$115 Million Stock Offering by California State-backed Biotech Firm, Forty Seven, Inc.

A California company backed by the state's stem cell agency has announced that it is planning a $115 million initial public offering.

The firm -- Forty Seven, Inc., of Menlo Park -- filed a notice of its plans with the Security and Exchange Commission last Friday. The company has been awarded $15.2 million from the California Institute for Regenerative Medicine (CIRM), as the stem cell agency is formally known.

The company was founded by renown stem cell researcher Irving Weissman of Stanford University, who serves on the Forty Seven board of directors and who has a 9.5 percent equity interest in the firm.

John Carroll of Endpoint News this morning wrote:

"Forty Seven has an interesting past. The 78-year-old Weissman was able to wrangle substantial support for his early research work on CD47 from the California Institute for Regenerative Medicine, even launching early human studies — a rare feat in academic circles. Weissman and former CIRM chief Alan Trounson enjoyed a tight relationship, which extended to Trounson’s appointment to the board of another startup that Weissman had helped found — StemCells, Inc. —shortly after his departure from the agency. And Forty Seven is still getting money from CIRM under its latest $19 million grant."

The company said in its SEC filing,

"We are eligible to receive up to $19.2 million in grants from CIRM and the Leukemia and Lymphoma Society, or LLS, of which $11.6 million has been received through March 31, 2018."

Weissman has received  more than $34 million from the agency, part of the $360 million going to Stanford projects from CIRM, whose 29-member governing board has included a member from Stanford since 2004. Stanford ranks as the No. 1 recipient of funds from the $3 billion California stem cell agency, which is slated to run out of cash for new awards by the end of next year. 

For more on Forty Seven, see here and here.

$10 Million 'Eat Me' Award: California Stem Cell Agency to Firm Called Forty Seven

The California stem cell agency is set this week to award $10 million to a Menlo Park firm to help finance a clinical trial for a therapy for colon cancer, which is the second leading cause of cancer death in this country.

The cash will go to Forty Seven, Inc., an enterprise using an immune system, "eat me" technology developed at Stanford University by stem cell scientist Irv Weissman. The firm is adding $6.8 million of its own cash to the project. Weissman has received $30 million over the years from the state agency.

The application to help with an early stage clinical trial was unanimously approved by the agency's scientific reviewers during a closed-door meeting last month. The full board will ratify the action at its telephonic meeting this Thursday. 

The agency, formally known as the California Institute for Regenerative Medicine(CIRM), has almost never overturned a positive decision by its reviewers.

The $3 billion agency does not release the names of successful applicants prior to board action. Forty Seven was identified through the use of public records.

According to a federal Web site,

"This trial will evaluate Hu5F9-G4 in combination with cetuximab. Hu5F9-G4 is a monoclonal antibody which is designed to block a protein called CD47, which is widely expressed on human cancer cells. Blocking CD47 with Hu5F9-G4 may enable the body's immune system to find and destroy the cancer cells. Cetuximab is a monoclonal antibody drug that is used for treatment of certain types of colorectal cancer as well as head and neck cancer."

The idea is to override a tumor's "don't-eat-me" signal and instead trigger the body's "eat-me" response.

California's scientific reviewers expressed high praise for the project. However, they also said,

"The design of the trial itself is fine, but the decision-making process is sub-optimal. It is critical to include clear go/no go criteria for the second phase of the trial and for the data to be evaluated by an independent, objective third party for a decision as it is unclear what toxicities are expected given the proposed new mechanism of action and use of a combination therapy." 

Forty Seven announced last February that it is backed by $75 million from a variety of partners including Google. Others in the venture capital group are Lightspeed Venture Partners, Sutter Hill Ventures (the two leaders on the financing) and Clarus Ventures.

