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Whichever Way the Wind Blows

Posted by Jesse Reynolds on May 24th, 2007


An article in the latest issue of Nature Biotechnology discusses potential economic benefits from California's $3 billion investment in stem cell research. What's remarkable is not its actual content, which for the most part is limited to vague outlines and statements of the obvious. It's what's missing.

There's no reference to the over-the-top - yet widely-cited - optimistic scenarios spun in an economic analysis [PDF] that was widely touted, and funded, by the campaign to establish the state program. There's also no acknowledgement that the current paper and this original analysis from three years ago share an author, Stanford University professor of health research and policy Laurence Baker.

Could it be that Baker is trying to cover his tracks?

Let's compare his conclusions. In the 2004 report, Baker and co-author Bruce Deal of the Analysis Group were clear about their economic expectations if Proposition 71, to be placed before California voters that fall, were to pass. They wrote in large italic font on the first page of text,

In even the modest scenarios examined, Proposition 71 provides total state revenues and health care cost savings of between $6.4 billion and $12.6 billion during the payback period, generating a 120% to 236% return on the investment made in the research.
In the specific area of direct financial returns to state coffers from profitable discoveries made with public funding, whichbecame acontroversialtopicin 2005, Baker and Deal were also clear:
Specific revenues and savings that are modeled include ... State royalty revenues of from $537 million to $1.1 billion, resulting from the [intellectual property] provisions in Proposition 71 that give the state an opportunity to share in royalties resulting from research funded by the Initiative. [Emphasis theirs]
These conclusions were touted as a key argument by the campaign for Proposition 71. In the official voters guide [PDF], the proponents asserted,
Studies led by a Stanford University economist project that 71 will generate millions in new state revenues from royalties and new jobs, and that new medical treatments and cures can REDUCE CALIFORNIANS' HEALTH CARE COSTS BY BILLIONS.
And campaign chairman Robert Klein claimed on national television that,
The state of California will gain jobs, new tax revenues and intellectual property revenues to pay back the taxpayers.
As the 2004 analysis came under increasing criticism, Baker backpedaled. After a subsequent study [PDF] by a UC Berkeley economist estimated that the financial benefits of the endeavor would be closer to $18 million, he said his estimate was "one possible version of how things might happen," but also admitted that we knew we were working for people who wanted to pass this thing."

But now, in the new paper, Baker's backpedaling is furious:
[A]t this point predicting particular breakthroughs or economic benefits would amount to little more than speculation.... New stem cell therapies will not necessarily reduce [health care] spending; indeed they may drive spending up...Forecasting and even retrospectively assessing the success of Proposition 71's IP provisions will be extremely difficult.
To top it off, one must go online to find a declaration of competing financial interests that vaguely admits Baker "was a consultant to Proposition 71 during the campaign."

What changed between the release of the original paper, and now? Then, Baker was a hired gun for a lavishly funded political campaign. Now, his economic analysis has been called "hopelessly optimistic" by the Wall Street Journal's former biotechnology reporter.

Unfortunately, the idea that public funding for stem cell research can pay for itself many times over has found its way into similar proposals in other states. In his recent State of the State address, New York Governor Elliott Spitzer said his proposed $1 billion investment "will repay itself many times over in increased jobs, economic activity and improved health."

Baker's cynical repositioning should remind us to be skeptical of hype when advocates of spending billions in public funds insist the investment will pay for itself, whether it is in biotechnology or elsewhere.



Posted in Biotech & Pharma, California, Jesse Reynolds's Blog Posts, Stem Cell Research, The States


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