BILL ANALYSIS
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THIRD READING
Bill No: SB 1064
Author: Alquist (D)
Amended: 5/20/10
Vote: 28
SENATE HEALTH COMMITTEE : 6-0, 4/14/10
AYES: Alquist, Strickland, Aanestad, Leno, Negrete McLeod,
Pavley
NO VOTE RECORDED: Cedillo, Cox, Romero
SENATE APPROPRIATIONS COMMITTEE : 10-0, 5/27/10
AYES: Kehoe, Alquist, Corbett, Denham, Leno, Price,
Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Cox
SUBJECT : California Stem Cell Research and Cures Act
SOURCE : Author
DIGEST : This bill makes governance changes to the
California Institute for Regenerative Medicine (CIRM),
requires triennial performance audits of CIRM and its
governing board, and provides 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.
ANALYSIS : Proposition 71 of 2004 created the CIRM and
provided for $3 billion in bond authority, with the intent
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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.
Audit . This bill requires CIRM to commission a performance
audit every three years, commencing with FY 2010-2011. The
audit examines 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.
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 cost approximately the same
given that they also analyze CIRM and the ICOC's
performance.
Employees . This bill removes 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 six percent of
bond funds: three 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 three 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 requires 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. This
bill nearly codifies them, but preserves the right of the
ICOC to adopt future regulations to alter the formulas and
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make other changes to these provisions when necessary.
Due to the time it takes research to be done and a product
to be commercialized, the General Fund is unlikely to see
significant revenue until about 2020. The amount of
revenues is unknown and depends 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 will 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 requires CIRM
intellectual property standards to include a requirement
that each grantee and the licensee of the grantee submit a
plan to CIRM that will afford uninsured Californians access
to any drug that is in whole or in part funded by the
institute. The plan will be subject to CIRM approval after
a public hearing.
This bill permits the ICOC to waive the requirement to
provide discounted drugs to California publicly funded
programs under specified conditions. There are existing
CIRM regulations relating to access requirements for
developed products that are similar, but more detailed,
than these provisions.
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 will
benefit from these developing drugs.
Governance Changes . This bill makes 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) to
lift the cap on 15 scientists on the Scientific and Medical
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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; (2) include in past
and future meeting minutes vote tallies and each member's
votes and recusals on all action items; (3) a succession
plan for when the current Chairperson leaves office; and,
(4) a transition plan for when the bond funding ends.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Triennial audit at least $400 $0
$0 Bond*
Additional employee likely in the
hundreds of thousands Bond*
Salaries to low millions of dollars annually
General Fund Revenues potentially in
the millions of General
dollars, likely not until at least 2020
* California Stem Cell Research and Cures Fund (Fund)
SUPPORT : (Verified 4/14/10) (prior version)
State Controller's Office
Little Hoover Commission
OPPOSITION : (Verified 4/14/10) (prior version)
California Health Institute
ARGUMENTS IN SUPPORT : According to the author's office,
this bill clarifies the processes by which CIRM and ICOC
ensures transparency, appropriate oversight, and the way
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that the state and Californians benefit from the money they
invested.
The author's office states that, while stem cell research
is an important and laudable goal, concerns about
transparency, accountability and oversight raised by the
public, the independent Citizen's Financial Accountability
Oversight Committee, the Little Hoover Commission, and the
State Controller detract from CIRM's ability to provide
grants and loans in the most efficient way. These concerns
divert resources and attention from CIRM's ability to
maximize voter's investment in stem cell sciences. In 2009
alone, CIRM spent $1.5 million in external contracts for
legal services, lobbying, public relations and
communications costs to improve its public image, which is
a duplication of existing internal resources. Given that
the debt from the bonds is serviced from the General Fund,
concern about CIRM's lack of transparency and
accountability gains greater significance during these
challenging fiscal times. By addressing many of these
public concerns, this bill enhances CIRM's ability to make
grants and loans, and the removal of such barriers frees up
resources that were previously diverted from the grant and
loan programs.
The author's office also states that, given CIRM and ICOC's
unique formation as a public entity, the level of public
investment--$3 billion in bond funds that will amount to a
General Fund expenditure of $6 billion (including
interest)--and the close-knit nature between the scientific
community, CIRM, and ICOC, it should be thoroughly
scrutinized by an independent body to ensure the highest
level of public trust and confidence.
In addition, the author's office states that Proposition 71
was intended to both directly and indirectly benefits
Californians and the state. Without clarification, it is
unclear how that will be achieved permanently. Currently,
there is no mechanism that allows revenues generated to go
back to the state permanently. Nor is there a guarantee
that a treatment developed with Prop 71 funds will be
affordable to low-income or uninsured Californians.
Existing law simply directs CIRM to develop intellectual
property standards to address this need. The author's
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office believes that codifying the requirement for IP
agreements to contain such provisions in statute ensures
that the neediest Californians benefit from groundbreaking
stem cell research funded by taxpayer dollars.
ARGUMENTS IN OPPOSITION : The California Heathcare
Institute (CHI), an advocacy organization of biotechnology
companies and academic research institutions, writes in
opposition to the bill, stating that provisions requiring
grantees to submit a plan to afford uninsured Californians
access to any drug developed as a result of CIRM-funded
research, and to provide drugs to state and local
government-funded programs at one of the three benchmark
prices in the California Discount Prescription Drug Program
would create a disincentive for firms to commercialize
drugs whose research was funded with CIRM funding. CHI
further states that the basic goal of IP policies should be
to minimize barriers to transferring technologies from
basic research laboratories to the private sector, and that
CIRM needs flexibility to change its IP policies.
CTW:do 5/26/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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