Q2 2022 Royalty Pharma PLC Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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The conference will begin shortly.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

To raise your hand during Q&A, you can dial star 1 1.

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Ladies and gentlemen, thank you for standing by.

Our next question comes from Terrence Flynn with Morgan Stanley.

But, you know, we actually take a very deep dive and really try to understand the growth dynamics of, you know, products.

Okay.

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the royalty pharma second quarter earnings Conference call I would now like to turn the call over to George <unk> SVP.

Welcome to the Royalty Pharma second quarter earnings conference call.

You may proceed.

S VP head of Investor Relations and Communications. Please go ahead Sir.

I would now like to turn the call over to George Grofik, SVP, head of investor relations and communications.

Great.

And like what we've seen happens over and over again, like it's happened over the decades many, many times that, you know, the bigger products marketed by companies where, you know, they're so important are assets that tend to outperform our expectations, analysts' expectations.

Good morning, and good afternoon to everyone on the call.

For joining us to review royalty pharma second quarter 2022 results.

You can find the press release with our earnings result of slides for this call on the investors page of our website at royalty pharma.

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.

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 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, Marshall Europe , EVP head of research and investments.

And Terry Cohen, EVP, Chief Financial Officer.

Pablo will discuss key highlights after which Marshall will provide a portfolio update and Terry will review the financials.

Alan concluding remarks from Pablo we will hold a Q&A session.

Tight our vice Chairman will also join the Q&A session.

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

Please go ahead, sir.

Thanks for taking the questions, too, from me.

So, I think this is an asset that has the potential to do really well, and we're excited about it.

Thank you Jim and.

And welcome to everyone on the call I am dealer report another quarter of strong execution on our strategy as a leading funder of innovation in Kansas.

I guess I was wondering if you could comment on the top of the funnel in terms of what, you're seeing second half of the year versus either first half of this year or second half of last year, just from an opportunity perspective, given the sell-off in biotech, I was just wondering if you're seeing a step-up in incomings, and then what percentage of those would represent kind of larger transactions, so things similar to Morphosis and Trelegy?

So, that's the answer related to the IRR. And obviously, this is one that is very leverageable, because of the very strong cash flow that it produces.

Choice.

Okay.

Life Science ecosystem.

And then my second question relates to 2022 guidance, just a clarification.

So, it actually, you know, balances really well the other part of our business where we're taking more risk and investing in things that are not producing cash flow in the near term.

Slide six summarizes our financial and portfolio achievements from the quarter, which again for us that's all come into our business.

Terry, I think you said that the Trelegy royalties would contribute to both third quarter and, fourth quarter revenues this year, but just wanted to make sure I heard that correctly, given I think you announced the deal in July.

But maybe I'll pass it on to Terry to talk about the IP expiration of CF, because I think our view is that CF goes well beyond, you know, the decade into the next decade.

First we delivered 10% growth in adjusted cash receipts our topline.

Our impressive track record of double digit growth.

Thanks so much.

But Terry, and maybe I didn't get your question right, but, you know, do you want to take that question?

Second we have announced transactions of $2 5 billion year to date, including the trilogy royalty acquisition, which we completed just after the quarter end.

Good morning and good afternoon to everyone on the call.

Thanks for the question, Terrence.

Yeah, I think that... Mike, can you repeat the question?

This reflects the strong growth and demand for our innovative royalty based funding solutions.

Thank you for joining us to review Royalty Pharma's second quarter 2022 results.

Marshall, you should take the question on the funnel, and Terry, the one on guidance.

I think I heard something, different than Pablo.

Third we saw positive progress across our portfolio.

<unk> proposed acquisition of bio Kevin will accelerate value creation for Biopharma and Marcia will walk you through that shortly.

You can find the press release for their earnings results and slides to this call on the investors page of our website at royaltypharma.com.

Sure.

Sorry about that.

So, hi, Terrence.

Yeah, no, I was just saying that the deal itself seems very good, because it definitely seems to kind of close the royalty receipt shortfall due to any possible CF LOE in the back half of the decade.

Sure.

We were pleased to see the FDA acceptance of the regulatory filings of P. T O two seven in asthma as well as international so about Japan and migraine.

Good morning.

That's what I was saying.

It's important milestones potentially brings us important closer together.

So, we've certainly seen increasing momentum in the top of the funnel in terms of the number, of things we're looking at, and it is certainly up, both as you think about year on year, as you think about, or even in terms of the pace of new things as we've moved through this year. Things have definitely been accelerating, and a lot of that undergirds what we're saying, about our confidence in the opportunity and the number of things we're seeing.

As we've said before, our bar and our investment process remains the same, so we're really, going to focus on things that we're really excited about and the best and most important opportunities, and that has been our strategy for years and will continue to be, even as we are seeing a increased number of opportunities.

Lastly, raising our full year guidance, what cash receipt.

You asked about large transactions, too. There are always a number of large transactions that are in the funnel that we're watching, that we're working on at various stages, but as we've commented before, large transactions, it's very hard to estimate when they'll happen, at what pace they'll happen.

Right.

Based on the strong underlying performance I brake systems portfolio and the addition of the trend of the royalties and we now expect 7% to 10% top line growth.

As you've seen with things like Morphosis, or as Pablo talked about with Trilogy, they, do often have significant number of moving parts, and it takes multiple things coming together for them to happen.

Okay.

Yeah.

Growth reflects a roughly 3% to 4% unfavorable impact from foreign exchange that we expect to face this year, which Terry will talk to you more about in a minute.

Got it.

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 would also remind you that our guidance excludes the impact of any investments that we make over the remainder of 2022.

I refer you to our 10-K on file with the SEC for a description of these risks.

We continue to expect them to happen, as you've seen, they certainly do since we've been public, but always hard to say exactly when or at what pace they'll happen.

Yeah.

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.

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

Okay.

Second quarter, we delivered 10% growth in our top line, we estimate that foreign exchange had a negative two to three per cent impact on the quarter with strong double digit momentum positions us to achieve another year of impressive top line performance in 2022.

So, I think Pablo touched on that, but we're really excited about it, and we think that the IRR is very much consistent with, you know, what we've targeted and what we've said is, you know, high, single, low, double for these approved products. And this is sort of right in that range with what we think is, you know, hopefully some upside potential there.

I think you also had a question on our expectations for Amproloxetine.

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.

Maybe Marshall wants to take that.

Below our topline I am also pleased to report that we grew our adjusted EBITDA by 10% adjusted EBIT, Yes, an important non-GAAP measure for us.

Arrive that by deducting operating and professional expenses from our topline.

Lastly, our adjusted cash flow, our Bottomline grew by 12%.

So another quarter of strong double digit growth across all our key non-GAAP metrics, even with clear foreign exchange foreign exchange headwind that had been felt across the industry.

With that, please advance the slide forward.

Sure.

Right.

Those are impressive track record of strong topline growth since our IPO in June of 2020.

Our speakers on the call today are Pablo Legareta, founder and chief executive officer, Marshall Uris, EVP, head of research and investment, and Terry Coyne, EVP, chief financial officer.

Hey, Mike.

This track record reflects the power of our business model and our ability to execute successfully against our strategy.

Pablo will discuss the key highlights, after which Marshall will provide a portfolio update, and Terry will review the financials.

So, on Amproloxetine, a couple of important things to keep in mind.

I think, first of all, you know, as we've talked about and as Pablo touched on, you know, we always try in our deals to be good partners and, you know, and try and be as constructive and flexible as possible.

As many of you heard at our May 17, Investor day by consistently innovating funding solutions and replenishing our portfolio, we're able to drive compounding growth and absorb losses of exclusivity in a way that is not possible for most biopharma companies an important element of this.

Following concluding remarks from Pablo, we will hold a Q&A session. Chris Tite, our vice chairman, will also join the Q&A session.

Shown on slide nine is our unique ability to.

Identify and not blockbuster therapies to our portfolio.

And then on Trilogy, yes, that's correct, we will record royalty receipts in the third, and fourth quarter of this year for that product, for that royalty.

Trilogy of course is the most recent example of this unique attribute of our model.

Thank you.

Blockbusters bring a number of key advantages to royalty pharma.

Typically receive heightened market focus and investment.

Operator, we'll take the next question.

Enhance our scale and diversification of our portfolio with some of the most transformative therapies in the industry.

Thank you.

One moment for questions.

Often that leverage capacity and cash flows that we can deploy to further diversify our portfolio.

Our next question comes from Andrew Baum with Citi.

Lastly, they provide a strong foundation to continue to build our portfolio across different stages of development with different risk profiles.

You may proceed.

Thank you.

Yeah.

Today around a quarter of our two streams come from blockbuster products. In fact 13 products in our portfolio have end market sales of more unbilled yet.

Two topics.

These four have end market sales greater than 3 billion that means our board has around one six times the exposure to blockbusters compared to the top 15 Biopharma companies.

Furthermore, we continue to add to this list a transformative therapy.

'twenty 'twenty, we have that Adam.

And then future potential blockbusters to our portfolio.

Sensor sales.

Constantly identifying it adding.

On my key products to our portfolio, we're able to drive continued portfolio replenishment diversified the business reduce risk and ultimately grow our topline and generate value.

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

With that I will hand, it over to Marshall to update you on our portfolio.

Thank you, Joe, and welcome to everyone on the call.

Yeah.

I am delighted to report another quarter of strong execution on our strategy as a leading funder of innovation and life chances, the path of choice for all innovators in the lifestyle ecosystem.

Thanks, Pablo let's move to slide 11.

The first one is Trilogy.

And so that's why it was, you know, really, it was really interesting to include, Amproloxetine as part of the broader, you know, and very large trilogy transaction with Daravan.

LNG is a medicine that we had been tracking for some time.

Could you just share with us the anticipated duration of the royalties on Trilogy, whether, it's tied up to particular IP or other timelines such as anticipated generics?

Leading triple combination therapy for chronic obstructive pulmonary disease and asthma and is marketed by GSK a company with a leading presence in respiratory disease.

The reason I ask is given the complexity of including three active ingredients and health, it could be that this product doesn't face any generics for a very, very long time indeed, further.

And therefore, that obviously has an impact on your returns, depending on what ties the, royalty streams to the returns.

Our interesting challenge you reflected its first in category status strong clinical data high unmet patient need and impressive growth since launch last month, we were therefore delighted to be able to execute a highly complex transaction to acquire royalties aren't geology.

