Q1 2022 Royalty Pharma PLC Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the royalty pharma first 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.

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

Good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma at the first quarter of 2022 results you can find the press release with our earnings results and flights a call on the investors page of our website at royalty pharma dotcom.

George Grofik: Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter 2022 results. You can find the press release with our earnings results and slides to this call on the investors page of our website at royaltypharma.com. Moving to slide 3, I'd 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 from these statements.

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.

George Grofik: I refer you to our 10K on file with the FCC for a description of the. All forward-looking statements are based on information currently available 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, and the GAAP to Non-GAAP reconciliations are provided in the earnings press release available on our website. With that, please advance the slide.

We 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 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 in the non-GAAP. The GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.

With that please advance to slide four.

George Grofik: Terry Coyne, EVP, Chief Financial Officer, will cover key highlights and review the financials. Pablo's son is undergoing a medical procedure, so he will not be able to join today's call. We wish his family well, and he's looking forward to seeing everyone at our Investor Day on May 7. After Terry's prepared remarks, we will hold a Q&A session. Marshall Urist, our Head of Research and Investments, and Chris Hite, our Vice Chairman, will also participate in the Q&A. And with that, I'd like to turn the call over to Terrence.

Terry point, EVP, Chief Financial Officer will cover key highlights and review the financials.

Pablo Sun is undergoing a medical procedure. So he will not be able to join today's call.

We wish his family well and he is looking forward to seeing everyone at our Investor day on May 17th.

After Terry's prepared remarks, we will hold a Q&A session.

Marshall <unk>, our head of research and investments and Chris Hydro Vice Chairman will also join the Q&A session.

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

Thank you George and welcome to everyone on the call.

Terrence Coyne: Thank you, George, and welcome to everyone on the call. I'm delighted to report a strong start to the year as we execute on our strategy as a leading funder of innovation in life sciences. On slide five, I will start by summarizing our accomplishments in the first quarter, which continue to reflect the excellent momentum in our business. First, we delivered strong top-line growth of 15%, continuing our impressive track record of double-digit growth.

I'm delighted to report a strong start to the year as we execute on our strategy as a leading funder of innovation in life Sciences.

On slide five I will start by summarizing our accomplishments in the first quarter, which continued to reflect the excellent momentum in our business.

First we delivered strong topline growth of 15%.

Continuing our impressive track record of double digit growth.

Terrence Coyne: Second, we maintained a robust and active deal pipeline, which reflects the strong growth in demand for innovative, royalty-based funding solutions. We continue to be very excited by our opportunity set, which you will hear more about at our Investor Day on May 17. When we look at our portfolio, we also saw very encouraging progress. Cavtria received European approval for 6 to 11-year-olds with cystic fibrosis, while Vidura gained first-ever European approval for both the treatment and prevention of migraines.

Second we maintained a robust and active deal pipeline.

Reflects the strong growth in demand for innovative royalty based funding solutions.

We continue to be very excited by our opportunity set which you will hear more about at our Investor day on may 17th.

When we look at our portfolio. We also saw very encouraging progress.

<unk> received European approval for six to 11 year olds with cystic fibrosis, while <unk> gained a first ever European approval for both the treatment and prevention of migraine.

Terrence Coyne: Each of these approvals brings these transformative therapies to many new patients who could benefit. Lastly, we are reaffirming our full-year guidance for adjusted cash receipts based on the strong underlying performance of our existing portfolio. This is even more impressive in the context of a roughly 2% unfavorable impact from FX we are facing this year, which I will talk to you more about in a minute. I would also remind you that our guidance excludes the impact of any investments that we may make over the remainder of 2022. On slide 6, you can see our financials in a little more detail. In the first quarter, we delivered 15% growth in adjusted cash receipts, our top line.

Each of these approvals brings these transformative therapies to many new patients who could benefit.

Lastly, we are reaffirming our full year guidance for adjusted cash receipts based on its strong underlying performance of our existing portfolio.

Even more impressive in the context of a roughly 2% unfavorable impact from FX. We are facing this year, which I will talk to you more about in a minute.

I'd also remind you of our guidance excludes the impact of any investments that we may make over the remainder of 2022.

On slide six you can see our financials in a little more detail in.

In the first quarter, we delivered 15% growth in adjusted cash receipts our topline.

Terrence Coyne: This impressive double-digit momentum puts us in a great position to deliver another year of strong top-line performance in 2022. Below our top line, I am also pleased to report that we grew our adjusted EBITDA by 15%. This is an important non-GAAP measure for us, which is arrived at by deducting operating and professional expenses from our top line. Our adjusted cash flow, or our bottom line, was impacted by an update to our non-GAAP treatment of certain development stage payments, which amounted to $100 million in the quarter. This update conforms with changes being made across the biopharmaceutical industry beginning in the first quarter of 2022. As a consequence, our adjusted cash receipts declined 10% in the quarter.

This impressive double digit momentum puts us in a great position to deliver another year of strong top line performance in 2022.

Although our top line I'm also pleased to report that we grew our adjusted EBITDA by 15%.

This is important non-GAAP measure for US, which is arrived at by deducting operating in professional expenses from our top line.

Our adjusted cash flow for our bottom line was impacted by an update to our non-GAAP treatment of certain development stage payments, which amounted to $100 million in the quarter.

This update conforms with changes being made across the biopharma industry beginning in the first quarter of 2022.

As a consequence, our adjusted cash receipts declined 10% in the quarter I will take you through the details of the update to our non-GAAP financial results presentation, a little later.

Terrence Coyne: I will take you through the details of the update to our non-GAAP financial results presentation a little later. However, Flight 7 shows our track record of strong top-line growth since our IPO in June 2020. This track record is a testament to the underlying power of our business model. By consistently innovating funding solutions and replenishing our royalty portfolio, we can drive compounded growth and absorb losses of exclusivity in a way that is not possible for most other biopharmaceuticals. Total royalty receipts grew 9% in the first quarter versus the year-ago period.

Slide seven shows our track record of strong topline growth since our IPO in June 2020.

This track record is a testament to the underlying power of our business model.

By consistently innovating funding solutions and replenishing our royalty portfolio, we can drive compounding growth and absorb losses of exclusivity in a way that is not possible for most other biopharma companies.

Total royalty receipts grew 9% in the first quarter versus the year ago period.

Growth drivers in the quarter included cystic fibrosis franchise, Tysabri and the new royalty on term fire.

Terrence Coyne: Growth drivers in the quarter included the Cystic Fibrosis Franchise, Tysabri, and the new royalty on Tremfaya. We also saw significant growth contributions from Promacta, from the Biohaven payments, and also, though not specified here, from Coblemedics and Everist. As in the preceding two quarters, these positive factors more than offset the loss of contribution from our legacy HIV franchise. Slide 9 drills deeper into our first quarter top line performance to illustrate this point.

We also saw significant growth contributions from Promacta from the Bioherm payments and also they're not specified here from <unk> and <unk>.

As in the preceding two quarters. These positive factors more than offset the loss of contribution from our legacy HIV franchise.

Slide nine drill deeper into our first quarter topline performance to illustrate this point.

Terrence Coyne: As you can see here, our 15% top-line growth in the quarter was powered by the strong performance of our base business, but it was partially offset by losses of exclusivity, mainly on the HIV franchise, which had a negative impact of close to 700 basis points but were easily absorbed by the strength of our base business. In short, our unique business model and capabilities allow us to consistently replenish and grow our top line, and you can expect to hear more about this at our investor day.

As you see here are 15% topline growth in the quarter was powered by strong performance of our base business.

This was partially offset by losses of exclusivity mainly on the HIV franchise, which had a negative impact of close to 700 basis points, but were easily absorbed by the strength of our base business.

In short our unique business model and capabilities allows us to consistently replenish and grow our top line and you can expect to hear more about this at our Investor day.

Slide 10 shows how our how our royalty receipts translated to adjusted cash flow.

