State institute would see a share of their profits

The San Francisco Chronicle

Irvine, Orange County, CA — The overseers of California’s taxpayer-backed stem cell program approved a plan Thursday to let commercial drug companies accept state research grants if they agree to share profits.

The governing board of the California Institute for Regenerative Medicine adopted interim rules covering for-profit intellectual property — one of the most controversial areas of Proposition 71, the stem cell initiative state voters approved in November 2004.

The temporary rules will be replaced in about nine months by more comprehensive regulations after a lengthy public-approval process. But the provisions adopted Thursday by the Independent Citizens Oversight Committee set out the basic terms for one of the country’s most ambitious biomedical profit-sharing enterprises.

Drug developers would have to pay royalties to the state on any commercial products, estimated at 2 to 5 percent, when revenues exceed $500,000. The royalties would be capped in most cases at triple the amount of the company’s grant.

Once revenues on any “blockbuster” stem cell therapy top $250 million a year, the state would be due a second payment, also set at three times the amount of the initial grant. Another such payment would be due if revenues top $500 million. And if patents are licensed, the state would be owed a 1 percent share of patent royalties on revenues above the $500 million mark — as long as the state institute invested more than $5 million in the project.

Consumer advocates complained that the rules don’t go far enough in requiring drug companies and other for-profit enterprises to make therapies available at affordable prices for state health programs and people without adequate insurance. Those provisions have yet to be worked out, officials said.

“It’s not sufficient,” said Susan Fogel, a health policy attorney in Los Angeles and coordinator of a group called the Pro-Choice Alliance for Responsible Stem Cell Research.

She said the agency has yet to deliver on one of the central promises made during the 2004 Prop. 71 election campaign.

“They promised during the campaign there was going to be affordable access to these treatments,” she said, adding that she was skeptical that the state would ever collect much of any payback under the guidelines approved Thursday.

John Simpson, stem cell project director for the Capitol Foundation for Taxpayer and Consumer Rights, said the revenue-sharing rules were a “public relations sop.”

“They really have to go a lot further than this, and be a lot more specific,” he said.

Business lobbyists also raised questions about the guidelines, but had a different concern. They worry that the rules will dampen the enthusiasm of drug companies that will be needed to carry stem cell research into expensive clinical trials.

Jimmy Jackson, representing Biocom, a group of about 500 San Diego biotech companies, said some key issues are yet to be resolved to ensure the rules don’t “scare away private investment.”

“We’re working toward it, but I don’t know that we’ve achieved that yet,” he said.

The provisions adopted so far appear to be workable, Jackson said, but he withheld judgment until “the ultimate formula” takes shape in the final set of rules.

State officials insisted it was important to get rules in place so that for-profit companies can compete in grant rounds as early as this spring. Other rules covering nonprofit institutions also are being adopted, but those haven’t raised as many controversies.

“Policy balances the expectations of the state with the realities of doing research in the for-profit sector,” said Mary Maxon, deputy vice chair of the institute. “Nonprofits are in the business of creating knowledge. For-profits are in the business of making products. But we can’t do this without them.”

Each grant recipient will be required to sign a contract with the institute that complies with the regulations, and members of the oversight committeeraised questions Thursday about how well the state agency will be able to negotiate and monitor the complicated profit-sharing agreements.

Ed Penhoet, a former biotech industry executive who serves as vice chairman of the governing board, said the stem cell institute will need to hire specialists just to keep track of commercial products and any revenues that may be generated as a result of Prop. 71 grants. The agency’s hiring abilities are limited by law, but Penhoet said it may take only three to five contract experts to do the job.

“I think that part can be done. I’m really not worried about that,” Penhoet said.