BILL ANALYSIS                                                                                                                                                                                                    



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          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