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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Storing Stem Cells and Cash

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

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

But hope propels other research and business as well.

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

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

Ebert Comments: Scientists Shy From Criticism, Controversy

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

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

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

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

New Structure for a New CIRM President

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

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

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

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

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

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

Among other things, the changes would:

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

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

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

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

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

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

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

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

Stem Cell Snippets: Dirty Laundry and Openness

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

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

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

Pachter Joining CIRM, Another Audit Released

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

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

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

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

CIRM said,

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

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

The 'Open Kimono' and Skimpy Audit Coverage

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

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

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

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

Somers wrote:

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

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

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

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

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

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

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

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

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

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

On Thursday, Hall said, among other things:

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

Steve Johnson of the San Jose Mercury News wrote,

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

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

CIRM Hoping for Quick Supreme Court Action

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

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

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

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

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

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

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

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

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

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

CIRM's Conflicts: Beware the WARF Syndrome

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Institute Has Established Processes to Disclose Financial Interests

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

Here is what the Court of Appeals had to say regarding decision-making by grant reviewers:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

State Auditor Releases CIRM Report

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

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

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

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

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

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

Full Text of CIRM Ruling

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

AP Story on Appellate Ruling

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

Justices Say They Had 'No Hesitation' in CIRM Case

Today's Court of Appeal ruling in favor of CIRM was no split decision, according to one attorney who read the 58-page judgment and described it as "very thorough."

All three justices ruled in favor of the stem cell agency, said Robert P. Feyer of the San Francisco law firm of Orrick, Herrington & Sutcliffe. Here are the final lines of the decision:

"After careful consideration of all of appellants' legal objections, we have no hesitation in concluding, in the exercise of our 'solemn duty to jealously guard the precious initiative power' [citation omitted], that Proposition 71 suffers from no constitutional or legal infirmity. Accordingly, we shall affirm the well-reasoned decision of the trial court upholding the validity of the initiative. The judgment is affirmed."

California's new state controller John Chiang, chair of the Financial Accountability Oversight committee for CIRM, moved quickly to herald the action. He said,

"I am pleased that the Court has upheld the will of the voters, and am encouraged that we are one step closer in ending litigation that has tied up the funding for California's historic investment in stem cell research."

'We Won!' Says CIRM; Appellate Court Rules for the Institute

A California appellate court this afternoon ruled in favor of the state's $3 billion stem cell agency, rejecting a bid by opponents to kill off the institute.

Word came from attorneys at 4:24 p.m. PST: "We won!"

The court ruled very quickly following its Feb. 14 hearing for oral arguments. The speed of the decision would presumably augur well for CIRM in the likely event that the ruling is appealed to the California Supreme Court. That would be the last venue for the case.

News reports out of the Feb. 14 hearing noted that the appellate court justices seemed skeptical of the arguments of the opponents, who contended that the agency is not under the control of the state and had illegal conflicts of interests. For more on their legal deficiencies see this blog's report from the trial that concluded almost exactly one year ago today.

Here is statement by Robert Klein, chairman of CIRM, on the decision:

"We are very pleased with today’s ruling from the California Court of Appeal. Once again, the judiciary has upheld the Constitutionality of California’s innovative stem cell research project – in its entirety, without equivocation, and with absolutely no room for further argument. We are grateful that the Court rendered this decision so quickly, as it speeds the day when the will of 7 million voters can be fully realized.

"We have been relentless in our pursuit of the voters’ mandate. Despite our inability to issue any of the $3 billion in general obligation bonds authorized by Proposition 71, and thanks to the leadership of Governor Arnold Schwarzenegger and private philanthropists throughout the state, we are moving forward aggressively. Ten days ago, we approved 72 grants totaling nearly $45 million for embryonic stem cell research. (Next month)we expect to approve up to $80 million more, to truly jump start stem cell research in California.

