FTCR: Lockyer Should Dump CIRM Financial Overseer

California Attorney General Bill Lockyer should oust a former lobbyist for the California Teachers Association from the panel that oversees the financial dealings of the California stem cell agency, a watchdog group said today.

The Foundation for Taxpayer and Consumers Right called on Lockyer to disqualify John Hein from his position on the Citizens Financial Accountability Oversight Committee because Hein did not meet the legal requirement that he have a medical background.

John M. Simpson, stem cell project director for the Santa Monica group, said in a press release that CTA had contributed $526,200 since 2003 to campaign organizations linked to Democratic Assembly Speaker Fabian Nunez, who appointed Hein in December 2004. (We should note that it is unlikely that the money is a quid pro quo involving the appointment. Nonetheless, Nunez and the CTA are politically close.)

Simpson said,

"When you are appointed to an important position without the qualifications, it's a political payoff. It's clear Hein got this position because of the California Teachers Association's political clout."

According to a San Francisco TV station, Nunez stands by his appointment. Hein told the station, KGO, that he did not have a medical background, saying that he also told that to Nunez.

Nunez' office has not responded to inquiries for comment from the California Stem Cell Report.

Stem Cell IP for Business Coming Up on Thursday

The California stem cell agency is close to approving rules for dividing up the booty from therapies developed by businesses as a result of grants from CIRM.

That is the central issue next Thursday afternoon at a session of the agency's Intellectual Property Task Force. Next stop for the IP rules is the Oversight Committee meeting Oct. 11, which makes the final call.

So if you represent a business with a stake in this issue, now is the time to make your voice heard.

The specific agenda item involves a draft IP policy that is based on principles approved at an Aug. 29 meeting of the Task Force. As far as we know, the California Stem Cell Report is one of only two media to carry a report on that session, including some of the details of the principles. You can find our report here. Here is a link to the other, stemcellbattles.com.

CIRM has not yet posted the draft of its proposed policy on its web site. We will let you know if and when it becomes available.

Also on the Task Force's agenda is a presentation on open access policies for scholarly articles published by CIRM grantees. This is a far-reaching issue. We will carry a preview on the matter in the next few days.

Remote access to the San Francisco meeting next week is available in Chico, Irvine, Elk Grove and La Jolla.

Stem Cell Research Regulations Up Next Week -- But Not CIRM's

Regulations for California embryonic stem cell research that is not funded by CIRM are the topic at a meeting next Wednesday by advisory panel to the state Department of Health Services.

The group has been working since last winter on the proposals as the legislature debated and passed related legislation (SB1260) by Sen.Deborah Ortiz, D-Sacramento. That bill is now before governor for his signature or veto.

The meeting is in Oakland but the committee has created a toll-free conference line that is available to members of the public who wish to participate wherever their geographic location, a move to be commended.

For those of you who think it is odd that there are two sets of rules for stem cell research in California, that is a function of the initiative process that created the stem cell agency. It is governed by the provisions of Prop. 71, which did not undergo the normal legislative process and which is virtually untouchable by the legislature or the governor. ESC research not funded by CIRM is governed by a state law that was passed by the legislature and signed by the governor.

Transcripts and minutes of previous meetings can be found here.

Latest on Legal Qualifications of CIRM Financial Overseer

State Controller Steve Westly plans to seek a legal opinion about whether one of the appointees to the board that oversees the finances of the California stem cell agency is legally qualified.

The man in question is John Hein, a former lobbyist for the California Teachers Association. He was appointed to the Citizens Financial Accountability Oversight Committee by Assembly Speaker Fabian Nunez nearly two years ago..

The Foundation for Taxpayer and Consumers Rights of Santa Monica, Ca., challenged the appointment and called on Hein to resign because he does not have the medical background as required by Prop. 71.


David Louie, reporting for San Francisco television station KGO, said,

"Hein turned down an on-camera interview. However, he acknowledged he has no medical background. And he said he pointed that out to Assembly Speaker Nunez.

"A spokesman for Nunez says he stands by the appointment and believes Hein's experience in health care issues and managing health care contracts qualifies him.

"State Controller Steve Westly will seek a legal opinion of Hein's appointment.

"Steve Westly, (D) State Controller: 'Mr. Hein certainly has a deep financial background, and we welcome him on the committee. We will ask him to talk with the attorney general's representative to make sure his being part of this is in compliance with the law.'"

As for other matters on the agenda of the committee, we have an inquiry into the state controller's office.

