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San Francisco-Law firms that want a piece of the burgeoning stem cell research industry-which could be flush with California’s potential $3 billion investment over the next decade-will have to rethink their approach to the fledgling industry. Optimistically, there may be two to five years before significant research moves from the laboratory to commercial development, but “lawyers who hope to get in on this will have to do what we do, educate themselves not only about legal issues but the science,” said Michael Shuster, intellectual property attorney with Fenwick & West of Mountain View, Calif. “It is really a tripartite of science, legal skills and understanding their business needs,” Shuster said. Others are already aggressively moving into the space. San Diego patent attorney John Wetherell heads what he calls a “SWAT team” of lawyers at Pillsbury Winthrop Shaw Pittman set up to address the growing legal needs of the stem cell industry through the firm’s SCOPE initiative, Stem Cell Outlook and Planning Effort. Wetherell said that the concept of a cross-discipline legal team began 18 months ago when the California stem cell initiative, Proposition 71, went on the ballot. In November 2004, voters approved spending $300 million a year for a decade on embryonic and adult stem cell research. The new law created the California Institute for Regenerative Medicine as an independent vehicle to award the state grant money, set up ethical standards and create a system to provide economic benefits to the state through a share of profits from patented inventions. The state initiative sidesteps the federal funding ban on new embryonic stem cell research, but the ethical debate pitted scientists looking for new treatments for chronic diseases against anti-abortion activists opposed to research that lead to destruction of days-old embryos and cloning. As a result, none of the money has been spent. It has been tied up in two constitutional challenges scheduled for trial on Feb. 27 in state court, People’s Advocate v. Independent Citizens’ Oversight Committee, No. HG05206766. But scientists are eager to begin projects that seek treatment for such things as diabetes and Alzheimer’s disease. Tapping in to that desire, Pillsbury hosted a one-day international stem cell symposium last week in San Francisco that drew 250 biotech industry representatives and scientists from more than eight countries. The event was dubbed: “Laying the Groundwork for the Commercialization of Stem Cell Research.” Cameo Jones, a Pillsbury attorney who organized the symposium, said existing companies aren’t just waiting for state research funding. They also raise venture capital and tap pharmaceutical firms through collaborative agreements. She said one unusual development has been firms going to stock exchanges outside the United States for funding. “That is becoming more common,” she said. For that they need lawyers. Jones said she has found her life sciences practice focused on startups and developing companies, forming corporations and making sure to protect intellectual property from the start. “An outside general counsel, that’s what I’m like to the companies,” she said. One of the future quandaries created by the California initiative will arise from the negotiation of a royalty stream flowing back to the state from newly patented technology, according to Wetherell. The law requires that the state university, as patent owner, has to pay the state a 25% share of its royalties from new inventions. He asked whether that will increase the university’s overall royalty demand from licensing companies. “If [the schools] expect to make a 5% royalty, and they have to give back a share to the state, will they expect a 7% or 10% royalty now?” he said. “That will have to be clarified.” In another new wrinkle, Shuster said the California initiative vests ownership of the intellectual property rights in the entity that receives the grant. It encourages the use of nonexclusive licenses, which will affect the market. This is part of a design to make the new developments widely available, he said. Californians’ decision to put out a welcome mat to embryonic stem cell research has prompted reaction among states that don’t want see a brain drain in biotech. Connecticut, Massachusetts and New Jersey have passed state laws to encourage embryonic stem cell research, according to the National Conference of State Legislatures. But the potential of $3 billion in state bond money has had an effect. Massachusetts-based Advanced Cell Technology opened a new Northern California laboratory specifically “to take advantage of the Proposition 71 initiative” for embryonic stem cell funding, according to a company statement last week.

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