Future Financing Plan for California Stem Cell Agency Coming Up in December

The California stem cell agency today released the $150,000 contract and proposal from James Gollub Associates to create a “strategic road map” for the $3 billion state program, which is scheduled to run out of cash for new grants sometime in 2017.

The goal of the road map, according to the contract, is to develop a “preferred model for a public-private sponsored entity to fund the most desirable translational projects in the CIRM portfolio.” That would appear to rule out future funding for basic research and training, which the agency has supported well during its nine-year history.  It would also be an acknowledgement that the agency cannot count on $300 million a year for grants as it has in the past.

Under the terms of Prop. 71, which created the agency in 2004, the effort is currently financed by state bonds, money borrowed by the state of California that flows directly to the agency without oversight by the governor or legislature. Authority to issue the bonds expires in 2017.

The contract calls for an initial report from the Gollub by Nov. 30 with the agency to decide by March 1, 2014, on whether it wants an operations and business plan from the Tiburon, Ca., firm.  Presumably the agency’s governing board would hear recommendations from Gollub at its December meeting.

The contract, signed July 16, specifies that Gollub will conduct at least 20 interviews with stakeholders to evaluate four possible models that it will develop. The stakeholders will include “investment, academic and government groups” and possibly others to be determined later.

The proposal presented by Gollub contains more information on the firm and the persons who will be working on the project. In addition to Gollub, they include Steve Marshall, Amy Rassen and Annika Barnes, all Gollub employees. The contract and proposal can be found below.

  Gollub Proposal by DavidJensen

  Gollub-CIRM Strategic Roadmap Contract by DavidJensen

CIRM Seeking $210,000 in PR Help

If you are looking for a job in PR involving a cutting edge enterprise immersed in academia, science, business and government/politics, there is a possibility at the $3 billion California stem cell agency.

The agency has posted an RFP for a “communications outreach coordinator” along with an RFP for a “public communications services” contract.

The contracts are part of a communications effort at CIRM that runs in the neighborhood of $1 million a year.


The new coordinator position is for 11 months at $85,000. The job calls for the individual to promote “a deeper and more sophisticated public awareness of stem cell research and therapy and new funding paradigms for medical research.”

The $125,000-a-year services contract calls for the winning firm to work with CIRM PR staff to “build a foundation of support for the future by creating and cementing relationships with thought leaders and patient advocates, providing proof of the value of CIRM to the state, developing creative ways to demonstrate progress in a field while also setting realistic expectations.”

The contract has been held by Fleishman-Hilliard. CIRM communications chief Don Gibbons said in an email,

“It was always the plan to rebid this every two years. I have encouraged FH to apply for this round. I hope to receive a robust and interesting set of applications.”

Deadline for applications is June 14.

Fresh Comment

"Anonymous" has posted an indignant comment on the "CIRM calendar" item. The remarks say, in part, that the calendar is "a blatant waste of taxpayer money. Just because CIRM defends it, and characterizes this site's inquiry about it as petty, doesn't mean it's so. CIRM's mission is to aid industry in emerging science, not publish high quality photos and calendars. Calendars won't cure any diseases, period."

CIRM's $500 Million Loan Program: Lucrative Contract Looms

The California stem cell agency is seeking advice on its plan to have an outside contractor run a $500 million biotech lending program, and Friday is the deadline.

The information will play a key role in creating a potentially lucrative contract to administer the seven- to 10-year program for the $3 billion agency.

Banks, delegated underwriters and other financial service providers with an interest would be well-advised to weigh in with suggestions. The "request for information," however, is not limited to potential bidders but also solicits comments from "others with relevant experience or information."

CIRM is seeking information concerning the scope of services, models for relationships between "financial services providers/delegated underwriters" and CIRM, compensation structure and conflicts of interests.

CIRM is considering three possible models for the contractor:

"...a delegated underwriter model (delegated underwriter advances its own funds with CIRM guarantee), a hybrid model (delegated underwriter advances its own funds, but CIRM provides cash as collateral), and a fee for services model (CIRM originates loan and advances funds and pays financial services provider a fee for services)."

The stem cell agency states that its staff

"...does not have the internal expertise or capacity to manage all of the financial components of a loan program. CIRM therefore plans to externalize these tasks while maintaining ultimate control over the loan program. To ensure that CIRM obtains this expertise at the best value to California taxpayers, CIRM plans to issue a request for proposals to select two to three financial services providers/delegated underwriters. Because this is a start-up program, it is important to have at least two delegated underwriters at the outset. This would permit CIRM to learn from their different approaches and to refine our best practices. Furthermore, it would permit CIRM to transfer future transactions to another delegated underwriter if the relationship with one of the contractors is unsuccessful."

