Revenue interest financing is a transaction that involves the creation of a synthetic royalty using product revenues to underwrite future payments from the company making and selling a product to Paul Capital Healthcare. In effect, a royalty obligation is created not for access to technology or IP rights, but for access to capital. It is a simple non-dilutive financial arrangement that should be considered among other capital formation strategies.

Revenue interest financing transforms a commercial asset that is currently generating, or is soon expected to generate, revenues into up-front capital to fund corporate activities. Public and private companies can use revenue interest financing, regardless of their capital structure, so long as they have current or near-term revenues.

Paul Capital Healthcare invests in healthcare products and in healthcare companies with products that have the following attributes:

• Are approved, generating revenue or near commercialization
• Have an identifiable and established market
• Have patent and/or regulatory protection
• Are marketed by a strong organization

Unlike venture capital investors, Paul Capital Healthcare does not require the product to have high growth or "blockbuster" potential.

Unlike equity financings, revenue interests are not dilutive to equity ownership. In order to raise cash, companies can sell a percentage of future product revenues, rather than sell a percentage of the ownership (equity). Unlike debt financings, revenue interests are less restrictive, have relatively few financial or operating covenants, and allow the company to shift some of the risk of commercial product performance.

Revenue interest financings are similar in structure to licensing deals and can be as flexible, with tiered revenues, reverse tiers, minimum payments, caps and buy-out options all incorporated into the agreement. The primary difference from a typical licensing agreement is that Paul Capital Healthcare is passive and is not actively involved in the development or the commercialization of the product.

Another significant difference between revenue interest financing and out-licensing is that with revenue interest financing, companies retain control over their products; with out-licensing, varying degrees of control are transferred to the licensee. One of the most compelling features of revenue interest financing is that it allows companies to off-load a portion of commercial risk to the buyer while retaining full control of the product itself.

Once a letter of intent has been negotiated, it usually takes four to six weeks to close a deal. This is faster than most investment funds and a much shorter and simpler process than a debt or public equity offering.

The cost of capital typically falls between equity and traditional commercial debt but will depend on the product, the risks associated with the product or license agreement and other circumstances.

• The Paul Capital Healthcare team arranges an introductory meeting to assess the company's financial objectives as well as other short- and long-term needs.
• Follow-up consists of communication with key personnel at the company to address initial due diligence questions that arise after initial review of the information.
• Once these questions have been addressed, within approximately two to three weeks, the Paul Capital Healthcare team can develop one or more structures for review.
• After the company selects the approach that best meets its needs, a term sheet is developed.
• After the term sheet is finalized, the parties confirm the due diligence and work on full legal documentation.
• It will take approximately four to six weeks from signing of the term sheet for Paul Capital Healthcare to complete the due diligence process and for the parties to negotiate documents and close the transaction.