Earnings Call Transcript - RPRX Q2 2020

George Grofik, Senior Vice President, Head of Investor Relations and Communications

Thank you, operator, and good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's second quarter results. You can find the slides to this call on the Investors page of our website at royaltypharma.com. On 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 S-1, Prospectus on file with the SEC for a description of these risk factors. With that please advance to slide 4. Our speakers on the call today are; Pablo Legorreta, Founder and Chief Executive Officer; Marshall Urist, SVP, Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights of the quarter after which Marshall will provide an update on recent Royalty acquisitions. Terry will then review the financials. And after concluding remarks from Pablo, we will hold a Q&A session. Chris Hite, our Vice Chairman and George Lloyd will also join the Q&A session. With that, I'd like to turn the call over to Pablo.

Pablo Legorreta, Founder and Chief Executive Officer

Thank you, George. It’s a pleasure for me to open our first earnings call as a public company. 2020 has truly been a landmark year for Royalty Pharma, which had a very successful IPO raising $1.9 billion in net proceeds, positioning us well to execute on our next phase of growth. At the same time, we continue to deliver excellent financial results with strong double-digit growth in adjusted cash receipts and adjusted cash flow which we view as our top and bottom-line. Meanwhile, we expanded our portfolio to renew royalty transactions and important regulatory approvals. Lastly, we strengthened our corporate governance with the Board appointments of Bonnie Bassler, Cathy Engelbert, Henry Fernandez and Ted Love. Our four new appointees bring a huge amount of financial, business and scientific expertise to the Board as well as strong leadership. Their guidance will be important as we continue to build our position as the partner of choice for funding innovation across the life sciences R&D ecosystem. On slide 7, the IPO really was a major milestone for Royalty Pharma and a logical next step in the evolution of our business. Our mission is to be the leading funder of innovation in life sciences and the capital provided by the IPO, as well as access to the deepest equity markets, will be important tools in our mission. In addition, we now have a much broader shareholder base to grow with us over time. And as I mentioned up front, we continue to deliver strong financial performance. I am proud on our first earnings call to report growth of the magnitude you see on slide 8 with 24% growth in second quarter adjusted cash receipts and 47% growth in adjusted cash flow. This type of growth speaks to our unique position within the biopharma ecosystem as well as the extraordinary innovation currently taking place in the industry. I will hand over now to Marshall to tell you about some of our exciting recent acquisitions.

Marshall Urist, SVP, Research and Investments

Thank you, Pablo, and good morning and good afternoon to everyone. On slide 10 as you may recall, we said at the time of our IPO that we expected to deploy capital of around $1.5 billion per year on average over the longer term to acquire new royalty. So far in 2020, we have already announced royalty transactions that exceed this figure. Most of the $1.7 billion in investment is represented by the four transactions shown here, which are our deals for risdiplam, IDHIFA and Prevymis and two new agreements further expanding our collaboration with Biohaven. These products are all unique ranging from migraine to rare disease from virology to cancer, reflecting our unique ability to invest across therapeutic areas. The most recent was two deals with Biohaven for up to $450 million and truly shows the power of the Royalty Pharma model. There are two distinct transactions. First, we are investing up to $250 million in exchange for additional royalty royalties on Nurtec and zavegepant. We are also eligible to receive milestone payments of up to 2.95 times the funding amount following regulatory approvals of zavegepant including a 1.9 times multiple on regulatory approval of zavegepant in migraine. Second, we are investing $200 million between 2021 and 2024 in commercial launch preferred equity providing important funding for Biohaven to accelerate the commercial launch efforts for Nurtec. We believe this transaction is a great example of the creative flexible solution that Royalty Pharma can provide its partners creating a true win-win collaboration. With risdiplam, we made a $650 million investment in an exciting SMA product that will serve a large need for patients with this devastating disease by giving them an effective oral option. As you may have seen this product was approved with a broad label on Friday and given the brand name Evrysdi. Now without getting too deep into the detail on a deal-by-deal basis, I would highlight that each of these transactions scores highly on our list of key criteria we look for in our acquisitions. That is each represents a differentiated transformative medicine in an area of high patient need, each has a marketer who we believe is motivated and capable of optimizing the commercial potential of the product and each has a long duration of IP protection. We remain excited by our pipeline and the unique opportunities in front of us to continue to add attractive royalties to our already diversified portfolio. With that I will hand over to Terry.

