Still Simmering: The Two-Boss Brew at CIRM

(This correction was posted 6/23/06:David Serrano-Sewell, CIRM Oversight Committee member, corrected us on the "Two-Boss Brew" item June 20.

(Here is what Serrano-Sewell said,

"The ICOC approved (13-5 vote) the 'internal goverance policy.' As you note, the amended policy granted to the Chair the authority to concur with the hiring of certain CIRM staff, Senior Officers. The proposed policy was amended to limit the Chair's concurrence authority to two Senior Officers in legal and communications. Please note, the adopted policy does not grant to the Chair the authority to fire or concur in the firing of those Senior Officers.


("Arguably, the policy is confusing. The President could hire a Senior Officer with the Chair's concurrence and then fire that same Senior Officer without the (Chair's) concurrence."

We thank Serrano-Sewell for heads up. We appreciate all such messages and try to correct mistakes promptly.)

For Robert Klein, chair of the California stem cell agency, it was a "watershed issue." For Zach Hall, president of the agency, it was a matter of no comment.

The issue was the "two boss" conundrum at CIRM. One member of the Oversight Committee, Jeff Sheehy, said, "This is the sloppiest thing I ever heard of."

The issue surfaced earlier this year over seeming picayune matters (see "dualing execs"). But it has resurfaced again and does not seem likely to go away.

The latest forum was this month's meeting of the Oversight Committee, which oversees CIRM, hires the president and elects the chair. Both have major overlapping responsibilities by law but the conflict has boiled down nominally to to such things as travel, office assignments and concurrence on hiring senior staff.

It was the latter that raised fresh questions about the future dynamics of CIRM. While the agency will administer $3 billion in funding, it is a small organization, now only about 20 employes. By law, it is limited to 50, which means that two strong executives can rub against each other with great regularity. Hall and Klein are two such men.

During the debate over CIRM's internal governance policy, terms like "crazy" and "Rube Goldberg" policy were bandied about, according to the transcript.

Sheehy was perhaps the most vociferous in confronting the situation. At one point, he said,

"We basically set up the situation where someone is going to have two bosses with equal authority....I work for people, so I kind of have a sense of what this means. and this is insane. I couldn't work in that environment. and I don't know why we would want to set up that structure" which he called "completely, totally untenable."

Sheehy was among those concerned about the implications for CIRM when it comes time to find replacements for Hall or Klein or, for that matter, finding top executives who are comfortable serving two masters – not to mention the 29-members of the Oversight Committee.

Sheehy said,

"The more we muddy these (management) lines, the more dangerous it is. We're making compromises. Even having to have these things negotiated out must make the job of the president extremely difficult. And I, frankly, think we should have taken care of this a long time ago. But if you guys (oversight committee members) want to go point by point over the next God knows how many years with how many presidents and fight over office space, travel allowances, hiring of staff at this level, I think we're not going to be able to do the business that we were put here to do."

Ed Penhoet, vice chair of the Oversight Committee, and others stood behind the bifurcated management. Penhoet said Klein was really an "executive chair." (Penhoet did not mention court testimony last winter by Klein, who operates his own financial firm, that he does not consider himself a state employee because he does not accept a salary.)

Others noted that the language of Prop. 71 compels a certain duality. And still others pointed to organizations, such as academic health institutions, that have executives with overlapping responsibilities.

David Baltimore, an Oversight Committee member and president of CalTech, said,

"You can't analyze this situation as you would any other organization because no one would ever set up an organization that has split authority like this except Bob, I'm afraid, because that's not an efficient or effective way to run an organization, to have two heads of two different elements that have to interact. The notion of having a CEO is that the CEO has complete control of the organization. We're not going to get there because we're not going to amend Prop. 71."

Hall's only comment during the discussion was "I have no comment."

Klein said concurrence on hiring senior staff was "critical" to his position. He later agreed to limit concurrence on the hiring of the top executives for communications and legal matters. He resisted suggestions that concurrence be changed to consultation.

"Otherwise I'm not going to feel like I can perform for this board, whether it's a legal function, the financial function, communications areas. I think it's a watershed issue."

Ultimately the Oversight Committee voted 13-5 to give Klein concurrence on the hiring of the two top legal and communications executives. That also gives him concurrence rights on firing them. The committee also, on a voice vote with Sheehy the only audible no, approved giving Hall office assignment responsibilities. On travel, by the same vote, Klein will only need approval of travel from Hall when it exceeds the budget approved by the Oversight Committee for Klein's office.

Early in 2005, the stem cell agency hired Hall, then 67 and a well-respected scientist and skilled administrator, as its interim president for one year. Ultimately he was hired as permanent president following an international search that cost $205,289. We have long suspected that the search ran into difficulties because the top candidates detected the underlying problems with CIRM's two-boss structure. Hall meanwhile was getting a close look at CIRM and Klein and probably thought the issues could be overcome. And CIRM was engaged in a truly remarkable, once-in-a-lifetime endeavor that was hard for Hall to pass up as he neared retirement. Of course, that scenario may be totally wrong but it seems to be reasonable speculation.

Discussions of the top management issues at CIRM preceded the disclosure this month that Klein was not wearing just one executive hat. He is also head of an advocacy group called Americans for Stem Cell Therapies and Cures. As its head, he sent out national emails excoriating a top California legislator as an "ongoing threat" to CIRM for carrying legislation to tighten oversight of the agency. The language in the letter went beyond the Oversight Committee's official position. CIRM said it had no comment on the Klein letter, saying he did it on his own time.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Rights of Santa Monica, Ca., told the California Stem Cell Report,

"Klein needs to decide whether he wants to be ICOC chairman or chairman of his advocacy group. I don't see how he can do justice to both effectively."

CIRM and WARF are Talking Patents

The following correction on this item ran on June 27: In a June 20 item, we incorrectly described the Wisconsin State Journal as the Madison State Journal.

The stakes are global in the Wisconsin vs. California stem cell patent fight.

So says reporter David Wahlberg of the Madison State Journal , who explored the implications of the dispute in a piece that reported discussions are currently underway between the California stem cell agency and the Wisconsin Alumni Research Foundation, which holds the patents.
The story said:

"Mary Maxon, (Vice Chair Ed) Penhoet's deputy at CIRM, said last week that 'there are currently no intentions of suing WARF.' But, she added, 'We are concerned.'"

Wahlberg also wrote:

"One possibility, said CIRM's Maxon, is that the institute might pursue an omnibus license with WARF that would apply to all of its grantees and commercial partners."

The story was rewritten by The Associated Press and distributed nationally. That version appeared in the San Jose Mercury News.

Dateline Juncalito: News for Blog Geeks Only

This blog is now coming to you from the cockpit of Hopalong, a sailboat anchored in the Sea of Cortez off a tiny Mexican community called Juncalito. Small it may be, but not so small that it is without a motto: "Juncalito, a sleepy little drinking village with fishing problem."

Perhaps 50 to 100 Mexicans and gringos live in the "barriocito." All the homes are off the grid – generating electricity either through solar panels or generators. The locals dread the possibility of electrical lines running to their modest homes. They fear rising land values that would push rents higher. Many of the gringo residences amount to no more than a trailer and large veranda shaded by open, palm-thatched structures known as "palapas." No phone service, cellular or otherwise, is available. The community has no stores or services, but does include a small church.

We are connecting from the boat to the Internet via a free Wi-Fi connection. One of the norteamericanos set up the connection through a satellite TV service. Signal repeaters are mounted on two of the homes. Powered by batteries that depend on solar power, the Wi-Fi station is shut down each day at 4 p.m. and comes up sometime in the morning – usually, but not always. Occasionally it does not come up at all. Signal quality is not always the best and sometimes connections are dropped. But the California Stem Cell Report is not complaining. It saves a nearly 40 mile trip into town.

CIRM News Coverage: Inertia, Limits and Business-as-Usual

The routine occurred yesterday, and California newspapers were on it like a dog on a bone.

California newspapers consumed many inches of valuable news space for two pedestrian legal events while at the same time largely ignoring more far-reaching and significant news concerning the California stem cell agency.

The routine matter involves litigation against the agency, and the coverage illustrates nicely how the media works or doesn't work.

Here are the specifics. The losers in the lawsuit against CIRM filed their expected appeal. The state then filed its expected move to expedite proceedings. Nothing changed. There were no surprises. It would have been real news if neither event occurred.

So why was the predictable legal action covered while California newspapers have largely ignored more important developments at the agency, including its unprecedented $1 million gala fundraising effort and what also appears to the unprecedented case of a top state agency executive using his own nonprofit advocacy group to lobby the legislature? This is not an idle musing on our part. Others are wondering, including some members of the CIRM's Oversight Committee.

The answers range from inertia to business-as-usual to the internal structure of newsrooms.

The first difficulty newspapers face in covering the stem cell agency is where it fits. Newsrooms are generally organized along lines that have changed little for decades. Coverage responsibilities are broken into turf areas. Generally politics and state government are covered by the Capitol bureaus. Business by the business news departments. Science by a reporter working on the city or state/national desk. When a business reporter branches out into a story involving a state agency, woe to him or her unless all the appropriate editors have been consulted in advance. Otherwise turf hackles will rise.

