Royalty Pharma plc (RPRX) May 13, 2026 Conference Transcript

Okay. All right, everybody. We're going to get going here with our next company presenter at the B of A Annual Healthcare Conference. My name is Jason Gerber. I cover biotech and pharma, and I am pleased to be introducing Royalty Pharma. We've got Terrence Coyne, EVP and CFO, and Marshall Urist is going to be joining us in a minute EVP, Head of Research and Investment. So, Terrence, thanks for joining us.

Thanks, Jason. Thanks for having us.

So maybe I'll kick things off. Just stay to the landscape in the royalty financing business, which you guys are in. And we are seeing some changes in the competitive landscape. And so I thought it would just be your overall view on market share, competitive moat, and a lot of the efficiencies that you provide for partners. How are you seeing those dynamics play out in the royalty financing market? Sure, I can start on that.

I'm sure we both have perspective on that. So I think, you know, the simple message is that we feel really, really confident about both our broader marketplace and our role in it and where we stand from a competitive point of view. I mean, you look at the transactions we've announced this year, right? We've done three really exciting transactions, you know, most recently a really, you know, exciting and I think innovative phase three financing deal. I'm sure we'll talk about that broader market with J&J. We bought a sort of traditional royalty from ZymeWorks on a jazz oncology product and then did another phase three financing deal with Teva. You know, when I think about our kind of competitive advantages and where we sit, you know, we've talked a lot about this, but, you know, simply I think Royalty Pharma has been built and, you know, we talked about this concept of optimized as our structure to, you know, be the biggest and strongest and most competitive buyer and originator of royalties on drugs in the world. And I think, you know, we feel like the wind is at our back. You know, our market continues to grow. You know, the demand for our type of financing is only increasing. And, you know, we highlighted on our last earnings call, you know, that there's been a kind of a whole new source of demand from large pharma companies in terms of helping us partner in funding R&D. And so, you know, from that perspective, I think our market is only expanding. we're excited about China as a new geography to originate royalties. And so, you know, we feel really good about where we are. And, you know, certainly any market that attractive is going to attract other competitors who want to be in it. But I'd say just two quick things on that, which is one, you know, competition in our case, I think has only served to expand the market, right? It's been no question. It's been a positive to have multiple people out there talking about royalties convincing sellers that this is a robust market um and you know second is we feel really good about our ability to compete right there's no no and no change on that front so that's kind of our take on where things stand today okay so we we cover all those companies that you just mentioned that you did deals with and they're not companies that i typically think of as resource constrained i get i typically a lot of the synthetic royalties that you do.

The SMICAP biotech companies you think of as more traditionally resource constrained. But when I think about those deals, those are assets with multi-indication potential. You know, we had a meeting with Teve yesterday and they framed the deal as like giving us speed, the ability to move faster, to go after more and risk share. So, you know, as pharma crowds into certain categories with these like multi-indicated drugs and they've got to interrogate assets and probably take on risk. Is that sort of the wind at your sails for these sort of larger pharma deals that are now opening up for you? You mentioned the Teva, the J&J type deals.

Yeah, no, I think that's part of it. Certainly that there's just sort of a, they need to do more quicker. And so you need to be able to pull in a lot of resources to do that. We know that companies have only so much that they can spend on R&D. And as their pipelines grow richer and richer and they need to accelerate more, they need to be thoughtful about where they're allocating resources. And that's where we can that's where we can come in and play a big role where we can, for a fairly low overall royalty, contribute a significant portion of the funding. And, you know, in a lot of cases, it's half or even even more than half of the total funding of a phase three trial. So there's there's a risk sharing component. There's a speed component. It also enhances the returns that they generate on those programs because they're spending less, but they're still keeping a lot of the vast majority of the economics, and it allows them to kind of expand their R&D capacity. So overall, we think that this is actually an area that could see a lot of growth. We announced, obviously, the J&J deal, Teva deal. Last year, we did a deal with Biogen. But we feel like we're still at just the sort of tip of the iceberg here. And prior to last year, it was a very small part of our overall business. And we've been deploying a lot of capital year in and year out without this. And so we're very excited about this because we think it could pretty dramatically expand our total addressable market.

Yeah. And you talked about a lot of different mechanisms, even involving China and innovation coming out of there. How would you frame, you know, the two or three biggest growth sources as you see in like the next three years for your, you know, where your deal flow could get allocated to at least?

