Campaign Contributions, Kleiner Perkins, iPierian and CIRM Grant

A biotech company heavily backed by venture capitalists who contributed nearly $6 million to the election campaign that created the California stem cell agency was awarded a $1.5 million grant this spring from the very same agency.

The firm, iPierian, Inc., of South San Francisco, reportedly plans to seek many more millions from the California Institute for Regenerative Medicine in the near future.

The venture capitalists are principals in Kleiner Perkins Caufield & Byers of Menlo Park, Ca. They include John Doerr and his wife, Ann, who contributed nearly $4 million to the Prop. 71 ballot initiative, according to state records. Doerr is well-known in company start-up circles and was involved in the early funding of Google and Amazon.

Other Kleiner contributors to the campaign included Vinod Kholsa, $500,000; Joseph Lacob, $750,017, and Brooks Byers, $480,000.

The Kleiner-related contributions amounted to 25 percent of the $24 million contributed in 2004 to create the stem cell agency.

During the 2004 campaign, some critics said that Prop. 71 amounted to little more than seed money for the venture capital community. The state voter guide's argument against the proposition said, “...(P)harmaceutical company executives and venture capitalists contributed $2.6 million (to gather signatures) to put this measure on the ballot. By getting taxpayers to fund their corporate research, they stand to make billions with little risk.”

In 2008, Kleiner launched its investment into what is now iPierian with $20 million. Kleiner is its single largest financial backer. One of Kleiner's partners has a seat on the five-member iPierian board.

In response to a query, James Harrison, outside counsel to CIRM, strongly defended the agency. He said its conflict of interest code exceeds the requirements of state law. The full text of Harrison's comments can be read here, but he said in part,

“In order to advance CIRM's mission, it is critical that venture firms like KPC&B (Kleiner) invest in stem cell companies so that these start-up companies have the funds necessary to bring therapies to the market.”

Kleiner did not respond to a request yesterday for comment.

The grant to iPierian was approved with the vote of the man who was the head of the Prop. 71 campaign, Robert Klein, a real estate investment banker in Palo Alto, Ca. He is now also chairman of the $3 billion California stem cell agency. Klein sits on the grant review group that makes the de facto decisions on grants. He participated in the closed-door session during which the iPierian grant (see review summary here) was approved and the full board meeting at which the decision was ratified. Harrison said no conflict of interest existed for Klein.

Harrison said,

“California conflict of interest law does not require recusal under
these circumstances. Indeed, the connection is so attenuated, it is difficult even to understand how this could ever rise to the level of a conflict.”

Harrison said Klein had no knowledge of the involvement of the Kleiner campaign contributors with iPierian. Harrison also said that Klein has pledged to “refrain from holding any financial interests in biotech companies as long as he is chairman.”

Another member of the grant review group had a direct connection to iPierian and was recused. She is Amy Wagers, a Harvard scientist who sits on both the iPierian scientific board and the CIRM grant review group. Wagers did not respond to a request for comment.

The stem cell company has other ties to CIRM. George Daley of Harvard, co-chair of the iPierian's scientific advisory board, is on the blue-ribbon scientific panel that is slated to assess CIRM's progress next fall. In addition to Wagers, two other members (Kevin Eggan and Chad Cowan)of the iPierian advisory board serve on CIRM groups that make decisions on grants and recommend research policies to the CIRM board. John Walker, the president of iPierian, and Ted Love, a CIRM board member, both serve on the 9-member board of directors of Affymax, Inc., of Palo Alto, Ca.

Daley and iPierian did not respond to a request for comments.

Ipierian has said it is interested in applying for more cash from CIRM. According to Ron Leuty of the San Francisco Business Times, the firm plans to seek an award in CIRM's new, $50 million clinical trial round. It is expected to be one of only three companies applying in that round.

We will carry the full text of remarks from Kleiner, iPierian or individuals mentioned in this item if we receive them.

Text of CIRM Response on iPierian Grant and Campaign Contribution

Here is the text of an email June 15, 2010, from James Harrison, outside counsel to the California stem cell agency, concerning the iPierian grant.

David,

Thanks for speaking with me this morning. CIRM's Governing Board has
set conflict of interest standards that exceed the requirements of state
law, and Mr. Klein has exceeded even these standards by refraining from
holding any financial interest in biotech companies during his tenure.
I understand that your story will suggest that Bob Klein should have
recused himself from the Board's consideration of an application
submitted by iPierian for a Basic Biology II Award because iPierian is
backed by Kleiner Perkins Caufield & Byers, one of whose principals is
John Doerr who, along with his wife, contributed money to the Prop. 71
campaign. I strongly disagree with your suggestion that Mr. Klein's
participation in the Board's consideration of the iPierian application
creates a conflict. Here are the facts:

1. The Board awarded a Basic Biology II grant ($1.48 million) to
iPierian in April 2010.

2. KPC&B invested $20 million in iZumi in July 2008.

3. iZumi merged with Pierian to form iPierian in July 2009.

4. In 2003 and 2004, John and Ann Doerr contributed to the Prop. 71
campaign.

5. Chairman Klein had no knowledge that: (a) KPC&B had invested in
iZumi; (b) iZumi had merged with Pierian to form iPierian; (c) KPC&B
became an investor in the new company as a result of the merger; or (d)
that George Daley was associated with iPierian (although had he known,
it may have increased his respect for the company).

6. Chairman Klein has no financial interests in biotech companies and
has pledged to refrain from holding any financial interests in biotech
companies as long as he is Chairman.

7. California conflict of interest law does not require recusal under
these circumstances. Indeed, the connection is so attenuated, it is
difficult even to understand how this could ever rise to the level of a
conflict.

8. In order to advance CIRM's mission, it is critical that venture
firms like KPC&B invest in stem cell companies so that these start-up
companies have the funds necessary to bring therapies to the market.

Bob also asked me to relay to you that he has great respect for John and
Ann Doerr, who contributed to the Prop. 71 campaign and to other
research institutions to support their efforts to find a cure for cancer
and other major diseases.

Thanks for your consideration of these points.
__________________________
James C. Harrison
Remcho, Johansen & Purcell, LLP
201 Dolores Ave.
San Leandro, CA 94577