Have stem cells finally arrived? Despite fraud and controversy, signs point to an emerging, money-making industry.

Before the end of 2006, a Silicon Valley biotech company called Geron hopes to start human trials of a new treatment to replace the missing insulation around nerve fibers that plays a crucial role in spinal cord injuries and multiple sclerosis. To do this, Geron would inject into patients' spinal cords a liquid containing special cells to target the uninsulated nerves and turn themselves into cells that create insulation. If the trials go well and the federal Food and Drug Administration gives its approval--two big "ifs"--the new treatment could be available to patients in about eight years. That would make it the first product to hit the market using stem cells from human embryos--probably the most controversial and most revolutionary approach in medicine today.

Geron isn't alone. An estimated three dozen companies are researching treatments using some form of human stem cells, either embryonic stem cells or less controversial adult, fetal, umbilical cord and placental cells. Mostly, these are small biotechs, but at least one big drugmaker, Novartis, acknowledges it is doing stem-cell research, and Merck has promised to take an equity stake in Geron. Because big pharmaceutical companies rarely talk about early-stage work, it's impossible to know how many others may be looking into stem cells in the lab.

Despite South Korea's fraudulent claim of stem cell research as well as the Bush Administration's tight limits on providing government funding for it, there are signs that stem cells could emerge as an important new industry. At least eight different treatments involving adult stem cells are already in use, and more than a dozen adult cell, umbilical cord and fetal cell therapies are in clinical trials. Stem cells of all five types have shown promise in animal and lab tests. Embryonic cells are the furthest from development, but even if Geron's particular approach doesn't work, some experts predict that treatments could be available using these cells as early as a decade from now.

If even a fraction of this research leads to actual products, the potential market could be tens of billions of dollars, as big a blockbuster as cholesterol drugs are today. For instance, more than 7 million Americans have suffered a heart attack, with 565,000 new cases each year, according to the American Heart Association. What if all of them used a stem cell treatment to rebuild their damaged heart muscles? Another 4.5 million have suffered a stroke, 20.8 million have diabetes, and 400,000 suffer from multiple sclerosis. All are target areas for this research.

C. Randal Mills, chief executive of Osiris Therapeutics in Baltimore, says that with 1.2 million Americans tearing the cartilage in their knees each year, his cartilage-repair cells could be a $6 billion to $10 billion product. For heart tissue, he foresees $4 billion in annual sales.

Experts believe they are seeing the creation of a new industry. "I'm a true believer," says Dr. Ronald Crystal, chairman of the Department of Genetic Medicine at Weill Cornell Medical College and a professor with its Hushang Ansary Center for Stem Cell Therapeutics. "These are going to be real therapies. This is important from a business point of view."

Adds William R. Brody, president of Johns Hopkins University, where much of the pioneering research has been conducted: "I don't think I have ever seen anything that has the broad potential that stem cell technology has." His hopes have been boosted by a $100 million donation from New York's billionaire mayor, Michael Bloomberg.

Stem cells are the genies of medicine because they are able to transform into other types of cells in order to repair or replace a damaged body part, like the nerve-fiber insulation in Geron's trials. But research is in the very early stages, and the hurdles are high.

A big problem is ensuring that the cells don't differentiate into something unwanted, like cancer cells. Moreover, manufacturing any biological product is delicate and complex, and even if it works, the body will naturally try to reject the foreign intruders. On top of that, the politically powerful religious right wants to block embryonic stem cell research because it requires destroying embryos, which these groups consider equivalent to murder.

But scientists overwhelmingly believe that some of the ongoing research will eventually succeed.

Furthest along in commercial development are adult cells. Indeed, one form of adult stem cell use has been going on for more than 40 years--bone marrow transplants, typically to regenerate the blood of leukemia patients. Blood stem cells also have been transplanted from umbilical cords. And privately held Osiris has been selling a kind of putty made from adult bone-marrow stem cells since last July, used for bone repair.

