CIRM's Klein Beefs Up His Staff

Less than one year ago, the directors of the California stem cell agency cut back to three the size of the staff of the chairman, Robert Klein, in an effort to make the job of president of the $3 billion effort more appealing to candidates seeking to fill the post.

Today, CIRM has its new president. And the authorized staff for Klein's office has ballooned to eight, which may not seem large, unless one considers that it amounts to about one-third of CIRM's tiny and overworked contingent.

The new positions were approved with little discussion last month by members of CIRM's Oversight Committee. Interim CIRM President Richard Murphy, who is being replaced by Alan Trounson, presented the positions to the board as part of a staff reorganization supported by Trounson. Murphy indicated Trounson may seek to modify the organization further as he settles in.

CIRM has been bedeviled by a dual executive structure, locked into state law as the result of being codified as part of Proposition 71 and which has played a role in conflicts between Chairman Klein and former President Zach Hall. At one point last year, Murphy, then a member of the Oversight Committee, called the management structure a "dog's breakfast."

Some observers say the structure now in place puts the agency firmly under Klein's control, and they expect Trounson to fill a much different role than Hall performed. They also say that Klein's dominance has played a role in the recent troublesome staff turnover – eight departures since October.

(Klein is a multimillionaire real estate investment banker who does not accept a salary for his position at the state agency. He has testified in court that he does not consider himself a state employee.)

The latest organizational structure calls for a new director of finance, legal and governmental affairs, who will have three staff members – all within the chairman's office. An associate legal counsel has also been shifted away from the president and works outside of the regular purview of CIRM's general counsel. Trounson reports directly to Klein.

No salary is listed on the web site for a director of finance, legal and governmental affairs, and the position is not currently listed as open for applicants. One position that is currently being advertised is for a chief operating officer, who will work under Trounson, and who should free him from much of the tedious work of the agency. No salary is listed for that position as well, but it could be as much as $270,000 annually, which is the top end of the range for the chief scientific officer, a parallel position that is vacant.

Formal organizational structures are sometimes nothing more than wish lists. But some time and effort have obviously been put into this one to deal with both Klein's and Trounson's desires. How it all works will play out during the next year. But management problems are a continuing issue at CIRM. And it is clear that CIRM needs to halt the turnover in employees and hire new staff as quickly as possible.

(An earlier version of this item incorrectly stated that the chief communications officer reports to both the chairman and the president.)

Stem Cell Snippets: Toes, Public Support and Looking Forward

WSJ on Stem Cells – Columnist Robert Lee Hotz wrote today in the Wall Street Journal about non-federal stem cell research efforts and reprogramming of stem cells. He quoted Richard Murphy(see photo), interim president of CIRM, as saying that research on human embryonic stem cells must continue. "We need to sort out the realities," Murphy said. The piece also contained a forward-looking number that is increasingly turning up in articles involving CIRM. That is the figure of $519 million, which is what CIRM expects to have approved for stem cell research by the middle of this year.

Bad Poll Numbers – "Strong support" is declining for human embryonic stem cell research, according to a recent poll by the Virginia Commonwealth University. The survey was taken following the latest news on reprogramming of adult stem cells. According to a piece by A.J. Hostetler of the Richmond Times-Dispatch, "strong support" peaked in 2005 at 27 percent and has now fallen to 21 percent. Overall support remains at 54 percent. It is the first national poll taken on stem cell research since the announcement of the reprogramming studies in November.

Murphy's Toe? – Reporter Ron Leuty of the San Francisco Business Times put together a bit of an overview of CIRM recently. The main focus was on the conflict of interest problems at the agency. He quoted Richard Murphy as saying, "We stubbed our toe. We all didn't realize we had a problem here." Michael Fitzhugh of the East Bay Business Times also looked at the impact of CIRM activities on companies in the eastern area of the San Francisco Bay region. If you have difficulty obtaining full copies of the articles, please send a request to djensen@californiastemcellreport.com, and we will send them to you.

FTCR on Appreciation

Following the appearance of an opinion piece Thursday in the San Jose Mercury News, John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Rights, sent the following letter to Richard Murphy and Alan Trounson, respectively the interim president and new president of CIRM:

"I enjoyed reading your joint article in today's San Jose Mercury News. It did an excellent job of highlighting the positive things the stem cell agency has done -- and is doing -- for the state.

"As you know, I've had differences with CIRM on occasion and, I am sure, will again in the future. I've always tried to offer constructive criticism that is intended to improve the agency and make it more responsive and accountable to those who fund it -- the people of California.

"You were correct when you wrote that there is much about the California Institute for Regenerative Medicine for which Californians should be proud. Funding promising young scientists is but a part.

"From my perspective, as I've served as a watchdog over the agency for the past two years, one of the things that has consistently left me with good feelings -- perhaps even a sense of pride -- is the dedication, commitment and devotion demonstrated by CIRM's hardworking staff. Too often they are under appreciated or at least taken for granted.

"So as we start a New Year, I wanted to make a point of lauding their contributions.

"I look forward to working with you in the year ahead. I'll continue to speak out when you're off track; I hope I'll be just as quick to praise what's right.

Fresh Comment

"Anonymous" has posted a new comment on the "withholds routine information" item below, suggesting that this writer has been at sea too long.

CIRM Moves to Refocus Public Debate

The outgoing and incoming presidents of the California stem cell agency published a piece in the San Jose Mercury News today defending the agency, declaring that the state's taxpayers should be proud of CIRM's efforts.

The op-ed article was written by Richard Murphy, interim president of CIRM, and Alan Trounson, who is the new permanent president.

In it, they point to the recent $54 million in grants to scientists as a sign that the CIRM is doing well. Little is new in the piece, but it represents an effort by CIRM to refocus public discussion of the agency in a more positive light following weeks of more negative news coverage.

Fresh Comments

"Anonymous" has posted a comment on the "withholding routine information" item below raising questions about the point of the item. We have posted a response suggesting there are three billion reasons underlying the post.

Business Joins CIRM Competition; Stanford Moves Craftily

Ten companies have submitted the first-ever letters-of-intent from the private sector for grants from the $3 billion California stem cell agency, and their chances may be better than those of some of California's finest universities.

The reason? CIRM is eager to develop interest and participation in its programs from stem cell companies. The general idea is that business would be faster at bringing therapies into the market place.

The number of letters of intent for the $1 million in disease team planning grants was disclosed today by CIRM. In addition to the 10 letters from business, the institute said that 56 letters were received from "non-profit institutions." The agency did not break down that number between educational institutions and research nonprofits.

CIRM next June plans to approve about 20 grants of up to $55,000 each. The grants would be an important stepping stone to the much larger, $122 million disease team grants.

The Stanford University School of Medicine, meanwhile, is not waiting for CIRM grants. It announced seven days ago that it was funding four disease team planning grants at $50,000 each beginning virtually immediately. Stanford apparently believes the early move will give it a leg up for the larger grants. Those being funded and pictured above are Irv Weissman(with microscope), Judith Shizuru(upper left), Gary Steinberg(in lab coat) and Beverly Mitchell(upper right).

The four grants are in addition to the four that will be submitted to CIRM, which has limited the number of applications to four from each institution.

Stanford, whose medical school dean, Philip Pizzo, is a CIRM director, has swept up $41 million in CIRM grants, more than any other institution. It might behoove others to look to their own grant-winning strategies in light of Stanford's move on the disease team planning grants.

Letters of intent were received eight days ago by CIRM, which chose to withhold the numbers until today for reasons that are not clear.

