BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1064
                                                                  Page  1

          Date of Hearing:   June 29, 2010

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
                    SB 1064 (Alquist) - As Amended:  June 17, 2010

           SENATE VOTE  :  33-0
          SUBJECT  :  California Stem Cell Research and Cures Act.

           SUMMARY  :  Imposes additional oversight and transparency  
          requirements on the California Institute for Regenerative  
          Medicine (CIRM), revises CIRM's intellectual property (IP)  
          standards with regard to licensing revenue and drug discount  
          access plans for low income and uninsured Californians, and  
          requires revenues from CIRM's IP agreements to be deposited in  
          the state General Fund, as specified.  Specifically,  this bill  :   

          1)Requires CIRM to commission a performance audit every three  
            years, as specified.  Requires the initial audit to include:  
            a) policies and procedures for the issuance of contracts and  
            grants and a review of a representative sample of contracts,  
            grants, and loans executed by CIRM; and, b) policies and  
            procedures relating to the protection or treatment of IP  
            rights associated with CIRM-funded or commissioned research.

          2)Specifies that all administrative costs associated with the  
            triennial audits must be paid by CIRM.

          3)Requires all meeting minutes of CIRM's Independent Citizen's  
            Oversight Committee (ICOC) to include a summary of vote  
            tallies and disclosure of each board member's votes and  
            recusals on all action items.

          4)Requires the existing IP agreements developed by the ICOC to  
            at least include a requirement that CIRM grantees, other than  
            loan recipients and facilities grant recipients, share a  
            fraction of the revenue they receive from licensing or  
            self-commercializing an invention or technology that arises  
            from CIRM-funded research, according to specific formulas  
            prescribed in this bill.

          5)Confers authority upon the ICOC to adopt regulations to  
            implement and modify the formulas specified in 4) above and  


                                                                  SB 1064
                                                                  Page  2

            requires the ICOC to notify the Legislature as specified  
            before exercising its authority to vote on the modification of  
            these formulas.

          6)Requires all revenues received through the IP agreements to be  
            deposited into the General Fund.

          7)Requires the ICOC's existing IP standards to include a  
            requirement that each grantee or exclusive licensee submit a  
            plan to CIRM to afford uninsured Californians access to any  
            drug that is entirely or partly the result of CIRM-funded  
            research, as specified.

          8)Requires the grantee or exclusive licensee, with regard to the  
            drug discount access plan required by 7) above, to either  
            submit the plan to CIRM, seek an extension from CIRM, or  
            notify CIRM of its intention to seek a waiver, within 10  
            business days following final approval of the drug by the  
            federal Food and Drug Administration (FDA).  Specifies that,  
            if the grantee seeks an extension, the plan must be submitted  
            within 30 business days following the drug's final FDA  

          9)Requires the plan in 7) above to be subject to the approval of  
            CIRM but permits the ICOC to waive the requirement in 7)  
            above, under specified conditions, after a public hearing and  
            opportunity for public comment.

          10)Requires a request for a waiver to be posted on CIRM's  
            Internet Web site for at least 10 business days in advance of  
            the public hearing and directs CIRM to notify the Legislature  
            if the ICOC grants a waiver request, including the reasons  
            justifying the request. 

          11)Requires the ICOC to develop procedures to protect  
            proprietary information submitted by grantees and exclusive  
            licensees pursuant to 7) above from public disclosure.

          12)Directs CIRM, under the guidance of the ICOC, to establish a  
            succession plan with regard to changes in leadership of both  
            CIRM and the ICOC that includes specified information, and, by  
            January 31, 2010, a transition plan addressing the expiration  
            of current bond funding.  Requires a copy of both of these  
            plans to be transmitted to the Governor, Controller, and the  
            Legislature within 30 days of completion. 


                                                                  SB 1064
                                                                  Page  3

          13)Deletes the existing cap of 50 authorized CIRM employees and  
            eliminates the existing cap of 15 scientist members of CIRM's  
            Scientific and Medical Research Funding Group that is  
            responsible for processing grant and local applications.

          14)Requires the competitive evaluation process used in the  
            awarding of grants and loans to include a peer review panel of  
            both scientists and patient advocates.  Limits the number of  
            scientists on a peer review panel to 15.  Clarifies that only  
            the scientist members of the Scientific and Medical Research  
            Funding Group must score grant and loan award applications for  
            scientific merit.

