California's Independent Citizens' Oversight Committee Dec. 12, 2007, approved final regulations covering intellectual property and revenue sharing requirements for commercial enterprises accepting state stem cell research money.

During its meeting in Los Angeles, the ICOC approved the fourth draft of regulations regarding royalties and revenues from products or therapies developed using state money. It also approved $54 million in grant awards to 22 investigators.

But the approvals come as an ICOC board member is under investigation for potential conflict-of-interest violations by the state Fair Political Practices Commission for intervening in a grant award decision. And the agency had to reject grant proposals from five institutions because of other conflict-of-interest violations.

John Simpson, director of the Foundation for Taxpayer and Consumer Rights Stem Cell Project, said the agency is fighting old battles.

Prop. 71 “was essentially designed so that the Legislature would not be able to have much oversight because they were afraid opponents of stem cell research would muck things up,” Simpson said.

The measure passed with 60 percent of the vote and the California Court of Appeal upheld the program in a decision left untouched by the California Supreme Court, Simpson said Dec. 13 (1 LSLR 208, 5/25/07).

“The court vindicated the position. The court of public opinion is completely in favor of stem cell research, and they're still fighting these old battles when what they should be doing is focusing on how to make this a true state agency and deliver the best tax value for the citizens of California. But they keep seeing anyone who raises a criticism as an enemy of stem cells,” Simpson told BNA.

Legislative Criticism.

The ICOC approved the IP regulations three days after 13 state lawmakers in a letter to agency officials said that “a number of troublesome provisions” should be corrected before the regulations were made final.

One of those provisions requires, in order to receive state stem cell grant money, that grantees devise a plan so uninsured Californians have access to drugs, therapies, or devices developed using Prop. 71 funding.

“We are disappointed, however, that the access requirements continue to require that access plans for uninsured Californians meet 'industry standards at the time of commercialization,' ” the Dec. 10 letter said. “This is a weak and vague standard that is unlikely to result in any meaningful access for the uninsured to new stem cell drugs and therapies.”

The letter to California Institute for Regenerative Medicine President Alan Trounson and ICOC Chairman Robert Klein was signed by Senate Health Committee Chair Shelia Kuehl (D) and Assembly Health Committee Chair Mervyn Dymally (D).

The lawmakers also said the regulations make no provision for either the California Institute for Regenerative Medicine (CIRM), which was created to handle daily operations under Prop. 71, or ICOC to approve access plans, “meaning that there would be no effective enforcement of the access requirements, vague and weak as they are.”

Lawmakers also criticized tying the price of whatever is developed using public funds to the as-yet unfunded California Discount Prescription Drug Program (Cal-Rx) instead of using the Medicaid price for benchmark pricing. Cal-Rx requires drug manufacturers to sell prescriptions at a discount or be dropped from the state Medicaid program, called Medi-Cal.

But Gov. Arnold Schwarzenegger (R) “blue-penciled start-up funding” for the [CalRx] program in signing the 2007-08 budget, the lawmakers said. “If the program were to be repealed, there would be no pricing requirement whatsoever in place.”

No Access Approval.

Kuehl was co-author of legislation (S.B. 771) introduced early in 2007 that would provide royalties to California on all stem cell drugs and devices developed with state funds. S.B. 771 was tabled for a year to allow CIRM to complete its IP regulations (1 LSLR 330, 7/6/07).

The lawmakers commended the work CIRM and ICOC have done, “and we strongly urge you to go further to ensure that the state, and the public, broadly, benefit from the patents, licenses, and royalties created as a result of the state's funding, while at the same time promoting the development of stem cell therapies.”

While Prop. 71 prohibited the Legislature from enacting any legislation during the first three years after the initiative was passed in November 2004, lawmakers can act starting in the January legislative session. But legislation must pass with 70 percent approval and get the governor's signature.

“I'm hoping that the Legislature will step up because they should be stepping up” to oversee what it can with CIRM, said Susan Fogel, director of the Pro Choice Alliance for Responsible Research.

Revenue Returns.

The final IP regulations require each award recipient to provide the state with 25 percent of associated net licensing revenues in excess of $500,000. Organizations receiving grants must provide public benefit in the form of access for uninsured Californians to the drugs, therapies, and inventions developed using the $3 billion voters approved to fund stem cell and other medical research.

Grantees must pay California three times the grant amount when net commercial revenues from a self-commercialized, CIRM-funded invention hit $250 million a year and again when revenues reach $500 million a year. Net commercial revenues are defined as sales less taxes and duties, insurance, transportation, and credit for returns, allowances, or trades.

Grants Approved, Some Rejected for Conflicts.

ICOC also approved $54 million in grants to fund MD and PhD scientists who have completed their residency and/or postdoctoral training and are in the critical early stages of their careers as independent investigators and faculty members at an institution.

CIRM received 59 letters of intent from 29 institutions. Institutions with medical schools were eligible to nominate up to four candidates, while those without could nominate two.

But the stem call agency announced Dec. 8, 2007, that it was rejecting 10 grant applications because of apparent conflict-of-interest violations. The grant requests included letters from department heads--as is required in one part of Prop. 71--who also sit on the ICOC. However, a separate provision prevents ICOC members from involving themselves in the grant process, so the grant requests were denied.

Applications from the University of California at Los Angeles, San Diego, and San Francisco; the University of Southern California; and the Burnham Institute for Medical Research were withdrawn for apparent violations, CIRM said.

ICOC may allow the rejected applicants to apply for grants in a second round in January.

Member Investigated.

The FPPC confirmed Dec. 11,2007, that it is investigating John Reed, Burnham Institute for Medical Research president and chief executive officer and ICOC board member. Reed wrote a letter asking why CIRM denied a grant to a scientist who works for him at the Burnham Institute in La Jolla, Calif. (1 LSLR 721, 12/7/07).

FPPC spokesman Roman Porter said the commission will review the findings to determine whether there is sufficient evidence to warrant a fine.

Reed in a statement released by the Burnham Institute said he welcomed “the opportunity to have the FPPC resolve the conflict of interest issue. In the interim, I will recuse myself from all ICOC activities. This will allow the board to continue with its important mission without distraction.”

CIRM in a statement late Dec. 11, 2007, said it was “confident that the review will show that Dr. Reed's actions were innocent and inadvertent while trying to follow the strict policies of the agency.”

“I think the fundamental problem here is Prop. 71 itself,” said Jesse Reynolds, a project director at the Center for Genetics and Society, a public interest group.

“Politicians, despite the negative connotation, have an incentive to do things right because if they don't they lose their jobs in the next election cycle or sooner,” Reynolds said. “But Proposition 71 not only entrusted the money in the hands of representatives not of the people but of the institutions vying for that money; it made that board unaccountable to the public and its representatives.”

CIRM has proposed a conflict-of-interest code (1 LSLR 484, 9/14/07).