A USC Researcher's Perspective on the Grant Round Involving StemCells, Inc.

A USC scientist late today sent an email that dealt with the 2012 decisions that resulted in the award of $19.3 million to StemCells, Inc., by the California stem cell agency. The award was made on a close vote (7-5) despite being rejected twice by the agency’s reviewers.

It was the first time that the agency’s 29-member board had approved an application that was turned down twice by its respected reviewers. 

The circumstances surrounding the award were unusual in other respects, and we are providing links to stories carried by the California Stem Cell Report at the time to provide additional context. The links are at end of the scientist’s email.

The author of the note is Lon S. Schneider, a professor of psychiatry, neurology and gerontology at the Keck School of Medicine at USC.  He was co-PI on an application in the same round as the StemCells, Inc., proposal. His application was rejected by the CIRM board despite having a higher score than the StemCells, Inc., application. 

Then-CIRM President Alan Trounson recused himself from the public discussion of the proposal by StemCells, Inc., because of his relationship with Stanford researcher Irv Weissman, who sits on the company’s board.  This month, Trounson was named to the StemCells, Inc., board seven days after leaving the stem cell agency, triggering a flap over conflicts of interest.

Here is Schneider’s note:

“In view of the CIRM’s comment today that they commissioned their own lawyers to investigate and find no conflicts, I thought that I’d share some thoughts with your readers based on my experiences with CIRM.  An investigation of CIRM’s actions during the last month or so would – almost by definition – not reveal a serious conflict because the alleged conflicting behavior would have occurred at the time that the StemCells, Inc. contracts were awarded, if it happened at all.  Bending milestones after a contract is awarded and when one’s foot is out the door is of little concern and can be corrected.

“My interest in Mr. Trounson’s alleged actions is that my colleague and I submitted an Alzheimer's disease grant that was scored higher than StemCells’ Alzheimer’s grant in the same funding cycle. Yet, StemCells’ appeal was funded, while our appeal was not even accepted as an appeal application.  Our recourse was to protest during the public comments part of the CIRM board meeting at which StemCells’ was awarded their contract.  In my opinion, Mr. Trounson and the CIRM staff were clearly antagonistic to us and strongly supportive of StemCells.  Board members were not aware of our appeal.  Indeed, the Alzheimer’s disease advocate on the CIRM board, Leeza Gibbons, who was well-rehearsed in her advocacy for StemCells, Inc, had to be informed during a break on what our grant was about so that she could support it as well.

“StemCell’s sinecure for Mr. Trounson reinforces my opinion that the StemCell/CIRM arrangement was – let’s say -- interesting.  No doubt, others will disagree and point out why our proposal – although rated higher than StemCells – was deficient and should not have been funded while StemCells’ should have been and was.  They, of course, may have a point, and I will continue to believe that the StemCell contract was awarded in no other way than with probity. I thought I would nevertheless share these observations.”

Here are links and excerpts from the 2012 articles.

StemCells, Inc., Wins Another $20 Million From California Stem Cell Agency

Following a second impassioned pitch by its former chairman, Robert Klein, the governing board of the California stem cell agency approved a $20 million award to a financially strapped biotech firm, StemCells, Inc., of Newark, Ca.

An Unseemly Performance: Former Chair of Stem Cell Agency Promotes $20 Million Research Proposal

Bob Klein is nearly an icon in the history of the $3 billion California stem cell agency. And when he appeared before its governing board last month and aggressively touted a $20 million grant proposal already rejected by agency reviewers, his actions raised eyebrows.

Arm-twisting and Emotion: Stem Cell Directors Move to Reform Appeals on Multimillon Dollar Grants

Frustrated with politicking, “arm-twisting,” lobbying and “emotionally charged presentations,” the governing board of the $3 billion California stem cell agency today approved short-term changes in its grant appeal process and ordered up a study to prepare long-term reforms.

California Stem Cell Firsts: From Emotional Appeals to $40 Million Awards

During the last few months, the $3 billion California stem cell agency, which is approaching its eight-year anniversary, has chalked up a number of important firsts.

Limited Trounson Investigation Shows No Evidence of Illegal Conflicts

The California stem cell agency said today that its "severely" limited investigation found no evidence that its former president, Alan Trounson, attempted to influence action on behalf of StemCells, Inc., during June of this year.

Randy Mills, the new president of the agency, said the inquiry involved examination of documents, emails and interviews with staffers of the California Institute of Regenerative Medicine(CIRM), as the agency is formally known. But he noted that the investigation was "severely" constrained because it involved only internal CIRM activities and interviews with Trounson. The agency does not have subpoena power or the ability to scrutinize StemCells, Inc.'s internal records.

Mills said that the inquiry covered a period beginning June 9 when Trounson was offered a position on board of StemCells, Inc., a publicly traded firm based in Newark, Ca. The firm has received $19.4 million from CIRM. Trounson's appointment was announced seven days after he left the agency on June 30. The agency was not notified in advance about Trounson's appointment. Directors of StemCells, Inc., were paid up to $99,000 during 2013.

The investigation also disclosed, Mills said, that StemCells, Inc., in June requested and received special funding and other financial benefits from the agency despite its failure to meet the milestones specified under its contract with CIRM.

Mills said a full report on the investigation would be made available to the public. The inquiry was conducted by an attorney, Margaret Prinzing, with the law firm that is the long-time general counsel to the board, Remcho, Johansen&Purcell of San Leandro, Ca.

A number of board members expressed concern about the negative publicity that resulted from the Trounson appointment. Chairman Jonathan Thomas said the probity of the agency was of "paramount importance."

CIRM Director Michael Friedman, CEO of the City of Hope, said that the situation could have been managed better if Trounson and the company had disclosed to the agency the possible hiring at the time it was first discussed.

Another director Jeff Sheehy, a communications manager with UC San Francisco, admonished recipients of CIRM awards to exercise some discretion in connection with conflicts of interest and to respect the people of California.

Mills said that as a result of the inquiry he was going to go beyond state law dealing with conflicts and revolving door employment. He said he would not accepts gifts or travel from enterprises with financial connections to CIRM even when permitted by state law. Mills also pledged not to accept employment with a CIRM award recipient until at least one year after leaving CIRM, another standard that exceeds state law.

