Q2 2022 Royalty Pharma PLC Earnings Call

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[music].

Yeah.

Ladies and gentlemen, thank you for standing by.

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

And hey, Geoff, good morning.

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

Sure.

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

So it's a great question.

Welcome to the Royalty Pharma second, quarter earnings conference call.

It's very topical.

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, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma second quarter 2022 results.

I would now like to turn the call over to George

Can find the press release with our earnings results on slides of 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.

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

All forward looking statements are based on information currently available to royalty pharma and we assume no obligation to update any such forward looking statements.

non-GAAP financial measures will be used to help you understand our financial performance and the GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.

With that please advance to slide four our speakers on the call today are Pablo <unk>, founder and Chief Executive Officer, Marshall Europe , EVP head of research and investment.

Grofik, SVP, Head of Investor Relations and Communications.

Tysabri?

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 the right opportunities.

And Terry Cohen, EVP, Chief Financial Officer.

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

Following 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.

Sure.

So we have a lot of conversations.

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

Good morning and good afternoon to everyone on the call.

So it's a great question.

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 commercialized that, you know, where that meet all of that meet our bar and the things we really want to put into the portfolio.

Report another quarter of strong execution on our strategy.

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

It's very topical.

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

Adding funder of innovation in Kansas.

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.

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

The pro choice.

And the lifetime ecosystem.

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

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

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

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

Slide six summarizes our financial and portfolio achievement.

So again for us I mean, our business.

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.

Our, you know, our very low fixed cost base is also very attractive.

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.

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.

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

With that, please advance the slide forward.

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

Our impressive track record of double digit growth.

Our speakers on the call today are Pablo Legorreta, Founder and Chief Executive Officer, Marshall Urist, EVP, Head of Research and Investment, and Terry Coyne, EVP, Chief Financial, Officer.

We're open-minded.

Second we have announced transactions of $2 5 billion year to date.

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

We can do just a royalty deal, a royalty and equity deal, a royalty equity and or also, include launch capital, development capital.

The trilogy royalty acquisition, which we completed just after the quarter end.

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

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

This reflects the strong growth in demand for another royalty based funding solutions.

In fact, being flexible is probably the best way to approach discussions with potential, partners.

Chris Hite, our Vice Chairman, will also join the Q&A session.

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

Third we saw positive progress across our portfolio.

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

<unk> proposed acquisition of <unk> will accelerate value creation to royalty pharma and Marcia will walk you through that shortly.

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

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

In addition, we have.

We were pleased to see the FDA acceptance of the regulatory filings of PTO to seven in asthma as well as intranasal sub add Japan to migraine.

It is important milestones potentially brings us important closer together.

Lastly, raising our full year guidance what gas reserves.

Based on the strong underlying performance I'll break existing portfolio and the addition of the <unk> royalties and we now expect 7% to 10% top line growth.

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.

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

Slide six summarizes our financial and portfolio achievement this coming quarter, which, again, underscores the strong outcome in our business. First, we delivered 10% growth in adjusted cash receipts, our top line, maintaining our, impressive track record of double-digit growth. Second, we have announced transactions of $2.5 billion year-to-date, including the trilogy, royalty acquisition, which we completed just after the quarter ends. This reflects the strong growth in demand for our innovative royalty-based funding solutions.

And then the fact that we were able to, you know, lock in rates on all of our debt at, you know, pretty historic lows with only, you know, less portfolio of non-cyclical growth is really attractive in this environment.

Third, we saw positive progress across our portfolio.

Our, you know, our very low fixed cost base is also very attractive.

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

The second quarter, we delivered 10% growth in our top line.

Estimate that foreign exchange had a negative 2% to 3% impact on the quarter with strong double digit momentum positions us to achieve another year of impressive top line performance in 2022.

Below our topline I am also pleased to report that we grew our adjusted EBITDA by 10% adjusted EBITDA is an important non-GAAP measure for us, which is derived by deducting upgrading and professional expenses from our top line.

Lastly on <unk>.

The cash flow, our bottomline grew by 12%.

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

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

Slide eight shows our impressive track record of strong topline 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.

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 small, only $3.2 billion.

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 unimportant.

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

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

And we would expect that, you know, 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 you know, we're very confident that we can continue to deliver as we have in the, past and deliver very attractive, you know, uncorrelated long-term compounding returns.

Great.