CIRM is a cross-over story. It has powerful elements involving politics, government, business, science, health, not to mention religion and ethics(that is a often city-side story). It does not fit neatly into the traditional news definitions. Resolving the differences and deciding on a consistent approach to coverage requires thought and work from editors who are hard-pressed by their daily deadline chores. So decisions are put off. It is simply easier to muddle along in the same old way, which, we should add, is one of the reasons why newspapers have lost significant readership over the last few decades.

CIRM is novel, which should make it a "good" story. However, novelty can again pose barriers. It is simple to cover an election, relatively speaking. It is has been done hundreds of thousands of times. Most of the questions about the nature of the coverage have been asked and answered, perhaps not as well as some would like, but to the satisfaction of many in the news industry. But then comes a state government story (or is it a state government story?) about bigtime fundraising by a state agency. Is it really a historical first? Is it illegal? Is it wrong? Who says so? (After all, reporters cannot make assertions on their own; they must quote an authority.) Editors want black and white answers. There is a low tolerance for ambiguity in the news business. Meantime, the editor tells the reporter, you are already late on that weekend piece I asked you to do. Let's talk later about this other story, if it is a really a story.

State agencies, such as CIRM, additionally have traditionally been given short shrift by Capitol bureaus, which prefer the public arena of the legislature and the high profile of the governor. It is rare to find a state agency that is covered consistently and thoroughly.

In recent weeks, we can add coverage of the June primary election to the mix. Newspapers, which have been squeezing their staffs hard as profits dwindle, are particularly hard-pressed during major election periods. They require diversion of resources to election matters. Secondary matters are put off, sometimes forgotten.

Coverage of CIRM is not easy. It operates in a public backwater – not in the hallowed halls of the Capitol, where reporters are feed and often pampered informationally. In contrast, important CIRM meetings are scattered around the state, requiring expensive trips by reporters. The issues are gray. The subjects are difficult, complex and unfamiliar for most newsies. (What do you mean, there is a patent thicket?). The stories are boring unless skillfully told.

Newspapers covered Wednesday's CIRM lawsuit developments because they fit easily into the traditional definitions of news. No matter that the filings are of little consequence. They fit what newspapers do and have done and will continue to do.

What does all this mean for coverage of the California stem cell agency? The immediate impact comes from the beginning of the summer vacation period. Editors and reporters who normally handle the CIRM stories may not be around. So expect less attention during the coming dog days. The election will continue to consume news space (more limited overall nowadays for profit reasons) as well as newsroom resources that otherwise might be used to cover CIRM. At the same time, the agency is beginning to be old news. After all it has been around for 18 months, which is sometimes more than a lifetime for a news story. Not to mention that is only one of many subjects most reporters are required to cover. Overall, we can expect stabilized or waning coverage of the agency at least through the fall, short of a major scandal or an example of aggressive, first-rate reporting that would stimulate the competitive juices of other newsies. If a scandal develops, it will generate a feeding frenzy that will will ignore any constructive work that CIRM has done.

All this said, we are not denigrating the efforts of the reporters, or even the editors, who have worked diligently on stem cell coverage. But we all operate in environments that limit and shape what we do. Newspapers are no different.

Here are links to the latest stories about the litigation:
Reporter Jim Downing of The Sacramento Bee, Lee Romney of the Los Angeles Times, Steve Johnson of the San Jose Mercury News, Terri Somers of the San Union-Tribune, Rebecca Vesely of the Oakland Tribune. Here is CIRM's press release.

Background Statement from Americans for Stem Cell Therapies and Cures

Here is the background statement by Americans for Stem Cell Therapies and Cures re the letter by Robert Klein concerning SB401. The statement provides some background on the organization as well. (For more, see the Klein-Ortiz item.

The statement begins here

June 7, 2006

Statement of Americans for Stem Cell Therapies and Cures


The statement issued on June 5th, 2006 by Americans for Stem Cell Therapies and Cures (a 501(c)4 organization dedicated to advancing education, patient advocacy, and political support for stem cell research) represents only the views of the Proposition 71 campaign committee organization (originally entitled Californians for Stem Cell Therapies and Cures). The three Directors who signed the statement were Directors during the campaign and they remain Directors. The name of the organization has been changed to indicate a reorientation of focus to national educational needs on stem cell research, as well as the need for reform of the federal restrictive policies that bar effective National Institutes of Health funding of embryonic stem cell research. The organization also strongly supports the expansion of regenerative medicine (including embryonic stem cell research) in other states, as well as continuing its support for stem cell research in California.

No Other Organization Involved in the Statement

No other organization was involved in formulating the statement, directly or indirectly. It represents the position of the Proposition 71 campaign committee as articulated through the renamed 501(c)4. Specifically, the Directors – including the Chairman of Americans for Stem Cell Therapies and Cures, Robert Klein – hold a number of other positions with patient advocacy and/or educational institutions which did not participate in formulating this statement. For example, Robert Klein is a member of the International Board of the Juvenile Diabetes Research Foundation; but, this statement did not involve and it was not formulated with any of their staff or other Board members. Similarly, this statement did not involve and it was not formulated with any of the staff or other Board members of the ICOC or the CIRM. This statement represents the personal viewpoints of the Board members of Americans for Stem Cell Therapies and Cures as expressed through the statement of this entity. Members of the Board were polled to confirm the content of the statement before it was released.

Prior Statements of the Role and Scope of Americans for Stem Cell Therapies and Cures

The current mission of Americans for Stem Cell Therapies and Cures remains consistent with the role previously described by Robert Klein when asked at a press break in the February 3rd, 2005 ICOC meeting in San Diego about his continuing personal role as Chairman of the Proposition 71 campaign committee, then entitled Californians for Stem Cell Therapies and Cures. Robert Klein stated that he would continue as Chairman with the responsibility to guide the federal education and advocacy efforts, with a goal of raising a million dollars for that effort, while working on retiring the remaining $1.4 million in campaign vendor obligations. He specifically pointed out that this organization was completely different and separate from the Alliance for Stem Cell Research (formerly called the California Research and Cures Coalition), from which he had resigned as Chairman before being elected to the ICOC Chairmanship.

Distribution of the 501(c)4 Statement Against SB401 on June 5th, 2006

The statement distributed on June 5th was restricted to organizations and individuals who had previously communicated with the Proposition 71 campaign committee staff and expressed an interest over the last 2 years (since April 2004) in updated information as it became available. The statement to organizations focused on the negative impact potential of SB401 and related unconstructive legislation cosponsored by Senator Ortiz and the anti-stem cell conservative Senator Runner. The statement expressed an appreciation for the highly constructive leadership of Senator Don Perata, Senator Joe Dunn, Senator Jackie Speier, and Senator Deborah Bowen who led a joint legislative effort, with the leadership of the Board and staff of the CIRM, to improve the transparency, public reporting, public notice, and conflicts of interest provisions of Proposition 71. The CIRM now leads the nation, with the most stringent standards in these areas, along with its national leadership on medical and ethical standards for stem cell research. The CIRM developed its model medical and ethical research standards in cooperation with a national task force of the National Academies of Science, supplemented by information and input gained in numerous public hearings in the State of California.

There was no general distribution of this statement, as it was not deemed to be necessary at this time. No interviews were given to promote the statement. The intent of the statement was to rebut the highly misleading statements of Senator Ortiz on the value of SB401 and related legislation which she claimed were essential to address defects in Proposition 71. In her May 12, 2006 Superior Court decision, Judge Bonnie Sabraw rejected the claim by the plaintiffs contesting the Constitutionality of Proposition 71 that there were defects in the Proposition and/or its implementation. In part, she stated:

“The evidence at trial establishes that the application of the Act has been in compliance with hits statutory framework, and that CIRM and the ICOC are operating in the same fashion as other state agencies. Each ICOC member, and each alternate, has taken the oath of office and publicly filed Form 700, the standard form California public officials file to disclose financial holdings. The ICOC developed and adopted incompatible activities statements, the conflict of interest code required by the Political Reform Act, and conflict of interest policies for ICOC members, CIRM staff, and members of each of the ICOC advisory grouops. Between January 2005 and the date of trial, the ICOC, its subcommittees, and its working groups held over 40 noticed, public meetings, in cities across the state, held pursuant to the Bagley-Keene Open Meeting Act. CIRM has responded to numerous Public Records Act requests. The selection of the site for CIRM’s facilities was run by the Department of General Services, as required of state agencies, which department also executed the lease. The required independent audit is in process and is to be reviewed by the Citizen’s Financial Oversight Committee. In addition, testimony was presented that CIRM is subject to audit by the Controller and the Department of Finance, and that the Controller has met with the ICOC to discuss the type of practices he expected the ICOC to follow.”

In 41 additional pages, Judge Sabraw examined Proposition 71 and the CIRM with a microscope and she concluded that it is operating properly, in every facet of its mandate, and it includes numerous safeguards, public transparency, and accountability requirements that are often layered, to provide several levels of protection for the public.

The statement was stimulated by a San Diego Union Tribune article on June 2nd, 2006. It clearly indicated that Senator Ortiz’s press operation had succeeded in misleading a highly responsible and thoughtful journalist as to the Senator’s importance in the “creation” of Proposition 71 and the allegedly positive effect of her legislative attacks on Proposition 71. Senator Ortiz did not see drafts of Proposition 71 until after it was finished and submitted to the Attorney General for certification for the petition process. She did not participate in its drafting. She previously supported Proposition 71, during the election campaign; but, since the election, she has co-sponsored her legislation with the most conservative, anti-stem cell element in the Senate in a “grandstanding” attempt to impose her personal view of how the Proposition should be changed, even after Senator Perata, Senator Dunn, Senator Speier, Senator Bowen, and other legislative leaders had endorsed the enhancements to Proposition 71, jointly constructed with the leadership of the ICOC and the CIRM. Unfortunately, it was not possible for the Board of the Americans for Stem Cell Therapies and Cures and the staff of that organization to draft a response and distribute it to the Board members for clearance until the following Monday, June 5th. It is the intent of the organization to immediately respond, when grossly misleading information on Proposition 71 is issued by any member of a public or private organization. It is hoped that these occasions will be rare.

