Billion Dollar Questions and the True Cost of California's Ambitious Stem Cell Program

Robert Klein, a believer in bond financing and backer of the 

stem cell  agency -- California Stem Cell Report photo

Will California's stem cell research program really cost $6 billion dollars? 

That is a figure that has been widely used over the years by many in the news media and elsewhere, including this web site.  The number is based on the projected interest expense on $3 billion in state bonds that pay for the California Institute for Regenerative Medicine (CIRM), as the state stem cell agency is formally known. 

The $6 billion projection originated as an official estimate in the 2004 state voters pamphlet by the state Legislative Analyst, the respected source of nonpartisan financial information about state government.  The pamphlet was released by state election officials in connection with the ballot measure that created the stem cell agency. 

However, times were different 15 years ago. Interest rates were substantially higher. The Legislative Analyst did not forsee the low interest rates that the country has seen since then, particularly since 2008.  

The latest estimate of the total interest expense is about $1 billion, making the total costs for the stem cell agency about $4 billion instead of $6 billion. The figure comes from CIRM, which based it on information from the state treasurer's office, which sells the bonds. The treasurer did not respond to direct email queries by the California Stem Cell Report. 

Kevin McCormack, senior director of communications for CIRM, told us, 

"Per the state treasurer’s records as of 9/5/19, the interest cost on the bond proceeds that have been issued to date for CIRM is $836,579,927."

In response to questions, McCormack said another $600 million in bonds remain to be sold. With their sale, he said that the total interest expense will rise to roughly $1 billion.

The use of borrowed money to finance biomedical research is one of the very unusual aspects of the stem cell agency. State bonds are generally used to finance construction of long-term facilities such as roads and prisons.

The use of bonds was championed by Robert Klein, a California real estate investment banker, a profession that is deeply reliant on the use of borrowed money. Klein directed the writing of the 2004 initiative, led the subsequent ballot campaign and became the agency's first board chairman. 

Klein founded a stem cell advocacy group called Americans For Cures and  this month submitted a proposed ballot initiative to provide $5.5 billion more in state bonds to the agency, which is running out of cash. 

The website for Americans for Cures, which has offices in Klein's Palo Alto, Ca., offices, stoutly defends the use of bonds as a "new paradigm for funding medical research." It says, 

• "First, bonds spread the cost of a massive public investment over a period of 30 to 50 years.
• "Second, bonds provide a critical mass of financial assets that can be marshaled in the near-term increases dramatically.
• "Third, when funding structure changes to long-term bonds authorized by voters, healthcare constituencies are united in support. It is in their collective interest that voters approve bonds—if the bonds fail, the capital demands for research will fall back upon the appropriations process.
• "Using bonds to fund medical research creates a large-scale, long-term portfolio; historically, these have high statistical opportunities of success due to broad risk diversification.
• "Stem cell research is also funded by the federal government’s National Institutes of Health (NIH) budget. It may also be funded by the private sector, but such investment generally occurs later, during the testing and development phase, than during initial basic research."

The use of borrowed money is likely to be campaign issue, as it was in 2004, should Klein's new initiative qualify for the November 2020 ballot. Opponents of the 2004 measure argued against the state borrowing money for stem cell research. They declared in the state ballot pamphlet:

"We cannot afford to pile another $3 billion in bonded debt on top of a state budget teetering on the edge of financial ruin.

"General Fund bond debt will grow from $33 Billion on May 1, 2004, to a Legislative Accounting Office projection of $50.75 Billion in debt by June 30, 2005-a staggering 54% increase in just 14 months!"

Currently the state has about $80 billion in general obligation and revenue bond debt, according to state documents.  The state's financial situation is better than in 2004. And in June, California Gov. Gavin Newsom signed a $215 billion state budget that contained a $21.5 billion surplus. 

The price tag on California's stem cell program, however, is only one part of the political mix during the next 12 months. How it all will play out is far from clear. 

San Francisco Chronicle: California's $3 Billion Stem Cell Program Does Not Measure Up to Voter Expectations

The San Francisco Chronicle, in a long and penetrating look at California's $3 billion stem cell agency, today said the research program has fallen "far short" of the promises made by its backers during the ballot campaign that created the effort.

Written by Erin Allday and Joaquin Palomino, the article said the agency, created by Proposition 71 in 2004, "can take credit for some notable progress," including saving the lives of children with rare immune deficiency diseases. Such efforts have been well supported by the agency, formally known as the California Institute for Regenerative Medicine (CIRM).

"But as thrilling as such advances are, they fall far short of what Prop. 71’s promoters promised." Allday and Palomino wrote.

"Not a single federally approved therapy has resulted from CIRM-funded science. The predicted financial windfall has not materialized. The bulk of CIRM grants have gone to basic research, training programs and building new laboratories, not to clinical trials testing the kinds of potential cures and therapies the billions of dollars were supposed to deliver."

Allday and Palomino worked on the CIRM overview for months, along with three other major pieces on stem cell therapies, both unregulated and those backed by the stem cell agency.  They reviewed the nearly 1,000 grants awarded by the agency and tracked the results, interviewing researchers and patient advocates and quantified the results.

The Chronicle series appeared as the agency nears its financial demise. It expects to run out of cash for new awards next year. The agency hopes that voters will approve a yet-to-be-written, $5 billion ballot measure in November 2020.

The Chronicle noted, however, that much of the research financed by the agency is not likely to resonate with voters.

Nonetheless, the article today contained ample information from the agency about its efforts, including its 49 clinical trials and some high profile results from those trials.  The piece posed the question of whether the nearly 14-year-old program has paid off. And it said,

"It’s not a question that can be answered simply. Science often can’t be measured in quantifiable outcomes. Failures aren’t just common, they’re necessary — it’s impossible to expect every dollar invested in research to lead down a traceable path toward success.... 

"It has helped make California a global leader in the field that’s come to be known as regenerative medicine. Anywhere significant stem cell research is taking place in the state, it almost surely has received support from CIRM."

The Chronicle quoted a member of the CIRM board who has been with it since its first days.

