Earnings Call Transcript - RPRX Q1 2026

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma First Quarter 2026 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.

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

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter 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. On Slide 2, I'd 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. We refer you to our most recent 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 liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Chris Hite, Chairman, Partnering and Investments; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss the growing opportunity for R&D co-funding. Marshall will then provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. And with that, I'd like to turn the call over to Pablo.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Thank you, George, and welcome to everyone on the call. I am happy to report a strong start to 2026 as we execute toward our goal to be the premier capital allocator in life sciences, with consistent compounding growth. Slide 5 summarizes our strong business momentum in the first quarter. Starting with the financials, we delivered 10% growth in portfolio receipts, our top line, and 13% growth in royalty receipts, which are our recurring cash flows. The sustained double-digit momentum was driven by the strength of our diversified portfolio. We also maintained strong returns in our business with returns on invested capital of around 14% and returns on invested equity of around 20%. By combining strong growth and attractive returns, we're confident that we have a clear path to drive shareholder value creation. Turning to capital allocation, we had a busy quarter with $1.25 billion of announced transactions on three attractive therapies, while capital deployed was in excess of $0.5 billion. We also repurchased 1 million shares for $50 million in the quarter and increased our dividend by 7%. Moving to our portfolio, we're thrilled to see a number of positive clinical and regulatory updates, including the extraordinary Phase III results for Revolution Medicines' daraxonrasib in pancreatic cancer and FDA approval of Denali's Avlayah in Hunter syndrome. We also expanded our portfolio through R&D co-funding agreements with Teva, which we discussed on our previous earnings call, and recently with J&J for their autoimmune therapy 4804. Chris will highlight the growing market opportunity for R&D co-funding with global biopharma. Lastly, we were pleased to acquire a royalty on Jazz and BeOne's Ziihera, an approved cancer therapy with blockbuster potential. Looking ahead, we're increasing our 2026 full year guidance based on the strong business momentum I just highlighted. Slide 6 is one that I keep coming back to each quarter as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. This speaks to the quality of our investment selection and our unique business model. In the first quarter, we also took major steps to strengthen our global platform and capabilities in partnering in the Asia Pacific region and in artificial intelligence. We have brought in exceptional new leaders to our team with Greg Butz, Ken Sun and Lucas Glass. Their expertise will support our long-term growth ambitions and help to strengthen our competitive moats as the undisputed leader in the biopharma royalty market. Chris Hite, who has served as our Vice Chairman throughout our journey as a public company, has moved into a new role as Chairman, Partnering & Investments. In this role, he will continue to expand our global relationship network and play a central role in transactions. Chris has been an incredible partner, and I'm delighted that he will continue to provide strong leadership and leverage his relationships in this role. With that, I will hand it over to Chris.

