Morgan Stanley launched a $250 million intellectual property securitization for Vertex Pharmaceuticals — a U.S. biotech company — where investors would be repaid from contractual milestone payments on a drug still in development, according to published reports.
This is the 18th drug-based deal for Morgan Stanley since 2004, including 5 deals managed in 2008 before the Lehman Brothers’ collapse.
Reports say that the presence of these esoteric loans is a sign that the fundamentals of asset-backed borrowing are still present in the market, and that the return of securitization is crucial to the economic recovery.
Intangible-assets based deals, such as the intellectual property of this deal, are similar to normal securitization in the borrowing of the issuer against cash flows from specific assets. The difference lies in the reliability of the cash flows, as a direct result of the nature of the assets.
For companies, this is appreciated because they are able to keep the assets without diluting equity, and bear no risk if the drug should fail, due to the special purpose vehicle structure. For investors, the deals represent high yields, as most have double-digit coupons.