Q4 2021 Royalty Pharma PLC Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to the royalty pharma fourth quarter earnings Conference call I would now like to turn the call over to George <unk> Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.
Thank you operator, and good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma fourth quarter and full year 2021 results you can find the press release with our earnings results and slides for this call on the investors page of our website at royalty pharma Dot com.
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 from these statements.
I refer you to our 10-K on file with the SEC for a description of these risks.
All forward looking statements are based on information currently available and royalty to royalty pharma and we assume no obligation to update any such forward looking statements.
non-GAAP financial measures will be used to help you understand our financial performance.
GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.
With that please advance to slide four.
Our speakers on the call today are Pablo like Arezzo, founder and Chief Executive Officer, Jim <unk>, EVP and co head of research and investments and Chief Scientific Officer, Marshall Europe , EVP and co head of research and investments.
And Terry Cohen, EVP, Chief Financial Officer.
Pablo will discuss the key highlights after which Jim Marshall will provide an update on our royalty portfolio and acquisition.
<unk> will then review the financials and after concluding remarks, and Pablo we will hold a Q&A session.
Despite our vice Chairman will also join in the Q&A session.
And with that I'd like to turn the call over to Pablo.
Thank you George and welcome to everyone on the call.
<unk> reported another year of strong financial performance and strategic execution by royalty pharma.
On slide six I would like to begin by summarizing our many accomplishments in 2021, which underscore the robust momentum in our business first we delivered strong top line growth of 18% and bottom line growth of 19% for 2021 and.
In addition, we strengthened our balance sheet through a $1 3 billion bond financing, which included a social bond, which reflects our commitment to corporate social responsibility.
During the year.
We were active in deploying capital with 3 billion and announcements actions across five deals and we were well ahead of our target of 7 billion by 2025 that we communicated at the time of our IPO.
In total we have already announced approximately $5 9 billion of transactions since the beginning of 2020.
We continue to benefit from the competitive modes, we have established over the past 25 years and our business is as strong as ever.
As a result, we remain the leader in the royalty funding market in 2021, with a 50% share of transactions by value based on our internal estimates importantly, we expect deals completed over 2020, and 2021 to contribute greater than $750 million to our top.
Offline in 2025 with potential for upside from development stage.
Stage therapies.
We think this is an impressive number and really highlights our unique ability to compound growth as we layer on additional royalties through value enhancing acquisitions.
When we look at our portfolio. We also saw tremendous progress we were more than we more than doubled the number of development stage therapies in a single year and aspect of our business model, which is truly unique in biopharma in.
In line with our track record of picking winners, especially compared with industry benchmarks. We are encouraged by the recent positive readouts for Astrazeneca PTO, two seven for asthma and <unk> for migraine and are optimistic that many of the positive clinical updates across our portfolio.
It will ultimately lead to approvals and drive patient benefit.
On slide seven you can see our financials in a little more detail in the fourth quarter, we delivered 12% growth.
Adjusted cash receipts, our top line and 15% growth in adjusted cash flow our bottom line.
For the full year as noted we delivered growth of 18% at the topline and 19% at the bottom line.
The strong double digit momentum.
It puts us in a tremendous position to deliver another year of strong financial performance in 2022, as Terry will speak to when he discusses our guidance.
Slide eight shows our strong growth track record since our IPO in June 2020, which is a testament to the underlying power of our business.
By leveraging our deep expertise and leading position at the heart of funding life Sciences innovation, we're able to consistently replenish our portfolio and drive compounding returns.
This has allowed us to deliver seven consecutive quarters of double digit bottom line growth and very strong top line growth as well.
Importantly in 2021, we digested the expiring HIV franchise royalties, our fourth largest source of royalties in 2020.
Which accounted for 13% of total royalty receipts and still delivered high teens top and bottom line growth.
This speaks to the strength and breadth of our existing portfolio and the momentum from a royalty.
<unk> royalty transactions.
Slide nine expands on this point the strong performance of our base business was by far the primary driver of growth in 2021 and accounted for around three quarters of our 18% topline growth.
New transactions in 2021 added about 400 basis points to growth.
Largely from the addition of profile Cabo metrics and Knox Luma.
Royalty expires, mainly on the HIV franchise had a negative impact of 900 basis points, but were easily absorbed by the strength of our diversified portfolio.
Of note, we achieved 14% organic growth from our existing portfolio about double the growth rate. We initially guided at the beginning of last year.
This is a great illustration of what makes royalty pharma a unique player in life sciences, our proven ability to grow through losses of royalties and constantly diversified the portfolio with value enhancing royalty acquisitions truly sets us apart from other biopharma companies.
With that I will hand over to Jim to update you on our royalty portfolio.
Thank you Pablo and Hello, everyone today, I'm going to spend a couple of minutes updating you on the development of our portfolio in 2021.
Slide 11 shows our transaction funnel over the past year.
Had a well established sourcing diligence and evaluation process that Caesars execute only on what we believe to be the most promising opportunities. This has resulted in the excellent returns on investment we have generated since our founding.
In 2021, we've reviewed over 300 potential transactions, resulting in around 85 signed confidentiality agreements and 33 proposals submitted.
Our disciplined and highly selective approach resulted in us ultimately executing five transactions across 11 therapies are approximately 4% of those we initially reviewed for a total value of $3 billion.
Including $2 $3 billion upfront.
Slide 12 shows the growth of our pipeline and explains why we are running ahead of our capital deployment target of $7 billion to 2000, 22025, which we announced at the time of our IPO.
Since 2019, the number of initial reviews conducted by the team has increased by around 50%.
This reflects the increasing demands for capital to fund life Science innovation and the strong capabilities of our research and investments team.
Over that same period the number of in depth reviews. We conducted has also increased over 50%.
Following our diligence process. This has resulted in a greater than one third increase in the value of transactions executed between 2019, and 2021 and as we stand today, our pipeline continues to present substantial opportunities and is highly active.
Please turn to slide 13.
Executing a clear strategy, we continue to broaden our portfolio over the past two years, we've announced transactions with $5 5 billion.
Bringing in a total of 20 unique therapies.
Eight of these therapies, where development stage at the time of the acquisition and nine are either currently or projected to be blockbusters based on consensus sales forecast through 2030.
These new medicines spanning five therapeutic areas.
Unlike traditional biopharma companies the strength of our business model is that we are agnostic to therapeutic categories and modalities.
We evaluate each opportunity on a case by case basis. So that we can quickly pivot our focus to areas where breakthrough medical innovations are happening.
Importantly, these transactions are expected to add more than $750 million to our top line in 2025, using consensus estimates with potential upside from the development stage therapies.
For context. This compares with our adjusted cash receipts for full year 2021 of $2 1 billion and highlights our unique ability to consistently replenish our portfolio.
Now I'll turn it over to Marshall to discuss our royalty acquisitions.
Thanks, Jim and good morning.
As a reminder, two of our key strategic pillars are investing in royalties on both approved and development stage therapies.
Since 2012 around 55% of our investments have been an approved therapy, while 45% have been in the development stage.
If we look at the early performance of our recent transactions on slide 15, the picture is very encouraging.
The approved therapies. We recently acquired the majority have seen increases to street consensus sales forecast since the acquisition date with more than half increasing by substantial double digit percentages.
We believe this reflects our careful assessment of the clinical and commercial opportunity during the diligence process.
The development stage therapies in our portfolio have also progressed well and many are expected to have pivotal readouts a regulatory decisions in the near future.
<unk> mentioned earlier that our success rate here has exceeded industry benchmarks.
In fact, we've invested close to $8 billion in development stage therapies since 2012, excluding therapy still in development, we have a 79% approval rate based on the number of investments and a 95% approval rate based on the value of our investments.
Moving to slide 16, our.
Our overall market share and royalty transactions based on our internal estimates is around 60% over the past decade, and nearly 90% in deals in the $500 million plus range since our founding.
This reflects our many years of experience and tailoring flexible win win funding solutions for our partners our unique focus on Biopharma.
