Monday, October 31, 2005

No IP Debate in South Korea?

While Californians are debating this Halloween about how to share the stem cell "treats," South Koreans are expecting to have therapies from embryonic stem cells within a decade.

According to a news story about a government report in that country, 110 clinical tests of adult stem cells are underway and three companies are already at commercial stages.

The story written by Wohn Dong-hee and carried on the Joongangdaily web site also said, "Provided laws on such medication allow, treatment developed from adult stem cells would be available as early as 2007. It (the study) said treatment drugs from embryonic stem cells would probably be on the market by 2015." Sphere: Related Content

Ortiz: CCST IP Report Tilted by Insiders

An influential California state legislator today sharply criticized an earlier report on stem cell intellectual property, declaring that the state was not "well-served" by a "premature" study that "glosses over" important issues.

Sen. Deborah Ortiz, D-Sacramento, released the statement at the beginning of the hearing by the Senate and Assembly Health Committees into IP issues involving the California stem cell agency.

She targeted a stem cell IP report this summer by the California Council on Science and Technology, which she said was prepared by industry insiders.

“We need very clear and strong standards to ensure that the state’s interests are protected and that the state receives a meaningful economic return on its investment,” said Ortiz, who is chair of the Senate Health Committee and the Capitol's most influential legislator on stem cell issues.

"We’ll hear significant concerns today that that report was premature, and that it glosses over many important issues that we should be spending time deliberating, including important unintended effects of the Bayh-Dole Act that have become apparent over time, the special constraints posed by the use of tax-exempt bonds as a source of financing for the research, as well as viable opportunities we may have to ensure that the stem cell therapies and treatments that ultimately result from Prop. 71, which we are all hoping for, are accessible and affordable to lower as well as upper income Californians.

"The bottom line is I don’t believe the CCST report provides either an objective or comprehensive analysis of the full array of options that are available to us to draw on in developing an IP policy for stem cell research grants.”

Ortiz said California must manage IP rights so that they provide for affordable access to any therapies that result and also do not "impede the rapid and broad dissemination of basic research findings and tools."

She additionally addressed the issue of using tax-exempt bonds for stem cell research, declaring that her proposed constitutional amendment would make that more likely.

“If we are not able to use tax-exempt bonds, the $200 million annual cost of paying off the bonds becomes even larger in five years when the state begins paying off the bonds, potentially forcing us to make cuts in other vital programs. Given that we are unlikely to see any real economic benefits from the research for 10 years or more, it becomes imperative that we use tax-exempt financing to the greatest extent possible.

“That’s why my SCA 13, currently on the Senate floor, requires the Independent Citizen’s Oversight Committee when it is negotiating intellectual property agreements, to seek to ensure that treatments, therapies, and products resulting from Prop. 71-funded research are accessible and affordable to low-income residents, an approach that is more likely to be possible using tax-exempt bonds for the research.”

Below is the text of Ortiz' excerpted remarks, which are not yet available on her web site. Sphere: Related Content

Text of Sen. Ortiz IP Remarks

Here is the text of Sen. Deborah Ortiz' excerpted remarks on IP issues, as released by her office.

“The important questions of who owns the rights to research findings and inventions coming out of Prop. 71- funded research, what they can do with them, and most importantly, how we ensure that California residents receive a significant and direct return on their investment in stem cell research are among the most perplexing that we face in implementing Proposition 71.”

“Our task is complicated by the fact that some options for obtaining economic benefits, particularly those that involve the state receiving benefits in the form of royalty or other direct payments, may not be possible if we want to use tax exempt bonds to pay for the research.”

“If we are not able to use tax-exempt bonds, the $200 million annual cost of paying off the bonds becomes even larger in five years when the state begins paying off the bonds, potentially forcing us to make cuts in other vital programs. Given that we are unlikely to see any real economic benefits from the research for 10 years or more, it becomes imperative that we use tax-exempt financing to the greatest extent possible.”

“That’s why my SCA 13, currently on the Senate floor, requires the Independent Citizen’s Oversight Committee (ICOC) when it is negotiating intellectual property agreements, to seek to ensure that treatments, therapies, and products resulting from Proposition 71-funded research are accessible and affordable to low-income residents, an approach that is more likely to be possible using tax-exempt bonds for the research.”

“My own position has been and continues to be that we need very clear and strong standards to ensure that the state’s interests are protected and that the state receives a meaningful economic return on its investment.”

“We also need strong policies to ensure that the way we manage IP rights do not in and of itself impede the rapid and broad dissemination of basic research findings and tools.”

“Finally, in 2005, at a time of escalating problems with the affordability of prescription drugs and therapies, we would be remiss if we didn’t attempt to ensure that the issue of the ultimate accessibility and affordability of stem cell therapies and treatments relying on Proposition 71 – funded research is addressed. As we’ll hear today, that goal is not addressed very well by the prevailing model of IP management that we have, the federal Bayh-Dole Act, but we have an opportunity to do so with the policy that we develop here in California.”

“Personally, I don’t think the ICOC or Californians generally have been well-served by the one report that has been issued on this topic, the report of the California Council on Science and Technology. I think we’ll hear significant concerns today that that report was premature, and that it glosses over many important issues that we should be spending time deliberating, including important unintended effects of the Bayh-Dole Act that have become apparent over time, the special constraints posed by the use of tax-exempt bonds as a source of financing for the research, as well as viable opportunities we may have to ensure that the stem cell therapies and treatments that ultimately result from Proposition 71, which we are all hoping for, are accessible and affordable to lower as well as upper income Californians.”

“The bottom line is I don’t believe the CCST report provides either an objective or comprehensive analysis of the full array of options that are available to us to draw on in developing an IP policy for stem cell research grants.”

“I am perhaps most distressed that, despite legislative admonition that the CCST broaden its study group and solicit broader representation of Bayh-Dole critics and public interest groups, they chose to ignore that request. Instead, what we have before us is the product of thinking by technology transfer insiders, who despite their expertise, may be missing the broader issues of public interest.”

“I know I speak for many in saying that we are less interested in seeing the state adopt a status quo policy for management of intellectual property rights than we are in seeing the state adopt a policy that makes sense and serves the public, which is footing the bill for the research.”

“This hearing is the first of what will probably be many forums for discussion of this issue. The ICOC’s subcommittee will be meeting throughout the fall and hopefully this hearing will spur debate and broad consideration of the options that are possible in this complex, but vitally important, issue.”


# # # Sphere: Related Content

FTCR: Affordable Therapy, Strong Public Oversight, Diverse Research

Publicly financed stem cell research may be a "gold mine" for biotech companies, but California taxpayers should not "get the shaft," the California Foundation for Taxpayer and Consumer Rights said today.

Jerry Flanagan, health care policy director for the group, said in a statement that the California stem cell agency should ensure that taxpayers and patients "have a controlling interest" in any therapies developed through CIRM grants.

"Drug and biotech companies see publicly-financed research as a gold mine. Policymakers must ensure that taxpayers and patients don’t get the shaft. That means that the stem cell research institute must adopt policies that guarantee that new treatments are affordable,” Flanagan said prior to the beginning of this morning's legislative hearing into intellectual property policies involving the stem cell agency.

The group enunciated three principles for IP and the agency: affordability, public control and oversight and diversity of research.

Flanagan said the agency should provide "on-going public control of how research products are priced" and ensure that results are "shared with other researchers to guarantee open access to new research tools."

"Intellectual property guidelines must encourage broad investment of funds to develop cures for the widest ranges of illnesses, not just those with well-heeled advocates," the organization said, citing sickle cell anemia which afflicts a portion of the African-American population. Flanagan also renewed his group's call for better public oversight of conflicts of interest between grantors and grant recipients.

Below is the full text of the organization's press release, which has not yet been posted on its web site. Sphere: Related Content

Text of FTCR IP Press Release

Here is the full text of the press release this morning by the California Foundation for Taxpayer and Consumer Rights. More of its comments on California stem cell matters can be found here.

CA Stem Cell Institute Must Allow Taxpayers and Patients to Have a Controlling Interest in New Medical Breakthroughs Consumer Group Calls on Regulators to Protect $3 Billion Investment

San Francisco, CA - Prior to a public hearing convened by the state legislature today, the Foundation for Taxpayer and Consumer Rights (FCTR) issued three principles that must be adhered to by the stem cell research institute when issuing $3 billion in bonds under voter-approved Prop. 71 (see below).

The key to fulfilling the promise of Prop. 71 is to “ensure that new medical breakthroughs developed with taxpayer money are available to all Californians. That means that the stem cell research institute must adopt policies that guarantee that new treatments are affordable,” according to FTCR.

“Drug and biotech companies see publicly-financed research as a gold mine. Policymakers must ensure that taxpayers and patients don’t get the shaft,” said Jerry Flanagan of FTCR.

