No Ten Year 'Sunset' on CIRM Horizon

California's unprecedented, $3 billion stem cell research program is widely perceived as a 10-year effort, but, like much conventional wisdom, that view is simply wrong.

The agency, created as the result of a 2004 political campaign, theoretically could continue to function for eons. The only relatively immediate, “life-and-death” question facing CIRM involves the cash needed to continue its grant and loan programs, which have already pumped out $1 billion to California researchers.

The fiscal hitch comes from Prop. 71, the initiative that spawned the California Institute for Regenerative Medicine. The measure provided for only $3 billion in state bond funding. When that borrowed money runs out, CIRM will have to find more -- if it wants to continue operations. But CIRM does not, in fact, face a mandatory “sunset” provision that will bring down the curtain on its offices near the San Francisco Giants baseball park.

Mainstream news organizations have continued, nontheless, to describe the state's stem cell research as a 10-year effort, including at least two reports in recent months.

The error seems to stem from the 2004 campaign, when it was in the interest of Prop. 71 supporters to allow voters to believe that they were not voting to create a big-bucks bureaucracy that would exist in perpetuity. The campaign was run by Bob Klein, who wrote much of the ballot measure and who is now chairman of CIRM.

News stories at the time commonly described the measure as having a 10-year limit. Those stories went uncorrected, presumably because the Prop. 71 campaign did not want to make an issue of it. In fact, the Prop. 71 campaign Web site carried this statement:

“Funds will be allocated incrementally over 10 years (~$295 million per year) for California-based stem cell research at leading universities and research institutions.”

The campaign Web site has now vanished into cyberspace and its domain name is for sale. But the campaign document can be found on the Web site of the world's largest organization of stem cell researchers, the International Society for Stem Cell Research. The society reports to this day that California is engaged in a 10-year program.

Last week, we discussed CIRM's life expectancy with James Harrison, the agency's outside attorney, at a meeting of the CIRM board at the Hotel Whitcomb in San Francisco. He assured us that there is no “sunset” looming for CIRM.

Later we asked him to provide his perspective via email, the full text of which is in a separate item below. Harrison is with Remcho, Johansen & Purcell of San Leandro, Ca., and is one of the authors of Prop. 71. He said,

"We wrote Prop. 71 to protect the voters' mandate against ideologically motivated litigation that could deny Californians the opportunity to have ten full years of medical and scientific advances for therapies. With ten full years of funding, the public will have an opportunity to evaluate CIRM's performance and the value of Prop. 71 to California's patients and the health care budget. At the end of this period, CIRM expects to be able to demonstrate an extremely persuasive performance.”

Harrison continued,

"Numerous (media) interviews were given to explain how Prop. 71 would adjust for delay by extending the effective time frame. Similarly, many interviews focused on the ability to reduce funding in a particular years if the scientific quality dropped in that year, with the funds saved to be used in later years, perhaps adding a year or two to the program term."

The California voter pamphlet, which goes to all registered voters statewide, also said in 2004,

“The measure states its intent, but does not require in statute, that the bonds be sold during a ten-year period.”

The pamphlet, however, came during both a presidential election year and a California election that was loaded with ballot measures. Both voters and reporters paid scant attention to it.

As for the language in the “intent” section of the measure, it says that Prop. 71 would

“Authorize an average of $295 million per year in bonds over a 10-year period to fund stem cell research and dedicated facilities for scientists at California’s universities and other advanced medical research facilities throughout the state.”

As far as we can tell, that is the only reference in the 10,000-word measure to a 10-year limit.

So what does all this mean? The intent language and the campaign's action/inaction could encourage a cantankerous attorney to make legal mischief by arguing in court that CIRM must wind up its affairs within the decade specified. We suspect such an effort would fail, but it would waste time and money at CIRM.

More importantly, the matter touches on the agency's credibility, which is likely to be examined as part of its bid for future funding. CIRM has already embarked on a course (creation of a communications task force and its disease team grants) to gin up support for more cash. If CIRM's credibility is suspect, some potential benefactors – be they lawmakers or philanthropists – may view the agency's new pitch with skepticism.

Klein already has been labeled as less than straightforward in connection with campaign claims. In one case involving allegations of deceit, the San Francisco Chronicle reported that Klein failed to disclose during the campaign negative financial details to the tune of $1 billion. Klein did not respond publicly to the 2005 article.

John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca., today put CIRM's life expectancy in the broader context of the California's budget crisis.  Writing on his organization's blog, he said that when CIRM asks for more public cash,

"...(It) will be necessary to ask whether, after committing $6 billion, counting interest on taxpayer money, CIRM deserves more.  The question will be: Given California's other challenges, can it afford more money for stem cell research?  I don't know what the answer will be then.  If the choice were being made today, my answer would be definitely not."

(You can read recent news stories here and here that contain a reference to a 10-year program. You can read campaign news stories that contain a reference to 10 years here, here and here. The item below carries the verbatim text of what Harrison sent the California Stem Cell Report concerning the life expectancy of CIRM.)

Statement on CIRM's Life Span From the Agency's Counsel

Here is the text of the statement to the California Stem Cell Report from James Harrison of Remcho, Johansen &  Purcell of San Leandro, Ca., CIRM's outside counsel, on the life expectancy of the stem cell agency. 

"We wrote Prop. 71 to protect the voters' mandate against ideologically motivated litigation that could deny Californians the opportunity to have ten full years of medical and scientific advances for therapies. With ten full years of funding, the public will have an opportunity to evaluate CIRM's performance and the value of Prop. 71 to California's patients and the health care budget. At the end of this period, CIRM expects to be able to demonstrate an extremely persuasive performance.

"To permit this evaluation to occur and to protect against delays arising from events beyond the agency's control (such as the litigation, which delayed the program for two and one half years), the measure was drafted to provide some flexibility. Thus, the measure sets forth limits on the percentage of funds that the agency can commit over the first 10 years of grant making (section 125290.70(a)(1)(B)), but permits funds that are not allocated in a particular year to be carried over to the following years. Likewise, the bond act authorizes the issuance of $350 million per year in bonds, but permits any remaining amount to be carried over into subsequent years. (Section 125291.45(b).)

"To date, CIRM has committed approximately one billion and expects to commit the remainder over the course of the next 7 years, which is consistent with the ten year time frame, as adjusted by the delay caused by the litigation. Of course, if there are other delays, such as federal regulatory roadblocks or other events beyond CIRM's control, this time frame could be extended.

"The loan program could also extend this time frame. To extent that CIRM recovers money from the loan program, the funds will be used to make new grants and loans to help successful proofs of concept reach patients, thereby providing the voters with more research funding than they've paid for.

"Throughout the campaign, the proponents of Prop. 71 explained that it was their intent for the funds to be committed over a period of ten years to permit the voters to evaluate the agency's performance, but they noted that if there were delays, the measure was designed to permit ten full years of funding as a basis for evaluating the value of Prop. 71.

"Numerous interviews were given to explain how Prop. 71 would adjust for delay by extending the effective time frame. Similarly, many interviews focused on the ability to reduce funding in a particular years if the scientific quality dropped in that year, with the funds saved to be used in later years, perhaps adding a year or two to the program term."

Eugene Washington to Join CIRM Board

An academic executive who was a key figure in developing UC San Francisco's first-ever strategic plan is scheduled to become the newest member of the board of directors of the $3 billion California stem cell agency.

He is A. Eugene Washington, who became dean of the UCLA School of Medicine this month. Prior to assuming the job, he was executive vice chancellor, provost and professor of gynecology, epidemiology and health policy at UCSF. In 2005, he co-chaired the development of UCSF's first campus-wide strategic plan.

Mona Gable profiled Washington in a piece last month in UCLA Today. She quoted Nancy Adler, vice chair of the UCSF Department of Psychiatry and director of the Center for Health and Community, as saying,

“He has a capacity to see things in innovative ways and to get people to work together to do things. He’s really a consensus builder. Sometimes that can be waffly, but his capacity to have a strong vision and bring people along to share in it, rather than impose it on them, is what characterizes him.”

