Insight journal - Deals and alliances

Industry trend analysis: royalty and revenue financing deals

Posted on 02 April 2014

Tags: , ,

This article talks about the industry trend analysis of signing royalty and revenue financing deals among life science sectors.

Royalty financing can be described as sale of rights to royalties for sale of the product which would have otherwise been due to the licensor, in return for a lump sum investment. Companies generally seek to dispose of a royalty asset in order to raise funds to invest in other parts of its business, or to bridge a shortfall in the company’s finances.

A revenue financing or ‘synthetic royalty’ is where royalty is created when none had previously existed. The royalty stream is generated from future sales of a product or business, in return for a lump sum investment.

The following charts show the industry trend analysis in royalty and revenue financing deal announcements since 2007.

Figure 1: Trends in royalty financing deal announcements, 2007-2014

Untitled-1

 

 

 

 

 

 

 

Source: CurrentAgreements, 2014

The figure below shows the industry trend analysis in revenue financing or ‘synthetic royalty’ deal announcements.

 Figure 2: Trends in revenue financing or ‘synthetic royalty’ deal announcements, 2007-2014

2

 

 

 

 

 

 

 

Source: CurrentAgreements, 2014

Clearly, royalty financing is gaining popularity among smaller companies in the recent years. Historically this type of deal has been low in prevalence, primarily due to the very strict criteria imposed by royalty financing companies when selecting prospective investment targets. However recent years have seen an increase in royalty financing deal popularity, and it is anticipated that the current financial climate will induce more companies to seek monetization of royalty assets. It will be interesting to find out how 2014 turns out for investors to invest in a royalty financing deal.

Emergence of royalty asset purchase deals

Monetizing royalty assets has increased in recent years with both, corporate and academic licensors electing to sell all or partial royalty assets in return for lump sum investments for their organizations.

The primary reason for this increase in interest is due to companies seeking alternative investment streams now that more traditional investment channels have frozen due to the credit crisis across the globe.

The following table provides an overview of the leading recent royalty asset purchase agreements in the biopharma sector listed by headline deal value.

Figure 3: Recent royalty asset purchase agreements

3

 

 

 

 

 

Source: CurrentAgreements, 2014

Royalty financing is likely to remain the preserve of licensors that hold royalty rights or revenue streams to marketed or close to market products. Early stage license holders are unlikely to attract significant interest due to the inherent risk in investing in a single product/compound, where investing in the broader corporate entity is preferable. However, there are some investors willing to invest in individual projects, such as Symphony Capital. Royalty financing deals are likely to become more creative with investors willing to include equity or debt into the deal.

The data in this article was abstracted from the Royalty Financing Partnering Terms and Agreements in Pharma, Biotech and Diagnostics report, which provides comprehensive understanding and unprecedented access to the royalty financing partnering agreements entered into by the world’s leading biopharma companies. In addition the report provides details of deals broken down by deal type, therapy focus, and company A-Z. The report provides a detailed understanding and analysis of how and why companies enter royalty financing and revenue financing deals.

Sources

The above information has been abstracted from the following resources:

  • Royalty Financing Partnering Terms and Agreements in Pharma, Biotech and Diagnostics
  • Current Agreements life sciences partnering, M&A and financing deals database

 

Related

View: glossary definition for royalty financing

View: glossary definition for synthetic royalty financing

View: Current Partnering’s Partnering Scorecard – view top life science partnering deals by value

View: Current Partnering’s Deal Metrics – the latest deal trend infographics for life science deal making

View: Current Partnering’s Big Pharma Deal Making Scorecard – latest trends in big pharma deal making activity

Signup: Current Partnering Dealmakers Update – weekly newsletter providing the latest life science industry deal news, deal making trends, partnering events – sign up now

Signup: Current Agreements Deals Review – monthly newsletter – reviewing the previous month’s life science deal making – partnering, M&A and financing – sign up now

Subscribe: Current Agreements life sciences partnering, M&A and financing deals database – find out more

 

Print Friendly, PDF & Email

Leave a Reply

 

cpbannerad300x150new2gif
rauconbadgejpg
amsbanner300x150jpg
cpbannerad300x150new1gif
rauconbadgejpg
amsbanner300x150jpg