Stem Cell Decision Gets Mixed Response –

CRAWFORD, Texas – Venture capitalists responded to President Bush’s recent decision to provide federal funding for limited stem cell research with a mixture of support and disappointment.

Although encouraged by the president’s efforts to understand the science behind the debate and mindful of the tight political predicament he was in, many VCs were nonetheless hoping for federal funding for a broader scope of research activities.

“In a perfect world I would like to see the federally-funded research go farther. Just speaking scientifically, rather than simply throwing away unused fertilized embryos from in-vitro fertilization, why not do research on them?” said Jim Tullis, a co-founder of health-care investor Tullis-Dickerson & Co.

One positive result of the president’s decision was to remove some of the uncertainty associated with embryonic stem cell research, noted G. Steven Burrill, chief executive officer of biotech investor Burrill & Co.

The president decided to provide federal funding only for research on the existing lines of embryonic stem cells, which he said numbered more than 60. However, immediately after his announcement many scientists called this number into question, as earlier reports had indicated as few as 10 lines in existence. The National Institute of Health undertook the research that identified the 60 lines across the globe.

“The president is heading in the right direction, but I don’t think this will make too many people happy on the substance or politics,” said Paul Brownell, vice president of public policy at the National Venture Capital Association (NVCA). “Limiting funding to the current lines seems like it’s really less than halfway.”

Prior to the president’s decision, the NVCA had been lobbying President Bush and members of Congress to approve federal funding for embryonic stem cell research, because the NVCA is interested in promoting the ability of science to make new discoveries, said Mark Heesen, president of the NVCA. “The federal government, and universities funded by the government, do basic research and development and then the venture capital community takes that basic R&D and applies it,” Heesen noted.

While VCs are clearly interested in its potential curative properties, before embryonic stem cells become a viable area of investment much fundamental research still needs to be done – which is why the question of federal funding is so important. “Embryonic stem cell research is so basic and fundamental right now that it would be very hard to commercialize,” said Steve Lazarus, a managing director at ARCH Venture Partners. So while VC interest in embryonic stem cells will likely increase as research progresses, there will not likely be a flood of new investments triggered by the president’s decision.

Indeed, both because of the early stage of the science and the political questions surrounding the issue, many of the venture investments in the stem cell area to date have been in less controversial areas of research: adult stem cell and somatic stem cells in umbilical cord blood. “We primarily have invested to avoid the moral question… It is safer to make a bet on technology that avoids the political debate,” said Dr. Ansbert Gdicke, a general partner at health-care investor MPM Capital, which has made three investments in two stem cell companies.

“We think umbilical cord stem cell research will be a huge area of focus in the next few years, because it is here now and it is proven. With umbilical cord stem cells you can treat, maybe even cure, various diseases, including certain forms of leukemia,” noted Tullis, whose firm has made an investment in cell therapy and umbilical cord blood banking company ViaCell Inc. The company’s venture backers also include Gdicke’s MPM Capital. During his address to the nation, President Bush noted the federal government would spend $250 million this year supporting umbilical cord, placenta and adult and animal stem cell research.

Despite its limitations, the new funding should be enough to get some of the necessary fundamental research done to eventually produce discoveries that will encourage VC activity in the space, the NVCA’s Brownell said. Nonetheless, the NVCA will likely continue to lobby the government to fund the embryonic stem cell research further, Brownell said. “I think the biotech community will work this hard. And I think both Republicans and Democrats will be seeking to work with the president to go farther with this,” he added.