Los Angeles Times: Flawed Investigation Magnifies California Stem Cell Scandal

The Los Angeles Times is carrying another column excoriating the $3 billion California stem cell agency, and it involves the same set of players, the agency’s former president and a San Francisco area stem cell company.

The headline on the column by Pulitzer Prize-winning columnist and author Michael Hiltzik says

 “California’s stem cell scandal gets worse.”

The piece is up on the Web site of the Times, which is California’s largest circulation newspaper, claiming 4 million readers online and in print on Sunday. Hiltzik's column is also circulated to other newspapers around the nation. 

Hiltzik dug into this week’s investigation by CIRM, as the agency is known, involving the appointment of Alan Trounson, the former president of the agency, to the board of StemCells, Inc.(SCI), earlier this month, just seven days after he left the agency. The publicly traded company has been awarded $19.3 million by the agency under unusual circumstances. Trounson is expected to receive compensation for his work on the board. Last years, members of SCI board received as much as $99,000 in stock and cash.

On Thursday, the agency’s new president, Randy Mills, reported the results of what he described as a “severely” limited investigation conducted by the board’s longtime outside counsel. Mills said there was no evidence that Trounson committed any illegal acts in May or June.

Hiltzik said the investigation itself was flawed by conflicts of interest. He wrote,

“To begin with, CIRM placed the investigation in the hands of its law firm, San Leandro-based Remcho, Johansen, and Purcell. The Remcho firm is the antithesis of an objective, independent party; its lead partner on the CIRM account, James Harrison, has been a CIRM insider from the start. He helped draft Proposition 71. He's been counsel to the agency or its governing board since 2005.

“As it turned out, Harrison couldn't conduct the investigation himself, because he was involved in some of the transactions with Stem Cells Inc. under review. Instead of hiring an independent law firm to do the job, CIRM allowed the review to be turned over to Harrison's own partner, Margaret R. Prinzing.

“Trounson hasn't been available for comment; Prinzing reported that he was back in his Australia home, and she herself communicated with him by email. Stem Cells declined Friday to our request for comment. We've reached out for comment to the law firm, and will update if we hear back.”

Hiltzik said the time frame was much too narrow. He said the probe should have gone back to the events of the summer of 2012, when StemCells, Inc., was awarded the cash with the help of the former chairman of the stem cell agency, Robert Klein.  It was the first time Klein lobbied the board after leaving it. It was the first and only time the board has approved an application rejected twice by its blue-ribbon reviewers.  

Hiltzik wrote,

 “Trounson didn't speak on the Stem Cells application during that September meeting. But he did weigh in on another Alzheimer's proposal from researchers at USC and UC Davis, which had received a higher score from the reviewing panel. That proposal, like the Stem Cells application, had already been rejected once by the CIRM board, and had come back on appeal.

“At the September meeting, Trounson told the CIRM board that the scientific reviewers had misgivings about whether the USC/UC Davis proposal was sufficiently stem-cell oriented to fit within CIRM's portfolio. He didn't speak out against the application, but merely passed along the grant reviewers' doubts. ‘It remains questionable, and I think you have to decide yourselves on it,’ he told the board.

“It isn't clear whether approval of that proposal necessarily would have killed the Stem Cells application--theoretically, both could have been approved. But the board then was looking for one Alzheimer's project to fill out its disease-therapy portfolio, and Stem Cells got the nod. The board rejected the USC/UC Davis application, 10-4.

“In any case, Trounson plainly was participating in discussions that carried possible implications for his future employer, as far back as 2012.”

Hiltzik also wrote that SCI “may be standing on shaky financial ground,” based on the details disclosed in the memo on the results of the investigation. Among other things, the memo said that the firm had failed to meet financial standards in its contract with CIRM but was still seeking a partial payment anyway.

Hiltzik’s summary:

“Here's what we know so far: A well-connected company with questionable finances and a research proposal of uncertain scientific validity has received favorable treatment from CIRM. An investigation of the relationship between the firm and CIRM's management was placed in the hands of a law firm inextricably entwined with management, and given an inappropriately narrow scope. The unanswered question burning a hole through CIRM's credibility is whether Stem Cells Inc. got its money because its research was promising, or because it knew the right people.”

(The Times also carried a short news piece late Friday dealing with the Trounson affair. The article by Amina Khan said the agency is continuing in "damage-control mode." It recounted Mills pledge not to accept employment with a CIRM grant recipient until one year after he leaves the agency. The story also referenced the Hiltzik column.)