"Throughout this litigation, we have been ably represented by former Attorney General Bill Lockyer, Attorney General Jerry Brown, and Deputy Attorney General Tamar Pachter. The efforts of our outside counsel, James Harrison of Remcho, Johansen & Purcell, have also been invaluable. And, of course, we’ve enjoyed the strong support of the many scientists, research institutions, and patient advocate organizations who filed amicus briefs in both the Superior Court and Court of Appeal cases"

Performance Audit of CIRM Expected This Week

The spirit of Deborah Ortiz will be with the California stem cell agency this week when the California state auditor unveils its performance audit of the $3 billion enterprise.

It was Ortiz, former chair of the State Senate Health Committee, who sought the audit last year before she was forced out of office because of term limits.

The audit was intense. At times, four auditors over a period of four months prowled through the agency. That amounted to one auditor for every four CIRM employees, a ratio that probably was not surpassed in even such celebrated cases as Enron or Worldcom.

CIRM certainly does not remotely resemble either of those two infamous operations, but the state auditor is likely to come up with some critical findings. Such is almost invariably the case in its work, and no agency is perfect. In fact, CIRM has already made changes in travel and contracting policies that reflect issues that auditors identified. But critics of the agency are likely to find some grist for their mills.

The audit could be released as early as Tuesday.

How to Search the California Stem Cell Report

To help make searches easier on this Web site, we recently added "labels" to each item. Labels can also be considered keywords that help identify the general nature of the material in question. Sometimes they are also specific, such as the names of individuals. If you click on one of the labels, it should show you recent items involving the subject in the label. However, it will not show you all of them since the function was not available until about two months ago. We have not yet gone back and added labels to the nearly 1,000 items that we have posted. However, those can be searched through the search window at the top left hand corner of the blog, where it says, "search this blog." That function will only produce words that are used in the blog. For example, searching on "biographies" will not necessarily produce a biography on Zach Hall unless that word is used in an item. Zach Hall would be the best search term in that case. Searching on CSCR should produce other advisories such as this one.

Legislature Posts Text of CIRM Legislation -- SB771

The text of legislation aimed at ensuring a return to the state on cures developed as a result of research funded by the California stem cell agency was posted officially today on the Internet.

The measure did not contain any surprises. However, it did contain a necessary provision that has not been mentioned previously. That language declared that the proposal would enhance CIRM's ability to carry out the purposes of Prop. 71. The initiative stipulates that legislative changes in the act must enhance its purposes. That is on top of the unprecedented requirement for a super, supermajority vote (70 percent) to approve such bills.

The "enhancement" requirement was presumably inserted into Prop. 71 to provide another weapon to battle legislative changes under terms authorized by the initiative. Since this is the first such attempt, its effectiveness as an opposition tool is yet to be tested. Previous legislation concerning CIRM used different legal approaches.

The number of the bill, SB771, was also picked to resonate with Prop. 71, according to the office of Sen. Sheila Kuehl, D-Santa Monica, chair of the Health Committee, who authored the proposal along with Sen. George Runner of Antelope Valley, the leader of Senate Republicans.

Here are the key elements of the bill, which is not likely to be heard in committee for some time:

"The standards that the ICOC develops shall do all the
following:

"(A) Require every recipient of a grant or loan award for research
to provide to the state 25 percent of the net licensing revenues it
receives associated with any institute-funded patented invention
beyond a reasonable revenue threshold that the ICOC may establish.
Net licensing revenue shall include all forms of financial
consideration from licensing and shall be defined as gross licensing
revenues, less patent expenses and reasonable payments to inventors.

"(B) Require every recipient of a grant or loan award for research
to grant exclusive licenses involving institute-funded patented
inventions relevant to development of therapies, drugs, and
diagnostics only to organizations that have plans which the institute
determines will provide substantial access to the resultant
therapies, drugs, and diagnostics to uninsured Californians. In
addition, the licensees shall agree to provide to patients whose
therapies, drugs, and diagnostics will be purchased in California
with public funds, the therapies, drugs, and diagnostics at the
federal Medicaid price.