“Many Californians support stem cell research but are unwilling to provide a blank check to biotech and drug companies to develop it. Voters were told they would benefit from stem cell research, but if the drug companies own new medical treatments they will likely price them out of reach of average Californians. What is the benefit of new stem-cell technologies if we cannot afford them?”

The stem cell institute has been broadly criticized for deep conflicts of interest between the overseers of public funds, drug companies, and grant recipients. The public hearing was called in response to concern raised over whether taxpayers and voters will benefit from Prop. 71 research, as they were promised by Prop. 71 proponents, or whether biotech and pharmaceutical companies that control the Prop. 71 research institute will profit at the state’s expense.

The Prop. 71 research institute is in the process of adopting “intellectual property” guidelines that will determine who will control new medical breakthroughs and receive royalties from new products. The current recommendation is to adopt flawed national guidelines, called the Bayh-Dole Act, which has failed to keep new medications developed with taxpayer money affordable to average Americans.

For example, under federal guidelines, the rights to the blockbuster glaucoma drug Xalatan, developed with $4 million of taxpayer grants at Columbia University, were sold to Pharmacia Corp. (now Pfizer) for less than $150,000. Pharmacia made $507 million on Xalatan in 1999 alone, charging U.S. patients $50 a bottle for ingredients that cost only pennies to produce.

The stem cell institute is considering a recommendation to allow grant recipients to keep all royalties garnered from publicly-financed research, though prior to voter approval of Prop. 71 proponents claimed that California would receive up to $1 billion in royalties and $11 billion in other savings.

“For most Californians, the affordability of new treatments will determine whether or not they are accessible,” said Flanagan.

The debate over ownership of intellectual property and the question of royalties must be carried out with the interests of taxpayers and patients in mind, not the private companies that have a financial stake in the outcome of policy decisions.

FTCR called on policymakers to adopt the following principles before approving additional grants:

1. Affordability is the key to access. Prop. 71 promised that voters and taxpayers would benefit from new medical breakthroughs. Essential to fulfilling the goal of public benefit is to ensure that new medical breakthroughs are affordable. An example of failed intellectual property standards is the national Bayh-Dole Act which has failed to keep prescription drugs and the results of other publicly funded research affordable even though that nationally 44% of health related research is funded by taxpayers.

As a result, taxpayers who have already paid for research provided by government grants are often required to pay huge prices for new prescriptions at a doctor’s office or pharmacy.

2. Public Control & Oversight of Intellectual Property. Despite huge investments of taxpayer money, the federal government has never used a provision of the federal Bayh-Dole Act allowing regulators to require affordable prices and that research tools developed with public grants are widely available. Essential to the success of Prop. 71 research is a policy that provides on-going public control of how research products are priced, shared with other researchers to guarantee “open access” to new research tools, as well as provide public oversight of conflicts of interest between grantors and grant recipients.

A possible model for public control of stem cell research in California is the International AIDS Vaccine Initiative (IAVI). IAVI retains the rights to inventions developed with its funding and seeks commitments from commercial partners that will result in vaccines and treatments made available to the public at reasonable prices and in sufficient quantities.

The stem cell research institute could build on this model by requiring companies developing medications with public funds to provide discounts to Californians, particularly to low and medium-income patients.

3. Diversity of research. The Prop. 71 stem cell institute oversight board is dominated by biotech interests and a handful of select disease group advocates that will likely steer research grants to a narrow field of medical conditions. Intellectual property guidelines must encourage broad investment of funds to develop cures for the widest ranges of illnesses, not just those with well-heeled advocates.

Under Bayh-Dole the focus of national research has shifted to products that have immediate commercial potential for large markets -- towards illnesses and/or symptoms that guarantee profit returns, not necessarily where need is greatest. For example, sickle cell anemia, which primarily effects African American communities and is not represented at the stem cell institute, has been successfully treated with the use of adult cord blood stem cells. Prop. 71 stem cell research grants could provided new breakthrough treatments for sickle cell anemia only if the stem cell research institute votes to approve such grants. Sphere: Related Content

Coming Up

A little later this morning, we will have news out of the legislative hearing today in San Francisco concerning intellectual property and the California stem cell agency. Look for a statement from Sen. Deborah Ortiz and the Foundation for Consumer and Taxpayer rights, among other things. Sphere: Related Content

Friday, October 28, 2005

Sharing the Stem Cell Wealth (Assuming There Is Some)

If you want to stifle innovation and drive up the cost of medical therapies, stick with the current arrangements for sharing the wealth from government-funded research, say some critics.

Or you can open up research findings to stimulate even more research or attempt to require therapies to be made available those who might not be able to afford them, as done by the grant program funded by Microsoft billionaire Bill Gates.

Discussion of those options and more are contained in a background paper to be presented to state lawmakers Monday at a hearing in San Francisco conducted by the Senate and Assembly Health Committees.

Sen. Deborah Ortiz, D-Sacramento and chair of the Senate Committee, is leading the hearing into ways the state can share the wealth expected to be generated by its $6 billion investment in stem cell research.

The staff report (see item below for the full text) examines the background of Prop. 71, the limits of bond financing, the impact of the Bayh-Dole Act, legislation related to Prop. 71 IP policy, the IP report by the California Council on Science and Technology and policy options for the state. Those include tiered or reasonable pricing arrangements, socially responsible licensing, direct royalty sharing and patent pooling, among other things.

Following the report's overview of the Bayh-Dole Act (BDA), it notes that "critics have reported significant unintended consequences of the BDA. A key concern among critics is that the BDA has hindered dissemination of and access to basic research findings. They argue that the BDA has made research more difficult and more costly by keeping basic research out of the public domain. Upstream patenting can limit downstream innovation through, among other things, 'patent thickets.' Patent thickets can arise when too many owners hold intellectual property rights in previous discoveries that constitute obstacles to future research and downstream inventions.

"Another concern is that the focus of research in United States universities has shifted away from fundamental research in order to focus on research targeted to commercial applications. The BDA, critics argue, may have created incentives that undermine the representation of the public interest in the calculus of determining which technologies should be patented and how they should be licensed. They contend that as a result, investment in health-related research and development gravitates toward illness or symptoms that offer the greatest potential returns on investment, regardless of actual needs. Others argue that the commingling of the academic and commercial sectors in part facilitated by the BDA has created a bias in scientific findings and undermined public trust in medical research. BDA 'has resulted in egregious conflicts of interest, especially in the biomedical sciences, and has contributed to the near-extinction of the norm of disinterestedness.' "

"Finally, critics of the BDA have questioned the wisdom of having United States taxpayers pay for products twice, first through federally funded grants to their inventors and then for the products themselves, particularly when they argue that the BDA has had no impact on affordability or accessibility of inventions paid for by taxpayer's dollars."

In addition to citing the Gates Foundation's policies, the report briefly discusses the International Aids Vaccine Initiative, which Ortiz has mentioned as a model to be considered. The legislative staff report said the Aids program "generally retains the rights to inventions developed with its funding and collaborates with commercial partners for development of vaccines and treatments using the inventions."

"In its partnerships, (the Aids effort) seeks commitments that resulting vaccines and treatments will be made available in developing countries at reasonable prices and in sufficient quantities, and has successfully negotiated a number of agreements containing those conditions. In effect, the commercial entity agrees to discount the price of the product in certain markets while retaining the right to price it freely in others," the report said.

In the item immediately below, we discuss the report's look at the royalty-tax issue that the Chronicle reported on earlier this week. Following that is the full text of the staff report. Sphere: Related Content

The $700 Million Piffle

Just a mere piffle, this business about royalties endangering the tax-exempt status of bonds to be issued for stem cell research in California, right?

Not exactly. The first estimate we have seen places the size of this piffle at roughly $700 million or more. It is contained in the legislative staff report on IP issues involving the California stem cell agency.

Here is the key language from the report: "According to informal estimates from the (legislative analyst's office), if the state were required to use taxable bonds in lieu of tax-exempt bonds for funding stem cell research, it could raise the debt servicing costs to the state by $700 million or more over the life of the program."

The report also cites a legislative counsel opinion that "indicates that research projects containing intellectual property agreements that call for the state to receive direct royalty payments are more likely to require use of taxable bonds, if the above thresholds are met, than those containing agreements requiring that clinical treatments, products, and services resulting from the research be made available at reduced cost to state health care programs."

