Q1 2023 Royalty Pharma plc Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by welcome to the royalty pharma first quarter earnings Conference call I would now like to turn the call over to George growth at SVP head of Investor Relations and communicate.
Please go ahead Sir.
Good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma first quarter 2023 results you can find the press release with our earnings results and fly to call on the investors page of our website at royalty pharma dotcom move.
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.
For you to our 10-K on file with the SEC for a description of these risks all.
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. The GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.
And with that please advance to slide four.
Our speakers on the call today are Pablo like a writedown founder and Chief Executive Officer.
Marshall Europe , EVP head of research and investments and Terry Cohen, EVP, Chief Financial Officer, Pablo will discuss the key highlights Mark will then provide a portfolio update after which Terry will review the financials.
Following concluding remarks, and Pablo we will hold a Q&A session. When we will be joined by Chris height, EVP Vice chairman.
I'd like to turn the call over to Pablo.
Thank you George and welcome to everyone on the call.
To report a strong start to 2023 as we deliver on our strategy as a leading funder of innovation in life Sciences.
Slide six summarizes our financial portfolio achievement of the first quarter, which again highlights our strong momentum and the power of our business model.
First we delivered strong performance.
Adjusted cash receipts, our topline grew by 11%.
Adjusted EBITDA also by 11% and adjusted cash flow grew by 49%.
Other strong metrics were prior to the bio herein related payments, which I will discuss on the next slide.
Second on capital location.
We announced royalty position of up to one 6 billion, including $600 million in upfront payments and a multi year share repurchase program of up to $1 billion I.
I also personally intend to acquire up to an additional $50 million of royalty pharma stock given the compelling value I believe the share represents.
Third we strengthened our royalty portfolio, we added three new therapies, including the SMA blockbuster spin roster and the exciting development stage therapies, Pella Carson and car XD.
Both of which are potential future blockbuster on consensus estimates.
Additionally, three medicines in our portfolio were approved by the FDA.
Had a positive phase III readouts for a potential label expansion with the <unk> study.
Fourth we are reaffirming our increased full year guidance for adjusted cash receipts are.
Our guidance reflects expected underlying growth from our portfolio of between 4% and 9% prior to the buyer behavior related payments consistent with our standard practice our guidance is based on our current portfolio and does not include.
The benefit of any future acquisitions this year.
On slide seven you can see our financials in more detail.
We delivered 11% growth in our top line prior to the Biogen related payments and 80% or 87% growth. If we increase include the statements.
As a reminder, the major nonrecurring items here are the $475 million milestone we received from Pfizer in March 2023.
Following the approval of SaaS spread for migraine as well as the $13 million fixed by headcount related payments, we received for the same period a year ago.
Foreign exchange continued to represent a headwind impacting our top line by around minus three to minus 4% in the quarter.
Consistent with our top line, we grew our adjusted EBITDA by 11% in the quarter prior to the buyers haven't related payments and 88% increase.
Including these payments.
EBITDA is an important non-GAAP measure for us which is arrived at.
<unk> payments for operating and professional costs from our top line.
Lastly, our adjusted cash flow our bottom line grew by 49% in the quarter prior to the buyers haven't related payments and 165%, including those payments.
A substantial increase in the quarter also reflected the $100 million upfront and milestone development space payments to cytogenetics.
Higher year.
Slide eight shows our impressive track record of strong topline growth since our IPO in June of 2020.
Including our double digit growth in the first quarter. This reflects our ability to execute successfully and consistently against our strategy.
Slide nine provides a deeper dive into our top line performance in the quarter.
So the various moving parts.
Performance of our base business and our acquisition of the trades of royalties allowed us to deliver 11% top line growth before taking into account the impact of the bias Kevin related payments.
Royalty exploration.
And pricing together represented a combined headwind to growth in the 7% to 8% range.
Strong underlying dynamics in the quarter once again underscore the unique power of our business model to replenish our portfolio and to drive compounding growth with that I will hand, it over to Marshall.