"(C) Require any recipient of a grant or loan award for research
that commercializes any product that it develops using institute
funds to agree, as a condition of accepting the funds, to make
royalty payments to the state equal to 2 to 5 percent of the revenues
over the life of the product, depending on the level of funds
provided and contribution of institute-funded patented inventions to
the development of the product."

CIRM IP Legislation Begins Its Journey to Mixed Reviews

The chair of the California State Senate Health Committee today formally unveiled her legislation aimed ensuring the state receives a return on its $3 billion investment in stem cell research. But the measure initially met with mixed reviews.

One potential ally wanted more and foes want less. CIRM itself said no comment would be forthcoming until it had seen the official text of the legislation (SB771), which is not available at the time of this writing.

The bipartisan bill, as presented in the press release by Sen. Sheila Kuehl, D-Santa Monica, seemed to measure up to earlier information (see "CIRM Regulation").

John M. Simpson, stem cell project director for the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said,

"The bill does not go far enough to ensure that all Californians have affordable access to the cures and treatments that result from stem cell research they are funding.

"There needs to be a provision that allows the attorney general to intervene if these therapies, treatments or cures are priced unreasonably.

"It's good that the bill would require an an access plan for uninsured people and that it would require purchases funded with public funds be made at the Medicaid price. The problem is that it doesn't do enough for all Californians who are paying to develop these treatments with their hard-earned tax dollars."

Jesse Reynolds, project director on biotechnology accountability for the Oakland-based Center for Genetics and Society, welcomed the measure, declaring,

"If a biotech company is making billions of dollars of profit from state-financed research, the people should receive a fair return on their investment, as well as access to any therapies."

Reynolds said the leadership of the stem cell agency has tried to "back out" of Prop. 71 campaign promises of huge economic returns to the state. He said,

"This would have been a billion-dollar bait and switch. The bill will make significant steps toward fulfilling these promises."

The California Healthcare Institute, which represents the state's biomedical industry, did not have an immediate comment. But the group is already opposed to CIRM intellectual property policies, which Kuehl says are too weak.

CHI says on its stem cell research page that CIRM's IP rules

"threaten to discourage commercial collaboration, technology transfer and licensing by (a) increasing the administrative complexity of licensing agreements involving CIRM-funded technologies in comparison to the mainstream of academic-industry transactions, which derive from federally-funded research, and (b) increasing investors' financial risk by imposing state price regulation on downstream products."

We should note that not all companies involved in development of the CIRM IP rules share CHI's adamant opposition to CIRM's IP rules. (CHI's stem cell page contains several links to more of its documents filed concerning CIRM IP.)

Kuehl drummed up some media attention in advance, granting interviews to both the San Jose Mercury News (see "CIRM Regulation") and Terri Somers of the San Diego Union-Tribune. Somers quoted Kuehl as saying,

“Californians are putting billions of dollars into this research. They ought to be guaranteed to get a little bit back, because everyone else is going to be on the take."

For more on the legislation, including the difficult task Kuehl faces, see "Rationale Behind" and "Legislators Target."

CGS: Grant Process 'Deeply Flawed' and 'Embarrassing

The Center for Genetics and Society did not mince words about the California stem cell agency and its award last week of $45 million in research grants.
'
Writing today on the group's blog, Biopolitical Times, Jesse Reynolds,
project director on biotechnology accountability for the Oakland-based group, began by saying the process "was not without significant shortcomings."

Then he said it was "deeply flawed" and "embarrassing."

Flawed because, he wrote:

"The members of the grant review panel are still not required to publicly disclose their personal financial interests, leaving the door open for conflicts of interest. (The agency, however, did take the step of indicating which members of the review panel were recused from which application review.) This panel is supposedly advisory, because the program's governing board, the ICOC, is required to give final approval of the grants. But in fact, the ICOC voted on many of them in blocks and did little more than demarcate a funding line in the ordered rankings of the 'advisory' review board. This makes the grant review panel a de facto decision-making body, which by California law must disclose personal financial interests."

