Update on Legal Actions Against CIRM

Someone queried us the other day concerning the effort by the losers in California stem cell trial to overturn the verdict that favored CIRM. "What is going on?" was the question.

The answer: Not much.

As of Friday, the losers had failed to file their brief with the appellate court. Once that happens, presumably later this month, CIRM will file its response. Then the losers will get a chance to rebut.

In an interview today with the California Stem Cell Report, Tamar Pachter, the deputy attorney general handling the case for CIRM, noted, however, that the appeal is on an expedited calendar so the matter should move more quickly than normal appeals.

She also said that another action, originally filed in the Sacramento by the opponents of the agency, has been modified substantially. Originally the action sought to block CIRM training grants to the University of California on the grounds that they violated state law. That argument has been altered to contend that the grants violate only Prop. 71. Pachter said she expects that such arguments are likely to become commonplace as CIRM issues more grants.

Another Reason for Public Disclosure by CIRM Grant Reviewers

The California stem cell agency says that the scientists who make "recommendations" regarding who receives hundreds of millions of dollars in grants do not need to disclose publicly their financial interests.

On Sunday, however, the Los Angeles Times carried a piece that demonstrates again why public disclosure is needed.

Reporter David Willman wrote.:

"A senior researcher at the National Institutes of Health engaged in 'serious misconduct' by entering into dozens of unauthorized private arrangements with drug companies and failing to report annually the outside income, totaling more than $100,000, a confidential internal review by the agency has found.

"Officials at the NIH concluded late last year that the actions of Dr. Thomas J. Walsh, who has helped lead major clinical trials involving cancer patients, might result in dismissal from federal government service. No disciplinary action has been taken.

"The internal review, conducted by lawyers and other ethics specialists within the office of the NIH director, found that from 1999 to 2004, Walsh received fees totaling $100,970 from pharmaceutical and biotechnology companies. He accepted fees from 25 companies and has led government-sponsored research involving some of those companies' drugs."

In this case Walsh allegedly failed to disclose to NIH. One has to ask the question: Would public disclosure have prevented the alleged misconduct? That is impossible to tell, but it would have raised the importance of the issue to a higher level and added a deterrent component. It would have also led to critical oversight from various public watchdog groups that love to forage in public documents. With public disclosure presumably it would have taken less than five years for the alleged misdeeds to surface. (Five years, by the way, is about 60 percent of CIRM's remaining life.)

The Walsh story is not isolated. Conflicts of interests are widely reported in medical research and are probably impossible to avoid. All the more reason to bring the financial interests at play out into the sunshine.

As for the use of quotation marks around the word recommendation in the first paragraph of this item, the reviewers do make recommendations on the grants but those are virtually de facto decisions, a position that we acknowledge CIRM disagrees with.

Stem Cell Snippets: Starters to Strategic Planning

Links to interesting pieces and announcements involving California stem cell issues.

Stem Cell 'Starter' – The tale of Jennifer Cash, a UC Davis grad student and a worker well down the stem cell food chain. She is trying to concoct a stem cell 'starter' medium, according to a writer Sam Whiting in the San Francisco Chronicle.

Cautionary Piece – An Australian web site has a summary of an article that is called a "cautionary tale" about the California stem cell agency. The original article, by Tamra Lysaght of the University of Sydney, was published in the Journal of Bioethical Inquiry but is not yet available online.

CIRM Strategic Meeting – On Friday, CIRM will hold a meeting in San Francisco of its Strategic Planning Advisory Committee. The agenda includes a report on the Aug. 26 Diversity Focus Group Meeting and a progress report on the strategic plan.

No Time to Weaken 'Second Level of Oversight'

Should the public officials who monitor the financial practices of the $3 billion California stem cell agency have to disclose their financial interests as state law requires?

In a word, yes.

And it is surprising that consideration of seeking an exemption from financial disclosure is even on the board's agenda for its first meeting.

