Column: Conflicts of interest pervasive on California stem cell board

There’s no good time for a public agency to be embroiled in a conflict-of-interest scandal, but this is an especially delicate time for California’s stem cell agency.

The California Institute for Regenerative Medicine, as the program is known formally, is on track to finish doling out its $3 billion in funding from the state’s voters as soon as 2017. Its original sponsor, Northern California real estate developer Robert Klein II, has been quoted talking about another $5-billion infusion, perhaps via the 2016 ballot.

Any such effort will refocus attention on the program board’s inherent conflicts of interest, which were baked in by the terms of Proposition 71, Klein’s 2004 ballot initiative that created CIRM and funded it through a bond issue. The prestigious Institute of Medicine in a 2012 report found these conflicts to lead to questions about “the integrity and independence of some of CIRM’s decisions.”

And now here comes another case. This one involves CIRM former President Alan Trounson, an Australian biologist who left the agency on June 30 and joined the board of one of its highest-profile financial partners a mere seven days later. Trounson’s new employer, Stem Cells Inc., is the recipient of a nearly $20-million loan for Alzheimer’s research.

CIRM says Trounson’s quick move to Stem Cells Inc., where he’ll receive a stipend of at least $90,000 a year, is legally “permissible.” But officials there acknowledge they were blindsided; the agency learned about Trounson’s new position from the company’s press release.

Afterward, CIRM rushed out a statement acknowledging that Trounson’s appointment to the board of a CIRM loan recipient “creates a serious risk of a conflict of interest.” The agency says it will place the relationship between CIRM and the company under “a full review.” Administrators reminded Trounson, board members and agency staff that state law bars him from communicating with them on any administrative matter involving Stem Cells Inc. The company declined to comment.

The relationship already reeked of cronyism. As we reported in 2012, the Newark, Calif.-based firm’s co-founder, Irving Weissman, director of Stanford University’s Institute for Stem Cell Biology and Regenerative Medicine, had been one of the most prominent and outspoken supporters of Proposition 71.

He’s also a leading recipient of CIRM funding, listed as the principal investigator on four Stanford grants totaling nearly $35 million. CIRM contributed $43.6 million toward the construction of his institute’s $200-million research building at the Stanford campus. Weissman and his wife, Ann Tsukamoto, owned nearly 380,000 shares of the firm as of last April, according to a corporate disclosure. Tsukamoto is one of the company’s top executives; Weissman is a board member.

Trounson’s move comes as CIRM must begin looking to the future, but any discussions about extending the agency’s life span will have to address the flaws created by Proposition 71. Among them is the program’s very structure, and even its scientific goals.

Klein’s ballot proposition exempts CIRM from virtually any oversight or accountability. Each of the 29 governing board members has to be associated with a California public or private research institution or company, or an advocacy group for patients of one disease or another. The qualifications for board chairman are so specific they initially yielded a single credible candidate: Bob Klein.

How bad are the conflicts? When the board considered a proposal earlier this year to spend $16 million to attract three star scientists to California, so many members had to recuse themselves that only nine were left to vote. (Six ended up voting in favor.)

When conflicts of interest are so rife that only one-third of your board can weigh in on a major policy issue, that’s tantamount to not having any board at all.

Over the years, conflicts have kept cropping up. Board members intervened or advocated for grant applications by their institutions; consultants failed to disclose professional relationships; and grant applicants alleged favoritism.

Another problem is that CIRM was sold to the public with fatuous and wholly unscientific promises of stem-cell-based cures for Parkinson’s, Alzheimer’s, diabetes and a host of other conditions. The general public didn’t understand that basic science can’t guarantee the fulfillment of such specific promises.

Programs like CIRM are always susceptible to inflated expectations.

“Since Big Science needs great public support it thrives on publicity,” the physicist Alvin Weinberg, a veteran of the Manhattan Project, wrote in a famous 1961 article in “Science” about the drawbacks of big-money scientific research. He added: “The inevitable result is the injection of a journalistic flavor into Big Science which is fundamentally in conflict with the scientific method. ... The spectacular rather than the perceptive becomes the scientific standard.”

CIRM-funded labs have produced genuine achievements. But the agency tends to delineate its progress in buildings built, papers published, and big-name scientists lured to California. But the specific cures promised by the Proposition 71 campaign haven’t materialized, which doesn’t surprise anyone steeped in the realities of the scientific method. It explains why a hint of desperation often creeps into CIRM press releases heralding clinical milestones.

As CIRM or its backers start thinking about a new appeal to voters, you can expect the drumbeat of hype about “spectacular” new findings to intensify. In fact, last year CIRM cut its funding for basic research — a field of science already chronically short of funding — in favor of stepping up its grants and loans to prepare possible therapies for clinical trials, which have more potential to generate exciting PR.

The Trounson case reinforces the impression that CIRM is engaged in crony capitalism. As David Jensen’s indispensable California Stem Cell Report has documented, more than 80% of the program’s grants have gone to institutions represented on its board — topped by Stanford, which has collected 88 grants totaling $275 million.

The case also refocuses attention on the queer circumstances of the original loan to Stem Cells Inc. (“Loan” may be a misnomer, for the company isn’t obligated to repay the money if it doesn’t yield a revenue-generating product.)

The proposal covered a means of transplanting healthy stem cells into one part of the brain so they might migrate and repair Alzheimer’s-damaged cells throughout the organ. At first, it was rejected by the agency’s professional scientific advisors, who observed that the theory might not be applicable to humans or be commercially feasible.

When the advisory opinion came before the board in July 2012, it was challenged by Bob Klein. He had stepped down as chairman, but still exerted immense sway over the board. He persuaded it to send the proposal back to scientific reviewers for a second look. They recommended rejection a second time.

By then, however, the company was pledging to match CIRM’s $20 million. Klein made the case again.

“This is $20 million of company money betting on their science,” he said. He observed that the proposal filled a “programmatic” Alzheimer’s hole for CIRM, for it had no other potential Alzheimer’s treatment in its portfolio. “This is our best shot,” he said. (Klein told me at the time that he had no financial interest in Stem Cells Inc.)

Even if one believes the need for California to devote $3 billion to a narrow, extremely speculative field of science, the Trounson case and other CIRM administrative missteps have made clear that Proposition 71 created the wrong framework to manage a complex research effort. The initiative left the public with no way to tell if its money has been well spent, and no accountability if it hasn’t.

Moreover, the program deprived potentially more promising research efforts of resources and contributed to the general impoverishment of California’s entire higher-education system. If its sponsors have the audacity to ask taxpayers for even more money under the same terms as Proposition 71, the reply should be a resounding “no.” If the voters are gullible enough to repeat the same mistake they made in 2004, there’s no cure for them.

Michael Hiltzik’s column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at [email protected], check out facebook.com/hiltzik and follow @hiltzikm on Twitter.