Following today's meeting, the agency issued a press release about Mills' decision. The release did not mention the investigation into the Trounson Affair.

Mills said the standards applied only to himself. He said he did not want to block possible employment of CIRM staffers by CIRM grant recipients in the future.

It was not known when the Trounson investigation report would be available. Here are the slides that Mills used for a variety of purposes at today's meeting. His summary of the investigation is contained within the slides, beginning on slide 6. His signed pledge regarding conflicts is also contained in the slides.

   California Stem Cell Agency Slides on Trounson Investigation FINAL by DavidJensen

Fallout From the Trounson Affair: A Taint on the California Stem Cell Agency

Directors of the $3 billion California stem cell agency meet tomorrow in the San Francisco Bay Area, but the hottest topic is not on the agenda, and that is the Trounson Affair.

Alan Trounson
SF Business Times photo

The term is shorthand for the host of questions raised by the appointment July 7 of Alan Trounson, former president of the agency, to the board of StemCells, Inc. The company is the recipient of $19.4 million from the agency, cash that was awarded under unusual circumstances on a narrow 7-5 vote.(See here and here.)

Two days after Trounson’s appointment, the agency’s new president, Randy Mills, announced a “full review” of the activities involving StemCells, Inc., a publicly traded firm based in Newark, Ca.

News and commentary about the matter has slowly emerged since the appointment. None of it reflects well on the agency, which is trying to devise some way to secure public or private funding beyond 2017 when the cash for new awards runs out.

The most visible article appeared in the Sunday Los Angeles Times, which has a readership of 4 million in print and online. Michael Hiltzik wrote that cronyism is rife at the California Institute for Regenerative Medicine(CIRM), as the agency is formally known.  He said,

“How bad are the conflicts? When the (29-member) board considered a proposal earlier this year to spend $16 million to attract three star scientists to California, so many members had to recuse themselves that only nine were left to vote. (Six ended up voting in favor.)

“When conflicts of interest are so rife that only one-third of your board can weigh in on a major policy issue, that's tantamount to not having any board at all.”

The tone was echoed in other pieces, including one in the San Francisco Business Times, where the headline said,

 “'Trounson affair' another strike against California stem cell agency.”

Other articles appeared in the San Diego U-T and the San Francisco Chronicle. The Orange County Register published an editorial that said the agency has “operated as a cash cow for a tiny circle of well-connected individuals and institutions.”

The Trounson appointment “reignites charges of cronyism,” said a headline on allgov.com. Pete Shanks of the Biopolitical Times wrote, 

"Let's be blunt: This looks like a pay-off. Technically, what Trounson and (Irv) Weissman (of Stanford) and StemCells, Inc., just did may not be illegal. But it's shameless.”

The Scientist magazine wrapped the Trounson appointment into a piece that included news about a lawsuit against StemCells, Inc., that charged the company was endangering patients in clinical trials. 

The talk ricocheted around California’s stem cell community. One longtime reader of the California Stem Cell Report, who is a patient advocate, said in an email that Trounson’s conflicts of interest are “now even more transparent and make the previous grant decisions even more suspect.” “Self-dealing” is how this supporter of stem cell research described the situation.

Another reader and knowledgeable observer, who also must remain anonymous, described the Trounson appointment as “brazen.” And yet another who is quite familiar with the agency said,

“No one seems to understand what conflict of interest means.  I don't understand how they can even think that it is OK to do this.”

We should note that these remarks come from persons who back stem cell research and the agency.

In some ways, however, public attention to the matter could be described as minimal. The stem cell agency is little known to most people, and the Trounson Affair did not garner front page headlines. But like some sort of immortal cell, the stories will live on. Twenty years ago, the individual stories would have faded, buried in the morgues of the mainstream media. However, today, given Google searches, they will become embedded in all future reporting about the agency – not to mention knife-edged opposition research should another bond measure be placed before voters to fund the agency.

The Trounson Affair also highlights the need for the agency to stiffen its revolving door restrictions – the regulations that would have prevented his immediate appointment to a post at an enterprise that has benefited from the agency’s largess. It is a problem that will grow as the agency nears its financial demise. CIRM staffers will naturally be looking for places where they can find future employment.

The state has some minimal laws restricting future employment by agency personnel. But the agency needs to do more, a difficult task given that such action basically will change the terms of employment for staffers. But failure to confront the issue will only lead to more debacles.

CIRM’s “full review” of the situation is well-taken. However, the agency has not publicly defined even generally what a full review entails nor has it responded to questions from the California Stem Cell Report about the nature of the inquiry. The agency also has not indicated whether it is seeking an outside, independent entity to conduct the review. One possibility would be State Controller John Chiang, who is the chairman of the only state body (the Citizens Finanancial Accountability and Oversight Committee) charged with oversight of the agency. Another would be the state’s Fair Political Practices Commission, the state department charged with enforcing conflict of interest laws.

One California researcher and CIRM grant recipient has noted that the flap obscures the work that the stem cell agency has done. In a comment filed on an item on the California Stem Cell Report, Jeanne Loring, director of the Center for Regenerative Medicine at The Scripps Research Institute, said that despite “the errors in judgment” at the agency, 

“CIRM is at the heart a remarkably effective driver of cutting edge research. By focusing on a narrow area of research and encouraging international collaboration, CIRM has singlehandedly pushed the whole world's stem cell research forward. If CIRM were a drug company, it would be considered miraculous that so many promising treatments are in the pipeline just eight years after it started."

Loring makes a good point. And it would be a shame if the good work of CIRM is discredited because of a failure to deal forthrightly, quickly and publicly with conflict of interest issues at the agency. 

Los Angeles Times: California Stem Cell Agency Rife with Conflicts and Unrealistic Expectations

The Los Angeles Times, California’s largest circulation newspaper, is carrying a piece this weekend about “cronyism,” conflicts of interest and “inflated expectations” at the state’s $3 billion stem cell agency.

The column by Pulitzer Prize-winning writer and author Michael Hiltzik used this month’s Trounson Affair as a starting point to dissect the situation at the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

Trounson was appointed to the board of StemCells, Inc., of Newark, Ca., on July 7, just seven days after leaving the agency. StemCells, Inc., holds a $19.4 million award from the agency.  CIRM has ordered a full review of the situation and barred its staff from communicating about StemCells, Inc., matters with Trounson. 

