Something New from Stem Cells: An Industry

Jill D. Ladwig
Wisconsin People & Ideas

Long a respected center for the study of life sciences, the University of Wisconsin-Madison, and surrounding Dane County, is now poised to be the epicenter of a new industry that has the potential to literally change the quality of human life: the stem cell industry.

With six new stem cell companies formed in Madison over the last several years and the infusion of more than $94 million in state money, private investments and donations, an industry is beginning to take root. An additional $150 million from public and private sources is going into the construction of the new Wisconsin Institutes for Discovery, where stem cells will be one of several research initiatives. 

Like the computer chip industry that transformed Santa Clara Valley in rural Northern California into the high-tech mecca called Silicon Valley, the stem cell business is clean, its jobs are high-paying, and its products will fundamentally change the way we live.

“Stem cell technology has the potential to change the world in the same way the semi-conductor did,” said Bob Palay, managing member of the venture capital firm Tactics II Stem Cell Ventures.

Investors are understandably excited about stem cells. A true “platform” technology, human embryonic stem cells and their identical cousins, induced pluripotent stem cells, have myriad applications, ranging from basic biological research, to testing the efficacy and safety of new drugs, to curing humankind’s intractable diseases. They are also a “disruptive” invention—an innovation that overturns dominant existing technologies in a market--in this case, medicine and health care.

“Stem cells present us with an opportunity to literally transform everything from drug discovery to new treatments and cures for patients,” said John Neis, managing director of Venture Investors, a Madison venture capital firm. “We are really opening new frontiers in medicine.”

Neis has spent his career investing in healthcare ventures, principally in companies built on inventions from seven major research universities. Over the course of 20 years, Neis and his partners have backed 26 start-up companies, 16 of them from UW-Madison, including Vitamin-D inventor Hector DeLuca’s Deltanoid and TomoTherapy, manufacturer of a state-of-the-art radiation therapy system that is used to treat cancer patients at hospitals around the world.

Growing the Entrepreneurial Spirit

What is it about Madison that’s creating such fertile ground for this type of research? Part of it extends from the history of the UW-Madison College of Agriculture and Life Sciences, one of the first colleges of its kind in the country. Today, its faculty generates more inventions than any other school on campus. But perhaps even more important is the university’s legacy of inter-disciplinary collaboration.

“The UW-Madison is a unique institution, especially in terms of the number of researchers in a diverse number of departments who are engaged in stem cell research,” said Neis. “The interdisciplinary interaction that’s occurring will result in breakthroughs and advancements. We’re poised to take advantage of this opportunity more so than any other institution in the country.”

But research is only part of the equation; the other critical piece is development. Tom Still, president of the Wisconsin Technology Council, said the state and its vibrant capital city have all the pieces of the puzzle to make the stem cell industry thrive here.

“We have excellent researchers in multiple disciplines; we have a tech transfer process that encourages those researchers to disclose their inventions and then provides them with patent and licensing expertise; and we have appropriate launching pads for start-up companies,” Still said, referring to University Research Park on Madison’s west side. “And finally, we have the infrastructure to support start-up companies, whether they’re in stem cells or another area of biotech.”

Palay said there’s a difference between commercialization, the process of turning an idea into a product, and industrialization, which is creating an industry around a new product. The latter involves developing all of the other products and services needed to make the industry flourish. Neis added that technology transfer, the practice of moving new technologies out of a laboratory and into the marketplace, is critical to this evolutionary process.

“We are blessed to have one of the best technology transfer organizations in the country,” Neis said, referring to the Wisconsin Alumni Research Foundation (WARF), the private non-profit group that supports the UW-Madison. “The fact that WARF is also a successful foundation gives them the ability to be a co-investor with venture capitalists, which is not a common thing.”

WARF provides patenting and licensing expertise, which, especially for a small company, is invaluable. And, with its worldwide reputation for enforcing its patents, it is an important partner in any business endeavor.

“Having the 800-pound gorilla with a reputation for defending intellectual property is critically important to a young, emerging company,” Neis said.

