Reading the Economic Entrails of ESC Research

Is embryonic stem cell research a cash cow? Or just another public policy chimera?

The questions have surfaced again in news reports concerning two old studies by economists. One is the much-noted 2004 campaign study by Laurence Baker of Stanford and Bruce Deal, managing partner of the Analysis Group of Menlo Park. The other was prepared in the middle of last year by Richard Gilbert of UC Berkeley. Gilbert's study was relatively pessmistic compared to the Baker study.

Writer Malcolm Maclachlan of the Capitol Weekly in Sacramento tackled both of the studies in a recent piece called "Stem Reality Check." Maclachan wrote:

"Gilbert was careful to note that he is not accusing Baker and Deal of any dishonesty in their study. For instance, Gilbert writes in his report that they were clear with their assumptions and the fact that these numbers were estimates of money that could be made many years in the future. If anyone took these numbers as guarantees, he said, they probably did not do so via a careful reading of Baker and Deal's report.

"'As with anything, people believe what they want to believe,' Gilbert said.

"However, Gilbert does bring up two main issues he has with assumptions made in the report. First, he said they take a 'prospective approach' to their estimates--that is, they try to estimate the number of viable new therapies that will be created. Gilbert said that a 'retrospective' approach would be more appropriate, 'based on actual royalty generation by research funded by universities, hospitals and research institutions.' That approach takes note of the fact that big money makers--for instance, the cancer drug Taxol, which made $67 million for Florida State University in 2000 alone--are exceedingly rare.

"Second, Gilbert takes the authors to task for not fully factoring in a concept called 'the time value of money.' Not only does inflation rob money of its value over time, Gilbert said, but money tied up in stem cell research is also money not available to be invested elsewhere. Though Gilbert writes: 'In their defense, the authors report only projected revenue flows, not the value of those revenues.'

"By combining these two concepts, Gilbert estimated that a better real money value of the returns California could see would be reduced to between $31 million to $62 million.

"'I don't think this is terribly surprising to a lot of people,' Gilbert said. 'Basic research is rarely a cash cow.'

"Baker took the critique in stride. He noted that circumstances have changed greatly since he wrote the report, especially in terms of an improving political situation for stem cell research in Washington.

"'It's a complicated area that's evolving all the time,' Baker said. 'I don't know if there's a right way to do the estimates.'"

The Capitol Weekly also wrote:

"So why should people be paying attention to a 7-month-old critique of a 28-month-old report? Because other states are starting to propose big money for stem cell research--and at least one of the same players from Prop. 71 is involved in other states initiatives, said Jesse Reynolds, project director on biotechnology accountability with the Oakland-based Center for Genetics and Society.

"For instance, Deal wrote a report used to promote a stem cell initiative in Missouri which estimated that the state could save up to $3.8 billion in healthcare costs over 20 years from stem cell research. Amendment 2 merely protects stem cell research in the state; it did not put forth any money. It passed in November with a bare 51.2 percent of the vote. Deal did not return a call seeking comment for this story.

"This coming November, New York voters will decide on a $1 billion bond for stem cell research. In neighboring New Jersey, they'll vote on $500 million. Both of these dwarf the previous number 2 state stem cell effort, Reynolds said, the $100 million over 10 years approved by the Connecticut General Assembly in June, 2005."

Here's what really lies at the bottom of ESC petri dish: If there were sure money to be made in ESC research, venture capitalists would be pumping gazillions into it. And there would be no need for efforts like the California stem cell agency.

Stem Cell Snippets: Advocacy, Public Support and Weissman

ESC Gospel – What is going on with Robert Klein's Americans for Stem Cell Therapies and Cures? One current activity is recruitment of more missionaries to spread the ESC gospel. The group has about 150 speakers across the country. It is looking for 1,000. You can read more about the effort on stemcellbattles.com, the blog of stem cell advocate Don Reed. Klein, as most of you recall, is also chairman of the California stem cell agency in addition to presiding over the lobbying group.

Stem Cell Investing – The tough business of biotech investing was discussed in a piece by Andy Pollack of the New York Times. An excerpt: "The difficulty of taking companies public, especially at values they find attractive, has become a lament of biotech venture capitalists, and it is forcing changes in their strategies. Instead of a way to cash out, the initial offering is now a chance to keep a company going until, hopefully, the venture investors can sell their stock later."

Squishy Public Support -- Jesse Reynolds of the Center for Genetics and Society discusses the nature of public support for ESC research and the most recent public opinion polls. Supporters of ESC research find constant hope in the polls. On the basis of decades of watching polls on politics as well as other subjects, the California Stem Cell Report believes that embryonic stem cell research is poorly understood by most Americans and is still a new subject to most persons. That means potentially mercurial support that can be easily undermined by changing events or skillful marketing.

Weissman – Stem "cellist" Irv Weissman speaks on "What Stem Cells Mean to Science, Medicine and California" Jan. 9 at a meeting of Silicom (cq) Ventures in Mountain View. Weissman is director of the Institute for Cancer and Stem Cell Biology at Stanford and helped found three stem cell companies (Cellerant, SyStemix and Stem Cells, Inc.). Tickets are $150 for nonmembers of the venture capital group.