Fifty New Clinical Trials, a $150 Million Partnership and Much More: California's Coming Stem Cell 'Powerhouse'

Highlights

50 new clinical trials

$150 million public-private partnership

"Long overdue," says venture capitalist
$30 million end plan

LOS ANGELES -- Directors of the California stem cell agency this morning approved an $890 million plan for the next five years as it surges forward with a risky and ambitious effort to build an “industrial stem cell therapeutic powerhouse” in the Golden State.

The agency proposes 50 new clinical trials on top of 15 already underway. Next year it expects to set up a $150 million partnership with private investors to turn research into cures. Investors would have first pick of the best research that CIRM has to offer that currently lacks a partner. 

Other ventures and goals for what could be the agency's last five years of life include:

• Introduction of 50 new therapeutic or device candidates into development
• Working to create a more favorable federal regulatory environment
• Reduction by 50 percent the time it takes basic research to move into a clinical trial
• Creation of two centers at $15 million each to assist in much of the "backroom" work needed for clinical trials
• Creation of an online, hook-up center for researchers looking for collaborators to advance their work

Directors of the agency, formally known as the California Institute 71 for Regenerative Medicine (CIRM), approved the plan unanimously at a meeting here. (Here is a link to its press release.)

Arlene Chiu, former director of CIRM's scientific programs and now with the City of Hope, told the agency board that the plan was audacious and bold. CIRM board member Sherry Lansing, former chair of the UC board of regents, praised the plan's "sense of urgency."  Another board member, Steve Juelsgaard, former executive vice president of Genentech, said the plan contained projects that he had never seen before in the biotech industry.

Asked for comment, CIRM board member Al Rowlett, who is chief executive officer of the Turning Point mental health program in Sacramento, said,

“It’s ambitious, but then isn’t that what the people of California were when they approved Proposition 71. They wanted to create something that was going to change the face of medicine. That’s what we hope to do….”

Proposition 71 was the ballot initiative that created the $3 billion agency in 2004. The campaign led voters to believe stem cell therapies were close on the horizon. None has been produced, and the agency's state bond funding is expected to run out in 2020.

CIRM directors later today will be briefed on a $30 million “wind-down” plan that has attracted $7 million in private donations. More funding is being sought. One source may be the state legislature.

The agency’s plan for the next five years says it would benefit the people of California by creating  “an industrial stem cell therapeutic powerhouse that expands the tax base, adds high quality jobs and increases the likelihood of the commercialization of stem cell treatments for patients with unmet needs.”

Randy Mills, CEO of the agency since May 2014, said the plan was devised to have "the greatest possible impact for our patients. We didn’t want something ‘good enough.’ We wanted something transformational."

He acknowledged the risk and size of the task, which he said is aimed at transforming regenerative medicine. But he remains optimistic that the agency’s tiny team of about 55 persons can pull it off. He gave his team full credit for developing the spending proposal. 

The CIRM plan calls for spending $620 million on clinical work and “translational” research, which is aimed at taking basic discoveries beyond the most preliminary stage. Basic research would receive $170 million. Educational programs total $50 million. Another $50 million would go for “infrastructure.” 

One of the riskier elements of the proposal may be the agency’s plan to offer $75 million to private investors to begin a partnership in which they would have access to the best of the CIRM-funded research that doesn’t already have a private partner. 

The investors, who could be a Big Pharma firm, an existing smaller company or venture capitalists, would have to add $75 million of their own money. The agency would also continue to support the selected research, thus minimizing the risk to the private investors.

For months, Mills has been commenting on the reluctance of private investors to engage in stem cell therapy development, which is expensive and novel. “De-risking” is important in attracting business interest, Mills says.

Competition for the $75 million is scheduled to begin behind closed doors early next year. But questions have been raised about the risk that no private investors would find any CIRM research attractive.

Gregory Bonfiglio, managing partner of Proteus Regenerative Medicine, a Portola Valley, Ca., a venture capital firm, said in an interview, however, such efforts by the agency are long overdue.

He said, 

“There are risks inherent in the development of new, disruptive technology. The bigger risk is failing to deliver on their underlying promise to bring new regenerative therapies to patients…. The bigger risk is not doing anything.”

Another important element of the plan involves creation of accelerating and “translating” centers, funded at $15 million each, beginning next year. The agency is also likely to expand its Alpha Clinic effort, which is aimed at providing one-stop treatment centers.

The translating and accelerating centers would work with the Alpha clinics and other researcher to provide much of the “backroom” work needed to negotiate federal rules and regulations and win ultimate approval of a therapy. 

The Search for Stem Cell Cures: Can California's $3 Billion Agency Move Audaciously?

IRVINE, Ca.-- California's unprecedented stem cell research effort faces a tight timetable for making major progress in fulfilling promises to voters seven years ago, complicated by potential conflicts of interest, a blue-ribbon panel was told this morning.

David Jensen, editor of the California Stem Cell Report, made the comments to the Institute of Medicine panel looking into the performance of the $3 billion California Institute of Regenerative Medicine.

