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Survival for biotech companies like Agensys Inc. often boils down to two factors: intellectual property and cash. In 2002 Alan Mendelson ensured that Agensys had enough of the latter. The Latham & Watkins corporate partner helped put together a private placement that brought in $42 million. And Agensys’ IP portfolio was strong enough to attract biotech giant Genentech Inc.’s attention. Two years before the funding came in, Agensys had signed a $30 million licensing deal with Genentech — a signal that its technology was desirable and well protected. Agensys’ future looked bright — but then the Genentech deal tanked. Losing Genentech “caused anxiety internally and in the investor group,” Mendelson says. Fortunately, the money Mendelson brought in more than balanced out the lost revenue from the deal. And more patents were on the way, thanks to Morrison & Foerster IP partner Kate Murashige. Together Murashige and Mendelson — and the company’s promising cancer research, of course — helped ensure that Agensys, unlike so many other startup biotechs, would have a second act. After the Genentech deal fell apart, Agensys scientists carried on with their cancer research, and Murashige kept drafting patent applications. And last summer the curtain lifted on act two: Agensys signed a new licensing deal with Genentech — valued at $90 million. Connecting with Mendelson — who serves as the company’s corporate counsel and corporate secretary — was essential to Agensys’ growth and development, says Donald Rice, Agensys’ president and chief executive. “He’s one of the giants in the field,” says Rice. He’s equally appreciative of Murashige’s patent work, which turned out to be a key element in the new deal with Genentech. A partner in Latham’s Menlo Park office, Mendelson likes to characterize himself as a Johnny Appleseed for small companies. A general corporate lawyer, these days his main focus is on biotech. Mendelson says he represents about 10 public and 20 private life sciences companies. These include Amgen Inc., now the country’s largest biotechnology company; Eidogen Inc.; Perlegen Sciences Inc.; Valentis Inc.; and Guava Technologies Inc. Additionally, Mendelson is the general partner of Axiom Venture Partners, a venture capital firm that funds a variety of high-tech startups, and often acts as underwriter’s counsel in biotech deals. Mendelson met the scientists who founded Agensys in late 1996, when he received a call from Barry Scheher, a friend who worked in finance at Amgen. Scheher was also working with UCLA Ventures, an organization developed through the university’s business school to focus on commercializing UCLA scientists’ inventions. Scheher brought Mendelson together with this group, and with urologic cancer researchers at UCLA Medical Center. “They were eight UCLA scientists who thought they had something unique,” says Mendelson. But the scientists were complete beginners in the business scene, Mendelson says. At the time, Mendelson was a partner at Palo Alto’s Cooley Godward. He directed a group of Cooley lawyers in helping the UCLA scientists form Agensys. Some of Agensys’ initial investors were former patients of the founding researchers and, Mendelson says, “believed in whatever these guys did because they’d done such a good job with them.” The company’s original name, Urogenesys Inc., emphasized its focus on prostate cancer. Mendelson helped the new company develop its business strategy, assisting in decisions about out-licensing and possible deal partners, says Latham partner Charles Hoyng, who drafted the second Agensys-Genentech transaction. Mendelson performed similar functions with Amgen in the early days of that Thousand Oaks-based company, right down to taking leave from Cooley to act as Amgen’s general counsel for a year in the early 1990s. MoFo came to Agensys through the company’s senior director-IP, Timothy Lithgow, who had once worked at MoFo and respected Murashige. Lithgow, who had no direct contact with Mendelson, supervised Murashige’s handling of the patent portfolio until he left Agensys for the Lawrence Berkeley Laboratories in early 2004. Like Mendelson, Murashige focuses on early-stage companies. “That’s what we do. It’s our bread and butter,” she says. According to the U.S. Patent and Trademark Office’s Web site, Murashige is listed as the attorney on nearly 350 biotech patents. The patents she’s prosecuted for Agensys have not yet been issued, but she says that she’s applied for more than 40 families of two or three patents each. Agensys, she says, is a “major client.” The first deal with Genentech was signed in 2000, four years after Agensys was founded. Genentech licensed Agensys’ prostate-cancer technology. Two years later, Genentech decided not to continue with prostate cancer research, and the company backed out of the agreement. Meanwhile Agensys had also changed its focus, broadening its research interests to cover a wider range of tumors. Mendelson, who left Cooley in 2000, acknowledges that it “hurt some perceptions in the market” when Genentech pulled out of the deal. But, Mendelson says, Agensys “acted responsibly, and kept up the contacts with Genentech.” Researchers and