In February, CIRM plans to seek bids from potential contractors. The loan program is scheduled to begin this spring.

CIRM Directors Meet Next Week: $210 Million Proposal on Table

In addition to considering a salary for California stem cell Chairman Robert Klein, directors of the California stem cell agency next Tuesday and Wednesday will take up changes in its strategic plan and debate the framework of the whopping disease team grant round, which could total $210 million.

Meeting in Irvine, the panel is also scheduled to approve $20 million for as many as 20 grants to develop innovative research tools and technology.

The agenda currently has links to the revisions in the strategic plan, the disease team proposal and another proposal for a $60 million "basic research initiative." Not yet posted is background information on the Klein salary proposal, a "pre-application review" process, new scientific members for grant review group, an accelerated funding plan for grants and loans to business and a conference grant to the 2,100-member International Society for Stem Cell Research.

CIRM President Alan Trounson is on the board of directors of the society. Klein was a member of an advisory committee to ISCCR in 2007, according to The Niche, Nature magazine's stem cell blog. Don Gibbons, CIRM's chief communications officer, is a member of the group's public education committee.

Coming Next Spring: A $350,000 Paean to CIRM's Value

Is the California stem cell agency performing work that is beneficial to the economy of the state of California?

Any fair-minded person has to respond affirmatively to that question, and perhaps even some who are not so fair-minded.

But does CIRM have to spend $350,000 of taxpayer funds to prove its economic value? Will such an effort convince any skeptics that the $3 billion ($6 billion including interest) stem cell research program is economically worthwhile? The answer to both those questions is no.

If CIRM pays for an economic study, it will be forever clouded by the reasonable assumption that the agency received the findings that it already knows it wants. And those findings would amount to a paean that holds up CIRM as critical to the economic survival of the Golden State.

That conclusion is even more likely given the language in the recent CIRM RFP for a consultant to prepare the economic propaganda piece for the agency.

The RFP makes no bones about what CIRM wants and what the consultant better provide for $300,000. Certainly not an independent, detached assessment of CIRM's economic worth. Instead, the RFP states that the consultant must "execute a vibrant and aggressive strategy to support the goals and initiatives of CIRM."

To be sure the consultant fulfills expectations, he will work with a high-powered CIRM panel consisting not only of the chairman and president of CIRM, but also the vice chair, the vice president for operations, the general counsel, the legal counsel and unspecified "others." Lots of "minders" there to be sure no heresy comes forth.

CIRM has already spent $50,000 this year for what was supposed to be a new economic study. That report was originally scheduled to be released in January. After the California Stem Cell Report asked about it on Oct. 7 in connection with the $300,000 RFP, the document was publicly released a day later on the CIRM web site.

The $50,000 report was prepared by the Analysis Group of Palo Alto, Ca., which is likely to have the inside track on this latest contract. (For more details on the report, see the item below.)

Analysis Group also received $200,000 from the Prop. 71 campaign, which was directed by now CIRM Chairman Robert Klein, for a document that predicted health care savings of as much as $12.6 billion over 30 years and a net state government profit of at least $1 billion.

That report, however, was held up as an example of stem cell hype. "Hopelessly optimistic" was how one reasonably detached writer, David Hamilton, described the campaign analysis in a "biotech bubble" story for Slate.com.

The latest RFP also indicates that CIRM grant recipients will be burdened with additional paper work in the future. It implies that grant applicants will need a nose for dollars and must be able to demonstrate how CIRM cash, if they receive it, will benefit the California economy.

The RFP states that the consultant must create "a standard and routinized methodology for data collection from CIRM grantees and loan recipients and other sources to enable future measurements of economic impact."

Compliance with that methodology is likely to become part of the terms of any grant or loan in the future. We would hope that all the data gathered would be available to the public so that other economists and health policy experts would be able to draw their own independent conclusions.

Interested economic consultants must submit their proposals by Oct. 24. The contract could be awarded shortly thereafter. Look for the economic report in March 2009, if the RFP is to be believed, with the lucky consultant also embarking on a bit of a road show, according to the RFP's terms.

Unsaid in the RFP is the near certainty that the consultant will have an ongoing, lucrative relationship with CIRM for years to come as he updates the report with fresh information annually.

Klein and Sheehy Tangle Over Lucrative CIRM Contract with Former CIRM Director

Should a former director of the California stem cell agency be paid hundreds of thousands of dollars by the agency after he leaves the board?

