," Couture said. "I think things will
change regardless of who takes office in the next couple
of years."
'Important Opportunity'
One result of a change in the political climate would be fewer
restrictions on federal money for embryonic stem cell
research, says Ross Muken, analyst with Deutsche Bank.
"The NIH budget under a new administration would likely be better
funded," he said.
Meanwhile, some well-established biotech supply firms are readying
themselves for growing demand for consumables needed in
stem cell research, Muken says. In this market, he puts Invitrogen
(NASDAQ:IVGN - News) and Applied Biosystems Group
(NYSE:ABI - News) in the lead. His employer does business with both.
Applied Biosystems officials sound optimistic about longer-term
prospects for stem cell technology.
"We see it as an important opportunity -- a niche that will grow," said
David Ginzinger, the firm's scientific operations
director.
The key is to enter the market at the right time, Muken says. "It will
be a big business. If companies don't get in early,
they may not get in late."
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