In addition, as stated earlier, the Legislature – led by Senators Perata, Dunn, Speier and Bowen, with input from the Assembly leadership offices – jointly and constructively worked with the ICOC and CIRM leadership to enhance Proposition 71 provisions. Senator Ortiz participated in these discussions; but, she broke from the group consensus and continued her attacks on Proposition 71, when she realized there was not a legislative consensus to adopt every one of her very detailed demands.

Staffing and Office

Americans for Stem Cell Therapies and Cures operations include sharing a single office at the location of Robert Klein’s personal offices. It has recently contracted with two independent consultants to expand its staffing support for the federal and 5-state focus of its efforts outside of California. Donations to the organization are not tax deductible, because it is a 501(c)4 committed to education, political advocacy, and political reform. Donations can be sent to 550 California Avenue, Suite 330, Palo Alto, CA 94306.

Google Ranks California Stem Cell Report No. 4

We discovered something modestly interesting about "California stem cell" information the other day.

Out of 21.3 million hits produced by Google on that search term, the California Stem Cell Report is ranked No. 4. Yes, that is the blog you are now reading.

No. 1 was a Washington Post article from Nov. 14, 2004, on the election results on Prop. 71. No. 2 was another Washington Post article – this one from Oct. 24, 2004, on Prop. 71. No. 3 is the Alliance for Stem Cell Research, an offshoot of the Prop. 71 campaign group in California. CIRM's Web site is ranked No. 10.

What does all this mean? We don't know, but, as we said, we found it modestly interesting.

Klein's Letter Helps Build CIRM Legacy -- Unfortunately

Whatever the fallout may be from last week's scathing letter about Sen. Deborah Ortiz, California stem cell chair Robert Klein has nailed down one result.

He has it made it more difficult to reach a compromise on Ortiz' sweeping measure to tighten oversight of the California stem cell agency. And if, as a lame duck legislator, she had been inclined to slide back on the measure, that inclination now seems unlikely.

Klein's letter last week called her an "ongoing threat" to the California stem cell agency. The missive, which he signed as head of an advocacy group rather than as chair of the agency, carried a personal, vituperative tone. While it made policy arguments against the measure, SB401, the letter also contained a number of errors and distortions.

Ortiz' office has been silent on the letter. But it is certain that it will harden her resolve to pursue her measure vigorously.

Klein's letter and his previous actions, dating back to his refusal to testify before the state Senate Health Committee in spring of 2005, are helping to create an unfortunate legacy for CIRM. And that is a reputation as an intransigent state bureaucracy that is unresponsive to both public and legislative concerns.

The pity is that sort of fallout was unnecessary.

DHS Stem Cell Advisory Committee to Sunset

Earlier we reported that a measure by Sen. Deborah Ortiz aimed at protecting women egg donors would also extend the life of the Department of Health Services advisory committee on health care regulation.

However, that bill, SB1260, has been amended to remove that extension. Ortiz' office reported:

"As it was originally drafted, SB 1260 did extend the life of the DHS advisory committee currently working on guidelines for stem cell. But the bill was amended April 26, 2006 to allow for the advisory committee to sunset January 1, 2007, as is provided in current law. We retained the provisions (by deleting the sunsets) that require the DHS to produce guidelines, exercise continuing oversight, and report to the Legislature, but decided to let the advisory committee phase out after this year because the expectation was that the committee would complete its work by the end of the calendar year anyway and the costs of continuing it would be too high to sustain."

The bill is now before the Assembly Health Committee after breezing through the state Senate.

Correction on Gala Donor Names

The item below contained a bad link to the names of the donors to the gala. Here is the correct link to the names.

Watchdog Says CIRM 'Laundering' Cash

"A total mockery of public accountability." That's how the Foundation for Taxpayer and Consumers Rights is describing the release of the names of the donors to the $1 million gala for the California stem cell agency.

CIRM disclosed only the names of the donors – not their business affiliation nor the amounts they contributed.

Reporter Steve Johnson of the San Jose Mercury News wrote Friday that one was the chief executive of a firm that plans to seek funding from CIRM. That exec made a $3,000 contribution.

John M. Simpson, stem cell project director for the foundation, said CIRM's handling of the information amounts to "nothing more than laundering money to evade CIRM's own policies."

Here is a link to link to the names, which it said include biotech and venture capital executives.

Klein to Ortiz: You Are an "Ongoing Threat"

In a harshly worded letter, California stem cell Chairman Robert Klein says state Sen. Deborah Ortiz is "an ongoing threat" to his agency. Klein's excoriation of Ortiz has publicly irritated at least one member of CIRM's Oversight Committee and is certain to irritate others. The letter also raises anew long dormant questions about Klein's activities outside of CIRM.

Klein's letter lambasted Ortiz, who is the most influential legislative voice on stem cell issues, because she is the author of SB401, which would tighten oversight of CIRM -- but only if the measure is approved at a statewide election, as was Prop. 71, the measure that created CIRM.

Klein's letter, which he prepared in his position as president of an advocacy group called Americans for Stem Cell Therapies and Cures, goes beyond – both in tone and language -- the official CIRM position on the bill, which is that the measure is premature and unnecessary.

CIRM declined to comment on the letter, which it says Klein prepared on his own time. Nonetheless, the 4-page missive is certain to disturb the Oversight Committee members who advocated less aggressive tactics with the legislature in connection with SB401.

Claire Pomeroy, dean of the UC Davis School of Medicine, was one. Earlier this spring at a meeting of the Oversight Committee, she said, "I personally support continuing to talk rather than being inflammatory and confrontational."

Oversight Committee member Jeff Sheehy was quoted in a June 8 piece by Terri Somers in the San Diego Union-Tribune as objecting to the timing of the letter, which was sent on Monday before Tuesday's election involving Ortiz, a Sacramento Democrat who was seeking statewide office.

Sheehy said,

“The larger question here is the appropriateness of the chair of a state agency, especially a man who has been very insistent on having operational responsibilities of the institute, having his own political action committee. It just doesn't seem appropriate to me."

Sheehy also said he "feels like he has been lied to" concerning Klein's involvement in the group, which grew out of the old Prop. 71 campaign committee.

Somers' article quoted John M. Simpson, stem cell project director of the Foundation for Taxpayer and Consumer Rights, Santa Monica, Ca., as saying:

"'This is certainly not something that is appropriate for the chairman of the (institute's board) to be cranking out."

The article continued,

"Although Klein legally has a right to campaign for causes he supports, Simpson said, most state residents forever will associate his name and actions with the stem cell institute."

The first sentence of Klein's letter states:

"As a State Senator, Deborah Ortiz has been an ongoing threat to Proposition 71, the California Institute of Regenerative Medicine (CIRM), and stem cell research in its entirety."

"Crippling" is another word the letter uses to describe SB401, which Klein say is merely an attempt by Ortiz "to impose her own legislative controls" on CIRM. It goes on to accuse her of "grandstanding" defying the will of the electorate, requiring "expensive" audits of the agency, consorting with the far right and being praised by "enemies of stem cell research." The letter also compares her invidiously to other legislators who instead exercised "highly constructive and responsible" leadership.

Ortiz' office had no comment on the letter.

Responding to an inquiry by the California Stem Cell Report, the Americans group released a background statement that said Klein's letter was "stimulated" by a June 2 article by reporter Somers which, among other things, repeated a statement in a much earlier story by Somers that Prop. 71 was Ortiz' brainchild.

The June 2 article, according to Klein's group,

"...clearly indicated that Sen. Ortiz's press operation had succeeded in misleading a highly responsible and thoughtful journalist as to the senator's importance in the 'creation' of Prop. 71 and the allegedly positive effect of her legislative attacks on Prop. 71. Sen. Ortiz did not see drafts of Prop. 71 until after it was finished and submitted to the attorney general for certification for the petition process. She did not participate in the drafting."

Jesse Reynolds of the Center for Genetics and Society was quoted by Somers in her June 8 article. He said,

“When you look at Sen. Ortiz's history of involvement with Prop. 71, (Klein's statement is) not accurate. She was the first to propose a bond initiative. Klein wouldn't be where he is today without Ortiz.”

Klein clearly believes that he can wear two stem cell hats. In some ways, his position reflects his statement during the February stem cell trial in Hayward, Ca., that he does not regard himself as a state employee since he does not accept a salary. But there is no doubt that he is working fulltime, if not more, as chair of the stem cell agency. He is a formidable fundraiser ($50 million or more for CIRM to date), aggressive, intelligent, knowledgeable. "Super salesman" is how Fortune magazine described him.

But would it be appropriate for the state director of highways to also be head of an advocacy group promoting state highway construction? State employees have a right to a private life, but not when it conflicts with their public responsibilities. Private persons likewise can pursue their own agendas, but they do not necessarily have a right to chair a public agency that enhances that agenda.

