[Update: 3:35 pm PT] Geron, for better or worse, has been the poster child for embryonic stem cell therapies for a decade. And now with a new CEO at the helm, that’s all in the past.

Menlo Park, CA-based Geron (NASDAQ: GERN) said today it is getting out of the business of developing stem cell therapies so that it can concentrate more on developing cancer drugs. As part of the decision, Geron is cutting 66 jobs, or about 38 percent of its workforce. It will now look to unload its stem cell therapies onto partners.

The decision was made to conserve cash, the company said. Geron had $180.3 million in cash and investments in the bank at the end of September, and it had a net loss of about $65 million in the first nine months of the year, according to its most recent quarterly report. Shares of the company dropped about 12 percent in after-hours trading, to $1.93, after the announcement.

“In the current environment of capital scarcity and uncertain economic conditions, we intend to focus our resources,” said Geron CEO John “Chip” Scarlett, in a statement.

Geron has seen some major changes this year, and getting out of stem cells is the biggest. Longtime CEO Thomas Okarma left the company in February, a few months after Geron’s long-delayed stem cell therapy for spinal cord injuries entered its first clinical trial. In May, Geron secured $25 million from the California Institute for Regenerative Medicine (CIRM), which was supposed to provide matching support to help Geron finance clinical trials of its experimental stem cell therapy.

But that deal came a few months before Scarlett was brought in at the end of September to be the new CEO. Geron now says it will focus its resources on imetelstat, its telomerase inhibitor for cancer, along with GRN1005, another cancer drug. The company said it plans to stop enrolling new patients in the clinical trial of stem cells for spinal cord injury, although it said it will continue to gather data on all the patients who have already enrolled.

[Updated comment from analyst] “Geron’s new CEO John Scarlett did not take long to make his presence felt,” said Cory Kasimov, an analyst with JP Morgan, in a note to clients. “After a little less than two months at the helm, he’s turning Geron into a more focused company. As enticing as the upside could have been for the stem cell therapies (and it’s undoubtedly what Geron is best known for), it was impractical for a public company of this size to commit so many resources to both cell therapy and oncology (which likely carries more near-term tangible value).”

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ViaCyte, a San Diego preclinical cell therapy company focused on diabetes, says today the company’s chief technology officer, Allan Robins, has been named acting CEO following the departure of chief executive John West, who resigned for personal reasons. The company, which is partly funded by the California Institute for Regenerative Medicine, also promoted Kevin D’Amour to chief scientific officer. The company says West will continue with the company as a consultant and board member. Meanwhile, ViaCyte’s board has begun the search for a new CEO.

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Geron is getting a big boost from the state of California stem cell agency to see if it can deliver the goods with an embryonic stem cell therapy for spinal cord injuries.

The Menlo Park, CA-based company (NASDAQ: GERN) said it has been awarded $25 million from the California Institute for Regenerative Medicine (CIRM) to support the first of three phases of clinical trials normally required by the FDA for approval of a new therapy. The award is structured so that the state will provide matching support along with Geron through the Phase 1 trial, and Geron said it is obligated to pay the state money back if its treatment is commercially successful.

The award from the state agency marks the first time it has made the leap from financing basic lab research to the more focused stage of product development in clinical trials. Robert Klein, the stem cell agency chairman, called it a “landmark step” in a statement. It’s also an important sign to many cash-strapped biotech companies, who are looking for alternatives to venture capital to help build value in their scientific programs. Geron, of course, isn’t the only biotech company with an eye toward product development that’s getting support from the state stem cell agency. A few notable awards have gone to San Diego-based ViaCyte, South San Francisco-based iPierian, and Richmond, CA-based Sangamo Biosciences (NASDAQ: SGMO).

You can read more of the follow-up on the state’s big show of support for Geron from the Los Angeles Times and the San Diego Union-Tribune.