As executive vice chancellor, he oversaw areas dealing with conflicts of interest, industry contracting and information technology in the UCSF office of research. That experience may serve him well given CIRM's enormous reliance on outside contracting and its ongoing issues with its grant management system.

Washington's appointment has not been formally announced, as far as we can tell, although it was discussed at last week's CIRM board meeting. His predecessor, Gerald Levey, the former UCLA dean of medicine, has retired. However, Levey, who has been on the CIRM board since its first meeting, will be serving as Washington's alternate on the 29-member CIRM board. Given that situation, it is unclear whether Washington will be in regular attendance at CIRM.

Southern California Newspaper Calls for Greater Transparency at CIRM

Another negative newspaper editorial popped up this week concerning the California stem cell agency. The piece called for more accountability and openness on the part of $3 billion research effort. And, the editorial said, if the agency goes to court to fight reforms, lawmakers should place the proposals on a statewide ballot.

The article in the Riverside Press Enterprise cited recommendations from the Little Hoover Commission, the state's good government agency, and the Citizens Financial Accountability and Oversight Committee, a sister agency to CIRM. Most recently, the citizens committee last week called for some reforms, a move that triggered a less than favorable column – for CIRM – in the Los Angeles Times, the state's largest paper, and a harsh editorial in the San Diego Union-Tribune.

The Riverside editorial said,

“California's stem cell research agency is not a private fiefdom, but a public entity answerable to taxpayers. Legislators should follow the recommendations of a state watchdog, and impose rules that would bring accountability and openness to an agency spending $3 billion of public money.

“Those steps should start with restructuring the agency's governing board to provide more independence, reduce conflicts of interest and hold members responsible for their actions. And the Legislature should oblige the agency to make decisions more transparently when awarding research grants.”

The piece continued,

“...(N)ot surprisingly, the institute has been dogged by widespread suspicion of conflicts of interest. The agency says that board members abstain from voting on matters that affect them. But the need for frequent recusals suggests an inherent structural flaw in the board,

“How the agency disburses money is largely hidden from public view, as well. The institute only identifies those grant applicants who collect money. But publicizing all the applicants, not just the successful ones, would protect against self-interest or favoritism in funding decisions. Connecticut's stem cell program follows that practice, and so should California's.

“The stem cell institute claims that most of those reforms would require a new ballot measure, but that argument is suspect. The measure allows the Legislature to make changes that further the intent of Prop. 71. Steps that provide greater public trust and protect against insider dealing surely further the agency's mission -- not to mention the public interest.

“And if the agency goes to court to fight such reforms, the Legislature should simply put them on the ballot.”

CIRM Financially Secure Into Summer 2011

SAN FRANCISCO – Directors of the California stem cell agency today heard some good financial news – $55 million worth – that will keep them out woods through the summer of 2011.

John Robson, CIRM's vice president for operations, reported that the agency has enough cash on hand to pay for its grants and operations into the first quarter of the 2010-11 fiscal year. Previously, he had predicted that money would run out around June of 2011.

Robson explained that much of the additional cash was discovered as a result of closer accounting of the results of a state bond sale in spring 2009. Additional cash became available because of delays in completion of four stem cell labs that are partially funded by CIRM. He also said more accurate financial information is being generated by a new grants management system.

CIRM relies on state bonds for its funding. Presumably it will receive another jolt of cash in the next 18 months as the result of additional bond sales.

Robson additionally reported that the Buck Institute, which has not been able to raise matching funds for its $21 million CIRM lab grant, has decided to begin construction regardless. Robson said that if Buck does not receive $15 million in matching funds from federal stimulus cash or philanthropy, it has decided to take on additional debt for the project.

CIRM Directors Change Big Biotech Loan Program

SAN FRANCISCO – Directors of the California stem cell agency tonight approved changes in the terms of its $500 million biotech loan program with little discussion and no dissent.

Approved were the guidelines that can be found here. Elona Baum, CIRM general counsel, highlighted some of the changes from the previous loan terms. They included lowering the minimum size of a loan below $3 million under some circumstances, designating the default interest rate as LIBOR plus 2 percent and compounding interest instead of using simple interest.

The changes also included new terms for use of warrants as part of the loan process and acceleration of loan payments in the event of a change of control, at CIRM's discretion. Also approved were extensions of loans beyond five years up to 10, with payment of 25 percent of accrued interest and an increased interest rate each year. Loans could be extended beyond 10 years with approval of the directors' Finance Subcommittee.

No biotech businesses or members of the public commented on the changes. The loan terms are guidelines. CIRM staff is preparing a final Loan Administration Policy.

Also approved by CIRM directors were:

Initiation of a $40 million grant round for “tools and technology”

Regulations dealing with CIRM research standards

Creation of a directors Scientific Issues Subcommittee, but no members were named

Put off until March was a proposal for CIRM to begin to fund at least part of clinical trials. No details were available from CIRM.

The CIRM board briefly discussed last week's meeting of a key state panel that urged it to be more open, transparent and accountable. Among other things, the Citizens Financial Accountability Oversight Committee recommended that CIRM post online the statements of economic interest and travel expense claims of its board members and top management. Some members of the CIRM board said the committee's recommendations were not based on factual information.

The board also discussed a scathing San Diego Union-Tribune editorial this morning and generally expressed a desire to be able to respond quickly to negative articles. Some board members also expressed dismay that they had not been given a copy of the editorial early in the day. Duane Roth, a San Diego businessman and a CIRM director, has written a letter in response to the San Diego paper that he said he expected to see published this week.

(Editor's note: An earlier version of this item did not contain the sentence concerning board members dismay about not receiving a copy of the editorial earlier.)

Public Can Participate Today in CIRM Board Meeting at Locations in San Francisco, San Diego and Los Angeles

Biotech executives, researchers and the public can participate in today's meeting of the board of directors of the California stem cell agency at locations in San Francisco, Los Angeles and San Diego.

It may be the first time that three such widespread locations have been available around the state for a CIRM board meeting. The sites are the Hotel Whitcomb in San Francisco(where the meeting is based), the Lansing Foundation in Los Angeles and the Salk Institute in La Jolla in the San Diego area.

Interested parties can listen in as well on the meeting today and tomorrow via the Internet. However that connection is one-way only. It does not provide for comments from the public.

If you are interested in the sites in San Diego and Los Angeles, check in advance with the Lansing Foundation and Salk to be sure that you know more specifically where the teleconference connection is located.

Here are the procedures for using the Internet. Today's broadcast begins at 4:30 p.m. PST. Listeners should go this Website http://65.197.1.15/att/confcast and use conference ID# 141973. The broadcast Thursday begins at 8:30 a.m. PST. Use http://65.197.1.15/att/confcast and conference ID# 141977.

Scathing Commentary on CIRM from San Diego Union-Tribune

The San Diego Union-Tribune today blistered the California stem cell agency in an editorial calling for greater transparency and a "much less blithe attitude about conflicts of interest."

The editorial carried the headline: "Stem-cell shenanigans / Lawmakers should force state institute to shape up." The San Diego paper said,

"This reeks. It increasingly appears as if the Legislature needs to save CIRM from itself. The institute’s good work does not excuse its machinations."

The Union-Tribune, whose circulation area includes one of the nation's hotbeds of biotech, said that it supported Prop. 71, the measure that created the stem cell agency in 2004, and has backed the agency since then .

The newspaper continued,

"Nevertheless, a June 2009 report by the Little Hoover Commission, a state watchdog group, made a strong and convincing case that CIRM had fundamental conflict-of-interest problems. Those overseeing CIRM often also won grants from the agency.

