Klein Still Hard on the Money Trail

The California stem cell agency intends to raise $100 million from philanthropists over the next 12 months, according to its chairman, Robert Klein.

Reporter Terri Somers of the San Diego Union-Tribune wrote about CIRM's plans today, noting that the funds would cover grants and other expenses well into next year as the agency deals with litigation against it.

Klein also said in a speech to biotech executives that CIRM expects to take in another $36 million within the next 35 days in the form of bond anticipation notes, which would not be repaid if CIRM loses the lawsuits.

That is why the agency is pitching the notes to philanthropies instead of regular investors.

While the execs applauded the fundraising news, Somers wrote that "taxpayer advocates said there's a limit to philanthropists' generosity."

Her article continued,

"'You can only get so much juice from that fruit,' said Jesse Reynolds, of the Oakland-based Center for Genetics and Society."

Somers also wrote a piece published on Friday concerning Sen. Deborah Ortiz, D-Sacramento, and the California stem cell initiative. Noting that Prop. 71 was Ortiz's brainchild, Somers said Ortiz supported it despite "gaps that troubled her."
Somers quotes several critics of Ortiz, including John Reed, who heads the Burnham Institute in La Jolla.

"To me (SB401) is death by 1,000 cuts," he said.

As for Ortiz, Somers wrote,

"For all the criticism I've received, it would have been politically smart of me to just shut up and embrace and defend Proposition 71 and raise lots of money from biotech interests. But I chose not to do that,' said Ortiz, whose campaign has collected more than $500,000 in contributions."

Other than Somers' story on fundraising, we have not see any stories that might be connected to the Friday meeting of the Oversight Committee in La Jolla. However, Saturday papers are small and sometimes marginal news is held for later publication. In this case, marginal means news that is not connected to next Tuesday's California elections.

Time for Tougher Disclosure on Working Groups

The Sacramento Bee and San Jose Mercury News have editorialized in favor of more stringent conflict of interest standards for members of CIRM working groups, an important element in SB401.

CIRM has so far resisted such requirements, but the newspapers say more disclosure is needed of the economic interests of scientists and others who make influential recommendations on multimillion dollars.

The Bee said,

"That would do much to ensure the integrity of the Institute for Regenerative Medicine and put it on a less contentious path."

The Merc said,

"Disclosing financial conflicts at all levels of grant review is necessary to maintain the integrity of the research and the use of public dollars."

California Stem Cell Research Regulation: CIRM is Not the Only Player

So what is a woman to do? Donate her eggs to Brand X research and lose her wages or donate her eggs to CIRM research and recoup her wages?

That is one of the subjects likely to be addressed, at least in one form or another, by the other California stem cell committee. It will meet next Thursday to consider ethical standards for embryonic stem cell research that is not financed by CIRM.

This group is an advisory panel to the state Department of Health Services and has held only one meeting so far. During its initial session Feb. 24 (See "research"), it seemed in agreement on creating guidelines consistent with CIRM regulations.

The voter-approved measure that created CIRM made it constitutionally independent of the state Department of Health Services and the advisory committee.

The agenda for the committee, chaired by Henry Greely, a law professor at Stanford, is a tad shy of details. But one item to be discussed is SB1260 by Sen. Deborah Ortiz, D-Sacramento. Among other things, that measure would extend the life of the advisory panel, but it is basically aimed at protecting women who provide eggs for stem cell research.

Ortiz' bill would additionally ban reimbursement of lost wages for egg donors, which CIRM permits. (See "wages of eggs."). That is where the double standard for egg donations comes in. No reimbursement for run-of-the-mill egg donors while donors to CIRM research can recover any lost salaries. One might imagine there will be few donors of eggs for research outside of CIRM.

SB1260 would also bar women from selling their eggs for the purposes of medical research, but does not speak to the question of women selling their eggs for other purposes. The bill has passed the Senate and seems headed for legislative approval. The governor has already indicated that he favors protecting women egg donors just as long as it doesn't interfere with CIRM.

The advisory committee might also want to examine the latest critique of the CIRM research regulations by the Center for Genetics and Society. The group sent a detailed later to CIRM on its rules, which are going through the formal adoption process, recommending a number of changes, including one dealing with a loophole involving payment for eggs.

One section of CIRM's rules, accord to the center, creates a "fiction and an illusory distinction between eggs provided for fertility and eggs provided for research."

The center said,

"Common practice in fertility treatment is to pay women per cycle, not per egg, and in fact, paying women per egg would create perverse incentives as happened in South Korea for women to be given higher doses of hormones than necessary. Suppose a woman provides one cycle of eggs from which 10 eggs are retrieved. This new regulation says that if a woman undergoes one cycle and provides 10 eggs, the clinic can pay her for 8 and then pretend that she gave 2 for free! This is nothing but a sham to create compensation for eggs for research, which is against the law."

The center proposed language that reads:

"A woman providing oocytes for donation for another person’s reproductive efforts may not donate any of these eggs to research unless she has received no valuable consideration for her donation of oocytes for either research or reproduction."

The group also had more comments on CIRM's rules for informed consent arrangements, assurances of medical care for egg donors and activities not eligible for CIRM funding.

Can CIRM Help Reduce Health Care Costs?

