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Executive Summary:

Accessing CIRM Grants

BayBio dinner with CIRM on August 25, 2010


Sponsored By:
To: Participants of the first BayBio/CIRM dinner
From: Jeremy Leffler, COO BayBio
Re: Summary of California Institute for Regenerative Medicine (CIRM) policies and CIRM
talking points for Aug. 25 Dinner

We are looking forward to your participation in the first ever BayBio/CIRM dinner next week,
which will bring leaders from both organizations to discuss issues related to the CIRM grant
process, and identify opportunities for more strategic industry participation in CIRM programs.
To date CIRM has funded over $1 billion for stem cell research and facilities. The
overwhelming majority of these funds have gone to academic institutions (only about 3% to
actual companies). This memo focuses on addressing two major reasons for this occurrence and
provides talking points to advocate for solutions. A more detailed background on CIRM policies
including grant practices, intellectual property (IP) and public access provisions is included for
reference purposes.

Executive Summary
CIRM offers a variety of programs to support research and development of technologies
surrounding stem cell research. Companies interested in receiving grants or loans must complete
an application process for one of the different award funds available. Applications are reviewed
by a grants review group comprised of scientific experts who score the applications based on
scientific merit. Currently there are no scientific experts from industry on the grants review
group and only six (out of 89) are alternates.

Overview of Provisions
 CIRM grantees must agree to comply with CIRM’s IP and public access provisions.
 CIRM regulations require grantees to share 25% of net licensing revenue in excess of
$500,000.

 If CIRM funding leads to a self commercialized product, grantees must pay a royalty to the state
which is negotiated with CIRM but does not exceed three times the initial CIRM investment.

 If a self commercialized product achieves “blockbuster status” as defined in the regulations,


grantees must provide subsequent payments to the state.

 Public access provisions require grantees at the time of commercialization to provide a plan as to
how they will provide a product developed as a result of CIRM funding to uninsured
Californians.

 Regulations stipulate that grantees are only responsible for providing the drug itself and not any
costs of administering the drug or other attendant care. Grantees must also agree to participate in
the state’s prescription drug discount program. Finally, CIRM retains march-in rights on IP
developed with CIRM funding.
Recommendations:

1. BayBio and industry need clarification on CIRM IP and public access requirements to increase
private sector comfort with CIRM programs and encourage more companies to participate in the
program.

2. Changes are needed to the grants application and approval process to increase the success rate of
companies applying for CIRM funding.

3. There needs to be more transparency all around with respect to the process and final decision
making.

Key Issues/Talking Points


1. CIRM’s Intellectual Property policies and public access requirements create enormous
uncertainties for life sciences companies and discourage participation in the program. To
encourage more company participation, CIRM must issue guidance to clarify what steps
a company is required to take to ensure compliance with the regulations.

 Many early treatments from stem cell research will be cellular therapies that are
fully integrated processes administered at national medical centers of excellence.
The regulations need to be clarified to ensure that companies who develop
complex cellular therapies will not need to provide the therapies in hospitals that
do not have the training or expertise needed.

 While CIRM regulations require the access plan to be consistent with industry
standards at the time of commercialization, there is no way for companies to
assess what constitutes “industry standards”. Furthermore, detailed information
on other firms’ drug access programs will vary and may not be publically
available. CIRM should allow companies to model plans based on existing plans
from individual companies instead of developing an assessment of what
constitutes “industry standards”.
2. CIRM’s current grant review policies and practices do not track with the stated goals of
RFAs and favor funding academic applications thus reducing funding opportunities for
industry and discouraging future company participation.

 CIRM has a perception of not being friendly to industry. Private companies with
strong track records of receiving NIH funding are frequently unsuccessful in
getting grant funding from CIRM. Conversely, in comparison to CIRM for-profit
companies have sporadic success rate at best with CIRM grants. CIRM’s
contention on this is that the non-profit applicants that are received they tend to
come from well-established and research –intensive institutions, as opposed to the
less known and established for-profit companies.

 CIRM needs to work with industry organizations to increase participation of


industry experts on the grants review working group.

 The agency also needs to provide greater support for proposals that include a path
to commercialization.
3. NIH v. CIRM Criticisms
 CIRM is an RFA process, NIH is a cycle process- CIRM contends that their
process is different and you can’t compare them to NIH in that manner

 CIRM has a lot more academic applications than biotech so that is their response
as to the criticism that they give out more academic grants

 CIRM has different deadlines and go to different study sections for review

 There needs to be a mechanism to move product out of the lab and into clinical
trials on CIRM’s part
4. March-In Rights

 You can read more about march-in rights below but there is a perception that
CIRM would look at march-in rights and the differences therein with the federal
government

 After having discussions with CIRM it is their position that this is coming from
perception and are unfounded fears on behalf of the companies part and not based
in reality as CIRM hasn’t exercised this practice

