BEFORE THE IP TASK FORCE OF THE INDEPENDENT CITIZENS' OVERSIGHT COMMITTEE TO THE CALIFORNIA INSTITUTE FOR REGENERATIVE MEDICINE ORGANIZED PURSUANT TO THE CALIFORNIA STEM CELL RESEARCH AND CURES ACT REGULAR MEETING

LOCATION: UCSD 9500 GILMAN DRIVE EUCALYPTUS POINT LA JOLLA, CALIFORNIA

DATE: THURSDAY, APRIL 27, 2006 8:15 A.M.

REPORTER: BETH C. DRAIN, CSR CSR. NO. 7152

BRS FILE NO.: 75296 1 2 I N D E X 3 4 ITEM DESCRIPTION PAGE NO. 5 CALL TO ORDER 3 6 ROLL CALL 3 7 PRESENTATIONS: 8 JOHN SIMPSON 5 JOHN GOLLAHER 32 9 ALLAN ROBINS 50 JULIE MEIER WRIGHT 68 10 JOYDEEP GOSWAMI 82 11 TASK FORCE DISCUSSION 108 12 PUBLIC COMMENT 118 13 ADJOURNMENT 124 14 15 16 17 18 19 20 21 22 23 24 25

2 1 THURSDAY, APRIL 27, 2006 2 3 MS. KING: WE'LL CALL THE MEETING TO ORDER 4 THEN. 5 CHAIRMAN PENHOET: WE HAVE A TRANSCRIBER AT 6 WORK, SO WE CAN START THE MEETING. THIS MEETING IS 7 BEING CONDUCTED IN FIVE PLACES. WE'RE AT UC SAN DIEGO, 8 AND WE THANK OUR HOST FOR PROVIDING THIS SPACE, AT 9 NUVELO CORPORATION, IN LOS ANGELES, AND IN CHICO. 10 WE'LL DO A ROLL CALL SO WE KNOW EXACTLY WHO FROM THE 11 CIRM IS PRESENT. 12 MS. KING: SUSAN BRYANT. 13 DR. BRYANT: HERE. 14 MS. KING: MICHAEL GOLDBERG. 15 MR. GOLDBERG: HERE. 16 MS. KING: SHERRY LANSING. TED LOVE. 17 UNIDENTIFIED SPEAKER: HE STEPPED OUT. HE'LL 18 BE RIGHT BACK. 19 MS. KING: ED PENHOET. 20 CHAIRMAN PENHOET: HERE. 21 MS. KING: PILL PIZZO. JOHN REED. 22 DR. REED: HERE. 23 MS. KING: JEFF SHEEHY. OSWALD STEWARD. 24 DR. STEWARD: HERE. 25 MS. KING: JANET WRIGHT.

3 1 DR. WRIGHT: HERE. 2 CHAIRMAN PENHOET: GOOD. SO THANK YOU ALL. 3 SORRY WE'RE LATE IN GETTING STARTED, BUT WE WILL 4 PROCEED WITH TODAY'S SESSION. AS ALL OF YOU KNOW, I 5 THINK THIS IS OUR SECOND MEETING IN OUR ATTEMPTS TO 6 DEFINE AN INTELLECTUAL PROPERTY POLICY FOR GRANTS, 7 CONTRACTS, LOANS, WHATEVER FORM OF PAYMENTS WE MIGHT 8 MAKE TO INDUSTRIAL ORGANIZATIONS. 9 AND WE HAD A SORT OF VERY, I THINK, 10 PRODUCTIVE FIRST MEETING AT STANFORD NOW SIX WEEKS AGO, 11 I GUESS IT WAS. AND THIS ROUND WITH THE SECOND MEETING 12 IN SAN DIEGO. WE PLAN TO HAVE A THIRD MEETING PROBABLY 13 IN SACRAMENTO SOMETIME LATER IN THE SUMMER. SO WE'RE 14 MOVING THIS PROCESS ALONG. WE'RE VERY INDEBTED TO THE 15 PEOPLE WHO HAVE AGREED TO COME AND SHARE THEIR 16 PERSPECTIVES ON THIS ISSUE WITH US TODAY. 17 WE HAVE A GROUP OF PRESENTERS, FIVE IN TOTAL, 18 AS YOU KNOW. AND THE FIRST OF THOSE IS JOHN SIMPSON. 19 JOHN IS THE STEM CELL PROJECT DIRECTOR FOR THE 20 FOUNDATION FOR TAXPAYER AND CONSUMER RIGHTS. SO WE'LL 21 JUST GET RIGHT INTO JOHN'S PRESENTATION. JOHN, THANK 22 YOU FOR JOINING US TODAY AND FOR PUTTING YOUR 23 PRESENTATION TOGETHER. 24 A REMINDER, WE HAD TO WAIT FOR A TRANSCRIBER 25 BECAUSE ALL THESE MEETINGS ARE TRANSCRIBED, SO WE GET

4 1 ALL OF THE COMMENTS AND WE KEEP ALL OF THE POWERPOINT 2 PRESENTATIONS AS WELL. WE HAVE FIVE, SIX PEOPLE IN THE 3 AUDIENCE HERE THIS MORNING, ONE OF WHOM IS OUR NEWEST 4 ICOC MEMBER, DUANE ROTH, WHO MOST OF THE LOCAL PEOPLE 5 KNOW THANK YOU FOR JOINING US TODAY. 6 MR. SIMPSON: THANK YOU, VERY MUCH, DR. 7 PENHOET. IS THIS MICROPHONE WORKING LOUD ENOUGH SO 8 THAT EVERYONE CAN HEAR IT OKAY? I'M WIRELESSLY HOOKED 9 UP HERE. I'M NOT QUITE SURE. WHAT ABOUT THE REMOTE 10 SITES? ARE YOU ABLE TO HEAR ON THE TELEPHONES? 11 (ALL SITES RESPOND AFFIRMATIVELY.) 12 MR. SIMPSON: WELL, FIRST OF ALL, I REALLY 13 WANTED TO THANK THE CHAIRMAN AND THE FIRST DEPUTY FOR 14 GIVING ME THE OPPORTUNITY TO PRESENT OUR VIEWS. WE DID 15 ISSUE A REPORT BACK IN JANUARY WHICH WAS CALLED 16 "AFFORDABILITY, ACCESSIBILITY, AND ACCOUNTABILITY FOR 17 CALIFORNIA STEM CELL RESEARCH." THAT WAS AIMED MORE 18 TOWARDS THE NONPROFITS. WE HAVE COPIES OF THAT HERE 19 AVAILABLE TO THE BOARD MEMBERS. WHAT I ALSO THEN 20 PREPARED IS A WHITE PAPER TODAY THAT IS ALSO AVAILABLE. 21 IT'S THE BASIS FOR THIS PRESENTATION. I THINK YOU'VE 22 GOT THAT AS WELL. 23 I JUST WOULD POINT OUT IF YOU HAVE STRONG 24 AGREEMENTS OR DISAGREEMENTS OR WHATEVER WITH WHAT I 25 MIGHT SAY, MY COORDINATES ARE THERE ON THE FIRST SLIDE.

5 1 I CAN BE REACHED AT [email protected]. OUR 2 WEBSITE IS WWW.CONSUMERWATCHDOG.ORG, AND WE HAVE OUR 3 OWN SPECIAL STEM CELL PAGES AT STEMCELLWATCH.ORG. 4 DR. WRIGHT: JOHN, THIS IS JANET WRIGHT. IS 5 THE WHITE PAPER THAT YOU HAVE THERE TODAY ACCESSIBLE 6 THROUGH THE WEBSITE, OR ARE YOU GOING TO MAIL THAT OUT 7 TO THOSE OF US WHO AREN'T THERE? HOW DOES THAT WORK? 8 MR. SIMPSON: THAT WAS E-MAILED, I THINK, WAS 9 IT? IN TERMS OF THE SLIDES. I CAN SEND IT. IT WILL 10 BE AVAILABLE ON OUR WEBSITE. I HAVE SENT A COPY OF IT 11 TO CIRM. 12 DR. MAXON: I CAN DISTRIBUTE IT AGAIN. 13 DR. WRIGHT: GREAT. THANKS. 14 CHAIRMAN PENHOET: -- HERE EVERYBODY SHOULD 15 HAVE A COPY. 16 MR. SIMPSON: THE THING I FIRST WANT TO TALK 17 ABOUT WHO WE ARE. WE'RE A NONPROFIT, NONPARTISAN 18 CONSUMER WATCHDOG ORGANIZATION. WE WERE KNOWN FOR THE 19 PROPOSITION 103. OUR FOUNDER, HARVEY ROSENFIELD, WROTE 20 THAT AND REFORMED THE INSURANCE INDUSTRY. WE'VE BEEN 21 INVOLVED RECENTLY IN HEALTHCARE, INSURANCE, ACCESS, 22 FIGHTING EXCESSIVE OIL PROFITS, CAMPAIGN FINANCE 23 REFORM, THAT SORT OF THING. 24 I THINK IT'S IMPORTANT TO UNDERSTAND THAT WE 25 DID NOT HAVE A POSITION ON PROPOSITION 71 WHEN IT WAS

6 1 PASSED. WHEN IT WAS PASSED, WE FELT THAT OUR ROLE WAS 2 TO MAKE SURE THAT THE PUBLIC BENEFIT PROMISES ARE KEPT 3 AND ENACTED. SO SOME ORGANIZATIONS HAVE BEEN AGAINST 4 IT FROM THE BEGINNING. WE STEPPED INTO IT ONCE 5 ESSENTIALLY IT WAS OVERWHELMINGLY APPROVED BY THE 6 PEOPLE. 7 AND A LITTLE BIT ABOUT MYSELF. I'M A FORMER 8 NEWSPAPERMAN, A LONG TIME WITH THE GANETT COMPANY IN 9 PLACES IN UPSTATE NEW YORK, BINGHAMTON, ITHACA, GUAM, 10 AND THEN MOST OF MY CAREER AT U.S.A. TODAY WHERE I 11 ENDED UP BEING DEPUTY EDITOR, WHICH WAS A GLORIFIED WAY 12 OF SAYING I RAN THE INTERNATIONAL EDITION. I DID A 13 LITTLE BIT OF CONSULTING WITH THE IRISH TIMES, THE 14 GLEANER IN JAMAICA, TAUGHT JOURNALISM IN IRELAND, ENDED 15 UP AT A SYNDICATE COMPANY IN L.A., AND NOW I'M WORKING 16 FOR THE FOUNDATION. I SHOULD STRESS I'M NOT A LAWYER. 17 SO I DON'T KNOW WHETHER THAT HELPS MY VIEW OF IP OR 18 HINDERS IT, BUT THAT IS A DISCLAIMER. 19 AT THE LAST HEARING WE HEARD WHAT I THOUGHT 20 WAS SORT OF AN EXAMPLE OF, YOU KNOW, DO IT OUR WAY OR 21 WE'RE GOING TO TAKE THE PETRIE DISHES AND GO HOME. 22 GENENTECH, ALTHOUGH THEY'RE NOT PROBABLY GOING TO BE 23 INVOLVED IN STEM CELL RESEARCH, TALKED ABOUT THE 24 BIOTECH INDUSTRY AND SAID, LOOK, WE'RE NOT GOING TO 25 ENGAGE IF THERE ARE APPROPRIATE PUBLIC BENEFIT

7 1 REQUIREMENTS ATTACHED TO THESE GRANTS. 2 BRAD MARGUS FROM PERLEGEN SCIENCES BASICALLY 3 SAID COMPANIES AREN'T GOING TO COME TO YOU ON OUR 4 KNEES. YOU WANT TO ENCOURAGE THE BEST CLASS OF PLAYERS 5 TO PARTICIPATE, NOT JUST THE FINANCIALLY DESPERATE. 6 WELL, I THINK THERE'S SOME FACTS THAT NEED TO BE 7 EXAMINED. LAST YEAR $5.9 BILLION WENT OUT TO THE 8 BIOTECH INDUSTRY. A 120 MILLION OF THAT WAS FOR STEM 9 CELL RESEARCH. THERE WAS $30 MILLION OF FEDERAL STEM 10 CELL MONEY. AND WHAT THAT REALLY MEANS IS, I THINK, 11 THAT WHEN CIRM STARTS PUTTING OUT $300 MILLION A YEAR, 12 YOU'RE GOING TO BE THE BIGGEST FUNDER OF STEM CELL 13 RESEARCH IN THE WORLD PROBABLY. SO TO ME THAT MEANS, 14 YES, THE BIOTECH INDUSTRY REALLY IS KEENLY INTERESTED 15 IN THIS PUBLIC MONEY AND WANTS IT. 16 THE OTHER THING I THINK I JUST WANT TO ADD 17 ABOUT THE WHOLE VENTURE CAPITAL PICTURE, WHICH IS 18 IMPORTANT, IS THAT LOOMING OVER THE WHOLE INDUSTRY AND 19 CAUSING A GREAT AMOUNT OF UNCERTAINTY ON THE PART OF 20 VENTURE CAPITALISTS IN STEM CELLS ARE THE PATENTS ON 21 HUMAN EMBRYONIC STEM CELLS ON ALL OF THEM IN THE UNITED 22 STATES, THE PATENTS ONLY RECOGNIZED IN THE UNITED 23 STATES THAT ARE HELD BY THE WISCONSIN AREA 24 ALUMNI -- I'M SORRY -- WISCONSIN ALUMNI RESEARCH 25 FOUNDATION. THE WARF PATENTS REALLY ARE OUTRAGEOUS. I

8 1 MEAN THEY MEAN, FOR INSTANCE, THAT IF THE STEM CELL 2 RESEARCHER, LIKE JEANNE LORING, WHO'S IN THE AUDIENCE, 3 COMES UP WITH 20 NEW STEM CELL LINES, SHE CAN'T PROVIDE 4 THEM TO ANYBODY ELSE UNLESS WARF SAYS SO. AT LEAST 5 THAT'S LITERALLY WHAT IT MEANS. 6 PROPOSITION 71, THE PROMISES OF THAT. WELL, 7 WE ALL KNOW ABOUT THE PROMISES OF CURES AND HOPE AND 8 THAT, BUT THE OTHER THING WE'VE GOT TO REMEMBER WAS 9 THAT IN THE PROPOSITION ITSELF WERE SPECIFIC PROVISIONS 10 TO BENEFIT THE PEOPLE. I QUOTE HERE FROM SECTION III 11 OF THE PURPOSE AND INTENT OF PROP 71. ONE OF THEM WAS 12 TO PROTECT THE BENEFIT TO THE CALIFORNIA BUDGET BY 13 PROVIDING AN OPPORTUNITY FOR THE STATE TO BENEFIT FROM 14 ROYALTIES, PATENTS, AND LICENSING FEES THAT RESULT FROM 15 RESEARCH. 16 THE VOTE OVERWHELMINGLY PROVED THE CONCEPT OF 17 PROP 71. FIFTY-NINE PERCENT OF THE PEOPLE VOTED FOR 18 IT. THEY DID IT, THOUGH, WITH THE DIRECT UNDERSTANDING 19 AND BELIEF BOTH IN THAT SPECIFIC LANGUAGE AND IN THE 20 LANGUAGE OF VARIOUS ANALYSES THAT THE SUPPORTERS OF THE 21 PROPOSITION USED AT THE TIME THAT ESTIMATED THAT AN 22 AMOUNT FROM 6.4 BILLION TO 12.6 BILLION WOULD CAN BACK 23 TO THE STATE. SO WHAT I THINK IS THAT IT WAS AN 24 OVERWHELMING SUPPORT FOR PROP 71, BUT NOT A BLANK CHECK 25 FOR BIOTECH.

9 1 THE OTHER THING I THINK THAT'S KEY IN ALL OF 2 THIS IS THAT THE WAY THAT YOU CAN MAKE SURE THAT THE 3 PUBLIC BENEFIT IS MET IS THROUGH IP POLICY. IP POLICY 4 IS THE MECHANISM TO ASSURE THE PROMISES ARE KEPT. 5 NOW, YOU CAN TALK ABOUT PATENTS AND 6 COMMISSIONS AND ROYALTIES, AND YOUR EYES WILL GLAZE 7 OVER WHEN YOU START THINKING ABOUT HOW TO APPROACH IT 8 IN THAT DIRECTION. I LIKE TO USE SOME SIMPLE BUSINESS 9 MODELS, SOME SIMPLE SCENARIOS TO KIND OF UNDERSTAND 10 WHAT I THINK ARE AT STAKE. AND TO ME THERE'S ONLY FOUR 11 WAYS THAT CIRM MONEY CAN GO TO A BUSINESS. AND I CALL 12 SCENARIO 1 LIKE BUILDING A HOUSE. BASICALLY YOU PAY A 13 COMPANY TO BUILD A HOUSE. WHEN IT'S FINISHED, YOU OWN 14 THE HOUSE. YOU MIGHT LIVE IN IT OR SELL IT, AND THE 15 COMPANY THAT RECEIVED YOUR MONEY MADE A PROFIT AND HAS 16 AN INCENTIVE TO BUILD MORE HOUSES. I THINK IN THE SAME 17 WAY IF YOU GIVE A GRANT TO A BIOTECH COMPANY TO DO 18 RESEARCH AND THE TAXPAYERS HAVE PUT UP THE MONEY, ANY 19 DISCOVERIES THAT COME OUT OF THAT GRANT THAT LEAD TO 20 SOMETHING THAT'S PATENTABLE, TAXPAYERS SHOULD OWN THAT 21 PATENT. 22 WE WOULD URGE THAT THAT PATENT GO INTO A 23 PATENT POOL TO MAXIMIZE ACCESS TO IT FOR THE MAXIMUM 24 NUMBER OF PEOPLE. WE WOULD ALSO SAY THAT IF THERE WERE 25 CASES WHERE FOR COMMERCIALIZATION OF THE PRODUCT THAT

10 1 WERE NECESSARY TO HAVE AN EXCLUSIVE LICENSE, THE STATE 2 WOULD LICENSE IT BACK EXCLUSIVELY TO THAT GRANTEE 3 ORGANIZATION IF IT WERE ABSOLUTELY NECESSARY TO 4 COMMERCIALIZE. 5 THE SECOND SCENARIO IS WHAT I CALL THE 6 PARTNERSHIP MODEL. I KIND OF LIKE THIS NOTION OF A 7 HOUSE, BUT HERE SUPPOSE SOMEBODY HAS GOT LAND AND THEY 8 COME TO YOU AND SAY GIVE US SOME MONEY. WE'LL BUILD A 9 HOUSE ON THAT LAND. YOU PUT UP THE MONEY, WHEN THE 10 HOUSE IS SOLD, YOU GET A RETURN ON YOUR INVESTMENT. IN 11 THE WORLD OF PROPOSITION 71 AND BIOTECH, THIS WOULD BE 12 ANALOGOUS TO A SITUATION WHERE A COMPANY ALREADY HAS A 13 LICENSE OR A PATENT, AND THEY WANT THE MONEY TO FURTHER 14 DEVELOP IT AND BRING WHATEVER THE PRODUCT IS USING THE 15 EXISTING PATENT THAT THEY OWN OR CONTROL, BRINGING THAT 16 TO MARKET. 17 SO IN THIS CASE I WOULD ARGUE THAT THE 18 TAXPAYER SHOULD DESERVE SOME SORT OF RETURN ON THAT 19 INVESTMENT THAT THEY'VE PUT IN. AND THAT WOULD BE SOME 20 KIND OF A COMMISSION. 21 SCENARIO 3 IS MY BANK LOAN MODEL. COMPANY 22 COMES AND SAYS WE'D LIKE TO BORROW X MILLIONS OF 23 DOLLARS TO DO Y PROJECT. EVERYONE SITS DOWN AND AGREES 24 THAT, OKAY, YOU GET IT AT THIS INTEREST RATE, YOU PAY 25 IT BACK OVER THIS PERIOD OF TIME. I WOULD ASSERT THAT

11 1 IN THAT SITUATION YOU PROBABLY WOULD NOT HAVE A CLAIM 2 THAT THE STATE COULD PUT ON THE INTELLECTUAL PROPERTY; 3 BUT JUST LIKE WHEN A BANK MAKES A MORTGAGE, THE 4 MORTGAGEE OFTEN HAS REQUIREMENTS PLACED ON THEM THAT 5 THEY HAVE TO ENSURE THE PROPERTY OR THINGS LIKE THAT. 6 I THINK THAT IT'S PERFECTLY APPROPRIATE IF YOU ARE 7 GOING TO GET A LOAN FROM CIRM, THAT THERE BE PUBLIC 8 BENEFIT REQUIREMENTS ATTACHED TO THE LOAN. 9 FINALLY, SCENARIO NO. 4 IS CONTRACT SERVICE. 10 I COMPARE THAT TO THE SAME SORT OF THING AS HIRING 11 SOMEBODY TO COME IN AND CLEAN YOUR HOUSE. FOR PROP 71 12 MONEY, IT COULD BE SOMETHING WHERE CIRM WOULD CONTRACT 13 TO PROVIDE A PARTICULAR SERVICE, MAYBE MAINTAIN A STEM 14 CELL BANK, MAYBE PROVIDING SOME SORT OF WIDELY 15 NECESSARY RESEARCH TOOL THAT THE RESEARCHERS DON'T 16 REALLY WANT TO MAKE, BUT IS NECESSARY FOR THE WORK. 17 CIRM COULD CONTRACT TO DO THAT. 18 AGAIN, I DON'T SEE THAT THERE WOULD BE 19 INTELLECTUAL PROPERTY CREATED THAT THE STATE WOULD 20 NECESSARILY HAVE A ROLE IN, BUT I DO THINK THAT, JUST 21 AS IF I GO HIRE A CONTRACTOR, IT'S SUGGESTED TO ME THAT 22 I GET THREE BIDS AND GET THE BEST PERSON IN TO DO THE 23 JOB, I THINK IT WOULD BE APPROPRIATE FOR CIRM TO HAVE 24 PUBLIC BENEFIT REQUIREMENTS ATTACHED TO WHATEVER 25 CONTRACT WAS AWARDED.

12 1 SO THOSE ARE SOME BROAD KINDS OF THEORIES. 2 WE BELIEVE THAT THE IP POLICY NEEDS TO BE GROUNDED IN 3 THREE PRINCIPLES. WE SAY AFFORDABILITY, ACCESSIBILITY, 4 ACCOUNTABILITY. WE MADE THAT POINT IN OUR ORIGINAL 5 PAPER THAT WE PUT OUT. AND WHAT THAT BASICALLY MEANS 6 VERY QUICKLY IS THE TREATMENTS HAVE TO BE PRICED SO 7 THEY CAN BE SOLD -- SO THAT ALL CALIFORNIANS CAN AFFORD 8 AND BENEFIT THEM. ACCESSIBILITY MEANS NOT JUST FOR 9 POTENTIAL PATIENTS THAT CAN USE THE THERAPIES. IT ALSO 10 MEANS THAT RESEARCHERS NEED TO HAVE ACCESS TO EACH 11 OTHER'S RESEARCH, WHICH I THINK IS ONE OF THE MAJOR 12 IMPORTANT POSITIONS OF THE IP POLICY FOR NONPROFITS. 13 AND FINALLY, ACCOUNTABILITY. POLICIES ARE NO GOOD 14 UNLESS THERE'S A MECHANISM TO ENSURE ENFORCEMENT, AND 15 WE THINK THAT NEEDS TO BE ATTORNEY GENERAL. 16 SO WITH THAT SORT OF BROAD FRAMEWORK, I'VE 17 GOT SOME SPECIFIC SORT OF BULLET POINTS OF THINGS THAT 18 WE WOULD LIKE TO SEE INCORPORATED IN WHATEVER IP POLICY 19 FINALLY COMES OUT, AND IT'S IN GREATER DETAIL IN THE 20 WHITE PAPER, BUT JUST TO HIT THE HIGHLIGHTS VERY 21 QUICKLY, AND WE THINK THIS ONE IS CRITICAL. THIS IS 22 NOT NOW IN THE NONPROFIT ONES. WE THINK IT NEEDS TO BE 23 ADDED. WE THINK THAT THAT'S THE PRINCIPLE THAT ANY 24 THERAPIES OR DIAGNOSTICS THAT ARE DEVELOPED WITH 25 PROPOSITION 71 MONEY HAVE TO BE MADE AVAILABLE AT A

13 1 REASONABLE PRICE. WE THINK A REASONABLE PRICE IS ONE 2 THAT REFLECTS THE TRUE COST OF DEVELOPMENT OF THE DRUG 3 OR THERAPY AND ALSO THE PUBLIC'S INVESTMENT. 4 WE THINK THAT IN THE SITUATIONS WHERE PERHAPS 5 A COMPANY IS GETTING LICENSING REVENUE, ROYALTY REVENUE 6 IN FOR SOMETHING THAT IT'S DEVELOPED WITH PROP 71 7 MONEY, WE THINK THAT, LIKE WITH THE NONPROFITS, THERE 8 SHOULD BE A DIRECT PAYBACK TO THE STATE, AND WE THINK 9 25 PERCENT OF THE ROYALTIES WOULD BE APPROPRIATE. 10 NEXT SLIDE. WE WOULD BE THINKING ABOUT 11 SITUATIONS WHERE THERE WOULD BE A COMMISSION OR A 12 LICENSE FEE COMING BACK TO THE STATE. WE THINK A 13 ROYALTY RATE WHEN A ROYALTY COMES INTO PLAY OUGHT TO BE 14 THE SAME SORT OF ROYALTY RATE THAT WOULD APPLY TO 15 SIMILAR SITUATIONS IF THE UNIVERSITY OF CALIFORNIA HAD 16 DONE IT. 17 OTHER POINTS THERE, WE ALWAYS THINK IT'S 18 IMPORTANT TO HAVE THE BUSINESSES EXPLAIN HOW WHAT 19 THEY'RE GOING TO DO IS GOING TO BENEFIT ALL OF 20 CALIFORNIANS. AND AGAIN, SAME AS THE NONPROFITS, WE 21 THINK THERE NEEDS TO BE THE PROVISION THAT ANY 22 DIAGNOSTICS OR CURES WOULD BE SOLD AT THE LOWEST PRICE 23 TO PUBLICLY FUNDED HEALTHPLANS. THAT OFTEN IS THE 24 MEDICAID PRICE, BUT I THINK SPECIFICALLY THE LOWEST IS 25 A BETTER WAY TO FRAME IT.

14 1 AND THE NOTION OF ACCESSIBILITY, WE REALLY 2 BELIEVE THAT THERE SHOULD BE A PATENT POOL, THAT THIS 3 WOULD MAXIMIZE ACCESSIBILITY FOR EVERYBODY. IT'S TRUE 4 THAT, YOU KNOW, IT TOOK A WORLD WAR I TO FORCE THE 5 PATENT POOL THAT MADE AIRPLANES FLY AND REALLY COULDN'T 6 HAVE DEVELOPED AIRPLANES WITHOUT GETTING ALL THE 7 PATENTS TOGETHER IN ONE PLACE. AND I GUESS IT WAS 8 FRANKLIN ROOSEVELT THAT WAS GIVEN THE CHARGE TO 9 ESSENTIALLY ORDER A PATENT POOL, AND THAT'S WHAT LED TO 10 FIGHTER PLANES BEING BUILT FOR WORLD WAR I. 11 IN SOME WAYS I THINK WE'RE IN A SIMILAR 12 SITUATION WITH STEM CELL RESEARCH, AND SOMEBODY HAS GOT 13 TO STEP UP TO THE PLATE AND SAY THERE ARE TOO MANY 14 PATENTS. THEY NEED TO GET POOLED, SO WE CAN GO AHEAD 15 ON THIS. 16 OTHER POINTS THERE ARE SOME OF THE SIMILAR 17 ONES THAT WE'VE HAD IN THE NONPROFIT RULES. AND YOU 18 CAN ALL READ THEM. WELL, I THINK THE NOTION THAT A 19 BUSINESS WOULD HAVE TO PROVIDE A PLAN FOR ACCESS TO 20 UNINSURED PATIENTS IS IMPORTANT. AND AGAIN, I CAN 21 FORESEE A SITUATION WHERE EXCLUSIVITY SOMETIMES WORKS 22 AGAINST DISSEMINATION, AND CIRM OUGHT TO BE ABLE TO BAR 23 AN EXCLUSIVE LICENSE IN THAT SORT OF SITUATION. 24 THE SAME RULES IN THE NEXT SLIDE AS ARE IN 25 THE FOUR -- EXCUSE ME -- THE NONPROFIT RULES. I THINK

15 1 THE ACCESS TO RESEARCH FOR RESEARCH PURPOSE IS 2 CRITICAL. THAT NEEDS TO BE MAINTAINED. AND THIS LAST 3 ITEM UNDER ACCESSIBILITY, I THINK THAT IN THOSE 4 CIRCUMSTANCES WHERE AN EXCLUSIVE LICENSE IS GRANTED, 5 IT'S NECESSARY TO GRANT IT ON A DISEASE-SPECIFIC BASIS. 6 THIS PRECLUDES ONE COMPANY FROM ESSENTIALLY GETTING A 7 LICENSE FOR A DRUG AND THEN ONLY GOING DOWN ONE ROUTE, 8 BUT BLOCKING EVERYONE ELSE FROM DOING IT. 9 SO I THINK THAT IF YOU WANT TO LICENSE 10 SOMETHING EXCLUSIVELY, IT SHOULD BE, OKAY, YOU'VE GOT 11 THIS PARTICULAR THERAPY. WE'RE LICENSING IT 12 EXCLUSIVELY FOR YOU TO DO SOMETHING WITH DIABETES. AND 13 THEN ANOTHER EXCLUSIVE LICENSE, IF NECESSARY, TO GO 14 INTO A DIFFERENT DISEASE. I THINK THAT WOULD KEEP 15 PROGRESS GOING AHEAD FASTER. 16 AS I SAID BEFORE, ALL THE GREAT RULES IN THE 17 WORLD REALLY ARE ONLY SO MUCH WORDS AND PAPER UNLESS 18 THERE IS A MEANS OF ENFORCING ACCOUNTABILITY. WE 19 BELIEVE THAT THE ATTORNEY GENERAL EXPLICITLY NEEDS TO 20 HAVE INVOLVEMENT IN SOME OF THIS. IT IS TRUE THAT 21 THROUGH THE OFFICE OF ADMINISTRATIVE LAW THAT 22 ULTIMATELY YOUR REGULATIONS ARE LAWS, BUT I THINK IN 23 SOME AREAS THERE NEEDS TO BE MORE EXPLICIT INVOLVEMENT 24 OF THE ATTORNEY GENERAL AS THE ENFORCER, AND I THINK 25 THAT COMES SPECIFICALLY ALONG THE NOTION OF

16 1 UNREASONABLE PRICING. 2 AND I THINK THERE THAT IF DRUGS, CURES, 3 THERAPIES ARE FOUND TO BE PRICED UNREASONABLY, THEN THE 4 ATTORNEY GENERAL NEEDS TO HAVE SO-CALLED MARCH-IN 5 RIGHTS, THE RIGHTS TO INTERVENE. AND AGAIN, TO 6 REITERATE, REASONABLE PRICING IS PRICING THAT TAKES 7 INTO ACCOUNT THE ACTUAL DEVELOPMENT COST OF THE DRUG 8 AND THE PUBLIC'S INVESTMENT IN IT. AG NEEDS MARCH-IN 9 RIGHTS IF OTHER PUBLIC BENEFIT REQUIREMENTS AREN'T MET. 10 SHOULD BE MARCH-IN RIGHTS FOR CIRM IF BUSINESS FAILS TO 11 DEVELOP SOMETHING THAT THEY'VE HAD A LICENSE FOR. THE 12 NEXT SLIDE. MARCH-IN RIGHTS FOR PUBLIC HEALTH AND 13 SAFETY REASONS. 14 AND THEN FINALLY, WE WOULD HOPE THAT THERE'S 15 GOING TO BE A NUMBER OF START-UP COMPANIES THAT COME 16 OUT OF THIS WHOLE PROCESS, BUT WE THINK THAT BECAUSE 17 IT'S PUBLIC MONEY THAT'S GOING INTO SOME OF THESE KINDS 18 OF THINGS, THERE DOES NEED TO BE COMPLETE TRANSPARENCY. 19 AND, THEREFORE, INVESTORS AND MAJOR SHAREHOLDERS WHO 20 ARE INVOLVED IN START-UP COMPANIES THAT COME ABOUT 21 THROUGH PROPOSITION 71-FUNDED RESEARCH NEED TO FILE 22 DISCLOSURE FORMS THAT WOULD BECOME PUBLIC RECORDS. 23 SO IN CONCLUSION, THE SUMMARY, THE HIGH 24 POINTS OF WHAT WE THINK ARE IMPORTANT IS, ONE, IP 25 POLICY IS THE MEANS TO ASSURE THAT THE PROMISES OF

17 1 PUBLIC BENEFIT THAT WERE INCORPORATED IN PROPOSITION 71 2 ARE KEPT. NO. 2, THAT IF A PATENT COMES ABOUT 3 BECAUSE -- DIRECTLY BECAUSE OF PROP 71 MONEY, THEN THE 4 STATE SHOULD HAVE THAT PATENT. WE THINK THAT 5 ABSOLUTELY ESSENTIAL IN BOTH THE NONPROFIT RULES, AND 6 WE'LL BE ADDING THOSE COMMENTS IN THE APPROPRIATE 7 PUBLIC COMMENT TIME, AND IN THE FOR-PROFIT RULES IS 8 REQUIREMENT FOR REASONABLE PRICING. 9 NOW, WE DON'T SAY THAT COMPANIES SHOULDN'T 10 MAKE A PROFIT. WE DON'T THINK THAT. WE THINK THAT THE 11 PROFIT NEEDS TO BE REASONABLE. I MENTION THE NONPROFIT 12 IP RULES NEED IMPROVEMENT, AND WE'LL BE CONTINUING TO 13 WORK THROUGH ALL OF THE PROCESSES THAT HAVE BEEN MADE 14 AVAILABLE TO US TO TRY AND BRING ABOUT THAT 15 IMPROVEMENT, BUT THEY ARE A MINIMUM STARTING POINT. 16 AND THERE'S SOME IMPORTANT PRINCIPLES THAT ARE IN THOSE 17 THAT NEED TO BE CARRIED OVER FOR SURE INTO THE 18 FOR-PROFIT RULES. 19 FINALLY, YOU KNOW, THE VENTURE CAPITALISTS 20 WHO HAVE BEEN TALKING ABOUT CIRM MONEY AS, QUOTE, FREE 21 MONEY OR ALMOST LIKE FREE MONEY AND INDEED THEY HAVE -- 22 I'VE BEEN AT CONFERENCES WHERE I'VE HEARD IT CALLED 23 THAT -- NEED TO UNDERSTAND, AND I THINK THAT MANY 24 RESPONSIBLE COMPANIES DO UNDERSTAND THIS, IS THAT WITH 25 PUBLIC MONEY COMES THE REQUIREMENT OF MEETING SOME

18 1 FAIR, EQUITABLE PUBLIC BENEFIT REQUIREMENTS. 2 THANK YOU VERY MUCH. ANY QUESTIONS, I'D BE 3 GLAD TO ANSWER THEM. AND I GUESS IF WE HAVE ONE MORE 4 SLIDE, IF YOU WANT TO SEND YOUR SLINGS AND ARROWS, 5 THERE'S A PLACE THERE AGAIN WHERE YOU CAN REACH ME ANY 6 TIME. 7 CHAIRMAN PENHOET: THANK YOU, JOHN. SO FIRST 8 OF ALL, ANY QUESTIONS FROM THE TASK FORCE HERE IN SAN 9 DIEGO? FRANCISCO. 10 DR. PRIETO: YES. FRANCISCO PRIETO. ONE 11 COULD SAY ABOUT THE 120 MILLION FOR STEM CELL RESEARCH, 12 IS THAT IN THE U.S. OR IS THAT WORLDWIDE? 13 MR. SIMPSON: MY UNDERSTANDING WAS THAT WAS 14 IN THE U.S. THAT WAS VENTURE CAPITAL INVESTMENT IN THE 15 UNITED STATES. I WOULD HAVE TO DOUBLE-CHECK THAT, BUT 16 MY RECOLLECTION OF THE FIGURE IS THAT THAT WAS IN THE 17 UNITED STATES. 18 DR. PRIETO: I THINK ONE OF THE QUESTIONS FOR 19 A LOT OF US IS, YOU KNOW, WHETHER, INDEED, WE WILL BE 20 THE WORLD'S BIGGEST, OR ARE WE REALLY FAR BEHIND THE UK 21 AND SINGAPORE AND ISRAEL. AND I DON'T KNOW WHAT THE 22 DOLLAR ARE IN THOSE PLACES AND WHAT THE FUNDING SOURCES 23 ARE, BUT I'D BE VERY INTERESTED TO LEARN. 24 CHAIRMAN PENHOET: WE'LL DO SOME HOMEWORK AND 25 CAN GET BACK TO YOU ON IT. JOHN.

