BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Sheila J. Kuehl, Chair
BILL NO: SB 1565
S
AUTHOR: Kuehl & Runner
B
AMENDED: As introduced
HEARING DATE: April 2, 2008
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REFERRAL: Health and Judiciary
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FISCAL: Appropriations
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CONSULTANT:
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Park/sh
SUBJECT
California Stem Cell Research and Cures Act
SUMMARY
Requires the Independent Citizens Oversight Committee
(ICOC) of the California Institute for Regenerative
Medicine (CIRM) to include in its intellectual property
standards a requirement that each grantee and licensee
submit for CIRM's approval a plan that will afford
uninsured Californians access to any drug that is, in whole
or in part, the result of research funded by the CIRM.
Requires these plans to include a requirement that grantees
and licensees sell drugs that result from CIRM funding and
are purchased with public funds at a price that does not
exceed any benchmark price in the California Discount
Prescription Drug Program. Requires the Little Hoover
Commission to conduct a study of the governance structure
of the California Stem Cell Research and Cures Act by July
2, 2009.
CHANGES TO EXISTING LAW
Continued---
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Existing law:
The California Stem Cell Research and Cures Act (Act),
enacted by voters as Proposition 71 in November, 2004,
establishes the CIRM to make grants and loans for stem cell
research and research facilities. Existing law also
establishes the ICOC as the governing body for the CIRM.
Existing law authorizes the sale of $3 billion in general
obligation bonds over 10 years for stem cell research and
facilities in California, with a focus on research that
does not qualify for federal funding.
Existing law, from Proposition 71, requires the ICOC to
establish standards that require all grants and loan awards
to be subject to intellectual property agreements that
balance the opportunity of the state to benefit from the
patents, royalties, and licenses that result from research
and therapy development, and clinical trials with the need
to assure that essential medical research is not
unreasonably hindered by the intellectual property
agreements.
Existing law also provides that the Legislature may amend
the non-bond statutory provisions of the Act, to enhance
the ability of the California Institute for Regenerative
Medicine to further the purposes of the grant and loan
programs created by that Act, with a 70 percent vote of
each house and compliance with specified procedural
requirements.
Existing law establishes the California Discount
Prescription Drug Program (CalRx) within the Department of
Health Care Services, and requires the department to
attempt to negotiate, with each drug manufacturer,
discounts to offer single-source prescription drugs under
the program at a volume weighted average discount that is
equal to or below any one of the following benchmark
prices: (1) eighty-five percent of the average manufacturer
price for a drug, as published by the Centers for Medicare
and Medicaid Services; (2) the lowest price provided to any
nonpublic entity in the state by a manufacturer; or (3) the
Medicaid best price, to the extent that this price exists
under federal law.
Existing law establishes the Milton Marks "Little Hoover"
Commission on California State Government Organization and
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Economy, a multimember body appointed by the Governor and
the Legislature with various duties that include making
recommendations to the Governor and the Legislature to
promote efficiency in government operations.
This bill:
This bill would require intellectual property standards
developed by the ICOC to include a requirement that each
grantee and licensee submit for CIRM's approval a plan that
will afford uninsured Californians access to any drug that
is, in whole or in part, the result of research funded by
the CIRM, and would require this submission prior to the
drug's commercialization. This bill would also require
that the aforementioned plans require the grantees and
licensees to sell the resulting drugs that are purchased
with public funds at a price that does not exceed any
benchmark price in CalRx as it exists on January 1, 2008.
The bill would not preclude any public agency from
obtaining prices that are lower than the benchmark prices
described in CalRx. The bill would also define "drug" as
any article recognized in the United States Pharmacopeia or
the National Formulary, or any article intended for the
diagnosis, cure, mitigation, or prevention of disease in
humans or animals, or any article intended for use as a
component of diagnosis, cure mitigation or prevention of
disease in humans or animals, and inclusive of therapeutic
products, including, but not limited to, blood, blood
products, cells, and cell therapies.
