Royalty Stream Sales and Buybacks in Pharma Financing
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or investment advice. The author is not a lawyer or financial adviser. All information is derived from publicly available sources and may not be complete or current. Details regarding transactions, royalty structures, and financial arrangements may change. Readers should conduct their own due diligence and consult with appropriate legal and financial professionals before making any decisions.
Introduction: The Evolution of Royalty Financing
In the last five years, royalty financings in pharma have moved from niche to mainstream. The biopharma royalty market saw approximately $29.4 billion in deals from 2020–2024 alone, demonstrating how this financing mechanism has become a powerful tool for companies at every stage of development.
But what happens after a royalty stream is sold? How do these assets move between parties, and under what circumstances might a company reacquire the royalties it once sold? This article explores the dynamic lifecycle of pharmaceutical royalty streams, examining how ownership changes hands and the strategic considerations that drive these transactions.
Selling a Royalty Stream: How Cashflow Changes Hands
The Basic Mechanics
When a pharmaceutical company sells its royalty stream to a royalty investor, the immediate effect is a re-routing of cash flows. Instead of receiving ongoing royalties from product sales, the original owner gets an upfront lump sum (and sometimes milestone-based payments) from the investor. In exchange, the investor acquires the contractual right to receive those future royalties from the product's sales.
The royalty-paying partner—typically a large pharma commercializing the drug—is usually notified to redirect royalty payments to the investor or an escrow account dedicated to the deal.
Visualizing the Structure
Before the Sale:
┌──────────┐ ┌──────────┐
│ Pharma │ ──── Royalties ──> │ Biotech │
│ Payor │ │ (Owner) │
└──────────┘ └──────────┘
After the Sale:
┌──────────┐ ┌──────────┐
│ Pharma │ ──── Royalties ──> │ Investor │
│ Payor │ │ Fund │
└──────────┘ └──────────┘
│
Upfront Cash │
▼ │
┌──────────┐ │
│ Biotech │ <───┘
│ (Seller)│
└──────────┘
With Buy-Back Option:
┌──────────┐ ┌──────────┐
│ Pharma │ ────Royalties───> │ Investor │
│ Payor │ <───(if bought │ Fund │
└──────────┘ back) └──────────┘
▲
Buy-back Payment │
│ │
┌──────────┐ │
│ Biotech │ ────┘
│ (Original│
│ Owner) │
└──────────┘
Who Benefits?
Several parties benefit from these arrangements:
The Selling Company secures non-dilutive capital upfront to reinvest in R&D or other needs, without taking on debt or issuing equity. Between 2020 and 2024, PTC Therapeutics alone raised up to $2.15 billion through such royalty transactions, immediately realizing value from future revenue streams to fund its operations.
The Royalty Investor (specialized funds like Royalty Pharma, Blackstone, Healthcare Royalty Partners, etc.) obtains a stream of payments linked to product sales, which can offer predictable, asset-linked returns decoupled from stock market volatility.
The Large Pharma Payor typically sees no change in its obligation except the payee. However, in some cases the payor might prefer a new arrangement (for instance, paying into an escrow or trust) for administrative ease.
The "True Sale" Structure
These transactions are often structured as ["true sales" of the royalty asset, meaning the seller has no repayment obligation beyond the royalty itself—the investor's returns depend on the product's sales performance. This shifts the risk of lower-than-expected sales to the investor, while the seller monetizes future income upfront.
Partial Sales: Keeping a Piece of the Action
Royalty sales can be partial. A company might sell only a percentage of its royalty or royalties on sales above a certain threshold.
Case Study: Ionis Pharmaceuticals
In a recent case, Ionis Pharmaceuticals sold 25% of its Spinraza® royalty through 2027 (increasing to 45% in 2028) to Royalty Pharma for $500 million upfront (plus milestones). Ionis retained the remainder of the Spinraza royalties in the interim.
After the deal:
- Royalty Pharma receives that 25–45% slice of Spinraza royalties directly from Biogen (the commercial partner)
- Ionis retains a significant share and continues to benefit from the drug's success
- Once Royalty Pharma collects approximately $475–550 million, the full royalty interest reverts back to Ionis
This approach allows a biotech to balance immediate financing needs with future participation in the product's success.
When Royalty Investors Resell: The Secondary Market
The Growing Secondary Market
Royalty investors typically aim to hold and collect royalty cashflows over time, but they do sometimes exit or flip these assets. A growing secondary market for royalty interests has emerged. While resale transactions have been gaining steam at approximately 15% CAGR, this is still slower than new royalty originations.
Why Would an Investor Sell?
Portfolio Management: Some royalty funds have finite lifespans (7-10 year fund cycles) and may liquidate assets as they approach end-of-life.