But even before Trounson’s appointment, there were issues involving StemCells, Inc.(See here and here.)  Hiltzik said,

 “The relationship already reeked of cronyism.”

Hiltzik wrote,

“Trounson's move comes as CIRM must begin looking to the future, but any discussions about extending the agency's life span will have to address the flaws created by Proposition 71 (the ballot initiative that created the agency in 2004). Among them is the program's very structure, and even its scientific goals.”

Hiltzik continued,

“How bad are the conflicts? When the board considered a proposal earlier this year to spend $16 million to attract three star scientists to California, so many members had to recuse themselves that only nine were left to vote. (Six ended up voting in favor.)

“When conflicts of interest are so rife that only one-third of your board can weigh in on a major policy issue, that's tantamount to not having any board at all.”

Some of the issues at the agency have to do with the ballot campaign that created it in 2004, an election in which California voters were led to believe that miraculous stem cell therapies were imminent.

Hiltzik wrote,

“Programs like CIRM are always susceptible to inflated expectations.

"”Since Big Science needs great public support it thrives on publicity,’ the physicist Alvin Weinberg, a veteran of the Manhattan Project, wrote in a famous 1961 article in "Science" about the drawbacks of big-money scientific research. He added: ‘The inevitable result is the injection of a journalistic flavor into Big Science which is fundamentally in conflict with the scientific method.... The spectacular rather than the perceptive becomes the scientific standard.’"

Hiltzik acknowledged the contributions that CIRM has made to stem cell science.

“CIRM-funded labs have produced genuine achievements. But the agency tends to delineate its progress in buildings built, papers published, and big-name scientists lured to California. But the specific cures promised by the Proposition 71 campaign haven't materialized, which doesn't surprise anyone steeped in the realities of the scientific method.”

Hiltzik concluded,

“Even if one believes the need for California to devote $3 billion to a narrow, extremely speculative field of science, the Trounson case and other CIRM administrative missteps have made clear that Proposition 71 created the wrong framework to manage a complex research effort. The initiative left the public with no way to tell if its money has been well spent, and no accountability if it hasn't.

“Moreover, the program deprived potentially more promising research efforts of resources and contributed to the general impoverishment of California's entire higher-education system. If its sponsors have the audacity to ask taxpayers for even more money under the same terms as Proposition 71, the reply should be a resounding ‘no.’ If the voters are gullible enough to repeat the same mistake they made in 2004, there's no cure for them.”

The Hiltzik column appeared online last night. It is scheduled to appear in the Sunday print edition of the Times, which says it has a combined print and online reach of 4 million readers. 

California Stem Cell Agency to Alter $70 Million Alpha Clinic Proposal

The California stem cell agency is moving to revise a significant component of its $70 million plan to create one-stop Alpha clinics aimed at establishing the Golden State as the leading location worldwide for stem cell therapies.

Details of the changes that will be considered at the July 24 meeting of the agency’s board are not yet available. However, they deal with creation of a $15 million data and information management center that would be involved in clinical trial support, outreach and education and “development of healthcare economic resources.” The last area would involve efforts to convince insurance companies and the government to pay for what are likely to be very expensive treatments. 

The Alpha clinic applications were scheduled to be reviewed last month behind closed doors by the agency’s out-of-state reviewers. However, the June review was postponed shortly after Randy Mills became the new president of the agency. The agency said it was having difficulty getting qualified reviewers.  The review is now set for mid-September.

The Alpha clinic proposal has been championed for several years by the agency’s former president, Alan Trounson, who is now involved in a conflict-of-interest flap. Last week, he was appointed to the board of StemCells, Inc., of Newark, Ca., which is the recipient of a $19.4 million award from CIRM. The agency has launched a review of all activities involving the publicly traded firm and banned CIRM employees from speaking to Trounson about StemCells, Inc., matters.  

Mills began his presidential duties May 15 at which time Trounson was designated as a senior scientific advisor. Early in May, Kevin McCormack, CIRM spokesman, said that Trounson would remain with the agency until June 30. McCormack said that Trounson would  “help shepherd through a number of projects and commitments he has made,” which some assumed included the review of the Alpha applications in June.

McCormack did not response to a question on June 6 about whether Trounson would be participating in the review.

Eight, unidentified major institutions are competing for the Alpha clinic awards. Five are specifically shooting for the information management center.  StemCells, Inc., is not expected to be involved because of the terms of the RFA, but Stanford University is quite likely to be among the applicants.

Stanford scientist Irv Weissman, founder of StemCells, Inc., and currently a member of its board and chairman of its scientific advisory board, is head of the Palo Alto school’s Institute of Stem Cell Biology and Regenerative Medicine.

The CIRM board meeting will be held in Millbrae but two teleconference locations, where the public can participate, will be available in Los Angeles  and one in La Jolla. Specific locations can be found on the agenda.

San Francisco Business Times: California's Trounson Affair Damages Likelihood of Future Stem Cell Funding

The San Francisco Business Times yesterday said the Trounson Affair is the “latest embarrassment” for the $3 billion California stem cell agency and threatens its attempts at securing additional funding.

In an opinion piece, reporter Ron Leuty wrote,

“California's stem cell research funding agency needs a home run to score more public funding. Instead, a conflict-of-interest problem is giving it the wrong kind of attention.”

Leuty was referring to the appointment of Alan Trounson, the former president of the agency, to the board of StemCells, Inc., of Newark, Ca., which holds a $19.4 million award from the California Institute for Regenerative Medicine (CIRM), as the agency is formally known. The appointment came just seven days after Trounson left the agency.

Randy Mills, the new president of the agency, has ordered a full review of agency activities involving the publicly traded StemCells, Inc. Agency employees have been barred from discussing StemCells, Inc., matters with Trounson.

Trounson and the company gave no notice to the agency about the pending appointment. Leuty wrote, 

“He apparently never discussed the move, CIRM spokesman Kevin McCormack said, even as an agency attorney briefed him before his departure on what he could and could not do after leaving CIRM.”

