The Business of Stem Cells: Re-Examining Federal, State, and Private Funding and Regulatory Initiatives

March 9, 2005

Unedited transcript prepared from a tape recording.

8:45 a.m.	Registration
9:00	Introduction:	Jon Entine, AEI and Miami University (Ohio)
9:10	Human Embryonic Stem Cells: Current Challenge and Future Promise
	Speaker:	Dr. James Battey, Director NIDCD, NIH Task Force on Stem Cell Research
9:45	Panel I: State Models/Initiatives for Stem Cell Research
	Panelists:	David Gollaher, California Healthcare Institute
		John Gearhart, Institute for Cell Engineering, Johns Hopkins School of Medicine
		Carl E. Gulbrandsen, Wisconsin Alumni Research Foundation (WARF)
		Charles Jennings, Harvard Stem Cell Institute
		Wise Young, Rutgers University's Keck Center for Collaborative Neuroscience
11:00	Break
11:15	Discussion on State Initiatives
12:15 p.m.	Luncheon
12:45	Luncheon Keynote: Beyond Bioethics: New Approaches to the Governance of Human Biotechnology
	Speaker:	Francis Fukuyama, Bernard L. Schwartz Professor of International Political Economy, The Paul H. Nitze School of Advanced International Studies, Johns Hopkins University
1:30	Panel II: Private versus Public Financing of Stem Cell Research: Opportunity and Concern
	Moderator:	Lori Knowles, University of Alberta
	Panelists:	Ken Giacin, StemCyte
		Robert Lanza, Advanced Cell Technology and Wake Forest University School of Medicine
3:00	Adjournment

Proceedings:
MR. ENTINE:  Welcome to the American Enterprise Institute.  We're thrilled that you could come to this important conference on the business of stem cells.

I think few issues have been as contentiously debated as the emerging science of stem cell research.  Scientists are convinced that stem cells offer enormous therapeutic potential but the technology necessary to explore and eventually exploit this potential raises many prickly regulatory, financial and ethical issues.

How will the United States proceed to unlock the promise of stem cell research, commercialize its use, and establish a flexible regulatory and ethical framework?

That's the focus of today's conference on the business of stem cells.

Since the development of several lines of human embryonic stem cells in 1968, the United States and many other countries have attempted to strike a balance between ethical concerns and research needs.

In August 2001, President Bush authorized limited federally-supported funding of embryonic stem cell research which had been blocked since 1995.  As part of his policy, he restricted that support to existing stem cell lines that had already been created from embryos donated after in vitro fertilization.

Private research was allowed to continue.  That decision postponed the very contentious issue over the creation of human embryos for nontherapeutic reasons, human cloning, and that issue I think is still being debated, very much so today.

The current budget for human embryonic stem cell research is approximately $30 million a year on the national level through the NIH.  No federal funds may be used to investigate other lines beyond the two dozen or so approved lines or to create new ones.

The president also authorized research into human adult and core blood stem cells at higher but still limited funding levels.  I think in 2002, I think he spent approximately $345 million on adult stem cell research, far more than on human embryonic research.

This conference is designed to discuss the various issues that have arisen in this country, and elsewhere around the world in response to the current federal policy, because the U.S. policy has had implications in other countries as well.

Critics have complained that the 2001 edict has put a damper on public and private research as companies have been unwilling to commit substantial venture capital in an uncertain political climate.

It's been noted that a few countries, notably Singapore, China, United Kingdom and Israel, are setting up well-funded research facilities and have begun luring bioresearchers, many from the United States, to grow these new ventures.  They're also attracting interest from venture capital firms.

As we will discuss today, with NIH funding limited, a number of states have launched a variety of public and private initiatives.  We have five examples of that today.

The most recent and dramatic development occurred last November, when California voters overwhelmingly approved proposition 71, the controversial $3 billion bond measure that requires that the state spend almost a billion dollars per year over a 10-year period on infrastructure and research initiatives on stem cells.

These developments have kept California and states as almost mini National Institutes of Health, as they seek to become research centers and dispensers of grants and seed funds.

Are these developments an indication of abdication of federal regulatory oversight, which may unleash a patchwork of state initiatives resulting in ethical and regulatory chaos?

Or do these new ventures demonstrate how private enterprise and public/private partnership can jump-start this potentially fruitful avenue of research?

To help guide us in discussing these questions, I am pleased to introduce James Battey.

Dr. Battey's full-time job is director of the National Institute on Deafness and other Communicative Disorders.

He moonlights, if you will, in the fishbowl position as head of the National Institutes of Health task force on stem cell research.

He has the unenviable responsibility of managing this research within the boundaries established by the Bush administration, balancing both science and politics.  Dr. Battey has been with NIH since 1983 when he joined the National Cancer Institute.

He has worked in a number of departments before he joined the NIDCD in 1995.  He assumed its directorship in 1998.  Over the years, Dr. Battey has learned to walk a narrow line between politicians and researchers.  In the case of the volatile stem cell issue, many would call this a firing line.

Let's welcome Dr. Battey to talk with us.

DR. BATTEY:  Thank you very much for that kind invitation and it's indeed a pleasure to be here this morning and have an opportunity to share where NIH is right now with the human embryonic stem cell research issue.

I'm going to apologize in advance.  You just heard that I walk a firing line between scientists and politicians.  I'm going to need to leave pretty promptly, because at 10:15 I'm testifying in the Rayburn building before the House appropriations subcommittee for the president's 2006 budget, and it's not a good idea to be late.  Those guys don't like it when you're late.

So I'm going to make every effort to get there on time.  But nevertheless, I'm delighted to have a chance to be here with you all this morning.

Could I have the next slide, please.

Well, this august audience hardly needs to see this slide but I'll just quickly go over it.

The reason why there's so much enthusiasm about research involving human embryonic stem cells is because we think it affords a platform technology with enormous promise.

There's no question that these cells provide an unparalleled opportunity to study the earlier stages of cellular differentiation, events that lead to specialization of cells and to the enormous range, estimated at several hundred, of types of fully differentiated specialized cells in a human being.

The pharmaceutical industry is very interested in the possibility of taking differentiated versions of human embryonic stem cells and using them as ways to test drugs for efficacy and toxicity, and this may in fact be the first low-hanging fruit that emerges from this platform technology and this is something that will not require IRBs and lots of safety studies, and I think this may be some of the first fruit that is born from the human embryonic stem cell research area.

But the thing you heard about most often is the possibility of generating cells in the laboratory or the clinic for the purpose of transplantation to replace cells that have been ravaged by various degenerative diseases, such as Parkinson's disease, where dopamine neurgic neurons in the midbrain are lost.  Heart muscle disease following a heart attack.  Beta cells that produce insulin in response to glucose in the pancreas.

These are all the promises of embryonic stem cell research and this is why the research community is so passionate in their desire to move forward and explore the possibilities that are offered by cells which have, as far as we know, an unlimited capacity to self-renew in the laboratory, and a capacity, if given the right signals, to differentiate into any cell type in the body.  Next slide, please.

So let me just discuss two ways to make very potent stem cells, and these two technologies were published in 1998.  One of the founding fathers is with us today, John Gearhart, so John, if I mess up on the EG cells I hope you'll stick your hand up and interrupt me.

But let's start, first of all, with embryonic stem cells.  We begin as a fertilized egg and by about day three, after fertilization, when, under normal circumstances, we'd be wending our way down the fallopian tube towards the uterus, we go to a four-cell stage and then an eight-cell stage.

And then around day four we become what's called a morula, which is some language, old ancient language for raspberry, and that appears like a little clump of cells, still in the fallopian tube.  At day five, we are a blastocyst during development.  A blastocyst is about 150 cells and it consists of about two types of cells.  An outer shell, spherical shell, referred to as the trophectoderm, which is destined to become the placenta, and the umbilical cord.

And then a little cluster of 30 to 50 cells on one pole of this hollow sphere that is referred to as the inner cell mass.  These are the cells that are ultimately destined to go on to become the fetus, the baby, and ultimately the human being.

These are the cells from which we derive human embryonic stem cell lines, and this is done by a procedure called immunosurgery, that releases the inner cell mass, destroying the embryo in the process, the inner cell mass is then placed into culture and roughly 20 percent of the time, when this is done, a human embryonic stem cell line emerges from this process.  So those are ES cells.

Now it also turns out that you can, at the right stage during field development, one can remove primordial germ cells and place them into culture, and that will also give you pleurae potent stem cells.  These cells are called embryonic germ cells and they have m ny of the same properties, maybe even all of the same properties as embryonic stem cells.  They're also pleurae potent and they also have a remarkable capacity for self-renewal.

So this is what we're talking about.  This is the entity that's destroyed in the process of creating embryonic stem cells.  It's about the size of a very small pinprick at this point in its development, can barely be seen with the naked eye, and in fact all the work done on it has to be done typically with magnification.  Next slide.

So one a the things that one hears an enormous amount about is the fact that there are 78 entities on the NIH registry eligible for federal funding, and yet only 22 human embryonic stem cell lines available to researchers.

The reason for that is that it's both time-intensive and expensive to go from removing that inner cell mass from the blastocyst to having hundreds and hundreds of vials of well-characterized human embryonic stem cells in the freezer.  The process takes about nine months to a year to expand these cells, which have a doubling time of typically somewhere in the neighborhood of 48 to 72 hours.

