Q4 2020 Royalty Pharma PLC Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the royalty pharma fourth quarter 2020 financial results Conference call I would now like to turn the call over to George grocery Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Fourth Quarter 2020 Financial Results Conference Call. I would now like to turn the call over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.

George Grofik: Thank you, Operator. And good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's fourth-quarter results. You can find the slides to 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, uncertainty, 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 risk factors.

Thank you operator, and good morning, and good afternoon, one other.

Paul.

You for joining us for review of royalty pharma fourth quarter results you can find fly from call on the investors page of our website at royalty pharma dotcom.

Moving to slide three I would like to remind you that information presented in this call contain 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. One prospectus on file with the SEC for a description of these risk factors.

George Grofik: And with that, please advance to slide four. Our speakers on the call today are Pablo Legorreta, founder and chief executive officer; Jim Reddick, EVP, co-head of research and investment and chief scientific officer; Marshall Urist, EVP, co-head of research and investment; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Jim and Marshall will provide an update on our royalty acquisition. Kerry will then review the financials, and after concluding remarks from Pablo, he will hold the Q&A. Chris Hite, our Vice Chairman, will also join the Q&A. And with that, I'd like to turn the call over to Pablo.

Please advance to slide for our speakers on the call today are popular with like a retro founder and Chief Executive Officer, Jim <unk>, EVP and co head of research and investment and Chief Scientific Officer, Marshall Europe, EVP and co head of research and investments.

And Terry Cohen, EVP, Chief Financial Officer.

Pablo will discuss the key highlights after which Jim and Marshall will provide an update on our royalty acquisitions.

He will then review the financial and after concluding remarks from Pablo we will hold a Q&A session.

Chris height for our chairman Wallis will join the Q&A session.

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

Pablo Legorreta: Thank you, George, and welcome to everyone on the call. 2020 was truly a landmark year for Royalty Pharma. I want to start by focusing on the highlights of an incredible year for our company. First, we strengthened our capital base and our access to future capital through our successful IPO and bond offerings. With our balance sheets strengthened and with our ability to rapidly de-lever, we're in a very strong position to execute our strategy.

Thank you George and welcome to everyone on the call.

'twenty 'twenty was truly a landmark year for royalty pharma I want to start by focusing on the highlights of the incredible year for our company.

First we strengthened our capital base and our access to the future capital.

For a successful IPO and bond offerings with our balance sheet strength and with our ability to rapidly delever. We're in a very strong position to execute our strategy.

Pablo Legorreta: Second, we further expanded our royalty portfolio with eight announced acquisitions totaling $2.4 billion, maintaining our market leadership and enhancing the outlook for our adjusted cash receipts. These royalty transactions span multiple therapy areas but have one thing in common.

Second we further expanded our royalty portfolio with eight announced acquisitions totaling $2 4 billion, maintaining our market leadership and enhancing the outlook for our adjusted cash receipts.

This royalty transactions spanned multiple therapy area, but have one thing in common they.

Pablo Legorreta: They are associated with potentially transformative medicines, and we're very optimistic about their patient benefit as well as their commercial value. Terry will discuss how this impacts our long-term outlook later in the call. And lastly, we have navigated this complex and busy year while delivering double-digit bottom-line growth and building the organization to strengthen our market-leading position. We have made a number of senior-level hires, expanded our board of directors, and started an important new strategy and analytics initiative, on slide seven.

Associated with potentially transformative medicines, and we're very optimistic about their patient benefit as well as the commercial value.

Terry will discuss how this impacts our long term outlook later on the call.

And lastly, we have navigated this complex and busy year, well delivering double digit bottom line growth and building the organization to strengthen our market leading position we have made a number of senior level hires.

And that our board of directors and started unimportant new strategy and analytics initiatives.

On slide seven.

Pablo Legorreta: You can see our financial results for the fourth quarter and full year. In the fourth quarter, we delivered 9% growth in adjusted cash receipts, our top line, and 22% growth in adjusted cash flow, which is our bottom line. This excellent momentum puts us in a great position to deliver another year of strong performance in 2021, as Terry will discuss in a bit. For the full year, our top-line growth was 1%, and our bottom-line growth was 15%.

You can see from financial resorts for for the fourth quarter and full year in the fourth quarter, we delivered 9% growth in adjusted cash receipts, our topline and 22% growth in adjusted cash flow, which is our bottom line.

Excellent momentum puts us in a great position to deliver another year of strong performance in 'twenty and 'twenty one sorry.

Terry will discuss in a bit.

For the full year, our top line growth was 1% and bottom line growth was 15% when thinking about our adjusted cash receipts growth keep in mind that we had a large payment for <unk> in 2019, which affect that year over year comparisons in the first quarter, but has no for.

Pablo Legorreta: When thinking about our adjusted cash receipts growth, keep in mind that we had a large payment for Tecfidera in 2019, which affected year-over-year comparisons in the first quarter but has no further impact. Excluding Tecfidera, our adjusted cash receipts would have grown at 9% for the full year. So overall, I am delighted with our progress in 2020, and we're very confident in our long-term outlook. With that, I will hand the call over to Jim and Marshall to update you on our royalty portfolio.

Other impact.

Excluding tech for Dara, our adjusted cash receipts would have grown at 9% for the full year.

So overall I am delighted with our progress in 2020, and we're very confident in our long term outlook.

With that I will hand, the call over to Jim and Marshall to update you on our royalty portfolio.

Jim Reddick: Thank you, Pablo, and good morning and good afternoon, everyone. As shown on slide 9, 2020 was a record year for biopharma royalty funding. Based on our market intelligence, we believe that there were 23 major royalty transactions in the year, with a combined value of $5.4 billion. Inevitably, there is some volatility in the trends from year to year, but, as an indicator, the 2020 transaction count and value figures are more than double the average of the preceding five years, and each represents a record high.

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

As shown on slide nine 2020 was a record year for Biopharma royalty funding.

Based on our market intelligence. We believed there were 23 major royalty transactions in the year with a combined value of five point for $1 billion.

Inevitably there is some volatility in the trends from year to year. However, as an indicator for 'twenty 'twenty transaction accounts and value figures are more than double the average of the preceding five years and each represent record highs.

Jim Reddick: In short, the market is growing significantly, and we are confident that the tailwinds supporting this growth will continue for the foreseeable future. These tailwinds include the fast-growing demand for capital from the biopharma industry, the extraordinary pace of innovation taking place across the entire life science ecosystem, and the secular trends driving increased biopharma market sales.

And sure the market is growing significantly and we are confident that the tailwind supporting this growth will continue for the foreseeable future.

Tail wins include the SaaS growing demand for capital from the Biopharma industry. The extraordinary pace of innovation, taking place across the entire life science ecosystem and the secular trends driving increased biopharma market sales.

Jim Reddick: This slide 10 illustrates our transaction funnel in 2020. During the year, we received more than 265 potential transactions; we reviewed more than 265 potential transactions. This, in turn, led to around 70 CDAs being signed and 38 proposals being submitted. Ultimately, we announced eight transactions for a total value of $2.4 billion. The math shows that we transacted on just 3% of the royalty opportunities we initially reviewed. This speaks to both our ability to execute on promising royalty opportunities and to the intense level of scientific diligence and financial discipline we apply in the process.

Slide 10 illustrates our transaction funnel in 2020 during the year, we received more than 265 potential transit we reviewed more than 265 potential transactions. This in turn led to around 70 C. D H being signed and 38 proposals being submitted.

Similarly, we announced eight transactions for a total value of two point for $1 billion.

The mass shows that we transacted on just 3% of the royalty opportunities initially reviewed.

This speaks to both our ability to execute on promising royalty opportunities and to the intense level of scientific diligence and financial discipline that we apply in the process.

Jim Reddick: The rigor of our approach is part of our unique skill set, and it is a key reason why Royalty Pharma has delivered and continues to deliver attractive returns to our investors. Slide 11 provides an overview of the eight transactions I just referenced. We are excited that these encompass a range of transformative therapies across five therapeutic areas. Of the 12 royalty-bearing products included in these transactions, 9 were for approved therapies and 3 were for development stage therapies at the time the deals were signed; the portfolio spanned five therapeutic areas, including rare disease, cancer, neurology,

The rigor of our approach is part of our unique skill set and it is a key reason why royalty pharma.

It has delivered and continues to deliver attractive returns to our investors.

Slide 11 provides an overview of the eight transactions I just referenced.

We're excited that these encompass a range of transformative therapies across five therapeutic areas.

Of the 12 royalty bearing products included in these transactions nine were for approved therapies and three were for development stage therapies at the time the deals were signed.

The products, we added to the portfolio spend five therapeutic areas, including rare disease cancer neurology.

Jim Reddick: GI, and Infectious Diseases. This speaks to the unique approach that we take in adding high-quality assets to our portfolio, regardless of therapeutic area. One notable development stage deal that we completed in 2020 was for the exciting SMA drug Evirizdi. Around a month after we acquired this royalty, Evaristi was subsequently approved and launched by Roche, again underscoring the high level of due diligence that we apply in our process. Looking ahead, the street expects a number of these medicines to become blockbusters in the next several years, and we estimate, based on consensus analyst forecasts, that these transactions will add more than $400 million to our adjusted cash receipts by 2025. And with that, I will hand the call over to Marshall.