That was the essential question at a meeting last week of the CIRM Governance Subcommittee, which is a subset of the 29-member board of directors.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., wrote about the session on his organization's blog in an item headlined, "Tempers flare at stem cell subcommittee meeting."

Simpson alluded to the "old boys network" at CIRM and wrote,

"Stem Cell Board Chairman Bob Klein and member Jeff Sheehy clashed heatedly over a former board member's highly paid consultancy to the state agency at a recent  meeting of the Governance Subcommittee.

"I lit the spark on Friday when I asked what Dr. Richard Murphy was doing under the description of "Strategic Consulting" for a fee $155,000 from April 15 through Dec. 31.  Was he revising the California Institute for Regenerative Medicine (CIRM) strategic plan?  That was a large part of it, President Alan Trounson said."

Simpson also wrote:

"'You don't like Dr. Murphy,' Klein told Sheehy. 'Let's stick to the mission.'

Sheehy said that 'he deeply resented' the suggestion his concern stemmed from 'personal animus.'  

"'We need a more open process,' he said."

Murphy served as interim president of CIRM last year and part of this year under a $300,000, six-month contract. The consulting contract followed.

In another item, Simpson also discussed the proposal by the Governance Subcommittee to deal with CIRM's longstanding difficulties in securing quorums necessary to do business legally. Ironically, the subcommittee meeting itself did not have a quorum.

CIRM Contracts with Fleishman PR Firm

The Fleishman-Hillard public relations firm has won a $115,000 contract from the California stem cell agency, according to odwyerpr.com.

The website said Fleishman bested five other firms: Burson-Marsteller, Weber Shandwick, Feinstein Kean, GCI Group and Wundermarx.

Odwyer reported that Ruby Barcklay, a senior vice president in Fleishman's San Francisco office, will be in charge of the account.

The contract includes "media monitoring, leadership media training, opinion leader research in the biotech and business communities, and high-level targeted media placement around the organization's leadership position in the field of stem-cell research funding," according to the report.

The odwyer site specializes in "inside PR news" and is partly free and partly paid.

CIRM Providing Some Early Background Info on Directors Meeting

The California stem cell agency today posted the agenda for its Aug. 12-13 meeting at Stanford, along with some background material.

The background material is a good start on helping the public understand what is to be discussed and acted on by the directors of the $3 billion public enterprise. We are looking forward to more in the next few days.

The background information on one item has clarified what is actually to be discussed when directors take up "consideration of annual report on CIRM contracts and interagency agreements." On Sunday, we speculated that the item could be a proposal to change from quarterly to annual the reporting requirements to directors on outside contracts. In fact, the item appears to be simply the 2007-08 annual report on outside contracting expenditures.

Other background material now available includes:

Draft language for a "grandfathering" provision on stem cell lines. Directors will be asked to authorize a procedure for petitioning them to designate stem cell lines derived before November 2006 as acceptably derived for use in CIRM-funded research.

The names and brief bios of proposed alternate members for the Grant Review Group: Sangeeta N. Bhatia of MIT, Paula Marie Bokesch of Hospira, Inc., Mark Furth of the Wake Forest Baptist Medical Center, Marcie Glicksman of Brigham and Women's Hospital, Kurt Gunter of Hospira, Inc., Paul Kulesa of the Stowers Institute for Medical Research, Hai-Quan Mao of John Hopkins, Todd McDevitt of Georgia Institute of Technoloogy/Emory University, Alan Russell of the University of Pittsburgh and Shuichi Takayama of the University of Michigan.

Loans, Eggs, Contracts, Suppliers and $41 Million Top CIRM Agenda Next Week

Directors of the California stem cell agency will meet next week to hand out $41 million to 14 lucky scientists and wrestle with a host of other matters, ranging from the $2.7 million in outside contracts to a proposed $500 million biotech loan program.

Here is a quick look at the topics on the Aug. 12 agenda, which will probably be posted soon on the CIRM website.

Researcher Bonanza -- This a bit of a "do-over" of last year's $85 million faculty award program. That effort was tarnished when five CIRM directors violated the agency's conflict-of-interest policies by writing letters on behalf of applicants from their institutions. CIRM said the letters resulted from an "innocent misunderstanding," but disqualified the 10 applicants involved. No CIRM action was taken against the five directors. The full board decided to provide another grant opportunity, which was also open to applicants other than those disqualified. The latest effort, modified from the first offering, is scheduled for $41 million for 14 winners, with awards up to $2 million a year. CIRM received 55 letters of intent to apply for the grants but has not released the actual number of applications as far as we can determine.

