Biotech Company Sees Fat Profits With Stem Cell Harvest

Staff Reporter

It's those crazy fads that usually earn the "only in L.A." tag, not biotech startups on the lookout for venture capital. But StemSource Inc. is one local company that might be the exception.

The Thousand Oaks-based company has impeccable academic credentials: it's founders hail from UCLA's School of Medicine, where much of the scientific work behind the firm was developed.

It also has a basic research mission: extracting stem cells from human fat and manipulating them to reproduce into bone, muscle and other tissues to treat a variety of disorders an exciting scientific discovery announced last year to major media coverage.

But unlike other biotech startups, which often take a decade for the first revenues and profits to start flowing, StemSource wants to make some money along the way.

It wants to store your fat.

Specifically, the company has started what it calls the world's first stem cell bank, which is another way of saying it wants to cryogenically store fat tissue extracted during liposuction a common procedure in the world of cosmetic surgery, especially in L.A.

"Would you consider it? Sure you would," said Larry Couture, director for the City of Hope's Center for Biomedicine and Genetics. "People are out there looking to have embryos stored so they can clone themselves. It just depends how they price the product."

Stem cell research is among the most exciting in biotech. Stem cells are basic, progenitor cells that can turn into other types of cells. The most powerful are those in embryos, which at the earliest stages give rise to all other cells in the body.

However, embryonic stem cells, as well as those derived from fetuses, have been swept up in an ethical controversy. There also are later stage stem cells that can be found in grown adults but only in small quantities, which is why the science behind StemSource drew so much attention last year.

Dr. Marc Hedrick, the company's president and a UCLA plastic surgeon, co-authored a paper last year in which he and his colleagues showed that they were able to extract later stage "adult" stem cells from fat, which is in ready supply. They also showed that the cells, fed the proper chemicals in the laboratory, could morph into bone, muscle, cartilage and fat tissue.

The company's core scientific mission involves advancing that work, as well as taking it out of the lab. However, scientific research also has shown that adult stem cells lose their potency, or their ability to turn into other tissues, the older a person gets.

Hence, banking the cells for later use.

The idea is to convince plastic surgery patients to store fat extracted during a liposuction procedure done earlier in life so that there's a ready supply of fat available when a heart needs repair or new brain cells are needed to cure Parkinson's.

That's assuming, of course, that those kinds of applications will be developed in the future.

Hedrick and other StemSource officials declined comment, but in a recent presentation at a Los Angeles investment conference Hedrick also argued that liposuction is not a trivial procedure not something an older person suffering from a disease would necessarily want to go through in order to harvest stem cells.

Money in the bank

The company, which raised $2.5 million in its first round of funding last fall, wants to make as much as $1.5 million this year on its stem cell bank, a state-licensed tissue bank run by Dr. John Fraser, the company's chief scientific officer and former director of UCLA's umbilical cord blood bank.

The academic credentials aren't convincing to everyone.

Stephen Williams is a pharmacologist by training who now works as an executive recruiter for health care companies. He also sits on the board of VistaGen, Inc., a Burlingame company that is working with embryonic stem cells for drug discovery and other applications.

He believes that StemSource should be focusing on its basic research and not wasting time on a stem source bank, even it were able to generate some money that could be used for more basic research.

"The question is does it dilute your effort?" said Williams, who mentored the company for its presentation before the Southern California Biomedical Council's investment conference last month, where it was seeking $4.5 million in Series B funding.

Business vs. science

"You don't want to get into the service business. It's going to be a low value, low margin business when you should be figuring out the science."

Couture also believes the company may be getting ahead of itself, noting that it will probably take years of research before adult stem cells are useful in treating various conditions, though they hold great promise.

"The whole concept of stem cells differentiating into various types of tissues is a lab phenomenon so far," he said. "You have to make sure they don't turn into a tumor. You have to understand the entire process."

But the approach does have its supporters.

MacroPore Biosurgery Inc., a San Diego-based company that is developing polymer implants the human body can absorb to repair broken bones and other conditions, was the lead investor in StemSource's initial round of funding.

Christopher Calhoun, the company's chief executive, acknowledged that funding from the stem cell bank would not be enough to fund the critical basic research, but he pointed to other benefits.

StemSource plans to offer customers five years free storage if they will allow 10 percent of their fat to be used for research purposes.

"The revenue is really less important than the overall pictures. The bank provides a base for research, a base for knowledge. They have a database for patients and their cells they can look at and understand," Calhoun said.

StemSource also has an agreement with MacroPore to develop a variety of plastic surgery products derived from fat tissue.

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