Suggestions that the California stem cell agency create a patent pool received renewed support recently in an article that said the state has a "unique opportunity to create a climate that will not only be hospitable to innovation but also simultaneously deliver affordable medicine."

Merrill Goozner, director of the Integrity in Science Project at the Center for Science in the Public Interest, pitched his patent pool idea again in an article on PloS Medicine. The piece is titled "Innovation in Biomedicine: Can Stem Cell Research Lead the Way to Affordability?"(See the "over the top" item below for quite a different view.)

Goozner wrote that the maze of medical patents has played a significant role in increasing costs because of the "exclusive rights/high prices model" of conventional markets. He said:

"CIRM and other stem cell funders can become catalysts for cutting through this patent thicket. They can require that all grant recipients agree to donate the exclusive license to any insights, materials, and technologies that they patent to a common patent pool supervised by a new, nonprofit organization set up for that purpose. A patent pool serves as a one-stop shop where investigators can obtain no-cost or low-cost licenses for subsequent research. Patent pools have been successfully used in other high-technology industries such as consumer electronics and software to facilitate the development of new technologies that either require common standards or rest on a common base of basic research. Several patent law firms and close observers of medical research have suggested that patent pools can work in biomedicine."

Goozner also suggested that a prize could be used as a stimulus.

"A government body such as CIRM could establish a major prize for companies and institutions that collaborate to produce a successful stem cell therapy. The prize would have to be large enough to justify the substantial investment required to carry out the final stages of research. It would also have to be large enough to share with the upstream patent holders whose basic and applied research became part of the pool that led to the new therapy. One could imagine prizes in the billions of dollars based on considerations such as the prevalence and public health impact of the disease, the difficulty in developing its cure, and the capital investment required to achieve results. A prize system has been proposed at the federal level."

Goozner continued,

"By combining a patent pool, an open-source model of IP development, and a shared prize system for developing stem cell therapies, the California state stem cell program can point the way to a new medical innovation system for the 21st century. This model could be used by all advanced industrial economies grappling with how to pay for the rising cost of the new medical technologies sought by their ill and aging populations."

Goozner pushed his patent pool concept at a hearing last fall conducted by State Sen. Deborah Ortiz, D-Sacramento. The Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., has advanced it during IP hearings by CIRM.

CGS: Democrats Over The Top on Stem Cell Research

Democrats should beware of the seductive lure of stem cell research. So says Richard Hayes, executive director of the Center for Genetics and Society in Oakland, Ca.

Hayes, who describes himself as a lifelong liberal Democrat, says he is worried about the feverish efforts by Democrats to seize stem cell research as a potent vote-getting wedge issue. Why?

Writing on Tompaine.com, Hayes says,

"I’m worried because in their over-the-top enthusiasm for stem cell and cloning research, Democrats are ignoring the many ways in which it could, if irresponsibly promoted and inadequately regulated, have consequences at odds with core Democratic values. The short-term political advantage that fervent support for stem cell research now gives Democrats could backfire when the problematic aspects of this research come to light."

Hayes says "there is no question that stem cell research should go forward."

But he says some avid supporters ignore important issues, including the question of affordability.

"If stem cell-based therapies are ever successfully developed, how affordable will these be? After passage of California's $3 billion stem cell initiative last November, its leaders acknowledged that the 'individualized' stem cell therapies highlighted throughout the campaign could cost in the neighborhood of $100,000 per patient. Who would be able to afford such treatments? Individualized medicine for the wealthy is the antithesis of the affordable, comprehensive health care that Democrats have historically and correctly made a top domestic policy goal."

Hayes also says,

"Americans want stem cell research to succeed. Democrats are in a position to take the lead on this research, but with leadership comes responsibility. We need policies that allow stem cell research to proceed at a robust but reasonable pace, while imposing tough regulations to ensure that the fruits of this research are affordable by all, that they do not endanger the well-being of women who provide eggs for research, and that they are not used for socially and ethically unacceptable purposes."

Stem Cell Advocacy Conference at Stanford

Politics and embryonic stem cell research will be topic No. 1 at a conference next week at Stanford University featuring a Nobel laureate and the governor of Wisconsin, the state with the lock on the key stem cell research patents.

The Genetics Policy Institute in Florida, headed by Bernard Siegel, is sponsoring the June 10-11 event, which is called, “Stem Cell Policy & Advocacy Summit: Empowering the Pro-Cures Coalition.”

Scheduled speakers include Paul Berg, the Nobel laureate, Wisconsin Gov. Jim Doyle, California stem cell Chairman Robert Klein, Michael West of Advanced Cell Technology of Alameda, Ca., and Larry Goldstein of UC San Diego, among others.

You can find more information about the conference by clicking here.

"Dualing" Execs at CIRM: Touchy Issues Between Klein and Hall

On the surface, the problem seemed ridiculously simple.

But at its heart lay matters of trust between two strong executives in a new, $3 billion organization hobbled by an inflexible structure virtually impossible to change.

The flap surfaced at the May 19 meeting of CIRM's Governance Subcommittee. The nominal topic was internal policy at the California stem cell agency – normally a soporific subject. But all were alert when the focus fell on who decides which staff members will have offices with windows and who approves travel – Robert Klein, chair of the CIRM Oversight Committee, or Zach Hall, president of CIRM?

