Michael T. Longaker, Stanford University

The US National Institutes of Health spent only $38 million on human embryonic stem cell (ES cell) research last year, out of $643 million on stem-cell research overall. Although scientific research funding is usually considered a federal responsibility, California voters have decided to pony up vastly greater sums for ES cell research within the Golden State.

Passed in 2004, Proposition 71 authorizes a newly created state institution to borrow up to $3 billion over the next 10 years for human ES cell research. The governor's budget, proposed in May, struggles to trim California's operating deficit to $1.4 billion. So even in a state that spends more than $100 billion annually, these funds are a significant investment.

Also in May, the California Supreme Court lifted the last legal restriction on California's dispersal of funds dedicated to stem-cell research. Lawsuits backed by right-to-life and taxpayer groups had argued that the institute created to award stem-cell grants, the California Institute of Regenerative Medicine (CIRM), lacked sufficient state oversight and fostered conflicts of interest. The main goal of this litigation was to forestall research on embryos and on cells derived from them, but its argument that the state must protect its investment has obvious merit.

Two of my colleagues at Stanford and I argued in the May issue of Nature Biotechnology1 that California taxpayers must be able to get information about the returns on their investment of $3 billion. We have variously been trained as a surgeon (myself), an economist (Laurence Baker), and a lawyer (Henry Greely), and we all believe that stem-cell research will yield utility and opportunity. However, hunches and hopes are insufficient to direct policy. When citizens allocate public funds to massive scientific undertakings, at least partly in response to promises of tangible benefits, benefits that do result from the funding should be measured and evaluated.

Proposition 71 itself does not set out to evaluate the more complex, important question of how much value it provides for the money. While the measure does require extensive financial audits, and more than $2 million has been proposed to assess economic impacts of stem-cell research, few existing markers are available to track returns on investment. Here, I discuss ways in which such returns might be assessed.

Potential returns can be categorized as four general types of benefits: the overall well-being of society could be improved; growth in industry or decreases in medical spending or other changes could expand society's resources; a stem-cell-friendly environment in California could mean that Californians receive a proportionately greater share of society's resources; California could even receive a direct financial return if intellectual property created through CIRM-funded research generates royalties or licensing income.

Assessing direct rewards is hard enough. Not-for-profit institutions will be required to pay California a quarter of any net revenue (excluding the first $500,000), from licensing intellectual property created through CIRM-funded research. For-profit institutes receiving CIRM grants have a similar requirement, and if they develop a product, they must also pay a certain percentage in royalties, with various tiers and caps corresponding to sales revenue.

Existing patents could make some benefits of CIRM-funded research difficult to collect. The Madison-based Wisconsin Alumni Research Foundation (WARF) holds patents on the maintenance and isolation of human ES cells, and these extend until 2015. WARF's patent estate is being challenged in court, and WARF has recently signalled that it will not aggressively pursue royalties on CIRM-funded work. Still, WARF could seek royalties on products developed with its patented technologies, and these royalties could reduce funds that would otherwise go to CIRM. On the other hand, given the speculative nature of this research, this might be a nice problem to have.

Other rewards would not flow directly into California's treasury but could be far greater. To get a handle on these returns, my colleagues and I developed a hypothetical scenario1 in which, in 2030, stem-cell research leads to a partial cure for type 1 diabetes mellitus, the autoimmune disease that commonly strikes in childhood. Such treatment would affect society both by increasing the health of the population and by contributing to the economy as a purchased good or service. Our scenario assumes both that the cure is partial and that Proposition 71 does not spawn a new discovery, but rather accelerates it by five years. Even so, this scenario predicts thousands of additional years of life for people who would otherwise have died earlier, as well as an increased quality of life for those with the disease. Productivity gains were assessed in the billions of dollars.

The scenario also estimates the potential costs and savings of replacing a less effective therapy with a more effective one. Although such calculations are obviously speculative, our model, which we tried to keep from being overly rosy, still produced savings on the scale of millions of dollars. Of course, medical pricing schemes could mean that overall medical costs grow rather than shrink, but the economic impact of therapies extends beyond the doctor's office. We did not attempt to assess potential benefits to family members, who would presumably be more able to find work, maintain happier families and weather crises better.

Even if such goods had come to fruition, they would be hard to evaluate. The likely timeline of benefits further complicates assessment. Better ways to study disease are both more certain to happen and nearer realization than patient-matched, cell-based therapies, for example, although rewards from the latter can be measured more directly.

Another factor that must be considered is distribution of resources. Proposition 71 could mean that a greater proportion of benefits accrue to California. Proponents of the proposition believed that the measure would attract new researchers to California, as well as private-sector health and biotechnology firms, potentially generating more economic activity in the state. However, as more states pass legislation to foster stem-cell research, California could lose its advantage. On the other hand, existing sources of economic and business data, together with interviews with research institutes, could be used to broadly estimate stem-cell research activity. Assigning credit to CIRM might, however, be difficult.

Of course, rewards would also accrue if funds currently allocated to stem-cell research were instead invested toward other ends or toward reducing California's debt. In the long run, California will have to repay the bonds used to fund CIRM using state revenues that could have been used for other purposes or left in the hands of the taxpayers. $3 billion invested at a 10% return per annum for 23 years would yield $26 billion, after all. But, like those of stem-cell research, such rewards could not be guaranteed.

Another possible decrease in benefit is that potential therapies coming from stem-cell research are likely to be costly. If the future US healthcare system has the same disparities as the current one, these therapies will not be available to everyone. Such a situation will rile California voters who expect medical benefits derived from stem-cell research to be distributed only according to medical need. On the other hand, companies will be loath to develop products whose profits will be harvested by the state. California has not yet made clear how this dilemma will play out, but its choices would potentially affect medical pricing and companies' willingness to develop products. Both factors will affect the benefits described above.

In short, assessing the return on investment of Proposition 71 will not be easy, but the attempt is valuable. Doing so keeps faith with California voters, by insisting that the proponents of the proposition are held accountable for the arguments they made during the campaign. Moreover, finding ways to measure the benefit of CIRM may have an even broader impact than at first apparent. They might make other 'big science' projects more amenable to evaluation. In such cases, we must find a way to measure what we believe will matter.

Response from CIRM: The CIRM Strategic Plan calls for a Request for Applications to be issued in the first half of 2008, to begin defining the metrics that will be used to measure the economic impact of Proposition 71. It also calls for two economic impact studies to be undertaken in 2012 and 2017, based on those metrics. Dr. Longaker has offered interesting ideas for those metrics. We expect many other suggestions to be proffered in the months ahead.