Leuty continued,

“CIRM spokesman McCormack said Trounson's decision ‘had nothing to do with us. The conflict wasn't started by us.’ 

“That may indeed be the case, but religious and financial opponents of CIRM won't let voters see it that way. Despite the progress of various research programs but CIRM grant winners, that combination may force the Democratic Party and Gov. Jerry Brown not to support a 2016 ballot measure to re-fund the agency. 

“The Trounson Affair is yet another strike that deepens a perception problem that threatens to distract voters from the win CIRM desperately needs.”

The Business Times story comes as StemCells, Inc., this morning announced it planned to raise $20 million by selling more than 11 million shares to two "well-recognized biotechnology investors." The company's stock price dropped nearly 8 percent in trading this morning and stood at $1.86 at about 7:30 a.m. Pacific Daylight Time. The share price was at $2.31 last Monday when Trounson's appointment was announced.

The Trounson Affair and its Financial Fallout

 StemCells, Inc., the California business founded by Stanford scientist Irv Weismann, seems almost certainly to have done a serious financial disservice to itself and its shareholders.

Alan Trounson
San Francisco Business Times photo

One week ago today, the publicly traded Newark, Ca., firm cast a dark shadow over its dealings with a $19-million benefactor, the California stem cell agency. The issue arose when the company appointed the former president of the research effort, Alan Trounson, to its board of directors, only seven days after the Trounson left the agency's employment.

Trounson earned $490,008 annually at the agency. Last year, directors of StemCells, Inc., received up to $99,800 each for their part-time efforts.

The Trounson announcement caught the agency by surprise, as it pointedly noted last week in a statement. Randy Mills, the agency's new president, expressed concern about a possible conflict of interest and ordered a “full review” of activities involving StemCells, Inc. Staffers and board members were banned from communicating with Trounson regarding StemCells, Inc.

Like most small biotech firms, StemCells, Inc., is in perennial need of cash. The firm has no products that generate significant income. Rather, it is in an almost constant fund-raising mode, either by selling stock, borrowing or securing awards, such as the $19.4 million “forgivable loan” from the $3 billion stem cell agency, formally known as the California Institute for Regenerative Medicine(CIRM). The award is basically a grant because it does not have to be repaid unless a product derived from the research reaches certain income thresholds.

But now StemCells, Inc., has damaged its relationship, probably irreparably, with the agency. The firm's chances of securing additional funding have to be rated nearly non-existent.  Putting aside purely business issues for the moment, the primary question for the agency now is whether it can trust StemCells, Inc. The company could not bring itself to notify – in advance – an enterprise with which it has a $19-million relationship about an event of importance to that enterprise. CIRM is likely to be wondering whether StemCells, Inc., can now be trusted to be forthright about other matters, such as results of its research or difficult problems that it faces in reaching the benchmarks laid out in its agreement with the agency.

Even prior to the Trounson announcement, StemCells, Inc., had a checkered history with the agency. The $19.4 million award  for Alzheimer’s research was rejected twice by CIRM’s prestigious reviewers. The 29-member CIRM board approved it on only a 7-5 vote in 2012 after heavy lobbying by the agency’s first chairman, Robert Klein. It was the first case of such public lobbying by Klein after he left the board.

It was also the first time the board had approved an application rejected twice by its reviewers. Almost universally, the board goes along with negative recommendations from its reviewers, saying it does not have enough information to override their decisions.

Pulitzer Prize-winning business columnist Michael Hiltzik of the Los Angeles Times later said the award was “redolent of cronyism.”

Approval of the award came during a grant round in 2012 that also saw StemCells, Inc., receive  another big award from the CIRM board -- $20 million. But that research received a high score from reviewers and was recommended by them.  Both awards required equal matching funds from the StemCells, Inc. – a total of about $40 million from a business that at the time was burning through $5 million a quarter and had only $10.4 million in liquid assets.   The financial capabilities of the firm were not discussed in public by the CIRM board. 

After eight months of negotiations with CIRM, the firm decided to take only the money for the project twice rejected by reviewers,  CIRM had no choice about whether it could fund the higher rated project, which is now in a clinical trial. That development came as the agency was urgently pushing to participate in clinical trials that would fulfill the promises to voters who created the agency in 2004 and help boost its drive for financing beyond 2017, when money for new awards runs out.

Trounson recused himself from the 2012 public discussions of the StemCells, Inc., applications because of his relationship with Weissman, who is a member of the company's board and chairman of its scientific advisory panel. Last January, Trounson strongly backed a $40 million award to a Stanford-led consortium that also involved one of Weissman's top associates. 

Beyond CIRM, the Trounson affair will also raise questions for StemCells, Inc.,’s efforts at private financing. The firm will now have to answer difficult questions about the appointment as it seeks loans or stock sales. The appointment could also play a role in the possible sale of the firm’s research to a Big Pharma company. One of the hopes of small biotech companies is that they will be purchased by a larger enterprise that wants to acquire their research. That is a common way for early investors to reap their profits.  But those big companies do not want unnecessary baggage in the deal.

The stock price of StemCells, Inc., last Monday hit $2.31. It dropped to $2.05 by the end of the week. The price has ranged from $1.15 to $2.43 over the last 52 weeks.

The company lists five analysts that follow its activities. Last week one recommended a buy and the others rated the stock as“outperforming.” Two of the analysts’ companies have financial relations with StemCells, Inc. The others may as well but that could not be immediately determined.

On July 2, prior to the Trounson announcement, The Street.com, which is not listed by the company as an analyst, said,

“TheStreet Ratings team rates STEMCELLS INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate STEMCELLS INC (STEM) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally high debt management risk."

The California Stem Cell Report last Monday asked StemCells, Inc., and Trounson for comments on the controversy about his appointment. They will carried verbatim when they are received. 

California Stem Cell Conflict Case Covered by Los Angeles Times

The Los Angeles Times today published a brief story on the Trounson-StemCells, Inc., affair, declaring that the California stem cell agency was taking steps deal with a “risk of conflict of interest.”

Amina Khan wrote the piece, which included quotes from John M. Simpson of Consumer Watchdog of Santa Monica, Ca., who said,

“The thing smacks as if this is StemCells, Inc., giving a payback to (Alan) Trounson(former president of the agency) after the agency awarded $19 million to StemCells Inc. That’s just the way it looks. And I think they have to explain quite clearly why that is not the case.”