Another note: CIRM religiously refuses to release the names of grant applicants, claiming that they would be embarrassed if they lost. Stanford, like a number of others, seems to disagree about the possibility of embarrassment given that it has now disclosed that it is seeking at least four planning grants from CIRM. Of course, the hypocrisy of CIRM's secrecy policy on the names of applicants became evident earlier this month when it chose to identify 12 applicants for $263 million in lab construction grants a full month in advance of the date they are scheduled to be approved.

CIRM Withholds Routine Information on Interest in Disease Team Grants

The California stem cell agency Friday declined to disclose the numbers that would provide some indication of how businesses are responding to the agency's first-ever attempt to solicit grant applications from the private sector.

Thursday was the deadline for letters of intent to apply for $1 million in grants to plan a disease team effort. The planning grant program is a key entry point for those who want to participate in a later, $122 million disease grant round.

Ellen Rose, interim spokeswoman for CIRM, on Friday said the institute was not providing any count of the letters of intent or breakdown because it was "busy." She said CIRM intends to "address the level of interest" in the disease team program "sometime after the holiday."

Up until recently, the agency routinely and quickly released the numbers of letters of intent and applications for grants. However, the number of applications for the lab construction grants was delayed for days this fall. At the time, Interim President Richard Murphy said he preferred not to release any count.

However, the number of applications and letters of intent is a routine matter and legally public information. Refusing to release it in a timely fashion does not meet CIRM's claim to adhere to the highest standards of openness.

Often when public agencies delay the release of information, it means the information is negative and reflects poorly on the bureaucracy in question. Other times, it can mean that the agency is trying to figure out how to spin the information. We suspect the latter is what is occurring in this case.

Businesses Give Mixed Response to CIRM Overtures

The San Jose Mercury News has taken a brief look at the reception that business is giving plans by the California stem cell agency to provide millions of dollars for research in the private sector.

Based on a small sampling, the response is mixed. StemLifeLine of San Carlos says it is not planning to apply because of requirements that the state receive a payback on any revenues that may result, according to reporter Steve Johnson.

Advanced Cell Technology of Los Angeles, on the other hand, is interested. It moved its headquarters to California last year because of the possibility of securing funding from CIRM.

Geron of Menlo Park says it is not applying because its technology has advanced beyond the levels funded by the institute.

WaferGen Bio-systems of Fremont is considering applying but is concerned about the revenue sharing.

StemCyte of Arcadia said that it has filed a letter of intent to apply for a disease-team planning grant. The deadline for those letters came Thursday. CIRM , however, that it is not sure that it will be able to supply figures today on the number of applications, including those from business.

CIRM Chairman Robert Klein said,

"We will try to work with industry to find how we can further the interests of California patients and the biotech sector."

Anointment and The 92 Percent Routine at CIRM

Directors of the California stem cell agency last week virtually rubber-stamped the actions of its scientific grant reviewers, going along with them on 92 percent of the applications for $54 million.

The Oversight Committee discussed only nine of the grants, the ones reviewers said were recommended for funding if money was available. Five of those were approved by the committee. It ratified decisions on another 39 with zero debate. None of the committee's actions reversed a decision by the reviewers to deny or approve outright a grant application.

This pattern lies at the heart of whether the scientific grant reviewers, who make the critical decisions on requests for hundreds of millions of dollars in public funds, should be required to disclose publicly their financial interests. After spending months examining CIRM earlier this year, Elaine Howle(see photo), California's state auditor, recommended that the agency seek an attorney general's opinion about whether reviewers should publicly disclose their economic interests.

The agency rejected the suggestion. Interim CIRM President Richard Murphy last summer wrote the auditor that she was raising a "hypothetical" point. He said,

"...(T)he recommendations of the CIRM working groups have never been routinely and/or regularly adopted by the ICOC...."

CIRM has not published its analysis of the grant approval patterns, but our experience indicates that it is close to last week's 92 percent rate.

The power and importance of the grant reviewers were further reinforced last Friday when CIRM disclosed for the first time the identities of 12 applicants for $263 million in lab construction grants. The unusual release of information came more than a month before the grants are scheduled to be approved by the Oversight Committee. CIRM said the 12 were "recommended" for funding by the scientific grant reviewers. The agency said it was releasing their names because it would assist in end-of-the-year fund-raising for matching monies that are critical to the grant application.

Significantly, the names on the five applications rejected by the reviewers were not disclosed. CIRM says it does not disclose the names of the institutions for fear of embarrassing them. But the anointment of the 12 and the release of their names makes it virtually impossible for the non-anointed to make a renewed effort for funding, although by CIRM's official lights, the game is far from over. But how can the supposedly "semi-rejected" possibly muster the critical matching funds minus CIRM's endorsement on Friday? How can they go public with complaints about the fairness of the process? One does not want to antagonize a $3 billion gorilla that controls the lifeblood of research. One can only imagine the frustration at those institutions about how this has been handled.

Under Prop. 71, the Oversight Committee has final legal authority to approve or reject grants. We have long contended that reviewers are making de facto decisions on the grants as they did in last week's case of the $54 million in faculty awards. All of which is not unusual. That is why an agency such as CIRM has expert reviewers. They should know the science best.

The Oversight Committee is also hobbled if it wants to act independently of the reviewer decisions. The panel not only cannot see the entire application for the grant, it does not know the names of the institutions or the researchers involved. The committee is given only summaries that do not identify even whether the researcher is male or female. (However, a knowledgeable person can often determine the names of the institutions and sometimes the researcher by a careful reading of the summaries.)

Currently the reviewers disclose their economic and professional interests to CIRM, which says it will review them be sure no breaches of ethics or law occur. But neither the public nor applicants have any way to ascertain for themselves whether conflicts do in fact occur, other than trusting the tiny CIRM staff to diligently examine the secret documents.

CIRM contends it will lose reviewers if they are compelled to disclose publicly. We concede that a few may leave, but as new CIRM President Alan Trounson has noted, California is hottest spot in the world for stem cell research. A researcher who gives up an inside seat at that table would be giving up a lot.

The scientific reviewers are in fact making the overwhelming majority of decisions on grants being handed out here in California by what is the world's largest source of funding for human embryonic stem cell research. Given CIRM's on-going issues with conflicts-of-interest, it is past time for the agency to publicly disclose the economic interests of its reviewers.

FDA Calls April Meeting for Stem Cell Testing Advice

Clinical trials for therapies using human embryonic stem cells seem to be creeping closer with the latest news coming from the US Food and Drug Administration.

The FDA Tuesday announced a meeting April 10 to seek advice concerning "scientific considerations for safety testing" of such therapies. Two California firms, Geron and Advanced Cell Technologies, say they plan to send representatives to the meeting. Both have also indicated they hope to begin clinical trials next year.

Luke Timmerman and Rob Waters of Bloomberg News reported that Reni Benjamin, an analyst with Rodman and Renshaw in New York, said the FDA meeting is unusual because "the agency typical seeks advice on whether to approve a tested drug, not on how to proceed."

According to the two reporters:

"Geron has communicated extensively with FDA reviewers over the design of the first human trial using embryonic stem cells, partly to convince the agency that putting the cells into people won’t result in the growth of abnormal cell clusters called teratomas, Thomas Okarma, Geron’s chief executive officer, said in interviews with Bloomberg."

Bloomberg said that ACT plans to submit a clinical trials application in the first half of 2008 for a treatment using retinal cells.

Major Staff Turnover at California Stem Cell Institute

More than 25 percent of the staff of California's $3 billion stem cell agency has left since October or is leaving -- a turnover rate that is troubling as new president Alan Trounson prepares to take over.

The departures total seven persons, including top level executives, out of a staff of 26. At least one other top level person is reported to be considering leaving. Publicly, the announced reasons seem benign, as they usually do in such cases, but the turnover is cause for concern. Moreover, some are leaving after only working for CIRM for relatively short periods.

