As the State of California sinks into a deep economic crisis, California’s Stem Cell Agency is so well-financed that it gave out $19 million dollars last month and is in the process of giving out another $66 million this month. 

David Jensen of the California Stem Cell Report raises the timely question: are California’s priorities in the right place?

Clearly, California voters believed in the value of stem cell research when they voted for Proposition 71, and there is little doubt that stem cell research has the potential to be tremendously beneficial to the state’s biotech community, but did the voters really intend to fund stem cell research with state taxpayer money in lieu of everything else? 

The problem with research, of course, is that it can take years to bear fruit. So, while investing in stem cell research today can easily be viewed as an investment in the future, that future may be years down the road.  Meanwhile, the state is out of money and that reality is having an immediate effect today across the board on a variety of programs as well as the overall operation of the state.  While California can certainly raise taxes, in this economy where so many residents are losing their jobs and their homes, raising taxes is probably not going to fix the states’s economic problems. 

Jensen addresses the situation as follows:

No one – except for those congenitally opposed to hESC work — is contending that all these millions are going to unworthy scientists or to dubious research. But the CIRM giveaways stand in marked contrast to what is happening to the rest of the state in the light of its $40 billion budget crisis. . . .

The disparity raises major public policy issues about the use of ballot initiatives to promote and protect various causes. Should the elderly and poor see their much-needed assistance and medical care cut while cash flows unimpeded, in this case, to researchers, some of whom are already exceedingly well funded?

In my opinion, Jensen’s point is well-taken.  As a transplant from the South–not Southern California, but the "real" South–I have always been uncomfortable with California’s ballot initiatives for the simple reason that I always felt like I was missing some critical information to making a decision: the budget.  I have run my law firm now for five years, and I can assure you that while I made some mistakes early on, I quickly learned that a business owner cannot make any spending decision without carefully reviewing the budget that will finance such spending.  I serve on a nonprofit board of directors, and the same is true in making spending decisions for that organization.

Yet, as a California voter, I am somehow expected to make a decision on a ballot initiative without being able to see the overall financial picture of the state.

Does this really make sense?

In the case at hand, I doubt that the current funding imbalance is going to turn Californians against stem cell research.  By and large, I think people support the research and recognize its potential.  On the other hand, it should make us all stop and think about our state’s priorities in this economic crisis.  Are they invested in the right place?

The status of SBIR reauthorization is unclear, according to an update by Rick Shindell of the SBIR Insider..

In his October 3rd newsletter, Rick Shindell had pronounced SBIR reauthorization dead.  Shindell wrote in his email update the following:

Over the last month and through today, October 3, 2008, there has been a flurry of intense efforts in the Senate to get an SBIR Reauthorization bill passed. . . .  Unfortunately the valiant efforts on SBIR reauthorization by the leaders and staff of the Senate Committee on Small Business and Entrepreneurship (SBE), John Kerry (D-MA) chair and Olympia Snowe (R-ME), were rebuffed by a few and ultimately could not be brought to the full Senate for a vote, in spite of the fact that the original bill S.3362 was passed unanimously 19-0 in the SBE committee back in July. . . .

In today’s update, however, Shindell appears to have changed his opinion somewhat, stating:

In our October 3rd issue we announced that SBIR reauthorization was dead in the 110th Congress. Although this scenario is still likely, the events of the last few weeks heighten the chances for more action in a “lame-duck” Congress which “may” present an opportunity for additional SBIR reauthorization activity.

So, the question is this: will the current economic climate push the Senate to move forward on this reauthorization effort?

In all honesty, I doubt it.  I have a bit of a bias when it comes to the subject of the SBA, since I started my law firm in a down economy following the sudden closing of my large law firm, and I found it disappointingly difficult to obtain funding through the SBA.  At one bank, I asked about SBA funding, and to my surprise, I was asked what my spouse’s salary was.  When I replied in some shock that I was single, I was told the bank could not assist me.  At another bank, I received the run-around on SBA funding on the basis that law was a “highly risky profession” and I wouldn’t be able to do anything other than practice law if my business failed.   Of all the businesses I could have started, I honestly would never have thought that a law practice would have been placed in a high risk category–particularly when I had already practiced law for a number of years.   Wnile I did eventually obtain a small SBA loan, I never obtained the loan I really needed to build my business. I must admit I became somewhat disenchanted with the whole concept of the SBA.  In my opinion, the whole program would benefit from an overhaul.

