Proposition 14: First CEO of California Stem Cell Agency Says $5.5 Billion Stem Cell Measure Not Needed

Zach Hall, UCSD photo

The first president of the California stem cell agency, Zach Hall, says that he would vote against the $5.5 billion ballot measure to save the research enterprise from financial extinction if he still lived in California.

Hall, now retired and living in Wyoming, says a justification for agency existed in 2004 when it was created by voters via another ballot measure, the $3 billion Proposition 71. 

But, according to the new book, "California's Great Stem Cell Experiment," Hall says "that the rationale and need are not so evident today for a state-supported agency dedicated to stem cell research."  

The creation of induced pluripotent stem cells has largely supplanted the use of cells derived from embryos, Hall said. The Bush Administration restrictions on human embryonic stem cell research were major drivers for Proposition 71, but those have now been lifted.

Hall said that the National Institutes of Health could likely support most of the stem cell work that is now backed by CIRM.

Proposition 14, the $5.5 billion ballot initiative, would refill the stem cell agency's coffers. The program is running out of the $3 billion provided in 2004 and will begin  closing its doors this winter without major funding. 

Hall was president and CEO of the California Institute for Regenerative Medicine (CIRM), as the agency is formally known, from 2005 to 2007 and drew up the agency's first strategic plan. During his long career, Hall was also director of the National Institute of Neurological Disorders and Stroke in the 1990s, executive vice chancellor at UC San Francisco, CEO of En Vivo Pharmaceuticals and a director of the New York Stem Cell Foundation.

Interviewed for the book, which was authored by this writer, Hall said that he has no regrets about serving as its first president, a job he largely enjoyed. 

Hall said that Proposition 71 of 2004 served an important and useful purpose. It helped to re-energize the stem field at a time when it was “disheartened and demoralized” by the restrictions of the Bush Administration.

While the 2004 measure had significant flaws, he said it was very successful at a critical time in attracting stem cell researchers to California.

“The idea that California would make this sort of commitment, I think, had a huge impact on the field,” Hall said.

 “It's certainly true that because of Proposition 71 that California continues to play a stronger role in stem cell research than it otherwise would have. But, contrary to some expectations, it is not the center of the universe of stem cell research in the same way that Silicon Valley is for information technology.

“It is one of many global centers of excellence for stem cell research. One perhaps naïve expectation that has not been met is an explosion of profitable California biotech companies specializing in stem cell research.”

Hall said, however, that Proposition 14 “is searching for a rationale to continue CIRM.” Hall mentioned the “amorphous” research avenues provided for in the measure: mental health, personalized medicine, “aging as a pathology” and “vital research opportunities.”

“You can use the money for almost anything,” Hall said. “This takes off a lot of the brakes on how the money can be spent.”

Given what has been learned over the last 15 years, he said he would have thought a new initiative would have attempted to improve governance and try to make CIRM work better, be more efficient and more strategic. “There's just no sense of thoughtfulness of using the expertise of getting relevant people together to think about it and come up with a plan,” Hall said.

He also said that Proposition 14 does not provide a good or transparent mechanism for making decisions about how the money is going to be spent.

“My guess is that all the board positions will be filled by constituents, people who depend on CIRM money in some way and who will be very pliable about what is to be done. Exactly the wrong way to do it.”

The California Stem Cell Report asked Hall last week if he would like to add anything to his earlier comments for the book. "One thought I might add," he replied, "concerns the idea that Proposition 14 will address the issue of the 'Valley of Death', i.e. the gap between discovering a possible therapeutic and being able to 'de-risk it' enough to attract the interest of big pharma.  What is being proposed, it seems, is that CIRM wants to act as a kind of VC (venture capitalist) with the state's money.  

"In my view, a much better approach to this problem is to find ways to encourage academic and industry scientists (both biotech and big pharma) to work together starting from an early stage of the work. This has been done effectively (and much more cheaply!) by several private philanthropic organizations.  The Michael J. Fox Foundation and Target ALS are two examples that I know of." 

Former California Stem Cell CEO Zach Hall on Conflicts of Interest and Last Week's CIRM Board Voting

Conflict of interest issues have long been a difficult issue for the California stem cell agency, and so it was last week.

The matter involved a proposal to reduce the indirect cost funding rate for both businesses and nonprofit institutions from as high as 20 percent to 10 percent of an award. That recommendation quickly ran into objections from Donna Weston, who is chief financial officer at Scripps and also a member of the board (the ICOC). She and seven other representatives of nonprofit entities all voted to keep their institutions from losing the cash. The rest of the board members voting also went along, on a 17-0 roll call at the Thursday meeting.

During the session, the California Stem Cell Report queried James Harrison, general counsel to the agency, about whether the votes by the nonprofit representatives involved a prohibited conflict of interest. Harrison, who was at the meeting, replied via email,

"No, it is a standard, so it is exempt." 

The item drew the attention of Zach Hall, who served as the first president of the agency.  Here is the text of what he had to say in an email to this writer: 

“As a former President of CIRM and Vice-Chancellor for Research at UCSF, I have what I hope is a constructive comment about the issue of conflict of interest and CIRM indirect cost rates.   

