And I'm delighted to be here with you today to talk about royalty monetization.

When a university earns royalties, it means there is a product addressing an unmet need.

And that product is based on the inventive work of scientists and others at the university.

This doesn't happen overnight. It is years from the time an invention is made to when a product reaches the public.

A lot has to go to plan when this happens, and when it does, there's an opportunity to consider how best to have a meaningful impact with those earned royalties.

So I'm delighted to be here with you today with.

Todd and Irene and Andrew. I'm going to ask them each.

to introduce themselves and explain to you why they think this is a meaningful topic for you as a leader.

in university tech transfer. So, Todd?

Yeah, thanks, Terry. Um, hello everybody. Uh, Todd Shearer. Um, I have been an audit member and in the tech journal field for the last 35 years, but.

spent 23 of those now at Emory University. And, uh, where I oversee the tech transfer office, and we… Uh, well, I'll just say that I think royalty monetization has always been a tool in the toolbox that, um.

As informed tech transfer people, we need to be aware of.

I think creative ways of funding and finding funds.

Um, is even more important in today's environment because of so much uncertainty around federal funding and the Academy and maybe even the world in general.

Uh, but it's… it's even more important that we be aware of all the options that we have available to us to help provide funding.

Thanks, Todd and Irene?

Hi, um, thanks, Terry. Hi, uh, good afternoon, everyone. Um, Irene Abrams. I'm the Senior Vice President for Research Innovation at Boston Children's Hospital.

And I'm also the incoming chair of Autumn. Uh, really happy to be here to talk about royalty monetization.

I've had a couple of experiences with royalty monetization over the course of my time, particularly here at Boston Children's over the last 11 years.

Um, and I think it's a really. Um, an important topic to think about, um, uh, because in line with what Terry said, when, when we have those rare occasions where some of our technologies really do make it to the market.

Um, and we are receiving royalties, and they're really fulfilling a need in the market. It's an opportunity as an academic institution to think about how we want to deal with both the risk and the opportunity.

in collecting royalty revenue, um, and thinking about how to best serve the institution. Um, and there are a lot of decisions to make, and a lot of, um, different, um.

priorities to balance as you think about whether this makes sense for you and your team, but I think it's great that people are here to learn about it.

Um, and to figure out whether it makes sense for you in your particular situation.

That's great, thank you. And Andrew?

Good afternoon, everyone. Thank you, Terry. My name is Andrew Feinberg. I'm a Managing Director at Armentum Partners, which is an advisory firm, an investment bank.

I'm a royalty monetization advisor, and I am based in New York City, and I've been advising academic.

institutions and medical foundations around the world on royalty monetization for the last 15 years.

And throughout time, I've seen various clients with different reasons for monetizing, and the reason to monetize is very institutionally specific.

risk mitigation or specific use of proceeds seem to be the largest reason, or the most prolific reason for monetizing.

And given the reduction of federal academic funding, there are plenty of uses for funds.

Including putting those dollars back into discovery, and it's a… For me, it's a, uh, it's a great place to advise really important work being done.

Um, for very important institutions.

Well, thank you. Um… My experience with royalty monetization has been one that was very positive, and it was one of the most interesting transactions.

that I've ever been involved in as a professional in tech transfer.

And the process and the nuts and bolts are really interesting, really compelling.

And the stakeholders that are included in the decisions and the process are all the people we work with and think about every day.

But let's start with why. Why should a university consider monetizing a royalty stream? That is, you're getting a steady stream of royalties.

from one of your inventions, reaching the public through commercial channels.

Where you have the patents that are important to that product, critical to that product.

Why should you consider a monetization? And Irene, will you start with that?

Sure, I'm happy to. So, um, I think there are, um.

a number of reasons to think about why you might want to do a monetization, and I think, you know, Andrew touched on them briefly, I'll talk about them in a little more detail.

Um, the first one is, it gives you the ability to pull the royalties forward. So, essentially, you can find a buyer who will pay you up front.

Um, the adjusted equivalent of what you would receive over time. And what that means is that your institution has the ability to access the funds.

now, rather than waiting over a period of 5, 10, 20 years to access the funds.

Um, and so the real reason to do it is to, um, bring those funds, if the institution wants to pull those funds forward because they want to put them to use now, rather than waiting.

Um, and that can be incredibly valuable for an institution, um, and give your research leadership a lot of.

Um, opportunities they might not have if the money comes in slowly over time. And so, really, the number one reason is if you need… if your institution wants to get access to the.

funds that you'll receive over time and pull those forward. So the first is really the ability to put that capital to work.

to support the research endeavor. Um, there's also a, um, uh, ability to reduce risk, particularly if you're in the pharma space and you have a drug royalty.

you know, there's a lot of, um, downward pressure on drug pricing in the market, and there's always the uncertainty.

Um, with a pharmaceutical about whether there might be some adverse events, something might happen that would cause the drug to fall off the market. There's also the typical competition over time. And so.

Um, while you're receiving a nice steady royalty, maybe, maybe you're receiving a growing royalty, there's always risk that the royalty stream may be interrupted. And so by pulling the funds forward.

discount. Um, you take that risk out of the… out of the equation. Um, and that can be important for the institution. It's also often very important for your inventor. Um, if you think about the inventor's perspective, um, as an academic institution, you may have many different opportunities to collect royalties and many different revenue streams.