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Stem cells captivated the broad public imagination more than a decade ago, and despite all the hyperbole about creating Lazarus-like regenerative medicines, nobody has built a powerhouse business on this technology. Now a little company in South San Francisco, iPierian has a vision for using stem cells in a way that may not generate magazine covers, but which could enable it to do a better job of discovering more conventional drugs.

That’s the idea anyway, and it’s being pushed by some big-name scientists and venture capitalists who are gathering today in San Francisco for an international stem cell meeting. The story actually began two companies. One, in Boston, was called Pierian, co-founded by George Daley, Doug Melton and Lee Rubin, a trio of stars from the Harvard Stem Cell Institute. The other, iZumi Bio, in Mountain View, CA, had the entrepreneurial leadership of Corey Goodman as chairman, and John Walker, a longtime director of stem cell pioneer Geron, as CEO. The merged operation boasts a blue chip crew of backers—Kleiner Perkins Caufield & Byers, Highland Capital, MPM Capital, and FinTech Global Capital, who have pumped in a combined $31.5 million.

Impressive as the names are, their ambition isn’t what most people think, to create some Lazarus-like regenerative medicine. It’s more about using the power of stem cells to discover new drugs, so that iPierian can find treatments that no one ever could before because they were constrained by limited tools. iPierian has set its sights from the start on neurodegenerative diseases that really have no good treatments—like Lou Gehrig’s disease, Huntington’s disease, and eventually Parkinson’s and Alzheimer’s. The cells, with all their talent to morph into any kind of adult cell scientists want, won’t get injected into the patient to replace missing or damaged tissue. Instead, they could help the scientists gather new insights into these intractable diseases, speed up the development process, and save time. Then iPierian will use all of this information to make conventional small molecule pills, or injectable protein drugs. If it is successful, the patients wouldn’t even know it was because of stem cells.

John Walker

“The long term perspective here is to be a drug company,” says Walker, the CEO, who previously ran a publicly traded drug company called Novacea. “We’ll be discovering therapeutics, based on cell reprogramming and differentiated cells.”

A lot, and I really mean a lot, needs to happen before iPierian gets to that point. But the company has made some intriguing progress to date. It has set a goal of creating an “industrialized” process of taking adult skin cells from a human, and re-programming them into what are called “induced pluripotent stem cells.” These cells, which are thought to have potential of embryonic cells to differentiate into all 200 cell types of the body, are then coaxed to differentiate into a certain adult cell of interest in the lab.

It’s no small thing to do this work on an industrial scale. iPierian estimates that more than a year ago, it cost about $30,000 to generate a single line of induced pluripotent stem cells (IPSCs). Scientists have not even shown they can make these cells differentiate into every kind of cell type, much less done it on a consistent, large scale. But iPierian has brought the cost down 15-fold in the past year alone, Walker says. It has 200 different “lines” of induced pluripotent stem cells from different individuals socked away in the freezer, from patients with neurodegenerative diseases like Spinal Muscular Atrophy, Huntington’s, Parkinson’s, Alzheimer’s, from prople with Type 2 diabetes, and cells from healthy relatives to use for comparison to better home in on what might be going awry.

The cells, iPierian hopes, will provide the basis for a new way of discovering drugs, which Big Pharma companies will pay big money for the right … Next Page »

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San Diego’s Novocell has received a disease team award totaling $20 million from the California Institute for Regenerative Medicine (CIRM) to fund work on its cell therapy for type 2 diabetes. The team includes scientists at the University of California, San Francisco, which will receive $2.8 million. Novocell’s research involves transforming embryonic stem cells into insulin-secreting beta cells that can be implanted into patients as an alternative to insulin injections. Novocell, a venture-backed company, told CIRM it would be ready to begin clinical trials in three years, but CIRM scientific reviewers said a more realistic estimate was four years.

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San Diego-based Novocell has nailed down a second important patent on a valuable type of cell derived from human embryonic stem cells, which could end up forcing a lot of researchers to license technology from the company on Torrey Pines Mesa.

