Royalty Pharma plc (RPRX) Earnings Call Transcript & Summary

[Audio Gap] Royalty Pharma plc; Terrance Coyne, CFO; Marshall Urist, EVP of Investments. Gentlemen, welcome. Thank you so much for making time to be with us at this conference. Before we get into Q&A, I would just love to hear your kind of state of the union of the business and what we could look forward to in the next 12 months.

Yes. So Thanks, Mike and Umer and Evercore for having us. I think 2025 has been a pretty amazing year for Royalty Pharma, a transformational year. We started the year off with a bang when we announced the major strategic transaction where we internalized our external manager kind of put the company together as sort of one consolidated business, which was really important from a strategic and from a financial perspective. And then we've had a lot of great deals throughout the year, returned a record amount of capital to shareholders and have performed really well financially. So overall, I feel like there's a ton of really positive momentum. Pipeline is really strong, and we're super excited to wrap this year up and get into 2026.

Fantastic. Terry, there's a lot of fundamental questions to go through, but maybe just at a very high level, macro question for folks because this comes up in some conversations. Could you remind us, I think you've been on certain high-profit indices like Russell 1000 growth, et cetera, in the past. And I think the stock was in there, it's not in there, but now the cap is back, like, is there any conversations you've had on anything along -- any meaningful index-like changes coming?

That's a good question. I'll be honest...

Do you get notified ahead of time or they just do?

I think we find out at the same time that we -- yes. But, yes. I mean...

This stuff correlates with cap, right, for their...

I think that's right. Yes, definitely not an expert on that. But I think, yes, I mean, we're really happy with how the stock has performed this year and...

And just to level set also for everyone, can you remind us the leverage where it's at right now?

So it's -- yes, it's around 3x total debt to EBITDA. And so fairly low, fairly conservative. It's super important for us to maintain our investment grade credit rating is sort of critical to our cost of capital. We're but we have a lot of financial flexibility. So if we need -- if a lot of deals come along, we can easily take leverage up to 4x. We have cash on the balance sheet, access to our revolver. So for us, having access and dry powder is critical because you never know when that big royalty is going to come along and we need to always make sure that we're in a position to jump on it if it does.

And one more sort of higher-level question also. I recall one of the themes that was starting to occur a couple of years ago was across a range of deals you guys were signing up, there was like this 1.6x to 2x cap on when those returns happen the royalty stop, which was starting to happen more frequently. But I noticed in the last 12 months or so, almost last 2 years of deal was like hand compelling, I noticed it kind of stopped happening now maybe that correlates with how the market environment was as well. But is that something that was sort of very intentional and deliberate on your end?

I wouldn't say it's necessarily been a priority, right? We've talked about before. We use caps when we need them, right, or I think they're appropriate for the deal. I think you're right, though, this year, that has not been a characteristic of the deals we've done, which is, I think, exciting. Will we certainly see them in the future on some deals as it makes sense? Absolutely. So it's probably a more reflection of deal mix and type of seller, et cetera, more than anything else.

We try to approach every deal with sort of being pretty open-minded...

So the right product over the right one...

Yes. And it's a discussion. They have different goals. And so partners have different goals. We obviously are trying to generate attractive returns. And so it's trying to find the right balance. Makes sense.

Got it. As we think about just portfolio receipt growth during the next 5 years at your Investor Day, you guided to $4.7 billion plus in 2030, which reflects roughly a 9% annual CAGR from now until then and also assume steady annual capital deployment of around $2 million, $2.5 million. So what are the macro pushes and pulls that are kind of baked into that guidance? Can you just give us an idea of that?

Yes. So -- what we said at the time and the portfolio has evolved a little bit since then, but we said that around half of that growth would come from things that we already owned that are already in the portfolio. And then the other half of that growth would come from new investments that $2 billion to $2.5 billion per year. I think we would characterize that $2 billion to $2.5 billion is kind of a conservative modeling assumption. I think there's a lot of reasons to believe that we could do better than that. But I think we want to be -- we also want to make sure that we're comfortable that we can at least do that. And so -- and then within the existing portfolio, we look at a lot of different scenarios. We have a lot of products that are growing with a lot of great growth ahead. A few over that time period, a few potential LOEs, but pretty small in the grand scheme of things. And we look at different scenarios for commercial outcomes for the different products as well. So we feel really good about that number. At the time of our Investor Day, we pointed out that consensus was only at around $4.1 billion, I believe, was what we said. And we believe we're very comfortable that, that $4.7 billion plus is very doable. I think consensus has moved up a little bit, but it still hasn't gotten all the way there.

Got it. Okay. Considering that 50% of growth of portfolio receipts will come from the existing portfolio, that implies around $800 million, give or take. What products do you expect to mostly drive this?

So it's going to be a mix. I mean we have 45 products. And so the approved products that are -- have a lot of growth ahead our products like Voranigo, Tremfya, Trelegy, Cobenfy, Trodelvy and then Imdelltra was one that we recently added a couple of months ago. So and then within the pipeline, we think we could get some contributions, although some of that could be more -- we have a lot of things that are going to kind of read out in the next couple of years and some approvals that could happen in the next couple of years. And could play into those numbers. But a lot of the pipeline will probably be more things that will drive beyond 2030.

