CIRM IP Legislation Faces Tall Hurdle

The following – written by yours truly -- appeared today in The Sacramento Bee as an op-ed piece. We will bring you more details of CIRM's current legislative efforts on Monday.

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Nearly three years ago, California voters created a unique and nearly autonomous agency that set the state on a $3 billion foray into embryonic stem cell research. Under the terms of Proposition 71, voters told the new California Institute for Regenerative Medicine to hand out $300 million annually in hopes that the grants would lead to cures for everything from diabetes to cancer.

Voters also told legislators not to mess with the institute at least for three years. Now that time is nearly up. And two powerful legislators are mounting the first effort -- under the terms of Proposition 71 -- to intervene in the institute's affairs.

The stakes are enormous and involve potentially billions of dollars of profits from stem cell therapies and cures.

The legislation was introduced last month by the chair of the Senate Health Committee, Sheila Kuehl, D-Santa Monica, and the Republican caucus leader in the Senate, George Runner of Antelope Valley. Their Senate Bill 771 is aimed at ensuring that California receives a healthy return on its investment and that state-funded cures are affordable and accessible.

But the senators face an extraordinary obstacle. Under Proposition 71, their legislation requires not just a majority vote to pass -- not just a supermajority vote (two-thirds) -- but a super, supermajority vote of 70 percent. That means 13 senators can kill the bill.

California's biotech industry and the institute are probably already compiling a list of their 13 best friends in the Senate. The state's leading biomedical organization, the California Healthcare Institute, is unhappy with the stem cell institute's intellectual property rules for sharing the wealth, declaring that they provide "a substantial disincentive" for creating commercial cures.

The rules determine who owns the results of the state-funded research, in other words, the intellectual property. They also determine how the intellectual property may be used and who, including the state, will receive royalties and under what conditions.

The California Healthcare Institute has not taken a position on Kuehl's bill but has indicated that it does not want to be hamstrung.

Runner and Kuehl, however, have an unlikely source of support. That's the legacy of the less-than-adroit legislative maneuvers by California stem cell Chairman Robert Klein. Much as President Bush's decision to limit funding for stem cell research spawned Proposition 71, Klein's actions ironically have fostered an environment conducive to the Kuehl bill's success.

Klein not only irritated some lawmakers, but some members of the stem cell institute's Oversight Committee as well. They were not pleased by his broadsides, such as denouncing the former chair of the Senate Health Committee, Deborah Ortiz, D-Sacramento, as an "ongoing threat." That message was delivered last year in a widely disseminated e-mail to patient groups via Klein's nonprofit advocacy group, Americans for Stem Cell Therapies and Cures.

The stem cell institute has attempted to strengthen its legislative ties. It took the unusual step, for a state agency, of hiring a private lobbyist, the well-connected Nielsen, Merksamer, Parrinello, Mueller & Naylor for $4,100 a month. More recently, the institute reached out to lawmakers and legislative staff, sending delegations to Sacramento twice last month, including Zach Hall, the institute's president, and Ed Penhoet, vice chair of the Oversight Committee and head of its intellectual property task force.

Kuehl has a tall hurdle to clear -- the 70 percent vote, not to mention the governor. She is stepping into a complex arena -- intellectual property -- where little unanimity exists, as the institute has discovered. But even if the bill fails, it will help to provide broader input on policies about intellectual property, developed during sparsely attended hearings. The measure additionally will serve as an important test of the institute's openness and political savvy.

While the agency is uniquely independent, California lawmakers are capable of creating much mischief when they feel their constituencies have been slighted. And that is mischief that the institute should avoid, so it can focus on its primary mission, as the institute proclaims, "turning stem cells into cures."

Robert Klein's Unseemly Position

The PR drums are beginning to sound for next Friday's $80 million stem cell giveaway in Los Angeles.

This time the flashbulbs and lights will be for a Democrat – not a Republican. He is Assembly Speaker Fabian Nunez of Los Angeles. As you may recall, California's Republican governor appeared last month for the hoopla when the California stem cell agency awarded its first-ever research grants.

Interestingly, announcement of the "CIRM press event" came not from the California Institute for Regenerative Medicine but on stemcellbattles.com, the blog of patient advocate Don Reed.
The announcement also carried the name of Amy Daly, executive director of Americans for Stem Cell Therapies and Cures, which is the private lobbying organization headed by Robert Klein. Klein is also chair of the state stem cell agency, which is giving away the money next week – part of $3 billion in state funds that intends to hand out over 10 years.

No mention of the "CIRM press event" could be found Saturday on the CIRM web site. Of course, anyone can call a news conference. But it is in the same location as the meeting for the agency, the Harvey Morse Conference Center at Cedars-Sinai Medical Center in Los Angeles, and would require the permission of that institution.

What does all this mean? It means continuing confusion about Klein and his role. Is he a lobbyist and private advocate for embryonic stem cell research? How does that fit with his role as a state employee and chair of the CIRM Oversight Committee? Can he separate those functions?

Last year, as head of the Americans group he denounced the leading voice for embryonic stem cell research in the state legislature as an "ongoing threat" to CIRM. The state agency, however, declined to comment on Klein's statement, saying he prepared it on his own time.

Klein has testified in court that he does not consider himself a state employee. In 2005, he refused to appear before the legislature for a hearing into issues involving CIRM. A millionaire businessman, he does not accept a salary as chair of the Oversight Committee.

Normally announcement of a news conference is aimed at notifying the news media for possible coverage. In the case of the announcement from Klein's lobbying group, it was aimed more at generating attendance by those would benefit from possible cures developed as the result of state-funded research. Their attendance provides better visuals and interviews for TV, radio and print reporters than the talking heads of state officials.

Building support for ESC research and generating news coverage for CIRM's work seems a worthwhile endeavor. But unseemly is a better word for Klein's current position astride both a state agency and the lobbying effort.

Better Than a Jet Plane

Larry Lokey, the former editor of the Stanford Daily who gave $33 million to Stanford University for stem cell research, says that giving away the money is more exciting than owning a jet plane.

His gift is also part of the growing momentum for private giving for stem cell research. CIRM's requirement for hefty matching on its building grants is likely to stimulate the giving even more.

Reporter Lia Hardin of the Stanford Daily reported Lokey's comments on jet planes, noting that he is also going to help fund a new building for the campus paper. Here is Stanford's press release on the gift.

Sewell Comments on CIRM Executive Changes

One of the Oversight Committee members for the California stem agency – David Serrano Sewell – has commented on the "Worst Enemy" item below. He also serves on the Governance Subcommittee and was present for the meeting discussed in that item.

Here are his verbatim comments emailed to the California Stem Cell Report:

"You make some interesting points concerning the adoption of the Internal Governance Policy, which is basically a MOU for Bob (Klein) and Zach (Hall). The ICOC tasked Ed (Penhoet) with the assignment of drafting this policy, and he did a great job. It's not perfect, but it works for now. This document is a reflection of the working relationship between Bob and Zach. I'm not passing judgment on that relationship, but we had to deal with it.

