YouSaid · the spoken record

Clarke Futch

lines on the record: 74
first: 2020-06-01
most recent: 2020-06-01
sittings or episodes: 1
sources: podcast

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“I would say sleeping on a decision. I think when you are younger both on the personal basis and business, particularly if there's a difficult or uncomfortable situation or conversation or decision you have to make, you want to go ahead and make that. And I've just learned over time, and it just happened this week with my wife and I on a personal matter. And I said, well, let's just sleep on it overnight. And we came to the opposite conclusion the next morning after having thought about it. So probably should have been doing that, learned that, implemented that much earlier.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lots actually, lots and lots, which I've tried to pass down to my kids. We'll see. Let's talk about a long-term experiment. I would say the things probably most stayed with me is the advice of watch what people do, not what they say. I think that's good advice for a personal and for business, for people genuine or they hypocritical. So that's what stayed with me.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think you see that in every space. That probably could apply to both of those questions. Yeah, there's always a disconnect between how you perceive yourself and reality, just for some folks, it's a much wider gap than for others.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it used to be I like to play tennis. I like to do that. I have a bicycle that I like to ride mainly during the warm months here in the Connecticut area. And also I read a lot. I'm a pretty travel lot, at least historically I have, and pretty voracious consumer of books. That's what keeps me busy.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm hearing from them, I also see some of our potential counterparties and portfolio companies that are raising money to go on offense. So it's part offense you described it to me last weekend was I'm raising this capital part defensively to make sure I've shored up my balance sheet, but also, Clark, I think that there are going to be opportunities to acquire some other products in the next six, 12, 18 months. If I can raise that capital today, even if it's a little bit more expensive maybe than I want, I think I can take that and reinvest it at a much higher return than I have to pay for it. And so I want to be well positioned. So that's what we're seeing.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“The two ends of the spectrum, if you're finding good opportunities today, do you do everything that you can find? Or if you think the future is going to be better as an investor, maybe not for the economy, but as an investor, do you just wait? And so we'll see where we come out in that debate in the middle somewhere, I suspect, but there's an interesting intellectual discussion. These companies, they're creating new medicines and launching new medicines. We've really had a renaissance in the biotech biopharma industry in the last five years. A lot of great things have come out and are coming out. So they'll get financed. It's just a matter of there's probably going to be a consolidation of flight to quality. The strong will get stronger, the weak will get weaker. But what I'm hearing from CEOs, and we're now having these quarterly meetings by Zoom instead of in person,”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we looked and passed on a lot of that. Today, if you can deliver in size and certainty, we're getting calls from companies that a year ago, we might have had a dialogue with, but there wasn't really any serious interaction. We're getting calls from them saying, hey, we really would like to do something now. And even companies that have cash, remember these companies almost all are significantly cash burning. So they're always looking forward thinking about how do I raise capital. We're getting calls from people saying, look, we want some cushion. And so we're having an off site in a couple weeks, although it's going to be a Zoom off-site. And the question is.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“That could in fact happen. That could in fact happen. But the point I'm trying to make is what seems to be very clear already is that companies are valuing Cash, access to capital, certainty of close, and it's not just about lowest cost of capital. If you went back a year or two years for sure in the more credit-oriented type deals in our market, it was just about lowest cost of capital.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“It seems to be clear already. Remember going back to my comment, one of the really interesting aspects in the biopharmaceutical arena is that people have long-term business models and they finance on a relatively short-term basis. So, just because you have COVID-19, yes, clinical trials may be pushed back a quarter or two quarters because the patients can't get the blood test or they don't want to come into the doctor's office. But that's just a bit of delay. It's not going to shut down these programs forever. And likewise, if you're a company that just gotten a recent FDA approval, maybe you don't launch this quarter. Maybe it's six months down the road. And we're doing these really interesting tests, which I heard on your podcast, which is wipe out the sales and cash flows for a year or two and see what happens.