The report discusses the various federal tests that are used to determine whether bonds can be tax exempt. And it says there may be ways to structure "agreements and bond sales to avoid having to use taxable bonds. For example, bonds for stem cell research may be packaged with bonds for other public purposes and have relatively short maturity dates that allow basic research to be funded and paid off before any intellectual property is developed. Alternatively, intellectual property agreements may be structured in a way that requires any revenue generated to be paid not to the state, but to a nonprofit entity. It is likely that further guidance will be sought by the Treasurer’s Office and CIRM from the Internal Revenue Service on permissible options for structuring grants and intellectual property provisions that permit use of tax-exempt status of bonds for Prop. 71 grants to the greatest extent."

The full text of the staff report is below. Sphere: Related Content

Text of Legislative Staff Report on IP Issues and Prop. 71

Here is the text of the legislative staff report prepared for the Oct. 31 hearing on intellectual property issues and the California stem cell agency.


Joint Informational Hearing

Senate Health Committee
Senate Subcommittee on Stem Cell Research Oversight
Assembly Health Committee
Assembly Judiciary Committee

Chairs:
Senator Deborah Ortiz
Assemblymembers Wilma Chan and Dave Jones

“Implementation of Proposition 71:
Options for Handling Intellectual Property Associated
with Stem Cell Research Grants”


Background Paper

Proposition 71, the California Stem Cell Research and Cures Act (Act) approved by voters in November, 2004, provides $3 billion in general obligation bonds to provide funding for stem cell research and research facilities in California. The Act establishes the California Institute for Regenerative Medicine (CIRM) to award grants and loans for stem cell research and research facilities.

CIRM is governed by a 29-member Independent Citizen's Oversight Committee (ICOC), comprised of representatives of specified University of California campuses, other public or private California universities, nonprofit academic and medical research institutions, companies with expertise in developing medical therapies, and disease research advocacy groups. The ICOC and several of its working groups have been meeting regularly since December, 2004, and the ICOC awarded a first set of grants in September, 2005. For the most part, the organization has been unable to make grants because lawsuits challenging the validity of Proposition 71 have thus far prevented the state from issuing any bonds.

The Act authorizes the state to sell $3 billion in general obligation bonds, and limits bond sales to no more than $350 million per year, with the intent that the bonds be sold during a ten-year period. The Act provides that for the first five years, repayment of the principal is postponed and interest on the debt is to be repaid using bond proceeds rather than the General Fund revenues. The funds authorized for CIRM are continuously appropriated without regard to fiscal year.

While the Act does not specifically determine ownership rights for the research findings, tools and therapies to be developed with CIRM-awarded grants, it does contain language requiring that the ICOC balance the opportunity of the state to benefit from the patents, royalties, and licenses resulting from the taxpayer funded grants, with the need not to delay essential research.

The official text of the Act specifies that its purpose and intent is, among other things to “[p]rotect and benefit the California budget . . . by funding scientific and medical research that will significantly reduce state health care costs in the future; and by providing an opportunity for the state to benefit from royalties, patents, and licensing fees that result from the research.”[1] The Act also specifies fiscal benefits to the state through creation of “projects, jobs and therapies that will generate millions of dollars in new tax revenue in our state.”

The Legislative Analyst Office (LAO), in its official ballot information, stated that the state would “receive payments from patents, royalties, and licenses resulting from the research funded by CIRM” through ICOC-established standards “requiring that all grants and loans be subject to agreements allowing the state to financially benefit from patents, royalties, and licenses resulting from the research activities funded under the measure.” [2] The LAO found that the amount of revenue from this source is unknown, but could be significant and “would depend on the nature of the research funded by CIRM and the exact terms of any agreements for sharing of revenues resulting from that research.” In addition to these direct economic benefits, the LAO also noted the potential for indirect state and local revenue gains and cost savings, including job gains, increased tax revenue, and reduced government-funded health care expenditures.

An economic impact analysis commissioned by the proponents of Proposition 71 suggested that the initiative would provide total state revenues and health care cost savings of between $6.4 billion and $12.6 billion, including between $537 million and $1.1 billion in royalty payments, reduced health costs to the state of $3.4 to $6.9 billion, and direct and indirect tax revenues generated by increased biotechnology activity in the state and the creation of new jobs in California. The combination of royalties and savings from reduced costs to treat chronic diseases, the study concluded, would more than offset the $6 billion state taxpayers will be obligated to spend to repay the Proposition 71 bonds.[3]

Ballot arguments in favor of Proposition 71 claimed that the initiative would produce substantial direct and indirect economic benefit to the state, reduce health care costs by billions of dollars, and generate thousands of new jobs and millions in new state revenues by making California a leader in stem cell research and giving the state an opportunity to share in royalties from the research.



Limitations of Bond Financing

In approving Proposition 71, California voters agreed to the issuance of $3 billion in general obligation bonds for stem cell research and research facilities in California. General obligation bonds, used to finance a variety of public projects, are debt instruments issued by the state.

Proposition 71 authorizes CIRM to use both tax-exempt and taxable bonds to fund its operations and its grants for medical and scientific research. As stated above, the Proposition also requires the ICOC to establish standards that require that all grants and loans awards be subject to intellectual property agreements that balance the opportunity of the State of California to benefit from the patents, royalties, and licenses that result from basic research, therapy development, and clinical trials with the need to assure that essential medical research is not unreasonably hindered by the intellectual property agreements.

As discussed below, it is possible that royalty or license agreements that generate revenue for the state could affect the tax status of the bonds. Under the Internal Revenue Code, a bond is considered a taxable private activity bond if it satisfies two tests – the private business use test and the private security or payment test. If more than 10 percent of a bond’s proceeds are used for private business purposes, the private business use test is generally satisfied.[4] The private security or payment test is satisfied if payment of the principal or interest of more than 10 percent of the bond is secured or paid, whether directly or indirectly, with private property or funds.[5]

According to a recent Legislative Counsel opinion, the private use test is generally satisfied if more than 10 percent of the bond’s proceeds are used to fund nongovernmental entities (for 501 (c)(3) entities, the threshold is somewhat lower). The private security or payment test is generally satisfied if payment of the principal or interest of more than 10 percent of the bond is secured or paid, whether directly or indirectly, with private property or funds (again, for 501 (c)(3) entities the threshold is somewhat lower). A royalty or license agreement that provides an income stream to the state from private business activity that amounts to more than 10 percent of the principal and interest of the bond would satisfy this second test. Thus, it is conceivable that the tax-exempt status of bonds issued for stem cell research could be jeopardized if the sate contemplates or receives royalties or licensing fees pursuant to intellectual property agreements associated with the grants that total more than 10 percent of the bond costs.

The Legislative Counsel opinion indicates that research projects containing intellectual property agreements that call for the state to receive direct royalty payments are more likely to require use of taxable bonds, if the above thresholds are met, than those containing agreements requiring that clinical treatments, products, and services resulting from the research be made available at reduced cost to state health care programs.

However, even assuming the private activity tests are met, there may be ways to structure intellectual property agreements and bond sales to avoid having to use taxable bonds. For example, bonds for stem cell research may be packaged with bonds for other public purposes and have relatively short maturity dates that allow basic research to be funded and paid off before any intellectual property is developed. Alternatively, intellectual property agreements may be structured in a way that requires any revenue generated to be paid not to the state, but to a nonprofit entity. It is likely that further guidance will be sought by the Treasurer’s Office and CIRM from the Internal Revenue Service on permissible options for structuring grants and intellectual property provisions that permit use of tax-exempt status of bonds for Proposition 71 grants to the greatest extent.

According to informal estimates from the LAO, if the state were required to use taxable bonds in lieu of tax-exempt bonds for funding stem cell research, it could raise the debt servicing costs to the state by $700 million or more over the life of the program.

The Bayh-Dole Act

Historically, the federal government maintained ownership rights for inventions developed with public funds, including research grants to universities. The government usually allowed its inventions to be used freely. During the 1970s, however, many believed that the United States was losing its competitive edge to Germany and Japan, in part due to lack of commercially viably innovation, which, it was argued, was due to ineffective transfer of research from universities to the private sector. Though many federal agencies had long contracted with universities and private businesses to conduct research and development, patent policies were inconsistent and considered ineffective for businesses. As result, it was argued, substantial innovation never made it out of university laboratories to the marketplace. The Bayh-Dole Act, along with the development of the biotechnology industry itself, changed that.