It's also expensive because you have to characterize them as you go, make sure they're not beginning to differentiate, make sure that their chromosomal composition is not changing.  Make sure that they're not picking up other unwanted cargo such as retroviruses or other things that will ultimately be deleterious to the cells when they're used in studies that scientists want to do.

So I'll say a little more later on, but one of the initial things the NIH did was to fund infrastructure awards.  These were grants that went to entities that had derivations that were eligible for federal funding under President Bush's criteria, and the money was given out to these entities to do this expansion and characterization, so that we would have cells that were ready for distribution to the community.  Next slide, please.

The challenge in human embryonic stem cell research right now is fundamentally a basic science challenge.  One of the right limiting resources is unquestionably a small pool of investigators that is comfortable in the art and science of culturing these cells, and we have created training courses, with the help of several universities, to try to expand the number of individuals that are able to culture the cells and keep them undifferentiated when they want them undifferentiated, and then differentiate them into specialized cells when that is the goal, and I'll say a little bit more about these training courses later on.  We have five of them around the country.

We clearly need to know more about cell specialization.  What are the growth factors in gene regulatory events that drive these cells to become specific cell types?

We're beginning to unlock the mysteries there but we have a long ways to go.

Cell host interactions are going to be absolutely critical as we move forward into initiatives studies.  If there is not a perfect isogeneic match between the cell being transplanted and the host, then rejection is an issue and we will need to manage that.

It's managed now when we transplant other organs using immunosuppressive drugs.  I mean this is ceratinly one strategy that can be pursued but if you think about a 10-year-old with type 1 diabetes, that's a lot of cyclosporin for a lot of years, with all the attendant toxicity and other problems.

It'd be far better if we could either modify the transplanted cells or the host, in such a way that the transplanted cells would not be rejected, and that's an important area for research because most of the time it's quite predictable, that there will not necessarily be an isogeneic match between the transplanted cells and the host.

We'll need to know that after we transplant these cells, that they're stable, both in terms of their survival and their function.

What a disappointment to transplant in differentiated beta cells to a child with diabetes mellitus, only to discover four weeks later that the cells are all dead or that they no longer function, or that they function inappropriately and are producing insulin shock on a regular basis.

So we're going to need to know that these cells will function and continue to function robustly for long periods of time before we embark upon the first Phase I clinical trials.

And finally, cell cycle control is going to be critical.  I mentioned earlier that the undifferentiated human embryonic stem cells have an unlimited capacity for self-renewal and this is one of the wonderful features about them, one of the unique features, one of the things that differentiates them from adult stem cells, which are typically rare and have a much more limited capacity for self-renewal in culture.

If we need ten to the nine cells, we have generate ten to the nine cells for transplantation therapy.  When we're talking human embryonic stem cells, getting ten to the nine adult stem cells would be a feat, from almost any type of adult stem cell, with the exception of a very few.

But the other side of the sword here is that once these cells are transplanted into a host, they had better not be cycling anymore or we will have a teratoma.

So if even a small fraction of the cells that are transplanted are still cycling, not fully differentiated and still cycling, we run the risk of creating a tumor in a patient that receives this transplant.

So we're going to need to have very tight control over the cell cycle and we're going to need to know that, with great confidence, that these cells are no longer cycling.  We're going to need to do animal model studies to prove to everybody's satisfaction that these cells will not go on to generate a teratoma after transplantation.  Next slide, please.

So where are we right now today?  Well, we need to continue our efforts to generate and characterize distribution quality human ES cell lines from derivations, eligible for federal funding on the registry.

We clearly need to stimulate more research on the basic biology, to embrace this basic science challenge that I've just articulated, and a big part of that is training new investigators in the art and science of culturing these stem cells, and hopefully simplifying the culture techniques.  Next slide.

So I'm not going to dwell on the president's policy.  I'm sure it's well-known to everyone in this audience.  Basically what it says is that federal funding is only available for cell lines where the inner cell mass was removed from the embryo on or before August 9th, 2001.

This led to the identification of 78 entities around the world that were eligible for federal funding, 22 of which have been developed into distribution quality cell lines.  That's a small number.  The estimates around the world that there are roughly an additional 150 human embryonic stem cell lines that have been developed since August 9th, 2001, and I'll answer questions at the end, briefly, about the policy, but I'd rather move on because I think everybody knows the policy and has already formulated their own opinions about whether they like it or don't like it.  Next slide.

This is what the registry looks like.  You can see that on the right-hand side of the slide, a column, derivations.  Those are the derivations eligible for funding.  If you add up all those numbers you'll get seventy-eight.  Available lines is to the right of that.  If you add up all those numbers you'll get twenty-two.  Next slide.

So what does the NIH's portfolio look like?  What is this $24.3 million that was spent in 2004 invested in?

Well, we have eight infrastructure awards.  These are the awards I mentioned earlier to entities on the registry, who hold entities on the registry to expand these into distribution quality cell lines.

We have 26 investigator-initiated awards.  These are our typical RL-1s or PO-1s where a researcher sends in a research grant application with an idea that involves using human embryonic stem cells in research and undergoes peer review, and roughly one-third of the time the peer review panel deems the idea meritorious, and with funds available we fund the grant.

We have funded 67 administrative supplements.  These are supplemental funds provided to existing NIH grants, to allow those investigators to move into an area from where they are, of human embryonic stem cell research, with the ultimate goal of hopefully developing an RL-1 grant application at some point in the future, having gotten the necessary preliminary data using the support provided by the administrative supplement.

We have three pilot and feasibility studies as part of NIDDK's beta cell consortium, two post-doctoral fellowships, six training grants, five of which are these short-term cell culture training courses that I'll say a bit more about, and three exploratory center research grants within the NIGMS.  These are multidisciplinary, multi-investigator grants at Wisconsin, at Washington, and at one other place that is slipping my mind at the current time, I apologize--is it Michigan?  Thank you.  Where teams of investigators are pooling their efforts to study human embryonic stem cells.

This is typically basic science in these particular centers, again, approaching the challenge that I articulated just a few minutes ago.  Next slide.

So these are the infrastructure awards.  As I said, these are awards to entities on the registry, available for federal funds to develop into distribution quality cell lines, two years of support.  We have the nine awards totalling a little over $6 million and provided 22 cell lines that are ready for distribution to the community.  Next, please.

Short-term training courses.  Those are the locations of the five courses.  The course at Technion is a collaboration between Technion and Mehendra Rau [ph] who's an intramural scientist at the National Institutes of Health.

But as you can see, they're scattered around the country, in California, Pennsylvania, Georgia, and in Maine, and these courses train somewhere between 15 and 20 people a year in the hands-on art and science of culturing human embryonic stem cells.

They're typically oversubscribed by a factor of two and we are reissuing the solicitation for these courses, and we're hoping that all of these folks will recompete and continue to offer their courses, and we're hoping to add some courses in the future with additional support from a collaboration among most of the NIH institutes.  Next slide.

Within our intramural research program, there's several laboratories at NIH that are using human embryonic stem cells in their research.  Nine labs have received shipments of the cells since 2002.

There's expanding interest as the cell line availability becomes more straightforward and some of the materials transfer agreements and intellectual property issues are ironed out.

And we've created a stem cell characterization unit within the intramural research program.  This is an effort, under the leadership of Ron Makai [ph] who's one of the leading stem cell biologists in the country, and in fact in the world, to compare and contrast the properties of the 22 cell lines that are out there and ready for distribution, and to provide information so that scientists can select which if any of these cell lines are appropriate for the research application on which they are choosing to embark.

There's a $5000 licensing fee associated with not-for-profit people receiving a shipment of human embryonic stem cells, so it's important that scientists know which of the cell lines are in fact the best cell line for their purposes.

And hopefully that information will be provided by studies performed in the stem cell characterization unit and posted on a Web site.  Next slide, please.

We're currently soliciting for centers for excellence in translational stem cell research.  This is looking ahead, three to five years from now, to the day when we will be ready to contemplate phase I clinical trials.  We're going to bring together teams of stem cell experts, clinical researchers and transplant surgeons.

These are people that typically don't have coffee, lunch and dinner together in our academic centers, and we think we need to bring them together now, so that when the time comes for them to collaborate on this and do the first phase I clinical trials, they'll know each other and have had a chance to begin making their plans, and maybe even be enabled by having done some animal model studies that will be the necessary prerequisite for these clinical trials.

We hope that this will speed translation of basic knowledge into the clinic and these are designed for both adult and embryonic stem cells.  Next slide.

We've also embarked on a solicitation for a national embryonic stem cell bank.  We hope that this will be a one-stop shop, if you will, for the scientific community, to obtain human embryonic stem cells.

The bank will compare and expand along with the characterization unit, and in collaboration with the characterization unit, human embryonic stem cells available to NIH-supported scientists.  It will ensure consistent quality control, monitor carefully for karyotypic changes in the chromosomes of these cells, which has been an issue for some of the human embryonic stem cell lines that have been distributed, and hopefully reduce the cost to obtain the cell lines available to researchers for federal funding on the registry.  Next slide.

