California Stem Cell Agency Boosting Disease Team Program to $543 Million

Directors of the California stem cell agency are set to give away $20 million next Thursday and authorize a handsome addition to their signature disease team effort, bringing its total to $543 million.

It is all part of the $3 billion agency's push to develop therapies prior to running out of money for new grants in 2017.

The $20 million is expected to go to the first two winners in the agency's new strategic partnership program. CIRM says the effort is aimed at creating “incentives and processes that will: (i) enhance the likelihood that CIRM funded projects will obtain funding for Phase III clinical trials (e.g. follow-on financing), (ii) provide a source of co-funding in the earlier stages of clinical development, and (iii) enable CIRM funded projects to access expertise within pharmaceutical and large biotechnology partners in the areas of discovery, preclinical, regulatory, clinical trial design and manufacturing process development.”

CIRM reviewed six applications with two winning approval. The agency's governing board is expected to ratify the decision next week. None of the applicants have been identified by the agency, which routinely withholds that information prior to board action even when applicants have identified themselves.

Addition of a new $100 million disease team round will come on top of the second, $213 million disease team awards approved last this summer. The first round, awarded in 2009, totaled $230 million.  The size of the new round could be altered by CIRM directors prior to approval. Also before the board is a $40 million proposal to expand the industry-friendly strategic partnership effort into a second round.

The thrust of the disease team effort is to speed the process of establishing clinical trials and to finance efforts that might founder in what the biotech industry calls a valley of death – a high risk financial location, so to speak, where conventional financiers fear to tread.

The new disease team round will require “co-funding” from applicants but the agency did not specify what it means by the term. The matter of matching funds has become an issue in awards to StemCells, Inc., of Newark, Ca., in this summer's disease team round.

Next week's agenda additionally contains a plan to tighten review of proposed research budgets in grant applications, making it clear that CIRM staff will be negotiating such matters even after the board approves grants and loans.

So far no researchers have testified in public on the budget plan although it could well have a significant impact on their future efforts.

Additional matters will discussed as well at the meeting in Burlingame, which also has a teleconference location in La Jolla that will be open to the public. The address and additional material can be found on the agenda.  

Los Angeles Times: StemCells, Inc., Award 'Redolent of Cronyism'

The Los Angeles Times this morning carried a column about the “charmed relationship” between StemCells, Inc., its “powerful friends” and the $3 billion California stem cell agency.

The article was written by Pulitzer prize winner and author Michael Hiltzik, who has been critical of the agency in the past. The piece was the first in the major mainstream media about a $20 million award to StemCells, Inc., that was approved in September by the agency's board. The bottom line of the article? The award was “redolent of cronyism.”

Hiltzik noted that StemCells, Inc., now ranks as the leading corporate recipient of cash from the agency with $40 million approved during the last few months.

But he focused primarily on September's $20 million award, which was approved despite being rejected twice by grant reviewers – “a particularly impressive” performance, according to Hiltzik. It was the first time that the board has approved an award that was rejected twice by reviewers.

Hiltzik wrote,

“What was the company's secret? StemCells says it's addressing 'a serious unmet medical need' in Alzheimer's research. But it doesn't hurt that the company also had powerful friends going to bat for it, including two guys who were instrumental in getting CIRM off the ground in the first place.”

The two are Robert Klein, who led the ballot campaign that created the agency and became its first chairman, and Irv Weissman of Stanford, who co-founded StemCells, Inc., and sits on its board. Weissman, an internationally known stem cell researcher, also was an important supporter of the campaign, raising millions of dollars and appearing in TV ads. Klein, who left the agency last year, appeared twice before the CIRM board this summer to lobby his former colleagues on behalf of Weissman's company. It was Klein's first appearance before the board on behalf of a specific application.

The Times piece continued,

“But private enterprise is new territory for CIRM, which has steered almost all its grants thus far to nonprofit institutions. Those efforts haven't been trouble-free: With some 90% of the agency's grants having gone to institutions with representatives on its board, the agency has long been vulnerable to charges of conflicts of interest. The last thing it needed was to show a similar flaw in its dealings with private companies too.”

Hiltzik wrote,

“(Weissman) has also been a leading beneficiary of CIRM funding, listed as the principal researcher on three grants worth a total of $24.5 million. The agency also contributed $43.6 million toward the construction of his institute's glittering $200-million research building on the Stanford campus.”

CIRM board approval of the $20 million for StemCells, Inc., came on 7-5 vote that also required the firm to prove that it had a promised $20 million in matching funds prior to distribution of state cash.

Hiltzik continued,

“The problem is that StemCells doesn't have $20 million in spare funds. Its quarterly report for the period ended June 30 listed about $10.4 million in liquid assets, and shows it's burning about $5 million per quarter. Its prospects of raising significant cash from investors are, shall we say, conjectural.

“As it happens, within days of the board's vote, the firm downplayed any pledge 'to raise a specific amount of money in a particular period of time.' The idea that CIRM 'is requiring us to raise $20 million in matching funds' is a 'misimpression,' it said. Indeed, it suggested that it might count its existing spending on salaries and other 'infrastructure and overhead' as part of the match. StemCells declined my request that it expand on its statement. 

“CIRM spokesman Kevin McCormack says the agency is currently scrutinizing StemCells' finances 'to see what it is they have and whether it meets the requirements and expectations of the board.' The goal is to set 'terms and conditions that provide maximum protection for taxpayer dollars.' He says, 'If we can't agree on a plan, the award will not be funded.'"

Hiltzik wrote,

“The agency shouldn't be deciding on the spot what does or doesn't qualify as matching funds. It should have clear guidelines in advance.

“Nor should the board overturn the judgment of its scientific review panels without clear-cut reasons....The record suggests that the handling of the StemCells appeal was at best haphazard and at worst redolent of cronyism.” 

Researcher Alert: Stem Cell Agency to Take Up Grant Appeal Restrictions

The move by the $3 billion California stem cell agency to curtail its free-wheeling grant appeal process will undergo its first public hearing next week.

The proposals will mean that scientists whose applications are rejected by reviewers will have fewer avenues to pursue to overturn those decisions. The changes could take effect as early as next year.

The move comes in the wake of a record number of appeals this summer that left the board complaining about “arm-twisting,” lobbying and “emotionally charged presentations.”

Among other things, the new "guidelines" attempt to define criteria for re-review – “additional analysis” – of applications involved in appeals, also called “extraordinary petitions.” The plan states that re-review should occur only in the case of a material dispute of fact or material new information. (See the end of this item for agency's proposed definitions.)

In addition to alterations in the appeal process, the CIRM directors' Application Review Task Force will take up questions involving “ex parte communications.” The agenda for the Oct. 24 meeting did not contain any additional information on the issue but it likely deals with lobbying efforts on grants outside of public meetings of the agency. We understand that such efforts surfaced last summer involving the $$214 million disease team round and Robert Klein, the former chairman of the stem cell agency.

