Biotech companies are high-risk, high-reward investments. Usually, a biotech has just one drug in development, and if it gets that drug to market, you win. If the drug doesn't work out, you lose. You don't have to make binary bets like that if you buy Royalty Pharma (NASDAQ: RPRX). Not only does it have a professional management team that tracks drug developments, but it also invests in a diversified portfolio of drugs. Here's what you need to know before you jump aboard. The first thing to understand about Royalty Pharma is that it is neither a pharmaceutical nor a biotech company. It provides capital to drug makers and developers so they can advance their research. In exchange for the cash it provides, Royalty Pharma receives a royalty on sales generated by the drugs in which it invests. The royalties are usually modest relative to a drug company's profits, but Royalty Pharma has investments in many drugs, so the small royalties add up. Notably, the royalties require little to no expense for Royalty Pharma other than the upfront cash payment. Image source: Getty Images.
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