Text of Lawmakers Letter

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

Dear Mr. Klein:

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

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

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

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

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

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

Sincerely,

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

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

Biotech Loan Program Slated for March Approval

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

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

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

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

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

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

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

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

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

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

Coming Up

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

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

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

Here is the response from CIRM General Counsel Tamar Pachter:

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

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

Victims and Scapegoats: Focusing on the Facts

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

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

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

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

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

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

The Cost of Tin Ears and Missed Opportunities

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

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

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

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

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

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

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

Here is how the events played out.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fresh Comment

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

Correction

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

Coming Up

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

CIRM Deflecting Away From Directors on Conflict Problems

The San Diego Union-Tribune, The Sacramento Bee, San Francisco Chronicle and the San Jose Mercury News carried stories today on the conflict-of-interest flap at the California stem cell agency and the rejection of a 10 grant applications seeking perhaps $25 million.

Notably missing from the coverage was the Los Angeles Times, the largest newspaper in the state, which had two of its local institutions, UCLA and USC, lose applications. CIRM put out a news release on the problem on Friday after the story was broken by Russell Sabin of the San Francisco Chronicle. The issue involves violation of the agency's conflict of interest policy by members of its board of directors who wrote letters in support of the application.

CIRM's news release and subsequent comments by agency spokespersons pointed away from the directors and towards language in the application, which required letters of support from either the dean of the applicant's institution or the departmental head.

At least two of today's stories noted that other institutions with members on the CIRM filed applications without violating conflict of interest rules.

Jim Downing of the Bee wrote:

"Claire Pomeroy, dean of the UC Davis School of Medicine, sits on the agency's board. Her school's applicants were not hit by Friday's action because their letters of recommendation were written by an associate dean.

"'We have a very clear barrier,' said UC Davis School of Medicine spokesman Charles Casey. "(Pomeroy) did not even know who we were submitting for those faculty grant awards."

Terri Somers of the San Diego Union-Tribune reported that Salk and Burnham both reported no problems with their applications. Stanford apparently is okay as well. All three have representatives on the CIRM board.

Somers also provided an update on the conflict of interest problem involving John Reed, president of the Burnham Institute, and his attempt to influence a grant last summer. She wrote:

"Board member and AIDS activist Jeff Sheehy said he is not clamoring for Reed's resignation, but he wants an acknowledgment that there was a 'serious violation of an important rule.'

"'My problem is that we are acting like nothing happened,' Sheehy said.

"He has asked for a discussion of the matter to be placed on the agenda for the meeting Wednesday.

"Also that day, the board will decide what to do with the remaining 49 faculty grant applications. It could vote to award all or some of the grant money. Or it could decide to toss out the entire grant round and start over."

Besides The Bee and San Diego, here are links to the stories in the Chronicle and Mercury News.

(Editor's note: An earlier version of this story carried the figure $15 million in the first paragraph. The actual figure appears to be closer to $25 million.)

CIRM Rejects Grant Applications in Wake of Director Conflicts

The California stem cell agency, already under fire because of one conflict-of-interest flap, today dumped 10 applications for grants of up to $3 million annually as the result of additional violations of its conflict of interest policy by members of its board of directors.

The announcement followed a report in the San Francisco Chronicle (see below) this morning that disclosed the problems with grant applications from UC San Francisco, UC San Diego, UCLA and the University of Southern California.

The newspaper said that applications from those institutions included letters of support from the deans of those schools who also sit on the board of directors for the $3 billion program. Members of the board of directors are barred from attempting to influence a decision regarding a grant.

CIRM's announcement did not mention conflicts of interests. Nor did it mention the names of the schools, which may submit more than one application on behalf of their researchers. It also did not indicate whether more institutions than the four were involved.

The problems are connected to an $85 million faculty award program aimed at supporting top-flight, young researchers for several years. CIRM said that with the rejection of the 10 applications, the size of the program could shrink by about $15 million. Awards are scheduled to be approved by directors next week in Los Angeles.

Interim CIRM President Richard Murphy said that "checks and balances" at CIRM detected the problem. According to the Chronicle, CIRM staffers identified the conflicts. Murphy said the problem was the result of an "innocent misunderstanding."

CIRM Chairman Robert Klein said steps will be taken to prevent a recurrence of similar problems. They include more review of applications prior to issuance, special guidance to board directors and "specific guidance on access to counsel" concerning applications.

Klein, an attorney, was involved in the earlier conflict problem involving the Burnham Institute. He advised John Reed, a CIRM director and president of the Burnham, to write a letter in August lobbying CIRM staff to overturn a negative decision on a grant to Burnham. The case has attracted international attention online in scientific journals and has generated a call for an investigation by the California Fair Political Practices Commission.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights, said CIRM made the right decision in rejecting the 10 applications. But he said in a news release:

"The only way to fix this is complete transparency. People have a right to know which board members still don’t understand conflict of interest rules."

Simpson continued:

"It’s simple: stem cell board members cannot take part in any way in grants to their institutions. The board is not some old-boys’ club for the benefit of the state’s universities. They are public officials and stewards of the public interest. Perhaps a few of these deans need to enroll in Ethics 101 at their universities and get the basics down."

Both Simpson and California's top fiscal officer, state Controller John Chiang, have called for the FPPC investigation in the Burnham case.

The Chronicle said that applications for the faculty award grants required a letter of support signed by the dean of the medical school or the departmental chair.

In addition to the four schools identified by the Chronicle, other institutions have top academic officials, including deans, represented on CIRM's board. They include Stanford, UC Davis and UC Irvine. CIRM refuses to disclose the names of institutions that apply for grants on the grounds that those rejected might be embarrassed.

However, it is reasonable to assume that at least one of those three schools applied for the faculty award program and did not submit a letter that would be a conflict of interest.

In response to a question from the California Stem Cell Report, Simpson said,

"They need to make clear what institutions and board members are involved. And they need use the words "conflict of interest violation. Even if they don't do that, the (CIRM news) release was gobbledygook."

Murphy, also in response to questions, said that all 10 applications were eliminated for the same reason. He said,

"ICOC members and CIRM staff are, like all government officials, aware of and sensitive to conflict of interest concerns. This is precisely why CIRM has acted so cautiously in this case. The concerns about the submissions in response to the new faculty (awards)arose out of an innocent misunderstanding of what was allowable in terms of the sign off of institutional support letters by ICOC members."

