Special Purpose Vehicles in Pharma & Biotech – An In-Depth Explainer
Introduction
Special Purpose Vehicles (SPVs) play a pivotal role in the pharmaceutical and biotechnology sectors, facilitating innovative financing and structuring strategies. An SPV is a separate legal entity created for a specific purpose, with its own assets and liabilities, distinct from the sponsoring company [source].
By isolating assets or business activities in an SPV, companies can ring-fence risk, optimize taxes, and attract targeted investors, all while protecting the parent firm from direct exposure to liabilities and seeking to isolate financial risk.
This comprehensive guide will explain what SPVs are and how they are used in pharma/biotech venture funding, royalty monetizations, M&A transactions, and intellectual property (IP) spinouts. We'll also illustrate typical money flows with simple diagrams and compare legal, tax, and regulatory treatment of SPVs across key jurisdictions (US, China, Japan, Luxembourg, Netherlands, Ireland, and others).
What is an SPV and Why Use One?
In essence, an SPV (also called a special purpose entity, or SPE) is a subsidiary company or legal vehicle formed for a narrow and specific objective.
The SPV structure is "bankruptcy-remote," meaning that if the parent company encounters financial trouble, the SPV can carry on independently.
Companies typically do not commingle their core business operations with the SPV's activities, which provides a layer of insulation. Some common reasons companies (including pharma and biotech firms) create SPVs include:
Key Reasons for Creating SPVs
Isolating Risk:
High-risk projects (like a costly drug R&D program) can be placed in an SPV to silo potential losses away from the parent's balance sheet [liability segregation]. If the project fails or incurs liabilities, creditors are generally limited to claims against the SPV's assets, not the sponsor's other assets.
Securitization & Financing:
SPVs are often used to securitize assets -- for example, pooling drug royalty streams or other receivables and issuing debt or securities to investors. By structuring a deal through an SPV, companies can raise non-dilutive capital (outside equity or debt) that is repaid from the cash flows of a specific asset and through royalty monetization.
Asset Transfer or Sale:
Certain assets (intellectual property, product lines, etc.) can be hard to transfer outright. A company may spin the asset into an SPV and then sell the SPV itself during a merger or acquisition. This simplifies transactions -- the SPV holding the asset can be sold to a buyer, avoiding complex assignment of the asset in numerous jurisdictions.
Regulatory or Structural Flexibility:
In some cases, laws or regulations might restrict certain activities unless conducted via a local entity. For instance, in real estate or specific jurisdictions, foreign companies may need a local SPV to hold property or licenses. In pharma, an SPV might be required to comply with local ownership rules or to create a joint venture structure.
Tax Optimization:
An SPV can be domiciled in a tax-favorable jurisdiction (e.g. Delaware, Ireland, Cayman Islands, Luxembourg) to reduce withholding taxes on royalties or optimize corporate tax rates [achieved if the sponsoring company]. For example, placing IP assets in an Irish or Cayman SPV could yield significant tax savings on future income, as discussed later in the jurisdiction comparisons.
Benefits vs. Risks
Benefits: The benefits of SPVs include risk isolation, direct ownership of a specific asset, potential tax advantages, and clarity for investors.
However, there are also risks and considerations. SPVs have more limited access to capital on their own (since they lack the credit history of the sponsor), and improper use or poor transparency can raise accounting or regulatory concerns (SPVs gained notoriety in scandals like Enron, though in pharma they are usually employed legitimately for project-focused financing).
It's essential that SPVs are structured as "true sales" or genuinely independent entities when needed -- retaining too much control or benefit for the sponsor can undermine the legal isolation and even require consolidating the SPV back onto the sponsor's books in some cases [investments they make should not impact the sponsor].
With this background, let's explore how SPVs are applied in pharmaceutical and biotech scenarios, from venture capital investments to big-company acquisitions and IP licensing deals.
SPVs in Venture Financing and Co-Investment
The capital-intensive nature of biotech means that creative funding structures are common. In venture capital (VC), SPVs are often used to pool investors for a specific investment or to facilitate co-investment alongside a main fund.
For example, if a VC firm has a promising biotech startup that needs more capital than the main fund can allocate, the firm might set up a sidecar SPV to gather additional money from limited partners or co-investors exclusively for that deal. This allows interested investors to put extra money into one particular company or asset via a dedicated vehicle, rather than through a blind-pool fund. It also benefits the startup by securing more funding without bringing in too many separate shareholders -- the SPV invests as one entity on the cap table.
Key Aspects of VC-Related SPVs in Pharma/Biotech
Co-Investment Vehicles:
As noted, SPVs enable co-investment. Rather than forming a new full fund, a venture sponsor creates an SPV LLC or LP that raises capital solely to invest in XYZ Biotech Co. This SPV then directly takes an equity stake in the biotech. Investors in the SPV get exposure to that one asset. This approach has grown in popularity in recent years for VC, providing flexibility and deal-by-deal participation.
