Challenge to WARF hESC Patents Cites Recent U.S. Supreme Court Decision

Patents on human embryonic stem cells are being challenged in a new legal filing that cites the recent U.S. Supreme Court decision that barred the patenting of human genes.

The stem cell case involves the Wisconsin Alumni Research Foundation (WARF), which holds the patents on the much-heralded work performed by Jamie Thomson  at the University of Wisconsin. The lawsuit was filed by the Public Patent Foundation of New York City on behalf of Consumer Watchdog, a nonprofit group in Santa Monica, Ca. Jeanne Loring, director of the Center for Regenerative Medicine at the Scripps Research Institute, is also involved along with Alan Trounson, president of the California stem cell agency. The agency itself is not a party.

This week's filing follows the so-called Myriad decision last month by the nation's highest court which said,

“Myriad did not create anything. To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.”

This week's stem cell suit said,

"WARF did not create or alter the properties inherent in stem cells any more than Myriad created or altered the genetic information encoded in the DNA it claimed.” 

The legal filing came in an appeal of an earlier decision by the U.S. Patent Office. The Public Patent Foundation, which was a successful party in the Myriad case, did the earlier legal work on the challenge to the WARF patents as well as this week's appeal.

The appeal, prepared by Dan Ravicher, said the WARF patents have "put a severe burden on taxpayer-funded research in California.”

Trounson released a statement saying,

“We don't want to do anything that gets in the way of finding treatments for some of the biggest killers today, so we feel that all patients with all kinds of diseases deserve to have access to these kinds of cells.”

Loring was quoted in a Consumer Watchdog press release as saying,

"Human embryonic stem cells hold great promise for advancing human health, and no one has the ethical right to own them.”

John M. Simpson of Consumer Watchdog said,

 “The best course if WARF truly cares about scientific advancement would be to simply abandon these over-reaching patent claims.”

A story by Bradley Fikes in the San Diego U-T cited intellectual property attorney Lisa Haile of DLA Piper as saying,

“A successful use of the Myriad case as a precedent for throwing out the foundation’s patent would open the door to similar challenges in just about any biotech product using material derived from life.”

WARF made no immediate comment.

Other stories on the WARF challenge appeared in the Milwaukee Journal, Genomeweb and the LaCross Tribune. 

A Patent War on iPS: One Researcher's View

As the California stem cell agency pushes ever more aggressively to turn research into cures, the second largest share of its awards, in terms of numbers of grants, has gone to efforts involving induced pluripotent cells, also known as reprogrammed adult cells.

But questions do exist whether those efforts can surmount barriers that have to do with patents and ownership of the intellectual property.

UC Davis stem researcher and blogger Paul Knoepfler discussed some of the problems in a post yesterday. He wrote,

“All the talk and the slew of publications about potentially using iPS cells to develop therapies to help patients is exciting in theory, but unfortunately the reality is that it is not entirely clear if most researchers are, from a legal standpoint, even allowed to develop and commercialize iPS cell-based therapies at all.

“The patent landscape for iPS cells is complicated to put it mildly. A Google patent search for “induced pluripotent stem cells” produced almost 200,000 results.

“A search for “cellular reprogramming produced more than 1,000 results.
I’m not sure all of these results are really separate patents, but still….that’s a big complicated mess.…..

“It is no exaggeration to say there are likely dozens of institutions around the world wanting to commercialize iPS cell-based products.

“Will they all have to pay expensive licensing fees or end up in court?
…or will the patent holders voluntarily and freely allow others to commercialize iPS cell-based medical treatments?

“I don’t think so.

“This could get really messy.”

Monitoring the Cash and IP at the California Stem Cell Agency

The $3 billion California stem cell agency appears unlikely to make any changes in who gets the cash from any commercial products that its research grants help finance despite recommendations from the Institute of Medicine(IOM).

The subject will come up next Wednesday during a meeting of the intellectual property subcommittee of the governing board of the stem cell agency. Intellectual property (IP) simply determines ownership rights and the share of any revenue from therapies that result from research.

CIRM staff has prepared a briefing paper with recommendations for next week's meeting, which has teleconference locations in La Jolla, Los Angeles, two in Irvine along with the main site in San Francisco.

The document summarized two key IOM recommendations in this fashion:

“Because CIRM is a new institution without a track record to reassure stakeholders, and because its finite funding timeline means as yet unknown agencies will be enforcing these policies years down the road, CIRM should “propose regulations that specify who will have the power and authority to assert and enforce in the future rights retained by the state” in CIRM IP, specifically referring to march-in rights, access plans and revenue sharing....

“Second, as other sources of funding become more prevalent, the agency should “reconsider whether its goal of developing cures would be better served by harmonizing CIRM’s IP policies wherever possible with the more familiar policies of the BayhDole Act.”

Here are the CIRM staff recommendations.

“CIRM staff has engaged in preliminary discussions several years ago with other agencies regarding future enforcement of CIRM’s regulations and agreements. Staff proposes to restart those discussions and return to the Subcommittee (or the Board) with a formal proposal to address future enforcement of CIRM’s IP regulations.”

“In light of the IOM’s own recognition that it may be premature to assess whether CIRM’s regulations will act as a deterrence to future investment, the fact that a number of CIRM’s regulations have been codified in statutes and CIRM’s positive progress in its industry engagement efforts to date, although quite early, CIRM staff proposes to continue to monitor this area and not to pursue any changes at this time.”

The director's subcommittee is unlikely to diverge significantly from the staff proposal, which was dated Feb. 14 but not posted on the CIRM website until Feb. 20.   

