Text of Ortiz Comments

Here is the text of Sen. Ortiz' press release, which is not currently available on the Web, on the CCST report.

SENATOR ORTIZ RESPONDS TO INTERIM REPORT BY
CALIFORNIA COUNCIL ON SCIENCE AND TECHNOLOGY


SACRAMENTO – Senator Deborah Ortiz (D-Sacramento) today issued the following statement regarding the interim report on intellectual property issued by the California Council on Science and Technology:

“This interim report is but a first step in an ongoing process to determine the best way to ensure California shares in the therapies and medicines we hope to develop through Proposition 71, which provides more than $3 billion in publicly-funded stem cell research grants.

“The report is premature. The legislative resolution asking the council to explore intellectual property policies for stem cell research, ACR 24 by Assemblyman Gene Mullin, D-San Francisco, has yet to be voted on by the Senate. The resolution also asks the council to broaden its membership beyond its current bio-tech and university representatives and study policies that would ensure California sees a financial return on its generous investment. That was the promise made to voters in November 2004, and that’s the promise that must be kept to ensure voters’ confidence in their huge investment in cutting-edge research.”

“As the council notes, there is an expectation that intellectual property policies need to direct a revenue stream to the state. The council also acknowledges that federal tax laws prevent Proposition 71, as written, from delivering on its promise to provide royalties or revenue streams back to the state while using tax-exempt bonds.

“Senate Constitutional Amendment 13, however, would establish a method for providing benefits to the state without jeopardizing the use of tax-exempt bonds. SCA 13 would require that the state’s public health programs have access at affordable, below-market costs to the products, medicines and therapies that eventually will be developed under Proposition 71. California should not have to pay twice for medical therapies that can assist our citizens who suffer from debilitating and life-threatening chronic conditions.

“I urge the council to expand its study group as requested under ACR 24 to add representatives of consumer and public interest groups, foundations, and bond and legislative counsel to its current panel so the council can provide a broad perspective into how our state can benefit from the public’s investment.

“I also urge the council to conduct an objective, comprehensive study of other models that promote affordability and access to new therapies and medicines derived from research. The International Aids Vaccine Initiative requires all of its grantees to make their resulting therapies and products accessible and affordable to low-income populations; the Melinda and Bill Gates Foundation and the Foundation for the National Institutes of Health require “global access” to the therapies and medicines that result from their research grants.

“As the venture capitalist in this bold experiment, California has the ability and the responsibility to use its leverage to ensure its citizens have affordable access to the products and therapies eventually developed. We must provide leadership in developing standards that make it clear the public will benefit from the public’s investments.”

# # #

IP Report Released for California Stem Cell Agency

Later this afternoon we will have a longer look but here is the first cut on the just-released report on intellectual property and the California stem cell agency.

The California Council on Science and Technology said that CIRM should "develop a set of policies consistent with the federal Bayh-Dole Act to manage patents and other intellectual property (IP) resulting from California's burgeoning stem cell research program."

It also warned that the state and patients should lower their expectations either for quick bucks or quick cures. Therapies from stem cell research could be 10 or 20 years out.

"The study group urged CIRM and the state to proceed with caution and not set overly prescriptive policies for IP," the CCST press release said.

"The report emphasized balancing the state's interest in receiving benefits from its investment in research with the need to bring actual therapies to market through workable IP agreements. The study group encouraged timely publication of research results to maximize public benefit from the project. Making research tools developed with CIRM funding largely available to other scientists is critical, the study concluded.

"'Progress in stem cell research, like other research, will depend on researchers' ability to access and use information in the public domain and to combine public and proprietary data into new databases as well as to re-evaluate and reuse existing data,'" the CCST press release said.

Here are links to the press release and the full report.

Young Klein: "I'm going to stay away from government work."

Some describe California stem cell chairman Robert Klein as a "czar." Then there are others who say he is "a tireless worker who believes nothing is impossible, but add that his financial packages tend to be complicated and optimistic."

While the latter description dates back to the 1980s in a Fresno Bee article, it could well describe him today. So could the description "czar," at least by some perspectives. Fortune magazine recently characterized Klein as a top-notch salesman as well as "manic" and "relentless."

Klein is the driving force behind the stem cell agency, but we have yet to see a first-rate profile of the man that includes warts as well as the usual complimentary material from his friends and supporters. Such profiles are difficult and time consuming and don't often appear in the mainstream media. For example, they would have to include a look at his business arrangements over the last 20 or so years and any lawsuits involving them.

But who Klein is and his track record are fundamental to understanding CIRM.

Some of his history can be found in this article from the 1980s in the Fresno Bee, published in the city where Klein's father was city manager. One quote from it: "Bob has relationships with everybody. I mean, he's on every side of every transaction. Every time I've bumped into him he's got a number of levels of involvement.-- Preston R. Miller, partner, Goldman Sachs & Co., underwriter for Fresno County bond."

Another quote from the story (the last two paragraphs): "Klein acknowledged that lobbying on behalf of the borrowers created a conflict of interest, but stressed, 'It was a fully disclosed conflict.'

'In the future,' he said, 'I'm going to stay away from government work.'"

The piece is murky and convoluted but is worth slogging through if you want one reporter's perspective on Klein's business dealings. In this ancient affair, he seemed to be pushing the envelope on conflicts of interest, based on the Fresno Bee's reporting.

The Fresno Bee article was made available courtesy of the Etopia Media News Networks, which has done substantial reporting on the California stem cell agency.

New Service Added to the Report

A new feature is being added to the California Stem Cell Report – a weekly calendar of activities and events concerning stem cell research and the California stem cell agency. The first version appears below. The calendar will be updated each Monday. If you have items for it, please send them to djensen@californiastemcellreport.com.

Monitoring Money at CIRM

Money and the control of it is the topic for an upcoming meeting of the Governance Subcommittee of the California stem cell agency on Aug. 31.

The budget for 2005-06 is on agenda for the meeting as well as the contracts that the agency has been letting. Presumably the budget is for the fiscal year that most state agencies use, which began last July 1. Also up for consideration is a cryptic item called "naming programs." We have a query in to CIRM on what those are. (If any of you readers know or want to guess, please send a note to djensen@californiastemcellreport.com). Then there is consideration of bylaws for the Oversight Committee.

There is no backup material posted with the agenda, but it is still early. Given past practices, however, we may not see much until about 24 hours before the meeting, if then.

The meeting is scheduled for downtown Los Angeles in the central public library but teleconference sites are available at other locations around the state.

Sacramento Stem Cell Conference Requires Disclosure

In case our readers can't make it to one of the two California stem cell conferences already scheduled for September and October, there still is another chance.

This one-day session is called "Stem Cell 101-- Everything You Wanted to Know About Stem Cells But Were Afraid to Ask" and is sponsored by the UC Davis Health System.

Scheduled for Oct. 8 in Sacramento, it promises presentations on scientific, ethical and legislative aspects of stem cell research. Speakers include California's most influential politician on stem matters, State Sen. Deborah Ortiz. Claire Pomeroy, dean of the UC Davis School of Medicine and a member of the CIRM Oversight Committee, will speak on Prop. 71 – "Quirk or Trend?" H. Ralph Snodgrass, CEO of VistaGen Therapeutics, is scheduled to discuss uses of stem cells in drug discovery and development. (The full agenda can and registration material can be seen here.)

The agenda also includes this note regarding potential conflicts of interest:

"Consistent with UC Davis policy, faculty are expected to disclose any significant financial interests or other relationships with manufacturers of commercial products and/or providers of commercial services discussed in their presentations. The intent of this disclosure is not to prevent speakers with significant financial or other relationships from making presentations, but rather to provide listeners with information on which they can make their own judgments. A complete faculty disclosure statement and acknowledgment of commercial support for this program will be included in the syllabus provided at the activity."

It would seem that this type of disclosure would be appropriate for adoption by CIRM at all of its sessions, including its October conference. Perhaps the agency has done something along these lines. If so, we have missed it.

Registration for the UC Davis conference is $120 for health care professionals and $95 for others before Sept. 16. Slightly higher after that date.

To see items on the other two conferences check "Baybio" on Aug. 14 and "CIRM conference" on Aug. 12.

The Bee: Nonprofit Control of CIRM?

The California stem cell agency is "in denial" about its problems, The Sacramento Bee says, and should stop soliciting funds from non-profit organizations.

The Bee editorial Aug. 13 took on a grabbag of issues still festering at CIRM. It was probably most critical of the agency's plan to sell $200 million in bond anticipation notes to charities to fund the organization.

The Bee said such a move could lead to nonprofit groups effectively controlling CIRM. The editorial also said that it was unlikely that the charities would passively eat any losses on the notes. "They will exert enormous pressure on state lawmakers to reimburse them for some or all of the $200 million, adding to the state's budget problems," The Bee said.