Follow-on or Bridge Funding:
If an existing biotech portfolio company needs a bridge round (perhaps to reach a milestone or survive a market downturn) and the main VC fund is tapped out, an SPV can be a tool to raise that bridge capital from select outsiders or insiders on short notice. It ring-fences the new money for that purpose.
Angel Syndicates and Online Platforms:
In the era of online startup investing, groups of angel investors also use SPVs. For instance, a lead investor might syndicate a $1M investment in a biotech startup by creating an SPV which aggregates contributions from dozens of angels; the SPV then invests as one unit. This is administratively easier for the startup and limits the direct investor count.
Carry and Incentive Alignment:
Fund managers sometimes use SPVs to separate carried interest (performance fee) arrangements or to give specific team members upside in a particular deal. This can be done by having the SPV pay carry to those involved in that investment without affecting the main fund economics.
Legal Perspectives and Jurisdictions
From a legal perspective, VC SPVs in the US are commonly set up as Delaware LLCs (for flexibility and pass-through tax treatment) or LPs. They're relatively quick to form and typically not heavily regulated as long as they don't publicly solicit investment (they rely on private offering exemptions).
In Europe, VC SPVs might be structured through jurisdictions like Jersey, Luxembourg, or the Netherlands, which we'll discuss later. The Channel Islands (Jersey/Guernsey) are particularly popular for fund vehicles -- in fact, roughly 39% of European VC funds are domiciled in the Channel Islands as of 2024 [stable, well-suited jurisdictions], reflecting their flexibility and favorable regimes for investment SPVs.
Example: Gene Therapy Co-Investment
A venture capital firm wants to invest in a promising gene therapy startup that requires $50 million, but the firm's main fund can only allocate $20 million. The firm sets up a separate SPV to raise the remaining $30 million from its larger limited partners and strategic investors.
This SPV, "GeneTherapy SPV, LLC," invests the $30M alongside the main fund's $20M, giving the startup the full $50M needed. The SPV's contributors share in that specific deal's returns (e.g. if the startup later IPOs or is acquired) without being part of the entire fund. Using the SPV insulated the rest of the fund from the additional risk and allowed others to participate in this single opportunity.
SPVs for Royalty Monetization and Securitization of Drug Revenues
One of the most prevalent uses of SPVs in the life sciences is monetizing drug royalty streams or other future revenue through structured financings.
Royalty monetization deals have surged in recent years as biopharma companies seek non-dilutive funding and investors look for stable, asset-backed returns [Continued capital market volatility] [Industry data confirms the trend].
In a typical royalty sale or financing, a biotech company that owns the right to receive royalties from a drug (perhaps it licensed a compound to a larger pharma) wants to get cash now rather than waiting years for small royalty trickles. An investor or fund (such as Royalty Pharma, HealthCare Royalty Partners, etc.) is willing to pay a large lump sum up-front in exchange for those future royalties. Here's where the SPV comes in.
Structuring with an SPV
The safest way to structure a royalty monetization is to isolate the royalty asset in a bankruptcy-remote SPV. The biotech (royalty seller) will transfer the license agreement and its right to the royalty payments into a newly formed SPV, and then that SPV in turn either sells those rights to the investor or borrows money secured by the royalty.
This has two important benefits:
1. Bankruptcy Protection
By removing the license and royalty stream from the biotech's balance sheet and placing them in an independent SPV, the investor is protected if the original biotech later goes bankrupt. The SPV owns the royalty asset outright, so even if the biotech sponsor goes under, the royalty payments can continue flowing to the SPV (and thus to the investor or to service the SPV's debt).
In other words, the royalty deal can "operate on a stand-alone basis" apart from the fate of the seller. Without an SPV, a bankruptcy court might potentially disrupt the royalty flow or treat the up-front payment as a loan (which could get tangled in bankruptcy proceedings).
2. "True Sale" Treatment
Properly structuring the transfer to the SPV helps ensure the deal is a true sale of assets and not a disguised loan. Most royalty monetizations are intended to be sales (the investor's return comes only from the drug's sales performance, not an obligation of the seller to repay).
By documenting the transaction via an SPV and often having independent directors or trustees for the SPV, it strengthens the argument that the royalty was sold and not just collateral on a debt [The SPV structure or security] [Collateral Matters, SPVs and True]. This mitigates re-characterization risk (i.e. a court later claiming the "sale" was actually a financing).