Another way to look at the linkage in Klein's case is to consider the public impact of his letter concerning Ortiz. Imagine this possible beginning to a news story: "A little known group called Americans for Stem Cell Therapies and Cures says an influential Democratic state legislator is a threat to all stem cell research." Ho-hum. The reason that this letter is significant is because it is signed by the chair of an agency that is going to give away $3 billion for embryonic stem cell research. Without the ties between Klein and CIRM, his letter has little impact.

One of Klein's responsibilities as chair of CIRM is to be an advocate for stem cell research. But should he go beyond the agency's debated and approved position? At the very least, the differing messages create confusion. They can also foster suspicion, mistrust and concern that secret agendas are at work.

The background statement from the Americans group said CIRM was not consulted during preparation of the letter. The group said the letter represents only the view of the Prop. 71 campaign committee, formerly known as Californians for Stem Cell Therapies and Cures. The statement said the name was changed to reflect national educational and political plans.

The group, which shares space in Klein's personal offices in Palo Alto, pointed to a comment at a CIRM meeting in February 2005 during which Klein told reporters that he would continue as chairman of the campaign committee with the goal of raising $1 million for federal advocacy work as well as retiring the campaign's then $1.4 million debt.

The full text of the letter follows the item below on some of its allegations. For technical reasons, we cannot post the background document, which is as interesting, if not more so than the letter. If you would like a copy of the background document, please send an email to djensen@californiastemcellreport.com. We will send it to you as a PDF attachment, probably on Wednesday.

Klein and the Facts of The Matter

The anti-Ortiz letter from Robert Klein and the Americans for Stem Cell Therapies and Cures is part of a special genre. It is an advocacy document designed to arose supporters and stir outrage, just as documents produced during political campaigns are aimed at generating support for a particular candidate or issue. It is hard to hate a proposed statute. It is much easier to dislike a perceived enemy. While allowances can be made for rhetorical excess, Klein's letter has accuracy and distortion problems that should be addressed.

Let's speak to some of them as they come up in the letter. For example, it says Deborah Ortiz is interested in imposing "her own legislative controls." If SB401 becomes law, however, it will be only after the approval of both houses of the legislature, the governor and a vote of the people. If Klein can prevent Ortiz from receiving 21 votes for her bill in the State Senate, it is dead. That is a far cry from "her own" controls.

The letter states that Ortiz is on an "anti-research crusade." The fact is that she has been advocate of stem cell research well before the existence of CIRM.

Another Klein contention: "SB 401 ignores the single most important element in stem cell research: the patients and their families." If that is the case, such niceties as treatment of women egg donors should be given short shrift. Businesses promising quick cures should be given top priority and top dollar. We are certain that Klein would not stand for long behind that particular logic.

SB401 is "untimely," the letter states. The California stem cell agency has been in existence for nearly 18 months, but many of the issues involved with SB401 continue to fester. Members of the CIRM Oversight Committee themselves have noted that such things as intellectual property and research standards will continue to need to be addressed for some time to come.

Another excerpt: "The Ortiz legislation defies the will of the California electorate. The text of the initiative states clearly that CIRM was supposed to be legislatively protected for 3 years." What this argument fails to note is that if the people so "will, " any initiative may be amended by another vote of the people. What the Ortiz legislation would do, among other things, is ask the California people in 2007 to say whether they want tighter oversight over the agency they created in 2004.

Finally Klein asserts that CIRM is "already the gold standard in public accountability and transparency." The reality is another story. While the agency has improved in recent months, the background material for virtually all of its meetings is publicly released so late that interested parties do not have an opportunity to make plans to attend. Even members of the Oversight Committee have complained about not receiving the material in a timely fashion, and as recently as this spring. Even some of the smaller school districts in California do a better job in providing information in advance of their board meetings than does CIRM. Just last week, CIRM also refused to provide the complete identities of donors to its $1 million fundraiser and declined to specify the individual amounts they gave.

Text of the letter is below.

Text of the Klein-Ortiz-SB401 Letter

Here is the letter signed by Robert Klein concerning Deborah Ortiz and SB401. It was supplied by a representative of the group.

AMERICANS FOR STEM CELL
THERAPIES AND CURES


550 CALIFORNIA AVENUE • PALO ALTO, CA 94036
PHONE: (650) 812-9304 • FAX: (650) 833-0105

June 5, 2006

Dear Stem Cell Advocate,

As a State Senator, Deborah Ortiz has been an ongoing threat to Proposition
71, the California Institute of Regenerative Medicine (CIRM), and stem cell research
in its entirety. In a stream of legislative acts, Senate Bill 18, Senate Constitutional
Amendment 13 and most recently Senate Bill 401, the Senator has attempted to impose
crippling restrictions on the research she claims to champion. Rather than allowing the
CIRM time to develop policy and standards, Senator Ortiz attempted to impose her own
legislative controls on the new agency barely one month after its approval by the voters. Her
policies, if implemented, would be disastrous for the new stem cell research program.

SB 401 will stunt progress in stem cell research.

Despite the fact that the Governor vetoed SB 18 (which in its original form would have
mandated a three year delay of promising forms of stem cell research), and that SCA 13 died
quietly as it became more fully understood, Ortiz’ anti-research crusade has continued in the
form of Senate Bill 401.

SB 401 was originally a bill which had nothing to do with stem cell research. Its subject was
medical advertising. In that guise it passed through several Senate hearings. Then the
contents were removed, and replaced with a completely different bill, very similar to the
research-restrictive SCA-13. This “gut and amend” procedure shoved the bill through
without full hearings, denying due process.

SB 401 adds new layers of bureaucracy and unfunded costs. Example: the Ortiz bill would
require the Attorney General’s office to approve each individual financial arrangement
between state and researcher. Not only is this new expense unfunded, but what is to prevent
an Attorney General who opposes the research from delaying it? Furthermore, the Attorney
General’s office does not have this expertise and the University of California system has
proven the value of hiring private attorneys with scientific expertise who can effectively
compete in negotiations with private sector attorneys (to actually protect and advance the
state’s interest).

Still another threat in SB 401 is the often vague and confusing language, offering possible
grounds for new lawsuits and accompanying delays in research. SB 401 offers a potential for
still more unnecessary legal challenges-- and accompanying delays-- to virtually any research
project imaginable.


Above all, SB 401 ignores the single most important element in stem cell research: the
patients and their families. As Nancy Reagan said, “We have already waited too long; it is
time to let the research go forward.”

The legislation is untimely and uncalled for.

Ortiz started her attacks on Proposition 71 on December 6th and 7th, 2004; on the very day
the National Academies of Science convened a two-day national taskforce workshop with
the Proposition 71 sponsors, to advance their mutual efforts to develop a MODEL FOR
MEDICAL AND ETHICAL STANDARDS. Senator Ortiz ignored these efforts and
claimed that the Proposition 71 sponsors were not interested in high medical and ethical
standards. She advanced her attacks in press coverage at the expense of the National
Academies of Science and Proposition 71 sponsors’ committed efforts. By denying the new
agency time to develop regulatory best practices, the Ortiz legislation defies the will of the
California electorate. The text of the initiative states clearly that CIRM was supposed to be
legislatively protected for 3 years. As stated within the text of the initiative, “Sec. 8.
Amendments. The statutory provisions… may be amended… by a bill introduced and
passed no earlier than the third full calendar year following adoption …”

CIRM has taken positive steps to ensure accountability.

Senator Don Perata, Senator Joe Dunn, Senator Jackie Speier and Senator Debra
Bowen led a highly constructive and responsible Senate effort to improve Proposition 71 in
a joint venture with the leadership of the Board and staff of CIRM. In contrast, Ortiz played
a “grandstanding” role, constantly undermining and attacking the good faith efforts of the
CIRM and the Proposition 71 sponsors. In areas such as patient protection, ethical
standards, public oversight and more, the CIRM has adopted the most stringent
“standards and practices” regulations in the nation, with the approval of Senators
Perata, Dunn, Speier and Bowen. Nothing, unfortunately, satisfies Senator Ortiz. Case in
point: Senator Ortiz requested a 6 month full performance audit of CIRM and its practices.
This is an expensive and serious government operation, done in addition to CIRM’s
completed independent audit: which, by the terms of Proposition 71, already must be
reviewed in a public hearing by the Independent Financial Oversight Committee chaired by
the State Controller and with representation of the State Treasurer, the President Pro
Tempore of the Senate and the Speaker of the Assembly, and the CIRM. Only three weeks
after demanding the performance audit, without waiting for its results, Senator Ortiz went
ahead with SB 401, imposing restrictive “solutions” to a problem not shown to exist.

The California Institute for Regenerative Medicine is already the gold standard in public
accountability and transparency, having held nearly 70 public meetings and numerous
conferences to address issues of intellectual property, patient privacy and safety, scientific
planning, and more. The CIRM’s medical and ethical standards in many cases are more
stringent than those of the National Institutes of Health’s requirements, as well as
qualitatively exceeding the recommendations of the National Academies of Science.

Strange bedfellows: Ortiz and “the far right”.