Terry Coyne, EVP, Chief Financial Officer

Thanks, Marshall. Let's move to slide 12. We had a strong quarter with total royalty receipts up 20% compared to Q2 2019 on a pro forma basis. As you can see on this chart, each of our top five products and franchises delivered very strong double-digit growth. In particular, royalties from our largest franchise cystic fibrosis grew 59% this quarter. One point to mention on this slide: other products include the $21 million one-time distribution related to our Avillion collaboration. Slide 13 shows how our Royalty receipts translated to strong adjusted cash flow in the quarter. As you are aware, adjusted cash receipts is a key non-GAAP metric for us which we arrive at after deducting distributions to non-controlling interests. Adjusted cash receipts amounted to $462 million in the quarter, growth of 24% compared to Q2 2019 on a pro forma basis. When we move left to right, operating and professional costs of $44 million equated to 9.6% of adjusted cash receipts, in part reflecting IPO expenses. R&D funding was modest given the completion of our Ibrance adjuvant breast cancer funding in 2019. Net interest of $31 million reflect improved cost of debt from our refinancing earlier this year and decreased nearly 50% from last year's second quarter on a pro forma basis. This resulted in adjusted cash flow which we view as our bottom-line earnings of $369 million or $0.61 per share. This is an adjusted cash flow margin of 80%, highlighting the strong financial leverage in our business model. Looking at our balance sheet on slide 14, we ended June with cash and marketable securities of $2.8 billion driven mainly by adjusted cash flow I just described and the IPO proceeds of $1.9 billion. Other cash movements including Royalty acquisitions, debt refinancing proceeds and other distributions largely balanced out. We finished the quarter with $5.9 billion of total debt that is investment-grade rated equating to net debt of $3.2 billion. Our current interest expense is approximately 1.8%. Taken together with leverage of 1.9 times adjusted EBITDA on a net basis and 3.5 times adjusted EBITDA on a gross basis, we are very well positioned to execute on our business plan. On slide 15, my final slide, we're pleased to provide you with full-year 2020 guidance. We expect adjusted cash receipts to be in the range of $1.72 billion to $1.76 billion and our operating costs are expected to be approximately 10% of adjusted cash receipts. Importantly, this guidance is based on our portfolio as of today and does not take into account any future transactions announced after the date of this release. With that I would like to hand the call back to Pablo for his closing comments.

