All right.

Let's get right into it, to our next session. Very excited to have Chris Heidt, Chairman of Royalty Pharma, with us here today. Chris, maybe just to tee you up, start with 10,000 feet for those new to the story. Give us a brief history on the evolution of the company, its core pillars, what the fundamental thesis is on why investors should be looking at Royalty Pharma today.

Well, first of all, thank you very much for having us here. We're really delighted to be here at the Goldman Conference and great investor meetings today, and so thank you very much. So Royalty Pharma was founded about 30 years ago. We're celebrating our 30th anniversary by our current CEO and chairman, Pablo Legareta. The basic premise back then was, you know, there's fragmented innovation across the sector. and that innovation can occur at universities and hospitals and foundations in addition to biotech and pharma companies and every time that was occurring, ultimately the foundational research would get licensed out to pharma and a royalty was created and Pablo was very savvy about approaching these universities and hospitals about acquiring those royalty streams and that allowed the university or the hospital that had those royalty streams to take the upfront capital, redeploy that, and he would take the risk on the commercial side of those assets. That was the founding of the company 30 years ago. We still do that today. That's a piece of our business. We still acquire existing royalty streams wherever they may be, and they are still at universities and hospitals and biotech companies and pharma companies. So that is still part of our business. But the business has really grown in so many ways. We went public in 2020, and today have just over $30 billion equity value. We're an investment-grade rated company. And this year we're guiding to revenue about $3.4 billion. dollars, really attractive EBITDA margins, and what we do now is we still buy those existing royalty streams, but we also help companies through what we call synthetic royalty streams, which is we create a contractual royalty. In exchange, we provide capital, and that could be to help them co-fund R&D, and it could be to help them launch a drug. Whatever the capital is needed for, we create contractually that royalty stream. So we call that synthetic royalties, and that's a big piece of our business today. The business has really also grown because of R&D funding around pharmaceutical companies. This year alone, we've done a half-a-billion-dollar R&D deal with Teva to fund their vitiligo program, and we've also done a half-a-billion-dollar co-funding R&D deal with J&J. And so the business has grown dramatically. The royalty market has grown dramatically. and we really see this as, you know, just a dramatic growth opportunity and I think that's why people really focused on the TAM is large. We're just really sort of coming into the market today and it's a really exciting time to be in the area.

And I want to unpack a lot of that, but before we do that, and thank you for that great overview, I think people will find it very helpful just sort of as a stage setter. Talk a little bit about the external environment, maybe to start at a high level. You know, you guys are exposed to the external macro environment to some extent that's been impacting biopharma. I mean, how are you finding it this year, and how is that influencing your operations?

Yeah, so I would say, you know, we typically, when we are doing a synthetic royalty, that is with a company that is, you know, we're investing post-proof-of-concept. You know, if we're funding R&D, it's really around a pivotal study. Companies like Revolution Medicine that we did a big deal last year with, a $2 billion deal, those companies typically can raise capital in any capital markets environment. You know, we're really sort of doing late-stage biotech development there. So we actually find it, whether the markets are really hot and everybody can finance or not so good and only really the best companies can finance, we're typically really only working with those best companies that are later-stage development that can fund in any environment. So regardless of capital markets, we really have found it really a steady stream of opportunities. What has really emerged, you know, I'd say in the last couple of years, is the large pharmaceutical companies' interest in our co-funding their late-stage R&D pipeline. And they really find a lot of benefit in that. And, of course, you know, they have lots of capital. They have low cost of capital. But what it allows it to do is risk share with a passive party, So we don't need a JDC. We don't need a JSC. We don't need half of the U.S. commercial rights. You know, we're a passive financial investor that allows them to expand their P&L capacity to do more R&D with us. And that's where we've really found really a it's an onslaught of opportunity really in the last couple of years. That's a new sort of growth opportunity for us.

So let's maybe, you know, talk a little bit about, you know, the deal sourcing environment, broadly speaking, for existing royalties and biotech as synthetic royalties and then this large form of R&D partnering that you're alluding to. I guess at a high level, you know, for each of those three components, if you could talk to the current dynamics and what we should be aware of in each of those categories.