In infectious disease.

So the unique approach do we taken adding high quality assets to our portfolio.

Regardless of the therapeutic area.

One notable development stage deal that we completed in 2020 was for the exciting SMA drug ever risky around.

Random months. After we acquired this royalty ever Richie was subsequently approved and launched by Roche again, underscoring the high level of due diligence that we apply in our process.

Looking ahead the street expects a number of these medicines to become blockbusters in the next several years and we estimate based on consensus analyst forecast a day.

Transactions will add more than $400 million to our adjusted cash receipts for 2025.

That I will hand, the call over to Marshall.

Marshall Urist: Thank you, Jim, and hello to everyone this morning. Turning to slide 13, let me start by highlighting that 2020 was a strong year in terms of the scale of royalty acquisitions and builds off of a similarly strong year in 2019. In fact, if we look over the past two years, we announced 14 transactions totaling approximately $5 billion. As a result, we have significantly expanded our portfolio of innovative therapies with long-duration patents, further diversifying our revenue mix, and we are confident that we will generate returns consistent with our target.

Thank you, Jim and Hello to everyone. This morning Tony.

Turning to slide 13, let me start by highlighting the 2020 was a strong year in terms of the scale of royalty acquisition and builds out from a similarly strong year in 2019.

In fact, if we look over the past two years, we announced 14 transactions totaling approximately $5 billion. As a result, we have significantly expanded our portfolio of innovative therapy with long duration patents further diversifying our revenue mix and we are confident that we will generate returns consistent with our targets.

Marshall Urist: On this slide, you see a summary of our recent portfolio additions since last quarter's call, adding one approved product and two development stage therapies. In December, we acquired a royalty from Biocrest on Orladea, the first oral therapy for hereditary angioedema. Orladeo has recently been approved in the U.S. and Japan, and a European approval decision is expected in the second quarter of this year. As an oral agent, we believe Orladeo will expand options for patients, bring greater convenience, and potentially expand the use of prophylaxis in this serious disease.

On this slide you see a summary of our recent portfolio additions since last quarter's call, adding one approved product into development stage therapy in.

In December we acquired a royalty from Biocryst Orla, Dan the first oral therapy for hereditary angioedema or other data was recently approved in the U S and Japan and a European approval decision is expected in the second quarter of this year.

As an oral agent, we believe boiler day of will expand options for patients, bringing greater convenience and potentially expanding the use of prophylaxis in this serious disease.

Marshall Urist: The $125 million we provided to Biocrisp will be used to support the launch of Orladeo, as well as to fund the development of their Oral Factor D Inhibitor, BCX9930, and complement-mediated diseases. In return, Royalty Pharma is entitled to 8.75% of sales of Orladeo up to $350 million, with step-downs above this up to $550 million. We will also receive a 1% royalty on sales of BCX9930 if it is commercialized. We look forward to seeing the progress of BCX9930 during 2021.

The $125 million, we provided to Biocryst will be used to support the launch of oil and gas as well as to fund development of their oral factor D inhibitor, VCX 90, 930 and complement mediated diseases.

In return royalty pharma is entitled to $8 75 per cent of sales of oil a day of up to $350 million with step downs about this up to $550 million. We will also receive a 1% royalty on sales of VCX 90, 930, if commercialized we look forward to seeing the progress at <unk> 90.

930 during 2021.

Marshall Urist: This is a great example of the type of non-dilutive deal structure we are able to offer to our partners, in this case, to a biotechnology company to facilitate pipeline expansion and the transition to a commercial company. Now moving to our most recent portfolio addition, we announced in January the acquisition of Minerva Neuroscience's royalty interest in Seltarexan, a compound which is in phase 3 development by Johnson & Johnson for the treatment of major depressive disorder with insomnia symptoms.

This is a great example of the type of non dilutive deal structure, we are able to offer to our partners. In this case to a biotechnology company to facilitate pipeline expansion and the transition to a commercial company.

Now moving to our most recent portfolio addition, we announced in January the acquisition of Minerva neuroscience as royalty interest in Seltzer axiom, a compound which is in phase III development by Johnson <unk> Johnson for the treatment of major depressive disorder with insomnia symptoms in return for an upfront payment of $60 million and up to 95 million.

Marshall Urist: In return for an upfront payment of $60 million and up to $95 million in additional milestone payments, we are entitled to receive a mid-single-digit royalty on worldwide sales of Seltzer X. We are very excited by this opportunity.

An additional milestone payment we are entitled to receive a mid single digit royalties on worldwide sales themselves are acting.

We are very excited by this opportunity at Delta Roxanne is potentially the first medicine to address this important unmet need in patients suffering from depression.

Marshall Urist: At Celtarexan, it's potentially the first medicine to address this important, unmet need in patients suffering from depression. And while this is a therapy that potentially fits at the higher end of the clinical risk spectrum for us, our extensive due diligence provided significant comfort on the clinical profile based on strong proof-of-concept data to date. This included four placebo and active controlled efficacy trials that demonstrated consistent safety and efficacy. So to summarize, two very different partners that take us into new therapeutic categories, and each with the potential to bring important innovation to patients. And with that, I'll hand it over to Terry.

This is a therapy that potentially face at the higher end of the clinical risk spectrum for us our extensive due diligence provided significant comfort from the clinical profile based on strong proof of concept data to date.

This included for placebo and active controlled efficacy trials that demonstrated consistent safety and efficacy.

So to summarize two very different partners, which should take us into a new therapeutic category and each with the potential to bring important innovation to patients and with that I'll hand, it over to Terry.

Thanks, Marshall, let's move to slide 15.

We had another good quarter with total royalty receipts up 9% compared to last year's fourth quarter on a pro forma basis.

A full year basis growth of 2% reflected our final receipt associated with tech Vadera $150 million in the first quarter of 2019.

Terrance P. Coyne: Thanks, Marshall. Let's move to slide 15. We had another good quarter with total royalty receipts of 9% compared to last year's fourth quarter on a pro forma basis. On a full year basis, growth of 2% reflected our final receipt associated with Tecfidera of $150 million in the first quarter of 2019. As you can see, royalties from our largest franchise, Cystic Fibrosis, grew 37% this quarter and 30% for the full year, driven by the strong launch of Trikafta in the U.S. and Caftrio in the E.U. Imbruvica, Xtandi, and Permacta also contributed strong double-digit growth both for the quarter and on a full-year basis.

As you can see royalties from our largest franchise cystic fibrosis for 37% this quarter and 30% for the full year driven by the strong launch of dry cast in the U S and <unk> trio in the EU.

Terrific debt extending and Promacta also contributed strong double digit growth both for the quarter and on a full year basis.

Slide 16 shows how our royalty receipts translated to strong adjusted cash flow in the quarter.

As you are aware adjusted cash receipt as a key non-GAAP metrics for us.

Which we arrived that after deducting noncontrolling interests.

This is what we view as our top line and it amounted to $484 million in the quarter representing growth of 9% compared with last year's fourth quarter on a pro forma basis.

Terrance P. Coyne: Slide 16 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 is what we view as our top line, and it amounted to $484 million in the quarter, representing growth of 9% compared with last year's fourth quarter on a pro forma basis. Moving left to right, operating and professional costs of $50 million equated to 10.4% of adjusted cash receipts.

When we move left to right operating and professional costs of $50 million equated to 10, 4% of adjusted cash receipts.

This was somewhat below the level of the third quarter, which included certain expenses related to our IPO and bond offering.

R&D funding remained at a relatively low level and substantially lower than in the year ago quarter, given larger ongoing development stage funding payments in 2019.

Net interest of just $1 million was sharply lower as it reflected the debt refinancing and a shift to semiannual interest payments arising from our bond offering.

Terrance P. Coyne: This was somewhat below the level of the third quarter, which included certain expenses related to our IPO and bond off. R&D funding remained at a relatively low level and substantially lower than in the year-ago quarter given larger ongoing development stage funding payments in 2019. The net interest of just $1 million was sharply lower as it reflected the debt refinancing and a shift to semi-annual interest payments arising from our bond offering. The next interest payment will be in March of this year.

The next interest payment will be in March of this year <unk>.

Interest paid in Q4 would have been $33 million, if our interest payments were paid quarterly instead of semiannually.

The other item up $9 million includes expenses related to our investment in non consolidated affiliates.

Primarily a funding payment to obelion for ongoing development of Astrazeneca P. T O two seven.

This resulted in adjusted cash flow our bottom line earnings are for.

$423 million for 70 cents per share.

Terrance P. Coyne: Interest paid in Q4 would have been $33 million if our interest payments were paid quarterly instead of semi-annually. The other item of $9 million is expenses related to our investment in non-consolidated affiliates, primarily a funding payment to Avilion for the ongoing development of AstraZeneca's PTO27. This resulted in adjusted cash flow, our bottom line earnings, of $423 million or $0.70 per share. This translated to an adjusted cash flow margin of 87.3%, highlighting the very strong cash conversion in our business model.