Terrence Coyne: Slide 10 shows how our royalty receipts translated to adjusted cash flow. Similar to many of our peers in the biopharma industry, we have also updated the treatment of certain development stage payments, which impacted our non-GAAP bottom line when compared with this historic presentation of our non-GAAP results. I will take you through the details of this update on the next slide, but I want to first highlight a few key points here. First, we delivered 15% growth in adjusted cash receipts in the quarter, continuing our double-digit top-line momentum.

Similar to many of our peers in the Biopharma industry. We've also updated the treatment of certain development stage payments, which impacted our non-GAAP bottom line when compared with the historic presentation, our non-GAAP results.

I will take you through the details of this update on the next slide but I want to first highlight a few key points here.

First we delivered 15% growth in adjusted cash receipts in the quarter, continuing our double digit top line momentum.

Terrence Coyne: As you are aware, adjusted cash receipts is a key non-gap metric for us, which we arrive at after deducting non-controlling interest, and this is the central measure of our full year and long-term guidance. In the quarter, adjusted cash receipts were $605 million, compared with $524 million in the year-ago quarter.

As you are aware adjusted cash receipts, the key non-GAAP metric for us, which we arrived that after deducting noncontrolling interests and this is the central measure of our full year and long term guidance.

In the quarter adjusted cash receipts were $605 million compared with $524 million in the year ago quarter.

Terrence Coyne: Second, as we move down the column, operating and professional costs equated to approximately 8% of adjusted cash receipts, slightly below our guidance of approximately 9% for the full year. Third, as a consequence, we reported 15% growth in adjusted EBITDA in the quarter, which was consistent with our top-line growth. Adjusted EBITDA is an important non-gap financial measure for us and one of the three key non-gap metrics by which we measure our business performance.

Second as we move down the column operating.

Operating and professional costs equated to approximately 8% of adjusted cash receipts slightly below our guidance of approximately 9% for the full year.

<unk> as a consequence, we reported 15% growth in adjusted EBITDA in the quarter.

<unk> was consistent with our topline growth.

Adjusted EBITDA is an important non-GAAP financial measure for us and one of the three key non-GAAP metrics by which we measure our business performance.

Fourth net interest paid of $86 million reflected the first payment on the $1 $3 billion of unsecured notes, we issued in July 2021, as well as the timing of the semiannual interest payments associated with our original 6 billion unsecured note offering in 2020.

Terrence Coyne: Fourth, net interest paid of $86 million reflected the first payment on the $1.3 billion of unsecured notes we issued in July 2021, as well as the timing of the semiannual interest payments associated with our original $6 billion unsecured note offering in 2020. Finally, we now include the $100 million development stage payments related to our Aficampton investment in our non-GAAP results. Previously, and consistent with industry practice, these payments would have been excluded from our nine-gap program.

Fifth we now include the $100 million development stage payments related to our ASIC Campton investment and our non-GAAP results previously and consistent with industry practice. These payments what has been excluded from our non-GAAP results.

Terrence Coyne: Lastly, after de minimis payments for ongoing development state funding and other items, this resulted in an adjusted cash flow, our bottom line, of $367 million, or $0.60 per share for the first quarter. The impact of the Aficampton payments was equivalent to $0.16 per share. Of course, these accounting updates have no impact on the cash generation of our business.

Lastly.

After de Minimis payments for ongoing development stage funding and other items. This resulted in adjusted cash flow our bottom line, a $367 million or <unk> 60 per share for the first quarter.

The impact of the App and payments was equivalent to <unk> 16 per share.

Of course, these accounting updates have no impact on the cash generation of our business.

Slide 11 provides more detail on the update to our non-GAAP financials.

Terrence Coyne: Slide 11 provides more detail on the update to our non-GAAP financial measures. If we acquire royalties on approved or development stage products, there is no change to how we reflect these in either our GAAP financial statements or our non-GAAP financial measures. These investments are capitalized on the balance sheet.

If we acquire royalties on approved or development stage products. There is no change to how we reflect these in either our GAAP financial statements or our non-GAAP financial measures.

These investments are capitalized on the balance sheet.

Terrence Coyne: Examples of recent royalty acquisitions in this category include Cabramedics, Trimphaea, and Gantanirumab. Likewise, if we acquire synthetic royalties on approved products, there is no change to our GAAP or non-GAAP presentation. These would also be capitalized on our balance sheet. Recent examples include Orladeo and the incremental royalty we acquired on Nertec ODT in 2020. If, on the other hand, we acquire synthetic royalties on certain development stage products, we will now treat the upfront payment as an expense in our non-GAAP financial measure. The accounting treatment under the new guidance will be subject to the specifics of the transaction, including the probability of success, among other factors. And it should be noted that there would be no change in the gap.

Examples of recent royalty acquisitions in this category include Cabo medics, Trump fire and get to narrow map.

Likewise, if we acquire synthetic royalties unapproved products. There is no change to our GAAP or non-GAAP presentation.

You should also be capitalized on our balance sheet.

Recent examples here include all the data and the incremental royalty we acquired <unk> ODT in 2020.

Yes on the other hand, we acquire synthetic royalties on certain development stage products, we will now treat the upfront payment as an expense in our non-GAAP financial measures.

The accounting treatment under the new guidance will be subject to the specifics of the transaction, including probability of success. Among other factors and it should be noted that there would be no change on a GAAP basis.

Terrence Coyne: Examples of this type of transaction include Aficampin, as I have already highlighted, along with BCX9930 and two of the therapies from our morphosis deal, Pellabrasiv and CPI0209. On the right-hand side, you can see how this new treatment of certain development stage payments impacted our adjusted cash flow over each of the past two years. In 2020, the impact would have been very minor, less than half a percent, as a result of our initial BCX9930 transaction with firecrackers.

Examples of this type of transaction include attic, Camden as I already highlighted along with BCS 90, 930, and two of the therapies from our morphosis deal collaborative and <unk> zero nine.

On the right hand side, you can see how this new treatment of certain development stage payments impacted our adjusted cash flow over each of the past two years.

In 2020, the impact would have been very minor less than half a percent as a result of our initial <unk> 90, 930 transaction with Biocryst.

Terrence Coyne: In 2021, by contrast, the impact on our adjusted cash flow would have been approximately 11% as a result of the expanded partnership with Biocryst on BCX9930 and the Morphosis transaction. The creation of synthetic royalties on development stage therapies continues to be an important opportunity for Royalty Pharma, and while the timing, size, and structure of these deals are difficult to predict, we recognize that this new accounting treatment potentially introduces an element of volatility to our bottom line as we look forward.

In 2021 by contrast, the impact on our adjusted cash flow would have been approximately 11% as a result of the expanded partnership with Biocryst on VCX 90, 930, and the morphosis transaction.

The creation of synthetic royalties on development stage therapies continues to be an important opportunity for royalty pharma and while the timing size and structure of these deals are difficult to predict we recognized that this new accounting treatment potentially introduces an element of volatility to our bottom line as we look forward.

Terrence Coyne: We will ensure that any development stage payments falling under this treatment are transparent in our quarterly and annual reporting for the purposes of your financial model. We have also included updated non-GAAP quarterly financials for the years 2020 and 2021 in tables 5 to 7 in the back of our press release. Let's move now to slide 12, and our financial performance. We continue to maintain significant financial firepower. We deployed $199 million of capital on royalty acquisitions during the first quarter, as well as $117 million on dividends and distributions.

We will ensure that any development stage payments falling under this treatment are transparent in our quarterly and annual reporting for the purposes of your financial modeling.

We have also included updated non-GAAP quarterly financials for the years 2020 in 2021 and tables five to seven in the back of our press release.

Let's move now to slide 12, and our financial position.

We continue to maintain significant financial firepower, we deployed $199 million of capital on royalty acquisitions during the first quarter as well as $117 million on dividends and distributions.

