Royalty-Based Financing Models

Are royalty deals the new savior of BioPharma cash burn? Challenging capital markets have made these deals more attractive to all players: What’s striking is that these deals are no longer just the domain of smaller, cash-strapped biotechs; even large, well-capitalized companies are increasingly turning to them. Blackstone Life Sciences has been a pioneer in this space, structuring several creative deals with major companies. One of the most notable was their $2B deal with Alnylam Pharmaceuticals in April 2020, during the depths of the COVID-19 crisis. The deal was structured as follows: - $1 billion in committed payments to acquire 50% of Alnylam Pharmaceuticals’s royalties and commercial milestones for inclisiran, a drug that was still 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 programs, 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. 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, highlights the growing appeal of royalty financing, even for companies as well-capitalized as Moderna. It’s not just large companies benefiting from these deals. Royalty Pharma’s May 2024 deal with Agios Pharmaceuticals is a perfect example. Royalty Pharma paid $905M in upfront cash for a stake in Agios’s royalty on the drug Vorasidenib, being developed by Servier. Considering Agios’s market cap was under $2B at the time, this deal provided a significant cash infusion, demonstrating how royalty deals can be a game-changer for smaller firms as well. As the capital markets remain tight, royalty deals are evolving from a niche financing tool to a mainstream strategy for companies of all sizes. They offer a way to secure critical funding without giving up equity, providing a lifeline in a turbulent financial landscape. Expect to see more of these deals as companies navigate the current environment.

We already finance drugs with royalties. Why not AI drug discovery models? By structuring deals where investors earn royalties only if an AI-discovered drug succeeds, we align incentives with clinical truth—not preclinical hype. Most AI drug discovery platforms today get paid for preclinical insights, detached from what really matters: clinical success. But what if we applied traditional royalty financing? An investor funds the development of an AI model or proprietary dataset. In return, they earn a royalty share on revenues from any drug that successfully reaches market using that AI. This creates true skin in the game. The model’s value is tied not to slide decks or preclinical promises, but to its ability to predict—and de-risk—what actually works in clinical trials. Such structures could transform how we finance data, incentivize model rigor, and align everyone with the hardest problem in biotech: clinical predictive power. #DrugDiscovery #Biotech #AI #LifeSciences #ClinicalTrials #HealthcareInnovation #BiotechInvesting #AIinBiotech

As Harvard faces deep research funding cuts, a private equity firm has stepped in with a $39M commitment to support a Harvard research lab. Could this signal a new future for how academic science is funded? The investment comes from Turkish firm İş Private Equity, which typically backs high-growth small and medium-sized enterprises (SMEs). The funding recipient is the lab of Professor Gökhan Hotamışlıgil at the Harvard T.H. Chan School of Public Health, whose research aims to develop therapies for obesity and other metabolic diseases. Broader context Private equity (PE) rarely funds basic university research directly, as it doesn’t align with traditional return-focused models. But that’s changing. New structures are emerging where PE capital supports translational or applied academic science: ▫️ New startup - İş Private Equity launched Enlila, a new biotech company created to fund Hotamışlıgil’s lab over the next 10 years. Enlila will also invest in translating the lab’s discoveries into therapeutic products. ▫️ Joint ventures - Since 2017, Deerfield Management has created university partnerships to advance early-stage therapeutics, providing capital and helping universities evaluate projects toward Investigational New Drug (IND) readiness. Recent examples include: - Hyde Park Discovery with University of Chicago ($130M, 2025) - VeritaScience with Washington University in St. Louis ($130M, 2024) ▫️ Royalty monetization - In 2023, Purdue Research Foundation received over $100M from Blue Owl Capital by selling a portion of its royalty interest in Pluvicto, a prostate cancer therapy. Yale University executed a similar deal for the drug Yervoy, turning future royalties into immediate research capital. Takeaway As the research funding landscape evolves, the capital stack for science is becoming increasingly complex. I think we’ll likely see more private equity, venture capital, and philanthropy stepping in to support bold, high-risk science in new and unexpected ways. Curious to hear your thoughts: Should private equity be stepping into early-stage science? Which research areas could benefit most from this approach?