Christopher Hite, Chairman, Partnering & Investments

Thanks, Pablo. I'm genuinely excited about the new capabilities we're building and the opportunity to forge even stronger, more meaningful relationships across the biopharma ecosystem. For my section today, I want to focus on the major opportunity we see for R&D co-funding with global biopharma. Beginning on Slide 9, we see R&D co-funding as a win-win solution for global biopharma and for Royalty Pharma. This market has enormous potential with over $1 trillion of cumulative projected R&D spend by global biopharma in the next five years. Co-funding arrangements allow biopharma to share risk at scale, enhance program return on investment, expand R&D capacity and diversify pipelines. From Royalty Pharma's perspective, we see multiple potential benefits. These include unlocking a new market opportunity, gaining access to high-priority clinical programs, leveraging our partners' global development and commercialization expertise and the ability to conduct deep diligence to drive high conviction in our investments. Slide 10 illustrates the strong momentum for this funding modality. Demand by biopharma was impacted by accounting uncertainty last decade, but over the last several years, more clarity around contra R&D accounting treatment has resulted in a surge for co-funding deals. As an example, in the first quarter alone, we signed deals with J&J and Teva totaling $1 billion in announced value. On the right-hand side of this slide, you can see that the number of global biopharma companies that have utilized this funding modality has doubled since 2020, which underscores the growing acceptance of this form of funding. Slide 11 shows our capital deployment mix by funding modality and how this has changed over time and where we see it heading in the future. At the start of the 2000s, we were a business focused almost exclusively on acquiring existing royalties. Today, existing royalties remain a stable and important component of our capital deployment, but we have evolved into a more diversified business with a growing emphasis on providing capital through innovative funding structures, most notably synthetic royalties with emerging biopharma companies, which has been a key growth driver. While R&D co-funding with large biopharma companies has historically represented a smaller share of our activity, we see a clear opportunity to scale this significantly in response to increasing demand. Importantly, this shift creates meaningful upside potential. In addition, potential business from acquiring existing royalties that have originated in China, where we are actively building a platform, represents another avenue for future growth that could drive the existing royalty market significantly. Slide 12 highlights a number of the R&D co-funding agreements that we have entered into since 2022. Together, these five highlighted deals at the time of announcement had the potential to provide up to $1.8 billion in capital to our partners, including up to $1 billion alone in the Teva and J&J transactions that we announced in the first quarter this year, as I previously noted. As you can see, these deals check the core elements of our investment framework. Specifically, each transaction involves a biopharma with deep clinical expertise and global commercial infrastructure and provides Royalty Pharma with royalty rights to a potentially transformative therapy covering a diverse range of indications. On Slide 13, I want to close by highlighting why we are so confident that Royalty Pharma is well positioned to scale R&D co-funding. Remember that we have been partnering with biopharma for approximately 30 years as we pioneered the royalty market. When we think about the depth of our relationships, our brand reputation, our responsiveness and our flexibility in structuring, Royalty Pharma is the clear leader. In addition, we take a long-term view with royalties and milestones paid over many years, and we have a cost of capital similar to pharma, so we can offer competitive pricing and win more deals. For these reasons, we expect to be able to capitalize strongly on this tremendous growth opportunity in the coming years. With that, let me hand it over to Marshall.

