Royalty Pharma plc Q1 FY2022 Earnings Call

Good morning, good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter 2022 results. You can find the press release with our earnings results and slides of 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 from these statements. I refer you to our 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand our financial performance, and the GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website. With that, please advance to Slide 4. Terry Coyne, EVP, Chief Financial Officer, will cover key highlights and review the financials. Pablo's son is undergoing a medical procedure, so he will not be able to join today's call. We wish his family well, and he's looking forward to seeing everyone at our Investor Day on May 17. After Terry's prepared remarks, we will hold a Q&A session. Marshall Urist, our Head of Research and Investments; and Chris Hite, our Vice Chairman, will also join the Q&A session. And with that, I'd like to turn the call over to Terry.

Thank you, George, and welcome to everyone on the call. I'm delighted to report a strong start to the year as we execute on our strategy as a leading funder of innovation in life sciences. On slide 5, I will start by summarizing our accomplishments in the first quarter, which continued to reflect the excellent momentum in our business. First, we delivered strong top line growth of 15%, continuing our impressive track record of double-digit growth. Second, we maintained a robust and active deal pipeline, which reflects the strong growth in demand for innovative royalty-based funding solutions. We continue to be very excited by our opportunity set, which you will hear more about at our Investor Day on May 17. When we look at our portfolio, we also saw very encouraging progress. Kaftrio received European approval for six to 11-year olds with cystic fibrosis, while Vydura gained a first-ever European approval for both the treatment and prevention of migraine. Each of these approvals brings these transformative therapies to many new patients who could benefit. Lastly, we are reaffirming our full year guidance for adjusted cash receipts based on the strong underlying performance of our existing portfolio. This is even more impressive in the context of a roughly 2% unfavorable impact from foreign exchange we are facing this year, which I will talk to you more about in a minute. I would also remind you, our guidance excludes the impact of any investment that we may make over the remainder of 2022. On slide 6, you can see our financials in a little more detail. In the first quarter, we delivered 15% growth in adjusted cash receipts, our top line. This impressive double-digit momentum puts us in a great position to deliver another year of strong top line performance in 2022. Below our top line, I am also pleased to report that we grew our adjusted EBITDA by 15%. This is an important non-GAAP measure for us, which is arrived at by deducting operating and professional expenses from our top line. Our adjusted cash flow for our bottom line was impacted by an update to our non-GAAP treatment of certain development stage payments, which amounted to $100 million in the quarter. This update conforms with changes being made across the biopharma industry beginning in the first quarter of 2022. As a consequence, our adjusted cash receipts declined 10% in the quarter. I will take you through the details of the update to our non-GAAP financial results presentation a little later. Slide 7 shows our track record of strong top line growth since our IPO in June 2020. This track record is a testament to the underlying power of our business model. By consistently innovating funding solutions and replenishing our royalty portfolio, we can drive compounding growth and absorb losses of exclusivity in a way that is not possible for most other biopharma companies. Total royalty receipts grew 9% in the first quarter versus the year ago period. Growth drivers in the quarter included cystic fibrosis franchise, Tysabri, and the new royalty on Tremfya. We also saw significant growth contributions from Promacta, from the Biohaven payments, and also, though not specified here, from Cabometyx and Evrysdi. As in the preceding two quarters, these positive factors more than offset the loss of contribution from our legacy HIV franchise. Slide 9 drills deeper into our first quarter top line performance to illustrate this point. As you see here, our 15% top line growth in the quarter was powered by strong performance of our base business. This was partially offset by losses of exclusivity, mainly on the HIV franchise, which had a negative impact of close to 700 basis points, but were easily absorbed by the strength of our base business. In short, our unique business model and capabilities allow us to consistently replenish and grow our top line, and you can expect to hear more about this at our Investor Day. Slide 10 shows how our royalty receipts translated to adjusted cash flow. Similar to many of our peers in the biopharma industry, we have also updated the treatment