Eleven Percent Stock Price Drop for StemCells, Inc., on Bad News From California Stem Cell Agency

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The stock price of StemCells, Inc., of Newark, Ca., plummeted nearly 11 percent today following a federal filing that it had lost its $19 million award from the California stem cell agency.

Termination of the Alzheimer’s research award to the publicly traded company was announced last Thursday by the $3 billion state agency. The publicly traded firm filed a report with the Security and Exchanges Commission on Friday, but it was not seen widely until today.

The price of the company’s stock fell 10.78 percent in heavy trading, 2.2 million shares compared to an average volume of about 676,000. It closed at 91 cents, still above its 89 cent low for the last 12 months. The stock continued to sink in after-hours trading. The 52-week high is $2.43. 

The award has been controversial since it was approved in 2012 on a thin, 7-5 vote by the 29-member governing board of the agency, formally known as the California Institute for Regenerative Medicine (CIRM). It was the first CIRM award approved that had been rejected twice by CIRM’s blue-ribbon grant reviewers. It was the first involving heavy, public lobbying by the first chairman of the agency, Robert Klein. And it was the first award involving a company that later appointed a top CIRM executive, former President Alan Trounson, to its board of directors. (See here and here.)

The company’s brief, SEC filing said the forgivable loan was cancelled because of a failure to meet a milestone it had negotiated with the stem cell agency. The filing echoed comments by CIRM.

Last Thursday morning the California Stem Cell Report requested a comment on the CIRM announcement from Martin McGlynn, president of StemCells, Inc., which was co-founded by eminent Stanford researcher Irv Weissman and serves on its board of directors.  McGlynn responded this afternoon.

He said that the company had reported on its research Nov. 20 at an investor event in New York. He said that “we did not see the research showed an improvement in the predetermined measures of memory enhancement.”

The firm has collected $9.6 million from the state. In response to a question about whether the agency would be repaid any of the loan, Kevin McCormack, senior director of communications for CIRM, replied,

“We are in the process of winding down that loan so as we do that we'll get a better idea of the final financial picture.”

StemCells, Inc.,’s stock price has been falling since July 3, when it hit its 12-month high at $2.43.  On July 7, the company announced the appointment of Trounson to its board, only seven days after he left the stem cell agency. The move surprised the agency. Its subsequent limited investigation said that it could find no evidence of illegal actions. The California Stem Cell Report suspects that most investment analysts would not link Trounson's appointment to the price drop. 

Here is the text of McGlynn’s response.

"Thank you for your email, and your request for comment, which I have provided below:

"As you know, Alzheimer’s Disease is significant unmet medical need. The funding for our Alzheimer’s program was in the form of a forgivable loan. Thus, the loan would be forgiven in the event that certain predetermined preclinical milestones were not accomplished. Those milestones included a “go/no go” goal of replicating certain behavioral changes observed in mouse models of relevance for Alzheimer’s, obtained in a small pilot study that had been conducted by our collaborator, Dr. Frank LaFerla, Chancellor's Professor and Chair, Neurobiology and Behavior School of Biological Sciences, University of California Irvine, and described in detail in the original application for funding under the CIRM Disease Team RFA. It has become clear to both the CIRM and StemCells that this goal has not been achieved, so the parties have begun the process of winding down the program.

"We presented this data during our recent Analyst & Investor Event in New York on November 20th. The conference was webcast live and a replay of that event is available at http://www.media-server.com/m/p/m8h3mw5w. During the conference, the Company presented data showing that the Company’s proprietary human neural stem cells, HuCNS-SC® cells robustly engrafted into the hippocampus for up to 3 months post transplantation (the longest time point tested). The Company also presented compelling data derived during the preclinical testing, showing that HuCNS-SC transplantation significantly increased the number of pre- and post-synaptic hippocampal spines in the AD mice, suggesting an increase in synaptic density in this important brain region.

"Unfortunately, despite this compelling histological data, we did not see an improvement in the predetermined measures of memory enhancement and the Company stated that in the absence of consistent behavior modification in the animal models tested, pre-determined success criteria were not met, and that it would be working with the CIRM on an orderly wind down of the program.

"Importantly, we do not view this as a “loss”, rather, we believe we have made a significant contribution to the field. We are of course disappointed that we didn’t see the preclinical efficacy that we had hoped for, but we are grateful to have had the opportunity to collaborate with Dr. LaFerla and CIRM to pursue this worthwhile cause. It is possible that in the future, more reliable and validated animal models of memory enhancement will emerge, at which time StemCells, Inc. will be well positioned to reenter the arena.

"Thank you
"Martin McGlynn"

Fecundity, Stem Cells and the Dark Side of Prop. 71

Los Angeles Times columnist Michael Hiltzik has provided a bit of a filip to his look Monday at the California stem cell agency.

It came in the form of an entry in his blog entitled “Of stem cells and administrative arrogance.”

Among other things, he said Prop. 71, which created California's $3 billion research effort, was “too specific about how the program would be managed and how it would spend its money -- embryonic stem cell research was placed front and center at a time when that line of research was so, well, embryonic that no one could tell how fecund it might be.”

Hiltzik also said,

“Prop. 71 is an excellent illustration of how the state's initiative process can lead to doing the wrong thing with the right intentions. Now that many other research vectors are proving more interesting, the California Institute for Regenerative Medicine is at a crossroads, only five years after it was launched. Its latest major round of grants included some that had little to do with embryonic stem cells; it's moving away from basic science grants toward lending to commercial firms; its 10-year sunset deadline is fast approaching, with no one sure whether its lifespan should or can be extended; and real and potential conflicts of interest involving its board members and grant applicants continue to exist.”

“Now,” he said, “even Prop. 71 itself is in the program's way.”

A footnote on the sunset comment: The organization itself does not terminate after 10 years. Rather it loses its ability to issue state bonds.

(Editor's note posted Feb. 8, 2010: Section 3 of Prop. 71 states that the intent of the measure -- and "intent" is the key word -- is to

"Authorize an average of $295 million per year in bonds over a 10-year period to fund stem cell research and dedicated facilities for scientists at California’s universities and other advanced medical research facilities throughout the state."

(The outside attorney for the board says there is no legal time limit on the board's bonding abilities, just the total amount of the bonds, $3 billion. We will soon post an item discussing at more length the misperceptions about CIRM's life span.)