Text from ACT's Ethics Chair to U.S. Senate Subcommittee

Last week officials of Advanced Cell Technology of Alameda, Ca., appeared before a U.S. Senate subcommittee and were scolded by two U.S. Senators in connection with ACT's extraction announcement last month. Here is the complete prepared text of Ronald M. Green, director of Dartmouth's Ethics Institute and chair of Ethics Advisory Board to ACT, to the Senate Labor, Health & Human Services and Education Appropriations Subcommittee. The statement of Robert Lanza follows this item. Both statements were supplied by ACT at the request of the California Stem Cell Report.

(September 6, 2006) Good morning, Mr. Chairman and distinguished members of the committee. My name is Ronald M. Green. I am a professor at Dartmouth College and Director of Dartmouth’s Ethics Institute. I also serve as the chairman of Advanced Cell Technology’s Ethics Advisory Board. I would like to emphasize that I am a university-based bioethicist and that I have no financial interest whatsoever in ACT’s technology.

I believe that the method of stem cell derivation announced by ACT researchers in their August 24 report in the journal Nature represents a real opportunity to move human embryonic stem cell research forward in this country in a way that respects the ethical sensitivities of the vast majority of our citizens.

Dr. Lanza has already touched on some of the key ethical issues. He has stressed how this research could be conducted in the context of preimplantation genetic diagnosis(PGD) without adding any additional risk of harm to the embryos involved in this procedure.

Dr. Lanza has also shown that the extracted individual cells cannot reasonably be regarded as individual or independent human beings. No cells extracted at this stage of embryonic growth could go on to full term development.

There are two remaining ethical concerns that I would like to address. First, there is the connection between this new method and both IVF and preimplantation genetic diagnosis (PGD). Some people object to both these technologies because they involve the manipulation of embryos and because parents using these procedures can elect not to implant some of the embryos produced in this way. But this objection is made by only a small minority. The overwhelming majority of Americans support both procedures. IVF helps infertile couples have children and PGD allows those who carry dread genetic diseases to have healthy children. Both procedures help people have children that otherwise would never have been conceived or born. In this respect, both are profoundly “pro-life.”

Second, there is the concern that the embryos used in this research did not survive the experiment. Since the publication of the Nature report some critics have emphasized this fact even though it remains true that the method developed by ACT scientists requires no further destruction of any embryos. I would like to point out that because this research was privately funded, this experiment was legal. It was also approved by ACT’s Ethics Advisory Board and by an additional institutional review board that was mandated under Massachusetts law. The embryos used were donated by people who had fully consented to the research and understood, and even required, that the embryos would not be allowed to go on to further development.
It is not unique that the initial research needed to develop morally acceptable methods or materials do not meet everyone’s approval, but this does not impugn the methods or materials produced as a result of that research. One example is the polio vaccines we use today. Some of the initial research on these vaccines was conducted with a technique that required the use of tissues from aborted fetuses. Later, this approach was replaced by other methods.

Almost no one today refuses polio vaccination for their children on the grounds that they object to the methods used in the first experiments. I would point out that even President Bush has been willing to use the harmless downstream results of research to which he objects. All of the stem cell lines being used in federally funded research today were produced by embryos that were destroyed for this purpose before the President’s August 2001 directive. The President could have said that none of these lines should be used because they were created in a way he regards as morally objectionable. But he did not. He concluded that so long as no future harm is done, this valuable resource could be used.

Thanks to this research breakthrough, we are in exactly the same position today. If Congress were to approve legislation that funded research on lines generated by this new method, and if President Bush were to permit such legislation to pass into law, both the members of Congress and the President could honestly turn to the American people and say that no human embryo ever again needs to be harmed or destroyed to produce the stem cell lines we need for federally funded research.

Many scientists believe that we need several hundred new federally funded stem cell lines in order to have the genetic diversity needed for research. Well over 2,000 PGD procedures are conducted in this country each year. If just one out of three of the couples using this procedure authorized the harmless derivation of a cell line from the extracted cell of each of the embryos they chose to implant, we could produce at least fifty new cell lines every year from now on. The derivation of these cell lines would cause no harm to any of the donor embryos, a fact of critical importance for both the ethical and legal authorization of this research.

Let me conclude by stating that I am not a scientist. Although I have been impressed by the quality and the integrity of ACT scientists, their work will have to be replicated by other researchers before we can say that it is ready for wide use. But if Congress begins the legislative initiatives to test this method and fund research based on it, we can begin to move toward the kinds of cures and therapies that stem cell research promises.

Text From Lanza's U.S. Senate Appearance

Last week, Robert Lanza of Advanced Cell Technology of Alameda, Ca., appeared before a subcommittee of the U.S. Senate. Two U.S. senators excoriated him in connection with ACT's announcement of a new method of extracting ESC. Here is the complete text of what Lanza prepared for the Senate Labor, Health & Human Services, and Education Appropriations Subcommittee. The text was supplied by ACT at the request of the California Stem Cell Report.


