Pluses and Minuses: The Cases For and Against $5.5 Billion More for California's Stem Cell Agency

BURLINGAME, Ca. -- It was a case of dueling op-ed arguments -- one describing the state's $3 billion stem cell agency as a waste of money and the other touting its success and its current and future impact on human lives.

The articles appeared online on the web site of the San Diego Union-Tribune on the eve of a daylong conference here to lay out possibilities for the agency over the next several years. 

The articles and the meeting come at a critical point for the agency, known formally as the California Institute for Regenerative Medicine (CIRM). The nearly 15-year-old enterprise expects to run out of cash for new awards this year. It is hoping for a $5.5 billion infusion in November 2020 if California voters approve another bond measure for the agency.

The op-ed articles embodied many of the arguments -- pro and con -- that are likely to surface in the ballot measure campaign next year, a campaign that is expected to cost its supporters $50 million. 

In the San Diego newspaper, the case for giving the agency more billions was made by Larry Goldstein, a professor at UC San Diego; Aileen Anderson, a professor at UC Irvine, and Malin Burnham, chairman of the Burnham Foundation. The case against CIRM was made by state Sen. John Moorlach, R-Costa Mesa.

Moorlach argued that the agency has "produced close to no results." He cited articles in the journal Nature and the San Francisco Chronicle as evidence. Moorlach called CIRM a "dry hole." He wrote.

"Not only was the $3 billion for the research a bust, but taxpayers will be paying interest on the principal until 2039. California Treasurer Fiona Ma’s office told me the cost of the interest on the $2.59 billion of principal already spent will be $836.6 million. Interest rates lower than anticipated in 2004 kept that below the original $3 billion estimate."

Goldstein and his co-authors argued that more than 50 children have had their lives "given back" as the result of clinical trials funded by CIRM. They said, 

"CIRM funding has established an impressive pipeline of new stem cell-based therapies being tested in 78 human trials directly funded by CIRM or based on CIRM-funded research. CIRM funding has also led to over 3000 published medical discoveries." 

They continued, 

"In 2020, Californians can continue their commitment to the best forms of stem cell research and therapy development. While there are no guarantees in medical research, if prior achievement is any indication, the next initiative will push many breakthrough therapies across the finish line. Considering the potential benefits to Californians and the opportunities to improve lives and alleviate suffering, there is little to lose, and an incredible amount to gain."

Cost of a Stem Cell Therapy? An Estimated $900,000

What is the likely cost of a freshly minted stem cell therapy? Close to $900,000. That's at least by one current estimate.

In the United States, such calculations are rare. Researchers and biotech executives shy away from discussing in public such daunting figures.

The figure emerged last week, however, in news from Japan about groundbreaking research to treat macular degeneration with reprogrammed adult stem cells.

While stem cell insiders are not keen on discussing $900,000 therapies -- at least their cost -- the public, however, is deeply interested. Development of expensive therapies is also likely to play a role in the future of California's $3 billion stem cell agency, which expects to run out of cash in 2020. Voters may look askance at publicly financed therapies that appear to be out of reach.

Exorbitant health care costs are on the minds of many. Forty-seven percent of the public said in 2016 that cost and access are the nation's most urgent health care problems, according to a Gallup Poll. Of all the nearly 4,300 items published on the California Stem Cell Report over the last 12 years, the most widely read article deals with the cost of stem cell treatments.

As of this morning, the 2013 article had recorded 21,963 page views, a standard way of measuring readership on web sites. Another related document chalked up 27,699 views on Scribd, where it was also published by the California Stem Cell Report. The figures are roughly four and five times higher than other relatively well-read pieces.

Readers do not give reasons for choosing the articles. But it is likely that their pocketbooks and hopes of affordable therapies are driving their interest.

Affordability was a big issue in the creation of the stem cell agency via a ballot initiative in 2004, Proposition 71. The agency, formally known as the California Institute for Regenerative Medicine (CIRM), has not devoted any significant attention to the matter in the last few years.

But if the agency wants to secure additional public or even private funding, it will need to make the case that its work is more than just another entry in the medical arms race.

Just yesterday, OncLive,  an oncology news site, carried a report on the skyrocketing expense of cancer drugs alone, which cost the nation $16 billion annually in 2010 and jumped to $38 billion in 2015. As for individual cancer patients, they are looking at costs of more than $150,000 a year for drugs, figures that have generated a ruckus in the cancer treatment community.

Drug costs are a small part of the total health care bill for country. But they are a litmus test for policy makers and the public. The costs are relatively straight forward compared to some other health care measures. But they are readily understandable by most families, who usually have one member or more involved in prescription purchases.

 As efforts to repeal-and-replace the Affordable Care Act gain increasing attention over the next year, the public is likely to focus even more on the costs of treatments and drugs, whether it is a $19 aspirin or a $900,000 stem cell therapy.

The "good" news, however, last week out of Japan was that the $900,000 cost of the stem cell macular degeneration treatment could be reduced to below $200,000 as the kinks are worked out and the treatment becomes more common -- if it clears its clinical trials.

As for California, CIRM  has pumped $125 million into research dealing with blindness, including macular degeneration which afflicts 1.7 million Americans. Nearly one million Americans are blind from all causes and another 2.4 million suffer significant visual impairment. More information on the state research can be found here. A CIRM video on vision issues is below.

$500 Million Stem Cell Loan Effort: Klein Legacy Plan Receiving Heave-Ho

The California stem cell agency tomorrow is expected to all but bury a $500 million loan plan pushed by its first chairman, Robert Klein, and replace it with something exceedingly more modest.

The current loan effort is “overly complex, administratively burdensome, and, as reflected in the number of loans issued, it does not appear to be attractive to industry,” said agency President Randy Mills in a forthright memo to the agency board. 

Robert Klein, CIRM photo

Klein’s dream was that loans would generate revenue through interest payments and help to ensure the $3 billion agency’s existence. The agency’s board paid $50,000 for a PricewaterhouseCoopers study that said $500 million in loans could generate a major return.

As the California Stem Cell Report wrote on May 14, 2008,

“How do you turn $500 million into as much as $1 billion over 10 years? Loan it to struggling biotech companies that could default on the loans at a rate of up to 50 percent. 

“Sound too good to be true? Maybe, but that's what the California stem cell agency is projecting….” 