CIRM has always had a small staff and is limited to 50 by law. Long hours have been the rule, not the exception. Oversight Committee members repeatedly have expressed concern about burnout and the staff's ability to accomplish the growing number of tasks that the agency is attempting.

Hiring new employees is time-consuming and expensive. New staffers always have a learning curve to climb, plus institutional memory is lost as the employees depart.

Four departures were announced at last week's Oversight Committee meeting by interim President Richard Murphy, who also announced the hiring of four new persons. The four leaving are Lori Hoffman, chief finance and administrative officer; Rosemary Chengson, finance officer; Dennis Butler, technology officer, and Mario Garcia, grants management specialist. Arlene Chiu, chief scientific officer, and Dale Carlson, chief communications officer, left in October. Kumar Hari, a scientific officer, said this week he is leaving to return to private industry.

In another personnel matter, Murphy announced early in last week's Oversight Committee meeting that he hoped to have a new chief scientific officer on board following approval of the person during an executive session of the Oversight group. However, no name was announced following the executive session.

Murphy did announce the name of a new chief communications officer, who will begin work in mid-February, Don Gibbons, currently associate dean for public affairs(see item below) at Harvard Medical School.

The other three new employees are scientific officers:

Elizabeth Ashe Nigh, a neuroscientist from Harvard Medical School, Uta Grieshammer, a developmental biologist from UCSF, and Mike Yaffe, currently a full professor at UCSD interested in the biology and genetics of mitochondria.

CIRM Hires Communications Chief from Harvard

The California Institute for Regenerative Medicine has hired a new chief communications officer, Don Gibbons, currently the associate dean for public affairs at Harvard Medical School and once the director of communications for the Stanford Medical Center.

Gibbons (see photo) is expected to be at the agency fulltime in mid February. Gibbons has been at Harvard since 1996. He worked at Stanford from 1992 to 1996. Prior to that, he was editor-in-chief at Medical World News, where he worked in various capacities from 1982 to 1991.

Gibbons has a bachelor's degree in biology with an emphasis in journalism from Indiana University. He will be paid $190,000 or $195,000 annually depending on the size of his relocation package.

Communications responsibilities at CIRM are currently being handled on contract on an interim basis by Ellen Rose, formerly with Alza, a drug delivery subsidiary of Johnson and Johnson. She is working half-time. CIRM on Monday posted an RFP for a $60,000 contract for more temporary PR help.

Fresh Comments

"CIRM" has left a comment on the "Shame, Shame, Shame" item below. " We have also posted a response to it. "Anonymous" has left a comment on the "Lesson" item from Dec. 15.

Sham Arguments Harm CIRM's Credibility

The release of the names of 12 institutions seeking $263 million in public money from the California stem cell agency doesn't measure up to the agency's self-professed goal of meeting the highest standards of openness and transparency.

Yes, it is a good first step, whatever its motivation. Yes, it seems to surpass the openness of the NIH. But as we have noted before CIRM is subject to far less oversight than the NIH and seems to have far greater conflicts of interests among its directors. But if the intention is to provide the basis for thoughtful comment from either the public or CIRM's important constituencies, the release of the information falls short.

All that is publicly available are names. The public, which is financing this effort, does not know how much money is being sought nor even rudimentary details of how the applicants propose to use the cash.

CIRM's position is that to release the information at this point could mean that losing institutions would be embarrassed. However, by releasing the names last week, CIRM has conceded that its position is nothing more than a sham. Presumably some of those named on Friday will lose out and be "embarrassed."

CIRM apparently decided that embarrassment was overshadowed by the need to help applicants raise matching funds for the grants before the end of the year.

It is time for CIRM to release not only the names of the institutions, but also the amounts they are seeking as well as the applications from the institutions(confidential information could be deleted).

The agency is still wrestling with the fallout from controversy about its conflicts-of-interest, which have possibly cost 10 researchers about $31 million. It is an issue that will be with CIRM for its entire existence because the conflicts are built into the agency, ironically, by law. More than a majority of the CIRM's directors have links to institutions that could benefit by this latest round of grants for lab construction. They have already set the rules and criteria for giving away the money. All of which naturally raises concerns about self-dealing or worse.

That situation is not likely to change. The only reasonable way to assure public credibility and allay suspicions is for CIRM to lay all the stem cell cards on the table. Especially since it has conceded that releasing the names is not really that embarrassing after all.

Shame, Shame, Shame

If you accept CIRM's arguments for withholding grant applicant information, the San Diego Stem Cell Consortium has taken an enormous risk that it could shame itself in public.

The consortium says it is seeking $50 million from CIRM for new lab construction, according to a report by Terri Somers of the San Diego Union-Tribune. The new building would give 110 scientists a place to work. It would be built on UC San Diego property with construction beginning in 2009. The San Diego Supercomputer Center and Craig Venter, the biologist who was a primary driver of the Human Genome Project, also plan to contribute to the project.

All of that is considered confidential information by California's stem cell agency, which plans to give away $263 million in public money next year for new lab construction. CIRM considers the information so sensitive that the release of it would severely embarrass the consortium if its request for funds is turned down.

Balderdash, is what we say.

Gritty Stuff in Trounson Story

For those of you still wondering who Alan Trounson is – or for those who want to known more – reporter Deborah Smith has produced an interesting profile with some gritty details.

Writing in the Sydney Morning Herald, she described Trounson at one point while he was on a flight from Singapore as a "slightly crumpled, middle-aged traveler." She wrote that years ago someone painted "Trounson is a mass murderer" on the walls of his home. And she reported that private detectives have "trawled" through his financial dealings and quizzed his former wife.

Trounson's comment, "That was very strange. They were tough times."

Trounson begins work in the next couple of weeks as president of California's $3 billion stem cell agency agency, the world's largest source of funding for human embryonic stem cell research.

Fresh Comments

"Ron" has posted a new comment on the first Kessler firing item below. John Simpson has posted a comment on the Kessler lesson item just below.

A Lesson for CIRM From Dr. Kessler

The coverage of the firing of David Kessler as the dean of the medical school at UC San Francisco provides an example of mishandled PR that has some application to the California stem cell agency.

The missteps in the release of the information had little to do with the skills of those in the UCSF communications department, but probably a great deal to do with miscalculations at the top – at least from our perspective.

Kessler, on the other hand, skillfully drove the media coverage. The result was news stories across the country, including the New York Times, the Washington Post, the San Francisco Chronicle and ours below, that were dominated by Kessler's version of the affair. The chancellor's perspective came late and lamely.

How does all this apply to CIRM? It has do with perception, fast public reaction and top executives who listen carefully to knowledgeable communications professionals who also have access at the very top on a regular basis. At this point, CIRM seems to be headed in a somewhat different different direction, relegating its top communications person to the third tier in an organization structure that only has five layers.

Here is what happened in the Kessler case.

On Thursday the chancellor at UC San Francisco fired Kessler. It was obviously an event that the chancellor had anticipated well in advance – not a spur-of-the-moment decision. Kessler had already refused to resign, according the media reports. It was clear he was not likely to leave quietly.

On Friday morning, he sent out an email to colleagues at UC San Francisco that said he was being dismissed because of his efforts to uncover financial irregularities. That email quickly went out across the country and to the news media.

Meanwhile, UC San Francisco did not have anything to say. Friday afternoon, after the first news surfaced, an innocuous statement was put out by the chancellor. It did not address the issues raised by Kessler. Late Friday afternoon, the chancellor put out a stronger statement, declaring that Kessler's allegations had been investigated earlier and had no merit.

But that response came too late to change the focus of the coverage, which was heavily tilted towards Kessler's view of the world.

How could it have been handled differently by the chancellor? We are assuming that he did not consult his PR folks in advance. Instead, he could have anticipated the obvious attention his decision would receive. With that in mind, he could have issued an already prepared statement promptly after the dismissal, perhaps as early as Thursday. He could have anticipated the move by Kessler and had a response ready to roll out immediately instead of hours later. But that would have required the early input of the PR folks at UC San Francisco – PRIOR to the actual firing.

Keep in mind that we are not talking about the merits of Kessler's firing or the allegations – only the public perception and news coverage. From UCSF's institutional perspective, it has been tarred unfairly by Kessler. From Kessler's perspective, he has turned a negative event into something that reflects considerably more positive on him.

Given the controversial nature of the research funded by CIRM and its built-in conflicts of interest, bad news is always a good possibility. It behooves the organization to think carefully about how it plans to deal with that eventuality.

Fresh Link to More on Lab Grants

Here is a link to the news release by the Foundation for Taxpayer and Consumer Rights on today's disclosure of the identities of 12 of the institutions seeking $262 million from CIRM.

We must renege on our earlier promise to publish more on this subject today. Other responsibilities have risen to a higher level.

Kessler Fired at UCSF, No Longer Can Serve at CIRM

David Kessler, one of the nation's leading public health advocates and a director of the California stem cell agency, has been fired as dean of the School of Medicine at the University of California, San Francisco.

In an email today to colleagues, Kessler indicated that his dismissal was linked to his efforts to deal with "financial irregularities."

The note said,

"Shortly after arriving at UCSF as Dean, I discovered a series of financial irregularities that predated my appointment. I reported these issues to appropriate university officials at the time, and have endeavored to work with the university ever since to solve these problems. The university characterized me as a whistleblower. During the summer, Chancellor (J. Michael) Bishop requested my resignation. I continued to try to solve these problems. Yesterday, Chancellor Bishop terminated my appointment as Dean, effective immediately."

Bishop released a note to personnel at UCSF later in the day, saying,

"I write to inform you that Professor David Kessler has left office as Dean of the UCSF School of Medicine and Vice Chancellor for Medical Affairs. I thank him for his energetic service to the university and his substantial achievements on behalf of UCSF. Professor Sam Hawgood has graciously agreed to serve as Interim Dean, effective immediately. I ask that you give him your wholehearted support. An international search for a successor to Dean Kessler will be initiated promptly."

Kessler holds his position on the CIRM Oversight Committee because he is an executive officer of a UC medical school. His termination means that he can no longer sit on the CIRM board.

Kessler served as FDA commissioner from 1990 to 1997. He was dean of the School of Medicine at Yale prior to joining UCSF in 2003.

A story written by this author on the Kessler firing also appeared on Wired.com earlier today.

Correction

The item below omitted Stanford University from the list of institutions advancing to the next round.

Names Disclosed of 12 Applicants for $260 Million in Lab Grants

The California stem cell agency today identified the 12 institutions recommended for consideration in the second round of competition for $260 million in grants to build new stem cell research labs.

They are the University of California campuses at Berkeley, Davis, Irvine, Los Angeles, Merced, Santa Barbara, Santa Cruz and San Francisco, the University of Southern California, Stanford, the Buck Institute and the San Diego Consortium for Regenerative Medicine, which includes UC San Diego, Burnham, Salk and Scripps.

The institutions were recommended for funding by the Grants Working Group, which conducted a scientific review of the proposals earlier this year. They will go to the Oversight Committee in January and, if successful, to the Facilities Working Group in the spring. Then the plans will come back to the Oversight for final action in April.

The California Stem Cell Report and the Foundation for Taxpayer and Consumer Rights have advocated release of the names for months.

John M. Simpson, stem cell project director for FTCR, said, today's announcement was "completely inadequate."

In response to a query, he said,

"We don't know what the universities asked for. We only know what the scientific reviewers in their closed, clubby, secret meeting decided to recommend.

"Even worse, we don't know the five institutions that were excluded from CIRM's club of chosen ones.

"This is no way to spend more than $250 million in public money. Frankly it looks like the only reason the names are being released is so the lucky institutions can go forward and hit private donors up for more money before the tax year ends."

In response to a question, Ellen Rose, interim communications officer for CIRM, said the institution was releasing the names "because we want to give them as much time as possible to most effectively fund-raise for the project leverage portion that they will be raising for the new facilities."

CIRM plans to look more favorably on applicants that have raised large sums to contribute to the building projects.

The agency did not release the names of the five institutions that were turned down. We will have more on the CIRM announcement later today.

(Editor's note: An earlier version of this omitted Stanford from the list of 12.)

Murphy on CIRM: The Long Trek and Growing Pains

Earlier this week, Richard Murphy, the interim president of the California stem cell agency, told the group's directors things are better than they might seem in media reports about conflicts-of-interest at the institute.

We asked him for a copy of his remarks, which are carried below. We should note that Murphy (see photo) has been with the agency since the beginning, first as a director and then as president since August.

"Before I begin, Mr. Chairman, I would like to share with the ICOC my observations on the recent events that have occurred at CIRM.

"Over the past several weeks, we have been through some challenging issues that have involved CIRM and ICOC members, issues that been fully discussed by the press and by CIRM’s many critics. I know we benefit from constructive suggestions but in considering our critics, I am also reminded of the words of composer Jean Sibelius who once said: “Remember, a statue has never been set up to honor a critic.”

"In my view, our recent problems arose not because ICOC members were intentionally trying to compromise CIRM’s rules but rather from inadvertent and innocent mistakes or because of ambiguities in how CIRM’s guidelines interface with state regulations. We need to be especially mindful of Footnote 1 in the ICOC’s own Conflict of Interest guidelines which can easily be interpreted to support the actions of the Deans in wring support letters. We need to deal with the problems that have arisen and clarify the ambiguities that gave rise to them.

"In addition, it is important to emphasize that we are a new and precedent-setting organization for we are the first state agency in the history of this country to fund medical research at this high level.

"Certainly, we always need to learn, to improve and to be better at predicting where unexpected hurdles and ambiguities can arise. But let us not be deterred from our mission by honest mistakes and let us not forget that the issues we confronted pale in comparison to CIRM’s achievements.

"The ICOC should take great pride in knowing that in the three short years since the election of November of 2004, CIRM’s list of accomplishments is remarkable. CIRM has

"Defeated in court opponents who tried to derail the will of the people who voted for Proposition 71

"Created a first-rate funding agency for supporting scientific research.

"Assembled a grants working group composed of some of the country’s best scientists from leading research institutions to help us evaluate grant applications

"Established ethical guidelines for working with stem cells that have become world standards

"Created intellectual property policies that will ensure that the people of California will benefit medically and also financially from the investment they have made in stem cell research.

"We have also processed over 400 grant applications, and committed over $200 million dollars in grants for research, training, and facilities. Each of you have a copy of the list of awards which are described 2007 Awards and Applications Approved For Funding.

"By the summer of 2008, we are predicted to have committed approximately $500 million dollars in funds for the support of stem cell research, which will make us the world’s largest supporter of embryonic stem cell research, and the envy of the world in our ability to fund this type of research.

"And, in the competition you will vote on today, CIRM will fund what many have called the lost generation of medical scientists, outstanding young MD and PhD scientists who have been delayed in establishing independent research laboratories because of cutbacks in federal funding.

"And CIRM has achieved these milestones with a skeleton crew of staff most of whom are new to this field and learning on the job. Fortunately, our staff’s commitment, intelligence, and willingness to work long hours have paid off in allowing CIRM to move far more expeditiously than any of us might have expected.

