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. 

Rise and Fall of California's Onetime Biotech Guru Steve Burrill

Two years ago, the investment empire of California biotech maven Steve Burrill was crumbling amidst allegations of fraud and mismanagement.

Steve Burrill

Today Burrill has all but vanished from the San Francisco scene that he once dominated. He has agreed to repay nearly $5 million and pay a $1 million penalty. He has been barred by the Securities and Exchange Commission from the securities industry.

All that and more was covered by Thomas Lee of the San Francisco Chronicle in a piece Sunday about Burrill, named in 2002 as one of the world's top visionaries by Scientific American. Lee's article  ran on the front page of the California newspaper's business section.

According to the SEC, Burrill misused company funds for such things as charitable contributions, gifts for his wife and girlfriend, trips to Europe, jewelry and private jets.

Andrew Ceresney, director of the SEC’s Enforcement Division. said in a March 30 press release,

“Burrill spent his fund’s capital on whatever he pleased, and elevated his own interests above those of investors.”

Burrill was once a sought-after speaker at such events as the national BIO conference, which draws upwards of 16,000 attendees. In 2006, wearing his trademark pink ties, he presided over an international stem cell conference in San Francisco that was a bit of a celebration of California's new stem cell agency.

Lee brought to his story a fresh perspective from Minnesota, where Burrill promoted a $1 billion biotech park in a rural elk farm that involved a Woodland, Ca., real estate firm, Tower Investments.

Lee, who wrote about the proposal as a reporter in Minnesota, said that Burrill "personified the idea that (Minnesotans), too, could create an economic miracle out of nothing." Lee continued,

"Burrill did not respond to a request for comment left through his attorney or messages sent to him through LinkedIn. Public records do not list a current address or phone number. The office in the Presidio of San Francisco listed on his website is vacant, with his name off the building directory and the space up for lease. No one seems to know his current whereabouts."

Stock of California Firm Jumps 17 Percent on News of Golden State Award

Google chart

ImmunoCellular Therapeutics’ stock price shot up 17 percent today in the wake of formal approval of a $20 million award from the California stem cell agency for a clinical trial involving a rare brain cancer.

The price has been climbing since last week when the California Stem Cell Report first disclosed that the company was set to secure the funding for the phase three clinical trial, the last step before widespread commercialization.

In an interview today, Andrew Gengos, president of the Calabasas, Ca., firm, confirmed that the trial is expected to cost $40 million to $50 million. The company has said it will add $34.4 million to the $20 million from the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

Gengos said the five-year trial is expected to get underway in November with the enrollment of the first patients. He said it will probably start in the United States with expansion to Canada and Europe. About 400 patients are expected to participate.

ImmunoCellular has not had any revenues since 2010. Asked about the source of the $34 million, Gengos said the company had $31 million on hand at the end of June with no debt. He added that the company can access additional cash through the sale of more stock.

In reponse to a question, Gengos said he first became aware of the possibility of funding the clinical trial with the help of CIRM as the result of a conversation with a colleague at the J.P. Morgan health care conference in San Francisco last January.

Gengos followed up by asking an ImmunoCellular co-worker to look into the process. As the result, the company made its initial application which CIRM sent back with suggestions for improvement. In the second review, reviewers voted 9-0 to fund the project.

Gengos told the CIRM board today that the trial would take five years to complete.

“Frankly, this time period is outside the interest of most public market investors in terms of their investment horizon and therefore, in their eyes, handicaps our project compared to other projects that can execute in a shorter time frame.

“The result is that investment capital is hard to come by for these types of promising and highly innovative therapies when the investment horizon is long, and a small company without product revenues is at the helm.”

Gengos continued,

“I do not think it is an overstatement to say that without CIRM’s support, this program would not go forward. California’s innovative biotechnology community needs institutions like CIRM. Clearly – we need CIRM. Brain cancer patients need CIRM.”

Here is the text of the company’s press release today.

Here is the text of Gengos statement to the CIRM board.

   Statement by CEO of ImmunoCellular to CIRM board Sept. 24, 2015