Most of the time for our inventors. this is… this is their one big chance, right? And so for them, sometimes that risk that something might happen to the royalty stream is enough to motivate them.

Um, Terry mentioned that it can be fun. It is a really fun and interesting transaction.

And you work with, um, your institution in a different way. So, for example, when we did the monetization at Children's.

you know, we had our general counsel involved, our chief investment officer, our chief financial officer.

Um, and we spent a lot of time talking about issues that are important for the research effort and the finances of the organization.

Um, and… when you, um, you know, when you participate at that level in your organization, it raises the profile of the office.

Um, and raises the profile of the work that we do, and sort of brings it to the attention of the institutional leadership in a different way.

Um, and if you are successful and you do have a positive monetization, um, I would say the leadership really appreciates it. Now, I know there are issues everybody has to think about with cash flow in their own office, day-to-day.

But when you have the ability to really impact.

the research mission in a critical way, there's usually, you know, a lot of appreciation for the value of the work we do. That, um, that doesn't always come across on the day-to-day basis. So those are sort of.

the reasons, I think it's worth considering whether a monetization makes sense for your institution.

Oh, and the last thing I'd say, I'm sorry, Terry, is that if you… if you as a tech transfer office.

That's great, Elvis.

don't participate. There's always the risk the institution will do it anyway, so you probably want to be at the table leading the process, so that's my last point.

Wow, that's an excellent point, and thank you very much.

And I think one of the important things, too, is those… is how those proceeds are used, and how they can be put to work in ways that are.

important. I know for the institution where. I participated in a monetization. We were able to bring a critical neuroscience program forward by 5 years.

So we could start that research sooner. And that was… that made all the difference, um, to that organization. But Todd, tell us a little bit about some of the way proceeds have been used at Emory to make a difference.

Yeah, I'll just add that I've been through, um, one formal structured monetization at Emory. We've done two.

monetizations directly with the company that were, you know, around a million dollars, plus or minus.

And then we have a current asset, which we chose not to monetize.

But, uh, the… the interesting thing about the monetization we did in 2005, which was a $520 million monetization, which was the largest at that time.

Um, was that it funded a number of strategic initiatives across campus, and administrations.

want to make things happen now. Uh, and so it provided valuable funds to do that, but what I don't think any of us would have anticipated is that a portion of that revenue that went to the inventor's lab.

was used to, um… seed the next effort, which was to create our own biotech-like company that.

took a new COVID drug all the way to an IND.

Uh, that drug is now on the market, so… The… because of the HIV drug monetization, there were funds available to fund this next program, which created and discovered the next drug.

And now that drug has actually led to the creation of two new venture-like funds, one in the medical device space and one in the therapeutic space, so… We'll see if those opportunities now have, um, and now pay it forward as well.

It's great. Well, thank you, and Irene, you have a… you have some interesting examples, too, and how poor seeds have been used that are.

They're really inspiring.

Yeah, yeah, happy to talk about that. So, um, at Boston Children's, we monetized a royalty, um, a couple of years ago, um, and the hospital took the funds to fund a really important, um.

initiative at the hospital. So, uh, we're a pediatric hospital. We have lots of patients who come to us who have rare disease, who have undiagnosed.

genetic diseases. And one of the challenges the hospital had is that we couldn't.

Um, we wanted to, but didn't have an easy way to sequence the patients, or in the case of peds, you want to do the patient and the parents do the trio. Um, the issue is without a.

Um, therapeutic intervention, insurance doesn't want to cover the cost of sequencing. They don't want to do it for research purposes and educational purposes.

Um, and sometimes our faculty be very dedicated and get insurance companies to agree to pay, and then after the fact, they would, uh, they would revoke that approval, and we would have a patient family on the hook for a $3,000, $5,000, $10,000, um, uh, genetic sequencing. So our… so our docs stopped encouraging people to get their.

Um, to get their genome sequenced, because it was a risk for the family. And so they… the hospital took the proceeds, some of the proceeds from monetization that we did.

and put it toward sequencing patients and the parents and doing the trios.

Um, and we did it on sort of a cohort-by-cohort basis with different sorts of, um, rare and early onset diseases, and now we have a huge database.

of information about our patients and about their families, and because the funding.

came from the hospital because we gave them these royalty, uh, revenue to, uh, that was used to fund this project.

they were able to put some requirements on the faculty, like, they would have to put their data in a common database, in a common format, and agree to a certain amount of sharing, so that now, rather than just having, you know, um, and those of you who work in hospitals will be familiar with this, like, you know, atomized data in different people's labs and different people's computers, we have a data set that's central for children's and has really changed the treatment of our patients and has enabled us to do.

new and exploratory treatments for these rare genetic diseases, because now we have the information and the data, and that wouldn't have been possible without having pulled those royalty payments forward.

It's a great example. Andrew, you work… you have supported several different universities.

in royalty monetizations. Is there a particular example that's memorable to you of how the proceeds were used?

And then, um, would you could continue to describe in your.

your experience, how do you make the decision whether to monetize or not?

