Navigating Minefields –

Before California can reap a profit from Prop 71-backed research, they will have to settle things with the early pioneers in the field, who staked their claims in advance of the gold rush. Without a doubt, the researchers who were around before Prop 71 became a ballot initiative, are likely not too anxious to share in future royalties.

Ed Penhoet, one of the major forces behind Prop 71, and who’s now serving as a vice chair for the ICOC, says the organization will have to figure out how to deal with the University of Wisconsin, for instance, which discovered human stem cells.

And then there’s Menlo Park, Calif.-based Geron Corp. (Nasdaq: GERN), which claims broad commercial rights for paying the University of Wisconsin to conduct research several years ago.

Geron – which develops drugs, based on human embryonic stem cell technology, to treat cancer – has been described as a minefield because of the company’s strangle hold on stem cell research. And the state agency may be forced to limit grants to nonprofit and academic labs until the the issue with companies such as Geron are defused.

In fact, Tom Okarma, Geron’s CEO, wasted no time when he threatened to go to court to protect his company’s IP rights as soon as the ballots had been cast in November. Okarma told a San Francisco Bay Area newspaper columnist, “Anyone wanting to get into this field would need to take broad licenses from us. We created the field. We’ve staked out the territory.”

Geron has filed more than 240 patent applications in stem cell research, and has struck several exclusive licensing agreements with the University of Wisconsin. Many of the patents protect Geron’s platform technology, which can mass-produce stem cells for research and commercial products.

“We’ve plowed so much new ground,” says Okarma. “Our work is why Proposition 71 got passed in the first place.”

The CEO is not entirely pugilistic. He told Venture Capital Journal that he doesn’t plan to exclude scientists from using basic discoveries in their own research when the ICOC starts handing out grants for stem cell research (which could begin as early as May).

“We will collaborate … the last thing we want to do is stop academic research,” Okarma says. Okarma, though, may benefit. Geron will likely apply for some of the Prop 71 grant money to fund its research projects that are well underway at the company. In 2006, Geron is expected to begin testing stem cell treatments for those suffering from spinal cord injuries.

William Gaede, a partner in the law firm of McDermott Will & Emery, has closely followed the news coverage of Prop 71, and he believes Geron will be satisfied to license its IP for research purposes.

“But the situation will be a lot different when bringing products to the market,” says Gaede, who adds that Geron will want its share of the royalties for new products based on how much of the product is derived from Geron’s patents.

“It’s not that uncommon to pay royalties to more than one party,” he says. “But how royalties are split could be an issue. If the royalty split affects profitability, it could decrease the motivation to bring those products to market.”