Terrence Coyne: As a result of our strong cash flow generation, we had $2.3 billion of cash and marketable securities at the end of March, slightly above our position at the end of 2021. Our leverage stands at 2.5 times net debt to EBITDA and 3.6 times total debt to EBITDA, with a fixed rate average coupon on our debt of slightly above 2%, which is significantly below our target returns on royalty acquisitions in the high single digits to teens percentage range.

As a result of our strong cash flow generation, we had $2 $3 billion of cash and marketable securities at the end of March slightly above our position at the end of 2021.

Our leverage stands at two five times net debt to EBITDA and three six times total debt to EBITDA.

With a fixed rate average coupon on our debt of slightly above 2%, which is significantly below our target returns on royalty acquisitions in the high single digit to teens percentage range.

Terrence Coyne: We continue to feel confident about our ability to execute on our business plan and create value for shareholders. On slide 13, we are well positioned for the current financial environment. As I just noted, we have a very attractive coupon on our debt portfolio, and we also benefit from a weighted average maturity on our debt of around 13 years. We have limited near-term refinancing needs, and any debt refinancing through 2025 would be expected to have a less than 1% impact on our weighted average cost of debt.

We continue to feel confident about our ability to execute on our business plan and create value for shareholders.

On slide 13, we are well positioned for the current financial environment as.

I just noted we have a very attractive coupon on our debt portfolio and we also benefit from a weighted average maturity on our debt of around 13 years.

We have limited near term refinancing needs in any debt refinancing through 2025 would be expected to have a less than 1% impact on our weighted average cost of debt.

Terrence Coyne: More broadly, with an investment-grade credit rating, we expect to maintain attractive overall borrowing costs and deep access to fund our future capital deployment plans. The current equity market environment for biotech is also favorable to our business plan as royalties are becoming increasingly attractive as a source of funding given depressed stock valuations and as new M&A opportunities are being created. Of course, the bar for investments remains as high as ever, though we are confident in our ability to capitalize on the opportunity ahead and create value for shareholders.

More broadly with with a commitment to our investment grade credit rating, we expect domain attract maintain attractive overall borrowing costs and deep access to fund our future capital deployment plans.

The current equity market environment for biotech is also favorable to our business plan as royalties are becoming increasingly attractive as a source of funding given given depressed stock valuations and as new M&A opportunities are being created.

Of course, the bar for investments remains as high as ever the overtime. We are confident in our ability to capitalize on the opportunity ahead and create value for shareholders.

Lastly, we are confident in our ability to maintain returns in this environment.

Terrence Coyne: Lastly, we are confident in our ability to maintain returns in this environment. There is a natural hedge through asset pricing against a background of rising interest rates. Furthermore, we have demonstrated through previous economic cycles our ability to react quickly in a dynamic market and to maintain attractive returns. Our aim is to deliver attractive unlevered returns with enhancements on those returns through conservative leverage, even at higher interest rates. Now switching gears to upcoming milestones.

There is a natural hedge through asset pricing against a background of rising interest rates.

Furthermore, we have demonstrated through previous economic cycles, our ability to react quickly in a dynamic market and to maintain attractive returns.

Our aim is to deliver attractive unlevered returns with enhancements on those returns through conservative leverage even at higher interest rates.

Now switching gears to upcoming milestones slide 14 highlights the expected clinical and regulatory events for our portfolio during 2022.

Terrence Coyne: Slide 14 highlights the expected clinical and regulatory events for our portfolio during 2022. In summary, the year started well with positive clinical trial results from TRODELVY and TRMFYA and the European approval of VIDURA, and the remainder of 2022 could have a number of potentially important milestones. We continue to anticipate phase three readouts for a number of potentially transformative therapies, including cabimetics in combination with immunotherapy in a number of different settings. For example, Johnson & Johnson's seltzerexant in depression, Roche's gantanarumab in Alzheimer's disease, Biohaven's oral migraine prevention therapies or VEGIPAN, and GSK's otilumab in

In summary, the year has started well with positive clinical trial results from <unk> interim fire and the European approval of <unk> and the remainder of 2022 could have a number of potentially important milestones.

We continue to anticipate phase III readouts for a number of potentially transformative therapies, including from <unk> in combination with immunotherapy and a number of different settings Johnson.

Johnson and Johnson Seltzer accident in depression, Roche's gets near Melbourne, and Alzheimer's disease.

Oh havens oral migraine prevention therapy, vegetarian and gsk's until a map and rheumatoid arthritis.

Terrence Coyne: On the regulatory front, we would highlight expected filings of PtO2-7 in asthma and intranasals of VEGIPAN in migraine this quarter. In addition to potentially advancing the standard of care for patients, many of these milestones represent major commercial opportunities and could add significantly to our long-term growth outlook. Lastly, we discussed on last quarter's call the cytokinetics transaction in which we gained a royalty on Afacam-T, a potential new therapy for hypertrophic cardiomyopathy.

On the regulatory front, we would highlight expected filings of PTO, two seven in asthma and intranasal to vet, Japan in migraine this quarter.

In addition to potentially advancing the standard of care for patients. Many of these milestones represent major commercial opportunities and could add significantly to our long term growth outlook.

Lastly, we discussed on last quarters quarters call decided kinetics transaction in which we gained the royalton epic Camden.

Potential new therapy for hypertrophic cardiomyopathy.

Terrence Coyne: I should note another event that is not on this slide is the recent FDA approval of Bristol's Mavic, which brings a new treatment option to patients with hypertrophic cardiomyopathy and is also very supportive of our thesis for advocating. On slide 15, we are reaffirming our full year 2022 financial guidance, despite an unfavorable impact from foreign exchange. We continue to expect adjusted cash receipts to be in the range of $2.225 billion to $2.3 billion, an increase of between 5% to 8% over the $2.1 billion we delivered in 2021.

I should note. Another event that is not on this slide is the recent FDA approval of Bristol's Mavic, Hampton, which brings a new treatment option to patients with hypertrophic cardiomyopathy and is also very supportive of our thesis for Africa Hampton.

On slide 15, we are reaffirming our full year 2022 financial guidance, despite an unfavorable impact from foreign exchange.

We continue to expect adjusted cash receipts to be in the range of two to two 5 billion to $2 3 billion.

An increase of between 5% to 8% over the $2 1 billion, we delivered in 2021.

Terrence Coyne: This outlook reflects the expected strong underlying performance of a royalty portfolio, partially offset by the residual impact of the loss of royalties on the HIV franchise in the first two quarters of the year, as well as the end of the DPP-IV royalty term in March of this year, for which we will receive the last royalty receipts in the second quarter. Additionally, at today's FX rates, we face a $30-$40 million unfavorable impact on adjusted cash receipts compared to where rates were when we gave our initial guidance in February.

This outlook reflects the expected strong underlying performance of our royalty portfolio, partially offset by the residual impact of the loss of royalties on the HIV franchise in the first two quarters of the year as well as the as the end of the DPP four royalty term in March of this year, which rose for which we will receive the last <unk>.

LT receipts in the second quarter.

Additionally, at today's FX rates, we faced a $30 million to $40 million unfavorable impact to adjusted cash receipts compared to where rates were when we gave our initial guidance in February .

Terrence Coyne: Despite this, we have maintained our guidance for adjusted cash receipts, again highlighting the strength of our diversified portfolio. 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. Turning to our operating costs, we continue to expect this to be approximately 9% of adjusted cash receipts in 2022. Finally, net interest paid for full year 2022 is still expected to be around $170 million.

Despite this we have maintained our guidance for adjusted cash receipts again, highlighting the strength of our diversified portfolio.

And consistent with our stranded standard practice. This guidance is based on our portfolio as of today and does not take into account any future royalty acquisitions.

Turning to our operating costs, we continue to expect this to be approximately 9% of adjusted cash receipts in 2022.

Finally, net interest paid for full year 2022 is still expected to be around $170 million.