Pablo Legorreta, Founder and Chief Executive Officer

Thanks, Terry. I want to bring this all together in the context of our strategic plan and how we are delivering against it. As a reminder, we have three main business streams through which we plan to sustain growth, further diversify our revenues and continuously extend the duration of our portfolio. First, we will continue to seek to capture a leading share of available royalty acquisitions for approved products, which is our traditional area of expertise. Second, we will target select late-stage clinical development opportunities both in terms of royalty deals and of direct R&D funding. Third, we will participate in M&A by acquiring nonstrategic royalties to help acquirers fund deals or by partnering with these companies, or even in very select instances acquiring companies outright in order to gain new royalties. This slide summarizes how we are executing against our strategy. When we think about the magnitude of growth, we are delivering double-digit momentum. And I am particularly pleased with the 24% growth in adjusted cash receipts and 47% growth in adjusted cash flow. We are also successfully diversifying our growth with the royalty acquisitions Marshall described. And, of course, we’re confident that we can continue to grow the portfolio and add additional products. As of today, we have royalties on more than 45 products and only one royalty namely cystic fibrosis is greater than 20% of our total royalty receipts. Given our simple business model, this diversification is true on both our top and bottom lines, which we believe is quite unique. Lastly, we have maintained a weighted average life of our portfolio of around 15 years, well-above the industry average. With the help of FDA approvals of Tazverik in follicular lymphoma, Nurtec in migraine, and Trodelvy in triple negative breast cancer, as well as our new royalty acquisitions. On my final slide, this is what we plan to deliver as a result of successfully executing our strategy and deploying an estimated $7 billion in capital from 2020 through 2025. Our long-term goal is to grow adjusted cash receipts at a compound rate of between 6% and 9% with around half coming from our existing business and half from new royalty transactions. We target returns in excess of our cost of capital over the period while maintaining a weighted average duration for our portfolio at more than 10 years. We expect to pay around 25% of adjusted cash flow in dividends beginning with an initial quarterly dividend of $0.15 and to maintain our investment-grade credit rating. Based on this outlook and our unique position at the heart of funding the golden age of life sciences innovation, I am as excited about the future of Royalty Pharma today as I was when I founded the business back in 1996. With that, I would like to open the call to Q&A. Back to you George.

George Grofik, Senior Vice President, Head of Investor Relations and Communications

Thanks Pablo, and we will now open up the call to your questions. Operator, could you please take the first question?

Operator, Operator

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

Geoff Meacham, Analyst

Hey guys. Thanks for the question and congrats on the successful IPO. I just had a couple of questions. One for Pablo, as you look at the portfolio, how much does the changing policy environment inform your assumptions of growth or IRR? Just curious if you had an implicit discount for future deals? And then for Terry or Marshall for future deals I know it is IRR driven, but is there a separate consideration of therapeutic area? Obviously some categories are subject to faster disruption or competition. It seems like orphan assets fit your model well, but I wanted to get your thoughts on that. Thanks guys.

Pablo Legorreta, Founder and Chief Executive Officer

Thank you, Geoff, and good to hear you. So with respect to your first question, I think if you look at the transactions that we've been able to close this year, the return expectations that we have on all of the transactions are very much in line and in some cases even exceeding slightly the return expectations that we have for approved and unapproved products. And let me remind you what they are, we expect returns for approved products in the high-single digit low double-digit returns. And when you look at some of the recent transactions they are actually north of 10%. So we believe those returns to be very attractive because of the unlevered nature of them. For unapproved investments, they are well in excess of that actually in the mid to high teens. And again, when you look at the transactions particularly the recent transaction that we just announced with Biohaven where we are funding Zavegepant, when you combine the different aspects of the $250 million Zavegepant clinical funding agreement, you will see that we start with a sort of low-double-digit return looking at the multiple of fixed payments. And the return then goes to the mid to high-teens when you count the royalties that we have negotiated both on Zavegepant and Nurtec, which we of course are very excited about because of its strong launch. So we are actually very pleased with what we are seeing. And I think the last thing I will say is that one of the things that is obviously driving this very attractive execution is the very strong tailwinds that we have in the significant capital needs in the biotech industry and other factors we've discussed in the past. So, let me turn it over now to Marshall for him to provide additional perspectives.

Marshall Urist, SVP, Research and Investments

Yes. Thanks, Pablo, and good morning, Geoff. So Geoff to your question on therapeutic areas and product fit for Royalty Pharma, our focus and the focus of our strategy has always been to find the most innovative impactful drugs for patients in each therapeutic area. And it's not necessarily that there are certain therapeutic areas where we won't invest, or fit better, or don't fit for us. We approach everything on a product-by-product basis. Now certainly there are areas where we feel that technology cycles might be too short or that there are competitors coming along where we won't choose to participate. But really, we are approaching it on a product-by-product basis. We have done deals on the orphan side as you mentioned, but we feel like there are going to be exciting opportunities going forward that really fit our model that have durable products with durable competitive advantages across therapeutic areas.

