The California stem cell agency today posted additional material for its directors meeting Thursday dealing with loan payback changes in its biotech loan program along with an update on its operational budget.
You can find a memo summarizing the loan changes here and the proposed regulations here. Obviously these come much too late – less than two days before the meeting – to expect thoughtful comment from most industry executives. The summary also did not provide an explanation of the reasons for the changes.
The budget figures can be found here.
Showing posts with label biotech loans. Show all posts
Showing posts with label biotech loans. Show all posts
Tuesday, January 25, 2011
Monday, October 18, 2010
How Fast Should the Stem Cell Agency Spend its Remaining $1.6 Billion?
Directors of the California stem cell agency will give away more than $80 million this week and wrestle with the question of what to do with their remaining $1.6 billion and how fast to spend it.
The $1.6 billion is a new figure for the public. Previously it was assumed the agency had $2 billion left, having committed $1 billion in awards. However, $2 billion figure did not include operational expenses, such as interest, legal costs and $180 million for administration through 2016.
The CIRM board is not likely to make a final decision on its strategic spending plan at the meeting Wednesday and Thursday in Los Angeles and at UCLA. Directors will have more information to work with in December when they consider the report of CIRM's external review panel, which conducted three days of hearings last week. The public was barred from most of those proceedings, and there are few clues concerning the direction of the blue-ribbon panel's recommendations.
Here are links to key documents on CIRM's future spending scenarios: Projected cash flow, memo on cash flow and more projections.
Also before the board are applications for $80 million for early translational research. Three applicants whose proposals were rejected by reviewers have filed petitions seeking to reverse the decisions. They are Sophie Deng of the Jules Stein Eye Institute at UCLA, Leif Havton, also of UCLA and Frederick Meyers and Kit Lam of UC Davis. (You can find their appeals by clicking on their names.)
The appeal process itself, which has troubled the board for several years, may also be modified this week. A proposal that would formalize a process for sending grants back to reviewers for additional examination is on the table. The staff information on the plan said,
Missing from the proposed changes is one dealing with automatic forgiveness of loans to businesses under specified conditions. It appears to be connected to an application from iPierian, Inc., in the early translational round. However, the changes would apply to all loans to businesses and remove financial ambiguity that could be a stumbling block for some enterprises.
The changes came before the Finance Subcommittee last week, but some board members raised questions about them. Plus the panel did not have a quorum and could not legally act. The Finance Subcommittee has scheduled a meeting for Oct. 26 to consider the proposal again. It would then go to a special teleconference meeting in the board, if necessary.
CIRM has not provided a link to the loan forgiveness changes in the Oct. 26 agenda, but they can be found in a document here.
The public will be able to participate in the CIRM board meeting this week at teleconference locations in Washington, D.C., and Pleasanton in Northern California. The meeting can be heard on the Internet as well, but that audiocast does not permit participation.
Specific locations and instructions for the audiocast can be found on the agenda.
The $1.6 billion is a new figure for the public. Previously it was assumed the agency had $2 billion left, having committed $1 billion in awards. However, $2 billion figure did not include operational expenses, such as interest, legal costs and $180 million for administration through 2016.
The CIRM board is not likely to make a final decision on its strategic spending plan at the meeting Wednesday and Thursday in Los Angeles and at UCLA. Directors will have more information to work with in December when they consider the report of CIRM's external review panel, which conducted three days of hearings last week. The public was barred from most of those proceedings, and there are few clues concerning the direction of the blue-ribbon panel's recommendations.
Here are links to key documents on CIRM's future spending scenarios: Projected cash flow, memo on cash flow and more projections.
Also before the board are applications for $80 million for early translational research. Three applicants whose proposals were rejected by reviewers have filed petitions seeking to reverse the decisions. They are Sophie Deng of the Jules Stein Eye Institute at UCLA, Leif Havton, also of UCLA and Frederick Meyers and Kit Lam of UC Davis. (You can find their appeals by clicking on their names.)
The appeal process itself, which has troubled the board for several years, may also be modified this week. A proposal that would formalize a process for sending grants back to reviewers for additional examination is on the table. The staff information on the plan said,
“When a material dispute of fact exists and the Board is unable to resolve the issue at the meeting at which the application is considered, the Board may conditionally deny funding for the application, subject to a limited analysis of the factual issue or issues identified by the Board. The option for additional analysis is not a reconsideration of the application as a whole, but is limited to consideration of the issue or issues identified by the Board. This option should be reserved only for those circumstances in which the Board is unable to reach a decision at meeting at which the application is presented because of the factual dispute or question. Programmatic issues, such as whether the agency’s portfolio is well-balanced among diseases, should not be a justification for additional analysis, nor should clear errors in the review of an application that have been identified by staff and presented to the Board during the meeting at which the application is considered.”Also before the board is CIRM's second recruiting grant to a scientist, as yet unidentified. It would provide $4.9 million to the “mid-career neuroscientist” in addition to incentives provided by the recruiting institution. The reviewer summary said,
“Reviewers characterized the PI’s research vision and plans as truly innovative, novel, ambitious, and important. The research focus on devastating and currently incurable blinding diseases was viewed as highly significant, with a potential to revolutionize the field. Reviewers were confident that the PI’s research would contribute to both the critical basic science and preclinical advances that will underlie novel therapies.”Other items before the board include a proposal to spend $600,000 to provide seed money for an online, open-access journal for translational stem cell research, and changes in the loan administration policy. Most of the changes appear to be a straight-forward clarification of language that removes questions by business, which is the target of the loan program that was once described as a $500 million effort.
Missing from the proposed changes is one dealing with automatic forgiveness of loans to businesses under specified conditions. It appears to be connected to an application from iPierian, Inc., in the early translational round. However, the changes would apply to all loans to businesses and remove financial ambiguity that could be a stumbling block for some enterprises.
The changes came before the Finance Subcommittee last week, but some board members raised questions about them. Plus the panel did not have a quorum and could not legally act. The Finance Subcommittee has scheduled a meeting for Oct. 26 to consider the proposal again. It would then go to a special teleconference meeting in the board, if necessary.
CIRM has not provided a link to the loan forgiveness changes in the Oct. 26 agenda, but they can be found in a document here.
The public will be able to participate in the CIRM board meeting this week at teleconference locations in Washington, D.C., and Pleasanton in Northern California. The meeting can be heard on the Internet as well, but that audiocast does not permit participation.
Specific locations and instructions for the audiocast can be found on the agenda.
Thursday, October 07, 2010
CIRM Directors to Consider $600,000 Online Journal Plan
Coming up in only three business days is a meeting of the Finance Subcommittee of the California stem cell agency, which is expected to act on a $600,000 proposal to create an online scientific journal and alter CIRM's fledgling loan program for biotech businesses.