Marshall Urist, EVP, Head of Research and Investments

Thanks, Chris. I want to focus today on several exciting updates to our portfolio. First, our recent royalty deal for Ziihera, an approved cancer therapy; second, the incredible Phase III data that was recently disclosed by our partner, Revolution Medicines, for daraxonrasib in pancreatic cancer; and third, a look forward to important upcoming events across our broad development-stage portfolio. Beginning on Slide 15, we entered into a strategic funding agreement in March with Zymeworks, where we provided $250 million upfront in return for 30% of their royalty on Jazz and BeOne's Ziihera, which translates to a low- to mid-single-digit royalty for Royalty Pharma. For those less familiar, Ziihera is a HER2-targeted bispecific antibody, which is FDA approved for a rare tumor, metastatic biliary tract cancer. From a patient and commercial perspective, the real excitement here is that Ziihera was recently submitted for approval in gastric cancer, which represents a particularly high unmet need with a five-year survival rate of less than 10%. The pivotal study in this indication demonstrated an impressive five- to seven-month, nearly 40% overall survival advantage over currently available therapies. In our view, this positions Ziihera to become the standard of care in this very tough-to-treat indication, supporting blockbuster potential. Consensus models include peak sales of Ziihera of greater than $2 billion. Based on this outlook, we expect the transaction to deliver attractive returns with an unlevered IRR in the low double digits. Moving to daraxonrasib on Slide 16, Revolution Medicines recently reported unprecedented results from the RASolute Phase III trial in second-line pancreatic cancer. On our last earnings call, I said that daraxonrasib has the potential to revolutionize this devastating disease, and these Phase III results certainly support this. The key headline is that daraxonrasib nearly doubled overall survival from just under seven months with chemotherapy to over 13 months. These are truly remarkable outcomes for patients in a disease that has seen no true innovation for decades. The next step for Revolution Medicines is to submit for approval by global regulatory agencies, including the FDA under the Commissioner's National Priority Review designation that has the potential to speed the time to approval. In terms of the implications for Royalty Pharma, as a reminder, we agreed in 2025 to provide up to $2 billion in long-term funding to Revolution Medicines to help the company aggressively pursue clinical development and commercialization of daraxonrasib. With the positive data, Royalty Pharma has now invested a total of $500 million for a synthetic royalty that begins at 4.55% on sales up to $2 billion and then tiers down from there. Based on consensus peak annual sales of greater than $10 billion, we expect peak potential annual royalties to be in the range of approximately $180 million based on the currently funded amount and up to $340 million if they draw the additional $750 million of synthetic royalty funding. We are excited to see what the future holds for this incredible medicine backed by a phenomenal team. Next, I'll turn to our development-stage pipeline and upcoming events. We're exceptionally well positioned for our next wave of value creation with a deep and innovative pipeline. Slide 17 shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory approvals already in 2026. Just yesterday, we were thrilled to see the positive top-line results for Myqorzo in its pivotal trial in non-obstructive hypertrophic cardiomyopathy. Other highlights include positive clinical trial results for Zenas' obexelimab in IgG4-related disease, positive Phase II results for Biogen's litifilimab in cutaneous lupus, FDA approval of Denali's Avlayah in Hunter syndrome and the filing of Nuvalent's neladalkib in ALK-positive non-small cell lung cancer. As you can see, there are plenty more events anticipated this year, and we expect these to lead to several new royalty-generating launches in 2026 and 2027. To highlight positive news on one of our pipeline products, last week, Teva announced the acquisition of Emalex for up to $900 million with regulatory submission planned for Emalex's ecopipam for Tourette's in the second half of the year. As a reminder, Royalty Pharma is entitled to royalties of 6% on ecopipam sales up to $400 million and 10% on sales of $400 million or greater. We are excited to see ecopipam in the hands of Teva, a marketer with deep commercial expertise in neuroscience. Expanding on this theme, Slide 18 shows that there is much more to come from our development-stage pipeline with multiple major pivotal readouts expected over 2026 and 2027. Over the remainder of 2026, we'll see the results of the outcomes trial for Novartis' pelacarsen. We continue to believe that the Lp(a) class can be the next major class of drugs in cardiovascular disease, and we're perfectly positioned with the two lead pipeline products in pelacarsen and Amgen's olpasiran. We'll also see Phase III data for litifilimab in systemic lupus. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis and from J&J's seltorexant in major depressive disorder. We also expect Phase III results from daraxonrasib in non-small cell lung cancer and litifilimab in cutaneous lupus. Each of these potentially transformative therapies would add significant royalties to our top line. To close, we see tremendous potential for our pipeline to unlock substantial value in the near term. With that, I'd like to hand it over to Terry.

