New Stem Cell Patent Ruckus in California

The delicate interface between science and business has come a cropper again.

The latest set-to involves the National Human Neural Stem Cell Resource of Children's Hospital of Orange County Research Institute and Stem Cells Inc. of Palo Alto, Ca.

John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca., Wednesday provided a summary of the dispute. He reported that Philip Schwartz, head of the Resource, said his organization's efforts to promote research with human neural stem cells has been effectively blocked by patents held by Stem Cells Inc.

The entire story can be read on Simpson's organization's blog along with a response from Stem Cells, which said it did not control actions by the Resource.

The situation reminds us of a book, "Science Business," by Harvard business professor Gary Pisano, published a couple of years ago. He has studied and consulted with the biotech industry for decades and has written about its consistent lack of profits. He suggests that part of the problem lies in the "monetization of IP" and inappropriate application of high tech industry IP principles in the biotech industry.

In 2006, he said in an interview on the Harvard Business School web site:

"Science and business work differently. They have different cultures, values, and norms. For instance, science holds methods sacred; business cherishes results. Science should be about openness; business is about secrecy. Science demands validity; business requires utility. So, the tensions are deep.

"What has happened is that we have tried to mash these two worlds together in biotech and may not be doing either very well. Science could be suffering and business certainly is suffering. If you try to take something that is science, and then jam it into normal business institutions, it just doesn't work that well for either science or business."

Stem Cells Inc. was founded by scientists Irv Weissman of Stanford, Fred Gage of the Salk Institute and David Anderson of Caltech.

Simpson wrote,

"You would have thought that with academic heavyweights like these involved with the company it would have been a no-brainer to figure out a way for Schwartz to distribute cells he has derived from CHOC patients to qualified researchers.

"The root of the problem is the Bayh-Dole act governing federally funded research. It has turned our universities into commercial entities where scientists rush to patent their discoveries rather than rush to publish and explain them."

We are querying Weissman, Gage and Anderson about their thoughts on the general issues raised by Schwartz along with the specifics.

Simpson's piece was the result of a notice by Schwartz to about 2,700 persons, mostly academics, about the patent issue. Simpson sent out a note to about 75 journalists nationwide about his item.

Novocell Patents and Potential Profits

The latest developments involving Novocell, a San Diego, Ca., firm, and its stem cell patents are explored today in a piece by Terri Somers in the San Diego Union-Tribune.

She reported that the privately held firm "may have found new ways to make money from its technique for coaxing human embryonic stem cells into insulin-producing pancreatic cells." Somers recapped Novocell's patent picture and reported that the company announced on Tuesday that it "received a patent that essentially gives it control over all endoderm cells made from human embryonic stem cells."

She quoted Liz Bui, Novocell's director of intellectual property, as saying the firm hopes to collaborate with larger firms that have previously shied away from stem cell research.

Somers also noted the broad nature of the Novocell patent. She wrote:

"Many patents are for a method, or scientific process for making something, sort of like a high-tech recipe.

"The patent Novocell received is for composition, meaning it is not for how to make the endoderm cells, but the actual cells 'the product of the recipe.'"

She said that such patents have been controversial, citing the example of those held by Jamie Thomson of the University of Wisconsin. Some have argued that the patents on Thomson's work are so broad that they impede science.

A Caution about Excessive Industry Coziness at CIRM

A longtime observer of the California stem cell agency is warning that the $3 billion enterprise is on the verge of becoming much too intimate with industry.

John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca., said that a plan to create an industry biotech advisory group for CIRM is "fraught with pitfalls."

Writing on his organization's blog on Feb. 19, he said,

"Who picks the members? What would be the criteria for selection? Will the meetings be public? Will these advisors also be applying for grants?"

He noted that four members of the CIRM board of directors hold their positions because of their ties to the life sciences industry. Conducting special, public meetings with industry is okay, Simpson said. Biotech lobbyists can also take part in regular meetings of the agency.

But Simpson wrote,

"Creating an industry special interest group to whisper in the ears of CIRM executives is just wrong-headed.  What do you say to biotech companies not on the panel? Will there be an advisory group from academia, another from patient advocates and another advisory group from the public?

"But that's exactly what the ICOC (the CIRM board) and its committees are supposed to do with their public meetings.  Selecting some industry representatives and giving them special treatment and access to CIRM's leadership is simply wrong."

CIRM and the Stem Cell Industry: A Lobbying Question

The state of the stem cell/biotech biz drew some attention late last week in Business Week along with a piece on Stockpickr.com dealing with Geron.