Now as was mentioned earlier, while this talk focused mostly on human embryonic stem cells, we believe that there's importance in supporting both nonembryonic and embryonic stem cell research, and in fact in fiscal year 2003 we invested a little over 190 million, and it was a little over 200 million in fiscal year 2004, in human nonembryonic stem cell research.  That's all other stem cells besides those derived from an embryo.

In contrast, the investment in 2003 was about $20.3 million in human embryonic stem cell research, which grew to $24.3 million in 2004, and we promote growth in both areas.

There is no cap on the amount of money we are prepared to spend on stem cell research at the National Institutes of Health.  The money that is allocated is a direct result of the process of receiving investigator-initiated grants, having them be peer reviewed, and when they get a good score, funding the grants.

If we receive twice as many grants, the amount of money we would spent on human embryonic stem cell research would double.

That is why I am convinced that the major rate-limiting resource that we need to keep our eye on, if we want to advance this area, is people.

If there were more people out there writing more grants, we would be funding more grants, and we would be spending more on human embryonic stem cell research and the field would be moving ahead faster.  Next slide.

So what's on the immediate research horizon?  Well, we clearly need a definition of standardized human ES cell culture conditions that will ultimately obviate the need for either mouse or human feeder cells.  These feeder cells are going to be an issue when it comes time for the FDA to consider cells for transplantation in clinical trials.

They are not a deal-breaker but they're an issue, and we'd be much better off if we could reassure the FDA about exactly what things these cells had seen, and that will come when standardized culture conditions are developed.

We need enabling tools and technologies to further characterize stem cells as they become specialized cells.

We need to define the molecular pathways that specify differentiation into different specialized cells.  Next slide.

We clearly need to know the factors, conditions, transcription factors and other molecule that are critical for long-term survival and function of transplanted cells in a host, and of course understanding control of cell division for all the reasons that I mentioned before, which are going to be absolutely essential to expand the cells, to get them in numbers that are useful for transplantation, but must be tightly regulated after transplantation has taken place.  Next slide.

This is the one slide that you need to remember.  Everything about human embryonic stem cells and other types of stem cells is attempted to be captured on the NIH stem cell Web site.  We scour the literature every week for new papers and abstract those papers and put references in our science advances section, all the funding opportunities at NIH are listed here, as well as a stem cell primer, a short version and a longer version, for people to learn more about these remarkable cells.

And I would encourage you to remember, if you remember anything from this talk, remember stem cell.nih.gov.  Because you can learn a lot from this Web site and I encourage you to hit it, and when you find it deficient, I encourage you to send me e-mail.  We will do whatever we can to try to make it the resource that we want it to be for the public, the appropriators and the research community.  Next slide.

These are just a list of contacts at each of the institutes for stem cell work.  You don't need to scribble this down, you can find it on the Web site.  This is the person you call, if you're interested in developing a research grant with one of the NIH institutes.  Next slide.

This is the funding opportunities part of the Web site, just what it looks like.  Again, don't need to scribble it down.  You can get there through stem cells.nih.gov.  Next slide.

And there's, just to reiterate it one more time, they say if you want people to remember something you should hit it over and over again.  stemcell.nih.gov.  Next slide.

And that's all I have to share with you today.  I have a few minutes to answer some questions and I'll do the best I can to do that.

QUESTION:  I'd like to start off with a quick question.  In a number of the slides you listed a lot of the programs that the NIH is funding.  Some of those programs have been talked about for quite some years and they still haven't gotten off the ground, and realistically, the financial commitment to this is quite small.  We're talking $24 million for the entire program.

Considering that California is putting a billion dollars into this on a yearly basis, and New Jersey $500 million, how does one measure the commitment of the government to actually go forward on these things, considering the timeframe it's taken has been so long, and the dollar commitment is so minimal.

DR. BATTEY:  Well, we first began investing in human embryonic stem cell research in 2002.  So the timeframe has been three years, just to be factual about it, and in activities that are sponsored by the government three years it not a lotta time.

I mean the government is sort a like the Queen Mary, okay, it doesn't turn very quickly, and you are right in pointing out that we are by no means the nimblest funding agency or source in the world.

We are, however, the biggest funding source for biomedical research in the world.  The NIH budget this fiscal year is somewhere around $28 billion and there's no larger source of funds anywhere on the planet for biomedical research.

We support, at NIH, roughly 50,000 grants and contracts with members of academia and the biotechnology sector.

So what I would offer is the statement, and which is a factual statement, that there is no cap on the amount of money we are prepared to spend.  We are limited, right now, by the receipt of investigator-initiated grant applications that pass the mettle of peer review.

Now how will NIH interface its efforts with efforts in California and other places?  I think we will hope to synergize with state- supported-funding efforts.  We hope the states will do things that we cannot do, things that are not eligible for federal funding but the scientific community knows needs to be done.

My hope, as we move forward, is that we're not looking at a competitive environment but we're looking at a collaborative and cooperative environment for stem cell research in this country and I'm delighted that these efforts in the states are underway.

Yes?

QUESTION:  [inaudible].

DR. BATTEY:  I make that statement because the phase of research we're at right now is the basic phase, where the basic mechanisms of differentiation, development, all of the challenges that I listed before, they can all be embraced with the 22 cell lines that are currently on the registry.  Those studies can be done.  Are the twenty-two sufficient to take us into clinical trials?  Are they sufficient to realize the full clinical potential of human embryonic stem cells?  I don't know the answer to that question and there's good reason for questioning whether or not that is the case.

Yes?

QUESTION:  [inaudible].

DR. BATTEY:  I don't know the answer to that question.  I can tell you that the pharmaceutical industry is quite interested in sources of specialized peer populations of human cells on which to test their drugs for efficacy and toxicity.  I would guess that using differentiated versions of cells would be less expensive than some of the animal models that they currently use for these testing strategies but I don't work in big pharma, so I'm really "talking outta school" here.  I don't know the answer to that question.

QUESTION:  [inaudible].

DR. BATTEY:  I don't know the answer to that question but a substantial fraction of it.  If it's typical of an NIH Institutes portfolio, roughly 40 percent of it would be invested in clinical activities.

Yes?

QUESTION:  Dr. Battey, do you see the trend of increasing funds going to embryonic stem cell research continuing?  And without looking at it, a lot of dollars in absolute figures, but that is a significant increase, a 20 percent increase from 02 to 03.  Do you see that continuing?

DR. BATTEY:  I hope it continues.  You know, I embarked on another experiment when I became the director of the Deafness Institute in 1998.  There was an enormous research opportunity in my field to clone the genes that underlie hereditary deafness and the research community was not reaching out to grab that opportunity, and so we build a laboratory in our intramural program to jump-start that activity, to look at families and to collect those families and phenotype them, and make those families available to the community.

And you know, at first it was pretty slow going because post-docs would have to come out of this lab and then go, start their own labs, write their own grants, and get going, and it took a while.

Now I have a portfolio of something like $20 million in grants to study the genes that underlie hereditary deafness.  So, you know, it takes a while to launch a new field.  People have to be trained.  They're not necessarily out there, ready to go, and I think part of what you're seeing here, certainly there is a chilling effect placed upon the community by the president's policy.  I will not deny that.  But part of it is just the growing pains of a new field of research and I think it's important to keep that in mind.

I can answer one more and then I gotta go.  Yes?

QUESTION:  [inaudible].

DR. BATTEY:  I didn't say it was a problem.  I said it was a rate-limiting step.

QUESTION:  [inaudible].

DR. BATTEY:  I hope that this encourages more young people to come into the field.  I hope the net effect isn't that the few labs that are already funded end up with a boatload more funds.  I hope that instead, the effect is that the field grows and it grows at the grassroots level.  But I will not be the person making the decision about how the money gets spent in the states.  I can tell you that if I were that person, a substantial fraction would be directed towards individuals who had never had a significant research grant before in their career.

Thank you very much for your attention.  I appreciate the opportunity to address you this morning.

MR. ENTINE:  Dr. Battey, thank you very much for coming here and being on our firing line and I appreciate it very, very much.

As part of the program we've invited representatives, people working in research and also in funding mechanisms in five of the states that have, I think are furthest along in developing initiatives for alternative funding of stem cell research.

I'd like to invite them to come up and join us on the panel right now.

As some of you who have been following the news probably know, there was a vicious blizzard in Boston today, so Charles Jennings is on his way here from Boston, he represents the Harvard Stem Cell Institute.  He will be here soon, along with a couple of other people who are on the afternoon program, all of whom couldn't come in last night but are gradually making their way through various airports, I understand, to be here for the program.

Rather than introduce everyone all at once, you won't remember who they are, I'll actually just introduce them before each person speaks, and then, when we're finished, we'll have an opportunity to have some dialogue among the participants themselves, if they have questions for each other, because many of them not have an opportunity to talk with each other in a situation such as this, and then of course we're going to open it up for questions from all of you.

I thought it was appropriate to start with David Gollaher, from California.  David was one of the point people charged with explaining Prop 71 to the public before the election last November.  Obviously he did a great job; very successful in getting that passed.  It was a controversial program.

All of us I think might have some questions about some aspects of it, which I think he's going to explain today and hopefully we'll have a fruitful discussion.