In 1980, the Bayh-Dole Act (BDA)[6] created a uniform patent policy for federally funded research. The promulgation of this law expanded the government’s role in promoting technological innovation by providing inventors with a monetary incentive to move their ideas from the laboratories into the stream of commerce. The BDA generally allows non-profit organizations, including universities, and small businesses, to acquire ownership of inventions they develop under federally funded research, except in exceptional circumstances. In return, these institutions are expected to file for patent protection and to ensure commercialization upon licensing. Under BDA, all inventions conceived or first reduced to practice in the performance of a federally funded project, whether funded in full or in part by federal funds, must adhere to the following requirements:

Each new invention must be disclosed to the federal funding agency within two months of disclosure to the grantee's patent personnel;
The federal grantee must elect to retain title in writing within two years or less, as specified;
The grantee must file a patent application within one year of title election or less, as specified;
The grantee must grant the federal government a non-exclusive, irrevocable, paid-up license to practice the invention throughout the world;
If the grantee elects to exclusively license to a company for sales in the United States, the company must have substantial manufacturing capabilities to produce in the United States, except as specified;
In awarding licenses, the grantee must give preference to small businesses that have the resources and capability for bringing the invention to practical application;
The grantee must share with the inventor any income collected on the invention and use any additional income, after expenses, to support further scientific research or education;
The grantee can be required to periodically report on utilization of the invention by the grantee and its licensees;
The federal government retains the right to vest title to the invention to the contracting federal agency or to grant a license to a third party, called the “march-in” rights.

The “march-in” rights retained by the government allow the funding federal agency to vest title to an invention in itself or to grant a license to a third party, whether exclusively or nonexclusively, under several circumstances. These circumstances include if the invention is not brought to practical use within a reasonable time, if intervention is necessary to alleviate health or safety needs, or if public use of the invention is jeopardized.

Since the inception of the BDA, only a handful of petitions have been filed asking the federal government to exercise its march-in rights, and all have been denied. These include two 2004 petitions filed by a consumer advocacy organization asking the federal government to compel reasonable drug prices for two drugs developed with federal funding.[7] The first petition involved the HIV drug Norvir, whose price, petitioners alleged, was increased by its developer Abbott Laboratories to 400 percent more than its original price in order to maintain profits when medical advances reduced the drug's required dosage. The petition sought a compulsory licensing to a third party in order to make the drug more affordable and, within the provisions of BDA, to make the drug “available to the public under reasonable terms.” The second petition involved glaucoma drug Xalatan, which was developed by Pfizer based on federally funded research done at Columbia University. Petitioners alleged that Xalatan was sold at two to five times more in the United States than in other markets, in violation of the spirit of the Bayh-Dole “reasonable terms” provision, the petition claimed.[8] These petitions were both denied by the National Institute of Health.

In addition to its march-in rights, the federal government may retain title to a federally funded invention if the awarding agency determines that to do so would better promote the policy and objectives of the BDA.[9] This provision, known as the “exceptional circumstances” provision because it may only be used in those instances, allows a grantee to challenge the determination of exceptional circumstances and also requires a series of procedural steps that, according to commentators, have lead to its extremely rare invoking.[10]

In 1989 in response to rising drug prices, the National Institute of Health instituted a policy to require a reasonable relationship between (1) the pricing of licensed inventions developed with National Institute of Health funding, (2) the public investment in the invention, and (3) the public's health and safety needs. This policy, known as the “reasonable pricing clause,” was required in exclusive licensing agreements and Collaborative Research and Development Agreements. The reasonable pricing policy was revoked in 1995 as the result of intense opposition from industry.

It is important to note that the BDA does not apply to Proposition 71 grantees unless their inventions are also funded in part by federal grants. Legal analysis has not been completed to determine to what extent the state is bound to adhere to the BDA or is preempted by the BDA in the application of intellectual property policy to jointly funded projects. In addition, given that Proposition 71 funds are expected to be used for research that does not qualify for federal funding or that utilizes federally approved stem cell lines, the issue of how the BDA applies to Proposition 71 may not apply in many cases.

Impact of the Bayh-Dole Act

The Bayh-Dole Act (BDA) has resulted in significant changes in patenting and the commercialization process of federally funded research. Proponents of the BDA argue that it has been responsible for significant increases in patenting, commercialization of research tools into market products and income for universities. The Association of University Technology Managers reports that, in 2003, 3,933 U.S. patents were issued and 472 new commercial products were introduced to the marketplace under license agreements with commercial partners, a huge increase over pre-BDA statistics. For that same year, universities reported license income of $1.3 billion and royalties on product sales of $1.1 billion.[11] In addition to the explosive growth of patents, proponents of the BDA argue that it has created a consistent set of rules familiar to the public-private partners that have dramatically improved university-private industry relationships.

However, critics have reported significant unintended consequences of the BDA. A key concern among critics is that the BDA has hindered dissemination of and access to basic research findings. They argue that the BDA has made research more difficult and more costly by keeping basic research out of the public domain.[12] Upstream patenting can limit downstream innovation through, among other things, “patent thickets.” Patent thickets can arise when too many owners hold intellectual property rights in previous discoveries that constitute obstacles to future research and downstream inventions.[13]

Another concern is that the focus of research in United States universities has shifted away from fundamental research in order to focus on research targeted to commercial applications. The BDA, critics argue, may have created incentives that undermine the representation of the public interest in the calculus of determining which technologies should be patented and how they should be licensed.[14] They contend that as a result, investment in health-related research and development gravitates toward illness or symptoms that offer the greatest potential returns on investment, regardless of actual needs. Others argue that the commingling of the academic and commercial sectors in part facilitated by the BDA has created a bias in scientific findings and undermined public trust in medical research. BDA “has resulted in egregious conflicts of interest, especially in the biomedical sciences, and has contributed to the near-extinction of the norm of disinterestedness.”[15]

Finally, critics of the BDA have questioned the wisdom of having United States taxpayers pay for products twice, first through federally funded grants to their inventors and then for the products themselves, particularly when they argue that the BDA has had no impact on affordability or accessibility of inventions paid for by taxpayer's dollars.[16]

Legislation Related to Proposition 71 Intellectual Property Policy

In response to concerns that the intellectual property provisions of Proposition 71 do not go far enough to ensure that the state gets a return on its investment in stem cell research and that the provisions may also conflict with the goal of using tax-exempt bonds to finance the research, Senators Ortiz and Runner included language in SCA 13 in the current session requiring the ICOC to seek to ensure through its intellectual property agreements that treatments, therapies, and services resulting from the research are accessible and affordable to low-income residents, including those eligible for state and county-funded programs. The bill is currently on the Senate floor.
In order to provide guidance to the Legislature and to the ICOC in developing intellectual property policies that appropriately balance the return to the state with the need to develop and transfer technology to the market place as expeditiously as possible, the Legislature passed ACR24 (Mullin, Resolution Chapter 111 of 2005) directing the California Council on Science and Technology (CCST) to develop criteria to “determine how the state can achieve maximum public benefit under Proposition 71.”[17] The resolution specifically directed the CCST to study how the commercialization of technology developed with the investment of taxpayer dollars in the form of contracts, grants, and agreements could generate some public benefit, including, but not limited to, state revenues, favorable pricing, revenue sharing, and reinvestment into research.

As amended August 16 in the Senate Health Committee, the resolution requests that the options and recommendations identified by the study for Proposition 71-funded research reflect the constraints posed by the use of tax-exempt bonds for research and represent options and recommendations that are consistent with the goal and intent of using tax-exempt bonds to fund the research, including options and recommendations for achieving accessibility and affordability of treatments, products, and therapies resulting from Proposition 71-funded research.The amendments further request that the CCST establish a review group to include representatives of bond counsel firms, the Legislative Analyst, the Treasurer, consumer and public interest groups, and foundations engaged in funding biomedical research, to review and comment on the study and options and recommendations for generating public benefit from commercialization of technology developed with Proposition 71 funds prior to their release.

CCST Report

In August, 2005, the CCST released a set of “interim” recommendations that the state adopt policies that are consistent with the BDA. The report authors' argue that this is desirable to avoid confusion and potential conflict, and to leverage federal funds to the extent they may be available. The report also recommends that research results should be timely and widely published and that California Institute for Regenerative Medicine (CIRM) provide guidance on when data should be placed in the public domain or made available for use through open source or other broad licensing arrangements. The report suggests, among other things, the following principles for CIRM to consider when developing its intellectual property policy:

Permitting grantees to own intellectual property rights, similar to the BDA;
Granting research funds without committing a revenue stream to the state;
Generally, making research tools developed under Proposition 71 grants available to other researchers;
Retaining march-in rights, similar to the BDA;
Leaving license particulars to grantees who are in the best position to judge how best to ensure that discoveries are made widely available through commercialization or otherwise;
Reserving a non-exclusive, royalty-free license for CIRM, including the right for other CIRM grantees to use the inventions in their Proposition 71-funded research; and
Establishing a CIRM database to track all intellectual property generated through Proposition 71 funding.

In developing these recommendations, the CCST does not appear to have given significant consideration to any of the unintended consequences of the BDA discussed in the previous section.

With respect to the August 16 amendments, the report contains an addendum in which the CCST concludes that several organizations are pursuing innovative strategies to address issues of accessibility and affordability of therapies, but that it is too early to evaluate their success.