Business Week reporter Ben Levisohn painted a depressing picture for most "middling" companies. He wrote that Big Pharma is buying Big Biotech – not the smaller companies. He said,

"That's bad news for small biotech companies, who are already facing a spate of problems. A recent study estimated that 50% of the roughly 380 publicly traded biotechs have less than one year of cash remaining. In the past, they would have raised new capital by selling shares, merging, or partnering with a larger outfit. But for publicly traded companies, equity deals are out—none has been brought to market in the last year, and few are expected to see the light of day in 2009. And even if a deal could be brought to market, with the smallest 10% of stocks in the Nasdaq Biotechnology Index trading down 84% from their 52-week high, vs. 21% for the largest 10%, an equity deal wouldn't make financial sense for many companies."

Over on Stockpickr.com, they had this to say,

"Over the last three months, shares of biotechnology firms Geron (GERN) and StemCells (STEM) are up roughly 200%, compared with a decline in the S&P 500 of almost 5% and a decline in the Nasdaq Biotechnology Index of about 3%.

"So why have both names massively outperformed the boarder market?"

Stockpickr laid out Geron's upcoming clinical trial and surrounding hoopla, but concluded:

"There are still several unknown variables that could take the short-term momentum out of both names."

The Business Week and the Stockpickr pieces could be construed as arguments for the $10 billion biotech aid package promoted by CIRM Chairman Robert Klein. However, the question for the stem cell agency is whether it should be in the business of lobbying the federal government on behalf of the industry. Klein would probably put the question another way: Should CIRM support assistance to the biotech biz so that therapies will result and suffering eased?

CIRM Strategic Plan Hearings Begin Tomorrow

The California stem cell agency begins hearings into revisions of its strategic plan with a session Tuesday (Feb. 3, 2009) in San Francisco and another in Carlsbad near San Diego on Feb. 20.

The meetings will be heavily focused on industry concerns. Here are some of the questions being addressed tomorrow:

"What are the biggest challenges faced by commercial participants in this sector?

"What should the basic/translational/clinical balance of CIRM’s portfolio be today in order to reach the goals set out in Prop. 71? 18 months from now? Three/five years from now?

"What form should CIRM funding to companies take? Should there be company specific RFAs? Should there be something like SBIRs? Is there a preference between loans (recourse and non-recourse) and grants?

"Do reimbursement uncertainties impact your evaluation of financial opportunities presented by this sector? Should CIRM take a significant role in the discussion around placing a reimbursement value on 'cures?'

"Given that many of CIRM’s policies and regulations are locked in by law, are there any of them that are causing significant blocks to our strategic goals and are there ways to make adjustments to those policies and stay within the framework of the Prop 71 statute."

If you are unable to attend the meetings, you can submit written testimony to info@cirm.ca.gov.

You can find specific locations here and the agenda here.

Rutgers' Young on Geron Trials

Wise Young, the director of Rutgers Center for Collaborative Neuroscience and a grant reviewer for CIRM, has pulled together a fine overview of the science and media coverage of the Geron clinical trial.

In a piece complete with numbered footnotes, Young (see photo) wrote,

"The media response was massive [18]. The story was carried by almost every news source [18-20]. The community response was initially strongly positive. Coming on the 3rd day after President Barack Obama’s inauguration, some thought that the approval of the first HESC trial was due to Obama’s coming to power.

"The exuberance faded as people read the fine print. First, the trial is not for people with chronic spinal cord injury. It is intended to be used within 2 weeks after injury for people with complete thoracic spinal cord injury. Second, the goal of the trial is to show safety and feasibility, not necessarily efficacy. Third, the cells have been differentiated to the point that they are no longer acting as stem cells but only as oligodendroglia."

Young also wrote,

"Geron’s web site and news reports indicate that the trial will treat 8-10 patients who are within 2 weeks after “complete” thoracic spinal cord injury. It will probably start in July 2009. However, many details are unclear. Before the FDA placed a hold on the trial application in May 2008, Geron had said that the cells would be transplanted into the spinal cord of patients undergoing spinal cord decompressive surgery and all the patients will receive a 2-month period of pharmacological immunosuppression . It is not clear that the same regimen will be used.

"In the meantime, the reaction of the spinal cord injury community has ranged from exuberance over the approval of the first HESC trial [22] to deep pessimism over comments by Okarma, who said that people with “complete” spinal cord injury have no chance of recovering any function, or something to this effect. Many people in the spinal cord injury community [23] were disappointed at being excluded from the study which is only for the newly injured."

Geron: Stock Market Star?

The Wall Street Journal reported today that Geron has become a "sudden star" on the options market.

