IP securitization is alive (but maybe not well) and living in . . .

This recent story in the FT (Morgan Stanley unveils $250m securitisation) got a lot of people's attention -- at least from those of us who are interested in intangible asset financing. According to the story:

Morgan Stanley has launched a new intellectual property securitisation in the latest sign of life for structured products and a revival of investor interest in even the most cutting-edge corners of the market.
The bank has launched a $250m deal for Vertex Pharmaceuticals, a US biotech company that would see investors repaid from contractual milestone payments on a drug still in development.

(See also a companion story -- Intellectual property trade stirs up interest)

The Reuters story provides more detail:

The payments would come from Johnson & Johnson (JNJ.N), which licensed European rights to the drug, telaprevir, three years ago from Vertex.

Interesting that J&J licensed the right so long ago. It would be interesting to see what its projections are on the eventual revenues and therefore what are the royalty flows back to those Morgan Stanley investors. A risky proposition, which as Joff Wild points out, may have a huge upside. Still, as Joff notes, "Just as long as none of my pension pot goes anywhere near any deal."

So, we will see if this is a breakthrough in intangible asset monetization that will revive the market -- or a one-off risky deal that will end up sinking it. Personally I would like to first see a relatively plain vanilla patent securitization where the royalty flow has already been established. That might do more to entice investors back into this game. ."

Still, the idea of using securitization as an alternative method of financing product development is one that I find strongly appealing.


UPDATE -- see also the Vertex press release