"In summary, Mr. Chairman, we must always endeavor to correct short-comings, but let us not forget that CIRM has now begun the long trek towards realizing Proposition 71’s vision of developing stem cell therapies to relieve the suffering wrought by intractable diseases. The journey will be long, but when we look back, the difficulties we have experienced recently will be seen as inevitable growing pains while our achievements will be seen as major steps forward, with far-reaching health consequences for us all."

Wired.com, CIRM Meetings and Coverage

Wired.com has posted a piece by yours truly on Wednesday's meeting of the Oversight Committee of the California stem cell agency.

Some of you may wonder why so much "old news" is contained in it. The reason is that Wired.com has not carried any stories on the subject for days, so much of what appears to be "old" to regular readers of this blog is deemed to be "new" to Wired.com readers.

The practice is common in the news business. Based on the premise that one should never assume that readers are familiar with a topic, news stories generally include a healthy dollop of background. In the case of a story with continuing new developments, they must be recounted when a reporter dips into the subject area after being away from it for awhile.

'Great to be in California' Says Recipient of $2.2 Million Stem Cell Grant

News coverage of Wednesday's California stem cell agency meeting – with its $54 million in research grant awards and conflict-of-interest flap – was light today.

Only one newspaper reporter attended the meeting along with one TV and one radio reporter. However, other newspapers picked up the story remotely, including Terri Somers of the San Diego Union-Tribune.

She focused on the grants going to San Diego area area researchers, along with quotes from recipients. She wrote:

"Lei Wang(see photo), 35, an assistant professor in Salk's Chemical Biology and Proteomics Laboratory, will receive $2.6 million for his proposal to develop new technologies for the precise investigation of molecular events in stem cells.

"Although his proposal was scored the highest of all 49 considered, Wang said it would not have been granted funding by the NIH. What the regenerative medicine institute's scientific reviewers found to be 'bold and exceptionally innovative' would be considered too risky by the NIH, he said.

"David Traver(see photo), 38, an assistant professor of biological sciences at UCSD, will receive about $2.2 million for research into how stem cells of the blood-forming system are generated.

"'It's great to be in California,' Traver said. "My colleagues in the field are envious of this amazing thing the taxpayers of California have done.'"

Wang's comment will resonate at CIRM, which wants to encourage research that will break out of the mainstream.

The only newspaper reporter at the meeting was Bradley Fikes of the North County Times of San Diego County. He wrote:

"Leaders of California's $3 billion stem cell program struggled with a rash of alleged conflict of interest problems Wednesday, even as they awarded $54.4 million in grants to 22 young scientists."

Meanwhile, in a column in The Sacramento Bee on Tuesday, longtime political columnist Dan Walters mentioned the California stem cell agency in a discussion of "unseemly activities" at some of "semi-public, semi-private fiefdoms" that exist in state government.

He touched on the problems with the state's First 5 California Children and Families Commission and Rob Reiner and wrote:.

"A more current example is another agency also created by ballot measure and headed by the man who sponsored the campaign, the Institute for Regenerative Medicine, which has $3 billion in state bond funds to finance stem cell research.

"From its onset three years ago, the agency has been managed by businessman Robert Klein as a secretive, quasi-private pot of money that would be disbursed by mysterious procedures. It's especially troublesome that many of those serving on the agency's board are heads of universities and other institutions seeking research grants. It's another scandal waiting to happen."

Walters's perspective is one that would be more common among reporters who might write about CIRM should the agency surface with a higher level controversy.

In addition to Los Angeles TV station KTLA, John Brooks of KFWB radio covered the CIRM meeting on Wednesday. Here are links to the stories by Jim Downing of The Sacramento Bee and Steve Johnson of the San Jose Mercury News.

CIRM Directors Mull Conflict Flap

The conflict of interest controversy involving the California stem cell agency came directly before its Oversight Committee today as it wrestled with the agency's response and its impact on what was once an $85 million grant program.

The research effort was scaled back to $54 million (see item below) in the wake of alleged conflict-of-interest violations by five directors(Oversight Committee members), who also serve as heads of medical schools or research institutions.

But the agency took no further immediate action to tighten its procedures in connection with its ethical policies. However, it announced it would rewrite some portions of the conflict of interest rules to eliminate ambiguities that it believes confused some medical school deans.

Much of the morning meeting in Los Angeles was devoted to a general defense of CIRM's performance over the last three years by its chairman, Robert Klein, and its interim president, Richard Murphy. They reiterated their position that the conflict of interest violations were "innocent mistakes."

Klein said the agency has been involved in an "extraordinary effort." Murphy said, "We need to keep our critics in perspective." He said the conflict of interest problems "pale in comparison to our achievements" which are "the envy of the world."

Oversight Committee member Jeff Sheehy said, however, the problems were a "really serious matter" that should not be downplayed. He said, "I would be happier if we had more transparency."

Another Oversight Committee member, Ted Love, said the matter has been taken seriously, adding that the "media does not always properly represent things." Murphy also said he was not minimizing the problem.

Members of the Oversight Committee were especially troubled by the impact on the 10 scientists who lost out on millions of dollars through no fault of their own. But even that discussion illustrated the structural conflicts of interests that are built into CIRM by Prop. 71.

Twenty-nine persons sit on the Oversight Committee. They set the rules and criteria for giving grants to the institutions that employ them. As the directors tried to find a way to be fair to the 10 innocent researchers, CIRM's legal counsel told the committee members that only eight of those present could even discuss the issue because all the rest had legal conflicts of interest.

Later in the day, only eight were allowed to vote on adding $35 million to the $227 million lab construction grant program scheduled for next year.

The Oversight Committee meeting came only hours after the Los Angeles Times, the state's largest newspaper, editorialized on CIRM's state of affairs. The newspaper said:

"Anyone spending $3 billion in public money has to do it impeccably. When the governing board meets today, it should take this a step further by reprimanding those who flouted the rules -- and changing its policies so the public can know their identities."

The agency did reveal today the identities of the five institutions but took no further action. Klein told the California Stem Cell Report that CIRM delayed the information because it was waiting for a letter from the University of California on the matter. (Here is a link to the letter that asserts there were no violations of CIRM's ethical policy.)

The Times continued: "...(T)he Legislature could help by reconfiguring the governing board, making it smaller and balancing it with a strong contingent of elected officials and consumer watchdogs. Any change will take a 70% vote, usually a political impossibility. But the problems are nagging enough, and the stakes high enough, that the Legislature must overcome party divisions to create a leaner, more accountable institution.

"The agency has entered the exciting phase of funding research that might one day lead to new treatments. Klein and his entrepreneurial style deserve full credit for this, but he must welcome fundamental fixes and put a higher priority on running a public agency as truly public."

A footnote to today's event: Only one newspaper reporter covered today's meeting, Bradley Fikes of the North County Times in San Diego County, as well as Los Angeles TV station KTLA. One media watcher said budgetary constraints involving travel along with holiday vacation plans limited the coverage by other newspapers.

Names of Faculty Award Recipients

Here is a link to the CIRM news release on the names and the institutions of the faculty award recipients. http://www.cirm.ca.gov/press/pdf/2007/12-12-07.pdf

CIRM Hands Out $54 Million to Researchers

Directors of the California stem cell agency today approved $54 million in grants to fund some of the brightest young researchers in the state.

The amount fell far short of the $85 million originally scheduled for the faculty award program. The amount was reduced largely because of violations of the agency's conflict of interest code by five of its directors.

Deans at four medical schools and one research institution wrote letters on behalf of the applications. CIRM then rejected the 10 applications that were affected. It appeared that seven of them would likely have been funded.

Directors also told CIRM staff to prepare another grant proposal for consideration in January that will give the 10 affected scientists another chance. CIRM Chairman Robert Klein said additional funds should be added to that round.