19 1 DR. REED: JOHN REED. YEAH, I ALSO HAVE SOME 2 QUESTIONS ABOUT THOSE NUMBERS. THERE WAS A 5.9 BILLION 3 MENTIONED, AND I UNDERSTAND THAT, BUT WE CAN DECLARE 4 LATER. 5 I WAS CURIOUS ABOUT THE GROUP'S CALCULATION 6 OF THE 25-PERCENT ROYALTY. CAN YOU EXPLAIN HOW YOU 7 TARGETED THAT AMOUNT, WHAT WAS YOUR THINKING THERE? 8 YOU'RE SUGGESTING A 25-PERCENT ROYALTY ON ANY PRODUCTS. 9 CHAIRMAN PENHOET: I THINK THAT'S NOT -- WHAT 10 THE NONPROFIT POLICY SAYS IS 25 PERCENT OF THE ROYALTY, 11 NOT A 25-PERCENT ROYALTY. AND THERE'S BEEN SOME 12 MISUNDERSTANDING ABOUT THAT. 13 MR. SIMPSON: IN OTHER WORDS, WHAT WE WERE 14 SAYING IS IF THERE IS A REVENUE STREAM. AND I CAN 15 ENVISION -- EVEN IF THE STATE HELD SOME PATENTS, I CAN 16 ENVISION A SITUATION WHERE THERE WOULD BE ROYALTIES 17 COMING BACK BECAUSE THERE MIGHT BE A CASE WHERE OTHER 18 PATENTS WERE INVOLVED OR WHATEVER. SO THE COMPANY IS 19 GETTING ROYALTIES. AND IF PROPOSITION 71 MONEY HAS 20 GONE INTO THAT ROYALTY, THEN WE THINK IT SHOULD BE 25 21 PERCENT OF THE ROYALTY. AND THAT'S COMPATIBLE WITH 22 WHAT WAS DONE WITH THE NONPROFITS. 23 THE SAME SITUATION THERE, ALTHOUGH THE 24 TROUBLESOME THING WITH THE NONPROFITS IS IF THE ROYALTY 25 KICKS IN ONLY AFTER A $500,000 THRESHOLD, WHICH SHOULD

20 1 BE LOWER BECAUSE IT'S NOT GROSS, IT'S NET, AND WE THINK 2 IT NEEDS TO BE A LOWER THRESHOLD BEFORE. BUT IT'S THE 3 SAME MODEL. 4 AND IF YOU'RE TALKING ABOUT ROYALTY RATES OR 5 COMMISSION RATES IN THE SENSE OF WHAT THEY WOULD BE, 6 THAT'S WHERE I COMPARE IT TO THE UNIVERSITY OF 7 CALIFORNIA WHERE USUALLY YOU NEGOTIATE RATES MAYBE 2 TO 8 6 PERCENT OF THE GROSS. SO THE 25 PERCENT WOULD BE OF 9 A -- OF THAT KIND OF THING. 10 DR. REED: THANK YOU FOR CLARIFYING. 11 MS. KING: THIS IS MELISSA AT UC SAN DIEGO. 12 I JUST WANTED TO LET EVERYBODY KNOW ON THE PHONE AND 13 HERE AS WELL IF EVEN BOARD MEMBERS COULD, BEFORE 14 SPEAKING, ADDRESS YOURSELF BY YOUR OWN NAME, STATE WHO 15 YOUR FOR THE BENEFIT OF THE TRANSCRIBER, WHO'S ON THE 16 PHONE, THAT WOULD BE GREAT. SAME WITH MEMBERS OF 17 PUBLIC. YOU DON'T HAVE TO IDENTIFY YOURSELVES, BUT IF 18 YOU WOULD, THAT'S VERY HELPFUL TO US. THANK YOU. 19 DR. PRIETO: FRANCISCO PRIETO AGAIN IN SAN 20 DIEGO. TWO QUESTIONS AND ONE IS SORT OF A COMMENT. 21 REGARDING PATENT POOLS, I DON'T KNOW VERY MUCH ABOUT 22 THAT AND WOULD LIKE TO LEARN MORE AND WHAT MODELS THERE 23 ARE FOR PATENT POOLS AND WHO MANAGES THEM AND WHAT 24 COSTS ARE ASSOCIATED WITH MANAGING THAT. 25 AND THE OTHER IS A COMMENT REGARDING THE

21 1 POINT YOU MADE ABOUT DISEASE-SPECIFIC LICENSES. ONE OF 2 THE PROBLEMS I HAVE WITH THAT JUST CONCEPTUALLY IS THAT 3 I CAN IMAGINE A TREATMENT OR A THERAPY THAT CAME OUT OF 4 THIS RESEARCH FOR DEMYELINATING DISEASES SUCH AS 5 MULTIPLE SCLEROSIS, BUT THE INFORMATION GLEANED FROM 6 THAT COULD HAVE VERY DIRECT APPLICATIONS TO PARKINSON'S 7 DISEASE, TO DIABETIC NEUROPATHY, TO SPINAL CORD INJURY. 8 SO WHAT IS THE DISEASE? YOU KNOW, YOU HAVE RESEARCH 9 LEADING IN PERHAPS SEVERAL DIFFERENT AREAS, AND I DON'T 10 KNOW THAT YOU COULD LIMIT THAT. 11 MR. SIMPSON: PATENT POOLS FIRST. THEY'VE 12 BEEN SUCCESSFUL IN A NUMBER OF INDUSTRIAL SORTS OF 13 SITUATIONS. I ALLUDED TO THE AIRCRAFT INDUSTRY. AND 14 WHEN THE AIRCRAFT INDUSTRY GOT STARTED, THE WRIGHTS HAD 15 PATENTS, THE CURTISES HAD PATENTS, AND THEY ESSENTIALLY 16 BLOCKED EACH OTHER FROM DEVELOPING SUCCESSFULLY 17 COMMERCIALLY VIABLE AIRPLANES, AS I UNDERSTAND IT. AND 18 THEY WERE REQUIRED TO POOL THEM. THEY PUT THEM IN A 19 POOL. THEN EVERYBODY GOT A ROYALTY BACK THAT WAS 20 PRORATED. 21 I BELIEVE THEY HAVE BEEN VERY SUCCESSFUL IN 22 THE SEWING MACHINE BUSINESS AT ONE POINT OR ANOTHER. 23 AND AS I UNDERSTAND IT, THERE ARE A NUMBER OF POOLS NOW 24 THAT WORK IN ELECTRONICS. AND THE NOTION ESSENTIALLY 25 IS THAT IF YOU HAVE A LOT OF PATENTS THAT ARE REQUIRED

22 1 TO DEVELOP SOMETHING, IF A COMPANY WANTS TO DO IT, THEY 2 HAVE TO GO OUT AND NEGOTIATE WITH 50 DIFFERENT PATENT 3 HOLDERS, AND THAT BECOMES TIME-CONSUMING AND A 4 DISINCENTIVE. AND BY HAVING A POOL, PARTICULARLY IF 5 YOU'RE IN A SITUATION WHERE A LOT OF THE PATENTS ARE IN 6 UPSTREAM RESEARCH, IT GIVES YOU A PLACE WHERE ONE SORT 7 OF ONE-STOP SHOPPING. YOU GO IN, YOU GET EVERYTHING 8 YOU NEED, THERE'S A ROYALTY RATE THAT IS FAIR TO 9 EVERYBODY, AND IT HOLDS THE PATENT, EVERYBODY GETS SOME 10 OF THE REVENUE BACK, AND GENERALLY THE POOL IS GOVERNED 11 BY SOME REPRESENTATION OF THE PEOPLE WHOSE PATENTS ARE 12 IN IT. 13 ALSO, I THINK IF YOU HAD A STRONG ENOUGH POOL 14 WITH ENOUGH IMPORTANT PATENTS IN IT, IT WOULD GIVE YOU 15 IN THE WORST-CASE SCENARIO, IF THE OVERREACHING, 16 OUTRAGEOUS PATENTS THAT WARF HOLDS ON HUMAN EMBRYONIC 17 STEM CELLS AREN'T BROKEN BY SOMEBODY, AND THEY DO NEED 18 TO BE BROKEN AND THEY DO NEED TO BE CHALLENGED, BUT IF 19 FOR SOME REASON THEY'RE NOT, A PATENT POOL THEN GIVES 20 YOU SOMETHING THAT'S IN LEVERAGE TO BE ABLE TO PERHAPS 21 WORK AND NEGOTIATE WITH THEM, WHICH IS ANOTHER REASON 22 THAT IT WORKS. 23 THERE IS A LEGISLATIVE BILL RIGHT NOW, I 24 THINK, THAT MAY SET UP AN OFFICE OF STATE INTELLECTUAL 25 PROPERTY, WHICH I BELIEVE CIRM IS SPECIFICALLY EXCLUDED

23 1 FROM AT THE MOMENT, BUT I MEAN CONCEIVABLY AN OFFICE 2 LIKE THAT COULD MANAGE THE POOL. I'M NOT SURE THAT 3 CIRM HAS THE RESOURCES. THE THING TO ME WITH THE 4 PATENT POOLS IS THAT EVERYONE I'VE TALKED IN THE FIELD 5 SAYS THAT IT'S TREMENDOUSLY INTERESTING AND VALUABLE, 6 BUT WE'RE NOT THERE YET. AND I GUESS MY POINT IS IF WE 7 DON'T STEP UP AND SAY WE'VE GOT TO GET THESE THINGS 8 INTO A POOL SO EVERYONE CAN USE THEM, WE'RE GOING TO 9 HAVE, AS WE DO NOW, 1400 PATENTS AND PATENT THICKETS 10 THAT ARE REALLY GETTING IN THE WAY OF DEVELOPMENT IN 11 RESEARCH. 12 AND THE SECOND QUESTION HAD TO DO -- I'M 13 SORRY. 14 DR. PRIETO: REGARDING DISEASE SPECIFIC. 15 MR. SIMPSON: RIGHT. THERE MAY BE SEVERAL 16 DIFFERENT WAYS OF GETTING AROUND WHAT I'M CONCERNED 17 ABOUT, BUT WHAT I'M CONCERNED WITH IS SOMEONE GETTING 18 AN EXCLUSIVE LICENSE AND ONLY GO IN ONE WAY WHEN THERE 19 ARE OTHER WAYS THAT THAT TREATMENT COULD BE USED, AND 20 THAT FOR COMMERCIAL REASONS, THEY JUST DON'T GO THERE. 21 SO IT SEEMS TO ME THAT THERE NEEDS TO BE SOME WAY OF 22 DEALING WITH THAT POSSIBILITY. I MEAN I SUPPOSE SOME 23 KIND OF MARCH-IN RIGHTS THAT SAID, LOOK, WE KNOW THAT 24 IF YOU DEVELOP -- IF YOU ALLOW IT TO BE LICENSED IN THE 25 PUBLIC INTEREST BECAUSE THIS COULD BE TREATED THAT WAY

24 1 AS WELL, THAT WOULD WORK TOO. BUT THE CONCERN 2 ESSENTIALLY IS BLOCKING FRUITFUL AVENUES OF TREATMENT 3 WITH A SINGLE LICENSE. I THINK THAT WOULD BE A BAD 4 THING. 5 CHAIRMAN PENHOET: ANY COMMENTS FROM ANY OF 6 OUR OFF-SITE SITES? IRVINE, QUESTIONS THERE? ANY 7 QUESTIONS FROM NUVELO? FROM LOS ANGELES? 8 UNIDENTIFIED SPEAKER: NO. 9 CHAIRMAN PENHOET: FROM CHICO? 10 DR. WRIGHT: NO. 11 CHAIRMAN PENHOET: ANY COMMENTS FROM THE 12 PUBLIC IN SAN DIEGO? YES. 13 MR. ROBINS: ALLAN ROBINS FROM NOVOCELL. I 14 JUST WANTED TO MAKE A COUPLE OF COMMENTS, JOHN. FIRST 15 OF ALL, IN TERMS OF THE FUNDING. I THINK THERE'S A LOT 16 OF CONFUSION WHEN PEOPLE TALK ABOUT STEM CELL RESEARCH 17 GENERICALLY, AND THEY TALK ABOUT HUMAN EMBRYONIC STEM 18 CELL RESEARCH. SO I THINK THE NUMBERS, AT LEAST THE 19 NIH NUMBERS YOU QUOTED, WAS $30 MILLION (INAUDIBLE). 20 THE NIH PUT 200 MILLION. 21 MR. SIMPSON: I'M SORRY. I DIDN'T THINK MAKE 22 THAT CLEAR. 23 MR. ROBINS: RIGHT. BUT I MEAN I THINK 24 THEY'RE IMPORTANT POINTS. WHEN STEM CELL RESEARCH 25 INVESTMENT IS REPORTED, YOU HAVE TO MAKE SURE YOU'RE

25 1 COMPARING APPLES TO APPLES. I THINK THERE'S A LOT MORE 2 EFFORT GOING INTO STEM CELL THERAPY THAN JUST -- 3 THE SECOND THING I WANTED TO DO IS MAYBE 4 POINT OUT SOME DIFFERENCES BETWEEN YOUR THEORY OF 5 BUYING A HOUSE MODEL AND WHAT WE'RE REALLY DOING IN A 6 COMPANY. AND I THINK THERE ARE TWO MAJOR POINTS HERE. 7 ONE IS RISK PROFILE. WHEN YOU'RE GOING TO BUY A HOUSE 8 AND YOU CONTRACT A BUILDER AND YOU'RE GOING TO THE BANK 9 AND YOU BORROW THE MONEY, IT'S A PRETTY SURE THING WHAT 10 YOU ARE GOING TO END UP WITH AT THE END OF THE DAY IS A 11 HOUSE. AND MOSTLY THEY APPRECIATE IN VALUE MOST OF THE 12 TIME. SO I THINK THERE'S A SORT OF A FLAW IN YOUR 13 MODEL WHEN YOU'RE USING THAT TO COMPARE IT TO SORTS OF 14 THINGS (INAUDIBLE). 15 AND THE SECOND THING THAT I WANTED TO POINT 16 OUT IS THAT BUILDING A HOUSE IS REALLY A DISCRETE 17 THING. YOU GO, YOU BY A BLOCK OF LAND, AND YOU BUILD 18 THE HOUSE BASICALLY. RESEARCH IS A CONTINUUM, SO IF 19 CIRM OR ANY OTHER ORGANIZATION IS GOING TO FUND A 20 COMPANY WHO HAS BACKGROUND RESEARCH THAT WE LOOK AT AND 21 CIRM FUNDING WILL NOT TAKE IT THROUGH TO A PRODUCT. 22 THERE WILL BE OTHER INVESTMENT THAT'S NEEDED. AND 23 ALONGSIDE THAT, OUR INVESTMENT OF MONEY IN AT THE SAME 24 TIME. SO I DON'T THINK IT'S DISCRETE, AND I THINK 25 DIFFICULT TO MAKE THAT COMPARISON IN THAT WAY. I MEAN

26 1 THERE ARE OTHER REASONS, BUT THEY'RE THE TWO 2 FUNDAMENTAL ONES. 3 AND THE THIRD QUESTION/COMMENT THAT I WANTED 4 TO MAKE IS THAT YOU'VE ALLUDED TO THE FACT THAT THERE'S 5 ALREADY SORT OF WIDE-REACHING INTELLECTUAL PROPERTY, 6 AND YOU'VE ALLUDED TO ONE SORT OF INTELLECTUAL 7 PROPERTY, BUT THERE ARE, IN FACT, OTHER ISSUED PATENTS 8 OR PATENTS THAT ARE WORKING THEIR WAY THROUGH THE USPTO 9 WHICH ARE ALSO VERY BROAD AND JUST AS TROUBLESOME. 10 SO I'M WONDERING IN TERMS OF YOUR PATENT 11 POOL, THESE PATENTS CLEARLY SIT OUTSIDE OF THAT POOL. 12 AND ANY COMPANY, LIKE OURSELVES, THAT WOULD BE LOOKING 13 AT CONTRIBUTING SOMETHING TO A PATENT POOL, CLEARLY ARE 14 AT A DISADVANTAGE. SO I'M WONDERING IF YOU'RE SORT OF 15 CLOSING THE GATE AFTER THE HORSE HAS BOLTED, OR WHAT 16 YOU WOULD PROPOSE TO DO ABOUT THOSE BROAD-RANGING 17 PATENTS THAT ARE ALREADY IN EXISTENCE OR WILL BE 18 DRAFTED. 19 MR. SIMPSON: TO THE HOUSE MODEL, NO ANALOGY 20 WORKS PERFECTLY, I GUESS, AND I TAKE SOME OF YOUR 21 POINTS. BUT WHAT I ESSENTIALLY WAS TRYING TO SAY IS 22 THAT IT'S -- AT SOME POINT IF PUBLIC MONEY HAS GONE 23 INTO IT AND, YES, THE HOUSE -- IF YOU'RE BUILDING THE 24 HOUSE IN A RISKY PLACE, MAYBE IT GETS BLOWN DOWN BY 25 HURRICANES AND SO ON AND SO ON AND SO FORTH AND YOU

27 1 NEVER CAN GET YOUR MONEY BACK, BUT WITH RESEARCH IT'S 2 EVEN RISKIER. BUT IF YOU DO GET SOMETHING THAT 3 GENERATES REVENUE, THAT'S WHERE I SAY, BECAUSE THE 4 STATE HAS PUT THE MONEY IN, TAXPAYERS DESERVE TO GET 5 SOMETHING BACK. THAT'S THE KIND OF THING, AND I WAS 6 TRYING TO DO IT IN A WAY THAT WAS AT LEAST SOMETHING 7 THAT A POOR OLD NEWSPAPERMAN'S BRAIN COULD GET HIS ARMS 8 AROUND, WHICH WAS THE HOUSE MODEL. 9 AS FAR AS THE PATENTS GO, I THINK THE WARF 10 ONES ARE JUST INCREDIBLY OVERREACHING. I MEAN THE 11 NOTION OF -- IT'S NOT EVEN A MYTHOLOGY. IT'S 12 COMPOSITION OF MATTER. IT'S ALL HUMAN EMBRYONIC STEM 13 CELLS, AND RECOGNIZED NOWHERE ELSE IN THE WORLD. AND I 14 THINK THAT THERE ARE A NUMBER OF THINGS THAT NEED TO BE 15 DONE. I THINK THOSE -- I THINK THEY HAVE TO BE 16 CHALLENGED, AND I THINK THAT THEY LIKELY WILL BE BROKEN 17 IF THEY ARE. 18 MR. ROBINS: -- PROVIDING THE DATA. 19 MR. SIMPSON: I'M NOT SURE WHO WOULD DO THAT 20 AT THIS POINT. I MEAN THERE ARE A NUMBER OF DIFFERENT 21 WAYS THAT IT COULD BE DONE. I MEAN A COMPANY THAT 22 WANTED TO JUST GO AHEAD AND DO WHAT THEY WANT TO DO AND 23 LET WARF COME SUE THEM WOULD BE IN A POSITION TO 24 CHALLENGE THEM IN COURT. I MEAN IF WARF SAYS YOU'RE 25 INFRINGING, IT WOULD SEEM TO ME THAT IT WOULD BE AN

28 1 APPROPRIATE THING FOR THE BIOTECH INDUSTRY OR AN 2 INDUSTRY ASSOCIATION TO TAKE ON AND TO HELP FUND. 3 THERE ARE OTHER WAYS THAT YOU CAN DO IT. YOU CAN GO TO 4 THE PTO AND YOU CAN ASK FOR A REEXAMINATION. SOMEBODY 5 COULD DO THAT. 6 I THINK THAT CLEARLY WARF PATENTS ARE RULING 7 OVER THIS. I'VE BEEN TOLD SPECIFICALLY THAT A NUMBER 8 OF VENTURE CAPITALISTS HAVE NOT PUT MONEY INTO HUMAN 9 EMBRYONIC STEM CELL RESEARCH PRECISELY BECAUSE OF THOSE 10 PATENTS. 11 CHAIRMAN PENHOET: IF I COULD, I THINK THAT 12 WILL LOCK THE SUBJECT UP. IT'S AN IMPORTANT POINT, BUT 13 NOT DIRECTLY RELATED TO WHAT WE'RE TRYING TO GRAPPLE 14 WITH HERE. 15 ARE THERE COMMENTS FROM THE PUBLIC IN IRVINE? 16 DR. BRYANT: NO. 17 CHAIRMAN PENHOET: SAN CARLOS? 18 UNIDENTIFIED SPEAKER: YES. 19 MR. REED: THIS IS DON REED. THE UNMENTIONED 20 SO FAR GORILLA IN THE ROOM IS THAT WHILE WHAT WE'RE 21 DOING NOW IS VERY HELPFUL, WORKING OUT PROBLEMS IN THE 22 PUBLIC, I DON'T THINK MOST OF US WANT THE IP POLICIES 23 TO BE LEGISLATIVELY IMPOSED. AND THAT'S HAPPENING VERY 24 FAST RIGHT NOW UP IN SACRAMENTO. TO THE BEST OF MY 25 KNOWLEDGE, THERE'S ONLY ONE MORE COMMITTEE MEETING ON

29 1 SB 401, THE ORTIZ-RUNNER LEGISLATION, AND THAT'S THE 2 APPROPRIATIONS MEETING. THEY'RE TYPICALLY HELD ON 3 WEDNESDAYS. IT PROBABLY IS NEXT WEDNESDAY, AND THAT'S 4 THE LAST ONE BEFORE IT GOES TO THE FLOOR. IT'S ALREADY 5 GONE THROUGH THE SENATE BECAUSE IT WAS DONE WITH A 6 GUT-AND-AMEND DEAL WHERE A BILL ALREADY HALF PASSED WAS 7 HOLLOWED OUT AND SB 401 WAS PUT INSIDE OF IT. AND IT 8 WENT THROUGH VERY FAST. 9 I WENT UP AND DID SOME DOOR TO DOOR, TALKED 10 TO ALL 18 MEMBERS, LEGISLATIVE AIDES OF THE 18 MEMBERS 11 OF THE APPROPRIATIONS COMMITTEE YESTERDAY. AND IT WAS 12 SHOCKING THAT DEMOCRATS DID NOT KNOW ABOUT IT, AND THEY 13 SAID, "OH, WELL, IF ORTIZ WANTS IT, IT MUST BE GOOD FOR 14 STEM CELL RESEARCH." SO IF ANYBODY WANTS TO HAVE AN 15 IMPACT ON THIS, I STRONGLY SUGGEST THAT YOU CONTACT THE 16 18 MEMBERS OF THE -- OR LEAST THE HEAD, JUDY CHU, OF 17 THE APPROPRIATIONS COMMITTEE, BECAUSE THE SITUATION MAY 18 BE TAKEN OUT OF YOUR HANDS. THANK YOU. 19 CHAIRMAN PENHOET: ANY COMMENTS FROM LOS 20 ANGELES? FROM CHICO? 21 DR. WRIGHT: NO. 22 CHAIRMAN PENHOET: OKAY. THANK YOU VERY 23 MUCH, JOHN. WE'LL MOVE ON TO OUR SECOND SPEAKER, WHO 24 IS DAVID GOLLAHER, PRESIDENT AND CEO OF THE CALIFORNIA 25 HEALTH CARE INSTITUTE HERE IN LA JOLLA. DAVID.

30 1 MAYBE WHILE THEY'RE CHANGING THE LOGISTICS, I 2 WOULD REMIND EVERYONE THAT THE IP POLICY WE GENERATE 3 FOR BUSINESSES WILL HAVE TO BE MANAGED BY THE CIRM 4 ITSELF. SO WE WILL HAVE TO HAVE STAFF THAT ADMINISTERS 5 THIS POLICY WITHIN CIRM. AND IT'S BECOMING ABUNDANTLY 6 CLEAR, I THINK, THROUGH ALL OF THE CONVERSATIONS WE'VE 7 HAD, INCLUDING JOHN'S PRESENTATION THIS MORNING, THE 8 CONTRAST TO THE SITUATION WITH THE NONPROFITS WHERE 9 IT'S LIKELY THAT THE VAST MAJORITY OF WHAT WE DO WILL 10 BE IN THE FORM OF GRANTS. WITH COMPANIES THERE ARE 11 POSSIBILITIES TO MAKE LOANS, TO MAKE GRANTS, TO BUY 12 SERVICES. SO EACH ONE OF THESE WILL HAVE TO BE DEALT 13 IN SOME DEGREE IN A SEPARATE WAY. 14 WE'VE ALSO HEARD THAT WHILE FROM JDRF, FOR 15 EXAMPLE, WHO HAS POINTED OUT THAT THEY ESSENTIALLY HAVE 16 TO NEGOTIATE DIFFERENT CONTRACTS EVERY TIME THEY MAKE 17 AN ARRANGEMENT WITH A FOR-PROFIT ENTITY. SO TO SOME 18 DEGREE THAT IS A LAYER OF COMPLEXITY. I THINK IN THIS 19 SENSE WHAT WE'RE DOING HERE WILL OVERLAP WITH THE 20 STRATEGIC PLANNING PROCESS, WHICH WILL DEFINE SOME OF 21 THESE CHARACTERISTICS. BUT WE'RE LIKELY TO END UP WITH 22 AT LEAST THREE WAYS, DIFFERENT WAYS, IN WHICH WE COULD 23 CONCEIVABLY PROVIDE FUNDING. 24 DR. REED: JOHN REED HERE. LAST TIME WE 25 DISCUSSED THIS I BELIEVE WE DECIDED THAT THE INVENTORS

31 1 OF THE TECHNOLOGY WOULD BE RESPONSIBLE FOR COVERING THE 2 PATENT COSTS, THAT THE STATE WOULD NOT DO THAT; IS THAT 3 CORRECT? 4 CHAIRMAN PENHOET: WE DON'T HAVE ANY FUNDS TO 5 DO THAT. 6 DR. REED: OKAY. I THINK THAT'S AN IMPORTANT 7 THING TO ALSO KEEP IN MIND WITH RESPECT TO WHATEVER 8 POLICY WE ARRIVE AT INASMUCH AS IT'S NOT UNCOMMON TO 9 SPEND ABOUT A QUARTER MILLION DOLLARS PER PATENT FOR 10 WORLDWIDE PROTECTIONS AS YOU GO THROUGH THE WHOLE 11 PROCESS WITH EACH OF THE TERRITORIES. AND WE DON'T 12 WANT TO DO THINGS THAT WOULD DISINCENTIVIZE COMPANIES 13 TO PROTECT THEIR TECHNOLOGY AND TO, THEREFORE, PROTECT 14 THE INVESTMENT THAT THE TAXPAYERS ARE MAKING IN THAT 15 TECHNOLOGY. IF IT'S NOT PROTECTED BY PATENTS, THEN 16 IT'S NOT GOING TO HAVE THE OPPORTUNITY TO REALLY RETURN 17 FUNDS HERE, REVENUE HERE TO THE STATE. SO I THINK THAT 18 HAS TO BE AN IMPORTANT ELEMENT OF WHATEVER WE -- 19 WHATEVER POLICY WE ARRIVE AT. 20 CHAIRMAN PENHOET: OKAY. WE'RE NOW READY TO 21 GO WITH DAVID GOLLAHER'S PRESENTATION. DAVID. 22 MR. GOLLAHER: THANK YOU, ED. I'M DAVID 23 GOLLAHER. I'M PRESIDENT AND CEO OF THE CALIFORNIA 24 HEALTH CARE INSTITUTE. CHI'S BACKGROUND, WE'RE ABOUT 25 260 MEMBERS STATEWIDE, AN ORGANIZATION THAT INCLUDES