Policy Options Facing the State

In reviewing the language of Proposition 71, literature on the experience with the implementation of the Bayh-Dole Act (BDA), and recent trends in fields of technology transfer and intellectual property policy, it is clear that several major policy challenges will confront the state as it considers how to implement the intellectual property provisions of Proposition 71. The first is determining how to structure an intellectual property policy that ensures rapid and broad dissemination of basic research findings and tools. As many have noted, the ultimate development of therapies based on stem cell research is likely to require incremental improvements and discoveries in basic stem cell science, in addition to a need for close collaboration and sharing of information between researchers. A policy that favors open dissemination of basic research findings is likely to produce clinical applications the most quickly and efficiently.

A second key issue is how and in what form the state should seek to benefit from the patents and licenses associated with inventions developed with state funds. A reasonable reading of Proposition 71’s intellectual property provisions would indicate that the state is required under the proposition to seek an economic return associated with the grants it makes, where it is feasible to do so without impeding dissemination of research findings or violating the balancing test outlined in the initiative. Related issues are whether the state has an opportunity through its policy to address issues involving the accessibility and affordability of therapies that are developed with the assistance of state funds.

A final issue is how to seek an economic return in a manner that maximizes, to the extent possible, the state’s ability to use tax-exempt bonds to fund the research.

The remainder of this section discusses options for ensuring dissemination of basic research findings and options for obtaining direct economic returns to the state from the research.

Options for Ensuring Dissemination of Basic Research Findings

. The state could require grantees to make basic research findings and tools that they develop openly available to other researchers via simple material transfer agreements (MTAs), while still allowing grantees to patent and license the inventions they develop. The CCST report appears to favor this approach by recommending that applicants be required to provide a plan describing how they will manage intellectual property to ensure that research tools will be made broadly available for further advancement of science.

As some experts have noted, however, even though they are simple 1 to 2 page documents, MTAs can impose impediments to dissemination of research findings if they are not developed and applied consistently from institution to institution, and through the imposition of “reach through” provisions by the provider of the MTA. The latter provisions seek to give the owner of the invention an ownership interest in any new inventions developed by the recipient, require royalty payments to the provider of the MTA, or give the provider joint or exclusive rights to any new intellectual property developed by the recipient. This option also entails costs to owners of intellectual property to protect their interests if a transferee subsequently seeks to license or use the invention for commercial purposes.

. The state could require grantees to license any inventions they develop to any interested party (open source licensing) or at least preclude them from entering into exclusive licensing arrangements in which one party obtains an exclusive license to use the technology (nonexclusive licensing). The advantage of these approaches is that they would ensure greater dissemination of research findings; the disadvantage of both is that there may be situations in which an exclusive license is needed to give a commercial entity the incentive to develop a product or therapy using the invention.

Alternatively, and similar to the recommendations some experts have made for the BDA, the state could allow grantees to enter into exclusive licensing arrangements at their discretion, but retain the authority to declare certain areas of research off-limits for exclusive licensing if CIRM judges that scientific advancement would be better served by maintaining open access to the research findings and tools. The impetus for this suggestion are the findings of a number of researchers that the presumption in the BDA that grantees must seek to patent inventions except in “exceptional circumstances” has led to too much patenting and exclusive licensing of basic research findings, and that the procedural requirements on federal agencies for invoking the “special circumstances” provisions are too burdensome.

Nonexclusive licensing or open source licensing would also entail costs of enforcing licensing terms to ensure that licensees do not license or commercialize the underlying inventions.

Adopt viable march-in provisions. Similar to the language of the BDA, the state could retain the right to step in or require a grantee to grant a license to a responsible applicant on reasonable terms if effective steps are not being taken to achieve practical application of a CIRM-funded invention (referred to as “march – in” rights). CIRM could also retain a non-exclusive, royalty-free license to all CIRM-funded inventions, including the right to allow other CIRM grantees to use such inventions in their CIRM-funded research. These were recommended by the CCST report.

However, a number of experts have questioned the viability of the march-in authority under the BDA. As noted above, the BDA currently requires exercise of march-in rights by sponsoring agencies to be held in abeyance pending exhaustion of all court appeals by the grantee, which many experts believe hinders the exercise of the authority and also hampers the government’s ability to ensure that practical application of inventions is achieved within a reasonable time and to meet health and safety needs. These experts have advocated streamlining the process for invoking march-in provisions, a policy which the state could emulate if it decided to adopt this option for ensuring dissemination of research findings.

Patent pooling. Several patenting and licensing experts have recommended patent pools as a mechanism for more effectively managing intellectual property for areas of research such as biomedical research, in which incremental improvements and collaboration between research institutions is needed to advance the technology. Under this approach, the state would require its grant recipients to agree to donate or share the rights to any inventions or research tools with a patent pool which would be administered by the state or a nonprofit organization. Any researcher could use the inventions or tools in the pool for further research; as a condition of doing so, they would have to agree to contribute the rights to any inventions or improvements that they develop back to the pool. The pool would collectively negotiate licensing arrangements with commercial entities on behalf of the participants in the pool.

A number of such pools currently operate in other fields of scientific research, including the Center for Application of Molecular Biology to International Agriculture (CAMBIA).

Advocates of patent pools point out that pooling would have a number of advantages over patenting and licensing of inventions by individual research institutions, including that it would allow researchers’ easier access to patented ideas and technologies and lower transaction costs associated with accessing them. In addition, the pool would have greater leverage in negotiating licenses with commercial entities than individual pool participants would have on their own. Theoretically, this could enable the state, as a participant in the pool, to obtain greater economic benefits in return for its contributions, which could take the form of greater royalties, pricing concessions for targeted programs and populations, and more favorable limits on the duration of exclusive licenses to use technology owned by the pool. Some advocates have further recommended that patent pools have the ability to auction off the rights to their inventions as a means of promoting competition between biotechnology companies and of generating greater economic returns to pool participants. Some have also suggested that the state could perhaps use the leverage of such a pool to negotiate more favorable terms for access to critical technologies and tools owned by other entities, such as Geron and the Wisconsin Alumni Research Fund (WARF).

A key difficulty associated with administration of patent pools is the difficulty of determining how to apportion economic benefits derived from technology or inventions owned by the pool among its participants.

The CCST did not make findings or recommendations on this option, but instead recommended that CIRM maintain a database to track all intellectual property generated through CIRM funding as a means of facilitating researchers’ access to intellectual property relevant to their research.

Options for Achieving Economic Benefits from the State’s Investment in Research

Assuming Proposition 71 requires or intends for the state to obtain direct economic benefits from the research where it is feasible to do so without impeding dissemination of research, the state has a number of options for doing so.

Direct a share of royalties to the state. The state could require, as a condition of its grants, that a share of the net royalties resulting from commercialization of any findings or inventions developed with grant funds be given to the state. A major drawback of this approach is that it could likely require greater use of taxable bonds for financing the research. As the CCST report notes, the additional costs to the state of using taxable bonds may outweigh the value of economic benefits the state is able to negotiate from its funded research. In part because of this, the CCST report rejects this approach in favor of the Bayh-Dole Act (BDA) model, in which grant recipients are allowed to keep royalties and licensing fees on inventions they develop as long as they use those revenues to fund their education and research programs. However, it is not clear that the CCST’s recommended approach complies with the language and intent of Proposition 71.

Reasonable pricing requirement. The state could adopt a policy similar to that adopted by the National Institutes of Health (NIH) in 1989 requiring that there be a reasonable relationship between the pricing of a licensed product, the public investment in that product, and the health and safety needs of the public. As mentioned above, NIH applied this policy to licenses to inventions developed under its Cooperative Research and Development Agreement (CRADA) program but discarded it in 1995 on the grounds that it was impeding commercialization of research findings.

The CCST report also rejected adoption of a reasonable pricing policy and instead recommended that a more detailed examination begin of the range of technical expertise required to identify and deliberate over the issues involved in reasonable pricing or favorable pricing of treatments and therapies that emerge from CIRM-funded research.

Socially responsible licensing. The state could require its grantees to require any entities to which they license any Proposition 71-funded inventions to demonstrate how their use of the technology will benefit underserved populations or regions of the state. A number of university-based technology transfer managers throughout the U.S. have been advocating that universities and other research funding entities look for ways to direct the benefits of their inventions and technologies to underserved countries and populations, for example by foregoing royalties on sales of products and treatments to underserved populations and seeking commitments from licenses to produce products and treatments or otherwise make investments in underserved communities.

Tiered pricing arrangements. The state could attach conditions to its grants requiring that any entity that acquires the rights to any inventions or tools developed with the grant funds must agree to make any resulting therapies or treatments accessible and affordable to low-income populations or programs that serve them. This approach is used by a number of grant making organizations, including the Gates Foundation, the International AIDS Vaccine Initiative (IAVI), and the Foundation for the National Institutes of Health.

