Royalty Pharma plc Q3 FY2021 Earnings Call

Thank you, Josh. Good morning, good afternoon to everyone on the call, and welcome to Royalty Pharma's third quarter results conference call. You can find the slides to this call on the Investors page of our website at royaltypharma.com. Moving to Slide 3, I would like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. I refer you to our 10-K on file with the SEC for a description of these risk factors. And with that, please advance to Slide 4. The speakers on the call today are Pablo Legorreta, Founder and Chief Executive Officer, Jim Reddoch, EVP, Co-Head of Research and Investments and Chief Scientific Officer, Marshall Urist, EVP, Co-Head of Research and Investments, Terry Coyne, EVP, Chief Financial Officer, and Pablo will discuss the key highlights after which Jim and Marshall will provide an update on our Royalty portfolio and upcoming events. Terry will then review the financials and after concluding remarks from Pablo, we will hold a Q&A session. Chris Hite, our Vice Chairman, will also join the Q&A. And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome to everyone on the call. I am delighted to report another quarter of strong financial performance and strategic execution. We delivered double-digit top- and bottom-line growth despite the end of the term for our HIV Royalty. We maintain a robust and active deal pipeline. We expect to build on our strong year-to-date momentum with transactions announced so far of $2.8 billion. We saw important progress in our development-stage portfolio with positive Phase III results for PT027 in asthma and the breakthrough designation granted by the FDA to gantenerumab in Alzheimer's. Lastly, based on the strong business dynamics, we're again raising our guidance for adjusted cash receipts for 2021. On Slide 7, you can see our financials in a little more detail. In the third quarter, we delivered 24% growth in adjusted cash receipts, our top line, and 12% growth in adjusted cash flow, our bottom line. The strong momentum puts us in a tremendous position to deliver another year of strong financial performance in 2021, as Terry will speak to when she discusses our raised guidance for the current year. Slide 8 sets our track record of impressive growth since our IPO in June 2020. I am really proud of this slide as it underscores the power of our business model. As you can see in this graphic, we have reported six consecutive quarters of above double-digit bottom-line growth and very strong top-line growth as well. I mentioned earlier the loss of our royalties, which were our fourth largest source of royalties in 2020, accounting for 13% of royalty received. We have digested this impact and still delivered around 20% top- and bottom-line growth in the first nine months of 2021. This speaks to the strength and breadth of our existing portfolio and the momentum from our recent Royalty transactions. It is also what makes Royalty Pharma a unique investment in life sciences. Our impressive ability to grow through explorations and continue to diversify the portfolio with value-enhancing Royalty acquisitions fully sets us apart from other biopharma companies. With that, I will hand over to Jim to update you on our Royalty portfolio.

Thank you, Pablo, and hello, everyone. Today, Marshall and I want to spend a few minutes updating you on our development-stage portfolio before highlighting some important upcoming events. Slide ten lays out the significant patient and commercial potential for PT027. This is AstraZeneca's investigational asthma therapy, for which Royalty Pharma has been co-funding clinical development through a billion since 2018. We turn to PT027, as it is a potential first-in-class fixed-dose combination of budesonide, an inhaled corticosteroid, and albuterol, a short-acting beta2-agonists. It targets both the symptoms and underlying inflammation in asthma. We were therefore delighted last month AstraZeneca announced that the two pivotal Phase 3 trials of PT027, known as DENALI and MANDALA, met all the primary endpoints. AstraZeneca plans to release detailed data at an upcoming medical meeting, and a regulatory filing is expected in the first half of 2022. In return for our role in funding the clinical program, Royalty Pharma is entitled to receive royalties in the low single-digits in addition to success-based milestones. Given the scale of the addressable market as well as the unmet need for novel rescue therapies in asthma, consensus estimates project that sales for PT027 will exceed $1 billion. This has the potential to become a meaningful new royalty stream for Royalty Pharma. On Slide 11, including PT027, our investment in development-stage therapies since 2012 is approximately $7.7 billion. Over that period, we've been very successful in racking winners, especially when compared with industry benchmarks, with a 79% approval rate by the number of investments and a 95% approval rate by the value of our investments. PT027 is another example of Royalty Pharma's ability, sometimes years before our potential commercial launch, to identify opportunities of unmet need in therapeutic areas that are overlooked or considered well-served or genericized. In asthma, inhaler therapies for earlier stage patients are commonly viewed as a market segment that is satisfied by generic inhalers. However, PT027 is a novel combination inhaler that uniquely facilitates steroid delivery to suppress inflammation at times of increased asthma symptoms to prevent subsequent exacerbations. Biotech's NURTEC is another example where the market was felt to be satisfied by existing drugs. However, the strong launch of the oral CGRP inhibitors, including NURTEC, has revealed significant unmet need among people suffering from migraines. And we look forward to identifying more opportunities like PT027 and NURTEC in the years to come. Our rigorous evaluation process is the primary reason for our high success rate. We conduct extensive due diligence, both through our experienced research and investments team internally, but also through leading external experts to gain comfort on the science and patient need. Our starting point is always strong clinical benefit where the need is large. But we also benefit from being agnostic to therapy area so that we can choose from the most compelling opportunities available across the industry. A few additional successes are highlighted on the slide, including Trodelvy and more recently, Evrysdi. Today we have a portfolio of nine development-stage therapies. To close here, we build on our track record of successful investment in development-stage therapies and we will continue to pursue this important business stream of development-stage opportunities while maintaining an appropriate balance with royalties on improved medicines in order to optimize our overall risk-return profile. And I will now turn it over to Marshall to discuss upcoming events.