The view on our portfolio.
Thanks, Bob the next few slides I wanted to discuss our recent transactions in schizophrenia and also to provide a broader perspective on our approach to portfolio strategy.
Last month, we were delighted to announce the acquisition of pure tax royalty on Corona's car X team.
This is a novel oral muscarinic agonist with two positive phase III trials in schizophrenia.
<unk> is also in development for the treatment of psychosis and Alzheimers disease.
In return for an upfront payment of $100 million.
And $400 million in potential regulatory and sales milestones, we will receive a 3% royalty on annual sales of car X T up to $2 billion.
And approximately 1% above the threshold to provide some context for modeling the potential outflows for this transaction.
Majority of the milestones require very strong commercial performance.
Our excitement about this development stage medicines is driven by the results of the clinical program, including two phase III studies emergent to entry and the significant need for new novel therapies in schizophrenia.
Not only did the trials demonstrate early and sustained reduction in the positive and negative symptoms in schizophrenia, but importantly.
The Tolerability profile was very encouraging, especially regarding some of those common adverse events typically associated with current medications, including weight gain somnolence and extra pyramidal symptoms based on these strong results Corona plans to submit a new drug application to the FDA in the third quarter of this year. The street has certainly recognize the exciting <unk>.
<unk> this compound with consensus sales projections rising to $5 billion by 2030.
Slide 12 expands and the significant unmet need for new treatments in schizophrenia on the left hand side, you can see that close to a third of patients do not respond to current therapy and only about half have a partial improvement or suffer unacceptable side effects when taken together with the particular challenges of this disease. This result in approximately.
Three quarters of patients discontinuing treatment within 18 months, which underscores the need for new treatment approaches.
This is why we're so excited to have.
Invested in two novel mechanisms of action through car T and NK 80, 189, each potentially offers a differentiated clinical profile from current medications, most notably on Tolerability.
<unk> as I, just highlighted has already reported positive phase II results and will be marketed by Corona subject to FDA approval and MK 80, 189 is a PDE 10, <unk> inhibitor in phase <unk> or a potential royalty arises from a unique collaboration between royalty pharma end market.
Taken together this is another illustration of our unique ability to invest in multiple therapies in the same category, where we see the potential for innovation to transform patient lives.
Slide 13 returns to a concept that we showed at our Investor day last year on selected investment themes of interest or investment in the schizophrenia category are consistent with two of these themes. The first is to explore the potential of under innovated large markets, where there is arguably arguably been less industry focus given the shift towards specialty.
<unk> is a smaller patient populations and higher price points.
<unk> is a great example of a large under innovative market and we believe that car T and NK 80, 189 could bring important benefits to patients in this complex and difficult to treat population.
In addition, we believe brain disease is tremendous scope for innovation with limited effective treatment option in many cases schizophrenia hit squarely in this heterogeneous category.
Lastly, on slide 14, I want to provide a long term perspective on our balanced royalty acquisition strategy. This data shows how we have deployed our capital since 2012 between approved in development stage opportunities on the left hand side you see that since we started investing in development stage therapies in 2012.
Approximately $21 billion in capital deployed the majority of the investments have been in approved products on the right hand side, you can see that the percentage deployed annually has exhibited.
Significant variability on an annual basis in part, reflecting the opportunistic nature of our business, but in aggregate has also been skewed towards approved products on average at 59% of total capital. So while we do not have target levels of investment between approved in development stage or therapeutic area agnostic approach.
Two investing and position as the partner of choice in the royalty funding market has allowed us to fund innovation in a balanced way while.
Maintaining strong returns and long term growth with that I'll hand over to Gerry.
Thanks, Marshall, let's move to slide 16.
Total royalty receipts grew 72% in the first quarter versus the year ago period, excluding the bio Hayden related payments in each quarter royalty receipts grew approximately 8%.
