This story was originally published here in the East Bay Express.

In a unanimous vote last month, the Regents of the University of California created a corporate entity that, if spread to all UC campuses as some regents envision, promises to further privatize scientific research produced by taxpayer-funded laboratories. The entity, named Newco for the time being, also would block a substantial amount of UC research from being accessible to the public, and could reap big profits for corporations and investors that have ties to the well-connected businesspeople who will manage it.

Despite the sweeping changes the program portends for UC, the regents' vote received virtually no press coverage. UC plans to first implement Newco at UCLA and its medical centers, but some regents, along with influential business leaders across the state, want similar entities installed at Berkeley, Davis, Santa Cruz, and other campuses. UC Regents Chairwoman Sherry Lansing called Newco at UCLA a "pilot program" for the entire UC system.

The purpose of Newco is to completely revamp how scientific discoveries made in UC laboratories — from new treatments for cancer to apps for smartphones — come to be used by the public. Traditionally, UC campuses have used their own technology transfer offices to make these decisions. But under Newco, decisions about the fate of academic research will be taken away from university employees and faculty, and put in the hands of a powerful board of businesspeople who will be separate from the university. This nonprofit board will decide which UC inventions to patent and how to structure licensing deals with private industry. It also will have control over how to spend public funds on these activities.

Newco's proponents contend that the 501(c) 3 entity will bring much-needed private-sector experience to the task of commercializing university inventions. Ultimately, it will generate more patents, and thus bigger revenues for UC through licensing deals and equity stakes in startups, they claim. UC administrators also say they have established sufficient safeguards for Newco and that UCLA's chancellor and the regents will have oversight over the entity.

But if last month's regents meeting in Sacramento is any indication, UC oversight of Newco may be less than robust. Several regents, in fact, objected to creating an oversight committee that would keep tabs on the new entity. The debate over the issue concluded after Regent Norman Pattiz suggested that "it shouldn't be called the Regents Oversight Committee. It should be called the Regents'-Encouragement-and-Finding-You-the-Dough Committee."

Critics of Newco say the scheme won't work, and that it will lessen transparency in UC research while undermining the public mission of the university. Putting a board of businesspeople in charge of the university's tech transfer operation also will create conditions ripe for cronyism, they fear.

In fact, that may already be the case. Records show that wealthy investors and influential businessmen with close ties to UCLA and one of the UC Regents — Alan C. Mendelson — are financially invested in companies that currently license university-owned patents under exclusive financial arrangements. Mendelson, who also is a trustee for the UC Berkeley Foundation and has investments of his own in businesses that profit from university-produced research, was one of the main backers of the Newco proposal and cast a vote in favor of it.

The Newco program also could benefit companies like the ones Mendelson and his network of friends and investors own and work for. Many of the UC Regents are also close friends of investors who want greater access to university inventions under more favorable terms, and who want the university to subsidize early-stage business expenses and take financial risks by investing in technology startups.

And under Newco, they may be able to get exactly what they want.

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It appears that the university is turning research policy over to a private group of businesspeople, and they'll control the decisions of campus officials who are required to work for the public interest," said Christopher Newfield, a professor at UC Santa Barbara who conducted campus-sponsored studies of a range of tech transfer policies at UCSB early last decade, and has sat on several technology transfer policy committees. Newco is the latest expression of a belief that the university's research policy should be evaluated by measuring patents and revenues, said Newfield. He believes that basic research is central to the university's public purposes, and that changes toward a more proprietary and privatized model will harm both science and society.

"After WWII, policymakers assumed that government-funded research did not need to depend primarily on for-profit commercialization in order to get out to the public; there wasn't the sense that patenting inventions and getting revenue streams off them was the main goal of the university-society interface," Newfield noted. "A famous example was Jonas Salk's polio vaccine, which he did not patent: 100 million doses were administered in the US in the two years following the successful clinical trial."

University policies changed in the 1970s as several universities patented lucrative inventions and earned millions in revenue. Even though these paydays were rare and only occurred at a handful of elite research institutions that got lucky from a tiny fraction of the total inventions their faculty were producing, many schools wanted to duplicate this luck. When Congress enacted the Bayh-Dole Act in 1980, which concerned patent and trademark law, university administrators quickly interpreted it as giving schools ownership of the federally funded research conducted on their campuses. The race was off.

Hundreds of schools set up tech transfer offices in an attempt to profit from inventions. Universities instituted policies claiming institutional ownership of all inventions created by faculty and graduate students, and many tech transfer offices began to choke back the supply of knowledge flowing from the university into society — all in hopes that the university could claim ownership of one of the rare "home run" inventions, as many in the tech transfer field call them, that generate millions in revenue.