So, having disclosed my personal bias on the SBA program, I would argue that the SBA program is exactly where Congress should be focusing its attention in a down economy.

Why do I say this?

Well, in a down economy, there are generally a number of layoffs, and a number of laid off employees will not be able to find the right job.   Rather than sitting home, collecting unemployment, and potentially losing their home to foreclosure, many of the unemployed will contemplate starting a small business.  As anyone who has ever started a small business can tell you, securing adequate financing is often critical to the success of a small business.  So, in my opinion, it makes perfect sense for Congress to focus its efforts on improving the SBA program in a down economy, if it is serious about taking steps to invigorate the economy.

So, how does this relate to SBIR reauthorization?  Well, I would argue that Congress should ensure that the SBIR gets reauthorized for the very same reason–to promote small business and invigorate the economy.

Unfortunately, however, to date I have heard absolutely nothing of any plans by Congress to focus on the SBA as part of its economic relief efforts.  Instead, Congress and the administration are busy taking all kinds of economic steps that have little or nothing to do with small business.  For this reason, I doubt that SBIR reauthorization is going to get much attention by the Senate before the end of the year either.

The California Biotech Law Blog will continue to keep you posted as any new SBIR reauthorization developments occur.

The SBIR Reauthorization Insider has announced that the Small Business Administration ("SBA") is currently seeking comments on its plans to raise the SBIR award amounts from One Hundred Thousand ($100,000) in Phase One and Seven Hundred Fifty Thousand ($750,000) in Phase Two to One Hundred Fifty Thousand ($150,000) in Phase One and One Million Dollars ($1,000,000) in Phase Two.  The Federal Register states that comments must be received on or before September 15, 2008.

To submit a comment on this issue, the Federal Register instructs you to do the following:

You may submit comments, identified by RIN 3245-AF61 by any
of the following methods: (1) Federal Rulemaking Portal: http://
www.regulations.gov, follow the instructions for submitting comments;
(2) Mail: Office of Technology, 409 Third Street, SW., Washington, DC
20416; or (3) Hand Delivery/Courier: Edsel Brown, Assistant Director,
Office of Technology, 409 Third Street, SW., Washington, DC 20416.

Following up on our previous postings regarding California’s issuance of cease and desist letters to thirteen (13) genetic testing companies doing business in California, two DNA testing companies are now set to resume business in California, after having received new licenses to do business in the state.

According to The Mercury News, the California Department of Health has issued licenses to Navigenics of Redwood City and 23andMe of Mountain View, which will enable them to resume business operations.  Both companies had always argued that they were lawfully doing business in the state, and the fact that the state issued them both licenses seems to be a validation of their positions.

International Herald Tribune reported on the development as follows:

The companies had argued that they were not offering medical testing but rather personal genetic information services, and that consumers had a right to information from their own DNA. The companies also said they did not need a license because the actual testing of the DNA samples was being done by outside laboratories that did have licenses.

But the two companies do their own interpretation of the raw genetic data. Now, after reviewing the procedures used by the companies, the state is satisfied that the companies’ interpretation is based on the scientific literature. . . . the companies also satisfied the requirement for a doctor to be involved.

Navigenics already was paying a physician to review customer orders and now it appears that 23andMe might be doing something similar.

There is no word yet as to whether or not the other eleven (11) genetic testing companies, which also received cease and desist letters, will likewise receive licenses to resume operations in the state of California.  Today’s move should at the very least be viewed as encouraging by the similarly affected companies.  The action should also help to calm fears as to the state’s ulterior motives in attempting to regulate genetic testing companies.

Having said this, direct-to-consumer genetic testing has been virtually non-existent in the state of California for the past two months, and it is very likely that all of the genetic testing  companies have suffered at least some financial consequences as a result.  We have yet to see what the long-term impact of this incident will be on all of the affected businesses.

For now, however, concerned Californians can rest easy knowing that direct-to-consumer genetic testing will live to see another day in this state.