The magnitude of growth reflect the $475 million.
Milestone payments together with strong contributions from the cystic fibrosis franchise Trump fire and the <unk> royalty, which we acquired last July .
We also saw growing royalty contributions from <unk> and Cabo medics and from other medicines not shown on this slide.
<unk>, particularly trade Lv and all the data.
Lastly, we received a $35 million payment related to Astrazeneca Air Supra.
These positive factors were partially offset by the loss of the DPP four royalties by weakness and improve it and to a lesser extent tysabri and by the adverse FX impact.
Slide 17 shows how our efficient business model generates substantial cash flow to be redeployed.
As Youre aware adjusted cash receipts as a key non-GAAP metrics for us, which we arrive at after deducting distributions to non controlling interests.
This amounted to $1 1 billion in the quarter or growth of 87% compared with last year's first quarter as.
As Pablo noted earlier prior to the impact of bio Haven related payments growth would have been 11% in the quarter.
As we move down the column operating and professional costs were approximately 8% of adjusted cash receipts in the quarter.
As a consequence, we reported 88% growth in adjusted EBITDA in the quarter relatively consistent with our topline growth.
When we think of the cash generated by the business to be redeployed into new value enhancing royalties, we look to adjusted EBITDA less net interest paid.
Net interest paid in the quarter of $67 million reflected the semiannual timing of the payments on our $7 3 billion.
Of unsecured notes, which occur in the first and third quarters.
This figure included $16 million, we received in interest given the strong cash position on our balance sheet, which benefited from higher interest rates.
We did not have upfront and milestone payments for development stage funding in the quarter, whereas the prior year period included a $100 million payment related to set of kinetics.
As a consequence adjusted cash flow, our bottomline grew significantly faster than adjusted cash receipts and adjusted EBITDA amounted to $973 million or $1 60 per share for the quarter.
This resulted in an adjusted cash flow margin of 86%, which once again highlights the efficiency of our business model.
Let's move now to slide 18, and our financial position.
We continue to maintain significant financial firepower for future royalty acquisitions.
In the first quarter, we deployed a little over $600 million of capital on royalty acquisitions, as well as around $120 million on dividends.
This was more than offset by our strong cash flow generation over the quarter.
So that our cash and marketable securities increased to $2 billion at the end of March.
Our leverage at the end of the quarter stood at a comfortable two three times total debt to EBITDA and one seven times net debt to EBITDA.
As I have previously highlighted the fixed rate average coupon on our debt is slightly above 2%, which compares to our target returns on royalty acquisitions in the high single digit to teens percentage range.
In addition around 60% of our debt matures in 2000 therapy beyond.
Taken together, we continue to believe that our cost of capital and debt maturity profile represent a durable competitive advantage for our business.
Based on our financial strength and efficient business model, we remain confident in our ability to execute on our business plan and create value for shareholders.
On slide 19, I want to remind you of our capital allocation strategy and how we expect this to drive shareholder value creation.
At our Investor Day last May we outlined that over a five year period through a combination of cash generation and our debt capacity. We have we expect to have access to around $20 billion of capital.
As you can see on this slide the majority of our capital will be deployed on value enhancing royalty acquisitions with a target of $10 billion to $12 billion invested over the period.
In fact as many of you are aware, we are running a bit ahead of the schedule, having announced transactions of up to $5 billion since 2022.
Furthermore, given the tailwind in our industry and our powerful market position our transaction pipeline continues to remain robust and highly active.
We aim to balance this primary focus on royalty acquisitions with returning capital to shareholders through a combination of dividends and when appropriate share repurchases.
Recently, the board authorized a multi year share buyback program of up to $1 billion.
Which were which is a reflection of the compelling value, we see in our share price and our focus on efficient capital allocation to drive shareholder returns.
By executing against this capital allocation strategy. We are confident we will continue to deliver on our mission of accelerating innovation and life sciences, while generating strong returns and creating significant shareholder value.