Terry Coyne, EVP, Chief Financial Officer

Thanks, Marshall. Let's move to Slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 13% in the first quarter, reflecting the strength of our diversified portfolio. Portfolio receipts, our top line, grew 10% in the quarter, which was strong performance considering a sizable year-over-year decline in milestones and other contractual receipts. As we move down the column, operating and professional costs were 3.9% of portfolio receipts in the first quarter. This is a clear reflection of the benefit of the cash savings we are delivering from the internalization transaction, which we completed last May. Net interest paid was $167 million in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $722 million for the quarter. Our net margin of around 78% again demonstrates the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $528 million mainly reflected upfront payments for the Ziihera and Avlayah transactions and a milestone payment related to Trelegy. Lastly, our weighted average share count declined by approximately 4% in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 21 provides more detail on the evolution of our top line in the first quarter. Royalty receipts, which we consider our recurring cash inflows, grew by 13%. Key drivers were the strong performances of Tremfya, Voranigo and Evrysdi. In the case of Evrysdi, on top of the underlying growth, we benefited from the additional royalties we acquired in December. I should also note that we were able to absorb a 3% headwind to royalty receipts due to the loss of exclusivity of Promacta and still delivered double-digit growth. Moving to portfolio receipts, these grew by 10%, reflecting the lower one-time milestones and other contractual receipts. Slide 22 updates our portfolio return metrics for the quarter. Return on invested capital was 14.1% for the last 12 months ending in the first quarter of 2026 and return on invested equity, which shows the impact of conservative leverage on our equity returns, was 19.7% for the last 12 months ending in the first quarter. As I've previously stated, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of March 2026, we had cash and equivalents of $586 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion and the weighted average duration is around 12 years. Importantly, Fitch recently upgraded our credit rating to BBB from BBB-. Our leverage now stands at 2.9x total debt to adjusted EBITDA or 2.7x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $4 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework, we deployed $528 million of capital on attractive royalty deals in the quarter. At the same time, we returned approximately $186 million to our shareholders, including share repurchases of $50 million and our growing dividend. On Slide 24, we are raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.325 billion to $3.45 billion, up from $3.275 billion to $3.425 billion previously. This assumes growth in royalty receipts of around 4% to 8%, which reflects the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar Tysabri in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. For modeling purposes, we would remind you that several of our largest royalties, such as the CF franchise, Trelegy, Evrysdi and others are upward-tiering royalties, which means they reset to a lower rate in the first quarter. As our royalty receipts lag reported sales by the marketers by one quarter, this has the effect of decreasing royalties sequentially in the second quarter. Given these dynamics, we are providing guidance for the second quarter portfolio receipts, which we expect to be between $740 million and $760 million. Turning to expenses, payments for operating and professional costs are still expected to be in the range of approximately 5.5% to 6.5% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. Interest paid is still expected to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in the third quarter with de minimis amounts payable in Q2 and Q4. This guidance does not take into account interest received on our cash balance, which was $6 million in the first quarter. To close, we have had a great start to the year. We have again raised our guidance, and we expect to deliver another full year of strong financial performance in 2026. Now before I hand it over to Pablo, I want to provide a brief update on the timing of the arbitration with Vertex. Based on the arbitration panel's final schedule, we now expect the dispute to be resolved by around the middle of 2027. With that, I would like to hand the call back to Pablo.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Thanks, Terry. To conclude, I am delighted with our strong start to 2026. We have again delivered strong growth and returns. We've continued to diversify our portfolio of attractive biopharma royalties, and we have strengthened our leadership team and capabilities. I want to close on Slide 26 with a reminder of why we believe we're well positioned to drive strong value creation. First, we're the clear leader in the rapidly expanding biopharma royalty market with strong fundamental tailwinds, reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies, and we expect to remain the undisputed leader. I am confident that the expansion of our global platform and capabilities that I talked about today will further strengthen our position at the forefront of our industry. Third, we expect to deliver strong low-volatility top- and bottom-line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20% plus range. With that, we will be happy to take your questions.

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

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

Operator, Operator

The first question comes from Christopher Schott with JPMorgan.

Hardik Parikh, Analyst

This is Hardik Parikh in for Chris Schott. I think you set a portfolio receipt target for 2030 of approaching $5 billion. I was just wondering now with these recent updates you've had in your development pipeline, can you talk about how much of that 2030 target is de-risked? And how much do you think it comes from investments that are already commercial?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Terry, that's a question for you, if you can please take it.

Terry Coyne, EVP, Chief Financial Officer

Yes. So Hardik, we feel like we're really on track to meet or exceed that target. The portfolio is doing really well. We've had a lot of positive developments. We've executed some great deals. So we haven't gotten into specifics on that at this point but feel like we're very much on track and feel very confident in meeting or exceeding that long-term guidance.

Operator, Operator

And the next question is going to come from Mike Nedelcovych with TD Cowen.

Michael Nedelcovych, Analyst

I have three, if you allow me. My first is on the arbitration update you just provided. Can you provide any insight into the reason for the pushout? Then my second question is on Myqorzo. How much of an advantage do you think approval in the non-obstructive HCM setting could be relative to Camzyos? And did you assume success of the ACACIA trial in your internal valuation? And then my third question is on frexalimab. The multiple sclerosis category is evolving somewhat rapidly, especially with the prospect of oral BTK inhibitors gaining approval. Has anything changed relative to your initial assumptions around frexalimab's competitive positioning, assuming it succeeds in the clinic?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Thanks for the question, Mike. Terry, you can take the question on arbitration and then Marshall will take the questions on Myqorzo and frexalimab.

