Not only pro-life and pro-fiscally responsible government groups are raising red flags about CA’s $3 billion ($6 billion with interest) stem cell initiative.
Read Capitol Weekly News’ September 15 piece, “Stem cell research: cutting-edge science or corporate subsidies, courtesy of voters?” (reprinted on page 2).
Also read a very strong editorial in the September 18 Sacramento Bee entitled, “Editorial: Stem cell oversight board is flying blind” (also reprinted on page 2).
Also read what finally got the attention of California Democrat legislators: “Panel wants state to waive stem cell product royalties,” published in the San Francisco Chronicle.

Capitol Weekly News
Stem cell research: cutting-edge science or corporate subsidies, courtesy of voters?
By Malcolm Maclachlan
September 15, 2005

The organizations created to fund stem cell research in California announced their first grants last week, despite the fact that the money is held up in lawsuits. But are they rushing to further science or escape politics?
Last fall, voters approved a stem cell initiative, Proposition 71, by a 59-41 percent margin. Ten months later, the $3 billion in bonds voters approved are tied up in lawsuits by Republican and anti-abortion groups who oppose embryonic stem cell research.
Yet, in the long-run, the organizations created by Prop. 71–the Independent Citizen’s Oversight Committee and the California Institute for Regenerative Medicine–may have more to worry about from their original allies. A coalition of Democratic skeptics has put forth a message more likely to gain traction: You can support stem cell research and still oppose the results of Prop. 71.
“The debate was framed as being a referendum on stem cell research and whether you support President Bush,” said Jesse Reynolds of the Center for Genetics and Society. “California voters didn’t approve this as a corporate subsidy.”
Reynolds’ message has gotten support in the Legislature. After pulling back from a proposed constitutional amendment to place regulatory restrictions on the fledgling stem cell agency, Sen. Deborah Ortiz D-Sacramento, joined with Sen. George Runner, R-Antelope Valley, a stem cell research opponent, to push through SB 18. The bill calls for a state audit of stem cell grant funds. It also demands doctor’s to gain consent from women before their eggs
can be used to generate embryonic stem cells.
Despite other failed efforts to place restrictions on the new institute, most of which were blocked by Democratic leadership in the Senate, SB 18 sailed through the Senate 28-0 and Assembly 72-2.
Ortiz spokeswoman Hallye Jordan said that part of the goal is to make sure that the state gains some benefit from the money it spends, either in the form of financial payoff or low-cost treatments for citizens.
“Californians shouldn’t have to pay for this twice,” Jordan said. “We’ve had a generous investment in this research. We should be able to see some return on that investment.”
Despite the lawsuits and the Legislature’s actions, the ICOC announced its first grants last Friday. Grants worth $12.5 million will go to 169 researchers, mainly at major research universities within California.
“We can stand waiting, or we can get in the starter blocks and let people know we’re ready,” said Dr. Zach Hall, speaking at a press conference with ICOC Chairman Robert Klein on Friday. On Saturday, Hall was named president of the California Institute for Regenerative Medicine, the ICOC’s partner organization.
Klein was the principal driver of Prop. 71, donating $2 million of his own money to the campaign. He’s often crossed swords with Ortiz, but has maintained support from Senate Democrats who have been reluctant to challenge the new agency.
Prop. 71 could hardly have fallen into a friendlier environment than California in late 2004. President Bush was still considered a pariah by many for his 2001 edict that researchers must stick to “existing stem cell lines.” This decision had hamstrung stem cell research in the country and given other countries a major advantage.
Two high profile deaths last year–former President Ronald Reagan of Alzheimer’s in June and actor Christopher Reeve in October of complications from paralysis–further fueled the fire. Reagan’s struggles had turned former first lady Nancy Reagan into an advocate for stem cell research, complicating efforts to portray opposition as the default conservative position. Previously best known for playing Superman in movies, Reeves’ hulking-but-helpless image had become a virtual symbol for stem cell research.
Reynolds said that opponents were outspent $35 million to $200,000 during the election, making it difficult to communicate the complex arguments against Prop. 71.
For instance, he said, one of the most important issues is whether projects are funded with tax-exempt bonds. Funding projects with bonds that are exempt from federal taxes could save the state millions of dollars in the short term. But federal law, known as Bayh-Dole, bars states from gaining a return on investment on project funded this way. The best system, Reynolds said, would be to fund basic research with tax-exempt bonds and later research with taxable bonds, which would allow the state to still hold a stake in the resulting intellectual property.
CIRM and the ICOC have remained officially neutral about legislation and intellectual property issues, according to CIRM spokeswoman Nicole Pagano.
She said the ICOC’s Intellectual Property Task Force is scheduled to have its first official meeting next week.
Organizations that support CIRM and the ICOC, such as the Alliance for Stem Cell Research and the California Council on Science and Technology, have identified the Bayh-Dole model as something California should emulate. This 1980 law codified how the federal government deals with intellectual property issues.
Bayh-Dole is exactly the model his group is trying to avoid, Reynolds countered. He said the law has essentially become a codified system for giving away taxpayer money with little or no return.
Susan DeLaurentis, CEO of the Alliance for Stem Cell Research, a group founded by Klein but not officially connected to ICOC, said opponents are defying voters who have clearly spoken in favor of stem cell research. She said the she’s worried that opposition from Democrats over the intellectual property issue will slow crucial developments.
“The intellectual property problem isn’t going to be an issue for 10 to 14 years,” she said, referring to estimates for when stem cell treatments might be commercially available. “There is time to figure this out.”
Sacramento Bee
Editorial: Stem cell oversight board is flying blind
Their own rules mean multimillion-dollar decisions are based on two-page memos
Published September 18, 2005

