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Opinion: The opaque petri dish

by Stuart LeavenworthSacramento Bee
January 9th, 2005

Law gives small group tight control of $3 billion in stem cell funds

Imagine that a partnership of scientists and Hollywood moguls urged you to invest in a promising but controversial field of medical research.

The partnership would control how your money is spent, based on recommendations from appointed "working groups" whose meetings would be kept secret from you.

Would you accept such a deal? Probably not.

Yet in November, 59 percent of California voters effectively endorsed this arrangement when they approved Proposition 71, the Stem Cell Research and Cures Act. The new law authorizes $3 billion in borrowing for stem cell research, with few of the safeguards and oversight provisions that people require of their own investments.

Under the new law, an appointed committee of 29 people will alone decide how to spend nearly $300 million annually. This "Independent Citizens Oversight Committee" will base its decisions on recommendations from a trio of working groups, which are exempted under the law from holding open meetings or publicly disclosing their business ties.

Some say they've never seen a law that consolidates so much money in so few hands, with so few mechanisms for public oversight.

"It is like a Legislature that meets openly but with committees that are totally secret," says Terry Francke, general counsel for Californians Aware, a nonprofit group that advocates for open government. "In essence, you will have public money secretly spent by private decision makers."

The oversight committee held its first full meeting in Los Angeles on Thursday. With a membership that includes distinguished health officials and a few patient-rights advocates, there is hope this group may end up operating more openly than the law allows and less secretly than some critics fear.

But for that to happen, state officials and the public will have to exercise steady pressure, with an awareness of how much is at stake.

Stem cell research holds enormous potential for discovering new cures for spinal cord injuries and diseases such as diabetes and Parkinson's. But it also poses some serious ethical and financial quandaries: What kind of research is acceptable using human embryos? What kind of royalties should the state receive for new discoveries? How will the rights of people donating embryos be protected?

Most of these questions were glossed over when Proposition 71 became a cause clbre last year, championed by Nobel laureates and movie stars such as Brad Pitt. Voters approved it easily, [TEXT]convinced it could lead to lifesaving medical advances. Some wanted to send a message to President George W. Bush, who restricted stem cell research in 2001.

Bush's policy - an attempt to appease religious conservatives - outraged scientists and parents with ill children, such as Robert Klein II, a Silicon Valley developer and lawyer. Klein, who has a son with diabetes, is well-connected to Democratic politicians and Wall Street and ended up writing the ballot proposition and spending $3 million for its passage.

In writing Proposition 71, Klein was clearly wary of future political meddling by lawmakers or opponents of stem cell research. Yet in trying to "bulletproof" the ballot measure, he also closed off avenues for public scrutiny.

Under Proposition 71, legislators can't amend the law for three years. After that they can make changes - such as opening up meetings and requiring financial disclosures - but only if 70 percent of lawmakers in the Senate and Assembly approve them.

Klein and his supporters also made sure he would retain control of the oversight committee after the election. The law requires the oversight committee chair to have a history in stem cell advocacy and experience in state government and bond trading.

Who ended up getting the job? Robert Klein II.

A few weeks after their election victory, Klein and his supporters met in Irvine and held a "best practices" workshop to explore the many ethical and administrative issues this new law presents.

During the meeting, I briefly chatted with Klein, tried to arrange a longer interview, and then was dodged by him and his associates. Busy talking and typing into his wireless Blackberry, Klein came across as the consummate business guy, experienced in orchestrating deals but uncomfortable in dealing with the public spotlight.

In Los Angeles on Thursday, Klein met briefly with reporters and vowed to lead a transparent process, although he again balked at changing the committee's policies beyond those spelled out in the law.

"My desire is to honor the trust of the voters to get this institute operating smoothly, and make certain we are making the best grants possible, with the best staff," said Klein. "I would hope to have that accomplished and to leave knowing we have a smooth track record by the third year."

In essence, Klein and his supporters are offering a "trust us" argument, which Californians may have trouble swallowing. Ratepayers heard the same thing when business leaders and state lawmakers deregulated electricity. The result was a national embarrassment of blackouts and squandered dollars.

At its core, the debate over Proposition 71 involves how to best fund science with public money. The business leaders who pushed this initiative are accustomed to the confidentiality of the boardroom. Academics like the anonymity of closed-door tenure reviews. Some want stem cell research to occur in the same sort of opaque fish bowl.

During the meeting in Irvine, at least two speakers could be heard quoting Thomas Jefferson's phrase, "Liberty is the great parent of science and virtue."

Jefferson did love liberty and science, but it is doubtful he would have rallied behind Proposition 71. Wary of kings and power mongers, Jefferson championed the idea of separate judicial, legislative and administrative branches that would provide checks and balances on each other. As he once put it, "The concentration of (all powers) in the same hands is precisely the definition of despotic government."