Sure, Terry. Uh, I have… Uh, I have worked for various institutions around the world that did have different uses of proceeds.

was based in the, uh, United Kingdom. And they were looking to establish a program to fund.

to further fund, uh, research. in the United Kingdom.

around the entire organization, rather, the entire, um. jurisdiction. And they use the proceeds, we raise them, um, more than a billion pounds to do this.

And in doing so, they were able to deploy that capital and continue to deploy that capital.

for further invention. I have also worked for institutions that have used the proceeds to fit out labs.

And to drive further innovation around various, various campuses. And it has always.

ended up, um, where the client that I was working for was able to deploy that capital strategically.

In terms of how one decides to monetize, um.

the first thing you will want to do is to.

identify if you have a viable royalty asset to sell. There are specific characteristics that investors are looking for.

Typically, drug approval is a big one, but royalties have been sold ahead of approval.

recently, but this is very selective, um, only certain types of, uh, pre-approved, uh.

royalties, that is royalties on pre-approved products. 10 gets old, but it absolutely can happen.

But generally, a royalty on an approved drug will have a much higher value than a pre-approved royalty entitlement.

A royalty should also have 6-plus years of remaining royalty payment life.

anything less than that may be difficult to sell, and that is related to the way investors actually look at their investment and.

How long it will take for them to recoup their, um, their, their principal.

And because a therapeutic is from an academic institution is typically comprised.

of high science, um, and is usually satisfying an unmet need.

Those are very attractive elements that go into what an investor.

looks for. So, once you have identified. the type of product you have, you'll want to commission a commercial forecast.

for the underlying drug royalty, um. the royalty-bearing drug, uh… You'll apply your royalty rates and duration to that forecast to come up with a valuation.

And you'll then know what type of asset you have. And once you do this, you'll be ready to explore monetization more seriously.

And I should add that starting a process to explore monetization does not lock your organization into actually.

transacting, exploring a monetization includes bringing the asset to market through a competitive auction process.

seeing what the market is willing to pay for it, and the commercial forecast will give you a good sense of value before you do this.

So you'll know if the market is actually giving you the best value for your asset.

But to be clear, you're not committing. to a transaction, um, or to actually selling the.

selling the asset, even after bringing the asset to market. You can stop the process at any time if you don't like the value that the market is offering.

throughout this process, um, there are 3 stages that we… Think about when we monetize assets for clients.

The first is preparation, and there's a lot that goes into that. Um, and throughout the second being the auction process itself, the final being closing and negotiation of final contracts and agreements.

But throughout the process, it's going to be very important.

to consider those that have a stake in the royalty that you're selling.

your internal stakeholders will include institutional leadership. your board inventors of the technology that gave rise to the royalties, deans and often medical school leadership as well.

And there are also external stakeholders that you need to consider. If the inventor of your technology underlying the royalty has left your institution, you'll still have to consider their portion under your IP policy.

And IP may be jointly owned. by other institutions. You'll have to coordinate with them, and there is often a controlling party over that royalty, but some parties may still not want to sell.

their portion, so you'll need to carve them out.

And when you do carve them out in the future, you'll continue to pay those royalties on an ongoing basis, even though you've sold your portion.

But your list of stakeholders will be specific to your organization and the asset itself.

But all of those elements go into. the decision-making of whether or not to monetize and to stress again, running a full process.

does not, um… does not force you to sell that asset at any time.

Terry, I can't help but notice that none of us said that there was, say, creative use of the funds to endow.

the tech transfer office in some sort of way.

Yeah, I think that's an important point, and one of the things we want to talk about is.

Um, what are some of the things that the tech transfer office should think about?

When… when considering a monetization as far as how those funds might be used.

to support additional tech transfer. When… when talking to leaders in tech transfer about how they feel about royalty monetization.

What would be compelling to them? What are the barriers?

One of the biggest concerns is that. There'll be an opportunity, perhaps, to support further tech transfer, but often that's not included in the distribution after a monetization.

So, any advice on that, Todd?

Yeah, you know, it was the reason I answered the question the way I did with regards to.

how the funds were spent. The real answer is, I don't know how Emery spent most of the funds. They went for strategic initiatives that are way above my pay grade.

But the creating… if it wasn't going to be invested in the tech transfer office.

creating a new biotech company, our own wholly owned biotech company, that was focused on taking a license from my office.

and moving technology closer to the marketplace. or creating two venture-like funds.

that are going to fund the types of technologies that my office is working on.

And allow us to de-risk those and move them further along. And by the way, in both of those situations, the value.

accrues to the institution because the funding is occurring from the university are very, very beneficial for the tech transfer office.

But, um, ironically, I sit here today struggling with an inadequate patent budget, um, in light of.

in light of the success we've had.

I think those are really important, um, important ideas, and.

Some of the other brainstorming we've done has included.

setting up proof-of-principal funds. funds for supporting inventions to get to that next stage so they're licensable.

Uh, endowing a position within the tech. transfer office, so that there's a source of funding for staffing. So these are all great ideas, but they're all particular to your institution, and the decision paths within your institution.

So if you do decide that your. wanting to proceed with the monetization. Irene, who does the work? So let's say that you've decided, yes, we're going to try and monetize this, and.

coordinates stakeholders. And either do it ourselves or engage in advisor.

But who actually does work?

