Fallout From the Trounson Affair: A Taint on the California Stem Cell Agency

Directors of the $3 billion California stem cell agency meet tomorrow in the San Francisco Bay Area, but the hottest topic is not on the agenda, and that is the Trounson Affair.

Alan Trounson
SF Business Times photo

The term is shorthand for the host of questions raised by the appointment July 7 of Alan Trounson, former president of the agency, to the board of StemCells, Inc. The company is the recipient of $19.4 million from the agency, cash that was awarded under unusual circumstances on a narrow 7-5 vote.(See here and here.)

Two days after Trounson’s appointment, the agency’s new president, Randy Mills, announced a “full review” of the activities involving StemCells, Inc., a publicly traded firm based in Newark, Ca.

News and commentary about the matter has slowly emerged since the appointment. None of it reflects well on the agency, which is trying to devise some way to secure public or private funding beyond 2017 when the cash for new awards runs out.

The most visible article appeared in the Sunday Los Angeles Times, which has a readership of 4 million in print and online. Michael Hiltzik wrote that cronyism is rife at the California Institute for Regenerative Medicine(CIRM), as the agency is formally known.  He said,

“How bad are the conflicts? When the (29-member) board considered a proposal earlier this year to spend $16 million to attract three star scientists to California, so many members had to recuse themselves that only nine were left to vote. (Six ended up voting in favor.)

“When conflicts of interest are so rife that only one-third of your board can weigh in on a major policy issue, that's tantamount to not having any board at all.”

The tone was echoed in other pieces, including one in the San Francisco Business Times, where the headline said,

 “'Trounson affair' another strike against California stem cell agency.”

Other articles appeared in the San Diego U-T and the San Francisco Chronicle. The Orange County Register published an editorial that said the agency has “operated as a cash cow for a tiny circle of well-connected individuals and institutions.”

The Trounson appointment “reignites charges of cronyism,” said a headline on allgov.com. Pete Shanks of the Biopolitical Times wrote, 

"Let's be blunt: This looks like a pay-off. Technically, what Trounson and (Irv) Weissman (of Stanford) and StemCells, Inc., just did may not be illegal. But it's shameless.”

The Scientist magazine wrapped the Trounson appointment into a piece that included news about a lawsuit against StemCells, Inc., that charged the company was endangering patients in clinical trials. 

The talk ricocheted around California’s stem cell community. One longtime reader of the California Stem Cell Report, who is a patient advocate, said in an email that Trounson’s conflicts of interest are “now even more transparent and make the previous grant decisions even more suspect.” “Self-dealing” is how this supporter of stem cell research described the situation.

Another reader and knowledgeable observer, who also must remain anonymous, described the Trounson appointment as “brazen.” And yet another who is quite familiar with the agency said,

“No one seems to understand what conflict of interest means.  I don't understand how they can even think that it is OK to do this.”

We should note that these remarks come from persons who back stem cell research and the agency.

In some ways, however, public attention to the matter could be described as minimal. The stem cell agency is little known to most people, and the Trounson Affair did not garner front page headlines. But like some sort of immortal cell, the stories will live on. Twenty years ago, the individual stories would have faded, buried in the morgues of the mainstream media. However, today, given Google searches, they will become embedded in all future reporting about the agency – not to mention knife-edged opposition research should another bond measure be placed before voters to fund the agency.

The Trounson Affair also highlights the need for the agency to stiffen its revolving door restrictions – the regulations that would have prevented his immediate appointment to a post at an enterprise that has benefited from the agency’s largess. It is a problem that will grow as the agency nears its financial demise. CIRM staffers will naturally be looking for places where they can find future employment.

The state has some minimal laws restricting future employment by agency personnel. But the agency needs to do more, a difficult task given that such action basically will change the terms of employment for staffers. But failure to confront the issue will only lead to more debacles.

CIRM’s “full review” of the situation is well-taken. However, the agency has not publicly defined even generally what a full review entails nor has it responded to questions from the California Stem Cell Report about the nature of the inquiry. The agency also has not indicated whether it is seeking an outside, independent entity to conduct the review. One possibility would be State Controller John Chiang, who is the chairman of the only state body (the Citizens Finanancial Accountability and Oversight Committee) charged with oversight of the agency. Another would be the state’s Fair Political Practices Commission, the state department charged with enforcing conflict of interest laws.

One California researcher and CIRM grant recipient has noted that the flap obscures the work that the stem cell agency has done. In a comment filed on an item on the California Stem Cell Report, Jeanne Loring, director of the Center for Regenerative Medicine at The Scripps Research Institute, said that despite “the errors in judgment” at the agency, 

“CIRM is at the heart a remarkably effective driver of cutting edge research. By focusing on a narrow area of research and encouraging international collaboration, CIRM has singlehandedly pushed the whole world's stem cell research forward. If CIRM were a drug company, it would be considered miraculous that so many promising treatments are in the pipeline just eight years after it started."

Loring makes a good point. And it would be a shame if the good work of CIRM is discredited because of a failure to deal forthrightly, quickly and publicly with conflict of interest issues at the agency. 

Cloaking Informed Consent in Clinical Trials: A California Stem Cell Case

Patients come first. That’s the rhetoric from biotech companies and agencies like the FDA, which has oversight responsibilities for clinical trials.

But when it comes down to specifics, the doors may close and little revealed publicly.

The case in point involves StemCells, Inc., which was charged last week in a lawsuit with endangering patients involved in its clinical trials. The suit was filed by an unhappy manager who was fired by the Newark, Ca., firm. StemCells, Inc., said the charges lack merit.