(September 6, 2006) Good morning, Mr. Chairman and distinguished members of the committee. My name is Robert Lanza and I am Vice-President of Research & Scientific Development at Advanced Cell Technology, a biotechnology company in the field of regenerative medicine. I am also an Adjunct Professor at the Institute of Regenerative Medicine at Wake Forest University School of Medicine.

I would like to thank you for the opportunity to testify today on our technique for obtaining human embryonic stem (hES) cells from single blastomeres. As you know, hES cell lines are conventionally isolated from leftover embryos created for couples seeking in vitro fertilization (IVF). I join with the sponsors of Senate Bill HR 810 in my belief that scientists funded by the NIH should have access to stem cells derived from the hundreds of thousands of such surplus embryos that will otherwise be discarded. I know that you share my frustration that this important legislation was vetoed by the President.

Therefore, at the outset, I would like to make it absolutely clear that the single-cell derivation technique we’ve developed is not a replacement for existing methods of generating embryonic stem cell lines. In fact, our intention is quite to the contrary. We think it would be tragic not to pursue all the options and methods currently available to us to get this technology to the bedside as soon as possible. That being said, our hope is that the new method we describe in Nature can be used to increase the number of stem cell lines that qualify for Federal funding within the framework of existing US laws and regulations – and thus give the field a very much needed jump-start.

Current US law prohibits the use of federal funds for research in which human embryos are harmed or destroyed. As a result of this policy, the field of stem cell research has been crippled by the lack of quality stem cell lines. At present, there are only a handful of NIH-approved lines, all of which are potentially contaminated with animal pathogens that could lead to serious health risks; whereas others are difficult to grow and have started to display genetic abnormalities. Nor do they reflect the genetic diversity of the population, both in terms of their clinical potential and their value to those of us trying to understand the cause of various human diseases.

The approach we have developed does not involve the destruction of embryos, nor do the biopsied cells ever develop into an embryo at any point. The procedure is commonly known as PGD (preimplantatation genetic diagnosis) and is a well-established technique that has been used for a decade by IVF clinicians to generate thousands of healthy babies worldwide. In PGD, a single cell – known as a blastomere – is removed from an 8-cell-stage embryo for genetic testing. By growing the cell overnight, the resulting cells could be used for both PGD and the generation of stem-cells without affecting the clinical outcome of the procedure or the subsequent chances of the couple having a child. Numerous reports show that the survival rate is unaffected by the biopsy procedure, and that the subsequent development and chances of implantation are the same for both normal and biopsied embryos In our study, multiple individual cells where removed from embryos in the same way as would be employed in the clinical setting with PGD. Although those particular embryos were not allowed to develop further, we also carried out studies which confirmed that the biopsy procedure we used could be used without destroying the embryo. I want to be entirely clear on this point. The embryos used to create stem cell lines in our study were destroyed; however, in control experiments, single-cell biopsied embryos were allowed to continue development, and they did indeed develop to a more advanced (blastocyst) stage – they were all frozen and remain alive.

In fact, they continued development at the same rate as nonbiopsied embryos. We also showed that individual biopsied cells had the capacity to generate stem cells. Nineteen ES-cell like outgrowths and two stable embryonic stem cell lines were derived from 91 blastomeres. These stem cell lines have been growing for more than 8 months, and are genetically normal and able to generate cells from all the germ layers of body, including nerve cells, blood cells, and even retinal cells that could be used to prevent blindness.

Of course, hES cells derived this way could be of great potential benefit, not only for the medical research community, but also for the children and siblings born from transferred PGD embryos as well. The cells would be genetically identical to the child, and could be frozen down and used throughout the lifetime of the person – for instance, if they develop diabetes or heart disease.

I would now like to address several objections to the use of this procedure. First is that the technique may not be entirely without risk to the embryo, however minimal. We agree, and until remaining doubts about safety are resolved, we do not recommend the procedure be applied to healthy embryos outside the context of PGD. However, in PGD a cell is already removed and could be used to create stem cells without any added risk to the embryo. Second, concerns have been raised as to whether individual cells, such as those used in our study, are totipotent and could potentially generate a human being. It is our opinion that this is not the case.

Recent reports show that cell fate is already being determined at the 2 to 4 cell stage. Importantly, individual cells from an 8-cell-stage embryo, such as those used in our study, have never been shown to have the intrinsic capacity to generate a complete organism in any mammalian species – not even in a mouse or rat. And finally, questions have been raised whether the technique is completely applicable in the clinical setting. We believe it is and are working on procedures that can be utilized by clinicians in the IVF clinic environment. And thus, we believe it is now possible to create new stem cell lines without destroying human embryos. With the support of Federal funding, the single-cell derivation technique could provide new robust (and animal-product-free) stem cell lines for medical research and human clinical trials.