In coming months, the future of California's new Institute for Regenerative Medicine depends on the willingness of the 29-member oversight committee to openly tackle several decisions that weren't fully addressed by Proposition 71. Thursday's meeting wasn't a winning performance. Although Klein seemed sincere in wanting to hear public comment, committee member Sherry Lansing, CEO of Paramount Pictures, rolled her eyes and yawned while members of the public addressed the board with their concerns.

As state Controller Steve Westly told the committee at its first meeting, "The eyes of the world are on California." The question is: Are the eyes of California on the stem cell committee?

Conflicts of interest
Regardless of how one feels about Proposition 71, there is no denying its scope and power. Last year, the National Institutes of Health spent a mere $25 million on research into stem cells derived from human embryos. California's new law would dwarf that annual spending by 12 times that amount, with all the money spent inside the state.
By law, the Independent Citizens Oversight Committee can spend up to $90 million on administration over 10 years, and can spend $300 million the first five years on research facilities.

Nearly all of the rest would go to research grants, with scientists submitting grant applications to the oversight committee.

This committee includes a mix of scientists, medical school leaders, venture capitalists, biotech executives, patient advocacy activists and political insiders. Gayle Wilson, the wife of former Gov. Pete Wilson, is on the committee. Sherry Lansing was appointed because of her support for cancer research.

ICOC members are subject to the Political Reform Act of 1974 and must file statements of economic interest, as do other public officials. Committee members are prohibited from awarding grants to their own employers but can vote on grants to a nonprofit group to which they belong.

Since few of the ICOC members are stem cell experts, the committee's three advisory panels, known as "working groups," will be extremely influential. The working groups, however, will not be subject to the same state financial disclosure laws as the full committee. Klein says advisers will have to file some kind of disclosure forms, but it is not clear how detailed these will be, or if they will be made public. Eventually, the ICOC itself will set its own conflict-of-interest standards for advisers on the three panels.

Some scientists say conflicts are inevitable, even if scientists on the working groups come from outside of California. "It is possible to envision someone voting on a facility that the next year they will be working in," said Sidney Golub, a professor emeritus at the UC Irvine College of Medicine. Scientists nationwide are now eagerly seeking out jobs across California, as reported by the Los Angeles Times and other newspapers.

State Sen. Deborah Ortiz, D-Sacramento, has introduced legislation that, among other things, would require working groups to be subject to state financial disclosure requirements. Even if it passes legal muster, that legislation will be late in coming.

By law, the oversight committee is mandated to pick its working group membership by Jan. 17.

Klein hopes to start funding projects by May - summer at the very latest.

Intellectual property rights
Stem cell research holds the promise of groundbreaking medical cures that are both lifesaving and lucrative. Since 1980, Stanford University and UC San Francisco have earned more than $300 million on royalties for basic DNA cloning techniques. Stem cell research could easily result in an avalanche of royalties, although it may take several years.
During the election campaign, Proposition 71 supporters released a study projecting that the state of California could earn royalties of $537 million to $1.1 billion over a decade on stem cell research. Ultimate revenues could depend on the licensing strategy adopted by the oversight committee.

According to Gerald Dodson, a leading patent attorney from Palo Alto, the most lucrative strategy is to issue exclusive licenses to companies that want to commercialize any patented inventions. But exclusive licenses are controversial, especially if they prevent other scientists from being able to use basic research discoveries.

Exclusive licenses could also drive up the cost of medical treatments resulting from stem cell research, raising the ire of patient advocacy groups.

"We need to be careful about intellectual property rights," said Steve Peckman, associate director of human subject research at UCLA. "We must make sure we don't sell the farm to private industry."

Proposition 71 is somewhat vague on these questions. It calls for agreements with companies that will balance the state's opportunity "to benefit from the patents, royalties and licenses" with "the need to assure that essential medical research is not unreasonably hindered." Ortiz, among others, wants greater assurance that the state recoups a return on its investment, either in royalties or low-cost treatments.

Scientific ethics
Proposition 71 makes it legal for scientists in California to engage in what is known as "therapeutic cloning," in which the DNA of an unfertilized egg is replaced with genetic material from an individual. This technique allows scientists to create multiple stem cells that have certain genetic traits, such as a predisposition to Alzheimer's or other diseases.
By studying these cells, scientists hope to learn how diseases develop and possibly develop treatments that won't be rejected by a person's immune system.

Proposition 71 outlaws human cloning but doesn't spell out what the institute should do to prevent its cloned embryos from being misused. Some observers say it is only a matter of time before a rogue scientist finds a woman willing to have a research embryo inserted into her womb, creating the world's first known cloned child.

"We are just a few steps away from modifying these cloned embryos and getting these designer babies," said Marcy Darnovsky, associate executive director of the Center for Genetics and Society, a nonprofit group in Oakland.

Proposition 71 creates other ethical quandaries as well. Although scientists can extract stem cells from embryos frozen by couples for fertility treatments, researchers want access to cells that have a wider genetic variability.