business-development people from Genentech and Agensys stayed in touch. And scientists from both companies spoke at large cancer research meetings. Meanwhile, Mendelson kept networking. According to Latham’s Hoyng, Mendelson kept Agensys officials informed “about things happening in the community to companies of similar size and capabilities.” Ultimately, Genentech’s scientists concluded that Agensys occupied significant IP real estate in a technology area they wanted to enter. This new technology dealt with cancer targets — sites on the surface of cancer cells — and monoclonal antibodies that attack those sites, zeroing in on them like a guided missile. Genentech’s scientists set the second deal with Agensys into motion, bringing in Genentech’s in-house business development team. Initially, Genentech officials did not think Agensys would be able to get patents for “the proteins in which they were interested. They were telling me that in their experience, the allowances wouldn’t be issued,” says Murashige. But Murashige was tenacious and spent a great deal of time at the patent office, working on getting Agensys’ patent applications approved. Finally, about four months before the deal was inked, Murashige received notice that the patent applications had been accepted. She called Agensys, and the deal pace accelerated. Mendelson wasn’t involved in deal negotiations or license drafting. “Once the ball started rolling on the transaction, Alan play[ed] a counselor’s role in a global sense to the company,” says Hoyng. Drafting the license fell to Hoyng, an organic chemistry Ph.D. and IP transactional specialist. A former Genentech in-house scientist, Hoyng heads Latham’s licensing practice and has been working with Mendelson since arriving at the firm in 2001. Because the agreement with Genentech covered some technology for which patents had not yet fully issued, one of Hoyng’s most important tasks was defining, in contract language, just what the term “patent rights” encompasses. Biotech patent prosecution can take years, and very often licensees make a leap of faith that the patents will issue, says Hoyng. David Kuiper, of counsel at Latham’s Costa Mesa office did much of the face-to-face negotiating with Genentech’s lawyers and business-development people. MoFo’s Murashige and her team did some patent analysis in the deal, along with Agensys’ sole in-house patent counsel Shane Popp. Since Agensys already had a thorough understanding of the technology, the bulk of the IP analysis fell to Genentech. Daniel Hung, Genentech’s patent counsel, read patents and researched scientific literature to look for prior art. According to Hoyng, in such transactions, particularly those in which unissued patents are being licensed, this due diligence often involves signing a confidentiality agreement, and then reading documents tracing the unissued patents’ prosecution history, often termed the “file wrappers.” (Genentech didn’t use outside counsel.) Under the terms of the contract, Genentech gains worldwide rights to two Agensys cancer targets and monoclonal antibodies specific to those targets. If Genentech develops any cancer treatments or diagnostic products using the technology, Agensys receives a share of the profits. Agensys is keeping the rights to some diagnostic and vaccine uses. As part of the deal, Genentech took a small undisclosed equity in Agensys. But this isn’t a prelude to a takeover. Genentech doesn’t typically buy out other biotechs, says Anna Hall, the company’s senior business development director, who negotiated the financial side of the transaction. Genentech took equity to signify its commitment to Agensys, Mendelson says. In its press release, Agensys claimed that the agreement with Genentech is potentially worth $90 million. That may be unrealistic. “One tends to discount much of what you hear in biotech press releases” from privately held companies, says Mark Edwards, managing director of subscription biotech database Recombinant Capital. Agensys will only recover the $90 million if Genentech develops several products with Agensys technology. In any case, payments in biotech deals tend to be weighted toward the back end, when it looks like an actual product will emerge, says Gregory Wade, a research analyst at San Francisco’s Pacific Growth Equities. Even so, Agensys has more than just this deal to fall back on. While the transaction with Genentech is the company’s biggest deal, Rice says that down the road, Agensys hopes to commercialize some of its other technology itself. Agensys even hopes to get one product into stage one clinical trials next year. “Many drug-development companies have taken it on the chin in recent years because they’re one-trick ponies,” says Stephen Bent, who heads the life sciences practice at the Washington, D.C., office of Milwaukee’s Foley & Lardner. “Their prospects are so ephemeral or risky. But it sounds like Agensys is doing the sort of thing a successful drug-discovery company has to do, keeping at least three balls in the air.” Victoria Slind-Flor is chief West Coast correspondent to IP Worldwide, a Recorder affiliate. This article was originally published in IP Law & Business.

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