But the firm is mum when it comes to the question of whether it has informed its patients about the allegations and its response. Those are the folks whose brains are being injected with what is alleged to be a product that is being manufactured improperly. They are supposed to give informed consent to the treatment and obviously need to know when serious questions are raised about their therapy.

Queried by the California Stem Cell Report about whether the patients in its clinical trials had been informed of the allegations, Ken Stratton, general counsel for StemCells, Inc., said,

“StemCells, Inc. has no further comment on the ongoing litigation or Mr. Williams’ allegations.” 

The FDA and the attorney for the fired manager responded in much the same fashion. Asked whether his client, Rob Williams, or he has notified the FDA about the alleged problems, attorney Daniel Velton said,

“We can't comment on pending cases.”

The FDA said,

“As a matter of policy FDA cannot comment on whether or not we are investigating or have plans to investigate any allegations.”

Questioned further about the federal rules for giving patients the information they need to provide informed consent, Paul Richards, a spokesman for the FDA said,

“Participation in any clinical trial is associated with some level of risk as the safety of investigational products has not been fully assessed. FDA’s primary responsibility is to determine whether the theoretical risks of the proposed study are reasonable and acceptable in order for the study to proceed “It is the responsibility of the study sponsor to conduct an investigation properly, to ensure proper monitoring of the investigation and to ensure that the investigation is conducted in accordance with the general investigational plan and protocols contained in the Investigational New Drug (IND) application.  The sponsor also ensures that FDA and all participating investigators are promptly informed of significant new adverse effects or risks with respect to the product being studied.

 “Additionally, the individual who actually conducts the clinical investigation (i.e. the investigator) is responsible for ensuring that the trial is conducted according to the signed investigator statement, the investigational plan, and applicable regulations.  The investigator is also responsible for protecting the rights, safety, and welfare of subjects under the investigator's care; and for the control of drugs under investigation. 

“In certain situations in which FDA alleges a clinical investigator has violated applicable regulations, FDA may initiate a clinical investigator disqualification proceeding.   FDA does maintain a publicly available database that provides information about disqualification actions.  Further background related to this topic is available at:  http://www.fda.gov/ICECI/EnforcementActions/ucm321308.htm”

No doubt seems to exist that the patients should be informed about the allegations in the lawsuit. However, implementation of the requirement is considerably less than transparent. How does the public know whether patients have actually been informed?  How do the patients themselves know whether they have been adequately informed? Trust us is the operative and dubious response.

One must ask whether these tight-lipped non-responses are in the best interests of patients, biomedical research, the government or even the companies. Patients and the public deserve more than lip-service to the process of informed consent. The parties involved in the StemCells, Inc., litigation, as well as the government, can do better. 

What possible harm could result from simply saying, “Yes, the patients have been told of the lawsuit and the company’s response.” Such a response might help to inspire confidence among persons considering clinical trials and help recruit the patients needed to test possible new therapies.

Coming Up: Live Coverage of Thursday's California Stem Cell Board Meeting

The California Stem Cell Report will provide live, gavel-to-gavel coverage of this Thursday’s meeting of the 29 members of the governing board of the $3 billion California stem Cell agency, which is expected to lop $15 million from its ambitious Alpha stem cell clinic proposal.

Interested parties in Canada will be able to participate in the meeting from the W Montreal Hotel, where one of the CIRM directors is staying. However, the agenda does not mention a room number so our advice is to check with the agency for specifics. The room is public by law for CIRM meeting purposes.

Other teleconference locations are available in Los Angeles, which has two, and one each in La Jolla and Napa.

The meeting, which will be in Millbrae, Ca., can be heard through the Internet via an audiocast. Directions for logging in can be found on the agenda. 

California Stem Cell CEO Randy Mills on Focus and Four-Part Tests

It was a case of CEOs interviewing CEOs.

More specifically, it was Robin Smith, head of Neostem, Inc., “grilling” Randy Mills, the new CEO of the $3 billion California stem cell agency. The venue was the Huffington Post.

It wasn’t exactly hard ball stuff, as one might expect. Nonetheless it was the lengthiest such exchange with Mills, the former president of Osiris Therapeutics of Maryland, since he was named president of the stem cell agency in April.

Neostem, by the way, does not hold any awards from the agency, although it does have operations in Mountain View and Irvine. The Southern California location is the site of the former California Stem Cell, Inc., which was purchased by Neostem for $126 million earlier this year, obviously making Neostem a potential applicant for CIRM funds.

Here are some excerpts from Smith’s interview with Mills.

On leaving Osiris and coming to California, Mills,

“I started discussing with my family what might be next, including taking a break to spend more time with them. However, fate had other plans.

“In February I received a call from CIRM asking if I was interested in the President and CEO position. Having spent the past five years as a grant reviewer for CIRM, I was already quite familiar with the stem cell agency. If you believe in the potential of regenerative medicine and cell therapy as I do, there is no place in the world you could go to have a bigger impact. No company, no other state, not even a country can have the impact California can have in bringing these treatments to patients. And so with that, I accepted the challenge.”

Mills’ four-part test for CIRM projects:

“First, will what we are doing speed up the development of stem cell treatments for patients? Second, will it increase the likelihood of a successful treatment reaching patients? Third, is it for an unmet medical need? And lastly is it efficient?”

Mills’ focus on “focus,” something he mentioned in slicing $15 million from the $70 million Alpha stem cell clinic plan.

“For CIRM to achieve its full potential, I firmly believe we need to remain focused on bringing treatments to patients, fast. Everyone loves that word, ‘focus.’ However, what they may not love is living with its reciprocal, which is everything else we don't do. Without focus, you never have to have the hard conversation. You never have to say ‘no.’ However, without focus, you also tend to not get things done. I came to CIRM to get stem cell treatments to patients in need, and that means focus.”