Second, also on Trilogy, given that dynamic, I'm curious why GSK was not a buyer, given, it obviously has the best visibility on the commercial outlook of that product.

So, you know, important to keep in mind that it's an interesting product, but, you know, a certainly a more modest part of what is a very large deal.

You know, that being said, you know, the product has shown some, you know, some interesting data we think in, you know, in orthostatic hypotension and in the subset of patients with multiple system atrophy as Daravan has talked about.

And then second question is for Pablo and Chris.

So, we're excited to see how that program develops and certainly could, offer some interesting upside as the deal evolves.

I noticed in your comments on synthetic royalties, the focus was very much on biotech companies, which is not surprising.

Great, thanks so much.

Previously, I know you have spoken to large pharma, and you obviously had the Pallas trial, which Pfizer participated in.

This was no simple task and the acquisition involves multiple parties.

It is now acknowledgement that actually Pfizer, the large companies, simply are not going, to be tempted to use synthetic royalties to hedge risk, and there are alternative preferred ways of financing.

Thank you.

Thank you.

Veeva, they're advancing GSK royalty.

Yes, maybe I'll just answer that question about Trilogy and GlaxoBuyer.

Operator will take the last question.

And I think what I would tell you is that a two-party deal is complicated, to align, the interest, negotiate terms that are acceptable to two parties.

Royalty pharma brought all the parties together, creating a win win solution for everyone based on our deep industry relationships and ability to create a restructure of the transaction.

A three-party deal is much more complex, and in this case, it was a four-party deal.

Thank you.

I've never done that in my life, but we managed to do it.

And what it requires is someone that has the patience, the interest, the creativity to, listen to one party, understand what their motivations and goals are, process that, listen to another party, understand their motivations and interests, and see if there's any common ground, see if you can somehow bring together something that's going to work for both, and then listen to the third one, in this case, the marketer, and then bring all of that together.

And it's not easy.

One moment.

And this deal GSK previously paid upward <unk> royalties of between six 5% to 10% and global trilogy sales, which are split between third Anthony and Aviva royalty.

It's highly, highly complex.

And we, given how nimble we are, small we are, can do those things.

It's much more difficult for a bigger company to be able to achieve that.

And our last question comes from Ash Verma with UBS.

And I recall a transaction we did many years ago—it happened, actually, twice—when, we bought the Nupo Gen from Memorial Sloan-Kettering, where on the 2nd, we bought first the U.S, royalty and then the— Xerox Royalty, and we partnered with Amgen.

And then a second time with Gilead to buy the royalty on the side of being from Emory, University.

You may proceed.

And I recall how in a private conversation, CFO of Gilead said to us, we would have never, been able to do these transactions by ourselves if we just went directly by royalty from the university holder.

Royalty pharma agreed to acquire the entire royalty stream for a combined total of $131 billion upfront and up to $300 million in potential sales milestones.

And the reason for that was there were points during that transaction where one party wanted, things to be done in the contract that were not acceptable to the other one. And there was an impasse. And similarly, the other party wanted things in the contract that were not—so we were, in the middle, and we were able to go to each party and say, look, this is unreasonable.

This doesn't make sense.

Hi.

They're not going to give it to you, and it's not needed.

And they would sort of move off from that point.

And we would do the same thing with the other side.

Thanks for taking my question.

And at the end, basically, as I said, the CFO of Gilead at the time said we would have, never been able to do this ourselves.

For royalty pharma at this transaction not only adds another blockbuster gahr portfolio is probably noted we expect it to significantly enhance our long term growth by adding at least $200 million to our adjusted cash receipts in 2025 and deliver returns consistent with our target returns for approved therapies in the high single to low double digit range.

And the fact that we were able to achieve that, which worked for everyone.

And I guess this was just much more complex, and we're ideally suited for complexity, and deals like that.

So anyway, I'll stop there, but pass it on to Marshall to answer the other part of the, question.

Sure.

Hey, Andrew.

Good morning.

Slide 12 explain expand on why we are so excited by the market opportunity for geology and the growth opportunities ahead.

So there are a number of questions there.

I just had one on Trilogy.

<unk> was the first single device Triple combination inhaled therapy to be approved by the FDA for the maintenance treatment of COPD and asthma.

Both the respiratory diseases with a very high incidence and poorly controlled patients.

If I don't touch on any of them, please let me know.

The initial indication compelling efficacy profile and easy to use single device helped establish <unk> as a blockbuster and to grow the penetration of triple therapy.

The first one was about duration of Trelegy and the complexity given the various components, and the device.

So we haven't gotten into tremendous amount of detail in our IP analysis, et cetera.

What we have said is generally our expectations of duration are the middle of 2029, so June, 30, 2029, outside of the U.S., and the end of 2030 in the U.S.

In the last 12 months GSK reported global <unk> sales of approximately $2 billion.

Representing year over year growth of 50% looking.

So we're happy to take you through it in more detail, maybe offline.

Looking forward. We believe there is still very significant scope for sales growth based on increased penetration of triple therapies in the U S and expansion in international markets.

But I think overall, those are generally our expectations for how long we think the Trelegy, piece will go, the Trelegy royalty will go.

We note the consensus sell side forecast projected <unk> sales will exceed $3 $5 billion by 2025. This would represent an approximate doubling of sales.

Compared with the $1 7 billion reported in 2021.

On slide 13, I want to highlight our acquisition of royalties on <unk>.

This is a precision oncology medicine, which target's ret mutations in this market in certain territories outside the U S and greater China by rich.

In Europe <unk> was approved in ret altered non small cell lung cancer and a regulatory decision in thyroid cancer is expected by year end.

So, I'm just curious, like, what drove the upfront percentage amount in this deal?

Does that represent a template for a commercial state deal, or was the upfront more than what you would typically pay?

Last month, we agreed to acquire a blueprint medicine's royalty on <unk> in ex U S markets, excluding greater China for $175 million upfront and up to $165 million in sales based milestones.

Marshall, can you take that question, please?

In return, we will be entitled to receive an attractive royalty rate in the high teens to mid 20% on sales in those markets, Although Colorado is not expected to be a blockbuster with consensus sales approaching $400 million and Roche territories by 2030. This royalty has an exceptionally long duration potentially extending as far as 2040.

Consequently over the lifetime of the royalty stream, we expect to read out to be an important contributor to royalty pharma.

Sure, Ash.

Moving to slide 14, Pfizer's proposed acquisition of Bio Haven is expected to significantly accelerate the returns on our various investments in bio Haven, we have had a long standing and highly successful partnership with bio Haven in the development and launch of <unk> migraine therapies, when we acquire royalties in equity from biotech partner.

Thanks for the question.

We do so based on our assessment of their organic prospects.

If the company has subsequently acquired however, it has the potential to accelerate returns and this looks to be the case with biohazard.

Following the closing of the <unk> acquisition, which is currently expected in early 2023, we expect the cash returns to royalty pharma could total as much as $1 4 billion.

Which also assumes an accelerated milestone payment under the bed Japan approval.

This amounts to a one eight times potential cash return on our investment of $760 million with further upside from the 2% to 3% blended royalty on <unk> is that Japan sales through the mid 2030.

With the addition of Pfizer's marketing resources, it's reasonable to assume a greater likelihood of achieving the full commercial potential of bio havens migraine portfolio, which Pfizer believes could exceed $6 billion in peak sales.

Let's move now to slide 15, and the expected clinical and regulatory events for our portfolio over the next 12 to 18 months in terms of clinical news over the balance of 2022, we anticipate phase III readouts for up to four potentially transformative therapies, including results from <unk> in combination with immunotherapy and a number of different.

Settings, Pfizer and Astellas is <unk> in non metastatic prostate cancer Roche has began to narrow madden Alzheimer's and gsk's <unk> in rheumatoid arthritis.

In 2023, we anticipate readouts from a few important phase III programs, including bio havens oral to that Japan in migraine entrant buyer in IBD.

On the regulatory front over the remainder of 2022, we would highlight the expected European approval decision on <unk> in thyroid cancer and the FDA decision on <unk> in asthma in 2023, we anticipate FDA approval decisions on intranasal is about Japan in migraine and then they can't get in heart failure.

As well as 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.

Finally, I'd like to briefly touch on the impact of drug pricing reform in our portfolio. While nothing is final and there could still be important changes and many unknowns remain with respect to the implementation from what we have seen in the proposed legislation. Our initial view is that we would anticipate only a very small headwind to our business without considering any increase in volume.

From potentially improve patient access with that I'll hand, it over to Terry.

Thanks, Marshall, let's move to slide 17.

Slide six summarizes our financial and portfolio achievements in the last quarter, which, again, underscores the function of our business. First, we delivered 10% growth in adjusted cash receipts, our impressive track record of double-digit growth.

Total royalty receipts grew 8% in the second quarter versus a year ago period.

Growth drivers in the quarter included the cystic fibrosis franchise, <unk>, which benefited from a prior period adjustment and the term fire royalty, which we acquired in July 2021, we.

We also saw significant growth contributions from Promacta from our bio Haven partnership and though not specifically shown on this slide from Cabo medics at <unk> and <unk>.

These positive factors more than offset the loss of contribution from our legacy HIV franchise as well as year over year declines from <unk> related to a slower recovery in the CLO market and competitive pressure.

Slide 18 shows how our royalty receipts translated to strong adjusted cash flow in the second quarter.

As Youre aware adjusted cash receipt as a key non non-GAAP metric for us, which we arrive at after deducting noncontrolling interests.

This amounted to $524 million in the quarter growth of 10% compared with last year's second quarter as.

As mentioned earlier, we estimate this growth was achieved despite a 2% to 3% headwind from FX in the quarter.

As we move down the column operating and professional costs were approximately 8% of adjusted cash receipts.

As a consequence, we reported 10, 10% growth in adjusted EBITDA in the quarter consistent with the growth in our top line.

As Pablo noted 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 performance.

So, the way to think about it on how we structured it is, you know, each deal is certainly a blank sheet of paper.

When we think of the cash generated by the business to then be redeployed into new value enhancing royalties.

We look to adjusted EBITDA less interest paid.

We received modest net interest in the quarter, reflecting the semiannual timing of interest payments on our $7 3 billion of unsecured notes, which are paid in the first and third quarters.

After de Minimis payments for ongoing development stage funding and other items, we generated adjusted cash flow, our bottom line of $482 million or 79% 79 per share for the second quarter.