Story appeared in Forum section, Page E6
Robert Klein II, the self-appointed czar of California’s stem cell institute, has created a completely unworkable system for dispensing $3 billion in taxpayer-funded research grants.
In fact, it is hard to imagine a system that is more convoluted and opaque than what Klein has created. Its shortcomings were on full display at a Sept. 9 meeting of the institute’s oversight board here in Sacramento.
At the meeting, the 29-person board (with a few members absent) labored to decide which universities and research entities should receive the institute’s first training grants, totalling about $13 million per year.
During the meeting, the distinguished scientists on the panel resembled ballerinas in Kurt Vonnegut’s story, “Harrison Bergeron,” who tried to dance with bag weights. The scientists didn’t have the information they needed to make knowledgable decisions, and many seemed frustrated because of it.
Here’s how the system works:
An applicant – a California researcher or university – applies to the stem cell institute for a grant. That application is reviewed by a working group of out-of-state scientists and eight patient advocates who serve on the institute’s oversight board, one of whom is Klein.
The scientists score each proposal on its scientific merit; then the full working group recommends which ones are “highly meritorious,” “meritorious” or “not recommended for funding.” Those recommendations and a short evaluation of each grant – with the name of the applicant blacked out – are forwarded to the oversight board. Members are then asked to make multimillion-dollar decisions based on a two-page memo.
Why can’t the oversight board members see all of the paperwork? If they did, those records would become public documents, open for all to review. Institute President Zach Hall says such transparency might discourage applicants from submitting complete and candid proposals. Maybe it would, maybe it wouldn’t. All we know is, for embryonic stem cell research, California’s program is the only game in town.
As it is, the current system is grossly unfair. Patient advocates on the board have full knowledge of the applicants and the applications, yet everyone else is wearing blinders. That’s why, during the Sept. 9 meeting, board members such as Stanford’s Phil Pizzo complained, saying: “We don’t have sufficient data….We have to rely on the recommendations of the working group.”
You can’t say the oversight board wasn’t warned. Months ago, institute reformers told the oversight board that its closed-door policies would be self-defeating. “You will be confined to considering what the working groups put on your plate, with little or no sense of how it got there, or what is missing or why,” wrote Terry Francke, counsel for the good-government group, Californians Aware.
The institute overseers now have two choices:
1) Become a true decision-making board and insist on all information about grant applications it is judging.
2) Become more like the National Institutes of Health, and delegate the job of awarding grants to an outside panel of scientists. Such scientists, as decision makers, would need to disclose their potential conflicts.
Without changes, the current experiment seems doomed for failure.
San Francisco Chronicle
Panel wants state to waive stem cell product royalties
Experts say profit interest may discourage private investment
Bernadette Tansey, Chronicle Staff Writer
August 24, 2005

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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