"Dismayingly, CIRM dismissed the criticism out of hand, which only raised more eyebrows. This is not how a public agency is supposed to act when legitimate ethical concerns are raised by a respected public watchdog.

"Now, however, the Legislature has the opportunity to compel CIRM to take these concerns seriously. Institute officials say they are hamstrung by a provision in Proposition 71 that puts a 50-employee limit on CIRM and are asking for a change in state law.

"Lawmakers must do so only if the legislation also includes specific provisions requiring much more transparency in how management and grant decisions are made and a much less blithe attitude about conflicts of interest."

The Latest on Changes in CIRM's Biotech Loan Program

CIRM today reported another change in what is to be expected concerning alterations in the $500 million biotech loan program at tomorrow's and Thursday's meetings of its board of directors.

In an email, Don Gibbons, CIRM's chief communications officer, said,

“There is a bit of change again in the agenda. We decided that we needed the loan term guidelines for the Early Translational RFA and that the phone meeting of the board could not happen prior to posting that RFA. So the original agenda item has been split in two, the actual amendments to the loan administration policy will occur at a later meeting, but the term guidelines will be up for approval as related to the early translational RFA.”

Advisory

The link in the "Fecundity" item today was faulty. It has now been fixed.

Fecundity, Stem Cells and the Dark Side of Prop. 71

Los Angeles Times columnist Michael Hiltzik has provided a bit of a filip to his look Monday at the California stem cell agency.

It came in the form of an entry in his blog entitled “Of stem cells and administrative arrogance.”

Among other things, he said Prop. 71, which created California's $3 billion research effort, was “too specific about how the program would be managed and how it would spend its money -- embryonic stem cell research was placed front and center at a time when that line of research was so, well, embryonic that no one could tell how fecund it might be.”

Hiltzik also said,

“Prop. 71 is an excellent illustration of how the state's initiative process can lead to doing the wrong thing with the right intentions. Now that many other research vectors are proving more interesting, the California Institute for Regenerative Medicine is at a crossroads, only five years after it was launched. Its latest major round of grants included some that had little to do with embryonic stem cells; it's moving away from basic science grants toward lending to commercial firms; its 10-year sunset deadline is fast approaching, with no one sure whether its lifespan should or can be extended; and real and potential conflicts of interest involving its board members and grant applicants continue to exist.”

“Now,” he said, “even Prop. 71 itself is in the program's way.”

A footnote on the sunset comment: The organization itself does not terminate after 10 years. Rather it loses its ability to issue state bonds.

(Editor's note posted Feb. 8, 2010: Section 3 of Prop. 71 states that the intent of the measure -- and "intent" is the key word -- is to

"Authorize an average of $295 million per year in bonds over a 10-year period to fund stem cell research and dedicated facilities for scientists at California’s universities and other advanced medical research facilities throughout the state."

(The outside attorney for the board says there is no legal time limit on the board's bonding abilities, just the total amount of the bonds, $3 billion. We will soon post an item discussing at more length the misperceptions about CIRM's life span.)

CIRM Delays Action on Clinical Trials, Biotech Loan Changes

The California stem cell agency today said its directors would put off until their March meeting a discussion of a proposed foray into financing of clinical trials.

CIRM also said that directors would not vote this week on changes in its $500 million biotech loan program. Instead they are expected to act later on the proposal during a special telephonic meeting.

Both topics are on the agenda for this week's meeting in San Francisco, which begins on Wednesday and continues on Thursday.

In an email, Don Gibbons, CIRM's chief communications officer, said, “Chill on the (agenda) documents. The clinical RFA discussion is being put off until the March board meeting and the loan program vote will be at a special telephonic board meeting after everyone has had a chance to review the minor changes made by the finance subcommittee. Both these agenda alterations have been in the works for a few days, I just needed to verify them.”

Earlier posts (here and here) on the California Stem Cell Report have noted that CIRM had not posted an explanation of or a justification for the loan changes. CIRM also has not laid out just what is being proposed in the clinical trial venture. All of which makes it quite difficult for researchers, biotech businesses and the public to offer any sort of well-considered comment prior to board action.

The proposed loan guidelines, however, were posted today, but still missing is an explanation of why they are needed or exactly how the changes departed from the original plan.

Also posted today, under the topic of membership of a directors Scientific Issues Subcommittee, was a 12-page report on the prescreening process in use at the agency for some grant rounds. The report included a survey of 117 applicants.

The report said, in part, that “the results suggest that applicants, PreApp (preapplication) reviewers and GWG (the scientific grant review group) reviewers favor this process. The process has created an opportunity for many applicants to compete that have not previously applied to CIRM and a significant number of these have succeeded in acquiring a grant. The process allowed us to consider more proposals within a single review cycle than would have been possible using conventional review.”

LA Times on CIRM Plans to Remain 'Relevant'

The changing focus of the California stem cell agency – with its aggressive push towards fast, tangible and marketable results and presumably away from its original emphasis on human embryonic stem cell research – was the focus of a Los Angeles Times article early last month.

The Jan. 10, 2010, piece by Karen Kaplan said,

“Now the institute has a more immediate goal: boosting therapies that are much further along in development and more often rely on less glamorous adult stem cells. It is concentrating its vast financial resources on projects that could cure conditions such as age-related macular degeneration, AIDS, sickle cell disease and various types of cancer.

“In shifting its focus, the agency is moving to fill a void known as the 'valley of death' -- a point at which projects are typically too commercial to vie for federal funds, yet too risky to entice private investors.

“This is how the agency -- with its constitutional mandate to invest $3 billion in stem cell research over 10 years -- plans to stay relevant as the state slashes billions from education, public safety, health and welfare programs to close a gargantuan budget hole.”

Kaplan's piece was more oriented towards the science of stem cells than the column this morning by Michael Hiltzik, also in the Los Angeles Times, which is California's largest newspaper with a readership of roughly of 1 million. Kaplan provided a contrast to Hiltzik, who took a more critical view, focusing on the public policy questions at the agency. Hiltzik's article also was an opinion piece as opposed to Kaplan's article, which was a news feature.

Kaplan, however, also wrote,

“Some scientists who study basic stem cell biology say the new emphasis on clinical trials is premature. They say many fundamental questions about stem cells still need to be answered, and diverting money from basic science means that revolutionary therapies -- still many years away -- will take even longer to materialize.

(CIRM President Alan) Trounson acknowledged that the shift has elicited 'a bit of a reaction from scientists' despite the institute's commitment to continue steering millions of dollars to basic biology. But, he said, the investments will have to produce actual therapies 'if we're going to be relevant to the community.'"

Not said was the need to provide real results that will help CIRM peddle its story in a few years to raise additional cash -- perhaps from the legislature, perhaps from private sources or both – when its 10-year bonding capacity runs out, possibly in 2017.

Also not discussed was the fact that the Prop. 71 campaign was almost entirely based on the need to fund human embryonic stem cell research. It is probably fair to say that the measure that created CIRM would not have passed had not then President Bush already imposed restrictions on the federal funding of hESC research.

Kaplan's article led with an anecdote involving research by Karen Aboody of the City of Hope, who has an $18 million grant from CIRM. Michael Friedman, the CEO of the City Hope, serves on the CIRM board of directors. His institution has received $37 million from CIRM. Also mentioned was Martin Pera of USC, a former colleague of Trounson's in Australia. Pera has received $6.4 million from CIRM. The dean of the USC medical school, Carmen Puliafito, serves on the CIRM board of directors. USC has received $71 million from CIRM.

CIRM directors are barred from voting on grants involving their institutions or even discussing the merits of those applications when they come up for approval. However, they do approve the concepts for all grants and control procedures for grant-making.

Recent Comments

For unknown reasons, our “recent comment” function to the left on this page has ceased to work properly. Consequently, some recent comments have not appeared. We are attempting to fix the problem.

Meanwhile, here are some comments that have been posted in the last few days.