In 2007 and 2008, Klein, a real estate investment banker, bandied about a variety of numbers that ranged up to $1 billion. The agency finally settled in 2008 on $500 million to commit to loans. The concept had a special allure because biotech companies are perennially cash-starved. But only five companies ultimately received loans, two of which are outstanding.  The agency has made 666 research awards, including the five loans.

Mills plans to replace the existing loan effort in his first foray into CIRM 2.0, a radical move to speed funds to researchers that he intends to extend to all awards made by the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

In his loan memo, also authored by two CIRM attorneys and the agency’s business development officer, Mills said the initial recipients in the CIRM 2.0 launch would

“…have the option to elect to convert their award from a grant to a loan within a specified period of time from the effective date of the award, e.g., seven years.  Unless the parties agreed to different terms, the awardee would be required to repay the loan balance within ten days of making the election to convert from a grant to a loan at an interest rate that would escalate based on the date of repayment.  For example, an awardee that repaid CIRM within three years of the effective date of the award would pay a lower interest rate than an awardee that elected to convert to a loan six years after the effective date."

Mills said his plan is simpler, more realistic and compelling to recipients than the agency’s current loan effort.

The  board’s Intellectual Property Subcommittee is expected to back Mills’ changes at its 10 a.m. meeting tomorrow with full  board ratification on March 26.  The public and potential recipients of CIRM loans can speak to the matter at two public locations in San Francisco, one each in Hawaii, Irvine, San Diego, Los Angeles and Redwood City.   Complete addresses are available on the agenda.

Proposed changes in the loan program were initially scheduled to be approved in January, but that attempt was suspended with no public explanation.

(Editor's note: The meeting was postponed on March 19. No explanation was posted on the CIRM Web site. The link to the memo from Mills was removed from the IP agenda, but a copy still could be found (as of this writing on March 19) on the March 26 agenda for the board meeting.)

Critiquing the California Stem Cell Story: 'Continuums' vs. Cures

It was a genuine “where's the beef” session for California's nearly 10-year-old, $3 billion state stem cell agency.

A member of the only state body legally delegated to oversee the California Instititute of Regenerative Medicine (CIRM) and its governing board wanted an answer to a simple question: What cures has the agency produced as promised during the 2004 ballot campaign that created the state program?

The occasion was a meeting Jan. 22 in downtown Los Angeles of the Citizens Financial Accountability and Oversight Committee, a group headed by state controller John Chiang. It meets once a year to examine the activities of the agency.

Jim Lott
COPE photo

Jim Lott, a long-time member of the panel and an executive vice president of COPE Health Solutions of Los Angeles, was pressing CIRM Chairman Jonathan Thomas and Ellen Feigal, CIRM's senior vice president for research and development.

According to the transcript, Lott, who described himself as a “big supporter” of CIRM, said, 

“I think when many voted for this, they thought there were going to be some cures coming out of this effort. And my bias is I have a 13-year-old daughter who has a spinal cord injury, partial break. I'd like to go home and tell my wife that this did something to advance the medical therapy that will ultimately provide her with the opportunity to walk again. What can you tell me that we've done that's going to get my daughter out of her wheelchair sooner (rather) than later after all this money has been spent?”

Thomas and Feigal struggled at some length to give him satisfying answers to his question. 

It was a tough series of exchanges with Thomas and Feigal talking about “incremental” work and “continuums” along with unrealistic, high expectations raised by the 2004 campaign. Those expectations burden the agency's current efforts to find new funding for awards beyond 2017, when the cash runs out.

At one point, Lott said it would be a “hard sell” to get voters to back more funding. Thomas acknowledged that and said it is “not stuff that readily translates into good sound bites.”

“You don't have a good message,” Lott said, declaring that he raised the issue two years ago.

“You guys are not speaking to people in ways that they understand the value of what you are doing. And that bothers the heck out of me.”  

Here is an exchange from early in the meeting involving Feigal and Lott, who has spent 23 years in the California hospital industry.

Lott:

“What can we say we've done to advance to a cure or to cures? It's fine that we've got all -- we've contributed to all. What can you say that we've actually done? We don't really have any -- I'm going to just say this because it's a bias and I know it's a bias. We don't have any tangible specific and measurable results that I can point to.”

Ellen Feigal

Feigal:

“Actually –”

Lott:

“Tell me if I'm wrong and demonstrate it to me. I want to understand where the results are.”

Feigal:

“So I'm happy to tell you the results, but I guess the issue is the expectations. And when this was funded, it probably was an expectation that (if we) give them money and within a very, very, very short period of time, and frankly ten years is a relatively short period of time, and, as you may not know, the funding didn't start till 2006, but if you try -- we're trying to do things in a very accelerated way. The funding actually for the disease teams and strategic partnerships just started three years ago. Part of it is advancing....”

Feigal continued in that vein for a few more minutes. Lott then asked about CIRM's return on investment(ROI), which amounts to $6 billion that the state will have to pay to support the agency, including the interest on the money that was borrowed for grants.

Jonathan Thomas
CIRM photo

Thomas, a bond financier from Los Angeles, jumped in,

“The results are, do we have any cures? No, we don't have any cures, but the results are many. They're incremental, but they are all moving along a research continuum that any sort of drug therapy would follow.....”

Lott:

“Here's my problem. As you said earlier, and I agree with it completely, I think it's a question of expectations. I know when I voted for this, and I did vote for it, I had some expectations. And my expectations were (that) we were going to see something in terms of cures at the end of the rainbow after we spend $3 billion, whatever it is that we're spending here.

“So when I asked for an ROI -- and I do understand what you are trying to tell us. I do get it, but it's not translatable. It doesn't translate to the expectations that many of us voters had.”

Lott kept coming back to his essential question

“The point is if we did spend all this money, what did we
get for it?”

Thomas and Feigal, aided by their Power Point presentations, continued to talk about CIRM's partnerships, disease teams and funding mechanisms.

Thomas:

“So if we do go back for a subsequent bond measure, I think we will be able to tell a story that will make California proud of being on the cutting edge and having facilitated the acceleration of the research, which, as Ellen said --”

Lott:

“Not if you don't get beyond the marketing problem you got. I'm telling you, pal, I would have a hard time voting for it again."

Thomas:

“That's fair.”

