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Stem-cell Firms Resisting Cash Lure

Institute Offers Grants with Strings Attached

by Steve JohnsonSan Jose Mercury News
December 20th, 2007

Persuading the private sector to accept a handout from California's $3 billion stem-cell institute might strike some as a no-brainer. After all, what business wouldn't take the money?

But there's a catch: Although companies now have a chance for the first time in the institute's three-year history to apply for its money, they may wind up having to share some of their revenue and research. And that is giving some companies second thoughts about participating.

The California Institute for Regenerative Medicine, which so far has awarded about $260 million in grants to non-profit institutions, today will begin to get an inkling of how many businesses are interested.

The agency is offering businesses in the state a chance to apply for two types of grants, totaling $26.1 million. One category, which applicants must respond to by today, is for teams of scientists to begin planning how to use stem cells to treat diseases. The other, which requires a response by Jan. 10, is to create stem-cell colonies for research.

Persuading companies to participate in the voter-mandated institute is considered crucial if commercial stem-cell treatments are ever to be developed. Consequently, these grants are expected to be followed by larger ones aimed at businesses over the next few years.

Moreover, the institute is considering creating a $500 million to $750 million loan program to help companies get a start financially.

All this has caught the attention of some stem-cell executives, including William Caldwell, chief executive of Advanced Cell Technology, which is studying the possibility of using stem cells to treat the eye disorder macular degeneration and other ailments. Formerly based in Massachusetts, it opened an office in Alameda last year and this fall moved its headquarters to Los Angeles.

"It clearly is something we're looking at," Caldwell said of the money being made available to businesses. "The reason we made the decision to move to California was precisely to participate in this."

Executives at StemCyte in Arcadia, which processes and stores stem cells from umbilical cords and used in transplants for people with cancer or other maladies, also are intrigued. They're planning to apply for the disease-team grant, said David Carmel, vice president for business development, adding, "we're excited about the California Institute for Regenerative Medicine putting money behind this."

But the institute's grants have been greeted with less enthusiasm at some other stem-cell companies, including Menlo Park-based Geron, which hopes to soon begin human tests of its human embryonic stem-cell-derived treatment for damaged spinal cords.

Geron's Chief Executive Officer Dr. Thomas Okarma contends his company has advanced the science of stem cells well beyond the scope of what the institute is financing at the moment. And although "we are most interested in trying to secure funding for our clinical programs in spinal cord injury," Okarma said, he noted that the two types of grants open to businesses can't be used for that purpose.

Others worry about having to comply with certain rules that are incumbent upon recipients of the institute's grants. Of particular concern is a requirement the agency's board approved on Dec. 12 that requires businesses to share with the state a portion of the money they might earn as a result of the grants.

For example, if companies receive more than $5 million in grants and develop a product that generates at least $500 million a year in revenue - excluding certain costs - they must give the state 1 percent of the revenue, plus nine times the grant amount.

Because of the revenue-sharing rule, "we have opted out of applying," said Ana Krtolica, chief executive of San Carlos-based StemLifeLine, which stores human embryonic stem cells for people hoping to use the cells some day for treatments.

She also was put off by another rule that requires recipients of the grants for making stem-cell colonies to share the cells with other researchers.

Alnoor Shivji, chief executive officer at Fremont-based WaferGen Bio-systems, which makes equipment scientists use for stem-cell research, said he was considering applying for the money. But he too was concerned about the revenue-sharing obligation.

Getting companies involved may take some selling, conceded Robert Klein, the institute's chairman.

But considering how important businesses are to the research effort, he said, "we will try to work with industry to find how we can further the interests of California patients and the biotech sector."



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