Q2 2021 Royalty Pharma PLC Earnings Call

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Operator: Thank you for your patience, and please continue to stand by. The Royalty Pharma second quarter 2021 earnings conference call will begin momentarily. Thank you for your patience, and please continue to stand by.

Thank you for your pace and I think I'm pleased because he understand and by the royalty pharma second quarter 2021 earnings conference call will begin momentarily. Thank you for your patience and please continue and standby.

Unnamed Speaker: [inaudible] BF-WATCH TV 2021

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma second quarter 2021 earnings conference call. I would now like to turn the call over to George Grofik, SVP, Head of Investor Relations and Communications. Please go ahead, sir.

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Ladies and gentlemen, thank you for standing by and welcome to the royalty pharma second quarter 2021 earnings Conference call.

I'd now like to turn the call over to George Godfrey SVP and head of Investor Relations and Communications. Please go ahead Sir.

George Grofik: Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's second quarter results. You can find the slides to the call on the investors page of our website at royaltypharma.com. Moving to slide three, I would like to remind you that the information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially.

Good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma and second quarter results you can find the flights to 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 contains forward looking statements that involve known and unknown risks uncertainties and other factors that may cause actual results to differ materially.

George Grofik: I refer you to our 10-K on Files with the FCC for a description of these risks.

And for you to our 10-K filed with the SEC for a description of these risks.

George Grofik: 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 Investments and Chief Scientific Officer; Marshall Urist, EVP, Co-Head of Research and Investments; 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 portfolio and acquisitions. Terry will then review the financials, and after concluding remarks from Pablo, we will hold the Q&A. Chris Hite, our Vice Chairman, will also join the Q&A. With that, I'd like to turn the call over to Pablo.

With that please advance to slide four.

Our speakers on the call today are Pablo like Arezzo, founder and Chief Executive Officer, Jim Reddick, EVP and co head of research and investment and Chief Scientific Officer.

Marshall Eurest, EVP and co head of research and investment and Terry Cohen, EVP and Chief Financial Officer.

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

Terry will then review the financials and after concluding remarks from Pablo and we will hold for Q&A session per site, our Vice Chairman will also join and Q&A session.

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

Pablo Legorreta: Thank you, George, and welcome to everyone on the call. I am delighted to report that Royalty Pharma continued to execute very well against our strategy in the second quarter. We continued to deliver double-digit, bottom-line growth despite losses of exclusivity. We maintained our strong deal momentum with year-to-date transactions of $2.8 billion. And we completed an innovative bond issuance to strengthen our capital structure and expand our competitive advantage.

Thank you George and welcome to everyone on the call.

I am delighted to report the royalty pharma continued to execute very well against our strategy and the second quarter.

We continue to deliver double digit bottom line growth despite losses of exclusivity, we maintained our strong deal momentum with year to day transactions announced of $2.8 billion and.

And we completed and innovative bond issuance to strengthen our capital structure and expand our competitive advantage.

Pablo Legorreta: Taken together, based on our strong business dynamics, we're again raising our guidance for adjusted cash receipts for full year 2021. On slide seven, you can see our financials in a little more detail. In the second quarter, we delivered 3% growth in adjusted cash receipts and 16% in adjusted cash flow, which we consider to be our top and bottom line, respectively.

Taken together based on our strong business dynamics, we're again, raising our guidance for adjusted cash receipt for full year 2020 one.

On slide seven and you can see our financials and a little more detail and the second quarter, we delivered 3% growth and adjusted cash receipts and 16% and adjusted cash flow, what we considered to be our top and bottom line respectively.

Pablo Legorreta: The continued business momentum puts us in a great position to deliver another year of strong financial performance in 2021, as Terry will speak to what he discussed is raised guidance for the current year. Slide 8 takes a step back and sets out what we have achieved since our IPO in June 2020. I am particularly proud of this light as it really speaks to the strength of our business model and our competitive position. In just over a year, we have announced $4.7 billion in royalty acquisitions across nine transactions spanning four therapeutic categories and 17 therapies. Meanwhile, we have converted.

And the continued business momentum puts us in a great position to deliver another year of strong financial performance in 2021.

As Terry will speak to what he discusses our raised guidance for the current year.

Slide eight takes us step back and sets out what do we have achieved since our IPO in June 2020.

I am, particularly proud of this light as it really speaks to the strength of our business model and our competitive position.

And just over a year, we have announced for a $4.7 billion and royalty acquisitions across nine transactions spanning for.

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Meanwhile, we have converted.

Pablo Legorreta: Our top line efficiently converted to cash, with an 85% adjusted cash flow margin over the period, and we have grown our bottom line by 25%. These milestones are a testament to our market leadership position in a rapidly growing royalty funding market and the innovative approach of our team. And, as you will hear through the course of this presentation, our prospects for sustained long-term growth continue to be excellent. With that, I will hand over to Jim and Marshall to update you on our royalty portfolio. Thank you, Pablo, and hello, everyone.

Our topline efficiently to cash with and 85% adjusted cash flow margin over the period and we have grown our bottom line by 25%.

This is milestones are a testament to our market leadership position and a rapidly growing royalty funding market and the innovative approach of our team.

And as you will here through the course of this presentation and our prospects for sustained long term growth continued to be excellent.

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

Thank you Pablo and Hello, everyone.

Jim Reddick: As shown on slide 10, we have seen strong early progress on our recently acquired royalties. As noted on the last slide, we have deployed about $4.7 billion in capital since our IPO. However, if we look a little further back to the beginning of 2020, our capital deployment is around $5.3 billion.

Shown on slide 10, and we've seen strong early progress of our recently acquired royalties as noticed as noted on the last slide we deployed about $4.7 billion and capital since our IPO. However, if we look a little further back to the beginning of 2020, our capital deployment is around $5.3 billion.

Jim Reddick: The graphic on the right shows the evolution of consensus sales forecasts since we acquired each of the royalties. And while the products underlying our royalties do not need to outperform consensus to reach our targeted returns, we are very encouraged to see that consensus has evolved positively for most of our recent royalty acquisitions, with four therapies outperforming consensus estimates at the time of the deal and only one underperforming. While it is still early days for these deals, with many of the products expected to generate growing royalties well into the next decade, we are definitely encouraged by these trends.

The graphic on the right here shows the evolution and consensus sales forecast since we acquired each of the royalties and while the products underlying our royalties do not need to outperform consensus to reach our targeted returns. We are very encouraged to see the consensus has evolved positively for most of our recent royalty acquisitions with for therapies out.

Performing consensus estimates at the time of the deal and only one underperforming.

And it's still early days for these deals with many of the products expected to generate growing royalty as well into the next decade, we are definitely encouraged by these trends.

Jim Reddick: We believe this speaks to our ability at Royalty Pharma through our deep due diligence and unique competitive advantages to identify therapies that deliver important and potentially transformative benefits to patients. Slide 11 analyzes our Royalty acquisitions by serity, area, and type of Royalty deal. Around 40% of the new therapies we added to our portfolio since the beginning of last year are for rare diseases, with a balance divided between oncology, immunology, and neurology. All are targeted at areas of high unmet patient need.

We believe this speaks to our ability and royalty pharma through our deep due diligence and unique competitive advantages to identify therapies that deliver important and potentially transformative benefits to patients.

Slide 11, analyzes our royalty acquisitions by therapy area and type of royalty deal.

Around 40% of the new therapies that we added to our portfolio since the beginning of last year are for rare diseases with a balanced divided between oncology and immunology and neurology all of our targeted at areas of high unmet patient need.

Marshall Urist: And as a reminder, a strength of our business model is that we are therapeutic category agnostic, and we evaluate each opportunity on a case-by-case basis so we can quickly pivot our focus to areas where breakthrough medical innovations are happening. And when we look at our royalty acquisitions by type, roughly two-thirds have been existing royalties, and one-third are newly created or synthetic royalties. Through our Morphosis transaction, a significant portion of each category relates to enabling mid-capitalization M&A, where we see considerable opportunity for future deal flow. And with that, I'll hand it over to Marshall. Thank you, Jim, and good morning and afternoon to everyone.

And as a reminder, our strength of our business model is that we are its tariff for therapeutic category agnostic and we evaluate each opportunity on a case by case basis. So we can quickly pivot our focus to areas where breakthrough medical innovations are happening.

And when we look at our royalty acquisitions by type.

Two thirds had been existing royalties and one third are newly created or synthetic royalties.

Through our more closest transaction a significant portion of each category relates to enabling mid cap M&A, where we see considerable opportunity for future deal flow and.

I'll hand, it over to Marshall.

Thank you, Jim and good morning, and afternoon to everyone. Let me just add that I'm really excited about the royalty acquisitions, we have announced since our IPO and our team remains very busy and assessing new potential opportunities I wonder.

Marshall Urist: Let me just add that I'm really excited about the royalty acquisitions we have announced since our IPO, and our team remains very busy assessing new potential opportunities. I want to take a couple of minutes now to highlight the Morphosis transaction and to discuss upcoming portfolio events. Slide 13 provides a summary of what was a highly customized transaction of up to $2 billion which enabled Morphosis to acquire Constellation Pharmaceuticals. Pablo described this at the time as our biggest and boldest transaction since we went public.

And take a couple of minutes now to highlight the most versus transaction and discuss upcoming portfolio event.

Slide 13 provides a summary of what was a highly customized transaction of up to $2 billion, which enabled smartphone to acquire constellation pharmaceuticals.

Pablo described this at the time as our biggest and boldest transactions since we went public and wood.

Marshall Urist: And I would echo this with my personal view that Royalty Pharma is uniquely positioned with the technical, scientific, and financial capabilities in place to deliver such a carefully tailored funding structure in what we believe is a true win-win M&A deal. As a reminder, we paid $1.425 billion upfront to Morphosis and purchased $100 million of equity. Beyond this, we agreed to provide up to $150 million in clinical, regulatory, and commercial milestone payments and up to $350 million in development funding bonds.

And I would echo this with my personal view that royalty pharma is uniquely positioned with the technical scientific and financial capabilities in place to deliver such a carefully tailored funding structure and what we believe is a true win win M&A deal.

As a reminder, we paid $1.45 billion upfront to Martha and purchased $100 million of equity.

Beyond this we agreed to provide up to $150 million and clinical regulatory and commercial milestone payments and up to $350 million and development funding volume.

And return, we will receive fixed cash flow stream with debt.

Cornerstone being the royalty on shrimp by a leading immunology blockbuster marketed by Johnson and Johnson.

And on top of this we added for attractive development stage opportunities to a royalty pipeline.

Marshall Urist: In return, we will receive six cash flow streams, with the cornerstone being the royalty on Trimphya, a leading immunology blockbuster marketed by Johnson & Johnson. On top of this, we added four attractive development stage opportunities to our royalty pipeline. For example, we will receive royalty rights to Otilumab, a novel approach to rheumatoid arthritis by targeting GM-CSF under development by GSK.

We received royalty rights to <unk>, a novel approach to rheumatoid arthritis by targeting GM, CSF underdevelopment and GSK.

At a June Investor event, we note the GSK provided an outlook for peak hotel and that sales of between $1 billion to $2 billion British pounds on a non risk adjusted basis.

And with phase III data expected towards the end of 2022.

As a reminder, we acquired 80% of morphosis is tiered double digit royalty.