(Editor's note: The above parenthetical material was not contained  in the original version of this item. An earlier version this item also incorrectly said the Hiltzik column was expected to be published in print on July 27.)

Law Firm Memo on Trounson Investigation

Here is the memo provided by Remcho, Johansen & Purcell concerning its limited investigation of Alan Trounson and his contact during May and June with StemCells, Inc. It contains additional details and the names of persons interviewed.

 Here is one paragraph that deals with what CIRM might have done had they known Trounson was in contact with the firm concerning employment. The full text follows.

“Dr. Trounson contacted Martin McGlynn, SCI’s President and Chief Executive Officer, on May 1, 2014 to set up a meeting to discuss his future plans. Based on a calendar entry, it appears that Dr. Trounson and Mr. McGlynn met on June 4, 2014. On June 9, 2014, SCI offered Dr. Trounson a seat on SCI’s Board of Directors, subject to the Board’s approval. SCI made the appointment on July 7, 2014. Had SCI notified CIRM at the time of its offer to Dr. Trounson, CIRM would have taken steps to wall Dr. Trounson off from any involvement in decisions relating to SCI.”

  Remcho Memo on Trounson Investigation by DavidJensen

California Stem Cell Agency Director Prieto Defends Agency in Trounson Affair

One of the long-standing directors of the $3 billion California stem cell agency has taken issue with an item earlier today headlined “Fallout From the Trounson Affair: A Taint on the California Stem Cell Agency.”

In an email, Francisco Prieto, a Sacramento physician, said, among other things, that it is “grossly unfair” to say that none of the media coverage and other reaction in the matter reflects well the agency. Prieto, who has served as a CIRM director since 2004, said “the agency had nothing to do with it.”

The item this morning discussed reaction to the news earlier this month that the agency’s former president, Alan Trounson, was appointed to the board of StemCells, Inc., which is the recipient of $19.4 million in funding from the stem cell agency. Concerned about a conflict of interest, the agency has announced a “full review” of all StemCells, Inc., activities. Trounson was appointed seven days after he left the agency.

The item also contained a comment from scientist Jeanne Loring of Scripps that said that the Trounson Affair detracts from the value of CIRM’s good work.

Here is the text of Prieto’s comment, the essence of which is certain to be shared by many CIRM board members,

“I think Jeanne Loring is right: CIRM has been a remarkable driver of this research, and it would be a shame if the actions of Dr. Trounson and StemCells Inc. (What were they thinking?) obscures this.  I think it is grossly unfair to say that ‘none of this reflects well on the agency,’ when the agency had nothing to do with it.  Most of us on the board – and the staff, I think it’s safe to say – felt blindsided by this.  I was gratified to see Randy Mills’ prompt and appropriate response to this, and I expect we’ll hear more from him on the subject.  I think it’s a bit disingenuous of Michael Hiltzik (of the Los Angeles Times) to say that ‘so many members had to recuse themselves that only nine were left to vote,’ when the new voting procedures (that prohibited members from grant-receiving institutions from discussing or voting on those grants) were a direct response to the reform recommendations in the IOM report, and were lauded by most at the time. I don’t think that included Mr. Hiltzik, who I believe has never had anything good to say about the agency or its work. I’m curious whether that will change as stem cell treatments we’ve funded actually start moving into clinical trials, but I won’t hold my breath.”

The California Stem Cell Report has great respect for Prieto and the other 28 members of the agency’s board and its staff.

However, there is no escaping the impact of the news and the resultant commentary, which will be around virtually forever, embedded in every Internet search that is performed about the stem cell agency. Today, for example, a Google search on the term “California stem cell agency” turned up eight hits on the first page of search returns. Five dealt with the Trounson Affair.

Moreover, conflict of interest concerns were aired very early on in CIRM’s history, dating back to 2004, before the ballot proposal creating the agency was even approved by voters. Revolving door issues also came up years ago, including in 2007 when Richard Murphy, a former member of the board, was hired as interim president at a salary of $300,000 for six months work. The Little Hoover Commission mentioned the issue briefly in its 88-page report in 2009.

Additionally, given that financing of the agency was limited to 10 years, revolving door problems were always likely to surface. It was an issue that could have been dealt with by the board years ago, avoiding the situation with Trounson today. Revolving door restrictions could have and should have been part of his conditions of employment.