Trounson was appointed to the board of StemCells, Inc., of Newark, Ca., last Monday.  StemCells, Inc.’s directors received as much as $99,000 in 2013.

Khan carried little new on the situation, although the issue was undoubtedly new to virtually all of 1.4 million readers of the Times, the state’s largest circulation newspaper.

Biopolitical Times: Trounson-Weissman-StemCells, Inc., Affair is 'Shameful'

The headline on the Biopolitical Times story said it all: “Shameful Conflicts of Interest Involving California’s Stem Cell Agency.”

The piece by Pete Shanks of the Center for Genetics and Society in Berkeley, Ca., dealt with the former president of the agency, Alan Trounson, and StemCells, Inc., which holds a $19.4 million award from the agency, along with Irv Weissman, the Stanford researcher who founded the firm and who now sits on its board.

Trounson was named to the StemCells, Inc., board on Monday, seven days after he left the agency. Yesterday the agency, formally known as the California Institute for Regenerative Medicine(CIRM), launched a “full review” of all activities involving StemCells, Inc. The agency also banned its staff and board fromcommunicating with Trounson about matters involving the publicly traded firm.  

Shanks wrote,

“Let's be blunt: This looks like a pay-off. Technically, what Trounson and Weissman and StemCells, Inc., just did may not be illegal. But it's shameless.”

Shanks pointed out that the problems with conflicts of interest at the agency are nothing new. As far back as 2004, they were noted prior to passage of the measure that created the state research effort. Their importance was noted by major supporters of the measure, including Weissman.

Weissman was quoted in Nature in September 2004 as saying,

“We want to avoid even the appearance of a conflict.”

Shanks concluded,

“CIRM should take a long look at its practices and procedures, which have never served the agency well — and especially should consider its obligations to the public, who fund it. There can be practical difficulties in balancing expertise and objectivity; the best scientists in any field do tend to know each other well. All the more reason to be especially careful. This kind of obviously problematic conflict of interest can and should easily be avoided.”

California Stem Cell Agency Bans Some Communications with its Former President; Conflict of Interest Feared

The California stem cell agency today banned its employees and governing board from communicating with its former president, Alan Trounson, about matters involving StemCells, Inc., which holds a $19.4 million award from the state program.

Citing the need to protects its integrity and prevent conflicts of interest, the agency also ordered a full review of all agency activities linked to the publicly traded,  Newark, Ca., firm.

Today’s action followed Monday’s appointment of Trounson to StemCells, Inc.’s, board of directors. The announcement came only seven days after Trounson’s departure from the agency.  Members of the StemCells board received as much as $99,800 in total compensation in 2013.

Trounson’s relationship with StemCells, Inc., and its founder, Stanford researcher Irv Weissman, has come under sharp criticism. John Simpson of Consumer Watchdog of Santa Monica, Ca., a longtime observer of California stem cell affairs, said this week that Trounson’s appointment “calls into question not only his ethics, but unfortunately casts a shadow over CIRM and its award process as well.” 

Simpson said,

“Whether it’s true or not, this has every appearance of being a payback for the money CIRM paid out to Irv Weissman and Stanford University. StemCells Inc. and Stanford have received more than $300 million from CIRM — more than any other researchers.”

Weissman has received $34.7 million in grants from the stem cell agency, which is formally known as the California Institute of Regenerative Medicine (CIRM). Stanford has received $281 million.

In its announcement today, Randy Mills, the agency's new president, said,

“CIRM was created by the people of California to help accelerate stem cell treatments to patients with unmet medical needs.  Our responsibility is to them. So it is essential that we conduct these efforts with fairness and integrity. We take even the appearance of conflicts of interest very seriously.”

The agency also said that it was sending a letter to Trounson and StemCells, Inc.,  “reminding them of the legal limitations that apply to Dr. Trounson under state law.

“Although it is permissible for Dr. Trounson to accept employment with a CIRM-funded company, state law prohibits him from:

“1.  Communicating with Board members and CIRM employees on behalf of Stem Cells, Inc. for the purposes of influencing any administrative action, including the award or revocation of a grant or loan, involving Stem Cells, Inc. for one year following the termination of his employment with CIRM; and
“2. Assisting Stem Cells, Inc. in responding to a Request for Applications in which Dr. Trounson was involved as a CIRM employee or assisting Stem Cells Inc. with its existing loan.”

The agency said that it did not know that Trounson was going to be appointed to the StemCells board and only learned about it through the press release Monday morning.

The $19.4 million award to StemCells, Inc., occurred under unusual circumstances.  Robert Klein, the first chairman of CIRM, lobbied on behalf of the award, which was rejected twice by the agency’s respected reviewers.  Despite reviewer actions, the board approved the award on a 7-5 vote. (See here, here and here.)

Trounson’s relationship Weissman came under question also in the $40 million stem cell genomics award earlier this year. The No. 2 person in Weissman’s Stanford stem cell institute was involved in that award. However, the agency has not yet signed a final agreement involving that proposal.

The agency did not mention any awards beyond those involving StemCells, Inc., in its review.

The San Francisco Chronicle carried a story this afternoon on the agency's ban regarding Trounson.

Stephanie Lee wrote in the Chron,

“'It’s a pity that Trounson and StemCells Inc. simply don’t get it,' Simpson said. 'A full review of CIRM activities relating to StemCells Inc.,  as Mills pledged, is absolutely essential and the results must be made public as soon as available.'”

Bradley Fikes of the San Diego U-T quoted CIRM Chairman Jonathan Thomas as telling his board members,

"The announcement (by StemCells, Inc.)raises serious and obvious concerns on a number of fronts." 

Former CEO of California Stem Cell Agency Named to Board of Firm that Received $19 Million From the Agency

Alan Trounson, the former president of the $3 billion California stem cell agency, today was named to the board of a company that has received $19.4 million from the agency, raising fresh and serious questions about conflicts of interest at the state-funded research program.

