The Hard Business of Stem Cell Economics and Patient Needs

Premature clinical trial shutdown?

Implications for California stem cell agency

The vagaries of Big Pharma and development of stem cell therapies -- plus the frustrations of a prominent Stanford researcher -- were the topic this week in a major California newspaper.

Irv Weissman, Stanford photo

The researcher is Irv Weissman, head of the stem cell program at the Palo Alto university. The companies are Sandoz Pharma, Ciba-Geigy and Novartis. The story also includes a $392 million deal involving Weissman.

The basic storyline, as reported June 14 by Lisa Krieger of the San Jose Mercury News, is that years ago Weissman developed a “unique way to grow and deliver blood stem cells to desperate patients with aggressive cancers, boosting survival rates.”

According to Krieger, Weissman in effect sold the potential stem cell therapy to Sandoz in 1991 for $392 million in an effort to place “his innovation into the hands of a company large and prosperous enough to accelerate research.”

Sandoz then “merged with Ciba-Geigy and became Novartis, which bought the remainder of Weissman's company (Systemix) for $76 million in 1997 -- and, with it, all patents,” according to Krieger.

Novartis shut down the trials in 2000 along with Weissman’s company. Krieger reported that the firm “ended the program because it couldn't produce blood stem cells in large enough numbers to develop a commercial market -- and it was not in the business of producing personalized ‘custom-made’ therapies.”

Krieger continued,

Karuna Jaggar, BCA photo

"'Well before the launch of the War on Cancer, the corporate profit motive has driven the cancer research agenda,' said Karuna Jaggar, executive director of the Breast Cancer Action, a San Francisco-based patient advocacy group. 'Time and again, history has shown that it is not only the possibility of saving lives but the potential of making money that has steered the research agenda toward some areas -- and away from others.

"'As long we have a health care system that puts profits before patients we will always be at the mercy of corporations looking to make profits. Any new innovation needs to be evidence-based and proven safe and effective no matter what money is to or is not to be made,' she said.”

Krieger wrote,

“Now, a quarter-century after it was conceived, the technique is finally back in Weissman's hands at Stanford -- although Novartis still holds the patent.” 

She reported that Weissman hopes to take the potential therapy forward in a non-profit setting.

Krieger has much more in her story, which offers considerable food for thought, particularly in connection with California’s $3 billion effort to bring a stem cell therapy into widespread use. It has not done so yet after nearly 11 years of trying and the expenditure of roughly $1.9 billion.  The agency also suffered a significant blow at the hands of one company, Geron, that dropped -- for financial reasons -- the first-ever clinical trial  for a hESC stem cell therapy, which the agency had backed with a $25 millon loan. 

The agency is currently revising its strategic plan. Randy Mills, president of the agency, says he is serious about developing a solid plan that will be followed assiduously with measurable benchmarks along the way.  

Our view: One important element in the new plan should focus on avoiding situations such as those involving Geron (see here and here) and the morass that Weissman fell into.

Whether one likes it or not, the facts of life in the biomedical world – pleasant or unpleasant – mean that business must be firmly engaged if a stem cell therapy is to be widely available to the public. Government agencies, however, often fall short in their dealings with private firms. For the stem cell agency, that means it needs a keen eye and clear goals when it deals with Big Pharma and stem cell firms. And if the California’s stem cell agency is to deliver on the promises made to the people of California, it must be willing to walk away from a deal if the terms aren’t right.

New Ties to Big Pharma and Venture Capital Proposed at California Stem Cell Agency

The $3 billion California stem cell agency wants to recruit major biotech and venture capital firms to help provide tens of millions of dollars in research awards to California enterprises.

It's part of a move to “jump start” partnerships in a relatively new, $80 million, business-friendly program that is aimed at pushing therapies into the marketplace. The recruitment plan will come before the agency's governing board at its meeting next Wednesday in San Diego. 

Participating companies will have a special relationship with the state agency, including early input into concept funding proposals prior to their being presented to the agency's governing board. The “industry collaborators” will also be able to attend agency workshops and meetings involving hundreds of grant recipients. Presumably other, non-collaborating firms would be barred.

