Center for Genetics and Society Calls Trounson Affair Scandalous

The Center for Genetics and Society, a longtime critic of the California stem cell agency, yesterday described the Trounson-StemCells, Inc., affair as "scandalous" and part of an "object lesson" in how not to set up a state agency.

Writing on center's blog, Pete Shanks referred to the disclosure that Alan Trounson, former president of the $3 billion research effort, had received $443,500 in total compensation from StemCells, Inc., of Newark, Ca., for his work on the company's board over a two-year period. Trounson was appointed seven days after leaving the agency, which came as an unpleasant surprise to the stem cell agency's governing board.

StemCells, Inc., was awarded $40 million while Trounson was president of the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

Shanks, an author and consultant to the Berkeley-based center, said,

"Did Trounson or StemCells Inc. do anything illegal? Quite likely not. Was this transaction appropriate? Absolutely not! It’s scandalous, but it’s the kind of scandal that was built into CIRM from its very inception."

Shanks recounted the conflict-of-interest issues that have troubled the agency even prior to voter approval of the program. He concluded,

"CIRM is now slowly running out of the $3 billion of public funds allocated to it in 2004, and is expected to wind up in 2020. It has provided an object lesson in how not to set up and run an independent public-funded agency. These latest revelations should end any speculation about extending its charter."

California Stem Cell Agency Cancels $19 Million Award to StemCells, Inc.

StemCells, Inc. has lost its controversial, $19 million award from the California stem cell agency, it was disclosed today.

Cancellation of the forgivable loan was revealed in slides posted on the agency's Web site as part of the presentation today by its new president, Randy Mills, to the agency's board of governors.

The slide said the Alzheimer's award was "discontinued due to lack of functional improvement observed in preclinical studies" after the agency had provided the publicly traded firm with $9.6 million. It was not immediately clear whether any of the money will be repaid.

The company has not yet announced the loss of the award but has been asked for comment.

The most recent cash infusion came last spring in a move that coincided with the appointment of former CIRM President Alan Trounson to the StemCells, Inc., governing board. Trounson joined the board only seven days after leaving the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.  The move surprised and shocked the agency, but it said its limited investigation detected no illegal action in the disbursement to the company. (Also see here.)

The StemCells, Inc., application was approved by the 29-member CIRM board in 2012, on a 7-5 vote,  after being rejected twice by the agency's blue-ribbon reviewers. The approval followed heavy lobbying by the former chairman of the agency, Robert Klein. It was the first time that the board had approved an award that reviewers had turned down twice. It was also the first case of such public lobbying by Klein.

Later in 2012, Pulitzer Prize-winning columnist Michael Hiltzik of the Los Angeles Times wrote that the award was "redolent of cronyism."  Hiltzik asked rhetorically what was the company's secret in winning approval of the award. He then wrote,

“StemCells says it's addressing 'a serious unmet medical need' in Alzheimer's research. But it doesn't hurt that the company also had powerful friends going to bat for it, including two guys who were instrumental in getting CIRM off the ground in the first place.”

Hiltzik referred to Klein and eminent Stanford research Irv Weissman, a co-founder of StemCells, Inc., who still sits on its board and holds considerable shares in the Newark, Ca., company.

Weissman was a key backer of the ballot measure that created CIRM in 2004 and helped raise money for the ballot campaign.  Trounson has recused himself on some matters dealing with applications connected to Weissman. Trouson has been a guest at Weissman's ranch.

Tightening the Revolving Door at the California Stem Cell Agency

Directors of the California stem cell agency next week will consider a proposal aimed at partially addressing revolving-door and conflict-of-interest problems at the $3 billion research enterprise.

The proposal comes in the wake of a wave of unfavorable publicity this summer that embarrassed the agency when its former president, Alan Trounson, was named to the board of a stem cell company only seven days after he left the state research effort.

The Newark, Ca., firm, StemCells, Inc.,  is the recipient of $18.4 million in awards from the California Institute of Regenerative Medicine (CIRM), as the agency is formally known.  The news surprised the agency and prompted its new president, Randy Mills, to sign an agreement that he would not accept employment from a CIRM grant or loan recipient for at least a year after he left the agency.

Michael Friedman
CIRM photo

In a memo to CIRM board members yesterday, Mills said he was offering a new proposal on revolving door matters after CIRM Director Michael Friedman, president of the City of Hope, made such a suggestion in July.