The Senate Committee on Small Business and Entrepreneurship ("SBE") recently passed a compromise Small Business Innovation Research ("SBIR") reauthorization bill that would allow small companies that are majority-owned by venture capital firms to be eligible for SBIR awards.

According to the SBIR Reauthorization Insider, the SBIR/STTR Reauthorization Act (S. 3362) is a  "completely new bill" that is "not related to H.R. 5819, the House’s SBIR/STTR Reauthorization Act passed in the House" back in April, 2008.  The complete draft of the bill is attached.

According to the SBIR Reauthorization Insider, some of the highlights of this bill are as follows:

1. Higher Award Amounts – The SBIR and STTR awards are increased to $150,000 in Phase One, $1 million in Phase Two, and are now able to exceed the guidelines by up to 50%.
2. Increase in the SBIR/STTR Cap– The SBIR cap will be increased from 2.5% to 3.5% at a rate of .1% over 10 years.  The one exception is the NIH, which will stay at 2.5%. The STTR cap will double from 0.3% to 0.6% over 6 years.
3. Venture Capital Eligibility-A "small business" that is majority owned and controlled by multiple VCs will be eligible to participate in the SBIR program under certain conditions. No single VC can own more than 49% of the small business entity; the VC must be a United States Venture Capital Company; the VC owned small business must register with the SBA when they submit an SBIR proposal. The NIH will be limited to awarding not more than 18% of their SBIR award funding to such VC owned small businesses, and the remaining 10 agencies are limited to 8%.
4. Length of Reauthorization – The new bill would be reauthorized for fourteen (14) years, resulting in new sunset dates of September 30, 2022, for SBIR and September 30, 2023, for STTR.
5. Crossover Between Agencies– The new bill would allow Phase One awards at one agency and Phase Two awards at another.
6. Crossover Between SBIR and STTR Programs-The new bill would allow Phase One awards through the SBIR and Phase Two awards through the STTR, or vice versa.
7. SBA Waivers Will Not Be Required–SBA waivers will not be required for partnering, subcontracting, or entering into a Cooperative Research and Development Agreement ("CRADA") with a  federal lab of a federally funded research and development center.
8. Reorganization of the SBA’s Office of Technology.  The bill will move the Office of Technology out from the contracts department and make the Office of Technology directly reportable to the SBA Administrator.  The aim is to restore some of the authority to this office, which was intentionally rendered ineffective in the past due to funding and staff cuts.

This bill obviously falls short of what the biotech industry was seeking in reauthorization legislation, as there is a cap on the percentage of awards that can be given to vc-backed businesses.  However, the industry should be pleased at the fact that a reauthorization bill is now likely to be passed, and some progress has been made toward opening  up awards to vc-backed businesses.  In all likelihood, the final legislation will no longer include a ban on awards to vc-backed companies, which is in itself a victory for the biotech industry.

The Baltimore Business Journal is reporting that life sciences companies spent a record amount on lobbying efforts in 2007–some 32 percent more in 2007 than in 2006.

The Baltimore Business Journal reported:

The industry unleashed a $168 million lobbying effort last year, the largest among all sectors and 90 percent of which was dominated by three biotech and pharmaceutical trade groups and 40 global companies. . . . Among top company spenders were British-based AstraZeneca PLC, which owns Gaithersburg-based MedImmune and tallied $4.1 million in lobbying efforts, and Israel-based Teva Pharmaceuticals, which owns Rockville-based CoGenesys and tallied $2.3 million. Amgen Inc., based in Thousand Oaks, Calif., topped the company list with a $16.3 million total contribution last year.

As the California Biotech Law Blog previously reported, BIO spent $6.6 million in lobbying efforts in 2007.

According to The Baltimore Business Journal, the industry’s investment seems to “have paid off.”

Was the investment really dollars well spent?  Well, clearly the industry has had some success with respect to delaying the passage of patent reform legislation, which was largely viewed as being more favorable to high tech companies than biotech companies.  Likewise, the lobbying efforts seem to have had some success in the SBIR area, as we previously reported in a recent blog posting.  So, the industry has definitely seen some success in Washington this past year, although that success has not been felt uniformly across the board.