State regulations permit exemptions from disclosure only if the state entity is powerless (has no decision-making authority), has few funds (budget less than $150,000) and will own no real estate. Nominally the Citizens Financial Accountability Oversight Committee seems to meet that criteria. It can only review and make recommendations to CIRM.

That said, CIRM Chairman Robert Klein has cited the importance of the committee. He has called it "an extraordinary response" and "an unprecedented second level of oversight." Klein made his remarks at the March 1, 2005, meeting of the CIRM Oversight Committee.

State Controller Steve Westly, chair of the financial accountability group, was at the same meeting to caution the stem cell agency to mind its financial Ps and Qs. He said CIRM amounted to a kind of "public covenant" with the public making the investment and taking the risk. Westly said:

"Bob's exactly right. These are large numbers. The public wants to know there's every level of scrutiny."

As to the financial accountability committee, Westly said:

"It's a double blind check. We want to make sure we get it right for the public."

The committee was also cited by the state Department of Justice in its so far successful legal defense of the agency against those who seek to kill it off. In legal filings, the Justice Department mentioned the committee as one of the methods by which the state "generally exercises management and control of state institutions and public officials." That's important because normal state oversight of CIRM does not exist. Neither the governor nor the legislature can alter CIRM's budgets or operations.

One watchdog group, the Foundation for Taxpaper and Consumers Rights, has written to state Controller Steve Westly objecting to any exemption.

John M. Simpson, stem cell project director for the foundation, said:

"Full disclosure of interests of committee members is imperative and they must be seen to be held to the highest ethical standards."

It is not hard to conceive of genuine conflicts of interests arising involving the committee. At least two of its six members are very wealthy individuals with a wide array of financial interests. Mrytle Potter, for example, had 25 years of experience as a top executive in the biotech industry, including time with Genentech. Richard Siegal "built (an oil exploration) company that has raised, deployed and accounted for hundreds of millions of invested dollars." He also has donated large sums to various kinds of medical research.

These are extraordinarily capable people who bring valuable experience and insight to CIRM's operations. They also bring a web of financial and business ties that may or may not constitute conflicts of interest as they critique CIRM's financial practices and performance. For example, it is not hard to imagine that an enterprise favored by one of the financial committeee members could find a more friendly reception at CIRM than your average proposal.

We understand the burden that disclosure places on folks such as Siegal and Potter. They may even resign from the committee rather than make a public disclosure. But openness and transparency concerning the public's multibillion dollar investment should come first.

Disclosure Exemptions Are Few

The state has only granted three exemptions from its requirements for public disclosure of the financial interests of high level public officials.

According to the Fair Political Practices Commission, they are for the California Commission on the Fair Administration of Justice, the Medication Errors Panel and the California Alliance to Combat Trafficking and Slavery Task Force.

The regulation permitting exemptions is relatively new, adopted only on Jan. 28 of this year.

The California Stem Cell Report has attempted for several days to determine who was directly responsible for placing the exemption issue on the agenda of the Citizens Financial Accountability Oversight Committee. We have been shuttled between the state controller's office and the Department of Justice without receiving a forthright answer, which may attest to the sensitivity of the issue.

But presumably state Controller Steve Westly put the matter before the committee. He is chair of the committee in question and has control of the agenda.

Coming Up

Later today we will examine in more detail the proposal to exempt from financial disclosure laws the members of the group charged with overseeing the financial practices of the California stem cell agency.

Senators Scold Visibily Shaken Lanza

The flogging of ACT continues.

Two U.S. senators "lashed out" yesterday and "scolded" Robert Lanza of Advanced Cell Technology of Alameda, Ca., concerning the company's recent announcement of a new method of obtaining embryonic stem cells.

"You're on the ropes!" a combative Arlen Specter, R-Pa., told Lanza, according to an account in the Washington Post written by Rick Weiss, who reported that Lanza was visibily shaken. Sen. Tom Harken, D-Iowa, also scolded Lanza.