"'What was promised was not deliverable,' said longtime CIRM board member Jeff Sheehy, a former San Francisco supervisor. 'However, I would distinguish the promises from the impact and value. We have developed a regenerative medicine juggernaut.'"

The Chronicle also spoke with Bob Klein, a Palo Alto real estate investment banker who led the 2014 campaign.

"Klein...is unapologetic about the campaign he led. Indeed, as he lines up advocates and testimonials for the coming campaign, his message is familiar: Fund this research and we will save lives. Slow it down and the consequences will be grave.

"'Do you want your son to die? Are you going to wait?' Klein asked recently. 'Is that the price you are prepared to pay?'"

Today's Chronicle piece, roughly 5,000 words long, raises a host of important issues and deals with them in a nuanced and thoughtful manner. It is must reading for all those interested in California's stem cell research effort. 

(Editor's note: An earlier version of this item inadvertently omitted Palomino's name. Allday noted in an email to the California Stem Cell Report: "He played a HUGE role in putting together the CIRM story – he was basically solely responsible for collecting and analyzing the data from CIRM.")

California Politics, Stem Cells and Campaign Endorsements

A relatively obscure stem cell scientist last week one-upped -- sort of -- one of the more powerful lawmakers in the United States Senate.

It was not a direct, head-to-head contest -- just sort of a rough comparison involving Democratic politics in California.

The two individuals involved are Hans Keirstead, who is touting his involvement in the creation of the $3 billion California stem cell agency,  and Sen. Dianne Feinstein, who has served in the Senate for 26 years.

Despite her long track record, last week she did not receive the endorsement of the California state
Democratic Party for re-election, apparently because she was not right type of liberal for the activists who dominate the party. The party, indeed, did not endorse any Democrat in Feinstein's re-election contest.

At its convention this past weekend, however, the party did endorse Keirstead in a Southern California congressional race.  He is running to replace Republican Rep. Dana Rohrabacher, who was once described oddly by a fellow Republican as "Putin's favorite congressman." 

Keirstead campaigning earlier this month.
Photo by Andrea Adelson, LB Indy

In political terms, Keirstead is indeed obscure, having never run for office before. However, he has achieved some recognition within the stem cell world, but most of that population does not vote in his district.

Keirstead, who did much of his research at UC Irvine, is trumpeting his stem cell work as part of his campaign. Here is a sample from a campaign web page:

"Hans served as a lead scientific advisor for the California Stem Cell Initiative which established a $3 billion stem cell research fund to support medical innovation in California."

The two candidates who receive the most votes in the June primary election will face off in November, whether they are Democrats or Republican. Keirstead has seven likely Democratic candidates facing him, according to one report. However, the filing deadline to run is March 9.

Rohrabacher is widely regarded as vulnerable and Democrats nationally are hoping to remove him from office in November.

Feinstein is way ahead in the polls in her separate race and vastly better financed than her opposition. The Democratic Party's lack of endorsement gained considerable attention in the mainstream media, but her backers said it provided little tangible benefit for her Democratic opponents.

Fresh $5 Billion for California Stem Cell Research? Voter Poll Scheduled for This Fall

The man often called the father of the California stem cell agency today all but said he is set to launch an effort to pump an additional $5 billion in state funding into the research effort, which is scheduled to run out of cash in about three years. 

Robert Klein, a wealthy real estate investment banker, told a packed audience at the City of Hope in

Robert Klein at City of Hope today

the Los Angeles area that a public opinion poll would be taken next fall in California to gauge support for a new bond measure to support the agency. 

He said that California has the "opportunity and privilege" to "lift the human condition." Klein said,

 "A revolution is underway."

Klein managed the 2004 campaign that created the stem cell agency, and he oversaw the writing of the 10,000-word initiative that placed the agency's spending outside of the control of the legislature and governor. Klein spoke at a daylong symposium involving the state's soon-to-be $40 million, Alpha stem cell clinic network, which is scheduled to grow from three to five sites later this year. 

Researchers, business executives and patients praised the performance of the clinics which were initiated with support from the California Institute for Regenerative Medicine, as the Oakland-based agency is formally known.

Klein, who served as the agency's first chairman until 2011, praised its work. He also noted that California has 50 percent of the nation's biotech infrastructure. He said the state has an historic opportunity to carry the current stem cell research forward.

Klein did not say specifically he would organize a new campaign for a bond measure for the agency. But he was more specific about the voter poll this fall and was optimistic about the future of the research in California. He said,:

"This fall when the citizens of California are polled, I believe they will say (the agency's) results are encouraging."

The agency has yet to produce a stem cell therapy for widespread public use despite the expectations raised by Klein's campaign 12 years ago.

Klein did not say who would fund the poll or how campaign funds would be raised. However, he has an organization called Americans for Cures, which had its origins in the campaign of 2004. That ballot measure effort cost $34 million.

A new bond measure would likely be mounted in the 2018 November general election, which would improve the likelihood of approval plus help to provide timely financial continuity for the agency.

Clarifying the Path to Cash: California Looking for Money from Its Stem Cell Investments

CIRM chart

The $3 billion California stem cell agency is moving to revise its rules for royalties and revenues that may be derived from its research, simplifying them while focusing more sharply on likely cash-generating products.

The proposal comes before the agency's Intellectual Property  (IP) Subcommittee Thursday at a 10 a.m. meeting that has a number of locations throughout California where the public can participate.

A document prepared for the meeting said the complexity of the existing IP regulations has led to disagreements, created an excessive administrative burden and treated for-profit and non-profit enterprises differently.

John M. Simpson of Consumer Watchdog in Santa Monica, Ca., who participated extensively in the early development of the IP rules, praised the proposed changes.

Responding to an inquiry from the California Stem Cell Report, he said:

"The proposed changes in the IP regulations should simplify oversight for CIRM and make expectations for all awardees clearer.  It puts nonprofit and commercial entities on the same footing with regard to their revenue sharing responsibilities. Most importantly the new rules will emphasize getting revenue for the state  from  companies who actually commercialize the results of CIRM-funded research.  That’s exactly as it should be. 

