BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Tom Torlakson, Chairman
771 (Kuehl)
Hearing Date: 5/21/07 Amended: 5/1/07
Consultant: John Miller Policy Vote: Judiciary 5 - 0
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BILL SUMMARY: SB 771 would revise the California Stem Cell
Research and Cures Act to specify the program's intellectual
property rights agreements require all grant and loan recipients
to provide the state with 25 percent of licensing revenues, that
therapies resulting from public research be available to
uninsured individuals and that royalty payments be made to the
state from commercialized products.
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Fiscal Impact (in thousands)
Major Provisions 2007-08 2008-09 2009-10 Fund
Licensing revenue undetermined but potentially substantial
new revenues GF
Royalty revenue
Treatment discount
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STAFF COMMENTS: This bill may meet the criteria for Suspense.
In 2004 voters approved the California Stem Cell Research and
Cures Act, Proposition 71, which authorized the issuance of $3
billion in general obligation bonds over a ten year period to
fund stem cell research. One of several goals of the proposition
was to provide an opportunity for the state to benefit from
royalties and patents resulting from publicly funded research.
The California Institute for Regenerative Medicine, which
manages grant making for the program, promulgated intellectual
property regulations for both non-profit and commercial
entities. The proposed commercial regulations require that 17
percent of licensing fees in excess of $500,000 be paid to the
state, that three times the grant amount be paid for patented
products supported by CIRM, and that the state be entitled to 1%
of all revenues in excess of $500,000 for the life of a patent
if CIRM provided support over $5 million.
This bill would, instead, require the CIRM regulations provide
the state 25% of net licensing revenues resulting from supported
research; grant exclusive licenses to firms intending to provide
access to resulting therapies to uninsured Californians; and
make royalty payments equal to 2 to 5% of revenues over the life
of a product.
Based on a direct comparison of state revenues generated under
SB 771 and under the CIRM regulations, SB 771 would produce more
revenue than the CIRM regulations. In a ten year projection of a
sample project modeled under three scenarios (a licensed
invention, a low success royalty, and a high success royalty)
with an $8 billion public investment, SB 771 would have produced
$183.5 million compared to $127.7 million under the CIRM
proposed regulations.
The California Institute for Regenerative Medicine believes that
the sample comparison above is misleading, that financial market
forces, the interests of private research
SB 771 (Kuehl)
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companies, and the unique nature of cellular therapies will
produce disincentives which will substantially reduce the
projected returns of 771. BIOCOM, an association of biomedical
research companies, notes that SB 771's structure does not allow
flexibility in assessing compound products or products that
involve multiple patented technologies (e.g. systems with
software, systems with software and reagents and/or drug device
combinations). Researchers noted that as new capital becomes
available from private investors, other states and, potentially,
from the federal government, research with the greatest
likelihood of successful commercialization will opt for lower
cost financing. California's public funding, if expensive
relative to these other sources, would be used by companies with
lower prospects of financial success, such as those companies in
the fiscal "valley of death" between a promising concept and
private funding. These higher risk companies have a lower
likelihood of profit and thus will return less in revenue to the
state than would more successful companies assessed at a lower
rate. Industry representatives also felt the requirements of SB
771 requiring below market access to any CIRM supported product
or medicine would discourage forward integration and development
of biotech.
The Committee reviewed four economic studies which estimated the
potential benefits and royalty/licensing revenues which could
result from Proposition 71. The studies projected very diverse
results, but all the researchers agreed on several points:
Investment in stem cell projects had immense scientific promise;
that capitalization or a return on investments was at least a
decade in the future; that the greatest financial return to the
state would be from improved therapies and reduced health care
costs; and that the potential economic and tax benefits to the
state from stem cell investment would annually reach several
billion dollars.
The four studies projected royalty/revenues to the state of
between $160 million and $1.1 billion or a return of between .6%
and 4.5%. By comparison, licensing income averaged about 2.5 %
of research expenditures on an annual basis among universities,
but licensing in hospitals and research institutes was 7.9%.
Universities and nonprofit companies in California spent $6.9
billion on R&D in 2003. CIRM's investment of $300 million
annually represents about five percent of annual R&D
expenditures at California basic research institutions.