So the existing royalty streams opportunities are, you know, that's where the company was founded, as I mentioned. And the fragmentation of the R&D has only accelerated in the sector, generally speaking. So, you know, a lot of biotech companies do a lot of the early innovation. They partner with pharma at some point along the way. That could create the royalty then. You know, universities, still a lot of foundational research happening there. They create royalties. That market has been steady for the last 30 years. It's steadily growing. At our annual stay in 2022, we showed some data around the number of FDA approvals, how many of those had sort of been, you know, what was sort of the ratio of the partners around those newly approved drugs. That has been steadily growing over the last several years. So that existing royalty stream marketplace is there. It's always going to be there because, you know, where the basic foundational research is occurring, those aren't typically the people who are selling the drug 10 or 20 years later. rate. It's large pharma. As an example, last year we did existing royalty streams with a drug marketed by Amgen called M-Deltra. We bought that from B1 for just around $900 million. Super exciting drug just recently launched by Amgen. That's a really fast-growing drug. Another existing royalty stream was in the news today, Nuvalent. We bought a small royalty on their existing programs. GSK acquired that company today. So those existing royalties are out there. Those are good examples. On the synthetic royalty side, that's really where we've seen an explosion in growth. I was an investment banker for 25 years, not at Golden, but I'd say I joined Royalty Pharma in early 2020. When I was a banker, you didn't really hear about synthetic royalties. You went to a client, you met the CFO and the CEO and, you know, biotech company that needed to raise capital and you brought your capital markets team and you talked about doing a follow-on equity offering or a convertible bond offering. They needed capital. That's what they thought about and that's what they did. We've really come along from the synthetic side. You know, we have a chart in our analyst day deck from last year. I think the last five years in 2025 was about $290 billion of capital raised by unprofitable biotechs. That's across IPOs, follow-ons, debt, partnering. Around 5% of that $290 billion was synthetic royalties over the last five years. It's around a $15 billion opportunity just in the last five years. The prior five years before that, really very, very small. And so what has happened really in the last, I'd say, five years, six years, since us going public is a lot of our investors understand the benefit to a biotech company of doing a synthetic royalty. Why? Much lower cost of capital. When a company, a biotech company, sells its equity, at that stage of development, you know, pre-launch, stock to grow 10%, right? They're expecting their stock to double, triple, quadruple. And if you think about selling equity at that point in time in your life cycle, that's expensive cost of capital. We've educated the marketplace on that. Our investors, who are investors in biotech companies, have educated the market on that. Deloitte did a great survey last year around, you know, the sector, and it is really now commonplace for CFOs, boards of biotechnology companies to understand the benefit of synthetic royalties. And so, you know, when bankers go out and talk to clients today, they're talking equity, they're talking converts, and they're talking synthetic royalties. And synthetic royalties really have been a commonplace now for a part of the capital structure. We're not going to replace follow-on offerings. We're not going to replace convertible bond offerings. But for companies at the rate stage of development that have attractive, de-risked assets, we can play in that environment where we can give them capital to help them grow, and it's going to be a lot cheaper than selling equity. So that market is really exploding, increasing our opportunity set. And then the last piece is the pharma R&D.

So talk a little bit more on the pharma R&D. I mean, how does the complexity compare versus synthetic royalties with smaller biotechs, and how do you view the risk payoff profile comparatively versus your, you know, other investment alternatives?

You know, pharma, you know, the nice thing about working with pharma is, you know, sometimes, you know, One of our criteria is who's the marketer, right? Pharma is a great marketer. And so when we're looking at partnering with a company like J&J, we're not necessarily worried about can they launch this drug, can they launch it globally. That's a box checked. They're also, I think, probably more realistic around the sales curves and the launch curves than a biotechnology company. They're not as overly aggressive in their view, right? They're probably just have better modeling skills or not as aggressive, you know, just more experience in doing those things. So we actually have really enjoyed, like I said, this is a relatively new development with large pharma. You know, we've done deals with Merck, J&J, Teva, Biogen, Pfizer, Sanofi, where they have done R&D funding with us, where they're risk sharing. They're doing it in a way where they can get contra-R&D accounting, which allows them to expand their R&D P&L. And we're passive. So it's a really attractive business proposition for them. And so we like that. We like a lot of those aspects. The key for us is doing good deals. We want to really fund things that they're excited about, that are at the highest priority levels for them. that they're focused on with their investors. And so that's where that lands. Contrasting that with biotech, one of the things that we always have to assume is that the party we're partnering with on the biotech side, that we're comfortable with their capability to launch. We don't assume any acquisition ever takes place. If we're partnering with a biotech company, we're assuming that that's the team that's going to launch the drug. We never bet that this company is going to get acquired, despite a new valent getting acquired, as an example, or Immunomedics got acquired, as an example, or Biohaven. Those were all biotechnology companies that we did deal with. Great track record. But that is sometimes the constraint we face is, can they launch this? Can they achieve this? Do they have the capability and the resource capability to launch a drug? It's a lot of hard work.