Klein appeared twice publicly before the board on one, $20 million application by StemCells, Inc., the first time a former governing board member has publicly lobbied his former colleagues on an application. The application was rejected twice by reviewers – once on the initial review and again later on a re-review – but it was ultimately approved by directors in September on a 7-5 vote.

The board has long been troubled with its appeal process but last summer's events brought the matter to a new head. The issue is difficult to deal with because state law allows anyone to address the CIRM governing board on any subject when it meets. That includes applicants who can ask the board to approve grants for any reason whatsoever, not withstanding CIRM rules. The board can also approve a grant for virtually any reason although it has generally relied on scientific scores from reviewers.

The proposals to restrict appeals are designed to make it clear to scientists whose applications are rejected by reviewers that the board is not going to look with favor on those who depart from the normal appeals procedure.

While the board almost never has overturned a positive decision by reviewers, in nearly every round it  approves some applications that have been rejected by reviewers. That has occurred as the result of appeals and as the result of motions by board members that did not result from public appeals.

Ten of the 29 board members are classified as patient advocates and often feel they must advance the cause of the diseases that they have been involved with. Sometimes that means seeking approval of applications with low scientific scores.

Here is how agency proposes to define “material dispute of fact:”

“A material dispute of fact should meet five criteria:(1) An applicant disputes the accuracy of a statement in the review summary;(2) the disputed fact was significant in the scoring or recommendation of the GWG(grant review group); (3) the dispute pertains to an objectively verifiable fact, rather than a matter of scientific judgment or opinion;(4) the discrepancy was not addressed through the Supplemental Information Process and cannot be resolved at the meeting at which the application is being considered; and (5) resolution of the dispute could affect the outcome of the board’s funding decision."

Here is how the agency proposes to define “material new information:”

“New information should: (1)be verifiable through external sources; (2) have arisen since the Grants Working Group(grant review group) meeting at which the application was considered; (3) respond directly to a specific criticism or question identified in the Grants Working Group’s review; and (4) be submitted as part of an extraordinary petition filed five business days before the board meeting at which the application is being considered."

Next week's hearing is scheduled for Children's Hospital in Oakland with a teleconference location at UC Irvine. Addresses can be found on the agenda.

Yamanaka and the Frailty of Peer Review

More than one back story exists on Shinya Yamanaka and his Nobel Prize, but one that has received little attention this week also raises questions about hoary practice of peer review and publication of research – not to mention the awarding of billions of dollars in taxpayer dollars.

The Yamanaka tale goes back to a 2010 article in the New Scientist magazine by Peter Aldous in which the publication examined more than 200 stem cell papers published from “2006 onwards.” The study showed an apparent favoritism towards U.S. scientists. Also specifically reported were long delays in publication of Yamanaka's papers, including in one case 295 days.

Here is part of what Aldous wrote,

“All's fair in love and war, they say, but science is supposed to obey more noble ideals. New findings are submitted for publication, the studies are farmed out to experts for objective 'peer review' and the best research appears promptly in the most prestigious journals. 

“Some stem cell biologists are crying foul, however. Last year(2009), 14 researchers in this notoriously competitive field wrote to leading journals complaining of "unreasonable or obstructive reviews". The result, they claimed, is that 'publication of truly original findings may be delayed or rejected.' 

“Triggered by this protest, New Scientist scrutinised the dynamics of publication in the most exciting and competitive area of stem cell research, in which cells are 'reprogrammed' to acquire the versatility of those of an early-stage embryo. In this fast-moving field, where a Nobel prize is arguably at stake, biologists are racing feverishly to publish their findings in top journals. 

“Our analysis of more than 200 research papers from 2006 onwards reveals that US-based scientists are enjoying a significant advantage, getting their papers published faster and in more prominent journals (find our data, methods and analyses here). 

“More mysterious, given his standing in the field, is why two of Yamanaka's papers were among the 10 with the longest lags. In the most delayed of all, Yamanaka reported that the tumour-suppressing gene p53 inhibits the formation of iPS cells. The paper took 295 days to be accepted. It was eventually published by Nature in August 2009 alongside four similar studies. 'Yamanaka's paper was submitted months before any of the others,' complains Austin Smith at the University of Cambridge, UK, who coordinated the letter sent to leading journals. 

“Yamanaka suggests that editors may be less excited by papers from non-US scientists, but may change their minds when they receive similar work from leading labs in the US. In this case, Hochedlinger submitted a paper similar to Yamanaka's, but nearly six months after him. Ritu Dhand, Nature's chief biology editor, says that each paper is assessed on its own merits. Hochedlinger says he was unaware of Yamanaka's research on p53 before publication.”

Last week, Paul Knoepfler of UC Davis wrote of other issues dealing with peer review, but coincidentally also dealing with iPS cells. What New Scientist and Knoepfler are discussing is not an isolated situation. It is part of a continuum of complaints, both serious and self-interested but exceedingly pervasive. A Google search today on the term “problems with peer review” turned up 10.1 million references.  Writing on Ars Technica last year, Jonathan Gitlin, science policy analyst at the National Human Genome Research Institute,  summarized many of the issues, citing a “published” (our quotation marks) study that said peer review doesn't work “any better than chance.” Gitlin said,

“A common criticism is that peer review is biased towards well-established research groups and the scientific status quo. Reviewers are unwilling to reject papers from big names in their fields out of fear, and they can be hostile to ideas that challenge their own, even if the supporting data is good. Unscrupulous reviewers can reject papers and then quickly publish similar work themselves.” 

At the $3 billion California stem cell agency, peer review is undergoing some modest, indirect examination nowadays. The agency is moving towards tighter scrutiny of budgets proposed by applicants. And, following a record wave of appeals this summer by disgruntled applicants rejected during peer review, it is also moving to bring the appeal process under more control.

As the agency tries to move faster and more successfully towards development of commercial therapies, it may do well to consider also the frailties of its peer review process and the perils of scientific orthodoxy.   

Yamanaka: 'Rejected, Slow and Clumsy'

This week's announcement of the Nobel Prize for Shinya Yamanaka brought along some interesting tidbits, including who was “snubbed” as well as recollections from the recipient.

Jon Bardin of the Los Angeles Times wrote the “snubbed” piece and quoted Christopher Scott of Stanford and Paul Knoepfler of UC Davis about the selection issues. Bardin's piece mentioned Jamie Thomson and Ian Wilmut as scientists who also could have been considered for the award but were not named. Ultimately, Bardin wrote that the award committee was looking for a “singular, paradigm shifting discovery,” which he concluded was not the case with Thomson or Wilmut.