So the tech transfer team actually does a lot of the work. Um, so the way we structured it when we did it at Children's, um, and we did, uh, hire an advisor, we hired Andrew, who was, who was usually helpful.

Um, is that we had a working team within my office. So we had a sort of… a regular working team. We… we had weekly meetings with Andrew and his team, and we would do all of.

the background work to get ready for the monetization. So, sort of the heavy lifting within the institution was done by my team.

Um, there was a lot of… everybody's mentioned stakeholder management, there was a lot of stakeholder management.

Um, which was something that I took on, um, uh, and that Andrew helped with, and we had monthly meetings, I think they were monthly.

With what we thought of as the decision-making team, so that was the general counsel, chief investment officer, chief financial officer.

Can't remember who else was actually on that team, Chief of Medicine, and we would meet monthly and go through any decisions that had to be made. We also had a team that met.

monthly that included the inventor, and that was an information sharing, because the inventory wasn't actually making the decisions for the institution.

And so, it was a lot of work, um, and there definitely, it was a, it was a certain amount of distraction for the team. It's a big project.

Um, but it was an exciting project, and a lot of people wanted to participate in it, so I think it was a lot of fun for people, too.

And it gave them sort of something new. different and interesting to work on.

Um, and so, it was… it was not, um, a negative that it took, it took, um, a lot of time. I think it was a really interesting project for people.

Um, but that was how we structured it, and I think.

Um, Andrew mentioned the pre-work. There is a lot of pre-work, so you do need to make sure.

Uh, you've got your… all of your ducks in a row before you go out to the market, and so that means making sure.

Um, you know, that all of your agreements are up-to-date, and you have copies of everything, um, you'd think you would, but maybe you don't. Your royalty reports, I think we're going to talk about that a little bit later, but there's a lot of.

a lot of things you need to do to make sure your asset.

is in, um, really, uh, clean shape before you go out to the market, because you don't want to go out to the market and then find out when other people do their diligence that there are issues.

So it's, uh, it's really the… it's really a big project for the licensing team.

At the end of the day.

So, thank you, and you mentioned agreements, and because this is a transaction.

involving intellectual property and licenses, and… and… so forth. Um, there are a lot of different agreements that need to be put in place.

or reviewed, or amended, and Todd, would you talk a little bit about that? What are the relevant agreements that have to be.

considered if you're going to proceed with one of these transactions. Many of them are ones that have to be in place and in good.

standing anyway, but what are they?

Well, I will… I wish that I had brought my visual, and I could show you the binder.

of the binded documents that were relevant to our monetization, I shared.

them with the panel when we were prepping, but it's 6 to 8 inches thick.

Um, and it, uh, it contains, uh, it contains all of the documents.

There are, uh… and I think the real answer is it kind of gets into the facts that are specific to your particular asset.

How many parties are involved, to Andrew's point, do you have joint owners?

In our case, we weren't assigning the patents over, because the patent, it was a molecule-only base license.

So, we had other drugs that were licensed. under those patent rights, and so we had to have a complicated.

structure, arrangement for being able to manage the ongoing obligations associated with that.

Um, and what was I gonna say? Oh, and so the… a very senior person in my office, um, to… to sort of… this all culminated after all the decisions had been made, and this had gone to the board of directors.

And the inventors were on board, then they were off board, then they were on board, then they were off board, then they were on board again, and so it was go time.

There were a group of about 20 attorneys, including one of my staff members and somebody from our general counsel's office that were locked up in a room for two weeks.

concluding all of the documents. that went into finalizing this. I'm going to stop with that, because I think Andrew can actually do a much better job of listing off.

the exact names of the documents that you'll need to consider.

Yeah, Todd, I actually think you did a great job, uh, with that. Um, so the list that I think I would.

I would add to, um… to Todd's description, and I think that Terry had mentioned it as well, the license agreement, or the collaboration agreement, or whichever agreement.

gives rise to the royalties. They had been developed many years ago, you know, much.

Uh, much earlier than when you're actually looking to monetize. And very often, those that have, or that had written.

or participated in the creation of that agreement are no longer with the institution.

And very often. certain things in those license agreements need to be shored up, and so you're going to want to go in and work with transactional counsel.

to determine exactly. what, uh… what is needed to shore up, to affect a monetization. So, a license agreement, for sure, is something that you're going to want to look at.

And within that license agreement. There will be a confidentiality clause that will often prevent certain information from being shared without consent or waiver by the licensee.

You'll need to go back to your licensee if that.

confidentiality clause does not allow for you to share.

That type of information. Uh, with financial parties, you'll need to go back and get that waiver from the.

from the licensee itself. And this is… Not controversial, but sometimes it takes a while to do, and so if you have timing constraints, you're going to need to think about that relatively soon.

Uh, to get that waiver completed. Additionally, there are sometimes anti… Um, anti-assignment provisions that you might need to shore up, although there are ways to work around that.

Although it's not an agreement, per se, but a report that is.

provided with… within the framework and terms of a license agreement, you're going to get what's called a royalty report.

And a royalty report. lays out exactly what the prior quarter sales were, or the sales.

That were just… that were just reported, and what the royalties are that you will be, um, receiving.

for that… for that period. And investors want to see them.