Yeah, I can I can start on that one. So, you know, you you you mentioned a lot of them, right, which is, you know, look, I think fundamentally, our our core market is still growing, right? But, you know, the world of biopharma, even, you know, even if you exclude the large global players, you know, their need for capital is only increasing. We're obviously we're seeing a lot of M&A, yes, but we're also seeing a lot of companies that want to build and become, you know, and become, you know, the next vertex is like with, you know, with RevMed or like an InSmed recently of companies that are really scaling into the future. And so that's creating, you know, a lot of demand, a lot of demand for capital across the space. We talked about, you know, we talked about pharma R&D. And then, you know, I also think we, you know, we talked about China as well as like three kind of big pillars of that. But the other thing I think is important for Realty Pharma as a growth driver is we're coming into a period where a lot of the seeds that we've planted in our pipeline, our unapproved pipeline, are starting to read out. We've had some really good successes so far this year, but I think as we think growth for Realty Pharma, I think certainly that's another source of growth that's going to become more and more visible to the market and to our shareholders.

How do you need to scale the human resource side of the equation to keep up with this growth and all these deals that you're analyzing? I imagine it is growing a bit like a mushroom.

We are scaling. We've scaled a lot over the last five years. We've probably tripled our headcount since our IPO. But we're still going to grow. I think it's probably going to be a bit more surgical at this point. Marshall's team is going to continue to grow because the deal flow is growing and we need people, great people to analyze these things. We've been growing on the data side. We hired a new head of AI, which we're really excited about. And in a way, that's also going to enhance the ability of Marshall's team to do great research and identify great drugs and structure and diligence investments. And so it ultimately increases our probability of success and increases the returns on our invested capital. But overall, it's not going to be huge numbers. It took us a while that we're hovering around 100 people for the last almost two years. And we finally cracked 100, and I don't know if we'll go to 110 or 120, but it's not going to be dramatic. and it'll mostly be fairly junior people on the research team because we like to really develop people internally. We did have a really exciting hire, Greg Butts, who was actually, ironically, head of health care banking at Bank of America. But he's going to be a great addition to the team and work with Chris Height and Marshall, obviously, on sort of the relationship side. and, you know, bringing deal flow and, you know, helping us to, you know, drive the business.

Great, great. And so you did mention your unique tax status versus competition. Can you talk about how that's a competitive advantage to the operational structure?

So I don't know that tax is actually the key advantage. I think it's more the way that we're structured as kind of an ongoing business rather than tax. So I think that most of our competition is probably pretty tax efficient as well. But where we're unique is that we, because of our structure in that we're not set up like a fund, fund one, fund two, fund three, every asset contributes to the overall portfolio, and it lowers our cost of capital in a huge way. So that's, I think, where we see our structure as most differentiating, is that we are able to borrow in the investment-grade debt market where investment-grade rated, have been for a very long time, have access to significant capital, and it's pretty attractive cost of capital. And that, I think, drives down our overall cost of capital allows us to win more deals, but also allows us to generate really attractive equity returns to our shareholders.

Okay. And there's always going to be something to talk about on the policy front as it pertains to the landscape. And there's always going to be changing dynamics. McCary's out. There are IRA permutations that haven't been codified. Some people don't know they'll actually have teeth to them, the Globe and the Guard pilot programs outside of the large pharma that have struck deals with the Trump administration. I guess there's, I don't have the best clarity on how this is going to affect the biotech ecosystem that has not struck these deals. So maybe just a word on the policy front and what, as you have discussions with prospective partners, if any of this is coming into the discussion at all and how you kind of think about pricing things?

Yeah, no, it's a great question. And I think us, like everyone else, doesn't really have all the answers or many of the answers here. We are in a time where I think a lot of this is uncertain about where it's going to play out. Our approach to that, you know, has been several fold. I think number one is we do make sure that from kind of a policy and, you know, DC intelligence perspective, we have good, you know, we have good resources around the table to help us. But of course, in this environment, I think we all acknowledge that only takes you so far. You know, so we have been, you know, we have always taken a very kind of scenario-based approach to sort of ask ourselves based on a variety of outcomes that could happen with MFN, from a policy perspective, you know, to get comfortable that we can, you know, generate attractive returns for our shareholders across, you know, a range of outcomes. I'd say a couple things, competitive advantages we have in this space is, you know, number one, when we work directly with companies, you know, we are on the inside a lot of times. So, you know, we do have a lot of really good insight into what are the specifics of the regulatory process, you know, you reference the FDA. So we see a lot of the details that allow us to build kind of a good view of the likelihood of approval. More importantly, what's the label going to say? How broad is it? Et cetera. And so we certainly have, you know, we have that advantage in the way we invest. Then the other thing is, I think royalties have a natural advantage in that, you know, we are aligned with our partners, right? You know, they are aligned to that they are incentivized to maximize sales. And in turn, that, you know, is what we want to see to to maximize the value of the royalty. So, you know, we do live in times where a lot of these are our questions and, you know, we're certainly going into it eyes open. But, you know, certainly a certainly this is certainly something we think we can navigate.

Okay. Maybe you've got 2030 target for portfolio receipts. I think it implies 9% growth, CAGR off 2025. Consensus isn't there yet. Can you frame maybe the building blocks to getting there from your perspective? How much of that is going to come from the existing royalty base versus future deal flow?

