Csete Discloses Reasons for Resignation: Lack of Respect at CIRM

Nature magazine reported today that Marie Csete says she resigned as chief scientific officer of the $3 billion California stem cell agency because her advice was not respected.

Reporter Erika Check Hayden quoted Csete as saying,

"When it became clear to me that my considered clinical advice was not respected, I concluded that it made no sense for me to stay at CIRM."

Hayden also wrote,

“When Csete left Emory University in Atlanta, Georgia, to join CIRM in March 2008, she gave up her lab and divorced her husband John Doyle. He is a professor at the California Institute of Technology in Pasadena, an institution she would be inviting to apply for research funding and so needed to avoid contravening state conflict-of-interest laws. 'We were willing to sacrifice a lot for me to be in a position to make a positive impact at CIRM,' she says. 'I wanted to see it to the end.'

Hayden continued,

“Csete says she hopes her leaving will mark 'a new start' for the agency. 'I had tried everything I could to change what I think needed to change from the inside, and that was not going to happen,' she says. 'I felt I would have more impact by stepping away and advising the leadership of the board on my way out about ways to revise the structure and management of the agency to make it more optimal.'"

Csete's departure is likely to come up a teleconference meeting of the full CIRM board early tomorrow evening. The board is scheduled to consider a plan, posted this evening, to bolster support for the CIRM board. The meeting was called following a contentious session in San Diego earlier this month during which a number of “festering” issues surfaced.

In a reaction earlier to Csete's announcement, CIRM Chairman Robert Klein said he planned to contact each board member to discuss the matter, raising the possibility that he would be engaged in an illegal serial meeting.

We queried James Harrison, outside counsel to CIRM, about the plan. He replied last week,

“There will be no serial meeting -- the discussion will occur at our next meeting.”

Harrison referred to tomorrow's teleconference meeting.

We also asked Don Gibbons, chief communications officer for CIRM, whether Csete had a contract or was given severance from her $310,000-a-year job. He replied that she had neither. We asked Gibbons this evening whether CIRM has any comments on the Nature article today. He has not yet responded.

The public can take part in the tomorrow's meeting at teleconference locations in San Francisco (4), Los Angeles (4), Duarte, Sacramento, Elk Grove, La Jolla, Healdsburg, Irvine, Berkeley, Palo Alto, Stanford and Tucson, Ariz. See the agenda for specific addresses.

Three Handlers Clear First Round in $500 Million Biotech Lending Program

MENLO PARK -- Three financial firms today made the first cut in their bid to handle the California stem cell agency's $500 million biotech lending program.

The CIRM directors' Finance Subcommittee sent Square 1 Bank in East Palo Alto, Comerica Bank in San Diego and Silicon Valley Bank of Santa Clara into negotiations with the agency's staff.

The ultimate winners of the contracts will be selected by the full board of the $3 billion agency after its staff completes its negotiations.

Losing out in the bid were Adjuvant Capital Partners of San Francisco and Orix Venture Finance in Palo Alto.

The Finance Subcommittee, which had asked for the staff analysis five days ahead of today's meeting, was presented today with a five-page summary of the proposals.

The three winning firms had the best cost rankings. CIRM used the example of a $20 million loan serviced over a six-year period. The firms had a choice of using a fee for service or a loan origination model. Square 1 had the lowest cost – $71,000 for the sample loan on a fee for service basis. Additional expenses were shown for handling the warrants. No dollar amounts were presented in that case, only percentages. Additional fees are likely to be imposed on potential borrowers.

No potential borrowers were present for today's session. But it may well be appropriate for CIRM to consult with them prior to locking down terms and fees that be difficult for the borrowers, who are supposed to be coming from a financial "valley of death."

The Finance Subcommittee gave the following scores to the firms: Square 1, 978; Comerica, 928; Silicon Valley Bank, 878; Orix, 484, and Adjuvant, 466.

At least two and possibly three firms will ultimately take part in handling the loan program. CIRM needs more than one because of the likely possibility that conflicts of interest will arise at the financial firms.

CIRM expects to kick off its loan program with its $210 million disease team round, which is expected to be approved later this year. It will be the largest research round in CIRM's history.

Following the teleconference meeting, Michael Goldberg, chairman of the Finance Subcommittee and a partner in the Mohr-Davidow venture capital firm of Menlo Park, said links with CIRM will help to establish the financial firms as early leaders in the growth of the stem cell industry in California.

All of the proposals can be found via the agenda for today's meeting.

Candidates Bid to Handle CIRM's $500 Million Loan Program

Directors of the California stem cell agency tomorrow will examine proposals from five financial firms that appear to be seeking millions of dollars to basically run the agency's ambitious and unprecedented $500 million biotech lending program.

The proposals come from Comerica Bank in San Diego, Orix Venture Finance in Palo Alto, Square 1 bank in East Palo Alto, Adjuvant Capital Partners in San Francisco and Silicon Valley Bank of Santa Clara.

Their plans were received by CIRM on June 8 after the agency posted an RFP for underwriters for the loan effort. The responses from the five financial firms were not made public until 16 days later.

Their posting late Friday on the CIRM web site came only two business days before the teleconference meeting of the directors' Finance Subcommittee at which they are to be discussed. The directors had asked to receive the material at least five days before tomorrow's meeting. One director said he preferred 10.

The winning underwriters are likely to be No. 1 on CIRM's list of outside contractors – in terms of dollars from CIRM. Outside contracting – at more than $3 million annually – is the second largest item in CIRM's $13 million annual operational budget. (Salaries and benefits are first.)

CIRM is expected to select more than one underwriter because of conflict of interest problems. It is a small financial world in the biotech community.

The Finance Subcommittee discussed the process of selecting underwriters at its June 11 meeting. According to the transcript, the CIRM staff initially proposed that it select the underwriters, but directors said no.

Directors asked for a staff analysis of the proposals that would include thoughts from CIRM Chairman Robert Klein, who originated the concept for the biotech lending program, and CIRM Vice Chairman Duane Roth, who headed the biotech loan task force.

The staff analysis posted Saturday on the CIRM web site is six sentences long, which seems a bit paltry.