Historically, so you'll want to have all of them ready to go, and on an ongoing basis, the buyer of the asset will want those royalties.

those royalty reports delivered on a regular basis, so as soon as they arrive.

you ship them off to the buyer so that they can keep track of the royalties that they acquired.

If you jointly own the IP with another institution, there'll be an.

inter-institutional agreement, an IIA. And, um, should you… Both… both you and your joint owner both decide to explore a sale, you'll put.

into place something called a monetization letter agreement, and that will set the ground rules for how you will work together on the monetization.

And a similar type of agreement is the inventor participation agreement.

Which will, very similarly to a monetization letter agreement, will set the ground rules for how you.

use the inventor share, and inventors have the opportunity.

to participate or not participate in a monetization, but very often they come along for obvious reasons.

And of course, you'll want to consult your IP policy.

Um, for how the proceeds get allocated and distributed.

And finally, you have the royalty purchase and sale agreement, which is put into place at the end of the process.

And this is probably what Todd was referring to in terms of.

the lawyer work being done at the end. that will be the agreement, the contract, by which you.

transfer rights to those royalties. to a… to a buyer. But to be clear, when you are transferring the rights to the.

cash flows, you are not. selling or assigning the IP. The IP stays with the institution.

And so, just to make it very clear, that IP remains intact.

It is… it remains the ownership of the selling entity.

In certain situations, you could be selling the IP, but more often than not, you're just selling the cash flows.

Uh, that were given rise by that IP.

Thank you. And… And, um, one of the things.

That needs to be considered, and it's something that you would consider with any asset in your portfolio, any intellectual property and licensing asset in your portfolio.

as a product gets close to market. Do you do this when the invention's disclosed, and you're filing patent applications, and then as the asset matures, and especially when it's.

getting close to reaching the market. You want to make sure that you, again, understand that.

Um, your government reporting. is up to date, that… Any third-party funding agreements?

That is a disease-specific foundation has funded research leading to this, and maybe they have.

Uh, maybe they're entitled to a share of the proceeds.

But it's a time to revisit all that, and do your forensic accounting to look at what research contributed to the science.

that resulted in the data and information that's used to support the claims in that patent that's licensed, it'll be the subject of the royalty.

purchase agreement, so it's a good time to go through all of that, make sure you understand.

All of that that's going on. Um, and there may be other agreements to take into consideration as well, like material transfer agreements.

It's just a good time to really, you know, look at that asset and make sure everything's.

up-to-date. So, a lot of this is what you do.

in the practice of managing a portfolio of assets, but it's a time to really zero in on it when it looks like something is getting close to market.

Whether you're going to do a monetization or not.

But for sure, if you're doing a monetization. So there… there's also, um… quite a bit of upfront investment and planning that you have to do.

And Irene, do you want to talk about that too? And then also, are there any other agreements or relationships that we've missed or talked about so far?

Yeah, um… Good question. So, I think there is a lot of upfront work. I'm, you know, I think if I were to think about this as a.

You know, question of, you know. For a particular asset, would we, as an institution, want to monetize it? I think you do have to sort of take the institutional view, and I think most important.

Uh, before you really… even go too far down the road is getting a sense of where the different stakeholders are, and I really mean.

the internal stakeholders, not so much the inventor, because the inventor can join you or not, depending on.

on what happens, but you… you need to be aligned with the leadership of the organization and be working… working, uh, together with them.

you know, so we talked about, um, uh, upfront investment, um.

Uh, one thing that, um, you will want to get, and if you work with an advisor, they can help you, but in any case, you need evaluation for your asset.

And so there are a lot of firms out there that will value the royalty stream, and then will give you different.

estimates of, um, the value today with net present value discounts and all kinds of, um, fun financial, um, tools.

To figure out what you might expect. And some of the firms will do, um… They'll look at the royalty reports, some of them will look at what's, um, what analysts say about the company and the product, if it's a public company and the product's out on the market.

Um, but some firms will actually go and talk to customers, or in the case of a pharmaceutical, we'll go and talk to MDs and figure out if they're likely to prescribe it, how likely would they be to prescribe it. This is especially true with a drug that's new.

when they're trying to estimate. what the launch might be like, so they can figure out what the value is. Um, and so, uh, it's an investment to hire a consulting firm to do this. It's important because it can set the price, or at least the range of the price. Um…

And so that's one thing you have to pay for up front. Um, uh, you may want some legal advice.

Um, up front, Andrew mentioned getting a review of the license agreement, potentially.

Um, there may be other documents you need… you want to get, uh, looked at by somebody to make sure that they will stand up to the scrutiny of a potential buyer.

Um, and then, you know, there may be things you might want to amend if possible. Um, uh, so that can be a smaller upfront.

And then before the monetization is complete, let's say you go through the whole process, and you find a buyer, then you do need to put a royalty monetization agreement in place.

And for that, you would need to hire an attorney. Now, you can reimburse yourself out of the transaction, the revenue from the transaction for that cost.

But, um, you do have to pay that up front, and there's always a risk the transaction won't close. It's kind of like a purchase and sale for a house, but more involved.

Um, and so those are really the costs. So the cost for the consulting, um.

report, maybe some legal advice, and then, um, a lawyer to negotiate the… what's really the purchase and sale agreement, the royalty modernization agreement.

Those are the things you have to take on up front if you're going to do a monetization.