In August, Karen Tkach wrote in BioCentury:

"With companies lining up to block CD47 for cancer, the cell surface protein is emerging as one of the top new targets in oncology. But the list of suitors could be about to get a lot longer as the target could have uses in a much broader range of indications, according to two studies from Stanford University that extend its prospects to cardiovascular disease and transplant biology, and hint at roles in several more diseases."

According to the clinical trial information on a federal Web site, Forty Seven will have clinical trial locations in Grand Rapids, Mich.; San Antonio, Texas, and Nashville, Tenn.  The California stem cell agency is limited to spending its award for work done in California. 

The federal information has conflicting indications on whether patients are currently being recruited for enrollment in the trial.

(In response to a query following publication of this item, Mark Chao, a co-founder and medical

Mark Chao, Stanford photo

director of Forty Seven and co-PI on the trial, said,

"We have been excited about the positive reviews by the CIRM committee and hope to hear good news on Thursday. Thank you for sending this article. With regards to initiating California clinical sites on the trial, this is a very big point of emphasis for us, in particular with CIRM’s mission and are currently working to activate two sites in California (Stanford University and UCLA) for the trial. One of our goals are to bring this therapy to patients within California and have designed our trials with this in mind. Please let us know if there are any further questions we can address. We look forward to a long relationship with CIRM.")

The chair of the study is Chris Takimoto of Forty Seven. The CIRM application number is CLIN2 -09577.

Text of Irv Weissman's Comments Re Trounson Compensation

Stanford University stem cell researcher Irv Weissman has sent along the following comment in the wake of the publication of the Sept. 2, 2016, story concerning Alan Trounson's compensation from StemCells, Inc., a company co-founded by Weissman, who also served on its board of directors.

"I would like to correct some information that can be verified by CIRM officials and employees. I have known Alan Trounson for years before he came to CIRM both as a scientist and once on a fishing trip. After he got settled into his position at CIRM we met socially, and agreed to go on another fishing trip together. From that time forward he recused himself on all grants and CIRM related activities that involved either my lab or Stem Cells Inc. This was unfortunate for me, as there were times when he was the field expert and could have suggested appropriate reviewers, or mistakes in review, for grants coming from me at Stanford or Stem Cells, Inc. Although you mention the many successes we have had with CIRM grants, there were many more times when I failed to reach a funding score that was sufficient, sometimes with what I thought were inaccurate reviews,and sometimes with reviewers that I would have asked to be removed for conflicts outside of scientific expertise. I am happy to answer any questions on these issues for all grants on which I am a principal investigator, or as on the stem cell genomics grant, a participating but minor investigator who was the only person with purified stem and progenitor cells.

"I hope you dig into the actual current value of his or my stock, so that the public will know the real numbers. At least up to the wind-down of the company I believe I have never sold stock I hold, as I felt I always could have had information not generally available to the public, even when it was legal by SEC standards. In the early days of the company I contributed personal money to the company for stock so that the company could meet its payroll, and also I never sold those stocks. All of my SCI stocks are worth no more than and probably much less than 10% of that single contribution."

Biopolitical Times: Trounson-Weissman-StemCells, Inc., Affair is 'Shameful'

The headline on the Biopolitical Times story said it all: “Shameful Conflicts of Interest Involving California’s Stem Cell Agency.”

The piece by Pete Shanks of the Center for Genetics and Society in Berkeley, Ca., dealt with the former president of the agency, Alan Trounson, and StemCells, Inc., which holds a $19.4 million award from the agency, along with Irv Weissman, the Stanford researcher who founded the firm and who now sits on its board.

Trounson was named to the StemCells, Inc., board on Monday, seven days after he left the agency. Yesterday the agency, formally known as the California Institute for Regenerative Medicine(CIRM), launched a “full review” of all activities involving StemCells, Inc. The agency also banned its staff and board fromcommunicating with Trounson about matters involving the publicly traded firm.  

Shanks wrote,

“Let's be blunt: This looks like a pay-off. Technically, what Trounson and Weissman and StemCells, Inc., just did may not be illegal. But it's shameless.”