He continued:

"Finally, during the most high-profile meeting of the ICOC since the inception of the stem cell research program, the board struggled to maintain a quorum. It was not met at all on the first day of the two-day meeting, during which grants were approved by 'provisional votes.' These were confirmed en masse the next day, when there was barely a quorum. This is embarrassing. The ICOC needs to adopt attendance standards."

Kuehl to Lay Out CIRM Regulation

Details are scheduled to be disclosed on Friday concerning the latest California legislative foray involving the $3 billion California stem cell agency.

The bill will be carried by State Sen. Sheila Kuehl, D-Sacramento, chair of the Health Committee. Here is a legislative synopsis that was circulated on Thursday. It said the measure would:

"modify and strengthen current and proposed regulations that have been adopted by the ICOC by:

"Codifying requirements that grantees share 25 percent of net licensing revenues on inventions they develop, beyond a reasonable threshold that the CIRM may establish;

"Providing that grantees may only enter into exclusive licensing agreements with uentities that have plans the California Institute for Regenerative Medicine (CIRM) determines will provide significant access to resulting therapies, drugs, and diagnostics for uninsured Californians, rather than plans that merely meet 'industry standards.' 'Industry standards' could arguably include patient assistance plans currently utilized by most drug manufacturers, which have been shown to be inadequate in encouraging access to free or reduced price drugs by uninsured patients;

"Providing that grantees may only enter into exclusive licensing agreements with entities that agree to provide resulting therapies, drugs, and diagnostics to publicly funded health care programs in California at the best available prices, such as the federal Medicaid price;

"Ensuring that the state’s return from its grants to commercial entities for research or therapy development projects is commensurate with its level of investment and is not capped, as recently proposed by the ICOC. This is accomplished by requiring grantees to share 2 – 5 percent of revenues over the life of the product, depending on the level of state funds provided and the contribution made by state-funded patented inventions to the development of the product. An economic analysis commissioned during the campaign for Proposition 71 estimated that, based on the experience of universities and research institutions, the state could receive 2 – 4 percent of revenues on successful therapies and products developed with state funds, without any cap. Using these assumptions, the analysis concluded the state could receive $537 million to $1.1 billion in royalty revenues under Proposition 71.

"As you know, the ICOC has struggled since its inception with the development of standards to ensure a fair return to the state. A report commissioned by the ICOC in 2005 and completed in 2006 actually recommended that grantees not be required to share any revenues with the state. As a result of the introduction of legislation in 2006, the ICOC abandoned that recommendation."

Reporter Steve Johnson of the San Jose Mercury News prepared a story that said the measure by Kuehl and Sen.George Runner, R-Lancaster,

"would require firms that make products based on the institute's stem-cell grants to pay the state up to 5 percent of the product's lifetime revenues.
"Under a policy tentatively adopted on Dec. 7 by the institute, formally known as the California Institute for Regenerative Medicine, the most a company would pay the state would be 1 percent of its product's revenue, plus 9 times the amount of the grant.

"Another provision of the bill is intended to insure that poor Californians can afford treatments developed from the institute's stem-cell grants. It would require that uninsured Californians have 'significant access' to the treatments and that any treatments purchased with public money be provided at federal Medicaid prices, which are typically discounted.

"By contrast, the institute's current policy requires companies to provide their treatments to the state 'consistent with industry standards,' which Kuehl argued could allow companies to charge excessively for the treatments.

"Under Proposition 71, bills affecting the institute's operations can only be passed with a 70 percent majority, which could make it tough to get the measure enacted. Nonetheless, Kuehl said voters were promised the program would generate significant financial returns to the state when they passed Proposition 71 in 2004. The measure authorizes the institute to spend about $300 million a year for 10 years on stem-cell studies. Moreover, she noted that the institute last week awarded its first stem-cell research grants.