And our ability to do so at scale <unk> deep access to capital.
This slide gives two examples of how we have joined a biotech partner in aircrafts journey provided capital to launch new medicines and to fund the development of promising innovative candidates through multiple transactions over time indeed.
In the cases of Biocryst and bio haven their needs were different but for each week, we were able to provide timely solution that enabled them to accelerate the process of bringing their innovation to patients both in terms of supporting commercialization and in pipeline progress.
This has been recognized by the financial markets with strong share performance since we made our investments and rising consensus forecast for their rare disease and migraine therapy.
Slide 17 illustrates our latest example of tailoring solutions for our partners in this case that it connects last month, we agreed to expand our longstanding partnership by providing up to $450 million in funding in part to acquire royalty on happy campaign, a potential new medicine for hypertrophic cardiomyopathy. This.
Is a serious disease that impacts the lives of up to 100000 people in the U S.
Our diligence was based on positive phase II data, which indicates that <unk> has the potential to deliver significant patient benefit and blockbuster sales in a therapeutic area is already seen significant M&A with Bristol $13 billion acquisition of myocardial.
Happy Camden has breakthrough FDA designation and is planned to start pivotal trials this quarter.
Slide 18 highlights the expected clinical and regulatory events for our portfolio.
In summary, 2022 looks to be a very milestone rich year importantly, we anticipate phase III results for a number of potentially transformative therapies, including gilead to treat Lv in third line hormone receptor positive metastatic breast cancer.
Results from cosmetics in combination with Io and renal prostate and lung cancer.
Sanjay S shrimp <unk> in ulcerative.
Colitis, and potentially sell through Rexam and depression.
<unk> <unk> in Alzheimer's.
<unk> oral migraine prevention therapy about Japan, and Gsk's <unk> in rheumatoid arthritis.
On the regulatory front, we would highlight a filing of <unk> in asthma in the first half of 2022 and a European regulatory decision on <unk>. The European brand name for remit, Japan in migraine, which is <unk> ODT and the U S. Many of these milestones represent major commercial opportunities and could add significantly to.
Our long term growth outlook with that let me hand over to Terry.
Thanks, Marshall, let's move to slide 22.
Total royalty receipts grew 5% in the fourth quarter and 11% for full year 2021 versus the respective year ago periods.
The drivers in the fourth quarter included cystic fibrosis, as well as payments from bio Haven, and our new royalty on term.
For the full year, we also saw significant growth contributions from Promacta and prove OCA and Tysabri.
As Talbott described these positive factors more than offset the loss of contribution from our legacy HIV franchise as the royalty term ended.
Slide 21 shows how our royalty receipts translated to strong adjusted cash flow.
As you are aware adjusted cash receipts as a key non-GAAP metric for us, which we arrive that after deducting noncontrolling interests.
This amounted to $543 million in the fourth quarter growth of 12% compared with the year ago quarter.
For the full year adjusted cash receipts were $2 1 billion up 18%.
When we move down the column for each period operating and professional costs equated to approximately 9% of adjusted cash receipts consistent with our 2021 guidance.
Our operating and professional costs for 2021 were broadly similar to last year. As 2020 included a number of onetime costs related to our restructuring IPO an inaugural bond offering.
Ongoing R&D funding payments remained at a low level.
Net interest paid was de Minimis in the fourth quarter, but $127 million for the full year 2021.
This reflects the timing of the semiannual interest payments associated with our $6 billion unsecured note offering in 2020.
As a reminder, these payments are in the first and third quarters of our financial year.
After other items. This resulted in adjusted cash flow, our bottom line of $488 million or <unk> 80 per share for the fourth quarter and $1 8 billion or $2 91 per share for the full year.
For the full year. This translates to an adjusted cash flow margin of 83%, which underscores the strong financial leverage in our business model.
The higher adjusted cash flow margin in the fourth quarter of 89, 8% reflects the semiannual timing of interest payments that I just referenced.
On slide 22.
We continue to maintain our financial firepower.
We deployed $2 $6 billion of capital on royalty acquisitions during 2021, as well as 430 million $39 million on dividends and distributions.
As a result, given our strong cash flow generation and proceeds from a bond issuance in July we added $2 $1 billion of cash and marketable securities at the end of December which is slightly above our position at the end of 2020.
Our leverage stands at two six times EBITDA on a net basis and three seven times EBITDA on a total basis.
As a reminder, the average coupon on our debt is slightly above 2%, which compares with our target returns on royalty acquisitions in the high single digit to teens percentage range.
We believe this cost of capital is a durable competitive advantage for our business.
We continue to feel very good about our ability to execute on our business plan and create value for shareholders.
This confidence is reflected in the announcement last month of a 12% increase in our quarterly dividend.
My final slide provides our full year 2022 financial guidance.
We expect adjusted cash receipts to be in the range of two to two 5 billion to $2 3 billion.
An increase of approximately 5% to 8% over the $2 1 billion, we delivered in 2021.
This outlook reflects this.
We expected strong underlying performance of our royalty portfolio, partially offset by the residual impact of the loss of royalties on the HIV franchise as well as the end of the DPP four royalty term in March for which we will receive the last royalty receipts in the second quarter of 2022.
Importantly, and consistent with our standard practice. This guidance is based on our portfolio as of today and does not take into account any future royalty acquisitions.
Our guidance is also based on todays FX rates and we would note that if the U S dollar where it is strengthened by 5% against the Euro from current levels. We estimate. This would result in 15 to 20, and a 15% to $25 million headwind to our adjusted cash receipts this year.
Turning to our operating cost ratio, we expect this to be approximately 9% of adjusted cash receipts in 2022, which is similar to 2021.
Net interest paid for full year 2022 is expected to be around $170 million, reflecting the net interest associated with the bond offering in July 2021, as I signaled on our third quarter earnings call.
With that I would like to hand, the call back to Pablo for his closing comments.
Thanks Terry.
Let me close by saying how pleased I am.
With our expanding performance in 2021, and as we have seen from our guidance, we expect to deliver another strong year in 2022.
If I take a longer term perspective royalty pharma plays a unique role at the heart of funding the Golden age of life Sciences innovation and I truly believe our prospects have never looked better our compelling business model and competitive advantages give us the potential to deliver attractive compounding grow.
Over the long term.
Slide 25 highlights one of the reasons that we're so et cetera, but our future, namely the potential to partner with biotech companies on their growth journeys.
The number of biotech Ipos has more than tripled since 2016, and this coupled with significant innovation is fueling an unprecedented need for capital in the industry.
Our research shows that today's unprofitable biopharma companies are expected to have more than one trillion and operating expenses over the next decade layering in additional company formations will further increase the capital needs. This creates a massive opportunity set for royalty pharma, which.
We're confident we can execute against.
On Slide 26, my view and I would be delighted if you will join us for our Ignarro Investor Day, which we now have officially scheduled for May 17.
We plan to include a detailed discussion of the outlook for royalty funding our updated capital deployment objectives, and our long term growth targets and of course, you will have plenty of opportunity to ask questions and interact with management.
With that I would be happy to take your questions.
Yes.
We will now open up the call to questions. Operator, please take the first question.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
First question comes from Geoff Meacham with Bank of America. Your line is open.
Hey, guys.
Just got a few.
I want to get your thoughts on the current macro environment and its implications. So the first question is maybe for Terry does the pace of rate increases this year.
Change your assumptions at all on things like deal flow or ratios.
And then second question I guess for Pablo you have so many recent ipos are trading at pretty low cash multiples.
It's not clear whether the financing headwinds are really going to abate and so does it does it makes sense to shift to earlier stage I know you guys have some risk guardrails, but the question is does lower valuation.
Outweigh the earlier stage of some of the more recent ipos. Thanks, so much sure sorry, yes, so Jeff.
In terms of the current macro environment.
Yes, I mean, we've been obviously watching like.
Everyone the.
Plans for rate increases this year and the potential impact on our business I would say from.
