Q3 2020 Royalty Pharma PLC Earnings Call

I would now like to turn the call over to George Coffee Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.

George Grofik: I would now like to turn the call over to George Grofik, Senior Vice President and Head of Investor Relations and Communications. Please go ahead.

George Grofik: Thank you, Shannon, and good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's third quarter results. You can find the slides for this call on the investors page of our website at royaltypharma.com. Moving to slide three, I would like to remind you that the information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. I refer you to our S-1 Prospectus on file with the SEC for a description of these documents. And with that, please advance to slide four.

[music]. Thank you Shannon and good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma third quarter results you can find flights. This call on the investors page of our website at royalty pharma Dot com.

Moving to slide three I'd like to remind you that information presented in this call will contain forward looking statements that involve known and unknown risks uncertainties and other factors may cause actual results to differ materially.

I refer you to our S. One prospectus on file with the FCC for description of these risk factors.

And with that please advance to fly for our speakers on the call today are Pablo Pablo like a rent a founder and Chief Executive Officer, Jim Braddock, GBP head of research and investment and Terry coin VP Chief Financial Officer.

Pablo Legorreta: Our speakers on the call today are Pablo Legorreta, founder and chief executive officer; Jim Reddick, EVP, head of research and investments; and Terry Coyne, EVP, chief financial officer. Pablo will discuss the key highlights of the quarter, after which Jim will provide an update on our royalty portfolio. Perry will then review the financials, and after concluding remarks from Pablo, we will hold a Q&A. Chris Hite, our Vice Chairman, and Marshall Urist, SVP, Research and Investments, will also participate in the Q&A. And with that, I'd like to turn the call over to Pablo. Thank you, George, and welcome to everyone on the call. We would also like to express our deep appreciation today to the first responders, doctors, and nurses who are keeping us healthy and safe, as well as those who have served and continue to serve in the country's armed services and their families. Slide six.

Pablo will discuss the key highlights of the quarter after which Jim will provide an update on our royalty portfolio.

Terry will then review the financials and after concluding remarks from Pablo we have a whole bituminous session.

Chris Pitre, Vice chairman and partial year as SVP research investments will also join the queue and expenses.

And with that I'd like to turn the call over to Pablo.

[music], Thank you George and welcome to everyone on the call and.

We will also like to express our deep appreciation today. So the first responders doctors nurses, where keeping those guilty unsafe I was one of those who have served guidance.

You need to serve in the comp yourself <unk> services and their families.

Slide six.

Pablo Legorreta: I'm delighted to report that Royalty Pharma continued its strong business momentum in the third quarter. On our second quarter earnings call in August, I described 2020 as a landmark year for the company. Not only does this remain the case, but for reasons we will discuss during the course of this presentation, we believe we have further strengthened our prospects. In terms of our third quarter financial results, we continue to deliver a strong performance with double-digit growth in adjusted cash receipts and adjusted cash flow, our top and bottom lines. We also substantially improved our balance sheet through our initial $6 billion bond offering.

I'm delighted to report the royalty pharma continued its strong business momentum in the third quarter on our second quarter earnings call. In August I described 20, 20-F, a landmark year for the company.

Not only does this remains the case for reasons, who will discuss during the course of this presentation. We believe we have further strengths are strengthened our prospects.

In terms of our third quarter financial results, we continued to deliver a strong performance with double digit growth in adjusted cash receipts and adjusted cash flow, our top and bottom lines.

We also substantially improved our balance sheet through our initial 6 billion bond offering does not only lowered our weighted average cost of debt, but doubled our average debt maturity.

Pablo Legorreta: This not only lowered our weighted average cost of debt but doubled our average debt maturity as we achieved some of the best borrowing terms in the entire biopharma industry. Meanwhile, we continue to expand our portfolio through new royalty acquisitions, taking our total for the year to date announced transactions to $2.3 billion. I'm particularly excited by the recent expansion of our agreement with the Cystic Fibrosis Foundation, which is a great example of how we can deliver win-win solutions based on our longstanding relationships and our unique capabilities. Lastly, we conducted a successful secondary offering of approximately 3% of our share capital ahead of the December expiration of the IPO lockup.

Achieve some of the best borrowing terms in the entire bio pharma industry.

Meanwhile, we continue to expand our portfolio through your royalty acquisitions, taking our total for the year to date announced transactions to 2.3 billion.

Particularly excited by the recent expansion of our agreement with the cystic Fibrosis Foundation, which is a great example of how we can deliver win win solutions based on our long standing relationships and our unique capabilities.

Lastly.

That a successful secondary offering of <unk>.

Proximately, 3% Albert shared capital ahead of the December exploration of the lockup IPO lock up there.

This offering has improved the overall liquidity our stock.

Pablo Legorreta: This offering has improved the overall liquidity of our stock. Slide 7 As I mentioned up front, we are continuing to deliver strong financial performance. We maintained double-digit momentum with 12% growth in third quarter adjusted cash receipts and 27% growth in adjusted cash flow.

Slide seven as I mentioned up front, we're continuing to deliver strong financial performance, we maintained double digit momentum with 12% growth in third quarter, our adjusted cost, we teach and 27% growth in adjusted cash flow.

Jim Reddick: The pace of our growth really speaks to our unique position within the biopharma ecosystem, coupled with the extraordinary innovation currently taking place in the industry. With that, I will hand it over to Jim to update you on our royalty portfolio. Thank you, Pablo, and good morning and good afternoon, everyone.

The pace of our growth really speaks to our unique position within the biopharma ecosystem, coupled with the extraordinary innovation currently taking place in the industry.

With that I will hand, it over to Jim to update you on a royalty portfolio.

Thank you Pablo and good morning, and good afternoon, everyone.

Slide nine summarizes the regulatory and commercial progress across our portfolio since the second quarter overall.

Jim Reddick: Slide 9 summarizes the regulatory and commercial progress across our portfolio since the second quarter. Overall, the progress across the portfolio was, on balance, very positive. A few highlights include the FDA approval and launch of Roche's Evrizdi for SMA, just weeks after we acquired that royalty from PTC Therapeutics, the expansion of our BioHaven partnership, the European approval for Vertex's CapTrio, an important growth driver within our Cystic Fibrosis franchise, and the positive clinical data for immunomedics with Trodelby in both urothelial cancer and triple negative metastatic

Overall, the progress across the portfolio was on balance is very positive.

A few highlights include the FDA approval and launch of Roche's everybody for SDMA just weeks after we acquired that royalty from PTC therapeutics.

The expansion of our bio Haven partnership.

The European approval for vertex is capped trio.

As an important growth driver within our cystic fibrosis franchise.

And the positive clinical data for EMEA medics is true delving in both your Urothelial cancer and triple negative metastatic breast cancer.

Jim Reddick: However, I think you are all well aware that the Penelope B trial of Pfizer's Ibrants was disappointing and that the galactic top-line results of Omacamptive need to be elucidated further. Finally, the $21 billion acquisition of Immunomedics by Gilead provides a strong validation of our hybrid funding strategy, and I want to expand on this a little bit in my next slide.

However, I think you're all well aware that the Penelope B trial of Pfizer's Ibrance was disappointing and that the galactic topline results in the camp that need to be elucidated further.

Finally, the $21 billion acquisition that immunomedics by Gilliatt provides strong validation of our hybrid funding strategy and I want to expand on this a little bit in my next slide.

So this is a slide 10.

Jim Reddick: As a reminder, at the start of 2018, Royalty Pharma provided $250 million in capital to Immunomedics to fund the development and launch of Trodelvi in metastatic triple negative breast cancer and other indications. This includes $175 million to acquire a royalty on Trudelvy and $75 million to acquire equity in Immunomedica. As the clinical data for TRODELV has been released and following the FDA approval of TRODELV in April of this year, there's been a significant increase in analyst consensus expectations, with 2029 consensus sales rising from a billion dollars at the time of our transaction to over four billion dollars today. In September of this year, Gilead announced the acquisition of Immunomedics.

As a reminder, started 2018 royalty pharma provided $250 million in capital to Immunomedics to fund the development and launch of true Adobe in metastatic triple negative breast cancer and other indications. This includes $575 million to acquire a royalty on trade lv and $75 million to acquire equity in immunomedics.

As the clinical data for sure Adobe has been released and following the FDA approval of true Adobe in April of this year, there's been a significant increase in analyst consensus expectations with 2029 consensus sales rising from a billion dollars at the time of our transaction do over $4 billion today.

In September of this year, Gil yet announced the acquisition of Immunomedics.

Jim Reddick: And when we step back and think about this, it's our belief that the outcome of our hybrid funding strategy has been very beneficial to all parties, as well as to the future of cancer, on a purely financial basis. Proceeds from our equity investment already guarantee a 1.5x cash return on our $250 million investment, equivalent to a high-teens IRR without even factoring in the future royalty. And, of course, beyond this, we will continue to receive royalties on a perpetual basis. Looking at this more broadly, we were able to provide capital at scale to immunomedics at a critical time in their development, a time when equity would have been highly dependent, and this capital allowed them to further develop Trudelvy, maintain key global rights, and avoid a significant and recently diluted equity rate. So we believe the additional global marketing capabilities of Gilead and its ability to further fund further R&D on the molecule can only enhance Trodelby's potential and bring the benefit of this important therapy to more patients. So while you often hear us talk about a win-win deal, this is a win for multiple stakeholders, most importantly, cancer patients that need Trodelby.

And we expect when we step back and think about this it's our belief that the outcome of our hybrid funding strategy has been very beneficial to all parties as well as to the future of cancer treatment.

On a purely financial basis, the proceeds from our equity investment already guarantees a 1.5 X cash return on our $250 million investment equivalent to a high teens are without even factoring in the future royalties.

And of course beyond this we will continue to receive royalties on a perpetual basis.

Looking at this more broadly we were able to provide capital at scale do you mean.

Medix at a critical time in their development a time when equity would have been highly dilutive.

And this capital allowed them to further develop sure Debbie to maintain key global rights and to avoid significant significantly diluted equity raise.