The panel's inquiry comes as the agency is re-evaluating its strategies as it faces loss of funding in about 2017.

Here is the full text of Jensen's statement.
Statement to IOM-CIRM Panel by California Stem Cell Report April 9, 2012


"

Searching for Facts About Cash: CIRM to Treasurer to Finance

"Even if your mother says it is true, check it out," an old saying goes. So we did.

The case in point was the new financial arrangement for the $3 billion California stem cell agency.

CIRM Chairman Jonathan Thomas laid out the plan last month for the California Stem Cell Report in the wake of a state bond issue that provided only $51 million for the agency, which fell far short of its needs over the next year or so. He said, however, a new arrangement was in place that amounted to a win-win for the state and the stem cell agency. The plan minimizes the amount of state bond borrowing immediately needed and instead provides, if necessary, short-term commercial paper, also backed by the state, but at less interest cost.

Thomas said both the state treasurer and the Brown Administration, through its state Department of Finance, were on board.

But -- keeping the admonition about mothers in mind -- we routinely asked the Finance Department and the state treasurer's office about the arrangement. What happened then provides some insight into how difficult it is sometimes to verify even what appear to be simple facts. It also tells a story about the responsiveness of state agencies and their dedication to openness and transparency.

Let's start with CIRM and Thomas. After we raised questions by email following the state bond sale Oct. 19, he offered a telephone interview about the situation and persisted despite dropped cellular signals and several callbacks from our post here in the bay off Panama City.

After we filed our item on the interview, we queried on Oct. 24 the other two agencies involved. The state treasurer's office responded quickly. The state Department of Finance, on the other hand, has remained silent on the subject to this day, despite three emailed queries.

Unfortunately, the state treasurer office's initial response was off the mark. "We haven’t seen any agreement.  We were not aware of the reported agreement until we read about it in your blog.  So, we have no comment about the reported agreement," the treasurer's office said initially.

That raised eyebrows a bit. So we renewed our queries to the Finance Department, even suggesting that a failure to respond could be construed as an indication that the Brown Administration is not fully behind CIRM.

Ten days after our initial query to the two agencies, we sent an email to Thomas briefly describing what we had planned to write and asking him if he would like to comment. He did not respond. But the next day, Steve Cooney, chief deputy state treasurer, said in an email that the earlier comment from the treasurer's office was incorrect. Cooney said,

"Our office DOES (Cooney's capitalization) and DID know that CIRM and the Department of Finance reached an understanding about future funding.

"The Treasurer’s Office has been aware since before last month’s sale of GO (general obligation) bonds that the Department of Finance and CIRM are in general agreement that the state will take necessary action to ensure that CIRM has adequate funds to meet its operational, grant funding and reserve needs, including the use of the state’s commercial paper line in the event the state cannot timely access the bond market.  It is neither necessary nor usual for our office to be informed of the specifics, if any, of any future commitment made by the Administration to any other state agency, including CIRM, and this case is no exception."

Cooney additionally re-affirmed the commercial paper arrangements for CIRM as laid out in the initial response from the treasurer's office.

The response said,

"The issuance of commercial paper has always been a part of our bond financing program.  The size of the CP line is about $1.5 billion, and it is available for use by all infrastructure programs, including stem cell research.  When we issue commercial paper to finance infrastructure projects, including CIRM, the paper is repaid with bond-sale proceeds.  So, if CIRM received funds from the issuance of commercial paper, the 'loan' would be retired not by CIRM, but by the proceeds of a subsequent bond sale."

Cooney also said,

"If you still need further clarification on the issue of future CIRM funding beyond the proceeds of the recent bond sale, the best place to get that information continues to be the Department of Finance."

Silence, however, has only been heard from the state Department of Finance.

Gov. Jerry Brown on Borrowing to Finance Stem Cell Research

Here is what California Gov. Jerry Brown had to say yesterday about the $50.8 million in taxable bond proceeds that are going to the $3 billion California stem cell agency. It was a part of a press release touting the virtues of the financially troubled state's most recent borrowing.

Much of the language in Brown's statement appears to have originated with the stem cell agency, which campaigned with the Brown administration for a share of the bond proceeds.

The stem cell agency has not yet responded to our inquiries concerning the amount of money that was provided.

Brown's statement follows:

"CIRM’s approximately $190 million in existing proceeds, plus the additional $50 million, will be used to fund the following program activities:

"• The first Food and Drug Administration-approved clinical trial for a human embryonic stem cell therapy (for spinal cord injury). CIRM’s $25 million commitment to this project has been matched by a $29 million commitment of private funds.
"• 14 Disease Research Teams that are proceeding towards clinical trials of therapies to treat diseases ranging from HIV/AIDS to dry macular degeneration (a common cause of blindness) to neurological diseases such as ALS. One of these awards is a $20 million loan which has generated approximately $20 million in additional funds by the company receiving the CIRM award.
"• Training and internship awards to fund the training of almost 900 promising new scientists and technical staff at the University of California, California State University, California Community Colleges and other institutions in California.
"• CIRM-funded research and related matching funds are expected to create or retain approximately 5,000 jobs per year and more than $60 million in new state and local tax revenues.
"• The current portfolio of stem cell research at CIRM, including the grant programs scheduled through June 2012, have resulted in over 100 scientists and 1,000 other highly-trained researchers being recruited to the state. The Stanford Stem Cell Institute estimates that each of these researchers will bring an average of $1.5 million in research funding to California, for a total of $150 million of additional research funding and associated jobs."

