Understanding Bankruptcy Remoteness in Biotech Royalty Financing Deals

Bankruptcy remoteness is a crucial concept in structuring financial deals — especially royalty financing transactions in the biotechnology and pharmaceutical industry. In simple terms, bankruptcy remoteness means arranging a deal so that if one party (typically the biotech company or originator) goes bankrupt, the assets or cash flows involved in the deal are insulated from that bankruptcy. The goal is that the originator's bankruptcy will not disrupt the investor's rights to the royalty or revenue stream.

This concept has become increasingly important as biotech companies pursue royalty monetization (selling or borrowing against future drug royalties) as a source of non-dilutive funding. In this explainer, we'll dive into what bankruptcy remoteness entails, why it matters for royalty deals, and how such structures are handled in key regions — the USA, Europe, Japan, and China — with comparisons across startups, special purpose vehicles (SPVs), and large pharmaceutical companies. We will also look at real-world case studies of royalty financing deals to illustrate these principles.

What is Bankruptcy Remoteness?

In finance, bankruptcy remoteness refers to structuring a transaction so that certain assets or obligations are ring-fenced from the bankruptcy risk of a related entity. This often involves using a special purpose vehicle (SPV) or similar entity to hold the assets, thereby isolating them from the parent company's financial distress. If the parent or originator files for bankruptcy, the goal is that the assets held by the SPV (and the cash flows they generate) are not pulled into the bankruptcy estate and remain transactionally efficient.

In other words, the SPV is "remote" from any bankruptcy — it stands alone and ideally would not file for bankruptcy itself, nor be consolidated into the originator's bankruptcy proceedings.

Key Elements of Bankruptcy Remote Structuring

Achieving bankruptcy remoteness typically requires careful legal structuring. Key elements often include:

True Sale of Assets

The asset (e.g. the royalty stream) is sold outright to the SPV or investor, rather than merely pledged as collateral. A "true sale" means that even if the original owner goes bankrupt, the transferred asset is considered sold and thus not part of the bankruptcy estate.

For example, under Japanese law, a true sale ensures the transferee's rights are not treated as a mere security interest subject to insolvency proceedings. In the US, similarly, a sale of "accounts" or "payment intangibles" (like royalty payment rights) can be excluded from the debtor's estate if it qualifies as a true sale. We will discuss below how courts determine a true sale versus a secured loan.

Special Purpose Vehicle (SPV)

Using a separate entity to hold the assets is a common technique. The SPV is usually restricted to only the specific transaction and has no other business, minimizing its likelihood of ever needing bankruptcy protection. Often the SPV is independently owned or managed (sometimes an "orphan" entity) to prevent it from being dragged into the parent's bankruptcy.

The SPV provides a "bankruptcy-remote shield" — if the parent company fails, the SPV and its assets remain unaffected with transactional efficiency. For instance, an SPV might be set up to own a drug license and receive royalties, so that the royalty stream can be separated from the biotech company's risks.

Non-Consolidation and Legal Opinions

Transactions may be structured (and legal opinions obtained) to assure that the SPV's assets won't be consolidated with the originator's assets in bankruptcy. This involves maintaining the SPV's separateness (independent directors, separate accounts, etc.) to avoid a court recharacterizing the setup as a sham.

Limited Recourse and No Petition Clauses

Typically, the agreements will limit the SPV's obligations to the assets it holds (investors have no recourse to the parent) and investors/creditors agree not to involuntarily bankrupt the SPV. These provisions further reinforce bankruptcy remoteness.

In summary, bankruptcy remoteness aims to give investors confidence that their rights to specific assets (like royalty payments) will survive even if the counterparty goes bust. This is particularly vital in royalty financing deals, where the investor's only return comes from the future royalty stream of a drug.

Why Bankruptcy Remoteness Matters in Biotech Royalty Deals

Royalty financing has surged in the life sciences as a form of non-dilutive financing. Rather than issuing equity or taking traditional debt, a biotech company can monetize a royalty: it sells or borrows against the future royalties of a drug (often one it has licensed out to a larger commercial partner). Investors like royalty funds provide upfront cash, and in exchange receive payments tied to product sales (the royalties).

Two Primary Forms of Royalty Deals

Traditional Royalty Monetization

The company sells a portion of an existing royalty entitlement under a license agreement. In this scenario, there is already a license in place (the biotech as licensor, and a pharma partner as licensee who pays royalties). The investor essentially steps into the shoes of the licensor with respect to receiving some or all of those royalty payments.

For example, if Biotech A licensed a drug to Big Pharma B, and B owes A a 5% royalty on sales, A could sell that royalty stream (or part of it) to an investor for immediate cash.

Synthetic Royalty Financing

The company does not have an existing third-party license, but it agrees to pay the investor a percentage of future product revenues (like a royalty) once the product is commercialized. This is "synthetic" because it mimics a royalty but is essentially a structured revenue interest in future sales. It may be structured as a sale of a portion of future receivables or as a royalty-backed loan. Synthetic royalties are common for drugs in development or for companies that prefer not to out-license the product.

Major Bankruptcy Risks for Investors

In both cases, bankruptcy risk is a major concern for the investor. If the biotech company later files for bankruptcy, what happens to the royalty payments? Several critical risks stand out:

Risk of Asset Being Pulled into Bankruptcy Estate

If the transaction isn't a true sale, the bankruptcy court might treat the investor as a creditor rather than an owner of the royalty. The royalty stream would then be part of the bankrupt company's estate and subject to claims of all creditors. The investor's claim could be just an unsecured claim for money — far less secure than owning the royalty outright.

This is why documenting a true sale is critical. In practice, nearly all royalty monetizations are explicitly documented as sales for this reason. In fact, one study found 95% of recent royalty deals stated they were "true sales" of the payment rights.

Risk of Recharacterization

Even if documents call it a sale, a court may re-examine the transaction's substance. If the deal has features more like a loan (for example, a cap on the investor's return, repurchase provisions, or if the seller retains too much risk), a bankruptcy court could recharacterize the deal as a financing.

This happened in at least one case (CapCall LLC v. Foster) where a supposed receivables "purchase" was deemed a secured loan in bankruptcy. Factors like the allocation of risk and the presence of collateral beyond the asset itself can sway the outcome. Capped royalty deals are particularly susceptible — if a biotech sells royalties but the investor's upside is capped (behaving like a fixed return), courts might view it as debt.

