<figcaption> Credit: © Miodrag Stojkovic / Photo Researchers, Inc.</figcaption>
Credit: © Miodrag Stojkovic / Photo Researchers, Inc.

In April of last year, the US Food and Drug Administration invited three large biotech companies - Geron, Advanced Cell Technology, and Novocell - to testify about how to safely test human embryonic stem cell (ESC) products in patients. The science was discussed, recommendations were made, and, seemingly, everyone was on the same page toward moving ESCs into the clinic.

Then, in May, the FDA put a hold on California-based Geron's clinical trial of an ESC-based therapy to treat spinal cord injury. In July, Advanced Cell Technology, a biotech company in Massachusetts trying to use ESCs to treat blindness, declared it was on the brink of bankruptcy. Meanwhile, California stem cell company Novocell narrowed its scientific focus, scrapping plans to target cancer stem cells or generate liver cells. Outside the United States, the picture isn't much prettier: In 2007, ES Cell International...

What happened? Was therapeutics a doomed fantasy all along? No, say most scientists and analysts, who agree that ESC-based therapies are still attainable in the long run. But how long?

"I couldn't even begin to put a parameter on any sort of time frame," says Donald Fink, an FDA scientist in the division of cellular and gene therapies. "It's going to be driven by the data that we obtain" from animal models. This opinion is echoed by Stephen Dunn, director of research at Boca Raton, Fla., securities firm Dawson James: "The embryonic stem cell scene still is in that science phase."

Consequently, the safest investment in the ESC field may be "something where you're an enabler of the technology" by providing the raw tools and ingredients for ESC research, says Steve Brozak, an analyst with WBB Securities in San Diego, Calif. "The time frame [for ESCs] is now for drug discovery, soon for personalized medicine, and decades for therapeutic use," adds Bob Palay, chairman and CEO of Cellular Dynamics International (CDI), a biotech company working with ESCs in Madison, Wisc.

"The time frame for ESCs is now for drug discovery, soon for personalized medicine, and decades for therapeutic use." -Bob Palay

Many new companies are "going for low hanging fruit," such as media, reagents, and diagnostics, says Robert Lanza, Advanced Cell Technology's chief scientific officer. While these might be easy targets, they can also be lucrative, notes Martin Pera, director of the Institute for Stem Cell and Regenerative Medicine at the University of Southern California. "The near- and mid-term [markets] are really reagents and research tools," he says.

Back to basics

Vancouver-based Stemcell Technologies is one company that has specialized in stem cell media and reagents for over 15 years, and it's perfectly happy continuing to do just that, says company president and CEO Allen Eaves. "We provide the picks and shovels for the stem cell gold rush, but we're not the miners," he says.

In the early 1980s, Eaves, the founding director of the British Columbia Cancer Agency's Terry Fox Laboratory, started buying up the best fetal calf serum by the bucket-full, bringing it to his lab, and rigorously testing it for its ability to support the growth of hematopoietic stem cells. Then, his colleagues started knocking on his door asking to buy his formulations. Eventually, after he had almost a dozen people in his department working solely on media preparation, in 1993 Eaves decided to remortgage his house, take out a loan, and go into business properly.

Stemcell Technologies doesn't rely on outside investors. Since its inception, it has been solely owned by Eaves. Sitting in his Vancouver office last Fall, Eaves unrolls a large crinkled poster that he keeps in the corner of the room. The poster meticulously details Stemcell's strategic plans, with columns itemizing the products on offer, and the future goods he hopes to create. At first, Stemcell Technologies had only one product, MethoCult; now, it provides more than 900 products to academic and pharmaceutical customers in more than 70 countries worldwide. Over the past 15 years, the company has grown in income and staff at 15 to 30% per year, now employing 270 people in eight countries with sales in 2008 topping $35 million.

Cellartis, a stem cell company in Gothenberg, Sweden, is also content to be a provider rather than a path-setter. When Cellartis was founded in 2001, it initially pursued stem cell-based therapeutics but soon switched business models, opting instead to focus on providing specialized cell types for drug discovery and toxicity testing. "At the beginning, we were caught up in the hype [of therapeutics]," says Cellartis' chief scientific officer Johan Hyllner. "Very rapidly, maybe less than a year later, we realized that it was a really long way to market, and as a small company, we decided to go for more near-term and mid-term revenues." Cellartis isn't turning a profit quite yet, but Hyllner says he thinks they will soon. In October they entered a formal collaboration with the Danish company Novo Nordisk and Lund University to develop insulin-producing cells from ESCs, although Hyllner says he expects it will take close to a decade before such cells hit the clinic.

CDI is currently supplying embryonic stem cell-derived heart cells to California-based Roche and other pharmaceutical companies for drug screening, and hopes to create other cell types in the future. "Instead of trying to compete with [pharmaceutical companies], we can supply them all," says Chris Kendrick-Parker, CDI's chief commercial officer. In November, Cellular Dynamics secured $18 million in private venture capital and about $1 million in small-business innovation research grants from the National Institutes of Health and the National Science Foundation.

The shifting US political landscape should also help boost revenues for many companies investing in ESCs, if President Barack Obama expands federal funding for ESC research, says Brozak. It's already happening, notes Lanza. "Since [Obama's] election, investors have been coming out the woodwork."

Revenue from reagents

Before Novocell pared down its research programs, it created a product for culturing human ESCs called StemPro, which it licensed to Invitrogen in August 2007. StemPro's main competition is mTeSR, which was first devised in James Thomson's lab at the University of Wisconsin, Madison, and has been distributed by Vancouver's Stemcell Technologies since June 2007.

Now, both companies are hoping to provide the gold-standard platform for all future ESC research. "People see it as worthwhile to have the peace of mind of knowing something is very similar batch to batch and has been thoroughly quality controlled," says Joydeep Goswami, Invitrogen's vice president and general manager of primary and stem cell systems.

The International Stem Cell Initiative (ISCI), a collaborative effort of worldwide researchers, is currently characterizing a number of different stem cell media to "advise the world on the best and most robust media at this time," says Janet Rossant, chief of research at the Hospital for Sick Children in Toronto, and a member of the ISCI's steering committee. Establishing standards for ESC media and cell lines "lays the foundation for moving toward [good manufacturing practice]," adds Derek Hei, director of the US National Stem Cell Bank in Madison, Wisc.

Standardized tools might also provide just the sort of "cash cow" dealmaker that investors are looking for in these uncertain financial times, says Dunn. So in other words, the company that gets the ISCI's stamp of approval will likely see a nice payoff.

Other companies, however, are still holding out for therapeutics. In the past year, Novocell cut many of its programs to concentrate on making ESC-derived insulin-producing cells to treat diabetes. "We could dabble in drug discovery, creating liver cells, creating media, and we could bring in a steady stream of money, there's no doubt about that," says Alan Lewis, Novocell's president and CEO. "But there was a realization that we'd made some major breakthroughs in the diabetes area, and it was that area where Novocell had a competitive advantage over any company that was trying to do the same thing." Between partnerships with Pharma, grants from the California Institute for Regenerative Medicine, and other sources of cash, Lewis says that Novocell is "well positioned to ensure we are able support our cell therapy program for the foreseeable future," and predicts that an ESC product will enter clinical trials in 2012, "if not before then."

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