The great divide: Why royalty financing conquered North America but struggles everywhere else

Royalty financing in biotech and healthcare has exploded into a $5-6 billion annual market in North America, with transactions growing at a blistering 45% compound annual rate since 2018. Yet this booming alternative financing model remains almost entirely confined to US and Canadian borders.

Europe has precisely one generalist royalty fund despite being home to world-class biotech innovation. Asia boasts only a single dedicated regional player launched in 2020. This geographic concentration isn't coincidence—it reflects fundamental structural advantages that make North America uniquely hospitable to royalty financing while creating nearly insurmountable barriers elsewhere.

The implications are profound. As biotech companies globally scramble for non-dilutive capital amid depressed equity markets, North American firms access sophisticated royalty solutions worth hundreds of millions per deal. Their European and Asian counterparts either go without or negotiate with the same US-based funds under terms reflecting their less-favorable home markets.

This financing gap threatens to widen the innovation divide, with capital flowing to where structural conditions support it rather than where scientific merit alone would direct it. Understanding why requires examining drug pricing systems, tax frameworks, intellectual property laws, and cultural attitudes toward pharmaceutical innovation across three continents.

North America's royalty financing juggernaut

The North American royalty financing market has achieved remarkable scale and sophistication. Eight to ten major dedicated funds collectively manage over $20 billion in assets, deploying capital at an accelerating pace despite challenging macroeconomic conditions.

The 2025 transaction volume is tracking toward $5.42 billion, up from $5.07 billion in 2024, demonstrating resilience while traditional equity financing has collapsed.

The dominant players reshaping biotech finance

Royalty Pharma stands as the undisputed market leader, commanding over 60% of global market share. The publicly-traded giant (NASDAQ: RPRX) generated $2.8 billion in portfolio receipts during 2024 and guides toward $2.9-3.05 billion for 2025. Its June 2025 $2 billion commitment to Revolution Medicines—combining a $1.25 billion synthetic royalty on daraxonrasib with a $750 million term loan—exemplifies the mega-deals now routine in this space.

Royalty Pharma deployed $2.8 billion in total capital during 2024, including a record $925 million in synthetic royalty transactions that year alone, representing 33% annual growth in this innovative structure.

The company's portfolio spans 35+ commercial products including blockbusters like Vertex's Trikafta, GSK's Trelegy, and Biogen's Spinraza. Its November 2024 deals illustrate the rapid deployment pace: $350 million for a synthetic royalty on Niktimvo (Syndax/Incyte) for chronic graft-versus-host disease, and $125 million for Rytelo (Geron) targeting myelodysplastic syndromes.

In January 2025, the company announced internalization of its external manager for $1.1 billion alongside a $3 billion share repurchase program, signaling confidence in its cash-generating capacity.

DRI Healthcare Trust, Canada's pioneering royalty vehicle operating since 1989, has deployed over $3 billion since inception across 75+ royalties covering 45+ drugs. The Toronto-based public company (TSX: DHT.UN) expanded its credit facility to $631.6 million in November 2024 and committed $457 million in new capital that year. Major 2024 transactions included $179 million for sebetralstat royalty rights (KalVista's hereditary angioedema therapy) and $115 million to expand its Omidria position to 30% of US net sales through 2031.

The company reported 45% growth in normalized cash receipts to $190 million and 37% increase in adjusted EBITDA to $156.6 million, demonstrating the cash-generative nature of established royalty portfolios.

Healthcare Royalty Partners (HCRx), managing approximately $3 billion and having committed over $7 billion since 2006, underwent a transformative transaction in July 2025 when KKR acquired a majority stake. The deal significantly expands KKR's life sciences capabilities while Chairman and CEO Clarke Futch continues leading the platform with substantial minority interest. HCRx's portfolio encompasses 55+ products across 10+ therapeutic areas, focusing on commercial-stage and near-commercial-stage assets.

Blackstone Life Sciences operates two complementary vehicles: a $4.6 billion main fund closed in 2020 and a $1.6 billion royalty/structured credit fund from April 2022. The division was raising over $5 billion for its latest fund as of late 2024, following 33% appreciation in its 2024 performance.

Notable transactions include a $750 million commitment in March 2024 to Moderna's influenza mRNA vaccine program and a $2 billion strategic collaboration with Alnylam for inclisiran (Leqvio). The team boasts an 85% Phase III success rate across 160+ medicines brought to market.

Oberland Capital closed Fund III at $1.2 billion in October 2022 (oversubscribed at hard cap) after raising $1.05 billion for its Solutions Fund in May 2020, bringing total AUM to approximately $3 billion.

The New York-based firm completed significant 2024-2025 deals including up to $600 million to Biohaven for troriluzole (April 2025), $320 million to ImmunityBio for Anktiva bladder cancer therapy (January 2024), and up to $110 million to ClearPoint Neuro (May 2025). Transaction sizes range from $50-300+ million, with flexible structures encompassing royalty monetizations, revenue interest purchases, secured debt, and project financing.