Announcement of the appointment came only seven days after Trounson left state employment. Trounson has been dogged for some time with questions about his relationship to the company, StemCells, Inc., of Newark, Ca., and its co-founder, eminent Stanford researcher Irv Weissman, who sits on the company’s six-man board and is chairman of its scientific advisory board.

StemCells, Inc., announced Trounson’s appointment in a press release this morning. The publicly traded firm said it was “thrilled” to have Trounson on its board. The first sentence of its press release noted that he had served as head of “the largest scientific funding body for stem cell research in the world.”

Weissman is director of the Institute of Stem Cell Biology and Regenerative Medicine at Stanford. He has received $34.7 million from the agency. Stanford overall has received $281 million from the stem cell agency, formally known as the California Institute for Regenerative Medicine (CIRM). It is the No. 1 recipient of cash from the agency.

One California stem cell researcher, who asked to remain anonymous, said in an email,

“This looks like payback to Alan Trounson for all of the money that CIRM paid out to Irv Weissman (founder of StemCells, Inc.) and his friends at Stanford while Alan was president of CIRM.  Many people have pointed out that Alan seemed to be biased toward Stanford in his public and private comments. The facts bear that out: Stanford and StemCells, Inc., have had more than $300,000,000 of CIRM's $3 billion in funds awarded to them in grants.  Are they really more than twice as good as UCSF ($132,650,363), and three times better than USC ($104,858,348) and UC Irvine ($98,591,836)?”

As a member of the board of directors of StemCells, Inc., Trounson is expected to receive compensation including stock in the company. In 2013, members of the board received total compensation, including stock awards, ranging from $60,800 to $99,800, according to a Security and Exchange Commission filing.

StemCells, Inc., Weissman and the stem cell agency did not immediately respond to requests for comment. Trounson, who announced last fall he was leaving the agency to return to Australia, could not be reached. The California Stem Cell Report will carry the full text of their remarks when they are received.

Last year and earlier this year, conflict of interest questions concerning Trounson and Weissman came in a $40 million stem cell genomics award round that was won by a Stanford-led team last January. The round was marked by a conflict of interest connected to Trounson, CIRM grant reviewer Lee Hood of Seattle and Weissman. Hood and Weissman own a Montana ranch where Trounson has been a guest. Trounson recruited Hood to help review the stem cell genomics applications in 2013 in closed door meetings. Hood, however, failed to disclose his relationship with Weissman.  It only came to light after another reviewer pointed out the connections between the two men. The agency had failed to detect the conflict.

As the California Stem Cell Report has previously noted,,

“Prior to the genomics round Trounson had acknowledged he had a conflict-of-interest in connection with another Weissman-related proposal. In 2012 in a round not connected to genomics, Trounson, who has visited the Hood-Weissman ranch as Weissman's guest, recused himself from the board's public discussions of applications from StemCells, Inc., a company founded by Weissman.

“Under CIRM's procedures, Trounson does not vote on applications during the review process. But beginning last year the board gave him and his staff new authority to make recommendations on applications after they were acted on by reviewers.”

Trounson ultimately recommended board approval last January of the genomics application from Stanford after Weissman was removed from the proposal.

During last January’s meeting, Trounson touted the Stanford application and specifically mentioned Michael Clarke, who is the No. 2 person in Weissman’s stem cell institute at Stanford, and who was part of the Stanford application instead of Weissman.

According to the meeting transcript, Trounson said,

“I think he's (Clarke) an extraordinary good researcher, and I think the Stanford people are terrific at that.”

The agency said earlier this year it had begun an examination of the processes in the stem cell genomics round, which was criticized for irregularities,unfairness, score manipulation and Trounson’s role.   No results of that inquiry have been announced.

Since the agency's inception in 2004 questions have been raised about conflicts of interest at the agency, mainly due to the composition of its board. Roughly 90 percent of its grants have gone to institutions that have been linked to members of its board.  The Institute of Medicine, in a $700,000 study commissioned by the agency, said that the board members essentially make proposals to themselves about what should be funded. And in 2008 the journal Nature editorialized about "cronyism" at the agency.

California Stem Cell Agency Cites "Real Progress" on Calimmune's HIV Clinical Trial

The California stem cell agency this morning announced that one of its early stage clinical trials has produced “encouraging safety data” in its search for a therapy that could eradicate AIDS.

The agency said in a press release the trial will now move forward to its next stage which will focus on efficacy. The gene-based therapy, dubbed Cal-1, was developed by Calimmune of Tucson, Az.

Randy Mills, president of the stem cell agency, said,

“While still early in clinical development this announcement demonstrates real progress towards this mission. The accomplishments of Calimmune’s team is a great example of how CIRM partnerships are working to impact patient’s lives today.”

Louis Breton, CEO of Calimmune, said that the safety benchmark achievement “is an important step in bringing this potential one-time therapy to the patients, and takes us closer to our ultimate goal of eradicating AIDS." (Here is the company press release.)

Kevin McCormack, senior director for public communications for the agency, said in an agency blog item that the therapy “takes blood stem cells from people who are HIV-positive, genetically modifies them so they carry a gene that blocks the AIDS virus from infecting cells, and then re-introduces the modified cells to the patient. The hope is that those stem cells will then create a new blood system that is resistant to HIV.”

Calimmune has a powerful scientific pedigree. Nobel Laureate David Baltimore, one of the firm’s founders, is chairman of the Calimmune board. He also once served on the governing board of the stem cell agency, formally known as the California Institute for Regenerative Medicine (CIRM).

The Calimmune Web site says that the company was formed in 2007 around stem cell technology discovered in the labs of Baltimore, while he was at Caltech, and Irvin Chen at the UCLA AIDS Institute in early 2000.  Delaware state records show that the firm was incorporated in 2006.

Baltimore served on the CIRM board from 2004 until June 6, 2007. He resigned from the agency board about 18 months before the application process began for the grant round that ultimately funded Calimmune. 

In addition to Baltimore, another member of the the Calimmune board is Harry George, managing general partner of Solstice Capital, whose Tuscon’s office shares the same address as Calimmune.

The trial, which is taking place in San Francisco and Los Angeles, is partly funded by CIRM, which has awarded Calimmune $8.3 million. Originally, the Calimmune research was part of a $20 million disease team grant involving UCLA. That was split, however. CIRM now lists the original award as a closed, $9.9 million grant shared by Calimmune  and UCLA.