Gerald Barnett, who ran tech transfer operations at the University of Washington and at UC Santa Cruz, and today is the director of the Research Technology Enterprise Initiative, an independent organization that consults with research institutions, said Newco represents a way for private business interests to try to game the university. "If you're working for the public good you don't have to take ownership of everything," he said of the research discoveries made at university campuses. "You don't have to have a large number of employees [at tech transfer offices], and you only have to do few transactions a year [licensing to private companies].

"At the University of Washington, when I was there, we had five employees in my licensing unit, and we brought in three to six million a year across a range of projects," Barnett added. He said that University of Washington administrators, however, created an independent organization with a similar focus as Newco to manage the university's inventions under the watch of business interests. "UW has put $100 million over five years into their 'Center for Commercialization' with great ballyhoo about how industry and businesspeople would cut through all the red tape and delays," he said. "Turns out that those industry people are doing a lot worse than the program they dismantled."

Barnett predicts the same for UC's Newco. "The problem is that you're taking out of circulation a vast amount of public domain knowledge and other stuff, and holding it hostage, making it less likely that any of these inventions will make money because you're focusing on exclusive licenses," he said.

What's better for the public and the broader economy, said Barnett, is a system in which most university inventions and knowledge quickly flows into the public domain, or is swiftly made available through non-commercial means. A relatively small number of university inventions that benefit from patent positions might be licensed out, Barnett said. But he's skeptical of the obsession with exclusive patent agreements with corporations.

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The idea of putting university technology transfer under the control of a board of business leaders grows out of recent experiences at a handful of elite universities in which just a dozen or so technologies created in publicly funded labs have blossomed into multimillion-dollar properties. Many university administrators, nonetheless, have come to see these relatively rare successes as potentially lucrative revenue streams to replace increasingly scarce public funding. And now many businesspeople and private investors see the university as a vast social factory from which they can extract valuable property — especially if the university is pliant and agrees to exclusive deals. UCLA offers a prime example.

In the early 1990s, federally funded experimental cancer treatments devised by doctors at the UCLA David Geffen School of Medicine were yielding promising results. Using genetically altered mice with cancerous human tumors grafted into them, scientists were developing research they hoped would eventually treat cancers using specially designed protein antibodies. In 1996, several UCLA doctors took the research private in order to quickly commercialize the treatments. They founded Urogensys, which was later renamed Agensys. Agensys struck a deal with UCLA to exclusively license some of the school's patented technologies on which the cancer therapies were based. Over the next decade and a half, Agensys filed for 156 patents on these cancer treatments, all based on fundamental research done at UCLA with federal research grants.

In 2007, the Japanese pharmaceutical giant Astellas bought Agensys for $537 million, making it one of the most valuable university spin-off companies in history. Agensys' deal with UCLA was unique in that the school reportedly had some equity stake in the company. The university has never disclosed the financial terms of the deal, however, so just what benefit there was to UCLA isn't clear. Some say the university benefited greatly, while others claim it was actually short-changed and that Agensys' private investors were given a favorable deal because they were big donors to UC.

What is clear is that the biggest moneymaker in the Agensys deal was a small network of investors who earned millions. These investors included UCLA professor Arie Belldegrun, a doctor who has created and advised numerous biotechnology companies over his career. Roy Doumani, a wealthy Los Angeles banking and real estate investor, and friend of Belldegrun, was also part of Agensys. Doumani has been a major UCLA donor for several decades. In 1989, he gave UCLA a $7 million oceanfront house in Venice Beach. One of his more recent gifts to the school was an endowed chair in urologic oncology. This prestigious faculty post is currently occupied by Belldegrun. Although he has no scientific background, Doumani recently became a UCLA faculty member by joining the Department of Molecular and Medical Pharmacology to teach the "business of science."

Advising Agensys in its dealings with the university was Alan C. Mendelson, a veteran biotechnology lawyer who works in the Menlo Park offices of the Latham Watkins law firm. Mendelson is also a wealthy donor to UC; he became a UC Regent in July of 2012 after a two-year stint as president of the Cal Alumni Association and a one-year term as treasurer of the UC Alumni Association.

Belldegrun, Doumani, and Mendelson are members of a tight-knit network of investors who have made millions by forming startup biotech companies, licensing university-developed technologies, and then selling the companies to bigger corporations for enormous profits.

Newco would effectively impose the model this group of investors has established over the past decade on all of UCLA's tech transfer activities, and Mendelson has pointed to Agensys as Exhibit A as to why this will benefit the university.