      James Harrison's response to your question about conflict of interest of ICOC institutional representatives who vote on their own indirect costs may be correct by the rules of CIRM, but this voting arrangement constitutes a fundamental conflict by any reasonable standard. Institutional representatives on the ICOC are now disqualified from voting on CIRM grant applications from their own institution. In these instances, most of the money – the direct costs – goes to the investigator, rather than to administrative or infrastructure costs, and, in any case, the total amount is small compared to the overall institutional budget. In contrast, indirect costs rates are much more important for the institution, as they apply to all CIRM grants that an institution receives and all of the money goes to the administration for research support. Because it is so important, research institutions spend tens or hundreds of thousands of dollars to negotiate the best possible indirect cost rate with the federal government. In contrast, for CIRM grants, institutional representatives do not negotiate but actually vote on the size of their own indirect cost rate. By sitting on both sides of the table, they undermine the integrity of the whole process.

      As a former administrator at a California university, I know how important the indirect cost rate is for a research institution. I thus strongly support a rate of 20% on CIRM grants, a rate which is still below the cost of research support at most institutions. Nevertheless, I believe it is a mistake to allow institutional representatives to vote on the rates. This kind of conflict of interest, permitted by the current rules, is exactly what has provoked repeated criticism of the CIRM board structure. In my view, research institutions should make their case to the board and to the public, like any other recipient of CIRM funds, but their representatives should then be disqualified from voting. To increase the confidence of the public in the process, they might consider removing themselves voluntarily from the vote, if not compelled by law.”

Comments From the First President of the California Stem Cell Agency

The following is the text of what Zach Hall, the first president of the California stem cell agency and who served from 2005 to 2007, had to say about its performance over the last decade.

Hall, who is retired and currently on the board of the New York Stem Cell Foundation, developed the California agency’s strategic plan that largely remained in place until the last couple of years. He commented for a freelance piece written by David Jensen, the publisher of this blog. The article appeared in the Nov. 16, 2014, edition of The Sacramento Bee.

Hall and others queried were told that it was likely that their comments would be limited in the piece in The Bee because of the space limitations of the print media. They were also told that the full text of their comments would be carried on this Web site.

Zach Hall
NY Stem Cell photo

They were told that the print article would address such questions as whether the work of the agency would be worth its $6 billion cost(including interest), whether it had fulfilled the expectations of voters in 2004 along with discussing the achievements and shortcomings of the agency.

Here is what Hall, former director of the National Institute of Neurological Disorders and Stroke, said via email. 

“CIRM: 10 years after
 “From a scientific standpoint, there is no doubt that CIRM has been an unqualified success. The passage of Proposition 71 in California not only provided much-needed funds for research and training, but gave stem cell scientists around the world a huge psychological boost in a dark time when NIH funds for stem cell research were severely restricted. The funds in California attracted new scientists to the field and supported the training of a new generation of stem cell scientists.  The result has been the establishment of a number of major centers of stem cell research in California and a steady stream of significant results in basic and applied research, some of which now underlie current efforts to develop therapies.  In contrast to some state efforts, CIRM can be proud that it has spent public money in this area wisely and with integrity.  

“CIRM has also clearly played an important role in promoting and encouraging pre-clinical and clinical therapeutic development, breaking new ground in developing ways for government and the private sector to work together. Because this road has been less-travelled, these efforts have been more difficult and CIRM’s ultimate success in promoting therapeutic development remains to be determined.  Nevertheless, CIRM’s attention to this difficult problem is of major significance, since CIRM has been one of the few government entities to try to address the problem in new and creative ways. 

“Are new stem cell therapies available?  The thought that therapies might be developed over the 10 year life-span of CIRM was always more a hope than a realistic outcome, but there is now reasonable expectation, partly because of CIRM, that cell-replacement therapy may be effective for a number of major diseases.  Will the investment of $6 B pay off in terms of economic development?  This question probably will not be answered for another ten years.  Could things have been done differently or better? Undoubtedly.  With such a huge (some would say excessive) budget, not all the money was spent wisely. In addition, the agency was burdened with a cumbersome and conflicted governance structure whose difficulties consumed far too much of the agency’s time and energy.   

“In sum, CIRM is a bold, new initiative that has given new life in California to a field of biomedical research that looks ever more promising for curing disease and saving lives. The visionary investment by California in this burgeoning field will likely pay dividends for decades to come.”    

CIRM Hires Top Facilities Exec

Only hours after we wrote that the impending departure of Zach Hall would make it more difficult to hire senior management at the California stem cell agency, CIRM said it has filled a key position involving its grant efforts to build scientific facilities.

Rick Keller, currently assistant vice chancellor for capital resource management at the University of California, Davis, will become CIRM's senior officer for scientific and medical research facilities as of Jan. 2. Keller has held his position at Davis for 19 years.

Keller has worked with the California legislature and the California State Department of Finance. He also was chairman of Mercy Healthcare, a subsidiary of Catholic Healthcare West, one of the nation's largest nonprofit hospital systems.

CIRM President Zach Hall said, "His experience with more than $2 billion in complex building projects will be enormously helpful to us, as we move forward with our shared and major facilities grants."

Keller's salary at CIRM was not immediately available. We will report it as soon as we obtain it.