Indication-Specific Royalties in Pharma and Medtech: Structure, Allocation, and Recent Deals
What Are Indication-Specific Royalties?
Indication-specific royalties are royalty financing or licensing arrangements where payments are tied only to sales of a product in a particular indication (i.e. a specific therapeutic use or medical condition). In other words, if a drug or device is approved for multiple uses, an indication-specific royalty grants an investor or licensor a royalty only on revenue from one (or a subset of) approved use-cases, rather than on all sales of the product.
Yes, these structures do exist—they have emerged through creative licensing deals and bespoke financing agreements. In recent years, life science companies and investors have increasingly explored splitting royalty streams by product indication or territory.
┌─────────────────────────────────────────────────────────────────────┐
│ TRADITIONAL vs INDICATION-SPECIFIC │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ TRADITIONAL ROYALTY: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ DRUG X TOTAL SALES │ │
│ │ ┌──────────┐ ┌──────────┐ ┌──────────┐ ┌──────────┐ │ │
│ │ │Indication│ │Indication│ │Indication│ │Indication│ │ │
│ │ │ A │ │ B │ │ C │ │ D │ │ │
│ │ └──────────┘ └──────────┘ └──────────┘ └──────────┘ │ │
│ └─────────────────────────────────────────────────────────┘ │
│ ↓ │
│ 5% Royalty on ALL Sales │
│ │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ INDICATION-SPECIFIC ROYALTY: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ DRUG X TOTAL SALES │ │
│ │ ┌──────────┐ ┌──────────┐ ┌──────────┐ ┌──────────┐ │ │
│ │ │Indication│ │Indication│ │Indication│ │Indication│ │ │
│ │ │ A │ │ B │ │ C │ │ D │ │ │
│ │ │ ROYALTY │ │ NO │ │ NO │ │ NO │ │ │
│ │ │ OWED │ │ ROYALTY │ │ ROYALTY │ │ ROYALTY │ │ │
│ │ └──────────┘ └──────────┘ └──────────┘ └──────────┘ │ │
│ └─────────────────────────────────────────────────────────┘ │
│ ↓ │
│ 5% Royalty ONLY on Indication A Sales │
│ │
└─────────────────────────────────────────────────────────────────────┘
Such deals can be complex to structure, but they offer flexibility: for example, a company can monetize the future sales of a drug in Indication A while retaining full revenue from other indications.
Contractual Structure
Indication-specific royalties are typically defined via field-of-use licensing or "carve-out" royalty agreements. In a license contract, the Field might be restricted to a particular disease or patient population, and the royalty obligation applies only to sales within that field.
┌─────────────────────────────────────────────────────────────────────┐
│ FIELD-OF-USE LICENSE STRUCTURE │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ┌───────────────┐ │
│ │ BIOTECH │ │
│ │ (Licensor) │ │
│ └───────┬───────┘ │
│ │ │
│ LICENSE AGREEMENT │
│ ══════════════════ │
│ Field: ONCOLOGY ONLY │
│ Royalty: X% on Cancer Sales │
│ │ │
│ ▼ │
│ ┌───────────────┐ │
│ │ PHARMA │ │
│ │ (Licensee) │ │
│ └───────────────┘ │
│ │ │
│ ┌─────────────────┼─────────────────┐ │
│ ▼ ▼ ▼ │
│ ┌─────────────┐ ┌─────────────┐ ┌─────────────┐ │
│ │ ONCOLOGY │ │ NEUROLOGY │ │ IMMUNOLOGY │ │
│ │ SALES │ │ SALES │ │ SALES │ │
│ │ (ROYALTY) │ │(NO ROYALTY) │ │(NO ROYALTY) │ │
│ └─────────────┘ └─────────────┘ └─────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
Economically, this means the licensee (often a pharma company) tracks and pays royalties on sales for the specified indication, but not for other uses outside the licensed field. For instance, a biotech might license a compound to a partner for oncology use and receive royalties on cancer sales, while retaining rights (and no royalty burden) for non-oncology uses.
In financing transactions (often called synthetic royalty financings), a company can create a royalty stream for a specific indication and sell it to an investor in exchange for upfront cash. The investor then receives a percentage of future net sales in that indication. These deals often involve tiered royalties, caps, or time-limited terms to balance risk and reward.
A 2025 market analysis by Deloitte noted that royalty deal innovations now include "territory or indication splits" alongside other features like tiered or capped royalties, underscoring that indication-specific royalties have indeed become part of the financing toolkit.
Economic Considerations
From an economic perspective, carving out a royalty by indication means the royalty holder's return is linked to the performance of that particular use of the product. The contractual terms will define the royalty base (usually Net Sales in the indication) and a percentage rate. Sometimes the rate might differ by indication if multiple indications are each subject to royalties.
The agreement must also define Indication clearly—often referencing a specific regulatory approval or a disease area. This clarity ensures that both parties know exactly which sales are "in scope" for the royalty. For example, a contract might state that the royalty is payable on sales of the product "for the treatment of [Disease X]" (possibly defined as the FDA-approved indication), and exclude sales for any other purpose.
In some collaboration agreements, if one partner develops a new indication independently, the other partner can receive an "indication-specific royalty" on that new use as compensation. This was the case in a Biogen–AVEO deal, which explicitly defined Indication Specific Royalty rights, showing how contracts can anticipate multiple indications in advance.
Allocation and Monitoring of Multi-Indication Sales
A core challenge in indication-specific royalty deals is allocating product sales to each indication and monitoring those revenues. Unlike region-specific royalties (where sales can be tracked by country), separating sales by indication requires more granular tracking. Companies typically address this by implementing internal reporting systems that break down net sales according to the product's approved indications or prescribing contexts.
Allocation Mechanisms
In practice, if a drug is approved for two indications (A and B) and only Indication A is subject to a royalty, the company must determine what portion of total sales comes from Indication A versus Indication B. There are several mechanisms to achieve this:
┌─────────────────────────────────────────────────────────────────────┐
│ SALES ALLOCATION METHODS │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ METHOD 1: SEPARATE PRODUCT CODES / SKUs │
│ ═══════════════════════════════════════ │
│ │
│ ┌──────────────────┐ ┌──────────────────┐ │
│ │ NDC: 12345-01 │ │ NDC: 12345-02 │ │
│ │ Drug X 50mg │ │ Drug X 100mg │ │
│ │ (Indication A) │ │ (Indication B) │ │
│ └────────┬─────────┘ └────────┬─────────┘ │
│ │ │ │
│ ▼ ▼ │
│ Direct Sales Direct Sales │
│ Tracking Tracking │
│ ═════════ ═════════ │
│ $10M → Royalty $15M → No Royalty │
│ │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ METHOD 2: PRESCRIPTION / CLAIMS DATA ANALYSIS │
│ ═════════════════════════════════════════════ │
│ │
│ ┌─────────────────────────────────────────────────────┐ │
│ │ TOTAL DRUG X SALES: $25M │ │
│ └─────────────────────────────────────────────────────┘ │
│ │ │
│ ▼ │
│ ┌─────────────────────────────────────────────────────┐ │
│ │ IQVIA / CMS DATABASE ANALYSIS │ │
│ │ ┌─────────────────────────────────────────┐ │ │
│ │ │ ICD-10 Codes Analysis: │ │ │
│ │ │ • Disease X codes: 60% of Rx │ │ │
│ │ │ • Disease Y codes: 40% of Rx │ │ │
│ │ └─────────────────────────────────────────┘ │ │
│ └─────────────────────────────────────────────────────┘ │
│ │ │
│ ┌─────────────┴─────────────┐ │
│ ▼ ▼ │
│ ┌─────────────────┐ ┌─────────────────┐ │
│ │ Indication A │ │ Indication B │ │
│ │ $15M (60%) │ │ $10M (40%) │ │
│ │ ═══════════ │ │ ═══════════ │ │
│ │ ROYALTY OWED │ │ NO ROYALTY │ │
│ └─────────────────┘ └─────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
Separate Product Codes or SKUs: If the product is marketed under different NDC codes, SKUs, or branded presentations for each indication (for example, different dosing strengths or trade names for each use), the sales can be directly tracked from invoice data. Each code's sales would correspond to a particular indication's use.
