Royalty Monetization
I. ROYALTIES PLAY a vital role in a biopharmaceutical industry, where innovation is highly decentralized. Royalties are created throughout the drug development cycle as science journeys from academic and commercial laboratories to become a drug and ultimately a medication in the hands of biopharma companies.
II. A SINGLE MEDICATION can generate several royalties, reflecting the contributions of multiple stakeholders to successful pharmaceuticals: for example, an academic inventor and a small biotechnology company that performed early scientific and development work for a medication that is ultimately commercialized by a multinational pharmaceutical company.
III. THERE ARE an infinite number of ways to structure a royalty monetization, as no two royalty transactions are alike. We work with royalty holders to tailor and design a structure that will meet the needs of both buyer and seller.
IV. ROYALTY PHARMA has extensive experience in, and deep knowledge of, the industry: we have acquired royalty streams across diverse therapeutic areas and geographies, on large and small molecules, on drugs that are not yet approved, and on drugs that have been on the market for years. We have worked with a broad range of innovators, from large pharmaceutical companies to small biotech companies, and from universities to research hospitals and individual inventors.
Diversity and flexibility are core to Royalty Pharma’s partnerships with royalty holders.
ROYALTY MONETIZATION
Memorial Sloan Kettering Cancer Center: Monetization of Royalties for a Leading Research Hospital
PARTNER: Memorial Sloan Kettering Cancer Center held a royalty-bearing license on Amgen’s Neupogen® and Neulasta®, two highly successful drugs used to prevent neutropenia in patients undergoing chemotherapy.
TRANSACTION: In two back-to-back transactions in 2004 and 2005, MSKCC sold 80% of its Neupogen/Neulasta royalty to Royalty Pharma for $400 million, valuing 100% of the royalty at $500 million. MSKCC retained 20% of the royalty streams and therefore participated in sales that exceed expectations.
MSKCC reinvested a portion of the proceeds in equity in Royalty Pharma, providing the institution with consistent, diversified, and predictable cash flow for far longer than retaining the royalty could have produced.
RATIONALE: MSKCC’s experience highlights many of the key benefits of monetization common to all royalty holders. MSKCC diversified a large financial asset with concentrated single product risk while pulling forward future cash flows into an upfront payment to support immediate infrastructure, research and patient care initiatives. By retaining a portion of the royalty and re-investing in Royalty Pharma, the institution enjoys the benefits of consistent cash flows year-to-year.
The proceeds also supplemented MSKCC’s research budget. A portion of the royalty monetization proceeds of $400 million was used to fund the construction of a new research center.
“This is one of Memorial Sloan Kettering Cancer Center’s most notable scientific achievements, a product which is very useful to the treatment of cancer.”—John R. Gunn, Executive Vice President of Memorial Sloan-Kettering Cancer Center
ROYALTY MONETIZATION
Royalty Pharma and the Cystic Fibrosis Foundation: Major Transaction with Leading Disease Focused Research Foundation
PARTNER: In 2000, the Cystic Fibrosis Foundation (CFF) and Aurora Bioscience (now part of Vertex Pharmaceuticals) entered into a research collaboration. CFF provided over $100 million in funding, expertise in cystic fibrosis, and a network of treatment centers to participate in clinical studies, while Aurora Bioscience brought drug discovery expertise. In exchange, CFF was entitled to a royalty on any products resulting from the shared research work.
In 2012, the U.S. Food and Drug Administration approved the first product of the collaboration, Kalydeco, to treat a subset of cystic fibrosis patients. Kalydeco was the first product approved that addresses the underlying cause of cystic fibrosis. In 2015, Orkambi, the second collaboration-drug, was approved for a broader cystic fibrosis population.
TRANSACTION: In 2014, with a value of over $3.0 billion—a sum unheard of in venture philanthropy— CFF’s royalty represented a significant portion of its financial assets. After considering several alternatives, CFF sold its royalty to Royalty Pharma for $3.3 billion.
RATIONALE: The principle benefits to CFF were two-fold: First, the diversification and risk mitigation were critical. Second, the foundation now has resources to support the next generation of cystic fibrosis therapies to improve and potentially cure the disease.
“This is a transformational moment for people with cystic fibrosis and the entire cystic fibrosis community. These new funds give us a tremendous opportunity to supercharge our efforts to develop life saving new therapies, ensure that the best possible resources are available for people with cystic fibrosis, and pursue daring, new opportunities that one day may lead to a permanent, lifelong cure for this disease.”
— Robert J. Beall, PhD, President and Chief Executive Officer of the Cystic Fibrosis Foundation