The company is announcing today it has secured a U.S. patent that protects its invention for a method of using endoderm cells for research when derived from human embryonic stem cells. A couple of months earlier, Novocell nailed down protection for a composition of matter patent on endoderm cells, a type of cell with wide-ranging potential. Endoderm cells can become pancreatic cells for use in diabetes therapies, or be turned into other tissues that make up the lungs, intestines, liver, thymus, and thyroid.

“This meets a long-standing need of major pharmaceuticals for human cells,” said Novocell CEO John West, in a statement.

Patents are a sensitive subject in the field of stem cell research—just ask the Wisconsin Alumni Research Foundation, which has taken heat for what some scientists consider onerous licensing terms for the right to use human embryonic stem cells developed at the University of Wisconsin. Yet exactly how Novocell’s patents might translate into revenue for the company, which is still at the earliest stages of research and development of new therapies, is hard to tell. It stands to reason that collecting licensing fees on patents like these would be part of its revenue model, since Novocell is still at least a couple years away from the valuation-building stages of bringing its first stem cell therapy for diabetes into human clinical trials.

West, who joined as CEO just a month ago, told me in an interview shortly after he started that the strength of the company’s intellectual property is one of the things that attracted him to Novocell. He definitely gave it a close look, especially since he’s someone who could probably have his pick of a lot of jobs, after he sold his last company, Solexa, a maker of gene sequencing machines, to San Diego-based Illumina for more than $600 million in 2007.

“It’s similar to Solexa, in that it has very promising scientific breadth, and now the question is how you take it commercial,” West says. There are still big hurdles … Next Page »

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The governing board for the California Institute for Regenerative Medicine, the state stem cell agency, yesterday approved $67.7 million in funding for 15 research grants, including a $5.4 million grant to San Diego’s Novocell. The multi-year grant to Novocell will fund research that’s intended to find ways of identifying and separating stem cells that form a disorganized tissue amalgam known as a teratoma.

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Duane Roth, CEO of San Diego’s Connect (and an Xconomist), was elected today as vice-chair of the governing board of the California Institute for Regenerative Medicine, the state’s stem cell agency. He was nominated by Gov. Arnold Schwarzenegger, who cited Roth’s 30-year experience in San Diego’s biotech industry and at Connect, which promotes innovative technologies by helping San Diego entrepreneurs. The governing board voted to approve the creation of two vice chairs, and elected former state Sen. Art Torres, a cancer survivor and patient advocate, to serve as the other vice chair.

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[Updated at 2:30 pm with additional commentary. See details below]

After President Barack Obama signed a new executive order yesterday that clears the way to resume federal funding for stem cell research, we asked some local Xconomists and other biotech leaders for their reaction. The president’s order reversed eight years of federal funding restrictions imposed by President George W. Bush, who opposed embryonic stem cell research.

William Rastetter, co-founder and chairman, Apoptos

—The executive order will give U.S. researchers the same flexibility and latitude as other investigators outside of this country to research and develop stem cell therapies and cures for many life-threatening diseases. Certainly, given its potential, it must be ethical and correct to develop such therapies and cures with frozen embryos (from in vitro fertilization clinics) that otherwise would only be discarded. By not funding and doing embryonic stem cell research in this country we have only delayed the discovery of techniques for improving and extending human life.

Drew Senyei, managing director, Enterprise Partners Venture Capital

—This is the right track to separate science and the state, just like we have mostly with religion. We live in a pluralistic society and we have to honor all reasonable viewpoints while safe-guarding our humanity. Stem cells are just one manifestation of the state trying to control scientific discovery. We should let the data be our guide.