No specifics are available, however, from CIRM's Web site, which makes it difficult for interested parties to comment thoughtfully. In fact, the agency's de facto policy of regularly withholding until the last minute details on proposals coming before its directors discourages the public from commenting.
Also on tap is “consideration” of projected cash flows for the agency in connection with its strategic plan, which is scheduled for a sweeping, two-day, closed-door review next week. It is unclear why the cash flow matter is coming before the directors' Finance Subcommittee since it would not appear to require action. It may be a discussion proposal to set the stage for creating a policy for future expenditures – such as spending the agency's cash more rapidly -- sooner rather than later.
Regarding the loan policy, the agenda for the Finance meeting said only that the program, which originally was touted as a $500 million effort, would be amended. No other clue was offered concerning the changes. CIRM has made only one, $20 million loan in the program.
The journal proposal is part of the CIRM budget that was approved last June. At the time, CIRM President Alan Trounson told directors,
We later asked for more details from CIRM. Don Gibbons, CIRM's chief communications officers, sent along a draft of an RFP. The proposed RFP dates back to July 26 and may well change. But it says that raising unique translational issues to a higher priority in journals would accelerate the entire field.
The draft RFP called for a three-year subsidy of the online, open access publication and required a business plan that would demonstrate self-sustainibility at the end of that period.
During next Tuesday's meeting, the public can participate at teleconference locations in San Francisco, San Diego, Stanford, Irvine and La Jolla. Specific addresses can be found on the meeting agenda.
No specifics are available, however, from CIRM's Web site, which makes it difficult for interested parties to comment thoughtfully. In fact, the agency's de facto policy of regularly withholding until the last minute details on proposals coming before its directors discourages the public from commenting.
Also on tap is “consideration” of projected cash flows for the agency in connection with its strategic plan, which is scheduled for a sweeping, two-day, closed-door review next week. It is unclear why the cash flow matter is coming before the directors' Finance Subcommittee since it would not appear to require action. It may be a discussion proposal to set the stage for creating a policy for future expenditures – such as spending the agency's cash more rapidly -- sooner rather than later.
Regarding the loan policy, the agenda for the Finance meeting said only that the program, which originally was touted as a $500 million effort, would be amended. No other clue was offered concerning the changes. CIRM has made only one, $20 million loan in the program.
The journal proposal is part of the CIRM budget that was approved last June. At the time, CIRM President Alan Trounson told directors,
“What we would like to do is create an interest in one of the journals to bring out a translational journal which was focused on stem cell translation and for them to do all of the independent editing and all the reviewing and so forth.”He said it was needed to provide a forum for discussion of regulatory issues and publication of research with negative results. He said that currently “translational papers” are scattered and hard to find.
We later asked for more details from CIRM. Don Gibbons, CIRM's chief communications officers, sent along a draft of an RFP. The proposed RFP dates back to July 26 and may well change. But it says that raising unique translational issues to a higher priority in journals would accelerate the entire field.
The draft RFP called for a three-year subsidy of the online, open access publication and required a business plan that would demonstrate self-sustainibility at the end of that period.
During next Tuesday's meeting, the public can participate at teleconference locations in San Francisco, San Diego, Stanford, Irvine and La Jolla. Specific addresses can be found on the meeting agenda.
Wednesday, February 03, 2010
CIRM Directors Change Big Biotech Loan Program
SAN FRANCISCO – Directors of the California stem cell agency tonight approved changes in the terms of its $500 million biotech loan program with little discussion and no dissent.
Approved were the guidelines that can be found here. Elona Baum, CIRM general counsel, highlighted some of the changes from the previous loan terms. They included lowering the minimum size of a loan below $3 million under some circumstances, designating the default interest rate as LIBOR plus 2 percent and compounding interest instead of using simple interest.
The changes also included new terms for use of warrants as part of the loan process and acceleration of loan payments in the event of a change of control, at CIRM's discretion. Also approved were extensions of loans beyond five years up to 10, with payment of 25 percent of accrued interest and an increased interest rate each year. Loans could be extended beyond 10 years with approval of the directors' Finance Subcommittee.
No biotech businesses or members of the public commented on the changes. The loan terms are guidelines. CIRM staff is preparing a final Loan Administration Policy.
Also approved by CIRM directors were:
Initiation of a $40 million grant round for “tools and technology”
Regulations dealing with CIRM research standards
Creation of a directors Scientific Issues Subcommittee, but no members were named
Put off until March was a proposal for CIRM to begin to fund at least part of clinical trials. No details were available from CIRM.
The CIRM board briefly discussed last week's meeting of a key state panel that urged it to be more open, transparent and accountable. Among other things, the Citizens Financial Accountability Oversight Committee recommended that CIRM post online the statements of economic interest and travel expense claims of its board members and top management. Some members of the CIRM board said the committee's recommendations were not based on factual information.
The board also discussed a scathing San Diego Union-Tribune editorial this morning and generally expressed a desire to be able to respond quickly to negative articles. Some board members also expressed dismay that they had not been given a copy of the editorial early in the day. Duane Roth, a San Diego businessman and a CIRM director, has written a letter in response to the San Diego paper that he said he expected to see published this week.
(Editor's note: An earlier version of this item did not contain the sentence concerning board members dismay about not receiving a copy of the editorial earlier.)
Approved were the guidelines that can be found here. Elona Baum, CIRM general counsel, highlighted some of the changes from the previous loan terms. They included lowering the minimum size of a loan below $3 million under some circumstances, designating the default interest rate as LIBOR plus 2 percent and compounding interest instead of using simple interest.
The changes also included new terms for use of warrants as part of the loan process and acceleration of loan payments in the event of a change of control, at CIRM's discretion. Also approved were extensions of loans beyond five years up to 10, with payment of 25 percent of accrued interest and an increased interest rate each year. Loans could be extended beyond 10 years with approval of the directors' Finance Subcommittee.
No biotech businesses or members of the public commented on the changes. The loan terms are guidelines. CIRM staff is preparing a final Loan Administration Policy.
Also approved by CIRM directors were:
Initiation of a $40 million grant round for “tools and technology”
Regulations dealing with CIRM research standards
Creation of a directors Scientific Issues Subcommittee, but no members were named
Put off until March was a proposal for CIRM to begin to fund at least part of clinical trials. No details were available from CIRM.
The CIRM board briefly discussed last week's meeting of a key state panel that urged it to be more open, transparent and accountable. Among other things, the Citizens Financial Accountability Oversight Committee recommended that CIRM post online the statements of economic interest and travel expense claims of its board members and top management. Some members of the CIRM board said the committee's recommendations were not based on factual information.