The details, however, are less important than what they reveal about CIRM, the Oversight Committee, its two top executives and their relationship.

The transcript of the session exposes an organizational rawness that rarely is seen in public from any business or government agency. Most of the members of the Oversight Committee have undoubtedly encountered comparable situations from time to time in their careers as managers and executives. But dealing with it was troubling for some.

"If there's just not a level of trust with the president and the office of the chair...it causes me great concern and heartache," said David Serrano-Sewell, a member of the Oversight Committee and a patient advocate. He added that "a million people are coming after us" and that the agency did not need internal dissension.

Another member of the Oversight Committee, Claire Pomeroy, dean of the UC Davis Medical School, was among others concerned about the relationship between Klein and Hall. "If we have a situation where our chair does not trust the president will make appropriate decisions about the travel budget and office space, then that's a larger issue," she said.

Normally such a management split could be resolved relatively easily or avoided entirely by an organization's board of directors – the Oversight Committee, in the case of CIRM. But the voter-approved law that created the stem cell agency spells out in statutory language the specific duties of the president and chair of the agency and creates something of a dual executive situation. Many of Klein's and Hall's responsibilities are locked into state law that cannot be touched by the legislature for two years or so, and then changed only by a super-majority vote of both houses and the signature of the governor.

Adding to the complexity is the 29-member Oversight Committee, a quasi-legislative body attempting to act as an executive committee. The group does reasonably well as a deliberative body, but sometimes it resembles nothing more than an elephant trying to dance as it wrestles with its executive chores. In this case, months ago it approved organizational details that created more overlap in the dual executive situation. That might not have been a problem if Hall or Klein were a weaker leader or manager. But both are strong, capable executives, albeit with different personalities and styles.

The issues reflect "tensions and challenges" rumbling through CIRM for the past year, according to Oversight Committee member Philip Pizzo, dean of the Stanford University School of Medicine. Those tensions surfaced when Hall presented the Governance Subcommittee with a draft of CIRM's mostly routine internal policies. He said that he and Klein were in agreement except for two issues – who controls office assignments and travel, particularly out-of-state travel.

The two men have discussed the matters since September, when Hall was named permanent CIRM president, but he said they have been unable to resolve their differences. Hall asked for a decision by the subcommittee.

He said he was held accountable for the activities of all CIRM employees, including those assigned to the "office of the chair."

"I need to be sure that both whatever is done are things that I can defend as a responsible manager and administrator of the institute and also that policies are applied consistently across the institute so that we're one organization and not two....I feel very strongly about it," Hall said.

Later he said in reference to such matters as assignment of offices,

"All these little status things sound small, but in actual fact they weigh heavily often in terms of people's morale and the sense that there's a set of rules and that they're applied fairly to all people."

For Klein as well, it was a matter of responsibility. He said,

"First of all, the chairman is responsible as an individual to the board and to the public. and if the chairman isn't responsible, there shouldn't be the chairman."

He also said,

"I don't want responsibility without the ability to perform. And what's important here is that the office of the chair is responsible to the board for many functions. And if we're going to micromanage the ability to perform those functions, the office of the chair, whether I fill it or you get somebody else to fill it, will not be able to perform."

As the discussion intensified, Klein responded to one question by saying:

"I'm limited out...I'm really at the edge where if I'm going to be able to perform, having another level of approvals is just so redundant, that I question the organization and the burdens being put on me and whether they're reasonable."

Ultimately the subcommittee approved a motion that said expenses for travel exceeding those budgeted for the office of the chair must be approved by the president. Hall and Klein were directed to work out a "peaceable solution" on a system for office assignments, with the assistance of Tina Nova, CEO of Genoptix, Inc., and also a member of the Oversight Committee. "If there is disagreement," the motion said, "it is the president's final approval authority that stands."

The split could surface again on Friday when the internal policies of CIRM come before the Oversight Committee in a public session. The matter may arise as well behind closed doors as a personnel issue.

The fundamental problem, however, is not going to go away easily, as more than one Oversight Committee remarked.

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For a look at how Klein views the specifics on the travel issue, see the item below that includes comments from Hall and others. Klein's office is budgeted $30,000 for travel for the current fiscal year, up from $20,000 earlier. The office of the president is budgeted $6,000 for travel, up from $5,000. Another $5,000 is also budgeted for travel by the agency's science and administration offices. For the first six months of the next fiscal year, $37,000 is budgeted for all CIRM travel.

You can find the full transcript of the subcommittee hearing here. The discussion begins on page 54. A cautionary note: It is easily to misunderstand emotions and emphasis in raw transcripts that are missing voice inflection and other nuances. Read with care.

CIRM Travel Comments

Here are comments from Robert Klein, chairman of the California stem cell agency, and Zach Hall, president of CIRM, concerning out-of-state travel and related comments from two Oversight Committee members.

Hall introduced the topic of travel at the May 19 Governance Subcommittee meeting by saying,"

My understanding is that all out-of-state travel and out-of-the-country travel requires my approval. And I think the reason for that is in the end I'm held responsible if we have abuse or misuse. This is the kind of thing that is apt to, I think, make the headlines, and I also think that this is an area in which we need consistent policies across the institute. And so although my intent is not to micromanage here, but simply to be sure that in the final analysis, since I'll be held responsible, I want to be sure that I am able to approve those."