Beyond these giants, the ecosystem includes Sagard Healthcare Partners (over $1 billion deployed since 2019 inception), OrbiMed's Royalty & Credit Opportunities (fifth fund raised $1.86 billion in August 2025), OMERS Life Sciences (Canadian pension fund providing royalty financings), CPP Investments (Canada Pension Plan Investment Board with pharmaceutical royalty monetization capabilities), XOMA Royalty Corporation (120+ royalty assets), and H.I.G. Healthcare Royalty & Credit.

This deep bench of specialized investors creates a liquid, competitive market.

Deal structures evolving rapidly

The market has matured beyond traditional royalty purchases. Synthetic royalties—where companies create new royalty obligations on their own products in exchange for upfront capital—grew 33% annually from 2020-2024 and represented record volume in 2024.

This structure appeals to companies that haven't previously out-licensed their products, dramatically expanding the addressable market. Milestone-heavy structures have become prevalent, with average upfront payments declining to $114.92 million in 2025 from $160.60 million in 2024 as more deals incorporate performance-linked contingent payments that lower buyer risk while reducing seller cost of capital.

Therapeutic focus concentrates on oncology (the largest segment), rare diseases, immunology, neuroscience, and respiratory indications. Notably, cardiology and metabolic disorder deals comprise 8-12% of total royalty deal value despite representing only 3-4% of the general pipeline—driven by blockbuster commercial potential.

The market exhibits strong preference for commercial-stage and late-stage products with positive Phase III data, though development-stage financing is growing. Over 52% of deals occur post-FDA filing while 33% happen during development, reflecting the risk-return balance these investors seek.

Why North America became the epicenter

Several reinforcing factors created this concentration. The North American biotech ecosystem generates the lion's share of global innovation, accounting for 39% of global biotech patents. A robust venture capital market (10x larger than Europe's) creates a pipeline of companies reaching commercialization stages appropriate for royalty financing.

Cultural acceptance stems from decades of royalty financing in mining, energy, and entertainment, with North American energy royalties alone estimated at $500 billion to $1 trillion. Sophisticated institutional investors understand alternative assets and actively seek uncorrelated returns.

Most fundamentally, the regulatory environment provides certainty. The FDA's centralized federal structure delivers faster approvals than fragmented international systems. Patent enforcement through a unified federal court system ensures predictability.

The tax code treats royalty payments as deductible operating expenses, lowering effective cost of capital compared to equity. And crucially, US drug prices average 2.78 times higher than OECD comparison countries—brand drugs cost at least 3.22 times more even after rebates.

This pricing premium directly translates to proportionally higher royalty payment streams, making the economics work at scale.

Europe's persistent gap: companies yes, funds no

The European royalty financing landscape presents a stark paradox. European biotech companies increasingly access royalty capital—over 20% of recent deals involve European entities according to Covington & Burling's 2025 analysis. Yet Europe has produced essentially zero dedicated royalty financing funds despite a decade of attempts.

Duke Capital: Europe's lonely outlier

Duke Royalty Limited (rebranded Duke Capital), launched in 2015 and listed on the London Stock Exchange, stands as the sole European-based royalty company of significance.

The Guernsey-domiciled firm manages approximately £148 million in market capitalization and provides royalty financing across multiple sectors—healthcare, manufacturing, services, and industrials.

Investment sizes range from £5-30 million for equity and £10-30 million for loans. Oliver Wyman partnered with Duke in 2015, hailing it as "the first royalty company listed on a major European exchange, allowing public European investors access to royalty investments that have been nearly unattainable."

Yet Duke's multi-sector generalist approach—with healthcare as just one of four focus areas—underscores the challenge.

Even after a decade, no dedicated European biotech/pharma royalty fund has emerged. No major fund launches occurred in the UK, Switzerland, Germany, France, Netherlands, or Nordic countries during 2024-2025. The vacuum is deafening.

American funds fill the European void

Instead, North American giants dominate European deal flow. Royalty Pharma completed substantial European transactions including $500 million with Ferring Pharmaceuticals (Switzerland), deals with BRAIN Biotech (Germany), $2025 million in strategic funding to MorphoSys (Germany), and $320 million for Ultragenyx European royalties on Crysvita.

Healthcare Royalty Partners opened a London office and executed deals with GENFIT (France) and $115 million with Heidelberg Pharma (Germany) before KKR's July 2025 acquisition. OMERS Life Sciences acquired $304.7 million in Esperion's European royalties on bempedoic acid products in June 2024.

Importantly, Covington's research reveals that even when European companies are involved, documentation typically follows New York law rather than European legal frameworks.

This signals that market practice, legal precedents, and structuring expertise remain locked in the US ecosystem. European companies can access capital, but only by conforming to American market standards and working with American investors.

The structural barriers preventing European funds

Why hasn't a robust European royalty market emerged? A confluence of deep structural factors creates prohibitive headwinds.

Capital markets fragmentation stands as the primary barrier. The European Union comprises 27 member states with separate regulatory regimes, insolvency laws, withholding tax rules, and securities regulations.