Mills wrote,

“Under the proposed policy, CIRM team members (employees) would remain free to pursue other employment opportunities, including with CIRM-funded institutions. To prevent inadvertent violations of California’s conflict of interest laws and to ensure the integrity of CIRM’s decision-making process, however, the policy would request that CIRM employees notify CIRM legal counsel when the employee begins employment discussions with a CIRM grantee or current applicant. CIRM’s legal counsel will maintain the confidentiality of this information and advise the employee of the steps he or she needs to take to remain in compliance with the law. Thus, the policy balances the privacy interests of CIRM employees with the need to protect the integrity of  CIRM’s decisions.”

Mills said,

“As Dr. Friedman recognized, CIRM has a highly talented team. It is therefore understandable that California institutions, including those that receive CIRM funds, would be interested in recruiting them. Currently, there is no prohibition on CIRM team members accepting employment from CIRM funded institutions, however I believe additional clarity regarding this topic would help avoid potential conflict of interest occurrences.”

The board will act on the proposal at its meeting in Berkeley next Wednesday.

 Our comment: The proposal will not eliminate revolving door problems at the nearly 10-year-old agency as it winds down its funding and employees may want to seek other employment.  The proposal contains ambiguities that make it difficult to adhere to, such as the question of when employment discussions begin. It also does not contain any indication of the consequences for violation of the policy. However, coupled with the Mills’ personal declaration on future employment and the deplorable situation involving Trounson, the new policy helps make it clear that actions such as Trounson’s do not measure up to what is now expected at CIRM.  Mills has also produced a fresh perspective on CIRM’s future finances that would stretch them out to 2020 instead of 2017, another action that removes an incentive for employees to consider seeking employment elsewhere.  

$40 Million California Stem Cell Genomics Agreement Signed; A Checkered Past

The California stem cell agency and a Stanford-led consortium have reached agreement on a $40 million stem cell genomics project that triggered complaints about irregularities, unfairness, score manipulation and the role of its then president, Alan Trounson.

The agreement was concluded last month with Stanford, UC Santa Cruz and the Salk Institute in La Jolla, five months after the award was approved by the governing board of the $3 billion agency, which is known as CIRM. The final signature came July 2 when Santa Cruz signed. Salk signed on June 26 and Stanford June 18, according to Kevin McCormack, a spokesman for the agency.

The effort is aimed at paving the way for therapies tailored to a patient’s genetic make-up and positioning California as a world leader in stem cell genomics.

Trounson’s role came under fire when he recommended approval of the Stanford application. The agency’s blue-ribbon grant reviewers, whose advice is rarely rejected by the CIRM board, also recommended funding three competitors. 

The round had a checkered history as a result of a conflict of interest involving scientist Irv Weissman of Stanford and scientist Lee Hood of Seattle, who own a ranch together in Montana. Trounson, who has visited the ranch as Weissman’s guest, recruited Hood to review the applications, including Stanford’s proposal which then specifically included Weissman.

The Stanford application that was ultimately approved did not include Weissman.  Michael Clarke, the No. 2 person in Weissman’s stem cell program at Stanford, was included, however, and was praised by name by Trounson during board consideration of the Stanford application. (See here for discussion of conflicts preceding the board action.)

Seven days after leaving CIRM at the end of June, Trounson was named to the board of directors of StemCells, Inc., of Newark, Ca., which holds $19.4 million in awards from the agency. The firm was co-founded by Weissman, who now sits on its board.  The Trounson appointment surprised the agency and triggered a rash of bad publicity for CIRM. (See here and here.)

The agency’s new president, Randy Mills, banned CIRM employees from communicating with Trounson about StemCells, Inc., matters and announced that he would not accept employment from CIRM grantees until one year after he leaves the agency.

Another Perspective on the Trounson Flap: Columnist Lists It as Example of 'Possible Corruption'

The $3 billion California stem cell agency was mixed up with some bad company this week – part of the fallout from last month’s Trounson Affair. 

The agency was lumped together with some ne’er-do-wells in a column in California newspapers that was headlined:

“California state government awash in corruption, conflict of interest”

The piece was written by Tom Elias, a middle-of-the-road, longtime columnist whose work appears twice weekly in 93 newspapers with a circulation of 2.2 million. Elias wrote,

“To some, it seems almost as if California has lately become New Jersey West. Incidents of possible corruption and conflict of interest are seemingly exposed at least once a month these days, with almost no consequences for anyone involved.”