Prescription or Claims Data: Often, especially for drugs, the same product package may be used for multiple indications. In such cases, companies may use prescription data and diagnostic codes to estimate the share of prescriptions attributable to each indication. For instance, insurance claims often include ICD-10 diagnosis codes; manufacturers might analyze these data (from sources like IQVIA or CMS databases) to see what percentage of prescriptions are for Disease X vs. Disease Y.
Suppose total net sales in a quarter are S_total, and analysis shows 60% of prescriptions were for Indication A and 40% for B; then the contract might deem S_A = 0.6 × S_total as the sales for Indication A on which royalties apply. Formally, if f_A is the fraction of usage for Indication A, the allocated sales for that indication would be:
┌─────────────────────────────────────────────────────────────────────┐
│ ALLOCATION FORMULA │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ S_A = f_A × S_total │
│ │
│ Where: │
│ • S_A = Allocated sales for Indication A │
│ • f_A = Fraction of usage for Indication A │
│ • S_total = Total net sales of the product │
│ │
│ ───────────────────────────────────────────────────────────── │
│ │
│ Royalty_A = r_A × S_A │
│ │
│ Where: │
│ • Royalty_A = Royalty payment due │
│ • r_A = Royalty rate for Indication A │
│ • S_A = Allocated sales for Indication A │
│ │
│ ───────────────────────────────────────────────────────────── │
│ │
│ EXAMPLE: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ S_total = $100M │ │
│ │ f_A = 0.60 (60% of prescriptions for Indication A) │ │
│ │ r_A = 5% │ │
│ │ │ │
│ │ S_A = 0.60 × $100M = $60M │ │
│ │ Royalty = 0.05 × $60M = $3M │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
Reporting and Certification: The licensee or royalty-paying party is usually obligated to provide periodic royalty reports breaking down net sales by indication. These reports detail the units sold or revenue in the relevant indication, often accompanied by a narrative or data source explaining the allocation. The contract may require the company's CFO or an authorized officer to certify the accuracy of these reports to add accountability.
Pre-agreed Ratios or Caps: In some cases, parties negotiate a fixed percentage of total sales to treat as the "indication sales" for royalty purposes. This might happen if real-time tracking is impractical. For example, an agreement could stipulate "for royalty calculations, 50% of all Product X sales will be deemed to come from Indication A". Such fixed allocations are less common (they can become inaccurate as markets shift) but they simplify monitoring. More often, if uncertainty is high, the contract might include a true-up mechanism—e.g. an annual adjustment once better data on usage by indication are available.
Monitoring Tools
To ensure accurate tracking, companies deploy various tools and processes. Internally, sales and marketing teams may be required to log the intended indication for each sale (especially for devices or high-cost infusions where such information can be captured during ordering). Some firms use specialized revenue management software to tag sales by indication or employ data analytics groups to parse healthcare data for usage patterns.
In the case of medical devices or diagnostics, tracking by indication might involve logging the procedure or test purpose. For example, a diagnostic device used in both cardiology and oncology might record via its software or the hospital's system which department or protocol was involved, thereby attributing each use to the appropriate field.
Example: Royalty Allocation in Practice
Consider a company that has a drug approved for Indication A (rare disease) and later for Indication B (common disease). If an investor holds an indication-specific royalty for Indication A, the company might use the number of patients treated for the rare disease to allocate sales.
┌─────────────────────────────────────────────────────────────────────┐
│ PATIENT-BASED ALLOCATION EXAMPLE │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ DRUG APPROVED FOR TWO INDICATIONS: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ Indication A (Rare Disease): 500 patients treated │ │
│ │ Indication B (Common Disease): 5,000 patients treated │ │
│ │ ───────────────────── │ │
│ │ TOTAL: 5,500 patients │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
│ ALLOCATION RATIO: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ Indication A share = 500 / 5,500 ≈ 9.1% │ │
│ │ Indication B share = 5,000 / 5,500 ≈ 90.9% │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
│ IF TOTAL NET SALES = $50M: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ┌─────────────┐ ┌─────────────────────┐ │ │
│ │ │ Indication A│ │ Indication B │ │ │
│ │ │ ~$4.55M │ │ ~$45.45M │ │ │
│ │ │ ════════ │ │ ══════════ │ │ │
│ │ │ ROYALTY │ │ NO ROYALTY │ │ │
│ │ │ OWED │ │ │ │ │
│ │ └─────────────┘ └─────────────────────┘ │ │
│ │ │ │
│ │ If royalty rate = 8%: │ │
│ │ Royalty payment = $4.55M × 8% = $364,000 │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
The contract could even include formulas or examples to illustrate this allocation.
Audit Trails
To facilitate monitoring, the company must maintain clear records. Each Royalty Report often includes line items per indication (or per country and indication, if both factors matter), along with the calculations used. These become the basis for audits and help both parties see how the allocation was derived. The ability to monitor in near real-time is improving with data availability, but it remains one of the trickier aspects of indication-specific agreements.
Enforcement, Audit, and Attribution Challenges
Indication-specific royalties bring technical challenges in enforcement and attribution of sales. Both licensor/investors and licensee companies need to agree on methods to ensure the correct amount of sales is captured for the royalty-bearing indication without leakage or loopholes. Here are key challenges and how contracts address them:
Ensuring Accurate Attribution
A foremost issue is verifying that sales were correctly attributed to the royalty-bearing indication. Companies might be incentivized (consciously or unconsciously) to understate sales in the royalty-triggering indication if, for example, Indication A carries a 5% royalty but Indication B does not.