Royalty pharma as balance sheet perspective, we're very lucky that.
We locked in rates at some pretty attractive times.
With a weighted average.
Debt maturity of over a dozen years and.
And we have I think.
Around 60% of our debt matures in 2030, and beyond which is a very good position for us to be in.
In terms of how it could impact deal flow I think it's.
We're seeing a lot of opportunities right now I think.
This has been if anything we kind of view it is accelerating a trend where.
Companies are looking at royalties.
More and more as ways that as a as an attractive way to fund their businesses and I think that the the equity market backdrop, certainly doesn't hurt that that that momentum as well, but these things take time.
We're very happy with the with the level of the discussions in our pipeline.
Hopefully this can be a productive year in productive next couple of years.
So adding good morning, Jeff.
Adding to what Terry.
<unk> already provided which is an interesting perspective on the on the macro environment I think in terms of strategic focus going forward.
Youre not going to see a significant shift and going on to earlier.
Stage investments.
But I'd like just to maybe.
Share with you something we've communicated to you and our investors in the past, which is the fact that royalty pharma has always been very open minded and the way we approach things.
We.
Told the team for decades.
That's really the way we approach things that we have to come to a transaction with an open mind not.
Carrying any preconceived notions or ideas essentially.
Looking at sort of a blank piece of paper sitting them with management teams listening to their story trying to understand.
Opportunity and then decide if its something we want to get involved with.
And it may in some cases. It may include things that are maybe a bit earlier than what we have done in the past I think from a.
A big picture perspective, Jeff.
A company our company, which is deploying $2 billion to $3 billion per year, you've seen last year us deploying 3 billion in the prior years it was in excess of two.
For us to actually make investments small scale that could be $50 million to $100 million in earlier stage products.
It's totally.
Appropriate and we will probably do that.
In a way where we actually.
Make an investment earlier, but with already an agreement with the company to actually fund.
The later stage trials.
And so.
We've done that already in one case in the past, where we found that an earlier phase <unk> trial and there was a commitment for us if certain milestones were met to actually fund from the phase III.
And I think the other thing I'll mention is that there is no question that.
Royalty funding has become mainstream so you have that underlying very strong trends of growth companies wanting to fund with royalties and obviously as Terry pointed out the current market conditions accelerate that so what youre also going to see royalty pharma is us adding <unk>.
Very selectively.
New members to our research and investments team and also a few people that are going to help us reach out to companies.
That's something that we're very excited to do in the next.
Order or so thank you Jeff.
Thanks Scott.
Thank you. Our next question comes from Omar Saad with Evercore ISI. Your line is open.
Hi, guys. This is Mike difiore in for Omar. Thanks, So much for taking my question just one on.
<unk> prior to the NCD.
You guys had said that can't amendment to be a multibillion dollar opportunity. So now in light of the draft proposal.
It would be great. If you can get.
Thinking here also if you could offer any color on the potential royalty structure.
Brain shuttle against narrow Matt I know you said, you couldnt, but if theres any update along those lines that would be great. Thank you.
Marshall why don't you take this question absolutely Hi, Mike Good morning, and thanks for the question so.
Two parts to that one so on <unk>, we had <unk>.
Discussed with you guys before that we think this has the potential to be a multibillion dollar product I don't think anything that we've seen in the NCD discussion is.
Changes changes our view of that just to just to take a step back.
<unk> is exactly the kind of product that that we think is a great part of the royalty pharma portfolio and I think came in with some of the some of the themes that Pablo Pablo talked about it in terms of helping companies solve their problems.
And that's.
That's exactly what we did and how how <unk> joined the portfolio I think bigger picture, though to answer your question.
We still our original thesis around dense narrow mab was that you had to well designed trials that reflects sort of the best thinking on trial design, a product profile and a marketer that could really make this a big product I think you fast forward a year 18 months.
From now when <unk> had readouts for Gan to narrow mad potentially other drugs in this class I think the debate. The discussion is really going to be informed by the a full picture of the safety and efficacy of these products. Once we have multiple consistent data thats out there and I think that will.
Ultimately drive the conversation long term. So certainly we're following all the developments with agile helm.
With interest, but really we want to see what this next crop of data shows and we think that's ultimately going to determine.
What what this class is going to be.
The second part of your question was just on brain shuttle so.
Brain shuttle is the brain shuttle dancing.
<unk> is a product that is royalty bearing under under that agreement and so it would ultimately be royalty bearing to us.
It is early right like we said it is just entering I think our phase II trial recently, so a long way to go there, but we'll be excited to have that potentially as part of the portfolio as well.
Great. Thank you.
Thank you. Our next question comes from Chris Schott with Jpmorgan. Your line is open.
All right great. Thanks, so much for the questions just two for me.
Overall capital deployment level, but obviously trended well above the ranges you gave at the time of the IPO should we be thinking about this higher level of capital deployment. So let's say the $3 billion. We saw in 2021 as a new normal for royalty it seems like capital need for the industry are up you are about to diligence more than the past.
Maybe yes, there, but just interested in your thoughts.
And the second thing was just coming back to I think one of the slides you presented I think you've submitted 33 proposals last year executed five transactions just a little bit of color on the other 28, where those companies are royalties that are being done with somebody else with these companies the equity financing.
Or is there an ability to revisit some of those transactions as we think about market conditions, changing and maybe a little bit more favorable valuation less favorable valuation conditions of the sellers that might have existed last year. So just any color on that would be appreciated. Thanks. So much.
Of course, so Terry is going to answer the first question.
About the guidance on capital deployment, and I think Jim can talk about.
The deals we look at it in.
Why we don't do some of the deals.
<unk>.
Analyzing detail.
So Chris.
On the capital deployment question.
We've been very encouraged by how how we finance the deals we've been able to do over the last couple of years and certainly.
We recognize that we are tracking well ahead of the guidance that we originally gave at the time of our IPO.
This is.
It does tend to be something and we try to be really clear with investors is uneven.
And theres going to be years, where we have significant.
Significant capital deployment, and then theres going to be years, where we're more patient and cash builds and we wait for the right opportunities and we've done that throughout our history I would say, though that debt.
To us the market does feel a lot deeper now than it did five or 10 years ago.
And I think that that can create the opportunity for more consistent capital deployment.
And we.
We do feel like.
The levels that we've been deploying are very encouraging.
We're going to really unpack this I think in greater detail at our analyst day in May So I would just say stay tuned and we'll try to try to really describe the opportunity at that event.
Hey, Chris to address your question about sort of.
What happens between the proposals and the executed.
Number of transactions.
It's pretty similar to years past, where it is.
Got it.
Groups.
Possibilities one is that.
They're done by <unk>.
Our competitors are.
Another group I would say that in 2021 was a smaller number than it has been in the past.
Another.
Segment of that was <unk>.
<unk>, where we got into diligence, which sometimes it requires a proposal for us to see the deep diligence and and just we didn't get totally comfortable with the asset in the end after seeing the deep diligence.
And then the third group is just times, where there hasnt been a transaction or hasnt been a transaction yet.
Some of those are continuing potential sometimes there are some.
It's kind of a lead time.
To get to a transaction so.
It's pretty similar to the.
The groupings.
That sort of that transition from proposals submitted to <unk>.
Executing transactions as we've seen in the past.
Great. Thanks, so much.
Thank you. Our next question comes from Steve Scala with Cowen Your line is open.
Thank you I have two questions. One is mechanical and then one bigger picture. So the mechanical question as apparently royalty pharma will not garner royalties on januvia during its pediatric exclusivity in the second half of this year is this unique and the situation or is this how all of these similar situations.
Our and will be contracted or does the payment in the second half second quarter contemplate sales in the second half. So that's the mechanical question. The bigger picture question for Pablo you have probably seen many tough market for biotech companies and your career how is this one similar.
To or different from past circumstances. Some commentators think there could be a sustained devaluation biotech assets. If this were the case then how would that impact your business I could foresee opportunities, but I could also foresee risks. Thank you.
