Royalty Pharma and Deloitte Release Landmark Study on the Role of Royalties in Funding Biopharma Innovation
Royalty Pharma plc (Nasdaq: RPRX), the world’s largest acquirer of biopharmaceutical royalties and a key investor in life sciences innovation, has announced the publication of a first-of-its-kind study conducted by Deloitte. The report, titled “Role of Royalties in Funding Biopharma Innovation”, provides an in-depth examination of the evolving royalty financing market, analyzing current dynamics, growth drivers, and the outlook for royalties as a critical capital solution for the global biopharmaceutical sector.
The full report is now accessible on both Deloitte’s and Royalty Pharma’s websites, reflecting the shared commitment of both organizations to foster transparency and understanding around alternative financing strategies in biopharma.
A New Lens on Biopharma Capital Strategies
The biopharmaceutical industry is one of the most capital-intensive sectors in the world. Bringing a single innovative therapy from early-stage research through to regulatory approval and commercial launch often requires investments exceeding billions of dollars and spans many years of development. Traditional funding routes—such as venture capital, public offerings, debt financing, and strategic partnerships—have long formed the backbone of biopharma’s capital structure. However, as the demand for capital intensifies and global innovation accelerates, companies are increasingly looking toward alternative or complementary funding mechanisms.
One such mechanism, royalty financing, has emerged as a strategic solution that offers flexibility, scale, and non-dilutive benefits. Deloitte’s report, commissioned and published with the support of Royalty Pharma, positions royalties not simply as a niche financial instrument, but as an increasingly mainstream component of the funding toolkit for biopharma executives.
Teresa Leste, Principal at Deloitte Consulting LLP and one of the report’s lead authors, emphasized this shift in perspective.
“Our report takes a deep dive into the key factors driving increased executive interest in royalty funding. As capital demands grow and global innovation accelerates, the biopharma industry is evolving towards a more diversified funding model, with royalties gaining prominence as a tailored funding solution capable of supporting biopharma’s significant capital requirements,” said Leste.
Royalty Pharma’s View: A Paradigm Shift Underway
Pablo Legorreta, Founder and Chief Executive Officer of Royalty Pharma, echoed Deloitte’s findings and placed them in the context of his company’s nearly three decades of experience.
We’re witnessing the emergence of a new funding paradigm in biopharma,” Legorreta said. “As highlighted in Deloitte’s publication, royalties are increasingly recognized as a vital component of a diversified capital structure to help fund innovation and advance scientific breakthroughs. For companies seeking flexible, non-dilutive capital at scale, royalties are an attractive solution.”
Legorreta’s comments reflect Royalty Pharma’s broader mission: to democratize access to capital for innovators, whether they are large pharmaceutical enterprises, mid-cap biotechnology firms, or academic research centers translating discoveries into treatments.
Inside the Deloitte Study
Deloitte’s research, described as the most comprehensive analysis of the royalty market to date, drew upon extensive industry engagement. The firm surveyed and interviewed more than 110 biopharma executives, including chief executive officers (CEOs) and chief financial officers (CFOs), who shared their perspectives on royalty financing, its benefits, challenges, and future role within corporate financing strategies.
Key Findings at a Glance
The study revealed several important insights:
- Strategic Benefits Driving Adoption
- Royalties are increasingly embraced as part of a diversified funding strategy.
- Executives highlighted advantages such as the non-dilutive nature of royalty financing, meaning companies can access capital without issuing new shares and diluting ownership.
- Additional benefits include the absence of restrictive covenants, the ability to retain operational control, and the opportunity to finance individual products rather than entire company pipelines.
- Importantly, the scale of capital available through royalty transactions has grown significantly, positioning royalties as a viable funding source for both small biotech firms and large multinational pharmaceutical companies.
- Positive Investor Perception and Attractive Cost of Capital
- Surveyed executives reported that royalties are viewed positively by the investment community, often perceived as a disciplined and shareholder-friendly approach to financing.
- The cost of capital for royalty deals is also seen as attractive compared to traditional equity or debt instruments, particularly in volatile market conditions.
- Future Outlook
- A striking 87% of surveyed executives indicated they would consider royalties as part of their capital-raising plans over the next three years.
- This statistic underscores the growing recognition of royalties as a mainstream financing option, not just a fallback in challenging markets.
- Case Studies of Innovative Applications
- The report includes multiple case studies showcasing how companies have used royalties in creative ways—such as co-funding late-stage clinical trials, supporting new product launches, or monetizing existing royalty streams to reinvest in pipeline expansion.
Together, these findings illustrate a market in transformation. Once considered primarily as a secondary financial tool, royalties are now becoming central to many companies’ capital strategies.