Both Harken and Specter support ESC research. They told Lanza at a Senate subcommittee hearing that he and his company have, according to Weiss, "harmed the struggling field by overstating their results."

It is not often that a scientist is blessed with such attention from such august public servants.

Also excoriating ACT, but in a different forum, was Glenn McGee, director of the Alden March Bioethics Institute.

He wrote on his blog:

"If there is a school to teach scientists how to screw up the pursuit of PR, ACT has the professors on retainer."

McGee continued:

"I continue to be amazed at the degree to which this company manages to do more harm to the battle to get embryonic stem cell research funded than could any concerted right wing campaign against the research. ACT is the Kevorkian of stem cell research."

Weighing in from Nature magazine was Alison Abbot. She wrote about the ongoing flap and the magazine's actions, declaring:

"No one is suggesting that Lanza's paper is in any way scientifically incorrect, but many in the field have objected...to its overall packaging. 'Perhaps 'word-smithy' is the right term,' comments George Daley of the Harvard Stem Cell Institute."

The Wall Street Journal also carried a piece on Tuesday by David Hamilton and Antonio Regalado, who wrote:

"Advanced Cell has capitalized on the research. Two days after the research was published, the company announced that it had raised $13.5 million from its existing investors, with the first part of the transaction set to close Sept. 7. The company's share price has since fallen considerably since it reached the agreement, closing on Friday, Sept. 1, at 71 cents a share, down more than 70% from the post-announcement high although still above where it was before the announcement."

In terms of coverage, it seems interesting that California papers did not pick up on yesterday's Washington hearing, except for a brief report in the Oakland Tribune.

New CIRM Auditor Sought in Wake of Copying Flap

The California stem cell agency and its auditor have gone their separate ways, and CIRM is looking for a new, private auditor.

Gilbert Associates, a Sacramento company, conducted an audit for CIRM for the 2004-2005 year, but it generated some complaints when it declined to let the state controller's office copy some documents.

The California Stem Cell Report was told that CIRM and Gilbert severed their relationship by mutual agreement. The issue was the copying of some of Gilbert's working papers on CIRM, a non-negotiable matter for CIRM. Gilbert said at the time the material was proprietary and would not allow copying.

Asked for comment by the California Stem Cell Report, Thomas M. Gilbert, managing shareholder of the accounting firm, referred us to the controller's review of the audit, page 8, which says that his firm would not allow the controller's office to copy working papers it considered proprietary unless the controller's office signed a confidentiality agreement. The controller's office recommended that CIRM "address" the issue.

The bid proposal stipulates that the new auditor "agrees that the state controller’s office shall have the right to review and copy any records and supporting documentation pertaining to the performance of this agreement including, but not limited to, all documents, records and workpapers whether obtained or copied from the institute or developed by the contractor."

It also says the successful bidder must have completed three audits of state agencies in the last five years, preferably ones engaged in bond financing.

Gilbert was slated to work for CIRM through June 30, 2007, under a negotiated, $45,000 contract that was not put out to public bid. The latest contract is being let through the Department of General Services, one of the few occasions that CIRM has used the state's formal public bidding process for its roughly $5 million in outside contracts.

The CIRM contract timeline calls for submission of bids by Sept. 18 with the contract awarded by Sept. 22.

Stem Cell Snippets: Cibelli, IP and Davey

Here are links to some interesting items and press releases related to the California stem cell agency:

Cibelli Update – Not much has changed since about eight months ago when stem cell researcher Jose Cibelli "voluntarily withdrew" from the Standards Working Group of the California stem cell agency in connection with his co-authorship of a fraudulent paper involved in the Korean stem cell scandal. He also asked his employer, Michigan State University, to conduct an investigation. In response to a query from the California Stem Cell Report, an MSU spokeswoman says the investigation is still underway.

WARF – Elizabeth Donley has been named executive director of the WiCell Research Institute, which hosts the National Stem Cell Bank controlling all 21 federally funded stem cell lines. Donley will continue to serve as general counsel to WARF.