Outside Contracting – Perhaps the most important item in the $13 million operational budget of the stem cell agency is the $2.7 million it spends for outside contracting. That figure is up 50 percent from last year. It is the second largest item in the budget, behind only salaries and benefits. CIRM will have spent more than $2 million for outside legal help by the end of this year and has spent hundreds of thousands for executive searches. In 2005, directors imposed restrictions on outside contracts and required quarterly reporting after they were surprised by published reports about the size and impact of those dealings. On Aug. 12, it appears that directors will be asked to reduce the reporting from quarterly to annual. That would be a mistake. CIRM's board should keep a close eye on the process because of importance of contracting to CIRM and the ticklish issues of overseeing those contractors. Earlier this year, directors had to retroactively approve additional funding for its main outside counsel, Remcho, Johansen, & Purcell of San Leandro, Ca., after work had already been performed. CIRM Chairman Robert Klein also told CIRM directors that Remcho is unique in its abilities, that basically no other firm in the state can perform the work. Thus, Klein reported, the attorney general's office has said the contract does not need to go out for bid. See the Remcho item below for more on Klein's explanation of the relationship between him, Remcho and CIRM and the opinion of the state attorney general. Here is the latest list of outside contracts. Here is the budget for 2007-08.

The $500 Million or So Biotech Loan Program -- The formal agenda topic is "CIRM loan policy." CIRM Chairman Klein earlier this year said he hoped to have the biotech loan program approved this month. But this cryptic agenda item may mean that the board will not be presented this month with the whole package for this ground-breaking and novel effort. See the item below for links to various CIRM documents on the loan proposal. Search this blog on the term "biotech loans" for even more.

Definition of California Supplier – Perhaps hundreds of millions of dollars are at stake in this item. It involves the Prop. 71 requirement that California suppliers be given preference on purchases by CIRM grantees. Legislation is being considered in Sacramento along with separate regulatory language being worked out at CIRM. Here is a link to the latest version of the legislation involved and the transcript of the June CIRM directors meeting at which the topic was discussed briefly. This is an area that has changed swiftly and may well again even before next week's meeting.

Grant Appeals – CIRM is wrestling with the issue of how to handle requests for reconsideration of negative recommendations from the Grant Review Committee. Basically CIRM directors follow the recommendations from reviewers and have been uncomfortable with the few public attempts to override the Grants Committee. Two items could be related to this subject: One deals with RFA applicant policies and the other with creation of a policy for dealing with "extraordinary petitions" to directors for grants. Search this blog on the term "grant appeals" for some background stories, including a proposal by CIRM director Jeff Sheehy.

Egg Matters – Directors will be asked to authorize a procedure for using stem cell lines derived before November 2006 in CIRM-financed research. A subtext of this involves the looming question of egg shortages and cash, although it is not formally on the agenda. CIRM President Alan Trounson has said researchers are "floundering" because they do not have enough eggs. If this subject is important to you, you should be at the meeting.

CIRM is likely to post the agenda for the Aug. 12 meeting at Stanford on Monday, which is six business days ahead of the session. We hope to see additional background material posted early as well. That information would help shed light on exactly what the board will be asked to do next week, beyond the brief listings in the initial version of the agenda.

The $2 Million Remcho-CIRM Connection

The California stem cell agency has a no-bid, $2 million, special relationship with the law firm of Remcho, Johansen, & Purcell of San Leandro, Ca.

The firm has had a contract with CIRM since the agency's earliest days. On May 28, the Governance Subcommittee of CIRM directors was asked to act in a retroactive fashion to increase Remcho's contract for 2007-08 from $250,000 to $415,000 to pay for bills for April, May and June. That amounted to a $165,000 or 66 percent increase in the contract.

Based on the transcript of the meeting, it is not entirely clear who authorized the Remcho work without having the subcommittee first actually approve an increase in the contract. CIRM policies require approval by the governance panel if contracts exceed $250,000.

CIRM Chairman Robert Klein, however, offered the explanation for why the work was needed, which included reviewing requests for applications for grants and work on state bond offerings linked to CIRM.

CIRM contracts with Remcho totalled $1.1 million from January 2005 to July 2007 and are slated for $450,000 this year.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., asked Klein at the meeting whether the Remcho contract would be put out to bid in the future.

Here is the exchange, based on the transcript of the session.

Simpson:

"...(T)his is a substantial legal contract, and it's down as probably going on into the future. Is there an expectation that this would be put out formally for bid?"