Slide Slide 20 provides our full year 2023 financial guidance.
We expect adjusted cash receipts to be in the range of 285 billion to $2 95 billion.
Consistent with the raised outlook, we provided in March following receipt of the milestone.
Bilestone payment.
Importantly, and consistent with our standard practice. This guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions.
Turning to our operating costs, we expect payments for operating and professional costs to be approximately 8% to 9% of adjusted cash receipts in 2023 in line with previous guidance.
We continue to believe that the degree of margin protection provided by our unique business model is impressive and today's inflationary environment.
Similarly interest paid for full year 2023 is still expected to be around $170 million and have followed the established quarterly pattern with de Minimis amounts payable in Q2 and Q4.
This does not take into account interest received on our cash balance which was $16 million in the first quarter.
You should also note that we expect to make a $50 million milestone payment to site of kinetics in the second half of 2023 based on the company's guidance of initiating their pivotal trial of epic Hampton and non obstructive hypertrophic cardiomyopathy.
This $50 million expense will be recorded as a development stage funding payments and thus reduce adjusted cash flow this year.
Lastly, as many of you are aware.
Royalties, we receive lag sales by one quarter.
<unk> product sales by one quarter. Additionally, several of our largest royalties are tiered, which typically reset at the beginning of the year and have the potential to increase throughout the year.
Therefore, there is some seasonality to our business in the second quarter tends to be lower than other quarters in the year in the first quarter tends to be higher.
Accordingly.
We would expect adjusted cash receipts in the second quarter to be slightly higher compared with the same quarter in 2022.
My final slide drills down further on our adjusted cash receipts guidance.
The graphic is illustrative, but sets out the various pushes and pulls behind our outlook for 2023.
Starting with the left hand side, we have faced a high base of comparison due to the $509 million of bio Haven related payment, which we received in 2022.
Adjusting for these payments brings the underlying base for 2022 adjusted cash receipts to 2.2 dollars 8 billion.
On the right side, if we start from the adjusted cash receipt base prior to bio Haven, we expect underlying growth of 4% to 9% this year, which we anticipate to be driven by the CF franchise shrimp fire and a full year of trilogy royalties, partially offset by the losses of exclusivity on <unk>.
DPP fours and <unk> weakness, which we believe we are conservatively reflected in our guidance.
We also expect a modest contribution from three quarters of spin RASM royalties.
As mentioned earlier this growth does not include the benefit of any future acquisitions.
Using today's U S. Dollar exchange rates FX is expected to represent a relatively modest headwind of minus 1% to minus 2%.
Putting this altogether, including the $475 million payment milestone payment on <unk>.
We are reaffirming our increased top line guidance of $2 85 billion to $2 95 billion.
With that I would like to hand, the call back to Pablo for his closing comments.
Okay.
Thanks Kurt.
Let me close by saying how pleased I am.
With our excellent start to 2023.
Sets us up well to deliver on our guidance for the full year and to continuing to execute strongly against our strategy.
To finish on slide 23, I would like to highlight why royalty pharma business model offers a unique way to invest in biopharma.
<unk> growth as we announced at our Investor Day, we expect to deliver a top line CAGR of more than 10%.
Or more over the decade, which compares with consensus expectations of 4% for large biopharma.
Despite being a relatively small company in terms of shutdown, we offer the benefits of scale with exposure to 15 blockbuster medicines as compared with an average of nine for the large biopharma companies.
We have a similar low cost of capital.
Our development phase investments tend to be lower risk as we generally do not invest in therapies before clinical proof of concept, thereby avoiding the high failure rates.
And in early stage clinical compounds.
We have consistently delivered an attractive low double digit rates of return on our investments and our and while we are unable to provide a precise comparison with large biopharma as you know.
R&D productivity of the inventory and returns on acquisitions are open for debate.
We also offer a yield of around 2%.
And last but not least our management team is fully aligned with shareholders.