Royalty Monetization Flow Diagram
┌─────────────────┐ License/Royalty Rights ┌──────────────┐
│ Biotech Company │ ────────────────────────────────────> │ SPV Entity │
│ (Licensor) │ │ │
└─────────────────┘ └──────────────┘
▲ │
│ │
│ Upfront │ Future
│ Lump Sum │ Royalty
│ │ Stream
│ ▼
┌─────────────────┐ Product Sales Royalties ┌──────────────┐
│ Pharma Licensee │ ────────────────────────────────────> │ Investor │
│ │ │ (or Finance │
└─────────────────┘ │ Trust) │
└──────────────┘
Figure: Simplified structure of a royalty monetization using an SPV. In this example, a biotech company (licensor) has licensed a product to a larger pharma (licensee) and is due royalties on product sales. The biotech transfers its license/royalty rights to a newly created SPV entity. An investor (or finance trust) pays an upfront lump sum to the biotech (giving the company immediate cash), in exchange for receiving the future royalty stream.
The product sales royalties flow from the licensee to the SPV, which then passes through those payments to the investor (or uses them to pay interest on notes held by the investor). This SPV structure separates the royalty asset from the biotech's corporate risks, giving the investor greater security (if the biotech goes bankrupt, the license and royalties remain with the SPV). The biotech gets funding now, the investor gets a return over time from the drug's sales, and the SPV acts as the dedicated conduit for these cash flows.
Complexity and Variations
In practice, these deals can be quite complex ("capped" royalties, synthetic royalties on future sales, etc.), but the core SPV principle is consistent. Many agreements explicitly require the biotech to set up an SPV or grant a security interest in the IP as part of the monetization [The SPV structure or security] [Collateral Matters, SPVs and True, is rejected by the royalty].
For example, if a deal is structured as a loan, the lender might insist the royalty-bearing patent license be assigned to an SPV and that the SPV is bankruptcy-remote, with the lender having rights to step in if anything goes awry.
Real-World Market Data
Real-World Notes: Royalty financings in biopharma have exceeded $29 billion from 2020–2024, more than double the prior five-year period. These include both traditional royalties (as described) and "synthetic" royalties (where an investor finances a product's development in exchange for a future percentage of sales even if no license exists yet) [Royalty monetization typically takes one, dilution of an equity raise]. SPVs are used in both scenarios. In synthetic deals, often the SPV will hold collateral patents or receive an IP pledge to secure the investor's rights.
Both small biotechs and big pharmas use these structures. Notably, even large pharmaceutical companies have engaged in royalty monetization through SPVs to unlock cash while offloading risk -- sometimes for accounting benefits (selling a royalty can be treated as income, versus keeping it which might defer revenue recognition) [development funding, launch capital, and balance sheets and income statements].
For instance, a big pharma might sell a portion of its royalty rights on another company's drug to an investor via an SPV to immediately realize value and improve its financial metrics.
In summary, SPVs in royalty monetization deals ensure that investors can rely on the asset's cash flows with minimal interference, effectively creating a mini standalone business around a single drug or patent. This has opened up a robust market of specialty finance, allowing biotech innovators to fund new R&D by monetizing existing assets in a structured way.
SPVs in Mergers & Acquisitions (M&A)
When it comes to large-cap M&A in pharma and biotech, SPVs often operate behind the scenes as the legal vehicles executing complex transactions.
In many acquisitions, especially cross-border deals or those involving specific structuring needs, the acquiring company will form a new subsidiary (an SPV) to serve as the "acquisition vehicle" (sometimes called BidCo, NewCo, or Merger Sub). This SPV then carries out the purchase of the target company, after which it may be merged into the target or vice versa.
Several Reasons for Using an SPV in M&A
Liability Shielding:
By conducting the acquisition through a subsidiary, the parent (acquirer) limits its direct exposure. Any obligations (such as acquired debt or potential legal claims) stay with the new subsidiary which now owns the target. The parent's other assets are not directly comingled with the target's liabilities.
Financing Structure:
In a leveraged buyout or any deal involving debt financing, lenders often prefer the debt to be issued by an SPV that owns the target (so that the debt is secured by that target's assets/shares). The parent company might not want to guarantee the debt. Using an SPV allows the target's cash flows to secure acquisition loans without putting the parent's balance sheet on the line.
Regulatory or Tax Reasons:
Sometimes using a particular jurisdiction for the acquisition vehicle yields tax advantages (e.g., no stamp duty on share transfers, better treaty benefits for dividends, etc.) or satisfies regulatory requirements. For example, a US pharma acquiring a European biotech might set up a Netherlands or Luxembourg SPV to make the purchase, utilizing those countries' favorable tax treaties and participation exemption regimes (which reduce taxes on received dividends or capital gains from subsidiaries) [paid up front on imports] [corporate group, in English]. We'll detail jurisdictional benefits later, but it's common for major pharma deals to route through such countries for efficiency.
Merger Mechanics:
In U.S. law, using a merger subsidiary is often the cleanest way to merge with a target (a classic reverse triangular merger involves the acquirer forming a Merger Sub SPV that merges into the target; the target survives as a subsidiary of the acquirer). This approach can, for instance, help avoid needing every shareholder's consent and can preserve certain contracts or licenses that might be non-transferable in an asset sale. The SPV is a tool to accomplish the merger while the parent remains one step removed [There is a broad range, work; and everything in between].
