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
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,
“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
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
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
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
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,
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.
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
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
CIRM has proposed a conflict-of-interest code (1 LSLR 484,
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