Terry Coyne, EVP, Chief Financial Officer

Sure. So on the timing of the arbitration, it's simply based on the availability of the arbitration panel.

Marshall Urist, EVP, Head of Research and Investments

So on your other two questions. Thanks for the question on Myqorzo. There were multiple parts to it, but just to give you our thoughts, we were really excited to see the data yesterday. I think it's clear evidence of the strength of the team in a well-designed trial and a really good medicine in aficamten. To answer your first sub-question, did we assume that in our base thesis when we made the investment? The answer is no. The base investment was really premised on the obstructive, or the currently approved indication, and its potential there. I think the early evidence that we saw from the early launch with Cytokinetics is encouraging, and we're really excited to see where that goes. Adding non-obstructive to the label can only be helpful. It gives a broader label and provides another patient population for doctors to use the medicine in. Overall, it will certainly be helpful in the launch and is upside to our original estimates when we made that partnership with Cytokinetics. Your third question was on frexalimab and the multiple sclerosis market in general. No material change. I think if you go back to our view at the time of that investment, despite some of the changes that are going on with oral medicines, what really excited us and what we saw as an unmet need continues to be novel mechanisms that aren't solely focused on B cells. That opportunity in the market still exists, and we're really excited about frexalimab and seeing those data next year.

Operator, Operator

And the next question comes from Geoff Meacham with Citi.

Geoffrey Meacham, Analyst

I just had a couple. First, maybe for Terry. You guys had a higher level of capital deployment this quarter. Looking forward, are you at the upper end of the range leverage-wise? Or is there a capacity constraint or just status quo? And then second, maybe for Marshall. In deals like RevMed or Servier, where the royalties could really ramp quickly based on the strong launch, are there considerations on some of these types of products where you could add additional royalty investments depending on the pace of the launch? I don't know if that's been under consideration before, but that seems like you'd want to add capital to drugs that are launching pretty quickly.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Terry and Marshall, do you want to go ahead?

Terry Coyne, EVP, Chief Financial Officer

Yes. So Geoff, on your leverage question, we actually have quite low leverage right now at 2.9x total debt to adjusted EBITDA. We have a lot of financial flexibility. If deal flow increases, we feel like we absolutely will be prepared to invest if the right opportunities come along. I think we laid out in our slides that we have $4 billion of financial capacity, and that grows every quarter. So we feel like the balance sheet has never been stronger. We're in a really great position.

Marshall Urist, EVP, Head of Research and Investments

Geoff, on your other question about launching products and opportunities to deploy additional capital: nothing specific with respect to the ramp at this time, but I would say the Voranigo launch, as you pointed out, has gone incredibly well, and we're excited to have that as part of the portfolio. As a reminder, there is a sharing component to that one. We do share a portion of the royalty above $1 billion back to Agios. Regarding Revolution Medicines, we are really excited about those data and agree with you that the unmet need is so great that this could be a very rapid launch. As a reminder, for the RevMed deal, we've done $500 million of the $1.25 billion of synthetic royalty. There are additional opportunities that will come at FDA approval, which we expect to see this year, and then with a certain sales milestone, and then there's a label expansion later on. So there are other opportunities. However, the future tranches are all at the option of Revolution Medicines. That was one of the attractive parts of our partnership with them: it gave our partner lots of flexibility in terms of access to capital going forward. So there certainly is potential, and we will see what happens in the months and years to come.

Operator, Operator

And our next question is going to come from Jason Gerberry with Bank of America.

Jason Gerberry, Analyst

First is the policy question. I'm curious how you guys are thinking about forecasting underwriting value for OUS launches around MFN risk, given that we haven't really seen how pharma companies' launch behaviors and pricing strategies are mirroring in those select OUS markets. In the absence of that concrete information, how do you navigate that risk? And then on the R&D co-funding deals flagged in the slides, the two recent deals, can you help us understand do the IRR expectations meaningfully differ at all for the co-funding structure versus a traditional royalty acquisition? And do those two deals have royalty payment capping mechanisms embedded in them?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Sure, Jason. Marshall, I think both questions are for you, the one on ex-U.S. launches and also on co-funding.