Klein:

"This is a contract that is obviously where the expertise is built upon a number of years of research and development on this initiative specifically. And at the time we originally entered into this contract with Remcho back in 2004, I personally went to the (California) attorney general's office and asked, given the specialized knowledge of the Remcho firm had in spending two years on the research and drafting of this with me and four other attorneys that I had in specialized areas, whether we needed to put this to bid.

"The attorney general's position at that time was we did not because of the specialized nature and depth of knowledge of the firm. It would be a huge bill to get any other firm to get up to the level of knowledge about this initiative and the tremendous amount of research that went into all of its development as well as all the public policies that have subsequently been developed."

We have asked CIRM for a copy of the statement from the attorney general's office that supports the ongoing, no-bid arrangement.

CIRM Dredging Up Old Economic Controversy

Four years ago, supporters of California stem cell research ballyhooed the economic impact of the Prop. 71, the ballot measure that created the state's $3 billion inquiry into human embryonic stem cells.

A $200,000 study commissioned by the Prop. 71 campaign predicted healthcare savings of as much as $12.6 billion over 30 years and a net state government profit of at least $1 billion. The study was instantly a bone of contention during the campaign and long after and held up as an example of stem cell hype.

"Hopelessly optimistic" was how one reasonably detached writer, David Hamilton, described the campaign analysis in a "biotech bubble" story for Slate.com.

The study was ordered up by then Prop. 71 campaign chief Robert Klein. Now chairman of the California stem cell agency, Klein has commissioned another economic impact report by the same organization, Analysis Group of Palo Alto, Ca. This time the study will cost only $49,900 but it comes at the expense of taxpayers – not campaign donors. It also diverts funds from other activities of the stem cell agency. The question is why?

With few exceptions, no one is likely to deny that California's stem cell research can benefit the state economically. The principal dispute is about the magnitude of the impact. However, this latest study suffers from the same problem as the first. It is not likely to produce a finding that runs contrary to the beliefs of Chairman Klein and other supporters of the stem cell research. That leaves CIRM open to credibility challenges.

The study is also not necessary to convince true believers. And adamant opponents will never believe it. That leaves only a tiny segment of the population as a propaganda target, if one is to believe Klein. He has repeatedly minimized the size of that group, citing overwhelming support for hESC research among the general population.

The study will certainly generate several results – none of which is favorable for CIRM. It will raise questions about unnecessary spending of taxpayer money. It will rekindle a debate about the true economic impact of CIRM, stirring up controversies better left dormant. And it will feed concerns about stem cell hype on the part of the agency and raise questions about its credibility.

Here are samples from the David Hamilton's piece Feb. 6, 2007, in which the former Wall Street Journal reporter wrote that the campaign study appeared "hopelessly optimistic."

"To begin with, they assume that stem-cell treatments will work in the first place. Many of the most hyped biotechnology innovations of the last 25 years have yet to live up to their early promise. And when they do work, they often tend to improve medical care at the margins instead of revolutionizing it."

"What about the potential of stem-cell research to spur economic development—can a state that sponsors stem-cell research hope to attract cool scientists who will then draw others, plus a coterie of entrepreneurs and venture capitalists? Biotech companies do tend to cluster in places like San Francisco and Boston, but their overall impact on regional economies tends to be limited. While they often pay high salaries, the vast majority of these companies are tiny, unprofitable startups with fewer than 100 employees. They frequently collapse well before they earn a dollar in sales. Even successful biotech ventures are often bought out by distant drug companies, which sometimes shut down the acquired company while transferring its research activities and any products elsewhere."

Hamilton also cited a study by Richard Gilbert, a UC Berkeley economist, who estimated California's potential royalty income from CIRM research could be as low as $18 million compared to $1.1 billion suggested by the 2004 study by the Analysis Group.

We could be wrong about all this. Perhaps the Analysis Group will produce a study that is hailed as balanced, objective and useful. CIRM tells us to look for the report, originally scheduled for January, to appear later this month.

Koch's Experience

An attorney, who must remain anonymous but who is familiar with intellectual property law, sent the following re Nancy Koch in the item below:

"Chiron's chief IP attorney, under whom she worked, was a strong and insightful patent portfolio strategist, so she probably has good experience from working with him."

Murphy and Koch: IP and Presidential Consulting

The California stem cell agency has picked up a couple of consultants – one for intellectual property and one to advise its president – with contracts totalling $230,000.

Nancy Koch (see photo) has been hired part-time for six months through Oct. 7 on a $150,000 contract to deal with IP matters. Richard Murphy snagged an $80,000, four-month contract to assist CIRM President Alan Trounson. It is Murphy's third tour of duty at the $3 billion agency.