To guard against this, backup security interests are often taken. Most royalty purchasers will "seek a backup security interest in at least the acquired royalties" (and sometimes in the underlying IP and related assets) to protect their claim if a sale gets recharacterized in bankruptcy.

In other words, if the "sale" is later judged a loan, the investor still has a perfected security interest in the royalty or patent, putting them ahead of general creditors. (Of course, investors prefer to avoid recharacterization altogether by structuring the deal carefully — simply labeling it a sale is not enough.)

Contract Rejection Risk (Licensor Bankruptcy)

In a typical royalty monetization, the biotech company is the licensor of the drug, receiving royalties from a licensee (often a pharma company marketing the drug). If the biotech licensor goes bankrupt, under U.S. law the license agreement is an executory contract that the debtor could attempt to "reject" in bankruptcy.

This is an unusual scenario — normally a licensor might not reject a profitable license — but it could arise if the license has ongoing obligations that are burdensome. U.S. bankruptcy law (Bankruptcy Code §365(n)) gives special protections to licensees of intellectual property: if a licensor bankrupt rejects the license, the licensee can elect to retain its rights to the IP (by continuing to pay royalties).

This means the licensee can keep selling the product by paying royalties into the bankruptcy estate. However, if the royalty was sold to an investor, a rejection could create uncertainty about who is entitled to those payments or even jeopardize the flow of royalties.

Real Example: Athenex Case

A real example occurred with Athenex, Inc., a U.S. biotech. Athenex had licensed a drug (Klisyri) to a partner and later monetized its Klisyri royalties for $85 million via an SPV structure. When Athenex filed Chapter 11 in 2023, it considered rejecting a related supply agreement because continuing to supply the product was unprofitable after selling most of the economic upside.

If supply stopped, drug sales (and royalties) would have been in peril, hurting the royalty investor. In the end, Athenex did not reject the agreement; instead, a settlement ensured supply continued (with financial concessions from both the licensee and the royalty buyer).

The Athenex case highlights that even if the royalty itself is secured, bankruptcy of the licensor can introduce risks if critical obligations (like manufacturing the drug or maintaining patents) still reside with the bankrupt company.

License Transfer or IP Sale Risk

A related concern in some jurisdictions is if the bankrupt licensor could sell or transfer the underlying IP free and clear of the royalty obligation. In many cases, a purchaser of the IP out of bankruptcy might have to honor the existing license (and royalty) — especially if the licensee invokes §365(n) in the U.S. — but the intricacies vary.

In any event, investors try to mitigate this by obtaining contractual consents or direct payment agreements with the licensee when possible, or by taking a security interest in the IP so they have a say in any transfer.

In sum, ensuring bankruptcy remoteness in royalty deals is about protecting the investor's bargain — the ongoing royalty stream — from being cut off or entangled in a bankruptcy. As royalty financings have grown more common, especially among cash-strapped biotechs, both sides (royalty sellers and buyers) have become keenly aware of these issues. Fortunately, there are established techniques to address them, which we explore next.

Common Structures to Achieve Bankruptcy Remoteness

Royalty financings in biotech are typically structured with several protective measures. The exact structure can differ based on the deal type (traditional vs. synthetic royalty) and the parties involved, but here are the common elements designed to achieve bankruptcy remoteness:

True Sale of the Royalty Stream

As noted, the agreement will explicitly state that the transaction is a sale of an asset (the royalty payments right) rather than a loan. Economic terms are crafted to support this characterization: the investor usually takes on the risk that the royalties may be lower than expected (downside risk) and the benefit if the drug wildly succeeds (upside beyond their upfront, unless capped).

A Covington study of 39 royalty monetization deals from 2019–2023 found that almost all were documented as true sales. This aligns with treating the royalty as a sold "payment intangible" under Article 9 of the U.S. Uniform Commercial Code, which means the sold asset would not be part of the seller's bankruptcy estate.

(Article 9 explicitly recognizes sales of accounts and payment intangibles and gives investors protection if properly perfected.) Other jurisdictions likewise require that the transfer be absolute to keep the asset out of insolvency proceedings.

Special Purpose Vehicle (SPV) Holding the Asset

A robust way to ensure true sale and bankruptcy isolation is to create an SPV to hold the royalty-bearing license or the royalty right. In an "SPV structure," the biotech company transfers the drug license and related IP into a newly formed SPV, and then that SPV sells the royalty interests to the investor.

By removing ownership of the license and patents from the operating company, the royalty stream is separated from the company's bankruptcy risk. If the biotech later files bankruptcy, the SPV (as a different entity) is not part of that filing, and thus the license agreement remains intact and outside the debtor's estate.

This was demonstrated in the earlier example: Athenex's SPV structure was validated in court — the SPV did not file for bankruptcy and the license placed in the SPV was not subject to rejection by Athenex.

In practice, the SPV often will be restricted from incurring any other debt or engaging in other business, making it extremely unlikely to go bankrupt on its own. Investors "would not expect the SPV to file for bankruptcy protection," as Covington's study notes. In some deals, especially those with capped returns or more debt-like features, using a bankruptcy-remote SPV to on-sell the royalty can further limit recharacterization risk.

Backup Security Interests

As a precaution, many royalty transactions include the grant of a security interest to the investor, even though it's a sale. For example, the seller might pledge the royalty stream (and possibly the IP) to the buyer as collateral. This way, if a court later deems the deal was a financing, the investor can enforce the security interest.

According to industry practice, "most royalty purchasers will seek a backup security interest in at least the acquired royalties," and in some cases in the underlying IP and regulatory approvals, to "comprehensively secure their claim".

The Covington data showed about 15% of surveyed deals explicitly required an SPV, and around 8% had collateral secured by product assets like IP — relatively small subsets, but notably most deals included protective filings or arrangements to cover all bases (e.g., UCC financing statements are often filed even after a sale, as a belt-and-suspenders approach).

This backup security also mitigates risk if the biotech breaches the agreement (for instance, if they were supposed to direct the licensee to pay the investor but failed to do so, the investor can perfect its interest and claim the funds).

Control of Cash Flows (Escrow/Blocked Account)

To avoid commingling funds with the seller (which could complicate bankruptcy analysis), royalty deals sometimes use a lockbox or escrow account where the licensee pays royalties directly. A slight majority of deals in one study routed payments to an escrow account for the investor's benefit.