The European Central Bank's 2024 analysis highlights that EU capital markets represent only 81% of GDP compared to 227% in the US. Bond markets are three times larger in the US. European venture capital investment runs at merely 20% the size of its American counterpart.

This fragmentation increases due diligence costs, creates jurisdictional uncertainty, and complicates cross-border recovery in default scenarios.

Bank-centric financing culture further impedes development. European companies obtain 75% of financing from bank loans and only 25% from capital markets—precisely the reverse of the US ratio. This debt-oriented tradition means European companies, advisors, and institutional investors have less familiarity with structured alternative assets like royalty streams.

European institutional investors exhibit pronounced risk aversion, with households holding just 17% of wealth in financial securities versus 43% in the US. A 2024 EU roundtable cited "perception of investments in startups and scale-ups as too risky and not sufficiently attractive" alongside "structural barriers and risk aversion" as critical impediments.

Regulatory and tax complexity across jurisdictions creates additional friction. Each country maintains distinct insolvency frameworks—the IMF estimates that if Italy improved insolvency practices to best-in-class standards, firms' average debt funding costs would drop by 0.25 percentage points.

Withholding tax treatment of cross-border royalty payments varies significantly. While the EU Interest and Royalties Directive previously allowed certain payments between EU companies without withholding tax, Brexit eliminated this benefit for UK transactions. Contract law and IP enforcement mechanisms differ across countries, increasing legal structuring costs.

Drug pricing systems fundamentally undermine royalty economics. Nearly all European countries employ external reference pricing (ERP), with prices linked across borders creating downward pressure.

Health Technology Assessment (HTA) requirements in most countries enforce strict cost-effectiveness thresholds. Budget impact concerns limit uptake even for approved products. The new EU HTA Regulation implemented in 2025 further standardizes assessment but potentially slows market access.

Reference pricing means European drug prices run dramatically below US levels, directly reducing royalty payment streams and making deals less attractive to investors.

The Capital Markets Union (CMU) initiative launched in 2015 aimed to address these structural deficits by harmonizing regulations, improving cross-border capital flows, and reducing bank dependency. Yet progress has been described as "insufficient" and "incremental." ECB President Christine Lagarde stated in November 2023 that "there is a compelling collective interest in taking a more ambitious European approach... the moment for action is now," acknowledging limited success.

Political fragmentation post-elections weakened the Franco-German engine driving integration. Tax harmonization and insolvency law convergence require national sovereignty concessions that remain politically challenging.

Expert perspectives on the European predicament

Goodwin Law noted in October 2025 that "while US deals have dominated the market historically, traction is increasing in Europe," with nearly 90% of biotech executives surveyed considering royalty financing in the next three years.

Yet this "increasing traction" reflects European companies accessing American capital, not European capital formation.

Covington & Burling observed in June 2025 that "one trend that stands out in the most recent data is the growing involvement of European biotech companies... This signals that the appeal of synthetic royalty and drug development financings is not limited to the U.S. market, even though the investors are primarily based in North America."

The crucial caveat—"even though the investors are primarily based in North America"—captures the paradox perfectly.

The practical implication: European biotech has strong R&D foundations and quality assets. Companies can access royalty financing. But European institutional capital hasn't coalesced around dedicated strategies to capture this opportunity domestically.

After a decade since Duke's launch, the absence of competitors suggests structural barriers remain prohibitive absent major policy intervention through successful CMU implementation.

Asia's nascent market: one fund, minimal traction

The Asian royalty financing landscape remains in its infancy, with only one dedicated regional player operating and minimal penetration from global giants despite expressions of interest.

R-Bridge: Asia's solitary pioneer

CBC Group's R-Bridge Healthcare Fund, launched in February 2020 and now investing from Fund II, positions itself as "Asia's first and only healthcare-dedicated structured financing fund." Part of CBC Group—Asia's largest healthcare-dedicated asset management firm with $9 billion AUM—R-Bridge focuses on non-dilutive financing backed by royalties, revenue interests, and cash flows.

The Singapore-based fund targets investments of $40-50 million per deal.

Disclosed transactions demonstrate modest but meaningful activity. R-Bridge provided $40 million in royalty-backed financing to YishengBio Co. (China) in March 2022, described as the first-of-its-kind in the Chinese biopharma sector. In January 2025, the fund committed $40 million in synthetic royalty financing to Mirxes Pte Ltd (Singapore) for cancer diagnostics expansion across Asia. December 2024 saw up to $50 million committed to Human Investments Ltd for Motiva medical device expansion in Korea and China markets.

R-Bridge's focus on synthetic royalties rather than traditional licensing royalties reflects market realities—Asian biotech companies more commonly retain commercialization rights rather than out-licensing, creating limited traditional royalty streams to monetize. The fund's existence proves the concept can work in Asia, but its solitary status after five years suggests significant barriers to broader market development.

Korea: strong biotech, challenging pricing dynamics

South Korea possesses a robust and rapidly growing biotech sector. Venture capital investment reached KRW 735.2 billion ($530 million) in bio/medical ventures from January-August 2025, growing 8% year-over-year. More impressively, drug licensing deals surged 113% in 2025 versus 2024, reaching $7.86 billion in total deal value.

