CIRM Mulls Loan Program to Help Plug Stem Cell Funding Gaps

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California’s stem cell agency is hammering out key details of a loan program that could deliver badly needed cash to companies trying to develop stem cell therapies and tools.

The loan program may be as critical to the mission of the California Institute for Regenerative Medicine as it is to the future of companies in desperate need of cash.

CIRM’s oversight board has built the framework of the loan program, including covenants like warrants and rules that require companies to offer resulting products to Californians at a lower price. But essential pieces remain unsettled: how large the fund will be, procedures to vet applicants’ financial worthiness, who will oversee that process and the fee structure for that third-party oversight.

CIRM officials have talked about a $500 million fund for translating stem cell research into therapies for Parkinson’s Disease or spinal cord injuries, for example, or for drug-screening diagnostics. Some 20 loans of $1 million to $5 million per year could be offered over eight to 10 years.

But even those details were unsettled as CIRM’s oversight board headed toward a Sept. 12 meeting in San Francisco.

"Some of the loans will be risky, but we need some sense of how risky will they be allowed to be," said John Simpson, stem cell project director at Consumer Watchdog, which has tracked CIRM since voters approved the sale of $3 billion in bonds by the state to fund stem cell research.

CIRM attorney Scott Tocher did not return two phone messages seeking more details about the program before this story went to press.

An analysis earlier this year by PricewaterhouseCoopers assumed a 50 percent default rate for loan recipients with preclinical programs and 20 percent for those with projects in Phase II.

Ultimately, repayments to the so-called "biotech bank" could make the program self-renewing, CIRM Chairman Bob Klein has said.

At a CIRM board meeting in August, Duane Roth, who leads the subcommittee working on the loan program, said companies could have options, including terms of six years or 10 years and the choice of a recourse loan, with warrants totaling 10 percent of the loan value, or a non-recourse loan with 100 percent warrant coverage

"These loans are going to be targeted where there are funding gaps, which means that for these translational products to move forward, we want to identify where there’s virtually no alternative capital available to invest or limited capital available," said Roth, chairman and CEO of Alliance Pharmaceutical of San Diego.

The non-recourse loan would not require repayment.

"These are very, very open terms that no bank or no venture capitalist would offer," Roth said. "But that’s part of fulfilling our mission, to fund those things that are very difficult and make it easy."

And the program may come at no better time.

Advanced Cell Technology Inc., best known for its work in trying to bring to the clinic embryonic stem cell-derived cells, said Sept. 9 that it would not renew its lease in Alameda as part of an effort to cut $5 million to $6 million in annual costs. Before it cut an outlicensing deal with BioTime Inc. of Alameda, led by ACT’s former chief executive, Michael West, the company said it might not have enough cash to survive into August.

BioTime, for one, has created a stem cell unit, and West has said it will seek CIRM grants and loans.

"There are some very good companies in California that deserve a fair shot at a loan program," Simpson said. "But we want to see more about the procedures."

Consumer Watchdog
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