Other provisions of the plan call for special event-hosting arrangements aimed at creating more collaborations and posting of information from the selected collaborators on the CIRM website.

According to a CIRM staff document, the initiative would be limited to biotech and pharmaceutical firms with a market capitalization of at least $500 million and “qualified venture capital firms.” The document did not define what a “qualified a venture capital firm” is. The document also appeared to bar participation of privately held firms because of the “market capitalization” criteria, which typically uses a formula involving publicly traded shares.

Elona Baum, the agency's general counsel and vice president, business development, said in a statement provided to the California Stem Cell Report,

“This is aimed at trying to jump start the creation of the partnerships that are required to satisfy the commercial validation requirements of the Strategic Partnership Funding Initiative so that timelines are better synced-up as between our review and approval cycles for the Strategic Partnership RFAs and the lengthy time required for investors to conduct due diligence and negotiate an agreement with prospective applicants to Strategic Partnership RFAs.  CIRM's independent review and approval remains the same and is wholly independent. While there may be input given to a particular RFA it only at the high level concept stage and of course CIRM has no obligation to agree. In the context of the Strategic Partnership awards, CIRM wants to fund innovative high quality science that has attracted additional  investors.  Investors will help leverage CIRM fund and will be an important source of future funding to further the project.”  

California Stem Cell Agency Still in Talks on $40 Million for StemCells, Inc.

The California stem cell agency and StemCells, Inc., are still trying to reach agreement on a deal in which the company would receive $40 million from the state's taxpayer-funded research effort.

The sticking point is the $40 million in matching funds required from the Newark, Ca., firm under the terms of the two awards approved in July and September. The latter award was okayed on a 7-5 vote by the governing board after it was rejected twice by the agency's reviewers.

On Monday the California Stem Cell Report queried the agency about the status of the awards. Kevin McCormack, the agency's spokesman, replied,

“We are still in talks with them over the terms of the funding. Hopefully, we'll have an agreement soon.”

He did not elaborate further.

CIRM staff normally reviews applications after they are approved by the agency's governing board to be sure that all conditions are being met. However, in the case of the September award to StemCells, Inc., CIRM's governing board took the unusual step of publicly stating that the firm must demonstrate it has the $20 million in matching funds before it receives any payments from CIRM. The board did not take that sort of public position on the $20 million grant approved earlier in the summer, although matching funds are required in that case as well.

The former chairman of the $3 billion stem cell agency, Robert Klein, appeared twice before the board to lobby for approval of the second award to StemCells, Inc., which is a publicly traded firm.. It was the first such appearance by Klein before his former colleagues since leaving the agency in June 2011.

Action on the StemCells, Inc., awards attracted attention from the Los Angeles Times last month. Pulitzer Prize-winning columnist Michael Hiltzik wrote that the process was “redolent of cronyism.” He said a “charmed relationship” existed among StemCells, Inc., its “powerful friends” and the stem cell agency.

Conflict of Interest: CIRM to End Contract with Consultant Linked to Grant Recipient

The California stem cell agency will not renew a contract with a "special advisor" who has been nominated to the board of directors of a firm that is sharing in a $14.5 million grant from the agency.

She is Saira Ramasastry, managing partner of LifeSciences Advisory, LLC, of Emerald Lake Hills, Ca. Ramasastry has worked for CIRM since May of 2010. Last month, she was nominated to the board of Sangamo BioSciences, Inc., of Richmond, Ca. Her responsibilities with CIRM have included "industry analysis and consultation." Sangamo cited her experience with CIRM in its press release on her nomination. She was also employed as a consultant by Sangamo, according to the firm.

Ramasastry's dual roles raise obvious conflict of interest questions. The case highlights the issues that can arise between CIRM and the biotech industry as the agency moves to engage industry more closely. CIRM's response additionally demonstrates a lack of awareness of the potential for serious mischief or worse when dealing with consultants.

The California Stem Cell Report asked CIRM on May 6 for comment on the Sangamo-Ramasastry matter. The questions included whether Ramasastry disclosed to CIRM her work for Sangamo and whether CIRM took any action per the agency's conflict of interest code. CIRM did not respond to the question of whether Ramasastry ever disclosed her ties to Sangamo, which expects to receive $5.2 million from the CIRM grant if it runs a full four years.