32 1 ACADEMIC RESEARCH CENTERS, UNIVERSITY OF CALIFORNIA, 2 CSU, SALK, IF NOT ALL OF THE ACADEMIC INSTITUTIONS THAT 3 WILL BE CANDIDATES FOR CIRM FUNDING FOR GRANTING STEM 4 CELL RESEARCH ALONG WITH COMMERCIALIZED SCIENCES. SO 5 MOST MAJOR BIOTECH COMPANIES, I THINK ALL OF THEM, IN 6 FACT, IN CALIFORNIA ARE MEMBERS OF OURS ALONG WITH 7 MEDICAL DEVICES, DIAGNOSTICS COMPANIES LIKE GENPRO, AS 8 WELL AS BIOINFORMATICS, RESEARCH TOOLS COMPANIES LIKE 9 INVITROGEN. SO BROADLY SPEAKING, WE REPRESENT THE LIFE 10 SCIENCES IN CALIFORNIA, AND I THINK IT'S REFLECTIVE OF 11 OUR MEMBERS ON OUR BOARD. 12 JUST TO FRAME THE DISCUSSION, AND I THINK 13 IT'S NOT INCIDENTAL THAT CALIFORNIA IS BOTH THE STATE 14 THAT PASSED PROP 71, BUT ALSO THE ROLE OF 15 BIOTECHNOLOGY. THE INDUSTRY ORIGINATED HERE SOME 30 16 ODD YEARS AGO. PERHAPS 40 PERCENT OF ALL TOTAL U.S. 17 BIOTECH JOBS ARE HERE. AND, OF COURSE, WE HAVE THE 18 WORLD'S PREMIERE ACADEMIC INSTITUTIONS, PUBLIC AND 19 PRIVATE. AND IMPORTANTLY, A HIGHLY EVOLVED 20 INFRASTRUCTURE. 21 WHAT'S IMPORTANT ABOUT THAT IS THAT THE 22 FUNDING FOR EMBRYONIC STEM CELL RESEARCH, THE PERHAPS 23 $300 MILLION A YEAR OVER TEN YEARS, WOULD BE HIGHLY 24 LEVERAGED. BEING ABLE TO COME INTO A MARKET IN WHICH 25 IT DOESN'T HAVE TO CREATE INFRASTRUCTURE FROM THE

33 1 GROUND UP. IT CAN TAKE ADVANTAGE OF THE SCIENCE, THE 2 INFRASTRUCTURE, AND COMMERCIAL NETWORK THAT'S ALREADY 3 HERE. 4 THIS IS JUST A CHART YOU CAN'T READ VERY 5 WELL, BUT IT SHOWS ON THE LEFT HAND CALIFORNIA'S 6 BIOTECH COMPANIES COMPARED TO EVERYONE ELSE. THE NEXT 7 CLOSEST IS MASSACHUSETTS. AS YOU CAN SEE, IT'S A VERY 8 DISTANT SECOND. 9 NOW, SOME OF YOU KNOW MICHAEL PORTER'S WORK 10 ABOUT CLUSTERS, AND MICHAEL PORTER IS A PROFESSOR AT 11 HARVARD BUSINESS SCHOOL AND HAS SPENT YEARS STUDYING 12 THE DEVELOPMENT OF CLUSTERS OF INNOVATION, HE CALLS 13 THEM. AND I JUST WANTED TO RUN THROUGH THIS BECAUSE IT 14 WILL COME BOOK TO A POINT THAT I THINK IS IMPORTANT IN 15 THINKING ABOUT INTELLECTUAL PROPERTY. IN PARTICULAR, 16 HOW COMPANIES, COMMERCIAL COMPANIES, WORK ALONGSIDE 17 ACADEMIC AND PUBLICLY FUNDED INSTITUTIONS TO PRODUCE 18 PUBLIC BENEFIT. 19 I'LL RUN THROUGH THE LIST, AND THEY'RE ONES 20 THAT YOU KNOW. YOU CAN LOOK AT A CLUSTER LIKE SAN 21 DIEGO HERE IN THE TORREY PINES AREA WHERE WE HAVE A 22 STRONG SCIENCE BASE, ENTREPRENEURIAL CULTURE, A GROWING 23 COMPANY BASE. IT'S IMPORTANT TO HAVE COMMERCIAL 24 COMPANIES THAT ARE THRIVING, ABSORBING, SPENDING IT ON 25 TALENT, WORKING WITH INSTITUTIONS, THE ABILITY TO

34 1 ATTRACT TALENT, THE INFRASTRUCTURE, ACCOUNTING FIRMS, 2 LAW FIRMS, REAL ESTATE COMPANIES THAT ARE EXPERTS AT 3 BUILDING FACILITIES. SOURCES OF RISK CAPITAL. YOU CAN 4 HAVE ALL OF THESE ELEMENTS, BUT IF YOU DON'T HAVE 5 SOURCES OF RISK CAPITAL, YOU DON'T HAVE THE CATALYST, 6 AND YOU DON'T HAVE THE INITIATIVE TO MAKE IT WORK. 7 LARGER COMPANIES IN RELATED INDUSTRIES, VERY IMPORTANT, 8 SO THAT THE PRESENCE OF AN INVITROGEN OR A BIOGEN IDEC 9 IS AN IMPORTANT ELEMENT IN CREATING A CLUSTER. 10 OBVIOUSLY A SKILLED WORKFORCE, EFFECTIVE NETWORKING, 11 ORGANIZATIONS LIKE CONNECT, EDC, WHO ARE IN THE ROOM 12 HERE, THAT PROVIDE CHANNELS OF COMMUNICATION AND 13 NETWORKING FOR EXECUTIVE SCIENTISTS AND SO FORTH TO 14 SHARE INFORMATION AND ACCELERATE THIS KNOWLEDGE 15 INDUSTRY. AND FINALLY, SUPPORTIVE PUBLIC POLICY. I 16 WILL COME BACK TO THAT IN A SECOND. 17 SO IN PORTER'S VIEW, WHAT MAKES CLUSTERS 18 PRODUCTIVE, AND YOU CAN LOOK AROUND THE WORLD AND SEE 19 ONES THAT ARE HIGHLY PRODUCTIVE, ONES THAT HAVE MANY OF 20 THE ELEMENTS THAT I JUST TALKED ABOUT THAT DON'T WORK 21 VERY WELL, DON'T WORK VERY WELL IN TERMS OF PRODUCING 22 INNOVATION AND PUSHING THAT INNOVATION OUT TO THE 23 MARKETPLACE WHERE IT CAN BE USED BY CONSUMERS, BY 24 PATIENTS, AND HELP PEOPLE. 25 SO THE INTERACTIVITY WITHIN A NETWORK, VERY

35 1 IMPORTANT HOW DYNAMIC IT IS, AND COMPETITION WITHIN THE 2 NETWORKS. PORTER MAKES A VERY GOOD AND, I THINK, 3 DEEPLY IMPORTANT POINT IN THAT IF YOU ARE IN A BUSINESS 4 AND YOU'RE A SINGLE BUSINESS PERSON, AND YOU LOOK 5 ACROSS THE STREET AND YOU SEE YOUR COMPETITOR RISING UP 6 AND DOING WELL, YOU TEND TO RESIST THAT AND THINK 7 COMPETITION IS A BAD THING. BUT WHAT HE'S FOUND IN THE 8 STUDY OF CLUSTERS, IN FACT, THAT THE MORE COMPETITIVE 9 THEY ARE, THE MORE BUSINESSES THAT ENTER THE SPACE TO 10 COMPETE TO PROVIDE SUPERIOR PRODUCTS, THE MORE 11 INNOVATION HAPPENS AND THE FASTER IT'S PUSHED OUT IN 12 THE MARKET. 13 FINALLY, THE VELOCITY OF TECHNOLOGY TRANSFER, 14 CRITICAL POINT. AND I'LL DRILL DOWN INTO THIS A LITTLE 15 BIT MORE IN A MINUTE. HOW QUICKLY TECHNOLOGY CAN BE 16 TRANSFERRED FROM BASIC SCIENCE INSTITUTIONS FROM 17 PERHAPS GOVERNMENT-SPONSORED UNIVERSITIES OUT INTO 18 COMMERCIAL COMPANIES. SO THE COMMERCIALIZATION OF 19 ACADEMIC SCIENCE IS ONE OF THE HALLMARKS OF SUCCESSFUL 20 CLUSTERS. 21 SOME PEOPLE ASK AND THERE'S ACTUALLY A CHORUS 22 OF CRITICS, PARTICULARLY IN THE PHARMACEUTICAL 23 INDUSTRY, RIGHT NOW WHO ASK WHY COMMERCIALIZATION IS 24 NECESSARY IN THE FIRST PLACE. THERE'S WHAT I WOULD 25 THINK OF AS THE MARCIA ANGEL THEORY. MARCIA ANGEL WAS

36 1 THE EDITOR OF THE NEW ENGLAND JOURNAL AND HAS WRITTEN A 2 BOOK ABOUT THE DRUG INDUSTRY THAT BASICALLY PROPOUNDS 3 THE THEORY THAT THE GOVERNMENT, THROUGH NIH, CREATES 4 BASIC RESEARCH AND COMPANIES COME ALONG AND 5 COMMERCIALIZE IT AND BASICALLY TAKE THE INTELLECTUAL 6 PROPERTY THAT WILL BE FUNDED FOR THEIR OWN PURPOSES AND 7 THEIR SHAREHOLDERS' PURPOSES. AND THERE'S NO REAL 8 RETURN TO SOCIETY FOR THAT. I THINK THAT'S WRONG. I 9 THINK IT COMPLETELY MISCHARACTERIZES AND MISUNDERSTANDS 10 THE ROLE OF COMMERCIALIZATION, THE ROLE OF THE MARKET, 11 AND THE ROLE OF PRIVATE COMPANIES. 12 FIRST THING IS THAT BASIC RESEARCH PRODUCES 13 UNDERSTANDING, BUT IT DOESN'T PRODUCE PRODUCTS. SECOND 14 THING IS THAT THE INSTITUTIONS THAT ARE GOOD AT 15 PRODUCING BASIC RESEARCH LACK THE SKILLS AND RESOURCES 16 TO PRODUCE PRODUCTS. THEY LACK THE CAPITAL, AND IT'S 17 LARGELY AN EXPENSIVE PROCESS. THE LACK THE APPLIED 18 RESEARCH AND REGULATORY EXPERTISE THAT IS A HUGE PART 19 OF PRODUCT DEVELOPMENT. AND OBVIOUSLY THEY LACK BOTH 20 THE MANUFACTURING CAPACITY, NOT TO MENTION THE 21 MARKETING AND DISTRIBUTION. THE MARKETING AND 22 DISTRIBUTION IS AN IMPORTANT POINT BECAUSE 23 UNDERSTANDING MARKETS, PARTICULARLY DISEASE MARKETS, 24 UNDERSTANDING HOW PHYSICIANS AND HOSPITALS AND THE 25 WHOLE COMPLICATED HEALTHCARE SYSTEM WORKS AND ABILITY

37 1 TO MOVE A PRODUCT THROUGH THAT IS NOT TRIVIAL. 2 SO WHAT DOES IT TAKE TO TRANSFORM A RESEARCH 3 DISCOVERY INTO A SUCCESSFUL DRUG? WELL, INDUSTRY 4 CRITICS CLAIM THAT A RESEARCH INPUT CREATES MOST OF THE 5 PRODUCTS' END VALUE. BUT THERE'S NO GOOD MEASURE OF 6 THE REAL PERCENTAGE OF WHAT IT TAKES TO GET A PRODUCT 7 FROM THE LABORATORY INTO THE HANDS OF THE PATIENT 8 THROUGH A PHYSICIAN. SOME INDUSTRY STUDIES HAVE 9 SUGGESTED THAT 90 PERCENT OF THE VALUE OF AN END 10 PRODUCT IS DOWNSTREAM. BUT I THINK THE TRUTH IS THAT 11 NO ONE REALLY KNOWS. WE DO KNOW THAT IT'S ENORMOUSLY 12 TIME-CONSUMING AND EXPENSIVE, AND HERE'S ANOTHER SLIDE 13 THAT YOU CAN'T READ VERY WELL, BUT AT THE BOTTOM IS 14 YEARS, AND IT GOES FROM ZERO TO 16 YEARS. AND THE 15 FIRST BLOCK UP ON THE LEFT-HAND CORNER IS THE DISCOVERY 16 PROCESS, AND THEN WE MOVE FROM THAT PERIOD THROUGH A 17 WHOLE SET OF PRODUCT DEVELOPMENT AND REGULATORY PHASES 18 UNTIL WE FINALLY GET A PRODUCT OUT INTO THE PIPELINE. 19 AND IF YOU LOOK AROUND AT COMPANIES THAT WE 20 KNOW OF, THERE'S A GREAT EXAMPLE IN SAN DIEGO, BIOGEN, 21 IS NOW -- SORRY -- IDEC, WHICH IS NOW BIOGEN IDEC AFTER 22 A MERGER, TOOK ABOUT 13 YEARS TO MOVE FROM ITS ORIGINAL 23 ANTIBODY SCIENCE TO PRODUCING THE FIRST MONOCLONAL 24 ANTIBODY FOR CANCER FOR NON-HODGKIN'S. AND DURING THAT 25 PERIOD CAME WITHIN THREE OR FOUR WEEKS OF RUNNING

38 1 ENTIRELY OUT OF MONEY AND TURNING OUT THE LIGHTS. HAD 2 THAT HAPPENED, THOUSANDS UPON HUNDREDS OF THOUSANDS OF 3 PATIENTS WOULD HAVE BEEN DENIED AN EFFECTIVE DRUG. 4 THE END RESULT OF BIOGEN IDEC OR IDEC'S 5 RESEARCH AND DEVELOPMENT WAS TO PRODUCE A DRUG THAT IS 6 OF ENORMOUS BENEFIT TO PATIENTS WHO HAVE TERRIBLE 7 DEBILITATING AND OFTEN FATAL DISEASE. 8 SO IN A SENSE, IF WE LOOK AROUND GLOBALLY, 9 WE'VE BEEN DOING AN INTERESTING EXPERIMENT WITH RESPECT 10 TO INTELLECTUAL PROPERTY AND HOW IT'S TRANSFERRED INTO 11 COMMERCIAL INSTITUTIONS OR COMMERCIAL COMPANIES. AND 12 RECENTLY I HAD THE OPPORTUNITY TO BE IN THE UK AND TO 13 TALK TO SOME PEOPLE ABOUT THE ATTEMPT IN THE UNITED 14 KINGDOM TO ACCELERATE THE TECHNOLOGY TRANSFER OF 15 SCIENCE INTO COMPANIES MORE OR LESS ALONG THE U.S. 16 MODEL. AND THIS WAS SPURRED IN PART BY THE REALIZATION 17 THAT WHILE UK UNIVERSITIES, LIKE OXFORD AND CAMBRIDGE 18 AND THE UNIVERSITY OF THE PLYMOUTH, WERE QUITE GOOD AT 19 BASIC RESEARCH AND TEACHING. THEY HAVE BEEN EXTREMELY 20 BACKWARD WITH RESPECT TO MOVING ANY OF THAT SCIENCE 21 INTO THE COMMERCIAL SPHERE. 22 THEY HAD ALSO EXPERIENCED A BRAIN DRAIN, SO 23 THAT IF YOU WALKED AROUND CALIFORNIA OR ROUTE 128 24 CORRIDOR IN BOSTON, YOU WOULD BUMP INTO A BUNCH OF 25 EX-PAT BRITS WHO HAVE MOVED TO THE UNITED STATES IN

39 1 ORDER TO MOVE THEIR TECHNOLOGY, THEIR EXPERTISE INTO 2 COMMERCIAL SPACE. 3 WHAT THE UK ALSO DISCOVERED IS THAT THEY HAVE 4 A HUGE RESERVOIR OF WHAT MIGHT BE CALLED ORPHAN IP; 5 THAT IS, INTELLECTUAL PROPERTY TO WHICH A UNIVERSITY 6 HAD RIGHTS, BUT THERE WAS NO ABILITY NOR INTEREST IN 7 DEVELOPING THAT AND MOVING IT FORWARD INTO THE MARKET. 8 SO IN 1999 THE DEPARTMENT OF TRADE AND 9 INDUSTRY IN THE UK PROPOSED A THIRD MISSION, WHICH IS 10 SUPPORT INDUSTRY. AND SINCE THEN GRADUALLY, AND WITH 11 CLINIC OF THE UK, IS BEGINNING TO DEVELOP ITS FIRST 12 LIFE SCIENCES CLUSTERS, I BELIEVE ONE AROUND CAMBRIDGE 13 UNIVERSITY, TO ACCELERATE SCIENCE MOVING FORWARD. 14 I WANT TO SHIFT FOCUS TO TALK JUST IN A 15 GENERAL WAY ABOUT TWO MODELS THAT ARE WORTH THINKING 16 ABOUT IN THE WAYS THAT GOVERNMENT FUNDS SCIENCE WITHIN 17 THE CONTEXT OF COMMERCIAL COMPANIES. AND I WANT TO 18 START WITH DARPA. I JUST PUT DARPA'S MISSION STATEMENT 19 DOWN HERE. I THINK MOST OF US WOULD SEE DARPA AS A 20 REASONABLY SUCCESSFUL LONG-TERM INITIATIVE IN WHICH 21 PUBLIC MONEY, I.E., DEPARTMENT OF DEFENSE FUNDS, ARE 22 SPECIFICALLY TARGETED IN QUITE CAREFUL WAYS CHANNELED 23 INTO COMMERCIAL OPERATIONS TO DEVELOP BASIC TECHNOLOGY 24 THAT THEN MAY BE APPLIED TO DEFENSE APPLICATIONS. 25 THE PART THAT I UNDERLINED HERE IS FROM

40 1 DARPA'S MISSION STATEMENT IN WHICH IT SAYS THAT IT 2 MANAGES AND DIRECTS SELECTED BASIC AND APPLIED RESEARCH 3 AND DEVELOPMENT PROJECTS FOR DOD, TO PURSUE THIS 4 RESEARCH AND TECHNOLOGY WHERE RISK AND PAYOFF ARE BOTH 5 VERY HIGH AND WHERE SUCCESS MAY PROVIDE DRAMATIC 6 ADVANCES FOR TRADITIONAL MILITARY ROLES AND MISSIONS. 7 IT STRIKES ME, IN THINKING ABOUT CIRM, THAT 8 THIS IS A GOOD ANALOGY TO WHAT WE'RE LOOKING AT IN THE 9 EARLY STAGE OF EMBRYONIC STEM CELL RESEARCH. HIGH RISK 10 AND A POTENTIALLY VERY HIGH PAYOFF, GREAT UNCERTAINTY, 11 AND A PLACE WHERE PERHAPS PUBLIC MONEY CAN BE A 12 CATALYST. 13 NOW, DARPA'S PRINCIPLES ARE TO PROMOTE 14 PRIVATE SECTOR COMPETITION. THEY MAKE GRANTS TO LOTS 15 OF DIFFERENT COMPANIES AND OFTEN TO COMPETITORS WITHIN 16 THE SAME FIELD. THE THOUGHT IS THAT HERE GOVERNMENT IS 17 A FUNDING CATALYST IN AREAS OF PARTICULARLY HIGH 18 IMPORTANCE, HIGH RISK WORK. ULTIMATELY THERE ALSO IS 19 THE BENEFITS TO TAXPAYERS, BENEFITS TO THE PUBLIC DON'T 20 ACCRUE FROM A DIRECT RETURN IN THE FORM OF A ROYALTY OR 21 MONEY PAYMENTS BACK TO GOVERNMENT, BUT RATHER FROM THE 22 PROMULGATION OF INVENTIONS INTO A SPECIFIC SECTOR, IN 23 THIS CASE THE NATIONAL DEFENSE. 24 AND THIS IS AN IMPORTANT THEORETICAL, IF YOU 25 WILL, ISSUE FOR CIRM AND, IN FACT, FOR THE LEGISLATURE

41 1 AND FOR THE PUBLIC TO CONSIDER. THAT IS, WHETHER THE 2 MAXIMUM PUBLIC BENEFIT FROM STEM CELL RESEARCH WILL 3 COME FROM THE FASTEST POSSIBLE DEVELOPMENT OF THE BEST 4 SCIENCE AND THE FASTEST ACCELERATION OF THAT SCIENCE 5 INTO COMMERCIAL PRODUCTS OR FROM ROYALTIES, FROM MONEY 6 PAYMENTS FROM THESE INVENTIONS BACK TO THE PUBLIC 7 COFFERS. 8 SO MY VIEW IS THAT CIRM SHOULD DISCOUNT 9 NAYSAYERS WHO MISREPRESENT -- WE'VE SEEN THIS FROM THE 10 VERY BEGINNING OF PROP 71 -- THE INTERRELATIONSHIP ON 11 THE ACADEMIC AND COMMERCIAL SCIENCE. IT'S MORE 12 COMPLICATED THAN MOST PEOPLE APPRECIATE. IT'S FAR FROM 13 THE CASE THAT ACADEMIC SCIENCE CREATES DRUGS AND THAT 14 COMMERCIAL DEVELOPMENT OF THOSE DRUGS IS INCIDENTAL OR 15 AN ADD-ON. 16 CIRM SHOULD DISCOUNT ANY CLAIM THAT STEM CELL 17 SCIENCE CAN BENEFIT PATIENT GROUPS WITHOUT AGGRESSIVE 18 PARTICIPATION OF COMMERCIAL COMPANIES. THE FACT IS 19 THAT WE LIVE IN A MARKET-BASED, MARKET DRIVEN ECONOMY. 20 AND THE THEORY THAT MOST COMMERCIAL COMPANIES OPERATE 21 ON IS THE THEORY OF CAPITALISM, AND THE BEST 22 DISTRIBUTION OF GOODS AND SERVICES HAPPENS THROUGH THE 23 ACTIVE PARTICIPATION OF THE MARKET AND OF COMMERCIAL 24 ENTERPRISE. AND, AGAIN, ANY OF US WHO SPENT 25 SIGNIFICANT TIME IN ACADEMIC INSTITUTIONS OR WITHIN

42 1 GOVERNMENT INSTITUTIONS, I THINK, HAVE A LOW LEVEL OF 2 CONFIDENCE IN THE ABILITY OF THOSE ORGANIZATIONS TO 3 QUICKLY MOVE TECHNOLOGY THROUGH THE WIDEST POSSIBLE 4 ALLOCATIONS FOR THE GREATEST PUBLIC BENEFIT. 5 FINALLY, CIRM SHOULD DISCOUNT ATTEMPTS TO 6 REGULATE COMMERCIAL TRANSACTIONS IN WAYS THAT 7 DISCOURAGE PARTICIPATION OF THE BEST COMPANIES AND 8 ENTREPRENEURS. I THINK THE CONCERN THAT WE'VE HEARD 9 MORE THAN ONCE IS THAT THE MORE STRENUOUS CONDITIONS, 10 ROYALTIES, CAVEATS THAT ARE ATTACHED TO TECHNOLOGY 11 TRANSFER RELATIONSHIPS, THE MORE RELUCTANT COMMERCIAL 12 PARTICIPANTS ARE TO CAPITALIZE ON THOSE RELATIONSHIPS 13 AND THOSE TECHNOLOGIES. 14 SO I THINK FROM CHI'S POINT OF VIEW, GUIDING 15 PRINCIPLES FOR CIRM WITH RESPECT TO COMMERCIAL IP 16 POLICY SHOULD BE, FIRST, MAXIMUM ACCELERATION OF THE 17 BEST SCIENCE. AND WHETHER THAT SCIENCE AS TECHNOLOGY 18 EXISTS IN A COMMERCIAL COMPANY OR IN AN ACADEMIC 19 INSTITUTION, CIRM SHOULD BE RIGOROUS AND THOUGHTFUL IN 20 MAKING INVESTMENTS BEHIND THE BEST SCIENCE. CIRM HAS 21 COLLECTED AN ASTONISHINGLY GOOD SET OF EXPERT 22 SCIENTIFIC REVIEWERS, AND THE ABILITY OF CIRM TO MAKE 23 INTELLIGENT JUDGMENTS WITH RESPECT TO WHERE THE BEST 24 SCIENCE IS AND WHERE FUNDING OPPORTUNITIES LIE, I 25 THINK, IS SUPERB AND SHOULD BE APPLAUDED.

43 1 SECOND, INVESTMENT IN IMPORTANT AREAS OUTSIDE 2 ACADEMIC EXPERTISE ARE IMPORTANT FOR ANY COMMERCIAL 3 PRODUCT OR WIDE-SCALE APPLICATION OF STEM CELL 4 RESEARCH. SO, FOR EXAMPLE, SCALED PRODUCTION IS AN 5 AREA THAT'S UNLIKELY TO BE FOUND IN A UNIVERSITY AND 6 MAY WELL EXIST IN A COMPANY THAT MIGHT BE A TARGET FOR 7 CIRM FUNDING. AND I'M SURE THERE ARE MANY, MANY OTHER 8 AREAS. 9 FINALLY, THAT CIRM SHOULD FOSTER THE 10 DEVELOPMENT OF BUSINESS MODELS FOR COMMERCIAL STEM 11 CELL-BASED PRODUCTS. PART OF THE REASON, IN FACT, 12 PERHAPS THE MAIN REASON, THAT VENTURE CAPITALISTS HAVE 13 NOT BEEN FUNDING STEM CELL RESEARCH IN A LARGE WAY IS 14 THAT WE DON'T HAVE BUSINESS MODELS TODAY THAT SUPPORT 15 THAT. AND WHEN WE DO AND IF THERE'S A CLEAR PATH TO 16 PROFITABILITY, THE LANDSCAPE WILL CHANGE DRAMATICALLY. 17 SO I HAVE THREE EXAMPLES FOR YOU. THIS IS 18 THE FUN PART OF THE PROGRAM. SO HERE'S A 19 GOVERNMENT-FUNDED CAR. COST ABOUT $22 MILLION, AND IT 20 WORKED VERY, VERY WELL FOR ITS PURPOSE. THIS IS A 21 GOVERNMENT-BUILT TRUCK. THIS WAS BUILT IN 1956 IN THE 22 SOVIET UNION. THIS IS A PUBLIC-PRIVATE PARTNERSHIP 23 CAR, AND IT'S INTERESTING. IT REPRESENTS AN 24 EXTRAORDINARY CONTRIBUTION OF, IN THIS CASE ORIGINALLY 25 IN JAPAN, OF PUBLIC MONEY CHANNELED INTO TOYOTA OF A

44 1 PRIVATE COMPANY ON THE THEORY THAT IF TOYOTA BECAME 2 MORE COMPETITIVE AND SOLD MORE CARS, IT WOULD BENEFIT 3 THE JAPANESE ECONOMY. SO FAR SO GOOD. 4 SO THANK YOU FOR YOUR ATTENTION. AND I'D BE 5 HAPPY TO ENTERTAIN ANY QUESTIONS OR COMMENTS. 6 CHAIRMAN PENHOET: THANK YOU VERY MUCH, 7 DAVID. SO STARTING HERE IN SAN DIEGO WITH THE MEMBERS 8 OF THE TASK FORCE. 9 DR. PRIETO: FRANCISCO PRIETO. I GUESS MY 10 QUESTION UNDER THE DARPA MODEL THAT YOU CITED IS WHAT 11 IS THE BENEFIT TO TAXPAYERS BECAUSE THAT SEEMS PERHAPS 12 NEBULOUS? 13 AND ALSO, JUST A COMMENT THAT I WOULD SEE 14 SHARING IN ROYALTIES AS NOT A TAX, BUT MORE AN 15 EXPECTATION THAT AN INVESTOR MIGHT PUT IN. AND, OF 16 COURSE, HERE THE INVESTORS ARE THE STATE OF CALIFORNIA. 17 MR. GOLLAHER: SURE. WHAT'S THE PUBLIC 18 BENEFIT FROM DARPA? THE THEORY, AND YOU CAN ACCEPT IT 19 OR NOT, IS THAT PUBLIC SAFETY THROUGH THE MILITARY 20 BEING EQUIPPED WITH THE MOST ADVANCED TECHNOLOGY IS THE 21 PUBLIC BENEFIT. DOES THAT HAVE AN ECONOMIC 22 IMPLICATION? AND I THINK THE ANSWER WOULD BE YES. SO 23 I GUESS THAT'S AS FAR AS I CAN TAKE THAT. 24 IN TERMS OF A ROYALTY PERCENTAGE RETURN BEING 25 A TAX, I DON'T KNOW HOW ELSE I WOULD CONSTRUE THAT. I

45 1 MEAN IT IS A TAX. ON THE TRANSACTION, TAXES ARE NOT 2 NECESSARILY BAD THINGS, SO I'M NOT SUGGESTING THAT IT'S 3 WRONG OR BAD. I'M ONLY SUGGESTING THAT IT BECOMES PART 4 OF THE EQUATION IN THE COMMERCIAL TRANSACTION THAT 5 SOMETHING THAT HAS TO BE TAKEN INTO ACCOUNT BECAUSE IT 6 HAS ECONOMIC VALUE. I'M NOT AGAINST TAXES. 7 DR. PRIETO: I JUST, YOU KNOW, WONDER HOW 8 ELSE WOULD AN INVESTOR EXPECT TO GET A RETURN? 9 MR. GOLLAHER: WELL, I THINK THIS CUTS TO THE 10 VERY HEART OF THE MATTER, AND ACTUALLY CUTS TO THE 11 HEART OF JOHN SIMPSON'S PRESENTATION TOO. AND THAT HAS 12 TO DO WITH WHAT IS THE RETURN. AND I THINK THAT TO 13 MAKE A VERY EXTREME -- TO PRESENT AN EXTREME DICHOTOMY, 14 ON THE ONE HAND, YOU COULD ARGUE THAT THE GREATEST 15 RETURN TO PUBLIC HEALTH WOULD BE THE GREATEST 16 DISSEMINATION OF THESE TECHNOLOGIES INTO PRODUCTS FOR 17 PATIENTS. THAT PRODUCES A PUBLIC HEALTH RETURN. 18 IF, IN ADDITION TO THAT, YOU LOOKED FOR A 19 FINANCIAL MONETARY RETURN, I THINK THAT'S AN ADDITION 20 TOO. BUT THE ARGUMENT THAT WE HAD DURING THE 21 REASONABLE PRICING ATTACHMENT TO CRATA'S AT NIH AND THE 22 CONGRESS HAD OVER MONTHS AND MONTHS REVOLVED EXACTLY 23 AROUND THIS ISSUE ABOUT WHETHER NIH IN ITS INTELLECTUAL 24 PROPERTY TRANSFER COOPERATIVE RESEARCH AND DEVELOPMENT 25 AGREEMENTS WITH ACADEMIC INSTITUTIONS SHOULD EXPECT A

46 1 FINANCIAL RETURN OR WHETHER THE PUBLIC WOULD BENEFIT 2 MOST FROM FEWER STRINGS AND THE FASTEST POSSIBLE 3 ACCELERATION OF THE SCIENCE. 4 CHAIRMAN PENHOET: ED PENHOET. IF I MIGHT, I 5 THINK THE ISSUES OF DIRECT FINANCIAL RETURN VERSUS 6 INDIRECT FINANCIAL RETURN. THE OTHER ARGUMENT THAT'S 7 MADE, DARPA, FOR EXAMPLE, WAS THE ONLY FUNDER OF THE 8 EARLY DAYS OF THE TECHNOLOGY REVOLUTION. AN EXAMPLE IS 9 THE COMPUTER INDUSTRY PROVIDED GOVERNMENT FUNDING. IT 10 HAS ALREADY BEEN RETURNED, IN ADDITION TO DIRECT 11 RETURN, WHICH IS WHAT YOU'D BE TALKING ABOUT IF THERE 12 WAS A DIRECT RELATIONSHIP. THE INDIRECT RETURNS ARE A 13 MORE ROBUST ECONOMY IN FINANCIAL TERMS, MORE ROBUST 14 BUSINESS SECTOR PAYING TAXES. 15 MR. GOLLAHER: THAT'S WELL SAID. 16 DR. REED: JOHN REED. I WAS WONDERING IF YOU 17 COULD MAKE SOME GENERAL COMMENTS. I'M SURE YOUR 18 ORGANIZATION MUST LOOK AT THIS. AND THAT IS, ON THE 19 TOPIC OF THE STATE OF CALIFORNIA AND ITS RELATIVE 20 COMPETITIVENESS IN THE BIOTECHNOLOGY AND LIFE SCIENCE 21 INDUSTRY, AND SPEAK TO THE ISSUE ABOUT OUR STATE AND 22 ITS INCENTIVES AND BUSINESS FRIENDLY PRACTICES RELATIVE 23 TO OUR STATE AND OTHER STATES IN TERMS OF DISINCENTIVES 24 AND BUSINESS UNFRIENDLY PRACTICES AND HOW THAT WILL 25 WEIGH IN, DO YOU THINK, ON THE ULTIMATE BENEFIT TO

47 1 PATIENTS AND RETURNED ECONOMICALLY TO THE STATE. 2 MR. GOLLAHER: THAT'S A GREAT QUESTION, AND 3 THE TENTATIVE LANDSCAPE IN BIOTECH AND THE LIFE 4 SCIENCES IS CHANGING VERY QUICKLY RIGHT NOW, CERTAINLY 5 OVER THE PAST FEW YEARS. I THINK THE FIRST COMMENT IS 6 THAT OUR GLOBAL LEADERSHIP IN LIFE SCIENCES DIDN'T 7 HAPPEN AS THE RESULT OF ANY STATE POLICY EXCEPT FOR 8 ONE, AND THAT WAS THE FUNDING AND BUILDING OF RESEARCH 9 EXCELLENCE AT THE UNIVERSITY OF CALIFORNIA. AND THAT 10 BECAME AN EXTRAORDINARILY IMPORTANT ENGINE, 11 INTELLECTUAL ENGINE, BEHIND THE GROWTH OF THE LIFE 12 SCIENCES INDUSTRY. 13 NONETHELESS, OVER THE PAST 20 OR 30 YEARS, 14 CALIFORNIA HAS TURNED INTO AN INCREASINGLY DIFFICULT 15 PLACE TO DO BUSINESS, AND MUCH OF IT IS OUTSIDE THE 16 CONTROL OF GOVERNMENT, HIGH HOUSING PRICES, LOTS OF 17 INFRASTRUCTURE PROBLEMS, AND SO FORTH. AND YET WE HAVE 18 SO MANY OF THOSE ELEMENTS THAT I ALLUDED TO WITH 19 RESPECT TO CLUSTER THAT WE'RE STILL A MAGNET. 20 NOW, AT THE MARGIN OTHER COMPANIES AND 21 OTHER -- I'M SORRY -- OTHER COUNTRIES AND STATES HAVE 22 UNDERSTOOD THAT THESE ARE TERRIFIC CLUSTERS TO DEVELOP, 23 THAT THEY'RE HIGH PAYING JOBS, KNOWLEDGE WORKERS, THE 24 KIND OF COMPANIES AND UNIVERSITIES THAT YOU WOULD WANT 25 YOUR CHILDREN TO WORK FOR, AND THE KINDS OF THINGS THAT

48 1 YOU WANT IN YOUR COMMUNITY THAT HAVE BECOME 2 INCREASINGLY AGGRESSIVE. SO WE'RE SEEING OHIO, 3 FLORIDA, MARYLAND, SINGAPORE WITH EXTRAORDINARY 4 ECONOMIC PACKAGES TO ENTICE COMPANIES OR ENTICE PARTS 5 OF THEIR OPERATIONS OR, INDEED, MANUFACTURING TO MOVE 6 OFFSHORE. 7 WE ARE PERHAPS AT AN INFLECTION TIME NOW IN 8 WHICH THE NEXT STAGE OF DEVELOPMENT IN OUR INDUSTRY 9 WILL HAPPEN IN SOUTHERN CALIFORNIA, SOME OUTSIDE, AND I 10 THINK YOU AT BURNHAM ARE SEEING THE DESKTOP EDITION, IN 11 THIS CASE WITH RESPECT TO FLORIDA, IN WHICH THE 12 GOVERNOR, THE LEGISLATURE PERSONALLY BECOME INVOLVED IN 13 ATTEMPTING TO ATTRACT THE INDUSTRY. 14 NONETHELESS, THE STEM CELL INITIATIVE IN PROP 15 71 AND CIRM, AS IT MOVES FORWARD, IS TREMENDOUSLY 16 ATTRACTIVE IN CALIFORNIA, PARTICULARLY BECAUSE IT DOES 17 LEVERAGE INSTITUTES LIKE BURNHAM AND UCSD'S LIVE AND SO 18 FORTH. 19 CHAIRMAN PENHOET: THANK YOU. ANY COMMENTS 20 OR QUESTIONS FROM IRVINE? 21 DR. STEWARD: NO. 22 CHAIRMAN PENHOET: SAN CARLOS? 23 UNIDENTIFIED SPEAKER: NONE HERE. 24 CHAIRMAN PENHOET: LOS ANGELES? 25 UNIDENTIFIED SPEAKER: NONE.