The board also discussed a scathing San Diego Union-Tribune editorial this morning and generally expressed a desire to be able to respond quickly to negative articles. Some board members also expressed dismay that they had not been given a copy of the editorial early in the day. Duane Roth, a San Diego businessman and a CIRM director, has written a letter in response to the San Diego paper that he said he expected to see published this week.
(Editor's note: An earlier version of this item did not contain the sentence concerning board members dismay about not receiving a copy of the editorial earlier.)
Tuesday, February 02, 2010
The Latest on Changes in CIRM's Biotech Loan Program
CIRM today reported another change in what is to be expected concerning alterations in the $500 million biotech loan program at tomorrow's and Thursday's meetings of its board of directors.
In an email, Don Gibbons, CIRM's chief communications officer, said,
In an email, Don Gibbons, CIRM's chief communications officer, said,
“There is a bit of change again in the agenda. We decided that we needed the loan term guidelines for the Early Translational RFA and that the phone meeting of the board could not happen prior to posting that RFA. So the original agenda item has been split in two, the actual amendments to the loan administration policy will occur at a later meeting, but the term guidelines will be up for approval as related to the early translational RFA.”
Monday, February 01, 2010
CIRM Delays Action on Clinical Trials, Biotech Loan Changes
The California stem cell agency today said its directors would put off until their March meeting a discussion of a proposed foray into financing of clinical trials.
CIRM also said that directors would not vote this week on changes in its $500 million biotech loan program. Instead they are expected to act later on the proposal during a special telephonic meeting.
Both topics are on the agenda for this week's meeting in San Francisco, which begins on Wednesday and continues on Thursday.
In an email, Don Gibbons, CIRM's chief communications officer, said, “Chill on the (agenda) documents. The clinical RFA discussion is being put off until the March board meeting and the loan program vote will be at a special telephonic board meeting after everyone has had a chance to review the minor changes made by the finance subcommittee. Both these agenda alterations have been in the works for a few days, I just needed to verify them.”
Earlier posts (here and here) on the California Stem Cell Report have noted that CIRM had not posted an explanation of or a justification for the loan changes. CIRM also has not laid out just what is being proposed in the clinical trial venture. All of which makes it quite difficult for researchers, biotech businesses and the public to offer any sort of well-considered comment prior to board action.
The proposed loan guidelines, however, were posted today, but still missing is an explanation of why they are needed or exactly how the changes departed from the original plan.
Also posted today, under the topic of membership of a directors Scientific Issues Subcommittee, was a 12-page report on the prescreening process in use at the agency for some grant rounds. The report included a survey of 117 applicants.
The report said, in part, that “the results suggest that applicants, PreApp (preapplication) reviewers and GWG (the scientific grant review group) reviewers favor this process. The process has created an opportunity for many applicants to compete that have not previously applied to CIRM and a significant number of these have succeeded in acquiring a grant. The process allowed us to consider more proposals within a single review cycle than would have been possible using conventional review.”
CIRM also said that directors would not vote this week on changes in its $500 million biotech loan program. Instead they are expected to act later on the proposal during a special telephonic meeting.
Both topics are on the agenda for this week's meeting in San Francisco, which begins on Wednesday and continues on Thursday.
In an email, Don Gibbons, CIRM's chief communications officer, said, “Chill on the (agenda) documents. The clinical RFA discussion is being put off until the March board meeting and the loan program vote will be at a special telephonic board meeting after everyone has had a chance to review the minor changes made by the finance subcommittee. Both these agenda alterations have been in the works for a few days, I just needed to verify them.”
Earlier posts (here and here) on the California Stem Cell Report have noted that CIRM had not posted an explanation of or a justification for the loan changes. CIRM also has not laid out just what is being proposed in the clinical trial venture. All of which makes it quite difficult for researchers, biotech businesses and the public to offer any sort of well-considered comment prior to board action.
The proposed loan guidelines, however, were posted today, but still missing is an explanation of why they are needed or exactly how the changes departed from the original plan.
Also posted today, under the topic of membership of a directors Scientific Issues Subcommittee, was a 12-page report on the prescreening process in use at the agency for some grant rounds. The report included a survey of 117 applicants.
The report said, in part, that “the results suggest that applicants, PreApp (preapplication) reviewers and GWG (the scientific grant review group) reviewers favor this process. The process has created an opportunity for many applicants to compete that have not previously applied to CIRM and a significant number of these have succeeded in acquiring a grant. The process allowed us to consider more proposals within a single review cycle than would have been possible using conventional review.”
Sunday, January 24, 2010
CIRM Moving to Fund Clinical Trials
Directors of the California stem cell agency meet in San Francisco Feb. 3-4 to take up a proposal to begin funding enormously expensive clinical trials in some form or another.
No details are available yet on just what is being proposed, but clinical trials can run into hundreds of millions of dollars. And there is no assurance that a viable product will result. Only one out of five drugs that enter human testing make it to market, according to one estimate.
CIRM has already approved $1 billion in grants and loans, leaving $2 billion until its funding capacity runs out.
The agenda item for the clinical trials is terse and says only,
Normally biotech firms, with a handful of exceptions, are notable for their absence at CIRM board meetings. However, it would behoove any firms interested in either clinical trials or loans to be in attendance. They can comment on the proposals and learn more about the cash that is likely to be available.
No details are available yet on just what is being proposed, but clinical trials can run into hundreds of millions of dollars. And there is no assurance that a viable product will result. Only one out of five drugs that enter human testing make it to market, according to one estimate.
CIRM has already approved $1 billion in grants and loans, leaving $2 billion until its funding capacity runs out.
The agenda item for the clinical trials is terse and says only,
“Consideration of concept proposal for clinical trial funding and/or concept proposal for program funding to facilitate reaching clinical trial approvals within 12 months.”CIRM's strategic plan, approved last fall, says that the agency will develop proposals
“...to support clinical trials that would be expected to include partnerships with biotechnology and pharmaceutical companies, private investment, and other sources of financial support that are appropriate. This is an area of developmental responsibility for the vice president of R&D(yet to be hired). CIRM expects that its contributions would be proportionally smaller than other contributions from companies and other financial institutions but would remain meaningful and would ensure reasonable patient access to the new therapeutics that are developed."The plan continues,
“The program of clinical trials will be developed in partnership with other funding sources as a special interest of the VP R&D. The program will be focused on the delivery of research arising from the work in California on stem cells and related technologies and ensures the continuation and delivery of discoveries in basic stem cell biology into the clinic.”Also on tap are unspecified, proposed changes in CIRM's $500 million biotech loan program, which anticipates default rates as high as 50 percent.
Normally biotech firms, with a handful of exceptions, are notable for their absence at CIRM board meetings. However, it would behoove any firms interested in either clinical trials or loans to be in attendance. They can comment on the proposals and learn more about the cash that is likely to be available.