There is no doubt that having a voice in Washington is taking on increasing importance for the life sciences industry, particularly in light of the lobbying efforts of the technology world.  It seems likely that the industry’s investment in lobbying will continue to grow in the near future, as the topic of health care reform continues to be a key political issue and the interests of technology and life sciences companies continue to diverge.  As I’ve suggested before, however, it is rather stunning to consider how much money that has to be invested these days in order to maintain a presence in Washington politics: $168 million is certainly not pocket change.

Pharmaceutical companies are currently ramping up their preparations to comply with new regulatatory requirements enacted to fight drug counterfeiting, according to a recent article by Mass High Tech.

Mass High Tech reported on the new regulatory requirements as follows:

[T]he federal government and nearly half of the states have enacted or proposed legislation to protect patient safety. The most far-reaching mandate is California’s electronic pedigree (e-pedigree) law. It requires electronic serialized product pedigrees for all prescription drugs at the item level (i.e., each salable item has a unique identity or serial number) and a secure chain of custody for all transactions involving that drug, starting with the pharmaceutical manufacturer.

Serialized product e-pedigrees enable the tracking and tracing of prescription drugs as they move through the supply chain to prevent counterfeit and diverted drugs from entering and remaining in the legitimate supply chain.

California recently provided the industry with additional time for full compliance, extending the implementation deadline to Jan. 1, 2011.

According to Mass High Tech, compliance with these regulations is a time-consuming and very complex process, which will require that companies comply with the new legislation more than a year prior to the implementation deadline, in order to meet the deadline at all.

The complexities of the implementation process were in fact what prompted the extension of the California deadline, according to a statement issued by Pharmaceutical Research and Manufacturers of America (“PhRMA”) Senior Vice President Ken Johnson.  Johnson wrote as follows:

Clearly, more time was needed for effective implementation of the e-pedigree law. And now there’s an extension of two years, which allows a longer period for a number of things to happen. For example, the makers of blood products — such as those that treat hemophilia — have two additional years to test the effects of radio-frequency identification (RFID) on the treatments. And they have more time to encourage the Food and Drug Administration to provide guidance on how companies should test to determine whether heat generated by the RFID system affects either the safety or effectiveness of blood products.

What’s more, researchers will have more time to address the technology compatibility problem that confronts those trying to implement the law. The fact is, the technology exists to track medicines, but we do not have one standard electronic serialization system everyone can use to monitor medications throughout the pharmaceutical supply chain. In addition, there’s now more time for state and local government agencies in California to resolve the budget crises they face. Organizations like the California Department of Corrections, state mental hospitals, California State University campus clinics and University of California hospitals must purchase many different expensive technologies to be in compliance with the law. And accomplishing that goal by January 1 would have been a daunting task.

In case you missed the passing of the California legislation, a summary of the text and background to the California legislation has been posted for review.

Congress is examining backlog issues at the United States Patent and Trademark Office ("USPTO"), according to a report by Peter Zura’s 271 patent blog.   The report indicated that Howard Berman, Chairman, Subcommittee on Courts, the Internet, and Intellectual Property recently sent a letter to USPTO Director Jon Dudas asking a number of questions relating to these issues.

Peter Zura’s 271 patent blog reported on the highlights of the letter as follows:

• According to the recent GAO report titled "Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog, " the GAO found that the USPTO cannot hire enough patent examiners to reduce patent pendency in the next five years. It seems, however, that this projection is based on estimates provided by the USPTO. . . . Please provide all data related to these "USPTO estimates, " including mathematical models, and underlying statistics and assumptions such as examiner retention and productivity. Under these same assumptions, hypothetically, how many patent examiners would have to be hired in the next five years in order to reduce the patent backlog?
• After release of the above mentioned GAO report, the USPTO issued"a press release on October 4, 2007 that stated the USPTO would"review assumptions the agency uses to establish production goals for patent examiners." Then, before the Subcommittee, Director Dudas confirmed that the USPTO has begun to study patent examiner production goals. Please provide details on the methodology of the study and personnel conducting it. What is the current progress of the study and when can Congress expect the study to be completed? To what extent is the Patent Office Professional Organization and the Patent Public Advisory Committee involved in this study. . . . .
• Examination on Request (or, as the USPTO called it, Deferred Examination) is used in many countries such as Canada and Japan. Under such a system, applications are not examined automatically, as in the U.S., but only upon a specific Request for Examination within a set time period, say 3 years. If no request is filed within that period, the application is deemed abandoned and is never examined. From experience of other patent offices, 10% to 40% of applications are never examined under Examination on Request systems, resulting in substantial workload reduction. This is due to applicants’ voluntary abandonment of obsolete applications prior to the Request for Examination deadline. Under current USPTO practice, applications that become obsolete, but receive examination by the USPTO, are the worst investment the USPTO can make because their obsolescence means that the patents are unlikely to fetch any renewal fees.
• Why did the USPTO reject such a method that has the potential to reduce its workload and increase efficiency?

