Stem cell biotech companies are seeking investment from venture capitalists and big pharma. However, investors have largely held back due to a lack of clinical evidence that stem cell therapies are effective and can be produced cost-effectively at scale. It will likely take successful clinical trials demonstrating clear benefits to patients to convince investors that stem cell companies have viable treatments. Several companies have therapies in late-stage clinical trials that could be breakthroughs, but most in the field are still early-stage and focused on research and development.

1. Leading Edge
Analysis
Stem Cell Biotech:
Seeking a Piece of the Action
Venture capital groups and big pharma have largely held back from investing in biotech companies
focused on regenerative medicine. Will it take a clinical bull’s eye to bring venture capitalists and
big pharma into the cell therapy arena?
Four years ago, when Gregory Bonfiglio Chris Mason, Director of the Stem Cell are medically valuable and cost effective.
was writing a business plan for a venture and Regenerative Medicine Bioprocess “I think everyone is sitting on the fence
capital group dedicated to companies pur- Group at University College London, waiting for something good to happen,”
suing stem cell therapies and regenerative remarks how things have changed since says Lutz Giebel, Managing Partner of
medicine, “there were less than 100 that the first wave of cell-and-tissue compa- SV Life Sciences Advisers and former
could be legitimately called regenerative nies came and went between 1985 and cofounder and CEO of Cythera, now
or stem cell companies,” Bonfiglio notes. 2002, an era he refers to as RegenMed part of the stem cell engineering firm
Today, the newly established Proteus 1.0. “We’ve seen this expansion before,” Novocell. “Quite frankly, every disease
Venture Partners, where Bonfiglio is the he notes, “but back then, companies were a mouse could possibly get has been
Managing Partner, is tracking about 1000 so busy doing basic science, they had cured by various stem cell biotechnolo-
companies in over ten countries. While at no solid business plans.” About 70 tissue gies, but the biggest problem is that little
least half of these, he acknowledges, are engineering companies failed to live up to has materialized in the clinic that shows
mid-sized to large pharma companies with their early promise including Advanced these approaches are successful.” Giebel
multifold interests, “300 to 400 are focused Tissue Sciences (ATS), which at one point compares it to the early days of monoclo-
solely on regenerative medicine.” had a market cap in excess of one billion nal antibody translational research, which
Cell therapy companies range from dollars, with $600 million raised from ven- people knew eventually would make a dif-
those developing therapies using human ture capital and public markets. ATS and ference in drug development. “Investors
embryonic stem (ES) cells, like Geron and Organogenesis, another pioneer, stirred up who invested early lost money. Investors
Advanced Cell Technology (ACT), to com- excitement, only to eventually file Chapter who invested when the time was right
panies like Mesoblast and Cytori that are 11 in late 2002. Curis, Ortec International, made good money.”
pursuing treatments derived from adult Genzyme Tissue Repair, and others simi- Ed Field, the President and COO of Ald-
stem cells and their precursors. There larly closed, reorganized, or merged, while agen, similarly believes that the biggest
are also tissue engineering firms such as regulatory and other problems kept most boost for regenerative medicine biotech
Tengion, which just announced a phase II products of this era from reaching the companies would be a few significant
trial for NeoBladder made from a patient’s marketplace. clinical bull’s eyes. “What my company
own bladder epithelial cells. Tool compa- Now as we enter “RegenMed 2.0,” com- needs most,” more than even money or
nies represent a third category. Some, like mercialization is much more of a priority technology, “is to show in well designed
VistaGen, produce cells for drug discovery for cell therapy businesses. “The univer- clinical trials that our products are effica-
and toxicity testing, whereas others make sities are doing great research on regen- cious in humans, and for others to show
the instruments and devices, “the picks erative medicine science, and this allows theirs are.” Such clinical successes might
and shovels,” as Bonfiglio calls them, that the companies to do great translation/ better earn the trust of venture capital-
will help to manufacture cell therapies. commercialization. We’re beginning to see ists and pharmaceutical companies, who
Examples include StemCor Systems, innovative companies with strong busi- largely have hung back from bankrolling
which received approval from the US Food ness plans spring up all over the world, stem cell companies, although in the case
and Drug Administration (FDA) several and this time around it’s moved from being of Aldagen, the record shows that if you
months ago to market its new device for an American sport to being a global sport,” have what investors like, venture capital
extracting bone marrow, and Novathera, says Mason. need not be elusive. Since its establish-
which has designed a bioreactor that ment in 2001, this Durham, North Caro-
allows the three-dimensional culture of Where’s the Beef? lina company has received $45 million
stem and progenitor cells. Finally, there are The sobering reality is, however, that for from venture backers. Three Aldagen
companies that concentrate principally on many stem cell biotechs, the future will products comprising progenitor and adult
bioaesthetics, such as Organogenesis and depend on making the leap from start-up stem cells derived from bone marrow and
its skin rejuvenation and repair products funds to the large cash infusions that can peripheral blood are currently in clinical
and Intercytex, whose hair regeneration propel their products through clinical tri- trials for treating heart failure and limb
procedure depends on expanding cells als. For this to happen, they will have to ischemia and for improving cord-blood
from human hair follicles in culture. prove as best they can that their therapies transplantation.
