One Investor on What Expanded Stem Cell Research May, or May Not, Mean to His Industry

Yesterday, the Obama administration announced its decision to overturn restrictions on federal funding for embryonic stem cell research.

To find out what it will mean to startups, along with who is most likely to benefit from the reversal first and why, I spoke just now with venture capitalist Chris Christoffersen, a Boulder, Colo.-based partner in the healthcare practice of Morgenthaler Ventures, who sits on the boards of two stem cell companies.

One of them, Stemgent of Cambridge, Mass., is a new startup that sells to stem cell scientists proprietary reagents — substances that, because of the reactions they cause, are used in analysis or synthesis. The company just closed on a $14 million Series A funding that included Morgenthaler and HealthCare Ventures.

The second, OncoMed, is a four-year-old, clinical-stage pharmaceutical company in Redwood City, Calif., that develops molecules to treat cancer stem cells and has raised $170.7 million from investors, including Bay Partners and De Novo Ventures.

You just funded a company, Stemgent, that’s going to benefit greatly from expanded stem cell research. Was Obama’s widely anticipated reversal of Bush administration restrictions a factor in the timing?

Well, the company is generally premised on stem cell research rapidly expanding, but we were driven by the market side — now further helped by loosened restrictions on stem cells.

[Christoffersen, whose phone was in and out during the call, referred here to Proposition 71, which passed in 2004 in California and will see $3 billion invested in embryonic stem cell research over the next decade. California is one of eight states, including Connecticut, Illinois, Iowa, Maryland, Massachusetts, New Jersey and New York, that have funded embryonic stem cell research programs since 2001, when Bush limited federal funding to 60 stem cell lines already in existence at that point, only 21 of which were later discovered usable.]

It’s not the greatest analogy, but when you think of the guy who sells bullets to any and all combatants because they need bullets, similarly, we [as investors in Stemgent] don’t care who’s funding research on stem cells — the federal government, state government, or private concerns. We just know [researchers] need reagents. We thought so [last year] and we think so even more now that stem cell research will be accelerated.

Will the move at all impact OncoMed?

OncoMed deals with a subset of stem cells involved in cancer. With their specialized expertise, they’ll be less effected.

What’s your sense of how healthcare investors might react to yesterday’s development? Will Morgenthaler be taking a harder look at startups centered on stem cell research?

The life sciences team is pretty agnostic. What we like to see are new therapeutic paradigms.

This is probably an unanswerable question, but as a venture capitalist, when you think of the market opportunities around stem cell research, do any figures come to mind?

If you wish to take the optimist’s viewpoint, embryonic stem cells’ ability to be turned into any cells — cardiac cells, cells that will likely prove useful in curing diabetes and other diseases — makes the market opportunity potentially staggering. But as Obama very thoughtfully said yesterday, while the ability to do research will accelerate, we may not see the fruit of those efforts in our lifetimes or even our children’s lifetimes. The best news is that opening up that stem cell research will make it much easier and faster to assess what’s really possible.

So from an investment standpoint, yesterday’s news was good but not game-changing?

From a researcher’s perspective, this is big time. From a product perspective, it’s going to take a while.