California's stem cell research funding agency needs a home run to score more public funding. Instead, a conflict-of-interest problem is giving it the wrong kind of attention.

The latest embarrassment for the San Francisco-based California Institute for Regenerative Medicine is what's quickly becoming known as the "Trounson Affair." Within a week of leaving his post as CIRM president at the end of June, Alan Trounson joined the board of StemCells Inc., a Newark company that two years ago won a $19.4 million CIRM forgivable loan for a scientifically questionable preclinical program in Alzheimer's disease.

Here's the problem: If the public perceives that individuals — researchers or CIRM employees or company executives — are feeding at the trough of the semiautonomous public agency, it isn't going to help CIRM get more cash from that very same public that foots the bill. In fact, that perception, right or wrong, could make voters feel played by the 2004 campaign to create and fund the agency, which relied heavily on emotional appeals to help those struck down by complex diseases.

Trounson could not immediately be reached for comment. Stem Cells (NASDAQ: STEM), through its third-party public relations agency, declined comment Monday.

Trounson recused himself from public discussions around StemCells' 2012 loan award because of his friendship with company founder, board member and Stanford University professor, Dr. Irv Weissman. But the speed of his appointment to the StemCells board has raised questions.

Certainly, as David Jensen underscored Monday in his California Stem Cell Report blog, StemCells has done itself no favors by quickly snagging Trounson. Like many biotech companies, StemCells is in constant need of cash — it had cash and equivalents of $26.5 million as of March 31 — yet the company now is radioactive with CIRM, one of its sources of funding.

"The firm's chances of securing additional funding have to be rated nearly non-existent," Jensen wrote. "Putting aside purely business issues for the moment, the primary question for the agency now is whether it can trust StemCells Inc."

CIRM officials were clearly surprised by Trounson's move to StemCells' board. He apparently never discussed the move, CIRM spokesman Kevin McCormack said, even as an agency attorney briefed him before his departure on what he could and could not do after leaving CIRM.

CIRM last week said it would send a letter to Trounson reminding him and StemCells Chairman John Schwartz that Trounson by state law can't communicate with CIRM board members or employees on behalf of StemCells for one year after leaving CIRM. What's more, Trounson can't assist StemCells in responding to a request for applications for CIRM programs in which he was involved as an agency employee.

But the damage already is done. The perception of a conflict of interest is already there.

If you're a CIRM employee and StemCells pops up on your telephone caller ID, do you want to pick up the phone?

McCormack couldn't say how much of the Alzheimer's program loan has been paid out to StemCells. The payments are based on the company hitting scientific milestones toward the use of its purified neural stem cells in a clinical trial for Alzheimer's.

Those cells, extracted from fetal brain tissue after surgical abortions, have been of interest to researchers as a potential treatment for several medical conditions. They have been used in StemCells clinical trials in spinal cord injury patients, the eye disease dry age-related macular degeneration and a rare, deadly genetic condition known as Pelizaeus-Merzbacher disease.

But none of that is going to matter going forward for CIRM. The agency has been marred by perceived conflicts of interest since California voters in 2004 birthed CIRM through Proposition 71 and the subsequent sale of $3 billion in state bonds. Now it has one more strike against it.

Like CIRM didn't already have enough trouble facing down moral and ethical criticisms of stem cell research, the study of which often requires the destruction of human embryos that religious conservatives consider living humans.

Yes, CIRM has a new manager in the form of Trounson's replacement, Randy Mills. He's a no-B.S. type of guy, according to those who know him. Mills, former Genentech Inc. general counsel Stephen Juelsgaard, who joined CIRM's oversight board in May 2011, and others have focused the agency on getting stem cell therapies into patients.

One of those blockbuster successes — a "home run" as CIRM board member and former movie executive Sherry Lansing pegged it in a Nature article last month— would help CIRM sell the public on swinging for the fences again.

But to get that grand slam, to have a meaningful impact on helping companies bring potential stem cell therapies into clinical trials in humans, CIRM must wisely spend every penny of the $1.7 billion it has yet to dispense. That means maybe eight or 10 programs, and only one or two of those will be successful.

(CIRM has approved $1.8 billion in grants and loans, but $1.3 billion has actually gone out the door to date.)

As it is, getting experimental therapies to the step just before clinical trials costs $35 million to $70 million. That's not even talking about the more expensive human studies.

And then there's the Trounson Affair.

"Trounson's continuing on the StemCells Inc. board calls into question not only his ethics but, unfortunately, casts a shadow over CIRM and its award process as well," John Simpson, an advocate with Santa Monica-based Consumer Watchdog, said in an email to me the day after Trounson's appointment went public.

There really is nothing that CIRM and its leadership can do to Trounson. There doesn't appear to be any sort of "clawback" provision as far as his CIRM wages. After all, he (or any other agency employee) can't be barred from taking jobs with CIRM award winners — only restricted, as CIRM's letter points out, in how he can interact with the agency and its employees.

Still, one has to ask Trounson as well as StemCells chairman Schwartz and CEO and board member Martin McGlynn, "What were you thinking?"

There are a few conspiracy theories around that aim to answer that question, usually revolving around Weissman or former CIRM Chairman Bob Klein, who defended the company despite the Alzheimer's project being rejected twice by CIRM review committees.

That's the worst-case scenario.

The best-case scenario is just plain stupidity.

For StemCells, it may be tough to recover from the Trounson Affair, as Jensen points out in his blog. If CIRM ends its relationship with the company, though, it must be based on StemCells not hitting a milestone, not out of spite. CIRM has pulled funding of a project in the past based on a grant winner not hitting milestones.

CIRM spokesman McCormack said Trounson's decision "had nothing to do with us. The conflict wasn't started by us."

That may indeed be the case, but religious and financial opponents of CIRM won't let voters see it that way. Despite the progress of various research programs but CIRM grant winners, that combination may force the Democratic Party and Gov. Jerry Brown not to support a 2016 ballot measure to re-fund the agency.

The Trounson Affair is yet another strike that deepens a perception problem that threatens to distract voters from the win CIRM desperately needs.

Ron Leuty covers biotech, higher education and China for the San Francisco Business Times.