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do we certainly do? Again, it's a little bit different flavor. If it's a royalty purchase or a credit type of deal, those tend to be different. But a lot of the deals that we close. Are on a proprietary basis and or no intermediary is involved. Most of the deals we do do not involve an intermediary, some kind of investment banker. And that's because we're out there every day developing these relationships. And it's not that the companies don't know what they're doing. In fact, the best deals to get done are with a sophisticated counterparty who knows generally what the market is and is looking for speed and certainty. So you can win on speed and certainty. And so we're trying to find that intersection, that rare intersection between a high quality asset and the right risk return, the very few circumstances where those intersect means you look at a lot and you do very few.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“There has been a lot more capital raised, but the capital's been consumed. So when you look at the quote unquote dry powder that's available, it's still in a pretty good supply demand dynamic as an investor. That doesn't mean you can go pick off great assets for super cheap prices. It's not that. It's not a distressed environment. But it has been pretty attractive. And again, our orientation has been less about trying to put as much capital as we could out the door. And it's a bit been around trying to create this risk return cashflow dynamic that our investors are seeking. And so in a baseball analogy, we're not trying to hit home runs, but that means you can't strike out, right? The best home run hitters also strike out the most. That's really a venture capital business, which is a good business. It's just not our business. We're as singles and doubles.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“We did one deal, and that's hard to do when you're in the first year of your investment period because investors want to know why they're paying you a management fee if you're not getting any money to work. But that changed in 2016 and 2017 and 18 were very good years in terms of deployment. And the first half of this year, 2020, is a record. But you're going to have ups and downs.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, what you have are people that are specialists like us. And so about half of our book is in doing royalty monetizations, the other half are credit-related type investments. There's probably more competition there where you have people who are doing not just biopharmaceutical credit of some sort, but we'll also do medical devices and healthcare services, et cetera. So broader in healthcare, but maybe just focused on credit type instruments. You've had more competition there. In the current market, we're actually seeing more attractive terms. In the credit side of our book, but we've gone through periods where we did very little activity because we didn't see things that we liked. In 2015, which was the first year of our investment period in our prior fund healthcare realty partners number three. In all of 2015,”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“That we've seen the big, big asset managers come in because you can't deploy billions and billions of capital every year. That being said, there are more competitors. People change firms a little bit, different business cards. But on the royalty monetization side, we've probably seen people come in in the pre-2008 big macro hedge funds that were doing some of everything did a little bit of what I call royalty tourism, but they didn't build the team. And when things changed really in late 07 in the credit markets and certainly in 08 and 09, those folks have largely gone away.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's certainly more competition today than there was when I started. Years ago. It's still relatively concentrated, so I would say 80, 90% of the capital that's available is probably in the hands of the top five, six, seven people. So it's still relatively concentrated. The barriers to entry are still quite high. Trying to put together this team of people to do this type of work. If you have enough time and money, you can do just about anything, but it's not easy. And it's not such a large market.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“What you lay out is awfully attractive proposition in a world where people get concerned about capital markets and capital market prices. And you had mentioned that these companies have other alternatives of equity or convert raises. What have you seen over the years in terms of competition in your space specifically, so other competitors that are offering similar royalty deals that you are?”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“You look at our core investments, so that's probably 60 of the 70. There's a few noncore things we did where we invested in some equity. We don't do that anymore because that didn't go well. But the core focus, which is all that we're doing and have been doing for the last five years, I think of the realized deals, right? We still have a portfolios out there. Realized deals, I think there's one, maybe two, where we didn't get our capital back. And it wasn't a zero. One fortunately was a very small product. We probably lost a little bit. That's the only one I can think of where we've lost capital and we've got an existing portfolio, and we'll see how those play outs. There's some that these are long-term investments yet to be realized.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, going back to those three binary risks, we've been not perfect, but very good over a long period of time at getting rid of those binary risks around patents manufacturing and safety. And then it's the commercial. Maybe the company didn't do as good a job as we thought. Maybe there's a competitive product that came on the market and took more market share. That's happened to us, happened to us in the last portfolio where we predicted a new product would come onto the market because it was in clinical trials late stage clinical trials. It did. We were predicting the new product was going to take 60% market share in our product would retain 40%. And it took 70% market share. So it's not as good as we thought, but it wasn't catastrophic. And sometimes it goes the other direction.