ESC Research: Doing Well vs. Doing Good

Is embryonic stem cell research an economic boon or boondoggle for California? Or for other states as well?

Writer David Hamilton, formerly of the Wall Street Journal, discussed the subject this week on Slate. Here are excerpts of what he had to say:

"If medical treatments can be derived from stem-cell research, they are at least a decade or two away, if history is any guide. Even then, new therapies envisioned by supporters, such as diabetes treatments that regenerate insulin-producing islet cells, might add to government health-care costs instead of curbing them. The Baker-Deal report (from the 2004 Prop. 71 campaign) figured that stem-cell therapies could save California at least $3.4 billion in health-care costs over the next three decades by assuming the therapies would reduce state spending on six major medical conditions by 1 percent to 2 percent. While the authors cast that as a 'conservative' estimate, they don't even model the possibility that costs might rise instead. Recent medical advances haven't appreciably slowed growth in overall U.S. health-care spending, which continues to rise far faster than inflation.

"Ideally, of course, stem-cell therapies would start a trend in the opposite direction by reducing or eliminating the need for expensive and often lifelong medical care. For that to happen, though, the new treatments would need to largely replace existing ones at a reasonable price, and then doctors would have to use them sparingly—for instance, only on the patients most likely to benefit. None of these assumptions is a particularly good bet under the current U.S. health-care system, in which new treatments are often simply added to older ones, and where insurers so far have tended to pay top dollar for incremental medical advances."

Hamilton continued:

"What about the potential of stem-cell research to spur economic development—can a state that sponsors stem-cell research hope to attract cool scientists who will then draw others, plus a coterie of entrepreneurs and venture capitalists? Biotech companies do tend to cluster in places like San Francisco and Boston, but their overall impact on regional economies tends to be limited. While they often pay high salaries, the vast majority of these companies are tiny, unprofitable startups with fewer than 100 employees. They frequently collapse well before they earn a dollar in sales. Even successful biotech ventures are often bought out by distant drug companies, which sometimes shut down the acquired company while transferring its research activities and any products elsewhere. On top of all that, big states like California and New York are going to wind up competing for some of the very same scientists, VCs, and entrepreneurs, further shrinking the rewards.

"Why did Baker and Deal see dollar signs? The $200,000 stem-cell supporters paid to Deal's firm, the Analysis Group, for campaign consulting might have something to do with it. In an interview, Baker said he didn't think of the report as advocacy but added that 'we knew we were working for people who wanted to pass this thing.' And while he still believes the economic benefits of stem-cell research could be 'quite large,' Baker also describes the report as merely 'one possible version of how things might happen.'"

Hamilton's bottom line:

"None of this means that stem-cell research doesn't deserve government funding. Stem-cell science, after all, remains in its infancy. Nearly a decade after the discovery of embryonic stem cells in humans, scientists still don't know exactly how they work, how to assure their purity, or what unexpected side effects they might have when transplanted into the human body."

Since the Bush administration refuses to support ESC research, Hamilton, concluded "the states are right to ante up where the federal government has failed to. They just shouldn't expect to do well while they're doing good."

Hamilton's piece does not deal with a related reason for the economic argument for ESC research. Creating a dream of riches is an attempt -- generally successful, we might add -- to shift the terms of the debate. It is a no-win proposition if ESC research backers find themselves locked into a discussion of whether they are killing babies.

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.