The piece by Rob Curran said,

"On the options market, about 24,500 call contracts giving the right to buy the stock traded against 3,600 put contracts giving the right to sell, according to TrackData.

"At 4 p.m. (Monday) in Nasdaq Stock Market trading, Geron was up 15% at $8.15. That follows Friday's roughly 36% jump.

"Shares of the developer of therapies based on stem-cell research had languished in recent years along with academic and corporate research in its niche of genetic medicine. The shares rallied Friday after the U.S. Food and Drug Administration cleared the way for the first-ever trial of a therapy derived from embryonic stem cells. That sudden swing and the promise of more like it is what drew options traders to the stock Monday, said Frederic Ruffy, options strategist at Whatstrading.com.

"'The volatility in the share price attracts a lot of option traders,' Mr. Ruffy said.

"'One of the themes you can make a lot of money with is if you can ... predict new policies,' said William Lefkowitz, derivatives strategist at vFinance Investments. 'You don't really need results to make lot of money at the beginning of the administration.'"

At the time of this writing Tuesday morning, Geron stock stood at $7.55, down 7 percent.

If you cannot access the WSJ story and would like to see it, send an email to djensen@californiastemcellreport.com and I will send it to you.

Geron Price Still Moving Smartly Upward

Geron rose sharply again today, closing at $8.15, up 15 percent for the day.

Barrons reported that Needham Research upgraded its recommendation on Geron from hold to buy with a $9 price target. Needham said "significant unmet needs" exist "in the management of spinal-cord injuries."

Needham also said that Geron previously reported it had $165 million available at the end of 2008 with a projected burn rate of $50 million -- "financial resources...sufficient for operations for several years."

Meanwhile Motley Fool reported that a large group of its readers gave Geron a "distressing two-star ranking," meaning that it might lag the market.

Pluses and Minuses in the Geron News Coverage

Media coverage and commentary continued to ripple out today on the Geron clinical trial announcement, generating considerable attention also on California's $3 billion stem cell research effort.

While CIRM has not played a role in the Geron research, the agency's expertise has popped up in many stories with quotes from President Alan Trounson and Chairman Robert Klein along with references to the size of the state effort. All of which helps meet one of the agency's goals of becoming a key media source in all things stem cell.

As usual in such events, the initial coverage on Geron generally tended to be favorable for both the company and for stem cell research. Television news coverage also surfaced, which is rare on stem cell issues. There is no doubt that the Geron announcement is important in establishing a favorable public view of both the science and the business. The expected Obama administration changes in federal stem cell research rules will add to the positive climate and are likely to come in the near future.

But some not-so-ebullient views could be heard as well. The San Francisco Chronicle editorialized this morning that the Geron trials are a "a cautious but unmistakable advance."

The Chronicle continued,

"At this early point, it's mainly about testing the safety of the treatment. That's a key issue because a harmful result or botched trial could set back the stem cell cause immeasurably, a risk that researchers acknowledge."

Reporter Steve Johnson of the San Jose Mercury News wrote,

"California's $3 billion effort to fund such research, launched in 2004, illustrates some of the obstacles federal officials could face in trying to lure companies to begin such studies.

"Aside from being hindered by legal challenges during its first few years, California's program has funneled the vast majority of its money so far for basic research at universities and other nonprofit institutions. And for a variety of reasons — ranging from a lack of investors to skittishness over the ethical debate surrounding the cells — only a handful of companies in the state are experimenting with embryonic stem cells on their own, despite predictions that the effort would quickly bring about a job boom.

"'I would have expected there to be more interest' among businesses, said Alan Trounson, president of the California Institute for Regenerative Medicine, which voters created in November 2004 by passing Proposition 71."

Senior columnist Adam Feuerstein of TheStreet.com had an even bleaker view. He wrote,

"I say don't buy into the hype.

"Geron has a long track record of over-promising and under-delivering. In fact, the company's only real accomplishment after years and years of effort has been to burn through tons of shareholder cash.

"Before you send emails that blast me for spitting on stem-cell therapies, understand that my cynicism is directed at Geron, not the promise of stem cells. Today's news was well orchestrated by Geron -- a splashy story in The New York Times, a conference call and an appearance on CNBC. But let's get real: Geron is starting a small phase I study, and with Friday's run, the stock's market cap now stands around $600 million. And for that, you get very little.

"Sorry, but Geron looks more like a short to me than a long."