M&A SPV Structure Diagram
┌───────────────────┐
│ PharmaCo │
│ (Acquiring Co.) │
└────────┬──────────┘
│
│ Creates & Capitalizes
▼
┌───────────────────┐ Debt Financing
│ New Acquisition │ <───────────────────────── [Lenders]
│ SPV │
└────────┬──────────┘
│
│ Purchase Price
▼
┌───────────────────┐
│ Target Company │
│ Shareholders │
└───────────────────┘
│
│ After Transaction
▼
┌───────────────────┐
│ Target Company │
│ (now subsidiary) │
└───────────────────┘
Figure: Illustration of an acquisition using an SPV. Here, "PharmaCo" (the acquiring company) creates a New Acquisition SPV solely for the purpose of buying the target company. The acquirer capitalizes this SPV (with equity and possibly debt financing from lenders) to fund the purchase price paid to the target's shareholders.
After the SPV acquires the target (via share purchase or merger), the target company becomes a subsidiary of the acquirer (often by merging into the SPV or the SPV into the target). By using this structure, the acquirer isolates the deal's liabilities in the new subsidiary and can optimize the financing (e.g., the SPV may borrow funds that are secured only by the target's assets). Such SPVs are frequently used in large M&A to provide structural flexibility and risk containment.
Notable Examples
Notable examples: Many high-profile pharma mergers have utilized SPV structures. For instance, when Actavis (a U.S. company) acquired Allergan in 2015 and executed a corporate inversion to Ireland, the deal was facilitated by forming new holding companies overseas.
Similarly, Japanese pharma companies acquiring foreign startups often use holding-company SPVs in places like Delaware or the U.K. to conclude the transaction before integrating the business.
As a recent example, when Bain Capital carved out Mitsubishi Tanabe Pharma (a large Japanese pharma) in 2023, they likely established a specific Japanese holding SPV to acquire the business from its parent conglomerate -- effectively turning MTPC into a standalone company ready for Bain's ownership. While press releases might not mention the "SPV", it is generally part of the plumbing of such deals.
In summary, SPVs grease the wheels of M&A by providing a tailor-made vehicle to execute the acquisition in a legally efficient manner. They can be dissolved or merged away post-deal, but during the transaction they serve as the dedicated entity that carries out the purchase, holds the new business, and isolates the rest of the corporate group from direct risk. This is standard practice in investment banking and corporate law for deals of all sizes, including the pharma industry.
SPVs for IP Spinouts and Asset-Centric NewCos
The pharmaceutical industry has seen a growing trend of asset-centric spinouts -- essentially, a single drug or a portfolio of related assets is spun off from a larger company into a separate entity (a NewCo), which then attracts its own funding and management.
SPVs are at the heart of these structures. By carving out a specific IP (such as a drug candidate or technology platform) into a new company, the original owner can share development risk, tap external capital, and still retain some upside. This approach has been particularly prominent in recent years in markets like China, as well as in venture-backed biotech in the US and Europe.
The "NewCo" Model
In China, for example, leading biotech firms have embraced the NewCo SPV model as a way to globalize their assets. A Chinese pharmaceutical company might have a promising drug that would be better developed for global markets with foreign investor involvement.
The company will form an offshore SPV (NewCo) -- often in Delaware or the Cayman Islands -- and license or assign the drug's rights to that NewCo. Foreign venture capital and private equity investors then invest fresh capital into the NewCo, typically taking a majority stake, while the original company retains a minority equity stake (and usually gets upfront cash and milestone payment rights through the license) [on investment amounts and negotiations].
This setup creates a focused vehicle to develop and eventually commercialize the asset internationally, without the regulatory hurdles of direct foreign investment into the Chinese entity.
NewCo Structure Visualization
Pre-Transaction: Post-Transaction:
┌──────────────────┐ ┌──────────────────┐
│ Domestic Pharma │ │ Domestic Pharma │
│ Company │ │ Company │
│ │ │ │
│ ┌──────────────┐ │ └────────┬─────────┘
│ │Pipeline Asset│ │ │
│ │(Global Rights)│ │ │ 20% Equity
│ └──────────────┘ │ │ + Upfront Cash
└──────────────────┘ │ + Milestones
│ + Royalties
▼
┌────────────────────┐
│ Offshore NewCo SPV │◄─── 80% Equity
│ (Delaware or │ + Capital
│ Cayman) │
│ │◄─── [Foreign
│ ┌────────────────┐ │ Investors]
│ │ Global Rights │ │
│ │ (ex-China) │ │
│ └────────────────┘ │
└────────────────────┘
Figure: The NewCo spinout model (as used by Chinese biotechs) -- Pre-Transaction (left): A domestic pharma company wholly owns a pipeline asset (e.g. global rights to a drug candidate). No separate entity or outside investor exists yet. Post-Transaction (right): The company creates an offshore NewCo SPV (red box) in a jurisdiction like Delaware or Cayman. The drug's global rights (ex-China) are spun out to the NewCo via an exclusive license or assignment. Foreign investors inject capital into the NewCo (becoming majority owners), while the original company retains a minority stake (e.g. 20%).