Since I testified here a year ago, we’ve managed to move the singlecell derivation technique from the mouse to the human. But in the meantime another million people have died of diseases that could potentially be treated – and possibly cured—using future stem cell therapies. How long are we going to allow this intolerable situation to continue? Stem cell scientists sorely need more lines that qualify for Federal funding. Make no mistake about it, there are many promising alternatives out there, but the conventional and singlecell derivation techniques are a reality – here and now. There are those who would want to set this research back, but there is a very real human tragedy out there, and it would be a shame not to use this opportunity to try to lessen the misery of so many Americans with disorders and disabilities. This is my hope, and it could start here with this Committee. Now is the time to move, while the United States is still in the forefront of this research, and while there is still time enough to develop therapies that could be used to help alleviate the suffering of those we know and love.

Thank you for the opportunity to address your Committee. I hope you find these comments helpful to your work.

Feds Could Take Up WARF Stem Cell Patent Dispute Next Month

The U.S. Patent Office could announce some time next month its decision on whether to step into the multimillion dollar WARF stem cell patent controversy.

Writer Joe Vanden Plas of the Wisconsin Technology Network indicated that was the likely timetable in an article that also quoted WARF as saying it expects the Patent Office to review the challenge to the patents by the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca. However, the issue is not likely to settled for several years.

WARF's hold on stem cell patents has troubled some in the business for years. The California foundation filed its challenge after WARF said it wanted to charge the California stem cell agency for use of its patents because the state expected to generate royalties. At stake are potentially millions of dollars in royalties not only in California but throughout the nation.

Vanden Plas said that the Public Patent Foundation (which represents the California foundation) challenged the WARF patent on the basis of "what it said was unseen 'art' or evidence that the previous work of other scientists made the derivation of human embryonic stem cells obvious and therefore unpatentable."

Vanden Plas' article also briefly discussed the agreement reached between WiCell, an arm of WARF, and Advanced Cell Technology of Alameda, Ca., to disribute new stem cell lines involving ACT's new technique.

FTCR: Hein Should Resign from Stem Cell Panel

One of the members of the Citizens Financial Accountability Oversight Committee for the California stem cell agency, which meets today for the first time, is not qualified and was appointed as a "political payoff," a watchdog group said today.

The Foundation for Taxpayer and Consumers Rights of Santa Monica, Ca., said in a press release that the appointment of John Hein by Democratic Assembly Speaker Fabian Nunez "smacks of cronyism and the pay-to-play culture that dominates California politics."

John M. Simpson, stem cell project director for the foundation, noted that Prop. 71 requires members of the oversight committee to have "medical backgrounds and knowledge of relevant financial matters."

Hein was a longtime lobbyist for the California Teachers Association and now heads the political and policy consulting firm of HC&A of Sacramento, Ca. Hein was also a key negotiator in the education deal with Gov. Schwarzenegger that collapsed a few years back.

Calling on Hein to resign, Simpson said the CTA, a politically influential union in California, has been a longtime backer of the Nunez and contributed $12,800 to Nunez in election cycle preceding Hein's appointment.

Wanted: Fresh Human Eggs

What is the going price for human eggs these days? It runs as much as $50,000. But there are still not enough eggs to fuel the stem cell research machine, according to two articles in the Los Angeles Times today.

Reporter Karen Kaplan wrote:

"While the world debates the morality of stem cell research, scientists are grappling with a more basic issue — a shortage of eggs that they say is crippling their work."

One example that Kaplan reported involved Advanced Cell Technology of Alameda, Ca. The company has used newspaper ads to recruit women, some of whom declined after learning they would not be compensated beyond expenses. Kaplan wrote:

"After 10 months, one woman has passed the physical and mental health exams. She was scheduled to begin the egg retrieval regimen last week and could have eight eggs ready to harvest in early October."

Reporter Lee Romney examined the California scene including legislation (SB1260) by Sen. Deborah Ortiz, D-Sacramento, and the California stem cell agency.

Romney discussed the issue of possible exploitation of women egg donors, particularly low income, minority women. She also quoted Radhika Rao, of UC Hastings College of the Law in San Francisco and a member of a state commission that crafted guidelines for stem cell research, as saying,

"If you pay women a lot and they're white, it isn't exploitation?"

The Unexpectedly (to some) Long Life of CIRM

When is a 10-year embryonic stem cell research program not a 10-year embryonic stem cell research program?

Answer: When it is the California Institute for Regenerative Medicine.

Confused? We were too. We have been operating under the mistaken impression that the California stem cell agency has a 10-year life span that began when voters created it in 2004. In fact, CIRM has life in virtual perpetuity. And it can fund itself with the state's general obligation bonds apparently until it hits the $3 billion cap. All of which raise some interesting questions about life after $3 billion.

