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The hard cell Thanks to politics, stem cell research in the United States is suffering. But not so in Sweden, which is poised to capture what could be the biggest new market to hit biotech in a decade. By Stephan Herrera February 13, 2003 New York, January 1, 2006: Sweden announces that one of its biotechnology companies is the first in the world to enter clinical trials with a new drug that could cure Alzheimer's disease. Four years ago this type of research was all but stopped in the United States by political and ethical questions--which is why Sweden now seems in the best position to capture a $25 billion market. Any day now, the U.S. Congress is expected to pass a sweeping new law that could dramatically inhibit researchers from working with stem cells taken from human embryos. Such cells, which can be used to grow a whole host of new cells and organs, could fundamentally change the way we treat heretofore intractable maladies like Alzheimer's disease, Parkinson's disease, cancer, stroke, liver failure, and heart disease. The only problem is that these cells by definition are derived from human embryos, many of which are cloned or come from unused fetuses collected at fertility clinics. The argument, from a certain segment of the American political spectrum, is that both methods are morally wrong. They are either a form of abortion or an activity that could eventually lead to human cloning. Those working in stem cell research say the short-term effect of the legislation will be to further chill all forms of scientific inquiry and commercialization efforts in the field. Entrepreneurs and investors are already eschewing such research--in large part because of the additional uncertainty and risk that politics introduce. "It's not that American VCs don't understand stem cells," says one European stem cell expert, "it's that the political climate in America has scared them off." A leading U.S. stem cell firm, Geron, has seen its stock price plummet 62 percent in the last 12 months (Nasdaq: GERN). Executives at firms like Geron maintain they are at their wits' end, and are either quitting or being fired by frustrated boards. Large pharmaceutical companies that have partnered with the stem cell firms are canceling or simply not renewing research collaborations. Only the firms working on stem cells from animals even bother to issue progress reports or attend biotech conferences. "What we should be discussing is whether stem cell research is a viable area of research, regardless of politics," says Ron Cohen, CEO of U.S.-based Acorda Therapeutics, which is working with stem cells for spinal cord repair. He thinks it is, and so do a couple dozen Nobel laureates, plus Orrin Hatch and several other prominent conservative Republicans, including Nancy Reagan (Ronald Reagan suffers from Alzheimer's). In 2002, California passed a law that supports stem cell research and cuts against federal policy. New Jersey is considering a similar law. Still, these developments haven't helped matters much, because critics of stem cell research have been successful in capturing the moral high ground. Of the nearly 50 private stem cell companies in the United States, only a handful are still viable. Meanwhile, across the Atlantic, Sweden has avoided many of the political and ethical quagmires surrounding this type of research. It currently has 40 private stem cell companies, a number that's growing. Sweden's leading research universities have 32 percent of the world's stem cell inventory, close on the heels of the United States' 35 percent. Sweden, say analysts, is now in the best position to capture a worldwide market for drugs based on stem cell therapies that could grow to $25 billion in the next three to five years--nearly equal to the whole biotech industry at present. This estimate doesn't even address the market for stem cells capable of repairing damaged vital organs like the brain, heart, and kidneys. If the United States offers an object lesson of what can happen when scientific inquiry and investment capital fall victim to politics, Sweden and its leading stem cell startup, NeuroNova (a Red Herring 100 company in 2002), offer the opposite example. How odd that the United States, which for generations has been the envy of the world for its progressive views of science and commercialization, should now have a biomedical climate chillier than a Swedish winter. Brain Power Sweden's strong position is even more surprising given that it has a population of only 8.9 million, roughly equal to that of Manhattan on a business day. There are more universities in Massachusetts than in this entire Scandinavian country. Yet Sweden has the highest per capita output of patents and peer-reviewed scholarly articles year in, year out. It also has more than 300 research groups devoted exclusively to stem cell research, thanks to government-backed funding incentives. As minister for trade, Lief Pagrotsky has put stem cells at the center of his country's pitch to attract foreign direct investment in Sweden's biotechnology market. In an open letter to would-be investors and corporate collaborators, he writes, "[C]onsidering the potential for stem cells, I assure you our government is determined to sustain and advance Sweden's lead in this field." While the United States is still the leader in academic stem cell research (in December, Stanford University announced that it would clone human embryos to produce stem cells), Sweden is close behind. Every major university in Sweden has a stem cell research program. Some of the world's leading stem cell researchers--like Anders Bjorklund of the University of Lund--call Sweden home. The Karolinska Institute alone (Sweden's largest and best-known research institute and the birthplace of the Nobel Prize) has more than 100 stem cell researchers. Among them are Urban Lendahl, who discovered one of the pivotal genes used to detect neural stem cells, and Jonas Frisén, a neurobiologist who was the first to prove that adult stem cells in the brain, contrary to conventional wisdom, can regenerate brain cells. (Dr. Frisén also cofounded NeuroNova in 1998.) Still, like the rest of Europe, Sweden has long envied the United States. The vast majority of young European scientists want to come to