Sure do you want to take the first question so on the Januvia question.
Every contract.
And royalty that we acquired acquired tends to be unique theres certainly.
In many instances we do.
You end up being paid for pediatric exclusivity, but in the case of Januvia in January there was a hard cutoff date in the contract and so thats why we kind of nowhere.
100% certainty that it sort of ends.
In March and our last payment will be in the second quarter.
Actually regarding the go.
Go ahead.
Just a follow up to the patent actually ends in July actually don't know went in July , but but will the payment.
The second quarter.
Payment be through June or through when the Windows had actually end.
Yes, so the second quarter payment will be based on royalties on sales through March.
And so this is a this was a unique situation where there was a.
A date in.
In the contract Okay. Thank you.
Yes regarding your.
The other part of your question about.
Downturns in the market.
I mean this is.
Honestly, nothing new and we have been through.
Very significant downturns I was actually looking recently at a graph of.
<unk>.
Biotech performance since 1997, and I think we've had.
Four or five.
Downturns in the market that have approached us.
And this downturn occur over a period of like maybe a year or two years.
I think there's one or two that have been more prolonged.
Where.
It's 30% down in one case, it was 40% down.
But I think there are some very very strong underlying.
The trend that we need to keep in mind.
As a result of that like since 1997.
Biotech indexes are up 38 times, so a multiple of 38 and the IRR is somewhere in the.
17% to 20% depending on what periods you look at which is just incredible growth.
I think what the point is that the.
Long term trend here is that.
There's been so many advances in our understanding of human biology, human shelf diseases.
That have opened up so many new approaches for.
Innovation through actually ends up.
Solving.
Or are addressing unmet medical needs.
That secular trend I think is going to be with us for many decades to come.
And that's the thing to keep in mind that that yes. It may be the case, but now the market got ahead of itself with many companies.
We're maybe early when public.
And and raise money.
But I think there is.
Currently going to be.
Many many many of those companies that are going to survive will get funded because they have just really cutting edge approaches.
To address human disease.
Our.
Job at royalty pharma is going to be to try to find those little gems that always exists.
The space and we are.
We're so excited about all of this.
Telling them out.
And I think we're in a really good very very strong position to actually.
Through the net where we have through the <unk>.
The years of actually investing in life Sciences. The fact that we're more visible that we were in the past. The fact that now royalties are mainstream.
Amazed from way of funding.
And I think that just bodes to a super promising future for royalty pharma, but thank you for the question I think it's really interesting to reflect on the ups and downs of this really exciting.
History biotech.
But that's my perspective.
Okay.
Thank you. Our next question comes from Matthew Harrison with Morgan Stanley . Your line is open.
Hi, This is Charlie on for Matthew Thanks for taking the questions I have three questions.
The first is.
Which of the development stage assets that you have.
In your view.
The biggest discrepancy between your internal projections versus the street projections and then my second question is can you remind us on the leverage ratio or the additional debt that you could potentially take on and while still maintaining that investment grade rating.
My final question is your expectation for the Bristol Myers Kenton label and the potential read through to <unk> in terms of the market opportunity. Thank you.
Yes sure Marshall.
So to answer the question.
Just from my own perspective, one that I'm very excited about.
<unk> and obviously there is risk there, but it's also a product that can be very very big given the huge need for an effective <unk>.
Treatment for one of the biggest problems that is affecting.
Older people Alzheimers, so that's exciting to me, but Marshall go ahead sure totally I think about your question a little bit differently.
Is part of the reason we covered this in the prepared remarks, which is just.
How we have really built an exciting development stage portfolio and I think if you look at.
Its prepared remarks on slide 18.
From the deck, how interesting it is debt.
That 2022 is really seeing the cumulative effect of.
A lot of the additions to our portfolio over the last few years and.
While we're not necessarily focused on.
Events like this as a core part of our business I think as we continue to show discipline.
Disciplined growth in our development stage portfolio I think the result is is that we hope to have a steady a steady flow of the events. We have this year and I think the thing that's really striking and interesting about it is if you just look at the breadth of the different type of events, we have different mechanism therapeutic areas. It is.
Really incredibly broad when you take a step back and look at and look at what the team has what the team has put together for all the milestones. This year. So I think we are we're excited to see how this year plays out and I think we'll continue to build continue to build the portfolio and hopefully have more events like this in in years to come.
On I think the second part of your question was on.
The <unk> date, and what the label looks like.
Well, we'll certainly probably a little early to comment on that Bristol I think has expressed.
Confidence in the product talked about $4 billion in on risk adjusted peak year sales.
<unk> excited to get this to get this product launched and off the ground, we'll see we'll see the label when it when it comes out and we can discuss it then but I think importantly, like we talked about.
With Abbvie campaign, we think this is a really exciting really exciting new area. It is exciting to see targeted therapy and a new.
<unk> targeted therapy in cardiology, and a new wave of innovation, there and we're excited about what this headache kinetics team is going to do with Abbvie Camden. So I'll pass it to Ta for I think for the question on leverage let me just add.
Our perspective too.
Good answer that Marshall gave you and this is on slide 18, where we have the milestones.
I think if I look back over the last two decades.
And see what was going on with <unk> from a five years ago 10 years ago.
Slide would look very similar as what you are looking at today with so many different.
Value drivers in our portfolio.
The past it was obviously things like Humira getting approved for psoriasis or.
Many other indications or lyrica or.
Some of the HIV AIDS.
Investments, we had when it went from.
Truvada to a AAA and then to the clubs, but I think the point is that with this really tells you is whats so unique about royalty pharma, but in a way.
To capture given the openness of our business model is really the best for biotech.
Like a lot of investors are trying to find an attractive biotech company to invest.
Guess, what we have within royalty pharma some of the most exciting products of the industry with a lot of value drivers milestones and also some of the big pharma products right. So I think it's interesting just to reflect on that.
I always felt that as a public stock.
We would be differentiate ourselves because we would have constantly a lot of really good news flow that investors can look at.
See if they.
Could then make an attractive investment that was going to have significant value drivers, but Terry go ahead, yes. So on the leverage question.
We remain.
Committed to our investment grade credit rating.
And so we finished the year with total debt to EBITDA of three seven times.
<unk>.
We've operated in kind of this three to four times band.
Over the last 15 years, we're very comfortable operating in that band.
We can go above four for the right for the right acquisition.
Where we see where we really see a clear path to delevering from there. So that's how that's how we think about it.
And I think we do feel like we have a lot of financial flexibility and firepower to take advantage of the opportunity that we see in front of us.
Thank you.
Thank you and we have a question from Greg Fraser with <unk> Securities. Your line is open.
Great. Thanks for taking the questions.
You haven't updated your long term growth outlook, while you had a particularly strong year in 2021 and also exceeded your capital deployment target by a large margin the long term growth outlook still intact.
Something that you are waiting to update at the Investor day.
And then a quick question on 2022 are there any notable milestone payments that are factored into the guidance range.
So I'll take those so.
In terms of the long term growth outlook, that's something that we're going to we're going to.
For update those sort of targets and our latest thinking at our Investor day.
And then in terms of this year any milestones that factor into into our guidance. The answer is now.
We try to.
Try to give you a heads up that if we did see anyone.
Material onetime things in there and at this point, we don't see anything in our forecast.
Great. Thank you.
And Im showing no further questions at this time I would like to turn the call back to Pablo <unk> for closing remarks.
Sure.
Operator.
Thank you to everyone on the call for your continuing interest in royalty pharma my team and I look forward to continuing to share our progress with you. If you have any follow up questions. Please feel free to reach out to George and I will just say that we really hope to see all of you.
During our inaugural Investor day in May we're going to be excited to share with you.
And really take a deeper dive in many of the topics that we've discussed today. So thank you again for.
Your interest and royalty pharma and hope to see you in May.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
Yes.
[music].
Okay.
Okay.
Okay.
[music].
[music].
