Voice of caution: Deepak Srivastava, University of California, San Francisco Credit: UCSF

It has been just over a year since California's touted Proposition 71 (Prop 71) went into effect. The new law essentially authorized the creation of a $3-billion pool of cash to stimulate embryonic stem (ES) cell research and development in California. Boosters and observers predicted that its positive impact would soon be felt not only in California but around the world.

It hasn't quite worked out that way. Prop 71 has been stymied by the legal challenges of those opposing stem cell research and Prop 71. These legal skirmishes have, in turn, essentially seized up funding and construction in San Francisco where the planned California Institute for Regenerative Medicine (CIRM) is to be built. The CIRM is now years behind schedule.

But CIRM president Zach Hall says Prop 71 was not in vain and that CIRM will overcome this setback, commence major funding a year from now and live up to expectations. Still, for all the problems that have ensnared Prop 71, it might be said that the publicity that it has produced has provided at least an indirect boost to some startups and early-stage firms (see Table 1).

Table 1 Gauging the impact of Proposition 71
Full size table

Admittedly, several of the most recently funded startups focus on extracting stem cells from umbilical cord blood. One benefactor is the Cambridge, Massachussets-based ViaCell, which held a $60-million initial public offering (IPO) last year after raising more than $120 million in venture funding since 1999. Another example is the St. Paul, Minnesota-based BioE, which garnered slightly more than $8 million in its first financing round last year.

'Prop 71 has raised awareness and enthusiasm at the investor level,' says Cellerant CEO Bruce Cohen.

Others like San Carlos, California-based Cellerant Therapeutics and Stockholm-based NeuroNova focus squarely on therapeutics derived from so-called adult stem cells. Although these companies aren't working on ES cells, they said that Prop 71 has been, on balance, a good thing for the global field of stem cell R&D. Last year, in the wake of Prop 71, Cellerant Therapeutics raised $25 million in B-round funding. Observers suspect that Cellerant, which is barely three years old, would have had much more difficulty raising that kind of money without Prop 71.

“Prop 71 has raised awareness and enthusiasm at the investor level,” says Cellerant CEO Bruce Cohen. “Investors have been very reluctant to put money into anything to do with stem cells [before Proposition 71]. It created a lot of interest in the space and held out the idea that whatever investors put in could be partially offset by what was contributed by a nondilutive governmental funding agency” in California.

Other stem cell companies have mixed opinions about Prop 71. About half of the managers we spoke to said that Prop 71 has boosted their fortunes whereas the other half was either skeptical that or ambivalent about whether it has affected their financing at all.

Swedish-based Neuronova is cautiously optimistic about the ripple effect of Prop 71. The firm has been considering opening a US branch in California ever since Prop 71 was passed. But, a year on, Prop 71 hasn't been everything the company thought it might be at this point in time.

“[The funding measure] sends a message that things will happen in California,” says Anders Haegerstrand, vice president of Neuronova. “A lot of good people will move to California and create a cluster by attracting a lot of money, talent and opportunities. But I guess it's been progressing much slower than we've hoped.”

'I think we're several years away from seeing a number of embryonic stem cell clinical trials in the United States and we probably should be several years away,' says Deepak Srivastava, director of the Gladstone Institute of Cardiovascular Disease.

Meanwhile, ES cell R&D is surging ahead in countries like Sweden, Denmark, Singapore, the UK and Australia where public and private financial support is growing. This momentum is not lost on stem cell researchers. Recently, two high-profile researchers chose to go to Singapore rather than Stanford University.

Is there some silver lining here? Some say the answer is most certainly, yes. They argue that the slower pace just might be a bit of a blessing. The Hwang scandal has tarnished the reputation of stem cell research in South Korea more than in the US, even though an American researcher was involved in the publication of papers based on contrived data. Unlike South Korea, nobody can accuse the US of rushing ES cell R&D. Likewise, even boosters say that because the scientific complexities and safety issues of ES cells are not trivial, it's just as well that dozens of startups are not out in the public producing the kind of 'news flow' that appeases investors, but generates unrealistic expectations in the process.

“I think we're several years away from seeing a number of ES cell clinical trials in the United States and we probably should be several years away,” says Deepak Srivastava, director of the Gladstone Institute of Cardiovascular Disease in San Francisco. “I would prefer a more cautious approach. It's important for the field not to go the way of gene therapy ... that would be a shame because there is tremendous promise [in stem cell medicine].”