49 1 CHAIRMAN PENHOET: CHICO. 2 DR. WRIGHT: NO. 3 CHAIRMAN PENHOET: OKAY. ANY COMMENTS FROM 4 THE AUDIENCE IN SAN DIEGO? AUDIENCE IN IRVINE? SAN 5 CARLOS? LOS ANGELES? 6 UNIDENTIFIED SPEAKER: NO. 7 CHAIRMAN PENHOET: OKAY. THANK YOU VERY 8 MUCH, DAVID. I THINK JULIE MEIER WRIGHT WILL PROBABLY 9 TALK MORE ABOUT THE COMPETITIVE INITIATIVE IN 10 CALIFORNIA. AND LIKE I SAID, REMIND PEOPLE ONCE AGAIN 11 ONE OF THE GOALS OF PROP 71 WAS THE ENHANCEMENT OF 12 CALIFORNIA'S POSITION IN THE BIOTECH INDUSTRY 13 GENERALLY. WE WILL HEAR MORE ABOUT THAT FROM JULIE, 14 FOR SURE, LATER ON. 15 OUR NEXT SPEAKER, AND I SAY IT'S VERY NICE TO 16 HAVE SOMEBODY ACTUALLY FROM A STEM CELL COMPANY FOR A 17 CHANGE TO GIVE US THE BENEFITS OF THEIR FACTS ON THIS 18 ISSUE. ALLAN ROBINS IS THE VICE PRESIDENT AND CHIEF 19 TECHNICAL OFFICER OF NOVOCELL, WHICH IS A STEM CELL 20 COMPANY, AND LOOK FORWARD TO YOUR COMMENTS. 21 MR. ROBINS: THANK YOU. FIRST OF ALL, I JUST 22 WANT TO THANK ED AND MARY FOR THE OPPORTUNITY TO TO 23 SPEAK TO YOU TODAY ABOUT THE IMPORTANT POLICY THAT 24 YOU'RE DEVELOPING. IT'S A PIONEER EFFORT. 25 NOVOCELL, I JUST WANT TO MAKE A FEW OPENING

50 1 COMMENTS THAT -- 2 UNIDENTIFIED SPEAKER: CHICO CAN'T HEAR YOU. 3 MR. ROBINS: IS THAT BETTER? NOVOCELL IS A 4 SMALL BIOTECHNOLOGY COMPANY WITH THREE SUBS, ONE HERE 5 IN SAN DIEGO, ONE IN ORANGE COUNTY, AND WHERE I'M FROM 6 IN ATHENS, GEORGIA. AND WE'RE FOCUSED ON THE 7 DEVELOPMENT OF HUMAN ES CELLS TO PRODUCE A PRODUCT TO 8 CURE TYPE 1 DIABETES INITIALLY. THE COMPANY ALSO HAS 9 ENCAPSULATION TECHNOLOGY WHICH IS IN CLINICAL TRIALS AT 10 THIS POINT IN TIME. 11 SO I WANTED TO START THE TALK BY MAKING A 12 COUPLE OF GENERAL POINTS AND THEN GO ON TO A NUMBER OF 13 QUESTIONS THAT MARY POSED OF INTEREST. I'M SURE WE ALL 14 KNOW THIS, BUT I WANTED TO USE IT TO FRAME MY TALK. 15 STEM CELL BUSINESS, IT'S A TRUE BIOTECH OPPORTUNITY IN 16 MUCH THE SAME WAY AS RECOMBINANT DNA WAS A TRUE BIOTECH 17 OPPORTUNITY HERE IN CALIFORNIA IN THE '70S. AND I'M 18 OLD ENOUGH TO HAVE SORT OF LIVED THROUGH THAT AND 19 WORKED BEFORE RECOMBINANT DNA TECHNOLOGY, AND I KNOW 20 THERE WAS A LOT OF EXCITEMENT AT THE TIME, AND THERE 21 WAS A LOT OF CONCERNS, SAFETY ISSUES, AND THERE WAS A 22 LOT OF SPECULATION WHETHER WE WERE ACTUALLY GOING TO 23 GET ANYTHING COMMERCIAL THAT CAME OUT OF THAT. AND 24 THAT'S ALL HISTORY NOW WITH GENENTECH. 25 OBVIOUSLY AT THIS POINT IN TIME, IT'S A VERY

51 1 HIGH RISK, BUT THERE'S HIGH REWARD. AND IT'S DRIVEN BY 2 INNOVATION OF TECHNOLOGIES TO DISCOVER NOVEL PRODUCTS 3 AND SERVICES BASED ON THESE TECHNOLOGIES. BASICALLY IT 4 ENCAPSULATES THE STEM CELL OPPORTUNITIES BEFORE US 5 TODAY. 6 THE THING THAT REALLY EXCITES US AS A COMPANY 7 IS THE POTENTIAL TO PRODUCE TRUE DISEASE MODIFYING 8 TREATMENTS AND CURES FOR MANY DISEASES WHICH ARE 9 DEGENERATIVE DISEASES. TODAY WE TREAT THOSE DISEASES. 10 WE TREAT THE SYMPTOMS FOR THE DISEASES, BUT WE DON'T 11 TREAT THE CAUSES, WHICH IS DEGENERATION OF CELLULAR 12 SYSTEMS, AND SO WE HAVE NO CURES FOR THAT. WE'RE 13 SAYING THIS IS A NEW ERA IN MEDICINE, AND THAT THE 14 2000S WILL BE THE CENTURY OF THE CELL. SO THIS MAY BE 15 ONE OF THE LAST FRONTIERS IN HUMAN MEDICINE THAT WE ARE 16 VERY EXCITED TO BE INVOLVED IN. 17 I THOUGHT I'D GIVE THE PITCH FOR YOUR HOME 18 STATE. WHY CALIFORNIA? IT'S -- THIS POINT HAS BEEN 19 MADE, SO I WON'T BELABOR IT, BUT IT'S THE HUB OF 20 BIOTECHNOLOGY INNOVATION. YOU'VE GOT A LOT OF STEM 21 CELL TALENT; YOU'VE GOT A LOT OF BIOTECH TALENT. 22 YOU'VE GOT GREAT RESEARCH INSTITUTIONS. YOU'VE GOT 23 GREAT INFRASTRUCTURE, GOT THINGS LIKE SAN DIEGO 24 CONSORTIUM. YOU'VE GOT A CONGREGATION OF VERY 25 EXPERIENCED VENTURE CAPITALISTS. WE FEEL GOOD ABOUT

52 1 THIS BECAUSE THEY'VE MADE MONEY IN AREAS THAT THEY'VE 2 INVESTED IN BEFORE THAT WOULD SEEM TO BE HIGHLY RISKY. 3 AND, OF COURSE, PROPOSITION 71 AND THE INSTITUTE FOR 4 REGENERATIVE MEDICINE. 5 WHAT ARE THE CONCERNS FROM A COMPANY POINT OF 6 VIEW AND FROM OUR INVESTORS' POINT OF VIEW? WHAT ARE 7 THE CONCERNS THAT FACE US? THERE'S A FINANCIAL 8 UNCERTAINTY. WE CAN'T GO OUT AND RAISE FIVE YEARS 9 MONEY AND SIT ON THAT AND SAY TO OUR INVESTORS COME 10 BACK IN FIVE YEARS AND WE'LL SHOW YOU WHAT WE'VE 11 DEVELOPED. SO IT'S PRETTY MUCH HAND TO MOUTH. POINTS 12 WERE MADE EARLIER. MANY VENTURE CAPITALISTS ARE 13 SITTING ON THE SIDELINES. JOHN MADE THE POINT ABOUT 14 INTELLECTUAL PROPERTY. IT'S REALLY EXTREMELY 15 COMPLICATED. THERE'S ABOUT 1500 PATENTS THAT HAVE BEEN 16 ISSUED WITH THE WORD "INFILL" IN THE CLAIM. AND 17 THERE'S ABOUT ANOTHER 2,500 PATENTS THAT HAVE BEEN 18 PUBLISHED AND ARE WORKING THEIR WAY -- SORRY -- PATENT 19 APPLICATIONS THAT HAVE BEEN PUBLISHED AND ARE WORKING 20 THEIR WAY THROUGH THE USPTO. SO IT'S AN EXTREMELY 21 COMPLICATED AREA. 22 THE TIMELINES FOR CELL PRODUCTS ARE VERY 23 UNCERTAIN, AND (INAUDIBLE) BE FOR A WAY WHEN WE'VE 24 PRODUCED TIMELINES. BUT THE FACT IS THIS IS A 25 FIRST-IN-CLASS DEVELOPMENT OF NEW PRODUCTS, AND NOBODY

53 1 KNOWS THE (INAUDIBLE). AND WE ALL KNOW ABOUT THE 2 POLITICAL/ETHICAL TENSIONS THAT FACE THIS AREA, 3 PARTICULARLY WITH HUMAN EMBRYONIC STEM CELLS. 4 SO TO MARY'S SPECIFIC QUESTIONS THAT SHE 5 POSED FOR ME. ONE IS THE VALUE OF RESEARCH GRANTS TO 6 COMPANIES. WELL, THE FIRST ONE REALLY IS THAT IT 7 DECREASES OUR INVESTORS' RISK A LITTLE BIT. WE SEE 8 THIS AS A PARTNERSHIP WHERE WE TRY TO DEVELOP CURES FOR 9 DISEASES AND WHERE ALL PARTIES SHOULD BENEFIT. AS I 10 SAID, A LOT OF INVESTORS ARE SITTING ON THE SIDELINE, 11 AND THAT'S BECAUSE OVER THE LAST 10 OR 15 YEARS, WE'VE 12 SEEN TECHNOLOGY SUCH AS ANTI-SENSE, CANCER VACCINES, 13 GENE THERAPIES, GENOMICS, XENOTRANSPLANTATION IS 14 ANOTHER ONE. WE'VE SEEN A LOT OF MONEY SPENT, AND SO 15 FAR WE HAVEN'T SEEN ANY PRODUCTS. 16 BUT WE CAN ALSO LOOK AT TECHNOLOGIES LIKE THE 17 DEVELOPMENT OF MONOCLONAL ANTIBODIES, WHICH FOR A LONG 18 TIME DIDN'T WORK, A LOT OF MONEY WAS SUNK INTO IT, AND 19 THEN WHEN PEOPLE REALIZED THAT WITH MONOCLONAL 20 ANTIBODIES, YOU HAD SOMETHING THAT WAS VALUABLE. AND 21 THAT SECTOR OF THE INDUSTRY IS GROWING AT A VERY RAPID 22 RATE AT THE MOMENT. OBVIOUSLY ANY INVESTMENT IN 23 RESEARCH IS NONDILUTIVE FOR THE COMPANY. AND IT CAN 24 POTENTIALLY DECREASE TIMELINES BECAUSE, AGAIN, JOHN 25 POINTED OUT THAT THE BASIC INVESTMENT IN THIS AREA OVER

54 1 THE LAST YEAR WAS MINIMAL, AND SO WE CAN'T DO ALL THE 2 THINGS WE'D LIKE TO DO. WE CAN'T PARALLEL TRACK ALL 3 THE THINGS WE'D LIKE TO DO. AND I THINK HAVING 4 ADDITIONAL INVESTMENT THROUGH THE INSTITUTE WOULD MAKE 5 THOSE THINGS POSSIBLE. 6 IT WILL ALLOW GREATER INNOVATION. DAVID MADE 7 THE POINT THERE'S A LOT OF INNOVATION GOES ON IN 8 UNIVERSITIES AND RESEARCH INSTITUTIONS, BUT INNOVATION 9 ALSO GOES ON IN COMPANIES. AND I THINK IN TERMS OF THE 10 SORT OF RESEARCH COMPONENT OF IT, SOME OF OUR NOVOCELL 11 WORK IS THE ETHICAL PART. ONE OF MY COLLEAGUES 12 PUBLISHED A PRESTIGIOUS PAPER IN NATURE BIOTECHNOLOGY 13 AT THE END OF LAST YEAR. SO WE DO DO GOOD RESEARCH IN 14 COMPANIES TOO. IT'S NOT ONLY THE TRANSLATIONAL 15 RESEARCH. 16 THE LAST POINT IS THAT YOU CAN PROVIDE PEER 17 REVIEWED EVALUATION. SO OUR INVESTORS, TO A LARGE 18 EXTENT, DON'T HAVE ACCESS TO THE SORT OF SOPHISTICATED 19 PEER REVIEW EVALUATION THAT THE INSTITUTE WILL HAVE 20 ACCESS TO. AND I THINK IT WOULD GIVE OUR INVESTORS 21 SOME CONFIDENCE IF THERE WAS A THIRD-PARTY EXTERNAL 22 REVIEW THAT LOOKED AT THE SCIENCE IN A VERY HARD WAY. 23 SECOND QUESTION MARY ASKED US ABOUT OUTSIDE 24 GRANT EXPERIENCE THAT CALIFORNIA HAS HAD. I'M USING 25 TODAY THE EXAMPLE OF JDRF BECAUSE WE HAVE HAD A COUPLE

55 1 OF GRANTS FROM JDRF AND WE JUST OUTLINED TO YOU WHAT WE 2 FUND WITH THEM. WE'VE ALSO HAD NIH GRANTS THROUGH SBIR 3 AND THROUGH INFRASTRUCTURE GRANTS, BUT I THINK THEY'RE 4 LESS RELEVANT TO WHAT WE'RE TALKING ABOUT TODAY. 5 AND LEVEL WITH THIS IS ABSOLUTELY APPLICABLE 6 TO IP, BUT I JUST WANTED TO RUN THROUGH THE MAJOR 7 POINTS OF A GRANT THAT WE HAVE AT THE MOMENT. FIRST OF 8 ALL, THERE'S A STEERING COMMITTEE, SO IT'S A 9 PARTNERSHIP BETWEEN JDRF AND NOVOCELL, TWO FROM 10 NOVOCELL AND TWO FROM JDRF. WE HAVE TO PROVIDE 11 PROGRESS REPORTS, BOTH TECHNICAL AND FINANCIAL, AND 12 THEY'RE SIX MONTHLY. WE HAVE TO PROVIDE AT LEAST THE 13 TECHNICAL REPORTS FOR UP TO FIVE YEARS AFTER THE 14 COMPLETION OF THE GRANT. WE HAVE TO MAKE REASONABLE 15 EFFORTS TO EITHER PUBLISH OR DISSEMINATE THE RESULTS, 16 WHICH MEANS TALK ABOUT THEM AT CONFERENCES OR WHATEVER, 17 WE DON'T NECESSARILY HAVE TO PUBLISH IT. AND IT IS 18 REASONABLE EFFORT, WHICH IS A DIFFERENT LEGAL MEANING 19 FROM BEST EFFORT. BUT NEVERTHELESS, THERE'S A 20 GOOD-FAITH EXPECTATION. 21 THE INTELLECTUAL PROPERTY, IF THERE IS ANY, 22 THAT'S DEVELOPED IS OWNED BY NOVOCELL. BUT IF WE WANT 23 TO ABANDON ANY INTELLECTUAL PROPERTY DURING 24 PROSECUTION, JDRF HAS A RIGHT OF NEGOTIATION TO THAT 25 INTELLECTUAL PROPERTY. WE HAVE TO REPORT ANY

56 1 THIRD-PARTY AGREEMENT FOR INTELLECTUAL PROPERTY THAT'S 2 DEVELOPED UNDER THE AGREEMENT OR MIGHT BE COVERED UNDER 3 THE AGREEMENT FOR UP TO TEN YEARS. 4 I GUESS THE MODEL WITH JDRF, AND IT'S TRUE 5 WE'VE HAD A COUPLE OF CONTRACTS AND THEY'RE NEGOTIATED 6 ON AN INDIVIDUAL BASIS, BUT THIS PARTICULAR ONE ASKED 7 FOR REPAYMENT OF THREE TIMES OF THE TOTAL FUNDING, AND 8 IT'S BASED ON PRODUCT SALES IN WHOLE OR IN PART ON 9 RESULTS -- SORRY -- WHERE THE PRODUCT IS IN WHOLE OR IN 10 PART FROM RESULTS OF THE RESEARCH PROGRAM. AND SO IT'S 11 UNLIKELY THAT SOME FUNDED PIECE OF RESEARCH, AND IT 12 COMES BACK TO THE CONTINUUM IDEA THAT I WAS TALKING 13 ABOUT THE OTHER DAY -- I'M SORRY -- A LITTLE EARLIER IN 14 YOUR TALK, IT'S UNLIKELY THAT YOU'RE GOING TO FUND 15 SOMETHING THAT'S GOING TO TAKE, AT LEAST FROM A CONCEPT 16 TO A PRODUCT, BUT IF THERE'S SOME INTELLECTUAL PROPERTY 17 IN THERE, THEN THIS IS THE WAY THAT JDRF PROPOSES TO 18 SHARE IT. 19 OR 5 PERCENT OF THIRD-PARTY PAYMENT. WHAT 20 THAT REALLY COMES DOWN TO, AND JOHN USED A NUMBER OF 25 21 PERCENT, WHICH IN THE INDUSTRY WOULD BE HIGH. I MEAN 22 IT'S REALLY A SUBLICENSING FEE. SO IF WE HAD 23 SUBLICENSING TECHNOLOGY TO A THIRD PARTY, SAY A BIG 24 PHARMA COMPANY, TO COMMERCIALIZE IT, THEN SOME PORTION 25 OF THAT SUBLICENSING FEE CAN GO BACK TO JDRF, GO BACK

57 1 TO THE INSTITUTION. AND THE DEALS THAT I'VE DONE WITH 2 UNIVERSITIES OR WITH JDRF OR WHATEVER, THIS NUMBER IS 3 NORMALLY SORT OF 5 TO 10 PERCENT. 4 THERE'S NO REPAYMENT IF COMMERCIALIZATION 5 DOESN'T OCCUR. WE ALL KNOW THAT THERE'S HIGH RISK, 6 HIGH REWARD. OUR INVESTORS ARE IN THERE ALONGSIDE 7 THOSE OF JDRF, AND SO IT SEEMS FAIR, A FAIR PRINCIPLE 8 THAT IF NO COMMERCIALIZATION OCCURS, THERE WILL BE NO 9 REPAYMENT. 10 WE CANNOT ASSIGN OR SUBCONTRACT THE GRANT OR 11 INTELLECTUAL PROPERTY WITHOUT PRIOR CONSENT. THAT'S 12 EXCEPT IN THE CASE OF A MERGER OR ACQUISITION. 13 ONE THING THAT MARY ASKED ME ABOUT IS 14 POTENTIAL INTELLECTUAL PROPERTY AND REVENUE SHARING 15 MODELS. AND I PUT UP THREE OR FOUR DIFFERENT MODELS, 16 AND TO ME THE JDRF MODEL IS VERY ACCEPTABLE BECAUSE ON 17 DAY ONE THE COMPANY KNOWS WHAT THEY'RE SIGNING UP FOR. 18 WE'RE GOING TO BE GIVING, IF THERE'S A PRODUCT, THAT 19 ENSURES HERE'S THE RETURN. NOW, IT'S A 3 X RETURN, SO 20 THAT SEEMS REASONABLE. AND I KNOW JDRF NEGOTIATES ON 21 THAT. I'VE SEEN CONTRACTS OF 2 X, AND I'VE SEEN 22 CONTRACTS OF 4 X. 23 THE OTHER THING THAT I THINK IS GOOD IS 24 THERE'S BEEN A LOT OF FOCUS ON INTELLECTUAL PROPERTY, 25 BUT THE MODEL IS NOT BASED ON INTELLECTUAL PROPERTY,

58 1 BUT PRODUCT SALES. SO DAVID MADE THE POINT, AND IT'S A 2 VERY GOOD ONE, A LOT OF THE THINGS THAT COMPANIES WILL 3 DO IS TRANSLATING BASIC RESEARCH INTO A PRODUCT. I'LL 4 MAKE THIS UNDER MY NEXT POINT, THE ROYALTY MODEL, WHERE 5 I'LL TELL YOU IT MAY WORK IF IT'S LIMITED TO NEW IP, 6 BUT MY VISION OF WHAT CIRM WOULD LIKELY FUND IN A 7 COMPANY SCENARIO, I WOULD LOOK AT ACTIVITIES SUCH AS 8 CLINICAL TRIALS, SUCH AS SCALE-UP THAT DAVID MENTIONED, 9 SUCH AS MANUFACTURING PROCESS TOGETHER. AND MOST 10 IMPORTANT, NECESSARILY LEADS TO INTELLECTUAL PROPERTY. 11 SO A ROYALTY MODEL BASED ON INTELLECTUAL PROPERTY, I 12 THINK, MIGHT HAVE THE INSTITUTE MISSING OUT ON REVENUES 13 THAT IT WOULDN'T OTHERWISE. 14 THE OTHER THING WITH A ROYALTY MODEL IS THAT 15 THIS IS A VERY COMPLEX FIELD, AND WHOEVER 16 COMMERCIALIZES A PRODUCT IS GOING TO REQUIRE MULTIPLE 17 LICENSES. YOU ARE GOING TO WANT TO HAVE ANTISTACKING 18 PROVISIONS IN THOSE LICENSES, AND THESE ROYALTIES GET 19 OUT OF HAND VERY, VERY QUICKLY. WE KNOW BECAUSE WE'RE 20 DEALING WITH A FEW PARTNERS AT THE MOMENT, AND WE KNOW 21 THAT ADDING ROYALTY AFTER ROYALTY IS VERY UNATTRACTIVE 22 TO FUTURE PARTNERS AS OPPOSED TO A MODEL WHERE THEY 23 KNOW WHAT THEY'RE SIGNING UP FOR. 24 OTHER POTENTIAL MODELS, WE TALKED ABOUT 25 LOANS, AND I THINK A LOAN COULD WORK FINE, AN INTEREST

59 1 BEARING LOAN, WHICH IS FORGIVABLE IF NO PRODUCT WITHIN 2 X YEARS. SO UNLIKE JOHN'S MODEL, THIS IS NOT LIKE 3 BUILDING A HOUSE BECAUSE THERE'S NOT A SURETY THAT 4 WE'RE GOING TO HAVE A PRODUCT AT THE END OF THE DAY. 5 OUR INVESTMENT SCHEME AND MONEY IS ON THE LINE. CIRM'S 6 MONEY IS ON THE LINE. IT BEING FAIR THAT THAT WOULD BE 7 FORGIVABLE IF NO PRODUCT WAS DEVELOPED. 8 IT CAN BE MESSY ACCOUNTINGWISE. IT WOULD SIT 9 ON OUR BALANCE SHEET, AND SO I KNOW THAT OUR FINANCIAL 10 FOLKS WOULDN'T LIKE THAT; BUT NEVERTHELESS, IT'S A 11 MODEL THAT COULD WORK. 12 AND I DON'T KNOW WHAT THE RULES ARE FOR CIRM 13 IN TERMS OF HOLDING EQUITY IN COMPANIES, BUT ANOTHER 14 THING THAT I THOUGHT OF, AND THIS IS JUST IDEAS I'M 15 THROWING OUT THERE, IS CONVERTIBLE DEBT. AND SO IT'S 16 BASICALLY A LOAN AND IT BEARS INTEREST, BUT IT CAN BE 17 CONVERTED AT THE OPTION OF THE COMPANY OR YOU COULD 18 ARGUE AT THE OPTION OF CIRM. AND, OF COURSE, THE 19 COMPANY WOULD RATHER AT THE OPTION OF THE COMPANY AT 20 SOME POINT IN TIME OR WHEN SOME EVENT HAPPENS. THIS IS 21 A MODEL THAT COULD WORK. 22 GETTING BACK TO THE BENEFITS TO CALIFORNIA, 23 THE LAST MODEL I THOUGHT ABOUT WAS A SORT OF AN 24 EXCLUSIVE MARKETING TOOL. PATIENTS CAN COME FROM ALL 25 OVER THE WORLD, AND THEY DO GO TO VARIOUS PLACES FOR

60 1 VARIOUS TREATMENTS. SO WHAT ABOUT IF FOR A PERIOD OF 2 TIME, YOUR PRODUCTS WERE OFFERED ONLY IN CALIFORNIA SO 3 THAT THE BUSINESS IN CALIFORNIA IS GROWING. AND THAT 4 STIMULATES THE STATE ECONOMY. IT'S AN INDIRECT WAY OF 5 GETTING MONEY BACK INTO THE STATE. BUT, AGAIN, 6 PARTNERS WON'T LIKE THAT IF YOU'RE GOING WITH A BIG 7 BIOTECH COMPANY THAT WORKS INTERNATIONALLY, BUT IT'S 8 SOMETHING THAT I, AT LEAST, THINK YOU SHOULD DO. 9 I THINK THIS HAS ALREADY BEEN ADDRESSED BY 10 ED. CAN CIRM MAKE UNIFORM POLICIES FOR COMMERCIAL 11 ENTITIES, UNIFORM POLICIES? I THINK IT'S DIFFICULT, 12 BUT BASICALLY (INAUDIBLE) JDRF MODEL WHERE THEY'RE 13 INDIVIDUALLY NEGOTIATED. WHILE THEY'RE MUCH MORE 14 COMPLICATED FOR CIRM, I THINK IT'S THE ONLY WAY TO DO 15 IT. IT'S NOT REALLY POSSIBLE TO DO IT ANY OTHER WAY. 16 I'LL JUST PUT UP A COUPLE OF POINTS FOR 17 COMPANIES AT VARIOUS STAGES. I WOULD NOTE WHAT SORT OF 18 A DEAL YOU CAN CUT WITH A COMPANY WILL -- A VIRTUAL 19 COMPANY, YOU'VE PROBABLY GOT A LOT MORE LEVERAGE OVER 20 THAN A PRIVATE COMPANY WITH VC INVESTORS. AND, OF 21 COURSE, A PUBLIC COMPANY HAS ITS SHAREHOLDERS TO DEAL 22 WITH. AND SO ALL THESE GROUPS ARE VERY DIFFERENT WHEN 23 YOU LOOK AT THEM. AND THERE ARE STEM CELL COMPANIES 24 THAT FIT INTO ALL THESE CATEGORIES. AND THEN, OF 25 COURSE, THERE ARE BUSINESSES. WE WOULD SEE OURSELVES

61 1 AS A THERAPEUTICS BUSINESS. OUR INVITROGEN FRIENDS 2 WOULD SEE THEMSELVES AS BEING IN THE REAGENTS BUSINESS, 3 AND, OF COURSE, ONE CAN CONCLUDE DIAGNOSTICS IS A 4 BUSINESS. AND THE SORTS OF RETURNS ON THOSE BUSINESSES 5 ARE DIFFERENT, AND SO ARE THE SORT OF DEALS YOU HAVE 6 ARE DIFFERENT TOO. 7 COLLABORATIVE CONSORTIUMS ARE SORT OF LIKE 8 THE LAST QUESTION, AND I REALLY STRUGGLED WITH THIS. 9 COLLABORATIVE CONSORTIUMS BETWEEN PUBLIC COMPANIES ARE 10 BASICALLY DRIVEN BY TRYING TO INCREASE SHAREHOLDER 11 VALUES. IT IS VERY DIFFICULT. AND SO I THINK IF SUCH 12 PROGRAMS ARE SET UP, THEY NEED TO BE DRIVEN BY 13 COMMERCIAL CONSIDERATIONS. COMPANIES ARE ONLY GOING TO 14 WORK TOGETHER WHEN THEY BOTH HAVE SOMETHING TO GAIN 15 FROM IT. AND I THINK CORPORATE CULTURE IS VERY 16 IMPORTANT. 17 WE MET WITH A COMPANY RECENTLY, AND WHETHER 18 THEIR TECHNOLOGY GOOD OR BAD, ALAN IS LAUGHING BECAUSE 19 HE WAS THERE WITH ME, I CAN TELL YOU AFTER AN HOUR WITH 20 THIS GUY, THERE'S JUST NO WAY WE CAN EVER WORK WITH 21 THEM. 22 ANOTHER IMPORTANT POINT IS THAT COMPANIES 23 NEED TO BE ABLE TO MAINTAIN CONTROL OF CONFIDENTIAL 24 INFORMATION AND INTELLECTUAL PROPERTY. AND I'VE HEARD 25 A LOT OF TALK TODAY ABOUT THE NEED TO SHARE

62 1 CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY, AND 2 MAYBE IN THE PUBLIC SECTOR THAT CAN WORK, BUT IN THE 3 PRIVATE SECTOR IT DOESN'T WORK. I SUSPECT EVEN IN THE 4 PUBLIC SECTOR WHERE PEOPLE ARE APPLYING FOR NIH GRANTS 5 AND THEY NEED LEVERAGE, IT'S VERY DIFFICULT TO MAKE 6 THIS WORK. SO I DO NOT THINK CONSORTIUMS SHOULD BE 7 SOME SORT OF A REQUIREMENT OF CIRM, BUT IT COULD HAVE 8 SPECIFIC GRANTS, MUCH LIKE THE NIH HAS CONSORTIUMS LIKE 9 GRANTS, THEIR PROGRAM GRANTS, AND I THINK IT'S MORE 10 LIKELY TO BE ACADEMIC-ACADEMIC OR COMPANY TO ACADEMIC 11 COLLABORATION THAN IT IS COMPANY TO COMPANY. 12 I'LL JUST FINISH WITH THINGS THAT ARE 13 SLIGHTLY OFF TOPIC, BUT OCCUR TO ME TO BE IMPORTANT 14 THINGS TO CONSIDER. ONE IS HOW WILL CIRM PROTECT 15 CONFIDENTIAL INFORMATION DIVULGED IN GRANT 16 APPLICATIONS? AND HERE I THINK THE NIH MODEL PROBABLY 17 DOESN'T WORK. COMPANIES GET VERY PROTECTIVE, A LITTLE 18 BIT PARANOID ABOUT PROTECTING THEIR INTELLECTUAL 19 PROPERTY AND THINGS THAT THEY KNOW. AND SO THE NIH 20 MODEL WHERE YOU HAVE TO SUBMIT A GRANT IN GREAT DETAIL 21 AND GIVE ALL THESE BACKGROUND RESEARCH RESULTS, AND I 22 KNOW YOU WILL HAVE YOUR REVIEWERS SIGN CONFIDENTIALITY 23 AGREEMENTS, BUT A WELL-KNOWN FRIEND OF MINE ONCE TOLD 24 ME THE SECRET IS SOMETHING THAT TWO PEOPLE KNOW, AND 25 ONE OF THEM IS DEAD.