Two years ago when Prop. 71 was approved, news accounts repeatedly referred to a 10-year period in connection with the agency. Sometimes the time span was linked with the ability to issue bonds. Sometimes not. But regardless of context, 10 years kept popping up. Even the economic report by the Analysis Group, which was paid for by the Prop. 71 campaign, referred to funding over 10 years. And today the web site of the Alliance for Stem Cell Research, a spin off from the campaign organization, uses the 10-year term. The ballot measure itself says the intent of the measure was to authorize funding over a 10-year period. However, the analysis of the initiative by the state's legislative analyst is clearer. It says:

"The measure states its intent, but does not require in statute, that the bonds be sold during a ten-year period."

The longevity of CIRM came up when we wrote an item that said only 60 percent of the agency's life span remained.

That prompted a response from Dale Carlson, chief communications officer for CIRM, who asked for a correction. He acknowledged that he too was once under the misapprehension that CIRM would pass on at age 10. He said,

"I seem to have inherited a common misconception that CIRM is authorized to exist for only 10 years. I assume that stems from language in Prop. 71 regarding the issuance of an average of $295 million in bonds over 10 years, or it may be a legacy from the campaign. Whatever the case, there is in fact no timeline or deadline or sunset provision in Prop. 71.

"We are authorized to issue up to $350 million in bonds in a single year. Anything short of that can be rolled over to subsequent years. We don’t expect the funding to remain constant year over year. Instead, we expect to set each year’s amount based on the state of our strategic plans, the current research environment, scientific advances, newly recognized needs and opportunities, etc. It will be a dynamic process. Many (if not most) of the grants we award are likely to extend out over several years.

"The litigation has an effect, of course. It delays the issuance of authorized public general obligation bonds. It does not mean, however, that we’ll be issuing more than $350 million in a single year to 'catch up', nor that our effective half-life is shortened. The litigation is likely to extend the CIRM’s life and funding program, to make up for the delayed issuance of GO bonds."

As we remarked earlier, all of this raises interesting questions about life after $3 billion, a date that may not occur until about 2017 or perhaps several years later.

Given the nature of organizations and bureaucracies, it is not likely that CIRM will want to close its doors after the $3 billion runs out. It will be an organism that will want to survive, and there may well be good reasons for its life to continue. The state could fund it through the budget process, but without the usual oversight it gives other state agencies, which do not have the constitutional independence that CIRM does. It could also turn to private fundraising, as it has done so already to the tune of $50 million. California's biotech industry may find it useful to provide hundreds of millions of dollars to CIRM to continue pursuing work that is basic to the well-being of the business. Of course, some folks might object to a state agency behaving in such a fashion. But CIRM is virtually immune to control by the governor or the legislature.

And then there is a provision within Prop. 71 that provides for use of "alternate financial plans" instead of state bonds if they would significantly lower borrowing costs.

Is there a lesson in all this? Just the usual. Never assume. Expect the unexpected. Re-read the rules and instructions. However, there may be some folks who will not be happy to find that CIRM has perpetual life.

Update on Legal Actions Against CIRM

Someone queried us the other day concerning the effort by the losers in California stem cell trial to overturn the verdict that favored CIRM. "What is going on?" was the question.

The answer: Not much.

As of Friday, the losers had failed to file their brief with the appellate court. Once that happens, presumably later this month, CIRM will file its response. Then the losers will get a chance to rebut.

In an interview today with the California Stem Cell Report, Tamar Pachter, the deputy attorney general handling the case for CIRM, noted, however, that the appeal is on an expedited calendar so the matter should move more quickly than normal appeals.

She also said that another action, originally filed in the Sacramento by the opponents of the agency, has been modified substantially. Originally the action sought to block CIRM training grants to the University of California on the grounds that they violated state law. That argument has been altered to contend that the grants violate only Prop. 71. Pachter said she expects that such arguments are likely to become commonplace as CIRM issues more grants.

Another Reason for Public Disclosure by CIRM Grant Reviewers

The California stem cell agency says that the scientists who make "recommendations" regarding who receives hundreds of millions of dollars in grants do not need to disclose publicly their financial interests.

On Sunday, however, the Los Angeles Times carried a piece that demonstrates again why public disclosure is needed.

Reporter David Willman wrote.:

"A senior researcher at the National Institutes of Health engaged in 'serious misconduct' by entering into dozens of unauthorized private arrangements with drug companies and failing to report annually the outside income, totaling more than $100,000, a confidential internal review by the agency has found.

"Officials at the NIH concluded late last year that the actions of Dr. Thomas J. Walsh, who has helped lead major clinical trials involving cancer patients, might result in dismissal from federal government service. No disciplinary action has been taken.