With ownership of the company, which is significantly higher than the management ownership and large biopharma.
Ownership for named Executive officers of royalty pharma is 16%.
Which compares to 11, 1% for our large cap biopharma.
Biopharma peers power.
However, when we consider all employees and reward ownership around performance, even higher at around 32%.
Taken together I truly believe royalty pharma offers a unique and powerful business model with a very attractive growth.
Term profile when compared to the Biopharma industry with that we would be happy to take your questions.
We will now open up the call to your questions. Operator, please take the first question.
Yes.
One moment for your first caller.
Okay.
The first question comes from the line of Chris shifting Tani kind of Goldman Sachs. Please go ahead.
Thank you very much good morning appreciate the updates.
You talk about a balance between the development stage and the commercial royalties do you feel that that balance is the correct. One for you roughly 59% to 60% and is that reflected in terms of the funnel historically you've talked about all the screening that you do across the different landscape and I ask that question in part in particular and I know that these were some of the selected <unk>.
<unk> teams, but you talk about sort of areas, where there's under investment in terms of innovation for large Tam.
Neurologic diseases et cetera.
To skew more towards taking some development type risk and then Relatedly can you comment on what your team's thoughts are we recently in the Alzheimer's disease area had some incremental news that continues to move forward. The beta amyloid hypothesis. There do you see opportunity neuro degeneration as mentioned, but in particular for Alzheimer's disease.
Where we are love to get your thoughts on.
Sort of the outlook, there and how you view that as a potential round per opportunity. Thank you.
Thanks, Chris. This is a question for you and Marshall, Okay, Great Hi, Chris Good morning, I think there were three three basic questions. There. The first one is how do we feel about the overall balance of approved versus development stage.
In our portfolio and overall as we've highlighted as we've highlighted we feel really confident in our overall strategy here and how our focus continues to be on finding the therapies.
That are important to patients to physicians to the medical system.
That makes sense for our portfolio and I think we're going to continue to focus on nodes and as you've seen as you can see on slide 14 that has yielded a really a really comfortable balance of approved and development stage therapies. So I think overall we feel.
We feel really comfortable with where we are and we will continue to and will continue to prosecute that strategy as we have been the second.
Second question there was do the overall themes that we highlighted suggest.
That there'll be more of a focus on development stage and.
Overall, I'd say no to that for a couple of reasons I think one is.
One is that as we've said as I as I said in the prepared remarks. These investment teams are overall themes of interest, but they arent necessarily driving day today, how we how we look at the opportunities in front of US. So these are themes that we think are really interesting.
Being but.
They are just that themes and we're going to continue to stay really focused on the.
On the strategy that I talked about and yes. There are some examples on here of of.
Development stage investments, but at the same time I think there is other areas where we've made.
Where we've made investments in approved therapies that would be consistent with these themes.
And under innovated large market certainly we felt like when we made the <unk> investment that was another area, where there had been less investment by large pharma and this was a leading therapy until it's still a very large category. So just as an example, the third part of your question was about all timers disease, it's been great to see all of it.
Success, there for patients and it looks like we're going to have multiple therapies in that category.
We think that is an exciting area and continues to be something that we're monitoring and looking for potential opportunities there as they make sense for us.
Great. Thank you.
One on the answer the next question.
Yes.
Okay.
The next question comes from the line of Chris Schott of JP Morgan Chris Go ahead.
Great. Thanks, so much for the questions I just had another one on just the environment I guess can you just elaborate a bit on the I guess the tone of the conversation youre, having with potential partners I guess, specifically you have kind of the needs and objectives of some of these partners changed at all given the prolonged challenges in the biotech funding environment and is that kind of.
Changing the way Youre thinking about the type of deals restructures of deals Youre doing.
And then the second piece of that is just about the competitive landscape. So I guess with one hand higher interest rates, but maybe into their hands seemingly more involvement in the large cap biopharma names looking to either partner or acquire assets in some of the verticals that youre targeting as well are you seeing kind of a different competitive arena than you might have thought about kind of.