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

An important element of this shown on slide nine is our unique ability to identify and that blockbuster therapies to our portfolio.

Good morning.

Yep.

<unk> of course is the most recent example of this unique attributes of our model.

And then your question on Tysabri.

Blockbusters bring a number of key advantages to royalty pharma.

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

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.

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

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

You know, we have been, of course, following the Sandoz, Polpharma, Biosimilar for some, time.

Biochrist, smaller amount from 2012 to 1.3 billion raised.

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 than billion.

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

We were 25% of the farmer.

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.

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

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

Four have end market sales greater than 3 billion. This means our portfolio is around one six times.

Those sorts of blockbusters compared to the top 15 Biopharma companies.

Furthermore, we continued to add to this list of transformative therapy.

<unk> 'twenty, we have at hand.

And future potential blockbusters to our portfolio.

Sensor sales.

Constantly identifying at 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.

Got you.

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

They really like it and they embrace it.

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

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

You know, also of interest is that we've taken a look at our claims data, which, you know, with our strategy and analytics team, and we looked at Tysabri closely. And it's interesting, Tysabri actually is a very sticky product.

You know, when you look at 2021, only about 12% of total patients on Tysabri were actually, new patients.

Yeah.

So it is a really sticky product, you know, patients like this.

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

Thanks, Pablo let's move to slide 11 Cherokee.

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

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

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

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

Okay.

I think management teams are eager to really understand what's unique and I think we're, very optimistic about how things are going.

Cherokee's in Madison, we had been tracking for some time.

Thanks, guys.

As 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.

Thank you.

One moment for questions.

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

Our next question comes from Mike DeFiore with Evercore.

Our interest and 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 ontology.

So, you know, there certainly aren't any clear comps.

You may proceed.

So we'll have to wait and see, you know, on if and when they are approved, when they might, launch.

But this has been a great investment, you know, for Royalty Pharma.

Hi, guys.

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

It's difficult to manufacture, and you know, 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.

Thank you.

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

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

Veeva <unk> and GSK royalty.

One moment for questions.

Just two quick ones.

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.

Our next question comes from Terrence Flynn with Morgan Stanley.

One is the IRR on the trilogy deal.

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.

You may proceed.

So how should we think about the discount rate in our calculations?

Great.

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

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.

Thanks for taking the questions, two from me.

Separately, what are your expectations for it and Prolacta team?

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, you know, first half of this year or second half of last year, just from an opportunity perspective, given, you know, 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?

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

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

Yeah, so just I think the IRR, it's not mid-single digit, it's more like high-single digit.

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'd announced the deal in July.

Thanks so much.

And I think one of the things that I think is important is that, you know, like you're, looking at it from the perspective of, you know, maybe either the analyst consensus or your own forecast.

For royalty pharma at this transaction not only adds another blockbuster gahr portfolio is probably noted that we expected 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.

Thanks for the question, Terrence.

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

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

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

So I think this is an asset that has the potential to do really well.

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

Sure.

So, hi, Terrence.

<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.

Good morning.

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

So, we've certainly seen, you know, increasing momentum in the top of the funnel in terms, of, you know, in terms of the number of things we're looking at. It is certainly up, both, you know, as you think about year on year, as you think about, the – or even in terms of the, you know, the pace of new things as we've moved through this year. You know, things have definitely – have definitely been accelerating.

So, I think – and a lot of that undergirds what we're saying about our confidence in, the opportunity and the number of things we're seeing.

You know, as we've said before, you know, our bar and our investment process remains, the same.

So, you know, 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, you know, even as we are seeing a increased number of opportunities.

You asked about large transactions, too. You know, there are always a number of large transactions that are in the funnel that we're, watching, that we're working on, you know, at various stages.

But, you know, as we've commented before, you know, large transactions, you know, it's, very hard to – it's very hard to estimate when they'll happen, at what pace they'll happen.

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

So, we continue to expect them to happen, as you've seen.

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

They certainly do since we've been public, but always hard to – always hard to sort, of say exactly, you know, when or at what pace they'll happen.

Representing year over year growth of 50% looking.

And we're excited about it.

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.

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.

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

So it actually 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.

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 the decade into the next decade.

Compared with the $1 7 billion reported in 2021.

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

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 list.

Yeah.

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.

Thank you.

Mike, can you repeat the question?

Operator, we'll take the next question.

Thank you.

In Europe <unk> is approved in ret 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 go read out in ex U S markets, excluding greater China for $175 million upfront 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 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.