This resulted in an adjusted cash flow margin of 92%, which one once again highlights the efficiency of our business model.

Let's move now to slide 19, and our financial position.

We continue to maintain significant financial firepower.

We deployed $439 million of capital on royalty acquisitions in the first half of the year as well as $238 million on dividends and distributions.

This was more than offset by our strong cash flow generation, so that our cash and marketable securities increased to $2 4 billion at the end of June .

After the quarter end as you heard from Marshall, we acquired the <unk> royalty for a net upfront payments just over $1 $3 billion in cash.

Adjusting for this transaction, our pro forma cash and marketable securities position would have been $1 1 billion.

On the same pro forma basis, our leverage leverage stood at two nine times net debt to EBITDA.

And three three times total debt to EBITDA.

As a reminder, this.

Fixed rate average coupon coupon on our debt is slightly above 2%, which compares with our target returns on royalty acquisition in the high single digit to teens percentage range.

While interest rates are certainly move substantially higher over the last six months.

The majority of our debt matures in 2030 or beyond in our flexible business model and strong cash generation put us in an excellent position to execute on our business plan and create value for shareholders.

On slide 20, we are raising our full year 2022 financial guidance.

We now expect adjusted cash receipts to be in the range of $2 $2 75 to $2 three 5 billion.

An increase of between 7% to 10%.

The $2 1 billion, we delivered in 2021, highlighting the momentum in our business.

Looking specifically to Q3.

To highlight a few factors to help with your modeling.

We received our final substantial payment for the DPP four royalty in the second quarter.

Lastly, the other product line will experience a high base of comparison in the third quarter as we recorded a $37 million net milestone payment on <unk> last year.

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 now expect payments for operating and professional cost to be approximately 8% to 9% of adjusted cash receipts in 2022.

Our lower operating cost guidance reflects one of the unique aspects of our business model, which is a relatively low fixed cost base.

We think this is especially impressive in light of today's highly inflationary environment.

Interest paid for full year 2022 is still expected to be around $170 million.

Finally.

We're going through our purchase price allocation exercise for the recent deal with their events are.

Our current expectation is the $25 million upfront R&D payment related to the development of Ampelopsis team will be expensed in the third quarter on both our GAAP and non-GAAP P&L.

On slide 21, I wanted to drill down further on our adjusted cash receipts guidance.

Graphic is illustrative, but provides the various pushes and pulls which are behind our raised top line outlook for 2022.

The primary driver of growth this year is as expected.

The expected strong underlying performance of our diversified royalty portfolio.

Particularly the CF franchise from Si and have risky.

Which will be enhanced by the addition of the trilogy royalties in the third and fourth quarters.

The expirations of our HIV and DPP four royalty stream as well as in <unk> underperformance are expected to partially offset the strong growth in our portfolio.

In addition, the broad strength of the US dollar is expected to negatively impact growth by minus 3% to minus 4% for the year are between $65 million and $85 million.

Assuming current FX rates for the remainder of the year.

We are pleased to be raising guidance with our top line now expected to grow 7% to 10% in a year that our business faces elderly pressure from two prior top royalty streams as well as significant FX headwinds.

Not many companies in our industry has a diversified portfolio of growth characteristics to be able to achieve this once again, highlighting the resilience of our business model.

With that I would like to hand, the call back to Pablo for his closing comments.

Thanks Terry.

Another strong quarter and we're on track to deliver excellent results in 2022.

And we do, as we outlined at our analyst day, very careful analysis of the commercial opportunity.

And we work a lot with our partners to find a deal and a structure and evaluation that's a win-win for both of us.

Before I close I wanted to spend a moment highlighting the strategic plan, which we detailed at our Investor day by executing against its clear plan. We're confident we will deliver rapid consistent and value enhancing growth.

And I think that was the approach that yielded the Trilogy deal.

Our strategy is based on five pillars.

The other question I think you asked about large pharma using synthetic royalties, and, you talked about working with smaller companies, and does that say that we don't expect to be doing R&D partnership with larger companies?

So, I don't think you should necessarily take this as a template or anything like that.

Capturing a leading share of third party royalty acquisitions for our approved products and select late stage development opportunities.

So I wouldn't interpret it that way.

Like we've said, you know, every deal is different.

Second acquiring newly created royalties, what we term synthetic royalties on both approved and development stage products typically held biotech partners fund R&D and commercial launches.

I certainly think that a lot of the discussion has focused on synthetic royalties with smaller, biopharma or emerging biopharma companies.

Every deal has its specific dynamics.

I think that just reflects purely the changing in the external funding environment and the, number of those companies, and we do think that as a funding modality, as we've talked about many times for those companies, we do think synthetic royalties are going to be an important part of that.

But that doesn't imply that we don't think partnering with larger companies is not going to, be a part of our business either.

So, here, where there was an upfront and some additional milestones based on future commercial performance was the right structure.

We continue to be optimistic there and think, again, that we have a high bar, and again, the larger companies and what they want to partner on and what we want to work on has to meet up and create those opportunities.

Third we will provide additional funding in the form of development and launched capital, which allows us to tailor individualized solutions for partners and returned for royalty like payment streams.

I'm sure we'll use a structure like that again in the future.

But, you know, always we're trying to find the right structure for our partner and for that specific royalty.

Cutting across each of those pillars is our fourth pillar M&A, where we have a multi faceted strategy, which enables us to acquire royalties through facilitating corporate transactions.

Thank you.

Lastly, since our IPO, we added a fifth pillar, which is to identify opportunities opportunities in synergistic adjacencies, which leverage rpms capabilities.

My final slide shows that we're delivering on.

Some of our strategic plan.

In 2021, as a result of the morphosis M&A transaction and other existing and synthetic royalty acquisition, we deployed 3 billion of capital across all five strategic pillars.

Second, we have announced transactions of $2.5 billion year-to-date, including the Trilogy royalty acquisition, which we completed just after the quarter end. This reflects the strong growth and demand for our innovative royalty-based funding.

In 2022 year to date, we have deployed $2 5 billion across four of the five pillars.

Including the recent trilogy deal.

Although it has only been two months since our Investor day.

Execution of our strategy puts us in a great position as we move towards achieving our five year capital deployment target of $10 billion to $12 billion and to deliver the attractive compounding growth profile that we've described.

Solutions.

Thank you.

Third, we saw positive progress across our portfolio.

With that we would be happy to take your questions.

I would now like to turn the call back over to Pablo Legareta for any further remarks.

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

Pfizer's proposed acquisition, of Bioheaven will accelerate value creation to Royalty Pharma, and Marshall will walk you through this shortly.

In addition, we were pleased to see the FDA acceptance of the regulatory filings of PTO27 in asthma, as well as intranasal sevegapantin migraine.

Thank you, operator.

Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from Chris <unk> with Goldman Sachs. You May proceed.

These important milestones potentially bring this importance closer to pace.

And thanks to everyone on the call for your continuing interest in Royalty Pharma.

Oh, good morning, and thank you I appreciate the updated comments and congratulations on continued progress two quick questions one.

Following the investment that you made with the trilogy I believe that is one of the more sizable if not second largest since the IPO can you comment about the impact on your capacity to do further deals. During this calendar year and then second Marshall appreciated your proactive mention of comments about U S drug pricing reform.

Can you help us think about based upon the current proposals how you think about potential implications on how youre assessing opportunities in particular, the industry singly focused on differences in the timeline that the durability and exposure of small molecules versus biologics how would that maybe it does.

<unk>, if you could share any further comments.

How that changes your investment calculus. Thank you.

Lastly, we're, raising our full-year guidance for cash receipts based on the strong underlying performance of our existing portfolio and the addition of the Trilogy Royalties, and we now expect 7% to 10% top-line growth.

This growth reflects a roughly 3% to 4% unfavorable impact from, foreign exchange that we expect to face this year, which Terry 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 make over the remainder of 2022.

Sure. Thanks for the question, it's good to hear you.

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

The strong double-digit momentum positions us to achieve another year of impressive top-line performance in 2022. Below our top line, I am also pleased to report that we grew our adjusted EBITDA by 10%.

In the second quarter, we delivered 10% growth in our top line. We estimate that foreign exchange had a negative 2% to 3% impact in the quarter.

Adjusted EBITDA is an important non-gap measure for us, which is arrived at by deducting operating and professional expenses from our top line.

But we continue to think that's going to be a part of our business in the future.

And I'll just close by saying that, you know, we had recently our investor day and we, you know, spent a lot of time outlining, you know, Royalty Pharma, its uniqueness, our business strategy, you know, how we do things, why companies want to, you know, partner with us, what we bring of value to companies.

I mean, one thing that also, just remembering the whole process on this transaction, you, know, there was some history to all of this, you know, other companies which made it complicated.

Maybe just brief pass it onto Marshall, but.

But, you know, just reflecting on the whole process started, you cannot, I cannot even, tell you the number of times during the conversations where, you know, one party wanted to close the door.

And I just wouldn't give up.

I said, no, you know, let's talk, you know, and I just said I can persuade them to actually, you know, continue the discussion and open the door and let's be reasonable.

As you know.

And anyway, so at the end, you know, that's what's required in transactions like this.

And we have a lot of experience and we can be creative, but I'll stop there.

<unk> outlined the pillars of our strategy and I think.

Lastly, our adjusted cash flow, our bottom line, grew by 12%.

So, another quarter of strong double-digit growth across all our key non-gap metrics, even with clear foreign exchange headwinds that have been felt across the industry.

Thank you.

There is no question that that the business that.

It is.

Driving and I think we will continue to drive very significant growth going forward is.

Slide eight shows our impressive track record of strong top-line growth since our IPO in June of 2020. This track record reflects the power of our business model and our ability to execute successfully against our strategy.

Any other questions?

<unk>.

The synthetic royalty opportunity in front of us, which is very very significant.

As many of you heard at our May 17 investor day, by consistently innovating funding solutions and replenishing our portfolio, we're able to drive compounding growth and absorb losses of exclusivity in a way that is not possible for most biopharma companies.

Our next question comes from Steven Scala with Cowen.

An important element of this, shown on slide nine, is our unique ability to identify and add blockbuster therapies to our portfolio. Trilogy, of course, is the most recent example of this unique attribute of our model. Blockbusters, bring a number of key advantages to Royalty Pharma. They typically receive heightened market focus and investment.

They enhance our scale and diversification of our portfolio with some of the most transformative therapies in the industry.