Two years or three years ago or is that largely kind of the same as what you've experienced thank you.
Thanks, Chris.
The address your answer.
Sure.
Thanks for your question, Chris on the first of all on the tone.
As we showed some pretty good slides our last quarter.
Quarterly call, which talked about just the number how the royalty market's growing.
And how are initial reviews have gone up I think 75% since 2019.
So in the backdrop of.
The royalty market's growing six fold since 2015 in the sense of number of deals tenfold since 2015 on a number.
Value of transactions.
With that as a backdrop of course, the capital markets environment is challenging for Biopharma right now.
And I think Thats in part what has led to a little bit of the increase in our number of opportunity set but keep in mind.
2020, and 2021, the capital markets were extraordinarily robust and we still are out.
Lots of transactions so.
The tone of the market is one in which we see a lot of opportunity, but we're going to continue to be very selective in the deals that we do.
So I guess, that's how I'd answer the first question and then the second question as it relates to competition once again.
<unk>.
We see.
Some deals are competitive some deals or not.
The nature of the competition hasn't really changed on the backdrop of the overall environment growing this is a growing marketplace and biopharma land, we continued to dominate that marketplace with greater than 50 said share, especially on the larger transactions.
So.
We certainly see a growing environment. We welcome competition is certainly there, but we feel very confident with our competitive advantages, especially around our cost of capital and our access to capital.
I think our competitor.
Advisors have even increased so we went public.
And in many ways.
Talk about more later.
Sure.
Great. Thanks, so much.
One moment for the next question.
Okay.
Yes.
The next question comes from the line of these silos from Cowen Steve. Please go ahead.
Thank you I have two questions first.
<unk> seems to be refocusing on respiratory overall after deemphasizing. It a few years ago entering the chronic cough space is a recent example of that I assume this could have.
Impact on future royalties of trilogy in a positive way is there any stipulations in the contract either positive or negative that could reflect gsk's commitment adjustments to respiratory in the future.
Secondly.
I think you've been asked this before but given how quickly the market is developing I thought it might be worth asking again and that is that royalty pharma has no exposure to obesity.
And think of three reasons for this number one you have not come across opportunities to.
<unk> there are opportunities, but you know like the molecules or terms or three you are not convinced on the size of the market I'm wondering if you can tell us which of those three is the most prominent factor that you're not involved in obesity.
Sure Steve Good question Marshall of what Im sure.
Sure. Thanks, Steve Good morning, so on <unk>.
GSK and trilogy, thanks for highlighting that we are excited to see.
Excited to see GSK.
Focusing on something like chronic cough.
<unk> is an interesting market and as you point out is consistent with their focus on respiratory disease and the general Medicine category I don't think Theres anything to answer. Your question. There is nothing specific in the contract with respect to that although I would just highlight a couple of things. The first is.
As part of diligence on that we did get a sense of and try to diligence.
Gsk's commitment and investment in <unk> and that was part of our evaluation process, but overall, taking a little step back <unk> is a good example of the types of products that we really get excited about it's large it's growing into a as is highlighted on a previous question.
Little bit and under innovated unfocused on market.
It is really attracting.
Investment in bi.
By by GSK and is a really important product over there and I think when our interests are aligned with a great company like GSK is in a category, where there are real leader.
That's the kind of thing that we get really excited about.
On obesity.
Thanks for bringing that up as well.
Agree with you such an exciting space with a lot going on.
It is a category of interest there and without kind of ranking your you had three factors. There I think we'll continue to apply our same approach there of looking for opportunities that were where we can find a win win for us for our partner and will continue to apply the same.
Apply the same strategy of looking for.
Looking for the right opportunities to get involved at the right time, but thanks for the questions.
Thank you.
One moment for your next question.
The next question comes from the line of Terence Flynn from Morgan Stanley parents. Please go ahead.
