Just What the Financier Ordered? A Methodology for the Securitization of Medical Device Receivables

Abstract

As the proportion of the world population over age 65 is projected to double between 2015 and 2050, medical device companies seemingly have a favorable market opportunity to meet this rising demand for healthcare. Yet venture capital funding in the medical device industry has stagnated due to high research and development costs in the industry, which are driven by a lengthy medical device approval process and uncertain profitability for a device in the market. Clearly, medical device companies stand to benefit from alternative funding sources. In this thesis, we propose the securitization of a portfolio of medical devices as a viable source of funding for medical companies that would promote the innovation of new devices and life-saving treatments. Securitization, a financial engineering technique that has traditionally been used with loan-based assets such as mortgages and student loans, is applied in a novel setting to the asset class of future medical device revenues, presenting a new set of modelling challenges including the modelling of the FDA approval process and the prediction of future sales. We propose a methodology for the securitization of future medical device revenues, and more generally, a framework for securitizing the future revenues of any portfolio of products. We apply ideas from loan-based securitizations, run Monte Carlo simulations, and analyze industry dynamics to investigate the risks and returns of investing in medical device-backed securities.