You may proceed.

The biotech industry needs very significant amounts of capital to continue to fund innovation and we are the partner of choice of this companies and.

They often have leveraged capacity and cash flows that we can deploy to further diversify our portfolio.

Thank you.

A couple questions.

<unk> really figure out how to work with them in very creative ways. For example, with our new launched capital on development capital.

Lastly, they provide a strong foundation to continue to build our portfolio across different, stages of development with different risk profiles.

Today, around a quarter of our streams come from blockbuster products.

In fact, certain products in our portfolio have end market sales of more than $1 billion, and of these, four have end market sales greater than $3 billion.

This means our portfolio has around 1.6 times the exposure to blockbusters compared to the, top 15 biopharma companies.

Structures that are ideal for this company so that will give us.

A core.

<unk>.

Transactions.

Maybe half a dozen maybe more maybe less per year that should result in a very consistent capital deployment and in addition to that there are this largest transactions that take time a lot of scale a lot of skill because one of the things that maybe people don't folk.

<unk> R R.

Is how complex it can be to actually bring together diverse parties like veeva thereabouts and glaxo.

First, there's no shortage of changes underway at GSK.

Hey come on purpose and really align all of their different.

Durations and goals are very difficult, but we have been patient and figure out how to do this.

That obviously resulted in a fairly attractive large transaction for a marquee product marketed by the strongest company in that space. So very excited about that but those kinds of deals will give us.

Opportunities to deploy significant capital that to get like M&A.

That's why we've.

So our guidance for the next years.

And also the very, very significant side of the opportunity we have in front of us funding this incredible ecosystem that it's in its sort of golden age of innovation.

This industry is really.

And it's sort of a golden age and we're playing a very important role here, but Marshall I'll pass it onto you.

Furthermore, we continue to add to this list of transformative therapies.

Its priorities are changing.

Sure. Thanks, Bob Hi, Chris Good morning, Joe.

They've de-emphasized respiratory research. And its recent respiratory launches, BRIO, Inoro, Nucala, have been mixed, some successful, some less so.

Since 2020, we have added 10 potential blockbusters to our portfolio based on sensor sales. Constantly identifying and adding new therapies on marquee products to our portfolio, we are, able to drive continued portfolio replenishment, diversify the business, reduce risk, and ultimately grow our top line and generate greater value.

And, you know, we laid out, outlined, you know, also goals in terms of capital deployment and growth.

So I think it's important to take a step back and think about the potential.

With that, I will hand it over to Marshall to update you on our portfolio.

Drug price from our prime and the legislation in Q in two pieces. The first is like as we commented in the script is that when you look at our current portfolio. We don't see a significant impact we just don't have.

Thanks, Pablo.

Let's move to slide 11.

Trilogy is a medicine we've been tracking for some time. It's the leading triple combination therapy for chronic obstructive pulmonary disease, and asthma, and is marketed by GSK, a company with a leading presence in respiratory disease. Our interest in Trilogy reflected its first-in-category status, strong clinical data, high unmet patient, need, and impressive growth since launch. Last month, we were therefore delighted to be able to execute a highly complex transaction, to acquire royalties on Trilogy.

This was no simple task, as the acquisition involved multiple parties in Aviva, TheraVance, and GSK. Royalty Pharma brought all the parties together, creating a win-win solution for everyone based, on our deep industry relationships and ability to creatively structure the transaction. In this deal, GSK previously paid upward-tearing royalties of between 6.5% to 10% on global, Trilogy sales, which were split between TheraVance and Aviva. Royalty Pharma agreed to acquire the entire royalty stream for a combined total of $1.31, million up front, and up to $300 million in potential sales milestones.

For Royalty Pharma, this transaction not only adds another blockbuster to our portfolio, as Pablo noted, but we expect it to significantly enhance our long-term growth by adding at least $200 million to our adjusted cash receipts in 2025, and deliver returns consistent with our target returns for approved therapies in the high-single to low-double-digit range.

A lot of Medicare D B and B exposure right now and I think the power of that is that now we can turn immediately towards beginning to think about that as a frame for our new investments immediately and.

And I think, you know, what you're seeing this year as the year has gone by is us delivering against those goals.

You know, we're up to two and a half billion of capital deployed and we're halfway through the year.

So we're super excited.

I think Royalty Pharma is clear becoming the partner of choice of all of the other, you know, innovators in life sciences.

And we're, you know, excited to continue the relationship with all of you over time and we're here to answer questions.

So, obviously, if there's anything else, please feel free to reach out to George and anyone in the team.

But thank you all for listening today.

And we will certainly do that I think there are as we mentioned in the script a number of unknowns and uncertainties ads exactly what it will look like exactly how it will be implemented.

So things might change between now and 2026 and beyond when we would see at least the impact from a negotiation perspective. So we are starting to think about those things you highlighted the difference between.

Medicare B and D. In terms of duration and I think some of that on some of the other earnings calls we've heard lots of perspectives on that so I think what youll see though is that we will certainly start to include the potential for that and think through those scenarios in terms of how we value and think about opportunities in the future.

Okay.

Slide 12 expands on why we are so excited by the market opportunity for Trilogy and, the growth opportunities ahead. Trilogy was the first single-device, triple-combination inhaled therapy to be approved by the FDA, for the maintenance treatment of both COPD and asthma.

I'm just wondering how did you become comfortable that Trilogy will ultimately attain its full, potential?

Both are respiratory diseases with a very high incidence in poorly controlled patients.

And then Chris on your question on capacity.

The initial indication, compelling efficacy profile, and easy-to-use single device helped, establish Trilogy as a blockbuster and to grow the penetration of triple therapy. In the last 12 months, GSK reported global Trilogy sales of approximately $2 billion, representing year-over-year growth of 50%.

Looking forward, we believe there is still very significant scope for sales growth based on increased penetration of triple therapies in the U.S. and expansion in international markets. We note that consensus sell-side forecasts project that Trelegy sales will exceed $3.5 billion by 2025. This would represent an approximate doubling of sales compared with the $1.7 billion reported in 2021.

On slide 13, I want to highlight our acquisition of royalties on Govretto. This is a precision oncology medicine which targets Rett mutations and is marketed in certain territories outside the U.S. and greater China by Roche. In Europe, Govretto is approved in Rett-altered non-small cell lung cancer and a regulatory decision in thyroid cancer is expected by year-end. Last month, we agreed to acquire Blueprint Medicines royalty on Govretto in ex-U.S. markets, excluding greater China, for $175 million up front and up to $165 million in sales-based milestones. In return, we will be entitled to receive an attractive royalty rate in the high teens to mid-20s percent on sales in those markets.

Although Govretto is not expected to be a blockbuster, with consensus sales approaching $400 million in Roche territories by 2030, this royalty has an exceptionally long duration, potentially extending as far as 2040. Consequently, over the lifetime of the royalty stream, we expect Govretto to be an important contributor to royalty pharma.

So.

Moving to slide 14, Pfizer's proposed acquisition of Biohaven is expected to significantly accelerate the returns on our various investments in Biohaven.

We have had a longstanding and highly successful partnership with Biohaven in the development and launch of their CGRP migraine therapies.

We mentioned that.

When we acquire royalties and equity from BrioTek partners, we do so based on our assessment of their organic prospects.

So that's the first question.

Pro forma for the trilogy deal, we would have $1 $1 billion of cash.

If the company is subsequently acquired, however, it has the potential to accelerate returns, and this looks to be the case with Biohaven. Following the closing of the Pfizer acquisition, which is currently expected in early 2023, we expect the cash returns to royalty pharma to total as much as $1.4 billion, which also assumes an accelerated milestone payment on ZVEG Japan approval. This amounts to a 1.8 times potential cash return on our investment of $760 million, with further upside from the 2% to 3% blended royalty on Nertec and ZVEG Japan sales through the mid-2030s.

With the addition of Pfizer's marketing resources, it's reasonable to assume a greater likelihood of achieving the full commercial potential of Biohaven's migraine portfolio, which Pfizer believes could exceed $6 billion in peak sales.

Let's move now to slide 15, and the expected clinical and regulatory events for our portfolio over the next 12 to 18 months.

In terms of clinical news, over the balance of 2022, we anticipate phase three readouts for up to four potentially transformative therapies, including results from Copamedics in combination with immunotherapy in a number of different settings, Pfizer and Astellas' Xtandi in non-metastatic prostate cancer, Roche's Gantanarumab in Alzheimer's, and GSK's Otilumab in rheumatoid arthritis.

In 2023, we anticipate readouts from a few important phase three programs, including Biohaven's Oral-to-VEG Japan in migraine and Trimphia in IBD.

Still feel like we have a lot of a lot of financial firepower.

On the regulatory front, over the remainder of 2022, we would highlight the expected European, approval decision on Govretto and thyroid cancer and the FDA decision on PtO2-7 in asthma.

In 2023, we anticipate FDA approval decisions on intranasals of Vagopan in migraine and, on omacamptive in heart failure.

As well as 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.

Finally, I'd like to briefly touch on the impact of drug pricing reform on our portfolio. While nothing is final and there could still be important changes and many unknowns remain, with respect to the implementation, from what we have seen in the proposed legislation, our initial view is that we would anticipate only a very small headwind to our business without considering any increase in volume from potentially improved patient access.

This generates a lot of cash each quarter.

And then we have our revolver, which is $1 5 billion and we have we actually have a lot of leverage capacity. So we mentioned that we.

Pro forma for the trilogy deal.

We would be at three three times.

And that would be that sort of represents adjusted EBITDA of around $2 to nearly $2 2 billion.

And we could put as much as an additional turn if we needed to.

On on on our leverage so.

Second question is, I'm curious if the drug price reform bill, if passed, and companies, decide to pare back on some R&D programs and areas, whether that's an opportunity for Royalty Pharma to step in and fund programs, whether for the innovator or maybe an acquirer.

In other words, double down on small molecules and Part D drugs on attractive terms when, others vacate the area.

Plenty of flexibility.

Really good about our ability to capitalize on the opportunity that we see.

With that, I'll hand it over to Terry.

Thanks, Marshall.

Great. Thank you for the comments.

Yeah.

Let's move to slide 17.

Thank you.

Total royalty receipts grew 8% in the second quarter versus the year-ago period.

Thank you.

Thanks, David one moment.