Thanks, Jim. And good morning. Slide 13 lays out the upcoming clinical and regulatory events for our portfolio over the next 12 months or so. For the balance of 2021, we expect Phase 2-3 results for intranasal gantenerumab in migraine. Looking to 2022, it is likely to be a very milestone-rich year with a number of important Phase III readouts for our portfolio. This includes Phase II results for Trodelvy in third-line HR positive metastatic breast cancer, from Cabometyx in combination with Opdivo and Yervoy in first-line renal cell carcinoma, as well as in prostate and lung cancer. Tremfya in ulcerative colitis and Crohn's, gantenerumab in Alzheimer's, otilimab in rheumatoid arthritis, and self-direct in depression. Turning to regulatory actions, this quarter, we expect a European regulatory decision on Trodelvy in triple-negative breast cancer. In 2022, we expect a filing on PT027, as Jim mentioned earlier, and also a European regulatory decision onooooo in migraine, where it will be marketed under the brand name Vydura. We're pleased to see the news of a partnership between Biohaven and Pfizer to market Vydura outside of the U.S. Pfizer will be a strong partner to maximize the reach of this new class of medicines around the world. In sum, we expect to see a number of important milestones over the next year, if positive, many of these could add significantly to the long-term outlook for our adjusted cash flow. Now before turning it over to Terry, I wanted to make a few final comments on our portfolio's Medicare exposure, given the proposed U.S. drug pricing legislation reform that has been receiving significant investor attention. While nothing has been finalized, our business in aggregate has minimal Medicare exposure across Part B and Part D. Based on the draft legislation, we would expect only 1 or 2 products, Imbruvica and Xtandi, to be among the top drugs by Medicare spending. And as a reminder, Xtandi's Royalty duration is through 2027 to 2028. From what we have seen in the proposed legislation, our initial view is that we would anticipate only a very small headwind to our business, not considering any increase in volume from potentially improved patient access. More importantly, this potential change to the U.S. drug pricing legislation highlights some strengths of our business model and strategy. First, the fact that we're continually adding new product royalties to our portfolio means that we're uniquely positioned to rapidly react to any changes to the reimbursement environment in our forecasts and valuations. Second, our therapeutic area, agnostic business model means that the full span of biopharma innovation is open to us without the constraints of legacy therapeutic area R&D or commercial infrastructure. Of course, we'll continue to monitor the developments in Washington and respond appropriately. And with that, I'll hand it over to Terry.

