Health & Medicine

Will California's $3 billion in stem cell spending pay off? First royalty check arrives

Back in 2004, when California's stem cell agency was little more than an idea in the minds of researchers, its backers predicted a gold rush of royalties that could inject $1.1 billion into state coffers.

This month, after more than 13 years, the first stem cell royalty check has finally found its way to the state.

The sum: $190,345.87.

The stem cell agency has hailed the $190,345.87 payment as historic, but has also declared it is “only a piece of the intended return.” Others described the payment as a “less than a drop in the bucket” and warned of excessive exuberance.

The royalties come as the agency, which is working to create therapies and cures for many fatal diseases, faces its own demise. The California Institute for Regenerative Medicine (CIRM) was created by voter approval of a ballot initiative in November 2004, but the terms of the ballot measure are finite.

Taxpayers voted to fund CIRM with $3 billion in state bonds. When that borrowed cash runs out in 2019, the research awards will cease and CIRM will wither away -- unless two new and ambitious financing projects bear fruit. The first is a $222-million private fund-raising effort. However, that project is only a bridge to CIRM’s hopes for longer term survival, which are pinned to a yet-to-be-written, $5 billion bond measure on the November 2020 ballot.

The first royalty check is miniscule compared to those sorts of numbers. CIRM conceded. “We view this initial payment as a ‘mile marker’ and not the destination,” said Maria Millan, CEO and president of the Oakland-based agency, in an email.

She continued, “The royalty payment is only a piece of the intended return to California. The true return is in treatments and cures and the alleviation of human suffering and the mitigation of the financial burden of the multitude of diseases that CIRM is targeting.”

The agency said another potential royalty payment is already in the CIRM pipeline. Kevin McCormack, senior director for communications, said in an email that the agency is “working with the grantee on the calculations involved in determining payment.” He did not identify the grantee.

The initial royalty came from the City of Hope in Duarte in the Los Angeles area. The payment grew out of a $5.2 million award in 2012 to researchers at the City of Hope involving a potential therapy for glioblastoma, one of the deadliest forms of brain cancer and the type afflicting U.S. Sen. John McCain.

McCormack said the payment covered four license agreements over the last two years that the City of Hope had with Mustang Bio, Inc., of New York City. CIRM released five pages of calculations for the payment, which has gone to the state’s general coffers and not the agency.

Francisco Prieto, a Sacramento physician who has served on the CIRM board since its inception, said in an email that the royalty was “not much money, but a pretty significant precedent. I would be hard pressed to think of another state agency that's generating any money for the general fund except through taxes.”

Others who have followed the agency offered a dimmer view. Marcy Darnvosky, executive director of the Center for Genetics and Society in Berkeley, said in an email, “It's hard not to ask whether this first royalty payment is anything other than theater, meant to assuage and allure voters now that CIRM is talking about another ballot measure for $5 billion more from the public purse.

"The royalty check from City of Hope is less than a drop in the bucket.”

Bernard Munos, a senior fellow at FasterCures. a think tank aimed at speeding medical research, said the nearly $200,000 royalty “only represents 0.02% of the $1.1 billion in royalties that were promised to California taxpayers -- and does not even cover the annual salary of CIRM’s part-time vice chairman.”

Munos noted that times have changed since CIRM's creation, which came during a period when former President George W. Bush had restricted government funding for research on embryonic stem cells. In that climate, California opted to step in with its own money.

"The Obama administration lifted those restrictions, and regenerative medicine has diversified into many lines of research that have taken the field well beyond the embryonic vs. adult stem cell debate of the early days, which gave CIRM its initial impetus," Munos said. "Looking ahead, it is unclear whether CIRM still has a role to play.”

CIRM, however, can point to 44 clinical trials in which it has invested. The trials are the final stage before research can be approved as a therapy available to all. The trials, which only involve a small number of people, have saved some lives but have not yet produced a therapy that is available for wide-spread use.

CIRM’s McCormack said the fund was not expected to repay the entire $3 billion approved by voters to fund stem cell research in California. "The only way that would have been possible is to demand such a high return from any funding we offered that very few companies would be willing to take the money," he said. "It would have completely undermined our mission of accelerating stem cell therapies to patients with unmet medical needs.

"It's also worth noting that an independent Economic Impact Report prepared in 2008 predicted that these kinds of payments would take many years to appear…”

The “independent” economic report was paid for by CIRM. When the initial economic study went out to bid, CIRM stated that the winning firm for the project should “execute a vibrant and aggressive strategy” supporting the agency.

Hundreds of California researchers, including those lured to the Golden State because of the agency’s existence, have benefited from its largesse and produced a large body of work. One of those already here in 2004 is Jeanne Loring, director of the Center for Regenerative Medicine at the Scripps Research Institute in La Jolla, who has been critical of the agency from time to time.

Regarding some of the critical remarks related to royalties, Loring declared, however, “I have to say this: ‘It's the infrastructure, stupid!’ Biotech and high tech development need fertile ground to take root and thrive. The infrastructure created by CIRM is the ground in which regenerative medicine will grow and blossom.

“The timing is difficult to predict, but the outcome is certain. California, thanks to CIRM, will be like Seattle was to Microsoft, like South San Francisco was to Genentech, like Cupertino was to Apple. We have sown the seeds, and now we need to nurture the growth of a new industry.”

(Jensen, a former editor at The Bee, has reported on the stem cell agency on his blog, the California Stem Cell Report, since 2005.)

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