Perhaps someone at CIRM knows the cost of each of the competing proposals, but it was not presented in the staff analysis. Their cost is nearly impossible to calculate from the proposals themselves because of their complexity and the lack of a common basis.

One applicant, Adjuvant Capital Partners, declined to use the fee options proposed by CIRM. Peter Barton Fair of Adjuvant wrote,

“Both of the proposed fee structures compensate the delegated underwriter based on the number of closed transactions they underwrite. As we have seen recently in the mortgage industry, incentivizing an underwriter based on volume creates a conflict of interest and can result in the underwriting of poor quality loans. The fee structure we proposed eliminates this conflict of interest.”

Fair's reference was to the use of delegated underwriting by Fannie Mae, which many believe played an important role in its financial downfall.

The Finance Subcommittee directed the staff to invite representatives from all five companies to attend tomorrow's meeting to answer questions.

It is doubtful that potential borrowers will appear. Some of them, however, might have questions about the fee structures. One applicant, Orix, proposed an upfront, nonrefundable fee that could total $50,000 from a loan applicant on a $10 million loan. Based on the Orix proposal, it appears that the fee would have to be paid before the CIRM board approves the proposed research. Orix also proposed $950-a-day, per person fees for “out of pocket expenses.”

Such fees may be customary and justified for this sort of work. However, CIRM's loan program ostensibly targets firms facing a “financial valley of death.” They may be a bit strapped to handle such costs.

If you are interested in hearing or participating in tomorrow's meeting, you can find teleconference locations in San Francisco, Palo Alto, Menlo Park, Irvine, Berkeley, Tucson, Az., Los Angeles and Stanford. Specific addresses can be found on the agenda.

CIRM Director Responds to Hoover Commission Recommendations

Jeff Sheehy, who has served on the board of the California stem cell agency since its inception and as acting vice chair of its grant review group, prepared the following piece on the Little Hoover Commission's report on the agency. Sheehy is a communications manager at UC San Francisco and is a nationally known HIV/AIDs patient advocate. Here is Sheehy's article.

Last Thursday, the Little Hoover Commission issued a report, "Stem Cell Research: Strengthening Governance to Further the Voters’ Mandate," recommending changes to Proposition 71, the initiative establishing the state’s stem cell research funding agency, the California Institute of Regenerative Medicine (CIRM).

CIRM has already mounted a vigorous negative response, which I, as a member of CIRM’s governing board (the Independent Citizens’ Oversight Committee or ICOC), find disappointing.

So while my preferred method of responding would have been through processes of the ICOC, that avenue has not been made available. Therefore, I am taking this opportunity to express my views.

To begin, I should flesh out the three underlying principles implicit in the report. First, CIRM is a tremendous success. While it will take time for the cures to emerge, incredible, innovative science in the new field of regenerative medicine has been funded, a dozen state-of-the-art research facilities are being built around the state, scores of scientists have been recruited to California from around the world, and networks have formed around the state that are the seeds for new Silicon Valleys, but of biotech not chips. Having established itself as the world’s hub for regenerative medicine, California is already reaping the benefit from the initial investments.

Second, Robert Klein has earned the gratitude of California for his incredible leadership in passing Proposition 71 and in leading the establishment of CIRM. His unimaginable level of effort has been the single biggest ingredient in CIRM’s success. If it were up to me, I would honor his service by naming CIRM after him upon his retirement.

Third, given CIRM’s success and Mr. Klein’s announced retirement upon completion of his term, we need to institutionalize CIRM as we plan for a longer future, sustained either by the proceeds of its loan program, additional voter approved funds, or appropriations from the Legislature. By the time the initial tranche of funding is exhausted, CIRM will have moved several potential therapies far down the developmental pipeline, and the economic stimulus from placing California ahead of the world in regenerative medicine will be obvious to everyone. Eventually there will be cures for chronic and life-threatening diseases that will save healthcare dollars. California will reap the economic benefit of being the home of many of the companies that provide those cures.

The Little Hoover Commission offers some reasonable suggestions for improvements that could help the functioning of CIRM and further institutionalize the agency. The 29-member ICOC is too big and too cumbersome—that’s obvious to anyone who regularly attends our meetings and sees us struggle to attain a quorum. The report seems to suggest an organic transition to a smaller board as terms end in 2010 and 2012.

Twelve members’ terms expire in 2010—4 from non-UC research institutions, 4 from non-UC universities, and 4 from the life sciences industry. I would recommend halving that number in proportion, which would reduce the ICOC by 6. The chair and vice-chair terms also expire in 2010 and the Little Hoover commission recommends not reappointing someone to those positions. Rather, they recommend that the chair and vice-chair be nominated from the membership of the ICOC and then voted in by the members. Two-year rotating terms are recommended. This would reduce the size by 2.

In 2012, the 5 UC medical school appointments expire along with the 10 patient advocate terms. I would alter the Little Hoover recommendations by reducing the UC medical school number to 3 and the patient advocate slots to 6 seats with 6 designated alternates. My rationales are that UC is part of the state of California and should be well represented, and that patient advocates currently fill 12 slots since the chair and vice-chair must have patient advocate credentials, so 6 would be the appropriate proportional reduction. Creating 6 alternates addresses persistent complaints of patient advocates that they are not allowed to appoint proxies. In addition, the participation of patient advocates in the working groups has been an extremely positive innovation in Prop. 71 and the alternates would be available for the working groups.

This would give the ICOC, hopefully renamed the Board of Directors for CIRM, 15 members. I would set a quorum of 9, which should be more easily attainable, especially with proxies and alternates. If prospective members cannot commit to adequate attendance, they should decline appointment, and non-attendance should be grounds for removal. I would strongly urge maintaining the original diversity, which has been strength, not a hindrance.

In addition, I would define the pool of conditions and diseases from which the patient advocates are drawn more broadly and not specify which conditions or diseases an individual advocate must be drawn from, but merely state that each patient advocate must be drawn from a different disease or condition. Further, I would recommend that either the chair or vice-chair should be a patient advocate member. And to address the inequitable and immense economic burden of service for lower income ICOC members, I would increase the per diem by a reasonable multiple.