So we and we believe the additional global marketing capabilities of Gilead and its ability to further fund a further R&D on the molecule can only enhance true adobes potential and bring the benefit of this important therapy to more patients.

So while you are often hear us talking about a win win deal. This is a win for multiple stakeholders. Most importantly cancer patients that need for Adobe.

On slide 11, I want to highlight our most recent transaction, where we were and we acquired the residual royalty interest at the cystic fibrosis Foundation in Vertexs CF franchise.

Jim Reddick: Slide 11, I want to highlight our most recent transaction wherein we acquired the residual royalty interest of the Cystic Fibrosis Foundation in Vertex's CF franchise. So, in exchange for a $575 million upfront payment and a potential $75 million milestone, Royalty Pharma will receive all royalties on annual franchise sales above the threshold of $5.8 billion, whereas previously these were shared 50-50 between our company and the Cystic Fibrosis Foundation As you may have seen from Virtex's Q3 results... franchises are growing very rapidly following the successful launch of the Triple Therapy Trikafta. Vertex is guided to franchise sales of $6.0 to $6.2 billion in 2020, a more than 50% increase at the midpoint over the $4 billion reported in 2019. Trikafta Vertex has expanded the proportion of cystic fibrosis patients that may receive benefit.

So in exchange for a $575 million upfront payment and the potential $75 million milestone royalty pharma will receive all royalties on annual franchise sales above the threshold of $5.8 billion.

Whereas previously these were shared 50 50 between our company and the cystic fibrosis Foundation.

As you may have seen from vertex is Q3 results.

Franchise is growing very rapidly following the successful launch of the triple therapy try captain and her Texas guided to franchise sales of $6.0 billion to $6.2 billion, and 2020 and more than 50% increase at the midpoint over the $4 billion reported in 2019.

Let's try CAFTA vertex has expanded the proportion of cystic fibrosis patients that they received benefit from potentiator incorrect or treatment to around 90% and further sales growth is expected from watches in new geographies and then younger age groups.

As we do with all of our transactions, we carried out a comprehensive due diligence examining all facets of our royalty agreement and we confirmed that the royalty is perpetual and not tied to patent expirations of the individual components of franchise products.

In terms of the financials, we are confident that the transaction will enhance our long term adjusted cash flow compound annual growth rate based on a range of forecast scenarios.

Terrance P. Coyne: As we do with all of our transactions, we carried out comprehensive due diligence, examining all facets of our royalty agreement, confirmed that the royalty is perpetual and not tied to patent expiration, and others. In terms of the financials, we are confident that the transaction will enhance our long-term adjusted cash flow compound annual growth rate based on a range of forecast scenarios. We are clear with investors that for approved products, we are targeting unlevered returns in the highest single digits to the low double digits. And for this investment, we expect a return at least on the high end of that range, and likely better. So with that, I will hand it over to Terry. Thanks, Jim. Let's move to slide 13.

We have been clear with investors that for approved products. We are targeting unlevered returns in the high single digits to low double digits and for this investment we expect a return at least on the high end of that range and likely better.

So with that I will hand, it over to Terry.

Thanks, Jim let's move to slide 13.

We had another good quarter with total royalty receipts up 7% compared to last year's third quarter on a pro forma basis.

As you can see royalties from our largest franchise cystic fibrosis, there's 36% this quarter driven by the strong launch I talked to in the U.S. and more recently have trio Neil.

Britain bucket standpoint, and from that though all demonstrated strong double digit growth in the quarter.

Slide 14 shows how our loyalty receipts translated to strong adjusted cash flow in the quarter.

Terrance P. Coyne: We had another good quarter with total royalty receipts of 7% compared to last year's third quarter on a pro forma basis. As you can see, royalties from our largest franchise, Cystic Fibrosis, grew 36% this quarter, driven by the strong launch of Trikafta in the U.S. and, more recently, Caftrio in the E.U., and Bruvica, Xtandi Slide 14 shows how our royalty receipts translated to strong adjusted cash flow in the quarter. As you're aware, adjusted cash receipts is a key non-GAAP metric for us, which we arrive at after deducting non-controlling interest. This amounted to $472 million in the quarter, growth of 12% compared with last year's third quarter on a proforma basis. Moving left to right, operating and professional costs of $59 million equated to 12.6% of adjusted cash received.

As you are aware adjusted cash receipts to the key non-GAAP metrics for us, which we arrived after deducting non controlling interest.

This amounted to $472 million in the quarter growth of 12% compared with last year's third quarter on a pro forma basis.

When we moved left to right operator.

Operating a professional costs of 50 59 million equated to 12.6% of adjusted cash receipts.

Step up over the second quarter of this year reflected certain IPO expenses as well as expenses related to our bond offering.

R&D funding was substantially lower than the year ago quarter, given the completion of the Ibrance ashland's breast cancer funding in 2019.

Net interest of 15 million were sharply lower as it reflected the impact of the debt refinancing and the shift to semiannual interest payments arising from our bond offering for which the next interest payment is not due until March 2021.

As a result interest expense paid in the fourth quarter will be close to zero.

Had we refinanced our debt and the unfunded revolving credit facility was in place as of July one and interest were paid quarterly interest expense would have been $33 million in the third quarter.

Terrance P. Coyne: The step-up over the second quarter of this year reflected certain IPO expenses as well as expenses related to our bond offer. However, R&D funding was substantially lower than in the year-ago quarter given the completion of the iBranch adjuvant breast cancer funding in 2019. The net interest of $15 million was sharply lower as it reflected the impact of the debt refinancing and a shift to semi-annual interest payments arising from our bond offer, for which the next interest payment is not due until March of 2021. As a result, interest expense paid in the fourth quarter will be close to zero.

We also recorded no expenses related to the investment in unconsolidated Nonconsolidated affiliates as we included an accelerated payment related to the belief that otherwise would have been paid in Q3. This payment occurred in Q2.

We anticipate that a funding payment for a billion will occur in Q4.

This resulted in adjusted cash flow, what what we view as our bottom line earnings of $394 million or 65 cents per share.

This is an adjusted cash flow margin of 83.4% highlighting the strong financial leverage in our business model.

Slide 15 gives you some greater context as to why we were delighted with our successful 6 billion dollar unsecured bond refinancing, which extended our cost of capital advantage.

Terrance P. Coyne: Had we refinanced our debt and the unfunded revolving credit facility was in place as of July 1 and interest were paid quarterly, interest expense would have been $33 million in the third quarter. We also recorded no expenses related to the investment in non-consolidated affiliates as we included an accelerated payment related to Avilion that otherwise would have been paid in Q3. This payment occurred in Q2. We anticipate that a funding payment for Avilion will occur in Q4. This resulted in adjusted cash flow, which we view as our bottom line earnings. $394 million, or $0.65 per share.

Hello alluded to the parents being among the best achieved across the biopharm mistake here.

Here you can see that the weighted average coupon on our bond of 2.125% is the second lowest among our peers as more than 100 basis points below the median of 3.19%.

On the right you can see that we doubled our weighted average maturity.

Over 12 years through the offering which is again ahead of the industry meeting.

We also have access to a $1.5 billion revolving credit facility, which provides additional.

Flexibility for capital deployment.

To assist with year over year comparisons on a normalized basis, the new debt had been in place for the full year interest expense paid would have been $131 million or 2020, which also includes a small fee or the revolving credit facility.

Terrance P. Coyne: This is an adjusted cash flow margin of 83.4%, highlighting the strong financial leverage in our business. Slide 15 gives you some greater context as to why we were delighted with our successful $6 billion unsecured bond refinancing, which extended our cost of capital. Pablo alluded to the terms being among the best achieved across the biopharma space. Here, you can see that the weighted average coupon on our bonds of 2.125% is the second lowest among our peers and is more than 100 basis points below the median of 3.19%.

Looking at our balance sheet on slide 16, we ended September with cash and marketable securities of $2.1 billion. The increase over the first nine months was driven mainly by the adjusted cash flow I. Just described together with the proceeds from debt refinancing $728 million an IPO proceeds.

At $1.9 billion cash.

Cash outflows over the period amounted to 1.9 billion.

Terrance P. Coyne: On the right, you can see that we doubled our weighted average maturity to over 12 years through the office, which is again ahead of the industry median. We also have access to a $1.5 billion revolving credit facility, which provides additional flexibility for capital deployment. To assist with year-over-year comparisons, on a normalized basis, if the new debt had been in place for the full year, interest expense paid would have been $131 million for 2020, which also includes a small fee for the revolving credit system.

The largest cash outflow with the 1.4 billion deployed on royalty acquisitions.

We finished the quarter with $6 billion investment grade debt.

I'll have a $1.5 billion revolving credit facility, which enhances our liquidity.

Taken together with leverage at 2.3 times EBITDA on a net basis and 3.5 times EBITDA on a gross basis.

We remain well positioned to execute on our business plan.

On my final slide we're raising our full year 2020 guidance.

We now expect adjusted cash receipts to be in the range of 1.78 billion to 1.8 billion an increase from 1.7 billion to 1.76 billion previously.

There will be no contribution in 2020 from our recently announced deal with the cystic fibrosis Foundation.

Terrance P. Coyne: Looking at our balance sheet on slide six, we ended September with cash and marketable securities of $2.1 billion. The increase over the first nine months was driven mainly by the adjusted cash flow I just described, together with the proceeds from debt refinancing of $728 million and IPO proceeds of $1.9 billion. Cash outflows over the period amounted to $1.9 billion.

First potential contribution from that acquisition would be in the first quarter of 2021, that's royalties are paid on a lag.

We continue to expect our operating costs to be approximately 10% of adjusted cash receipts.

Importantly, this guidance is based on our portfolio as of today. It does not take into account any future acquisitions.

With that I'd like to hand.

Terrance P. Coyne: The largest cash outflow was the $1.4 billion deployed on royalty acquisitions. We finished the quarter with $6 billion of investment-grade debt, and we now have a $1.5 billion revolving credit facility, which enhances our liquidity, taken together with leverage of 2.3 times EBITDA on a net basis and 3.5 times EBITDA on a gross basis. We remain well positioned to execute on our business. On my final slide, we're raising our full year 2020 guide. We now expect adjusted cash receipts to be in the range of $1.78 billion to $1.8 billion, an increase from $1.7 billion to $1.76 billion previously. However, there will be no contribution in 2020 from our recently announced deal with the Cystic Fibrosis Foundation.