Shanks pointed out that the problems with conflicts of interest at the agency are nothing new. As far back as 2004, they were noted prior to passage of the measure that created the state research effort. Their importance was noted by major supporters of the measure, including Weissman.

Weissman was quoted in Nature in September 2004 as saying,

“We want to avoid even the appearance of a conflict.”

Shanks concluded,

“CIRM should take a long look at its practices and procedures, which have never served the agency well — and especially should consider its obligations to the public, who fund it. There can be practical difficulties in balancing expertise and objectivity; the best scientists in any field do tend to know each other well. All the more reason to be especially careful. This kind of obviously problematic conflict of interest can and should easily be avoided.”

Trivializing Conflicts of Interest at a $3 Billion California State Agency

The California stem cell agency is planning minor changes in its conflict-of-interest rules that narrowly target a violation that arose last spring involving two internationally known scientists.

The proposal was triggered by a situation in which Lee Hood of Seattle, Wash., was recruited to serve as a scientist-member of the group that was reviewing applications in a $40 million grant round last spring. One of the applications involved stem cell scientist Irv Weissman of Stanford University, a close friend of Hood. The men also own a ranch in Montana together and have scientific and professional links. Alan Trounson, the stem cell agency's president, has been a guest of Weissman's at the ranch and recruited Hood, an expert in genomics, as a grant reviewer.

CIRM, as the $3 billion stem cell agency is known, said it did not detect the relationship between Hood and Weissman until it was called to their attention by another reviewer who was also participating in the closed-door review of applications.

A staff memo prepared for next week's meeting  of the agency governing board described the violation as “inadvertent and highly technical.”

On Monday, the California Stem Cell Report reported that unspecified changes were being considered in the conflict rules. Following publication of the item, more information on the proposal was posted on the agency's Web site in preparation for next Wednesday's meeting of the agency's governing board in Burlingame, Ca.

The memo, prepared by the agency's attorneys, said, 

“In order to prevent both the reality and appearance of a conflict, while preserving CIRM's ability to attract the best reviewers available, the rules should flag only those interests that could genuinely be deemed material.”

The changes would create a threshold of $5,000 a year for conflicts involving salary or consulting fees. Less than that would not trigger a conflict situation. Other proposed changes to be taken up by the agency board involve personal and professional conflicts along with the nature of the economic disclosures that reviewers, all of whom are from out-of-state, must disclose privately to a handful of agency officials.

The agency's scientific reviewers do not have to disclose publicly their financial and professional interests despite the fact that they have made all of the decisions on 98 percent of the applications for the $1.8 billion the agency has handed out. The interests of the reviewers are also withheld from applicants, many of whom may have competing or professional interests. The agency requires that reviewers who have conflicts must be removed from consideration of applications where conflicts exist. However, there is no way to determine whether that is actually done because the applications are reviewed behind closed doors and the economic and professional disclosures are withheld from the public.

Our take:
The agency's position on the conflict involving Weissman and Hood is disingenuous. To say that it is “highly technical” trivializes the entire matter. The conflict problem does not necessarily arise because Hood's friend (Weissman) could have received a few thousand dollars through approval of a grant. It involves much, much more. The application was for $24 million to create the first-ever stem cell genomics center in California. Should Weissman's employer, Stanford University, have been selected for the facility, it would have accrued to the great benefit of that institution, both monetarily and otherwise. Indirectly, it would have also enhanced Weissman's already substantial reputation and prestige as a person whose name can sway actions by California's state research effort. In the world of science, reputation and prestige often count for more than money.
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StemCells, Inc., Rejects $20 Million from California Stem Cell Agency

When does a financially struggling biotech company turn down a $20 million “forgivable loan?”

When it is StemCells, Inc., of Newark, Ca., and the cash is being offered by the $3 billion California stem cell agency. The research program has handed out nearly 600 awards, and it is the first time that a recipient has rejected funding.