Little Hoover recommends 4-year terms. Again, this makes sense. The transition should occur organically as proposed above and that would give staggered terms so the entire Board does not turn over at once. I think the non-UC appointment process should be considered carefully. It should reflect a balance of power between Legislature and the Governor and/or other constitutional officers such that individuals are appointed for merit and desire to serve CIRM’s mission and not to fulfill any political agenda.

In eliminating the appointed chair and vice-chair, I agree with the Little Hoover commission on eliminating the operational aspects of those positions. The new Board should be focused exclusively on oversight and not day-to-day management, which belongs in the hands of a president hired by and accountable to the Board. This is not intended nor should it be construed as any criticism of Mr. Klein. I believe that if a successful restructuring is accomplished, his dual role will be properly perceived as a heroic sacrifice for CIRM’s mission and an essential feature of its success in initiating its operations. If we try to fill Mr. Klein’s shoes, I believe we risk the success of the entire enterprise.

The Little Hoover ccommission recommends expanding the size of the agency beyond 50 employees. I do not know anyone who does not think this is reasonable. I would suggest a cap, but that number should be determined after thorough analysis.

I also think most agree that the 15-member limit for scientist grant reviewers is too low. This should be expanded, again after thorough analysis. In addition, the current staff-led triage process should be eliminated in favor of a process within the structure of an expanded Grants Working Group. I must reject other changes to the peer review process. The operation of the Grants Working Group has been an outstanding success, and CIRM staff should be commended.

Finally, I heartily support a performance audit by the Citizens’ Financial Accountability Oversight Committee, an entity established by Prop. 71.

In short, I wish the report by the Little Hoover Commission could be perceived and advanced as the beginning of a dialogue about governance structures that results in the strengthening and institutionalization of CIRM and sets it on a path towards a long and fruitful existence.

Correction

The “tipping point” item incorrectly stated the Little Hoover Commission's final report included a recommendation for reduction of the super-majority quorum requirement for the stem cell agency board. The change was initially recommended in the commission's draft report, but was dropped in the final report, which said the quorum requirement was “problematic.”

Our thanks to Don Gibbons, CIRM's chief communications officer, for pointing this out.

A Tipping Point for CIRM? Reform Recommendations Coincide with Pressing Problems

California's Little Hoover Commission's sweeping report on the state's $3 billion stem cell agency comes at a time when the ambitious research enterprise could be facing a tipping point in its short life.

Recent weeks have seen several significant developments involving the California Institute for Regenerative Medicine (CIRM), which is less than five years old.

• Its chairman, Robert Klein, made it clear he is not going fill the job after 2010.
• Marie Csete, CIRM's chief scientific officer, said she is quitting Aug. 1 for unexplained reasons.
  
• The agency is about to embark on its largest and most ambitious round of research grants, a $210 million effort that Klein has identified as critical.
  
• At the same time, it will launch a related, risky and unprecedented $500 million lending program for the biotech industry.
• Festering questions involving structural and governance issues surfaced in a contentious CIRM board meeting earlier this month.
  
• Revision of CIRM's strategic plan, which has guided it successfully so far, has been moldering for months.
  
• Funding problems – solved for the time being – will arise once again in 2010.
  
• And CIRM staff has identified both the potential loss of key staff and community support as two risks the agency faces.
  

That said, CIRM will have approved $1 billion in grants by the end of this year. It is already the largest source of funding in the world for human embryonic stem cell research. “California has made an investment in innovation that is the envy of the world,” said Daniel Hancock, chairman of the Little Hoover Commission and former president of Shapell Industries.

Nonetheless, said the commission, CIRM can and should do better if some of the niggling and not-so-niggling impediments embedded in state law by Prop. 71 are removed or altered. They include: reducing the size of the unwieldy, 29-member board, adding independent voices to the panel, eliminating the overlapping roles of the chairman and president and beginning the all-important planning for leadership transition. (A list of the recommendations can be found here, excerpts here and the complete report here.)

The commission's report is fair-minded, thoughtful and well-researched. It pointed several times to CIRM's accomplishments and the contributions of Chairman Klein. The commission's recommendations stopped short of seeking another ballot measure, which would be unrealistic and stimulate acrimony from CIRM and its supporters. The good government agency said changes should “be prospective and strategic and minimize disruption that might slow CIRM's ambitious and creative agenda.”

CIRM's reaction was adversarial and defensive, a CIRM tendency that the commission discussed in its study.

The agency reaction came in the form of a news release from CIRM in which Klein said,

“To disrupt and delay the agency’s critical work for a year, or even six months, because of what the commission’s staff has called ‘perception’ issues is unacceptable. Let them talk perception to patients who miss out on a therapeutic breakthrough that would have saved their lives because the agency has been paralyzed by a sweeping reorganization.”

CIRM challenged the legality of legislative enactment of the recommendations and basically threatened a lawsuit, raising the rather bizarre picture of a state agency suing the governor and the legislature. More likely, Klein would find a friendly group to act as a legal surrogate, perhaps his own private stem cell lobbying group, Americans for Cures.

The CIRM press release triggered a less than pleased response today from Jeff Sheehy, a member of the CIRM board.

In a comment posted on the California Stem Cell Report, he said,

“On whose authority are thousands of dollars of lobbying, communications, and legal resources being spent opposing this report? The legislature requested this report and to oppose in this knee jerk fashion could properly and reasonably offend those legislators who supported the engagement of the Little Hoover Commission.”

He said that most CIRM board members would likely agree with recommendations to remove the 50-person cap on CIRM staff and the 15-person limit on outside scientists on the grant review panel.

Sheehy said the board – not the agency – should take a position on the report after thoroughly analyzing it.

From outside the agency came a nod of approval for the commission's work. John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said,

“This is a thoughtful and thorough analysis from a bipartisan group with no ax to grind. CIRM’s management and board should listen to its advice.”

Klein's longstanding involvement with CIRM was touched on by the commission. It said that much was owed to Klein's hard work, beginning with overseeing the campaign for Prop. 71 in 2004. But it said that his actions and personal style “have been at the core of many of the criticisms of the stem-cell agency, and have made him a lightning rod for calls for more accountability.”