That's a problem for his closing comments.

Thanks Terry.

I want to close by reiterating our confidence in our outlook for the long term sustainable growth.

The third quarter encapsulated a number of teams that support this confidence.

We delivered strong financial result, which allow us to raise our full year guidance, we improved our capital structure through a highly successful bond offering and our secondary share offering.

Recent news flow has been very positive, but on a royalty board afford you reinforcing our long term growth outlook and we have not only remain active in deal, making announcing total transactions of 2.3 billion. So far this year, what our transaction pipeline remains active and very exciting but.

The chart on the right shows that we continue to capture our leading share of available royalty acquisitions in a market that is growing fueled by the innovation in our industry and a growing appreciation of the value of royalties to provide non dilutive financing to bring practice changing medicines to patients.

Pablo Legorreta: The first potential contribution from that acquisition would be in the first quarter of 2021 as royalties are paid on a lag. We continue to expect our operating costs to be approximately 10% of adjusted cash receipts. Importantly, this guidance is based on our portfolio as of today and does not take into account any future acquisitions. With that, I would like to hand the call back to Pablo for his closing comments. Thanks, Terry.

In short royalty pharma continues to be at the heart of funding the Golden age of life Sciences innovation.

With that I would like to open the call to queue in a back to you George.

Thank you Pablo I will now open the call to your questions. Operator, please take the first question.

Thank you, ladies and gentlemen to ask a question you need to press star one on your telephone to withdraw your question press the pound key please stand by we compiled the Kenny roster.

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

George Grofik: I want to close by reiterating our confidence in our outlook for long-term sustainable growth. The third quarter encapsulated a number of themes that support this confidence. We delivered strong financial results which allowed us to raise our full-year guidance. We improved our capital structure through a highly successful bond offering and our secondary share offering. Recent news flow has been very positive on our royalty portfolio, reinforcing our long-term growth outlook. And we have not only remained active in deal-making, announcing total transactions of $2.3 billion so far this year, but our transaction pipeline remains active and very exciting. The chart on the right shows that we continue to capture a leading share of available royalty acquisitions in a market that is growing, fueled by innovation in our industry and the growing appreciation of the value of royalties to provide non-dilutive financing to bring practice-changing medicines to patients.

Thanks for the question guys and.

And congrats on the quarter I just had a couple.

The first one is the rationale for the expanded CF agreement the questions. What's changed from when you signed the original deal with the CF Foundation and how do you see CF realm revenue scaling now you know to warrant the the 650 million acquisition cost.

The second question I guess at a higher level of concentration risk is pervasive throughout the biopharm industry and you guys have.

Have some risk as well, but you do have you know long duration with with respect to see up so I guess the question as you know is diversifying outside of CF.

A major strategic priority or do you guys feel like you have plenty of time to to address that thank you.

Sure. Thank you for the question and I'll answer the first part of the question related to the rationale for the CF transaction and and then turn it over to Perry to answer the question on the recertification. So.

So.

The CF.

The space for US has been one where we've actually made investments know for close to 20 years I recall, having acquired a royalty in one of the first antibiotics that was reformulated for cystic fibrosis I think it was 1997 or 98 Toby.

George Grofik: In short, Royalty Pharma continues to be at the heart of funding the golden age of life sciences innovation. With that, I would like to open the call to Q&A. Back to you, George. Operator, please take the first question. Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone.

And we started a relationship with a foundation at the time with Amanda ran at Belden really built it into the formidable patient advocacy foundation.

In addition, there has also been very important than funding research for that patient population.

In 2014, well, Bob Bell was still a leading the foundation, we did that landmark deals $3.3 billion acquisition when we acquired.

Operator: To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Geoff Meacham with Bank of America Yelanis. Thanks for the question, guys, and congrats on the quarter.

The royalties on the vertex Sia franchise from the foundation and at the time.

The foundation, having sold $3.3 billion.

You know all of the assets retained a smaller portion which is really a 50% of the sales of the royalties produced by sales above $500 billion.

Geoffrey Meacham: I just had a couple. The first one is the rationale for the expanded CF agreement. The question is, what's changed from when you signed the original deal with the CF Foundation, and how do you see CF revenue scaling now to warrant the $650 million acquisition costs? And the second question, I guess at a higher level, concentration risk is pervasive throughout the biopharma industry, and you guys have some risk as well, but you do have a long duration with respect to CF. So I guess the question is, is diversifying outside of CF a major strategic priority, or do you guys feel like you have plenty of time to address that? Thank you.

And when we did the deal in 2014.

Only kalydeco was approved the other doubles and triples were not approved and the foundation retain that I'm sharing portion.

Essentially to capture.

So if if it materialized and the view was that you know the sales forecast at the time was about $6 billion. So they did not ascribe much value to the to the upside but what's happened. Since then obviously of the doubles have been launched the triples or the franchise has grown very nicely.

And it turns out now that the residual has value and the foundation is in a very.

Pablo Legorreta: Sure, thank you for the question, and I'll answer the first part of the question related to the rationale for the CF transaction and then turn it over to Terry to answer the question on diversification. So the CF space for us has been one where we've actually made investments now for close to 20 years. I recall having acquired a royalty on one of the first antibiotics that was reformulated for cystic fibrosis. I think it was 1997 or 1998, Toby.

The unusual position in being a a new entity institution that has an advocate for cystic fibrosis patients. So they have always felt very uncomfortable and actually burdening.

Payments, having economics on on products that they funded but which are being sold to the cystic fibrosis community and and at times in the past for example, I recall, Bob telling the stories of how when they were trying to get governments to.

Pablo Legorreta: And we established a relationship with the foundation at the time, with a man that ran it, Bob Bell, that really built it into a formidable patient advocacy foundation that has also been very important in funding research for that patient population. In 2014, while Bob Bell was still leading the foundation, we did that landmark deal, a $3.3 billion acquisition, when we acquired the royalties on the Vertex CF franchise from the foundation. And at the time, the foundation, having sold $3.3 billion of the asset, retained a smaller portion, which is really 50% of the royalties produced by sales above $5.8 billion. And when we did that deal in 2014, only Calatico was approved. The other doubles and triples were not approved, and the foundation retained that sharing portion.

A reimbursed.

The product.

And add them to the formulary.

The state Senators in some cases had said to the foundation well of course, you're going to advocate for that you own a royalty and he was very uncomfortable in that position. So no that this residual has value. It was just a very natural thing for the foundation to seek.

Seek to monetize the residual.

So that they wouldn't have any.

Economic interest on drugs that are being sold to the CF patients where they could be accused of having an economic interest.

So that's the rationale and obviously from our perspective, having had a 20 plus year relationship with the foundation knowing them intimate the shopping a constant dialogue with them. We were in an extremely strong position to acquire this asset and that's what happened.

Recently and were very happy about that investment and are extremely excited about the economic.

Pablo Legorreta: So essentially, to capture upside if it materialized. And the view was that, you know, the sales forecast at the time was about $6 billion. So they did not ascribe much value to the upside. But what's happened since then, obviously, the doubles have been launched, the triples, and the franchise has grown very nicely. And it turns out now that that residual has value, and the foundation is in a very unusual position in being an entity, an institution, that is an advocate for cystic fibrosis patients.

The the return expectations and growth, where that's gonna provides real pharma Terry I'll pass it on to you now to talk about diversification.

Sure. Thanks, Pablo So we're we're very happy with our with our current diversification I think this quarter a little over 25% of our royalty receipts were were from CF I think what you'll see over time, even as that franchise continues to grow I think what you'll see over time is that we will just sort of.

Naturally diversify as we continue to make investments.

Pablo Legorreta: So they have always felt very uncomfortable in actually earning payments, and having economics on products that they funded but which are being sold to the cystic fibrosis community. And at times in the past, for example, I recall Bob telling me stories of how when they were trying to get governments to reimburse the products and add them to the formularies, you know, the state senators, in some cases, had said to the foundation, well, you know, of course, you're going to advocate for that. You own a piece of royalty. And he was very uncomfortable in that position.

And as other products within the portfolio continue to ramp so we feel very good about it and we'll we'll continue to sort of naturally diversified overtime.

Okay. Thanks, guys.

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

Thank you and congratulations as well on a terrific quarter two questions given a royalty pharma business model. It generally is not considered to be a beat and raise situation, but nonetheless this quarter. It was so what aspect to the business of price management and are there aspects of your business.

Pablo Legorreta: So now that this residual has value, it was just a very natural thing for the foundation to seek to monetize the residual and so that they wouldn't have any economic interest in drugs that are being sold to CF patients where they could be accused of having an economic interest. And so that's the rationale. And obviously, from our perspective, having had a 20-plus year relationship with the foundation, knowing them intimately, and having a constant dialogue with them, we were in an extremely strong position to acquire this asset. And that's what happened recently.

That can be surprising in future quarters, even when you're looking at a one quarter delay in reporting.

Second question is more big picture, but neuroscience appears to be the next frontier things like Huntington's, Alzheimer's DMT autism and so forth.

Do you find that has made some investments in neuroscience, but in lower risk areas says such as migraine and SDMA.

Is this because of oil to farm is concerned over risk of technical failure or are there just not that many opportunities in neuroscience. Thank you.

Pablo Legorreta: And we're very happy about that investment and are extremely excited about the return expectations and growth that that's going to provide for Royalty Pharma. Terry, I'll pass it on to you now to talk about diversification. We're very happy with our current diversification.

[noise] Terry do you want to take the first question on surprises during the quarter and maybe Jim and Marshall can you can address.

Taking the question on neuroscience.

Sure so.

Yes, as you know our royalties are reported on a lag but there.

Terrance P. Coyne: I think this quarter a little over 25% of our royalty receipts were from CF. I think what you'll see over time, even as that franchise continues to grow, I think what you'll see over time is that we will just sort of naturally diversify as we continue to make investments and as other products within the portfolio continue to ramp up. So I think we feel very good about it, and we'll continue to sort of naturally diversify over time. OK, thanks, guys. Thank you. Our next question comes from Steve Scala with Cowan. Your line is open.