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

I think I heard something different than Pablo.

Moving to slide 14, Pfizer's proposed acquisition of Bio Haven is expected to significantly accelerate the returns on our various investments and violated 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.

Sorry about that.

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.

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

That's what I was saying.

Right.

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

Okay.

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 on the vet, 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> sales through the mid 2030.

Yeah.

Got it.

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.

Yeah.

One moment for questions.

Okay.

So I think Pablo touched on that, but we're really excited about it.

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

And we think that the IRR is very much consistent with what we've targeted and what we've said is high single, low double for these approved products. And this is sort of right in that range with what we think is hopefully some upside potential there.

Our next question comes from Andrew Baum with Citi.

You may proceed.

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

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

Thank you.

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

On the regulatory frame 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 vet, Japan in migraine and on the captive in heart failure.

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

These important milestones potentially bring this importance closer together.

Two topics.

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.

So the first one is Trilogy.

Maybe, Marshall wants to take that. Yeah.

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?

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, if ever.

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

Sure.

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.

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

And then second question is for Pablo and Chris.

Hey, Mike.

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

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

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

Great.

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

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

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

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

That being said, the product has shown some interesting data, we think, for orthostatic, hypertension and in the subset of patients with multiple system atrophy as Daravan has talked about.

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

Thanks so much.

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 also saw significant growth contributions from Promacta from our bio Haven partnership and though not specifically shown on this slide from Cabo medics and risky and or the dam.

These positive factors more than offset the loss of contribution from our legacy HIV franchise as well as year over year declines from improve OCA 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.

Is this 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.

Operator will take the last question.

Thank you.

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

One moment.

Thank you.

And our last question comes from Ash Verma with UBS.

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

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

You may proceed.

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

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

Hi.

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

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

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.

Thanks for taking my question.

I just had one on Trilogy.

As we move down the column operating 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.

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.

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.

Modest net interest in the quarter, reflecting the semiannual timing of interest payments on our seven $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 <unk>, 79% 79 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.

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 acquisition 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 of royalty for a net upfront payment just over $1 $3 billion in cash.

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

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.

Fixed rate average coupon coupon on our debt 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.

Lastly, we are 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.

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.

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.

An increase of between 7% to 10%.

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

Which Terry will talk to you more about in a minute.

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 Felipe will last year.

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

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.

On slide 7, you can see our financials in a little more detail.

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.

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.

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

Finally.

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

Marshall, can you take that question, please?

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

Sure, Ash.

Thanks for the question.

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

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 percent.

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

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 aspirations 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 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.

Adjusted EBITDA is an important nongap measure for us, which is derived by deducting operating and professional expenses from our top line.

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

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.

It's highly, highly complex.

Thanks Terry.

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

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

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

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.

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

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 second, we bought first the U.S. Royal Gen, then the— Xerox Royalty, and we partnered with Amgen.

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.

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

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

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

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.

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...

Slide 8 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.

So we were in the middle, and we were able to go to each party and say, look, this is, unreasonable.

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, shown on slide 9, 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.

This doesn't make sense.

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

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

Our strategy is based on five pillars.

Capturing a leading share of third party royalty acquisitions for approved products.

Late stage development opportunities.

Second acquiring wounded creative royalties.

We term synthetic royalties on both approved and development stage products typically two held biotech partners fund R&D and commercial launches.

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 payments.

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

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

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

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

Today, around a quarter of our streams come from blockbuster products. In fact, 13 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.

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

My final slide shows that we are delivering on all of our strategic plan.

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

Every deal has its specific dynamics.

In 2020, one as a result of the Mercosur M&A transaction, another existing and synthetic royalty acquisition, we deployed 3 billion of capital across all five strategic pillars.

Since 2020, we have added end- and future potential blockbusters to our portfolio. Based on sensor sales, constantly identifying and adding, on marquee products to our portfolio, we're able to drive continued portfolio replenishment, diversify the business, reduce risk, and ultimately grow our top line and generate the value.

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

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

Thanks, Pablo.

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

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

Deal.

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 million to $12 million and to deliver the attractive compounding growth profile that we've described.

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

Let's move to slide 11.

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

With that.

We would be happy to take your questions.

And they would sort of move off from that point.

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

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

Thank you.

Thank you.

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.

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.

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.

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

Good morning, and thank you.

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

And I guess this was just much more complex.