During the hiatus on funding created by litigation against CIRM, the newspaper said that rather than soliciting charities, the agency should resolve lingering questions concerning conflict-of-interest policies, research ethics and licensing of therapies.

"Secret" Stem Cell Info Disclosed by Stanford

Stanford University is seeking $3.6 million from the California stem cell agency for a training grant to support 16 scientists doing research in adult or embryonic stem cells.

Oddly this is information that CIRM, a publicly financed agency, wants to keep secret. And it is more information about Stanford's proposed program than the University of California, another public agency, is willing to disclose about its similar grant applications.

According to an article by Amy Adams in the "Stanford Report," a university publication, "The grant would provide roughly $1.2 million per year for three years to support the career development of six graduate students, five postdoctoral fellows and five research fellows. These CIRM scholars will be culled from departments across campus including those in the medical school, engineering, the humanities and other areas."

"This is truly a cross-disciplinary effort," said Margaret Fuller, the Reed-Hodgson Professor in Human Biology and Professor of Genetics, who helped write and submit the training grant.

"The trainees at Stanford would participate in all coursework and activities required by their departments as well as take required courses in stem cell biology, disease mechanisms and ethics. They would also attend a weekly seminar series," Adams wrote.

"'The goal,' Fuller explained, 'is for trainees to become experts in stem cell biology and become interested in and informed about human disease.'

"The submitted grant is also a first for Stanford's recently formed Program in Regenerative Medicine, which pulls together faculty interested in regenerative medicine research from across the Stanford campus. One goal for the program is to help coordinate Stanford's efforts to receive CIRM grants.

"The program is under the direction of the medical school's Institute for Stem Cell Biology and Regenerative Medicine."

Readers can draw their own conclusions about whether the information disclosed by Stanford is so sensitive that it should be secret, as argued by CIRM and the University of California.

For more on this subject see the "secrecy" item on this blog Aug. 17.

Edelman Earmarks on CIRM Press Notices

It may be a bit speculative but the Edelman PR firm could be beginning to earn the $28,000 a month it receives from the California stem cell agency.

This month we have seen two articles that generally reflect well on CIRM in prestigious magazines with influential readerships.

We wrote earlier ("Political Conflagrations" Aug. 9) about the piece in Fortune, which had something for both foes and supporters of CIRM. But overall, considering the nature of the readership of the magazine, it could be chalked up as a plus for CIRM, which Fortune indicated was fighting for its life.

The second piece appeared in New Scientist, a British magazine that bills itself as the world's leading science weekly. The publication has close to 150,000 circulation, and 16 percent of its readers either have or are studying for a Ph.d.

In the case of New Scientist, there was no contrary editor or writer to filter CIRM's message. Instead, it was a first-person piece by Robert Klein, chairman of the stem cell agency. He wrote:

"Our campaign, which included the largest coalition of patient advocacy and medical groups in US history, called on Californians to do what the federal government refused: give scientists sustained funding to study embryonic stem cells and how they might reduce the suffering and cost of chronic disease and injury.

"In November 2004, Californians answered that call unequivocally. Prop 71 was passed by an overwhelming majority, creating the California Institute for Regenerative Medicine and earmarking $3 billion for research that could benefit an estimated 128 million people in the US alone. Yet despite this major victory, we knew our work had just begun."

He went on to point out, in a mild-mannered way, accomplishments and challenges facing the agency. The article, however, contains nothing surprising for readers of this web site.

The New Scientist piece has the earmarks of some good PR work, both in securing the placement and in the tone of the language. While we may not be able to credit Edelman with originating both the Fortune and New Scientist pieces, the firm probably ghost-wrote Klein's piece and handled the care and feeding of the folks at Fortune.

Access to the Fortune and New Scientist sites is restricted to subscribers, but if you are interested in receiving a copy of the pieces, send a request to djensen@californiastemcellreport.com.

You can read more about Edelman's arrangements with CIRM in the following items on this website: "$378,000 Contract" Aug. 3, "What's It Worth" July 15.

WSJ: Scandals in Medical Research

Why should California's stem cell agency be more, rather than less open with disclosure and transparency?

If you read the Wall Street Journal on Tuesday, you know why. A front page piece by reporter Bernard Wysocki described a case at Cornell University that "exposes what some scientists call a dirty little secret of university medical research: the misuse of taxpayers' funds.

"The NIH last year funneled $20 billion to campus researchers, an amount that has doubled since the late 1990s," Wysocki wrote. "Now, a string of multimillion-dollar settlements by leading universities is showing how vulnerable the system has become to abuse.

"Since the beginning of 2003, Northwestern University, Harvard University, Johns Hopkins University and the University of Alabama at Birmingham have agreed to civil settlements. In each case, the government alleged that the universities pledged to do one thing with their NIH money and then spent it on something else. This spring, the Mayo Clinic, Rochester, Minn., agreed to pay $6.5 million to settle charges it diverted money from one grant to other grants running short of funds. The institutions agreed to upgrade their accounting practices, but admitted no wrongdoing."

"In a recent survey of 3,300 research scientists, researchers at Minnesota-based HealthPartners Research Foundation and the University of Minnesota found that more than 50% of established grant-getting scientists used grant money designated for one project on another project -- often for undisclosed research that might lead to future grants," Wysocki wrote.

Public disclosure and openness do not guarantee that there will be no abuses. But without public transparency, temptations arise. Even the well-intentioned can fall into arrangements that cannot stand the light of day. The collateral damage can be weathered by institutions such as Harvard and the Mayo Clinic. But they can be life-threatening to a young agency, such as CIRM, that is engaged in controversial research.

Given that CIRM already has built-in conflicts of interest, it behooves the agency to avoid giving its enemies any more fodder than they have already.

Secrecy and the Public's Money

When one California public agency asks another California public agency for money, one would think that it would be something that taxpayers should be able to know.

But the California stem cell agency says the information is secret. And the University of California is only a bit more enlightened.

The case in point involves a $45 million effort by CIRM to create a cadre of stem cell researchers. Twenty seven universities and non-profit academic and research institutions have indicated an interest in the grants. But even the names of the applicants have been kept secret by the stem cell agency.

We can now tell you, however, that all 10 UC campuses have applied for grants. But very little more has been disclosed by our public servants. In response to a request from the California Stem Cell Report, UC officials said that the Berkeley, Davis, Irvine, Los Angeles, San Diego and San Francisco campuses have applied for "type one" grants. The Merced, Riverside, Santa Cruz and Santa Barbara campuses have applied for "type three" grants for specialized training programs.

Type one grants, according to CIRM, cover proposals for comprehensive training programs at the pre-doctoral, post-doctoral and clinical levels. They could support up to 16 CIRM Scholars and operate on a total budget of up to $1.25 million per year. Type three grants offer training at "one or two levels of education." Each grant can support up to 6 trainees, with a budget of no more than $500,000 per year.

We can also tell you, thanks to reporter Carl Hall of the San Francisco Chronicle, that UC San Francisco is seeking $3.6 million from the grant program. The school is already recruiting applicants for its program. Hall reported that his information came from Arnold Kriegstein, who is head of a stem cell program at UC San Francisco.

CIRM's claim to secrecy is based on language in Prop. 71 that says CIRM "working group" records are not public. A working group is scheduled to make recommendations later this month to the Oversight Committee on which applicants should receive grants. Following approval, only the successful applications would become public.

UC was willing to disclose the basic information reported above, but refused to disclose anything further.

Maria Shanle, university counsel with the University of California, said "the university's position is that the CIRM applications contain detailed information that would weaken the competitive position of the grant applicant(s) in applying for additional or different grants, if the application were disclosed to the public.

"The concern is that if a grant application is not funded, disclosure of the details of the proposal could give away the applicant's ideas and plans to potential competitors for future grant opportunities. It is this future competitive disadvantage that constitutes the public interest in not disclosing the records. This rationale is parallel to a similar rationale that is commonly used to protect unfunded research proposals from public disclosure...."

We understand the university's reasoning as it applies to research grants. But the issue here is proposed educational programs, which are often discussed publicly and in detail through faculty hearings, the UC board of regents, the state Commission on Postsecondary Education or the Legislature. The grants do not seek to probe the mysteries of stem cells with goal of developing specific products; they are training efforts.

It is difficult to see where there is a give-away of something so valuable that it would damage any individual's likelihood of securing another grant to train stem cell researchers.

For more on the training grant effort, see "Is CIRM Truly Transparent" June 5 and "Stem Cell Cadre" June 2 on this blog.

Baybio Stem Cell Show and Tell

How does a stem cell investigator find grant dollars?

Why does one venture capitalist decide to invest in a stem cell company and another does not?

How does an executive of an emerging stem cell company navigate the commercialization issues?

These questions and more will be addressed Sept. 19 during a panel discussion at UC San Francisco sponsored by Baybio, Northern California's biotech industry association. The session is also scheduled to be broadcast on the Web courtesy of the Foley and Lardner law firm, which has ties to the California stem cell agency.

