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Stem Cell Agency Might Offer Loans

A taxpayer-funded program capable of lending money to cash-starved
California biotechnology companies has caught the attention of local
stem cell industry executives who say they're struggling to attract
traditional investors and can't qualify for federal money.

For the first time in its three-year history, the San
Francisco-based California Institute for Regenerative Medicine is
considering lending a portion of its $3 billion in available state
funds to biotechnology companies. The so-called "biotech bank" would
provide low interest loans to companies that qualify.

The stem cell agency's governing board has approved 156
research grants totaling almost $260 million to universities, nonprofit
agencies and individual scientists.

The agency, established in early 2005 after California voters
passed Proposition 71 in November 2004, is the largest source of
funding for human embryonic stem cell research in the world. The
California Stem Cell Research and Cures Initiative allows the institute
to grant or loan money for stem cell research and other biomedical
research.

Local industry leaders, who met with members of the stem cell
agency's oversight committee in San Diego last week as part of a
biotech loan task force, expressed interest in obtaining loans through
the program, but questioned the qualifications and restrictions
involved.

Local representatives from the California Healthcare Institute,
International Stem Cell Corp., Invitrogen Corp. and Novocell Inc.
joined a panel also comprised of representatives from Los Angeles-based
Advanced Cell Technology Inc., Menlo Park-based Geron Corp. and
StemCells Inc. of Palo Alto.

Local Interest

"As a for-profit company, I believe the program makes a lot of
sense," said William Adams, co-founder and chief financial officer of
International Stem Cell Corp. in Oceanside. The company announced last
year that it had developed cell lines capable of avoiding immune system
rejection, a common dilemma facing stem cell researchers.

Joydeep Goswami, vice president of stem cells and regenerative
medicine at Invitrogen, says the Carlsbad-based company is also
interested in applying.

"As any large company or small company knows, we have more ideas that merit funding than we can fund internally," he said.

Multimillionaire real estate investment banker Robert Klein, who
serves as the institute's unpaid chairman, has proposed the loan
program as a means of filling the funding gap between scientific
research and commercial development. Researchers refer to the gap as
the "valley of death," or the area where funding dries up, leaving some
scientific ideas dead.

Klein has suggested offering between $500 million and $750
million in loans to companies that qualify for the program, which he
estimated could "recycle" $1.5 billion back to the state agency.

Some say the program could offer support during a time when
investors have shied away from funding embryonic stem cell companies
because of the risk involved.

"The investor community is definitely cool to what we're
doing," said Alan Lewis, president and chief executive officer of San
Diego-based Novocell, which recently announced that it had turned human
embryonic stem cells into pancreatic cells capable of producing insulin
in mice. He says the loans could help the company move its ideas
forward in order to attract traditional investor interest.

Paybacks Might Never Come

Critics have questioned whether offering high-risk loans to
biotechnology companies is a good idea. Paybacks, they say, might never
come.

"We have to be certain we don't spend our money too broadly in
high-risk activities," cautioned Alan Trounson, the newly elected
president of the stem cell agency.

Ken Stratton, general counsel for StemCells Inc., a
regenerative medicine company studying stem cell treatments for
diseases and injuries to the central nervous system, liver and
pancreas, said he hopes the loan program "won't be a program for the
truly desperate."

Others questioned how the loans would differ from grants. Under
the proposal, biotechnology companies could apply either as a company
or for individual product loans.

Biotechnology companies that opt for a product-based loan would
not be held liable for repaying any of the money if that product fails.
For companies that successfully bring a therapy, tool or medical device
to market, a percentage of their profits would return to the stem cell
agency.

Too Much, Too Soon

John Simpson, stem cell project director for the Santa
Monica-based Foundation for Taxpayer and Consumers Rights, cautions the
26-member board against taking on too many responsibilities.

"There may be a danger of developing too much, too fast," he said.

Board members generally agree that they are limited in their capacity.

The committee voted unanimously to spend $50,000 on consulting
services by PriceWaterhouseCoopers. The firm is expected to report on
loan programs in other states and suggest a model of how the California
program might work, including what return rates can be expected.