There is out there it tends to be there can be some sort of question in terms of what the actual royalty bearing sales percentages. So that does create sort of a little bit of uncertainty for us it on a quarterly basis, but I think that what what were the reasons for the beat and raise this quarter is really sort of strength across the portfolio.

So when we gave when we gave guidance. We generally are sort of using consensus estimates and also using some of the guidance that that the company's gifts.

And across the portfolio. This quarter I think sales have been really quite strong set of CF performed really well tysabri performed really well extend the performed really well HIV performed really well. So I think that it was sort of just.

Steve Scala: Thank you. And congratulations as well on a terrific quarter. Two questions. Given Royalty Pharma's business model, it generally is not considered to be a beaten race situation. But nonetheless, this quarter it was.

A function of the products within the business performing so well that let us to increase the guidance.

It's Jim Rick Hey, Steve I'll start on your second question about neuroscience.

And maybe just back up a little bit to say that you know two degree.

You know our pipeline is based on.

Terrance P. Coyne: So what aspects of the business surprised management? And are there aspects of your business that can be surprising in future quarters, even when you're looking at a one-quarter delay in reporting? The second question is more big picture, but neuroscience appears to be the next frontier. Things like Huntington's, Alzheimer's, DMD, autism, and so forth.

You know kind of.

Where the industry goes.

In terms of the diseases.

Diseases and therapeutic areas and indications that it focuses on and you know it's been a very cancer focused world into very you know auto immune focus world for the past decade, or so so to a degree our recent acquisitions do reflect that a bit but but.

Jim Reddick: Royalty Pharma has made some investments in neuroscience, but in lower risk areas such as migraine and SMA. Is this because of Royalty Pharma's concern over the risk of technical failure, or are there just not that many opportunities in neuroscience? Thank you.

I I would completely agree with you that neuroscience is.

Very important those represent some huge API.

Opportunities both in terms of unmet disease need and also commercially so we're very interested in it and you know probably shouldn't go into too much detail on what's in the pipeline, but would just agree with you that that is an important area that we need to.

Terrance P. Coyne: Terry, do you want to take the first question on surprises during the quarter? And maybe Jim and Marshall can address, take the question on neuroscience. Sure. Sure. Yes, as you know, our royalties are reported on a lag, but there can be some sort of question in terms of what the actual royalty-bearing sales percentage is. So that does create sort of a little bit of uncertainty for us on a quarterly basis. But I think that the reason for the beat and raise this quarter is really sort of strength across the portfolio. So when we give guidance, we generally are sort of using consensus estimates and also using some of the guidance that the companies give. And across the portfolio this quarter, I think sales have been really quite strong. So CF performed really well, Tysabri performed really well, Xtandi performed really well, and HIV performed really well. It's Jim Ratick.

To make sure that we're covering I mean, we do we do we don't you know we wouldn't be careful and a good fiduciary in terms of.

Making sure that there's sufficient evidence for the products and the royalties that we go into.

But you know.

But I do think that you know with time, you know some of that.

He says that you're talking about you know, we'll really lend themselves to be nice fits in our portfolio and to really continue to diversify the portfolio.

Marshall you have anything to add.

No I think that covers it hi, Steve I would just I would just add you know that this is an area. We spent a lot of time and have looked at had looked at multiple things as part of the pipeline and we'll continue to do so but I think as Jim said, I think our bar and our approach and what we're looking for in new op.

For Tds is not it's not going to change.

Jim Reddick: Hey, Steve. Yeah, I'll start with your second question about neuroscience. And maybe I'll just back up a little bit to say that, you know, to a degree, our pipeline is based on, kind of, where the industry goes in terms of the therapeutic areas and indications that it focuses on. It has been a very, you know, autoimmune focused world for the past few years, so I would reflect that a bit. But I would completely agree with you that neuroscience is the most opportunities, and also commercial. So we're very interested in it. I probably shouldn't go into too much detail on what's in the pipeline, but would just agree with you that that is an important area that we're working on to make sure that we cover. I mean, we do...

Going forward and I think we we have and will continue to apply the same standards as we look at neuroscience as well.

Thank you, Dave maybe a lot to Terry's response.

On performance and I think one of the things that's been sort of a interesting you know thing.

Followed this year is the resilience of our portfolio and Terry talked about the products that.

Comprise our portfolio and their qualities.

And you know one of the things that was interesting to see in the Oh eight or nine financial crisis was again very strong resilience at the time I thought maybe you know.

The.

Business was not going to grow as predicted or as we expected and it continues to grow very nicely you know for that period of a year or two when we were in the very deep financial crisis.

Jim Reddick: I'm sure that there's... for the product that we go in, but who do you think that will be? with time. [inaudible] Now, I think that covers it, Steve. I would just add that this is an area we've spent a lot of time in, have looked at, and have looked at multiple things as part of the pipeline and will continue to do so. But, as Jim said, I think our bar and our approach and what we're looking for in new opportunities is not gonna change going forward. And I think we have and will continue to apply those same standards as we look at neuroscience as well.

You know current economic situation is very different than the owe it to nine crisis.

Given the pandemic and it's been also a pleasant surprise to see that even in these times. Our portfolio has continued to perform really well because of the attributes of the products that we have.

And.

It has been as you pointed out you know bill.

Perform better than the expectation going into the year.

And ER and I think it's a.

A bit about.

You know the business model of royalty pharma.

Pablo Legorreta: Steve, maybe I'll add to Terry's response on performance. And I think one of the things that's been sort of an interesting thing to watch this year is the resilience of our portfolio. And Terry talked about the products that comprise our portfolio and their qualities. And one of the things that was interesting to see in the 2008-2009 financial crisis was, again, very strong resilience. At the time, I thought maybe, you know, business was not going to grow as predicted or as we expected, and it continued to grow very nicely for that period of a year or two when we were in that very deep financial crisis. The, you know, current economic situation is very different than the 08-09 crisis, given the pandemic.

With you know very strong.

Financial leverage very revenues very low expenses.

Great diversification and products that are really the premier products in many of the therapeutic areas that are generally there probably isn't companies focus on to deliver you know growth and profitability. So we benefit from that obviously.

Thank you.

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

Great. Thanks, very much and let me add my congrats as well so I have one question for Pablo and one for Terry.

Pablo could you discuss your plans for future investments, including.

The mix of investments that you anticipate and on market drugs versus development stage drugs and.

And then Terry with respect to the recent cystic fibrosis transaction, how should we think about the blended royalty rates going forward relative to the roughly 10% that royalty pharma has been recording in recent years and what is the potential timing.

David Reisinger: And it's also been a pleasant surprise to see that even in these times, our portfolio has continued to perform really well because of the attributes of the products that we have. You know, it has, as you pointed out, performed better than the expectations going into the year, and I think that speaks a bit about, you know, the business model of Royalty Pharma with, you know, very strong financial leverage, revenues, very low expenses, great diversification, and products that are really the premier products in many of the therapeutic areas that are generally the products that companies focus on to deliver growth and profitability, so we benefit from that, obviously. Thank you. Our next question comes from David Reisinger with Morgan Stanley. Your line is open. Great, thanks very much, and let me add my congratulations as well.

Of the 75 million dollar milestone payment and what is that tied to.

Thanks very much.

Thank you David So in response to your first question about mix of investments as we've highlighted before during the road show and then other earnings calls.

Our business has obviously an opportunistic element.

Where you know we're talking to many potential partners.

Academia universities hospitals foundations, and then biotech and pharma and its <unk>.

Pablo Legorreta: So I have one question for Pablo and one for Terry. Pablo, could you discuss your plans for future investments, including the mix of investments that you anticipate in on-market drugs versus development-stage drugs? And then, Carrie.

Difficult for us to predict.

What deals are going to end up closing now what I would tell you is that we're very excited about the current pipeline.

We have.

You know it's.

Larger divers are larger than than it's ever been and diverse and that's because of the underlying.

Pablo Legorreta: What is the potential timing of the $75 million milestone payment, and what is that tied to? Thanks very much. Thank you, David. So in response to your first question about a mix of investments, as we've highlighted before during a roadshow and in other earnings calls, our business obviously has an opportunistic element where, you know, we're talking to many potential partners at academia, universities, hospitals, foundations, and then biotech and pharma. And it's difficult for us to predict, you know, what deals are going to end up closing. But, what I would tell you is that we're very excited about the current pipeline that we have. You know, it's larger and diverse, larger than it's ever been, and diverse.

You know trends in the industry.

Industry, where you know, there's a huge need of capital among biotech.

Biotech and pharma to develop great drugs that are in their pipelines.

And you know more and more as we all know the innovation is occurring.

Okay.

Universities hospitals, which end up with royalties.

In terms of the mix between approved and unapproved.

As we've said repeatedly in the past.

Currently our portfolio of investments in unapproved products is relatively low.

You know, it's a less than half a billion dollars of investments in products that are not yet approved where in the past. It had been many billions of dollars three $4 billion. After 2014, when we did the cystic fibrosis Foundation transaction.

Pablo Legorreta: And that's because of the underlying trends in the industry, where there's a huge need for capital among biotech and pharma to develop great drugs that are in their pipelines. And, you know, more and more, as we all know, the innovation is occurring at academia, universities, and hospitals, which end up with royalties. In terms of the mix between approved and unapproved, as we've said repeatedly in the past, currently, our portfolio of investments in unapproved products is relatively low.

And obviously a lot of those get approved and have become really attractive investments for us.

Like Imbruvica like picture Dara.

Cystic fibrosis and others.

Recently, obviously immunomedics.

So that's an area, where we believe there is huge.

Demand for capital Biotechs that are.

Getting into late stage clinical development and need capital and that's an area, where our hybrid investment strategy.

