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Stem cell therapy: How to set its cost?

A panel votes today on what the lowest price really means.Sacramento Bee
Twenty years from now, when the state of California seeks embryonic stem cell therapy for its poorest residents, six words in a 38-page document will be crucial to determining how much taxpayers are charged for research they seeded.

The words seem simple, unequivocal, even generous: The state will receive "the lowest available commercial U.S. price" for Medi-Cal patients as a social payback to voters who will invest $3 billion in embryonic stem cell research over the next 10 years.

This guarantee and other guidelines on intellectual property and university licensing are set for a vote today by a state panel of 29 medical and life sciences experts.

They must balance the public's desire to be compensated for their investment with the mandate to stimulate university research and medical break-throughs. Therapies offered at a discount, along with the royalties to universities and the state general fund, would give taxpayers a quantifiable return.

Initially praised by taxpayer and consumer advocates, the offer of the lowest commercial price has lost its luster on closer look. Some wonder how the phrase will be interpreted and whether it leaves California room to bargain an even lower rate.

"I'm not comfortable that what they're calling for is the lowest price," said John Simpson, stem cell coordinator for the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

And, while many cheer promises of potential savings for the state's Medi-Cal patients, they also want to ensure discounts for the working poor who have no health insurance - almost 7 million people in California.

Even with discounts, not-yet-invented stem cell therapies will likely carry staggering price tags because of their development costs and their uniqueness. In such treatments, immature, unspecialized cells are programmed to replace body tissue attacked and crippled from chronic diseases such as lupus, diabetes and Parkinson's.

The November 2004 initiative authorizing the $3 billion in research funding was silent about discounts for the poor, which never became a campaign issue. However, the measure did promise financial benefits for the state:

"It is the intent of the people of California in enacting this measure to... protect and benefit the California budget... by funding scientific and medical research that will significantly reduce state health care costs in the future; and by providing an opportunity for the state to benefit from royalties, patents and licensing fees that
result from the research."

So, it's being left to the governing board of the California Institute of Regenerative Medicine to further define exactly what benefit the state will receive. Established as part of Proposition 71, the California Stem Cell Research and Cures Initiative, this new state institute will make the grants and provide the loans for stem cell research.

The agency's governing body, the Independent Citizens' Oversight Committee, will meet at 8:30 a.m. today at the Arrillaga Alumni Center at Stanford University in Palo Alto to discuss approving the pricing standard and other rules. Its decisions are subject to further public comment and could be revised before becoming final later this year.

The panel, composed of 29 individuals appointed by University of California chancellors, the state's top elected officials and the Legislature, must weigh the impact of any discounts.

Set them too high for the state of California, and private industry may not see a financial incentive in developing the treatments. Set them too low, though, and taxpayers may complain that all the royalty money being put in one hand is being taken from the other to deliver high-priced stem-cell therapies to the poor.

Ed Penhoet, vice chair of the institute's oversight committee and chair of the special committee that wrote the pricing policy, described the "lowest available commercial U.S. price" guarantee as a landmark compromise that has gone beyond the norm.

"Industry groups in general are always leery about intrusion into pricing discussions," said Penhoet, cofounder of the Emeryville-based biotech giant Chiron Corp. "But there is an understanding the state is putting up a fair amount of risk capital."

Because the investment is so large, taxpayer advocates say, they want the board to craft a precise definition of the terms.

In pharmaceutical circles, lowest commercial price often means the price negotiated by powerful health maintenance organizations such as Kaiser Permanente on behalf of their customers.

That's usually 20 percent to 40 percent below a drug's average wholesale price, said a 2001 study funded by the Oakland-based California HealthCare Foundation.

Penhoet said the lowest commercial price can also equal the price negotiated by the federal government for its millions of low-income Medicaid patients. That's typically 40 percent below average wholesale prices.

Like Simpson, Democratic Sen. Deborah Ortiz of Sacramento believes California can do better: "We should retain the ability to negotiate below the best commercial price."

Many health-care watchdogs from Consumers Union to Health Access California are slowly waking to the debate and growing upset that provisions made for the working poor leave too much to the discretion of companies.

Rules recommended for approval today would allow biotech companies to "be creative" regarding discounts for the uninsured. Company plans would be monitored yearly by the Institute for Regenerative Medicine.

"Do we trust drug companies will voluntarily lower the prices without some specific requirements? The answer is no," said Anthony Wright, director of Oakland-based Health Access.

Penhoet has said that some biotech companies already offer discounts and even free medications to the uninsured at better than the lowest commercial price.

Some are better than others, countered Dr. Francisco Prieto, a diabetes specialist and oversight committee member from Elk Grove. Some companies, he said during a committee debate, "require so many hoops to be jumped through so frequently that as a practical matter, they're really not providing much benefit."

A biotech-industry veteran, Penhoet said it all boils down to how much companies must invest to bring stem cell treatments to market.

"Since the therapies aren't here," he said, "there's no way to project what they're going to cost in the future. We hope they will be affordable, but that's just a hope. We hope first they'll be available."
The Bee's Jim Wasserman can be reached at (916) 321-1102 or