"I don't agree with Zach's comments. We're not in a situation where we're going to get as our next President either Bartelby The Scrivener or Dr. Dynamic because of the policy. Again, it's in place for Bob and Zach. Once we get further along the process in selecting our next president, the policy will likely change. Others may disagree, but that's how I view the situation.

"As for Prop. 71 itself. People wanted an active board, and that's what they got. We're engaged and listening to the public. Most of our operating structure is embodied in 71, including making any changes (which require the approval of the legislature and governor). If people don't know that, especially ICOC members, they ought to read 71."

CIRM's Worst Enemy? Maybe Prop. 71

The talk was of a "dog's breakfast," personal chemistry, schizophrenia and micro-management. The overseers of California's $3 billion stem cell agency covered it all last month as they attempted to produce a new management structure and enhance their ability to recruit a new president for CIRM.

The occasion was consideration of changes that will now come before the institute's Oversight Committee next week. The group is seeking to create more of a non-executive chair for the agency and shift more authority and responsibility to the president.

Sitting in on the meeting Feb. 21 of the institute's Governance Subcommittee were the two men filling the positions most directly affected – CIRM Chair Robert Klein and outgoing President Zach Hall.

The discussion did more than lead to approval of the restructuring. It focused a bright light on failings of the initiative process that created the agency, including micro-management language in Prop. 71 that now hampers the flexibility of agency. That is not to mention the difficulties of running any organization with two chief executives.

Prop. 71 stands at the heart of the issue. The ballot measure enshrined -- in state law and the State Constitution -- management minutia that has no place in legal codes, such as specifying that chair of CIRM's Oversight Committee must supervise preparation of its annual report. That requirement – or any other element of Prop. 71 -- can only be changed by another vote of the people of California or by an extraordinary, super-majority vote (70 percent) of both houses of the legislature and approval of the governor.

One member of the Governance Subcommittee, Brian Henderson, dean of the USC Keck School of Medicine, seemed astonished when he learned last month of the difficulty in making what should be routine changes. "Wow," was his comment.

The "dog's breakfast" comment came from Richard Murphy, CEO of the Salk Institute, during a discussion about why three executive committees are needed for CIRM when it has something over 20 employees. Not mentioned was the large size of its Oversight Committee, which has 29 members.

Here is how it went:

Hall: "Well, as Ed (Penhoet) said, I think it's working. I think on paper it looks like a mess."

Murphy: "It looks like a dog's breakfast, yeah."

Hall: "What I'm trying to say is that if I were looking at this, say wait a minute. I'm going to be over 25 people. and, my God, we've got two executive committees and a senior management committee."

Henderson: "It's ridiculous."

At one point, Hall added,

"If it were a traditional organization, it would be crazy to have the board sitting here trying to tell the president or the CEO how they should organize the internal workings of the organization."

Hall's comments at various points during the meeting best summarized many of the underlying problems with the dual executive structure at CIRM. He noted that he did not have "a horse in this race" referring to changes which largely would affect his successor. They are changes that are subject to revision if the presidential search committee finds a candidate who wants them modified again.

Hall said Prop. 71 does not give a "very high degree" of authority to the president. As an example, he cited the activities of the Governance Subcommittee as he was speaking to them. Hall noted that the president does not sit on the CIRM oversight board, as is customary in many organizations. He has no say in grant funding and no mechanism exists for the president or the CIRM staff to make suggestions regarding which grants to fund.

"The institute has a very powerful board that makes all funding decisions and keeps the president and staff on a pretty short string."

Hall continued,

"One could make a perfectly good case that CIRM would be best served by someone who's a good manager, a good administrator, a member of the staff -- the president is often referred to as staff in this context -- whose function is not to be a source of ideas along with the board, but to implement the ideas that the board generates. I think it's a perfectly good model, and I think it's one that might work very well....(T)here needs to be congruence between the kind of person you want and the responsibilities that this person is expected to fulfill within the organization.

"If you hire a manager and have a structure that calls for a leader, I think you're in trouble. Correspondingly, if you have a structure that calls for a manager and require someone who is a leader, I think you're also going to be in trouble."

Later Hall said,

"The point that we're left with, which is a very, very difficult one, is that within a very small organization, there are two leaders. And I think that is a problem....(I)nsofar as the president is a strong person who wants to do things their own way and has ideas and wants to feel they have some authority and control, I think it is going to be a problem to fit that person into this structure. I certainly have had problems, and I think of myself as in that category. I may be different from others like that, but I think it's generic."

Hall continued:

"...(Y)ou can say very frankly there's a kind of schizophrenia here. There's a very powerful board and there is an institute which sometimes is treated like the staff...(but occasionally)is the important organization with a board that has oversight. There's a real tension between those two structures and those two visions....

"I think the solution that's in this (restructuring) document, while admirable in many ways, looks very complicated to me...(F)or example...the job descriptions of the chair and vice chair...emphasizes that in this small group the president is No. 3 in the organization, and I have to say that's not a very attractive proposition."

Philip Pizzo, dean of the Stanford University School of Medicine, brought up the personal dynamics issue.

"If the chemistry works, then that can oftentimes overcome organizational imperfections. If the chemistry doesn't work, it doesn't overcome almost any kind of organizational imperfection."

Klein voted for the changes to make his position more of a non-executive post. He retains substantial authority over financing – public and private – as well as litigation, and supervision of CIRM's financial plan along with authority to set the board's agenda. Klein described the changes as "reoptimizing" CIRM for a new president to give him or her "the kind of structure and mix that works optimally to serve their needs."

Sherry Lansing, chair of the Governance Subcommittee, said the plan, presented by Oversight Committee Vice Chair Penhoet, was "excellent," and she pushed hard for its adoption without significant changes. Lansing is a former top Hollywood film executive and has undoubtedly experienced more than her share of touchy management issues.

Despite its "dualing executive" – our words, not Lansing's – she noted that CIRM pumped out $45 million in grants last month and will pump out $80 million more next week, a record not to be sniffed at.

CIRM's performance, after a particularly difficult start-up year, has improved greatly. That is the result of sharply focused, hard work and long days from a tiny staff. Whether that pace can be maintained is doubtful. CIRM needs to perform its routine work routinely. That will leave it ready for the truly exceptional tasks that inevitably pop up. The new president, the new structure and Robert Klein are the keys to that effort.

As for more permanent restructuring eliminating overlapping responsibilities, the Oversight Committee does have the option of going to the Legislature and asking for changes in Prop. 71. But in addition to the difficulty of hurdling the 70 percent barrier, such a move would open the door to possible changes that might not be palatable to the institute.

(Editor's note: The quotations are all drawn from the transcript of the Feb. 21 meeting, which can be found at www.cirm.ca.gov.)