Pablo Legorreta: You know, it's less than half a billion dollars of investment in products that are not yet approved, where in the past, it had been many billions of dollars, you know, three, four billion dollars after 2014 when we did the Cystic Fibrosis Foundation transaction. And obviously, a lot of those got approved and have become really attractive investments for us, like Imbruvica, like Tecfidera, Cystic Fibros So that's an area where we believe there's huge demand for capital, biotechs that are getting into late stage clinical development and need capital. And that's an area where our hybrid investment strategy will play, I think, a growing role where we will continue to fund biotech companies through hybrid transactions. And that's an area where I'm very excited about the future prospects of Royalty Pharma.

We'll see I think a a growing role.

Rule.

Where we will continue to fund biotech companies through hybrid transactions.

That's a that's an area where I'm very excited about for the future prospects of a very old pharma. So you know if you look at the past where over the last eight years from 2012 to 2020.

We've done a little bit more than $14 billion of deals and about 55% were unapproved products and 45 weren't unapproved products.

I think a mix.

Like that in the future wouldn't be unusual or you have to look over a couple of year to three year time period, because it could be the case that in one year, maybe we do 80% of the investments in unapproved or 80% in approved but I think over time those things were balance out.

And what kind of a very nice mix.

But realize that you know the portfolio the value of the portfolio of things that are approved is so large and the portfolio produces so much cash flow you know 2 billion a close to $2 billion of revenue from.

Pablo Legorreta: So, you know, if you look at the past, where over the last eight years, from 2012 to 2020, we've done a little bit more than $14 billion in deals, and about 55% were in approved products, and 45% were in unapproved products, like that in the future wouldn't be unusual. Now, you have to look over a couple of years, two, three years time period because it could be the case that in one year maybe we do 80% of the investments in unapproved or 80% in approved, but I think over time those things will be balanced out, and we'll have a very nice mix.

Approved products that that gives us the best friends.

Because that 2 billion that is being generated by the approved products.

It's diversified it's predictable it's growing it's very long you know 15 year weighted average duration, so that puts us in a really unique position to be able to take a little bit of risk now, it's going to be calculated risk diversified risk where we invest.

Billion or two maybe more over the next couple of years.

Pablo Legorreta: But realize that the value of the portfolio and things that are approved is so large, and the portfolio produces so much cash flow, close to $2 billion of revenue from approved products, that that gives us strength because that $2 billion that is being generated by the approved products is diversified, it's predictable, it's growing, and it's very long, you know, the 15-year wait or average duration. So that puts us in a really unique position to be able to take a little bit of risk, now it's going to be calculated risk, diversified risk, where we invest, you know, a billion or two, maybe more over the next couple of years, two, three years in unapproved and, you know, with huge potential upside for Royalty Pharma and our investors. So it's an area that we're very excited about and where we believe there's very significant potential. Dave, on your question about the...

Two three years in an approved.

And you know with huge potential upside for royalty pharma and our investors. So so it's an area that we're very excited about and where we believe there's there's very significant potential.

Dave on your on your question about the.

The royalty rates so we.

We have not given the specific royalty rates, but I can sort of speak speak generally so they're they're really in two buckets, you have ivacaftor lumacaftor and tezacaftor and the royalty rates on on those compounds.

Compounds.

Is single digits to sub teens and.

And then the other bucket as a lecture capture and that has a mid single digits royalty.

So the the first bucket one that really include Kalydeco ORKAMBI Ensign Deco, so that bucket is going to sort of have generally a higher royalty rate because it doesn't have.

The Alexa capture component.

As the mix shifts to the Triple which has one third at a mid single digit royalty rate.

Terrance P. Coyne: The Royalty Rates. So we have not given the specific royalty rates, but I can sort of speak generally. So they're really in two buckets. You have Ivacaftor, Lumacaftor, and Tezacaftor, and the royalty rates on those are single digits to sub. And then the other bucket is Alexicaptor, and that has a mid-single digit royalty. So the first, the bucket one, that would really include Kalydeco or Camby and Sundeco.

The royalty will trend a little lower overtime, but we havent been we we were not being.

Totally specific on what the royalty what the actual rates are.

With regard to the milestone payment.

We haven't we haven't disclosed.

Well.

The trigger for the timing of that milestone payment.

But what I can say is whenever we structure deals where there are milestone payments, we are very happy to pay those milestone payments.

Terrance P. Coyne: And so that bucket's gonna sort of have a higher royalty rate because it doesn't have the Alexa cafter component. As the mix shifts to the triple, which has one-third at a mid-single-digit royalty rate, the royalty will trend a little lower over time, but we haven't been, or aren't being totally specific on what the royalty rates are. With regard to the milestone payment, we haven't disclosed the trigger or the timing of that milestone payment, but what I can say is whenever we structure deals where there are milestone payments, we are very happy to pay those milestone payments, but we haven't, for confidentiality reasons, described the details of the milestone payment. Great, thanks very much for all the details.

So we haven't we haven't sort of for confidentiality reasons. We havent described the details of the milestones.

Great. Thanks, very much for all the detail.

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

Great. Thanks, so much I just had two questions I guess kind of electric deal structure and some of the hybrid deals. Thanks.

Important is it for you to take an equity stake in the partners as you consider returns on deals versus just a pure where LT I guess all else equal would you prefer a pure royalty structure or do you actively seek out an equity stake when you think about these development stage deals.

And then my second question is on it may spill topic adult development stage deals for the deals you pursued that haven't happened what's the primary push back or rationale you get from that partner of not working with where LT is it just that it was more favorable return wise do an equity raise is that the complexity of the deal is a competitor stepped in getting a sense of.

David Reisinger: Thank you. Our next question comes from Chris Schott with J.P. Morgan. Your line is open. Okay. Thanks so much.

Christopher Schott: I just had two questions. I guess, coming back to deal structure and some of the hybrid deals, how important is it for you to take an equity stake in the partner as you consider returns on deals versus just a pure royalty? I guess, all else equal, would you prefer a pure royalty structure, or do you actively seek out an equity stake when you think about these development stage deals? And then my second question is on a similar topic of development stage deals. For the deals you've pursued that haven't happened, what's the primary pushback or rationale you get from that partner about not working with Royalty? Is it just that it was more favorable return-wise to an equity raise? Is it the complexity of the deal?

What's the kind of hurdle rate to getting.

Some of the deals youve, but you've missed on.

Don I guess, thanks, so much.

Sure and I'll ask Jim to answer the second part of the question, but all in all US answer the first.

But maybe I'll also just say with regards to deals that don't happen.

Often it's.

Because of you know diligence issues that we decide we.

I want to make the investment because we couldn't get comfortable with certain aspects of it could be you know IP related or other things.

But regarding the.

The equity and hybrid deals. The reality is that you know we're incredibly open minded about.

You know how to structure things and very flexible because at the end of the day. What we really are trying to do is to be the best partner for companies and other holders of royalties and.

Pablo Legorreta: Is it because a competitor stepped in? Try to get a sense of what the kind of hurdle rate is to getting some of the deals that you've missed on done. Thanks so much.

Really the partner of choice to them.

And address their needs their concerns essentially solve problems for them.

Pablo Legorreta: Sure, and I'll ask Jim to answer the second part of the question, and I'll answer the first. But maybe I'll also just say, with regard to deals that don't happen, often it's due to diligence issues where we decide we don't want to make the investment because we can't get comfortable with certain aspects. It could be IP-related or other things.

And.

Being flexible is really important and we have no problem if older over royalty wants to find them through or a holder of a product that meets capital in mid stages.

You know wants to find as purely with a royalty we wouldn't be very happy to do that and if at the end you know they see value in AWS buying equity.

Pablo Legorreta: But regarding equity and hybrid deals, the reality is that we're incredibly open-minded about, you know, how to structure things and very flexible because, at the end of the day, what we really are trying to do is to be the best partner for companies and other holders of royalties and really the partner of choice for them and address their needs, their, you know, concerns, and essentially solve problems for them. Being flexible is really important. We have no problem if a holder of a royalty wants to finance through or a holder of a product that needs capital in the late stages wants to finance purely with a royalty. We would be very happy to do that. And if, in the end, they see value in us buying equity because it could be a validation, you know, for the company, and the product, it could also result in them getting more capital that they may need.

Because it could be a validation.

For the company the product.

It also result in them getting more capital that they may need.

[music].

In those cases, you know we're very happy to also acquire a an equity position now we generally do that when.

You know.

In companies that are sort of where the investment we're making the product is going to drive in a very meaningful way. The long term performance of of the equity. So we do a deal with a large pharma and fine and so phase three for large pharma, there's no point in us buying equity in the company, it's much more driven geared towards.

Companies that are single product or maybe they have a couple of products, but but but you know the the success of the product we're funding will drive the equity performance and.

You know one of the things that I would say there is that we're going to continue to be creative you probably saw in the buy even deal but in addition to like in the immunomedics deal and Epizyme deal, we did equity but in the recent by seven deal we decided to do something different with is a preferred equity stake.

Pablo Legorreta: In those cases, we're very happy to also acquire an equity position. We generally do that in companies where the investment we're making in the product is going to drive, in a very meaningful way, the long-term performance of the equity. For example, if we do a deal with a large pharma and finance a Phase III for a large pharma, there's no point in us buying equity in that company.

Not sure, which we saw more us launch capital to where you know by him and it's going to invest another $200 million that we're gonna provider were over four years in a the launch of neritic, you know to make sure that that product you know.

Receives the capital is that is needed to really make it a very very successful launch.

Pablo Legorreta: It's much more geared towards companies that are single product, or maybe they have a couple of products, but the success of the product we're funding will drive the equity performance. You know, one of the things that I would say there is that we're going to continue to be creative. You probably saw in the BioHaven deal that, like in the Immunometics deal and the Epizyme deal, we did equity. But in the recent BioHaven deal, we decided to do something different with this preferred equity structure, which we saw more as launch capital where, you know, BioHaven is going to invest another $200 million that we're going to provide over four years in the launch of NERTTEC to make sure that that product receives You know, we're going to earn a 12% return based on the payments that we'll get from us providing that $200 million, 12% unlevered over the next, you know, 10 years or so. A very attractive return, you know, with very little risk. There's no, you know; it's fixed payments.

And.

No we're going to earn a 12% return based on the payments that we'll get from US providing about 200 million 12 will present.

