Embryonic science is proving a hard sell, reports Michael Cook

WHEN Scottish scientist Ian Wilmut cloned Dolly the sheep in 1996, shares in PPL Therapeutics, the Edinburgh-based biotech firm that backed his work, soared above 400p. Today, Dolly's health is not the best and PPL shares are trading at less than 7p (20c) on the London Stock Exchange.

PPL has switched its focus to the development of therapeutic proteins and is negotiating with ES Cell International (ESI), a Singapore-headquartered company with corporate offices in Melbourne, over the sale of its stem cell operations.

The fickle fortunes of Dolly's creators are hardly unique in the biotech sector. The Financial Times reports that firms working on therapeutic cloning -- the contentious technique in which an embryo is created for its stem cells -- are on such shaky ground that funding droughts are more likely to put them out of business than ethical storms.

US-based biotech trailblazer Geron has sacked 30 per cent of its staff and is moving towards becoming a conventional pharmaceutical company.

Dutch outfit Pharming, which cloned Herman, the first genetically engineered bull, delisted from the stock exchange in May after it failed to find funding.

Advanced Cell Technology, the US company that put therapeutic cloning in the headlines in November by announcing it had cloned human embryos, is living on a shoestring, with some of its scientists paying for research out of their own pockets.

Leaving aside the politically charged debate about the ethics of cloning and embryonic stem cell research, the nascent industry faces significant commercial obstacles. The feeling among stem cell entrepreneurs and the venture capital managers who stump up funds for biotech start-up firms is that cures -- for conditions such as Alzheimer's and diabetes -- arising from embryonic stem cell research are 10 to 15 years away -- if we are lucky.

``The hype is that in two years you'll be able to go down to 7-Eleven, buy a heart and plug it in,'' says Hugh Ilyine, general manager of Melbourne-based Stem Cell Sciences.

However, if the miracle cures forecast by NSW Premier Bob Carr in his giddier moments are largely hype, this does not mean embryonic stem cell research has no future. There is immense interest from the pharmaceutical industry in the commercial applications of embryo-derived products.

An international conference on commercialising the various strands of stem cell research -- adult, embryonic and animal -- will be held in Melbourne next month. Matchmaking between the big pharmaceutical firms and the budding stem cell businesses will be high on the agenda.

Three Australian companies are banking that human embryonic stem cell research will come good: ESI and Stem Cell Sciences in Melbourne and Adelaide-based BresaGen. All three deal in products derived from human or mouse embryonic stem cells and have research facilities overseas. Despite the political and ethical controversy, which will heat up when federal parliament resumes this week, all are committed to continue their work.

Of the three, only BresaGen, the first company in Australia to clone a pig, is listed on the stock exchange. Like many biotech companies, it is still losing money. In July, following the collapse of a protein pharmaceutical project with a UK biotech firm, it announced staff cuts, a hiring freeze and a 10 per cent pay cut for senior management and directors.

BresaGen chief executive John Smeaton says the resultant cost savings mean the company has enough funding for at least 18 months. The company's shares have fallen from a high of $1.21 in January to 40c at yesterday's close.

``We are in a very strong cash position and are making significant progress in the other parts of the business,'' Smeaton says.

The focus of BresaGen's cell therapy division is Parkinson's disease. It is working closely with US researcher Curt Freed, who injects fetal cells from induced abortions into the brains of Parkinson's patients.

To develop neural stem cells, BresaGen uses embryonic stem cell technology developed in mice in Adelaide and applies it to human stem cells in Athens, Georgia. It recently received US government approval for an ingenious catheter that can deliver stem cells to the brain.

US President George W. Bush threw BresaGen and ESI a lifeline 12 months ago when he set down highly restrictive guidelines for embryonic stem cell research. They ended up among a handful of companies worldwide authorised to supply stem cell lines to researchers who want access to US government funding.

ESI is a private start-up company majority owned by the Singapore Government. A spokeswoman says the company is ``building towards long-term profitability''. Earlier this month the company announced it was able to grow clean embryonic stem cell lines, uncontaminated by animal tissue, by using feeder cells from aborted human fetuses -- a development that may give it a competitive edge.

Stem Cell Sciences is also a private company and does not release its accounts, but Ilyine says it turned a small profit last year.

At present the company is working only on embryonic mouse stem cells, but it is ready to work on human embryos if the opportunity arises. It employs five full-time researchers at an undisclosed location in Melbourne.

However, it is not cures for dread diseases that provide these companies with revenue.

Instead, it is the more mundane business of developing research reagents, licensing their discoveries, drug testing for multinational pharmaceutical firms and providing stem cell lines for research teams around the world.

From a business point of view, cures are the holy grail, says Brigitte Smith of Melbourne-based venture capital firm Rothschild Bioscience. But no one is sure cures will eventuate. Less risky commercial applications are needed to provide early revenue.

``Stem cell research is absolutely at the riskiest end of the financial spectrum,'' Smith says. Apart from the risk that government -- both here and in the US -- may not approve embryo experimentation, firms face patent problems and regulatory hurdles.

THE US Federal Drug Administration, which must approve therapies for US use, requires three phases of clinical trials, a process that takes years. Further, the ethical storm means patents over such therapies will attract unprecedented scrutiny.

Above all, there is the risk that embryonic stem cell therapies might not work at all. Some researchers, notably Alan Trounson of Monash University, are fervent believers. Others are just as fervent in their scepticism.

``I believe the Australian public has been hoodwinked by the proponents of this research, from a scientific perspective,'' Queensland Institute of Medical Research director Michael Good says.

Unsurprisingly, then, venture capitalists say miracle cures are not on their radar screens.

``Most people in the investment community don't think in terms of 15 years. Anything over 10 years is beyond their capability,'' says Ross Dobinson, managing director of TSL Group Ltd, a Melbourne consulting firm specialising in life sciences. ``It's more attractive to use stem cell technology now for screening of potential drugs than ... looking at an investment in a company with a view to generating large amounts of revenue through providing therapy for patients who have Parkinson's or Alzheimer's.''

In the former case, stem cells extracted from embryos will be cultured and developed into different types of tissue. These provide useful media for testing how drugs work. Pharmaceutical companies will be able to refine their products before starting trials on human subjects. This will save money and shorten the lead time for bringing drugs on the market.

Stem Cell Sciences has become a world leader in supplying purified mouse embryonic stem cells to big pharmaceutical firms such as Aventis, Glaxo Wellcome, Genentech, and Smithkline Beecham. ES Cell says it is negotiating for ``a number of drug discovery licensing deals'' using its human embryonic cell lines, probably including toxicity testing.

For months Queensland senator Ron Boswell has been muttering that drug companies, not children with diabetes or grandparents with Parkinson's disease, will be the beneficiaries of embryonic stem cell research.

``The prospect of exporting embryo stem cell lines grown on aborted fetal tissue paints a sordid picture of the reality of the commercialisation that lies ahead,'' he tells The Weekend Australian.

In the long term, no one knows whether the fabled cures will come and whether the commercialisation will have been worthwhile. But, in the short term, Boswell may well be on the money.

Michael Cook is editor of internet newsletter Australasian Bioethics Information.