Presentation to the New York Pharma Forum April 12, 2010 1 Table - - PowerPoint PPT Presentation

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Novel Approaches to Financing Growth Opportunities

Presentation to the New York Pharma Forum April 12, 2010

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Table of Contents

Introduction Financing options Revenue interest financing Royalty m onetization Conclusions

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Paul Capital Healthcare Overview

Market Leader in Healthcare Product Financing – Focus on royalty and revenue interest-based investments – Flexible and creative alternative financings Diversified Portfolio – 40 investments in more than 70 products across 22 therapeutic areas – Geographically diversified in U.S. and Europe Investm ent Expertise – Paul Capital is one of the largest dedicated healthcare investors ($1.6B of equity and debt

capital under management)

– Healthcare team includes 13 full-time professionals in New York, San Francisco and London

with over 150 years of collective healthcare industry and healthcare investment experience

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The Growing Need to Finance Healthcare Investm ent Opportunities

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Areas of Investment

Research and developm ent Com m ercialization activities Manufacturing/ sourcing Acquisitions

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Products

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Companies

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R&D Costs Are Large and Still Growing

Source: UBS, December 2009

Worldwide R&D spend by top 500 pharmaceutical and biotech companies 2002-2014E

Partnering is the Predominant Source of Capital

Source: UBS. December 2009

Biotech Funding by Source 1999-2009*

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The Challenge

There are num erous opportunities to develop and com m ercialize new products and expand m arket share… But realizing these opportunities m ay require substantial capital investm ents

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Financing Options

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Traditional Equity Financing

Attractiveness depends on m arket conditions and stock

valuation and corporate perform ance

Attractive for com panies with strong stock perform ance

and favorable valuation

Negative im pact of dilution, especially for com panies

with low valuations, which m ay out-weigh benefits

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Traditional Debt Vehicles

Non-dilutive to equity Restrictive covenants m ay lim it future strategic

transactions or fundraising efforts

May be difficult to align the com pany’s and debt

provider’s goals and interests

Long-term downside m ay outweigh near-term benefit

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Product Out-licensing

Enables shared cost, raises capital and provides additional

intellectual expertise and infrastructure

Non-dilutive to equity Requires sacrifice of all or part of the licensed program ’s

revenue realization and long-term upside potential

Potential for reduced visibility of the licensed program May result in loss of control of the product/ program Risk that licensee will lose interest in the program due to future

changes in com petitive landscape or internal priorities

May com plicate future strategic transactions, especially if

license involve a platform technology

Out-licensing early in developm ent m ay result in decreased

royalty rates com pared with later-stage deals

Royalty incom e m ay be valued by investors at a lower m ultiple

than revenues from sales of a product the innovator controls

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Revenue Interest Financing

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Healthcare Product Revenue Interest Financing

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An investm ent transaction

that involves the creation of a synthetic royalty on product sales

Applicable to com panies

with existing or near-term product revenue

Closing securities will

include a structured royalty payable to the Buyer, and can also include other securities or form s of consideration

Joint Account

Investment Capital Closing Securities

Agreed-upon Product Sales

Revenue Interest (Synthetic Royalty) Sales Less Revenue Interest

SELLER BUYER

$ $$$

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Revenue Interest as Alternative Capital

Com parison with equity

– Non-dilutive – Lower cost of capital – Overall public market indicators and total company valuation play

less significant role

Com parison with debt

– Financing terms not dependent on current credit market

conditions

– Less restrictive operating or financial covenants

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Seller’s Motivations to Use Revenue Interest Financing

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Provides funds now for a broad range of uses Risk m itigation Flexibility to license all or part of a present or future

revenue stream

Innovative deal structures enable sellers to retain upside

revenue potential

Com patible with and com plem entary to subsequent

financing efforts (public/ private equity, debt, other)

Buyers and sellers have shared interest in the success of the

product underlying the transaction

Revenue interest can be repurchased

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Revenue Interest Potential Downsides

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Discount over the life of the product

