Secrecy & Conflicts: Amid Success and Shortfalls, California’s Stem Cell Agency Reaches for Cures

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Sacramento Bee (California)

Three years ago, California voters launched the state on a $3 billion journey involving the origins of life, cutting-edge science and medicine, big business, morality, ethics, religion and politics, not to mention the hopes of millions of people suffering from diseases ranging from diabetes to cancer.

With the passage of Proposition 71 in November 2004, California is now the world’s largest source of funding for human embryonic stem cell research — pumping out money this year at an expected rate of about $29,000 an hour, $258 million in all. The California Institute for Regenerative Medicine is set to surpass that figure in 2008 when it will award its largest single round of grants: $227 million for construction of stem cell labs at many of California’s major universities and nonprofit research institutions, including possibly the University of California, Davis.

By many measures, the institute is a huge success. Its impact stretches well beyond state boundaries and has stimulated the growth of similar research efforts in six other states and excitement in even more. The agency has established what are widely regarded as the toughest research and ethical standards for embryonic stem cell research in the nation. It has pioneered development of revenue sharing requirements that will come into play if successful medical therapies are created.

But by other standards, including its own strategic plan, the institute doesn’t measure up. The money is not flowing as fast as called for. Rosy campaign promises of cures and an economic boom still await fulfillment. Built-in conflicts of interests pervade the institute’s activities. A penchant for closed-door grant reviews and secrecy screens much of the institute’s most important decisions from public view. And, more than once, calls have arisen for the resignation of its chairman, Robert Klein, a man who triggers both admiration and animosity.

In following the institute since its inception, I have focused largely on how it goes about its business and connects to the public, Legislature and governor. Via the California Stem Cell Report, I have written about the institute on more than 1,300 occasions, bringing a perspective from more than three decades as a political reporter, business editor and gubernatorial press aide to Jerry Brown.

The institute represents a major departure from the usual way of doing the people’s business. Such alternatives do not always win support. Just last week, voters in New Jersey dumped a $450 million stem cell research plan. In California, the institute’s success or failure is certain to have a major impact on the future of embryonic stem cell research as well as development of novel ways of solving intransigent political and government problems.

The institute, however, is controlled by men and women accustomed to operating outside of the public eye with few of the restraints that even local school board members face. Many come from the culture of science, where the motto sometimes seems to be: “Trust us. We are the experts.”

But given the built-in conflicts at the agency, more sunshine is needed — if only to help avoid a scandal that could set back stem cell research efforts nationally and cast a pall over this creative governmental experiment.

Ironically, the California institute owes its creation fundamentally to President Bush, who restricted the use of federal funds for embryonic stem cell studies. Without that stimulus, supporters likely would not have mounted their effort to create a state agency with unprecedented powers. The institute is all but immune to fiddling by the governor and Legislature. Its budget is guaranteed through $3 billion in state bonds, which will cost another roughly $3 billion in interest.

Initially, the institute struggled through problems more akin to a start-up in the Silicon Valley than a state bureaucracy — no phones, no office space, no payroll procedures, no salary schedule, no employees. But it is now ensconced in offices in San Francisco and has just hired a new president, an internationally recognized Australian stem cell scientist, Alan O. Trounson.

California voters approved Proposition 71 following a campaign replete with Hollywood stars who appealed to hope as much as anything else. Some of the hoopla seemed to indicate that cures were just around the corner. By the time the agency developed its strategic plan in 2006, the rhetoric had cooled.

“It is unlikely that CIRM will be able to fully develop stem cell therapy for routine clinical use during the 10 years of the plan,” the plan said.

That statement disturbed longtime supporter, Don Reed, a patient advocate, who said at the time, “I differ with that assessment with every fiber of my being.”

Reed’s paralyzed son, Roman, came up with the institute’s motto: “Turning stem cells into cures,” which is stamped on the cover of CIRM‘s ambitious strategic plan. The document lays out annual benchmarks. This year, the institute should have rolled out requests for 12 rounds of grants. It is on track to complete only four.

Unfulfilled promises

Has the agency fulfilled the promises of its $30 million initiative campaign? “No” is the response from one backer, former Democratic state Sen. Deborah Ortiz of Sacramento. Ortiz once chaired the Senate Health Committee. She championed stem cell issues in the Legislature and is credited with developing the concept of an initiative campaign to fund research.

She said in an interview that the institute has yet to deliver on expectations that it will provide affordable access to therapies funded by California tax dollars. However, she also noted that institute directors seem more committed to principles of affordability than in 2005.

Nor has the stem cell agency yet proved to be the economic boon that one campaign-financed study predicted. The study declared that California could benefit by $6 billion to $13 billion in revenue increases and health care cost savings over 30 years. Those figures included as much as $1.1 billion in royalties. But another economic study in 2006 estimated royalties at closer to $18 million.

Conflicts of interest

Questions about conflicts of interest — both formal and informal — have generated concern about secrecy at the agency. The board of directors is packed with people affiliated with institutions that stand to benefit from CIRM‘s largess. Although they are legally barred from voting directly on grants to their institutions, they do vote on the rules and criteria for receiving grants. Secrecy also colors public perceptions of the agency. It awards grants based on recommendations worked out behind closed doors by scientific reviewers whose economic interests are hidden from the public.

The board of directors, known as the Independent Citizens Oversight Committee, consists of 29 men and women, all appointed by various state officials based on criteria specified by Proposition 71. The “independent” directors are by law required to be executive officers from the University of California, nonprofit research institutions, life science businesses, patient advocates and others. None is required to be a representative from the public.

