Many companies with product licensing agreements already in place receive, or will receive, a royalty or a portion of the product revenue stream. For many public companies, however, the capital markets attribute little or no value to these royalty streams. This results in company valuations that reflect only the expectations of direct product revenues and product pipelines, rather than incorporating the value of the royalty streams.

Paul Capital Healthcare provides an innovative non-dilutive financing solution by helping companies "monetize" their royalty streams – selling all or a portion of these future royalties to Paul Capital Healthcare in exchange for an upfront payment and, depending on the structure, potential future payments. This sale and the resulting cash enables these companies to unlock value immediately from an asset not generally recognized by the capital markets or private investors. The proceeds can then be used to reinvest in the company's pipeline, acquire or launch new products, or finance other strategic initiatives.

This unique financing model helps reduce the future risk associated with the product and provides companies immediate liquidity. A royalty interest financing allows a company to realize a product's potential today regardless of its eventual commercial performance.

Paul Capital Healthcare, commencing in 2000, pioneered the use of synthetic royalties or revenue interest financings. These investments are similar to royalty interest financings in that Paul Capital Healthcare provides a company with an upfront payment and future payments in exchange for a percentage of future product revenues. The main difference is that in a revenue interest transaction there is no licensing agreement - the company and Paul Capital Healthcare develop an agreement that allows the Fund to purchase a portion of a product(s) revenue stream. These deals are structured in a manner similar to, and are as flexible as, licensing agreements - employing tiered revenues, reverse tiers, minimum payments, caps, step-downs and buy-out options, into the agreement as negotiated by the parties. The primary distinctions from standard licensing agreements are that Paul Capital Healthcare is not responsible for commercializing the product and is not involved in the day-to-day operations of the company.

As part of a revenue interest agreement, Paul Capital Healthcare will make an upfront payment to the company and, in some cases, additional payments based upon certain milestones, such as regulatory approvals, patent extensions and sales targets. In return for taking on a significant portion of the product's commercial risk, Paul Capital Healthcare receives a portion of future revenues generated by the product(s). Unlike more traditional debt arrangements which have fixed repayment plans, payments under a revenue interest agreement are based primarily on the performance of the product.

Public companies find this form of financing appealing not only due to its minimally dilutive nature to equity holdings but also because it allows them to transfer a portion of a product's commercial or regulatory risks. Revenue interest agreements provide companies with the financial resources to acquire additional products, expand their sales force, and defer partnering until the product has been further developed to secure a better economic arrangement from a licensing partner, or fund clinical trials to further develop their product pipeline.

For private companies in particular, these deals are appealing in anticipation of an initial public offering (IPO) because no new shares are issued, and they are non-dilutive to current equity holders. Revenue interest financings can also be effective for companies that would like to acquire a revenue-generating company or product. In this case the company leverages the target's future revenues to finance the acquisition.

In some cases structured debt is a more cost effective alternative for small to mid-sized companies looking to expand operations than equity. Paul Capital Healthcare can structure mezzanine-like debt in combination with revenue interests or royalty financings and the purchase of equities.

Paul Capital Healthcare also structures traditional equity investments, typically in combination with revenue interest and royalty financings. The Fund has participated in early stage financing rounds in syndication with venture funds, as well as in PIPE-style offerings, while maintaining its focus on near market or commercial stage investments.