Stem Cell Agency Slated for Share of California Bond Sale This Week

The California stem cell agency, which faces a cash crunch next spring, is scheduled to receive additional funding as the result of a $2 billion state bond sale this week.

The exact amount is not yet set. Tom Dresslar, a spokesman for state Treasurer Bill Lockyer, said,

"The amount will not be known until after the sale is completed on Wednesday."

The stem cell funds will come from the taxable bond portion of the sale, which totals $200 million. Individual investors can still participate in the bond sales today(see here).

Earlier this year, the state suspended bond sales, which are the only significant source of CIRM funding, because of the state's financial crisis. California has the lowest credit rating of any state in the nation. CIRM earlier said it had sufficient funds to operate until June of next year.

It is not clear whether the state will continue bond sales after the beginning of the year, when it will face more financial difficulties. Massive, automatic cuts are expected since the state is not meeting its current revenue projections.

As originally conceived by backers, Prop. 71, approved by voters in 2004, was to have ensured steady funding for stem cell research through the use of bonds, which flow directly to the agency – skipping the normal state budget process.

Reliance on bond funding, however, is expensive, effectively doubling the cost of CIRM research because of interest costs on the borrowed money.

LA Times Editorial on New CIRM Chair: Tin Ears and Extinction

The Los Angeles Times said this morning that it suspects that the election of Jonathan Thomas as chairman of the $3 billion California stem cell agency "will go a long way toward assuring the institute's extinction."

In an editorial, the state's largest circulation newspaper said,

"It always annoys voters to discover that government workers make more than they do, but what especially rankles about Thomas' big paycheck is that his hiring comes at a time when most state agencies are making radical cutbacks and when the institute itself is considering a ballot measure to ask voters for billions in new funding."

The editorial is the latest in several negative pieces in the mainstream media about the choice of Thomas, a Los Angeles bond financier, to become chairman. The articles focus primarily on Thomas' $400,000, part-time (80 percent) salary.

The Times wrote,

"The new head of California's stem cell research agency, which has a staff of 50, not only makes more money than the governor, he makes twice as much as the chief of the National Institutes of Health, which has 17,000 employees. Does that make him overpaid? Not necessarily. But it does make the board that hired him remarkably tin-eared about politics."

The editorial did note that "it's possible" that Thomas "could earn his big bucks," given his background in finance, if CIRM is forced to try to sell state bonds privately.

The selection of Thomas also drew attention this week in the San Francisco Bay Area in a commentary by San Francisco Chronicle columnist Phil Matier in a report on KCBS television station.

The station picked up the LA Times news story on Thomas' salary, adding that it was one of the highest in state government. Matier said during the news story that it was all part of the "birth of a bureaucracy." He said voters shouldn't expect a stem cell breakthrough for another 10 years. He also called CIRM the "high speed rail of medicine." For non-Californians, that is a reference to another multibillion dollar California bond program that is staggering under heavy public criticism.

In another commentary on a blog called Secondhand Smoke, Wesley J. Smith, author and bioethicist, posted a video of the song "Hey Big Spender." Smith wrote,

"The state is sinking financially.  Cutbacks are being forced across the board.  But not at the CIRM....

"These people live in a different world of 'entitlement' (there’s another word) and 'luxury.'  This is just another reason for the people of California to turn off the borrowing money spigot in 2014."

Prior to the LA Times salary story, Pete Shanks of the Center for Genetics and Society of Berkeley, Ca., on June 29 wrapped up the election of Thomas on its Biopolitical Times blog, quoting John M. Simpson of Consumer Watchdog of Santa Monica, Ca. Simpson said that the selection of Thomas is "a public relations disaster from which the stem cell agency will never recover."

For other articles on the Thomas election and the situation at CIRM, see here, here, here, here and here.

NY Times and San Diego UT on New CIRM Chair; LA Times and SF Chron Ignore Election

The New York Times and the San Diego Union-Tribune have published the most comprehensive stories on the election of Jonathan Thomas as chairman of the California stem cell agency, including brief updates on CIRM's progress.

The Times article was posted yesterday on its web site. Andrew Pollack wrote that Thomas was "taking over at a time when the state's fiscal crisis could jeopardize financing for the effort." Pollack wrote that Thomas' financial experience

"... including dealing with government bond issues, seemed to appeal to the (agency's) board. The stem cell effort is financed through bond sales so it has actually been quite well insulated from the budget deficits that have forced huge cuts to many other state programs, including the University of California system.

"Still, the state’s fiscal crisis is now impeding the ability of the state to sell new bonds. That could eventually leave the stem cell agency short of funds, though probably not until next year."

