11/22/2015

Rancho Cordova firm comes up empty in bid to win $11 million from stem cell agency | The Sacramento Bee

BUSINESS & REAL ESTATE

NOVEMBER 21, 2015

Rancho Cordova firm comes up empty in
bid to win $11 million from stem cell agency
HIGHLIGHTS

Cesca Therapeutics withdraws application after receiving word it would not be approved
Company’s stock price plunges
BY DAVID JENSEN
Special to The Bee

Robin C. Stracey, the head of a small cellular therapy firm in Rancho Cordova, has seen
better days than last Monday … and better weeks.
His woes began that day when he had to deal with the bad news from the $3 billion
California stem cell agency. The agency gave an informal thumbs down to an $11 million
proposal from his firm, Cesca Therapeutics, Inc.
The funds would have helped to finance the final stage testing of a cell therapy for critical
limb ischemia. The blood circulation disease afflicts 2 million people in the United States,
many of them diabetic, and leads to 200,000 leg or foot amputations a year.
The unwelcome news from the stem cell agency blew out Cesca’s stock price. By the end of
the week, Stracey, chief executive officer of the firm, had seen the stock plummet, at one
point, by more than 50 percent, flirting with a new 52-week low. The stock closed at 35
cents on Friday, down from 59 cents on Monday.
In an interview last week with The Sacramento Bee, Stracey said he was extremely
disappointed by the agency’s reluctance to approve the proposal from Cesca, which has
more than 100 employees, about 70 of them in Rancho Cordova and the rest at offices in
Emeryville and India.
The company was formerly called ThermoGenesis before its merger in 2013 with a Los
Angeles firm that also works in the stem cell industry. It has struggled over the years to
maintain profitability. The company’s stock topped $6 during parts of 2003 and 2004
before skidding sharply when the economic downturn hit.

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11/22/2015

Rancho Cordova firm comes up empty in bid to win $11 million from stem cell agency | The Sacramento Bee

Last week, however, Stracey – who took over as CEO in June – expressed confidence that
the firm could proceed with its clinical trial – with or without help from the California
Institute for Regenerative Medicine, or CIRM, as the stem cell agency is formally known.
“We believe the science to be sound and our clinical results so far are very compelling,”
Stracey said in a phone conference with stock analysts. “Our financing challenge
notwithstanding, we do not see any reason or justification for sidelining or shelving the
program.”
The story of CIRM and Cesca began last summer when the firm prepared its application for
funding. Usually little is publicly known about the internal workings of the CIRM grant
process. But the Cesca case is illuminated by the firm’s filings with the Securities and
Exchange Commission and Stracey’s comments.
CIRM declined to comment, citing its long-standing policy of confidentiality on such
matters.
CIRM was created by California voters in 2004 to turn stem cells into cures, a goal it has
not yet achieved. Stem cell therapies remain far from the marketplace, although the agency
is moving quickly to help finance more clinical trials. Such tests are the final steps before
the federal government approves widespread use of a therapy.
Relatively speaking, Cesca’s proposal is close to winning federal approval. Its plan calls for
a Phase III trial, which is the last step before commercialization. Cesca plans to recruit 224
people over a two-year period to try out a process called SurgWerks. Bone marrow cells
would be taken from the patient and injected into a leg or foot. The goal is to stimulate
regeneration of blood vessels, promote wound healing and preserve the limb.
The company has already raised $5.5 million from one of its institutional investors for the
trial, whose total cost is estimated at $20 million. An additional $9.5 million from the
same investor was contingent on approval of the funding from the stem cell agency.
So it was not exactly a bright spot when the stem cell agency notified Stracey about the
questions raised behind closed doors by its blue-ribbon scientific reviewers. The agency’s
directors were unlikely to approve the application, Stracey was told, and he immediately
withdrew the proposal.

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11/22/2015

Rancho Cordova firm comes up empty in bid to win $11 million from stem cell agency | The Sacramento Bee

Normally, withdrawal of an application receives little notice. CIRM does not disclose such
events. Discussion of the reasons almost never surfaces. But Stracey issued a press release
last Monday that included the company’s bleak quarterly earnings and an announcement of
the withdrawal.
Later that day, Stracey conducted a teleconference earnings call in which one stock analyst,
Jason Kolbert of the Maxim Group, sharply questioned the CEO. According to the
transcript, Kolbert said, “I’m just really struggling with what’s the future of the company
and how could you have been so far off … I want to see you take some responsibility for
what’s happened (with CIRM) ...”
The following day, however, Maxim Group reaffirmed its buy recommendation on the
stock, although with a target price of $1. H.C. Wainwright, the other analyst that follows
the company, also maintained a buy recommendation following the earnings call.
Stracey said later in an interview that he takes the CIRM critique seriously, although the
company had not yet had a full discussion with the agency. Stracey said he anticipates that
the company will have more than one session with CIRM officials to examine the details of
what reviewers had to say.
Stracey said some of the criticism was objective. But some was biased, he said, against a
key scientific underpinning of the application.
In the earnings call, Stracey said, “There are people who run the allogeneic side of the
debate that don’t believe autologous treatments are likely to be the winners at the end of
the day, and there are people who are on the autologous side that think otherwise.”
Cesca’s proposal uses autologous cells, ones derived from the patient and transplanted to a
different location in the same body. Allogeneic cells come from another person.
In the interview later in the week, Stracey said that Cesca researchers are taking a “deep
dive” into the CIRM critique, which also involves patient enrollment expectations and the
trial’s statistical plan. Stracey said his intention is to use the remarks to strengthen the
proposal.
As for the remaining millions in contingent financing, Stracey said he is working with the
investor, Sabby Capital of New York, which is also the single largest investor in Cesca, in
hopes of maintaining that stream of cash.

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11/22/2015

Rancho Cordova firm comes up empty in bid to win $11 million from stem cell agency | The Sacramento Bee

Stracey said he thinks funding from the state’s stem cell agency remains a possibility. But
he also said that he wanted to move quickly on starting the clinical trial. Given the time
constraints, Stracey said it was more likely that Cesca would partner with another
enterprise rather than resubmit a proposal to the state of California.
The SurgWerks therapy is not the only thing Cesca has in the pipeline. Nine other products
are in clinical development. Cesca also differs from many other biotech companies, which
have no sales. Cesca had net revenue, $2.8 million in its fiscal first quarter, although it
reported a net loss of $3.4 million at the same time. The company also said it will save
$3.3 million as the result of 15 layoffs in September and other cutbacks.
Cary Adams, CEO of Medforce LLC, a Sacramento firm aimed at supporting medical
device companies, said that Cesca is “well positioned to succeed.”
“It would be a loss to the community if Cesca doesn’t make it through to the end,” he said.
David Jensen has covered the California stem cell agency since 2005, publishing more than 4,000 items on his
blog, the California Stem Cell Report.

reprints

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11/22/2015

Rancho Cordova firm comes up empty in bid to win $11 million from stem cell agency | The Sacramento Bee

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