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Stem Cell Company Cesca Therapeutics' Bad Idea

Cesca Therapeutics (NASDAQ:KOOL) released some embarrassing news yesterday:

On September 1 2015, the Company reported the signing and initial closing of a definitive agreement to raise $15 million in senior secured convertible debentures and warrants from a single institutional investor. The Company received $5.5 million in gross proceeds at the initial closing with the balance of $9.5 million to be placed into a restricted control account and released to the Company upon the achievement of agreed upon milestones, including approval from the California Institute for Regenerative Medicine ("CIRM") of the Company's application for matching funds in the form of a CIRM grant.

The Company anticipated CIRM's evaluation of its application to be concluded during the second half of the month of November. However, preliminary feedback provided in advance of a formal funding decision has cast significant doubt over the prospects for a positive outcome and, as a result, the Company has withdrawn its current application.

The reason I call it embarrassing is not because of the negative feedback that Cesca received from the CIRM but that this feedback should have been foreseen as a very reasonable outcome by management. The embarrassing and stunning part of this story is the naivety of management to condition a private financing on the speculation of obtaining matching CIRM funding. The CIRM has often been viewed as an unpredictible political organization and there was little justification to have any reasonable level of confidence that the funding application for an FDA approved Phase III pivotal clinical trial for critical limb ischemia would be approved.

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Cesca held a conference call last night on the topic and it was clear from the first question, by analyst Jason...