What are Drug Royalties?

Rights on the sales of different prescriptions drugs
Why do companies use them?

Large pharma has been inefficient with respect to
their internal research and discovery engines.

Small, specialized biotechnology companies
require access to global development and
distribution capabilities that they do not have
internally

Alternative to financing without diluting equity
holders
What are the types of investors
that invest in drug royalties

Private Equity

Institutional Investors

Family Offices

Ultra HNW
What do investors look in
royalties?

Diversification benefit

Exposure to healthcare and increase in
prescription expenditures

Uncorrelated to stock market or bond market

Hedge against mortality extension risk (pension
funds)
Who are the sellers?

Universities

Biotech companies

Non for profit institutions
How does it work?

Seller gets modest upfront payment, tied to key
development successes, and an ongoing
percentage of the revenue stream for the
approved drug.

Buyer collects yearly royalty payments and takes
on a % of the sales of a specific drug not an
equity stake in the company

As soon as patent expires, buyer stops collecting
income, even as drug company can continue
selling the branded drug
How large is the market? What
are the expected returns

About $2.5B in royalty deals annually

More than $20B in devoted royalty funds space


Important Players: Royalty Pharma, Orbimed
Advisors, Healthcare Partners andPDL Bio Pharma
Drug Royalty Investment Managers earn on
average 10-12% after fees
If it is so good then …

It is not a risk free business!

Revenue collapse from either generics entry or
new therapeutic technology

Asset due diligence is key

Side Effects
Summary

An additional source of funds for research

Not cheap!

Most investors will nor bear FDA risk

Increased interest in the space from institutional
money

Non- dilutive capital

Diligence aspect critical
Thanks!!!

[email protected]