Geoff Meacham, Analyst

Okay. Thanks guys.

Operator, Operator

Thank you. Our next question comes from Chris Schott with JPMorgan. Your line is open.

Chris Schott, Analyst

Great. Thanks so much for the questions. The first one is just when I look at the Biohaven deal, it seems like we are seeing deal terms that are evolving from straight royalties that we saw historically to something that is kind of maybe more complex and creative structures. Is that something unique to some of the recent transactions we are seeing, or is this an evolution of the broader Royalty Pharma model? And then my second question was on leverage. Is there a leverage ceiling we should think about for the Company? And does the success of the stock on the IPO impact how you think about potential using equity to finance transactions? Thanks so much.

Pablo Legorreta, Founder and Chief Executive Officer

Thanks, Chris. I will take the first part of your question. So in terms of deal structure, as you probably heard us during the roadshow for our IPO, one of the really unique things about Royalty Pharma and something that has driven very significant growth over decades has been our ability to be very creative in structuring transactions. The recent structure with Biohaven has different components, and I believe that at the end of the day what really matters here for us is to invest in really exciting attractive products. That is really the beginning of a good investment, marketed by strong companies. And then, we solve the needs of our partners and ours through creative structuring. And that's exactly what happened here. There was a need for capital to actually fund the launch of Nurtec and we put in place something that we feel was very attractive and unique with this preferred commercial launch funding stock $200 million, where we are going to be investing $200 million over the next four years to support the very strong launch of Nurtec. And then, we will receive payments over the next six years. But if you look at again the return expectations there, they are fairly attractive at around 12% unlevered. And then the other part of the transaction obviously has royalties. But if you look at a transaction like the PPC transaction, it's much more plain-vanilla with us just purchasing a meaningful portion of the royalty that PPC had on risdiplam. So I think at the end being creative is really critical so that we can address the needs of our partners and continue to make very attractive investments in attractive products. And I will turn it over to Terry now for a response on your question about leverage.

Terry Coyne, EVP, Chief Financial Officer

Yes, hi, Chris. In terms of leverage, we have made it clear that maintaining our investment-grade rating is a priority. We finished the quarter with a total debt to EBITDA ratio of 3.5 times. Generally, we can go slightly above 4 times when necessary, particularly if we have an opportunity to acquire an attractive royalty asset, but we need to ensure we have a clear plan for reducing that leverage afterward. Therefore, you should consider around 4 times total debt to EBITDA as our ceiling for maintaining the investment-grade rating. For instance, in 2014, we raised debt to acquire the cystic fibrosis royalties, which were crucial for us at the time, and we had a clear plan to lower our debt after that, which is why we went a bit above 4 times then. We have a long-standing policy regarding this with the rating agencies, so they are familiar with our approach. Regarding the use of equity for acquisitions, we prioritize the cash generated by the business first for new investments. Afterward, we consider adding debt while keeping our investment-grade rating intact. The final option would be to involve additional equity, as we believe the cost of debt remains significantly lower than that of equity. This reflects how we've managed the business over the past 15 years.

Chris Schott, Analyst

Great, very helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from Steve Scala with Cowen. Your line is open.

Steve Scala, Analyst

Thank you, and congratulations on a very solid first quarter out of the gate. We thought the risdiplam deal was a great deal for Royalty Pharma. But then Roche priced risdiplam well below competitors which influences sales, which influences royalties. And we don't necessarily believe demand will be higher, but it is more due to Roche's view of social responsibility. So was the price in line with your expectations? And if not, then how does this change your internal forecast?

Pablo Legorreta, Founder and Chief Executive Officer

Sure. Thank you. Marshall, can you take that question?