The $80 Million Stem Cell Grant Proposals

The public summaries and scores of the applications for $80 million in embryonic stem cell research grants are now available on the web site of the California Institute for Regenerative Medicine.

You can find them directly by using this URL: http://www.cirm.ca.gov/publicsummaries/RFA_06-02/PublicList.html.

The grant recipients will formally be approved next Friday at the meeting of the CIRM Oversight Committee in Los Angeles.

Leon Thal: 'Meticulous, Unflappable, Creative'

Hundreds of persons memorialized scientist Leon Thal, a member of CIRM's Oversight Committee and an internationally acclaimed expert on Alzheimer's disease, at UC San Diego on Monday.

Reporter Cheryl Clark of the San Diego Union-Tribune wrote:

"As a scientist, Thal was a meticulous, humble, creative, diplomatic and unflappable mensch who helped design and conduct clinical trials to determine whether certain substances might stop progression of the disease, the speakers said during a memorial service at UCSD."

Clark continued:

"'I really believe he was the world's leading investigator in the testing of new therapies,' said Neil Buckholtz, who leads the dementias of aging branch for the National Institute on Aging in Bethesda, Md. "He gave hope for millions of people . . . because of his ability to forge consensus and his commitment to the principles of science.'"

Speakers also addressed other aspects of Thal's life: gardening, travel and flying cross-country in his small plane. They spoke of how he continued to drive his 1985 Toyota to work because "it still ran."

"Donna Thal fought back tears as she described some of her husband's idiosyncrasies. For example, he picked up trash while jogging and 'mended his socks even with holes as big as a half dollar,' she said."

CIRM has named the first-ever research grants awarded by the institute after Thal. UC San Diego has announced creation of a training fund for promising neuroscientists. The university said:

"Donations to this fund can be made online at http://neurosciences.ucsd.edu/neurocentral/memorial.htm, or checks may be made payable to UC San Diego Foundation, referencing Fund #4467, Thal Educational Scholarship (on memo line of check) and sent to: UCSD Neurosciences Development, c/o Leon J. Thal Educational Scholarship Fund; 9500 Gilman Drive, Mail Code 0853; La Jolla, CA 92093-0853."

Thal, 62, died last month in the crash of his plane in the Southern California desert.

CIRM CEO Search: The Pace and Talk of Candidates from Business and the Oversight Committee

How quickly will the California stem cell agency move to fill the spot of departing President Zach Hall?

Based on the track record of the 2005 presidential search, the CIRM Oversight Committee may not move with stunning dispatch. The search that year took about nine months. They had hoped to complete it in six.

But some pressure exists for relatively quick action. We found that sentiment in the first meeting of the CIRM Presidential Search Subcommittee along with a desire for more candidates from business and a disclosure that some members of the CIRM Oversight Committee themselves are interested in the position.

At least two members of the search subcommittee are on the record supporting quicker action, speed that we noted previously is certainly warranted.

During the subcommittee's meeting, Michael Goldberg, a member of the committee and a venture capitalist who directs life science investments for Mohr Davidow Ventures of Menlo Park, Ca., also warned against complacency. He said,

"There's a whole organization there that's been charged with an enormous responsibility of administering the research apparatus of the CIRM, and it's leaderless. I don't like working for an organization that's leaderless. I say leaderless, I don't mean that in the sense it doesn't have a chair engaged and vice chair engaged and Zach's engagement, but it's not the same as an organization that's moving forward.

"There's entropy in my experience at this stage of an organization's life with a leader who's announced his departure....That should give us actually an increased sense of urgency, if anything. so I'd like to do everything we can to fast track the process without sacrificing any of the transparency and engagement with stakeholders that i think we're all committed to."

Joan Samuelson, a patient advocate member of the search committee, said she concurred with Goldberg.

Earlier in the meeting, some members indicated displeasure with the 2005 selection process. However, the context of the search then was much different. CIRM had just been created but not within any existing state department. At first, the institute did not have an office, phones or even a way to make payroll. Those were relatively easy obstacles to overcome compared to the more complex tasks the organization faced later that year without a permanent president.

Brian Henderson, dean of the USC Keck School of Medicine and a member of the committee, said,

"I don't want to see a search go like the last time where getting to the end was more important than the process."

Philip Pizzo, dean of the Stanford medical school, agreed. He came back to the subject later in the meeting.

"I think last time we were under such a rush, that perhaps we didn't have the time to do that kind of due diligence, but we should be able to do it this time."

It was a sentiment echoed by Jeff Sheehy, a patient advocate member, said,

"I think we can be more deliberate this time, and we don't quite have the same sort of pressure upon us."

Sheehy additionally expressed hope that the committee would see more candidates from the business community. A business candidate presumably would be more oriented towards pushing stem cell products out the door as opposed to the sometimes more cautious views expressed by those more oriented towards science.

Also briefly mentioned during the meeting was the fact that some members of the Oversight Committee themselves have expressed an interest in the president's position, pointing up the importance of using a search firm to assist in filling the spot.

Obviously the Oversight Committee includes many capable people, but picking a president from the Oversight Committee would smack of an inside deal, although such practices occur in the business world. Perhaps such candidates should consider resigning from the Oversight Committee immediately if they want to be seriously considered.

Of course that might telegraph that they are candidates. The search committee is already distressed by the publicity surrounding an approach made to James Battey, the NIH's top stem cell executive. Perhaps candidates from the Oversight Committee have already been quietly discouraged by the search committee if it has a consensus on the matter. This is one of those situations where people mention "horns" and "dilemmas."

The full transcript of the Jan. 31 search committee meeting can be found at cirm.ca.gov.

Storing Stem Cells and Cash

Sometimes you could say that the California stem cell agency is in the business of hope.

That's a core engine behind the drive for embryonic stem cell research. Another is profit.

But hope propels other research and business as well.

Reporter Melissa Healy of the Los Angeles Times wrote today about private tissue banks, including the case of one man who expects to pay $6,000 to harvest his own stem cells and pay a Southern California firm $400 a year to store them. She wrote,

"NeoStem, the company that he has chosen to store his stem cells, has launched a $2.5-million plan to expand its services across the country in the next year. It joins a private tissue-banking industry that already includes more than two dozen companies storing the stem cell-rich blood of the umbilical cord harvested at the time of a baby's birth, one other bank storing stem cells from circulating blood, and an 8-month-old bank that draws and stores stem cells from the soft pulp of children's baby teeth."

Ebert Comments: Scientists Shy From Criticism, Controversy

Patent attorney and blogger Larry Ebert has posted a comment on the scientists and "humiliation" item below in "Stem Cell Snippets." Among other things, he says, "Most scientists avoid controversy like the plague. In a world where a competitor is apt to be the next reviewer of your grant or referee of your paper, you can't go around humiliating those in your field." Even public criticism, something different than humiliation, is not the norm, says Ebert.