The IOM’s recommendations for dealing with conflict-of-interest problems at the agency were far-reaching. The steps taken by the agency do little to comply with the IOM recommendations.  The strange case of having only nine out of 29 members eligible to vote is not all that uncommon. Indeed, the agency has worked hard to keep its 12 patient advocate members in attendance at board meetings because sometimes they are the only ones who can vote without legal conflicts-of-interest.

The situation with Trounson is certainly unpleasant.  Whether board members think the reaction is unfair is not the main point. It is up to them to take action to respond to those public concerns and ensure that the agency’s integrity is reinforced and that its work is not impugned by conflicts of interest, real or perceived.

A Nearly $1 Million Award, the California Stem Cell Agency and the Revolving Door

Directors of the California stem cell agency tomorrow are scheduled to deal once again with a $900,424 proposed award to a Stanford researcher who recently hired a top staffer from the state research effort.

The award would go to Helen Blau, one of the leaders of Baxter Laboratory at Stanford. On Monday, Natalie DeWitt, who was special projects officer for former CIRM President Alan Trounson, went to work for Baxter as director of research development.

The award first came up at the directors' meeting May 29. It was recommended for board approval by Trounson and unidentified CIRM staff.

During that meeting, CIRM Director Jeff Sheehy, who is also a member of the grant review group, said that a copy of the application and the scientific critique was not provided to him at the March 24 review session. The application was submitted by Blau in January.

Sheehy and another director said the review was flawed. Sheehy noted that the Blau proposal was not approved for funding by the agency's out-of-state scientific reviewers. He said that during the closed-door review session several negative comments were made about the proposal during oral discussion. The application received a scientific score of 73, two points below the cut-off for funding. CIRM staff said, however, the proposal had merit and should be funded.

Director Sherry Lansing said it was important for the board to be open and transparent and suggested that the application be sent back to the full review group for further consideration. The 29-member board did so on a 9-0 vote. Members not voting either had conflicts of interest or were not present.

At the time of the meeting, DeWitt's then future employment by Baxter was not widely known and was not mentioned during the discussion.

Asked for comment today by the California Stem Cell Report, DeWitt said in a telephone interview that she was not involved in any way with the application. She also said she has not been involved with any of Blau's applications to CIRM or those from Garry Nolan or Peter Jackson, the other two leaders of the Baxter lab. Blau has been awarded $2.8 million by CIRM and Nolan $1.3 million. He is also a leader on a $20 million CIRM grant.

In response to questions, CIRM spokesman Kevin McCormack today said in an email that DeWitt was not involved with the $900,424 application by Blau. He said DeWitt served notice May 19. DeWitt said that sometime in late April or May that she “let a few key people (at the agency) know” that she was looking for work elsewhere and “spoke with the (CIRM) lawyers.”

DeWitt said her work at CIRM involved the $70 million Alpha Clinic proposal and the $40 million stem cell genomics award that went to a Stanford-led consortium. She said Baxter's Peter Jackson, who has some expertise in human genetic disease, is not involved in the genomics proposal. The CIRM contract on the award is yet to be signed.

DeWitt was mentioned yesterday in an article on the California Stem Cell Report dealing with “revolving door” issues involving government employees who go to work for enterprises that are linked to their former agency. The issues are likely to become of more concern to the stem cell agency in the next couple of years. The agency is scheduled to run out of money for new grants in 2017, and some employees are likely to be looking for work in the stem cell field in California, which only involves a small number of private and public enterprises.

CIRM employees are briefed on conflict-of-interest and revolving door issues, according to the agency. Its employee handbook also contains information on the subject along with a link to a state Fair Political Practices Commission document further explaining revolving door rules.

It says state officials are barred from taking part in decisions that directly relate to a prospective employer. The document says,

“The ban of influencing prospective employment prohibits any public official from making, participating in making, or influencing a governmental decision that directly relates to a prospective employer while negotiating or after reaching an employment arrangement.”

It continues,

 “The ban on influencing prospective employment is triggered by negotiating or having an arrangement regarding prospective employment. While submitting a résumé or an application to a prospective employer does not trigger the ban, the following contacts will trigger the ban:

• “An interview with an employer or his or her agent.

• “Discussing an offer of employment with an employer or his or her agent.

• “Accepting an offer of employment

In response to a question, McCormack said,

“Very few people, Natalie included, tell their employer that they are looking for work so I have no idea when she started looking.”

McCormack did not respond to a request for the names of the CIRM staff involved in making the recommendation to approve the $900,424 Blau award.