CIRM staff said such a round would be treated as completely new. Others rejected on Wednesday would have a chance to compete again. Applications could be revised. New scientific reviews will be conducted.

CIRM also released the names of the institutions that submitted "tainted" applications: UCLA, UCSF, USC, UCSD and the Burnham Institute. All except Burnham had been identified by sources earlier.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights, praised the release of the names, but said they should have come earlier. He said,

"Holding back the details simply undermines the public’s trust in the stem cell agency. I don’t understand their propensity for secrecy. It serves neither the board nor the agency nor the public."

Names of the institutions and researchers receiving the grants today had not been released by CIRM at the time of this writing.

Reed Recuses Himself from CIRM

The California stem cell agency late Tuesday said that John Reed, the director who lobbied the agency on behalf of a grant for his own institute, has stepped down temporarily as a member of the CIRM Oversight Committee.

Here is the full text of CIRM's announcement.

CIRM Comment on Dr. John Reed’s Recusal Announcement

December 11, 2007 - CIRM has learned that Dr. John Reed will recuse himself from all Independent Citizens' Oversight Committee (ICOC) activities, pending resolution of the Fair Political Practices Commission review.

We thank Dr. Reed for his dedication and commitment to the mission of CIRM and his service on the ICOC. We are confident that the review will show that Dr. Reed’s actions were innocent and inadvertent while trying to follow the strict policies of the agency.

CIRM will cooperate fully with any review and looks forward to a prompt and objective resolution of this matter.

Conflict Flap Dogs California Stem Cell Directors

The directors of the world's largest source of funding for human embryonic stem cell research meet on Wednesday to give away $60 million and set up rules for sharing the stem cell wealth with businesses.

But what's not on the agenda may be what dominates the news out of the meeting. And that is the fallout from the flap over conflicts of interest among the directors of the California stem cell agency.

California's Fair Political Practices Commission has announced it will investigate the conduct of one director, John Reed of the Burnham Institute, who lobbied on behalf of a $638,000 grant to his institution. In a separate incident, four deans of medical schools, who are also directors of the agency, signed letters on behalf of grant applicants in violation of CIRM's ethics policy. All 10 researchers have been dumped from consideration.

The Sacramento Bee editorialized Tuesday:

"The entire episode reveals much about this insular agency. Despite years of warnings about secrecy and insider dealings, the institute's overseers continue to break their own rules and then refuse to provide information about the apparent violators. They claim they are subject to 'unprecedented levels of oversight' – as stated in a letter to The Bee published Saturday – even though lawmakers can't touch this agency without a supermajority of votes.

"The consequences do not bode well for cutting-edge research.

"Ten scientists have now lost out on grants that could lead to research breakthroughs. Others will surely lose out in future scandals if California continues to allow vested interests to determine the expenditure of $3 billion in public money."

Two members of CIRM's Oversight Committee have called for the resignation of Reed. Others are disturbed as well.

Francisco Prieto, a Sacramento physician, said in an email:

"I have not made up my mind yet as to whether he should resign (one strike and you're out?), but I would like to hear from him. My feeling is he should apologize for a very obvious mistake, accept whatever penalty is assessed and we could then move on."

John M. Simpson of the Foundation for Taxpayer and Consumer Rights has called for Reed's resignation and that of CIRM Chairman Robert Klein, who advised Reed to write his lobbying letter.

Simpson also says that at the very least Reed and "his representative to the board in his absence, Jeannie Fontana, should be barred from taking part in any stem cell board deliberations while the FPPC probe continues."

As for the 10 rejected researchers, interim CIRM President Richard Murphy told the California Stem Cell Report he hopes CIRM directors will approve a new round of grant funding to give the 10 scientists a fresh shot at the $25 million or so that they are missing out on Wednesday.

The Oversight Committee, as the board of directors is known, will also consider adding as much as $35 million to the upcoming $227 million round of grants for stem cell lab construction. It is the largest single round for CIRM so far.

Although all the applicants are major educational or research institutions, CIRM refuses to disclose their identities on the grounds that losers might be embarrassed.

Prieto said,

"I will continue to argue for releasing the names of the institutions applying. I think it's just silly to think this can be kept secret for long in any case, and no harm is done whatsoever by releasing this info - it affects virtually nobody's personal reputation or feelings."

Lawmakers: CIRM Proposal for Affordable Access Not Good Enough

Thirteen California state lawmakers are calling on the California stem cell agency to tighten its proposed requirements for grants to business to ensure affordable access to state-financed therapies.

The lead authors on the letter are the influential chairs of the Health Committees in their respective chambers, Sen. Sheila Kuehl, D-Santa Monica, and Assemblyman Mervyn Dymally, D-Los Angeles. They criticized the intellectual property policy to be considered by CIRM directors Wednesday for having a "a weak and vague standard that is unlikely to result in any meaningful access for the uninsured to new stem cell drugs and therapies."

In a letter to CIRM Chairman Robert Klein, they urged that any access plans require CIRM approval and that CIRM regulations spell out specific access standards.

The lawmakers also said that the mechanism for affordable pricing should not be linked to a state law that can be repealed, "leaving no pricing requirement whatsoever in place."

The full text of the Dymally-Kuehl letter is below.

Text of Lawmakers Letter

Here is the full text of the letter from Sen. Sheila Kuehl and Assemblyman Mervyn Dymally and 11 other state lawmakers concerning affordable access to state-financed stem cell therapies.

Dear Mr. Klein:

Recent proposed regulations pertaining to intellectual property and revenue sharing requirements for for-profit grantees, dated November 24, 2007, contain some notable improvements over previous versions of the regulations but still have a number of troublesome provisions that we urge you to correct before these regulations are finalized.

We are pleased that the most recent regulations propose to require grantees to share 25 percent of the net licensing royalties they receive, the same percentage as is applied to grantees that are non-profit organizations. We are also pleased that the regulations have broadened the definition of “drugs,” for which grantees or their licensees would be required to meet benchmark pricing requirements, to include articles intended for use in the diagnosis, treatment, or prevention of disease or components thereof, including products such as blood, blood products, cells, and cell therapies. We are also encouraged that provisions dealing with blockbuster revenue sharing requirements for for-profit grantees have been made more flexible, to include cases where either prior or current CIRM funding and CIRM-funded patented inventions contribute to the creation of net commercial revenue in excess of $500 million.

We are disappointed, however, that the access requirements continue to require that access plans for uninsured Californians meet “industry standards at the time of commercialization.” This is a weak and vague standard that is unlikely to result in any meaningful access for the uninsured to new stem cell drugs and therapies. The proposed regulations actually take a step backwards from previous iterations, by allowing the access plans, themselves, to account for the “resources of the grantee or licensee”, an undefined phrase that will encourage grantees and licensees to limit access to these vital, but expensive new drugs and therapies.

Related to this, we see no provisions in the regulations requiring CIRM or the ICOC to actually approve the proposed access plans that are submitted, meaning that there would be no effective enforcement of the access requirements, vague and weak as they are. We think the regulations must spell out specific access standards, taking into account the best industry practices that currently exist, and to require CIRM and the ICOC to approve the access plans, with opportunity for public comment.

In addition, while we would prefer the benchmark pricing requirement for grantees and licensees to be the Medicaid price, we understand the desire of the CIRM and ICOC to link the pricing requirement to a California-based standard. While requiring that prices for stem cell drugs and therapies purchased with public funds must meet one of the three benchmark prices required by the California Discount Prescription Drug Program (Cal Rx) fulfills this, there is no guarantee that this particular program will exist in the future. As you know, the Governor blue-penciled start-up funding for the program in signing the 2007-08 budget. If the program were to be repealed, there would be no pricing requirement whatsoever in place. We strongly urge that the regulations deal with this potentiality by stating the benchmark prices will be those required by Cal Rx, or if it is no longer in effect, on the last day it was in effect.