"'This is extremely important,' said Kuehl, who chairs the Senate Health Committee. 'We have to nail this down now, because the first grants have gone out the door.'

"'The voters believed they were going to get some royalty or benefit from their dollars,' added Runner's spokeswoman, Becky Warren. 'We just want to make sure that occurs.'

"Dale Carlson, spokesman for the stem-cell institute, declined to comment in detail about the bill until he has a chance to read its language. He also said the agency's policy governing the amount the state receives from companies that receive stem-cell grants is still being revised.

"But Carlson emphasized the institute wants to ensure Californians have reasonable access to therapies developed through its grants and added, 'we look forward to having a continuing conversation with the legislature about these and other issues.'"

Kuehl has scheduled a news conference on Friday to discuss her measure.

Governor's Cyberspace Splash on ESC Research

California Gov. Arnold Schwarzenegger put the state's stem cell issues at the top of his Web publicity agenda for several days earlier this week.

The governor's Internet site carried, on its main media page, video, audio and text on the $45 million in research grant awards by CIRM. A complete video of the news conference in Burlingame on Friday along with the governor's weekly radio address (Spanish and English) was and is still available. The site carried four still photos of the news conference. Claire Pomeroy, a member of the CIRM Oversight Committee and dean of the UC Davis medical school, is also featured in a video blog.

A few notes on matters not necessarily highlighted in the news coverage. It was abundantly clear that governor is committed to making another large loan to the agency if it remains bogged down in legal battles. A reporter questioned whether he was prepared to make another $150 million loan if needed. The governor's response was that he was committed "all the way."

Schwarzenegger also noted "the state teaches the federal government what to do." He said, "We don't wait." The California example, he noted, is rubbing off on other states. ESC research is a "people's issue." As for his role in the matter, he said, "I am a public servant."

Stem cell Chairman Robert Klein was ebullient during the news conference. But he also noted there will be "problems and failures" in the research. "We will learn from them," he said.

Also featured on the video was patient advocate Don Reed, who made heartfelt comments, along with his son, Roman Reed, who is paralyzed. The younger spoke as well, but was not near a microphone for the first segment of his comments.

Eggs: The 'Bigger Deal'

The “cheeky new women's blog” on Salon.com has weighed in the egg business in an item posted by writer Lynn Harris. Here is part of what she has to say on the “broadsheet.”

"Should we, indeed, be a little more freaked out by the egg market? To be sure, it is a much bigger deal than the sperm trade: more money, more commitment, more risk. Which leads to the valid concern about the degree to which brokers prey, say, on leggy blond volleyball players with excellent SAT scores and massive student loans. And which, in turn, makes me think it's important to accept, without judgment, that this is a business. As Harvard economist Debora L. Spar, author of 'Baby Business,' wrote: 'We need to acknowledge the market that reproductive technologies have created and then figure out how to channel this market toward our own best interests ... It's no use being coy about the baby market or cloaking it in fairy-tale prose. We are making babies now, for better or worse, in a very high-tech way ... We can moralize about these developments ... or we can plunge into the market that desire has created, imagining how we can shape our children and secure our children without destroying ourselves.'"

Three Big Ifs

The $45 million California round of ESC research grants has triggered additional interest in stem cell stocks on the Internet.

Writing on stockerblog, an anonymous retired professional in the financial industry issued a rundown entitled “Stem Cell Stocks: The Growth Industry of the Future?”

An excerpt that noted three major caveats:

"There are only a limited number of stocks which are pure plays or semi-pure plays in the stem cell industry. However, if governmental funding increases, if private research continues, and if there are any major breakthroughs, then this could be a very huge industry."

Stockblogger wrote a paragraph each on stem cell companies that are pure or semi-pure plays. The blog is carried also on the "Seeking Alpha" financial website.

Bringing Pizzas to An Appeal?

The Daily Kos, a political blog with huge national readership, carried an interesting piece by patient advocate Don Reed on last week's oral arguments in the California stem cell lawsuit.