IP Policy – Here is a link to the exact language for the proposed regulations on the sharing of patented material by CIRM grantees. The Foundation for Taxpayer and Consumer Rights says it is a "compromise that, while not perfect, will ensure scientists get access to taxpayer-funded discoveries for further research and development."

New CIRM Hire – CIRM has hired Marcia Davey, chief of financial management for the State Department of Insurance, as its interim financial officer for one year. The agency said it is continuing to look for a permanent replacement for retiring Walter Barnes. We are inquiring about Davey's salary.

CIRM's Financial Practices to be Reviewed Next Week

A new creature spawned by Prop. 71 will pop onto the public scene for the first time next week in San Francisco.

It is the Citizens Financial Accountability Oversight Committee. The six-member panel is charged with reviewing and making recommendations on CIRM's "financial practices and performance."

Prop. 71, approved nearly two years ago, indicated the committee should prepare an annual report. So far, none has been forthcoming.

At its San Francisco meeting Sept. 14, the first major order of business is a proposal to avoid disclosing the financial interests of its members. It is not clear how the exemption disclosure request came to be on the committee's agenda. The proposal would excuse committee members from filing financial disclosure statements on the grounds that the group has no decision-making authority and has a budget of less than $150,000. State regulations provide for possible exemptions in such cases.

It is apparent from Prop. 71 that the committee can only make suggestions to CIRM and has no power over it, other than public pressure. Presumably its budget is less than $150,000.

The next item calls for consideration of "recommendations" by the committee, none of which have been prepared for public consumption at this point. On the table is the audit paid for by CIRM and the controller's review of that document. Nothing truly scandalous emerged from those reviews, although there was a flap when CIRM's auditor refused to provide copies of information to the controller's office. The accountability panel will not be considering the audit by the California auditor general, which has not yet been released.

State Controller Steve Westly, who is friendly to the stem cell agency, chairs the committee. The proposition calls for appointment of other members who have "medical backgrounds and knowledge of relevant financial matters."

They are:

Richard Siegal, a Westly appointee, philanthropist and patient advocate for Graves Diseases and glaucoma. He also heads what the controller's office only describes as a "private multimillion dollar national energy firm." The firm is Palace Exploration Co. which bizneworleans.com, describes as "a privately held (New York) company engaged in the exploration and production of oil and gas in the continental United States, the Gulf of Mexico, Western Canada and the North Sea. It has been owned and operated by the chairman and his family since its acquisition in 1983, and owns interests in more than 1,400 producing oil or gas wells." Siegal and his wife, Gail, gave $44,600 to Westly's campaign for the Democratic gubernatorial nomination this year, according to Common Cause.

Myrtle Potter, an appointee of CIRM Chair Robert Klein. Potter is a former vice president of Genentech. More recently she was a cofounder of the Chapman Development Group, which operates large-scale residential and commercial development, among other things. In 2003 and 2004, she was named to Fortune magazine's list of the "Top 50 Most Powerful Women in Business."

Daniel S. Brunner, an appointee of treasurer Phil Angelides. The controller's office lists Brunner as "general counsel, (Governor's) Office of Special Health Care Negotiations." However, that appears to be an old occupation. Through January of 2005, he was executive vice president of First Health of Sacramento, Ca., which manages health care services for businesses. Common Cause does not show major contributions from Brunner to Angelides, who defeated Westly in the race for the Democratic gubernatorial nomination.

John Hein of Fair Oaks, Ca., an appointee of Assembly Speaker Fabian Nunez. Hein was executive director of Communities for Quality Education at the time of his appointment. He also served as the chief lobbyist for the California Teachers Association in Sacramento. We are inquiring concerning his current employment.

Jim Lott, an appointee of Senate President Pro Tem Don Perata. Lott is executive vice president of the Hospital Association of Southern California and has an "extensive and productive history in influencing health policy in California." Lott was a former legislative staffer and is chair of the LA Care Health Plan.