Stanford's Christopher Thomas Scott released a statement that said,

"President Obama's intention to lift the restrictions on embryonic stem cell research, Congress' promised actions to legislate funding, and Geron's announcement are three important steps to a long road for cures and treatments. After an eight year drought, patience is needed. The federal government must retool those agencies and institutes bereft of stem cell expertise. The NIH must appropriate funding at a level needed to produce the kinds of results we need to have more encouraging news from the private sector. Finally, the states must enact policies that are in step with the new vision in Washington. This will take time. Once the US is back on track, then it can do what it does best: discover, translate, and develop the science and treatments for its citizens."

Here some links to other interesting stories on the Geron trial and its implications:ABC News, Wired News (Trounson heavily quoted), The Associated Press and the Los Angeles Times.

Geron Stock Finishes Day up 36 Percent

Geron stock closed at $7.09 today, up 36 percent with the biggest one-day gain in five years, according to Bloomberg.com.

Bloomberg said,

"The FDA’s action may help pave the way for other companies to get permission to start their own trials, said Christopher Thomas Scott, director of Stanford University’s Stem Cells in Society program.

"'Geron is a path-breaking company in getting the first stem-cell trial,'Scott said in a telephone interview yesterday. 'The message is that FDA now feels comfortable with the measure of risk the first trial will contain for the first few patients.'

Bloomberg continued,

"Two other U.S. companies, Advanced Cell Technology Inc. of Los Angeles, and closely held Novocell Inc., based in San Diego, are using embryonic stem cells to develop therapies and are working to begin clinical trials.

"Less than one biotechnology drug out of three that enter clinical trials is approved, said Joseph DiMasi, an economist with the Tufts University Center for the Study of Drug Development in Boston. That risk of failure also applies to Geron, which has spent $45 million preparing an FDA submission on the stem-cell treatment."

Stem Cell Stocks Rising on Geron's Good News

Geron's high-flying coattails are having a sharp impact today on the prices of some of its competitors.

Streetinsider.com reported earlier today that Aastrom Biosciences, Inc., of Ann Arbor, Mi., and StemCells Inc. of Palo Alto, Ca.,, both jumped 30 percent. At that point, Geron was up 50 percent. (StemCells Inc. was founded by Irv Weissman of Stanford, Fred Gage of the Salk Institute and David Anderson of Caltech.)

Meanwhile scientist Hans Kierstad of UC Irvine or one of his associates has emblazoned "a flash" on the website at California Stem Cell Inc. Geron's hESC therapy is based on technology invented and co-developed by Kierstad and Gabriel Nistor, also of UC Irvine. Kierstad is the chairman of the California Stem Cell scientific advisory board, of which Nisor is also a member.

At the time of this writing, Geron's stock price stood at $7.64, up 47 percent.

Geron Stock Soars 20 Percent on Approval of Clinical Trials

Today is a big, big day for California's Geron Corp., which has received federal approval to begin "the world's first study of a treatment based on human embryonic stem cells."

The Associated Press covered the basics of the action. An early version of its story said said,

"The company gained federal permission this week to inject eight to 10 patients with cells derived from embryonic cells, said Dr. Thomas Okarma(see photo), president and CEO of Geron Corp. of Menlo Park, Calif.

"The patients will be paraplegics, who can use their arms but can't walk. They will receive a single injection within two weeks of their injury.

"The study is aimed at testing the safety of the procedure, but doctors will also look for signs of improvement like return of sensation or movement in the legs, Okarma said."

Andrew Pollack of the New York Times provided a nuanced, comprehensive piece. He reported on the political and scientific implications and quoted Robert Klein, chairman of the California stem cell agency, on the move.

Klein said the FDA approval was tied to the Obama Administration although that was denied by an FDA spokesman and Geron.

Geron's stock rose 20 percent early this morning, hitting $6.26 at 9:47 a.m. EST, close to its 52-week high of $6.55.

Here are links to the Geron press release and other stories about the much-delayed trial: Geron (includes video), Wall Street Journal , AFP and Financial Times.

Economic Woes: California, the Stem Cell Biz and CIRM

In a story that circulated today nationally and perhaps internationally, The Associated Press has painted a bleak picture for the stem cell industry despite the election of a president who is a friend of the cause.

The news came on top of the even more unpleasant news that California is facing a $28 billion budget shortfall. The state's leaders are now in a position of holding out a tin cup to the federal government, enviously eying the $700 billion bailout for the private sector.

California Assembly Speaker Karen Bass, the state's second most powerful elected official, did not exactly say, "Please, sir, can I have some," but her words were close.

All this as the $3 billion California stem cell agency, which is constitutionally protected from budget woes, is looking to hand out tens of millions of more dollars in December and create a $500 million "bank," financed at taxpayer expense, to help struggling biotech companies. All of which may be good, but could lead to a ticklish image problem.