David is the president and CEO of the California Healthcare Institute which is a private nonprofit public policy research and advocacy organization.  It represents the bioscience and academic institutions in California.  He joined CHI when it was founded in 1993.  He was named CEO in 1995.  From 1991 to 1994, he served on the faculties of the University of California San Diego and San Diego State University's graduate school of public health.

Between 1985 and 1991, Mr. Gollaher was a vice president of Scripps Clinic and Research Foundation at which he was responsible for managed care, business development and corporate communications, and earlier in his career he had been at Phillips-Ramsey and Young & Rubicam.

Since 1997, he has served on the California state legislature's advisory commission on human cloning.

Mr. Gollaher.

MR. GOLLAHER:  Thank you.  What I'm going to do in the next few minutes is provide some historical context and background for what happened in California, and I think, in some ways, it's hard to appreciate, even if you were on the ground in California, how revolutionary this is.

I started my career as a historian of science at Harvard and if you think historically, there has never been anything like this with respect to the democratization of science, meaning that there's never been an enormous allocation of resources put toward a scientific program that was based on the direct expression of the will of the people that is like this.  It's simply unprecedented and it's a great social experiment, in addition to being a great scientific one, and I'd like to talk about some of the conditions and scope and scale of the popular and political movement this represents.

It really, in some sense, directly started in 1997 when Dolly, the sheep, was cloned, and everyone remembers that Dolly was on the evening news and on the covers of Time and Newsweek, and so forth, and there was a political crisis at the same time, that reverberated from Washington, from Scotland into California.

Part of why I think this hit California harder than many other places is the sheer magnitude of the biosciences industry in the state.

There are about 40 percent of all the biotechnology companies and jobs in the world in California, including many of the first generation companies.  For example, Genentech was the first biotech company in the world, it was founded in the middle 1970's.  The largest biotech company in the world is Amgen and Amgen is almost a nation-state, if you drive up to Thousand Oaks.

The California economy itself is the sixth largest industrial economy in the world, if California were a separate country.

And cloning provoked an immediate and strong reaction in the California legislature and some number of senators sat down and said, you know, we need to create a cloning ban so that people don't do things that are morally reprehensible, and at the same moment scientists stood up at Stanford and UC, and so forth, and said look, there's a lot if important research that will depend on what is called human cloning, and so we need to craft legislation that will enable research but at the same time banning cloning to make a baby, and that's exactly what happened, and we were able to sit down with Senator Pat Johnston at the time, in 1997, and to write the first cloning ban that also specifically allowed human cloning for research purposes.

As part of that new law, the legislature created a cloning commission and it had a dozen or 13 members on it, I was a member of it, and it was made up of some ethicists, some attorneys, some scientists, several distinguished scientists, and together, that commission met over the next five years, because when the law was put into effect it had a five year sunset, and the notion was that the cloning commission would come back to the legislature and report on advances in science, would also hold hearings around the state of California to see what citizens were thinking, and make a report on whether the law, as crafted, was working well or working poorly.

So in 2002, when the law sunset, the cloning commission came back, made a report and said there needs to be new legislation, one that would continue the ban on human reproductive cloning, but also legislation that would specifically enable cloning research, subject to certain guidelines, what you would think of as IRB type guidelines.

At the same time, a state senator stood up and said, you know, this is a really promising area of human life sciences and because of what's happening at the federal level, there's certainly no security that this will move forward through the NIH and through any major effort in federal funding, so shouldn't California put up some money?

Well, California was moving into the first, well, really, the middle phases of a serious budget crisis.  There wasn't any money available.  Nonetheless, the political discussion had already begun during this period and the notion was that perhaps the state, in the absence of federal money, should step into the breach, and the person who was mainly responsible for this is Senator Debra Ortiz, who's shown here.

Now in California, at this time, 2001-2002, you had strong democratic majorities in both sides of the legislature.  In fact, there was only one Republican who had won statewide office at this time.  So you had almost super majorities of fairly liberal Democrats.  Senator Ortiz, who's head of the senate health committee, steps up and says the state needs to fund stem cell research, and then, right in the middle of that conversation in 2003, as we moved forward, we have the California recall election which you already remember.

Now Governor Gray Davis, who had been reelected in 2002, signed the new cloning legislation, including an intent bill that would have provided some state money for human cloning, human embryonic stem cell research, and he did so almost explicitly as a gesture of defiance to Republicans, to the Bush administration, the limitations from the National Institutes of Health on stem cell research.

But by the fall of 2003, the political climate in California had completely changed, and no one, in the beginning of 2003, I can assure you, imagined that we would have a recall election that would amount to a popular revolution, that we would have a new governor, and the conditions of this are hard to recreate, if you weren't there at the time, and they're hard to remember, even if you were.

You had a governor who announced his intention to run for governor in a recall election on the Jay Leno show.  You had a governor who positioned himself as a man of the people, as someone who wanted to take government back via popular democracy in the face of entrenched politicians.  It's rhetoric I think we're all familiar with.

He also did something else, though, which obtains down to this day, which is that he threatened, at the time, and continues to threaten still, that if the legislature doesn't do what he views as the will of the people, he would use the voter initiative, which has a long and distinguished tradition in California, the ballot initiative, as a means of popular democracy to create state policy.

And in my view, the recall election itself was a kind of voter initiative in which the voters said we're so unhappy with current government, we're so unhappy with current leadership, that we'll blow it up and do something different, even if we're not quite sure what that is, and I think the governor's election is a product of that popular unrest and use of the ballot box as an expression of direct democracy to make change.

I think therefore, that the election of Arnold Schwarzenegger, that everything that came before, in some sense set the stage for Prop 71 in 2004.

In this case, the agent provocateur, the architect of Prop 71, is the individual here, Bob Klein, and Bob, whom I've known for some years, brought some interesting attributes to creating Prop 71 at this time.  For one thing, he was a passionate advocate involved in the Juvenile Diabetes Foundation.  He has a son who has type 1 diabetes.  He also is a wealthy individual who had been politically active for a number of years, particularly in creating bond funding for low-income housing in California.

So he'd had a lot of experience on not only how you put together a ballot initiative, but how you create the architecture for bond initiatives that could be effective in bringing public money to bear on public problems.

He also had a terrific network of people and was quite intelligent, reaching out, early on, to people like Irv Weisman at Stanford, Paul Berg, Nobel prize winning scientist at Stanford, who themselves became passionate advocates for stem cell research and were convinced that California could do something that would move the research forward in the face of what they viewed as federal lethargy.

So the team, in late 2003, that was put together to move Prop 71 forward, including these researchers, and then many others as the network filled.

[Start side 1B.]

MR. GOLLAHER [continuing]:  --the world's preeminent, high tech, life science venture capital firm.  They themselves donated millions of dollars, each, to help fund Prop 71.  At the same time, Bob was quite creative in reaching out to Hollywood, where there were a number of people, again, who had connections through patient groups, people like Michael J. Fox and Christopher Reeve, who had an explicit interest in this and believed that stem cells represented a wave of potential cures that were being politically blocked for political, ideological and religious reasons, and that through driving this initiative forward, there'd be a way to circumvent that.

And there were of course dozens, if not hundreds of patient groups who fell into line behind this political movement.

So if you look at--I'll go through this quickly--kind of the ledger of support and opposition to Prop 71 as it happened, the backers actually raised more than $26 million.  They probably ended up raising about $35 million altogether to promote the initiative.

Governor Schwarzenegger, who had been on the fence, and was seen as neutral and possibly even opposed, at the 11th hour came out in favor of Prop 71, and, in fact, one of my friends, and our former board chair at CHI, Ed Penhoet of whom I'll say something else in a minute, met with the governor shortly before he endorsed it, and the governor looked at him in the eye and he said, you know, the president I think was the greatest president in my experience was John Kennedy, and what made him so great was his vision, so that during the dark days of the Cold War and after the Bay of Pigs and all of that, he said in ten years we'll put a man on the moon, and he had that idealism, and it was the idealism that Americans responded to.  I think that stem cells, bioscience, biotechnology, California has global leadership in this and we need to continue our leadership.  I'm going to support Prop 71.

And other people.  Nancy Reagan, George Shultz, Christopher Reeve made a commercial that was shown widely in California, shortly before he died.  Of course John Kerry, and ultimately 59 percent of voters supported Prop 71.  On the other side, there was only about $400,000 raised in opposition.

The people who publicly opposed Prop 71, Tom McClintock, who had unsuccessfully run for governor, a conservative Republican, Catholic bishops, Mel Gibson, President Bush, 41 percent of voters, and if you looked at the analysis of the election, the split, Kerry-Bush, was about the same as the split, Prop 71 against.

One of the things that the governor remarked, he said, you know, I'm supporting this because there's a very ingenious funding mechanism.  It's not a billion dollars a year. It's a $3 billion bond that provides, in round numbers, about $300 million a year for ten years.  And so that's the order of magnitude of research funding that will be created out of this.

The way it works is that the state is authorized to sell $3 billion in general obligation bonds.  They can sell $350 million a year in these bonds, max, and here's the key that allowed the legislative analyst and many critics, including the governor, potential critics, including the governor, to swallow this during a time of enormous budget deficits in California.

