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Geron, Stem Cells and California’s $25 Million: What Lessons for Other States? February 2012

Geron, Stem Cells & California’s $25 Million: Lessons for States

By James W. Fossett

James W. Fossett

The stem cell policy community has been roiled lately by an abrupt decision by Geron, a leading biotech company, to cancel a clinical trial for a human embryonic stem cell (hESC) therapy and to withdraw from stem cell research entirely. But this development, involving $25 million in taxpayer funding from the state of California, has implications beyond one company. For the many states using taxpayer dollars to stimulate jobs in a wide range of technologies, this is a cautionary tale.



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James W. Fossett directs the Institute’s health, Medicaid studies and bioethics research programs, and is associate professor of public administration and public health at the Rockefeller College of Public Affairs and Policy, University at Albany.

Geron had been a corporate leader in stem cell research for some time — it funded the research that isolated hESCs in 1998. The clinical trial, which would have tested the safety of a treatment for severe spinal cord injuries, was the first American trial involving an hESC therapy. Geron had invested several years and a considerable amount of money to get the trial approved by the Food and Drug Administration (FDA), so the decision to abandon both the trial and the entire line of research came as a surprise to many. The company’s decision has attracted widespread opprobrium from bloggers, stem cell advocacy groups, bioethicists and more than a few newspaper columnists — one blogger called it the “stem cell misstep of the year.”

This disapproval has also spilled over onto the California Institute for Regenerative Medicine (CIRM) — the state agency that operates the $3 billion California stem cell research program. After funding basic research done in university labs for several years, CIRM has begun to develop funding programs for biotech companies in the expectation of sponsoring therapies that are closer to clinical trials and potential commercialization. Geron was the first company CIRM supported under this initiative, lending it $25 million last year to support the clinical trial. CIRM is coming under considerable political pressure to produce viable therapies to justify the large amount of money it’s been spending, and some have interpreted its hasty involvement with Geron as motivated by the desire to have something concrete to brag about.

There may be less here, however, than all the rhetoric would suggest. While Geron’s trial had acquired a lot of symbolic baggage because of its status as a “first,” the decision to pull the plug only reflects one decision by one company about one therapy. The company was looking at having to spend a lot more money over a long period to get the therapy through the clinical trials process for what would likely be a small return. There aren’t that many spinal cord injuries — published estimates range from 6,000-12,000 a year — and the potential income from providing treatment may not have been enough to support the development costs. Clinical trials get canceled all the time: A recent estimate by a group from the Tufts Center for Drug Development indicated that only about one in five drugs that started clinical trials over the last 20 years actually received FDA approval for marketing.[1] Clinical trials have gotten more complicated and more expensive over this period, and the Tufts group found that drug companies are canceling trials earlier in the process than they previously had been. Calculations of the potential economic return from a new compound, and concerns about efficacy and safety, are all at work here. What happened to the Geron trial is something that happens more often than not in the drug development process.

The political difficulties that Geron’s withdrawal have caused CIRM, however, have lessons for states proposing to spend significant amounts on biotechnology and other research in hopes of stimulating economic growth. Spending money on research intended to develop new therapies is highly risky. The science is difficult, expensive and evolves at a rapid pace that is difficult to integrate with earlier understandings. There are considerable cultural, political and financial obstacles to getting new products out of the lab and into the clinic. Those products that are successful can easily take a decade or more to get to market. As Gary Pisano of the Harvard Business School has written, the result is that “in aggregate, the vast majority of resources spent in pharmaceutical R&D goes toward projects that end up being ‘losers.’”[2] Pisano also shows that the biotech industry has lost money almost every year since it started counting, and only two companies — Genentech and Amgen — have demonstrated any ability to make money on a regular basis.

While other areas of technological research may not be as risky as biotechnology, all are complicated, fast-changing and hard to predict even for the most sophisticated private-sector investors.

