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What is a royalty or revenue interest?
Royalty Interests are entitlements to (i) royalty payments between a licensor and a licensee from the sale of a healthcare product, (ii) performance-related and other payments based upon a percentage of healthcare product revenue, or (iii) other consideration such as warrants or product rights.
Revenue Interests are created when a marketing, manufacturing or biotech company sells a portion of its future revenue stream on a marketed product or products. In such agreements, the company in effect creates a Royalty on an existing product or products. |
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During which stages in a product's development process can a royalty be created?
ROYALTY INTERESTS CAN BE GENERATED AT VARIOUS STAGES OF THE PRODUCT DEVELOPMENT PROCESS |
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Why would a company, institution, or individual sell a royalty or revenue interest?
Companies
Biopharmaceutical sellers of royalty interests (including pharmaceutical companies, biotechnology companies, and medical device companies) pursue royalty financing to fund a variety of capital needs, including: |
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Fund future product development
Provides funding for investment in research, clinical trials, and manufacturing |
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Fund product acquisition
Provides capital to acquire new products or technologies |
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Fund product launch costs
Used to support product launch efforts, including creation of new sales forces, funding of advertising campaigns, or building manufacturing facilities |
Royalty financing is an attractive alternative form of financing because: |
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Minimizes dilution
Provides a source of capital that is non-dilutive to EPS |
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More dependable and user-friendly than cyclical public capital markets
Provides a consistent and reliable source of capital; overall public market indicators and total company valuation play less significant roles in royalty financing. Transactions may also be customized to fit the needs and requirements of the company |
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Delays out-licensing
Allows a company to progress a drug candidate further in clinical development and therefore maximize value of future licensing deals
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Institutions
Institutions such as hospitals, universities, or research institutions pursue royalty financing to: |
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Diversify risk
Limits or removes risk associated with uncertainty around future revenue streams |
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Fund capital requirements
Allows for the opportunity to further invest in technology and resources, and maintain or expand the institution's operating budget |
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Fund other projects
Provides capital that may be allocated to projects outside the current scope of research, such as the institution’s infrastructure or new buildings |
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Fund earlier stage development efforts
Provides the opportunity to further invest in resources necessary to develop earlier stage technology |
Researchers
Individual inventors or researchers monetize their royalty entitlements to: |
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Manage personal risk
Eliminates risk associated with uncertain future cash flows |
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Diversify assets / Estate planning
Allows for a more liquid and manageable estate |
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Offer matching grants for research
Provides the opportunity to contribute to their institution's research efforts |
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 Create philanthropic opportunities |
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| What is the structure of a typical royalty transaction?
Capital Royalty evaluates each transaction on an individual basis, and will structure every transaction to meet the specific needs of each client. For example, Capital Royalty may be willing to purchase only a portion of the royalty, allowing for the client's continued participation in the product's royalty or revenue interest, while also limiting the client's risk. Capital Royalty may also be willing to create a royalty stream in exchange for one or more upfront capital payments.
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| What is the process for a typical royalty transaction?
Just as the structure of each transaction varies, the process may vary as well. Members of the Capital Royalty team have been monetizing healthcare royalty streams longer than anyone in the industry, and we work with clients to complete each transaction in a professional and timely manner. A typical royalty transaction includes the following steps: |
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Initial contact
Contact between Capital Royalty and the seller of a royalty or revenue interest may be initiated by either Capital Royalty or the seller. Typically, an introductory face-to-face meeting will take place early in the process, providing the client with the opportunity to educate Capital Royalty about their expected timetable, capital and other needs, structuring preferences, and the product itself. |
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Diligence and Evaluation
With a general understanding of the seller's needs and preferences, Capital Royalty then begins due diligence and the commercial evaluation of the opportunity. This step can be an iterative process, and Capital Royalty is committed to working within the client's given timetable. |
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Agreement of Key Terms and Closing
After Capital Royalty completes its commercial assessment, we provide the client with a written proposal (term sheet). Once key terms have been agreed upon, we work with the client to finalize the term sheet and purchase agreement and complete the transaction. |
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