Growth drivers in the quarter included the Cystic Fibrosis franchise, Xtandi, which benefited, from a prior period adjustment, and the term PhioRoyalty, which we acquired in July 2021.

We also saw significant growth contributions from Promacta, from our BioHaven partnership, and though not specifically shown on this slide, from CaboMedx, Evrizdi, and Orladeo.

These positive factors more than offset the loss of contribution from our legacy HIV franchise, as well as year-over-year declines from Imbruvica related to a slower recovery in the CLL market and competitive pressure.

One moment for questions.

Slide 18 shows how our royalty receipts translated to strong adjusted cash flow in the second, quarter.

Maybe Marshall and Chris should take this question.

This concludes today's conference call.

Our next question comes from Chris Schott with Jpmorgan you May proceed.

As you're aware, adjusted cash receipts is a key non-gap metric for us, which we arrive, at after deducting non-controlling interest. This amounted to $524 million in the quarter, growth of 10% compared with last year's second, quarter. As mentioned earlier, we estimate this growth was achieved despite a 2% to 3% headwind from, FX in the quarter.

But, you know, just my own personal, you know, comments to the question about Trilogy.

Thank you for participating.

You may, now disconnect.

I mean, one thing to look at is the, you know, very significant sales and marketing effort, behind this product.

Thank you.

Alright, great. Thanks, so much for the questions just two for me.

The amount of TV advertising, for example, that you see on Trilogy, it's just amazing.

As we move down the column, operating and professional costs were approximately 8% of, adjusted cash receipts.

As a consequence, we reported 10% growth in adjusted EBITDA in the quarter, consistent, with the growth in our top line.

I guess first one on the raising rate environment. We're in I guess, we could you get questions from investors in terms of the impact. This has on your business and I know you talked about your debt not maturing until post 2030, I know you've kind of wild deals for cash, but can you just remind us again, how you navigate this higher rate environment and your higher rates change it.

All the way you think about either the types of deals or sizes of deals you would consider so I guess is still kind of a.

So I think this is, you know, just a great drug with amazing support from the leading, company in the space.

Question that kind of like overhangs. The story as we think about rates moving higher my second question was on Tysabri and Biosimilar competition. There I noticed one of your larger royalties and I think we've had some some movement on that front, but maybe talk about just remind us how youre thinking about timelines and the potential for biosimilar competition for that product over time. Thanks, so much.

As Pablo noted, 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 performance.

But, you know, Chris, Marshall, do you want to add more to my answer?

Thank you for the questions Chris.

Terry why don't you take the question on interest rates and then Marshall the one on Tysabri.

When we think of the cash generated by the business to then be redeployed into new value-enhancing, royalties, we look to adjusted EBITDA, less interest paid.

Chris, do you want to go ahead?

Sure. So it's a great question, it's very topical.

We received modest net interest in the quarter, reflecting the semi-annual timing of interest, payments on our $7.3 billion of unsecured notes, which are paid in the first and third quarters. After de minimis payments for ongoing development stage funding and other items, we generated, adjusted cash flow, our bottom line, of $482 million or 79 cents per share for the second quarter. This resulted in an adjusted cash flow margin of 92%, which once again highlights the efficiency, of our business model.

Sure.

Let's move now to slide 19 in our financial position.

I mean, yeah, sure.

We continue to maintain significant financial firepower. We deployed $439 million of capital on royalty acquisitions in the first half of the year, as well as $238 million on dividends and distributions. This was more than offset by our strong cash flow generation so that our cash and marketable securities increased to $2.4 billion at the end of June. After the quarter end, as you heard from Marshall, we acquired the Trilogy Royalty for a net upfront payment of just over $1.3 billion in cash. Adjusting for this transaction, our pro forma cash and marketable securities position would have been $1.1 billion.

It's Chris.

On the same pro forma basis, our leverage stood at 2.9 times net debt to EBITDA and 3.3 times total debt to EBITDA.

We feel very good about.

Our business model in a rising rate environment.

Obviously the portfolio, having a diversified.

Portfolio of non cyclical growth is really attractive in this environment or a very low fixed cost base is also very attractive.

As a reminder, the fixed rate 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. While interest rates have certainly moved substantially higher over the last six months, the majority of our debt matures in 2030 or beyond, and our flexible business model and strong cash generation put us in an excellent position to execute on our business plan and create value for shareholders.

And then the fact that we were able to.

On slide 20, we are raising our full year 2022 financial guidance. We now expect adjusted cash receipts to be in the range of $2.275 to $2.35 billion, an increase of between 7% to 10% over the $2.1 billion we delivered in 2021, highlighting the momentum in our business.

Lock in.

Rates on all of our debt at pretty historic lows.

Looking specifically to Q3, I want to highlight a few factors to help with your modeling. We received our final substantial payment for the DPP4 royalty in the second quarter.

With only less less than half of it I think it's around 60% or so maturing.

Lastly, the other product line will experience a high base of comparison in the third quarter, as we recorded a $37 million net milestone payment on Solequa last year.

Beyond 2030.

So.

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.

The way, we think about the impact on our business. We do think if we we will have maturities over the next couple of years.

Turning to our operating costs, we now expect payments for operating and professional costs to be approximately 8% to 9% of adjusted cash receipts in 2022. Our lower operating cost guidance reflects one of the unique aspects of our business model, which is our relatively low fixed cost base.

We think this is especially impressive in light of today's highly inflationary environment.

Interest paid for full year 2022 is still expected to be around $170 million.

If we refinance it would be it.

B at higher rates, but overall, we would think that the impact on the overall business would be pretty immaterial.

And then when we think about that.

Great thing about our business is we're always reinvesting.

We would expect that.

That rising rate environment to also trickle through to the prices that we pay for assets.

And so there is a very nice sort of natural hedge in the business.

We're very confident that we can continue to deliver as.

As we have in the past and deliver very attractive.

Uncorrelated long term compounding returns.

Finally, we're going through our purchase price allocation exercise for the recent deal with TheraVance.

Our current expectation is the $25 million upfront R&D payment related to the development of Ampryloxetine will be expensed in the third quarter on both our GAAP and non-GAAP P&Ls.

Great Good morning.

And then your question on Tysabri so.

First of all I think just taking a step back on Tysabri. This has been a fantastic investment for full royalty pharma and we think it's going to continue to be a contributor into the future. We have been of course following the.

The Sandoz Paul pharma.

Biosimilar for for some time and so this is the natural evolution of the news that we've seen recently with the with the acceptance of the filing so I think the important thing to keep in mind and Terry you might want to comment as well is that when you look at consensus through the end of the decade. It certainly.

It reflects a significant impact on the product from a from a biosimilar. So I think when you look over that over this over this period through 2030, certainly it's already an expectations but.

Diving in a little bit deeper on the details here I think it's important to keep in mind certainly that there continues to be.

Patents in the U S through 2027, and Biogen is talk very clearly that they will protect their intellectual property there and so we'll continue to watch for updates there and the implications for timing of when and how the biosimilar launch, but theres other important things to keep in mind.

First is that Tysabri is of course, a very unique product with its safety profile and the Rams and Biogen.

Biogen history in the MS market are important.

Also of interest.

Is that we've taken a look at our claims data, which you know with with our strategy and analytics team.

And we looked at Tysabri closely and its interesting tysabri actually it's a very sticky product when you look.

When you look at 2021, only about 12% of total patients on Tysabri were actually new patients. So it is a really sticky product patients like this.

So when you think about how many patients there are on ongoing therapy.

Theres a lot of different ways that the biosimilar could play out and then lastly, it seems pretty unlikely that this will be a multi sourced biosimilar market, which is most of the comparable markets that we've seen sandoz is the only known one.

Right now to our knowledge. So there certainly aren't any any clear comps so we'll have to wait and see.

And if and when they are approved when they might launch, but this has been a great investment for royalty pharma and we certainly think there's a number of reasons why tysabri could could be.

Brazilian to even in the face of Biosimilar launches.

It's difficult to manufacture and we also met.

Several years ago, four five years ago, the team that actually develop and license it.

So we are quite familiar with the situation.

Thank you.

On slide 21, I wanted to drill down further on our adjusted cash receipts guidance.

This graphic is illustrative, but provides the various pushes and pulls which are behind our raised top line outlook for 2022.

The primary driver of growth this year is the expected strong underlying performance of our diversified royalty portfolio, particularly the CF franchise from FIAT and Evrizzi, which will be enhanced by the addition of the Trelegy royalties in the third and fourth quarters.

Thank you operator.

Awesome.

One moment for questions.

Our next question comes from Terence Flynn with Morgan Stanley You May proceed.

Great. Thanks for taking the questions. Two from me I guess I was wondering if you could comment on the top of the funnel in terms of what Youre seeing second half of the year versus either first half of this year or second half of last year, just from a opportunity perspective, given the selloff in biotech I was just wondering if youre seeing a step up in.

And Cummings and then what percentage of those would represent kind of larger transactions, so things similar to morphosis and trilogy.

And then my second question relates to 2022 guidance just a clarification.

Terry I think you said that the trilogy royalties would contribute to both third quarter and fourth quarter revenues.

Our revenues this year, but just wanted to make sure I heard that correctly, given I think you announced the deal in July thanks, So much.

Thanks for the question Terence Marshall you should take the question on the funnel that Terry the one on guidance.

Sure. So hi, Terence good morning, So we've certainly seen.

Increasing momentum in the top of the funnel in terms of in terms of the number of things we're looking at and it is certainly up.

So as you think about year on year as you think about that or even in terms of the.

The pace of new things as we've moved through this year things have definitely had definitely been accelerating so I think in a lot of that under guards, what we're saying about our confidence and the opportunity and and B.

And the number of things we're seeing as.

As we've said before our bar in our investment process remains the same so we're really going to focus on things that we're really excited about and the best and most important opportunities.

And that has been our strategy for years and will continue to be even as we are seeing a increased number of opportunities are you asked about large transactions. Due there are always a number of large transactions.

That are that are in the funnel that we're that we're watching that we're working on at various stages, but as.

As we've commented before large transactions, it's very hard to it's very hard to estimate when they will happen at what pace do happen after you've seen with things like more process or as Pablo talked about with <unk>.

Do have they do have often had significant number of moving parts and takes multiple things coming together for.

For them to happen. So we continue to expect them to happen as you've seen they certainly do since we've been public but always hard to always hard to sort of say exactly when or at what pace They will happen.

And then on trilogy, Yes, that's correct, we will record royalty receipts in the third and fourth quarter of this year for that product.