Here is the text of CIRM's reply today from spokesman Kevin McCormack.

"Saira Ramasastry was an independent contractor. As required by law, we do ask independent consultants to complete Form 700s(statements of economic interests) if they participate in an agency decision making role. Her role did not fall into that category - she was identified as a 'special advisor' in connection with our external review process - and so she did not have to fill out a Form 700. Her contract with CIRM comes to an end at the end of June, and she will not be elected to Sangamo's board of directors until July. Obviously once she is a member of the Sangamo board she will not be consulting or advising CIRM because of our strict conflict of interest rules."

(Editor's note: The board election is June 21, according to the company, not July.)

Our take: CIRM is heavily dependent on outside contractors. Expenditures for their services are the second largest item in CIRM's operational budget, exceeded only by salaries and benefits of regular employees. The responsibilities of outside contractors cover a wide range of sensitive tasks including computer system security, development of software that deals with proprietary information from grant recipients, analysis of confidential business operations of grant and loan applicants and much more.

The agency needs to know who their consultants are working for besides CIRM. Whether they make decisions for CIRM is beside the point. Gathering information that is not normally accessible to the public can be extremely valuable to businesses and their competitors as well as applicants for CIRM's $3 billion. In Ramasastry's case, she was privy to a great deal of confidential or economically useful information during her work on CIRM's external review and likely much more.

The use of California's Form 700 is hardly adequate to assess conflict of interest issues involving private consultants. The form was developed in the 1970s to deal with elected officials primarily and provides only the grossest sort of look at financial holdings and income.

CIRM's current move to embrace industry requires more scrutiny of conflicting interests – not less. NextThursday the CIRM board will deal with some of its conflict ofinterest rules. It is fine opportunity to ask for a sharper analysis of conflict issues and consultants with an eye to strengthening CIRM regulations and ensuring protection of the agency and its grantees' work – not to mention the interests of the people of California.

Advisor to CIRM Nominated to Board of CIRM Grant Recipient Expecting $5 Million from Agency

A "special advisor" to the $3 billion California stem cell agency has been nominated to the board of directors of Sangamo BioSciences, Inc., a firm that is sharing in a $14.5 million grant from the state research enterprise.

She is Saira Ramasastry, managing partner of Life Sciences Advisory, LLC, of Emerald Lake Hills, Ca., and who also has worked as a consultant to Sangamo. Ramasastry's ties to CIRM go back to at least May of 2010, when she served as a consultant for the panel that CIRM hired to review its operations. The panel strongly recommended that CIRM engage industry more warmly. Since then Ramasastry's contracts with CIRM have totalled $65,000. Her current $25,000 contract describes her work for CIRM as "industry analysis and consultation."

Ramasastry's website says she serves as "a special advisor to CIRM in industry engagement initiatives and strategic projects." Her firm also offers expertise to life sciences firms in "strategic alternatives advisory, strategic options analysis, tailored business development solutions and innovative financing strategies."

In a news release April 30 announcing her nomination, Sangamo said Ramasastry has worked as a consultant to the Richmond, Ca., company. William Ringo, chairman of Sangamo's board of directors, said,

 "Saira's extensive experience in global healthcare investment banking and strategic advisory consulting will bring valuable financial, commercial assessment and business development skills to our board."

Compensation for Sangamo directors in 2011 ranged from $75,000 to $35,000 for those who served a full year plus stock options. 

Sangamo is sharing in a $14.5 million, four-year grant from CIRM with the City of Hope in Los Angeles dealing with an AIDS- related lymphoma therapy. The grant was approved in 2009. Sangamo expects to receive $5.2 million from the grant if it runs for the full four years. As of the end of 2011, the firm has received $2.4 million, according to its financial documents. In March, Ellen Feigal, CIRM senior vice president for research and development, said the effort is due for an evaluation late this year.  Earlier this year, CIRM terminated one $19 million grant in the same round after it failed to meet milestones.

Sangamo's board is scheduled to vote on Ramasastry's nomination on June 21. 