The commission continued,

“An agency governance structure that features key positions built around specific individuals does not serve the best interests of the mission of the agency or the state of California, however well-qualified the individuals may be.”

The commission stressed that succession planning should be a top priority of the CIRM board considering Klein's plans to leave his post in 18 months. The commission raised other questions about CIRM's future.

“How will CIRM know when its job is done?
“What happens when CIRM runs out of money?
“Is the mission of Prop. 71 best served by transforming CIRM into a self-sustaining operation?"

Nearly five years ago, voters approved Prop. 71 with the understanding that it was a 10-year effort. While it does lose its ability to sell bonds after that period, the agency will continue to have some sort of life, perhaps only as a vestige in state law books.

CIRM directors should give the commission's report serious consideration as they look at their own plans for the agency's future and life without Robert Klein.

(Editor's note: An earlier version of this item incorrectly stated the Little Hoover Commission's final report included a recommendation for reduction of the super-majority quorum requirement for the stem cell agency board. The change was initially recommended in the commission's draft report, but was dropped in the final report, which said the quorum requirement was “problematic.”)

CIRM Mishandles Reaction to Hoover Commission

The California stem cell agency this week fed right into a Little Hoover Commission finding that is prone to defensive and adversarial reaction to outside criticism.

CIRM's response to the commission's report basically threatened a lawsuit if the Hoover Commission recommendations were adopted by the legislature. CIRM said,

“...(A)ny attempt to enact the changes through legislation rather than by a vote of the people would likely result in a court challenge, which would be costly and time consuming.”

The assertion raised the specter of a California state department possibly suing the state's own governor and legislature. More likely, a CIRM-friendly group would be recruited to file the litigation.

CIRM's statement, aside from the rhetoric, was largely based on a legal memo by its outside counsel. CIRM's chief communications officer, Don Gibbons, said the release was distributed to reporters who requested it, but it was not posted on the CIRM web site. We asked Gibbons why. He replied,

"I see no reason for drawing attention to something for which the process was a farce. When, at the last minute they voted to change our quorum requirements, the one item on their original list that made a modicum of sense, there was not a single commissioner who knew what our current requirement was. Only one of many ludicrous moments in the process."

In an email, he also cited the “hypocrisy” of the Hoover Commission recommendation for more openness for CIRM while the commission withheld its draft recommendations from the public and CIRM until the full report was approved this week by the commission. Gibbons has a point there, which we have written about.

CIRM's statement on the report, however, was another bit of evidence supporting the commission's position that the agency has been unnecessarily adversarial and defensiveness at times.

The report quoted Donna Gerardi Riordan, former director of programs at the California Council on Science and Technology, as saying that “framers” of Prop. 71 were “short-sightedly taunting” state lawmakers. The result was “rancorous public attention” that stood in the way of constructive solutions.

More immediately, however, the CIRM statement ired CIRM board member Jeff Sheehy, who aired his concerns publicly in an unsolicited comment here on the California Stem Cell Report. It is reasonably certain that other board members were less than pleased as well.

The CIRM statement also triggered a negative response from a reader who must remain anonymous. Foolish was the term he used. The reader said CIRM should have sent the following comment to the commission regarding its work.

“Thank you very much for your thorough report and recommendations. It’s clear the staff and commission devoted considerable effort to this important project. We appreciate the constructive spirit in which the recommendations were offered and will give them appropriate consideration as we move forward.”

It would be easy to assign responsibility for the CIRM statement to Gibbons, since he is in charge of CIRM public relations. However, it was clearly released under Klein's authorization and is not the only occasion that Klein has demonstrated seriously flawed judgment about public relations matters. (See here, here and here.)

Hoover Commission Recommendations

Here is the text of the recommendations for CIRM from California's Little Hoover Commission:

Recommendation 1: The Legislature should restructure the CIRM governing board around principles of efficiency and transparency.

• The Legislature should amend the Health and Safety Code to reduce the board size, shorten terms and restructure membership.
• Decrease board size to 15 from 29. Keep diversity of membership but add independent voices to the board: five patient advocates from unspecified disease groups, two independent business leaders and two independent scientists with no ties to CIRM-funded institutions; two University of California officials, one university official (non UC); two private sector biotechnology executives, and one leader of a California research institution.
• Reduce terms to four years for all members.
• The Legislature should amend the Health and Safety Code to streamline the appointment process for CIRM board members.
• Allow the governor to appoint 11 of 15 board members, subject to Senate confirmation. Legislative leaders should continue to appoint two members. The UC system presidentshould appoint two UC representatives.
• The Legislature and CIRM should realign the roles of chair and president to eliminate overlapping authority and to enhance clarity and accountability.
• The Legislature should modify all statutory references inthe Health and Safety Code to the nominating process, job duties and qualifications for the chair and vice chair to invest this authority with the board.
• The CIRM board should elect a chair and a vice chair from within the existing board, subject to set terms and conditions for re-election/removal.
• The CIRM board should clarify that the president manages all day-to-day operations.
• The Legislature should amend the Health and Safety Code to rename the board to more accurately reflect its composition. The Independent Citizens Oversight Committee should be called the Board of Directors.
  

Recommendation 2: The Legislature and CIRM should improve efficiency and transparency for distributing grant and loan funds.

• The Legislature should amend the Health and Safety Code to remove the 50-employee cap on staffing.
• The Legislature should amend the Health and Safety Code to remove the 15-person limit on peer reviewers. CIRM should modify its triage plan to review grants internally.
• CIRM should explore options for greater disclosure of the peer review process.
• CIRM should poll CIRM’s peer reviewers anonymously about their willingness to participate in the review process if their financial disclosure statements are made available
• to the public. The results of this poll should be made public.
• CIRM should conduct a trial grant application round that identifies all applicants.
• CIRM should provide full grant evaluations to applicants.
• CIRM should amend all meeting minutes to specify individual board members’ votes and recusals, and continue the practice moving forward.

Recommendation 3: The CFAOC and the CIRM governing board should use their authority to enhance oversight.