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've had that happen once. Occasionally, you might have an IP issue that tends not to be a black and white situation. It tends to be gray in the middle, where maybe the patent doesn't, it gets challenged and doesn't last as long as you thought it was. It can go the other direction away. We've had things that have lasted longer than our original assumption. We haven't had any drugs pulled from the market for safety reasons, knock on wood.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically, don't go radically wrong. Usually within a band of returns. On our core investments of buying royalties, and the other thing that we'll do is we'll loan money or lend money secured by the royalties or secured by the patents. We've done that quite a number of times. We just did one with a large respiratory product that GSK also happens to be the marketer for. But the way they go wrong is sales are just less than you think and the structure may mitigate the downside to you but doesn't make you whole. So that's how they go wrong. They can go wrong. And I think we've made our senior team since going back to the beginning something like 70 investments, so quite a few. Occasionally you have a manufacturing issue.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Categories other than Orphan and oncology. So that's a case where we're trying to get, it's not an Excel spreadsheet, but we're trying to get a little more exposure to those areas if we can find the right assets, big if, if we can find the right assets trying to get some more exposure, because we think the particular dynamics and those subsegments, if you will, are more favorable.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so they're doing it because they're looking for non correlated yield. And they're big institutions. And so we've set up some co-investment vehicles that allow us to fight out of our weight class, sort of speak, so do larger deals and yet still maintain that diversification. So we've set up the business model where we can achieve both of those objectives. And it's good for us. It's good for our investors. good for potential counterparties because we can do larger transactions. But that's largely how we think about building the portfolio is around diversification. There are areas, for example, that we've been focused on recently that we're looking for more exposure to. So in our particular case, the 2 O's, oncology and orphan, why? Well, we talked about pricing dynamics, pricing headwinds in the US. That really applies to almost all therapeutics.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Silver bullet in cancer that comes out, which is not likely to be, but if there were, you may be harmed, but you're not going to be killed. That's sort of our orientation is not bet the farm on any one product. So we're very focused on diversification. Fortunately, we have”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Diversification, diversification, diversification, as much as you love any product and you love them all when you sign the contracts, kind of like your children. You love them all when they come out. But we just try to be diversified. So we have that diversification or concentration limits built into the fund documents, the limited partnership agreement around no more than a certain amount per product, no more than a certain amount per marketing entity, no more than a certain amount in the therapeutic category. But it's highly diversified. That's really what we try to do. And if you look at our last portfolio, which we finished investing last about six months ago, seven months ago, we had 25 investments. That was 28 different products across 11 different therapeutic categories. So very, very diversified. So if there's some, I'm using quotes.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“That the company historically done it in person, and it's more like a board level review of information. And so we do have a dialogue with companies. We try to be helpful to them. But we're not really operationally involved in the business. And we're not set up to do that as a business model. That would take a lot more people than we have. So most of our alpha, if you will, is in the underwriting.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's unlike the venture capital or more classic private equity model. We don't sit on boards typically. We don't change out management on a very rare occasion. We've had to step in and be involved, but not very often. It's not what we're set up to do. We're not loan to own type of investor. On the other hand, it's not quite as simple as just buying a publicly traded bond in GSK and collecting your interest every quarter. So it's a little bit in between, and I would describe it more as active portfolio management. So in the case of the shingles vaccine, when you have Glaxosmith Klein that's the marketer and underwriting, you're just making a bet, essentially, that GSK is incented and that they're good and the product's good enough that you're going to be aligned with some smaller companies, we do have quarterly meetings where we sit down.