The California Stem Cell Report has asked Ramasastry if she has any comment for publication. We are also querying CIRM and Sangamo. Their comments will be carried verbatim when we receive them.

Our take? Ramasastry's consulting work with both CIRM and Sangamo demonstrates again the tiny size of the world of stem cell science. It also raises questions about conflicts of interest involving CIRM and industry. Can a consultant in such a position serve two masters and serve them both equally well? CIRM's interests are not necessarily the same as Sangamo's, which is a publicly traded firm working diligently to generate profit and financial returns for its shareholders. To do that, it needs capital from its financial "backers," including CIRM. The stem cell agency, however, is in the business of getting the results that it wants from Sangamo. If not, the grant can be cancelled. Working for both the stem cell agency, whose paramount obligation is to the people of California, and a recipient of the agency's millions is incompatible.

California Stem Cell Agency Wants to Weaken Financial Disclosure for Execs and Board

The $3 billion California stem cell agency, which is moving to engage the biotech industry ever more closely, is proposing a major weakening of the financial disclosure requirements for its board of directors and executives.

The move comes as the agency is also seeking to raise cash from the private sector to continue the state research effort's existence.  CIRM's dimming of transparency runs counter to government trends nationally for more disclosure rather than less, including regulations enacted last year by the NIH.

The proposed changes will be considered next Thursday by the CIRM directors' Governance Subcommittee, which will have public teleconference sites in San Francisco and Irvine and two each in Los Angeles and La Jolla.

Currently CIRM board members and top executives must disclose all their investments and income – in a general way – along with California real property that they hold. Under the changes, disclosures would instead be required only "if the business entity or source of income is of the type to receive grants or other monies from or through the California Institute for Regenerative Medicine." CIRM offered no explanation of what it means by "of the type to receive" funds from the agency.

The proposal further narrows disclosure in connection with income or investments in enterprises that provide facilities or services used by CIRM. With the removal of the requirement for reporting all investments, CIRM's changes also specified disclosure of income and investments connected to business entities (nonprofits are not mentioned) that are engaged in biomedical research or the manufacture of biomedical pharmaceuticals.

The new code would appear to give CIRM directors and executives wide personal latitude in determining what should be disclosed. The current language simply states that "all" investments, etc., must be disclosed. That language originated in the 1974 ballot initiative that created the state disclosure requirements. The initiative's intent was to give the public and interested parties access to key information that would allow them to determine what forces are at work in government and whether conflicts of interests exist – as opposed to simply trusting the assertions of officials without additional substantiation.

The new code also appears to relieve CIRM officials of reporting investment in or income from venture capital or other firms that may be engaged in financing biotech or stem cell enterprises, since the firms do not receive cash from CIRM or engage in biomedical research. While the code appears to provide more reporting freedom for board members and executives, it also may indirectly impose a burden on them to determine whether any of their investments may involve biomedical research or enterprises that could possibly receive funds from CIRM at some point

Earlier this week, the California Stem Cell Report asked the stem cell agency about such issues. Kevin McCormack, CIRM's new senior director of public communications and patient advocate outreach, replied that the changes were "proposed" by the state Fair Political Practices Commission, which oversees state disclosure laws.

He said the FPPC says agencies "should tailor their disclosure categories to type of work performed by the agency." McCormack cited as examples the State Board of Education and the state retirement system.

As for the specific changes in CIRM's code, McCormack said,

"Because these are the types of entities that are likely to create potential conflicts of interest, we believe the disclosure categories are appropriate."

McCormack did not comment on whether the proposed code would give board members more reporting latitude or whether it relieve them of reporting investments tied to the financing of biotech or stem cell firms. (The text of his response can be found here.)

The California Stem Cell Report is querying the FPPC concerning its policy regarding disclosure codes. CIRM's new code is expected to go before the the full CIRM board in late May. The changes are subject to review by the FPPC and then must formally go through the state administrative law process during which the public can comment and the code modified before final adoption.

