BILL ANALYSIS
SB 1565
Page 1
Date of Hearing: June 17, 2008
ASSEMBLY COMMITTEE ON HEALTH
Mervyn M. Dymally, Chair
SB 1565 (Kuehl) - As Amended: June 9, 2008
SENATE VOTE : 40-0
SUBJECT : California Stem Cell Research and Cures Act.
SUMMARY : Requires the intellectual property (IP) standards of
the California Institute for Regenerative Medicine's (CIRM)
Independent Citizen's Oversight Committee (ICOC) to include a
requirement that each grantee and the licensee of the grantee
submit a plan for CIRM's approval that will afford uninsured
Californians access to any drug that is entirely or partly the
result of CIRM-funded research, as specified. Revises the vote
threshold necessary for CIRM funding of certain research
proposals. Requests the Little Hoover Commission (LHC) to study
the existing governance structure of the ICOC and CIRM, as
specified. Specifically, this bill :
1)Requires the IP standards that the ICOC develops to include a
requirement that each grantee and licensee submit a plan to
CIRM that will afford uninsured Californians access to any
drug that is entirely or partly the result of CIRM-funded
research.
2)Directs the ICOC to require the plan to be submitted before a
drug is placed into commerce and requires CIRM to approve the
plan after a public hearing and public comment period.
3)Requires the plan to require each CIRM grantee and licensee to
sell drugs resulting from CIRM-funded research, and that are
purchased with public funds, at a price that does not exceed
any benchmark price in the California Discount Prescription
Drug Program (Cal-Rx).
4)Provides that this bill does not preclude any public agency
from obtaining prices that are lower than those in Cal-Rx, as
specified.
5)Defines "drug" as any article recognized in the United States
Pharmacopeia, or the National Formulary, and any article
intended for the diagnosis, cure, mitigation, or prevention of
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disease in humans or animals, including therapeutic products,
such as blood, blood products, cells, and cell therapies.
6)Changes the vote threshold necessary for CIRM funding of
certain research proposals from two-thirds to a simple
majority of a quorum of the members of CIRM's Scientific and
Medical Research Funding Working Group.
7)Requests the LHC to study the governance structure of the
California Stem Cell Research and Cures Act (Act), including
the membership and relative roles of the ICOC and CIRM.
8)Requires the LHC, if it conducts the study, to report to the
Legislature by July 1, 2009, on the results of the study and
recommend ways that the governance structure of ICOC could
better ensure public accountability and reduce conflicts of
interest, consistent with the purposes of the Act.
EXISTING LAW :
1)Establishes the Act approved by voters as Proposition 71 in
November 2004.
2)Establishes CIRM to award grants, loans or contracts for stem
cell research and research facilities. Establishes the ICOC
to oversee operations of CIRM and includes within the
functions of the ICOC the responsibility to render final
decisions on research standards and grant awards.
3)Requires CIRM to provide a public annual report disclosing
specified information relating to its activities, grants
awarded, grants in progress, research accomplishments, and
future program directions, including the number and dollar
amounts of research and facilities grants; the grantees from
the prior year; CIRM's administrative expenses; an assessment
of the funding for stem cell research from non-CIRM sources; a
summary of research findings; an evaluation of the
relationship between CIRM grants and the overall strategy of
its research program; and a report on CIRM's strategic
research and financial plans.
4)Requires the ICOC to establish standards to make all grants
and loans subject to intellectual property agreements
(agreements). Requires the agreements to balance the
opportunity for the state to benefit from the patents,
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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
agreements.
5)Establishes within CIRM three separate scientific and medical
working groups relating to research funding, accountability
standards, and medical facilities.
6)Prohibits certain research proposals from being funded by CIRM
except when at least two-thirds of a quorum of the members of
the Scientific and Medical Research Funding Working Group
recommend to the ICOC that such a proposal is a vital research
opportunity.
7)Prohibits any amendment to Proposition 71 by the Legislature
unless approved by the voters or accomplished by a bill
introduced after the first two full calendar years and
approved by a vote of 70% of both houses.
8)Establishes the LHC, a multi-member 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.
FISCAL EFFECT : According to the Senate Appropriations
Committee, this bill would have costs up to $200,000 in fiscal
year 2008-09 from Proposition 71 bond proceeds for ICOC
staff/regulation costs related to the governance study, based on
a similar performance audit of CIRM conducted by the Bureau of
State Audits in 2006.