Marshall Urist, SVP, Research and Investments

Yes absolutely. Thanks, Pablo, and good morning, Steve. So we were obviously very happy to see the approval of Evrysdi come through on Friday. And with respect to specifically your question on price, well we are not going to get into our specific assumptions on any given deal. Whenever we look at any transaction or any royalty, especially one like this that is preapproval where we don't know the price, we look at a variety of scenarios across pricing and volume and many different variables and have to be comfortable with the investment across all of those. So I would say that having the approval and now seeing it priced, we remain very excited about both the potential of Evrysdi for patients and then also about this product for Royalty Pharma.

Steve Scala, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Our next question comes from George Gilbert with Truist Securities. Your line is open.

Gregg Gilbert, Analyst

Thanks. Good morning team. It's Gregg Gilbert from Truist. I will ask two questions. First, on capital deployment, do you see the potential to put more than $1.5 billion per year to work? I realize that's just an average and that it will be lumpy, but given your momentum the tailwinds in the industry, your new capital structure, curious if you are tempted to potentially do more. And that's partially a comment on just what you see coming your way these days? My second question is heading into election period, I'm sure your partners will individually be scrutinized up and down about their relative exposures to the U.S. in different parts of the system. I was wondering if you had a best estimate you could share with us on your exposure to kind of U.S. versus the rest of the world. And then within the U.S. how much is government pay versus private pay? And if not just frame for us how you think about that. Thanks.

Pablo Legorreta, Founder and Chief Executive Officer

Thanks for the question. Terry, can you please answer the question?

Terry Coyne, EVP, Chief Financial Officer

Yes, certainly. Regarding capital deployment, we have announced our intention to invest at least $7 billion over the next five years, which we feel confident in. We are off to a strong start in 2020 and have a positive outlook on our pipeline and industry trends. If the right opportunities arise, particularly quality assets that align with our investment strategy, we would consider investing more than $7 billion. However, we stand by our $7 billion guidance for the five-year period. It's also important to note that we assess investments and capital deployment over multiple years. For 2020, we have either invested or announced $1.7 billion in acquisitions, but we view this on a multi-year basis. In terms of our exposure to the U.S., while we don't have perfect visibility, we estimate that the U.S. represents about 60% to 65% of our total royalties. Within the U.S., our visibility into different levels of payers isn't always complete. I can mention that our largest product under Medicare Part D is Tysabri, but we don’t have detailed data on its specific breakdown in that segment. For those inquiries, it might be more appropriate to consult the marketers.

Gregg Gilbert, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from David Risinger with Morgan Stanley. Your line is open.

David Risinger, Analyst

Great. Thank you. Good morning Pablo and team, and congratulations on the recent deal announcements. I have two questions. Could you discuss the current biotech pricing environment and Royalty Pharma's ability to identify underappreciated investment opportunities? Also, are there many opportunities for such deals? Any insights on high return potential deals would be appreciated. Thank you.

Pablo Legorreta, Founder and Chief Executive Officer

Sure. Marshall, can you take the question? And we were having trouble hearing all of it David. I don't know if maybe Marshall did catch all of the question?

Marshall Urist, SVP, Research and Investments

Yes, David, I didn't get the first question. You broke up. And then maybe the second question if you could summarize it for us. I think we actually had trouble hearing it unfortunately.

David Risinger, Analyst

Okay. My apologies. Is this any better?

Pablo Legorreta, Founder and Chief Executive Officer

It’s much better.

David Risinger, Analyst

Okay. Great. So with respect to the current biotech pricing environment generally speaking prices for assets are high. Could you just discuss Royalty Pharma's ability to uncover underappreciated opportunities? And then second, with respect to creative deals like zavegepant, Nurtec, could you characterize opportunities ahead to generate high returns with unique transactions like that? Thank you.

Pablo Legorreta, Founder and Chief Executive Officer

Marshall.