Ladies and gentlemen, thank you for standing by welcome to the royalty pharma fourth quarter earnings Conference call.
I'd now like to turn the call over to George <unk> Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.
Thank you operator, and good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma fourth quarter and full year 2021 results you can find the press release with our earnings results and slides to this call on the investors page of our website at royalty pharma Dot com.
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 from these statements.
I refer you to our 10-K on file with the SEC for a description of these risks.
All forward looking statements are based on information currently available and royalty to royalty pharma and we assume no obligation to update any such forward looking statements.
non-GAAP financial measures will be used to help you understand our financial performance.
GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.
With that things advance to slide four.
Our speakers on the call today are Pablo <unk>, founder and Chief Executive Officer, Jim <unk>, EVP and co head of research and investments and Chief Scientific Officer, Marshall Europe , EVP and co head of research and investment.
And Terry Cohen, EVP, Chief Financial Officer.
Pablo will discuss the key highlights after which Jim Marshall will provide an update on our royalty portfolio and acquisition.
<unk> will then review the financials and after concluding remarks from Pablo we will hold a Q&A session.
This site, our vice Chairman will also join the Q&A session.
And with that I'd like to turn the call over to Pablo.
Thank you George and welcome to everyone on the call.
<unk> reported another year of strong financial performance and strategic execution by royalty pharma.
On slide six I would like to begin by summarizing our many accomplishments in 2021, which underscore the robust momentum in our business first we delivered strong top line growth of 18% and bottom line growth of 19% for 2021 and.
In addition, we strengthened our balance sheet through a $1 3 billion bond financing, which included a social bond, which reflects our commitment to corporate social responsibility.
During the year.
We were active in deploying capital with $3 billion in announced transactions across five deals and we were well ahead of our target of 7 billion by 2025 that we communicated at the time of our IPO.
In total we have already announced approximately $5 9 billion of transactions since the beginning of 2020.
Yeah.
We continued to benefit from the competitive moat, we have established over the past 25 years and our business is as strong as ever.
As a result, we remain the leader in the royalty funding market in 2021, with a 50% share of transactions by value based on our internal estimates importantly, we expect deals completed over 2020, and 2021 to contribute a greater than $750 million two or <unk>.
Topline in 2025 with potential for upside from development stage.
Stage therapies.
We think this is an impressive number and really highlights our unique ability to compound growth as we layer on additional royalties through value enhancing acquisitions.
When we look at our portfolio. We also saw a tremendous progress we were more than we more than doubled the number of development stage therapies in a single year and aspect of our business model, which is truly unique in biopharma in.
In line with our track record of picking winners.
Compared with industry benchmarks, we're encouraged by the recent positive Readouts for Astrazeneca PTO, two seven for asthma and <unk> for migraine and are optimistic that many of the positive clinical updates across our portfolio will ultimately lead to approvals and drive patient.
Benefit.
On slide seven you can see our financials in a little more detail in the fourth quarter, we delivered 12% growth in adjusted cash receipts, our top line and 15% growth in adjusted cash flow our bottom line for.
For the full year as noted we delivered growth of 18% of the topline and 19% at the bottom line.
The strong double digit momentum puts.
Puts us in a tremendous position to deliver another year of strong financial performance in 2022, as Terry will speak to when he discusses our guidance.
Slide eight shows our strong growth track record since our IPO in June 2020, which is a testament to the underlying power of our business.
By leveraging our deep expertise and leading position at the heart of funding life Sciences innovation, we're able to consistently replenish our portfolio and drive compounding returns.
This has allowed us to deliver seven consecutive quarters of double digit bottom line growth and very strong topline growth as well.
Importantly in 2021, we digested the expiring HIV franchise royalties, our fourth largest source of royalties in 2020.
Which accounted for 13% of total royalty receipts and still delivered high teens top and bottom line growth.
This speaks to the strength and breadth of our existing portfolio and the momentum from our royalty recent royalty transactions.
Slide nine expands on this point the strong performance of our base business was by far the primary driver of growth in 2021 and accounted for around three quarters of our 18% topline growth.
New transactions in 2021 added about 400 basis points to growth largely from the addition of profile Cabo metrics and ox luma.
Royalty expires, mainly on the HIV franchise had a negative impact of 900 basis points, but were easily absorbed by the strength of our diversified portfolio.
Of note, we achieved 14% organic growth from our existing portfolio about double the growth rate. We initially guided at the beginning of last year.
This is a great illustration of what makes royalty pharma a unique player in life sciences, our proven ability to grow through losses of royalties and constantly diversified the portfolio with value enhancing royalty acquisitions truly sets us apart from other biopharma companies.
With that I will hand over to Jim to update you on our royalty portfolio.
Thank you Pablo and Hello, everyone today, I'm going to spend a couple of minutes updating you on the development of our portfolio in 2021.
Slide 11 shows our transaction funnel over the past year, we've had a well established sourcing diligence and evaluation process that sees us execute only on what we believe to be the most promising opportunities. This has resulted in the excellent returns on investment we have generated since our founding.
In 2021, we've reviewed over 300 potential transactions, resulting in around 85 signed confidentiality agreements at 33 proposals submitted.
Our disciplined and highly selective approach resulted in us ultimately executing five transactions across 11 therapies are approximately 4% of those we initially reviewed for a total value of $3 billion.
Including $2 3 billion upfront.
Slide 12 shows the growth of our pipeline and explains why we are running ahead of our capital deployment target of $7 billion to 2000, 22025, which we announced at the time of our IPO.
Since 2019, the number of initial reviews conducted by the team has increased by around 50%.
This reflects the increasing demands for capital to fund life Science innovation and the strong capabilities of our research and investments team.
Over that same period the number of in depth reviews. We conducted has also increased over 50% <unk>.
Following our diligence process. This has resulted in a greater than one third increase in the value of transactions executed between 2019, and 2021 and as we stand today, our pipeline continues to present substantial opportunities and is highly active.
Please turn to slide 13.
Executing a clear strategy, we continue to broaden our portfolio over the past two years, we've announced transactions with five 5 billion.
Bringing in a total of 20 unique therapies.
Eight of these therapies, where development stage at the time of acquisition and nine are either currently or projected to be blockbusters based on consensus sales forecast through 2030.
These new medicines spanning five therapeutic areas.
Unlike traditional biopharma companies the strength of our business model is that we are agnostic to therapeutic categories and modalities.
We evaluate each opportunity on a case by case basis. So that we can quickly pivot our focus to areas where breakthrough medical innovation they are happening.
Importantly, these transactions are expected to add more than $750 million to our top line in 2025, using consensus estimates with potential upside from the development stage therapies.
For context. This compares with our adjusted cash receipts for full year 2021 of $2 1 billion and highlights our unique ability to consistently replenish our portfolio.
I will now turn it over to Marshall to discuss our royalty acquisitions.
Thanks, Jim and good morning.
As a reminder, two of our key strategic pillars are investing in royalties on both approved and development stage therapies.
Since 2012 around 55% of our investments have been an approved therapy, while 45% have been in the development stage.
If we look at the early performance of our recent transactions on slide 15, the picture is very encouraging.
Among the approved therapies, we recently acquired the majority have seen increases.
Treat consensus sales forecast since the acquisition date with more than half increasing by substantial double digit percentages.
We believe this reflects our careful assessment of the clinical and commercial opportunity during the diligence process.
The development stage therapies in our portfolio have also progressed well and many are expected to have pivotal readouts, a regulatory decisions in near future Pablo.
<unk> mentioned earlier that our success rate here has exceeded industry benchmarks.
In fact, we've invested close to $8 billion in development stage therapies since 2012, excluding therapy still in development, we have a 79% approval rate based on the number of investments and a 95% approval rate based on the value of our investments.
Moving to slide 16, our.
Our overall market share and royalty transactions based on our internal estimates is around 60% over the past decade, and nearly 90% in deals in the $500 million plus range since our founding.
This reflects our many years of experience in tailoring flexible win win funding solutions for our partners our unique focus on Biopharma.
