California earns first royalty check after investing billions in stem cell research

SAN FRANCISCO -- California, which has poured billions of public dollars into studying stem cells over the past decade, recently received its first royalty check for the investment -- a development that will feed into a debate over whether to spend more taxpayer funds on such research in the coming years.

The City of Hope medical research center has sent more than $190,000 to the State Treasurer's Office related to research funded by the California Institute for Regenerative Medicine, or CIRM, which has been tasked with issuing $2.75 billion in grants for stem cell studies.

The check, which was received in December, is the first of what CIRM hopes will be many such payments in the coming years.

``I think this illustrates that a state agency can actually fund research in the private community and get a return on its investment,'' said John Zaia, director of City of Hope's Alpha Stem Cell Clinic, which has been backed with roughly $8 million in CIRM grants. ``It's something that's not done in general by other funding agencies such as the National Institute of Health, and this is a proof of concept that it can work.''

Critics of the stem cell institute say it's still unclear whether California will ultimately reap the rewards it was promised when voters in 2004 passed Proposition 71, which gave the state the constitutional right to conduct stem cell research and led to the creation of CIRM. At the time, the campaign predicted as much as $1.1 billion in royalties from the research -- a figure that was quickly called into question by experts.

Many have also accused CIRM of overselling the potential benefits of stem cell research, both medically and economically, to win voter approval.

``In order to prove that it was a good investment for California taxpayers, we are going to need to see returns in the tens or hundreds of millions of dollars, not in the hundreds of thousands,'' said Bernard Munos, a senior fellow at the medical think tank FasterCures and a close observer of CIRM. ``It's too early to claim victory, or to claim this was a great deal for the taxpayers of California.''

CIRM spokesman Kevin McCormack said revenue sharing was never meant to be one of the main benefits to California -- the larger goals were creating jobs, attracting scientists to the state and developing therapies.

``It is not the magnitude of the initial payment, that it's starting is the significance of this,'' said CIRM President and CEO Maria Millan.

The profit-generating patent was related to a $5.2 million grant City of Hope received in 2012 to research and develop genetically modified T cells that could be programmed to target and attack cancer cells in the brain. The research sparked two early-stage clinical trials and several inventions that were licensed by the New York biopharmaceutical company Mustang Bio.

If the clinical trials progress beyond initial safety tests, Mustang Bio will try to turn the research into a viable therapy for some brain tumors, said Christine Brown, associate director of the T cell therapy program at City of Hope and the lead scientist on the grant.

``This is an initial payment for the recognition of the potential of this therapy,'' Brown said. ``If it's ultimately approved by the FDA as a commercial product, this could be a continued revenue source'' for California.

Therapies using genetically modified T cells have recently caught the attention of biotech companies, and one was approved by the Food and Drug Administration in August.

Under the stem cell institute's complex licensing agreements, the state is entitled to a portion of profits generated from technology or inventions that come out of CIRM-backed research. Grant recipients have patented and licensed more than 100 inventions, according to data reviewed by The Chronicle, but to date only City of Hope has made enough money for the state to receive a cut.

City of Hope, located in Duarte, has been one of CIRM's biggest beneficiaries, receiving about $90.5 million to help train scientists, fund clinics and conduct lab research and human trials. The only other institutions that have received more financial backing are Stanford, the University of Southern California, and five University of California campuses.

The first royalties from CIRM-funded research come at an opportune time. The stem cell institute has burned through most of its cash, and supporters plan on asking voters for an additional $5 billion in 2020-- a cost that could double after counting interest on the bonds.

Millan said the $190,000 check is just one of many examples of CIRM's benefits to the state.

``It's a part of the entire picture of the return to California,'' Millan said. ``In terms of what it means to the health of Californians, and access to these transformative treatments, as well as the fact that we are growing an industry.''