“Nonetheless, despite the overblown promises of Prop. 71 campaigners, the state as yet to realize any revenue from research CIRM has funded.  There could be a little money this year."

"This change in the IP rules makes sense and is the best way forward,  but realistically I doubt the state will ever see significant revenue from the research it has funded."

Proposition 71 created the California stem cell effort, known officially as the California Institute for Regenerative Medicine or CIRM. One of the promises of the 2004 campaign was that it would lead to as much as $1.1 billion in revenues to the state. No royalties have yet been announced. 

Telephonic locations for the public exist in Irvine, Napa, South San Francisco, San Diego and San Francisco in addition to the agency's headquarters in Oakland. Specific addresses can be found on the agenda, which also includes directions for a listen-only audiocast.
 

Trump: Helpmate to the $3 Billion California Stem Cell Agency?

Donald Trump's victory last night, oddly enough, could be good news for the future of the California stem cell agency. 

It could be George Bush all over again.

How does that work, you may ask? Trump is a bit of a blank slate on stem cell issues. He has not addressed them directly. But he is pro-life, a fact being celebrated this morning in the usual pro-life venues.

Given that stance, he is likely to reverse the federal government's current funding of human embryonic stem cell research. It would be easy to do, basically nothing more repealing an executive order or issuing a new one.

Such a move would echo the Bush restrictions on human embryonic stem cell research that provided the justification for the 2004 ballot initiative that created California's $3 billion stem cell research effort. Bush's opposition energized the scientific and patient communities on behalf of the initiative.

His opposition also helped to raise the $34 million for the electoral campaign that spawned the California Institute for Regenerative Medicine (CIRM), the official name of the stem cell agency.

Bush provided a big target for supporters of stem cell research. (See here and here.) He embodied the essence of the "anti-science" crowd. And in politics it is good to have a "demon" that can easily be understood. It simplifies issues, sharpens the focus and stimulates voters.

The stem cell agency is now on track to run out of money in 2020 for new awards. CIRM relies on state bonds for its cash but its ability to issue them is coming to an end. No additional source of funding has been identified.

Assuming Trump bans federal research on human embryonic stem cell research, it would bring new life to the possibility of another multi-billion dollar bond issue in the next few years. A new "demon" would surface. All the agency needs to do now is to come up with a high-impact therapy that would resonate with California voters.

A "Chicken in Every Pot" -- Stem Cells and the Latest Warnings About Hype

Let's face it, folks, without some hype, California's $3 billion stem cell research effort would not exist.

That's because it is a creature of a popular vote in 2004, and the Golden State's voters needed to be persuaded to pony up their billions for something that they were told would pay off and pay off relatively quickly.

Old news, right? But not entirely. Last week the world's foremost stem cell research organization, the International Society for Stem Cell Research (ISSCR), issued stern warnings about "communications" involving stem cell research. "Circumspect and restrained" were the watchwords from the more than 4,000-member group. Seek "timely corrections" of misleading information in the media, the world's stem cell researchers were told, among other things.

All of which is interesting coming from the ISSCR, which loaned its considerable clout in 2004 to the $36 million effort to convince Californians to create the state's stem cell agency with billions borrowed by the state. The effort was also endorsed by a host of individual, top researchers. The campaign is widely regarded as over-promising results on an unrealistic timetable. (See here and here.)

That said, electoral campaigns are not science. Think about promises of a "chicken in every pot," and you will have a good idea of what needs to be said to win an election. And there's the rub.

To generate cash from citizens, it is necessary to create some excitement. Otherwise, it is ho-hum time. One Canadian writer, Kelly Crowe, put it this way in a piece on the public relations guidelines from the ISSCR,

"Would you read a story if this was the headline: 'New study raises questions about an experimental treatment that might not work and won't be ready for a long time.'"

Beyond public perceptions, there is the small matter of stimulating business interest in turning stem cell research into cures, the mission of the California stem cell agency. Businesses are often portrayed as daring innovators bringing fresh, exciting stuff to all of our homes. The reality is that businesses are more often timid, unwilling to take risks that might affect their financial well-being.

So they too must be shown the stem cell light by the agency and its backers so that industry will cough up the considerable cash necessary to bring a stem cell therapy to market and fulfill the promises made to voters 12 years ago.

Just how far should stem cell advocates go in promoting their cause? The ISSCR has its new guidelines. Others may disagree. One person's hype is another person's honest belief. It is unlikely that the ISSCR guidelines will settle the questions.

Little doubt exists that stem cell hype is rampant, some of it from the scientific community and some from enterprises offering untested procedures and treatments. The hype has a natural audience. The public tends to want to believe in scientific and medical miracles, and stem cells smack of miracles.

Randy Mills, the president of the California Institute for Regenerative Medicine (CIRM), as the agency is formally known, regularly brings the facts of "risk" to his dealings at the agency. It is one of his finer innovations.

Last year, his plan for the agency's next five years contained three pages of "risks," including inadequate health benefits, foot-dragging by the federal regulators and safety issues.

Mills exudes excitement for stem cell research and its potential, but at the same time he has a keen eye for the obstacles. It could be called realism. Unless you see the obstacles, you cannot hurdle them. Nor can the public be expected to be patient if it is oversold and under-delivered. 

(A final note: Kelly Crowe's piece is a dandy and involves much more than stem cell research. The headline: "It's not just stem cell research that's overhyped— medical science spin is a widespread problem.")

Champion of Stem Cell Research: Nancy Reagan Hailed by California Stem Cell Leader

The chairman of California’s $3 billion stem cell research effort yesterday weighed in with a tribute to Nancy Reagan and her support for human embryonic stem cell research.

Jonathan Thomas said,

“With the passing of former first lady Nancy Reagan the California Institute for Regenerative Medicine has lost a good friend and a champion of stem cell research. Mrs. Reagan was an advocate for stem cell research for many years and her voice was an important one in helping ensure the passage of Proposition 71. Her call to protect the ability of scientists to ‘pursue medical miracle possibilities’ echoed the feelings of millions of Americans looking to stem cell research for help in battling deadly diseases. We, and patients everywhere, were fortunate to have such a great champion for the work that we do.”