By statute, there's no principal repayment for five years.  So during the early stages of the research, the interest is paid from bond sales.

And then subsequently, repayment of principal and interest from the general fund occurs after year five.  So years five through ten.  So you've got short-term relief and the critics of this said gee, you know, this is really--this is a trick.  So there's no short-term impact while the governor's in office but you have a huge bolus of principal and interest, potentially, that could bankrupt further an already bankrupt state, and it's just being delayed.  You know, it's kind of a cheat.

Well, it worked, and people overwhelmingly voted to create the new California Institute for Regenerative Medicine.  They did so on the basis, if you ask lay people about this, which we certainly did, and other pollsters did after the election.  People thought a couple of things.  They thought they were voting for important science, for sure.  They also thought that they were voting for science that would produce cures for important diseases, and the television commercials for Prop 71 focused on things like Parkinson's and Alzheimer's and heart disease and diabetes, diseases that people are pretty familiar with, and there's no question that this ballot initiative was represented as science that would lead to cures for these things.

Now it also created something of a camel with respect to the organization that has been put into place to administer the research funding.

The new Institute For Regenerative Medicine is the state foundation that will distribute the 300-plus million dollars a year and manage the process of doing so.  It has been characterized as kind of a mini NIH but it has governance.  It doesn't look anything like the NIH.

The 29 members of the independent citizens oversight committee have a chair who is Bob Klein, and there was controversy about the person who had sponsored and who had supported the initiative becoming its chair.  To some people this looked like self-dealing or self-serving.

It has a vice chair and the vice chair is Ed Penhoet.  Ed was co-founder of Chiron Corporation, one of the world's largest biotech companies, a molecular biologist who taught at UC-Berkeley, and is currently the head of the Gordon and Betty Moore Foundation, a large foundation created by the co-founder of Intel, that gives away about $250 million a year.

He happens to be a terrific person to help guide a large grant-making institution.

Now in order to gain political support for the proposition, the architects of Prop 71 created a whole set of roles for people from patient advocacy groups and academic institutions, and I'm not going to belabor this, but if you look down it, you'll see that there are, for example, five slots from the University of California branches that have medical schools.  There are four slots from California research institutions, and as it happens Salk, Cal Tech, and so forth, have those slots.  Cedar Sinai, and so forth.

Four from commercial firms, and this has been controversial, and then ten from patient groups.

So we have two sets of critical issues that are facing this ICOC, and I'll quickly run through them, but the first is building an organization and creating a peer review process that can not only be effective but be seen as impartial and providing the best science.

There's already legislative opposition.  This was created as a way to keep the legislature out of messing with the funding that the people are putting in but the legislature is unwilling to sit quietly by and watch hundreds of millions of dollars being distributed a year, without their influence, and there are already law suits, to try to intrude in various ways.

How intellectual property will be managed is fraught, and how technology will be transferred out to the private sector, so that things could potentially be made into products is a real problem too as well as conflict-of-interest policy.

Future issues that are facing, that I think are long term and deeply serious, are, first of all, that the institute needs to produce breakthrough science; never easy.

The institute also needs to educate the public about its progress, and imagine, if we get six or seven years downstream and there are no cures at all, but perhaps very good science at the basic level, that's moving forward, how does the institute explain to the public the lack of cures but scientific progress that may be complex?  In other words, managing the expectations of the public, the political world and the press.

Handling of moral and ethical issues is just a perennial in this area and protecting the larger biosciences interest in California and their funding, so that, for example, in the appropriations process, appropriators don't say, well, look, you California institutions are already getting 300 million a year.  We can cut you back here in the federal process.

So there's lots of risk, lots of opportunity, enormous complex, and an enormous sense of excitement in California about Prop 71.

Thanks.

MR. ENTINE:  David, thank you very much.  We're going to hold questions for these gentlemen until after everyone has spoken, so we'll just move on to the next presentation.

John Gearhart, as you've heard, is one of the pioneers of stem cell research in the world.  He is the C. Michael Armstrong professor of medicine at the Institute of Cell Engineering at Johns Hopkins University, a professor of gynecology and obstetrics, physiology and comparative medicine at Johns Hopkins University school of medicine, and a professor of biochemistry and molecular biology at the Johns Hopkins University Bloomberg School of Public Health.

A leading scientist in the field of human genetic engineering of cells, Dr. Gearhart's work has focused on the development and use of human reproductive technologies.  His research on the isolation and study of human embryonic stem cells has paved the way for the development of tissue transplantation therapies for degenerative diseases and injuries such as diabetes.

Dr. Gearhart.

DR. GEARHART:  My charge today is to talk about what's happening in the state of Maryland and I think that many of you are probably local, and you can read about this every day, it's an ongoing process.

We've included in your folder the current bills that are being considered in the state of Maryland and I want to bring you up to speed a little bit on where that legislation is.

For the past several years, bills have been introduced into the senate and house of Maryland, both pro and con stem cell research.

It's been an interesting evolutionary process.  The first bills, that were submitted several years ago, made it a criminal offense for anyone to be in possession of human fetal tissue.  Needless to say, they didn't exempt pregnant women, and as this has moved forward, I mean obviously the degree of sophisticated has made it a good deal better.

At any rate, this particular session, in Maryland it's important for you to recognize that the legislative arm only meets for about three months, January through early April, and so anything that would hold up other kinds of legislation is really moved out of the way, so a filibuster is very effective in a state, for example.

Anyway, there are two bills that are really now being considered.  One is called the Maryland Stem Cell Research Act of 2005, and in the state of Maryland, almost all bills are submitted to the house and the senate in identical fashion, identical wording.

In this particular bill, stem cell research is endorsed, and it mandates that the governor spend $25 million a year on stem cell research, and it's important to point out that it's all stem cell research, regardless of the source of the stem cells, be they adult tissues or embryonic.

It also includes this controversial area of stem cell derived through somatic cell nuclear transfer.

The mechanism for the oversight, the guidelines, the review of grants and loans is proposed in the bill. The money is to come from the tobacco restitution fund, which was the major agreement that came out of the tobacco settlement in 1998.

This bill would also make it a crime to profit from selling embryos, punishment by three years in prison and a $50,000 fine, and also, anyone who attempts cloning of human beings would face ten years in prison or a $200,000 fine, or both.

Since the bill was submitted, there were amendments.  These are not available publicly at this point but it's very important to point out that they removed stem cell sources from somatic cell nuclear transfer from the bill.

So effectively, the bill would permit stem cell research of all kinds, except those derived following a somatic cell nuclear transfer.

Another bill was introduced entitled the Human Cloning Prohibition Act of 2005.  This bill would ban all types of human cloning, including techniques to extract stem cells from an embryo and grow them.  The crime would be a felony, punishable, up to ten years in prison or $100,000 fine, or both, and civil penalties would start at one million from anyone who has a financial gain in any of this way.

There was a third bill introduced that was quickly withdrawn, promoting $25 million funding for only adult sources of stem cells.

Last week, Wednesday and Thursday, the public hearings occurred on both of these bills.  Of course this brought out the best in everyone.  There were hundreds of people there to testify, both pro and con.

It is important to comment on Governor Ehrlich's position on stem cell research and on these bills.  When asked about stem cell research, he refers everyone to his position when he was a representative in the U.S. Congress in 2001, where he strongly endorsed President Bush's position on stem cell research, which was that we had appropriate lines available and you didn't need to generate any more, and obviously cloning was off the table.

But we find out that his budget secretary has opposed the bill, and this gets into another issue of financial priorities within a state, and this is what the basis of that opposition came from.

The governor appears to be quite sympathetic to the needs of the biotech industry.  In Maryland, for those who follow this, apparently Maryland slipped from third on the list to fourth on the list, but, clearly, in comparison to California, it's very far down.  North Carolina has slipped into number three.

What is the governor's position overall?  His official position is wait and see till the bills come to his desk.  In fact in the Sun papers this morning, in Baltimore, there was a lead editorial on encouraging the governor to take a position.  The paper supports the bills on stem cell research but, on the other hand, it was encouraging Ehrlich to come out with an official position.

Through his spokesperson, we get quotes, that he feels that this is a Federal Government venue, not a state venue, and that the president doesn't want, wouldn't want to do something like this.  So it's clear, apparently, where his position is.

What is the status of the bills?  What's the outlook of any of these?  Well, it's doubtful I think that they'll probably ever get out of the committees in which they now sit in this session, and why I would say this is just that when you listen to the arguments, just about stem cell research in general, when you consider the financial needs of Maryland, you look at estimates of the budget deficit of $400- to $700 million, depending on who you read, and clearly, the political leaders in both the house and the senate, in addition to the governor, have other priorities for the money at this point.

So I think that's important to keep in mind.

Another issue which is unresolved, and an important one that has been made, is where would this investment go and how much of a return would the state get on it?  And this brings up all of the issues that I think were nicely covered in a recent article by Ken Wyland [ph] in Nature Biotechnology, about where does a state really invest in this kind of technology?  Is it through academic institutions?  Is it through propositions?  Legislation?  Where do they put their money?

And I think this was well representative.  For those of you who haven't seen that article, it's quite good.

Now two other things have happened in Maryland which I think is extremely important.