California Stem Cell Agency: IP and Sustainability Off the Table Tomorrow

The California stem cell agency says that tomorrow's meeting regarding the sweeping changes recommended by the Institute of Medicine (IOM) will not include discussion of intellectual property issues or proposals for the “sustainability” of the $3 billion enterprise.

In a memo to the governing board of the agency posted on its web site today, James Harrison, outside counsel to the board, said,

“The chairman (Jonathan Thomas) has conveyed his view that CIRM should maintain its existing policies regarding revenue sharing, pricing, and access. In addition, chairman Thomas is working on proposals to address the IOM committee’s recommendations regarding a sustainability platform, but it would be premature to discuss these proposals at this time. Therefore, we do not intend to devote significant time to either the intellectual property or sustainability platform recommendations. Instead, we hope to focus the discussion on governance issues and the application review process.”

The CIRM board begins a critical, two-day session tomorrow in Berkeley to consider the IOM's recommendations, which met initial resistance last month from a number of the agency's 29 board members. The recommendations would make major changes in the board and would mean some members would lose their seats, if the proposals were adopted without change.

The IOM also said that the board needs to overhaul its conflict of interest standards, declaring that “far too many” board members are tied to organizations that benefit from CIRM's largess. The agency has long been a target of criticism that it has conflicts of interests that were built in by Prop. 71, the ballot measure that created the program. Roughly 90 percent of the $1.7 billion that the board has awarded has gone to institutions that are linked to members of the agency's governing board, according to compilations by the California Stem Cell Report.

Arthur Caplan, a prominent medical ethicist at New York University, says that the IOM has concluded that CIRM's grant award process is “insular and somewhat incestuous.”

Harrison's document was long on the positive aspects of the blue-ribbon IOM study, which CIRM is paying for at a cost of $700,000. It was commissioned by the board in 2010 with the intent that it would be a springboard to another multi-billion dollar state bond measure, which requires voter approval. CIRM operates on money that the state borrows (bonds). The interest on the bonds will bring the total cost to taxpayers to roughly $6 billion. The financial arrangement is unusual for research funding and differs from federal funding, which is not based on borrowed cash. The CIRM bond money, however, will run out in less than four years. 

Harrison cited 10 points in which the IOM had praise for CIRM, points that few would differ with in any major way, even prior to the IOM study. Some might quibble, however, with a few of Harrison's effusive adjectives.

Significantly, Harrison did not present a fresh legal analysis that might have raised the possibility of constitutional objections to the IOM proposals. A memo from Harrison in 2009 was used by then CIRM Chairman Robert Klein to box in the board in connection with other, similar suggestions for changes at the agency. 

Harrison also disclosed that board's intellectual property (IP)subcommittee will examine the IOM's proposals on IP later and make recommendations. The IOM suggested, among other things, that CIRM modify its policies to bring them in line with federal law, which is not without its own controversies.

Tomorrow's session will be covered live by the California Stem Cell Report via CIRM's audiocast, which is available to the public, and we will file stories as warranted. The meeting begins at 10:30 a.m. PST. Directions for dialing into the audiocast can be found on the agenda for the meeting.

Two Additional Appeals Rejected in Disease Team Round

The governing board of the California stem cell agency last night rejected appeals by two applicants -- OncoMed Pharmaceuticals of Redwood City and Albert Wong of Stanford -- in the $200 million disease team round.

Both petitions generated little discussion. You can find more on their petitions here and here.

The board also approved changes in its intellectual property and grant administration rules. Both proposals will now enter the state's official administrative law process for more comment and possible change.

$70 Million Research Proposal Up Next Week at California Stem Cell Agency

Directors of the $3 billion California stem cell agency will hold a special, teleconference meeting next Tuesday to deal with business that was put off last month, including a new, $70 million research round.

The meeting is necessary because directors could not finish their business July 26 after they lost the supermajority quorum required to do business. They delayed action on a number of matters, including the translational research proposal, which is scheduled to be posted as an RFA next month.

The governing board also had discussed dealing with changes in its intellectual property rules at next week's meeting, but that proposal is not on Tuesday's agenda. The next meeting of the board is Sept. 5 and 6 in San Francisco. The agency has confirmed that it will be a two-day session.

At least one new appeal is expected to come up in September in the $243 million disease team round that consumed so much time in July.

Next week meeting involves a host of locations throughout California. The public is entitled to participate in the session from any of those sites. The specific addresses can be found on the agenda.

$20 Million in Stem Cell Irony

A bit of irony popped up this week in the wake of approval of $151 million in awards by the California stem cell agency.

One of the awards was $20 million to StemCells, Inc., of Newark, Ca., which is also fighting hard for another $20 million from the state research enterprise.

However, back in 2008, Kenneth Stratton, general counsel for the firm, put some distance between his company and the agency, which is handing out $3 billion in toto.

Stratton said,

"We will take CIRM money last. We don't want to be in a position where, years from now, we are actually forced to sell [our products] in California at a loss."

But last week, Martin McGlynn, CEO of StemCells, said in a press release,

“We are extremely grateful to CIRM for its support.”

Times have changed for both the company and CIRM, which is in the process of altering the intellectual property rules that offended Stratton in 2008. The changes were due to be approved last Thursday, but action was put off by the CIRM board. It was overwhelmed as it dealt with the record pace of appeals by researchers who were scrambling to overturn negative decisions by grant reviewers.

StemCells' application for another $20 million is one of those being appealed. The board will take it up again in either September or late October, after it undergoes additional scrutiny by the agency.

CIRM is touting its IP changes as being more friendly to business. They also can be made retroactive to cover awards to business made in the past. CIRM directors expect to meet by telephone, probably in August, to approve the new IP rules.

