Cure
Overview
Royalty Pharma’s Sam Landsberg and Cooley’s Mike Tilney explain when a royalty deal beats raising equity and how its terms can shape a future sale of the company.
In June 2025, Revolution Medicines signed a funding deal with Royalty Pharma worth up to $2 billion. It consisted of a synthetic royalty of up to $1.25 billion on daraxonrasib, the company's cancer drug then in Phase 3 development for pancreatic cancer, and a senior secured loan of up to $750 million.
Revolution Medicines had other options. It could have sold stock, issued convertible notes, or partnered the drug with a large pharma company, according to Sam Landsberg, SVP, Finance and Treasurer at Royalty Pharma, who spoke during a panel at NewYorkBIO Innovation Summit in September. Landsberg said the company was valued at about $6 billion when it signed the deal, and that the royalty let it avoid a partnership. It's now a $40 billion company.
Landsberg said executives heading into a major catalyst aren't expecting their stock to rise 10 percent. "They're thinking maybe it'll double, maybe it'll triple," he said.
In that situation, he said, an equity deal can be very expensive. A royalty deal finances one specific asset, which is especially attractive when investors aren't valuing the company's other assets.
Royalty financing isn't a fit for every biotech. The deals discussed on the panel involved companies with an approved drug, an asset with proof of concept, or a pivotal trial ahead. Here's what Landsberg and Mike Tollini, Partner and Chair of Debt Finance at Cooley, said companies should know before pursuing one.
What Is Royalty Financing?
Simply put, a company receives capital now in exchange for a share of a drug's future sales. It doesn't sell shares, and the investor's return depends on how well the drug sells. Deals take two forms:
Monetizing an existing royalty: A company sells a royalty it already owns. Royalties are created every time a drug moves from a university to a company, gets licensed out, or is acquired. Landsberg said many biotechs don't treat these royalties as core assets, and investors valuing a company often discount them heavily. Selling one turns it into cash the company can put toward its main programs.
Synthetic royalty: The deal creates a royalty that didn't exist before, in exchange for funding. In the Revolution Medicines deal, the royalties run for 15 years and step down as sales grow, falling to zero on annual sales above $8 billion.
Landsberg cited a Royalty Pharma analysis of five years of capital raises by unprofitable biotechs. By the firm's count, those companies raised about $290 billion through equity, convertible notes, partnerships, and royalty deals, and synthetic royalties made up only about 5 percent of it.
"We never expect royalties to overtake or replace equity or converts or some of these other methods," Landsberg said. "But the capital needs in this sector and across the ecosystem are so immense that there's room for many different alternatives, and these are becoming increasingly popular."
When Does a Royalty Deal Make Sense?
The equity market matters, Tollini said, but the valuation gap that makes raising money unattractive is usually specific to the company.
"For me, it's not so much of a question of is it equity or something else," Tollini said. "It's more of a question of, well, when is the right time for equity?"
A company waiting on good data may need to prove its drug works before investors will pay what it thinks it's worth. "The market has a way of telling companies to prove it," he said. A royalty deal can fund the company to that inflection point, so it can raise equity later at a better price.
Other options often fall short at that stage. Tollini said convertible notes are mostly available to companies with market caps above $1 billion, and debt is rarely available in the amount a company needs to reach its next milestone.
Royalty deals also aren't always long-term commitments. Many deals cap the total the investor can collect, and Tollini said he has worked on deals that hit their cap in less than a year.
What Royalty Investors Look For
"For us, everything starts with the quality of the asset or the drug that's under discussion," Landsberg said.
He said Royalty Pharma asks three questions about every opportunity:
How strong is the clinical data, and how well were the trials run?
What does the commercial landscape look like, including competing drugs in development and regulatory dynamics?
How does the drug's stage of development fit into that landscape?
About two-thirds of Royalty Pharma's capital goes to approved products. The rest goes to unapproved drugs, usually after proof of concept or ahead of a pivotal trial. The firm has no fund life and often makes 10- to 15-year investments, Landsberg said, so it isn't the right partner for a company that wants a short-term fix.
The firm is also selective. Last year it reviewed about 480 opportunities, signed confidentiality agreements on about 150, made 36 proposals, and closed nine deals, a conversion rate of about 2 percent.
Landsberg said a pass usually means the timing is wrong, most often because the data isn't mature enough. Royalty Pharma also walks away over intellectual property concerns and over management teams without a realistic plan for costs. It doesn't assume a company will be acquired, he said, so the plan has to hold up on its own.
How the Deal Gets Structured
Once the economics are agreed, Tollini said, a key structural question is whether the deal can be undone. Companies want the right to buy the royalty back at a pre-agreed price, for example if they're acquired or find cheaper capital. Investors often want the deal to qualify as a true sale.
"The concept of a true sale, this mythical creature, is that a company has sold an asset indefeasibly," Tollini said. "That's it. It is no longer theirs."
For investors, a true sale means the royalty can't be pulled back into the company's bankruptcy estate if it becomes insolvent. Put and call rights work against that. It's "very difficult to conclude you've got an actual true sale if the parties have already agreed in advance that they can just undo it," he said.
Tollini said the other terms that shape a deal include:
Other financing: Whether the company can still take on a secured loan or sell royalties on its other products
Scope: Whether the royalty covers one product in one indication, and whether it can sit in a subsidiary so the investor has no claim on the rest of the company
Duration: How long the investor wants to stay in. Some are happy to take their money back at a 1.3 times multiple and redeploy it, while others want long-term positions
Those terms follow the company to an exit.
"Companies are obviously always thinking about what does the path to a sale look like," Tollini said. A royalty deal can affect that exit.
"Depending on how it's structured, you might have essentially an instrument that has no put or call rights at all and essentially just remains in place come hell or high water," he said.
Buyers looking at a company with a capped royalty factor that cap into the purchase price, he said.
How to Prepare
Landsberg said to start talking to royalty investors well before you need money. Some of Royalty Pharma's best relationships took years to build.
"The more that we know, the faster that we can act when the time is right," he said.
He also said companies should understand their alternatives and their cost of capital before a proposal arrives, so management and the board can weigh it against other options.
Tollini's advice starts even earlier. "Think about financing when you're not doing financing," he said. That means paying attention to licensing deals, including terms that seem minor at the time.
"The ability to assign rights under a license to an affiliate, that just really doesn't seem like that interesting of a point," Tollini said. "But it has a huge impact on your ability to explore financing structures, should the time come later on to actually put a monetization in place."
