U.S. Insight: Biopharma Firms Turn to Private Credit Royalties for Financing as Equity Players Step Back

Peter Schwartz’s commentary was included in a CreditSights article analyzing the trend of life-science companies turning from equity issuances to royalty monetization facilities from private credit firms as valuations for life-sciences companies have decreased. Peter discusses this trend and explains why companies are turning in this direction.

“When biotech CFOs need to raise a couple hundred million dollars to do a drug launch and they look at the cost of issuing [equity], it's not there at a price that they find attractive,” Peter said. He also notes that equity valuations for life-sciences firms have gone down significantly since 2020 and 2021. That has disincentivized the firms from seeking capital that would dilute the value of their shares even further.

Lenders that do royalty financings are much better at assessing the risk profile of deals and structuring effective covenants than they were in the past, Peter added. “It's not a space you can kind of dabble in,” Peter continued. “You can't see that a company’s got a steady EBITDA and get a certain multiple. You really need to understand science and the market. It's not an easy space to get into.”