Royalty Monetization Study

A biotech company that has developed and out-licensed innovative technology is faced with a pressing question during its lifecycle: what to do with potentially valuable incoming royalty and milestone payments that may stretch far into the future?

If the company wants to accelerate those future payments to invest in its business now, a royalty monetization transaction provides a solution that blends aspects of asset sales and debt financings. Like in an asset sale, a royalty monetization investor purchases an asset from a seller (in this case, the right to receive a future stream of payments under a particular agreement). As in a debt financing, the investor expects to earn a specified return by providing funding up front in exchange for the right to receive future payments. But in a royalty monetization, the seller is typically not responsible for those payments. Instead, the investor looks primarily to the product underlying the royalty stream.

Royalty monetizations are available to companies that have contractual rights to future payments and are not an option for companies at an earlier stage of growth. These transactions permit sellers to raise capital while retaining ownership and control of their businesses without the restrictive covenants you might see in debt financings or the dilution inherent in raising capital through issuing equity.

Because of the limited universe of companies that can engage in these transactions, royalty monetizations remain a smaller and less well understood market than other more conventional forms of financing. In order to shed some light on these transactions, we have reviewed deals of this type involving commitments of at least $15 million entered into by biotech companies with equity listed on U.S. stock exchanges in the last five calendar years (January 1, 2019 to December 31, 2023). As a separate segment of this market involves sellers that are not public filers (such as universities, non-profit organizations, inventors and private companies), and big pharma companies for which the underlying agreements are not of sufficient materiality for them to be publicly filed, this is necessarily only a snapshot of the market (but one that is generally representative, based on our experience in those other sectors of the market). 

If you would like to learn more details about our study and this growing market, please feel free to reach out to our team.