Yeah. So what I can say is that at the time of our investor day in the fall, we said that around half of that, the growth was going to come from things that were already in the portfolio and half was going to come from new deals. A lot of time has passed since then. And we've done a lot since then. And so now, you know, a big chunk of it can already be sort of allocated or can already be accounted for by things that we've already done that are already in the portfolio. Obviously, we still need we still need to continue to invest in great new royalties, and we're going to try our best to do that. But overall, we feel really good about, about being on track there. Um, I think, you know, hopefully we can, we can do even better, but we feel really good about that, that target at this point.

Okay. And so you deployed about two and a half billion last year, um, thinking ahead to, you know, upcoming years. Uh, what do you think that, that, that you can push even higher, uh, to even closer to the 3 billion number?

So taking a step back, we are always going to maintain a really high bar to make investments. So putting targets out there is always tough because then you kind of like, we wouldn't want to make investments that we weren't excited about. So we're really confident that we'll continue to deliver that kind of two to two and a half billion dollars under a lot of scenarios, including scenarios where the market doesn't grow like we think it would. But I think in the end, what we described, that guidance is kind of more of a conservative modeling assumption. There's a lot of reasons to believe that it could be a lot higher, and that, you know, especially as we're adding these pharma R&D deals, as the synthetic royalties continue to grow as China starts to become a factor. So, but we're not, we're not planning and we're not, we're not raising our target. We're going to see what happens and kind of take it as it comes. If it, could it be, could it be three? Could it be four? But I think we're just going to be, you know, we're going to just make sure that we're investing in the right products and, you know, whatever, whatever happens from there, we think will benefit our shareholders.

And remind me, the leverage guardrails that you'd operate within if you found the right transaction?

Yeah. So we right now we're at 2.9 times total debt to EBITDA. And we've said that we can go up to around four, maybe a little bit more, maintain our rating, particularly as long as we have a clear path to the lever from there. So we have a lot of dry powder. At our investor day, we said that if we just do $2 to $2.5 billion and we continue to grow the dividend as we've committed to do, and we finish the rest of our share buyback program, we would allocate about $20 billion on those things. But we said we have capacity to do about $30 billion. And that's assuming that the portfolio doesn't outperform. And it's been performing really well. So we have an extra $10 billion of capacity to add new royalties over that period if the right things come along.

Yep. How would you address the question, you know, with more competition? Has that compressed, you know, deal terms, royalty rates, things like that? I imagine the answer is somewhat complicated, right? Because there's different types of deals that are in the mix now as well, different risk profiles tied to that. But any way that you could maybe quantify, you know, last one to two years versus, say, a historical benchmark, we don't see a lot of deals with, like, maybe a vertex-like royalty now. So I just wonder if that's more of a relic of maybe the past that's harder to get deal terms like that.

Yeah, the way it might help you help everyone think about that is, you know, just a simple sort of a simple observation, which is we've been public for five years, right? And we have maintained our return targets, the exact same return targets for both approved and unapproved royalties the whole time. And even sitting here today, I think we feel very confident about, you know, about our ability to continue to generate, you know, those kinds of really attractive returns for our shareholders. I think the thing the competition question overlooks sometimes, and we referenced this earlier, is the biggest effect of competition has been to make the pie bigger, to grow the market, right? Which is, this is such a big market. There is such need. There is, I think, plenty of opportunity for us to continue to be really successful and compete for the royalties that we want as part of our portfolio. portfolio delivering those with the returns that we've promised to our shareholders. So that's why we really feel like, you know, competition has been, you know, has been a real positive because it has just grown the market.

Okay. Maybe we'll shift to the development stage pipeline catalysts. You know, as we look ahead, the development stage portfolio is like roughly 20 assets with 40 billion or so of combined peak sales potential. As we look to 26, 27, Are there three or four, you know, individual catalyst events that you'd point to that are most exciting and maybe give a little bit of clarity on what maybe success looks like for those?

Sure. So, I mean, I, first of all, just to remind everyone, we've already had a couple of really nice ones from that portfolio to start the year, you know, with Revolution Medicines and Direx and Rassib, right? We now have a, you know, a $500 million investment in that with the potential for that to grow much larger, you know, for everyone to remind everyone, you know, we committed $2 billion to RevMed last summer, a billion and a quarter of that is synthetic royalty, and then there's a senior debt facility as part of that. So, you know, obviously very nice data, very high profile data. Just had one very recently with our cytokinetics partnership for AFI-Campton, you know, a nice label expansion there. So I think we're really excited to, you know, to start the year to have some really nice check marks there. Going forward, yeah, there's several, right? The next one coming up is we made a couple investments in the LP little a class over the last few years. We're going to have the card for the first one of those, I think, sometime in the second half of this year. We're really excited to see that. That could be a very large class of cardiovascular drugs, and we have investments in two of them. So we're really excited to see that. That could be a very meaningful contributor to our top line in the years to come. So that's another one this year.