Pollack also mentioned differences between Thomas and Frank Litvack, the other candidate for CIRM chair and a Los Angeles cardiologist, concerning the dual executive arrangement at CIRM. Litvack said the chair's job should be parttime and concerned mainly with oversight. Pollack continued,

"But Mr. Thomas said there was enough work for the chairman to do full time, without conflict with the role of the president."

Pollack's story summarized the current state of CIRM's efforts with three paragraphs:

"Scientifically, it is still too early to determine how successful the program will be. Certainly, it has not yet produced the cures for various diseases that were promised to voters, but realistically it is too early to expect that.

"But from a governance point of view the agency has been criticized by consumer groups, a state commission and newspaper editorials for lack of accountability, an unwieldy structure and conflicts of interest. Many members of the board represent universities and hospitals that receive funding from the agency, though members are not allowed to vote on items that concern their employer.

"The agency is now shifting its emphasis from basic research toward testing potential new therapies in clinical trials, which means it will be giving more of its money to biotechnology companies in the future."

Darce's piece covered more of the debate about the chairmanship. Additionally, Darce wrote:

"The new chairman said he also will try to clean up the institute’s image by launching a public relations campaign focusing on the scientists who have received state funding and the work they have produced.

"'If the true nature of what CIRM does became common knowledge, then the people of California would see this as the amazing success story that it is,' Thomas said. 'They would be very proud to know that California has become the largest center for stem cell research in the world.'"

The Los Angeles Times, the state's largest circulation newspaper, and the San Francisco Chronicle (CIRM's headquarters is in San Francisco) so far have not published any stories on Thomas' election.

Science magazine has carried a brief item by Greg Miller on the election.

Here is CIRM's press release on the election. It does not mention Thomas' $400,000 salary or the actual vote, which is not unexpected for a press release, but which is basic information for a news story.

The Sacramento Bee's story yesterday has triggered 44 comments as of this morning, mostly hostile because of Thomas' salary. But the number of comments is modest compared to other, more high profile stories.

California Stem Cell Agency Beefing Up PR, Financial Expertise

The Governance Subcommittee of the California stem cell agency yesterday approved a major reorganization of the way it does business, including the hiring of its first-ever chief financial officer and a new, executive-level public relations person to add to its $1 million PR efforts.

The CFO will report to both the chairman and the president. The new PR person reports only to the chair. It is unclear what his or her relationship will be to the existing CIRM communications chief, who reports to the president. The creation of the posts appears to add a new layer to the much-criticized dual executive arrangement at CIRM.

The Governance panel, composed of 10 CIRM directors, unanimously approved the new management plan on Monday, according to Don Gibbons, the agency's communications chief. The proposal now goes to the full 29-member CIRM board next week for final adoption. The positions are among the 56 employees (including two members of the board) approved in the CIRM budget for the coming year.

CIRM directors have described the proposal as a "starting point" for its new chairman, who is expected to be elected, also next week, at the two-day San Diego meeting. Directors have indicated that no hiring is to take place until the new chairman has begun work. Additionally, a job description has not yet been written for the new PR position. That comes up on June 20. Some CIRM directors have raised questions about the urgency of adopting the plan on the eve of the election of a new chair.

CIRM President Alan Trounson and the No. 2 executive at CIRM, Ellen Feigal, also raised questions about some of the aspects of the new structure in a memo posted on the CIRM web site. Art Torres, co-vice chair of the board, rebutted the questions in another posted memo.

In other matters, the Governance committee approved a new $325,000 contract for legal work from attorney Nancy Koch for the coming fiscal year and a $450,000 contract for the coming year with the Mitchell Group, a Long Beach, Ca., firm that recruits information technology professionals. The arrangements are among the $3.3 million in spending for outside contracts that is the second largest item in CIRM's $18.5 million operational budget, trailing only the $10.3 million compensation for its staff.

Action on a proposed code of conduct for CIRM directors was put off for unspecified revisions.

Klein's Fiscal Warnings at Odds With His Rosy View 11 Days Ago

Less than two weeks ago, CIRM Chairman Robert Klein told directors of the California stem cell agency that its financial situation was rosy and no problems existed with its bond financing, its only source of cash.

His statements on Dec. 3 stand in sharp contrast to his election eve warning today that the agency must act swiftly to stave off a looming funding problem.

Klein made his comments at a meeting of the directors Finance Subcommittee, chaired by Michael Goldberg. Only a handful of the 29 CIRM directors attended the meeting. Here is the text of what Klein said, according to the transcript.

“Chairman Goldberg: Okay. Thank you. I'd like to in the time that remains briefly address the climate for california bond issuance since we're going as an agency dependent on their bond authority. And there's been articles in the press in the last two weeks in connection with the last large series of bond financings the state has done about some of the challenges and difficulties. And without getting into any of the specifics of those issues, I'd like to ask Chairman Klein, who's maintained contact with the issuing authorities, what the general perspective or view is over the course of the next 12 to 24 months and whether or not there's any cause for action on the part of the ICOC (CIRM's board of directors) with respect to anything we can or should be doing being mindful of that.