The original company also receives economic returns from the deal – typically upfront cash, future milestone payments, and royalties on sales (illustrated by the red dashed lines flowing back). The NewCo, with an independent management team, now solely focuses on developing and commercializing the asset globally. This arrangement lets the originating company share in the upside (through equity and royalties) while offloading most development cost to investors, and gives investors direct ownership of a high-potential asset in a stand-alone vehicle [on investment amounts and negotiations] [Case Study: Hengrui's Hercules Transaction].
Successful Case Examples
This model has been successfully executed in multiple cases. For instance, in 2024 Hengrui Pharmaceuticals (one of China's top pharmas) spun out several oncology assets into a NewCo called "Hercules" in Delaware, raising $400 million from Bain Capital, Atlas Venture and others [In May 2024, Hengrui Pharmaceutical, launches in China's biotech history] [The investors like Bain Capital].
Hengrui kept a 19.9% stake and received $110 million upfront, plus rights to over $5.7 billion in milestones/royalties [in China's biotech history]. Essentially, Hercules is the SPV that now owns the GLP-1 drug portfolio, and the investors (Bain, Atlas, etc.) own Hercules -- thereby controlling the asset via the SPV.
This deal allowed Hengrui to monetize and internationalize its asset without outright selling it -- a win-win.
Western Patterns
In the West, similar patterns exist: Large pharmas sometimes spin out early-stage programs into new venture-backed startups (often retaining an equity stake or option rights).
Companies like Roivant Sciences have built a strategy around forming multiple SPV subsidiaries ("Vants") for individual drug programs licensed from big pharmas.
Another example is BridgeBio, which has a parent company overseeing numerous subsidiary companies -- each subsidiary essentially functioning as an SPV for a distinct drug or genetic disease research program.
These asset-focused SPVs enable highly targeted R&D efforts and financing. Investors can fund a single project that they believe in, and failures in one SPV do not contaminate the others (protecting the broader organization and investors).
Advantages Recap
IP spinout SPVs allow the originating company to de-risk and also potentially accelerate development (since the newco is often laser-focused and well-capitalized). They also resolve strategic conflicts -- for example, if a big pharma has an asset outside its core focus, spinning it off via an SPV backed by specialist investors means the asset gets attention without diverting the parent's resources.
From the investor's side, they get a clean shot at developing a drug, often with some support from the original owner (knowledge, maybe supply of materials, etc.) but without the overhead of a large corporation.
However, these SPVs must be structured carefully regarding IP rights, control, and exit options. The sponsoring company typically negotiates protective clauses (like buyback options or vetoes on certain decisions) when it retains minority ownership. Yet, it has to relinquish enough control so that the NewCo can operate independently and the investors feel secure in their majority governance. This balance is crucial and often requires detailed licensing agreements and shareholder agreements.
Legal Forms
Legal forms for such spinout SPVs vary: in the U.S., a C-Corp is common if an IPO is envisaged eventually; in China cross-border cases, a Cayman exempted company or Delaware corporation may be used for familiarity to global investors [their investment. 3. Cross, gives biotech companies another strategic].
In Europe, one might see a UK Ltd or a Dutch BV as the newco depending on investor preference. What matters is choosing a neutral, investor-friendly jurisdiction (for instance, many European biotech spinouts choose the Netherlands or Switzerland for their holding company, given strong IP frameworks and investor protections there).
Jurisdictional Differences: SPV Legal and Tax Treatment Across Regions
SPVs exist globally, but the legal frameworks and tax treatment can differ markedly by jurisdiction. Pharma and biotech SPVs are often structured in jurisdictions that maximize legal certainty and financial efficiency. Below is a comparison of some prominent locales and how they treat SPVs in this context:
United States
The US is very SPV-friendly in the sense that forming a company (usually in Delaware) is quick and inexpensive. Delaware LLCs or corporations are commonly used for SPVs in venture deals, M&A vehicles, or royalty trusts.
There is no special SPV regulatory regime at the federal level -- SPVs are just ordinary companies or LLCs, but sponsors aim to make them "bankruptcy remote" by including independent directors and limiting their business activities in organizational documents.
Tax-wise, an LLC can be treated as a pass-through, so if the SPV is wholly owned it might be disregarded for taxes, or if it has multiple investors it can be a partnership -- avoiding double taxation. For securitizations (like royalty-backed notes), sometimes a Delaware Statutory Trust or a similar vehicle is used to issue securities, which enjoys favorable treatment under U.S. law for true-sale and bankruptcy isolation.
The US generally taxes corporate income at ~21%, but many SPVs are structured to avoid having any taxable income (they funnel all income as royalties out or interest payments out).