Thank you, operator.

Appreciate the updated comments and congratulations on continued progress two quick questions one.

And we're ideally suited for complexity and deals like that.

Following the investment that you made with the trilogy I believe that is one of the more sizable if not the 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.

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

Sure.

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 singly focused on differences in the timelines of the durability and exposure of small molecules versus biologics how would that maybe the defined if you could share any further call.

<unk>.

How that changes your investment calculus. Thank you.

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, Theravans, 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 InnoViva. Royalty Pharma agreed to acquire the entire royalty stream for a combined total of $1.31, billion up front and up to $300 million in potential sales milestones.

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

Sure. Thanks for the questions and good to hear you.

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.

Hey, Andrew.

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.

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.

Good morning.

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

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%.

Maybe just brief pass it onto Marshall, but.

As you know.

Outline the pillars of our strategy and I think.

There is no question that that the business that is.

Looking forward, we believe there is still very significant scope for sales growth based, on the increased penetration of triple therapies in the US and expansion in international markets. We note the consensus sell-side forecast projects that Trilogy 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.

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

On slide 13, I want to highlight our acquisition of royalties on Govretto. This is a precision oncology medicine which targets RET mutations and is marketed in certain, territories outside the US and greater China by Roche. In Europe, Govretto is approved in RET-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-US 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.

The synthetic royalty reports.

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.

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

Front of us, which is very very significant.

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

The biotech firms who needs a very significant amount of capital to continue to fund innovation and we are the partner of choice of this companies.

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

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

And have really figure out how to work with them in very creative ways. For example, with our new large capital on development capital.

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

A core.

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 skills a lot of skill because 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 thereabouts and glaxo.

With a common purpose and really align all of their different.

Durations and goals.

Difficult, but we have been patient and figure 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. So very excited about that but those kind of deals will give us.

Additional opportunities to deploy significant capital that together like M&A.

That's why we've.

Sorry 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 sort of golden age of innovation.

This industry is really.

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

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.

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

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

So there are a number of questions there.

Sure. Thanks, Bob Hi, Chris Good morning.

In terms of clinical news, over the balance of 2022, we anticipate phase 3 readouts for, up to four potentially transformative therapies, including results from Copimedics in combination with immunotherapy in a number of different settings, Pfizer and Estella's Xtandi in non-metastatic prostate cancer, Roche's Gantanerumab in Alzheimer's, and GSK's Otilumab in rheumatoid arthritis.

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

In 2023, we anticipate readouts from a few important phase 3 programs, including Biohaven's, oral to ZVEG Japan in migraine and Trimfia in IBD.

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

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

On the regulatory front, over the remainder of 2022, we would highlight the expected European, approval decision on Govretto in thyroid cancer and the FDA decision on PtO27 in asthma.

In 2023, we anticipate FDA approval decisions on intranasals of ZVEG Japan in migraine and, on omicamptive 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.

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

So we're super excited.

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

Drug pricing reform 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.

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

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

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

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

And we're excited to continue the relationship with all of you over time.

And we're here to answer questions, reach out to George and anyone in the team.

But thank you all for listening today.

Thanks, Marshall.

The other question, I think you asked about why, about large pharma using synthetic royalties.

Thank you.

This concludes today's conference call.

A lot of Medicare D B, Andy 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 we will certainly do that I think there are as we mentioned in the <unk>.

Let's move to slide 17.

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?

Thank you for participating.

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

So I wouldn't interpret it that way.

Growth drivers in the quarter included the Cystic Fibrosis franchise, Xtandi, which benefited, from a prior period adjustment, and the Tremfaya royalty, 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 CaboMedix, 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.

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

As you're aware, adjusted cash receipt is a key non-GAAP 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 2-3% headwind from, FX in the quarter.

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

As 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.

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

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 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.

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

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

<unk>, a number of unknowns and uncertainties ads exactly what it will look like exactly how it will be implemented how 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.

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 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.

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 have to meet up and create those opportunities.

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.

But we continue to think that's 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, you, know, there was some history to all of this, you know, other companies which made it complicated, 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, and you know, I just said I can persuade them to actually, you know, continue the discussion and open, the door, and let's be reasonable.

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.

Okay.

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 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.

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

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.

After the quarter end, as you heard from Marshall, we acquired the trilogy of 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.

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.

Pro forma for the trilogy deal.

We would be at three three times.

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

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.

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.

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.

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.