Jesse Reynolds of the Center for Genetics and Society, writing on the organization's blog Biopolitical Times, said, the Burnham conflict case and today's suggest "a board culture that does not take conflicts of interest seriously. The picture seems even sharper in light of CIRM board members' personal financial interests in companies that are invested in stem cell research, documented in a CGS report in April 2005."

Reynolds continued,

"This meddling is symptomatic of the deep flaws of Proposition 71, which created CIRM. It mandates that the CIRM board be dominated by high-ranking representatives of the institutions vying to maximize their slice of the public funding pie. These developments should stimulate the California legislature to alter the law to reform the board structure, and more."

Ins and Outs of CIRM's Proposed Biotech Bank

Wired.com carried an article today with more on the biotech loan program that will be discussed next week by CIRM directors. Written by the author of this blog, the piece carries comments from industry and watchdog groups and touches on some of the conflict of interest questions involved in such an effort. The article also incorrectly says the meeting next week is Dec. 12. The actual date is Dec. 11.

We will have more comments on the proposal later on this website from some of the folks interviewed for the story.

Conflict Problems Snag $85 Million CIRM Grant Program

Applications from four California stem cell powerhouses for CIRM research grants that could run as high as $3 million a year could be in jeopardy because of concerns about conflicts of interest.

Reporter Sabin Russell of the San Francisco Chronicle disclosed the problem today in a story about the $85 million faculty award program. The grants are scheduled to be awarded next week at a meeting in Los Angeles.

The universities involved are the University of California campuses in San Francisco, Los Angeles, San Diego and the University of Southern California. Russell wrote that CIRM may "toss out" the applications because they "included letters of support from deans who also sit on the citizens' board that governs the $3 billion program."

Russell continued,

"Sources close to the grant-making process said that staffers at the California Institute for Regenerative Medicine flagged the applications for conflict-of-interest violations, despite a requirement that each request contain a letter of support 'signed by the Dean or Departmental Chair.'"

Russell wrote,

"Although the grant application called for letters of support from the deans or department chairmen, the conflict-of-interest policy for the stem cell institute also specifies that its board members "shall not make, participate in making, or in any way attempt to use their official position to influence a decision regarding a grant ...'

"Therefore, schools that followed one set of state instructions may well have violated another set of rules - putting at risk millions of dollars in potential research. Institutions not represented on the board, or that had department heads rather than deans write the support letters, avoided the problem.

"The apparent contradiction in the rulebook is the kind of problem that critics say was built into the stem cell initiative passed by voters in 2004. Concerned about avoiding even the appearance of conflicts of interest, the governing board debated its rules extensively during a meeting in April 2005."

CIRM told Russell that it had no comment on the matter nor did the insitutions.

The Chronicle story said,

"It remains unclear what will happen if the grant applications are rejected. One option, according to sources, is to simply have the four universities reapply at a later date - a delay of at least six months. Another option would be to reject all of the grants and have everyone update their applications because of the confusion regarding the letter-of-recommendation rules."

Russell's story came on the heels of the disclosure on this web site of an improper attempt earlier this year by a CIRM director, John Reed, to influence the awarding of a grant to his own insitution, the Burnham Institute.

Russell also reported that David Serrano Sewell, another director, said that Reed should resign. Sewell said,

"I've given a great deal of thought to this. It has nothing to do with his abilities as a scientist. But his continued presence on our board undermines our ability to do our job."

Earlier Reed said he did not intend to resign. But a Burnham spokeswoman told Russell that he had not made a decision.

Fresh Comments

"Mentorless" has posted a new comment on the text of Richard Murphy's response to questions involving the Reed-Burnham-Klein conflict-of-interest affair. Mentorless raises questions about the nature of Murphy's response and whether he was involved in a conflict in handling the news release on rejection of Burnham's grants earlier this year.

"Stem cells bank" has posted a comment on the $85 million item below.

You can read the comments by clicking on the word "comments" at the end of the item in question.

Clarification

On Dec. 5 in the item below, we reported that CIRM was considering raising the honorarium for scientists who review grant applications from $500 to $2,000 daily. The increase would actually be to $2,000 for any meeting, whether it is one or two days, and include preparation. Generally the grant review sessions have not lasted more than one or two days. Reviewer's expenses are covered as well.

Interim CIRM President Richard Murphy also pointed out to us that when he did grant reviews in the past that it took him one to two weeks to review the grants and write them up, including meeting time and travel.

(Editor's note: Originally this item was labelled as a correction. However, in reviewing the material from CIRM, the agency's material was ambiguous about whether the $2,000 was a flat fee.)

California To Give $85 Million to 25 Researchers

The California stem cell agency meets next Wednesday in Los Angeles to give away $85 million to as many as 25 stem cell researchers at rates of up to $3 million a year each.

The five-year "faculty award" program is aimed at drawing the best and brightest into stem cell research in California and not just embryonic stem cell research. Arlene Chiu, CIRM's former top scientist, said earlier this year,

"These grants are designed to encourage newly independent investigators to pursue bold and innovative studies across the full range of stem cell types – human and animal, embryonic and adult. We will consider providing successful applicants salary and research funding for up to five years, ensuring that they have stable, secure financial support as they begin their independent scientific careers."

Applications for the grants came from researchers at 28 organizations. Eleven University of California and California State University campuses are represented. (The California State University system is separate from UC). Four private universities submitted applications. Thirteen non-profit research institutions also applied. However, none of the names of the institutions or the individuals were publicly released, in keeping with CIRM's policy of secrecy on grant applications.

The faculty program is the main item on the agenda for next week's meeting, but other noteworthy items are including. Some details of what is to be considered are currently available on CIRM's web site, well in advance of the meeting. Sometimes the agency has been remiss in providing information in a timely fashion, but the early posting of information is essential if the agency is to engage the public and keep its constituencies and backers truly informed.

Here is a quick run-down on the agenda and the status of the supporting information:

--Grants administration policy for grants to private businesses – key item for the private sector – Draft of policy posted

--Boost in compensation for scientists reviewing grants from $500 daily to $2,000 per meeting, regardless of the number of days – background posted along with short bios on new scientific members of the Grants Working Group, which is the group that reviews research applications

--$300,000 annual conference program to be controlled by the CIRM president – background posted

--Research standards – background posted on "consent calendar" item

The following items have no background posted on CIRM's web site at the time of this writing, five business days prior to the meeting:

--$85 million faculty award program

--Additional funding for $227 million lab grant program to be awarded next year

--Compensation and relocation allowance for incoming president Alan Trounson

--Intellectual property policy for grants to businesses – This is a major item for the private sector.