Wednesday, January 20, 2010
Changes Looming in California's Biotech Loan Program
Proposed changes in the $500 million biotech loan program offered by California's stem cell research agency will come before its directors at a meeting early tomorrow morning.
Interested parties can listen in and comment at a variety of locations in California and one at the Charles Hotel in Cambridge, Mass., a state that has a robust biotech community.
CIRM has posted the proposed changes on its website, but the material does not offer an explanation or justification for the revisions. They seem to have grown out of meeting in December of the Loan Task Force and are coming before the directors' Finance Subcommittee at 7:30 a.m.(10:30 a.m. in Massachusetts). The 102-page transcript of the task force meeting can be found here.
In addition to the Charles Hotel, the public can take part in the teleconference session at locations in Palo Alto, Irvine, Menlo Park, San Diego, Pleasanton, Hillsborough, Berkeley and San Francisco. Specific addresses can be found on the agenda.
As for the location within the Charles Hotel, interested parties should call CIRM at 415 396-9117. Presumably one of the directors is staying at the hotel.
Interested parties can listen in and comment at a variety of locations in California and one at the Charles Hotel in Cambridge, Mass., a state that has a robust biotech community.
CIRM has posted the proposed changes on its website, but the material does not offer an explanation or justification for the revisions. They seem to have grown out of meeting in December of the Loan Task Force and are coming before the directors' Finance Subcommittee at 7:30 a.m.(10:30 a.m. in Massachusetts). The 102-page transcript of the task force meeting can be found here.
In addition to the Charles Hotel, the public can take part in the teleconference session at locations in Palo Alto, Irvine, Menlo Park, San Diego, Pleasanton, Hillsborough, Berkeley and San Francisco. Specific addresses can be found on the agenda.
As for the location within the Charles Hotel, interested parties should call CIRM at 415 396-9117. Presumably one of the directors is staying at the hotel.
Tuesday, December 08, 2009
Venture Capitalist, Bankers to Weigh In on $500 Million Loan Program
The California stem cell agency is promising an interesting cast of characters for its meeting tomorrow concerning its fledgling $500 million biotech loan program.
Representatives from Proteus Venture Partners, VitaPath Genetics, Inc., Burrill & Co. and Silicon Valley Bank have been invited to appear, according to a document posted today.
Duane Roth, chairman of the CIRM Loan Task Force, says that the panel of CIRM directors will review the initial loan policy and terms in light of feedback from potential applicants. It may well be that significant changes in the loan program will be forthcoming.
Also added to the agenda are links to the loan administration policy and terms.
Representatives from Proteus Venture Partners, VitaPath Genetics, Inc., Burrill & Co. and Silicon Valley Bank have been invited to appear, according to a document posted today.
Duane Roth, chairman of the CIRM Loan Task Force, says that the panel of CIRM directors will review the initial loan policy and terms in light of feedback from potential applicants. It may well be that significant changes in the loan program will be forthcoming.
Also added to the agenda are links to the loan administration policy and terms.
Friday, December 04, 2009
Changes Upcoming in $500 Million State Biotech Loan Program?
California biotech firms looking to dip into a new $500 million source of capital would be well-advised to sit in on a meeting next week of the state's stem cell agency.
A group of its directors – the Loan Task Force – meets next Wednesday at noon on the Stanford University campus to discuss the state of the unprecedented lending program and, more specifically, the loan terms. The session offers a golden opportunity to learn about the program, influence its direction and chat with key figures at the $3 billion funding agency.
The loan program is clearly in its formative stages. CIRM only approved its first loan --- $20 million loan to Novocell, Inc., of San Diego – a little more than a month ago.
Curiously, while CIRM has embarked on an effort to become more friendly to the biotech industry, it has provided little public information about the specifics to be discussed next week. That's the sort of stuff, however, that is needed to draw busy executives to the task force meeting to provide valuable input on the program and to encourage them to seek funding.
With three business days left before the task force meeting, the agenda states only that the panel will hear a presentation and discuss loan terms.
In order to provide more information to businesses, the public and other interested parties, the California Stem Cell Report yesterday queried Duane Roth, chairman of the task force and vice chairman of the stem cell agency, about next week's meeting.
Roth, a San Diego businessman, told us that the meeting will include a review of the initial loan policy and terms in light of feedback from potential applicants. He indicated that the session will focus on items that need further review or adjustment. Those specifics and any others identified at the meeting would come back to the task force and then the full CIRM board for action on later dates. It is fair to say that significant changes could be in the works.
The biotech loan program is significantly different than ordinary commercial lending. It specifically targets firms that otherwise could not raise cash or secure conventional financing. The idea is provide help to firms that are in what is known as the financial “valley of death.”
For more on the biotech loan program, click on the label “biotech loans” at the end of this article. You can find a list of members of loan task force here.
A group of its directors – the Loan Task Force – meets next Wednesday at noon on the Stanford University campus to discuss the state of the unprecedented lending program and, more specifically, the loan terms. The session offers a golden opportunity to learn about the program, influence its direction and chat with key figures at the $3 billion funding agency.
The loan program is clearly in its formative stages. CIRM only approved its first loan --- $20 million loan to Novocell, Inc., of San Diego – a little more than a month ago.
Curiously, while CIRM has embarked on an effort to become more friendly to the biotech industry, it has provided little public information about the specifics to be discussed next week. That's the sort of stuff, however, that is needed to draw busy executives to the task force meeting to provide valuable input on the program and to encourage them to seek funding.
With three business days left before the task force meeting, the agenda states only that the panel will hear a presentation and discuss loan terms.
In order to provide more information to businesses, the public and other interested parties, the California Stem Cell Report yesterday queried Duane Roth, chairman of the task force and vice chairman of the stem cell agency, about next week's meeting.
Roth, a San Diego businessman, told us that the meeting will include a review of the initial loan policy and terms in light of feedback from potential applicants. He indicated that the session will focus on items that need further review or adjustment. Those specifics and any others identified at the meeting would come back to the task force and then the full CIRM board for action on later dates. It is fair to say that significant changes could be in the works.
The biotech loan program is significantly different than ordinary commercial lending. It specifically targets firms that otherwise could not raise cash or secure conventional financing. The idea is provide help to firms that are in what is known as the financial “valley of death.”
For more on the biotech loan program, click on the label “biotech loans” at the end of this article. You can find a list of members of loan task force here.
Wednesday, November 18, 2009
Biotech Firms: The Undead of Capitalism?
The Wall Street Journal today did not describe biotech companies as zombies but it might as well have.
That, despite an increasingly brighter financial picture for the biotech business.
All this was contained in a piece by Brett Arends. He said the good news – the brighter picture – is the bad news. He wrote that the biotech industry, which includes stem cells, is “incredibly popular with many private investors,” but is a “risky area with very mixed results.”
