Big Pharma Loves Your Liver

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Big pharma's jumping on the stem-cell bandwagon. But don't worry, investors in Geron (Nasdaq: GERN) and StemCells (Nasdaq: STEM); your chosen firms appear safe from competition -- for now.

AstraZeneca (NYSE: AZN), GlaxoSmithKline (NYSE: GSK), and Roche have teamed up with the U.K. government to start a nonprofit company, Stem Cells for Safer Medicines. (Naturally, that name needed to be shortened into the text-messaging-friendly "SC4SM.") As the name implies, the focus of the new company's research won't be on therapeutic approaches to stem cells, but on using the cells to detect side effects of drugs in the laboratory. SC4SM will fund research to try and differentiate embryonic stem cells into liver cells, in order to develop a laboratory model for liver toxicity. If it's successful, the consortium plans to tackle heart cells next.

The three drug giants have each donated about $200,000 to SC4SM, and other drugmakers are also expected to join in.

As with the other consortium announced last week, the companies have a good reason for contributing money. The animal models for liver toxicity stink, which explains why it's the No. 1 reason for drug failures in the clinic. If companies had a better model for determining toxicity before clinical trials began, they could save millions of dollars on drugs doomed for failure. Look no further back than ViroPharma (Nasdaq: VPHM) and Wyeth's (NYSE: WYE) potential liver issues with their hepatitis C drug, HCV-796, to see that such a model would certainly be helpful.

For investors, it's hard to determine whether these initiatives are good moves for the companies involved, without knowing whether the research will amount to anything. For these companies, spending the money is probably closer to buying a lottery ticket than it is to making an investment. If the research is successful, the companies will make their money back 100-fold in saved research costs. At worst, if the research fails, each company is out a few hundred thousand dollars.