BILL ANALYSIS                                                                                                                                                                                                    


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                              UNFINISHED BUSINESS

          Bill No:  SB 1064
          Author:   Alquist (D)
          Amended:  6/17/10
          Vote:     28

           SENATE HEALTH COMMITTEE  :  6-0, 4/14/10
          AYES:  Alquist, Strickland, Aanestad, Leno, Negrete McLeod,  
          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

           SENATE FLOOR  :  33-0, 6/3/10
          AYES:  Aanestad, Alquist, Ashburn, Calderon, Cedillo,  
            Cogdill, Corbett, Correa, Denham, DeSaulnier, Ducheny,  
            Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,  
            Kehoe, Leno, Liu, Lowenthal, Padilla, Pavley, Price,  
            Romero, Simitian, Steinberg, Strickland, Walters, Wolk,  
            Wright, Wyland, Yee
          NO VOTE RECORDED:  Cox, Negrete McLeod, Oropeza, Runner,  
            Wiggins, Vacancy, Vacancy

           ASSEMBLY FLOOR :  76-0, 0/17/10 - See last page for vote

           SUBJECT  :    California Stem Cell Research and Cures Act

           SOURCE  :     Author



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           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  

           Assembly Amendments  provide the performance audit shall not  
          be required to include a review of scientific performance,  
          and delete the requirement that the Independent Citizen's  
          Oversight Committee pay for all costs associated with the  
          commissioning of the performance audit.

           ANALYSIS  :    Proposition 71 of 2004 created the 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.

           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  

           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  


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          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  
          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,  


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          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  
          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


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          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 6/29/10) (unable to reverify)

          California Institute for Regenerative Medicine
          Consumer Watchdog
          Little Hoover Commission
          State Controller's Office

           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  
          that the state and Californians benefit from the money they  

          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  


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          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  
          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.

           ASSEMBLY FLOOR : 
          AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill  
            Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,  
            Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,  
            Cook, Coto, Davis, De La Torre, De Leon, DeVore, Eng,  
            Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani,  
            Gaines, Galgiani, Garrick, Gatto, Gilmore, Hagman, Hall,  
            Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal,  
            Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello,  
            Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,  
            Saldana, Silva, Skinner, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Villines, Yamada, John A. Perez
          NO VOTE RECORDED: Blakeslee, Charles Calderon, Norby,  

          CTW:do  8/17/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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