Biotech Loan Program Eyes Matching Funds

The California stem cell agency last Wednesday considered a proposal to create a biotech loan program of up to $750 million and is expected to possibly enact it by June. Here is a report from John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Rights, who attended the meeting of the CIRM Biotech Loan Task Force in Sacramento.

"CIRM Biotech Loan Task Force members didn't learn much last week from a $50,000 consultant's report about other states' loan programs, except that nobody really seems to be doing what the stem cell agency envisions.

"Loan programs in other states aren't really comparable to California's plan members of CIRM's Biotech Loan Task force were told by Christopher Wasden of PricewaterhouseCoopers.

"The consulting firm checked out about 30 loan programs and then narrowed the list to consider 12 of them in detail. The criteria for the short-list were that the program be state funded, focused on life sciences or technology companies, primarily offered loans and had a meaningful size. The final criterion was that the program was responsive, Wasden said.

"Noting that most of the loans offered by the other states were in the $200,000 to $400,000 range, Wasden described the proposed California program as 'more ambitious by a factor of at least two.'

"In fact, ICOC Chairman Robert Klein raised the possibility of making loans as large as $50 million. Task Force Chairman Duane Roth mentioned loans aimed at pre-clinical trials of $3 million to $5 million.

"Wasden reported that the 'amount of experience with the programs is low. There have been no liquidity events and no write-offs -- yet.'

"After Wasden's report task force members discussed more details of how California's program may emerge. Roth suggested that a four-part business evaluation would be the first step. That would include:

"-- A background evaluation of the company's principals.
"-- A credit evaluation, a Dun and Bradstreet or similar report.
"-- A litigation assessment. This would not include an assessment of the company's intellectual property (IP) portfolio, but rather a check for any suits pending against the firm or its principals.
"-- An assessment of the business plan and financial feasibility.

"Klein suggested, as he has at all task force meetings, that this check could be performed by 'delegated underwriters.'

"Task force member Michael Goldberg suggested that 'higher standards of verification would be required for larger loans.'

"If the applicant met the business criteria in the first step, then the plans would be peer-reviewed by the scientific panel for scientific merit as the second step.

"During his report Wasden said that a number of the state loan programs required matching funds as a way to 'have a third party validate the management team.'

"Klein emphasized the need for matching funds if CIRM makes large loans. 'There would be a lot of other people's money at stake in the big ones,' he said.

"Goldberg asked if the length of the loans should be tied to the life span of the stem cell agency. Klein responded that at some point he expects the Legislature will 'look at CIRM and see if it performed and whether more money should be put in.'

"David J. Earp, Geron Corp.'s chief patent counsel and senior vice president, told the task force that a requirement for co-funding would serve as 'a sanity check.' Asked what he thought a Phase 2 clinical trial would cost for a stem cell therapy, he said, 'Many tens of millions, certainly larger than $5 to $10 million' that had been cited earlier in the meeting.

"Roth told the task force that he and Klein had been meeting with state legislators in an attempt to keep them apprised of the plan. He said he hoped to have a loan program policy ready to discuss at the stem cell Oversight Committee's June meeting."

Our comment: Keeping California lawmakers well-informed on this program is well-advised, particularly if Klein plans to ask them for continued funding for CIRM in a few years.