Terrence Coyne: Reflecting the net interest associated with the bond offering in July 2021. Moving to my final slide, let me close by saying how pleased I am with our strong start to 2022 and that we really look forward to seeing you at our upcoming Investor Day. You can expect to hear detailed discussions of the Outlook for Royalty Funding, our updated capital deployment opportunities, and our long-term growth targets. And, of course, you will have the opportunity to interact with the team and ask plenty of questions. We are very excited to talk to you in more depth about Royalty Pharma's unique role at the heart of funding the golden age of life sciences innovation and why we are confident in our ability to deliver compounding, attractive growth over the coming years.

<unk> net interest associated with our bond offering in July 2021.

Moving to my final slide let me close by saying how pleased I am with our strong start to 2022 and that we really look forward to seeing you at our upcoming Investor day.

You can expect to hear detailed discussions of the outlook for royalty funding, our updated capital deployment opportunities and our long term growth targets and of course, you will have the opportunity to interact with the team and asked plenty of questions.

We are very excited to talk to you in more depth about royalty pharma is unique role at the heart of funding the Golden age of life Sciences innovation and why we're confident in our ability to deliver compounding attractive growth over the coming years with that we would be happy to take your questions.

Terrence Coyne: With that, we would be happy to take your questions. We will now open up the call to questions. Operator, please take the first question. Our first question comes from Chris Schott with J.P. Morgan. Your line is open.

We will now open up the call to questions. Operator, please take the first question.

Operator.

Our first question comes from Chris Schott with <unk>.

J P. Morgan your line is open.

Alright, great. Thanks, so much for the questions I just had two here kind of both about the environment that you're operating in so we've had another kind of three or four months of biotech underperformance, starting off 2022, and I guess as I think about what that means for royalty pharma do you see this translating to <unk>.

Chris Hite: All right, great. Thanks so much for the questions. I just had two here, kind of both about the environment that you're operating in. So we've had another, you know, kind of three or four months of biotech underperformance starting in 2022. And I guess as I think about what that means for Royalty Pharma, do you see this translating to improved deal terms, so we could think about maybe better returns on transactions that are announced?

Group deal terms. So we can think of a better maybe better returns on transactions that are announced or is this more of a situation where were seeing companies that maybe you didn't look at royalty financing before now considering royalties. So maybe there's an opportunity to deploy more capital than you have historically or I guess is it just too early for these new valuations could be even be reflected in the environment Hasnt.

Chris Hite: Or is this more of a situation where we're seeing companies that maybe didn't look at royalty financing before now considering royalties, so maybe there's an opportunity to deploy more capital than you have historically? Or, I guess, is it just too early for these new valuations to even be reflected, and the environment hasn't changed? Or just like, you know, maybe that's this first question, just like, you know, the land where we are.

So just like maybe Thats. The first question just lay of the land where we are.

Chris Hite: And then the second one, which is kind of tied to this, is I'd just be interested in kind of the breadth of the opportunities you're seeing out here. It seems like, on the one hand, we've got a record number of private and kind of publicly traded biotech companies. On the other hand, you know, it seems like the SMID biotech news flow has been skewed fairly negatively over the last six to 12 months. So as you look through this kind of much wider range of companies that are out there, are you seeing the quality of assets that you'd like to see that would enable sustaining these higher levels of capital deployment? So I think they're kind of related to each other, but I'd just love to hear your thoughts on both of those. Thanks. Hi Chris, it's Chris Hite.

And then the second one was just tied to this is I just didnt kind of the breadth of the opportunities Youre seeing out here. It seems like on one hand, we've got a record number of private and kind of publicly traded biotech companies on the other hand it.

It seems like Smid biotech news flow has been skewed fairly negatively over the last six to 12 months. So as we look through this kind of a much wider range of companies that are out there are you seeing the quality of assets that you'd like to see that would enable kind of sustaining these higher levels of capital deployment. So I think they're kind of related to each other but just love to hear your thoughts on both of those thanks.

Hi, Chris It's Chris Hi, Thank you very much for the question.

Chris Hite: Thank you very much for the question. The, uh, I guess, you know, the first question you asked, the lay of the land. We're extremely busy, uh, as you might imagine. We think the opportunities that that represents are really sort of consistent with what we've seen over the last several years; we see a lot of, you know, varying opportunities across the biopharma sector. And, you know, obviously, the SMID sector is very challenged, as you're quite aware, with a lot of stocks down. I'm sure that does result in a lot of them looking for alternative forms of capital.

I guess the first question, yes, the lay of the land we were extremely busy as you might imagine.

We think the opportunity set is.

Really sort of consistent with what we've seen over the last several years, we see a lot of.

Bearing opportunities across the Biopharma sector.

And.

Obviously, the smid sector is very challenged as you're quite aware with a lot of stocks down I am sure that does result in a lot of them looking for alternative forms of capital. We're certainly looking at some of those opportunities, but I would just say that we continue to see a tremendous set of opportunities where we are.

Chris Hite: We're certainly looking at some of those opportunities, but I would just say that we continue to see a tremendous set of opportunities. We're very excited about our pipeline. You know, I'd say that that's generally the lay of the land.

We're excited about our pipeline and.

I'd say, that's generally the lay of the land with regard to the second question, maybe Marshall to address that.

Marshall Urist: With regard to the second question, maybe Marshall wants to address that. Sure. Hey, Chris, good morning.

Sure Hey, Chris Good morning on the second part of your question.

Marshall Urist: On the second part of your question, you know, we continue to see a very deep and broad set of opportunities. We think about the top of the funnel in our pipeline, you know, across therapeutic areas, stages, marketers, geographies, you know, kind of on every axis. I think we're seeing a really good variety of the important part of your question, quality opportunities. That being said, I think, as Terry mentioned in his prepared remarks, our quality bar is high.

We continue to see a very deep and broad set of opportunities do you think about the top of the funnel and our pipeline across therapeutic areas stages marketers geographies kind of on every access I think we're seeing.

A really good variety of.

Really good variety of an important part of your question quality opportunities that being said I think as Terry mentioned in the prepared remarks.

Our quality bar is high we are first looking for important products that are going to be a great part of the royalty pharma portfolio and that's where we start.

Marshall Urist: We are first looking for important products that are going to be a great part of the Royalty Pharma portfolio, and that's where we start. And so the same discipline you've seen from us over the years will continue to apply very much in the current environment.

And so that.

The same discipline, you've seen from us over the years, we will continue to very much apply in the current environment.

If I can just a really quick follow up to Chris.

Chris Hite: And if I could just a really quick follow-up to Chris on the kind of discussions with companies and what we're hearing from some of our, you know, large pharma companies or large biotech companies trying to require that they're not necessarily seeing some of the expectations for the targets having reset. Are you seeing a similar dynamic that seems to go on for another three or six months before companies maybe reconsider their financing alternatives? Or are you starting to see that that mindset is starting to change now?

Kind of discussions with companies and we are hearing from some of our.

Large pharma companies are large biotech companies trying to acquire that theyre not necessarily seeing some of the expectations for the targets having reset.

Are you seeing a similar dynamic that we need to.

It needs to go another like three or six months before companies, maybe reconsider their financing alternatives or are you starting to see that.

I guess that mindset is starting to change now.

Yes, it's a great question, Chris I think with regard to maybe large farm and thinking about M&A.

Chris Hite: You know, it's a great question, Chris. I think with regard to maybe large pharma and thinking about M&A, I, you know, certainly when I was a banker doing that, it does take companies a long time, in my experience, thinking about resetting if their stocks are down. I think the royalty environment is completely different, quite frankly. It's more of, obviously, a financing environment. And as you've seen just really throughout our, certainly our history and more recently, we really look at a broad set of opportunities, and that can be large pharmaceutical opportunities, helping on R&D. That can be, you know, all of the deals you've seen us do really over the last, you know, several years.

Certainly when I when I was a bank are doing that.

It is it does take companies a long time my experience.

