Three Handlers Clear First Round in $500 Million Biotech Lending Program

MENLO PARK -- Three financial firms today made the first cut in their bid to handle the California stem cell agency's $500 million biotech lending program.

The CIRM directors' Finance Subcommittee sent Square 1 Bank in East Palo Alto, Comerica Bank in San Diego and Silicon Valley Bank of Santa Clara into negotiations with the agency's staff.

The ultimate winners of the contracts will be selected by the full board of the $3 billion agency after its staff completes its negotiations.

Losing out in the bid were Adjuvant Capital Partners of San Francisco and Orix Venture Finance in Palo Alto.

The Finance Subcommittee, which had asked for the staff analysis five days ahead of today's meeting, was presented today with a five-page summary of the proposals.

The three winning firms had the best cost rankings. CIRM used the example of a $20 million loan serviced over a six-year period. The firms had a choice of using a fee for service or a loan origination model. Square 1 had the lowest cost – $71,000 for the sample loan on a fee for service basis. Additional expenses were shown for handling the warrants. No dollar amounts were presented in that case, only percentages. Additional fees are likely to be imposed on potential borrowers.

No potential borrowers were present for today's session. But it may well be appropriate for CIRM to consult with them prior to locking down terms and fees that be difficult for the borrowers, who are supposed to be coming from a financial "valley of death."

The Finance Subcommittee gave the following scores to the firms: Square 1, 978; Comerica, 928; Silicon Valley Bank, 878; Orix, 484, and Adjuvant, 466.

At least two and possibly three firms will ultimately take part in handling the loan program. CIRM needs more than one because of the likely possibility that conflicts of interest will arise at the financial firms.

CIRM expects to kick off its loan program with its $210 million disease team round, which is expected to be approved later this year. It will be the largest research round in CIRM's history.

Following the teleconference meeting, Michael Goldberg, chairman of the Finance Subcommittee and a partner in the Mohr-Davidow venture capital firm of Menlo Park, said links with CIRM will help to establish the financial firms as early leaders in the growth of the stem cell industry in California.

All of the proposals can be found via the agenda for today's meeting.