Royalty Valuation

Valuation of Company Owned Royalties

Royalty Pharma has acquired numerous royalty streams from a broad range of sellers over the last fifteen years, including large pharmaceutical companies, small biotech companies, universities and individual inventors. At a time when royalties are becoming a bigger and more important value driver in corporate mergers and acquisitions, we believe our insights and experience could be particularly useful as investors and acquirers attempt to value the royalties embedded in such transactions. In fact, we are frequently consulted by investors on how to approach royalty valuations. From our perspective, the top five questions for investors and owners of royalties are:

  • How is royalty valuation different from the valuation of a company?
  • Should the control premium be the same for an acquisition of a royalty based company versus a company with strategic assets?
  • What is the right discount rate for a royalty stream on a launch phase drug versus well established one?
  • What are the pros and cons of using analysts’ sales estimates?
  • Are taxes relevant in valuing a royalty?

We think that greater transparency will help stakeholders gain a better understanding of model inputs, which in turn should foster more successful transactions and result in more companies and investors being rewarded by converting a passive asset into near-term capital for strategic purposes.

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