Standard & Poor's rated its first royalty securitization based on a pharmaceutical research patent held by a university, and anticipates more such deals down the line.

The deal, which was privately placed and sold to investors abroad, was worth more than $100 million, and agented by the London office of West LB. The transaction was called BioPharma Royalty Trust, and is structured as a $57 million senior tranche, subordinated by a mezzanine tranche and an equity piece.

The revenue stream backing the deal is tied to an HIV/AIDs medication, which Bristol-Myers Squibb brands as Zerit. The U.S.-based university at the core of the deal has been receiving 70% of the royalties associated with the use of its research since 1987, said S&P analyst Bernhard Fischer.

Fischer added that the deal's life ends in 2006, but the research patent expires two years later, in 2008, with the remaining proceeds paid out the equity holder.

While theoretically this type of technology could be used to securitize revenue streams associated with any of the new drug companies patenting their research (and going public), S&P said that, to be comfortable with a deal, there needs to be a historical revenue stream of a well established product in the marketplace.

"With a new product, you wouldn't have a history, you wouldn't have a defined target market, and you wouldn't, at that point, know if someone else was about to hit the market with a competing product that might not infringe against their patent," said Ellen Welsher, a director in the new assets group at S&P.

However, there is a possibility that other universities will see this deal and consider securitization as well, Welsher said. Further, the parties involved with this transaction were pleased and would consider similar deals going forward.

While S&P would not disclose the name of the university, the agency did say the university was a research-based institution rated triple-A by S&P.

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