Thinking about resetting their stocks are down I think the royalty environment completely different quite frankly.

It's more of a obviously a financing environment and as you've seen just really throughout our certainly our history and more recently.

We really look at a broad set of opportunities and that can be large pharma opportunities, helping on R&D that can be.

All of the deals you've seen us do really over the last several years invest mid cap biopharma, that's helping companies R&D and launch. So we think it's a little obviously are different.

Chris Hite: You know, that's mid-cap biopharma that's helping companies with R&D and launch. So we think it's a little, obviously, a different set of expectations at the board and the CEO level and the CFO level than, say, selling the company. Great. Thanks so much.

Set of expectations that the board and the CEO level and the CFO level than say selling the company.

Great. Thanks, so much.

Our next question comes from Terence Flynn with Morgan Stanley . Your line is open.

Operator: Our next question comes from Terrence Flynn with Morgan Stanley. Your line is open. Hi. Thanks for taking the questions. I was just wondering, obviously, there's an upcoming TRMFYA trial versus Stelara coming out for Crohn's disease.

Hi, Thanks for taking the questions maybe two for me I was just wondering obviously there is an upcoming term fire trial versus <unk> coming out in Crohn's disease with just wondering.

How you guys are thinking about that if that was embedded in your assumption as part of the morphosis deal.

And then on the on the IP R&D side, Terry I was just wondering if you can give us any kind of sense or estimate of what this might represent for the full year again I. Appreciate the slide where you kind of walk through the dynamics on how every every deal is different but again any sense of what this could represent on a full year basis. Thanks. So much.

Sure Hey, Jeremy It's Marshall Good morning, I'll start with I'll start on <unk>. So certainly when we looked at at <unk>.

Terrence Flynn: I was just wondering how you guys are thinking about that, if that was embedded in your assumption as part of the morphosis deal. And then on the IPR&D side, Terry, I was just wondering if you could give us any kind of sense or estimate of what this might represent for the full year. Again, I appreciate the slide where you kind of walk through the dynamics and how every deal is different. But again, any sense of what this could represent on a full year basis? Thanks so much. Sure. Hey Terrence, it's Marshall.

Marshall Urist: Good morning. I'll start with Trimfaya. So, you know, certainly when we looked at Trimfaya, the IBD opportunity was a significant, important part of our thesis, both in terms of the quality of data we've seen from the class and then also J&J's strength as a marketer, having a, you know, a very heavy presence in that marketplace. The study versus Trimfaya, you know, excuse me, versus Stellara. Certainly, you know, certainly we thought about that, especially in the context of, you know, there ultimately being Solara biosimilars on the market, you know, like we've seen in psoriasis.

The IBD opportunity was a significant important part of our thesis both in terms of the quality of data we've seen from the class and then also J&J strength as a as a market are having a very heavy presence in that in that marketplace.

The study versus <unk>.

Excuse me versus still Laura.

Certainly certainly we thought about that especially in the context of ultimately being.

So Laura Biosimilars on the market like we've seen in psoriasis.

Marshall Urist: You know, we like to see companies exploring, you know, potential for differentiation in terms of depth and speed of response, like we've seen in other indications for this class. So we'll be, you know, excited for the TRIM-PHY opportunity in IBD, and I pass it back over to Terry for the presentation. Question in IPR&D.

We like to see companies exploring potential for differentiation in terms of depth and speed of response like we've seen in other in other indications for this class. So we'll be we're excited for the shrimp by opportunity in IBD.

Pass it back over to Terry for the.

Question on IP R&D, yes, it Terence <unk>.

Terrence Coyne: Yeah, so Terrance, standing here today, it's really going to be deal flow dependent. So if we were to create a synthetic royalty on a development stage therapy, then we would have an additional expense that would run through our non-GAAP P&L this year. But it's really, as you know, it's tough for us to predict what deal flow will look like. We look at these things over sort of multi-year periods, and we try to really focus on selecting, as Marshall just mentioned, the best assets that will have the biggest impact on patients.

Standing here today.

It's really going to be deal flow dependent so if we were to do a synthetic royal to create synthetic royalty on a development stage therapy, then there than we would and we would have an additional expense.

And that would run through our non-GAAP P&L this year, but it's really.

As you know.

It's tough for us to predict.

What deal flow will look like we look at these things ever sort of multi year periods and we try to just really focus on selecting as mentioned as Marshall just mentioned selecting the best the best assets that would that we will have the biggest impact on patients and so these can take a lot of different shapes and sizes and flavors and some of.

Terrence Coyne: And so these can take a lot of different shapes and sizes and flavors, and some of these probably will be synthetic royalties on development stage therapies over time because we do see a nice opportunity there. But it's tough to predict what they'll look like, you know, for the rest of this year.

These probably will be synthetic royalties on development stage therapies over time, because we do see a nice opportunity there, but its tough its tough to predict what it'll look like for the rest of this year.

Robert will take the next question please.

Operator: Operator, we'll take the next question, please. Our next question comes from Chris Shibutani with Goldman Sachs. Your line is open. Thank you. Good morning.

Our next question comes from Chris <unk> with Goldman Sachs. Your line is open.

Chris Shibutani: Two questions. First, I appreciated your commentary on the HCM, hypertrophic cardiomyopathy, market there. Obviously, you mentioned that we did achieve that milestone in the segment with a Bristol approval. New information there includes the label details and pricing of the first drug in class, and I would love to get your thoughts on both of those items as well as on how you see the competitive market playing out, given your exposure through Aficanton. And then the second would be related to the Alzheimer's disease outlook. During the interval in the past quarter, we have had the final version of the NCD.

Thank you good morning, two questions first I appreciated your commentary on the HCM hypertrophic cardiomyopathy.

Market. There obviously, you mentioned that we did achieve that milestone in this segment with the Bristol approval.

New information there includes the label detail.

Pricing of the first dragging class and would love to get your thoughts on both of those items as well as on how you see the competitive market playing out given your exposure through <unk> and then the second would be related to the Alzheimer's disease outlook drain.

During the interval in the past quarter, we have the final version of the NCD there appeared to be some windows that could open in terms of how this could be interpreted and how things can be adapted as data comes in the second half of the year for assets, including obviously get generic map, which is your exposure would appreciate any thoughts there in terms of.

Marshall Urist: There appeared to be some windows that could open in terms of how this could be interpreted and how things could be adapted as data comes in the second half of the year for assets, including obviously Gantanerab, which is your exposure. Would appreciate any thoughts there in terms of the final NCD interpretations that you take.

Final NCD interpretations.

Take thanks.

Hey, Chris Good morning, its Marshall Thanks for both of those questions. So the first question on the <unk> approval like Terry mentioned, we were happy to see the first drug in this space approved and look forward to Bristol doing a lot of hard work and investing heavily to develop this marketplace are.

Marshall Urist: Thanks for both of those questions. So, on the first question about the CAMSIS approval, like Terry mentioned, we were happy to see the first drug in this space approved and look forward to Bristol doing a lot of hard work and investing heavily to develop this marketplace. Our thoughts on the label and the pricing. As is our typical practice, you know, we thought about a lot of different scenarios and did a lot of work trying to figure out what that REMS program might look like.

Our thoughts on the label and the pricing as is our typical practice, we thought about a lot of different scenarios and did a lot of work trying to figure out what that Rems program might look like and I think what we saw was with certainly within the realm of the within the range of the scenarios that we considered in.

Marshall Urist: And I think what we saw was, you know, certainly within the realm of the scenarios that we considered in our work and how we thought about the opportunity for AFI-CAMPTN, and we look forward to seeing the product launch in this market develop over time. And importantly, having Bristol there, investing in the market first was part of our thesis, that cytokinetics and AFI-CAMPTN would actually benefit from that. And so we'll see. I think the last part of your question is differentiation.

Our work in how we thought about the.

The opportunity for Abbvie campaign, so and.