Royalty Rules at the California Stem Cell Agency: Business Friendly Changes Proposed

If you are looking to follow the money trail at the $3 billion California stem cell agency, next Thursday's meeting of its 29-member board of directors is a good place to start.

On the agenda are revisions in its intellectual property rules, which are all about who gets paid and how much and when – should an agency-financed product generate significant cash.
The key question about the proposed changes is whether they will generate an appropriate return for the state, given its $6 billion investment, including interest on the bonds that finance CIRM. The impact of the changes is not crystal clear. And the staff memo does not mention two important definition changes that appear to be quite business friendly.

During the 2004 ballot campaign that created the stem cell agency, California voters were told that the state would share as much as $1 billion or more in royalties. Eight years later, no royalties have materialized since CIRM research has not yet resulted in a commercial therapy. 

At next week's meeting in Burlingame, directors will be asked to modify CIRM rules for royalties that CIRM staff said "could be a disincentive" for business. A staff memo said the proposals would alter provisions that create "administrative challenges and uncertainty." The memo asserted the proposed changes would ensure "a comparable economic return to California" equal to the existing provisions. However, the memo provided no explanation or evidence for how that result would come about. The proposed changes could also be applied retroactively with the agreement of CIRM and the grantee.

Currently CIRM grantees and collaborators must share as much as 25 percent of their licensing revenue in excess of $500,000, depending on the proportion of agency funding for the product. The IP rules also contain a provision for payments in the event of development of a "blockbuster" therapy. The staff memo described how that would work.

“It provides that grantees and collaborators must share revenues resulting from CIRM funded research as follows: after revenues exceed $500,000, three times the grant award, paid at a rate of 3% per year, plus upon earning $250M(million) in a single calendar year, a onetime payment of three times the award, plus upon earning revenues of $500M in a single calendar year, an additional onetime payment of three times the award and, finally, in the instance where a patented CIRM funded invention or CIRM funded technology contributed to the creation of net commercial revenue greater than $500M in a single calendar year, and where CIRM awarded $5 million or more, an additional 1% royalty on revenues in excess of $500 million annually over the life of the patents.”

The proposed changes would exempt "pre-commercial revenues" from the state's revenue sharing, the memo said, in order to maximize the amount businesses can "re-invest in product development." The proportionality payment provision would be changed to require only 15 percent of licensing revenues if CIRM's investment is less than 50 percent and 25 percent if it is more than 50 percent. Revenue sharing would be extended to "commercializing entities." No definition of "commercializing entities" was provided in the board agenda material, but a June version of the changes defined them as "A For-Profit Grantee and its Collaborator or Licensee that sells, offers for sale or transfers a Drug, product(s) or services resulting in whole or in part from CIRM-Funded Research."

Not mentioned in the CIRM staff memo were two new provisions in the rules involving the definition of licensing revenue and the sale of a therapy. Both could be construed as quite favorable to businesses. According to the June version of the changes, licensing revenues are defined as a figure minus "a proportion of expenses reasonably incurred in prosecuting, defending and enforcing related patent rights equal to CIRM’s percentage of support for development."  The sale provision says that royalties on "net commercial revenue" are not due until received from sales in the United States or Europe. That provision would appear to exclude California from receiving royalties on product sales in most of the world, where it is easier to receive regulatory approval for sale of new therapies and drugs. (See here -- page 2 -- for royalty provision and here for definition of "first commercial sale"-- page 3.)

The existing IP regulations are enshrined in a 2011 state law. However, the law also provided that they can be altered by the agency, the CIRM memo said, “if it determined that it was necessary to do so either to ensure that research and therapy development are not unreasonably hindered as a result of CIRM’s regulations or to ensure that the State of California has an opportunity to share in the revenues derived from such research and therapy development.”

The memo continued,

"The proposed amendments re-strike the balance both to ensure that industry will partner with CIRM and to ensure that the State has the opportunity to benefit from successful therapy development."

Board action next week will give the go-ahead for posting the proposals as part of the official state administrative rules process. They are subject to additional changes in that process. 

The agenda originally contained the full text of the changes. However, that material has been dropped from the board agenda. An earlier version can be found here and here. We have queried the agency about the reason for dropping the text in the board agenda.

(Editor's note: The agency has now reposted the version of the text of the changes that was on the agenda earlier, saying that it was having problems with its web site. For the definitions of terms, however, it is still necessary to refer to the June documents.)

Business-friendly Changes Proposed for Revenue Sharing by Stem Cell Agency

The $3 billion California stem cell agency, which hopes to generate income for the state through the sale of stem cell therapies, is moving to make its profit-sharing rules more friendly to business.

The proposed changes will come up Monday morning before the Intellectual Property and Industry Subcommittee of the CIRM governing board.

No stem cell research funded by CIRM has yet been commercialized. Its intellectual property regulations, which determine payback criteria, were developed shortly after CIRM was created in 2004. Ed Penhoet, one of the founders of Chiron and now a venture capitalist, chaired the panel that worked out the rules. He has since left the CIRM board.

A CIRM staff memo described the payment rules in the case of a "blockbuster" therapy as "uneven" and "lumpy." The memo said they "could be a disincentive for the engagement of industry." Other rules were described as creating "administrative challenges and uncertainty." The proposed changes, the memo said, would address those issues and ensure a "comparable economic return to California."

Here are links to the specific changes -- see here and here.

Public sites where interested parties can take part in the discussion are located in San Francisco, La Jolla, Los Angeles and Irvine. Specific addresses can be found on themeeting agenda.

The proposed changes must go before the full governing board and then into the state's administrative law process before taking full effect.  