This translated to an adjusted cash flow margin of 87, 3%.

Highlighting the very strong cash conversion in our business model.

Looking at our balance sheet on slide 17, we ended 2020 with cash and marketable securities of $2 billion.

The increase over the year was driven by the adjusted cash flow I just mentioned.

Together with the proceeds from debt refinancings of 17 $728 million in IPO proceeds of $1 $9 billion.

Cash outflows over the period amounted to $2 $5 billion, primarily resulting.

From the $2 $2 billion in capital deployed on royalty acquisition.

Turning to our dividend, we recently announced a 13% increase in our quarterly dividend to <unk> 17 per class, a ordinary share which signals our confidence in our growth outlook.

Terrance P. Coyne: Looking at our balance sheet on slide 17, we ended 2020 with cash and marketable securities of $2 billion. The increase over the year was driven by the adjusted cash flow I just mentioned, together with the proceeds from debt refinancing of $728 million and IPO proceeds of $1.9 billion. Cash outflows over the period amounted to $2.5 billion, primarily resulting in a $1.25, from the $2.2 billion in capital deployed on royalty acquisition.

We finished the year with $6 billion from investment grade debt, which combined with our one 5 billion revolving credit facility gives us a strong liquidity position.

With leverage at two four times EBITDA on a net basis and three six times EBITDA on a gross basis, we remain well positioned to execute on our business plan.

On slide 18.

We set out our full year guidance for 2021.

We expect adjusted cash received to be in the range of $1 $91 billion to $1 $96 billion.

You know our practice is to guide based on our portfolio as of today and importantly, this does not take into account any future acquisitions.

Terrance P. Coyne: Turning to our dividends, we recently announced a 13% increase in our quarterly dividends to $0.17 per Class A ordinary share, which signals our confidence in our growth outlook. We finished the year with $6 billion in investment grade debt, which, combined with our $1.5 billion revolving credit facility, gives us a strong liquidity position. With leverage of 2.4 times EBITDA on a net basis and 3.6 times EBITDA on a gross basis, we remain well-positioned to execute on our business plan, on the Friday team.

This guidance represents an increase of between 6% to 9% for our existing portfolio only.

Turning to operating costs, we expect these to be approximately 9% to 10% of adjusted cash receipts.

Lastly, we expect interest paid will be approximately $130 million for the year.

Based on the semiannual interest payment schedule for our existing bonds interest paid is anticipated to be approximately $64 million in the first and third quarters with a de minimis amount recorded in the second and fourth quarters.

Terrance P. Coyne: We set out our full-year guidance for 2021. We expect adjusted cash receipts to be in the range of $1.91 billion to $1.96 billion. As you know, our practice is to guide based on our portfolio as of today. And importantly, this does not take into account any future acquisitions. This guidance represents an increase of between 6% to 9% for our existing portfolio only. Turning to operating costs, we expect these to be approximately 9% to 10% of adjusted cash receipts.

This projection assumes no additional debt financing in 2021.

Turning to my final slide in August we stated that our objective was to maintain a long term compounded annual growth rate in the range of 6% to 9% from 2020 to 2025.

Today, we are increasing this outlook to a compounded annual growth rate in the range of 7% to 10%, which is off of a higher base in 2020 than was expected. When we first provided this outlook.

Terrance P. Coyne: Lastly, we expect interest paid to be approximately $130 million for the year. Based on the semi-annual interest payment schedule for our existing bonds, interest paid is anticipated to be approximately $64 million in the first and third quarters, with a de minimis amount recorded in the second and fourth quarters. This projection assumes no additional debt financing in 2021.

The increase in our long term outlook is due to a couple of important factors.

First our existing portfolio is performing quite well and we now forecast to grow in the mid single digits second.

Second our confidence in the growth of the royalty market and in the sustainability of our leader leadership position has increased with the multiple tailwind, we see and with our strong overall performance in 2020.

With that I would like to hand, the call back to Pablo.

Terrance P. Coyne: Turning to my final slide, in August, we stated that our objective was to maintain a long-term compounded annual growth rate in the range of 6% to 9% from 2020 to 2025. Today, we are increasing this outlook to a compounded annual growth rate in the range of 7% to 10%, which is off of a higher base in 2020 than was expected when we first provided this outlook. The increase in our long-term outlook is due to a couple of important factors.

Thanks Terry.

Let me quickly close by saying that I'm more confident than ever that royalty pharma is well positioned to continue our leadership of the rapidly growing market for biopharma royalty funding.

With our strong 2021 outlook and our raised long term guidance, we have many exciting years ahead.

This is a remarkable time in the history of our industry with incredible innovation and ground breaking therapies that are changing the lives of patients globally.

Royalty pharma is uniquely positioned for Levered play on the innovation and life Sciences.

With that I would like to open the call for Q&A back to you George.

Thank you Pablo and well operator, we'll now open the call for your questions. Operator, Please take the first question.

Terrance P. Coyne: First, our existing portfolio is performing quite well, and we now forecast it to grow in the mid-single digits. And second, our confidence in the growth of the royalty market and in the sustainability of our leadership position has increased with the multiple tailwinds we see and with our strong overall performance in 2020. With that, I would like to hand the call back to Pablo.

Thank you to ask a question you will need to press star one on your telephone.

Our first question comes from Steve Scala with Cowen Your line is open.

Thank you very much and congratulations on a great 2020.

For deals that royalty pharma considered but did not do in 2020, what was the most frequent reason was royalty pharma not sufficiently comfortable with the risk involved did a competitor offer more attractive economics or was there. Some other reason I assume risk and.

Pablo Legorreta: Thanks, Terry. Let me quickly close by saying that I'm more confident than ever that Royalty Pharma is well-positioned to continue its leadership of the rapidly growing market for biopharma royalty funding. With our strong 2021 outlook and our raised long-term guidance, we have many exciting years ahead. This is a remarkable time in the history of our industry, with incredible innovation and groundbreaking therapies that are changing the lives of patients globally. Royalty Pharma is uniquely positioned as a levered play on innovation in life science. With that, I would like to open the call to Q&A. Back to you, George.

Economics always go hand in hand, so how do you know you have the optimal balance.

And how might that balanced change in 2021. Thank you.

Yes.

Sure, Steve So I'm going to ask Jim to add two maybe some initial remarks, but I think as you probably have heard us already.

As explained in the past.

We.

A lot of the.

Sort of the thing that drives.

Our evaluation of off.

George Grofik: Thank you, Pablo. And we'll now open the call to your questions. Operator, please take the first question. To ask a question, you'll need to press star 1 on your telephone.

Transactions is.

Just a huge amount of discipline because over two decades.

Of investing.

We've actually looked at so many things.

And.

Steve Scala: Our first question comes from Steve Scala, with Cowan. Your line is open. Thank you very much and congratulations on a great 2020. For deals that Royalty Pharma considered but did not do in 2020, what was the most frequent reason? Was Royalty Pharma not sufficiently comfortable with the risk involved? Did a competitor offer more attractive economics? Or was there some other reason?

Many of which we have passed on and many that we've done but also we have the experience of transactions that we did that didn't work out and we always try to learn from those and understand what happened that didnt.

What part of the thesis was incorrect and then try to apply them in the future is not always easy it's difficult actually to always because what's also interesting is industry is that every opportunity is different in life Sciences right. Every product was there from the clinical program is different the size of the market is different.

The landscape is different in some cases.

Pablo Legorreta: I assume risk and economics always go hand in hand. So how do you know you have the optimal balance? And How Might That Balance Change in 2021? Thank you.

In many cases, we have unique products with very little competition, but in other theres more competition. So theres. Many many factors that we have to take into consideration.

But always discipline is key and I always tell the team.

Making a bad investment is very very difficult very painful to correct. The impact of that investment. So it's always trying to find that balance of very attractive underlying attributes for the products have with very.

Pablo Legorreta: Sure, Steve. So I'm going to ask Jim to add maybe some initial remarks. But I think, as you probably have heard us explain in the past, a lot of the, you know, sort of the thing that drives our evaluation of transactions is just a huge amount of discipline because, over two decades of investing, we've actually looked at so many things, many of which we have passed on, and many that we have done.

Our active upside.

And also you know are.

Understanding.

The downside well understanding where things could fail well, but Jim do you want to add to what I just.

You said.

Yes, yes, thanks, Steve.

I think that you mentioned, a couple of things risk and economics.

You know occasionally competition.

But I would add to that and it's really a mixture of all of these.

Pablo Legorreta: But also, we have the experience of transactions that we did that didn't work out, and we always try to learn from those and understand what happened that didn't, what part of the thesis was incorrect, and then try to apply that in the future.

In some cases the targets.

Company that we're speaking with it was acquired.

Or ends up.

Doing a different flavor of financing.

Pablo Legorreta: It's not always easy. It's difficult, actually, to always do it, because what's so interesting in this industry is that every opportunity is different in life sciences, right? Every product is different. The clinical program is different.