Reed was present during the hearing, and, as usual, has a quite personal approach to the affair. Here is a sample of his thoughts as the three appellate judges seated themselves.

“It occurred to me how important the personal element was; I hoped all the judges had slept well, and had a good breakfast or lunch or brunch or whatever. I would have run out and gotten them a pizza if it would have helped. “But there was nothing to be done, no pizza bribes to offer, only to listen, and hope.”

Reed's posting on Kos was a truncated version of his Feb. 15 filing on his own web site, which carried this additional paragraph about a chat he had at the hearing:

“I had a conversation with Ms. (Terri) Somers (a reporter for the San Diego Union-Tribune) on the disastrous shrinkage of newspaper funding—it kills me that newspapers, the foundation of an informed citizenry, are losing ground in every direction—I got to put in my plug for a government bailout of the newspaper industry. If we can bail out the Savings and Loan Industry, why not newspapers, which provide such a vital service to democracy?”

A Prop. 71 for the newspaper business? Probably too risky since even venture capitalists do not seem willing to enter the “dead tree” business -- at least most of them.

Here is a link to Reed's Kos item: http://www.dailykos.com/story/2007/2/15/101926/443
Here is a link to the original column (see his Feb. 15 archives if it does not come up immediately): stemcellbattles.com.

Advisory to Readers

Please bear with us as we continue to work through computer problems
during the next few days. In addition, Google, the service that hosts
this web site, has some issues with its software that create
difficulties in posting items. We are using an alternative method of
filing items that may result in some different, perhaps even weird
formatting.

"New Action Heroes" Win Millions in ESC Research Grants

The word went out this weekend from China to Syracuse: California stands No. 1 in embryonic stem cell research in the United States and, and by at least one account, perhaps in the world.


The occasion, of course, was the approval of $45 million in research grants by the California stem cell agency.

The event generated enormous amounts of favorable publicity worldwide for CIRM and for the cause of ESC research. Gov. Arnold Schwarzenegger  stood before TV cameras and declared that ESC researchers are "the new action heroes."

His theme carried through on San Francisco television station KGO, which aired a more than two-minute-long report by David Louie with loads of sympathetic images of disabled persons and film of confidence-inspiring lab work. Smiles abounded, including some from Roman Reed, who is paralyzed as the result of an injury.

He told KGO viewers:

 

"We are on the road to cures. We are on the road to be able to solve the problems that plague mankind. Millions of people are suffering, and now we're on the road to cure them. This is wonderful."

Reed´s father, Don, stood at Schwarzenegger´s left as he vowed, on camera, continuing support for CIRM.

Reporter Terri Somers of the San Diego Union-Tribune wrote:

"The panel awarded the highest score to a researcher at UCSD (University of California, San Diego), Anirvan Gosh, for his proposed work on coaxing human embryonic stem cells to morph into neurons in the brain, particularly those in the forebrain. It is in that area that Alzheimer's is believed to do damage.

"Gosh's scientific background and the cutting-edge science he proposed impressed the committee, said Zach Hall, president of the stem cell institute."

A number of newspapers wrote that the $45 million in grants exceeded federal spending annually on ESC research. But  Carl Hall of the San Francisco Chronicle reported that the 72 grants covered a two-year period and were about equal to federal ESC spending for the same period. But Hall continued:

"Eighty million dollars in state grants are expected next month, more than enough to make California the world's No. 1 backer of biomedicine's most ethically contentious research."

Mary Engel of the Los Angeles Times reported:

"After more than 12 hours of deliberation Thursday night and Friday morning, the full board made selections from the proposals, which were numbered and had the names of institutions and people removed. The institute staff advised board members, many of whom work for universities or institutions with proposals, on when to recuse themselves because of a possible conflict of interest.

"The process drew some complaints from two government watchdog groups, which pointed out that Connecticut, which has a much smaller stem cell research effort, identified all the institutions and scientists it funded by name, including those rejected. The groups called on the board to publish the names of the California institutions that applied for grants but were denied.