--Changes in CIRM's internal governance policy and review of CIRM's organization chart – This is likely to concern the sometimes tenditious past relationships involving the president and chairman of CIRM, creating a new structure aimed at keeping Trounson and stem cell Chairman Robert Klein happy. It could also involve allocation of additional staff to Klein, which he has been seeking for some months.

(Editor's note: An earlier version of this post was garbled. An earlier version also incorrectly reported that the increase in reviewers' honorariums would be to $2,000 per day instead of per meeting.)

Kickoff Session on California's Biotech Loan Program

The first public meeting dealing with creation of the biotech loan program of the California stem cell agency will be held next week at locations in Los Angeles, San Francisco and Pleasanton.

The loan effort is expected to run upwards of $750 million a year and will be aimed at businesses. If you represent a business and expect to be seeking a loan from CIRM, now is the time to begin monitoring this effort and making suggestions.

Here is a link to next Tuesday's agenda, which contains nothing more than a listing at this point. The main item is development of a work plan. But given that this is the first meeting, the session could be wide-ranging.

The primary location for the meeting is in Los Angeles with teleconference locations in San Francisco and Pleasanton.

First Chance for Business to Snag California Stem Cell Dollars

Attention Stem Cell Businesses! California's $3 billion wagon of cash is moving fast, and it is now time for you to jump on board.

The California Institute for Regenerative Medicine is looking for a few good businesses, and it wants to give a few million dollars to them. Even if you are headquartered in New Jersey or anywhere else in the world, it makes no difference. Only a couple of catches – you must have a "research site" located in California by Feb. 5. That site is also where the CIRM-funded research must be done.

Feb. 5 is the deadline for applications for a $25 million round of grants for research into development of new cell lines, both from IVF and alternative methods such as reprogramming. Sixteen grants are expected to be awarded with funding possibly as early as August of next year.

This is the first opportunity for businesses to seek grants from CIRM. It appears that they will be competing for stem cell dollars against academic and nonprofit researchers. It is hard to set the odds on the competition given the array of stem cell talent in the Golden State. But some CIRM directors are eager to pump money into the private sector, figuring that could pay off by developing therapies faster than going the academic route. Others are simply sympathetic to the needs of cash-starved stem cell enterprises.

The news about business grants was buried deep in the new cell lines RFA that CIRM posted with no fanfare last Thursday. John M. Simpson, the stem cell watchdog for the Foundation of Taxpayer and Consumer Rights, was quick to see it. (We also wrote about it for Wired.com in a piece that appeared Friday evening.)

Simpson issued a news release on Friday afternoon noting that biotech companies play an important role in stem cell research. But he also said that CIRM should not be in the business of writing blank checks for biotech. Simpson declared,

"We’ve already seen an example of an improper attempt by a stem cell board member to influence an award to his non-profit research institution. The possibility of abuse is even greater when the biotech industry goes after the money.”

Simpson has been active in development of intellectual property policy of the the stem cell agency, which is the key mechanism for the state to share any wealth that may result from CIRM-funded research. It is also the mechanism for assuring affordable access to CIRM-backed therapies. On Dec. 12, the agency's directors are expected to approve its IP policy for grants to business. Businesses can still weigh in with comments ahead of the meeting or at the meeting itself. Our advice is to do both, if it is important to your enterprise.

The exact IP policy that is to be considered is not yet posted as part of the agenda for the meeting, but the RFA has a link to this related document.

The reprogramming effort should come as no surprise to those who follow the agency closely. Arlene Chiu(see photo), former chief scientist at CIRM, and others were working on the new cell line proposal, including the reprogramming aspects, well before the news surfaced last month about a breakthrough in creating pluripotent cells from adult skin cells.

In October, she presented the concept for the new cell line grants to CIRM directors, declaring,

"We want to support the full spectrum of human pluripotent stem cell types and experimental approaches."

Also open to businesses is a $1 million round of planning grants to help lay the foundation for awards in a much larger series of "disease team" grants. That round will total roughly a whopping $122 million. In the case of planning grants, the RFA states that "for-profit organizations in California" may apply, but it does not specify whether they must be headquartered in the state or simply have operations in California.

Here are the key dates for the planning grants: Candidate nomination forms and letters of intent, Dec. 20; applications Jan. 31.

Key dates for the new cell grants: Candidate nomination forms and letters of intent, Jan. 10; applications, Feb. 5 as noted previously.

California's Widening Stem Cell Net

Will Wisconsin scientist Jamie Thomson and Japan's Shinya Yamanaka be ripe for a research grant next year from the California stem cell agency? And perhaps others as well who are located principally outside of California?

CIRM's $3 billion research effort appears to be moving in that direction in its latest RFA for new cell lines, including reprogramming efforts.

For those of you who may have been tuned out last month, Jamie Thomson of the University of Wisconsin and Shinya Yamanaka of Kyoto University in Japan, generated international hoopla with their reports that they created pluripotent cells out of adult human skin cells.

Both men did their work outside California, which made them ineligible for funding in the Golden State.

But Thomson is now affiliated with the University of California, Santa Barbara, which has ponied up $1 million to support him at the seaside campus. And Yamanaka is linked to Gladstone Institute in San Francisco. Both men are part of a wave of about 50 stem cell scientists who have come to California since the stem cell institute was created three years ago.

If the money were right, both would seem to be able to meet the CIRM requirement for the grants for the new cell lines that they make a "10 percent effort" on research in California. Other scientists are likely to be able to meet that requirement as well.

The CIRM Oversight Committee indirectly touched on the question of funding such folks as Thomson and Yamanaka at its meeting in October. Neither Thomson nor Yamanaka was mentioned by name. But at one point, Philip Pizzo, dean of the Stanford School of Medicine and a member of the Oversight Committee, asked CIRM staff,

"What if there's an investigator who comes to California for part of her or his work who has an appointment in another state, let's say Wisconsin as a hypothetical, who develops new stem cell lines. and because of an academic affiliation seeks to have those said lines become part of, for example, the Wisconsin policy?"

Pizzo later remarked,

"We would welcome joint appointments or other appointments that would bring new talent to California, recognizing that the individual may be at another place, but I think we just have to understand -- the legal folks will need to understand what that means in terms of institutional controls over IP as well."

The upshot of the discussion seemed to be that the IP would belong to the institution where the research was conducted, and it would be in California. But no legal opinion was rendered by CIRM or policy position taken.

During a later discussion of disease team grants, California stem cell Chairman Robert Klein made it clear that "there is the intent to capture these brilliant scientists who are prepared to make a part-time commitment to California, paying for the time they spend in California."