In 2003, the Gates Foundation established a Grand Challenges in Global Health initiative, designed to foster breakthroughs against diseases that plague residents of the world’s poorest countries. The $450 million in funding for the initiative includes $200 million which is managed by the Foundation for the National Institutes for Health. A package of 43 initial grants totaling $437 million was announced in June, 2005. Under the initiative, Gates requires its grantees to outline a global access strategy indicating how they will use any inventions they develop with the funding to facilitate the availability and affordability of therapies to people in the developing world.

IAVI generally retains the rights to inventions developed with its funding and collaborates with commercial partners for development of vaccines and treatments using the inventions. In its partnerships, IAVI seeks commitments that resulting vaccines and treatments will be made available in developing countries at reasonable prices and in sufficient quantities, and has successfully negotiated a number of agreements containing those conditions. In effect, the commercial entity agrees to discount the price of the product in certain markets while retaining the right to price it freely in others.

A number of biomedical patenting and licensing experts maintain that tiered pricing arrangements are feasible and acceptable to biotechnology and pharmaceutical companies if the scope of pricing concession is well-defined. An example might be an agreement on the part of a biotechnology or pharmaceutical company to sell any resulting products or treatments to public health care programs at the best price they sell it to any purchaser.

The CCST report notes that IAVI and the Grand Challenges program have pushed researchers, business managers, and intellectual property professionals to think in new ways about how to manage intellectual property on biomedical inventions in ways that benefit underserved populations, but concludes that both efforts are too new to provide reliable models for Proposition 71.

[1] Proposition 71, California Stem Cell Research and Cures Initiative, Sec. 3.
[2] Proposition 71 Analysis by the Legislative Analyst.
[3] Analysis Group, “Economic Impact Analysis: Proposition 71, California Stem Cell Research and Cures Initiative”, September 13, 2004.
[4] Internal Revenue Code Sec. 141(b)(1)
[5] Internal Revenue Code Sec. 141(b)(2)
[6] P.L. 96-517, Patent and Trademark Act Amendments of 1980 as amended by P.L. 98-620 (1984), codified in 35 U.S.C. Sec 200 et seq.
[7] Chemical and Engineering News, Vol. 82, No. 38, pp. 34-35 (Sept. 2004). Available at http://pubs.acs.org/isubscribe/journals/cen/82/i38/html/8238gov1.html.
[8] Id.
[9] 35 U.S.C. Sec 202(a); 37 CFR 401.3, 401.4.
[10] Rai, Arti, and Rebecca Eisenberg, Bayh-Dole Reform and the Progress of Biomedicine, American Scientist, Vol. 91, p. 54 (Jan.-Feb. 2003).
[11] AUTM, Licensing Survey: FY 2003. Available at http://www.autm.net/surveys/dsp.surveyDetail.cfm?pid=16.
[12] Heller, Michael and Rebecca Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, Science Vol. 280, Issue 5364, pp. 698-701 (May 1998); Kesselheim, Aaron and Jerry Avorn, University-Based Science and Biotechnology Products: Defining the Boundaries of Intellectual Property, Journal of the American Medical Association, Vol. 293, No. 7, pp. 850-54 (Feb. 2005).
[13] Heller and Eisenberg (1998).
[14] Rai and Eisenberg (2003).
[15] Tansey, Bernadette, The building of biotech 25 years later, 1980 Bayh-Dole act honored as foundation of an industry, San Francisco Chronicle (June 21, 2005) (quoting Tufts University Professor Sheldon Krimsky).
[16] Arno, Peter and Michael Davis, Why Don't We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed upon Patents Deriving in Whole or in Part from Federally Funded Research, Tulane Law Review, Vol. 75, pp. 631-93 (2001).
[17] ACR 24 (Mullin), Resolution Chapter 111, 2005. Sphere: Related Content

Coming Up

Laer today we will look at the background paper being presented to legislators at Monday's hearing into IP and stem cell research. The paper says, among other things, that the IP options include open source or nonexclusive licensing and sharing of basic research findings and tools. Sphere: Related Content

Thursday, October 27, 2005

Stem Cell IP Slated for More Critical Look

California's newspaper editors were less than enthralled about a hearing this week into how the state is going to reap the benefits of its $6 billion investment in stem cell research.

If the usual Web searches are to be believed, no state newspaper – or any others, for that matter – dipped into Tuesday's hearing by the stem cell agency on the intellectual property that might result from its grants. Not one story has appeared.

However, we may see some IP stories in the future, perhaps as early as next Tuesday, the day following the hearing by Sen. Deborah Ortiz on the same subject. That hearing will be in San Francisco. It is a good bet that the Chronicle will cover it, given that stem cells are pretty much a home town story for the newspaper.

Ortiz' line-up for the session also offers more novelty. CIRM's agenda for its hearing appeared to be pretty much the same stuff, a presentation involving August's report from the California Council on Science and Technology. Plus she has a vehicle – SCA13 -- for implementing new IP requirements concerning the stem cell agency.

According to a draft of the agenda, one of the witnesses scheduled to appear is Jennifer Washburn, author of "University Inc.," who is likely to take a skeptical view of the existing IP world involving university research and private collaboration.

For example, she said in an interview with UTWatch (University of Texas group), "Putting so much emphasis on patenting and licensing, as the Bayh-Dole Act did, may actually be detrimental because universities may be imposing proprietary restrictions on research that would be more broadly used if it was transferred through the public domain."

She also wrote the following in American Prospect:

"Universities’ loyalties are now so conflicted that schools are increasingly willing to cave in to narrow commercial demands rather than defend their own professors’ academic freedom or the public interest. When researchers at the University of Utah discovered an important human gene responsible for hereditary breast cancer, for example, they didn’t make it freely available to other scientists, even though we -- the U.S. taxpayers -- paid $4.6 million to finance the research. The university raced to patent it, then granted the monopoly rights to Myriad Genetics Inc., a startup company founded by a University of Utah professor, which proceeded to hoard the gene and prevent other academic scientists from using it.

"Professors, too, are increasingly driven by the bottom line. More and more, they not only accept industry grants to support their research but also hold stock in or have other financial ties to the companies funding them. Many experts fear this skewing of professors’ research toward short-term commercial goals will impede long-term scientific and technological innovation. Financial entanglements between researchers and corporations have grown so common that the Securities and Exchange Commission has investigated numerous academic researchers suspected of engaging in insider trading."

Scheduled to represent CIRM is Ed Penhoet, vice chairman of the agency and co-founder of Chiron, the folks who are bringing us the flu vaccine this fall. A former academician at UC Berkeley, he knows whereof he speaks on IP issues.
Also slated to testify is Labeeb Abboud, general counsel for the International AIDS Vaccine Initiative, which Ortiz has cited as possibly something to emulate with stem cell research.

For more on stem cell IP issues, see "Soothing Anxieties," and "Higher Risk." See the item below for a copy of the draft agenda for Ortiz' hearing Sphere: Related Content

Agenda for IP Hearing Monday

Here is the text of the draft agenda for next Monday's legislative hearing into intellectual property and the California stem cell agency.

Joint Informational Hearing

Senate Health Committee
Senate Subcommittee on Stem Cell Research Oversight
Assembly Health Committee
Assembly Judiciary Committee

Chairs:
Senator Deborah Ortiz
Assemblymembers Wilma Chan and Dave Jones

“Implementation of Proposition 71:
Options for Handling Intellectual Property Associated
with Stem Cell Research Grants”


Draft Agenda

I. Opening Remarks (9:30 – 9:45)
· Senator Deborah Ortiz, Chair, Senate Health Committee and the Subcommittee on Stem Cell Research Oversight
· Assemblymember Wilma Chan, Chair, Assembly Health Committee
· Assemblymember Dave Jones, Chair, Assembly Judiciary Committee
· Other members present

II. Purpose and Intent of Proposition 71 Intellectual Property Provisions (9:45 – 10:00)
· Dan Carson, Legislative Analyst Office
· Francisco Martin, Legislative Counsel (available for questions)

III. Constraints on IP Options From Use of Tax-Exempt Bonds (10:00 – 10:25)
· Juan Fernandez, Treasurer’s Office
· Bill Heir, Legislative Counsel
· Perry Israel, Orrick, Herrington, and Sutcliffe

IV. CCST Report and Status of ICOC policy (10:25 – 11:00)
· James Pooley, Partner, Milbank, Tweed, Hadley & McCloy LLP
· Ed Penhoet, Vice Chairman, Independent Citizen’s Oversight Committee

V. The Bayh Dole Act as a Model for Intellectual Property Policy forProposition 71 (11:00 – 11:55)
· Rebecca Eisenberg, Professor, University of Michigan Law School
· Alan Bennett, Associate Vice Chancellor, University of California - Davis
· Merrill Goozner, Center for Science in the Public Interest
· Jennifer Washburn, Fellow, New America Foundation and author

VI. Alternative Models for Developing IP Policy (11:55 – 12:25)
· Labeeb Abboud, General Counsel, International AIDS Vaccine Initiative
· Carol Mimura, Acting Assistant Vice Chancellor, UC – Berkeley

VII. Stakeholder Perspectives (12:25 – 12:50)
· Jesse Reynolds, Center for Genetics and Society
· David Gollaher, President and CEO, California Healthcare Institute
· Jean Ross, California Budget Project

VIII. Public Testimony (12:50 – 1:20)

IX. Closing Remarks (1:20 – 1:30) Sphere: Related Content

Judge Nixes Stem Cell Lawsuit

One of the lawsuits against the California stem cell agency has been dismissed, but the major battle still remains scheduled for Nov. 17 in Hayward.