Here is a link to the controller's bios on the committee members. Here is a link to the state regulations providing for an exemption on the disclosures (see sec. 18751 C 3).

Below is the text of the section of Prop. 71 creating the committee.

Prop. 71 Text on the CFAOC

Here is entire text of what Prop. 71 has to say about the the Citizens Financial Accountability Oversight Committee:

"There shall be a Citizen’s Financial Accountability Oversight Committee chaired by the State Controller. This committee shall review the annual financial audit, the State Controller’s report and evaluation of that audit, and the financial practices of the institute. The State Controller, the State Treasurer, the President pro Tempore of the Senate, the Speaker of the Assembly, and the Chairperson of the ICOC shall each appoint a public member of the committee. Committee members shall have medical backgrounds and knowledge of relevant financial matters. The committee shall provide recommendations on the institute’s financial practices and performance. The State Controller shall provide staff support. The committee shall hold a public meeting, with appropriate notice, and with a formal public comment period. The committee shall evaluate public comments and include appropriate summaries in its annual report. The ICOC shall provide funds for the per diem expenses of the committee members and for publication of the annual report."

The Hooha Over ACT: A Case Study in Stem Cell PR

Whatever the scientific merits of Advanced Cell Technology's embryonic stem cell procedure announced last week, critics around the world are flaying the California company.

At the same time, the field of ESC research is taking a hit as opponents use ACT as an example of why science can't be trusted. Parsing the ACT announcement, several press releases, the conduct of Nature magazine and mainstream media reports is a bit convoluted. It is clear, however, that some of the critics do not understand what ACT has done with its experiment.

The episode is a good of example what can happen when the ravening media sees a weakness. The ACT case is not quite a blood feast, but it does have some of the early earmarks. And it is a fine case study for those involved in stem cell public relations, which is just about everybody in the field.

Lesson No. 1 – Idiot proof your press releases. If it can be misinterpreted, it will be. Run those media handouts by several persons who can serve as surrogate reporters. If they can't figure it out, neither can your average ink-stained wretch.

Lesson No. 2 – Clearly delineate the "facts." Separate them from the implications and assume that reporters will have difficulty distinguishing the two.

Lesson No. 3 – Watch the hyperbole.

Lesson No. 4 – Simplify but do not ignore the nuances. Do not assume knowledge. Some science reporters may be able to describe IVF without a crib sheet, but many cannot. As for non-specialized reporters and editors, they need even more help. Give it to them.

Interestingly, the New York Times, the Los Angeles Times, the San Francisco Chronicle and The Sacramento Bee apparently have not yet carried stories on the hooha about the handling of the ACT experiment. Here are some links to other reports: NBC, Wall Street Journal, Washington Post, Philadelphia Inquirer/San Jose Mercury News, BizzyBlog, Bioedge, the Australian, Wired, The Scientist, New Scientist, Ace of Spades and TCSDaily.

The Thinking on the Sole Negative Vote on the Egg Donor Bill

California State Sen. Debra Bowen was the only senator to vote "no" today on legislation to protect women egg donors.

The Democrat from the Los Angeles area (Redondo Beach) defeated the author of the egg bill (SB1260), Sen. Deborah Ortiz, in the June primary in the race for the Democratic nomination for California secretary of state.

We asked Bowen's office for a statement on the negative vote. Here is the verbatim comment from Bowen:

“I am concerned that prohibiting women from being paid for their eggs or for participating in research singles them out from how other medical research subjects are treated. That, in turn, is likely to reduce the number of women who can or will take part in embryonic stem cell research.”

See the item below for more on the bill itself.

Ortiz' Legislation to Protect Egg Donors Goes to Governor

Only a few months are left in the legislative career of state Sen. Deborah Ortiz, and she is wrapping it up with successful passage of legislation to protect women who donate eggs for stem cell research.

