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Report finds stem cell windfall assumptions unrealistic

by Terri SomersSan Diego Union-Tribune
August 25th, 2005

State's biggest benefit may be 20 years away

Expectations of huge financial and medical returns on California's $3 billion investment in stem cell research are unrealistic and based on overblown analysis, according to a study by a panel of research, business and academic professionals.

The biggest benefit Californians can expect to reap from their investment _ improved quality of life for people living with devastating diseases _ is at least 20 years away, the report said.

In the meantime, the state should quickly make basic scientific discoveries and tools made with the taxpayers' investment available to the broad scientific community to further stem cell research, the report said. It added that California should follow federal policy when determining who should own and profit from the research discoveries, also referred to as intellectual property.

Generally, that federal policy allows research institutions to own all discoveries and keep the money it collects from licensing them.

Consumer groups and state Sen. Deborah Ortiz, D-Sacramento, one of the original supporters of Proposition 71, criticized the report for failing to suggest a mechanism that would allow the state to guarantee Californians access and discounts on eventual stem cell therapies.

The report, released this week by the independent California Council on Science and Technology, was requested by the Legislature because there is no statewide policy for dealing with the ownership of intellectual property created with state, federal or philanthropic funding. The lack of a policy became a pressing issue with voter approval last fall of Proposition 71, which makes $300 million in taxpayer funds available annually for stem cell research.

A more detailed report analyzing intellectual-property issues not related to Proposition 71 is expected to be released by the council at the end of the year.

"Establishing sound (intellectual-property) policies at the outset will be critical in determining how well the intellectual outputs of California's public investment are translated into useful products, therapies and treatments," said Alan Bennett, an associate vice chancellor for research at the University of California Davis who worked on the report.

The council's report will be considered by the committee overseeing California's Institute for Regenerative Medicine, which Proposition 71 created to make the research grants and supervise their implementation. The committee expects to draft its own policy for the stem cell institute, but that is likely to take months.

The California stem cell initiative is the first time state taxpayers have directly funded specific scientific research to compensate for federal restrictions. In 2001, President Bush limited federal funding for human embryonic stem cell research because it requires the destruction of a days-old embryo, a collection of 100 to 200 cells that some people consider a life that should be preserved.

Whatever policy is adopted in California is expected to be viewed as a model as other states join the rush to allocate taxpayer money for stem cell research to keep from losing gifted scientists.

Meanwhile, the stem cell oversight committee is expected to make a decision on who will receive the first grants at a meeting Sept. 9 in Sacramento.

At the heart of the council's report, and the criticism of it, is the Bayh-Dole Act of 1980, which allows research institutions to retain ownership of discoveries made within their walls.

The law provided the incentive for institutions to patent and license their discoveries, which gets them into the public domain, where they can be turned into new drugs, the report states.

In promoting Proposition 71, supporters pointed to a financial analysis they commissioned that said California could recoup $537 million to $1.1 billion if it were to get a cut of the licenses and royalties that companies would pay to use any Proposition 71-funded discovery inresearch or drug production.

But this assumed either that private investors or companies would agree to pay additional money on top of what they traditionally pay researchinstitutes to license technologies or that the research institutes wouldbe willing to take less.

The council's report said that is unrealistic. It pointed out that even though California's Proposition 71 investment is substantial, it is dwarfed by the $14 billion in federal funding given to the state's research institutions annually and the $45 billion in federal funding distributed nationwide each year.

Requiring them to adopt a different policy for Proposition 71-financed research could be a disincentive for them to commercialize discoveries, council members said.

Robert Klein, chairman of the committee overseeing the implementation of Proposition 71, declined to comment on the report because he had not reviewed its contents, a spokeswoman said.

Many philanthropic organizations, including the National Diabetes Research Foundation, the National Parkinson's Foundation and the National Cancer Institute, have adopted the Bayh-Dole model when investing millions in research.

The federal government and those philanthropic groups want to stimulate research to treat incurable diseases and are not worried about collecting revenue.

The organizations said it also could make it too complicated to negotiate and license the discoveries, driving away potential investors.

Venture capitalists, who play a crucial role in funding the development oftechnologies once an initial discovery is made, have said they are concerned that Proposition 71 might make it too expensive or complicated for them to license stem cell intellectual property.

Under the Bayh-Dole Act, those private investors often put up $10 for every $1 the government has invested by the time a technology turns into a marketable product.

That argument doesn't sway some consumer groups.

"Californians did not vote for Proposition 71 in order to favor corporate interests at the expense of the state and its taxpayers," said Marcy Darnovsky, associate executive director of the Center for Genetics and Society. "Voters were promised during the Proposition 71 campaign that the state would get a share of any profits, and that any successfully developed treatments would benefit all Californians."

The center also questioned the motives of the group that wrote the report, pointing out that its members are industry insiders and academics whose employers could benefit by not sharing revenue with taxpayers.

Both the center and Ortiz want the council to amend its report, after getting suggestions from consumers, patient advocates and elected officials.

Ortiz agreed with the report's conclusion that Californians expect Proposition 71 to generate revenue for the state. She said she also realizes that federal tax law may prevent the state from collecting royalties on research funded with tax-exempt bonds.

Ortiz said that is even more incentive for Californians to approve Constitutional Amendment 13, a proposal she initiated that would require Proposition 71 give some financial return to the state.

Since Proposition 71 was a constitutional amendment, it would take another constitutional amendment to change it.

"SCA 13 would require that the state's public health programs have access at affordable, below-market costs to the products, medicines and therapies that eventually will be developed under Proposition 71," Ortiz said. "California should not have to pay twice for medical therapies that can assist our citizens who suffer from debilitating and life-threatening chronic conditions."

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