And we look forward to seeing the product launch in this market develop develop over time and importantly, having bristol they're investing in the market first was part of our thesis with Vince Hydrokinetics cannot be Camden would actually benefit from that and so we'll see I think in the last part of your question is is differentiation.

Marshall Urist: I think certainly there are some opportunities. We'll see how the AFI-CAMPTN development program unfolds, and as we learn more about the molecule, I think we'll probably have a more informed discussion about all of the opportunities for differentiation over time. The second question on the NCD, thanks for that. So, you know, overall, certainly CMS and the NCD were taking a different approach than maybe we've seen before, but I think if you take a big step back, like we've talked about since from the beginning when we made the Gantt-Nehrimab investment, is that what this class needs, and I think what the NCD, at its, you know, at its And I think, you know, the certainly the Roche program is set up to do that. I think others in the space will similarly have those kind of data sets.

I think certainly there are some opportunities we'll see how the Abbvie campaign development program.

<unk> and as we've learned more about the molecule I think we would probably have a more informed discussion on all of the opportunities for differentiation with time.

Second question on the NCD, thanks for that so overall certainly.

CMS in the NPD was taking a different approach than maybe we've seen before but I think if you take a big step back like we've talked about since from the beginning when we made the <unk> investment is that what this class needs and I think what the NPD.

At its essence, it's sort of asking for is <unk>.

Data sets that show clearly and convincingly and consistently what the clinical benefit and the right patients for this class of drugs are and I think.

Certainly the Roche program is set up to do that I think others in the space. Similarly, we'll have we'll have those kind of data set so I think the CMS laid out as you indicated some windows for what they're looking to see and we're really looking forward to the next 12 months or so as we will see six to 12 months actually.

Marshall Urist: So, you know, I think the CMS laid out, you know, as you indicated, some windows for what they're looking to see. And we're really looking forward to the next 12 months or so, as we'll see six to 12 months actually at this point, as we'll start to see these trials roll out. And I think we'll be in a very different position with respect to this class, and we're excited to be a part of it. Our next question comes from Geoff Meacham with Bank of America. Your line is open.

This point as we'll see start to see these trials rollout and I think we'll be in a very different position with respect to this class and we're excited to be part of it.

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

Hey, guys. Thanks, so much for the question just have a couple of quick ones.

Geoffrey Meacham: Hey guys, thanks so much for the question. Just have a couple quick questions. The first one is, you know, concentration risk has become increasingly an investor concern across the industry, and I know you guys have a broad portfolio, but, you know, where does diversifying CF concentration fall into Royalty's strategic priority? It seems like a larger transaction would be more ideal to doing a bigger number of smaller deals. And the second question is that, and I guess we'll hear more about it at... Investor Day.

The first one is no concentration risk because it's become increasingly investor concern across the industry and I know you guys have a broad portfolio, but.

Where does diversifying CF concentration.

And so our royalties strategic priority it seems like a larger transaction would be more ideal but doing.

A bigger number of smaller deals.

The second question is that I guess, we'll hear more about it.

The Investor day.

Geoffrey Meacham: But, you know, with respect to the diversity of therapeutic areas in the portfolio, I know there's a ton, as has been mentioned before, there's a ton of opportunities across, you know, SmithCap Biotech. But, you know, we can see in the case of, say, oncology or other bigger indications, in some cases you can have restrictive, you know, policies that may affect certain growth assumptions. And so, obviously, having more diversity helps. Thank you.

But where are you guys with with respect to the diversity of <unk>.

<unk> therapeutic areas.

<unk>.

And the portfolio I know Theres a ton has been mentioned before theres a ton of opportunities across a smid cap biotech.

But.

We can see in the case of say oncology or other bigger indications in some cases, you can have restrictive policies that may.

And that may affect kind of growth assumptions and so obviously, having a bigger diversity helps thank you.

Jeff I'll start on.

Terrence Coyne: Geoff, I'll start on sort of our diversification goals. I think, you know, we don't have clear goals in terms of diversification. We think that, you know, we're deploying billions of dollars of capital year in and year out. And so I think that, just naturally, over time, we're going to continue to diversify away from, and the portfolio will continue to get more and more diversified. I don't think necessarily that that means that we need to do, you know, a big deal. Those big deals will come every so often. But I think, you know, a lot of singles and doubles will accomplish the same thing when you add them all up.

On sort of the.

The sort of our diversification goals I think we don't we don't have clear goals in terms of diversification, we think that we're deploying one.

Billions of dollars of capital year in year out and so I think that just naturally over time, we're going to continue to diversify away from.

The portfolio will continue to get more and more diversified.

I don't think necessarily that that means that we need to do.

A big deal those big deals will come every so often but I think a lot of a lot of singles and doubles will accomplish that accomplish the same thing when.

When you add it all up so I think that overtime, we will continue to diversify.

Terrence Coyne: So I think that, you know, over time, we'll continue to diversify away from CF. But it'll still, you know, it'll still be a really important element of our business. But you're just going to see sort of natural diversification through our acquisition program. And then maybe I'll turn it over to Marshall to discuss the therapeutic areas. Yeah. Hey, Geoff.

Way from CF, but it will still there'll be a really important element of our business, but just youre just going to see sort of natural diversification through our acquisition program.

And then maybe I'll turn it over to Marshall to discuss the therapeutic areas, Yes, Hey, Jeff. Good morning, So on therapeutic area diversification. The simple answer to that is you just look at what we've done since the IPO in terms of the diversity of.

Marshall Urist: Good morning. So, on therapeutic area diversification, you know, the simple answer to that is you just look at what we've done since the IPO in terms of the diversity of, you know, therapeutic areas that we've brought into the portfolio and participated in. It is really – it is extremely broad. And so, that's something that, you know, that we're proud of and dovetails, I think, with Terry's answer, too, that our ongoing business and fundamental strategy of trying to find important drugs in a therapeutic area-agnostic way will continue to diversify the portfolio. You make a great point.

Therapeutic areas that we've brought into the portfolio and participated in it is really it is extremely broad and so that's something that we're proud of and dovetails I think with Terry's answer to that debt.

That our ongoing business and fundamental strategy of trying to find important.

Important drugs in a therapeutic area agnostic way will continue to diversify the portfolio you make a great point I think it's a great question that there are certain therapeutic areas.

From a competitive landscape and payer point of view are becoming more complex I think thats just part of the industry that we work in and it's certainly part of our diligence when we're when we're looking at new things.

Okay, great. Thanks, guys.

Our next question comes from Omar <unk> with Evercore. Your line is open.

Marshall Urist: I think it's a great question that there are certain therapeutic areas, you know, from a competitive landscape and payer point of view, are becoming more complex. I think that's just part of the industry that we work in and is certainly part of our diligence when we're looking at new things. Okay. Thanks, guys. Our next question comes from Umer Raffat with Evercore. Your line is open.

Hi, guys. Thanks, so much for taking my question I had for today, if I may.

Umer Raffat: I guess. Thanks so much for taking my question. I had four today, if I may.

That's first.

Umer Raffat: Perhaps first, I appreciate your aligning with non-GAP methods by big pharmas. However, I noticed you're only adjusting a fraction of each deal. For example, Cytokinetics, a 450 million deal, but you're only incorporating 150 million. And the rest, 300 million, is being called the commercial stage.

I appreciate you're aligning with non-GAAP methods by Big pharma.

However, I noticed youre only adjusting a fraction of each deal for example, Asada kinetics 450 million deal, but you only incorporating $150 million.

And the rest 300 is being called commercial stage I guess I'm trying to understand because that's not how the farmers are doing and theyre doing all of it not a fraction of east deals. So just curious what your thought processes. There and if you think that thought process would hold with the SEC.

Umer Raffat: I guess I'm trying to understand because that's not how the pharmas are doing it. They're doing all of it, not a fraction of each deal. So just curious what your thought process is there and if you think that thought process would hold.