Our take: The California stem cell agency is virtually unknown to most of the people of California, which is not an unusual situation for most state agencies. Since Thomas was elected chairman in 2011, however, it has vastly improved its communications efforts. Nonetheless, it has not fulfilled the campaign promises of cures and won't be able to do so in the next two years. It does have a story to tell, albeit one that does not fit with the mythology of magical stem cells. Telling that story is hindered by mind-numbing Power Point presentations, which are little more than outlines that would be better replaced by nuanced, written documents. The challenge for the agency is to present not only the dry numbers but package the key figures with information that will connect viscerally and persuade people of the virtues of CIRM. Packaging and sizzle are the watchwords, depending on the audience. Each group has different concerns that need to be researched in advance and then addressed in tailored presentations. Whether CIRM's efforts so far have been worth $6 billion remains to be determined, but it is clear that it has not yet made its best case.

Changes Made in Tobacco Tax/Stem Cell Proposed Ballot Measure

The proposed tobacco tax initiative that could provide roughly $200 million a year to the California stem cell agency has been revised by its backers, although the changes initially appear not to affect the potential cash for the research effort.

Backers of the effort reported the changes today after the original version of the proposal dropped off the state attorney general's Web site this week, its first stop on the way to qualifying for the ballot.

In response to a query from the California Stem Cell Report, attorney Phil Kohn of the Rutan & Tucker law firm of Costa Mesa said the measure had been altered and was being resubmitted. We asked him to indicate the nature of the changes and their location in the document. He replied,

"There is a language change in Section 3(a) of the 'Purpose and intent' portion.  In addition, the following sections of the Act were modified (in minor part):  130161, subdivisions (e)(1), (e)(2) and (e)(3); 130163, subdivision (d)(2); 130164, subdivisions (c)(2) and new (c)(4); and 130165, subdivisions (b)(2) and new (b)(4)."

He also said that the Frank Barbaro of Santa Ana, the man responsible for the initiative, is a litigation lawyer and is currently deeply involved in a trial matter. He said Barbaro, who is also the former chairman of the Orange County Democratic Party, will elaborate on the initiative once he is free of his pressing professional obligations.

Here is the initial version of the ballot measure.

  Tobacco Tax Stem Cell Initiative Version 1 -- 2014

Here is the latest version of the ballot measure as provided by Kohn.

  Tobacco Tax Stem Cell Initiative Version 2  --2014

Tobacco Taxes and Stem Cells: Backers Still Not Talking, Questions Raised

Backers of a proposal that could rescue the $3 billion California stem cell agency from financial oblivion remained mum today as questions arose about the viability of the possible ballot measure.

The plan would raise roughly $700 million annually by increasing tobacco taxes, channeling about $200 million to the stem cell agency through a ballot initiative that would have to be approved California voters. The stem cell agency is scheduled to run out of cash for new awards in 2017 and is casting about for new sources of funding.

However, CIRM, as the agency is known, was largely caught by surprise last week by the release of the details of the proposal, which was filed by prominent Orange County attorney Frank Barbaro, former chairman of the county's Democratic Party.

Barbaro has not responded to email requests for more information about the backers of the plan and their financial commitment to an electoral campaign. Backers of a similar proposal that was narrowly defeated in 2012, Prop. 29, said they knew nothing about the effort.

The latest measure could go on the November ballot this year or the general election ballot in 2016 if it qualifies. The timeline for November is daunting. Responding to a query from the California Stem Cell Report, Sacramento political consultant Jeff Raimundo said in an email,

“Sounds like most people didn’t know this was coming. An Orange County attorney filing an initiative with no known backers?  Hmmm…formula for failure? 

“If stem cell agency folks didn’t know about it (and there’s no real reason to believe they did) and the cancer-fighting community had no knowledge, it’s hard to figure out how proponents are going to muster support from voters who only two years ago rejected a similar proposal from a more transparent and credible group. Prop. 29 barely failed, but it had a big push from advocacy organizations. 

“Too many questions right now to get a good handle on how effective such a campaign might be  -- who the REAL sponsors are, who would put up the money for the campaign, whether the OC attorney is a shill for someone else, whether those who back CIRM and its research role can be persuaded to back a new proposition. Many more initiative proposals are filed than are ever circulated. And many more are circulated than ever actually make the ballot in Californa. They’ve got a long way to go and not a lot of time to get there.”

The agency said last week that it has not endorsed the plan. Directors have not yet had a chance to consider it during a public meeting.

But CIRM Director Francisco Prieto, a Sacramento physician, told the California Stem Cell Report,

“I wasn’t aware of the tie-in to CIRM funding before (Friday). I don’t think they asked us first, but I’d be happy to see it pass, of course. I’m in favor of so-called 'sin taxes' – including those I pay when I support California’s wine industry. Raising the price of tobacco is one of the single most effective things that we can do to reduce smoking rates, especially among young people who are the most price sensitive. As the guy who has to sign the death certificates, I’m in favor of anything we can do to reduce smoking.”

Another CIRM director who responded to our queries, Jeff Sheehy, a communications manager at UC San Francisco, said that conceptually the proposal could make sense.

 "It's a better source of funds.  However, it does create a well-funded opposition campaign.  Still trying to  figure out if this is a good thing or not," Sheehy said.

Other board members as well said they had no advance knowledge of details of the measure.

Robert Klein, the former chairman of the agency, also responded, saying that that he was not involved in the proposal. He said he questioned the structure and funding approach but declined to elaborate.

Earlier last month we asked Klein about talk in the California stem cell community that he was involved in another bond measure effort for CIRM. Bonds are the current source of funding for the agency.

A spokeswoman for Klein replied,

“There is no campaign. We have done a single one scientific briefing on the progress of Proposition 71(the measure that created CIRM in 2004). It is strictly informational and does not constitute a campaign. We will decide in late 2015 what the next steps will be based on the scientific research at that time.”

Our take: In terms of the financial structure, Barbaro's tobacco tax proposal has at least one downside for CIRM. If the measure is successful in its goal of reducing smoking, the amount of money it raises from tobacco consumption will decrease. That, of course, would mean a dwindling amount of cash for the agency.

Launching a campaign for next fall's ballot would require a prodigious effort at this late stage even if some of the millions needed are already nailed down. The groups that backed the measure in 2012 are not likely to jump aboard immediately given their surprise at the latest proposal. They also may have other priorities as well at this point. Organizationally, work would have to begin now even though there is the possibility that not enough signatures could be gathered by the end of May to qualify for the fall ballot.