Top on his list was the business involving Trounson, who left the California stem cell agency June 30. Seven days later, he was appointed to the board of StemCells, Inc., which holds $19.4 million in awards from the agency, formally known as the California Institute for Regenerative Medicine (CIRM).

Second on Elias’ list was a case involving a consultant at another state department that was reminiscent of another situation at the stem cell agency. Elias said,

“A month earlier, this column caught the state Energy Commission earmarking more than $28 million in ‘hydrogen highway’ grants for a new company co-founded by a consultant who only months earlier drew the map determining where hydrogen refueling stations will go and then trained commission staff on how to evaluate grants.

“No conflict of interest there, the commission insisted. Right.”

The case at CIRM involved a “special advisor” by the name of  Saira Ramasastry, managing partner of Life Sciences Advisory, LLC, of Emerald Lake Hills, Ca. In 2012, she was named to the board of Sangamo BioSciences, Inc., a publicly traded firm based in Richmond, Ca. At the time of her appointment to the board, the firm shared in a $14.5 million grant from the agency. She also worked as a consultant to Sangamo.

Since then, Sangamo has received another $6.4 million from CIRM. The president of Sangamo, Edward Lanphier, told the agency last January,

“We wouldn't be where we are today without you.”

In 2013, Ramasastry received $99,662 in cash and stock options from the company, according to its filings with the Security and Exchange Commission.

California Stem Cell Agency and the Revolving Door: A Need for More Safeguards

The revolving door and related conflict of interest issues remain open at the $3 billion California stem cell agency despite the pledge by its new president, Randy Mills, to refrain from taking a job with a recipient of the agency’s largess for at least a year after he leaves.  

Mills’ action last week came in response to the controversial appointment of the agency’s previous president, Alan Trounson, to the board of StemCells, Inc.(SCI),  just seven days after he left the agency.  The firm was awarded $19.3 million while Trounson was its top executive.  Last year, members of the SCI board received as much as $99,000 in stock and cash. 

Mills’ move applied only to himself and excluded other members of the agency’s staff. He said they should not be denied the ability to seek employment with businesses or research organizations that the agency has funded.

John M. Simpson of Consumer Watchdog of Santa Monica, Ca., said, 

"The high profile Trounson Affair  focuses attention on CIRM’s potential revolving door problem that the agency needs to deal with.  Randy Mills' pledge not to take a job with a company funded by the agency for at least a year after leaving is a good step.  There  should be such a formal policy covering all employees. “Serious thought should also be given to the implications of employees leaving for jobs with non-profit entities that CIRM has funded and what safeguards are necessary.”

State laws do exist to deal with revolving door situations, but some consider them weak. (See here for an explanation of the laws.) Trounson’s appointment is an example of the circumscribed nature of the laws. Mills said the agency's “severely” limited investigation into the appointment did not show any illegal activities. Simpson said a more rigorous, independent investigation was needed. 

Mills’ move did send a clear message about his own views on some ethical matters and set a tone that should be helpful at the agency. Some employees might also view it as an example to emulate.

Playing a role in the revolving door concerns is the financial future of the agency. It is facing its effective financial demise in 2017 when funds for new awards are scheduled to run out, according to longstanding calculations by the agency itself. Last week Mills cast that financial picture in a more optimistic light. (The California Stem Cell Report will have more on his analysis in the next few days.)

Nonetheless, as the money runs out and there is no assured refinancing in sight, some employees are naturally going to be considering other employment. Three employees have departed or announced they are leaving since Mills was named. The move of Natalie DeWitt, who was a top aide to Trounson, was already reported by the California Stem Cell Report. DeWitt went to work for researchers at Stanford who have received about $5 million from the stem cell agency.

Elona Baum, general counsel and vice president for business development , this month left her $298,000-a-year job to take a position at Coherus Biosciences of Redwood City. The company yesterday refused to disclose her job title or whether she had already started work. Kevin McCormack, senior director for public communication for the agency, said he did not know her job title. He said the company “has no funding from us or any other business with us.”

The Coherus Web site says the company was founded in 2010 and is “the leading biologics platform company developing biosimilar(generic) therapeutics for global markets.”

The third employee scheduled to leave is Celeste Heidler, financial services officer. McCormack said she is retiring. The agency has posted an opening for her position.