Clinical Trials

Osiris is running clinical trials of three more bone-marrow-derived products. They are being tested for an immune disorder called graft vs. host disease, for cartilage repair, and for repairing heart tissue. CEO Mills predicts that the first two could come before the FDA for approval in 2007 or 2008--making Osiris one of four companies closest to bringing a product to market.

Just a few years behind is Neuronyx, also privately held and based in a suburb of Philadelphia. It hopes to start clinical trials this year in as many as three treatment areas, including skin, heart tissue after a heart attack, and nerve tissue after a stroke. Summit, N.J.-based Celgene is taking a different approach, using stem cells derived from the placentas of normal, full-term births. "Placental stem cells are an extraordinarily interesting way of approaching stem cell therapy--non-controversial, and equally pluripotent as embryonic stem cells," claims CEO John Jackson.

Robert Hariri, president of the company's cellular therapeutics division, says some placental cells are partially differentiated already, primed to become heart muscle, nervous tissue or insulin-producing cells, for example. Once implanted in the heart, the heart muscle cells would build muscle tissue. The company hopes to start a small trial for sickle cell anemia this year and is determining which treatment area to tackle next.

Altogether, Nature Biotechnology magazine lists 37 companies worldwide working on fetal or adult stem cells. Virtually all are small biotechs, with about half in human trials or on the market already, and the remainder at earlier stages of studying in the lab or in animals.

Only a handful of companies are known to be investigating embryonic stem cells, many of them outside the United States. Geron, in addition to its spinal cord research, is pursuing seven other potential areas, including heart muscle damage, diabetes, Parkinson's disease, arthritis, immune rejection, bone damage, and liver cells for drug testing (not for actual liver disease). Paul Herling, head of Novartis's corporate research, says that company's most likely areas for development are diabetes, heart muscle damage and Parkinson's disease.

But there are a lot of stumbling blocks--starting with the hype. Even Brody of Johns Hopkins, for all his enthusiasm, warns that "when technologies come to the fore, we always have these great predictions about how they're going to do. More often than not, the science moves slowly to get into accepted therapy."

With embryonic cells, their biggest advantage--versatility--is also their biggest scientific problem. "You have to learn to make them differentiate the way you want," says Herling. "The problem is that in animal experiments, when you infuse embryonic stem cells in some part of the body, they might start making different types of tissues you don't want, all the way to actual cancers." So Novartis is trying to determine which genes are activated during various phases of differentiation, in hopes of finding molecules that will help the cells stay differentiated the right way. Another possible solution, suggests Jerry W. Shay, vice chairman of the department of cell biology at the University of Texas Southwestern Medical Center, is to insert a gene that would kill the cell if the patient were given a particular drug. Then, if the stem cell began differentiating wildly or turning malignant, the patient could be given the trigger drug.

Experts say the major problem with adult cells is getting enough of them. The human body does not make many, and after they're harvested "it's very hard to keep adult cells in a culture long term," explains Dr. Neil Theise, director of the Liver and Stem Cell Research Laboratory at Beth Israel Medical Center in New York City. However, Osiris and Neuronyx claim to have solved that problem by using proprietary growth processes and cultures.

Another concern is rejection. Patients could take the kind of anti-rejection drugs that are now used with organ transplants, but those have serious side effects, most notably a weakening of the immune system. Some scientists see the solution as using the patient's own cells. That could mean adult stem cells taken from the patient's bone marrow.

Controversy also could hurt the industry's potential. Under pressure from anti-abortion and religious activists, the Bush Administration in August 2001 abruptly announced that federal money could be used only for research on the very small number of embryonic cell lines that existed as of that time. That has sent universities, research centers and companies scrambling for funding from investors, state and foreign governments, endowments, private institutes, and philanthropic organizations. Then, if they also get any funds from Washington, the researchers have to keep two sets of records and carefully allocate their lab expenses and staff time between the two funding sources.