"The internal review, conducted by lawyers and other ethics specialists within the office of the NIH director, found that from 1999 to 2004, Walsh received fees totaling $100,970 from pharmaceutical and biotechnology companies. He accepted fees from 25 companies and has led government-sponsored research involving some of those companies' drugs."

In this case Walsh allegedly failed to disclose to NIH. One has to ask the question: Would public disclosure have prevented the alleged misconduct? That is impossible to tell, but it would have raised the importance of the issue to a higher level and added a deterrent component. It would have also led to critical oversight from various public watchdog groups that love to forage in public documents. With public disclosure presumably it would have taken less than five years for the alleged misdeeds to surface. (Five years, by the way, is about 60 percent of CIRM's remaining life.)

The Walsh story is not isolated. Conflicts of interests are widely reported in medical research and are probably impossible to avoid. All the more reason to bring the financial interests at play out into the sunshine.

As for the use of quotation marks around the word recommendation in the first paragraph of this item, the reviewers do make recommendations on the grants but those are virtually de facto decisions, a position that we acknowledge CIRM disagrees with.

Stem Cell Snippets: Starters to Strategic Planning

Links to interesting pieces and announcements involving California stem cell issues.

Stem Cell 'Starter' – The tale of Jennifer Cash, a UC Davis grad student and a worker well down the stem cell food chain. She is trying to concoct a stem cell 'starter' medium, according to a writer Sam Whiting in the San Francisco Chronicle.

Cautionary Piece – An Australian web site has a summary of an article that is called a "cautionary tale" about the California stem cell agency. The original article, by Tamra Lysaght of the University of Sydney, was published in the Journal of Bioethical Inquiry but is not yet available online.

CIRM Strategic Meeting – On Friday, CIRM will hold a meeting in San Francisco of its Strategic Planning Advisory Committee. The agenda includes a report on the Aug. 26 Diversity Focus Group Meeting and a progress report on the strategic plan.

No Time to Weaken 'Second Level of Oversight'

Should the public officials who monitor the financial practices of the $3 billion California stem cell agency have to disclose their financial interests as state law requires?

In a word, yes.

And it is surprising that consideration of seeking an exemption from financial disclosure is even on the board's agenda for its first meeting.

State regulations permit exemptions from disclosure only if the state entity is powerless (has no decision-making authority), has few funds (budget less than $150,000) and will own no real estate. Nominally the Citizens Financial Accountability Oversight Committee seems to meet that criteria. It can only review and make recommendations to CIRM.

That said, CIRM Chairman Robert Klein has cited the importance of the committee. He has called it "an extraordinary response" and "an unprecedented second level of oversight." Klein made his remarks at the March 1, 2005, meeting of the CIRM Oversight Committee.

State Controller Steve Westly, chair of the financial accountability group, was at the same meeting to caution the stem cell agency to mind its financial Ps and Qs. He said CIRM amounted to a kind of "public covenant" with the public making the investment and taking the risk. Westly said:

"Bob's exactly right. These are large numbers. The public wants to know there's every level of scrutiny."

As to the financial accountability committee, Westly said:

"It's a double blind check. We want to make sure we get it right for the public."

The committee was also cited by the state Department of Justice in its so far successful legal defense of the agency against those who seek to kill it off. In legal filings, the Justice Department mentioned the committee as one of the methods by which the state "generally exercises management and control of state institutions and public officials." That's important because normal state oversight of CIRM does not exist. Neither the governor nor the legislature can alter CIRM's budgets or operations.

One watchdog group, the Foundation for Taxpaper and Consumers Rights, has written to state Controller Steve Westly objecting to any exemption.

John M. Simpson, stem cell project director for the foundation, said:

"Full disclosure of interests of committee members is imperative and they must be seen to be held to the highest ethical standards."

It is not hard to conceive of genuine conflicts of interests arising involving the committee. At least two of its six members are very wealthy individuals with a wide array of financial interests. Mrytle Potter, for example, had 25 years of experience as a top executive in the biotech industry, including time with Genentech. Richard Siegal "built (an oil exploration) company that has raised, deployed and accounted for hundreds of millions of invested dollars." He also has donated large sums to various kinds of medical research.

These are extraordinarily capable people who bring valuable experience and insight to CIRM's operations. They also bring a web of financial and business ties that may or may not constitute conflicts of interest as they critique CIRM's financial practices and performance. For example, it is not hard to imagine that an enterprise favored by one of the financial committeee members could find a more friendly reception at CIRM than your average proposal.

We understand the burden that disclosure places on folks such as Siegal and Potter. They may even resign from the committee rather than make a public disclosure. But openness and transparency concerning the public's multibillion dollar investment should come first.

Disclosure Exemptions Are Few

The state has only granted three exemptions from its requirements for public disclosure of the financial interests of high level public officials.