63 1 IT'S AMAZING BECAUSE WHEN ED SUBMITTED HIS 2 PAPER TO NATURE BIOTECHNOLOGY , LITERALLY I DIDN'T EVEN 3 KNOW HE HAD SUBMITTED IT, BUT A FRIEND CALLED ME FROM 4 SINGAPORE WHO HAD BEEN TOLD BY ONE OF THE REVIEWERS 5 THAT THIS PAPER HAS BEEN SUBMITTED. THAT'S HOW I FOUND 6 OUT ED HAD SUBMITTED THE PAPER, AND SO I'VE NO FAITH IN 7 THE CONFIDENTIALITY AGREEMENT. 8 SO I THINK IF YOU CAN PRESENT A GRANT WHERE 9 YOU'RE PRESENTING RESULTS, BUT YOU'RE NOT GIVING 10 DETAILS ABOUT HOW YOU MAY HAVE GOTTEN TO A PARTICULAR 11 POINT, OF COURSE, YOU HAVE TO PROVE WHAT YOU'VE GOT IS 12 WHAT YOU'VE GOT. THAT'S A BETTER MODEL THAN WHERE YOU 13 HAVE TO HAVE GREAT DETAIL. 14 THE OTHER THING IS MOST NIH GRANTS ARE 15 HYPOTHESIS DRIVEN. AND WHEN WE'RE TALKING ABOUT 16 COMPANIES DOING TRANSLATIONAL RESEARCH, CLINICAL 17 RESEARCH, DEVELOPING MANUFACTURING PROCESSES DEVELOPED 18 IN DARPA, THIS IS REALLY HYPOTHESIS DRIVEN. AND SO I 19 THINK THAT NEEDS TO BE TAKEN INTO ACCOUNT. 20 THE OTHER THING IS WHEN I WENT BACK AND READ 21 THE PROP 71 LEGISLATION, THE PRIORITY FOR STEM CELL 22 RESEARCH, UNLIKELY TO RECEIVE FEDERAL FUNDING, TO ME 23 THAT MEANS THERE'S REALLY GOING TO BE A FOCUS ON HUMAN 24 ES CELL RESEARCH, ON THERAPEUTIC CLONING, AND THINGS OF 25 THAT NATURE, AND I'M JUST WONDERING HOW THAT WILL BE

64 1 IMMERSED WITHIN THE ORGANIZATION. I REALIZE THAT'S NOT 2 PURELY AN IP TASK FORCE ISSUE, BUT IT IS AN ISSUE. 3 AND THEN WE'VE ALREADY DISCUSSED THE POINT I 4 RAISED WITH JOHN. HOW WILL CIRM HANDLE ALREADY 5 EXISTING INTELLECTUAL PROPERTY WHICH IS OVERARCHING? 6 AND A LOT WAS SAID ABOUT THE WARF INTELLECTUAL 7 PROPERTY, THAT GERON HAS SOME VERY BROAD PATENTS IN THE 8 AREA, WHICH COULD BE VERY TROUBLESOME, AND THERE ARE 9 OTHER GROUPS. IT'S NOT AS CUT AND DRY AS (INAUDIBLE) 10 HAVING COMPETITION OF (INAUDIBLE). THERE ARE OTHER 11 PATENTS OUT THERE THAT ARE VERY BROAD AND NEED TO BE 12 CONSIDERED. AND I THINK IF YOU'RE GOING TO SPEND A LOT 13 OF MONEY TRYING TO DEVELOP PRODUCT, YOU NEED TO KNOW 14 HOW YOU ARE GOING TO HANDLE IT. THAT'S THE END OF MY 15 TALK. THANK YOU. 16 CHAIRMAN PENHOET: THANK YOU VERY MUCH. VERY 17 THOUGHTFUL PRESENTATION. DO WE HAVE QUESTIONS FROM OUR 18 TASK FORCE WITH US HERE IN SAN DIEGO? IN IRVINE? 19 DR. STEWARD: NO QUESTIONS. 20 CHAIRMAN PENHOET: SAN CARLOS? 21 UNIDENTIFIED SPEAKER: NO QUESTIONS. 22 CHAIRMAN PENHOET: LOS ANGELES? 23 UNIDENTIFIED SPEAKER: NO. 24 CHAIRMAN PENHOET: CHICO? 25 DR. WRIGHT: NO.

65 1 CHAIRMAN PENHOET: UNUSUALLY QUIET GROUP OUT 2 THERE THIS MORNING. HOW ABOUT FROM THE AUDIENCE IN SAN 3 DIEGO? JOHN SIMPSON. 4 MR. SIMPSON: THAT WAS A FANTASTIC 5 PRESENTATION, VERY INTERESTING. I HAVE A QUESTION. I 6 SENSE THAT YOU, ALTHOUGH YOU MIGHT NOT COME DOWN AT THE 7 SAME SPECIFICS, BUT YOU DO BUY INTO THE NOTION THAT IF 8 THERE IS PUBLIC MONEY GOING INTO THIS, THAT THERE IS 9 SOME SORT OF REQUIREMENT FOR PUBLIC BENEFIT TO COME 10 BACK. 11 MR. ROBINS: THE LEGISLATION APPROVED THAT, 12 SO THAT'S VERY CLEAR TO US. WE'RE NOT GOING TO CHANGE 13 THE LEGISLATION, SO I AGREE. 14 MR. SIMPSON: THAT'S DELIGHTFUL TO HEAR. AND 15 THEN THE SECOND QUESTION, I GUESS, WOULD BE YOU 16 ALLUDED -- 17 MR. ROBINS: I DON'T SAY I AGREE. OUR 18 COMPANY AGREES. 19 MR. SIMPSON: YEAH. I UNDERSTAND. THE 20 NOTION OF THE POOLING OF PATENTS, DO YOU SEE A 21 POTENTIAL SOLUTION FOR THAT AND SOME KIND OF PATENT 22 POOL ON THE UPSTREAM RESEARCH PROCESS? WOULD THAT BE 23 USEFUL IF YOU COULD GO TO ONE PLACE AND ONE-STOP 24 SHOPPING, SO TO SPEAK? 25 MR. ROBINS: IT'S A BIT LIKE SOCIALISM OR

66 1 COMMUNISM. THEY HAVE GREAT IDEALS, BUT THE DEVIL IS IN 2 THE DETAIL OF HOW YOU DO THAT. I THINK IN A COMMERCIAL 3 WORLD, WHICH IS, YOU KNOW, LET'S FACE IT AND GET DOWN 4 TO THE (INAUDIBLE). IT'S VERY DIFFICULT TO DO THAT. 5 CHAIRMAN PENHOET: ANY COMMENTS FROM THE 6 PUBLIC IN ANY OF THE OTHER SITES? IF NOT, WE'VE NOW 7 HAD THREE STIMULATING PRESENTATIONS. MAYBE WE'LL TAKE 8 A TEN-MINUTE BREAK, BIOBREAK OR WHATEVER OTHER KIND OF 9 BREAK. THERE'S FOOD OUT HERE ON THE VERANDA IN SAN 10 DIEGO. WE'LL RECONVENE AT 10:15. 11 (A RECESS WAS TAKEN.) 12 MS. KING: SUSAN BRYANT. MICHAEL GOLDBERG. 13 SHERRY LANSING. IS EVERYBODY'S PHONE ON MUTE POSSIBLY? 14 TED LOVE. 15 DR. LOVE: YES, WE'RE HERE. 16 MS. KING: ED PENHOET. 17 CHAIRMAN PENHOET: HERE. 18 MS. KING: PHIL PIZZO. FRANCISCO PRIETO. 19 JOHN REED. 20 DR. REED: HERE. 21 MS. KING: JEFF SHEEHY. OSWALD STEWARD. 22 DR. STEWARD: HERE. 23 MS. KING: JANET WRIGHT. 24 DR. WRIGHT: HERE. 25 MS. KING: I HEARD SOMEONE RING IN, SO I'M

67 1 GOING TO GO BACK THROUGH THE FIRST FEW NAMES AGAIN. 2 SUSAN BRYANT. 3 DR. BRYANT: HERE. 4 MS. KING: MICHAEL GOLDBERG. 5 MR. GOLDBERG: HERE. 6 MS. KING: SHERRY LANSING. 7 CHAIRMAN PENHOET: THERE'S REPRESENTATION. 8 THANK YOU FOR HANGING IN WITH US. 9 NEXT SPEAKER IS JULIE MEIER WRIGHT. JULIE IS 10 CURRENTLY THE SAN DIEGO REGIONAL ECONOMIC DEVELOPMENT 11 CORPORATION'S CEO. IN A PAST LIFE JULIE WAS SECRETARY 12 OF TRADE AND COMMERCE IN THE STATE OF CALIFORNIA AND 13 DID A LOT TO RAISE THE VISIBILITY OF THE BIOTECH 14 INDUSTRY IN THE STATE GOVERNMENT AND TO PROMOTE 15 CALIFORNIA'S BIOTECH INDUSTRY BROADLY. SO, JULIE, 16 THANK YOU VERY MUCH FOR JOINING US TODAY. 17 AND WE ASKED JULIE TO GIVE US A PERSPECTIVE 18 ON THE IMPORTANCE OF CALIFORNIA'S BIOTECH INDUSTRY TO 19 THE ECONOMY OF THE STATE AND PARTICULARLY OBVIOUSLY SAN 20 DIEGO. SO IT'S THE COMPETITIVE POSITION THAT JULIE IS 21 GOING TO ADDRESS HERE THIS MORNING. 22 MS. WRIGHT: EXACTLY. THANK YOU VERY MUCH, 23 ED. IT'S A PLEASURE TO BE HERE THIS MORNING. I THINK 24 YOU WILL FIND THAT MANY -- FOR THOSE OF YOU AT REMOTE 25 SITES, I HAVE A BRIEF POWERPOINT PRESENTATION THAT IS

68 1 KIND OF IN THE MIDDLE, SO I'LL TELL YOU WHEN I'M GOING 2 TO CUE IT UP. 3 I WANTED TO TAKE A SLIGHTLY DIFFERENT TACK 4 AND TALK ABOUT HOW -- WHAT ARE THE ECONOMIC DEVELOPMENT 5 IMPLICATIONS. AND ALTHOUGH I DIDN'T TALK TO 6 DR. GOLLAHER AT ALL ABOUT HIS PRESENTATION, I THINK YOU 7 WILL FIND THAT THEY ARE VERY COMPLEMENTARY. I AM 8 SHARING MY PERSPECTIVE OF BEING SECRETARY OF TRADE AND 9 COMMERCE FROM '91 THROUGH '97 AND ALSO CHAIR OF THE 10 GOVERNOR'S ADVISORY COUNCIL ON BIOTECHNOLOGY AS WELL AS 11 ON THE NATIONAL STRENGTH COMMITTEE FOR THE STUDY OF 12 REGIONAL CLUSTERS AND INNOVATION THAT DR. GOLLAHER 13 REFERRED TO. 14 AND IN THE LAST FEW YEARS, OUR MESSAGES ABOUT 15 STATE ECONOMIC DEVELOPMENT HAVE BEEN PRETTY NEGATIVE. 16 WE'RE VIEWING WHAT THE GAIN ISSUE HAS BEEN SIMILAR, I 17 THINK. BUT OUR MESSAGES ABOUT ECONOMIC DEVELOPMENT IN 18 CALIFORNIA HAVE BEEN PRETTY NEGATIVE. SOME KEY TAX 19 CREDITS HAVE EXPIRED, MANY OF WHICH BENEFIT THE LIFE 20 SCIENCES INDUSTRY. AND GOVERNOR GRAY DAVIS DISMANTLED 21 MY AGENCY IN 2003. SO I THINK THAT IN STARK CONTRAST, 22 THE PASSAGE OF PROP 71 SENT ONE OF THE MOST POWERFUL 23 MESSAGES THAT CALIFORNIA HAS EVER SENT ABOUT BEING AT 24 THE FOREFRONT OF INNOVATION AND SPURRING ECONOMIC 25 DEVELOPMENT.

69 1 SO PREPARING FOR TODAY, I TALKED TO A NUMBER 2 OF PEOPLE, INCLUDING IVOR ROYSTON WHO WAS INVITED TO 3 PRESENT TODAY, BUT IS IN CHINA. HE'S ONE OF SAN 4 DIEGO'S BIOTECH PIONEERS AND AN ACTIVE LIFE SCIENCE 5 INVESTOR. ALSO LAST WEEK MY ORGANIZATION POSTED -- 6 (INTERRUPTION IN PROCEEDINGS.) 7 DR. WRIGHT: ANYWAY, I DO WANT TO EMPHASIZE 8 THAT IT HAS BEEN IN STARK CONTRAST THAT THE PASSAGE OF 9 PROP 71 SENT A HUGELY POWERFUL MESSAGE, MAYBE ONE OF 10 THE MOST IMPORTANT THAT CALIFORNIA HAS EVER SENT, ABOUT 11 BEING AT THE FOREFRONT OF INNOVATION AND SPURRING 12 ECONOMIC DEVELOPMENT. 13 AND IN TALKING TO IVOR ROYSTON AND HOSTING 14 THIS SAN DIEGO CONFERENCE ON COMPETITIVENESS, I HAVE A 15 LOT OF FOOD FOR THOUGHT JUST IN THE LAST FEW DAYS. SO 16 I WANT TO TALK A LITTLE BIT ABOUT THE COMPETITIVE 17 CLIMATE IN WHICH INNOVATION IS TAKING PLACE BECAUSE IT 18 IS REALLY INTENSIFYING. THE PASSAGE OF PROP 71 SPURRED 19 MANY OTHER STATES TO ACTION. AND WHILE THEIR EFFORTS 20 ARE IN SOME CASES NOT AS BOLD AS CALIFORNIA'S, NEITHER 21 ARE THEY TIED UP IN LITIGATION, WHICH HAS PREVENTED THE 22 STATE FROM TRULY BUYING A COMPETITIVE EDGE. AND I DO 23 WANT TO CONGRATULATE CIRM ON A SOLID WIN IN THE 24 CALIFORNIA SUPERIOR COURT LAST WEEK, BUT THE FACT IS 25 THAT TIME WAS ON OUR SIDE AND THE LAWYERS HAVE

70 1 INTERFERED. 2 SO I'M GOING TO GIVE YOU A FEW EXAMPLES OF 3 THE COMPETITIVE LANDSCAPE IN THIS COUNTRY ALONE. 4 WISCONSIN, THE STATE, MENTIONED EARLIER, $350 MILLION 5 LIFE SCIENCES DISCOVERY FUND THAT WILL OUT-TAKE $35 6 MILLION A YEAR. PENNSYLVANIA IS TALKING ABOUT CREATING 7 A $500 MILLION JONAS SALK LEGACY FUND FOR BIOSCIENCES 8 FACULTY AND RECRUITMENT AND FACILITIES. THAT ONE KIND 9 OF BUGS ME SINCE WE HAVE THE SALK INSTITUTE RIGHT UP 10 THE ROAD HERE. MISSOURI IS PROPOSING A $450 MILLION 11 LEWIS AND CLARK DISCOVERY INITIATIVE. OHIO HAS ALREADY 12 ALLOCATED 300 MILLION, 60 PERCENT TO BIOSCIENCE-RELATED 13 INITIATIVES OUT OF 1.6 BILLION. CONNECTICUT, A HUNDRED 14 MILLION OVER TEN YEARS USING SOME TOBACCO SETTLEMENT 15 MONEY. FLORIDA, 30 MILLION LIFETIME GRANT THAT COULD 16 BE EXPANDED. 17 I THINK WHAT WE ALL KNOW ABOUT THEIR 18 AGGRESSIVE EFFORTS TO WIN THE SCRIPPS RESEARCH 19 INSTITUTE AND ARE NOW WORKING ON AN EXPANSION FROM 20 BURNHAM. THESE INSTITUTES WILL MAINTAIN A STRONG 21 PRESENCE IN SAN DIEGO, BUT THESE OPPORTUNITIES ARE TOO 22 ATTRACTIVE FOR THEM TO IGNORE AS THEY SEEK TO EXPAND 23 THEIR RESEARCH BASE. 24 NEW JERSEY, 11 AND A HALF MILLION 25 APPROPRIATED, $150 MILLION IN CAPITAL SPENDING AND

71 1 250 -- 30 MILLION, SORRY, FOR RESEARCH PROPOSED. 2 MARYLAND, 12 MILLION, AND ALSO IN THE 5 TO 10 MILLION 3 RANGE, ILLINOIS AND SOUTH CAROLINA. I WAS GOING TO ADD 4 WISCONSIN UNTIL I LEARNED IN AN E-MAIL FROM ALAN LEWIS 5 OF NOVOCELL THAT GOVERNOR DOYLE WAS AT BIO WITH A 6 STRONG PITCH FOR STEM CELL RESEARCH, AND HE HIGHLIGHTED 7 50 MILLION IN DONATIONS BY THE MORGRIDGE FAMILY, JOHN 8 MORGRIDGE, CALIFORNIA CEO OF CISCO. 50 MILLION FROM 9 THE WISCONSIN ALUMNI RESEARCH FOUNDATION THAT'S BEEN 10 TALKED ABOUT THIS MORNING, AND ANOTHER 50 MILLION FROM 11 THE STATE TO CREATE THE WISCONSIN (INAUDIBLE) OF 12 DISCOVERY. 13 TIME DOESN'T PERMIT TO ME TO FOCUS ON THE 14 INTERNATIONAL COMPETITION, BUT I JUST WANT TO USE 15 SINGAPORE AS ONE EXAMPLE OF MANY. I HAVE A COPY OF AN 16 ARTICLE. I APOLOGIZE FOR NOT GETTING IT TO THE REMOTE 17 SITES, BUT I KNOW THAT MELISSA WILL DO SO AS A PDF 18 FILE. IT IS AN ARTICLE FROM WIRED MAGAZINE CALLED 19 "SINGAPORE WANTS YOU." AND LET ME QUOTE, "THE 20 FUTURE-FRIENDLY CITY-STATE HAS AN OFFER BIOSCIENTISTS 21 CAN'T REFUSE: UNRESTRICTED RESEARCH, TOPNOTCH TALENT, 22 AND LIMITLESS FUNDS. (JUST LEAVE OF CHEWING GUM AT 23 HOME)." IT ALSO GOES ON TO SAY, "SINGAPORE IS TREATING 24 HUNDREDS OF SCIENTISTS LIKE FREE AGENTS, PROMISING 25 FIRST CLASS LABORATORIES, TOPNOTCH EQUIPMENT, AND MORE

72 1 THAN ENOUGH MONEY TO PURSUE WORK THAT'S NOT FUNDABLE, 2 OR IS TOO CONTROVERSIAL, BACK HOME. THE GOVERNMENT IS 3 INVESTING MORE THAN $2 BILLION INTO RESEARCH OF ALL 4 STRIPES HOPING TO ATTRACT LEADERS IN THERAPEUTIC 5 CLONING, DRUG DISCOVERY, CANCER RESEARCH, AND OTHER 6 AREAS. BIOSCIENCE ALL-STARS WHO WILL IN TURN HELP 7 BUILD A LOCAL COMMUNITY THAT WILL BOLSTER THE ECONOMY." 8 I FRANKLY THINK THAT'S WHAT WE OUGHT TO BE 9 TALKING ABOUT DOING IN CALIFORNIA WITH RESPECT TO STEM 10 CELL RESEARCH. OUR OWN ED HOLMES, WHOM YOU ALL KNOW, 11 WHO'S THE DEAN OF UCSD'S MEDICAL SCHOOL, THIS FALL IS 12 GOING TO SPEND 20 WEEKS A YEAR IN SINGAPORE RUNNING 13 THEIR EQUIVALENT TO NIH. AND HIS WIFE IS GOING TO 14 BECOME THE HEAD OF A NEW INSTITUTE FOR TRANSLATIONAL 15 MEDICINE. IN A CONVERSATION WITH ED THIS WEEK, HE 16 SAID, "THEY ARE HARD CHARGING, FOCUSED. WE CANNOT 17 COAST." 18 THE LIFE SCIENCES SECTOR IS UNIQUELY TARGETED 19 BY PEOPLE LIKE ME ALL OVER THE WORLD AND GOVERNMENTS 20 FROM ALL OVER THE WORLD WHO ARE PASSIONATE ABOUT 21 EARNING THEIR SHARE OF THIS EXCITING INDUSTRY. 22 AND NOW IF YOU WANT TO PULL UP THE SLIDES, 23 I'M GOING TO USE A FEW QUICK SLIDES FROM THE LIFE 24 SCIENCE COMMUNITY'S MAJOR INTERNATIONAL CONFERENCE BIO, 25 WHICH THIS YEAR ATTRACTED MORE THAN 20,000 ATTENDEES

73 1 FROM AROUND THE WORLD. THIS CONFERENCE OF 2006 IN 2 CHICAGO ATTRACTED MORE THAN 20,000 PEOPLE GLOBALLY. 3 AND THE IRONY IS IF YOU WALK THE FLOORS OF BIO, IT'S AS 4 MUCH ABOUT ECONOMIC DEVELOPMENT AS IT IS ABOUT SCIENCE 5 ANYMORE. 6 I'M GOING TO GO THROUGH SOME SLIDES VERY 7 QUICKLY. YOU CAN SEE, CALIFORNIA THROW EVERYTHING WE 8 HAVE THE SEVENTH LARGEST ECONOMY IN THE WORLD, HAS A 9 RELATIVELY MODEST PRESENCE AT BIO. LOOK AT OTHER 10 SMALLER STATES THAT IN MANY CASES HAVE NOT VERY MUCH IN 11 THE LIFE SCIENCES: GEORGIA, ILLINOIS, IOWA. DUANE 12 ROTH WILL TELL YOU THAT THE GOVERNOR OF IOWA OUT AND IS 13 ACTIVE TO RECRUIT COMPANIES FROM CALIFORNIA. MICHIGAN, 14 MISSOURI, NEBRASKA, NEW YORK SITE IS BLURRY. THESE ARE 15 AMATEUR PHOTOGRAPHS OBVIOUSLY. 16 IT'S AN INTERNATIONAL COMPETITION. SOME OF 17 THE INTERNATIONAL COMPETITORS DO MAJOR THINGS. AND 18 INCIDENTALLY, I WANT TO SAY THAT LOOKING AT THESE 19 PHOTOGRAPHS OF EXHIBITS IS BUT ONE COMPONENT OF THEIR 20 OVERALL EFFORT, WHICH INCLUDES INCENTIVES, INVESTMENT 21 IN RESEARCH, AND A VARIETY OF OTHER THINGS. 22 THIS FROM BIO 2003. SINGAPORE IS BACK THERE. 23 THIS BIG UPSIDE DOWN UMBRELLA, I GUESS, IS GERMANY. 24 THAT'S MARYLAND. THERE'S THE GERMAN BOOTH. THESE ARE 25 PAVILIONS, NOT JUST BOOTHS, I SHOULD SAY. WASHINGTON

74 1 STATE. IRELAND. CONNECTICUT. KENTUCKY. PLACES WE 2 DON'T EVEN THINK ABOUT DAY-TO-DAY. OF COURSE, ISRAEL. 3 THESE GO BACK TO 2001. THESE ARE SUSTAINED PRESENCE. 4 THESE COMPANIES AND COUNTRIES AND GOVERNMENTS AND 5 REGIONS ARE THERE YEAR AFTER YEAR. PHOENIX. BERLIN. 6 THE WALLONA REGION OF BELGIUM. MARYLAND AGAIN. AND 7 THIS IS THE LAST SLIDE. THIS IS AUSTRALIA'S EXHIBIT IN 8 2001. 9 MANY OF THE EFFORTS OF THESE PLACES ARE GOING 10 TO FAIL, BUT THAT'S THE KIND OF PASSION THAT PURSUES 11 BIOTECHNOLOGY AND MORE RECENTLY STEM CELL RESEARCH. 12 SOME OF THESE, HOWEVER, WILL SUCCEED, AND THEY'LL MAKE 13 MAJOR INROADS IN BUILDING AND INDUSTRY. IT'S KIND OF 14 LIKE RESEARCH TRIANGLE PARK IN THE '70S AND FLORIDA'S 15 LIFE SCIENCES EFFORTS TODAY. A LOT OF VISION AND 16 ENOUGH MONEY CAN REALLY TRANSFORM A STATE. 17 THIS IS A GLOBAL COMPETITION. WE CAN'T PUT 18 UP WALLS EVEN IF WE WANTED TO. AND THAT'S WHY I THINK 19 THAT CALIFORNIA CAN'T TAKE ITS CURRENT LEADERSHIP FOR 20 GRANTED. AND IT'S WHY SETTING UP THE BEST FRAMEWORK 21 FOR INTELLECTUAL PROPERTY AND INVESTMENT IN FOR-PROFIT 22 COMPANIES IS SO IMPORTANT. 23 AND I VIEW THE ISSUES AROUND INTELLECTUAL 24 PROPERTY AND ROYALTIES TO HAVE SIMILAR IMPLICATIONS, SO 25 I JUST WANTED TO MAKE A FEW POINTS FROM MY PERSPECTIVE.

75 1 WHAT YOU ARE TRYING TO DO IS TO STIMULATE 2 CURES, WHICH WHETHER THEY ARE INITIALLY DEVELOPED IN A 3 RESEARCH LAB, A NOT-FOR-PROFIT ENVIRONMENT, OR A YOUNG 4 BIOTECH COMPANY ARE ULTIMATELY GOING TO REQUIRE 5 MILLIONS OF DOLLARS TO PROGRESS THROUGH CLINICAL TRIALS 6 TO THE MARKETPLACE. AND IRONICALLY THIS DISCUSSION IS 7 CENTERING AROUND FOR-PROFIT COMPANIES WHEN, IN FACT, 8 FOR MANY OF THE COMPANIES THAT YOU WILL FUND, 9 PROFITABILITY IS A DISTANT DREAM. IN ACTUALITY IF YOU 10 CAN FOCUS ON THE GAP WHERE CAPITAL ACCESS HAS BEEN 11 DIFFICULT, YOU MAY FILL SOME VOIDS THAT EXIST TODAY. 12 WE'VE SPENT A LOT OF TIME IN SAN DIEGO 13 LOCATING WHERE THOSE GAPS ARE, AND ALTHOUGH I'M NOT 14 GOING TO TALK ABOUT IT, YOUR NEWEST BOARD MEMBER, DUANE 15 ROTH, IS SETTING UP A LIFE SCIENCE ACCELERATOR PROGRAM 16 TO FOCUS ON PROMISING EARLY STAGE PROOF OF CONCEPTS. 17 AND I REALLY ENCOURAGE YOU TO HEAR FROM HIM. IT'S A 18 VERY INTERESTING BUSINESS MODEL. 19 $3 BILLION IN CALIFORNIA SOUNDS LIKE A LOT OF 20 MONEY, BUT IT WILL BE SPREAD OVER TEN YEARS AND OVER A 21 BROAD ARRAY OF INVESTMENTS FOR MANY WORTHWHILE 22 ENDEAVORS. SO EVEN IF CIRM MAKES WHAT FOR IT WOULD BE 23 A SIGNIFICANT INVESTMENT IN A FOR-PROFIT COMPANY 24 DEVELOPING NEW THERAPIES, THIS INVESTMENT WILL LIKELY 25 BE A SMALL PERCENTAGE OF THE TOTAL INVESTMENT REQUIRED

76 1 TO BRING THESE THERAPIES TO COMMERCIAL SUCCESS. 2 SO IF YOU ASSUMED A $10 MILLION INVESTMENT, 3 AND I DON'T KNOW WHAT YOUR THRESHOLD FOR INVESTMENT IS 4 GOING TO BE, BUT A $10 MILLION INVESTMENT IN A YOUNG 5 COMPANY THAT ULTIMATELY REQUIRES $500 MILLION BEFORE 6 COMMERCIAL SUCCESS, CIRM'S INVESTMENT IS 2 PERCENT. SO 7 MY QUESTION IS HOW DOES A 2-PERCENT INVESTMENT WARRANT 8 ONEROUS ROYALTIES OR IP REQUIREMENTS? 9 I THINK IT IS INSTRUCTIVE TO LOOK AT THE 10 FEDERAL GOVERNMENT AND PROGRAMS LIKE DARPA THAT 11 DR. GOLLAHER MENTIONED AND ALSO THE SCIR PROGRAM, BUT 12 PRETTY TRADITIONALLY THE FEDERAL GOVERNMENT DOES NOT 13 INSIST ON ROYALTIES OR INTELLECTUAL PROPERTY OWNERSHIP, 14 THOUGH IT WILL, RIGHTLY IN MY OPINION, USE MARCH-IN 15 RIGHTS TO ENSURE THE BROADEST APPLICATION AND THE BEST 16 OF THE RESEARCH IT FUNDS. AND MARCH-IN RIGHTS, 17 PARTICULARLY IF THEY'RE REASONABLE, WOULDN'T CONSTITUTE 18 A DISINCENTIVE TO PRIVATE INVESTMENT. 19 SO AS YOU LOOK AT VARIOUS MECHANISMS 20 AVAILABLE TO CIRM, LOANS, ALTHOUGH I UNDERSTAND, ALLAN, 21 THE CONCERN ABOUT ACCOUNTING COMPLEXITIES, THEY MIGHT 22 BE A MORE ATTRACTIVE VEHICLE BECAUSE FAVORABLE INTEREST 23 RATES WITH REPAYMENT THAT DOES NOT OCCUR UNTIL THE 24 PRODUCT IS COMMERCIALLY VIABLE, AND I THINK ALSO THAT 25 THE LOAN IS FORGIVEN IF THE RESEARCH GOES SIDEWAYS, IT

77 1 MIGHT BE A CLEAN WAY TO GO. YOU COULD AVOID SOME OF 2 THE QUESTIONS ABOUT A RETURN ON INVESTMENT WITH A 3 HEALTHY REPAYMENT SCHEME BACK TO THE CIRM WHILE 4 POTENTIALLY PROVIDING A SMALL COMPANY NEEDED LEVERAGE. 5 I THINK POLITICALLY, WHICH IS UNFORTUNATELY THE CLIMATE 6 IN WHICH WE ARE OPERATING, IT MIGHT BE A MORE 7 ATTRACTIVE OPTION. 8 THE FRAMEWORK THAT YOU'VE DEVELOPED FOR 9 NOT-FOR-PROFIT INSTITUTIONS WAS THE 25-PERCENT ROYALTY 10 PAYMENT WOULD TRULY BE A DISINCENTIVE ON THE PRIVATE 11 SIDE TO ATTRACTING PRIVATE CAPITAL. AND I THINK MOST 12 PRIVATE INVESTORS WOULD TELL YOU THAT THEY DON'T EXPECT 13 MORE THAN 1- OR 2-PERCENT ROYALTIES ON THERAPEUTICS AND 14 MAYBE 5 PERCENT OR SO ON MEDICAL DEVICES. SO YOU COULD 15 HAVE THE UNINTENDED CONSEQUENCE OF DISCOURAGING PRIVATE 16 SECTOR INVESTMENT WITH SOME THINGS THAT WOULD BE VERY 17 GOOD, AND IT COULD PREVENT CIRM FROM REALLY BEING A 18 CATALYST FOR THE BEST IDEAS AND THE BEST SCIENCE AT A 19 REALLY CRITICAL TIME IN THE LIFE CYCLE OF A FOR-PROFIT 20 COMPANY. 21 SO MY CONCLUSION IS THAT THE STATE MIGHT BE 22 AN ABSOLUTELY VITAL INVESTOR AT A CRITICAL STAGE, BUT 23 IT'S NOT LIKELY TO BE THE MAJOR INVESTOR. SO YOU COULD 24 SAY THAT THE STATE'S INVESTMENT MIGHT BE 25 DISPROPORTIONATELY SIGNIFICANT FOR GETTING TO CIRM'S