Let's maybe talk about market growth. in your September Investor Day deck, you talked about how you noted how synthetic royalties were 3% of biopharma funding the pie through 2024. In the current corporate deck, I think it shows 5% through 2025. What does that translate to, Chris, dollar-wise? For Wall Street investors on a yearly basis, what does that translate to? How much do you think that grows over the next 5 to 10 years?

So All I can say is that it's a transformation of the acceptance of that as a funding model. That 5% in that pie chart is 5% of any way they've raised capital, and that's that 5% of the $290 billion raised by the sector over the last five years translates to about $15 billion in synthetic royalties. That's versus IPOs, follow-ons, debt, partnering. And where that goes, you know, hard to put an exact number on it, but it's going to go up. Because, once again, you know, I think the market has been educated that the most expensive cost of capital you can do at a phase three stage biotech company is selling equity. Now, maybe that's your only choice, and you've got to sell equity to raise the capital. We get that. Everybody in this room gets that. but if you have the ability to at least lower the amount of equity you need to raise by doing a synthetic royalty you know the math just proves out it's through your best cost of capital you can raise and so that has taken hold um and i think it's gonna i mean it grew from that three percent slice i think in our 2022 deck to five percent in a couple years i think it's going to grow pretty dramatically, and I think even banks like Goldman and your competition, everybody has a team now that's talking synthetic royalties when they go and meet CFOs and CEOs and they're talking about capital formation. So we think it's a great product for the sector, and we look forward to the growth there.

Another place where everybody has a team is China. So let's talk about the China opportunity, Chris. I mean, you've called out China as a large market opportunity. I think you put a team in place now on the ground. You've hired someone. You know, how have those dynamics evolved? What stage of development on a global basis would you prefer to transact in that region? And maybe also talk to us about whether there's any kind of political policy considerations that we should be thinking about in the architecture of those deals?

So China is a new growth opportunity for us, for sure. We hired recently Ken Sun. He started last month. He ran healthcare banking in Asia for Morgan Stanley. And we're super excited to get him on board. As everyone's very well aware, there's been really a large amount of out-licensing of compounds to Western multinationals. Almost every day you wake up and there's another large deal with Bristol or GSK or Merck or whomever. I mean, everyone. So, you know, we have a great chart in our deck that really shows, you know, even five, six, seven years ago there was virtually zero out licensing by the Hungry's, the Hensos of the world to Western multinationals, and now it's exploding. um that opportunity for us is it exists today because those compounds are at western multinationals the big pharmas of the world and we're tracking their development and and those development deals are at every stage right pre-ind to clinical development stage as i mentioned our bread and butter is, you know, either post-proof-of-concept, so phase three in the registration, and approved drugs. I mean, we don't go earlier than proof-of-concept. So we're tracking all of those out-licensing deals to the large pharmaceutical companies, monitoring their development programs, and, you know, building those relationships with those out-licensers in China. So all of those companies that everyone's familiar with, can Sun on the ground in China, you know, has existing relationships with those companies, will continue to develop and build those relationships and facilitate those partnering opportunities for us where we can acquire those royalty streams from those China. That's the opportunity in front of us. We did a large deal last year, I mentioned it, on Amgen's drug called Indeltra, partnered with B1, which obviously is now a Swiss Cayman company, but a lot of people do associate B1 as a historically Chinese company. Exactly. And I think that opened a lot of eyes in China of those companies that have been doing a lot of the out-licensing. When you see us pay $800 million up front and potential near-term milestones, that's a lot of capital that they need. And that caught a lot of people's attention. and that's a great sort of building block for us to build those relationships to hopefully get those royalties, you know, when they're appropriate for us to want to buy them.