Mills on funding projects that “otherwise will get done.”

“CIRM exists under the principle of ‘If not for us....’ California stepped up when, and most importantly because, others would not. Funding something here-and-now that will otherwise get done without CIRM is not consistent with what the people of California wanted to accomplish with Proposition 71(which created the agency). It also violates my third rule, because it wouldn't really be an unmet need if it were going to happen in any event.

“We are here to help get stem cell treatments that, if not for us, would take longer to reach patients or might not happen at all. If you look at the projects we support that are now heading into clinical trials, many would never have even gotten off the ground if it hadn't been for us.”­­­­

Mills did not mention this, but funding such projects is also high risk. That’s why they haven’t been funded. So the reasonable expectation is to see a few failures – perhaps more than a few – among the CIRM efforts.

Verastem Bid for Nearly $10 Million from California Nixed

A Massachusetts firm called Verastem, Inc., heard some bad news recently about its pitch for $9.9 million from the $3 billion California stem cell agency.

The Cambridge firm sought the cash from the agency to help out with a clinical trial dealing with breast cancer.

However, the agency’s directors were told in a memo on the CIRM Web site, 

“Weaknesses in the scientific merit of the proposal combined with portfolio considerations led to a staff recommendation NOT to fund.“

By portfolio considerations, the staff seemed to mean that the agency had already awarded funds in the same scientific area.

The agency’s reviewers, who come from outside California, gave the application of score of 74. Formal action will be taken on the application at Thursday’sboard meeting in the San Francisco Bay Area.

Scripps Confirms Marletta's Plan to Leave as President

The Scripps Research Institute has confirmed the departure of Michael Marletta as its president in a 72-word statement, but details about who will replace him and when are yet to emerge.

The move was announced this morning at a meeting at the 2,900-employee institute in La Jolla. Later, Scripps released its terse statement. Not mentioned were any proposals to deal with the financial plight of the renown biomedical research organization, which is the issue at the root of Marletta's resignation.

Bradley Fikes and Gary Robbins of the San Diego U-T have more details and background. Here is the Scripps statement, which is oddly worded, seeming to leave open the possibility of Marletta remaining at Scripps. Fikes and Robbins nonetheless report that four scientists at the morning meeting said Marletta is resigning.

"The Scripps Research Institute (TSRI) Board of Trustees has announced that Dr. Michael Marletta has indicated his desire to leave TSRI and the Board is working with Dr. Marletta on a possible transition plan. Should Dr. Marletta depart TSRI, the Board will work to make any transition to new leadership the highest priority. Any such transition will engage all key constituencies in a dialogue about the future direction of this storied institution."

Scripps Research President Resigns Following Financial Problems at the Institute

Michael Marletta today resigned as head of The Scripps Research Institute, one of nation’s leading biomedical research organizations, in the wake of an aborted, $600 million merger with the University of Southern California.

Bradley Fikes and Gary Robbins of the San Diego U-T reported that the announcement of his resignation came at a meeting this morning at the La Jolla facility. They wrote that no successor has been named.

Marletta joined Scripps in January 2012. His resignation came in the wake of financial problems at the institute, which is operating this year under a $21 million deficit. Leading members of the faculty called for his removal after the proposed merger came to light. 

Scripps has not yet made a formal announcement on its Web Site. 

California's Far-Reaching Alpha Stem Cell Clinic Plan Likely to Take a Hit

The new president of the California stem cell agency today recommended cutting $5 million from the agency’s ambitious Alpha stem cell clinic plan, declaring that the proposal’s $70 million cost is “not clearly justified.”

If the agency’s board goes along with the recommendation at Thursday’s meeting, it will be the first time the $3 billion agency has so radically and retroactively reduced a proposal in its nearly 10-year history.

Randy Mills

In a memo posted early today on the agency’s Web site, Randy Mills, who joined the agency in May, said,  

“While all of the aims of the concept plan are individually laudable, it is my firm belief that the proposal as written is too broad and overly complex to be successful. In a word, it lacks focus. As a result of its overly wide-ranging scope, I also believe that there is a real possibility of incurring significant duplicative costs. Following a thorough review and conversations with senior members of the CIRM team, it is my opinion that the $70 million price tag is not clearly justified in terms of the benefits it will deliver to the people of California.”

The Alpha stem cell clinic program was heavily promoted by the former president of the stem cell agency, Alan Trounson. It is aimed at making the Golden State the world’s “go-to” location for stem cell therapies.

Mills said, however, that a $15 million component creating a data/information center should be stripped from the plan and whittled down to $10 million.

He said the center’s efforts to combine aspects of clinical operations, data sharing, education/marketing and lobbying for insurance coverage of stem cell therapies would create an “unwieldy program.” Instead, he said the Alpha effort should focus on early stage clinical operations  – “efforts directly related to high quality stem cell clinical trials.”

Mills’ proposal comes late in the game for the Alpha awards. Applicants have already submitted their proposals. The review of the applications was originally scheduled to occur last month. However, in one of his first public acts, Mills postponed the review, which is now scheduled for September.  The reason for the delay, the agency said in June, was the difficulty in finding reviewers.

However, the information center component is contained in a separate RFA and could be easily discarded. The only damage would be the time that the five applicants spent on preparing their applications, which is no small task, and the work that the CIRM staff has done so far.

Mills told the board in the memo,

“I realize that making this recommendation after the submission of applications for the CIMC (the data center) is not optimal. However, given the magnitude of the spending proposed, not sharing this critical assessment with the board would be a greater disservice. I believe that these recommendations are not only fiscally responsible, but more importantly, give the program the greatest chance of success to accomplish our mission of getting stem cell treatments to patients in need.”

