BILL ANALYSIS
SB 1565
Page 1
Date of Hearing: June 24, 2008
ASSEMBLY COMMITTEE ON JUDICIARY
Dave Jones, Chair
SB 1565 (Kuehl and Runner) - As Amended: June 9, 2008
SENATE VOTE : 40-0
SUBJECT : California Stem Cell Research and Cures Act
KEY ISSUE : SHOULD GRANTEES OF THE CALIFORNIA INSTITUTE FOR
REGENERATIVE MEDICINE BE REQUIRED TO PROVIDE AFFORDABLE ACCESS
TO STEM CELL DRUGS DEVELOPED WITH STATE FUNDING IN ORDER TO HELP
ENSURE ACCESSIBILITY TO CALIFORNIANS?
SYNOPSIS
In 2004 California voters approved Proposition 71 establishing
the California Institute for Regenerative Medicine (CIRM), whose
purpose is to make grants and loans for stem cell research,
research facilities, and other vital research opportunities.
This bill mandates that institutions applying for grants from
the CIRM submit a plan to afford access to any drugs developed
with CIRM funding to indigent Californians. In addition, this
bill requires that when public funding is used, the drugs must
be sold no higher than the benchmark price in the California
Discount Prescription Drug Program. These requirements are very
similar to existing or proposed regulations. This bill also
requests the Milton Marks "Little Hoover" Commission on
California State Government Organization and Economy to conduct
a study on the structure of CIRM and the Independent Citizens
Oversight Committee (ICOC), CIRM's 29-member governing board,
and present it to the appropriate committees of each house by
July 1, 2009. Finally, this bill allows funding for
non-embryonic stem cell research or funding for research already
funded by the National Institutes of Health by a simple majority
of the relevant ICOC working group.
According to the authors, Proposition 71 lacks the provisions
necessary to ensure that therapies emerging from the state's
research investment will be available to uninsured Californians
or to programs that serve low-income Californians at the best
available prices. The authors also believe that because of the
unique formation of CIRM and the ICOC as public entities,
oversight must be established to ensure the highest level of
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public trust and confidence in these organizations. Supporters
believe that this measure 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 the CIRM and the
ICOC more responsive and accountable to the public. Opponents
contend that the bill could create disincentives to
commercialize drugs and could delay cures.
This bill passed out of the Assembly Health Committee last week
on a vote of 16-0.
SUMMARY : Makes changes to the rules governing CIRM grants and
seeks a study by the Little Hoover Commission. Specifically,
this bill :
1)Allows funding for specified scientific and medical research
and technologies and any stem cell research proposal, even if
funding by the National Institutes of Health is available, if
a simple majority of a quorum of the members of the ICOC's
Scientific and Medical Research Funding Working Group
recommends that the research proposal is a vital research
opportunity.
2)Requires the ICOC's intellectual property standards to include
the requirement that any grantee of CIRM funding or licensee
of a grantee submit a plan to CIRM, prior to
commercialization, that will afford uninsured Californians
access to any drug, as defined, that is the result of research
funded by the CIRM. Makes the plan subject to approval by
CIRM, after a public hearing and an opportunity for public
comment.
3)Requires that each grantee and any licensee of the grantee
that sells drugs, as defined, that are the result of research
funded by the CIRM, and are purchased with public funds, sell
those drugs at a price that does not exceed any benchmark
price in the California Discount Prescription Drug Program, as
it existed on January 1, 2008. Does not preclude any public
agency from obtaining such drugs at a lower price.
4)Requests the Little Hoover Commission to conduct a study of
the governance structure of the California Stem Cell Research
and Cures Act, and if the Little Hoover Commission conducts
such a study, to submit a report of the study to the
appropriate committees of the Legislature by July 1, 2009 on
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the results of the study and recommendations of the ways the
governance structure of the ICOC could better ensure public
accountability and reduce conflicts of interest, consistent
with the purposes of Proposition 71. Requires the Little
Hoover Commission to make the report available to the public.
EXISTING LAW :
1)Establishes CIRM to make grants and loans for stem cell
research and facilities. CIRM is authorized to sell $3
billion in general obligation bonds over 10 years for research
and facilities in California. (Cal. Const., Art. 35, Section
1, et seq.; Health & Safety Code (H&S) Section 125290.10 et
seq.)
2)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.
(H&S Section 125290.30(h).)
3)Provides that the Legislature may amend the non-bond statutory
provisions of the California Stem Cell Research and Cures Act
to enhance the ability of the CIRM to further the purposes of
the grant and loan programs created by the Act with a 70
percent vote of each house and compliance with specified
procedural requirements. (Proposition 71, Section 8.)
4)Establishes the California Discount Prescription Drug Program
(CalRX) within the Department of Health Care Services which
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) 85 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. (H&S Section 130500 et seq.)
5)Establishes the Milton Marks "Little Hoover" Commission on
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California State Government Organization and 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. (Government Code Section 8501 et
seq.).
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
COMMENTS : In 2004 California voters approved Proposition 71
establishing the California Stem Cell Research and Cures Act and
CIRM to make grants and loans for stem cell research, research
facilities, and other vital research opportunities. CIRM is
responsible for establishing regulatory standards for stem cell
research and stem cell research facilities. The Act also
created and specified 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. There are separate scientific and medical working
groups focused on research funding, accountability standards,
and medical facilities.
This bill requires institutions receiving grants from the CIRM
to submit a plan, prior to commercialization, that will afford
uninsured Californians access to new drugs, and requires that
these drugs be sold to public programs at the best available
price. According to the authors, although Californians were
told that therapies emerging from the state's research
investment 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 this bill is
necessary to ensure the promise of Prop. 71 is maintained.
