State by state, country by country, lawmakers are struggling to pass - or prevent - new rules on funding for human embryonic stem cell research | By Ed Silverman Kenneth Giacin couldn't be more excited about California's Proposition 71. The landmark initiative to provide $3 billion in funding for stem cell research is not only a potential watershed in the world of science and medicine, but it may also mean that his company, StemCyte, will be able to accelerate its work in transplantation therapy.

"For us, it's far nicer to look at an additional source of potential funding than just one, which is the National Institutes of Health," says Giacin, a former Johnson & Johnson executive who runs the Arcadia, Calif., startup. "But it's not just us. Many others who have been looking to the NIH or private equity investments now have another place to look. This could drive a lot of companies into this space. In theory, it should act as a catalyst to heat up this area of research."

Indeed, the move to create the California Institute for Regenerative Medicine, and a somewhat similar effort under way across the country in New Jersey, is sparking an intensifying debate in numerous state capitals over the merits of backing stem cell research. The now-familiar point-counterpoint arguments are still being made about morals versus the potential for improved health. However, the debate is increasingly about jobs and regional economics. This is just as true in the United Kingdom and some European countries, as well as in Singapore, China, and South Korea. In South America, Brazil recently passed legislation that would allow research on human embryos frozen for three or more years.

Stem cell research is turning into a horse race, at least for some. The expectation is that homegrown research institutions will win grants and, later, attract prominent scientists and private investment. New Jersey, for instance, is worried its franchise as the nation's medicine chest - it is already home to many drug makers - will be lost to California.

"We're seeing this become a bigger and bigger stand-alone legislative issue," says Alissa Johnson, a senior policy specialist at the National Conference of State Legislatures (NCSL), a clearinghouse for state government research. "For the most part, a bigger portion of state bills are considering permitting stem cell research, although most bills still tend to restrict research. But after what we've seen in California and New Jersey, we may see a larger number of states consider the same thing."

Initiatives are gaining steam in Washington, Pennsylvania, and other states. In Maryland, legislation is being considered that would devote $25 million to the research. In Connecticut it is potentially $10-$20 million, and Illinois has discussed a $1 billion bond. Wisconsin says $750 million may be earmarked, though it's not clear yet where the funds would come from.

"There's finally real movement in the US and it's going to change the fundamental field of biomedical research," says Wise Young, a Rutgers University professor of cell biology and neuroscience, and one of two specialists tapped to organize the New Jersey institute. "But several things are becoming clear. With states funding billions of dollars, we're talking about haves and have-nots. You'll have to be in a certain state to do this kind of research. And it will encourage clustering that is bound to have an impact on industry."

Stem Cell Issues Around the World
Click for larger version NERVOUS INVESTORS As heady as this activity may appear, no one suggests the pace will proceed quickly. Granted, some legislators may be falling over themselves to announce researching funding. New York legislators, for instance, hope to commit $1 billion to a stem cell institute. But as Johnson notes, the legislative milieu often changes on a nearly day-to-day basis.

Take Massachusetts. Mitt Romney, the Republican governor who is reportedly positioning himself for the presidential primaries, says he supports stem cell research, but opposes the creation of embryos for use in research. This threw state legislators into a tizzy. After all, Massachusetts is home to several renowned research hospitals and universities, as well as numerous biotechs. Large drug makers are opening labs in Boston and Cambridge. Some politicians fear that Massachusetts will lag behind if stem cell research is stymied.

Minnesota is another state where a legislative tussle is taking place. Three bills have been introduced permitting embryonic stem cell research, but two would prohibit state funding for the research. Missouri is mulling an outright ban on somatic cell nuclear transfer (SCNT). "It'd be extremely negative, especially when it comes to raising money from venture capitalists," says Eric Leire, CEO of APT Therapeutics in St. Louis, Missouri who notes that Missouri is not considered to be a biotech hub. "Why would venture capital invest in a state that restricts research when other states on the west and east coasts are becoming biotech hubs? Our credibility will be quite low."

"There are a number of states where the legislative attitude is outright hostility. And it has a chilling effect on corporate interest," says R. Timothy Mulcahy, vice president of research at the University of Minnesota, which runs a stem cell institute. "Many companies do ring universities to see what's going on and are doing a risk assessment. They want access to research and develop a location. But California has raised the competitive bar to an unbelievable level."

The overall uncertainty is making private investors nervous, says Michael Werner, policy chief at BIO, the biotechnology industry trade group in Washington, DC. Even California and New Jersey are at an early stage; money hasn't been disbursed, he notes.

To date, venture capital investment in stem cell research has been modest. Last year saw nine deals worth nearly $56 million, according to a survey by Thomson Venture Economics and PricewaterhouseCoopers. That's down from 11 deals in 2003 worth $122 million. But BIO's Werner also says the efforts in California and New Jersey lend credibility as well as a degree of optimism not seen before. As a result, he expects investors, venture capitalists in particular, to scour the field for worthy players.

One investor agrees. "Two years ago, my view of this was different. But now, I believe, is the perfect time to invest in stem cell research," says Jonas Wang, a partner at Princeton-based Sycamore Investors, a venture capital firm that has a stake in StemCyte. "It's certainly true that the ongoing controversy slows things down [among investors]. But there's a great deal of investment opportunity. Once every three weeks, I see a proposal. Tons of things are coming in. It's eye opening."

Meanwhile, though, he worries about overseas efforts. As other countries increasingly underwrite embryonic stem cell research, it could pose a challenge to the United States as a world leader in science. This situation is particularly evident in Asia.

All this activity suggests an accelerating race for resources. "There will be intense competition for stem cell scientists," says Rutgers' Young. "Right now, there's a shortage. It's still a brand new field, and the US hasn't produced a large number of scientists for this work. So, the country or state that can recruit the most scientists and develop infrastructure has a huge advantage."