For that room.

Thank you operator, we'll take the next question.

Thank you one moment for questions.

Our next question comes from Andrew Baum with Citi. You May proceed.

The expirations of our HIV and DPP4 royalty stream, as well as Imbruvica underperformance, are expected to partially offset the strong growth in our portfolio. In addition, the broad strength of the U.S. dollar is expected to negatively impact growth by minus 3% to minus 4% for the year, or between $65 million and $85 million, assuming current FX rates for the remainder of the year.

We are pleased to be raising guidance with our top line now expected to grow 7% to 10% in a year that our business faces LOE pressure from two prior top royalty streams, as well as significant FX headwinds.

Not many companies in our industry have the diversified portfolio or growth characteristics to be able to achieve this, once again highlighting the resilience of our business model.

With that, I would like to hand the call back to Pablo for his closing comments.

You know, we're very confident in GSK's commitment to Trilogy and the respiratory franchise.

Thank you Tito.

Thanks, Terry.

Obviously, they've gone through a very large transformation themselves, spending off their, consumer health business most recently and focusing on their pharma and vaccine business.

So another strong quarter, and we're on track to deliver excellent results in 2022.

So the first one the trilogy could you just share with us the anticipated duration of the royalties on the trilogy, whether it's tied to particular IP or.

Before I close, I wanted to spend a moment highlighting the strategic plan, which we detailed on our investor day. By executing against this clear plan, we're confident we will deliver rapid, consistent, and value-enhancing growth.

Our strategy is based on five pillars. First, capturing a leading share of third-party royalty acquisitions for approved products and select late-stage development opportunities.

And Trilogy is going to be a super important part of that stand-alone company, GSK, going, forward.

Other timeline such as anticipated generic the reason I ask is given the complexity of increasing three active ingredients and health.

It could be that this product does not face any generic sort of very very long triangle.

And therefore that obviously has an impact on your returns dependent on what ties.

Royalty streams to the returns.

So we're very confident in their commitment to Trilogy.

As it relates to, you know, maybe, you know, supporting R&D at pharma or biotech, given, the potential pricing reform, obviously, there's a lot to...

Second also in strategy given that dynamic I'm curious why GSK was.

It was not a buyer given obviously has the best visibility on the commercial outlook for that product.

And then second question is that top.

Second, acquiring newly created royalties, what we term synthetic royalties, on both approved and development-stage products, typically to help biotech partners fund R&D and commercial launches.

Top line Chris.

Third, we will provide additional funding in the form of development and launch capital, which allows us to tailor individualized solutions for partners and return for royalty-like payment streams.

And your comments on synthetic royalty.

Cutting across each of these pillars is our fourth pillar, M&A, where we have a multifaceted strategy, which enables us to acquire royalties through facilitating corporate transactions.

Lastly, since our IPO, we added a fifth pillar, which is to identify opportunities in synergistic adjacencies, which leverage our team's capabilities.

My final slide shows that we're delivering on all aspects of our strategic plan. In 2021, as a result of the Morphosis M&A transaction and other existing and synthetic royalty acquisitions, we deployed $3 billion of capital across all five strategic pillars. In 2022 year to date, we have deployed $2.5 billion across four of the five pillars, including, the recent Trilogy deal.

This was very much from biotech companies, which is not surprising previously I know you've spoken to large pharma and you obviously had the pallets trial, which means that participated in.

Although it has only been two months since our investor day, the strong execution of, our strategy puts us in a great position as we move towards achieving our five-year capital deployment target of $10 to $12 billion and to deliver the attractive compounding growth profile that we described.

Malnourishment that actually flagged that the large company simply not going to be tempted to use synthetic royalties to hedge risk and they're all kind of check preferred raise the financing.

With that, we would be happy to take your questions.

We will now open up the call to questions.

Yes, maybe I'll just.

Answer.

Question about.

Trilogy, Glaxo prior and I think.

Operator, please take the first question.

What I would tell you is that.

Matt.

Two.

<unk>.

Two party deal is complicated.

To align the interests and negotiate terms that are acceptable to two parties.

<unk> Party deal.

There is much more complex and in this case it was up four party deal I've never done that in my life.

But we managed to do it and it requires as someone that has the patients the interest that creativity to listen to one party understand what their.

Thank you.

As a reminder, to ask a question, you will need to press star 11 on your telephone.

Goals are <unk>.

Please stand by while we compile the Q&A roster.

Is that listen to another party understand their motivations and interests.

And see if there is any common ground you can somehow bring together something that is going to work for both and then listen to the third one and that's because the market.

And then to bring all of that together and it's not easy it's highly highly complex and we.

Given how nimble we are small we are can do those things much more difficult for a bigger company.

To be able to achieve that and I recall transaction with it many years ago and have been actually twice when we bought the neupogen from Memorial Sloan Kettering.

On the second.

We bought first the U S royalty.

Thanks, Josh.

And we partnered with Amgen and then a second time with.

Gilead to buy the royalties.

On the side of being from Emory University, and I recall how.

Our private Congress CFO of Gilead said to US we would have never been able to do this transactions by ourselves. If we just won't directly by <unk> from the University of the holder and the reason for that was there.

Points Youre in that.

Section, where one party.

Hunter things to be done and the contracts that were not acceptable to the other one and there was an impasse and similarly, the other party want the things under contract that we're not so we were in the middle and we were able to go to each party and say look this is a reasonable just doesn't make sense, they're not going to give it to you and it is not needed and they would sort of move off from that point.

And we will do the same thing, but the other side and at the end basically.

I said the CFO have given at the time said, we will have never been able to do this ourselves and.

Fact that.

We were able to achieve that work for everyone and I guess this was just much more complex.

We are ideally suited for complexity and deals.

That certainly well I'll stop there but.

Pass it onto to Marshall to answer the other part of the question.

Still, that could happen around pricing.

Sure.

Hey, Andrew good morning.

So there are a number of questions there if I am.

If I don't touch on any of them. Please let me know.

The first one was about.

What about duration of <unk>.

Trilogy, and the complexity given the various components and the device. So we haven't.

<unk> gotten into tremendous amount of detail in our IP analysis et cetera, what we have said is generally our expectations of duration or.

Our.

The middle of 2029, So June 32029 outside of the U S and at the end of 2030.

In the U S.

We're happy to take.

Take you to take you through it in more detail maybe offline but.

But I think overall those are generally our expectations for how long we think the trilogy metrology piece will charge you royalty will go.

The other question I think you asked about.

Why about large pharma using synthetic royalties and we've talked about working with smaller companies and does that say that we don't expect to be doing R&D partnership with larger companies. So I wouldn't interpret it that way I certainly think that.

That a lot of the discussion has focused on.

Has focused on synthetic on synthetic royalties with smaller with smaller biopharma are emerging biopharma companies I think that just reflects.

<unk>.

Purely the changing in the external funding environment in a number of those companies and we do think that as a funding modality as we've talked about many times, where those companies. We do think the synthetic royalties are.

Our <unk> are going to be an important part of that but that doesn't imply that that we don't think partnering with larger companies is not going to be a part of our business either.

We continue to be optimistic there and.

And think and think again that we have a high bar and again are.

The larger companies and are what they want to partner on and what we want to work on has to meet up and create those opportunities, but we continue to think thats going to be a part of our business in the future.

I mean, one thing that also just remembering the whole process on this transaction.

There was some history to all of this.

Other companies, which made it complicated but.

Just reflecting on the whole process started you cannot I cannot even tell you the number of times during the conversations were.

One party wanted to.

The door and I just wanted to give up I said no.

Talk.

I, just said I can persuade them to actually.

Many of the discussion and open the door and let's be reasonable.

So at the end.

That's what's required in transactions like this.

Have a lot of experience and we can be creative.

I'll stop there.

Thank you one moment for questions.

Yeah.

Yes.

Our first question comes from Chris Shibutani with Goldman Sachs.

Our next question comes from Stephen Scouten with Cowen You May proceed.

You may proceed.

Oh, good morning and thank you.

Thank you a couple of questions first there is no shortage of changes underway at GSK its priorities are changing.

I appreciate the updated comments and congratulations on continued progress.

Two quick questions.

They've deemphasize respiratory research and its recent respiratory launches Breo Anoro Nicola have had been mix some successful some less so.

One, following the investment that you made with the Trilogy, I believe that is one of, the more sizable, if not second largest since the IPO.

Just wondering how did you become comfortable that trilogy will ultimately attain its full potential.

Can you comment about the impact on your capacity to do further deals during this calendar, year?

So that's the first question second question is I'm curious if the drug price reform Bill if past and companies decide to pare back on some R&D programs in areas, whether that's an opportunity for royalty pharma to step in and fund programs whether for the <unk>.

Second, Marshall appreciated your proactive mention of comments about U.S. drug pricing, reform.

Can you help us think about, based upon the current proposals, how you think about potential, implications on how you are assessing opportunities?

In particular, the industry seems focused on differences in the timelines of the durability, and exposure of small molecules versus biologics.

Or or maybe an acquire in other words double down on small molecules and part D drugs on attractive terms when others.

How would that be defined?

Vacate the area. Thank you.

If you could share any further comments on how that changes your investment calculus.

Thank you.

Thank you.

Maybe Marshall and Chris should take this question, but.

Sure.

Just my own personal.

Comments to the question about <unk> I mean, one thing to look at is.

Thanks for the questions.

Yeah.

Very significant sales and marketing effort behind this product the amount of TV advertising. For example that is just really just amazing. So I think this is just a great drug with amazing support from the leading company in the space, but Chris Marshall do you want to add.

Good to hear you.

Maybe just briefly pass it on to Marshall, but as you know, I outlined the pillars of, our strategy.

More to my answer.

I think there is no question that the business that is driving, and I think will continue, to drive very significant growth going forward, is the synthetic royalty opportunity in front of us, which is very, very significant.

Chris do you want to go ahead sure I mean, yes sure it's Chris.

The biotech industry needs very significant amounts of capital to continue to fund innovation.

We are the partner of choice of these companies and have really figured out how to work with, them in very creative ways.

We're very confident in gsk's commitment to trilogy in the respiratory franchise, obviously, they've gone through a very large transformation themselves spending off a consumer health business, most recently and focusing on their <unk>.

Armor and vaccine business.

<unk> is going to be super important part of that.

Of our Standalone company GSK going forward. So we're very confident in their commitment to trilogy as it relates to.