┌─────────────────────────────────────────────────────────────────────┐
│ AUDIT RIGHTS FRAMEWORK │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ┌─────────────────────┐ │
│ │ ROYALTY HOLDER │ │
│ │ (Licensor/ │ │
│ │ Investor) │ │
│ └──────────┬──────────┘ │
│ │ │
│ AUDIT RIGHTS (Annual) │
│ ═══════════════════════ │
│ │ │
│ ▼ │
│ ┌─────────────────────┐ │
│ │ INDEPENDENT │ │
│ │ AUDITOR │ │
│ └──────────┬──────────┘ │
│ │ │
│ ┌─────────────────────┼─────────────────────┐ │
│ ▼ ▼ ▼ │
│ ┌─────────────┐ ┌─────────────┐ ┌─────────────┐ │
│ │ Sales │ │Distribution │ │ Patient- │ │
│ │ Databases │ │ Records │ │ Level Data │ │
│ └─────────────┘ └─────────────┘ └─────────────┘ │
│ │
│ ─────────────────────────────────────────────────────────────── │
│ │
│ IF DISCREPANCY > 5%: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ • Underpaid royalties MUST be paid │ │
│ │ • PLUS interest on late payment │ │
│ │ • PLUS audit costs borne by licensee │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
Robust audit rights are therefore standard. Royalty agreements typically allow the royalty recipient to audit the licensee's relevant books and records (often through an independent auditor) periodically. If an audit finds a discrepancy beyond a certain threshold (commonly 5% or more), the licensee must not only pay the underpaid royalties but also interest and sometimes the cost of the audit—a strong deterrent against misallocation. Auditors will look at source data: e.g. internal sales databases, distribution records, and even anonymized patient-level data if available, to confirm the allocation.
Off-Label and Untracked Usage
A unique complication with indications is off-label use. If a drug is used by physicians for an unapproved indication (or for an indication that is approved but not the one triggering royalties), those sales might not count as "sales in the Indication" in a strict sense. Typically, royalty contracts define the royalty-bearing sales as those "covered by the license" or "approved for [the indication]".
Thus, if doctors prescribe the drug off-label for the royalty indication, those revenues might not be included (since the product wasn't technically marketed or sold for that use). This can be a loophole—however, in practice companies cannot easily channel sales to off-label uses deliberately without running afoul of regulations. Still, parties may include covenant language like: the licensee shall not knowingly divert or encourage sales for unapproved uses to reduce royalty payments.
It remains difficult to enforce, but it gives the licensor some footing if they suspect shenanigans. More commonly, once an indication is approved, any on-label sales should be reported for royalties. If off-label use is significant, eventually that often leads to pursuit of formal approval, at which point the sales become royalty-bearing.
Product Bundling and Combination Sales
Bundling refers to selling the royalty-bearing product together with other products or as part of a package, which can obscure the true price of each component. For example, a medtech company might bundle a device (with a royalty due on its sales) together with a service contract or another device (with no royalty).
To prevent abuse (like assigning an artificially low price to the royalty-bearing item and high price to the other), contracts include combination product clauses. A typical approach is a formula to allocate bundle revenue based on relative standalone prices.
┌─────────────────────────────────────────────────────────────────────┐
│ COMBINATION PRODUCT ALLOCATION FORMULA │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ SCENARIO: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ Product A (Royalty-Bearing) + Product B (No Royalty) │ │
│ │ ═══════════════════════════ ═══════════════════════│ │
│ │ Sold together as a BUNDLE for combined price │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
│ STANDARD A/(A+B) FORMULA: │
│ ───────────────────────────────────────────────────────────── │
│ │
│ P_A │
│ NetSales_A = ───────────────── × NetSales_Combo │
│ P_A + P_B │
│ │
│ Where: │
│ • P_A = Standalone price of Product A │
│ • P_B = Standalone price of Product B │
│ • NetSales_Combo = Total net sales of the combination │
│ │
│ ───────────────────────────────────────────────────────────── │
│ │
│ EXAMPLE: │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ Product A standalone price: $800 │ │
│ │ Product B standalone price: $200 │ │
│ │ Bundle sold for: $900 │ │
│ │ │ │
│ │ Allocation to Product A: │ │
│ │ │ │
│ │ $800 │ │
│ │ ───────────── × $900 = $720 (royalty base) │ │
│ │ $800 + $200 │ │
│ │ │ │
│ │ If royalty rate = 5%: │ │
│ │ Royalty = $720 × 5% = $36 │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
The Cohen et al. licensing guide notes that this A/(A+B) formula is market-standard when both components' prices are known. If one component isn't sold separately (so P_A or P_B is unknown), contracts may specify alternative allocation methods—e.g. using cost of goods or an agreed relative value—or even default to the full combo price if the non-licensed component's value can't be determined. The key is that both parties agree on a method to prevent bundling from becoming a loophole. These clauses often also outline a dispute resolution mechanism (such as referral to an independent expert) if the parties can't agree on the relative values.
Multiple Indication Overlap and Anti-Circumvention
A sophisticated challenge arises when the same company has multiple products or line extensions for overlapping indications. A company might develop a second-generation product for the same disease that could cannibalize the original product's sales. If the original product's sales are subject to a royalty, the company has an incentive to shift patients to the new product (which might not carry the royalty).
Royalty agreements anticipate this by including anti-circumvention clauses.
┌─────────────────────────────────────────────────────────────────────┐
│ ANTI-CIRCUMVENTION: OVERLAPPING INDICATION CLAUSE │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ REVOLUTION MEDICINES / ROYALTY PHARMA (2025) EXAMPLE: │
│ │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ DARAXONRASIB │ │
│ │ (Lead RAS Inhibitor) │ │
│ │ ═══════════════════════ │ │
│ │ Subject to Synthetic Royalty │ │
│ │ Approved for: Pancreatic Cancer, etc. │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │ │
│ │ What if...? │
│ ▼ │
│ ┌─────────────────────────────────────────────────────────┐ │
│ │ ZOLDONRASIB │ │
│ │ (Second RAS Inhibitor) │ │
│ │ ═══════════════════════ │ │
│ │ New drug developed by Revolution │ │
│ └─────────────────────────────────────────────────────────┘ │
│ │ │
│ ┌──────────────┴──────────────┐ │
│ ▼ ▼ │
│ ┌───────────────────┐ ┌───────────────────┐ │
│ │ SAME INDICATION │ │ DIFFERENT │ │
│ │ as Daraxonrasib │ │ INDICATION │ │
│ │ ═══════════════ │ │ ═══════════════ │ │
│ │ │ │ │ │
│ │ Zoldonrasib │ │ Zoldonrasib │ │
│ │ sales INCLUDED │ │ sales EXCLUDED │ │
│ │ in royalty base │ │ from royalty │ │
│ │ │ │ │ │
│ │ → Royalty Pharma │ │ → Revolution │ │
│ │ still gets │ │ keeps 100% │ │
│ │ their share │ │ │ │
│ └───────────────────┘ └───────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
A real-world example is the 2025 deal between Revolution Medicines and Royalty Pharma. Revolution had a lead RAS inhibitor daraxonrasib (subject to a synthetic royalty) and a second RAS inhibitor zoldonrasib. The funding agreement explicitly states that if zoldonrasib is approved for the same indication(s) as daraxonrasib, then zoldonrasib's sales will be counted toward the royalty; but if zoldonrasib is approved only in completely different indications, its sales are excluded.
This ensures Royalty Pharma still gets a share of the market in the funded indication even if a new agent comes in. Such provisions require careful wording—often defining a competing or follow-on product and tying its relevant sales into the royalty base if it "is indicated for use in [the same disease]" or if it "shares the approved label" for that indication.
Audit and Enforcement Mechanisms
As mentioned, audit rights are crucial. Typically, the licensor or investor can audit financial records once a year (or another period) with reasonable notice. Beyond just numbers, they might audit the methodology of allocation—checking, for example, the IMS prescription data or hospital usage logs that underpin the company's split of sales. If the contractually agreed allocation method isn't being followed, that's a breach.