• The Citizen’s Financial Accountability Oversight Committee (CFAOC), chaired by the State Controller, should exercise its existing authority, or be statutorily authorized if necessary, to conduct performance audits and hold regular meetings to review CIRM’s programmatic and strategic performance, in addition to overseeing CIRM’s annual financial audits.
• The governing board should hold its members accountable by adopting removal provisions in its bylaws.
  

Recommendation 4: The CIRM governing board should begin planning for CIRM’s future through an open process.

• The CIRM governing board should create succession plans for board leadership.
• CIRM’s strategic plan should provide clear transparent
• CIRM should develop a transition plan for the eventual expiration of bond funding.

Excerpts Hoover Commission Investigation of CIRM

Here are some excerpts from the report by California's Little Hoover Commission, the state's good government agency, on the California stem cell agency. First, from the cover letter by Daniel W. Hancock, chairman of the bipartisan commission.

“In the California Institute for Regenerative Medicine, California has made an investment in innovation that is envy of the world. Known as CIRM, the institute is the product of Proposition 71, which promised voters they could turn California into the global epicenter of biotechnology. The institute since has directed more than $700 million toward scientific exploration, in the process, leveraging an additional $900 million in private and institutional money that has built new facilities, lured scientists to California and spurred growth in the state’s life-sciences industry.”

“The Commission found that CIRM’s governance structure is not adequate to protect taxpayers’ interests or serve its own ambitious goals. The Legislature must take this opportunity to reform CIRM’s governance structure to ensure that it can deliver on its mission of developing cures for the benefit of all, as well as provide transparency and accountability for California’s taxpayers who will be paying off the bonds.”

He continued:

“The 10,000-word proposition (that created CIRM) laid out highly specific qualifications and detailed operational duties for its chairperson. Its very specificity prevents CIRM from evolving, institutionalizes inefficiencies and hobbles its ability to transition to new leadership.”

“CIRM’s 29-member oversight committee includes representatives from institutions that have benefitted from grants the committee approved. This structure, along with overly long terms and the inability to nominate its own leaders or hold them accountable, fuels concerns that the committee never can be entirely free of conflict of interest or self-dealing, notwithstanding a court ruling that established the legality of such a structure. Legal is not necessarily optimal,”

Here are excerpts from the body of the report:

On conflicts of interest
“Criticism that CIRM’s governing board remains an insiders’ club undermines the legitimacy of the agency. Some 80 percent of the funds to date have been awarded to institutions with representatives on the ICOC...(T)he frequent occurrence of members recusing themselves because of conflicts of interest shows a structural defect in the governing board.”

Accountability
“The detailed provisions of the ballot initiative, which placed the governing board outside of the normal scope of accountability compared to other state agencies and boards, provided stability, diversity and the political protection to get the agency up and running. But today, only five years later, Proposition 71 already looks like a relic of another era.”

Personality Driven
“The actions and personal style of ICOC chair Robert Klein have been at
the core of many of the criticisms of the stem-cell agency, and have made
him a lightning rod for calls for more accountability. That he is a
component of much of the discussion is unavoidable as he drafted,
championed and donated money for Proposition 71 and now serves as
the paid, part-time chairman of the governing board. His passion and
leadership made Proposition 71 a reality, and his financial and political
skills helped CIRM survive its early challenges. At the same time, the
media have chronicled how Mr. Klein has alienated members of the
Legislature and at least one newspaper has called on Mr. Klein to
resign.”

“An agency governance structure that features key positions built around
specific individuals does not serve the best interests of the mission of the
agency or the state of California, however well-qualified the individuals
may be. Such a situation distorts accountability and succession
planning and could, in the event of an abrupt departure of the
individual, leave the agency leaderless for an extended period. A more
efficient and balanced board is possible and more appropriate as CIRM
matures. For CIRM to prosper and sustain itself, such changes are
essential.”

CIRM's Adversarial Defensiveness
From Donna Gerardi Riordan, former director of programs at the California Council on Science and Technology, “By excluding legislators from participating in the creation and design of CIRM, the framers of Proposition 71 were short-sightedly taunting the state’s most powerful
and skillful political players,”

Management
“CIRM has adopted a co-CEO leadership structure between the board chair and the agency president. The board chair oversees several daily administrative duties at CIRM, which gives the chair a dominant role over other members, creates potential conflict with the CIRM president and blurs the lines of accountability.”

More Open Grant Review Process
“CIRM leadership has argued that fewer institutions would apply for
funding if their identities became known and they were not successful.
CIRM, however, should continually strive to improve the openness of its
process. Based on Connecticut’s experience of disclosing all applicants
without negative consequence, CIRM should conduct a pilot project to
evaluate if a more open process would inhibit researchers from coming
forward and applying for CIRM funds. In an upcoming grant round, all
applicants should be identified retrospectively. Disclosing names of
unsuccessful applicants as well as individual reviewers will allow the
public to better track CIRM’s funding processes for fairness and bias.
Judging by the apparent willingness of rejected applicants to identify
themselves and their organizations in public appeals to CIRM, it is
questionable whether the current lockout of applicant identities poses a
real concern. The burden is on CIRM to demonstrate otherwise.”

CIRM's Future
“The rapidly changing political and scientific environment raises questions about whether the organization is flexible enough to adapt to the field it is supposed to lead....

• “How will CIRM know when its job is done?
• “What happens when CIRM runs out of money?
• "Is the mission of Proposition 71 best served by transforming CIRM into a self-sustaining operation?"

Sheehy Comments on Little Hoover Commission Recommendations and CIRM Reaction

We want to call attention to a comment that Jeff Sheehy posted this afternoon on the “CIRM news release” item. Sheehy is a member of the CIRM board. He has served on the board since its inception and serves regularly as the acting vice chair of its grant review group. You can read Sheehy's unsolicited and unmoderated comment at the end of the item in question.

Quick Links: Recommendations for CIRM Overhaul, Media Coverage and Reaction

The Little Hoover Commission's recommendations for sweeping changes in the $3 billion California stem cell agency became public today, generating some interesting news items and reaction from the agency itself.