Our take? The proposed changes are not in the best interests of CIRM or the people of California. The absence of transparency and disclosure only breeds suspicious speculation of the worst sort. The agency is already burdened by conflicts of interest that are built in by the ballot measure that created it in 2004. Nearly all of the $1.3 billion that CIRM has handed out has gone to institutions linked to CIRM directors. Weakening disclosure at a time when the biotech industry will become more closely tied to CIRM inevitably raises questions about financial linkages – present and future – between CIRM directors and executives and industry. For the past seven years, CIRM directors and staff have been able to comply with more complete disclosure. They should continue to do so for the life of the agency, which will expire in less than a decade unless it finds additional sources of cash.

Text of CIRM Response on the Weakening of Financial Disclosure Requirements

On April 24, the California Stem Cell Report asked the state stem cell agency about its proposed changes in its requirements for financial disclosures from its officials. Here are the key elements from that query with the stem cell agency's response following.

The agency was invited to respond to the following: "The new code appears to give discretion to the employee to determine what enterprise is 'the type to receive grants or other monies' from CIRM. Additionally, it would not appear to require disclosure of an investment with or income from, for example, Kleiner Perkins, which is a major investor in iPierian, which holds $7 million in CIRM grants and could well be a future applicant...(T)he weakening of the code comes at a time when the agency is moving to cozy up to industry and looking to raise funds to continue its existence, all of which raises even greater conflict of interest issues than earlier in CIRM's existence."

Here is the text of the response April 25 from Kevin McCormack, CIRM's new senior director for public communications and patient advocate outreach.

"In answer to your question, we are proposing changes to the Conflict of Interest Code based upon recommendations from the California Fair Political Practices Commission (FPPC). The Political Reform Act requires state agencies like CIRM to review their Conflict of Interest Codes every two years.  The FPPC, which is charged with enforcing the Political Reform Act, is responsible for reviewing and approving CIRM's Conflict of Interest Code.  In preparation for this review, CIRM's counsel met with the FPPC staff who suggested the proposed amendments which are the subject of the upcoming Governance Subcommittee meeting.  The proposed amendments to CIRM's Conflict of Interest Code are consistent with the FPPC's position that agencies should tailor their disclosure categories to type of work performed by the agency.  For example, CalPERS's conflict of interest code requires CalPERS officials to disclose investments in, and income from, entities that are of the type with which CalPERS contracts and entities in which funds administered by CalPERS could be invested.  Likewise, the State Board of Education requires its members to disclose investments, business positions, and income from a publisher, manufacturer, or vendor of instructional materials, or services offered to educational institutions in the State of California and investments, positions of management and income from any private school in the State of California.  Similar to these codes, the FPPC proposed that CIRM's Code be tailored to the nature of CIRM's work.  Thus, the FPPC proposed that CIRM require its board members and high-level employees to disclose investments in, and income from, entities that are of the type with which CIRM would contract or from which CIRM could procure goods or services as well as investments in, and income from, biotech and pharmaceutical companies.  Because these are the types of entities that are likely to create potential conflicts of interest, we believe the disclosure categories are appropriate.  It is important to remember, however, that this is a preliminary proposal.  CIRM will seek input from the Governance Subcommittee, the Board, and members of the public before seeking approval of the amendments."

California Stem Cell Agency Beefing Up Ties to Industry

The $3 billion California stem cell agency will press forward next week with its efforts to become more industry-friendly, including creation of a $30 million program catering specifically to biotech.

The initiatives will be considered next Tuesday at a teleconference meeting with remote locations in both Northern and Southern California, presenting an opportunity for industry representatives to weigh in with comments or suggestions for changes in the proposed programs.

It will be only the second session of a new subcommittee of CIRM directors. It is expected to be renamed the Intellectual Property and Industry Engagement Subcommittee. The change reflects a refocusing of the panel's efforts and the appointment of Duane Roth, a San Diego businessman as co-chairman. Roth will specifically deal with industry matters.

The subcommittee is expected to "engage industry as a partner" and work to ensure that therapy development is not "unreasonably hindered," according to a CIRM document. The panel is also slated to develop policies to encourage "participation by industry representatives as scientific members" of the CIRM grant review group, which makes the de facto decisions on grants. The subcommittee is additionally expected to deal with industry financing issues.