“Chairman Klein: Thank you, Chairman Goldberg. So given that over the last three years we've tried to always look forward at least a couple of years and foreseeing the difficult environment particularly with some of the initiatives that passed in this last session, this last electoral cycle, we've been fortunate, by doing advanced planning, to make sure we could cover our strategic plan advances we would need to make over the running 24-month period going forward. At this point we've achieved that objective, and we have a little less than 24 months, but approximately that level of cash funding that's available to us. So our programs are very stable during this period. It's hopeful that in that time period California will return to a much stronger bond position.

"Nevertheless, for our scientific partners and our international partners and our individual scientists within the state, it's important to again remind everyone that under the state institution, the top 40 percent of the revenue of the state goes to education, and then bond debt service is the next priority ahead of harbors, ahead of major new highway construction, and other projects to the extent they come out of state funds versus federal funds. So California will retain the ability, even if this difficult period is a full two years or longer, to fund this agency on a timely basis. And institutions and the scientists will be covered in the time period of our commitment. So we're very thankful for the support of the state treasurer's office and for the support of the governor and the director of finance, for the work of (CIRM staffer) Lynn Harwell, who has been instrumental in executing on this plan, for (CIRM directors) Ted Love and Marcy Feit, who have been on the bond finance credit committee of the state with me. And we are thankful and very appreciative of the fact that we'll be able to honor our strategic plan and have the flexibility during that time to use reserves that are set up specifically to respond to new scientific developments that are certainly expected to arise at various times during that cycle.

“Chairman Goldberg: Thank you, Chairman Klein.”

Eve of the CIRM Election: Klein Invokes Sudden Financial Warning

CIRM Chairman Robert Klein today sounded an urgent, financial alarm in his bid to be re-elected to a new term at the $3 billion California stem cell agency.

In a “statement of candidacy” on the CIRM Web site, Klein indicated he was needed at the agency to handle a sudden, new quasi-crisis that requires action next month. And in an effort to make it easy for directors to choose him at their meeting tomorrow at Stanford University, he also reduced his proposed term to three to six months, down from 12 months. However, he did not renew his pledge not to take a salary, which could hit $529,000 annually.

Several items concerning Klein's candidacy were fresh in the statement. One was the financial warning from Klein, who portrays himself as something of an expert on government bond financing. He said that the agency needed to move swiftly on new issuance of new state bonds, CIRM's only source of financing.

At their meeting just last Wednesday, CIRM directors heard no mention of the problem, only a routine budget presentation with no indication that quick action was needed.

But in his message dated yesterday, Klein said it was “essential”for CIRM to quickly provide assurances of “reliability of our funding.” He wrote,

“The (state) Treasurer's office has just informed us that the next California Stem Cell Research and Cures Finance Committee meeting must be held in January 2011. Recent applications for clinical trial rounds and the acceleration of our funding commitments on our other programs require an immediate focus on this issue, given there may not be another opportunity until late 2011 to authorize additional bond funding.”

Klein also said that “our collaborative funding partner nations” require early next year “assurances of our future performance.”

It is not the first time Klein has sprung a January financial surprise on directors. In January 2009, he unveiled a critical bond funding problem that directors also had not been informed about earlier.

(See here, here and here.)

Another new item in the candidacy statement was Klein's promise to only serve three to six months, although it is not clear that the board can elect a chairman for anything less than the six years specified by law. Previously Klein promised to serve only 12 months. Significantly, in the otherwise fairly detailed document, he did not renew his promise not to take a salary. Currently he receives $150,000 for halftime work and is entitled up to $529,000 annually

Klein, a Palo Alto real estate investment banker, additionally backed away from his position that he can only be replaced by a nationally known scientist. Instead, he said he would work with the board to develop criteria for selection of a new chair.

Klein also pledged to “change the communications paradigm,” which encompasses the agency's public relations efforts. He cited an example of a 3 million, “affinity group” email effort during the 2004 election campaign for Prop. 71 as something he would like to replicate. Klein said that CIRM's communications should be changed “from our highly refined scientific focus (with emerging, quality public components) to a broad and innovative program that will be meet our obligation to inform all Californians of the milestones of progress we have achieved.”

School Children vs. Stem Cell Scientists; A Public Perception Problem

From Humboldt to San Diego, thousands of Californians yesterday protested the budget cuts that are ravaging efforts to teach their children to read, write and calculate.

The picture painted in newspapers and on television stands in dramatic contrast to the situation at the financially comfortable California stem cell agency. Its finances are uniquely isolated from both normal state budgetary controls and the state's budget crisis. Consequently next week, CIRM is expected to move forward on a project involving tens, perhaps hundreds of millions of dollars. No details are available, but it is an effort to aid the biotech industry with the costly clinical trials that are necessary to bring products to market. CIRM directors are also expected to put more money on the table to hire an executive to fill a newly created position that is designed to tie the $3 billion program ever closer to industry. A salary of $332,000 a year, currently top of the current range for the job, is apparently not enough of a lure.