We were traveling today and have not had a chance to read the 84-page document but will have an analysis tomorrow. Meanwhile interested readers have plenty to chew on.

First, there is the report itself, which can be found here. Then there is CIRM's reaction to it, which came in the form of a press release dated Wednesday June 24. The release has been circulated to at least some reporters, but has not been posted on the CIRM Web site at the time of this writing. The full text is contained in the item below.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., issued his reaction at 2:02 p.m. today. You can find that document here.

Ron Leuty of the San Francisco Business Times wrote a relatively lengthy piece about the recommendations. Sandy Kleffman of the Contra Costa Times also filed a fairly substantial article.

We expect to see more coverage in the mainstream media, but Saturday is not a good day if you are looking for newspapers loaded with news. Even in the heyday of newspapers, Saturday papers were thin and did not offer much.

CIRM News Release on Little Hoover Commission Report

Here is the complete text of a CIRM news release circulated to some reporters today in connection with recommendations by the Little Hoover Commission. As of this writing, the release has not been posted on the CIRM Web site.


For Immediate Release Contact: Don Gibbons
415-396-9117
415-740-5855 (mobile)


CIRM Responds to Recommendations of the Little Hoover Commission

Sacramento, Calif., June 24, 2009 – The leaders of the California Institute for Regenerative Medicine (CIRM), the state stem cell agency, said today that they were disappointed that the Little Hoover Commission chose to release a report with recommendations that, if enacted by the legislature, would slow the agency’s progress toward cures.

The agency believes that many of the recommendations made by the commission are based on an incomplete understanding of the agency’s operation and are so sweeping they would require another ballot initiative to amend Proposition 71, which created the agency. If enacted by the Legislature and signed by the governor the recommendations would dramatically disrupt and delay the agency’s push to achieve its mission of delivering therapies to patients. In addition, any attempt to enact the changes through legislation rather than by a vote of the people would likely result in a court challenge, which would be costly and time consuming.

The Commissioners have publicly acknowledged that CIRM’s existing structure is quite successful in allocating research funds in a manner that has garnered respect from researchers in the state, nationally and internationally. The Commissioner’s have also acknowledged that multiple audits and court reviews have shown that CIRM is managing potential conflicts of interest well.

“To disrupt and delay the agency’s critical work for a year, or even six months, because of what the Commission’s staff has called ‘perception’ issues is unacceptable,” said Robert Klein chair of CIRM’s governing board. “Let them talk perception to patients who miss out on a therapeutic breakthrough that would have saved their lives because the agency has been paralyzed by a sweeping reorganization. The will of seven million voters who approved this highly functional structure should be respected. I would hope the legislature will not devote any of its valuable time to this measure that has little chance of benefiting the state while it has great potential to do harm.”

Specific fallacies of the report:
• The board is too large and unwieldy. With 29 members it is similar in size to the UC Regents (26) and the California Judicial Council (28). On all three boards, size has afforded a diverse membership that brings a needed breadth of expertise.
• There are no independent voices and as a result there are perceptions of conflicts. There are many board members with no ties to organizations that receive grants and those who are from institutions do not participate in even the discussion of grant applications from their institutions. The Court of Appeals noted, “by approving Proposition 71 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.
• Reduce politicalization of the board by letting the governor make all but four appointments. The current process, which divides the appointing authority between the State’s four constitutional officers and the UC Chancellors, is a much more effective means of assuring no one political agenda can shape the board and in turn the science CIRM funds.
• The division of authority between the board chair and the agency president is not effective. Proposition 71 created a clear division of responsibility with an executive chair providing financial leadership and a president providing scientific leadership. Current president Alan Trounson and board chair Klein have both publicly stated that this division is working well for the agency.

One of the key objectives of Proposition 71 was to provide stability and predictability to a research-funding program. The inevitable delays that would be caused if the Commission’s recommendations were enacted by the legislature would disrupt California laboratories the length of the state and slow progress to cures.

Related Media:
Videos explaining stem cell research are available on the CIRM YouTube site.
Stem cell images are available at the CIRM Flickr site. These are available for use with credit to the scientist listed in the caption.


About CIRM CIRM was established in November, 2004 with the passage of Proposition 71, the California Stem Cell Research and Cures Act. The statewide ballot measure, which provided $3 billion in funding for stem cell research at California universities and research institutions, was overwhelmingly approved by voters, and called for the establishment of an entity to make grants and provide loans for stem cell research, research facilities, and other vital research opportunities. To date, the CIRM governing board has approved 279 research and facility grants totaling more than $693 million, making CIRM the largest source of funding for human embryonic stem cell research in the world. For more information, please visit www.cirm.ca.gov.

Hoover Commission Report on CIRM Overhaul Out Today

California's Little Hoover Commission is expected to release its full recommendations today for sweeping structural changes at the $3 billion California stem cell agency.

We will be traveling and will not be posting anything on the report until very late today or possibly tomorrow. But you can find the report at the Little Hoover Commission Web site when it is released. John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca., is also expected to have something on his organization's site.

Patient advocate Don Reed already has posted some reaction and information on the Daily Kos. He does not look favorably on the commission's work.

Minimal Media Coverage of Csete's Resignation

They didn't stop the presses at the San Francisco Chronicle this week for news of the resignation of the chief scientific officer at the $3 billion California stem cell agency, although it is a bit of a local story for the newspaper.

No mainstream media have covered Marie Csete's pending departure as far as we can tell. But it surfaced in a couple places on the Internet that have international audiences, which this blog has as well. The news was also, we understand, the subject of some discussion at a meeting of CIRM grant reviewers in San Francisco the last two days. No information has been posted concerning Csete's resignation on CIRM's own Web site.

Ron Leuty of the San Francisco Business Times wrote two pieces, one a straight-forward news story and the other something of a reaction piece.

Monya Baker at The Niche, Nature magazine's stem cell blog, wrote that she was “impressed with (Csete's) very practical approach to the unglamorous parts of helping move stem cells into human testing.”

Jim Till put up an item on the blog of the Canadian stem cell consortium. And Peter Jamison of the San Francisco Weekly also posted a piece.