Later Klein said:

"What's important here, if I have to go to Washington, D.C., on a drop of a hat because Frist moves the Castle/Degette bill in the Senate without notice -- which is, in fact, the anticipated strategy – I need staff that may have to pack on a weekend to get there. And I will be rearranging my life as well as my business as well as all of our CIRM functions, and having another level of encumbrance, we still have to get to ... to get the state director of finance's approval, and we have budgeted in our budget out-of-state travel for staff that we have support in situations like that. So fulfilling my function just on a real-time operational basis is challenging at best. and as long as we're within the budget here, I need to be able to do that to perform my functions that are critical to the mission."

Philip Pizzo, dean of the Stanford University School of Medicine, responded shortly thereafter with a quick follow from Claire Pomeroy, dean of the UC Davis School of Medicine.

Pizzo:

"In fairness, I think all of us can resonate to the boundaries surrounding this. If I needed to, you know, get approval to travel to Washington because of (a) key issue, I would object to that as well because I think I need to make certain decisions about that."

Pomeroy:

"I have to get approval every time I travel."

Pizzo:

"Well, that's why I left the NIH actually, to be honest with you."

Pomeroy:

"You work for a private organization, and CIRM is not a private organization."

Staff Turnover at CIRM

Two "veteran" staffers of the California stem cell agency are leaving the agency. We place "veteran" in quotes because both have been in place for only a little more than year, but that does make them relatively long term employees in an organization that still has not reached its second birthday.

One of them is Walter Barnes, chief administrative officer, and the other is Nicole Pagano, who has served as the spokeswoman for CIRM.

Barnes initially was on loan from the state controller's office to CIRM as it struggled in January 2005 to set up procedures and to learn the ropes of being a state agency. Barnes plans to leave CIRM in mid-September.

CIRM President Zach Hall described Barnes as "invaluable and superb."

"He's been an incredible link to the state government. He's advised us all in the ways, arcane ways, of being a state agency in government, and so we are going to miss him," Hall said.

Hall's comments came at the May 19 meeting of the Governance Subcommittee when news of Barnes departure slipped out.

Barnes said,

"This is a major, major jewel in my crown as I get ready to retire. I can't think of any way I would have preferred to spend my last years."

Pagano's departure also slipped out. Stem cell chairman Robert Klein said Pagano has done a "fabulous job."

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumers Right and a once a newspaper editor, told the subcommittee,

"She's been a wonderful press person to work with. I'm a former journalist, and you often don't run across talented and capable professionals in that side of things. She's been outstanding, and we're going to miss her."

No replacements have been announced.

Klein Caught in Stem Cell Blow-back

California stem cell chairman Robert Klein was hoist on his own political petard during an ironic moment involving legislation to tighten oversight of the California stem cell agency.
The subject was SB401, which would be placed on the ballot for approval by voters.

Klein, an attorney and one of the main authors of Prop. 71, objected strongly to the proposal during the last meeting of the Oversight Committee. Among other things, he told the CIRM overseers:

"This is legislation that creates an initiative. So if this is passed, you can't even, if there's an error in it, you couldn't even change it with (normal) legislation. You have to go back to the voters with an initiative. So it's not just what's being attempted, but the form of what's being attempted. Is an initiative to the voters necessary? That's a question. And is an initiative to the voters premature?"

Klein is exactly right – at least about the nature of SB401. He used the same technique (Prop. 71) to create the stem cell agency and froze out nearly all normal government oversight of CIRM. Klein sees the absence of what he perceives as political interference as an asset for the agency. That is why the folks that see defects in Prop. 71 – and there are many – have to resort to ballot measures to get the attention of CIRM. It happened last year at this time with SCA13, and it is happening again with SB401.

Just call it stem cell blow-back.

(For more on the views of the Oversight Committee concerning SB401, see the transcript of the April 27 meeting. The subject comes up again this Friday at the next meeting of the group.)

Ortiz' CIRM Bill Delayed Until August

Action on sweeping legislation to tighten oversight of the California stem cell agency has been put off until late this summer.

The measure, SB401 by Sen. Deborah Ortiz, D-Sacramento, was amended at her request to eliminate a provision to place it on the fall ballot. That removed the most imperative reason for quick action on the bill. (See "critical elements." )

Her office said the proposal will not be heard in the Assembly Appropriations Committee until August when the committee takes up other Senate-passed bills. CIRM's Oversight Commmittee is scheduled to discuss its position on the measure at a meeting Friday.

Another stem cell measure by Ortiz, who is the most influential state legislator on stem cell matters, cleared the Senate floor this week and moved to the Assembly.

That bill, SB1260, is aimed at protecting women who donate eggs for stem cell research. It would not affect research financed by the stem cell agency, which has approved separate standards.

This is Ortiz' last term as a state senator and chair of the Senate Health Committee. She is running in next week's primary election for the Democratic nomination for California secretary of state.

See this link for the latest Senate analysis of SB1260. See this link for the CIRM analysis.