Anonymous has left a new comment on the post "CIRM Proposes $40 Million Stem Cell "Tools" Round;...":

"The 'disease in a dish' proposal combined with funding clinical trials seems like CIRM is trying to be everything to everyone.

"They will have to take care that the 'tools' aren't merely grantsmanship for more years of basic research funding going nowhere fast; a nice new grant stream for the universities, not so nice expenditure for the taxpayers and patients hoping for CIRM to help meet their medical needs. "

Brad has left a new comment on the post "CIRM Proposes $40 Million Stem Cell "Tools" Round;...":

"The meetings are on Wednesday and Thursday not Tuesday and Wednesday like your article states. Great blog and reporting I check things out at least once a week.

"Thanks,
Brad Bixby
www.BioSpherix.com"

The California Stem Cell Report said in response
"Brad -- Thanks for letting us know. We have posted a correction."

Gilly Newman has left a new comment on the post "CIRM Disagrees with Many Recommendations for More ...":

"Hi,
"I've been following up on your site quite regularly. My son plans to go for stem cell therapy early next year. I am worried that can CIRM's outburst have an effect on the therapy as a whole."

We ecourage comments and would like more.

LA Times Columnist Targets CIRM; Structural Changes Needed

The California stem cell agency, which has “self-righteously” opposed better public oversight of its activities, should be altered to create a research program that “exemplifies not only good science, but good government,” a Pulitzer Prize-winning columnist said today in the Los Angeles Times.

While noting that the agency has funded “important work,” Michael Hiltzik said,

“...(I)t's ridiculous for CIRM to maintain that increased legislative oversight and a more compact and objective board are inimical to its purpose of fostering stem cell research in California.”

Hiltzik, whose piece was the 10th most viewed article on the Times Web site early this morning, first wrote about the agency during the political campaign that created it in 2004. His latest article came after he attended last week's session of a key state panel that unanimously called for more openness and accountability from CIRM. The panel, the Citizens Financial Accountability Oversight Committee, is chaired by state Controller John Chiang, who is the state's top fiscal officer.

Hiltzik said that the $3 billion agency came under withering fire at the meeting of the committee, which is part of Prop. 71, the same measure that created the stem cell agency.

Hiltzik focused on comments by committee member Loren Lipson, a physician and research scientist at USC. (The dean of the USC medical school sits on the CIRM board of directors. USC has received $71 millions from CIRM.)

Hiltzik wrote,

“Lipson objected to CIRM's practice of keeping the identities of grant applicants secret until and unless they win a grant. He thinks that without full transparency, it's impossible to know whether the scientific peer reviewers or the board have shown undue favoritism to the victors.

“That's especially a problem, Lipson believes, because the stem cell research community is small and so much of the board is, by design, self-interested. 'To me it looks like an old-boys club,' he told me after the meeting. 'When I look at that board I get a bad feeling of impropriety.'

“CIRM officials assured him that conflicts of interest aren't a problem on the board or among its scientific peer review teams, but he remains unimpressed. 'They never really answered my questions,' he says.”

Hiltzik, the author of three nonfiction books and winner of one of the top prizes in financial journalism, also discussed CIRM's new-found desire to change one provision of Prop. 71: the 50-person cap on the size of its staff.

He wrote,

“The good news for taxpayers is that the program's request for more staff could open the door for our elected representatives to finally insist on some jurisdiction over the spending of our $3 billion -- $6 billion including interest on the state bonds with which the money is raised. The key questions are these: Is it being spent appropriately, and is it being spent without conflicts of interest? On both issues, there's reason for doubt. Unfortunately, the program has managed to fend off every effort by elected officials to weigh in.

“The 50-employee limit was trumpeted by Proposition 71's supporters as proof that the program would be lean and mean, with almost all the money going to science. You might think they must have known from the start that managing a $3-billion scientific research program would require a larger staff, but then that would make them look cynical, and who wants to do that?”

Hiltzik continued,

“There's no question that CIRM has funded important work and bolstered the state's research profile. And there's no reason to doubt that CIRM needs more staff scientists to make sure grant recipients are spending our money properly, especially since the program is about to start doling out loans to commercial companies, not just grants to academics.

“But it's ridiculous for CIRM to maintain that increased legislative oversight and a more compact and objective board are inimical to its purpose of fostering stem cell research in California. CIRM mouthpieces love to claim that the 'voters' intent' should be honored by keeping the program rigorously free of political oversight -- but then the voters' intent was also to give it 50 staff members, and not a soul more.

“Nothing requires the Legislature to crack open the door on Proposition 71 only as far as CIRM wishes. The Legislature should let the program have the additional staff, but on its own terms. These should include a change in CIRM's board structure and imposition of the sort of oversight the program should have had in the first place -- including a reduction in the requirement for legislative amendments from 70% to a bare majority and giving Chiang the broader authority he requested. That's the way to create a public stem cell research program that exemplifies not only good science, but good government.”

CIRM Clinical Trial and Biotech Industry Loan Plans Remain Veiled

With only two days remaining before this week's meeting of the board of directors of the California stem cell agency, still missing publicly are any details on proposals that appear to involve hundreds of millions of dollars in taxpayer funds.

The plans concernCIRM's fledgling $500 million biotech loan program and participaton in funding of clinical trials, which can cost hundreds of millions of dollars. The agenda for the CIRM board meeting, which begins Wednesday afternoon, contained only 46 words this morning on the proposals.

CIRM's latest lack of transparency comes only six days after a key state panel unanimously urged CIRM to be more open and accountable.

Correction

The "board meeting" item on Jan. 30, 2010, incorrectly said the CIRM directors will meet on Tuesday and Wednesday of this week. They meet on Wednesday and Thursday.

CIRM Proposes $40 Million Stem Cell "Tools" Round; Board Meeting Accessible in LA

For those of you in Southern California who would like to participate in next week's CIRM board meeting, you will be able to do so via a teleconference call from the offices of the Sherry Lansing Foundation in Los Angeles.

Additional background information on matters to be acted on at the meeting that begins Wednesday was posted on the CIRM Web site late yesterday and early today. Still not available to the public is any significant information on the proposed changes in CIRM's $500 million biotech loan program and a proposal for CIRM to get into the clinical trial business. Clinical trials can run into hundreds of millions of dollars, but CIRM is probably going to offer to pay only a portion of the cost of a trial.

On the table with background information are regulations to “authorize the use of embryos donated by IVF patients where the gamete donors received compensation for reproductive purposes.” The regulations include authorization of “the use of somatic cells for which donors have received IRB-approved compensation for inconvenience, provided that CIRM funds have not been used.”

Also available is information on a $40 million grant concept proposal dealing with “tools and technology.” CIRM said 20 grants could be awarded to “support the inception, early stage development and evaluation for stem cell research applications of innovative tools and technologies that will overcome current roadblocks in translational stem cell research.” The round would include funding for “disease-in-a-dish” models. The grants will be open to both business and academic researchers.

Early today, an additional item was added to next week's agenda – the nomination of two scientists as alternate members of the CIRM panel that makes the de facto decisions on grant applications. They are Laurie Jackson-Grusby of Harvard and Maria Grazia Roncarolo of the San Raffaele Scientific Institute in Milan.

Next week's meeting will can be heard on an Internet broadcast. However, the broadcast does not allow participation by listeners. The Wednesday broadcast begins at 4:30 p.m. PST. Listeners should go this Website http://65.197.1.15/att/confcast and use conference ID# 141973. The broadcast Thursday begins at 8:30 a.m. PST. Use http://65.197.1.15/att/confcast and conference ID# 141977.

The Thursday broadcast includes a presentation by a three Stanford scientists on genetic skin disease . The trio – Alfred Lane, Anthony Oro and Marius Wernig – received a $12 million disease team grant last fall. The CIRM board meeting begins following their presentation.

The address of the Lansing Foundation, where listeners can also make comments to the board, can be found on the meeting agenda.

