Royalty Finance, the UCC and Issues of Recharacterization: (Panel 3) Synthetic Royalty Financings: Risks of Recharacterizing a True Sale

Panel 3: Synthetic Royalty Financings: Risks of Recharacterizing a True Sale
Tuesday, May 20 | 1:00 p.m. (PT) | B-CLE

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This panel will address the factors that might cause a court to recharacterize purchases of royalties or synthetic royalties as a loan, rather than an outright transfer of ownership, or as a contract to convey future royalties as and when they arise, and the adverse consequences of such recharacterization if the seller/borrower becomes a debtor in a case under the Bankruptcy Code.

Speakers:

Jeffrey C. Krause, Gibson Dunn

Michael G. Farag, Gibson Dunn

Moderator:

Allison Schmitt, UC Berkeley Center for Law & Technology

Program Series:

In the context of chaotic capital markets over the last five years (the XBI has dropped 48% from January 2021 to March 2025 and an 80% drop in Biotech IPO issuances from 2021 to the end of 2024), where biotech companies must continue to raise capital, synthetic royalty finance transactions have emerged as an attractive financing structure that is nondilutive, uncorrelated with the markets, and a relatively low cost of capital.  The market saw steady growth in the aggregate deal value of synthetic royalty finance transactions over the last five years, with an average annual growth rate of 33% over the period.  With the increase in the number of synthetic royalty finance transactions structured as true sales, questions have arisen throughout the industry as to what exactly is being sold and what are the risks and advantages of acquiring a synthetic royalty.

In this three-part virtual series, BCLT & Gibson, Dunn & Crutcher have partnered to discuss royalty finance, looking at synthetic royalties, the treatment of synthetics under the UCC, and the risks of a sale of a synthetic royalty being recharacterized as a loan in bankruptcy.  The aim of this virtual speaker series is to educate biotechnology stake holders (investors, entrepreneurs, companies, and their attorneys) on best practices for monetizing and investing in a synthetic royalty so that they may embark on such transactions with greater certainty.

For anyone with an interest in how modern biotechnology companies raise capital, this series will help you optimize your rights and reduce your risks.  Don’t miss it!

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