COMMENTS :
1)PURPOSE OF THIS BILL . The author believes that Proposition 71
lacks the provisions necessary to ensure that therapies
emerging from the state's stem cell research investments are
available to uninsured Californians, as well as to programs
that serve low-income Californians, at the best available
prices. In order to ensure that the neediest Californians
benefit from groundbreaking stem cell research funded by
taxpayer dollars, the author contends that statutory
provisions are needed to require grantees and licensees to
submit a plan to afford uninsured Californians access to new
drugs prior to commercialization and require these drugs to be
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sold to public programs at the best available prices.
Additionally, the author asserts that changing the voting
requirements for funding of other stem cell-related research
from two-thirds to a simple majority of a quorum of CIRM's
working group members reflects growing scientific
breakthroughs involving non-embryonic stem cell research and
makes certain that the most promising research is funded,
regardless of the source of the stem cells. Lastly, the
author asserts that, given the ICOC/CIRM's unique formation as
a public entity, the public's investment of $3 billion in bond
funds, and the close-knit nature of the scientific community,
the ICOC and CIRM warrant a high level of scrutiny by an
independent body, such as the LHC, to ensure public trust and
confidence and protect the integrity of the ICOC and CIRM from
real or perceived conflicts of interest.
2)PROPOSITION 71 . In November 2004, California voters approved
the Act, which authorizes the state to sell $3 billion in
general obligation bonds to provide funding for stem cell
research in California. It establishes CIRM to award loans,
grants, and contracts to research facilities and makes CIRM
responsible for establishing regulatory standards for stem
cell research and stem cell research facilities. The Act also
creates and specifies the composition of the 29-member ICOC to
govern CIRM. The ICOC is required to award all grants, loans
and contracts in public meetings and to adopt all governance,
scientific, medical, and regulatory standards in public
meetings. CIRM has three separate scientific and medical
working groups focused on research funding, accountability
standards, and medical facilities. The Act requires members
of the working groups to be subject to the same
conflict-of-interest standards that are applicable to members
of scientific review committees of the National Institutes of
Health (NIH).
3)IP STANDARDS . To date, CIRM has adopted regulations
pertaining to IP requirements for nonprofit organizations,
such as universities and research institutions, and for
for-profit organizations, such as biotechnology companies.
Grantee organizations are required to grant exclusive licenses
involving CIRM-funded inventions only to nonprofit
organizations that agree to have a plan in place at the time
of marketing to provide access to resultant therapies and
diagnostics for uninsured California patients. In addition,
these licensees must agree to provide drugs to eligible
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Californians from resultant therapies at prices negotiated
pursuant to Cal-Rx.
Additionally, CIRM IP regulations for for-profit grantees
require licensees who develop drugs from resultant therapies
to furnish those drugs to publicly funded programs in
California at one of the following benchmark prices specified
in Cal-Rx: the federal Medicaid price; the lowest commercial
price; or, the average manufacturer's price minus 15%. The
regulations also require licensees' plans to provide access to
therapies and diagnostics for uninsured Californians in
accordance with industry standards at the time of
commercialization, accounting for the size of the market for
the drug and the resources of the licensee.
At the March 12, 2008, meeting of the ICOC, revised IP draft
regulations were issued for grants to for-profit organizations
to include language similar to this bill by requiring grantees
to submit plans to afford uninsured Californians access to a
drug resulting from CIRM-funded research, prior to the time
the drug is brought to market, and requiring the plans to be
subject to CIRM approval after a public hearing and
opportunity for public comment is held. The proposed
revisions also indicate that if Cal-Rx is repealed, benchmark
prices must be based on the Cal-Rx benchmark prices on the
last day the program is in effect.
4)CAL-RX . Cal-Rx was created pursuant to AB 2911 (Nunez),
Chapter 619, Statutes of 2006, to require the Department of
Health Care Services (DHCS) to use manufacturer rebates and
pharmacy discounts in order to reduce prescription drug prices
and improve the quality of health care for eligible
Californians. DHCS is required to consider three different
benchmarks in negotiations with drug manufacturers: the lowest
price offered to private payers; the Medicaid best price; or,
the average manufacturers' price minus 15%. DHCS reports that
the Cal-Rx program has not been implemented yet but proposed
funding for the program is contained in the Governor's 2008-09
Budget, and, if approved by the Legislature, implementation is
targeted for February 2009.