On the pipeline, is that -- I mean I was just trying to map out like where the largest revenue streams might come from. And it felt like Rev Med, perhaps is one of them.

Definitely.

Lp(a) is perhaps one of them. What else, Marshall?

Absolutely. I put on that list -- we did a deal last year for a Sanofi product for MS called frexalimab, right? Yes, which is -- it's a nice sized royalty, double-digit royalty as well. So that -- and a drug that Sanofi has talked about having $5 billion plus of peak sales potential? That's one. And then I guess the other one on the list is trontinemab, depending on how that market develops, we have a mid-single-digit royalty on Roche's brain shuttle that could be a big product as well.

Fascinating. So maybe just touching up on -- I want to kind of go through a little bit on each of those because they all have very interesting risk profiles and interesting data sets. So I'll do it a little quickly. Perhaps starting with frexalimab. We had Sanofi here yesterday, and we were going through this in detail with them. So Paul Hudson brought up what you just pointed out in frexalimab. I remember -- I -- the way I asked them was that like OCREVUS has pretty meaningful relapse reduction. What does frexalimab add on top? And his point was twofold. One was on the total commercial infrastructure they have, which obviously certain launch profile. But also he said outside of relapse, you got to think about disability. And I wasn't necessarily aware that frexalimab has data both on disability and on relapse reduction side. Is that right?

They do. And I think commercially, our thesis to is the CD20s have been an incredible -- or an incredible class, right? But there are there are significant population of patients who have been through those drugs and either off because of infection side effects or other things. And so there's a big population of patients out there that need something else.

But isn't it the same thing mechanistically?

So it is a different mechanism sort of broader than just the B cells for CD20. So CD40 is a broader mechanism at kind of a different point in the immune system. So definitely have the potential to offer differentiated efficacy.

I see. Okay. Got it. When is the Phase III readout for this? It's ongoing, is my understanding.

It's ongoing. And I think it's a 2027 event.

Okay. Got it. So that was the first one. The second one was on the Lp(a) there's an -- you guys have economics on 2 of them, If I'm correct.

Yes.

Which one is it -- where is the economics more indexed to?

Yes, we definitely have. So we have 2 royalties as you mentioned, the pelacarsen is Novartis that will read out next year. That's a smaller royalties that's mid-single-digit royalty. We have a larger royalty kind of high single, low double on Amgen's olpasiran, which is sounds like that will be a 2027-plus event based on Amgen's latest.

Marshall, I got to believe you and your team have been doing work on trying to understand why the event rate has been slow to accrue, but also why the endpoints didn't deliver. And the understanding is the event rate is low, but also in the low cutoff, it's even slower. Any feedback you can share?

I mean we don't know much more than -- we don't know much more than the world does. Are we I think the observation that event rates have been lower in cardiovascular outcomes trials, it's a pretty general observation, not just across Lp(a), but other but other areas as well. And then we're not surprised that this trial is going to the full -- to the final analysis. It was always our base assumption that given one, given that it's a new glass and you want as much safety information as possible to, we've seen the time is your friend in terms of effect size in these studies that there was a pretty strong bias to see this through the end.

Okay. Got it. And then as it relates to sort of Lp(a) and the effect size, I guess one thing that is unique about GLPs has been the CRP lowering outside of wave loss, et cetera, which drove which drove some of the outcomes benefit. But that logic over to Lp(a) and lack of CRP benefit. Do you think that biases the maximum possible outcomes benefit towards closer to 0.8 or so or...

That's a super hard question to answer, Umer. I think we are going to learn, right, what is the benefit in patients who have -- in the population of patients whose cardiovascular disease is presumably really driven by their high Lp(a). So what that means in that population of patients, particularly the patients who have the highest levels of Lp(a) we're going to see. So I don't know that I'd conclude that because you don't have that sort of acute inflammatory effect like we see with GLP-1, you're somehow fundamentally limited. I think we're going to learn why Lp(a) disease really means.

Got it. Rev Med, I think you guys did the deal right around ASCO this year, if I remember correctly?

Yes, middle of the summer. .

So I'm assuming you saw some of the data -- because Rev Med has data in lung and pancreatic but the data focus has been on pancreatic. Within pancreatic, they have data both with FOLFIRINOX combo and gemcitabine combo. And they've only focused on sort of the gemcitabine nab-paclitaxel combos and not so much on FOLFIRINOX and external disclosures for your diligence, did you see all of that? And were you comfortable that with the profile they're showing and the type of mutations the responses are coming from that it's very competitive versus what's out there?

So one of the things that differentiates us when we do deals like Rev Med is that we are able to sort of see all of the available data at that time. So we got to do very, very. As we normally do very fulsome diligence. And yes, we're kind of -- we're confident in the profile and its competitiveness. We probably shouldn't get into details, that's Rev Meds our although we were -- we had a lot of resolution and insight into what the data were.

