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Stem Cell Reality Check

A University of California Berkeley economics professor has done an analysis of the financial returns likely to come to California from stem cell research–and he said they will likely be a small fraction of what proponents of state-funded stem-cell research have estimated.

Dr. Richard Gilbert originally published his report–titled “Dollars for Genes: Revenue Generation by the California Institute for Regenerative Medicine”–in the Berkeley Technology Law Journal in June. It finds that the state will likely make only minimal financial returns on any stem cell research it funds via the California Institute for Regenerative Medicine (CIRM).

“The study finds that stem cell research could be good for the people of California,” Gilbert said. “But it is probably not going to make a lot of money for the people of California.”

At issue is a September 2004 analysis produced by Dr. Laurence Baker, an associate professor of the Stanford University School of Medicine, and Bruce Deal, managing partner of the Analysis Group, a consulting firm based in Menlo Park. That paper, “Economic Impact Analysis: Proposition 71 California Stem Cell Research and Cures Initiative,” estimated that the state could get between $537 million and $1.1 billion in royalty returns from it’s $3 billion stem cell investment.

These estimates, in turn, came up repeatedly in the campaign leading up to the November, 2004, election in which Prop. 71 passed with 59 percent of the vote. Deal told the Capitol Weekly in September 2005 that these numbers had been taken out of context by some supporters of Prop. 71.

So why should people be paying attention to a seven month-old critique of a 28 month-old report? Because other states are starting to propose big money for stem cell research–and at least one of the same players from Prop. 71 is involved in other states initiatives, said Jesse Reynolds, project director on biotechnology accountability with the Oakland-based Center for Genetics and Society.

For instance, Deal wrote a report used to promote a stem cell initiative in Missouri which estimated that the state could save up to $3.8 billion in healthcare costs over 20 years from stem cell research. Amendment 2 merely protects stem cell research in the state; it did not put forth any money. It passed in November with a bare 51.2 percent of the vote. Deal did not return a call seeking comment for this story.

This coming November, New York voters will decide on a $1 billion bond for stem cell research. In neighboring New Jersey, they’ll vote on $500 million. Both of these dwarf the previous number 2 state stem cell effort, Reynolds said, the $100 million over 10 years approved by the Connecticut General Assembly in June, 2005.

“What other states are looking at similar analyses to justify their results?” Reynolds asked.

It has also been widely argued that states trying to make big financial returns from stem cell investments could have a chilling effect on research, given that companies would still need to invest years of research and millions of dollars to bring actual therapies to market. On Tuesday, the Wisconsin Alumni Research Foundation bowed to widespread pressure and loosened its licensing policies for three stem cell-related patents it owns, potentially giving up on royalties worth millions.

Gilbert was careful to note that he is not accusing Baker and Deal of any dishonesty in their study. For instance, Gilbert writes in his report that they were clear with their assumptions and the fact that these numbers were estimates of money that could be made many years in the future. If anyone took these numbers as guarantees, he said, they probably did not do so via a careful reading of Baker and Deal’s report.

“As with anything, people believe what they want to believe,” Gilbert said.

However, Gilbert does bring up two main issues he has with assumptions made in the report. First, he said they take a “prospective approach” to their estimates–that is, they try to estimate the number of viable new therapies that will be created. Gilbert said that a “retrospective” approach would be more appropriate, “based on actual royalty generation by research funded by universities, hospitals and research institutions.” That approach takes note of the fact that big money makers–for instance, the cancer drug Taxol, which made $67 million for Florida State University in 2000 alone–are exceedingly rare.

Second, Gilbert takes the authors to task for not fully factoring in a concept called “the time value of money.” Not only does inflation rob money of it’s value over time, Gilbert said, but money tied up in stem cell research is also money not available to be invested elsewhere. Though Gilbert writes: “In their defense, the authors report only projected revenue flows, not the value of those revenues.”

By combining these two concepts, Gilbert estimated that a better real money value of the returns California could see would be reduced to between $31 million to $62 million.

“I don’t think this is terribly surprising to a lot of people,” Gilbert said. “Basic research is rarely a cash cow.”

Baker took the critique in stride. He noted that circumstances have changed greatly since he wrote the report, especially in terms of an improving political situation for stem cell research in Washington.

“It’s a complicated area that’s evolving all the time,” Baker said. “I don’t know if there’s a right way to do the estimates.”

CIRM spokesman Dale Carlson declined to comment on Gilbert’s study.

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