Stem Cell Therapy: Business Models Begin to Take Shape

Although human trials in the U.S. are still a novelty, developers are identifying both sources and protocols for conducting therapy

So much attention is being paid to stem cell research, and so much potential is being attached to it, that some people are beginning to talk about a new, fourth life sciences industry: pharmaceuticals, medical devices, biotechnology and stem cells. States and whole nations have set up multi-billion-dollar development programs, and new companies are popping up left and right. Coloring the overall picture (but moving to a peripheral position as the technology advances) are the political and ethical debates over one type of stem cell work, that of embryonic stem cells.

Lost in all the hoopla is the fact that a number of companies are already marketing commercial treatments (at least outside the FDA’s purview in the U.S.). Here and abroad, the business of collecting stem cells derived from umbilical-cord blood, baby teeth, and a variety of adult tissues, is proceeding apace (even though no one yet knows precisely how the cells work).


The latest jolt occurred in late January when FDA approved a Phase I (toxicity) trial of Geron Corp. (Menlo Park, CA) to use embryonic stem cells to treat spinal cord injuries. The company’s stock jumped 36% over the next 24 hours, even though a Phase I trial is years from having an approved drug or treatment. Geron’s president, Thomas Okarma, PhD, MD, made much of the announcement: “This marks the beginning of what is potentially a new chapter in medical therapeutics—one that reaches beyond pills to a new level of healing: the restoration of organ and tissue function achieved by the injection of healthy replacement cells.”

In contrast to biotechnology, the promise of stem cells is not just a better drug, but a revolutionary – albeit poorly understood – approach to treating disease. Stem cells represent a disruptive force in modern medicine, and at some level perhaps, bad news for drug-makers. Stem cell developers are reluctant to utter the word “cure,” but that is the general idea, observes Mark Ellinger, JD, PhD, managing principal with the intellectual property law firm Fish and Richardson (Minneapolis). In his former job as a tenured biology professor Ellinger knew about stem cells but believed human stem-cell therapy might be “a flash in the pan.” Today, he says “the vistas are almost limitless.”

After languishing in obscurity for decades, stem cells exploded into the public consciousness in 1998, when James Thomson at the University of Wisconsin reported the isolation of human embryonic stem cells. Biologists immediately recognized Thomson was onto something big: potential cures for a host of serious diseases and injuries.
Embryonic stem cells are primitive cells—the body’s master construction agents. Once inside their physiologic niche, or under the right stimulation in culture, they can become any type of cell, for example brain, heart, blood, or bone.

While embryonic stem cells’ versatility—“pluripotency” is the operative scientific term—can be awe-inspiring, it is also their main shortcoming. Once implanted in an organism, the cells are difficult to control. The animal embryonic stem cell literature holds numerous reports of teratomas—abnormal tissues, for example teeth, forming spuriously at implantation sites. Embryonic cells also multiply prolifically, a characteristic shared with cancer cells that alarms researchers and clinicians. Finally, since no one can receive their own embryonic cells, transplants always engender rejection or graft-vs.-host reactions, both a consequence of immunologic responses to tissues that are “non-self.”

Soon after Thomson’s discovery objections arose from ethicists and religious groups opposed to the use of human embryos in research. That controversy soon degenerated into an all-out war of words (and legislation) between opponents and advocates of embryonic stem cell research. Although the issue was rendered moot by the discovery of adult stem cells, the rancor—and misconceptions—persist to this day.

Distinctions between adult and embryonic stem cells remain poorly understood by the general public, policy-makers, and the media. One expert who prefers anonymity confided that embryonic stem cells are “jazzier” than adult cells and receive more attention than they deserve based on the fact that they are only now, with the Geron announcement, being used in human therapy. “They are clearly over-hyped.”

Adult stem cells: the next generation
Adult stem cells exist in many tissues, including fat, skin, blood, bone marrow, and dental pulp, although not in the quantities found in embryos. The two main families of naturally-occurring adult stem cells are hematopoietic (blood-generating), and mesenchymal (other tissues). Bone marrow transplants used adjunctively with high-dose chemotherapy and/or radiation, to treat blood cancers, are in fact stem cell treatments.

Adult stem cell lines lack some of embryonic cells’ versatility, and they are somewhat more difficult to “grow” into clinically relevant quantities. But they retain enough transformative capability to offer intriguing possibilities for human therapy. And despite their relative novelty, adult stem cells have provided some of the most dramatic results in the clinic, far outstripping their embryonic ancestors in practical applications. Among the attractive qualities of adult stem cells are their ubiquity, potential use in autologous (same donor-recipient) transplantation, and greater control over their biological destiny.