How Yamanaka arrived at his research was another topic in the news coverage, much of it dry as dust. However, Lisa Krieger of the San Jose Mercury News began her story with Yamanaka's travails some 20 years ago. At the time, no one was returning his phone calls as he looked for work, and he was rejected by 50 apparently not-so-farsighted American labs.

But that job search in 1993 came only after Yamanaka decided he was less than successful as an orthopedic surgeon, according to an account in JapanRealTime. “Slow and clumsy” was how Yamanaka described himself.

And so he moved on to research. But again he reported stumbling. In this case, he found a way to reduce “bad cholesterol” but with a tiny complication – liver cancer. That in turn sent him on a journey to learn how cells proliferate and develop, which led him to the work that won the Nobel Prize.

Yamanaka said his original interest in orthopedic medicine was stimulated by his father along with the treatments for injuries young Yamanaka received while playing rugby and learning judo. The JapanRealTime account continued,

“'My father probably still thinks in heaven that I’m a doctor,' he said in the interview(with Asahi Shimbun last April). 'IPS cells are still at a research phase and have not treated a single patient. I hope to link it to actual treatment soon so I will be not embarrassed when I meet my father someday.'”

And then there was, of course, the much-repeated story from the researcher who shared the Nobel with Yamanaka, John Gurdon. He has preserved to this day a report from a high school biology teacher that said the 15-year-old Gurdon's desire to become a scientist was “quite ridiculous.” The teacher, who is unnamed, wrote,

“If he can’t learn simple biological facts he would have no chance of doing the work of a specialist, and it would be a sheer waste of time, both on his part and of those who would have to teach him.”

Tighter Controls on Stem Cell Grant Budgets Hits Quorum Bump

SAN FRANCISCO – A move to tighten budget controls on grants from the $3 billion California stem cell agency stalled Monday, but it appears that the plan is headed for ultimate approval.

The proposal was up for consideration by the agency's directors' Science Subcommittee, which could not act on it after it lost its quorum.

Members of the panel generally favored the stronger budget controls, but had questions about the specifics of implementing the plan during closed-door reviews of grant applications. The proposal is likely to be altered to respond to those concerns. It would then either come back to the Science Subcommittee or go to the full board.

The plan would make it clear to recipients of large grants that approval of an application by the agency's governing board does not provide a carte blanche to researchers. Ellen Feigal, senior vice president for research and development, said it can be “extremely difficult” for CIRM staff to deal with budget problems in grants following board approval.

The committee also approved a plan to speed the application process on its next disease team round, which is aimed at driving research into the clinic. The concept proposal for that round is scheduled to come before directors later this month. The round will be limited to “more mature stage” research that is close to a clinical trial, if not in one. Feigal said 10 to 15 applications are expected.

Another proposal to add more millions to CIRM's strategic partnership program was also approved.

Yamanaka and the Golden State

The iPierian biopharmaceutical company in South San Francisco was quick to make a change in its web site this morning after the Nobel Prize for medicine was announced.

Altered was the bio for one of its scientific advisors, Shinya Yamanaka, to note that he had won the Nobel. The bio is tucked away on the site, but it is likely that the company, which specializes in iPS work, will figure out how to put the news out front on its home page as well as issue a press release.

It was all part of the reaction today in California to the Nobel for Yamanaka, who has substantial links to the Golden State, including UCSF and the Gladstone Institutes.

Both enterprises moved with greater deftness than iPierian. Yamanaka is a professor at UCSF and a senior investigator at Gladstone, and the organizations quickly put together a news conference this morning that featured Yamanaka on a video hook-up from Japan.

UCSF, which is allied with Gladstone, issued a press release that quoted the president of Gladstone, R. Sanders Williams, who also mentioned the California stem cell agency. Williams said,

“Dr. Yamanaka’s story is a thrilling tale of creative genius, focused dedication and successful cross-disciplinary science. These traits, nurtured during Dr. Yamanaka’s postdoctoral training at Gladstone, have led to a breakthrough that has helped propel the San Francisco Bay Area to the forefront of stem cell research. Dozens of labs — often supported by organizations such as the California Institute for Regenerative Medicine (CIRM) and the Roddenberry Foundation–have adopted his technology.” 

CIRM, which is the state's $3 billion stem cell effort, published an item on its blog quoting CIRM President Alan Trounson. He said,

"There are few moments in science that are undisputed as genuine elegant creativity and simplicity. Shinya Yamanaka is responsible for one of those. The induced pluripotent stem cells he created will allow us to interrogate and understand the full extent and variation of human disease, will enable us to develop new medicines and will forever change the way science and medicine will be conducted for the benefit of mankind. An extraordinary accomplishment by a genuinely modest and brilliant scientist. He absolutely deserves a Nobel award.”

The CIRM item by Amy Adams, the agency's communications manager, said that just five years after Yamanaka's research,

“CIRM alone is funding almost $190 million in awards developing better ways of creating iPS cells and using those cells to develop new therapies (the full list of iPS grants is on our website).”

One of the recipients of CIRM's iPS cash is the well-connected iPierian, which has taken in $7.1 million. Yamanaka, however, has never received a grant from the agency, and it is not known whether he ever applied since CIRM releases only the names of researchers whose applications were approved.

Stem Cell Orthodoxy and Peer Review

Going against the grain can be difficult as UC Davis stem cell scientist Paul Knoepfler learned again in connection with his research that dealt with similarities between cancer and iPS cells.

His “unsettling” findings troubled some scientists who reviewed his paper prior to its publication in September in Stem Cells and Development. (See here and here.)

As many readers know, iPS or reprogrammed adult cells are currently a hot research avenue in stem cell research because they avoid many of the ticklish ethical and political problems connected with human embryonic stem cells.

Knoepfler shared his thoughts on the publication and peer review process on his blog last week. He wrote,

“Not surprisingly...there are certain members of the stem cell field who would rather focus away from the ideas that iPS cells are similar in some respects to cancer.”

Knoepfler, whose research was financed in part by the California stem cell agency, wrote,

“Once we had a manuscript together comparing iPS cells to cancer cells, we sent it to several high profile journals without much luck. We thought that the fact that our data indicated that iPS cells are similar to cancer cells might make reviewers and editors excited. We thought that the paper was novel and thought provoking in a number of ways. At the same time I realized the theme of the paper would be controversial. 

“I would say two general things about the review process at the two journals that turned down the paper. First, the reviewers at these journals were enormously helpful with their suggestions and helped us improve the paper substantially. Second, they were clearly very uncomfortable with the notion that iPS cells are related in some ways to cancer so unsettled in fact that I believe it influenced their reviews.”

At one journal, a reviewer said the findings were either “not sufficiently novel” or “trivial.” “Little useful insights” said another. And a third said, “many unsettling results....”

