Implications of the recent stem cell news . . . will the race go to the slow?

Those research institutions that moved early to raise state or other non-federal funding for research on “unapproved” embryonic stem-cell lines now confront an uncomfortable implication or two. Bear with me. . .

Any one who set up such a program understood — though perhaps many outside the university system did not — that not only would they be charging all direct costs of “unapproved” research to non-federal sources, but they would also be forgoing recovery of all related indirect costs.

In other words, if a university financed a facility in which non-approved research would be done, it could not then allocate its amortization of these capital costs to the pool from which indirect cost recoveries are negotiated with the feds. Same with shared research infrastructure and administrative services related to unapproved research projects, and with facilities maintenance.

So, one of the big hidden costs of programs like California’s CIRM or New Jersey’s NJCST is that they must stretch their budgets to cover not only the direct costs of funded projects, but also those indirect costs that the sponsoring universities cannot legally recover through their negotiated overhead tack-on to all other federal grants. Indeed, CIRM’s currently active grants emphasize major equipment whose costs California universities could not legally recover through overheads if they are to be used on non-approved lines.

Believe it or not, that makes even $3 billion go a lot less far. It’s hard to say exactly what the penalty is, but here’s my speculation: if indirect costs on “unapproved” stem-cell projects go in rough proportion to indirect costs on all federally sponsored research, the penalty is approximately equal to the institution’s negotiated overhead rate. That means a typical research grant from a state stem-cell program might cover only about two-thirds the actual direct research costs of an analogous federal grant, since the total state, industrial or philanthropic grant may be “taxed” by the university any way to recover all those indirect costs (which universities are fond of saying are “real”) that cannot legally be cumulated in the federal pool.

OK, so let’s say that the university and the state agency involved understood that penalty and decided it was worth it, in order to have first-mover advantage and establish the state and the institution as a place where stem-cell research could thrive and establish itself, maybe in the interest of establishing a “cluster.”

But now what happens? Those who were slow may actually have the advantage. Now you can build a facility that will house only “approved” federal lines and promising non-embryonic technologies like the newly announced skin-cell technique, and unlike your first-mover colleagues, you can handle indirect costs as on any other grant.

Deans and presidents who waited may find that their dollars go an awful lot farther, with no significant scientific penalty, and that’s not even assuming a change in baseline federal policy under the next administration. In turn, states that made this money available in the promise of economic development may wonder if their money would not have been better spent on changing the overall culture of academic institutions rather than in buying new research tools and instruments that the feds wouldn’t, only to have them used in the same old ways that rarely favor local cluster development.

Do I have this right? Comments?

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