Researcher Alert: First Look at Proposed Rules for California's Stem Cell Bank

The California stem cell agency today unveiled initial details of how it plans to run its $30 million bank of reprogrammed adult stem cells.

The proposed regulations are the first step this year in the $3 billion agency's project to make IPS cells available worldwide at low cost. It is part of an effort to stimulate the science and develop commercial cures by removing research roadblocks.

As Amy Adams, CIRM's communications manager wrote earlier this year on the agency's research blog,

"One way for CIRM to accelerate research is by creating more of a library system for stem cells – except we don’t want the cells back."

The agency expects to issue its first RFA next month in the stem cell banking initiative, which consists of three grant rounds to be approved by the CIRM board no later than Feburary of next year.

To clear the way for the first round, CIRM plans to revise its IP regulations to ensure that they don't hamper the distribution of stem cells in its bank and their wide use.  The revisions will come before the CIRM directors' IP/Industry Subcommittee next Tuesday. The six-member panel is co-chaired by co-chaired by Stephen Juelsgaard, former executive vice president of Genentech, and Duane Roth, CEO of Connect in San Diego, a nonprofit that supports tech and life sciences entrepreneuers. Sites where the public can participate in the meeting will be available in San Francisco, La Jolla, Los Angeles and two in Irvine.

Under the new IP rules, CIRM will retain ownership of the cells in its bank instead of the grantee, as the current IP rules state.

In a memo to directors, Elona Baum, general counsel for the agency, said,

"This permits CIRM to have complete control of this valuable resource and is consistent with the practice of NIH’s Center for Regenerative Medicine which is also creating a repository for iPSC lines and derived materials."

Baum also said,

"The (current) IP regulations were drafted to address conventional drug discovery activities and did not contemplate creation of a comprehensive repository of cell lines intended for broad distribution. As a result, the IP regulations contain a number of provisions which are either not applicable or worse could impede the success of the hiPSC bank. For instance, IP regulations permit the exclusive licensing of CIRM funded inventions and technology. This would be counterproductive to the goals of the hiPSC repository which are predicated on wide spread access."

Baum provided the following summary of the $30 million banking initiative:

"These lines will serve as valuable tools in drug discovery and will be available to researchers worldwide. The Tissue Collection RFA No. 12-02 will fund clinicians and other scientists to identify, recruit and consent sufficient numbers of affected individuals within a disease population so as to effectively represent the disease’s manifestations. Tissues will be collected and appropriate clinical, medical or diagnostic information, will be obtained to enable informed discovery of disease-related phenotypes and drug development activities using hiPSC-based models. These tissue samples will be provided (without charge) to the recipient of the CIRM hiPSC Derivation Award (RFA No. 12-03) for the production of the hiPSC lines. Once derived, characterized and released, the lines will be deposited in the CIRM hiPSC bank funded under RFA No. 12-04."

Specific addresses for the public meeting locations can be found on the agenda.

Biotech Industry Alert: California Stem Cell Agency Moves Ahead with Industry-Friendly Efforts

The newly elected chairman of the $3 billion California stem cell agency is pushing forward with efforts to engage industry more deeply in state efforts to develop commercial stem cell therapies.

Industry has long been unhappy with its meager share of CIRM grants – 7 percent of $1.25 billion. A blue-ribbon panel commissioned by CIRM last year recommended major improvements.

Duane Roth

The latest action by Jonathan Thomas, the Los Angeles bond financier who was elected in June to head the agency, comes in the form of a thrust to be led by CIRM co-Vice Chair Duane Roth, a San Diego businessman.

Thomas' plan for engagement of industry will be discussed this evening at Stanford at the first meeting of the board's new eight-member Intellectual Property Subcommittee.

Thomas' proposal, posted only early today on the CIRM web site, would expand the panel's current jurisdiction. The document said,

Stephen Juelsgaard

"In light of CIRM’s desire to engage industry in its mission to deliver therapies and cures to patients who suffer from chronic disease and injury and the overlap between industry-related issues and the current jurisdiction of the subcommittee, Chairman Thomas, with the concurrence of Subcommittee Chair (Stephen) Juelsgaard, proposes to expand the jurisdiction of the subcommittee to include industry-related issues, such as: (1) participation by representatives of industry as members of the Grants Working Group; (2) the development and refinement of programs to incorporate industry into CIRM’s research programs; (3) financing issues relating to industry involvement with CIRM; (4) evaluation of barriers to industry engagement in CIRM-related or funded activities; (5) addressing means of encouraging industry interaction and involvement, especially in the areas of development, regulatory compliance, manufacturing and commercialization, with CIRM-funded research organizations that have identified potential promising therapies and (6) consideration and refinement of CIRM’s loan program."

Juelsgaard, former executive vice president of Genentech and currently a lecturer at Stanford Law School, was appointed to the board last May by Lt. Gov. Gavin Newsom. Juelsgaard once was reported as being considered as a possible candidate for chair of the agency.

Thomas said Roth would be named co-chair of the IP Subcommittee with responsibility for industry relations. Juelsgaard will deal more generally with IP issues, including "developing a program to assist CIRM grantees in protecting intellectual property generated from CIRM-funded research and to ensure that the state has an opportunity to share in the revenues arising out of CIRM-funded research." That topic is on the agenda of this evening's meeting.

Also to be discussed is another industry-friendly effort: A $30 million "Opportunity Fund" to "enhance the likelihood that CIRM funded projects will obtain funding for Phase III clinical trials (e.g. follow-on financing), (ii) provide a potential source of co-funding in the earlier stages of clinical development, and (iii) provide CIRM funded projects with access to pharma and large biotech partners that can provide valuable expertise in the areas of regulatory, clinical trial design and manufacturing process development."