– Also true for out-licensing – Balance against reward of potential return from applying proceeds to new investments

and strategic initiatives

Perception that sale indicates lack of confidence in the product

– Not if you effectively communicate the rationale, use of proceeds and near- and long-

term benefit, mitigation of risk

– Buyer’s due diligence process may provide additional validation for the product and the

underlying intellectual property asset

Potential encum brance of product IP

― Also true for senior debt structures ― Deal structure can be tailored to remove any possible issues

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Valuing the Investment

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Size of product revenues Market and com petition Regulatory risk Patent life term

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Revenue Interest Financing Enables Companies to Achieve a Broad Range of Goals

Expand a sales force to increase com m ercial com petitiveness or m arket

potential of an existing product

Acquire a new product that allows additional revenue generation from an

existing sales force

Offset R&D and/ or com m ercial launch expenses Fund clinical developm ent of pipeline products as a way to defer

partnering until product valuation is increased

Extend a product’s life cycle by funding line extensions, new indications

and re-form ulations of established brands

Advance/ expand a product pipeline Unlock the value of an asset that is un(der) appreciated by investm ent

bankers and traditional investors

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Acquire a New Product or Company

Situation Situation

European specialty pharma company seeking capital to finance the launch of three products and

acquire the European rights to a revenue generating product

Mix of capital allowed the company to minimize dilution while accessing sufficient growth

capital

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Result

• SpePharm used the financing to:

– Acquire the European rights to revenue generating products – Build out its commercial infrastructure Buyer

Portion of funds provided at

closing in the form of a revenue interest, with the potential to draw additional funds should certain commercial milestones be achieved

Equity investment made at

closing

% of SpePharm revenues and equity up to €18.5 MM

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Expand a Sales Force

Situation Situation

Biotech company conducting Phase III trials on pipeline product in multiple sclerosis and

planning IPO to fund ongoing development spend

Actively marketing Zanaflex through small sales force Additional funding needed to expand sales force and supplement pre-IPO balance sheet without

dilution of ownership stake

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Result

• Financially strong pre-IPO position
• Successful IPO 2 months after close of revenue agreement
• Agreement seen as a validation of Zanaflex commercial potential

Buyer

Purchased a portion of

Acorda’s future Zanaflex net revenues (additional milestones for performance)

Worked closely with bankers to

ensure proper disclosure during IPO process

% of Zanaflex Sales Up to $25 MM

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Delay a Partnership to Maximize Value

Situation Situation

Drug delivery company in need of commercial partner for DepoDur and $30MM of capital to

fund Phase III trials

Preference was to partner upon approval, rather than during clinical development, in order to

maximize license economics

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Result

• Investment allowed SkyePharma to defer partnering until late stage trials for DepoDur

were completed

• $30MM investment translated into >$200MM in total upfront and future milestone

payments to SkyePharma and royalty rate of up to 60% Buyer

Purchased a hybrid

royalty/revenue interest in four products: DepoCyt, DepoDur, Solaraze, and Xatral OD

% of Product Revenues $30 MM

Situation Situation

• A research-led Indian pharmaceutical company pursuing U.S. market entry
• Financing sought for clinical development of 16 dermatological products for U.S. market

Offset R&D Expenses

% of Product Revenues Buyer

Investment funded to match actual

clinical development expenses

Purchased a blended royalty on

the 16-product portfolio

Result

• Non-dilutive financing enabled Glenmark to offset its generic drug development expenses while building

its U.S. franchise for a dermatological market which today includes several FDA-approved products Up to $27MM

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Unlock the Value of an Asset

Situation Situation

• Publicly traded biopharmaceutical company using phage display technology to discover pipeline
• pportunities
• Phage display technology generates fees, milestones and royalties through “Licensing and Funded

Research Program” (LFRP) with >75 partners – but is not valued by public markets

• Ongoing need for cash to develop various product candidates; low share price prohibitive to equity

raise

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Result

• Investment represented a fraction of LFRP net present value; Dyax retained most of the upside
• Monetization enabled Dyax to finance internal pipeline without dilution
• Wall Street recognized the value of the transaction – and the phage display platform – to

shareholders

Buyer

Monetized a percentage of

LFRP revenues (milestones for additional funding upon certain revenue targets)

Agreement does not affect

current or future internal development programs or products

% of LFRP Revenue Up to $35 MM

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Royalty Monetization

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Royalty Monetization: Typical IP License