Marshall Urist, SVP, Research and Investments

Absolutely. So Dave on your first question on the environment out there, I'll just make a couple of points. Like I said in the script, we're very optimistic about the future and where our pipeline is and all the potential opportunities we see going forward. This year has been a very busy year for us, as we outlined doing both the traditional royalty transactions as well as the Biohaven deals in terms of both traditional royalties and then things that are a little bit more creative. So we definitely think that even in this environment that we are finding exciting opportunities for us. And then the second part of your question on maybe – the second point I would make, excuse me, is it has obviously been a very strong biotech and biopharma environment over the past several years. And even over that longer period of time Royalty Pharma has been very successful finding exciting attractive opportunities. So I think across those types of environments, I think we have been successful in continuing to expand our portfolio. The second part of your question in terms of high returns relates to creative deals like we announced with Biohaven last week. And I would say absolutely. We think that solving problems for our partners creating win-win solutions to support either pipeline development or commercialization in creative ways and structuring in creative ways is one of our core strategies and something that we think a lot about always trying to be creative and think differently. And we believe strongly that if we do that there are going to be many opportunities to do that in the future. So hopefully that answers your question.

Pablo Legorreta, Founder and Chief Executive Officer

David, maybe I will just provide one additional perspective here which is that our business model is quite different than – while you might be referring to a very competitive environment for M&A, given the scarcity of attractive assets, late-stage and approved products in biotech and also a very competitive environment in licensing products from biotech, we are coming from a completely different angle and perspective. Because as you know what we end up doing in many cases with biotech for example is financing the late-stage development of their products and in those cases, we generally can come in with terms that are very attractive for the companies, a lot less dilutive than equity or doing a big deal with a big pharma, which would take a huge, a significant portion of the economics in a product. So for us, it is different and I think it really speaks to the strength of our model. And how even in an environment where maybe M&A is expensive and licensing is very competitive, we can still do extremely well at deploying capital.

David Risinger, Analyst

Great, thank you.

Operator, Operator

Thank you. Our next question comes from Navin Jacob with UBS. Your line is open.

Navin Jacob, Analyst

Hi, yes, just following up on the question on leverage. I understand your commentary on going over four times but that's on a gross level. On a net level, you are actually under two times levered. Wondering if there is a minimum threshold that you go to and based on that net leverage number is there also a ceiling that you won't go above? I just wanted to understand sort of that run rate level that we should be thinking about. And then secondly, understanding that you'd be loath to provide any details on ongoing discussions for future deals but if there is any way of giving color around how many deals we can expect over the next six to 12 months that would be very helpful as far as how many you have brewing in the pipeline. That kind of color will be helpful.

Pablo Legorreta, Founder and Chief Executive Officer

Sure. Terry can you answer both questions, please?

Terry Coyne, EVP, Chief Financial Officer

In terms of net leverage, you’re correct that it's much lower than gross leverage. We, along with the rating agencies, typically evaluate it on a gross basis because the net figure tends to be much more volatile due to our capital deployment over time. We always aim for our net leverage to be significantly lower than our gross leverage, but we don't have a specific target in mind. We prefer to maintain cash on hand to pursue investment opportunities. This approach is consistent with how we and the rating agencies view things, focusing on gross numbers because of the unpredictability of net figures as we invest over time. Regarding your second question about the pipeline, it’s challenging for us to share specific details due to competitive reasons. However, we're optimistic that discussions have picked up despite the tough environment. Many companies are increasingly considering royalties as a financing option, whether through selling existing passive royalties or creating synthetic royalties related to their pipeline. We feel positive about the discussions we’re having, but it’s hard to predict when transactions will occur, so we can't offer much more detail on that for now.

Navin Jacob, Analyst

Thanks so much.

Operator, Operator

Thank you. And the next question comes from Umer Raffat from Evercore. Your line is now open.