WARF Loses Latest Round on Challenge to hESC Patents

Two watchdog groups said today they have scored a “major victory for unfettered scientific research” in a case involving a WARF patent on human embryonic stem cells.

Consumer Watchdog of Santa Monica, Ca., and the Public Patent Foundation of New York City filed the challenges to the WARF patents on work by Jamie Thomson of the University of Wisconsin.

The groups said in a news release that federal patent regulators have “agreed with the groups that the creation of human embryonic stem cell lines was obvious in the light of work that had been done in other species. In order to obtain a patent, work must be both new and non-obvious.”

WARF, which can appeal the decision, released the following statement.

“WARF has been invited by the Board of Patent Appeals to continue prosecution of this application and plans to do so and vigorously pursue these claims with the patent office. This decision regarding ‘913 does not affect the patent office’s 2008 decision to reaffirm WARF’s two most important base stem cell patents for primate and human embryonic stem cells, ‘780 and ‘806. These reaffirmed patents are not eligible for further appeal in this reexamination process.”

Geron Corp., of Menlo Park, Ca., which holds a license on the patent, said the decision will not “impact” the firm's “dominant human embryonic stem cell patent position.”

The 2006 challenge to the WARF patents was supported by Alan Trounson, then connected to Monash University but now president of the California stem cell agency, Douglas Melton and Chad Cowan of Harvard and Jeanne Loring, director of the Center for Regenerative Medicine at Scripps.

Loring said,

“This is great news for medical research. Human embryonic stem cells hold great promise for advancing human health, and no one has the ethical right to own them.”

The challenge involved three patents. Federal officials originally ruled unfavorably.

The Consumer Watchdog news release said,

“Under current patent law only one of the three (earfier) patent rulings could be appealed by the two groups.  That was the patent rejected by the Board of Appeals and Interferences. However, said the groups, the latest ruling by the Board of Appeals is a strong decision that could set a precedent leading to the revocation of the other two patents as well.

“The two public interest groups noted that the original three patent challenges  had already improved the situation for stem cell researchers; shortly after the PTO launched its initial re-examinations in 2006 at the groups’ request,  WARF announced a substantial easing of its licensing requirements.

“'WARF executives were acting like arrogant bullies blinded by dollar signs,' said (John M.)  Simpson (of Consumer Watchdog). 'Our challenges prompted a more co-operative stance towards the stem cell research community on their part.'”

“Both Consumer Watchdog and the Public Patent Foundation stressed that while University of Wisconsin researcher James Thomson deserved acclaim for his research that isolated human stem cells, important scientific accomplishments are not necessarily patentable.  They said one of the main reasons he was able to derive a human stem cell line was because he had access to human embryos and financial support that other researchers did not have.”

Geron issued a news release on the decision. The company said,

"'This is not a final rejection of the patent claims,' noted David J. Earp, J.D., Ph.D., Geron's chief patent counsel and senior vice president of business development. 'We are confident that WARF will make a strong case in support of the patentability of these claims in continued examination.'"

Prop. 71 Minutia Stalls CIRM Again

SAN FRANCISCO – The board of directors of the California stem cell agency Tuesday failed to achieve a quorum and was forced to put off action on regulations tied to its ambitious, $210 million disease team grant round, the largest ever in CIRM history.

That means it will be at least another two weeks or more before the board can act on the IP rules that it needs for disease team project. The grants are scheduled to be awarded later this year.

The board has been handicapped for years by its super-quorum requirement, 65 percent of its 29 members. Tuesday, the quorum was 19 but only 18 answered the roll call during the special, teleconference meeting based here. Twenty-one had been expected. Without a quorum, the board cannot take legal action.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said today that problems with quorums are a persistent and important issue at CIRM. Simpson has followed the matter for several years. In one case in 2008, he wrote about how the board “essentially” drafted a member of the audience to raise a quorum.

Commenting today, he said,

“This clearly shows that (the board) has not resolved its nagging problem with mustering a quorum. They should have taken the Little Hoover Commission's (initial) advice and moved to make a simple majority all that is necessary to conduct business. Instead, they insist on a meaningless charade that wasted the time of 18 very busy people.”

The quorum mandate is written into state law by Prop. 71, which created the stem cell agency in 2004. It cannot be changed without a vote of the people or by the legislature. But the latter involves another super-majority requirement, 70 percent of both houses of the legislature and the signature of the governor.

The Little Hoover Commission, the state's government good government panel, earlier this year cited CIRM's problems with achieving quorums. But the CIRM board last month rejected suggestions that the quorum be reduced to 50 percent. It relied on its attorney's opinion that to do so would “undermine” the intent of the voters and would leave the board open to being captured by a minority.

However, super-majority requirements actually facilitate minority dominance of bodies such as the CIRM board. On Tuesday, the absence of one member paralyzed the board. In other cases, a few members have left CIRM board meetings and thus prevented it from taking action. Conceivably, 11 members of the board could control it by simply refusing to attend unless their wishes prevailed.

The regulations under consideration Tuesday dealt with intellectual property requirements. Initially, they appeared to be relatively non-controversial, although CIRM director Susan Bryant, vice chancellor for research, University of California, Irvine, raised anew concerns expressed last July by the University of California (statewide).

Director William R. Brody, president of the Salk Institute, also criticized some of the proposed regulations as “absurd” and suggested that language from federal IP law be adopted. However, others noted that CIRM deliberately moved away from federal law in its development of the regulations over several years.

In the absence of a quorum, CIRM Chairman Robert Klein said the proposed regulations will be taken up later after CIRM director Ed Penhoet, head of the IP Task Force and a co-founder of Chiron, has a chance to discuss them with Brody and Bryant.