Background on Current CIRM Procedures and Policies

Current Grant Application Policies


CIRM grants are divided into different requests for applications (RFAs) to fund different types of
stem cell research and stem cell related activities. The Independent Citizen’s Oversight
Committee (ICOC) approves funding concepts based on input from CIRM staff that make their
recommendations based on input from thought leaders. Once the ICOC approves a funding
concept, they release the RFAs. Application procedures for RFAs have varied somewhat
between different grants; however the basic concepts remain the same. Applicants must submit a
description of the research project, its objectives, milestones and relevant literature that supports
the project’s objectives, any preliminary results and financial plans for the project. Applicants
must also create a public abstract and a statement describing how the project will benefit the
citizens of California. Both the abstract and statement of benefit are published on CIRM’s
website.
Once an applicant submits their application, the Grants Working Group (GWG) reviews
applications and makes funding recommendations to the ICOC. The GWG is comprised of
fifteen scientists and seven ICOC members who are patient advocates. Currently, none of the
scientist members of the GWG come from industry and only six (out of 86) are alternates. The
ICOC chairman serves in an ex-officio capacity. The fifteen scientists must be nationally
recognized the field of stem cell research and not employed in the state of California. The ICOC
appoints GWG members who serve staggered six year terms. Scientist members receive a daily
consulting rate and reimbursement for expenses. The scientist GWG members evaluate each
proposal for scientific merit and then provide a score (1-100) for each. All voting members of
the GWG then sort proposals into three categories (recommended for funding, provisionally
recommended for funding, and not recommended for funding). Final decisions on funding are
made by the ICOC.
Bylaws require the GWG to give priority to applications involving pluripotent stem cell and
progenitor cell research that cannot, or is unlikely to receive timely or sufficient federal funding,
unencumbered by limitations that would impede the research. Applications involving research
categories funded by the National Institutes of Health shall not be recommended for funding.
GWG bylaws make an exception for vital research opportunities.

Grant Intellectual Property Regulations

As a condition of receiving grant funding all applicants must agree to adhere to CIRM
regulations on sharing and use of intellectual property. Grantees must share 25% of net licensing
revenue in excess of $500,000. If sources other than CIRM contributed to the development of a
patented invention, the return to the State must be proportionate to CIRM support. If a grantee
develops a commercialized product resulting from CIRM funded research they must pay
royalties to the state. Rates of payback in the form of royalty is negotiated between the grantee
and CIRM but it shall not exceed three times the total CIRM grant or exceed five per cent of net
commercial revenue from the invention unless the product achieves blockbuster status as
defined. If net commercial revenue from a self commercialized product resulting from CIRM
funded research exceeds $250 million per year the grantee must pay the state a onetime
blockbuster payment of three times the total amount of the grant. The grantee must pay the state
another onetime blockbuster payment if net commercial revenue exceeds $500 million. In
addition, if a CIRM patented invention is involved in the achievement of the net commercial
revenue greater than $500 million per year and CIRM grants were greater than $5 million (in
aggregate) the grantee must pay 1% of net commercial revenue in excess of $500 million for the
life of the patent.

Grant Programs Uninsured Access Provisions

CIRM grantees must also comply with access requirements for drugs developed as a result of
CIRM funding. A grantee must provide CIRM with a plan to afford uninsured Californians
access to a drug developed as a result of CIRM funding no less than 90 days prior to the time the
drug is commercialized in California. The access plan must be consistent with industry
standards at the time of commercialization accounting for the size of the market for the drug and
the resources of the grantee. This plan is subject to CIRM’s approval following a public hearing
that provides for the receipt of public comment. The grantee is responsible only for providing
the drug itself, not any costs of administering the drug or other attendant care. The grantee must
also provide the drug at a price as provided in the California Discount Prescription Drug
Program to eligible Californians under this program. The grantee must sell a drug developed
from CIRM funded research and is purchased in state with public funds at any benchmark price
described in the California Discount Prescription Drug Program.

March-In Rights

Finally, California retains march-in rights for intellectual property that results from CIRM
funding. CIRM may request that a grantee enter into a license agreement with respect to a CIRM
funded patented invention in any field of use upon terms that are reasonable under the
circumstances. If a grantee 1) has not made commercially reasonable efforts to achieve
application of a CIRM funded patented invention, or 2) has failed to provide or comply with a
plan for uninsured access to a drug, or 3) has failed to satisfy requirements for public use
including broad availability in California (for reasons other than price) or 4) has unreasonably
failed to use CIRM funded inventions to alleviate public health and safety needs that constitute a
public health emergency then CIRM may exercise march in rights and enter into a license with
an applicant on behalf of the grantee.

Loan Administration Program

In 2009 the ICOC approved a policy to provide loans to companies.1 Loans are available under
selected RFAs. Applicants must complete the RFA and indicate if they are interested in funding
a proposed project with a loan. The loan is limited to applications requesting more than $3
million. Currently only one RFA, the Early Translational Research Awards, allows applications
to receive funding in the form of a loan, although other programs may offer a loan option in the
future. Terms of the loan vary depending on the RFA. Under the Early Translational Research
RFA, loans are for five year terms (which may be extended) with an initial interest rate of
London interbank offered rate (LIBOR) +2%. Participants must also provide CIRM with stock
warrants. Loan recipients do not have to comply with CIRM revenue sharing legislation but
must still comply with uninsured access provisions and are subject to march-in rights from the
state.

1
This policy is currently being placed in regulation form but has not yet been finalized. CIRM has an interim loan
administration policy that was effective as of 6/20/09.