Enforcement can also involve milestone triggers—e.g., if the company fails to report sales by indication properly, perhaps certain default assumptions kick in (though this is less common). More often, if a dispute arises, it may go to arbitration. Royalty agreements sometimes have a clause that if the parties disagree on any calculation (such as combination product allocation or perhaps indication attribution), an independent accountant or expert can be jointly appointed to decide the matter, with their decision binding.
Legal Recourse
For serious breaches (say the company intentionally conceals indication-specific sales), the licensor/investor could seek contractual remedies—potentially claiming damages or even terminating a license (if it's a license deal) to convert it into a non-exclusive license with royalties (though termination is usually a last resort). In financing deals, the investor can't terminate the product sale, but they may have rights to escalated royalty rates or other penalties if the company violates covenants about how it's selling or reporting the product.
In summary, while indication-specific royalties are powerful tools, they require meticulous contract drafting to handle these challenges. The contracts must anticipate various scenarios (new indications, combination sales, successor products, etc.) and provide formulas or principles for each. Both sides need transparency: the payer must keep good records and be prepared for audits, and the recipient must trust but verify the sales data. When done right, these mechanisms protect both the innovator's interest in fair compensation and the company's ability to market products across indications without constant conflict.
Legal and Accounting Considerations
Indication-specific royalty arrangements straddle the intersection of contract law, IP licensing, and finance/accounting rules. Some key legal and accounting considerations include:
Precise Definition of Indication and Field
Legally, it's vital to clearly define the Field of Use or Indication in the contract. Ambiguity here can lead to disputes. Typically, the indication is tied to an official regulatory approval or a specific medical condition. For example, a license might define "Indication X" as "the treatment of Disease Y in humans". Sometimes it is further limited to a line of therapy or patient subgroup if needed.
┌─────────────────────────────────────────────────────────────────────┐
│ INDICATION DEFINITION FRAMEWORK │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ELEMENTS OF A CLEAR INDICATION DEFINITION: │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ 1. DISEASE/CONDITION │ │
│ │ "Treatment of [Disease Y]" │ │
│ │ │ │
│ │ 2. PATIENT POPULATION │ │
│ │ "in adult patients" / "in pediatric patients" │ │
│ │ │ │
│ │ 3. LINE OF THERAPY (optional) │ │
│ │ "as first-line treatment" / "in relapsed/refractory" │ │
│ │ │ │
│ │ 4. REGULATORY ANCHOR │ │
│ │ "as approved by FDA under NDA #XXXXXX" │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ ─────────────────────────────────────────────────────────────── │
│ │
│ KEY QUESTIONS THE CONTRACT SHOULD ADDRESS: │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ □ Does pediatric use of the same disease = same field? │ │
│ │ │ │
│ │ □ Do new sub-indications or line extensions fall within │ │
│ │ the same field or are they separate? │ │
│ │ │ │
│ │ □ What happens when a new indication is added? │ │
│ │ • Automatic inclusion? │ │
│ │ • Opt-in/opt-out provisions? │ │
│ │ • Separate economic terms? │ │
│ │ │ │
│ │ □ Geographic scope? │ │
│ │ • Worldwide vs. specific territories │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
The agreement should clarify whether new sub-indications or line extensions fall within the same field or are considered separate. (E.g., if the drug later is approved for pediatric use of the same disease, is that included or not?) Many contracts also predefine what happens if a new indication comes along. As noted earlier, collaboration agreements can include opt-in/opt-out provisions for new indications, with corresponding economic adjustments.
In one case, after a partner opted out of developing a new indication, they were entitled to an "Indication-Specific Royalty" on that indication's eventual sales—essentially a passive royalty since they didn't invest in development. Such terms ensure that even when rights split, each party shares the value appropriately.
IP Coverage and Enforcement
Indication-specific licenses often correspond to specific patent rights. For instance, a university might license a method-of-use patent for using Drug Z to treat Disease A—so the pharma pays royalties on sales for Disease A (where the patent is infringed), but not for other diseases (where that patent doesn't apply).
From an IP perspective, the licensor must monitor that the licensee isn't selling into the licensed field without paying. If the licensee (or a third party) sells the product for the indication without paying royalties (or without a license), that could be patent infringement, which the licensor could enforce in court if needed. In practice, though, once a deal is in place, these scenarios are handled via the royalty audit and dispute mechanisms rather than immediate litigation.
Competition Law and Exclusivity
If a company agrees to pay an investor royalties only on Indication A, that investor's return is tied to Indication A's success. One might ask: could the company intentionally deprioritize Indication A (e.g., in marketing) to reduce royalties? Conversely, could the investor object if the company gives more resources to other indications?
Generally, the company retains operational control in financing deals—investors are passive and cannot dictate strategy. However, some contracts include covenants that the company will use Commercially Reasonable Efforts to commercialize the product in the royalty-paying indication (especially if that indication is the one being funded). This is similar to obligations in normal license deals, meant to prevent a scenario where a licensee shelves an indication. Antitrust/competition law is usually not directly implicated unless the arrangement somehow restrains trade (not typical for these financing deals).
Accounting Treatment (for the Company)
Royalty monetization deals raise complex accounting questions. The company receiving upfront cash must determine if the transaction is a sale of an asset, a loan, or a hybrid.
┌─────────────────────────────────────────────────────────────────────┐
│ ACCOUNTING TREATMENT DECISION TREE │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ┌──────────────────────────┐ │
│ │ COMPANY RECEIVES CASH │ │
│ │ FOR FUTURE ROYALTIES │ │
│ └────────────┬─────────────┘ │
│ │ │
│ ▼ │
│ ┌───────────────────────────────────┐ │
│ │ Is it a TRUE SALE of the asset? │ │
│ │ (No significant continuing │ │
│ │ involvement by company) │ │
│ └───────────────┬───────────────────┘ │
│ │ │
│ ┌─────────────────┴─────────────────┐ │
│ ▼ ▼ │
│ ┌───────────────────┐ ┌───────────────────┐ │
│ │ YES │ │ NO │ │
│ │ ═══════════ │ │ ═══════════ │ │
│ │ SALE/ │ │ DEBT/FINANCING │ │
│ │ DERECOGNITION │ │ TREATMENT │ │
│ └─────────┬─────────┘ └─────────┬─────────┘ │
│ │ │ │
│ ▼ ▼ │
│ ┌───────────────────┐ ┌───────────────────┐ │
│ │ • Record cash │ │ • Record cash │ │
│ │ • Remove royalty │ │ • Record │ │
│ │ asset from │ │ LIABILITY │ │
│ │ books │ │ • As royalties │ │
│ │ • Future royalty │ │ are paid: │ │
│ │ payments NOT │ │ reduce │ │
│ │ company │ │ liability + │ │
│ │ expenses │ │ interest │ │
│ │ │ │ expense │ │
│ │ ═══════════════ │ │ ═══════════════ │ │
│ │ PREFERRED by │ │ May show as │ │
│ │ companies │ │ debt on balance │ │
│ │ (off-balance │ │ sheet │ │
│ │ sheet) │ │ │ │
│ └───────────────────┘ └───────────────────┘ │
│ │
│ RELEVANT GUIDANCE: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ U.S. GAAP: ASC 470 (Debt) or ASC 606 (Revenue) │ │
│ │ IFRS: IFRS 9 (Financial Instruments) or IFRS 15 (Revenue) │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
Under U.S. GAAP, a transaction where a company receives money in exchange for a percentage of future revenues can sometimes be viewed as a debt obligation (essentially borrowing against future sales) unless certain conditions are met. If it's treated as debt, the company keeps the royalty stream on its books and records a liability for the cash received, then reduces the liability as royalties are paid (with an implied interest expense).