Murphy first served on CIRM's board of directors and then as the $300,000, six-month interim president at CIRM. His latest contract runs through July 31.

In response to a query, CIRM reported that Koch was deputy general counsel of Chiron Corp. and its successor Novartis Vaccines and Diagnostics, Inc. During 11 years at Chiron/Novartis, Koch was responsible for a wide range of intellectual property matters including litigation and licensing. Between 1983 and 1995, Ms. Koch worked at the Farella, Braun and Martel law firm in San Francisco.

CIRM View on Remcho Fees

Don Gibbons, chief communications officer for CIRM, sent the following comment on the item below concerning the contract with its outside lawyers:

"You state the board approved a '$165,000 retroactive payment.' That is not what occurred. The board approved an increase in the total amount billable during the life of the contract which runs through June 30. CIRM also made it clear that it did not expect to need the full amount. The only retroactive piece is for the hours billed in April and May, which while not yet invoiced, are expected to be under $60,000, and again this occurred because of a cancelled committee meeting in April."

CIRM's Outside Lawyers Win Retroactive, 66 Percent Pay Hike

A key panel of CIRM directors has approved a $165,000, retroactive payment to its outside attorneys, Remcho, Johansen and Purcell of San Leandro, Ca. Details of the proposed action were never disclosed to the public in advance of approval.

John M. Simpson of Consumer Watchdog reported the approval on his blog, saying,

"Stem Cell Agency Chairman Bob Klein said Remcho billed the additional hours because of (James) Harrison's work on the agency's first bond sale, efforts to negotiate discounts in the grant awards to build research facilities and added involvement in vetting Requests for Applications (RFAs) for grants."

Simpson, who attended the Governance Subcommittee meeting Wednesday and made comments during the session, wrote,

"I suggested that retroactively approving the increase was bad policy. Klein said the item was on the agenda for an earlier planned governance committee meeting, but the session was canceled.

"He said that Harrison ran up the additional billable hours at the law firm's risk, though I can't imagine the agency would have refused to pay."

Well prior to the meeting, the California Stem Cell Report asked for more information on the cryptic Remcho agenda item, but CIRM repeatedly refused to disclose what was being considered despite the fact that the information is certainly a public record.

Cost Overruns and Candor from CIRM

The California stem cell agency now says it is "mind-bogglingly silly" to think, in effect, that the total cost of the Grantium contract for a new grant management program would only be $757,000.

CIRM's directors were assured last October during their meeting in San Diego that the figure was the "complete cost." The expenses were reviewed at the time in some detail by Ed Dorrington, CIRM's information technology director. Richard Murphy, interim president of CIRM, vouched for the figures as well.

We raised questions about the cost in our posting below -- "CIRM Lagging" – since CIRM is seeking an additional $85,000 to perform work that is necessary for the Grantium software.

Don Gibbons, chief communications officer for CIRM, responded to our item,

"Regarding your posting on Grantium, it is mind bogglingly silly to think that a one-person IT department at CIRM could handle all the internal aspects of migrating to a new grant management system while maintaining a legacy system that is our responsibility."

Our response: CIRM's chief executive told its board one thing in October. Now CIRM says something different. New, complex software installations are usually difficult. The costs should have been anticipated. That's what good management is all about.

Additionally, CIRM has chosen to go lean on its staff, keeping it far less than the 50 authorized even after some directors have repeatedly worried about burnout and overwork. In fact, last December Murphy told the directors' Governance Subcommittee that he had chosen not to replace a departing information technology staffer because "the institute is now working quite well in its computer capabilities." That was two months after the Grantium contract was approved by directors.

CIRM Chairman Robert Klein also chimed in at the time, praising the "lean" staffing at CIRM. Lean is good, especially in state agencies that sometimes tend to be overstaffed. But there can also be a financial cost – perhaps in this case $85,000. Less obvious is the wear and tear on employees that results from excessively long hours week-in and week-out.

(Editor's Note: An earlier version of this item incorrectly reported that CIRM had "roughly 26" employees. Following the posting of this item, CIRM reported that it has 31 employees.)

A Brief Look at CIRM's Outside Contracts

The California stem cell agency plans to post on its web site later today a key financial document on its legal, lobbying, public relations and other outside contracts, less than 24 hours before the report is to come before a panel of the agency's directors.

The document reviews some of CIRM's spending this year for outside contractors, who consume the second largest amount of money in the agency's operational budget (see item below). However, the document was missing even a guess at how much will be spent by the end of this fiscal year, which is about one month away.