All of this fits with the aspirations of incoming CIRM President Alan O. Trounson, an Australian who has said broadening the reach of the agency is one of his goals.

SC3: The New California Stem Cell Collaboration

Six California research institutions, ranging from the University of Southern California to the University of California at Santa Barbara, today announced a "collaboration" aimed at enhancing their stem cell research efforts.

Martin Pera(see photo), director of the USC Center for Stem Cell and Regenerative Medicine, said,

"Tackling these complex problems requires scientists with diverse expertise. We are delighted to have an opportunity to work with such an outstanding collection of scientists to really accelerate the pace of discovery and translational research in regenerative medicine."

In addition to USC and UC Santa Barbara, the other institutions are Childrens Hospital Los Angeles, City of Hope, the California Institute of Technology and the House Ear Institute.

The coalition is officially known as SC3 – the Southern California Stem Cell Scientific Collaboration.

SC3's news release said,

"The new agreement is a major step forward in supporting potential significant stem cell findings by allowing members to share training programs, scientific core facilities and expertise while teaming up on a wide range of research programs."

Dennis Clegg, director of the stem program at UC Santa Barbara, said, "The SC3 collaboration is already engendering new ideas for collaborative projects between scientists at the participating institutions."

Pera said SC3 is not applying for any of the $227 million in CIRM lab construction grants, which are being reviewed privately today in San Francisco, although USC is. Pera said via email,

"We have dedicated one floor in our proposed facility (Edythe and Eli Broad Center for Regenerative Medicine and Stem Cell Research) to supporting the work of SC3-through training, access to core laboratories with specialized equipment and expertise, and through providing space for collaborative and pilot projects. "

Southern California already has another type of collective effort underway regarding stem cell research – the San Diego consortium involving UC San Diego, Scripps, Burnham and Salk. However, it appears to be more formally structured and is believed to be seeking a large lab construction grant from CIRM.

The stem cell agency has declined to identify any of the institutions seeking grants.

CIRM Media Coverage: Conflicts to Anachronisms

A spate of articles has surfaced in the last couple of days concerning the $3 billion California stem cell agency, conflicts of interest and a new state audit of three-year-old effort.

Here is a quick rundown.

Sacramento Bee -- An editorial today praised the audit ordered by state Controller John Chiang. The first paragraph of piece said,

"Why is California's quasi-public stem cell research institute mired in questions over expenditures and backdoor lobbying? Part of the blame falls to the state's lawmakers and constitutional officers, who have failed to conduct proper oversight of this $3 billion agency."

San Francisco Chronicle opinion piece today – Written by Jesse Reynolds of the Center for Genetics and Society, it said,

"The shortcomings at CIRM run deeper than a handful of individuals. Proposition 71 not only vested governance of $3 billion in public money in those who seek to maximize their own share, but it is riddled with exceptions to the norms of public oversight, accountability and transparency. In this context, last week's development is an unfortunate but predictable result."

Reynolds also wrote a similar piece on his
his organization's blog, the Biopolitical Times.

The Niche (stem cell blog of Nature magazine) – Monya Baker attended Tuesday's meeting at which the audit was announced. She wrote on Nov. 27,

"Before and after the meeting (John M.) Simpson (of the Foundation for Taxpayer and Consumer Rights) and (California stem cell Chairman Robert) Klein could be seen talking spiritedly to each other, but they did not seem hostile. In conversations I overheard, one committee member told Simpson that CIRM members shouldn’t be expected to have the savvy of public officials. Klein told Simpson that lives could be lost if research was prevented, and Simpson said repeatedly that those entrusted with public funds need to be held accountable with public scrutiny."

Wired.com – A piece by this writer on Chiang's audit order and call for a separate investigation into the attempt by CIRM Director John Reed to influence a grant to his organization, the Burnham Institute.

San Diego Union-Tribune -- Terri Somers reported on Nov. 28 on the Chiang audit and said that Reed and Klein both say they will not resign.

San Jose Mercury News -- Steve Johnson wrote on Nov. 27 that Klein said he welcomed the audit.

San Francisco Chronicle – An editorial Nov. 28 said,

"As if stem cell work wasn't challenging enough, California is making harder. The voter-backed Institute for Regenerative Medicine has encountered its own ethical trouble. A board member lobbied the stem cell research body to overturn a rejected research proposal from a colleague. It was an intolerable violation of ethical guidelines. Stem cell work both here and nationally must adhere to the highest standards."

Secondhand Smoke, blog by Wesley J. Smith, who opposes hESC – Smith today cited the Reynolds piece and said,

"The science climate has changed since the passage of Proposition 71 and its structural problems continue. In light of the new science breakthroughs and the continuing questionable decision making, perhaps it's time not to borrow billions of dollars for human cloning research in a state once again drowning in red ink."

IP Biz blog – Larry Ebert wrote,

"Klein and californiastemcellreport are fast becoming anachronisms."

Top California Official Orders Audit of State Stem Cell Agency

California State Controller John Chiang today ordered an audit of the $3 billion California stem cell agency, including its conflict of interest policy and compliance with state law.

Chiang made the announcement at the meeting of the Citizens Financial Accountability Oversight Committee, which is charged with reviewing the performance and finances of CIRM. Chiang, who is one of the state's top financial officials, is chairman of the committee.

Chiang also announced that he has sent a request to the state Fair Political Practices Commission that it investigate the attempt by John Reed, a member of the CIRM Oversight Committee, to influence a $638,000 grant to his research enterprise, the Burnham Institute. Reed has since admitted his action was a violation of the agency's conflict of interest policy.

Chiang said in a news release,

"Whether they are perceived or real blemishes, we must resolve any conflict of interest questions quickly so we can protect the important and powerful work that is taking place in stem cell research."

The controller, a Democrat who was elected statewide, also said,

"Considering the institute has already made grants to 23 research agencies and the treasurer has sold $250 million in bonds for additional research, it is imperative that the research financing move forward in an ethical and transparent manner. Immediate action is necessary to guarantee the institute is effectively overseeing grants, and that grant recipients are using state funds appropriately and in a manner consistent with the stem cell initiative."

Chiang said that the audit will include how grants are allocated, whether the institute provides adequate oversight once the grants are awarded and what performance milestones are in place.

At today's meeting, John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights, renewed his call for the resignation of Reed and Robert Klein, chairman of CIRM. Klein, an attorney, advised Reed to engage in his lobbying effort.

