As Congress hunts for ways to push its stem-cell bill past an expected veto, states are charging ahead on their own. Last month, Gov. Eliot Spitzer kicked off plans to spend $1 billion on New York-based stem-cell research over the next decade. Spitzer is following the lead of California, whose massive $3 billion effort pioneered the state-level stem-cell surge two years ago. Similar, if smaller-scale, efforts are afoot in Connecticut, Florida, Illinois, Maryland, and New Jersey.
In backing stem cells, state leaders are promising miracle cures for deadly diseases such as Alzheimer's disease, Parkinson's disease, and AIDS—and telling voters that those miracles can be had for free. Spitzer promised during his State of the State address in January that the stem-cell investment "will repay itself many times over in increased jobs, economic activity and improved health."
This sort of claim appears to have originated with a study produced in the run-up to the 2004 vote on California's initiative. The authors, Stanford University health economist Laurence Baker and Bruce Deal of the Analysis Group, concluded that stem-cell research would generate state revenues and health-care savings of $6.4 to $12.6 billion over the 30 years it will take to pay off the state bonds used to fund it. California's $3 billion investment would not only pay for itself and another $2.4 billion in bond interest payments, it would also turn the state a profit of at least $1 billion.
But the Baker-Deal numbers look hopelessly optimistic. To begin with, they assume that stem-cell treatments will work in the first place. Many of the most hyped biotechnology innovations of the last 25 years have yet to live up to their early promise. And when they do work, they often tend to improve medical care at the margins instead of revolutionizing it.
If medical treatments can be derived from stem-cell research, they are at least a decade or two away, if history is any guide. Even then, new therapies envisioned by supporters, such as diabetes treatments that regenerate insulin-producing islet cells, might add to government health-care costs instead of curbing them. The Baker-Deal report figured that stem-cell therapies could save California at least $3.4 billion in health-care costs over the next three decades by assuming the therapies would reduce state spending on six major medical conditions by 1 percent to 2 percent. While the authors cast that as a "conservative" estimate, they don't even model the possibility that costs might rise instead. Recent medical advances haven't appreciably slowed growth in overall U.S. health-care spending, which continues to rise far faster than inflation.
Ideally, of course, stem-cell therapies would start a trend in the opposite direction by reducing or eliminating the need for expensive and often lifelong medical care. For that to happen, though, the new treatments would need to largely replace existing ones at a reasonable price, and then doctors would have to use them sparingly—for instance, only on the patients most likely to benefit. None of these assumptions is a particularly good bet under the current U.S. health-care system, in which new treatments are often simply added to older ones, and where insurers so far have tended to pay top dollar for incremental medical advances.
Baker and Deal also suggest that stem-cell support could yield California as much as $1.1 billion in royalty income, assuming that companies who license the rights to new discoveries pay 2 percent to 4 percent of treatment sales back to the state. But as Richard Gilbert, a University of California at Berkeley economist, pointed out in a recent critique of the study, most basic research doesn't yield commercial products, and the actual returns on commercialized research tend to be far lower than the level Baker and Deal assume. Gilbert estimates that California's total royalty income could be as low as $18 million in current dollars, or just 0.6 percent of its $3 billion investment. (Here's some of his reasoning.) As he dryly notes in his paper, "If income generation were the sole justification for stem cell research funding (which of course it is not), the State would be better off investing in its own municipal bonds."
What about the potential of stem-cell research to spur economic development—can a state that sponsors stem-cell research hope to attract cool scientists who will then draw others, plus a coterie of entrepreneurs and venture capitalists? Biotech companies do tend to cluster in places like San Francisco and Boston, but their overall impact on regional economies tends to be limited. While they often pay high salaries, the vast majority of these companies are tiny, unprofitable startups with fewer than 100 employees. They frequently collapse well before they earn a dollar in sales. Even successful biotech ventures are often bought out by distant drug companies, which sometimes shut down the acquired company while transferring its research activities and any products elsewhere. On top of all that, big states like California and New York are going to wind up competing for some of the very same scientists, VCs, and entrepreneurs, further shrinking the rewards.
Why did Baker and Deal see dollar signs? The $200,000 stem-cell supporters paid to Deal's firm, the Analysis Group, for campaign consulting might have something to do with it. In an interview, Baker said he didn't think of the report as advocacy but added that "we knew we were working for people who wanted to pass this thing." And while he still believes the economic benefits of stem-cell research could be "quite large," Baker also describes the report as merely "one possible version of how things might happen."
None of this means that stem-cell research doesn't deserve government funding. Stem-cell science, after all, remains in its infancy. Nearly a decade after the discovery of embryonic stem cells in humans, scientists still don't know exactly how they work, how to assure their purity, or what unexpected side effects they might have when transplanted into the human body.
At this stage of basic research, private funding is in short supply precisely because it's not clear where the payoff lies. This is where the federal government should come in. But a 2001 executive order from President Bush prevents federally funded scientists—that is, the bulk of academic biomedical researchers in the United States—from creating new embryonic stem-cell lines or even studying new lines developed elsewhere. So, the states are right to ante up where the federal government has failed to. They just shouldn't expect to do well while they're doing good.