If it's treated as a sale (often called derecognition of the asset), the upfront cash is recorded, and future royalty payments are not company expenses (since the revenue was never recognized by the company to begin with). Achieving sale accounting often requires that the transfer of the royalty interest is deemed a true sale with no significant continuing involvement by the company.
Companies prefer sale treatment if possible, because it removes the liability and can improve their financial appearance. In fact, even major pharma companies have engaged in such royalty financings in part to obtain favorable accounting treatment on their balance sheets (e.g. off-balance-sheet financing). The specific accounting guidance (under ASC 470 or ASC 606 in the US, IFRS 9 or 15 internationally) can be intricate. Some deals are structured with special purpose vehicles to facilitate sale accounting.
Accounting for Royalty Payments
If the arrangement is accounted for as debt, the company will recognize an interest expense and a reduction of principal as it pays royalties. If accounted as a sale of an intangible asset, the company will typically not count the royalty payments as an expense—instead, it has effectively "pre-paid" the royalties by giving up revenue.
From the investor's side, they often record an effective interest income over the life of the royalty, reflecting their yield as the royalties come in. They may estimate the royalty stream and use the interest method to recognize income. Investors like Royalty Pharma or HCR often disclose an "effective interest rate" for their purchased royalties in financial reports.
Revenue Recognition for Licensors
In a licensing scenario (as opposed to financing), if a biotech licenses a product by indication and receives royalties, those are typically recognized as revenue when earned (i.e. when the underlying sales occur), consistent with standard royalty accounting (sales-based royalties are usually recognized in the period of the corresponding sales). The licensor must have systems to verify the sales reports from the licensee. From an auditing perspective, ensuring the cut-off and completeness of those sales by indication is important—e.g., that no sales in the field went unreported or got shifted to another category.
Tax Considerations
Royalties are often subject to withholding taxes when paid across borders. If an investor in Country X is receiving royalty payments from a company in Country Y for sales in various countries, the payments might be taxed at source. Tax treaties can reduce the withholding rate for royalties. The contracts usually stipulate that any required withholding tax is deducted and that the paying party will furnish tax receipts, etc.
Additionally, if a royalty is considered a financing, the interest component could be treated differently tax-wise than a royalty purchase (which might be seen as a partial asset sale). These nuances mean companies and investors will seek advice to minimize tax leakage (for example, using tax-efficient jurisdictions or structures for the royalty vehicle).
Duration and Termination
Legally, indication-specific royalties often last for a defined Royalty Term, which could be until a patent (covering that indication) expires, or a fixed number of years from first commercial sale, or until a revenue cap is reached, etc. It's important to define if the royalty ends earlier for one indication than another.
┌─────────────────────────────────────────────────────────────────────┐
│ ROYALTY TERM STRUCTURES │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ COMMON TERMINATION TRIGGERS: │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ 1. PATENT EXPIRY │ │
│ │ ┌──────────────────────────────────────────────────┐ │ │
│ │ │ Royalty ends when patent covering that │ │ │
│ │ │ indication expires (+ possible know-how period) │ │ │
│ │ └──────────────────────────────────────────────────┘ │ │
│ │ │ │
│ │ 2. FIXED TERM │ │
│ │ ┌──────────────────────────────────────────────────┐ │ │
│ │ │ X years from first commercial sale │ │ │
│ │ │ (e.g., 15 years in Revolution/RP deal) │ │ │
│ │ └──────────────────────────────────────────────────┘ │ │
│ │ │ │
│ │ 3. REVENUE CAP │ │
│ │ ┌──────────────────────────────────────────────────┐ │ │
│ │ │ Royalty ends when investor receives total │ │ │
│ │ │ of $X in royalty payments │ │ │
│ │ └──────────────────────────────────────────────────┘ │ │
│ │ │ │
│ │ 4. BUYOUT OPTION │ │
│ │ ┌──────────────────────────────────────────────────┐ │ │
│ │ │ Company can pay lump sum to terminate royalty │ │ │
│ │ │ after certain date/event │ │ │
│ │ └──────────────────────────────────────────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ MULTI-INDICATION TERMINATION EXAMPLE: │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ YEAR: 2025 ─────────────────────────────────────▶ 2040 │ │
│ │ │ │
│ │ Indication A Patent: ═══════════════════╗ │ │
│ │ ║ Expires 2035 │ │
│ │ Indication A Royalty: ──────────────────╫── ENDS │ │
│ │ ║ │ │
│ │ Indication B Patent: ═══════════════════════════════╗ │ │
│ │ ║2042 │ │
│ │ Indication B Royalty: ──────────────────────────────╫── │ │
│ │ ║ │ │
│ │ │ │
│ │ (Each indication's royalty tied to its own patent term) │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
For example, if Indication A's patent expires in 10 years but the product has other patented indications, the contract might say royalty on Indication A sales ends with its patent expiry (or a few years after, if using a "know-how" period), even if other indication royalties continue.
Parties should also contemplate what happens if the product loses regulatory approval in that indication or if the company ceases to commercially offer it for that use—often, if sales cease, the royalty naturally yields nothing (and any upfront is sunk cost to the investor). Some deals include buyout options, where the company can pay a lump sum to terminate the royalty after a certain date or event, which might be attractive if the indication's sales soar and the royalty becomes expensive.
Compliance and Reporting
From a legal standpoint, indication-specific royalties require ongoing compliance. The company must comply with reporting duties, and possibly milestones (e.g. in some deals the investor's further funding might be tied to the indication hitting development or sales milestones). If the royalty was part of a debt-like instrument, there may be covenants (similar to loan covenants) restricting certain actions (for instance, not to abandon the indication's development, or not to encumber that royalty stream with other debt).
The Revolution Medicines $2 billion funding, for example, was described as a "flexible funding agreement" where $1.25 billion was a royalty and $750 million debt; such agreements often include covenants ensuring the company will diligently pursue the indication (in that case, pancreatic cancer) so that the royalty has a chance to materialize.
In summary, legally drafting an indication-specific royalty agreement requires foresight to define the field and all associated obligations, while accounting for it requires choosing the right model (sale vs financing) and then accurately tracking the flows on financial statements. Both aspects benefit from early involvement of legal counsel and accountants to ensure the deal is structured in a way that meets the parties' objectives (be it off-balance sheet treatment, tax efficiency, or enforceability). The increasing popularity of these deals has led to more standardized approaches, but each arrangement tends to be highly customized to the facts of the product and indication.
