Royalty Financing: Unlocking Value in the Life Sciences

Innovation in pharma faces many challenges; financing should not be one of them.

Exciting young biotech companies, breakthrough academic and research organizations, medical device companies, and other innovators encounter significant barriers to raising capital while staying in control of how their discoveries are nurtured and how their companies are governed. To unlock the value held back by control-taking or burdensome financing solutions, Oliver Wyman has joined forces with Duke Royalty.

The What and the Why of Royalty Financing

Royalty financing is a means of raising capital with significant differences from regular debt financing (such as loans and trade credit) and equity financing (typically private equity, IPO, or secondary issues). Royalty capital can fund the recipient’s most critical needs, such as product launches, acquisitions, and further R&D, or can re-capitalize balance sheets. In exchange for the capital, the royalty company receives a small percentage of the company's future revenues or cash flow. As payments fluctuate with revenue, royalty investors are better aligned with equity holders than debt providers, a key differentiator of royalty companies. Essentially the innovators have access to capital markets without the risks and distractions of going public.

The roots of royalty financing are found in industries that also have discovery and development at their core, such as mining. In that industry, revenues from a producing mine can be used as the basis to finance testing, development, and commercialization of a new site. In the case of a recently discovered drug or device, the owner might commit a portion of future revenues in exchange for capital, but current operations and processes are not impacted.

Royalty Financing: Unlocking Value in the Life Sciences

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Duke Royalty CEO Neil Johnson and Oliver Wyman Partner David Campbell Answers 5 Questions
  • 1Why is royalty financing better than debt or equity for the pharma industry?

    Innovation is changing significantly with genomics, personalized medicine, and big data. Allowing stable ownership is essential for long-term success. Unlike debt or equity financing, royalty financing allows the owner to maintain full control and is not focused on immediate repayment of principle nor short-term return horizon. The interests of both the innovator and investor are squarely aligned in that when the discovery begins to yield revenue, both sides benefit.

  • 2What role does Oliver Wyman play in royalty financing?

    Oliver Wyman’s Health & Life Sciences practice brings three distinct advantages: 1) a global footprint that allows deal execution anywhere, 2) a deep “bench” of more scientists, physicians, hospital executives, and payer experts than any comparable financing entity, and 3) exceptional qualifications in forecasting the revenues of new healthcare interventions such as novel therapeutics, evidenced for our clients and for investors over years, due to a proprietary methodology and dataset.

  • 3How is Duke Royalty uniquely qualified to support life sciences financing?

    Duke's executives bring a proven track record in corporate finance and royalty financing. Duke has deep competency in transferring its success in North America to European markets, and now, with Oliver Wyman, an exclusive strategic collaboration that brings proprietary deal flow for investors. Oliver Wyman and Duke have put together an investment committee whose members have advised on over $2 billion healthcare royalty transactions in North America over the last 20 years.

  • 4Why is this collaboration unique?

    It is the first royalty company listed on a major European exchange, allowing public European investors access to royalty investments that have been nearly unattainable. Furthermore, it has a lower cost of capital due to employing a time-tested Guernsey-based corporate structure that is a benefit to both investees and investors.

  • 5What are the keys to success in royalty financing?

    For the investor, it is confidence that the innovator’s balance sheet and revenue stream has been vetted and its drug’s likelihood of success and future market opportunity have been deeply analysed. For the innovator, selecting a partner with deep experience in royalty financing and the confidence that they can maintain control are essential. Ensuring the lowest cost of capital possible is a key to success for both sides.