Opposition from the tobacco industry would be fierce. It raised $47 million in 2012 for its campaign compared to $12.3 million from the backers of the tobacco tax.

Stem Cell Agency Financing Proposal a Mystery to Some

A proposed ballot measure that could mean the financial survival of the $3 billion California stem cell agency was little known to the agency itself until early this week and is a mystery to backers of a similar tobacco tax proposal in 2012.

Kevin McCormack, senior director for communications at the agency, said,

“Individuals at CIRM did hear about the possibility of another tobacco tax measure but did not know any of the details, including the 30 percent provision for us, until the initiative was filed on Tuesday.” 

He told the California Stem Cell Report in an email, 

“As for being in support of the plan, the board has not yet had a chance to consider this measure and therefore we do not have any position on it.”

Some of the agency's board members also indicated that they were not involved with the proposal and learned of it only today.

Jim Knox, vice president for advocacy of the American Cancer Society Cancer Action Network in Sacramento, said in a telephone interview that none of the groups that backed the unsuccessful Prop. 29 in 2012 was involved in the latest effort.

The proposed initiative was filed Monday by Santa Ana attorney Frank Barbaro, the former chairman of the Orange County Democratic Party. It would impose a $1.00-a-pack tax on cigarettes to fund brain research and related illnesses, raising roughly $700 million annually. Thirty percent would be routed directly to the stem cell agency, which will run out of money for new grants in 2017.

Barbaro has not yet responded to a request for comment. 

Knox, who was involved in the 2012 campaign, described the situation involving the latest initiative as bit of a mystery and “strange.” He said “no one has heard” about the proposal. He said the language, however, was clearly adopted from the Prop. 29 initiative. "They stole all our language," he said.

Knox said the proposal was filed very late to qualify for the November 2014 ballot. He said Barbaro will not get his proposal back from the attorney general's office until February sometime, leaving him a very short period to gather signatures by the end of May. That is the usual deadline for qualifying measures for the November ballot.

Knox said it is possible that signatures could be gathered in time but that it would be expensive. Roughly one million signatures are needed at a cost that could run as high as $5 or so.

Knox said the Barbaro initiative could be held until the November 2016 general election.

Growing Stem Cells and Raising Cash in California

California's nearly 10-year-old effort to develop therapies from stem cells is riding a technology wave that some folks are saying will pick up considerable momentum this year.

That is good news for the state's $3 billion stem cell agency, the California Institute of Regenerative Medicine, which will run out of cash for new grants in 2017 and which is looking for new sources of revenue from the private sector.

The latest outlook for regenerative medicine was posted on re/code, a new technology Web site led by a couple of well-known refugees from the Wall Street Journal, Walt Mossberg and Kara Swisher. One of their writers, James Temple, weighed in with a piece on Jan. 1 about technology forecasts for 2014.

He said “five clear themes emerged” and one involved regenerative medicine. Temple, a former San Francisco Chronicle columnist, quoted James Canton, CEO of the Institute for Global Futures, as saying “major strides” are in the offing for 2014. In an email to Temple, Canton said,

“The most significant trends and breakthroughs in 2014 will be in regenerative medicine: The use of human stem cells to grow new organs, repair tissues (and) heal patients with numerous cardiovascular and autoimmune diseases.”

Another one of Temple's “futurists,” David Houle, author of “The Shift Age,” said that “sometime between now and 2020, 'our replacement parts will be superior to the parts we are born with.'”

Temple yesterday looked back to 2013 via a report by the National Venture Capital Association and Thomson Reuters. It said that the biotech industry accounted for 42 out of 82 venture-backed initial public offereings last year. The figure was five times more than the biotech sector offerings in the last five years.

Temple's pieces followed other stem cell forecasts from UC Davis researcher and blogger Paul Knoepfler, who is also optimistic. Knoepfler even predicted a “big announcement from Big Pharma” on stem cells or regenerative medicine.

Whether the forecasts are correct or whether the IPO trend will continue is a bit beside the point for the stem cell agency. What they can profit from is the fact that this kind of news generates excitement among investors and among those who might be willing to make a major bet on the Golden State's stem cell agency. Fund-raising becomes easier when the public rhetoric is more than optimistic. The band wagon effect takes hold. The visions of hope that entranced 59 percent of California voters in 2004 when they created the stem cell agency seem much closer to reality.

Catching this wave, however, is no easy matter, and the agency's 29 directors stalled last month when faced with a plan for a new financial future. Whether they can act with dispatch on this issue remains to be seen.

Sharp Exchanges as Stem Cell Board Tables Future Funding Proposal

A plan to finance the California stem cell agency after its $3 billion runs out in 2017 was shunted aside today after it ran into sharp opposition and questions from several of the agency's governing board members.

Vice chairman Art Torres attacked the preparation of the report as "offensive" because none of the patient advocates on the board, of which he is one, were consulted in its preparation. He said the CIRM staff should have prepared the $150,000 report -- not a consultant. Torres said the issue of sustained funding for the agency is the responsibility of the Chairman Jonathan Thomas, not the outgoing President Alan Trounson.

Torres' heated remarks drew a sharp retort from Trounson, who summarized the report for the board and said it was part of his management goals. Trounson said that he considered Torres' remarks an "attack on me," an assertion that Torres denied.

Other board members, including Thomas, said the report requires further thought and testing. They said the new president, who will replace Trounson, should be involved. CIRM Director Jeff Sheehy, another patient advocate, moved to table the report and put it in the hands of Thomas with the proviso that no further funds be spent on it pending further action. Sheehy's motion was approved on a voice vote.

The report was aimed at dealing with the loss of state bond funding for the agency.  The report called for private-public partnerships that would mean closer ties to industries. The funding would undoubtedly be considerably less than the $300 million or so that the agency currently hands out annually.

The proposal would also mean a considerable change in the nature of CIRM's program, likely focusing even more on research that is close to the marketplace.

Another bond issue for funding the agency has not been ruled out by the agency. But taking it to the voters is difficult politically and financially. The initiative campaign in 2004 that created the stem cell agency cost more than $30 million.  Stem cell scuttlebutt has it that former CIRM Chairman Robert Klein is talking up another bond election and perhaps even raising campaign funds.