This ensures the cash doesn't flow through the biotech's accounts (where in a bankruptcy, it might get frozen or claimed by others). Instead, the investor receives the royalty payments off-balance-sheet.

Consent and Direct Pay Agreements

Where possible, the licensee (the royalty payor) is asked to consent to the royalty sale and agree to pay the investor directly. Many underlying license contracts have restrictions on assignment of royalty rights, but in the U.S. the UCC §9-406 overrides anti-assignment clauses for payments — making such restrictions ineffective for the transfer of payment rights. Still, getting the licensee's consent is ideal, especially to allow the investor access to information (sales data, etc.).

In the Covington sample, about 73% of license agreements required consent to assign payment rights, yet evidence suggested parties did not always obtain consent — likely relying on the UCC override in those cases. Having the licensee on board contractually can also reduce the risk of any future dispute and ensure the investor can step in if needed.

Protective Covenants

Royalty financing agreements usually include covenants to prevent the biotech from taking actions that could jeopardize the royalty stream. For example, limits on incurring liens on the product assets, restrictions on amending or terminating the license, obligations to maintain the patent, supply the product, etc.

Interestingly, compared to traditional debt, these covenant packages are often lighter — reflecting that the investor's focus is on the product's performance rather than the company's overall finances. In fact, one study noted that negative covenants in royalty deals are limited (e.g., ~54% included a limitation on additional liens on the product royalty, but other restrictions like debt incurrence or dividends were much less common).

Financial covenants (like maintaining ratios) were virtually 0% in these transactions. This lighter touch is viable because the investor is structurally protected — if the company fails, they still have the royalty asset separated; thus they don't rely on the company's credit as much as a lender would.

IP and Ancillary Asset Transfers

To truly isolate the royalty-generating asset, deals may involve transferring not just the license but related IP (patents) and know-how to either the licensee or a third party if the company falters. Some transactions incorporate triggers that require the biotech to facilitate transfer of essential IP or supply arrangements to the licensee (or to the investor or a new servicer) if financial distress looms.

This was a lesson from the Athenex case — there, although the royalty was in an SPV, the manufacturing obligation remained with the bankrupt company, nearly causing a supply cutoff. A recommendation arising from such cases is to ensure critical ancillary services are transitioned along with the royalty if possible.

For example, the monetization agreement might stipulate that if the biotech hits certain distress markers, it must assign the manufacturing agreement or arrange a tech transfer to the licensee to keep the product on the market. All these details aim to keep the royalty flowing no matter what happens to the original seller.

By employing combinations of these strategies — true sale characterization, SPVs, security interests, direct payment flows, and robust covenants — biotech royalty deals are structured to be as bankruptcy-proof as possible. However, the exact approach can differ depending on the nature of the company doing the deal (a startup vs. a big pharma) and the legal environment of the jurisdiction. Let's compare how different types of entities handle royalty financings and then explore regional variations.

Startups vs. SPVs vs. Large Pharma: Who Does What?

Royalty financings are used by a range of entities, from tiny biotech startups to established pharmaceutical companies. The core principles of bankruptcy remoteness remain the same, but the emphasis and structures can vary:

Startup Biotechs

Small or emerging biotech companies often pursue royalty monetizations as a lifeline — a way to raise substantial cash without issuing new equity (hence no shareholder dilution). These startups typically have higher bankruptcy risk, which means investors will insist on stronger bankruptcy-remote structuring.

For a startup, a royalty deal might be one of the only valuable assets it has (often the rights to a drug). As a result, using an SPV can be especially beneficial in their case. If the startup can transfer the drug license and IP into an SPV that is separate from the main company, the royalty investor gains comfort that even if the operating biotech fails (a not unlikely scenario in this volatile sector), the royalty stream survives intact.

Real-World Cases

Athenex was a relatively small biotech that set up an SPV jointly owned with the investors for its royalty deal.

Similarly, Infinity Pharmaceuticals (a biotech known for cancer drug research) sold its royalty rights to a fund in 2019, and when it later filed Chapter 11 in 2023, those monetized royalties became a focal point of the bankruptcy proceedings. (Infinity's case is still unfolding, but it underlines why investors carefully evaluate true sale and may seek court affirmation that the asset isn't property of the estate.)

In practice, startups often must give extensive protections: the deal will likely include a backup security interest, strict covenants not to jeopardize the license, and sometimes even a "springing" license assignment — e.g., the licensee agrees that if the biotech breaches or goes bankrupt, it will pay the royalty into a segregated account for the investor.

The bottom line is that for startups, bankruptcy remoteness is a selling point to attract investors at a reasonable cost of capital. If structured well, a royalty deal allows the biotech to continue operations with fresh funding, while the investor knows its asset is shielded from the company's potential failure.

Role of SPVs

It might seem odd to compare SPVs as a category (since they are not an operating company), but SPVs are essentially the vehicles that make bankruptcy remoteness possible. An SPV can be used by startups or large companies alike.

The key features of an SPV in these deals are: it's a stand-alone entity (often newly formed, with a limited purpose to either hold the license or receive royalty payments), and it is structured to not go bankrupt itself. Many SPVs are structured with independent directors or trustees and have no debt apart from possibly the obligations to the royalty buyer.

In some cases, the SPV is an "orphan" — not owned by the seller — to ensure the seller's creditors can't reach its assets. For example, in European securitizations it's common to use an orphan SPV administered by a trust company for true off-balance-sheet treatment.

In U.S. biotech royalty deals, the SPV might still be affiliated (e.g., a subsidiary of the company) but with provisions to avoid consolidation in bankruptcy. The SPV then enters into the royalty purchase agreement with the investor. If any court later examines the arrangement, the goal is to show that the transfer of assets (license/royalty) to the SPV was a true sale, and the SPV is a separate entity — therefore the originator's bankruptcy should have no effect on the royalty.

The Athenex case again is instructive: Athenex's SPV held the license and was not pulled into Athenex's Chapter 11, meaning the royalty payments could continue flowing to investors as agreed.

However, SPVs add complexity and cost — forming entities, possibly obtaining consents to assign licenses to them, etc. Not every deal uses one. Covington's study noted that around 15% of recent royalty monetizations explicitly required an SPV structure. Often, simpler deals (especially when the seller is financially stable) might forego a separate SPV and just rely on contract assignment and backup liens. But for higher-risk scenarios (small companies or heavily structured deals), an SPV is a "best practice".