I have another big picture question, Chris. You know, you guys really sort of started this business, trailblazed it. As you've done, like, talk to us a little bit about the competitive environment and how has the competition, how has the competitive landscape evolved? It seems like a number of other large funds have woken up to this opportunity that you guys were early sort of pioneers in. How do you still win in an increasingly competitive environment coming from a few different angles now?

Well, you know, I'd say it hasn't been a surprise when you see the royalty market grow the way it has grown. And last year, I think it topped combined of existing royalty sales and synthetics, you know, $10 billion marketplace. When you think of the R&D spend required by, I think, large pharma's R&D spend is going to be about $2 trillion over the next 10 years. Unprofitable biotech, about a trillion. That's a large TAM. So you wouldn't be surprised when you see private equity firms and other folks want to get involved in this really large market opportunity. You know, we actually welcome additional players into the sector because when you see, you know, smart investors, and they're smart investors, as another voice out there in the marketplace to educate, you know, the biotech and pharmaceutical companies about the advantages of working with financial players to help fund their pipelines, help fund and raise capital for them at attractive cost of capital, it really, I think, helps develop the market. And so we think the market is growing so rapidly and the TAM is so large The competition's not the concern. I think that additional voices out there help percolate and grow the market. Yeah, and to us, it's really about good deals. We really have to focus on doing good deals, staying very disciplined, structuring win-win deals with our partners is really important to us. We have a lot of repeat business with existing partners, because it's not winner-take-all. We want to work with people where it's a win-win. We structure deals appropriately. So to me, it's really about making the right deal.

How many deals does the team see a year?

Last year, so we have a, for those out there, we have a funnel slide somewhere in the stack. I wanted to give you the opportunity to talk about it. But last year, we looked at 480 opportunities. which has basically almost doubled in the last five years. It just shows you the growth of just the acceptance of this funding source. And this year, I don't know where we are right now, but it's an incredible opportunity set. But it's really staying disciplined. That's the key. You know, I think we do a really good job also. So a lot of people have come and approached us, you know, they want us to work with them, and their data's not quite yet there, right? So you might see people say, well, gee, you know, you sign, you know, 150 CDAs or something and deep dive diligence and a lot of things. Some of that is things that are just a little early, but we develop those relationships with those companies, and so they understand then at a certain point in time when they have proof of concept data and we can really characterize and underwrite the risk of the phase-free study, they understand how we work, and they come back to us. So a lot of our early work might be early, but we enjoy getting to know one another, and then a year or two later, it's surprising how often it happens, but there's a comfort level with both sides, and that's another way that funnel works.

I want to dig into some of the specific deals, Chris, but before we do that, maybe I just want to take a pause and see if there's any questions from the audience. There's three that I want to touch on. One, RevMed. RevMed, rather. Impressive data, obviously, big focus, plenary at ASCO and all of that, right, getting a lot of attention, a lot of press. Your potential peak royalties are $180 million to $340 million. and first just unpack what it would take to reach those numbers as you thought about it.