Knoepfler commented on this blog,

“Yeah, it may be unsettling that iPS cells share traits with cancer cells, but if that is the reality, isn’t it important that people know that and think about it, talk about it, and address the issue with eyes open?”

Knoepfler's item and similar comments from other researchers that can found elsewhere on the Internet indirectly raise questions about the California stem cell agency's process of peer review of applications for hundreds of millions of dollars in funding, especially in the wake of this summer's unprecedented rash of appeals of decisions by grant reviewers.

The key question is whether the agency's closed-door process reinforces orthodoxy or, in fact, is all but controlled by what amounts to scientific conventional wisdom. Obviously, no researcher likes to see a paper rejected or a grant denied. But the record number of appeals at CIRM and other private complaints could well indicate that potentially profitable proposals are receiving a less than welcome reception behind closed doors from agency reviewers.

The agency's board itself is hard-pressed to make such determinations. It is hamstrung by procedures that do not permit it to expand an application directly – only a staff-written summary. Names of applicants and institutions are censored, although the board is required by law to discuss in public most aspects of a research proposal. Exceptions are permitted for proprietary information. Additionally, a handful of the 29 members of the governing board do participate in the reviews, which come before final action by the board. 

Currently the agency is pushing hard to commercialize stem cell research and fulfill at least some of the promises to voters that were made in 2004. To do that, the agency may well have to step outside of the normal comfort zone of the good burghers of stem cell science.

Researcher Alert: California Stem Cell Agency Tightening Budget Oversight on Grants

Some of California's top stem cell researchers are going to have to sharpen their spreadsheets if they want to win money from the state's $3 billion stem cell agency.

The agency is moving to beef up scrutiny of the high-profile, big-ticket grant applications that it will consider during the next several years. The effort may well extend to all grant programs. The move also makes it clear to researchers that the CIRM staff is in the driver's seat when it comes to budgeting on research projects.

The plan was laid out this week in a memo to directors of the California Institute for Regenerative Medicine (CIRM) by Ellen Feigal, the agency's senior vice president for research and development. She said,

“Increasing the importance of budgetary review will encourage applicants to propose rigorous, realistic and vetted budgets, and will further our mission to be good stewards of taxpayer dollars. These additions will not significantly increase the workload burden on GWG members (grant reviewers) and explicitly acknowledge that program goals, scientific plans, accurate budgeting and prudent spending are inextricably linked.”

The proposal comes before the CIRM directors' Science Subcommittee next Monday and would alter the closed-door grant review process in the following manner, according to Feigal's memo.

• “To assist GWG review, appropriate expertise on budget and financial matters (e.g., this could be in the form of a specialist reviewer, or can also be assigned to a GWG reviewer with the appropriate background and expertise), will review applications for sound budgeting and provide comments or questions to the GWG for consideration by the reviewers before the reviewer’s final scores are entered.
• “If the financial/budgetary matter potentially directly impacts on the design or feasibility of conducting the project, the GWG may consider this issue in the scoring; otherwise, budgetary and financial issues and questions will not contribute to the scientific score.
• “As appropriate, review summaries sent to the ICOC (the CIRM governing board) will identify scientific as well as budget or other issues. To the extent endorsed by the GWG, the review summaries will also identify potential resolution should the ICOC approve a given award with budget issues.
• “CIRM officers should be provided explicit discretion to consider the budget comments, as well as budget or other issues. To the extent endorsed by the GWG, the review summaries will also identify potential resolution should the ICOC approve a given award with budget issues.”

Feigal's memo clearly indicates that CIRM staff has experienced push-back from recalcitrant researchers when efforts have been made to bring costs under control. She noted that the agency's staff examines a research project's budget during the “prefunding” review that follows board approval. However, Feigal said, at that stage, “It is often challenging to make substantive changes to the budget, based on appropriateness of study activities and costs, given the ICOC approval at a given budget amount.”

The agency has already examined some budgets prior to board approval. One grant review in a $200 million-plus round this summer, for example, declared that costs to prepare regulation packages had “overlap” and were “excessive,” along with costs dealing with manufacturing and per patient expenses. That was for a high-scoring application by Antoni Ribas of UCLA, and he was not alone.

In her memo, Feigal listed other cases of budgetary shortcomings in recent applications:,

• “Budget does not align with the program deliverables and milestones. For example, the budget includes activities not relevant to project objective(s) or that are out of scope.
•”Budget does not contain adequate expenses for known costs. For example, an applicant may budget $100,000 for a GMP manufacturing run of a biologic in which it is generally accepted knowledge that the actual expenses are typically much greater.
•“Budget item significantly exceeds a known cost or seems excessive without adequate justification. For example, an applicant may propose a surgical expense of $100,000 per patient for a procedure with Medicare reimbursement set at $15,000.
•“Cost allocations are not done properly. For example, an applicant is developing the same therapeutic candidate for 3 indications, and is applying for CIRM funding for 1 of the 3, but is charging CIRM for the cost of the entire manufacturing run.”

Initially, the budgetary review would be used in disease team, early translational, strategic partnership rounds, and any new rounds “as deemed appropriate.” Feigal said, however, that “all applications for CIRM awards should be carefully examined for budgetary appropriateness.”

Our take: This seems to be a well-advised move, albeit one that is not likely to find favor with researchers accustomed to loose oversight. It moves budgetary review to an earlier stage and gives the CIRM directors a chance to weigh in on those matters prior to approval of grants, instead of creating a sense of entitlement on the part of recipients that may pop up following board approval of their applications. Indeed, the plan makes such good sense that it raises the question why it was not in place years ago.

A final note: Feigal's memo is an excellent example of the type of information that clarifies issues and helps CIRM directors make the best possible decisions. It provides some history, good evidence for a change and an explanation of benefits. Additionally, the memo is timely, having been posted on the CIRM website sufficiently in advance of next week's meeting to give affected parties and others time to comment and make constructive suggestions. The memo is also far superior to the Power Point presentations that are often submitted to the board minus any nuanced, written discussion of the issue at hand.

Next week's meeting will be based in San Francisco but also has teleconference locations in Irvine (2), La Jolla, Stanford, Pleasanton, Oakland and Los Angeles where the public and researchers can participate. The specific addresses can be found on the agenda.

UCD's Knoepfler's 'Somewhat Provocative Paper' on iPS

UC Davis researcher Paul Knoepfler is the rare stem cell scientist who blogs about his work as well as writing about issues in the field.

Over the weekend, he posted an item on what he described as a “somewhat provocative paper” published by his lab in “Stem Cells and Development.”  He said the paper argued that iPS cells “are very similar in some ways to cancer cells.”

Most of his item deals with the technical details and background of the research. But at the end of this item, Knoepfler wrote,

“So what does this mean in the big picture? 