of certain development stage payments, which impacted our non-GAAP bottom line when compared with this historic presentation of our non-GAAP results. I will take you through the details of this update on the next slide, but I want to first highlight a few key points here. First, we delivered 15% growth in adjusted cash receipts in the quarter, continuing our double-digit top line momentum. As you are aware, adjusted cash receipts is a key non-GAAP metric for us, which we arrived at after deducting non-controlling interests, and this is the central measure of our full year and long-term guidance. In the quarter, adjusted cash receipts were $605 million compared with $524 million in the year ago quarter. Second, as we move down the column, operating and professional costs equated to approximately 8% of adjusted cash receipts, slightly below our guidance of approximately 9% for the full year. Third, as a consequence, we reported 15% growth in adjusted EBITDA in the quarter, which was consistent with our top line growth. Adjusted EBITDA is an important non-GAAP financial measure for us and one of the three key non-GAAP metrics, by which we measure our business performance. Fourth, net interest paid of $86 million reflected the first payment on the $1.3 billion of unsecured notes we issued in July 2021, as well as the timing of the semiannual interest payments associated with our original $6 billion unsecured note offering in 2020. Fifth, we now include the $100 million development stage payments related to our aficamten investment in our non-GAAP results. Previously, and consistent with industry practice, these payments would have been excluded from our non-GAAP results. Lastly, after de minimis payments for ongoing development stage funding and other items, this resulted in adjusted cash flow, our bottom line of $367 million or $0.60 per share for the first quarter. The impact of the aficamten payments was equivalent to $0.16 per share. Of course, these accounting updates have no impact on the cash generation of our business. Slide 11 provides more detail on the update to our non-GAAP financials. If we acquire royalties on approved or development stage products, there is no change to how we reflect these in either our GAAP financial statements or our non-GAAP financial measures. These investments are capitalized on the balance sheet. Examples of recent royalty acquisitions in this category include Cabometyx, Tremfya, and gantenerumab. Likewise, if we acquire synthetic royalties on approved products, there is no change to our GAAP or non-GAAP presentation. These would also be capitalized on our balance sheet. However, if we acquired synthetic royalties on certain development stage products, we will now treat the upfront payment as an expense in our non-GAAP financial measures. The accounting treatment under the new guidance will be subject to the specifics of the transaction, including the probability of success among other factors, and it should be noted that there would be no change on a GAAP basis. Examples of this type of transaction include aficamten, as I already highlighted, along with BCX9930 and two of the therapies from our more first deal, pelabresib and CPI-0209. On the right-hand side, you can see how this new treatment of certain development stage payments impacted our adjusted cash flow over each of the past two years. In 2020, the impact would have been very minor, less than 0.5% as a result of our initial BCX9930 transaction with BioCryst. In 2021, by contrast, the impact on our adjusted cash flow would have been approximately 11% as a result of the expanded partnership with BioCryst on BCX9930 and the MorphoSys transaction. The creation of synthetic royalties on development stage therapies continues to be an important opportunity for Royalty Pharma. And while the timing, size and structure of these deals are difficult to predict, we recognize that this new accounting treatment potentially introduces an element of volatility to our bottom line as we look forward. We will ensure that any development stage payments falling under this treatment are transparent in our quarterly and annual reporting for the purposes of your financial modeling. We have also included updated non-GAAP quarterly financials for the years 2020 and 2021 in tables 5 to 7 in the back of our press release. Let's move now to Slide 12 and our financial position. We continue to maintain significant financial firepower. We deployed $199 million of capital on royalty acquisitions during the first quarter, as well as $117 million on dividends and distributions. As a result of our strong cash flow generation, we had $2.3 billion of cash and marketable securities at the end of March, slightly above our position at the end of 2021. Our leverage stands at 2.5 times net debt-to-EBITDA and 3.6 times total debt to EBITDA. With the fixed rate average coupon on our debt of slightly above 2%, which is significantly below our target returns on royalty acquisitions in the high single digits to teens percentage range, we continue to feel confident about our