Ortiz’s legislature has been publicly praised by the enemies of stem cell research. For
example, in a March 30th, 2006, report from Lifenews.com, an influential right-to-life group
bitterly opposed to embryonic stem cell research:

“State Sen. Deborah Ortiz, a Democrat who has been leading efforts in the legislature to get more
state oversight on CIRM, says she plans legislation to put on the ballot a measure that require(s) grant
recipients to share half their proceeds with the state. “For pro-life advocates who didn’t want Proposition 71,
the battles are a positive development because it means any research…will only be postponed.”
SB 401’s co-author is conservative George Runner, who has been described as “virulently
anti-embryonic”1 stem cell research.

Stem cell research advocates oppose the Ortiz legislation.

Not one patient advocacy organization has endorsed Senator Ortiz’s cripplingly anti-
research legislation. On the contrary, some of embryonic stem cell research’s biggest
patient-advocate supporters have come out against SB 401: The Coalition for the
Advancement of Medical Research - a 100-group organization, the Juvenile Diabetes
Research Foundation, the Alliance for Stem Cell Research, Californians for Cures, the
Christopher Reeve Foundation, Research for Cures-- and every other patient advocacy
organization which has taken a public position.

SB 401 is opposed by California Institute of Technology, Stanford University, the University
of California, and the University of Southern California. The measure is opposed by the
California Healthcare Institute and major newspapers, such as the Los Angeles Times.

For all of these reasons we would hope that you would immediately communicate your
position against this bill to all supporters of Proposition 71.

Sincerely,

Americans for Stem Cell Therapies and Cures

(Proposition 71 Campaign Committee)

Robert N. Klein, Chairman

Dr. Genevieve Ames, Director

Don C. Reed, Secretary


1 “Sen. Ortiz has since teamed up with virulently anti-embryonic stem cell Republican George
Runner (R-Antelope Valley) to propose two new bills and a constitutional amendment..."--Los
Angeles City Beat, March 24, 2005

CIRM's Strategic Plan Interviewees

Who is California stem cell agency talking to about its plans for its billion-dollar giveaway?

As of late last month, 14 persons from outside the agency had been interviewed as part of the strategic planning process. They included Bill Neaves, president and CEO of the Stowers Institute for Medical Research, George Scangos, president and CEO of Exelixis, Inc., a South San Francisco drug company, Mahendra Rao, vice president of Invitrogen Corp. of Carlsbad, Ca., and formerly of the NIH, and Bruce Stillman, president of the Cold Spring Harbor Laboratory, a nonprofit research institution in Cold Spring Harbor, N.Y.

Some of the comments garnered during the 14 interviews have been summarized in a CIRM planning document (see page 11 "opinions from interviewees").

For the full list of interviewees, see this document.

More Fresh Stuff on CIRM Planning

Knowing the right questions to ask is a good start in most endeavors.

CIRM President Zach Hall has posted a number to be discussed during the formulation of a plan to give away $3 billion for stem cell research.

They range from the question of supporting young investigators to investigator-initiated curiosity-driven grants to the need to build more labs and facilities for embryonic stem cell research. The document outlining the questions is on the CIRM web site and can be found under the button called "Strategic Planning Info" on the home page.

Material is added to the strategic planning Web site with reasonable regularity, but the folks maintaining it say they cannot notify interested parties when it is updated. So you will just have to wander onto that particular Web page from time to time to check for new stuff. That said, it is a relatively simply process to add an update notification mechanism such as an RSS feed or something similar. Doing so would genuinely improve CIRM's outreach efforts. Passive postings on the Web draw little attention.

Klein Still Hard on the Money Trail

The California stem cell agency intends to raise $100 million from philanthropists over the next 12 months, according to its chairman, Robert Klein.

Reporter Terri Somers of the San Diego Union-Tribune wrote about CIRM's plans today, noting that the funds would cover grants and other expenses well into next year as the agency deals with litigation against it.

Klein also said in a speech to biotech executives that CIRM expects to take in another $36 million within the next 35 days in the form of bond anticipation notes, which would not be repaid if CIRM loses the lawsuits.

That is why the agency is pitching the notes to philanthropies instead of regular investors.

While the execs applauded the fundraising news, Somers wrote that "taxpayer advocates said there's a limit to philanthropists' generosity."

Her article continued,

"'You can only get so much juice from that fruit,' said Jesse Reynolds, of the Oakland-based Center for Genetics and Society."

Somers also wrote a piece published on Friday concerning Sen. Deborah Ortiz, D-Sacramento, and the California stem cell initiative. Noting that Prop. 71 was Ortiz's brainchild, Somers said Ortiz supported it despite "gaps that troubled her."
Somers quotes several critics of Ortiz, including John Reed, who heads the Burnham Institute in La Jolla.

"To me (SB401) is death by 1,000 cuts," he said.

As for Ortiz, Somers wrote,

"For all the criticism I've received, it would have been politically smart of me to just shut up and embrace and defend Proposition 71 and raise lots of money from biotech interests. But I chose not to do that,' said Ortiz, whose campaign has collected more than $500,000 in contributions."

Other than Somers' story on fundraising, we have not see any stories that might be connected to the Friday meeting of the Oversight Committee in La Jolla. However, Saturday papers are small and sometimes marginal news is held for later publication. In this case, marginal means news that is not connected to next Tuesday's California elections.

Time for Tougher Disclosure on Working Groups

The Sacramento Bee and San Jose Mercury News have editorialized in favor of more stringent conflict of interest standards for members of CIRM working groups, an important element in SB401.

CIRM has so far resisted such requirements, but the newspapers say more disclosure is needed of the economic interests of scientists and others who make influential recommendations on multimillion dollars.

The Bee said,

"That would do much to ensure the integrity of the Institute for Regenerative Medicine and put it on a less contentious path."

The Merc said,

"Disclosing financial conflicts at all levels of grant review is necessary to maintain the integrity of the research and the use of public dollars."

California Stem Cell Research Regulation: CIRM is Not the Only Player

So what is a woman to do? Donate her eggs to Brand X research and lose her wages or donate her eggs to CIRM research and recoup her wages?

That is one of the subjects likely to be addressed, at least in one form or another, by the other California stem cell committee. It will meet next Thursday to consider ethical standards for embryonic stem cell research that is not financed by CIRM.

This group is an advisory panel to the state Department of Health Services and has held only one meeting so far. During its initial session Feb. 24 (See "research"), it seemed in agreement on creating guidelines consistent with CIRM regulations.

The voter-approved measure that created CIRM made it constitutionally independent of the state Department of Health Services and the advisory committee.

The agenda for the committee, chaired by Henry Greely, a law professor at Stanford, is a tad shy of details. But one item to be discussed is SB1260 by Sen. Deborah Ortiz, D-Sacramento. Among other things, that measure would extend the life of the advisory panel, but it is basically aimed at protecting women who provide eggs for stem cell research.

Ortiz' bill would additionally ban reimbursement of lost wages for egg donors, which CIRM permits. (See "wages of eggs."). That is where the double standard for egg donations comes in. No reimbursement for run-of-the-mill egg donors while donors to CIRM research can recover any lost salaries. One might imagine there will be few donors of eggs for research outside of CIRM.

SB1260 would also bar women from selling their eggs for the purposes of medical research, but does not speak to the question of women selling their eggs for other purposes. The bill has passed the Senate and seems headed for legislative approval. The governor has already indicated that he favors protecting women egg donors just as long as it doesn't interfere with CIRM.

The advisory committee might also want to examine the latest critique of the CIRM research regulations by the Center for Genetics and Society. The group sent a detailed later to CIRM on its rules, which are going through the formal adoption process, recommending a number of changes, including one dealing with a loophole involving payment for eggs.

One section of CIRM's rules, accord to the center, creates a "fiction and an illusory distinction between eggs provided for fertility and eggs provided for research."

The center said,

"Common practice in fertility treatment is to pay women per cycle, not per egg, and in fact, paying women per egg would create perverse incentives as happened in South Korea for women to be given higher doses of hormones than necessary. Suppose a woman provides one cycle of eggs from which 10 eggs are retrieved. This new regulation says that if a woman undergoes one cycle and provides 10 eggs, the clinic can pay her for 8 and then pretend that she gave 2 for free! This is nothing but a sham to create compensation for eggs for research, which is against the law."

The center proposed language that reads:

"A woman providing oocytes for donation for another person’s reproductive efforts may not donate any of these eggs to research unless she has received no valuable consideration for her donation of oocytes for either research or reproduction."

The group also had more comments on CIRM's rules for informed consent arrangements, assurances of medical care for egg donors and activities not eligible for CIRM funding.

Can CIRM Help Reduce Health Care Costs?

Suggestions that the California stem cell agency create a patent pool received renewed support recently in an article that said the state has a "unique opportunity to create a climate that will not only be hospitable to innovation but also simultaneously deliver affordable medicine."

Merrill Goozner, director of the Integrity in Science Project at the Center for Science in the Public Interest, pitched his patent pool idea again in an article on PloS Medicine. The piece is titled "Innovation in Biomedicine: Can Stem Cell Research Lead the Way to Affordability?"(See the "over the top" item below for quite a different view.)

Goozner wrote that the maze of medical patents has played a significant role in increasing costs because of the "exclusive rights/high prices model" of conventional markets. He said:

"CIRM and other stem cell funders can become catalysts for cutting through this patent thicket. They can require that all grant recipients agree to donate the exclusive license to any insights, materials, and technologies that they patent to a common patent pool supervised by a new, nonprofit organization set up for that purpose. A patent pool serves as a one-stop shop where investigators can obtain no-cost or low-cost licenses for subsequent research. Patent pools have been successfully used in other high-technology industries such as consumer electronics and software to facilitate the development of new technologies that either require common standards or rest on a common base of basic research. Several patent law firms and close observers of medical research have suggested that patent pools can work in biomedicine."