We also received royalty rates and gains and narrow Matt for Alzheimer's, which is in development at rich since the deal was announced biogen's agile home was approved by the FDA, indicating a potentially more favorable regulatory environment for all timers therapies, and we are cautiously optimistic that the upcoming <unk> phase III data will support a best in class profile.

Marshall Urist: At a June investor event, we note that GSK provided an outlook for peak otillomab sales of between one to two billion British pounds on a non-risk-adjusted basis, with Phase 3 data expected towards the end of 2022. As a reminder, we acquired 80% of Morphosis's tiered double-digit royalties. We also received royalty rights on Gantanerumab for Alzheimer's, which is in development at Roche. Since the deal was announced, Biogen's AgiHelm was approved by the FDA, indicating a potentially more favorable regulatory environment for Alzheimer's therapies, and we are cautiously optimistic that the upcoming Gantanerumab phase 3 data will support a best-in-class profile.

The opportunity is clearly significant and we like the upside potential if therapy offers and the context, the morphosis deal as well as our broader portfolio.

As a reminder, we acquired 60% of Morphosis is five 5% to 7% royalty.

We also created two synthetic royalties on oncology assets from constellation, namely collaboratively for myelofibrosis, and Cps and <unk>, which is being assessed and several oncology study.

Lastly, we are entitled to receive stable fixed payments on the development funding.

These fixed payments, which will generate a 2.2 X multiple and roughly 13% Unlevered IRR mitigates the risk return profile of the deal.

Marshall Urist: The opportunity is clearly significant, and we like the upside potential that this therapy offers in the context of the morphosis deal, as well as our broader portfolio. As a reminder, we acquired 60% of Morphosis's 5.5% to 7% oil.

Our ability to execute such a complex transaction and underscore the breadth of our funding capabilities and our unique role and M&A, which we see as a major business opportunity going forward.

Slide 14 sets out the upcoming clinical and regulatory events that are expected over the next 12 to 18 months for our portfolio.

Looking to the balance of 2021, we expect several important data readouts, including the phase III results for Astrazeneca <unk> and asthma.

Marshall Urist: We also created two synthetic royalties on oncology assets from Constellation, namely Pellabrasib for myelofibrosis and CP0209, which is being assessed in several oncology settings. Lastly, we are entitled to receive stable fixed payments from the Development Funding Fund. These fixed payments, which will generate a 2.2x multiple and roughly 13% unlevered IRR, mitigate the risk-return profile of the deal. Our ability to execute such a complex transaction underscores the breadth of our funding capabilities and our unique role in M&A, which we see as a major business opportunity going forward.

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When we look out into 2022, we are potentially very meaningful clinical trial, readouts, particularly the phase III results for against and Euro amount and all timers as well as from fire and ulcerative colitis, and Crohn's and <unk> and rheumatoid arthritis, among several others.

Turning to regulatory decisions and the past quarter, the FDA approved for <unk> cancer as well as the expansion of <unk> ODT label to include migraine prevention.

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And in summary, we're approaching a number of clinical and regulatory milestones over the next 12 months to support the continued development of our portfolio and.

And if positive many of these could add significantly to our long term outlook for adjusted cash flow with that I will hand, it over to Terry.

Marshall Urist: Slide 14 sets out the upcoming clinical and regulatory events that are expected over the next 12 to 18 months for our portfolio. Looking to the balance of 2021, we expect several important data readouts, including the Phase 3 results for AstraZeneca's PT-027 in asthma, BioHaven's Phase 2-3 results for intranasal zevegapan in migraine, and Gilead's pivotal results for Tredelvi in HR-positive breast cancer. When we look out into 2022, we have potentially very meaningful clinical trial readouts, particularly the phase 3 results for gantanirimab in Alzheimer's, as well as trunfia in ulcerative colitis and Crohn's, and otillimab in rheumatoid arthritis, among several others. Turning to regulatory decisions, in the past quarter, the FDA approved Tredelvia for Neurothelial Cancer, as well as the expansion of the NERDTech ODT label to include migraine prevention, and Trikafta for CF in six to 11-year-olds.

Thanks, Marshall, let's move to slide 16.

Total royalty receipts were slightly ahead of year ago period, consistent with the commentary we provided on our first quarter earnings call.

Growth drivers and the quarter included our largest franchise cystic fibrosis and together with payments from <unk> and the addition of new royalty such as <unk>.

These positive factors were largely offset by a more than 50% decline and royalty received from the HIV franchise.

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Royalties are generally booked one quarter and year over year from actual performance and.

And that many biopharma companies reported a softer first quarter.

These dynamics will largely largely reverse next quarter and he was at <unk>.

And as seen in the recent reporting fee.

Slide 17 shows how our royalty receipts translated to strong adjusted cash flow and the second quarter.

As you are aware adjusted cash receipts as a key non-GAAP metrics for us, which we arrive that after deducting noncontrolling interest.

This amounted to $475 million and the quarter growth of 3% compared with last year's second quarter as Pablo noted earlier.

And the NCI line declined 9% as royalties for products with a larger MTI percentage like Emtricitabine and what Harris has declined in 2021 due to loss of exclusivity.

When we move from left to right operating professional costs of $40 million weighted to 8% of adjusted cash receipts, representing and similar ratio to the first quarter.

Net interest with de Minimis and reflected the fact that this quarter along with the fourth quarter, we did not incur the semiannual interest payment associated with our $6 billion unsecured note offering in 2020.

Terrance P. Coyne: In summary, we're approaching a number of clinical and regulatory milestones over the next 12 months to support the continued development of our portfolio. And if positive, many of these could add significantly to our long-term outlook for adjusted cash flow. With that, I will hand it over to Terry. Thanks, Marshall.

As a reminder, the next semiannual interest payment of approximately $64 million will be and the third quarter.

This does not reflect our recent $1.3 billion debt offering with the first interim interest payment from that offering expected in the first quarter of 2022.

And after other items of $5 million adjusted cash flow, our bottom line earnings were $429 million or <unk> 71 per share.

This resulted in an adjusted cash flow margin of 92% again underscoring the strong leverage in our business model.

Terrance P. Coyne: Let's move to slide six. Total royalty receipts were slightly ahead of the year-ago period, consistent with the commentary we provided on our first quarter earnings. Breakdown drivers in the quarter included our largest franchise, Cystic Fibrosis, together with payments from Biohaven and the addition of new royalties such as Cavamedic. However, these positive factors were largely offset by a more than 50% decline in royalty receipts from the HIV franchise. As a reminder, our royalties are generally booked one quarter in arrear from actual performance, and many biopharma companies reported a softer first quarter.

Slide 18 shows how we continue to strengthen our balance sheet after the quarter and through and innovative debt issuance, which raised $1.3 billion and July.

And with maturities of 2031.2051 for the two tranches, we extended the majority of our debt profile for 2030 and beyond a very attractive rates.

On the right hand side of the slide you can see how our total debt profile compares favorably with our Biopharma peers.

We are particularly pleased that the $600 million other bonds, we issued our and the form of the social bond, which underscores our commitment to ESG and corporate responsibility.

Specifically, our social bond framework is linked to Stg's, three and nine which promotes social health and wellbeing as well as enhanced scientific research and innovation.

Terrance P. Coyne: These dynamics will largely reverse next quarter, as you have seen in the recent reporting. Slide 17 shows how our royalty receipts translated to strong adjusted cash flow in the second quarter. As you're aware, adjusted cash receipts is a key non-GAAP metric for us, which we arrive at after deducting non-controlling interest. This amounted to $475 million in the quarter, growth of 3% compared with last year's second quarter, as Pablo noted earlier. The NCI line declined 9% as royalties from products with a larger NCI percentage, like Amtricitabine and Loteris, declined in 2021 due to loss of exclusivity.

The proceeds from the social bond will go towards funding innovation in areas such as orphan diseases.

These are defined by the <unk>, you and as well as other underserved diseases.

This can also be applied retroactively to deals that were done and the two years prior to the bond offering such as the residual royalty interest and the CF franchise that we acquired from the CF Foundation and November of last year.

On Slide 19, you can see we ended the quarter with cash and marketable securities of $2 billion.

Similar to our position at the end of 2020.

Cash inflows over the six months included adjusted cash flow of $838 million.

These inflows were broadly offset by the $719 million, we deployed on royalty acquisition.

And by $226 million and dividends and distributions.

Terrance P. Coyne: When we move from left to right, operating professional costs of $40 million equated to 8% of adjusted cash receipts, representing a similar ratio to the first quarter. Net interest was de minimis and reflected the fact that this quarter, along with the fourth quarter, we do not incur the semiannual interest payments associated with our $6 billion unsecured note offering in 2020. As a reminder, the next semiannual interest payment of approximately $64 million will be in the third quarter.

The limited change over the period on a net basis.

Following the quarter, and we closed and morphosis transaction and the depth offering I just described.

We adjust for these factors, our pro forma cash and marketable securities would've been just over $1.7 billion.

We currently have seven $3 billion and investment grade debt and our pro forma leverage and its approximately three times EBITDA on a net basis and four times EBITDA on a total basis.

Our cash balance strong cash generation of the business along with our untapped one 5 billion revolving credit facility.

It gives us a strong liquidity position and leaves us well positioned to execute on our business plan.

Terrance P. Coyne: This does not reflect our recent $1.3 billion debt off. The first interest payment from that offering is expected in the first quarter of 2022. After other items of $5 million plus adjusted cash flow, our bottom line earnings were $429 million, or $0.71 per share. This resulted in an adjusted cash flow margin of 90.2%.

Slide 20 demonstrates why we believe we are uniquely positioned to fund innovation.

First we have deep access to debt capital to fund royalty acquisitions.

For example.

And $2.2 billion and debt at attractive rates since 2020, which compares to the $5.3 billion and deals we can now.

Second we have aligned our debt maturity profile with the average duration of our royalty profile at around 13% to 14 years.

And third with conservative leverage we can considerably amplified that returns to our shareholders.

Terrance P. Coyne: Again, underscoring the strong leverage in our business model, Slide 18 shows how we continue to strengthen our balance sheet after the quarter ends through an innovative debt issuance, which raised $1.3 billion in July. With maturities of $2031 and $2051 for the two tranches, we extended the majority of our debt profile to $2030 and beyond at very attractive rates. On the right-hand side of the slide, you can see how our total debt profile compares favorably with our biopharma peers.

Returns and the high single digit to teens percentage range, depending on the transaction type.

This compares with our average debt coupon of two 4%.

We believe the power of our capital structure is a strength that is consistently overlook providing us with the lowest cost of capital to buy assets, while also delivering attractive returns to equity holders.

And my final slide sets out our new full year 2021 guidance.

We now expect adjusted cash receipts to be and the range of 2.08 billion to $2, one 2 billion and increase of approximately $140 million from our previous guidance.

Around half of this increase was driven by the strength of our portfolio with particularly strong performance from the CF franchise.

Terrance P. Coyne: We are particularly pleased that $600 million of the bonds we issued are in the form of a social bond, which underscores our commitment to ESG and corporate responsibility. Specifically, our social bond framework is linked to SDGs 3 and 9, to promote social health and well-being, as well as to enhance scientific research and innovation.

Debris as well as the recently launched therapy regime.

For the data.