McCormack said it has not been determined whether Baum’s position will be filled.  In addition to legal matters, she played an important role in relations with the biotech and stem cell industry.

Consumer Watchdog’s Simpson said more needs to be done to clear the air concerning the Trounson appointment.

In response to a query, he said,

“There must also be a deeper probe into Trounson’s relationship with StemCells Inc, and it its executives and directors.  Margaret Prinzing’s report, a small step in the right direction, only looked back as far as May 1.  Trounson’s relationship with StemCells Inc. since at least the beginning of 2012 should be examined and the investigation should be conducted by an entity not as closely tied to the agency as the Remcho, Johansen & Purcell firm.  I think the Citizens Financial Accountability Oversight Committee, chaired by the state controller would do a good job."

The committee is the only state entity charged with oversight of the stem cell agency. The governor and legislature have no legal ability to control its operations since it was created by a ballot initiative that specifically spelled out that they had no role.

Los Angeles Times: Flawed Investigation Magnifies California Stem Cell Scandal

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

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

 “California’s stem cell scandal gets worse.”

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

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

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

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

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

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

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

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

Hiltzik wrote,

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

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

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

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

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

Hiltzik’s summary:

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

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

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

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.

California Stem Cell Agency Scores on Early Coverage of Today's Trounson Story

Two media outlets were quick today to write about the Trounson Affair and the reaction from the California stem cell agency, but did not note what the agency itself described as the limited nature of its investigation into the matter.

They focused on what Randy Mills, the new president of CIRM, promised regarding his future employment and acceptance of gifts and travel. The upshot was a PR plus for the agency, which has been caught in a “bit of stink” since Alan Trounson, its former president, was named to the board of directors of a firm that has received $19.4 million from the agency.

John M. Simpson of Consumer Watchdog of Santa Monica, Ca., who has been sharply critical of the Trounson appointment, released a statement, declaring,

"CIRM President Randy Mills clearly recognizes the importance of ethics and personal integrity.  His formal agreement to refuse employment with a company CIRM has funded for at least a year after his departure proves he understands the potential for conflict and is committed to maintaining a high standard of integrity.   

"His action helps correct the damage  done to CIRM’s standing by former President Alan Trounson rashly and inappropriately joining the board of StemCells Inc, a mere week after leaving the agency.

 "Meanwhile, CIRM should make public all emails and letters between Trounson, StemCells Inc, and its employees and directors.” 

Ron Luety of the San Francisco  Business Times wrote that Mills’ action stopped short of rebuking Trounson.  Luety also said that Mills’ response seemed like a “no-brainer” but appeared necessary.  Simpson was quoted along with Mills.

Bradley Fikes of the San Diego U-T also quoted Simpson. Fikes additionally wrote,

“Mills made the right decision, said Jeanne Loring, a CIRM-funded stem cell researcher at The Scripps Research Institute.

"’There's a difference between what is legal and what is ethical,’ said Loring, who attended the meeting. ‘And he's going to be pushing the needle a lot more toward the ethical side without worrying whether he can get away with stuff.’"

It was Kevin McCormack, senior director of public communications for the agency, who told CIRM directors late in the meeting that the agency had been caught in a “bit of a stink” this past month as a result of the coverage. 

Law Firm Memo on Trounson Investigation

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

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

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

  Remcho Memo on Trounson Investigation by DavidJensen

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

Trounson Appointment Comments Begin CIRM Directors Meeting

The governing board of the $3 billion California stem cell agency this morning began its meeting at 9:08 a.m. with an immediate comment on the Trounson Affair.

Board Chairman Jonathan Thomas reiterated the steps taken by the agency so far and said maintaining the public trust in the agency is paramount. CIRM President Randy Mills is expected to make further comments later in the meeting.

California Stem Cell Agency Director Prieto Defends Agency in Trounson Affair

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

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

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

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

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

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

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

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

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

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

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

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

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. 

StemCells, Inc., Says Patient Endangerment Charges Lack Merit

StemCells, Inc., said late today that charges that is endangering patients in clinical trials have no merit and that the company’s primary concern is the safety of its patients.

The Newark, Ca., company was responding to a lawsuit filed earlier this week that alleges the firm is manufacturing human cells in a process that puts “patients at risk of infection or death.”