A cozy world, indeed, if what Ebert says is 100 percent correct. Undoubtedly even cozier in the relatively tiny world of stem cell research. All more the reason for more public disclosure regarding the interests of those who review the applications for stem cell research grants.

Which brings up a sentiment from Lord Acton, the British historian. He said, "Everything secret degenerates...nothing is safe that does not show how it can bear discussion and publicity."

Regarding the quote, our thanks to Peter Singer, a bioethicist at Princeton University, who used it in an essay in New Scientist in October 2006, where we found it.

New Structure for a New CIRM President

The California stem cell agency is cleaning up its troublesome, dual executive issues and shifting power to the presidency of the $3 billion institute and away from the chairman's office.

The move is linked to the search for a new president for the California Institute for Regenerative Medicine. The current CEO, Zach Hall, plans to leave around June. Overlapping responsibilities and the resulting differences between Hall and CIRM Chairman Robert Klein have surfaced publicly in the past. (See "Dualing Execs: Touchy Issues.") Clearer lines of authority and creation of a non-executive chairman's office should enhance recruitment of top-flight candidates for the job, so the reasoning goes.

One patient advocate, who has watched CIRM closely since its inception, worried, however, that the new structure would turn the chairman and the Oversight Committee into "powerless figureheads."

In his Feb. 26 posting on stemcellbattles.com, Don Reed wrote:

"Bob Klein is the one man who understands the whole thing. Removing him from power is like taking Walt Disney away from Walt Disney enterprises."

Reed was commenting on restructuring of CIRM management that was approved, with an aye vote from Klein, Feb. 21 by the CIRM Governance Subcommittee. The changes now must be approved by the Oversight Committee at its meeting later this month. Months ago, Klein indicated he would step down from his position in 2008.

Among other things, the changes would:

-- Limit to four instead of 10 the number of employees in the office of the chair, including one for the vice chair. (CIRM has only 22 employees.)

-- Place the "Policy Office" under the president instead of the chair. That office implements Oversight Committee directives "through outreach" to the state legislature, Congress and other constituents. The president also would implement legislative policies of the Oversight Committee.

-- Require the concurrence of the chair in only the hiring of the chief legal officer, instead both the legal officer and the chief communications officer.

-- Clarify that all CIRM employees, except for the chair and vice chair, report to the president and remove language that stipulated the president and the chair "work out" office assignments.

-- Restructure CIRM's executive committee, giving the president more explicit control of its composition.

John M. Simpson, stem cell project director for the Foundation for Taxpaper and Consumers Rights, said the changes were a "step in the right direction." He said that the new policy was drawn up by CIRM Vice Chair "Ed Penhoet with consultation from Tina Nova, Richard Murphy and Phil Pizzo (all Oversight Committee members) after interviews with all CIRM employees."

As we have reported, CIRM's management structure, dictated in many ways by Prop. 71, has led to unnecessary difficulties. The changes would seem to create cleaner lines of authority and help to avoid ambiguities that generate confusion and conflict. But organizational charts are still only so much paper. They require persons of great skill, good will and energy to make them work.

The old and new "internal governance" policies can be found at www.cirm.ca.gov in links on the agenda for the Feb. 21 governance subcommittee meeting. We are told that only minor word changes were made then in the proposed new policy.

Stem Cell Snippets: Dirty Laundry and Openness

Humiliation and Secrecy – Scientists are accustomed to publicly humiliating each other, comments Wired blogger Kristen Philipkoski on CIRM Chairman Robert Klein's defense of CIRM's secrecy policy on the economic interests of grant reviewers. Dale Carlson, chief communications officer for CIRM, also defends the public secrecy in an op-ed piece in The Sacramento Bee. The San Jose Mercury News editorializes against it: "The public has a right to know who is applying, what research they want to do and who failed to receive grants. It also should know when scientists reviewing those grants have a conflict of interest. Opening up those two crucial aspects of the state's stem-cell program will help build confidence that taxpayers' $3 billion investment is in good hands."

Audits, Editorials and Dirty Laundry – Patient advocate Don Reed says in a March 1 item that the State Auditor did not find any real "dirty laundry" in her report on CIRM. The San Jose Mercury News editorialized that the institute should revisit its "ongoing transparency issues." The newspaper also said, "If questions over the use of chauffeured rental vehicles are going to receive this much attention across the state, imagine how the focus will sharpen when the institute starts spending $300 million a year and choosing which areas of research deserve priority." The San Francisco Chronicle editorialized that the audit has "the power to keep the institute on track to meet strategic goals and avoid conflicts of interest."

One Million – For the latest on the doings of the advocacy group headed by CIRM Chairman Robert Klein, check out its Web site. Americans for Stem Cell Therapies and Cures is pushing a nationwide email campaign on Congressional stem cell legislation. The goal is to generate one million personal stories, print them out and deliver to Washington, D.C.

Pachter Joining CIRM, Another Audit Released

The California stem cell agency has named its first general counsel and released its own – nonperformance – audit following the report earlier this week by the State Auditor that picked apart CIRM workings in details that dug into $36 lunches.

The top legal spot at the agency went to Tamar Pachter, who was the lead attorney in the agency's so-far successful defense against challenges to its existence. Pachter, who will join CIRM March 19, served as a California deputy attorney general, where she worked in the areas of antitrust, bankruptcy and energy regulation for the past four years. A graduate cum laude from Fordham University of Law, she was selected from nearly 100 applicants. Her annual salary will be $160,000. More details on her background can be found in the press release at the www.cirm.ca.gov.

CIRM has a $558,000 contract for this fiscal year with the San Leandro law firm of Remcho, Johansen & Purcell. It has already paid Remcho $539,600 since January 2005.

The audit released by CIRM was commissioned under its $100,000, two-year contract with Macias Gini & O'Connell of Sacramento. It is typical of the sort of audits that are commonplace in the corporate world and covers less ground than the performance audit by the state auditor.

CIRM said,

"In a separate report, the auditor identified several opportunities where the CIRM could strengthen internal controls and operating efficiency. Some are related to practices of the State Controller’s Office, which acts as the Institute’s bookkeeper; others are wholly within the province of the CIRM. Per the auditor’s recommendation, for example, members of the CIRM governing board are now required to sign annual statements acknowledging review and receipt of the Institute’s conflict of interest policies. All the Macias Gini & O'Connell recommendations have been accepted by CIRM management."

You can find the report at the CIRM web site: www.cirm.ca.gov. Currently we are unable to access it directly but hope to bring you more on it later.

The 'Open Kimono' and Skimpy Audit Coverage

The California State Auditor's report on the state's stem cell agency drew light coverage with at least two major papers apparently skipping the story.

Internet searches, which are not always perfect, showed that neither the Los Angeles Times nor The Sacramento Bee carried a story on Wednesday, the day following the audit. The Bee, however, carried an editorial that explored the implications of the audit, declaring that CIRM "could be putting its grants and grant reviewers in jeopardy by not adopting a more transparent conflict-of-interest policy."