The first, and I've included this in your packet as well, was somewhat of an unexpected op-ed piece by the president of Johns Hopkins University.  I urge you to read it.  He refers to the state initiatives in scientific research as scientific tourism, one that shouldn't be supported.  I won't say anything beyond that.

And the second was the editorial yesterday in the Washington Post, and I mention these two papers because they play to the audience, or to the local Maryland--Annapolis isn't very far from here--in which they too don't recommend funding by states into such a sliver or small area of research activity.  So this is where we are at this point in time.

MR. ENTINE:  Thank you very much, John.

Why don't we actually take a break for a few minutes right now.  I actually just heard from Charles Jennings who is in the air as we speak and hopes to be here as well.  So this is an opportune time.  Why don't we take a break and we'll resume the panel in about ten minutes.  Thank you.

[Break.]

MR. ENTINE:  I'd like to introduce Carl Gulbrandsen.  He is the managing director of the Wisconsin Alumni Research Foundation, whose name is WARF.  He works very closely with James Thompson, who is also, along with many of the people who are attending this and presenting here today, among the leading researchers, one of the leading researchers in stem cell research.  Dr. Gulbrandsen has been with WARP, the patent management organization for the University of Wisconsin-Madison, since 1997.

As managing director, he created and is director of the nonprofit subsidiary, WiCell Research Institute, whose mission is to support human embryonic stem cell research at the University of Wisconsin-Madison, and to distribute human embryonic stem cells to researchers all over the world.

For many years, Mr. Gulbrandsen has practiced law in the private sector, concentrating on international property with a specialty in patent prosecution and litigation.

He is an adjunct professor in the department of physiology at the University of Wisconsin and is on the faculty of the masters of biotechnology program in the department of physiology.  He's also a lecturer in patent law at the University of Wisconsin law school.  This very eclectic background I think has come in handy in dealing with stem cell research.

Carl.

DR. GULBRANDSEN:  Sorry.  I said I'm very happy to be here and talk about stem cell research in Wisconsin.

In order to understand stem cell research in Wisconsin, I think you need to understand a little bit about the Wisconsin Alumni Research Foundation.  I always start with WARF's mission, which is very simple, and that's to support research at the University of Wisconsin-Madison.

We do it two ways, by moving inventions from the lab bench to the marketplace and hopefully bringing dollars back to support research at Wisconsin, and also by investing.

We were established in 1925, so we're now 80 years old.  We are a tax-exempt, not-for-profit institution.  We're technically what's called a supporting organization and the only organization that we support is University of Wisconsin-Madison.

We are the exclusive patent management organization for the University of Wisconsin-Madison, and we have a $1.4 billion endowment that funds our programs and allows us to do our work without costing the state of the University of Wisconsin anything.

At the end of the year we take what we've made off of licensing and what we've made off of our endowment and we give an unrestricted gift to the university for research purposes.

I might add that next week WARF will also receive the national medical of technology from the President of the United States.  It's the highest honor that can be given to an organization for innovation in technology.

In 1998, James Thompson, actually in November of 1998, James Thompson published in Science magazine, an article announcing that he had successfully cultured human embryonic stem cells.

Shortly after that, WARF established WiCell Research Institute.  WiCell, as was stated, has a few functions, namely to conduct research on human embryonic stem cells, to distribute human embryonic stem cells to researchers around the world, and to train embryonic stem cell researchers.

We have five of the approved stem cell lines.  We have distributed human embryonic stem cells to over 200 research groups and we've provided training to over 150 researchers worldwide.  We have a monthly short course where researchers come in.  This is totally sponsored by private dollars.  It's not sponsored by the Federal Government, but on a monthly basis, about a dozen researchers come in and have hands-on work with the stem cells, to learn how to culture and maintain the stem cells.

It's interesting to understand why WiCell was founded.  First of all, you have to recognize that Thompson's work was done, obviously before the president made his decision, August 9th, 2001, and WiCell was founded and started to distribute stem cells before President Bush made his August 9th decision.

WiCell was founded because at the time that Thompson did his work and was trying to conduct his research, there was a prohibition against using federal dollars for research with human embryonic stem cells, and at Madison, Wisconsin, the research funding at the University of Wisconsin is pervasive.  There's literally no laboratory at the university that does not have federal dollars in that laboratory and the university felt very uncomfortable about that research being conducted on campus.

We in fact had the instance where a laboratory at, I think the University of California-San Francisco, was in fact shut down by the NIH because of indirect funding that went into the heat and lights of the building in a laboratory that was doing human embryonic stem cell research.  That was in Dr. Peterson's laboratory.

And so they forced the university to close down that laboratory and, ultimately, Dr. Peterson left the United States and moved to England.  Now whether it was reason or other reasons, we did lose a good scientist.

So the University of Wisconsin-Madison was very sensitive about this issue of conducting research on campus.  There was a federal prohibition in what the framework or what the boundaries of that prohibition were.  We were a little bit unclear and it made the situation nervous.  So they asked the Wisconsin Alumni Research Foundation if we wouldn't set up a private laboratory and allow this research to be moved off campus.

And so that was done, and with the building of WiCell, Dr. Thompson had two duplicate laboratories.  One laboratory on campus, where he conducted research on primate embryonic stem cells, that is, the Rhesus monkey embryonic stem cells that he had successfully cultured a couple years prior to his announcement of the human embryonic stem cells.

And then a laboratory off campus, which was a duplicate laboratory where he could conduct research on the human embryonic stem cells.

Today, since the president's decision in 2001, virtually all the research that is done on stem cell lines that are eligible for federal funding can be done at the university as well as at WiCell.  But WiCell has continued as an independent privately-funded laboratory because the university is worried about research using newly-derived lines on campus, again, where there's pervasive federal funding, and certainly they are not interested in doing research, the derivation in new stem cell lines on campus.

So those two activities, research using newly-derived lines, and derivation of new stem cell lines, will certainly be done at WiCell.

There's another reason why we keep the laboratories distinct and separate, and that is because Wisconsin is what we call a precarious political environment for human embryonic stem cell research.

We have a governor who is very friendly to human embryonic stem cell research and we have a legislature that is very unfriendly.  The legislature, as a matter of fact, is predominantly pro life, and in about every legislative session we are lobbying to keep our scientists out of jail and keep the laboratory from being shut down.

Presently, at the University of Wisconsin-Madison, there are over 50 researchers doing research in all, most areas of human embryonic stem cell research.  This includes the researchers at WiCell.  The research includes understanding the basic biology of human embryonic stem cells.

There was a paper published just a few weeks ago by Dr. Thompson and Dr. Ren Hee Zu [ph] of WiCell Research Institute, announcing a new media that avoids the infamous mouse feeder cells, and then I see that just yesterday, there was another announcement by scientists from AZT in Boston, announcing that they've been able to derive human embryonic stem cells on a media free of most feeder cells.  So we're making progress in that area.

Then there's also lineage research going on at both, on campus and at WiCell, on the lineages that are derived from human embryonic stem cells.

WARF is the owner of two basis patents covering the human embryonic stem cells.  We have a number of other patents and patent applications pertaining to cell lineages and uses of human embryonic stem cells.

And if you look at the patent world, there are over a hundred patents that pertain to research involving human embryonic stem cells owned by both universities and private companies.  So it is a veritable landmine of intellectual property, if you want to work and do business in this area.

WARF has widely licensed its stem cell patents.  As I've said, we've distributed our stem cells to over 200 research groups and when we do that they get a limited research license to conduct research using the embryonic stem cells.  That license is cost-free in most cases.

With respect to commercial groups, of course they have to pay money to use our license.

The principal commercial licensee, up until recently, has been Jaron Corporation, which helped fund the original derivation and Jaron has some limited exclusive rights in this area.  But all other rights, commercially, have been licensed, to date, on a nonexclusive basis.

California initiative.  Certainly all of us were watching it with great interest and we look at it from our vantage point as a glass kind of half full.  Obviously what is going on in California is going to significantly increase the licensing opportunities for the Wisconsin Alumni Research Foundation and we hope to bring some of those dollars back to Wisconsin.

In fact I had dinner with Mr. Klein one night and I said I thought a 30 percent royalty on California would be just fine, you can send a billion dollars to Wisconsin.  But he didn't seem to agree with that notion.

The California initiative also spurred the governor of Wisconsin to announce a three-quarter of a billion dollar program for research that would include human embryonic stem cells.

This would be a ten year program.  It includes both bricks and mortar as well as funding.  The principal part of it is about a $370 million research facility at Wisconsin called the Institute For Discovery which includes some stem cell research but certainly would be much broader than that.

I should just say that the other challenge of the California initiative for us, already we're seeing the effects, is to retain and attract key faculty.  It definitely is going to raise the cost of doing research in Wisconsin.

The governor's initiative with respect to, in response to the California initiative, as I indicated, includes a key facility in Wisconsin called the Institute For Discovery.  This would be a flexible multidisciplinary space.

Originally, this facility was to include space for WiCell Research Institute and that part of the space would have been privately funded.

But, again, because of the political environment in Wisconsin, the developers decided that we better move that facility from this complex.  So that's out of the plans right now and WiCell continues on a separate course.

And that's what life is like in Wisconsin today.  Thanks.