Or in some cases is still considering our proposal and other proposals. So it just hasn't really happened yet so it's really a mixture of all of those but.

Pablo Legorreta: The size of the market is different, and the competitive landscape is different in some cases. In many cases, we have unique products with very little competition, but in others, there's more competition. So there are many, many factors that we have to take into consideration. But always, discipline is key, and I always tell the team, making a bad investment is very, very difficult, very painful to correct the impact of a bad investment. So it's always trying to find that balance of very attractive underlying attributes that the products have with very attractive upside and also understanding the downside well, understanding where things could fail well. But Jim, do you want to add to what I just said?

I'm really proud I think we're all really proud of.

Generating two.

260, plus in a number of opportunities at the top of the funnel and I think that's really a testament to the number of parties, both corporate and academic and otherwise that are considering royalty transactions. These days because that numbers growth from the previous year and from prior years.

And also that we saw 70.

Opportunities that we are really worth going in depth, and then getting confidential information.

And we wouldn't be aggressive in putting proposals out there as well so that I think that 30.

30, 30, plus number represents us really wanting to get term sheets out there but.

Jim Reddick: Yeah, yeah, thanks, Steve. I mean, I think that you mentioned, you know, a couple of things, you know, risk and economics and, you know, occasionally competition. But, you know, I would add to that, and it's really, you know, a mixture of all of these, that, in some cases, the target company that we were speaking with was acquired or ends up, you know, doing a different flavor of financing or, in some cases, is still considering our proposal and other proposals. So it just hasn't really happened yet.

In some cases those.

For reasons that we were mentioning now.

Don't end up crossing the finish line, but as Pablo says, we want to keep a very high bar.

For thinks that.

Ultimately transact on.

And realize that what we invested in last year, the two plus billion.

Daughters of transactions that we did which is what's great is that just looking out this transactions will add over 400 million borders of revenue in the 2025 timeframe with what we believe are conservative forecast.

Jim Reddick: So it's, it's really, you know, a mixture of all of those things. But, you know, I'm really proud. I think we're all really proud of generating the 260 plus number of opportunities at the top of the funnel. And I think that's really, you know, a testament to the number of parties, both, you know, corporate and academic and otherwise, that are considering royalty transactions these days because that number is growth from the previous year and from prior years.

Uh huh.

With a good level of predictability so that is quite positive.

Outcome for us based on what happened.

The things that happened last year. Thank you.

Thank you.

Thank you. Our next question comes from Geoff Meacham with Bank of America. Your line is open.

Good morning, guys. Thanks for the question.

I just had a couple.

Another one on future deals I guess the question is does the law of large numbers begin to apply as you as.

Jim Reddick: And also, we saw, you know, 70 opportunities that were really worth going in depth on and getting confidential information. And, and we want to be aggressive in putting proposals out there as well. So that, I think that 30, you know, 30, 30 plus number represents us, you know, really wanting to get term sheets out there. But, you know, in some cases, those, for reasons that, you know, we're mentioning now, don't end up crossing the finish line. But, you know, as Pablo says, we want to keep a very high bar for things that we ultimately transact on.

As you're continuing to grow the top line I know there are kind of smaller deals you can do as you just highlighted on slide 10, but I think the goal is to find people.

<unk> is another CF type of opportunity in terms of the magnitude.

And then the second question is Terry what are the longer term considerations of a rising interest rate environment I know.

I don't know if you guys have used hedging strategies in the past, but but could you deploy that going forward. Thank you.

Chris do you want to take the first part of the question.

The scale of the opportunities, we see and also some book.

Central for big deals maybe through M&A.

Sure.

He can answer the second part.

Sure Thanks, Pablo and thanks for the question Jeff.

Yeah look I mean.

As Jim went through the funnel and Pablo went through the funnel, we see a lot of opportunities and.

We see a lot of you know.

Ranging opportunities right smaller and larger and I think even even this past year.

Pablo Legorreta: And realize, Steve, that what we invested in last year, the $2-plus billion of transactions that we did, what's great is that, you know, just looking out, these transactions will add over $400 million of revenue in the 2025 timeframe with what we believe are conservative forecasts and, you know, with a good level of predictability. So that is quite a positive outcome for us based on what happened last year.

We actually did a wide range of deals right from smaller deals to.

Like a bigger deal around the CF and also around ever is D.

And I think you know one other thing probably just mentioned was M&A I think we've been actively having discussions around helping people around M&A situations and creating synthetic royalty there.

And we sort of see that as an interesting opportunity. In addition to the synthetic royalties, which is also <unk>.

Pablo Legorreta: Thank you.

Geoffrey Meacham: Thank you. Our next question comes from Geoff Meacham with Bank of America. Your line is: Morning, guys. Thanks for the question. I just had a couple.

Really sort of picking up steam so obviously, we're looking across the spectrum for four for deals and they can be small or big but.

Christopher Hite: Another one on future deals, I guess the question is, does the law of large numbers begin to apply as you continue to grow the top line? I know there are a ton of smaller deals you can do, as you just highlighted on slide 10. But I think the goal is to find perhaps another CF type of opportunity in terms of the magnitude. And then the second question is, Terry, what are the longer-term considerations of a rising interest rate environment? I don't know if you guys have used hedging strategies in the past, but could you deploy that going forward?

We don't see a lack of opportunity out there to grow our top line.

And then Jeff on your question on long term rising rates.

We were lucky that we were able to take advantage of the markets in in the summer.

At a very attractive you know at a very.

Attractive time and sort of history.

In terms of issuing bonds.

And now 100% of our $6 billion of debt is fixed.

Christopher Hite: Chris, do you want to take the first part of the question about the scale of the opportunities we see and also some potential for big deals, maybe through M&A? Sure. Terry can answer that.

And so it's not something that we have to be as focused on in the near term.

The other thing I would say is debt.

Christopher Hite: Sure. Thanks, Pablo, and thanks for the question, Geoff. Yeah, look, I mean, we, as Jim went through the funnel, and Pablo went through the funnel, we see a lot of opportunities. We see a lot of, you know, ranging opportunities, right, smaller and larger. And I think even this past year, you know, we actually did a wide range of deals, right, from smaller deals to, like, bigger deals around the CF and also around Everest.

As our as our bonds have traded in the market and bond investors have gotten to know royalty pharma better our spreads have tightened significantly so the spread on our 10 year well, while the 10 year Treasury has increased.

The spread on the 10 year is actually tightened by almost 80 basis points. So I think we're we feel like we're still in a great position.

For the extent that rates really do.

I see a significant uptick in the long term I also think that that will be.

Christopher Hite: And I think, you know, one of the things Pablo just mentioned was M&A. I think we've been actively sort of having discussions around helping people in M&A situations and creating synthetic royalties there. And we sort of see that as, you know, an interesting opportunity in addition to the synthetic royalties, which we see are also really sort of picking up steam. So obviously, we're looking across the spectrum for deals, and they can be small or big, but we don't see a lack of opportunity out there to grow our top line.

Selective in asset prices.

And there will end.

<unk> will be adjusted accordingly, so it is sort of a natural hedge in the way that our business works because we're constantly reinvesting in it would be.

It would be reflected in asset prices.

Okay. Thanks, guys.

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

Great. Thanks, so much for the questions.

Just if I look at 2020 was obviously a bigger year for capital deployment for the company and the broader royalty market and I know deal flow can be choppy year to year, but from a trend seems to clearly be moving higher here. So when I think about the longer term guidance I didn't want to be conservative but is there any reason, we shouldn't think about capital deployment closer to the range we.

Terrance P. Coyne: And then, Geoff, on your question about long-term rising rates, we were lucky that we were able to take advantage of the markets in the summer at a very attractive time in history in terms of issuing bonds. And now 100% of our $6 billion of debt is fixed. And so, you know, it's not something that we have to be as focused on in the near term.

In 2020 versus I think the roughly 1 billion and a half or so that you're reflecting in our guidance I'm just trying to see is there any rate limiting factors other than just finding attractive terms, whether its capital structure et cetera.

Terrance P. Coyne: The other thing I would say is that, you know, as our bonds have traded in the market and bond investors have gotten to know Royalty Pharma better, our spreads have tightened significantly. So, for example, the spread on our 10-year, while the 10-year treasury has increased, the spread on the 10-year has actually tightened by almost 80 basis points. So I think we're, you know, we feel like we're still in a great position to the extent that rates really do see a significant uptick in the long term.

And then second question I had was just on the funnel of transactions like you've talked about a couple of sources of deals whether these are smid cap biotech M&A academic did you see the mix of those changed at all in 2020 in favor of one of those I guess verticals versus another or are you seeing more opportunities as we again think about biotech versus academic for.

So other sources I'm trying to get a sense of how thats changing as the market evolves over time. Thanks, so much.

Terrance P. Coyne: I also think that that will be reflected in asset prices, and, you know, prices will be adjusted accordingly. So it is sort of a natural hedge in the way that our business works because we're constantly reinvesting, and that will be reflected in asset prices.

Sure Chris Thank you and.

I think in share.

Most of the guidance.

We're a brand new public company, so we want to be Conservative book.