Large Pharmaceutical Companies

It's not only small biotechs that monetize royalties — Big Pharma and mid-sized pharma companies also engage in royalty deals, though their motivations differ. A large pharma company is typically not at significant risk of bankruptcy, so investors are less worried about bankruptcy per se. However, big companies use royalty monetizations to unlock value or fund strategic initiatives (often in a very large transaction), and they too may structure deals to be off-balance-sheet.

In fact, one reason pharma companies like these deals is favorable accounting treatment — if done as a true sale, the company can often recognize immediate revenue/gain and remove the contingent royalty from its books, which can improve reported earnings or allow reinvestment.

Examples from Major Pharma

Japanese pharma company Eisai Co., Ltd. (a large, established firm) sold a portion of its future royalties on the cancer drug Tazemetostat (licensed to Epizyme) to Royalty Pharma for up to $330 million in 2019. Eisai received $110 million upfront, which it could use for R&D, and more on FDA approval milestones.

Such a deal was essentially a true sale of a royalty outside of Japan (Epizyme was U.S.-based), demonstrating that even big pharma will structure monetizations as sales for a clean break and immediate funding.

Another high-profile example is MorphoSys AG in Germany: MorphoSys monetized its royalties on a blockbuster drug (Tremfya®) and other assets to Royalty Pharma in 2021 to raise over $1.4 billion upfront, funding the acquisition of another company. In that deal — one of the largest of its kind — Royalty Pharma effectively bought 100% of MorphoSys's rights to certain royalties and 80% of some others, using a combination of a royalty purchase, milestone payments, and even a note (bond) issuance.

MorphoSys's transaction was part of a "strategic funding partnership", and it shows that even well-capitalized firms may prefer to segregate an asset (royalties) into a distinct deal for financing purposes.

Large companies might not need an SPV purely for bankruptcy isolation, but they might still use a subsidiary or specific assignment mechanism for the transaction. Also, big pharma often deals with multiple products at once (as MorphoSys did), potentially creating a royalty securitization (pooling several royalty streams into one transaction).

The investor's focus with big pharma deals is less about the company failing, and more about ensuring the performance of the product and clarity of the rights purchased. Nonetheless, the contracts will be clear that the sale is non-recourse to the seller (the investor can't claim other assets if royalties underperform), and typically the company cannot later claw back those royalty rights even if it faces financial trouble.

Side-by-Side Key Differences

• Startups need bankruptcy remoteness to make the deal viable at all; they are often required to do more (SPVs, liens, covenants) due to their fragile finances. These deals are lifesavers for the company (providing cash to stay afloat or extend runway), but the structure must convince investors that the royalty is insulated from the company's likely risks.
• SPVs are the workhorse entities that enable the separation. They are used as needed across the spectrum — more frequently for smaller entities or more complex structured deals, and less so when the seller is extremely creditworthy and the deal straightforward. An SPV can be thought of as the formal embodiment of bankruptcy remoteness.
• Large pharma companies utilize royalty monetizations more as a strategic financing tool (to reallocate capital, fund new ventures, or take advantage of accounting). The bankruptcy remote elements are still present (true sale, etc.), but an investor is generally not worried about Pfizer or GSK going bankrupt. Instead, those companies might focus on minimizing any impact on their balance sheet and keeping the transaction discrete. They might not need a separate SPV if the sale of the royalty is clear, though they could still use one for convenience or tax reasons.

Large companies also may get better pricing on royalty deals since their products (or the partners paying them royalties) are seen as more reliable; thus, there is less risk premium for bankruptcy. Interestingly, as of 2025, surveys indicate even big pharmas are increasingly considering royalty financings — showing it's not just for distressed or small companies.

Now, let's turn to how different legal jurisdictions handle bankruptcy remoteness in these deals, since laws and market practices differ between the U.S., Europe, Japan, and China.

Jurisdictional Perspectives on Royalty Deal Structures

United States

U.S. law is highly developed in the realm of structured finance and thus provides many of the tools used in royalty monetizations. Key points in the U.S. context include:

Article 9 & True Sale Analysis

As mentioned, under U.S. Uniform Commercial Code Article 9, the sale of payment intangibles (like royalty payment rights) is recognized and can be perfected by filing a UCC-1 financing statement. Once properly sold and perfected, those assets are generally not part of the debtor's estate in bankruptcy.

However, U.S. bankruptcy courts can still evaluate if a purported sale was in fact a financing (recharacterization). U.S. case law (like In re Shoot the Moon, cited earlier) looks at factors such as transfer of risk and control, right of repurchase, and how the parties treat the transaction economically.

In royalty deals, parties take care to allocate risk to the buyer (e.g. no guaranteed floor of payments to the buyer if sales disappoint, no right for the seller to take back the stream except perhaps upon full repayment in some structured deals). Most deals also stipulate clearly that the transaction is a sale; indeed, Covington's review found virtually all had explicit true sale language.

Additionally, backup security filings are standard — it's common to see a UCC filing describing the collateral (royalty rights), even if just to give public notice of the interest or to act as a fallback if a court later treats it as a loan.

Bankruptcy Code Protections

The U.S. Bankruptcy Code's impact on these deals comes mainly through §365 (executory contracts) and §541 (property of estate). If a license is involved, §365(n) — protecting licensees — ironically helps the royalty buyer in many cases: if the licensor (biotech) bankrupt tries to reject the license, the licensee will likely continue the license and keep paying royalties (since that's often better than losing the product rights).

Thus, the royalty stream should continue, though it might be paid to the estate. To address that, a well-structured deal in the U.S. might involve the licensee acknowledging the investor's rights.

In the Athenex situation, while the license itself wasn't rejected (it was safely in an SPV), a related supply agreement was at risk. This showed that U.S. debtors may consider rejecting contracts if they have "no economic incentive" to keep them once the royalty is sold. Ultimately, bankruptcy courts weigh business judgment and stakeholders' interests in such decisions.

Use of SPVs

In the U.S., Delaware (and Delaware LLCs) are frequently used for SPVs because of their flexible LLC statutes and favorable bankruptcy case law on separateness. A Delaware LLC can have independent directors whose consent is needed for any bankruptcy filing, thereby preventing a frivolous or convenient bankruptcy of the SPV.