As a result, Proposition 71 anticipates that scientists will seek to obtain eggs from willing donors. These donors can't be paid for their eggs, but will be eligible for "reimbursement of expenses," according to the law.

Reimbursement is a tricky word, as are the procedures for egg extraction. Women who have taken super-ovulating drugs have reported serious side effects. Given the uncertain risks, how much should the state reimburse egg donors for participating in this research? And will this reimbursement encourage poor women to become guinea pigs for California's stem cell crusade?

"We need to make sure people are not pressured or exploited into donating embryos," said Richard Hynes, a cancer researcher at the Massachusetts Institute of Technology who spoke at the Irvine conference. Proposition 71, however, doesn't create any mechanisms to ensure that women aren't exploited.

Along with other members of the National Academy of Sciences, Hynes is preparing a long-awaited report that will provide national guidance on stem cell research, including informed consent of any donors. California's committee will have to enact its own interim guidelines until that report is released.

Open meetings
The oversight committee is subject to the state's Bagley-Keene Open Meetings Act, but under Proposition 71, it will have wider latitude than most public bodies to close its sessions.
Current law allows public bodies to close meetings to discuss such issues as personnel matters, lawsuits and real estate negotiations. Under the new law, the ICOC can also meet in closed session when discussing "confidential intellectual property" or "prepublication, confidential scientific research." Lawyers are now pondering what those phrases could mean.

"The language of these exemptions and exceptions is rife with undefined words and phrases," wrote open-government lawyer Francke in a letter last week to the ICOC board.

Proposition 71 also allows the committee's advisory panels, or working groups, to hold all their meetings in closed session. Supporters of closed meetings say these panels need to have uninhibited discussions about scientists seeking grant applications.

But by agreeing to secret sessions, Francke and other critics say the committee will be compromising its basic mission - oversight. The committee, Francke wrote, "will be confined to considering what the working groups put on your plate, with little or no sense of how it got there, or what is missing or why. ... You will be more isolated, rationed and blinkered in your decision-making than a member of any street lighting or mosquito abatement district."

Failure to strictly follow the state's open meetings requirements tripped up the ICOC at its first session in San Francisco on Dec. 17. Francke and Berkeley lawyer Charles Halpern complained that the ICOC hadn't provided legal advance notice of the meeting, or an opportunity for the public to comment on agenda items. As a result, Attorney General Bill Lockyer advised the committee to curtail its agenda. The committee is now trying to play catch-up.

Public records
Proposition 71 allows the stem cell institute to limit disclosure of public records beyond the usual personnel files. It also allows the institute to keep secret records reflecting "intellectual property or work product" or "pre-publication scientific work papers or research data." These latter exemptions could make it difficult to learn, in detail, what kind of research the state is financing.

State audits
Proposition 71 requires the institute to release an annual report recording its activities, grants awarded, grants in progress and research accomplishments. The institute also is required to commission a financial audit of its activities from a certified public accounting firm. That audit will go to the state controller, who also will chair a financial oversight committee of the institute.
State Controller Westly has called for the oversight board to also commission "performance audits." Such audits would record not just how the money is spent, but how effective it has been in achieving the state's goals. So far, the committee hasn't discussed that suggestion.

Building acquisition
By law, the stem cell institute can spend up to $300 million in the first five years on new research laboratories. Part of this is motivated by Bush's restrictions on stem cell research. A California university could face sanctions if it conducted stem cell studies in a lab that was also receiving federal funding for another type of research.
The $300 million is sure to set off a building scramble among California universities starved for state construction money. Owners of empty office buildings, such as those in the Silicon Valley, also could benefit. Proposition 71 doesn't state whether ICOC should lease or buy buildings. The oversight committee will start approving grants for laboratory acquisition after it appoints a Scientific and Medical Research Facilities Working Group, whose meetings will be held in closed session.

Headquarters and staff
By law, the institute can spend nearly $9 million a year on administration and can hire up to 50 employees, not including the working groups. At the moment, the institute has no headquarters or staff. Until this week, the California Research and Cures Coalition, a nonprofit established by Klein after Proposition 71 passed, was handling all information requests for the institute.
On Thursday, the oversight committee delegated powers to Klein that allow him to hire interim staff, some of whom are sure to come from his nonprofit group. The ICOC also created a subcommittee to look for a permanent home for the new institute. San Jose has already made an offer, said Klein, and other cities are working on one.

Although some say the stem cell institute will operate with little accountability, lawmakers, the governor and other state officers all have leverage over the institute.
Westly has encouraged more detailed audits. Ortiz and legislative legal advisers believe there may be ways to "supplement" the law within the three-year period when amendments are prohibited.

Legislators and the governor also have budget control over the University of California. They can use that clout to encourage UC employees on the oversight committee - including a chancellor and five medical school deans - to make sure they don't operate in a closed ivory tower.

Will California's stem cell program be able to develop into something new and unexpected? Possibly. After all, that is what stem cells are all about.

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