Kessler Fired at UCSF, No Longer Can Serve at CIRM

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

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

The note said,

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

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

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

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

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

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

Correction

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

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

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

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

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

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

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

In response to a query, he said,

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

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

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

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

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

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

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

Murphy on CIRM: The Long Trek and Growing Pains

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wired.com, CIRM Meetings and Coverage

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CIRM Directors Mull Conflict Flap

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Names of Faculty Award Recipients

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

CIRM Hands Out $54 Million to Researchers

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

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

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

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

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

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

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

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

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

Reed Recuses Himself from CIRM

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

Here is the full text of CIRM's announcement.

CIRM Comment on Dr. John Reed’s Recusal Announcement

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

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

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

Conflict Flap Dogs California Stem Cell Directors

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

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

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

The Sacramento Bee editorialized Tuesday:

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

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

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

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

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

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

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

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

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

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

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

Prieto said,

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

Lawmakers: CIRM Proposal for Affordable Access Not Good Enough

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

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

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

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

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

Text of Lawmakers Letter

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

Dear Mr. Klein:

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

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

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

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

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

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

Sincerely,

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

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

Biotech Loan Program Slated for March Approval

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

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

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

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

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

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

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

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

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

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

Coming Up

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

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

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

Here is the response from CIRM General Counsel Tamar Pachter:

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

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

Victims and Scapegoats: Focusing on the Facts

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

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

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

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

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

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

The Cost of Tin Ears and Missed Opportunities

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

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

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

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

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

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

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

Here is how the events played out.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fresh Comment

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

Correction

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

Coming Up

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