We wish to commend you on the work the CIRM and ICOC have done to date on this important policy, and we strongly urge you to go further to ensure that the state, and the public, broadly, benefit from the patents, licenses, and royalties created as a result of the state’s funding, while at the same time promoting the development of stem cell therapies.

Sincerely,

SHEILA J. KUEHL
Chair, Senate Health Committee
MERVYN DYMALLY
Chair, Assembly Health Committee

Assemblymember Karen Bass
Senator Negrete McLeod
Assemblymember Patty Berg
Senator Darrell Steinberg
Assemblymember De La Torre
Senator Leland Yee
Assemblymember Noreen Evans
Assemblymember Mary Hayashi
Assemblymember Hernandez
Assemblymember Dave Jones
Assemblymember Sally Lieber

Biotech Loan Program Slated for March Approval

The biotech loan task force of the California stem cell agency began work Tuesday on a plan to loan perhaps as much as $750 million to struggling stem cell companies and possibly nonprofit institutions.

Duane Roth, chairman of the task force, said he expected to present the proposal to the directors of the $3 billion agency in March. Between now and then, Roth(see photo) and the other members of the task force identified a number of issues that needed to be explored. They included legal questions, concerns about staffing at CIRM, defaults in the lending effort and even the name of the program.

Roth suggested the program should be aimed at filling the financial gap between research grant funding and venture or financial angel capital – the so-called "valley of death" where promising research dies for lack of economic support.

Roth noted that the targeted participants in the loan program cannot find normal financing so credit-worthiness should not be an issue. "Banks don't make loans to these type of companies," he said.

Roth predicted that while default rates on loans could be above what a normal lending program would suffer, they should not be high.

Nonetheless, payback on the loans was a topic on which several members of the task force expressed a concern. But like other issues raised at the meeting, solutions await more work by the task force.

Roth also said, "Let's not create a bureaucratic nightmare for the staff." It was a sentiment echoed by others. CIRM Chairman Robert Klein suggested that outside firms would be needed to administer the program.

Roth said he will be seeking from outside firms to develop the loan program, including creating a financial model that would help determine risk levels. He said two meetings will be held to seek the thoughts of industry and the financial sector.

As for the name of the program, Roth suggested it should be called something like the "product development loan program." A decision on that was deferred after a brief discussion.

The meeting in Los Angeles with two teleconferencing sites in the San Francisco Bay area attracted some attention from business. Representatives from Geron, Advanced Cell Technology, PriceWaterHouseCoopers, Capricor and DNAmicroarray were present along with a business development official from the British Consulate in Los Angeles.

Coming Up

We have had Internet connection difficulties for the last 24 hours but wanted readers to know that the California Fair Political Practices Commission has announced that it will investigate the Reed-Burnham conflict of interest matter.

Members of the CIRM Oversight Committee all have been invited to attend a dinner tonight in Los Angeles at the home of Jeannie Fontana, who serves as John Reed's alternate on the Oversight Committee. CIRM Chairman Robert Klein has let the members of the Oversight Committee know that he hopes to see them all at the dinner.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights, queried CIRM about whether the dinner constitutes a "public meeting" under the terms of the state's open meeting law.

Here is the response from CIRM General Counsel Tamar Pachter:

"There is an exception in the Bagley-Keene Open Meeting Act for social
gatherings. See Government Code section 11122.5(c)(5). So long as the
members do not discuss business within the subject matter jurisdiction
of the agency, then it is not a public meeting and it does not need to
be noticed. The members will be advised that they must not discuss ICOC
business."

The biotech loan task force meets this afternoon and we will have information on that this evening, with additional updates as warranted before tomorrow's Oversight Committee meeting.

Victims and Scapegoats: Focusing on the Facts

The conflict-of-interest mess and its ramifications at the California stem cell agency have obscured two important facts. The victims in the latest episode are 10 talented California researchers, who appeared to be on the verge of collecting $25 million from CIRM. And the creation of that situation lies at the feet of the CIRM directors who signed letters on behalf of those researchers – not the CIRM staff that created the grant application.

To its discredit, CIRM is pointing to its staff in assigning responsibility for actions taken by at least four medical school deans, who should have known better. The application for the faculty award grants was abundantly clear. It required a letter from a dean OR a department head, language that seems to have been designed to accommodate the ethical issues facing medical schools that have representatives on the board. The conflict of interest language was straight forward: Directors must not attempt to influence the awarding of grants. All of that was clear to other medical school deans on CIRM's board who did not sign the letter(see the "Deflecting" item below.)

CIRM's efforts to shift attention away from directors is a classic response on the part of businesses and governmental agencies when they become mired in a crisis that threatens their leadership. Find a faceless, lower level scapegoat and sacrifice it. And hope the problem will go away.

In this case, CIRM's staff identified and caught the problem. The staff also identified the problem in the case of John Reed and his lobbying effort on behalf of Burnham. On the other hand, it was the top person at the agency – Chairman Robert Klein -- who failed to understand the conflict-of-interest issue and, in fact, advised Reed to do something that violated ethical standards at CIRM.

CIRM's decision to dump the 10 tainted applications clearly damages the young scientists seeking the grants. From the language of CIRM's press release Friday, it is reasonable to infer that nearly all of them were highly rated during the scientific review of their proposals and would have been likely to have been awarded grants this Wednesday. The release said the size of the total package of grants was reduced from $85 million to roughly $60 million as the result of rejecting the 10 grants.

One can only imagine the conversations that the medical school deans have had with the applicants. And one can also imagine them reaching deep into their discretionary funds to ease the pain.

The Cost of Tin Ears and Missed Opportunities

Today the $3 billion California stem cell agency is wrestling with the fallout from its second conflict-of-interest controversy in one month.

The state's top fiscal officer has ordered a major audit of the agency and called for a state investigation into the conduct of one of its directors, John Reed. Foes of stem cell research cackle on the Internet about violations of CIRM's ethical standards. Ten of California's most talented stem cell researchers have lost out on millions of dollars in grants. Watchdog groups are calling for Reed's resignation, a call echoed by some of CIRM's own directors. And CIRM Chairman Robert Klein is under fire for his flawed leadership.

It is a deplorable state for CIRM, which seemed last summer on verge of kicking its effort to a new and higher level. Work was progressing on the $227 million lab constructions grant program. The $85 million plan to fund the best young scientists in the state was on the table. And then came the much-heralded appointment of renown researcher Alan Trounson of Australia to fill the long vacant post of CIRM president.

But behind the scenes last August simmered the Reed-Burnham lobbying affair that violated the agency's conflict-of-interest standards. And the decisions made then at the highest level at CIRM reverberate today and illustrate the high price of secrecy and the cost of a tin ethical ear.

Public documents requested from CIRM by the California Stem Cell Report show that the agency's executives missed a chance to demonstrate that it was vigilantly adhering to its financial responsibilities. The documents also show that CIRM failed to take advantage of a splendid opportunity to refresh its directors on their ethical responsibilities. And the documents further point to a sadly missed opportunity for John Reed to become something of a poster boy for ethics instead of an example of public venality.

As we reported last month, the CIRM staff was ready to announce in early August that it was overturning the award of a $638,000 grant to the Burnham Institute, whose president, John Reed, sits on CIRM's board of directors.

But the staff pulled back on its expected action. The announcement was called off because of an improper, 6.5-page letter signed by Reed, strongly urging the staff to reverse its stand. Reed wrote the letter on the advice of Chairman Klein, who is also an attorney. The letter violated CIRM conflict of interest policy, all parties now concede.