ability to execute on our business plan and create value for shareholders. On Slide 13, we are well positioned for the current financial environment. As I just noted, we have a very attractive coupon on our debt portfolio, and we also benefit from a weighted maturity on our debt of around 13 years. We have limited near-term refinancing needs, and any debt refinancing through 2025 would be expected to have a less than 1% impact on our weighted average cost of debt. More broadly, with a commitment to our investment-grade credit rating, we expect to maintain attractive overall borrowing costs and deep access to fund our future capital deployment plans. The current equity market environment for biotech is also favorable to our business plan as royalties are becoming increasingly attractive as a source of funding given depressed stock valuations and as new M&A opportunities are being created. Of course, the bar for investments remains as high as ever. Though over time, we are confident in our ability to capitalize on the opportunity ahead and create value for shareholders. Lastly, we are confident in our ability to maintain returns in this environment. There is a natural hedge through asset pricing against the background of rising interest rates. Furthermore, we have demonstrated through previous economic cycles, our ability to react quickly in a dynamic market and to maintain attractive returns. Our aim is to deliver attractive unlevered returns with enhancements on those returns through conservative leverage, even at higher interest rates. Now switching gears to upcoming milestones. Slide 14 highlights the expected clinical and regulatory events for our portfolio during 2022. In summary, the year started well with positive clinical trial results from Trodelvy and Tremfya and the European approval of Vydura, and the remainder of 2022 could have a number of potentially important milestones. We continue to anticipate Phase III results for a number of potentially transformative therapies, including from Cabometyx in combination with immunotherapy in a number of different settings: Johnson & Johnson Seltorexant in depression, Roche's Gantenerumab in Alzheimer's disease, BioHaven's oral migraine prevention therapies zavegepant, and GSK's otilimab in rheumatoid arthritis. On the regulatory front, we would highlight expected filings of PT027 in asthma and intranasal zavegepant in migraine this quarter. In addition to potentially advancing the standard of care for patients, many of these milestones represent major commercial opportunities and could add significantly to our long-term growth outlook. Lastly, we discussed on last quarter's call, the Cytokinetics transaction, in which we gained a royalty in aficamten, a potential new therapy for hypertrophic cardiomyopathy. I should note another event that is not on this slide is the recent FDA approval of Bristol's mavacamten, which brings a new treatment option to patients with hypertrophic cardiomyopathy and is also very supportive of our thesis for aficamten. On Slide 15, we are reaffirming our full year 2022 financial guidance despite an unfavorable impact from foreign exchange. We continue to expect adjusted cash receipts to be in the range of $2.225 billion to $2.3 billion, an increase of between 5% to 8% over the $2.1 billion we delivered in 2021. This outlook reflects the expected strong underlying performance of our royalty portfolio, partially offset by the residual impact of the loss of royalties on the HIV franchise in the first two quarters of the year, as well as the end of the DPP-IV royalty term in March of this year, for which we will receive the last royalty receipts in the second quarter. Additionally, at today's FX rates, we face a $30 million to $40 million unfavorable impact to adjusted cash receipts compared to where rates were when we gave our initial guidance in February. Despite this, we have maintained our guidance for adjusted cash receipts, again, highlighting the strength of our diversified portfolio. And consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account any future royalty acquisitions. Turning to our operating costs, we continue to expect this to be approximately 9% of adjusted cash receipts in 2022. Finally, net interest paid for full year 2022 is still expected to be around $170 million, reflecting the net interest associated with the bond offering in July 2021. Moving to my final slide. Let me close by saying how pleased I am with our strong start to 2022 and that we really look forward to seeing you at our upcoming Investor Day. You can expect to hear detailed discussions of the outlook for royalty funding, our updated capital deployment opportunities, and our long-term growth targets, and of course, you will have the opportunity to interact with the team and ask plenty of questions. We are very excited to talk to you in more depth about Royalty Pharma's unique role at the heart of funding the golden age of life sciences innovation and why we are confident in our ability to deliver compounding attractive growth over the coming years.

