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Royalty Monetization - Short Term Cash v. Long Term Implications

In 2007, universities sold off $1.2 billion dollars worth of future royalty interests in "downstream licensing" royalty monetization programs, a cash management strategy which universities often employ to meet short term cash needs. There has been a recent upswing in monetization deals which occur after inventors have assigned and licensed their innovation and often after FDA approval of the patented invention.


At the nation's most prestigious research institutions - like Memorial Sloan-Kettering Cancer Center and Emory University - the rights of inventors are a crucial consideration when commercialization and monetization decisions are made. During a recent webinar hosted by the Association of University Technology Managers (AUTM), a representative of Sloan-Kettering outlined its policy which recognizes the misalignment of stakeholder interests and gives inventors the choice to opt in, or out, of royalty monetization. Unfortunately, not all institutions are as enlightened as Sloan-Kettering; some inventors are in for a rude surprise.


The University of Georgia Research Foundation (UGARF) however, has the dubious distinction of holding the worst record for mismanaging a university royalty monetization deal. In a divide and conquer coup, pharmaceutical giant Allergan persuaded UGARF to secretly ally themselves with their licensee, against their inventor. In monetization negotiations that excluded the inventor of Restasis®, UGARF sold the majority of the inventor's and university's royalty stream for $23 million; foolishly squandering more than $220 million of future royalties.


Rather than disclose they were renegotiating the license, UGARF instigated frivolous litigation against the inventor and then refused to disclose any information citing legal privilege. When the inventor, Dr. Renee Kaswan, learned of the secret monetization, she countersued UGARF. But UGARF and Allergan attorneys overcame her legal objections by arguing UGA's intellectual property policies were contracts of adhesion, and were so one sided they exclude any fiduciary or good faith obligations to UGA faculty inventors.


In his soon to be released book, Behind the Hedges: Big Money and Power Politics at the University of Georgia, Pulitzer Prize winning reporter Rich Whitt reveals that the secret decision to monetize Restasis® royalties was driven by campus politics. In the fall of 2003, UGA was strapped for cash and its unpopular new president, Dr. Michael Adams, was facing allegations of fiscal misconduct exposed by a Deloitte and Touche audit. Additionally, after a widely publicized showdown between the new president and longtime football coach Vince Dooley, Adams unceremoniously fired Dooley.


Furious alumni reacted to both events with demands for Adams' ouster and Dooley's return. A vote of no confidence was scheduled at the Georgia Board of Regents. The surprise influx of $23 million from the Restasis® royalty monetization doubled discretionary income derived from alumni donations, and tipped the balance allowing Adams' to narrowly avoid censure and dismissal. Adams saved his job, Dooley wasn't rehired, the Georgia Board of Regents was naively oblivious and UGA lost over $220 million in the secret deal.


Memorial Sloan-Kettering takes pride in their commitment to protect its researchers' rights and is careful to keep inventors informed of monetization talks from the outset. A Sloan-Kettering rep recently said, "It's very important to note that there is not a unity of interest between the inventors and the institution and we sort of bit the bullet by saying to them: 'We're going to pay you. You're not taking any risk here; you're going to get paid exactly what you would have been paid had we not sold it.'"


By not participating in the Sloan-Kettering buydown on the royalty stream for the chemotherapy companion drug Neulasta®, the inventors ended up much better off than the institution in the long run. "The inventors made their own independent decision based on their needs and there is no problem of a conflict of interest that might exist between the institution and the inventor," the Sloan-Kettering official said.


During the same webinar, a representative of Royalty Pharma, a firm that buys royalty streams from universities and other institutions, said buydown deals that give all stakeholders, including inventors, the power to opt in or out are the most common and fair to all. "We will offer to buy the entire asset and then anybody who would like to participate in the transaction can... That's how we work it and I think that's how others in the field (work it)," he said.


Reply to Topic



Comments : 4 - Last Post : Apr 15, 2009 11:48 AM by: ipadvocate
re: Royalty Monetization - Short Term Cash v. Long Term Implications
Posted by shinton: Apr 13, 2009 6:24 AM

Can someone clarify why a university would engage in monetization?

re: Royalty Monetization - Short Term Cash v. Long Term Implications
Posted by ipadvocate: Apr 13, 2009 6:36 AM

There are several reasons a university may opt for royalty monetization, but ultimately it is about cash now versus a stream of cash later. Universities are very engaged in fund-raising and generating capital for further R&D, campus expansion and other special projects. Generating a big payday is also a feather in the cap for a university, particularly its administrative leaders, such as the university president.


In the best case scenario, if a university chooses to monetize, for whatever reason, the academic inventor should be free to participate in the monetization or to continue their royalty stream. In the case of Restasis, for example, UGA did not understand the potential of the innovation and chose to ally itself with Allergan, the company that was offering to buy out their royalties. They excluded the inventor from the royalty monetization talks, at the insistence of Allergan, and by doing so, made an extremely unwise decision.


Prestigious institutions such as Memorial Sloan-Kettering always allow their inventors the option to participate or not in royalty monetization deals. And, reputable firms who buy out royalty streams, encourage allowing the inventor to opt out. UGA and Allegan operated in bad faith and theirs is an example of royalty monetization at its worst.



re: Royalty Monetization - Short Term Cash v. Long Term Implications
Posted by chardavis: Apr 15, 2009 10:54 AM

It seems that monetization is like gambling and UGA was betting that Restasis wouldn't be worth that much in the future. By taking the up-front payout, they effectively folded their hand. The one person who knew that the university had a winner was the inventor and she was excluded. Shouldn't President Adams, as head of UGA and over all of these decisions be held accountable for this loss to the university and Georgia taxpayers?

re: Royalty Monetization - Short Term Cash v. Long Term Implications
Posted by ipadvocate: Apr 15, 2009 11:48 AM

Ultimately, as head of the University of Georgia and its Research Foundation, President Adams is accountable for these actions. If you review the Restasis case study on this website, you will read that Adams testified in a deposition that he was not aware of the negotiations because they did not "rise to the level of an institutional concern", yet he was present at the UGARF meeting where it was discussed and actions agreed upon. At a minimum, the minutes of this meeting should be publicized, reviewed and questioned because of the sheer enormity of the loss to the university.

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