A new source of $750 million in funding could soon become available for the perennially cash-starved biotech industry, particularly stem cell firms.
The California Institute for Regenerative Medicine will hold its first meeting to discuss a biotech loan program on Dec. 12 in Los Angeles, with a teleconference location in San Francisco.
The biotech “bank” is the brainchild of Robert Klein, a multimillionaire real estate investment banker who serves as the unpaid chairman of the California state agency, which is the world’s largest source of funding for human embryonic stem cell research. The loan program could add as much as $1.5 billion to the $3 billion available to the agency, Klein said in an interview with Wired News.
“That amount could make a major contribution to research,” he said.
Discussions of the loan program kick off weeks after California’s comptroller ordered an audit of the institute following accusations of conflicts of interest. The biotech bank will be closely watched globally and possibly emulated. Already, six other states have come up with their own state-funded stem cell research, following California’s program that began three years ago. The institute has also drawn international attention and recently recruited internationally renown stem cell scientist Alan Trounson from Australia as its new president.
California’s biotech bank will presumably not be as Scrooge-like as private investors. It has one catch: Companies must be located in California. But more than one-quarter of the nation’s biotech businesses are already in the Golden State.
The institute can now raise $3 billion through the issuance of California state bonds. But Klein wants it to do more. He proposes to “recycle” as much as $750 million of the $3 billion through loans to biotech companies. He calculates that the payback could add $1.5 billion for stem cell research, which some scientists predict will open the doors for revolutionary therapies and cures for everything from diabetes to cancer. He hopes the program can begin before the end of next year.
The plan has already attracted criticism and praise. Matthew Gardner, president of the San Francisco area biotech industry group BayBio, told Wired News that it was a “creative financial concept” worthy of exploration.
But operating the bank as part of the California institute introduces a host of possible complications.
The institute’s board is already “stacked with individuals close to big biotech,” said Jesse Reynolds, director of the Project on Biotechnology in the Public Interest for the Center for Genetics and Society in Oakland. “Making low interest, risky loans to biotechnology corporations” creates additional potential conflicts, he said.
Other critics worried the loan program could become a financial albatross a la the “subprime” lending problems in the real estate industry.
“The subprime disaster is a lesson in how not to grant loans to those not able to repay the loans,” said Alan Lewis, president of Novocell in Carlsbad, California. “Stem cell companies are not all equal — there will be survivors with credible business plans/management/investors and those trying to capitalize on the ‘hype’ who may not be as sound.”
Another touchy issue involves providing affordable access to therapies resulting from California-funded research — a requirement of grant recipients. Klein says the agency directors consider affordable access during their discussions of the loan program.
But Gardner said an affordable access requirement is “a likely deal breaker. Alternatives for biotech financing exist, and no early-stage enterprise is going to find it desirable to accept heavy strings,” he said.
John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Rights in Santa Monica, helped develop the affordability rules for grants. A similar policy, he said, should be required for loans including reasonable pricing, access for the uninsured and price breaks for public agencies.
The stem cell agency has another peculiar problem that hampers its ability to run a $750-million loan program. By law, it is limited to 50 employees. Currently it has 26. Even at 50, some agency directors believe it will be understaffed for its current efforts. And contracting out critical functions involved in an ambitious, new loan program involves difficult conflict-of-interest questions, since outside firms do not have to file public statements of their economic interests.
The loan program “could make sense,” Simpson said. “I wonder, though, how often the loans will be paid back. If the company is such a good credit risk, wouldn’t it get the money from traditional lenders?”
David Jensen publishes the California Stem Cell Report.