California Stem Cell Agency Shifts Focus to Clinical Treatments

1/31/13Follow @Tansey_Xconomy

California’s stem cell research funding agency has been shifting gears, and California entrepreneurs stand to benefit. The California Institute for Regenerative Medicine (CIRM) plans to spend hundreds of millions of dollars over the next four years to support early stage clinical trials and other work toward regulatory approval of commercial therapies.

What’s more, industry advisors may soon have a bit more influence over CIRM’s decisions.

The grantmaking institution based in San Francisco, which had devoted the bulk of its earliest awards to basic research and stem cell lab construction at California research centers, is now focused on advancing stem cell science into the clinic and forming partnerships with companies.

However, CIRM’s era as a major funding source for California businesses may not continue for many years. The $3 billion stream of state bond funding that was given CIRM through a voter initiative in 2004 will be used up by 2017. To create a second life for the institute, its leadership has begun considering a range of options to pump in new capital—from a venture philanthropy fund to a second ballot initiative. The first opportunity for a statewide vote is the general election in November 2014.

Nothing has yet been decided, says Jonathan Thomas, chair of CIRM’s 29-member governing board, the Independent Citizens’ Oversight Committee. But the agency’s leaders have taken steps recently to showcase its accomplishments and shore up its public image as preparation for an appeal to private donors or California taxpayers.

“It’s important to us to be able to convey the progress,’’ Thomas says.

One CIRM-funded project is expected to begin mid-stage clinical testing this year. The small Beverly Hills biotechnology company Capricor will receive up to $19.7 million to test heart-derived stem cells as a treatment for the deterioration of coronary muscles after heart attacks. As many as five trials may have begun by the end of 2014 with CIRM support, says Dr. Ellen Feigal, CIRM’s vice president of research and development.

neonatal mouse heart cells

Fluorescent micrograph of neonatal mouse heart cells, taken as part of a CIRM-funded project investigating stem approaches to growing heart tissue in the lab of Kara McCloskey at the University of California, Merced.

But the agency’s progress, in the view of CIRM leaders, has been overshadowed by a persistent outcry over its governance structure, which critics say is hobbled by inherent conflicts of interest. On CIRM’s governing board, 13 seats are guaranteed for representatives of five University of California campuses and eight other California research centers—each qualified to benefit substantially from CIRM’s grants. That leadership structure was specified by the ballot initiative that created CIRM, Proposition 71.

CIRM leaders have repeatedly insisted that the agency’s grantmaking decisions are impartial. But an Institute of Medicine panel, in a December report commissioned by CIRM, strongly echoed the conflict of interest concerns. In response, the stem cell agency’s board endorsed a package of proposals from Thomas at its Jan. 23 meeting. Under one provision, the 13 members viewed as having built-in conflicts of interest would abstain from voting on all grant decisions—at least for a trial period. The CIRM board will vote on the final language in March.

Board vice chair Duane Roth said the Institute of Medicine review is the third outside report warning CIRM that perceived conflicts of interest were undermining its public support.

“If we lose our credibility with the voters and the taxpayers, there will not be any more money,’’ Roth said at the Jan. 23 meeting.

Despite its critiques, the Institute of Medicine review panel credited CIRM with progress on the sweeping goals laid out for it in Proposition 71. Supporters of the initiative had promoted it to voters with a range of enticements: CIRM was to fund basic research in a promising scientific field almost at the dawn of its development, position California as a leader in the sector, and also make progress toward treatments so rapidly that CIRM would soon help repay its own bond funding, through royalty payments from grant recipients and other boons to the state economy.

Proposition 71’s backers saw embryonic stem cells as a potential source of replacement cells for patients with injured spinal cords or disease-damaged hearts, nerves, and other organs. They sought state money because federal funding was restricted during the George W. Bush administration due to moral concerns that embryonic stem cells were derived from human embryos, such as those unused by clients at fertility clinics.

The initiative’s supporters designed CIRM’s leadership structure to insulate the $3 billion state fund from political forces. Rather than designating the state legislature to allocate the money, Proposition 71 gave control to a board comprised of the 13 research institutions, along with 10 patient advocacy group members; four life sciences executives not involved in stem cell programs; the CIRM chair, and its co-chair.

Many of the conditions that gave rise to Proposition 71 have eased, however. President Obama has increased federal funding for embryonic stem cell research. Scientists have also created versatile stem cells derived from adult cells such as skin—bypassing the controversy over the creation of embryonic stem cells.