In a column about the conference, "The Business and Financing of Stem Cell Research in California," Baybio wrote, "To anyone who is following the progression of Prop. 71, it is confounding to figure out what the grant program will ultimately be for the CIRM. With lawsuits surrounding the CIRM, it may be another six months to a year before grant money is in the hands of entrepreneurs. ....We are intrigued by the signaling effect of Prop. 71, but we are mostly concerned with the tangible: what is important to entrepreneurs in regenerative medicine today."

Among those scheduled to appear is Bruce Cohen, chief executive officer of Cellerant Therapeutics, of San Carlos, CA, which recently received $16 million in a round of funding involving Novel Bioventures, George Rathmann and CX Venture Group, Allen & Company and MPM Capital. (David Baltimore, a member of the CIRM Oversight Committee, is on Cellerant's board of directors.)

In addition to sponsoring the Webcast, Foley and Lardner are sending attorney Stacy Taylor to discuss what intellectual property "is necessary to commercialize products and to discuss royalty stacking issues which may come into play from the broad patents which have been filed at the University of Wisconsin and in South Korea."

You can register for the conference and see the full agenda by going to this site. The cost is $53.08 to nonmembers of Baybio ($42.63 for members) if you register by Sept. 16. It is about $10 higher at the door.

More on New CIRM Staffers

On July 30 we reported very briefly on the new additions to the staff of the California stem cell agency and promised to bring you more information when it became available.

Here it is, at least for Geoffrey Lomax, who started Aug. 4 as senior officer for the Standards Working Group.

CIRM has this to say about Dr. Lomax. He is the former research director for the California Environmental Health Investigations Branch and has conducted environmental and occupational health research since 1985.

According to CIRM, Lomax supported the professional and research needs of the legislatively mandated Expert Working Group that developed a strategic plan for the Environmental Health Surveillance System in California.

His Ph.d. dissertation involved scientific, ethical, legal and policy issues related to workplace biomonitoring and genetic testing, according to the Branch's website.

Lomax received his BS in Environmental Toxicology from the University of California at Davis and his doctorate within the Division of Environmental Health Sciences in the School of Public Health at the University of California at Berkeley.

We hope to bring you more information on the other two new staffers soon.

Dog Days for US Stem Cell Science?

Once upon a time California was expected to be the hottest ticket in the world of stem cells. But The Wall Street Journal today named Seoul as "Cloning and Stem Cell Central" for the world.

All because of some mutt.

Actually, we must acknowledge it is a little more complex than that. WSJ science columnist Sharon Begley explained it all in her column this morning that gave Seoul the title. Her piece asked and attempted to answer two key questions: "Is the U.S. losing its decades-long pre-eminence in science? And if so, does it matter?"

One of those answering the questions was Evan Snyder, principal investigator at the Burnham Institute in La Jolla, Ca., whose chief executive, John Reed, sits on the Oversight Committee of the California stem cell agency. Here is part of what Begley wrote:

"'Americans are rightfully proud of the research we do, but this is not the only place really great science is being done these days,' says Evan Snyder of the Burnham Institute, La Jolla, Calif., a leader in stem-cell research. 'Countries that never had a tradition of cutting-edge biomedical research now have an entrée as a result of U.S. [stem-cell] policy. Americans are at a disadvantage in not having the opportunity to develop the technical know-how.'

"One sign of how besieged he and others feel: Lab space financed with private or state money for studies that can't be legally done with federal money is called a 'safe haven.'"

Begley concluded: "An interesting battle will come when a lab in Singapore or Seoul or Britain uses embryonic stem cells to develop a therapy for diabetes or Parkinson's or heart disease. Its use in the U.S. would require approval by the Food and Drug Administration. Will opponents of stem-cell research demand that the FDA reject it and deprive patients of their only hope?"

Latest on CIRM Presidential Search

Spencer Stuart, the executive search firm, is still hot on the trail of a permanent president for the California stem cell agency.

And they are working for free since their contract expired May 31 without the selection of a president.

The agency had hoped to have a permanent president by June. We have written several times about the still ongoing search for a new nabob, wondering about the status of Spencer Stuart (see "Looking for a New CEO" July 20 among others).

Our anxious suspense has now been relieved. Spencer Stuart decided to continue their efforts pro bono. Probably another tribute to what Fortune magazine has described as the super salesmanship of stem cell chairman Robert Klein.

CIRM Launches Major Stem Cell Conference

Coming up this October is a California stem cell agency event that is certain to attract national and international attention. If you want to attend, you should apply very soon to CIRM.

The conference Oct. 1 and 2 is dubbed "Stem Cell Research: Charting New Directions for California." The purpose of the meeting is to help identify scientific priorities for the first phase of stem cell research by the agency.

Attendance is limited but the agency promises to "simulcast" the session to multiple sites throughout the state in an effort to reach a wider audience.

The actual event will be held at the Renaissance Parc 55 Hotel in San Francisco. The two-hundred attendees will be selected from persons who apply to the agency by Aug. 23. CIRM said those chosen will include scientists, representatives from private industry, patient advocates and the public. You can find the application here.

Scientists from the US, Australia, Canada, Israel, Sweden and the United Kingdom will make presentations with panel discussions following. "One session will focus on private industry perspectives on clinical applications of stem cells as cellular therapeutics," according to a CIRM press release.

The agenda at this point shows a representative from Geron Corp. of Menlo Park, Ca., (Jane Lebkowski),and one from Cognate Therapeutics of Baltimore, Md., (Alan Smith)participating in that session.

Political Conflagrations and the Biotech Boom

Your average reader of Fortune magazine has a household income of $347,500 and a net worth of $2.2 million. Nearly two-thirds of the readers are top management, and one out of three is on a corporate board.

An influential and important group, to say the least. All one million-plus of them were presented with the following in the Aug. 22 issue of the self-styled "world's premier business magazine:"

"THE STEM-CELL WAR -- Fighting for Their Lives --The folks who brought you Silicon Valley want to ignite a biotech boom, and California's Prop. 71, with $3 billion for stem-cell research, was supposed to be the match. They got a political conflagration instead."

Those are the headlines leading into the story by writer Betsy Morris -- a lengthy piece focusing heavily on California but weaving in national and international events as well. It is chockablock with tidbits.

On California stem cell chairman Robert Klein: "Relentless, manic and one of the best salesmen you'll ever meet."

On the selection of the California stem cell HQ: "In the 11th hour of an Olympic-like bidding contest, San Francisco snatched the plum from a dazed San Diego, compensating for an undistinguished second-story office on King Street with $18 million in free rent, conference rooms, and the like."

On the nature of the stem cell industry: Roughly 185 stem-cell companies exist in the world but "venture capital in the field is a mere $470 million."

On the future: Dana Cody, executive director of the Life Legal Defense Foundation, is quoted as saying, "I'd still like to see voters get educated (during the delays caused by litigation) and see some sort of grassroots effort to overturn the initiative."

The Fortune piece is definitely high-impact. But which way it falls – to the benefit of the stem cell agency or to its detriment – is difficult to say. There is enough fodder in it to fuel almost any point of view. But the article makes it clear that the agency has not had an easy course.

Here are a few more excerpts:

"When the stem-cell initiative passed on Election Day last November, the future looked bright. But by May the effort had slammed into a wall of opposition from the religious right and anti-tax groups, which stalled it with lawsuits."
----
"Suddenly California became a mecca for biologists the world over. California universities—the same ones that gave birth to Hewlett-Packard, Sun, Google—started jockeying for position. Their best Ph.D.s began dreaming about the possibilities. The same characters who gave us Silicon Valley—the Sand Hill Road venture capital crowd—began mobilizing to deliver the next tech revolution. 'Biology is the next wave of science to make a big difference, and early-development stem cells are the mother lode,' says Richard Mahoney, retired CEO of Monsanto, a leader in agricultural biotech. 'Nobody wants to be left behind.'"
----
"What has happened in California shows how unpredictably complex and thorny this issue can be. Despite all the momentum, Prop. 71 has stalled and landed in the courts. Lawsuits have blocked the issuance of bonds that would fund the stem-cell research. Now the initiative's backers must scramble to arrange alternative financing and fight the legal battles as they try to judge grant applications. For the moment an odd but potent little army of pro-lifers and anti-tax groups, represented by the Life Legal Defense Foundation—the same organization that provided legal assistance to Terri Schiavo's parents—has thwarted all the Hollywood stars, the deep-pocketed venture capitalists, the Nobel Prize winners (40 of them), and patient-advocacy groups (70 of them) that endorsed the research. "
----
"The International Society for Stem Cell Research annual conference, held at the San Francisco Marriott last month, should have been a triumphant affair. Instead, a siege mentality had set in. 'We are a blue city in a blue state," Mayor Newsom assured the crowd of scientists. The underlying message: You will not be considered pariahs here. In an urgent speech, Bob Klein beseeched them not to give up. 'This is a very small window of opportunity. We must act quickly, or the forces against us will change the tide,' he said."