Unlevered over the next 10 years or so very attractive return.

With very little risk. There is no you know it's it's it's a fixed payment. So you know again, we in that particular case, we already own the royalty so for us to make that additional investment.

Was very very attractive for us attractive for the company and made a lot of sense I'm, making everything a win win so I think we're open minded and you know really there's no what I told the team always when we are approaching.

An investment this has been the rule for decades is we have to come to a transaction with an open mind with a blank piece of paper it and let's not take the last deal with it and use that as a framework or as a model because in reality. When you think of life Sciences. Every case is different you know the price.

Product is different the clinical development program is different than size different in in time, it might take a year or two or three years to develop a product.

One study multiple studies you know the competitive environment will be different one of the probably gets approved the duration of the royal to use different everything is different so you cannot.

Pablo Legorreta: So you know, again, we already own the royalty. So for us to make that additional investment was very, very attractive for us, attractive for the company, and made a lot of sense, making everything a win-win. So I think we're open-minded and, you know, really, there's no. What I tell the team always when we are approaching an investment, and this has been the rule for, you know, decades, is we have to come to a transaction with an open mind, with a blank piece of paper. So let's not take the last deal we did and use that as a framework or as a model. Because, in reality, when you think of life sciences, every case is different.

The best approach for US has been to actually you know approach each situation with a very open mind listened carefully to our partner tried to understand what their needs are what is driving them and then come up with solutions and that's how we approach things.

Jim do you want to take the other question.

Sure Hey, Chris.

So in terms of deals that don't happen and why that is I would say Pablo.

I did answer it to a degree with.

By saying you know something didn't checkout in diligence.

So that's a possibility.

I would say another time that that happens is if the company has acquired we've had that happened a few times, where we're getting pretty close and then somebody takes them out.

I guess, some it's also possible that the company's stock runs up and.

Pablo Legorreta: You know, the product is different, the clinical development program is different in size, different in time. It might take a year, two, three years to develop a product in one study, multiple studies. You know, the competitive environment will be different when the product gets approved. The duration of the royalty is different. Everything is different.

Previously on selling a real to you to us was a better cost of capital, but if the stock runs up maybe that an equity issuance becomes a better cost of capital, but I would say most of the time if.

If it is a product that we have conviction and we can almost always show the company something attractive.

Pablo Legorreta: So you cannot, the best approach for us has been to actually, you know, approach each situation with a very open mind, listen carefully to our partners, try to understand what their needs are, what is driving them, and then come up with solutions. And that's how we approach things. Jim, do you want to take the other question? Sure. Hey Chris.

I kind of think Thats, the beauty of the stock world versus the royalty World as you know the stock World. If you don't like the price of the stock then you kind of have to move on.

And not have a transaction, where you buy the start but in our world there are always ways to get.

Get to agreement because we can structure.

Product and we can have a different forecast and a company that we're talking to and still and that's not you know in past the end of the conversation, we can keep talking and find a.

Jim Reddick: So in terms of deals that don't happen and why that is, I would say Pablo did answer it to a degree by saying something didn't check out in due diligence. So that's a possibility, say another time that that happened. The company is acquired. We've had that happen a few times, getting pretty close.

A structure that ends up being a win win after all so it's really a fascinating aspect to the world the world and and it's the reason that we can usually you know shows companies something that is very constructive and works for them.

Jim Reddick: I guess it's also possible that the company's stock runs up and I'm selling a royalty, which was a better cost of capital, but if the stock runs up... issuance becomes a better cost of capital. But I would say most of the time, if it is a product that we have conviction in... um... get to agreement structure the product, and we can have a different forecast, the company that we're talking about, An impasse that ends the conversation, after all.

Product that we really believe in.

Thank you.

Thank you. Our next question comes from Gregg Gilbert Cialis. Your line is open.

Thanks, Good morning, everyone Pablo to what degree can your existing team and set of capabilities assess all the opportunities that exist out there and.

Curious what capabilities you'd like to add or bolster as you look out over the next five plus years. It would seem that a lot of the expertise you need to diligence things are sort of rentable or borrow ball among experts external to the company, but curious on your vision as to what you would like to bring in house if anything additional.

Jim Reddick: It's really a fascinating aspect of the royalty world, and it's the reason that we can usually show something that is very constructive and works for them if it's a product. Thank you. Our next question comes from Greg Gilbert with Truist. Thanks. Good morning, everyone.

And then also for problem maybe for Chris do you see other companies that are purchased or otherwise accumulated various royalty streams as possible acquisition targets given your super efficient structure.

Stephen Michael Scala: Pablo, to what degree can your existing team and set of capabilities assess all the opportunities that exist out there? I'm curious what capabilities you'd like to add or bolster as you look out over the next five-plus years. It would seem that a lot of the expertise you need to diligence things is sort of rentable or borrowable among experts external to the company, but I'm curious about your vision as to what you would like to bring in-house, if anything additional.

Potential cost of capital advantages. Thank you.

Sure. Thank you for the question.

So.

Regarding the first part of your question about the team Yeah. If you look at Brown Forman 10 years ago.

The team was smaller and it's grown gradually over time in a very you know sort of thoughtful cautious wait.

And even over the last year or two it's grown.

Pablo Legorreta: And then also for Pablo and maybe for Chris, do you see other companies that have purchased or otherwise accumulated various royalty streams as possible acquisition targets, given your super-efficient structure? Potential Cost of Capital Advantages Sure. Thank you for the question. So, regarding the first part of your question about the team, if you look at Royalty Pharma 10 years ago, the team was smaller, and it's grown gradually over time in a very, you know, sort of thoughtful, cautious way. And even over the last year or two, it's grown.

We've added obviously you know.

Great additions to the team has been Chris who has an incredibly deep.

Network and experience in life Sciences and with him.

We added and individuals that are working very closely with Chris Mudd Lyons.

And then added you know over the last year or two you know maybe three or four people maybe more now that I think about a five six people with cool, but its difficult to keep track of but one of the additional because everybody is working remotely but.

In the more sort of junior levels and the research team and added also on legal legal for example, we've added over the last six months of two additional members to the legal team in addition to George and Jason.

Pablo Legorreta: We've added, obviously, a great addition to the team has been Chris, who has an incredibly deep network and experience in life sciences. And with him, we added an individual that's working very closely with Chris, Matt Lyons, and then added, over the last year or two, maybe three or four people, maybe more now that I think about it, five, six people with COVID. It's difficult to keep track of all of the additions because everybody's working remotely, but in the more sort of junior levels in the research team, and we've also added, on legal, for And so we've done that carefully over time, and we will continue to add, you know, over the next 12 to 24 months. I think you might see another, you know, half a dozen to a dozen people added to the team, which is not significant. It's maybe a, you know, sort of a 20 percent addition to the team.

Really experienced you know lawyers with with press transactional expertise and capital markets expertise.

[music].

So we've done that carefully over time, and we will continue to add you know over the next 12 to 24 months I think you might see another you know.

Half a dozen to a dozen people added to the team which is not significant its maybe a sort of about 20% of this into the team and I think you pointed out one really there's two things actually that I will say one is there's a lot of work that happens.

Before we make an investment and when I say a lot of work its work that could happen over a decade, we're following our therapeutic area like TNS.

Or oncology and that.

Those areas, we follow a regularly and go to the medical conferences, and then opportunities come about and in some cases, we followed the assets we have the asset or a model. We have a view about its commercial potential about clinical trials that are being run for that specific asset and you know we have.

Pablo Legorreta: And I think you pointed out one really important thing – there's two things, actually, that I will say. One thing is that there's a lot of work that happens before we make an investment. And when I say a lot of work, it's work that could happen over a decade where we're following, you know, a therapeutic area like TNFs or Oncology, and those areas we follow regularly and go to medical conferences. And then opportunities come about, and in some cases, we follow the asset, we have the asset in our model, we have a view about its commercial potential, about clinical trials that are being run for that specific asset, and, you know, we may have been following that asset for five years, and then all of a sudden, a transaction becomes possible, we jump on it, and we can react in a matter of days to actually making a proposal to a And that's what the research team does all the time.

We may have been following that I said four or five years, and then all of a sudden transaction becomes a possible would jump on it and we can react in a matter of days to actually making a proposal to a company with that particular asset because we've been following it for a long time and that's that's what the.

The research team does all the time.

But them in terms of so so the point is we follow broadly the life Sciences ecosystem and always are trying to anticipate what are going to be the attractive areas for the future and we had a discussion a few minutes ago about you know neuroscience.

CNS, which we're very excited about for the future.

But then what also happens is that when a transaction or becomes life. We can the the research team and legal team.

Well, you know lead the diligence and negotiations, but in addition to the team I'd roiled from I thought it might be working on that specific gas it which could be you know half a dozen people three or four on the research team and also you know a couple of them the legal side.

Pablo Legorreta: But then, in terms of, so the point is, we follow the life sciences ecosystem broadly and are always trying to anticipate what are going to be the attractive areas for the future. And we had a discussion a few minutes ago about, you know, neuroscience and CNS, which we're very excited about for the future. But then what also happens is that when a transaction becomes live, the research team and the legal team will lead the diligence and negotiations.

We actually often.

Never the internal expertise with maybe 50 or 100 people that are outside of royalty pharma, where we reach out to.

Two doctors that you consultants that we've been talking to about.

Pablo Legorreta: But in addition to the team at Royalty Pharma that might be working on that specific asset, which could be half a dozen people, three or four on the research team, and also a couple on the legal side, we actually often leverage internal expertise with maybe 50, 100 people that are outside of Royalty Pharma where we reach out to doctors, consultants that we've been talking to about, you know, it could be multiple sclerosis or oncology where we So we reach out to them, have a discussion about the new opportunity, you know, try to understand, you know..., all of the specifics of that asset.

Could be multiple sclerosis, or oncology, where we've known the key opinion leaders in those areas for decades, and you know we have a constant dialogue with them. So we reached out to them have a discussion about the new opportunity you know try to understand you know.

All of the specifics of that asset, but then we also bring you know so in addition to the you know doctors key opinion leaders that that were going to consult we also reach out to regulatory experts reimbursement experts manufacturing experts and.