This bill would require the Little Hoover Commission to
conduct a study of the governance structure of the
California Stem Cell Research and Cures Act, and submit, by
July 2, 2009, a report to the Legislature on the results of
the study and recommendations of ways the governance
structure of the ICOC could better ensure public
accountability and reduce conflicts of interest, consistent
with the purposes of Proposition 71.
FISCAL IMPACT
Unknown.
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BACKGROUND AND DISCUSSION
Authors' statement
The authors state that, although Californians were told
that therapies emerging from the state's research
investments would be available to uninsured Californians,
as well as to programs that serve low-income Californians,
at the best available prices, Proposition 71 lacks the
provisions necessary to ensure such a result. The authors
believe that in order to ensure that the neediest
Californians benefit from groundbreaking stem cell research
funded by taxpayer dollars, such provisions should be
placed in statute.
The authors believe that, requiring grantees and licensees
to submit a plan that will afford uninsured Californians
access to new drugs prior to commercialization, and
requiring these drugs to be sold to public programs at the
best available prices reflect the promise of Prop 71 and
the public's investment into stem cell research.
The authors also state that, given CIRM/ICOC's unique
formation as a public entity, the level of public
investment--$3 billion in bond funds that will amount to a
General Fund expenditure of $6 billion (including
interest), and the close-knit nature of the scientific
community, CIRM and the ICOC should be thoroughly
scrutinized by an independent body to ensure the highest
level of public trust and confidence. The authors believe
that the Little Hoover Commission is the best entity to
undertake a study of the existing governance structure and
that such a study would help maximize CIRM and the ICOC's
ability to achieve the goals of Prop 71 and protect the
integrity of the institution from real or perceived
conflicts of interest.
Intellectual property standards
Stem cell research projects that receive Proposition 71
funding are expected to generate many kinds of intellectual
property, including new research tools, new stem cell
lines, new methods for isolating stem cells, and,
ultimately, stem cell therapies and drugs. In many cases,
grantees will be able to license the rights to those
inventions to other entities or else to use them,
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themselves, to develop stem cell products and research
tools.
The CIRM has promulgated intellectual property regulations
covering its grants to non-profit grantees, such as
universities and research institutions. The regulations
provide that grantees may only license their inventions to
entities that have plans to provide access to any resulting
therapies to uninsured Californians. The regulations
further provide that grantees may only enter into licensing
agreements with entities who agree to provide therapies
that are drugs at the prices negotiated under CalRx,
established by AB 2911 (Nunez - Chapter 619, Statutes of
2006), to eligible persons under that program.
The ICOC's regulations for grants to for-profit entities
additionally require licensees who develop stem cell
therapies that are drugs to provide those drugs to publicly
funded programs in California at one of the specific
benchmark prices required in CalRx-the federal Medicaid
price, the lowest commercial price, or the Average
Manufacturer's Price less 15 percent. The regulations also
require licensees' plans to provide access to therapies and
diagnostics for uninsured Californians to be consistent
with "industry standards" (an undefined term).
On March 12, 2008, the ICOC issued draft revised
regulations for grants to for-profit entities to include a
requirement that all plans must provide access for
uninsured Californians, must be submitted prior to
commercialization and must receive CIRM approval, similar
to the language in SB 1565. The proposed revision also
states that, if CalRx is repealed, benchmark prices should
refer to those benchmark prices described in CalRx on the
last day it is in effect.
Grant awards and recent conflicts of interest
Proposition 71 authorizes the issuance of up to $350
million a year in general obligation bonds over a 10-year
period for stem cell research and facilities. Although the
constitutionality of the initiative had been challenged
initially, in May 2007, the California Supreme Court
declined to review a lower court ruling that upheld the
constitutionality of the initiative, opening the door to
the issuance of bonds and disbursement of those bond
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funds.
According to its 2007 annual report, CIRM awarded almost
156 grants worth $260 million. This included "funding of
over $120 million for 103 research grants?$50 million in
funding was approved for shared laboratory facilities and
for training courses in stem cell biology, and $54 million
was awarded to new investigators launching their careers in
stem cell science." Initial funding was made possible
through a $150 million loan authorized by Governor
Schwarzenegger, and $45 million loaned from private
donors/philanthropic organizations. Since then, an
additional $262 million in funds for facility expansion and
construction, and $25 million for research to develop new
stem cell lines has been announced.
