Drug Royalty II $701,420,000. Presentation to: San Diego County Employees Retirement Association

Transcription

1 Drug Royalty II $701,420,000 Presentation to: San Diego County Employees Retirement Association November 2010

2 Profile Business Model Team Investment Criteria To acquire Royalty Streams on established commercialized pharmaceutical products (FDA or EMEA approved) Investing together since 2002 FDA/EMEA approved products Intellectual Property and/or regulatory protection Medically necessary drugs Bias towards biologics Differentiated Deal Identification Model Limited Competition Global network of research institutions, hospitals, universities, pharmaceutical companies, and inventors Proprietary database tracking over 1,000 of the world s top selling pharmaceuticals Only three active purchasers of royalties DRI Capital is focused purely on acquiring traditional Royalty Streams on established and approved assets; Significant barriers to entry (intellectual property, economies of scale, regulatory requirements) Market Opportunity $837B worldwide prescription drug sales in 2009; growing 12% annually over the past 15 years $40B royalty market growing at over 16% CAGR Rapidly increasing deal flow Current market conditions enhancing deal flow pipeline 2

3 Business Model Sources of Drug Royalties Inventors Academic Institution Drug Development Company Pharmaceutical Company Licensing Agreement Royalty Payment Potential Royalty Stream to DRI Royalty interests are an attractive way for vendors to monetize their assets Frees up capital for re-deployment into core areas of competency and new projects Non-dilutive means of financing Opportunity to diversify 3

4 DRI Investment Criteria Highly predictable cash flows Current cash pay component to the returns; minimization of the J-curve effect Strong visibility into each drug s revenue stream; no drug development risk; not dependent on profitability Well diversified by geography, indication, demographics and marketer Focused on acute care/chronic care/biologics Significant barriers to entry more difficult to substitute or genericize Best in class products Long term capital protection Long patent life FDA/EMEA approved Marketed by global, leading biotechnology and pharmaceuticals companies 4

5 Deal Identification IDENTIFY: IP DRIVEN Proprietary database with royalties on > 1000 products (built over the past five years) US PTO searches SEC filings Third-party licensing Industry Expertise ONGOING APPROACH QUALIFY: RESEARCH DRIVEN Most attractive assets identified through research insights High growth disease categories Strict adherence to investment criteria Leverage in-depth due diligence on other opportunities ORIGINATE: RELATIONSHIP DRIVEN Direct dialogue with vendors to determine needs Systematic coverage model contacts at the CEO, CFO and BOD level Key channels include investment banking and networking conferences (AUTM, ALLICENSE & others) Wide network of advisors, senior executives and technology transfer offices T R E N D S Pharmaceutical companies are increasingly in-licensing products to fill their pipeline resulting in a growing number of potential royalty streams Public university budgets have been cut significantly, creating a need to raise capital for operations or capital projects by monetizing royalty streams The equity and credit markets are challenging for many biotech companies, making royalty monetization an attractive option for raising capital Industry M&A activity remains high and royalty monetization is a way to finance an acquisition DEAL FLOW Proprietary High Quality High Volume Capitalizing on Inefficient Information 5

6 Drug Royalty II Pipeline Near Term Thesis Biologic Marketer Credit Rating Gold Standard of therapy Aa1 / AA Best in class efficacy among competitors Baa3 / BBB+ Leading product for the treatment of this indication Aa3 / AA- Only product available to treat indication Baa2 / A- Only product available to treat indication Baa2 / A- Unique product with no direct competition A1 / AA Only product availabe to treat indication A1 / AA- Best in class efficacy among competitors No Aaa / AAA Best in class efficacy among competitors No Aaa / AAA Gold Standard of therapy No A1 / AA Unique product with limited competition Aa3 / AA- A1 / A+ Leading product for the treatment of this indication Aa3 / AA- Leading products for the treatment of this indication Aa3 / AA- A1 / A+ 6

7 Drug Royalty II Pipeline Long Term Thesis Biologic Marketer Credit Rating Unique product with limited competition Unique product with limited competition Aa3 / AA- A1 / A+ Aa3 / AA- A1 / A+ Novel agent for patients who do not respond to current therapy No Not Rated Leading product for the treatment of this indication Aaa / AAA Portfolio of products which are Gold Standards of therapy or leading product for indication Portfolio of products which are Gold Standards of therapy or leading product for indication n/a n/a 7

8 DRI s Due Diligence Process Preliminary Sign Comprehensive Due Diligence Review & LOI LOI 2 Weeks 1 Week 6 10 Weeks Preliminary Due Diligence Financial Review Scientific/IP/Regulatory Review Legal Review Review scientific validity of the asset Review all analyst forecasts Prepare a preliminary discounted cash flow analysis Develop a patient based forecast Review all historical and forecast data on the drug Engage consultants to provide relevant technology/market expertise to inform financial forecasts Survey the competitive environment of existing and new drugs Survey practicing and research physicians, thought leaders and clinicians Scientific: Determine the medical efficacy of the drug Review competing drugs IP: Obtain a full patent opinion Review the details of the operative patents with scientists and other industry experts Regulatory: Extensive consultation with regulatory lawyers and consultants regarding any FDA or EMEA related issues Comprehensive reviews of all major agreements Detailed review of true sale and bankruptcy related issues Drafting appropriate purchase and security agreements Verification that no outstanding litigation exists Negotiation of the deal documents Investment Approval Process Formal Decision Making Process Deal Review Meeting Deal Approved Investment Package Prepared Formal Status Meetings Closing Deal Approved Board Meeting Deal Approved IC Meeting 8

9 Drug Royalty II Portfolio Drug Royalty II has acquired eight royalty streams for a total purchase price of $104M These assets are expected to generate unlevered returns inthe high teens 2010 fund revenues are expected to be $11.7M All of these assets meet or exceed our strict investment criteria The assets in the portfolio are well diversified by geography, indication, demographics and marketer 9

10 Competitive Advantages Experienced and Tenured Team Over 100 years of combined healthcare industry experience including identification and assessment of assets Differentiated Asset Identification Model Sourcing model is unique and research intensive Systematic and repeatable Focus on proprietary deal flow and not sell side auctions Proven Due Diligence Model Focus on primary research Physician and Key Opinion Leader interviews Bottom-up forecasts High barriers to entry Demonstrated and Successful Investment Strategy Refined over 8 years Focused investment criteria Disciplined portfolio construction strategy Minimization of j-curve effect Uncorrelated returns 10