MR. ENTINE:  Thank you very much, Carl.

We'll jump now to Wise Young from New Jersey.  Wise Young is a neuroscientist.  He's the founding director of the W.M. Keck Center for Collaborative Neuroscience and chair of the department of cell biology and neuroscience at Rutgers University.

Beginning in 1984, Dr. Young served as director of neurosurgery research at NYU, and in 1997, he was recruited to establish and direct the world class center that now exists, the Collaborative Neuroscience at Rutgers.  Dr. Young was part of a 1990 team that developed the first effective therapy for spinal cord research and he later formed the first consortium funded by the NIH to test promising therapies and helped establish several widely-accepted clinical outcome measures in spinal cord injury research.

Dr. Young founded and served as editor in chief of the Journal of Neurotrauma.  He organized the national and international neurotrauma societies and has served on advisory committees for the NIH, the National Academy of Sciences, and the National Institute of Child Health and Human Development.

Dr. Young.

DR. YOUNG:  Thank you, Jon.

The speakers before me really summarized the federal situation very well, and I wanted to do more science than politics, so let me just try to cover New Jersey in 30 seconds and then go on to where I think science should effect or should play a role in federal policy.

New Jersey passed a bill in January of 2004 to allow all kinds of stem cell research.  Jim McGreevy signed this bill, and shortly after that bill, I wrote a letter to Governor McGreevy saying that a lot of people had put political capital into the passage of this bill.  It was a hard-fought bill; in the assembly it passed by one vote.

And so Governor McGreevy decided, in February, to fund, for the first time--I think this is even before California--to fund stem cell research in the state, and he committed $6.5 million and shortly thereafter increased this to 9.5, and then when acting-Governor Cody came on board he was one of the leaders of the stem cell bill in the senate, in New Jersey.  He committed himself to funding $150 million in 05.  This is already-committed money.  This will build and equip the stem cell research institute of New Jersey, and he has proposed a $230 million bond that will be voted on in the November ballot by the people of New Jersey, and the goal there is to provide $30 million per year, over a seven year period, to fund the stem cell activities in New Jersey.

So the latest polls in New Jersey indicate 70 percent support by the public for stem cell research in the state.  There is widespread concern that this amount of spending is going to aggravate an already very, very serious budget deficit of $4 billion.  Your Maryland deficit is nothing compared to ours.

We have a $4 billion deficit.  Despite that, the commitment has been made by the governor and I think there will be--it's by no means a "done deal" but the 150 million is committed and I think there will be something on the ballot in November.  Okay.

[Start next tape.]

DR. YOUNG:  [in progress] unintended consequences of this policy.  The first is that it has stalled embryonic stem cell research in the United States.  I think this is evident both from the amount of money being spent by NIH on embryonic stem cell research as well as from the number of publications that come out concerning embryonic stem cells from U.S. laboratories.

I think other countries have pulled ahead of the U.S. in all types of stem cell research, including umbilical cord blood and adult stem cell research.  This was really an unintended consequence, I think, of the policy that was announced in 2001.  And finally, I want to point out that this policy has not saved any embryos.

Now one of the surprising things that has happened in the last six months is that several states have now responded to the situation by passing laws to support stem cell research, and as you have already heard, California will be funding at least $300 million per year for ten years.  New Jersey has committed $150 million in 05 and $30 million per year for seven years.

Other states have proposed stem cell research funding, including Illinois, Pennsylvania, Washington, Wisconsin.  I list Maryland here because it's a proposal.  Minnesota has as well.  I believe that by 2006, state funding of stem cell research may exceed federal funding by an order of magnitude.

This is an unprecedented situation.  There has never been a situation where state funding has exceeded NIH funding of any given biomedical field, particularly one as important as stem cells.  But for state funding to exceed it by an order of magnitude is absolutely stunning.

So what are the consequences of such funding, state funding, and one of the things that Dr. Battey did not mention was that the current funding of NIH grants is less than 15 percent.  That means less than 15 percent of grants that you submit to NIH will be funded.

Given that situation, many scientists are looking at the states that have stem cell funding with a certain amount of longing, and many will be moving.  I believe Wisconsin is already counting the costs of retaining scientists.  I don't think--oh, and by the way, of course, what every legislature and governor is thinking is that pharmaceutical and biotechnology industries will concentrate on, in the states that are funding stem cell research, and people have talked about this race for stem cell research.

I want to point out that this trend is not good for the country or for stem cell research.  First of all, we're not utilizing all the talent of our scientists to solve this problem of stem cell research.  Now Dr. Battey did a wonderful job explaining all the things that we still need to do in stem cell research.  He named, literally, dozens and dozens of problems, hundred of problems, really important problems in stem cell research that we need to solve.

By the way, these were the same problems that we knew about in 1998.  We knew all these problems.  NIH failed to invest in this area, and by failure, I mean absolutely failed to invest.  It is absolutely shocking that the life science area of stem cell research has received a total of less than $250 million in 2004.  This is less than one percent of the NIH budget.  This is a technology that is widely acknowledged by a vast majority of scientists as being the most important advance in life sciences over the last ten years, that will have impact on virtually every disease that we can even think of.

Why are we investing only one percent of NIH into this?  Even those people who claim that umbilical cord blood and adult stem cells, bone marrow stem cells are curing diseases, it's inconceivable that we would be spending only $180 million on that kind of research.

I know many people who are not getting their umbilical cord blood or bone marrow stem cell research funded.

I served for many, many years on study sections and most recently on a council of NICHD.  I know that when NIH wants to fund something, they can.  They are not waiting around for people to send in grants.  They could have funded a clinical trial network for stem cells.  They could have funded centers of excellence back in 2001.

The center of excellence concept was announced 18 months ago.  They're still looking for proposals and trying to implement.  So I want to suggest here that NIH is not putting a high priority on this and they need to put a high priority on this.  The states have put a very high priority on this and they have put their money where their mouths are.

And what is happening here is, I don't think, good for this country.  I want to point out that in the national debate on stem cells, several major scientific advances have really been ignored, and I want to bring these up because I think they are relevant to some of the discussions.

I think all the discussion that has gone on to date have--you know--and all of you have heard the debate, the moral debate, and so forth.  One underlying assumption in this debate is that we're going to be collecting these cells forever, that somehow, the sources of these cells are important.  We're going to collect them from embryos, going to collect them from fetuses, we're going to collect them from umbilical cord, we're going to collect them from bone marrow.

The future of stem cell therapies will not come from collected primary sources.  It's going to come from produced sources.  We have to focus on making cells.  I want to point out that every cell source today is insufficient to meet the needs of people with diseases.  Imagine what would happen if, let's say two years from now, a study is published in France or Germany or China, that says a cell-based therapy, I don't care what kind it is, whether it's umbilical, bone marrow or embryonic, they say that they have a drug or a cell that improves Parkinson's disease.  Significantly improves Parkinson's disease.  But we currently don't have enough umbilical cord blood in the world to treat more than a couple hundred thousand people.

We don't have enough bone marrow stem cells to treat even the current people who need bone marrow stem cells.  We certainly don't have enough embryonic and we don't have enough fetal.

What is going to happen is that demand is going to vastly outstrip supply.  There's going to be less than one percent availability of cells to treat the people, of any significant disease.  What are we going to do?  Have a lottery?

That only the wealthy and the well-connected get the treatment?  I mean, this is a social and moral catastrophe that we need to address now and we need to start investing in, to ensure that when cell-based therapies do work, we have a sufficient supply to treat people who need it.  It's a moral catastrophe because as long as you don't have the cure, it's okay to let people die, but when you have a cure, it is very bad to let people die.  And we must address this problem now.

There's a lot of discussion about cloning, and even here, there was a discussion that, well, we need to have isogeneic completely compatible cells for transplantation.

I want to point out that we've transplanted cells and organs for decades without isogeneic sources.  We do this by matching HLA antigens.  We do this by selective immune suppression.  And the immune suppression will get much better and our matching of HLA antigens, and so forth, will get much better, and there's no reason why this source, this approach will not work for another ten or twenty years.

Some day, we might not need to have isogeneic sources, and yes, it would be nice to have isogeneic sources.  But I want to point out that isogeneic sources are not necessary for the present time, nor, in many cases, are they desirable.  You don't want isogeneic sources to treat genetic diseases.  You don't want isogeneic sources to treat autoimmune diseases, because you're then transplanting the cells with the same genetic problem back into the patient.

You want to transplant new cells with different genes, so that you eliminate the problem.

So this concept that we need to have cloning, we need to have isogeneic cells, I mean, it's nice that it's not necessary and it shouldn't be part of this debate.

Finally, everybody seems to think about Dolly as being the "be all and end all" of cloning.  They use somatic cell nuclear transfer.  Most of these laboratories today that are doing cloning of embryonic cells are not even using somatic cell nuclear transfer.  They're using a technique called fusion.

So, you know, a lot of the legislative debates, and so forth, just aren't up there in terms of the science, and it's really unfortunate.

