“When we entered the market in 2000, it took a very sophisticated CFO to basically understand the sale of a royalty or one of these synthetic revenue interest deals,” Leventhal explained. “Today, both in the U.S. and in Europe, most CFOs understand that this is an attractive alternative—effectively, a third form of financing that we created.”
Interest and activity in royalty monetization have both grown in recent years. On September 20, New Health Capital Partners reported that it had closed on a private equity fund, New Health Capital Partners Fund I. It was launched with $150 million and will include royalty monetization among ways to invest in life science companies.
The rise of royalty monetization is less a result of the weak economy than of the difficult market that life sciences companies face as they scramble to raise capital, according to Leventhal. Andrew Coronios, a partner with Chadbourne & Parke, echoed the sentiment, stating, “Just as operating companies use receivables financings as an added borrowing source in a credit constrained environment, smaller cap life science companies can use royalty/revenue monetizations as an alternative source of capital.” For investors, he explained to GEN, “in a credit crunch, asset-based financing becomes more attractive and therefore a more available source of capital.”
“The order of magnitude of deals being done when we entered the market was maybe $100 million to $200 million a year. Now there have been billions of dollars of capital provided for this type of financing over the past four or five years,” Leventhal added. “Between roughly 2000 and 2005, there might have been somewhere between $1 billion and $2 billion of financing. And then from 2006 to the present, there might have been two or three times that much.”
Royalty Pharma Finance Trust, also active in royalty monetization deals, said its revenue from royalties multiplied five-fold between 2005, when the firm finished with $161.2 million, to 2010, when revenues zoomed to $808.5 million. In July, Astellas Pharma’s Prosidion subsidiary sold its patent estate and associated royalty stream relating to the use of dipeptidyl peptidase IV (DPP-IV) inhibitors for the treatment of type 2 diabetes to Royalty Pharma for $609 million.
Subsequently, in August, Arisaph was paid $17 million in cash by Royalty Pharma in exchange for amending terms to milestones payable under a cross-license agreement between the companies that Royalty obtained with the purchase of Astellas’ patent estate. The deal includes future contingent payments to Arisaph of up to $9.25 million.