78 1 GOAL, WHICH IS CURES, BUT FINANCIALLY INSIGNIFICANT IN 2 THAT IT WILL ULTIMATELY BE A SMALL PERCENTAGE OF THE 3 TOTAL INVESTMENT, ALBEIT INVESTMENT PROVIDED AT A 4 CRITICAL TIME. 5 I WANT TO GIVE YOU ONE OTHER MEASURE OF 6 LONG-TERM SUCCESS. I DON'T KNOW IF YOU HAVE THE 7 FLEXIBILITY TO FOCUS ON IT, BUT I THINK IT'S A VERY 8 IMPORTANT ONE, AS I LOOK AT CALIFORNIA AND I LOOK AT 9 CLUSTERS. 10 WHAT THE STATE CAN FOCUS ON IS THE REVENUES 11 THAT IT WILL ULTIMATELY GARNER BY REMAINING AT THE 12 FOREFRONT OF INNOVATION, INCLUDING STEM CELL RESEARCH. 13 AND THESE INCLUDE PERSONAL AND CORPORATE INCOME TAXES, 14 PROPERTY TAXES, SALES TAXES. THE LAST THING, REALLY 15 THE LAST THING, RETURN TO THE STATE OF CALIFORNIA FOR 16 TAKING THE BOLD STEPS TO MAINTAIN LEADERSHIP IN THIS 17 VERY IMPORTANT TECHNOLOGY. 18 HALF OF CALIFORNIA'S TAX REVENUES ARE BASED 19 ON PERSONAL INCOME TAXES TODAY, SLIGHTLY LESS THAN 20 THAT. SO THE WEALTH CREATION OF A VIBRANT AND 21 IMPORTANT INDUSTRY IS IMPORTANT. AND I'VE SPOKEN TO 22 GOVERNOR JEB BUSH IN FLORIDA ABOUT THIS, BUT THAT IS 23 BEHIND HIS THINKING IN HIS SINGLE-MINDED FOCUS TO 24 CREATE A STRONG RESEARCH BASE IN FLORIDA SO THAT 25 FLORIDA CAN EMULATE IN MANY WAYS WHAT CALIFORNIA HAS

79 1 ALREADY DONE. 2 INCIDENTALLY, I SHOULD TELL YOU THAT 95 3 PERCENT OF THE STATE'S GENERAL FUND REVENUES IN 2005 4 WERE ATTRIBUTABLE TO THREE TAXES THAT WEALTH CREATION 5 DRIVES: PERSONAL INCOME TAXES, CORPORATE TAXES, AND 6 SALES AND USE TAXES. SO I TRULY THINK WE NEED TO TAKE 7 THE LONG VIEW. WE NEED TO BEGIN TO THINK ABOUT 8 OURSELVES AS A STATE THAT INVESTS IN INNOVATION BECAUSE 9 INNOVATION HAS ALREADY MEANT SO MUCH TO CALIFORNIA'S 10 ECONOMIC PROSPERITY AND OUR ECONOMIC LEADERSHIP 11 GLOBALLY, AND IT'S AN ABSOLUTELY CRITICAL PART OF OUR 12 FUTURE. SO I REALLY APPRECIATE THE OPPORTUNITY TO 13 SPEAK TO YOU TODAY, NOT ONLY ABOUT THE ISSUES OF 14 INTELLECTUAL PROPERTY, BUT OF THE MUCH LARGER CONTEXT 15 IN WHICH YOUR WORK IS TAKING PLACE. HAPPY TO ANSWER 16 ANY QUESTIONS. 17 CHAIRMAN PENHOET: THANK YOU VERY MUCH. 18 FIRST OF ALL, QUESTIONS FROM OUR MEMBERS IN SAN DIEGO. 19 WE'LL GO THROUGH THE USUAL ROTATION. IRVINE? 20 DR. BRYANT: NO. 21 CHAIRMAN PENHOET: SAN CARLOS. 22 UNIDENTIFIED SPEAKER: NO. 23 MR. GOLDBERG: YES. WE HAVE A SPLIT VOTE. I 24 HAVE A QUESTION FOR THE PRESENTER, PLEASE. HOW WOULD 25 YOU SUGGEST WE DEAL WITH THE ISSUES OF AFFORDABILITY

80 1 AND ACCESSIBILITY AS PROPOSED BY JOHN SIMPSON? 2 MS. WRIGHT: I GUESS I THINK THAT IF -- THE 3 MOST IMPORTANT THING WE CAN DO IS TO DEVELOP THE KIND 4 OF CURES THAT WILL BENEFIT EVERYONE. AND I THINK AT 5 SOME POINT THE GOVERNMENT HAS A ROLE IN PROVIDING 6 CURES, THERAPEUTICS, AND DIAGNOSTICS TO THE LEAST AMONG 7 US. BUT I HAVEN'T GONE DOWN THAT PATH IN TRYING TO 8 UNDERSTAND EXACTLY HOW THE FRAMEWORK SHOULD BE SET UP 9 FOR FOR-PROFIT COMPANIES, BUT I DO KNOW THAT ANYTHING 10 THAT IS MORE COSTLY THAN THE MODEL THAT IT TAKES TO 11 ENCOURAGE PRIVATE SECTOR INVESTMENT TODAY IS SOMETHING 12 THAT'S NOT GOING TO WORK, AND THEN WE WON'T GET TO THAT 13 DISCUSSION AT ALL. 14 CHAIRMAN PENHOET: LOS ANGELES? CHICO? 15 DR. WRIGHT: NO. 16 CHAIRMAN PENHOET: ANY COMMENTS BY THE 17 PUBLIC? FIRST IN SAN DIEGO? IN IRVINE? 18 DR. BRYANT: NO. 19 CHAIRMAN PENHOET: SAN CARLOS? 20 MR. REED: YES. I WOULD JUST WISH SO MUCH 21 THAT YOU COULD SQUEEZE INTO YOUR BUSY SCHEDULE TO 22 APPEAR AT THE APPROPRIATIONS COMMITTEE WHEN SUCH 23 INFORMATION AS YOU HAVE TO OFFER WOULD BE JUST HUGELY 24 BENEFICIAL. I DO NOT THINK THOSE ARGUMENTS ARE KNOWN 25 BY THE LEGISLATORS AT ALL. THANK YOU.

81 1 MS. WRIGHT: WELL, I WILL TELL YOU IN MY TIME 2 IN SACRAMENTO, I WAS APPROACHED BY A STATE SENATOR ONCE 3 THAT SAID, "WHY SHOULD THE STATE PAY MONEY IN THE FORM 4 OF A TAX CREDIT FOR SOMETHING COMPANIES MIGHT DO 5 ANYWAY?" ALTHOUGH THE OPERATIVE WORD IS MIGHT. MAYBE 6 MIGHT NOT. BUT THANK YOU. I WILL KEEP TRACK OF THE 7 SCHEDULE, AND IF YOU ALL WILL LET ME KNOW, I'LL TRY TO 8 BE THERE. 9 MR. REED: THANK YOU. 10 CHAIRMAN PENHOET: ANY COMMENTS IN CHICO? 11 DR. WRIGHT: NO. 12 CHAIRMAN PENHOET: OKAY. THANK YOU, JULIE, 13 FOR A VERY THOUGHTFUL PRESENTATION. 14 WE NOW COME TO OUR FINAL SPEAKER, A FREQUENT 15 VISITOR TO OUR MEETINGS. TODAY WE WILL GIVE JOYDEEP 16 GOSWAMI IS A FULL HALF HOUR INSTEAD OF HIS USUAL 17 COMMENTS FROM THE FLOOR. I WILL APPRECIATE YOUR 18 CONTINUING EFFORTS TO INFORM US AND FOR YOUR 19 PRESENTATION. THANK YOU. 20 MR. GOSWAMI: FIRST OF ALL, THANK YOU FOR 21 INVITING ME TO COMMENT IN THIS PRESENTATION AND FORMAT. 22 YOU KNOW, I THINK, FOR US IT'S -- I'M TRYING TO BRING 23 TO CIRM A VIEWPOINT THAT IS DIFFERENT FROM THE PEOPLE 24 CLOSER TO THE PATIENT IN SOME WAYS SUCH AS ALAN AND 25 NOVOCELL. FROM THE TOOLS COMPANIES AND THE KIND OF

82 1 PERSPECTIVE WE BRING MAY BE SLIGHTLY DIFFERENT AND I 2 THINK HOPEFULLY THIS WILL ENGENDER SOME QUESTIONS. 3 SO QUICK OVERVIEW OF INVITROGEN. WE'RE A 4 PART OF THE RESEARCH TOOLS MARKET. IT'S SUPPOSED TO BE 5 ABOUT $17 BILLION OR SO. IT'S THE LINCHPIN OF MOST OF 6 LIFE SCIENCE INDUSTRIES; AND, OF COURSE, WITHOUT TOOLS, 7 THE BASIC RESEARCH THAT UNDERLIES A LOT OF THE 8 TREATMENTS THAT YOU SEE, I THINK, WILL NOT BE POSSIBLE. 9 WE'RE DEFINITELY HEADQUARTERED IN CALIFORNIA. OF 10 COURSE, AS YOU SEE THERE, MOST PEOPLE TALK ABOUT ONE 11 THERAPY GETTING TO MARKET. WE'RE A VERY FRACTURED 12 MARKET WITH ABOUT 15,000 DIFFERENT PRODUCTS SOLD 13 PREDOMINANTLY TO THE RESEARCH MARKET. AND, OF COURSE, 14 UNDERLYING MOST OF OUR PRODUCTS ARE PATENTS THAT ALLOW 15 INNOVATIVE SOLUTIONS TO SCIENTISTS' PROBLEMS, AND WE 16 ARE AN ACTIVE LICENSOR OF OR LICENSEE, I SHOULD SAY, OF 17 TECHNOLOGIES FROM UNIVERSITIES, INCLUDING UC, WITH OVER 18 40 LICENSES EXECUTED ANNUALLY THAT -- TECHNOLOGY AND 19 LICENSES EXECUTED ANNUALLY FOR OUR COMPANY. 20 WE ALSO HAVE MADE A MAJOR COMMITMENT TO STEM 21 CELL RESEARCH. WE'VE CREATED A BUSINESS VENTURE IN 22 THIS PARTICULAR AREA. HIRED MAHENDRA RAO FROM THE NIH 23 TO HEAD UP THE STEM CELL RESEARCH GROUP, AND CURRENTLY 24 DEDICATE OVER 20 RESEARCHERS TO THIS FIELD AND, OF 25 COURSE, LEVERAGE THAT WITH OUR OTHER RESEARCH

83 1 COMMITMENTS THROUGHOUT THE COMPANY OF OVER 600 2 RESEARCHERS. AND AS JEANNE AND OTHERS WILL ATTEST TO, 3 WE HAVE BEEN ABLE AN ACTIVE PARTICIPANT IN THE STEM 4 CELL COMMUNITY ALREADY. WE FUND A LARGE NUMBER OF STEM 5 CELL COURSES WORLDWIDE, NOT ONLY IN CALIFORNIA, OTHER 6 STATES IN THE UNITED STATES, AND, OF COURSE, NOW IN 7 OTHER COUNTRIES AS WELL, INCLUDING INDIA AND HOPEFULLY 8 SINGAPORE, KOREA. 9 MAHENDRA HAS TAUGHT MANY OF THESE COURSES, 10 AND, OF COURSE, OUR PRODUCTS GO INTO MOST OF THE 11 PROTOCOLS THAT ARE TAUGHT AT THESE COURSES. 12 I WANT TO SPEND SOME TIME ACTUALLY GIVING YOU 13 A BIRD'S-EYE VIEW OF HOW WE LOOK AT STEM CELL RESEARCH 14 AND THE BASIC ELEMENTS OF THE WORK FLOW OF STEM CELL 15 RESEARCH. IT WILL COME BACK BECAUSE THESE BASIC FOUR 16 ELEMENTS THAT I HAVE ON PAGE 4 REALLY THEN TRANSLATE 17 ACROSS FROM BENCH TO BEDSIDE WHETHER YOU'RE LOOKING AT 18 BEDSIDE RESEARCH OR BASIC RESEARCH. AND I THINK, IN 19 OUR OPINION, THE SAME FOUR STEPS WILL BE VERY IMPORTANT 20 IN ANY THERAPEUTIC THAT IS AFFORDABLE FOR THE PUBLIC. 21 SO THE FOUR STEPS ARE ESSENTIALLY ISOLATION 22 OF STEM CELLS AND THEIR PROGENY AND DIFFERENTIATED 23 PROGENY, A CHARACTERIZATION OF THESE CELLS, AND THIS IS 24 REALLY IMPORTANT BECAUSE THESE CELLS, I LIKE TO CALL 25 THEM, AS INHERENTLY UNSTABLE BECAUSE THEY WANT TO

84 1 BECOME OTHER TYPES OF CELLS; AND, THEREFORE, HAVING 2 THEM CHARACTERIZED AS BEING PLURIPOTENT OR HAVING THE 3 ABILITY TO FORM OTHER CELLS IS QUITE IMPORTANT. AND, 4 OF COURSE, ONCE YOU'VE GONE DOWN THE PATH OF 5 DIFFERENTIATION, AGAIN, IT'S IMPORTANT TO CHARACTERIZE 6 THE DIFFERENTIATED CELLS AND MAKE SURE THAT THEY ARE 7 WHAT YOU THINK THEY ARE. 8 EXPANSION OF CELLS, THIS IS ANOTHER KEY PART 9 OF HAVING THERAPIES THAT ARE AFFORDABLE BECAUSE YOU 10 NEED LOTS OF CELLS IN ANY KIND OF CELL THERAPY AND YOU 11 NEED THEM TO BE PRODUCED IN ANIMAL ORIGIN FREE 12 CONDITIONS HOPEFULLY AND, OF COURSE, IN A FASHION THAT 13 PROVIDES THAT EACH VIAL OF CELLS IS NOT A MILLION 14 DOLLARS IN PRICE. AND THEN THE LAST PART IS 15 DIFFERENTIATION. AGAIN, HERE THE CRITICAL CONDITIONS, 16 AGAIN, ARE ANIMAL ORIGIN FREE AND, OF COURSE, THE FACT 17 THAT YOU CAN DO THIS EFFICIENTLY IN AN ECONOMICAL 18 MANNER. 19 GIVEN THESE, HOW WE THINK ABOUT IT IS ALONG 20 TECHNOLOGY PLATFORMS THAT ALIGN ACROSS THESE FOUR 21 ELEMENTS OF THE WORK FLOW. AND THERE ARE SEVERAL. 22 THIS IS BY NO MEANS A COMPLETE LIST. BUT, YOU KNOW, IF 23 YOU LOOK AT THE ISOLATION AND CHARACTERIZATIONS PART OF 24 THINGS, THERE ARE THINGS LIKE PRIMARY ANTIBODIES, THERE 25 ARE THINGS LIKE BEAD-BASED CELL SEPARATION SYSTEMS

85 1 WHICH ARE ABSOLUTELY CRITICAL IN GETTING AND ISOLATING 2 THE RIGHT KIND OF CELL THAT YOU WANT. IN FACT, SOME OF 3 THESE ARE ALREADY IN THE CLINIC. SOME OF YOU MAY HAVE 4 HEARD BAXTER'S CD34 POSITIVE CELLS THAT ARE BEING USED 5 IN CARDIAC ISCHEMIA ACTUALLY USES MAGNETIC BEADS TO 6 ISOLATE THE CD34 POSITIVE CELLS. AND I'M SURE THIS 7 WILL BE A LINCHPIN OF OTHER THERAPIES THAT ARE COMING 8 TO THE MARKET AS WELL. BUT AGAIN, THE SAME 9 TECHNOLOGIES ARE USED BOTH IN BASIC RESEARCH AND THEN 10 HOPEFULLY WILL TRANSLATE, ARE SCALABLE WHEN YOU MOVE TO 11 THE CLINIC. 12 LABELING AND DETECTION SYSTEMS INCLUDES A LOT 13 OF FLUOROPHORES AND THINGS LIKE QUANTUM DOTS WHICH 14 ALLOW YOU TO GET A QUANTITATIVE ASSESSMENT OF YOUR 15 EXPERIMENTS AND, OF COURSE, DIFFERENT CELL TYPES. THEN 16 THERE ARE, OF COURSE, THE BASIC PROTEIN PURIFICATION 17 ANALYSIS TOOLS, INCLUDING QUANTITATIVE PROTEOMICS. A 18 LOT OF EFFORT ON OUR SIDE IS GOING INTO DNA/RNA-BASED 19 CHARACTERIZATION OF CELLS WHICH INCLUDES BASIC QPCR, 20 BUT ALSO THINGS LIKE MICRO-RNA ANALYSIS, METHYLATION 21 ANALYSIS OF CELLS. AND THEN WHAT WE DO OFFER TO THE 22 COMMUNITY IS SERVICES, AND THESE COULD TAKE MANY FORMS. 23 THESE COULD TAKE GENERATION OF CUSTOM ANTIBODIES. I 24 THINK SOMEONE MENTIONED GROWING A CELL. ALLAN, YOU 25 TALKED ABOUT GNP FACILITIES OR GNP TESTING OF CELLS

86 1 ETC. 2 AND, OF COURSE, ON THE EXPANSION 3 DIFFERENTIATION SIDE, THERE'S A HOST OF STEM CELL 4 CULTURE MEDIA, INCLUDING ANIMAL ORIGIN FREE, WHERE WE 5 WORK CLOSELY, NOT ONLY WITH ACADEMIA, BUT ALSO PEOPLE 6 SUCH AS NOVOCELL IN DEVELOPING, MAKING THESE AVAILABLE 7 TO THE BROADER SCIENTIFIC COMMUNITY. GROWTH FACTORS 8 CYTOKINES, AGAIN, VERY KEY FOR SERUM FREE CULTURE OF 9 CELLS, GENE REGULATION AND TRACKING OF CELLS ONCE 10 THEY'RE INTO SMALL ANIMALS OR EVEN ACTUALLY HUMANS AT 11 SOME POINT. AND THEN THE LAST PART, AGAIN, SERVICES 12 ALONG THESE DIMENSIONS, WHICH I'VE TALKED ABOUT 13 EARLIER. 14 THIS IS HOW WE SEE THIS WORLD. THERE IS 15 OBVIOUSLY INVESTMENTS THAT WE AND OTHER COMPANIES HAVE 16 MADE. THE ISSUE IS THEN TAKING THESE TO THE NEXT 17 LEVEL, MAKING THOSE MUCH MORE RELEVANT TO STEM CELL 18 RESEARCHERS IN CALIFORNIA AND, OF COURSE, AROUND THE 19 GLOBE. AND I TALKED A LITTLE BIT ABOUT ENABLING 20 PLATFORMS FOR STEM CELL THERAPY. AGAIN, I'M SHOWING 21 YOU A VERY SIMPLIFIED VIEW OF THIS. BUT YOU NEED THE 22 FOUR ELEMENTS THERE TO MAKE THIS AFFORDABLE, YOU NEED 23 LARGE QUANTITIES OF ECONOMICAL CELLS, IF YOU WILL, AND, 24 OF COURSE, BASE CELLS. YOU NEED TO ISOLATE THE KIND OF 25 CELL THAT YOU REALLY WANT TO PUT INTO THE PATIENT. YOU

87 1 NEED TO CHARACTERIZE AND BACK THESE CELLS AND, OF 2 COURSE, BE ABLE TO SHIP THEM TO PLACES. AND THE LAST 3 THING IS YOU NEED TO MAKE SURE THAT THE CELLS ARE SAFE, 4 FREE FROM TOXINS, FREE FROM VIRUSES, ETC. ALL OF THOSE 5 REQUIRE INVESTMENT. ALL OF THESE REQUIRE INVESTMENT IN 6 GNP CONDITIONS, AND MOSTLY FOR ALL OF BIOTECH, THIS HAS 7 COME FROM THE PRIVATE SECTOR AND NOT FROM THE ACADEMIC 8 SECTOR. AND SOME OF THESE, OF COURSE, WILL REQUIRE NEW 9 TECHNOLOGIES TO BE DEVELOPED, AND I THINK SOME OF THIS 10 CAN BE SUPPORTED BY ORGANIZATIONS SUCH AS THE CIRM. 11 OF COURSE THE TALK WOULDN'T BE COMPLETE 12 WITHOUT A CURE GRAPHIC HERE. WHAT I WANTED TO SHOW YOU 13 HERE IS THE WAY WE HAVE SEEN OVER THE LIFE OF OUR LIFE 14 AS A COMPANY IS HOW PUBLIC RESEARCH FUNDING ACTUALLY 15 HELPS ULTIMATELY NEW TREATMENTS TO BE DERIVED. I 16 THINK, FIRST OF ALL, THE MAJOR PART OF WHERE PUBLIC 17 FUNDING GOES IS ACTUALLY NOT TO FOR-PROFIT COMPANIES 18 LIKE US, BUT TO ACADEMIC INSTITUTIONS. BUT THE 19 INTERPLAY BETWEEN COMPANIES LIKE US, THE TOOLS 20 COMPANIES, IS MAINLY THEN TAKING THE FUNDAMENTAL 21 RESEARCH THAT'S CARRIED OUT BY ACADEMIC RESEARCHERS AND 22 THE GOVERNMENT AND NONPROFITS AND THEN LICENSING SOME 23 KEY TECHNOLOGIES AND, OF COURSE, MAKE THESE 24 TECHNOLOGIES AVAILABLE TO THE COMMERCIAL RESEARCHERS 25 AND, OF COURSE, BACK TO THE ACADEMIC RESEARCHERS, GIVE

88 1 A PAYBACK IN TERMS OF LICENSING FEES AND, OF COURSE, 2 ROYALTY PAYMENTS, AND THEN, OF COURSE, THEN THE TOOLS 3 THEN HELP, HOPEFULLY, DEVELOP NEW TREATMENTS, WHETHER 4 IT'S DRUG SCREENING, WHETHER IT'S, YOU KNOW, GROWING 5 CELLS EFFICIENTLY IN ANIMAL ORIGIN FREE ENVIRONMENTS. 6 AND THIS HAS WORKED OUT, THIS HAS BEEN 7 WORKING VERY WELL FOR US AND FOR OUR COMPANIES IN OUR 8 FIELD, BUT I THINK THE KEY PART OF THIS IS REALLY 9 AROUND THE ABILITY TO LICENSE TECHNOLOGIES IN AND 10 KEEPING THE ABILITY TO LICENSE THINGS WITHOUT HAVING 11 ONEROUS TERMS, WITHOUT HAVING RIGHTS WHICH BASICALLY 12 PROVIDE DISINCENTIVES TO LICENSING OFF THESE 13 TECHNOLOGIES. 14 SO WHY DO COMPANIES SEEK GRANTS AND RESEARCH 15 GRANTS TO PURSUE RESEARCH OR OTHER THINGS? FIRST OF 16 ALL, I THINK ONE OF THE THINGS HERE IS RESEARCH THAT 17 THEY CANNOT FUND NOW OR IT DOESN'T MAKE ECONOMIC SENSE 18 TO FUND IMMEDIATELY. SO THAT ALLOWS AN AVENUE FOR US 19 TO FUND THESE KINDS OF RESEARCH. OF COURSE, BEING A 20 PUBLIC COMPANY, AND ALLAN ALLUDED TO THIS, THERE ARE 21 SOME VERY SERIOUS CONDITIONS OF THE KINDS OF RISK 22 PROFILE OF INVESTMENTS WE MAKE AND THE RESEARCH WE 23 CONDUCT. SO HAVING PUBLIC FUNDS OR GOVERNMENT FUNDS 24 SOMETIMES ALLOWS US TO TAKE ON RISK PROFILES AND 25 PROJECTS THAT THE MARKET WOULD NOT, FRANKLY, LIKE US TO

89 1 TAKE, RIGHT, BUT IT COULD HAVE REWARDS FOR THE RESEARCH 2 COMMUNITY AND OTHERS. 3 RESEARCH, OF COURSE, WHERE THE LEADING 4 PRODUCT OR YOU LEAVE YOUR PRODUCT FOR THE GOVERNMENT IS 5 A MAJOR CONSUMER. AND THEN THERE ARE RESEARCHERS WHERE 6 THERE ARE INTERESTING PARTNERS IN THE SENSE THAT, 7 RATHER I SHOULD SAY INTERESTED, NOT INTERESTING WAY. 8 THERE'S A PARTICULAR INTEREST OR CONSORTIUM OR 9 GOVERNMENT CONSORTIUM THAT HAS COME TOGETHER, FUNDED 10 MAYBE BY THE NIH OR OTHERS. 11 INVITROGEN TRADITIONALLY HAS NOT SOUGHT THESE 12 GRANTS. THERE'S A VERY CLEAR REASON. MOST OF THESE 13 GRANTS TEND TO GO TO SMALLER COMPANIES, AND WE CLEARLY 14 DON'T FIT THAT PROFILE ANY LONGER. BUT WE DO HAVE 15 CONTRACTS WITH GOVERNMENT AGENCIES, AND SEVERAL OF OUR 16 ACQUISITIONS HAVE BEEN PART OF THIS SBIR, U.S. COMMERCE 17 DEPARTMENT ADVANCED ATP GRANTS. 18 AND, OF COURSE, THE IP ARRANGEMENTS HERE ARE 19 VERY CLEAR. THE COMPANY OWNS THE IP, AND THEN THE 20 GOVERNMENT RETAINS THE GOVERNMENT USE LICENSE. AND 21 LASTLY, THERE IS NO CASE OF US HAVING A REVENUE SHARING 22 ARRANGEMENT FOR ANY OF THESE CASES. 23 MORE TO CIRM GRANTS AND WHY WOULD WE WANT TO 24 USE THESE GRANTS AND WHAT BENEFITS MIGHT RESULT TO THE 25 STEM CELL COMMUNITY. I THINK THE BIGGEST THING FOR US

90 1 IS TO MAKE ROBUST PLATFORMS, TECHNOLOGY PLATFORMS, 2 AVAILABLE FOR THE WORK FLOW THAT I SHOWED YOU EARLIER. 3 THERE IS CLEARLY A NEED FOR MUCH MORE STANDARDIZED 4 CHARACTERIZATION TOOLS FOR THIS INDUSTRY, AND BOTH FOR 5 THE STEM CELLS AND THEIR DIFFERENTIATED PROGENY, 6 WHETHER IT BE IDENTITY, STABILITY, QUALITY, 7 DIFFERENTIABILITY, ETC. THERE'S CLEARLY A NEED FOR THE 8 NEXT GENERATION OF ANIMAL ORIGIN FREE MEDIA AND 9 REAGENTS THAT ARE CRITICAL FOR ANY CELL THERAPY TO BE 10 APPROVED. CRYOPRESERVATION MEDIA AND REAGENTS TARGETED 11 TO STEM CELLS IS AN UNMET NEED AS FAR AS WE CAN TELL SO 12 FAR. AND TRANSFECTION REAGENTS, I THINK THIS IS MUCH 13 MORE FOR, SO FAR AT LEAST, FOR THE RESEARCH SIDE OF 14 THINGS, ARE CRITICAL. THESE CELLS, AS FAR AS WE CAN 15 TELL, ARE PRETTY HARD TO TRANSFECT. AND THE NORMAL 16 TRANSFECTION REAGENTS WE HAVE ON THE MARKETPLACE DO NOT 17 OFTEN SUFFICE. 18 THE BENEFITS THAT MIGHT RESULT TO THE STEM 19 CELL COMMUNITY, OF COURSE, IS INCREASED RANGE OF 20 PRODUCTS, SO WE CAN, WE AND OTHER COMPANIES, SUCH AS 21 US, WILL HAVE AN INCENTIVE TO INTRODUCE A WIDER RANGE 22 OF PRODUCTS ADDRESSING MANY DIFFERENT KINDS OF STEM 23 CELLS. WE COULD IMPROVE THE ROBUSTNESS OF THESE TOOLS. 24 AND, YOU KNOW, ONE OF THE MAJOR ISSUES NOW IS THAT STEM 25 CELLS, BECAUSE OF MAYBE THE WAY THE NIH HAS FUNDED

91 1 THEM, THEY DON'T TEND TO BE ALIVE. SO EVEN HUMAN 2 EMBRYONIC STEM CELLS FROM ONE LAB AND ANOTHER LAB 3 BEHAVE VERY DIFFERENTLY, AND TOOLS ARE OFTEN DEVELOPED 4 JUST FOR ONE TYPE OF STEM CELL OR ANOTHER. AND THEN 5 THE LAST THING IS SPEED, WHICH IS, AGAIN, CRITICAL, 6 ESPECIALLY WHEN YOU'RE COMPETING, NOT ONLY AGAINST 7 OTHER STATES, OTHER UNIVERSITIES, BUT AS SEVERAL OF THE 8 SPEAKERS HAVE POINTED OUT, THIS IS A VERY, VERY GLOBAL 9 ENVIRONMENT. PROBABLY FOR THE FIRST TIME IN THE 10 HISTORY OF BIOTECH THAT THE COMPETITION HAS BEEN SO 11 GLOBAL. 12 SO I WANTED A TAKE AWAY HERE IS REALLY WE 13 WOULD SEEK THESE GRANTS TO LEVERAGE INTERNAL 14 INVESTMENTS THAT WE ARE CONTINUING TO MAKE AND THEN 15 ACCELERATE NOVEL TOOL AVAILABILITY. 16 SO FAR SOME TERMS HERE AND, AGAIN, THIS IS 17 EARLY THINKING, BUT WE ARE COGNIZANT OF THE FACT THAT 18 THIS IS TAXPAYER MONEY, AND THERE IS A NEED FOR US TO 19 GIVE BACK TO THE STATE. SO YOU WILL SEE A LOT OF THAT, 20 AND I'M HOPING THERE ARE QUESTIONS TO DISCUSS SOME OF 21 THESE. BUT I THINK ONE OF THE THINGS WHICH HAS TO BE 22 THERE IS THAT THE GRANTEE MUST RETAIN THE IP. MOST 23 COMMERCIAL ORGANIZATIONS WOULD NOT ENGAGE IN THIS SORT 24 OF GRANT FUNDING UNLESS THERE IS CLARITY ON THE IP. 25 SECOND, I THINK THE FEDERAL POLICY'S EMPHASIS

92 1 ON STIMULATING RESEARCH ADVANCES AND ECONOMIC 2 DEVELOPMENT, I THINK, ED, YOU REFERRED TO THIS EARLIER, 3 THE DIRECT VERSUS THE INDIRECT BENEFITS BACK TO THE 4 STATE, I THINK THEY ARE CLEARLY THERE. WE DO INTEND TO 5 DO A LOT OF OUR RESEARCH IN CALIFORNIA. AND, YOU KNOW, 6 I THINK THE STATE WILL BENEFIT FROM THAT. 7 BUT THERE ARE OTHER MODELS TO PROVIDE MORE 8 DIRECT PAYBACK TO THE STATE AND TO CIRM. FIRST OF ALL, 9 IT COULD BE THROUGH ROYALTIES ON PRODUCTS 10 COMMERCIALIZED USING IP DEVELOPED WITH CIRM FUNDING. 11 THIS IS NOT UNCOMMON. WE'VE DONE THIS WITH OTHER 12 COMPANIES AND OBVIOUSLY INSTITUTIONS. I'M PUTTING 13 QUOTES AROUND THE ROYALTY BECAUSE IN SOME WAYS WHEN YOU 14 LICENSE THINGS, THE ROYALTY IS OWNED BY THE ACADEMIC 15 INSTITUTION. NOW, HERE YOU ARE -- YOU WOULD ENABLE US 16 TO DEVELOP IP, BUT THAT WOULDN'T BE OUR PROPERTY WHERE 17 WE WOULD BE OPEN TO ACTUALLY PROVIDING YOU BACK A 18 ROYALTY ON PRODUCTS DEVELOPED THROUGH THAT IP. 19 THE SECOND THING IS, AND I THINK CIRM SHOULD 20 REALLY CONSIDER THIS, IS THIS CONCEPT OF LEVERAGING 21 YOUR FUNDS, RIGHT. SO I THINK WE WOULD BE OPEN TO 22 INVESTING OURSELVES IN A MATCHING MANNER TO FUNDS THAT 23 YOU PROVIDE US TO, YOU KNOW, TO DOUBLE OR TRIPLE THE 24 AMOUNT OF INVESTMENT THAT IS PROVIDED BY CIRM. 25 AND THEN THE LAST PART IS REASONABLE