Here is a link to Trounson's Power Point presentation today.

Bloomberg: California Stem Cell Cash Shrinking, Pressure for Results

The headline this morning on Bloomberg News read “California’s Stem-Cell Quest Races Time as Money Dwindles.”

 The status report on the $3 billion California stem cell agency came as its 29 directors meet in Los Angeles today to consider new directions for the agency – not to mention finding a source to replace the funding which runs out in 2017. (Live coverage of the meeting will begin at 9 a.m. PST on the California Stem Cell Report.)

 The article by Mark Melnicoe is a rare national/international look at the Golden State's unprecedented, nine-year-old effort to turn stem cells into cures, as the agency's motto goes. The California Institute of Regenerative Medicine (CIRM), the formal name for the agency, is largely ignored by the national media. California news outlets also devote few resources to covering agency matters.

Melnicoe's piece covers familiar ground for readers of California Stem Cell Report and others familiar with the agency. But it is a valuable tool for understanding how “outsiders” may view the effort.

Melnicoe wrote,

“California’s government-run stem-cell research agency, on course to spend $3 billion in taxpayer money to find treatments for some of the world’s most intractable diseases, is pushing to accelerate human testing before its financing runs out.”

He continued,

“The largest U.S. funding source for stem-cell research outside the federal government, it’s under pressure to show results to attract new money from pharmaceutical companies, venture capitalists or even more municipal bonds. 

“'We need to figure out how to keep them going,' said Jonathan Thomas, a founding partner of Saybrook Capital LLC in Los Angeles, and chairman of the institute’s board, which meets today. 'We could do public-private partnerships, venture philanthropy, a ballot box.'” 

The Bloomberg article also sounded a cautionary note. It said,

“Brock Reeve, executive director of the Harvard Stem Cell Institute, said a rush could waste money by going too far down paths with false promise. 'There have been a lot of clinical trials in the stem cell field broadly that haven’t panned out,' Reeve said.” 

Specifically mentioned in the Bloomberg piece was the clinical trial by Geron, the first in the nation of an hESC therapy, which was partially financed with a $25 million CIRM loan. The trial was abandoned by Geron, which then sold its stem cell assets to Biotime, an Alameda, Ca., firm, whose top executives come from Geron. Biotime has not resumed the trial.

Stem Cell Agency Chair Pressing for Consensus on IOM Recommendations

The chairman of the $3 billion California stem cell agency, Jonathan Thomas, yesterday outlined how he intends to proceed next week when the agency's governing board considers the far-reaching recommendations of a blue-ribbon Institute of Medicine panel.

Writing on the agency's blog, Thomas said,

“While some of the IOM’s recommendations are administrative in nature and can be implemented, others are much more complex and would require changes in (governing) board policy or legislative changes.” 

Jonathan Thomas, chairman of CIRM governing board at far right. Art
Torres (center), co-vice chair and former state Democratic party chairman,
who would  play key role in dealing with lawmakers. Robert Klein is at the
 left in this 2011 meeting, Klein's last as chairman of the agency and the one
 in which Thomas was elected chairman. 

He continued,

“My goal is to strive to reach consensus on a course of action on the 23rd. However, if the board isn’t able to choose a course of action at this time we will continue the conversation and bring it up at future board meetings until we reach agreement.”

It is worth noting that Thomas did not mention the possibility of having to ask the people of California to amend the state constitution, which would require a statewide election. Opponents to change at the agency have used that possibility to discourage action. (See here and here.) An election would be costly, politically difficult and could open the door to additional unwelcome changes at the eight-year-old research enterprise.

Thomas' desire for a consensus among the 29 board members – instead of a simple majority – could be a stumbling block as the board becomes snarled internally, perhaps for months or more. The board normally meets only about once a month and has a full slate of regular business on those occasions. The agency will run out of money for new grants in less than four years, and action on the IOM recommendations seems a necessary prelude to winning continued financial support.

While four years would appear to an ample period of time, making the sort of changes the IOM recommends would require legislative action, which probably would take a minimum of a year. Timing is important as well. The current leaders in the state Senate and Assembly will be termed out in 2014. Starting all over with novice leadership, changes in key committee chairmanships and so forth would make the task even more difficult. Then there is the need to address strategies for continued financial support. Should the agency seek a new statewide bond measure (the current funding mechanism)? If so campaign committees need to be formed, electoral strategies planned and tested and tens of millions of dollars raised for campaign expenses. If private funds instead are to be raised to the tune of hundreds of millions of dollars(the agency spends about $300 million a year), such an effort would also require considerable time. To keep the funding pipeline full, all of this should be completed well before the money runs out in 2017.

Dilly-dallying this year in drawn-out, fruitless debate over the IOM proposals would be an unfortunate beginning should CIRM directors actually want to continue the existence of the organization.

In his blog item, Thomas sounded this final note.

“It’s likely the debate will be passionate – everyone involved in this work cares deeply about it – and there will undoubtedly be disagreements, but ultimately we all share the same goal, a desire to make sure that whatever we decide helps make the stem cell agency even stronger and more effective, and is in the best interests of the people of California.”

California Stem Cell Face-Off: CIRM Directors Wrestle with Tough IOM Recommendations

Two days next week at the posh Claremont Hotel in the Berkeley hills could settle the fate of California's $3 billion stem cell agency.

At 9 a.m. next Wednesday, the governing board of the state research effort will begin a critical, two-day public session. On the table will be the $700,000, blue-ribbon report from the prestigious Institute of Medicine (IOM). The study recommends sweeping changes in the structure and operations of the California Institute of Regenerative Medicine (CIRM), as the stem cell agency is formally known.

The IOM report alone poses major challenges for the agency. But the recommendations are freighted with even more significance. Below the surface lies the hard fact of CIRM's dwindling resources and possible demise. In less than four years – without either renewed public support or private contributions – the research effort will begin a shriveling, downward spiral.

Claremont Hotel

The IOM report places a special burden on the agency governing board. The board paid the IOM to evaluate its performance. In 2010, then CIRM Chairman Robert Klein trumpeted the value of an IOM study, saying it would serve as a springboard for a new, multibillion-dollar state bond measure for the agency(see here and here). Given the state's difficult financial condition – not to mention the position of potential private sector investors – winning approval of that kind of investment will be more than difficult. 