Umer Raffat, Analyst

Hi. Thank you for taking my questions. There are some clear strengths in the business model, particularly regarding the economics of breakthrough drugs. However, I'd like to focus more specifically on issues related to Royalty Pharma. First, there is ongoing discussion about the potential significant loss of exclusivity risk after 2027 concerning cystic fibrosis. Could you provide clarification on why the royalties are not linked to total addressable markets and instead are associated with the components of Trikafta? I ask this because the SEC specifically inquired whether the agreement was tied to the duration of the total addressable markets, and Vertex firmly stated that it was linked to the total addressable market. Secondly, this question is for Terry. I understand that the nature of GAAP revenues and some GAAP expenses regarding expected cash flows does not accurately reflect the current quarter's performance. Nonetheless, the income statement being reported by Royalty Pharma is quite unique. When do you anticipate that there will be an opportunity to align with the SEC to report a non-GAAP EPS number instead of the current method?

Terry Coyne, EVP, Chief Financial Officer

So, yes. Sorry.

Pablo Legorreta, Founder and Chief Executive Officer

Go ahead, Terry. Why don't you take the two questions?

Terry Coyne, EVP, Chief Financial Officer

Yes. Regarding your first question about the Vertex product, we have been clear that the royalties are not linked to patents as outlined in the contracts. Therefore, we cannot say anything more than that; they are simply not connected to patents. As long as there are sales of royalty-bearing products, we will receive royalties. For Trikafta, we anticipate receiving full royalties through 2037. Concerning your second question about our financials, our focus is on cash measures, which we believe best reflect the business performance. This is what management considers, and we are pleased with our results in those areas. We also presented a cash per share metric in the slide deck, which will remain a focal point for us. In terms of discussions with the SEC, the GAAP income statement is what it is, and we do not expect any changes there. We will continue to provide these adjusted cash-based metrics moving forward as well.

Umer Raffat, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Terence Flynn from Goldman Sachs. Your line is now open.

Terence Flynn, Analyst

Hi, good morning. Congratulations on the IPO and thank you for taking my questions. I have two inquiries. First, omecamtiv is an important upcoming Phase 3 readout, and you receive royalties from it. Can you share what attracted you to this asset and how you foresee the market evolving and where this fits? Second, regarding your equity stakes, this is part of the creative structure you mentioned. How do you approach selling those equity stakes? Is it solely based on returns, or what is your strategy for ultimately divesting those stakes? Thank you.

Pablo Legorreta, Founder and Chief Executive Officer

Thank you for the question. Marshall, can you take the first question. And Terry, you can answer the question on equity stakes.

Marshall Urist, SVP, Research and Investments

Sure. Hi. Good morning Terence. Thanks for the question on omecamtiv. So just speaking at a very high level on that one, we are always looking for exciting products with novel science in markets where there is a lot of unmet patient need. And I think omecamtiv, as I'm sure you know, is extremely exciting from a science perspective. Nothing in heart failure, as directly acting on the cardiac muscle has been developed to date. And so we think that is exciting and interesting and could really be a complement and differentiated to what is available in heart failure today. And obviously heart failure is an area that does have a lot of unmet need. There haven't been a lot of truly new classes of drugs that are there and also a very large market and something that can support blockbuster or multi-blockbuster status for a drug. So, it did check all of those boxes for us. And we are looking forward to the results this fall.

Terry Coyne, EVP, Chief Financial Officer

And on the question on our equity position, Terence. The way we look at it is, we are similar to how we invest in royalties. We are focused on what we view as intrinsic value. And so if an equity position was approaching what we view as intrinsic value or exceeded that, then we would certainly think about selling those positions at that time.

Operator, Operator

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Pablo Legorreta for closing remarks.

Pablo Legorreta, Founder and Chief Executive Officer

Sure. Thank you, Operator. And thank you to everyone on the call for your interest in Royalty Pharma. My team and I are tremendously excited about our future as a public company. And we look forward to sharing our progress with you as we build our unique leadership role in funding the life sciences innovation ecosystem. If you have any follow-up questions, please feel free to reach out to George. With that, we will conclude the call today. Thank you.

George Grofik, Senior Vice President, Head of Investor Relations and Communications

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may now disconnect.