The California Stem Cell Report will be covering the sessions live both days and will file stories as warranted.

(Editor's note: An earlier version of this item incorrectly said the board meetings are on Tuesday and Wednesday.)

CIRM Disagrees with Many Recommendations for More Openness

The California stem cell agency has responded to recommendations from a key state panel for more openness, accountability and transparency on the part of CIRM, indicating disagreement with many of the suggestions.

The Citizens Financial Oversight Accountability Committee on Tuesday urged CIRM to operate in a manner that would enhance its credibility and accountability. State Controller John Chiang, the state's top fiscal officer and chairman of the committee, said,

“To ensure that taxpayer dollars are spent lawfully, wisely and successfully, the stem cell program must pursue the highest standards of transparency to be fully accountable to the public.”

On the same day that the committee made its unanimous recommendations, the California Stem Cell Report asked Don Gibbons, CIRM's chief communications officer, for a reaction to the committee's move for more openness. Gibbons did not respond to that query until today. His email followed the posting of the “Stem Cell Plans Shrouded” item on this Web site.

Gibbons' email today alluded to a “statement” posted Wednesday on the CIRM Web site. The statement was not circulated as part of CIRM's email alerts and could not be found via the agency's search engine. We found it under “announcements.”

In the announcement, CIRM, among other things, challenged the CFAOC's authority to conduct performance audits. CIRM's statement said,

“Proposition 71 made a very specific and limited assignment to the CFAOC, which is comprised of individuals with financial expertise and some medical background.”

Under Prop. 71, which altered the state Constitution and state law, CIRM effectively operates outside of the normal control of nearly all normal state oversight bodies, including the governor and the legislature, which cannot touch the agency's budget, even in the current state budget crisis. Changes in the law concerning CIRM can only be made with a rare, super super majority vote of 70 percent. Changes in constititutional provisions affecting CIRM would require a statewide vote.

CIRM's carefully worded announcement said the agency “welcomes” CFAOC input. CIRM said the “broader issues are important.” It defended its processes and rejected some of the recommendations, including the identification of all applicants for public money.

CIRM also said it is engaged in a review of its “core scientific programs” by outside scientists, who will examine “the research portfolio and policies and procedures for managing that portfolio.” CIRM said,

“The review by the outside panel will be made public.”

Presumably that would include extended public sessions of the panel, but the CIRM statement stopped short of explicitly saying that.

CIRM also said its Legislative Subcommittee also will discuss transition issues related to the expected departure of Chairman Robert Klein this December. The subcommittee will hold public meetings later this year.

Big Buck Stem Cell Plans Shrouded by CIRM Transparency Failure

With only three business days remaining before directors of the California stem cell agency act on proposals that appear to involve hundreds of millions of dollars in taxpayer funds, CIRM is keeping researchers, biotech firms and the public in the dark about the details and rationale behind the plans.

Ironically, the failure in openness comes only shortly after a key state financial oversight committee unanimously urged CIRM to be more transparent and accountable.

CIRM's lack of transparency concerning its directors meetings is a perennial problem for the $3 billion organization. It also flies in the face of rhetoric from CIRM chairman, Robert Klein, who repeatedly avows that CIRM adheres to the highest standards of openness and transparency.

While the organization posts a bare bones notice well in advance of directors meetings, the agendas consist of little more than cryptic phrases that provide little information about the proposals or their justification. (See here, here and here and here for a related transparency issue.) Sometimes some of the needed information is posted on the CIRM Web site a day or two before a meeting. But sometimes the needed material is never posted at all in advance of a meeting. Even CIRM board members have grumbled at times about the tardiness.

CIRM's secrecy runs counter to its efforts to involve the public, researchers and the biotech industry. Business particularly needs time to analyze proposals, develop a well-thought out response and make plans to attend CIRM board meetings, which are scattered around the state. It is not realistic or reasonable to expect biotech executives to drop all their activities to respond to CIRM on a one-day or two-day notice or less, either to attend a board meeting or formulate a written comment to be delivered to CIRM.

On Tuesday, the Citizens Financial Accountability Oversight Committee unanimously urged CIRM to beef up its transparency and openness. The committee is no outside group, but something of a sibling to CIRM. The committee was created by Prop. 71, the same measure that created the stem cell agency, and generally has been friendly to the organization. (CIRM has not yet responded to a request for comment on the committee's action.)

In December, directors created a subcommittee to improve communications with the public and the media. The action implicitly recognized that CIRM needs to do a better job of selling itself to the public and decision makers in Sacramento if it is to receive continued funding after its $3 billion runs out ($1 billion is already committed). Ironically details and justification for the stepped-up communications effort were not posted on the CIRM Web site until the day of the CIRM board meeting.

To CIRM's credit, it does provide significant access to some aspects of its business. Among other things, it broadcasts its directors meetings on the Internet and provides transcripts online a couple of weeks after the meetings. But those are after the fact. The public must be informed ahead of action in order to comment intelligently.

That also should include a notification on the CIRM home page of an upcoming directors meeting with some clue to the issues being considered – something that has not happened for a year or more. The directors' meetings are the most important public actions at CIRM. They deserve to be highlighted by the agency.

The issues involving CIRM's transparency and openness go beyond good management and speak directly to the California's constitutional guarantee of a “broadly construed” right of public access to “the people's business.” But importantly for CIRM, improved openness would not only enhance its communications with the public, but would also improve relations with its scientific and business constituents – not to mention legislators.

CIRM can do better, and California taxpayers deserve more.

CIRM Oversight Panel Recommends More Accountability, Transparency at Agency

The California state panel charged with overseeing financial practices at the state's $3 billion stem cell research agency today urged it to improve its accountability and make its performance more open to the public.

State Controller John Chiang, the state's top fiscal officer and chairman of the panel, said,

“Californians overwhelmingly voted in 2004 to provide billions of public dollars to find cures for chronic, debilitating and deadly diseases that affect millions of Americans each year. To ensure that taxpayer dollars are spent lawfully, wisely and successfully, the stem cell program must pursue the highest standards of transparency to be fully accountable to the public.”

CIRM had no immediate comment on today's action.

In a news release, the controller's office said the Citizens Financial Accountability Oversight Committee voted unanimously to endorse recommendations last year by the Little Hoover Commission, the state's good government agency, to make CIRM's practices more open to the public.

Specifically, the committee cited recommendations “to improve efficiency and transparency in the way grants and loans are distributed, make future business practices more open, and use the authority of the CIRM governing board and the CFAOC to enhance oversight of the stem cell program.”

Asked for elaboration, Hallye Jordan, deputy controller, said in an email that the committee

“...formally advised CIRM to implement those proposed recommendations that need no legislative authority and support legislation where statutory changes are required. Here are the three:

“The Legislature and CIRM should improve efficiency and transparency for distributing grant and loan funds,

“The CFAOC and the CIRM governing board should use their authority to enhance oversight, and

“The CIRM governing board should begin planning for CIRM's future through an open process.”

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said,

“The Little Hoover Commission’s recommendations were made after thoughtful study. Now another oversight panel has endorsed that work. CIRM would do well to listen.”

The financial accountability committee, created by Prop. 71, also voted to post its members' statements of economic interest and travel expenses on both the controller's and CIRM's Web site. The committee urged CIRM to post the same information for its directors and staff.

Both the controller and the governor post that information on their Web sites. (Here is the controller's office info and here is the governor's.)

The vote on the Little Hoover recommendations was unanimous, with Chiang, Daniel Hollander, Loren Lipson, Gurbinder Sadana and Jim Lott in favor. Daniel Brunner was absent.

The vote on posting statements of economic interests was 4-1 with Hollander, a recent appointee to the panel by CIRM Chairman Robert Klein, dissenting.

We have asked CIRM for comment on the actions. We will carry it when we receive it.