California's major newspapers already have editorially backed the IOM proposals. Indeed, if the directors choose to ignore the major IOM recommendations, they will hand opponents a devastating weapon, one that could be used to convince voters to reject any proposal for continued funding. The board would also give private investors more major reasons to say no to CIRM pitches for cash.

Under Klein's leadership, the 29-member board has rejected similar proposals for changes in the past. When the IOM presented the study to the board just last month, the reception was not much different. Several board members bristled. One influential board member, Sherry Lansing, chair of the University of California board of regents, said the directors' “hands are tied” because some of the recommendations might require a vote of the people. Her comments echoed similar statements from Klein in 2009, when he said board members would violate their oath of office if they supported recommendations for changes that he opposed.

The IOM discussion in December, however, was relatively brief and less than definitive. Klein has been off the board since June 2011, replaced by Los Angeles bond financier Jonathan Thomas, who is regarded as a welcome change by a number of board members.

Nonetheless, the recommendations of the IOM could mean that some members of the board would lose their seats; others would lose important roles in the grant-award process or within the agency itself. Conflict of interest rules would be tightened. In some ways, the board would lose power, which would be shifted to the president. The board would no longer vote on individual applications – only a slate recommended by reviewers. Applicants for CIRM awards would be directly affected, being barred from making the sort of direct and public appeals that clogged the CIRM board meetings last year. And that would be just the beginning.

Thomas, the CIRM chairman, is expected to make his recommendations for action on the report, although they have not yet been posted on the CIRM web site. Under what might be considered “normal” leadership, Thomas would be testing sentiment among board members via personal conversations and phone calls. However, in California that would be illegal – a violation of open meeting laws that bar what are called “serial meetings” at nearly all public agencies.

Thomas' task is not easy. Rounding up a majority vote for anything significant among 29 strong-minded individuals is not simple. But it is even more difficult when facing a board that has a tradition of consensus management and oversight.

The site of next week's meetings is interesting. The nearly 100-year-old, iconic Claremont hotel has a troubled financial history. It was up for sale for $80 million last spring but there were no takers. In the early 20th century, the property on which it is located was lost and won in a checkers game in Oakland, or so the story goes.

The stakes are also high for the California stem cell agency. Moves next week by directors could easily determine whether CIRM becomes nothing more than an interesting scientific footnote or establishes a path that will lead it to long-lasting leadership in regenerative medicine.

California Stem Cell Agency Waiting Until April for More Cash

The state of California plans to sell $2 billion in bonds next Thursday, but the California stem cell agency, which is entirely dependent on state borrowing, will have to wait until later this spring to see more cash.

J.T. Thomas, chairman of the stem cell agency, said he expected to see CIRM benefit from the next bond sale in April. The agency currently has sufficient funds to operate until about June, plus an arrangement with the state for continued funding if a timely bond sale is not completed.

The $3 billion stem cell agency was created in 2004 through a ballot initiative that authorized its funding through the sale of state bonds over a 10-year period. The interest on the bonds raises the total cost of the agency to taxpayers to about $6 billion. Likewise, the cost of a $20 million grant is actually more like $40 million.

Financially beleaguered California's interest costs have sharply increased in recent years as the state has borrowed $53.8 billion from 2007 to 2010. This year, interest costs will come to about $5.4 billion, nearly 6 percent of the state budget. Nine years ago, it was $2.1 billion or 2.9 percent, according a piece by Randall Jensen (no relation to this writer) of the Bond Buyer newspaper.

The expense of borrowing shrinks the amount of state money available for public schools, helping the medically indigent and other state purposes.

Next Thursday's bond sale will go to refinance debt at lower rates. This year, Gov. Jerry Brown and state Treasurer Bill Lockyer plan to sell only $5.2 billion in general obligation bonds, roughly one-fourth of what the state issued in 2009.

The California Stem Cell Agency and the ACT Opportunity

A promising, positive story on stem cell research in California popped up in the news this week, involving improvements in vision as the result of the only hESC clinical trial in the nation.

The story came after Jonathan Thomas, chairman of the $3 billion California stem cell agency, said in the San Francisco Business Times that what he likes least about his job is that "the coverage in the press chooses to focus on items besides the extraordinary work that our scientists are doing."

The good news about the eye research appeared in the New York Times, Los Angeles Times and across the nation. However, it did not involve work at the stem cell agency, probably for reasons that likely have to do in good part with CIRM. The research involves a firm headquartered in Santa Monica, Ca., Advanced Cell Technology, that moved its base to the Golden State in hopes of securing CIRM funding. ACT has applied more than once for CIRM cash but has never received a grant. And it is one of the rare companies that has complained publicly to the CIRM governing board about a conflict of interest on the part of a CIRM reviewer. In ACT's case, its complaints received a public brushoff at a CIRM board meeting in 2008.

ACT's results in its clinical trial are quite tentative. They involve only two persons. One of the UCLA scientists involved said part of the results could have been the result of a placebo effect. Nonetheless, the reports carried the kind of story line that CIRM yearns for. Indeed, Thomas stressed the need for positive news when he told CIRM directors last June that the agency is in a "communications war" that is tied to its ultimate fate. (The agency runs out of cash in 2017.)

The New York Times' Andy Pollock wrote,

"Both patients, who were legally blind, said in interviews that they had gains in eyesight that were meaningful for them. One said she could see colors better and was able to thread a needle and sew on a button for the first time in years. The other said she was able to navigate a shopping mall by herself."

On its research blog, CIRM described the ACT results as a "milestone." CIRM's Amy Adams wrote,

"It’s the first published paper showing that—at least in this small number of patients for the first few months—the cells are safe."

She quoted Hank Greely of Stanford as saying that the news from ACT is "at least, a little exciting – and in a field that saw its first approved clinical trial stopped two months ago, even a little exciting news is very welcome."

Greely's reference, of course, was to Geron's sudden abandonment in November of its hESC trial, only three months after CIRM gave the firm a $25 million loan. It was widely believed that ACT was one of the initial applicants in the round that provided funding for Geron, although CIRM does not release the names of non-funded applicants.

Last week, CIRM directors spent a fair amount of time discussing the agency's future. The talk was of priorities, hard choices and generating results that would resonate with the people of California.

This week's news from a company that was not funded by CIRM will give them more to ponder.