Good arguments exist for these actions. They may in fact be good policy for the stem cell research program. But they do not reflect the travails of the rest of California state and local government. The Golden State is now scraping the bottom nationally in terms of per capita spending for the education of its children -- who certainly represent the future as much as the 300-plus stem cell scientists and institutions that have received $1 billion from CIRM over the last five years. Indeed, California's financial problems are so severe that some say the state is effectively, if not legally bankrupt. One of the causes is ballot-box budgeting, voter approval of spending initiatives that that cannot be controlled by state lawmakers or the governor. Such is the case with CIRM's finances.

Unpleasant comparisons pose a public perception problem for CIRM. Fortunately for the agency, however, it operates in a media shadow. CIRM is all but invisible in the mainstream press. Reporters are focusing on broader issues and higher profile matters, such as the release of prisoners from jails because of a lack of money. The fact is that CIRM's finances have virtually no current impact on the state's financial crisis. Nonetheless, CIRM's spending carries symbolic importance, which CIRM directors should be cognizant of as they vote to spend millions more that the state must borrow. Their largess could bite back as lawmakers wrestle with legislation to ensure more openness and accountability at CIRM.

Next Thursday's meeting of the CIRM board of directors will, in fact, be in the bowels of the beast, so to speak. The 29-directors are scheduled to convene in a large meeting room in the State Capitol. Their agenda is relatively brief. Traditionally, following the meeting, directors fan out to meet with lawmakers privately.

As far as meaningful public participation is concerned, CIRM discourages that by withholding justification and details on what is to be discussed by directors. That includes the proposal to take part in expensive clinical trials, which was deferred from the February meeting. Also not available is size of the proposed salary for CIRM's new vice president for research and development, who will effectively become the No. 2 executive on CIRM staff. CIRM already enjoys some of the highest salaries in state government. President Alan Trounson earns $490,008 a year and was once listed as the second highest paid state employee outside of the UC system.

The lack of information on the specifics of what CIRM directors are considering is pretty much standard practice for the agency, despite calls for more openness and transparency. The reasons are unclear for CIRM's failure to post information in a timely fashion prior to directors' meetings, which are not even noticed on CIRM's home page on the Internet. The sessions, however, are the most important activities at the agency. That's when the direction of research is set, standards established and money handed out. We may see additional information posted next week, but usually it comes too late for the public or interested parties to make plans to attend the meetings or formulate a considered comment.

On Monday, a new subcommitte of CIRM directors will discuss ways to improve communications and sell its story to the California people. One good first step would to be mandate that background information for meetings be posted at least five business days prior to the sessions. A modest but do-able goal.

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.

Leadership

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.

Contracting

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.

Openness/conflicts

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.

Performance

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.

The Dark Side of Financing Stem Cell Research

Every day of the year, the California stem cell agency is racking up “hidden” costs of about $192,000. By the time CIRM gives away its allotted $3 billion, those “hidden” costs will soar to about $600,000 a day.

The expenses are the dark side of paying for scientific research with borrowed money – in this case California state bonds. That's what CIRM uses to pay the hundreds of researchers it is backing. The mechanism was set up five years ago, when voters approved Prop. 71, which created CIRM.

The cost of the bonds – interest on the borrowed money – is rarely, if ever, seen in CIRM's public documents. That's not much different, however, than other state agencies which use bond financing, such as the University of California. But the cost of state borrowing is attracting increased attention because of the state's $21 billion budget gap and draconian cuts in some areas of state services. Students at UC campuses are being forced to accept 32 percent tuition hikes at the same time CIRM is giving UC scientists $471 million.

Scores of stories have appeared in the last several weeks about the impact of borrowing on California's financial health. But a column by George Skelton of the Los Angeles Times caught our attention today. He focused on warnings by state Treasurer Bill Lockyer, the man who orchestrates the sale of state bonds. Skelton wrote,

“The state's credit card is about maxed out, the veteran Democratic office-holder warns. Payments on bond borrowing are becoming uncomfortably high, crowding out funds for universities, healthcare, parks -- and all the other government services being slashed these days.”

Skelton quoted Lockyer as saying the Golden State is “paying substantially more than Third World countries, er, emerging markets” for interest on its bonds.

That's because California has the lowest bond rating of any state in this country. Every $1 billion in bonds costs taxpayers $70 million a year, Skelton said. That translates to about $192,000 a day for the $1 billion in grants that CIRM has now approved.

Meanwhile the state has not kept up with its financial binging. Since 1999, the overall cost of interest on state bonds has skyrocketed 143 percent. General fund revenue, which pays those costs, has grown only 22 percent.

What does this sorry mess mean for CIRM? Probably the most serious impact is a less than warm environment in the Capitol should the stem cell agency ask lawmakers to remove the 50-person cap on the CIRM staff, which it seems likely to do. To win the required 70 percent approval from lawmakers, CIRM is likely to have to compromise on other proposals that it may not fancy.

The stem cell agency is only a flyspeck in the state's fiscal muddle. But it serves as an illustration of some of the state's more dubious political practices. One of which is ballot box budgeting – enactment of initiatives and approval of bonds with little attention to the long-term consequences.