A third type of stem cell arises through cellular manipulations known as parthenogenesis (fatherless or virgin birth). International Stem Cell (Oceanside, CA) claims to be the first company to generate fully functional pluripotent stem cells through the technique. International stimulates unfertilized human eggs to produce cells that resemble, in all significant ways, embryonic stem cells, but without the use of embryos. “The ethical issues are completely off the table,” says Kenneth Aldrich, CEO and chairman.

Rather than focus on personalized regenerative medicine, International Stem Cell is creating a stem cell bank that ultimately will provide cells suitable for implantation into every human being on earth. The trick is to match at least four of six “human leukocyte antigens” (HLAs) between donor and recipient, a process analogous to tissue-matching for organ transplants. Aldrich thinks he can cover most of the human race with between twenty-five and fifty lines if the right donors are found. An equivalent collection derived from embryonic cells could take as many as 100,000 distinct cell lines, Aldrich says. International’s first cell line is the most common tissue type found in Europe and North America, providing a good immune match for about 350 million people.

The cells will not in most cases be the perfect match expected from autologous transplantation, but would be the functional equivalent of a matching organ donor. That means most recipients would require some form of immunosuppressive drug therapy that could be temporary or lifelong depending on the closeness of the match. “It will offer something patients can tolerate and easily live with,” notes Mr. Aldrich.

Money in the bank
The discovery of adult stem cells and their myriad sources became a salve for the shortcomings of embryonic stem cells, particularly as the adult cells are applied to autologous transplantation. Most relevant strategies (see sidebar for an exception) involve donation of tissues, extraction of cells, and storage at specialized repositories or banks.

Among stem cell banking methods umbilical cord blood banking is the most popular, the fastest-growing, and most significant in terms of revenues. It entails preserving the cord immediately after birth, isolating stem cells from its blood, and storing them cryogenically. Individuals may withdraw the cells when the need arises. One cord bank describes its services as “an investment for the whole family” since nearly all mothers and half of the donor’s siblings are suitable recipients for a baby’s cord-derived stem cells.

Kalorama Information (New York) estimated the market for stem cord-blood banking at approximately $380 million in 2007 with about 9% annual growth. By 2020 the value of cord blood banking should be between $715 million and $1.9 billion.

Cord banking is a clever idea but limited by the narrow window of opportunity for harvesting the umbilical cord. Other potential issues are common to any type of tissue banking: the integrity of harvesting and pre-processing storage conditions, chain-of-custody, economic and physical viability of the tissue bank, convenience of pairing a treatment center with the tissue and repository, and safety.

Autologous transplantations are normally considered safe since patients use their own tissues. While this is certainly true with respect to communicable diseases and tissue compatibility, safety could become a genuine concern for genetic diseases, the defects for which are carried by every cell. Genetic instructions for developing childhood leukemia, for example, could be re-issued upon transplantation, even if the initial treatment apparently cures the patient.

No one knows how useful cord blood banking will turn out, prompting Jeremy Sugarman, MD, PhD, of the Johns Hopkins Berman Institute of Bioethics, to describe the practice as “uncertain benefit combined with an uncertain future.”


Baby teeth offer an intriguing alternative to expensive, invasive cell harvesting from fat and bone marrow, and the timeframe for harvesting them is much wider than for cord blood. Dental stem cells, considered adult cells despite the typical age of the donors, are not as plentiful as in embryonic tissue, nor are they pluripotent, but they expand rapidly and are versatile enough to generate most tissue types. And since they are designed for use in the donor, the rejection issue disappears.


StemSave (New York), a dental stem-cell bank, offers its services “for parents who missed the opportunity to bank their children’s cord blood.” Their harvesting technique also works with adult teeth, for example wisdom teeth, and costs seem reasonable: $595 for collection and initial cell expansion, and a $100 yearly storage fee. Research at StemSave suggests that stem cells derived from wisdom teeth may be the most embryonic stem cell-like adult cells. “We don’t recommend that adults have teeth extracted specifically for this purpose,” says CEO Art Greco, “but yes, that would work too.” The company provides participating dentists around the U.S. with a kit that cryo-preserves the tooth until it arrives at StemSave’s New York laboratory.

Universal cells: The wave of the future?
Most stem cell therapies suffer from shortcomings related to cell availability, harvesting, rejection, or the vagaries of tissue banking. Universal-recipient stem cells—ready-made cells suitable for implantation into any patient “off-the-shelf,” —are new to the scene but at least a dozen companies are already involved.

Mesoblast (Melbourne, Australia) owns technology for generating adult mesenchymal precursor cells (MPCs), which are antecedents to bone, muscle, and connective tissue. MPCs are “universal” precursor cells that do not induce an immune response, even when implanted in unrelated or unmatched recipients. Mesoblast is testing these cells on the repair of bone fractures and cartilage, while its U.S. partner Angioblast Systems (New York) investigates cardiovascular disease.

