Thursday, December 17, 2009

CIRM Issues for 2010: From Klein to Cash Flow to Conflicts

Money, manpower and performance – all are some of the top issues facing the $3 billion California stem cell agency in 2010.

They are not the only major issues confronting the 29 men and women who – as its directors – are charged with giving away the cash and ensuring that the California Institute for Regenerative Medicine stays on course.

But all the challenges will surface more or less prominently during the coming year. Here is a quick overview of the situation.


CIRM Chairman Robert Klein says he is leaving in 12 months. The Palo Alto real estate investment banker has been the guiding spirit behind the agency since it was a mere gleam in the eyes of the supporters of hESC research. Today he is the dominant force at the agency, almost completely setting its course on its financing with state bonds, the agency's only real source of income. His planned departure will leave a huge gap, for better or worse. It is one that CIRM directors need to address publicly and soon, perhaps by appointing a task force out of their governance and finance subcommittees. Obviously much of the replacement discussion is too sensitive for public airing. But steps should be taken by CIRM to assure the public, business, researchers and other interested parties that the agency will function smoothly -- financially and otherwise -- regardless of who is chairman. Klein once proposed hiring a high-level bond/finance person to help replace his expertise. That opening has not been posted, but a search should begin promptly because of its likely prolonged length. Plus the person should be on board by around next June.


Careful management of the outside contractors is already critical and will become increasingly so as the agency moves forward. The 50-person cap on staff has made the agency unable to operate without spending $3 million a year for outside help. In the next several years, CIRM may well bump up against the percentage budget cap in Prop. 71 as well, as the agency uses more contractors. CIRM is shy in dealing publicly with such issues. However, many businesses go through long-term staff planning to avoid being blindsided financially. It would behoove the agency to project publicly its needs for outside contractors for the next five years. Of course, such plans are subject to major modification but do help to provide a better picture of future needs. Related to the contracting is electronic security. This topic has rarely, if ever, come up publicly with directors. CIRM has approved grants for more than 300 researchers. It has large amounts of confidential information to protect, with more to come. The disease team round and additional ones with commercial potential are likely to generate information that has significant economic value. Hacking the data may well be financially profitable. But one way to gain access to confidential data is through an employee with an outside contractor, which is sometimes done with financial information on Wall Street. The financial interests of contractors, especially related to their other clients, and their employees should be carefully scrutinized, although this is only a partial answer. Someone at CIRM, but more likely a specialized security contractor, should scrutinize all software, especially the custom programs, for holes and backdoor access.

CIRM staff

President Alan Trounson last week announced that he needs to hire more persons than is permitted under the terms of Prop. 71. He warned that CIRM does not want to get in a position where it cannot fulfill its responsibilities. Ordinarily this would not be an issue. But the agency is hamstrung by the 50-person cap on its staff, which can only be changed by 70 percent vote of the legislature. Asking the legislature to modify Prop. 71 may well stimulate the desires of lawmakers for other changes at CIRM, including some recommended by the Little Hoover Commission, the state's government efficiency group. CIRM has adamantly opposed any changes in its operations. Negotiating any legislative changes successfully will require considerable skill and a public image for CIRM that makes it less vulnerable to criticism.

Cash flow

CIRM directors received a nasty surprise last January when they were suddenly confronted with a cash flow crisis. The problem is now alleviated through June 2011. It is fair to say that the cash flow report should have come earlier and been managed better. Anyone following the California bond situation (not us at the time) could have anticipated the problem in the fall of 2008, if not earlier. Klein did, but balked at being forthright with directors at a meeting at the time when some asked questions that would have led to a discussion of the issue. Authorization and timing of bond sales needs long-term planning as well, given the state's fiscal plight, particularly since Klein is leaving in a year.


The conflicts of interest are not going to go away at CIRM. They are built into the organization by Prop. 71. As an important sign that CIRM is aware of the issue and not trying to sweep the conflicts under a rug, it should make its statements of economic interests and travel expenses available in a searchable form on the Internet. Gov. Arnold Schwarzenegger already does this for his top officials. If CIRM follows his example, it will go a long way in dealing with criticism that CIRM is an entity that only serves the interests of the employers of its directors. Internet access to the statements of economic interest is also important as CIRM becomes increasingly friendly to the biotech industry. Statements of economic and professional interests of scientific reviewers should be posted. They make the de facto decisions on the grants. Applicants can only appeal their decisions on the basis of a conflict, but applicants do not know which scientists examine their applications, much less their economic interests.


Sometime in 2010, probably in the summer, CIRM plans to bring in an outside panel of scientists to review its research portfolio. Presumably the group will generate recommendations to fill any voids in CIRM research and to make other improvements. The session could serve as a fine exercise in the directors' new effort to improve its communications with the public. Opening that session to the public would not only enhance CIRM's credibility but it would be useful to scientists and businesses in California interested in seeking CIRM funding. Selection of the panel is important as well and should include someone willing to serve as a scientific devil's advocate. Without that perspective, the review session could degenerate into back-slapping self-congratulation. Sphere: Related Content


  1. Dave,

    I don't understand why you think CIRM needs to hire its own bond expert. That's what the state treasurer's office is for.

    John M. Simpson
    Stem Cell Project Director
    Consumer Watchdog

  2. John -- You may be right about that but the treasurer's interests and CIRM's may not necessarily coincide. CIRM also needs some independent expertise on bond financing, which is its lifeblood.