BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1064| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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, 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 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 CONTINUED SB 1064 Page 2 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. 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 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 SB 1064 Page 3 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, SB 1064 Page 4 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 SB 1064 Page 5 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 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 SB 1064 Page 6 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, Vacancy CTW:do 8/17/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** SB 1064 Page 7