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very interesting question. And so we bought a royalty and the reverse milestone back to us was producted by we had security and basically all the other assets of the company. So, sort of a credit instrument wrapped into a royalty monetization. It turns out in this particular case, the company was more right than we were. That product has done phenomenally well, did a billion dollars almost in the first year, $2 billion in the second year. So they turned out to be right. And God bless them. They probably earned these milestones and they didn't have to pay the reverse milestone to us. But that's okay. That's a good outcome for everyone. To answer your question specifically, we had security or a lien and other assets of the company and relative wasn't a huge milestone. I don't remember exactly what it was, like 25 million or something like that. So we thought relative to the credit risk, we were well protected.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“In that particular example with the reverse payment, part of the reason this deal happens is because it's a small company that needs money to do their R&D as we talked about. How do you protect that asset? Do they just take some of it and put it in an escrow? What happens with that piece that you could claw back”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the running back's in the right place, and you got to call the right plays, but ultimately the quarterback's got to hand the ball off or throw the ball and get it to the right person. So that's the way it works here too.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“There was some symmetry to that. These things, it's not just you have one meeting and the deal, there's a lot of iteration back and forth and trying to understand their perception of risk and our perception of risk. Is there a way to, you can always price that by lowering or increasing the purchase price, but are there ways to strip out certain cash flows or create certain milestones that reward them if they're right and reward us if we're right? And so that's really the art of the deal. There's art and science to ours. There's a lot of science around the actual medical science and the market projections and drug pricing, et cetera, et cetera. And then there's the art of the deal. And it's why the folks that we have in these regional offices, you're the quarterback of these deals, right? You got to get all your linemen lined up and your receivers in the right place.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“We paid them $190 million at closing. But of course our sales projections and therefore royalty cash flow projections and the companies are different. The company tends to be more optimistic. They're both selling an asset, so they're incentive to be optimistic and they're just naturally more optimistic. So, what we did there is, my partner in Boston came up with a very creative structure that said, okay, we'll pay you $190 million closing, but if the product hits certain sales at certain times, you can earn more money in these milestones. It added up to another, I think, another 40 million in total. But also there was a downside protection for us in what we call a reverse milestone, which said if the product didn't ramp as quickly as the seller thought, they owed us a milestone back.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I would say on the company side, and that's most of our business, it's really what are their capital needs, what are their opportunities, what are their alternatives to raise capital, whether that's doing equity or a convert or something like that. And then how are we positioned relative on a cost-to-capital basis? And one of the things that we do, and an advantage is that the structures are not all the same in terms of what part of the cash flow that you're buying. So again, I'll use the Shingles vaccine because it's a theme and it's easy.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's like anything, it's tough to get deals done, and you got to find the win win what works for the company, what works for you. Look at a lot of deals, we look at I don't know. Last year we looked at 150 or 200 deals and we'll do four or five a year, something like that. So a lot of it we try to screen out at the beginning. We have your typical funnel. We're adding stuff to the top of the funnel all the time, trying to screen through these various criteria that I laid out. And then we're trying to assess what's the willingness of the counterparty to do something and what's the return relative to the risk. And are we in the same zip code, so to speak, as the company? Into that, it spits out four or five.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“So again, back to the barriers to entry and predictability of cash flow, sustainability, that's attractive about orphan products. And the other thing that's attractive about them is there's a very high, what we call WTP willingness to pay. And so again, if you have people who had some kind of genetic defect and it results and some kind of enzyme deficiency, there's very few of those patients around. Maybe it's a couple of handfuls. So the willingness to pay is very high. The drugs are very expensive, but it's a very small line item on any insurance plan as opposed to cholesterol or diabetes or things that affect millions and millions of patients. So your pricing power there is better and therefore makes it more attractive and predictable for us.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“In order to make it economically attractive, the government put in legislation that said, if you do it, and you have to go through an FDA regulatory review, We will give you seven years of exclusivity where we will not approve another drug that does the same thing.