Axial Discovery - Royalty aggregators
Call for talented individuals and teams
Analysis sent out every Monday
Axial: https://linktr.ee/axialxyz
Axial partners with great founders and inventors. We invest in early-stage life sciences companies such as Appia Bio, Seranova Bio, Delix Therapeutics, Simcha Therapeutics, among others often when they are no more than an idea. We are fanatical about helping the rare inventor who is compelled to build their own enduring business. If you or someone you know has a great idea or company in life sciences, Axial would be excited to get to know you and possibly invest in your vision and company . We are excited to be in business with you - email us at info@axialvc.com
Royalty aggregators
Drugs, and any product/company in general, can be viewed as a stream of cash flow over its lifetime. By having so much technical risk combined with IP monopolies if approved, drugs are a rich place to executive unique royalty deals: the drug developer can take some money off the table and the purchaser can acquire a potential lottery ticket winner with a set amount of investment. However, the market pricing mechanism is still pretty inefficient here. There is a massive opportunity to bring the software practices of Opendoor and Affirm to drug royalties. Is there anyone out there that is doing this or wants to?
Key parts of a royalty are:
The royalty rate and type - fixed versus tiered
Duration - how long the royalty agreement lasts?
Type of IP - is the royalty on a patent, trademark, or something else?
Product stage - preclinical, clinical, approved, on the market
Potential profitability - is your product pursuing a large and underserved market? You might be able to negotiate a lower royalty rate.
Exclusivity - is the royalty agreement exclusive for the use of IP? Just in case a similar product is developed; this is more downside protection.
Royalty Pharma is the market leader for late-stage and approved products. Ligand Pharmaceuticals for mid-stage products. And XOMA has emerged as a leader for early-stage products. There is also an opportunity to build a similar business model for preclinical products (this is a space where a company can help an inventor benefit from the work).
There is also an opportunity to securitize drug portfolios. BridgeBio is in the lead and has the best shot at introducing “biobonds.” Others like Cullinan and Centessa are emerging as well. A key part of securitization is building a pipeline of uncorrelated assets.
What are the key considerations here?:
How to measure correlation between drugs? - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3704655 One idea is to build a portfolio where say if one asset(s) works, then the other one will not.
Matching a portfolio to specific risk/return mandates with a focus to limit drawdowns
Figuring when a drug candidate becomes a “real asset” that can back a bond?
Avoid asymmetry of maturity problem - https://lifescivc.com/2011/12/solving-biotechs-asymmetry-of-maturity-challenge/ This required building a pipeline in sync.