Christopher Schott: Okay, thanks guys. Thank you. Our next question comes from Chris Schott with J.P. Morgan. Your line is open. Okay.

But.

Obviously, the tailwind for our incredibly incredibly strong for us.

The industry in general.

Pablo Legorreta: Thanks so much for the questions. Just, if I look at 2020, it was obviously a bigger year for capital deployment for the company and the broader royalty market. And I know deal flow can be choppy year to year, but the trend seems to clearly be moving higher here. So when I think about the longer-term guidance, I think you want to be conservative, but is there any reason we shouldn't think about capital deployment closer to the range we saw in 2020 versus, I think, the roughly a billion and a half or so that you're reflecting in that guidance?

And also for us and specifically based on the service that we provide the potential solutions that we provide to many.

You know companies that.

Require.

Very significant for a month of capital.

I think the you know.

Sort of.

Difficult thing to predict is.

And I think there was a prior question about <unk>.

Like the CF deal.

Then we did in 2014, which was over $3 billion one transaction in that year, we invested for and I think in our case, it's not likely that it will be.

Pablo Legorreta: I'm just trying to see if there are any rate limiting factors other than just finding attractive terms, whether it's capital structure, et cetera. And then the second question I had was just on the funnel of transactions. Like you've talked about a couple of sources of deals, whether these are SpitCat, biotech, M&A, or academic. Did you see the mix of those change at all in 2020 in favor of one of those, I guess, verticals versus another? Or are you seeing more opportunities as we, again, think about biotech versus academic versus other sources? I'm trying to get a sense of how that's changing as the market evolves over time.

You know an academic royalty.

Of that size or a foundation royalty of that size, but where we could have.

Large transaction.

Significant transaction would be.

In an M&A situation in those.

Those kinds of transactions are obviously difficult to predict and it's not something that is sort of the bread and butter.

The other side, we can do every quarter, but I think over the next three to five years, it's likely that there'll be a couple of those at least a couple of I think.

And that's the more difficult variable to predict in terms of.

The scale of our investments over the next.

Marshall Urist: Thanks so much.

Pablo Legorreta: Sure, Chris, thank you. And, you know, I think in terms of the guidance. We're a brand new public company, so, you know, we want to be conservative. But, you know, obviously, the tailwinds are incredibly, incredibly strong for the industry in general. And also for us, specifically, based on the service that we provide, and the potential solutions that we provide to many companies that require very significant amounts of capital. And I think the sort of difficult thing to predict is, and I think there was a prior question about a deal like the CF deal that we did in 2014, which was over $3 billion, one transaction, and that year we invested four.

Five years or so.

But let me turn it over to Marshall now who can provide some perspective on the funnel and you know.

Where do we think deals will come from.

Thanks, Pablo Hey, Chris So to your question about the kind of mix of sources of transaction. So.

I don't think anything has necessarily fundamentally changed in terms of the mix of sources of transactions, obviously that can change year to year. If you look at 2020 it would be good it was a good.

Good mix of.

Yes.

There is there is academic or foundation royalties, there and R&D funding transactions synthetic royalty and traditional royalty as well across the year. So there's a pretty good mix and I think that's reflective of the underlying.

Pablo Legorreta: And I think in our case, it's not likely that it will be an academic royalty of that size or a foundation royalty of that size. But where we could have a large transaction, a significant transaction, would be in an M&A transaction. And those kinds of transactions are obviously difficult to predict, and they're not something that is sort of the bread and butter, the deals that we can do every quarter. But I think over the next three to five years, it's likely that there will be a couple of those, at least a couple.

The underlying fundamentals of the markets. We see I think we are as we said before optimistic about the synthetic royalty opportunity in growing that business.

In the years to come with Biocryst at the end of last year being a good example, so we certainly see growth in that part of the market but.

Pablo Legorreta: And that's the more difficult variable to predict in terms of the scale of our investment over the next five years or so. But let me turn it over to Marshall now, who can provide some perspective on the funnel and where we think deals will come from.

But fundamentally I think youll continue to see a good mix of different sources of opportunities for us.

Great. Thank you.

Thank you. Our next question comes from Gregg Gilbert with <unk> Securities. Your line is open.

Marshall Urist: Thanks, Pablo. Hey Chris.

Marshall Urist: So to your question about the kind of mix of sources of transactions. So, you know, I don't think anything has necessarily fundamentally changed in terms of the mix of sources of transactions. Obviously, that can change year to year. You know, if you look at 2020, it was a good mix of, you know, there are academic or foundation royalties there, in R&D funding transactions, synthetic royalties, and traditional royalties as well across the years.

Thank you going back to that funnel slide again, I was curious to what degree either companies or collections collections of royalty as existing collections royalty is factored into that funnel before where if any exists now.

I'm curious as well Terry I don't know if you're willing to be more specific about what specifically changed in the <unk>.

Dated CAGR guidance any comments would be helpful. And lastly, Pablo I was hoping you could comment on how data science may inform your sourcing strategy going forward. Thank you.

Marshall Urist: There's a pretty good mix, and I think that's reflective of the underlying, you know, the underlying fundamentals of the markets we see. You know, I think we are, as we said before, optimistic about the synthetic royalty opportunity and growing that business in the years to come, with Biochrist at the end of last year being a good example. So, you know, we certainly see growth in that part of the market, but, fundamentally, I think you'll continue to see a good mix of different sources of opportunities for us. Thank you.

Of course.

Jim do you want to take the question on the funnel and then Terry will answer the second part of the question and then I'll close with a comment on.

Data science.

Yes, Greg correct me, if I'm wrong, but I think your question was.

How we count.

The number of opportunities and whether it's on sort of day per company or a per molecule basis.

And I think the answer is.

For the answer is that its a per molecule basis. So.

Stephen Michael Scala: Thank you. Our next question comes from Greg Gilbert with Truist Securities. Your line is open.

In the case for bio Haven last year, which included <unk> ZIP Ed Japan that would be sort of two <unk>.

Jim Reddick: Thank you. Going back to that funnel slide again, I was curious to what degree either companies or existing collections of royalties factored into that funnel before or if any existed now. And curious as well, Terry, I don't know if you're willing to be more specific about what specifically changed in the updated CAGR guidance. Any comments would be helpful. And Leslie Palmos, I'm hoping you could comment on how data science may inform your sourcing strategy going forward. Thank you.

Opportunities that we would see.

I think that increase.

Increasingly in Biocryst is it the same way that debt also included two molecules and increasingly we are seeing.

This positive trend.

Companies that we like and trust too.

Apply best practices developmentally in commercially.

Has multiple assets that we're interested in so I think that.

Both of those represent times, where we can kind of get.

Terrance P. Coyne: So, Jim, do you want to take the question on the funnel, and then Terry will answer the second part of the question, and I'll close with a comment on, you know, data science.

Two <unk>.

Interesting assets in one one fell swoop and also.

Start to follow these assets the earlier assets at an earlier stage and two.

Jim Reddick: Yes, Greg, correct me if I'm wrong, but I think your question was, you know, sort of how we count the number of opportunities and whether it's on sort of a per-company or a per-molecule basis. And I think the answer is that it's on a per-molecule basis.

It really get comfortable with them in an attempt to kind of grow our commitments and our financial.

<unk> commitment to that product over time.

So so Greg on.

Question on sort of what's driving.

Jim Reddick: So in the case of Biohaven last year, which included Neurotech and Zivegipant, those would be sort of two opportunities that we would see. And I think that increasingly, and Biochrist is the same way, that also included two molecules, we are seeing this positive trend that companies that we like and trust to really apply best practices developmentally and commercially have multiple assets that we're interested in. So I think that both of those represent times when we can kind of get to interesting assets in one fell swoop and also start to follow these assets, the earlier assets, at an earlier stage and really get comfortable with them in an attempt to kind of grow our commitment and our financial commitment to that product over time.

The long term.

The increase in our long term outlook I think it's it's a mix.

So one we had a really good year of investing in 2020, we added a number of attractive products that better.

Or kind of be contributors there.

That being said it a number of them were already in in sort of our initial guidance that we provided back in August.

But it's also the strength of the of our existing portfolio sort of broadly for.

That is driven by you know in particular see ask Bruce.

Sandy.

<unk> has continued to.

To perform quite well.

Promacta and then also.

Our outlook for some of the launching products like <unk>.

And if rusty.

And then I.

The last thing is just our confidence in the growth of the market and the tailwind.

Terrance P. Coyne: So, Greg, on your question about sort of what's driving the long-term, the increase in our long-term outlook, I think it's, you know, it's a mix. So, you know, one, we had a really good year of investing in 2020. We added a number of attractive products that are, you know, going to be contributors there. That being said, a number of them were already in sort of our initial guidance that we provided back in August.

Our ability to maintain our leadership position and continue to bring in.

Really attractive assets I think all of those factor in and gave US a lot of confidence that we could raise that long term guidance long term outlook.

So to answer your question about the.

The new initiative on sort of.

A threat and analytics.

A lot of it is data science.

So let me just step back a little bit and explain something so.

Part of the strength.