Still also said a new culture of entrepreneurism is taking shape in Wisconsin, where it was traditionally lacking. “The culture here has really changed over the last five years,” he said, pointing to tax credits and other state incentives that make it more attractive for investors to get involved, especially in the stem cell area.

“We have programs like the Wisconsin Angel Network, Wisconsin Entrepreneurs Network, and others that weren’t here five years ago and now have matured to a point where thy provide real value to entrepreneurs,” Still said. “We also have a core of investors who are experienced at looking at these deals and moving them forward. It’s become fashionable to be an entrepreneur in Wisconsin.”

State support for stem cell research and development comes into play. While the university has garnered almost a billion dollars in research funds in the life sciences, from mostly federal sources, the state of Wisconsin has ponied up several million dollars in direct support, plus tax credits and other incentives for private companies. While it’s hard to compare $80 million to the billions invested by other states, many believe the industry is especially suited to Wisconsin because of its brain power.

“Wisconsin is a world leader in stem cell research because of the passion and innovation of our scientists, their commitment to developing the products and processes of the future, and the strong, unwavering support of Governor Jim Doyle,” said former Wisconsin Department of Commerce Secretary Jack Fischer.

Doyle recently committed the state to capturing 10 percent of the stem cell market by 2015.

“What makes Wisconsin great is a spirit of cooperation, and everyone understands they’re working for the common good. There’s a level of cooperation that allows you to move quickly,” Palay said. “It’s one of the best  technology transfer environments in the US—great science at UW-Madison, world class technology transfer at WARF, outstanding facilities at the UW Research Park, and low-interest loans from the Wisconsin Department of Commerce. Collectively they all understand how to help companies get started, and they’re willing to put resources behind dramatic, path-breaking technologies.”

In the Vanguard: Making Real Products out of Stem Cells

So what needs to be done in order to make the industry really take off in Wisconsin? Neis, Palay and Still all point to the same thing: applications that can be turned into real products.

“In the stem cell industry in particular, we’ve been talking about the promises for quite a while,” Still said. “The industry needs to start delivering on these promises.”

At least four companies in Madison are beginning to make that happen. Two of them were featured in the June 2008 issue Forbes magazine, their founders described as “stem cell luminaries.” For this bastion of business journalism to feature the accomplishments of 10 stem cell scientists from around the world and highlight two from Madison is high praise indeed. Copies of the magazine were almost impossible to find in Madison within days of publication.

One of the so-called luminaries featured in Forbes is the stem cell pioneer and world-renowned researcher Dr. Jamie Thomson, professor of anatomy at UW-Madison and director of regenerative medicine at the new Morgridge Institute for Research. Thomson, who purportedly avoided the business world for years, has co-founded several companies around his inventions, beginning with Cellular Dynamics International in 2005.

Neis, Palay and Thomson believe the most immediate opportunities for stem cells are for use as research tools, especially in drug discovery and development, and screening. “We now have the tools that enable researchers to get a better understanding of the effects of therapies on human cells,” Neis said.

Cellular Dynamics uses stem cells to create beating heart cells on which to test drugs for safety and effectiveness. Thomson and cofounders Dr. Craig January, a professor of cardiology at the UW School of Medicine and Public Health, and Dr. Tim Kamp, a professor of medicine and physiology, developed a way to steer human stem cells into becoming heart cells, making it possible to screen drugs for lethal side effects in a laboratory before they’re ever given to humans.

Thomson also founded Stem Cell Products in 2006, which uses human stem cells to manufacture blood products on a large scale and thus promises to alleviate the problem of blood shortages.

Palay is especially excited about Thomson’s newest breakthrough, induced pluripotent stem (iPS) cells. These are normal adult human skin cells that have been reprogrammed to behave exactly like human embryonic stem cells.

“For the first time in history, starting with a small sample of anyone’s skin, we can make them their own personal stem cell line, which can be used to grow unlimited numbers of their tissue type cells,” Palay said. “This breakthrough by Dr. Thomson will touch every aspect of life science and medicine.”

