Experts say profit interest may discourage private investment

The San Francisco Chronicle

A panel of university and business experts said Tuesday that California should waive its right to a share of royalties on the stem cell research the state will fund under a $3 billion program passed by voter initiative last year.

Although Proposition 71 allows the state to gain a partial interest in the intellectual property that results from the state-funded research, a committee of the California Council on Science and Technology said the state’s financial stake could hinder progress toward stem cell-based therapies. Cutting into potential profits might discourage private investors from putting up the additional funds needed to develop lab discoveries into marketable products, the committee concluded.

The panel’s report, though not binding on the institute controlling the stem cell research money, raised protests from taxpayer advocates and state Sen. Deborah Ortiz, D-Sacramento, one of the Legislature’s strongest advocates for a flow of research benefits back to the state.

Ortiz said the proposed policy would violate both the language of Prop. 71 and the promises made to voters who passed it in November. Proponents of the initiative maintained that the $6 billion needed to issue bonds to support the research would generate more than that amount from a combination of royalties, increased biomedical business activity, and disease therapies that would lower state health care costs.

Ortiz, who chairs the subcommittee overseeing the stem cell project, said her fellow legislators are unlikely to support wholesale adoption of the proposed policy. “They take very seriously their obligation to make sure California gets a return on its investment,” she said.

The Legislature has no direct control over the research funds, which are entrusted under Prop. 71 to an independent body called the California Institute for Regenerative Medicine. Critics of the initiative say the governing board is dominated by representatives of research institutions that could benefit from the grants, patient advocacy groups and members of the biomedical industry, with no one to speak directly on behalf of the state’s interests.

Although the institute is authorized to negotiate with stem cell grant recipients for a share of patent rights on their inventions, it can forgo those rights. Ortiz has been working on a state constitutional amendment that would require the stem cell institute to guarantee California some payback, like a promise that therapies resulting from the research would be available to low-income state residents at discounted prices.

Her proposals have met with resistance from researchers as well as some stem cell institute members. As the debate raged, both the institute and legislators including Ortiz asked the California Council on Science and Technology to recommend an intellectual property policy for the $3 billion program. The council is a nonprofit organization of state-funded post-secondary institutions, private universities and private sector firms. Their report was financed by the University of California, the University of Southern California, and the California Healthcare Institute, a biomedical trade association.

The panel concluded that the state should follow the lead of the federal government, which for 25 years has handed out research grants from agencies like the National Institutes of Health without retaining a patent stake. Instead, grant recipients such as universities fully control the intellectual property rights, which they can license for fees or a royalty share to private companies. The policy, enacted in part under the Bayh-Dole Act of 1980, was intended to create financial incentives for speedier commercialization of medical advances.

The same rationale should guide the state, said Stephen Rockwood, the council committee co-chair and executive vice president of Science Applications International Corp. His panel concluded that Prop. 71 campaigners overstated the potential for state revenue from stem cell research royalties. And adding state patent rights to the stack of royalty obligations that might be needed to develop a therapy could deter investors, Rockwood said.

“Let’s not be impatient, let’s not expect to fill the state’s coffers tomorrow,” he said. “Let’s get the drugs out as fast as we can.”

Leaders at the California Institute for Regenerative Medicine declined to comment.

But another legislator who invited the council’s input said the stem cell institute should not adopt its full recommendations.

“I think there needs to be a greater emphasis on, ‘What does the state get out of this deal?’ ” said Assemblyman Gene Mullin, D-South San Francisco. “You and I are paying $3 billion.”

Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said that under the council’s policy, returns from the cash-strapped state’s money would eventually end up in private hands.

“Allowing private companies that receive public grants to own the intellectual property is a violation of the public trust,” he said. “Voters were told they would benefit from stem cell research, but if the drug companies own the treatments, it will be the top executives and shareholders that will profit.”
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E-mail Bernadette Tansey at [email protected]