BioCentury: NIH Looking Korean Stem Cell Lines

BioCentury, which offers business intelligence for the biotech industry, has come up with an item concerning the use of Korean stem cell lines in the United States. It is not clear whether any California institutions are affected.

Here is the headline and lead paragragh:

"NIH halts use of Korean stem cell line

"An NIH spokesperson said the institute has received 'credible information' that a South Korean hospital has replaced a federally approved human embryonic stem cell line with an unapproved cell line. NIH's John Burklow told BioCentury that the institute has launched an investigation, and NIH intramural and extramural researchers will be notified that they should halt all research involving the Miz-hES1 stem cell line from the MizMedi Women's Hospital in Seoul. NIH estimates that three of its intramural scientists and a "handful" of extramural grantees have received Miz-hES1 cells and will have to halt ongoing projects."

Uncertainty and the Ostensible Stem Cell Swag

How can California share the wealth from inventions created by California businesses that receive funding from the state's stem cell agency?

Ed Penhoet, a multimillionaire businessman and vice chair of CIRM, will offer some thoughts on the subject next Friday at a meeting of the agency's Oversight Committee.

Penhoet is chair of CIRM's Task Force on Intellectual Property, which has held two hearings in the past few months on the matter of splitting up the ostensible booty. Businesses, industry organizations, economic developers and nonprofit groups have testified. At least one more hearing is scheduled. Given the complex and difficult nature of the subject, that may not be enough.

Penhoet's role so far seems primarily as a facilitator. If he has specific approaches he favors strongly, they are not readily apparent, based on an examination of the transcripts. The closest he has come to staking out a position may be a comment in the April 27 meeting. He said that there should be a return to the state if the technology is successful. He also said it should be capped, which helps deal with businesses' uncertainty about the size of their ultimate payouts.

Uncertainty is one of the themes underlying the entire IP issue. No certainty exists, for example, that any CIRM-funded inventions will generate significant amounts of cash, despite grandiose assumptions by some. As Duane Roth, one of the newer members of the Oversight Committee and CEO of Alliance Pharmaceutical Corp., said, "100 percent of nothing is nothing."

At the April 27 meeting, Roth laid out a framework for any IP policy:

"What I think you're trying to do with intellectual property for start-up companies is create an environment where you can leverage financing and try to get people to invest in an idea, a dream. and they aren't going to do that unless they think, if they go through all this work and expense and risk, that there in the end is return. That's the first thing IP needs to do.

"The second is you want that IP to lead to products that actually get to people. and from our standpoint, you start these things, and that's what it's all about, getting products to patients. Taking good science and develop products and get them to the people that need them.

"The third consideration, and an important one, is royalty. If there is a contribution to the intellectual property that eventually leads to a product, which is a rare occasion, then there should be a sharing of the profits that are derived from that."

Roth's view was one of many expressed during the IP hearings. John M. Simpson, stem cell project director of the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., advocated state ownership of patents on CIRM-funded inventions by businesses, 25 percent royalties, low cost access to the therapies, patent pools and designation of the state attorney general as the enforcer of IP agreements. Simpson prepared a position paper for CIRM which said,

"Already some biotech executives have said the industry will decline CIRM money if the companies must share the rewards of Proposition 71 stem cell research grants with California taxpayers who put up $6 billion to finance the research. Too many biotech companies act like committed socialists when it comes to taxpayers and the government bearing the risk of drug development. But they are greedy capitalists when it's time to parcel out the profits."

"Ignore the bluff and blustering threats of picking up the Petri dishes and going home if they don't get their way. Any attempt to grab 'free money' without equitable public benefit requirements for biotech won't work. First-class companies understand that with the acceptance of taxpayer dollars comes the responsibility of public benefit. And with $3 billion on the table, there will be plenty of top-flight firms and researchers ready to play by fair rules like those outlined here to search for cures.

Julie Meier Wright, CEO of the San Diego Regional Economic Development Corp., said 25 percent was unrealistic, suggesting other figures that were as low as one percent.

"Three billion dollars in California sounds like a lot of money, but it will be spread over ten years and over a broad array of investments for many worthwhile endeavors. so even if CIRM makes what for it would be a significant investment in a for-profit company developing new therapies, this investment will likely be a small percentage of the total investment required to bring these therapies to commercial success," she said.

"So if you assumed a $10 million investment, and I don't know what your threshold for investment is going to be, but a $10 million investment in a young company that ultimately requires $500 million before commercial success, CIRM's investment is 2 percent. So my question is how does a 2-percent investment warrant onerous royalties or IP requirements?"

She continued,

"The framework that you've developed for not-for-profit institutions was the 25-percent royalty payment would truly be a disincentive on the private side to attracting private capital. and I think most private investors would tell you that they don't expect more than 1- or 2-percent royalties on therapeutics and maybe 5 percent or so on medical devices. so you could have the unintended consequence of discouraging private sector investment with some things that would be very good, and it could prevent CIRM from really being a catalyst for the best ideas and the best science at a really critical time in the life cycle of a for-profit company."

She and others focused on indirect but unquantified benefits to California, such as enhancement of the biotech industry, which in turn will generate business and income taxes and lead to related economic growth. Again, projections filled with uncertainty.