93 1 CONSIDERATION OF MANUFACTURING ACTIVITIES IN 2 CALIFORNIA. I THINK THAT'S AN IMPORTANT CONSIDERATION, 3 AND THAT GIVES BACK TO THE STATE IN GENERATING 4 EMPLOYMENT. 5 WE WOULD BE OPEN TO STANDARD THIRD-PARTY 6 AUDIT OF RESEARCH AND ROYALTIES. THIS IS SOMETHING WE 7 DO WITH EVERY INSTITUTION THAT WE HAVE. SOME OF THE 8 CONCERNS THAT ALLAN RAISED IN TERMS OF MAINTAINING THE 9 PROPRIETARY NATURE OF THE RESEARCH IN THIS CASE DO NEED 10 TO BE ADDRESSED, BUT I THINK -- WE HAVE ADDRESSED THAT 11 WITH PUBLIC INSTITUTIONS, SUCH AS THE UNIVERSITY OF 12 CALIFORNIA. 13 PROGRESS REPORTS ON OUR PROGRESS ON THE 14 RESEARCH, AGAIN, THAT'S SOMETHING WE'RE OPEN TO. 15 AND THEN THE LAST BIT IS RESEARCH USE AND 16 OTHER IP PROVISIONS NEED TO PRESERVE A COMMERCIAL 17 OPPORTUNITY. AND I THINK WE'VE DEBATED SOME OF THIS ON 18 THE NONPROFIT PART. 19 ONE OF THE THINGS THAT'S NOT HERE, AND I 20 THINK, AGAIN, MANY PEOPLE HAVE ALLUDED TO, IS WHAT IS 21 THE IMPLICATION OF HAVING OVERARCHING IP SUCH AS THE 22 WISCONSIN IP ON FUNDAMENTAL STEM CELL PATENTS. WHAT IS 23 THE IMPACT OF THAT ON COMMERCIAL ENTITIES, RIGHT, AND 24 OUR ABILITY TO PROVIDE TOOLS AND REAGENTS TO THIS 25 COMMUNITY? I KNOW CIRM IS CONSIDERING THAT. I WANT TO

94 1 TELL YOU FROM A BUSINESS POINT OF VIEW WHAT IS 2 HAPPENING IS THAT PEOPLE DEMAND A CERTAIN AMOUNT OF 3 MONEY FROM EVERY COMMERCIAL COMPANY TO DO EVEN VERY, 4 VERY SMALL, INCREMENTAL, I WOULD SAY, TOOLS TO THE 5 COMMUNITY. AND THE MONEY FAR OUTSTRIPS ANY COMMERCIAL 6 BENEFIT THAT WE COULD HAVE BY SELLING THESE TOOLS AND 7 REAGENTS. 8 THE INTERESTING SIDE OF THIS IS THESE TOOLS 9 AND REAGENTS, ALTHOUGH REVENUE MAY BE SMALL, ARE 10 EXTREMELY IMPORTANT TO THE COMMUNITY. SO THINK ABOUT 11 WHAT SOME ENGINEERED STEM CELL LINES COULD DO FOR THE 12 RESEARCH COMMUNITY IN BEING ABLE TO INSTANTLY TELL YOU 13 WHEN DIFFERENTIATION OCCURS UNDER WHAT CONDITIONS. 14 TODAY THAT IS AN ONEROUS PROCESS, BUT THERE ARE 15 MOLECULAR BIOLOGY TOOLS THAT WE ARE FAMILIAR WITH WHICH 16 COULD CHANGE THIS INDUSTRY. THE PROBLEM IS WE CANNOT 17 SELL THESE CELL LINES TO ANYONE IN THE UNITED STATES, 18 AND I WANT TO STRESS THAT, THIS IS ONLY A PROBLEM IN 19 THE UNITED STATES. OF COURSE, IN CALIFORNIA, PART OF 20 THE UNITED STATES, WE CANNOT MAKE THESE TOOLS AVAILABLE 21 BECAUSE THE -- IF YOU HAVE TO PAY THE LICENSE FEES THAT 22 PEOPLE ARE DEMANDING, IT'S A NONECONOMICAL VENTURE. 23 I ALSO WANT TO STRESS THIS IS WHEN YOU'RE 24 LOOKING AT COMPETITIVENESS OF CALIFORNIA AND, INDEED, 25 THE UNITED STATES AGAINST PLACES LIKE SINGAPORE, PLACES

95 1 LIKE KOREA, CHINA, EVEN MEXICO, BRAZIL, WE ARE AT A 2 COMPETITIVE DISADVANTAGE. AND I THINK CIRM NEEDS TO 3 CONSIDER SOME OF THAT WHEN IT LOOKS AT IT BROADLY ABOUT 4 COMPETITIVENESS OF THE STATE, COMPETITIVENESS OF THE 5 COMPANIES, AND COMPETITIVENESS OF RESEARCH THAT IS 6 CARRIED OUT HERE. 7 ANYWAY, I JUST WANTED TO MAKE THAT POINT AND 8 MOVE ON FROM HERE. HAPPY TO TAKE QUESTIONS ABOUT THAT. 9 WE'VE THOUGHT A LOT ABOUT THE IMPLICATIONS OF THIS 10 PARTICULAR PATENT, AND I KNOW OTHERS SUCH AS JEANNE IN 11 THE AUDIENCE WILL ALSO TALK ABOUT IT. 12 I WANT TO SPEND TWO MINUTES ON -- 13 CHAIRMAN PENHOET: YOU'RE NOT PROPOSING WE 14 SECEDE FROM THE UNION? 15 MR. GOSWAMI: I THINK, MARY, I MAY HAVE 16 MISUNDERSTOOD, BUT YOU DID WANT US TO COMMENT ON BOTH 17 NONPROFIT. WE DO HAVE SOME CONCERNS ABOUT THE 18 NONPROFIT POLICY, AND I THINK IT GOES BACK TO THAT 19 DIAGRAM I SHOWED EARLIER. WE DON'T WANT TO BREAK THAT 20 LINK BETWEEN ABILITY TO LICENSE FROM NOT-FOR-PROFIT 21 ORGANIZATIONS. AND REALLY THE IMPORTANT PART THERE IS 22 THAT THERE SHOULDN'T BE CLAUSES IN CIRM'S FUNDING OF 23 NOT-FOR-PROFIT ORGANIZATIONS THAT PROVIDE DISINCENTIVES 24 FOR COMPANIES SUCH AS US TO LICENSE. AND I THINK THE 25 BIGGEST CONCERN WE HAVE RIGHT NOW IS AROUND THE

96 1 RESEARCHER'S EXEMPTION THAT REQUIRES CIRM-FUNDED 2 INVENTIONS TO PROVIDE ALL CALIFORNIA INSTITUTIONS FOR 3 RESEARCH PURPOSES AT NO COST. RIGHT. AND I THINK THIS 4 IS -- IF YOU LOOK AT IT, IF SOMEBODY ELSE NEEDS TO BUY 5 THIS REAGENT AT NO COST OR MAKE IT FOR FREE, WHY WOULD 6 SOMEONE WANT TO LICENSE IT AND SPEND THE MONEY AND 7 INVEST IN BRINGING IT TO THE MARKET IF THERE'S NO 8 GUARANTEE THAT YOU WON'T GET SIDESTEPPED BY A PUBLIC 9 ENTITY IN THIS MANNER. 10 I'M GOING TO LEAVE THIS FOR -- THIS IS OUR 11 VIEWPOINT, AT LEAST, THAT SOME OF THE RESEARCH USE 12 POLICY FROM CIRM CONCERNS ELIMINATE THE POSSIBILITY 13 THAT THE COMMERCIAL SECTOR WILL HELP IN DISSEMINATING 14 SOME OF THESE NEW RESEARCH TOOLS. THE LIMIT, IN OUR 15 MIND AT LEAST, STEM CELL RESEARCH PROGRESS, WHICH IS A 16 LOT OF THIS, IS BASED ON HAVING GOOD, STANDARDIZED 17 TOOLS AVAILABLE EARLY TO THE MARKET. AND THEN, OF 18 COURSE, IT ALSO ELIMINATES POTENTIAL ROYALTY BACK TO 19 THE STATES. LOOK, I TOTALLY UNDERSTAND THE ROYALTY 20 AMOUNTS FOR RESEARCH TOOLS ARE SMALL, BUT STILL IT IS 21 SOMETHING THAT IS GIVEN BACK TO THE STATE EARLY. 22 AND THEN, OF COURSE, IF YOU TAKE THE FRUIT 23 SIDE OF IT, IF COMPANIES SUCH AS US DO NOT LICENSE IN 24 TECHNOLOGIES SUCH AS ANTIBODIES AND OTHERS, IT CREATES 25 AN UNDUE BURDEN ON THE STATE AND THE NONPROFIT

97 1 INSTITUTIONS TO PROVIDE THESE AND MAKE THESE AVAILABLE 2 TO RESEARCHERS. 3 AND ANYWAYS, I THINK I'VE BELABORED THIS 4 POINT. I THINK WE DON'T WANT THINGS THAT CROSS OUT AND 5 PREVENT LICENSING IN BOTH DIRECTIONS AND, OF COURSE, 6 PAYBACK TO THE STATE. THAT'S IT. 7 CHAIRMAN PENHOET: VERY GOOD. THANK YOU. 8 ONE QUESTION. THE 40 LICENSES THAT YOU NOW HAVE, OF 9 THE 40, HOW MANY ARE EXCLUSIVE LICENSES AND HOW MANY 10 ARE NONEXCLUSIVE? 11 MR. GOSWAMI: THAT'S 40 PER YEAR. 12 CHAIRMAN PENHOET: FORTY PER YEAR. 13 MR. GOSWAMI: I WOULD SAY ABOUT 20 PERCENT OR 14 SO TEND TO BE EXCLUSIVE, RIGHT. AND IT DEPENDS VERY 15 MUCH ON THE TECHNOLOGY THAT WE LICENSE. SO GENERALLY 16 THINGS LIKE ANTIBODY LICENSES ARE NONEXCLUSIVE JUST 17 BASED HOW THE COMPANIES HAVE GONE ABOUT DOING THIS. 18 WHERE IT MAKES SENSE TO HAVE EXCLUSIVE LICENSES IS 19 WHERE THE AMOUNT OF INVESTMENT THAT WE HAVE TO PUT IN 20 IS QUITE SIGNIFICANT AND, THEREFORE, WE WOULD WANT 21 THAT -- THE LICENSE TO BE EXCLUSIVE TO PROVIDE US A 22 RETURN ON OUR INVESTMENT BEFORE IT REACHES OR WHEN IT 23 REACHES THE MARKET. 24 CHAIRMAN PENHOET: OTHER QUESTIONS? 25 DR. PRIETO: I WAS WONDERING IF YOU COULD

98 1 SPEAK A LITTLE BIT ON WHAT YOU THINK THE IMPACT OF THE 2 WARF PATENTS IS? ARE THEY A SIGNIFICANT OBSTACLE TO 3 PRIVATE INVESTMENT? 4 MR. GOSWAMI: I THINK SO. I THINK THEY ARE. 5 YOU KNOW, I KNOW A LOT OF YOU KNOW ABOUT THE WARF 6 POLICY FOR NOT-FOR-PROFIT RESEARCH TENDS TO BE 7 SOMEWHAT, WELL, SOMEWHAT GENEROUS, ALTHOUGH MANY 8 SCIENTISTS THAT WE HAVE SPOKEN TO ARE QUITE TAKEN ABACK 9 AT SOME OF THE RESTRICTIONS THAT ARE PUT ON ACADEMIC 10 INSTITUTIONS IN TERMS OF COLLABORATING WITH COMPANIES 11 SUCH AS US. FOR PRIVATE INSTITUTIONS, I THINK IT IS A 12 BIG DISINCENTIVE BECAUSE WHAT WARF DOES IS IT LOOKS AT 13 THE SIZE OF THE INSTITUTION OR THE COMPANY THAT WANTS 14 TO LICENSE THIS PRODUCT AND WANTS TO CHARGE AN UPFRONT 15 PAYMENT, WHICH IS VERY STEEP IN ANY LICENSING TERMS, 16 AND THEN, OF COURSE, ROYALTIES OBLIGATIONS WHICH ARE 17 TWOFOLD. ONE, A DIRECT ROYALTY OBLIGATION WHICH 18 DEPENDS ON PRODUCTS DIRECTLY PRODUCED USING STEM CELLS, 19 HUMAN EMBRYONIC OR PRIMATE EMBRYONIC STEM CELLS, BUT 20 THEY ALSO HAVE A REACH-THROUGH ROYALTY CLAUSE WHERE 21 THEY SAY ANYTHING YOU'VE INVENTED REMOTELY BY USING 22 HUMAN EMBRYONIC STEM CELLS WILL NOW HAVE A ROYALTY 23 OBLIGATION BACK TO WARF. SO, FOR INSTANCE, EVEN IF YOU 24 HAD A TREATMENT THAT WAS SOMEHOW BROUGHT TO THE MARKET 25 THAT HAS TOUCHED AN EMBRYONIC STEM CELL IN THE UNITED

99 1 STATES, YOU WILL HAVE TO PAY A ROYALTY BACK TO WARF. 2 AND I THINK THIS IS PARTICULARLY ONEROUS. WE 3 ARE SOMEWHAT IN THAT CAMP, RIGHT, BECAUSE I THINK, EVEN 4 IF WE'RE NOT ON THE THERAPEUTIC SIDE, LET'S SAY WE MAKE 5 A DISCOVERY OF A TOOL USING AT SOME POINT A HUMAN 6 EMBRYONIC STEM CELL. THEY WANT A ROYALTY BACK ON THAT 7 PARTICULAR PRODUCT. AND NOT ONLY DO THEY WANT A 8 ROYALTY BACK ON SALES OF THAT PRODUCT TO THE EMBRYONIC 9 STEM CELL MARKET, BUT ANY MARKET THAT WE TOUCH, THEY 10 WANT A ROYALTY BACK ON THAT PARTICULAR TOOL. SO IT IS 11 QUITE ONEROUS. 12 DR. PRIETO: EVEN MARKETS OUTSIDE THE UNITED 13 STATES? 14 MR. GOSWAMI: YES. IN GENERAL THEY WOULD. 15 SEE, THE OTHER PART IS, YOU KNOW, IF YOU LOOK AT 16 COMPANIES IN THE UNITED STATES VERSUS OUTSIDE, RIGHT, 17 WHICH IS ACTUALLY EVEN MORE INTERESTING. SO LET'S SAY 18 THERE'S A COMPANY IN INDIA, RIGHT. FOR ANYTHING THEY 19 DO WITH RESPECT TO HUMAN EMBRYONIC STEM CELL RESEARCH, 20 THEY OWE NO ROYALTIES TO WARF. THEY DO NOT HAVE AN 21 OBLIGATION TO WARF IN ANY MANNER, WAY, SHAPE, OR FORM, 22 AND THEY CAN DEVELOP EXACTLY THE SAME THERAPIES 23 COMPANIES IN THE UNITED STATES ARE TRYING TO DEVELOP 24 WITHOUT ANY KIND OF RESTRICTIONS OR OBLIGATION TO WARF. 25 SO FROM THAT POINT OF VIEW, SETTING UP A

100 1 COMPANY TO DO STEM CELL THERAPY IN THE UNITED STATES, I 2 THINK, IS A MAJOR DISINCENTIVE, AND PEOPLE ARE NOT 3 REALIZING THIS BUSINESS ISSUE. I DON'T THINK, AT LEAST 4 FROM OUR POINT OF VIEW, THE ISSUE IS NOT WHETHER THE 5 PATENT IS LEGITIMATE OR NOT, BUT THERE ARE SERIOUS 6 BUSINESS IMPLICATIONS OF THE PATENT IN MAKING CURES 7 AVAILABLE TO THE PUBLIC HERE. 8 THE REPORTER: I'M SORRY. THIS IS THE 9 REPORTER. I DIDN'T CATCH THE NAME OF THE PERSON WHO 10 ASKED THE LAST TWO QUESTIONS. 11 DR. PRIETO: I'M SORRY. THIS IS FRANCISCO 12 PRIETO IN SAN DIEGO. 13 THE REPORTER: OKAY. THANK YOU. 14 DR. REED: JOHN REED HERE IN SAN DIEGO. JUST 15 A QUESTION ABOUT THIS CONCEPT OF INDIRECT RETURN TO THE 16 STATE. INVITROGEN IS CLEARLY ONE OF THE SUCCESS 17 STORIES OF THE CALIFORNIA BIOTECHNOLOGY INDUSTRY. ANY 18 IDEA WHAT YOU'RE PAYING IN CORPORATE INCOME TAXES EVERY 19 YEAR IN THE STATE OF CALIFORNIA? 20 MR. GOSWAMI: I DON'T KNOW OFF THE TOP OF MY 21 HEAD, BUT THAT'S PUBLIC INFORMATION. I'M SURE THAT WE 22 CAN GET THAT INFORMATION TO YOU. IT SHOULDN'T BE AN 23 ISSUE. WE HAVE A MAJORITY OF OUR BUSINESS, OR I SHOULD 24 SAY RESEARCH AND MANUFACTURING ACTIVITY, LOCATED IN THE 25 STATE. SO I'M SURE A MAJORITY OF THE TAX ACTUALLY IS

101 1 PAID IN THE STATE. 2 CHAIRMAN PENHOET: IT MUST BE $150 MILLION A 3 YEAR. 4 DR. REED: SALES ARE ABOUT 1.5 BILLION? 5 MR. GOSWAMI: YEAH. 1.3 BILLION OR SO. 6 DR. REED: SO IT'S GOT TO BE SOMETHING IN 7 THAT BALLPARK? 8 MR. GOSWAMI: YEAH. 9 DR. REED: THAT'S ONE COMPANY. JUST 10 SOMETHING TO KEEP IN MIND. 11 MR. GOSWAMI: YEAH, I THINK WE ARE A LARGE 12 COMPANY. I THINK THE DECISIONS COMPANIES MAKE TO 13 INVEST IN THE FIELD, OF COURSE, CONSIDER THE SIZE OF 14 THE FIELD AND NOT -- YOU KNOW, IT IS SOMEWHAT OF A 15 ANIMAL WITHIN THE COMPANY AND WITH ITS OWN INVESTMENT 16 DECISIONS TO BE MADE. 17 CHAIRMAN PENHOET: OKAY. ANY COMMENTS FROM 18 IRVINE? QUESTIONS? 19 DR. BRYANT: NO. 20 CHAIRMAN PENHOET: FROM SAN CARLOS? 21 UNIDENTIFIED SPEAKER: NO. 22 CHAIRMAN PENHOET: LOS ANGELES? CHICO? 23 DR. WRIGHT: NO. 24 CHAIRMAN PENHOET: OKAY. NOW DO WE HAVE 25 COMMENTS FROM THE AUDIENCE IN SAN DIEGO? THIS IS ALLAN

102 1 ROBINS. 2 MR. ROBINS: ALLAN ROBINS IN SAN DIEGO. I 3 JUST -- I THOUGHT FRANCISCO BROUGHT UP A VERY GOOD 4 POINT. AND, JOYDEEP, I JUST WANTED TO ADD A LITTLE BIT 5 TO YOUR ANSWER. IS THAT IF A COMPANY IN THE FIELD OR 6 THE UNITED KINGDOM OR SINGAPORE DEVELOPS A PRODUCT OR 7 HUMAN EMBRYONIC STEM CELLS AND THAT PRODUCT IS 8 DIFFERENT FROM THE HUMAN EMBRYONIC STEM CELL, THAT 9 PRODUCT CAN BE IMPORTED INTO THE U.S.A. AND SOLD HERE, 10 AND THAT WOULD NOT INFRINGE THE LINE. AND SO YOU 11 REALLY ARE PUTTING COMPANIES THAT OPERATE IN THE U.S. 12 AT A DISADVANTAGE. 13 MR. GOSWAMI: THAT'S A GREAT POINT. 14 DR. PRIETO: FRANCISCO PRIETO AGAIN. THAT 15 WAS SORT OF WHAT I WAS STARTING TO GLEAN FROM THIS THAT 16 AS THEY CURRENTLY OPERATE, THAT THESE PATENTS ARE A 17 DISINCENTIVE TO THE RESEARCH IN THE UNITED STATES. 18 MR. GOSWAMI: IT IS ENORMOUS. AND THE 19 PATENTS ONLY, AS ALLAN RIGHTLY POINTS OUT, ARE TO THE 20 COMPOSITION OF MATTER OF THE PRIMATE EMBRYONIC STEM 21 CELL AND THE METHOD OF DERIVATION. SO ABSOLUTELY 22 RIGHT. 23 MR. ROTH: HI, IT'S DUANE ROTH IN SAN DIEGO. 24 I'M GOING TO -- I WOULD LIKE TO MAKE JUST A FEW 25 COMMENTS SPEAKING FROM MY POSITION AT CONNECT HERE IN

103 1 SAN DIEGO. OUR MISSION IS TO HELP TURN GOOD SCIENCE 2 AND GOOD IDEAS INTO BUSINESSES AND NEW COMPANIES, NEW 3 COMPANY CREATION. 4 I THOUGHT THE COMMENTS THAT WERE MADE BY 5 JOYDEEP AND ALLAN WERE APPROPRIATE FOR EXISTING 6 COMPANIES THAT USE THIS TECHNOLOGY, GET IT INTO THEIR 7 COMPANY TO DELIVER PRODUCTS TO THE MARKET. BUT FROM 8 THE START-UP STANDPOINT, THERE'S THREE COMMENTS I WOULD 9 MAKE ABOUT INTELLECTUAL PROPERTY. 10 FIRST, IT'S ABSOLUTELY NECESSARY, AND I'LL 11 COME BACK TO THAT IN A SECOND. 12 NO. 2 IS IT'S EXTRAORDINARILY COMPLICATED. 13 YOU HEARD THE NUMBER OF STEM CELL PATENTS THAT ARE 14 ALREADY OUT THERE, THE ONES THAT ARE ISSUED, AND THEN 15 YOU HAVE THOUSANDS THAT ARE IN THE PROCESS OF BEING 16 REVIEWED. 17 AND THE THIRD IS THAT INCREASINGLY IT IS 18 VERY, VERY EXPENSIVE. AND I CALL THEM THE SHUNS, BUT 19 YOU FIRST HAVE THE PREPARATION, WHICH IS A NECESSARY 20 AND EXPENSIVE PART OF IT, AND THERE'S THE PROSECUTION 21 OF THOSE PATENTS WORLDWIDE AND THE FEES YOU HAVE TO 22 PAY, ALL THE THINGS YOU HAVE ENTER INTO EVEN IN THE 23 APPLICATION PHASE AND THEN AT ISSUE. 24 THEN THE THIRD IS NEGOTIATION. YOU END UP 25 WITH ALL THIS INTELLECTUAL PROPERTY AND MILLIONS AND

104 1 MILLIONS OF DOLLARS BEING SPENT BY LAWYERS TRYING TO 2 NEGOTIATE THE RIGHT TO PRACTICE, WHICH IS INCREASINGLY 3 TIME AND MONEY THAT NOBODY ACCOUNTS FOR. 4 AND THEN THE FINAL ONE IS LITIGATION. AND 5 YOU END UP IN MANY, MANY CASES OVER MAJOR PATENTS, 6 THAT'S EXACTLY WHAT YOU'RE ALL TALKING ABOUT HERE, 7 LITIGATION. WHO'S GOING TO PAY FOR THAT? AND WHAT'S 8 THE ULTIMATE OUTCOME GOING TO BE? SO I THINK THOSE 9 THINGS NEED TO BE KEPT IN MIND. 10 BUT LET ME GO TO THE NECESSARY. WHAT I THINK 11 YOU'RE TRYING TO DO WITH INTELLECTUAL PROPERTY FOR 12 START-UP COMPANIES IS CREATE AN ENVIRONMENT WHERE YOU 13 CAN LEVERAGE FINANCING AND TRY TO GET PEOPLE TO INVEST 14 IN AN IDEA, A DREAM. AND THEY AREN'T GOING TO DO THAT 15 UNLESS THEY THINK, IF THEY GO THROUGH ALL THIS WORK AND 16 EXPENSE AND RISK, THAT THERE IN THE END IS RETURN. 17 THAT'S THE FIRST THING IP NEEDS TO DO. 18 THE SECOND IS YOU WANT THAT IP TO LEAD TO 19 PRODUCTS THAT ACTUALLY GET TO PEOPLE. AND FROM OUR 20 STANDPOINT, YOU START THESE THINGS, AND THAT'S WHAT 21 IT'S ALL ABOUT, GETTING PRODUCTS TO PATIENTS. TAKING 22 GOOD SCIENCE AND DEVELOP PRODUCTS AND GET THEM TO THE 23 PEOPLE THAT NEED THEM. 24 THE THIRD CONSIDERATION, AND AN IMPORTANT 25 ONE, IS ROYALTY. IF THERE IS A CONTRIBUTION TO THE

105 1 INTELLECTUAL PROPERTY THAT EVENTUALLY LEADS TO A 2 PRODUCT, WHICH IS A RARE OCCASION, THEN THERE SHOULD BE 3 A SHARING OF THE PROFITS THAT ARE DERIVED FROM THAT. I 4 DON'T THINK ANYBODY THAT'S SPOKEN TODAY WOULD DISCOUNT 5 THAT. BUT I WANT TO REMIND YOU, AND I USE THIS 6 CONSTANTLY, A HUNDRED PERCENT OF NOTHING IS NOTHING. 7 SO IT HAS TO BE VERY CAREFULLY USED, AND MANY THINGS 8 THAT ALLAN TALKED ABOUT EARLIER, STACKING ROYALTIES, 9 THESE THINGS COME UP CONSTANTLY. 10 THE CONCERN IS THE RISK OUTWEIGHS THE 11 OPPORTUNITIES. WHATEVER WE END UP WITH, I THINK IT HAS 12 TO FOLLOW THOSE GUIDELINES, PARTICULARLY FOR START-UP 13 COMPANIES. 14 CHAIRMAN PENHOET: THANK YOU. JOHN SIMPSON. 15 MR. SIMPSON: JUST ONE QUICK QUESTION. YOU 16 TALKED ABOUT 40 LICENSES A YEAR THAT YOU'RE DEVELOPING. 17 I HATE TO KEEP GOING BACK TO THE SAME QUESTION, BUT I 18 RARELY HAVE AN OPPORTUNITY TO TALK TO EXECUTIVES OF 19 COMPANIES WITH PRACTICE ON THIS. SO WOULD A PATENT 20 POOL WITH APPROPRIATE PATENTS PROVIDE YOU AN 21 OPPORTUNITY TO NEGOTIATE ONE-STOP SHOPPING TO GET 22 LICENSES THAT YOU NEED? WOULD THAT BE BENEFICIAL IF 23 THERE WERE SUCH A THING? 24 MR. GOSWAMI: YOU KNOW, AGAIN, IT'S A TOUGH 25 QUESTION TO ANSWER, RIGHT, BECAUSE I THINK IF YOU ASK

106 1 ME THAT QUESTION AND ALLAN THAT QUESTION, THE PORTFOLIO 2 OF PATENTS WOULD BE DIFFERENT. 3 NOW, THE WARF ISSUE THAT PEOPLE HAVE BROUGHT 4 UP EARLIER IS ONE SUCH PATENT THAT TRANSCENDS ANY WORK 5 THAT PEOPLE WOULD DO IN THE HUMAN EMBRYONIC STEM CELL 6 FIELD. SO THAT'S WHY YOU GET THIS PATENT COMING UP 7 AGAIN AND AGAIN. AND SOMEHOW AND SOMEBODY AT THE WORLD 8 STEM CELL CONFERENCE BROUGHT UP THIS THING. IF YOU 9 THINK BACK, ONE OF THE SIMILAR PATENTS WAS THE COVARO 10 PATENT WHICH INHIBITED MOST OF BIOTECHNOLOGY. AND THE 11 REASON THAT PATENT WAS SO SUCCESSFUL IN SOME WAYS IS 12 BECAUSE IT WAS LICENSED OUT TO PEOPLE ON WHAT THEY 13 CONSIDERED REASONABLE TERMS, RIGHT. THERE'S RISK THAT 14 ONE HAS TO TAKE UP FRONT. DOESN'T SEEM TO BE A 15 CONSIDERATION FOR HOW THE LICENSING MODEL IS WORKING 16 WITH WISCONSIN, WHICH IS HUGE UPFRONT PAYMENTS FOR A 17 FIELD THAT IS, YOU KNOW, PARDON THE PUN, BUT EMBRYONIC. 18 AND JUST FROM A BUSINESS POINT OF VIEW, IT MAKES VERY 19 LITTLE SENSE. AND THAT'S WHY MAYBE CIRM COULD HELP IN 20 ENABLING THAT PARTICULAR PATENT BECAUSE IT WILL BE USED 21 BY ALMOST EVERYBODY THAT IS ENGAGED IN THIS FORM OF 22 RESEARCH IN THE STATE OF CALIFORNIA. 23 SO THAT'S WHY I BROUGHT THAT UP. BUT I DON'T 24 THINK THERE WOULD BE ONE PORTFOLIO THAT WOULD MAKE 25 SENSE TO EVERYBODY. IT GETS TOO MESSY TO TRY AND DO

107 1 THAT. 2 CHAIRMAN PENHOET: ANY OTHER PUBLIC COMMENTS 3 IN SAN DIEGO? HOW ABOUT COMMENTS IN IRVINE? 4 DR. BRYANT: NO. 5 CHAIRMAN PENHOET: SAN CARLOS? 6 UNIDENTIFIED SPEAKER: NO. 7 CHAIRMAN PENHOET: LOS ANGELES? 8 UNIDENTIFIED SPEAKER: NO. 9 CHAIRMAN PENHOET: CHICO? 10 DR. WRIGHT: NO. 11 CHAIRMAN PENHOET: WE WILL THANK YOU, GUYS, 12 THANK YOU. VERY INFORMATIVE PRESENTATION. THAT BRINGS 13 OUR PRESENTATIONS TO A CLOSE, BUT I THINK IT WOULD BE 14 APPROPRIATE AT THIS TIME TO OPEN THE FLOOR TO ISSUES, 15 QUESTIONS, THAT MAY RELATE TO THESE, MAY NOT RELATE TO 16 THESE ON THE GENERAL SUBJECT OF TODAY'S MEETING, WHICH 17 IS AN INTELLECTUAL PROPERTY POLICY FOR, JUST CALL IT, 18 GRANTS. I THINK WE'VE HEARD THERE MAY BE GRANTS, THERE 19 MAY BE LOANS, THERE MAY BE CONTRACTS, A NUMBER OF 20 DIFFERENT VEHICLES FOR FUNDING THIS KIND OF WORK IN THE 21 PRIVATE SECTOR. SO NOW I'LL LOOK FORWARD TO ANY 22 COMMENTS ON TODAY'S PRESENTATIONS OR OTHERWISE. 23 BUT SPECIFICALLY FOR THOSE OF YOU ON THE TASK 24 FORCE, WE'D LIKE YOU ALSO TO BE THINKING ABOUT ANY GAPS 25 IN WHAT WE'VE HEARD SO FAR. WE HAVE HEARD FROM THE

108 1 FEDERAL GOVERNMENT, AT LEAST FROM THE NIH. WE HAVE 2 HEARD FROM INDUSTRY SOURCES. WE HAVE HEARD FROM 3 MR. SIMPSON. WE HAVE HEARD FROM A NUMBER OF DIFFERENT 4 GROUPS SO FAR. WE HAVE HEARD FROM THE JDRF. AND 5 PERHAPS MARY AND I, IF WE HAVE TIME, WILL SHARE A 6 CONVERSATION WE HAD WITH THE WELLCOME TRUST, WHICH HAS 7 ACTUALLY NOW BASED ITSELF IN FUNDING FOR-PROFIT 8 ENTITIES. IT'S THE SECOND LARGEST FOUNDATION IN THE 9 WORLD ACTUALLY AFTER GATES FOUNDATION. I THINK FOR 10 SIMILAR REASONS, THAT THEY ARTICULATED TO US AT LEAST, 11 WHAT THEIR VIEW IS IS BASICALLY THEY SHOULD FUND 12 ORGANIZATIONS WHICH ARE MOST LIKELY TO MOVE A FIELD 13 FORWARD. AND IF THAT HAPPENS TO BE A FOR-PROFIT 14 AGENCY, THAT'S WHAT THEY SHOULD FUND. SO THEY ACTUALLY 15 HAVE A MAJOR COMPONENT OF THEIR ACTIVITIES IN THAT 16 DIRECTION. 17 WE HOPE IN THE NEXT MEETING TO ACTUALLY HAVE 18 HERE SOMEONE FROM THE TRUST COME TO SPEAK TO US IN 19 PERSON, BUT ALSO BY PHONE. WOULD THAT -- LET'S OPEN 20 THE FLOOR TO THE TASK FORCE MEMBERS FIRST FOR COMMENTS 21 ON ANY OF THE THINGS WE'VE BEEN DISCUSSING HERE OR 22 QUESTIONS OF EACH OTHER, ETC. OPEN FORUM. JOHN REED. 23 DR. REED: I'LL START THE DIALOGUE OFF HERE. 24 JOHN REED. I WANTED TO THANK ALL THE SPEAKERS HERE FOR 25 THEIR PRESENTATIONS. I THOUGHT THEY WERE HIGHLY