Cell 132, February 22, 2008 ©2008 Elsevier Inc. 511

2. Some contend that the field is getting of the biology has to be elucidated before (STTR) program. A portion of the annual
close to scoring a winner. For example, a clinical trial can take place? The Inves- budgets of eleven federal departments and
Osiris, based in Columbia, Maryland, has tigational New Drug (IND) application that agencies are put aside for SBIR grants,
three therapies based on a proprietary Geron expects to file this year to test neu- which in turn go to small businesses with
mesenchymal stem cell product derived ral stem cells for treating spinal-cord injury innovative and technical merit. Five fed-
from adult bone marrow. The product is will be between 20,000 and 30,000 pages eral groups similarly save funds for STTR
formulated differently according to the in length, testimony to the very high bar programs, which are meant to kindle part-
disorder: Prochymal is delivered intra- required for moving cell therapy products nerships between small businesses and
venously; OsteoCel, one of the field’s into clinical trials, especially those involv- prominent research institutions. Adminis-
earliest approved products, is for bone ing the nervous system. tered by the US Small Business Adminis-
matrix; and Chondrogen is an injectible Despite the length of time it can take to tration, the SBIR program was launched in
for treating knee injuries. Phase III trials prove that a particular cell therapy has a 1983, and the STTR program in 1992.
have received fast-track status by the desired effect—and not just once but time Four-year-old Arteriocyte, which ini-
FDA for testing Prochymal in patients with after time—examples exist of biological tially focused on using several types
acute Graft versus Host Disease (GVHD) advances being made and investments of stem cells to grow blood vessels for
and the intestinal disorder Crohn’s dis- following. At Novocell in San Diego, years reestablishing cardiac function, started
ease. And last month, the US Department of experiments to efficiently differentiate with $250,000 of venture seed funds from
of Defense awarded a $224.7 million con- human ES cells into pancreatic endocrine Case Western Reserve University; since
tract to Osiris to advance Prochymal as a cells are starting to pay off, according to then it has received federal, state, and
therapy for treating gastrointestinal injury Chief Scientific Officer (CSO) Emmanuel local grants, including three SBIR-STTR
due to radiation exposure. Baetge. Complex culture conditions are grants. Consequently, this Cleveland,
Meanwhile, Chris Mason points to the required first to turn human ES cells into Ohio-based company has been able to
success of a tissue-engineered bilayered definitive endoderm (as opposed to extra- expand to developing four cell-based
skin product called Apligraf, manufactured embryonic endoderm), then posterior products derived from adult bone marrow
by Organogenesis. Comprising a layer of foregut (and not anterior foregut), then for treating ischemic diseases and acute
collagen and neonatal fibroblasts over- pancreatic endoderm (as opposed to gas- and chronic wounds, thus enlarging its
lain with living keratinocytes, Apligraf has tric or intestinal endoderm), then endocrine future chances for revenue.