Recent Examples of Indication-Specific Royalty Deals (2025–2026)
To illustrate how indication-specific and related royalty structures are being used, here are several real-world deals from the pharma and medtech space, including many from 2025 into early 2026. These examples involve major royalty investors like Royalty Pharma, XOMA, DRI Healthcare, and Healthcare Royalty (HCRx), and demonstrate various ways royalties can be carved out by indication or product.
Revolution Medicines & Royalty Pharma (2025)
In June 2025, Revolution Medicines secured up to $2 billion in funding from Royalty Pharma to support its RAS inhibitor portfolio. A core piece was a synthetic royalty of up to $1.25 billion on future sales of daraxonrasib (a RAS(ON) inhibitor) in its cancer indications.
┌─────────────────────────────────────────────────────────────────────┐
│ REVOLUTION MEDICINES / ROYALTY PHARMA (2025) │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ DEAL STRUCTURE: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ TOTAL FUNDING: Up to $2 BILLION │ │
│ │ │ │
│ │ ┌───────────────────┐ ┌───────────────────┐ │ │
│ │ │ SYNTHETIC │ │ DEBT │ │ │
│ │ │ ROYALTY │ │ │ │ │
│ │ │ ══════════ │ │ ══════════ │ │ │
│ │ │ Up to $1.25B │ │ $750M │ │ │
│ │ │ │ │ │ │ │
│ │ │ On daraxonrasib │ │ │ │ │
│ │ │ sales in cancer │ │ │ │ │
│ │ │ indications │ │ │ │ │
│ │ └───────────────────┘ └───────────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ FUNDING TRANCHES: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ $250M ──────▶ Upfront at closing │ │
│ │ │ │
│ │ Additional ─▶ Tied to milestones (e.g., Phase 3 data │ │
│ │ tranches in pancreatic cancer) │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ TIERED ROYALTY RATES: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ Annual Sales Tier Royalty Rate │ │
│ │ ────────────────── ──────────── │ │
│ │ $0 - $2B Higher % │ │
│ │ $2B - $4B Steps down │ │
│ │ > $4B Lowest % │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ ROYALTY TERM: 15 years post-approval │
│ │
└─────────────────────────────────────────────────────────────────────┘
Notably, the deal contains an indication overlap provision: if Revolution's second RAS drug zoldonrasib gets approved in the same indications as daraxonrasib, those zoldonrasib sales will be included in the royalty base, ensuring Royalty Pharma shares in the revenue of that indication even if a new agent takes over. Conversely, any zoldonrasib sales in indications outside daraxonrasib's would not pay a royalty.
This is a textbook example of carving out royalties by indication and guarding against product substitution. The royalty is tiered (rates step down as annual sales cross $2B, $4B, etc.) and lasts 15 years post-approval. Economically, Revolution received $250M upfront, with additional tranches tied to milestones (like Phase 3 data in a specific indication, pancreatic cancer). This deal shows how a single-product royalty can be tailored to certain indications (here, essentially pancreatic and other RAS-driven cancers) and structured with investor protections around indication scope.
Zenas BioPharma & Royalty Pharma (2025)
In September 2025, Royalty Pharma invested in Zenas BioPharma's autoimmune program by acquiring a 5.5% royalty on the future net sales of obexelimab worldwide. Obexelimab is being developed for autoimmune indications (e.g., IgG4-related disease).
While this particular deal covers all indications of obexelimab (it's a single indication asset initially), it was described as a royalty "tied to a portion of net sales" of the product, indicating Royalty Pharma is only taking a slice (5.5%) of the product's sales rather than the entirety. The transaction value was up to $300M.
This highlights another approach: sometimes an investor takes a partial royalty interest which can effectively be like splitting the royalty by percentage rather than indication. It's mentioned here because it was a notable 2025 deal involving an indication in immunology and demonstrates the flexibility of royalty financing terms.
BioInvent & XOMA – Mezagitamab Royalty (2025)
Smaller royalty aggregators like XOMA have been actively doing indication-focused deals. In May 2025, XOMA acquired from BioInvent the royalty and milestone rights for mezagitamab for $30 million. Mezagitamab is an anti-CD38 monoclonal antibody that BioInvent had licensed to Takeda, specifically being developed for primary immune thrombocytopenia (ITP)—an autoimmune bleeding disorder.
┌─────────────────────────────────────────────────────────────────────┐
│ BIOINVENT / XOMA DEAL (2025) │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ASSET: Mezagitamab (anti-CD38 mAb) │
│ INDICATION: Primary Immune Thrombocytopenia (ITP) │
│ LICENSEE: Takeda │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ┌────────────────┐ │ │
│ │ │ BIOINVENT │ │ │
│ │ │ (Original │ │ │
│ │ │ Licensor) │ │ │
│ │ └───────┬────────┘ │ │
│ │ │ │ │
│ │ SOLD royalty rights for $30M │ │
│ │ │ │ │
│ │ ▼ │ │
│ │ ┌────────────────┐ │ │
│ │ │ XOMA │ │ │
│ │ │ (Royalty │ │ │
│ │ │ Aggregator) │ │ │
│ │ └───────┬────────┘ │ │
│ │ │ │ │
│ │ Now receives milestones + royalties │ │
│ │ │ │ │
│ │ ▼ │ │
│ │ ┌────────────────┐ │ │
│ │ │ TAKEDA │ │ │
│ │ │ (Licensee │ │ │
│ │ │ developing │ │ │
│ │ │ for ITP) │ │ │
│ │ └────────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ DEAL ECONOMICS: │
│ • Upfront payment: $30M │
│ • Milestones: Up to $16.25M │
│ • Future royalties on ITP sales │
│ │
│ NOTE: XOMA already owned part of this royalty from an earlier │
│ deal and "upsized" their stake with this purchase. │
│ │
└─────────────────────────────────────────────────────────────────────┘
This means XOMA now will receive the milestones (up to $16.25M) and future royalties if mezagitamab succeeds in the ITP indication. Essentially, XOMA bought an indication-specific royalty stream: Takeda's license is presumably focused on ITP (a defined indication, with orphan status). If Takeda later tries mezagitamab in another indication, BioInvent's original license might not cover that (or if it does, XOMA's deal likely covers those sales as well depending on license terms). In this case, the indication is clear and narrow; thus it simplifies tracking. XOMA even already owned a part of that royalty (from an earlier deal) and "upsized" its stake with this purchase, showing how investors may accumulate more of an indication royalty if they believe in the product's prospects.
Turnstone Biologics & XOMA (2025)
Another XOMA example underscores a different angle: XOMA acquired Turnstone Biologics in 2025 primarily to obtain its pipeline and cash, but as part of what XOMA calls "Liquidation as a Service", XOMA gained rights to Turnstone's TIL therapy programs (which were cancer indication-specific). While not a traditional royalty purchase, XOMA essentially monetized Turnstone's remaining assets, which included potential future milestones/royalties from earlier partnerships. It's a reminder that indication-specific value can drive M&A-like deals, where a company's remaining indication-focused assets are acquired outright with the acquirer banking on downstream royalties.
Viridian Therapeutics & DRI Healthcare (2025)
In October 2025, DRI Healthcare Trust announced a royalty financing with Viridian for its thyroid eye disease (TED) franchise. Viridian is developing two drugs (veligrotug and VRDN-003) for thyroid eye disease. DRI paid $55M upfront (and committed up to $300M total with milestones) to acquire a tiered royalty on U.S. net sales of those therapies for TED.