Online access to the article is limited to Fortune subscribers.

(A footnote on the Fortune demographics: There is a difference between the number of readers and paid circulation, which is 918,739. Readership is substantially larger because of a pass-along rate, but Fortune did not report online its calculation for its readership.)

Stem Cell Star Rebuffs the Golden State

All the finest stem cell researchers in the world are booking flights to California, lured by the $3 billion the state plans to spend on behalf of their efforts, right?

That's the conventional wisdom. But in at least one dramatic case, it is definitely wrong.

The story involves 35-year-old Mick Bhatia and the University of California, Davis, a $500,000 salary and an research budget of $2 million.

Bhatia is currently director of the stem cell biology group at the Robarts Research Institute at the University of Western Ontario. He soon will be scientific director of Canada's first stem cell research center, which is under construction at McMaster University.

What he won't be is director of a stem cell research center at UC Davis, which courted him for nine months with blandishments such as a base yearly salary of more than $500,000 along with the annual research budget of $2 million.

The details of the wooing were disclosed by reporter Carolyn Abraham of the The Globe and Mail of Toronto, which circulates nationwide in Canada. "Canadian Stem Cell Star Shuns U.S. Riches" read the headline on the story Tuesday.

The UC Davis offer was so generous, the newspaper reported, that Bhatia said, "I kept thinking they mixed up my name with someone else. It was overwhelming."

Abraham reported, "Three times he flew down to investigate the university and the town, scoping houses and schools for his two young children. His wife, Christina, cruised images on the Internet, being nine months pregnant with their third child and unable to fly.

"Dr. Bhatia even went so far as to sign and seal the offer. 'I put it in the FedEx envelope intending to send it off in the morning,' he said. But after a sleepless night, 'I couldn't do it.'

"He and his wife wanted to stay close to their families, and a pang of patriotism struck after their baby was born shortly after Canada Day. 'I like Canada,' the Toronto-born Dr. Bhatia said. 'I was educated here.'

"He also feared the position in California would force him to be more administrator than scientist. His duties would have included fundraising and providing input on designing the center and how it should operate.

"'If we spend a lot of time thinking about how shiny the hallways are and the square footage, we won't get very far figuring out how these cells work,' he said."

Abraham said that at McMaster Bhatia will have $10 million (Canadian) to start up research at the institute, plus $4 million for equipment and another $3- to $4-million in funding through Canada Research Chair positions.

How big was the Bhatia hire? John Kelton, vice-president of McMaster's health sciences faculty, said, "It's like getting a Wayne Gretzky or a baseball star."

The Boodle, The Barristers and a Glass Half-Full

A few days ago we received a note from a gentleman at the State University of New York, Albany, that seemed to reflect a rose-colored view of the current state of affairs at the California stem cell agency.

Or perhaps his message was intended to indicate that we are taking an excessively negative view of the situation. There is no doubt that CIRM is moving forward, albeit in fits and starts. As we have discussed before, creating an operation such as CIRM from scratch is more difficult than most of us understand.

But the agency itself has set high and ambitious goals that it has failed to meet. And it is a long ways from being fully operational.

Two of the major problems – litigation and money -- were discussed recently in the San Diego Union Tribune and the San Jose Mercury News.

Reporter Terri Somers of the San Diego paper wrote about the plan to finance the agency's operations with bond anticipation notes from the state. She noted there were major skeptics, including Harold Johnson of the conservative Pacific Legal Foundation in Sacramento.

"I wouldn't be surprised if there aren't many takers for what the treasurer's peddling. These notes may be to state financial instruments what the Edsel was to cars, or New Coke was to soda," Johnson told her.

"Finding buyers for the notes may be a big hurdle," Somers wrote. "After circulating the bond anticipation notes to institutional investors, the state determined this month that there were no interested buyers. The treasurer's office is now circulating the term sheet to philanthropic investors, such as foundations that support medical research."

The stem cell agency's attorney, James Harrison, said there never was "any expectation that institutional investors would be interested in buying the notes because they are relatively risky and unusual." That, of course, raises the question of why such an effort was even made.

On the litigation front, reporter Steven Johnson of the San Jose Mercury News said that the agency "could be in for a legal fight that cripples its core mission for a year or more."

Johnson wrote: "'Getting the suits (against the agency) resolved legally by the end of this year is 'extremely unlikely,' said (California) Deputy Attorney General Tamar Pachter. Although some experts say resolution of the suits could take up to 18 months, she added, 'your guess is as good as mine.'''

And then comes an item from Stuart Leavenworth, an associate editor of The Sacramento Bee, on Sunday, concerning national stem cell legislation "that would criminalize techniques many scientists - including those here in California - say are essential for developing stem cell therapies. (Republican leader) Frist may ultimately support those restrictions as a way to restore his credibility with religious conservatives. The outcome could be crippling to California's $3 billion Institute of Regenerative Medicine (which already has its own problems)."

As our correspondent from New York suggests, CIRM is clearly a work in progress. All the more reason for the public to pay exceedingly close attention to it. A year from now the fledgling bureaucracy will be a different creature. We can only hope that it fulfills its promises of transparency and disclosure as well as its aspirations to lead the way to therapies and cures that could help millions.

Dogged Coverage and the MIAs

Something must have happened at last week's meeting of the Oversight Committee of the California stem cell agency, but you could hardly tell it by looking at some of California's leading lights of the newspaper business.

Only two newspapers carried stories on the session in San Diego. Missing in action were the San Francisco Chronicle, The Sacramento Bee, the San Jose Mercury News and the Los Angeles Times – notable because they have been among the semi-regulars covering CIRM. The San Diego Union Tribune and the North County Times (San Diego County), however, both carried articles.

Reporter Terri Somers of the Union Tribune focused not on action by CIRM but on yet another lawsuit against the agency that appears to be identical to one filed against the NIH. The litigation dealt with on protection of the alleged civil rights of frozen embryos. Somers reported that the NIH lawsuit has already been dismissed.

Reporter Bradley Fikes of the North County Times briefly mentioned the lawsuit. He wrote, "Committee member Richard A. Murphy, also president of the Salk Institute, said there is a "growing sense of frustration that the situation will continue and funds won't be released as quickly as we had hoped there would be.'"

Fikes' story focused on the committee's opposition to federal Brownback stem cell legislation and support of the Feinstein-Hatch measure. He said the panel "struggled to find a way to communicate the differences between the two."

The lack of coverage of Friday's meeting probably can be chalked up to the dog days of summer, which, in this case, happened to coincide somewhat with some sort of business involving a dog in South Korea. No, it was not the yarn about the man who bit the beagle.

"Totally Baseless" Redux

Don't ever say that the California Stem Cell Report has lost its institutional memory. We do recall, in fact, that we engaged in a bit of "totally baseless speculation" on July 30.

As we warned our readers, our maunderings might lack merit. And so they did. No action that we know of was taken last week on selection of a permanent president for the agency.

We are still wondering about the current role of Spencer Stuart, the executive search firm that was hired to find the new nabob. Spencer Stuart's contract expired May 31. It is now Day 21 since we asked CIRM whether Spencer Stuart is still on the job. No response yet.

The Retroactive $378,000 Edelman PR Contract

The California stem cell agency on Friday is likely to approve a $378,000 annual public relations contract with Edelman, the world's largest independent PR firm.

Going rates for help at Edelman range from $450 an hour for Gail Becker, president of the Edelman's western region, to $70 an hour for unidentified interns. Adam Silber, an Edelman vice president who has been listed as a contact on the CIRM website, goes for $240 an hour.

Compare that to the $43 hourly rate for Nicole Pagano, who is a state government employee and the lead contact at CIRM since April. She and Silber appeared on the scene about the same time.

Of course, Pagano's $90,000 annual salary as senior communications specialist does not include the cost of fringe benefits or a profit, both of which are presumably included in Edelman's rates.

Edelman's responsibilities seem fairly routine, but CIRM seems to be still struggling with making its PR work routine, even with Edelman's help during the last four months. A well-run organization performs most of its work in a routine fashion. If there are major hoohas over regular tasks, an organization is going to be hard-pressed to deal with more difficult issues.

The scope of Edelman's work includes preparing media kits, maintaining contact lists, prepping CIRM officials on media interviews, writing stem cell research backgrounders, dealing with the web site and so forth.

Oddly, Edelman's work does not seem to involve much specifically with radio and TV, which is where most of the public gets its news. In fact, the words "radio" and "television" or "TV" are not even mentioned in the Edelman "scope" document although letters to the editor and editorials are specifically cited. Attention to TV and radio is even more important, given the relative novelty of stem cell issues to the bulk of the public. Some polls show favorable opinion concerning stem cell research, but you can bet most persons would have difficulty describing a stem cell or potential benefits of research. The next few years offer a prime opportunity to shape public opinion when it is most malleable -- when an issue is relatively new and beliefs have not been locked down.

