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Biotech Firms to Share Profits With Taxpayers in Pact With State

Stem cell companies that accept grants from a state-funded stem cell institute would share profits with taxpayers if the agency follows the recommendation of one of its committees.

The San Francisco-based California Institute for Regenerative Medicine’s intellectual property committee, which met in San Diego recently, has recommended that for-profit groups that ultimately bring a product to market through the use of grants from the institute should pay back the grant at three times the amount of the original grant.

In the event that the drug or product becomes a “blockbuster” seller, or brings in more than about $250 million in annual revenue, then the company would have to pay back six times the amount of the grant, said Duane Roth, a member of the intellectual property committee and also of the institute’s Independent Citizens Oversight Committee, which acts as the group’s board of directors.

Certain other requirements may be made surrounding use of the product , for example, companies would be required to offer California residents a discount on the product in some cases.

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The institute’s oversight committee will consider the proposal at a Dec. 7 meeting in Irvine. The proposed policy is similar to that of the policy the institute approved earlier this year for nonprofits, officials said. However, a revised version of the policy including changes proposed at the Nov. 9 intellectual property committee meeting in San Diego was not yet available.

Local companies like Novocell Inc. and Stemagen, which are likely to consider applying for grants as the institute issues requests for proposals, say the guidelines seem fair.

“The good citizens of California are loaning us the money, and they deserve a good return on it,” said Novocell’s Chief Executive Officer Alan Lewis, who attended the San Diego meeting.

Novocell is a stem cell engineering company with about 40 employees that searches for cell and drug therapies to treat diabetes and other chronic diseases.

The firm also has an Irvine office and a few employees in Athens, Ga., Lewis said.

“There’s a lot of new programs in our company that could be generated from this research money,” he said. “I think the point is to make a thriving stem cell research environment. If the product is a big success, (the payments to the state) are not going to be a problem.”

Samuel Wood is the chief executive officer of Stemagen, which uses a variety of techniques to generate embryonic stem cell lines. The company collaborates with fertility clinics to obtain discarded embryos for use in research.

Stemagen has six employees, and the firm, founded a year ago, has both for-profit and nonprofit arms. The nonprofit has already applied to the institute for a grant for nonprofits, Wood said.

“We’re developing technology we think will be patentable,” he said. “We hope to license it (through the for-profit.)”

Wood said his firm may soon be one of only three groups in the country that have made the uni-parental stem cell lines, otherwise known as “therapeutic cloning.” However, his research continues, and he said the work still has to be scrutinized by peers before successful claims are made.

The institute’s draft policy defines the for-profit sector’s role as that of taking what a nonprofit group has already developed and further developing it into a “successful therapy for use by the public leveraging private funds and highly skilled interdisciplinary teams not found in academic environments.”

Roth did not know how long it could be before a request for proposal might be made to for-profits.

Lewis said he thought the institute’s proposal seemed to have the right balance to appeal to companies.

“I think the idea is that you want scientists to work in this area,” Lewis said. “Grants are always preferred because they are non-dillutive. With venture capital funds, you’re always giving up ownership in a company.”

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