Around a quarter of the increase was driven by the addition of <unk> and another quarter was driven by a onetime $37 million milestone payment.

Weighted to our sleep and royalty, which we previously expected to occur in 2022.

Our new adjusted cash receipt guidance represents growth of between 16% to 18% over the $1.8 billion, we delivered in 2020 and and at the midpoint is around 8% above where analysts' consensus stood for adjusted cash receipt at the time of our IPO.

Terrance P. Coyne: The proceeds from the social bond will go towards funding innovation in areas such as orphan diseases, top diseases as defined by the WHO and or UN, as well as other underserved diseases. This can also be applied retroactively to deals that were done in the two years prior to the bond offering, such as the residual royalty interest in the CF franchise that we acquired from the CF Foundation in November of last year.

Turning to operating costs, we expect these to be approximately 9% to 10% of adjusted cash receipts, which is unchanged versus our prior guidance.

Our operating costs have been around 8% of our adjusted cash receipts and the first half of this year, our guidance implies a bit of a step up and the second half due to the timing of various expenses.

Lastly, our interest paid guidance for 2021 is unchanged at $130 million.

Terrance P. Coyne: On slide 19, you can see we ended the quarter with cash and marketable securities of $2 billion, similar to our position at the end of 2020. Cash inflows over the six months included adjusted cash flow of $838 million. However, these inflows were broadly offset by the $719 million we deployed on royalty acquisition and by $226 million in dividends and distribution. Hence the limited change of the period on a net basis.

Our recent $1.3 billion debt, often will not impact our net interest line and 2021 will increase net interest paid in 2022 to approximately $170 million with semi interest interest payments and split fairly evenly between the first and third quarter, although in this and 2022 the paint.

This will be skewed slightly to the first quarter.

And second and fourth quarters of 2022 are expected to have de Minimis payments.

Terrance P. Coyne: Following the quarter end, we will close the morphosis transaction and the debt offering I just described. If we adjust for these factors, our pro forma cash and marketable securities would have been just over $1.7 billion. We currently have $7.3 billion in investment grade debt, and our pro forma leverage is approximately three times EBITDA on a net basis, four times EBITDA on a total of... Our cash balance, strong cash generation of the business, along with our untapped $1.5 billion revolving credit facility, gives us a strong liquidity position and leaves us well positioned to execute on our business.

In line with our established practice you should note that this guidance is based on our portfolio as of today and does not take into account any future acquisitions.

I'd like to hand, the call back to Pablo for his closing comments.

Thanks, Barry let me close by reiterating that I am extremely pleased we're pleased with how our business has progressed and 2021.

We have delivered strong financial performance raising our full year guidance. We have continued to find innovative funding solutions for our partners and.

And we have demonstrated.

And the.

Same and relative to the approach to our own capital structure, which positions us to compete and the growing biopharma royalty market.

Our market has strong momentum growing over 70% by volume and value and the best year.

And we have captured the majority share of debt value.

Looking ahead, we expect the powerful fundamental tailwind supporting this growth.

Terrance P. Coyne: Slide 20 demonstrates why we believe we are uniquely positioned to fund innovation. First, we have deep access to debt capital to fund royalty acts. For example, we have raised $2.2 billion in debt at a tractive rate since 2020, paired to the 5.3 billion dollars in deals we've made. Second, we have aligned our debt maturity profile with the average duration of our royalty profile at around 13 to 14 years.

To continue for the foreseeable future based on the rapid pace of scientific advance across the Biopharma ecosystem and the need to fund that innovation.

On my final two slides I want to step.

Step back and put our deal activity over the past couple of years and perspective.

Over our history, we have maintained a consistent and strong pace of capital deployment up to the year prior to going public we deployed a total of around 18 billion and capital from 5 billion and 2012.

Terrance P. Coyne: And third, Conservative Leverage, we can considerably amplify returns to our shareholders. We target returns in the high single-digit to teens percentage range, depending on the transaction type, which compares with our average debt coupon of 2.24%. We believe the power of our capital structure is a strength that is consistently overlooked, providing us with the lowest cost of capital to buy assets while also delivering attractive returns to equity holders.

For a total of 31 billion and deployed over eight years.

Since the start of 2020, we have continued the strong trend with $5.3 billion and announced transactions.

This puts us well above the run rate, we have previously indicated for $7 billion of capital deployed through 2020 five.

This base of capital deployment positions us well to deliver strong long term growth and importantly to deliver value to our shareholders.

And also really speaks to the increased awareness and acceptance of royalty funding and biopharma and the significant opportunities for growth ahead of us.

Terrance P. Coyne: My final slide sets out our new full-year 2021 guidance. We now expect adjusted cash receipts to be in the range of $2.08 billion to $2.12 billion, an increase of approximately $140 million from our previous guidance. Around half of this increase was driven by the strength of our portfolio, with particularly strong performance from the CF franchise, ASAVRI, as well as recently launched therapies at RISD, CSF, and Poiseuille. Around a quarter of the increase was driven by the addition of Tremfaya, and another quarter was driven by a one-time $37 million milestone payment related to our Soliqua royalty, previously expected to occur in 2022.

On this next slide when we look back at our deals over the last five years, we've deployed about $1 billion per year, which demonstrates our ability to consistently identify attractive royalty funding opportunities.

The second graphic shows but based on actual results and.

The current consensus sales estimates.

This level of capital deployment is expected to result, and significant cash receipts five years later.

About $350 million on average.

In other words.

Every $1 billion of capital we deploy this estimate this would translate to approximately $170 million and royalty receipts five years later.

It shows how our scale and expertise enables us to grow and diversify and drive value enhancing long term growth.

Furthermore, we believe the compounding effect of our business is very powerful as we're adding new royalty as each year on top of them.

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Terrance P. Coyne: Our new Adjusted Cash Receipt Guidance represents growth of between 16-18% over the $1.8 billion we delivered in 2020, and the midpoint is around 8% above where analyst consensus stood for adjusted cash receipts at the time of our IPO. Turning to operating costs, we expect these to be approximately 9-10% of adjusted cash receipts, which is unchanged versus our prior guidance. While our operating cost has been around 8% of our adjusted cash receipts in the first half of this year, our guidance implies a bit of a step up in the second half due to the timing of various expenses.

We remain as excited as ever about our pipeline and expect to continue to layer, new cash flow cash flow streams on our existing business and deliver top tier growth and biopharma.

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

Thanks, Pablo and we will now open the call and for your questions. Operator, Please take the first question.

Our first question comes from Chris Scott with Jpmorgan. Your line is open.

Great. Thanks, so much for the questions just two for me.

First of all timers, I know you talked a little bit about this but can you just elaborate on your.

Thoughts on the development of this market since the Gip Genmab deal I guess do you see and attractive opportunity for your product or for the royalty stream, even if we don't see a meaning for cognitive benefit with the data next year with the new guidelines or do you think cognition is really going to be key to success and this market and.

Terrance P. Coyne: Lastly, our interest paid guidance for 2021 is unchanged at $130 million. Our recent $1.3 billion debt offering will not impact our net interest line in 2021 but will increase net interest paid in 2022 to approximately $170 million. The semi-interest payments split fairly evenly between the first and third quarters, although in 2022 the payments will be skewed slightly to the first quarter. The second and fourth quarters of 2022 are expected to have the minimum.

And then my second question I know you've talked about this in the past but.

And when we think about the new triple that for Texas, advancing what would that mean for your royalty levels, if approved and very importantly, with that to the extent there is a disagreement between the parties and interpreting the agreement what is the resolution pathway is that something that we'll be able to get clarity on ahead of a launch or something we will have to wait until and approval to see all of that.

Plays out because it seemed like the companies are weighted communicating slightly different things about the implications for the longer term royalties. Thanks, so much.

Sure. Thanks, Chris good to hear you.

Yes.

Marshall to take on the first question about Alzheimer's and then Terry and I will touch on the on.

And your question regarding a lot of capex related to CF.

Marshall.

Thanks, Pablo Hey, Chris and good morning.

And on our view on all timers, and everything that tap and it's certainly been a certainly then and active area since we announced and morphosis transaction and our interest and get to narrow map and we are like everyone I think and our industry watching.

Terrance P. Coyne: In line with our established practice, you should note that this guidance is based on our portfolio as of today and does not take into account any future acquisitions. With that, I'd like to hand the call back to Pablo for his closing comments.

Observing what's happening with the <unk> launch and as we come into the NCD.

And next year and.

Watching how this market develops but I wanted to just remind everyone. What we liked about gains and your Matt to your question about cognition is we really thought Roche had designed a very large robust.

Pablo Legorreta: Thanks, Terry. Let me close by first reiterating that I'm extremely pleased with how our business has progressed in 2021. We have delivered strong financial performance, raising our full-year guidance. We have continued to find innovative funding solutions for our partners.

Clinical trial program to really.

Good.

And campaigner, Matt its debt.

And <unk> so.

And I think Roche sees it the same way as they commented on their call. This year. So I think like we said we are cautiously optimistic about those data and next year and we're going to see what the data show and how this market develops. So we are excited like we said to have that and the portfolio.

Pablo Legorreta: And we have demonstrated that same innovative approach to our own capital structure, which positions us to compete in the growing biopharma royalty market. Our market has strong momentum, growing over 70% by volume and value in the past year, and we have captured a majority share of that value. Looking ahead, we expect a powerful, fundamental tailwind supporting this growth to continue for the foreseeable future, based on the rapid pace of scientific progress across the biopharma ecosystem and the need to fund that innovation. On my final two slides, I want to step back and put our deal activity over the past couple of years in perspective.

Yes, and Chris on your question on the new Triple that vertex is developing so.

First of all just to sort of walk through.

And the royalty rates on that we don't see a scenario in which we end up with a low single digit royalty rate on the new Triple combo.

First our royalties on sales of capital, we'll bring the royalty rate on the new triple to 4%.

Second and we've been very clear about our position here. We believe that generated kalydeco is simply kalydeco and that would bring the royalty rate on the new triple to 8%.

On the third component, we will just have to wait and see.

If it is royalty bearing and at what rate.

Pablo Legorreta: Over our history, we have maintained a consistent and strong pace of capital deployment. Up to the year prior to going public, we deployed a total of around $18 billion in capital from $5 billion in 2012, or a total of 13 billion deployed over eight years. Since the start of 2020, we have continued this strong trend with $5.3 billion in announced transactions. This puts us well above the run rate we have previously indicated for $7 billion of capital deployed to 2025.

And we really can't comment on that one at this point.

I think just to sort of take a step back. We also have to remember that try kept assessed and extremely high bar for safety and efficacy.

I think we share the views of a lot of others, who are content commented on the recent phase II data and you are obviously small patient numbers, but when we looked at the data. There was nothing that we saw that suggest that the new triple will offer a meaningful improvement over try Kathryn.

We've also now learn that the new triple is going to require a large non inferiority trials with 48 week and points. These.

And these trials will have to enroll in a population that is already very well served by try CAFTA.

And if the new triple debt succeed it's unlikely to be on the market before the middle of the decade and it does come to market. Many patients will have over five years of experience and try catheter and this is a drug that vertex has pointed out many times and.

We transformed the disease for many CF patients.

So for all those reasons, we're really confident for the CF franchise will be an important contributor to our business over the long term.