Okay. So that range is something we've put out there. For those that don't know, Revolution Medicine, we did a deal last year, and it was a $2 billion headline. The data was amazing. I'm just thrilled. And the team there is an amazing team, Mark and Peg and everyone. It's just incredible effort that they did, so hats off to them, incredible partner. The transaction, just for people's reference, $1.25 billion of the $2 billion was a synthetic royalty, and $750 million of the $2 billion is a term loan. So focusing on the $1.25 billion, at close, we funded $250 million. So last year at closing, they got $250 million. The next tranche, which we've also closed on, was on the data recently. And so they have now funded $500 of the $1.25 billion synthetic. So there's now a royalty, and it's a tearing down royalty on that $500 million that is in existence. That results in that lower end of that range. So if they didn't draw any other tranches of the $1.25 billion, we would hit that number given the consensus that is out there for the product. I think the consensus is around, I mean, people can look it up. I think it's $11 billion, but I think our royalty above $8 billion is zero. So it doesn't really matter whether it's $9 or $10 or $11 or wherever it goes to. So that's that lower bound. The upper bound of the range you mentioned is if they drew the other three tranches. So if they drew the other $750 million available to them on the synthetic side, That gets the higher royalty rate in that med range. So $750 million, that's mandatory on approval. The other $500 is at their option. So it's a great example of win-win. I mean, they are really smart people. I think that was a great negotiation where both sides ended up with a very happy deal. You know, for them, at a time where their market cap was, you know, somewhere around $7 or $8 billion, I can't exactly remember, you know, they did an incredible financing. If you take a step back and think about where their stock is today, and you talk about cost of capital and equity financings, think if they raised that money back then where their market cap was, and their stock's gone up, I don't know, four or five-fold. That's expensive cost of capital. Instead, they did this royalty deal with us, and that's a really smart deal by Mark and Peg and Jack. And so that's a great example of synthetic royalties and why they're so attractive. And for them, they don't have to draw the rest of the $750. They could not draw it, but maybe they decide to draw it because maybe they view that as still really attractive cost of capital. The great way about that deal is with each successive tranche, that asset is more and more de-risked. So at close, it was pre-data. The second tranche was data. The third tranche is approval. So each tranche, that asset becomes more and more de-risked. And so the cost of capital for each tranche is lower for them. So they really designed a really smart deal. plus they have access to the term loan. So it's a $2 billion funding arrangement at a time where it really saved them on the equity front.

And if they were to get acquired, does the structure of the deal change at all?

No, the two tranches that have been drawn, that's it, they're drawn. There would be a small, on the term loan, if it happens before a term loan was drawn, it would be a small little, you know, tiny, tiny little incremental fee. But that's it. So it is what it is.

What about LP little A? You know, we've all been eagerly awaiting the data. You're partnered with a couple of programs. Just maybe high-level views on the class, prospects for the trials, the opportunity set for World of Pharma. I know Marshall's not here, but it's just high-level.

So we did two deals in the LP little a class, one on Pell Carson, which is Novartis's, and one with Olpacarine. Ionis and Arrowhead were our two counterparties on those transactions with Amgen, yes, Olpacarine. So LP little a is a super exciting genetic biomarker and LDL or a form of cholesterol, and we're super excited to see the results of the trial. I think when we take a bigger step back and we think about our portfolio, we invest about 60% of our capital over a very long period of time, maybe 15 years, in approved products, and the rest is in unapproved. And a lot of those unapproved investments are post-Base-free pre-approval, so they're really de-risked. When you have a portfolio like that that's really grounded and risk-adjusted returns very strong, I think you can afford to take what we would all consider a clinical bet. Those two drugs clearly lower LP little A. They've shown really strong effects in lowering LP little A. um what's super exciting and unknown is whether that uh lowering of the lp little a will result in clinical outcomes that matter um and we're about to find out right i think with novartis so it's a great example of our ability to sort of look at our portfolio holistically where we've made a lot of really solid bets on approved assets or near approved assets and we're getting really strong risk-adjusted returns that allows us to take a little bit more of a clinical bet on something that could be a transformative class and a really large class with two world-class cardiovascular marketers of Amgen and Novartis. So we couldn't be more thrilled with the partners. And we're really hopeful Novartis has good news later this year.

And then, you know, I guess, instead of me asking on my third deal, why don't I hand it back to you? Why don't you tell me which – let's talk about another deal that you're excited about, last minute.

Yeah, I would say we're really excited about, you know, the most recent R&D deal we did with J&J. So half a billion – that's the combination where they're combining their T&F and – Oh, yeah, okay, that's good. All right, that's good. So, you know, we are currently partnering with J&J on Trimphia. So they're combining Trimphia with their TNF.

Another phenomenal asset.

And running a phase three and refractory IBD and UC and Crohn's. Really exciting area. I actually saw that in your AVV presentation today. They were talking about refractory IBD indications. I mean, J&J is a world-class marketer in IBD, in INI, world-class partner, just a great experience with them, working with them on this historic R&D deal with them. So we're super excited about that, the prospects of that as well.

So are we, Chris. Well, I think that's a great place to stop right at time. Congratulations on all the progress. It feels like it's starting to get more recognized by investors, just judging by the stock price. So I hope the momentum keeps going, stock outperformance rather than the stock price. And thanks again for the discussion.

Thank you very much. Thank you.