Terry, yeah, I was going to add that, um.

I leave anything?

Add to that?

to Irene's point, um, the stakeholders, figure out who the stakeholders are is… is not easy.

And it takes time, and it's going to depend not only on the asset in question and sort of what area of the institution.

it comes out of, but it's also going to depend on sort of your current leadership. And as leadership turns over, at least at my institution.

the gravity of power for these kinds of things can kind of migrate to sort of different places.

But those are all things we can figure out if we've decided we're going to do it and we're going to move forward. The hardest thing to do.

is to just take a preliminary read, in my opinion, is just to get a preliminary read of whether the institution's interested or not, because you don't know who those stakeholders are.

And if you acknowledge that you're going to do it, you can figure all of that out.

But you haven't acknowledged you're going to do it, you're just trying to gauge whether there's an interest or not. So, how do you collect.

the stakeholders, and be sure that you've got fair and adequate stakeholder representation. If you just want to get people's reaction.

to potential interest in monetization. That's still not an easy thing for us to do.

So, advice? Do you, um, advice for socializing the idea?

I know that when we were doing this at my institution, we would have different monetization groups approach us.

And we would just go ahead and take the meetings.

Yeah.

and pull different people in with them as they were pitching.

why we might want to monetize. But then we started that kind of a year in advance to start.

socializing the idea. Some of the stakeholders stayed the same, some of them changed, but.

As you're considering this, if there are any. methods or actions that you've come up with to help ease it, and there's certainly.

There can be… and one of the main hesitations, and how do you address them?

Yeah, uh, I don't have a real good recipe for that.

you try to go to… you try to go and kick some of the obvious tires.

to kind of get their reaction, um, is, I guess, maybe the approach I thought I just heard you describing, which is kind of the approach I would use here. So what is my faculty inventor say?

What does my boss say? And depending upon who my boss reports to, what does her boss say?

And those are at least kind of the starting points for whether there might be interest, and if there's strong interest, then you could start to expand.

Uh, you can start to expand that group beyond that and start getting the dean's office involved, and.

Yeah, that's… yeah, I know that I went to my boss and said.

and others.

I've always wanted to do a royalty monetization. And I think we have an opportunity to.

That's not a reason to do it. But I think it could be material to our organization, so we should make the decision on purpose.

Let's figure out how to make that decision, and I took advantage of a lot of.

folks calling on us to… to just help socialize the idea.

But it… but there's a lot to take into consideration. There are a lot of different points of view, there are a lot of contractual issues, there's a need for a commitment.

upfront to invest in the process. That's important. Um, this webinar is covering some of the nuts and bolts and the general topic.

If there's enough interest, we'll do another one on different monetization structures and the anatomy of the royalty purchase agreement, which is also a really interesting.

agreement, so, um, all of that's, uh, really important. I know at my institution.

The upfront cost was between $300,000 and $400,000 by the time we did the analysis and.

engaged a different additional council and so forth. We certainly.

made that back in spades, so that was… that was okay.

So… so there, um, another question for the group is, any advice regarding the licensor? Hopefully, you have.

fabulous, positive relationships. I mean, sorry, with the licensee, so… Hopefully you have fabulous relationships with the company that's licensed your intellectual property.

Um, but what if you don't?

Yeah. Terry on. I'll just quickly say, because others may have more to add to this, but in our case, it was the licensee that was one of the purchasers.

Oh.

Um, so Gilead Sciences, in combination with Royalty Pharma, bought our monetization, and they split it 65-35, and we didn't know at first, uh, that, um.

the Gilead was actually in the mix of doing that, and didn't expect that to happen, but one of the challenges for us was.

was finding buyers that actually had sufficient proceeds, um, to be able to make the payment.

So, yeah, uh, our licensee, uh, our licensee was pretty well informed, uh.

The whole process and how it worked, and what we were looking to do.

A unique situation or common? Andrew, is that common?

I'm sorry, Terry, could you please repeat the question?

Yeah, um, Todd was just talking about that his licensee was one of the buyers, or at least.

in partnership with a… with a… purchaser bought the… bought the royalty stream. Is that uncommon?

It is uncommon. I would say that it's the exception.

Um, not the rule, um, more often than not, a licensee.

will struggle to… put a valuation on it as high as a financial buyer will, but it's a great opportunity if a licensee is able to buy the royalty because it is very easy to document.

You just modify the agreement, uh, as opposed to going through a full purchase and sale agreement negotiation, so that absolutely can occur.

I can say that in my own experience. only twice in the… 15 years that I've been doing this has a licensee, effectively won one of my… one of my auctions. Um, but that said.

Maintaining the relationship with the licensee is critical throughout the process.

Not just for the process itself. But also for the future relationship that you'll want to keep with that… with that organization.

And so, word travels fast. If you treat each other well, often that, um… That carries, and others know that that partnership was successful.

That's good. And… Um… Yeah.

So I wanted to make one more commentary, just to… I just wanted to add on to something that Irene had mentioned in terms of the early preparation work that is done.

And she mentioned the upfront commercial forecast, which is critical to any monetization for sure. We quoted these numbers of being in the several hundreds of thousands of dollars to complete.

