Friday, June 26, 2020

Text of Sheehy's Statement on His Negative Vote on $5.5 Billion Stem Cell Measure

Here is a statement from Jeff Sheehy, a director of the California Institute for Regenerative Medicine (CIRM) concerning his "no" vote on the $5.5 billion bond measure to refinance the agency. Sheehy has served as a patient advocate member of the board since its inception in 2004. He is a former member of the San Francisco County board of supervisors and a longtime patient advocate for HIV/AIDs. Sheehy's statment follows.
I do not support the new ballot measure authorizing $7.8 billion in new funding for CIRM for the following reasons. In referencing the new measure, I note the true cost of the bonds including interest, as opposed to the headline figure of $5.5 billion. I hope that Governor Gavin Newsom, whom I served as HIV/AIDS Adviser when he was Mayor of San Francisco, other State policymakers and voters will consider these points when deciding whether they will support this measure.

First, I'm concerned about the cost to the State at a time of fiscal crisis. CIRM has spent $3 billion over the last 15 years. The Legislative Analyst calculates a repayment period of 25 years and currently CIRM is costing the State $327 million a year to pay back the bonds for the first tranche of funding authorized by voters in 2004 via Proposition 71. I think CIRM has provided value. But after spending all of this money, CIRM has yet to produce a single FDA approved product and the State has not achieved any healthcare cost savings from therapies developed by CIRM.

I look at the current fiscal crisis the State faces and I know we will see cuts in education, healthcare, and housing not only this year, but for several years into the future. Issuing bonds does not mean they are “free money”. They have to be paid back, and the $327 million California is paying annually is $327 million the State does not have for other needs.

The Legislative Analyst estimates that the new measure will add at a minimum another $310 million a year in annual repayments from the General Fund. That means California taxpayers will be paying close to $650 million a year for stem cell research—research that is currently well funded by the federal government and the private sector. To reiterate, State imperatives such as education, healthcare, and housing that are funded by the General Fund are not only chronically under-resourced, but in moments such as our current situation with a deficit, will actually be second in line behind repaying bonds for stem cell research. Bonds have to be repaid first leaving more important priorities to be cut. We must be honest and acknowledge that paying for stem cell research means that other needs will not receive funding. Adding debt in what may be the biggest fiscal crisis California has experienced since the Great Depression is a terrible idea.

Second, CIRM was created because the Federal government restricted human embryonic stem cell research. This is not longer true and the rationale for the State of California going into debt to fund this research no longer exists. The Federal Government will spend $306 million this year and $321 million next year on human embryonic stem cell research — more than CIRM has spent in any single year of its existence. The Federal government will spend another $593 billion on human induced pluripotent stem cell research and $605 million on non embryonic stem cell research this fiscal year. In total, the Federal government will spend $2,129 billion on stem cell research this year. This spending dwarfs what California will spend.

In addition, the Alliance for Regenerative Medicine estimates the private sector spent almost $10 billion in 2019 on regenerative medicine. Growth in private sector investment in regenerative medicine is on a steep upward curve.

Third, the new measure fails in several ways to fix flaws in the original Proposition 71. This new measure does nothing to change the absurd requirement that any changes to it requires a 70% vote of the legislature. This agency should not be outside oversight by the elected representatives of the people. Originally this was justified by opposition to human embryonic stem cell research and the perceived need to insulate the research from political considerations. Now that the Federal restrictions have been lifted and this research can be freely funded, this requirement makes no sense. An agency that will end up costing the State $650 million a year should be fully accountable to elected officeholders.

In addition, the new measure should ensure that CIRM fulfill a key promise made in Proposition 71 that CIRM funding will “benefit the California budget by… providing an opportunity for the state to benefit from royalties, patents, and licensing fees that result from the research.” According the Legislative Analyst, “since 2004, grant recipients have contributed $352,560 in total invention-related income to the State.”

I would note that CIRM has helped produce a therapy that holds significant promise. This product, an anti-CD47 monoclonal antibody for cancer, has 
been acquired by a major pharmaceutical company and will lead to substantial revenue. CIRM has spent roughly $38 million on developing the monoclonal antibody and should receive upwards of $30 million (perhaps as much as double this number) in return. While the Board has worked hard to put in place policies to obtain a return for the State, that return, which could have been enormous, is constrained because the State cannot hold equity in the product. The California Constitution prevents the State from holding equity. CIRM should have asked the legislature to amend the constitution in this ballot measure to allow CIRM to hold equity. Equity provides the opportunity to fully vest in the products supported by CIRM funding and would recognize CIRM’s role as a source of venture capital. Failing to maximize the return on the State’s investment, especially when it is paid for with debt financing, is fiduciary malpractice. From my perspective, millions are gifted to pharmaceutical companies under the current law.

More troubling, the new initiative introduces changes that will lead to the State receiving NOTHING for the General Fund from future returns. Per the Legislative Analyst, the new measure “would require the State to use any income from CIRM agreements to improve the affordability of stem cell treatments.”

Thus, CIRM/State of California will fund development of products if this new measure is approved. The return from investing in those products will then be given back to companies to pay for the products CIRM invested in. This is literally the worst possible giveaway, robbing the State of a return on investment and freeing companies from any price restraints on products since CIRM will make up the difference. We could actually see the company (famous for aggressively pricing Hepatitis C cures and HIV preventive medications) that acquired the anti-C47 monoclonal antibody return funds to the State and see the State forced to use those funds to buy the drug for patients. It would have been far better if the new measure had been written with provisions that ensure a fair return to the State’s General Fund via the ability to hold equity and that require fair pricing for products funded by CIRM. The original intellectual property policies adopted by CIRM did include a provision that required grantees to offer public entities in the State of California the lowest available price.

I note that the new measure does include “accessibility and affordability” provisions, but the focus is on insurance coverage. Fair pricing and improving the State’s return on its investment are not included, presumably to avoid offending Big Pharma.
I continue to have serious concerns around Board member conflicts of interest, with the majority of the Board coming from institutions that have received the bulk of CIRM’s spending. Rather than being addressed in the new measure, conflicts of interest are exacerbated with the new measure adding Board members from institutions that receive funding.

I also have concerns about governance with a 35 member Board—too big to function, and surreally, a Board member for every 2 CIRM employees—and the chief executive role awkwardly split between the Board chair and CIRM’s president.

For these reasons—the State assuming additional debt at the onset of a recession of indeterminate length (that could become a depression) AND the absence of the original purpose for CIRM (the no longer existing Federal restrictions on embryonic stem cell research funding) plus the abundant Federal and private sector funding for identical research, the failure to maximize return on investment plus a blatant giveaway to Pharma AND the handcuffs placed on the legislature—I cannot support the new $5.5 billion measure.

Jeff Sheehy
CIRM Governing Board Member
Appointed 2004 by State Senate President Pro Tem John Burton
Re-appointed 2012 by State Senate President Pro Tem Darrell Steinberg

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