Finally, there's been a lot of talk about tumor risk, and so forth, associated with embryonic stem cells, and implying that there is no risk in umbilical cord blood or bone marrow stem cells.  This is not true.  I won't show you this today.  I do have the slide here, but, you know, three months ago we were very surprised to put some umbilical cord blood cells into an animal and found a big tumor in the spinal cord.  Umbilical cord blood cells and all cells that you grow for any period of time do pose a risk of malignant transformation.  This is something that is a matter of course when you're dealing with cells and you always have to screen and we should be complacent and say that umbilical cord blood or any source of cells would be absolutely safe.

We have to do the studies that are necessary to ensure safety and, and I want to point out one other thing, and that is everybody talks about pleurae potency as the greatest thing in the world and that is a cell can make any different kinds of cells.  But, in reality, the entire direction of therapy today is to predifferentiate the cells.

You don't want to put a pleurae potent cell into the spinal cord because you don't know what it will turn out to be.  The direction that people are heading towards is making more and more predictable cells that will respond the way you would like them to respond, and put them in the spinal cord.  So I want to conclude here, that the current federal stem cell policy has failed because it has held back stem cell research.  America is losing its leadership role in biomedical research and it has not saved any embryos.

States have now responded by funding stem cell research.  It will concentrate stem cell science in a few states.  I don't think that this is good for the country.  The current stem cell debate ignores many scientific advances.  They are not addressing serious scientific problems.

And finally, no current cell source is sufficient to treat millions of people.  We're facing a moral catastrophe here.  Thanks.

MR. ENTINE:  Thank you very much.  Just one quick question.  Could you explain what fusion is, because if it's not being discussed politically--or any of you can address that. I think it'd be helpful for all of us to understand why that's not being discussed and what it actually represents.

DR. YOUNG: I can make a quick stab and I would like John to finish on that.

As it turns out, stem cells like to fuse with other cells, and furthermore, when you're cloning cells, you're no longer taking a nucleus and injecting it into another one.  You're taking a cell and you're putting, bumping them against each other and passing a little bit of current and the cells fuse with each other.

So technically it's not nuclear cell transfer.  But there is now a lot of evidence suggesting that stem cells like to fuse with other cells and when they fuse with other cells a certain number of diffused cells become stem cells themselves.  And this is a very interesting development because it portends a day when we will be able to make stem cells out of any cell in your body.

MR. GEARHART:  I agree.  One word of caution, though.  The term somatic cell nuclear transfer, to me, really covers any of the technologies in which you are introducing a nucleus into a nucleated egg, whether it is by the old method of picking up a nucleus or picking up a cell, and when you pick it up you destroy the cell, the cell membrane, but you have a nucleus in your pipette and you introduce it into the nucleated egg.

That was technically the way that it was done.  Newer technology now means that you take the egg cell in which you've removed the DNA, place next to it a somatic cell, as Wise has said, and you pass a current through it, and the cell membranes essentially fuse and the nucleus is released into the cytoplasm.

MR. ENTINE:  Thank you very much.

Do any of you have questions for each other?  Having heard some of your presentations, I'm--at this point.  Okay.  We'll move on to questions from you, and as we move along from--

QUESTION:  I have a question for David.  When are the checks going to be written?

MR. GOLLAHER:  Sir, that's a great question and there are two aspects to it.  One is that the leadership of the Institute For Regenerative Medicine wanted to review grants and begin to make grants by midyear.  So they're really looking at May-June.  One thing that's happening is there are two law suits that have gone directly to the California supreme court to try to create injunctions that would prevent funding.

These are from expected and long-term opponents of cloning and stem cell research, and were expected.  So we'll have to see what the supreme court says.

There's another attack which is from the legislature, and the legislature is trying to intervene in the governance of the institute and say we should have something to say about how these monies are distributed.

The leadership of the institute thinks that the biggest problem, and perhaps the rate-limiting factor will be to put together the peer review groups that can vet the science and make certain that the early grants are of extremely high quality and create some momentum that the best science is being funded.

So it's a political problem, a legal problem, and they're looking at May, June.  Midsummer is probably more realistic.

MR. ENTINE:  Thank you.  When you ask your questions, by the way, if you could wait for the mike and also identify yourself beforehand.

I do have one question also for David.

I was wondering to what degree will the California infrastructure set up to do this research be duplicative of what could be done at the federal level and might be done at the various states.  How wasteful, from that perspective, if that's the way to look at this issue, would this research be?

MR. GOLLAHER:  I think there are two different aspects to that question.  One is what is the grant-making apparatus, including IRB type oversight of research projects?  In that sense, it is duplicative but--at this point potentially duplicative but duplicative of nothing because the research is not being reviewed and prosecuted at the NIH in the way that, you know, will be done in California.  Is there an opportunity for collaboration with other states?  Probably not, under the terms and conditions of the statute, because the research has to be largely focused in California and there are a whole bunch of protections, if you will, that try to ensure that taxpayers' money is used for an enterprise in California.

Nonetheless, a number of the best scientists are in places like Harvard and Hopkins, and so forth, and will be consultants to the process.  So, you know, is this the most efficient way to do it?  No.  Would it be great if there was a federal policy in which this was coordinated nationwide?  Yes.

Is that likely to happen, given the political environment we currently face?  No.  So we're stuck with a less-than-ideal solution than the one that voters approved.

MR. ENTINE:  Carl, John, Wise, any observations from--

MR. GULBRANDSEN:  Well, I think the increased cost is significant and as I pointed out in my comments, at Wisconsin, we've had to establish duplicate facilities, and this gets to be extremely expensive.  The facility, for instance, to derive new stem cell lines, you're talking about building clean rooms that essentially already exist in the in vitro fertilization clinic at a hospital.

But since it's university support, state support, and has some federal dollars, they're nervous about doing it there, and probably can't do it there.  So that's a tremendous cost, not just duplicate facilities, but in many cases duplicate staffs.

So, you know, it's, frankly, I think, just a waste of money.

MR. GEARHART:  I'd like to make two comments.  One of the criticisms that have been leveled for the review process of scientific grants at the state level is not only the issue of duplication but the rigor with which it would be done, and would it really represent cutting-edge kinds of review?  With the Maryland legislation, or the process, we had indicated that we would rely on external reviewers from the state, so there wouldn't be any issue of conflict.

But, you know, you've got to keep in mind something that Louis Pasteur had said a long time ago.  Now many of you don't even know who he is probably.  But the issue is that he promoted, very strongly, the idea that science knows no country, and now this is being reduced to science knows no state.  Okay.

And that we will be aware of what's going on in other states, we'll be relying on investigators from other states to help make those decisions, and I think that we could, as a network, go forward without doing a lot of duplication with respect to the research.  This is something the NIH, you know, can do in peer review.

But I think something else you have to keep in mind is that all review processes have to fund the best research.  It's the merit of the work that is critical and I think that this can be mounted at state levels.  So that's one point I wanted to make.  The second, with respect to cost among--if you reduce this down to state levels, and Carl had brought this up.  We are concerned, at Hopkins, about losing talent, and this is not a trivial issue.  To retain--everyone says good, young scientists.  I'm sometimes worried about we old good scientists.  Okay.  But it's the young scientists that really are vulnerable here, where you know, you give them start-up packages--well, we won't get into details.

But the issue is they are movable, they are much more movable, and when investigators from California come and talk to these--you know, you've got to pay attention because you're looking at not only this issue of the funding.  You're looking at an environment which is extremely supportive of what you're doing, and building a network to really move the work forward.

And this is what you would like as a scientist.  So there is this real concern.  So for us to retain these faculty, we've got to come up with new resources of money to make even a better offer to stay.  So indirectly, there's another issue here, that we can see.

MR.      :  Let me just make a brief comment to that and I think, in some ways, we've done, inadvertently have done the experiment before, and it has to do with what happened with recombinant DNA research in Europe from the 1970's forward, and those of you who know the story know that for largely political, to some degree religious and ideological reasons, European nations were quite slow to adopt genetic engineering technologies in comparison with the United States, and particularly California.

And today, you know, fast-forward 30 years, the United States has an incredible lead in biotechnology and Europe, more recently, has been struggling to catch up and finds itself quite far behind the curve.

Once you establish centers, they become more and more powerful if they're funded, and it's very hard to recapture, you know, the opportunity that's been lost, and so I agree with that.

DR. YOUNG:  I'd like to pose a, or describe a model that's different from the California one and that is the New Jersey model.

California is putting a big pot of money and they're going to distribute it amongst many institutions.  New Jersey has a much smaller pot of money but it's going to be concentrated in one place.  The Stem Cell Institute of New Jersey will be built in New Brunswick.  It will have about 12 investigators or twelve principle investigators there.  I'm the chair of the search committee for the new director of the center.  I'm also the chair of the scientific advisory board for the institute.

It's going to be modest fundings.  $30 million a year is not a huge amount of money but it's enough to do something with, it's enough to build a base with, and it's also enough to build partnerships with, and that's the concept here.

But even so, if you add it all up, it's $380 million, which is not change to sneeze at.

We are very interested in collaboration.  I've already been in discussion with Pennsylvania, Delaware, and even Maryland, concerning one aspect of the stem cell program that neither California nor New Jersey is actually going to be funding, and that is the clinical trials.

You know, $300 million a year is not enough to fund clinical trials.  Clinical trials have to be funded--each clinical trial costs, you know, 30-40 million dollars.  So the way to do that is through consortiums