Ortiz was an early and influential figure in California stem cell issues. The Sacramento Democrat carried legislation in 2002 that made California the first state in the nation to authorize embryonic stem cell research. She is credited by some with originating the idea of taking a stem cell initiative to the ballot in California, which ultimately was the mechanism that created the California stem cell agency.

Her egg donor bill went to the governor today on a 34-1 vote in the California State Senate when it concurred in Assembly amendments to the measure – SB1260.

Ortiz' office issued a press release that quoted the legislator, who is being termed out, as saying:

“Stem cell research holds great promise for chronic and life-threatening diseases that affect more than 100 million Americans. We all want biomedical research to move forward, but we must ensure that women who provide eggs for research are fully educated about potential reproductive health risks.”

The bill also lays the groundwork for regulation of embryonic stem cell research in California – outside of that funded by the California stem cell agency, which operates under a unique initiative measure that does not permit the legislature or the governor to fiddle with its procedures or funding.

Ortiz' measure also was drafted to be consistent with the existing regulations of the stem cell agency. Implementation of the measure is through the Department of Health Services. Currently an advisory committee is in the process of drafting proposed regulations. Its next meeting is Sept. 20 in Berkeley.

Here is a link to the latest legislative staff analysis of the bill. Here is a link to the bill.

(For those of you unfamiliar with American political terminology, "termed out" means that she is leaving office as the result of a law that limits the number of terms that a person can serve in a particular position.)

"Pay the Ladies, Please," Say Two From Academe

Legislation to protect egg donors and regulate embryonic stem cell research in California – outside of CIRM-funded efforts -- is now on the state Senate floor where it appears certain to be approved and go to the governor's desk.

However, the measure (SB1260) by Sen. Deborah Ortiz, D-Sacramento, has drawn fire from two UCLA law professors who argue that it "threatens the future of stem cell research" in California because it would bar payment for eggs.

Russell Korobkin and Judith Daar criticized the bill as "shortsighted" in an op-ed piece in the Los Angeles Times.

Here are some excerpts:

"The primary justification offered for banning compensation to egg donors is that financial incentives will unduly induce women, particularly those of lower socioeconomic status, to undergo egg extraction without fully considering the significant risks and inconveniences associated with the weeks-long process, which requires hormone injections and minor surgery. Money, it is argued, will enable overzealous scientists to coerce women to become egg providers.

"This argument relies on an unusual and indefensible view of what constitutes coercion. In a free-market economy, financial inducements are ubiquitous, especially when socially valuable activities entail some degree of risk or inconvenience. Coal mining is dirty and dangerous work, but we don't claim that paying miners is coercive and expect altruists to do the job for free. Certainly there is no movement afoot to ban payments to soldiers or peace officers in the name of protecting them against placing themselves in harm's way for profit. In fact, just the opposite. We sometimes provide extra hazard pay to public servants who take on the greatest risks in recognition of their valuable contributions.

"If anything, ethics requires the affirmative compensation of individuals who sacrifice so that the rest of us can reap the benefits of biomedical research. Medical research subjects commonly are paid a fee for their participation. There is no justification for ushering women of reproductive age into a separate and wholly unequal category — ineligible for compensation solely because of the nature of their research participation."

Whatever the strength of their argument, it comes much too late to have an impact on the measure. It is also not likely to be cited during debate on the Senate floor. Paying egg donors is not a political third rail, but few, if any legislators are likely to support such a move.

Here is a link to the analysis of SB1260 prepared for use in the Senate floor debate on the bill.

CIRM IP Group Changes Research Usage Exemption

The California stem cell agency's Task Force on Intellectual Property has revised requirements for sharing inventions developed as the result of grants to nonprofit research organizations.

California biomedical firms objected to the previous language. The latest version was hammered out a meeting of the Task Force following comments from its members and others.

The new language, which will be posted on the CIRM website as part of the administrative rules procedures, stipulates that grantees make CIRM-funded patented inventions "readily accessible on reasonable terms to other grantee organizations."