Terrance P. Coyne: But it's also the strength of our existing portfolio, sort of broadly, that is driven by, you know, in particular CF and Bruvica, Xtandi, Asabri has continued to perform quite well in Promacta, and then also, you know, our outlook for some of the launching products like Tridelzy and Evrizdi. And then, you know, I think the last thing is just our confidence in the growth of the market and the tailwinds and, you know, our ability to maintain our leadership position and continue to bring in. I think all of those factors in and gave us a lot of confidence that we could raise that long-term guidance and long-term outlook.

Of our sourcing and evaluating.

Opportunities over the last several decades has been.

Very singular focus we have on <unk>.

On products and in life Sciences, it's all about understanding.

Product.

And.

And the strength comes from the fact that for example, we have a team that has been working together for a very long time I think Molly is close to 15 years.

Jim also.

Yes.

People, who have been working for going for a very long time and the fact that we can follow. So for example, if you look at specific therapeutic areas multiple sclerosis, or TNF or hematology.

We follow these areas very closely systematically every quarter looking at.

Pablo Legorreta: So to answer your question about the new initiative on, you know, sort of strategy and analytics, a lot of it is data science. So, let me just step back a little bit and explain something.

Products that are on the market what they are reporting prescriptions the trends I'm talking to the prescribers regularly.

Pablo Legorreta: So a big part of the strength of our sourcing and evaluating of opportunities over the last several decades has been the very singular focus we have on products and in life sciences. It's all about understanding products, and the strength comes from the fact that, for example, we have a team that has been working together for a very long time. I think Molly is close to 15 years old, and Jim also. Anyway, people have been working together for a very long time, and the fact that we can follow them is good.

Over and over again over a years and understanding them understanding how they are.

How they're using this drug for and how all of that is changing and.

And then obviously all of that effort includes also trying to understand.

The products that are being developed and how theyre going to fit into the whole landscape and how theyre going to be used in trying to then see if theyre going to be important drugs three five even 10 years out some other drugs might have trials that readout.

There are many years into the future that could impact.

The later years and our investments in understanding all of that is really critical and we've done that we've been able to do that well and royalty pharma.

Pablo Legorreta: So, for example, if you look at specific therapeutic areas, multiple sclerosis or TNS or hematology, we follow these areas very closely, systemically, every quarter, looking at, you know, products that are on the market, what they're reporting, prescriptions, the trends, talking to the prescribers regularly, you know, over and over again for years, and understanding them, understanding how they're, you know, how they're And then, obviously, all of that effort includes also trying to understand the products that are being developed and how they're going to fit into the, you know, whole landscape and how they're going to be used, and trying to then see if they're going to be important drugs three, five, even 10 years out.

But I think just thinking ahead for several years I've been thinking that we really need to take those for the next level and now with.

Tools that exist that are out there.

In terms of.

Like databases that have patient data loans into their own patient data for $30 million 50 million patients that you can actually.

Now.

Look at and analyze that data and understand it.

With greater detail.

The implications for the industry, but so so understanding all of that in detail and actually starting to integrated a lot more into what we do every day I think is going to give us an edge I also believe that one other things that we're trying to accomplish with this.

<unk> group is to really understand clinical development of products.

Pablo Legorreta: Some of these drugs might have, you know, trials that read out, you know, many years into the future that could impact, you know, the later years in our investments, and understanding all of that is really critical. And we've done that. We've been able to do that well at Royalty Pharma. But I think, just thinking ahead for several years, I've been thinking that we really need to take this to the next level.

Very broad sense. So if you think of hematology understanding all of the trials that are being run in all of the different <unk>.

Settings, all over the different combinations of our products that are being used in.

In great detail and the reason this is important is because as we finance companies.

Is that are developing products and we have conversations with them, if we can add value to them by actually.

Pablo Legorreta: And now with tools that exist that are out there in terms of, like, databases that have patient data, longitudinal patient data, 30 million, 50 million patients that you can actually now look at and analyze that data and understand with greater detail the implications for the industry. But understanding all of that in detail and actually starting to integrate it a lot more into what we do every day is going to give us an edge.

Somehow influencing the clinical programs they have and in some cases was suggesting.

May want to consider changing the trial this way because if you do that.

I'll give you a much bigger market opportunity commercial opportunity, we're going to be able to.

You know I address this unmet medical need there are other products that are being developed will not address.

So we can.

Get to that level.

Just to be.

We do part of that today, when we're having conversations with companies when we're trying to.

Discussed potentially funding Theres route, but theres a lot more that we can do.

Pablo Legorreta: I also believe that one of the things that we're trying to accomplish with this group is to really understand clinical development of products in a very broad sense. So, if you think of hematology, understanding all of the trials that are being run in all of the different settings, all of the different combinations of products that are being used in great detail.

Much more refined much more.

More added value and if we can have those kinds of conversations with.

Hundreds of biotech companies and even big pharma companies that are out there that need capital.

Going to be a much better situation for us because.

By having that kind of conversation I think they're they will recognize the unique value we bring to the table and.

To prevent competition that will want to work with us and not with other so because some of the value we add and that should result in.

Pablo Legorreta: And the reason this is important is because as we finance companies that are developing products, and we have conversations with them, if we can add value to them by actually somehow influencing the clinical programs they have, and in some cases, suggesting, you know, you may wanna consider changing the trial this way, because if you do that, it's gonna give you a much bigger market opportunity, commercial opportunity, and you're going to be able to address this So we can get to that level where, which we do, just to be, you know, we do part of that today when we're having conversations with companies, when we're trying to, you know, discuss potentially funding their trials.

And better economics for us better terms.

When we are negotiating a potential transaction. So it is all about the future is all about understanding also what are going to be the important therapeutic areas and modalities.

Two to treat patients not today not in a year or two but three years or five years from now because we need to start to think of how the.

For the industry is going to change and treatments are going to change in three 510 years and get ahead of that and then make investments that are going to capture that potential.

<unk>, maybe I'll give you a long answer but anyway.

The impetus of that initiative.

Thanks, a lot.

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

Great. Thanks for taking the questions Congrats on 2020.

Pablo Legorreta: But there's a lot more that we can do, you know, much more refined, much more, and more added value. And if we can have those kinds of conversations with, you know, the hundreds of biotech companies and even big pharma companies that are out there that need capital, it's going to be a much better situation for us because, by having that kind of conversation, I think they will recognize the unique value we bring to the table, and, you know, that will prevent competition.

On the long term guidance I was just wondering I know in the past you had mentioned net.

Half of the growth was from existing deals and half was from going to be from new deals I'm, assuming now that's maybe shifted where maybe over half is from existing deals less than half from new so I'm. Just wondering if you could provide any incremental color. There and then a question probably for Marshall Entre <unk>, obviously, one of the growth assets.

Pablo Legorreta: They will want to work with us and not with others because of the value we add. And that should result in better economics for us, better terms, you know, when we're negotiating a potential transaction. So, it is all about the future; it is all about understanding also what will be the important therapeutic areas and modalities to treat patients, not today, not in a year or two, but three or five years from now, because we need to start to think of how the industry is going to change and treatments are going to change in three, five, ten years and get ahead of that, and then make investments that are going to capture that potential upside. Maybe I gave you a long answer, but anyway, that's the impetus for that initiative.

You guys have talked about longer term.

Would love your perspective on the potential for this asset beyond breast cancer. Thank you.

Yes sure accounts so.

On the guidance.

So 7% to 10% is sort of it's sort of the total number and as you correctly pointed out that that also includes the impact of new investments for.

Our base.

Current portfolio as it stands today, we expect growth in the mid single digits and so the rest would come from from additional investments.

Marshall Great yet.

Hi, good morning, so on <unk>, we are really excited about.

<unk> is off to a good start and also debt.

Gilead has recognized that value and putting enormous resources globally behind the product so.

Terence Flynn: Thanks a lot. Thank you. Our next question comes from Terrence Flynn with Goldman Sachs. Your line is open. Great. Thanks for taking the questions. Congratulations on 2020. On the long-term guidance, I was just wondering, I know in the past you had mentioned that, you know, half of the growth was from existing deals, and half was going to be from new deals. I'm assuming now that it's maybe shifted where maybe over half is from existing deals, and less than half from new.

Certainly when we originally partnered with immunomedics that triple negative the late line triple negative breast cancer indication was our.

Was the core.

What we were looking at it.

We are optimistic about both moving earlier in triple negative and the.

HR positive data, which we'll see later this year and then.

Terence Flynn: So just wondering, Terry, if you could provide any additional color there. And then, probably for Marshall, on Tridelvy, obviously one of the growth assets you guys have talked about longer term. Would love your perspective on the potential for this asset beyond breast cancer. Thank you.

The next two indications bladder and lung cancer bladder is it is a competitive space but.

We do think that for Dolby has a unique combination of.

Advocacy and Tolerability.

In that in that disease as well so we are.

We're excited to see how that how that rolls out as well and then.

Terrance P. Coyne: Sure, Terrence. So on the guidance, yeah, so 7 to 10% is sort of the total number. And as you correctly pointed out, that also includes the impact of new investments. For our base, you know, current portfolio as it stands today, we expect growth in the mid-single digits. And so the rest would come from additional investments.