In the Athenex royalty monetization, the SPV was jointly owned by Athenex and the investors, but it remained out of the bankruptcy. Often, for additional certainty, U.S. deals will get a "non-consolidation opinion" from counsel — an opinion letter stating that if the originator files bankruptcy, the SPV's assets should not be consolidated into the estate, assuming corporate formalities have been observed. Such opinions give comfort to investors that the structure will hold up.

Regulatory and Market Practice

The U.S. has a well-established market of royalty investors (like Royalty Pharma, HCR, Blackstone Life Sciences, etc.), and each deal is negotiated case-by-case. There is no special regulatory approval needed for monetizing a royalty, aside from any Hart-Scott-Rodino (antitrust) filing if large or maybe notification if involving certain university tech transfer restrictions.

The trend in the U.S. shows growing volume — from 2020 to 2024, biopharma royalty financings totaled ~$29.4 billion, more than double the prior five-year period. Many U.S. biotechs, even pre-approval, are now considering this path. The legal framework (UCC sales, established bankruptcy case law, etc.) is a big enabler for this market.

In summary, the U.S. approach to bankruptcy remoteness in royalty deals hinges on robust contract structuring (true sale, SPV use when needed, protective clauses) supported by favorable legal provisions like UCC 9-406 (free assignment of receivables) and 365(n). The U.S. has already seen multiple bankruptcies of royalty-sellers (e.g. Athenex, Infinity) and thus has some developing precedent that generally validates well-structured deals.

Investors in the U.S. will usually demand either an SPV or, at minimum, a perfected security interest as a backup. As a result, U.S. royalty monetizations have been successful in remaining "out of the fray" when a company fails — a critical reason why this financing model is viable.

Europe

Europe presents a more fragmented legal landscape, as each country has its own insolvency laws. However, many of the same principles apply, and European royalty deals often emulate the U.S.-style structures with some local adaptations:

True Sale and Assignment

European jurisdictions also recognize the concept of a true sale to isolate assets. For example, in the UK (a common venue for such contracts under English law), an absolute assignment of receivables can remove those receivables from the assignor's insolvency estate, provided notice is given to the debtor.

Many European biotech royalty deals choose English law or New York law for the transaction documents, even if the seller is based in, say, France or Germany. This is to give investors predictability. Under English law, the sale vs. loan analysis similarly looks at the intent and economic substance.

There isn't a unified EU-wide doctrine for true sale, but generally if it's a bona fide sale with a fair price and no obligation for the seller to repay the buyer except from the asset, it will be respected. For instance, France and Germany allow assignment of future receivables and would generally uphold a sale if properly executed; those systems also have avoidance laws to undo transfers if done to evade creditors, but a fairly priced, arms-length monetization when the company is solvent should be safe.

Use of SPVs in Europe

In Europe, special purpose vehicles are widely used in structured finance (think of the long history of European securitizations). Many European royalty transactions use an SPV incorporated in a favorable jurisdiction like Luxembourg, Ireland, or the Netherlands. These jurisdictions have well-defined securitization laws and tax neutrality for such vehicles.

For example, Luxembourg's Securitization Law expressly facilitates creating an insolvency-remote vehicle where the transaction assets are ring-fenced. The bankruptcy remoteness of the SPV is often crucial to the transaction.

It's common to establish the SPV as an "orphan" company — its shares held by a charitable trust or a management company — so that it is not affiliated with the biotech seller or the investor. This way, if the biotech (or the investor fund) goes bankrupt, the SPV is owned by a neutral party and is unaffected.

Real Examples

When MorphoSys AG did its $2 billion royalty monetization in 2021, Royalty Pharma created dedicated funding structures to hold the acquired royalty rights (given the large scale, it even included bond-like instruments).

Likewise, Genfit in France and Heidelberg Pharma in Germany, which both did royalty transactions with U.S. investors, likely used SPVs or at least segregated assignment structures (Goodwin Procter advised on those deals, noting increasing European activity).

An SPV in Europe will generally fall under the laws of its incorporation for insolvency — and places like Luxembourg offer a high degree of certainty that properly securitized assets won't be clawed back if the originator fails.

Civil Law Nuances

Some civil law countries (like Germany, France, Italy) require certain formalities for assignment of future claims. For instance, to make an assignment effective against third parties in Germany, you don't need a notice to the debtor (unlike English law), but you cannot assign future claims that are too uncertain. Royalties arguably can be defined enough to assign.

In Spain or Italy, anti-assignment clauses might be respected (there isn't a blanket override like UCC 9-406), so obtaining the licensee's consent in those cases is more important.

We have seen European universities and research institutions monetizing royalties too (e.g., the Medical Research Council in the UK sold part of its Keytruda® cancer drug royalty to an investor), setting precedents for how to handle consents and structuring. In that MRC example, an SPV was likely used and the sale was structured under English law as a true sale.

Insolvency Proceedings

Europe does not have an exact equivalent to Chapter 11; each country has its own process (administration in the UK, sauvegarde in France, Insolvenz in Germany, etc.). Generally, if an asset was sold before insolvency, it's not part of the debtor's estate. But if there's any doubt (like a transaction might be seen as a secured loan), then the treatment can vary.

Japanese law (to foreshadow the Japan section) has the concept of a "reorganization security right" where if a transfer is not a true sale, the claim gets treated like security that can be impaired in Corporate Reorganization proceedings.

European countries have similar avoidance powers — any transaction for less than equivalent value done when a company was near insolvency can be unwound. Thus, European royalty deals pay attention to the timing (monetizations are done ideally when the company is still clearly solvent and just using the money for growth, not as a last resort when circling the drain).

Growing Market in Europe

Historically, most big royalty investors were U.S.-based, and deals were concentrated in the U.S. market. But Europe has picked up pace. By 2025, firms report significantly more traction in Europe, including high-profile deals in France, Germany, Switzerland, and others.

Goodwin's recent report notes Royalty Pharma's deals with Ferring Pharmaceuticals (Switzerland) and BRAIN Biotech AG (Germany), and Healthcare Royalty's deals with Genfit (France) and others. European investors (like Medicxi or Polar Capital) are also entering the royalty space.

European deals will usually mirror the bankruptcy-remote structures: true sale, use of an SPV often in a neutral jurisdiction, and choice of law that is creditor-friendly. In cross-border European situations, the EU's insolvency regulations generally defer to the law of the debtor's COMI (center of main interests). However, if assets are held in an SPV in another country, that separation is respected.