5)RESEARCH FUNDING . Current federal funding for human embryonic
stem cell research is restricted to research involving stem
cell lines created prior to 2001. Current state law, pursuant
to Proposition 71, establishes a high priority for CIRM
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funding for embryonic stem cell research that cannot or is
unlikely to receive timely or sufficient federal funding, such
as research using stem cells created after 2001, and prohibits
other research categories funded by NIH from being funded by
CIRM. Current law also specifies that CIRM may fund other
stem cell-related research proposals if two-thirds of a quorum
of the members of its Scientific and Medical Research Funding
Working Group recommend to the ICOC that the proposal is vital
to advancing medical science. This bill changes the
two-thirds voting threshold to a simple majority. The author
indicates that the change in the voting requirement is
intended to make certain that the most promising research is
funded, regardless of whether embryonic or non-embryonic stem
cells are used. According to CIRM, the current two-thirds
threshold has not prevented it from funding a research
proposal to date.
6)CONFLICT OF INTEREST ISSUES . Recent actions involving ICOC
members have underscored the need for strict conflict of
interest policies governing CIRM. Currently 18 of the 29
members of the ICOC come from universities, research
institutions, and biomedical science companies with a direct
or indirect interest in stem cell research. One ICOC member
is currently under investigation by the Fair Political
Practices Commission because he may have violated CIRM's
conflict of interest rules prohibiting board members from
using their official position to influence a funding request
from institutions they represent. The ICOC member sent a
letter to CIRM disputing the rejection of a grant application
from his institution that was initially approved by the
institute. CIRM intervened before the letter was reviewed by
its grant-making committee and acknowledged that it needed to
clearly communicate that the conflict rules also apply to the
post grant-review process. In another incident, CIRM
disqualified applications from ten potential grantees because
of confusion arising from instructions in the grant
applications that required letters of support from deans or
department chairs of the applicant institutions and CIRM's own
conflict of interest policies that prohibit governing board
members, many of whom are deans of institutions that seek CIRM
funds, from influencing funding requests from the institutions
they represent. Applications from institutions not
represented on the ICOC or that had department chairs rather
than deans write the support letters were approved while those
applications with letters of support written by deans serving
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as members of the ICOC were disqualified and ordered to
reapply after six months. In response to these issues, CIRM
states that it was the first to recognize and resolve these
conflicts and did not fund any affected applications. The
institute insists that it policed itself properly and
aggressively even before these incidences became public.
7)CONCERNS . The University of California (UC) is concerned that
any effort to codify in statute IP provisions related to
Proposition 71 is premature at this time. As a major research
university engaged in stem cell research and a recipient of
Proposition 71 funding, UC points out that CIRM's IP policy
was the result of broad consultation with the public and
various stakeholders, and carefully balanced the need to
foster university-industry partnerships with the important
goal of ensuring that scientific advances in stem cell
diagnostics and therapies benefit the public. UC states that
CIRM's approach to IP includes novel treatments of IP that
have not yet been tested on the state or national level and,
therefore, the policy should be given the chance to be tested
and the flexibility to be modified if it turns out that it is
not adequately serving the public interest before it is
codified in statute or significant changes are made. UC
asserts that CIRM should 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 research endeavors.
While CIRM does not have an official position on this bill, it
is concerned that requiring commercial product pricing to be
the lowest among specified benchmarks in Cal-Rx establishes a
one-size-fits-all standard that precludes CIRM from exercising
any flexibility to negotiate with grantees in order to
maximize the number of therapeutic products brought to market.
CIRM contends that not all products are equally marketable
and notes, for example, that a therapeutic product for an
"orphan disease," or one that is relatively rare with a small
patient population, is a vastly different economic
circumstance than one that treats a large patient population
with a chronic disease like diabetes. CIRM states that the
provision governing commercial product pricing in this bill
could have the unintended consequence of preventing
therapeutic products resulting from CIRM-funded research from
reaching the market altogether.