All of the activity.

<unk> positive cancers, including the lung cancer opportunity are certainly intriguing and we will be eagerly awaiting.

How that progresses and how gilead move.

Moods lung and other indications for it in the future.

Thank you our next question comes from.

Marshall Urist: Marshall? Great, yep, and hi, Terence, good morning. So on Tridelve, we are, you know, really excited about that it is off to a good start and also that, you know, Gilead has recognized that value and is, you know, putting enormous resources globally behind the product. So, certainly, when we originally partnered with Immunomedics, the triple negative, the late-line triple negative breast cancer indication, was our, you know, core of what we were looking at.

With Evercore your line is open.

Hi, guys. This is Mike difiore in for whom are congrats on the quarter and thanks. So much for taking my question just two if I may again with regards to your updated long term outlook.

Seem to be now more of a 60 40.

Ganic versus inorganic.

Contributive split.

Just focusing on organic growth what would you say would be the biggest product drivers.

Marshall Urist: And, you know, we are optimistic about both moving earlier in triple negative and the HR positive data, which we'll see later this year. And then, you know, the next two indications, bladder and lung cancer. Bladder is a competitive space, but, you know, we do think that Tridelve has a unique kind of combination of efficacy and tolerability in that disease as well. So we are, you know, we're excited to see how that rolls out as well.

Sure.

To this mid single digit growth and how much does product pricing factor in here.

And as a follow up in terms of inorganic.

<unk> growth.

Is this predicated more so on riskier developments day deals in the past and I know you said that.

M&A types of deals.

Or kind of harder to predict.

Could you just probably more color on.

How earlier stage deals and as well as M&A stage deals could could factor into this for some mix going forward. Thank you.

Yes so.

I'll take.

The last part of your question and then Gary can answer.

The first part so.

I think.

Marshall Urist: And then, you know, all of the activity in TROP2 positive cancers, you know, including the lung cancer opportunity, is certainly intriguing, and we will be, you know, eagerly awaiting how that progresses and how Gilead moves lung and other indications forward in the future.

The if you look at what's happened over the last eight years. It turns out that it's been pretty balanced roughly half and half I mean, maybe 50 545 between approved and unapproved.

And 55 approve them 45, unapproved and I think you know.

Terence Flynn: Thank you. Our next question comes from Umer Raffat with Evercore. Your line is open. Hi guys, this is Mike DiFiore, in for Umer Raffat. Congratulations on the quote.

Over the long term it probably will.

B, a similar ratio where.

It could be close to evenly split could go.

Oh.

You know, maybe larger approved or maybe larger than the other one that's going to be hard to predict but.

Umer Raffat: and thanks so much for taking my question just to ask again with regard to your update on the long-term outlook.

What has happened over the last couple of years is that we have invested a lot more capital on approved products.

Michael DiFiore: It would seem to be now more of a 60-40 organic versus inorganic contributive split.

Jim mentioned that already.

In his prepared remarks.

But I think the.

Michael DiFiore: Just focusing on organic growth, what would you say would be the big...

Unapproved.

Opportunities for us is really big because we.

Michael DiFiore: The Biggest Product Drivers for this mid-single digit growth and how much does product pricing factor in here? And as a follow-up, in terms of inorganics, you know, future deal growth.

We've talked.

Multiple times in the past.

The biotech industry is in that sort of Golden age.

And.

There is so much demand and need for capital among biotechs that have been created over the last 10 years, many of which have gone public over the last five years and raised a huge amount of capital.

Michael DiFiore: Is this predicated more so on riskier development-state deals in the past? And I know you said that M&A types of deals are kind of a hotbed.

Michael DiFiore: How earlier stage deals and as well as M&A stage deals.

Many of you know close to a 100 billion waters from capital raised by by biotech Ipos and follow ons and.

Michael DiFiore: etc. See www.youtube.com or the link in the description.

All of that money, obviously is funding early stage trials, but this companies will need funding for the larger.

Pablo Legorreta: could factor into this mix going forward. Thank you.

Our phase III trials and I.

Pablo Legorreta: Yeah, so I'll take the last part of your question and then Jerry can answer the first part. So I think, you know, if you look at what's happened over the last eight years, it turns out that it's been pretty balanced, you know, roughly half and half. I mean, maybe 55-45 between approved and unapproved, and 55 approved and 45 unapproved. And I think, you know, over the long term, it probably will be a similar ratio where, you know, it could be close to even, or the split could go, you know, maybe larger approved or maybe larger than the other one. It's going to be hard to predict, but

I think.

That's where I think theres going to be very interesting opportunities for us.

And I think over time, maybe the balance will shift to have a little bit more investment in unapproved.

Maybe getting to cash.

Half and half, but it's a risk we're very happy to take because it comes with very attractive upside and I think I would also note that we are actually having discussions today about funding.

Late stage trials, not only with biotechs, but with some of the bigger companies that also have very very attractive portfolios that require so much capital that they want to actually work with us to mitigate risk. So it is.

Pablo Legorreta: What has happened over the last couple of years is that we have invested a lot more capital in approved products. You know, Jim mentioned that already in his prepared remarks. But I think the... unapproved opportunity for us is really big because, as we've talked multiple times in the past, the biotech industry is in a sort of golden age and there's so much demand and need for capital among biotechs that have been created over the last 10 years, many of which have gone public over the last five years and raised a huge amount of capital. Many, close to $100 billion of capital raised by biotechs through IPOs All of that money, obviously, is funding early stage trials, but these companies will need funding for the larger... Phase III trials, and

An attractive opportunity for us, it's one where if you look at the amount of capital we have to be invested in unapproved. It's so low on a relative basis that we could invest $2 billion $3 billion over the next two or three years, an unapproved and that would probably bring it back to about a 50 50 ratio.

And it's something that would be very attractive for royalty pharma to achieve a.

Very attractive returns for our investors well I'll.

Pass it onto Terry now for the other part of the question.

Yes. So your question on uncertain to current drivers for the long term outlook.

Pablo Legorreta: I think, you know, that's where I think there's going to be very interesting opportunities for us. And I think, you know, over time, maybe the balance will shift to have a little bit more investment in unapproved medicines, maybe getting to half and half.

I think certainly.

We're lucky that we have a number of products that are still in the early or middle innings of their growth.

So when we look across the portfolio I think the bigger drivers will still BCS.

But also improve at the end.

Pablo Legorreta: But it's a risk we're very happy to take because it comes with very attractive upside. And I think I would also note that we are actually having discussions today about funding late-stage trials, not only with biotechs but with some of the bigger companies that also have very, very attractive portfolios that require so much capital that they want to actually work with us to mitigate risk. So it is an attractive opportunity for us.

And then for Us D and <unk>.

And <unk> and also <unk> I think we do expect all of those products to be healthy contributors until also offsets.

The expirations that will that we will face over the next for the next.

Couple of years.

In terms of.

The mix of volume versus price.

Our expectation is the vast vast majority of growth will be driven by volume and price will be less in the sector.

Pablo Legorreta: It's one where, if you look at the amount of capital we have today invested in unapproved $2 billion, $3 billion over the next two, three years, and it's unapproved. And that would probably bring it back to about a 50-50 ratio. And it's something that would be very attractive for Royalty Pharma to achieve very attractive returns for our investors. But I'll pass it on to Terry now for the other part of the question.

One thing to just mentioned about just adding to what Barry said.

All of those products I think you mentioned five or six.

Incredible drugs blockbusters.

Many companies have one or two of those we have six of those.

Amazing drugs with very significant growth.

Double digit growth from some are growing at 30% per year or more because they are in their launch phase, but what's very attractive about royalty pharma.

Terrance P. Coyne: Yeah, so your question on sort of the growth drivers for the long-term outlook, I think we're lucky that we have a number of products that are still, you know, in the early or middle innings of their growth. So, when we look across the portfolio, I think that, you know, the bigger drivers will still be CF, but also Bruvica and Evrizdi and Trodelvi and Xtandi and also N I think we do expect all of those products to be healthy contributors and to also offset some of the expirations that we will face over the next couple of years. In terms of... You know, the mix of volume versus price, our expectation is that the vast, vast majority of growth will be driven by volume, and price will be less than a factor.

Is that the.

For the growth is driven by a diversified portfolio of.

Blockbusters differentiator blockbusters, not one not two but many of them so that makes our growth much more predictable.

Then many companies and I think that's something that many investors have probably not appreciated enough debt.

It is.

The diversification we have helped.

Helps our topline and our bottom line and makes both the topline and the Bottomline fairly predictable.

Well, it's up there.

Great. Thanks, so much.

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

Pablo Legorreta: One thing to just mention, just adding to what Terry said, is all of those products, I think he mentioned five or six that are just incredible drugs, blockbusters that, you know, many companies have one or two of those. We have six of these amazing drugs with very significant growth, you know, double digit growth. Some are growing at 30% per year or more because they're in their launch phases.

Yes, thanks, very much and let me add my congrats as well so I have two questions first Pablo if you could discuss the.