Simpson also called for more openness in the closed door review of the applications for $227 million in lab construction grants. That review begins tomorrow in San Francisco. Simpson said,

"As already demonstrated by Reed and Klein’s actions, the only way the public can have faith in the process that will dole out millions of taxpayer dollars is for there to be complete transparency, Apparently the stem cell agency is afraid that a university or research institution might be embarrassed if their application does poorly. What the overseers need to understand is that they are not running a private club. They are supposed to be stewards of public money. They need to act that way. When they don’t, there must be consequences."

Judge Dismisses Cha Libel Suit Against Flamm

The California physician who criticized Korean stem cell scientist Kwang Yul Cha has won a round in Cha's libel suit suit against him.

Earlier this month, a Los Angeles judge threw out the suit against Bruce Flamm of Riverside, Ca., but Cha has about 60 days to file an appeal, which a spokesman says he is considering.

Cha surfaced in connection with the California stem cell agency when a nonprofit subsidiary of his organization won a research grant from CIRM. After the grant was approved, the media reported its links to Cha along with news about the controversy surrounding some of Cha's research. In October, Cha's group withdrew its application for the CIRM grant.

In the case of Flamm, he published a critical opinion piece concerning Cha's 2001 study that linked prayer to in vitro fertilization success. Cha says Flamm is engaged in a personal vendetta.

Regarding the judge's action, Flamm told The Scientist on Nov. 20:

"This is a great victory for science, peer review and academic freedom."

Time to Shine More Light on CIRM

The California Stem Cell Report has sent the following letter to the Citizens Financial Accountability Oversight Committee, which is meeting today in San Francisco concerning the affairs of the state's $3 billion stem cell agency.

To the Citizens Financial Accountability Oversight Committee:

The time has come for the California Institute for Regenerative Medicine to open its doors to more public disclosure in the interest of greater public accountability and to avoid further damage to its reputation. Such a move would enhance its performance as a credible advocate for sound scientific research and help to prevent future scandals involving its $3 billion program. I am asking your panel to make such a recommendation to CIRM.

Within the last week, Californians have seen stories in the media concerning an attempt by a CIRM director to privately influence the award of a $638,000 grant to his institution. That attempt was made at the suggestion of the chairman of the CIRM Oversight Committee, Robert Klein, who is also an attorney. His advice was in clear violation of CIRM's conflict of interest policy, a fact that he now acknowledges. Disclosure of the lobbying effort, first reported by the California Stem Cell Report, has generated calls for the resignation of Klein and the director, John Reed of the Burnham Institute. One organization, the Foundation for Taxpayer and Consumer Rights, has filed a complaint with the Fair Political Practices Commission.

Klein's and Reed's actions are part of a larger issue at CIRM: the conflicts of interests that are built into its structure by Prop. 71 and which the California state auditor has touched on. For example, currently a majority of its directors (Oversight Committee members) are linked to institutions that could benefit from the $227 million in lab construction grants scheduled to be given out next year. And the Oversight Committee is the group that approved the criteria for the lab grants.

CIRM has refused to disclose the names of the institutions that have applied for the grants until well after they undergo the most important stages of their review, a move that makes it impossible for the public to comment properly. It is also a case of unnecessary secrecy that only fosters suspicion and the worst sort of speculation, particularly in light of Klein's and Reed's actions.

CIRM's justification for this secrecy is weak. It does not want to embarrass any unsuccessful applicants, all of which are major public and private nonprofit institutions. It is a policy that seems to have been adopted, without due consideration, from a similar policy regarding applications from individual researchers.

However, applications for the major lab grants are much different than those from the men and women who direct stem cell research labs. The applications for lab construction funds come from huge institutions such as the University of California and other major educational and research enterprises. Their names and applications should be part of the public record. Equating the sensitivities of UC Berkeley or other likely institutional applicants for lab grants to the sensitivities of an individual researcher would seem to defy common sense. And if proprietary information exists in the application, it can easily be excised before release.

In keeping with the sense of the state auditor's report, CIRM should also make public the economic disclosure statements of the persons who review the grants. Public disclosure of those documents will assure both scientists, whose applications are being reviewed, and the public, whose money is being spent, of the essential fairness of the process.

CIRM has resisted such disclosures. It says it is already more open than the National Institutes of Health. But CIRM and the NIH are not comparable. The president and Congress can and do intervene in NIH matters and set its budget. In California, the governor and legislature are barred, for all practical purposes, from exercising such oversight because of the provisions of Prop. 71. Even the tiniest alterations in CIRM require an unprecedented, super, super majority vote of the Legislature and signature of the governor. Its funding is continuously appropriated and not subject to the normal budget process. All that means that CIRM has a special responsibility to demonstrate accountability and show the public that is performing with their best interests in mind.

I urge you to recommend to CIRM that it identify forthwith the applicants for its upcoming round of lab construction grants and to release the statements of economic interests from its panels of grant reviewers.

Conflicts and Klein: Fallout From Bad Advice

The role of Robert Klein, chairman of the California stem cell agency, in the Burnham grant affair largely escaped significant public scrutiny until Sunday's editorial in The Sacramento Bee.

One does not want to minimize the responsibility of John Reed, a notable scientist and accomplished executive, who privately lobbied the staff of CIRM to give a $638,000 grant to his organization(the Burnham Institute) while sitting on the board of directors of CIRM. But all of that came at the advice of the chairman of the agency, Robert Klein.

In the eyes of many, Klein is the virtual public embodiment of the stem cell agency, a role he relishes. He claims authorship of Prop. 71. He led the $30 million campaign for its passage, working the media and speaking on television shows in California and nationally. He is so knowledgeable that he can and does quote legal code citations from Prop. 71 in public meetings. Fortune magazine once called him a "super salesman" for human embryonic stem cell research.

John M. Simpson, of the Foundation for Taxpayer and Consumer Rights and longtime CIRM observer, says that Klein "brought great entrepreneurial spirit and energy and deserves great credit for getting Prop 71 passed and the agency launched."

All of which makes the impact of his advice to Reed even greater. The fallout is likely to ripple throughout the scientific community, the legislature and the media. And not much of the fallout is good.

Obviously their actions are a great embarrassment to both men, at the very least. But the impact on the California Institute for Regenerative Medicine will be considerable and long-lasting.

Klein has played into the hands of the foes of human embryonic stem cell research, who love to conjure up demons who fiddle with funding and abuse the public trust. They now can simply point to Klein and Reed as proof.