The Edelman contract does not include any Web site construction expenses, although it is the project manager for the site redesign, nor does it include major printing costs. Media kits, FAQs, etc., will have to be printed at additional cost in addition to posting on the CIRM web site.

Approval of the contract by the Oversight Committee will formalize a relationship with Edelman that began in April following an unannounced selection process for PR firms. Losing out in the process were Weber Shandwick Worldwide and Burston-Marsteller.

Earlier Jeff Sheehy, a communications specialist at UC San Francisco who serves on the oversight board, said the size of the Edelman contract was "appalling." He questioned whether the institute was getting anything for its money.

CIRM is requiring weekly reports from Edelman on its accomplishments. But filing paper work is no substitute for diligent oversight and direction. It remains to be seen whether Edelman can produce a record that is better than its first four months as the stem cell agency's PR firm.

Talent, Mumbo-Jumbo and $536,000 Salaries

Salaries are once again a subject of interest at the California stem cell agency, which is trying to put together a rational pay structure for its employees from scientists to clerks.

This is no management mumbo-jumbo matter. If the agency is to attract the talent it needs, it must be willing to put together compensation packages that are at least somewhat comparable to the private sector. Otherwise it could find itself burdened with mediocrities who will linger for years before they ultimately leave, if ever.

The current salary range under consideration runs from $40,000 to $536,000, based on work performed by Alexandra Campe Degg and Dee DiPrieto. Degg works for UC San Francisco in human services but CIRM contracted with the campus for her as its interim human resources officer. DiPrieto is a consultant recommended by Spencer Stuart, the executive search firm hired by CIRM to find a permanent president.

Degg produced a proposal with 10 salary levels. Under it, the chief human resources officer would have a salary range of $78,100 to $140,600. The general counsel would range from $152,500 to $274,500.

DiPrieto performed an initial salary survey with the promise of more information to come in August for the agency's Governance Committee. The survey deals only with salaries and not total compensation or compensation costs, which are significantly larger than salaries.

Depending on their provisions, fringe benefits and related matters can add 33 percent or more to the cost of an employee – beyond his or her salary.

Total compensation is also another matter. Earlier this year, the agency cited salaries at the University of California as a guideline for CIRM. UC is ostensibly a reasonable organization that does not engage in Enron-like compensation deals.

However, when one looks deeper, the UC salary levels cited by CIRM can be misleading. Actual compensation for some positions can run substantially higher than nominal salaries. For example, some years back the highest-earning UC employee had about a $1 million annual paycheck. He was the football coach at UCLA. Last fall, the Wall Street Journal mentioned the $1.2 million salary and bonuses of an ophthalmologist in 1997, also at UCLA. He left the next year to earn more on his own.

When Zach Hall was appointed as interim president of CIRM earlier this year, some critics objected to his $389,000 salary as well as to proposals to pay other top employees in a similar fashion.

We are not critical of Hall's salary or the pay scales developed by Degg or, for that matter, the compensation of the football coach and ophthalmologist. Talent costs money, and the stem cell agency needs as much talent as possible. One can argue about whether any football coach should be paid more than a kindergarten teacher, but that is a subject for another blog.

The stem cell agency will have to live with its salary scale for many years. They are devils to change, once in place. The agency should be forthright about its compensation rationale and information as well as bonus or incentive plans. If side deals are being cut, they should be on the public table, even if they are not strictly CIRM funded.

Salaries are fat targets for critics. Making it all public and accessible is not only good public policy but one way to avoid accusations of back room deals.

Totally Baseless Speculation

We still have not heard from the California stem cell agency about whether Spencer Stuart, the executive search firm whose contract expired two months ago, is still looking for a permanent president for CIRM.

Our request for this routine bit of information is now 13 days old. But there is other news on the presidential front, whose office was expected to be filled by June ("Looking for a New CEO" July 20).

The CIRM search committee has scheduled a meeting for Monday. The public agenda, as usual, gives no indication of whether anything important is likely to occur. However, the meeting comes just a few days before the full Oversight Committee session scheduled for Friday.

Totally baseless speculation could lead one to wonder whether the timing is coincidental. Could a CEO announcement be made next week? But, as we said, that is totally baseless speculation.

Lomax to Sambrano to Sanchez

Three new names have been added to employee rolls at the California stem cell agency, bringing the total of official employees to 17.

The latest CIRM staffers are:

Geoffrey Lomax, senior officer for medical and ethical standards, scheduled to start Aug. 4, salary $120,000.

Gilberto Sambrano, scientific review officer, scheduled to start Aug. 15 , salary $105,000.

Jorge Sanchez, senior executive assistant to the president, started July 12, salary $82,000.

The agency has not yet released information on their professional backgrounds, but we have a query in.

You can see a complete list of all CIRM employees by clicking here. The agency is continuing to hire. Click here for a list of positions available at this date.

Looking for a New CEO

Back in February (see Feb. 25 item on this blog), the California stem cell agency was talking about having a permanent president by June. It is now close to the end of July, and the contract with the executive search firm expired at the end of May.

We have asked the agency about the status of the contract with Spencer Stuart and the presidential search, but have received no reply.

Obviously, there could be a number of reasons for not finding a new president. However, the agency is also seeking to hire a host of important top management executives, ranging from general counsel to communications director. Any new CEO would want to make those decisions and not inherit the baggage of whomever actually makes the decision.

However if the hirings are delayed substantially while the presidential search continues, it just takes that much longer for the agency to get itself firmly settled.

If CIRM chooses to speak to the search issue, we will let you know.

At Sea Again: Intermittent Postings Likely

We are putting out to sea once more in the Gulf of California, also known as the Sea of Cortez. Internet contact will be lost for the most part so we are likely to file items only intermittently, if that, for a short while.

Setting The Record Straight: Less Than Bleak Climate

On July 16, we posted an item, "Greed, Fear and Stem Cells," quoting Ken Haas of Abingworth Management, a venture capital firm specializing in life science biomedical companies.

We received the following response from Haas, who wanted to clarify inaccuracies that he said were in the Wired News article that we quoted. In addition to setting the record straight, he provides insights into the nature of the stem cell industry and investment climate, which he says can hardly be seen as bleak. Here are his remarks:

"While I very much enjoyed browsing your site, the Wired News article referenced in your posting about a talk I gave recently contained numerous inaccuracies that are unfortunately repeated in the California Stem Cell Report piece.

"For starters, I did not speak at the International Society for Stem Cell research annual meeting but rather at a luncheon sponsored by the British Consulate in San Francisco, to which certain annual meeting attendees were invited.

"I was asked to present a realistic view of the current state of venture capital investment in stem cell research and began with an assessment of the general venture capital climate. Among other things: the biotech industry is maturing and investors are beginning to expect the kind of performance that is normally associated with such maturity (e.g., capital efficiency, commercial focus, profitability); Big Pharma, biotech's ultimate customer,is increasingly reluctant to invest in 'pure research'; and venture capital has, in response, moved more toward "later stage" investing.

"In this context, stem cell ventures are 'early'-- the science still has quite a bit to prove, for example, that it can move successfully from in vitro to in vivo, and that reintroduction procedures associated with cell therapies will be safe and effective. There are also significant questions as to what successful business models will look like in this space.

"Nevertheless, I pointed out in my remarks that the principal issue with respect to stem cell investing is timing-- when, not if. On the positive side, there are significant academic initiatives underway in the U.S. (e.g., Stanford), Europe (e.g., Edinburgh) and Asia (e.g., Korea) and major governmental support in places like the U.K. and California (e.g.Proposition 71). As a consequence, venture capital is now closely monitoring stem cell developments and is poised to jump in, though still cautious.

"Specific 'mature' applications (e.g., analogous to bone marrow transplantation) could lead investment activity. Ultimately, the floodgates could well open based on just a few groundbreaking successes, for example, in tissue reengineering, cell therapy, human disease models for testing and target definition, cancer or degenerative diseases, etc.

"The above views on stem cell investment should hardly be seen as "bleak" and are widely held within both the venture and scientific communities. For instance, an article in the July issue of Nature Biotechnology (published after my talk) led with the comment that: 'Biotech companies with business models as diverse as the products they are developing are laboring to move cell-based therapies into the clinic. Without commercial success, however,investors will remain on the sidelines.'"

I concluded my remarks at the luncheon by advising those in the audience who might be seeking to start stem cell ventures to maximize their fundraising chances by coming to us, insofar as possible, with plans that embody mature
science, a credible business model, capital efficiency, commercial focus and a clear regulatory path. In short, stem cell investing, while a bit premature, will surely be an exciting part of our commercial biotech future."

Roger's Reality Check: Polarization, Backlashes and Mistakes

Don't expect research organizations to change the way they do business because California is giving away $300 million a year for stem cell research.

Get used to the outcry from opponents of stem cell research even if they have no likelihood of success. They are going to be with us for a long time.