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8)SUPPORT . Consumer Watchdog (formerly the Foundation for
Taxpayer and Consumer Rights) states in support that this bill
will help ensure that the taxpayers of California 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. California Common Cause states
that this bill is a good first step towards promoting proper
stewardship of the public's investment in CIRM and will help
to provide more transparency and accountability of the
institute. Health Access points out that Californians saw
great promise when Proposition 71 was adopted that they would
have access to drugs and products that could cure or slow the
progression of numerous diseases and conditions and,
therefore, they should have access to this promise whether
they are insured or uninsured. The California Nurses
Association adds that California residents should be the
primary beneficiaries of the research and therapies developed
through the expenditure of state funds. The American
Association of University Women California asserts that is
both good and humane public policy to ensure that uninsured
citizens have access to important drugs and medications
developed as a result of stem cell research. The California
Alliance for Retired Americans writes that many seniors are
excited about the groundbreaking work that can be done by CIRM
but, as underwriters of much of the research, taxpayers must
be assured access to the therapies and drugs and know that
monies are being used in an equitable and just fashion. The
Greenlining Institute points out that while the four-year
history of the governing board of CIRM has been marked by an
excited promise, it has likewise been marred by lack of
accountability and this bill has the potential to improve the
governance structure of CIRM using recommendations from the
LHC study, including possible recommendations to better keep
CIRM accountable to California's diverse communities. Lastly,
the Pro-Choice Alliance for Responsible Research notes that
too often public funds are used to develop medical treatments
that are then unaffordable to the most vulnerable people in
our society and this bill ensures that every taxpayer in
California paying for research funding by CIRM has access to
any medical care that is developed.
9)OPPOSITION . The California Healthcare Institute (CHI), which
represents life science companies and academic research
institutions, opposes this bill because it believes it would
discourage commercial collaboration, technology transfer, and
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licensing by a) reducing the rate of return on CIRM-related
deals in comparison to other academic-industry transactions,
and b) increasing investors' financial risk by imposing state
price regulation on products resulting from CIRM-funded
research. CHI adds that considering biotechnology's long
product lead times, future price regulation makes it all the
more difficult to project return on investment. Furthermore,
CHI notes that CIRM has just begun to issue research grants
and it will likely be several years before any discoveries
from this research move to the commercialization stage;
therefore, the ICOC may not know for some time whether the IP
policies it has adopted are effective and will need
flexibility to change those policies as the situation
warrants.
10)PREVIOUS LEGISLATION .
a) SB 401 (Ortiz) of 2006 would have modified the public
hearing and conflict-of-interest procedures of members of
the ICOC, the Citizen's Financial Accountability Oversight
Committee and the advisory and working group established to
assist these bodies and would have prescribed minimum
intellectual property licensing conditions applicable to
ICOC standards for research and facilities grants and
loans. SB 401 was held in the Assembly Appropriations
Committee.
b) SB 340 (Battin) of 2005 would have required all revenues
derived from patents, royalties, and licenses paid to the
state as a result of intellectual property agreements
entered into pursuant to Proposition 71 to be deposited
into the state General Fund. SB 340 was scheduled for a
hearing in the Assembly Health Committee but the hearing
was cancelled at the request of the author.
c) SB 18 (Ortiz) of 2005 would have required the State
Auditor to conduct a performance audit of the ICOC and
CIRM. SB 18 was vetoed by Governor Schwarzenegger. In his
veto message, the Governor indicated that SB 18 "is in
direct conflict with the text of Proposition 71 as approved
by the voters."
d) SCA 13 (Ortiz) of 2005 would have modified provisions of
Proposition 71 relating to reporting of economic interests,
conflict-of-interest standards, open meetings and public
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record laws. SCA 13 was placed on the inactive file at the
request of the author.
e) AB 2911 (Nunez), Chapter 619, Statutes of 2006,
establishes Cal-Rx within DHCS and requires DHCS to attempt
to negotiate discount prices with manufacturers of
single-source prescription drugs that are equal to, or
below, one of the following benchmark prices: 85% of the
average manufacturer price; the lowest price provided to
any non-public entity in California by a manufacturer, as
specified; or, the Medicaid best price.
11)POLICY QUESTION . Given that CIRM is currently circulating
draft IP regulations for for-profit grantees that have been
revised to incorporate language that is similar to this bill,
is it premature to codify similar language in this bill?
12)DOUBLE-REFERRAL . This bill is double-referred. Should it
pass out of this committee, it will be referred to the
Assembly Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Association of University Women California
American Federation of State, County and Municipal Employees,
AFL-CIO
California Alliance for Retired Americans
California Common Cause
California Faculty Association
California Nurses Association
California State Controller John Chiang
Congress of California Seniors
Foundation for Taxpayer and Consumer Rights
Gray Panthers
Greenlining Institute
Health Access California
Pro-Choice Alliance for Responsible Research
Opposition
California Healthcare Institute
One individual
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Analysis Prepared by : Cassie Rafanan / HEALTH / (916)
319-2097