Reporter Terri Somers of the San Diego Union-Tribune wrote a thorough piece that touched on nearly all the findings of the auditor, including the issues of intellectual property and disclosure of the economic interests of grant reviewers. She quoted State Sen. Sheila Kuehl, D-Santa Monica, chair of the Health Committee, author of a bill to dealing with CIRM's IP policy, as saying,

"I think the audit really supports the need for that legislation."

Somers wrote:

"Auditors recognized the numerous public meetings held by the institute to solicit input into the formation of this policy. But they criticized the institute for failing to provide them with documentation showing how they processed the input into policy.

"'It's hard for me to determine whether this is the auditors being overly demanding or the institute continuing to do what it has done in the past – oppose all attempts to make it conduct its business in the open sunshine of the public,' said Jerry Flanagan, of the Foundation for Taxpayer and Consumer Rights, which has been keeping tabs on the institute."

On the reviewer disclosure issue, Somers quoted Dale Carlson, chief communications officer for CIRM, as saying,

"'Although they're paid a small fee, they basically do it as a favor . . . to advance the science. They are not eligible to receive any of this grant money.'
"Meanwhile, other agencies outside the state are offering to pay them more to review far fewer grants, he said.
"'If you are given the opportunity to be paid 10 times as much as we are paying for a small portion of the workload we are going to lay on you, and you don't have to open your kimono, where do you think you're going to go?' Carlson asked."

The Bee's editorial today noted CIRM's position that grant reviewers do not, in fact, make what amount to decisions on grants.
The Bee wrote:

"...(T)his claim is negated by how the institute went about awarding its first research grants this month. Prior to its Feb. 15 and 16 meetings, the grant reviewers pored through 231 grant applications. They recommended that 88 be funded immediately or awarded when funds become available, and that 143 others not receive funding.

"When the oversight board made its final decisions, none of these 143 "rejects" were recommended for funding. Some 72 were selected largely on the fact that reviewers gave them scores above 74 points. That suggests the grant reviewers are the ultimate arbiters on what research grants are not funded, and that they largely control what is funded. In our book, that makes them decision-makers and very important public officials.

"The state auditor's report, requested by former state Sen. Deborah Ortiz of Sacramento, noted that violations of Section 1090 'may result in a felony conviction and void a contract.' In other words, the institute could be putting its grants and grant reviewers in jeopardy by not adopting a more transparent conflict-of-interest policy."

In two stories Wednesday and Thursday, reporter Carl Hall of the San Francisco Chronicle focused on contracting, spending and accounting issues in the audit. He wrote on Wednesday:

"The auditors' report underscored the potential waste of millions of dollars in taxpayer-backed bond proceeds if grants aren't closely monitored in the years ahead."

On Thursday, Hall said, among other things:

"Ten contracts worth a combined $1.5 million were signed without following appropriate bidding rules, the auditors said. In the biggest example, the stem cell institute paid $537,000 for grant-tracking software and support services without advertising or seeking competition."

Steve Johnson of the San Jose Mercury News wrote,

"Doug Cordiner, chief deputy state auditor, said the flaws cited in the report do not appear to add up to a significant amount of money.

"'It's not anything untoward as far as what we've seen at other agencies,' he said."

CIRM Hoping for Quick Supreme Court Action

With a little luck, the California stem cell agency could be finished very shortly with its current round of court travails.

Opponents of the agency have signaled they are likely to appeal to the California State Supreme Court Monday's ruling in favor of CIRM. But given the strength of the most recent decision, chances are fairly good that the high court may not grant a review.

Time limits are imposed on the Supreme Court appeal process so it may be all be over in about four months, if the court rejects a request for review.

Reporter Terri Somers of the San Diego Union-Tribune said stem cell Chairman Robert Klein read the section of the decision saying that the justices had "no hesitation" in rendering their decision and remarked:

“It doesn't get better than that, does it?”

Appellate decisions sometimes take a couple of months to surface. Monday's took 12 days.

Klein told New York Times reporter Andy Pollack that if the Supreme Court declines the case, CIRM could begin issuing its first bonds shortly after the court's rejection. The lawsuits have clouded the market for CIRM bonds, making the state unable to issue them. Pollack also succinctly characterized the CIRM opponents as groups that "oppose abortion, research with human embryonic stem cells or taxes."

Reporter Bob Egelko of the San Francisco Chronicle picked up an interesting quote from the decision dealing with the conflicts of interest posed by Prop. 71. He quoted Justice Stuart Pollak as saying:

"The voters have determined that the advantages of permitting particularly knowledgeable persons to decide which research projects to fund outweigh any concerns that these decisions may be influenced by the personal or professional interests of those members, so long as the members do not participate in any decision to award grants to themselves or their employer."

Monday's decision does not mean that CIRM is out of the legal woods. Given the fever pitch of ESC research opponents, they are certain to come at the agency again but on different grounds. Their objective is to badger, impede and stall.

CIRM's Conflicts: Beware the WARF Syndrome

The California State Auditor has freshened the debate over public disclosure of the economic interests of the men and women who review the applications of scientists and others seeking hundreds of millions of dollars in grants from the state of California.

The auditor's report Tuesday recommended that the California stem cell agency seek an attorney general's opinion on whether its policy is appropriate. CIRM does not require the grant reviewers to disclose publicly their economic and other interests. But it does require them to disclose confidentially to CIRM.

The position of the California Stem Cell Report is that the reviewers make de facto decisions on the grants and that they should disclose their economic interests. Others advocate disclosure as well, including The Sacramento Bee and the San Jose Mercury News.

We are presenting here the text of what the auditor had to say and CIRM's response along with a related paragraph from the Court of Appeal Monday. CIRM has not yet decided whether to seek an AG's opinion. We should note that Jerry Brown, the attorney general, decades ago sponsored the Political Reform Act mentioned in the discussion below, an initiative he touted as a much-needed good government measure.

We have written much on this subject, but would like to add a few additional comments at this point. CIRM is in danger of falling prey to the WARF Syndrome. We refer to the Wisconsin Alumni Research Foundation, which last year told California that it had to cough up royalties for its state-financed stem cell research. The position triggered a flap that only ended with WARF declaring that it would not require the royalties after all. WARF, a nonprofit organization with a longstanding record of supporting science, finally did what was right, rather than focusing narrowly on self-interest and protecting its patents. In this case of reviewer disclosure, CIRM is narrowly focused as well. Various interests obviously have to be balanced. But CIRM has tilted too far in protecting its reviewers from public scrutiny, justifying its position on the untested, hoary premise that the secrecy is the only way to generate "good science." This is a case where CIRM should let the sun shine in. Billions are literally at stake along with public trust in the agency. Public disclosure is the right position. It not only reflects the public's best interests and the best interests of good government, but it helps to protect CIRM itself from the possibility of a truly nasty scandal.
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Here is what the auditor had to say:

Although the institute developed a Conflict of-Interest code and policies, improvements are needed to ensure that they are followed

With certain exceptions, committee members and institute employees are subject to the requirements of the Political Reform Act of 1974 (Political Reform Act). The purpose of the Political Reform Act, in part, is to ensure that public officials perform their duties impartially, free from bias resulting from their own financial interests or the financial interests of those supporting them. In response, the committee adopted a conflictof-interest code—a set of rules intended to identify and prevent conflicts of interest that institute employees and committee members might have with entities with financial interests in the stem cell research program, as required by the Political Reform Act and state regulations pertaining to the Fair Political Practices Commission (FPPC).