Maybe.

Supporting R&D at pharma or biotech given the potential pricing reform, obviously theres a lot.

We're not sure what the ultimate legislation will be, if any.

Still that could happen around pricing, we're not sure what legislation will be if any.

But as Marshall said, I think the backing of R&D at both large pharma and small-cap biotech, and the creation of synthetic royalties is going to be an ongoing part of our business.

But as Marshall said I think the the backing of R&D.

Both large pharma and small.

Small cap biotech.

And the creation of synthetic royalties is going to be an ongoing part of our business. We're engaged in those conversations today with both large pharma and small cap biotech to help them on the R&D front, and we think that'll be a big part of our business going forward.

We're engaged in those conversations today with both large pharma and small-cap biotech to help them on the R&D front.

And we think that will be a big part of our business going forward.

For example, with our new launch capital and development capital structures that are, ideal for these companies.

Thank you.

Thank you.

That will give us a core of transactions, maybe half a dozen, maybe more, maybe less, per year, that should result in very consistent capital deployment.

Thank you.

Thank you one moment for questions.

In addition to that, there are these larger transactions that take time, a lot of skill.

One moment for questions.

Our next question comes from Geoff Meacham with Bank of America, You May proceed.

One of the things that maybe people don't focus on is how complex it can be to actually, bring together diverse parties like Vivo, Theravans, and Glaxo with a common purpose and really align all of their different innovations and goals.

Our next question comes from Geoff Meacham with Bank of America.

Hey, guys. Good morning, Thanks for the question.

Very difficult, but we have been patient and figured out how to do this. And that obviously resulted in a fairly attractive large transaction for a marquee product marketed, by the strongest company in that space.

You may proceed.

Terry you guys have raised top and bottom line guidance pretty consistently just given the strength of the business and I know the goal here is to reinvest but.

Hey, guys.

Has your payout policy evolved as well I wasn't sure where where dividends fall in your and your capital priorities and.

Then I had a follow up on just the synthetic royalty structure. I mean, you guys talk a lot about this at your analyst event, but it really hasnt been a component of a major deals is it that.

That structure.

Is it the sellers don't like this embedded carve out or maybe just give us some a little bit more perspective on that thank you.

So, very excited about that.

Good morning.

Gary and Marshall just to take those questions.

But the pay out very and then the other one on synthetic yes sure. So so on.

Thanks for the question.

The payout no changes there Jeff.

<unk>.

Last year, sorry, this year, we increased our quarterly dividend by North of 10%, we said that we're committed to.

Two paying paying a dividend.

But clearly our capital allocation priority is.

Investing in new royalty streams, and that's that's where we're going to kind of continue to focus that's where we think we can.

Create the most long term value for shareholders.

And then the other thing that we.

Other area that we highlighted at our Investor day that over time, we could look to share repurchases as an additional way to return capital to shareholders, but clearly our focus is.

Is on buying new royalties.

But those kinds of deals will give us additional opportunities to deploy significant capital.

Terry, you guys have raised top and bottom line guidance pretty consistently, just given the strength of the business.

That together with M&A, that's why we've started guidance for the next years.

Hey, Jeff Good morning, So second question on <unk> and Fedex.

This industry is really in its sort of golden age, and we're playing this very important, role here.

Very much appreciate the question I'd say overall I'd come back to some of the themes that we've touched on in the past with respect to our approach to synthetic royalties is that we do think this is going to be an important an important part of our business but.

And I know the goal here is to reinvest.

But, Marshall, I'll pass it on to you.

One thing that is really characterized our approach.

Two two building the portfolio over time has been we're patient we're disciplined and we're going to wait for and we're going to wait for the right opportunities. So we have a lot of conversations I I don't think there's any shortage of interest, but I do think finding.

Sure.

But has your payout policy evolved as well?

I wasn't sure where dividends fall in your capital priorities.

Later stage development programs or launch or programs that are that are commercialized that where that meet all of that meet our bar and the things, we really want to put into the portfolio.

And then I had a follow-up on just the synthetic royalty structure.

It's something that where we are going to we're going to let happen and make sure that we are building with the right opportunity I mean, you've seen us do it with with multiple products over time.

I mean, you guys talk a lot about this at your analyst event, but it really hasn't been a component of major deals.

Bio Hey, Ben Biocryst Immunomedics <unk>. So, we're we're doing them, but I think the.

Is it that structure?

Discipline and the approach that I think everyone has come to expect from us that we're going to continue to apply as we build our portfolio and build the market for synthetics.

Is it that sellers don't like the synthetic carve-out?

If I may just add.

Whether companies.

Like or not.

Synthetic at the other day it doesn't matter to US we're open minded, but we can do just a royalty deal a royal generic with the deal our royalty acreage.

Or maybe just give us a little bit more perspective on that.

Thank you.

Terry and Marshall, you should take those questions about the payout, Terry, and then the other one on synthetics.

Yeah, sure.

Or also include launch capital development capital.

So on the payout, no changes there, Geoff.

We are very open minded and we don't insist that has to be one way or the other in fact being flexible thats, probably the best way to approach the discussions with potential partners, but offering them.

This year, we increased our quarterly dividend by north of 10 percent.

We said that we're committed to paying a dividend.

But clearly, our capital allocation priority is investing in new royalty strips.

And that's where we're going to continue to focus.

That's where we think we can create the most long-term value for shareholders.

The whole range of solutions is what actually.

Results in us.

Being successful and being a good partner.

And then the other area that we highlighted at our investor day is that over time, we could look to share repurchases as an additional way to return capital to shareholders.

I would say if you look at the companies I think in our Investor Day, we had some statistics, but if you look at companies like Bio Haven.

<unk> dot raised from May 2017, two.

Now $3 $2 billion of capital to develop there.

Various $43 2 billion, we were 26% of that with about $800 million you look at cytogenetics to big capital raised.

20%.

Oh.

Got it.

Biocryst smaller amount.

From 2012 to $1 three raised we were 25% of the pharma so.

Yes.

I think most companies understand the benefit.

Of the different structures.

<unk>, we can put in place.

They really like it and they embrace it but it is a question of Ed.

But clearly, our focus is on buying new royalties.

<unk> the market rate really companies understand the benefits to them.

Great.

The way we can we can bring the power of our model to help them successfully develop their programs.

It is something that we are.

Having a lot of really positive traction with many companies, particularly now where things are getting very difficult for companies that were having a lot of conversations I think.

Management teams are are eager to really understand what's unique.

Link.

Very optimistic about about how things are going.

Thanks, Pablo.

And hey, Geoff, good morning.

Okay. Thanks, guys.

Thank you one moment for questions.

The second question on synthetic, very much appreciate the question.

Our next question comes from Mike <unk> with Evercore you May proceed.

Hi, Chris.

I'd say, you know, overall, I'd come back to some of the themes that we've touched on in the past with respect to our approach to synthetic royalties is that we do think this is going to be an important part of our business.

Good morning.

But, you know, one thing that has really characterized our approach to building the portfolio over time has been we're patient, we're disciplined, and we're going to wait for and we're going to wait for the right opportunities.

So we have a lot of conversations.

Hi, guys. Thanks, so much for squeezing me in and taking my question and congrats on the continued progress.

So, absolutely.

I don't think there's any shortage of interest.

But I do think finding, you know, later stage development programs or, you know, launch or programs that are that are commercialized that, you know, where that meet all of that meet our bar and the things we really want to put into the portfolio.

You know, it's something that we're going to let we're going to let happen and make sure that we are building with the right opportunities.

Two quick ones.

I mean, you've seen us do it with with multiple products over time, you know, biohaven, biochrist, immunomatics, cytokinetics.

One is the IRR on the trilogy deal definitely seems to close the deal itself seems to close the royalty gap in the back half of the decade due to the CFR law, but the IRR.

According to my math seems a bit maybe yoga. So how should we think about the discount rate in our calculations and I know you mentioned mid single digits at your Investor day, but wondering if you could add any additional color here.

Separately, what are your expectations for <unk> teammates the street really isn't giving much credit if at all.

Given the.

Prior phase III failure.

I want to see your thoughts on this.

So we're, you know, we're doing them.

Yeah, So just I think the.

But I think the, you know, the discipline and the approach that I think everyone has come to expect from us that we're going to continue to apply as we build our portfolio and build the market for synthetic.

If I may just add, you know, whether companies like or not synthetics, at the end of the, day, it doesn't matter to us.

The IRR.

It's not mid single digit it's more like high single digits and I think one of the things that I think is important is that.

So, I think it's important to take a step back and think about the, you know, the potential, drug pricing reform in the legislation in two pieces.

You know, we're open-minded. We can do just a royalty deal, a royalty and equity deal, a royalty-equity deal, or, you, know, also include launch capital, development capital.

Like Youre looking at it from the perspective of May.

Maybe.

I mean, the first is, like, as we commented in the script, is that when you look at our, current portfolio, we don't see a significant impact.

We are very open-minded, and we don't, you know, insist that it has to be one way or, the other.

We just don't have a lot of Medicare D, B, and D exposure right now.

Either the analysts' consensus or or your own forecasts, but we actually take a very deep dive in really trying to understand the growth dynamics.

And I think the power of that is that now we can turn immediately towards beginning, to think about that as a frame for our new investments immediately, and, you know, and we will certainly do that.

I think there are, as you mentioned in the script, a number of unknowns and uncertainties, as exactly what it will look like, exactly how it will be implemented, you know, how things might change between now and, you know, 2026 and beyond when we would see at least the impact from a negotiation perspective.

So, you know, we are starting to think about those things.

You highlighted the difference between, you know, Medicare B and D in terms of duration, and I think on some of the other earnings calls, we have heard lots of perspectives on that.

So I think what you will see, though, is that we will, you know, certainly start to include, the potential for that and think through those scenarios in terms of how we value and think about opportunities in the future.

Products like what we've seen happen over and over again.

That's happened over the many many times that the bigger products marketed by companies, where they are so important to them.

Since that time toward perform.

Our expectations analyst expectations. So I think this is.

That has the potential to do.

Really well and we're excited about it.

So that's the answer.

Let it through the IRR and obviously this is one that is very leverage able because of our very strong cash flow that it produces.

It actually.

So it's really well.

The other part of our business, where we're taking more risk and investing in things that are not producing customer in the near term, but maybe I'll pass it onto Terri.

To talk about the.

