Royalty Sale
(life sciences)

Description:

  • A royalty sale is an alternative to a loan for monetizing a future royalty stream derived from an FDA-approved drug or a licensing agreement related to such drug.
  • Although a royalty sale is not a type of debt, many royalty-based lenders also participate in royalty sales. In addition, a royalty sale can be structured to allow the seller to retain upside.
  • In a full royalty sale, 100% of the economic rights to receive future royalties are transferred to the buyer/investor.
  • In a partial royalty sale, less than 100% of the economic rights to receive future royalties are transferred to the buyer/investor. This allows the seller to retain upside.
  • The seller of the royalty stream can receive a lump sum payment and/or milestone payments.
  • Although royalty sales could be utilized in many industries, the most-established market in the technology sector is life sciences. 
  • Royalty sales can also be utilized by universities, research institutions, inventors, and non-profit organizations to monetize intellectual property.

Pros:

  • Allows company or other owner of future royalty stream to convert long-term income into immediate lump sum payment.
  • Unlocks value that can be reinvested in other opportunities.
  • Useful tool for risk management and portfolio diversification.

Cons:

  • Seller of future royalty stream gives up part or all of their upside potential.

Typical seller:

  • Life sciences company with FDA-approved drug or medical device, or rights to a future royalty stream.  Seller could also be a university, research institution, or inventor. 

Typical lender: