SAN DIEGO – Geron Inc.'s exit from the embryonic stem cell field last month shocked many in the biotech industry – but not the regenerative medicine experts attending the recent 2011 Stem Cell Meeting on the Mesa.

Some attendees muttered that Geron had never been able to effectively balance the conflicting risk-reward profiles of its stem cell business and its cancer business. Others whispered that the writing had been on the wall since the departure of longtime CEO Thomas Okarma in February. Still others wondered if perhaps the preliminary data from Geron's Phase I spinal cord injury trial – the world's first of a human embryonic stem cell therapy – weren't as good as had been hoped.

Geron has maintained the latter isn't the case – the company blamed its withdrawal from the stem cell space on capital scarcity and uncertain economic conditions. (See BioWorld Today, Nov. 16, 2011.)

Regardless of the reason, regenerative medicine insiders don't view Geron's move as an indication that the stem cell industry is on shaky ground – at least, not any shakier than it's ever been. If anything, data and deal-flow indicate increasing interest in stem cells, although maintaining that momentum will require creativity on several fronts.

Kicking into Gear

Mahendra Rao, director of the National Institutes of Health's Center for Regenerative Medicine, noted that the stem cell field has been significantly derisked over the past few years. Most of the technical risk with adult stem cells "has been sorted out," he said, and advances in research tools have improved the consistency of embryonic stem cell work as well. On the embryonic side, Geron also blazed a regulatory trail with the FDA by getting into the clinic.

"The greatest obstacle now is to deliver compelling clinical proof of concept data," said Gil Van Bokkelen, CEO of Athersys Inc. and chairman of the Alliance for Regenerative Medicine. "That's what investors are looking for; that's what pharma is looking for. Once that data gets delivered, it will change the mindset in a big way."

In the adult stem cell space, data is starting to trickle out. Morrie Ruffin, managing director of the Alliance for Regenerative Medicine, noted that while the media were busy reporting on Geron, many missed the fact that Mesoblast Ltd.'s allogeneic adult stem cell product Revascor significantly reduced cardiovascular deaths in a randomized, placebo-controlled Phase II trial, and Aastrom Biosciences Inc.'s autologous expanded cell therapy ixmyelocel-T significantly reduced treatment failures in a randomized, placebo-controlled Phase II critical limb ischemia trial. (See BioWorld Today, Nov. 16, 2011.)

There's been good news on the partnering front as well. Every panel at the conference paid homage to Mesoblast's $350 million stem cell deal with Cephalon Inc. (now part of Teva Pharmaceutical Industries Ltd.), which carried a whopping $130 million up front, as well as to Shire plc's $750 million buy-out of regenerative medicine firm Advanced BioHealing Inc. (See BioWorld Today, May 19, 2011, and Dec. 9, 2010.)

"Things move forward at a certain rate and then kick into gear," said Robert Preti, president and chief scientific officer of Progenitor Cell Therapy LLC, which itself was recently the subject of some business development activity, having been acquired by NeoStem Inc. NeoStem also acquired stem cell firm Amorcyte Inc. earlier this year. (See BioWorld Today, July 18, 2011.)

Another sign of momentum can be seen in private financing for stem cell and regenerative medicine firms. Four such firms have completed private offerings this year, according to data from Roth Capital Partners, and three of them brought in at least $30 million. Additionally, three firms in the field – Argos Therapeutics Inc., TVAX Biomedical Inc. and Verastem Inc. – have filed to go public, and Advanced BioHealing was in the initial public offering queue as well before its acquisition.

Not Out of the Woods

So is the financial situation for regenerative medicine companies really that much worse than for biotech as a whole, as Geron's retraction indicated? It's somewhat hard to believe, sitting in the brand-spanking-new $127 million laboratories of the Sanford Consortium for Regenerative Medicine, listening to so many examples of progress and success. But according to Geoff Whitehead, principal with Flagship Ventures, the answer is yes.