Against this backdrop, in December 2007, ten promising
grant applications were disqualified because governing
board members from the institutions making the applications
wrote letters of recommendation in support of the grants,
in violation of conflict of interest rules that apply to
governing board members. One member of the governing body
is currently being investigated by the FPPC for a potential
conflict of interest violation that occurred when he
intervened to appeal the rejection of an application from
his research institution.
Since then, two major newspapers (Los Angeles Times and
Sacramento Bee) have editorialized on the incidents and
have urged the Legislature to address these problems by
reconfiguring the ICOC, reducing the number of appointees
who come from organizations that have direct interests in
stem cell research grants. Currently, 18 of 29 members of
the ICOC come from universities, research institutions, and
life science companies that have direct or indirect
interests in stem cell research.
Outgoing CIRM President Richard Murphy addressed these
incidents in a February 14, 2008, letter to the author:
The conflict of interest cases that involved ICOC
members arose innocently and inadvertently and reflect
the growing pains of a new organization, not
intentional misdeeds. In one case, an ICOC member
contacted CIRM to question a technical decision that
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had resulted in the turning down of a grant to his
organization, which was a course of action suggested
to him innocently by Bob Klein [chairman of the ICOC],
who was himself unaware of the details of the
technical issue. In the other cases, four Deans of
Medical Schools and one institute president, all on
the ICOC, signed letters of support for new
investigator applicants to CIRM. Singing [sic] support
letters is a normal part of their jobs and also
appeared to be permitted by ICOC's own conflict of
interest policies, which, only later, we realized
conflicted with State Law 1090 [sic]. CIRM was the
first to recognize and resolve these conflicts, and no
grants affected by the conflicts were funded. In
short, CIRM policed itself aggressively and
appropriately, even before these issues became public.
Little Hoover Commission ("Commission")
An independent state oversight agency established in 1962,
the Commission's role differs in three distinct ways from
other state and private-sector bodies that analyze state
programs. Unlike fiscal or performance audits, the
Commission's studies look beyond whether programs comply
with existing requirements, instead exploring how programs
could and should function in today's world. The Commission
produces reports that serve as a factual basis for crafting
effective reform legislation and follows through with
legislation or administrative changes to implement its
recommendations. In addition to the public hearings the
Commission holds to develop findings and recommendations,
hearings are held and progress reports are issued in the
years following the initial report until the Commission's
recommendations have been enacted or its concerns have been
addressed.
Prior legislation
SB 771 (Kuehl and Runner) of 2007 would have required stem
cell research grant or loan recipients to grant exclusive
licenses only to organizations that have presented plans
that CIRM determines will provide substantial access to
resulting therapies, drugs, and diagnostics for uninsured
Californians, and provide the therapies, drugs, and
diagnostics to publicly funded programs in California at
the federal Medicaid price. The bill would have also
required recipients of research grants or loans to agree to
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make royalty payments to the state, as specified. These
provisions were amended out of the bill.
SB 401 (Ortiz and Runner) of 2005 - 06 would have made
changes to the public meeting, public record, grant and
loan licensing conditions, and conflict-of-interest
provisions of Proposition 71. The bill would have required
the ICOC to establish and apply minimum licensing
conditions to its grants and loans for research, including
that grantees provide to the state a portion of net
licensing revenue or royalties and sell any product, drug,
or therapy that they develop using grant or loan funds to
state and county health programs at a cost not to exceed
the federal Medicaid price. Held on Assembly
Appropriations Committee suspense file.
SCA 13 (Ortiz and Runner) of 2005 - 06 would have modified
provisions of Proposition 71 dealing with reporting of
economic interests and conflicts of interest and applied
open meeting and public records laws to meetings and
records of the ICOC, the CIRM, and its working groups with
exceptions. The bill would have required the ICOC to
ensure that treatments, therapies, products, and services
resulting from technologies and inventions derived from
grants awarded are accessible and affordable to low-income
residents, including those residents eligible for
state-and-county-funded health care programs. Died on the
Senate floor.