Securities laws: If an SPV raises money from multiple investors, it typically must be done as a private placement (Reg D etc.) to avoid registration. The US does not offer federal tax havens for SPVs, but Delaware imposes no state corporate income tax on companies not operating locally, making it a neutral choice.
Overall, SPVs in the US are straightforward to set up and widely used in pharma deals (e.g., nearly every biotech royalty deal by an American company involves a Delaware SPV structure [The SPV structure or security]). The key is proper legal structuring to ensure separate status (respecting corporate formalities, etc.).
China
Domestic Chinese law does not have a concept of "bankruptcy-remote SPV" in the same way, and foreign investment in China is tightly regulated. As a result, Chinese pharma companies often use offshore SPVs for international deals.
A common practice is to incorporate in Cayman Islands or Hong Kong as a top-level holding company for raising foreign capital (many Chinese biotechs listed on NASDAQ or HKEX are Cayman-incorporated).
For outbound licensing or spinouts (as described with the NewCo model), Chinese firms set up offshore SPVs because it bypasses Chinese capital controls and lengthy approval processes for foreign investments [their investment. 3. Cross, gives biotech companies another strategic]. If a Chinese company were to keep an IP asset onshore and sell part of it to foreigners, it would trigger various approvals (technology export, ODI -- Outbound Direct Investment approval for the investors, etc.). By moving the asset to an offshore SPV first, those hurdles are reduced.
Tax-wise, China imposes withholding tax on royalties leaving China, so often Chinese companies prefer to receive milestone payments via a Hong Kong entity or similar to mitigate taxes (Hong Kong has tax treaties and no tax on offshore income).
Within China, companies can and do use subsidiary SPVs for joint ventures or to isolate business units (often as separate legal companies -- e.g., a big state-owned pharma might form a new company with a local partner to develop a drug). But for international-facing SPVs, offshore jurisdictions are the norm.
China's recent tightening of data and IP flows means any arrangement must be reviewed for compliance, but generally the trend is using offshore NewCos to bring in global investors and expertise as highlighted by deals from 2022–2025 [Market Drivers] [1, markets and opens opportunities to].
In summary, Chinese pharma SPVs are usually not in China at all: they're a Cayman/Delaware entity holding Chinese-origin IP.
Japan
Japanese companies use SPVs in finance (for example, the concept of tokumei kumiai and other structures exist for specific purposes), but in pharma M&A the pattern is often to acquire via an existing subsidiary or create a new one in Japan or abroad.
Japan's corporate tax rate is relatively high (~30%), so Japanese pharma firms have incentive to use overseas subsidiaries for holding foreign IP or earnings. Indeed, some Japanese pharmas post-inversion maintain foreign holding companies (e.g., Takeda now has significant operations in Ireland and the US after acquiring Shire).
Japan does have a securitization law that allows for special-purpose companies (TMKs -- Tokutei Mokuteki Kaisha) which can be used to securitize assets with certain tax benefits, but these are more often used in real estate or receivables deals.
If a Japanese biotech wanted to monetize a royalty, it might set up an SPV in Japan, but more likely it would partner with a foreign investor who sets up the SPV abroad.
Regulation: Setting up a KK (Kabushiki Kaisha) or GK (Godo Kaisha) in Japan is more involved than a Delaware LLC and comes with more formalities. As such, many Japanese venture investments or spinouts simply incorporate in the US or Singapore to ease the process. The government, however, is encouraging innovation and recently making it easier for startups to emerge.
For large domestic deals, Japanese conglomerates do use intermediary SPVs for acquisitions (sometimes to achieve tax deferral or avoid certain shareholder approval thresholds).
In summary, Japan's use of SPVs in pharma is often tied to cross-border structuring -- using overseas vehicles for tax and speed -- while domestically the corporate frameworks are stable but less flexible than some Western counterparts.
Luxembourg
Luxembourg is a premier jurisdiction in Europe for SPVs, especially for structured finance and holding companies. It has a dedicated Securitization Law (updated in 2022) that provides a clear framework for securitization SPVs, including the ability to create compartments (series) and to have orphan ownership structures.
Lux SPVs are very common for European pharma royalty deals or patent monetizations, because Luxembourg allows the vehicle to issue notes or take loans and then distribute cash with minimal taxation (income can often be offset by deductible interest or payments to investors).
In fact, Luxembourg and Ireland are considered the two main hubs for setting up issuing vehicles in Europe [Nevertheless, Luxembourg remains one of, next few years because we]. As of early 2024, Luxembourg had nearly 1,500 active securitization vehicles hosting thousands of deals [main jurisdictions for setting up, next few years because we].
A Luxembourg SPV is typically formed as a SARL (private company) or SA, and can be orphaned (owned by a charity or management company) to avoid consolidation. Lux companies benefit from the EU Parent-Subsidiary Directive and extensive treaty network, so they can often receive royalties or dividends from other countries with little or no withholding tax, then pay out to investors without additional tax due in Luxembourg (assuming proper structuring).