Here is how the events played out.

On Aug. 1, CIRM's general counsel, Tamar Pachter, emailed Burnham staff that the agency was planning to report at the Oversight Committee meeting on Aug. 8 that it would not fund the grant to Burnham. The grant had been approved in February by the Oversight Committee, which is the agency's board of directors. The planned announcement followed months of discussions with Burnham about the matter, which involved the eligibility of the researcher.. And also on Aug. 1, Pachter offered Burnham the opportunity to withdraw the grant.

On Aug. 2, Burnham replied that it would not withdraw. At some point in this process, Reed called Klein, who advised him to write an "appeal" letter, which he did, also on Aug. 2. The CIRM documents did not disclose the date of Klein's advice. Nor did they disclose any reasons for the delay in the announcement. In response to questions last month from the California Stem Cell Report, interim CIRM President Richard Murphy, who was not working at the agency in early August, replied, "CIRM did not announce in August because Burnham had appealed the determination, and that issue was not resolved before the ICOC meeting in August."

It is not clear from the documents who directed CIRM staff not to report the denial of the grant at the Aug. 8 meeting, but Klein controls the agenda tightly and directs the meeting. In October, he delayed the ultimate announcement of the Burnham rejection until the very end of a full-day meeting. Murphy, who once headed the Salk Institute which is a neighbor to and sometime collaborator with Burnham, then mandated that Burnham's name not be mentioned in the CIRM news release that came out of the meeting.

Reed's intervention in the grant and Klein's role were all bad news for the agency. And nobody likes bad news. But in this case, the news ultimately became worse because of the failure by the agency's top executives to deal with it in a forthright and open manner.

Exactly how could that be done, one might ask? The answer is: Lay out the matter in public, disclose the rejection of the grant on Aug. 8 and explain the reasons why. Offer John Reed -- in advance -- an opportunity to discuss the matter publicly at the meeting and counsel him on what to say. In this scenario, Reed tells his fellow directors in public that he made a mistake, one that embarrasses him and the Burnham Institute. Now, he says, he knows better but he wants to speak out to demonstrate the importance of maintaining the integrity of CIRM and the public trust. Reed says this is a cautionary tale for all sitting around the directors table and offers to resign.

Such an event would have sensitized the Oversight Committee members/medical school deans who later violated CIRM's conflict of interest policy by writing letters on behalf of grant applicants(see below). Those applications were yet to be submitted to CIRM.

Reed's explanation and contriteness would have engendered support and generated news coverage with a something of a positive spin on him and CIRM. His offer to resign would certainly have been declined. His fellow directors more likely would have commended him on his courage in speaking out publicly.

The big news out of the meeting that day actually was the appointment of Murphy as interim president. Reed's comments would have been well-subordinated to that information, and CIRM could have gone on very nicely about its business.

This is not an unreasonable scenario. It could have easily been worked out. But CIRM was in a bit of a turmoil at the time, having gone through many months without a president because of a difficult search for a replacement for Zach Hall, who left at the end of April. The president's responsibilities were split between two persons who did not have the clout of a permanent president. Klein was filling that power void.

Klein knows the importance of good press and seems fond of the public spotlight, although he has demonstrated little skill at the managing the process. Last June, for example, he ordered up a news conference in Los Angeles for a non-event, which predictably no media covered. In March, his private stem cell lobbying group called a major news conference in Los Angeles for the stem cell agency. The announcement came as a complete surprise to employees at CIRM. Klein also seems to fail to understand why some think it is unseemly for the head of a $3 billion state agency to run his own private lobbying effort in the same arena as the public agency. He bypassed the CIRM staff entirely on the announcement of the new CIRM president and blew an opportunity to generate far more favorable coverage for CIRM than was contained in the stories that did appear.

For CIRM to be able to react well to events such as the Reed lobbying effort, some changes are needed in its executive structure. The first priority should be to hire a savy, clear-headed and experienced public relations person. The agency had a good one once, but he has left to return to the private sector. His replacement must be part of the top echelon at CIRM, regularly part of the discussion of major matters. That is the only way he or she can provide advice in a timely fashion.

CIRM is dominated by an emphasis on science. Its top executives and the Oversight Committee members are all persons of great accomplishment and responsibility. But for nearly all of them, this is the first time they have operated in such a public arena with control over billions of dollars in public money. And some of its executives and many of its directors view their public responsibilities through a prism that does not allow them to conceive of all the negative possibilities of their actions.

Unfortunately, CIRM seems about to miss a first step that would help guide it through the dangerous shoals of public affairs. Its new organization chart calls for the chief communications officer to be placed well down the change of command, three steps below Chairman Klein in an enterprise that has only five layers.

But beyond the nuances of handling bad news, CIRM directors must act with the highest standards of propriety and ethics. Without that, no amount of crafty PR can help.

Fresh Comment

"Anonymous" has filed a comment on the "Deflected" item below.

Correction

On Dec. 8, the "CIRM Deflects" item incorrectly indicated that the amount involved in the denial of 10 faculty award grant applications could run as much as $15 million. It appears that the figure is actually closer to $25 million.

Coming Up

What do these conflict of interest flaps at the California Institute of Regenerative Medicine say about the operating culture at the $3 billion agency? Were they inevitable or did better ways exist to handle them? We will take look at those issues in a post on Sunday evening.

CIRM Deflecting Away From Directors on Conflict Problems

The San Diego Union-Tribune, The Sacramento Bee, San Francisco Chronicle and the San Jose Mercury News carried stories today on the conflict-of-interest flap at the California stem cell agency and the rejection of a 10 grant applications seeking perhaps $25 million.

Notably missing from the coverage was the Los Angeles Times, the largest newspaper in the state, which had two of its local institutions, UCLA and USC, lose applications. CIRM put out a news release on the problem on Friday after the story was broken by Russell Sabin of the San Francisco Chronicle. The issue involves violation of the agency's conflict of interest policy by members of its board of directors who wrote letters in support of the application.

CIRM's news release and subsequent comments by agency spokespersons pointed away from the directors and towards language in the application, which required letters of support from either the dean of the applicant's institution or the departmental head.

At least two of today's stories noted that other institutions with members on the CIRM filed applications without violating conflict of interest rules.

Jim Downing of the Bee wrote:

"Claire Pomeroy, dean of the UC Davis School of Medicine, sits on the agency's board. Her school's applicants were not hit by Friday's action because their letters of recommendation were written by an associate dean.

"'We have a very clear barrier,' said UC Davis School of Medicine spokesman Charles Casey. "(Pomeroy) did not even know who we were submitting for those faculty grant awards."

Terri Somers of the San Diego Union-Tribune reported that Salk and Burnham both reported no problems with their applications. Stanford apparently is okay as well. All three have representatives on the CIRM board.

Somers also provided an update on the conflict of interest problem involving John Reed, president of the Burnham Institute, and his attempt to influence a grant last summer. She wrote:

"Board member and AIDS activist Jeff Sheehy said he is not clamoring for Reed's resignation, but he wants an acknowledgment that there was a 'serious violation of an important rule.'

"'My problem is that we are acting like nothing happened,' Sheehy said.

"He has asked for a discussion of the matter to be placed on the agenda for the meeting Wednesday.

"Also that day, the board will decide what to do with the remaining 49 faculty grant applications. It could vote to award all or some of the grant money. Or it could decide to toss out the entire grant round and start over."

Besides The Bee and San Diego, here are links to the stories in the Chronicle and Mercury News.

(Editor's note: An earlier version of this story carried the figure $15 million in the first paragraph. The actual figure appears to be closer to $25 million.)