And our ability to do so at scale <unk> deep access to capital.
This slide gives two examples of how we have joined a biotech partner in aircrafts journey provided capital to launch new medicines and to fund the development of promising innovative candidates through multiple transactions over time in.
In the cases of Biocryst and bio haven their needs were different but for each week, we were able to provide timely solution that enabled them to accelerate the process of bringing their innovation to patients both in terms of supporting commercialization and and pipeline progress.
This has been recognized by the financial markets with strong share performance since we made our investments and rising consensus forecast for their rare disease and migraine therapy.
Slide 17 illustrates our latest example of tailoring solutions for our partners. In this case setup kinetics last month, we agreed to expand our longstanding partnership by providing up to $450 million in funding in part to a higher royalty unhappy Camden, a potential new medicine for hypertrophic cardiomyopathy.
It is a serious disease that impacts the lives of up to 100000 people in the U S.
Our diligence was based on positive phase II data, which indicates that <unk> has potential to deliver significant patient benefit and blockbuster sales in a therapeutic area is already seen significant M&A with Bristol $13 billion acquisition of myocardial.
Camden has breakthrough FDA designation and is planned to start pivotal trials this quarter.
Slide 18 highlights the expected clinical and regulatory events for our portfolio.
In summary, 2022 looks to be a very milestone rich year importantly, we anticipate phase III results for a number of potentially transformative therapies, including gilead to treat Lv in third line hormone receptor positive metastatic breast cancer.
Results from cosmetics in combination with Io and renal prostate and lung cancer.
<unk> in ulcerative colitis, and potentially sell through Rexam and depression.
<unk> <unk> in Alzheimer's.
<unk> oral migraine prevention therapies of Japan, and Gsk's <unk> in rheumatoid arthritis.
On the regulatory front, we would highlight the filing of <unk> in asthma in the first half of 2022 and a European regulatory decision on <unk>. The European brand name for <unk> in migraine, which is <unk> ODT and the U S.
Many of these milestones represent major commercial opportunities and could add significantly to our long term growth outlook with that let me hand over to Terry.
Thanks, Marshall, let's move to slide 'twenty.
Total royalty receipts grew 5% in the fourth quarter and 11% for full year 2021 versus the respective year ago periods.
Growth drivers in the fourth quarter included cystic fibrosis, as well as payments from bio Haven, and our new royalty on <unk>.
For the full year, we also saw significant growth contributions from Promacta improve OCA and Tysabri.
As Paolo described these positive factors more than offset the loss of contribution from our legacy HIV franchise as the royalty term ended.
Slide 21 shows how our royalty receipts translated to strong adjusted cash flow.
As you are aware adjusted cash receipt as a key non-GAAP metric for us, which we arrive at after deducting noncontrolling interests.
This amounted to $543 million in the fourth quarter growth of 12% compared with the year ago quarter.
For the full year adjusted cash receipts were $2 1 billion up 18%.
When we move down the columns for each period operating and professional costs equated to approximately 9% of adjusted cash receipts consistent with our 2021 guidance.
Our operating and professional cost for 2021 were broadly similar to last year. As 2020 included a number of onetime costs related to our restructuring IPO an inaugural bond offering.
Ongoing R&D funding payments remained at a low level.
Net interest paid was de Minimis in the fourth quarter, but $127 million for the full year 2021.
This reflects the timing of the semi annual interest payments associated with our $6 billion unsecured note offering in 2020.
As a reminder, these payments are in the first and third quarters of our financial year.
After other items. This resulted in adjusted cash flow, our bottom line of $488 million or <unk> 80 per share for the fourth quarter and $1 8 billion or $2 91 per share for the full year.
For the full year. This translates to an adjusted cash flow margin of 83%, which underscores the strong financial leverage in our business model.
The higher adjusted cash flow margin in the fourth quarter of 89, 8% reflects the semiannual timing of interest payments that I just referenced.
On slide 22.
We continue to maintain our financial firepower.
We deployed $2 $6 billion of capital on royalty acquisitions during 2021, as well as 430 million $39 million on dividends and distributions.
As a result, given our strong cash flow generation and proceeds from a bond issuance in July we added $2 $1 billion of cash and marketable securities at the end of December which is slightly above our position at the end of 2020.
Our leverage stands at two six times EBITDA on a net basis and three seven times EBITDA on a total basis.
As a reminder, the average coupon on our debt is slightly above 2%, which compares with our target returns on royalty acquisitions in the high single digit to teens percentage range.
We believe this cost of capital is a durable competitive advantage for our business.
We continue to feel very good about our ability to execute on our business plan and create value for shareholders.
This confidence is reflected in the announcement last month of a 12% increase in our quarterly dividend.
My final slide provides our full year 2022 financial guidance.
We expect adjusted cash receipts to be in the range of two to two 5 billion to $2 3 billion an increase.
<unk> of approximately 5% to 8% over the $2 1 billion, we delivered in 2021.
This outlook reflects this.
Expected strong underlying performance of our royalty portfolio, partially offset by the residual impact of the loss of royalties on the HIV franchise as well as the end of the DPP four royalty term in March for which we will receive the last royalty receipts in the second quarter of 2022.
Importantly, and consistent with our standard practice. This guidance is based on our portfolio as of today and does not take into account any future royalty acquisitions.
Our guidance is also based on todays FX rates and we would note that if the U S. Dollar awareness strengthened by 5% against the Euro from current levels. We estimate. This would result in 15 to 20, and a $15 million to $25 million headwind to our adjusted cash receipts this year.
Turning to our operating cost ratio, we expect this to be approximately 9% of adjusted cash receipts in 2022, which is similar to 2021.
Net interest paid for full year 2022 is expected to be around $170 million, reflecting the net interest associated with the bond offering in July 2021, as I signaled on our third quarter earnings call.
With that I would like to hand, the call back to Pablo for his closing comments.
Thanks Terry.
Let me close by saying how pleased I am with our expanding performance in 2021 and as we have seen from our guidance, we expect to deliver another strong year in 2022.
If I take a longer term perspective royalty pharma plays a unique growth at the heart of funding the Golden age of life Sciences innovation and I truly believe our prospects have never looked better.
Our compelling business model and competitive advantages give us the potential to deliver attractive compounding growth over the long term.
Slide 25 highlights one of the reasons that we're so et cetera, but our future, namely the potential to partner with biotech companies on their growth journeys.
The number of biotech Ipos has more than tripled since 2016, and this coupled with significant innovation is fueling an unprecedented need for capital in the industry.
Our research shows that today's unprofitable biopharma companies are expected to have more than $1 trillion and operating expenses over the next decade.
Layering in additional company formations will further increase the capital needs. This creates a massive opportunity set for royalty pharma, which we're confident we can execute against.
On slide 26.
My view and I would be delighted if you will join us for our Ignarro Investor Day, which we now have officially scheduled for May 17.
We plan to include a detailed discussion of the outlook for royalty funding our updated capital deployment objectives, and our long term growth targets and of course, you will have plenty of opportunity to ask questions and interact with management.
With that I would be happy to take your questions.
We will now open up the call to questions. Operator, please take the first question.
Yes.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
First question comes from Geoff Meacham with Bank of America. Your line is open.
Hey, guys.
Just got a few.
I want to get your thoughts on the current macro environment and its implications. So the first question is maybe for Terry does the pace of rate increases this year.
Change your assumptions at all on things like deal flow or ratios.
And then second question I guess for Pablo you have so many recent ipos are trading at pretty low cash multiples and not is not clear whether the financing headwinds are really going to abate and so does it makes sense to shift to earlier stage. I know you guys have some risk guardrails, but the question is does lower valuation.
Outweigh the earlier stage of some of the more recent ipos. Thanks, so much sure sorry, yes, so Jeff.
In terms of the current macro environment, yes.
Yes, I mean, we've been obviously watching like everyone. The play.
Plans for rate increases this year and the potential impact on our business I would say from.
