September 3, 2024
In the face of challenging capital markets, BioPharma companies are increasingly turning to royalty deals as a strategic financing alternative. Traditionally seen as the domain of smaller, more resource constrained biotechs, these deals are now attracting large, well-capitalized firms, signaling a significant shift in the industry's approach to funding.
The Rise of Royalty Financing
Royalty financing offers a non-dilutive pathway for companies to secure funding, a critical advantage in a time when raising capital through equity can lead to significant dilution for existing shareholders. This form of financing not only provides immediate capital but also offloads a portion of the risk, as companies can monetize gains upfront before a drug is fully approved. Depending on the circumstances, such deals can also enable more control by the drug developer, as they can remain the sponsor without having to give up control to a larger BioPharma company.
One of the most notable examples of this strategy in action is Blackstone Life Sciences' $2 billion deal with Alnylam Pharmaceuticals in April 2020. This deal was structured as follows:
▪️ $1 billion in committed payments to acquire 50% of Alnylam's royalties and commercial milestones for inclisiran, a drug that was in Phase III trials at the time. For reference, Alnylam is entitled to royalties up to 20% on sales of inclisiran.
▪️ Up to $750 million in a first lien senior secured term loan, led by GSO.
▪️ Up to $150 million for the development of Alnylam’s cardiometabolic program, vutrisiran and ALN-AGT.
▪️ $100 million purchase of Alnylam common stock.
The context is crucial here: Alnylam’s market cap was around $15B at the time, half of what it is today. Had they raised $1B through new shares, existing equity holders would have faced almost 7% dilution overnight. The royalty deal allowed Alnylam to secure non-dilutive financing at a critical moment. What’s also notable is that Blackstone was willing to value the inclisiran royalty stream so highly despite the drug being only in Phase III, largely due to its unique twice-yearly dosing regimen.
Fast forward to today, inclisiran (Leqvio) is generating nearly $200M in quarterly sales and is on track to become a multi-billion dollar product.
Appeal Across the Board
Another significant deal by Blackstone was with Moderna, involving a $750M investment in a set of flu vaccines across Phase 2 and Phase 3 trials. This deal, while riskier, underscores the growing appeal of royalty financing across the BioPharma spectrum, even for companies as well-capitalized as Moderna.
Royalty deals can be transformative for smaller companies. Royalty Pharma's $905 million deal with Agios Pharmaceuticals in May 2024 for a stake in the drug Vorasidenib's royalties provided a substantial cash infusion. Agios’s market cap was under $2B at the time, which demonstrates the potential of royalty financing to change the game for firms with limited capital.
Looking Ahead
As the capital markets continue to present challenges, royalty deals are evolving from a niche financing tool to a mainstream strategy for BioPharma companies of all sizes. These deals offer a lifeline, enabling companies to navigate the turbulent financial landscape without compromising equity or control over their developments.