Some members of the Oversight Committee, in addition to the business groups, were concerned that the previous language (known as the Research Use Exemption - RUE) would remove incentives to market and distribute useful research tools.

Janet Lambert, director of government relations for Invitrogen of Carlsbad, Ca., flew out from Washington, D.C., to present her company's point of view. She and others, including John M. Simpson, stem cell director of the Foundation for Taxpayer and Consumer Rights, worked out the compromise language in the rear of the room as the Task Force dealt with other issues.

Part of the backdrop for discussion for the language was "The WARF Problem." Repeatedly speakers said they did not want to emulate the example of the Wisconsin Alumni Research Foundation, which holds key patents to embryonic stem cells. The foundation has been the subject of sharp criticism for failing to allow use of the patents more widely and less expensively.

CIRM President Zach Hall argued for wider distribution of CIRM-funded research. He said he did not want to see a situation where "we can't communicate with our (scientific) neighbors."

Members of the Task Force. Including Jeff Sheehy, also raised questions about how the previous language was arrived at and the process of involving "stakeholders" in discussions. Sheehy said he was "very uncomfortable" about a discussion process that would seem to favor some stakeholders over others.

Once the new language is officially published, that will trigger another 15-day comment period. You can see details of the administrative rules process here.

Correction

On Aug. 29, we carried an item (see below) on CIRM principles for grants to businesses that incorrectly said, “If the grantee chooses to develop a product themselves, the state would receive some sort of multiple of CIRM funding after the 'success' of the product. Discussion seemed to favor a multiple in the 3 to 5 percent range, leaning strongly to the lower end.”

The item should have said that the multiple being considered was a multiple of total CIRM funding. For example, if the CIRM funding is $1 million, the return could be $3 million to $5 million.

Our thanks to the CIRM staff for pointing out the error.

CIRM IP Policy and Business: New Principles Approved

(The following post contained an error that is corrected at the end of item)

Attention California stem cell businesses. Here's the deal. Or at least almost the deal.

But if you want cash from the California stem cell agency, you better listen up. And if you want to shape the rules for sharing the swag, now the time is to make your voice heard. It could be a done deal by this time next month.

On Tuesday afternoon, beneath replicas of a couple of twin-engine aircraft, the CIRM Task Force on Intellectual Property approved principles for handling IP generated as a result of CIRM grants to business. Hundreds of millions of dollars could be handed out to California stem cell businesses over the next few years, but oddly few were represented at the hearing at the aviation museum at San Francisco International Airport. A number have testified in the past, however.

Two key areas involved payments by grantee businesses to the state and creation of plans to help uninsured Californians and provide low cost access to CIRM-funded stem cell therapies.

The Task Force approved requiring a business that chooses to license a CIRM-funded invention to a third party to abide by the same requirements as for nonprofits except for the size of the share of any returns. Instead of the 25 percent sharing requirement (after $500,000) for nonprofits, the task force chose 17 percent. The Task Force initially called for the 17 percent to be shared out of "revenues" from the invention. However, questions were raised concerning the definition of revenues, and its meaning will be considered again later.

If the grantee chooses to develop a product themselves, the state would receive some sort of multiple of CIRM funding after the "success" of the product. Discussion seemed to favor a multiple in the 3 to 5 percent range, leaning strongly to the lower end.

The Task Force also approved a requirement that some businesses develop plans to provide access to CIRM-funded therapies to the uninsured and to provide them to public agencies at the federal Medicaid price. The plan requirement would be triggered when CIRM funding represents more than a yet-to-be determined percent of the invention.

Other principles approved include:
Ownership of the IP by the grantee.
Onetime "blockbuster" payments by the grantee after revenues exceed a yet-to-be-determined level.
Sharing of "publication-related," CIRM-funded biomedical material as in the nonprofit policy.

IP Task Force member Duane Roth told the group that it needs to set clear rules on IP. Businesses need certainty, he said. They need a "real clear matrix, that this is the deal."

