By Aymen Mahmoud, McDermott Will & Schulte
The capital model underpinning life sciences innovation is undergoing a significant shift.
As scientific ambition grows and market conditions tighten, companies are moving beyond traditional funding pathways toward a broader, more flexible and increasingly strategic approach to capital.
This evolution, reflected in discussions at our European Health and Life Sciences Symposium, highlights how financing is becoming more tailored to the needs of the sector.
A more diverse capital landscape
Life sciences innovation has historically followed a relatively linear path, moving from venture capital to strategic partnerships and ultimately to public markets.
While this model still exists, it has expanded significantly.
A wider range of investors is now active across the ecosystem, including private credit funds, structured capital providers and royalty investors.
This evolution is not simply increasing the availability of capital; it is creating a more nuanced set of financing options. Companies are now better able to align funding with their stage of development and underlying risk profile.
Better alignment of capital and risk
A key theme emerging from the discussion is the growing precision in how capital is deployed across the innovation lifecycle. Equity continues to play a critical role in early-stage development, where scientific and clinical risks are highest.
As companies mature, structured and non-dilutive capital is becoming more prominent, reflecting a shift toward more capital-efficient growth.
At the same time, blended financing approaches are enabling organisations to fund multiple assets or development stages in parallel.
This reflects a maturing sector, where advances in science—such as improved biomarkers and more efficient trial designs—are helping to de-risk certain phases of development and attract a broader range of investors.
From short-term funding to long-term planning
Financing strategies are increasingly being approached with a longer-term perspective.
Rather than raising capital incrementally, companies are seeking to fund through meaningful value inflection points, such as clinical proof of concept or readiness for strategic partnerships.
This approach provides greater stability and allows management teams to focus on value creation rather than continuous fundraising. It also supports more deliberate, strategically aligned decision-making over the course of development.
Flexible structures gaining traction
Innovative financing structures are becoming a more established part of the life sciences funding toolkit.
In particular, royalty and revenue-contingent financing models are gaining traction as they offer alternatives to traditional debt or equity.
These structures can reduce or delay dilution, align repayment with performance and provide greater flexibility in how capital is deployed.
While they are not universally applicable, their growing use reflects a broader shift toward more tailored, situation-specific financing solutions.
Private credit: a growing but targeted role
Private credit is playing an increasingly important role in healthcare financing, although its application remains targeted. Early-stage innovation continues to rely predominantly on equity funding.
However, credit providers are engaging earlier than before with companies that demonstrate revenue visibility, strong unit economics or a credible path to scale.
This is contributing to a more layered financing environment, in which different forms of capital are deployed at different stages of a company’s development.
Europe’s funding gap remains a challenge
Despite its strong scientific base, Europe continues to face a persistent funding gap, particularly in the transition from early discovery to clinical proof of concept.
Addressing this gap will be essential to ensure that promising innovations can progress to later stages of development and attract broader pools of international capital.
Without this, there is a risk that high-potential science will struggle to reach commercialisation.
Capital strategy as a differentiator
The overarching message from the panel is that capital is no longer simply an input; it is a strategic lever.
Success will increasingly depend on the ability to select the right financing structures at the right time, combine multiple sources of capital effectively and align funding strategies with long-term growth objectives.
In a more complex and selective environment, the ability to navigate capital strategically is becoming a core driver of success.
The life sciences funding model is no longer linear, but flexible, multi-layered and central to value creation.
Written by Aymen Mahmoud, managing partner of McDermott’s London office and head of the firm’s European finance practice