There is no word yet on the USPTO’s response to this inquiry.  We will keep you posted of any developments that arise.  To review the full text of the letter, please see attached.

The Senate has unanimously passed the Genetic Information Non-Discrimination Act, which would prohibit genetic discrimination in employment and health insurance coverage decisions, reported the Associated Press.

The Associated Press reported:

The bill, described by Sen. Edward Kennedy as "the first major new civil rights bill of the new century," would bar health insurance companies from using genetic information to set premiums or determine enrollment eligibility. Similarly, employers could not use genetic information in hiring, firing or promotion decisions.

This is not the first time that the Senate has passed genetic non-discrimination legislation: bills were passed unanimously by the Senate in 2003 and 2005, but the House did not act to pass the bills at that time.  The House, however, passed a version of the bill last year. 

The Associated Press reported:

Senate action on [the] legislation has been slowed by Sen. Tom Coburn, R-Okla., who joined some business groups in warning that the bill could encourage a flood of lawsuits.

A compromise worked out earlier this week tightens language to ensure there is a "firewall" between the part dealing with health plans and the section regarding employment, so as to discourage inappropriate claims.

It also makes clear that, while individuals are protected from discrimination based on genetic predisposition, insurance companies still have the right to base coverage and pricing on the actual presence of a disease.

The California Biotech Law Blog will continue to follow this legislation as it is considered by the House.   

The SBIR/STTR Reauthorization Act, H.R. 5819, has passed in the House and is now headed to the Senate; the biotech industry will be pleased to hear that the House has given them exactly what they asked for in this bill, according to Rick Shindell of the SBIR Gateway.

The SBIR Gateway reported on the House’s action as follows:

The voting on the amendments was a virtual "lovefest" with the results known ahead of time. There was absolutely no opposition on any amendments that were allowed to be offered. BIO’s VCs got everything they wanted and more with Sam Graves’ amendment to strike Title II (Venture Capital Investment Standards). Two important amendments were withdrawn (because they stood no chance of passage) and a few simply weren’t allowed to be accepted by the rules committee. . . .

Many SBIR advocates believe this is a bad bill that will be severely leveraged by the BIO/VC community. However, some other credible sources who deal in the DoD world think I may be presenting too severe of a worst case scenario.

SBIR Gateway reports that the highlights of the new bill include as follows:

• The set aside remains at 2.5% SBIR and .3% STTR
• 3% of the 2.5% will come off the top for agency administrative funds
• Phase I Awards $300k Phase II Awards $2.2m
• Agencies have the flexibility to award more $$ and consecutive phase IIs as they see fit
• Ability to apply for a phase II award without having received a phase I award
• Shortening of the time to receive the award
• More frequent solicitations and topics (at agency discretion)
• Notification of the right of a debrief
• Establishment of an SBIR advisory board
• Ability to crossover between SBIR and STTR
• Increase in commercialization assistance funding
• New FAST program funded at $10m

In addition, SBIR Gateway reports that the bill will include the following preferences and priorities:

• Areas that have lost major source of employment
• Preference to organizations making significant contributions towards energy efficiency
• Priority to veteran companies
• Special consideration to pressing transportation and infrastructure research activities
• Special consideration for energy related research topics
• Special consideration for rare-disease-related research topics
• Priority to rural areas
• Preference in FAST awards for SBDC applicants that are accredited for technology services  

Thus, it appears that the first round in this reauthorization battle goes to the biotech community.   We will keep you posted as to how the reauthorization battle unfolds in the Senate.