“I believe that iPS cells and cancer cells are, while not the same, close enough to be called siblings. As such, the clinical use of iPS cells should wait for a lot more study. Even if scientists do not use iPS cells themselves for transplants, but instead use differentiated derivatives of iPS cells, the risk of patients getting malignant cancers cannot be ignored. 

“At the same time, the studies suggest possible ways to make iPS cells safer and support the notion of reprogramming cancer cells as an innovative new cancer therapy. 

“Stay tuned in the next few days for part 2 where I will discuss what this paper went through in terms of review, etc. to get published. It wasn’t a popular story for some folks.”

The UC Davis press release on the research, which was financed by the California stem cell agency and the NIH,  was picked up by several online sites, including Redorbit, Medicalexpress and geekosystem.

Fortune Magazine on California Stem Cell Agency: Warm, Personal and Favorable

California's $3 billion stem cell research effort today garnered a handsome dollop of favorable national news coverage– a lengthy piece in Fortune magazine that spoke of looming stem cell cures and the leading role of the state stem cell agency.

The article led the Fortune web page online at one point this morning and likely will be read by tens of thousands of persons, although it was not the cover story on the print product. 

Written by a former senior editor of the magazine, Jeffrey O'Brien of Mill Valley, Ca., the piece was warm and personal. He began with the story of his 95-year-old grandmother and her health issues, ranging from arthritis to macular degeneration. And he wrote,

“The citizens of California have spoken. If my grandmother and I had the power to get the rest of the country to follow, we would.”

O'Brien also discussed the science and finances of the stem cell business. He said,

“To be clear, the earliest stem cell therapies are almost certainly years from distribution. But so much progress has been made at venerable research institutions that it now seems possible to honestly discuss the possibility of a new medical paradigm emerging within a generation. Working primarily with rodents in preclinical trials, MDs and Ph.D.s are making the paralyzed walk and the impotent virile. A stem cell therapy for two types of macular degeneration recently restored the vision of two women. Once they were blind. Now they see!

“Some experts assert that AMD could be eradicated within a decade. Other scientists are heralding a drug-free fix for HIV/AIDS. Various forms of cancer, Parkinson's, diabetes, heart disease, stroke, and ALS have already been eradicated in mice. If such work translates to humans, it will represent the type of platform advancement that comes along in medicine only once in a lifetime or two. The effect on the economy would be substantial. Champions of stem cell research say it would be on the order of the Internet or even the transistor.”

O'Brien continued,

“The obstacles along the road from lab rat to human patients are many, of course, but the biggest by far is money. With the dramatic events in the lab, you might think that a gold rush would be under way. That's far from true. Long time horizons, regulatory hurdles, huge R&D costs, public sentiment, and political headwinds have all scared financiers. Wall Street isn't interested in financing this particular dream. Most stem cell companies that have dared go public are trading down 90% or more from their IPOs. Sand Hill Road is AWOL. The National Venture Capital Association doesn't even have a category to track stem cell investments.”

As for the California stem cell agency itself, the article contained remarks from its Chairman J.T.Thomas, President Alan Trounson and former chairman Robert Klein about the origins and progress of the California Institute for Regenerative Medicine (CIRM).

O'Brien wrote, 

“The $1.7 billion awarded so far has made one obvious mark on the state: a dozen gleaming research institutions. CIRM has proved adept at getting billionaires to donate funds to the cause.”

O'Brien interviewed a several prominent businessmen who have contributed tens of millions of dollars to stem cell research “about the prospects of a legitimate industry emerging.” One was “bond genius” Bill Gross, who has contributed to UC Irvine. Gross replied.

“Goodness, you're talking to the wrong guy. Our donation had nothing to do with business.”

Eli Broad, another big stem cell donor, said pretty much the same thing. And Andy Grove, the former chairman of Intel, was “surprisingly full of doom and gloom.” O'Brien wrote,

“For close to two hours, Grove argues passionately about how the FDA is enabling predatory offshore industries by impeding progress and the many reasons financiers want no part of stem cells. "VCs aren't interested because it's a shitty business," he says. Big Pharma? Forget it. CIRM? "There are gleaming fucking buildings everywhere. That wasn't necessary." When I press him to be constructive, he wearily offers one possible solution. Rather than courting billionaires to put their names on buildings, we need a system of targeted philanthropy in which the 99% can sponsor the individual stem cell lines that matter to them.”

O'Brien said, however,

“It was clear during our talk that Grove wants an economic model for stem cell research and development to emerge, even if he's not willing to bet money on its happening. And that puts him in good company.”

While the Fortune article has its negative points about stem cell research, it is about as laudatory as it is going to get at this point for the California stem cell agency. The piece recognizes and even celebrates much of the work of the agency. The article clearly details the void in financing for commercialization of stem cell research, bolstering support for efforts like those in California. Importantly, it also helps to push the activities of the stem cell agency more fully into the national discussion of stem cell research and its future. That should pay off again and again in future news coverage and also benefit the stem cell agency as it explores the possibility of additional funding – either private or public – after the cash for new awards runs out in 2017.

(The story is in the Oct. 8, 2012, edition of Fortune.)

$700,000 Blue-ribbon Study of CIRM All But Finished

The $700,000 study of the $3 billion California stem cell agency is nearly concluded and is expected to be released sometime in November.

A draft of the report has been sent out for “peer review” and no additional public meetings are scheduled, according to a spokeswoman for the Institute of Medicine(IOM), which is conducting the study. The IOM did not respond to questions from the California Stem Cell Report about the number of peer reviewers or how they were selected.

The study began last year under a contract with the stem cell agency, which commissioned the effort, in part, because agency directors hoped the findings by the blue-ribbon panel would bolster efforts to win voter approval of another multi-billion dollar state bond issue. More recently the agency has explored the possibility of private financing to continue operations.

The agency is expected to run out of funds for new awards in 2017. It currently has something in the neighborhood of $700 million for awards that is not already committed in one fashion or another.

Christine Stencel, senior media relations officer for the IOM, said in an email,

“There will be no further information-gathering meetings. The committee members have finished drafting their report and it is now undergoing peer review. Reviewers are anonymous to study staff and committee members; they will be listed in the front matter of the report when it’s finished and released.”

She said the stem cell agency will not be given an opportunity to comment further. Stencel said,

“Sponsors are not treated as peer reviewers; that is, they’re not afforded an opportunity to comment on IOM draft reports prior to public release. IOM is aiming for a public release in November (the exact time frame will hinge on the duration of the peer review, which is influenced by people’s schedules and adherence to deadlines). IOM is looking at options for how best to hold this release, whether there will be an event of some sort. Once plans are set, they’ll be noted on the project web pages and IOM will alert the various stakeholders and interested parties of the plans. The study is moving along and we’re looking forward to the report’s debut in the not too distant future.”