AB 2911 (Nunez), Chapter 619, Statutes of 2006, establishes
the California Discount Prescription Drug Program (CalRx)
within the Department of Health Care Services, and requires
DHCS to attempt to negotiate, with each drug manufacturer,
discounts to offer single-source prescription drugs under
the program at a volume weighted average discount that is
equal to or below any one of the following benchmark
prices: (1) eighty-five percent of the average manufacturer
price for a drug, as published by the Centers for Medicare
and Medicaid Services; (2) the lowest price provided to any
nonpublic entity in the state by a manufacturer; or (3) the
Medicaid best price, to the extent that this price exists
under federal law.
Arguments in support
The Foundation for Taxpayer and Consumer Rights states that
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this measure will help ensure that the taxpayers of
California, who are paying $6 billion for stem cell
research, will have affordable access to the fruits of the
research they are funding, and will help make CIRM and the
ICOC more responsive and accountable to the public. The
California Nurses Association writes that California
residents should be the primary beneficiaries of the
research and therapies developed through the expenditure of
state funds.
The Center for Genetics and Society adds that this bill
takes a much-needed first step to reforming the governing
structure of the CIRM, which under the current statute is
inherently conflicted. The Pro-Choice Alliance for
Responsible Research points out that at a recent ICOC
meeting, all but nine members of the board had to recuse
themselves because of conflicts of interest and believes
that structure does not serve the people of California
well.
Additionally, the Alliance states that too often public
funds are used to develop medical treatments that are then
unaffordable to the most vulnerable people in our society.
The alliance believes that since every taxpayer in
California is paying for research funding by CIRM, every
taxpayer should be able to access any medical care that is
developed.
The Greenlining Institute (GI) writes that while the
four-year history of the governing board of CIRM has been
marked by an exciting promise, it has likewise been marred
by a lack of accountability. GI highlights goals and issues
identified by a CIRM-hosted focus group on diversity in
August 2006, which have since received little attention. GI
states that at a year when the state's budget deficit
amounts to over $15 billion, the state cannot afford any
inappropriate use of taxpayer dollars.
Concerns
The University of California (UC) writes that CIRM's IP
[intellectual property] policy should be given the chance
to be tested and the flexibility to be modified if it turns
out that they are not adequately serving the public
interest before either codifying it in statute or making
significant changes. UC points out that CIRM's IP policy
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was the result of broad consultation with the public and
various stakeholders, and carefully balanced the need to
foster university-industry partnership with the important
goal of ensuring public benefit. UC believes that, while
the bill similarly takes both goals into account, codifying
these new or other groundbreaking approaches into statute
at this time is premature and potentially hazardous to the
important goal of ensuring that state-of-the-art
technologies are available to the public. UC asserts that
it is critical CIRM be permitted to establish a track
record to assure prospective industry partners that CIRM's
policies support commercialization of products and
encourage success in these risky endeavors.
COMMENTS
1. Bill codifies and clarifies access requirements for
grantees. Since Prop 71 was enacted, CIRM's
intellectual property regulations have evolved over
time. The CIRM has somewhat different requirement for
grants to non-profits grantees versus for-profit
grantees with regard to access to new drugs and
therapies that result from the research. The bill
would codify access requirements for both nonprofit
and for-profit and clarify the requirements of Prop 71
as they apply to access requirements.
2. Suggested technical amendments:
- Page 3, line 22, strike "to"
- Page 3, lines 33-34, change "California Council
for Regenerative Medicine" to " California Institute
for Regenerative Medicine"
- Page 3, line 35, change date from July 2, 2009,
to July 1, 2009.
POSITIONS
Support: American Federation of State, County and
Municipal Employees (AFSCME)
California Alliance for Retired Americans
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California Nurses Association
Center for Genetics and Society
Foundation for Taxpayer and Consumer Rights
Gray Panthers
Greenlining Institute
Pro-Choice Alliance for Responsible Research
Concerns: University of California
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