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to most likely prevent some money from getting shingles and therefore maybe not being able to go to work or having to go to the hospital and get other kinds of treatments. So the ROI and in finance speak is quite high. So we're looking for those type of situations. We also do quite a bit in what's called orphan drugs. We've been investing there for a long time, actually. But the reason we like those is number one, in addition to the patent protection, there's special regulatory considerations that you receive if you develop an orphan drug. So way back when in the 80s, legislation was put in place in the US that if you as an incentive to get companies to develop drugs where you have very small number of patients but very high impact, a lot of times it can be children who have genetic defects of one sort or the other.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it really is asset specific and it's not something where you can just make generalizations. You have to go deep. And so what's changed in our diligence process is I'd say the last five to seven years in particular is we go out and we talk to the insurance companies. We survey the insurance companies and again going back to this shingles vaccine example, I think we talk to insurance companies that represented, I don't remember exactly, but something like 70, 80, 90 million lives in the US, so a very large swath of the population to get a sense of not just what the price is today, that's relatively easy to figure out, but what's the price going to be two, three, four, five years from now. Now, in the case of shingles vaccine, this is a very inexpensive product and the whole scheme of things. It costs about $400. Commercial plans in the US under the Affordable Care Act have to reimburse these vaccines if they're approved by the Commission on Vaccines, which that one is. And you think about it from the insurance companies standpoint, it's a no-brainer. I pay $400.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, well, that used to be going back 10, 15 years. You just assumed prices went up 5, 10% every year. You put that in your model and the power of compounding. You do that over 10 years, it makes a big difference. Not so much anymore. The one area in our diligence has changed the most in the last decade has been this willingness to pay, and particularly in the U.S. market I'm talking about now, but the idea of drug pricing, drug reimbursement, what price increases can you bake in? And we're looking at a deal now where the company historically had taken 9 or 10 percent price increases as drug's been on the market for a while, and now they're taking 3% price increases, so more like inflation.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“That we have work with us on an exclusive basis, have tremendous amount of experience. I mean, I say this number. It sounds like it's made up, but it's actually true. Our team has over 500 years of experience. So we're looking for those situations where our conclusion after doing deep due diligence, and remember we don't trade stocks. So we signed confidentiality agreements. We get underneath the hood, sort of speak, and we're able to interact with the companies, review the FDA correspondence. And we have to come to the conclusion that the drug is going to get approved and it's a matter of when, not if. Again, fortunately, I'm knocking on wood here. We've done not a lot of those, but it's been a very good area for us.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“During that time period, the companies are getting ready to launch the product. They've applied to the FDA. There's a back and forth. It always takes a little bit longer than the companies hope. But the companies need to prepare, and so they need capital to get ready to launch the product, to hire a sales force, to sign manufacturing contracts, because a lot of the manufacturing is done by these contract manufacturers on an outsourced basis. So they need some capital, but not all. So we may put a portion, maybe a third of the capital in six months before approval, three months before approval, and then have it set up that when it's approved, the second tranche, the post-approval tranche with two-thirds of the capital goes in. So those are the situations where we may do something and knock on wood. We've been very good about predicting that. And the second part of the answer is we're looking for drugs based on our experience and our team, including a group of senior advisors.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've done a dozen, a little more than a dozen deals where the phase three data has read out or Even after that, it takes about a year plus or minus to get approval by either the FDA or the EMEA in Europe or the corresponding regulatory authority in Japan. So there is this period where the phase three data has read out.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's a really interesting dynamic in where we are because, yes, the cost of the pharmaceutical is high. But if you take your lipidor every day And you prevent someone from having a heart attack and keep them out of the hospital. It's very expensive to go into the hospital to get some kind of cardiovascular procedure if you have a heart problem. It's much cheaper. And this is why the insurance companies, your lipitur, they'll give you for free basically because they know the economics of that. It's worth it for them to just pay for it.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“From that, if it works, thumbs up, the royalty's valuable. If it fails, it's binary. The royalty is worth zero because there's not going to be any sales or royalty cash flow. So once we get past that, we do want medically necessary products. People need to take their epilepsy drugs, right? They're going to get their shingles vaccine. They're going to take their migraine medication. Maybe in bad markets they take more antidepressants than they would otherwise. But what we don't do is things that are more optional or cosmetic. We dabbled in that a little bit a long time ago. It didn't work so well. So we're sticking to things that people really need and things that drugs that are ultimately going to save the healthcare system money.