StemCells, Inc. CEO Martin McGlynn shares his thoughts on CIRM Awards…
September 10, 2012
Letter to Investors
On Wednesday, September 5, the CIRM’s governing board (the “ICOC”) doubled down on its support of the groundbreaking translational research being conducted by StemCells, Inc. and its collaborators. It did this by voting to provide up to $20 million to help fund IND-enabling activities for the Company’s HuCNS-SC® cells (purified human neural stem cells) in Alzheimer’s disease. The goal of this CIRM-funded project will be to file an IND within four years and to position the Company to start clinical testing of its HuCNS-SC cells in Alzheimer’s upon FDA approval. This award, which was made under CIRM’s Disease Team Therapy Development Awards program (RFA 10-05), is in addition to the funding previously approved by the ICOC in July to help fund IND-enabling activities by the Company for the testing of HuCNS-SC cells in cervical spinal cord injury, with the goal of that project also being an IND within four years.
We view both these awards as a vote of confidence by CIRM’s governing board for the ground-breaking science and outstanding track record and expertise of the assembled disease teams. Moreover, the ICOC is recognizing the serious unmet medical need, and the potential benefit of supporting novel therapeutic approaches, presented by these two CNS diseases.
Under this particular CIRM program (RFA 10-05), funding for companies will be in the form of unsecured, non-recourse, interest-bearing, term loans, which will be forgivable in the event the funded research fails to result in a commercialized product. On the other hand, should the product be successfully commercialized, CIRM would earn milestone payments depending on how successful the product becomes. Because CIRM shares the downside risk, and could participate handsomely on the upside, the structure makes the loan about as close to “equity” as one could, without having to dilute existing shareholders in order to gain access to significant amounts of capital. The Company will not issue stock, warrants or other equity to CIRM in connection with these awards.
Of course, we realize that CIRM prefers that applicants from industry provide evidence of their ability to secure whatever additional funds may be needed to complete any CIRM-funded project, in this case the filing of an IND for each indication. This is stated in the text of RFA 10-05 itself and was repeated in various comments by CIRM staff during the application process. When making the second award on September 5, the ICOC naturally recognized the sizeable commitment it was making to StemCells, so it instructed CIRM staff to satisfy themselves of the Company’s ability to access the capital needed to fund the project, namely the Alzheimer’s program through to the filing of the IND.
We are not concerned by this particular due diligence requirement and are confident that the Company will be able to satisfy it. In fact, we are confident of the Company’s ability to meet all necessary financial commitments to successfully complete both CIRM-funded projects. To be clear, we do not interpret the diligence requirement as an obligation to raise a specific amount of money in a particular period of time, and we wish to correct the misstatements made by some uninformed third parties that the ICOC is requiring us to raise $20 million in matching funds. In point of fact, we expect that a substantial amount of our contribution towards these projects will come from existing infrastructure and overhead, salaries for our existing personnel, and other contributions in kind. Furthermore, we will soon be reviewing the budgets for both projects in detail with CIRM staff. Because each disease team budget was prepared on a stand-alone basis, we expect to see significant economies and efficiencies now that the Company has in fact been awarded funding for both. In short, CIRM’s support will effectively allow us to leverage the Company both operationally and financially.
Finally, I can confirm that in June of this year the Company applied for up to $10 million under CIRM’s Strategic Partnership I program (RFA 12-05). Unlike the disease team awards under RFA 10-05, if companies are approved for funding under RFA 12-05, they may elect to take such funding in the form of a grant, not a loan. Our application under RFA 12-05 is for a controlled Phase II clinical trial of HuCNS-SC cells in Pelizaeus-Merzbacher disease (PMD), a rare myelination disorder. StemCells completed a Phase I study in PMD in February 2012 and in April announced that all of the patients from that study showed evidence of cell-derived myelination and three of the four patients in the study showed measurable gains in motor and/or cognitive function.
This is a really exciting time for the Company. We are starting to gather human data that confirms what we saw in our preclinical studies, including evidence of clinical effect in both PMD and, as we recently reported, in patients with the worst-of-the-worst cases of thoracic spinal cord injury. We are very excited by the opportunity to expand our development efforts into additional indications in the CNS and will continue to work to bring novel treatments to the many patients afflicted by these debilitating CNS conditions.
For these reasons, we deeply appreciate the consideration given to our technology, people and programs by the ICOC and CIRM. This non-dilutive funding should allow us to leverage our on-going development activities into two more diseases of the CNS with huge unmet need and a compelling clinical rationale for cell-based therapeutics.
We look forward to proving the case in human patients in short order.
President and CEO
Cautionary Statement. All statements in the CEO Corner, whether or not individually framed in terms of belief, express the opinions of our CEO and include forward-looking statements regarding the Company’s current status, events and trends that may affect us and our scientific, clinical and business prospects. All of these forward-looking statements are subject to substantial risks and uncertainties which are summarized here and further described in the Company’s SEC filings on Forms 10-K and 10-Q, available here. Investors should carefully consider these risks before making any investment in the Company. Each statement speaks only as of its date and we assume no responsibility to update or revise any forward-looking statement to reflect future events, trends or circumstances.
- Konski & Spielthenner, (2009), Nature Biotechnology, 27: 722 - 726