And the reason why it costs that much is probably worth just exploring a little bit. The forecast itself, um, those that are… that larger.

type of, uh, report. includes primary market research that goes beyond secondary research. Secondary research is accessing public information.

to collect, um, inputs. to come up with a forecast.

the primary research that is done on one of these larger reports goes into speaking with.

Key opinion leaders, prescribing physicians, and groups and other industrial experts.

So that you get a real sense for what the value of the royalty is.

And while you're doing that, ahead of time, is not just as an externally facing document, but also as an internally.

facing appraisal so that you can make certain decisions as it relates to structure, size of transaction, and expectations for what you're going to get.

Which is… leads to another question, which is… Um, you have an opportunity to monetize the complete royalty stream, or parts of it, depending on which stakeholders are participating.

But do you always have to do… part of it or all of it? Um, would there be a reason to only monetize part of the royalty stream, Irene, you… done this a few times. How do you decide on that?

Yeah, um, it's a great question. So, um… You know, you can… there are many ways you can structure it, um, and… Um, you know, you can sell all of the royalty stream.

Um, which is pretty… is, is pretty common, although you can do it with some.

Um, clever structures where you can… maintain some of the upside potential.

If your forecasts underestimate the value. So you can hedge your bets a little bit. So, for example.

Um, Children's Hospital soldier royalty before I was here many years ago, and they sold the whole royalty, but they made an agreement with the buyer that if the sales exceeded a certain threshold, which nobody thought it ever would in a million years, but it did.

Um, if it exceeded that, so annual sales exceeded a certain threshold, that above that threshold, we would split the royalties. So we sold the whole thing, but we maintained some upside. Um, and in fact, the… Um, the drug performed at 6x, the highest estimate that anyone had put out there, so that was really fortunate for a children's Hospital, because we did very well on that, you know.

Um, on that tail. Um, you can also sell parts of it. So, for example, we've been talking a lot about inventors. If your inventor does not want to participate for some reason.

Um, they can also. Um, not participate, and you could sell, say, 70% of the royalty goes to the institution and 30 to the inventor, you could sell 70%, and not the 30% that goes to the inventor, and then continue to pay the inventor.

quarterly as the royalties come in. Um… In my experience, the inventors usually.

want to sell, usually maybe even more than the institution, um, and sometimes are driving the thinking at the institution. That's definitely been true in my case. And so.

Um, we haven't done that. But you could see a position where you've got a, um, a joint owner, and maybe the joint owners aren't all going to agree on the monetization.

And so you might want to sell your share, and maybe the joint owners don't want to sell their share, and you can also do it that way, provided there's enough value in the piece that you are going to market with.

To make it worth it for a buyer. But the buyers, and Andrew knows this well, like, they have all different values that.

So there's a lot…

kind of work for them, and some… there are some buyers who like small deals, and some who like big deals, and so… So it's not… it doesn't exclude the opportunity if… if it's a smaller piece.

That's really important. So I… so… What we can take away from this is there's a lot of ways to structure these opportunities.

It's a topic in its own, it's in its own right.

And that's the takeaway message. We… this isn't a webinar where we'll go into detail on that, but we're happy to do one if there's interest.

So, understand that there are a lot of different structures. It's important to have expert advice on those structures, how they work, not only for your stakeholders, but for tax purposes, for compliance reasons.

And so forth. Um… How many royalty monetization groups are there out there? So, if you were going to just pick an individual buyer to work with.

What's the size of, you know, the pool of organizations that buy.

royalties. Andrew, you want to talk about that?

Yeah, sure, I'll take that. Um, there are, as Irene said, there are various sizes.

of firms that buy royalties, and they have various sizes of.

Capital pools committed to buying royalties. And in doing so.

you will have a chance to… sell a royalty to a much wider group, in which case there will be much higher competition, and will drive down.

The discount rate, which means increasing the, um… the value of the royalty, and so the larger organizations.

There are probably about, let's just call it. 5 to 10 large organizations that are willing to compete at the multi-hundred-million dollar level.

And then there are, uh, about 5 to 10, let's say 10 to 15.

That will be middle market and below, that will buy royalties of $100 million and below.

And it'll be very specific to the various concentrations.

That they can have in their portfolios to buy a royalty, but overall.

If you just were to bring them all together, you'll have 20 to 25 royalty buyers at any point in time.

And sometimes, some of the smaller buyers will come together to compete with the larger buyers.

To, uh, to affect that type of competition.

It's a really interesting marketplace. We have a few questions, and we want to encourage people in the audience to ask questions.

We have one question. Does the process typically start with the monetization firm reaching out, or do the buyer or the seller.

ever initiate the process, and the answer is yes.

So I think, you know, it… Um, we can all talk to that, but in my experience, we had monetization groups reaching out. I've had an experience where an inventor initiated the process.

Um, but, uh… Anybody else, Todd or Iran or Andrew, want to comment on that? How does the process usually start in your experience?

Um, oh, go ahead, Todd.

Yeah. So… I was gonna say, from our experience, they were really driven by the royalty monetization firms, although I can tell you that we ourselves.

have contemplated it. on an asset where we didn't reach out.

But, uh, the ones that did happen were all ones where they reached out to us, and I'll never forget being asked by a number of different groups back in.

the 2004 timeframe about monetizing. At the time, what was lamivudine. So we had 2 HIV drugs, one on the market, the other one was just… one was 3TC and one was FTC. The second one was just 3TC with a fluorine molecule.

it wasn't approved yet, and so when the royalty buyers first started looking at it, they were looking at lamivudine.