October CIRM Board Meeting Moved to Burlingame

The location of the October meeting of the governing board of the California stem cell agency has been changed from Irvine to Burlingame, near San Francisco International Airport, in an effort to save travel costs.  

CIRM Chairman J.T. Thomas said the one-day meeting is being moved because the session will require the attendance of a large number of CIRM staffers who are based in the agency's San Francisco headquarters. They will be involved in presentations involving the agency's new strategic partnership fund and other matters.

The date of the meeting remains unchanged – Oct. 25. Look for posting of the agenda on the CIRM web site on Oct. 15. The site of the meeting is the Hilton Bayfront Hotel, 600 Airport Blvd.

Correction

The "online session" item Sept. 24, 2012, incorrectly identified the author of the CIRM webinar piece as Cynthia Adams. Her correct name is Cynthia Schaffer.

CIRM Sponsoring Online Session with FDA on Thursday

One of the lesser known activities of the California stem cell agency is webinars that put researchers together with the folks who make the federal decisions about whether stem cell research will be turned into therapies.

One of those sessions is coming up on Thursday, and it is not too late for scientists and other interested parties to get on board.

Writing on the stem cell agency's blog, Cynthia Schaffer, CIRM's contract administrator and compliance officer had this to say today about the webinars.

“The FDA very graciously donates their time to speak on these webinars because they too have pledged to maintain an active dialogue with the industry and provide education on their regulatory expectations for product development in the regenerative medicine field. CIRM science officer Kevin Whittlesey recently wrote a paper with Celia Witten of the FDA about the role of the FDA in reaching out to regenerative medicine community, including webinars such as these. 

“In that paper they point out that the communication goes both ways:

“'Appropriate regulation requires a strong understanding of the latest scientific developments to meet current and future regulatory needs and challenges.'

“So the FDA benefits by learning from the other speakers in the webinar – what is the current state of the technology, what are investigator’s current thoughts on best practices and the latest research findings, etc. They also learn what the industry is facing by listening to the questions asked and the discussion of the challenges during the Q&A sessions. A group of FDA employees attend each of these CIRM sponsored webinars, and the wide variety of other workshops and meetings that CIRM hosts throughout the year.”  

(Editor's note: An earlier version of this item incorrectly identified Cynthia Schaffer as Cynthia Adams.)

$1.5 Billion in Stem Cell Awards Goes to Directors' Institutions

The Sacramento Bee today published an article that reported that $1.5 billion, more than 90 percent of the amount dispensed by the California stem cell agency, has gone to institutions linked to past and present directors of the agency.

The piece was carried on the front page of the newspaper's Sunday Forum section and was written by David Jensen, publisher-editor of the California Stem Cell Report.

The text of the Forum article is below. The Bee also carried a chart listing the top 10 recipient institution. The full text of the comments from Alan Trounson, president of the California stem cell agency,  and two other persons quoted in the article can be found here.

Stem cell cash mostly aids directors' interests

Special to The Bee

By David Jensen

With its latest round of awards earlier this month, California's stem cell agency has now handed out $1.5 billion to enterprises linked to its directors.

The figure amounts to 92 percent of the $1.7 billion awarded by the agency. The grants and loans range from $261 million to Stanford University, whose medical school dean, Philip Pizzo, sits on the agency's governing board, to $170,500 to Children's Hospital in Oakland, whose president, Bert Lubin, also is a member of the board.

The University of California, Davis, has received $128 million. Claire Pomeroy, chief executive officer of UC Davis Health System, is another one of the 29 board members. In all, 27 institutions with past or present representatives on the agency board have received funding.

None of this is illegal. And none of it is likely to change. The situation was created by Proposition 71, the 2004 ballot measure that established the state's $3 billion stem cell agency, formally known as the California Institute for Regenerative Medicine, or CIRM. The initiative was crafted so that virtually all of the institutions that stood to benefit from the state's largesse had seats at the table where the money is handed out.

The built-in conflicts of interest at CIRM have perturbed some experts in California government, but concerns have also reached into the scientific community. The prestigious journal Nature, in 2008, editorialized against what it called cronyism at CIRM. It said the agency "must fight the tendency of the academic institutions on the board to hoard dollars."

Some California scientists, wary of offending those who control the lifeblood of their research, privately grumble about an "old boys network."

Joe Mathews, co-author of "California Crackup," a study of major issues in state government, said last week: "California ballot initiatives are a terrible way to make public policy. And they are even worse as a method for making scientific policy."

The stem cell agency has a different view. Alan Trounson, president of the San Francisco-based enterprise, said: "There is no evidence that any of CIRM's funding decisions have been driven by conflicts of interest. Indeed, CIRM rigorously enforces its conflict of interest rules at each stage of the funding process to ensure that all decisions are made on the merits of the proposal for funding and not as a result of any conflicts of interest."

Mathews, California editor of Zocalo Public Square, and others point to the creation of the California stem cell agency as an example of abuse of the initiative process by special interests. The 10,000 words in Proposition 71 were written in private by Bay Area real estate investment banker Robert Klein and a handful of associates, who quietly determined the composition of the board. Klein later served six years as the first chairman of the stem cell agency, leaving in June 2011.

Klein later argued publicly that placing medical school deans and university and research institution executives on the board provided the expertise needed to make the decisions about how to spend the research money. However, the makeup of the board also served to win the support of institutions that envisioned the prospect of fresh cash – in this case money that the state borrows via bonds.

Mathews described the state's initiative process this way: "Essentially, to win the support of various groups whose money and backing is important to passage of a bond, a sponsor of an initiative bond will set up rules and include money specifically intended for each group. This is a form of pay-to-play. Agree to back the initiative, and you're in."

Bob Stern, who co-wrote the California Political Reform Act, said, "It would have been better had institutions receiving grants not to have had their representatives on the board awarding grants."

Trounson said the board follows "best practices" when it comes to grants and legal conflicts of interest. The agency has worked out an unusual procedure to prevent its directors from violating conflict of interest laws as they vote on applications that seek as much as $20 million each. Before each public session, agency attorneys determine which board members cannot vote on a proposal because of legal conflicts of interest. Applications to be approved are considered as a group. Each board member then votes on the entire group by saying, "Yes, on all those except with which I have a conflict."

No final tally is announced. The public can ferret out the overall vote a month or two later in the minutes of the meeting on the CIRM website (www.cirm.ca.gov). But the minutes do not list individual votes or conflicts of interest.

Domination of the board by academics and nonprofit institutions has led to bitter complaints from business. Less than 7 percent of all awards have gone to for-profit enterprises. Currently, however, the agency is embracing industry more warmly in an effort to commercialize stem cell research, which raises another set of coziness problems. They surfaced in July and again this month.