Putting the foes aside, the men's actions also raise qualms about the stewardship of $3 billion in public funds among those who are on the fence on the issue of stem cell research, as well as among some of its fervent supporters.

So far, CIRM has beaten off attempts by California lawmakers to intervene in the agency's affairs. Now legislators have a fresh and serious justification to probe into the agency's $29,000-an-hour research funding effort. Some may say a little friendly oversight from Sacramento is healthy but that is not the official view of CIRM's Oversight Committee.

The Reed/Klein affair has also come to light at a time when some are contending that human embryonic stem cell research is unnecessary in light of the recent research news about other ways to reap its benefits without the untidy matters associated with hESC experiments. Some are already questioning the necessity of CIRM's efforts.

Internally, Klein's action nurtures any latent suspicions among Oversight Committee members that a rival institution represented on the board might be favored privately in some fashion. That is a development that signals a weakened leadership position for Klein himself.

Klein's advice concerning the Burnham grant is not the first time he has demonstrated an insensitivity to issues that others perceive as important ethically or simply as a matter of propriety. He has taken the unusual step, for a state official, of operating his own private lobbying group on stem cell research. Earlier this year, that group took a $125,000 contribution from a northern California land developer. A short time later, Klein lobbied on behalf of a land deal backed by that developer. Part of that deal called for Klein to head a new nonprofit stem cell research organization that would be created as a result. Early on in CIRM's life, he refused to testify before a state Senate committee into the implementation of Prop. 71. Later, he organized an Internet campaign against a state senator who was seeking higher office. He called her an "ongoing threat" to stem cell research, although she had been the chief legislative advocate for stem cell research for years.

It is difficult to understand what led Klein, an attorney, to give Reed the bad advice. Whatever the reason, the Oversight Committee is riddled with conflicts of interest, something Klein should be keenly aware of. More than half of its members have links to institutions that could stand to benefit from the upcoming round of $227 million in lab construction grants. And it was the Oversight Committee itself that set the standards for those grants – not some detached, third-party organization.

The Bee (see item below) called for changes in the Oversight Committee. But Klein's crafting of Prop. 71 has made it virtually impossible to make even the best-intentioned changes at CIRM. The measure requires a super, super majority vote of the legislature and the signature of the governor to enact the tiniest alterations in CIRM's structure.

The only practical answer to the concerns about the conflicts – embodied vividly in the actions by Reed and Klein – is for CIRM to open up its operations. Publicly disclose the names of institutions seeking grants, publicly disclose the financial interests of scientific reviewers who make de facto decisions on grants. Even more openness would desirable, but these are relatively easy steps at this point.

On Sunday The Bee called for Klein and Reed to resign. While acknowledging Klein's contributions to CIRM, Simpson says, "Now, particularly given his propensity to treat it like his own fiefdom, it's time for him to move on." Last December, Klein indicated he would be leaving his post in 2008. That currently looks unlikely. The reason? His proposal for a biotech loan program as large as $750 million remains far from fruition.

It is probably not too soon, nonetheless, for the Oversight Committee to begin to think about succession, a matter that is critical to any business or organization, but particularly to an enterprise involved in the new frontiers of science and its finances.

Reed vs. Klein: "The Bigger Problem"

A writer who prefers to be anonymous pointed out, regarding the item below, that The Bee also called for the resignation of John Reed from the CIRM Oversight Committee. Point well taken. The Bee also observed that Klein is "the bigger problem."

We had a bad link to The Bee editorial. Here is a good link.

Sacramento Bee: Klein Should Step Down

The Sacramento Bee said today that Robert Klein should step down as chairman of the $3 billion California stem cell agency, the largest source of funding for human embryonic stem cell research in the world.

The Bee's editorial came in the wake of disclosure that Klein(see photo), who is an attorney, advised John Reed, a member of the agency's board of directors and head of the Burnham Institute, to privately lobby CIRM staff for a grant for his institution in violation of the agency's conflict of interest policy.

The Bee said,

"More than anyone, Klein should have known that Reed's inquiries and letter were inappropriate and would put him in a precarious legal situation."

The newspaper continued:

"Klein, as we've said for some time, needs to step down. His divided loyalties, his disregard for public processes and his imperious nature have driven off institute staff and created a bunker mentality at what should be a world-class scientific institute.

"Beyond that, the Legislature needs to reorganize the oversight board, making it smaller and less rife with conflicts. Although stem cell research still garners wide support, taxpayers want assurance their $3 billion will be spent based on the merits of projects, not behind-the-scenes lobbying."

At least two members of the agency's board, which is called the Oversight Commmittee, have expressed public concern about the Reed's action. More are certainly to be concerned as well. A consumer watchdog group, the Foundation for Taxpayer and Consumer Rights, has filed a complaint with state officials concerning the Reed matter, which could lead to fines of both men.

For those of you not familiar with California media, The Bee is the dominant newspaper in the state's capital. It is widely read by legislators, state government officials and public policy analysts.

Two CIRM Directors Upset by Improper Action by Colleague; Watchdog Calls for Klein Resignation

Two directors of the California stem cell agency have expressed concern about an allegedly illegal attempt by a fellow director to influence a $638,000 grant to his own research institution.

Their comments were contained in today's coverage of the attempt by John Reed, which was first reported on this web site on Wednesday. The item generated stories today in San Francisco Chronicle, San Diego Union-Tribune and The Sacramento Bee, San Jose Mercury News and on a blog Wednesday for Nature magazine.

Jeff Sheehy, a CIRM Oversight Committee member, said that Reed, who is president of the Burnham Insitute, should consider resigning. Sheehy (see photo) told Sabin Russell of the Chronicle,

"We need to resolve this before questions are raised about the integrity of our processes."

Russell also reported that David Serrano Sewell, a San Francisco deputy city attorney and member of the Oversight Committee, was "upset" by Reed's action but stopped short of calling for his resignation. "Patient advocates understand the rules. I just wish John hadn't done what he did," Sewell said.

Some of the members of the 29-person Oversight Committee are appointed to what are known as "patient advocate" positions.

John M. Simpson, stem cell project director of the Foundation for Taxpayer and Consumer Rights, previously had called for Reed's resignation. The Chronicle reported that Simpson is also now calling for the departure of Robert Klein, chairman of CIRM. It was Klein, an attorney, who advised Reed to write the letter in violation of CIRM's conflict of interest policy.

Today's news stories also carried the first comments from Reed and Klein. Both declined to respond initially to inquiries from this writer.