For extra measure, some transactions use Dutch STAKs or trusts — for instance, the IP could be placed in a Netherlands foundation or a UK-law trust which then issues the rights to the investors, adding another layer of insulation.

In short, Europe's handling of bankruptcy remoteness is aligned with global best practices, though the implementation can be more jurisdiction-specific. The key takeaway is that European biotech companies can and do engage in royalty monetizations, but they often structure them transnationally (e.g., a French company might use a Luxembourg SPV and English-law contracts). The outcome sought is the same: isolate the royalty asset from the risk of the company's failure. And given the rising wave of such deals in Europe, the legal community has developed playbooks to make them work effectively.

Japan

Japan historically has had fewer royalty monetization deals compared to the West, but Japanese companies and law have the fundamental tools for bankruptcy-remote structuring. A few points on Japan:

True Sale under Japanese Law

Japanese insolvency law places importance on whether a transfer is a true sale or merely a security transfer (as elsewhere). In a 2007 review by Nishimura & Partners, the authors explain that in Japan a true sale means that even if the originator enters corporate reorganization or bankruptcy, the transferred assets will not be treated as part of the originator's estate.

If a transfer were recharacterized as for security, the SPV's rights would be a "reorganization security right" (kōsei tanpo-ken) and subject to the proceeding — meaning the SPV (or investor) would have to wait and potentially get crammed down under a reorganization plan. So, just like elsewhere, establishing a true sale is critical in Japan.

Japanese courts would look at factors such as: the intent of parties, price paid (is it fair market value?), whether the risk of the asset (upside/downside) is transferred, any right of the seller to repurchase, how the transfer is documented and segregated, etc. These criteria mirror those in U.S./Europe — it's a substance-over-form analysis to ensure the sale is real.

Notably, Japan doesn't require an SPV for true sale, but having an SPV can help demonstrate the separation (especially if the SPV is independent).

Bankruptcy Remote Structures in Practice

Japan has its own version of SPVs often used in securitizations, known as TMKs (tokutei mokuteki kaisha) or trusts. A TMK is a special purpose company under Japanese law designed for securitizing assets, with certain statutory bankruptcy remoteness features.

Also, Japan allows trusts: a company could entrust a royalty or a revenue right to a trust bank and have investors buy beneficial interests in the trust. Trust assets in Japan are bankruptcy-remote from the originator (since the originator no longer owns them; the trust does). These methods have been used in other IP monetizations in Japan. For example, there have been cases of patent fee securitizations or music royalty securitizations via trust structures.

However, in the biotech realm, one of the first major royalty monetization examples was Eisai's deal in 2019 (mentioned above), where Eisai sold ex-Japan royalties to an American buyer. That deal was essentially governed by New York law (as Royalty Pharma typically uses) even though Eisai is Japanese. So it may not have tested Japanese insolvency law at all — it was structured offshore.

If we consider a hypothetical domestic scenario (say a Japanese startup licensing to a Japanese pharma and wanting to monetize that royalty with a Japanese fund), they would likely emulate global practice: create an SPC under Japanese law or a trust to hold the royalty rights, ensure true sale (perhaps by giving notice to the licensee and getting consent, which under Japanese contract practice would be needed if there's a consent-to-assign clause), and perfect the transfer.

Japan's commercial code and civil code allow assignment of claims, but to be opposable against third parties, either notice to the obligor or registration of assignment is required. So a monetization deal in Japan would make sure to notify the licensee of the assignment of royalty payment rights to perfect it.

Case Study & Legal Developments

While specific Japanese biotech royalty monetizations are rare in public domain, Japanese companies have shown interest in creative financing. There is a trend of Japanese pharma venture arms partnering with global funds (for instance, Takeda and others have done funding collaborations).

If a Japanese company were to do a securitization of a portfolio of drug royalties, they might use the existing legal framework for asset-backed securities. The 2007 Nishimura article notes that Japanese securitizations are designed to ensure the originator's bankruptcy won't affect the assets — explicitly the same aim as elsewhere.

It also mentions the need to consider avoidance (claw-back) and fraudulent transfer risks (Japan, like other countries, can unwind transactions done to prejudice creditors before bankruptcy). Thus, a sale must be done for legitimate value, not to spirit assets away when insolvency is looming.

One more nuance: Japan has a concept of "special conciliation" and other insolvency proceedings (civil rehabilitation, etc.). In civil rehabilitation, for instance, the debtor keeps running the business and may not have an equivalent to contract rejection as in Chapter 11. So if a Japanese licensor went into civil rehabilitation, they might not be able to simply shed the royalty obligation — they'd have to continue performing contracts or seek cancellation under specific rules.

This could actually protect a royalty investor in some cases, because Japanese proceedings often aim to maintain business operations rather than allow cherry-picking contracts. However, this is a complex area and would depend on the specifics of the case.

In essence, Japan's handling of bankruptcy remoteness is conceptually on par with the U.S./Europe: ensure it's a true sale and isolate the asset (often via an SPV or trust). There might be extra formalities (like registration of assignment, noticing obligors) to achieve perfection against third parties.

Given that prominent Japanese pharma companies like Eisai and Takeda have opted to monetize royalties through global investors (often structuring under U.S. law), it suggests that when doing so they use the strongest possible framework to guarantee bankruptcy remoteness (New York law contracts, offshore SPVs if needed).

If a purely domestic structure is used, one would likely see a special purpose company (SPC) under Japanese law or an arrangement with a trust bank to hold the royalty, thereby shielding it from the originator's balance sheet. As the Asian market interest grows (and it is growing — see next section on China/Asia), we can expect Japanese deals to increase, in which case more local precedents will develop.

China

China is an emerging player in biotech licensing and financing, though the concept of royalty monetization as a standalone financing is relatively new there. A few observations on China:

Licensing vs. Monetization

Chinese biotech companies in recent years have engaged in extensive out-licensing of their drug candidates to Western pharma companies. This has brought in large upfront payments and the promise of future milestone and royalty payments. Effectively, Chinese companies have been monetizing their assets by licensing — a strategic move driven by the need for funding in a tighter capital environment.

Traditionally, instead of selling a royalty to a financial investor, a Chinese biotech might license the product to, say, a Pfizer or GSK, which pays an upfront sum (this is akin to monetizing future revenues). However, now we see examples of Chinese companies doing dedicated royalty deals as well.

