Stem Cells and the Truth about Medical Innovation

Whatever one thinks of the ethics of using human embryos in medical research, the rhetoric around President Barack Obama's decision to expand federal funding for embryonic stem-cell science reveals a widespread misconception of how medical products are created.

Many of the same political leaders who are the strongest champions for federally funded research seek to impose myriad restrictions, regulations, and economic controls on the private companies that translate public science into practical medical innovations. As a result, while Mr. Obama's stem-cell decision only affects federal funding, and while more funding will mean more research, it's far from certain that this will hasten the realization of new medical products.

The achievements of the National Institutes of Health (NIH) are monumental. But its efforts only translate into practical benefits for patients if its scientific research can be turned into new medicines, something that's not part of the agency's mandate. By its own recent count, the NIH cites only 84 examples over the last 60 years where the agency--or academic institutions it supports--discovered, let alone developed, a new drug or biologic.

Making new medicines is the work of a robust private life-science industry. In the case of stem cells, there are more than 150 private companies trying to turn stem cells into new treatments. But almost all of the companies pursuing this sort of chancy science are small biotechnology companies--the kind that rely on private venture capital in order to fund their high-risk and expensive endeavors.

After Bill Clinton unveiled his proposal for nationalizing the health-insurance market in the 1990s (with similar limits on access to medical care as in the Obama plan), biotech venture capital fell by more than a third in a single year.

That capital may well start shifting to other enterprises as the Obama administration unveils policies that diminish the incentives to invest in new medical products. There's precedent for the availability of this sort of capital to turn on a proverbial dime. Shortly after President Bill Clinton unveiled his proposal for nationalizing the health-insurance market in the 1990s (with similar limits on access to medical care as in the Obama plan), biotech venture capital fell by more than a third in a single year, and the value of biotech stocks fell 40%. It took three years for the "Biocentury" stock index to recover. Not surprisingly, many companies went out of business.

Mr. Obama is giving those sources of capital plenty of reasons for new anxiety. Along with championing more funding for stem cells, he's issued a budget that advocates importation of drugs from countries with price controls (as a way to introduce those price restrictions into the U.S. market). He plans to give a Medicare agency that's short on clinical expertise the power to pay only for medical products that it "judges" to be the "least costly alternative" for treating a particular condition. He's also creating a new federal agency to make decisions about the comparative value of different medical products, with new biotech drugs at the top of the list.

These are just a few policies that have already spooked investors, leading to a significant drop in the share prices of many public health-care companies since Mr. Obama unveiled his budget proposals last month.

Even if private companies succeed in translating stem-cell science into new drug therapies, they still need to navigate the Food and Drug Administration (FDA), which has been coaxed by Congress in recent years to raise its regulatory hurdles to new products. The FDA has responded with aplomb, contemplating for stem-cell products some of its most stringent requirements, save perhaps those in place for gene therapies.

Sadly, such restrictions have all but shut down that entire category of research and development. At one scientific meeting that the FDA held to develop regulatory guidelines for embryonic stem cells, the agency suggested that the appropriate period for following people enrolled in clinical trials is "for the life of the patient"--a costly, if not unfeasible mandate.

The one biotech company in the U.S. with a clinical-stage, embryonic stem-cell product, Geron Inc., was kept at a standstill in "clinical hold" for eight months before the FDA allowed it to begin testing its therapy for spinal-cord injury. A trial with just 10 patients is now underway. The company submitted a record 22,500-page application just to ask for permission to start the small trial. Even then, it's only allowed to enroll about one patient per month in the study.

The FDA has reasonable worries, one of which is that the very properties that may allow stem cells to turn into mature human tissues could also enable them to turn into certain kinds of tumors. But regardless, the agency lacks a systematic way of evaluating these products. It's another example of how enthusiasm for public science funding, and stem cells in particular, has outpaced practical truths.

Mr. Obama lionizes federally funded research as paths to "cures," while his only policies aimed at the biotech industry are confined to strategies for cost control. Life-science investors are comfortable taking scientific risk, but what they can't calculate is the increasing political risk emanating from Washington. We could lose a generation of progress fast as private capital flows to less dicey endeavors.

Things for the biotech sector have gotten so bad that one senator is rumored to be shopping to the Treasury Department a TARP-like bailout for the biotechnology sector. But public funding doesn't efficiently discriminate winners from losers when it comes to drug programs. Political lobbying will trump science when it comes to investment decisions, a fact borne out by the shortcomings of the government's BioShield program, which was established in 2004 to protect against biological weapons and other threats.

The president's "American Recovery and Reinvestment Act" increases NIH funding by $10.4 billion (on top of its current $29 billion budget). But federal funding isn't a substitute--politically or in practical terms--for support of a vibrant private biotechnology industry. Rather, rich federal funding of basic science has been complementary to an exceptional private life-science sector. These two ingredients--public support for basic science and private medical enterprise--underpin one of our great industrial achievements.

Unveiling his stem-cell policy, Mr. Obama remarked that "Medical miracles do not happen simply by accident." They also, however, don't happen through federal funding alone. They require a thriving private-sector research enterprise. Pouring federal funds into basic research while at the same time blocking the path for its translation into human therapies is no way to advance medical innovation.

Scott Gottlieb, M.D., is a resident fellow at AEI.

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