And we can put as much as an additional turn.

We needed to.

On on on our leverage so.

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.

Many of flexibility.

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

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

Great. Thank you for the comments.

Thank you.

Thanks, David one moment.

One moment for questions.

One moment for questions.

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

Our next question comes from Steven Schadow with Cowen.

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

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

You may proceed.

You may now disconnect.

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

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

Thank you.

The conference will begin shortly.

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 EVRIZI, which will be enhanced by the addition of the Trelegy royalties in the third and fourth quarters.

A couple questions.

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

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

[music]

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

Its, priorities are changing.

I guess first one on the raising rate environment. We're in I guess, we continue to 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 fund a lot of deals with cash, but can you just remind us again, how you navigate this higher rate environment.

Higher rates changed at all the way you think about either the types of deals or sizes of deals you would consider so I guess, you're still kind of a.

And 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 royalty has been 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.

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.

They've de-emphasized respiratory research, and its recent respiratory launches, Brio, Onoro, Nucala, have been mixed, some successful, some less so.

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.

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

Thank you for the questions Chris.

So that's the first question.

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

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.

Sure so.

It's a great question, it's very topical.

Tysabri.

Sure.

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.

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.

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

And then the fact that we were able to.

Lock in.

Rates on all of our debt pretty.

Eric lows.

With only less.

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

And then the fact that we were able to.

Lock in.

Rates on all of our debt at pretty historic lows.

With only less less than half.

Around 60% or so maturing.

Beyond 2030.

So.

Think 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.

Refinance it would be.

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 that.

The great thing about our business is we're always reinvesting.

We would expect that.

That rising rate environment to also trickled through to to the prices that we pay for assets and so there is a very nice sort of a 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.

Correlated long term compounding returns.

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

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

Good morning.

Thanks, Terry.

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

Thank you.

Yes, and then your question on Tysabri so.

Before I close, I want 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.

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.

Thank you.

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.

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

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.

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.

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 the 2022 year to date, we have deployed $2.5 billion across four of the five pillars, including the recent Trilogy deal.

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.

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.

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

We will now open up the call to questions.

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's certainly.

Operator, please take the first question.

Thank you.

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 any 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 and in the end.

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 if you looked at Tysabri closely and its interesting tysabri actually is 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.

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 sandoz would be 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 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 this license it.

So we are quite familiar with the situation.

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

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

Thanks Nicole.

Question.

One moment for questions.

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

Our first question comes from Chris Shibutani with Goldman Sachs.

You may proceed.

Um, maybe Marshall and Chris should take this question.

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

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

Good morning, and thank you.

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

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

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

I appreciate the updated comments and congratulations on continued progress.

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

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.

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.

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

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

And then second, Marshall appreciated your proactive mention of comments about U.S. drug pricing reform.

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.

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

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

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

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

Thank you.

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

Sure.

Chris, do you want to go ahead?

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.

Thanks for the questions.

Sure.

I mean, yeah, sure.

Good to hear you, driving and I think will continue to drive very significant growth going forward is, you know, the synthetic royalty opportunity in front of us, which is very, very significant.

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. There are always a number of large transactions.

So, the biotech industry needs very significant amounts of capital to continue to fund, innovation.

And we are the partner of choice of these companies and have really figured out how to work with them in very creative ways, you know, for example, with our new launch capital and development capital, you know, structures that are ideal for this company.

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

It's Chris.

And in addition to that, there are these larger transactions that take time, a lot of skill, a lot of skill, because, you know, one of the things that maybe people don't focus on or, you know, is how complex it can be to actually bring together diverse parties like, you know, Vivo, Sarabans, and Glaxo with a common purpose and really align all of their different innovations and goals.

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

Very difficult, but, you know, 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.

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 the technology.

So, very excited about that.

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

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

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

That to get like M&A, you know, that's why we've started guidance for the next years.

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

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

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

Sure.

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.

Thanks, Pablo.

Hi, Chris.

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

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.

So that would.

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.

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...

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

The timeline such as anticipated generic so we can I ask is given the complexity of increasing three active ingredients and health.

It could be that this product does not face any generics for a very very long time, indeed, if anther natural with that obviously has an impact on <unk>.

Still, that could happen around pricing.

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

Dependent on the royalty streams to the returns.

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

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

And then second question is.

Top line Chris.

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.