Duane Roth, CEO, San Diego Connect

—The President’s executive order on embryonic stem cell research is an important step in allowing research in this new and exciting technology to advance. The possibilities for this technology range from cures from some of the most devastating diseases to tissue regeneration to gene therapy. Advances in the field have exceeded my expectations, and the work done in California under the voter-approved Proposition 71 has placed California researchers at the very forefront globally. The Sanford Consortium for Regenerative Medicine is about to begin construction on a new state of the art building to house our local experts in stem cell science from the Burnham, Salk, Scripps, and UC San Diego. They are poised to be leaders in advancing the technology and will be in a perfect position to leverage additional federal funding through the National Institutes of Health.

Joe Panetta, president and CEO, Biocom

—President Obama’s decision to overturn the ban on funding stem cell research is a milestone for our industry. We can now move forward at an important time when the President and Congress have also chosen to increase the NIH research budget by an additional $10 billion over the next two years. We now have an opportunity to steer a good portion of these dollars to research involving embryonic stem cells. This decision will make us more competitive with the rest of the world, it will encourage American scientists to remain in the United States to do their work, and encourage new scientists to enter the field. It will create new stem cell technologies in research institutes and universities, fueling the creation of new companies that will develop new stem cell therapies, and it will encourage companies that develop tools for such research to grow and expand. This decision by the President is a boost to our industry, especially after he recently mentioned his support for scientific innovation and entrepreneurship in his address to a joint session of Congress.

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Venture and private equity firms apparently have clamped down on much of their funding activities in San Diego, but some local firms were able to take advantage of state and federal sources of cash last week. We also saw the Food and Drug Administration give Amylin a break and Qualcomm’s top executives offer their outlook for next year.

—One significant development for San Diego’s biotech community is that the state’s stem cell agency, the California Institute for Regenerative Medicine, opened its spigot for funding business ventures. The change is important because the institute has doled out more than $614 million through 229 grants since it was created in 2005, with all but one grant going to academic scientists at non-profit universities and research centers. Last week the institute awarded six grants to life science companies, and four with operations in San Diego got a total of more than $3.3 million.

—San Diego’s Cohu, which has traditionally been one of the most cautious players in the semiconductor industry, agreed to pay $80 million in cash to buy German rival Rasco from Dover Corp. Cohu makes thermal pick-and-place test handling machines used by chipmakers to test the performance of semiconductors with wire leads. Rasco specializes in gravity-feed machines that test smaller chips used increasingly … Next Page »

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Venture funding for San Diego’s life science companies seems to have slowed to a trickle, but four local biotechs are among the first companies to get grants from California’s taxpayer-funded stem cell institute.

The 29-member governing board for the California Institute for Regenerative Medicine voted Wednesday to approve funding of more than $19.8 million for 23 grant proposals. The grants ranged from $700,000 to $1.1 million, with 17 going to fund research at academic, non-profit laboratories and six designated for California biotech companies.

The institute was established in early 2005 following the passage of a state ballot measure to provide $3 billion to fund stem cell research. California voters passed proposition 71 in 2004, after the Bush Administration dramatically curbed federal funding for stem cell research.

Since then, the institute has distributed more than $614 million in 229 grants. But until now only one of those grants went to a biotech company—a $50,000 grant for San Diego-based Novocell.

As institute president Alan Trounson said in a prepared statement Wednesday, “These awards represent the entry of the biotechnology industry into CIRM-funded initiatives to accelerate progress.”

The grants approved and the San Diego biotechs receiving them were:

—$827,072 for Novocell to advance development of “an implantable device” to capture and retain pancreatic stem cells. Novocell researchers have already implanted the device, a semi-permeable pouch, into animals and collected pancreas stem cells, which develop into mature cells that produce insulin.

—$749,520 for a joint effort by Fluidigm of South San Francisco and StemGent, a Cambridge, MA, biotech with operations in San Diego, to develop a screening technology to help stem cell researchers “reverse engineer” skin cells into stem cells. The technique would enable researchers to work with stem cells in a way that avoids ethical objections and technical barriers to using embryonic stem cells.

—$869,262 for an application by Invitrogen, now known as Life Technologies, for developing methods of modelling human neurodegenerative diseases in human embryonic stem cells. Researchers plan to focus their work on amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease.