Calimmune and the stem cell agency discussed the therapy at today's session of BIO2014 in San Diego, which is attended by about 15,000 persons in the biotech industry.

Here is a copy of the Calimmune contract with the stem cell agency. 

   California Stem Cell Agency Contract with Calimmune

California Stem Cell Directors Okay Tight, $17 Million Budget

Directors of the California stem cell agency today approved a $17.3 million, hold-the-line budget for the fiscal year that begins July 1, cutting $573,000 from a spending plan that was proposed in early May.

The vote was 17-0 during a special teleconference meeting that also saw a proposed $900,424 grant sent back for a special examination by the agency's reviewers, said a CIRM spokesman via email.

Presentation slides prepared for the meeting indicated that the new president of the $3 billion agency, Randy Mills, is still evaluating the agency. The documents said,

“If significant changes to the structure are needed, a proposal to the board along with the associated budgetary implications will be made at that time.”

Directors were also told that without a $250,000, legally required performance audit this coming year, the operational budget would be $400,000 under the estimated current spending of $17.4 million.

The spending plan reflects initial parsimony on the part of Mills, who made a career in business prior to coming to the agency. The previous CIRM CEOs have all come from academia.

In other business, Kevin McCormack, senior director for public communications, said that the $900,424 proposed award to Helen Blau of Stanford was sent back for re-review by a subset of the agency's grant review group, also on a 17-0 vote. At the agency's board meeting May 29, some directors said the initial review was flawed and voted for a re-review by the full review group. However, re-reviews usually are undertaken by a smaller panel.

The action on Blau award came as one high-level CIRM staffer, Natalie DeWitt, began work this week at Blau's Stanford lab. Both DeWitt and the agency told the California Stem Cell Report that she had no role in the review of the Blau application.

Randy Mills: Stepping into a $3 Billion California Adventure

SAN FRANCISCO – A 42-year-old former business executive from Maryland is expected to slip his spanking new card key into a slot this morning outside of the third-floor offices here of the California stem cell agency.

It will open the door to a $3 billion adventure into scientific research, California politics and government and one of the riskier areas of the biotech industry – one that is also filled with visions of nearly miraculous cures and revolutionary changes in medicine.

Randy Mills
Osiris photo

C. Randal Mills, more commonly known as Randy, begins his first day on the job today as CEO of the state's nearly 10-year-old stem cell research effort, the California Institute for Regenerative Medicine (CIRM). It is an enterprise that has been praised for its contributions to science but now

faces financial extinction unless it develops new sources of funding. The borrowed money that finances the agency's new grants will run out in 2017, leaving CIRM with only the task of winding down existing research.

Mills, the former CEO of Osiris Therapeutics of Maryland, embodies changes already underway at the agency, which is pushing hard to commercialize stem cell research. With the arrival of Mills, the three top executives are all more tied to industry than academia. Ellen Feigal, the No. 2 person at the agency, was with Amgen prior to joining CIRM. Elona Baum, general counsel and vice president for development, was with Genentech.

Mills has given no public clue about whether he is planning major changes at the agency. In a very brief comment April 30, when he was named to the post, he said only that patients were his top priority. In announcing the appointment, CIRM Chairman Jonathan Thomas said Mills will take a “fresh look” at the agency and will “evaluate what we are doing right and what we can do better.”

It is clear that Mills, who has a Ph.D. in drug development from the University of Florida, will bring a definite business mindset to CIRM, which has been dominated by a culture closer to academia than industry. In 2009, he told PharmExec.com,

“When I came to Osiris in 2004, Osiris was what I called Osiris University. It was highly academic, brilliant people doing great science, but there was no commercial focus. That's changed nicely over the last four years....”

The previous two presidents of CIRM, Zach Hall and Alan Trounson, came from largely academic and non-business backgrounds. Mills' career has been spent in business, including an eight-year slog to drive the stem cell product Prochymal into the market. In 2012, Prochymal became the world's first government-approved stem cell drug approved for use on an off-the-shelf basis. That occurred in Canada. However, the drug is currently only available in the United States under special, limited access standards set by the FDA. Prochymal was sold last fall to Mesoblast of Australia in deal that could reach $100 million.

Mills, as might be expected, has remained mum on any personnel changes he may have in mind. He may have something to say about the five positions that were eliminated by Trounson in his proposed budget, which is due to be presented to the CIRM board May 29.

The elimination of the positions did not involve firing any employees. They involved jobs vacated by departures or ones that had not been filled. Nonetheless, the five slots represent nearly 10 percent of the existing 56 employees. Mills may want to have the ability to hire some additional staff on his own in an effort to implement matters he considers important. But any action he might take would be limited by the budget cap imposed by state law on CIRM.

Decisions are likely to come faster under Mills. Trounson was almost fabled for his globe-trotting absences which tended to delay things at CIRM. Under his tenure, CIRM had a host of lingering management problems that were cited in a 2012 performance audit that was required by state law. The agency says it is addressing those deficiencies. Along with faster decisions may come a turn away from consensus-driven action, a slow and cumbersome process that many business executives avoid, believing it is impossible to make everyone happy.

Some of the decisions for Mills could involve as much as $400 million. CIRM has only about $600 million in uncommitted funds. However, that figure does not include board-approved conceptual plans for handing out the $400 million. No RFAs have yet been posted for those rounds. If Mills is looking for new directions or would like to pour more money into an existing effort, such as those aimed at later stage clinical trials with businesses, he could either slow the release of specific RFAs or go back to the board to ask it to reconsider the efforts.

The 29-member board is unlikely to turn down requests from their new CEO. Rejection of a Mills' proposal would be interpreted as a sign of a lack of confidence in him.

At least initially, Mills is also likely to have a smooth road in connection with the controversial and much criticized dual executive arrangement at the agency. Under Proposition 71, which created the $3 billion agency in 2004, the chairman and the president have overlapping responsibilities. That has led to public tensions in the past, particularly with the first agency chairman, Robert Klein. However, under Trounson, public airing of those problems has subsided. Plus current chairman Thomas has a much different management style than Klein.