Representing the biomedical industry was John Gollaher, president of the California Health Care Institute, who emphasized what business can bring to stem cell therapies.

"CIRM should discount any claim that stem cell science can benefit patient groups without aggressive participation of commercial companies. The fact is that we live in a market-based, market driven economy, and the theory that most commercial companies operate on is the theory of capitalism And the best distribution of goods and services happens through the active participation of the market and of commercial enterprise. and, again, any of us who spent significant time in academic institutions or within government institutions, I think, have a low level of confidence in the ability of those organizations to quickly move technology through the widest possible allocations for the greatest public benefit.

"Finally, CIRM should discount attempts to regulate commercial transactions in ways that discourage participation of the best companies and entrepreneurs. I think the concern that we've heard more than once is that the more strenuous conditions, royalties, caveats that are attached to technology transfer relationships, the more reluctant commercial participants are to capitalize on those relationships and those technologies. So I think from CHI's point of view, guiding principles for CIRM with respect to commercial IP policy should be, first, maximum acceleration of the best science. And whether that science as technology exists in a commercial company or in an academic institution, CIRM should be rigorous and thoughtful in making investments behind the best science. CIRM has collected an astonishingly good set of expert scientific reviewers, and the ability of CIRM to make intelligent judgments with respect to where the best science is and where funding opportunities lie, I think, is superb and should be applauded."

Joydeep Goswami, vice president, stem cell and regenerative medicine, Invitrogen Corp., Carlsbad, Ca., discussed motivations for companies to seek financial assistance from agencies such as CIRM. He said CIRM grants might back research that a company could not currently fund or research that "doesn't make economic sense to fund immediately."

In the case of his publicly traded company, Goswami said,

"There are some very serious conditions of the kinds of risk profile of investments we make and the research we conduct. So having public funds or government funds sometimes allows us to take on risk profiles and projects that the market would not, frankly, like us to take...but it could have rewards for the research community and others."

Allan Robins, vice president and chief technical officer of Novocell, an embryonic stem cell company in Irvine, Ca., spoke about his company's experience with the Juvenile Diabetes Research Foundation, an organization whose research funding program was viewed favorably by several of the IP Task Force members. Robins said the foundation's contracts are individually negotiated, which he recommended that CIRM emulate. He also said the foundation's contract with his firm did not require royalties. Rather it asked for repayment of three times of the total, depending on product sales. Robins also objected to Simpson's 25 percent royalty figure as too high.

Here are links to the full transcript of the April 27 hearing and the Power Point presentations by Simpson, Gollaher, Robins, Wright and Goswami. See "swag" and "greed" for discussion of the earlier meeting this spring. Closely related to the IP discussions is the strategic planning process now underway at CIRM. You can find more on that by clicking here.

WARF: Onerous and Outrageous

The friendly folks at WARF were thrashed thoroughly at last month's meeting of the California stem cell agency group looking into who gets the money from stem cell inventions.

John M. Simpson, stem cell project director for the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., led off the April 27 session of CIRM's Intellectual Property Tax Force with a statement of some vigor. "Really outrageous" is how he described the WARF stem cell patents.

We have presented Simpson's position before so we will offer up the thoughts of others at the April 27 meeting, but first a comment from Ed Penhoet, chair of the IP Task Force. His statement came late in the meeting after he listened to much of what you will read below.

Penhoet said,

"There is a thread in these conversations: Patents are extremely important...except the ones they don't like.... You can't have it both ways. So hopefully the field as a whole can reach some sensible accommodation to WARF for the pioneering work that they did do, but at the same time not stop the entire field from going forward. It's a hard problem actually."

Penhoet also said that WARF has been invited to make a presentation before the IP Task Force.

Penhoet's comments, however, do little to minimize the deep seated antipathy to WARF's position as reflected in the comments below. One might imagine that WARF might be concerned that potential customers are so distressed.

Joydeep Goswami, vice president, stem cells and regenerative medicine, Invitrogen Corp., Carlsbad, Ca., was asked whether the WARF patents are "a significant obstacle to private investment."

His reply:

"I think they are....I know a lot of you know about the WARF policy for not-for-profit research tends to be somewhat, well, somewhat generous, although many scientists that we have spoken to are quite taken aback at some of the restrictions that are put on academic institutions in terms of collaborating with companies such as us.

"For private institutions, I think it is a big disincentive because what WARF does is it looks at the size of the institution or the company that wants to license this product and wants to charge an upfront payment, which is very steep in any licensing terms, and then, of course, royalties obligations which are twofold. one, a direct royalty obligation which depends on products directly produced using stem cells, human embryonic or primate embryonic stem cells, but they also have a reach-through royalty clause where they say anything you've invented remotely by using human embryonic stem cells will now have a royalty obligation back to WARF. So, for instance, even if you had a treatment that was somehow brought to the market that has touched an embryonic stem cell in the United States, you will have to pay a royalty back to WARF. I think this is particularly onerous....

"Let's say we make a discovery of a tool using at some point a human embryonic stem cell. They want a royalty back on that particular product. and not only do they want a royalty back on sales of that product to the embryonic stem cell market, but any market that we touch, they want a royalty back on that particular tool. So it is quite onerous."