Thanks, Marshall. Let's move to Slide 15. Total royalty receipts grew 21% versus the year-ago period. Growth drivers in the quarter included our largest franchise, cystic fibrosis, as well as Tysabri payments from Biohaven, new royalties, and a one-time milestone payment of $45 million related to Sanofi's diabetes therapy Soliqua. These positive factors more than offset the decline in royalty receipts from our legacy HIV franchise. As mentioned on last quarter's call, the Soliqua milestone we received this quarter was previously expected in 2022. For your modeling consideration, we would therefore expect the other product's royalty receipts line in 2022 to be between $200 million to $250 million. Slide 16 shows how our royalty receipts translated to strong adjusted cash flow in the third quarter. As you're aware, adjusted cash receipts is a key non-GAAP metric for us, which we arrive at after deducting non-controlling interest. This amounted to $587 million in the quarter, growth of 24% compared with last year's third quarter, as Pablo noted earlier. When we move left to right, operating and professional costs of $54 million equated to 9.1% of adjusted cash receipts, consistent with the revised full-year guidance I will speak to momentarily. R&D funding remained at a low level. The major step-up in net interest is $65 million reflected the semiannual interest payment associated with our $6 billion unsecured note offering in 2020. As a reminder, these payments are paid in the first and third quarters. The other line was $27 million, which was largely attributable to a $60 million one-time cash payment related to our bond offering in July. Adjusted cash flow, our bottom-line earnings, was $441 million or $0.73 per share. This translates to an adjusted cash flow margin of 75.2%. Given that the quarter included the semi-annual interest payment, which was equivalent to around 11% of adjusted cash receipts and the one-time bond payment, this margin underscores the strong cash conversion in our business model. On Slide 17, we continue to maintain our financial firepower despite the $2.3 billion of capital deployed on royalty acquisitions year-to-date. At the end of September, we had $2 billion of cash and marketable securities, similar to our position at the end of 2020. Major cash inflows over the nine months included adjusted cash flow of $1.3 billion plus the $1.3 billion of net proceeds from our innovative debt financing in July. As a reminder, this bond issuance included a $600 million social bond that reflects our commitment to ESG and corporate social responsibility, which we discussed on last quarter's call. These combined inflows of $2.6 billion were broadly offset by the capital we deployed on royalty acquisition and on the dividends and distributions. Hence, the limited change over the period on a net basis. We currently have $7.3 billion of investment-grade debt, with leverage of 2.7 times EBITDA on a net basis and 3.76 times EBITDA on a total basis, and a weighted average debt coupon of 2.24% to 4%. Our $1.5 billion revolving credit facility is untapped, which in addition to cash on hand gives us a strong liquidity position, making us very well-positioned to execute on our business plan. My final slide sets out our raised full-year 2021 guidance. We now expect adjusted cash receipts to be in the range of $2.11 billion to $2.13 billion, an increase of approximately $20 million at the midpoint of our previous guidance. The increase in our guidance is driven by the strong underlying performance of our portfolio. Our new adjusted cash receipt guidance represents growth of between 17% and 18% over the $1.8 billion we delivered in 2020. Turning to operating costs, we now expect these to be approximately 9% of adjusted cash receipts, which is at the low end of our previous guidance for between 9% and 10%. This guidance implies a step-up in costs at this line in the fourth quarter due to the timing of various expenses. Net interest paid for the year is still expected to be around $130 million, but you should note we expect net interest paid in 2022 to increase to around $170 million following the bond offering in July that I just discussed. In line with our established practice, this guidance is based on our portfolio as of today and does not take into account any future acquisitions. With that, I'd like to hand the call back to Pablo for his closing comments.

Thanks, Terry. Let me close by first reiterating how delighted I am with how our business has progressed in 2021. And by secondly, inviting you to our Investor Day in the spring of 2022. We're very excited about the opportunity to engage with investors to lay out why we're so excited about the future growth prospects for the business. We plan to include additional discussion of the outlook for Royalty funding in life sciences innovation, our updated capital deployment objectives, and long-term growth targets. And of course, you will have plenty of opportunities to ask questions and interact with management. We very much hope that we can hold our Investor Day in person, but we will, of course, be guided by the pandemic backdrop, as we want all participants to feel comfortable and, above all, safe. Whether in person or virtual, I am confident we will have a compelling presentation and I hope as many of you as possible will be able to join us on the date. We'll follow up with additional details and a specific date as we're closer to the event. With that, I would like to open the call for questions. Back to you, George.

Thank you, Pablo. And Josh will now open up the call to your questions. If you could please take the first question.

Oh, great. Thanks so much for the questions. I guess my first question was for Pablo or Terry. CF has obviously emerged as a controversy in the story, and you've talked about the ability to significantly diversify your business away from any potential risks that may emerge here over the next kind of 5 or 10 years. Can you elaborate a bit more on the framework that you're thinking about how quickly the Company can diversify its business and go about your capital deployment rates, etc.? And maybe as part of that, I think you've talked about every billion dollars of capital deployed translating to about $170 million of adjusted cash receipts 5 years later. I think that was based on deals over the past few years. Is that a decent lens to think about as we consider how quickly capital deployment could translate to adjusted cash receipts going forward, or are the types of deals that you're looking at now having either different payoff timelines or just different profiles than what we've been thinking about in the past? Thanks so much.