Sorry, I was just going to follow up with a question we've had some confusion around I don't really know the answer, but because it's so relevant commercially. So when we think about the type of construct Rev Med is and if you could apply to G12D, it could apply to G12D, it could apply to a range of mutations. One thing we don't see in their disclosures is the responses they do have, are they driven by G12D patients or G12D patients, et cetera. Because if they're primarily driven by G12D, then I got to start comping versus G12D data sets as well. So I guess -- should we be worried about the G12D emerging drugs as we think about the commercial opportunity and the implied royalties? Or it's not a big concern?

The way we thought about it was there were kind of multiple ways win, right? We were very convinced about the lead program direct unrated, the pan RAS inhibitors activity in pancreatic cancer. I think the fact that Rev Med has a portfolio and can do combinations as well as another interesting angle for them in what is a competitive market. But yes, that was something we thought a lot about was the competitive landscape and really like being partnered with Rev Med.

Got it. And sorry, just 1 or 2 more on this just because it's relevant. Terry, I remember there was this table you put out a fair amount of detail on this Rev Med transaction. I was just curious how do we figure out and get comfortable on how many of those tranches they'll draw on? Or some of those are set in stone on how many they can -- they have to draw on as long as the data keeps developing a certain way?

So they have to drill on the second tranche.

Okay. That's the positive Phase III data?

Correct. The third through fifth tranches, which are at their option.

Approvals and sales driven?

Approval sales and then the first line expansion the first line.

So those are up to them .

That's up to them.

If they don't draw -- if there is possible, they don't draw beyond?

It's certainly possible. It's tough to say. I think that -- it shows -- this deal shows the creativity of how we can help these help our partners, and it's there for them if they want it, if they need it, and if they decide that they don't need it, then they don't have to draw on it.

So the first and second tranche being triggered is sub-5% royalty, correct?

Yes, the first tier, I think, together, it's like just over 4.5%, maybe, yes.

So it's still a real royalty.

Still a real royalty for what we think could be a very large drug for sure, yes.

Just while on the subject of Revolution Medicines so it's such a creative and unique structure. I mean, could this have established a new present for future deals? I remember, I think it was on your 3Q call, you said that after this deal, you kind of received in be from potential partners asking if they can get the same thing. You said it's not for everybody. Maybe could you please elaborate on that?

Yes. We definitely think there's lots of elements of this that, as we mentioned, got people's attention about a new way to fund at scale in a way that's flexible. So we're going to -- I think you'll definitely see us partner with companies using elements of what we did with Rev Med, and we'll also continue to innovate and think of new ways. But definitely, I think it caught a lot of people's attention about what was the art of the possible with synthetic royalty.

I mean before there wasn't a true alternative to a pharma partnership. right? You could do equity, but to do $2 billion, in fact, we really hard. And so for the first time, we think that we've shown that this is a viable alternative to that pharma partnership. It allows companies to develop to turn those cards over to realize more value and to still retain all the optionality that they otherwise would have.

Just one more thing, Marshall, I was surprised because normally when you structure this, you've put in all the obvious clinical unlocking events, you always somehow reflect that in the way the structure is made. But you didn't put lung in any of this. Why was that? Or is that not in your model?

Yes. No, no, no. We think the drug has a real potential in lung at the end of the day, like Terry mentioned, when we start talking to companies, right, it's a real conversation about how much capital is ideally available to the company at what stages by what dates. And it just so happened that in this transaction, it lined up really nicely on the pancreatic side for when the cadence of the draws would come for them, and that's kind of where we ended up. So I wouldn't read anything negatively about our view on lung.

Okay. Maybe just a quick 1 on China. Again, at your Investor Day, you said that you've been cultivating relationships in China for the past 10 years. And I think on your 3Q call, you said you made multiple trips to China alone just this year.

That was shopping, that was for shopping.

Given the fact that capital raising is much more challenging over there, like how might future deal structures differ than what you've historically done in the past? Like will synthetics play a bigger or less roll perhaps in china?

Yes, I can start. What we see that's exciting is everyone is talking a lot about the volume of licensing transactions that have left a lot of royalties in the hands of Chinese biopharma companies. And so the royalty monetization market there doesn't exist. I think we're certainly focused on being part of developing that as sort of the Stage 1 of this and the timing of when that's going to happen, who knows, but we want to be there and be a part of developing that market. And could it evolve to be synthetic royalties and other opportunities beyond that, Absolutely.

Got it. When Royalty partner need to establish operations locally in China in order to do the business there?

It's something that we're very -- we're exploring seriously and trying to get our arms around what approach makes the most sense. But we recognize that it's a huge market, and we absolutely need to be there and be very focused on it.

Last question, Terry, just to level set everyone. Can you just remind us just the time lines on Vertex resolution Rev Med Phase III data, Lp(a) next year. But just remind us like some of the key events just so that we could...

So Vertex, we've said that we expect that to be resolved by around the end of 2026.

End of '26?

That would be very soon. Yes. And then Rev Med...

Data is next year. Sometimes, I don't think Rev Med refined the timing. And then Lp(a), same thing is next year tracking for next year as well. So it should be an exciting year. Yes, pelacarsen.

And then the other Lp(a) for frexalimab is the following year.

Yes.

Okay. Fantastic. Thank you so much.

Great. Thank you guys. Thank you.