Raising capital to discover, develop, and commercialize new drugs has always been a regular feature for life sciences companies, and the current environment of tight equity markets and lower company valuations has caused significant strains. In response, many European life sciences businesses are turning to non-dilutive financing options that have become popular in the U.S. These alternatives—including venture lending, growth lending, synthetic royalty financings, drug development financings, and royalty monetizations—allow companies to access much-needed funds without giving up significant equity ownership, thereby avoiding diluting the ownership interest of existing shareholders.
Non-dilutive financing structures are designed to fit a range of company profiles and development stages. For example, venture lending is typically aimed at earlier-stage companies with valuable intellectual property but little or no revenue, while growth lending is better suited for businesses with marketed products or later-stage assets that are close to commercialization. Both types of loans are usually secured against company assets and may include features like interest-only periods, warrants, or even limited revenue participation, providing flexibility for companies as they grow.
For companies with products that have completed pivotal clinical trials or are already on the market, synthetic royalty financings and royalty monetizations offer additional options. In a synthetic royalty deal, an investor provides upfront capital in exchange for a percentage of future product sales, often with a cap on total returns. Royalty monetizations, on the other hand, involve selling the right to receive future payments under existing license or partnership agreements, allowing companies to accelerate access to capital without taking on traditional debt or giving up control of their business. And drug development finanicngs allow companies to share the risk and expense of pricy pivotal clinical trials with financial investors.
Recent legal developments, particularly in the U.S., have influenced how these deals are structured, with a growing trend toward providing investors with collateral over intellectual property and other product assets. This shift helps protect investors in the event of bankruptcy and has made these structures more robust and attractive to both U.S. and European investors.
As these non-dilutive financing methods become more common in Europe, they are providing life sciences companies with a broader menu of funding options. By tailoring the structure to the company’s stage and needs, these alternatives can help bridge the gap to the next phase of growth or commercialization, all while preserving ownership and strategic flexibility. For a more detailed look at how these structures work and the key considerations for each, the recent article from Covington’s life sciences finance team published in Butterworths Journal of International Banking and Financial Law offers valuable insights for lawyers, CFOs, investors, and anyone else navigating today’s challenging life sciences funding landscape.
You can read the full article first published in the May 2025 issue of Butterworths Journal of International Banking and Financial Law here.