IP $

IP HOLDER (Company) LICENSEE

Com pany has intellectual property

– Patent – License – Know-how

License agreem ent allows another

com pany (licensee) to utilize the IP for product developm ent and com m ercialization

Licensee usually provides a royalty

(percentage of end-user sales) as paym ent for the license

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Royalty Monetization

IP $$$ $ $ $$

Joint Account

ROYALTY BUYER (Investor) IP HOLDER (Company) LICENSEE

The IP

Holder/ Com pany receives capital ($$$) from the purchaser of the royalty stream

The Licensee pays all or

a defined portion of the stream to the Royalty Buyer

A joint account is used

to transfer paym ents

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Rationale for Royalty Monetization

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Biotechnology com panies are capital intensive; royalty

m onetization and revenue interest financing can provide capital at a lower cost com pared with VCs, pharm a partners, and public m arkets

Royalty m onetization provides a tangible value to

technology/ IP assets that are often undervalued or ignored by

• thers

Growing pool of royalty buyers is generating com petitive

pricing and innovative structures that allow biotechnology com panies to tailor deals to best m eet their near- and long- term goals

Use Future Revenues to Fund Present Development Opportunities

Situation Situation

Publicly traded biotech company seeking capital to finance pipeline expansion of innovative

vaccine products

Interested in a non-dilutive transaction to secure necessary clinical development capital

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Result

• Avant used non-dilutive financing to:

– Advance cardiovascular immunotherapy programs in the clinic – Complete validation and staffing of new manufacturing facility – Advance pipeline of oral vaccines to combat bacterial infections Buyer

Royalty monetization of future

Rotarix royalties

$10MM upfront with

milestone payments

Avant preserves upside

through retained interest

% of Rotarix Royalty Up to $61 MM

Use Future Revenues to Rebuild Shareholder Value

Situation Situation

Vernalis, a publicly traded UK based bio-pharmaceutical company had previously restructured

its operations to focus on its promising pipeline of development stage products.

The Company was seeking capital to advance its promising pipeline to the point at which the

various products could be partnered.

Interested in a non-dilutive transaction to secure capital that could be deployed to rebuild

shareholder value

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Result

• Vernalis accessed non-dilutive capital to support development of its promising proprietary

programs and achieve the objectives of its restructuring.

• Monetization of future frovatriptan cash flows better positions Vernalis to create near- and

mid-term value for its shareholders Buyer

Monetization of 90% of future

payments due to Vernalis from its agreement with Menarini covering Europe and certain

• ther territories

€18.4 million in cash upfront

% of Future Frovatriptan Payments €18.4 million

Divesting A Royalty to Clear the Way For An Acquisition

Situation Situation

Sanofi-Synthelabo was acquiring Aventis At the time of the acquisition, Sanofi marketed Ambien, the market-leading sleep product, and

Aventis was entitled to receive a royalty from Sepracor on US sales of Lunesta, which was not yet FDA approved.

The US Federal Trade Commission (FTC) required that Aventis divest itself of the royalty before

the acquisition could be completed

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Result

• Transaction allowed Aventis to meet the FTC’s requirements, and Sanofi successfully

completed the $64 billion acquisition

• The FDA approved Lunesta for the treatment of insomnia

Buyer

Received 100% of future

Lunesta Royalty

Provided up to $115 million in

fixed and milestone payments

Up to $115 million Lunesta Royalty

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Conclusions

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Summary

Equity, debt and out-licensing provide access to capital but are

associated with specific risks and lim itations

Alternative financing strategies provide com panies with additional

flexibility to m eet near-term goals while retaining long-term potential for value creation

Revenue interest financing and royalty m onetization:

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Are established, effective financial and asset management strategies

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Offer flexibility with respect to deal structure and terms and can be customized to meet each company’s unique financial needs and timelines

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Can be used to achieve diverse objectives and are applicable to companies at various stages of development

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Are attractive, non-dilutive financing alternative

Strategic use of revenue interest financing and royalty m onetization

can help innovative healthcare com panies m eet their near-term financial needs while m aintaining and enhancing their long-term potential

Growing num ber of revenue interest and royalty m onetization

transactions validates their utility as strategic alternatives

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Questions?