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NOVEMBER 15, 2004
By Sarah Lacy Stem-Cell Stocks: Fact vs. Fancy [Page 2 of 2] WELCOME MAT. Certainly, the companies may not be entirely shut out of California's largesse. Geron and StemCells may apply for grants. But their most realistic hope is that the money will help academic researchers get new advances into the marketplace faster. Such research could spin off increasingly novel drugs. The state-funded researchers could also license some of the stem-cell know-how the three companies have already developed. Aastrom, for example, gets revenues from Stanford University and other research institutions, thanks to a specially-built computer that models the replication of adult stem cells faster and safer than old-fashioned, Petri-dish methods in the lab. For startups, the benefits could come from a better workforce. Ralph Snodgrass, chief executive of VistaGen Therapeutics, in Burlingame (Calif.), is hopeful he'll be able to hire more scientists already trained in the field. At the moment he has had to train them on the job. VistaGen uses embryonic stem cells to research diseases like diabetes. Even the benefits to Geron, which many consider the leader in private stem-cell research, will be indirect. Its first product, intended for spinal cord injuries, will enter clinical trials in 2006. Collaborating with researchers at the University of California, Irvine, Geron already has spent some $90 million on embryonic stem-cell research and has $130 million left in the bank. "We need help from the outside," Okarma says. "We're hopeful the world's cadre of stem-cell scientists migrates to California in the next 18 months." NO TIMETABLE. Public investors may do well to take note of venture capitalists' hesitancy. In the last 10 years, venture capitalists have invested only $300 million in stem-cell companies, the bulk of which are working with adult stem cells. That's about 10% of the venture investments in all of the biotech industry over the same period, according to trade publication BioCentury. "Venture capital has essentially abandoned this area," Snodgrass says. There's good reason. Geron aside, experts don't expect many drugs to come out of embryonic stem cell research for at least a decade. Venture capitalists say these companies are still at such an early stage in their research to bet on. "Any deals we see are embryonic, pardon the pun," says Arnold Oronsky, general partner at InterWest Partners in Menlo Park, Calif. MPM Capital, which has a $900 million health-care venture fund, is taking a harder look. Among its venture partners is George Daley, an associate professor at Harvard University who has been researching stem cells for 20 years. But even MPM has done just a handful of stem cell-related deals. "The science is happening, but it's hard to say when any new medicines will emerge," says Daley. No doubt, an industry can change when voters pour $3 billion into it. But smart investors would do well to wait before leaping into this much-talked-about but unproven market.
 Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau
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