The CIRM board also did not act on hiring underwriters (more than one is needed because of potential conflicts of interest) to run its $500 million biotech loan program. The effort is scheduled to begin with the disease team grant round. But the board was told that a very small number of potential borrowers are involved in that round.

Instead of hiring two or more underwriters, John Robson, CIRM vice president for operations, said the lending effort can begin with a pilot project involving one underwriter. He said that it will help the agency develop a better underwriting effort for the directors to approve next year. Following the meeting, Robson said he hopes to conclude a pilot agreement within days.

You can read more on quorum problems, as discussed by Simpson, here, here, here, here and here.

(Editor's note: In an earlier version of this item, the quotation from John M. Simpson did not contain the word "initial" in parentheses.)

CIRM Nearing Agreement on Underwriters for $500 Million Biotech Loan Program

The board of the California stem cell agency will hold a special, teleconference meeting next Tuesday to consider hiring a bank or two to run its new and ambitious $500 million biotech lending program.

Also on the agenda are revised IP rules dealing with affordable access to taxpayer-financed stem cell therapies, although there appears to be no controversy about the rules at this point.

CIRM had hoped to have the bank underwriters in place by now for its $210 million disease team program, the largest research round ever for CIRM. Applications for that program are being reviewed behind closed doors today through Friday in San Francisco by the CIRM Grants Working Group.

Three banks were under consideration to run the biotech loan effort. They were Comerica, Square One and Silicon Valley Bank. The first two provided the lowest cost estimates, with Comerica coming in at $71,000 for handling a $20 million, six-year loan. More than one bank is expected to be hired because of the potential for conflicts of interest.

At the August CIRM board meeting, John Robson, vice president for CIRM operations, said that once the agency had some sort of initial agreement in place with Comerica and Square One, negotiations would follow with Silicon Valley Bank.

CIRM Chairman Robert Klein, who originated the concept for the biotech lending program, stressed the importance of moving forward with Silicon Valley Bank. He said,

“Given the tight time frame, moving forward with Silicon Valley Bank is going to be important, if feasible, so that the board really has the full choice and the cost differences in front of them when they are asked to approve the delegated underwriters. With a prototype process, we will and have run into some issues with these banking institutions as they've -- their legal departments have understood the complexity of dealing with the state. So we need to bring forward, to the extent we can, all three opportunities for the board so the board can make a decision.”

CIRM is seeking to hire a bank to run the program because the agency does not have the expertise or the staff to do the work. The banks would perform an analysis of business applicants, assess their operations and management and make recommendations.

CIRM plans to lend money to risky enterprises that otherwise could not secure financing. Loan failure rates of up to 50 percent in the program have been predicted by CIRM.

The first loans are scheduled to go out following formal approval later this year of winners in the disease team program.

The IP rules that are also under consideration next week stirred a flap at one point. The board, however, last month rescinded the controversial proposed changes.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., and who raised the earlier concerns, says he is satisfied with the current proposed changes.

The public can listen to and participate in the board meeting at a number of locations throughout the state. Their specific addresses can be found on the agenda.

A transcript of last month's brief discussion of the biotech loan program can be found here.

Good Faith, Loopholes and CIRM

SAN FRANCISCO – The $3 billion California stem cell agency says a headline carried last week by the California Stem Cell Report is “damagingly misleading” and would like a correction.

We disagree and will tell you why. But the matter goes beyond a mere eight words. It deals with trust, good faith and more.

The headline in question is: “CIRM Rolls Back Effort to Undercut Affordable Access.”

The subject involves a proposed – but now retracted – major change in CIRM intellectual property regulations. The revision was quietly fast-tracked for what would have been final approval last Thursday by the CIRM board at its two-day meeting here. Fortunately, the loophole was caught the day before the meeting by John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca. He wrote a letter challenging the revision. We published an item on his comments along with the text of his letter. As a result, the proposal was pulled back.

Simpson has been deeply involved in the CIRM proceedings that hammered out the IP rules and their provisions for affordable access. The process took place over several years, and CIRM directors have repeatedly reaffirmed their commitment to affordable access to any taxpayer-financed therapies. Affordability is also part of the promise of Prop. 71, the ballot initiative that created CIRM. Simpson has publicly praised the CIRM IP process for its openness and diligence and has expressed great respect for IP Task Force Chairman Ed Penhoet.

On Wednesday, the day after Simpson discovered the loophole, Chairman Robert Klein called Simpson to tell him that the offending provision was being dropped. Klein also mentioned it to us at the meeting here later that day. But loophole did not come before the full board until late in the meeting the next day.

No one at the session disputed Simpson's conclusion that the change in wording was a “tremendous loophole” that would endanger affordable access and also could prove to be a major benefit to the biotech industry.

Rather CIRM's question concerning our headline involves the intent of changing previously agreed upon language. The matter also involves whether CIRM was honoring its principles by advancing the proposed change in a manner that appeared surreptitious, at the least. The revision was buried in 491 lines of prolix regulatory language that was described on the board's agenda as merely a “consolidation” of previous regulations.

The loophole – which involved only a few words – was also proposed at a time when CIRM is aggressively moving to embrace the biotech industry. According to its strategic plan, it will take a leading role – at taxpayer expense – to lobby nationally to remove barriers facing the industry. All with the good intent, we should add, of speeding cures.

When the proposed revision came up during Thursday's board session, Elona Baum, CIRM's new general counsel who joined the agency in April after 12 years with Genentech, said that questions had been been raised about “sublicensing.” She said, “In the interests of clarity, the language was inserted.”

