During that time, Katz's institute pledged $1.7 million in small-business research grants to the company. The company announced nearly every grant in a news release; Advanced Tissue's president termed the grants "an endorsement by the government."
In his written response, Katz said that he had signed a recusal "withdrawing myself from any interactions between Advanced Tissue Sciences and the government to remove any real or potential conflict of interest." The grants were awarded following evaluations by NIH reviewers outside of Katz's institute.
Responsibility for administering the grants to Advanced Tissue was delegated to one of his subordinates, Katz said.
The NIH policy manual says officials may not take fees from companies seeking or receiving agency grants "if the employee is working on or involved in these matters" or "supervising others who work on these matters."
Katz said his subordinate "handled all decisions regarding these grants without informing me."
However, Advanced Tissue kept him apprised as NIH grants were obtained, a company executive said.
"He was informed," said Anthony J. Ratcliffe, the firm's vice president for research until its collapse a year ago. "We would have made a written report to the SAB [scientific advisory board] members twice a year. There would have been a report to the SAB meetings on all grants, all grant activities."
Ratcliffe said the company dealt with Katz's potential conflict of interest by paying him in fees alone, and not stock options. Both men said Katz did not advise the company on the NIH grants.
His consultations, Katz said, were limited to his scientific expertise and "never involved, directly or indirectly, the preparation or discussion of material which could relate to any financial dealings between [Advanced Tissue] and the NIH."
Kirschstein, the senior NIH official who each year approved Katz's consulting with Advanced Tissue, said she did not learn the company held grants with the arthritis institute until The Times inquired.
"I didn't even know there were grants," Kirschstein said.
As it turned out, the grants would be among the few positive financial developments for Advanced Tissue.
By December 2001, its cumulative net operating losses were approximately $292.7 million. Barely a year later, the company entered bankruptcy and shut its doors, having collected about $1.5 million of the $1.7 million in small-business research grants.