We will now open up the call for your questions. Operator, please take the first question.

Our first question comes from Chris Schott with JPMorgan. Your line is open.

Great. Thanks so much for the question. I just had two here kind of both about the environment that you're operating in. So we've had another kind of three or four months of biotech underperformance starting off 2022. And I guess as I think about what that means for Royalty Pharma, do you see this translating to improved yield terms, or do you think maybe better returns on transactions that are announced? Or is this more of a situation where we're seeing companies that maybe didn't look at royalty financing before now considering royalties, so made as an opportunity to deploy more capital than you have historically, or I guess, is it just too early for these new valuations to even be reflected and the environment hasn't changed? So, just like maybe is this first question, just like lay the land where we are. And then the second one, which is kind of tied to this is, I'd just be interested in kind of the breadth of the opportunities you're seeing out here. It seems like on one hand, we've got a record number of private and publicly traded biotech companies. On the other hand, it seems like some of the biotech news flow has been skewed fairly negatively over the last six to twelve months. So, as you look through this kind of much wider range of companies that are out there? Are you seeing the quality of assets that you'd like to see that would enable kind of sustaining these higher levels of capital deployment? So, I think they're kind of related to each other, but I'd just love to hear thoughts on both of those.

Hi Chris, it's Chris Hite. Thank you very much for the question. The first question you asked about the current landscape indicates that we've been extremely busy, as you might expect. We believe the range of opportunities remains consistent with what we've observed over the past several years. There are numerous varied opportunities within the biopharma sector. However, the SMID sector is facing significant challenges, with many stocks experiencing declines. This likely leads many companies to seek alternative forms of capital. We are certainly exploring some of those opportunities. Nonetheless, we continue to see an impressive array of opportunities and are very excited about our pipeline. That's generally the current situation. As for your second question, perhaps Marshall would like to address that.

Sure. Hey Chris, good morning. On the second part of your question, we continue to see a very deep and broad set of opportunities as we think about the top of the funnel in our pipeline across therapeutic areas, stages, marketers, and geographies. Kind of on every access, I think we're seeing a really good variety of, an important part of your question, quality opportunities. That being said, I think as Terry mentioned in the prepared remarks, our quality bar is high. We are first looking for important products that are going to be a great part of the Royalty Pharma portfolio, and that's where we start. And so the same discipline you've seen from us over the years will continue to very much apply in the current environment.

And just a really quick follow-up to Chris. On the kind of discussions with companies, I think we're hearing from some of our large pharma companies or large biotech companies trying to require that they're not necessarily seeing some of the expectations for the targets having reset. Are you seeing a similar dynamic that we need to seems to go another like three or six months before companies maybe reconsider their financing alternatives, or are you starting to that, I guess, that mindset is starting to change now?

It's a great question, Chris. When it comes to large pharmaceutical companies and mergers and acquisitions, my experience as a banker showed that it often takes a long time for companies to adjust when their stock prices are down. The royalty environment is quite different and more akin to a financing environment. Throughout our history, and especially recently, we've looked at a wide range of opportunities, including collaborations with large pharma for research and development, as well as the various deals we've completed over the past few years with mid-cap biopharma companies to support their R&D and product launches. We believe the expectations at the board, CEO, and CFO levels are quite different from those associated with selling a company.

Great. Thanks so much.

Our next question comes from Terence Flynn with Morgan Stanley. Your line is open.

Hi, thanks for taking the questions. Maybe two for me. I was just wondering, obviously, there's an upcoming Tremfya trial versus the lot coming out in Crohn's disease. I was just wondering, how you guys are thinking about that if that was embedded in your assumption as part of the MorphoSys deal? And then on the IPO R&D side, Terry, I was just wondering if you can give us any kind of sense or estimate of what this might represent for the full year? Again, I appreciate the slide where you kind of walk through the dynamics and how every deal is different. But again, any sense what this could represent on a full year basis? Thanks so much.

Sure. Good morning, Terence. It's Marshall. I'll begin with Tremfya. The IBD opportunity is a crucial aspect of our outlook, considering the quality of data available and J&J's strong marketing presence in that area. We have certainly taken into account the comparison of Tremfya with Truvada, especially with the anticipation of Truvada biosimilars entering the market, similar to what we have seen in psoriasis. We are encouraged by companies that aim for differentiation in regards to response time and effectiveness, as observed in other indications within this class. We are looking forward to the Tremfya opportunity in IBD and I'll hand it over to Terry for the question on R&D.