A whole host of other consultants and that is that is exactly the way that this business should run when I started with the <unk> I realize that the the specifics of each investment are so unique.

Pablo Legorreta: But then we also bring in, you know, so in addition to the doctors and key opinion leaders that we're going to consult, we also reach out to regulatory experts, reimbursement experts, manufacturing experts, and a whole host of other consultants. And that is exactly the way that this business should run. When I started Royalty Pharma, I realized that the specifics of each investment are so unique that it's impossible to have all of the experts internally at Royalty Pharma. It wouldn't make any sense, and it would actually be a detriment, because what we want is to have, you know, regulatory experts out there in the real world working with companies so that they can stay up-to-date and relevant, so that when we go to them, they know exactly what the current state of affairs in that specific field is.

That it's impossible to have all of the experts internally at room from it wouldn't make any sense and would be actually a detriment because what we want is to have you know the regulatory experts out there in the real world working with companies. So that they can stay up to date and relevant so that when we go to them.

You know they they know exactly what is the current state of.

Affairs in that specific field it could be regulatory could be reimbursement there could be even IP you know you want.

We havent you know internally our legal team that's excellent, but we also want to go out to.

To.

[noise] law firms that are expert in intellectual property.

That are you know <unk> constantly updating themselves and see whether you will find is that there's there's people out there in on you.

You know IP that are expert in very narrow fields could be you know TNF that could be antibodies. It could be you know now with you know other newer technologies gene therapy. As you know there's people to have that level of expertise and we always want to go.

Pablo Legorreta: It could be regulatory. It could be reimbursement. It could even be IP.

Pablo Legorreta: You know, you want... We have an internal legal team that's excellent, but we also want to go out to law firms that are experts in intellectual property that are constantly updating themselves. What you will find is that there are people out there in the IP world that are experts in very narrow fields. It could be TNFs or it could be antibodies. It could be now with other newer technologies, gene therapies, there are people that have that level of expertise. We always want to go to the people that are current in all of those things. That's how we approach the business. The beauty of it is that because we don't have all of the sales and marketing and other aspects that the companies out there have, we have an incredibly lean, very efficient entrepreneurial team. Yes,

To to the people that are current in all of those things. So so that's how we approach the business and that's you know and the beauty of it is that you know because.

We don't have all of the the sales and marketing and other aspects that you know the company's other half we have an incredibly lean very efficient entrepreneurialism team and that's the way this business works and it's a threat.

[noise] royalty question.

Yes.

Sorry can you repeat the question I sure sure do you see other companies that have purchased or otherwise accumulated various royalty streams as possible acquisition targets given you are.

Super efficient structure, Oh sure Yeah, and you you got to ask Chris to answer that what I would say is more than <unk> companies that have accumulated royalties is probably companies that own a portfolio of royalties because they had maybe a platform technology and those could be interesting partners to royalty pharma.

Pablo Legorreta: Thank you. Sorry, can you repeat that question? Sure, sure. Do you see other companies that have purchased or otherwise accumulated various royalty streams as possible acquisition targets, given your super-efficient structure? Oh, sure. Yeah, and you had asked Chris to answer that.

And Chris Chris do you want to add anything to that.

Yes, I mean, the only thing I would say Greg is.

In the way in which we think about M&A.

Pablo Legorreta: What I would say is more than companies that have accumulated royalties, it's probably companies that own portfolios of royalties because they have, maybe, a platform technology. And those could be interesting partners to Royalty Pharma. Chris, do you want to add anything to that?

On on something like that me anyway would be more efficient.

Maybe acquire the royalties that company and let them sort of reposition themselves and invest it in their own new R&D or <unk> or whatever.

Or in a sense of.

Christopher Hite: Yeah, I mean, the only thing I would say, Greg, is the way in which we think about M&A. And on something like that, to me anyway, it would be more efficient to maybe acquire the royalties out of that company. [inaudible] may want to do M&A. [inaudible] premiums you have to pay. Breakage, there's shutdown costs.

No you know sometime mid cap Biopharma company may want to do M&A, but maybe you don't have the capital resources to accomplish cache caching money or something I can see us.

Again in helping so many do something like that as opposed to acquiring a company outright. There's there's premium do you have to pay the breakage. There is shutdown cost there's potentially attack inefficiencies on acquiring a company outright. So we would actually much rather sort of partner.

Christopher Hite: Tax and Efficiency. Acquiring a company outright, so we would actually much rather sort of partner. Help a company accomplish in M&A and Acquire Royalties out of Defense. Thank you.

Pulp accompany accomplishing the M&A and acquire royalties out of those companies.

That makes sense. Thank you guys.

Thank you. Our next question comes from Navient Jacob Yes. Your line is open.

Melvin Jacobs: Our next question comes from Melvin Jacobs with UBS. Hi, thanks for taking the question. Your guidance bump on the cash royalty receipts was about $50 million, of which probably $20 million by my math.

Hi, Thanks for taking the question your guidance from Thunder or cash royalty receipt.

It's about a 50 50 million of which probably 20 million by my math is perhaps due to the cystic fibrosis deal. The rest of the 30 million. If my math is correct what products are driving that better performance and that leads to the next question, which is as you look at consensus estimates for the next five to 10 years.

Melvin Jacobs: Perhaps due to the cystic fibrosis deal, the rest of the $30 million, if my math is correct, what products are driving that better? And that leads to the next question, which is, as you look at consensus estimates for the next, you know, five to ten years, for 100% sales economics. What products do you think are underappreciated by the street? Is it Xtandi, Cystic Fibrosis, Fidelvi, or something else?

For the 100% sales a 100% sales economics, what products do you think are underappreciated by the street as it extends the cystic fibrosis for Dolby or something else. Please.

And then just a longer term question, you've stated that the biopharma royalty market has grown by 50% from 2013 to 2020, where do you see that growth over the next five years and you expect to maintain your share of 60% of the market. Thank you so much.

Melvin Jacobs: And then just a longer-term question. You've stated that the biopharma royalty market has grown by 50% from 2015-2020. Where do you see that growth in the next five years and do you expect to maintain your share of 60% of the market? Thank you so much.

Terry do you want to take the question on the outperformance here yeah.

Yeah. So.

Just it just to clarify I mean, none of the none of the increase in our guidance is driven by CF, we're not going to have any or not by the sorry. None of it was driven by the recent CF acquisition that will not have any impact in 2020 whatsoever. The first time that we would have residual royalties or we like.

Terrance P. Coyne: Terry, do you want to take the question on performance? Yeah, sure. Yeah, so just to clarify, I mean, none of the increase in our guidance was driven by CF. We're not going to have any, or not because, sorry, none of it was driven by the recent CF acquisition. That will not have any impact in 2020 whatsoever.

Get those residual royalties that we bought from the foundation would be in the first quarter of 2021.

And so.

Well, what's really driving performance.

Terrance P. Coyne: The first time that we would have residual royalties or we would get those residual royalties that we bought from the foundation would be in the first quarter of 2021. And so what's really driving performance, I think it's sort of strength across the portfolio, but particularly strong performance came from the CF franchise, Ty Sabry, HIV, and then also a little bit from diabetes as well from Januvi and Janumet.

I think it sort of strength across the portfolio, but particularly strong performance came from the CF.

Franchise.

Hi, Sabri.

HIV.

And then also a little bit from from diabetes as well from from matching it and so that's where it does business.

The strong.

But I think that.

We were very happy with the underlying performance of the business.

You asked about products that we think.

Terrance P. Coyne: So, you know, those were particularly strong. But, you know, I think that... And we're very happy with the underlying performance of the business. You asked about products that we think... But yeah, I don't think we'll get into which products we think could beat others.

Have the potential to or where consensus is might be not modeling correctly or what we have in a more optimistic view I think what privacy ranged from talking about about that right. Now I mean, we're really excited about a lot of that sort of launching products in our portfolio.

We've taken a very very long term needed. So that's always that's always how we approach so the the world.

Yeah, I don't think we'll we'll get into what price, we think could be versus others.

Okay, I can take a quick industry.

Marshall Urist: I can take the royalty industry question. You make a good point that we've had incredible growth in the royalty industry, 50% growth in the last several years. And we do think that there are a lot of great royalty assets out there that will continue to fuel the growth. When you add in synthetic royalties, the ability to essentially create a royalty on any product.

Industry question.

So you make a good point that we've had incredible growth in the royalty industry.

50% growth in.

In the last several years.

And and we do think that.

There are a lot of great royalty assets out there that we will continue to fuel the growth and when you add and synthetic royalties the ability to essentially create a royalty on any product then I believe that that's going to result, and you know even further.

Marshall Urist: And I believe that that's going to result in, you know, even further exponential growth layered on top of that over the next several years, just as companies view synthetic royalties as a new way by which to raise new capital in addition to equity, and so on, with us or the other players, and there are other players. And I can't promise, you know, that we'll always be in a dominant market share position. Center, be able to grow that, but I am very encouraged.

Exponential growth layered on top of that you know over the next several years just as companies view synthetic royalties as a new modality by which to raise new capital. In addition to equity raises and convert the more traditional route.

So we really are sensing kind of of swelling of interest in.

Being synthetic royalties, you know with us or the other players and there are other players.

And I can't promise you know there will always be in a dominant market share position with 60% or be able to grow that but I am very encouraged with the growth in the overall industry and I think that that will more than make up if we have you know market share slippage because.

Marshall Urist: Growth and the overall industry, and I think that that will more than make up for any market share slippage, that this is a growing industry and that our... Acquisitions, or the number of potential acquisitions out there, to show a nice growth rate, you know, even if there are. We're going to try to expand the industry even more because there are more people out there besides us talking about the advantage of selling. Thank you. Our next question comes from Michael DiFiore with Evercore. Your line is open.

I just think that this is a a growing industry and and and that the.

Our acquisitions or the number of acquisition potential acquisitions out there you know, we'll continue to show a nice growth rate.

You know even if there are new players out there in fact, new players actually probably will expand the industry, even more because there are more people out there. Besides the <unk> talking about you know the advantage of selling royalties as a way of capitalizing companies and new research.