Klein, who led the stem cell ballot campaign before becoming chairman of the agency, appeared before his old board to lobby on behalf of a $20 million request from StemCells Inc. of Newark. The California firm was founded by the eminent Stanford stem cell scientist Irv Weissman. He sits on StemCells Inc.'s board, and he and his wife hold 273,821 shares of stock in the firm. Weissman was also an important backer of Proposition 71, working the "billionaire circuit" and raising more than $1 million for the campaign, according to an article in San Francisco magazine.

CIRM's reviewers had rejected StemCells Inc.'s application. After Klein made his pitch in July, the board sent the application back for re-review, an unusual procedure.

When the application returned to the board early this month, reviewers again rejected it. Klein again importuned his former colleagues, and – following a closed door session – the board approved the award, 7-5.

Eleven members were disqualified from voting because of legal conflicts of interest. It was the first time in the board's eight-year history that it approved an application twice rejected by reviewers.

Mathews said no likelihood exists of changing the board structure at CIRM. He said it is "baked in" by Proposition 71. That's because Klein and company wrote into the initiative a requirement for a super, super-majority vote – 70 percent – of each house of the Legislature to make any modifications.

Another initiative could be mounted, but that possibility is also exceedingly remote. 

Text of Comments on Awards to Stem Cell Directors' Institutions

Here is the full text of comments made by the California stem cell agency, Joe Mathews, co-author of “California Crack-Up” and Bob Stern, former president of the Center for Governmental Studies and co-author of the California Political Reform Act, in connection with the Sept. 23, 2012, article in The Sacramento Bee headlined “Stem Cell Cash Mostly Aids Directors' Interests.” The comments were abbreviated for publication in The Bee because of newspaper space constraints.

Comments by Alan Trounson, president of CIRM:

“To make sure we do the best job of managing taxpayer's money it's natural that we turn to people who know most about stem cells and stem cell research. In fact, as the state's own Little Hoover Commission reported in its analysis of CIRM: “The fact that CIRM funding has gone largely to prestigious California universities and research institutes is hardly surprising and should be expected, given the goals of Proposition 71 and the considerable expertise resident in these research centers.” But in recruiting the best minds, we also adopt best practices to ensure that there is no conflict of interest. Every board member has to recuse themselves from voting on, or even being part of a discussion on anything to do with their own institution, or to an institution or company that they have any connections to. All this is done in meetings that are open to the public. CIRM’s conflict of interest rules have been subject to multiple reviews – by the Bureau of State Audits, the Little Hoover Commission and the Controller – and there is no evidence that any of CIRM’s funding decisions have been driven by conflicts of interest. Indeed, CIRM rigorously enforces its conflict of interest rules at each stage of the funding process to ensure that all decisions are made on the merits of the proposal for funding and not as a result of any conflicts of interest. 

“In addition all funding applications are reviewed by an independent panel of scientists on our Grants Working Groups, all of whom are out-of-state and meet strict conflict of interest requirements, and it is their recommendations that help guide the ICOC (CIRM governing board) on what to fund.”

Joe Mathews' comments:

“California ballot initiatives are a terrible way to make public policy. And they are even worse as a method for making scientific policy. 

“It's not merely that this initiative was drafted in such a way as to benefit the enterprises of its directors. It's that, under this initiative's own provisions and the California constitution, it's so hard to change Proposition 71 and fix what ails CIRM. Effectively, these provisions are baked in, and nothing short of another vote of people can really make the change. (Yes, there are provisions, as you know, that permit the legislature by super-majority to do things, but supermajorities are effectively out of reach in California). 

“Sadly, initiatives like Proposition 71 are not uncommon. Many measures are drafted to benefit the people who would support the measure, or oversee the program established. This has been very common with bonds. Essentially, to win the support of various groups whose money and backing is important to passage of a bond, a sponsor of an initiative bond will set up rules and include money specifically intended for each group. This is a form of pay-to-play. Agree to back the initiative and you're in. And it happens because there's no rule against it and because passing initiatives in California require difficult, expensive campaigns. 

“And this sort of thing will continue to happen. There is no serious push to do anything about this. Indeed, good government groups and reformers in California have opposed changes to the initiative process -- because they want to use the process for their own schemes.”

Bob Stern's comments:

“It would have been better had institutions receiving grants not to have had their representatives on the board awarding grants. On the other hand, we want to have the most knowledgeable people on the board overseeing this very important program. The question: Were these people the only qualified ones to sit on the board?”

Reproducing Research Results: Removing a Scientific Roadblock

The California stem cell agency faces no easy task in trying to translate basic research findings into something that can be used to treat patients and be sold commercially.

Even clinical trials, which only begin long after the basic research is done and which involve more ordinary therapeutic treatments than stem cells, fail at an astonishing rate. Only one out of five that enter the clinical trial gauntlet successfully finish the second stage, according to industry data cited last spring by Pat Olson, executive director of scientific activities at the stem cell agency. And then come even more challenges.

But at a much earlier stage of research there is the “problem of irreproducible results,” in the words of writer Monya Baker of the journal Nature. Baker last month reported on moves by a firm called Science Exchange in Palo Alto, Ca., to do something to ease the problem and speed up preclinical research. The effort is called the Reproducibility Initiative and also involves PLOS and figshare, an open science Internet project.

Elizabeth Iorns
Science Exchange Photo

Science Exchange is headed by Elizabeth Iorns, a scientist and co-founder of the firm. She wrote about  test-tube-to-clinic translation issues in a recent article in New Scientist that was headlined, “Is medical science built on shaky foundations?”

Iorns said,

“One goal of scientific publication is to share results in enough detail to allow other research teams to reproduce them and build on them. However, many recent reports have raised the alarm that a shocking amount of the published literature in fields ranging from cancer biology to psychology is not reproducible.”

Iorns cited studies in Nature that reported that Bayer cannot “replicate about two-thirds of published studies identifying possible drug targets” and that Amgen failed at even a higher rate. It could not “replicate 47 of 53 highly promising results they examined.”

The California Stem Cell Report earlier this week asked Iorns for her thoughts on the implications for the California stem cell agency, whose motto is "Turning stem cells into cures." Here is the full text of her response.

“First, I think it is important to accept that there is a crisis affecting preclinical research. Recent studies estimate that 70% of preclinical research cannot be reproduced. This is the research that should form the foundation upon which new discoveries can be made to enhance health, lengthen life, and reduce the burdens of illness and disability. The irreproducibility of preclinical research is a significant impediment to the achievement of these goals. To solve this problem requires immediate and concrete action. It is not enough to make recommendations and issue guidelines to researchers. Funders must act to ensure they fund researchers to produce high quality reproducible research. One such way to do so, is to reward, or require, independent validation of results. The reproducibility initiative provides a mechanism for independent validation, allowing the identification of high quality reproducible research. It is vital that funders act now to address this problem, to prevent the wasted time and money that is currently spent funding non-reproducible research and to prevent the erosion of public trust and support for research.”

