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New Patent Issue: BioPharma Royalty Trust

New Patent Issue: BioPharma Royalty Trust. by Eugene Li Summary of pages 485-495 From Ideas to Assets - Part 22. First time pharmaceutical patent royalties turned into a marketable security occurred in August 2000 BioPharma Royalty Trust totaled $115 million

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New Patent Issue: BioPharma Royalty Trust

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  1. New Patent Issue: BioPharma Royalty Trust by Eugene Li Summary of pages 485-495 From Ideas to Assets - Part 22

  2. First time pharmaceutical patent royalties turned into a marketable security occurred in August 2000 • BioPharma Royalty Trust totaled $115 million • S&P rated the senior debt single A • Royalties as an asset class have shown significant growth over the last decade Background

  3. Rating on BioPharma Royalty Trust’s (BRT) $57.15m senior notes is based on: • Strong legal structure that segregates revenue stream supporting the notes • Credit support provided by subordinate debt and equity investors • Strength of historical and projected performance of Zerit patent royalty revenues • AAA credit rating of Bristol-Myers Squibb Co. (BMS) • First pharmaceutical patent royalty securitization rated by S&P Rationale

  4. A major research-based academic institution rated AAA by S&P owns 100% of patent and licensing agreement • Royalty divided among several parties: • 30% to two inventors • 70% to institution • Licensing agreement includes US patents 911,200 (9/24/86) and 942,686 (12/17/86) Transaction Overview

  5. Transaction structure highlighted by academic institution’s irrevocable assignment of rights • BRT pledged quarterly cash flows to collateral trustee, Bankers Trust Co. • 100% of license receivables are paid by BMS directly to collateral trustee • Bankers Trust Co distributes 30% of deposited monies to academic institution and 70% to distribution account for various parties Structure – Role of Collateral Trustee

  6. S&P analyzed product sales, marketing, market share, patent royalties, modeled projected patent royalty revenues • Modeling included product’s worldwide market and position • Zerit and Videx are BMS’s two HIV/AIDS medicines • Zerit is the most commonly prescribed medicine for HIV therapy in USA • Zerit and Videx received regulatory approval in 1999 Asset Analysis – HIV/AIDS Medicines

  7. Represents first pharmaceutical patent royalty rated by S&P • Business strategy • Target academic/research institutions, biotech and pharma companies • Acquire products approved by FDA • Finance commercial launch or late-stage clinical development of products • Acquire companies rich in IP Key Transaction Details and Features

  8. Yale University – AAA (August 2000) • Owns 100% of patent • Royalty divided among several parties. 30% to two inventors, 70% to university • Bristol-Myers Squibb Co – AAA (August 2000) • One of world’s largest pharmaceutical firms • Zerit and Videx are BMS’s two HIV/AIDS medicines • Average annual growth rate of 26% in revenues Key Transaction Details and Features

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