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Private investors give vote of confidence to stem cell bonds

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When California voters overwhelmingly passed Proposition 71 in 2004, a $3 billion bond initiative to fund the state's emerging embryonic stem cell research program, some wondered how enthusiastic individual investors would be to buy those bonds.

The answer came on Oct. 3 when State Treasurer Bill Lockyer announced the first round of bond sales, some $250 million, had concluded. According to Lockyer, individual investors accounted for 41.1 percent of the total, or $102.8 million.

According to the Treasurer's office, individual investors were only expected to account for around 13 percent of the bond commitment.

"The investment by individuals far exceeded our expectations and shows how strongly Californians believe in the promise of stem cell research to cure diseases and relieve suffering," Lockyer said in a statement.

A total of 18 institutional investors (such as mutual funds, banks or insurance companies) bought the balance of the $250 million. Bonds were sold Oct. 3 and 4.

Samuel H. Wood, M.D., CEO of Stemagen, a privately held embryonic stem cell research company, was also pleased with the level of individual investor participation, calling it a "smart and progressive investment."

"The public funding of human embryonic stem cell research makes good fiscal sense. Paying to find a cure or treatment to a disease today is far less costly than trying to manage any disease long term," Wood added. "It's easier on the public purse, but most importantly, it holds the promise of easing patient suffering."

Stemagen has established itself as a leader in the field of stem cell research, already creating eight lines of embryonic stem cells from embryos that were excess of reproductive need. The company has also created multiple lines of embryonic stem cells from unfertilized embryos incapable of reproduction. These "uniparental embryos" are created by artificially activating an egg, a process that can mimic normal fertilization for a short time. Because these "parthenogenetic" embryos are incapable of reproduction, it is expected that they will be less controversial than stem cells derived from reproductively viable embryos.

Stemagen also has been expanding its work in somatic cell nuclear transfer (SCNT), commonly called "therapeutic cloning." The company currently anticipates an upcoming announcement on its achievements in this discipline thus far.

When Proposition 71 was passed, the legislation called for the creation of an oversight body called the California Institute for Regenerative Medicine (CIRM) to handle the disbursal of grants and monies.

CIRM Chairman Robert N. Klein said, "The strong participation of individual investors in the first sale of stem cell research bonds is deeply gratifying. Certainly many of the investors are patients suffering from debilitating disease or injury. They're making an investment in their future -- not simply their financial future, but their future quality of life. We are grateful to all of them for their continued support. We very much appreciate the efforts of State Treasurer Bill Lockyer, his deputy, Paul Rosenstiel, his staff, and all the underwriters for making this historic bond offering so successful."

While so far Proposition 71 funds have been only available for nonprofit organizations, Stemagen's Wood said he expects CIRM to begin issuing for-profit applications sometime in early 2008.

He calls that a necessary step.

"Sometimes when you apply a 'business' approach to research, you're able to be more efficient and make more progress," he said. "When CIRM makes Prop. 71 funds available to for-profit companies like Stemagen, we will have to continue to show real progress."

Fortunately, Wood feels Stemagen is already uniquely positioned to stand out among its friendly competitors because of its notable work and staff, led by Chief Scientific Officer Andrew J. French, acknowledged worldwide as an expert in SCNT and other mammalian cloning technologies.

"With our scientific platform led by one of the most experienced scientists in the world," Wood said, "we feel confident in our abilities to attract funding when the time is right."

Now, with the unexpectedly strong response from individual investors in stem cell bonds, that funding was made all the more available.

The interest rate on the bonds will be 5.168 percent, which is more than one percentage point above the current rate on a three-year U.S. Treasury note.

The $250 million sale will provide the nation's largest-ever state investment in human embryonic stem cell research. It also marks the first time general obligation bonds have ever been used to directly finance the development of intellectual capital.

Jimenez is a San Diego-based freelance writer.

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