The corporate tax in Lux can be ~25% but securitization vehicles often qualify for neutral treatment by passing income to investors or by being structured as tax-exempt funds for qualified assets.
In pharma, many companies use Luxembourg as a holding location for intellectual property or financing arms. For example, a pharma might hold its patents in a Lux subsidiary that licenses them out -- Luxembourg previously had IP tax regimes and still offers efficient tax planning.
Overall, Luxembourg provides robust legal flexibility (regulatory light regime for private securitizations) and tax efficiency for SPVs, making it a top choice in Europe.
Netherlands
The Netherlands has historically been a favored jurisdiction for holding and financing companies in pharma (and other industries) due to its extensive tax treaty network and certain tax advantages [Reasons for the popularity of, the Netherlands include] [corporate group, in English].
Key benefits include no withholding tax on outbound interest and royalties in many cases [Pricing Agreements (APAs), paid up front on imports], which means a Dutch IP holding company can receive royalties from, say, the US or Asia, and pass them to investors or parent companies without an extra tax cut.
The Netherlands' "participation exemption" means that dividends and capital gains from subsidiary companies are tax-free at the Dutch holding company, provided certain ownership thresholds and substance criteria are met. This is great for M&A SPVs -- e.g., if a Dutch BV holds shares of various international subsidiaries and sells one, the gain can be tax-exempt in NL.
The Dutch also until recently provided advance tax rulings (ATR/APA) which gave certainty on tax treatment for complex structures [taxes on interest and royalties].
For pharma SPVs, a Dutch entity might be used to hold intellectual property because of the "Innovation Box" regime -- a special low effective tax rate (earlier as low as 5% on qualifying IP income). Although modified over time to meet EU rules, it still offers an attractive incentive.
Example: A large biotech could transfer a patent to a Dutch BV, which then licenses it globally; the royalty income could be taxed at a very low rate under the innovation box, or not at all if routed to bondholders.
The Netherlands is also known for being investor-friendly with solid legal protection and the ability to have English-language proceedings and documents. Many European venture funds and SPVs are structured as Dutch BVs or CVs.
One consideration: The Netherlands has been tightening some loopholes (e.g. as of 2021 introducing withholding tax on interest/royalty to low-tax jurisdictions to curb "letterbox" entities [Taxes On Dividends]), but for genuine substance-based structures supporting pharma innovation, it remains very attractive.
In summary, the Dutch SPV is typically chosen for treaty access and tax predictability, making it a common linchpin in cross-border pharma licensing and acquisitions.
Ireland
Ireland is another powerhouse for SPVs and is particularly famous for its Section 110 SPV regime. A Section 110 company in Ireland is a special tax-neutral vehicle for qualifying securitization transactions.
It's essentially treated as an ordinary company but can deduct almost all of its income by issuing profit participation notes (PPNs) or other expenses, resulting in a near-zero taxable profit [As Ireland has no thin, no equity leakage].
As long as it fulfills certain conditions (e.g. it must conduct business in Ireland, meet a minimal asset threshold of €10m, etc.), the Section 110 SPV pays almost no Irish tax -- effectively making it a "fully tax-free vehicle" for structured deals [As Ireland has no thin, no equity leakage].
This regime turned Ireland into one of the most popular securitization hubs in the EU by the mid-2010s [Turlough Galvin of Matheson's Tax, Practice].
For pharma, this means if a company wants to issue bonds backed by drug royalties or create a special fund to finance R&D, an Irish SPV could be used to raise money and pay investors without incurring local taxes.
Ireland also has only 12.5% corporate tax on active trading income -- many pharma multinationals (Pfizer, J&J, etc.) have manufacturing and IP subsidiaries in Ireland to take advantage of this low rate on operating profits.
Additionally, Ireland has its own IP holding incentives (the Knowledge Development Box offers 6.25% rate on qualifying IP income) and no withholding on many payments to EU or treaty countries.
Legally, setting up an Irish company is a bit more formal than some places but still straightforward, and Ireland is known for a highly skilled workforce in fund administration and corporate services (which is why so many SPVs and funds are administered out of Dublin).
Use cases: A biotech could sell a royalty to an Irish SPV which issues notes to investors; the royalty income passes through to note-holders and the SPV's books show minimal net income (thanks to deductible note interest).
Ireland's regime has been used beyond pure finance -- even some contentious cases where vulture funds used Section 110 companies to avoid tax on Irish assets (leading to minor reforms). But for global pharma financing, Ireland rivals Luxembourg as an SPV venue, with the choice often boiling down to sponsor preference or specific treaty needs.
It's worth noting Ireland is in the EU and offers a stable Common Law jurisdiction with strong creditor rights -- factors important for investors.