Nancy Reagan’s backing of hESC research began in the spring of 2004 with an unsuccessful effort to convince former President Bush to rescind his restrictions on federal funding of hESC research.

An Associated Press story said at the time,

"'It's hard to overstate or overestimate the power of her impassioned plea for the Bush administration to reform its stem cell policy,' said Daniel Perry, president of the Coalition for the Advancement of Medical Research. "She's given permission for very conservative, anti-abortion Republicans to disagree with Bush. It's a courageous stance against a president of her own party."

Newsweek magazine also carried a piece about her efforts.

Royalties and California Stem Cell Research: $1.1 Billion Promise Still to be Fulfilled

California’s 11-year-old stem cell research effort was born with the extravagant promise that it would generate something like  $1.1 billion in royalties that would flow into the Golden State’s coffers.

None of that bonanza has yet surfaced, but there is no doubt that scientific research generally has the potential to generate economic value for state entities. A case in point was news this morning in the Los Angeles Times that the sale of drug rights (intellectual property or IP) held by UCLA will generate “hundreds of millions of dollars.”

The story by Teresa Watanabe said the deal involved a prostate cancer drug developed at the campus. She reported,

“Royal Pharma, a New York-based pharmaceutical company, paid $1.14 billion for royalty rights to the drug known as Xtandi. It was the largest-ever technology transfer deal involving a University of California invention.”

 California’s $3 billion stem cell agency is not involved in the UCLA-Royal Pharma arrangement. However, the agency, known formally as the California Institute for Regenerative Medicine (CIRM), has acquired other bits and pieces of IP as the result of the $1.9 billion that it has given to researchers over the last decade.

So far the agency has not been able to turn that IP into cash largely because no therapies have reached the marketplace, although the agency has a number of clinical trials underway.

Back in 2005, the royalty promises made during the ballot campaign that created the stem cell agency came under fire as the result of actions by the man who headed the campaign, Robert Klein. He also served as the agency’s first chairman.

Bernadette Tansey, writing in the San Francisco Chronicle, reported,

“The billion dollars in royalties that voters were told could flow to the state if they passed California's $3 billion stem cell research funding initiative in 2004 may turn into an empty promise.”

Stuart Leavenworth, then editor of The Sacramento Bee’s editorial pages, wrote,

“In marketing this initiative, proponents said the state would receive not only miracle cures and reduced medical costs, but also up to $1.1 billion in royalties from new stem cell innovations.

“Now we are learning that this promise, at best, was misleading. At worst, it was a cynical ruse.”

The issue turned on whether tax-exempt bonds would be used to finance the agency, which depends solely on state borrowing. Federal tax laws restrict the use of such bonds. To date, however, no tax-exempt bonds have been used to support CIRM, according to last report.

The use of taxable bonds, however, raises the cost of borrowing and the cost of the research. Estimates in 2004 were that that the total cost of the agency would exceed $6 billion, including the interest on the borrowed $3 billion. No revised, upward estimate has been made public, if it exists.

The issue of the agency’s IP, its possible value and protection has surfaced only intermittently over the years. The most recent mention came last November in the agency’s plan for spending its last $900 million. (The agency expects to run out of cash for new awards in less than four years.)

The agency’s five-year plan said that it would “demand creation (from universities)  for the out-licensing of CIRM-funded technologies with a greater opportunity to achieve a financial return.” Aligned with that is a $75 million proposal to partner with specific enterprises and give them pick of the agency’s best research that does not currently have a partner. (See here and here.)

Relationships with universities can be touchy at the agency because its governing board includes top executives from virtually all of the major, academic stem cell research centers in California. Sometimes those board members can be protective of the interest of their institutions, which have received hundreds of millions of dollars in agency cash over the years.

For those who want to dig more deeply into CIRM’s IP policy, the regulations can be found here and here.

BS and Ebola, Hype and Stem Cells

Hyperbole surrounding both stem cells and Ebola research has surfaced recently with cautionary notes concerning the damage it can do to the reputation of researchers and science.

Just last week UC Davis stem cell scientist Paul Knoepfler took up the matter in a piece headlined “The Cheating Death Excitation.” Over on the Pacific Standard Web site, Michael White of the Washington University School of Medicine wrote an article titled “Why Scientists Make Promises They Can’t Keep.”

White’s entry point was a flap last month about whether more federal funding would have meant faster progress on an Ebola vaccine. The hooha started with a statement by Francis Collins, head of the National Institutes of Health, and included a retort by Michael Eisen of UC Berkeley that Collins’ comments were “complete BS.”

Subheads in White’s Oct. 31 piece summarized his view nicely,

“A research proposal that is totally upfront about the uncertainty of the scientific process and its potential benefits might never pass governmental muster.”

“We, scientists and society, need to be more honest about the uncertainty inherent in the scientific process and in any projection of society’s future needs.”

Out west in California, Knoepfler remarked Nov. 6 on his blog,

“Can stem cells help many people in the immediate future to escape death? Recent headlines on new stem cell-related clinical developments would make you think so and they go a step further to indicate that such miracles are just around the corner.”

He continued,

“In the last few weeks there’ve been an unusually large number of papers and newspaper headlines about stem cell clinical developments, and as much as I hate to say it as an advocate for the stem cell field, many of these cases have been hyped.

“The reporters, their headlines and in some cases even some of those involved in the research seemingly would like you to think that cures for all kinds of bad things are about to happen tomorrow.”

Knoepfler said stem cell technology will be important and it will lead to “humanity changing events…but we aren’t there yet.”

“It’ll probably take another decade or two to really get closer to being a reality. Raising expectations sky high right now with over-the-top claims and headlines is not helpful to progress.”