           EXISTING LAW  :

          1)Establishes the California Stem Cell Research and Cures 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 CIRM to provide a public annual report disclosing  
            specified information that includes, among other things,  
            grants awarded, grants in progress, research accomplishments,  
            the number and dollar amounts of research and facilities  
            grants; the grantees from the prior year; its administrative  
            expenses; and, its strategic financial plans.  

          4)Establishes the Citizen's Financial Accountability and  
            Oversight Committee (CFAOC), chaired by the State Controller,  
            to annually review the financial practices and performance of  
          5)Requires the ICOC to establish standards to make all grants  
            and loans subject to IP agreements.  Requires the IP  
            agreements to balance the opportunity for the state to benefit  
            from the patents, royalties, and licenses that result from  
            research and therapy development and clinical trials, with the  
            need to ensure that essential medical research is not  
            unreasonably hindered by the agreements.

          6)Establishes within CIRM three separate scientific and medical  


                                                                  SB 1064
                                                                  Page  4

            working groups: Research Funding; Accountability Standards;  
            and, Medical Facilities.

          7)Restricts the total number of authorized CIRM employees to 50.  
             Specifies that grants and loan applications are processed and  
            scored by the 15 scientist members of the Scientific and  
            Medical Research Funding Group.  

          8)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 Senate Appropriations  
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13   Fund
          Triennial audit                             at least $400$0       
          $0            Bond*

          Additional employee salaries    likely in the hundreds of  
          thousands     Bond*
                                   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

           COMMENTS  :   

           1)PURPOSE OF THIS BILL  .  According to the author, when  
            California voters approved Proposition 71 in 2004 to create  
            CIRM, they opted to invest $3 billion of general obligation  
            bond funds in stem cell research.  The author argues that in  
            the six years since Proposition 71 passed, it has become clear  
            that additional oversight and transparency is needed to ensure  
            that Proposition 71 is operating as intended.  The author  
            maintains that this bill will clarify the processes by which  
            CIRM and the ICOC will ensure transparency, provide  
            appropriate oversight, and guarantee a return on the public's  
            investment by providing a payback to the General Fund and  
            equal access to any of the stem cell treatments developed by  


                                                                  SB 1064
                                                                  Page  5


           2)LITTLE HOOVER COMMISSION REPORT  .  In June 2009, the Little  
            Hoover Commission (LHC) issued a report identifying several  
            recommendations to more adequately guide the state's unique  
            investment in stem cell science and improve CIRM's efficiency  
            in meeting the goals of Proposition 71.  According to the  
            report, the LHC noted that CIRM's governance structure is  
            insufficient to protect taxpayers' interests or further its  
            own ambitious goals, and urged the Legislature to reform  
            CIRM's governance to ensure that it can deliver on its mission  
            of developing cures for the benefit of all, as well as provide  
            transparency and accountability for California's taxpayers who  
            will be paying off the bonds.  To enhance CIRM's ability to  
            fulfill its mission, LHC made a number of recommendations,  
            many of which are incorporated in this bill, including  
            eliminating the 50-person cap on CIRM staffing and the  
            15-person limit on outside scientific peer reviewers;  
            requiring all past and future meeting minutes to specify votes  
            and recusals; extending the authority of the CFAOC to conduct  
            performance reviews; and, requiring CIRM and ICOC to begin  
            formal planning for leadership transition, and to develop a  
            transition plan for expiration of bond funds.

           3)PRIOR AUDITS AND EVALUATIONS  .  In January 2009, the Bureau of  
            State Audits released a report that made several findings with  
            regard to CIRM including that it had not fully implemented its  
            plans to develop a process to track management information  
            reported annually by grantees to ensure accountability and to  
            enable it to assess annual progress in meeting its strategic  
            goals and initiatives; had not fully followed through with its  
            plans to identify appropriate standards to provide uninsured  
            Californians' access to therapies developed with CIRM funding  
            or identified practical benchmarks to use as a standard for  
            discount prices for therapies; and, had not fully implemented  
            its grants monitoring process.  However, CIRM reports that, as  
            of January 2010, remedies to correct these three deficiencies  
            have since been implemented.  Additionally, in 2008, the State  
            Controller conducted a review of CIRM's conflict-of-interest  
            policies, grants administration, administrative expenses and  
            expenditures, and concluded that these policies were adequate  
            and properly followed.