These difficulties are hard to reconcile with political demands for results, preferably within the time span of a single election cycle. University-based scientists may be able to produce large numbers of high-quality scientific papers in a short time, but turning scientific results into usable therapies and jobs has proven to be more difficult. Successful therapies may require considerable amounts of money over an extended period to come to market, but such funding is scarce in strained state budgets. CIRM has been able to provide larger and more sustained funding for stem cell research because it was created by a voter-approved proposition that gave it access to $3 billion in bond funds over ten years and prevented the California legislature from altering its basic design without an extraordinary majority. This option is not available to most states, which support economic development and scientific research through annual appropriations.

Under these conditions, state officials trying to develop and implement research-based biotechnology programs confront a difficult political task. Overpromising results in terms of jobs and therapies may well produce negative fallout — including loss of scarce taxpayer resources — if promised results are not forthcoming. Geron, other stem cell companies and CIRM have all come under fire for failing to produce the “cures” promised in the campaign which resulted in voter approval of stem cell funding. Focusing on the potential therapeutic gains from biomedical research may be more politically beneficial than claiming economic benefits that may not materialize. Public explanations of the scientific and other risks that accompany this research, however, may not produce much in the way of political support.

These challenges suggest that state policymakers in need of short-term economic and therapeutic results from biomedical research need to consider funding strategies beyond those of traditional research agencies. One element is the need for critical analysis of the difference between funding basic research, which has a high degree of uncertainty and a long time horizon, and sponsoring “translational research” of projects that are closer to or already in clinical trials. An external advisory committee recommended to CIRM in 2010, for example, that the agency should be more proactive in setting priorities and focusing funding on areas that have the greatest chance of clinical success.[3] States might experiment with providing more support to biotech companies and entrepreneurs with successful track records and less to basic research, which could increase the odds of short-term success.

A second element of such a strategy would rely on what the CIRM advisory committee labels as a “porous opportunity” funding model. As explained in the advisory committee’s report, such a strategy would look for projects with a high probability of clinical success that could “come from either inside or outside CIRM-funded research, perhaps out of industry and even from outside of California (that)…could enter the CIRM pipeline at any stage of preclinical or clinical development.”[4] Such an entrepreneurial strategy would be more responsive to scientific opportunity than one oriented toward creating a “pipeline” of projects that could proceed from basic research to clinical applications. Neither the Geron therapy nor a second stem cell therapy which has recently entered clinical trials, for example, received any support from CIRM in their development, but might be current candidates for funding under such an approach. [5] Such a funding method might also involve more aggressive outreach to potential grantees and more flexibility in developing funding mechanisms tailored to the situations of individual organizations. CIRM is allegedly helping Geron find a buyer for its stem cell business, for example, who may be willing to proceed with the clinical trial that Geron cancelled.

A final element of this strategy might be to rely less on research grants and more on types of financing that give the state a chance to participate in the benefits of successful therapies. Venture capital firms don’t typically make grants, but rely more on loans or investments through other means, such as taking an equity position in companies or taking warrants, which allow for the purchase of company stock at a specified price. Such financing vehicles would provide needed resources to companies, and also allow the state to profit like a venture capital firm while providing additional resources for reinvestment in other projects.

Investing in biotechnology remains a high-risk, uncertain proposition for both states and private companies. Most products and most companies will likely continue to fail. States that are willing to be proactive and entrepreneurial in their funding strategies, however, may be able to reduce the political and scientific risks of supporting these undertakings to an acceptable level.

[1] JA DeMasi, et al, “Trends in Risks Associated with New Drug Development: Success Rates for Investigational Drugs,” Nature 87(March 2010)3: 272-277.

[2] Gary Pisano, Science Business (Harvard Business School Press, Boston, 2006); p.57.

[3] Report of the External Advisory Panel (California Institute of Regenerative Medicine, 2011). Online at http://www.cirm.ca.gov/files/PDFs/Administrative/CIRM-EAP_Report.pdf.

[4] External Advisory Panel Report, p. 10.

[5] The second stem cell therapy is a treatment for macular degeneration, which causes blindness. Advanced Cell Technology, the company which developed the therapy, was apparently rejected by CIRM on several occasions. See Corie Lock, “Never Say Die,” Nature (12 January 2012). 

About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.