To supplement the code, the committee also adopted policies designed to ensure that committee members and institute employees avoid conflicts of interest, and that the public views its conduct as open, fair, and free from bias. In addition, the committee adopted conflict-of-interest policies for the working groups that advise and assist it in establishing policies and standards, as well as evaluating grant applications. However, the FPPC has raised questions about the applicability of the Political Reform Act to the institute’s working group members, and improvements were needed in the committee’s conflictof-interest policies, as well as its procedures, to ensure that the policies are followed.

The FPPC Has Questioned the Exclusion of the Working Groups From the Institute’s Conflict-of-Interest Code

The institute formulated and the committee adopted a conflict-of-interest code. With certain exceptions, the institute’s act requires that the committee and the institute comply with the Political Reform Act, which includes the requirement to prepare a conflict-of-interest code. The Political Reform Act also specifies the required contents of such a code. The key requirements are presented in the text box.(See item at the end of this statement.) To provide information on employees designated as decision makers that may affect financial interests and the types of financial interests those designated employees must disclose, government agencies that do not wish to draft their own conflict-of-interest codes may adopt a model code provided by state regulations. This model code may be modified to designate the employees who must disclose financial interests and the extent to which they make disclosures. The committee adopted a modified model code.

The Political Reform Act requires that the institute submit its conflict-of-interest code to the FPPC for review and approval. The FPPC must review the code to determine if it provides reasonable assurance that all foreseeable conflicts of interest will be disclosed or prevented, all affected persons have clear and specific statements of their duties under the code, and the code differentiates between designated employees with different powers and responsibilities. The institute submitted its code to the FPPC in July 2005, and after an exchange of correspondence between the FPPC and the institute, the FPPC approved the institute’s code in May 2006. Subsequent to FPPC approval, the institute submitted the conflict-of-interest code to the Office of Administrative Law for its review and inclusion in state regulations. The Office of Administrative Law approved the institute’s code in September 2006.

However, the FPPC has raised questions about the exclusion of the working groups from the institute’s conflict-of-interest code. The FPPC believes that members of working groups, who perform duties such as advising the committee on standards and policy or evaluating grant applications and making award recommendations to the committee, may need to be included in the conflict-of-interest code. Specifically, the FPPC believes that, under state regulations, working group members may act as decision makers if they make substantive recommendations that are, over an extended period, regularly approved without significant amendment or modification by the committee. Thus, as decision makers, working group members would need to be subject to the conflict-of-interest code. This would mean that working groups would be subject not only to the financial disclosure requirements of the Political Reform Act but also to the prohibition against a member participating in a government decision in which that member has a disqualifying financial interest and may be subject to the penalties that may be imposed on individuals who violate that act.

In response to the FPPC, the institute stated that members of the working groups are not subject to the pertinent requirements because the language in the institute’s act expressly exempts those members from the Political Reform Act, even when the recommendations of a working group are approved over an extended period. Therefore, according to the institute, it is not necessary to engage in ongoing analysis to determine whether, over time, the committee routinely approves the working groups’ recommendations. The FPPC responded that the language of the act “is no basis for exempting working group members from the [Political Reform Act’s] most fundamental disclosure rules if it becomes apparent that the working group’s role in governmental decisions is more than purely advisory.” It concluded that this issue may need to be revisited in the future.

The institute requires working group members to make financial disclosures (as discussed later). However, there are some differences between the Political Reform Act and the institute’s requirements for working group members that would apply if the FFPC’s view were correct. One key difference is that, under the Political Reform Act, the financial disclosures must be made public; the institute’s requirements keep the disclosures private. Also, an individual who is subject to the Political Reform Act may be subject to certain penalties if the individual violates the requirements of that act. As of December 2006, it was too early to assess whether the working groups will make recommendations on grant funding or other substantive recommendations that the committee will accept without significant amendment or modification that might result in a challenge to the institute’s interpretation.

The committee chair commented that the Superior Court of the County of Alameda, when it ruled in May 2006 on the legal challenge to the constitutionality of the institute’s act, considered the question of whether the grants review working group was a decision-making body. The court, based on the evidence presented at trial, including testimony of committee members and the experiences at the one grant award meeting that had been held, concluded that the committee is the “ultimate decision-making body” and not the working group. However, this ruling is not binding as the case is pending appeal.

Our legal counsel advised that, although a court will give deference to the institute’s interpretation of the act, ultimately only a court of law can make the determination of which interpretation is correct. Our legal counsel also noted that other provisions governing conflicts of interest that the act specifically references, and that the institute believes the act also exempts working groups from, may be implicated if the FFPC’s interpretation is correct. For example, California Government Code, Section 1090, prohibits a public official from being financially interested in any contract made in his or her official capacity. Various judicial decisions have held that Section 1090 also applies to those who advise the members of the governing body. The attorney general has opined that an adviser who has a financial interest in a contract or grant must abstain from giving any advice on that matter to avoid a conflict of interest. A violation of Section 1090 may result in a felony conviction and void a contract.

In view of the seriousness of a violation of conflict-of-interest laws and the concerns raised by the FPPC, we believe that it would benefit the institute to seek a formal opinion from the attorney general regarding whether the exemptions created for working groups from conflict-of-interest laws are intended to exempt them from the conflict-of-interest provisions that apply if the recommendations of an advisory body are adopted routinely and regularly by the decision-making body to whom they are made.

Conflict-of-Interest Code as Specified by the Political Reform Act

• Agency positions, known as designated employees, that participate in making decisions that might materially affect their financial interests.

• The types of investments, business positions,real property interests, or sources of income that might be materially affected by decisions made by designated employees. These are considered reportable financial interests.

• Requirements that designated employees periodically file Statements of Economic Interest disclosing their reportable financial interests.

• Specific circumstances that would require designated employees to disqualify themselves from making decisions or influencing the making of decisions. Disqualification is required when a designated employee has a financial interest that could be affected materially by the decision.

