This Royalty Report provides an analysis of publicly reported royalty finance transactions for the last five years (2020 to 2024) in the life sciences sector, focusing on both traditional and synthetic royalty transactions. Traditional royalty transactions encompass monetizations of royalties under existing license agreements. Synthetic royalty transactions involve the sale of a portion of future product sales, rather than the sale of an existing future royalty entitlement.
Introduction
Methodology and limitations: We analyzed a total of 102 publicly announced royalty transactions over this time period involving the largest and/or most active funds in the space, consisting of the following: Royalty Pharma, HealthCare Royalty Partners (HCRx), Blackstone, OMERS, XOMA Royalty, CPPIPB, Oberland Capital, and DRI Capital. Survey data are based on publicly reported information, including in SEC filings, as well as data from 27 financing transactions executed by Gibson Dunn (representing approximately 30% of the total transactions reviewed during this period). While this is an expansive survey, it does not capture certain transactions that would not have been reported on EDGAR or announced in press releases. Additionally, global pharmaceutical companies are increasingly using clinical funding arrangements (often structured as a type of synthetic royalty financing transaction) to defray development costs and many of these transactions are not sufficiently material to require disclosure. This analysis highlights the growing complexity and dynamism of the pharmaceutical royalty finance market.
Trends and Market Outlook
Key Trends (2020 – 2024)
- Rising Use of Synthetic Royalties: Emerging as a viable alternative to debt or equity financing transactions, with an average annual growth rate of 33% over the five-year period.
- Increased Activity in recent years (2023 and 2024): Driven in particular by high-value deals and late-stage product transactions.
- Milestone-Heavy Transactions: Growing preference for performance-linked payments, allowing buyers to lower their risk profile and allowing sellers to lower their cost of capital.
Factors Driving Market Dynamics
- Economic Conditions: Depressed equity valuations have prompted more companies to seek non-dilutive capital, including through royalty financing. At the same time, a higher interest rate environment has increased discount rates that royalty finance providers apply when valuing royalty streams, which increased the cost of capital, likely moderating the volume of royalty financing transactions.
- Clinical and Regulatory Process: Funds tend to focus on commercial-stage products, though opportunities exist for pre-approval products, in the form of debt, clinical funding arrangements, and/or where positive clinical data bolsters the investment thesis for a particularly de-risked asset.
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