109 1 INFORMATIVE AND GAVE US, I THINK, INSIGHTS TO SOME OF 2 THE SPECTRUM OF VIEWS THAT WE'RE LIKELY TO EXPERIENCE 3 AS WE TACKLE WITH THIS ISSUE OF INTELLECTUAL PROPERTY. 4 I WAS REALLY COMPELLED BY THE PRESENTATION 5 THAT REFERRED BACK TO WHAT WE EARLY LEARNED ABOUT THE 6 WAY JDRF FUNDS WORK IN FOR-PROFIT COMPANIES AND 7 PERSONALLY FIND THAT TO BE A VERY ATTRACTIVE MODEL, ONE 8 THAT SEEMS THAT MOST OF THE COMPANIES FIND ACCEPTABLE, 9 AND ONE THAT I THINK, JUST FROM MY OWN KIND OF GUT 10 REACTION TO, SEEMS QUITE FAIR IN TERMS OF THE ECONOMIC 11 BENEFIT THAT THE STATE COULD HOPE TO RECEIVE IN 12 EXCHANGE FOR PROVIDING SEED FUNDING TO COMPANIES FOR 13 THIS TYPE OF TECHNOLOGY. 14 SO I THOUGHT I MIGHT OPEN THE DIALOGUE BY 15 THROWING THAT OUT AS A SUGGESTION OF WHETHER THE JDRF'S 16 APPROACH TO THIS IS SOMETHING THAT WE MIGHT ADOPT. I 17 WOULD ALSO JUST ADD PARENTHETICALLY THAT I'M A BIG 18 BELIEVER OF NOT REINVENTING THE WHEEL IF YOU DON'T HAVE 19 TO. AND IF THERE'S ANOTHER MODEL WE CAN TURN TO THAT 20 SEEMS TO WORK, YOU KNOW, WHY NOT ADOPT IT? 21 CHAIRMAN PENHOET: WELL, FOR WHAT IT'S WORTH, 22 THE WELLCOME TRUST MODEL IS VERY SIMILAR TO THE JDRF 23 MODEL, AND THEY HAVE BEEN IN DISCUSSIONS WITH EACH 24 OTHER ABOUT THAT. SO THERE'S AT LEAST TWO AGENCIES 25 THAT HAVE PRIOR EXPERIENCE, HAVE VERY SIMILAR THINKING

110 1 ON THIS ISSUE. 2 I THINK THE CHARACTERISTICS THAT WE SET MIGHT 3 DEFINE THOSE, AS FAR AS WE CAN TELL, BY JUST GOING TO 4 THESE CONVERSATIONS. NO. 1, THAT THERE IS A RETURN IF 5 THE TECHNOLOGY IS SUCCESSFUL. NO. 2, THAT IT'S CAPPED, 6 WHICH I THINK DEALS WITH THIS CERTAINTY OR UNCERTAINTY 7 ISSUE THAT'S BEEN BROUGHT UP MANY TIMES. PEOPLE GO, 8 OKAY, WHEN THEY KNOW THE SIZE OF THE OBLIGATION, ETC., 9 THAT IT HAS A FINITE LENGTH OF TIME ASSOCIATED WITH IT. 10 AND THAT THERE'S SOME KIND OF GOOD REPORTING THAT'S 11 ESSENTIAL TO UNDERSTANDING WHAT'S GOING ON, THAT THE 12 FUNDING AGENCY HAS THE ABILITY TO HAVE QUITE A BIT OF 13 TRANSPARENCY TO WHAT'S GOING ON. AND WE PROBABLY DON'T 14 HAVE THE STAFF TO DO A MANAGEMENT GROUP LIKE YOU 15 REFERRED TO WITH JDRF WITH TWO PEOPLE. 16 BY THE WAY, I WOULD MENTION THIS IS A 17 SIGNIFICANT ISSUE FOR US. CIRM AS AN AGENCY IS 18 DRAMATICALLY UNDERFUNDED GIVEN THE SCOPE OF ACTIVITIES 19 THAT IT WANTS TO UNDERTAKE IN THE FUTURE. JUST THE 20 LICENSING, WE'RE CAPPED AT 50 TOTAL PEOPLE. YOU KNOW, 21 A ROBUST LICENSING GROUP, A GRANT-MAKING GROUP, MAKING 22 A NUMBER OF DIFFERENT KINDS OF, LET'S CALL IT, THE 23 WHOLE FIELD OF GRANTS FOR THE MOMENT, THAT HAS TO BE 24 DONE DIRECTLY BY CIRM WOULD PROBABLY INVOLVE AT LEAST 25 10 PERCENT OF OUR TOTAL STAFF. IT'S A SIGNIFICANT

111 1 BURDEN, BUT I THINK ONE WE'VE ACCEPTED. 2 THOSE ARE SOME OF THE CHARACTERISTICS I 3 HEARD. MAYBE THE OTHERS, IF ANYBODY WANTS TO ADD TO 4 THAT LIST. 5 DR. REED: JOHN REED AGAIN. I ALSO NOTICED 6 THAT, I BELIEVE IN THAT JDRF CONFIGURATION, THE 7 COMPANIES THAT INVENT THE TECHNOLOGY OWN THE PATENTS, 8 BUT JDRF HAS CERTAIN RIGHTS TO ASSUME THE PATENTS IF 9 THE COMPANY ELECTS NOT TO PURSUE THEM AND PAY THE 10 ASSOCIATED COSTS. I FOUND THAT TO BE ATTRACTIVE AS 11 WELL BECAUSE THIS BUSINESS OF MANAGING PATENT STATES IS 12 VERY COMPLICATED AND COMES WITH SOME PRETTY ONEROUS 13 OBLIGATIONS TO DO IT WELL. AND I THINK, THEREFORE, 14 THERE'S A STRONG ARGUMENT TO BE MADE TO PUT THAT 15 MANAGEMENT OF PATENTING IN THE HANDS OF THE INVENTORS 16 AND ALLOW THEM TO OWN THE PATENTS, BUT OBVIOUSLY HAVE, 17 YOU KNOW, OTHER PROVISIONS THAT WOULD ALLOW US TO MARCH 18 IN IF THEY FAILED TO PURSUE THEM, OR POSSIBLY ALSO TO 19 MARCH IN IF THERE WERE ISSUES WHERE A PATENT HAD A 20 BLOCKING POSITION THAT WAS PREVENTING PROGRESS AND 21 WHERE ALL THE BEST EFFORTS TO GET THE PARTIES TO AGREE 22 TO MOVE THE FIELD FORWARD HAD FAILED, AND THEN WE MIGHT 23 HAVE CERTAIN RIGHTS TO ENFORCE CERTAIN USES OF 24 TECHNOLOGY ON A NONEXCLUSIVE BASIS. 25 BUT OVERALL I FOUND THE JDRF'S APPROACH TO

112 1 HOW THE PATENT WAS HANDLED ALSO TO BE QUITE ATTRACTIVE. 2 CHAIRMAN PENHOET: FRANCISCO, YOU HAVE ANY 3 GENERAL COMMENTS YOU'D LIKE TO SHARE AT THIS POINT? 4 YOU'VE ASKED A LOT OF QUESTIONS AS WE'VE GONE ALONG. 5 DR. PRIETO: NO. AND I'VE HEARD A LOT OF 6 INTERESTING ANSWERS. I THINK I WOULD LIKE TO HEAR A 7 LITTLE MORE FROM SOME OF THE OTHER GRANTOR 8 ORGANIZATIONS LIKE JDRF. I THINK I'M GOING TO TALK TO 9 THE PEOPLE AT MY OWN ASSOCIATION WHICH COOPERATES WITH 10 JDRF. I WONDER ABOUT THE GATES FOUNDATION, HOWARD 11 HUGHES, YOU KNOW, IF THEY'RE HANDLING THIS IN A SIMILAR 12 MANNER OR DIFFERENTLY. 13 CHAIRMAN PENHOET: MANY OF THE FOUNDATIONS IN 14 THE U.S. DON'T SUPPLY FUNDS TO FOR-PROFIT AGENCIES 15 BECAUSE OF THE TAX RULES RELATED TO HOW THEY DO THIS, 16 BUT WE DID STUDY A NUMBER OF THOSE MODELS WHEN WE WERE 17 DISCUSSING THE NOT-FOR-PROFIT PORTION. 18 UNIDENTIFIED SPEAKER: I'D LIKE TO MAKE ONE 19 COMMENT ABOUT THAT. 20 CHAIRMAN PENHOET: MAYBE WE'LL GET BACK TO 21 YOU AFTER WE'VE HAD THE TASK FORCE MEMBERS GIVEN AN 22 OPPORTUNITY. IN IRVINE, ANY GENERAL COMMENTS THAT 23 YOU'D LIKE TO MAKE FROM IRVINE? 24 DR. STEWARD: WELL, WE WERE WONDERING ABOUT 25 WHETHER IT WOULD BE WORTH HEARING FROM WARF.

113 1 MS. KING: DR. STEWARD, COULD YOU JUST STATE 2 YOUR NAME FOR THE TRANSCRIBER, PLEASE? 3 DR. STEWARD: YES. OS STEWARD. 4 CHAIRMAN PENHOET: WE'VE ASKED THEM TO COME 5 PRESENT TO OUR GROUP. 6 DR. STEWARD: WELL, IT WOULD BE INTERESTING 7 TO HEAR WHAT THEY HAD TO SAY ABOUT POSSIBLE 8 INTERACTIONS, LET'S CALL IT. 9 CHAIRMAN PENHOET: OKAY. WE'LL SEE WHETHER 10 THAT MAKES SENSE FROM SOME OTHER PERSPECTIVES, BUT IT 11 WOULD BE AN INTERESTING SESSION, FOR SURE. ANY OTHER 12 COMMENTS? SUSAN, DO YOU HAVE ANY? 13 DR. BRYANT: WELL, I AGREE WITH THAT. I 14 THINK IT WOULD BE TERRIFIC TO HEAR FROM WARF. BUT THE 15 OTHER THING MIGHT BE USEFUL TO HEAR FROM INTELLECTUAL 16 PROPERTY LAWYERS ON THIS ISSUE THAT SPECIALIZE IN STEM 17 CELLS MAYBE, SEE HOW THEY'RE DEALING WITH IT IN OTHER 18 PARTS OF THE COUNTRY. 19 CHAIRMAN PENHOET: IT'S A VERY DIFFICULT 20 ISSUE. AND I'M NOT HERE TO DEFEND WARF IN ANY WAY, 21 SHAPE, OR FORM; BUT, YOU KNOW, THERE IS A THREAD OF 22 THESE CONVERSATIONS. PATENTS ARE EXTREMELY IMPORTANT, 23 BUT EXCEPT THE ONES THEY DON'T LIKE. YOU KNOW, YOU 24 CAN'T HAVE IT BOTH WAYS. AND SO HOPEFULLY THE FIELD AS 25 A WHOLE CAN REACH SOME SENSIBLE ACCOMMODATION TO WARF

114 1 FOR THE PIONEERING WORK THAT THEY DID DO, BUT AT THE 2 SAME TIME NOT STOP THE ENTIRE FIELD FROM GOING FORWARD. 3 IT'S A HARD PROBLEM ACTUALLY. 4 FROM SAN CARLOS? 5 DR. LOVE: YEAH. I GUESS ON THIS END I JUST 6 WANTED TO REINFORCE -- 7 CHAIRMAN PENHOET: WHO'S SPEAKING? 8 DR. LOVE: THIS IS TED LOVE. 9 CHAIRMAN PENHOET: THANK YOU. 10 DR. LOVE: -- TO REINFORCE WHAT JOHN SAID. I 11 THINK THE JDRF PROPOSAL REPRESENTS A SENSIBLE BALANCED 12 PROPOSAL THAT COULD WORK. AND I THINK MICHAEL GOLDBERG 13 HERE FROM THE D.C. SET HELPS SIMILARLY. SO I JUST 14 WANTED TO RE-ECHO THAT. 15 MR. GOLDBERG: YEAH. I AGREE WITH WHAT TED 16 JUST SAID. I ALSO WONDER WHETHER IN CONNECTION WITH 17 THE COMMENT THAT I THINK, MAYBE IT WAS SUE BRYANT MADE, 18 ABOUT INTELLECTUAL PROPERTY COUNSEL. I'D BE INTERESTED 19 PERHAPS IN SOMEBODY OR PERSONS WHO ARE EXPERTS, WHETHER 20 THEY'RE INTELLECTUAL PROPERTY LAWYERS, WHETHER THEY'RE 21 JUST LICENSING EXECUTIVES, TO KIND OF PUT INTO THE 22 RECORD THE RANGE OF ROYALTIES THAT ARE ORDINARY AND 23 REASONABLE AS PERCEIVED BY INDUSTRY FOR THE VARIOUS 24 SEGMENTS THAT WE MIGHT HAVE OCCASION TO APPLY THEM TO; 25 NAMELY, THERAPEUTICS, DIAGNOSTICS, AND REAGENTS.

115 1 BECAUSE I THINK THOSE THINGS ARE ALL VERY DIFFERENT, 2 AND I THINK THE WAY WE WERE ABLE TO DEAL WITH THE 3 ROYALTY ISSUE FOR THE NOT-PROFIT GRANTEES IS A LITTLE 4 MORE COMPLICATED THAN WE'RE GOING TO FIND IN DEALING 5 WITH THE DIFFERENT SETS OF POTENTIAL FOR-PROFIT 6 APPLICANTS THAT WE FACE. SO THAT'S FOR YOUR 7 CONSIDERATION. 8 CHAIRMAN PENHOET: AS A PERSON WHO'S ENTERED 9 INTO MANY DIFFERENT ROYALTY PAYING AGREEMENTS, 10 UNFORTUNATELY THEY SPAN A HUGE RANGE FROM THE LOWEST, I 11 THINK, I CAN REMEMBER EVER PAYING MYSELF AS AN 12 EXECUTIVE WAS ABOUT HALF A PERCENT, AND THE HIGHEST I 13 EVER GOT FROM A THIRD PARTY WAS CLOSE TO 40 PERCENT. 14 AND IT TOTALLY DEPENDS ON THE VALUE OF THE PATENT 15 YOU'RE TALKING ABOUT. IT'S VERY HARD TO HAVE A GENERIC 16 ANSWER TO THAT QUESTION BECAUSE SOME INVENTIONS ARE 17 EXTRAORDINARILY VALUABLE, COMPLETELY CHANGE THE FIELD, 18 ETC. AND OTHER ONES MAKE A TRIVIAL CONTRIBUTION TO 19 SOMETHING, NEVERTHELESS THEY'RE A PATENT. SO I THINK 20 IT'S VERY HARD TO FIND A GENERIC ANSWER TO THAT 21 QUESTION, BUT WE COULD AT LEAST EXPLORE WHAT THE RANGE 22 IS. 23 MR. GOLDBERG: I WOULD -- I AGREE WITH YOU, 24 ED, EXCEPT I THINK ONE OF THE THINGS THAT MAKES OUR 25 SITUATION A LITTLE EASIER, PERHAPS, IS THERE ISN'T

116 1 ANYTHING TO LICENSE AT THE TIME SOMEBODY IS ENTERING 2 INTO A GRANT RELATIONSHIP WITH CIRM. I MEAN THERE'S 3 JUST -- THEY'RE GOING TO DEVELOP -- WHAT COMES OUT OF 4 IT IS UNKNOWN. THEY DON'T KNOW WHETHER IT'S VALUABLE 5 OR NOT VALUABLE AS OPPOSED TO IF I KNOW THAT A 6 UNIVERSITY WITH A CIRM-DEVELOPED GRANT DEVELOPS 7 SOMETHING OF GREAT VALUE, IT'S VERY UNDERSTANDABLE THAT 8 ONE MIGHT BE WILLING TO GO TO THE HIGH END OF THE RANGE 9 BECAUSE THE INFORMATION IS KNOWN AS OPPOSED TO UNKNOWN. 10 SO... 11 THE REPORTER: I'M SORRY TO INTERRUPT. WHO 12 WAS JUST TALKING? 13 MR. GOLDBERG: TED LOVE. 14 MS. KING: MICHAEL GOLDBERG. 15 DR. LOVE: IT WAS A CHICO. 16 CHAIRMAN PENHOET: ANY MORE COMMENTS FROM SAN 17 CARLOS? FROM LOS ANGELES? FROM CHICO? 18 DR. WRIGHT: NO. I WOULD LIKE TO THANK THE 19 PRESENTERS AND THIS DISCUSSION BECAUSE IT REAFFIRMS HOW 20 COMPLEX THE ISSUE IS, BUT IT ALSO MAKES IT A LITTLE 21 MORE APPROACHABLE FOR THOSE OF US WHO HAVEN'T LIVED AND 22 BREATHED THIS. 23 MS. KING: THAT WAS JANET WRIGHT. 24 DR. WRIGHT: YES. SORRY. 25 MS. KING: WITH A W.

117 1 THE REPORTER: THANK YOU. 2 CHAIRMAN PENHOET: BUT SHE'S OFTEN RIGHT AS 3 WELL. YOU WERE UNUSUALLY QUIET TODAY, JANET. 4 DR. WRIGHT: I AM, AREN'T I? 5 CHAIRMAN PENHOET: WE DO HAVE SOME PUBLIC 6 COMMENTS NOW FROM SAN DIEGO. 7 MR. BAERGE: ED BAERGE FROM NOVOCELL. I WAS 8 JUST GOING TO MAKE A COMMENT WITH REGARD TO THE OTHER 9 INSTITUTIONS THAT SUPPORT BASIC RESEARCH AROUND THE 10 WORLD AND THE U.S. LIKE HOWARD HUGHES AND JDRF. 11 THERE'S ANOTHER INSTITUTION THAT SUPPORTS A LOT OF 12 RESEARCH HERE IN SAN DIEGO CALLED THE CLAGUE 13 FOUNDATION, AND THAT INSTITUTION ALSO HAS INVESTED IN 14 COMPANIES. THEY'VE INVESTED IN US TO DEVELOP STEM CELL 15 THERAPY FOR DIABETES. AND THEY TOOK AN EQUITY 16 INVESTMENT, SO THAT WAS JUST ONE THING THAT ALLAN 17 BROUGHT UP. I MEAN THAT'S ANOTHER WAY IN WHICH 18 TO -- THAT THE CIRM CAN THINK ABOUT THIS. 19 CHAIRMAN PENHOET: UNFORTUNATELY, I BELIEVE 20 THE STATE OF CALIFORNIA IS NOT ALLOWED TO HOLD EQUITY 21 IN COMPANIES UNFORTUNATELY. 22 MR. SIMPSON: I THINK YOU ARE CORRECT. WE'VE 23 BEEN LOOKING INTO THAT AS WELL. YOU MAY BE ABLE TO USE 24 WARRANTS. I'M NOT SURE. 25 CHAIRMAN PENHOET: AN EQUITY SURROGATE.

118 1 MR. SIMPSON: WE'RE LOOKING INTO THAT. 2 CHAIRMAN PENHOET: THANK YOU. ANOTHER 3 COMMENT FROM SAN DIEGO? 4 MS. LORING: THIS IS JEANNE LORING FROM THE 5 BURNHAM INSTITUTE. I JUST WANT TO PUT A PLUG IN FOR 6 SOME BACKGROUND INFORMATION. I RECENTLY HAD AN ARTICLE 7 PUBLISHED IN SCIENCE , THE MARCH 24TH ISSUE, I BELIEVE, 8 THAT IS EXACTLY TO THIS POINT. THAT IS, THE EFFECT OF 9 THE WARF PATENTS ON EMBRYONIC STEM CELL RESEARCH IN 10 BOTH THE ACADEMIC AND INDUSTRY AREA. 11 AND THE IDEA BEHIND RUNNING THIS ARTICLE WAS 12 TO EXPLAIN TO PEOPLE WHO WERE SCIENTISTS OR LAY PEOPLE 13 WHAT THE -- HOW THE PATENTS THAT WERE ISSUED, WHY IT 14 WAS ISSUED, WHAT THE OPTIONS ARE NOW. SO IT'S MARCH 15 24TH SCIENCE , THE POLICY FORUM. 16 DR. REED: JOHN REED. YOU MIGHT MENTION WHO 17 YOUR CO-AUTHOR WAS ON THAT JEANNE. 18 MS. LORING: OH, YES. I ALWAYS FORGET MY 19 CO-AUTHORS. MY CO-AUTHOR ON THAT WAS KATHERINE 20 CAMPBELL, WHO IS AN IP LAWYER, AND SO WE COLLABORATED 21 TO BE ABLE TO GET THE SCIENCE AND THE LAW STRAIGHT. 22 CHAIRMAN PENHOET: THANK YOU. SOME OF YOU 23 WHO DON'T SUBSCRIBE TO SCIENCE , WE WILL GET COPIES OF 24 THAT AND SEND IT TO ALL THE MEMBERS OF THE TASK FORCE. 25 MR. SIMPSON: JOHN SIMPSON, FOUNDATION FOR

119 1 TAXPAYER AND CONSUMERS RIGHTS. COUPLE OF QUICK THINGS. 2 FIRST OF ALL, I JUST WANT TO SAY HOW IMPRESSED I WAS 3 WITH THE DIVERSITY OF COMMENTS THAT YOU GOT FROM ACROSS 4 THE BOARD. AND I THINK THAT THE COMMITTEE SHOULD BE 5 COMMENDED FOR THAT APPROACH, AND IT WILL, I THINK, 6 INEVITABLY RESULT IN POLICY THAT IS FOR THE BEST PUBLIC 7 POLICY. I REALLY WANT TO COMMEND YOU FOR THAT. 8 THE ONE THING THAT I HEARD IN THE REQUESTS 9 FOR COMPARISON TO SOME OTHER FOUNDATIONS, I THINK 10 THAT'S USEFUL MODELS, BUT ONE OF THE THINGS THAT 11 STRIKES ME IS THAT THEY ARE ALL FOUNDATIONS. IT WOULD 12 BE INTERESTING TO TRY TO FIND OUT THE APPROACH OF 13 GOVERNMENT PUBLICLY FUNDED RESEARCH PERHAPS FROM OTHER 14 COUNTRIES. I'D BE INTERESTED IN LEARNING MORE ABOUT 15 HOW SINGAPORE HANDLES IT, HOW THE UK HANDLES IT. I'M 16 NOT SUGGESTING THAT YOU HAVE A FIELD TRIP NECESSARILY, 17 BUT THERE MIGHT BE USEFUL INFORMATION THERE. 18 AND FINALLY, I ALSO WANTED TO ADD MY TWO 19 CENTS WORTH ON THE ARTICLE THAT JEANNE LORING 20 CO-AUTHORED. IT'S A VERY HELPFUL, USEFUL ARTICLE. 21 THERE'S ANOTHER ONE THAT I WOULD ALSO COMMEND 22 TO EVERYONE'S ATTENTION, WHICH WAS WRITTEN BY JEAN 23 WASHBURN -- I'M SORRY -- JENNIFER WASHBURN. IT 24 APPEARED RECENTLY IN THE LOS ANGELES TIMES , ALSO TO THE 25 WARF PATENTS. THANK YOU VERY MUCH.

120 1 CHAIRMAN PENHOET: WE'VE BEEN EXPLORING 2 GETTING SOME FEEDBACK FROM OUR COUNTRIES. THE EU DOES 3 HAVE A PROGRAM OF FUNDING RESEARCH IN COMPANIES, AND 4 WE'VE BEEN TRYING TO TRACK DOWN WHO IT IS THAT'S 5 RESPONSIBLE FOR THAT PROGRAM NOW AND TRYING TO GET THEM 6 HERE OR AT LEAST ON THE PHONE FOR OUR NEXT MEETING. 7 MR. GOSWAMI: JOYDEEP GOSWAMI. JUST A QUICK 8 THOUGHT ON THE QUESTION OF ROYALTY THAT WAS BROUGHT UP. 9 YOU KNOW, I THINK THERE MIGHT BE SOME RANGE IN THERE. 10 I THINK YOU'RE ABSOLUTELY RIGHT. THE RANGES ARE PRETTY 11 BROAD. BUT ONE OF THE THINGS THAT SHOULD BE CONSIDERED 12 IN THIS PARTICULAR CASE IS HOW MUCH INVESTMENT OTHER 13 PARTIES MAKE, INCLUDING THE COMPANY THAT IS DEVELOPING 14 THIS, BECAUSE IT IS DIFFERENT FROM A LICENSE THAT 15 YOU'RE TALKING ABOUT. SO ANY POLICY THAT CIRM COMES UP 16 WITH SHOULD HAVE THAT CONSIDERATION, AND MAYBE THERE'S 17 SOME OPTIONS THAT THE COMPANY CAN REFER TO IN TERMS OF 18 THE ROYALTY RATE, WHICH IS DEPENDENT ON SOME SCALE TO 19 THE AMOUNT OF INVESTMENT THAT IS MADE BY OTHER PARTIES 20 OR BY THE COMPANY ITSELF. 21 MR. ROTH: DUANE ROTH AGAIN. ONE IMPORTANT 22 CONCEPT THAT I HEARD TODAY, AND I THINK THE COMMITTEE 23 SHOULD BEAR IN MIND WHEN THEY MAKE THEIR FINAL 24 RECOMMENDATION, IS FLEXIBILITY. I DON'T THINK YOU'RE 25 GOING TO FIND A POLICY THAT IS GOING TO BE A COOKIE

121 1 CUTTER THAT'S GOING TO WORK FOR YOU. I THINK IT'S 2 GOING TO HAVE TO BE VERY, VERY FLEXIBLE. AND, 3 THEREFORE, ANY CONSIDERATION SHOULD TAKE THAT INTO 4 CONSIDERATION. 5 THE SECOND THING IS REALLY A QUESTION. HAS 6 THE COMMITTEE HAD ANY ACCESS TO THE CONFERENCE 7 DISCUSSION THAT JUST TOOK PLACE RECENTLY? 8 CHAIRMAN PENHOET: ACCESS IN WHAT SENSE? 9 MR. ROTH: WELL, A COUPLE OF OUR PEOPLE -- 10 CHAIRMAN PENHOET: PEOPLE PARTICIPATING IN 11 THAT MEETING -- 12 MR. ROTH: BUT I BELIEVE THERE ARE 13 TRANSCRIPTS, AND I THINK THE WHOLE THING WAS 14 VIDEOTAPED. AND I WOULD HIGHLY RECOMMEND THAT GET PUT 15 INTO THIS RECORD SOMEHOW BECAUSE MANY OF THE THINGS I 16 HEARD DISCUSSED HERE WERE REALLY COVERED IN DETAIL, 17 INCLUDING THINGS THAT INVOLVE WARF AND OTHERS. AND IT 18 WOULD BE HELPFUL TO HAVE THAT. THANK YOU. 19 CHAIRMAN PENHOET: IS THERE PUBLIC COMMENT IN 20 IRVINE? 21 DR. BRYANT: NO. 22 CHAIRMAN PENHOET: SAN CARLOS? 23 UNIDENTIFIED SPEAKER: NO. 24 CHAIRMAN PENHOET: LOS ANGELES? 25 UNIDENTIFIED SPEAKER: NO.

122 1 CHAIRMAN PENHOET: JANET, YOU MUST BE BY 2 YOURSELF IN CHICO. WE HAVEN'T HEARD ANY PUBLIC COMMENT 3 FROM CHICO. 4 DR. WRIGHT: I DON'T HAVE TO REVEAL THAT 5 INFORMATION. NO PUBLIC COMMENTS. 6 CHAIRMAN PENHOET: OKAY. GOOD. WELL, JUST A 7 COUPLE OF REMINDERS. FIRST OF ALL, THE NONPROFIT -- 8 OUR PROPOSAL FOR A NONPROFIT POLICY WAS FILED WITH THE 9 OFFICE OF ADMINISTRATIVE LAW EARLY THIS WEEK. AND IF 10 THEY MOVE IT ALONG, THE PROPOSED REGULATION SHOULD BE 11 PUBLICLY NOTICED ON THAT OAL WEBSITE, OAL IS THE OFFICE 12 OF ADMINISTRATIVE LAW, NEXT FRIDAY. THAT MEANS A WEEK 13 FROM TOMORROW, FORMALLY OPENING THE PUBLIC COMMENT 14 PERIOD FOR THE NONPROFIT POLICY. SO WE KNOW SOME OF 15 YOU WILL HAVE SOME COMMENTS TO MAKE. 16 MS. KING: AND IT WILL ALSO BE ON OUR WEBSITE 17 AT THAT TIME. 18 CHAIRMAN PENHOET: IT WILL ALSO BE ON THE 19 CIRM WEBSITE. BUT OUR PROPOSED POLICY HAS BEEN ON OUR 20 WEBSITE FOR SOME TIME. 21 MS. KING: CORRECT. 22 CHAIRMAN PENHOET: SO THIS IS A CHANCE FOR 23 ANOTHER BITE AT THE APPLE FOR ANYBODY WHO CHOOSES TO 24 PURSUE IT. FRIDAY A WEEK FROM OAL. AND I GUESS WITH 25 THAT, I THINK WE DON'T HAVE ANY MORE BUSINESS TO DO

123 1 TODAY. WE WILL SCHEDULE AT LEAST ONE MORE MEETING. 2 WE'VE GOT A LOT OF OTHER THINGS GOING ON IN THIS TIME, 3 SO IT MAY NOT BE FOR SEVERAL MONTHS, BUT WE WILL 4 CONTINUE TO DILIGENTLY PURSUE THIS POLICY. 5 MARY REMINDS ME THAT WE'RE TRYING FOR JULY. 6 WE'LL SEE. IT'S ALWAYS HARD TO PICK DURING VACATION 7 TIME. SO IF THERE ARE NO MORE COMMENTS, I'LL BRING 8 THIS MEETING TO A CLOSE. AND REALLY I THINK WE HAD 9 EXTRAORDINARILY THOUGHTFUL PRESENTATIONS ALL AROUND. I 10 THINK CERTAINLY THESE PRESENTATIONS IN ONE SENSE 11 EMPHASIZE THE DIFFERENCES IN VIEWS, BUT I THINK A LOT 12 OF COMMON ELEMENTS CAME OUT OF THIS DISCUSSION TODAY. 13 AND HOPEFULLY WE CAN GO FORWARD AND TRY TO DEVELOP A 14 CONSENSUS VIEW WHICH MAKES SENSE FOR EVERYONE. SO 15 THANK YOU ALL. 16 (APPLAUSE.) 17 (MEETING WAS THEN ADJOURNED AT LL:39 18 A.M.) 19 20 21 22 23 24 25

124 1 2 REPORTER'S CERTIFICATE 3 4 I, BETH C. DRAIN, A CERTIFIED SHORTHAND REPORTER IN AND FOR THE STATE OF CALIFORNIA, HEREBY 5 CERTIFY THAT THE FOREGOING TRANSCRIPT OF THE PROCEEDINGS BEFORE THE IP TASK FORCE OF THE INDEPENDENT 6 CITIZEN'S OVERSIGHT COMMITTEE OF THE CALIFORNIA INSTITUTE FOR REGENERATIVE MEDICINE IN THE MATTER OF 7 ITS REGULAR MEETING HELD AT THE LOCATION INDICATED BELOW 8 9 UNIVERSITY OF CALIFORNIA SAN DIEGO 10 9500 GILMAN DRIVE EUCALYPTUS POINT 11 LA JOLLA, CALIFORNIA ON 12 APRIL 27, 2006 13 WAS HELD AS HEREIN APPEARS AND THAT THIS IS THE ORIGINAL TRANSCRIPT THEREOF AND THAT THE STATEMENTS 14 THAT APPEAR IN THIS TRANSCRIPT WERE TRANSCRIBED BY ME FROM A DIGITAL RECORDING TO THE BEST OF MY ABILITY TO 15 HEAR AND UNDERSTAND THE RECORDING. I ALSO CERTIFY THAT THIS TRANSCRIPT IS A TRUE AND ACCURATE RECORD OF THE 16 PROCEEDING. 17 18 19 20 BETH C. DRAIN, CSR 7152 BARRISTER'S REPORTING SERVICE 21 1072 S.E. BRISTOL STREET SUITE 100 22 SANTA ANA HEIGHTS, CALIFORNIA (714) 444-4100 23 24 25

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