Our comment: In the case of the $3 billion California stem cell agency, it has been burdened by the hype of the 2004 ballot campaign that created it. Voters were led to believe that miracles were in the offing and only 10 years or less away. That perception has not served the agency or the people well. Nor does it enhance the credibility of stem cell researchers, who were largely silent in 2004 about the grindingly slow process of science and government regulation of new treatments. Yes, ballot campaigns do need to generate excitement and hope. They also have a propensity to degenerate into falsehoods, critical omissions and exaggeration. That is one good reason that expensive ballot campaigns ($35 million in the case of the stem cell agency) are not necessarily the best way to fund scientific research.

As Knoepfler said,

“The key is balance….get excited and talk about the cool stem cell work (but) temper your statements a bit and keep plugging away at the research.”

Alpha Clinic Applications Now Being Considered by California Stem Cell Agency

The Alpha clinic awards are now coming up at today's meeting of the governing board of the California stem cell agency.

Earlier today, Randy Mills, the new president of the agency, outlined in more detail his plan to speed up the grant award process beginning next January. His goal is to substantially reduce the time it takes the agency to process an application until a scientist receives funding.

A press release from the agency later said,

“Right now it can take almost two years for a promising idea to go from the application to the final funding stage. That’s just unacceptable,” says Mills. “We are going to shorten that to just 120 days. But we’re not just making it faster, we’re also making it easier for companies or institutions with a therapy that is ready to go into clinical trials to be able to get funding for their project when they need it. Under this new system they will be able to apply anytime, and not have to try and shoehorn their needs into our application process.”

He said the plan would include ongoing funding opportunities each month during which researchers could apply when ready and have their requests acted on within a matter of a couple of months.

He told the board,

"We don't want loitering."

Mills also told the board that 26 percent of the funding of the agency is going for non-cellular research, the sort of thing that is commonly done by Big Pharma and the NIH. He asked for expression of sentiment whether that should  continue.

In a brief discussion, there was little opposition to that continued expenditure.

In 2004, the ballot initiative that created the $3 billion stem cell agency was peddled to California voters on the basis that it would fund human embryonic stem cell research that the federal government would no longer finance. There was no discussion of funding conventional therapies.

(Editor's note: An earlier version of this item carried an incorrect timeline for funding CIRM grants.)

Biopolitical Times: Trounson-Weissman-StemCells, Inc., Affair is 'Shameful'

The headline on the Biopolitical Times story said it all: “Shameful Conflicts of Interest Involving California’s Stem Cell Agency.”

The piece by Pete Shanks of the Center for Genetics and Society in Berkeley, Ca., dealt with the former president of the agency, Alan Trounson, and StemCells, Inc., which holds a $19.4 million award from the agency, along with Irv Weissman, the Stanford researcher who founded the firm and who now sits on its board.

Trounson was named to the StemCells, Inc., board on Monday, seven days after he left the agency. Yesterday the agency, formally known as the California Institute for Regenerative Medicine(CIRM), launched a “full review” of all activities involving StemCells, Inc. The agency also banned its staff and board fromcommunicating with Trounson about matters involving the publicly traded firm.  

Shanks wrote,

“Let's be blunt: This looks like a pay-off. Technically, what Trounson and Weissman and StemCells, Inc., just did may not be illegal. But it's shameless.”

Shanks pointed out that the problems with conflicts of interest at the agency are nothing new. As far back as 2004, they were noted prior to passage of the measure that created the state research effort. Their importance was noted by major supporters of the measure, including Weissman.

Weissman was quoted in Nature in September 2004 as saying,

“We want to avoid even the appearance of a conflict.”

Shanks concluded,

“CIRM should take a long look at its practices and procedures, which have never served the agency well — and especially should consider its obligations to the public, who fund it. There can be practical difficulties in balancing expertise and objectivity; the best scientists in any field do tend to know each other well. All the more reason to be especially careful. This kind of obviously problematic conflict of interest can and should easily be avoided.”

The Long Odds Story of Stem Cell Research

It was the sort of story that Californians did not see during the ballot campaign 10 years ago that created the state's $3 billion stem cell agency.

The story line then was of hope and the imminent prospect of cures for a host of diseases that afflicted half of California's population.

Today in the San Francisco Chronicle, Stephanie Lee wrote of biotech companies that go for more than two decades without ever developing a commercial product. Lee's poster child was Geron Corp., which abandoned stem cell research in 2011 along with a $25 million loan from the stem cell agency.

Lee wrote,

“A company that goes 24 years without ever selling a product may sound unusual. But in biotechnology, it's not that uncommon. 

“Take Geron Corp. in Menlo Park, which has struggled to develop a therapy - any therapy - since its founding in 1990.”

Lee noted that Geron has an accumulated deficit of $893 million in debt since its founding and is now facing a number of lawsuits from unhappy investors.

“Faced with 10- to 15-year timelines and uncertain regulatory outcomes, companies and investors might plow hundreds of millions of dollars into therapies that will never see the light of day.”

Besides Geron, Lee also mentioned Isis Pharmaceuticals and Dendreon Corp. as examples of biotech firms with a lengthy development history.

She wrote,

“Overall, the odds of getting a drug to market aren't much better than gambling in Las Vegas. Only 1 in 5,000 to 10,000 compounds discovered in the lab gains FDA approval.”

Those odds, we should note, do not reflect development of stem cell therapies, but rather simpler substances. The expectation is that odds will go higher for stem cell therapies.

All of which is not the best news for the stem cell agency, although the information is not all that new. It was out there during the 2004 stem cell campaign, but the stem cell community did not want to talk about it, and the mainstream media largely did not report it.

The figures remained unchanged today, although a more positive aura surrounds biotech than has existed for several years. Nonetheless, the story of long odds and fruitless research is one that bedevils the stem cell agency. It will run out of funds for new awards in 2017 and is looking for ways to avoid its financial demise. Creating a new narrative, one with a brighter future, is the agency's task as it tries to develop new funding.

$145 Million Bond Sale Next Month for California Stem Cell Agency

The state of California will offer up $1.6 billion in general obligation bonds next week but none will be for the state stem cell agency.

The next round of bond funding involving the agency is scheduled for April 22 with $145 million slated to go for stem cell financing, Tom Dresslar of the state treasurer's office told the California Stem Cell Report.

