Stem cell agency mulls big loans for biotechs

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San Francisco Business Times

A “biotech bank” loan program could extend the life of California’s taxpayer-backed stem cell agency and make millions more available to cash-hungry biotech companies.

The California Institute for Regenerative Medicine wants to funnel a portion of the $3 billion in bonds that voters approved with Proposition 71 for loans to biotech companies and not-for-profit entities working on stem cell therapies.

In theory, the returned principal and interest on those loans could fund additional loans, said Bob Klein, chairman of CIRM‘s oversight committee. “In short, this represents a great opportunity to increase the research,” he said.

Starting with a pool of hundreds of millions of dollars, CIRM could start lending money in seven to 10 months, Klein said. Yet the exact size of the program, loan terms and when the program will begin will be studied by a task force created earlier this month by the CIRM oversight committee. The task force is headed by Duane Roth, chairman and CEO of Alliance Pharmaceutical Corp. of San Diego.

If $650 million was provided for staggered seven-year loans, some $1.5 billion could be returned in principal and interest over 15 years, Klein said. That’s even assuming that a third of the loans return only the principal and another third default, he said.

“You have to be careful how you phrase this. If you say to a biotech company, ‘Would you rather have a grant or a loan?’ they’ll say they’ll take a grant,” Klein said. “There’s only a limited number of funds. But if you tell them over 15 years you could have $1.5 billion rather than $500 million (in grants)… you might get a very different answer.”

But Klein’s calculations may be too optimistic.

For one, supporters of Proposition 71, approved by voters in 2004, admit that it could be several years before stem cells are used to repair spinal cord injuries or treat maladies such as Alzheimer’s Disease and Parkinson’s Disease.

Secondly, said John Simpson, stem cell project director for the watchdog Foundation for Taxpayer and Consumer Rights, if a company’s therapy is so promising, it should be able to receive a regular bank loan.

“If (CIRM is) a lender of last resort, that could mean that despite the best intentions, a number of these companies could burn through the money and default,” Simpson said. “If that happens, there’s not going to be this great stream of revenue.”

Further, Simpson said, the program shouldn’t be seen by biotech companies as a way to sidestep requirements that the resulting therapies be offered at affordable prices to the California residents backing Prop. 71.

A loan program could potentially help biotech companies cross over the so-called financing valley of death, Simpson said, pushing them through key clinical trials and helping to bring stem cell therapies to market.

“That could be a very important role, and if they can do that with this process, that would be great,” Simpson said.

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