Adelson-Weinberg CIRM Study

If you are having any difficulty viewing the full text of the Adelson-Weinberg article about the California stem cell agency, a copy can be sent to you via email. If you would like to have it delivered via email, please send a request to djensen@californiastemcellreport.com.

Bad Link Fixed

The “CIRM Finances” item Jan.22, 2010, contained a bad link to the agenda of the meeting. The link is now fixed.

CIRM Adheres to Core Mission but Future is Challenge

The California stem cell agency has "overcome startup challenges," drawn scientists to the Golden State, and its actions will have a "significant" impact on commercial and academic biotech research in the United States, according to an article in the American Journal of Public Health.

Nonetheless, the report by Joel Adelson and Joanna Weinberg (see photos) of UC San Francisco, said,

"Measuring the CIRM’s success by its highly ambitious goals for research and cures is a challenge for the future."

Robert Klein, chairman of the stem cell agency and head of the Prop. 71 political campaign, publicly hailed the article. On Jan. 15, he also told CIRM directors in an email,

"This group (the report's two authors) started out 4 years ago as complete disbelievers in the ability of this agency to fulfill its mission. Our performance has clearly convinced them we will have (and already have had) an effect on the future of biomedical research and its funding structures."

CIRM issued a release that said the article demonstrated that "CIRM has been successful in carrying out its core mission of accelerating research, creating jobs and fostering economic growth in California."

The CIRM announcement quoted Klein as saying, “The NSF (National Science Foundation) study provided strong validation of the major research jobs and medical leadership future of California, driven by Proposition 71 funding,"

The study's authors are associated with the Institute for Health and Aging at UC San Francisco. Adelson is chief of the Integrating Medicine and Public Health Program. Weinberg is associate adjunct professor, Institute for Health and Aging and adjunct professor and director, Law, Science and Health Policy Coordinator, Hastings College of Law. Their article was funded by the NSF and published in the January 2010 edition of the American Journal of Public Health. UC San Francisco has received $103 million from CIRM. A footnote on the article noted that UCSF has received CIRM cash. It also said Adelson and Weinberg received no funds from the stem cell agency.

In a summary attached to the article, "The California Stem Cell Initiative: Persuasion, Politics and Public Science," the authors said,

“The initiative has been highly controversial among stakeholders and watchdog groups concerned with organizational transparency, accountability, and the ethics of stem cell research....We found that the CIRM has overcome start-up challenges, been selectively influenced by criticism, and adhered to its core mission.”

The article said,

"It is difficult to find anything quite like the California stem cell endeavor—the rationale for its origin, its enabling ballot initiative, the extent of state funding for research, and the public’s vigorous engagement with the process are all unprecedented. We found that the CIRM, after a difficult beginning, and despite institutional turbulence, economic uncertainty, and constant public scrutiny, has become well-established and has both maintained and strengthened its core mission, partially aided by the pressures and criticism."

Adelson and Weinberg wrote,

"Since the initiative passed, continuous criticism and scrutiny has come from sources opposed not to stem cell research itself but rather to other aspects of the endeavor. Some critics raised concerns about the protection of egg donors (for somatic cell nuclear transfer), others about limited attention to donors’ physical health and potential exploitation because of their economic status. Strong objections have been raised to the manipulation and commercialization of human genes."

The article continued,

"Perhaps the closest attention to the conduct of the CIRM’s affairs has been paid by individuals and groups concerned about the CIRM’s potential conflicts of interest and lack of transparency. Watchdogs and consumer advocates have kept steady pressure on the CIRM to maintain transparency in spending taxpayers’ funds, including awarding of research grants, and to be publicly accountable for adherence to ethical and other standards. The CIRM, which may only fund research to be conducted in California, also had to address several potential conflicts of interest in funding decisions. The relatively narrow composition and size of the ICOC(the CIRM board of directors), and the limited number of institutions qualified to conduct CIRM-funded research, guarantee a large overlap among those seeking and those awarding funds. Many potential grantee institutions have representatives on the ICOC, because the initiative requires the appointment of representatives from 5 University of California campuses and from other California research institutions."

Adelson and Weinberg said,

"In its short history, the CIRM has taken on a vigorous life of its own. It is apparent that the shift of a major focus for stem cell research to California will have a significant effect into the future on the geographic distribution of biological science and biotechnology infrastructure in the United States; on the location of university, biotechnology, and pharmaceutical research and start-up firms; and on the investment of venture capital. Evidence for this is the $300 million the CIRM has invested in stem cell facilities, already leveraged to more than $1 billion in linked donations. The CIRM has also directly stimulated the formation of a consortium of otherwise separate institutions to meld resources and facilities in San Diego, and has begun to develop international collaborative partners. California is host to a steadily growing cadre of world-class scientists, dedicated state-of-the-art facilities, training programs, and support programs, such as a large-animal facility for the testing and development of drugs to facilitate the translational pathway leading from basic stem cell research findings in the laboratory to treatments and cures."

CIRM Moving to Fund Clinical Trials

Directors of the California stem cell agency meet in San Francisco Feb. 3-4 to take up a proposal to begin funding enormously expensive clinical trials in some form or another.

No details are available yet on just what is being proposed, but clinical trials can run into hundreds of millions of dollars. And there is no assurance that a viable product will result. Only one out of five drugs that enter human testing make it to market, according to one estimate.

CIRM has already approved $1 billion in grants and loans, leaving $2 billion until its funding capacity runs out.

The agenda item for the clinical trials is terse and says only,

“Consideration of concept proposal for clinical trial funding and/or concept proposal for program funding to facilitate reaching clinical trial approvals within 12 months.”

CIRM's strategic plan, approved last fall, says that the agency will develop proposals

“...to support clinical trials that would be expected to include partnerships with biotechnology and pharmaceutical companies, private investment, and other sources of financial support that are appropriate. This is an area of developmental responsibility for the vice president of R&D(yet to be hired). CIRM expects that its contributions would be proportionally smaller than other contributions from companies and other financial institutions but would remain meaningful and would ensure reasonable patient access to the new therapeutics that are developed."

The plan continues,

“The program of clinical trials will be developed in partnership with other funding sources as a special interest of the VP R&D. The program will be focused on the delivery of research arising from the work in California on stem cells and related technologies and ensures the continuation and delivery of discoveries in basic stem cell biology into the clinic.”

Also on tap are unspecified, proposed changes in CIRM's $500 million biotech loan program, which anticipates default rates as high as 50 percent.

Normally biotech firms, with a handful of exceptions, are notable for their absence at CIRM board meetings. However, it would behoove any firms interested in either clinical trials or loans to be in attendance. They can comment on the proposals and learn more about the cash that is likely to be available.

CIRM Finances On Table Next Tuesday

The financial affairs of the $3 billion California stem cell agency will come under scrutiny next Tuesday at a meeting in Los Angeles headed by California's chief fiscal officer.

The occasion is a session of the Citizens Financial Accountability Oversight Committee, which was created by Prop. 71. By law, the six-member board is chaired by the state controller, John Chiang.

On the agenda next week are the recommendations of the Little Hoover Commission for a restructuring of the CIRM board and other actions to improve the agency's performance. Also up for discussion is CIRM's financial performance, an update on grant awards and the grant process along with discussion of “risk analysis” involving CIRM, which has embarked on an unprecedented $500 million loan program for biotech businesses. The agency projects a $100 million “profit” on the loans despite projected default rates as high as 50 percent.

Changes Looming in California's Biotech Loan Program

Proposed changes in the $500 million biotech loan program offered by California's stem cell research agency will come before its directors at a meeting early tomorrow morning.

Interested parties can listen in and comment at a variety of locations in California and one at the Charles Hotel in Cambridge, Mass., a state that has a robust biotech community.

CIRM has posted the proposed changes on its website, but the material does not offer an explanation or justification for the revisions. They seem to have grown out of meeting in December of the Loan Task Force and are coming before the directors' Finance Subcommittee at 7:30 a.m.(10:30 a.m. in Massachusetts). The 102-page transcript of the task force meeting can be found here.