Yes, it's Terence. Today, the situation will depend on our deal flow. If we create a synthetic royalty for a development stage therapy, it will add an expense to our non-GAAP P&L this year. However, it's challenging to predict the deal flow. We assess these situations over multiple years and focus on selecting the best assets that will have the most significant impact on patients. These opportunities can vary widely, and some may indeed involve synthetic royalties on development stage therapies in the future, as we see promising potential there. Still, it's difficult to forecast what this will look like for the remainder of the year.

Alberta, we'll take the next question, please.

Our next question comes from Chris Shibutani with Goldman Sachs. Your line is open.

Thank you. Good morning. Two questions. First, appreciating your commentary on the HCM, hypertrophic cardiomyopathy market there. Obviously, you mentioned that we did achieve that milestone in the segment with the Bristol approval. New information there includes the label details, pricing of the first drug in class. And I would love to get your thoughts on both of those items as well as on how you see the competitive market playing out given your exposure through aficamten? And then the second would be related to the Alzheimer's disease outlook. During the interval in the past quarter, we have the final version of the NCD. There appeared to be some windows that could open in terms of how this could be interpreted and how things could be adapted as data comes in the second half of the year for assets including obviously, gantenerumab, which is your exposure. Would appreciate any thoughts there in terms of final NCD interpretations that you take? Thanks.

Hey, Chris, good morning, it's Marshall. Thanks for both of those questions. So the – on the first question on the Cimzia's approval, like Terry mentioned, we were happy to see the first drug in the space approved and look forward to Bristol doing a lot of hard work and investing heavily to develop this marketplace. Our thoughts on the label and the pricing, as is our typical practice, we thought about a lot of different scenarios and did a lot of work trying to figure out what that program might look like. And I think what we saw was certainly within the realm of the – within the range of the scenarios that we considered in our work and how we thought about the opportunity for aficamten. So – and we look forward to seeing the product launch in this market develop over time. And importantly, having Bristol there investing in the market, first was part of our thesis was that Cytokinetics and aficamten would actually benefit from that. And so we'll see. I think in the last part of your question is differentiation. I think certainly, there are some opportunities. We'll see how the aficamten development program unfolds. And as we learn more about the molecule, I think we probably have a more informed discussion on all of the opportunities for differentiation with time. The second question on NCD, thanks for that. So overall, certainly, the CMS and the NCD was taking a different approach than maybe we've seen before. But I think if you take a big step back, like we've talked about since from the beginning when we made the gantenerumab investment is that what this class needs and I think what the NCD at its essence is sort of asking for is data sets that show clearly and convincingly and consistently what the clinical benefit and the right patients for this class of drugs are. And I think certainly, the Roche program is set up to do that. I think others in the space, similarly, will have those kind of data sets. So I think the CMS laid out, as you indicated, some windows for what they're looking to see, and we're really looking forward to the next 12 months or so as we’ll see – six to 12 months actually at this point as we’ll start to see these trials roll out. And I think we'll be in a very different position with respect to this class, and we're excited to be a part of it.

Our next question comes from Geoff Meacham with Bank of America. Your line is open.

Hey, guys. Thanks so much for the question. Just have a couple of quick ones. The first one is, your concentration risk has become increasingly investor concern across the industry. And I know you guys have a broad portfolio, but where does diversifying cystic fibrosis concentration fall into Royalty's strategic priority? It seems like a larger transaction would be more ideal to doing a bigger number of smaller deals. And the second question is, and I guess, we'll hear more about it at the Investor Day. But where are you guys with respect to the diversity of therapeutic areas in the portfolio? I know, there's a ton – as been mentioned before, there's a ton of opportunities across SMID-cap biotech. But we can see in the case of say, oncology or other bigger indications, in some cases, you can have restrictive policies that may affect kind of growth assumptions. And so obviously, having a bigger diversity helps. Thank you.