Locking in Gains: Investors may sell to lock in gains if a drug's sales outperform expectations, making the royalty more valuable than when acquired.
Underperformance or Patent Expiry: If a product underperforms or faces patent expiry, an investor might unload the royalty to another party more comfortable with managing declining or shorter-term streams.
According to industry analysis, about 15–20% of total royalty deal value in recent years has come from these resale deals (with one large outlier like the Xtandi deal).
Notable Secondary Market Transactions
UCLA's Xtandi Royalty (2016) An early high-profile example was when Royalty Pharma paid $1.14 billion to acquire UCLA's royalty interest in the prostate cancer drug Xtandi—effectively a resale of a university's royalty to an investor.
ImmunoGen's Kadcyla Royalty (2019) OMERS (a Canadian pension fund) acquired ImmunoGen's remaining royalty rights in Kadcyla® for $65 million, representing the sale of a residual royalty by a previous holder.
Sagard's TIBSOVO Royalty (Ongoing) Sagard Healthcare Partners sold a 5% portion of its royalty interest in Agios's TIBSOVO® for $131.8 million, indicating that even specialized investors might divest pieces of a royalty stream to other investors.
The Market Infrastructure
The large, specialized royalty funds (Royalty Pharma, HCR, Blackstone Life Sciences, etc.) often trade portions of royalty portfolios among themselves or bring in co-investors for large deals, keeping the market fairly liquid. For example, Royalty Pharma itself sold $511 million in fixed payment obligations (related to a prior royalty-bond deal with MorphoSys) to another party, effectively refinancing part of the transaction.
Contractual Exit Provisions
The contractual structure can sometimes facilitate an investor's exit. Some agreements allow investor "put" rights, where under certain conditions (e.g., if sales drop severely or after a number of years) the investor can force the original seller to repurchase the royalty. However, such investor put rights are rare, present in only approximately 5% of deals, according to one 2019–2023 study.
Royalty Buy-Backs: When Companies Reacquire Their Streams
Built-In Reversion: The Capped Deal Structure
Many royalty monetization deals include provisions for how the arrangement might end. A common structure for capped deals is to specify that once the investor has received a certain total return (a cap), the royalty rights revert back to the seller.
Case Study: Syndax Pharmaceuticals
In November 2024, Syndax sold a 13.8% royalty on U.S. sales of Niktimvo™ (axatilimab) to Royalty Pharma for $350 million upfront. The deal structure includes:
- Royalty Pharma receives 13.8% of U.S. sales
- Once Royalty Pharma collects 2.35× its investment (approximately $823 million), the royalty obligation expires
- After that cap is hit, Syndax retains all royalties beyond that point
As Syndax's CEO noted, this allows the company to "continue to participate in profits… and retain upside" beyond the cap.
The Buyback Spectrum
┌─────────────────────────────────────────────────────────┐
│ BUYBACK MECHANISM SPECTRUM │
├─────────────────────────────────────────────────────────┤
│ │
│ Automatic Optional Negotiated None │
│ Reversion Call Rights Buy-Back │
│ │ │ │ │ │
│ │ │ │ │ │
│ [Cap Met] [Seller [Ad-hoc [Uncapped │
│ Returns Exercises Agreement] True Sale] │
│ Automatically Option] │
│ │
│ ~45% of ~5% of Variable ~50% of │
│ Capped Deals Uncapped Deals │
│ Deals │
└─────────────────────────────────────────────────────────┘
Seller Call Options: Early Buyout Rights
Some deals explicitly include an option for the seller to buy out the royalty early. These seller buy-out rights (a form of call option) are most common in deals that had a return cap. In fact, almost half of capped royalty deals give the seller an option to pay a fixed amount and terminate the royalty early.
This makes strategic sense: if the company's fortunes improve (e.g., the drug becomes a huge success or the company finds cheaper capital elsewhere), it might want to redeem its royalty stream and stop the ongoing payouts. The buy-out price is usually set such that the investor earns a fair return (often a premium to the upfront, or a calculated IRR).
By contrast, uncapped deals (true sales with unlimited upside) rarely allow buy-outs—only approximately 5% include a buyout option, since an investor who paid for uncapped upside is unwilling to have it taken away unless compensated handsomely.
Case Study: Ionis's Pelacarsen Option
Besides the cap/reversion on Spinraza, Ionis negotiated the ability to repurchase the pelacarsen royalty right under certain conditions. Though details weren't fully public, such options are often time-bound and at a premium.
Payor-Initiated Buyouts
Even when not contractually pre-defined, companies and investors can agree on a buy-back later. Alternatively, the pharma payor itself may seek to extinguish a royalty obligation.