Hi, good morning, Thanks for taking the questions maybe for me on term fire. This is one of your larger potential royalty streams and there have been.
I would say a growing interest in new oral immunology drugs here and so as you think about the implications of the entry of the <unk> inhibitors are potentially an oral IL 23.
Maybe Marshall how do you see this market evolving and then just one follow up on the kind of deal flow for the year, maybe any more metrics you could say Chris in terms of how that backlog is playing out over the course of this year versus last year. Thank you.
Okay sure.
Sure maybe I can I can start on the first one and Chris can comment on the second question, So untrimmed fire.
Again.
A medicine that we're really really excited to have as a part of the portfolio and having one of the best marketers in the world and Janssen behind it is some of the same themes that we just touched on with <unk> as well as why we are really excited about this.
I think the both the.
Putting together the incredible efficacy of <unk>.
The dosing convenience the strength of the market their position both.
Both in terms of physicians' minds their position.
Commercially label expansion into IBD I think we're really excited about about <unk> future. We are following.
The entry of oral <unk>.
We have seen historically this space has had a really interesting and underestimated capacity to to find roles for new products, just given the need for patient choice and the unmet need here and that's our view overall I think we're still really we're excited about both categories.
<unk> and the Injectables as well as some to some of the really interesting things that are going on in the.
And on the oral space so.
That's our overall view, there and Chris can talk about.
Our deal flow.
Yes.
So.
The.
As we stated in the past deal flow in any given year, it's hard to predict and can be volatile.
Which is why we describe our capital deployment targets over a multi year period. So I would just encourage you to keep that in the back of your head, but obviously last year, we executed $3 5 billion of announced transaction value and $2 billion, which was up front.
And already this year.
We've announced $1 6 billion in transaction value.
Of which $600 million upfront so.
We feel we're off to a great year last year, we looked at over 350 opportunities in less than 3% of those.
Opportunities, we actually resulted in transactions. So it's a very small percentage that we actually transact upon.
The environment as you might imagine is extraordinarily robust.
And we are extraordinarily excited about our opportunity set and that's why we raised our guidance.
Talked about the $10 billion to $12 billion.
Capital deployment over the next five years, we're very comfortable with that so I think everything is really sort of ticking in the sense of the backdrop of the overall royalty market growing as I mentioned tenfold since 2015, and our opportunity set itself.
We're really excited about the pipeline.
One moment for your next question.
The next question comes from the line of Geoff Meacham of Bank of America, Jeff. Please go ahead.
Good morning. This is Susan on for Josh Firstly, just a broader question we've seen a lot of M&A deals this year and the valuations have been relatively high have you guys seen an uptick in asset valuation with the M&A environment getting better.
And then two just a question on under innovative markets can you tell us more about what's new and of interest within migraines beyond anti Cerp's, which from our research that was really just the dominant asset to migraine so far.
Sure. Thanks for the question.
Okay.
Regarding M&A I think.
Important to note that.
There are sort of different markets right, where the companies are acquiring other companies.
Pricing of those deals.
So on different metrics.
Efforts, we use when we're acquiring royalties.
Okay.
Very different.
There is obviously.
Some respect.
Components.
We acquired builder.
The company in our case.
When we are investing in Guizhou.
It's more of a financial driven and that is where we're looking forward.
Very attractive part of the returns.
The vast covered.
Returns we're seeking.
You also have with Maxim.
It's exciting to see all of this M&A activities.
Happening because they do present opportunities for us to acquire royalties once a company that's been acquired and we acquire more interested in progressing.
Selling non core strategic assets and there has been many transactions in the past.
Fall in that category, we're also working with acquirers.
<unk>.
Okay.
When they are looking at potential acquisitions.
For us to partner with them and deploy capital side by side with them to make the acquisition more efficient.
Maybe I'll turn it over to Marshall for the migraine.
Sure Great question and.
And a really interesting one.
