California's Stem Cell Agency Collects First Major Royalties: $15.6 Million from Stanford

Gilead's purchase of Forty Seven, Inc., involved

Graphic by Franchise Direct

The California stem cell agency today said it has received $15.6 million in royalties from Stanford University, the largest such payment by far in the 17-year history of the state research agency. 

Until the announcement today, the agency, officially known as the California Institute for Regenerative Medicine (CIRM), had received only $557,292 in royalties. 

The figures are a far cry, however, from predictions made during the 2004 ballot campaign that created the stem cell agency. Backers of the ballot initiative commissioned a study that predicted royalties ranging up to $1.1 billion. 

CIRM has spent $2.9 billion since its inception. Its operations will cost taxpayers roughly $12 billion before its cash runs out in about 10 years or so. That includes interest on the borrowed money that is financing CIRM.

Under California law, the $15.6 million in royalties will go into the state budget for “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.”  That’s the language from current state law. How all that will be defined remains to be determined. 

Prior to approval of Proposition 14 in 2020, royalties could be used for virtually any state purpose, including those not related to research or medicine. 

The royalties came from Stanford as the result of the $4.9 billion sale of a firm called Forty Seven, Inc., to Gilead Sciences, Inc.,  in Foster City, Ca. As of 2020, the sale had generated $67 million for Stanford and $191 million for Stanford researcher Irv Weissman. 

CIRM backed Forty Seven with $15 million directly and $30 million indirectly. Initially, it appeared that CIRM would receive little in the near term from the sale. Its regulations concerning royalties are structured to be business-friendly and to encourage the development of therapies as opposed to generating a shorter-term financial return. 

The question of providing a suitable financial return on CIRM-financed inventions generated some controversy during the 2020 ballot initiative campaign that saved the agency from financial extinction Then CIRM Director Jeff Sheehy was sharply critical. In an op-ed article in the San Diego Union-Tribune, he said, 

“The (CIRM) returns are limited because by law, the state cannot hold equity like a venture capitalist would do. Amending that rule should have been included in the new measure (Proposition 14) so that California could realize a meaningful return on its huge investment in stem-cell research. Failing to do that, especially when the investment is paid for with debt financing, is fiduciary malpractice.”

CIRM General Counsel Kevin Marks told directors at their meeting today, “There may be some other payments due to CIRM depending on the commercial viability and success of the program, and of the assets that were licensed.” 

The Gilead-Forty Seven program surfaced this week in a bit of bad news for Gilead and its development of a blood cancer drug involving Forty Seven. STAT yesterday reported that the work was “interrupted by a potentially serious safety issue.”

Earlier in the week, the Food and Drug Administration placed a partial clinical hold on five clinical trials.

The agency intervened because of an “apparent imbalance in investigator-reported suspected unexpected serious adverse reactions,” according to Gilead.

“The company provided no clarifying information,” STAT said, “about the type of safety issue reported in the magrolimab studies, but said there was ‘no clear trend’ and that the safety signal was not new.”

Labels: IP, royalties, Forty Seven, performance audit, sustainability