East Bay Business Times (California)

California’s stem cell institute wants a payback when one of its research grants results in a product.

Rules under consideration by the California Institute of Regenerative Medicine (CIRM) would require for-profit grant recipients to share any eventual profits with the state’s general fund.

By seeking a direct financial return for the state, the institute would break with the grant-making practice of the federal government. Though a few foundations or state governments already seek returns from their grant awardees, the rules could potentially have broad implications as other states look to the voter-created institute as a model for their own programs.

“There’s a general nervousness about this as a model. I know there are fears of national implications, but my job is to write the policy based upon what the state wants,” said Mary Maxon, deputy vice chair of the institute, who drafted the policy. “It’s definitely unique. There’s no question about it. The question is how much of this will stick.”

The board of the institute previously approved a separate policy for nonprofit grant recipients in February.

Many of the institute’s grants to for-profit entities are expected to involve clinical trials and other activities that do not create intellectual property. So the institute has drafted rules with one eye toward capturing some of that value – but with the other eye on capping paybacks at a level that does not deter companies from coming to the institute for research grants.

The institute has established a tiered system setting the required rate of return when for-profit grant recipients’ work leads to a commercial product with annual revenue of at least $500,000.

At that level, the grant recipient would have to provide a threefold return of grant money. The rate rises to six times the grant for a product with sales of $250 million and nine times for a product with $500 million.

For any product that exceeds $500 million a year in revenue, and involved an institute patent plus a grant of more than $5 million, a royalty would be added. On sales above $500 million, the state would be owed 1 percent of the revenue in addition to the ninefold return on the grant.

Bruce Cohen, CEO of San Carlos-based Cellerant Therapeutics, who has followed the rules discussion but not seen the version approved by the institute’s IP task force at its last meeting, said the rules appear to strike a “reasonable compromise.”

“It’s aggressive, but you could live with it,” he said.

John Simpson, the stem cell project director for the Foundation for Taxpayer and Consumer Rights who is an outspoken advocate for a direct financial payback to the state, said he was happy to see the rules.

“When this all started, there were serious proposals that there would be no payback to the state at all and that the only payback would be in terms of the jobs created and perhaps the taxes,” he said. “I’m happy to see they put the payback in and it’s a reasonable rate.”

But Simpson expressed concern over issues of assuring access to therapies that result from work financed by the institute.

Under the for-profit rules, companies that accept institute funding will be required to submit plans to make their products available to uninsured Californians. They will also be required to make the products available to the state at a discount and give preference to California residents if their products are in short supply.

“I don’t think it goes far enough to ensure that Californians who are paying for the research will have fair access to the drugs, therapies and cures,” said Simpson. “We’re going to keep pushing on it.”

The rules were approved earlier this month by the institute’s IP task force. The full board of the institute is expected to hear a presentation of the proposal at a Dec. 7 meeting. If approved, it will then be put into formal regulatory language and posted for 45 days of public comment expected to begin sometime in January.

“It will come down to what happens in the public comment period. That’s where suddenly companies seem to start paying more attention once it actually gets through the board and into regulatory language,” said Maxon. “Folks who never showed up at the public meetings suddenly now have a major influence on how the regulations get drafted.”