Obama election no panacea for stem cell industry

Barack Obama has pledged to overturn that 2001 policy, which bans government funds for research that involves harvesting new stem cells. President Bush and a minority of Americans say the process is immoral because it destroys human embryos.

But even with the policy overturned, experts say struggling stem cell developers will face a new, equally daunting obstacle: an investment climate devastated by the financial crisis.

"The good news is there will finally be freedom to operate, the bad news is there will be no more venture capital, which is the real freedom," said Stephen Brozak, an analyst with WBB Securities.

Embryonic stem cells are early-stage cells capable of morphing into any of the more than 220 cell types in the human body. The Bush policy does not restrict research funding for stem cell lines created before 2001. However, only about 21 of those lines are available, most created in ways that preclude use in humans.

When scientists isolated the first stem cells from a human embryo in 1998, it was heralded as a breakthrough that eventually could cure diabetes, replace organs and repair spinal injuries. A decade later, the promise of stem cells remains just that--a promise.

No company has sought U.S. approval for a therapy using embryonic stem cells, and the $150 million "stem cell market" consists entirely of equipment used to study the technology, according to research firm TriMark Publications. Compared with the $300 billion U.S. drug market, stem cells are barely a blip on most investors' radar.

States and private universities have tried to fill the research funding gap. California, New York and New Jersey have pledged billions for stem cell research, but budget deficits have put much of that money at risk. Last year, New Jersey voters rejected $450 million for stem cell research grants.

Even at universities, scientists say funding restrictions have created layers of bureaucracy and duplicative spending. For example, Harvard's Stem Cell Institute buys two sets of equipment for scientists: one for federally funded research, and another for all other types of research.

"Most of our faculty here have multiple sources of funding: they have NIH grants and they have private foundation grants," said the institute's director Brock Reeve. "Keeping track of which equipment can be used for various projects is incredibly onerous."