Somewhere between venture funding and bank loans is a kind of investment that seems to fly under the radar, but apparently over the last several years has become increasingly popular for biotech companies beyond the startup stage looking for growth capital.
Royalty financing is the vehicle that Capital Royalty L.P. will use to invest its new $805 million fund in healthcare products and technologies. But (sorry startups), it’s not looking for early-stage companies. Capital Royalty says it invests in companies with FDA-approved healthcare products that are generating revenue. These are companies looking to make acquisitions, expand into new markets or develop new products with investments of $20 million to $200 million.
As venture capital investments continue to decline in life sciences, it seems likely that more companies would be willing to explore royalty financing. Already this year the fund has closed deals with TriVascular, a device company with a recently cleared treatment for aortic aneurysms, and Tandem Diabetes Care, in support of the company’s launch of a new insulin pump. Another firm, Cowen Healthcare Royalty Partners, closed $1 billion in capital last year.
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Executives behind TearScience, the maker of a device for treatment of dry eye, told Fierce Medical Devices the financing is ideal for companies that aren’t startups, between venture financing and a bank loan. It generally comes as a loan with payments that are based on a certain percentage of revenue generated by a product or service. It’s non-dilutive financing, so business owners don’t give up large chunks of equity, and because payments aren’t fixed it’s generally less restrictive than traditional debt financing. But it’s not ideal for companies that haven’t yet established a stream of recurring revenue.
Capital Royalty is headquartered in Houston with offices in Boulder and New York City.
[Photo Credit: Financial Success from BigStock Photo]
