Nonprofit Bankruptcy Leads to Destruction of Cancer Research

August 6, 2016; Boston Globe

An investment of more than $30 million into ten years of biological cancer research has been destroyed following a Chapter 11 dispute that has lasted for over two years.

Agencies including the National Cancer Institute, Institute of Health, Department of Energy and NASA invested in the research led by scientist Dr. Lynn Hlatky. Over the course of their work, researchers had “successfully transformed normal human cells into human cancer cells.” Hlatky said that the chances of the team resuming its work with all of its material and equipment now gone are slim.

The Center of Cancer Systems Biology was originally opened on the grounds of St. Elizabeth Medical Center in Brighton in 2006 when the medical center was still a nonprofit. But in 2010, St. Elizabeth was acquired by the for-profit Steward Healthcare System. Hlatky reported to the court that if the Center were to successfully continue to secure federal and charitable funding, they would need to remain nonprofit.

GeneSys Research Institute (GRI), which was established the same year to provide research and development in the field of biotechnology, agreed to serve as the Center’s nonprofit fiduciary. This created a win-win for the two agencies until the winds of change began to shift. By September of 2013, the researchers faced the shocking reality that they had no cash flow. GRI was accused of “misuse of funds” connected to an estimated 4 million of the Center’s charitable dollars. The local CBS station reported that the researchers were “let go” and their work abandoned. It was “an incredible misappropriation of monies,” said Dr. Philip Hahnfeldt, the Center’s senior investigator.

A bankruptcy lawsuit evolved to include an ongoing fight led by the Center’s top scientists to preserve the Center’s ten years of cancer research. Repeated messages focused on a plea to pay attention to the cy pres doctrine (a legal French term that means “so near/close”). Nonprofit Quarterly’s report on nonprofit closures can still be found on the Center’s Facebook page, along with court documents and calls for help.

Numerous agencies did come forward in protest. Tufts University School of Medicine filed an objection to abandoning materials “critical to cancer research.” The school also volunteered to accept the materials through a newly formed nonprofit created by Hlatky. The Department of Energy (DOE) requested that the lab be provided the ability to stay on site for an extended time until the materials were moved. DOE said that they had funded some of the lab’s “significant” research and offered to work with Hlatky to designate a site to accept the transfer of materials.

The court reported that as a nonprofit, GRI had not complied with Massachusetts’ non-bankruptcy law and required two key action items. First, public charities and research labs were to be solicited to determine their interest in accepting the Center’s research materials. Second, the court required that the burden fall on GRI to prove that the property of the estate was in fact “burdensome and of inconsequential value.”

This work was conducted and a report given back to the court. GRI stated that no party had stepped forward to “take custody…of the biological materials despite marketing efforts.” However, they later stated that no party had offered to take custody “on terms that were beneficial to the estate.”

They also argued that the facilities continued to be used well beyond the term of lease, which was estimated to have accumulated over $90,000 of unpaid rent to St. Edwards in the year 2015. In addition, the group was incurring out-of-pocket costs, including weekly replacement of gas tanks, totaling approximately $600 a week with a concern for “storing potentially hazardous materials without the supervision of a financially or operationally responsible party.” In comparison, the disposal of the materials was ultimately estimated to cost in excess of $100,000.

GRI representatives reported estimated values as requested. Assets and liabilities of the estate were listed, including 32 mice valued at $0 and “biological specimens and/or tissue samples” listed at an “unknown value.”

Despite their best efforts to protect the preservation of charitable assets for purposes as near as possible to that of their original intent, the researchers were not able to alter the course of events. Tubes of “cells, proteins, pieces of human tumor tissue and other biological samples” were incinerated. In the Boston Globe, Hlatky is reported as responding, “It’s heartbreaking”.

Prior to the court ruling, GRI’s financial statement made sense. The millions of dollars invested by major institutions, the time invested by the staff and partners, and the value of the advancements made by the researchers could not yet be known. The inability to adequately place a value of the accomplishments achieved by these scientists changed this budget line item from “unknown value” to $0 in the court of law.—Michelle Lemming