New Financing Methods in the Biopharma Industry: A Case Study of Royalty Pharma, Inc.

24 Pages Posted: 24 Sep 2013 Last revised: 28 Feb 2021

See all articles by Andrew W. Lo

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Sourya Naraharisetti

Duke University

Date Written: December 15, 2013

Abstract

The biotechnology and pharmaceutical industries are facing significant challenges to their existing business models because of expiring drug patents, declining risk tolerance of venture capitalists and other investors, and increasing complexity in translational medicine. In response to these challenges, new alternative investment companies have emerged to bridge the biopharma funding gap by purchasing economic interests in drug royalty streams. Such purchases allow universities and biopharma companies to monetize their intellectual property, creating greater financial flexibility for them while giving investors an opportunity to participate in the life sciences industry at lower risk. Royalty Pharma is the largest of these drug royalty investment companies, and in this case study, we profile its business model and show how its unique financing structure greatly enhances the impact it has had on the biopharma industry and biomedical innovation.

Keywords: Biotech, Pharmaceutical, Translational Medicine, Drug Royalty Investment Company, Intellectual Property, Royalties, Corporate Finance

JEL Classification: G11, G24, G32, I11

Suggested Citation

Lo, Andrew W. and Naraharisetti, Sourya, New Financing Methods in the Biopharma Industry: A Case Study of Royalty Pharma, Inc. (December 15, 2013). Available at SSRN: https://ssrn.com/abstract=2330089 or http://dx.doi.org/10.2139/ssrn.2330089

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

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Santa Fe Institute

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Santa Fe, NM 87501
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Sourya Naraharisetti

Duke University ( email )

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Durham, NC 27708-0204
United States

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