Reed told the Chronicle:

"It did not occur to me that conflict rules would prevent me from contacting staff to provide what I believed to be relevant information."

Klein described his actions as an "inadvertent error." He was quoted in the Chronicle as saying that although the letter was directly personally to Arlene Chiu, the chief scientist at CIRM, it was never seen by "the scientific team." He said,

"Our firewall worked. The influence didn't change anyone's mind, because the letter wasn't even considered."

However, CIRM documents obtained by the California Stem Cell Report show that Tamar Pachter, general counsel for CIRM, responded to Reed's letter in subsequent correspondence to Burnham by saying,

"Staff has considered the substance of the letter, and appreciates the time and thought that went into it..."

Simpson has filed a complaint with the state Fair Political Practices Commission concerning Reed's action. Terri Somers of the San Diego Union-Tribune said the commission could fine Reed or Klein up to $5,000.Reed's action. Terri Somers of the San Diego Union-Tribune said the commission could fine Reed or Klein up to $5,000.

Here are links to the Nature item and the Bee story. The Mercury News also carried a short item.

Text of John Reed letter

Here is a link to the complete text of the John Reed letter mentioned in the item below. It has been posted by John M. Simpson of the Foundation for Taxpayer and Consumer Rights. We were unable to post the material on the California Stem Cell Report because of technical difficulties here in Mexico.


Here is a link to the news release from foundation on the Reed letter.

Burnham's John Reed, Influence and a CIRM Grant Denial

In an apparent violation of a state conflict of interest policy, an influential director of the California stem cell agency earlier this year attempted to overturn a decision by the agency's staff that ultimately resulted in the loss of a $638,000 grant to his research institution.

John Reed, president of the Burnham Institute of La Jolla, Ca., on Aug. 2 wrote a 6 ½ page letter to the agency staff, warning that denial of the grant would set a "dangerous precedent" that would impair the mission of the California Institute for Regenerative Medicine (CIRM). The letter came about as the result of a suggestion by chairman of the institute, Robert Klein.

The California Stem Cell Report (CSCR) obtained a copy of the letter from Reed (see photo) from CIRM after filing a request under the state's public records act for documents relating to the Burnham grant.

In response to questions from CSCR, Richard Murphy, interim president of CIRM, said,

"Dr. Reed called the chairman to ask how to deal with what Burnham saw as technical mistakes in CIRM’s interpretation of the application. The chairman, not knowing enough about the technical details or whether mistakes had been made, suggested that Dr. Reed write a letter to the science team, which was knowledgeable about the issues."

Murphy also said,

"After CIRM received the letter, Dr. Reed was informed that he must refrain from participating in any way in CIRM's consideration of the Burnham grant."

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., called for Reed's resignation, declaring that he would file a formal complaint with the state Fair Political Practices Commission, which deals with conflict-of-interest violations.

Simpson, a longtime observer and participant in CIRM proceedings,said, "The law is clear....John Reed flouted the law." He continued, "When you hand out millions of dollars in public money, you have to play by the rules."

Asked whether CIRM contemplated any action regarding Reed, Murphy replied, "Dr. Reed now fully understands the conflict rules. CIRM does not intend to take any further action regarding this matter."

Klein did not respond to an email asking about his role in the Reed letter. Reed also did not respond to questions emailed to him.

Reed presides over a nonprofit research institution that has received $17 million in CIRM grants and that has an annual budget of $87 million. According to Burnham's web site, it has 750 employees and ranks 5th in the nation in NIH funding among private research institutions.

CIRM's policy on conflict of interest states:

"Members of the ICOC shall not make, participate in making, or in any way attempt to use their official position to influence a decision regarding a grant, loan, or contract with their employer.

"Members of the ICOC shall not make, participate in making or in any way attempt to use their official position to influence a decision regarding a grant, loan, or contract that financially benefits the member or the entity he or she represents."

The application for the grant in question came from David Smotrich, an adjunct professor at Burnham and founder of the La Jolla IVF clinic. The grant was highly rated by scientific reviewers, who examined it behind closed doors and made the initial decision to fund it. Their findings then went to the Oversight Committee for final action last February during a public meeting. The application was considered at that time under the board's normal procedures. The names of the applicant and institution were withheld from the public and the Oversight Committee. Reed was barred from voting and taking part in the discussion, but that fact was not known to the public at the time.

Following Oversight Committee approval, the Smotrich application and all other approved grants were scrutinized administratively to assure that they complied with terms for the grants. CIRM staffers did not question the science or the credentials of the researcher. But they indicated as early as Feb. 24, according to CIRM documents, that there were problems with the eligibility of Smotrich. The issues involved whether he was a fulltime faculty member at Burnham, was located on the Burnham site and whether he had his own dedicated lab at Burnham.

The exchange between CIRM and Burnham about Smotrich went on for seven months. The letter from Reed came just as CIRM staff was planning to announce the grant denial at the Oversight Committee meeting early in August.

He said in his "appeal" letter to Arlene Chiu, then the top scientist at CIRM, that Smotrich "rightfully deserves" the grant. He devoted the bulk of his letter to Smotrich's credentials and his research, which included an "embryo rescue program" that would salvage leftover embryos from IVF that would otherwise be discarded.

Reed wrote:

"I also wish to emphasize the potentially damaging consequences that a decision not to recognize Dr. Smotrich's legitimacy as a faculty member may have on clinician investigations, as it will surely discourage clinical researchers from participating in the CIRM mission to advance stem cell therapies. Finally, the particular grant recommended for funding is of great strategic importance to the entire CIRM effort, and therefore we urge CIRM staff to take this into consideration."

Referring to the "embryo rescue program," Reed said,

"This is a unique resource not found anywhere else in the entire state and the only source currently available in California for deriving new hESC lines with the goal to share these freely with the entire CIRM research community to advance the fundamental goals of CIRM. Thus, to abandon the grant on perceived technical grounds flies in the face of the mission of CIRM."

Reed added that denial of the grant "sets a dangerous precedent that adversely affects all clinician-scientists, most of whom will have a significant component of their time devoted to clinical activity and whom will often by supported by non-academic sources."

On Aug. 27, Tamar Pachter, CIRM general counsel, wrote Burnham concerning Reed's Aug. 2 letter. She said his request to appeal the staff decision was rejected because no right of appeal existed for administrative findings. She said the decision did not involve the merits of the research or Smotrich's credentials.

She wrote,

"To be fair to all the applicants (as well as potential applicants who self-selected out of the applications process because they could not meet the eligibility requirements of the RFA), and to carry out its duties as a state agency with integrity, CIRM must consistently enforce eligibility requirements."