Understanding Royalty Financing: How It Works
To fully appreciate the significance of Deloitte’s report, it is useful to explore the mechanics of royalty financing in biopharma.
A royalty is a payment made to an entity—such as a research institution, biotech company, or innovator—that owns the rights to a product or intellectual property. In the pharmaceutical context, royalties are often tied to the sales of a drug. For instance, an academic lab that discovers a molecule and licenses it to a pharmaceutical company may receive a royalty percentage on future product revenues.
Royalty financing takes this concept further. Companies like Royalty Pharma purchase royalty streams outright or provide capital upfront in exchange for future royalty payments. This model enables innovators to access significant capital today, while investors like Royalty Pharma take on the risk—and potential reward—of future product performance.
For biopharma companies, this provides:
- Immediate, scalable funding for clinical trials, regulatory submissions, or commercialization activities.
- Non-dilutive capital, avoiding share issuance and shareholder dilution.
- Operational flexibility, since companies can raise funds tied to a specific product without broader restrictions on corporate activities.
This flexibility is particularly attractive in a sector where drug development timelines are long, and capital needs are unpredictable.
Broader Industry Implications
The Deloitte report not only documents current sentiment but also highlights broader implications for the industry:
- Accelerating Innovation: By unlocking new sources of capital, royalties help ensure promising therapies do not stall due to funding gaps. This can be critical in therapeutic areas such as oncology, rare diseases, and neurology, where unmet medical needs remain high.
- Smoothing Market Cycles: In times of public market volatility, royalty financing offers companies an alternative path to secure funding without waiting for favorable IPO or secondary offering conditions.
- Supporting Smaller Players: Early-stage biotechs, which often face the steepest capital challenges, can leverage royalty deals to bridge the “valley of death” between scientific discovery and proof-of-concept.
- Strengthening Ecosystem Collaboration: Royalties also reinforce ties between academic institutions, non-profits, and industry, creating a more integrated ecosystem where early discoveries can more easily translate into commercial products.
About Royalty Pharma
Founded in 1996, Royalty Pharma has grown to become the leading global buyer of biopharmaceutical royalties and one of the largest non-dilutive funders of innovation in the life sciences. The company collaborates across the spectrum of the industry, partnering with academic institutions, research hospitals, non-profits, biotechnology firms, and major pharmaceutical companies.
Royalty Pharma’s portfolio today includes royalties on more than 35 commercial products and 17 development-stage candidates, representing a wide array of therapeutic categories. Its holdings span some of the industry’s most important therapies, including:
- Trikafta (Vertex) – a transformative therapy for cystic fibrosis.
- Trelegy (GSK) – a treatment for chronic obstructive pulmonary disease (COPD).
- Evrysdi (Roche) – an oral therapy for spinal muscular atrophy.
- Tremfya (Johnson & Johnson) – for psoriasis and psoriatic arthritis.
- Tysabri and Spinraza (Biogen) – treatments for multiple sclerosis and spinal muscular atrophy.
- Imbruvica (AbbVie/Johnson & Johnson) – for hematological cancers.
- Xtandi (Astellas/Pfizer) – a leading prostate cancer therapy.
- Nurtec ODT (Pfizer) – for acute migraine treatment.
- Trodelvy (Gilead) – a therapy for triple-negative breast cancer.
Through its dual approach—purchasing existing royalties and co-funding new innovation in exchange for future royalties—Royalty Pharma has positioned itself as a unique capital provider in the biopharma ecosystem.
The Future of Royalty Financing
The release of Deloitte’s study represents a milestone in the maturation of the royalty market. By documenting executive perspectives, quantifying adoption trends, and analyzing case studies, the report provides the most authoritative overview to date of how royalties are shaping the future of biopharma financing.
With 87% of executives indicating openness to royalty financing in the near term, the market is poised for expansion. As the costs and complexities of drug development continue to rise, and as capital markets fluctuate, royalties are likely to gain further traction as a flexible, scalable, and innovation-friendly solution.
For Royalty Pharma, the findings validate its long-standing vision and suggest continued growth opportunities. For biopharma innovators, the report underscores that royalties are no longer a peripheral option—they are a central pillar in the evolving capital landscape.
Deloitte’s “Role of Royalties in Funding Biopharma Innovation” and Royalty Pharma’s leadership in publishing it mark a turning point for the industry. The study not only confirms the growing adoption of royalties but also highlights their strategic importance in sustaining innovation.
As Legorreta summarized, royalties are becoming an indispensable funding tool—providing non-dilutive, flexible capital that allows companies to pursue scientific breakthroughs while managing shareholder value. For an industry defined by long timelines, high risks, and transformative rewards, the rise of royalty financing may well represent one of the most significant financial evolutions of the coming decade.
For more information and to access the full Deloitte report, visit www.royaltypharma.com.