America. And why not? The U.S. academic and commercial marketplaces for ideas are far more robust than in Europe. In fact, the U.S. drug industry is about ten times larger than Europe's. So, over the past few years, Europe's largest drug firms have relocated to New Jersey--and not because they like the weather. Stem cell research turns this situation on its head. If the United States wants to be a part of the future of stem cells, say industry watchers, it might soon be forced to look abroad. The internationally recognized stem cell expert Irving Weissman of Stanford University Medical School is widely quoted as saying, "I wouldn't be surprised if the first clinical trials using stem cell therapy for neurodegenerative diseases [like Alzheimer's or Parkinson's] are performed in Lund [Sweden]." Stemming the Flow At one time, all of the largest pharmaceutical firms, including Pharmacia (originally a Swedish firm, soon to merge with Pfizer), Novartis, Eli Lilly, and Merck, had stem cell programs. Some still do, but they are kept under wraps so as not to attract attention. None of these firms would discuss their programs on the record. Most are working on stem cells that come from mice (which are a good research tool, but no substitute for human stem cells). They have long since abandoned any notion that this field is the next big thing. That's bad news for biotech startups, which normally thrive on contracts and partnership deals with the large firms. One company feeling a lot of pain is StemCells, which at first glance seems to have it all: founding scientists include Stanford's Dr. Weissman and Fred Gage of the Salk Institute in La Jolla, California. An equally well-regarded expert in the treatment of Alzheimer's, Dr. Gage spent five years in Sweden as a researcher and now sits on a national committee on stem cell research there. The firm's chairman is Roger Perlmutter, Amgen's head of research. Yet over the past two years, none of management's efforts to help investors and even critics reconsider the stem cell field have worked. At press time, the stock was thinly traded and sitting in the neighborhood of 50 cents (Nasdaq: STEM). With less than $15 million in cash, the company likely won't exist at this time next year. (CEO Martin McGlynn, who joined the firm in January 2001, would not talk to Red Herring, despite repeated efforts.) Some observers on Wall Street are asking, If StemCells can't make it, who can? Geron, the only other publicly held stem cell firm to speak of, is in a fix, too. The company's stock price is also moribund, at $3.85 per share. Thanks to some capital infusions a few years ago, when money came easy, Geron still has $40 million on hand, but by the end of next year, that too will likely be gone. Once a media darling, Geron focuses on diagnostic tests and drugs derived from stem cells, a strategy that's not going well. For the nine months ended last September, revenue fell 68 percent to $955,000 and net loss widened 18 percent to $26.7 million. The company's financials were also hit hard after it terminated an agreement with Pharmacia and acquired research technology from Lynx Therapeutics, which Geron bought in a desperate attempt to be seen as something more than just a stem cell company. Stockholm Market The situation is quite different, however, for Sweden's NeuroNova, founded by Dr. Frisén and Ann Marie Janson, also a neuroscientist at the Karolinska Institute. NeuroNova, which has 30 academic partners and a staff of 20, is working on ways to inject stem cells into the human brain to trigger a process called neurogenesis (the growth of new neural cells), which could combat diseases like Parkinson's, Alzheimer's, and even schizophrenia. "All of big pharma will have a neurogenesis program within four years," predicts NeuroNova's CEO, Anders Haegerstrand. "We hope to be entering clinical trials by then." If either prediction comes true, NeuroNova will be in a good position to attract a large pharmaceutical company, perhaps one based in Europe, as a partner to help shoulder the cost of clinical trials. To date, the firm has raised $3 million from venture firms and the largest pension fund in Sweden, and hopes to close on another $10 million by this spring. Compared with their U.S. counterparts, NeuroNova--and most of the other 39 stem cell companies in Sweden--is not well funded. But then, the cost of conducting research in Sweden is much lower, because it typically costs from 30 to 40 percent less to employ doctors, nurses, and technicians than in the United States. In its quest for investors, NeuroNova may get help from American VCs like Elliott Davis of Next Wave Funds, which recently made an investment in Cell Therapeutics Scandinavia. Mr. Davis sees near-term prospects for stem cells as a diagnostic tool and long-term advantages to having access to embryonic stem cells. Although it's uncertain how much U.S. venture capital will flow to stem cell companies, it's a safe bet that many VCs will focus on Swedish firms like Cell Therapeutics, NeuroNova, and Vitrolife. Whether these companies can win the drug-development race against their U.S. counterparts remains to be seen, says the Salk Institute's Dr. Gage. "Sweden and its stem cell companies are small, so they've got to be unique. Success is all predicated on getting the smartest people," he says. "Unless you can recruit the winners, you won't get anywhere." If NeuroNova is the first to develop a drug capable of treating one of several central nervous system disorders--by far the most lucrative after heart disease products--it will have done so not because it raised more money or got more media buzz than the rest. It will have succeeded because the science is solid, and academe, government, and the investment community are supportive. Meanwhile, the United States will look on with envy and wonder how it, a country known for its entrepreneurial innovation, ever got so short-sighted. Stephan Herrera is a contributing editor to Red Herring. Write to Stephan Herrera. [log in to unmask] SOURCE: The Red Herring Investor http://www.redherring.com/investor/2003/02/biotech021303.html * * * ---------------------------------------------------------------------- To sign-off Parkinsn send a message to: mailto:[log in to unmask] In the body of the message put: signoff parkinsn