That's the latest development in a stem cell saga that began publicly last July and that involved unusual personal lobbying by the former chairman of the Golden State's stem cell research agency. The high point of the saga may have come in September when the agency's governing board finished awarding StemCells, Inc., $40 million in two different awards. But there was a catch. StemCells Inc., had to match that figure with $40 million of its own.

Late last month, StemCells, Inc., threw in the towel on the $20 million awarded on its cervical spinal cord injury application. In comments to analysts March 21, Rodney Young, chief financial officer of the publicly traded company, said:

“The funding would have been in the form of a forgivable loan, however, we have elected not to borrow these funds from CIRM(the stem cell agency).”

According to the Seeking Alpha transcript of the conference call with analysts, Young said,

“You may also recall that last September, CIRM approved a separate application under the same disease team program for Alzheimer's disease, which was also for up to $20 million in the form of a loan. We remain in confidential negotiations with CIRM regarding the terms and conditions that would attach to this loan.”

The company provided no explanation for rejecting the cash, either in the conference call transcript or in its press release.

During the conference call, StemCells, Inc., reported continuing losses. For 2012, net losses totaled $28.5 million compared to $21.3 million in 2011. Revenue for 2012 was $1.4 million compared to $1.2 million in the previous year.

The awards last year to StemCells, Inc., founded by Stanford's eminent researcher Irv Weissman, stirred up a bit of a ruckus. The spinal injury award was handed out routinely in July. Scientific reviewers gave it a score of 79 and recommended funding. It was another matter on the Alzheimer's application. It was scored at 61. Reviewers said it did not merit funding. But the company publicly appealed to the full board, which sent the application back for more examination. It was rejected again. Nonetheless, in September, the 29-member board approved the award on a 7-5 vote, bypassing a rival Alzheimer's application scored at 63. It was the first time in the eight-year-history of the agency that its board approved an application that was rejected twice by reviewers.

Approval came only after strong lobbying by Robert Klein, former chairman of the board. Klein was also chairman of the ballot campaign that created the agency, and Weissman, who holds stock in StemCells, Inc., and sits on its board, was a major fundraiser for the campaign. 

The Los Angeles Times' Pulitzer Prize-winning columnist, Michael Hiltzik, wrote in October that  the process was “redolent of cronyism.” He said a “charmed relationship” existed among StemCells, Inc., its “powerful friends” and the stem cell agency.

As for the remaining $20 million award, Martin McGlynn, CEO of StemCells, Inc., expects “quick” action on finally securing the cash.

Here is an exchange that came during the March conference call between McGlynn and analyst Kaey Nakae of Ascendiant Capital Markets.

Nakae: “Okay. Just 2 more questions. I guess the first one, as it relates to CIRM. In deciding to decline the funding for spinal cord yet continuing to pursue the funding for Alzheimer's, is there a difference in what you're getting from them in terms of potential terms and conditions that allow you to proceed on one and not the other, or is it the fact that you're already in human with -- in spine, and still very preclinical with Alzheimer's?”

McGlynn: :”I think you're very definitely -- you're getting at some important criteria when one considers how to fund programs whether you use debt or equity, etcetera. So I wouldn't disagree with anything that you've outlined or surmised. But I just would pray your indulgence until we're finished, the negotiations with CIRM, which are coming to a close and we expect those to resolve pretty quickly with regards to the Alzheimer's program. And then quite frankly, we can be way more forthcoming and way more disclosive with regards not only to our decisions, but to our thinking.”

StemCells, Inc., was trading at about $1.65 at the time of this writing, down slightly from the previous day. Its 52-week high is $2.67 and its 52-week low $0.59.

CIRM Board Member Prieto Defends Klein's Right to Appear Before Board

A member of the governing board of the California stem cell agency, Francisco Prieto, has commented in an email about the “unseemly performance” item concerning the agency's former chairman, Robert Klein. Prieto is a Sacramento physician who serves as a patient advocate member of the board. He has been on the board since its inception. Here are his remarks.