Thomas has main responsibility for finding new sources of funding for the agency and is talking about some sort of private-public partnership. Mills' role in the fund-raising is not publicly well defined. But Thomas has praised Mills' ability in raising $160 million for Osiris. Thomas may want to harness Mills' presentation and persuasion talents.

As CEO of CIRM, Mills will be the person responsible for generating the type of research results that will resonate with potential private investors as well as the public. One advantage he has is that the agency is little known to the vast majority of the California population. In such situations, public opinion is more easily shaped.

Nonetheless, the San Francisco Chronicle recently took the occasion of Mills appointment to say that CIRM has not lived up to its hype. The newspaper's editorial said the agency should not expect more public funding.

The biotech industry is likely to be pleased with the appointment of one of their fellows as president of CIRM. The industry has been critical of the agency in the past, although it is currently dancing closer to business. The key issue has been the meager amount of awards to industry. According to CIRM calculations, only about 7 percent of the $1.7 billion in awards has gone to business, up from about 4 percent calculated by the California Stem Cell Report a few years ago. More cash has trickled down via subcontractors hired by grant recipients.

The increasing coziness with industry is necessary to develop an actual FDA-certified product that can be used to treat patients. But ties to industry also raise conflict-of-interest issues. CIRM has been dogged by conflict questions since its inception because of the nature of its board, which was dictated by Proposition 71. Roughly 90 percent of dollar value of the awards has gone to institutions with links to past and present members of CIRM's governing board, according to calculations by the California Stem Cell Report. (See here and here.)

In 2010 in the New England Journal of Medicine, Bernie Lo of UC San Francisco, chairman of the CIRM Standards Group and who also led an Institute of Medicine(IOM) study on conflicts of interest, warned that "irreconcilable differences" exist involving medical research and the private sector because of sharply divergent priorities.

The IOM study said,

"Despite their benefits, relationships with industry create conflicts of interest that can undermine the primary goals of medical research. Where there are conflicts, legitimate and serious concerns can be raised about the openness of research and potential bias in the design, conduct, and reporting of research "

Mills' left Osiris in December of last year for what were reported as “personal reasons.” At 42, he has a long career ahead of him. Carrying on well at CIRM, which is facing its financial demise, could be a springboard to a large leap forward for Mills in a few years into another position in the biotech industry, as well elsewhere.

New California Stem Cell CEO Begins Work May 15

C. Randal Mills, a man who has spent his entire professional life in the private sector, will take over on May 15 as the new president of the state of California's $3 billion stem cell agency.

Mills, 42, was named last week to succeed Alan Trounson, a longtime academic researcher who is leaving to return to his family in Australia. Mills, former CEO of Osiris Therapeutics of Maryland, is scheduled to begin half-time work in 10 days at the stem cell headquarters in San Francisco. At that point, Trounson will be designated as a senior scientific advisor to the agency. Mills' work will initially be half-time while he works out his move from Maryland.

The news from the agency, which is formally known as the California Institute for Regenerative Medicine (CIRM), came along with more details about Mills' employment agreement, including provisions that deal with outside activities that he might pursue.

Randy Mills (left) and Jonathan Thomas
CIRM photo

The information was contained in an “offer letter” from CIRM Chairman Jonathan Thomas to Mills, dated and signed by both men on April 28, two days before the agency governing board ratified its terms(see here and here). The letter was provided by the agency at the request of the California Stem Cell Report. The full text can be found at the end of this item.

As reported previously, Mills' annual salary will total $550,000, compared to the $490,008 earned by Trounson. Mills' total compensation at Osiris was $554,750 in 2013, according to company filings with the federal government. He left Osiris in December 2013 for “personal reasons.”

The

offer letter provided for $95,000 in relocation and travel costs for house-hunting and moving. Mills is also entitled to reimbursement for meals and temporary housing for 60 days, contingent on approval by the state Personnel Administration Department. That would amount to $40 a day for meals and $178 a day for lodging. That could run up to $13,080 if the full 60 days are used.

Mills' agreement with CIRM allows him to use his “personal time and resources” to engage in outside activities that are compatible with his CIRM duties. Those outside activities include service on boards of for-profit companies, which can be lucrative, as well as service on non-profit boards. The agreement stipulates that such service be disclosed to the chairman of the board and that he confirm that the service is compatible with Mills' role as president.

Mills, who goes by the nickname Randy, is subject to the agency's conflict of interest policy which requires him to divest himself of any investments in companies that devote more than 5 percent of their research budget to stem cell research. In addition to the policy, Mills is required by state law to disclose his economic interests generally and is subject to the agency's “incompatible activities statement”(see below) and the “employee conflict of interest code.”

Mills will serve at the pleasure of the board. However, if the board fires him “without cause” within 36 months, he will be entitled to six months salary.. The agency's offer letter also said,

“You shall not be entitled to any payment if the (governing) board terminates you for cause, including knowing violation of state conflict of interest law and/or CIRM policy, willful or corrupt misconduct or a criminal conviction.”

The offer letter said the effective date of the appointment is June 2. However, Kevin McCormack, senior director of public communications, said last week that stipulation has been modified to reflect the May 15 start. McCormack said Trounson will serve as a scientific advisor to CIRM to June 30 “to help shepherd through a number of projects and commitments he has made.” Presumably that would include the closed-door review of applications in the $80 million Alpha stem cell clinic plan, which is scheduled to be acted on by the CIRM board later this year.

Here is the text of the April 28 offer letter and the agency's incompatible activities statement. 

Offer letter from California stem cell agency to Randy Mills

Incompatible Activities Statement California Stem Cell Agency

$40 Million Stem Cell Genomics Award: Details Still Being Worked Out

BURLINGAME, Ca. – The California stem cell agency and a Stanford-Salk consortium have yet to come to terms on a final agreement on a $40 million stem cell genomics award.

The governing board of the agency approved the proposal in late January during a process that was marked by controversy, including complaints about irregularities,unfairness, score manipulation and the role of its president, AlanTrounson.

All awards are subject to review by the agency's staff, which works out final details and assures that all terms are met.

Asked about the status of the award, Kevin McCormack, senior director of public communications for CIRM, said this morning that the agency was still talking with the consortium. He did not go into details about what issues are involved.