BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1064 (Alquist)
Hearing Date: 5/10/2010 Amended: 4/27/2010
Consultant: Katie Johnson Policy Vote: Health 6-0
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BILL SUMMARY: SB 1064 would make governance changes to the
California Institute for Regenerative Medicine, require
triennial performance audits of CIRM and its governing board,
provide that drugs developed with CIRM grants be available at
discounted prices to state and local agencies and the uninsured,
and that revenues from CIRM licensing agreements be returned to
the State General Fund.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Audit at least $400 $0 $0Bond*
Additional employee salaries unknown, likely in the hundreds
of Bond*
thousands to low millions of dollars
annually
General Fund Revenues unknown, potentially in the millions of
General
dollars, likely not until at least 2020
* California Stem Cell Research and Cures Fund (Fund)
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STAFF COMMENTS: This bill meets the criteria for referral to
the Suspense File.
Proposition 71 of 2004 created the California Institute for
Regenerative Medicine (CIRM) and provided for $3 billion in bond
authority, with the intent that it be spent at an average of
$295 million annually over a period of 10 years, to fund stem
cell research and dedicated facilities for California
scientists. Since CIRM began awarding grants in 2006, it has
awarded 345 grants in the amount of approximately $1 billion.
Audits
This bill would require CIRM to add a performance audit review
every six years, commencing with FY 2010-2011, to its annually
commissioned financial audit. The audit would examine the
institute's programs, functions, operations, management systems,
and policies and procedures to assess whether it is achieving
economy, efficiency, and effectiveness in the employment of
available resources. Additionally, every six years, commencing
with FY 2013-2014, this bill would require the Citizen's
Financial Accountability Oversight Committee (CFAOC), the entity
chaired by the Controller that reviews CIRM's annual financial
audit, to commission and define the scope of a performance audit
of the Independent Citizen's Oversight Committee (ICOC), also
known as CIRM's governing board.
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SB 1064 (Alquist)
The costs to the Fund for each of these audits could be at least
$400,000 based on a 2006 Bureau of State Audits (BSA) audit of
the way CIRM was implementing Proposition 71. It is likely that
these audits would cost approximately the same given that they
would also analyze CIRM and the ICOC's performance.
Employees
This bill would remove the 50 person cap on the number of
employees that CIRM may employ. Although CIRM is currently under
the cap with 43 employees, it is reasonable that as they make
more grants and further develop the loan program, more staff
would be needed. CIRM's administrative expenses, including
salaries, are capped at 6 percent of bond funds: 3 percent for
research and research facilities, including the development,
administration, and oversight of the grant making process and
the operations of the working groups and an additional 3 percent
for the costs of CIRM general administration. CIRM is within
their administrative cap, and while paying salaries for new
employees would put expenses closer to the cap, it is unlikely
to exceed it.
General Fund Revenue
This bill would require that all revenues derived from patents,
royalties, and licenses generated as a result of intellectual
property agreements be deposited into the General Fund. The ICOC
adopted regulations that were approved by the Office of
Administrative Law (OAL) that directs CIRM's share of revenues
derived from royalties and licenses into the state General Fund.
The regulations concerning patents direct funds to the State of
California. It is unclear whether or not the existing
regulations would comply with the "all revenues" requirement,
since the regulations stipulate that the state would be entitled
to only a specified portion of these revenues. This bill could
be interpreted to mean all revenues as in the total revenues a
commercialized drug would generate, or it could be construed to
mean that all of the revenues to which the state is entitled
pursuant to CIRM's regulations would be deposited into the
General Fund.
Although CIRM began awarding grants in 2006, due to the time it
takes research to be done and a product to be commercialized,
the General Fund would be unlikely to see significant revenue
until about 2020. The amount of revenues is unknown and would
depend on the number and types of drugs and technologies that
are commercialized as well as their commercial success. For
example, if a drug reached blockbuster status-over $250 million
in any calendar year-an amount of three-times the grant would be
paid to California. If the grant was $1 million, the payment to
the General Fund would be $3 million in one year.
Developed Drug Discount
This bill would require CIRM intellectual property standards to
include a requirement that each grantee and the licensee of the
grantee submit a plan to CIRM that would afford uninsured
Californians access to any drug that is in whole or in part
funded by the institute. The plan would also require each
grantee and licensee to sell drugs that are in whole or in part
the result of CIRM research funds to the California state and
local
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SB 1064 (Alquist)
government funded programs at one of the three benchmark prices
in the California Discount Prescription Drug Program, as it
exists December 31, 2010. The plan would be subject to CIRM
approval after a public hearing.
This bill would permit the ICOC to waive the requirement to
provide discounted drugs to California publicly funded programs
under specified conditions. These provisions are nearly
identical to those in the CIRM regulations relating to access
requirements for developed products.
To the extent that California public programs access emerging
treatments at discounted prices, the state could see cost
avoidance on costs due to expensive therapies. Similar to the
General Fund revenue discussed above, it could be nearly a
decade before California programs would benefit from these
developing drugs.
Governance Changes
This bill would also make several changes to CIRM's governance
structure, based mainly on recommendations made by a June 2009
report on CIRM by the Little Hoover Commission (LHC), "Stem Cell
Research: Strengthening Governance to Further the Voters'
Mandate". Among other recommendations in this bill, which
include the above mentioned performance audits and the
elimination of the 50 employee cap, LHC recommended that there
be: 1) a clear delineation between the duties of the President
of CIRM and the Chairperson and the Vice Chairperson of the
ICOC; 2) to lift the cap on 15 scientists on the Scientific and
Medical Research Funding Working Group -to the extent that CIRM
increases the number of scientists, which is unlikely based on
their response to the LHC report, there could be increased per
diem compensation costs; 3) decrease the term limits of the
Chairperson and Vice Chairperson from six years to four years,
to stagger them, and to choose them from the ICOC; 4) include in
past and future meeting minutes vote tallies and each member's
votes and recusals; 5) a succession plan for when the current
Chairperson leaves office; 6) a transition plan for when the
bond funding ends; and, 7) alter the pre-grant review process.
There could be unknown, likely minor, costs from the Fund to
implement these requirements.