New Financing Methods in the Biopharma Industry: A Case Study of Royalty Pharma, Inc.

24 Pages Posted: 24 Sep 2013 Last revised: 21 Dec 2013

See all articles by Andrew W. Lo

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Sourya Naraharisetti

Duke University

Date Written: December 15, 2013

Abstract

The biotechnology and pharmaceutical industries are facing significant challenges to their existing business models because of expiring drug patents, declining risk tolerance of venture capitalists and other investors, and increasing complexity in translational medicine. In response to these challenges, new alternative investment companies have emerged to bridge the biopharma funding gap by purchasing economic interests in drug royalty streams. Such purchases allow universities and biopharma companies to monetize their intellectual property, creating greater financial flexibility for them while giving investors an opportunity to participate in the life sciences industry at lower risk. Royalty Pharma is the largest of these drug royalty investment companies, and in this case study, we profile its business model and show how its unique financing structure greatly enhances the impact it has had on the biopharma industry and biomedical innovation.

Keywords: Biotech, Pharmaceutical, Translational Medicine, Drug Royalty Investment Company, Intellectual Property, Royalties, Corporate Finance

JEL Classification: G11, G24, G32, I11

Suggested Citation

Lo, Andrew W. and Naraharisetti, Sourya, New Financing Methods in the Biopharma Industry: A Case Study of Royalty Pharma, Inc. (December 15, 2013). Available at SSRN: https://ssrn.com/abstract=2330089 or http://dx.doi.org/10.2139/ssrn.2330089

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-618
Cambridge, MA 02142
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617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

Sourya Naraharisetti

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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