BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1565
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          SB 1565 (Kuehl)
          As Amended July 14, 2008
          70% vote 

           SENATE VOTE  :40-0  
           HEALTH              16-0        JUDICIARY           10-0        
          |Ayes:|Dymally, Nakanishi, Berg, |Ayes:|Jones, Tran, Adams,       |
          |     |Carter,                   |     |Evans, Feuer, Keene,      |
          |     |De La Torre, Caballero,   |     |Krekorian, Laird, Levine, |
          |     |Emmerson, Hancock,        |     |Lieber                    |
          |     |Hayashi, Hernandez, Huff, |     |                          |
          |     |Jones, Lieber, Ma, Salas, |     |                          |
          |     |Silva                     |     |                          |
          |     |                          |     |                          |
           APPROPRIATIONS      16-0                                        
          |Ayes:|Leno, Walters, Caballero, |
          |     |Davis, DeSaulnier,        |
          |     |Emmerson, Furutani,       |
          |     |Karnette, Krekorian, La   |
          |     |Malfa,                    |
          |     |Lieu, Ma, Nakanishi,      |
          |     |Nava,                     |
          |     |Sharon Runner, Solorio    |
          |     |                          |
           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  :   


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          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  

          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  
            provide drugs resulting from CIRM-funded research to publicly  
            funded programs in California at one of the three benchmark  
            prices in the California Discount Prescription Drug Program  

          4)Provides that this bill does not preclude any public agency  
            from obtaining prices that are lower than those in Cal-Rx, as  

          5)Permits the CIRM to waive the requirement in 3) above under  
            specified circumstances relating to providing access to drugs  
            for rare diseases with small patient populations and expanding  
            access generally.

          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 (Working Group) and  
            clarifies that the Legislature affirms that the underlying  
            purpose of the ICOC and CIRM is to give priority to stem cell  
            research that has the greatest potential for development of  
            therapies and cures.

          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.


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           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 the ICOC to establish standards to make all grants  
            and loans subject to IP agreements that balance public benefit  
            with the need to assure that essential medical research is not  
            unreasonably hindered by the agreements.

          4)Prohibits certain research proposals from being funded by CIRM  
            except when at least two-thirds of a quorum of the Working  
            Group recommend to the ICOC that such a proposal is a vital  
            research opportunity.

          5)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.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, no direct public fiscal impact to codify pending CIRM  
          regulations and no direct fiscal impact to the LHC as this bill  
          is permissive with respect to the Commission.  The Commission  
          will vote on whether this request will be filled within the  
          current budget provided to the Commission.

           COMMENTS  :  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  


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          commercialization, and require these drugs to be 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  
          the latest 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.

          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.  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.

          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%.  

          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,  


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          establishes a high priority for CIRM funding for embryonic stem  
          cell research that cannot or is unlikely to receive timely or  
          sufficient federal funding and permits CIRM to fund other stem  
          cell-related research proposals if two-thirds of a quorum of the  
          members of its 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.     

          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.  

          CIRM states that this bill is premature and unnecessary and is  
          opposed to this bill unless it is amended to remove the  
          provision that changes the two-thirds vote requirement to a  
          majority vote and to give CIRM greater flexibility to establish  
          a waiver mechanism through the Administrative Procedure Act  
          (APA), which would provide for adoption of regulations to  
          implement the  waiver after notifying the Legislature and  
          conducting a public hearing.  CIRM contends that eliminating the  
          current two-thirds vote requirement for funding of  
          non-embryonic-related research eliminates the priority that  


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          Proposition 71 places on human embryonic stem cell research and  
          thwarts the will of Californians who approved Proposition 71 in  
          order to address the federal funding gap that exists for this  
          type of research.  With respect to the public pricing  
          requirement in this bill, CIRM asserts that providing for a  
          waiver process pursuant to the APA would permit CIRM to assess  
          changes in medical technology and in the health care sector  
          prior to defining the scope and contours of the waiver and would  
          provide an opportunity for the Legislature and the public to  
          comment on the proposed waiver mechanism before it is adopted.   
          Lastly, CIRM remains concerned that by attempting to specify the  
          precise conditions under which CIRM could waive pricing  
          provision, this bill will fail to address other situations in  
          which a waiver would be equally justified.  

          Supporters, including Consumer Watchdog (formerly the Foundation  
          for Taxpayer and Consumer Rights), California Common Cause,  
          Health Access, California Nurses Association   and California  
          Alliance for Retired Americans, state 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.  They note 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.   
          Furthermore, supporters point out 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  

          Groups representing the life sciences community, including the  
          California Healthcare Institute and BayBio, contend that this  
          bill discourages commercial collaboration and industry  
          participation in research opportunities by codifying proposed IP  
          regulations prematurely and increasing investors' financial risk  
          by imposing state price regulation on products resulting from  
          CIRM-funded research.  Consumer advocacy groups that support  
          cutting-edge medical research in this area, including  
          Californians for Cures, oppose the provision modifying the vote  
          requirement for funding proposals that involve non-embryonic  


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          stem cell lines, arguing that it is a poison pill that removes  
          the existing priority established for embryonic stem cell  
          research and inappropriately assumes that alternative therapies  
          are viable and timely.  Opponents contend that while recent  
          advances in alternative therapies are exciting, they are still  
          unproven and the vast majority of the scientific community  
          agrees that embryonic stem cell research remains the gold  

           Analysis Prepared by  :    Cassie Rafanan / HEALTH / (916)  
          319-2097                       FN: 0006182