S.F. Institute Considers Its Options, May Sell Bonds Privately
The global financial crisis may do what opponents of California’s $3 billion state-sponsored stem cell research experiment could not: dry up funding.
The California Institute for Regenerative Medicine next month will weigh a contingency financing plan that could include bond anticipation notes and a private placement with major philanthropic backers.
The move, which would have to be approved by the state stem cell bond committee and Treasurer Bill Lockyer, comes against the backdrop of a financial markets meltdown that has clipped access to capital for companies and government agencies alike.
It also comes after Bob Klein, who has not taken a salary as the chairman of CIRM’s oversight board, was awarded a $150,000 salary for a half-time position. That, and a salary for CIRM’s vice chairman — a position currently unfilled — could become tricky to justify as the agency’s funding evaporates.
CIRM has enough cash to fund existing grant programs and new grants through June 30, Klein said. Plus, he added, it has “sufficient reserves.” But grants for one of CIRM’s biggest programs — a $210 million program aimed at pushing stem cell therapies into the clinic in four years — will be awarded later in 2009.
CIRM has $168.9 million on hand, said spokesman Don Gibbons, and has enough to fund office operations until July 2010.
While CIRM’s operating budget is $11.5 million, the agency has awarded more than $635.8 million in grants for research and facilities over the past three years. Those are aimed at accelerating stem cell-based therapies or cures for afflictions ranging from Alzheimer’s disease to diabetes to spinal cord injuries.
Some of those grant awards are not scheduled to be paid out until 2009 or late 2010.
That would squeeze CIRM, which in November 2009 plans to make a major push beyond funding basic stem cell research into funding projects that can be in Phase I clinical trials within four years. The so-called disease team awards would total $210 million — a combination of grants and loans — for institutional researchers and companies.
The goal of the disease team awards is to bring the groups together to accelerate stem cell-based therapies and cures. But the program also would go a long way toward silencing critics who ask why CIRM’s largesse hasn’t yet been turned into eventual cures.
Established drug-development methods produce programs that can take 10 years or more to bring potential drugs in front of the Food and Drug Administration.
“It’s difficult to find any other entity in the state that’s operating as efficiently,” Klein said, adding that CIRM has operated at about 25 percent below budget. “We’ve been operating on a very lean basis.”
CIRM President Alan Trounson makes $490,000 a year, and John Robson was hired this summer for the $310,000-a-year position of vice president of operations. Plus, there now is Klein’s $150,000 salary, approved by the CIRM board Dec. 10.
Klein, who operates a financial advisory firm in Palo Alto, said he spent $5.5 million shepherding Proposition 71 through approval and has swallowed $1 million in CIRM-related costs since then while working 40-hour-plus workweeks as chairman.
“In this economic environment, it became important that I receive some salary,” Klein said. CIRM also could award the vice chairman — a position currently unfilled — a salary as well.
More of the same
In developing a contingency funding plan CIRM could rely, again, on a private bond placement. CIRM in 2005 netted $45 million from the private sale of bond anticipation after lawsuits filed by taxpayer advocates and opponents of embryonic stem cell research stopped the state’s sale of general obligation bonds.
“(CIRM must) ride on the status of California’s bond market,” said John Simpson, who tracks CIRM policies and programs for Consumer Watchdog of Santa Monica. “It sounds like Klein’s not so sure that’s a very good wagon to hitch your wagon to.”
A private bond placement, however, could cost more since states’ favorable bond ratings reduce the ultimate interest payouts to investors. But, Simpson said, the philanthropists who would buy the bonds could take a lower interest rate, just like those who bought the 2005 bond anticipation notes offered to donate their money if CIRM didn’t win its court battles.
Treasurer Lockyer sold $250 million worth of CIRM bonds in October 2007. Those bonds — about $200 million going to CIRM and the remainder paying for the cost of issuing the bonds and to retire the bond anticipation notes — carried an interest rate of 5.168 percent.
Lockyer earlier this month said the state’s Pooled Money Investment Account, from which state agencies typically borrow before bonds are issued, will stop giving out loans without a solution to the state government’s budget problems.
“It is clear that CIRM is feeling and will feel some of the fallout of the horrible economic mess that the state’s finances are in,” Simpson said.