SWK Holdings. May 2012

Transcription

1 SWK Holdings May 2012

2 Forward-looking and Cautionary Statements Statements in this presentation that are not strictly historical, and any statements regarding events or developments that we believe or anticipate will or may occur in the future are "forward-looking" statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our 2011 Annual Report on Form 10-K. The Company does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise. The specialty finance and asset management businesses will be conducted through separate subsidiaries and the Company will conduct its operations in a manner that will cause it to be excluded from the definition of an investment company and exempt from registration and regulation under the Investment Company Act of 1940.

3 Pharmaceutical Market Trends Worldwide Prescription Drug Market Worldwide Biotechnology Market Source: IMS Health, MIDAS, MAT Mar 2009 Source: IMS Health, MIDAS, MAT DEC 2007, E&Y Pharmaceutical drug sales growth driven by biotechnology Biologic drugs typically more insulated from generic competition, with many drug developers emphasizing biologics in their pipelines By 2014, biotech drugs are predicted to make up 50% of the leading 100 drugs, compared with 28% in 2008 and 11% in 2000 (1) Low correlation to the broader equity and credit markets IMS forecasts global pharmaceutical market growth of 4-6% in 2010, 4-7% expansion through 2013 R 2 of vs. GDP and R 2 of vs. S&P 500 from 1Q07 to 1Q10 Demand driven by demographic trends and technological innovation (1) EvaluatePharma. Biotech set to dominate drug industry growth, 17 June Available at: =188700&sectionID=&isEPVantage=ye 3

4 Royalty Market Overview Worldwide royalty market estimated at $7-10 billion, with a 25%+ CAGR over the last decade (1) Research institution monetizations alone grew from $260 million in 2004 to $1.9 billion in 2007 (1) Product licensing market is estimated to be $37 billion in 2009 (2) Current market conditions set the stage for increasing royalty monetizations Equity and credit markets remain challenging for small biotech companies, stressing need of alternate financing Growing attractiveness of royalty financing as source of capital for royalty holders Supply/demand imbalance makes for a favorable licensing environment for innovators (2), leading to a larger royalty securitization market opportunity Big Pharma patent cliff of +$60 billion from (5) ; M&A cost savings are not enough to save P&Ls Product development increasingly being outsourced particularly as unproductive R&D is a central focus of cost savings, and newer, specialized technologies must be in licensed to create differentiated products Biotech has over 600 compounds in development; over 25 are awaiting FDA approval (3) Currently there are limited number of participants in the market, most with AUM >$1 billion Not attractive hedge fund assets due to royalty duration and liquidity profile, resulting in less competition on transactions, particularly in the sub-$50 million market Fewer market participants preserves attractive returns and permits select opportunities for securing additional collateral and increased upside Very few companies understand how to underwrite these transactions; similarly few understand buying tail or orphaned pharmaceutical products despite steady cash flow characteristics (1) IP finance, October/November 2005 and The Deal, September 5, 2008 (2) US Biotech Industry Fundraising, Burrill & Company, April 9, (3) BioMed Tracker database, July (4) RW Baird & Co. (5) IMS Health September 30,

5 Illustration: Royalty Stream Creation Small Biotech enters into marketing collaboration with Big Pharma. Customers (Patients) 2 $ Drugs Marke-ng Rights 1 Big Pharma Small Biotech Upfront Payment + Royalty Stream (10%) 1. Small Biotech licenses marketing rights of Drug A to Big Pharma in exchange for upfront payment and a 10% royalty stream. Agreement may require Big Pharma to make minimum royalty payments. 2. Big Pharma markets the drug and begins to pay a 10% royalty stream on the sales of Drug A to Small Biotech. Big Pharma retains the remaining 90% of the sales. 5

6 Why Pharmaceutical Finance Achieve high current yield Royalties provide strong underlying existing cash flow profile without material exposure to marketing, litigation or development costs Utilize debt structures to protect principal through superior transaction structuring Selectively pursue outright royalty or product ownership Mitigate FDA risk and Company-specific risk Commercial-stage products with IP protection and/or regulatory moat Drug licensors remitting the royalty payments are typically well-capitalized issuers Create a diversified asset base along multiple criteria Therapeutic category, product life cycle and marketer profile Access to capital remains scarce for small/medium sized pharmaceutical (and medical device) companies Traditional alternatives of primary equity and convertible debt typically very expensive Financings deals below $25 million often considered too small for market participants Revenues are predictable Drug launch curves are relatively stable with much supporting data from comparables New competition is identifiable up to a decade in advance; long approval lag times Structured debt transactions provide reasonably priced capital to smaller companies that they then can deploy into higher return projects 6

7 Management Brett Pope CFA, Principal Co-founded PBS Capital Management, a firm focused on originating and investing in structured, asset-based debt transactions in the pharmaceutical and medical device space Mr. Pope spent seven years at Highland Capital Management, resigning in May 2008 as Partner and Co-Head of Private Equity. Mr. Pope moved from Portfolio Analyst to Partner in less than four years. Prior to moving to Private Equity, Mr. Pope managed a $8 billion portfolio ($4 billion in healthcare), which consisted of leveraged loans, high-yield bonds, distressed debt, public and private equity, and pharmaceutical royalties. Prior to joining Highland Capital Management, Mr. Pope served as an equities analyst with Streetadvisor.com, Southwest Securities, and Hodges Capital Management. He also spent two years as a financial analyst at Associates First Capital. Mr. Pope graduated magna cum laude with a BBA in finance from the University of Texas at Austin and has earned the right to use the CFA designation. Winston Black, Principal Co-founded PBS Capital Management, a firm focused on originating and investing in structured, asset-based debt transactions in the pharmaceutical and medical device space Mr. Black was a Senior Portfolio Analyst at Highland Capital Management where he managed a $2.3 billion portfolio of healthcare leveraged loans, high-yield bonds, distressed debt, public and private equity, and pharmaceutical royalties. Prior to Highland Capital, Mr. Black was COO/Analyst and Chief Compliance Officer at Mallette Capital Management, Inc., a $200 million biotech focused hedge fund where he was responsible for idea generation and oversight of back office operations. Prior to Mallette Capital, Mr. Black was Vice President, Corporate Development for ATX Communications, Inc. where he focused on M&A, corporate finance, and restructuring. He began his career as an Analyst in the Healthcare and Telecommunications investment banking groups at Salomon Smith Barney. Mr. Black received MBAs with distinction from both Columbia Business School and London Business School, and he received a BA in Economics from Duke University, where he graduated cum laude. 7