BeOne Medicines Example

Notably, in August 2025, BeOne Medicines (formerly BeiGene, a leading Chinese-origin biotech) announced a royalty monetization with Royalty Pharma: BeOne sold a significant portion of its royalty interest in Amgen's lung cancer drug Imdelltra (which BeOne had rights to from an earlier collaboration) for $885 million upfront, with a total potential of $950 million.

This is one of the largest pure royalty deals involving a China-based asset. BeOne is actually domiciled in Switzerland as of the deal (perhaps for ease of such transactions), but it exemplifies the trend.

Another case is a partnership like Zenas BioPharma (which has Chinese connections) securing a $300 million synthetic royalty financing from Royalty Pharma in 2025 — indicating investors are willing to fund even Chinese-linked projects via royalty structures.

Chinese Law Considerations

China's legal system regarding assignment of contracts and insolvency is still maturing. There is no broad equivalent of UCC 9-406 in China that voids anti-assignment clauses, so typically one would need the contract counterparty's consent to assign a royalty right if the contract forbids assignment.

Chinese bankruptcy law (Enterprise Bankruptcy Law) does allow the administrator to cancel burdensome contracts or continue advantageous ones, somewhat like Chapter 11's rejection power. If a Chinese licensor were to go bankrupt, a question is whether a royalty assignment would be honored or seen as an unsecured claim.

Without specific precedent, one can analogize: in China, if a company "assigns" a receivable to someone else and then goes bankrupt, generally the assignee has a better claim to those receivables (especially if notice was given to the debtor and it was a true sale). But China does have claw-back provisions for transactions within a certain period before bankruptcy that lack reasonable consideration or are intended to prefer one creditor. So any monetization would need to be done at fair value and when the company is not insolvent.

A practical challenge in China is currency controls — royalties from China's domestic sales are subject to foreign exchange regulation if paid to foreign entities. In the BeOne/BeiGene example, the royalty was on ex-China sales of the drug, which made it simpler (payments come from Amgen in the U.S. to Royalty Pharma).

If a Chinese company wanted to monetize royalties on sales within China, a domestic SPV or trust might be needed, or the investor would have to be a China-based entity (or the company could set up an offshore structure where the Chinese subsidiary pays the royalty out, with SAFE approval). This is complex, and to date most Chinese monetization has effectively happened via licensing-out to foreign pharma (which is more of a business development deal than a financing deal).

SPV Use and Offshore Structures

Many Chinese biotechs are actually incorporated offshore (e.g., Cayman Islands) even if operations are in China, especially if they listed on NASDAQ or Hong Kong. These offshore holding companies can more easily engage in global royalty transactions under New York or English law.

For instance, BeiGene (now BeOne) was Cayman-incorporated and U.S.-listed; Legend Biotech is a Cayman company; Zai Lab, etc. So deals involving these players might not directly use Chinese law at all. They would sell royalty rights under NY law contracts and perhaps form a BVI or Cayman SPV if needed.

This means the practical handling of bankruptcy remoteness for many "Chinese" biotech deals follows the U.S./offshore model. If a deal had to be done purely under Chinese law, one might see use of a special purpose trust plan (China has trust companies that sometimes do asset-backed deals) or a structured fund.

China does have securitization in the form of Asset-Backed Notes (ABN) and Asset-Backed Securities (ABS) via the interbank market, but those have mostly been for loans, leases, etc., not IP royalties yet. It's an area likely to develop as the concept catches on.

Market Interest

According to industry experts, interest in Asia (including China) for royalty financings is increasing. As Chinese biotechs mature and seek diverse funding, we can expect them to explore royalty monetizations more.

Already, the scale of out-licensing deals (some reaching $1–12 billion in value) shows that huge sums are tied to royalties from Chinese innovation. Royalty investors eye those future streams. We might soon see a Chinese company securitize a bundle of royalties or use a Hong Kong entity as an SPV to issue bonds backed by China-sourced royalties.

In conclusion, China's jurisdictional nuances mean direct royalty financing deals must navigate consent and foreign exchange issues, but the core concept of bankruptcy remoteness is applicable. Most Chinese-related royalty deals so far have effectively been structured under international legal frameworks (offshore entities, NY law).

The trend is clearly that China's biotech sector is engaging in global dealmaking, and royalty monetization is part of that toolkit — with the 2025 BeOne deal being a landmark example. As the Chinese legal system evolves and more such transactions occur, we may see domestic guidelines on how to treat a sold royalty in a bankruptcy. Until then, transaction planners will likely continue to route these deals through jurisdictions with tested insolvency regimes to ensure the investor's rights are protected.

Real-World Case Studies

Let's tie all this together by briefly highlighting a few verified deals and how they exemplify bankruptcy-remote structuring in practice:

Athenex (USA, 2022) — Small Biotech Startup with SPV

Athenex sold its Klisyri® royalty rights for $85 million to investors, using a bankruptcy-remote SPV jointly owned by Athenex and the investors. The drug license and patents were assigned to the SPV, which then passed the royalty interest to the buyers.

When Athenex hit financial trouble and filed Chapter 11 in 2023, this structure proved effective: the SPV was not part of the bankruptcy and the license in the SPV could not be rejected.

However, a related contract (Athenex's supply agreement to provide the drug's ingredient) was almost rejected, showing that even with an SPV, you must consider all related obligations. In the end, a settlement preserved the supply and thus the royalty stream.

This case validated that using an SPV works to achieve bankruptcy remoteness (the court didn't disturb the royalty sale at all), but also taught stakeholders to ensure any essential service agreements are accounted for.

Infinity Pharmaceuticals (USA, 2019) — Startup Direct Sale (Pending Outcome)

Infinity, a biotech, sold its royalty interest in a cancer drug (Copiktra) to HealthCare Royalty in 2019 for $30 million upfront (as reported in SEC filings). The deal was a capped royalty sale (with HCR's total payout capped, indicating some loan-like features).

When Infinity filed for bankruptcy in 2023, it raised the question of whether that transaction was a true sale or financing. As of the latest reports, the matter was pending in bankruptcy court. If the sale is respected, HCR continues to get royalties from Verastem (the drug marketer). If not, HCR might be treated as a creditor with a secured claim.

This scenario underscores the importance of structural integrity — it will likely hinge on deal specifics like risk transfer. The case is being watched closely as it may set further precedent on capped royalties vs. true sale.