Pablo Legorreta: This pace of capital deployment positions us well to deliver strong long-term growth and, importantly, to deliver value to our shareholders. It also really speaks to the increased awareness and acceptance of royalty funding in biopharma and the significant opportunities for growth ahead of us. On this next slide, when we look back at our deals over the past five years, we deployed about $1.8 billion per year, which demonstrates our ability to consistently identify attractive royalty funding opportunities. The second graphic shows that, based on actual results and the current consensus sales estimates, this level of capital deployment is expected to result in significant cash receipts five years later. About $350 million on average.

On your question on the resolution pathway. There is a dispute resolution clause in our contract and we.

We would obviously make sure that we defend our rights under the contract it's really.

Too early right now to get into any potential legal strategies there.

Chris I'd like to just add to some of Terry's comments and I will just start by saying that.

From our perspective.

Investors and others have expressed some concern about.

Potential impact to royalty pharma from issues with.

Our CF royalties.

Personally I believe it's so overblown and the concern for many reasons that carryover cost for them, but I'm going to add some color.

Just thinking of timelines, which are really critical here.

We're in 2020 one.

And if we look at.

What might take to develop this triple thinking of.

A trial that is probably going to take a couple of years to enroll.

Pablo Legorreta: In other words... Every $1 billion of capital we deploy is estimated to translate to approximately $170 million in royalty receipts five years later. This shows how our scale and expertise enable us to grow and diversify and drive value-enhancing long-term growth. Furthermore, we believe the compounding effect of our business is very powerful, as we're adding new royalties each year on top of an attractive portfolio of leading products and franchises. We remain as excited as ever about our pipeline and expect to continue to layer new cash flow streams on our existing business and deliver top-tier growth in biopharma. With that, I would like to open the call to Q&A. Back to you, George.

And then 48 week follow up on patients. So we're talking about two to three years more likely three years. So.

And in 'twenty, two 'twenty three 'twenty four.

And then the trial.

Completed it takes time to go through data to file FDA approval. So we're talking about mid 25, <unk> 25 for a potential launch.

And then.

Obviously, and we're not considering one bid.

There's going to be an issue with Kalydeco. We're super comfortable you have tools for just think of the fact that we've been following this for a very long time since we made the investment in 2014, we actually invested a lot more.

George Grofik: Thanks, Pablo. We will now open the call to your questions. Operator, please take the first question.

Last year, when we bought the residual interest and data incredibly thorough analysis of everything around this investment which gave us a very significant level of confidence to go ahead and make this additional 600.

Christopher Schott: Our first question comes from Chris Scott with J.P. Morgan. Your line is open. Uh, great.

And investment.

So we're not conceding anything but just thinking of.

<unk>.

Christopher Schott: Great. Thanks so much for the questions. Just two for me.

What may happen.

And if.

There is a small shortfall and revenue when you look at what analysts have projected for CF and our numbers, which is somewhere in the 800 million plus revenue and.

Christopher Schott: First on Alzheimer's, I know you talked a little bit about this, but can you just elaborate on your thoughts on the development of this market since the GenMab deal? Do you see an attractive opportunity for your product or for the royalty stream even if we don't see a meaningful cognitive benefit from the data next year with the new guidelines, or do you think cognition is really going to be key to success in this market?

And if there is a small shortfall just think about this launch and $25.26 for it.

And to get some traction we're probably looking at the later.

Half of this decade, and buy them royalty pharma will be much much bigger just to think of the revenue that analysts have projected analyst estimates by 2025 of $2.7 billion.

Christopher Schott: And then my second question, I know you've talked about this in the past, but when we think about the new triple that Vertex is advancing, what would that mean for your royalty levels if approved? And, probably importantly, with that, to the extent there is a disagreement between the parties in interpreting the agreement, what is the resolution pathway?

And then Frank and that's based on what we have today the portfolio. We have today as you know we're going to be very active adding.

Much more.

Capital deployed more revenue to our topline and we went through the figures of <unk>.

And what every billion dollars of investment adds to our topline. So now if we think of where our revenue might be by the end of the decade.

Christopher Schott: Is that something that we'll be able to get clarity on ahead of a launch or something we'll have to wait until approval to see how that plays out? Because it seems like the companies are maybe communicating slightly different things about the implications for the longer term royalties. Thanks so much. Sure, thanks Chris, good to hear from you, and I'll ask Marshall to take on the first question about Alzheimer's, and then Terry and I will touch on your question regarding a lot of topics related to CF. Marshall.

Probably looking at something North of 3 billion somewhere and the three to 4 billion and maybe more so if you think of a potential shortfall and.

One asset.

A couple of hundred million dollars and it's really immaterial, we're talking about a couple of percentage points to the top line.

So that's why I think this.

Issue has been overblown and maybe just and <unk>.

Summary.

I think I'd like to mention a couple of important cost appear this is for an industry that has uncertainty.

Whether it is competition clinical study results patents et cetera.

Focusing on any one issue for any one product and our portfolio mix is the bigger picture.

Which is that the strength of our business model and the unique role we play in this industry.

And really makes royalty pharma, such a highly diversified business with some of the most attractive.

Marshall Urist: Yes. Thanks, Pablo. Hey, Chris. Good morning.

Marshall Urist: So, on our view on Alzheimer's and everything that's happened, it's certainly been an active area since we announced the morphosis transaction and our interest in Gantanarumab, and we're, like everyone, I think, in our industry, watching and observing what's happening with the AgiHelm launch and as we come into the NCD sometime next year, and watching how this market develops. But I wanted to just remind everyone, you know, what we liked about Gantanarumab in response to your question about cognition. We really thought Roche had designed a very large, robust clinical trial program to really give Gantanarumab its best chance to succeed. So, you know, and I think Roche sees it the same way as they commented on their call this year.

And the industry and with very high predictable growth.

And again just to put this in context my last slide so that over the past five years every billion was deployed resulted in an average of around 172 million and adjusted cash receipts. Five years later, we've announced over 5 billion of transactions since the beginning of 2020.

A year and a half so I think if we project into the future I think it's important and just realize what's going to happen with this business as we continue to deploy.

And billions of capital every year.

And I think I'll just finish by saying that we were.

Went public we tried to come up with conservative assumptions, but theres no question.

Looking now a year and a half or.

A year after our public offering we have a feeling and our myself and the team that this opportunity set for us is pretty big and that's why we're so confident on our long term growth prospects. So concerns about any single product and our portfolio mix is the most important driver of our business that we add another <unk> <unk>.

<unk> for the year on year out growing and diversifying our revenue base and sorry to extend myself, but I just wanted to make sure that I would share his views with you and I. Appreciate all the comments. Thank you for that.

Marshall Urist: So, I think, like we said, we are cautiously optimistic about the data next year, and we're going to see what the data show and how this market develops. So, we are excited, like we said, to have that in the portfolio. Yeah, and Chris, on your question about the new triple that Vertex is developing, so first of all, just to sort of walk through the royalty rates on that. We don't see a scenario in which we end up with a low single-digit royalty rate on the new trip. First, our royalties on Tezacaptor will bring the royalty rate on the new triple to 4%. Second, and we've been very clear about our position here, we believe that deuterated kalydeco is simply kalydeco.

Our.

Question comes from Matthew Harrison with Morgan Stanley. Your line is open.

Hi, Thanks for taking the question this is Charlie on for Matthew.

And kind of think about like how long term in terms of the large transaction.

<unk> Patel.

Potentially kind of coming out over the next few years.

Are you guys thinking about given your existing count guidance of greater than $7 billion to try and quantify and I know youre executing that by quite a bit but I think that.

You're also trying to maintain that investment grading and it seems like the leverage right now is close to.

For just wondering how youre thinking about that in terms of taking on more debt or doing more large transaction in the coming years. Thank you.

Sure. Thanks for the question Terry can you. Please take this question, yes share. So yes, we feel we feel very very confident in our ability to continue to to.

Terrance P. Coyne: And that would bring the royalty rate on the new triple to eight. On the third component, we'll just have to wait and see if it's royalty-bearing and at what rate. We really can't comment on that one at this point.

To pursue.

Large royalty deals over the coming years, we have $1.7 billion of cash on the balance sheet and we're just going to naturally delever over time as EBITDA grows.

Terrance P. Coyne: But, you know, I think just to sort of take a step back, we also have to remember that Trikafta sets an extremely high bar for safety and efficacy. I think we share the views of a lot of others who have commented on the recent phase two data. These were obviously small patient numbers, but when we looked at the data, there was nothing that we saw to suggest that the new triple would offer a meaningful improvement over tricaster. We've also now learned that the new triple is going to require large non-inferiority trials with 48-week endpoints.

And when we bring in cash flow and products that have cash flow as we can obviously.

And leveraged and as well and then the business throws off a lot of cash. So we feel like we're very well positioned with the with the opportunity set ahead of us.

And feel really good about the trajectory, obviously Pablo Pablo mentioned, we're tracking well ahead of.

And the original target that we gave we feel we feel very good about the opportunities ahead of us and.

And that target is something that will work.

We'll look to update as we update other long term guidance metrics because they are all related and we feel very very very confident and the business.

Very confident and the opportunity set.

Thank you.

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

Terrance P. Coyne: These trials will have to enroll a population that's already very well served by TRICAP, and if the new triple does succeed, it's unlikely to be on the market before the middle of the decade. If it does come to market, many patients will have over five years of experience on Tricapta, and this is a drug that Virtex has pointed out many times has completely transformed the disease for many CF patients.

Hi, Good morning, this is normal and on for Geoff Meacham. So my question is on the social bond just wanted to get a little more color on exactly.

Kind of the intent and plan for those for what we might be seeing for.

For the investment from a social borrowings and correct me, if I misheard, but.

You mentioned I believe that it can be applied retroactively.

She has from the past few years can you just kind of walk through what that means logistically in terms of in terms of what that looks like on the balance sheet.

Terrance P. Coyne: So for all those reasons, we're really confident that the CF franchise will be an important contributor to our business over the long term. On your question about the resolution pathway, there is a dispute resolution clause in our contract, and we would obviously, you know, make sure that we defend our rights under the contract. It's really, you know, too early right now to get into any potential legal strategy.

Sure. Thanks for the question and I think Luke Perry will answer it but I think this again highlights how we can be creative and innovative I think we are the second life Sciences company to issue.

Social bonds and.

We just realized that there was this very attractive new instrument that we could use to fund the business and.

Terrance P. Coyne: Chris, I'd like to just add to some of Terry's comments, and I'll just start by saying that, from our perspective, investors and analysts have expressed some concern about a potential impact on Royalty Pharma from issues with our CF royalty. Personally, I believe the concern is so overblown for many reasons that Terry already touched on, but I'm going to add some color. So just thinking of timelines, which are really critical here.

And we move quickly took advantage of it and ended up being.

And being able to issue bonds with the lowered cost then.

Normal bonds. So Terry do you want to yeah sure I mean I think.

It's sort of taking a step back the social bonds and we.

And we published our social bond framework on our on our website, but they really highlight the unique role that we play in this industry. So.

In terms of how we.

We can help.

To recycle capital back into the industry for places like the cystic fibrosis Foundation to go and fund their mission to find two to attempt to find a permanent cure for this.

Terrance P. Coyne: We're in 2021. If we look at what it might take to develop this triple, thinking of a trial that is probably gonna take a couple of years to enroll patients and then 48-week follow-up on patients. So we're talking about two to three years, more likely three years. So 2022, 23, 24.

