The Valley of Death and the California Stem Cell Agency: Luring Deep Pocket Investors

The California stem cell agency this week is tooting a $150 million horn and heralding its efforts to assist stem cell businesses with development of therapies that could ease the travails of everything from cancer to blindness.

It is all about a financial "valley of death" that can imperil biotech firms as they seek to turn research into an actual product that can be used by patients. The latest poster child for the California Institute for Regenerative Medicine (CIRM), as the agency is formally known, is a San Diego firm called ViaCyte. 

The enterprise has received more cash -- $72 million -- from CIRM than any other business. CIRM is facing its own valley of death next year, when its taxpayer cash will run out.

Writing yesterday on the CIRM blog, the agency's communications director, Kevin McCormack, said,

"CIRM was created, in part, to help...great ideas get through the valley (of death). That’s why it is so gratifying to hear the news today from ViaCyte – that is developing a promising approach to treating type 1 diabetes – that they have secured $80 million in additional financing.

"The money comes from Bain Capital Life Sciences, TPG and RA Capital Management and several other investors. It’s important because it is a kind of vote of confidence in ViaCyte, suggesting these deep-pocket investors believe the company’s approach has real potential."

McCormack continued,

"CIRM has been a big supporter of ViaCyte for several years, investing more than $70 million to help them develop a cell therapy that can be implanted under the skin that is capable of delivering insulin to people with type 1 diabetes when needed. The fact that these investors are now stepping up to help it progress suggests we are not alone in thinking this project has tremendous promise.

"But ViaCyte is far from the only company that has benefitted from CIRM’s early and consistent support. This year alone CIRM-funded companies have raised more than $1.0 billion in funding from outside investors; a clear sign of validation not just for the companies and their therapies, but also for CIRM and its judgment.

"This includes:

• Humacyte raising $225 million for its program to help people battling kidney failure
• Forty Seven Inc. raising $113 million from an Initial Public Offering for its programs targeting different forms of cancer
• Nohla Therapeutics raising $56 million for its program treating acute myeloid leukemia"

One could argue that these companies could have found backing from other sources than the stem cell agency. One could argue that state government should not be in a business that is too risky for even the vaunted world of venture capitalists.

Nonetheless it is an important part of the CIRM story, one that will be tested perhaps in November 2020. That's when the $3 billion agency hopes to see a measure on the ballot that will give it another $5 billion. So far the agency, created in 2004 by a ballot initiative, has not fulfilled voter expectations that it would produce a stem cell therapy that is widely available. And it will need a good yarn to inspire voters once again in 2020.