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In 1980, Alan Mendelson, then a junior lawyer at the Silicon Valley office of Cooley Godward, was assigned an otherwise obscure and small corporate client: Applied Molecular Genetics. That company later became the $76 billion biotech giant known today as Amgen. Mendelson's role as Amgen's legal counsel put him at the center of California's booming biotechnology industry, connecting him to hundreds of venture capitalists and university scientists. Throughout the 1990s and 2000s, Mendelson represented and served on the boards of numerous small and large companies developing medical technologies. Many of these companies were started and funded by the same entrepreneurs and investors. Along the way, Mendelson also invested in many of these companies, becoming wealthy in the process. Most of the corporations Mendelson worked with relied on technology licensed from universities. This placed Mendelson firmly on the side of private businesses in their often-contentious negotiations with university tech transfer offices over patent rights, royalties, milestone payments, and equity stakes. Private companies often seek exclusive rights and to lower royalty payments to the university. Sometimes investors want universities to take equity stakes because these are, in effect, public subsidies to highly speculative companies at their seed stage, when no private investor is willing to invest. In 2005, one of Mendelson's clients, Kythera Biopharmaceuticals, entered into an exclusive licensing agreement with UCLA and a UCLA Medical Center-affiliated foundation called LA Biomed to exploit patents related to a drug developed by the school. (UCLA has kept the terms of that agreement confidential.) In addition to working as Kythera's lawyer, Mendelson was an investor in the company. According to records filed with the US Securities and Exchange Commission on May 17, 2012, Mendelson advised Kythera in a public stock offering that netted about $86 million. The disclosure filing noted that Mendelson owned 13,000 shares of Kythera at the time. Mendelson's investments were through a family trust, and through VP Company Investments 2008, LLC, a Delaware-registered corporation that partners of the Latham Watkins law firm use as a co-investment vehicle. Mendelson was still a stockowner in Kythera when he became a UC Regent in July of last year. Mendelson also represents and owns stock in Singulex, Inc., another corporation that licenses technology from UC. Singulex's offices and labs are in Alameda. In a filing with the SEC last year, Singulex's executives wrote, "our business is dependent on our exclusive license from the Regents of the University of California," and warned prospective investors that "termination of this license could negatively impact our market position." As of September 2012, Mendelson owned 34,004 shares of Singulex through his family's trust. He also owned a portion of another 34,004 shares, along with partners of the Latham Watkins law firm, held by VP Company Investments 2008, LLC. As a regent-designate since 2011, and as a full voting member of the UC Regents since July 2012, Mendelson participated in the regents' special Working Group on Technology Transfer, an ad hoc committee of the board that was tasked with studying system-wide tech transfer policies. One of this working group's recommendations was "establishing separate institutional structures with funding and mandate to invest in UC start-ups." The regents' Working Group on Technology Transfer also took the lead in advocating for the establishment of Newco. At last month's regents meeting, during the discussion preceding the vote to establish Newco, Mendelson recounted his version of the Agensys story. "As some of you may have heard, a mutual friend of chairman Lansing and mine, Dr. Arie Belldegrun at UCLA, he and a number of faculty members started a company. It was called Agensys. It was sold ultimately for $500 million dollars and the university benefitted greatly." But according to Mendelson's version of events, UC didn't benefit much from the terms of the licensing agreement, but instead from the "largesse" of the university's private investors. Mendelson said UC was rewarded "not so much by the royalty revenues, because I don't think even now they have products approved, but it was in terms of some of the investors who are UCLA donors giving back. Once they got the largesse, if you will, from the sale of the company, they gave back significant amounts of money to UCLA." It's unclear whether Mendelson has economic stakes in other companies — besides Kythera and Singulex — that license UC technology or otherwise use university resources. Mendelson did not respond to a request for comment for this story, and when I asked the University of California Office of the President for a copy of Mendelson's Form 700 (a detailed disclosure of personal economic interest required of the UC Regents and many UC administrators), a representative from UCOP responded that Mendelson did not have one on file, and that his annual report was late. I obtained a copy of Mendelson's Form 700 that he filed in August of 2012 with the California Fair Political Practice Commission. The FPPC also confirmed that Mendelson's annual filing, which was due April 2, is late. Mendelson's August 2012 disclosure showed that he had direct investments in nine biotechnology companies, including Kythera and Singulex, as well as stock in eighteen different venture capital funds with a total value hovering somewhere between $1 and $10 million (the disclosure forms do not require him to be more specific). In addition, most of his investment funds are focused in biotech companies, giving him indirect financial stakes in perhaps dozens of biotechnology corporations.

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