Chris, thank you for your question. I'll share some initial thoughts and then Terry can provide more specifics regarding cystic fibrosis. Our estimate of $170 million in cash receipts five years down the line for every billion deployed seems quite reasonable. We've analyzed various periods and levels of capital investment historically. While there is some variability, I believe this figure is a sensible and cautious basis for modeling our capital deployment outcomes. Additionally, we've been performing very well in terms of annual and quarterly investments and the capital we've put into action. As you know, we initially projected up to $1.5 billion in capital deployment annually, totaling around $7 billion over five years since our IPO. Looking back at the last three years, we've deployed $2.3 billion in 2019, $2.4 billion in 2020, which was our IPO year, and so far this year, we've reached $2.8 billion. This indicates that we're significantly surpassing the $1.5 billion annual target, exceeding $2 billion per year, with this year's figure at $2.8 billion. We are thrilled with how the business is advancing. We’ve successfully deployed over $5 billion in capital towards our $7 billion goal in a little over 18 months. Moreover, we have a robust and promising pipeline ahead. The favorable conditions in this industry give us confidence in fulfilling our guidance and meeting investor expectations. We anticipate a rapid reduction in our dependency on cystic fibrosis royalties as we increase our capital deployment. Over the next three to five years, this reliance will significantly decrease. We are bringing exciting products to market with strong growth potential backed by leading companies in life sciences. Terry, would you like to share more about cystic fibrosis?

Thank you for your question. First, we reviewed the data released by Vertex a few months ago, and we find it challenging to draw strong conclusions from a Phase 2 study with relatively few patients and incomplete data. From the top-line results, we didn't see anything indicating that the efficacy of Vertex's new triple therapy is superior to Trikafta. We also believe that deuterated Kalydeco is essentially just Kalydeco and should have the same royalty rate. If that's the case, our royalty on the new Vertex triple, where both deuterated Kalydeco and Tezacaftor are included, will be 8%, which is similar to the slightly over 9% we receive from Trikafta. Hypothetically, if deuterated Kalydeco doesn't generate royalties and only Tezacaftor does, our royalty on the new Vertex triple would be 4%. We still believe that even if a new triple therapy is approved, Trikafta will continue to be important for CF treatment in the long run, given its proven long-term safety and efficacy. Many CF patients take a significant number of pills daily, so the appeal of a once-daily option may be limited without a substantial improvement in efficacy, especially considering the long-term experience patients have with Trikafta. Nonetheless, we acknowledge that Vertex's new triple could gain market share later in the decade, and we understand that investors want to gauge the risks to our adjusted cash receipts in less favorable scenarios. We estimate that if only the Tezacaftor component of the new Vertex triple generates royalties, our adjusted cash receipts by the end of the decade could drop by a couple of hundred million dollars annually compared to what they would have been if all components were royalty-bearing. To provide context, we expect our adjusted cash receipts this year to be between $2.11 billion and $2.13 billion. As Pablo mentioned, we are investing billions each year and adding numerous products to our portfolio every five years, many of which have blockbuster potential. We deal with products losing exclusivity or market share annually. A clear instance of this is the expiration of our HIV royalty, which is anticipated to reduce our adjusted cash flow from HIV by nearly $150 million this year. Nevertheless, we expect our total adjusted cash receipts to grow by 18% at the midpoint of our guidance, showcasing the resilience of our business model. We firmly believe that Royalty Pharma is well-positioned to navigate these challenges.

Chris, I think the comments Terry made were excellent and important for investors to really understand well. And then think of things like a potential loss of a person, HIV, $150 million of revenue, and how strong the performance has been this year, sailing through that expiration and still delivering high double-digit growth in our business. This is something that I've seen over and over again over two decades. We lost our reflects on patents, no issue. And we've lost many other patents, HUMIRA, which was a big one, and we just sailed through that. The business has this incredible resilience that's very unique, that few businesses have in life sciences, combined with very, very strong, predictable growth. And I'll stop there.

Thank you. A couple of questions. Firstly, you commented on Vertex's new triple. Perhaps you could comment on any thoughts you have on the API's portfolio. I take the posted data problematic, but it will still be interesting. And then, second, could you talk about whether you are seeing any increased competition pushing out asset prices for some of the more attractive Royalty deals. Maybe you could talk to MorphoSys. I know that Blackstone is building a presence in the area within the product chiefs to compete. But more broadly, what are you seeing? Is there any near-term risk or is it just that the opportunities available so broad that there's room for more than one?