Mills is also recommending alterations in the clinical portion of the Alpha plan, which involves eight separate applications, all of which are likely to have come from institutions with representation on the stem cell board.  Mills said he wanted  “a staged approach to funding, where we evaluate with proper metrics, the effectiveness of the program in a limited number of sites before expanding.”

Mills’ Alpha memo does not appear to envision modifying the RFA, so presumably the staged funding would be dealt with in negotiations following board action on the applications, which will probably occur later this year.  Up to five awards are scheduled to be made.

Mills’ Alpha cuts are virtually certain to be approved by the board. Rejection of his recommendations would amount to a vote of no-confidence in Mills and would likely result in his resignation. (On Thursday, however, he assured the board he would not quit if it did not go along.)

Even earlier this year, Mills, who has made his career in business, demonstrated his parsimony. Trounson’s proposed operations 2014-15 budget for the agency was submitted in early May at $17.9 million, an increase of 9.5 percent increase over estimated 2013-14 spending. Mills sliced the spending plan to $17.3 million, maintaining it at virtually same level as last year – lower if inflation is factored in.

(An earlier version of this item incorrectly stated that Mills wanted to cut the program by $15 million.)

Creating Critical Mass at a California Stem Cell Consortium

News about the California stem cell agency is dominated by such matters as $70 million Alpha stem cell rounds and clinical trials but other significant activities occur below that high level surface.

One such event is the creation of a state-of-the-art imaging facility at the Sanford Consortium in the San Diego, a facility that was built with the help of a $43 million award from the stem cell agency.

According to Terri Somers, a spokeswoman for the imaging facility,

“It is the only commercial location within California where these high-powered imaging modalities are available to researchers under one roof, along with pharmacology expertise and a deep reference library.”

The facility was opened last fall by Molecular Imaging, Inc., of Ann Arbor, Mich. While it provides services to the stem cell researchers at the consortium, its services are also available to researchers throughout the state, both private and academic.

Edward Holmes, president of the Sanford Consortium, said in a statement,

“We believe that in vivo imaging will play a critical role in tracking the effects of stem cells, and accelerate first-of-their-kind therapies to treat and cure some of the world’s most debilitating diseases.”

The facility includes one of the world’s most powerful MRIs, a PET, SPECT, CT, ultrasound and other molecular imaging technologies. It additionally provides as access to hundreds of disease models and a decades-deep expertise in pharmacology, according to the company.

Somers said,

“These technologies have been developed and leveraged in academic settings. Some global pharmaceutical companies have embraced the technologies as well, creating core-imaging facilities. However, drug companies don’t have this capacity on all their campuses, and none are in Southern California, making access for researchers here problematic.”

With the facility at Sanford, these services are more readily available to cash-strapped biotech companies on the entire West Coast.

Backers of the stem cell agency argue that one of its benefits has been to help build the critical mass in California that is necessary to support and attract stem cell research. The addition of the Molecular Imaging Center at the Sanford Consortium appears to be part that continuum. 

Los Angeles Times: California Stem Cell Agency Rife with Conflicts and Unrealistic Expectations

The Los Angeles Times, California’s largest circulation newspaper, is carrying a piece this weekend about “cronyism,” conflicts of interest and “inflated expectations” at the state’s $3 billion stem cell agency.

The column by Pulitzer Prize-winning writer and author Michael Hiltzik used this month’s Trounson Affair as a starting point to dissect the situation at the California Institute for Regenerative Medicine (CIRM), as the agency is formally known.

Trounson was appointed to the board of StemCells, Inc., of Newark, Ca., on July 7, just seven days after leaving the agency. StemCells, Inc., holds a $19.4 million award from the agency.  CIRM has ordered a full review of the situation and barred its staff from communicating about StemCells, Inc., matters with Trounson. 

But even before Trounson’s appointment, there were issues involving StemCells, Inc.(See here and here.)  Hiltzik said,

 “The relationship already reeked of cronyism.”

Hiltzik wrote,

“Trounson's move comes as CIRM must begin looking to the future, but any discussions about extending the agency's life span will have to address the flaws created by Proposition 71 (the ballot initiative that created the agency in 2004). Among them is the program's very structure, and even its scientific goals.”

Hiltzik continued,

“How bad are the conflicts? When the board considered a proposal earlier this year to spend $16 million to attract three star scientists to California, so many members had to recuse themselves that only nine were left to vote. (Six ended up voting in favor.)

“When conflicts of interest are so rife that only one-third of your board can weigh in on a major policy issue, that's tantamount to not having any board at all.”

Some of the issues at the agency have to do with the ballot campaign that created it in 2004, an election in which California voters were led to believe that miraculous stem cell therapies were imminent.

Hiltzik wrote,

“Programs like CIRM are always susceptible to inflated expectations.

"”Since Big Science needs great public support it thrives on publicity,’ the physicist Alvin Weinberg, a veteran of the Manhattan Project, wrote in a famous 1961 article in "Science" about the drawbacks of big-money scientific research. He added: ‘The inevitable result is the injection of a journalistic flavor into Big Science which is fundamentally in conflict with the scientific method.... The spectacular rather than the perceptive becomes the scientific standard.’"

Hiltzik acknowledged the contributions that CIRM has made to stem cell science.

“CIRM-funded labs have produced genuine achievements. But the agency tends to delineate its progress in buildings built, papers published, and big-name scientists lured to California. But the specific cures promised by the Proposition 71 campaign haven't materialized, which doesn't surprise anyone steeped in the realities of the scientific method.”

