Stem-cell setback

Bay Area company banks, then backtracks, on stem-cell breakthrough

UC Davis business professor Brad Barber says if controversial claims by a Bay Area stem-cell-research firm misled investors, they’d have legal recourse.

UC Davis business professor Brad Barber says if controversial claims by a Bay Area stem-cell-research firm misled investors, they’d have legal recourse.

Photo By Larry Dalton

When a small Bay Area biotechnology company announced last month that it had discovered a way to make embryonic stem cells without harming the embryo from which the cells were extracted, the news made headlines around the globe. Alameda-based Advanced Cell Technology boasted of a new process that effectively eliminated the moral and ethical objections that have crippled stem-cell research so far. “In this case, we do not destroy the embryo,” said ACT CEO William Caldwell during an interview with PBS.

“This technique overcomes this hurdle and has the potential to play a critical role in the advancement of regenerative medicine. It also appears to be a way out of the current political impasse in this country and elsewhere,” the chairman of ACT’s ethics advisory board, Ronald Green, said in a written statement.

But the timing of ACT’s announcement raised more than a few eyebrows in the scientific community, including the eyebrow of David Magnus, director of the Stanford Center for Biomedical Ethics and a stem-cell-research proponent. “In my more cynical moments, I wonder whether or not this [research-breakthrough announcement] is just hype to try and generate investors,” Magnus told SN&R last week. The day before it touted the breakthrough, the financially struggling company had announced it was planning to raise $11.3 million in funding from new investors.

The next day, ACT published a tantalizing research paper in the respected British scientific journal Nature, which described the new process in detail. Nature’s statement promoting the paper triggered a worldwide media frenzy. Not surprisingly, ACT stock spiked dramatically. Shares in the company that had traded for as low as 26 cents just days earlier peaked at $2.30 per share. Two days after news of the new procedure broke, the company announced that it had gotten commitments for $13.5 million in funding from its existing investors, negating the need to bring in new ones to raise the $11.3 million.

But soon, scientists and science writers who scrutinized the Nature article noticed that the embryos used in the experiment all had been destroyed. Nature responded by issuing two new statements to the media. “We feel it necessary to explain that this paper demonstrates that human [embryonic stem] cells can be grown from single cells but that the embryos that were used for these experiments did not remain intact,” Nature said.

A slew of prominent articles by major American newspapers, such as The Washington Post (“Stem Cells Created With No Harm to Human Embryos”), USA Today (“Embryos spared in stem cell creation”) and the Los Angeles Times (“Stem Cell Advance Spares Embryos”), touted the breakthrough. But a week later, only Philadelphia Inquirer reporter Marie McCullough had published a second story making it clear that the original claim was questionable.

“I was pretty careful when I wrote the first article to ask the right questions and really understand the process, so when I saw that the embryos were destroyed, I felt it was important to set the record straight,” she told SN&R. “It wasn’t that I did something wrong as a reporter; it was that I had been misled.” But, for the most part, the original story has been absorbed by the public consciousness, and subsequent corrections, if any, mostly slipped under the radar. The Sacramento Bee, for example, published the Washington Post account of the initial breakthrough on the front page and then, a week later, ran McCullough’s updated story on page 9.

ACT later admitted that the embryos used in the Nature study were destroyed but insisted that it was still possible to create stem cells while leaving the original embryo intact. The company did not return several calls from SN&R. Astra Thomas, a senior vice president at Trilogy Capital Partners, a company that handles investor relations for ACT, said that the company was in a media blackout until the new financing transaction was complete.

Stock in the company now hovers in the range of 60 to 80 cents per share, and investors who bought the stock at $2 have taken a beating. Emphasizing that he is not familiar enough with the specific facts of the ACT situation to make concrete conclusions, Brad Barber, a business-management professor at UC Davis, said it’s possible that ACT investors may have a legal complaint against the company. “Clearly, if the financing was based on fraudulent or misrepresenting information, there would certainly be standing for the investors to sue,” he said. SN&R is not aware of any complaints by ACT investors.

Robert Hillman, a law professor who teaches securities at UC Davis, said, though he also couldn’t make a legal conclusion about the ACT case, that all companies are required to give investors honest information. “The whole weight of our securities law is keyed to providing accurate information to investors, and the company has a responsibility for making sure that when it says something, it is accurate,” he said.

In addition to the financial ramifications of the alleged breakthrough, proponents of embryonic stem-cell research, including some in the media, have used the information as a bludgeon against opponents, even though the claim has been largely discredited.

Nearly a week after Nature issued its revised statements, New York Daily News columnist Lenore Skenazy wrote a column headlined “Anti-stem zealots are all out of ammo.” Referring to the alleged breakthrough as fact, Skenazy derided opponents of stem-cell research. “This [method] does not kill the embryo the way the older method of harvesting stem cells did,” she proclaimed. “The fact is: This technique holds great promise and does not harm potential life.” A full two weeks after ACT’s original announcement, the Providence (Rhode Island) Journal published an op-ed praising the company and repeating the original misinformation. “Certainly, [ACT], the company that discovered the new method, deserves praise for trying to ease some people’s ethical qualms,” the paper said. “ACT researchers found that the tested cell could be used to culture others, while the embryo was left to develop.”

Some bloggers have dubbed the continuing replication of inaccurate news stories “zombie news” because, like a zombie, some stories that are later discredited come back to life as fact over and over. John Theobald, a professor of communications at UC Davis, said that the phenomenon is not uncommon because a stunning scientific breakthrough almost always will generate more media coverage than a later correction. “It seems like it takes a lot to get as much coverage for the pullback as it does for the initial reporting that it’s a breakthrough,” he said.