Reporter Laura Mecoy of The Sacramento Bee wrote: "A federal judge in Los Angeles dismissed a lawsuit Monday that threatened to cause more problems for the state's troubled stem cell research program, but the lawsuit could be revived in another court, according to the state attorney general's office."

"The lawsuit dismissed on Monday challenged the destruction of human embryos for stem cell research and sought to have embryos declared persons with constitutional rights," Mecoy said.

The hearing on the 17th involves constitutional objections by several conservative groups to the existence of the stem cell agency. Sphere: Related Content

Tuesday, October 25, 2005

Chronicle: Klein Failed to Disclose Royalty Problem with Prop. 71

Stem cell chairman Robert Klein knew before last fall's electoral approval of Prop. 71 that the promised stem cell royalty sharing with the state was under a federal cloud, but he did not disclose the fact publicly, the San Francisco Chronicle reported Tuesday.

Reporter Bernadette Tansey wrote the story that said California "might actually be forbidden from sharing royalties by federal tax laws -- that is, if California chooses to finance the program by the cheapest possible route: tax-exempt bonds."

The problem with the tax laws has been floating around for at least several months. What is new in Tansey's thorough-going piece is that Klein was aware of the issue before voters approved creation of the stem cell agency. Passage of Prop. 71 came in the wake of a campaign-financed study that predicted the state could receive one billion dollars or more in royalties.

The Chronicle reported that neither Klein or CIRM would comment on the question of when he knew about the royalty sharing problem.

Tansey quoted Robert Feyer, an attorney with Orrick, Herrington & Sutcliffe, as the source for Klein's prior knowledge. Orrick helped draft the initiative and also serves as bond counsel to the state of California.

"'It starts to have the look of a bait and switch," said Jesse Reynolds, a spokesman for the Center for Genetics and Society," according to Tansey.

She reported, "The potential problems have to do with a complex and unsettled question: how federal tax law will apply to a novel state research venture, supported by tax-exempt bonds, that involves a state split of private profits.

"But IRS rules largely forbid the states to use tax-exempt bonds to benefit specific private enterprises rather than serving a general public good -- and to share revenue from an enterprise to the extent that the state becomes like a business partner."

How the question will shake out is very much up in the air.

"Whether Klein should have told voters (about the issue) depends on how you look at it, said Robert Stern of the Center for Governmental Studies in Los Angeles, a nonprofit institute focused on government reform," the Chronicle reported.

"'A legal obligation? No,' Stern said. 'A moral obligation? Sure." Sphere: Related Content

Chronicle Primer on Stem Royalty Issue

Reporter Bernadette Tansey of the San Francisco Chronicle produced a primer on the royalty tax law issue affecting the California stem cell agency. Here are a few excerpts.

"A state would be barred from using tax-exempt bonds to build a sewage treatment system tailored to the needs of a manufacturing plant in an area where few other ratepayers need such service.

"To guard against such selective private boons, the IRS looks not only at who is benefiting from the bond money but also at who is repaying the state bond debt. If private business involvement is too high on both counts, the IRS withholds tax-exempt bond status.

"The question is whether these rules could raise any barriers for the stem cell institute, whose grants can be sought by private biomedical firms as well as private research institutions and state-funded universities. The grants to businesses might not pose a problem by themselves, unless the state also repays the bonds with a significant level of revenue coming back from the businesses." Sphere: Related Content

Proposal for a California Stem Cell Venture Fund

How does the Golden State of California get a return on its $6 billion investment in stem cell research? Certainly the question of the month. Two separate hearings involving the issue, including one session today in Sacramento, are scheduled for the final six days of October.

Now comes a suggestion that the state create a venture fund with a single investor (the state) so that all the proceeds from stem cell investments flow back to the state.

"It seems a lot simpler than some of the other proposals put forth," says David J. Pyrce, who operates Bear Creek Advisors, a California life science consulting firm.

Pyrce made his suggestion in an email to the California Stem Cell Report. He pointed to Maryland which has a venture capital fund that has invested $24 million since 1994 and generated $48 million.

Here is how Pyrce thinks the California Stem Cell Venture Fund might operate:

"1. The State of California creates a for-profit investment fund, with a commitment of $3 billion.
"2. This fund makes investments in stem cell based research efforts.
"3. In exchange for that investment, the fund establishes an ownership position in that research.
"4. This is commonly done in academia. When a pharmaceutical company invests in research efforts of an academic, it is called
sponsored-research.
"5. From that point forward, the fund will own a percentage of any products resulting from that funded research.
"6. The administrative process of this investment vehicle is also quite simple, typically run with an organization of less than 10
people."

Such a proposal may well require changes in the law that created the California stem cell agency. But a vehicle for those changes, SCA13, is before the California State Senate, should this concept attract interest. Sphere: Related Content

Monday, October 24, 2005

"Big-headed?" -- Stem Cell Perspective from South Korea

Last week, South Korea announced plans for a Stem Cell Hub that would have operations in California. Here is a comment from Digital Chosun, a Korean news outlet on the Web.

"It is a precious accomplishment for our country's bioengineering brains, who immersed themselves in research and sacrificed their private lives to the extent of being sometimes portrayed as an army.

"We are one step ahead: there is no need to get big-headed. For cell cloning technology to be used in clinical treatment, we need the technology to grow stem cells into particular organ tissues, and there we lag behind the U.S. and Britain. The California state government, spurred by the Hwang team's success in cloning somatic cells, is pouring W3 trillion (US$3 billion) over 10 years into bioengineering. Britain, where bioengineering started much earlier, is also a strong contender. " Sphere: Related Content

"The Right to Be Cured, Quickly"

Reporter Ralph Brave of The Sacramento News and Review examined the performance of the California stem cell agency recently. His piece was heavy on science and short on firm conclusions about whether the agency was fulfilling the promise of the campaign.

Here are a couple of excerpts:

"The tension between the hope for cures embodied in California’s big stem-cell adventure and the scientific challenges in meeting those hopes is almost palpable at every stem-cell meeting and conference. The lectures from most scientists almost always include a proviso that stem-cell therapies or cures are a decade or more away. But there is clearly pressure building to find stem-cell cures rapidly, and there’s at least one proposal to move toward the first human clinical trials next year."

"No matter one’s view on the issues involved, this has to stand as some of the most unusual language in any constitution anywhere in the world: a constitutional right to a particular line of scientific research, directly tied to a prospect for cures that are to come 'as speedily as possible.' In a way, it’s an expression of the ultimate California dream: the right to be cured, quickly." Sphere: Related Content

Sunday, October 23, 2005

Will California Produce Biology's Holy Grail?

Some of California's top business leaders are going to get a fast sell on the future of stem cell research next Monday, assuming that the three men and one woman selected to make the presentation follow the program.

The event is the 2005 State of the State Conference sponsored by the Milken Institute, which says that 20 percent of the attendees have been chairmen, president or CEOs of their companies. Fifty percent hold the title of CO, chairman, president, vice president, CIO, partner or director.

The event includes a one-hour panel on "Stem Cell Innovation: The Next Frontier Economy?" The program notes for the session say:

"It is hoped that this holy grail of modern biology will yield not only treatments and cures for things like spinal cord injuries, Parkinson’s and Alzheimer’s, but maintain California’s global leadership in technology – one of its key economic drivers. Several states are following California’s lead, but the U.K., South Korea, Singapore and other countries have been providing a research-rich environment. Among the issues this panel will tackle: Where are we in terms of research capacity relative to other countries? How far away are we from developing therapeutic products? What are realistic expectations for commercial success? Will this translate into high-quality jobs? How will the state receive a return on its investment? "

Charged with exploring the topic are Robert Klein, chairman of CIRM;Peter Mountford, CEO, Stem Cell Sciences Ltd.; Thomas Okarma, president and CEO, Geron Corp., and Susan Hackwood, executive director, California Council on Science and Technology; professor, electrical engineering, University of California, Riverside.