Goozner also suggested that a prize could be used as a stimulus.

"A government body such as CIRM could establish a major prize for companies and institutions that collaborate to produce a successful stem cell therapy. The prize would have to be large enough to justify the substantial investment required to carry out the final stages of research. It would also have to be large enough to share with the upstream patent holders whose basic and applied research became part of the pool that led to the new therapy. One could imagine prizes in the billions of dollars based on considerations such as the prevalence and public health impact of the disease, the difficulty in developing its cure, and the capital investment required to achieve results. A prize system has been proposed at the federal level."

Goozner continued,

"By combining a patent pool, an open-source model of IP development, and a shared prize system for developing stem cell therapies, the California state stem cell program can point the way to a new medical innovation system for the 21st century. This model could be used by all advanced industrial economies grappling with how to pay for the rising cost of the new medical technologies sought by their ill and aging populations."

Goozner pushed his patent pool concept at a hearing last fall conducted by State Sen. Deborah Ortiz, D-Sacramento. The Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., has advanced it during IP hearings by CIRM.

CGS: Democrats Over The Top on Stem Cell Research

Democrats should beware of the seductive lure of stem cell research. So says Richard Hayes, executive director of the Center for Genetics and Society in Oakland, Ca.

Hayes, who describes himself as a lifelong liberal Democrat, says he is worried about the feverish efforts by Democrats to seize stem cell research as a potent vote-getting wedge issue. Why?

Writing on Tompaine.com, Hayes says,

"I’m worried because in their over-the-top enthusiasm for stem cell and cloning research, Democrats are ignoring the many ways in which it could, if irresponsibly promoted and inadequately regulated, have consequences at odds with core Democratic values. The short-term political advantage that fervent support for stem cell research now gives Democrats could backfire when the problematic aspects of this research come to light."

Hayes says "there is no question that stem cell research should go forward."

But he says some avid supporters ignore important issues, including the question of affordability.

"If stem cell-based therapies are ever successfully developed, how affordable will these be? After passage of California's $3 billion stem cell initiative last November, its leaders acknowledged that the 'individualized' stem cell therapies highlighted throughout the campaign could cost in the neighborhood of $100,000 per patient. Who would be able to afford such treatments? Individualized medicine for the wealthy is the antithesis of the affordable, comprehensive health care that Democrats have historically and correctly made a top domestic policy goal."

Hayes also says,

"Americans want stem cell research to succeed. Democrats are in a position to take the lead on this research, but with leadership comes responsibility. We need policies that allow stem cell research to proceed at a robust but reasonable pace, while imposing tough regulations to ensure that the fruits of this research are affordable by all, that they do not endanger the well-being of women who provide eggs for research, and that they are not used for socially and ethically unacceptable purposes."

Stem Cell Advocacy Conference at Stanford

Politics and embryonic stem cell research will be topic No. 1 at a conference next week at Stanford University featuring a Nobel laureate and the governor of Wisconsin, the state with the lock on the key stem cell research patents.

The Genetics Policy Institute in Florida, headed by Bernard Siegel, is sponsoring the June 10-11 event, which is called, “Stem Cell Policy & Advocacy Summit: Empowering the Pro-Cures Coalition.”

Scheduled speakers include Paul Berg, the Nobel laureate, Wisconsin Gov. Jim Doyle, California stem cell Chairman Robert Klein, Michael West of Advanced Cell Technology of Alameda, Ca., and Larry Goldstein of UC San Diego, among others.

You can find more information about the conference by clicking here.

"Dualing" Execs at CIRM: Touchy Issues Between Klein and Hall

On the surface, the problem seemed ridiculously simple.

But at its heart lay matters of trust between two strong executives in a new, $3 billion organization hobbled by an inflexible structure virtually impossible to change.

The flap surfaced at the May 19 meeting of CIRM's Governance Subcommittee. The nominal topic was internal policy at the California stem cell agency – normally a soporific subject. But all were alert when the focus fell on who decides which staff members will have offices with windows and who approves travel – Robert Klein, chair of the CIRM Oversight Committee, or Zach Hall, president of CIRM?

The details, however, are less important than what they reveal about CIRM, the Oversight Committee, its two top executives and their relationship.

The transcript of the session exposes an organizational rawness that rarely is seen in public from any business or government agency. Most of the members of the Oversight Committee have undoubtedly encountered comparable situations from time to time in their careers as managers and executives. But dealing with it was troubling for some.

"If there's just not a level of trust with the president and the office of the chair...it causes me great concern and heartache," said David Serrano-Sewell, a member of the Oversight Committee and a patient advocate. He added that "a million people are coming after us" and that the agency did not need internal dissension.

Another member of the Oversight Committee, Claire Pomeroy, dean of the UC Davis Medical School, was among others concerned about the relationship between Klein and Hall. "If we have a situation where our chair does not trust the president will make appropriate decisions about the travel budget and office space, then that's a larger issue," she said.

Normally such a management split could be resolved relatively easily or avoided entirely by an organization's board of directors – the Oversight Committee, in the case of CIRM. But the voter-approved law that created the stem cell agency spells out in statutory language the specific duties of the president and chair of the agency and creates something of a dual executive situation. Many of Klein's and Hall's responsibilities are locked into state law that cannot be touched by the legislature for two years or so, and then changed only by a super-majority vote of both houses and the signature of the governor.

Adding to the complexity is the 29-member Oversight Committee, a quasi-legislative body attempting to act as an executive committee. The group does reasonably well as a deliberative body, but sometimes it resembles nothing more than an elephant trying to dance as it wrestles with its executive chores. In this case, months ago it approved organizational details that created more overlap in the dual executive situation. That might not have been a problem if Hall or Klein were a weaker leader or manager. But both are strong, capable executives, albeit with different personalities and styles.

The issues reflect "tensions and challenges" rumbling through CIRM for the past year, according to Oversight Committee member Philip Pizzo, dean of the Stanford University School of Medicine. Those tensions surfaced when Hall presented the Governance Subcommittee with a draft of CIRM's mostly routine internal policies. He said that he and Klein were in agreement except for two issues – who controls office assignments and travel, particularly out-of-state travel.

The two men have discussed the matters since September, when Hall was named permanent CIRM president, but he said they have been unable to resolve their differences. Hall asked for a decision by the subcommittee.

He said he was held accountable for the activities of all CIRM employees, including those assigned to the "office of the chair."

"I need to be sure that both whatever is done are things that I can defend as a responsible manager and administrator of the institute and also that policies are applied consistently across the institute so that we're one organization and not two....I feel very strongly about it," Hall said.

Later he said in reference to such matters as assignment of offices,

"All these little status things sound small, but in actual fact they weigh heavily often in terms of people's morale and the sense that there's a set of rules and that they're applied fairly to all people."

For Klein as well, it was a matter of responsibility. He said,

"First of all, the chairman is responsible as an individual to the board and to the public. and if the chairman isn't responsible, there shouldn't be the chairman."

He also said,

"I don't want responsibility without the ability to perform. And what's important here is that the office of the chair is responsible to the board for many functions. And if we're going to micromanage the ability to perform those functions, the office of the chair, whether I fill it or you get somebody else to fill it, will not be able to perform."

As the discussion intensified, Klein responded to one question by saying:

"I'm limited out...I'm really at the edge where if I'm going to be able to perform, having another level of approvals is just so redundant, that I question the organization and the burdens being put on me and whether they're reasonable."

Ultimately the subcommittee approved a motion that said expenses for travel exceeding those budgeted for the office of the chair must be approved by the president. Hall and Klein were directed to work out a "peaceable solution" on a system for office assignments, with the assistance of Tina Nova, CEO of Genoptix, Inc., and also a member of the Oversight Committee. "If there is disagreement," the motion said, "it is the president's final approval authority that stands."

The split could surface again on Friday when the internal policies of CIRM come before the Oversight Committee in a public session. The matter may arise as well behind closed doors as a personnel issue.

The fundamental problem, however, is not going to go away easily, as more than one Oversight Committee remarked.

-0-

For a look at how Klein views the specifics on the travel issue, see the item below that includes comments from Hall and others. Klein's office is budgeted $30,000 for travel for the current fiscal year, up from $20,000 earlier. The office of the president is budgeted $6,000 for travel, up from $5,000. Another $5,000 is also budgeted for travel by the agency's science and administration offices. For the first six months of the next fiscal year, $37,000 is budgeted for all CIRM travel.

You can find the full transcript of the subcommittee hearing here. The discussion begins on page 54. A cautionary note: It is easily to misunderstand emotions and emphasis in raw transcripts that are missing voice inflection and other nuances. Read with care.

CIRM Travel Comments

Here are comments from Robert Klein, chairman of the California stem cell agency, and Zach Hall, president of CIRM, concerning out-of-state travel and related comments from two Oversight Committee members.

Hall introduced the topic of travel at the May 19 Governance Subcommittee meeting by saying,"

My understanding is that all out-of-state travel and out-of-the-country travel requires my approval. And I think the reason for that is in the end I'm held responsible if we have abuse or misuse. This is the kind of thing that is apt to, I think, make the headlines, and I also think that this is an area in which we need consistent policies across the institute. And so although my intent is not to micromanage here, but simply to be sure that in the final analysis, since I'll be held responsible, I want to be sure that I am able to approve those."