Disease.

And so types of deals that would be eligible would be sort of the CF Foundation deal.

The deal that we did with with with UCLA back and back in 2016, where the proceeds that we gave them we're going back into funding.

Pablo Legorreta: Then, you know, the trial will be completed, it takes time to go through data, and file FDA approval. So we're talking about, you know, mid-25, late-25 for a potential launch. And then, obviously, we're not conceding one bit that there's going to be an issue with Kaleidiko. We're super comfortable.

Medical research and funding scholarships and things like that.

So in terms of how it could be applied retroactively and that we're not saying that that's exactly how it's going to happen but.

And will ultimately provide and annual report until the funds are allocated.

Allocated and so that that would be disclosed and the annual report and how those funds were allocated and we also attempt to show sort of the impact metrics of how the how those funds were allocated.

Thank you.

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

Pablo Legorreta: You have to also just think of the fact that, you know, we've been following this for a very long time since we made the investment in 2014. We actually invested a lot more. Last year when we bought the residual interest and did an incredibly thorough analysis of everything around this investment, which gave us a very significant level of confidence to go ahead and make this additional 600 or some million investment. So, we're not conceding anything, but just thinking of, you know... What may happen if there is a small shortfall in revenue.

Thank you and congratulations on another well executed quarter I have two questions can you discuss the $37 million milestone on siliqua performance that will be booked in the Q3 call.

<unk>.

<unk> has been a modest success for Sanofi. So the milestone really seems outsized versus the sales. So maybe you can tell us how that milestone is calculated and then secondly, I'm curious and I apologize if you've addressed this in the past, but I am curious if the royalty on <unk> also covers the brain shuttle.

And version of <unk>, which at least to our understanding is a distinct and separate and molecular entity. Thank you.

Thank you for the question Gary is going to answer the first question related to the silica milestone and then Marshall will address your question on debt and term.

Pablo Legorreta: When you look at what analysts have projected for CF in our numbers, which is somewhere in the 800 million plus revenue, and if there is a small shortfall, just think about this, launch in 2526. For it to get some traction, we're probably looking at the latter half of this decade. And by then, Royalty Pharma will be much, much bigger.

Yes so.

And on sleep.

It was a it was a commercial milestone and we haven't gotten into any of the specifics, but it is something that we'd previously and we were obviously a little conservative forecast and it would happen in 2022 and it and it now for 2000.22021 event, but we haven't gone and we're not going to be any more specifics and that on.

And the sort of threshold there.

And can you tell us are there future milestones on siliqua debt, though we should anticipate.

So we do have other milestones in the portfolio.

We were not probably going to talk about.

Pablo Legorreta: Just think of the revenues that analysts have projected, analyst estimates by 2025 of 2.7 billion. And then think, and that's based on what we have today, the portfolio we have today. As you know, we're gonna be very active, adding much more capital deployed, and more revenue to our top line. And we went through the figures of what, you know, every billion dollars of investment adds to our top line. So now, if we think of where our revenue might be by the end of the decade, we're probably looking at something north of 3 billion, somewhere in the three to 4 billion, maybe more.

Specific milestones right now, but I think when we do anticipate that they will come into adjusted cash receipts will try to give you a heads up on that that's why we that's why we did it this quarter, but I think debt and the extent that we are aware that something is going to affect.

That a particular year, we will try our best to give guidance ahead of time and that that's going to be a factor.

Thank you.

And Hey, Steve Good morning, Thanks for the question on the branch sale version and so yes. The brain shuttle version of dancing narrow and that is included in a in deep loyalty agreement between morphosis and Roche, but we have not gotten into any more detail on that.

Pablo Legorreta: So if you think of a potential shortfall in one asset of a couple of hundred million dollars, it is really immaterial. We're talking about a couple of percentage points on the top line. So that's why I think this issue has been overblown. And maybe just in summary.

And it beyond and the fact that yes. It is.

<unk>.

Thank you.

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

Great. Thanks for taking the questions two for me I guess on.

Pablo Legorreta: I think I'd like to mention a couple of important concepts here. This is an industry that is full of uncertainty, whether it is competition, clinical study results, patents, et cetera. So focusing on any one issue for any one product in our portfolio misses the bigger picture, which is that the strength of our business model and the unique role we play in this industry really makes Royalty Pharma such a highly diversified business with some of the most attractive assets in the industry and with very high predictable growth.

Slide 20 for Pablo.

You talked a lot about capital deployment, and how youre tracking above your historical run rate.

Just give us your views on sustainability of that run rate should we should we think about that as kind of a go forward or do you expect some kind of mean reversion over time.

And then the second question I had relates to dice and <unk> recent nodosa and data just wondering if that changes how youre thinking about the peak opportunity for your <unk> royalty stream and thank you.

Thank you for the question so.

As Terry said.

We're actually.

And.

The near future.

Pablo Legorreta: And again, just to put this in context, my last slide showed that over the past five years, every billion we deployed resulted in an average of around $117 million in adjusted cash receipts five years later. We've announced over $5 billion of transactions since the beginning of 2020, a year and a half ago. So I think if we project into the future, I think it's important just to realize what's gonna happen with this business as we continue to deploy billions of capital every year.

Probably update and.

Analysts and investors on several of our metrics, but I think as I said.

<unk>.

And thinking of how to come out of a new company, we actually decided to.

Guide conservatively.

Now.

With a year.

And of experience after going public there's just no question that.

The opportunity set is.

Is.

Sure.

Much bigger than.

We even thought three years ago, and I think the.

And.

And the things to think about are the following so.

On that page 24, when you look at the other.

Pablo Legorreta: And I think I'll just finish by saying that, you know, we went public, we tried to come up with conservative assumptions, but there's no question that looking now, a year and a half or a year after the public offering, we have a feeling now, myself and the team, that this opportunity set for us is pretty big. And that's why we're so confident in our long-term growth prospects. So concerns about any single product in our portfolio misses the most important driver of our business.

Those those.

Charts.

<unk>.

If I think back of what the market looked like five or 10 years ago.

It was.

And therefore on our side to open up the market too.

Educate owners of royalties about.

Attractiveness of monetizing them to fund and the cadence of universities and hospitals to fund buildings to fund research.

But also and the case of companies, it's really start to.

Pablo Legorreta: That we add innovative therapies to our portfolio, year in, year out, growing and diversifying our revenue base. And sorry to extend myself, but I just wanted to make sure that I shared these views with you. You know, I appreciate all the comments. Thank you for that.

Use.

Royalty structures to fund their R&D.

It was not mainstream it was a lot of hard work to actually.

Get companies' boards and management teams to consider.

Royalty based structures to fund there.

Matthew Harrison: Our next question comes from Matthew Harrison with Morgan Stanley. Your line is open. Hi, thanks for taking the question.

Their business I think that has started to become a lot more mainstream and I think.

And Chris height.

Has talked a lot about how things have changed on the boardrooms and how much.

Matthew Harrison: Hi, thanks for taking the question. This is Charlie Ong for Matthew.

A much greater.

Acceptance today about what we do and partnership with companies and how that brings win win situations. So Chris maybe you want to add a little bit too.

Matthew Harrison: Just think about the long term in terms of the large transaction, you know, that, you know, potentially coming out over the next few years, how you're thinking about, you know, given, you know, your existing kind of guidance of greater than $7 billion through 2025. And I know you're exceeding that by quite a bit. But I think that, you know, you're also trying to maintain that investment grading, and it seems like the leverage right now is close to four.

The change and mentality.

Rooms, and how this is becoming a lot more mainstream.

Yes, Thanks, Pablo Thanks for the question Terence.

Public right I'd say really the there has been a mind shift and the board level.

And that the CFO and executive suites, where they are looking really for.

Alternative ways of.

Financing not only R&D, but commercial launches and as you saw most recently with more focused M&A and.

Matthew Harrison: I just wonder how you're thinking about that in terms of taking down more debt or doing more large transactions in the coming years. Thank you. Sure, thanks for the question. Terry, can you please take this question?

So as we've continued to innovate I think it's been very accepted now at these within these boards and within these executive suites to take advantage of our innovation through these development stage bonding bonds commercial funding.

Terrance P. Coyne: Yeah, sure. So, yeah, we feel very, very confident in our ability to continue to pursue large royalty deals over the coming years. We have $1.7 billion of cash on the balance sheet. We're just going to naturally de-lever over time as EBITDA grows. And when we bring in cash flow products that have cash flows, we can obviously add leverage then as well. And then the business throws off a lot of cash.

M&A support and we just see.

And just a tremendous set of opportunities going forward, just given both our innovation and the willingness to accept those innovations at the board level.

So I think maybe just to finish.

I mean look at what happened and.

Terrance P. Coyne: So, we feel like we're very well positioned with the opportunities that are ahead of us, and feel really good about the trajectory. Obviously, Pablo mentioned we're tracking well ahead of the original target that we gave. We feel very good about the opportunities ahead of us, and that target is something that we'll look to update as we update other long-term guidance metrics because they're all related. We feel very, very, very confident in the business and very confident in the opportunity.

19, 2020 two we're investing at a rate of $2 billion plus so as I said, we'll come back and the near term to talk about.

And the metrics of how you should judge our business.

But I hope that answers your question.

Great and then hey, good morning for your question on <unk>.

And it's bad at the time.

Our expectation for the day Stern and data relative to Auxilium of is that the products look more similar than different and we were really excited and it'd be partnered with a company like out and Ireland and it really distinguishing themselves and building out a rare disease platform around the world and so they certainly data and ph.

Geoffrey Meacham: Our next question comes from Geoff Meacham with Bank of America. Your line is open. Hi, good morning, this is Bill Amato with...

Wine and place more or less consistent with our expectation.

Geoffrey Meacham: Hi, good morning. This is Bill Amato on behalf of Geoff Meacham.

Geoffrey Meacham: So, my question is about the social bonds. I just wanted to get a little more color on exactly what kind of the intent and plan for what we might be seeing for the investment from those social bonds. And correct me if I misheard, but you mentioned, I believe, that it could be applied sort of retroactively to CF from the past few years. Can you just kind of walk through what that means logistically in terms of what that looks like on the balance sheet? Sure, thanks for the question.

And then certainly disappointing disappointing for ph patients out there so.

I think we'll continue to watch I think there is.

And Q find a commercial partner.

And we will and will likely slow things down and certainly accrue to the benefit of article over the long term, but I think overall I think the result, and ph one specifically was along the lines with what we were expecting.

Our next question comes from Omar Saad with Evercore ISI. Your line is open.

Pablo Legorreta: And I think, look, Terry will answer that, but I think this, again, highlights how we can be creative and innovative. I think we're the second life sciences company to issue social bonds, and we just realized that there was this very attractive new instrument that we could use to fund the business, so we moved quickly, took advantage of it, and ended up being able to issue bonds at a lower cost than normal bonds. So Terry, do you want to go?

Hi, guys. Thanks, so much for taking my question I wanted to touch up on two things if I may 1st.

As I think about the potential <unk> opportunity. One other question to think about is that.

Not only against net amount subcutaneous versus the competitors, but also.

And again to narrow amount is not tapping into the theme.

Payer pool day.

<unk> and <unk> lab and Andrew.