Case Study: Eagle Pharmaceuticals
Eagle Pharmaceuticals owed royalties to a partner on its drug Pemfexy. In 2023, Eagle paid a one-time $15 million lump sum to buy out and eliminate a portion of future royalties—specifically, to remove royalties on the first $85 million of Pemfexy profits. This kind of payor-initiated buyout simplifies future cashflows for the pharma company and can occur as a product matures or approaches patent expiry.
Timing Considerations
It's important to consider time left on the royalty. Royalty deals usually span the patent life or market life of a product. Many deals have no fixed end date other than patent expiry—indeed, only approximately 11% of deals set a hard termination date regardless of sales.
As patent expiry nears (e.g., only 2 years left), the royalty stream value naturally diminishes. At that late stage, investors typically just collect the remaining tail payments, since the end is in sight. Most buy-backs or call options, when they exist, are exercisable after a few years into the deal—often to give the seller a chance to refinance if the drug is doing well.
Recent Examples: Global Perspectives on Sales and Buybacks
United States: Ionis & Royalty Pharma (2023)
The Deal: Ionis monetized part of its royalty on Biogen's Spinraza (a blockbuster SMA drug). Royalty Pharma paid $500 million upfront and will get 25%–45% of Spinraza royalties until collecting approximately $475–550 million.
The Structure: This deal shows a structured sale with a built-in cap and reversion—effectively a time-limited sale. Ionis also sold 25% of royalties on a future drug (pelacarsen) as part of the package, showing how multi-asset royalties can be bundled.
The Reversion: According to Ionis's SEC filings, Royalty Pharma's interest in Spinraza will revert to Ionis after $475–550 million in payments, depending on the timing of pelacarsen's approval.
United States: Syndax & Royalty Pharma (2024)
The Deal: In November 2024, Syndax sold a 13.8% royalty on U.S. sales of Niktimvo™ (a newly launched cancer drug) for $350 million upfront.
The Cap: The deal terminates once Royalty Pharma receives 2.35× its investment (approximately $822.5 million). According to Syndax's 8-K, payments to Royalty Pharma are "capped at $822.5 million."
Strategic Value: This example highlights a financing of a commercial launch with a royalty that the company expects to buy back through the product's early sales.
Germany: MorphoSys & Royalty Pharma (2021)
The Deal: Germany's MorphoSys AG sold 100% of its rights to receive royalties on J&J's Tremfya® (a psoriasis antibody) to Royalty Pharma for $1.425 billion upfront, to finance MorphoSys's acquisition of Constellation Pharmaceuticals.
The Complexity: Royalty Pharma also took cuts of MorphoSys's potential royalties on two pipeline drugs (80% of GSK's otilimab and 60% of Roche's gantenerumab), and even committed milestone payments and bonds as part of the package.
No Buyback: This complex deal illustrates a full sale of a valuable, long-term royalty with no mention of any cap or buyback—Royalty Pharma assumed the full upside (and risk) of these royalties.
Secondary Market Activity: Notably, Royalty Pharma subsequently sold off some fixed payment obligations from this deal for $530 million, demonstrating how an investor can later restructure or reallocate parts of a deal.
United States: Atara & HCR (2022)
The Deal: Atara Biotherapeutics, facing funding needs, sold a portion of its T-cell therapy royalty interests to HealthCare Royalty (HCRx). HCR paid $31 million upfront for a share of future royalties from Atara's off-the-shelf T-cell therapy (tab-cel).
Flexibility: The agreement likely included HCR receiving royalties until a certain return is met (as is common in such deals). Atara also retained an option to buy back some rights if costs overran, per SEC filings, showcasing negotiation of flexibility.
United States: Cystic Fibrosis Foundation & Royalty Pharma (2020)
The Deal: In the nonprofit realm, the Cystic Fibrosis Foundation—which had funded early CF drug research—sold its residual royalty rights in Vertex's CF franchise for $575 million upfront plus $75 million in milestones.
The History: The CF Foundation had famously monetized a royalty on Vertex's Kalydeco/Trikafta years earlier for $3.3 billion. This 2020 sale was essentially selling remaining portions to further fund the foundation's mission.
Impact: The proceeds in this case were plowed back into research funding—an innovative cycle where royalty monetization funds new science.
Netherlands/USA: uniQure & Sagard/Oaktree (2023)
The Deal: Gene therapy developer uniQure sold a portion of its royalty on CSL Behring's Hemgenix® (a gene therapy for hemophilia B) to Sagard Healthcare and Oaktree for $400 million.
Global Nature: This European biotech tapped U.S. investors in 2023 after Hemgenix's approval, indicating the global nature of royalty financing.