Later Klein said:

"What's important here, if I have to go to Washington, D.C., on a drop of a hat because Frist moves the Castle/Degette bill in the Senate without notice -- which is, in fact, the anticipated strategy – I need staff that may have to pack on a weekend to get there. And I will be rearranging my life as well as my business as well as all of our CIRM functions, and having another level of encumbrance, we still have to get to ... to get the state director of finance's approval, and we have budgeted in our budget out-of-state travel for staff that we have support in situations like that. So fulfilling my function just on a real-time operational basis is challenging at best. and as long as we're within the budget here, I need to be able to do that to perform my functions that are critical to the mission."

Philip Pizzo, dean of the Stanford University School of Medicine, responded shortly thereafter with a quick follow from Claire Pomeroy, dean of the UC Davis School of Medicine.

Pizzo:

"In fairness, I think all of us can resonate to the boundaries surrounding this. If I needed to, you know, get approval to travel to Washington because of (a) key issue, I would object to that as well because I think I need to make certain decisions about that."

Pomeroy:

"I have to get approval every time I travel."

Pizzo:

"Well, that's why I left the NIH actually, to be honest with you."

Pomeroy:

"You work for a private organization, and CIRM is not a private organization."

Staff Turnover at CIRM

Two "veteran" staffers of the California stem cell agency are leaving the agency. We place "veteran" in quotes because both have been in place for only a little more than year, but that does make them relatively long term employees in an organization that still has not reached its second birthday.

One of them is Walter Barnes, chief administrative officer, and the other is Nicole Pagano, who has served as the spokeswoman for CIRM.

Barnes initially was on loan from the state controller's office to CIRM as it struggled in January 2005 to set up procedures and to learn the ropes of being a state agency. Barnes plans to leave CIRM in mid-September.

CIRM President Zach Hall described Barnes as "invaluable and superb."

"He's been an incredible link to the state government. He's advised us all in the ways, arcane ways, of being a state agency in government, and so we are going to miss him," Hall said.

Hall's comments came at the May 19 meeting of the Governance Subcommittee when news of Barnes departure slipped out.

Barnes said,

"This is a major, major jewel in my crown as I get ready to retire. I can't think of any way I would have preferred to spend my last years."

Pagano's departure also slipped out. Stem cell chairman Robert Klein said Pagano has done a "fabulous job."

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Right and a once a newspaper editor, told the subcommittee,

"She's been a wonderful press person to work with. I'm a former journalist, and you often don't run across talented and capable professionals in that side of things. She's been outstanding, and we're going to miss her."

No replacements have been announced.

Klein Caught in Stem Cell Blow-back

California stem cell chairman Robert Klein was hoist on his own political petard during an ironic moment involving legislation to tighten oversight of the California stem cell agency.
The subject was SB401, which would be placed on the ballot for approval by voters.

Klein, an attorney and one of the main authors of Prop. 71, objected strongly to the proposal during the last meeting of the Oversight Committee. Among other things, he told the CIRM overseers:

"This is legislation that creates an initiative. So if this is passed, you can't even, if there's an error in it, you couldn't even change it with (normal) legislation. You have to go back to the voters with an initiative. So it's not just what's being attempted, but the form of what's being attempted. Is an initiative to the voters necessary? That's a question. And is an initiative to the voters premature?"

Klein is exactly right – at least about the nature of SB401. He used the same technique (Prop. 71) to create the stem cell agency and froze out nearly all normal government oversight of CIRM. Klein sees the absence of what he perceives as political interference as an asset for the agency. That is why the folks that see defects in Prop. 71 – and there are many – have to resort to ballot measures to get the attention of CIRM. It happened last year at this time with SCA13, and it is happening again with SB401.

Just call it stem cell blow-back.

(For more on the views of the Oversight Committee concerning SB401, see the transcript of the April 27 meeting. The subject comes up again this Friday at the next meeting of the group.)

Ortiz' CIRM Bill Delayed Until August

Action on sweeping legislation to tighten oversight of the California stem cell agency has been put off until late this summer.

The measure, SB401 by Sen. Deborah Ortiz, D-Sacramento, was amended at her request to eliminate a provision to place it on the fall ballot. That removed the most imperative reason for quick action on the bill. (See "critical elements." )

Her office said the proposal will not be heard in the Assembly Appropriations Committee until August when the committee takes up other Senate-passed bills. CIRM's Oversight Commmittee is scheduled to discuss its position on the measure at a meeting Friday.

Another stem cell measure by Ortiz, who is the most influential state legislator on stem cell matters, cleared the Senate floor this week and moved to the Assembly.

That bill, SB1260, is aimed at protecting women who donate eggs for stem cell research. It would not affect research financed by the stem cell agency, which has approved separate standards.

This is Ortiz' last term as a state senator and chair of the Senate Health Committee. She is running in next week's primary election for the Democratic nomination for California secretary of state.

See this link for the latest Senate analysis of SB1260. See this link for the CIRM analysis.

BioCentury: NIH Looking Korean Stem Cell Lines

BioCentury, which offers business intelligence for the biotech industry, has come up with an item concerning the use of Korean stem cell lines in the United States. It is not clear whether any California institutions are affected.

Here is the headline and lead paragragh:

"NIH halts use of Korean stem cell line

"An NIH spokesperson said the institute has received 'credible information' that a South Korean hospital has replaced a federally approved human embryonic stem cell line with an unapproved cell line. NIH's John Burklow told BioCentury that the institute has launched an investigation, and NIH intramural and extramural researchers will be notified that they should halt all research involving the Miz-hES1 stem cell line from the MizMedi Women's Hospital in Seoul. NIH estimates that three of its intramural scientists and a "handful" of extramural grantees have received Miz-hES1 cells and will have to halt ongoing projects."

Uncertainty and the Ostensible Stem Cell Swag

How can California share the wealth from inventions created by California businesses that receive funding from the state's stem cell agency?

Ed Penhoet, a multimillionaire businessman and vice chair of CIRM, will offer some thoughts on the subject next Friday at a meeting of the agency's Oversight Committee.

Penhoet is chair of CIRM's Task Force on Intellectual Property, which has held two hearings in the past few months on the matter of splitting up the ostensible booty. Businesses, industry organizations, economic developers and nonprofit groups have testified. At least one more hearing is scheduled. Given the complex and difficult nature of the subject, that may not be enough.

Penhoet's role so far seems primarily as a facilitator. If he has specific approaches he favors strongly, they are not readily apparent, based on an examination of the transcripts. The closest he has come to staking out a position may be a comment in the April 27 meeting. He said that there should be a return to the state if the technology is successful. He also said it should be capped, which helps deal with businesses' uncertainty about the size of their ultimate payouts.

Uncertainty is one of the themes underlying the entire IP issue. No certainty exists, for example, that any CIRM-funded inventions will generate significant amounts of cash, despite grandiose assumptions by some. As Duane Roth, one of the newer members of the Oversight Committee and CEO of Alliance Pharmaceutical Corp., said, "100 percent of nothing is nothing."

At the April 27 meeting, Roth laid out a framework for any IP policy:

"What I think you're trying to do with intellectual property for start-up companies is create an environment where you can leverage financing and try to get people to invest in an idea, a dream. and they aren't going to do that unless they think, if they go through all this work and expense and risk, that there in the end is return. That's the first thing IP needs to do.

"The second is you want that IP to lead to products that actually get to people. and from our standpoint, you start these things, and that's what it's all about, getting products to patients. Taking good science and develop products and get them to the people that need them.

"The third consideration, and an important one, is royalty. If there is a contribution to the intellectual property that eventually leads to a product, which is a rare occasion, then there should be a sharing of the profits that are derived from that."

Roth's view was one of many expressed during the IP hearings. John M. Simpson, stem cell project director of the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., advocated state ownership of patents on CIRM-funded inventions by businesses, 25 percent royalties, low cost access to the therapies, patent pools and designation of the state attorney general as the enforcer of IP agreements. Simpson prepared a position paper for CIRM which said,

"Already some biotech executives have said the industry will decline CIRM money if the companies must share the rewards of Proposition 71 stem cell research grants with California taxpayers who put up $6 billion to finance the research. Too many biotech companies act like committed socialists when it comes to taxpayers and the government bearing the risk of drug development. But they are greedy capitalists when it's time to parcel out the profits."

"Ignore the bluff and blustering threats of picking up the Petri dishes and going home if they don't get their way. Any attempt to grab 'free money' without equitable public benefit requirements for biotech won't work. First-class companies understand that with the acceptance of taxpayer dollars comes the responsibility of public benefit. And with $3 billion on the table, there will be plenty of top-flight firms and researchers ready to play by fair rules like those outlined here to search for cures.

Julie Meier Wright, CEO of the San Diego Regional Economic Development Corp., said 25 percent was unrealistic, suggesting other figures that were as low as one percent.

"Three billion dollars in California sounds like a lot of money, but it will be spread over ten years and over a broad array of investments for many worthwhile endeavors. so even if CIRM makes what for it would be a significant investment in a for-profit company developing new therapies, this investment will likely be a small percentage of the total investment required to bring these therapies to commercial success," she said.

"So if you assumed a $10 million investment, and I don't know what your threshold for investment is going to be, but a $10 million investment in a young company that ultimately requires $500 million before commercial success, CIRM's investment is 2 percent. So my question is how does a 2-percent investment warrant onerous royalties or IP requirements?"