Marshall Urist, EVP, Head of Research and Investments

Thanks, Jason. On your first policy question on MFN, it's certainly something that we, like the rest of the industry, are thinking through. There isn't a lot of precedent, so we've taken the approach that we always have, which is to think through a lot of different scenarios and make sure that given the wide range of possibilities in the future we're still comfortable with the investment. So it's something we are taking into account and we make sure that we structure and protect us and our shareholders appropriately when we think about all the ways this could play out. It's still very new, so I think we're in the same boat with everyone else. On R&D co-funding and IRR expectations, as Chris outlined, our return expectations for products that are not approved are greater than the low double digits. We see returns for co-funding that are consistent with what we've communicated publicly in terms of return expectations. That's one of the reasons we're excited about that opportunity. In terms of capping or other structural features, we haven't disclosed all structural features for the specific deals, so it's hard to comment generally. Our philosophy when we structure these transactions is we are investing in a Phase III program and we want every opportunity to explore and benefit from the full potential of these products as indications, geographies and markets expand. Our discipline in terms of structuring is consistent with how we've operated historically to ensure appropriate risk-adjusted returns for our shareholders.

Operator, Operator

And the next question will come from Ash Verma with UBS.

Di Zhao, Analyst

This is Di, asking a question on behalf of Ash. Congrats on the quarter. I have two questions. First, can you update us on your view on potential royalty stream from Myqorzo? With the positive result now in non-obstructive HCM, do you believe there's a halo effect on the ongoing launch in the obstructive side? And then second, what are your thoughts on the consolidation among the smaller royalty players like Ligand and XOMA Royalty recently? Does this scale up increase competition for you in the smaller royalty transaction space?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Sure. On competition, we follow it all the time and it's not news to us. That consolidation might even reduce competition when two players consolidate into one entity. We have significant advantages versus smaller companies in the royalty space, including scale, a very efficient tax structure and access to capital at a lower cost. So it's not a big change in competition. As we've said many times, competition is a good thing; it expands the market and gives our potential partners more alternatives. I'll turn it back to Marshall for the question on Myqorzo.

Marshall Urist, EVP, Head of Research and Investments

On Myqorzo, yes, we believe the positive data provide an advantage in the marketplace. Having a broader label and experience in a broader patient population can only help the medicine as Cytokinetics launches it. We're excited about the way Cytokinetics is executing in the current indication of obstructive disease, and the broader label and non-obstructive data are a tailwind to that launch.

Operator, Operator

And the next question will come from Nick Jennings with Goldman Sachs.

Nick Jennings, Analyst

It's Nick on for Asad and the Goldman team. Two questions. First, Chris, congratulations on the new focus with global biopharma R&D co-funding. Should we expect the complexion of the overall portfolio to shift over time as more of these partnerships are done with global biopharma companies? Second, how is the China market progressing? Any update on what types of assets you're looking at there and when we might see the first deal?

Christopher Hite, Chairman, Partnering & Investments

Thanks. On the first question around R&D co-funding: we have been investing in development-stage products since 2012, and this is really an expansion of opportunity. If you look at our capital at work, roughly 85% of our capital at work is in approved products today and roughly 10% is in development stage, with a small portion already having positive pivotal results. This is a huge opportunity because companies need a lot of money to fund R&D, and it could lead to a greater percentage of capital at work in development-stage products, but we will be very disciplined. On China, we did the BeOne transaction last year for Imdelltra, which was roughly $900 million, and that has attracted attention. We hired Ken Sun, who starts next week and was the former Head of Asia at Morgan Stanley. He will catalyze our effort. We have been in China and are monitoring out-licensing to Western multinationals. The BeOne transaction evidences the monetization opportunity for companies in China, so we're excited and are tracking opportunities aggressively.

Operator, Operator

And our next question is going to come from Terence Flynn with Morgan Stanley.