Korean companies increasingly license innovative drugs to Western pharma, exemplified by GSK's $2.78 billion deal with ABL Bio and Eli Lilly's $1.3 billion commitment to Rznomics. The country has emerged as a global hub for antibody-drug conjugates (ADCs), with ADC licensing growing 39% from 2021-2024.

Government support reinforces this momentum. The "Pharmaceutical and Bio Venture Innovation Ecosystem Plan" launched in January 2025 signals strategic priority status. Korean biotech demonstrates genuine innovation capability and commercial potential—precisely the ingredients royalty financing requires.

Yet zero domestic royalty financing players exist in Korea. The sole disclosed royalty-related transaction involved R-Bridge's $50 million commitment for medical device revenues in the Korean market. Why the disconnect?

Unpredictable pricing poses the primary obstacle. Korea transitioned to annual drug price reviews (from biennial) in FY2021, creating significant volatility. Price-volume linkage mechanisms reduce prices if sales exceed forecasts by 30-60%, penalizing commercial success. Risk-sharing agreements (RSAs), expanded since their 2013 introduction, add complexity to revenue forecasting.

The National Health Insurance Service (NHIS) operates a single-payer system with strict cost-effectiveness requirements. Reference pricing to A7 countries (US, UK, Germany, France, Italy, Switzerland, Japan) means Korean prices get benchmarked downward. US pharmaceutical companies consistently cite Korean pricing "unpredictability" as a major concern.

For royalty investors, this environment is toxic. Valuation models require stable revenue projections over 10-20 year horizons. Annual price revisions with multiple downward adjustment mechanisms make underwriting extremely difficult.

The stronger a product performs commercially, the more likely prices face cuts under price-volume linkage—creating perverse incentives completely misaligned with royalty investor interests.

Korea's strong IP protection and first-class innovation capability suggest moderate-low viability for royalty financing. The market could develop if pricing policies stabilized, allowing longer periods of price certainty to enable revenue forecasting. Success with cross-border deals like R-Bridge's medical device financing might demonstrate the model's viability and build track records.

But without pricing reform, the market will remain severely constrained.

Japan: innovation powerhouse meets pricing instability

Japan represents the world's second-largest pharmaceutical market with substantial R&D spending—Takeda invested ¥633 billion and Daiichi Sankyo ¥341.6 billion as of March 2023. The market offers impressively fast access, with approximately three months from approval to reimbursement, among the quickest globally.

National Health Insurance (NHI) coverage extends to 97.4% of new molecular entities (2004-2014 data), ensuring broad market access.

Yet zero domestic royalty financing players exist. Only one disclosed cross-border transaction involves Japanese market revenues: OrbiMed provided $50 million to France's Poxel SA in September 2024 based on royalties from TWYMEEG (Imeglimin) sales by Sumitomo Pharma in Japan. This solitary deal over multiple years signals minimal investor appetite.

The culprit is aggressive price erosion. Japan implemented biennial comprehensive price revisions plus additional annual "off-year" price cuts starting in recent years, drawing industry criticism for creating an unstable investment environment. Market expansion repricing triggers sudden price reductions for high-selling drugs, penalizing commercial success.

The 2024 price revision showed a 6.0% discrepancy rate between NHI prices and market prices, triggering cuts. Generic promotion policies impose new co-payment schemes for long-listed products to drive generic uptake, accelerating branded product erosion.

April 2024 pricing reforms aimed to reduce "drug lag" and "drug loss" with new premiums for innovation, but these improvements don't address the fundamental problem: annual revisions plus market-expansion repricing create inverse incentives for royalty financing. The more successful a drug becomes, the more likely prices get slashed, undermining royalty valuations.

For investors requiring revenue predictability over decades, Japan's current system presents low viability.

Changing course would require ending or significantly reducing revision frequency, strengthening Price Maintenance Premium systems to prevent erosion during patent terms, modifying or eliminating market expansion repricing, and enabling pharmaceutical companies to guarantee minimum pricing floors. Without such reforms, royalty financing faces structural headwinds in Japan despite the market's innovation capacity and size.

China: nascent but potentially most promising

China presents the most encouraging Asian prospects, though starting from a minimal base. Beyond R-Bridge, the market has seen limited dedicated royalty activity, yet underlying conditions suggest potential.

Chinese biotech achieved explosive growth in 2024-2025. Healthcare fundraising reached $10.6 billion year-to-date in 2025, exceeding 2022-2024 combined totals. The NMPA approved 228 new drug applications in 2024 including a record 46 Class 1 innovative drugs, of which 39 were domestically developed versus just 7 imported. Chinese molecules represented 31% of compounds in-licensed by global big pharma in 2024, up from 29% in 2023.

Biotech achieved "new-quality productive forces" designation with CNY 20+ billion in government funding (2023). Recent major IPOs and offerings included WuXi AppTec ($980 million), Jiangsu Hengrui ($1.3 billion), and several $400-500+ million raises.

