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Emory University’s general counsel, Kent B. Alexander, sat at his computer July 21 and watched $80 million go into Emory’s account. Then $211 million. Then a few hundred million dollars more — for total of $540 million. The money was Emory’s take from selling royalty interests in a promising new HIV drug, Emtriva, and its offspring Truvada. Their combined sales this year are projected at more than $400 million. “It was a fun day,” said Alexander. “It’s not every day you do a half-billion-dollar deal in any sector — much less the university sector.” But the ease at which the cash flowed into Emory’s account belies more than a decade of complex legal battling for Emory to establish its rights to Emtriva. Emory’s side of the deal involved five law firms, plus its in-house law department, and legal fees well in the millions, said Alexander. Emory’s payout is considered the largest ever to an American university for intellectual property. Emory’s reputation got a boost, too. Emtriva and Truvada come in tablets that need to be taken only once a day — an improvement over the drug cocktails historically prescribed to manage HIV. This development is so important that a University of Virginia patent foundation lists it along with saccharin, rocket fuel and insulin as university inventions that have changed the world. Emory’s lead patent lawyer on the deal, Robert L. Baechtold of New York’s Fitzpatrick, Cella, Harper & Scinto, said it was one of the knottiest pieces of litigation he’s worked on in his 40-year career. “Because of the length of time and number of parties involved and the complexity of the chemistry at issue it was one of the most complex [matters] that I’ve done. And I do a lot of them,” he said. What made the disputes even more complex, he said, was that they went “from the patent office to the courts and back to the patent office then back to the courts.” RIGHTS SOLD TO COMPOUND In the deal, Emory sold the rights to a compound called FTC — which is used in Emtriva and Truvada — to Gilead Sciences and Royalty Pharma for $525 million. The companies threw in an additional $15 million for the right to use Emory’s compound in hepatitis B research. The lawyers were needed to sort out who had the rights to FTC and another compound called 3TC, both claimed to be invented by Emory scientists Raymond F. Schinazi, Dennis C. Liotta, and Woo-Baeg Choi. Sherry M. Knowles of King & Spalding filed Emory’s patent applications for the compounds about 15 years ago. Knowles could not be reached, but according to Schinazi, the timing was critical. The FTC dispute involved a race to the patent office. Schinazi said BioChem Pharma had earlier filed an application for a similar family of chemical compounds — but omitted the one for FTC, which has fluorine. BioChem Pharma realized its mistake and filed an application for a similar compound with fluorine — but not until a week later, Schinazi said. Another dispute broke out over the rights of Burroughs Wellcome — later acquired by drug-maker Glaxo — to use FTC. In the early 1990′s, Emory had licensed FTC to Burroughs Wellcome, and the drug maker subsequently filed its own patent application to use FTC in drugs for hepatitis. Emory argued that it had already specified that FTC could be used for hepatitis before Burroughs Wellcome, now Glaxo, got the idea. Meanwhile a separate dispute arose over who had the rights to 3TC, a compound similar to FTC and also used to make drugs for HIV. By the time Emory’s application for 3TC was approved in 1996, Glaxo had a similar drug on the market, said Baechtold. Emory sued Glaxo and BioChem Pharma for patent infringement, claiming that Emory scientists had invented 3TC, and the battle began. The case was filed by A. Stephens Clay and John S. Pratt of Kilpatrick Stockton. Baechtold’s firm, a patent litigation boutique, subsequently joined the litigation. Glaxo and BioChem Pharma countersued — and also named Schinazi individually in their suit, claiming that he had improperly gained secret information that he used to develop 3TC. This brought another lawyer into the mix — Marlan B. Wilbanks of Harmon, Smith, Bridges & Wilbanks to defend Schinazi against the fraud allegations, which were later dropped. A civil litigator with whistleblower expertise, Wilbanks said he first worked with Schinazi when the scientist’s neighborhood association needed an attorney to represent a group of homeowners. LITIGATION SPREADS Alexander joined the fray in 2000, when he left King & Spalding to become Emory’s general counsel after the 1999 death of Joseph Crooks. At that point, he said, the litigation was everywhere. Patent prosecution for the compounds was happening all over the world, plus there was a major piece of litigation in Washington. Knowles, who handled the patent prosecution, was jetting all over the world in an effort to secure the patents to the compounds in various countries. “Sherry had more frequent flyer miles than anyone in Atlanta at the time,” Alexander said. Alexander consolidated the litigation in Atlanta in 2000 and, finally, he said, “All parties agreed that it was time to mediate.” Emory and the drug companies settled in 2001. In the deal they struck, Emory transferred its rights to 3TC to Glaxo, and BioChem Pharma and received a royalty interest. And, Emory got back the rights to FTC, in exchange for royalty payments to the drug makers. Since universities cannot engage in the manufacture of drugs, Emory licensed its compound to Triangle Pharmaceutical, a company created by Schinazi in which Emory and the scientists were shareholders. Triangle sold itself to Gilead in 2003 and the Food and Drug Administration approved Emtriva, the drug based on FTC, for use in HIV treatment in July of that year. Gilead combined Emtriva with a drug in its own stable to create Truvada, which the FDA approved for HIV treatment in 2004. “It’s extremely potent. There’s nothing like it,” said Schinazi, who said sales for Truvada are projected at $1.6 billion in 2006. Alexander engaged Covington & Burling in New York to negotiate the lump sum royalty payment — one of the few firms in the country, he said, who handle what’s called the monetization of royalty streams. That deal has kept Alexander and deputy GC Stephen D. Sencer busy all summer, with additional help from Emory’s chief technology officer, Mary Severson. Emory’s $540 million payment represents its royalty interests in Truvada and predecessor drug Emtriva, in which Emory has about a 20 percent stake, said Alexander, the Emory GC. Emtriva, the drug based on the work of the Emory scientists, makes up 40 percent of Truvada. Instead of receiving annual royalty payments until Emory’s patent on FTC expires, the university elected to cash out now, which gives it a substantial chunk of money to invest in further scientific research, Alexander said. HOW ROYALTIES PILED UP Two factors make Emory’s stake worth so much, said Schinazi. First, the university negotiated an unusually high royalty arrangement with Triangle Pharmaceutical, which developed Emtriva. Ordinarily, universities receive less than 10 percent royalties in such licensing agreements, Alexander said. Second, Knowles, who filed the patent applications for Emory for both compounds, was able to extend the patent life for FTC about a decade longer than the normal 20 years, said Schinazi. The extra time made the royalty stream more valuable, which meant Emory could negotiate for a higher lump sum payment. The three scientists who invented FTC will receive 40 percent of the payment — $216 million — in accordance with terms of the Bayh-Dole Act at the time of the compound’s discovery. Schinazi has no intention of using his chunk of the proceeds to retire to a tropical island and take up fishing, he said. Instead he’s launching a new drug company — RFS Pharma and plans to open his own research institute here in Atlanta to do work on Hepatitis C, cancer, and HIV. Meanwhile he’ll continue his work at Emory, where he runs an HIV lab and is a director of Emory’s Center for AIDS Research. Choi, another of the Emory researchers who will share the $216 million, has left Emory to run a new Atlanta drug development company called FOB Synthesis Inc. The third researcher, Liotta, said he wants to find “something very useful to do with the money.” He said he’s interested in working as a venture capitalist to develop other drugs. “There are still a whole lot of unmet medical needs that are very serious,” Liotta said. In the near future, Liotta said, “I’m sure I’ll be taking a lot of people out to dinner.” Staff Reporter Scott Simonson contributed to this report.

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