Road to Commercialization: California Stem Cell Agency Seeking Top Level Product Development Execs

Looking for a good job at an enterprise that is on the cutting edge of biotechnology?

Nine positions are open at the $3 billion California stem cell agency, headquartered in San Francisco. Some of them could pay more than $200,000 a year.

Several of the new jobs are closely aligned with the agency's fresh focus on commercializing stem cell research and driving therapies into the clinic. Scientists and lawyers are being recruited along with a business development officer. For some of the positions, travel is required.

One new, high-level position is described as a senior development officer. The job posting calls for “expertise in product development for stem cell therapies.” The person would “directly interact with investigators on CIRM’s clinically applicable research programs to help provide product development guidance from preclinical, manufacturing, and first in human to early phase clinical regulatory perspectives.” An M.D. or Ph.D. degree in a biomedical science is required. Pay tops out at $232,891. This person would report to Ellen Feigal, senior vice president for research and development.

A second, high-level position reporting to Feigal is senior medical officer, who would manage the agency's portfolio aimed at commercialization of stem cell research, specifically “focused on IND enabling and clinical development projects.” This also requires an M.D. or Ph.D. and substantial professional experience in development of biomedical research and products. Pay also could run as high $232.891 annually.

A third new job at CIRM is business development officer. That person would help generate “outside investment in stem cell research in California for both CIRM-funded and not currently CIRM-funded programs by biopharmaceutical strategic partners; equity investors (venture capital and others); and disease foundations.” The salary range hits $216,270 annually. It wouldn't be surprising if the person in this job also became involved in developing a funding mechanism for CIRM after it runs out of state cash in 2017 or so. 

This position reports to Elona Baum, general counsel and vice president, business development.

And yet another new position is called director of alliance management. The job deals with the agency's extensive collaborative funding partnerships, many of which are abroad. CIRM wants somebody with a law degree, experience in intellectual property and business law along with strong negotiating skills. The pay range for the post tops out at $232,891 annually. This position reports to CIRM President Alan Trounson.

Other open positions include: deputy general counsel, two science officers and office manager.

StemCells, Inc., Discloses How it Will Generate $40 Million in Matching Funds

StemCells, Inc., said yesterday that it will come up with the $40 million needed to match loans from the California stem cell agency through “existing infrastructure and overhead” and will not be issuing stocks or warrants to the agency.

In a statement to shareholders, Martin McGlynn, CEO of the publicly traded firm, discussed the $40 million in loans awarded by agency this summer, including $20 million last week. The stem cell agency's governing board, after it emerged from an executive session on the matter, last Wednesday night adopted a motion requiring the company to demonstrate that it has the matching funds.

CIRM Chairman J.T. Thomas, a Los Angeles bond financier, said that concerns were expressed during the executive session that the agency “would account for such a large part of the assets of the company.” At his suggestion, the board approved the loan on the condition that “it show it has access” to the $20 million in matching funds that company offered during the application process. StemCells, Inc., also offered a $20 million match on another loan approved in July by CIRM.

The latest financial reports from StemCells, Inc., which is based in Newark, Ca., show that it had assets of $17 million as of June 30 and liabilities of $11.6 million. The company reported net income for the second quarter of $833,522 compared to a loss of $4 million for the same period a year ago.

In its filing with the SEC, the company said,

“We have incurred significant operating losses since inception. We expect to incur additional operating losses over the foreseeable future. We have very limited liquidity and capital resources and must obtain significant additional capital and other resources in order to provide funding for our product development efforts....”

In his statement yesterday, McGlynn said the California stem cell agency had “doubled down” on StemCells, Inc., in approving the two loans. He said the company is not concerned about meeting the matching requirements. McGlynn said, 

Martin McGlynn
StemCells, Inc., Photo

“To be clear, we do not interpret the diligence requirement as an obligation to raise a specific amount of money in a particular period of time, and we wish to correct the misstatements made by some uninformed third parties that the ICOC is requiring us to raise $20 million in matching funds. In point of fact, we expect that a substantial amount of our contribution towards these projects will come from existing infrastructure and overhead, salaries for our existing personnel, and other contributions in kind. Furthermore, we will soon be reviewing the budgets for both projects in detail with CIRM staff. Because each disease team budget was prepared on a stand-alone basis, we expect to see significant economies and efficiencies now that the company has in fact been awarded funding for both.”

McGlynn also said,

"Under this particular CIRM program (RFA 10-05), funding for companies will be in the form of unsecured, non-recourse, interest-bearing, term loans, which will be forgivable in the event the funded research fails to result in a commercialized product. On the other hand, should the product be successfully commercialized, CIRM would earn milestone payments depending on how successful the product becomes. Because CIRM shares the downside risk, and could participate handsomely on the upside, the structure makes the loan about as close to 'equity' as one could, without having to dilute existing shareholders in order to gain access to significant amounts of capital.  The company will not issue stock, warrants or other equity to CIRM in connection with these awards. 

"Of course, we realize that CIRM prefers that applicants from industry provide evidence of their ability to secure whatever additional funds may be needed to complete any CIRM-funded project, in this case the filing of an IND for each indication. This is stated in the text of RFA 10-05 itself and was repeated in various comments by CIRM staff during the application process. When making the second award on September 5, the ICOC naturally recognized the sizeable commitment it was making to StemCells, so it instructed CIRM staff to satisfy themselves of the company's ability to access the capital needed to fund the project, namely the Alzheimer's program through to the filing of the IND.”

McGlynn also said firm's bid for another $10 million from CIRM could come in the form of a grant instead of a loan. He said,

"Finally, I can confirm that in June of this year the Company applied for up to $10 million under CIRM's Strategic Partnership I program (RFA 12-05). Unlike the disease team awards under RFA 10-05, if companies are approved for funding under RFA 12-05, they may elect to take such funding in the form of a grant, not a loan. Our application under RFA 12-05 is for a controlled Phase II clinical trial of HuCNS-SC cells in Pelizaeus-Merzbacher disease (PMD), a rare myelination disorder. StemCells completed a Phase I study in PMD in February 2012 and in April announced that all of the patients from that study showed evidence of cell-derived myelination and three of the four patients in the study showed measurable gains in motor and/or cognitive function.”

According to CIRM, the awards in the strategic partner round will be approved either next month or in December. 

StemCells, Inc. stock was trading at $1.85 at the time of this writing. Last week, it rose to $2.43. During the last 12 months, its high was $2.67 and its low was 59 cents.