A Step-by-Step Guide to Biotech Funding Through Royalties
1
Step 1: License Agreement
The Biotech company develops a drug or technology and licenses it to a Pharma Partner (a bigger pharmaceutical company).
In exchange, the Pharma Partner agrees to pay royalties and milestone payments based on the drug's success or sales.
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Step 2: Royalty Monetization
Instead of waiting for future, uncertain royalties, the Biotech company sells a portion of its future payment rights to a royalty financer.
The royalty financer provides upfront payment (Capital), enabling immediate funding for operations or growth.
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Step 3: Cash Flow to Royalty Financer
As the drug generates sales, the Pharma Partner pays royalties directly to the royalty financer until the agreed portion is fully paid.
This provides non-dilutive funding (no new equity issued) while leveraging future royalties.
Variations
The above schedule outlines the standard royalty monetization concept. However, as with licensing deals, many variations are possible:
Multiple Assets and Licenses
The concept can be applied to baskets of assets and licenses; this makes RM more attractive to RM financers.
No Milestones, Only Royalties
Deals can be structured in such a way that certain milestones are not or only partly included in a RM deal if that fits other stakeholders' interest better.
No License But Revenues
If you do not have license deals but a predictable or growing revenue stream from one or more of your products, these can be monetized as well.
NEW YORK, NY, and PARSIPPANY, NJ, January 11, 2026 – Royalty Pharma plc (Nasdaq: RPRX) and Teva Pharmaceuticals, a U.S. affiliate of Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA), today announced a funding agreement of up to $500 million to accelerate the clinical development of Teva’s anti-IL-15 antibody, TEV-‘408. IL-15 is a key cytokine involved in multiple immune-mediated disease pathways. Emerging Phase 1b data from the ongoing TEV-‘408 vitiligo study provides preliminary support for IL-15 as a potential therapeutic target to treat a broad variety of autoimmune conditions. Teva anticipates sharing results from TEV-‘408 trials during 2026.
NEW YORK, NY, DECEMBER 16, 2025 – Royalty Pharma plc (Nasdaq: RPRX) today announced that it has acquired a pre-existing royalty interest in Nuvalent’s neladalkib and zidesamtinib from an undisclosed third party for up to $315 million
NEW YORK, NY, and SOUTH SAN FRANCISCO, CA, DECEMBER 4, 2025 – Royalty Pharma plc (Nasdaq: RPRX) and Denali Therapeutics, Inc. (Nasdaq: DNLI) today announced a $275 million synthetic royalty funding agreement based on future net sales of tividenofusp alfa.
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