Terry, what else would you add? uh then i think i probably point to maybe next year we have um data for frexalamab and multiple sclerosis that's a product that's in development by sanofi we have a 525 million dollar investment there it's a big royalty um and we think that there's ms is kind of a market that's been overlooked a couple of times in the past and uh we think that there's still really big unmet need there and a lot of opportunity for a new sort of modality. So that's why we're really excited about that one.

Yeah. I feel like the market's a little bit torn on LP little a as a modality. Arguably, it just hasn't been an outcomes trial run with this approach, although the genetic data is pretty interesting. So I don't know. Do you have a sense of, it does seem like the street's very focused on a more profound hazard ratio benefit, whereas the company would, companies would communicate, like as long as it's stat sig or even like a 15% risk reduction, this, this could be a big class of drug.

Yeah. So, you know, we're, we're, we're, we're getting close to the event here. So I think everyone's sort of sharpening their pencils as we get, as we get closer, which, you know, is we've all seen this play out before. So, you know, look, I think we, this is a whole new target, of a whole new profile of patient where their cardiovascular risk is genetic in terms of their level of LP little a. So, you know, we are really excited to see the car turnover. You know, we, I think Novartis has been pretty clear about your, as you just outlined about, you know, how they see, how they see this playing out. And so we are, you know, we're really excited to see it. And, you know, it's going to be, it's likely to be a sort of multi-layered sort of debate about what is the overall data, are there subgroups, you know, based on your baseline LP little a, where you see certain levels of benefit. So I think we're really excited, you know, to see this, you know, we also, as a reminder, we have an investment, another sizable royalty in Amgen's program, which is the next one up after this. And so we're excited to see how this class comes together.

I mean, obviously a lot of attention on revolutions, just given the Wall Street Journal articles and some big numbers that we've never seen for a phase two asset. If those numbers are real or they could be CVR dollars, we don't know. Ultimately, I think more pancreatic data this year. Just curious, you know, what moves the needle there in terms of your view on this as a really big mega blockbuster drug?

Yeah. Yeah. So, you know, we are, you know, RevMed, I think is doing an incredible job moving as fast as they possibly can to, you know, bring this medicine and this target to as many patients and indications as possible. So, you know, we've only seen the first card turnover, which is in second line, second line pancreatic cancer. I think it was not lost on anyone that the performance in second line pancreatic cancer is, you know, better in terms of survival than what's been seen historically in first line pancreatic cancer, which is pretty amazing. So, you know, we're excited to see it move earlier into, move earlier into lines of therapy, into earlier lines of therapy for pancreatic. They're looking at it in lung, lung cancer as well. And I think you're going to see a very sort of extensive development program and they've been kind of executing at the speed of light over there. So, you know, I think there's, there's definitely more to come on that And we're excited to see it play out.

And then maybe just in the approved portfolio, maybe some of the netting dynamics of growth versus LOE drags in the numbers this year, how you see that evolving? And do the drags carry out into 27 plus?

So the headwind this year is Promacta. and we still grew 10% in the first quarter despite a 3% headwind from Promacta. So that's something that we think is really important for investors to understand about our business. Not a lot of companies can have an LOE of a top five product and still grow double digits. But we've kind of shown that we can do that and that's a unique element of our business. It's driven by our diversification. It's driven by constantly reinvesting at high rates of return and in exciting growing products and replenishing the portfolio. I think we're differentiated versus other pharma companies in our ability to do that, certainly in a value enhancing way. And so, you know, the headwinds, and this isn't new to us. We had headwinds in 2021 when we lost Gilead's HIV, the royalties on Gilead's HIV franchise. That was a top four product at the time. And we still grew great that year in 2022 with Genuvia, an expert for Merck's DPP4. Again, another top five product at the time. It still grew really nicely. So we're not really concerned about headwinds from LOEs. these things are going to happen. They're going to happen in this sector. But for us, we feel like we're better equipped than anyone to kind of grow through that. And we've shown it over time.

Okay. And then the last 30 seconds, just how would you frame exposure at this stage around vertex and vertex arbitration outcomes, just given what we've seen with conversion?

Yeah. So I think what we updated at our investor day is probably still holds that we've said that under a downside case, if we, if we lose the arbitration and our royalty on a lift track is only 4%, that we still think that the CF franchise will generate a portfolio or royalty receipts to royalty pharma of around $800 million. And then the upside, if we're correct and, you know, succeed in the arbitration as we hope we will, that would be north of a billion. So it's It's kind of the bookends are about 800 to over a billion dollars. Either way, it's going to be a very important product for us over the long term.

Well, we're out of time. Gentlemen, thanks so much for joining us. Yeah, thanks.