Another Forbes luminary is Dr. Gabriela Cezar, a stem cell researcher in the UW-Madison School of Veterinary Medicine, and chief scientific officer of Stemina Biomarker Discovery, another stem cell startup. Cezar came to academia from industry, where she worked in drug development for Pfizer. There, she saw first-hand some of the problems that have to be overcome in the current drug development process. She says the system is broken, primarily because scientists create drugs for people using animals as test subjects.

“Animal testing is only about 50-60 percent predictive for humans,” says Stemina co-founder and Chief Executive Beth L.R. Donley. “That means more than 50 percent of the data generated by animal studies turns out to be wrong.”

The company is using embryonic stem cells to screen for side affects of drugs, and they are especially interested in how drugs affect women and children. They use human stem cells, directed to become human brain cells, heart cells, or whatever is needed, so results of their tests are directly comparable to how drugs will affect humans and developing fetuses.
 
Stemina just hired a sixth staff-member, a bioinformatics expert, who will help researchers understand the huge amounts of data generated by its metabolomics platform. Metabolomics is the study of a dynamic set of small molecules in a cell or organism.

“Stemina looks for changes in the small molecules secreted by a cell or spilling into blood or urine,” said Donley. “These small molecules create a biomarker or ‘fingerprint’ of toxic response or disease when they’re compared with normal embryonic cells.”

The company is finalizing its first market application, offering a service that tests the developmental toxicity of drugs like Valproate, a drug made by Abbott that is highly prescribed for adults with epilepsy. According to Donley, it is one of the only compounds that’s been correlated to an increase in the incidence of autism in the children of mothers who are taking the drug. With the addition of the bioinformatics staffer, Stemina will begin to market the developmental toxicity platform to other pharmaceutical companies.

“What we are offering is the ability for pharma and biotech companies to do screening in an all-human system,” said Donley.

There also are companies springing up to support the stem cell community in Madison. One of them is CellCura, a Norwegian company that recently opened a U.S. base in Madison. The company was lured by UW-Madison’s reputation in stem cell research and by the Wisconsin Alumni Research Foundation and its affiliate, WiCell Research Institute.

“We were looking for a partner that could see the impact of our technologies and provide us with a unique knowledge base and experience for product development,” said Lesley Hutchins, president of CellCura. “We made contact with WARF and the researchers at WiCell, and resulting discussions led to a collaboration with WiCell.”

Hutchins added that the state of Wisconsin “understands the need to attract foreign companies” and that her company successfully applied for grants to establish its U.S. base in Madison. The company began outside of Oslo to provide specialized equipment and laboratory products for assisted reproduction laboratories, and later moved into stem cell research.

“Our products come from assisted reproduction, where there is a critical focus on process and documentation,” said Hutchins. “IVF professionals are ever-concerned about safety and the roles of biologicals in the system, and CellCura’s products provide a safer and documented environment throughout the process.”

Hutchins said because the goal of many stem cell research and development programs worldwide is to culminate in clinical studies, the ability to document the history of the cell line or product is critically important.

Putting it All Together in Madison

Neis and Palay both do business around the world but are based in Wisconsin. Although the state has long been overlooked by investors and job seekers, they say its time has come.

“We have world-class technology, which attracts the attention of skilled managers,” said Neis. “We have a great place to live—we’re on everybody’s top 10 lists—and we’re starting to build the critical mass of companies that we need. We have the core assets to attract the skill sets into our community and pull all the pieces together.”

This accumulation of talent and quality of life is drawing worldwide attention. Witness the decision of the Genetics Policy Institute to host its World Stem Cell Summit in Madison this fall. Bernie Siegel, founder of the Institute and global advocate for stem cell research, selected Madison over New York City and Washington, D.C.

This annual gathering of scientists, which is expected to draw more than 1,000 researchers, patient advocates and business people to the city, should make the point that Madison is the uncontested center of the stem cell universe.