The $3 billion agency is financed through state borrowing (bonds), which roughly doubles the cost of its activities because of the interest expense on the bonds. The state currently provides cash to the agency via short-term debt (commercial paper). Then the state sells taxable bonds to repay the short-term debt.

During the 2004 ballot campaign for Prop. 71, the public was led to believe that the agency would be financed with non-taxable bonds, which would have meant lower borrowing costs for the state to the tune of hundreds of millions of dollars.

In 2007, Bernadette Tansey, then of the San Francisco Chronicle, reported that Robert Klein, head of the Prop. 71 campaign and first chairman of the stem cell agency, knew that taxable bonds were likely to be required but did not disclose that fact to the public.

A $6 Billion Question: Progress of the California Stem Cell Agency

The headlines march like legions across the Internet and throughout the world.

“New type of stem cell helps your fingers regenerate”

“Stem cell technology can mass-produce cancer-killing cells to target tumours”

"Stem-cell treatment restores sight to blind man”

“Special stem cells could heal hearts”

But then there is this extraordinarily rare headline that sounds a harshly different note:

“Stem cells: what happened to the radical breakthroughs?”

All these headlines go to address, in one form or another, a request/question posed last month by an anonymous reader of the California Stem Cell Report. The comment came on an item about the California stem cell agency's $70 million plan to establish a network of “Alpha” stem cell clinics in California.

The reader said,

“It would be nice to have an overall update on how much as been spent on California's stem cell research project and what progress has been made.”

On the surface, the answer is easy. The agency has given away $1.8 billion. The agency says it has made tremendous progress and expects to make even more with the about $600 million it has left. The prestigious Institute of Medicine has said the agency has “achieved many notable results.”

However, no thorough, rigorous evaluation has been made of the details of the agency's scientific contributions, specific grant awards or its impact on the field of regenerative medicine. No one has attempted to genuinely assess whether the work of the agency is or will be worth the roughly $6 billion(including interest) that California taxpayers will have paid for the agency's ambitious efforts.

Then there is the question of “progress towards what?” Is the progress to be measured against the promises of the 2004 ballot campaign that resulted in creation of the stem cell agency or more modest goals that eschew the hype of the campaign?

The stem cell agency is burdened in a way that most science is not. The 2004 campaign created a sort of contract with voters. They were led to believe nine years ago that the cures for diseases that the campaign said afflict nearly one-half of all California families were, in fact, right around the corner. Few, if any California stem cell researchers were publicly warning that a hard and long, long slog remained before therapies reached patients.

Last week, however, Simon Roach of the British newspapers, The Guardian and Observer, shed some light on the early, rosy promises of stem cell science compared to the world as it exists today.

He wrote that in 1998,

“(B)iomedical engineer Professor Michael Sefton declared that within 10 years, scientists would have grown an entire heart, fit for transplant. 'We're shooting big,' he said. 'Our vision is that we'll be able to pop out a damaged heart and replace it as easily as you would replace a carburetor in a car.'

“Fifteen years on, however, we've had some liver cells, eye cells, even a lab-grown burger, but no whole human organs. We could be forgiven for asking: where's our heart? It does seem strange that a field stoking so much excitement could be so far off the mark. Speaking last week about the vision that he and his colleagues outlined in 1998, Sefton said they had been 'hopelessly naïve.' As time plodded on and an understanding of the biological complexity increased, the task seemed bigger and bigger. Even now, a cacophony of headlines later, we are not much further ahead.

“Chris Mason is a professor of regenerative medicine at University College London and believes that concentrating on organ regeneration is missing a trick. 'These organs are immensely complex,' he said. 'They've got nerves, blood vessels, in the case of the liver, a bile system – there are huge degrees of complexity. These things take a long time to grow in humans, let alone in the lab without all the natural cues that occur in the growing embryo.'"

The final paragraph in Roach's article said,

“There's a tension in medical research between the glory of the big discovery and the assiduous commitment to real application. 'We're hoping the scope and possibilities of this project will catch the public's imagination,' Sefton concluded in 1998. It did, but perhaps the public's imagination isn't always what science should be vying for.”

Little doubt exists that the California stem cell agency has made a significant contribution to stem cell science, although the size of that contribution – beyond dollars – remains to be measured. For now, the key for the agency and the public is to focus on activities that will generate the greatest value over the next few years and advance the science that has already been financed by the agency.

As the $700,000 Institute of Medicine report said,

“The challenge of moving its research programs closer to the clinic and California’s large biotechnology sector is certainly on CIRM’s agenda, but substantial achievements in this arena remain to be made.”

Oregon-style Stem Cell Cloning Research Illegal in California: No Pay for Eggs in Golden State

The good news out of Oregon is that some diligent scientists in the Beaver State have accomplished a major advance in stem cell research --- the cloning of human stem cells.

That bad news is that their research would have been illegal in California, and probably will be banned for decades, if not longer – thanks to Proposition 71 of 2004.

The proposition was the ballot initiative that created the $3 billion California stem cell agency, which is hailed internationally as being one of the world leaders in financing stem cell science. Unfortunately, the 10,000-word initiative also contains language that was aimed at winning voter approval of the measure -- not promoting good science.

The team writing the initiative, led by Robert Klein, the former and first chairman of the stem cell agency, put in a provision that made it illegal to pay women for their eggs. The Oregon researchers paid women $3,000 to $7,000 each for their eggs, reflecting the current market rate based on prices paid in connection with IVF. In some cases for IVF, the compensation is dramatically higher. (See here and here.) Stem cell researchers in recent years in the United States have found that they cannot secure an adequate number of donors without matching IVF donor compensation.

While compensation for eggs is a matter of some controversy, strong cases have been made that women should make their own decisions about selling their eggs – not the what some call the nanny state. Of course, that should occur under well-regulated situations. But Proposition 71 backers wanted to remove any possible campaign objections by opponents of stem cell research, and so they inserted the ban along with management minutia and other dubious material.