This bill also asks the Little Hoover Commission to conduct a
study of the governance structure of CIRM and report on
recommendations of the ways the governance structure of the ICOC
could better ensure public accountability and reduce conflicts
of interest. The authors believe that CIRM's and the ICOC's
unique formation as a public entity, the level of public
investment --$3 billion in bonds 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
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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's 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.
This bill also allows CIRM funding for non-embryonic stem cell
research or funding for research already funded by the National
Institutes of Health by a simple majority of the relevant ICOC
working group if the working group finds that the research
proposal is a vital research opportunity.
Intellectual property standards and the need to ensure access
for all Californians. 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, themselves, to develop
stem cell products and research tools.
The ICOC 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 drugs developed with CIRM funding at one of the specific
benchmark prices required in CalRx, which includes the federal
Medicaid price, the lowest commercial price, or the Average
Manufacturer's Price less 15 percent. (17 Cal. Code Regs.
Section 100306.)
The ICOC's regulations for grants to for-profit entities require
licensees who develop stem cell therapies that are drugs to
provide those drugs to publicly funded programs in California at
one of the CalRx benchmark prices. The regulations also require
licensees' plans to provide access to therapies and diagnostics
for uninsured Californians to be consistent with "industry
standards," which is undefined. (17 Cal. Code Regs. Section
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100407.)
The ICOC recently issued proposed revised regulations for grants
to both non-profit and for-profit entities to include a
requirement that all grantees must submit plans to provide
access for uninsured Californians, that the plans must be
submitted prior to commercialization, and that they must receive
CIRM approval, very similar to the language in this bill. The
proposed revised regulations also state that, if CalRx is
repealed, benchmark prices should refer to those benchmark
prices described in CalRx on the last day it is in effect or its
replacement, also similar to the language in this bill.
Accountability review should help resolve possible conflict of
interest issues and insure better public accountability .
According to the authors, 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.
In December 2007, ten 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 Fair Political Practices
Commission 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, the Los
Angeles Times and Sacramento Bee have both editorialized on the
incidents and have urged the Legislature to address these
problems by reconfiguring the ICOC in order to reduce the number
of appointees who come from organizations that have direct
interests in stem cell research grants.
The Little Hoover Commission is uniquely positioned to review
conflicts and make recommendations for improved governance . An
independent state oversight agency established in 1962, the
Little Hoover 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 Little
Hoover Commission's studies look beyond whether programs comply
with existing requirements, instead exploring how programs could
and should function in today's world. The Little Hoover
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
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recommendations. In addition to the public hearings the Little
Hoover Commission holds to develop findings and recommendations,
hearings are held and progress reports are issued in the years
following the initial report until the Little Hoover
Commission's recommendations have been enacted or its concerns
have been addressed. These processes uniquely position the
Little Hoover Commission to review possible conflicts and make
recommendations for improved governance of CIRM and the ICOC,
thus helping ensure better accountability to Californians for
their $6 billion investment.
Arguments in Support : Supporters, including the American
Association of University Women, the California Nurses
Association, the California Alliance for Retired Americans, the
Center for Genetics and Society, the Greenlining Institute, and
State Controller John Chiang, believe that this measure 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 the CIRM and the ICOC more
responsive and accountable to the public. They state that
California residents should be the primary beneficiaries of the
research and therapies developed through the expenditure of
state funds. They also believe that this bill is a much-needed
first step to reforming the governing structure of CIRM and the
ICOC, which under the current statute is inherently conflicted.
Arguments in Opposition : The California Healthcare Institute,
whose members include companies, academic and research
institutions in the biomedical field, very likely including
beneficiaries of CIRM funding, oppose the bill because, argues
CHI, it "will create a significant disincentive for firms to
commercialize inventions funded with CIRM money" and that
intellectual property policies should "minimize barriers to
transferring technologies from basic research laboratories to
the private sector."
Americans for Cures Foundation, whose directors include the
chairman of the ICOC, believe that access and affordability are
best addressed by creating larger pools of affordable healthcare
insurance, and that policies should accelerate cures, rather
than discourage them. It is important to note that the
intellectual property provisions in this bill that the
opposition contend will create disincentives to commercialize
drugs and therapies are very similar to the current and proposed
regulations promulgated by the ICOC.
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While not opposed to the bill, the University of California (UC)
is concerned that CIRM's 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. However, since CIRM will only be granting
funds for a limited period of time and since it will take years
to commercialize any drugs or therapies developed with CIRM
funding, waiting to test the intellectual property standards
before promulgating legislation will effectively mean that there
will be no legislative participation and could prevent
Californians from benefiting from the promise of Prop. 71.
Prior Legislation: SB 771 (Kuehl and Runner, 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. (Subject matter of the bill was changed.)
SB 401 (Ortiz and Runner, 2005) would have made changes to the
public meeting, public record, grant and loan licensing
conditions and conflict-of-interest provisions of Proposition
71. (Held in Assembly Appropriations.)
SCA 13 (Ortiz and Runner, 2005) would have amended the open
meetings, return on investment, and conflict of interest
provisions of Proposition 71. (Inactive on Senate Floor.)
REGISTERED SUPPORT / OPPOSITION :
Support
American Association of University Women
American Federation of State, County, and Municipal Employees
(AFSCME)
California Alliance for Retired Americans
California Common Cause
California Nurses Association/ National Nurses Organizing
Committee
California State Controller John Chiang
The Center for Genetics and Society
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Congress of California Seniors
The Foundation for Taxpayer and Consumer Rights
Gray Panthers California
Greenlining Institute
Pro-Choice Alliance for Responsible Research
Opposition
Americans for Cures Foundation
California Healthcare Institute
Analysis Prepared by : Leora Gershenzon and Daniel Borack /
JUD. / (916) 319-2334