"But even they praised the spirited discussions and lengthy deliberations that went into choosing the grantees.

"`Many of us had expressed concern that the board would act as a rubber stamp and not delve into this in a serious way,´ said John Simpson of Santa Monica-based Foundation for Taxpayer and Consumer Rights. `This is a very good process.´"

The California stem cell agency prepared a press release on awards, quoting stem cell Chairman Robert Klein as saying:

 

"Today marks another milestone in one of the most important public endeavors ever undertaken by California.  Patients and families around the globe will take heart that human embryonic stem cell research is finally beginning to receive the funding it needs and deserves."

As for Syracuse, below is a link to the story there. More than one appeared in China, but here is a link to the Xinhua news agency story.


San Francisco Chronicle: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/17/BAGPRO6J7P1.DTL&feed=rss.bayarea

San Diego Union Tribune: http://www.signonsandiego.com/uniontrib/20070217/news_1n17stem.html

Syracuse: http://www.wstm.com/Global/story.asp?S=6102625

 

Los Angeles Times: http://www.latimes.com/news/local/la-me-stem17feb17,1,4500053.story?track=rss&ctrack=1&cset=true

 

Xinhua: http://news.xinhuanet.com/english/2007-02/17/content_5750741.htm


 

Patient Advocate Don Reed on the CIRM Grants

Hi, Folks!

David Jensen was kind enough to allow me a small guest spot in his excellent column.

As you will see, it is not the balanced calm objectivity he always tries for.

I am a supporter of the California Institute for Regenerative Medicine. To me, it is the noblest institution which ever advanced the hopes and dreams of suffering humanity—because its sole function is work for cure, to ease suffering, end pain, and save lives.

Thank you for this opportunity to address you.

Don C. Reed

Oh, and if you would like to see Governor Schwarzenegger, Bob Klein, the Independent Citizens Oversight Committee, Karen Miner, Roman Reed and yours truly in action, go to



http://cbs5.com/video/?id=20865@kpix.dayport.com


---------------------------------------------------------


The California Institute for Regenerative Medicine, the CIRM, is the pride of our nation, the standard for science, and the envy of the world. It did not happen by itself.

Bob Klein dared to dream that California could become the center of the stem cell research universe. He worked tirelessly toward that end, and the Golden State said yes, voting to approve—and fund--the groundbreaking new research.

But lawsuits blocked us, delaying our hopes of cure. Research delayed is research denied. Right now, one hundred million Americans suffer disease and disabilities described as “incurable”, but which might be alleviated or healed with stem cell research. We needed help.

Arnold Schwarzenegger came through. His decision to authorize the $150 million loan was bold, forward-looking, compassionate.

I wish so much that another great champion, Christopher Reeve, could have been with us today. He would have been so proud. The man who, as my son said, was more like Superman in real life than in the movies, gave us a letter saying, “One day, Roman and I will stand up from our wheelchairs, and walk away from them forever.”

I believe in that great dream. And when it happens, when Roman Reed stands up from his wheelchair, we will remember this day.

Thank you, Governor Schwarzenegger. Thank you, Bob Klein. And thank you, California.

Back Online

We are back once again after suffering a terminal computer crash two days ago. We expect to file a report later today and more tomorrow.

CIRM President Hall Speaks to Conflict-of-Interest and SEED Grants

The California stem cell agency will not produce its conflict-of-interest list in advance of Thursday's session to award millions of dollars in public funds to a host of scientists.

CIRM President Zach Hall explains the reasons below in a statement that we received late Wednesday. It is a thoughtful response from a man who is dedicated to the agency's goals and the public good. Nonetheless we disagree with his position. Regular readers are familiar with our stand. Openness in the conduct of the public's business comes first unless compelling and legal reasons exist for confidentiality. When an agency gives away $3 billion in public funds, transparency is paramount.