Turning to part D. I guess my question to you is how important is that to the commercial prospect and.

How important is that to your sort of modeling of what the peak opportunity could look like one secondly could you also walk us through your thoughts on.

Terrance P. Coyne: Yeah, sure. I mean, sort of taking a step back, the social bonds. We published our social bond framework on our website, but they really highlight the unique role that we play in this industry. So in terms of how we can help to recycle capital back into the industry for places like the Cystic Fibrosis Foundation to go and fund their mission to attempt to find a permanent cure for this disease.

And again, not having the breakthrough designation and roche's decision not to file based on biomarker to presumably.

The approvals and the space have all been biomarker related and non data related.

And then finally Terry.

One of the points, you mentioned, which I've been trying to think about for some time.

The idea that <unk> kalydeco zama as Kalydeco and I guess, one other questions I had was.

<unk>.

And if it generated kalydeco does have its own composition of matter patent I guess, how would you make that case legally and we've seen this.

Terrance P. Coyne: So types of deals that would be eligible would be sort of the CF Foundation deal, the deal that we did with UCLA back in 2016, where the proceeds that we gave them were going back into funding medical research and funding scholarships and things like that. So in terms of how it could be applied retroactively, and we're not saying that that's exactly how it's going to happen, but we'll ultimately provide an annual report until the funds are allocated. And so that would be disclosed in the annual report, and how those funds were allocated. We also would attempt to show sort of the impact metrics of how those funds were allocated.

With some price generated molecules as well and have their own composition of matter patent because the structure is technically different thank you.

Sure. So Marshall is going to take your first question about Alzheimers Omer and then.

Barry will answer yes, one thing just to reflect on as I was thinking about my comments about CF is that.

CF is important for us to day, a quarter of our revenues, but as I highlighted as the business growth, it's going to become relatively.

We're going to get more diversified and bigger but also I think a lot of the focus of many people and I think thats why it has been a bit overblown is.

Impact.

Professional and today and the reality is that.

And if.

This plays out we're talking about a very long timeframe and Thats. One thing just to think about that that these things take very long to play out so any way Marshall maybe go through the Alzheimer's.

Question.

Yes, sure absolutely hate and Rick Good morning, So two good questions. So I think.

Your first question on <unk>.

Janssen narrow mab halved.

Having a little bit other different commercial <unk>.

Terrance P. Coyne: Our next question comes from Steve Scala with Cohen. Your line is open. Thank you and congratulations.

Commercial look because of the sub Q and.

Not a part B story, there I think.

Steve Scala: Thank you, and congratulations on another well-executed quarter. I have two questions.

Like we talked about at the time, we look at a lot of different scenarios and how different.

Steve Scala: Can you discuss the $37 million milestone on Soliqua performance that will be booked in the Q3 quarter? Soliqua has been a modest success for Sanofi, so the milestone really seems outsized versus its sales. So maybe you can tell us how that milestone is calculated. And then secondly, I'm curious, and I apologize if you've addressed this in the past, but I'm curious if the royalty on Gantanerumab also covers the brain shuttle version of Gantanerumab, which, at least to our understanding, is a distinct and separate molecular entity.

And how different payer structures might impact product I think our feeling and all time raise debt.

Debt overtime, the volume opportunity is just so big and there's going to be lots of different I think flavors and parts of the market for it and I think that you had.

Certain inherent advantages.

Delivery perspective, and we think Roche will Roche will optimize that so I think regardless we think.

With as this market develops.

Large opportunity and room for multiple multiple players and.

Terrance P. Coyne: Thank you. Thank you for the question. Kerry is going to answer the first question related to the soliqua milestone, and then Marshall will address your question on Ganteruma. Yeah, so, on Saliqua, it was a commercial milestone. We haven't gotten into any of the specifics, but it is something that we previously forecasted, and we were obviously a little conservative forecast that it would happen in 2022. And it's now, you know, a 2020-2021 event, but we haven't got, we're not going to be any more specific than that on. These are the thresholds.

I'd just point out I think also that we've seen the other players in this market also talk about exploring opportunities as well either for.

For our current products or for backup or pipeline products as well and looking at sub key delivery. So I think clearly.

And the advantages and delivery of advantages of that are our clear and will serve different parts of the market.

Your second question was roche's comments on <unk> and breakthrough designation.

We listened to the same comments you guys did debt debt Roche made recently on this and I think overall it does really dovetails with our view of the Roche development program debt.

Terrance P. Coyne: And can you tell us, are there future milestones on Siliqua that we should anticipate? We do have other milestones in the pipeline. We're not probably going to talk about, you know, specific milestones right now, but I think when we do anticipate that they will come into adjusted cash receipts, we'll try to give you a heads up on that. That's why we did it this quarter. But I think that, you know, to the extent that we're aware that something's going to affect that particular year, we'll try our best to give guidance ahead of time that that's going to be.

It's a large program fully and create data is pretty near term and.

So it sounds like that was.

Key and their decision, but I think.

Also.

Downs tends to me like debt from what ROE said, they still are even short of potentially filing and biomarkers and looking at ways that they can accelerate debt that they can accelerate the regulatory process. So the data for against here, Matt is coming next year, so pretty near term, we're looking for it to that.

And then a.

And <unk> activities and doing everything they can do to accelerate the regulatory process.

Terrance P. Coyne: And hey, Steve, good morning. Thanks for the question on the brain shuttle version. So, yes, the brain shuttle version of Antenarumab is included in the royalty agreement between Morphosis and Roche, but we have not gotten into any more details on it beyond the fact that, yes, it is included.

And then on your question on generated Kalydeco.

We can totally understand why why analysts and investors are very curious about what gives us confidence and our position on deteriorated kalydeco, but we really can't get into our legal strategy around that at this time.

Maybe I'm going to add something else because I was trying to express a perspective, and then maybe there and do a good job, but I am going to try again.

Terence Flynn: Our next question comes from Terrence Flynn with Goldman Sachs. Your line is open.

And I personally view this.

Terence Flynn: Great. Thanks for taking the questions, too, for me. I guess on slide 24, Pablo, you talked a lot about capital deployment and how you're tracking above your historical run rate. Maybe you could just give us your views on the sustainability of that run rate. Should we think about that as kind of a go-forward, or do you expect some kind of mean reversion over time? And then the second question I had relates to Dicerno's recent Ndoserin data. I'm just wondering if that changes how you're thinking about the peak opportunity for your Oxlumo royalty stream. Thank you.

And so.

CF good trade.

Versus non deteriorated kalydeco the real thing.

As near term noise near term noise and Theres a lot of focus on that near term noise that is not that.

Noise is.

Irrelevant and it is going to play out and five to 10 years and by then and it's going to be a nothing.

And what people should really focus on right now are the positives. This franchise is vastly outperforming and we have a very significant interest in it. So that's what people should really be paying attention to the fact that it's driving very attractive growth for royalty pharma and really not focus.

And on something and that honestly is and nothing which is there is noise and thats going to as I said resolved way out and the future of when it's going to be a lot less important.

What I wanted to just to add.

Thank you guys.

Our next question comes from Andrew Baum with Citi. Your line is open.

Thank you a couple of questions. Please.

Firstly Youll stock has underperformed since the IPO you don't need to tell you that.

Pablo Legorreta: Thank you for the question. So, you know, I think, as Terry said, we're actually, in the near future, going to probably update analysts and investors on several of our metrics. But I think, as I said, you know, in thinking of how to come out as a new company, we actually decided to, you know, guide conservatively. Now, you know, with a year of experience after going public, there's just no question that... You know, the opportunity, Seth, is much bigger than we even thought years ago.

But yet as you outlined.

Completely executed on what you said in terms of capital allocation consensus upgrades and the outright.

And these based on consensus forecast now you've addressed cystic fibrosis consensus being overblown and I know, there's some discussion about where that royalty of workspace future U S drug pricing legislation, but I'm interested what other factors you think that all of which non keeping investors away from the may and given the valuation construct.

Pablo Legorreta: And I think the things to think about are the following. So, you know, on page 24, when you look at those charts, If I think back on what the market looked like 5 or 10 years ago, it was really an effort on our side to open up the market, to educate owners of royalties about the attractiveness of monetizing them to fund, in the case of universities and hospitals, to fund buildings, to fund research, but also, in the case of companies, to really start to use royalty structures to fund their It was not mainstream.

Is it the definition of the invested nicely bisect and healthcare investors and us as credit.

And with that much and competition.

Drug pricing concerns or do you think it's all driven by the overhang from from CF. So that's the first question.

<unk>.

Second in relation to the previous question on guidance narrow map, Russia has indicated that they intend to seek reimbursement of the Medicare part D and that elapsed.

The last S&P for but I just want to make sure that's consistent with your expectation, even thats key drug and it's for.

Finally could you remind us the duration or <unk> of your IP unemployed.

Thanks.

Sure. Thank you maybe ill add.

Bye.

And making some comments about your question initially about.

Pablo Legorreta: It was a lot of hard work to actually get companies, boards, and management teams to consider royalty-based structures to fund their businesses. I think that has started to become a lot more mainstream. And I think, you know, Chris Hite has talked a lot about how things have changed in the boardrooms and how there's a much greater acceptance today about what we do in partnership with companies and how that brings win-win situations. So Chris, maybe you want to add a little bit to the change in mentality of the boardrooms and how this is becoming a lot more mainstream. Thanks for the question, Terrance. Pablo is right.

Performance of the stock.

And I would say is that.

And there is as I said noise on things that really don't matter about.

The performance of royalty pharma.

But our near term.

And what really matters is the.

Big picture and.

And just the fundamentals about our business that royalty pharma has become one of the most innovative creative.

Funders of this industry.

And one of the most exciting industries and the plan and in terms of innovation and and industry that requires huge amounts of capital and.

And when you then the sink.

Think of the position, we have and this industry, which is very unique nobody can do what we can do in terms of scale in terms of creativity and terms of.

Christopher Hite: I'd say really there has been a mind shift at the board level and at the CFO and executive suites, where they are really looking for alternative ways of financing not only R&D but commercial launches, and as you saw most recently with Morphosis M&A. And so as we've continued to innovate, I think it's very accepted now within these boards and within these executive suites to take advantage of our innovations through these development stage bonds and commercial funding.

Making long term and vessels that delivered over the long term.

We can be very very patient partner to many of these companies.

So all of those things are attributes of our business has that no other.

Pierre has and it position us extremely well to take advantage of a growing set of opportunities rapidly growing set of opportunities.

I think.

That's really what investors should be should be focusing on.

And I think there's other things that are quite unique about royalty pharma that I think.

Investors should reflect on.

Christopher Hite: M&A support, and we just see a tremendous set of opportunities going forward, just given both our innovation and the willingness to accept those innovations at the board level. So I think, maybe just to finish, you know... I mean, look at what happened in, you know, 1920 and 22. We're investing at a rate of two billion plus. So, as I said, we'll come back in the near term to talk about, you know, the metrics of how you should judge our business. But I hope that answers your question. Good.

So there are such huge huge appetite for growth among the investment community.

And and our industry. It is very interesting, but it's sort of polarized you have biotechs that obviously do grow very fast very risky single product companies.

And sometimes things work out really well and investors make multiples on their investments, but often.

Very often things don't work out and a lot of money is lost.