Arends said,
He continued,
Arends quoted Don Collins of Ironwood Capital Management as saying,
Arends concluded,
(The WSJ may have restricted the Arends article to subscribers. If you cannot access it, send an email to djensen@californiastemcellreport.com, and we will send the article to you.)
That, despite an increasingly brighter financial picture for the biotech business.
All this was contained in a piece by Brett Arends. He said the good news – the brighter picture – is the bad news. He wrote that the biotech industry, which includes stem cells, is “incredibly popular with many private investors,” but is a “risky area with very mixed results.”
Arends said,
“It's hard enough to value a profitable company that makes widgets or coffee. How do you value a speculative science project that may not come to fruition for years, if ever? ...(A)nalysts in the sector sometimes talk about 'the probability-adjusted net present value of peak sales,' essentially guessing how much a company might make off a drug at peak sales, lowering that value to reflect how long it will take to get there, and then calculating the probability that a drug will make it through clinical trials and win approval.”
He continued,
“And then there's the dormancy risk—few biotech companies go bankrupt....Many of them just go nowhere.”Sort of like zombie enterprises, the undead of capitalism.
Arends quoted Don Collins of Ironwood Capital Management as saying,
"They don't have any debt, so there is no one to force them out of business. So as the cash dwindles, the companies just shrink and shrink and shrink, until they have three guys working there and a business development manager going out looking for money.. They can stay like that for a long time.'The WSJ article pointed out that the average retiurn on a biotech IPO since 2001 has been minus 18 percent. Between 1995 and 2000, it was a meager 8.44 percent. You could have earned more investing in plain old bonds or cash.
“Old biotechs, in other words, never die.”
Arends concluded,
“Capitalism famously depends on 'creative destruction,' in which bad or weak companies get weeded out. The strong survive. The best industries in which to invest are often those which have been starved of capital for a generation—think gold and oil. The worst, in turn, are often those like biotech, where it's all too easy to get capital without showing results.”Something for the California stem cell agency to think about as it kicks off its unprecedented, $500 million biotech loan program, which optimistically projects “profits” of $100 million despite default rates of up 50 percent.
(The WSJ may have restricted the Arends article to subscribers. If you cannot access it, send an email to djensen@californiastemcellreport.com, and we will send the article to you.)
Tuesday, November 17, 2009
CIRM Releases Bank Info That It Once Withheld
The California stem cell agency late today released information on a $250,000 contract with Square 1 bank that the agency previously had refused to disclose at the request of Square 1.
The move was prompted by inquiries from the California Stem Cell Report about the withholding of the information, which is public record and should have been released earlier.
Don Gibbons, chief communications officer for CIRM, said in an email,
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., was harshly criticial of the earlier censorship of the Square 1 contract. Following the release of the information, he said,
The current contract will serve as a baseline for future arrangements. Square 1 and CIRM staff will be working together to smooth out the process and build relationships that will be valuable in the future. The linkage between Square 1 and the $3 billion stem cell agency, the world's largest source of funding for human embryonic stem cell research, will also enhance the bank's prestige and ability to secure additional profitable business.
It is also likely that the fee structure, as now disclosed by CIRM, will be modified in future arrangements, which will require a new, public bidding process.
The redacted contract can be found here. The newly released information can be found here.
The move was prompted by inquiries from the California Stem Cell Report about the withholding of the information, which is public record and should have been released earlier.
Don Gibbons, chief communications officer for CIRM, said in an email,
“After your inquiry, we contacted Square 1 to see if they would reconsider their request to treat the pricing information as confidential, in the interest of public disclosure. Square 1 has agreed that we should produce an unredacted copy of attachment B to the contract, but they would like to note that they sought to protect the pricing information because they do regard it as proprietary (i.e., it is not known to their competitors and could give them a competitive advantage), but that they will waive their objection to producing the information in the interests of transparency. The unredacted document is attached.CIRM is to be commended for pushing forward with its effort to release the information. Square 1 did the right thing as well, even though it contends the information should be proprietary. We wrote earlier about the implications for CIRM in connection with failing to comply with state public record law.
“CIRM staff initially redacted the pricing information at Square 1’s request, but we remain responsible for deciding whether to honor such requests. We could have asked Square 1 to waive its request before we produced the document. In retrospect, we should have slowed down and taken the time to do that.”
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., was harshly criticial of the earlier censorship of the Square 1 contract. Following the release of the information, he said,
“I'm glad CIRM is doing the right thing. I hope the staff learns something from this experience.”One of the downsides for many businesses in dealing with the state is that it does require disclosure of information that many business would like to keep out of the public gaze. But there can be great benefits as well. In the case of Square 1, this initial contract gives it a leg up on competitors in terms of securing much a more lucrative, long-term contract with CIRM for its fledgling, $500 million biotech loan program.
The current contract will serve as a baseline for future arrangements. Square 1 and CIRM staff will be working together to smooth out the process and build relationships that will be valuable in the future. The linkage between Square 1 and the $3 billion stem cell agency, the world's largest source of funding for human embryonic stem cell research, will also enhance the bank's prestige and ability to secure additional profitable business.
It is also likely that the fee structure, as now disclosed by CIRM, will be modified in future arrangements, which will require a new, public bidding process.
The redacted contract can be found here. The newly released information can be found here.
Thursday, October 29, 2009
Blogger Talks to Novocell About First CIRM Loan
Little information was dispensed yesterday by the California stem cell agency about the first step in what is proposed to be a $500 million loan program for the biotech industry.
But a biopharmaceutical industry blogger provided some information about the $20 million loan to Novocell, Inc., a San Diego stem cell engineering company with an emphasis on diabetes therapies. It is the first beneficiary of the loan program.
CIRM directors approved the loan to help develop a novel cellular therapy for diabetes. The disease team effort includes a $2.8 million Novocell contract with Jeff Bluestone of UC San Francisco.
Alex Lash of the In Vivo blog talked to Novocell CEO John West. Kash wrote,
(Editor's note: An earlier version of this item misspelled Alex Lash's last name as Kash.)
But a biopharmaceutical industry blogger provided some information about the $20 million loan to Novocell, Inc., a San Diego stem cell engineering company with an emphasis on diabetes therapies. It is the first beneficiary of the loan program.
CIRM directors approved the loan to help develop a novel cellular therapy for diabetes. The disease team effort includes a $2.8 million Novocell contract with Jeff Bluestone of UC San Francisco.
Alex Lash of the In Vivo blog talked to Novocell CEO John West. Kash wrote,
“West...says the cash infusion from 'the stem-cell experts' was a validation of the firm's work and puts it in a 'good position' to look for its next round of venture funding.