Don't expect CIRM to create a host of friends with its billion-dollar beneficence. A backlash could easily surface.

Just a few of the thoughts from Roger Noll, a public policy professor at Stanford University who also teaches in the business and economics departments.

Noll, co-author of "The Technology Pork Barrel," wrote a 44-page paper in June on "The Politics and Economics of Implementing State-Sponsored Embryonic Stem-Cell Research" for the Stanford Institute for Economic Policy Research.

The paper provides a good overview of the sticky intellectual property rights issues involving stem cell research generally, as we wrote about July 17. Noll also spoke directly to events in this state. Here are some highlights from his paper.

"As the California experience reveals, setting up a functioning research program is not easy. Establishing an effective state program requires overcoming substantial political and organizational problems. While spending a great deal of money is easy, spending money effectively without causing a political backlash is difficult. Moreover, opponents of (stem cell) research do not go quietly in the night once legislation establishes a program. Instead, they continue to use all means at their disposal – litigation, political participation, and public demonstrations – to stymie implementation of the program."

"Moreover, when programs are thrust upon a state through a ballot initiative, as occurred in California in 2004, unprepared state officials are likely to find themselves tasked to deal with these problems on a fast time schedule, further increasing the probability of a serious mistake in program implementation."

One unusual feature of stem cell policy is its politics, which is characterized by "intense polarization." Noll wrote that on one side "a relatively large number of people...place high priority on all forms of research that (hold) promise of creating effective new treatments." They wind up "pitted against a smaller but still large number of people who accord equally high salience to adopting policies that would prohibit this research."

"Intense polarization of this form means that battles are never won because losers will not accept defeat."

Noll predicted that political polarization "is likely to create significant uncertainty and delay, and thereby vastly increase the implementation costs of the program."

The economist also wrote, "Politics will tend to favor...commercially interesting projects at the expense of more fundamental, long-term projects with much larger expected future payoffs."

And he said, "The licensing income derived from stem-cell research is likely to be a small fraction – less than five percent – of the costs of that research, and is likely not to be substantial for many years."

Finally, Noll pointed out that "Stanford University receives as much revenues in a year as CIRM is likely to spend on external grants over a decade. The lesson here is that CIRM can not expect to have much leverage over either Stanford or the entities that support it. Any attempt to change the way that research organizations do business with an annual expenditure of $300 million is doomed to failure."

Following the Stem Cell Money Trail

Don't expect the health industry to share huge bags of swag with California for its investment in stem cell research.

At least that was one opinion in a piece by reporter Terri Somers of the San Diego Union Tribune Sunday.

She noted that the arguments for Prop. 71 had predicted a big economic bonus for the state, but added that "money is unlikely to materialize, at least any time soon, according to those now charged with the task of creating policy for the institute."

"The idea that any new research today could result in rewards that provide an immediate benefit to California is misguided," Somers quoted Ginger Graham, chief executive of Amylin Pharmaceuticals in San Diego as saying.

"Graham is a member of a task force with the California Council for Science and Technology, a group of academics, business executives and lawyers that the state Legislature has asked to make recommendations for handling the rights to any discoveries that result from research funded through Prop. 71."

Somers also quoted Roger Noll, a Stanford economist on the task force. He "pointed to a paper he wrote about California's intellectual property issues as an example of the challenge the state faces. In 2000, the University of California system spent almost $2 billion on research but received only $74 million in licensing, Noll found.

"'These facts should give pause to state officials who see a potential financial bonanza in the (intellectual property) arising from state-sponsored (embryonic stem cell) research," Noll wrote in the paper.

"'The best advice . . . is not to try to be very innovative in creating agencies and policies to make grants and oversee intellectual property rights,'" he said. "'These programs will not succeed if they ask grant recipients to behave a great deal differently than they are required to behave from other, much larger sources of funds.'"

The Bee: Fire Edelman

The Sacramento Bee weighed in Sunday morning with more on the flap about the California stem cell agency and its public relations contract.

It said in an editorial that the agency should fire the Edelman firm and "deal with the issues that are causing (it) the most grief. Chief among these is (Robert) Klein himself, who continues to act like a micromanaging political campaigner instead of the chairman of a prestigious research institute."

Edelman could be replaced by two state government flacks, The Bee wrote.

The editorial also had this snippet, unreported elsewhere, from last week's meeting:

"Jeff Sheehy, a communications specialist at UC San Francisco who serves on the oversight board, said spending $27,550 a month on public relations was 'appalling,' and questioned if the institute was getting anything for its money.

'Klein replied that without Edelman, the institute wouldn't be able to respond to major news events.

"'The public did not give us bonds to respond to major news events,' Sheehy shot back. 'It gave (them) to us to do research.'"

Greed, fear and stem cells

Have you heard about California's stem cell gold rush?

Some venture capitalists have and they are not necessarily ecstatic – not that their public statements mean much. On the other hand, one stem cell company is publicly quivering with excitement.

Here is its testimony from a piece in Wired News by Kristen Philipkoski.

"'With the passage of Prop. 71 there's been an influx of interest in stem cells,' said Robert Lanza, vice president of medical and scientific development at Advanced Cell Technology in Worcester, Mass.
'We're in a whole new world. We're flush with cash, and just months ago we were struggling as a private company to even make payroll and to keep the phones on.'"

On the other hand, Philipkoski wrote:

"'Some of this stuff still looks like science experiments,' said Ken Haas of Abingworth Management, a venture capital firm specializing in life science biomedical companies.

"Haas gave a bleak outlook for stem-cell companies hopes for venture funding at the International Society for Stem Cell Research annual meeting last month in San Francisco.

"Big pharmaceutical companies aren't funding early research, he said. And VCs have higher expectations in general from biotech firms because they perceive the industry as having graduated from its freshman status. The investment necessary to bring a company public has doubled, Haas said, and the returns have diminished.

"All of these factors combined create a chilly climate for embryonic stem-cell companies, Haas said."

Haas' comments recall a point made to me by a venture capitalist some years ago. He said that VCs make an investment when their greed overwhelms their fear.

Then there is this from a Geron, which raised $40 million in the weeks following the passage of
Prop. 71, is better positioned than many stem-cell firms that don't have deep pockets or profitable partnerships with large pharmaceutical companies. More typical is Burlingame-based VistaGen Therapeutics, a 10-person research firm founded in 1998. CEO Ralph Snodgrass says that the company is using stem cells as a research tool to develop a treatment for a variety of illnesses rather than as the basis for a specific medicine or therapeutic.

"'We want to expand our research efforts, but we are a small firm,' he says. 'We have been contacted by bigger companies, but what is holding us back is our size. We will ramp up as Prop. 71 money becomes available. The effects of these funds across the industry should be dramatic.'"

The $30,000-a-month PR contract: What's it Worth?

Public relations is the business that boondoggle aficionados love to excoriate. It seems -- well -- so useless. And for all their vaunted skills, flacks often seem incapable of defending themselves well.

So perhaps it was no surprise that the California stem cell agency's PR and the huge Edelman PR agency came under fire this week. But there is a tad more to the story than what has surfaced so far.

But first, let's look at what happened at the Oversight Committee meeting on Tuesday.

"Several oversight committee members seemed surprised to learn yesterday that the institute is being billed $27,700 a month for public relations services it receives from Edelman, a national firm. The institute is receiving the bills and services on a monthly basis and isn't paying them until a longer-term contract can be negotiated with Edelman," wrote reporter Terri Somers of the San Diego Union Tribune.

"Committee member Jeff Sheehy, deputy communications director at the University of California San Francisco's AIDS Research Institute, said he was 'shocked' to learn that the institute has been billed for these services since April because he 'just hasn't seen the product.'

"But oversight committee chairman Robert Klein said the institute's one staff member dealing with communications cannot handle the high volume of media calls, public speaking requests and other public relations work."

Reporter Laura Mecoy of The Sacramento Bee also noted that Sheehy was a "little appalled" at the PR situation.

The stem cell agency's PR certainly can stand some improvement. But as a former California governmental and political flack and the recipient of enormous amounts of PR attention over decades of newspaper work, I have a sense that there may be internal issues that could explain some of the lack of product. That said, agency should be doing a better job at this stage of the game.

Some of it is basic stuff, such as assuring that the web site's "what's new" feature actually shows what is new. But where the PR really fell down was losing the positive spin the agency had coming out of the election because of maladroit management and allowing critics to set the terms of the debate. As readers may recall, the agency's first meeting in December ran afoul of questions about its legality, turning what should have have been a celebration into a PR debacle. Since then, the headlines about the agency have been dominated by controversy about its conduct.

