Structuring Royalty Monetizations and Bankruptcy Risks

This article is a technical report that discusses the implications of bankruptcy on royalty monetizations, particularly in the biotech sector. It outlines the basic structure of royalty monetization, where a licensor sells the right to receive future royalty payments under a license agreement without transferring the agreement itself. The report explains the bankruptcy process concerning these agreements, detailing how a biotech company must either assume or reject the license agreement during bankruptcy proceedings. If the agreement is assumed, the licensee must continue to make royalty payments. Conversely, if rejected, the licensor-debtor is no longer obligated to perform, and the licensee can either accept the rejection or assert rights under Section 365(n) of the Bankruptcy Code. The article emphasizes the risks involved in these transactions, particularly in light of the rising number of biotech bankruptcies and the potential impact on royalty payments.