“There are some minor details to work out first, though. West says Novocell hasn't yet received a loan document from CIRM and isn't exactly sure about the terms. Based on the loan program's guidelines, West is aiming for 10% warrant coverage and a payback period closer to 10 years, the far end of the range. 'We have a good feeling we'll work it out,' said West.
“CIRM loans will certainly have more generous terms than typical bank loans, and the agency has said it doesn't expect many of them to be paid back. West said he was surprised that Novocell was the only for-profit to lead a disease team application. But he noted that not many of the state's stem-cell related firms were far enough along to push a program into the clinic within four years, one of the top criteria of the agency's reviewers.”
(Editor's note: An earlier version of this item misspelled Alex Lash's last name as Kash.)
Thursday, October 22, 2009
CIRM Directors Review Loan Program Changes
If you are connected to a biotech firm in California considering borrowing money from the state stem cell agency, now is the time to take a look at some important elements dealing with how to get the cash.
They will be considered tomorrow at an 8 a.m. teleconference meeting of the CIRM directors Finance Subcommittee. Public meeting locations are in San Francisco, Irvine, Menlo Park, Los Angeles, San Diego and Waco, Texas. Specific address can be found on the agenda.
We have not had a chance to read the background material carefully but wanted to call attention to its availability. One of the documents appears to have been posted only today. The two others seem to have been posted two days ago.
Here are the documents in question: criteria for evaluation of eligibility for a recourse loan, financial review process for loans and changes in the CIRM loan administration policy.
They will be considered tomorrow at an 8 a.m. teleconference meeting of the CIRM directors Finance Subcommittee. Public meeting locations are in San Francisco, Irvine, Menlo Park, Los Angeles, San Diego and Waco, Texas. Specific address can be found on the agenda.
We have not had a chance to read the background material carefully but wanted to call attention to its availability. One of the documents appears to have been posted only today. The two others seem to have been posted two days ago.
Here are the documents in question: criteria for evaluation of eligibility for a recourse loan, financial review process for loans and changes in the CIRM loan administration policy.
Friday, October 16, 2009
Square 1 Wins CIRM Biotech Loan Pilot Project
The California stem cell agency has signed a $250,000 contract with Square 1 bank to perform a financial review of the firms seeking the first-ever CIRM loans in a program that could reach $500 million or so.In response to a query, Don Gibbons, chief communications officer for CIRM, said today that the fee-for-service arrangement covered only this year's $210 million disease team round, which is budgeted for 12 awards.
Next Friday, the CIRM directors' Finance Subcommittee is scheduled to consider financial review procedures.
Originally CIRM had hoped to have more than one firm available to perform reviews because of the possibility of conflicts of interest. But last month, the agency decided to go with one firm on a pilot project basis.
At a meeting Sept. 15, CIRM Chairman Robert Klein told directors,
“By having a pilot contract, we can learn a great deal, the lender can learn, and we can be in a position in December or early next year of bringing back something that has gone back to the (directors) Finance Committee again and has more experience in it on the implementation side rather than getting ourselves into a large master contract without that case study value on a very limited and controlled basis.”Klein said the number of possible loans in the disease team round is “very small.”
John Robson, vice president for CIRM operations, said the next possible round of loans(early translation RFA) would not come up until the middle of next year. He said that would allow the staff to develop a more robust proposal that would engage more than one underwriter.
Chris Woolley(see photo), president of the life sciences division of Square 1 in San Diego, offered the original bid on behalf of his firm. Woolley is a past president of the San Diego Venture Group and formerly served on the board of Biocom, an industry group in that area.
Here is a link to Woolley's original proposal earlier this year.
Thursday, October 15, 2009
CIRM Tackles $500 Million Biotech Loan Issues
A key panel of directors of the California stem cell agency next week will wrestle with a few fundamental issues concerning its ambitious, $500 million biotech loan program.
Matters such as the process for financial review of loan applications, unspecified changes in the loan administration policy and criteria for eligibility for recourse loans are on the table for a teleconference meeting of the directors' Finance Subcommittee.
Biotech firms interested in participating in the loan program would be well-advised to sit in on the Oct. 23 session at one of eight teleconference locations.
CIRM's lending effort, which will use borrowed funds (bonds) to make the loans, is slated to get underway with this year's $210 million disease team effort, the largest ever research round by CIRM.
CIRM plans to loan money to risky enterprises that otherwise could not secure financing. Loan failure rates of up to 50 percent in the program have been predicted by CIRM. However, CIRM projections estimate that the effort will generate $100 million in profits that can be recycled into additional grants or loans.
So far, no background information has been posted by the agency concerning the issues to be discussed Oct. 23. at next week's meeting.
Interested parties can participate in the session at seven locations in California and one in Waco, Texas, where a CIRM director is expected to located. The locations in California include San Francisco, Irvine, Hillsborough, Menlo Park, Palo Alto, Los Angeles and San Diego.
Specific addresses can be found on the agenda.
Matters such as the process for financial review of loan applications, unspecified changes in the loan administration policy and criteria for eligibility for recourse loans are on the table for a teleconference meeting of the directors' Finance Subcommittee.
Biotech firms interested in participating in the loan program would be well-advised to sit in on the Oct. 23 session at one of eight teleconference locations.
CIRM's lending effort, which will use borrowed funds (bonds) to make the loans, is slated to get underway with this year's $210 million disease team effort, the largest ever research round by CIRM.
CIRM plans to loan money to risky enterprises that otherwise could not secure financing. Loan failure rates of up to 50 percent in the program have been predicted by CIRM. However, CIRM projections estimate that the effort will generate $100 million in profits that can be recycled into additional grants or loans.
So far, no background information has been posted by the agency concerning the issues to be discussed Oct. 23. at next week's meeting.
Interested parties can participate in the session at seven locations in California and one in Waco, Texas, where a CIRM director is expected to located. The locations in California include San Francisco, Irvine, Hillsborough, Menlo Park, Palo Alto, Los Angeles and San Diego.
Specific addresses can be found on the agenda.
Wednesday, September 16, 2009
Prop. 71 Minutia Stalls CIRM Again
SAN FRANCISCO – The board of directors of the California stem cell agency Tuesday failed to achieve a quorum and was forced to put off action on regulations tied to its ambitious, $210 million disease team grant round, the largest ever in CIRM history.
That means it will be at least another two weeks or more before the board can act on the IP rules that it needs for disease team project. The grants are scheduled to be awarded later this year.
The board has been handicapped for years by its super-quorum requirement, 65 percent of its 29 members. Tuesday, the quorum was 19 but only 18 answered the roll call during the special, teleconference meeting based here. Twenty-one had been expected. Without a quorum, the board cannot take legal action.
