On a rainy day in Worcester, Mass., just before New Year's, Dr. Robert Lanza threw his arms up in despair. He had just heard initial reports that South Korean scientist Hwang Woo Suk faked 11 lines of embryonic stem cells he claimed to have created through cloning last May, with the results published in the prestigious journal Science. Lanza is vice-president of medical and scientific development for Advanced Cell Technology Inc. (ACTC), one of the few publicly held U.S. companies that are researching embryonic stem cells. He fears that Hwang's fabrication, which was confirmed on Jan. 10, will set the already embattled field back indefinitely. "The reputation of the science has suffered," Lanza laments.
The Korean debacle is a black eye that America's stem cell pioneers can ill afford. Federal funding is still limited to research on just a few batches, or "lines," of the embryonic cells. And the promised $3 billion in funding from California's Proposition 71 is tied up by lawsuits challenging its constitutionality. The political overhang has kept most venture capitalists away from anyone with the phrase "stem cell" in their business plan. When the Korean scandal started erupting in December, shares of ACT fell 16% and rival Geron Corp. (GERN) tumbled 4%, despite the fact that interest in biotech was strong and the Amex Biotech Index was up 6% in the same period. Korea "is just another body blow," says ACT investor William Woodward of Santa Monica (Calif.)-based Anthem Venture Partners.
As the custodians of academic research, journals such as Science bear some responsibility for the tightening purse strings. Science previously said it would withdraw Hwang's May paper and on Jan. 10, the magazine said it would withdraw a 2004 paper by Hwang as well. Both papers, like many in well-known journals, were "peer reviewed," meaning they were critiqued by two or more independent scientists before they were published. But the vetting clearly was inadequate, and Science Editor-in-Chief Donald Kennedy has said in a statement that the journal will consider "additional procedural safeguards."
In the tiny world of stem cell research, that's a scary message. Because commercial stem cell products are still far out on the horizon, biotech investors depend on peer-reviewed reports when deciding where to place their bets. Any reduction in papers published could crimp the ability of stem cell companies to raise funds. "This is certainly a wake-up call for peer review," says Geron CEO Thomas Okarma.
Geron's recent history reveals how much is at stake. On Sept. 1, the Menlo Park (Calif.) company announced that cardiac-muscle cells derived from human embryonic stem cells survived and multiplied in the hearts of rats, suggesting the cells might someday be useful for treating cardiac disease in humans. The research was published in the American Journal of Pathology. Geron's stock immediately traded up 3%, to $11.20, on four times its normal trading volume. Such share-price bumps have allowed the company to go back to investors in a position of strength: It now has $200 million in cash and no debt.
The long-term impact of Hwang's deceit on science publishing remains unclear. Some scientists, including ACT's Lanza, felt that Hwang's original research should have been verified by an independent lab. Yet Lanza's boss, Michael D. West, concedes there's only so much journals can do if a scientist is determined to deceive them. "They can't go into labs and do scientific experiments," says West, chief scientific officer of ACT.
Repeated stem cell snags have left ACT fighting for its life. West, who joined the company after leaving Geron in 1998, struggled to gain the confidence of deep-pocketed investors. Meanwhile, across the Pacific, the Korean government was funneling dough into labs such as Hwang's, giving U.S. investors the impression that ACT had fallen hopelessly behind.
This led to some contortions. When ACT decided to raise money by going public last year, investment bankers were so uninterested that the company opted instead to reverse-merge into a shell company that once made Hopi Indian dolls. It wasn't quite as splashy as an initial public offering, but the symbolism was perfect: The dolls represent ancestral spirits to whom the Hopis pray for rain and other gifts. New shares in hand, ACT raised $18 million from hedge funds and other risk-taking investors -- enough to carry the company into 2007. But the spirits didn't smile on this stock, which fell from a high of $7 to a recent $1.90 a share.
Lanza says the stem cell flap hurts patients the most. He often thinks about an incident in 2004 when a police officer followed him to work. Lanza thought he was about to get snared for speeding. But the cop just wanted an update on ACT's research. One promising project was using stem cells to make retinal pigment epithelial (RPE) cells, which the eye needs in order to see. The policeman's teenage son was suffering from a degenerative eye disease and was about to go blind. "I was in tears," Lanza says. "We didn't have the money to keep the cells going." Thanks to fresh capital from the Hopi doll company merger, that research is back on track. A Red Tailed Hawk doll sits in Lanza's office, reminding him of the strange reversal of fortune that reinvigorated ACT. Now Hwang's lab has crumbled, notes Lanza, and "we're still alive."
By Arlene Weintraub