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Cell Politics

The controversy is one reason why Celgene chose to go with placental cells, and why almost no big drug company will talk publicly about its research. "The confusion surrounding the political and ethical issues affects everyone in the field. It affects potential partners and investors," says Stephen W. Webster, CEO of Neuronyx. "You talk to [potential investors] and they just say, 'We're not looking at that area right now.'"

Many scientists worry that the United States will fall behind countries such as Britain and Singapore, whose governments encourage embryonic stem-cell research.

California, New Jersey and other states are jumping in to offer their own research funding, and bills are pending in Congress to overturn the Bush policy. For their part, opponents of this research hope to show that adult cells can be more flexible than people now realize, or that embryonic cells can be acquired in ways that don't destroy embryos.

The first big test of embryonic cell politics will come when Geron brings its plans for clinical trials to the FDA for approval, probably this fall. Will the FDA give in to political pressure and find an excuse to reject the plans? (The Bush Administration policy is not at issue, because Geron isn't using federal money in its research, the company says.)

So far, Dr. Thomas Okarma, Geron's CEO, says that interactions with the FDA have been "appropriate and pleasant." Still, many observers are nervous, especially because the FDA twice in the last two years refused to approve nonprescription sales of the emergency contraceptive drug Plan B after unprecedented lobbying by anti-abortion and religious groups. "Part of it will depend on who's in the White House," says Ira Loss, a health care specialist and executive vice president of the Washington, D.C.-based research firm Washington Analysis. "Given the way they've behaved on Plan B, we can't be too confident."

Of course, political pressure also can work the other way, as public figures such as Nancy Reagan lobby on behalf of stem cell research for diseases that their families suffer. Jennifer Elisseeff, a Johns Hopkins University assistant professor who recently co-founded a California biotech called Cartilix, which hopes to use adult cells for cartilage repair, points out that it took years for in vitro fertilization to gain wide acceptance. "As people see, 'Here's a therapy that's going to help me,' potentially the same thing could happen with stem cells," she says.

Many analysts compare stem cells to the first days of gene therapy in the late 1980s and early 1990s for both the promise and the hype. There was amazing new research at the cutting edge of science that seemed to promise miracle cures by altering something that had gone amiss in the basic building blocks of the human body. (Gene therapy attempts to replace malfunctioning genes.) Researchers joined with venture capitalists to launch new companies to pursue the promise--150 companies in the case of gene therapy.

Stem cell therapy probably holds more potential than its genetic counterpart because it could theoretically apply to far more physical conditions. In theory, stem cells could be used to repair any sort of tissue damage. Gene therapy, by contrast, is limited to conditions caused by genetic mutations.

The history of gene therapy offers some sobering warnings for today's stem cell enthusiasts. It has taken far longer and has been much harder to develop usable gene-therapy products than expected when the first human trials began in 1990. Trials have been suspended twice, after patients died in two different experiments--first, a teenager at the University of Pennsylvania in 1999, and then a child in France two years ago. There are still no products on the market in the United States. "With stem cells, we're where gene therapy was in the late 1980s," says Dr. Crystal of Weill Cornell.

There are bound to be reversals ahead, and perhaps storms of controversy. But despite all the caveats, an important transition appears to be occurring--stem cells, which were once simply a subject of research, are emerging as a potentially important new industry.

Fran Hawthorne is the author of Inside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat (John Wiley & Sons, 2005).

RELATED ARTICLE: Stem Cell Primer

* Adult cells Found naturally in various organs, notably bone marrow. They can only grow into limited types of tissues, and are difficult to harvest and maintain.

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* Umbilical and placental cells Taken after birth. It's unclear how flexible they are in transforming into various kinds of tissue.

* Fetal cells Taken from brain tissue of miscarried, stillborn or aborted fetuses. They're controversial, and have worked only in two narrow treatment areas.

* Embryonic cells Taken from newly fertilized embryos before cells have differentiated into organs. In theory, they can turn into any type of tissue, but the risk is of differentiating out of control, even turning into cancer.

Source: Chief Executive