           4)CURRENT IP STANDARDS  .  Stem cell research projects funded with  
            Proposition 71 monies are expected to generate many types of  


                                                                  SB 1064
                                                                  Page  6

            IP, such as new research tools, new stem cell lines, and,  
            ultimately, stem cell treatments and drugs.  In many cases,  
            grantees will be able to use the rights to these inventions or  
            license them to other entities in order to develop other stem  
            cell products and research tools.  To date, the ICOC has  
            adopted IP and revenue-sharing regulations for for-profit and  
            non-profit grantees.  These regulations incorporate  
            requirements that would be codified in this bill, including: a  
            requirement for grantees that commercialize a drug to submit a  
            plan to CIRM that affords uninsured Californians' access to  
            the drug in accordance with industry standards; a requirement  
            for grantees that commercialize a drug to sell the drug at  
            specified benchmark prices; revenue sharing requirements that  
            require grantees to share a portion of revenues with the State  
            of California without specifying how or where those funds will  
            be deposited; and, a requirement to pay royalties to the State  
            of California to be deposited in the General Fund.    

           5)PRIOR LEGISLATION  .

             a)   SB 343 (Alquist) of 2009 would have, among other things,  
               required IP standards developed by the ICOC to include a  
               requirement providing for drug discount access plans to  
               afford uninsured Californians access to any drug that is,  
               in whole or in part, the result of research funded by CIRM.  
                SB 343 failed passage in the Senate Health Committee.

             b)   SB 1565 (Kuehl and Runner) of 2008 would have imposed  
               requirements providing for drug discount access plans  
               similar to the provisions of this bill and would have  
               requested, among other things, the LHC to study the  
               existing governance structure of the ICOC and CIRM.  SB  
               1565 was vetoed by Governor Schwarzenegger who stated in  
               his veto message that it did nothing to advance the will of  
               the voters.  

             c)   SB 401 (Ortiz) of 2006 would have modified the public  
               hearing and conflict-of-interest procedures of members of  
               the ICOC, the Citizen's Financial Accountability Oversight  
               Committee and the advisory and working group established to  
               assist these bodies and would have prescribed minimum  
               intellectual property licensing conditions applicable to  
               ICOC standards for research and facilities grants and  
               loans.  SB 401 was held in the Assembly Appropriations  


                                                                  SB 1064
                                                                  Page  7

             d)   SB 340 (Battin) of 2005 would have required all revenues  
               derived from patents, royalties, and licenses paid to the  
               state as a result of intellectual property agreements  
               entered into pursuant to Proposition 71 to be deposited  
               into the state General Fund.  SB 340 was scheduled for a  
               hearing in the Assembly Health Committee but the hearing  
               was cancelled at the request of the author.

             e)   SB 18 (Ortiz) of 2005 would have required the State  
               Auditor to conduct a performance audit of the ICOC and  
               CIRM.  SB 18 was vetoed by Governor Schwarzenegger who  
               indicated in his veto message that it was in direct  
               conflict with the text of Proposition 71 as approved by the  

             f)   SCA 13 (Ortiz) of 2005 would have modified provisions of  
               Proposition 71 relating to reporting of economic interests,  
               conflict-of-interest standards, open meetings and public  
               record laws.  SCA 13 was placed on the Senate inactive file  
               at the request of the author.

           6)SUPPORT  .  CIRM writes in support of this bill, stating that it  
            would ensure that the State of California has the opportunity  
            to benefit from voters' investment in stem cell research while  
            providing CIRM with the operational flexibility it needs to  
            carry out its mission of providing therapies to California  
            patients.  The State Controller supports this bill because it  
            would make practical changes to the operation of CIRM,  
            including succession planning for its 2014 dismantling date  
            and flexibility in staffing, and ensure optimal performance by  
            requiring recurring performance audits.  The LHC notes in  
            support that CIRM is a frequently studied agency that has been  
            responsive to many suggestions for improvement from outside  
            entities. Consumer Watchdog adds that this bill is a  
            thoughtful measure that makes necessary adjustments to help  
            ensure that the promises of Proposition 71 are kept.


          California State Controller John Chiang
          California Institute for Regenerative Medicine
          Consumer Watchdog


                                                                  SB 1064
                                                                  Page  8

          Little Hoover Commission

           None on file.

           Analysis Prepared by  :    Cassie Rafanan / HEALTH / (916)