Francisco Prieto, a member of the task force, then asked, "Even markets outside the United States?"

Goswami:

"Yes. In general they would. See, the other part is...if you look at companies in the United States versus outside...which is actually even more interesting. Let's say there's a company in India....For anything they do with respect to human embryonic stem cell research, they owe no royalties to WARF. They do not have an obligation to WARF in any manner, way, shape, or form, and they can develop exactly the same therapies companies in the United States are trying to develop without any kind of restrictions or obligation to WARF. So from that point of view, setting up a company to do stem cell therapy in the United states, I think, is a major disincentive, and people are not realizing this business issue....The issue is not whether the patent is legitimate or not, but there are serious business implications of the patent in making cures available to the public here."

Later, Allan Robins, vice presidennt and chief technology officer for Novocell Corp. of Irvine, Ca., said,

"I thought Francisco (Prieto) brought up a very good point. and, Joydeep, I just wanted to add a little bit to your answer.....If a company in the field or the United Kingdom or Singapore develops a product or human embryonic stem cells and that product is different from the human embryonic stem cell, that product can be imported into the U.S.A. and sold here, and that would not infringe the (WARF patent) line. and so you really are putting companies that operate in the U.S. at a disadvantage."

Goswami:

"That's a great point."

Prieto:

"That was sort of what I was starting to glean from this that as they currently operate, that these patents are a disincentive to the research in the United States."

Goswami:

"It is enormous. And the patents only, as Allan rightly points out, are to the composition of matter of the primate embryonic stem cell and the method of derivation. So absolutely."

Later Goswami said:

"The (WARF) licensing model is...is huge upfront payments for a field that is, you know, pardon the pun, but embryonic. Just from a business point of view, it makes very little sense. and that's why maybe CIRM could help in enabling that particular patent because it will be used by almost everybody that is engaged in this form of research in the state of California."

We should note that the WARF issue was only part of the IP discussions. The full text of the session can be found by clicking here.

Looking at Legislation to Aid Biotech Biz

"Investors' disinterest" in California biotechnology came up for examination in a recent piece in the Vacaville Reporter, the daily newspaper for the community that lies between San Francisco and Sacramento.

The article by business writer Amanda Janis focused on the "realities of the manufacturing side of biotech." It was of interest to Vacaville readers because of the area's efforts to land biotech manufacturing facilities. But the piece also has interest to California as a whole.

Janis wrote:

"Industry leader Genentech chose to build its new $250 million facility in Oregon, where corporate income tax structures are more favorable. Then there was the start-up firm that passed on Vacaville in order to capitalize on biotech tax breaks offered in Washington. And most recently Chiron parent Novartis announced it would build a $400 million vaccine plant in the United States, but not in California."

She touched on state legislation aimed at helping the biotech business.

"Proposed bills include changing the corporate income tax structure with a four-year phase-in of single sales apportionment tax (an issue Genentech calls its primary legislative concern); sales and use tax exemption on manufacturing equipment; extension of research and development tax credits; and the allowance for companies to sell their net operating losses to other companies, which would gain a tax credit.

"The latter proposal, which has found success in states like New Jersey, has some of the greatest potential impact because of the loss-operating nature of the biotech industry, according to Matt Gardner, president of trade organization BayBio.

"'It takes 15 years for us to get a product,' he noted.

"Another proposed bill in California would help level the playing field, he said, because it would allow for designated "shovel-ready" land, or land that has been pre-zoned, with environmental impact reviews completed."

Legislation to help out the biotech industry has received little notice. But it is likely to become increasingly important to the industry as the CIRM investments ramp up.

WARF to CIRM: Don't Mess With Us

The Wisconsin Alumni Research Foundation has served notice that it is going to slug it out with the California stem cell agency on the matter of stem cell patents.

Referring to comments in California concerning WARF's position on the Wisconsin patents, Andrew Cohn, government and public relations manager for the organization, said, "These folks are absolutely going off the deep end. If it wasn't for WiCell and for the University of Wisconsin, they wouldn't have anything to spend the $3 billion on in the first place."

Cohn was quoted in a piece by Joe Vanden Plas on the Wisconsin Technology Network. Vanden Plas said the patent dispute between California and Wisconsin "promises to be an intense fight." Cohn's pugnacious language certainly seemed to confirm that. His rhetoric was definitely more aggressive than comments made by WARF General Counsel Elizabeth Donley earlier this year.

The Wisconsin article noted that WARF this month was awarded $1 million in a case against Xenon Pharmaceuticals. Cohn said, "WARF has proven over and over again that it will enforce its patents and its contracts. This company [Xenon] made a very, very bad tactical decision by trying to get out of, or trying to ignore the contract they made with us. They are now paying for it dearly."

The starting point for Vanden Plas' article was a statement by the Foundation for Taxpayer and Consumer Rights of Santa Monica, Ca., that said a recent U.S. Supreme Court decision means that WARF has less power to assert "dubious patent claims to control all human embryonic stem cells in the United States."

Stem Cell Snippets: Swells, Scholars and Door Knockers

Here are links to recent, interesting news stories, press releases or information connected to California stem cell issues.