The National Reimbursement Drug List (NRDL) negotiation process and volume-based procurement (VBP) centralized purchasing create significant pricing pressure, similar to Korea and Japan. Yet China's massive market size—$479 billion total healthcare expenditure in 2023 at just $340 per capita versus much higher developed market levels—offers enormous growth potential.

Low per-capita spending suggests substantial upside as the economy develops.

IP protection has improved rapidly though concerns persist. The Patent Linkage System introduced in June 2021 (similar to US Hatch-Waxman) provides new protections. The 2020 Patent Law amendments strengthened protection and increased damages. Specialized IP courts established since 2014 handle disputes.

The 14th Five-Year Plan (2021) targeted doubling patents awarded to foreign firms by 2025. The Biosecurity Law (2020) created comprehensive biotech IP frameworks.

Yet patent invalidation trends concern foreign investors. Increasing use of courts and CNIPA to invalidate foreign patents in strategic sectors creates uncertainty. Patent linkage stays last only 9 months versus 30 months in the US.

EU surveys report concerns about rulings potentially favoring Chinese companies or state-owned enterprises. Enforcement maturity lags behind US/Europe standards.

R-Bridge's presence and dealmaking demonstrate moderate viability—the best near-term prospects in Asia. China's massive patient population, fast-growing market, and 39 domestically-developed Class 1 drugs approved in 2024 create a local asset base.

Growing out-licensing activity (Chinese companies licensing globally) generates traditional royalty streams potentially monetizable. Capital constraints despite record fundraising drive demand for non-dilutive alternatives.

For broader market development, China needs greater pricing predictability through stable NRDL negotiations and VBP frameworks, enhanced foreign investor confidence in IP protection and enforcement, wider market education beyond R-Bridge, more successful deal track records demonstrating viability, regulatory clarity on royalty financing structures, and exit certainty addressing capital control concerns.

The government's strategic prioritization and cost advantages in Chinese R&D (significantly lower than Western counterparts) present unique opportunities. China may be experiencing its biotech "breakthrough moment" analogous to recent AI advances, with innovative drugs gaining global recognition.

Western funds show minimal Asian activity

Despite professed interest, major global royalty funds demonstrate negligible disclosed Asian activity. Royalty Pharma states "increasing interest in Asian markets" but has zero specific Asia deals publicly disclosed. Healthcare Royalty Partners similarly has no disclosed Asia transactions.

Blackstone Life Sciences shows no Asian royalty deals. OrbiMed, despite managing an $800 million OrbiMed Asia Partners IV fund, focuses that vehicle on equity rather than royalty investing. Its $1.86 billion Royalty & Credit Fund V (raised August 2023) maintains a global mandate, but the Poxel deal for Japan market royalties remains its only disclosed Asia-specific royalty transaction.

Goodwin Law noted in 2025 that "we're also seeing increasing interest in Asian markets, suggesting a continued trend not just in the US but on a global basis." Yet "interest" hasn't translated to meaningful deal flow.

The structural barriers—pricing unpredictability, IP concerns, regulatory complexity, limited commercial track records, and unfamiliarity with royalty structures—appear prohibitive for funds that can deploy capital more efficiently in North America's favorable environment.

Why structural factors determine geographic destiny

The concentration of royalty financing in North America versus its near-absence elsewhere isn't accidental or temporary. Deep structural factors create a convergent advantage model where multiple reinforcing elements combine to make North America uniquely hospitable.

The pricing premium: arithmetic that matters

Drug pricing differences dwarf all other factors. US prescription drug prices average 2.78 times higher than OECD comparison countries according to RAND Health Care's 2022 analysis commissioned by the Department of Health and Human Services.

For brand-name drugs specifically, US prices run at least 3.22 times higher even after accounting for rebates. This isn't marginal—it's transformative.

Consider the mathematics: a 5% royalty on a product generating $1 billion in US sales yields $50 million annually. That same product, if sold exclusively in markets priced at 36% of US levels (European average), generates only $360 million in sales, yielding $18 million in royalties—a 64% reduction.

Over a typical 10-year royalty term, that's $320 million in US royalties versus $115 million in European royalties, fundamentally altering return profiles and transaction economics.

This pricing architecture reflects different healthcare philosophies. The US system, despite its flaws, allows market-based pricing (subject to increasing negotiation under the 2022 Inflation Reduction Act for select Medicare drugs). European countries employ external reference pricing (ERP) across nearly all jurisdictions, with prices linked internationally creating downward spirals.

Health Technology Assessment (HTA) requirements enforce strict cost-effectiveness thresholds. Budget impact concerns limit uptake. The new EU HTA Regulation implemented in 2025 further standardizes assessment but potentially slows access.

Asian markets deploy aggressive negotiation frameworks. China's NHSA conducts tough price negotiations via the National Reimbursement Drug List (NRDL), prioritizing expanded access at controlled costs. Japan's 2025 "off-year" price revisions drew industry criticism for destabilizing investments. Korea's shift to annual price reviews with price-volume linkage creates volatility.