And then you have on the other side the much bigger and companies that grow.

At 2% to 3% there is a few of the bigger ones that grow and the mid single digit 67%.

And what's so unique about royalty pharma and.

Is that we are capable of growing at a much faster rate.

The bigger companies in life Sciences. So the ones that grew at mid single digits, we can grow much faster than they can and you've seen the growth this year, which is in the teens.

Marshall Urist: And then, good morning, for your question on Dicerna. I think, like we said at the time, you know, our expectation for the Dicerna data relative to Oxlumo is that the products looked more similar than different. And we were really excited to be partnered with a company like Alnylam that's really, you know, distinguishing themselves in building out a rare disease platform around the world. And so, you know, the Dicerna data in PH1 was more or less consistent with our expectation.

And again looking at the growth importantly, there is an underlying growth of our portfolio provides but then acquisitions add to that growth and we have got really good couple of years that have added to the growth such that we're growing and the mid teens and I think.

That's very unique to have a business with the diversity, we have with the downside.

The thing that royalty pharma, it's so diversified.

Our revenue base, but the growth is much more predictable and it's high which is very unique and investors should be paying attention to those things. They look for growth. We have the growth we have diversified growth, which have durable growth and we have growth with Nymex for the three the three things I talked about during the road show that we.

Marshall Urist: And then certainly disappointing for PH2 patients out there. So, you know, I think we'll continue to watch. I think their decision to find a commercial partner will likely slow things down and certainly accrue to the benefit of Oxlumo over the long term. But I think overall, I think the result in PH1 specifically was along the lines with what we were expecting.

Standout because of three attributes of our growth.

The magnitude of growth diversity of growth and duration of growth and that is very unusual very very unusual and I think we can deliver and thats, where our investors and there's very exciting industry.

Marshall I think.

The other day Andrew.

And canton are Matt.

So yes, no thanks for pointing it out.

We like I referenced and I think it was and <unk> question.

And did look at a lot of different scenarios in terms of physician administered <unk> products, and how that might change or if it changes over time and what those different mixes and scenarios might look like from around the payer and access perspective. So.

Umer Raffat: Our next question comes from Umer Raffat with Evercore ISI. Your line is open.

Umer Raffat: Hi guys, thanks so much for taking my question. I wanted to touch up on two things, if I may.

Thanks for thanks for pointing it out and absolutely we thought through kind of different profiles, and particularly how that might evolve over time and.

Umer Raffat: First, as I think about the potential Alzheimer's opportunity, one of the questions to think about is that not only is Gantanarumab subcutaneous versus the competitors, but also Gantanarumab is not tapping into the same patient pool as Dananumab and Aducanumab, and I'm referring to Part B. I guess my question to you is, how important is that to the commercial prospects and how important is Secondly, could you also walk us through your thoughts on Gantanarumab not having the breakthrough designation and Roche's decision not to file based on biomarker, because presumably, the approvals in the space have all been biomarker-related, not data-related.

And Terry if you wanted to I think Andrew had one more question on a growth path.

Yes, so what we said on and BRCA is debt.

And that we expect.

And the royalty to run through 2027% for 2029, we haven't been more specific obviously.

Various different scenarios that can play out with any product in terms of.

Patent extensions or additional patents, but.

Said 2027 through 2029.

Many thanks.

Okay.

Our next question comes from Greg Fraser with tourists Securities. Your line is open.

Good morning, folks and thanks for taking the questions.

Youre generally agnostic and therapy area and a broad portfolio of royalty is on drugs and many areas, but I'm curious if there are any particular areas that you would point to that are of high interest, where you haven't yet transacted and.

Umer Raffat: And then finally, Kerry, one of the points you mentioned that I've been trying to think about for some time is the idea that a deuterated kalydeco is the same as a kalydeco. And I guess one of the questions I had was, if a deuterated kalydeco does have its own composition of matter patent, I guess how would you make that case legally? And we've seen this with some prior deuterated molecules as well, where they have their own composition of matter patent because the structure is technically different.

And then my second question is on the guidance are there any milestone payments baked and they're tied to the clinical and regulatory events that you laid out and the slides. Thank you.

Jim.

Can you. Please take this question.

Yes, I can I can start on it and Marshall may add to the question of.

And as therapeutic areas.

And I think we are.

And such.

Golden age of.

Track the ability of new targets that can open up new areas that I think.

Marshall Urist: So Marshall is going to take your first question about Alzheimer's, Umer, and then Terry will answer CF. One thing just to reflect on as I was thinking about my comments about CF is that, yes, CF is important for us today, a quarter of our revenues, but, as I highlighted, as the business grows, it's going to become relatively... We're going to get more diversified and bigger. But also, I think a lot of the focus of many people, and I think that's why it has been a bit overblown, is on the impact, potentially today.

<unk> provides a lot for us to work on.

Even in sort of existing areas that we've already had a good many investments and some success such as.

Rheumatoid arthritis and wait for it.

For example, <unk>, which was mentioned earlier is a totally new approach to treating rheumatoid arthritis has been and.

Enabled by just understanding the science.

Of immunology.

Better than we had before and allowing us to go broader than TNF and Jack's and.

Debt area and related.

Marshall Urist: And the reality is that, as this plays out, we're talking about very long timeframes. And that's one thing just to think about that, you know, these things take very long to play out. So anyway, Marshall, maybe we could go to the Alzheimer's question. Yeah, sure. Hey, Umer, good morning.

Inflammatory immunology areas, so I still think theres a lot to do.

And that area and it.

Maybe even and opening up.

This and some other.

Previously hard too drunk for hard to treat areas.

And.

And we also want to keep an eye to new modalities, so cell therapy and gene therapy.

We have not made.

Marshall Urist: So two good questions. So I think your first question on Antinara Mab, having a little bit of a different commercial look because of the subcue and not a Part B story, like we talked about at the time. We looked at a lot of different scenarios and how different payer structures might impact a product. I think our feeling in Alzheimer's is that, over time, the volume opportunity is just so big, and there are gonna be lots of different, I think, flavors and parts of the market for them, and I think sub-skew has certain inherent advantages from a delivery perspective, and we think Roche will optimize that.

Really investments in that area, but there certainly are a lot of.

Interesting products moving forward that have royalties because those are so highly engineered technologies that they usually come with.

Potentially one or two or three royalties associated with them. So there is a lot to do there and.

We're following those areas really closely but.

And generally I think because of the.

Improvement and understanding of these diseases truly opening up a lot more opportunities.

And in fields, where we made investments in the past.

And then your question on on the guidance.

The only and only milestone.

It's included in the guidance for this year with the $37 million fleet growth milestones that I've mentioned so.

Marshall Urist: So regardless, we think as this market develops, there's a large opportunity and room for multiple players. And, you know, I just point out that we've seen the other players in this market also talk about exploring sub-Q opportunities as well, either for current products or for backup or pipeline products as well and looking at sub-Q delivery. So I think clearly, you know, the advantages and delivery advantages of that are clear and will serve different parts of the market. Your second question was about Roche's comments on Gantanaramab and breakthrough designation. You know, we listened to the same comments you guys did that Roche made recently on this.

We're very happy that we had a nice significant.

Significant raised and our guidance.

Around $140 million.

Around a quarter of that was from.

Felipe.

Net.

Operator, we'll take the next question.

Our last question comes from Ivan <unk> with Tigress financial your line is open.

And then if it telephones muted please on mute.

Thank you for taking my question and congratulations on the great results and ongoing progress.

Can you give some detail into your M&A strategy and pipeline and where do you see breakthroughs happening and what areas do you feel that youre funding presence could make the biggest impact.

Sure. Thanks for the question and.

<unk>.

Chris.

Really well positioned to answer this question what I would say is that just a bit of perspective.

As you know Chris joined Us.

But more than a year ago and has.

Just a great.

Experience of one of the top and M&A bankers and life Sciences, because generation, but.

And one other things that has always been very exciting to me is opening up the market of M&A and us partnering with companies and M&A and the whole history of royalty pharma has been one of.

Terrance P. Coyne: And, you know, I think overall it does really dovetail with our view of the Roche development program that, you know, it's a large program, fully accrued, and data's pretty near term. And so it sounds like that was intended to accelerate the regulatory process. And then, Umer, on your question about deuterated Kalydeco, we can totally understand why analysts and investors are very curious about what gives us confidence in our position on deuterated Kalydeco, but we really can't get into our legal strategy around it. Umer, I'm going to add something else, because I was trying to express a perspective, and I maybe didn't do a good job, but I'm going to

Developing markets.

From the very beginning.

And.

I've talked in the past about how we've gone through different phases, where a lot of the work was just too to open markets and I think that is one that is at this point really ripe for.

Opening up and I think what's so unique is.

And that I think we have.

And with a deal that we announced with.

Morphosis.

No.

<unk>.

Put some light on.

Kind of M&A that I think has not happened in the past and life Sciences that I think.

Could drive very attractive.

Transactions midsized mid cap M&A for for Midcap companies, but also for us, but Chris why don't you.

And your perspective on this.

Sure sure Thanks, Pablo and thanks for the question and I agree with Pablo I think.

Think back over time, Theres really been a lack of mid cap and mid cap M&A and the space.

Pablo Legorreta: I personally view this whole, you know, CF, deuterated, you know, versus non-deuterated, Kalydeco, the real thing, as near-term noise. There's a lot of focus on that near-term noise. That is not going to happen; that noise is irrelevant. And it's going to play out in 5 to 10 years. And by then, it's going to be nothing. What people should really focus on right now are the positives. This franchise is vastly underperforming, and we have a very significant interest in it.

And that's really.

Ben for one main reason which is.

A seller's board of directors.

We'd much rather sell for all cash as opposed to.

A stock deal and most cases, and it's very difficult sometimes to if youre looking at two development stage companies are one company.

That has.

A recent approval of a drug but it's not really clear how the drug is going to perform it's sometimes very difficult to value the stock of the.

Pablo Legorreta: So that's what people should really be paying attention to, to the fact that it's driving very attractive growth for Royalty Pharma, and really not focus on something that honestly is nothing, which is this noise, and that's going to, as I said, be resolved way out in the future when it's going to be a lot less important. But anyway, that's what I wanted just to add.

Of the acquiring company.

So for that reason, there's been just a lack of M&A and that mid cap space and banks.

Which would typically provide the funding for for the M&A are unwilling to lend to companies that don't have a proven track record of cash flow.

Andrew Baum: Our next question comes from Andrew Baum with Citi. Your line is open.

Andrew Baum: Thank you. A couple of questions, please. Firstly, your stock has underperformed since the IPO. You don't need me to tell you that.

And I think the morphosis constellation deal is a great example of how.

Andrew Baum: But yet, as you outlined, you've completely executed on what you said in terms of capital, allocation, consensus upgrades, and the RIC, at least based on consensus forecasts. Now, you've addressed cystic fibrosis concerns as being overblown. I know there's some discussion about whether Royalty is more exposed to future U.S. drug pricing legislation, but I'm interested in what other factors you think there are which are keeping investors away from the name, given the valuation construct.

Mid cap M&A companies, and obviously more folks decided and approved product.

But hadn't yet really been profitable can do M&A and use all cash as the currency through funding.

And.

And Marshall went through a great slide that showed how we can advance funds to the acquiring company.