Umer Raffat: Second, my understanding is that when Pfizer makes a $350 million payment to Biohaven on their equity purchase, they are excluding that. Sorry, they are adding that back in for their non-GAAP purposes. I didn't see commentary on that on your slide, Eleven, so I was curious how that's going to get handled going forward for you guys.

And.

My understanding also is.

When Pfizer makes it 350 million payment to bio haven on their equity purchase they are excluding that.

Sorry, they are adding back that backend for their non-GAAP purposes, I didn't see commentary on that on your slide 11. So I was curious how that's gonna get handled going forward for you guys.

Umer Raffat: And I'm thinking partially like the $50 million stock purchase he did for Biocredit. Third, I was really confused why... A development stage royalty that's technically a third-party royalty will not be incorporated in your non-GAAP. What's the logic behind that, and why shouldn't it be? And then, finally, I saw a disclosure that prior periods have been updated to conform to this new non-GAAP presentation. But then, when I'm looking at the numbers for last year, they're exactly the same.

And I'm thinking partially like the 50 million stock repurchase stock purchases that for Biocryst.

Baird.

I wasn't I was really confused why.

A development stage royalty that originate that's technically a third party royalty will not be incorporated in your non-GAAP like what's the logic behind that and why shouldn't that be.

And then finally.

I saw a disclosure that prior periods have been updated to conform to this new non-GAAP presentation.

But then when I'm looking at the numbers for last year, they're exactly the same it was $193 million and it's still 193 in the non-GAAP cash proceeds are also non gas casualty. They are also the same. So I was just confused why that is and for example, I would've thought in Minerva development stage royalty should've been adjusted out et cetera. Thank you very much.

Umer Raffat: It was $193 million, and it's still $193 million, and the non-GAAP cash proceeds are also the same, so I was just confused why that is. And, for example, I would have thought Minerva Development and State Royalty should have been adjusted out, etc. Thank you very much.

Okay. So there's a lot there so.

Terrence Coyne: Okay, so there's a lot there. So on cytokinetics, in the Royalty portion. To the extent that it's related to pre-approval milestones, previously, that would have been excluded from our non-GAAP metrics, and now it will be included. There's also the development stage funding bonds, or sorry, commercial launch capital that we're providing, and that's not something that's going to be included as an outflow in our non-GAAP metrics. Thank you very much.

On site of kinetics.

The royalty portion.

To the extent that it's related to.

Pre approval milestones will be previously that would have been excluded from our non-GAAP metrics and now will be included there is also the development stage funding bonds and or sorry commercial launch.

Commercial launch.

The capital that we're providing.

And that that's not that's not something that's going to be included as an outflow in our non-GAAP metrics.

Terrence Coyne: That's the same idea with equity. When we make an equity purchase, it's not something that's going to be expensed. That hasn't been our practice, and it shows up on our balance sheet. You can see it in the investing section of our cash flow statement, non-GAAP the adjustments. I think it's pretty clear in the press release tables, five to seven really walk through the impact. And you can see that it was 193 million dollars last year. It took adjusted cash flow from 101.767 billion to 1.573 billion. That was an 11 percent impact.

That's the same idea with equity when we make an equity purchase it's not something that's going to be expense.

That's not something that hasn't been our practice its shows up on our balance sheet you can see it in R&D investing section of our cash flow statement.

And then the question on the.

non-GAAP the adjustments I think it's pretty clear in the in the press release tables five to seven really walk through the impact.

And you can see that it was 101 hundred $93 million last year took adjusted cash flow from 101 767 billion to $1 $5 73 billion that was an 11% impact.

Terrence Coyne: So I think that it is all there in the press release. And then your last question on, Oh, the Seltzer accent. So that's third-party royalty.

So I think that it is it is all there in the press release.

And then your last question.

On.

Oh on.

The sell through <unk>. So that was the third party royalty and so those those are those are capitalized.

Terrence Coyne: And so those those are capitalized on our balance sheet under US GAAP, and they're not they're not included in our non-GAAP metric. Our next question... Our next question comes from Andrew Baum with Citi. Your line is open.

On our balance sheet under under U S GAAP and Theyre not theyre not included in our non-GAAP metrics.

Thank you our next question.

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

Thank you a couple of questions. Please Chris.

Andrew Baum: Thank you. A couple of questions, please, for Chris. Firstly, you've seen some large pharma companies continue to de-risk or de-prioritize some of their assets. I'm obviously thinking about the Blackstone-Serklisa deal. Novartis and GFK are clearly looking to reduce exposure to some drugs.

Firstly, you've seen some large pharma companies continues to derisk or de prioritize some of their assets I'm, obviously thinking about the Blackstone Felicia Gail <unk>.

<unk> and GSK activity.

<unk> reduced exposure to some drugs.

Chris Hite: To what extent do these provide opportunities for you as opposed to more in this mid-buy cap space? And then, on the other side of the coin, we were surprised on the antitrust front that Pfizer-Rena went through. We've also seen a somewhat uptick in M&A activities among the large cap companies, thinking most recently of the GSK-Sierra deal. To what extent are companies that may previously have been in discussions with you on synthetic royalties now looking more towards acquisitions given an industry which is focused on their forthcoming LOEs? Many thanks.

To what extent these provide opportunities for you to.

Two more.

Okay.

And then secondly, the other side of the coin.

We were surprised.

On the antitrust front that Pfizer Arena went through we've also seen somewhat uptake and M&A activities came out of a large cap thinking most recently.

The GSK deal to what extent campaigns that previously may have been in discussions with you almost perfect royalties now looking more towards acquisitions, given an industry, which is focused on therefore coming out a ways.

Great. Thanks.

Chris Hite: Hi Andrew, thanks for the question. With regard to the first one around potential opportunities at large pharma, You know, look, we look at everything, and to the extent there's an opportunity out there, you know, one of the things that we're extraordinarily proud of is our reach and our networking, really across the industry, and making sure large pharma and biopharma in general, and we'll get into some of these details at our analyst day, just in the sense of just making sure they understand all of the ways that we can work with companies, and whether that's obviously funding R&D, helping companies commercially launch, helping companies look at maybe spinning things off and co-investing with people that want to invest in that.

Hi, Andrew Thanks for the thanks for the question.

With regard to the first one around.

Potential opportunities at large pharma.

Look we look at everything.

And to the extent there is an opportunity out there.

One of the things that were extraordinary proud of is our our reach and our networking.

Really across the industry.

And making sure of large pharma and Biopharma in general.

And we'll get into some of these details at our analyst day.

Just in a sense of just making sure they understand all of the ways that we can work with companies.

And whether Thats, obviously funding R&D, helping companies commercially launch helping companies.

Look at maybe spending things often co investing with people that want to invest in that and we.

Chris Hite: I mean, we're really looking at all types of different opportunities, so certainly anything that large pharma is thinking about in the sense of their own portfolios and rationalizing those or... Investing in them, we're happy to take a look at that, and you might imagine that we have those conversations. With regard to your second question... You know, the M&A landscape and the FTC landscape is always difficult to predict and shifts around. I think one thing that we clearly have looked at in the past, and once again, I think large pharma knows that we are available to assist to an extent in really two ways, Andrew.

We're really looking at all types of different opportunity. So certainly anything that's large pharma is thinking about.

And a sense of.

Their own portfolios and rationalizing those are.

Investing in that.

We're we're happy to take a look at that and we you might imagine that we have those conversations.

With regard to your second question.

The.

<unk>.

M&A landscape and the FTC.

<unk> is always difficult to predict and shifts around I think one thing that we clearly have looked at in the past and once again I think large pharma knows that we are available to assist to the extent and really two waves. Andrew So if large pharma is looking at a target.

Chris Hite: So if large pharma is looking at a target and there's a non-strategic financial asset in the form of a royalty or collaboration profits or something at the target that's not necessarily interesting to pharma, they're looking at the target for other reasons.