Eisai — Tazemetostat Monetization (Japan/USA, 2019) — Large Pharma Sale

Eisai, a large Japanese pharma, monetized its royalty on Tazemetostat (licensed to Epizyme in the U.S.) for a potential $330 million. It got $110 million upfront from Royalty Pharma.

The structure here was a straightforward sale of a portion of royalty: notably, because the royalty was on non-Japan sales, the governing law was likely NY and the transaction took place under U.S. jurisdiction (with Covington & Burling advising).

This shows a big pharma using royalty sale to recycle capital — Eisai planned to use proceeds to fund new drug R&D. For bankruptcy remoteness, Eisai's creditworthiness made investor risk low, but the deal still would have been documented as a sale (and indeed it was) to achieve off-balance-sheet treatment and clarity of rights.

MorphoSys — Tremfya & Pipeline Funding (Germany/USA, 2021) — Mid-size Pharma Securitization

MorphoSys AG entered a $2.025 billion funding deal with Royalty Pharma, anchored by selling its entire Tremfya® royalty and portions of other future royalties. This was a complex transaction involving an upfront payment of $1.425 billion and additional milestone-based payments and even debt-like "Development Funding Bonds" for R&D.

To accomplish this, multiple layers were structured: Royalty Pharma essentially created an SPV (or similar vehicles) to acquire the royalty streams and provide funds. MorphoSys used the money to acquire another company, showing how royalty monetization can fund M&A.

From a bankruptcy perspective, MorphoSys was financially solid, but the deal still had to ensure that if MorphoSys or any obligors had issues, Royalty Pharma's rights stood apart. They likely had direct pay arrangements with Janssen (the Tremfya licensee) — meaning J&J's Janssen was obligated to pay Royalty Pharma directly the royalty that would have gone to MorphoSys.

The scale of this deal — covering multiple assets and including equity investment — illustrates the versatility of royalty financings. It also highlights cross-border coordination: a German company, with a U.S. investor, involving a product marketed globally by an American pharma (Janssen).

BeOne/BeiGene — Imdelltra Royalty (China/Global, 2025) — Chinese Biotech Monetization

BeOne (formerly BeiGene) monetized a part of its royalty on Amgen's cancer drug Imdelltra for $885 million upfront. The royalties in question are tied to sales outside of China. This transaction is notable as one of the first major Chinese-origin royalty monetizations.

Structurally, BeOne being a Swiss-based company now, the deal would have been governed by international norms (likely NY law). Royalty Pharma, as the investor, will receive ~7% royalties on Imdelltra's ex-China sales once annual sales exceed $1.5 billion.

For bankruptcy remoteness, since BeOne is essentially a well-funded biotech (with this cash infusion), immediate bankruptcy risk is low. But the investor surely secured its rights: Amgen (the payor) was almost certainly notified to pay that portion to Royalty Pharma directly. In addition, the deal includes an option for BeOne to sell more of its royalty later — which shows how deals can be structured in tranches.

This case demonstrates that Chinese companies can successfully tap into the royalty financing market by structuring assets and entities in investor-friendly jurisdictions, paving the way for others in Asia to follow.

Each of these case studies reinforces core themes: true sale, SPV usage, direct payment, and cross-border legal structuring are the tools enabling royalty financings to be bankruptcy-remote and successful. Whether it's a struggling biotech trying to survive another year or a pharma giant optimizing its balance sheet, the deals are engineered so that the investor's return (the royalty income) is largely insulated from risks unrelated to the drug's performance.

Conclusion

Bankruptcy remoteness is the linchpin that gives investors confidence in biotech royalty financing deals. By legally isolating the royalty streams — through true sales and often through dedicated SPVs — transactions ensure that an investor's rights to those cash flows will "survive" even if the biotech company itself falls into distress.

In the United States, a mature legal framework (UCC articles, bankruptcy code provisions, and case law) underpins these structures, and we've seen them tested in court with generally positive outcomes for well-structured deals. Europe has embraced similar practices, adjusting for local laws, and we see a burgeoning royalty deal market across European biotech. Japan, while newer to such deals, possesses the legal doctrines (true sale, SPV concepts) to support bankruptcy-remote financings, as evidenced by Japanese pharma's participation in global royalty transactions. China, amid a biotech boom, is on the cusp of wider adoption of these innovative financings — Chinese companies are already monetizing royalties via offshore frameworks, and as they do so, they are effectively importing the bankruptcy remoteness strategies that have proven effective elsewhere.

For companies, royalty monetization offers huge benefits — upfront capital, non-dilutive funding, risk sharing — but it only works if investors trust that a bankruptcy won't unravel the deal. Thus, the meticulous structuring is not just legal fancy footwork; it is what makes the difference between a secure investment and an uncertain gamble.

From the investor's perspective, a royalty is an asset-linked investment: they care about the drug's sales and the integrity of their right to a slice of those sales, not the company's solvency. Bankruptcy remoteness techniques align the deal structure with that reality, ring-fencing the asset and letting both sides move forward with a clear understanding of risks.

As the biotechnology sector continues to advance and financial markets evolve, we can expect royalty financings to remain a key piece of the funding landscape. The trend is global — royalty deals are rising in the US, Europe, and now Asia.

With that growth, the legal architecture around bankruptcy remoteness will only get more sophisticated and more standardized. Startups will likely find it easier to plug in their assets into SPV structures (perhaps with third-party platform services), and big pharmas will increasingly view royalty sales as a routine corporate finance option.

In all cases, the fundamentals of bankruptcy remoteness will remain paramount: true sale of the royalty, separation of the asset (often via an SPV or equivalent), and ensuring no matter what happens to the originator, the royalty stream can continue flowing to the investor. By adhering to these principles — as illustrated by deals from Athenex to Eisai to MorphoSys and beyond — royalty financing parties have been able to create "win-win" transactions: providing critical capital to life science innovators while giving investors a secure, asset-backed return.

In summary, bankruptcy remoteness in biotech royalty deals means structuring for resilience — the deal is built to stand even if the company falters. It's a fascinating intersection of law and finance that enables today's breakthroughs to be funded by pledging tomorrow's successes, all through careful planning that anticipates even the worst-case scenario of bankruptcy.

As evidenced by the growing body of successful deals, when done properly the concept of bankruptcy remoteness isn't just theoretical — it's tested and effective in keeping royalty financings on solid ground, thereby fueling further innovation in the biotech industry.