Thank you. Our next question comes from Michael D. Fiori with Evercore. Your line is open.

Michael DiFiore: Hi guys, congratulations on the quarter and thanks so much for taking my questions. Just a couple quick ones from me: given all the current political uncertainty, how might Royalty Pharma's tax structure get affected depending on who gets control of the Senate, and how do you see drug pricing pressure evolving next year? And then just a more general follow-up, if you could just point out the most important things, that would be very helpful.

Hi, guys congrats on the quarter and then thanks, so much for taking my question just a couple of quick ones from me just given all the current political uncertainty how might royalty pharma is tax structure I get affected depending on who gets control of the Senate and how do you see drug price pricing pressure.

Evolving next year, and then just a more general follow up.

If you can just point to the the most important clinical read outs for your portfolio in the next 12 to 18 months that would be very helpful. Thank you.

Terrance P. Coyne: Terry, can you take the question of taxes and maybe Marshall the question on prices and clinical readouts? Sure. So, this is something that's come up fairly regularly, and I think that there is a little bit of a misunderstanding.

Sorry can you take the question of taxes, and maybe Marshall the question on prices and clinical readout.

Sure.

So.

This is this is something that's come up.

That's a fairly regularly and I think that there's there's a little bit of a misunderstanding. So I think it's really important to point out that.

Terrance P. Coyne: So I think it's really important to point out that the discussion on U.S. tax reform relates to U.S. individuals and corporations. We're a UK PLC, we're not a US corporation, so this discussion is really not applicable to Royalty Pharma. And we're not aware of any potential changes to the UK or Irish tax code that would change our tax status.

The discussion on U.S. tax reform relates to U.S. individuals and corporations, where Youve UK plc, we're not in U.S. Corporation. So this discussion is really not applicable to royalty pharma and we're not aware of any potential changes to the UK.

Or Irish tax code that would change our tax status, we've really been structured in much the same way as a pass through with no corporate.

Marshall Urist: We've really been structured in much the same way as a pass-through with no corporate or withholding taxes since 2003, so we don't anticipate that there's going to be any changes there. I'll pass this over to Marshall. First of all, on the pricing and policy landscape, we feel good about both where the current portfolio is and our approach moving forward, no matter how the policy and pricing landscape evolves in the years to come. We have a highly diversified portfolio of products, important products that meet real unmet medical needs and are really fundamental to patients and doctors and the treatment of those diseases. So regardless of how that landscape might evolve, we think a portfolio like that is going to be best positioned.

Withholding taxes since 2003, so we don't anticipate that there's going to be any changes there.

Whatever to Marshall.

Yeah, I like warning. Thanks for the question. So first of all just on the pricing and policy landscape on we feel good about both where the current portfolio is and and you know our approach moving forward no matter, how this sort of policy and pricing.

Skate balls in the evening.

In two years in the years to come so on on the current portfolio as we've talked about before we have a.

Highly diversified portfolio of products.

Important products that meet unmet that meet real unmet medical need add you know really fundamentally cheating in patients and doctors and the treatment of this disease. So regardless of how that landscape might evolve we think a portfolio like that is going to be best positioned and as public touched.

Marshall Urist: And as Pablo touched on earlier, I think as we move forward, you know, strategically, we have complete flexibility across therapeutic areas and modalities to really be tactical and respond and evolve and incorporate new information on the policy front into how we look at new products and how we position the portfolio going forward. So, you know, I think we feel really good.

Earlier, I think as we move forward, we have strategically we have complete flexibility across therapeutic areas modalities to really be tactical respond and in fall and incorporate new information on the policy front into how we look at and how we look at your products and how we position.

The portfolio going forward. So you know I think we feel really good it's something we're actually following.

The happenings and on the policy closely but I think our portfolio and our strategy. It really sets up well to you know to evolve with the industry. So I think that the second part of your question was just on teen Readouts looking forward. So I think I named first can make a big point I think.

Marshall Urist: It's something we're actually following closely, and I think that's always important to keep in mind. But with that being said, I think, you know, as we look into next year, to name a few things, and certainly Trigelvi and the readout in HR positive metastatic breast cancer in 2021 will be important in significantly increasing the addressable market for that product. Xtandi and M0. Prostate cancer and the EMBAR

Well, if you find like given that diversity is to define.

Defined or you know dependent on single on a single beat out or a handful of read outs and I think that's always important to keep in mind, but with that being said.

As we look into next year can name a few things on search.

Certainly trick Lv and data readout.

HR positive metastatic breast cancer.

In 2021, it will be it will be important.

Significantly increasing the addressable market for that product Skandi and euro.

Prostate cancer.

And the important trial are you point to that as well and then I'd also mention.

Marshall Urist: We are looking forward to that one as well. And then I'd also mention, you know, a couple more. The PT-027 is an AstraZeneca product for asthma; we'll have data next year as well.

A couple of more the PT.

PT O T seven which is an astrazeneca product in asthma, we'll have data next year as well and then finally, the recent bio Haven deal with they Intranasally did that Japan will CV data from phase three for that next year as well. So again you are not.

Marshall Urist: And then finally, the recent Biohaven deal with the intranasal route, so VEGIPANT, we'll see the data from Phase 3 for that next year as well. So again, you know, not so much. I think all, you know, we're looking forward to those. But again, I think those don't, you know, in no way define me.

So I think all you were looking forward to those but again I think those don't you know in no way to find the slate.

Michael DiFiore: Thanks so much. Thank you. Our next question comes from Terrence Flynn with Goldman Sachs. Your line is open. Hi, thanks for taking the questions. Maybe two for me.

Great. Thanks, so much.

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

Hi, Thanks for taking the questions maybe two for me. It was just wondering if you can comment broadly Terry on how to think about expenses for 2021, if we should expect those to generally be similar to this year on a percentage basis or if theres any kind of high level puts or takes that we should consider and then on the captive probably.

Terence Flynn: I was just wondering if you could comment broadly, Terry, on how to think about expenses for 2021, if we should expect those to generally be similar to this year on a percentage basis, or if there's any kind of high-level puts or takes that we should consider. And then on home accounts, probably for Marshall, I'm just wondering if you have any initial perspective there on the data. I know we're going to learn more later this week about any key learnings that you might apply to future projects. So, Terrence, on expenses... We're not going to give specific guidance right now, but I can sort of speak generally. I think the way to think of it is there's a fixed component and a variable component, and the fixed component is going to be in sort of the 7% of adjusted cash receipts range. And then there's a variable component that's related to, certainly this year there were certainly some, but the variable will sort of include audit, and legal, and rating agencies, and D&O insurance, and all of those other costs.

Marshall I'm just wondering if you have any initial perspective, there on the data I know, we're going to learn more later this week.

Any key learnings that you might apply to future pre commercial deals. Thank you.

So.

Parents on expenses.

We're not going to we're not right now I'm going to give specific guidance, but I can certainly speak generally that sort of I think the way to think of it as being sort of fixed theres, a fixed component and a variable component.

And the fixed component is going to be in sort of the 7% adjusted cash receipts range and then there's the variable component that's related to you know Nick.

This year, there were certainly a lot more variable costs related to the IPO and the bond offering.

But the variable sort of included.

Also audit legal.

Rating agencies, and general insurance and all of those other all of this other costs. So they do add up but that does that sort of rough parameters of how to how to think about it going forward.

Terrance P. Coyne: So they do add up, but those are the sort of rough parameters of how to think about it going forward. And hey, Terrence, good morning. Thanks for the question. I know I'm incaptive.

And Hey, James Good morning, Thanks for the thanks for the question Omecamtiv So I.

Marshall Urist: So, you know, like everyone else, we're really looking forward to seeing what is presented on Friday, both in terms of the top line data and any further details we get as Amgen and Cytokinetics dig into the data. So, I think we'll know a lot more in a couple of days, and we'll look forward to seeing how that evolves. I think, you know, in terms of learnings, I would say that, you know, in general, when things go well or don't go well, we're always very disciplined about incorporating any learnings from that into our process. But, big picture, I think, as Pablo mentioned, as we look back on, you know, pre-commercial or development stage investments, they've been hugely positive for Royalty Pharma and, you know, brought So, I think we feel good about our process. You know, some things will work, and some things won't work. That's all part of this industry, of course.

I think like everyone else, we're really looking forward to seeing what is presented on Friday, but in terms of the the topline data.

He.

And any further details me get at Amgen and Cytokinetics dig into that so I think we'll know a lot more in a couple of days and we'll look forward to teach you seeing how that evolves.

I think you know.

In terms of learnings I would say that in general we always when things go well or don't go well, where at least very disciplined about incorporating any learnings from that into into our process, but big picture I think as Pablo mentioned as we look back on it.

Pre commercial or development stage investment it it's been hugely positive for real deep why not and brought in really really great products due to the portfolio. Both in the past years and then even this year with the trick Lv and our tax. So I think we you we feel good about our process.

You know some things will work some things won't work that's part of the that's part of the industry of course, but we are going as we are going to stay disciplined and stick to it that disciplined when evaluating pre commercial opportunities.

Marshall Urist: But, you know, we are going to stay disciplined and stick to, you know, that discipline when evaluating pre-commercial opportunities. Thank you, and I'm currently showing no further questions at this time. I'd like to call back over to Pablo Legorreta for closing remarks. Sure.

Thank you and I'm currently showing no further questions at this time I turn the call back over to Pablo Legarreta for closing remarks.

Sure. Thank you.

Thank you. Thank you, operator, and thank you to everyone on the call for your continuing interest in Royalty Pharma. My team and I look forward to sharing our progress with you as we build our unique leadership role in funding life sciences innovation. If you have any follow-up questions, please feel free to reach out to George. With that, we will conclude the call. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

Thank you operator, and thank you to everyone on the call for your continuing interest and royalty pharma my team and I look forward to sharing our progress with you as we build our unique leadership role in funding life Sciences innovation. If you have any follow up questions. Please feel free to reach out to George with that we'll conclude the call.

Thank you.

Ladies and gentlemen, this includes needs conference call. Thank you for participating you may now disconnect.

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