Just in your comments and synthetic royalties, which focuses very much on foreign tech companies, which is not surprising previously I know you've spoken to large pharma and you obviously have the patents trial, which means that participated in it.

We're engaged in those conversations today with both Large Pharma and Small Cap Biotech to help them on the R&D front.

Now management, but actually find that the large company simply not going to be tempted to use competitive royalties to hedge risk and they're all kind of 2% related to financing.

Thank you.

Yes, maybe I'll just.

Answer.

Question about.

Trilogy.

So higher than I think.

I'll tell you is.

That.

Two.

Yeah.

Our two party deal is complicated.

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

Three party deal.

Is much more complex and in this case it was up for part of the deal.

Never done that in my life.

But we managed to do it and it would require as someone that has.

The patients the interests that gratitude to listen to one party understand what their goals are.

Ross is that listen to another party understand their motivations and interests.

And see if there is any common ground here. If you can somehow bring together something thats 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.

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.

<unk> members while capturing.

On the second.

We bought first the U S royalty.

Xtra.

And we partner 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 commerce CFO of Gilead set was we would have never been able to do this transactions by ourselves. If we just won't directly by royalties from the University of the holder and the reason for that was there were points youre in that transfer.

Transaction.

One party.

Two things to be done and the contracts that were not acceptable to the other one and there was an impact 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 are not going to give it to you and if 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.

As I said the CFO of Gilead at the time said, we will have never been able to do this ourselves and the fact that we.

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

We are ideally suited for complex at the <unk> deals.

That certainly well I'll stop there but.

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

Good morning.

So, absolutely.

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.

Gotten into tremendous amount of detail in our.

Our IP analysis et cetera, what we had said is generally our expectation 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 the <unk> 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.

Didn'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 purely.

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 the companies. We do think the synthetic royalties are.

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

Our <unk> 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.

Thank you.

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 half half 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 that a 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.

Turning to discussion and open the door and let's be reasonable.

So again.

Yes, that's what's required in transactions like this.

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

Thank you.

Thank you one moment for questions.

Okay.

One moment for questions.

Our next question comes from Stephen Scouten with.

Cowen you May proceed.

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

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

You may proceed.

They've deemphasize respiratory research and its recent respiratory launches Breo anoro, new color have had been mix some successful some less so.

Hey, guys.

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

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.

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>.

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 just don't have a lot of Medicare B and D 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.

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

And, you know, and we will certainly do that.

Vacate the area. Thank you.

Thank you.

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.

Maybe Marshall and Chris.

Take this question but.

Just my own personal.

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

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

Yeah.

Very significant sales and marketing effort behind this product the amount of TV advertising for example that is just really just amazing.

I think this is just.

Just a great drug with amazing support from the leading company in the space, but Chris Marshall do you want to add.

More to my answer.

You highlighted the difference between, you know, Medicare B and D in terms of duration.

Chris do you want to go ahead.

Yes sure Chris.

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 our consumer health business, most recently and focusing on their pharma and vaccine business.

Trilogy 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 and <unk>.

Pharma or biotech given the potential pricing reform, obviously theres a lot.

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

But as Marshall said I think 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.

Thank you.

Thank you one moment for questions.

And I think on some of the other earnings calls, we've heard lots of perspectives on that.

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

So, I think what you'll 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.

Good morning.

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

Gerry 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.

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 have talked a lot about this.

Analyst event, but it really hasnt been a component of major deals is it that.

That that structure is.

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

Thanks for the question.

Gary and Marshall just to take those questions.

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

On 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.

Two paying paying a dividend.

Clearly, our 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.

The most long term value for shareholders.

And then the other thing that the other area that we highlighted at our Investor day that over time, we could look to share repurchases as an additional.

Hey to return capital to shareholders, but clearly our focus is.

Is on buying new royalties.

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.

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

We still feel like we have a lot of financial firepower. The business generates a lot of cash each quarter. And then we have our revolver, which is $1.5 billion, and we actually have a lot of leverage, capacity.

Hey, Jeff.

So we mentioned that we, 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 dive around 2.2, nearly $2.2 billion.

And I know the goal here is to reinvest.

So second question on synthetic.

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

So, you know, plenty of flexibility.

Very much appreciate the question.

So we feel really good about our ability to capitalize on the opportunity that we see.

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.

Great.

But has your payout policy evolved as well?

One thing that is really characterized our approach.

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 don't think theres any shortage of interest, but I do think finding.

Thank you for the comments.

