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?

Wired.com is reporting that three DNA testing companies are pulling out of the California direct-to-consumer market, as a result of California’s recent action to send cease and desist letters to thirteen DNA genetics testing companies (See our recent  blog posting).

Alexis Madrigal for Wired.com reported yesterday that HairDx decided “on advice of legal counsel, to require California (and New York) residents to order their tests through a doctor.”  Then today, Madrigal reported that two additional genetics companies, Sciona and SeqWright, have decided to pull out of the California market.  According to Madrigal, SeqWright “ceased allowing tests from the state without even getting rapped by regulators.”

Will other DNA testing companies soon follow suit? It seems that the State of California’s actions may very well prove to have had a chiling effect over the whole DNA direct-to-consumer industry.  As Madrigal in his Wired.com column suggests, this may have very well been the intended result.

At least one company, however, may be prepared to take this fight to the next level.  Madrigal reported today that 23andMe seems to be standing its ground.  The company appears to be taking the position that it is in compliance with California law and is going to continue to sell in California at this time.  There is no word yet as to whether any other DNA testing companies are prepared to stand up to the state and challenge its regulatory actions.

It’s hard to see how these developments are good for the State of California.  One would have expected that a state as proactive as California with respect to promoting biotechnology and stem cell research would not have taken such a hard stance against direct-to-consumer DNA testing.  Will this incident ultimately prove to be the nail in the coffin for DNA testing services?  Certainly, California’s actions have the potential to initiate a wave of similar actions across the country, as other states may feel pressured to follow California’s lead.

The California Biotech Law Blog will continue to follow developments on this issue as they arise.

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.

In his blog Secondhand Smoke, J. Wesley Smith makes an interesting argument that California’s stem cell priorities have been misplaced.  Wesley points to an article in today’s San Francisco Chronicle as evidence for his argument.  The Chronicle article is a human  interest story on State Senator Carole Migden’s push for a state system to collect and store umbilical cord blood.

J. Wesley Smith writes as follows:

This story illustrates how politics has twisted the proper pursuit of regenerative medicine in California. During the last six years or so, the legislature went GA-GA over ESCR and human cloning. It passed a state law explicitly permitting human cloning research. And then, under a $35 million propaganda barrage, state voters agreed to an initiative (Proposition 71) that created a constitutional amendment to permit human cloning research and to fund SCNT and ESCR to the tune of $3 billion over ten years using borrowed money–meaning the actual cost will be about $7 billion. And all to pursue utterly unproven and ethically contentious approaches to regenerative medicine–and to supposedly “defy Bush,” even though Bush has done nothing to prevent state jurisdictions from funding whatever they want.

And yet, the legislature is only now getting around to creating an umbilical cord blood banking policy

Smith certainly makes a strong argument that California’s priorities have been misplaced.  The question for those of us in California: is he right?

Certainly, there is evidence that State taxpayers’ decision to fund stem cell research was a purely political one.  It is no secret that President Bush will not go down in the record books as the most adored President in this state.  One can absolutely make the argument that the decision to fund stem cell research was in part a reaction to the President’s repeated opposition for stem cell legislation, particularly since stem cell research is such a popular issue in this state.

Of course, a counter-argument could also be made that this State’s economy will be supported by the investment into stem cell research, since the investment will go largely toward hiring people to conduct the studies.  Many jobs will likely be created by the investment, which will trickle down to the economy at large.

However, one cannot help but wonder if the money couldn’t have been better spent elsewhere, even if you are a supporter of the biotech industry and of the concept of the research generally.  Our schools, health care, keeping drugs off the street, illegal immigration, crime, overcrowded prisons, and terrorism are just some of the many issues facing this state that could have also been better funded with the same money.  Did we as taxpayers make a good decision when we voted to use the funds instead on stem cell research?

It’s a thought-provoking question that all Californians should  consider.

California biotech companies are rallying behind proposed new state legislation, which would extend the time period that biotech companies have for claiming a tax deduction based on net operating losses.

The Mercury News reports:

The business leaders say their companies often labor for 15 years or more at a cost of hundreds of millions of dollars before they can get a drug approved for sale and generate enough revenue to climb out of the red. Yet under California law, they typically have only 10 years to claim a tax deduction based on their net operating losses.

Consequently, by the time they earn enough to pay state income taxes, many of them have lost the opportunity to claim the deduction. .  . .

That’s why [Assemblywoman Sally] Lieber has introduced a bill to double that deduction period, mirroring federal law. The measure, AB1370, which specifically gives biopharmaceutical businesses 20 years to claim their tax credits, was unanimously approved by the Assembly on June 6.

If it becomes law, it could give the biotech industry a big boost, according to Matthew Gardner, president of BayBio, an industry trade group based in South San Francisco.

While similar measures have failed twice before, supporters claim that this time is different, as there is more biotech support within assembly than existed in the past.  Three states–Florida, Illinois, and New York–already have a law on the books similar to this one being considered.

According to The Mercury News, this bills is not  the only way in which states are attempting to establish tax breaks for biotech companies:

Some[states] – including New Jersey and Hawaii – allow the firms to sell or trade their net operating loss credits to other businesses.

The article raises an interesting issue regarding tax deductions.  Is the bill a good idea for California’s taxpayers, or does it mean that we just have to bear more of the state’s tax burdens?

Supporters for California’s Stem Cell Research Program won a victory this week when a state appeals court upheld a lower court’s decision that the program does not violate laws concerning state spending, the structure of ballot initiatives, or rules regarding conflicts of interest.

The New York Times reported that Robert N. Klein, chairman of the board overseeing the stem cell program, hailed the court’s decision as “one huge step for California,” and also stated that:

Mr. Klein said the decision was so strong that he thought the California Supreme Court would decline to hear the case if the ruling were to be appealed. If the Supreme Court turned away the case, he said, the state could begin issuing bonds as soon as 120 days from now.

According to The New York Times, a lawyer representing opponents of the program indicated that they would likely appeal, but that no definitive decision had been made on the issue.