Wednesday, March 18, 2015

$500 Million Stem Cell Loan Effort: Klein Legacy Plan Receiving Heave-Ho

The California stem cell agency tomorrow is expected to all but bury a $500 million loan plan pushed by its first chairman, Robert Klein, and replace it with something exceedingly more modest.

The current loan effort is “overly complex, administratively burdensome, and, as reflected in the number of loans issued, it does not appear to be attractive to industry,” said agency President Randy Mills in a forthright memo to the agency board. 

Robert Klein, CIRM photo
Klein’s dream was that loans would generate revenue through interest payments and help to ensure the $3 billion agency’s existence. The agency’s board paid $50,000 for a PricewaterhouseCoopers study that said $500 million in loans could generate a major return.

As the California Stem Cell Report wrote on May 14, 2008,
“How do you turn $500 million into as much as $1 billion over 10 years? Loan it to struggling biotech companies that could default on the loans at a rate of up to 50 percent. 
“Sound too good to be true? Maybe, but that's what the California stem cell agency is projecting….” 
In 2007 and 2008, Klein, a real estate investment banker, bandied about a variety of numbers that ranged up to $1 billion. The agency finally settled in 2008 on $500 million to commit to loans. The concept had a special allure because biotech companies are perennially cash-starved. But only five companies ultimately received loans, two of which are outstanding.  The agency has made 666 research awards, including the five loans.

Mills plans to replace the existing loan effort in his first foray into CIRM 2.0, a radical move to speed funds to researchers that he intends to extend to all awards made by the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

In his loan memo, also authored by two CIRM attorneys and the agency’s business development officer, Mills said the initial recipients in the CIRM 2.0 launch would
“…have the option to elect to convert their award from a grant to a loan within a specified period of time from the effective date of the award, e.g., seven years.  Unless the parties agreed to different terms, the awardee would be required to repay the loan balance within ten days of making the election to convert from a grant to a loan at an interest rate that would escalate based on the date of repayment.  For example, an awardee that repaid CIRM within three years of the effective date of the award would pay a lower interest rate than an awardee that elected to convert to a loan six years after the effective date."
Mills said his plan is simpler, more realistic and compelling to recipients than the agency’s current loan effort.

The  board’s Intellectual Property Subcommittee is expected to back Mills’ changes at its 10 a.m. meeting tomorrow with full  board ratification on March 26.  The public and potential recipients of CIRM loans can speak to the matter at two public locations in San Francisco, one each in Hawaii, Irvine, San Diego, Los Angeles and Redwood City.   Complete addresses are available on the agenda.

Proposed changes in the loan program were initially scheduled to be approved in January, but that attempt was suspended with no public explanation.

(Editor's note: The meeting was postponed on March 19. No explanation was posted on the CIRM Web site. The link to the memo from Mills was removed from the IP agenda, but a copy still could be found (as of this writing on March 19) on the March 26 agenda for the board meeting.)
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