┌─────────────────────────────────────────────────────────────────────┐
│ VIRIDIAN / DRI HEALTHCARE DEAL (2025) │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ INDICATION: Thyroid Eye Disease (TED) - Rare Disease │
│ TERRITORY: U.S. only │
│ PRODUCTS: Veligrotug + VRDN-003 (both for TED) │
│ │
│ DEAL VALUE: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ Upfront: $55M │ │
│ │ Total potential: up to $300M (with milestones) │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ TIERED ROYALTY STRUCTURE: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ U.S. Net Sales Tier Royalty Rate │ │
│ │ ────────────────── ──────────── │ │
│ │ First $600M 7.5% │ │
│ │ Next tier 0.8% │ │
│ │ (Additional tiers) (Steps down further) │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ ROYALTY SCOPE: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ✓ INCLUDED: │ │
│ │ • Veligrotug U.S. sales for TED │ │
│ │ • VRDN-003 U.S. sales for TED │ │
│ │ │ │
│ │ ✗ EXCLUDED: │ │
│ │ • Sales outside U.S. │ │
│ │ • Sales for any other indication (if developed) │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ KEY FEATURE: Franchise-wide royalty covering BOTH products │
│ for the TED indication (protection if one succeeds over other) │
│ │
└─────────────────────────────────────────────────────────────────────┘
This deal is inherently indication-specific: the royalty is only on sales for treating thyroid eye disease in the U.S. (if those drugs were repurposed for another disease or sold ex-US, those revenues are outside the royalty). The royalty percentages were tiered (7.5% on the first $600M sales, then dropping to 0.8% on the next slice, etc., reflecting an expectation of high sales up to a point).
DRI emphasized this structure gave them exposure to a rare disease indication and extended their portfolio's cash flows into the future. For Viridian, it was a way to fund late-stage development non-dilutively, effectively pledging a portion of TED indication sales. This is a clear example of indication-specific royalty financing in a rare disease. DRI also negotiated conditions since two products are involved: essentially they get royalties on the entire franchise for that indication (whether veligrotug or VRDN-003 or both succeed).
GENFIT & Healthcare Royalty Partners (HCRx, 2025)
In January 2025, France's GENFIT entered a €185M royalty financing with HealthCare Royalty (HCRx) to monetize a portion of the royalties GENFIT is entitled to from Ipsen for the drug elafibranor (brand name Iqirvo) in Primary Biliary Cholangitis (PBC). Ipsen has global rights to Iqirvo (a PPAR agonist) for PBC, and after it received FDA approval in 2024, GENFIT's royalty became a valuable asset.
┌─────────────────────────────────────────────────────────────────────┐
│ GENFIT / HCRX DEAL (2025) │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ ASSET: Elafibranor (Iqirvo) - PPAR agonist │
│ INDICATION: Primary Biliary Cholangitis (PBC) │
│ STATUS: FDA approved 2024 │
│ │
│ DEAL FLOW: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ┌──────────┐ License ┌──────────┐ Royalty ┌────────┐ │ │
│ │ │ GENFIT │ ────────▶ │ IPSEN │ ────────▶ │ GENFIT │ │ │
│ │ │(Original │ (PBC │(Licensee │ (From │ (Owed │ │ │
│ │ │Developer)│ rights) │ for PBC) │ sales) │royalty)│ │ │
│ │ └──────────┘ └──────────┘ └────┬───┘ │ │
│ │ │ │ │
│ │ MONETIZED portion ─────┘ │ │
│ │ │ │ │
│ │ ▼ │ │
│ │ ┌──────────────┐ │ │
│ │ │ HCRX │ │ │
│ │ │ (Investor) │ │ │
│ │ └──────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ DEAL ECONOMICS: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ Total value: €185M │ │
│ │ Upfront: €130M │ │
│ │ Milestones: €55M │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ USE OF PROCEEDS: │
│ • Repay existing debt │
│ • Fund new development programs │
│ │
│ NOTE: This is effectively indication-specific because │
│ elafibranor's only approved indication is PBC. │
│ │
└─────────────────────────────────────────────────────────────────────┘
HCR agreed to acquire a portion of those royalties (structured with €130M upfront and €55M in milestones). This deal is effectively indication-specific because elafibranor's only approved indication is PBC, and the royalty stream being sold is tied to that use. (If elafibranor were later developed for another indication by Ipsen, it's likely not included unless specifically stated; usually such financings stick to the defined indication or the product as currently approved.)
The transaction helped GENFIT repay debt and fund new programs. It demonstrates how post-approval royalties for a specific indication (especially in a niche like PBC) can be carved out and sold. HCRx in the same period also did a deal with Heidelberg Pharma (Germany), providing financing secured by royalties from an antibody-drug conjugate in development—another example of creatively structuring capital against future indication-specific success.
Syndax & Royalty Pharma (2023)
As a slightly earlier example (late 2023, but worth noting), Royalty Pharma struck a $350M royalty agreement with Syndax Pharmaceuticals for the newly FDA-approved Niktimvo (axatilimab). Niktimvo was approved for chronic graft-versus-host disease—a specific indication. Royalty Pharma's funding likely took the form of a synthetic royalty on that indication's sales. This shows that even for products in their first indication, companies sometimes pre-sell a portion of those royalties to fund broader pipelines.
Similarly, Royalty Pharma's $125M deal with Geron for Imetelstat (brand name: Rytelo) was tied to the myelodysplastic syndromes indication, providing cash upfront while taking a piece of future sales.
Medtech and Device Deals
While most high-profile royalty financings have involved pharmaceuticals, the medtech sector has seen analogous structures. Royalty streams can be based on medical device sales in particular uses or procedure types.
┌─────────────────────────────────────────────────────────────────────┐
│ MEDTECH ROYALTY STRUCTURES │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ EXAMPLE 1: SURGICAL ROBOT │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ┌─────────────────────────────────────────────────────┐ │ │
│ │ │ SURGICAL ROBOT PLATFORM │ │ │
│ │ └─────────────────────────────────────────────────────┘ │ │
│ │ │ │ │
│ │ ┌───────────────┼───────────────┐ │ │
│ │ ▼ ▼ ▼ │ │
│ │ ┌────────────┐ ┌────────────┐ ┌────────────┐ │ │
│ │ │NEUROSURGERY│ │ ORTHOPEDIC │ │ CARDIAC │ │ │
│ │ │ USE │ │ USE │ │ USE │ │ │
│ │ │ │ │ │ │ │ │ │
│ │ │ Licensee A│ │ Licensee B│ │ Retained │ │ │
│ │ │ pays 5% │ │ pays 4% │ │ by OEM │ │ │
│ │ │ royalty │ │ royalty │ │ │ │ │
│ │ └────────────┘ └────────────┘ └────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ EXAMPLE 2: DIAGNOSTIC DEVICE │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ┌─────────────────────────────────────────────────────┐ │ │
│ │ │ DIAGNOSTIC PLATFORM │ │ │
│ │ └─────────────────────────────────────────────────────┘ │ │
│ │ │ │ │
│ │ ┌───────────────┴───────────────┐ │ │
│ │ ▼ ▼ │ │
│ │ ┌────────────────┐ ┌────────────────┐ │ │
│ │ │ ONCOLOGY │ │ INFECTIOUS │ │ │
│ │ │ TESTING │ │ DISEASE │ │ │
│ │ │ │ │ │ │ │
│ │ │ Royalty sold │ │ Royalty │ │ │
│ │ │ to Investor X │ │ retained │ │ │
│ │ └────────────────┘ └────────────────┘ │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ NOTABLE DEALS: │
│ • Royalty Pharma / Edwards Lifesciences (2018): Royalty │
│ interest in heart valve device sales │
│ • SWK Holdings: Loans to device companies with repayment │
│ as % of sales in specific therapeutic areas │
│ │
└─────────────────────────────────────────────────────────────────────┘
For example, a company with a surgical robot might license it out for neurosurgery applications, with royalties only on neuro procedures (if another company has rights for orthopedic uses, those would be separate). Or a diagnostics company could sell future royalties on a test's sales in oncology, distinct from its sales in, say, infectious disease testing.