However, unless something exceedingly unusual pops up, CIRM will continue with its programs, using borrowed money. CIRM's opponents may find fodder in all the concern about state borrowing. But even CIRM's most adamant supporters should understand the true cost of the effort to turn stem cells into cures.

California Treasurer Says Stem Cell Agency to Receive $118.5 Million

The California State Treasurer's office this afternoon confirmed that the California stem cell agency will receive $118.5 million in fresh cash from the state's latest bond sale.

It was good news for CIRM, which faced the prospect of running out of money by the end of next year, and a change from what was expected earlier this week.

Tom Dresslar, spokesman for the treasurer, verified the figure in a phone interview. He also confirmed the accuracy of an Oct. 7 item, “No New Stem Cell Cash,” on the California Stem Cell Report, in which he was reported as saying that no additional funds were expected.

Dresslar said his comments were reported accurately at the time, but the treasurer's office subsequently decided to allocate the cash to CIRM.

For comments from CIRM on the results of the bond sale, see the “recent comments” column to the left of this item.

CIRM Says It Is Receiving More Cash From Bond Sale

We would like to call attention to a comment posted this afternoon by CIRM on this site declaring that the information contained in our item, “No New Stem Cell Cash,” is incorrect. Our piece reported that the state treasurer's office said that CIRM would receive no new cash from the latest California bond sale. CIRM disputes that information. We are checking with the treasurer's office concerning the item and the comment by CIRM's Don Gibbons, the stem cell agency's chief communication officer. You can read his comment by clicking on it at the left of this posting. Or you can find it by clicking on the word “comments” at the end of the original item.

No New Stem Cell Cash in Latest California Bond Sale

California's sale of $4.5 billion in bonds this week will not mean fresh cash for the California stem cell agency.

In response to a query, Tom Dresslar, spokesman for the state treasurer's office, said some of the proceeds will go to refinance earlier debt taken on to support the state research operation. But he said no additional funds will go to CIRM.

The agency currently has enough cash to operate roughly through the end of next year. Its sole source of any significant revenue is California state bonds.

The agency experienced a cash crunch earlier this year and raised the possibility of marketing state bonds privately. CIRM, however, received a $505 million infusion in April as the result of a $7 billion California bond sale.

Presumably the agency will be in line for some additional bond funding between now and December 2010.

More Info on CIRM's Finances and its Federal Patent Lobbying Position

The California stem cell agency today posted several major background information pieces for its board meeting, including details and justification for its proposed budget and an analysis dealing with its endorsement of industry-backed patent protection legislation.

The documents came as the agency is scheduled to begin a two-day meeting tomorrow in San Diego, which can heard via the Internet(instructions on the agenda).

We have not had a chance to read all the material carefully, but the budget documents go a long way in answering the questions we raised on Friday and presumably the earlier requests for more details from CIRM board members.

The budget material includes more year-to-year comparisons, a commentary explaining some of the assumptions in the budget, a justification for extensive travel and more. All of the items can be found through links on the agenda

In addition, Nancy Koch, one of CIRM's outside attorneys, wrote a three-page analysis of a Federal Trade Commission report last week that dealt with many of the issues involved in the federal patent legislation on biotech therapies.

Koch wrote:

“Lengthy market exclusivity periods (like those proposed by Rep. (Anna) Eshoo in HR 1548), according to the FTC, are not necessary and could actually dampen innovation.”

The Eshoo bill has been endorsed by the CIRM board, which is likely to vote again on the measure during its meetings during the next two days.

Koch performed a careful analysis of the FTC study, reaction to it and its impact on the CIRM position, including exploration of the FTC report's assumptions and weaknesses.

She wrote that the FTC “analysis sidesteps the financially daunting circumstances faced by smaller companies.”

Koch said,

“For CIRM, this last point is particularly significant. Even if the FTC's prediction were generally correct, stem cell research and the market for stem cell therapies would seem to fall outside the agency's analysis.”

Whether you agree or disagree with Koch's analysis or the budget justification and plans, all are important tools for CIRM directors tomorrow. The information also adds significantly to the understanding of the public and parties interested in CIRM's $3 billion operation.

Klein to Leave CIRM Chairmanship in 18 Months

The chairman of the $3 billion California stem cell agency said today he would step down from his post at the end of his term in December 2010.

Robert Klein made the announcement to the Finance Subcommittee of CIRM's board of directors, according to John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca.

Writing on his organization's blog, Simpson said that Klein told the directors that he will have spent eight years working on the stem cell endeavor by the end of his term. Klein was also chairman of the 2004 campaign on behalf of Prop. 71 and often says he wrote the ballot initiative.

No apparent successor is in the wings. The post has very specific criteria written in state law, criteria that many believed fit only Klein at the time he was elected to his post by the CIRM board of directors.

Klein's public disclosure of his plans came only six months after he asked for and began receiving a $150,000 salary for half-time work as chairman. Klein, a real estate investment banker with offices in Palo Alto, Ca., previously declined a salary.