Sure. I'll have Terry comment on the Avi question, but regarding your inquiry about competition, this has been a significant focus for investors for two decades. When we were a private company, this was a concern for our private investors, and now that we are public, it's similarly a concern for our public investors. It's been interesting to observe that competition has varied greatly over time. Many investors have attempted to enter this market but ended up exiting, and there have been numerous cases of this. While there are new and strong competitors, we possess unique qualities that set us apart. Our low cost of capital, allowing us to borrow at fixed rates of 2%, is a major advantage. We can invest billions in unapproved products, taking substantial single-product risks without significant concern due to the scale of our portfolio. We generate over $2 billion in annual revenue with an impressive 90% EBITDA margin, which enables us to take risks that few others can. I’d also like to note that our overall cost of capital is estimated to be in the range of 5% to 7%, and our tax-efficient structure enhances our competitiveness. Many new entrants in the market, structured as private equity funds, ask investors for capital that is locked up for several years with no liquidity. Those investors are unlikely to contribute unless the fund managers promise mid to high returns. Investors will not commit funds if they cannot expect those returns alongside the restrictions on liquidity. As we’ve informed our investors, for high-quality royalties on approved products, completing a transaction often requires purchasing at high single-digit to low double-digit returns, which we can achieve while still ensuring attractive returns. By leveraging that return, we can reach high teens or even 20% IRR levels in a predictable and stable manner, something made possible by our cost of capital. For others promising teens returns, it’s challenging for them to buy royalties at those rates and still deliver appealing returns, especially given their constraints related to leverage. We have strong competitive advantages, complemented by intangible factors like our network of relationships and a cohesive team that has worked well together for over a decade. I'll now turn it over to Terry for additional comments about Avi.

Certainly, something that we're following at this point; it’s just tough to say we haven't seen any data. I think, just to go back to the point I made earlier, Trikafta has been transformative for many patients with CF, so we think it sets a really high bar. We'll be interested to see the data that hopefully they disclose in the beginning of 2022. We think that Trikafta will continue to play a very important role in the treatment of CF over the long term.

Good morning, folks. Thanks for taking the question. I wanted to follow up on the diversification question. Where would you say the bigger disconnect is between street thinking and your plan? Is it the growth potential of the current portfolio or your ability to significantly expand the portfolio over the next few years?

I believe growth is an area that investors and analysts haven't fully recognized in Royalty Pharma's capacity to provide consistent and predictable high growth, which is quite rare in life sciences. Our growth is appealing and possesses three noteworthy characteristics. Firstly, we have a high level of growth that is diverse, making it unique; our growth doesn't depend on just one or two drugs, which is often seen with biotech firms that are introducing products. While they may see rapid growth, it typically hinges on a few key products. Even larger firms have encountered instances where a leading drug didn't perform as expected, negatively impacting their growth. Conversely, our growth stems from a broad and well-diversified portfolio, making it much more reliable. Furthermore, our bottom line is also more predictable due to our 90% margins. Another distinctive aspect of Royalty Pharma is the duration of our growth; our portfolio boasts an average duration of 15 years for our revenues, which is quite exceptional. Many larger companies have shorter durations averaging 6 to 10 years, making our situation rare. It's clear that growth is a factor that is often not well understood or appreciated. Additionally, we have the ability to deploy capital consistently and continue incorporating blockbuster products into our portfolio. In our recent presentation, we demonstrated that we have 22 blockbusters, which is three times the amount found in any large pharmaceutical company. Seven of our products generate over $3 billion in revenue, which again is roughly triple the number that any typical large pharma holds. Our business model is notably open, allowing us freedom from third-party constraints and limitations tied to specific sales forces or therapeutic classes. As a result, we can assess the entire life sciences landscape and allocate capital at a much quicker pace than many larger firms can develop products. This unique business model reflects how Royalty Pharma navigates the constantly evolving landscape of life sciences R&D, pursuing new drugs for royalty creation or acquiring existing royalties on developed products. Our ability to act swiftly in this space is quite unique, and I think investors have not fully grasped this aspect, which is fundamental to Royalty Pharma's success and sustained growth over time.