Uncertainty: The deal gave Sagard a piece of a potentially long-tail gene therapy royalty, while uniQure got non-dilutive cash to fund new programs. The structure likely included a cap or buyout option given gene therapy uncertainties, although details were not fully disclosed.
USA/Canada: ImmunoGen & OMERS (2019)
The Deal: ImmunoGen, needing cash, sold its remaining Kadcyla® royalties to OMERS, a Canadian pension fund, for $65 million.
The History: ImmunoGen had previously monetized part of this royalty. This sale was the "residual" royalty interest after an earlier cap was reached.
Multiple Transfers: Once the first investor got their capped return, ownership of the tail royalties reverted to ImmunoGen, who then flipped it to OMERS. This two-step history shows how a royalty can change hands multiple times: from ImmunoGen to initial investor (with a cap), back to ImmunoGen, then to OMERS—each transfer driven by the company's strategic needs at the time.
The Lifecycle of a Royalty Stream
These examples—spanning the US, Europe, companies big and small, and even a foundation—underscore the dynamic lifecycle of royalty streams. A royalty might begin with a biotech, move to an investor, potentially split among multiple investors or revert to the company, and even be bought out by the commercial partner.
Evolution Over Time
Year 0-3 Year 3-7 Year 7-12 Year 12+
[Development] → [Launch] → [Growth] → [Maturity]
│ │ │ │
▼ ▼ ▼ ▼
Biotech needs Biotech sells Drug succeeds, Patent expiry
development royalty for buyback or approaching,
capital launch funding reversion tail payments
│ │ │ │
▼ ▼ ▼ ▼
No royalty Investor Royalty returns Minimal
sale yet receives to original residual
payments owner value
The stakeholders evolve over a product's life:
- Early Development: A biotech or university might license a drug
- Mid-Development: A royalty financier might step in to fund trials
- Product Launch: Another investor might finance commercialization
- Mature Product: If very successful, the company could buy back the royalty; if sales are modest, the investor holds to maturity
- Patent Expiry: Royalties taper off and often revert or simply end
Through it all, the underlying product's cash flows are allocated to whoever holds the royalty rights at that time.
Strategic Considerations for All Parties
For Biotechs and Licensors
Advantages of Royalty Sales:
- Non-dilutive capital without equity dilution
- No debt service requirements
- Can fund operations while retaining upside potential
- Partial sales allow continued participation
Considerations:
- Giving up future revenue streams
- Complexity of deal structures
- Need to carefully model various scenarios
- Impact on future valuation
For Royalty Investors
Advantages:
- Predictable, asset-linked returns
- Diversification from equity volatility
- Direct correlation to product performance
- Growing secondary market for liquidity
Considerations:
- Product risk (clinical, commercial, competitive)
- Patent cliff risk
- Limited control over commercialization
- Complexity of valuation
For Commercial Partners (Payors)
Advantages of Buyouts:
- Simplified cashflow management
- Balance sheet cleanup
- Reduced administrative burden
- Strategic control
Considerations:
- Large upfront payment required
- Opportunity cost of capital
- Timing relative to patent life
- Negotiation leverage
Conclusion: A Mature and Flexible Market
In the last five years, royalty financings in pharma have become increasingly sophisticated and flexible. With approximately $29.4 billion in deals from 2020–2024 alone, the market has proven its staying power.
Key Takeaways
Not Permanent Sales: Many deals are designed not as permanent sales but as temporary transfers of cash flow—with caps, buy-back options, or time limits after which the royalties revert to the seller.
Strategic Flexibility: All stakeholders—from small biotechs to large pharmas—have strategic reasons to engage in these transactions at different points in a product's lifecycle.
A Tradable Asset Class: Investors will hold or exit based on their financial objectives, making royalty interests increasingly recognized as a tradable asset class. Some large pharmas even invest in others' royalties for financial returns.
Lifecycle Alignment: As a drug advances through its lifecycle (from approval to peak sales to patent expiry), the optimal ownership of its royalty can shift. Early on, an investor may bear the risk; if the drug succeeds, the original company might reclaim the tail end value.
The Future of Royalty Financing
The flexibility in slicing and transferring cash flows is precisely why royalty financing has become a powerful tool in biopharma: it allows all parties to get what they need, when they need it, from a drug's success—whether that's immediate capital, long-term income, or relief from future obligations.
The past five years have provided ample evidence (in SEC filings, global deal tables, and real transactions) that savvy structuring of royalty sales and buybacks can create win-win scenarios, enabling innovation to be financed today by the promise of tomorrow's revenues.
Over a decade, a single product's royalty might generate upfront funding for a biotech, steady yields for an investor, and later be reabsorbed by the company or payor once predetermined goals are met. This dynamic ecosystem ensures that capital flows efficiently to where it can best support pharmaceutical innovation.
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