Burnham was offered an opportunity to withdraw the application but refused to do so. The decision not to fund the grant was announced late in the day in the waning minutes of the October meeting of the Oversight Committee, a move controlled by Klein in his role as chairman.

The CIRM news release the next day on the meeting did not identify Burnham as losing the grant, a decision made by Murphy, who overruled a recommendation by then chief communications officer Dale Carlson. (Prior to his appointment at CIRM, Murphy was president of the Salk Institute, another medical research organization in La Jolla.)

Carlson had submitted the draft release to Murphy for approval. Its next to last sentence said that the grant to Burnham had been denied. In an email exchange on the evening of Oct. 3 (the day of the Oversight meeting), Murphy said he did not want to mention the Burnham grant.

Carlson then emailed Murphy that the Burnham case and another grant that was withdrawn demonstrated the rigor of staff review and showed that the agency was a good steward of public funds. He wrote:

"Putting out a release in the morning that fails to note these items in light of the press coverage they'll be receiving, would seem like we're being protective and/or inexplicably secretive. Better to include the news at the bottom of the release. It shows we think the items that appear first are more important, but these are at least worth noting."

Murphy then replied to Carlson,

"From CIRM's point of view, you're right. It makes us look meticulous, as we are. But I hate to build our reputation for quality on the carcass of another institution, which no doubt will be embarrassed by the coverage. John Reed will be under fire from his board and donors for allowing this to happen, and we don't want to pile on. Let Burnham handle it anyway they want, but I don't think we suffer by remaining silent. If it hits the fan, I'll take the rap by saying truthfully that it was a technical decision, the science was great, but rules are rules. We did what we had to, and we look forward to their resubmission.

"Thanks for caring so much, but there's a balance on this one, and I think we serve the community kland CIRM best by minimizing the issue and remaining silent."

(Below is the full text of Murphy's response to questions from the California Stem Cell Report.)

(Editor's note: An earlier version of this said that news release following the Oct. 3 Oversight Committee did not contain any mention of the Burnham grant. The news release said a grant had been denied but did not identify Burnham.)

Text of CIRM Response on Reed Letter

Here are the questions that the California Stem Cell Report submitted to Richard Murphy, interim president of CIRM, concerning the Aug. 2 letter by John Reed, president of the Burnham Institute and a member of the CIRM Oversight Committee, and Murphy's verbatim response.

CSCR: Have Oversight Committee members been told that they cannot intervene for or against applicants either before or after ICOC action on applications?

Murphy: "Yes. Members of the ICOC are required to take the Attorney General's on-line ethics course, which includes information regarding the prohibition against participating in a decision in which a person has a financial interest. In addition, the Attorney General's Office made an ethics presentation to the Board in 2005 and CIRM's outside counsel made an ethics presentation to the Board in April 2007."

CSCR: Have any other directors besides Reed intervened?
Murphy: "No.".

CSCR: Was Reed at any time told, either verbally or in writing or any other way, that his letter was inappropriate or improper or may have violated conflict of interest laws.

Murphy: "After CIRM received the letter, Dr. Reed was informed that he must refrain from participating in any way in CIRM's consideration of the Burnham grant. In addition, CIRM staff did not consider the letter in conducting their administrative review of the Burnham grant."

CSCR: Did the ICOC or any committee of the ICOC discuss Reed's action or letter at any point?

Murphy: "Neither the ICOC nor any of its subcommittees received or discussed Dr. Reed's letter."

CSCR: Did any CIRM staff or member of the Oversight Committee or the chairman suggest to Reed that he should write his Aug. 2 letter concerning the Smotrich grant?

Murphy: "Dr. Reed called the Chairman(Robert Klein) to ask how to deal with what Burnham saw as technical mistakes in CIRM’s interpretation of the application. The Chairman, not knowing enough about the technical details or whether mistakes had been made, suggested that Dr. Reed write a letter to the science team, which was knowledgeable about the issues."

CSCR: Does CIRM or the ICOC contemplate any refresher sessions on ethics or conflict of interest for ICOC members? Have such briefings already occurred in 2007?

Murphy: "Yes, in addition to the Attorney General's on-line course, which members are required to take every two years, the Board has received two oral briefings on conflict of interest issues, including in April 2007. The Board will continue to receive periodic ethics training to ensure that members are familiar with the rules."

CSCR: Burnham was told that the denial of the grant would be announced at the ICOC meeting in August. Why did that not happen?

Murphy: "CIRM did not announce in August because Burnham had appealed the determination, and that issue was not resolved before the ICOC meeting in August."

CSCR: Re your note on the press release on the October ICOC meeting and your concerns about how the Burnham institute might feel concerning the Smotrich matter, do you think this was a case where
you put Burnham's interests ahead of CIRM's. Isn't the integrity of CIRM more important than Burnham's or Reed's reputations?

Murphy: "CIRM's action in rejecting the Burnham grant speaks for itself. CIRM staff conducted themselves with the highest degree of professionalism and integrity and informed the Board of their decision at a public meeting in San Diego. Given the public discussion of this issue, I saw no need to include it in a press release following the meeting. My decision was indeed made to be supportive of Burnham, but it in no way compromised CIRM’s integrity or interests."

CSCR: I can only find a link to ICOC conflict of interest policies on the CIRM web site. Were the policies codified into regulations and officially issued as such?

Murphy: "As required by the Political Reform Act, the ICOC adopted a conflict of interest code that applies to members and CIRM staff. In addition, the ICOC voluntarily adopted a conflict of interest policy for its members that goes beyond the requirements of state law. Unlike the conflict of interest code, the policy was not codified into regulations."

Murphy: Does CIRM or the Oversight Committee contemplate any action in connection with Reed's letter?

Murphy: "It is important to remember that Dr. Reed sent his letter after the ICOC had approved the grant, which received the second highest score from a group of out-of-state scientists on the Grants Working Group. At the time, Dr. Reed mistakenly believed that conflict rules would not prevent him from providing technical information regarding the status of a faculty member to CIRM staff. As soon as CIRM staff received the letter, counsel advised Dr. Reed that he must refrain from contacting the staff and board members regarding a grant to the Burnham and advised staff to disregard Dr. Reed's letter. It therefore had no effect on CIRM's process, and Dr. Reed now fully understands the conflict rules. CIRM does not intend to take any further action regarding this matter."

CSCR: If there is other material that you think would help provide insight into this matter, please send it along as well.

Murphy: "None."