The report only covered expenditures for contracts through February. It also contained no total for all outside contracts through February. Nor did it appear to specify all of the ongoing obligations resulting from multiyear contracts.

A quick look at the document showed that CIRM has contracted for $596,899 worth of legal services, apparently mostly for the first three quarters of the year. The figure included $250,000 for the Remcho law firm(see item below). CIRM also spent $100,000 with the State Department of Justice. CIRM has had seven attorneys or law firms on its staff or under contract during the reporting period, including a general counsel. Joining the agency recently is attorney Nancy Koch, who won a $150,000 contract for intellectual property, most of which will be spent during the next fiscal year.

We should note that our $596,899 figure does include $36,900 for the Nielsen, Merksamer law firm of Sacramento, Ca., which performs lobbying services among other things. CIRM classified Nielsen's services under "public education" rather than legal services or lobbying. Our total for legal services does not include, however, $20,000 for the Rubenstein Associates PR firm of New York City.

In February, the Consumer Watchdog group disclosed a $10,000 CIRM contract with Rubenstein through the Remcho law firm and said CIRM was "laundering" its PR advice through Remcho. It was not clear whether the $10,000 figure in February was part of the $20,000 reported by CIRM in today's outside contracting report.

After a flap developed in 2005 about outside contracts, CIRM directors told CIRM staff to provide quarterly reports on outside contracting. The last came in December 2007.

Look for a link to the outside contracting report under the Governance Subcommittee agenda. Its meeting is scheduled for 3 p.m. Wednesday in Los Angeles with teleconference locations in San Francisco at CIRM headquarters, Sacramento, La Jolla, Carlsbad, Palo Alto and Stanford. All of the locations are open to the public.

Don Gibbons, chief communications officer for CIRM, provided a copy of the outside contracting report to the California Stem Cell Report this afternoon and said it was expected to be posted later today. However, he is working through the state bureaucracy, which sometimes does not move with great alacrity.

The Primrose Path of Stem Cell Research in California

Campaign rhetoric and reality: No, this isn't about this year's presidential election campaign, but about the California stem cell agency, its seductive origins and the sweet promises to voters in 2004.

Those matters have surfaced as part of this week's meeting of the directors of the $3 billion institute, which was born nearly four years ago in what is one of the ultimate political acts – an initiative campaign in which voters thrust aside lawmakers, seize control of the reins of government, write legal code themselves and raise and allocate billions of dollars.

All fueled by campaign promises – in the case of Prop. 71 – that not only will sick people will be cured but California residents, businesses and researchers will receive special treatment.

Well, not exactly, CIRM now says, particularly in the case of California businesses.

The stem cell agency delivered the bad news as the result of a request by Sacramento attorney, John R. Valencia of the firm of Wilke, Fleury, Hoffelt, Gould & Birney, on behalf of an unnamed California-headquartered life sciences corporation. Valencia also represents, among others, the California Healthcare Institute, which, in turn, represents California's biomedical industry. That organization has members on its board of directors who also serve as directors of CIRM.

Valencia made a seemingly simple request of CIRM: define "California supplier." The term is found in Prop. 71, which states:

"The ICOC (CIRM's board of directors) shall establish standards to ensure that grantees purchase goods and services from California suppliers to the extent reasonably possible, in a good faith effort to achieve a goal of more than 50 percent of such purchases from California suppliers."

Unfortunately, the two words in question are not otherwise spelled out in the initiative. And it is clear now that CIRM wants few restrictions on where it goes for outside, private contracting. Valencia, however, argues that CIRM can find virtually everything it needs in California, which is not called the Golden State for nothing.

It is not a trivial matter. In his letter to CIRM, which comes before its directors on Wednesday, Valencia points out that it could ultimately run to $300 million.

Valencia says it is "vitally necessary" to define California supplier. He says the definition is virtually required by Prop. 71 whose overall objective is to advance California economic interests. He wrote:

"Why send hundreds of millions of California taxpayer dollars outside the state, where it does nothing to create California jobs, economic growth or tax revenue?"

Tamar Pachter, general counsel to CIRM, has an answer, which boils down to this: CIRM is not legally required to give preference to California suppliers beyond what is stated in Prop. 71 as well as existing law. It's a "goal" not a "mandate," she writes in response to Valencia's request. Weasel words in Prop. 71 -- she explains, although that is not her terminology -- provide plenty of wiggle room. Those terms include "reasonably possible," "good faith effort" and "goal."

We can chalk up that verbiage to CIRM Chairman Robert Klein, who led the initiative campaign and claims responsibility for writing Prop. 71, although other attorneys were involved as well.