Hiltzik concluded,

“Even if one believes the need for California to devote $3 billion to a narrow, extremely speculative field of science, the Trounson case and other CIRM administrative missteps have made clear that Proposition 71 created the wrong framework to manage a complex research effort. The initiative left the public with no way to tell if its money has been well spent, and no accountability if it hasn't.

“Moreover, the program deprived potentially more promising research efforts of resources and contributed to the general impoverishment of California's entire higher-education system. If its sponsors have the audacity to ask taxpayers for even more money under the same terms as Proposition 71, the reply should be a resounding ‘no.’ If the voters are gullible enough to repeat the same mistake they made in 2004, there's no cure for them.”

The Hiltzik column appeared online last night. It is scheduled to appear in the Sunday print edition of the Times, which says it has a combined print and online reach of 4 million readers. 

California-funded Stem Cell Diabetes Treatment Edges Forward

CIRM video

The California stem cell agency’s $39 million investment in a possible therapy for diabetes moved forward this week with the announcement that the treatment could enter clinical trials as early as next month.

ViaCyte, a San Diego, Ca., firm, and the agency announced yesterday that the firm has applied with the FDA to start the testing to determine whether the product is safe in human beings. The Juvenile Diabetes Research Foundation, which is also funding the ViaCyte product, said the therapy was “potentially transformative.”

Randy Mills, president of the $3 billion stem cell agency, said in a press release,

“This is good news for ViaCyte and is a clear sign of the progress they are making. Filing for an IND is a crucial step along the path to bringing a stem cell treatment to patients. CIRM will be working with them and supporting them every step of the way to try and make this happen as quickly, and as safely, as possible.”

The agency described the treatment like this:

“Viacyte’s approach uses a thin plastic pouch, containing an immature form of pancreatic cells that, when implanted under the skin, are designed to mature and become insulin-producing and other cells needed to regulate blood glucose levels. These cells are able to sense when blood glucose is high, and then secrete insulin to restore it to a healthy level. In effect this is designed to mimic the glucose regulating functions of the pancreas, which, in people with T1D(type one diabetes), no longer works. This approach was shown to be effective in extensive preclinical testing in models of the disease.”

Paul Laikind, president of ViaCyte, told Bradley Fikes of the San Diego U-T that if “all goes smoothly” the initial stage of the clinical trials could begin next month or in September. Fikes also quoted the first chairman of the stem cell agency, Robert Klein, whose son has diabetes, as saying,

"This is an exciting day for the father of any son or daughter who has Type 1 diabetes."

The therapy, which is based on human embryonic stem cells, could take years to successfully complete all of the necessary clinical trials. Only one out of 10 possible therapies that enter clinical trials enters the marketplace.

StemCells, Inc., Says Patient Endangerment Charges Lack Merit

StemCells, Inc., said late today that charges that is endangering patients in clinical trials have no merit and that the company’s primary concern is the safety of its patients.

The Newark, Ca., company was responding to a lawsuit filed earlier this week that alleges the firm is manufacturing human cells in a process that puts “patients at risk of infection or death.”

The suit was filed by Rob Williams, a former senior manager at the publicly traded company. Williams said he was unlawfully fired by StemCells, Inc., after bringing the stem cell quality issues to the attention of senior management.

Earlier today, the California Stem Cell Report asked the company for comment. Ken Stratton, general counsel, responded. Here is the text of his reply.

“As you know, StemCells, Inc. is engaged in the research and development of cell-based therapeutics and is currently sponsoring clinical studies of potential therapies for spinal cord injury, AMD and pediatric neurological disorders as well as conducting pre-clinical studies in Alzheimer’s disease.  The pre-clinical AD studies, but none of the clinical studies, are partly funded by CIRM.

“The Company has reviewed the complaint filed by Mr. Williams, a former employee whose employment was terminated for performance deficiencies, and finds no merit to the allegations. The Company has retained Littler Mendelson as its litigation counsel and intends to defend itself vigorously in court.

“You should know, the elements of manufacturing practices that concerned Mr. Williams were immediately and carefully reviewed by the Company.  The Company’s primary concern has always been, and will continue to be, the safety and tolerability of stem cell transplantation in its clinical trials. Over the years, we have consulted with multiple experts in the field and we believe our processes, procedures and controls, as fully described in our regulatory filings, are appropriate for a company at our early stage of clinical development and comport with applicable guidelines and regulations.  To date, no patients participating in the Company’s clinical studies have experienced any product related safety concerns.

“We hope you find this information helpful.”

California Stem Cell Agency Examining Lawsuit Alleging Patient Endangerment and 'False Certification'

The California stem cell agency today said it is reviewing a lawsuit involving the recipient of a $19.4 million award that alleges the firm is manufacturing human cells in a process that puts “patients at risk of infection or death.”

The most serious allegations against StemCells, Inc., of Newark, Ca., involve its clinical trials. The stem cell agency’s $19.4 million research award to StemCells, Inc., does not involve human beings, only initial development of a possible therapy for Alzheimer’s over the next three years. Both the clinical trials and the Alzheimer’s research use the same proprietary cells, HuCNS-SC.

The company said in a 2013 press release,

"We know from the preclinical work that our proprietary HuCNS-SC cells survive in the toxic environment of the Alzheimer's disease brain and restore memory under the regulation of the host." 

The lawsuit was filed by a former senior manager, Rob Williams, of the publicly traded StemCells, Inc. He alleged he was fired after complaining about the cell problem to senior management.

In addition to possible injury, the lawsuit said that “the use of adulterated stem cells lots could skew patient test results, effectively jeopardizing data behind years of clinical trials and research.”  

