Private Capital Seen as Aid to Stem Cell Research
By Toni Clarke

NEW YORK (Reuters) - Scientists are hoping private capital, responsible for such breakthroughs as the polio and yellow fever vaccines, will spur stem cell research after President Bush (news - web sites) said he would limit its federal funding.

The money, in theory, is there. Private companies spend about $24 billion a year on biomedical research and foundations spend another $2 billion. Access to this money, though, is not easy and often requires scientists to give up more control over their research than they would like.

So far research into stem cells has been funded largely by private organizations. John Gearhart, whose laboratory at Johns Hopkins School of Medicine was the first to isolate stem cells from fetuses, received his funding from biotechnology company Geron Corp. and other private sources.

``I think any scientific advance that's interesting will get funding from a corporation or a foundation,'' said Alex Zisson, an analyst at J. P. Morgan. ``I don't think any promising research is going to die on the vine.''

Last week, Bush said he will limit federal funding of stem cell research to the estimated 60 cell lines that already exist. Cell lines are self-reproducing cell colonies derived from a single parent.

Bush's decision sparked criticism from some scientists that without government funding, the benefit of stem cell research, which promises cures for Parkinson's, Alzheimer's and other diseases, will be held back.

Scientists most likely will have to apply for private money, but they say it can't replace public funding. Universities typically receive less than $1 from private sources for every $10 obtained from the government.

``For real impact, real federal money must come into play,'' said Sandy Williams, dean of Duke University Medical Center.

In dealing with companies, there is always a trade-off, he said. ``Even foundations have their rules, and there's less assurance than with the government that their peer review process will pick out the best ideas.''

Researchers expect to strike licensing deals with the owners of cell lines, even though they risk forfeiting future profit from the commercialization of their research.

``Often these cell lines are patented and it's a lot of work to enter a license agreement,'' said Janet Sawicki, an investigator at Lankenau Institute for Medical Research.

As long as academics are willing to bite that bullet, money will flow their way, some analysts said.

``There's been a fairly continuous private funding of this space,'' said Steven Burrill, chief executive of Burrill & Co., a merchant bank that's preparing to invest in Anthrogenesis Corp., a private stem cell company based in Cedar Knolls, New Jersey. ``I think the venture capital world and private investors do have some appetite for this kind of company.''

History backs him up. Private capital has been responsible for a number of medical breakthroughs, including development of the Pap smear, a test to diagnose cervical cancer that was developed by George Papanicolaou.

Still, stem cell investments are an acquired taste. Stem cells are early parent cells whose progeny can develop into any of the body's 220 cell types. The commercial products promised could be 10 or 20 years out, and shares of companies involved are likely to be volatile, analysts said.

``Most investors won't want to invest in this type of research because they are having to invest with no visible exit,'' said Brian Sheehy, an analyst at Brinson Partners, the US asset management arm of UBS Securities.

Already tensions between academics and the private sector have surfaced. Geron has been sued by the Wisconsin Alumni Research Foundation over its attempt to control the rights to cell types from lines developed by pioneering researcher James Thomson.

``This may foreshadow some intellectual property issues down the road,'' said Robert Hazlett, an analyst at Robertson Stephens. ``We've seen it with the land-grab around the human genome and I think we'll see more.''