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Foes: Profit drives stem cell measure

by Laura MecoySacramento Bee
October 16th, 2004

The campaign to create the nation's largest-ever state-funded scientific research program is finding its strongest financial support among the multimillionaire investors critics say could profit from the $3 billion bond measure for stem cell studies.
The Proposition 71 campaign reports collecting $21.6 million so far, and The Bee's survey of campaign contribution records found California's venture capitalists donated nearly $4 out of every $10 raised for the initiative on the Nov. 2 ballot.

Four backers contributed at least $1 million and two others gave $770,000 or more, spurring critics' claims that the measure is a potential gold mine for the state's venture capitalists and the biotech industry their cash helped create.

"When you consider it, it's a pretty good return on their investment because they stand to gain trillions of dollars in profits," said Deborah Burger, president of the California Nurses Association, which is opposing the initiative.

Wayne Johnson, consultant for the "No on Proposition 71" campaign, said the $3 billion bond measure is like "most California initiatives. If you want to find out who benefits, follow the money."

Robert Klein II, Proposition 71 campaign chairman, said the initiative's sponsors haven't taken money from any pharmaceutical firms or from biotech companies they felt could profit from the bond measure.

He is the campaign's second-largest contributor, with $2.1 million in donations and loans. He's hoping the research the bond measure would fund would produce a cure for his son's juvenile diabetes.

Klein said most donors are also seeking cures or they're philanthropists, like James and Virginia Stowers of Kansas City, who have contributed much of their own fortune to medical research.

While supporters rake in the contributions, opponents have raised less than $150,000, most of it from abortion foes who oppose the use of embryos in research.

Proposition 71 was written to fill the gap created by the federal funding limits President Bush imposed in 2001 on the controversial research using stem cells from days-old embryos.

The bond measure would provide about $295 million annually over the next decade to pay for stem cell studies researchers say could lead to cures or treatments for some 70 ailments.

Robert Stern, president of the Center for Governmental Studies, said the public investment in the research would profit someone, and that's most likely to be the campaign's contributors.

"We are talking about Stem Cell Valley replacing Silicon Valley," he said. "If the state is going to jump-start this research with lots of money, somebody is going to make money."

California leads the nation with more than 400 biotech companies, and Silicon Valley's investors said Proposition 71 could be a boon for the industry.

But they said any profits are too uncertain and too far in the future to anticipate at this time.

"There is a business aspect to it," venture capitalist Franklin Pitcher Johnson said. "It would be naive to expect otherwise."

But he said he and his wife gave $1 million to the campaign to ensure California and the nation continue to play a leading role in this cutting-edge research.

Joseph Lacob, another venture capitalist who, along with his wife, gave $1 million to the campaign, called the claims of potential profits "ridiculous assertions."

Lacob and two of his partners at the Menlo Park venture capital firm Kleiner Perkins Caufield & Byers are among Proposition 71's top contributors.

John Doerr and his wife, Ann, have donated or loaned the campaign $2.97 million. Brook Byers and his wife, Shawn, contributed $770,000.

Their firm helped finance Geron Corp., a Menlo Park biotech firm that could profit from stem cell research. But Lacob said Kleiner Perkins and its partners sold their interest in Geron.

Dr. Thomas B. Okarma, Geron's president and CEO, said the company could profit from licenses, grants and collaborations with university researchers.

But he said no one in the firm donated to the campaign or participated in the writing of Proposition 71.

Geron is in a strong position to profit because it helped pay for the University of Wisconsin research that first isolated and cultivated embryonic stem cells in 1998.

The firm and the Wisconsin Alumni Research Foundation hold patents and licenses on embryonic stem cells and could seek a share of the revenues from California-financed research if it produces profitable products.

These potential earnings and the prospect of other private firms making money from state-funded research are one of the main reasons the California Nurses Association opposes Proposition 71.

"Proposition 71 could spend $6 billion (in bonds and interest on the bonds) out of the state's general fund to fund discoveries we won't be able to afford," said Burger, the association's president.

Proposition 71 supporters said the National Institutes of Health also allows private firms to profit from patents and licenses on commercial products derived from federally funded research.

"Basic research is a long-term investment typically funded by the public," said Fiona Hutton, the campaign's spokeswoman.

She said most of the state grants would go to nonprofit organizations and university researchers, and each would include an agreement enabling the state to collect a share of any royalties.

The initiative doesn't guarantee royalties for the state, and a spokesman for the Wisconsin embryonic stem cell patent holders said such payments are usually negotiated. Andrew Cohn, the Wisconsin Alumni Research Foundation spokesman, said it freely distributes stem cells for research and would seek revenues only from profitable ventures.

"This is a platform of technology that could go multiple ways," he said. "So the idea that someone is investing money (in the campaign) because they know a way to make money off this is totally impossible."

Some of the million-dollar contributors, though, have no interest in the state's money.

Pierre and Pamela Omidyar, eBay's founders, are billionaires who have pledged to spend much of their fortune to "do good."

Herbert and Marion Sandler founded World Savings Bank and make most lists of America's wealthiest. Herbert Sandler said they donate often to medical research and don't expect to profit from stem cell research.

James and Virginia Stowers, the Kansas City philanthropists, are multimillionaire cancer survivors who established the Stowers Institute for Medical Research in their hometown to conduct basic research to find long-term solutions to gene-based diseases.

They have dedicated so much of their own money to medical research that their lawyer said they have no interest in any of the California bond funds.

"They established the institute with a $1.6 billion endowment that is now $1.7 billion," said their lawyer, David Welte. "It is by far the largest endowment in the world focused on this research."

Proposition 71
Contributors who have given and/or loaned $1 million or more to Proposition 71, the $3 billion bond measure on the ballot to fund stem cell research:

* John Doerr, Woodside venture capitalist with Kleiner Perkins Caufield & Byers, and wife Ann, $2.97 million

* Robert Klein II, Portola Valley Proposition 71 campaign chairman, Klein Financial Corp. CEO, $2.1 million.

* Herbert and Marion Sandler, Oakland co-founders, co-board chairs and co-CEOs of Golden West Financial Corp. and World Savings Bank, $1.5 million

* William K. Bowes, Menlo Park venture capitalist and U.S. Venture Partners founder, and wife Ute, $1.3 million

* Franklin Pitcher Johnson, Palo Alto venture capitalist and Asset Management Co. owner, and wife Catherine, $1 million

* Joseph S. Lacob, Menlo Park venture capitalist with Kleiner Perkins Caufield & Byers, and wife Laurie, $1 million

* Juvenile Diabetes Research Foundation, research advocacy group, $1 million

* Pierre and Pamela Omidyar, Los Gatos eBay founders and philanthropists, $1 million

* James and Virginia Stowers, Kansas City, Mo., founders of the Stowers Institute for Medical Research, $1 million

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