Case Study: Valuation of a royalty stream due to The Institute of Cancer Research

Background

Abiraterone is a blockbuster drug which was discovered at The Institute of Cancer Research, London and taken to market by BTG plc and Johnson & Johnson. It is marketed globally by Johnson & Johnson as Zytiga and has become standard treatment for advanced prostate cancer, benefiting hundreds of thousands of men worldwide. The Institute of Cancer Research (ICR) receives a proportion of the royalties from abiraterone in recognition of its discovery of the drug, and invests the money back into its research. The ICR wished to explore the possibility of selling all or part of this future royalty stream, in order to reduce the risks associated with uncertain future royalty payments.

Objectives

IP Pragmatics supported the ICR throughout the process and in particular through two stages:

• providing an initial indicative valuation to help inform initial discussions with a number of potential royalty monetisation companies
• later advice on a final deal value and structure, including the relative values of the royalty streams from different territories.

Approach

Sales to date of Zytiga had been significant, and had resulted in a healthy royalty return to the ICR over a number of years. Zytiga is marketed by Johnson & Johnson worldwide, which reported global Zytiga sales of U.S. $2.2 billion for 2015. Future sales were dependent on a number of factors and we identified and modelled these factors including:

• the relative success of Zytiga and its closest rival, Xtandi
• the timing of the entrance of generics into both the US and European markets
• the strength of patents in different territories

We modelled various different scenarios, and provided advice on the net present value (NPV) of the royalty streams both for the ICR’s total royalty and for the ICR’s royalty in different territories. As part of this work we carried out a market assessment of the relevant cancer treatments in the major territories (including US, Europe and Japan) and examined the patent family and other proprietary rights, such as data exclusivity.

Result

The ICR successfully sold a portion of its royalty entitlement for abiraterone to Drug Royalty III, a private equity fund managed by DRI Capital. The overall deal value has not been disclosed. This unique deal structure gave the ICR access to funds that would have been expected to accrue over several years, allowing it to invest in research and state-of-the-art facilities, and to plan its finances with greater certainty.