Registration for the Los Angeles event is $495. For more information, see here. Sphere: Related Content

California Stem Cell Calendar

(This calendar appears late Sunday or each Monday on the California Stem Cell Report. If you would like an event placed on the calendar, please send it to djensen@californiastemcellreport.com.)

October

No meeting of the CIRM Oversight Committee is scheduled for October.

Oct. 24

10 a.m. - 6 p.m. -- CIRM Scientific and Medical Accountability Standards Working Group, Luxe Hotel Sunset Blvd., 11461 Sunset Blvd., Sunset Ballroom, Los Angeles, discussion of regulations, "ESCRO" membership, banking requirements and compensation.

Oct. 25

2 p.m. - 6 p.m. -- CIRM Intellectual Property Task Force, Sacramento Convention Center, Room 103, 1400 J St., Sacramento, consideration of the IP report prepared by the California Council on Science and Technology. For more on this, see "Report Negative," "Report Released," "Who Benefits."

Oct. 28

9 a.m. -12 noon (estimated) – CIRM Facilities Working Group, Grand Hyatt at Union Square, Ballroom East, 345 Stockton St., San Francisco, consideration of bylaws, review procedures for facilities grants. See www.cirm.ca.gov for full agenda.

Oct. 31


9:30 a.m.-2 p.m. -- Informational hearing on IP issues and CIRM, State Senate and Assembly Health Committees, Hiram Johnson State Building, Milton Marks Conference Center Auditiorium 455 Golden Gate Ave., San Francisco. For more on this subject, see links in item above.
9:35 a.m.-10:35 a.m. -- "Stem Cell Innovation: The Next Frontier Economy," State of the State Conference, sponsored by the Milken Institute, Beverly Hilton Hotel, Los Angeles, registration $495, see full program here.

November

Nov. 2

8:30 a.m.-5:30 p.m. (estimated) – CIRM Oversight Committee meeting, Moscone Center South, Room 304, San Francisco, subjects include conflict of interest code, formation of strategic planning subcommittee, IP report, guidelines for embryonic stem cell research, training grants policy and criteria. See http://www.cirm.ca.gov/ for full agenda.

Nov. 17

8:30 a.m. -- Alameda Superior Court hearing on lawsuit against CIRM, Department 512, Hayward. For more on this see "Apricot City Showdown."

December

Dec. 6
Oversight Committee, City of Hope, Duarte. No agenda available. No teleconferencing available.

For a national and international calendar of scientific stem cell conferences, see this one prepared the International Society for Stem Cell Research.
Sphere: Related Content

Web Mystery

We have had a bit of mystery involving the Internet during the past several weeks. As a result, we have not had the best links to some documents posted by the California stem cell agency. For some unknown reason, we and others in the same geographic area here in Mexico have not been able to access the CIRM site or the California home page and the governor's home page. On the other hand, we have been able to access other California state agencies, such as the Department of Justice. An American information tech specialist, who researched the issue, tells us the problem lies somewhere in the Web as opposed to difficulties locally with our computers or ISP. We have queried the folks handling the California web pages, seeking their assistance as well as CIRM. The point being: Bear with us until the problem is resolved, and we can once again bring you timely and direct links to CIRM documents. Sphere: Related Content

Wednesday, October 19, 2005

California and the South Korean Stem Cell Network

The California stem cell agency says it is not going to participate at this point in South Korea's plans for a worldwide stem cell consortium. Nonetheless, the network expects to have facilities in San Francisco and ties with organizations in California.

Reporter Carl Hall of the San Francisco Chronicle reported the developments in a story today that said, "South Korea is moving to establish an international consortium to generate hundreds of stem cell lines from human embryos using controversial cloning technology, possibly the boldest foray yet in the sizzling new field known as regenerative medicine."

The network is being created by stem cell superstar Woo Suk Hwang and his colleagues. The Chronicle quoted Hwang as saying California would be the best place for its US facility because of its stem cell-friendly climate.

Hall wrote that Stanford and UC San Francisco were recruited "but so far have declined, citing reservations about the project's legal and bioethical framework."

"The biggest issues include figuring out how to protect the health of research participants, set out financing and intellectual property rules, and ensure that any stem cell treatments will be affordable," Hall said.

As for CIRM, Hall wrote, it "has opted against becoming a formal part of the network. The California program's chairman, Robert Klein, traveled to Seoul to appear today with Hwang and his colleagues, but a spokeswoman said Klein's appearance was intended mainly as an endorsement of 'the science the South Korean government has made such a priority,' rather than as an endorsement of the network itself.

"Zach Hall, president of the California institute, said it's unclear how successful the South Korean venture might be given all the uncertainties.

"Hwang has been 'quite open,' Hall said, 'and we're delighted with that and want to encourage that. But whether this world stem cell hub will be helpful remains to be seen. We don't know enough about it to have any sort of opinion on it ... and at this time we felt it was premature for us to affiliate with them in any formal way.'"

The Chronicle said that women in California are likely to be recruited to donate human eggs. Hall noted that the governor recently vetoed a measure (SB18) by Sen. Deborah Ortiz, D-Sacramento, to add additional protection for egg donors.

Pacific Fertility Center, a San Francisco infertility clinic, will work with the network to procure eggs, according to the Chronicle.

"One of the first research projects is expected to be financed by grants from a Santa Barbara patient-advocacy organization called the Children's Neurobiological Solutions Foundation, which promotes research on pediatric brain disease," Hall said.

"'Our foundation wants to be a founding partner of this world stem cell effort,'" said Shane Smith, Bay Area-based science director for the foundation." Sphere: Related Content

Soothing Anxieties in the Stem Cell Sector

The California stem cell agency has taken pretty much of a get-along, go-along position in its relationships with the stem cell industry and existing academic and research procedures.

That is not likely to change much as CIRM begins formally to establish the rules which will help determine who gets the potentially huge profits that could be generated from the $3 billion in research it intends to finance.

The business executives on the agency's board understand that the corporate world likes predictability. If a business is to undertake development of a stem cell therapy, it wants to eliminate as much risk as possible. Development of a product could cost hundreds of millions of dollars or more over years. Novel royalty or compensation arrangements introduce uncertainty into the possible return on investment. Uncertainly creates fear. Fear creates an unwillingness to even begin development of a new product.

CIRM plans to hold a hearing Monday in Sacramento on intellectual property issues. The focus will be on a report released earlier this year by the California Council on Science and Technology. Many on CIRM's Oversight Committee will find comfort in much of the council's work. For example, this advice on private investment:

"Encourage private investors to invest in further research and development of new technologies resulting from CIRM-funded research. Venture capital investment plays a critical role in the development of IP after initial research and before late-stage R&D which is more generally funded by private industry."

As it resists efforts to impose new IP rules, CIRM is also likely to cite the council's conclusion on share-the-wealth proposals:

"Royalty revenue sharing may have negative impacts on both non-profit and for-profit grantees. Revenue sharing imposed by CIRM on its non-profit grantees may act as a disincentive to invest the effort and cost necessary to secure patent protection, find an appropriate licensee, and ultimately transfer a promising technology to the commercial sector for the development of treatments and drugs that prove beneficial to the general public. In addition, for non-profit grantees, a royalty sharing requirement could, depending on how it is administered, prevent them from maximizing the impact of CIRM funding by using it to leverage federal funds, since federal funding rules require them to use net royalties for education and research purposes. Royalty revenue sharing imposed on for-profit grantees could discourage their participation in CIRM funding altogether."

Earlier this year, the CIRM staff analyzed a May version of SCA13. Many of the staff's critical remarks no longer apply because of changes made in the legislation. But some of its comments are likely to surface again in one form or another.

"Prop. 71 was carefully written with the involvement of three separate law firms and based upon case law research to avoid the constant litigation that would be likely should SCA 13 become law as written," the staff report said.

"The legal battles could paralyze the institute’s mission for years to come. While well-intentioned, these provisions could have a host of unfortunate and unintended consequences, including discouraging industry from involvement with the Institute.

"Private industry is a critical partner in developing scientific discoveries into safe and effective drugs and treatments that benefit the public. If an affordable drug-pricing requirement or a revenue sharing requirement were to discourage industry from participating in technology transfer, it would be to the detriment of the public health and well being."

Later, stem cell chairman Robert Klein commented that SCA13 could "create major legal problems and obstacles for the Institute in the development of therapies."

A venture capitalist once told told us that VCs decide to make an investment when their greed overwhelms their fear. We can expect CIRM to sooth anxieties in the private sector as it establishes its rules for sharing the stem cell wealth. Sphere: Related Content