Angioblast recently announced preliminary data from a Phase II safety trial of off-the-shelf adult stem cells in patients with heart failure. None of the seven patients experienced cell-related adverse events. Athersys (Cleveland, OH) is similarly looking into marrow-derived stem cells to treat stroke and damage from heart attacks. MediStem’s (Chandler, AZ) angle is menstrual blood, which is rich in universal donor stem cells. The cells principally support blood vessel formation but under the right stimulation turn into brain, lung, or pancreatic cells.

While they are capable of becoming new tissue, Medistem’s cells appear to work by prompting a biological responses among target or destination cells. “It’s not really stem cell therapy in the traditional sense, but rather evokes the body’s own cells to do something,” says CEO Thomas Ichim. “That is true of many stem cell programs in human testing.”

Meanwhile the first commercial success for stem cell therapy is expected from Osiris Therapeutics (Columbia, MD), which is working on universal-recipient adult cells derived from bone marrow. Their lead product, Prochymal, is in Phase II for repairing tissue damaged during a heart attack, and in Phase III for graft vs. host disease and Crohn’s disease. FDA has granted Prochymal both Orphan Drug and Fast Track status.

Making science a business
In a very short time stem cells have evolved from scientific curiosities to the brink of possible blockbuster status. Kalorama Information estimated the value of stem cell therapeutics at just under $13 million in 2007, but expects growth to be brisk. Kalorama anticipates that by 2020 revenues will hit $8.9 billion, but may be as low as $3.1 billion or as high as $16 billion depending on how critical factors play out: the ability to exploit adult vs. embryonic cells, a not-too-restrictive patent environment, timely regulatory acceptance, and the ability to demonstrate clear-cut advantages over current therapies.

Commercializing stem cell therapies will require a regulatory framework that adequately acknowledges the technology’s promise in the true spirit of FDA’s recent initiatives on science, safety, and risk. In this regard the diversity of stem cells and treatments is both a blessing and a curse, as it will take time for true platform cells and therapeutic protocols to emerge.

As with transgenic technology and recombinant protein manufacturing before that, the first companies out of the gate will be subject to the greatest regulatory oversight. Large-scale clinical trials, expensive for drugs, will be phenomenally so for stem cells. “Investors have to be realistic about this,” says Fish and Richardson’s Ellinger.

While stem cells are not as easily manufactured as small-molecule drugs, production-related technical hurdles have been solved for most cell lines. “And unlike embryonic stem cells, it will not take forever to convince regulators that adult stem cells are safe,” notes George Dunbar of Aastrom Biosciences (Ann Arbor, MI). Developers must “devote a ton of money to reducing the cost of goods, which at this point is shockingly high.”


Until recently, pharmaceutical companies have largely ignored stem cells. Big pharma, in particular, seems to have been waiting for scientific and ethical concerns to resolve before jumping aboard. That is beginning to change. Last summer Pfizer quietly entered the arena, albeit circuitously, with plans to develop small-molecule drugs to stimulate a patient’s own stem cells. The company has also funded EyeCyte (San Diego), which uses adult stem cells to treat eye disease, and founded Pfizer Regenerative Medicine, which will initiate partnerships and bankroll small companies and academic efforts.

Johnson & Johnson Development, the venture arm of J&J, similarly decided to avoid direct involvement in stem cells but became the lead investor in Novocell (San Diego), which runs an embryonic stem cell program for diabetes. Novocell uses an encapsulation technology to protect cells from the recipient’s immune system. J&J has also invested in Tengion (East Norriton, PA), which is using autologous adult stem cells to grow human organs. Other companies hedging bets in stem cells include Novartis, Roche, and GlaxoSmithKline, which has a $25-million stem cell partnership with Harvard University.
Whether top pharmaceutical firms continue to operate by proxy, or partly replace traditional drug R&D with stem cell programs – as they have with biologics – remains to be seen.

Many models
Animal and human embryonic stem cells, reagents, and related equipment already enjoy a robust market in toxicology and drug discovery markets, but proven business models for therapeutic stem cells will take time to formulate.

The “drug model” for stem cell approval and commercialization appears to be the most likely to succeed in the U.S. marketplace. Under this scenario companies would provide standardized or platform cells that compete on the basis of cost, quality, shelf-life, residual immunogenicity, the ability to target specific tissues, or perhaps ease of harvesting, expansion, or administration. Osiris is following this drug model closely: If Prochymal is approved, the company says, physicians will prescribe it as they would a pharmaceutical. The drug model is impossible for embryonic stem cells due to tissue matching and rejection issues, and for autologous cells because those are only intended for use by the donor.

Companies like Osiris and Medistem, which produce universal-donor adult stem cells, appear to be ahead of the drug-model curve, but it would be wrong to discount International Stem Cell’s efforts at creating a library of recipient-matched cells, or similar approaches.