Given that background, we can ask whether the nearly $30,000 a month is excessive, ? Probably not. Let's look at some numbers. The agency probably needs at least two PR types and a secretary/administrative assistant. Figure the salary for the head flack at about $100,000, No. 2 at about $90,000 and the assistant at about $40,000. Add one-third or more to that for fringe benefits and you are looking at a total in salaries and benefits of something in the neighborhood of $25,000 and $30,000 a month, which doesn't include the profit that a private firm would need. And the $100,000 salary for the chief spokesperson may be too low to hire the talent needed. Additional PR costs would include printing, phones, work on the Web site and more. We should also note that Edelman's bill does not include the salary of the agency's current spokeswoman, a state employee who has only been on the scene for a few months.

Some times these types of figures come as a shock to newspaper reporters and government PR types. Their salaries are generally lower that what top flight, private sector PR people earn, which is not to say that there are not many top flight PR people in government.

So what does the agency receive for nearly $30,000 a month? The terms of Edelman's working agreement are secret because stem cell chairman Robert Klein says its contract is under negotiation, another PR mistake by the agency and by Edelman. But we can learn something about the scope of the needed PR work by looking at the contract with Red Gate Communications, which resigned from stem cell service earlier this year.

The Red Gate agreement shows that its responsibilities went far beyond fielding reporter calls, emails and writing a handful of press releases. (We should note that some of the agency press releases show nonprofessional earmarks that probably can be traced to others at the agency.)

Here is a partial rundown from the Red Gate contract: develop identity and logo for CIRM, serve as spokesperson for CIRM for all media and editorial boards, manage editorial briefings and interviews, staff all public hearings, prepare op-ed pieces and write editorials, write speeches, prepare the 29 members of the Oversight Committee for media interviews, create CIRM brochures, fact sheets, FAQs, media information kits, newsletters, quarterly reports and Power Point presentations and work on the web site. Public outreach and education, which is sorely needed, also comes under the PR rubric.

To be effective, the top PR person would have to sit in on tens of hours of private CIRM meetings each week in order to be well-informed and speak authoritatively. That person should also be the lead on developing an informational strategy that helps to keep CIRM out of the kind of a corner it has found itself in so much of the year.

Many of the PR chores facing CIRM are routine or would be routine if the agency were not a new and strange entity. Creating a PR program entirely from scratch in an understaffed, fledgling agency is, to say the least, difficult.

Whether Edelman is worth the cost depends on what we see from them and the agency over the next few months.
----------------------

If you would like a copy of the Red Gate contract, please send a request to djensen@californiastemcellreport.com. But do it quickly. We are going to sea again soon and will be only intermittently online. For a few more details on the Edelman contract, click here. For a list of all the contracts with CIRM, click here.

Stem Cells and Behind the Scenes Decision Making

Smoke-filled rooms are now passe for public policy making, with the exception of Gov. Arnold's cigar tent in California's Capitol. But at UC Berkeley one bioethicist remains concerned about back rooms, decision making and the recipients of public largess.

The issue is the California stem cell agency and how it does business. The man concerned is David Winickoff, an assistant professor of bioethics and society in UC Berkeley's Department of Environmental Science, Policy, and Management.

Prior to last fall's election, he wrote a piece about Prop. 71, arguing that the agency would be anything but independent, while having the power to set policies for human cloning technology and human-subject research, as well as allocate patents to the private sector.

The subject was revisited recently in an internal piece from the UC Berkeley NewsCenter by Bonnie Azab Powell.

She wrote that Winickoff is bothered "a lot" by what he views as the lack of independence of the stem cell agency.

She quoted Winickoff as saying, "Important decisions are being made in the back rooms of university and industry labs that will have huge effects on people and shape their environments and lives. They aren't open for public scrutiny because they're technical, and it's difficult for people to engage substantively in these issues."

One of his issues involves finding "ways that will facilitate democratic control and decision making, rather than just simply giving technocratic control without accountability."

Powell provided this case from Winickoff as an example of a problem involving private individuals providing something that leads to a commercial product.

"A patient with a rare form of leukemia was treated at UCLA's medical center by a doctor who collected many blood, semen, and hair samples from the patient that were unnecessary for his treatment. Five years later, the patient learned that the doctor had collaborated with a biotech company to derive a potentially lucrative cell line from the patient's diseased spleen cells. The patient, understandably, wondered why the doctor and not the patient was profiting from his biological property. The biotech industry and others filed many "friend of the court" briefs with the California Supreme Court, arguing that according property rights to the patient would bring research to a standstill. The court largely sided with the biotech industry, saying that the plaintiff's property rights did not apply to his spleen cells, although he did have a valid (but much less damaging) claim based on the doctor's failure to obtain informed consent."

Winickoff said, "I'm trying to find that sweet spot where we have more accountability and control over important policy decisions, where we can allow a certain amount of politics in without undermining the ability to make policy at all."

Coming Up

A little later today we will have a look at the $30,000 or so monthly PR bill for the California stem cell agency. Is it too high?

Correction

In the "Nature" item July 14, we incorrectly reported the source as of the information as Nature magazine. The correct publication is Nature Biotechnology. The URL is www.nature.com/naturebiotechnology.

Transparency and Stem Cell "Hooey"

California's stem cell agency is suffering from a reality gap.

On one hand, its chairman and the prime voice of the agency, Robert Klein, promises the highest and best standards of transparency, openness and disclosure, as he did again just on Tuesday of this week.

On the other hand, the agency cobbles together transparency/disclosure regulations -- only under heavy legislative pressure -- that seem to be a far cry from those at John Hopkins University, the New England Journal of Medicine and the Journal of the American Medical Association.

On Tuesday, the stem cell Oversight Committee moved to tighten its transparency rules with the promise of more review to come – certainly a step in the right direction. One must acknowledge all this is difficult territory. Stem cell research remains an infant business with major unresolved, ethical issues. The stem cell agency itself is a bit of bureaucratic chimera –a quasi-business-scientific-governmental beast that has no real parallel.

Complicating the matter is the small and cozy nature of the stem cell community itself. Just how cozy? David Baltimore, a Nobel prize-winning scientist at age 37, is a member of the Oversight Committee of the California stem cell agency. He is also president of Caltech and serves on the boards of biotech firms Amgen and Med Immune Inc. Baltimore recently received a $14 million stem cell research grant from the Bill and Melinda Gates Foundation.

According to reporter Donald J. McNeil of the New York Times, the grant is for the "radical idea that stem cells could be created that could be safely injected into anyone, would populate the immune system and would contain the genetic instructions for initiating attacks on many diseases. If successful, they would make vaccines obsolete."

Baltimore told McNeil, "I imagined this proposal into existence, but I never imagined we could get money for it. It's not the kind of thing the N.I.H. would fund. It's too big, it's too chancy, it's too focused on a particular product. If this was 15 years ago in the biotech industry, this could be the basis of a company, but venture capitalists now are looking for a much quicker payoff."

Under the terms of the grant, the results of the research could be patented for commercial gain, although they would have to made available to poor countries at either free or at low cost.

Which raises a question about Baltimore and stem cell research grants before CIRM. There are legal restrictions on his potential conflicts, and we have no doubt he is a principled man. But persons with competing approaches will be before the agency with requests. Baltimore's stake in the issues will be well known to grant reviewers and fellow committee members. No one may violate the law, but members of the "club" are often unwilling to act in ways that might appear to be injurious to other members of the "club."

CIRM is an unusual agency in that conflicts of interests were built into it. Scientists, business executives and patient advocates are all directly involved as directors. Some even have personal health issues at stake.

Given that situation, it makes it even more important to have maximum disclosure of the economic interests of those who are making decisions, and that extends to members of the working groups.

So far, members of those groups will have to disclose their economic interests only to members of the "club" – in this case CIRM itself. CIRM contends that is necessary because scientists would not be inclined to serve as members of groups if they have to publicly bare their economic souls.

In two editorials earlier this week, The Sacramento Bee described that assertion as "hooey" and "malarkey."

The Bee dug into the current state of economic disclosure by scientists and reported:

"Throughout the scientific world, stem cell researchers are increasingly disclosing their corporate research relationships and stock holdings.

"Some must do so if they want to serve as faculty on Continuing Medical Education courses sponsored by the Johns Hopkins School of Medicine and other medical schools.

"Others must publicly disclose conflicts when their research is published in the New England Journal of Medicine, the Journal of the American Medical Association and other prestigious publications.

"Consider the recent meeting of the International Society for Stem Cell Research, held in San Francisco. Several of the world's top scientists disclosed their corporate ties there as part of the continuing education program."

Because of these disclosures, The Bee shared economic information with its readers about two members of CIRM's grant working group. The following information from The Bee would be secret if CIRM continues its policies or could control the policies of others:

"Let's examine," The Bee wrote, "the situations of Drs. Andrew Feinberg and Jeffrey Rothstein, two of 15 researchers appointed to the committee. Both work for Johns Hopkins, which owns stock in Geron and has a licensing agreement with the California company. According to an article in Scientific American this month, Geron is expected to be one of the main beneficiaries of a new California fund for stem cell research.' That means that Feinberg's and Rothstein's employer could benefit from any grants awarded to Geron."