She continued,

"The framework that you've developed for not-for-profit institutions was the 25-percent royalty payment would truly be a disincentive on the private side to attracting private capital. and I think most private investors would tell you that they don't expect more than 1- or 2-percent royalties on therapeutics and maybe 5 percent or so on medical devices. so you could have the unintended consequence of discouraging private sector investment with some things that would be very good, and it could prevent CIRM from really being a catalyst for the best ideas and the best science at a really critical time in the life cycle of a for-profit company."

She and others focused on indirect but unquantified benefits to California, such as enhancement of the biotech industry, which in turn will generate business and income taxes and lead to related economic growth. Again, projections filled with uncertainty.

Representing the biomedical industry was John Gollaher, president of the California Health Care Institute, who emphasized what business can bring to stem cell therapies.

"CIRM should discount any claim that stem cell science can benefit patient groups without aggressive participation of commercial companies. The fact is that we live in a market-based, market driven economy, and the theory that most commercial companies operate on is the theory of capitalism And the best distribution of goods and services happens through the active participation of the market and of commercial enterprise. and, again, any of us who spent significant time in academic institutions or within government institutions, I think, have a low level of confidence in the ability of those organizations to quickly move technology through the widest possible allocations for the greatest public benefit.

"Finally, CIRM should discount attempts to regulate commercial transactions in ways that discourage participation of the best companies and entrepreneurs. I think the concern that we've heard more than once is that the more strenuous conditions, royalties, caveats that are attached to technology transfer relationships, the more reluctant commercial participants are to capitalize on those relationships and those technologies. So I think from CHI's point of view, guiding principles for CIRM with respect to commercial IP policy should be, first, maximum acceleration of the best science. And whether that science as technology exists in a commercial company or in an academic institution, CIRM should be rigorous and thoughtful in making investments behind the best science. CIRM has collected an astonishingly good set of expert scientific reviewers, and the ability of CIRM to make intelligent judgments with respect to where the best science is and where funding opportunities lie, I think, is superb and should be applauded."

Joydeep Goswami, vice president, stem cell and regenerative medicine, Invitrogen Corp., Carlsbad, Ca., discussed motivations for companies to seek financial assistance from agencies such as CIRM. He said CIRM grants might back research that a company could not currently fund or research that "doesn't make economic sense to fund immediately."

In the case of his publicly traded company, Goswami said,

"There are some very serious conditions of the kinds of risk profile of investments we make and the research we conduct. So having public funds or government funds sometimes allows us to take on risk profiles and projects that the market would not, frankly, like us to take...but it could have rewards for the research community and others."

Allan Robins, vice president and chief technical officer of Novocell, an embryonic stem cell company in Irvine, Ca., spoke about his company's experience with the Juvenile Diabetes Research Foundation, an organization whose research funding program was viewed favorably by several of the IP Task Force members. Robins said the foundation's contracts are individually negotiated, which he recommended that CIRM emulate. He also said the foundation's contract with his firm did not require royalties. Rather it asked for repayment of three times of the total, depending on product sales. Robins also objected to Simpson's 25 percent royalty figure as too high.

Here are links to the full transcript of the April 27 hearing and the Power Point presentations by Simpson, Gollaher, Robins, Wright and Goswami. See "swag" and "greed" for discussion of the earlier meeting this spring. Closely related to the IP discussions is the strategic planning process now underway at CIRM. You can find more on that by clicking here.

WARF: Onerous and Outrageous

The friendly folks at WARF were thrashed thoroughly at last month's meeting of the California stem cell agency group looking into who gets the money from stem cell inventions.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., led off the April 27 session of CIRM's Intellectual Property Tax Force with a statement of some vigor. "Really outrageous" is how he described the WARF stem cell patents.

We have presented Simpson's position before so we will offer up the thoughts of others at the April 27 meeting, but first a comment from Ed Penhoet, chair of the IP Task Force. His statement came late in the meeting after he listened to much of what you will read below.

Penhoet said,

"There is a thread in these conversations: Patents are extremely important...except the ones they don't like.... You can't have it both ways. So hopefully the field as a whole can reach some sensible accommodation to WARF for the pioneering work that they did do, but at the same time not stop the entire field from going forward. It's a hard problem actually."

Penhoet also said that WARF has been invited to make a presentation before the IP Task Force.

Penhoet's comments, however, do little to minimize the deep seated antipathy to WARF's position as reflected in the comments below. One might imagine that WARF might be concerned that potential customers are so distressed.

Joydeep Goswami, vice president, stem cells and regenerative medicine, Invitrogen Corp., Carlsbad, Ca., was asked whether the WARF patents are "a significant obstacle to private investment."

His reply:

"I think they are....I know a lot of you know about the WARF policy for not-for-profit research tends to be somewhat, well, somewhat generous, although many scientists that we have spoken to are quite taken aback at some of the restrictions that are put on academic institutions in terms of collaborating with companies such as us.

"For private institutions, I think it is a big disincentive because what WARF does is it looks at the size of the institution or the company that wants to license this product and wants to charge an upfront payment, which is very steep in any licensing terms, and then, of course, royalties obligations which are twofold. one, a direct royalty obligation which depends on products directly produced using stem cells, human embryonic or primate embryonic stem cells, but they also have a reach-through royalty clause where they say anything you've invented remotely by using human embryonic stem cells will now have a royalty obligation back to WARF. So, for instance, even if you had a treatment that was somehow brought to the market that has touched an embryonic stem cell in the United States, you will have to pay a royalty back to WARF. I think this is particularly onerous....

"Let's say we make a discovery of a tool using at some point a human embryonic stem cell. They want a royalty back on that particular product. and not only do they want a royalty back on sales of that product to the embryonic stem cell market, but any market that we touch, they want a royalty back on that particular tool. So it is quite onerous."

Francisco Prieto, a member of the task force, then asked, "Even markets outside the United States?"

Goswami:

"Yes. In general they would. See, the other part is...if you look at companies in the United States versus outside...which is actually even more interesting. Let's say there's a company in India....For anything they do with respect to human embryonic stem cell research, they owe no royalties to WARF. They do not have an obligation to WARF in any manner, way, shape, or form, and they can develop exactly the same therapies companies in the United States are trying to develop without any kind of restrictions or obligation to WARF. So from that point of view, setting up a company to do stem cell therapy in the United states, I think, is a major disincentive, and people are not realizing this business issue....The issue is not whether the patent is legitimate or not, but there are serious business implications of the patent in making cures available to the public here."

Later, Allan Robins, vice presidennt and chief technology officer for Novocell Corp. of Irvine, Ca., said,

"I thought Francisco (Prieto) brought up a very good point. and, Joydeep, I just wanted to add a little bit to your answer.....If a company in the field or the United Kingdom or Singapore develops a product or human embryonic stem cells and that product is different from the human embryonic stem cell, that product can be imported into the U.S.A. and sold here, and that would not infringe the (WARF patent) line. and so you really are putting companies that operate in the U.S. at a disadvantage."

Goswami:

"That's a great point."

Prieto:

"That was sort of what I was starting to glean from this that as they currently operate, that these patents are a disincentive to the research in the United States."

Goswami:

"It is enormous. And the patents only, as Allan rightly points out, are to the composition of matter of the primate embryonic stem cell and the method of derivation. So absolutely."

Later Goswami said:

"The (WARF) licensing model is...is huge upfront payments for a field that is, you know, pardon the pun, but embryonic. Just from a business point of view, it makes very little sense. and that's why maybe CIRM could help in enabling that particular patent because it will be used by almost everybody that is engaged in this form of research in the state of California."

We should note that the WARF issue was only part of the IP discussions. The full text of the session can be found by clicking here.

Looking at Legislation to Aid Biotech Biz

"Investors' disinterest" in California biotechnology came up for examination in a recent piece in the Vacaville Reporter, the daily newspaper for the community that lies between San Francisco and Sacramento.

The article by business writer Amanda Janis focused on the "realities of the manufacturing side of biotech." It was of interest to Vacaville readers because of the area's efforts to land biotech manufacturing facilities. But the piece also has interest to California as a whole.

Janis wrote:

"Industry leader Genentech chose to build its new $250 million facility in Oregon, where corporate income tax structures are more favorable. Then there was the start-up firm that passed on Vacaville in order to capitalize on biotech tax breaks offered in Washington. And most recently Chiron parent Novartis announced it would build a $400 million vaccine plant in the United States, but not in California."

She touched on state legislation aimed at helping the biotech business.

"Proposed bills include changing the corporate income tax structure with a four-year phase-in of single sales apportionment tax (an issue Genentech calls its primary legislative concern); sales and use tax exemption on manufacturing equipment; extension of research and development tax credits; and the allowance for companies to sell their net operating losses to other companies, which would gain a tax credit.

"The latter proposal, which has found success in states like New Jersey, has some of the greatest potential impact because of the loss-operating nature of the biotech industry, according to Matt Gardner, president of trade organization BayBio.

"'It takes 15 years for us to get a product,' he noted.

"Another proposed bill in California would help level the playing field, he said, because it would allow for designated "shovel-ready" land, or land that has been pre-zoned, with environmental impact reviews completed."

Legislation to help out the biotech industry has received little notice. But it is likely to become increasingly important to the industry as the CIRM investments ramp up.