been used to treat venous leg ulcers and precursor cells, then finally the pancreatic “Since the market rolled over in 2001,
diabetic foot ulcers in 200,000 patients islet beta cells that produce insulin. As venture capitalists are delaying their
since it received FDA approval 9 years for multiplying a small batch of cells into investments until a technology is at phase
ago. “When Organogenesis emerged from billions, “No one has mastered that yet,” II or later. There’s more watchful waiting
Chapter 11, it came out very strongly, and says Baetge. “While differentiation strat- going on,” observes Arteriocyte CEO
has prospered by strongly focusing on its egies are making good progress, scaling Donald Brown. “That’s why non-dilutive
skin products,” Mason notes. Organogen- up the cells will depend on defining cell grant mechanisms like SBIRs and STTRs
esis, in Mason’s opinion, exemplifies the purification procedures for clinically rel- are so valuable to start-ups.” StemCells,
three factors that will help ensure a com- evant patient populations” to ensure safe Inc., Athersys, MacroPore (now a division
pany’s success in this new era of commer- transplants. A proprietary technology that of Cytori Therapeutics), Osiris, and other
cialization: “expert business management, coats islet cells and protects them from stem cell businesses have also received
simpler but superior products, and scal- immune attack is one of two technologies these federal infusions of funds.
ability of manufacture.” In a similar vein, in Novocell’s portfolio that keeps the com- State grants and venture funding
Advanced Tissue Sciences, after rescue pany pushing forward and attracting fund- helped to launch Cellular Dynamics Inter-
from Chapter 11, was sold to Advanced ing. Last July, Novocell raised another $25 national (CDI) and Stem Cell Products
BioHealing, which relaunched ATS’s prod- million in venture capital, its total to date (SCP), started by James Thomson of the
uct Dermagraft, a wound-healing dermal being $60 million, according to Baetge. University of Wisconsin and colleagues
substitute derived from newborn foreskin. in 2005 and 2006, respectively. CDI pro-
A Helping Hand at the Start duces ES cell-derived cardiomyocytes
Overcoming Hurdles For start-up companies, a diversity of fund- for testing the effects of drugs on heart
Cell therapy companies have the twin hard- ing sources in the $1 to $5 million range electrophysiology. The models routinely
ships of showing that a cell therapy is effi- exists, especially in the United States. The used “are Purkinje fibers from the heart
cacious in humans and demonstrating by funds come from university-sponsored of the dog or guinea pig,” says Nicho-
phase III how the product will be produced start-up funds, state grants and bonds, las Seay, COO of both companies. “We
according to Good Manufacturing Practice patient advocacy groups, family founda- think cells from human would be a better
(GMP) regulations. Given this, it is not sur- tions, individual angel donors and venture model, because the animals don’t have
prising that investors remain wary. Making capital, DARPA and other federal agen- the same electrophysiological response
a chemical drug as opposed to develop- cies, as well as less traditional fare such as the human heart.” Meanwhile, SCP has
ing a cell therapy “is a lot easier because as grants from the US Small Business the more complex goal of steering human
it’s a chemical…and not a complex thing Innovation Research (SBIR) program and ES cells down the hematopoietic differen-
like a cell,” notes Giebel. Just how much the Small Business Technology Transfer tiation pathway to form platelets and red
512 Cell 132, February 22, 2008 ©2008 Elsevier Inc.

3. blood cells, products that in the future “holding the bag,” he notes. Cell therapies give you a complete haplotype match for
could do away with the need for blood that have come to market—Genzyme’s fifty percent of the population.” Those
donations. “We’re actually pretty good Epicel and Carticel and Osiris’s Osteo- cell lines could be produced through
at making platelets and red blood cells,” Cel—are used by small patient popula- somatic cell nuclear transfer or by repro-
says Thomson, although the company so tions and generate only modest revenues. gramming adult somatic cells, but until
far can turn out only very small quanti- OsteoCel’s 2006 sales, for instance, were such a bank of cell lines exists, immune
ties. The “non-trivial exercise” ahead, reportedly $8.3 million. rejection will continue to be a problem.
says Seay, is to ramp up the production Oxford Bioscience Partners has been ACT will soon file an IND to test its ES
process by several orders of magnitude actively scrutinizing stem cell companies cell-derived retinal cells for treating mac-
while holding down costs. Seay sees an but has yet to invest in one. What does ular degeneration; in this case, immune
automated future where robots “would be it take to convince venture capitalists? rejection is less likely because the eye is
culturing cells and automating a process Fambrough says that, along with a strong an immunoprivileged site.