While the stem cell agency moved forward this week with new transparency rules, several responsible California organizations said they did not go far enough. You can read two of their critiques at these locations: Foundation for Taxpayer and Consumer Rights. Calaware also advocated stronger rules.

One of the premises of Prop. 71 was that it is time to do business in a different way and throw off old, crippling constructs. Government can fund controversial research. And it can partner with scientists and business in innovative ways that benefit all. It is now time for the stem cell agency to fulfill the promise of Prop. 71. It should lead the way with new, forward-thinking transparency rules that enhance public trust, that provide maximum disclosure and that close the stem cell reality gap.

Notes From Nature: Predicting Stem Cell Winners

What firms are best positioned to reap profits from the stem cell harvest?

Nature magazine (www.nature.com) named four in an article by Stephan Herrera in its July issue. Here is what he had to say.

"Of course, it's still early days to predict those companies whose position is consolidated best for success. But with their clear advantage in terms of intellectual property positions and current stage of investment and product development, firms like Geron in Menlo Park, California, Osiris Therapeutics in Baltimore, Maryland, NeuroNova in Stockholm and ES Cell International in Singapore will be hard to catch."

Herre also had this to say about venture capitalists.
"Investors, like HealthCap in Stockholm, Allen & Company in New York and MPM in San Francisco, have refused to let the politics and uncertainly of stem cells keep them away. They have an early advantage of those who (quite understandably in this risk-averse, late-stage climate) have steered clear of the field."

Transparency, Money and Management

The directors of the California stem cell agency delivered a message to Robert Klein on Tuesday.

Irritated by the lack of consultation and information on the agency's budget and spending, they restricted the size of personal service contracts to $100,000 that can be let by Klein and agency employees without board approval. The Oversight Committee also created a governance committee to deal with how the agency does its business.

The agency has spent $2 million so far this year, including more than $1 million in contracts with outside firms or agencies. Earlier some Oversight Committee members expressed displeasure about learning first about the contracts from non-agency sources. That triggered a bit of a flap concerning Klein's management (see "Murky Money" on this blog June 14).

Reporter Laura Mecoy of The Sacramento Bee and Terri Somers of the San Diego Union Tribune covered the management flap as well as other issues in their stories this morning.

Mecoy focused primarily on the Oversight Committee's approval of rules to "open more meetings, disclose more information about its grant awards and tighten its conflict-of-interest rules."

Somers led with the news that the California treasurer's office is "preparing to sell $200 million in bond anticipation notes to start funding the institute's first round of grants and first full year of operations."

She said the schedule calls for the notes to be issued prior to September so that the board can make grants for training programs that months. Twenty-six California institutions have expressed an interest in the multimillion dollar grants, but CIRM has refused to release their names.

The agency adopted its new rules on openness and disclosure following heavy pressure from the California legislators, led by Sen. Deborah Ortiz, D-Sacramento, a strong backer of Prop. 71 and chair of the Senate Health Committee. More changes in the area of conflicts of interest are scheduled to come up at the August meeting.

CIRM was quick to issue a press release on the Tuesday action, posting one by mid-afternoon. Klein said in that statement, “Sen. Ortiz has committed intense energy and passion to this important task of ensuring that California has the highest and best public transparency, conflicts provisions, and legislative oversight of any state or federal program in our nation. This is an ongoing process and we will continue to listen to the input of the legislature and the public to ensure the finest standards for medicine, ethics, and competitive peer review in every aspect of our stem cell program.”

The agency summarized the new rules as:
"broadening conflict of interest provisions for working group members;
"providing earlier public availability of working group funding recommendations;
"requiring comprehensive reports to the State Legislature summarizing grant awards and recipients;
"ensuring increased public access to meetings of the Standards Working Group and the Facilities Working group;
"and providing public access to the Grants Working Group, except for discussions related to scientific and medical evaluations of grant applications and other mission critical exceptions."

The California Stem Cell Report will have more on the transparency and conflict issues on Thursday.

The Price of Eggs

One of the famous examples of excess during California's 1849 Gold Rush was the price of eggs, something over a dollar each, according to legend.

Today the price of eggs is being set by the California stem cell agency – at least the price of human eggs from women.

That price appears to be zero.

No real surprise there because Prop. 71 banned payment for human eggs except for direct expenses. But some folks are not entirely happy.

Reporter Edie Lau of The Sacramento Bee wrote about the egg economics earlier this month. She said that Robert Klein, chairman of the stem cell agency, said "the payment ban was intended as a safeguard against women - especially poor women - feeling pressured or enticed to sell their eggs." He said employers should help out.

Lau reported on a meeting of the Scientific and Medical Accountability Standards Working Group of the stem cell agency, formally known as the California Institute for Regenerative Medicine.

She wrote that some witnesses were not pleased with CIRM's position.

"'I don't know why you put (yourselves) in a position to not compensate for time and effort,' said Jose Cibelli, a stem cell researcher at Michigan State University. 'It's something you will come to regret.'

"Ann Kiessling, a Harvard University biologist who runs an independent, nonprofit center that solicits egg donors specifically for stem cell research, predicted that some women who wish to provide eggs will be unable to if, for example, they aren't reimbursed for lost wages.

"'All normal, healthy subjects that undergo any research in this country are compensated for their time,' she said."

Lau continued:

"Klein, who also sits on the standards working group, did not respond to criticism of the rule during the meeting, but said in an interview that the prohibition cannot be changed, nor should it.

"'It is a more challenging provision, but it provides us with a higher ethical standard,'" Klein said.

"He said he hopes employers will support employees who wish to donate eggs, and continue to pay them as some employers do for jury duty. 'It's a public service to society,' Klein said."

You don't have to be Milton Friedman (the Nobel-winning free market economist who lives in San Francisco) to understand that if human eggs become sought after, their price will rise, regardless of Prop. 71. Another human product -- blood -- is purchased regularly at very low prices, but it is a common commodity. The market for human eggs and their price are yet to be determined. But there is no doubt that a statutory attempt (a la Prop. 71) to set a price (commonly known as price-fixing) will fail.

Coming Up

Later today we will have a report on Tuesday's meeting of the Oversight Committee, brought to you from a semi-remote anchorage in the Sea of Cortez in Mexico.

Correction

On July 8, we reported about a contract that Red Gate Communications had with CIRM. Red Gate resigned from the contract and was not terminated by CIRM.

CIRM's Million Dollar Outside Contracts

Legal and public relations advice, legislative lobbying and grant procedures – all are part of the $1.6 million mix of outside contracts that the California stem cell agency has quietly let since the beginning of the year.

It is not surprising that the agency has gone to the private sector, and it is likely to do more of it in the future. The fledgling bureaucracy is limited to only 50 employees by law.

Use of private consultants and service has some virtue. Properly done, it is a way to handle start-up and special costs without creating a large bureaucracy that is hard to change as needs change. At the same time, use of private consultants, some of whom have access to sensitive information, raises issues about potential conflicts. None of the consultants seem to be required to meet the same conflict-of-interest standards as CIRM's own employees.

That means CIRM must exercise careful oversight of the consultants, which requires a critical eye that may not fit with the startup team ethos of the new agency. The handling of the contracts also may provide some insight into how the agency is likely to proceed in the future as it hands out hundreds of millions of dollars in research grants.

The contracts have triggered some criticism from Oversight Committee members, who have complained about learning about them in the media(see "Murky Money" on June 14). And only one of the contracts (the executive search agreement) seems to have been let in what might be considered a normal competitive process.

Reporter Laura Mecoy of The Sacramento Bee was the first to disclose the total value of contracts. We have written about the $10,000-a-month lobbyist (May 5) and the now terminated contract with Red Gate Communications for public relations work("Hello to Edelman" April 22). Mecoy noted that her total did not include a figure for the Edelman PR contract, which the agency said was still under negotiation. One source indicated to us that it could be in the neighborhood of $700,000 annually, which would presumably include building a community education program from scratch.

Here is a look at some of the other contracts:

$350,000 one-year contract with the state controller's office for various support services for 2005, ranging from personnel to setting up computer networks.

$320,000 seven-month contract with the law firm of Remcho, Johansen and Purcell of San Leandro CA to act as general counsel with rates up to $300 an hour, plus expenses. The total on this contract was raised from an original $100,000.

$165,000 contract, plus expenses, for the Spencer Stuart search for a CIRM president and assistance with a search for a chief scientific officer. The contract was scheduled to end by May 31. The firm could be in for a substantial bonus if CIRM hires other persons turned up in the CEO search for non-CEO positions.

$70,000 six-month contract with Constance Atwell of Pinehurst NC to provide advice concerning development of policies and procedures for grant management. Atwell's contract has an interesting "trust me" provision regarding possible conflicts of interest. The contract states that Atwood "affirms that to the best of (her) knowledge there exists no actual or potential conflict between the consultant's family, business or financial interest and the services provided under this agreement...." Atwell is a retired grants manager from NIH.