THE NEXT-GENERATION CURES BOND

The Opportunity

If states are the laboratories of democracy, the venue where federalism makes itself manifest,
then there’s no better lab than California.

For decades, Californians have used the ballot initiative process to set national trends. From Prop
13 (reducing property taxes) to Prop 65 (labeling toxins), California initiatives historically have
reverberated around the country.

In the life sciences, there is no shortage of new ideas and potentially ground-breaking therapies.
For example, gene therapy companies are now developing treatments to repair malfunctioning
genes that cause thousands of rare genetic diseases that collectively affect 30 million Americans.
This cutting-edge approach was just an impossible dream when the biotechnology industry was
born in California decades ago.

The challenge for society is to ensure funding is available to pursue these opportunities. There is
a well-documented shortage of funding for early-stage translational research, which is the start of
the risky journey that turns breakthrough discoveries into commercial products. – also known as
the “valley of death.” When early-stage funding is scarce, companies play it safe. They shun
high-risk breakthrough innovation in favor of lower-risk, incremental research. This makes it
difficult to pursue treatments for complex, challenging diseases.

Early-stage translational research is typically done by small entrepreneurial companies.
California has over 1,500 of them, which employ over 100,000 people, by far the most in the
country. The question before us is whether we can nurture these companies and grow their
number by designing a funding mechanism that skirts the “valley of death.”

The Proposal

We propose a bond measure that would provide funding, in the range of $1.5 - $2.5 billion, to
California-based companies developing new drugs to cure diseases and prolong healthy lives.
The bond would be repaid through the state’s General Fund.

This bond would have unique features setting it apart from other attempts to raise public funds to
finance biomedical research:

1. Eligibility requirements:
1.1. A Focus on Entrepreneurs: Only companies would qualify for funding. Academic
institutions already receive billions of dollars of funding from the National Institutes of
Health, the California Institute for Regenerative Medicine and other sources.

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1.2. Focus on California: Only companies with a headquarters and a majority of employees
in California, or willing to relocate here, would be eligible for funding.
1.3. Focus on Breakthrough Medicine: Only companies working on projects that have the
potential to greatly impact patient health would qualify for funding. Research shows
clearly that, in biomedical research, most of the value is created by breakthrough
therapies that offer such great benefits to patients that they change the standard of care,
or by therapies for which there is no other meaningful treatment.
2. Funding Cap:
2.1. This program is intended to address the dearth of funds to support high-value projects
that have not matured enough to attract interest from conventional sources such as
venture capital.
2.2. Funds received by any company from this bond would be capped at $10 million.
2.3. Eligible companies are encouraged to leverage this funding by raising additional funds
from private sources (e.g., crowdfunding, angels, philanthropists, patients’
organizations).
3. Funding Tied to Milestones and Data-Sharing:
3.1. The funds awarded to each company would be disbursed as long as the company’s
progress keeps supporting the view that it is working on a project of great potential
impact.
3.2. However, since great ideas don’t always pan out, it is likely that some companies will
not live up to their promise. When this becomes apparent, the disbursement of funds will
be terminated, and any undisbursed money will be reallocated to new opportunities.
3.3. Companies receiving funds would be free to patent their intellectual property, but would
be required to share their data with the scientific community through a recognized open
and free-access data-sharing platform such as the Open Science Data Cloud or an
equivalent. This will accelerate the compounding of knowledge – a key driver of
innovation – and provide value to society even if innovations fail to reach their scientific
or commercial potential.
4. Funding Secured by Equity:
4.1. In exchange for the funds they receive, companies would tender to the University of
California shares of their common stock with an estimated value, as determined by the
most recent outside valuation or price set by investors.
4.2. These shares will become part of the University’s endowment and the University will be
free to sell or leverage these shares, or acquire additional shares, as it sees fit.
5. Governance and Accountability:
5.1. Authority to accept and respond to proposals will rest with the University of California.
The President of the University of California will select a highly qualified executive who
will select a management team to receive and evaluate proposals and recommend
proposals for funding. The executive may draw upon not only the vast resources of the
University, but leaders from other institutions of higher education, government and the
private sector, to administer the program
5.2. Funds for administering this function will be provided to the University from bond
proceeds and capped at a reasonable amount.
5.3. The Regents of the University of California will report annually to the Governor and the
Legislature on the activities of the University under this bond.
5.4. The Treasurer of the State of California will:

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 Monitor compliance with the provisions of the bond issue
 Disburse and terminate funding authorized by the University;
 Authorize outside audits to ensure the bond funds are disbursed as intended; and
 Report to the Governor and the Legislature on the economic and state budget impacts
of the bond.
6. Benefits to California:
6.1. California’s entrepreneurial biomedical community, already the largest in the country,
will continue to grow and generate high-paying jobs
6.2. Companies working outside California should see this as an invitation to move to
California to access these funds.
6.3. Biomedical research is undergoing a rapid transformation. Advances in genomics,
mobile health, smart phone platforms and cloud computing – many of them rooted in
California innovation – allow the collection and sharing of unprecedented amounts of
rich patient data. It is important that California companies lead in leveraging these tools,
as they promise to greatly enhance their capacity to innovate.
6.4. In addition to these direct benefits to California, indirect benefits include: Increasing
California’s reputation as a magnet for talent; fostering collaboration between private
industry and higher education; and creating great companies that will join the roster of
other California firms that have achieved world-leading status for innovation in the life
sciences.

Authors

Joseph Rodota

Joe is CEO and founder of Forward Observer, a content and strategy firm with offices in
Washington, DC and Sacramento, CA. Joe has an extensive record of public service, including a
senior communications role in the Reagan White House and Cabinet Secretary and Deputy Chief
of Staff to California Governor Pete Wilson. Joe has served as research director and/or strategist
for dozens of California ballot initiative committees, including the bond proposal to establish
California high-speed rail (2008) and the nonpartisan “top two” primary election system (2010).
Joe is an honors graduate, in history, from Stanford University.

Bernard Munos

Bernard Munos is a Senior Fellow at FasterCures, a center of the Milken Institute and an “action
tank” that works to speed up the development of new innovative treatments. He is also founder
and chief apostle of InnoThink, a consultancy that helps biomedical research organization
become better innovators. Previously an advisor for corporate strategy at Eli Lilly, he has long
focused on disruptive innovation and the radical redesign of drug R&D. Munos' research has
been published in Nature and Science, and he has presented his findings to numerous audiences,
including the Institute of Medicine, the President's Cancer Panel, the National Institutes of

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Health Leadership Forum, the World Health Organization, the OECD, the Brookings Institution
and leading universities and think tanks around the world. He has been named me one of the 25
most influential people in biopharma, and blogs about innovation for Forbes.

Munos received his M.B.A from Stanford University, and holds other graduate degrees in
agricultural economics and animal science from the University of California, Davis and the Paris
Institute of Technology for Life, Food and Environmental Sciences.

For additional information, the authors may be reached at either joe@fwdobserver.com or
bhmunos@gmail.com.

June 2017

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