Geoff, I'll begin by addressing our diversification goals. We don't have specific targets for diversification at this time. We are consistently investing billions of dollars each year, which means that over time, our portfolio will naturally become more diverse. I do not believe that this necessarily requires making a large deal; significant transactions will happen occasionally, but smaller, incremental deals can achieve similar results when considered collectively. As we move forward, our focus will shift more away from CF while still keeping it as a vital aspect of our business. You will see this natural diversification arising from our acquisition strategy. Now, I will hand it over to Marshall to cover the therapeutic areas.

Hey, Geoff. Good morning. Regarding therapeutic area diversification, the straightforward answer is to consider what we've accomplished since the IPO in terms of the variety of therapeutic areas we've included in our portfolio. It's very broad, and we're proud of this achievement. It aligns with Terry's point that our ongoing business strategy, which focuses on identifying important drugs without being limited to specific therapeutic areas, will further diversify our portfolio. You've raised a valuable question about the increasingly complex competitive landscape and payer dynamics in certain therapeutic areas. This is simply part of our industry, and it informs our diligence when evaluating new opportunities.

Hi, everyone. Thank you for allowing me to ask my questions. I have four today, if that's alright. First, I appreciate your alignment with non-GAAP measures used by large pharmaceutical companies. However, I noticed that you're only adjusting a portion of each deal. For instance, with the Cytokinetics deal worth $450 million, you're only considering $150 million, while the remaining $300 million is categorized as commercial stage. I’m trying to grasp why that approach differs from how other pharmaceutical companies treat their deals, as they include the full amount. I’m curious about your reasoning behind this, and whether it aligns with SEC regulations. Secondly, as I understand it, when Pfizer makes a $350 million payment to Biohaven as part of their equity purchase, they are adding that back in for non-GAAP purposes. I didn’t see any mention of this in your slide 11, and I would like to know how you plan to handle similar situations moving forward, like with the $50 million stock purchase you made for BioCryst. Third, I’m puzzled why a development-stage royalty, which is technically a third-party royalty, isn’t included in your non-GAAP metrics. What is the reasoning behind that? Finally, I noticed a disclosure indicating that prior periods have been updated to reflect this new non-GAAP presentation, yet the numbers from last year remain unchanged at $193 million, both in terms of non-GAAP cash proceeds and overall. I’m confused about why that is, especially considering I would have thought the Minerva development-stage royalty should have been adjusted out. Thank you very much.

Okay. There's a lot to unpack. Regarding Cytokinetics, the portion related to royalties based on pre-approval milestones will now be included in our non-GAAP metrics, whereas previously it would have been excluded. Additionally, we are providing funding bonds for development and commercial launch, which will not be counted as an outflow in our non-GAAP metrics. The same applies to equity purchases; these expenses are not recognized as such but appear on our balance sheet. You can find them in the investing section of our cash flow statement. Concerning the non-GAAP adjustments, the impact is detailed in the press release, especially in tables five to seven. It shows that the adjusted cash flow decreased from $1.767 billion to $1.573 billion, which is an 11% impact. This information is all available in the press release. Lastly, regarding seltorexant, that is a third-party royalty, and under U.S. GAAP, those are capitalized on our balance sheet and not reflected in our non-GAAP metrics.

Thank you. Couple of questions, please, for Chris. Firstly, you've seen some large pharma companies continue to derisk or deprioritize some of their assets. I'm obviously thinking about the Blackstone deal. Novartis and GSK are really looking to reduce exposure to some drugs. To what extent do these provide opportunities for you as opposed to more in the SMID biotech space? And then second, the other side of the coin, we were surprised on the antitrust front that Pfizer went through, we've also seen somewhat uptick in M&A activities among the large cap, thinking most recently of the GSK-Sierra deal. To what extent are companies that previously may have been in discussions with you on royalties now looking more towards acquisitions given an industry which is focused on their forthcoming LOEs? Many thanks.

