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August 1, 2005
Drug royalty sale fuels Emory research

BY Michael terrazas

Emory’s record half-billion-dollar sale of royalty rights to the leading anti-HIV drug Emtriva will be reinvested in the University’s scientific and health-related research and education mission for the benefit of Georgia, the nation and the world, according to President James Wagner and other senior officials.

“Very early in my presidency members of the University community came together to draft a vision statement in which we pledged ourselves to work together collaboratively and courageously for the positive transformation of the world,” said Wagner. “It’s hard to think of a more dramatic moment to illustrate just how great our collective impact can be.”

Because of the terms of Emory’s intellectual property policy, it is already clear that Emory College and the School of Medicine will be major beneficiaries of the $540 million sale, along with the Departments of Chemistry and Pediatrics and the laboratories of the co-inventors, chemistry Professor Dennis Liotta and pediatrics Professor Raymond Schinazi. They and a third inventor, former Emory researcher Woo-Baeg Choi, discovered the anti-HIV compound patented by the University in the early 1990s, and will share 40 percent of the total sale price.

Also known as emtricitabine and FTC (an acronym for its complex chemical name), Emtriva—the “Em” stands for Emory—is used with another compound to form a daily, combination treatment called Truvada that improves and extends the lives of HIV-infected people throughout the world.

Under the terms of the Bayh-Dole Act, which was passed by Congress in 1980 to encourage universities to move scientific discoveries rapidly into the marketplace, proceeds from the royalty sale must be used for scientific research and education. After allocations to the schools, departments, laboratories and researchers, Wagner and Executive Vice President for Finance and Administration Mike Mandl explained that the central administration of the University will end up with $130 million to $150 million of the $540 million total.

“We are entering into a very disciplined phase of the implementation of our strategic plan,” said Wagner. “The elements of our strategic plan that are research-related and consistent with the Bayh-Dole Act provisions will benefit from these moneys. But it is important to keep in mind that this is one of several resources that will finance the strategic plan. The comprehensive campaign is another, and internal reallocation toward strategic plan directions is a third.”

For years the University has been collecting patent “milestone” payments from the license of FTC, and for longer yet has been involved in litigation to determine the legal owner of the patent. Senior Vice President and General Counsel Kent Alexander, who spearheaded the litigation in recent years—and who joined Mandl and colleagues in negotiating the sale of the FTC patent rights—said that litigation criss-crossed the globe, from the United States to Europe to the Far East.

Alexander expressed special thanks for the work of his predecessor, the late Joe Crooks, and Mandl’s predecessor, John Temple, saying each “played critical roles in initiating and continuing the dogged pursuit of these valuable patent rights.” He also noted the success would not have been possible without the ongoing support of the Board of Trustees.

Four years ago, Emory settled the litigation and retained full patent rights to FTC until 2021, along with a separate interest in another anti-viral HIV drug, 3TC, that continues to pay Emory and the inventors additional royalties. By 2021, the total revenue for FTC could well have reached more than $540 million, Mandl said, but rather than wait for the money to come in year by year (and risk the value decreasing), Emory chose to accept a bid for a single cash payment from two companies, Gilead Sciences Inc. and Royalty Pharma, which came up 65 percent and 35 percent, respectively, of the final sum. That number, after figuring in money for legal and financial consulting expenses, will still total well over $500 million.

“The monetization process was a real team effort both internally and with our external partner, Citigroup, who performed very well on our behalf,” Mandl said.

ADVANCING A RESEARCH STRATEGY
Under Bayh-Dole, universities are allowed to collect royalties on patents developed using federal funding—with two caveats: A portion of the proceeds must be shared with the inventors, and the rest must be spent on the institution’s “scientific research or education” mission. Emory’s sale of its royalty stream could not have come at a better time, as the University has embarked on an ambitious strategic plan to advance (among other objectives) that very same mission. Throughout the planning process, Wagner knew this source would be a significant (yet partial) source of early plan funding.

“We felt that, with that magnitude of value, we could do two things which would have a much bigger impact on Emory over the long run than if we had stretched the payments out to 2021,” Mandl said. “First, we could effectively invest the money while we were spending it—that is, annually invest the excess over what we spend—and second we could spend the proceeds over a 10-year period to invest in faculty and academic programs.

“Between the financial return we could get from investing the lump sum now and the reputational return we could get and build on by having the money up front,” he continued, “it was clear we could make a much bigger difference this way.”

$540M IN PERSPECTIVE
A quick web search of any number of word combinations—try “Emory,” “royalty” and “Emtriva”—reveals a hint of the magnitude of the FTC sale, not only in the world of higher education, but beyond. Wagner said he has received numerous congratulatory e-mails from his counterparts at fellow Association of American Universities institutions. And no one has yet challenged the claim that the $540 million deal is the largest such transaction in the history of higher education.

Still, some media outlets have publicly linked the sale to the 1979 landmark gift of $105 million to Emory from the late Coca-Cola Chairman Robert Woodruff (which, at the time, was also the largest gift of its kind in history). While this may be true in terms of actual dollars, Wagner said it may not be accurate to equate the two in terms of long-term impact.

“First, the Woodruff gift was truly a gift—it was unrestricted—and it began a relationship with the Woodruff Foundation that has been and continues to be truly transformational for Emory,” Wagner said. “It’s not an exaggeration to say that this relationship with the Woodruff Foundation has laid the basis for the modern Emory that we see today. Second, the gift was in Coca-Cola stock that ultimately translated into billions of dollars.

“Still, the income being received from Gilead and its partner is a very important new installment toward the full cost of implementing our strategic plan,” he continued. “It is the result of a business transaction and not a gift. If there is to be a transformational impact from the income of this transaction, it will be owing to its wise use in helping to implement our strategy—and much more income than this will be required to fully achieve our strategic goals.”

Finally, Wagner added, “We are so proud of Drs. Liotta, Schinazi and Choi, who would be regarded as intellectual treasures of the first order on any university campus in the world. We can be grateful they did—and do—their work here.”

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