In addition to the Charles Hotel, the public can take part in the teleconference session at locations in Palo Alto, Irvine, Menlo Park, San Diego, Pleasanton, Hillsborough, Berkeley and San Francisco. Specific addresses can be found on the agenda.

As for the location within the Charles Hotel, interested parties should call CIRM at 415 396-9117. Presumably one of the directors is staying at the hotel.

California Stem Cell Lab Construction Not Entirely Up to Snuff

The California stem cell agency is reporting that one out of three grants is behind schedule in its $1 billion-plus stem cell lab construction program.

Nonetheless, CIRM produced an upbeat press release, declaring that “all were moving forward.” CIRM Chairman Robert Klein was quoted as saying the effort provided “extremely valuable contributions to the California economy.”

The timetable on the 12 projects is important by CIRM's own measure. Two years ago, CIRM ballyhooed the lab construction program because of its requirement for expedited construction with completion of the labs by May of this year. Applications for funding were also scored highly for their “urgency,” with 20 out of 100 points being possibly awarded in that category.

That said, few foresaw the unusual economic events of the last 18 months. However, most of additional needed financing should have been secured by the time economy nosedived.

Programs not up to snuff are located at UC campuses at Santa Cruz and Merced. Also behind is the $163 million Sanford Consortium facility involving UC San Diego, Salk, Scripps and Burnham. The fourth troubled effort is at the Buck Institute in Novato in Northern California. One could argue that others are behind schedule as well since they will not be completed by May, but instead one or two months later.

CIRM's press release on subject was a bit unusual. Normally the agency does not beat the drum about meetings of its working groups, where the official status report was discussed. But in this case, the lab construction program is one of CIRM's signature efforts.

The press release drew little attention. We found only two stories in a Google search: one about Buck by Ron Leuty in the San Francisco Business Times and the other about Sanford by Heather Chambers in the San Diego Business Journal.

One old rule in business holds that if you succeed 80 percent of the time, that is as good as you can expect. By that measure, CIRM's facilities program holds up reasonably well. But one of CIRM's foibles involves excessive rhetoric, such as bald statements that the facilities would be finished in two years.

Observers of the California stem cell scene would be well-advised to watch what CIRM actually does – along with what it promises to do.

Stem Cell Blog Returning to Action

A couple of days ago, we stepped on land for the first time in a month. The occasion was our arrival aboard our sailboat (and only home) in Barra de Navidad after two long ocean passages and visit to two islands in the Revillagigedo Archipelago about 350 miles west of mainland Mexico.

We swam with giant manta rays, watched a humpback whale with a very young calf and snorkeled with a host of fishes. Landing ashore, however, is not permitted by the Mexican government, which has a 50-person outpost on Isla Socorro. No other persons live on the islands. They are a protected biosphere, according to Mexican law. (The photo at the left is of Isla Benedicto and our vessel, which was forced to leave a fair amount of anchor chain on the seabed when the chain snagged under a large rock.)

We are now catching up on email and news and information on California's stem cell agency. We expect to post some fresh items soon. If any readers would like to call special attention to particular developments or have questions they would like answered, please email your comments and queries to djensen@californiastemcellreport.com.

CSCR At Sea Until End of January

The California Stem Cell Report is taking a break for a few weeks. We have set sail for Isla Socorro, part of an island chain in the Pacific Ocean about 350 miles southwest of Mazatlan, Mexico, and will have no access to the Internet or phones. We expect to be back online at the very end of January.

CIRM Issues for 2010: From Klein to Cash Flow to Conflicts

Money, manpower and performance – all are some of the top issues facing the $3 billion California stem cell agency in 2010.

They are not the only major issues confronting the 29 men and women who – as its directors – are charged with giving away the cash and ensuring that the California Institute for Regenerative Medicine stays on course.

But all the challenges will surface more or less prominently during the coming year. Here is a quick overview of the situation.

Leadership

CIRM Chairman Robert Klein says he is leaving in 12 months. The Palo Alto real estate investment banker has been the guiding spirit behind the agency since it was a mere gleam in the eyes of the supporters of hESC research. Today he is the dominant force at the agency, almost completely setting its course on its financing with state bonds, the agency's only real source of income. His planned departure will leave a huge gap, for better or worse. It is one that CIRM directors need to address publicly and soon, perhaps by appointing a task force out of their governance and finance subcommittees. Obviously much of the replacement discussion is too sensitive for public airing. But steps should be taken by CIRM to assure the public, business, researchers and other interested parties that the agency will function smoothly -- financially and otherwise -- regardless of who is chairman. Klein once proposed hiring a high-level bond/finance person to help replace his expertise. That opening has not been posted, but a search should begin promptly because of its likely prolonged length. Plus the person should be on board by around next June.

Contracting

Careful management of the outside contractors is already critical and will become increasingly so as the agency moves forward. The 50-person cap on staff has made the agency unable to operate without spending $3 million a year for outside help. In the next several years, CIRM may well bump up against the percentage budget cap in Prop. 71 as well, as the agency uses more contractors. CIRM is shy in dealing publicly with such issues. However, many businesses go through long-term staff planning to avoid being blindsided financially. It would behoove the agency to project publicly its needs for outside contractors for the next five years. Of course, such plans are subject to major modification but do help to provide a better picture of future needs. Related to the contracting is electronic security. This topic has rarely, if ever, come up publicly with directors. CIRM has approved grants for more than 300 researchers. It has large amounts of confidential information to protect, with more to come. The disease team round and additional ones with commercial potential are likely to generate information that has significant economic value. Hacking the data may well be financially profitable. But one way to gain access to confidential data is through an employee with an outside contractor, which is sometimes done with financial information on Wall Street. The financial interests of contractors, especially related to their other clients, and their employees should be carefully scrutinized, although this is only a partial answer. Someone at CIRM, but more likely a specialized security contractor, should scrutinize all software, especially the custom programs, for holes and backdoor access.

CIRM staff

President Alan Trounson last week announced that he needs to hire more persons than is permitted under the terms of Prop. 71. He warned that CIRM does not want to get in a position where it cannot fulfill its responsibilities. Ordinarily this would not be an issue. But the agency is hamstrung by the 50-person cap on its staff, which can only be changed by 70 percent vote of the legislature. Asking the legislature to modify Prop. 71 may well stimulate the desires of lawmakers for other changes at CIRM, including some recommended by the Little Hoover Commission, the state's government efficiency group. CIRM has adamantly opposed any changes in its operations. Negotiating any legislative changes successfully will require considerable skill and a public image for CIRM that makes it less vulnerable to criticism.

Cash flow

CIRM directors received a nasty surprise last January when they were suddenly confronted with a cash flow crisis. The problem is now alleviated through June 2011. It is fair to say that the cash flow report should have come earlier and been managed better. Anyone following the California bond situation (not us at the time) could have anticipated the problem in the fall of 2008, if not earlier. Klein did, but balked at being forthright with directors at a meeting at the time when some asked questions that would have led to a discussion of the issue. Authorization and timing of bond sales needs long-term planning as well, given the state's fiscal plight, particularly since Klein is leaving in a year.

Openness/conflicts

The conflicts of interest are not going to go away at CIRM. They are built into the organization by Prop. 71. As an important sign that CIRM is aware of the issue and not trying to sweep the conflicts under a rug, it should make its statements of economic interests and travel expenses available in a searchable form on the Internet. Gov. Arnold Schwarzenegger already does this for his top officials. If CIRM follows his example, it will go a long way in dealing with criticism that CIRM is an entity that only serves the interests of the employers of its directors. Internet access to the statements of economic interest is also important as CIRM becomes increasingly friendly to the biotech industry. Statements of economic and professional interests of scientific reviewers should be posted. They make the de facto decisions on the grants. Applicants can only appeal their decisions on the basis of a conflict, but applicants do not know which scientists examine their applications, much less their economic interests.