Can't that be changed, one might ask? Not without a herculean effort. That means another ballot measure or a super, super majority vote in the California legislature plus the signature of the governor. Imagine a measure on the ballot to allow women to sell their eggs. The uproar would be heard internationally. In 2004, when Proposition 71 was approved, it would have been better to leave the compensation issue unaddressed. Then it could have been dealt with through regulation or normal legislation, both of which are far more flexible than ballot measures that alter the state Constitution and state law.

Our quick and limited survey of the news coverage indicated that many of the mainstream media stories omitted the price of the eggs, which may suggest that the issue of compensation is becoming moot.

In related news about the Oregon accomplishment, UC Davis stem cell researcher Paul Knoepfler has posted a good look at the some of the misinformation that is surfacing on the Internet about the research, including its implications.

He said,

“Keep in mind that on day one of the iPS cell era in the stem cell field we had a huge number of misconceptions because we simply had so much to learn. Same is true here.”

Jessica Cussins over at the Berkeley-based Biopolitical Times also has a solid roundup of the coverage of the Oregon research and the analysis of its significance.

Here are links to two blog items from the California stem cell agency on the Oregon research, including one dealing with “cloning hysteria” and a more general look.

hESC Research Totals $458 Million out of $1.8 Billion from California Stem Cell Agency

The California stem cell agency today said that it has awarded $458 million to fund research involving human embryonic stem cells (hESC) out of a total of $1.8 billion it has given away during the past eight years.

The amount is of some interest because the key reason that the agency now exists is the perceived need in 2004 to fund hESC research in the wake of the Bush Administration restrictions on federal funding in that area. The restrictions created a national uproar in the scientific and patient advocate community, which feared that promising therapies would never be developed.

The $35 million ballot campaign to create the agency focused hard on hESC research to the virtual exclusion of any mention of adult stem cell research. Opposing the effort were such forces as the anti-abortion movement and the Catholic church. But this month LifeNews.com carried a mildly approving item that pointed to the agency's turn towards adult stem cell research.

When the Obama administration lifted the Bush restrictions, some questions were raised about the need for the California effort, which is costing state taxpayers $6 billion, including interest. But those concerns received little public attention and quickly died out.

Funding for the agency comes through state bonds. Cash for new awards is scheduled to run out in 2017. The agency is looking at developing a public-private effort for thefuture that would need a $50 to $200 million “public investment” and major private funding.

Amy Adams, CIRM's communications manager, provided the $458 million figure following publication of this item yesterday on the California Stem Cell Report.

'Praise' for California Stem Cell Agency from Unlikely Corner

The California stem cell agency this month received what some might consider a gesture of approval from a longtime foe – LifeNews.com.

LifeNews is a site devoted to anti-abortion efforts and information and is sharply opposed to research involving human embryonic stem cells.

So it was with some surprise that we read a tacit endorsement of recent CIRM activities in an April 22 piece written by Gene Tame out of Sacramento. It said the most recent $32 million grant round from CIRM “demonstrates – again – where the future of stem cell reserch lies.”

Tame wrote,

“CIRM has been steadily moving away from its original mission to give preferential treatment to funding for human embryonic stem cell research (hESCR). Instead, after adopting a renewed emphasis on translating research into clinical trials, CIRM has more and more shifted the bulk of its grants towards funding research utilizing adult stem cells and other alternatives to hESCR, such as induced pluripotent stem cells (iPSCs).”

Tame continued,

“(T)he lack, once again, of funding for hESCR only serves to highlight how old and dated that approach to finding treatments and cures increasingly seems.”

Tame is correct in his assertion that the stem cell agency has moved a considerable distance from its reason for being – research involving human embryonic stem cells. In 2004, the ballot campaign to create the agency pitched voters hard on hESC research and made no real mention of adult stem cells. Instead, it focused on the threat from the Bush Administration with its restrictions on hESC research, which have been lifted by the Obama Administration. .

In 2010, a study by a Georgia Tech academic, Aaron Levine, reported that through 2009 only 18 percent of California's dollars went for grants that were "clearly" not eligible for federal funding under the Bush restrictions. 

At the date of the study, CIRM had not publicly disclosed statistics on its funding of hESC research.

Today, however, its web site shows that only about 240 of the 595 awards that it has handed out are going for hESC research. CIRM has not made public the dollar value of those 240 awards, but it has given away a total of $1.8 billion. (Following publication of this item, the agency told the California Stem Report that it has funded $458 million in hESC research.) 

A footnote: Levine was a member of the blue-ribbon Institute of Medicine panel that recommended sweeping changes at CIRM.  

Text of Comments on Awards to Stem Cell Directors' Institutions

Here is the full text of comments made by the California stem cell agency, Joe Mathews, co-author of “California Crack-Up” and Bob Stern, former president of the Center for Governmental Studies and co-author of the California Political Reform Act, in connection with the Sept. 23, 2012, article in The Sacramento Bee headlined “Stem Cell Cash Mostly Aids Directors' Interests.” The comments were abbreviated for publication in The Bee because of newspaper space constraints.

Comments by Alan Trounson, president of CIRM:

“To make sure we do the best job of managing taxpayer's money it's natural that we turn to people who know most about stem cells and stem cell research. In fact, as the state's own Little Hoover Commission reported in its analysis of CIRM: “The fact that CIRM funding has gone largely to prestigious California universities and research institutes is hardly surprising and should be expected, given the goals of Proposition 71 and the considerable expertise resident in these research centers.” But in recruiting the best minds, we also adopt best practices to ensure that there is no conflict of interest. Every board member has to recuse themselves from voting on, or even being part of a discussion on anything to do with their own institution, or to an institution or company that they have any connections to. All this is done in meetings that are open to the public. CIRM’s conflict of interest rules have been subject to multiple reviews – by the Bureau of State Audits, the Little Hoover Commission and the Controller – and there is no evidence that any of CIRM’s funding decisions have been driven by conflicts of interest. Indeed, CIRM rigorously enforces its conflict of interest rules at each stage of the funding process to ensure that all decisions are made on the merits of the proposal for funding and not as a result of any conflicts of interest. 