In many ways, whether it's development change funding equity investment existing royalty synthetic royalties and we just see that that is a huge opportunity going forward, where we can provide the cash as opposed to a bank that's unwilling to provide the cash upfront.

Andrew Baum: Is it the definition of the investor base, so you're bifurcating healthcare investors versus credit? Is it concerns about emerging competition? Is it drug pricing concerns? Or do you think it's all driven by the overhang from CF?

And that the target Companys board can get comfortable and actually do the deal. So we see a huge opportunity for this going forward.

Pablo Legorreta: So that's the first question. The second, in relation to the previous question on Gans and Aromab, Roche has indicated that they intend to seek reimbursement under Medicare Part B, similar to Ulasta, so B for Bertie. I just want to make sure that's consistent with your expectation, even though it's a sub-Q drug. And then, finally, could you remind us the duration or durability of your IP on Imbruvica? Sure, thank

Thanks, and wishing and ongoing success.

I think.

The other thing just to think about is that.

If you look and biotech.

Companies, often have diversified when theyre doing research and they have.

And many products and not comment that this price don't fit together so.

And what happens often is that a company might then.

Have one product that is the driver of value driver of growth, but other multiple assets that are non core where we can come in and I think if you look at and were folks is a great example, this company.

Marshall Urist: Maybe I'll start by, you know, making some comments about your question initially about the performance of this talk. And what I would say is that, There is, as I said, noise on things that really don't matter to the performance of Royalty Pharma, that are near term, what really matters is the big picture and just the fundamentals about our business, that Royalty Pharma has become one of the most innovative, creative funders of this industry, which is one of the most exciting industries in the planet in terms of innovation and an industry that requires a huge amount of capital and when you then think of the position we have in this industry, which is very unique, nobody can do what we can do in terms of scale, in terms of creativity, in terms of making long term investments that deliver over the long term, where we can be a very patient partner to many of these companies.

And they have very attractive royalties, but royalty is that we're not going to actually really create value for morphosis for more frozen collecting cash flow is interesting, but it doesn't create value and you have to really admire the boldness of the CEO of morphosis of how he realized.

And just collecting those royalties over 510 years was not going to create value for his company and how he completely and transform this company overnight by partnering with us setting the royalties and acquiring a company with assets that he can develop and those are assets that will create value for <unk>.

So when you think of this industry and the thousands of.

Companies that are out there.

Yes.

Are going to.

Face situations like this.

We are the perfect partner and we can help them achieve their strategic initiatives and I think.

And more frozen is a great example, and obviously it will take time, but I think they did the right thing and it created a win win situation for everyone, but anyway I'll end, there and just.

Marshall Urist: So all of those things are attributes that our business has that no other..., you know, peer has, and it positions us extremely well to take advantage of a growing set of opportunities, a rapidly growing set of opportunities. So I think, you know, that's really what investors should be focusing on.

Thanks, all of you.

And.

And everyone on the call for your continuing interest and royalty pharma and.

And I'll just finish by saying that my team and I look forward to continuing to share our progress with you and then if you have any questions.

Please feel free to reach out to.

George growth and Terry but thank you for spending your time with us today on our call.

Terrance P. Coyne: And I think there are other things that are quite unique about Royalty Pharma that I think, you know, investors should reflect on. So there's a huge, huge appetite for growth among the investment community. And in our industry, it's very interesting, but it's sort of polarized.

Sure.

Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.

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Pablo Legorreta: You have, you know, biotechs that obviously do grow very fast, very risky, single-product companies. Sometimes things work out really well, and investors make multiples on their investments. But often, very often, things don't work out, and a lot of money is lost.

Pablo Legorreta: And then you have, on the other side, the much bigger companies that grow at 2% to 3%. There are a few of the bigger ones that grow in the mid-single digits, 6%, 7%. And what's so unique about Royalty Pharma is that we are capable of growing at a much faster rate than the bigger companies in life sciences. So the ones that grow at mid-single digits, you know, we can grow much faster than they can.

Pablo Legorreta: And you've seen the growth this year, which is in the teens. And again, looking at the growth, importantly, there is an underlying growth that our portfolio provides, but then acquisitions add to that growth. And you know, we have had a really good couple of years that have added to the growth such that we're growing in the mid-teens. And I think that's very unique, to have a business with the diversity we have, with the downside.

Pablo Legorreta: The thing about Royalty Pharma is that it's so diversified, our revenue base, that the growth is much more predictable and it's high, which is very unique, and investors should be paying attention to those things. They look for growth.

Pablo Legorreta: We have growth. We have diversified growth. We have durable growth, and we have growth with magnitude. The three things I talked about during the roadshow, that we stand out because of three attributes of our growth, you know, magnitude of growth, diversity of growth, and duration of growth. And that is very unusual, very, very unusual.

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Marshall Urist: And I think we can deliver that to our investors in this very exciting industry. Marshall, I think the other part, yeah, on Gantanaramab, so yeah, so no, thanks for pointing that out. We, like I referenced, you know, I think it was Umer's question, we did look at a lot of different scenarios in terms of physician-administered sub-Q products and how that might change or if it changes over time and what those different mixes and scenarios might absolutely look like. We thought through kind of different profiles and particularly how that might evolve over time.

Marshall Urist: And I don't know, Terry, if you wanted to, I think Andrew had one more question on Imbruvita. Yeah, so what we said on Imbrivica is that we expect the royalty to run through 2027 through 2029. We haven't been more specific. Obviously, there are various Patent Extensions or Additional Patents, but we've said 2027.

Greg Fraser: Our next question comes from Greg Fraser with Truer Securities. Your line is open.

Greg Fraser: Good morning, folks, and thanks for taking the questions. You're generally agnostic to therapeutic areas, and you have a broad portfolio of royalties on drugs in many areas, but I'm curious if there are any particular areas that you would point to that are of high interest where you haven't yet transacted. And then my second question is on the guidance. Are there any milestone payments baked in that are tied to the clinical or regulatory events that you laid out in the slides? Thank you. Jim, can you please take this question?

Jim Reddick: Yeah, I can start out, and Marshall may add, but, you know, on the question of, you know, therapeutic areas, I mean, I think we're in such a golden age of, you know, tractability of, you know, new targets that can open up new areas that I think, you know, it really provides a lot for us to work on, even in sort of, you know, existing areas that we've already had a good I mean, for example, Otilumab, which was mentioned earlier, is a totally new approach to treating rheumatoid arthritis that has been, you know, enabled by just understanding the science of immunology better than we did before and allowing us to go, you know, broader than TNFs and JAKs and related areas and related inflammatory immunology areas.

Jim Reddick: So I still think there's a lot to do in that area, maybe even opening up lupus and some other previously hard to drug or hard to treat areas. And we also want to keep an eye on new modalities, so cell therapy and gene therapy. We have not made, you know, really any investments in that area, but there certainly are a lot of interesting products moving forward that have royalties because those are such highly engineered technologies that they usually come with, you know, potentially, one or two or three royalties associated with them.

Jim Reddick: So there is a lot to do there, and, you know, we're following those areas really closely. But, you know, in general, I think because of the improvement and understanding of these diseases, it's really opening up a lot more opportunities, you know, even in fields where we've made investments in the past. And then your question on the guidance, no, just that the only milestone that's included in the guidance for this year was the $37 million Salequa milestone that I mentioned. We're very happy that we had a nice, you know, significant raise in our guidance of around $140 million, and around a quarter of that was from the Celiqua Institute.

Operator: Operator, we'll take the next question. Our last question comes from Ivan Sanchez with the Tigers.

Ivan Sanchez: Our last question comes from Ivan Sanchez with Tigris Financial. Your line is open. Ivan, if your telephone is muted, please unmute.

Ivan Sanchez: Yes, thank you for taking my question and congratulations on the great results and ongoing progress. Can you give some detail on your M&A strategy and pipeline, and where do you see breakthroughs happening, and what areas do you feel that your funding presence could make the biggest impact?

Pablo Legorreta: Sure, thanks for the question. Chris is really well positioned to answer this question. What I would say is, you know, just a bit of perspective. You know, as you know, Chris joined us a bit more than a year ago and has, you know, just great experience as one of the top M&A bankers in life sciences of his generation. One of the things that has always been very exciting to me is opening up the market for M&A and us partnering with companies in M&A.

Pablo Legorreta: And the whole history of Royalty Pharma has been one of developing markets from the very beginning. And I've talked in the past about how we've gone through different phases where a lot of the work was just to open markets. And I think that is one that is, at this point, really ripe for opening up.

Pablo Legorreta: And I think what's so unique is that I think the deal that we announced with Morphosis, um, you know, uh... shed some light on a kind of M&A that I think has not happened in the past in life sciences that I think could drive very attractive transactions, mid-cap M&A for mid-cap companies, but also for us. But Chris, why don't you provide your perspective on this? Sure, sure. Pablo, thanks for the question. Ivan, I agree with Pablo.

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Christopher Hite: I think if you think back over time, there's really been a lack of mid-cap to mid-capitalization M&A in the space. And, you know, that's really been for one main reason, which is that a seller's board of directors would much rather sell for all cash as opposed to a stock deal in most cases, and it's very difficult sometimes if you're looking at two development stage companies or one company that has maybe a recent approval of a drug, but it's not really clear how the drug is going to perform.

Christopher Hite: It's sometimes very difficult to value the stock of the acquiring company. So, for that reason, there's been just a lack of M&A in that mid-cap space, and banks.., which would typically provide the funding for the M&A are unwilling to lend to companies that don't have a proven track record of cash flow. And I think the Morphosis Constellation deal is a great example of how mid-cap M&A companies, and obviously Morphosis had an approved product, but hadn't yet really been profitable, can do M&A and use all cash as the currency through funding by us, and Marshall went through a great slide that showed how we can advance funds to the acquiring companies, in many ways, whether it's development change funding, equity investment, existing royalties, synthetic royalties.

Christopher Hite: And we just see that that is a huge opportunity going forward where we can provide the cash as opposed to a bank that's unwilling to provide the cash up front so that the target company's board can get comfortable and actually do the deal. So we see a huge opportunity for this going forward.

Ivan Sanchez: Thanks and wishing you outgoing success.

Pablo Legorreta: I think, you know, the other thing just to think about is that, if you look at biotech, companies often have diversified, you know, when they're doing research, they have, you know, many products and not, it's common that these products don't fit together, so what happens often is that a company might then, you know, have one product that is the driver of value, driver of growth, but other multiple assets that are non This company had very attractive royalties, but royalties that were not going to actually create value for Morphosis.

Pablo Legorreta: For Morphosis, collecting cash flow is interesting, but it doesn't create value. You have to really admire the boldness of the CEO of Morphosis, who realized that just collecting those royalties over five, ten years was not going to create value for his company, and how he completely transformed this company overnight by partnering with us, selling the royalties, and acquiring a company with assets that he can develop. Those are assets that will create value for Morphosis.

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Pablo Legorreta: When you think of this industry and the thousands of companies that are out there, you know... [inaudible] I want to thank all of you and everyone on the call for your continuing interest in Royalty Pharma. And I'll just finish by saying that my team and I look forward to continuing to share our progress with you and that if you have any questions, please feel free to reach out to George Grofik and Terry. Thank you for spending time with us today on our call. Bye. Ladies and gentlemen, the following...

Operator: Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone, have a great day.

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