According to the Fair Political Practices Commission, they are for the California Commission on the Fair Administration of Justice, the Medication Errors Panel and the California Alliance to Combat Trafficking and Slavery Task Force.

The regulation permitting exemptions is relatively new, adopted only on Jan. 28 of this year.

The California Stem Cell Report has attempted for several days to determine who was directly responsible for placing the exemption issue on the agenda of the Citizens Financial Accountability Oversight Committee. We have been shuttled between the state controller's office and the Department of Justice without receiving a forthright answer, which may attest to the sensitivity of the issue.

But presumably state Controller Steve Westly put the matter before the committee. He is chair of the committee in question and has control of the agenda.

Coming Up

Later today we will examine in more detail the proposal to exempt from financial disclosure laws the members of the group charged with overseeing the financial practices of the California stem cell agency.

Senators Scold Visibily Shaken Lanza

The flogging of ACT continues.

Two U.S. senators "lashed out" yesterday and "scolded" Robert Lanza of Advanced Cell Technology of Alameda, Ca., concerning the company's recent announcement of a new method of obtaining embryonic stem cells.

"You're on the ropes!" a combative Arlen Specter, R-Pa., told Lanza, according to an account in the Washington Post written by Rick Weiss, who reported that Lanza was visibily shaken. Sen. Tom Harken, D-Iowa, also scolded Lanza.

Both Harken and Specter support ESC research. They told Lanza at a Senate subcommittee hearing that he and his company have, according to Weiss, "harmed the struggling field by overstating their results."

It is not often that a scientist is blessed with such attention from such august public servants.

Also excoriating ACT, but in a different forum, was Glenn McGee, director of the Alden March Bioethics Institute.

He wrote on his blog:

"If there is a school to teach scientists how to screw up the pursuit of PR, ACT has the professors on retainer."

McGee continued:

"I continue to be amazed at the degree to which this company manages to do more harm to the battle to get embryonic stem cell research funded than could any concerted right wing campaign against the research. ACT is the Kevorkian of stem cell research."

Weighing in from Nature magazine was Alison Abbot. She wrote about the ongoing flap and the magazine's actions, declaring:

"No one is suggesting that Lanza's paper is in any way scientifically incorrect, but many in the field have objected...to its overall packaging. 'Perhaps 'word-smithy' is the right term,' comments George Daley of the Harvard Stem Cell Institute."

The Wall Street Journal also carried a piece on Tuesday by David Hamilton and Antonio Regalado, who wrote:

"Advanced Cell has capitalized on the research. Two days after the research was published, the company announced that it had raised $13.5 million from its existing investors, with the first part of the transaction set to close Sept. 7. The company's share price has since fallen considerably since it reached the agreement, closing on Friday, Sept. 1, at 71 cents a share, down more than 70% from the post-announcement high although still above where it was before the announcement."

In terms of coverage, it seems interesting that California papers did not pick up on yesterday's Washington hearing, except for a brief report in the Oakland Tribune.

New CIRM Auditor Sought in Wake of Copying Flap

The California stem cell agency and its auditor have gone their separate ways, and CIRM is looking for a new, private auditor.

Gilbert Associates, a Sacramento company, conducted an audit for CIRM for the 2004-2005 year, but it generated some complaints when it declined to let the state controller's office copy some documents.

The California Stem Cell Report was told that CIRM and Gilbert severed their relationship by mutual agreement. The issue was the copying of some of Gilbert's working papers on CIRM, a non-negotiable matter for CIRM. Gilbert said at the time the material was proprietary and would not allow copying.

Asked for comment by the California Stem Cell Report, Thomas M. Gilbert, managing shareholder of the accounting firm, referred us to the controller's review of the audit, page 8, which says that his firm would not allow the controller's office to copy working papers it considered proprietary unless the controller's office signed a confidentiality agreement. The controller's office recommended that CIRM "address" the issue.

The bid proposal stipulates that the new auditor "agrees that the state controller’s office shall have the right to review and copy any records and supporting documentation pertaining to the performance of this agreement including, but not limited to, all documents, records and workpapers whether obtained or copied from the institute or developed by the contractor."

It also says the successful bidder must have completed three audits of state agencies in the last five years, preferably ones engaged in bond financing.

Gilbert was slated to work for CIRM through June 30, 2007, under a negotiated, $45,000 contract that was not put out to public bid. The latest contract is being let through the Department of General Services, one of the few occasions that CIRM has used the state's formal public bidding process for its roughly $5 million in outside contracts.

The CIRM contract timeline calls for submission of bids by Sept. 18 with the contract awarded by Sept. 22.

