Wednesday, October 19, 2005

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.

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