—$906,629 for Vala Sciences to develop new and improved techniques for developing mature heart cells called cardiomyocyte cells from human embryonic stem cells.

In a related move, the institute’s 29-member governing body agreed to accelerate funding for commercial entities to provide “greater financial stability” for California’s biotechnology sector, which “faces significant challenges arising from the credit crisis and economic downturn.”

The accelerated funding program enables biotechs with applications that are recommended by the institute’s scientific working group to immediately get the first payment of their grant or loan upon approval by the institute’s governing board.

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Ed Baetge’s dream is that his company, San Diego-based Novocell, will someday make human embryonic stem cells that will manage to produce all the insulin patients need to control their blood sugar. If things break right for Novocell, this treatment will navigate a thicket of animal tests over the next three to four years, demonstrate repeated safety, and enter its first clinical trial.

I spoke with Baetge, the company’s chief scientific officer, a few weeks ago on a sunny early morning at his office in the General Atomics complex at Torrey Pines Mesa. Baetge’s team has had a string of papers published in Nature over the last few years, and I was curious to learn how Novocell plans to commercialize their advances in basic stem cell research. Novocell has 40 employees, backed with investment from Johnson & Johnson Development Corporation, Asset Management Company (led by “Pitch” Johnson, a co-founder of Amgen) and Sanderling Ventures’ Fred Middleton, who was the third member of the management team at Genentech.

Novocell is working on some very tough problems. Human embryonic stem cells are exciting to scientists because of their potential to morph into any cell in the body, raising the potential for regenerative medicine. For example, such cells could replace dying or malfunctioning cells in the pancreas of diabetic patients. But Novacell faces a host of problems: how to control the differentiation of these cells so they only turn into the cell type you want; how to prevent them from forming benign or malignant tumor cells; how to deliver these effectively into human beings; how to insure they don’t spark the immune system to reject them, just to name a few. No one has even started the first human clinical trial of an embryonic stem cell therapy yet, although Menlo, Park, CA-based Geron (NASDAQ: GERN) wants to start what would be a landmark study for spinal cord injury.

“Regenerative medicine is just about the most complex thing you could ever do,” Baetge says.

The way Baetge describes it, Novocell is taking a methodical step-by-step approach. One big step forward happened in 2005, when company scientists took human embryonic stem cells and coaxed them in their first two weeks of development to form what are called endoderm cells that give rise to organs like the lungs, pancreas, gut, and thyroid. Another big one happened when Novocell was able to use genetically engineered proteins to turn stem cells into pancreatic progenitor cells with the potential to eventually develop into cells that secrete important hormones like insulin.

The problem was that first group of cells, in 2006, wasn’t fully mature, Baetge says. That meant they didn’t release insulin in response to exposure to blood sugar, like healthy human pancreatic beta cells do. It took until this past February to develop fully functioning pancreatic beta cells that secrete insulin. Now Novocell has shown that when it injects these regenerative insulin-producing cells into mice, they can function as well as normal insulin-producing cells after two to three months, Baetge says. “We are the only people in the world who have done this,” he says. “It closely mirrors what you find in a human pancreas.”

Still, about 15 percent of animals got teratomas in Novocell’s studies, and that’s something the company will have to prevent in future work. “We’ve got to prove it’s safe,” Baetge says.

The company’s financial future depends in part on its ability to win grants from the California Institute for Regenerative Medicine, the agency set up to dole out $3 billion of state taxpayer money for stem cell research. Novocell has applied for about $20 million in state funding to support it work, but it’s not assured it will get any, Baetge says. “The VC’s are not interested in putting more money into this at this time,” he says. If Novocell can win some state grants and put them to good use, then the VC’s or a pharmaceutical partner may want to get on board, but probably not until Novocell gets into clinical trials, he says.

“We just need to keep innovating,” Baetge says.

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