CIRM directors then formally acted to remove the offending language, which will go out for a 15-day public comment period before becoming official.

Shortly after Baum offered her comments, Don Gibbons, chief communications officer, sent me the following email about the headline in question.

“Having heard this discussion, I would hope you feel it is appropriate to self correct this damagingly misleading headline. It should have been clear this was never CIRM’s intent.”

The CIRM board, which is the ultimate authority at the stem cell agency, is to be commended for removing the loophole. But how and why the language was inserted is a matter in dispute.

Gibbons is paid $190,00 a year to polish CIRM's image. We understand why he does not care for our wording. However, both Simpson and I have been given to understand that the loophole did not result from merely a lack of legal felicity.

We asked Simpson for a comment on Gibbons' opinion concerning the headline. Here is what Simpson said,

“Either the lawyer responsible for the proposed change in the definition didn’t understand its implications, which implies incompetence or the lawyer completely understood, which implies deliberate intent to make substantive policy changes and subvert the process. Neither choice is pleasant, so I’ll simply celebrate the fact that when the ICOC (the CIRM board), particularly the members of the IP Task Force, was made aware of the situation, it was immediately rectified.”

Last Tuesday, we asked Gibbons for a comment on behalf of CIRM concerning the loophole. He never responded. We are asking him if CIRM has any comments on this item. We will carry any response verbatim.

CIRM Rolls Back its Effort to Undercut Affordable Access

SAN FRANCISCO – A move that would have undercut efforts to provide affordable access to stem cell therapies financed by California taxpayers has been thwarted.

The effort was dropped after John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., brought it to light.

Simpson reported on his organization's blog tonight that CIRM Chairman Robert Klein telephoned him to say that regulatory language proposed by CIRM that would have created a “tremendous loophole” for biotech companies has been scrubbed.

Klein confirmed that action to the California Stem Cell Report at its meeting here tonight. Simpson and his organization are to be commended for bringing the move to public attention.

More details of what transpired can be found on Simpson's blog.

Consumer Watchdog: Affordable Access to CIRM -Financed Therapies Threatened

The California stem cell agency is proposing a “tremendous loophole” that will allow biotech companies to escape requirements to ensure affordable access to stem cell therapies generated by taxpayer dollars, the Consumer Watchdog group said today.

The group also complained that the regulations are being rushed through a meeting this week of the CIRM board in San Francisco.

The comments were filed by John M. Simpson, stem cell project director of the Santa Monica, Ca., group, who has been deeply involved in the development of CIRM IP regulations. The changes, however, caught him by surprise.

In remarks filed as part of the official regulatory process, he said the proposed alteration in the definition of exclusive licensee is “a substantive change that fundamentally alters the IP regulations.”

Simpson wrote,

“This proposed new definition creates a tremendous loophole that potentially allows companies to escape the IP regulation’s access requirements for products developed with CIRM funds. This was never the intent of the IP task force during its thorough, deliberative process in developing the IP regulations.”

Simpson said,

“It merits a full hearing and thoughtful discussion. Sadly it now appears that there is, for what reason I do not know, an effort to sneak this major change in policy through virtually unnoticed. If that is allowed to happen, it would be truly sad. Developing the IP policies had been one of CIRM’s most inclusive and transparent processes with all stakeholders represented at the table. This change would completely undermine all of those efforts.”

Here is how Simpson described the proposed change:

“The access requirements for products developed by CIRM grantees apply only to grantees, collaborators and exclusive licensees. Under the new proposed definition an entity that purchased a company holding a license would not be obligated to meet the modest access requirements because they would not have received the 'license directly from a Grantee, Grantee Personnel, or Collaborator.' Presumably a licensee could also assign rights to another entity and that entity would not be held to the access requirements, again because it would not have received the 'license directly from a Grantee, Grantee Personnel, or Collaborator.'”

Simpson asked that the proposed changes be referred back to the CIRM IP Task Force before they are acted on by the full board.

We have asked CIRM if it has any comments on Simpson's letter. We will carry the full text of the agency's comments if it responds.

You can read the full text of Simpson's remarks below.

Text of Consumer Watchdog's Therapy Access Letter

Here is the full text of the letter by John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., concerning the loophole proposed in CIRM IP regulations. His letter was filed today as part of the official regulatory process.

Re: Comment on “Proposed IP Regulations: Third Round”
Dear Sir or Madam,
I am writing to protest the proposed change in the definition of Exclusive Licensee contained in the third iteration of proposed IP regulations. The proposed definition,

§ 100601. Intellectual Property Regulations
- Definitions. (k), now reads:
Exclusive Licensee. Any individual or entity receiving by license directly from a Grantee, Grantee Personnel, or Collaborator all rights to make, use, sell, offer for sale and/or import in one or more fields of use or territories a CIRM-Funded Technology or a CIRM-Funded Invention.

In the earlier second iteration the comparable definition, § 100601. Intellectual Property Regulations -
Definitions. (j), read:
Exclusive Licensee. Any individual or entity receiving all rights to make, use, sell, offer for sale and/or import in one or more fields of use or territories a CIRM-Funded Technology or a CIRM-Funded Invention, whether by assignment, license, or other mechanism.

The access requirements for products developed by CIRM grantees apply only to grantees, collaborators and exclusive licensees. Under the new proposed definition an entity that purchased a company holding a license would not be obligated to meet the modest access requirements because they would not have received the “license directly from a Grantee, Grantee Personnel, or Collaborator.” Presumably a licensee could also assign rights to another entity and that entity would not be held to the access requirements, again because it would not have received the “license directly from a Grantee, Grantee Personnel, or Collaborator.”

