Draft Rules Lack Enforcement; Need Provision to Block Unfair Pricing

Stanford, CA — At a key meeting of the California stem cell research oversight committee consumer advocates called for enforcement measures and a way to block unreasonable drug pricing in rules that will determine who controls any drugs or cures resulting from $6 billion in taxpayer-funded research grants and bond financing.

The proposed intellectual property (IP) rules incorporate some recommendations from the Foundation for Taxpayer and Consumer Rights (FTCR) including requirements that Prop 71 cures be made available to underserved populations and that the state recoup some of the taxpayers’ investment in stem cell research. But they fall short of protecting the public interest in key areas.

“The devil is in the details; that’s why people’s eyes glaze over when they hear the term intellectual property,” said John M. Simpson, FTCR’s Stem Cell Project Director, “But this is really about who has access to Prop 71-funded cures. Ultimately these rules could determine whether a person can afford cures or not. It could mean who lives or dies.”

FTCR recommended rules that would govern control and ownership of Prop 71-funded research based on three principles: affordability, accessibility and accountability. A taskforce of the Independent Citizens Oversight Committee has drawn up the IP proposal under consideration.

FTCR said that the rules must contain provisions to prevent drug companies from charging exorbitant prices to any Californian — not just low income ones — for Prop 71-funded drugs and cures. The Attorney General should be able to intervene if a drug is priced unreasonably.

Simpson also said the threshold before the state receives any royalties is too high.
“We believe the taxpayers are entitled to a return on their investment when royalties reach $100,000.”

The proposed rules say that the state would receive 25 percent of royalties on a drug or therapy after a threshold of $500,000 was reached. It says drugs must be sold to publicly funded organizations at the “lowest available commercial price” and that companies must provide a plan to provide the drugs to uninsured people. The stem cell institute, the California Institute of Regenerative Medicine, would have the right to “march in” — intervene and take back a license — if a company did not meet its obligations.

“The state’s top cop — the attorney general — needs to be able to exercise those march-in rights,” said Simpson. “Without teeth the regulations are meaningless.”

The IP rules under review today cover only grants to universities and non-profit research institutions. The taskforce will next draw up rules that would apply to grants or loans to commercial organizations.

FTCR’s principles and polices include:

Affordability. Cures and treatments must be priced so all Californians can afford and benefit from them, not just a wealthy few. To achieve this:

• The licensees of discoveries developed with Prop 71 funds must sell any resulting drugs, therapies or products to the state at their lowest price.
• Research institutions that get CIRM funds should pay the state at least 25 percent of net royalties in excess of $100,000 received for any invention or discovery developed with Prop 71 funds.
• The state’s share of any royalties would be used to help fund access to Prop 71 therapies for people who cannot afford it.

Accessibility. Not only do all Californians deserve access to Prop 71-funded therapies, but stem cell researchers need access to the results of other Prop 71-funded research to develop the widest range of cures. To achieve this:

• The stem cell institute would create a patent pool that would include all patents resulting from research it funds. A three-person board including the California Attorney General would govern the pool.
• The institute would be able to tell an applicant that no patent is possible for a particular project if it determines that keeping the expected results in the public domain best promotes further research.
• Any California-based researcher would be able to use the results of Prop 71-funded research for further research without paying a licensing fee.

Accountability. Polices must assure that grantees and licensees fulfill their obligations when benefiting from public money. To achieve this:

• The California Attorney General would have march-in rights — the ability to intervene — if a drug or therapy were priced unreasonably or any other public benefit requirement is not met.
• The institute would have the responsibility to take control of new therapies for public health and safety reasons. For instance, meeting the public need of getting vaccines to market.
• All investors and researchers involved in commercial enterprises resulting from Prop 71-funded research would be required to file disclosure forms. These would be public records.