What the PR and policy problem boils down to is this: The state slashes medical assistance to the poorest Californians while millions and millions flow unfettered to CIRM-funded researchers.

First, the news from Associated Press reporter Matthew Perrone, writing out of Washington, D.C., He said that despite the election of a friendly president,

"Experts say struggling stem cell developers will face a new, equally daunting obstacle: an investment climate devastated by the financial crisis."

Perrone quoted WBB Securities analyst Stephen Brozak as saying,

"The good news is there will finally be freedom to operate, the bad news is there will be no more venture capital, which is the real freedom."

The AP story also said that investment in early stage stem cell companies was slumping even before this fall's financial meltdown.

"Venture capital investment in biotech startups — which includes stem cell developers — has fallen more than 65 percent to $443 million in the most recent quarter, from a high of $1.3 billion in late 1999."

According to Perrone, analyst Bill Tanner of Leerink Swann was even more pessimistic on hESC companies. Tanner said,

"Even if one of these companies was going to be successful, I doubt you'd have a new embryonic stem cell product on the market in the next 20 years."

The AP story appeared as California's Legislative Analyst posted a new estimate of California's budget shortfall -- $28 billion over the next 20 months. One recommendation from the analyst was for no new state borrowing, which could strike at CIRM's revenue source, California state bonds. Even before the new figure was released, State Treasurer Bill Lockyer said that the state will not be able to issue new bonds until 2009 because investors want to see how the state copes with its financial crisis.

The fiscal mess is so bad that Jim Sanders of The Sacramento Bee quoted Assembly Speaker Bass as saying "can we have $5 or $6 (billion?)" from the federal government.

The state's stem cell agency is all but immune from the California crisis because Prop. 71 locked in its funding sources and made it impossible for the governor or the legislature to cut its budget. However, if Lockyer refuses to issue bonds well into 2009, CIRM funding might hit a hard spot.

It is not clear what CIRM's current financial status is, although its chairman, Robert Klein, told directors on Sept. 25 that CIRM's cash situation at that point guaranteed "that this critical work to reduce human suffering and advance medical science is able to move forward."

He continued,

"The scientists and clinicians and patients counting on our progress need not be concerned about our work being interrupted."

Klein said that earlier this year he anticipated a troubled bond market and arranged for money from the state's "pooled money investment fund" that should be sufficient until late spring. But he noted,

"Maybe I should have drawn down three years of money."

There is no doubt that research cannot be done without a reliable source of funding. Nonetheless, CIRM must carefully consider how its operations, with salary ranges that exceed $500,000 annually and huge outside contracts, may be perceived by the public or elected officials. It is a time to tread with great care.

As for the $500 million biotech loan program, one could argue that it is needed now more than ever. At the same time, some might look askance at lending taxpayer funds to extremely risky ventures – ones that could not even find financing under the best of circumstances – while Californians who can least afford it will see health care, education and other vital services slashed.

The lending program will not make the slightest dent in the state's economic travails. As we have noted before, CIRM's activities currently have an infinitesimal, immediate impact on California jobs and businesses. CIRM's annual giveaway does not even exceed the $356 million budgeted for a new "condemned inmate complex" at San Quentin prison. That said, the lending program, which is yet to be fully explained, could well be a good idea.

We will know more after Nov. 19 when the CIRM Finance Committee will discuss it in greater depth.

ACT and Geron Talk About Clinical Trials

CNNMoney.com has a piece today on two California companies that report they are edging closer to clinical trials on treatments using human embryonic stem cells.

Aaron Smith wrote the article about Geron and Advanced Cell Technology. It also mentioned Novocell.

In the case of the first two companies, Smith said tests could begin as early as next year. However, schedules have slipped in the past.

Smith wrote:

"'What we're seeing now in the stem cell field is like a chess match,' said Stephen Brozak, analyst for WBB Securities. 'The early moves will ultimately dictate who succeeds in the stem cell space.'"

Geron's product involves spinal cord injuries and ACT's vision loss. Novocell is looking at diabetes.

Three Big Ifs

The $45 million California round of ESC research grants has triggered additional interest in stem cell stocks on the Internet.

Writing on stockerblog, an anonymous retired professional in the financial industry issued a rundown entitled “Stem Cell Stocks: The Growth Industry of the Future?”

An excerpt that noted three major caveats:

"There are only a limited number of stocks which are pure plays or semi-pure plays in the stem cell industry. However, if governmental funding increases, if private research continues, and if there are any major breakthroughs, then this could be a very huge industry."

Stockblogger wrote a paragraph each on stem cell companies that are pure or semi-pure plays. The blog is carried also on the "Seeking Alpha" financial website.