The lawsuit said that StemCells, Inc., receives

“…millions of dollars in government funding, including grants from the California Institute for Regenerative Medicine (CIRM). As part of certifications that Defendants made and, on information and belief, continue to make, to the State of California in order to obtain such funding, Defendants represent that their manufacturing processes yield stem cells that are ‘safe for human stem cell transplantation.’ Additionally, in order to secure CIRM funding, Defendants represented and represent that the company follows current Good Manufacturing Practices (cGMPs) promulgated by the U.S. Food and Drug Administration (FDA), a set of standards designed to protect the public from dangers to consumer/patient health and safety. Plaintiffs protected activity, as described above, included efforts to stop, complaints about and refusal to engage in or cover up violations of these standards, and by extension the false certifications submitted to the government, certifications that the company used and uses in order to secure substantial funding.”

The lawsuit also alleged that StemCells, Inc., violated FDA standards and provided false information to the FDA, which has not yet responded to queries from the California Stem Cell Report.

In response to a query, Kevin McCormack, spokesman for the $3 billion stem cell agency, said the agency was carefully reviewing the lawsuit.

Williams attorney, Daniel Velton, has not responded to queries about whether he or Williams informed the FDA of the issues raised in the lawsuit.

StemCells, Inc., did not respond to queries about the matter. (Late yesterday, the firm said the allegations have no merit. See full text here.)

The company was founded by Stanford researcher, Irv Weissman, who sits on its board and is chairman of its scientific advisory board. His wife, Ann Tsukamoto, is executive vice president. Last week the stem cell agency announced that it was conducting a full review of its activities with the firm after it appointed the agency's former president, Alan Trounson, to its board seven days after he left the agency. 

Here is a copy of the lawsuit, which was first reported by Elizabeth Warmerdam of Courthouse News Service.

California Lawsuit Charges StemCells, Inc., with Putting Patients at Risk

A former senior manager at StemCells, Inc., which holds a $19.4 million award from the California stem cell agency, has filed a lawsuit alleging that “deficiencies in the company's cell lines put patients at risk of infection or death during clinical trials.”

The charges were contained in a suit by Rob Williams in Alameda County court, according to an article on Courthouse News Service written by Elizabeth Warmerdam. Williams is suing for wrongful termination, retaliation and violation of the California False Claims Act.

According to the article, the complaint said that StemCells, Inc., of Newark, Ca., says its stem cells are safe for human transplantation.  Warmerdam continued,

“Williams says he was hired as the company's senior manager of manufacturing in December 2013 to oversee its manufacturing facility, where stem cell cultures are cultivated for use in clinical trials.

“'Shortly after beginning his employment, plaintiff noted poor sterile technique, failure to adhere to current Good Manufacturing Practices in the company's manufacturing process, and substantial deficiencies in the company's Manual Aseptic Processing of HuCNS-SC (Human Central Nervous System Stem Cells) cell lines - failure and deficiencies that put patients at risk of infection or death during ongoing clinical trials,’ Williams says.

“Williams claims he also saw manufacturing deviations during cryopreservation of Working Cell Bank lots, leading to numerous stem cell lots with dangerously high numbers of damaged cells.

“'Knowing that these cells were to be injected into human patients, and that the high level of damaged cells and the possibility of contaminating microorganisms could cause serious harm to patients, plaintiff immediately took his concerns to upper management. He also noted that the use of adulterated stem cells lots could skew patient test results, effectively jeopardizing data behind years of clinical trials and research,’ the complaint states."

It was not immediately clear whether Williams’ allegations directly involve the work being funded by the California stem cell agency(see here, here and here), which has been asked for comment on the lawsuit.  The California Stem Cell Report has also asked the publicly traded company for a comment, although the article said the firm did not respond to a query by Courthouse News Service.

 (Late yesterday, the firm said the allegations have no merit. See full text here.)

The lawsuit said that Williams was told to conceal his finding from unspecified reports and that he was suspended shortly thereafter. It said that he sent emails to upper level management about his concerns and that he was fired a few weeks later.

Williams’ Linked In profile said that he has 15 years industry experience, including nearly six years as a senior manager at Alvine Pharmaceuticals and three at Johnson&Johnson.

Williams is seeking unspecified punitive damages from StemCells, Inc.

Courthouse News Service is a Pasadena-based national news service for lawyers and the news media.

A Nature Post Mortem on the Scripps-USC deal and Faculty Rebellion

The journal Nature took a look this week at the vicissitudes at The Scripps Research Institute, including its now defunct, $600 million merger with USC as well as the Scripps faculty uprising.

The July 15 piece was written by Erika Check Hayden, who reported,

“Scripps faculty members…felt that the (USC) deal sold them short. In interviews, they noted Scripps’ coveted ocean-front location: La Jolla is one of the priciest zip codes in the United States. The $15-million annual payments over 40 years offered by USC would be the equivalent of a $250-million mortgage, they say. That would not even cover one year of the institute’s operating expenses, which were $400 million in 2013.

“’It didn’t make a lot of sense financially,’ (Scripps researcher Martin) Friedlander says  ‘You can’t ignore a $20-million deficit, but there are many other creative ways of addressing the financial shortfall. We certainly do not have our backs against the wall.’”

The nearly done deal with USC came about because of Scripps’ financial plight. The faculty took umbrage when they learned about it late in the game and called for the removal of President Michael Marletta. The deal then collapsed, and Scripps said it is going to look at unspecified alternatives.

Hayden has interviews with a number of folks, including both from within and without Scripps. She concluded,

“Marletta has said that he is seeking more donations for Scripps, but is disadvantaged by being a relatively recent arrival; he was chair of the chemistry department at the University of California, Berkeley, until 2010.