For royalty investors, US pricing provides the only market where deal economics work at scale. European and Asian price controls create unfavorable unit economics that make deals marginal or unworkable. This single factor explains more variance in market development than all other variables combined.

Tax treatment amplifies advantages

Tax structures create additional North American advantages. In the United States, royalty payments are generally tax-deductible as operating expenses for the paying company, reducing effective cost of capital compared to equity financing which provides no tax benefit.

This deductibility makes royalty financing 20-30% more economically attractive (depending on corporate tax rates) than equity for companies.

For recipients, royalties typically count as ordinary income subject to standard taxation. Non-US residents face 30% withholding unless reduced by tax treaties. Synthetic royalties face complex treatment depending on structure—characterized as either loans or sales, affecting capital gains versus ordinary income designations. Yet overall, the US framework provides clarity and favorable treatment.

European tax treatment varies significantly across 27 member states despite partial harmonization. The EU Interest and Royalties Directive previously allowed certain payments between EU companies without withholding tax, but this no longer applies to UK post-Brexit. Cross-border withholding rates differ by country and tax treaty arrangements, adding complexity.

Asian markets have varying tax treaties with the US (e.g., US-India treaty grants 15% rate versus 30% default), but documentation complexity increases for cross-border structures.

The combination of deductibility and relative simplicity gives North American structures a cost-of-capital advantage that compounds over transaction lifecycles.

IP protection and predictability

Strong intellectual property frameworks underpin royalty valuations. The United States provides 20-year patent terms from filing under the USPTO, enforced through a centralized federal court system delivering consistent rulings across jurisdictions. While post-Mayo v. Prometheus (2012) scrutiny on biotech patent eligibility created challenges, the system remains robust and predictable.

A unified federal structure means patent enforcement outcomes in California apply in Massachusetts, reducing due diligence uncertainty.

Europe offers 20-year terms plus Supplementary Protection Certificates (SPCs) extending protection up to 5 additional years for pharmaceuticals—potentially longer than US terms. The European Patent Office (EPO) grants patents valid across member states. However, enforcement remains national, with each country maintaining distinct infringement rules and mechanisms.

This fragmentation increases litigation complexity and cost. Despite EPO harmonization, investors face 27 different enforcement regimes, raising risk premiums.

Asia presents mixed pictures. Japan's JPO operates efficiently with strict inventive step interpretations and accounts for significant biotech patent activity. China's CNIPA has evolved rapidly, but enforcement challenges for foreign entities persist. The Patent Linkage System introduced in June 2021 provides new protections, and 2020 Patent Law amendments strengthened frameworks.

Yet patent invalidation trends concern foreign investors, with increasing challenges to strategic patents. The 9-month regulatory stay under patent linkage (versus 30 months in the US) provides less protection. Foreign investors report concerns about potential bias toward Chinese companies in disputes.

For royalty investors requiring cash flow certainty over 10-20 year horizons, US patent predictability reduces risk premiums significantly compared to fragmented European enforcement or evolving Asian frameworks. This directly affects discount rates applied to royalty valuations, making US-based deals more attractive.

Regulatory efficiency and approval speed

Regulatory structures shape time-to-market and revenue timing. The FDA's centralized federal agency structure provides a single decision-making body with final approval authority.

Approval rates run at 85% for first-review cycles (2014-2016 cohort). Speed generally exceeds international peers, especially through expedited programs—Breakthrough Therapy, Fast Track, Accelerated Approval, and Priority Review—with 57% of FDA approvals from 2007-2017 using at least one expedited pathway.

The EMA's coordinating structure requires European Commission final approval after EMA scientific assessment. First-review-cycle approval rates reach 92% (2014-2016 cohort), but median review times exceed FDA's, particularly due to European Commission administrative processes.

Only 15% of EMA approvals used expedited routes versus 57% for FDA, meaning European approvals typically arrive later. FDA/EMA decisions show 91-98% concordance, meaning products approved in the US generally gain European approval—but US approval comes first in most cases.

For royalty investors, earlier US approvals mean earlier revenue generation, improving IRRs. Even 6-12 month approval advantages compound significantly over multi-year royalty terms.

Asian regulators (PMDA in Japan, NMPA in China, MFDS in Korea) have historically lagged US/EU timelines, though gaps have narrowed. Local clinical trial requirements add time and cost, further delaying revenues.

The FDA's extensive use of expedited pathways creates additional advantages. Products gaining Breakthrough Therapy designation accelerate development timelines, bringing royalty payment commencement forward. This regulatory efficiency directly enhances investment returns.

Cultural and ecosystem factors

Cultural attitudes toward pharmaceutical innovation and financing alternatives shape market development. North America possesses decades of royalty financing precedent in mining, energy, and entertainment sectors, with the energy royalties market alone estimated at $500 billion to $1 trillion.

Sophisticated institutional investors understand alternative assets and actively seek uncorrelated returns. Pension funds, endowments, and sovereign wealth funds allocate meaningful portions to alternatives portfolios.