The board is expected next year to award $227 million in grants to build labs, but 17 of the current 27 members (there are two vacancies) have ties to institutions that stand to benefit by tens of millions of dollars. So far, 90 percent of the $209 million handed out by the agency has gone to institutions with “representatives” on the board. You would be hard-pressed, however, to find a long list of other California institutions suitable for major stem cell funding. Nearly all the players have a seat at the institute’s $3 billion table, an obvious political decision to build campaign support. In an ideal world, directors would come from outside of the circle of beneficiaries, but that is not likely to happen short of another ballot initiative.

A grant committee makes the initial decision on grant applications, working behind closed doors, a traditional scientific method aimed at ensuring frankness and candor. Following that review, the full board votes in public on the grants, except on ones to their specific institutions. They are not given the names of the applicants, only anonymous summaries. Sometimes the secrecy results in what might be generously called an embarrassing moment.

In March 2007, the committee awarded $2.6 million to a research organization in Los Angeles. It only took a few days before the media wrote that the money would be going to CHA RMI, a nonprofit subsidiary of CHA Health Systems of South Korea. That firm is headed by scientist Kwang Yul Cha, who was enmeshed at the time in an international plagiarism dispute. In September, CHA withdrew its application, declaring that the flap was baseless but that it did not want to impair the agency’s operations.

California State Auditor Elaine M. Howle last spring concluded a months-long review of the institute. She suggested that it seek a state attorney general’s opinion that could lead to public disclosure of the financial interests of the out-of-state scientists who make the initial judgment on applications, including those from their competitors. More than six months later, Richard Murphy, interim CIRM president, rejected the suggestion, declaring that it was not appropriate to do so because it involved a hypothetical situation.

A polarizing figure

Klein is not troubled by the secrecy or the conflicts involving the institute’s directors. An attorney, he wrote most of them into the initiative. He led the Proposition 71 campaign, contributing $3 million. For many, he is the embodiment of the California stem cell research effort, an image he does not discourage. He is also a polarizing figure.

A multimillionaire real estate investment banker, Klein was instrumental in raising more than $45 million in loans and donations to help tide the institute over until it won the lawsuit that halted the bonds. He serves as chairman of the oversight committee as the result of a vote by that group. Klein is eligible for a state salary of up to $412,500 but declines to accept it. During the 2006 trial involving challenges to the agency’s existence, he testified that he does not consider himself a state employee.

Early in 2005, Klein refused to appear before an informational hearing involving the institute by the Senate Health Committee and instead launched an Internet campaign among patient advocates against the inquiry. On the eve of the 2006 primary election, he sent an e-mail to patient groups declaring that Ortiz, then a candidate for statewide office, was an “ongoing threat” to stem cell research. One member of the oversight committee called her to apologize, saying the committee was angry at Klein’s action, Ortiz said last month.

Klein also maintains a private stem cell lobbying organization, Americans for Cures Foundation, which raises funds and acts on a state and national level. After the organization accepted a $125,000 contribution from Sacramento developer Angelo K. Tsakopolous, Klein appeared before Yolo County Board of Supervisors on behalf of a Tsakopolous land deal. Ultimately unsuccessful, it would have created a $200 million stem cell research institution in exchange for rezoning 2,800 acres. Klein would have chaired the institution.

Klein also has a reputation as a micromanager, which has exacerbated management friction because of his Proposition 71-dictated, overlapping responsibilities with the institute president. In 2006, tensions between then president Zach Hall and Klein emerged publicly during a subcommittee meeting of directors. Nominally, the dispute involved office space and travel policy. But clearly more was at stake.

According to a transcript of the meeting, Claire Pomeroy, an oversight committee member and dean of the UC Davis School of Medicine, said, “If we have a situation where our chair does not trust the president will make appropriate decisions about the travel budget and office space, then that’s a larger issue.” Pomeroy has served on the oversight committee since its inception. She is also pushing a multimillion-dollar stem cell research effort at UC Davis, which currently includes $11 million in institute grants.

During an interview, she spoke proudly of CIRM‘s accomplishments. She acknowledged that “significant growing pains” have cropped up but said they are not unusual in the creation of an unprecedented enterprise involved in a new field of science.

With its start-up problems behind it, Pomeroy said the agency now can move more aggressively in pushing research. She also said the agency is fortunate to have hired Trounson, who will be moving to the United States soon.

Trounson was personally recruited by Klein. Both he and Klein express confidence that they can work together successfully.

Klein is relentlessly upbeat about the agency despite its problems and criticism of his own role. He says closed doors are necessary to produce the best science. He believes that Proposition 71 has brought hope to patients and inspiration to scientists. In a statement, he cited the institute’s research standards, recruitment of world-class scientists to California and funding for human embryonic stem cell research that is now seven times the federal level.

Klein touted a loan plan for businesses, which he said could add $1.5 billion to research by “recycling” the agency’s cash. And he said a major public education program is needed with a focus on clinical trials, which bring “the potential for initial tragedies, despite the best safety procedures.” For much of CIRM‘s life, John M. Simpson, stem cell project director for the nonprofit Foundation for Taxpayer and Consumer Rights in Santa Monica, has taken part in the institute’s policy development. He has both praised and criticized the agency.

“Now,” he says, “they’ve got to get out of the entrepreneurial start-up mode, behave as the state agency they in fact are.

“That means a true commitment to openness and transparency in all deliberations, rather than grudging lip service and hiding behind the idea ‘scientists know best.’ After substantial accomplishments CIRM must settle in for the long haul. It’s a marathon now, not a sprint.”

Consumer Watchdog
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