“’Philanthropy is about long-term relationships with your donors; it’s not something where you just turn the spigot and say, ‘OK, we’ll go out and raise a billion dollars’,’ says Salk president William Brody, who initiated his institute’s fund-raising campaign soon after arriving in 2009.

“Still, Brody and other observers say that Scripps should be able to find a way out of its current dilemma that does not involve dissolution or losing its independence.

“’If they can stick to their knitting and stay the course, they will be successful,’ Brody predicts.”

California Stem Cell Agency to Alter $70 Million Alpha Clinic Proposal

The California stem cell agency is moving to revise a significant component of its $70 million plan to create one-stop Alpha clinics aimed at establishing the Golden State as the leading location worldwide for stem cell therapies.

Details of the changes that will be considered at the July 24 meeting of the agency’s board are not yet available. However, they deal with creation of a $15 million data and information management center that would be involved in clinical trial support, outreach and education and “development of healthcare economic resources.” The last area would involve efforts to convince insurance companies and the government to pay for what are likely to be very expensive treatments. 

The Alpha clinic applications were scheduled to be reviewed last month behind closed doors by the agency’s out-of-state reviewers. However, the June review was postponed shortly after Randy Mills became the new president of the agency. The agency said it was having difficulty getting qualified reviewers.  The review is now set for mid-September.

The Alpha clinic proposal has been championed for several years by the agency’s former president, Alan Trounson, who is now involved in a conflict-of-interest flap. Last week, he was appointed to the board of StemCells, Inc., of Newark, Ca., which is the recipient of a $19.4 million award from CIRM. The agency has launched a review of all activities involving the publicly traded firm and banned CIRM employees from speaking to Trounson about StemCells, Inc., matters.  

Mills began his presidential duties May 15 at which time Trounson was designated as a senior scientific advisor. Early in May, Kevin McCormack, CIRM spokesman, said that Trounson would remain with the agency until June 30. McCormack said that Trounson would  “help shepherd through a number of projects and commitments he has made,” which some assumed included the review of the Alpha applications in June.

McCormack did not response to a question on June 6 about whether Trounson would be participating in the review.

Eight, unidentified major institutions are competing for the Alpha clinic awards. Five are specifically shooting for the information management center.  StemCells, Inc., is not expected to be involved because of the terms of the RFA, but Stanford University is quite likely to be among the applicants.

Stanford scientist Irv Weissman, founder of StemCells, Inc., and currently a member of its board and chairman of its scientific advisory board, is head of the Palo Alto school’s Institute of Stem Cell Biology and Regenerative Medicine.

The CIRM board meeting will be held in Millbrae but two teleconference locations, where the public can participate, will be available in Los Angeles  and one in La Jolla. Specific locations can be found on the agenda.

More California Stem Cell Cash Likely for UC Irvine and UCLA

Two researchers at different University of California campuses look to be slated next week for additional cash for their research into Huntington’s Disease and corneal problems.

Applications for more cash are scheduled to be acted on July 24 at the CIRM board meeting in Millbrae in the San Francisco Bay area.

Leslie Thompson (left) and patient advocate Frances Saldana
Gene Veritas photo

Leslie Thompson of UC Irvine is up for additional “bridge” funding for her efforts to develop an hESC therapy for Huntington’s Disease. She received $3.5 million in 2010.  Amount of the bridge funding was not specified in the material posted online today.

Her latest progress report said,

“We have now selected a GMP grade hNSC line that will be carried forward for further testing in both rapidly progressing and slower progressing HD mice, as well as in mouse preclinical dosing studies. Taken as a whole, progress supports the feasibility of the CIRM-funded studies to transplant differentiated hESCs into HD mice for preclinical development with the ultimate goal on initiating IND-enabling activities for HD clinical trials.”

Sophie Deng
UCLA photo

Patient advocates for Huntington’s Disease have been particularly active at CIRM board meetings and at UC Davis, which has developed a major research effort dealing with the affliction.

Sophie Deng of UCLA is up for additional funding to take her research involving corneal disease to another stage. She received $1.5 million in 2010 for her translational research. Amount of the additional funding also was not specified today by the agency. The amounts for both researchers is likely to surface later this week.

San Francisco Business Times: California's Trounson Affair Damages Likelihood of Future Stem Cell Funding

The San Francisco Business Times yesterday said the Trounson Affair is the “latest embarrassment” for the $3 billion California stem cell agency and threatens its attempts at securing additional funding.

In an opinion piece, reporter Ron Leuty wrote,

“California's stem cell research funding agency needs a home run to score more public funding. Instead, a conflict-of-interest problem is giving it the wrong kind of attention.”

Leuty was referring to the appointment of Alan Trounson, the former president of the agency, to the board of StemCells, Inc., of Newark, Ca., which holds a $19.4 million award from the California Institute for Regenerative Medicine (CIRM), as the agency is formally known. The appointment came just seven days after Trounson left the agency.

Randy Mills, the new president of the agency, has ordered a full review of agency activities involving the publicly traded StemCells, Inc. Agency employees have been barred from discussing StemCells, Inc., matters with Trounson.

Trounson and the company gave no notice to the agency about the pending appointment. Leuty wrote, 

“He apparently never discussed the move, CIRM spokesman Kevin McCormack said, even as an agency attorney briefed him before his departure on what he could and could not do after leaving CIRM.”

Leuty continued,

“CIRM spokesman McCormack said Trounson's decision ‘had nothing to do with us. The conflict wasn't started by us.’ 