Thank you.

One moment for, one moment for questions.

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.

It is something that where we are going to we're going to let happen and make sure that we are building with the right opportunities I mean, <unk> seen us do it with with multiple products over time.

Bio Hey, Ben Biocryst Immunomedics Cytogenetics, so we're we're doing them, but I think the the.

Discipline and 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.

If I may just add.

Whether companies.

Like or not.

Synthetics.

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 could she had.

Also include launch capital development capital.

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.

The whole range of solutions is what actually.

Results in us.

Being successful and being a good partner.

I'd 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.

A company that raised from May 2017, two.

Now $3 $2 billion of capital to develop.

Various $43 2 billion, we were 26.

That with about $800 million, you look outside of kinetics to capital raise.

20%.

Capital.

Biocryst smaller amount.

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

I think most companies understand the benefit.

Of the different.

We can put in place.

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

Educating the market really companies understand the benefits to them of.

The way, we can we can bring the power of our model.

To help them successfully develop their programs.

It is something that we're having a lot of really positive traction with many companies.

It really now where things are getting very difficult for companies that were having a lot of conversations I think.

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

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

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

I think we're very optimistic about about how things are going.

Okay. Thanks, guys.

Thank you one moment for questions.

Our next question comes from Chris Shaw with JP Morgan.

I mean, you guys talked a lot about this at your analyst event.

But it really hasn't been a component of major deals.

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

You may proceed.

Great.

Is it that structure?

Thanks so much for the questions.

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

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

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

Just two for me.

Just two quick ones.

I guess first on, 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.

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 CFM OE, but the IRR.

And I know you talk about your debt not maturing until post-2030.

According to my math seems a bit maybe yogurt. 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.

I know you fund a lot of deals with cash, but can you just remind us again how you navigate, this higher rate environment?

Separately, what are your expectations for <unk> and for rocket team the street really isn't getting much credit if at all given the.

Prior phase III failure.

I want to see your thoughts on this.

Yeah, So just I think.

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.

Yes.

Youre looking at it from the perspective of.

Maybe.

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.

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.

So that tends to outperform our expectations analysts' expectations. So I think this is an asset that has the potential.

Actual.

Really well and we're excited about it.

So that's.

Related to the IRR and obviously this is one that is very leverage able because of the very strong cash flow that it produces so it actually.

Balance is 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.

We'll talk about the.

IP.

Exploration of CF, because I think 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.

Yeah.

I think.

Can you Mike could you repeat the question.

I think I think I heard something different and Pablo.

No.

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 the decade, that's why I was saying.

Right, Okay got.

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

And 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 for these approved products and this is this is sort of right right right in that range with.

And 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.

As we've talked about and as Pablo touched on we always try in our in our deals to be good partners 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 trilogy transaction with Dara dance. So important to keep in mind that it's an interesting product, but certainly a certainly a.

A more modest part of what is a what is a very large deal that being said the <unk>.

<unk> has shown some.

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

Subset of patients with multiple system atrophy at their events I talked about so.

We're excited to see how that program develops and certainly could offer could offer some interesting some interesting upside as 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.

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

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

Presenting a template for commercial stage dealing or was 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 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 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.

That 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 some additional milestones based on based on future commercial performance, what's the right structure I am.

Sure, we'll 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.

<unk>.

Yes.

Thank you.

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

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

Thank you operator, and thank you.

Thanks to everyone on the call for your continuing interest in Royal Department, I will just close by saying that.

Yeah, sure.

We have recently, our Investor day and we.

Spend a lot of time outlining.

Royalty pharma its uniqueness of our business strategy.

We do things why companies want to partner with us what we bring a value to companies.

And also the very very significant size.

The opportunity we have in front of about funding this from.

Incredible ecosystem that is.

It's sort of a golden age of innovation and we laid out outline.

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

What youre seeing.

This year.

Year has gone by.

Delivering against those goals were up to $2 5 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 innovators in our life Sciences and <unk>.

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

Over time, and we're here to answer questions. So.

Your child to George.

And the team, but thank you all for listening today.

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

Okay.

And do higher rates change at all the way you think about either the types of deals, or sizes of deals you'd consider?

So on the payout, no changes there, Geoff.

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

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

This year, we increased our quarterly dividend by north of 10%. We said that we're committed to paying a dividend.

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

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

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

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

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

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

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.

But clearly, our focus is on buying new royalties.

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