California Stem Cell Royalties: A Mere Half-Million Dollars, But Likely to Grow

Then there is the new "Fund 1031" and its potential

Graphic by Franchise Direct

California’s royalties from its stem cell research program now total $557,292, considerably less than the projected $1.1 billion figure that was bandied about during the ballot campaign to create the state’s stem cell program. 

Royalties are likely to rise, however, as more and more of the state-funded research is utilized in producing actual treatment or cures. The cash could even come back directly to the stem cell agency itself, depending on the vagaries of the state legislative process. But, in a change from the last year, the royalties will not be tapped for such things as salaries for state prison guards or employees at the Fair Political Practices Commission. 

Earlier this month, the agency told the California Stem Cell Report that royalties came from only three enterprises: City of Hope, $400,068; FujiFilm, $62.085, St. Jude’s Hospital, $95,139. 

The payments started in 2018 with $190,346 from City of Hope as an outcome of a $5.2 million award involving a potential therapy for glioblastoma, one of the deadliest forms of brain cancer and the type that took the life of U.S. Sen. John McCain.

FujiFilm Cellular Dynamics’ royalty payments grew out of a $10 million award to start the world’s largest public stem cell bank. St. Jude’s received a $12 million award for its work with UC San Francisco involving an immunodeficiency clinical trial.

Seventeen years ago, voters were asked to launch the state stem cell effort and create the stem cell agency -- known officially as the California Institute for Regenerative Medicine (CIRM). They were told that it could lead to royalties ranging from $537 million to $1.1 billion by 2039, according to a campaign-financed study. It was performed by Bruce Deal of the Analysis Group, Inc., and Laurence Baker of Stanford University, which is the No. 1 recipient of CIRM awards with $418 million.  

The study’s estimates were released in 2004, long before CIRM actually crafted its intellectual policy regulations, which form the basis for royalties, along with state law.

From the outset, CIRM did not emphasize the monetary returns on its investments in research, which currently total $2.8 billion. The estimated, lifetime cost of CIRM’s programs stands at $12 billion, including interest. The funding of the agency comes from money that the state borrows through state bonds. 

“There is a balancing act between the CIRM’s mission -- accelerating stem cell therapies to patients with unmet medical needs -- and a financial return back to the state,” CIRM said in a statement last year to the California Stem Cell Report, which goes more deeply into investment return matters and intellectual property.

Demands for what businesses perceive as excessive royalties would discourage commercialization of treatments and cures, the agency has concluded.

Proposition 14 of 2020, however, made a major change in how royalties could be used. Up until the initiative’s approval, royalties were funneled to the state general fund and could be used for everything from salaries for prison guards to compensation for lawmakers.  Under the ballot measure, the royalties now go into an affordability pot, called “Fund 1031” after its state budget number.  

Proposition 14 says that those funds  “shall be appropriated for the purpose of offsetting the costs of providing treatments and cures arising from institute-funded research to California patients who have insufficient means to purchase such treatment or cure, including the reimbursement of patient-qualified costs for research participants.” 

The determination of what “offsetting the costs” means will be up to the legislature, which will presumably hear from CIRM on the matter as well as other parties. Currently, the amount involved is so tiny -- $24,924 -- that no one cares, but when the cash runs into millions it will attract more attention.

The “1031” royalty fund only began with approval of Propostion 14. It could evolve into a means of support for at least some of CIRM’s activities. The new funding mechanism could be especially important as CIRM’s borrowed cash begins to run out in about a decade or so, depending on its rate of spending. 

Fund 1031 fits nicely with Proposition 14’s new course for CIRM. Its path now includes delivery of therapies as well as an affordability and accessibility program that is backed by up to $155 million over however many years CIRM can stay afloat.

Labels: cirm funding, royalties, proposition 14, cirm future, sustainability, fund1031