to produce differentiated cells.” medical need, a savvy management team Although big pharma has not yet shown
Generating immense numbers of cells and intellectual property that lets you pro- major interest in stem cell biotech com-
for the eventual treatment of large patient tect your position; “speaking personally, I panies, some onlookers believe there are
populations is one of the toughest tasks need to see all the dots connected. I need increasing signs of partnering. AstraZen-
that companies face. Most people working to see that what you’ve got today can eca, for instance, has joined EpiStem to
with adult stem cells “can generate only a turn into a product used by physicians.” study how a physiological link between hair
limited amount of cells,” says John Sinden, He feels that with ES cell companies, in follicles and intestinal stem cells can be
CSO of ReNeuron, a UK-based cell ther- particular, the dots are hard to connect, used to assess the side effects of certain
apy company. ReNeuron has the goal of such as the ability to “reproducibly differ- cancer drugs. Meanwhile, Roche Venture
using neural stem cells from fetal tissue to entiate cells to precisely the mature cell Fund and Novartis Venture Fund entered
treat stroke patients with chronic disabili- you want, in an irreversible fashion.” With a multi-million-dollar round of financing for
ties. Because “we’re a research and devel- companies that are developing autolo- Cellerix, a Spanish company that has clini-
opment engine and not ourselves geared gous therapies, neither does he grasp cal trials underway for cell therapies that
up to do clinical manufacture,” notes how cells can be efficiently extracted, treat fistulas and skin disorders; and John-
Sinden, ReNeuron collaborates with the expanded, differentiated in vitro, and then son & Johnson Development Corporation
UK’s two leading contract manufacturing delivered back into the patient. “We don’t (the venture capital subsidiary of J&J) led
organizations—Angel Biotechnology and have a commercial medical delivery infra- Novocell’s latest round of venture financ-
BioReliance. Cells from the biotech’s small structure that does that.” ing. Cytori has a joint venture with the
cell bank are transferred to these process- Some investors maintain that autolo- Japanese medical device maker Olympus
ing facilities, where they are expanded and gous cell therapies will be less commer- Corporation to commercialize its Celution
then stored in a master cell bank, ready cially viable than allogeneic therapies. “You System, a medical device that processes
for transplant. “We ourselves aren’t big have to bring in the patient and harvest the adipose tissue stem cells from patients
enough to do anything more than proof cells, expand them, and then bring the for autologous transplant. And several
of concept in patients beyond Phase II,” patient back in for transplantation,” notes months ago, Arteriocyte’s medical sys-
points out Sinden. “We’d be looking for Giebel. “For a pharmaceutical company tems division formed a partnership with
a larger biotech or pharma to carry this and its profit margins, it would be much Medtronic, acquiring its Magellan System,
f
­orward.” better if you can mass manufacture one a technology for separating platelets from
product-fits-all.” But allogeneic therapies peripheral blood that will be “the ideal
The Next Billion? also have problems because transplanting delivery vehicle for our stem cell therapies
A make-it-or-break-it question for a bio- cells from one person to another runs the into damaged tissue,” according to Arte-
tech company focused on stem cell ther- risk of immune rejection of the cell trans- riocyte CEO Donald Brown.
apies is where, after receiving its initial plant. Bonfiglio, meanwhile, takes a dif-
millions, will the company’s next billion ferent view, predicting that “a substantial The Road Ahead
come from? Douglas Fambrough, a gen- number of therapies developed will likely Some say that a confluence of forces is
eral partner with the venture capital firm be autologous, which will require you have driving regenerative medicine forward,
Oxford Bioscience Partners, suggests some sort of cell processing device at the from the push of innovative technologies
that public market investors are not likely point of care or cell-therapy centers.” coming out of universities, to the pull of the
to support earlier clinical stage research, Robert Lanza, CSO of ACT, believes marketplace brought on by big pharma’s
nor are pharmaceutical companies, that the field is closing in on solutions growing need for effective new treatments.
who “don’t yet care about cell therapy” for allogeneic treatments and immune Only time will tell if “RegenMed 2.0” will
because no cell product has generated rejection. “If you look at tissue types in indeed prevail or whether it will go the way
$500 million. That leaves venture capital the U.S., you find that 100 lines would of RegenMed 1.0.
Ann B. Parson1
South Dartmouth, MA
1
A.B.P. is a shareholder of Geron and Osiris.
DOI 10.1016/j.cell.2008.02.004
Cell 132, February 22, 2008 ©2008 Elsevier Inc. 513