les Nouvelles - December 2008

Revenue Interest Financing: A Strategic Alternative To Accessing Capital Through Licensing In The Life Sciences

John R. Leone

Paul Capital Partners, Partner, New York, NY

Louis P. Berneman

CLP, Texelerate, President, Philadelphia, PA


Out-licensing is a mainstay of life science business development and financing strategies because it can be deployed to achieve a variety of goals. Companies frequently use licensing in order to access resources (financial and non-financial) that are unavailable or insufficient within their own organizations.

Accessing capital is among the most common reasons to out-license. Up-front license fees provide cash infusions to fund operations and defer the need to obtain capital from the equity or debt markets. In addition, a successful licensing transaction provides an imprimatur on the licensed technology/IP and on the licensor itself, both of which may enhance subsequent market-based capital formation activity.

That said, while out-licensing is an important capital formation tool, licensing typically requires sacrificing all or partial control and downstream financial benefits of the licensed program or technology to the licensee. Companies considering out-licensing primarily as a near-term, direct capital formation tool may wish to consider revenue interest financing as a strategic alternative.

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