North American entrepreneurial culture accepts revenue-sharing structures that preserve equity ownership. Founders value maintaining control and avoiding dilution, making non-dilutive royalty capital attractive despite giving up margin. The venture capital ecosystem provides abundant early-stage funding, creating pipelines of companies reaching late-stage development appropriate for royalty financing.

European investment culture remains more bank-centric and risk-averse. European households hold just 17% of wealth in financial securities versus 43% in the US. European savings concentrate in bank deposits and insurance products. A 2024 EU roundtable cited "perception of investments in startups and scale-ups as too risky" alongside structural barriers.

European pension systems rely more heavily on state provision with smaller private pension pools, reducing institutional capital available for alternatives.

Asian markets exhibit different dynamics. Strong equity financing cultures exist, particularly in China where public listings provide prestige and liquidity. Government funding programs provide substantial R&D support, potentially reducing demand for alternative financing.

Relationship-based banking traditions and strategic partnerships with large pharma companies often substitute for structured finance. Familiarity with royalty financing concepts remains limited outside specialized circles.

The ecosystem effects compound. North American success breeds more activity through demonstration effects, developing specialized expertise in legal structuring, financial modelling, and due diligence. Law firms (Goodwin, Covington, Gibson Dunn) have built dedicated royalty practices. The market has generated sufficient precedents to establish standards.

European and Asian markets lack this accumulated expertise, requiring investors to build capabilities from scratch or import American practices—explaining why even European company deals use New York law.

Market liquidity and secondary trading

Primary market activity in North America achieved $5.07 billion across 102 transactions from 2020-2024, with 2025 tracking toward $5.42 billion. Synthetic royalties recorded $925 million in 2024 alone, growing at 33% annually. Average transaction sizes reached $220.58 million in 2024, demonstrating appetite for substantial commitments.

Secondary market development grows at 15% CAGR over five years. While royalties remain private assets without public exchanges, an increasingly active secondary market enables investors to exit positions before natural expiration.

The top three firms (Royalty Pharma, Healthcare Royalty Partners, Blackstone) controlled 70-80% historically, but new entrants drove ~47% of total market value in 2021, indicating broadening participation.

This liquidity creates pricing discovery and exit opportunities that reinforce primary market activity. Buyers know they can potentially sell positions if needed. Sellers understand market valuations, enabling negotiations.

The ecosystem's depth—with 8-10 major funds plus numerous smaller players—ensures competitive dynamics.

European and Asian markets lack this liquidity infrastructure. Duke Capital operates in relative isolation. No European secondary market exists for royalty trading. Without liquidity, investors hesitate to commit capital, knowing positions may be locked up indefinitely.

Without investors, no liquidity develops—a classic chicken-and-egg problem. North America solved this through gradual ecosystem development over 20+ years. Other regions haven't reached critical mass to trigger similar network effects.

Future outlook: concentration intensifying despite global interest

Multiple indicators point toward continued growth in royalty financing, but that growth will remain overwhelmingly North American despite expressions of interest elsewhere.

Market expansion drivers

The $236 billion patent cliff from 2025-2030—projected revenue losses from patent expirations—forces pharmaceutical companies to seek innovative funding models for development pipelines. Traditional equity markets remain challenging, with biotech IPOs 78% below 2021 levels.

Biotech valuations dropped 50% from 2021-2022 peaks and have remained relatively flat since. 41 biotech bankruptcies occurred in 2023, an all-time high. These conditions drive sustained demand for non-dilutive capital alternatives.

Royalty financing has demonstrated resilience—projected for modest growth in 2024 while equity-financed deals expected to decline 50% year-over-year. This counter-cyclical performance attracts institutional investors seeking diversification.

Survey data from Goodwin/Deloitte indicates nearly 90% of biotech executives considering royalty financing within three years, up dramatically from prior periods.

Synthetic royalties represent just 3% of total biopharma capital raised, suggesting enormous growth potential if this share doubles or triples. The structure's flexibility—allowing companies to create new royalty obligations on products they commercialize themselves—dramatically expands addressable markets beyond traditional out-licensed assets. Record 2024 synthetic royalty volume ($925 million for Royalty Pharma alone) validates this approach.

Geographic prospects remain divergent

North American outlook: strong continued growth. OrbiMed raised $1.86 billion for its fifth royalty and credit fund (August 2023). Blackstone was raising over $5 billion for its latest life sciences fund as of late 2024. Royalty Pharma guides toward $2.9-3.05 billion in portfolio receipts for 2025, representing 4-9% growth. New entrants continue emerging—OMERS, CPP Investments, and specialized vehicles from established private equity firms.

Transaction volume should reach $6-8 billion annually by 2027-2028 if current trajectories hold.

European outlook: growing company participation but no fund formation. European biotech companies will increasingly access royalty capital—the trend from 20%+ of deals involving European entities should strengthen. However, this will occur through US-based funds rather than European vehicles. Duke Capital will likely remain the sole European-listed player absent major CMU breakthroughs.

The structural barriers—pricing controls, fragmented markets, risk-averse capital, tax complexity—require political solutions unlikely in the 3-5 year timeframe. Transactions involving European companies may grow to $1-1.5 billion annually, but capital will flow from American sources.