Stem Cell Agency To Receive $50.8 Million in Additional Funding

The California stem cell agency, which was slated to run out of cash next June, will receive $50.8 million from yesterday's sale of state bonds, the state treasurer's office said today.

Under normal circumstances, the agency could be entitled to as much as $350 million annually in bond proceeds. We have queried CIRM concerning its perspective on the impact of this week's funding.

The state of California is in the midst of a severe budget crunch. In January, California is likely to be hit by a wave of automatic, severe budget cuts. They will be triggered if the revenue projections for the current fiscal year (2011-12) are not met. Currently the state is falling short of the projections.

The state is not scheduling any further bond sales this calendar year. It is unclear whether bond sales will resume in 2012. At the beginning of 2011, the state suspended bond sales because of budgetary concerns.

California To Proceed with Fall Bond Sale; Stem Cell Agency Could Benefit

The California state treasurer's office today reaffirmed that it intends to move ahead with a state bond sale this fall, which could be good news for the $3 billion California stem cell agency.

CIRM will face a severe cash crunch in less than 12 months, roughly May or June of next year, without additional dollars. Its only real source of funding is through the sale of California general obligation bonds.

Tom Dresslar, spokesman for state Treasurer Bill Lockyer, told the California Stem Cell Report today that details for the fall sale are still being worked out. He said in an email,

"At this point, the only thing we can say with a good degree of certainty is that we'll sell (government obligation) bonds this fall. The number, size and structure of those transactions remains undetermined. Much will depend on priorities set by the Administration (of Gov. Jerry Brown), and how much new bonds they want to issue to keep current projects going or start new ones."

Last May, the state said that it would sell only $1.5 billion in bonds this fall to keep borrowing costs down in light of the ongoing state budget crisis. Roughly $37 billion in long term bonds are awaiting sale, according to the state treasurer's office, including $1.9 billion in bonds for CIRM. That is likely to mean that CIRM will face competition in receiving an allocation from this fall's sale.

Reporter Kathleen Pender quoted Dresslar in this morning's San Francisco Chronicle as saying,

"We need to get a firm handle on the financial situation of ongoing infrastructure projects, how much money they need, how far can they go with their current cash."

In June, the stem cell agency's new chairman, Jonathan Thomas, spoke frankly about CIRM finances just before he was elected chair. He told CIRM directors,

"The agency faces the real possibility that it will not have timely access to the amount of bond proceeds it expected and may be forced to look elsewhere in very short order to the full funding required to meet its projected short term needs or to evaluate how to push grants out or otherwise modify expenses if that becomes necessary. And let's not kid ourselves – this problem could last for a long time." 

Thomas was nominated for his post at CIRM by both Lockyer and Gov. Brown, which should be of benefit to CIRM in securing bond proceeds.

Earlier state plans called for a $2.4 billion bond offering in the spring of 2012, which the stem cell agency might also share in. However, that might cut very close in terms of CIRM's cash flow. Additionally, the state could be in the midst of another major budget crunch because of cutbacks that could be triggered in January.

Implications of Perceptions of Waste and the Stem Cell Agency

The headline in The Sacramento Bee this morning read "Why raise taxes when officials squander our money?"

And prominently mentioned was the California stem cell research agency and the $400,000 salary of its new chairman.

The opinion piece was written by Dan Walters, The Bee's longtime time political columnist, whose articles are reprinted in many other newspapers around the state.

Walters was discussing efforts to raise taxes to help solve the state's ongoing budget crisis. He wrote,

"It's a valid debate to have, but voters' instinctive reluctance to pay more taxes is bolstered by a steady stream of incidents implying that the taxes they already pay are often wasted.

"Take, for example, what occurred as California State University system trustees raised student fees due to budget cuts. Simultaneously, they approved a $400,000 salary for the new president of San Diego State University, $100,000 higher than his predecessor.

"Brown publicly castigated the trustees.  'At a time when the state is closing its courts, laying off public school teachers and shutting senior centers, it is not right to be raising the salaries of leaders who – of necessity – must demand sacrifice from everyone else,'  Brown said.

"But Brown didn't utter a peep when the board that oversees a $3 billion stem cell research bond issue decided to pay its new Brown-appointed chairman – ironically – $400,000.

"So much for demanding sacrifice."

Walters continued,

"We can't solve our basic fiscal problems by just rooting out waste. But when officials squander our money, they undercut their own efforts to persuade voters to give them even more to spend."

Walters cited two other examples in addition to the stem cell agency. One involved the high speed rail project and the other state prisons.

Again, the point about all this is not the specifics on CIRM salaries but the environment in which the agency is operating. Concern about waste and/or excessive public sector salaries is not going to vanish, and the agency must deal with it if it is going to be successful in asking voters to approve another multibillion bond measure to continue its existence.

(A footnote: Walters was in error when he said Brown appointed new CIRM Chairman Jonathan Thomas. He was nominated by Brown and two other statewide officials and elected by the CIRM board.)

The Governor on CIRM Chair's $400,000 Salary: The Board Did It

This week's hooha over high government salaries, including a couple at the California stem cell agency, has found Gov. Jerry Brown delicately ducking any role in the $400,000 part-time salary for the new chairman of CIRM.

The flap has implications for the future of the California stem cell agency. It has triggered public comments ranging from extreme indignation to a cynical, shoulder-shrugging "what's new" reaction. It also found the governor deploring a $400,000 salary at one California state institution but declining to do so in the case of CIRM. Instead he basically said the CIRM board has to take the heat for the $400,000 salary for its new chairman, Jonathan Thomas, who was nominated by Brown for the job.

On July 7, the Los Angeles Times editorialized that the salary could doom the $3 billion stem cell agency to extinction. It reasoned that the compensation matter is almost certain to be a significant and negative issue in an election on the proposed $3 billion to $5 billion bond measure that CIRM needs to continue its operations beyond 2017 or so.

The governor amplified the salary controversy earlier this week when he opposed the $400,000 deal for the new president of San Diego State University, which has 35,000 students and a budget of close to $800 million.

Brown said the executive would be paid more than twice the salary of the chief justice of the United State Supreme Court. Brown said,

"At a time when the state is closing its courts, laying off public school teachers and shutting senior centers, it is not right to be raising the salaries of leaders who--of necessity--must demand sacrifice from everyone else."