Channel Islands (Jersey & Guernsey)
The Channel Islands, while not part of the UK or EU, are well-established offshore financial centers. They host a large number of investment funds, trusts, and SPVs, particularly for alternative assets.
In the context of biotech, Guernsey and Jersey are commonly used to domicile venture capital and private equity funds that invest in pharma. They offer zero or very low corporate tax, modern companies laws, and regulatory agility.
For example, Guernsey's rules allow fast-track fund approvals and innovative structures like the Protected Cell Company (PCC), which can be used to create segregated cells (each cell effectively an SPV) under one umbrella -- potentially useful for housing multiple single-asset projects separately under one corporate umbrella.
Guernsey recently updated its Private Investment Fund (PIF) regime to be even more flexible (no requirement for a local manager, no audit in some cases, quick 1-day approvals) [The proof is in the, pool of flexible fund structures] [Guernsey's Private Investment Fund, jurisdiction for VC Fund Managers], which is attractive for first-time or small-scale venture sponsors.
The Channel Islands have no withholding tax on fund distributions, no capital gains tax, and often no direct corporate tax, meaning an SPV there can be effectively tax-neutral (investors just pay taxes in their home countries).
For M&A, Jersey companies are sometimes used as listing vehicles or acquisition vehicles on the London Stock Exchange (e.g. some biotech acquisition holding companies choose Jersey to benefit from its robust yet flexible legal framework and absence of stamp duty on share transfers).
Both Jersey and Guernsey have well-respected regulatory bodies and adhere to international standards, so investors are comfortable with them.
A statistic to highlight their prominence: nearly 40% of European VC funds are domiciled in Jersey/Guernsey as mentioned [stable, well, bill here brilliantly,' said Cronje], and this includes funds targeting life sciences.
In essence, for SPVs that are fund-like or holding vehicles for groups of investors, the Channel Islands are a top choice in Europe.
One consideration: being outside the EU means passporting of funds is via National Private Placement, but that's a well-trodden path for these jurisdictions.
For pharma collaborations, a Jersey trust or foundation might even be used to jointly hold IP contributed by multiple parties, to ensure neutrality -- these niche uses depend on legal advice but underscore that almost any specialized structure can find a home in the Channel Islands.
Others
There are of course other jurisdictions that feature in pharma SPV structuring.
Cayman Islands and Delaware are popular for hedge funds and SPVs investing globally, including biotech assets -- Cayman in particular is often the registered home of Asia-Pacific biotech holding companies (especially those aiming for Nasdaq listings via a Cayman entity).
Singapore is emerging as a life sciences hub in Asia and offers attractive fund vehicles (the Variable Capital Company, VCC) which could be used as an SPV holding multiple biotech investments.
Switzerland sometimes appears -- while not typically used for SPVs due to higher taxes, it has unique benefits for certain IP holding (some cantons have very low effective taxes for certain companies, and Switzerland's strong IP protection can be a plus if a company wants to situate an SPV owning patents there).
Mauritius has been used by some India-focused pharma funds as an SPV base (due to treaty with India historically, though that's less advantageous now).
Isle of Man and Malta occasionally come up for specific fund or IP structures due to their own regimes.
The choice is always a balance of tax optimization, legal certainty, regulatory burden, and reputation.
Conclusion
Special Purpose Vehicles have become indispensable tools in pharma and biotech finance. They enable companies to tap into capital in creative ways -- whether by isolating a single drug's risk and reward in a standalone vehicle, attracting investors to a one-drug venture, or unlocking immediate cash from future royalties.
SPVs also facilitate mega-deals by providing structured pathways for acquisitions and partnerships across borders. Importantly, the effectiveness of an SPV lies in its careful structuring: legal agreements must clearly delineate the SPV's independence and the flow of funds, and sponsors need to navigate tax and regulatory rules in each jurisdiction to ensure the intended benefits materialize.
When done properly, an SPV can be a win-win: the originator gets resources or risk mitigation, and investors get a targeted exposure with safeguards.
As we've seen, jurisdictions like Luxembourg, Ireland, the Netherlands, Cayman, Delaware, and others actively compete to host these vehicles, offering favorable conditions that the pharma industry can leverage [Benefits:] [achieved if the sponsoring company].
However, transparency and compliance cannot be ignored -- misuse of SPVs (like hiding debt off-balance-sheet improperly) can lead to reputational damage and legal issues. Fortunately, in the pharma/biotech realm, the use cases for SPVs (funding R&D, sharing IP rights, etc.) are generally above-board and aimed at advancing innovation by spreading cost and risk.
In summary, SPVs are a cornerstone of modern pharma finance, from early-stage venture deals to billion-dollar mergers. They provide the financial engineering needed to bring groundbreaking therapies from idea to market, aligning the interests of drug innovators, investors, and partners in a flexible yet secure structure.
As the industry globalizes further and novel therapies require ever-larger investments, SPVs and their jurisdictional advantages will continue to be highly relevant in enabling the next generation of medical breakthroughs.
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