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Research firm reaped stem cell funds despite panel's advice

StemCells Inc. has had rather a charmed relationship with California's publicly funded stem cell program, with some $40 million in awards approved this year.

October 17, 2012|Michael Hiltzik

Klein's pitch was that StemCells was about to publish in a peer-reviewed journal new data validating its Alzheimer's approach. The board duly sent the application back to the scientific review panel for another look.

The review panel looked over the new information — and recommended rejection again. Its members observed that the new data offered by the company hadn't actually been accepted by the peer-reviewed journal, which had requested "major revisions" before considering it for publication.

When the matter came before the governing board a second time on Sept. 5, however, StemCells had a new pitch. It would match CIRM's $20 million with $20 million of its own. Klein was again on hand to make its case. "This is $20 million of company money betting on their science," he said. He called StemCells "the best company with the most experience" and labeled its proposal "the best shot that I saw for advancing Alzheimer's research."

Klein told me via email that he has no financial interest in StemCells Inc., or indeed in any biotech or stem cell companies. In a written statement provided to David Jensen of the authoritative California Stem Cell Report, he said he appeared before the board as a "patient advocate."

But he's not your average "patient advocate." His appearance before the board led to complaints by some board members about "lobbying" and "politicking" and "friends" calling friends.

Board member Jeff Sheehy, a communications officer at UC San Francisco, told me he thought Klein's advocacy put some board members in "a very difficult situation.... It felt like lobbying." At a subsequent board meeting, Sheehy called it "arm twisting."

In any case, after Klein's second appeal the agency board overruled the scientific panel and approved the award — with a condition proposed by Governing Board Chairman Jonathan Thomas that StemCells show it has the matching funds before it can touch CIRM's money. None of the members voting in favor acknowledged being swayed by Klein, but some of their arguments resembled his, including that even if the project is speculative, it may be the best chance of finding a therapy for a disease against which little progress has been made; and that it is showing its confidence by pledging matching funds.

But that merely opens another can of worms. The problem is that StemCells doesn't have $20 million in spare funds. Its quarterly report for the period ended June 30 listed about $10.4 million in liquid assets, and shows it's burning about $5 million per quarter. Its prospects of raising significant cash from investors are, shall we say, conjectural.

As it happens, within days of the board's vote, the firm downplayed any pledge "to raise a specific amount of money in a particular period of time." The idea that CIRM "is requiring us to raise $20 million in matching funds" is a "misimpression," it said. Indeed, it suggested that it might count its existing spending on salaries and other "infrastructure and overhead" as part of the match. StemCells declined my request that it expand on its statement.

CIRM spokesman Kevin McCormack says the agency is currently scrutinizing StemCells' finances "to see what it is they have and whether it meets the requirements and expectations of the board." The goal is to set "terms and conditions that provide maximum protection for taxpayer dollars." He says, "If we can't agree on a plan, the award will not be funded." He called that "a normal process."

But as Thomas observed, StemCells' financial dependence on CIRM isn't normal. And for the agency to accept a company's pledge of "matching funds" without determining in advance what is meant by the term shouldn't be normal. CIRM's guidelines for corporate research applications "encourage" for-profit applicants to find other sources of funding to "leverage" CIRM funds.

That's important, because CIRM's funds aren't limitless; it has already committed more than half its $3-billion hope chest. But the agency shouldn't be deciding on the spot what does or doesn't qualify as matching funds. It should have clear guidelines in advance.

Nor should the board overturn the judgment of its scientific review panels without clear-cut reasons. A board committee is working on tighter standards for appeals, but the record suggests that the handling of the StemCells appeal was at best haphazard and at worst redolent of cronyism.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

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