At tomorrow's teleconference meeting, the CIRM board is scheduled to act on a proposal to have the Blau application re-examined by a subset of the grant review group -- not the full group. Interested parties can either take part in the meeting or listen in from a number of sites in Northern and Southern California and elsewhere. Specific locations can be found on the agenda. 

Stem Cells and Revolving Doors: The California Experience

The phrase “revolving door” is not one that rolls off the tongues of most Americans. But it is shorthand for an issue that concerns both Elon Musk of Tesla and SpaceX fame as well as taxi drivers in New York City.

It is also a matter of importance to the $3 billion California Institute for Regenerative Medicine (CIRM) and other state agencies.

Natalie DeWitt
CIRM photo

The issue surfaced this week with the departure of a high level staffer at the San Francisco-based agency -- Natalie DeWitt, special projects officer for its former president, Alan Trounson. DeWitt's final day at the agency was last Friday. She began her new job on Monday at Baxter Laboratory at Stanford University.

Garry Nolan, Helen Blau, Peter Jackson
Baxter Laboratory photo

Baxter is run by Stanford scientists Helen Blau, Garry Nolan and Peter Jackson. Blau has received $2.8 million from the stem cell agency. Nolan has received $1.3 million. He is also a leader (co-PI) on a $20 million award in the agency's signature disease team effort.

No one is alleging that DeWitt or others have done anything wrong. She has a fulsome resume and a record of accomplishment.

Her departure from CIRM and employment at Baxter, nonetheless, does bring to the fore revolving door employment issues that now are a matter of greater concern for the agency than they were five years ago. The agency is scheduled to run out of funds for new awards in less than three years. Some of its employees are undoubtedly going to be looking for future employment in California's small, stem cell research community. It would be natural for agency employees to want to capitalize on their unique experience at CIRM. That is what gaining professional experience is all about.

But there are legal and ethical constraints. To prevent improper influence on governmental actions, the state of California has laws dealing with revolving door employment. Briefly summarized, state law says that certain former state employees and consultants can be banned from attempting to influence their former agency, either for one year or permanently. Current state officials also can be barred from taking part in decisions that directly relate to a prospective employer.

The California Stem Cell Report this week queried CIRM about its revolving door policies. Kevin McCormack, senior director of public communications, replied,

“These are issues that we are encouraged to be mindful of from the day we are hired to the day we leave. Once we accept the job we are given an 'employee handbook' (see below) which includes information about the state policy on what is appropriate behavior. As state employees, we have to periodically go through ethics training, and this covers what is and is not acceptable behavior in these instances. We are also encouraged to consult our in-house lawyers for guidance or to get advice from the state ethics agency on how the rules might apply to a particular situation.”

Revolving door problems are not new to either state or national government. They have long dogged such agencies as the Department of Defense. That's what Musk complained about via Twitter in a matter involving his space exploration firm, SpaceX. According to Bloomberg News, Musk tweeted last month about how competitors of his space company hired an Air Force official allegedly as part of a move to secure a chunk of a $68 billion Pentagon satellite project. And in New York City, questions also rose last month concerning the employment of a former top city taxi regulator by the noted ride-sharing company Uber, a competitor in the city's big taxi business.

DeWitt, who was paid $199,000 in 2013, worked for the stem cell agency from September 2011 until this month.  She played a key role in the $70 million Alpha Clinic proposal championed by Trounson. She was also deeply involved in the $40 million stem cell genomics award that went to a Stanford consortium last January following a controversial review process. She and Trounson co-authored an article in Nature Biotechnology promoting the genomics plan.

DeWitt, who has a Ph.D. in cell and molecular biology from the University of Wisconsin, was a senior editor at Nature from 2001 to 2010. Seven months after joining CIRM, she co-founded a firm called AccendoEditing. According to her Linked In profile, the firm works with clients to “to present scientific manuscripts and grants in a clear and engaging fashion.” It also “provides insights into the review process.”

DeWitt was one of the organizers of a conference last September at the University of Oxford dealing with cancer and stem cells. Her new bosses, Blau and Nolan, were scheduled speakers along with Stanford's noted stem cell scientist Irv Weissman.

At the Baxter Laboratory, DeWitt is its director of research development. Asked last Friday about leaving CIRM, she replied via email,

“The reason I'm moving on is simply that what I consider a fantastic opportunity presented itself to me.”

She has not responded to a query Monday about her views on the subject of revolving door issues.

  California Stem Cell Agency on Revolving Door Issues