As an introduction to Hall's statement, we should note that we asked last week for the CIRM conflict-of-interest list, which details which Oversight Committee members will be barred from voting on specific grants because of a legal conflict of interest. The complete list will be provided to the public only after the board makes its decisions, but before each grant is discussed, the names of individual committee members who will be recused will be announced. To understand the full context of this issue, see the previous items on this blog, “Openness,” "Money Machine" and “Shrouded” below. Here is Hall's statement, minus some salutations:

“Just as we were working all-out to prepare for the board meeting, your request arrived. It threw us for a bit of a loop because we had not contemplated such a request; indeed, we had not framed it in the way that you put it. As a result, we have had to think through what we do from a new perspective and to anticipate the ramifications of your request. The first point to make is that we are indeed making such a list – a big task as Dale (Carlson) pointed out – for staff use at the meeting; this work is not yet complete and we do not expect it to be completed until sometime in the morning. Second, we have not given a list like this to anyone outside of CIRM staff before – neither to board members or the public - nor had we contemplated doing so this time.

Two concerns drive our procedures: 1) that we monitor conflict-of-interest carefully and effectively to be sure that board members know when they have a COI and to be sure that they do not participate in the discussion, inadvertently or otherwise; 2) that we focus the discussion and the decision on scientific merit, independent of institution or applicant. At the meeting in September, 2005, when the training grants were approved, each board member received a sheet of paper listing the applications (by number) for which they had a conflict-of-interest. We then made sure that they did not participate in the discussion and their names were not called in a roll call vote. Thus board members did not have information about any recusals but their own.

The process is more daunting this time with 231 applications rather than 26. Each board member will again receive a sheet of paper listing the applications for which they have a COI. Because of the large number of applications and the difficulty of keeping up with the correct application number, we will also announce at the beginning of each discussion, exactly which board members have a conflict of interest. We will do this from a master list that we have made up (are making up), but, as we did before, had not planned to give this list either to board members or to the public. Thus, board members know their own recusals in advance of the discussion, but do not know who is recused from any other application until the discussion on that application begins. We think this is a good procedure.

When you made your request, our initial response was that, although we had not contemplated doing so, there was no reason for us to withhold the information from you when it was ready. On reflection, however, we have realized that if we give a master list to you beforehand, we also have to give to all others, including ICOC members. Passing out the list beforehand will only encourage “decoding” of the lists, as far as can be done, before the discussion to give institutional identifiers to many of the applications before they are reviewed. We believe this is undesirable.

In trying to balance all of these issues, we have decided to follow the procedure outlined above as originally planned, keeping the master list for our own use during the meeting. Those present will hear the announcement, as each application is discussed, of who is recused. After the approvals are completed, we will then make the master list available to you or to anyone else who wishes it.

You would undoubtedly prefer to have it before the meeting, but we believe this is in the best interests of a fair and unbiased proceedings. I apologize for the false start on our part about the procedures that we will follow. This is the first time through for such a large number of grants and we are all scrambling to do the best we can.

The CIRM Lawsuit Appeal: Not a Plus for Opponents

Reporter Paul Elias of The Associated Press used the word “skeptical” three times in his coverage of today's oral arguments in the appeal of the California stem cell lawsuit.

That is how he characterized the appellate court justices during the Valentine's Day hearing concerning attempts to overturn the judgment against opponents of the $3 billion stem cell agency. The hearing also generated rare televison coverage on San Francisco station KGO. The text of the report by Lyanne Melendez was straightforward and appeared favorable to CIRM. But images are what matters on TV, and those were not accessible to us.

The Los Angeles Times also carried a very brief report on its website late Wednesday.

CIRM issued a statement from stem cell Chairman Robert Klein. Among other things, he said,

“Despite the opponents’ efforts, $130 million in Proposition 71 stem cell research funding for scientists is scheduled to be in place by March 15th.”

The opponents, according to press reports, also did not say anything that advanced their arguments beyond those rejected by the trial court judge.