Terence Flynn, Analyst

Two for me. First for Marshall, could you provide your perspective on the J&J DUET data and what this might mean for the Tremfya tail given the co-formulation approach there? Second, on the use of AI, many investors view the company as a beneficiary. Are you able to provide any case studies of how you're implementing AI across your enterprise, in terms of processes and what that means for number of deals or efficiencies that you can comment on?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Sure. I'll take the question on AI and then Marshall can take the one on J&J DUET. Data is extremely important for our business and for the ecosystem. Royalty Pharma has been making significant investments in data for many years. We presented at our Investor Day what we mean by investing in data: we have about 200 million people's claims data for 200 million Americans and we have relationships with data providers that supply continuous feeds. We also have electronic medical records for 44 million Americans with about nine years of longitudinal data. We use these data internally to make better investments and to forecast, and we also share insights with partners to add value. That sharing can lead to better terms on transactions. For example, with Voranigo, when we made that investment we realized there were about 1,500 patients diagnosed each year in a particular form of cancer, but about 15,000 patients warehoused and not treated because prior options were unattractive. Voranigo allowed treatment of this warehoused population and led to a stronger launch than many expected. We recently hired Lucas Glass as Head of AI for Royalty Pharma. He will develop and implement AI capabilities across our business, including automating diligence processes and strengthening our evaluation and investment processes and support to partners. Lucas comes from IQVIA where he was Head of AI, and we're very excited about where we can take the business with him and the team.

Marshall Urist, EVP, Head of Research and Investments

Terence, on the J&J DUET program: this is a great example of the kind of opportunities Chris was referring to. We get to participate at scale in a first-in-class biologic combination market backed by one of the premier marketers. The biologic combination opportunity is exciting and 4804 is the first of those. The data we saw were in a heavily pretreated, refractory patient population, which, based on claims data, is a growing part of the market. By the time 4804 makes it to market, it's a substantial opportunity and we think there will be other biologic combinations that expand the market. Regarding Tremfya, a reminder that our royalty there is based on a separate set of IP we acquired from MorphoSys, and that IP will expire in the early 2030s—2031 to 2032 timeframe. Given the timelines for 4804, it probably won't have a significant benefit to the Tremfya royalty, though we've created a new royalty on that product through the 4804 program and we'll continue to participate in it.

Operator, Operator

And the next question will come from Umer Raffat with Evercore.

Umer Raffat, Analyst

There's been discussion today on the effort Chris has been leading on the R&D funding side. Pablo, how are you thinking about the split going forward for capital deployment between R&D co-funding versus traditional royalty investments? To what extent is that driven by a heavier emphasis on doing larger checks? Also, my understanding from feedback is that big pharmas in these conversations are talking high single-digit IRRs. Could you speak to your experience working on the J&J-4804 deal and the type of IRR you achieved there?

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Thanks, Umer. We approach capital allocation with flexibility because our business has capacity to invest significant amounts. At our Investor Day, we showed we have capability from now until 2030 of investing roughly $30 billion, of which $12 billion is along the lines of the $2 billion to $2.5 billion per year guidance. When you add share repurchases and dividends, this can grow. There's additional capacity that we may utilize if opportunities are attractive. Ultimately, the product drives our excitement. Whether it's acquiring an existing royalty or creating one through funding a clinical trial, the product matters most. Two items that were not heavily included in our prior plans were China and large pharma co-funding. China was not a major driver in our prior guidance but is now a real market. Similarly, deals with big pharma were conservative in our prior planning, but they now represent a growing opportunity, and we're excited about it. We have been proactive on accounting treatment to ensure these transactions can be treated as contra R&D, and we've hired accounting expertise to help ensure proper accounting. That has helped open the market for these structures.

Operator, Operator

Thank you. There are no further questions in the queue. I will now turn the call back over to Pablo for closing remarks.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board

Thank you, operator, and thanks to everyone on the call. I'll just remind you that if there's any further questions or discussions you want to have, you should reach out to George Grofik and Dana, our IR team, and then we can get involved if it's appropriate. Thank you, everyone.

Operator, Operator

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