Thank you. I have a few questions all focused on your upside opportunity. First, how will Royalty Pharma benefit from the Avi Imbruvica patent decision and potential extension if it stands? If you could provide any quantification of the benefit that would be helpful. Similarly, how do you think about Pfizer's partnership with Biohaven for OUS rights to Nurtec as far as impact on your business? Again, any high-level quantification would be helpful. Lastly, with gantenerumab looking to have even bigger potential as time goes on, I'd like to get a few points clarified. First, are your rights to the asset global? And secondly, is the royalty the same whether the sales are in gantenerumab or gantenerumab shuttle? Thank you.

Yes, I think Marshall is ideal to answer the last two questions, or even the first one. So go ahead, Marshall.

Thank you for the question, Steve. I was jotting down your points as you spoke. First, regarding the Imbruvica patent news, we had earlier anticipated that our Imbruvica royalty would expire between 2027 and 2029. However, we recently received news that a court decision has upheld some of Avi's Imbruvica patents, and Avi has indicated that they do not expect generic entry in the U.S. until March 30, 2032. Therefore, we believe we are entitled to royalties on Imbruvica in the U.S. until 2032. While it's challenging to provide a specific quantification at this stage, you might consider how this impacts your model and forecasts. Your second question was about the Pfizer - Biohaven relationship. Our view is informed by our long experience in observing the development of products over time. We recognize the global potential for medicines, which can often surpass the U.S. opportunity. It typically requires companies with extensive infrastructures in various countries to ensure that drugs reach as many patients as possible. We see Pfizer as an ideal partner for Biohaven in this effort. We were pleased to hear the news, and concerning our business, our royalties are global. This certainly enhances the value of our royalties outside the U.S. for Nurtec and any future products arising from that collaboration. Regarding your third question on gantenerumab, our royalties pertain to worldwide sales, and the answer is yes. As for the shuttle, we haven’t delved into the specifics of how that operates, but I can confirm that the shuttle generates royalties for Royalty Pharma. It's still early days, but Roche appears to be advancing it, which is promising, and we look forward to more updates on that front.

Hey, guys. Thanks so much for the question. I have two, and mostly just on the strategy and the business model. For the first one, there are some technologies or therapeutic areas that have evolved rather quickly; COVID is an example of this. The question for maybe Marshall is: How has your diligence process evolved to become a little bit nimbler and is there an increased focus on some of these fast-track opportunities in biopharma? The second one, maybe for Pablo just a follow-up to the competition. When you look at PT027, it's more of a formulation play than a novel mechanism, and as you look across all the high-impact opportunities in biopharma, many being earlier and higher risk; what are your thoughts on investments in healthcare that are outside of the therapeutic realm? Thanks, guys.

Sure. I think there are two aspects to your question. The first is how we are thinking about opportunities that can gather momentum quickly, like COVID has, either on the therapeutic side or on the vaccine side. There are two aspects: First is our approach to these things is very consistent with how we've always looked at things in the past. Does this make sense? Is this meaningful science for patients? Does it check that box? Second, do we think there is an attractive long-term opportunity that would be value enhancing to our portfolio? We treat things, regardless of the speed of development, in the same way from that perspective. The second aspect of your question is a good one, too, which is how do we structure our team and our diligence approach to be able to handle those opportunities if they do come fast. We have been thinking a lot about that, and I think we are evolving to be able to move quickly by adding internal resources like the strategy and analytics team that we've talked a lot about in the past, and then also by continuing to expand and deepen our external network that Pablo mentioned as well. I think we're in good shape whether they are slow-developing parts of the therapeutic landscape or something that happens quickly.

Geoff, I want to add to what Marshall mentioned. We have no limitations on what we can pursue. In the past, we’ve explored various devices and technologies that generate royalties in addition to therapeutics. Patents can cover a range of items, not just the composition-of-matter for drugs, and many of these can lead to royalty income. We remain open to any opportunity that could yield revenue or royalties. Over the years, we have explored numerous options. For instance, our collaboration with Edward MSCI is a prime example where we will create indexes. We have made significant strides with MSCI and anticipate launching some of these initiatives soon, which will generate revenue linked to life sciences assets under management that are expected to grow for years to come. We are well-positioned to respond swiftly to new opportunities due to our proactive team that consistently engages with other companies. We have already developed models for various products of interest, including a comprehensive model for solid tumors encompassing all current and developing drugs. When opportunities arise, we can act very quickly. It’s also important to note that companies, like Biogen with its focus on MS and Alzheimer's, might need 5 to 10 years to diversify into a new therapeutic area, as mergers and acquisitions can be complex, competitive, and subject to antitrust issues. Besides M&A, launching new products and building a portfolio in a new area can take a considerable amount of time. In contrast, when we see areas we want to invest in, we can quickly invest in existing products that are already producing cash flow.