Royalty pharma as balance sheet perspective, we're very lucky that.
If we locked in rates at some pretty attractive times.
With a weighted average.
Debt maturity of over a dozen years and.
And we have I think.
Around 60% of our debt matures in 2030, and beyond which is a very good position for us to be in.
In terms of how it could impact deal flow I think it's.
We're seeing a lot of opportunities right now I think.
This has been if anything we kind of view it is accelerating a trend where.
Companies are looking at royalties.
More and more as ways that as a as an attractive way to fund their businesses and I think that the the equity market backdrop, certainly doesn't hurt that that that momentum as well, but these things take time.
We're very happy with the with the level of the discussions in our pipeline.
Hopefully this can be a productive year in productive next couple of years.
So, adding good morning, Jeff and adding to what Terry.
Already provided which is an interesting perspective on the on the macro environment I think in terms of strategic focus going forward.
Youre not going to see a significant shift going.
Going on to earlier.
Stage investments.
But I'd like just to maybe.
Share with you something we've communicated to you and our investors in the past, which is the fact that royalty pharma has always been very open minded and the way we approach things.
We.
Total Q4 decades.
It's really the way we approach things that we have to come to a transaction with an open mind not.
Carrying any preconceived notions were ideas essentially.
Looking sort of a blank piece of paper sitting down with management teams listening to their story trying to understand.
Fortuna and then decide if its something we want to get involved with.
And it may in some cases. It may include things that are maybe a bit earlier than what we have done in the past I think from a big.
Big picture perspective, Jeff.
Company, our company, which is deploying $2 billion to $3 billion per year, you've seen last year us deploying 3 billion in the prior year as it was in excess of two four.
For us to actually make investments small scale that could be $50 million to $100 million.
And earlier stage.
<unk>.
It's totally.
Appropriate and we will probably do that.
In a way where we actually.
Make an investment earlier, but with already an agreement with the company to actually fund.
The later stage trials.
<unk>.
And so.
And we've done that already in one case in the past, where we found that on earlier stage trials and there was a commitment for us if certain milestones were met to actually fund from the phase III.
And I think the other thing I'll mention is that there is no question that.
Royalty funding has become mainstream so you have that underlying very strong trends of growth companies wanting to fund with royalties and obviously as <unk> pointed out the current market conditions accelerate that so what youre also going to see at royalty pharma is us adding.
Very selectively.
New members to our research and investments team and also a few people that are going to help us reach out to companies and Thats something that were very excited to do in the next quarter.
Quarter or so thank you Jeff.
Thanks Scott.
Thank you. Our next question comes from motor effects with Evercore ISI. Your line is open.
Hi, guys. This is Mike difiore in for <unk>. Thanks, So much for taking my question just one on.
<unk> prior to the NCD.
I think you guys had said that can't amendment to be a multibillion dollar opportunity. So now in light of the draft proposal.
<unk> be great to get updated thinking here.
So if you could offer any color on the potential royalty structure of brain shuttle against narrow Matt I know you said you couldnt, but if theres any update along those lines that would be great. Thank you.
Marshall why don't you take this question.
Hey, Mike Good morning, and thanks for the question so.
Two parts to that one so on <unk> we had.
Discussed with you guys before that we think this has the potential to be a multibillion dollar product I don't think anything that we've seen in the NCD discussion is changes changes our view of that just to just to take a step back.
<unk> is exactly the kind of product that we think is a great part of the royalty pharma portfolio and I think came in with some of the some of the themes that Pablo Pablo talked about it in terms of helping companies solve their problems and.
And that's and that's exactly what we did and how how <unk> joined the portfolio I think bigger picture, though to answer your question.
We still our original thesis around dense narrow math was that you had to well designed trials that reflects sort of the best thinking on trial design, a product profile and a marketer that could really make this a big product I think you fast forward a year 18 months.
From now when <unk> had readouts for Gan to narrow mad potentially other drugs in this class I think the debate. The discussion is really going to be informed by the a full picture of the safety and efficacy of these products. Once we have multiple consistent data thats out there and I think that will.
Ultimately drive the conversation long term. So certainly we're following all the developments with agile helm with.
With interest, but really we want to see what this next crop of data shows and we think that's ultimately going to determine.
What what this class is going to be.
The second part of your question was just on brain shuttle so.
Brain shuttle is the brain shuttle ganson.
<unk> is a product that is royalty bearing under under that agreement and so it would ultimately be royalty bearing to us.
It is early right like we said it is just entering I think our phase II trial recently, so a long way to go there, but we will be excited to have that potentially as part of the portfolio as well.
Great. Thank you.
Thank you. Our next question comes from Chris Schott with Jpmorgan. Your line is open.
Great. Thanks, so much for the questions just two for me.
Overall capital deployment levels that obviously trended well above the ranges you gave at the time of the IPO should we be thinking about this higher level of capital deployment. So let's say the $3 billion. We saw in 2021 as a new normal for royalty it seems like capital need for the industry are up you're able to diligence more than the past.
Maybe yes, there, but just interested in your thoughts.
And then the second thing was just coming back to I think one of the slides you presented I think you've submitted 33 proposals last year executed five transactions just.
Just a little bit of color on the other 28, where those companies or royalties that are.
Being done with somebody else with these companies the equity financing or is there an ability to revisit some of those transactions as we think about market conditions, changing and maybe a little bit more favorable valuation or less favorable valuation conditions of the sellers that might have existed last year. So just any color on that would be appreciated. Thanks. So much.
Of course, so Terry is going to answer the first question.
About the guidance on capital deployment, and I think Jim can talk about.
The deals we look at it.
Why we don't do some of the deals.
We.
Analyzing detail.
So Chris.
On the capital deployment question.
We've been very encouraged by how how we finance the deals we've been able to do over the last couple of years and certainly.
We recognize that we are tracking well ahead.
The guidance that we originally gave at the time of our IPO.
This is <unk>.
It does tend to be something we try to be really clear with investors. It is uneven.
And theres going to be years, where we have.
Significant capital deployment, and then theres going to be years, where we're more patient and cash builds and we wait for the right opportunities and we've done that throughout our history I would say, though that debt.
To us the market does feel a lot deeper now than it did five or 10 years ago.
And I think that that can create the opportunity for more consistent capital deployment.
And we do feel like that.
The levels that we've been deploying are very encouraging.
We're going to really unpack this I think in greater detail at our analyst day in May So I would just say stay tuned and we'll try to try to really describe the opportunity at that event.
Hey, Chris to address your question about <unk>.
<unk>.
What happens between the proposals and the executed.
Number of transactions.
It's pretty similar to years past, where it's kind of three different groups.
Possibilities one is that.
They are done by <unk>.
Our competitors are.
Another group I would say Thats in 2021 was a smaller number than it has been in the past.
Another.
Segment of that was <unk>.
<unk>, where we got into diligence, which sometimes it requires a proposal for us to see the deep diligence and and just we didn't get totally comfortable with the asset in the end after seeing the deep diligence.
And then the third group is just types, where there hasnt been a transaction there hasnt been a transaction yet so some of those are continuing potential sometimes there are some.
These kind of lead time.
To get to a transaction so.
It's pretty similar to the.
The groupings.
That sort of that transition from proposals submitted to <unk>.
Executing transactions as we've seen in the past.
Great. Thanks, so much.
Thank you. Our next question comes from Steve Scala with Cowen Your line is open.
Thank you I have two questions. One is mechanical and then one bigger picture. So the mechanical question as apparently royalty pharma will not garner royalties on januvia during its pediatric exclusivity in the second half of this year is this unique in this situation or is this how all of these similar situations.
Our and will be contracted or does the payment in the second half second quarter contemplate sales in the second half. So that's the mechanical question. The bigger picture question for Pablo you have probably seen many tough markets for biotech companies and your career how is this one similar.
To or different from past circumstances. Some commentators think there could be a sustained devaluation biotech assets. If this were the case then how would that impact your business I could foresee opportunities, but I could also foresee risks. Thank you.
