Ann: Expanded Heart Protection Discovery for Zantrene, page-188

In thinking more about this I like the concept of a buyback for shares in the scenario where RAC sells (rather than partners) a combination like Zantrene+carfilzomib.

Say RAC sells a Zantrene+carfilzomib combination for USD $2B (just to pick an easy number), it then presumably needs to pay tax on this. Say that USD $1.4B is left after 30% tax (although numbers more complex than this due to need to deduct expenses). It then does a buyback for up to USD $1B and keeps USD $400M in the bank.

Say RAC buys back up to 20M shares. USD $1B / 20,000,000 = USD $50 per share. Would be a lucrative sugar hit however if you have your RAC shares bought back you start to erode your access to longer-term upside (much in the same way as selling on market).

Another approach is a partnership scenario for a Zantrene+carfilzomib combination. RAC takes royalty rights (say 20%) for the Zantrene part of the Zantrene+carfilzomib combination. RAC then spins out the royalty rights into a new spinout company and seeds it with some capital whilst also giving RAC shareholders 1 for 1 shares in the new royalty company. This would mean shareholders of the spinco would get future dividends when the Zantrene+carfilzomib combination starts generating revenue. RAC shareholders could decide whether they want to sell some or all of their spinco shares or hold the spinco shares for dividends.

Maybe in a Zantrene+carfilzomib combination purchase scenario the funds of the combination purchase seed a spinco. It then does a partial buyback or some shareholders just sell their shares in the spinco.

In these scenarios RAC continues as the mothership, generating new IP (under Pillars 1, 2 or 3) and selling or licensing that IP to Big Pharma. In the situation where IP for additional combinations is licensed to Big Pharma, the royalty rights could also be moved into the royalty company created above. This company could use some of the royalty proceeds to acquire royalty rights to other revenue-generating biotechs. Spinco could result in a company to that rivals Royalty Pharma (current market cap USD $16.4B) which generated USD $1.5B in revenue in 2020.

https://www.royaltypharma.com/static-files/8c81c8e0-ccc4-4f5f-a721-dd66c6aa0cce



I'm not sure about the corporate tax issues of spincos but I think it could be a good way to maximise long-term upside of partnerships or sale of IP for combinations without significantly eroding the IP-generating capability (an hence upside) of RACE.

Spinco could result in a company to that rivals Royalty Pharma.