StemCells Inc. has a history not much different from those of dozens, even hundreds, of biotech companies all around California.

Co-founded by an eminent Stanford research scientist, the Newark, Calif., firm has struggled financially while trying to push its stem cell products through the research-and-development pipeline. It collects about $1 million a year from licensing patents and selling cell cultures but spends well more than $20 million annually on R&D, so it runs deeply in the red.

On the plus side, StemCells Inc. has had rather a charmed relationship with the California stem cell program, that $3-billion taxpayer-backed research fund known formally as the California Institute for Regenerative Medicine.

The firm ranks first among all corporate recipients of approved funding from CIRM, with some $40 million in awards approved this year. That's more than has gone to such established California nonprofit research centers as Cedars-Sinai Medical Center, the Salk Institute for Biological Studies, and the Sanford-Burnham Medical Research Institute.

The record of StemCells is particularly impressive given that one of the two proposals for which the firm received a $20-million funding award, covering a possible Alzheimer's treatment, was actually rejected by CIRM's scientific review panel twice. Nevertheless, the stem cell agency's governing board went ahead and approved it last month.

What was the company's secret? StemCells says it's addressing "a serious unmet medical need" in Alzheimer's research. But it doesn't hurt that the company also had powerful friends going to bat for it, including two guys who were instrumental in getting CIRM off the ground in the first place.

There's nothing improper about the state stem cell agency funding private enterprise; that's part of its statutory duties, and potentially valuable in advancing the goals of research. In part that's because CIRM is in a good position to help biotech firms leapfrog the "valley of death" the territory between basic research and the much more expensive and speculative process of moving a technology to clinical testing and, hopefully, the marketplace. Unfortunately, that's also the point where outside investment often dries up.

But private enterprise is new territory for CIRM, which has steered almost all its grants thus far to nonprofit institutions. Those efforts haven't been trouble-free: With some 90% of the agency's grants having gone to institutions with representatives on its board, the agency has long been vulnerable to charges of conflicts of interest. The last thing it needed was to show a similar flaw in its dealings with private companies too.

That brings us back to StemCells Inc. First, consider the firm's pedigree. Its co-founder was Irving Weissman, director of Stanford's Institute for Stem Cell Biology and Regenerative Medicine and a stem cell research pioneer. Weissman was one of the most prominent and outspoken supporters of Proposition 71, the 2004 ballot initiative that established the stem cell agency.

He's also been a leading beneficiary of CIRM funding, listed as the principal researcher on three grants worth a total of $24.5 million. The agency also contributed $43.6 million toward the construction of his institute's glittering $200-million research building on the Stanford campus. As of mid-April Weissman was still listed as a shareholder of StemCells, where his wife, Ann Tsukamoto, is an executive. Weissman, who is traveling in Africa, could not get back to me by deadline to talk about his relationship with the company.

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Research firm reaped stem cell funds despite panel's advice

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