Hi, guys. Thanks for taking my question. I have two if I may, perhaps first on the M&A side. It looks like you've been fairly quiet since the MorphoSys deal announcement in June. I wonder if we should perceive that as a sign of something bigger that's in the works. I'd be very curious. And then, secondly, on the big catalysts in your pipeline heading into next year. Again, scenario MAB Phase three, assuming Phase III goes well, do you expect this to be a multi-billion-dollar product? Thank you very much.

Good to hear from you, Umer. You raised an interesting question about MorphoSys. In terms of mergers and acquisitions, what attracts investors is the upcoming $2 trillion investment in R&D in life sciences over the next decade, which is set to be about $1 trillion over the next five years. The industry currently spends around $300 billion annually, with $200 billion coming from Biotech and Big Pharma globally, and an additional $100 billion from governments, the NIH, and foundations. That's an impressive figure. Compared to many other industries that invest in the tens of billions, biosciences stands out as one of the few that invests hundreds of billions in R&D each year, and we are at the center of this activity. Royalty Pharma is becoming the preferred partner to assist companies in funding part of that investment, creating significant opportunities for us. Additionally, our regular deals are expected to lead to investments of over $1.5 billion, likely exceeding $2 billion annually. The challenging aspect to predict is the M&A transactions; we can't easily foresee whether we will have one or two each year or every couple of years. However, a new aspect we are recognizing as a potential significant opportunity is mid-cap M&A, similar to the MorphoSys situation. This could complement the conventional deals we execute every year. There are significant opportunities out there, but for them to materialize, there needs to be a willingness from two companies to engage in a transaction, which may allow us to partner with one of them. These transactions are complex but fall within our area of expertise where we have seen success. Personally, I spend considerable time on this because I believe there are very attractive opportunities ahead of us.

Absolutely. Hey, Umer. Good morning. On Gantenerumab, like we mentioned in the script, we're really excited now to have this as part of the portfolio post the MorphoSys deal, and are looking forward to the data next year. Our thesis has been that an anti-amyloid product in this class that has a very consistent dataset and shows clear efficacy and safety, supported by a big global Company, with an attractive dosing profile like Gantenerumab. It checks all those boxes and has the potential to be a multi-billion-dollar product. Like we've mentioned in the past, we always evaluate on a scenario basis whenever we bring anything into the portfolio. But certainly, this is one that can support multi-blockbuster potential.

Hi, thanks for taking the question. This is Charlie for Matthew. Just two, I guess, follow-up questions. I think one, can you just talk about maybe just ultimately dynamics at a high level given how biologists launch and how that could impact your view in terms of the royalties there? And then second, maybe if you can discuss a little bit about the cystic fibrosis arbitration procedure if it gets to that step. Thank you.

Sure. I apologize for needing to recall the question. Biogen has experienced a slower rollout than anticipated, which is perhaps not surprising given the reimbursement challenges it faced and the efficacy package that was perceived by healthcare professionals and payers as sub-optimal. We are optimistic that the product we are investing in, Gantenerumab, will enter the market with a differentiated profile and demonstrate compelling efficacy, showing significant improvements over what Biogen's product offers. I do not believe that Biogen's experience reflects what is achievable with a quality Alzheimer's product, especially considering the substantial unmet need in this area. An amyloid targeting antibody, if developed correctly and supported by solid data, could be highly beneficial for patients.

There's a huge unmet medical need as you know. Really one of the biggest in the world. Patients need a drug that works and has characteristics like Gantenerumab. We're excited about having it in our portfolio because it could become best-in-class and if the profile holds, it could be one of the biggest drugs in healthcare. It's really exciting to have that in our portfolio. But go ahead, Marshall. Sorry.

Yes. This is Terry. I'm going to address the CF question. There is a dispute resolution mechanism in the contract, but at this point it's really not appropriate for us to discuss any legal strategy.

Thank you, Pablo. And thank you to everyone on the call for your continued interest in Royalty Pharma. My team and I look forward to continuing to share our progress with you. If you have any follow-up questions, please feel free to reach out to George and our Investor Relations team. Thank you very much. Goodbye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.