CIRM Rips Hoover-recommended Reforms as Disruptive

The California stem cell agency has fired off a legal memo to the state's good government commission, declaring that its proposed changes in CIRM would impose illegal and “drastic and disruptive” alterations in the stem cell research effort.

The memo from CIRM's outside attorneys came as the Little Hoover Commission today approved its wide-ranging report, which is expected to be released in full tomorrow.

Among other things, the Hoover proposals call on the legislature to reduce the size of the CIRM board, reduce the super-majority quorum requirement, eliminate salaries for the chairman and vice chairman and eliminate the dual executive situation created by Prop. 71.

All of those provisions, in one form or another, hamper the operations of CIRM. Even the salary matter has diverted the board from its primary mission of funding research. Today, nearly five years after CIRM was created, the board is still struggling with an incomplete evaluation process for the chairman and vice chairman. Those positions are filled by a vote of the board.

Nonetheless, James Harrison and Kari Krogseng of Remcho, Johansen and Purcell of San Leandro, wrote on Tuesday (June 23),

“The Little Hoover Commission’s proposals would effect drastic and disruptive changes to CIRM’s governance and operating systems. Such changes run counter to the voters’ intent, and do not further Proposition 71’s purposes.”

The 10-page legal memo hung most of its arguments on a provision in Prop. 71 that states that it can only be amended by the legislature if the changes “enhance the ability of the institute to further the purposes of the grant and loan programs.”

Harrison's memo said the Hoover proposals could only be enacted through another ballot measure, a move that a subcommittee of Hoover commissioners clearly opposed earlier this month.

Americans for Cures, the private stem cell lobbying group of CIRM Chairman Robert Klein, also produced a 14-page legal memo that the reached the same conclusion as Harrison.

The memo was written, also on Tuesday, by Richard Martland and Kurt Oneto of the Nielsen, Merksamer, Parrinello, Mueller & Naylor law firm of Sacramento, Ca. The firm has a lobbying contract with CIRM but we presume no state funds were used for the Martland memo.

The document had this interesting tidbit in it:

“The (Hoover Commission) proposal would effectively permit the ICOC (the CIRM board) decision-making process to be captured by a small minority and would deprive ICOC decisions of the benefit of input from the broad spectrum of views currently represented on the committee. It is inconceivable that voters who approved an organization with 29 members would have imagined that 5 members would ultimately be able to make binding decisions on its behalf.”

However, that is exactly what happens. We pointed out a good example last week in which only six of the board members were permitted to vote. All the rest in attendance were excluded not only from voting but from participating in the debate.

(Editor's note: The copies of the memos were supplied by the Little Hoover Commission to John M. Simpson of Consumer Watchdog of Santa Monica, Ca., who relayed them to us. The Merksamer memo contains a confidentiality warning. However, when it was submitted to the Hoover Commission the memo became a public record.)

Scientist Says Csete Resignation is Regrettable

Here is another comment from a California scientist on the resignation of Marie Csete from CIRM. The researcher must remain anonymous for obvious reasons.

“It is indeed regrettable that Dr. Csete has chosen to leave CIRM. Given CIRM's mandate to move stem cells into the clinic, a Chief Scientific Officer with Dr. Csete's clinical and research credentials, especially as they apply to human transplantation, is absolutely essential. It is perhaps telling that of the over 300 grants issued by CIRM only about 10% (by my accounting) are focused on actual preclinical or clinical studies. Although CIRM was established as a way to bolster the perceived inadequacies of the NIH, that rationale has now, in now small measure, evaporated. The advantage that CIRM has, compared to the NIH, is that they are in a position to fund, almost exclusively if they wish, preclinical studies, especially high risk studies that would not get funded by the NIH. It is these studies that will help determine whether or not a given idea about how stem cells might be used clinically actually has a chance of working. If CIRM and the ICOC are continuing to focus on basic biology studies, at the expense of preclinical work, even as it might apply to the upcoming Disease Team Grants, then I, were I in Dr. Csete's shoes, would also leave.”

Csete Resignation: Researcher Calls it Tragic

Here is a comment on Marie Csete's resignation from a well-respected researcher who must remain anonymous. Comments from other readers are welcome. They can be posted anonymously, if desired, via the “comment” function at the end of this item. Or they can be sent to me for posting at djensen@californiastemcellreport.com.

“CIRM's inability to retain Dr. Csete is tragic. Her scientific stature worldwide and her knowledge and relationships with the FDA made her the most valuable member of CIRM's scientific team. She was the one who scientific and medical leaders respected and trusted. With Dr. Csete's departure, CIRM immediately loses much of its credibility as an organization that puts good science, not politics, first. CIRM needs to pull itself together, decide that high ethical standards and strong scientific leadership are its highest priories, and clean house quickly.  

“They need to bring in a strong COO and respected scientific leadership. Otherwise, Bob Klein's legacy, his remarkable vision, will be crushed under the weight of foolish egotism and political favoritism. Taking a page from American politics, CIRM needs an Obama, not a Bush, as its scientific leader. Dr. Csete provided the no-drama Obama leadership that CIRM so desperately needs. She should have been promoted, not allowed to resign.”

Csete Quits CIRM on Eve of Huge Grant Round

In an unsettling move, Marie Csete has resigned as the chief scientific officer for the $3 billion California stem cell agency, only 15 months after she joined CIRM in the $310,000-a-year post.

Csete's departure comes as the agency is about to embark on its most ambitious and largest round of research grants – a complex, $210 million “disease team” effort aimed at pushing research towards clinical trials.

CIRM Board Chairman Robert Klein has described the round as critical for CIRM, both in terms of producing results and in generating support for the private sale of state bonds to support the agency.

John M. Simpson, stem cell project director for Consumer Watchdog, this afternoon disclosed Csete's departure on the blog on his organization's Web site.

In an email to members of the CIRM board, Csete(photo at left) said,

“I have decided to resign my position at CIRM as of August 1, 2009. I am sorry and disappointed that I was unable to say goodbye to you at the last ICOC (the CIRM board) meeting. I look forward to seeing your many successes! “

In response to a query, Simpson said,

"This is a sad day for CIRM. Dr Marie Csete, like Dr. Arlene Chiu before her, is the backbone of CIRM's scientific endeavors. It's particularly troubling that two top women scientists have left the agency after relatively short tenures. It raises serious questions about the agency's management under Chairman Bob Klein and President Alan Trounson. They owe the board a detailed explanation."