Sure do you want to take the first question so on the Januvia question.
Every contract.
And royalty that we acquired acquired tends to be unique theres certainly.
In many instances we do end.
And that's been paid for pediatric exclusivity, but in the case of Januvia in January there was a hard cutoff date in the contract and so thats why we kind of know it.
100% certainty that it sort of ends.
In March and our last payment will be in the second quarter.
Actually regarding the go.
Go ahead.
Just a follow up to the patent actually ends in July I actually don't know went in July , but but will the payment.
The second quarter.
Payment beef through June or through when the Windows had actually end.
Yes, so the second quarter payment will be based on royalties on sales through March.
And so this is a this was a unique situation where there was a.
A date in.
In the contract Okay. Thank you.
Yes regarding your.
The other part of your question about.
Downturns in the market.
I mean this is.
Honestly, nothing new and we have been through.
Very significant downturns I was actually looking recently at a graph of.
<unk>.
Biotech performance since 1997, and I think we've had.
Four or five.
Downturns in the market that have approached us.
And this downturn occur over a period of like maybe a year or two years.
I think there's one or two that have been more prolonged.
Where.
It's 30% down in one case it was.
40% down.
But I think there are some very very strong underlying.
Trend.
We need to keep in mind.
As a result of that like since 1997.
The biotech indexes are up 38 times, so a multiple of 38 and the IRR is somewhere in the.
17% to 20% depending on what periods you look at which is just incredible growth.
I think what the point is that the.
Long term trend here is that.
There's been so many advances in our understanding of human biology, human shelf diseases that have opened up so many new approaches for.
Innovation through actually ends up.
Solving.
Or are addressing unmet medical needs and that secular trend I think is going to be with us for many decades to come.
And that's the thing to keep in mind that that yes. It may be the case that now the market got ahead of itself.
Many companies.
Okay.
We're maybe early when public.
And and raise money.
But I think there is definitely going to be.
Many many many of those companies that are going to survive will get funded because they have just really cutting edge approaches.
To address human disease.
Our.
Job at royalty pharma is going to be to try to find those little gems that always exists in the space.
We're so excited about all of this.
I'm telling.
Telling you now.
I think we're in a really good very very strong position to actually.
Through the net where we have through the.
The years of actually investing in life Sciences. The fact that we're more visible that we were in the past. The fact that now royalties are mainstream amazed.
I made some way of funding.
And I think that's just.
To a super promising future for royalty pharma, but thank you for the question I think it's really interesting to reflect on the ups and downs of this really exciting.
Industry biotech.
But that's my perspective.
Thank you.
Thank you. Our next question comes from Matthew Harrison with Morgan Stanley . Your line is open.
Hi, This is Charlie on for Matthew Thanks for taking my questions I have three questions.
First is.
Which of the development stage assets that you have.
In your view.
Biggest discrepancy between your internal projections versus the street projections and then my second question is can you remind us on the leverage ratio or the additional debt that you could potentially take on and while still maintaining that investment grade rating.
And my final question is your expectation for the Bristol Myers Kenton label and the potential read through to <unk> in terms of the market opportunity. Thank you.
Yes sure Marshall.
So to answer the question I think just from my own perspective, one that I'm very excited about.
<unk> and obviously there is risk there, but it's also.
Products that can be very very big given the huge need for an effective.
Treatment for one of the biggest problems that is affecting.
Older people Alzheimers so.
What's exciting to me, but Marshall go ahead sure.
Totally I think about your question a little bit differently, which is part of the reason we covered this in the prepared remarks, which is just.
How we have really built an exciting development stage portfolio and I think if you look at the prepared remarks on slide 18.
From the deck, how interesting it is debt.
That 2022 is really seeing the cumulative effect of.
A lot of the additions to our portfolio over the last few years and while we're not necessarily focused on.
Events like this as a core part of our business I think as we continue to show discipline.
Disciplined growth in our development stage portfolio I think the result is is that we hope to have a steady a steady flow of the events. We have this year and I think the thing that's really striking and interesting about it is if you just look at the breadth of the different type of events, we have different mechanisms therapeutic areas, it's really <unk>.
Credibly broad when you take a step back and look at and look at what the team has what the team has put together for all the milestones. This year. So I think we are we're excited to see how this year plays out and I think we'll continue to build continue to build the portfolio and hopefully have more events like this in in years to come.
On I think the second part of your question was on the.
The <unk> date, and what the label looks like.
Well, we'll certainly probably a little early to comment on that Bristol I think has expressed comp.
Confidence in the product talked about $4 billion on risk adjusted peak year sales.
They seem excited to get this to get this product launched and off the ground, we'll see we'll see the label when it when it comes out and we can discuss it then but I think importantly.
We talked about.
With Abbvie campaign, we think this is a really exciting really exciting new area is exciting to see targeted therapy and a new.
Targeted therapy in cardiology, and a new wave of innovation, there and we're excited about what this headache kinetics team is going to do with Appian Hampton. So I'll pass it to today for I think for the question on leverage let me just add.
Our perspective too.
Good answer that Marshall gave you and this is on slide 18, where we have the milestones.
And I think if I look back over the last two decades.
And see what was going on with royalty from a five years ago 10 years ago.
Slide would look very similar as what you are looking at today with so many different.
Value drivers in our portfolio.
In the past it was obviously things like Humira getting approved for psoriasis or.
Many other indications or lyrica or.
Some of the HIV AIDS.
Investments, we had when it went from Truvada.
Truvada to a AAA and then to the clubs, but I think the point is that with this really tells you is whats so unique about royalty pharma, but in a way what we are able to capture given the openness of our business model is really the best of biotech we like a lot of investors are trying to.
Find an attractive biotech company to invest.
Guess, what we have.
Within royalty pharma some of the most exciting products of the industry with a lot of value drivers milestones and also some of the big pharma products right. So I think it's interesting just to reflect on that.
I always felt that as a public stock.
Would be differentiate ourselves because we would have caused suddenly a lot of really good news flow that investors could look at.
<unk>.
Could then make an attractive investment that was going to have significant value drivers, but Terry go ahead, yes. So on the leverage question.
We remain.
Committed to our investment grade credit rating.
And so we finished the year with total debt to EBITDA of three seven times.
And we've operated in kind of this three to four times band.
Over the last 15 years, we're very comfortable operating in that band.
We can go above four for the right for the right acquisition.
Where we see where we really see a clear path to delevering from there. So that's how that's how we think about it.
And I think we do feel like we have a lot of financial flexibility and firepower to take advantage of the opportunity that we see in front of us.
Thank you.
Thank you and we have a question from Greg Fraser with <unk> Securities. Your line is open.
Great. Thanks for taking the questions.
You haven't updated your long term growth outlook, while you had a particularly strong year in 2021 and also exceeded your capital deployment target by a large margin the long term growth outlook still intact or is that something that youre willing to update at the Investor day.
And then a quick question on 2022 are there any notable milestone payments that are factored into the guidance range.
So I'll take those so.
In terms of the long term growth outlook, that's something that we're going to we're going to.
For update those sort of targets and our latest thinking at our Investor day.
And then in terms of this year any milestones that factor into into our guidance. The answer is now.
We try to.
Try to give you a heads up that if we did see anyone.
Material onetime things in there and at this point, we don't see anything in our forecast.
Great. Thank you.
And Im showing no further questions at this time I would like to turn the call back to Pablo <unk> for closing remarks.
Sure.
Operator.
Thank you to everyone on the call for your continuing interest in royalty pharma my team and I look forward to continuing to share our progress with you. If you have any follow up questions. Please feel free to reach out to George and I will just say that we really hope to see all of you.
During our inaugural Investor day in May we're going to be excited to share with you.
And really take a deeper dive in many of the topics that we've discussed today. So thank you again for.
Your interest and royalty pharma and hope to see you in May.
This concludes today's conference call. Thank you for participating you may now disconnect.