One real example is Royalty Pharma's 2018 deal with Edwards Lifesciences to acquire a royalty interest in the sales of a certain heart valve device—effectively targeting a specific product and indication (heart valve replacement). Another is when SWK Holdings (a healthcare specialty finance firm) provided loans to a device company where repayment was a percentage of sales of the device in a certain therapeutic area. These are analogous to indication-specific royalties, even if not labeled as such. They highlight that royalty financing isn't confined to drugs. However, medtech deals often remain private, and their terms are less disclosed than pharma deals.
University Royalty Example
It's also worth noting that many university tech-transfer royalties are inherently indication or use-specific, because the patents licensed are often method-of-use patents. For instance, if an academic patent covers the use of a known drug in Alzheimer's disease, the university might license that to a pharma company. If the drug is already used for something else, the pharma might only owe royalties on sales in Alzheimer's (the new indication) because that's where the patent provides exclusivity.
There have been cases like this (one example: a license for using a cardiac drug in Duchenne muscular dystrophy, where royalties apply only to DMD sales). These too can be monetized: firms like Royalty Pharma and others have acquired royalty rights from universities or biotechs that were specific to a single indication's use of a product.
Key Themes and Market Outlook
Each of these examples underscores a common theme: targeted monetization. By focusing on a single indication (often a well-defined disease niche or a specific therapeutic area), companies and investors can tailor the financial terms to the risk and market size of that indication. For instance, rare disease indications may have high royalty rates but lower sales volume; broad indications might have lower rates or tiered structures due to larger sales potential.
┌─────────────────────────────────────────────────────────────────────┐
│ INDICATION-SPECIFIC ROYALTY LANDSCAPE │
├─────────────────────────────────────────────────────────────────────┤
│ │
│ MAJOR ROYALTY INVESTORS ACTIVE IN THIS SPACE: │
│ │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ ROYALTY PHARMA │ Largest player, billion-dollar │ │
│ │ ═══════════════ │ deals, tiered structures │ │
│ │ │ │ │
│ │ HEALTHCARE ROYALTY │ European & global reach, │ │
│ │ (HCRx) │ post-approval focus │ │
│ │ ═══════════════ │ │ │
│ │ │ │ │
│ │ DRI HEALTHCARE │ Rare disease specialty, │ │
│ │ ═══════════════ │ tiered royalties │ │
│ │ │ │ │
│ │ XOMA │ Aggregator model, "upsizing" │ │
│ │ ═══════════════ │ stakes, liquidation services │ │
│ │ │ │ │
│ │ SWK HOLDINGS │ Medtech focus, loan-like │ │
│ │ ═══════════════ │ structures │ │
│ │ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
│ GEOGRAPHIC EXPANSION: │
│ ┌─────────────────────────────────────────────────────────────┐ │
│ │ │ │
│ │ UNITED STATES ═══════════════════════════ Primary market │ │
│ │ │ │
│ │ EUROPE ═══════════════════════ Growing (GENFIT, Heidel- │ │
│ │ berg, MorphoSys deals) │ │
│ │ │ │
│ │ ASIA ═════════════════ Increasing interest per Goodwin │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────┘
The deals with Royalty Pharma, XOMA, DRI, HCR, etc., show that there is a global appetite—from the U.S. to Europe and beyond—for such arrangements. Goodwin Procter noted in 2025 that royalty financings had strong momentum globally, including deals in Europe (e.g., GENFIT (France) with HCR, MorphoSys (Germany) with Royalty Pharma) and increasing interest in Asia.
Contractual Language in Practice
Finally, the use of ASCII diagrams or formulas in contracts is not literal, but it's interesting to see that our textual descriptions mirror what contracts do in words and sometimes in formulaic definitions. For example, a contract might not show a formula in LaTeX, but it will say:
"Net Sales for the Combination Product shall be calculated by multiplying Net Sales of the Combination by the fraction A/(A+B), where A is the standalone price of Licensed Product and B is the standalone price of the other product"
This legal language is effectively the same as the formula we presented earlier, and it shows how even highly technical allocations are ultimately reduced to clear contractual terms.
Conclusion
Indication-specific royalties are a proven concept in life sciences finance. They do exist and are becoming more common as companies look for non-dilutive financing tailored to their product portfolios. Contractually, they are implemented through careful field-of-use definitions, allocation mechanisms for sales, and protective covenants. Economically, they allow investors to target a particular revenue stream (often aligning with their expertise in that therapeutic area) and allow companies to tap into immediate cash based on the promise of future sales in one segment of their business.
We've seen that with proper structuring—including audits, allocation formulas, and overlap clauses—the challenges can be managed. As we head into 2026, it's likely we will see even more inventive royalty deals, potentially slicing revenues not just by indication or geography, but even by patient population segment or combination therapy contribution, as the industry continues to innovate in financing just as much as in science.
The key for practitioners (lawyers, finance professionals, and executives) is to ensure these deals are structured with clarity, fairness, and foresight so that all parties reap the intended benefits when the therapy succeeds in its specific indication.
Summary Table: Recent Indication-Specific Royalty Deals
| Deal | Year | Upfront | Total Value | Royalty Structure | Indication Focus |
|---|---|---|---|---|---|
| Revolution / Royalty Pharma | 2025 | $250M | $2B | Tiered, 15-yr term | RAS-driven cancers |
| Zenas / Royalty Pharma | 2025 | — | $300M | 5.5% of global sales | Autoimmune (IgG4-RD) |
| BioInvent / XOMA | 2025 | $30M | $46.25M | Milestones + royalty | ITP (orphan) |
| Viridian / DRI Healthcare | 2025 | $55M | $300M | Tiered (7.5%→0.8%) | Thyroid Eye Disease |
| GENFIT / HCRx | 2025 | €130M | €185M | Portion of Ipsen royalty | PBC |
| Syndax / Royalty Pharma | 2023 | — | $350M | Synthetic royalty | Chronic GVHD |
| Geron / Royalty Pharma | 2023 | — | $125M | Synthetic royalty | MDS |
Disclaimer: I am not a lawyer or financial adviser. The content in this article is provided for informational and educational purposes only and does not constitute investment advice, legal advice, or a recommendation to buy or sell any securities. Always consult qualified professionals before making investment or legal decisions.
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