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said today that problems with quorums are a persistent and important issue at CIRM. Simpson has followed the matter for several years. In one case in 2008, he wrote about how the board “essentially” drafted a member of the audience to raise a quorum.
Commenting today, he said,
The Little Hoover Commission, the state's government good government panel, earlier this year cited CIRM's problems with achieving quorums. But the CIRM board last month rejected suggestions that the quorum be reduced to 50 percent. It relied on its attorney's opinion that to do so would “undermine” the intent of the voters and would leave the board open to being captured by a minority.
However, super-majority requirements actually facilitate minority dominance of bodies such as the CIRM board. On Tuesday, the absence of one member paralyzed the board. In other cases, a few members have left CIRM board meetings and thus prevented it from taking action. Conceivably, 11 members of the board could control it by simply refusing to attend unless their wishes prevailed.
The regulations under consideration Tuesday dealt with intellectual property requirements. Initially, they appeared to be relatively non-controversial, although CIRM director Susan Bryant, vice chancellor for research, University of California, Irvine, raised anew concerns expressed last July by the University of California (statewide).
Director William R. Brody, president of the Salk Institute, also criticized some of the proposed regulations as “absurd” and suggested that language from federal IP law be adopted. However, others noted that CIRM deliberately moved away from federal law in its development of the regulations over several years.
In the absence of a quorum, CIRM Chairman Robert Klein said the proposed regulations will be taken up later after CIRM director Ed Penhoet, head of the IP Task Force and a co-founder of Chiron, has a chance to discuss them with Brody and Bryant.
The CIRM board also did not act on hiring underwriters (more than one is needed because of potential conflicts of interest) to run its $500 million biotech loan program. The effort is scheduled to begin with the disease team grant round. But the board was told that a very small number of potential borrowers are involved in that round.
Instead of hiring two or more underwriters, John Robson, CIRM vice president for operations, said the lending effort can begin with a pilot project involving one underwriter. He said that it will help the agency develop a better underwriting effort for the directors to approve next year. Following the meeting, Robson said he hopes to conclude a pilot agreement within days.
You can read more on quorum problems, as discussed by Simpson, here, here, here, here and here.
(Editor's note: In an earlier version of this item, the quotation from John M. Simpson did not contain the word "initial" in parentheses.)
That means it will be at least another two weeks or more before the board can act on the IP rules that it needs for disease team project. The grants are scheduled to be awarded later this year.
The board has been handicapped for years by its super-quorum requirement, 65 percent of its 29 members. Tuesday, the quorum was 19 but only 18 answered the roll call during the special, teleconference meeting based here. Twenty-one had been expected. Without a quorum, the board cannot take legal action.
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said today that problems with quorums are a persistent and important issue at CIRM. Simpson has followed the matter for several years. In one case in 2008, he wrote about how the board “essentially” drafted a member of the audience to raise a quorum.
Commenting today, he said,
“This clearly shows that (the board) has not resolved its nagging problem with mustering a quorum. They should have taken the Little Hoover Commission's (initial) advice and moved to make a simple majority all that is necessary to conduct business. Instead, they insist on a meaningless charade that wasted the time of 18 very busy people.”The quorum mandate is written into state law by Prop. 71, which created the stem cell agency in 2004. It cannot be changed without a vote of the people or by the legislature. But the latter involves another super-majority requirement, 70 percent of both houses of the legislature and the signature of the governor.
The Little Hoover Commission, the state's government good government panel, earlier this year cited CIRM's problems with achieving quorums. But the CIRM board last month rejected suggestions that the quorum be reduced to 50 percent. It relied on its attorney's opinion that to do so would “undermine” the intent of the voters and would leave the board open to being captured by a minority.
However, super-majority requirements actually facilitate minority dominance of bodies such as the CIRM board. On Tuesday, the absence of one member paralyzed the board. In other cases, a few members have left CIRM board meetings and thus prevented it from taking action. Conceivably, 11 members of the board could control it by simply refusing to attend unless their wishes prevailed.
The regulations under consideration Tuesday dealt with intellectual property requirements. Initially, they appeared to be relatively non-controversial, although CIRM director Susan Bryant, vice chancellor for research, University of California, Irvine, raised anew concerns expressed last July by the University of California (statewide).
Director William R. Brody, president of the Salk Institute, also criticized some of the proposed regulations as “absurd” and suggested that language from federal IP law be adopted. However, others noted that CIRM deliberately moved away from federal law in its development of the regulations over several years.
In the absence of a quorum, CIRM Chairman Robert Klein said the proposed regulations will be taken up later after CIRM director Ed Penhoet, head of the IP Task Force and a co-founder of Chiron, has a chance to discuss them with Brody and Bryant.
The CIRM board also did not act on hiring underwriters (more than one is needed because of potential conflicts of interest) to run its $500 million biotech loan program. The effort is scheduled to begin with the disease team grant round. But the board was told that a very small number of potential borrowers are involved in that round.
Instead of hiring two or more underwriters, John Robson, CIRM vice president for operations, said the lending effort can begin with a pilot project involving one underwriter. He said that it will help the agency develop a better underwriting effort for the directors to approve next year. Following the meeting, Robson said he hopes to conclude a pilot agreement within days.
You can read more on quorum problems, as discussed by Simpson, here, here, here, here and here.
(Editor's note: In an earlier version of this item, the quotation from John M. Simpson did not contain the word "initial" in parentheses.)
Wednesday, September 09, 2009
CIRM Nearing Agreement on Underwriters for $500 Million Biotech Loan Program
The board of the California stem cell agency will hold a special, teleconference meeting next Tuesday to consider hiring a bank or two to run its new and ambitious $500 million biotech lending program.
Also on the agenda are revised IP rules dealing with affordable access to taxpayer-financed stem cell therapies, although there appears to be no controversy about the rules at this point.
CIRM had hoped to have the bank underwriters in place by now for its $210 million disease team program, the largest research round ever for CIRM. Applications for that program are being reviewed behind closed doors today through Friday in San Francisco by the CIRM Grants Working Group.
Three banks were under consideration to run the biotech loan effort. They were Comerica, Square One and Silicon Valley Bank. The first two provided the lowest cost estimates, with Comerica coming in at $71,000 for handling a $20 million, six-year loan. More than one bank is expected to be hired because of the potential for conflicts of interest.
At the August CIRM board meeting, John Robson, vice president for CIRM operations, said that once the agency had some sort of initial agreement in place with Comerica and Square One, negotiations would follow with Silicon Valley Bank.
CIRM Chairman Robert Klein, who originated the concept for the biotech lending program, stressed the importance of moving forward with Silicon Valley Bank. He said,
CIRM plans to lend money to risky enterprises that otherwise could not secure financing. Loan failure rates of up to 50 percent in the program have been predicted by CIRM.