“That may indeed be the case, but religious and financial opponents of CIRM won't let voters see it that way. Despite the progress of various research programs but CIRM grant winners, that combination may force the Democratic Party and Gov. Jerry Brown not to support a 2016 ballot measure to re-fund the agency. 

“The Trounson Affair is yet another strike that deepens a perception problem that threatens to distract voters from the win CIRM desperately needs.”

The Business Times story comes as StemCells, Inc., this morning announced it planned to raise $20 million by selling more than 11 million shares to two "well-recognized biotechnology investors." The company's stock price dropped nearly 8 percent in trading this morning and stood at $1.86 at about 7:30 a.m. Pacific Daylight Time. The share price was at $2.31 last Monday when Trounson's appointment was announced.

The Trounson Affair and its Financial Fallout

 StemCells, Inc., the California business founded by Stanford scientist Irv Weismann, seems almost certainly to have done a serious financial disservice to itself and its shareholders.

Alan Trounson
San Francisco Business Times photo

One week ago today, the publicly traded Newark, Ca., firm cast a dark shadow over its dealings with a $19-million benefactor, the California stem cell agency. The issue arose when the company appointed the former president of the research effort, Alan Trounson, to its board of directors, only seven days after the Trounson left the agency's employment.

Trounson earned $490,008 annually at the agency. Last year, directors of StemCells, Inc., received up to $99,800 each for their part-time efforts.

The Trounson announcement caught the agency by surprise, as it pointedly noted last week in a statement. Randy Mills, the agency's new president, expressed concern about a possible conflict of interest and ordered a “full review” of activities involving StemCells, Inc. Staffers and board members were banned from communicating with Trounson regarding StemCells, Inc.

Like most small biotech firms, StemCells, Inc., is in perennial need of cash. The firm has no products that generate significant income. Rather, it is in an almost constant fund-raising mode, either by selling stock, borrowing or securing awards, such as the $19.4 million “forgivable loan” from the $3 billion stem cell agency, formally known as the California Institute for Regenerative Medicine(CIRM). The award is basically a grant because it does not have to be repaid unless a product derived from the research reaches certain income thresholds.

But now StemCells, Inc., has damaged its relationship, probably irreparably, with the agency. The firm's chances of securing additional funding have to be rated nearly non-existent.  Putting aside purely business issues for the moment, the primary question for the agency now is whether it can trust StemCells, Inc. The company could not bring itself to notify – in advance – an enterprise with which it has a $19-million relationship about an event of importance to that enterprise. CIRM is likely to be wondering whether StemCells, Inc., can now be trusted to be forthright about other matters, such as results of its research or difficult problems that it faces in reaching the benchmarks laid out in its agreement with the agency.

Even prior to the Trounson announcement, StemCells, Inc., had a checkered history with the agency. The $19.4 million award  for Alzheimer’s research was rejected twice by CIRM’s prestigious reviewers. The 29-member CIRM board approved it on only a 7-5 vote in 2012 after heavy lobbying by the agency’s first chairman, Robert Klein. It was the first case of such public lobbying by Klein after he left the board.

It was also the first time the board had approved an application rejected twice by its reviewers. Almost universally, the board goes along with negative recommendations from its reviewers, saying it does not have enough information to override their decisions.

Pulitzer Prize-winning business columnist Michael Hiltzik of the Los Angeles Times later said the award was “redolent of cronyism.”

Approval of the award came during a grant round in 2012 that also saw StemCells, Inc., receive  another big award from the CIRM board -- $20 million. But that research received a high score from reviewers and was recommended by them.  Both awards required equal matching funds from the StemCells, Inc. – a total of about $40 million from a business that at the time was burning through $5 million a quarter and had only $10.4 million in liquid assets.   The financial capabilities of the firm were not discussed in public by the CIRM board. 

After eight months of negotiations with CIRM, the firm decided to take only the money for the project twice rejected by reviewers,  CIRM had no choice about whether it could fund the higher rated project, which is now in a clinical trial. That development came as the agency was urgently pushing to participate in clinical trials that would fulfill the promises to voters who created the agency in 2004 and help boost its drive for financing beyond 2017, when money for new awards runs out.

Trounson recused himself from the 2012 public discussions of the StemCells, Inc., applications because of his relationship with Weissman, who is a member of the company's board and chairman of its scientific advisory panel. Last January, Trounson strongly backed a $40 million award to a Stanford-led consortium that also involved one of Weissman's top associates. 

Beyond CIRM, the Trounson affair will also raise questions for StemCells, Inc.,’s efforts at private financing. The firm will now have to answer difficult questions about the appointment as it seeks loans or stock sales. The appointment could also play a role in the possible sale of the firm’s research to a Big Pharma company. One of the hopes of small biotech companies is that they will be purchased by a larger enterprise that wants to acquire their research. That is a common way for early investors to reap their profits.  But those big companies do not want unnecessary baggage in the deal.

The stock price of StemCells, Inc., last Monday hit $2.31. It dropped to $2.05 by the end of the week. The price has ranged from $1.15 to $2.43 over the last 52 weeks.

The company lists five analysts that follow its activities. Last week one recommended a buy and the others rated the stock as“outperforming.” Two of the analysts’ companies have financial relations with StemCells, Inc. The others may as well but that could not be immediately determined.

On July 2, prior to the Trounson announcement, The Street.com, which is not listed by the company as an analyst, said,

“TheStreet Ratings team rates STEMCELLS INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate STEMCELLS INC (STEM) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally high debt management risk."

The California Stem Cell Report last Monday asked StemCells, Inc., and Trounson for comments on the controversy about his appointment. They will carried verbatim when they are received.