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California stem cell program needs a new treatment

The California Institute for Regenerative Medicine threatens to suck up precious fiscal resources of a state with none to spare and is rife with conflicts of interest.

March 30, 2009|MICHAEL HILTZIK

In the annals of wrongheaded things done with the best intentions, the California stem cell program has always been in a category of its own.

The $6-billion program was enacted by voters in 2004 as Proposition 71 after a campaign of exceptional intellectual dishonesty, featuring vignettes of sufferers from diabetes, Alzheimer's, Parkinson's and other heartbreaking diseases for which it seemed to promise imminent cures through research into embryonic stem cells.

As conceived by a Northern California real estate man named Robert Klein, who remains the program's chairman and guiding spirit, the idea was that California would fill the vacuum created by the Bush administration's ideology-inspired ban on federal funding for much of this research. (President Obama rescinded the ban this month.) The state, according to the hype, would reap billions in profits from the therapies it funded.

No one would dispute that finding cures for Alzheimer's, cancer or diabetes is a worthy, even urgent, goal. To its credit, the California Institute for Regenerative Medicine has placed the state at the center of the world of embryonic stem cell research by committing hundreds of millions of dollars in grants for the construction of state-of-the-art labs and the training of a new generation of scientists.

But the program threatens to suck up precious fiscal resources of a state with none to spare and is rife with conflicts of interest. Its commitment to public disclosure is spotty. Now it's planning to hand over up to $400 million in taxpayer funds to the biotech industry on terms that may multiply the potential for conflicts and waste.

The institute is tangled in a persistent ethical morass. From the start, its safeguards against conflicts of interest by members of its 29-person governing board were sketchy, and provisions for vigorous debate over its goals and methods were nil.

Despite a provision in Proposition 71 forbidding a board member to attempt to influence "in any way" a decision involving his or her employer, in 2007 board member John C. Reed tried to get the institute's staff to reverse the rejection of a grant for the La Jolla-based Burnham Institute for Medical Research, of which he is chief executive. The staff refused. Reed, who should have been bounced from the board, got his wrist slapped by state ethics officials instead.

Meanwhile, 18 institutions with representatives on the board have received portions of $552 million in grants from the institute. (I am indebted to David Jensen of the California Stem Cell Report, one of the program's outstanding bird dogs, for this math.)

Such logrolling is perhaps inevitable, given that Proposition 71 restricted the board's membership to officers of California research institutions and biotech companies, along with advocates for research in 11 diseases supposedly subject to stem cell-driven cures.

Lacking any truly independent members, the board is dominated by Klein and devoid of "genuine debate," observes UC Berkeley Law professor Kenneth Taymor, who spent months studying the body. Indeed, reading transcripts of the board's sessions, one sometimes gets the impression that the only vigorous debate among the members involves which historical figure Klein more resembles, Albert Schweitzer or Mahatma Gandhi.

That brings us to the institute's 2009 strategic plan, which calls for floating $400 million in taxable state bonds, much of it earmarked for loans to the biotech industry to finance the development of specific therapies.

Is this the best way to spend the state's money? Klein says the great virtue of making loans is that, because the money gets repaid, it can be used over and over again. That's assuming that it does get repaid. Some of the loans, furthermore, will be non-recourse, meaning that if the product fails or can't get further funding before the loan is repaid, the debt will be written off.

The loans' target is the "valley of death," the phase of product development that follows publicly funded basic research and precedes clinical trials. Biotech firms traditionally have a hard time raising capital for this phase, because it's very costly and speculative, suggesting that Klein is counting unhatched chickens.

But he is ever optimistic: "The first major breakthrough will change the world," he told me.

Part of the reason for the move into product development is that the institute's chronic cash crunch -- an outgrowth of the state's financial crisis -- has forced it to scale back or delay some basic research grants. Without a new financial infusion, the institute says, it may run out of money in September.

But the shift away from basic research isn't universally welcomed in California's scientific community.

"The foundations for stem cell biology are still being constructed, and that takes basic science," says Arnold Kriegstein, a neurologist at UC San Francisco who raised the issue at a recent meeting of the institute's board.

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