The first loans are scheduled to go out following formal approval later this year of winners in the disease team program.
The IP rules that are also under consideration next week stirred a flap at one point. The board, however, last month rescinded the controversial proposed changes.
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., and who raised the earlier concerns, says he is satisfied with the current proposed changes.
The public can listen to and participate in the board meeting at a number of locations throughout the state. Their specific addresses can be found on the agenda.
A transcript of last month's brief discussion of the biotech loan program can be found here.
Also on the agenda are revised IP rules dealing with affordable access to taxpayer-financed stem cell therapies, although there appears to be no controversy about the rules at this point.
CIRM had hoped to have the bank underwriters in place by now for its $210 million disease team program, the largest research round ever for CIRM. Applications for that program are being reviewed behind closed doors today through Friday in San Francisco by the CIRM Grants Working Group.
Three banks were under consideration to run the biotech loan effort. They were Comerica, Square One and Silicon Valley Bank. The first two provided the lowest cost estimates, with Comerica coming in at $71,000 for handling a $20 million, six-year loan. More than one bank is expected to be hired because of the potential for conflicts of interest.
At the August CIRM board meeting, John Robson, vice president for CIRM operations, said that once the agency had some sort of initial agreement in place with Comerica and Square One, negotiations would follow with Silicon Valley Bank.
CIRM Chairman Robert Klein, who originated the concept for the biotech lending program, stressed the importance of moving forward with Silicon Valley Bank. He said,
“Given the tight time frame, moving forward with Silicon Valley Bank is going to be important, if feasible, so that the board really has the full choice and the cost differences in front of them when they are asked to approve the delegated underwriters. With a prototype process, we will and have run into some issues with these banking institutions as they've -- their legal departments have understood the complexity of dealing with the state. So we need to bring forward, to the extent we can, all three opportunities for the board so the board can make a decision.”CIRM is seeking to hire a bank to run the program because the agency does not have the expertise or the staff to do the work. The banks would perform an analysis of business applicants, assess their operations and management and make recommendations.
CIRM plans to lend money to risky enterprises that otherwise could not secure financing. Loan failure rates of up to 50 percent in the program have been predicted by CIRM.
The first loans are scheduled to go out following formal approval later this year of winners in the disease team program.
The IP rules that are also under consideration next week stirred a flap at one point. The board, however, last month rescinded the controversial proposed changes.
John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., and who raised the earlier concerns, says he is satisfied with the current proposed changes.
The public can listen to and participate in the board meeting at a number of locations throughout the state. Their specific addresses can be found on the agenda.
A transcript of last month's brief discussion of the biotech loan program can be found here.
Monday, July 27, 2009
Biotech's Financial Troubles and CIRM's New Loan Program
The California stem cell agency is about to embark on an unprecedented, $500 million biotech lending program at a time when the industry finds itself in an “evolve or die” mode.
The loan effort has been sold to CIRM directors as a no-lose proposition that could generate $100 million in “profits” that could be plowed back into research. That would happen even with loan default rates as high as 50 percent, so the story goes.
However, all those predictions were based on assumptions from a different financial era – a time when the stock market was thriving, capital was flowing and optimism reigned.
Today, a much different picture is being painted by those who know the industry best.
The Burrill Report, published by the respected Burrill & Co. of San Francisco, today carried a piece by its editor-in-chief, Peter Winter – headlined “Evolve or Die” – concerning a recent report on the state of biotech. Winter wrote,
They point to lending plans to give CIRM stock warrants in the recipient companies and a stake in any IP that is developed. What hasn't been fully discussed is the total collapse of a loan recipient. In such a case, the warrants would be worthless. And also in such cases, IP can sometimes vanish and computer files disappear, leaving CIRM holding a multimillion-dollar, empty bag.
CIRM is currently looking at three firms that will evaluate the business models of the loan applicants. Assuming that Burrill and Ernst & Young are correct, that evaluation will be trickier than ever, raising questions about whether both CIRM and the evaluators it hires can step outside of the box. Doing so may pose uncomfortable financial risks for a state-funded agency. But it may also be the only way CIRM has any hope of securing either a scientific or financial return on its $500 million in high-risk loans.
(Editor's note: You can find a host of links to information on the biotech lending program, including its financial assumptions via this item. No business plan, however, exists for the effort.)
The loan effort has been sold to CIRM directors as a no-lose proposition that could generate $100 million in “profits” that could be plowed back into research. That would happen even with loan default rates as high as 50 percent, so the story goes.
However, all those predictions were based on assumptions from a different financial era – a time when the stock market was thriving, capital was flowing and optimism reigned.
Today, a much different picture is being painted by those who know the industry best.
The Burrill Report, published by the respected Burrill & Co. of San Francisco, today carried a piece by its editor-in-chief, Peter Winter – headlined “Evolve or Die” – concerning a recent report on the state of biotech. Winter wrote,
“In its 2009 Beyond Borders annual report on the biotechnology industry, Ernst & Young warns that the global financial crisis threatens to render the business models that have driven the sector to date unsustainable. According to Glen Giovannetti, Ernst & Young’s global biotechnology leader, the funding drought is placing these business models that fueled biotech’s growth since its inception under unprecedented strain.”Winter continued,
“Currently, biotech finds itself caught in a financial crisis that has analysts speculating whether many biotech companies can recover. The situation that they find themselves is different this time because this crisis is deep-rooted, systemic, and persistent.”Winter wrote,
“Those that do survive will have adapted to changes that are not only being brought about by the prevailing financial crisis, but also by several mega-trends that will shift existing paradigms and, in doing so, create new, sustainable business models, Giovannetti says.”CIRM's lending program is supposed to target the riskiest biotech firms for loans – ones that cannot find conventional or even venture capital financing. Some CIRM directors who support the loan program find comfort in the belief that lending the money is better than just giving it away in the form of a grant.
They point to lending plans to give CIRM stock warrants in the recipient companies and a stake in any IP that is developed. What hasn't been fully discussed is the total collapse of a loan recipient. In such a case, the warrants would be worthless. And also in such cases, IP can sometimes vanish and computer files disappear, leaving CIRM holding a multimillion-dollar, empty bag.
CIRM is currently looking at three firms that will evaluate the business models of the loan applicants. Assuming that Burrill and Ernst & Young are correct, that evaluation will be trickier than ever, raising questions about whether both CIRM and the evaluators it hires can step outside of the box. Doing so may pose uncomfortable financial risks for a state-funded agency. But it may also be the only way CIRM has any hope of securing either a scientific or financial return on its $500 million in high-risk loans.
(Editor's note: You can find a host of links to information on the biotech lending program, including its financial assumptions via this item. No business plan, however, exists for the effort.)
Tuesday, June 30, 2009
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.
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.
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