More than one issue underlies this matter. One is the question of campaign promises. Some say that CIRM should be measured against the promises of the campaign, however overstated they may have been. Others say that no one should be so naïve as to believe that the sweet talk of a campaign has any connection to the ultimate reality.

Another matter involves the practical realities of running an enterprise involving stem cell research, clearly a global endeavor. Parochial requirements concerning California preferences make CIRM's task more difficult – not easier.

Nonetheless, the stem cell institute must recognize its obligation to California voters in clear and unmistakable ways – perhaps not necessarily in this particular case. But it had its way with voters in 2004. Failing to be responsive could have unfortunate consequences. Hell hath no fury like a voter scorned.

Biotech Loan Taskforce Votes To Hire PriceWaterhouseCoopers

The California stem cell agency's plan to offer an ambitious loan program to the stem cell industry was discussed on Tuesday during a meeting in San Diego with teleconference links to elsewhere in the state.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights, attended the session. We asked him for a report on the event. Here is what he sent.

"CIRM's Biotech Loan Task Force voted unanimously on Tuesday to hire PriceWaterhouseCooopers as consultant for $50,000 to report on loan programs from other states and to offer a model of how the California program could work including rates of return that might be expected.

"PriceWaterhouseCoopers were the consultants that helped CIRM develop its strategic plan. Task force Chairman Duane Roth (see photo) said CIRM had checked with three consulting firms and had proposals ranging up to a cost of $350,000.

"But the primary purpose of the meeting was to hear views of executives of the companies that might apply for loans.

"Meeting in San Diego the loan committee heard general support for a loan program from a panel of seven industry executives. The panel included: William Adams, chief financial officer of International Stem Cell Corp..; William Caldwell, chairman and CEO of Advanced Cell Technology; David Gollaher, president of the California Healthcare Institute; Joydeep Goswami, vice president of stem cells and regenerative medicine for Invitrogen; David J. Earp, chief patent counsel and senior vice president for business development of Geron; Alan Lewis, president and CEO of Novocell and Ken Stratton, general counsel of Stem Cells Inc.

"Roth said that the motive for the program from CIRM's perspective is that it "is a way to recycle money and fund more research."

"Over the course of three hours the executives and the committee members discussed various ways the program could be implemented.

"Earp told the group that with a grant it's CIRM that assumes the risk but with a loan, the company assumes the risk.

"Adams said his company was very interested in a loan program and thought it could help products through the so-called "Valley Of Death," a reference to a promising scientific discovery that fails to make it to the clinic because of a lack of funding. He added that with current economic conditions "the Valley of Death has become more of a Grand Canyon of Death."

"A consensus emerged that a loan program should focus on translational research, not basic science.

"Roth suggested that a company would be able to apply for a loan tied to a specific product or for a company loan. If it was tied to a product and the product failed to be developed, the loan would be forgiven. Such a loan would carry a higher rate of interest than one tied to a company.

"Committee Member Ted Love urged that however the program comes together, "We should be starting out simple."

"CIRM President Alan Trounson told the meeting by telephone from San Francisco that the loan program should be built into various Requests For Applications (RFAs) that are called for in CIRM's strategic plan. There should not be a separate RFA for loans.

"Roth said he envisioned loan applicants applying under CIRM's usual RFA process and then submitting applications for peer review. Loans would be offered only after the application had been judged on scientific merit.

"ICOC Chairman Bob Klein asked if a loan from CIRM could serve as validation" of a company's efforts that would increase the possibilities for additional funding. The executive panel agreed that it would, perhaps with the most benefit to a public company.

"Committee members also wrestled with the fact that CIRM is limited by law to a maximum of 50 employees. That will make it difficult to administer a loan program in-house, they agreed.

"Klein suggested that CIRM follow the model of the housing industry and like "Fanny Mae" use "designated underwriters" to do the nitty gritty work of loan administration.

"Roth said he hoped to have the PriceWaterhouseCoopers report in March and hoped to offer a loan policy for ICOC consideration by June.

"After the meeting in a brief interview Klein suggested that the program might start simply with two RFAs -- perhaps Disease Team Research and Research Tools. He expected both would be offered in the fall.

Here is Simpson's commentary on the meeting:

"A loan program an intriguing idea, but the devil will be in the details and I'll continue to monitor them as they emerge. It's too early to know if FTCR will support the final program or not.

"From a policy making point of view, they are going about this the right way: gathering facts from stakeholders and discussing ideas in public meetings.

"Duane Roth should be commended for the way he is running the committee and the executives deserve thanks for participating on Tuesday."