Um, and I remember a senior staff person and I putting an estimate together of $250 million, and I handed that to the Vice President for Research, who took that to leadership, and he laughed all the way out the door.

of what a ridiculous number that was. And we didn't end up selling lamivudine, we ended up selling emtricitabine, which was supposed to be a Me Too drug, but it out-competed it in the head-to-head space.

But where was I going with that? Um, so yeah, it's… my experience is, is usually because.

we don't have to tell the Royalty Bio people. To Andrew's point, there are quite a number of groups out there now. I think we had 10 to 12 bidders on ours.

they're tracking your assets, they know what you've got, and whether it's something that's getting close or something that's on the market, so… And so, so you could reach out to them, but probably they already know about what you've got, if it's… unless it's something on the small side.

That's great, and then we have another question from Ruben, who says, what level of freedom do inventors have to pursue a royalty monetization independently from the institution?

And Irene, would you like to address that? I think it's very institution-specific.

Yep. Yeah, um, you know, the, the… I believe they inventors are free to pursue.

the monetization of their share independently, because it's an entitlement of theirs. So, in the same way.

you continue to pay them if they leave the institution, or you pay their estate if they pass away, they can rely on getting that share of the royalties, so different than the internal distributions among.

internal stakeholders, departments, and labs, and so forth. The inventor share is a personal entitlement that they can, um.

They can, you know, basically sell if they like. I think the challenge for them is that a royalty.

buyer is going to want some guarantees from the licensor that we're not gonna do anything to, um, damage the likelihood of receiving the royalties, right? So if they're paying you up front, they want to make sure you're going to do everything you can.

To keep that royalty as healthy as possible, so you're not gonna… whatever, I don't know what. Um… amend the agreement in some way that, that, um, uh, damages the royalty stream.

The inventor can't make those promises. So, the institution would have to decide whether they'll make those promises on behalf of the inventor or not, and take that on. Um, and I think that's kind of individual, but the inventors.

are allowed to monetize, and there are examples out there of inventors who have monetized without the institution.

And the institution, though, would still be responsible for the due diligence on the license agreements, on the intellectual property policy.

Yeah.

All those things, so you still may have a certain level of work and upfront investment that you have to make, even if the institution's not.

Right, and so then, I guess, institution by institution, you would depend on whether.

monetizing.

the institution was willing to do that or not.

Alright, great.

And that's probably variable.

It'd be an interesting question, I don't know if Andrew knows. Would the discount rate probably go up significantly in that situation, because you've got all of the regular factors.

they're going into discounting. the rate, and now on top of that, and this… to Irene's point, you've got the institution and how it continues to behave and whether it performs adequately.

Yeah, it's a good question, Todd. The discount rate is going to be driven by, typically, is going to be driven by.

two things. One is going to be the cost of capital that a buyer will have.

to deploy those funds, and the second will be the risk associated with the.

with the asset. Generally speaking, it is a binary.

outcome, if… If an institution is not going to cooperate with an inventor to sell their royalty.

There's a… there's a very good chance that that transaction will not happen because of everything that Irene was talking about, in terms of some of the needs from the institution itself.

But the size of the. actual… of the actual entitlement.

The smaller… royalty transactions.

typically have higher discount rates because it's a much less efficient part of the market. And so, the point that I want to make here is that a larger transaction, one where an inventor is selling alongside.

It's academic institution. Generally, we'll have a larger critical mass and will attract.

the interest of a larger buyer that will have a lower discount rate.

to apply to that monetization.

Thank you. That's really important. It's time to wind down this webinar, and.

As I ask each of you to make any final.

comments, I'm going to ask Ashley to put in the chat the link to the Better World Report.

And a link to the informatic about the impact of university tech transfer.

Just to remind us all about why we do this, and what it's all about, it's to bring these important discoveries forward to the public and in a meaningful way, and to use commercial channels to do that where appropriate.

So let's keep that in mind always when we're talking about the financial end of technology transfer at a university.

But thank you all for participating in the audience and on the panel, and Todd, any final comments as we wind this.

Webinar down.

Yeah, I would just urge you to be thinking about monetizations on a regular basis, and to make sure that you understand enough about how they work, because you may not have an asset today.

Which you may eventually, and our job as stewards of the institution is not to protect.

a reoccurring tech transfer budget, but to do what's in the best interest of the institution.

Uh, and, uh, that includes bringing a big opportunity to the attention of leadership.

Andrew, any final comments?

Uh, I think that monetization… is a very exciting space, one that is, um… not well-known to various academic institutions, but that shouldn't stop you from exploring it, and there are certainly resources available to you to do that.

I'd encourage you to think about them. not just for the institution, but for the research itself.

That will ultimately be driven by additional proceeds that you'll bring in.

Thank you. And Irene?

Yeah, I guess I would say, um… Uh, don't be afraid, go out there and figure it out, and do something good for your institution, and um… And have the institution benefit the most from the success of the innovation.

Thank you very much. Well… join me, and thanking our panelists, and thanking Ashley, and Autumn, the Association of University Technology Managers.