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Now Playing: California’s $1 Billion Stem-Cell Renovation Show

Xconomy National — 

Home remodeling shows are a reality TV staple. But no Park Avenue mansion or country estate can top the nearly $1 billion price tag of the house C. Randal Mills is trying to renovate on the fly in California.

Mills, who goes by Randy, is the president of the State of California’s stem cell agency, which just turned 10 years old. A former biotech executive, he’s been on the job at CIRM for seven months, pushing what he calls “CIRM 2.0”: an overhaul to fulfill the agency’s unfinished business of bringing regenerative medicine therapies to patients. (CIRM stands for “California Institute for Regenerative Medicine.”)

For some time, the agency has mulled ways to extend its life beyond the original $3 billion in bond money Californians voted for in 2004. Ideas of public-private partnerships, rich benefactors, or perhaps going back to the public have been floated. Turns out the answer, for now, is CIRM must first get its own house in order.

The renovation plan could be fully in place by mid-year, if the agency’s board approves. Some of it Mills has discussed in detail, which we’ll delve into later, and some of it remains vague. With board meetings open and available online, it’s a reality show that skews more C-SPAN than Housewives.

But it’s crucial for Californians of all stripes—taxpayers and patients, health providers and researchers alike—because CIRM has spent more than $2 billion on new buildings, job training, and R&D, yet only a handful of the projects it has funded have led to therapies now being tested in humans. That’s to be expected; turning radical new science into medical products is a long slog.

But critics say CIRM’s original backers (real estate developer Bob Klein and the Proposition 71 campaign—one could call CIRM “The House That Klein Built”) underplayed that caveat to voting taxpayers a decade ago. Perhaps the media and public weren’t going to tune into it, anyway. But expectations are expectations.

“CIRM-funded labs have produced genuine achievements,” wrote Los Angeles Times columnist Michael Hiltzik last summer. “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.”

CIRM must also show it can fund industry without shooting itself in the foot. Awards to companies have been sparse, about 10 percent of the $2.1 billion total. One of the few firms to receive CIRM cash so far is StemCells Inc. of Newark, CA. CIRM awarded StemCells $19 million in 2012 to help with its experimental Alzheimer’s treatment, despite initial rejections from CIRM reviewers and a questionable tangle of close ties with folks like Stanford University researcher Irv Weissmann—a frequent recipient of CIRM grants and a StemCells founder and board member.

The arrangement became an embarrassment in 2014 when Mills’s predecessor Alan Trounson, who oversaw the StemCells grant, immediately took a StemCells board seat upon leaving CIRM. In December, CIRM pulled the plug on its funding, but StemCells had already received nearly $10 million it won’t have to pay back.

After Trounson’s ill-advised move—which reportedly took CIRM officials by surprise—the agency revised its conflict-of-interest policy, although it maintained that Trounson’s action broke no previous rules. It was the second big adjustment CIRM had made in three years. In late 2012, the U.S. Institute of Medicine, at CIRM’s behest, wrote a long report on the agency’s practices, pro and con, which spurred several changes, some related to conflict-of-interest problems and perceptions.

Back in 2004, California voters said yes to $3 billion in bonds to fund the research agency, knowing that interest payments would swell the final bill to $6 billion. It was an expensive thumb-to-the-nose at President George W. Bush, whose executive rules—since overturned by President Obama—had cut off federal funding for nearly all embryonic stem cell research.

California, the thought went, would skirt federal bans, build new buildings, attract bright minds, create new jobs, and ultimately share the financial and moral rewards of cures for all kinds of diseases. (Economic impact reports are notoriously squishy, but for what it’s worth, one commissioned by CIRM said in 2012 that from 2006 to 2014 the agency would generate 38,000 full time jobs and $205 million in state tax revenues.)

But now it’s renovation time. Mills’s first task was to add a fresh coat of exterior paint, rebranding “CIRM 2.0” as an efficient, business-friendly entity.

According to the new rhetoric, CIRM is less a grant-making government agency than a “discerning investor” that’s going to be “as creative and innovative” as possible in getting treatments approved, Mills says. “We have no mission above accelerating stem cell therapies to patients.”

That language is tuned to catch the ears of the biopharma industry, which CIRM needs to convince to take its money and move regenerative medicine products through the clinic. Mills ran Osiris Therapeutics (NASDAQ: OSIR), of Columbia, MD, for a decade and brought a stem-cell-based treatment to market for kids with graft-versus-host disease.

mills thomas CIRM

Mills and Thomas: Talking about the deuce. (Photo courtesy of CIRM.)

He knows the language of business, as does chairman John Thomas, who cofounded a private equity firm in Santa Monica, CA.

They are indeed promising big changes. The biggest, perhaps, is an overhaul of the grant application process, shaving it from as much as two years down to four months, and holding review meetings on the phone instead of flying reviewers to California and paying for hotel rooms. (Mills was one of those reviewers for five years.)

Before, application windows would open every 12 to 18 months “like a game of whack-a-mole, and you had to apply whether or not you were ready,” says Mills.