“I wanted to comment on this piece from the perspective of another patient advocate.  While I think you know that I did not always agree with Bob Klein during his tenure on the ICOC(the agency's governing board), I would strongly defend his right to appear and give his opinions to the Board.  He is a private citizen now, albeit one with considerable experience and expertise, and I think his greatest vested interest in this case stems (you should pardon the expression) from being the child of a parent with Alzheimers.  As you point out, some eyebrows may be raised, and I can imagine that some board members might be swayed in either direction by his testimony, but  he is a passionate and committed advocate, and he has the right to advocate before us.”

The Stem Cell Race: Singapore's $370 Million Biopolis

In Singapore, embryonic stem cell research is spelled Biopolis. It is a simple way of saying, We focus intensely on people and laboratories, fast action and strong collaboration.

On Monday, reporter Terri Somers of the San Diego Union-Tribune examined Singapore's embryonic stem cell effort in the second of her three-part series, "The Stem Cell Race."

Here is how Somers described the life of one scientist at Biopolis:

"When she needs a new supply of embryonic stem cells, she phones in an order and walks across the campus of the science center her government has built to pick them up. Although her work is highly regulated, authorities have made obtaining human embryonic stem cells only slightly more difficult than snagging a box of pens from a supply cabinet."

Life seems good in the $370-million, 2.4 million-square-foot biotech research hub. Somers wrote:

"On what used to be grassland, a seven-building cluster of modern, glass-walled structures sprouted in 18 months. Enclosed glass walkways shelter workers from the unrelenting heat and downpours of the tropics, giving the complex the look of giant Habitrail for humans.

"Two more buildings opened in November, creating more space for the nine research institutes and consortiums that fill Biopolis, along with several research and development outposts of biotechnology and pharmaceutical companies.

"There's a storage facility for tens of thousands of mice for use in experiments, a tissue bank and a bioprocessing facility that is making the culture medium in which stem cells will be grown. Eventually it will produce millions of stem cells.

"The government accommodates the workers' long hours with a child-care center, supermarket, hair salon, dry cleaners, bars and even a 7-Eleven convenience store.

"On a typical workday, members of this multinational scientific community can be seen outside enjoying the cooling mist of a fountain, the shade of lush foliage or the convenience of a cafe, as they share ideas over lunch or lattes. They seem oblivious to the Miami-in-August temperatures and humidity."

The Singapore effort has paid off by attracting a host of first-rate scientists as well. Somers reviews the cast that now stars in the Biopolis "theater," ranging from UC San Diego's former medical school dean, Edward Holmes, and his wife, Judith Swain, a cellular cardiologist, to Neal Copeland and Nancy Jenkins, top ESC researchers from the NIH.

Somers' article also indirectly emphasized how tiny and interconnected the ESC research world is. For example, Singapore's efforts are hooked into the California stem cell agency. Somers reported,

"The advisory board to Singapore's Biomedical Research Council reads like a who's who of medical research, including David Baltimore of Caltech and La Jolla-based scientists John Reed of the Burnham Institute for Medical Research, Sydney Brenner of the Salk Institute for Biological Studies and Richard Lerner of The Scripps Research Institute."

Both Reed and Baltimore also serve as directors of CIRM.

Somers' second piece on Tuesday also reinforced the "small world" portrait of ESC research. She profiled Philip Yeo, chairman of the Agency for Science, Technology and Research, or A*Star, the long title of the man who is the mastermind of Biopolis. Somers wrote:

"Yeo called his friend Stuart Weissman, a pioneer in embryonic stem cell research at Stanford, seeking advice on what type of work could be done at Biopolis that would complement efforts in the United States.

"Yeo (then) set about trying to lure – he would say borrow – top researchers to Singapore. Governments jilted by researchers who have found his offers too good to refuse refer to him as a 'serial kidnapper.'"

On Tuesday, Somers will examine California's $3 billion stem cell research effort.