The outlook for stem cell firms is not quite as dire on the private equity side. Venture capitalists are looking for transformative ideas, large markets and compelling entrepreneurs, so the fact that a lot of stem cell work is early stage and hard to value "doesn't really factor into things," Whitehead said. Flagship has three regenerative medicine firms in its portfolio.

But on the other hand, Whitehead noted that "early stage VCs like to invest in pioneers," and the stem cell field's pioneers don't have the best track record thus far. He then ticked off a dozen reasons why it would be easier for the average VC to say "no" to a stem cell investment than "yes."

Stem cell start-ups do have the benefit of alternative options like grant funding – the California Institute of Regenerative Medicine (CIRM) has been doling out money for several years now. But Edward Lanphier, president and CEO of Sangamo BioSciences Inc., noted that the only companies able to go public these days are in Phase III, and "is CIRM going to take someone to Phase III? I don't think so. There's a need for venture capital. I'm not optimistic that it's going to be met, but there's a need."

Even if a stem cell company does get public, that doesn't mean their fortunes will improve. Lisa Walters-Hoffert, managing director with Roth, presented an analysis showing that just nine public stem cell and regenerative medicine firms have raised money this year – less than $140 million altogether, and with a hefty average 67.5 percent warrant coverage. Since their offerings, the firms have seen their shares fall an average of 24 percent, and only one company – StemCells Inc. – is in the green.

Further, despite the oft-mentioned Mesoblast and Advanced BioHealing deals, business development in the space has yet to catch fire.

"We spend a lot of time talking to pharma," said Sangamo's Lanphier. "As it relates to cell therapy, there is interest, but there is a higher bar. Whether it's safety, efficacy, cost of goods analysis . . . you've got to paddle your own canoe a lot longer."

Matthias Steger, global head of research and technology partnering with Roche AG, provided further perspective. While he refuted the notion that big pharma is not involved in stem cells, pointing to Roche's own significant investment, he cautioned that big pharma "can just not afford running into big failures. We have to sort out the science. It would be a mistake to rush. I think we are making progress, but we have to be a little bit patient."

Just Keep Paddling

The trick will be for stem cell firms to figure out how they can afford to patiently wait for the catalyst that captures big pharma's attention, or the proof-of-concept data that drive public market interest.

The experts at the conference said it will require an unprecedented level of public-private partnership. "It can't be industry alone, or academics alone, or government alone – there must be collaboration," said NIH's Rao. He added that there are far more stem cell trials being conducted by academics than by industry, but the former have "no idea how to take it to the next level." That's where government needs to focus its efforts, he said.

Susan Solomon, CEO of the New York Stem Cell Foundation, added that nonprofits can play a role by doing the "high-risk work" that neither grant-funded researchers nor companies can stomach. Nonprofits should also focus on the translational work that academics aren't interested in because it won't result in a published paper – the "work that is repetitive but essential to derisk the program to a point where investors or pharma can pick it up," she said.

Meanwhile, history (and Geron) has proven the traditional drug development business model isn't a particularly good fit for stem cell firms. Whether public or private, the firms that have managed to stay in business are those that have, more often than not, found alternative sources of funding.

Sangamo, for example, has outlicensed its zinc finger protein technology in non-core fields like agriculture and research tools. Cytori Therapeutics Inc. is bringing in revenue by selling its Celution adult stem cell processing system in Europe, where it has received a CE Mark, while it navigates the U.S. regulatory path. Organovo Inc. uses its platform to create disease models for partners, as well as in its own drug development. Neostem generates revenues from a cell therapy manufacturing business, a stem cell bank and several initiatives in China, which help support the cost of developing its cell therapy pipeline.

The approaches are unconventional, but Greg Lucier, chairman and CEO of Life Technologies Corp., thinks that's what the regenerative medicine industry needs. "I do believe this is an area where we should be pushing the frontiers," he said. "We're positive, we're confident and we are investing in this area. The horizon we see is near term and incredibly bright."