Institute will comply on all but one request

The San Diego Union-Tribune

A performance review of California’s stem cell institute says the fledgling agency needs to improve several policies, better document how it reaches its policy decisions and further justify some salaries.

But the report released yesterday by the state Bureau of Audits said the institute already has addressed some issues auditors raised during their four-month review, such as how it solicits bids for services.

And yesterday, the agency said it would follow all of the bureau’s recommendations except one: the suggestion that it require public conflict of interest disclosures by a committee of scientists that recommends which research grants should be funded.

“The auditors’ careful examination of the policies and procedures of the institute has been very valuable in helping us to assess our performance, as have their suggestions for specific areas for improvement,” said Zach Hall, president of the California Institute for Regenerative Medicine.

The institute is “committed to earning the trust of the public as responsible stewards of the state’s funds,” Hall said. “In this regard, the audit report has been helpful and has made us a stronger agency.”

The purpose of the audit was to look at whether the agency is implementing good policies and following transparent and legal procedures. A separate annual financial audit is required under Proposition 71, the 2004 voter initiative that created the stem cell institute to disburse $3 billion in taxpayer money for stem cell research.

The performance audit was originally suggested last year by former Sen. Deborah Ortiz, D-Sacramento, and supported by the Joint Legislative Audit Committee.

The review by four state auditors began when the institute was only 18 months into its existence, had a staff of 20 and was operating only on philanthropic donations and loans because legal challenges have delayed state funding.

In the 97-page report on their work, the auditors take into account that the institute and its governing body are a unique new organization still in the process of drafting and refining many of the key policies that were under review.

One of those still-under-development policies dictates what kind of financial return the state should receive from the sale of therapies developed using institute money.

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

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

The auditors also said institute policy needs to ensure that California’s poor receive access to any new therapies that are a result of state-funded research. The institute needs to identify the benchmarks that will be used as a standard to establish the discount prices, the audit states.

The auditors are not alone in this concern.

Last week, Senators Sheila Kuehl, D-Santa Monica, and George Runner, R-Lancaster, introduced legislation that would require grant recipients to enter into exclusive licensing with a company developing therapies only if that company agrees to provide therapies, drugs and diagnostics to publicly funded health care programs in California at the “best available prices,” such as the Medicaid price.

The legislators worry that the institute has weakened its policies after receiving input and pressure from the biotechnology industry, which would be developing and selling these eventual therapies.

“I think the audit really supports the need for that legislation,” Kuehl said yesterday.

The audit also revealed that the state’s Fair Political Practices Committee has concerns with the institute’s conflict of interest policy for out-of-state scientists who are members of a working group that reviews grant applications and makes recommendations on which should get funding. The institute’s board reviews this groups’ recommendations, then votes on who should receive funding.

The board contends that the working group members serve only in an advisory capacity and are therefore not required to publicly disclose their potential conflicts of interest, as required of the institute’s staff and governing body.

Instead, the working group members file disclosures to the institute, which keeps them under wraps and available for private review by state auditors.

The Fair Political Practices Commission believes that the working group members are decision makers and therefore should be required to publicly file financial disclosure statements.

The legal stance is a threatening one for the institute.

Groups challenging the institute’s legality have also said this working group is a decision-making body, and therefore, the challengers argued, the institute is unconstitutional because the people deciding how to spend the state’s money are not accountable to the taxpayers.

In April, a Superior Court judge in Alameda County accepted the institute’s contention that these working group members are only advisers, when she threw out the legal challenges. But that was before the institute had issued its first two rounds of grants, which required it to discuss the working group’s recommendations.

On Monday, an appeals court upheld the Superior Court judge’s ruling.

Acknowledging the legal issue in this matter, the auditors recommended the institute get a formal opinion on its conflict of interest policy from the state attorney general.

It’s an issue that has been editorialized in the media and a point of contention for taxpayer advocacy groups that repeatedely attend board meetings and criticize the policy.

“If they are going to be a strong and model agency, make them accountable to the Fair Political Practices Act,” said Jesse Reynolds of the Center for Genetics and Society.

The institute is adamant in sticking to its policy, said Dale Carlson, a spokesman.

“The institute is asking scientists from outside the state to take time away from their own research to review grant applications,” Carlson said. “Although they’re paid a small fee, they basically do it as a favor… to advance the science. They are not eligible to receive any of this grant money.”

Meanwhile, other agencies outside the state are offering to pay them more to review far fewer grants, he said.

“If you are given the opportunity to be paid 10 times as much as we are paying for a small portion of the workload we are going to lay on you, and you don’t have to open your kimono, were do you think you’re going to go?” Carlson asked. “We have to strike the balance to be able to recruit the best possible people to be sure we are funding only the best possible science.”
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Terri Somers: (619) 293-2028; [email protected]