The Finance Subcommittee's official business today involved CIRM's budget and financial condition. Klein told the panel he still plans to make an effort to sell state bonds privately to fund the operations of agency. State bonds are virtually the only source of funding for CIRM.

The CIRM staff presented a $12.98 million operational budget for 2009-10, which is a 3 percent decrease from the budget proposed for this fiscal year. CIRM's budget documents posted on its Web site – only one day before today's meeting – did not make any comparisons to actual spending for the current year. But Simpson reported that this year's expenditures are running about 20 percent below the $13.37 million budget approved 12 months ago.

Simpson said directors asked for more details in the spending plan and a comparison to the current year's actual spending when the budget is presented to the full board next week. We will have more on the budget documents on Friday.

Simpson reported the committee lacked a quorum and could not act on the budget. He also said CIRM President Alan Trounson did not attend the meeting.

CIRM's Finances and Budget to be Examined Next Week

The financial condition of the $3 billion California stem cell agency will come under scrutiny next week at a meeting of Finance Subcommittee of its board of directors, along with CIRM's $500 million biotech loan program.

Leading the agenda is the proposed budget for the upcoming fiscal year, which begins July 1. Also scheduled to be discussed are funding sources and financing stretching into the first half of 2010-2011.

Following a severe financial scare earlier this year, CIRM is currently in safe financial shape for the next 18 months, despite the state's huge $24 billion deficit. That's because CIRM relies on bond financing and received a $500 million booster this spring as a result of a state bond sale. CIRM also cannot be cut by the state legislature or governor because it is constitutionally outside their control as a result of the ballot initiative that created it.

That is not to say CIRM is out of the longer-term woods. Its funding will only last for another 18 months, absent another bond sale.

The agency has approved $761 million in grants, which extend over several years. Its operations budget is tiny in comparison -- only $13.4 million for the current fiscal year.

The largest component of the budget -- $7 million -- goes for the salaries and benefits for CIRM's 40 staffers. The next largest component -- $2.7 million -- is for outside contracts, necessary because of the small staff and special needs of the agency.

Last year, the budget was missing significant details concerning outside contracting and travel, triggering complaints by the Consumer Watchdog group of Santa Monica, Ca.

When some of the details were produced -- days after CIRM directors routinely approved the budget -- John M. Simpson, stem cell project director for Consumer Watchdog, reported that they showed that CIRM Chairman Robert Klein would be out of the state on CIRM business 88 days, CIRM President Alan Trounson 68 days and Chief Science Officer Marie Csete 75 days. The budgeted dollars -- $558,000 -- were up 287 percent from the previous year.

The latest budget documents from CIRM show that it has spent only $104,000 of the $558,000 as of the end of March. In fact, as of that date, CIRM had spent only $6.7 million of the $13.4 million budgeted for operations this year. CIRM officials tout this as indicative of management frugality, which is to be lauded. But the magnitude of the difference raises questions about CIRM's budget justifications last year. It also raises a question about whether CIRM should fill out its staff to the 50 person limit. The small band appears to be overworked, based both on expressions from some board members and top management as well.

Last June, Michael Goldberg, chair of the Finance Subcommittee and general partner of the venture capital firm of Mohr, Davidow Ventures of Menlo Park, Ca., told his fellow directors to expect a more thorough-going budget document than was presented at that time.

The biotech loan program will come up in connection with a review of the response to an RFP for underwriters for the effort. CIRM staff does not have the expertise to run the effort so outside help is needed. The agency hopes to have more than one underwriter because of the conflicts involved in what is a very small financial community.

June 8 is the deadline for proposals with possible award on June 15, only four days after the Finance Subcommittee meeting.

The RFP did not specify an amount that CIRM would expect to pay for handling the $500 million loan program, but it certainly could be lucrative for the successful applicants.

The public can hear and participate in the meeting at a number of teleconference locations including San Francisco, San Diego, Los Angeles, Palo Alto, Pleasanton and Menlo Park. Specific addresses can be found on the agenda, which does not yet contain any links to background material to be presented at the meeting.

State Bond Sale Provides $505 Million for CIRM

The California stem cell agency, once on its way to running out of money by next fall, is now slated to receive $505 million as the result of the sale this week of $6.86 billion in state bonds.

Robert Feyer of Orrick, Herrington & Sutcliffe, bond counsel to the state treasurer, told the California Stem Cell Report,

"I can confirm for your readers that the large state bond issue which was priced today (total of $6.855 billion) includes $505 million for the stem cell program. This money will be available next Tuesday, when the transaction closes."

CIRM Chairman Robert Klein is likely to discuss the impact of the funding at next week's board of directors meeting in Los Angeles. Feyer said that a "good portion" of the bond cash is expected to go for facilities grants. It is not clear whether CIRM will give up its plan to market state bonds privately.

CIRM relies almost totally on state bond funding. The measure that created the agency, Prop. 71, specified the nature of the funding so that CIRM did not have to ask the legislature and the governor for cash. Because of its budget crisis, California, until recently, had not sold any bonds since last June.