When the Association of University Technology Managers released its 2005 US licensing survey summary last week, Atlanta-based Emory University ranked first among the 228 responding institutions with approximately $586 million in licensing revenue for fiscal years 2003 to 2005.
But a closer look at the data reveals that about 90 percent of Emory’s licensing income from that period – or $525 million – stemmed from a one-time payment from commercial partners for rights to Emtriva, an Emory-developed HIV/AIDS drug.
The deal highlights the instantaneous benefits a university or research institute can reap when it decides to forego future potential revenue streams in favor of one lump sum.
And while such monetization deals are still relatively rare in the tech transfer world, their frequency – particularly when it comes to pharmaceuticals and biotechnologies – is likely to increase over the coming years, according to top tech transfer officials.
Emtriva, also known as emtricitabine, was discovered by Emory scientists Dennis Liotta, Raymond Schinazi, and Woo-Baeg Choi, and licensed to Triangle Pharmaceuticals in 1996. In 2003, Gilead Sciences acquired Triangle and emtricitabine, marketed by Gilead as Emtriva, was approved by the US Food and Drug Administration that same year for the treatment of HIV infection in combination with other antiretroviral agents.
In 2005, Gilead Sciences and tech transfer firm Royalty Pharma made a one-time cash payment of $525 million to Emory to eliminate any future Emtriva royalties due to Emory on worldwide net sales of the product. Gilead and Royalty paid 65 percent and 35 percent, respectively, of the monetization, and Gilead agreed to pay Royalty revenue based on future Emtriva sales relative to Royalty’s contribution to the buyout.
Gilead still has a ways to go to justify the royalty buyout. For 2006, Gilead said that Emtriva sales were $36.4 million, a decrease of 23 percent from $47.5 million in 2005. However, Emtriva said that sales volume of Emtriva has decreased primarily from patients switching from an Emtriva-containing regimen to one containing another Gilead HIV drug, Truvada, in countries where it is available.
Emory immediately invested the majority share of the payment in its central administration and schools, academic departments, and the laboratories of the inventors; while a minority share was paid to the inventors.
Swinging for the Fence
The agreement, Emory’s first monetization, not only accounted for a large chunk of the university’s 2005 revenues, but also represented the type of home run that can justify a university’s tech transfer office for years. All in all, the Emtriva deal has accounted for about 73 percent of the approximately $720 million in revenues generated by the commercialization of Emory-developed technologies in the past 15 years.
“Monetization is becoming more typical, and you’d be amazed at how many phone calls I get from my colleagues across the country who are now entertaining doing the same thing,” Todd Sherer, director of Emory’s Office of Technology Transfer, told BTW last week. “We all know that this is a big-hit business, and for universities that are fortunate enough to have a big hit, it’s pretty well known that [it] will represent the lion’s share of their revenues.
“You ask yourself how you’re going to pay for your tech transfer operation, and universities historically have really wanted to try and have the tech transfer office eat what it kills,” Sherer added.
Emory’s monetization of Emtriva royalties represents one of only a handful of such deals since Yale University set the example in 2000, when Royalty Pharma facilitated the monetization of the royalty stream to Zerit, another HIV drug developed by Yale researchers. That deal was more complicated than the Emtriva transaction – with Royalty Pharma creating a trust that funded the purchase but now receives royalty payments from Bristol-Myers Squibb, the drug’s current manufacturer – but it served as a how-to for other universities in monetization.
The majority of that money funded the construction of a new classroom and research complex for Yale’s School of Medicine – a model that quickly became a poster child for the potential upside of monetization.
Yale’s Zerit deal also underscored what may be the primary benefit of a monetization agreement: the elimination of any risk a university may bear during a commercialization process that is fraught with possible disaster.
“We were the first to do this, so there really wasn’t a market for these things, “ Jon Soderstrom, managing director of Yale’s Office of Cooperative Research, told BTW last week. “ According to Soderstrom, Yale had about eight years of royalties left with Zerit under a license with BMS.
“As it turns out, it was a tremendously prescient thing for us to do, because after that, a number of things happened: some side effects occurred, so it got black-box warnings; other [competitive] drugs came onto the market; the resistance profile didn’t look as good,” Soderstrom said. “Why would we do it? Because we were anticipating that those kinds of things might happen.”
That, and the fact that Yale needed the money at that point to help finance the new medical school building, guided Yale’s decision, Soderstrom said.
“It was strictly an economic decision based on the merits,” Soderstrom added. “Did we know all those things were going to happen? No. Did we think they were possible? Yes. In retrospect, we ended up selling at exactly the right time. A lot of that is luck, a lot is timing. I wish we could say we are the smartest people in the world.”
Emory’s Sherer also said that the lure of an immediately applicable cash sum coupled with the reduction of risk are the major reasons a university might consider monetization.
“You ask yourself how you’re going to pay for your tech transfer operation, and universities historically have really wanted to try and have the tech transfer office eat what it kills.”
“First and foremost, it provides a big bolus of cash right into the university, and universities have needs: we have capital campaigns, we are trying to grow our endowments, and we have building needs today,” Sherer said. “Secondly, it’s just risk reduction and diversification. If we’ve got all of our eggs sitting in one basket, we could eventually lose it all, so it’s about managing the portfolio from that perspective as well.”
The main downside to monetization, according to Sherer, is that it eliminates any possible year-over-year revenue stream to fund operations within a university, including the tech transfer office.
“If you monetize revenue streams, and the assets are gone, then there are no longer revenues to cover the cost, and then the university has to come up with that money from other sources,” Sherer said. “When we monetize, we’re going to put that money to work and re-invest it in research and education, so it’s not like it’s saved.”
Even so, both Sherer and Soderstrom said that the frequency of monetization deals is likely to increase as more deals are consummated and as investment funds continue to look toward universities and non-profits as breeding grounds for new technologies.
“Every time another [deal] is done, it seems like the feeding frenzy grows a little bit more,” Sherer said. “These are venture capitalists, in essence, that are buying these. By and large, they’re people who have pooled funds of money just like a VC. And as people become more aware of this and see that there is money to be made here, there are more funds and a feeding frenzy builds.”
Yale’s Soderstrom told BTW that he expects monetization deals to occur more often in the coming years, and he expects that pharma- and biotech-related deals will lead the way.
“I think everybody has to look at this as a possibility,” Soderstrom said. “It’s part of the active management of your portfolio. You’ve got to look at it as an opportunity that is out there, particularly with drugs.”
“It doesn’t have to be just drugs,” he added. “It just happens to be that those tend to be a bit more predictable in terms of what the revenue streams are.”
Still, rarely does a university pick specific technologies out of a group and earmark them for monetization deals. Once a technology is proven, garners interest from industry, and demonstrates that it may fill a market need – only then are the pieces in place to consider how best to sell off future product royalties.
Emory, for example, has an extensive product pipeline comprising therapeutics, diagnostics, medical devices, and consumer products. Even the most promising of these – an atherosclerosis drug being developed by AtheroGenics and AstraZeneca, and for which Phase III clinical data is set to be released sometime this year – cannot be considered for monetization until it receives FDA approval and is productized.
“The market numbers, according to the analysts, are quite huge for that drug if it gets approved,” Sherer said. “So that is the opportunity that is closest to the market. It’s an Emory-licensed technology with AtheroGenics, and we are obviously quite anxious and interested in how that drug performs.
“Having done one monetization has increased Emory’s awareness that it’s one more way to extract value from our IP, and you can count on the fact that in the future we will be asking ourselves, as the opportunities arise, whether or not this is something we should consider monetizing,” he added.