IP.

Exploration of CF because.

Our view is that it.

It goes well beyond.

This decade into the next decade, but Terry maybe I didn't get your question right.

Do you want to take that question.

Yes.

Yeah.

They.

Mike could you repeat the question maybe.

I think I think I heard something different and Pablo sorry, yes.

We're just saying that the deal itself seems very good because it definitely seems to kind of close the.

Royalty received shortfall due to any possible CF low in the back half of a decade, that's why I was saying.

Right Okay yeah.

Got it yes, okay. So I think <unk> touched on that but we're really excited about it and we think that.

We think that the IRR is very much.

Consistent with what we've what we've targeted and what we've said is high single low double for.

These approved products and this is this is sort of right right now right in that range with what we think is.

Some hopefully some upside potential there.

I think you also had a question on our expectations for <unk>, maybe Marshall wants to take that yes.

Sure Hey, Mike So on <unk>, a couple of important things to keep in mind I think first of all we are.

Being flexible is probably the best way to approach discussions with potential partners.

As we've talked about and as Pablo touched on we always try in our in our deals to be good partners, and and and try and be as constructive and flexible as possible and so that's why it was really it was really interesting to include <unk> as part of the broader and very large.

But offering them the whole range of solutions is what actually results in us, you know, being successful and being a good partner.

And you know, I would say if you look at companies, I think in our investor day we had some statistics, that if you look at companies like Biohaven, a company that raised from May 2017 to now, $3.2 billion of capital to develop their product, very simply $3.2 billion.

We were 26% of that with about $800 million.

LNG transaction with Dara Dan So.

You look at cytokinetics, $2 billion capital raised, actually 20% of, you know, capital, raised.

And Biochrist, you know, smaller amount, you know, from 2012 to 1.3 billion raised.

We were 25% of the pharma.

And to keep in mind that it is.

It's an interesting product, but certainly a certainly a more modest part of what is a what is a very large deal that being said the product has shown some some.

So you know, I think companies understand the benefits of the different, you know, structures, we can put in place.

Some interesting data, we think in in poor orthostatic hypotension in.

Subset of patients with multiple system atrophy as their events I've talked about so we're excited to see how that program develops in certain we could offer could offer some interesting some interesting upside ads ads as the deal evolves.

Great. Thanks, so much.

Thank you operator, we'll take the last question.

Thank you one moment.

And our last question comes from Ashwin <unk> with UBS you May proceed.

And then, Chris, on your question on capacity, so we mentioned that pro forma for the Trilogy, deal, we would have $1.1 billion of cash. We still feel like we have a lot of financial firepower.

Hi, Thanks for taking my question I just had one on trilogy. So.

Like what drove the upfront plus engage amount in this deal.

It began to calculate for commercial stage dealing or what the upfront more than what you would typically see.

Marshall can you take that question. Please.

Sure.

Thanks for the question so the way to think about it.

On how we how we structured it is.

Each deal.

Each deal is certainly is certainly a blank sheet of paper and we do as we outlined at our analyst day very careful analysis of the commercial opportunity and we worked a lot with our partners to to find to find a deal in our structure and evaluation. That's a win win for both of US and I think that was the approach that debt.

Yielded.

<unk>. So I don't think you should necessarily take this as a template or anything like that like we've said every deal is different every deal has its specific dynamic here, where there was an upfront and additional milestones based on based on future commercial performance, what's the right structure I'm sure.

Sure we will use a structure like that again in the future, but always where we're trying to find the right structure for our partner and for that specific royalty.

Okay.

Thank you.

Thank you I would now like to turn the call back over to Pablo <unk> for any further remarks.

The business generates a lot of cash each quarter.

They really like it, and they embrace it.

And then we have our revolver, which is $1.5 billion, and we actually have a lot of leverage, capacity.

Thank you operator and.

So we mentioned that pro forma for the Trilogy deal, we would be at 3.3 times, and that would, be, that sort of represents a justity of a doubt of around 2.2, nearly $2.2 billion.

Thanks to everyone on the call for your continuing interest in royalty pharma and I'll, just close by saying that.

And we could put as much as, you know, an additional turn, if we needed to, on our leverage.

But it is a question of educating the market, right?

Really companies understand the benefits to them of, you know, the way we can bring the, power of our model to, you know, help them successfully develop their programs.

And it is something that we're, you know, having a lot of really positive traction with, many companies, you know, particularly now where, you know, things are getting very difficult for companies and we're having, you know, a lot of conversations.

We have recently, our Investor day and we.

We spend a lot of time outlining.

Royalty pharma its uniqueness our business strategy.

How we do things why companies want to.

Partnering with us what we bring a value to companies.

I think, you know, management teams are eager to really understand what's unique.

And also the very very significant size.

The opportunity we have in front of about funding this incredible ecosystem that it's in.

It's sort of a golden age of innovation and.

So, you know, plenty of flexibility, feel really good about our ability to capitalize, on the opportunity that we see.

And you know, I think we're very optimistic about how things are going.

We laid out outline.

Also goals in terms of capital deployment and growth and I think.

Great.

Okay.

What youre seeing this year as the year has gone by is delivering against those goals were up to $2 5 billion of capital deployed.

Thank you for the comments.

Thanks, guys.

Thank you.

Thank you.

We're halfway through the year.

We're super excited I think royalty pharma is clear coming the partner of choice of all of the other.

Innovators in life Sciences and <unk>.

One moment for questions.

One moment for questions.

Our next question comes from Chris Shaw with JP Morgan.

Our next question comes from Mike DeFiori with Evercore.

You may proceed.

You may proceed.

We're excited to continue the relationship with all of you.

Great.

Hi, guys.

Thanks so much for the questions.

Thanks so much for squeezing me in and taking my question, and congrats on the continued, progress.

Just two for me.

I guess first on the raising rate environment we're in, I guess we continue to get questions, for investors in terms of the impact this has on your business.

Over time, and we're here to answer questions. So obviously, if there is anything else. Please feel free to reach out to George.

And I know you talk about your debt not maturing until post-2030, and you fund a lot of deals, with cash.

But can you just remind us again how you navigate this higher rate environment, and do higher, rates change at all the way you think about either the types of deals or sizes of deals you'd consider?

Just two quick ones.

I think this is still kind of a question that kind of like overhangs the story as we think, about rates moving higher.

One is the IRR on the trilogy deal.

My second question was on to Sabri and biosimilar competition there.

It definitely seems to close the deal itself, seems to close a royalty gap in the back half, of the decade due to the CFLOE, but the IRR, at least according to my math, seems a bit mediocre.

I know that's one of your larger royalties, and I think we've had some movement on that, front.

I mean, so how should we think about the discount rate in our calculations?

But can you maybe talk about just remind us how you're thinking about timelines and the, potential for biosimilar competition for that product over time?

And I know you mentioned mid-single digits at your investor day, but wondering if you, could add any additional color here.

Thanks so much.

Separately, what are your expectations for Amper Locker team?

Thank you for the questions, Chris.

The industry really isn't giving much credit, if at all, given the prior phase 3 failure, and kind of want to see your thoughts on this.

Anyone in the team, but thank you all for listening today.

Terry, why don't you take the question on interest, rates and then Marshall, the one on Tysabri?

Sure.

So it's a great question.

It's very topical.

We feel very good about our business model in a rising rate environment.

Obviously, the portfolio, having a diversified portfolio of non-cyclical growth is really attractive in this environment.

Our very low fixed cost base is also very attractive.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

And then the fact that we were able to lock in rates on all of our debt at pretty historic lows with only less than half of it, I think it's around 60% or so, maturing beyond 2030.

So I think the way we think about the impact on our business, we do think if we will have maturities over the next couple of years and if we refinance, it would obviously be at higher rates.

But overall, we would think that the impact on the overall business would be pretty immaterial.

And then when we think about the great thing about our business is we're always reinvesting.

We would expect that that rising rate environment to also trickle through to the prices that we pay, for assets.

And so there is a very nice sort of natural hedge in the business. And we're very confident that we can continue to deliver as we have in the past and deliver very attractive, uncorrelated long-term compounding returns.

Great.

And then your question on Tysabri.

Okay.

So first of all, I think just taking a step back, on Tysabri, this has been a fantastic investment for Royalty Pharma. And we think it's going to continue to be a contributor into the future.

We have been, of course, following the Sandoz, Polpharma, Biosimilar for some time.

And so this is the natural evolution of the news that, we've seen recently with the acceptance of the filing.

So I think the important thing to keep in mind, and Terry might want to comment as well, is that when you look at consensus through the end of the decade, it certainly reflects a significant impact on the product from a Biosimilar.

So I think when you look over this period through 2030, certainly it's already in expectations.

But diving in a little bit deeper on the details here, I think it's important to keep in mind, certainly that there continues to be patents in the U.S. through 2027.

And Biogen has talked very clearly that they'll protect their intellectual property there.

And so we'll continue to watch for updates there and the implications for timing of when and how the Biosimilar will launch.

But there's other important things to keep in mind.

First, is that Tysabri is, of course, a very unique product with its safety profile and the REMS and Biogen's history in the MS market are important.

Also of interest is that we've taken a look at our claims data with our strategy and analytics team, and we looked at Tysabri closely. And it's interesting, Tysabri actually is a very sticky product. When you look at 2021, only about 12% of total patients on Tysabri were actually new patients. So it is a really sticky product, patients like this.

So when you think about how many patients there are on ongoing therapy, there's a lot of different ways that the Biosimilar could play out.

And then lastly, it seems pretty unlikely that this will be a multi-sourced Biosimilar market, which is most of the comparable markets that we've seen.

The conference will begin shortly.

Sandoz is the only known one right now to our knowledge.

So there certainly aren't any clear, comps.

So we'll have to wait and see on if and when they are approved, when they might launch, but this has been a great investment for Royalty Pharma.

As Johan during Q&A, you can dial star one one.

And we certainly think there's a number of reasons why Tysabri could be resilient even in the face of Biosimilar launch.

Thank you.

Thank you.

It's difficult to manufacture, and we also met several years ago, four or five years, ago, the team that actually developed this and licensed it, so we're quite familiar with the situation.

One moment for questions.

Yeah.

So just I think the IRR, it's not mid-single digit.

It's more like high-single digit, and I think one of the things that I think is important, either the analyst consensus or, you know, your own forecast.

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Yeah.

Okay.

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Okay.

Mhm.

Okay.

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