Asian outlook: nascent development concentrated in China. R-Bridge will likely complete 5-10 additional deals through 2027, building track records demonstrating viability. Perhaps 1-2 additional Asia-focused funds launch, likely based in Singapore or Hong Kong with regional mandates.

China represents the most promising growth market given scale, innovation capacity, and R-Bridge's demonstrated model. Annual Asian royalty volume might reach $500 million to $1 billion by 2030, representing 10-15% of global market—meaningful but still small. Korea and Japan face prohibitive pricing unpredictability unless policies reform.

Expert predictions and wildcards

Pablo Legorreta (Royalty Pharma CEO) emphasized in 2024 that "the fundamentals of our business have never been stronger," highlighting synthetic royalties as key growth drivers. ZS Associates projects that "specialty financing such as royalty financing will continue to expand as biotechs look to alternatives in the absence of traditional sources."

EY's Beyond Borders 2024/2025 reports suggest royalty transactions could provide $14 billion in deal flow with total value growing at 45% CAGR, though this likely assumes primarily North American activity.

Key uncertainties include IRA implementation effects. The 2022 Inflation Reduction Act introduced Medicare drug price negotiation for initially 10 drugs, expanding over time. While impact is limited compared to European-style comprehensive price controls, broader application could pressure US pricing premiums that underpin royalty economics.

Higher interest rates increase discount rates for valuing royalty streams, moderating volumes though not eliminating growth. Rates have peaked and may decline, potentially accelerating activity.

Regulatory scrutiny under changing US administrations could affect deal structures, particularly around synthetic royalties that some critics view as disguised debt.

FTC scrutiny of pharmaceutical transactions may extend to royalty deals if perceived as anti-competitive, though this seems unlikely given royalty financing typically funds innovation rather than consolidation.

Competition among funds may compress returns as more entrants crowd the market, but current 60% concentration with Royalty Pharma suggests market power remains concentrated for top players.

Technology and innovation in structures

Deal structure innovation continues. Milestone-heavy payment structures increasingly replace upfront-only deals, lowering buyer risk while reducing seller capital costs. Hybrid instruments combining debt, equity, and royalty elements provide customization.

Portfolio transactions rather than single-asset deals spread risk. Drug development financing structures royalties around achieving clinical and regulatory milestones rather than commercial sales.

Data analytics and AI capabilities increasingly differentiate top funds. Royalty Pharma evaluated over 440 opportunities in 2024, completing just 8 deals—a 1.8% hit rate demonstrating rigorous selection.

Sophisticated modeling of clinical, regulatory, commercial, and competitive dynamics requires specialized expertise. Funds investing in proprietary analytics gain advantages in deal sourcing, valuation accuracy, and portfolio management.

ESG considerations may increasingly influence royalty investing, with funds potentially prioritizing drugs addressing significant unmet medical needs or rare diseases. Impact-oriented capital could accept marginally lower returns for socially beneficial innovations, slightly expanding viable deal universes.

The dividing line that isn't closing

Five years from now, royalty financing will likely constitute 5-10% of total biotech funding globally, up from approximately 3% currently. Annual transaction volume may reach $10-15 billion. Hundreds of products will carry royalty obligations, generating billions in annual payments to specialized funds. The market will have matured into a standard component of life sciences finance architecture.

Yet geography will remain concentrated. North America will account for 70-80% of global activity—precisely where it stands today. European companies will participate increasingly but through American capital. Asian markets will show growth from minimal bases but won't achieve parity.

The structural factors determining this distribution—pricing systems, tax frameworks, regulatory architectures, IP enforcement, cultural attitudes—reflect deep policy choices and institutional configurations unlikely to converge.

The ultimate irony: royalty financing succeeds precisely where drug prices are highest. The same American pricing that generates political controversy and affordability crises also creates the economic conditions enabling innovative alternative financing.

European price controls, while serving public health objectives of accessibility and cost management, inadvertently prevent development of royalty financing ecosystems. Asian negotiation frameworks prioritizing affordable access similarly impede market formation.

This creates a feedback loop. North American biotech companies access sophisticated non-dilutive capital unavailable to international peers, potentially conferring competitive advantages in funding development through commercialization. European and Asian companies either relocate to access favorable financing environments or accept less optimal capital structures.

The financing gap may widen innovation gaps, with capital flowing to where structural conditions support it rather than where scientific merit alone would direct it.

For the global biotech ecosystem, this concentration presents both opportunity and challenge. Companies worldwide can access royalty capital if willing to work with American funds under American terms.

But the absence of regional champions means capital extraction—royalty payments flowing from European and Asian markets to North American investors—rather than local capital recycling. The market works, but primarily for those operating within or willing to conform to North American frameworks.

The great divide in royalty financing thus reflects deeper questions about pharmaceutical innovation incentives, healthcare system design, and the role of market-based mechanisms in funding drug development.

As biotech companies scramble for capital amid challenging equity markets, these structural factors increasingly determine who accesses what financing at what cost—making the geography of royalty financing a window into the future competitive dynamics of global life sciences innovation.