Despite the opposition from Brown and Lt. Gov. Gavin Newsom the salary was approved by the state university board of trustees. Newsom also nominated Thomas for his $400,000 job.

The California Stem Cell Report queried both the Brown's and Newsom's offices via email about how they could oppose the salary for the San Diego State president but not be opposed to the same salary for part-time work (80 percent) at the stem cell agency, which has only about 50 employees and an operational budget of $18 million.

Elizabeth Ashford, a spokeswoman for Brown, replied via email,

"The governor has not endorsed this salary. The (CIRM) board approved the hire, and the board set the salary. These actions were independent of our office. As we've said many times on record, the governor is troubled by high public service salaries - in this case, however, it is in the board's hands."

As a courtesy, we then emailed Ashford,

"Just so you are not surprised, I expect to say something along the lines of that it was widely known that Thomas wanted $400,000 for part-time work and that if the governor didn't know that, he should have. I probably will also say something about how the $400,000 salary for the president of San Diego State was also in the hands of a body independent of the governor's office....As to why there was a difference in the reaction from the governor, I will probably suggest that it was a case of juggling a lot of balls and losing sight of one. Plus Thomas was the governor's nominee while the president of San Diego State was not."

Ashford responded,

"This is not an accurate or factual representation of the governor's relationship to the board or this decision. He does not set or influence salaries for the board, as I stated previously. Your hypothesis is just that - a theory."

The lieutenant governor's spokesman, Francisco Castillo, also responded and ducked the issue of whether the Newsom opposed the $400,000 CIRM salary. Castillo said,

"These institutions have an obligation to live within their means and, when they can't, they shouldn't be asking California's middle class to bear the cost. Unlike the stem cell institute, which the lieutenant governor is proud to have based in San Francisco, our CSU (California State University) has suffered devastating budget cuts offset by record tuition hikes and any salary increases need to be carefully scrutinized in that context."

Controversy over compensation is not peculiar to government. Some segments of the public are not pleased by the 35 percent increase in the median pay of CEOs of Standard and Poor 500 companies in 2010. That compares to a 1.6 percent decline in average hourly earnings of U.S. workers over the last 12 months ending in May. It all adds up to a public opinion environment unfavorable to enterprises perceived as greedy i.e. rewarding executives with excessively high salaries. And that translates to a critical and major minus for CIRM's hopes of winning voter approval of another bond measure.

As for the governor's inconsistencies, here is a personal footnote from Brown's first term in office. In 1974, shortly after Brown was first elected governor, I was the press aide for the Brown transition team. The tiny group had moved into offices in the old State Capitol, which had been declared an earthquake hazard during a campaign to approve tens of millions of dollars for its reconstruction.

A year or so earlier, Brown, then secretary of state, had occupied offices in the Capitol. But when the hazard notice was publicized, he piggybacked on the reconstruction campaign to move out to private offices nearby, declaring that he would not endanger his employees by compelling them to work in an unsafe building. Virtually all of the other occupants of the Capitol remained in their offices.

A UPI reporter recalled the news release in which Brown announced his flight from the Capitol and wrote a somewhat embarrassing story. Brown was privately philosophical about the story. "That's the price of excessive rhetoric," he said.

San Jose Mercury News: Stem Cell Bond Proposal Is Financially Spacey

The San Jose Mercury News today said that California is in "no position" to make an additional multibillion dollar bet on the California stem cell agency and its efforts to come up with a new stem cell therapy.

Commenting on the possibility that CIRM would seek voter approval of another mammoth bond measure, the newspaper said in an editorial,

"What planet are these guys from? "

The newspaper continued,

"Going back for more would make no sense regardless of the economy, but even contemplating it now shows either ignorance or an incredible disregard for the magnitude of California's financial crisis. How could the agency ask for an additional $3 billion when the state is trimming more than $10 billion from essential services?

"The stem cell agency has fulfilled its promise to build a research infrastructure that would attract some of the world's greatest scientific minds. But Californians have yet to see any tangible evidence that their investment is producing the cures that were also promised. And even if they had, $3 billion is a substantial investment for one state to make in a worldwide research challenge."

After seven years, the newspaper said,

"...(T)he research should be far enough along for venture capitalists to see the wisdom of investing."

The editorial's starting point was the kerfuffle over the $400,000 salary of CIRM's new chairman, which the newspaper withheld judgment on. What caught our attention is that the newspaper seem surprised by what it called a "real eye-brow raiser" – the proposed bond measure.

The bond proposal has been publicly known for many, many months. Much of the CIRM funding is being spent in the Mercury News' backyard. For the newspaper not to be aware of the plan says a great deal about the state of coverage of the agency by the mainstream media. It also reflects the current sad state of the newspaper industry in general.

$400,000 Salary Riles Governor But Not at Stem Cell Agency

High public salaries made the news again today in California. And again it involves a $400,000 pay package but not at the California stem cell agency.

This time it involves San Diego State University. Gov. Jerry Brown says the school, which has 35,000 students and a $794 million operational budget, doesn't need to pay $400,000 for a new, fulltime president. Ironically, Brown and other state officials nominated a man who is being paid $400,000-a-year for part-time (80 percent) work as the new chairman of the California stem cell agency, which has an operational budget of $18 million and a staff of about 50.

According to The Sacramento Bee, Brown wrote the California State University trustees, who are considering the salary today,

"I fear your approach to compensation is setting a pattern for public service that we cannot afford."

He continued,

"The assumption is that you cannot find a qualified man or woman to lead the university unless paid twice that of the Chief Justice of the United States. I reject this notion.

"At a time when the state is closing its courts, laying off public school teachers and shutting senior centers, it is not right to be raising the salaries of leaders who--of necessity--must demand sacrifice from everyone else."

The point in all this salary hooha is not whether the chairman of CIRM or San Diego State really deserves the salary. It is how it is perceived by large segments of the public, in this case, including the governor. In the case of CIRM, the salary flap is also likely to have an impact on its ability to pass another multibillion dollar state bond measure to continue its existence.

We are querying the governor's office about how it squares the San Diego state salary letter with Brown's nomination for CIRM chair. So far, the governor's office has failed to answer other, earlier queries concerning Brown's role in the CIRM chair nomination process.

For out-of-state readers, the California State University system is separate from the University of California.