“In addition all funding applications are reviewed by an independent panel of scientists on our Grants Working Groups, all of whom are out-of-state and meet strict conflict of interest requirements, and it is their recommendations that help guide the ICOC (CIRM governing board) on what to fund.”

Joe Mathews' comments:

“California ballot initiatives are a terrible way to make public policy. And they are even worse as a method for making scientific policy. 

“It's not merely that this initiative was drafted in such a way as to benefit the enterprises of its directors. It's that, under this initiative's own provisions and the California constitution, it's so hard to change Proposition 71 and fix what ails CIRM. Effectively, these provisions are baked in, and nothing short of another vote of people can really make the change. (Yes, there are provisions, as you know, that permit the legislature by super-majority to do things, but supermajorities are effectively out of reach in California). 

“Sadly, initiatives like Proposition 71 are not uncommon. Many measures are drafted to benefit the people who would support the measure, or oversee the program established. This has been very common with bonds. Essentially, to win the support of various groups whose money and backing is important to passage of a bond, a sponsor of an initiative bond will set up rules and include money specifically intended for each group. This is a form of pay-to-play. Agree to back the initiative and you're in. And it happens because there's no rule against it and because passing initiatives in California require difficult, expensive campaigns. 

“And this sort of thing will continue to happen. There is no serious push to do anything about this. Indeed, good government groups and reformers in California have opposed changes to the initiative process -- because they want to use the process for their own schemes.”

Bob Stern's comments:

“It would have been better had institutions receiving grants not to have had their representatives on the board awarding grants. On the other hand, we want to have the most knowledgeable people on the board overseeing this very important program. The question: Were these people the only qualified ones to sit on the board?”

Royalty Rules at the California Stem Cell Agency: Business Friendly Changes Proposed

If you are looking to follow the money trail at the $3 billion California stem cell agency, next Thursday's meeting of its 29-member board of directors is a good place to start.

On the agenda are revisions in its intellectual property rules, which are all about who gets paid and how much and when – should an agency-financed product generate significant cash.
The key question about the proposed changes is whether they will generate an appropriate return for the state, given its $6 billion investment, including interest on the bonds that finance CIRM. The impact of the changes is not crystal clear. And the staff memo does not mention two important definition changes that appear to be quite business friendly.

During the 2004 ballot campaign that created the stem cell agency, California voters were told that the state would share as much as $1 billion or more in royalties. Eight years later, no royalties have materialized since CIRM research has not yet resulted in a commercial therapy. 

At next week's meeting in Burlingame, directors will be asked to modify CIRM rules for royalties that CIRM staff said "could be a disincentive" for business. A staff memo said the proposals would alter provisions that create "administrative challenges and uncertainty." The memo asserted the proposed changes would ensure "a comparable economic return to California" equal to the existing provisions. However, the memo provided no explanation or evidence for how that result would come about. The proposed changes could also be applied retroactively with the agreement of CIRM and the grantee.

Currently CIRM grantees and collaborators must share as much as 25 percent of their licensing revenue in excess of $500,000, depending on the proportion of agency funding for the product. The IP rules also contain a provision for payments in the event of development of a "blockbuster" therapy. The staff memo described how that would work.

“It provides that grantees and collaborators must share revenues resulting from CIRM funded research as follows: after revenues exceed $500,000, three times the grant award, paid at a rate of 3% per year, plus upon earning $250M(million) in a single calendar year, a onetime payment of three times the award, plus upon earning revenues of $500M in a single calendar year, an additional onetime payment of three times the award and, finally, in the instance where a patented CIRM funded invention or CIRM funded technology contributed to the creation of net commercial revenue greater than $500M in a single calendar year, and where CIRM awarded $5 million or more, an additional 1% royalty on revenues in excess of $500 million annually over the life of the patents.”

The proposed changes would exempt "pre-commercial revenues" from the state's revenue sharing, the memo said, in order to maximize the amount businesses can "re-invest in product development." The proportionality payment provision would be changed to require only 15 percent of licensing revenues if CIRM's investment is less than 50 percent and 25 percent if it is more than 50 percent. Revenue sharing would be extended to "commercializing entities." No definition of "commercializing entities" was provided in the board agenda material, but a June version of the changes defined them as "A For-Profit Grantee and its Collaborator or Licensee that sells, offers for sale or transfers a Drug, product(s) or services resulting in whole or in part from CIRM-Funded Research."

Not mentioned in the CIRM staff memo were two new provisions in the rules involving the definition of licensing revenue and the sale of a therapy. Both could be construed as quite favorable to businesses. According to the June version of the changes, licensing revenues are defined as a figure minus "a proportion of expenses reasonably incurred in prosecuting, defending and enforcing related patent rights equal to CIRM’s percentage of support for development."  The sale provision says that royalties on "net commercial revenue" are not due until received from sales in the United States or Europe. That provision would appear to exclude California from receiving royalties on product sales in most of the world, where it is easier to receive regulatory approval for sale of new therapies and drugs. (See here -- page 2 -- for royalty provision and here for definition of "first commercial sale"-- page 3.)

The existing IP regulations are enshrined in a 2011 state law. However, the law also provided that they can be altered by the agency, the CIRM memo said, “if it determined that it was necessary to do so either to ensure that research and therapy development are not unreasonably hindered as a result of CIRM’s regulations or to ensure that the State of California has an opportunity to share in the revenues derived from such research and therapy development.”

The memo continued,

"The proposed amendments re-strike the balance both to ensure that industry will partner with CIRM and to ensure that the State has the opportunity to benefit from successful therapy development."

Board action next week will give the go-ahead for posting the proposals as part of the official state administrative rules process. They are subject to additional changes in that process. 

The agenda originally contained the full text of the changes. However, that material has been dropped from the board agenda. An earlier version can be found here and here. We have queried the agency about the reason for dropping the text in the board agenda.

(Editor's note: The agency has now reposted the version of the text of the changes that was on the agenda earlier, saying that it was having problems with its web site. For the definitions of terms, however, it is still necessary to refer to the June documents.)