Stem Cell Snippets: Cibelli, IP and Davey

Here are links to some interesting items and press releases related to the California stem cell agency:

Cibelli Update – Not much has changed since about eight months ago when stem cell researcher Jose Cibelli "voluntarily withdrew" from the Standards Working Group of the California stem cell agency in connection with his co-authorship of a fraudulent paper involved in the Korean stem cell scandal. He also asked his employer, Michigan State University, to conduct an investigation. In response to a query from the California Stem Cell Report, an MSU spokeswoman says the investigation is still underway.

WARF – Elizabeth Donley has been named executive director of the WiCell Research Institute, which hosts the National Stem Cell Bank controlling all 21 federally funded stem cell lines. Donley will continue to serve as general counsel to WARF.

IP Policy – Here is a link to the exact language for the proposed regulations on the sharing of patented material by CIRM grantees. The Foundation for Taxpayer and Consumer Rights says it is a "compromise that, while not perfect, will ensure scientists get access to taxpayer-funded discoveries for further research and development."

New CIRM Hire – CIRM has hired Marcia Davey, chief of financial management for the State Department of Insurance, as its interim financial officer for one year. The agency said it is continuing to look for a permanent replacement for retiring Walter Barnes. We are inquiring about Davey's salary.

CIRM's Financial Practices to be Reviewed Next Week

A new creature spawned by Prop. 71 will pop onto the public scene for the first time next week in San Francisco.

It is the Citizens Financial Accountability Oversight Committee. The six-member panel is charged with reviewing and making recommendations on CIRM's "financial practices and performance."

Prop. 71, approved nearly two years ago, indicated the committee should prepare an annual report. So far, none has been forthcoming.

At its San Francisco meeting Sept. 14, the first major order of business is a proposal to avoid disclosing the financial interests of its members. It is not clear how the exemption disclosure request came to be on the committee's agenda. The proposal would excuse committee members from filing financial disclosure statements on the grounds that the group has no decision-making authority and has a budget of less than $150,000. State regulations provide for possible exemptions in such cases.

It is apparent from Prop. 71 that the committee can only make suggestions to CIRM and has no power over it, other than public pressure. Presumably its budget is less than $150,000.

The next item calls for consideration of "recommendations" by the committee, none of which have been prepared for public consumption at this point. On the table is the audit paid for by CIRM and the controller's review of that document. Nothing truly scandalous emerged from those reviews, although there was a flap when CIRM's auditor refused to provide copies of information to the controller's office. The accountability panel will not be considering the audit by the California auditor general, which has not yet been released.

State Controller Steve Westly, who is friendly to the stem cell agency, chairs the committee. The proposition calls for appointment of other members who have "medical backgrounds and knowledge of relevant financial matters."

They are:

Richard Siegal, a Westly appointee, philanthropist and patient advocate for Graves Diseases and glaucoma. He also heads what the controller's office only describes as a "private multimillion dollar national energy firm." The firm is Palace Exploration Co. which bizneworleans.com, describes as "a privately held (New York) company engaged in the exploration and production of oil and gas in the continental United States, the Gulf of Mexico, Western Canada and the North Sea. It has been owned and operated by the chairman and his family since its acquisition in 1983, and owns interests in more than 1,400 producing oil or gas wells." Siegal and his wife, Gail, gave $44,600 to Westly's campaign for the Democratic gubernatorial nomination this year, according to Common Cause.

Myrtle Potter, an appointee of CIRM Chair Robert Klein. Potter is a former vice president of Genentech. More recently she was a cofounder of the Chapman Development Group, which operates large-scale residential and commercial development, among other things. In 2003 and 2004, she was named to Fortune magazine's list of the "Top 50 Most Powerful Women in Business."

Daniel S. Brunner, an appointee of treasurer Phil Angelides. The controller's office lists Brunner as "general counsel, (Governor's) Office of Special Health Care Negotiations." However, that appears to be an old occupation. Through January of 2005, he was executive vice president of First Health of Sacramento, Ca., which manages health care services for businesses. Common Cause does not show major contributions from Brunner to Angelides, who defeated Westly in the race for the Democratic gubernatorial nomination.

John Hein of Fair Oaks, Ca., an appointee of Assembly Speaker Fabian Nunez. Hein was executive director of Communities for Quality Education at the time of his appointment. He also served as the chief lobbyist for the California Teachers Association in Sacramento. We are inquiring concerning his current employment.

Jim Lott, an appointee of Senate President Pro Tem Don Perata. Lott is executive vice president of the Hospital Association of Southern California and has an "extensive and productive history in influencing health policy in California." Lott was a former legislative staffer and is chair of the LA Care Health Plan.

Here is a link to the controller's bios on the committee members. Here is a link to the state regulations providing for an exemption on the disclosures (see sec. 18751 C 3).

Below is the text of the section of Prop. 71 creating the committee.