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's both. You have to have both. And you can have a great product, but products don't sell themselves. They're sold by people and companies and management teams. And you can also have a product that's maybe okay, maybe not great, maybe it's not high science. But if you have a marketing company that dominates a certain area, they can do very well with those products. We've seen that in the dermatology area, for example. Not a lot of high science and dermatology. You're treating acne and things like that. But there's certain companies that have a long history there. They have a large product portfolios. They're not just selling one product to their dermatologists. They're selling a suite of products. And they have relationships, right? The sales force has relationships with these doctors. So we really look for both. And one thing about focusing on drugs that are already approved by the FDA is we're not really taking science risk. We know the drug works. You have the clinical trials that have been conducted. You know the results.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“As you start walking through the due diligence process, you mentioned trying to eliminate the binary risks just as a starting point. I want to start with how much do your decisions tie to the science and how much of it are the people or the company that will implement the commercial plan.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we looked for strong patents. That gives you protected cash flow. We look for long patent life and high barriers to entry so that that's a sustainable cash flow. And maybe the most important thing is we look for the marketing company that's selling the product that's either the dominant or one of the most dominant in their sector. Going back to the shingles vaccine GalaxosMith Klein, certainly one of maybe the most dominant vaccine marketer around the globe. So that matters, of course, because our return is driven off sales and therefore royalty cash flows. So those are the things that we look for when we're trying to suss out these various opportunities.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, two reasons. Number one, if you look at our team, the DNA of our team is really pharmaceuticals. So if you look at the background of people. They'd been trained and grown up professionally in the pharmaceutical, pharmaceutical investing area. So that's the background. And it's a little bit of you don't know what you don't know. There are different elements in medical devices that are different from pharmaceuticals, different patent characteristics, different reimbursement characteristics. In some ways, we stick to our knitting. And the other is for what we do, which is trying to acquire protected sustainable cash flow pharmaceuticals is the most attractive area. Why? Because you have patents and the patents are strongest in pharmaceuticals where you have a patent on a chemical entity as opposed to a certain type of device. And device typically you can engineer around the patent. You can do it a different way. If you have a patent on the chemical entity, there's really no way to get around that.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“The target investment characteristics are several. First of all, we're totally focused on pharmaceuticals, biopharmaceuticals. So we're not doing medical devices or diagnostics or healthcare services or healthcare IT or managed care.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“Process, or most of these are public companies, even though they're small cap public companies that need capital. We know they need capital because we're tracking what their cash burn is, what their cash balance is. And people are in a dialogue. And so we have quarterly meetings. Everyone has a target list of their top 25 or 30. We go around the room and they talk about here's been my interaction with this target this quarter. And every quarter, if you go off and a few new ones come on. So it's really a systematic approach that we have going out in each region having the folks track the companies and marrying that with this top-down thematic approach to try to get to the special situations where we think it's an attractive product, asset, but also the right risk reward calculation from our standpoint.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source
“We put together a white paper not to be externally published, just for internal investment consumption. Is used for severe migraines. So once that was written and published for lack of a better word internally, then each of the regional leads goes out and tries to find companies in their region that fit that investment thesis. And we had a view about what was going to work and what was going to not work. And so that's more of the top down. We do that by therapeutic category. We're writing one right now on, which is going to be interesting, on the impact of COVID-19 today and in the future. So we try to do timely top-down. And then we do a bottoms up approach. So each regional lead, we have what we call a top 100 less roughly 25 companies or royalty opportunities in each region that the product's about to get approved so you can track where things are on the FDA program.”
2020-06-01 · Capital Allocators · Clarke Futch – Healthcare Royalty Partners (First Meeting, EP.20) · IDENTIFIED FROM THE TRANSCRIPT · source