Royalty streams are typically created when an inventor, university, research institute, hospital or company (each a “Licensor”) enters into a license agreement to license its IP rights to a third party, such as a pharmaceutical company. As consideration for the use of the Licensor's IP in the development, manufacture or sale of products, such as pharmaceutical products, the Licensor is entitled to receive a royalty stream equal to a percentage of net sales of such products. The Licensor of the IP typically has little to no role in the development, manufacturing, marketing or selling of the product. As a result, the Licensors (and, through their acquisition of royalty streams, royalty monetization firms) usually play a passive role in the process of bringing products to market.
The diagram below illustrates how the licensing of IP throughout the product development process can create multiple royalty streams that can be purchased by DRI Capital's managed funds.
Royalty Monetization Explained
Since 1992, DRI Capital's pioneering efforts have resulted in royalty monetization becoming a key source of capital for owners of royalty streams to consider.
At its simplest, a royalty monetization is the upfront payment of cash by one of DRI Capital's managed funds to the royalty recipient in exchange for the royalty recipient's entitlement to receive future royalty payments. Royalty monetization transactions are both simple to execute and require limited time from the royalty recipient.
DRI Capital has the ability to structure its transactions in a variety of ways depending on the specific attributes of the royalty stream and the funding requirements and particular circumstances of each royalty recipient. While the simplest form of a royalty monetization transaction is a complete sale of all future royalties, DRI Capital will often complete a partial monetization where less than 100% of the royalty entitlement is sold by the royalty recipient. The royalties sold can be segmented in a number of ways, including by only selling a percentage of the royalty entitlement, by only selling royalties related to sales in specific geographies or specific indications, or by only selling royalties for a defined period of time. Depending on the particulars of the transaction, DRI Capital may also structure its transactions to permit royalty recipients to participate in the ongoing performance of the product through future milestone payments or sharing structures. Through its relationship driven approach, DRI Capital works with royalty recipients to understand their entitlements and to structure royalty monetization transactions to be mutually beneficial.