But CIRM’s funding is now as important as ever, says Jim Scopa, a managing director at MPM Capital’s San Francisco office. In a constrained economy, venture capital has shrunk for startups in the life sciences, he says. Those startups need enough capital to move their products into the early clinical stages, when large pharmaceutical companies are willing to take over the funding role as partners.

“That’s where I think CIRM’s money could be very helpful,” Scopa says. MPM Capital is part of a broad venture firm syndicate backing the South San Francisco company iPierian, which has received $4 million from CIRM for a research program on neurodegenerative diseases. The company is using stem cells not as potential therapies, but as research tools that may help identify the best drug candidates.

CIRM has already made funding commitments of more than $1.7 billion, though some of that money is yet to be paid in installments that depend on the progress of individual projects. From that $1.7 billion, 14 California companies have shared in about $132 million.

As stem cell science advanced, CIRM began devoting a greater percentage of funding to potential therapies. Much of that work has been done by academic researchers under CIRM’s Disease Team grants. But more businesses are starting to get involved. Two companies, Regenerative Patch Technologies and TheraBiologics, were created to commercialize the work of two academic teams.

In October, CIRM approved $10.1 million for ViaCyte’s work on experimental diabetes treatments, and $9.3 million for Bluebird Bio’s research on therapies for a life-threatening blood disorder, B-thalassemia.

According to CIRM’s 2012 Strategic Plan, the agency has about $836 million left in uncommitted funds. Of that, it plans to spend as much as $700 million on preclinical studies and early stage clinical trials.

The Institute of Medicine panel advised CIRM to bolster the role of industry representatives on its governing board, advisory groups, and disease teams as it finances the path to commercialization of therapies. Such advisors, with experience in product development, manufacturing, and regulatory hurdles, could help CIRM use its funds strategically, the panel said.

The panel also warned that CIRM’s intellectual property policies could discourage large pharmaceutical and biotechnology companies from licensing CIRM-funded discoveries. Proposition 71 allows CIRM to require grantees to pay royalties to the state on marketed products, and provide access to therapies to low-income Californians.

Scopa, of MPM Capital, says startup companies might look for alternatives to CIRM funding for amounts in the range of $3 million. But when CIRM is offering as much as $10 million, many companies will probably find a way to work with the agency because other sources of financing are so pinched, he says.

But Scopa says the royalty requirement could later restrict a young company’s opportunities to be acquired by a larger business or to license its drug candidates. The problem could arise if commercializing the product would require payment of a stack of royalties, not only to California, but also to other entities whose technologies would also have to be licensed, he says.

Thomas says CIRM’s working groups and board will be reviewing a range of policies in response to the Institute of Medicine report. The agency had already planned to form an advisory panel that would include industry representatives, and it has programs in place to seek partnerships with companies that might augment CIRM’s funding of clinical programs.

However, the changes proposed by Thomas fall far short of meeting the Institute of Medicine’s recommendations. The IOM panel said CIRM’s governing board should restrict its role to setting strategic directions for the agency, while leaving the actual choice of grant recipients to its professional staff and the independent outside reviewers who belong to CIRM’s various Working Groups.

The legislature could modify CIRM’s structure, but under the terms of Proposition 71 it would have to muster a vote of 70 percent of both houses.

As to the future, CIRM’s leadership has not yet laid out how, as a state agency, it might persuade private donors to replenish its pool of grant funding once its bond funding is spent. Potential donors would include private individuals, charitable foundations, disease foundations, and venture philanthropy investors, Thomas says.

But such donors often want to determine for themselves how their money will be allocated. Whether they would chip into a large state fund controlled by the CIRM board remains to be seen. And if CIRM were spending private money rather than state funds, could it still reserve its grants for California companies and research centers? Could it require that grantees pay royalties to the state? Also, would setting up a charitable fund or venture philanthropy enterprise dictate a different governance structure for CIRM?

“These are all great questions,” Thomas says. But the agency has not yet begun to delve into such details, he says. At the time when it chooses a plan for sustainability, CIRM hopes to be able to point to effective stem cell therapies and other advances that have flowed from the institute’s support. The progress of its clinical programs would be a factor in the timing of a second ballot initiative, if CIRM chooses that route, Thomas says. The agency could aim for 2014, or wait for the November 2016 election.

Scopa says he wouldn’t rule out a successful ballot measure, despite the state’s recent budget woes. But he says voters will want to see that their first $3 billion was well spent.

“It probably will require some successful stories to tell between now and 2016,” Scopa says.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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