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Stem cell_s shell game?

Capitol Weekly
September 22nd, 2005

The biggest question surrounding stem cell research in California right now isn_t whether it will eventually cure devastating health problems. It_s what happened to the billion dollars.

When California voters approved Proposition 71 last year, critics say, it was partially on the promise that their $3 billion investment in stem cell research would provide a financial payoff to the state. Supporters cited a study that claimed California could get a payback of anywhere between $537 million and $1.1 billion from royalties and licensing from intellectual property, or IP, as it is known in the investment community.

Actually, the figures were never written into the law that voters approved--the latest surprise disclosure surrounding the controversial initiative. And the study itself was financed by the backers of Proposition 71.

That means perhaps $1 billion or more that many expected Proposition 71 to provide to California may not be coming, after all. The numbers came from a September 2004 analysis produced by Dr. Laurence Baker, an associate professor of the Stanford University School of Medicine, and Bruce Deal, managing partner of the Analysis Group, a consulting firm based in Menlo Park. They were widely cited in newspaper stories and editorials, and can still be found at www.Yeson71.com.

The figures, Deal said, were based on payouts that some research universities have received for IP rights. They were calculated on the assumption that, over time, Proposition 71 would pay for both basic research and later-term studies leading to commercially available therapies. "The idea of the report was to give examples of what could be possible if therapies were successful and the state could secure intellectual property rights," Deal said. "People quote things out of context all the time, but we tried to make it clear what it was."

But the guidelines that would allow the state to get these returns were never put into the language of Proposition 71, said Jesse Reynolds of the Center for [Genetics] and Society.

"They (the proponents) spent a lot of hours drafting the law and it_s a very long law, so I can_t imagine they overlooked it," Reynolds said. "This is one of the key issues and they left it blank."

Almost one year later, experts are warning Californians that they might see little or no return from Proposition 71 dollars--and that even trying to recoup the money could inhibit important medical research. The Intellectual Property Taskforce created under Proposition 71 was supposed to meet for the first time this week, but the meeting was pushed back until late October.

"I know enough about federal funding of scientific research at universities to know that these claims of big financial windfalls to the state were ludicrous," said Jennifer Washburn, author of the book University, Inc.: The Corporate Corruption of American Higher Education.

Stem cell research is still in the very basic research stage, she said, when investments are unlikely to reap short-term payoffs.

"Basic research usually has broad-sweeping applications so it is difficult for any one company or any one state to capture all the financial benefits locally," Washburn added. "That_s why, traditionally, the federal government has always played a vital role in subsidizing basic research, not the states."

Over time, this need for basic research has created giant federal infrastructure to support research, such as the $45 billion in research funding the National Institute of Health will hand out this year.

However, even with such massive sums coming from the government, private investors and drug companies still end up bankrolling most of the eventual cost of drugs, especially during risky and expensive clinical trials, said Daniel DeCillis, research associate with the California Council on Science and Technology.

The Council is an independent group not officially affiliated with the governing bodies created by Proposition 71. It put out a report last month on the subject of intellectual property and stem cell research.

It concluded that it is unrealistic for the state to expect a huge payback on Proposition 71. The report examined federal policy over the last 25 years since the passage of the federal Bayh-Dole Act, which governs the use of federal funds at research at research universities. Bayh-Dole has been extremely good at pushing basic research, DeCillis said, but has established little track record for financial payoffs to the government. Numerous people, including scientists affiliated with the funding bodies created by Proposition 71, have cited Bayh-Dole as the proper model for stem cell research in California.

The Council_s report also cites a 1989 attempt by the NIH to achieve a financial payoff through Cooperative Research and Development grants, or CRADAs. CRADAs came with so many strings attached that researchers steered clear of them, and the project was scrapped.

"There is a sense that now is the time to be blazing new trails," DeCillis said. "But the reality is that it_s not all that different."

Malcolm Maclachlan is a Capitol Weekly staff reporter.

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