CIRM Gala – Aldrich Tan writing on sanfranciscosentinel.com – Possibly the only coverage of the event, includes many photos with the headline "Swells turn out in force to support CIRM fundraising event."

CIRM Scholars – San Francisco Business Times -- "Demand for fellowships funded by the California Institute for Regenerative Medicine's training grants are far outstripping available spaces, according to Bay Area institutions awarded funding."

Q&A with Alan Lewis, new CEO of Novocell, of Irvine, Ca. – Written by Terri Somers in the San Diego Union-Tribune – Lewis, who is fond of "photographing old door knockers," says, "We expect to be the only company to provide a cell therapy for all insulin-requiring diabetics -- approximately 6.5 million patients in the U.S. alone. We also expect to generate an unlimited source of insulin-producing cells that we can encapsulate to deliver under the skin to this group of patients and hopefully change their lives by reducing dramatically their need for insulin shots as well as the many diagnostic procedures they face each day."

The Chronicle Calls for SB401 Compromise

The San Francisco Chronicle is telling the California stem cell agency and the state legislature's most influential stem cell advocate to settle their differences and move on with stem cell research efforts.

In an editorial, the Chronicle said that it would be better to avoid a ballot measure on the stem cell agency, which would be required by legislation – SB401 – authored by Sen. Deborah Ortiz, D-Sacramento, chair of the Senate Health Committee.

The Chronicle said,

"Ortiz has helped open a dialogue with the CIRM that will prove immensely useful to the public as their money is spent over the next decade. In her bill, she has prodded CIRM to adopt intellectual-property standards that would require for-profit companies using Prop. 71-funded research to return some revenue to the state, and the agency has agreed. She has also asked the board to take publicly available financial conflict-of-interest statements for the scientists who will review grant applications -- and it's still resisting."

The Chronicle continued,

"Far better would be for Ortiz and CIRM to work out their differences -- which, from where we sit, don't look too daunting -- outside of legislation. Ortiz is reasonable and flexible -- last week she agreed not to push SB401 for the November ballot. In recent months, CIRM has made an exemplary effort in trying to balance the concerns of industry, taxpayers and scientists as it proposed high governing standards. Ortiz's move allows not just her, but also a host of other interests, a tremendous opportunity to engage CIRM as it firms up a set of guidelines that take into account what's best for everyone in California.

"The key will be to lock in these regulations so that promises of transparency and checks against conflicts of interest are not dependent on the whims of whoever happens to be in charge of the stem-cell program at any given moment."

There is a bit of a rub in the "lock-in" requirement proposed by the Chronicle. The only way to do that is with a ballot measure. Indeed Proposition 71 is perhaps the best example of locking in matters bettered suited for regulation or legislation. If CIRM were not "locked in" the state constitution, it could have avoided some of the problems that have beleaguered it. Others, however, may well have arisen.

Regulations enacted by CIRM can be changed by CIRM. But Ortiz last year was satisfied with other regulations approved by the stem cell agency. And she may well be satisfied with them again.

Legislation, Budget and More on Oversight Committee Table June 2

CIRM's Oversight Committee is scheduled next week to take up sweeping legislation that would make major changes in the operations of the California stem cell agency.

Also on the table at the June 2 meeting in La Jolla are conflict of interest regulations for CIRM working groups, one of the issues involved in the legislation, SB401 by state Sen. Deborah Ortiz, D-Sacramento. Last week Ortiz said she would modify her bill substantially to mollify critics, including removing a provision that would have placed it on the November ballot.

She has indicated that she is not wedded necessarily to a legislative or electoral answer to her concerns. It may well be that the Oversight Committee may find some common ground at its meeting.

Also on the agenda are a report on the efforts to define an intellectual property policy in connection with grants to businesses, the strategic plan, regulations on human stem cell research and the agency's 2006-2007 budget.

Some of the background documents are available on CIRM's Web site, largely ones that have been previously posted for subcommittee meetings. The report from the legislative subcommittee is not yet available nor is the the 2006-2007 budget or additional information on the the conflict of interest regulations.

San Diego Paper Had It First

A national story earlier this month involving the resumption of the human embryo cloning at UC San Francisco is a good example of how the media works – or doesn't work.

The case in point was a piece in the Wall Street Journal that said UC San Francisco was going to restart its program. The story was a follow on a story in the San Francisco Chronicle, which is obviously read by Journal reporters.

What neither story pointed out was that it was a bit of old news. Reporter Terri Somers of the San Diego Union-Tribune actually had it on Jan. 11, but the San Diego paper is not one that is regularly examined by reporters and editors of national publications or for that matter the San Francisco Chronicle. Her story said,

"California scientists are planning to jump into the field of cloning human embryonic stem cells now that a South Korean scientist who claimed to have mastered the technique has been exposed as a fake."

She focused primarily on research efforts in San Diego, which is a hot bed of stem cell research, mentioning the San Francisco effort deep in her story.

The episode is a good illustration of the tunnel vision of national news gathering organizations -- not just the WSJ -- which rarely detect what is happening outside of what they perceive as the major news centers.

The California Stem Cell Report carried an item in January on Somers' story but also failed to note specifically the UC San Francisco effort. We thank patent attorney Lawrence Ebert for pointing out Somers' work to us.