SAN DIEGO – It should warm a capitalist's heart: as a need appears, so it is filled – by the invisible hand of the marketplace.

Instead, it's giving American researchers heartburn.

As the U.S. government has put restrictions on the stem cell research it would fund, other countries move forward to fill the void.

Likewise, individual U.S. states – including California, Illinois, Massachusetts, New Jersey, New York and Wisconsin – discontent with this state of affairs, are now moving forward to fill the funding gap. So far, California leads the pack: voters approved a $3 billion bond measure for stem cell research in November.

As just one result, a state institute is being created to allocate funding to California stem cell scientists. It is expected that grant applications will be available in May. Meanwhile, California research institutions are already jockeying for position.

Last week, the University of California at Los Angeles (UCLA), for example, announced the formation of a campus-wide Stem Cell Institute to study stem cell applications, particularly in HIV, cancer and neuroscience research.

Up-front cost to UCLA: $20 million.

Stem cell research's California windfall was one of the key topics discussed at last week's Calbiosummit in a session titled "Stem Cell Research and Proposition 71: Implications for California."

At the panel, which was split into scientific and regulatory presentations, several speakers stressed the versatility of stem cells – not only in the usual scientific sense of being able to adopt many different cellular fates, but also in terms of knowledge- (and revenue-) generating applications.

"In a sense that is not lost on a room like this, stem cells are an enabling technology," said Larry Goldstein, professor of cellular and molecular medicine at the University of California at San Diego. "They are like recombinant DNA in that they have many applications – more than I can imagine. Some of them will probably be imagined by some of you in this room."

Goldberg, offering an example, named the generation of pure populations of specific cell types to test hypotheses about disease generation, and develop and test drugs. Animal testing, he explained, by its nature administers the drug and studies its joint effect on many different cell types.

"Right now, a lot of research is done on animal models. I'd love to see more of those compounds get tested on human cellular models of reasonable purity before they enter the clinic," Goldstein said. "We don't have very good sources of purified dopaminergic or chollinergic neurons, and so we have no way of asking these questions. And that affects how we view those drugs."

The theme of stem cell versatility was echoed by Drew Senyei, managing director of Enterprise Partners Venture Capital.

Senyei observed that "the pure plays in stem cells have market caps of $300 million or less," and that value is built on investments in the $100 million range. "We're going to learn a lot about these cells, and ultimately, we're going to learn how to give traditional small molecules to make these cells do what we want to in the body," with tools generated along the way. "That's where the value will come from."

Ethics, policy and regulatory issues were discussed at the forum as well.

Mary Deveraux, director of biomedical ethics at the University of Southern California, pointed out that the passage of Proposition 71 has changed the focus of the ethical debate. While that debate used to center around the moral status of the embryo, "California voters have decided by a significant margin – though certainly not unanimously – that we are going to set aside that issue to explore the promise of stem cell research."

The new ethical issues are concerned with how to conduct that research on the middle ground between industry's need for profit and the expectations of the public that has funded the research.

In a sense, the issues appear to be similar to those facing academic researchers in other fields: Deveraux noted the importance of full disclosure of conflicts of interest and the expectation of the public that its $3 billion investment will lead to access to stem cell medicine at reasonable prices. In the area of results disclosure, too, she named an issue that will sound familiar to those conducting clinical trials, as well as the scientific academic community – that to be able evaluate an approach, it is necessary to have access to negative as well as positive results.

"It's a part of research to show that certain paths are not ones we want to continue down," Deveraux said. "And that in itself is a kind of positive result."