No successor appears to be in the wings. In a message to board members on behalf of Klein, Melissa King, executive director of the board, said,

“We will be working on a succession plan for Marie. Bob would like to talk to each of you to get your thoughts, and he and I will work on that in the coming days.”

On the surface, Klein's plan to call board members would appear to be a violation of the ban on serial meetings of public bodies such as the CIRM board. We suspect it will be justified on the basis that it deals with personnel matters, although it also overlaps into policy areas.

Csete's possible departure had been rumored for at least a month or more. She gave no reason for her resignation in the copies of the email messages that we have received. According to those we talked to, she was reportedly dissatisfied with CIRM's management and possibly with the reception afforded her scientific advice.

Simpson said the board should demand an explanation of her departure from Klein and Trounson.

Filling a high level post such as Csete's always takes a fair amount of time, but CIRM has been very slow in the past in filling top level positions, including that of president.

Prior to joining CIRM, Csete was John E. Steinhaus Professor of Anesthesiology at Emory University, with adjunct appointment in cell biology, and program faculty appointments in biochemistry, cell and developmental biology, neurosciences and the Emory/Georgia Tech Biomedical Engineering Program. She was additionally the director of liver transplant anesthesiology at the Emory University Hospital in Atlanta and director of the Emory/Georgia Tech Human Embryonic Stem Cell Core, and co-director of the Emory MD/PhD program.

In announcing Csete's appointment in March 2008, Trounson said,

”Her training and experience as both a basic researcher and clinician is critical to our strategy of advancing discoveries into the translational pipeline. In addition, her expertise in the field of transplantation and understanding of immunology issues will be highly relevant to advancing new discoveries in the stem cell field toward therapies and cures. ”

The announcement also said,

"'No one knows more about or is more skilled at dealing with the intersecting worlds of real-life clinical transplantation and basic stem cell research than Dr. Csete,' commented David J Stone, MD, Adjunct Professor of Anesthesiology and Neurological Surgery at the University of Virginia School of Medicine."

In the item below, you can read CIRM email messages concerning Csete”s departure.

Text of Email on Csete Resignation

Here are copies of CIRM email messages regarding the resignation of Marie Csete.


Subject: Marie Csete

Dear ICOC Members,

Bob wanted you to have these messages (below), from Marie and Alan. We will be working on a succession plan for Marie. Bob would like to talk to each of you to get your thoughts, and he and I will work on that in the coming days.

Best,
Melissa
~~~~~~~~~~~~~~~~~~~~~~~

MESSAGE FROM MARIE:

To ICOC Members:
I have decided to resign my position at CIRM as of August 1, 2009. I am sorry and disappointed that I was unable to say goodbye to you at the last ICOC meeting. I look forward to seeing your many successes!
Best
Marie


MESSAGE FROM ALAN TO CIRM STAFF:

As you have heard from Marie, she plans to leave CIRM at the end of July. In just a little more than a year she has made highly valuable contributions to our science operations coalescing a new set of core grants and organizing a number of workshops that have invigorated our scientific discourse and changed the direction of many of our programs. She has been a highly respected representative of CIRM at countless meetings nationally and internationally. I think you all would agree that our mission has been advanced by her efforts. Please join me in thanking her and wishing her luck going forward.

Alan

Stem Cell Board Tackles Troublesome Issues Next Week

The men and women who oversee the $3 billion California stem cell agency will meet next Wednesday to act on some of “festering” issues that triggered a robust exchange at last week's board meeting.

The discussion highlighted a host of problems, ranging from whether the agency should staff up to its 50 person legal limit to micromanagement built in by Prop. 71, the ballot measure that created CIRM. 

One key problem is the super-majority quorum requirement embedded in state law that now makes it difficult for the CIRM board to act legally. The quorum matter, however, can only be changed by legislation, which is all but impossible to pass because of language in Prop. 71. 

Next week, CIRM board is only scheduled to address complaints that the board is not adequately supported. During the San Diego session, several board members indicated they would prefer to deal with the matter in private. 

The upcoming meeting, available at teleconference locations statewide, includes an executive session that will allow the board to speak candidly about specific individuals and also quite probably prevent the public from understanding the full nature of all the issues. We understand the desire to take the matter behind closed doors. 

Some of the comments last week did not reflect well on CIRM's leadership. We also understand that because of state open meeting laws the CIRM board operates under restrictions that make it difficult to do business. 

Consider, for example, the legal ban on serial meetings. Those could be private telephone calls or emails between board members that could result in a majority of board members having conferred on an issue. The Institute for Local Government explains,

“The communication does not need to be in person and can occur through a third party. For example, sending or forwarding e-mail can be sufficient to create a serial meeting, as can a staff member’s polling governing body members in a way that reveals the members’ positions to one another.”

Such restrictions are hard for folks from the private and non-profit sector to understand. They are certainly a departure from the way business is handled in most non-governmental enterprises. And the restrictions on serial meetings are but just one example of the requirements of the state's open meeting law. 

That said, some of the problems that were aired last week would have long been solved long ago if they had been dealt with in a forthright and public manner. Going behind closed doors creates a cover of secrecy and non-accountability. 

The result in this case was the frustration and outpouring that emerged last week. The issues raised in San Diego are certainly public business. They go to the effectiveness of the stem cell agency and how well its board exercises its responsibilities. A skilled attorney can, nonetheless, find a way to provide a personnel justification to exclude the public. But it probably would do little good to upbraid individuals either in a public or private board meeting. 

Given the festering nature of the problems, it makes more sense to tackle them once again in public. Doing so enhances the board's credibility and helps to maintain public confidence in CIRM operations. 

The public can take part in the discussions at teleconference locations in San Francisco (2), Los Angeles (2), Sacramento, Elk Grove, La Jolla, Healdsburg, Irvine and Stanford. See the agenda for specific addresses.