And Theres, a non strategic financial asset in the form of a royalty or collaborations profits or something thats, a target thats not necessarily interesting to pharma, they're looking at the target for other reasons.

Chris Hite: We've certainly had those conversations in the past and look forward to having those in the future. And the other way I think we can be helpful is, to the extent there are forced divestitures out of, by the FTC, out of the target companies, we've also looked at that in the past and can provide capital to maybe a smaller company that looks to build its own portfolio by buying that FTC forced divestiture.

Certainly have those conversations in the past and look forward to having those in the future.

And the other way I think we can be helpful is to the extent there are forced divestitures out of by the FTC out of the target companies. We've also looked at that in the past and.

Can provide capital to maybe a smaller company that looks to build their own portfolio by buying that FTC forced divestiture. So.

Chris Hite: So who knows how the landscape shifts going forward, but we certainly look forward to playing a role on both parts of your question. Our next question comes from Greg Fraser with Truist Securities. Your line is open.

Who knows how the landscape shifts going forward, but we certainly look forward to playing a role really.

Both parts of your question.

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

Good morning folks thanks for taking the questions.

Greg Fraser: Good morning, folks. Thanks for taking the questions. This might be something that you'll cover at Investor Day, but I'm curious how you plan to evolve the company going forward that's different from what you've done in the past. Sort of what will be different over the next couple of years other than growth and size.

Might be something that you'll cover at the Investor day, but I'm curious how you plan to evolve the company going forward this different from what you've done in the past.

What will be different over the next couple of years other than growth in size and following up on the therapeutic area question I'm curious about your view on Biosimilars and whether you see the potential for good returns on Biosimilar royalty deals.

Terrence Coyne: And following up on the therapeutic area question, I'm curious about your view on biosimilars and whether you see the potential for good returns on biosimilar royalty deals. Thank you. So, yeah, I don't want to steal the thunder of our Investor Day. We have a lot to discuss there. I think, you know, why don't we save the first question for that? But we're very excited to describe the opportunity that we see ahead of us and to discuss sort of our long-term objectives at the Investor Day on May 17th, which I can turn to Marshall on biosimilars. Sure, so it's a good question.

Yes.

So, yes, I don't want to steal the Thunder of our Investor day, we have a lot to discuss there.

I think.

Why don't we save the first question for that but we're very excited to describe the opportunity that we see that we see ahead of us and to discuss sort of our long term objectives at the at the Investor Day on May 17th and then I can turn it to Marshall on.

On the on Biosimilars sure. So it's a good question and as you might imagine we've looked it at significant number of biosimilar opportunities over the years.

Marshall Urist: And as you might imagine, we've looked at a significant number of biosimilar opportunities over the years. And we can imagine a set of circumstances where something like that might be interesting. I think to date, it hasn't been something that meets our criteria. Like we're seeing, there's been pretty significant price competition in that space. And so we've been taking the stance that maybe we can watch and wait and see how that landscape evolves and how those markets form before getting actively involved there. Our next question comes from Steve Scala with Cohen. Your line is open.

We can imagine a set of circumstances, where something like that might be interesting I think to date it hasn't been something that.

That met our criteria like we're seeing there's been pretty significant price competition in that space.

And so we've been taking the taking the stance that maybe we can watch and wait and see how you would see how that landscape evolves and how those markets form before but before getting actively involved there.

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

Steve Scala: Thank you. I have two questions. The first question is, just so I understand, and maybe using Aficampton as an example, can we expect similar one-time charges on Aficampton in the future, or did this quarter represent the totality? I appreciate it is tough to predict future deals, but this is obviously an existing one. And second, I'm just curious, are there any provisions in the Gantanaramab contract to compensate Royalty Pharma in any way if reimbursement was not available, even if the drug were to be approved?

Thank you two questions. The first is just so I understand and maybe using <unk>. As an example can we expect similar one time charges on epic camp them in the future or did this quarter represent the totality I. Appreciate it is tough to predict future deals.

But this is obviously.

Existing one and then second I'm just curious are there any provisions and again to narrow mab contract to compensate royalty pharma in any way if reimbursement was not available even if the drug were to be approved thank you.

So on epic campaign, yes, there is there.

Steve Scala: Thank you. So, on Aficamptin, yes, there is, or could be, an additional $50 million payment. We're not expecting that this year, but we haven't been any more specific than that. And that would also be sort of a one-time expense on our non-GAAP P&L. It's, you know, like I mentioned before, it's very difficult to predict how the deal flow will look and what types of deals we will invest in, but we do expect to do more of these.

Could be an additional $50 million payment, we're not expecting that this year.

But we haven't been any more specifics than that.

And that would that would also be sort of a onetime expense on our on our non-GAAP P&L.

It's like.

Like you mentioned before it's very difficult to predict.

How the how the deal flow will look and what the what the types of deals we will invest in but we do expect to do more of these I think sort of taking a step back the way, we've always sort of thought about our adjusted cash flow and our non-GAAP metrics. As this really reflects the sort of cash that the business produces on an ongoing.

Steve Scala: I think sort of taking a step back, the way we've always sort of thought about, you know, our adjusted cash flow or our non-gap metrics is that this really reflects the sort of cash that the business produces on an ongoing basis that we can then go and redeploy into new royalties. And that's our primary focus. We also return a little bit of it to shareholders in the form of a dividend.

<unk> that we can then go and redeploy into new royalties and Thats. Our primary focus we also returned a little bit of it to shareholders in the form of a dividend.

Terrence Coyne: So previously, these were not, these sort of one-time payments were not included, consistent with industry practice, but we are updating how we present our non-gap financials to conform with the changes that the rest of the industry is making. And we'll try to, you know, we'll make sure that every quarter and when we announce a transaction, we're transparent about where this will show up, but it has no impact on sort of the fundamentals of the business or how we're thinking about deploying capital going forward.

So previously we were these were not these sort of onetime payments were not included consistent with industry practice, but we are updating.

How we present, our non-GAAP financials to conform with the changes that the rest of the industry is making.

We'll try to we'll make sure that every quarter and when we announced the transaction we're transparent about where this will show up but it has no impact on sort of the fundamentals of the business or how we're thinking about deploying capital going forward.

And Steve Good morning on the second part of your question on <unk>. So.

Terrence Coyne: Good morning. On the second part of your question on Gantanaramab, so as to whether or not there's any specific provisions with respect to, you know, what may happen with reimbursement, the answer to that is no. You know, this is a pretty typical royalty in that way. So nothing special in terms of structure in that outcome.

As to whether or not theres any specific provisions with respect to what may happen with reimbursement the answer to that is no.

It's a pretty typical royalty in that way.

So nothing nothing special in terms of structure in that outcome, but I think it does just give us an opportunity to come back to what we what we said earlier on the call which is that we're looking forward to seeing to seeing these trials read out and if they show.

Marshall Urist: But I think it does just give us an opportunity to, you know, come back to what we said earlier in the call, which is that, you know, we're looking forward to seeing these trials read out. And, you know, if they show, you know, consistent and, you know, clinically significant benefits for patients, we expect there to be reimbursement access. This concludes the question and answer session. I'd like to turn the call over to Terry Coyne for closing remarks.

Consistent and clinically significant benefits for patients, we expect there to be reimbursement access.

Thank you.

This concludes the question and answer session I would like to turn the call over to Terry Cohen for closing remarks.

Great. Thank you operator, and thank you to everyone on the call for continued for your continuing interest in royalty pharma. We all look forward to seeing you on may 17th if you have any follow up questions. Please feel free to reach out to George.

Marshall Urist: Great. Thank you, Operator, and thank you to everyone on the call for your continuing interest in Royalty Pharma. We all look forward to seeing you on May 17th. If you have any follow-up questions, please feel free to reach out to George. This concludes the program. You may now disconnect. Everyone, have a great day. [music]

Yes.

This concludes the program you may now disconnect everyone have a great day.

Okay.

[music].

Okay.

Right.

Alright.

Sure.