Hi, Andrew. Thank you for your questions. Regarding your first inquiry about potential opportunities with large pharmaceutical companies, we explore every option available. We take pride in our extensive networking across the industry, ensuring that large pharma and biopharma understand the various ways we can collaborate. This includes funding research and development, assisting in commercial launches, and considering possible spin-offs, as well as co-investing with others. We are open to a wide array of opportunities, particularly those that large pharma might be evaluating regarding their portfolios. We have ongoing discussions with them in this regard. As for your second question about the mergers and acquisitions landscape and the FTC environment, it's always challenging to forecast and can be quite fluid. Historically, large pharma is aware that we can be of assistance, especially in two key areas. When large pharma is considering a target that includes non-strategic financial assets like royalties or collaboration profits, we have engaged in such discussions before and are eager to continue doing so. Additionally, in cases of forced divestitures prompted by the FTC, we have previously explored opportunities to provide capital to smaller companies looking to acquire those assets. The future of the landscape is uncertain, but we are ready to play a role in both aspects of your inquiry.

Good morning folks. Thanks for taking my questions. This might be something that you'll cover at the Investor Day. So I'm curious, how you plan to evolve the company going forward that's different from what you've done in the past. Sort of what will be current over the next couple of years other than growth and size? And following up on the therapeutic area question, I'm curious, about your view on biosimilars and whether you see the potential for the returns on biosimilar royalty deals? Thank you.

So yeah, I don't want to steal the thunder of our Investor Day. We have a lot to discuss there. I think, why don't we save the first question for that, but we're very excited to describe the opportunity that we see ahead of us, and to discuss sort of our long-term objectives at the Investor Day on May 17. And then, I can turn it to Marshall on biosimilars.

Sure. So it's a good question. And as you might imagine, we've looked at a significant number of biosimilar opportunities over the years. We can imagine a set of circumstances where something like that might be interesting. I think to-date, it hasn't been something that met our criteria like we're seeing, there's been pretty significant price competition in that space. And so we've been taking the stance that maybe we can watch, and wait, and see how that landscape evolves and how those markets form before getting actively involved there.

Thank you. Two questions, the first is just, so I understand and maybe using aficamten as an example. Can we expect similar one-time charges on aficamten in the future, or did this quarter represent the totality? I appreciate, it is tough to predict future deals, but this is obviously an existing one? And then second, I'm just curious, are there any provisions in the gantenerumab contract to compensate Royalty Pharma in any way if reimbursement was not available even if the drug were to be approved? Thank you.

So regarding aficamten, there might be an additional $50 million payment. We do not expect this to occur this year, but we haven't provided any further specifics. This would also be categorized as a one-time expense in our non-GAAP profit and loss statement. As I mentioned earlier, it is challenging to predict how the deal flow will develop and the types of investments we will pursue, but we anticipate engaging in more of these opportunities. Overall, we view our adjusted cash flow or non-GAAP metrics as a reflection of the consistent cash generated by the business, which we can then reinvest into new royalties. This is our main focus. We also distribute a portion of it to shareholders through dividends. Historically, these one-time payments were not included, in line with industry standards, but we are updating our non-GAAP financial presentation to align with the current practices of the industry. We will ensure that we are transparent each quarter and when we announce transactions about how these items will be reflected. However, this has no effect on the core operations of the business or our capital deployment strategy moving forward.

Good morning. Regarding your question on gantenerumab, there are no specific provisions concerning reimbursement. It follows a typical royalty structure, so there's nothing unique about that aspect. However, it allows us to reiterate our earlier point in this call that we're eager to see the trial results. If they demonstrate consistent and clinically significant benefits for patients, we anticipate that reimbursement access will be available.

This concludes the question-and-answer session. I'd like to turn the call over to Terry Coyne, for closing remarks.

Great. Thank you, operator, and thank you to everyone on the call for your continuing interest in Royalty Pharma. We all look forward to seeing you on May 17. If you have any follow-up questions, please feel free to reach out to George.

This concludes the program. You may now disconnect. Everyone, have a great day.