The potential for future M&A transactions so.

What could they look like and when you say M&A transactions could you provide a little bit more color on what the company could be acquiring beyond just royalties.

Pablo Legorreta: And the growth is driven by a diversified portfolio of... Blockbusters, differentiated blockbusters, not one, not two, but many of them. So that makes our growth much more predictable than many companies. And I think that's something that many investors have probably not appreciated enough, that the diversification we have helps our top line and our bottom line and makes both the top line and the bottom line fairly predictable.

And then second with respect to the comment about funds.

Funding our late stage trials.

Obviously royalty pharma has had some successes, but also a mixed track record. So how will the company ensure that it's not just taking on trials that big pharma or other biopharma companies are hesitant to fund internally. Thank you.

Pablo Legorreta: Anyway, I'll stop there.

Yeah. So so.

David Reisinger: Great, thanks so much. Thank you. And our next question comes from David Reisinger with Morgan Stanley. Your line is open. Yes, thanks very much.

The last comment you made it made me reflect that if there are many things that we have passed on because there was a question to Jim before of what what are the some of the themes.

David Reisinger: And let me add my congratulations as well. So I have two questions. First, Pablo, could you discuss the potential for future M&A transactions? And what could they look like?

We have why would have passed on investments and it's in many cases, it's exactly what you just said that when we have discussions with companies often they want us to fund.

Pablo Legorreta: And when you say M&A transactions, could you provide a little bit more color on what the company could be acquiring beyond just royalties? And then second, with respect to the comment about funding late stage trials. Obviously, Royalty Pharma has had some successes, but it also has a mixed track record. So how will the company ensure that it's not just taking on trials that Big Pharma or other biopharma companies are hesitant to fund internally? Thank you. Yeah, so...

Assets that maybe don't make the cut that they.

And they decided not to fund and it's amazing when I look and reflect on the past how many things with big companies medium sized companies where.

The asset looks great and then when you dig in you realize that at the end they decided not to fund that.

We ended up passing and many of those cases, so that's something that's very important for us to tease out when we're having this conversation.

Pablo Legorreta: Yeah, so, so, um... The last comment you made made me reflect that there are many things that we have passed on. There was a question from Jim before about what are some of the themes of why we have passed on investment, and in many cases, it's exactly what you just said, that when we have discussions with companies, often they want us to fund assets that maybe don't make the cut that they decide not to fund.

And in fact book.

Generally tried to do is to to tell those companies. What we would like to do is to fund the ones that you are funding the top programs and by US funding those we're going to free up capital that is going to lead to you then.

Expand the number of opportunities that you're funding into others that might be a little bit more risky.

But and that's worked out relatively well in many cases.

Pablo Legorreta: And it's amazing when I reflect on the past, how many things, you know, with big companies, medium-sized companies where, you know, the asset looks great, and then when you dig in, you realize that, in the end, they decided not to fund it. And we end up failing in many of those cases. So that's something that's very important for us to tease out when we're having these conversations. And in fact, what we generally try to do is to tell these companies, what we would like to do is to fund the ones that you are funding, the top programs, and by us funding those, we're going to free up capital that's going to let you then expand the number of opportunities that you're funding into others that might be a And it just happened that after we went public, we had a couple of failures with Ibrant.

Also add to that if you look at the track record in the past.

You know the over $6 billion that we've invested in unapproved products over the last eight years and now we're going into the ninth year.

90% of those worked out and it just happened that after we went public we had a couple of.

Failures with eyebrows.

And the side of genetics cardiovascular drug, but we have had you know maybe six or seven successes.

Before that.

So I think.

Try to look at the ones that that did work out.

And then you know on a relative basis look at the.

The outcome the returns that those provide and how they make up for.

They make up for for the losses on the ones that didn't work out and more than make up because obviously the returns in general are very attractive so so.

Those are two comments on the funding.

But then regarding M&A.

There's been conversations that we've had in prior years of transactions.

Could be transformative large multiple billions of dollars of other deploying capital.

Pablo Legorreta: and the cytokinetics cardiovascular drug. But we had, you know, maybe six or seven successes before that. So I think, you know, try to look at the ones that did work out and then, on a relative basis, look at the outcome, the returns that those provide, and how they make up for, you know, a lot of the losses on the ones that didn't work out and more than make up for them, because obviously, the returns in general are very attractive.

M&A situations and what happens in some of those cases as you know we had a conversation one situation where it went far we made an offer and at the end of another company paid more but it was going to be a fairly large transaction for a large company and we were going to put to work billions of dollars of capital, creating a royalty.

So so I think what form will they take I think in some cases.

And we will.

<unk> capital invest capital and create a new royalty.

Pablo Legorreta: Those are two comments on funding, but then regarding M&A, there have been conversations that we've had in previous years of transactions that could be transformative, large, multiple billions of dollars of us deploying capital in M&A situations. What happens in some of those cases is we had a conversation, one situation where it went far, we made an offer, and in the end, another company paid more, but it was going to be a fairly large transaction for a large company, and we were going to put billions of dollars of capital to work creating a new royalty. What form will they take?

That could be fairly large.

The investment we make.

Some of these cases.

It's rare that it's going to be a couple of hundred million dollars because those numbers really don't move the needle for companies right. So so when a transaction of that happens it's likely to be volume plus.

It could be 500 million, okay in the middle size M&A transaction mid sized M&A transaction, but for the larger ones.

It's likely to be.

Significantly more capital.

So we could.

Put capital to work and then create a royalty or in some cases the target could have you know royalty assets that fit very well with us and do not fit at all with the.

Pablo Legorreta: I think in some cases... We will provide capital, invest capital, and create a new royalty that could be fairly large, the investment we make. In some of these cases, it's rare that it's going to be a couple hundred million dollars because those numbers really don't move the needle for companies, right? So when a transaction like that happens, it's likely to be a billion plus. It could be $500 million in a middle-sized M&A transaction, a mid-sized M&A transaction.

Acquirer.

And it could also be fairly large so those two themes are things that we're constantly looking at an M&A situations.

Both creating a royalty or acquiring existing royalties at the target company, we will have and you know it very well biotechs.

Pablo Legorreta: But for the larger ones, it's likely to be significantly more capital. And so we could put capital to work and then create a royalty, or in some cases, the target could have royalty assets that fit very well with us and do not fit at all with the Acquirer. And it could also be fairly large.

Might have two three for drugs in there and there.

They might own towards re drugs that they have developed and it's very often the case that drug number one or two what's out license and that became a 10 15, 20% royalty.

Pablo Legorreta: So those two themes are, you know, things that we're constantly looking at in M&A situations, you know, both creating a royalty or acquiring existing royalties that the target company will have. And you know it very well; biotechs, you know, might have two, three, four drugs in their pipelines. They might own two or three drugs that they have developed. And it's very often the case that, you know, drug number one or two was outlicensed, and that became a 10, 15, 20 percent royalty.

And they now have.

When drug three and four and five maybe three is more advanced than four and five but you know where they are now developing that drug and trying to have them.

I would license it and they want to preserve the economics in that drug for themselves, but as they become the target of an acquisition.

The acquirer is looking at that third drug that is now maybe in late stages closer to approval or just got approved.

And maybe also the pipeline for in five and you know they.

Pablo Legorreta: And they now have drugs 3 and 4 and 5, maybe 3 is more advanced than 4 and 5, but they are now developing that drug and trying to have it outlicensed, and they want to preserve the economics of that drug for themselves. But if they become the target of an acquisition, the acquirer is looking at that third drug that is now maybe in late stages, close to approval, or just got approved, and maybe also the pipeline, 4 and 5.

They will probably not want to retain a royalty is that could be sizable in the teens in the first and second drug and we become the ideal as the partner of choice for those but we could also in some of those cases even.

Have a discussion where we could fund the trials on the on the pipeline.

The other drugs that are in the pipeline that might require meaningful funding. So I think we just need to be very open minded and see how we can work with them in a win win situation provide solutions and <unk>.

Pablo Legorreta: And they will probably not want to retain royalties that could be sizable in the teens for the first and second drug, and we become the ideal partner choice for those. But we could also, in some of those cases, even have a discussion where we could fund the trials for the pipeline, the other drugs that are in the pipeline that might require meaningful funding. So I think we just need to be very open-minded and see how we can work with them in a win-win situation, provide solutions, and create a great outcome for the acquirer and for us.

And create a great outcome for the acquirer for us.

That's great thanks very much.

Yeah.

Thank you and I'm showing no further questions at this time I would like to turn the call back to Mr. Pablo <unk> for closing remarks.

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 continuing to share our progress with you. If you have any follow up questions. Please feel free to reach out to George. Thank you for today and we're here to continue having discussions with all of you.

Pablo Legorreta: That's great. Thanks very much. Thank you, and I'm showing no further questions at this time. I'd like to turn the call back to Mr. Pablo Legorreta for closing remarks.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Pablo Legorreta: 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 continuing to share our progress with you. If you have any follow-up questions, please feel free to reach out to George. Thank you for today, and we're here to continue our discussions with all of you.

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Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.