Performance

Sometime in 2010, probably in the summer, CIRM plans to bring in an outside panel of scientists to review its research portfolio. Presumably the group will generate recommendations to fill any voids in CIRM research and to make other improvements. The session could serve as a fine exercise in the directors' new effort to improve its communications with the public. Opening that session to the public would not only enhance CIRM's credibility but it would be useful to scientists and businesses in California interested in seeking CIRM funding. Selection of the panel is important as well and should include someone willing to serve as a scientific devil's advocate. Without that perspective, the review session could degenerate into back-slapping self-congratulation.

Sacramento Bee: CIRM is 'petri dish for patronage'

The leading newspaper in the California capital today deplored the $150,000 salary increase for Art Torres, co-vice chairman of the California stem cell agency.

The Sacramento Bee said the pay is “the latest example of how people who owe their livelihood to California's taxpayers refuse to share their pain.”

The Bee's editorial was headlined, “Institute is a petri dish for patronage.”

The Bee said that Torres “has apparently improved CIRM's relations with both the Legislature and the state treasurer's office,” but that does not justify the increase.

The newspaper concluded,

"CIRM leaders continue to claim that it is vital for California to spend billions of dollars on this science, even though the new administration in Washington is funding forms of stem cell research that the previous one restricted.

“But when the institute spends money like this, taxpayers have to wonder: Does California still need a stem cell institute – one with this type of leadership?”

The Dark Side of Financing Stem Cell Research

Every day of the year, the California stem cell agency is racking up “hidden” costs of about $192,000. By the time CIRM gives away its allotted $3 billion, those “hidden” costs will soar to about $600,000 a day.

The expenses are the dark side of paying for scientific research with borrowed money – in this case California state bonds. That's what CIRM uses to pay the hundreds of researchers it is backing. The mechanism was set up five years ago, when voters approved Prop. 71, which created CIRM.

The cost of the bonds – interest on the borrowed money – is rarely, if ever, seen in CIRM's public documents. That's not much different, however, than other state agencies which use bond financing, such as the University of California. But the cost of state borrowing is attracting increased attention because of the state's $21 billion budget gap and draconian cuts in some areas of state services. Students at UC campuses are being forced to accept 32 percent tuition hikes at the same time CIRM is giving UC scientists $471 million.

Scores of stories have appeared in the last several weeks about the impact of borrowing on California's financial health. But a column by George Skelton of the Los Angeles Times caught our attention today. He focused on warnings by state Treasurer Bill Lockyer, the man who orchestrates the sale of state bonds. Skelton wrote,

“The state's credit card is about maxed out, the veteran Democratic office-holder warns. Payments on bond borrowing are becoming uncomfortably high, crowding out funds for universities, healthcare, parks -- and all the other government services being slashed these days.”

Skelton quoted Lockyer as saying the Golden State is “paying substantially more than Third World countries, er, emerging markets” for interest on its bonds.

That's because California has the lowest bond rating of any state in this country. Every $1 billion in bonds costs taxpayers $70 million a year, Skelton said. That translates to about $192,000 a day for the $1 billion in grants that CIRM has now approved.

Meanwhile the state has not kept up with its financial binging. Since 1999, the overall cost of interest on state bonds has skyrocketed 143 percent. General fund revenue, which pays those costs, has grown only 22 percent.

What does this sorry mess mean for CIRM? Probably the most serious impact is a less than warm environment in the Capitol should the stem cell agency ask lawmakers to remove the 50-person cap on the CIRM staff, which it seems likely to do. To win the required 70 percent approval from lawmakers, CIRM is likely to have to compromise on other proposals that it may not fancy.

The stem cell agency is only a flyspeck in the state's fiscal muddle. But it serves as an illustration of some of the state's more dubious political practices. One of which is ballot box budgeting – enactment of initiatives and approval of bonds with little attention to the long-term consequences.

However, unless something exceedingly unusual pops up, CIRM will continue with its programs, using borrowed money. CIRM's opponents may find fodder in all the concern about state borrowing. But even CIRM's most adamant supporters should understand the true cost of the effort to turn stem cells into cures.

Job Opening at CIRM for Administrative Assistant

Looking for a new job? The California stem cell agency is seeking an administrative assistant at pay level that tops out at $77,100 annually.

The successful job applicant would be working for the vice president of operations and also the general counsel.

A bachelor's degree and four years experience are necessary, but a science background is not required. The deadline for applications is Dec. 29.

CIRM is also expected to be looking for some help next year for its new vice president of research and development, but the VP post is not likely to be filled until sometime next year. CIRM is also seeking a science officer. Both positions have been posted for some time.

CalAware: CIRM Not Serious About Transparency

CalAware Today, a blog devoted to open government, has picked up an item about the California stem cell agency that CalAware says shows that CIRM “still hasn't learned to take governmental transparency seriously.”

CalAware made the comment on a piece Nov. 17 on the California Stem Cell Report, which said the stem cell agency “has had difficulty even complying with the basic state public records law and the state Constitution's public access guarantees.”

Terry Francke produces the CalAware blog from Sacramento. He was general counsel for 14 years for the California First Amendment Coalition and served for 10 years as legal counsel for the California Newspaper Publishers Association. Francke founded Californians Aware in 2004.

Science vs. Salaries: What Do People Talk About?

The $225,000 salary now enjoyed by Art Torres, co-vice chairman of the California stem cell agency, made the news again today.

This time it was in the San Francisco Chronicle, in a column by Philip Matier and Andrew Ross. The piece provides an example of the staying power of such relatively minor matters compared to the size of California's fiscal problems and CIRM's $3 billion research effort. The column also illustrates the difficult task facing CIRM's new communications push by its directors.

Torres' salary was brought up in connection with those of state and local government officials. Matier and Ross pointed out that San Francisco city officials are paid more than a number of state officials who have greater responsibilities, including the governor, state treasurer and attorney general.

“On the other hand,” they pointed to Torres' salary, noting that he received a $150,000 boost last week from his previous half-time position.

Matier and Ross quoted Torres as saying,

"I'm saving the taxpayers $50,000 a year by not taking my (state legislative) pension or having my health benefits paid by the agency."

Since the beginning of this year, the San Francisco Chronicle, CIRM's “hometown” newspaper, has carried five stories dealing primarily with CIRM, based on a search on its site using the term “stem cell agency.” One of the five deals with a conflict of interest problem involving a member of the CIRM board of directors. The Torres story does not come up in the search, but with it, two out of six Chronicle stories this year with a heavy CIRM component carry a negative spin on CIRM.

One cannot draw the conclusion that a similar balance exists at other newspapers. But it does confirm that coverage of CIRM has been very light in the Chronicle. That pattern is true around the state, based on our daily searches throughout the year. That means that positive messages can easily be overwhelmed in impact and staying power by negative ones. One rule of thumb in such cases that it takes 10 positive stories to neutralize one negative piece.

The question is: What do people talk about? They don't talk about arcane research results. They don't talk about CIRM collaborating with the state of Maryland. They talk about $150,000 pay raises for state officials.

Something for CIRM directors to consider as they begin their work with the new communications subcommittee.

Chiang Delays CIRM Oversight Meeting

State Controller John Chiang has postponed Wednesday's meeting involving the California stem cell agency until sometime in late January.

The session of the Citizens Financial Accountability Oversight Committee was slated to discuss the recommendations by the Little Hoover Commission for changes at CIRM, among other things.

The committee was created by Prop. 71, the same measure that created the stem cell agency. The controller, the state's top fiscal officer, is chairman of the committee by state law.

A new date for the meeting is expected to be posted sooon. However, we are not likely to be carrying a notice on it since we will setting to sea in a few days and will not have access to the Internet until sometime late in January. You can find the meeting schedule for the panel and other information here.