The suit was filed by Rob Williams, a former senior manager at the publicly traded company. Williams said he was unlawfully fired by StemCells, Inc., after bringing the stem cell quality issues to the attention of senior management.

Earlier today, the California Stem Cell Report asked the company for comment. Ken Stratton, general counsel, responded. Here is the text of his reply.

“As you know, StemCells, Inc. is engaged in the research and development of cell-based therapeutics and is currently sponsoring clinical studies of potential therapies for spinal cord injury, AMD and pediatric neurological disorders as well as conducting pre-clinical studies in Alzheimer’s disease.  The pre-clinical AD studies, but none of the clinical studies, are partly funded by CIRM.

“The Company has reviewed the complaint filed by Mr. Williams, a former employee whose employment was terminated for performance deficiencies, and finds no merit to the allegations. The Company has retained Littler Mendelson as its litigation counsel and intends to defend itself vigorously in court.

“You should know, the elements of manufacturing practices that concerned Mr. Williams were immediately and carefully reviewed by the Company.  The Company’s primary concern has always been, and will continue to be, the safety and tolerability of stem cell transplantation in its clinical trials. Over the years, we have consulted with multiple experts in the field and we believe our processes, procedures and controls, as fully described in our regulatory filings, are appropriate for a company at our early stage of clinical development and comport with applicable guidelines and regulations.  To date, no patients participating in the Company’s clinical studies have experienced any product related safety concerns.

“We hope you find this information helpful.”

California Stem Cell Agency Examining Lawsuit Alleging Patient Endangerment and 'False Certification'

The California stem cell agency today said it is reviewing a lawsuit involving the recipient of a $19.4 million award that alleges the firm is manufacturing human cells in a process that puts “patients at risk of infection or death.”

The most serious allegations against StemCells, Inc., of Newark, Ca., involve its clinical trials. The stem cell agency’s $19.4 million research award to StemCells, Inc., does not involve human beings, only initial development of a possible therapy for Alzheimer’s over the next three years. Both the clinical trials and the Alzheimer’s research use the same proprietary cells, HuCNS-SC.

The company said in a 2013 press release,

"We know from the preclinical work that our proprietary HuCNS-SC cells survive in the toxic environment of the Alzheimer's disease brain and restore memory under the regulation of the host." 

The lawsuit was filed by a former senior manager, Rob Williams, of the publicly traded StemCells, Inc. He alleged he was fired after complaining about the cell problem to senior management.

In addition to possible injury, the lawsuit said that “the use of adulterated stem cells lots could skew patient test results, effectively jeopardizing data behind years of clinical trials and research.”  

The lawsuit said that StemCells, Inc., receives

“…millions of dollars in government funding, including grants from the California Institute for Regenerative Medicine (CIRM). As part of certifications that Defendants made and, on information and belief, continue to make, to the State of California in order to obtain such funding, Defendants represent that their manufacturing processes yield stem cells that are ‘safe for human stem cell transplantation.’ Additionally, in order to secure CIRM funding, Defendants represented and represent that the company follows current Good Manufacturing Practices (cGMPs) promulgated by the U.S. Food and Drug Administration (FDA), a set of standards designed to protect the public from dangers to consumer/patient health and safety. Plaintiffs protected activity, as described above, included efforts to stop, complaints about and refusal to engage in or cover up violations of these standards, and by extension the false certifications submitted to the government, certifications that the company used and uses in order to secure substantial funding.”

The lawsuit also alleged that StemCells, Inc., violated FDA standards and provided false information to the FDA, which has not yet responded to queries from the California Stem Cell Report.

In response to a query, Kevin McCormack, spokesman for the $3 billion stem cell agency, said the agency was carefully reviewing the lawsuit.

Williams attorney, Daniel Velton, has not responded to queries about whether he or Williams informed the FDA of the issues raised in the lawsuit.

StemCells, Inc., did not respond to queries about the matter. (Late yesterday, the firm said the allegations have no merit. See full text here.)

The company was founded by Stanford researcher, Irv Weissman, who sits on its board and is chairman of its scientific advisory board. His wife, Ann Tsukamoto, is executive vice president. Last week the stem cell agency announced that it was conducting a full review of its activities with the firm after it appointed the agency's former president, Alan Trounson, to its board seven days after he left the agency. 

Here is a copy of the lawsuit, which was first reported by Elizabeth Warmerdam of Courthouse News Service.

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.