The Institute Has Established Processes to Disclose Financial Interests

Committee members and institute employees are requiredto disclose their financial interests, such as investments and incomes, that meet thresholds identified by the Political Reform Act. These financial interests are reported on Statements of Economic Interest, which are public documents. The Political Reform Act sets timelines for public officials to file these forms. Committee members are required to file within 30 days of assuming office, annually thereafter, and within 30 days of leaving office. All committee members and their alternates filed their Statements of Economic Interest from 2004 to 2006. We found 10 occurrences of late filings by members and alternates during 2004 and 2005. The number of late filings decreased to four in 2006.

Institute employees were not required to file their initial Statements of Economic Interest until 30 days after the conflict-of-interest code became effective. However, to promote transparency, the institute asked its employees to file their statements before the required date. After the conflict-of-interest code became effective, institute employees filed their statements again, within the required time frame.

Although the institute maintains that working group members are not subject to the Political Reform Act, the institute’s act requires the committee to adopt conflict-of-interest rules for noncommittee members of the working groups, such as scientists and other experts. These rules must be based on standards applicable to members of scientific review committees of the NIH. NIH standards require reviewers to alert officials to any possible conflict of interest and, before and after every meeting, identify any application on which they have a conflict of interest and certify that they will not be, and have not been, involved in the review of any application in which their participation constituted a conflict of interest.

In response to the act’s requirements, the committee has adopted conflict-of-interest policies modeled after the NIH for its two working groups that review grants. The standards used for the rules of the third working group are described in the next section. In addition, although not required by NIH standards, the noncommittee members of the three working groups are required to file confidential financial disclosure statements signed under penalty of perjury. The institute considers these conflict-of interest policies to be so significant to the public interest that it has submitted them to the Office of Administrative Law to have them included in the institute’s regulations.

During the public comment portion of this rulemaking process, members of the public expressed concern that the act does not preclude the institute from publicly disclosing the working group members’ confidential financial disclosure statements and urged the committee to require public disclosure. The committee disagreed with the suggestion. According to the institute’s president, making the financial disclosure statements public would deter scientists from joining the working groups because grant reviewers feel that a public disclosure is an invasion of their privacy. Further, the institute’s president stated that grant reviewers consider the confidential disclosure statements to be sufficient because they sign them under penalty of perjury, and they believe their work is an act of “good will” because it helps their competitors get funded and because their per diem rate is low.

The financial disclosure statements for working group members require information similar to what is required from the committee members and institute employees, such as sources of income of $5,000 or more from biotechnology and pharmaceutical companies, as well as California-based academic or nonprofit institutions. All noncommittee members of the Scientific and Medical Accountability Standards Working Group (standards working group) and the Scientific and Medical Facilities Working Group (facilities working group) who participated in committee meetings, as well as all the members of the grants review working group who reviewed training grant applications, filed confidential financial disclosure statements, as required.

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Here is what CIRM had to say concerning the recommendation that it seek an attorney general's opinion on its disclosure policies for grant reviewers:


CIRM is committed to ensuring that the evaluation of grant applications is free from both real and apparent conflicts of interests. For this reason, the ICOC has adopted conflict of interest policies for members of the working groups that go beyond the requirements of the Political Reform Act (“PRA”). As the audit notes, however, CIRM disagrees with the FPPC’s opinion that members of CIRM’s working groups might be subject to the PRA at some point in the future.

Although we believe that Proposition 71 clearly exempts the working groups from the Political Reform Act, we understand the merits of seeking an opinion from the office of the Attorney General and we will seriously consider the recommendation to do so. But for the record, it is important to consider what is not in dispute.

First, even under the FPPC’s interpretation of the law, the members of CIRM’s working groups are not currently subject to the PRA’s economic disclosure and disqualification requirements. As the Alameda County Superior Court found, the ICOC made significant changes to the Grants Working Group’s recommendations regarding the training grants. The ICOC, the Court concluded, is the ultimate decision-making body, not the Grants Working Group. Second, as required by Proposition 71, the members of CIRM’s working groups are currently bound by conflict of interest rules adopted by the ICOC. These rules, which are modeled on the National Institutes of Health and National Academies of Science’s conflict provisions, require disclosure and disqualification, but unlike the Political Reform Act, they also extend to “personal” and “professional” conflicts of interest. Because the FPPC’s opinion may lead to the erroneous belief that working group members are not currently subject to conflict of interest rules, or that the PRA’s provisions are stronger than those adopted by the ICOC, we believe a brief discussion of the law and the ICOC’s policies and regulations is warranted.

Health and Safety Code section 125290.50, enacted by Proposition 71, requires the ICOC to adopt conflict of interest rules for the working groups based on standards applicable to members of scientific review committees of the National Institutes of Health (“NIH”) and to appoint an ethics officer from among the staff of the institute. Importantly, it also exempts members of the working groups from the PRA and other Government Code provisions:
“(3) Because the working groups are purely advisory and have no final decisionmaking authority, members of the working groups shall not be considered public officials, employees, or consultants for purposes of the Political Reform Act (Title 9 (commencing with Section 81000) of the Government Code), Sections 1090 and 19990 of the Government Code, and Sections 10516 and 10517 of the Public Contract Code.”

These provisions establish a regime by which the members of the working groups are covered by conflict of interest rules based on the NIH standards as opposed to the PRA. This makes sense for two reasons: First, the working groups are closest to the peer review committees of the National Institute for Health; no similar body exists under state law. Thus, it is logical to look to federal conflict of interest policies as the model for CIRM’s working groups. Second, the PRA would impose narrower conflict of interest rules on the working groups and it would impose such rules only after certain requirements are satisfied, i.e., if a working group makes substantive recommendations that are, and over an extended period of time have been, regularly approved without significant amendment or modification by the ICOC (FPPC Regulation 18701). If these conditions were never met, the working groups would not be subject to PRA conflict of interest rules. Furthermore, because FPPC Regulation 18701 requires an analysis of past conduct, it necessarily draws a line that is visible only after it is crossed.

Section 125290.50 avoids this uncertainty by declaring that the working groups are advisory, exempting them from the PRA, and by imposing separate and more extensive conflict of interest rules on working group members. In so doing, this section ensures that conflict of interest disclosure and disqualification rules are in place from the outset of working groups’ work.

As stated in the audit report, the success of the CIRM research program and its ability to maintain the confidence of the people of California depends critically upon the agency’s ability to fund the highest quality research proposals, chosen without bias. Strong CIRM conflict of interest policies are therefore essential. Thus, the ICOC adopted conflict of interest policies in 2005 to apply to each working group. These rules were inspired by policies of the National Institutes of Health, as required by Health and Safety Code section 125290.50, subdivision (e)(1). The ICOC did not stop there - the ICOC has taken the unprecedented step of codifying these policies in regulations. Unlike the Political Reform Act, these regulations encompass not only financial sources of conflicts but also address professional and personal sources. Thus, the working groups, under Proposition 71 and the policies and regulations adopted by the ICOC, are subject to more stringent rules than nonadvisory public officials under the Political Reform Act.