Now, scientists and companies can apply for grants at any time, and if their proposals aren’t up to snuff, they can amend them and resubmit them quickly. The first test of the new structure is already underway; the board has approved $50 million for clinical-stage projects, and there could be approvals by May. The rolling submissions will theoretically attract for-profit groups that previously didn’t want to get caught in the bureaucracy. “If we’re going to be in the drug development business, the continuum has to be predictable,” says Mills.

Businesses will technically receive loans, not grants, but they will only pay CIRM back if their products succeed. (How quickly, and with what amount of interest, are details yet to emerge.)

Mills also wants a more corporate structure for CIRM, arranged around three therapeutic areas—neurology, blood and cancer, and organ systems—plus a fourth group to oversee earlier research. There are roughly two dozen programs in each area, Mills says, “and we expect each to get bigger.”

(CIRM has funded 302 active programs in all.)

For now, Mills won’t be tapping new sources of cash from rich angels, foundations, or public bonds—although Bob Klein, who stepped down as CIRM chairman in 2011, has talked about an even bigger bond initiative if the public seems receptive.

Instead, what’s left in the pot—about $900 million—can apparently be stretched farther than expected just a year ago. Last summer, before Mills began his tenure, agency officials said CIRM’s last grant dollar would likely go out the door in 2017. Now they’re saying 2020. No extra dollars have materialized since Mills arrived. Where did the new horizon come from?

Essentially, Mills says the agency can spend about $170 million a year for the next five years more efficiently.

Where CIRM’s Cash Has Gone*
Clinical development projects $589 M
Infrastructure $439 M
Education and training $424 M
Discovery phase projects $332 M
Translational phase projects $301 M
As of Jan. 29, 2015 (Source: CIRM) *About 5 percent does not end up with the recipient because the awardee misses milestones or declines the cash.

With the products-above-all urgency and industry-friendly rebranding, it’s natural to think CIRM’s remaining cash will shift toward the private sector. The notion makes academics nervous, especially now that CIRM 2.0 is cutting off funds for the much loved “shared labs” program, as Jeanne Loring, director of the Scripps Research Institute’s Center for Regenerative Medicine, lamented last fall in an open letter.

But the agency just announced on Jan. 29 it will put nearly $30 million into 20 academic projects, and Mills pledges more to come.

“It would be a horrible mistake to cut off early research,” he says. But the question is not about absolutes, it’s about proportions. And he’s not ready to discuss those proportions. (He says he will present details for CIRM 2.0’s first discovery and translational grant cycles at an upcoming board meeting.)

Mills knows he has to please many constituents. There’s a message to academic researchers: We won’t abandon you. A message to industry: CIRM’s rolling reviews will allow for more capacity and less bureaucracy. And a message to taxpayers: We’ll do all this without boosting the annual $13 million administrative budget—but if that comes to pass, we’ll cut costs elsewhere—and we’ll do it without providing corporate pork. “We’re not going to fund a clinical program just to say we’re funding a clinical program,” Mills says.

But there’s no getting around CIRM has to spend a lot of money in coming years on industry-run projects that will eat an ever larger proportion of its remaining cash. Inevitably, because this is drug development, there will be high-profile examples that crash and burn and take California taxpayer money with them.

The biggest question, I’d argue, is whether the world is catching up to CIRM. At a regenerative medicine update in San Francisco last month, the new chief of the sector’s trade group—Sangamo Biosciences (NASDAQ: SGMO) CEO Ed Lanphier, whose company is a recipient of CIRM money—put up a slide that showed more than a dozen big drug companies that have partnered to bring in regenerative medicine products. Two years ago, said Lanphier, there were three to five.

Bluebird Bio (NASDAQ: BLUE) is an interesting example. In 2012, CIRM granted it $9.4 million to develop its beta-thalassemia treatment. (The Cambridge, MA-based company qualified because it planned part of its clinical trial in California.) But the company went public in 2013 and no longer needed CIRM’s money. The cash went back to CIRM.

If investors and big pharma partners are happy to help the Sangamos and Bluebirds of the world move their programs forward, perhaps CIRM should let those market forces play out.

At this point, however, when it comes to funding for-profit projects, CIRM will take heat either way. As more cash flows to industry, there will be cries of corporate welfare and conflicts and overreach (what does a government agency know about clinical development?). But if CIRM were to stick to basic research, it would take flack for leaving its mission unfulfilled.

Whether CIRM signs off in a few years or extends its life with new cash, it will ultimately be judged on getting treatments, even cures, to patients. In fact, if it produces just one cure or significant therapy to change the way we treat Alzheimer’s disease, Parkinson’s disease, diabetes, or some other costly malady, we Californians might look back one day and say those billions were dollars well spent.

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  • Mineman

    Critical that CIRM continue to fund projects that have a high degree of commercial success. Like the HIV program partnered with Sangamo Biosciences (SGMO). CA is paying BILLIONS of $$$ for treating HIV patients, but Sangamo has what is considered the only “functional cure” in the clininc. HSC work going into the clinic first half of 2015 offers a “cure”.
    The methodology used in the HIV HSC program can apply to nearly an viral pathology, as pointed out in published patents.

  • Jack Matkin

    Sangamo does not have a functional cure and the data I’ve seen suggests that is impossible with their 728b program.