This proposed new definition creates a tremendous loophole that potentially allows companies to escape the IP regulation’s access requirements for products developed with CIRM funds. This was never the intent of the IP task force during its thorough, deliberative process in developing the IP regulations. I cannot understand why this language has been proposed.

Could you please provide me with the written record of the public comments made on Round Two of the proposed regulations that prompted this change, which subverts the original intent of the IP regulations?

For the record, I note that the public comment period on these regulations closes at 5 pm Aug. 18, the day before the August ICOC meeting where they are already on the agenda for consideration. I am hard pressed to understand how such scheduling provides adequate time for staff to analyze any comments and provide meaningful commentary so that the board can consider the proposed regulations in a thoughtful way.

I urge you to refer these proposed regulations to the IP Task Force for discussion and thorough consideration before they come before the full ICOC. The Task Force has not met since November of 2008. Most of us who have been deeply involved in the here-to-fore exemplary public process that developed the IP regulations were under the impression that the consolidation effort was largely a technical exercise.

However, this proposed definition of Exclusive Licensee is a substantive change that fundamentally alters the IP regulations. It merits a full hearing and thoughtful discussion. Sadly it now appears that there is, for what reason I do not know, an effort to sneak this major change in policy through virtually unnoticed. If that is allowed to happen, it would be truly sad. Developing the IP policies had been one of CIRM’s most inclusive and transparent processes with all stakeholders represented at the table. This change would completely undermine all of those efforts.

Sizzling Month for Biotech; More on Patent Protection for Biotech

Good news is surfacing in the biotech industry. One industry watcher on Monday reported that the sector was “hot” during July, but warned that challenges remain including the fate of patent protection for biotech drugs – a matter also of concern to the California stem cell agency.

Burrill & Co., the San Francisco life sciences merchant bank, said the sector was propelled by “drug data, positive drug sales/earnings and partnering and M&A deals.”

But Steven Burrill, CEO of the company bearing his name, also said,

“We don’t yet believe biotech is fully back on track as many companies are still struggling to find the necessary funding to maintain their operations, almost half of US public biotechs have market caps below $100 million and we are seeing companies still consistently turning off their lights for the last time. It is important to remind ourselves that the biotech industry is undergoing a major transition, a process that will likely continue for many months yet.

“This is because we do not know how President Barack Obama’s proposal for health care reform will fully impact the biotechnology industry and the status of biosimiliar legislation (follow-on biologics) is also still unresolved and there are fears that these issues will drive the prices of innovative drugs lower and eat away at biotech company profits.”

CIRM, a taxpayer-funded organization, is lobbying Congress on the biosimilar patent protection legislation. Last month it sent a letter to to U.S. Sen. Diane Feinstein, D-California, backing lengthy, 12 to 14 year patent protection periods, also an industry-supported position.

Without that protection, CIRM said “patient access to this promising technology will de delayed or eliminated and California's biotechnology sector will suffer.” Feinstein sent the letter along to the key Democratic negotiators on the health care reform legislation, urging support of the CIRM position. You can a find copy of both letters here.

‘Boiling Blood,’ Biotech and Rainmaking

The headline in the Wall Street Journal this morning read “Blood Boils Over Bill to Protect Biotech Drugs.”

And on Friday, the story on Politico.com was about a “king of K Street” in Washington, D.C., the man who is the $240,000 federal lobbyist for the California stem cell agency.

Both stories are related to the agency’s lobbying efforts in Congress on behalf of an industry-backed bill to stall competition from generic companies that may seek to duplicate biotech drugs.

The WSJ story indirectly makes it clear how picayune is the CIRM lobbying effort. The bill endorsed by the agency is not even mentioned. The players are many and powerful. The stage is vast, encompassing the Obama administration’s sweeping health plan effort.

Reporter Alicia Mundy focused on a proposal by Sen. Ted Kennedy that would give biotech firms 13.5 years of protection from generic competition on what the WSJ called “lucrative” drugs. That is about twice as long as proposed by President Obama, who is wrapping the IP legislation into his health care package.

Mundy reported that Kennedy’s effort “may prevail because it would help keep the pharmaceutical industry on board with the (Obama) overhaul, said industry lobbyists and Senate staffers.”

Also involved in this is Tony Podesta, an accomplished rainmaker and CIRM’s Washington lobbyist(the agency has another lobbyist in Sacramento). Chris Frates of Politico.com wrote that “in the age of Obama, it’s a particularly good time to be named Podesta.”

Frates recounted the Podesta family ties to Obama, including brother John Podesta’s co-chairmanship of the president’s transition team.

Frates said Tony Podesta is active in campaign fund-raising, hosting a recent event that funneled $500,000 to the Democratic Senatorial Campaign Committee.

Some CIRM directors and others have questioned the agency’s lobbying effort as largely meaningless given the vast issues in play in Washington. However, $240,000 would not be meaningless to a stem cell researcher in California looking for help to push science along to finding a cure for one of the array of ailments many believe could be alleviated through stem cell therapy.

Assuming that protecting the biotech industry from generic competition is the correct position for a California state agency, the question remains: What do the people of California get out of the expenditure of $240,000, which does not even buy a bleacher seat in the Capitol? And that amount does not count the additional staff and directors time, travel and expenses. Does any of it change the outcome?

CIRM directors will receive a briefing on Thursday on the legislation at a teleconference meeting of their Legislative Subcommittee. The public can participate in session at locations in San Francisco, Elk Grove, Healdsburg, La Jolla (2), Irvine and Palo Alto. Specific addresses can be found on the agenda.

(Editor’s note: The WSJ article is only available to online subscribers. If you would like a copy, please email djensen@californiastemcellreport.com.)