The "deal" will come up again, possibly in September, preceding CIRM's Oversight Committee meeting in October. CIRM staff will craft IP policy rules based on Tuesday's discussion and bring them back to the Task Force. Ed Penhoet, chair of the Task Force, said he wants to present an IP policy for businesses to the Oversight Committee for action next month.

We will have more on the IP meeting in the next few days. And, by the way, the Task Force held its meeting in the aviation museum because it was free space provided as a result of San Francisco's bid to obtain the CIRM headquarters.

(Correction on the above item: The 5th paragragh contains an incorrect figure. It should have said that the multiple being considered was a multiple of total CIRM funding. For example, if the CIRM funding is $1 million, the return could be $3 million to $5 million. We incorrectly reported that the multiple being considered was in the 3 to 5 percent range.

(Our thanks to the CIRM staff for pointing out the error.)

Coming Up

We are planning on covering the "riveting" events expected this afternoon at the meeting of the CIRM Intellectual Property Task Force. Look for fresh information on the outcome tonight and tomorrow on the California Stem Cell Report.

A 'Good Citizen" Research Exemption

Ken Taymor, who is with the San Francisco law firm of MBV Law LLP, has offered the following on one of the issues confronting the CIRM Intellectual Property Task Force this afternoon. We welcome additional comments and contributions on all subjects related to the California stem agency.

A research use exemption (RUE) allows researchers to use patented
inventions without obtaining licenses and paying license fees, royalties
and other payments to the inventor. Courts have recently concluded that
contrary to widely held belief, there is no automatic research use
exemption under U.S. patent law. Many universities and non-profit
institutions, however, frequently allow other academic researchers to
use patented inventions for non-commercial research without paying the
university or institution any fees. This has not been the case with
human embryonic stem cell (hESC) research. The holder of the very broad
patents over human embryonic stem cells and the core process for
creating them, the Wisconsin Alumni Research Foundation (WARF), insisted that all academic and non-profit researchers pay substantial license
fees for the right to experiment with hESC or to create new hESC lines.

CIRM initially adopted an RUE as one of its core Intellectual Property principles. CIRM stated that it sought to "ensure broad access for
California research institutions to patented inventions made under CIRM
funding for research purposes through a research exemption." CIRM
stated in its original discussion of its IP Rules that a research
exemption would "promote the advancement of research and medical
therapies through broad use of patented inventions developed under CIRM
funding . . . . This policy will allow researchers to experiment
with state-of-the-art technology generated as a consequence of CIRM
funding without constraints which might otherwise apply under patent
law."

CIRM unexpectedly dropped the RUE after several industry representatives
objected to it. This move has surprised and concerned a number of
independent observers in light of the strong arguments CIRM advanced in
favor of the RUE up to the point of eliminating it. By not guaranteeing
that CIRM funded non-profit grantees will allow free use of CIRM funded
inventions for non-commercial research, CIRM opens the door for a repeat
of the problems WARF created in its licensing policies. Under CIRM's
latest proposal, scientists at a California university could receive a
large CIRM grant and make a path-breaking invention, such as
"reprogramming" adult cells to behave like stem cells (currently done
through cloning in animals), and then require that each academic or
non-profit researcher in California who wishes to make or use such
"reprogrammed" cells pay the university $10,000 (or more) annually for
the right to do so. This is why proponents of the RUE have complained
that CIRM's new position can require CIRM, and the California taxpayers,
to pay twice (or multiple times) for the research discoveries made under
CIRM grants. Of course, what is worse, is that under this scenario many
researchers would be unable or unwilling to pay the licensing fees and
stem cell scientific advances (and resulting therapies) would be further
delayed.

A RUE that would address many of industry concerns, and in fact reflect
the "good citizen" practices of many universities today (practices
incidentally that industry readily accepts) would simply provide that
"CIRM Grantee organizations shall allow Non-Profit Organizations,
without payment, to practice CIRM-funded patented inventions in
California for any non-profit purpose."