Nor can one easily dismiss the autologous or “personalized” version of stem cell therapy. Granted these procedures resemble surgery more than drugs, complicating their economics (while simplifying their regulation), but booming business at stem cell repositories creates a reservoir of potential customers. Nevertheless the multiplicity of autologous treatments and harvesting techniques will mean that the platform approach, and associated regulatory and commercialization efficiencies, will be difficult to achieve. It would not be surprising autologous transplantation bypasses regulators to an extent not seen since the days of laetrile and medical tourism becomes the norm, rather than the exception, for autologous therapies.

Any new medical venture must eventually face the life-or-death question of who will pay for it. In Europe, stem cell transplantation into heart muscle, one of the most popular applications, is reimbursed at about €20,000 ($30,000), on the order of cardiac stent implantation in the U.S. To convince U.S. insurers to agree to similar reimbursement levels, stem cell developers must demonstrate that patients will benefit significantly, and that the effects will be long-lasting. Anticipated reductions in future costs, and the possibility that patients might return to work and contribute insurance premiums, would certainly help to sway insurers, particularly governments.

At some point, if stem cells actually deliver cures for terminal illnesses – a mostly unrealized goal in traditional medicine – reimbursement may become moot, particularly as prices fall for universally-applicable cells, and platform implantation protocols and methods emerge. Most individuals would readily trade $20,000 or $30,000 for years of healthy life.

Unfavorable financial climate
Writing in the New England Journal of Medicine in 2004, Harvard business professor Deborah Spar, PhD, argued against “giving the market free rein over stem cells: “The moral issues involved are simply too important, and the social debates too intense.” Spar predicted that stem cell technology would eventually evolve towards a golden mean that balanced the “scary edges of scientific potential” with patient benefit and return on investment.


Spar, now president of Barnard College, told Pharmaceutical Commerce that “there has been quite a bit of progress on the science side, largely but not exclusively on non-embryonic stem cells.” Ethical and economic questions remain, but the most significant difference between 2004 and today is the economic downturn, which will dictate which technologies and indications are funded over the next several years. Investors, as a result, will increasingly seek out companies with low cash burn rates and whose managers have solid track records in meeting timelines.

Thomas Ichim of MediStem believes the economic crisis could actually help stem cell companies and their collaborators focus on near-term opportunities rather than “hugging the unhuggable,” Ichim’s term for pursuing far-out but potentially more lucrative indications.

Spar’s and Ichim’s predictions may be coming to pass. Aastrom Biosciences had initially focused on autologous stem cell treatments for orthopedic markets. Aastrom’s claim to fame is a cell expansion technique that avoids growth factors or chemical stimulants that might raise safety issues. Despite better than 90% success in healing problem bone fractures (according to reported clinical trial data), Aastrom suspended its orthopedics program, citing long development timelines and an unpredictable reimbursement environment.

The company now concentrates on two shorter-term indications: critical limb ischemia, a circulatory disease that leads to 160,000 limb amputations per year in the United States, and cardiomyopathy, a serious form of heart failure. CEO George Dunbar says the company has had “good success” in a European study healing ischemia patients; a U.S. clinical trial on 120 subjects will be unblinded late in 2009.

Dunbar described Aastrom’s European cardiomyopathy study results as “spectacular.” An open-label Phase II U.S. study was approved less than one month after FDA received the paperwork. Study sites will include Baylor College of Medicine, the DeBakey Heart Center, the Cleveland Clinic, and Emory University. PC


Cytori’s (San Diego, CA) capital-plus-disposables approach is unique among stem cell companies. Tom Baker, director of investor relations, admits “it’s a razor blade model”—meaning that the machinery to isolate and process stem cells is a small cost, while the procedure, performed in volume, could be both highly profitable and less expensive than certain types of conventional medical therapies.

Cytori’s Cellution device isolates and concentrates adult mesenchymal stem cells from “minor” liposuction procedures at the patient’s bedside. Patients are re-infused with the cells within one hour of harvest. This is possible because fat tissue is an unusually rich source of stem cells, with up to a hundred times the concentration of non-blood precursor cells as bone marrow. Electronics giant Olympus manufactures Cellution and GE Healthcare sell it, along with collection/concentration kits, to overseas markets. Cytori hopes to begin a U.S. clinical trial some time this year, most likely for cardiac or breast reconstruction indications.

The Cellution machine costs about $100,000, while concentration kits add about $2,000 to the cost of a breast reconstruction, and as much as $10,000 for heart procedures. Bone healing, liver, and other indications will probably fall somewhere in between. Even after a reasonable markup costs are significantly lower than for autologous cell transplantation, because cells are minimally handled and not cultured or stored. Cytori claims that one Japanese surgeon bills approximately $2 million per year for procedures enabled by the Cellution. “The machine is a profit center,” Baker says.