Moreover, the members of the two grants working groups, research and facilities, undergo a pre and post-award review of their required disclosures and the potential sources of conflict, and attest under penalty of perjury that they have not participated in review of any application for which they might have a conflict of interest. This is not required of any public official under the PRA. CIRM will maintain appropriate records of the disclosures and participation of working group members to make them available for audit AND will report to the Legislature any violations of the rules AND describe corrective actions taken to prevent future occurrences. Neither the report nor corrective action is required under the Political Reform Act.

These regulations strike the proper balance between the privacy of volunteer advisory body members and the public’s desire for information about the individuals. The review by staff and independent auditors, and the records that substantiate those reviews, ensure that the utmost vigilance will be maintained to ensure the integrity of the working groups’ efforts. As a result, the Institute has in place conflict of interest regulations and policies that are stronger than either the PRA or NIH standards.
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Here is what the Court of Appeals had to say regarding decision-making by grant reviewers:

The Council (editor's note: meaning CIRM opponents) contends that if the more general statutory and common law conflict of interest provisions are not applicable to the ICOC members, they should nonetheless apply to members of the grants working group. This argument is based on the incorrect assertion that the grants working group is a decisionmaking rather than an advisory body. However, section 125290.50, subdivision (e)(3) provides that '[b]ecause the working groups are purely advisory and have no final decisionmaking authority, members of the working groups shall not be considered public officials, employees or consultants for purposes of the Political Reform Act' and other conflict of interest statutes.

State Audit: CIRM Likely to Find the Devil in the Details

Dispassionate blandness dominated the report by the California State Auditor on the state's $3 billion stem cell agency, but the details are certain to provide ammunition for the full range of its critics.

The auditors picked apart the two-year-old agency and many of its procedures. Its overall findings seemed reasonable enough that CIRM itself pronounced the report "accurate," "fair" and "valuable." Certainly many of the auditor's findings were to be expected involving the fledgling agency that, in many ways, initially was more like a semi-floundering business startup than a government department.

But the details from the report are likely to be aired with vigor during upcoming public hearings on the billion dollar issues involving who shares the wealth – if any – from state-funded stem cell discoveries – not to mention affordable access to stem cell cures and therapies.

The auditor also raised to a new level long-standing questions – including those by this blog -- about conflicts of interests involving the persons who review tens of millions of dollars in CIRM grant applications.

The auditor recommended that CIRM seek an opinion from the attorney general on its position that grant reviewers do not need to make a public disclosure on their economic interests. The auditor said:

"In view of the seriousness of a violation of conflict-of-interest laws and the concerns raised by the FPPC, we believe that it would benefit the institute to seek a formal opinion from the attorney general regarding whether the exemptions created for working groups from conflict-of-interest laws are intended to exempt them from the conflict-of-interest provisions that apply if the recommendations of an advisory body are adopted routinely and regularly by the decision-making body to whom they are made."

The auditor referred to previously undisclosed exchanges between the Fair Political Practices Commission, which is charged with overseeing the state's economic disclosure laws, and CIRM. The FPPC, the auditor said, believes working group members "may act as decision makers if they make substantive recommendations that are, over an extended period, regularly approved without significant amendment or modification by the (CIRM Oversight) committee." That means that reviewers would have to make a public disclosure of their economic interests.

CIRM says it is consulting with its private attorneys to determine whether to seek an opinion from Attorney General Jerry Brown. (We will have more on this subject in a separate item later today.)

Some of the other details likely to be bandied about publicly involve already-being-corrected contracting procedures that seemed a little fast and loose – our words, not the auditors – along with chauffeured vehicles, lunches that cost $36, dinners that cost $65 and pricey air travel.

But the big money issues – perhaps running into billions of dollars - surround formulation of CIRM's intellectual property rules -- sharing the profits from stem cell therapies and cures, as well providing affordable access to those therapies and cures.

The subject is known as IP. CIRM has spent many months wrestling with the issue, trying to come up with solid, well-supported policies. Its IP meetings have been sparsely attended even by institutions and businesses that would be deeply affected by CIRM's decisions. The public has been invisible along with the media, for the most part. Often times because of its unique nature, CIRM ventured into an IP wilderness where no trail guides existed.

Auditors complained of the lack of documentation for CIRM's existing policies. For example, the report said, "The vice chair and his deputy could not provide adequate documentation to demonstrate why the 25 percent (royalty) figure is an appropriate payment from nonprofit organizations. As such, they also could not demonstrate that 17 percent is an appropriate payment from for-profit grantees."

At another point, the auditor remarked on the fraility of notes in scores of interviews conducted by CIRM staff involving IP, saying, "Most of the information in the notes consisted of stand-alone sentences and references with very little or no context."

And there was more. This is what auditors do. They pick apart material that was often gathered not knowing that it would be subject to such exquisite scrutiny. Newspaper reporters sometimes find themselves in a similar situation involving their notes and stories when litigation comes up, as the news gatherers testifying in the Libby trial in Washington, D.C., recently learned.

Nonetheless, it will all be fodder as hearings begin later this year on IP legislation (SB771)by Sen. Sheila Kuehl, D-Santa Monica, chair of the Senate Health Committee. Her position is that CIRM has not done enough to ensure a return to the state and to provide affordable access. The auditor's report will fit neatly into her arguments.

From CIRM's perspective, the auditor's report could have been worse, and it could have been better. CIRM's formal response embodied in the report was tactful and appropriate. The audit offers a road map to improvements, many of which CIRM already knew needed to be made. But an outside voice can provide the sharp prod to ensure that they are accomplished.

State Auditor Releases CIRM Report

The California State Auditor this morning released its report on the California stem cell agency. Here is its summary of the highlights. We will have more on this later today. The full report can be found here.

"The institute identified long-term research priorities and considered the industry's best practices to create its strategic plan, but it has yet to implement a process to assess annual progress toward attaining its strategic goals.

"A task force formulated draft policies for revenue sharing through a public deliberative process but, because of a lack of documentation, we could not independently evaluate any analyses of the information on which the task force members based their revenue-sharing policies.

"Although it has a grants administration policy for academic and nonprofit institutions, the institute is still developing a for-profit policy and is still implementing a monitoring process to ensure that grantees comply with the terms of their grants.

"The institute's recent policy revisions addressed our contracting concerns, but not all of our travel reimbursement concerns.

"The salary survey conducted by the institute and the compilation of the salary data collected contained enough errors, omissions, and inconsistencies that the institute cannot ensure that the salaries for certain positions comply with the requirements of the law."

Full Text of CIRM Ruling

Here is a link to the full text of the appellate court decision which Wired blogger Kristen Philipkoski supplied on her "Bodyhack" site.

AP Story on Appellate Ruling

Here is a link to the story by reporter David Kravetz of The Associated Press on today's court decision in the California stem cell lawsuit.