In addition to discussion of its mission, the panel is scheduled to act on a "strategic partnership funding program" that could hand out awards of $10 million or possibly more twice a year. The initiative, which would initially be funded at $30 million, is part of CIRM's response to the findings of a blue-ribbon commission last year that determined that the agency needed to provide more support for industry.

The funds would be limited to projects that have "third party commercial validation." A staff document said that could mean "a term sheet or letter of intent with a pharmaceutical or large biotechnology company (provided a binding agreement is entered into prior to the disbursement of CIRM funds), and/or significant investment from venture capital, disease foundation funding or other sources of third party or government funding, including SBIR funding."

Remote locations where the public and industry can participate in the meeting are in San Francisco (2), Irvine (2), Los Angeles, Woodside and La Jolla. Addresses can be found on the agenda. 

We should note that the background material on the issues to be considered is now available on the CIRM website, a posting that is much more timely than in the past. Consistent early postings of such material will help make it easier for industry and interested parties to follow the agency's activities and enable them to respond appropriately.

Initial membership of the committee, which is also co-chaired by Stephen Juelsgaard, formerly executive vice president of Genentech, can be found here. A transcript of the panel's first meeting last month, which involved a discussion of industry-friendly initiatives, can be found here.

Nature Reports on CIRM External Review and Industry Reaction

“Positive review for California stem cell agency” – that's the headline on the Nature magazine's Web site concerning the assessment of CIRM by a blue-ribbon panel.

The piece by Alla Katsnelson began:

"The first comprehensive external review of the California Institute for Regenerative Medicine (CIRM) has come to overwhelmingly positive conclusions about the state stem cell agency’s progress. But some in the biotech community continue to grumble that the agency, which began operations in 2006(sic), is focusing too much on basic research rather than fulfilling its mandate of taking stem cell therapies from bench to bedside."

The Nature article noted that the report recommended more engagement with industry. Katsnelson then wrote,

"But some say that many of these things should already have been done. 'You’ve got to remember, their whole mandate is commercialization,' says Bill Caldwell, CEO of Massachusetts-based(sic) stem cell company Advanced Cell Technology (ACT). What the agency should have done, he says, is identified 3-5 potential therapies that were “low-hanging fruit' in terms of clinical development. 'Let’s get those through and into the clinic so that we can demonstrate to the world that the [human embryonic stem cell] platform has value,' he says.

"Also, Caldwell notes, the agency should already have called for project proposals that tackle some technical areas that need work, such as techniques for the cryoprotection of cells, as well as methods to coax cells into dividing more rapidly. 'These are commercial issues that can help these products move into the market,' he says."

Nature also quoted an item from this Web site.

"A commenter to the California Stem Cell Report blog, identified as 'an executive/scientist from a California biotech firm who must remain anonymous,' echoed Caldwell’s sentiments. 'If CIRM was to hold true to its promise to deliver products in 10 years, then it needed to start translational activities immediately and not building infrastructure for already rich universities like Stanford, who enjoy $10B plus endowments,' the commenter wrote."

(Editor's note: An earlier version of this item incorrectly carried Caldwell's first name as Bob not Bill.)

Research VP Slot Posted at California Stem Cell Agency

The California stem cell agency has posted its opening for the newly created position of vice president, research and development, with a salary range that tops out at $332,000 annually.

The person who fills the slot is likely to be the key staff person as CIRM moves more closely to the biotech industry as the agency speeds its drive to produce something that can be used to treat patients.

Here is part of the job description:

“Oversee the preclinical and clinical development phases of CIRM's programs and projects involving not-for-profit and for-profit teams, including assembling and working closely with CIRM advisory committees to provide oversight of these programs and make go/no go recommendations to the President for continuation of CIRM support.

“Works closely with biotechnology, pharmaceutical and investment sectors to enable and enhance the development of clinical applications in CIRM's scientific portfolio.

“Oversees the CIRM research and development program in close collaboration with the Executive Director of Scientific Activities”

Earlier, CIRM President Alan Trounson indicated he was looking for someone with considerable commercial experience, especially related to clinical trials.

Interested parties might also examine the transcript of the CIRM directors meeting Aug. 6, during which Trounson discussed the position.

No deadline was set for applications. The posting said the position will remain open until it is filled.