By DENISE GELLENE and ELIZABETH MEHREN
Times Staff Writers

The Massachusetts company condemned by the Bush administration for its efforts to clone a human embryo received a federal grant last month to conduct biotechnology research.

Advanced Cell Technology's human cloning experiments set off a national controversy this week that is renewing demands that Congress ban all cloning of human cells.

But before the cloning experiment was disclosed, the company was awarded $1.8 million under a Commerce Department program intended to accelerate research and development in private companies, said Michael Baum, a Commerce Department spokesman.

The company said Wednesday that the grant would not be used for any human cloning research. Rather, the money is to fund experiments into reprogramming adult human cells in an effort to develop therapies for diseases.

Both the adult cell research and the human cloning experiments are part of an effort by the company--whose main revenue source has been cloning cows--to break into the business of disease therapy. Thus, the federal funding represents an important capital infusion for the small company.

But researchers and industry officials say administering such grants and keeping salaries, equipment and other expenses separate is a difficult accounting chore. It is one reason some universities that receive federal funds have moved embryonic research off campus, avoiding any potential for conflicts with allowable work under such grants.

The Commerce Department issued the grant under its Advanced Technology Program. Baum said the terms of the grant specifically forbid the company from using the federal money to conduct research on human cloning.

"We have audit procedures in place to make sure that doesn't happen," Baum said.

The biotechnology start-up reignited a furor over cloning this week when an online science journal published an account of the company's experiment. The article in e-Biomed: The Journal of Regenerative Medicine said that the company created only a few clones, that all died and none consisted of more than six cells.

President Bush condemned the experiment and Sen. Sam Brownback, a Kansas Republican, vowed to push for a six-month ban on human cloning while lawmakers consider legislation calling for a total ban. The House passed legislation banning human cloning in July, but it moved to the back burner after the Sept. 11 terrorist attacks.

As a privately held company, Advanced Cell has disclosed little about its finances. According to information posted on its Internet site, it has $6 million available for agricultural research. Also, the company disclosed in 1997 a five-year, $10-million collaboration with Genzyme Transgenics, a biotechnology company.

But within the last six months, Advanced Cell sold a New York biotechnology company about a 7% stake for $1 million. The deal with ImClone Systems, which includes a research collaboration, gives Advanced Cell an estimated market value of $14.3 million.

ImClone Chief Executive Sam Waskal said Advanced Cell, like many start-ups, sold ImClone convertible preferred stock because it needed investment capital. "This is significant to them," he said.

Advanced Cell wouldn't comment on its finances. Michael West, president and chief executive, was in meetings and not available, a spokeswoman said. A vice president said he could not provide details, but reiterated that only private funds from venture capitalists and individual investors are used to support human cloning projects.

"There were no research grants at all on this, obviously," said Dr. Robert Lanza, vice president for medical and scientific development. Details of the federal grant are posted on the Internet sites of the Commerce Department and Advanced Cell, but have attracted little notice.

Founded in 1994, Advanced Cell is a spinoff of a chicken-breeding operation called Avian Farms. The company had hoped to bioengineer chickens using cloning techniques developed at the University of Massachusetts.

West, who joined Advanced Cell in 1998, and New York venture capitalist Miller Quarles took control of the company last year, after a Boston bank initiated foreclosure proceedings against some Avian Farms properties to collect a $3-million debt. Terms of the transaction weren't disclosed.

Under West's leadership, the company has pushed itself to the forefront of human cloning. But animal cloning remains its chief business--though it has produced little, if any, profit. Advanced Cell made a considerable investment in the business this year when it acquired a Pennsylvania dairy breeding company. But dairy farmers are a tough sell; they want better animals, not clones, said John Meyer, chief executive of the Holstein Assn. USA. What Advanced Cell may lack in business success it has in media savvy. It assured itself a splash with its human cloning experiment by simultaneously publishing an account in Scientific American and granting an exclusive to U.S. News and World Report. To be sure no one missed the significance, West and his co-authors on the Scientific American piece called their own work "the dawn of a new age in medicine" that showed "therapeutic cloning is within reach."

In the days since, Advanced Cell executives have made the rounds of morning talk shows and media events. According to his assistant, West has been booked solid for three days--raising questions among people in the scientific community as to whether the company hopes to use the publicity to attract investors.

Advanced Cell said it isn't interested in helping couples clone offspring. The firm said it created clones to extract stem cells, which can turn into any type of tissue and can be used to treat diseases such as diabetes. In Scientific American, however, West and his co-authors left the door to reproductive cloning ajar, a decision likely to inflame controversy. Due to potential health risks, they wrote, reproductive cloning is "unwarranted at this time" and should be restricted "until the safety and ethical issues surrounding it are resolved."

Research to be covered by the federal grant takes Advanced Cell down another scientific path. The company proposes to reprogram an adult cell, such as a skin cell, into a functioning nerve cell. That cell could be used to treat such ailments as Parkinson's disease, in which cells in the brain do not produce enough of the key neurological chemical dopamine.

Baum, of the government's Advanced Technology Program, said the company hopes to transform the cells by "dousing them with chemicals" in a process that does not involve cloning or the use of embryonic stem cell tissue, which, with limited exceptions, also is under a federal funding ban.

Other companies and institutions are racing to understand how cells program themselves, so they can produce cell therapies without using embryos.