Overall, I think the things in our earlier things in migraine or programs that we continue to monitor but I think the really important theme to keep in mind is the <unk> inhibitors in our in our mind are still in the early innings of their rollout and their ability to really impact.
Migraine is manage so I think it will be great to watch in the years to come how Pfizer and Abbvie are able to really broaden the prescriber base for.
For the <unk> inhibitors and continue to continue to penetrate.
Into the into the still dominant Triptan class and we're excited to see them do that and also what happens globally as well so.
I think thats the real focus on in our mind right now and we will continue to follow what whats happening in the earlier development stages.
Thank you.
One moment for your next question.
Your next question comes from the line of Omar <unk> of Evercore ISI. Please go ahead.
Hi, guys. This is Mike jewelry in for Omar. Thanks, So much for taking my question two for me.
With respect to the IRS, the CMS guidance documents speak.
Specifically call out the terms active moiety active ingredient.
It respectively pertains to identifying qualifying single source small molecule and biologic drugs.
Whereby drug products or your small molecule products with the same active moiety.
Will be considered a single source.
And biologic products with the same active ingredient will be considered single source.
All that said what are your thoughts on this and does this influence your willingness to invest in royalties linked.
To re formulated biologic drugs.
And then similarly, but separately you thoughts on how the CMS guidance documents bodes for fixed dose combination products, such as trilogy Lipton and are super. Thank you.
Sure Marshall <unk> question sure, yes, Thanks, Mike Good morning, So two questions. There I think first on the active ingredient versus active moiety question.
That's something that we have talked with the external consultants and advisers that we used.
Two as we continue to all follow IRA you guys have done some interesting work there as well in terms of defining that issue. So it's something we continue to follow I think it highlights an important point, though which is our overall.
Our overall strength of our business model in this <unk> era, which is as we learn new things.
About how the IRR will be implemented as we are.
And as we work through that we can implement that in our investment process and are right now in terms of looking at and it has become I think as for all of US a really core part of how we look at every project, which is what is the potential exposure to IRA what are the scenarios.
And work through that and fits really well with our scenario based approach that we've talked about before.
On fixed dose combinations I think they're the world's seems a little bit more clear that those are considered.
That they are considered kind of individual products, which was kind of consistent with our expectation and we will have their own kind of clock from an IRR perspective. So.
Thats our view like like I said, we're continuing to follow it in <unk>.
With all of the outside advisors, who we used to continue to process all of the new learnings about IRI.
Alright, thank you.
One moment for your last question.
The next question comes from the line of Ash Verma of UBS. Please go ahead.
Hi, good morning, Thanks for taking my questions. So just a different angle on the M&A.
You'll be making environment.
These biotech company using the M&A acreage allowed put them directly competes with them trying to monetize.
Assets why why is it only the route.
And in your view <unk> as kind of prefer targeting wholly owned assets with unencumbered economics, and so biotechs might be hesitant to get into the idea of lehman's before if they wanted to sell eventually.
Thanks.
Thank you for your question on our side we rose.
And not really being able to listen to the first part of your question.
So I don't know.
Closer to the microphone or something but it <unk> represent.
Yes, no noise so here.
Do you think when you're making these deals with the biotech companies do you think that the M&A exit route to them.
It competes with them trying to monetize the asset wide royalty route.
Trying to get a sense of is like it <unk> quite as do they prefer.
Assets with unencumbered royalty.
That's why the biotech companies might be hesitant into getting a royalty arrangement with you if they eventually want to sell.
Chris what I would say a question sure. Thanks for the question.
Generally speaking the.
<unk> pharmaceutical universe right I mean, just the history and I think we actually covered this in our.
Analyst day last year with the slides showing just the number of partnerships.
And royalties associated with products that are getting developed these days because the with such a fragmented.
Randy process there.
Often times the royalties associated with every product or partnership crop profits or however, you want to define that.
And Thats just the nature of the universe.
<unk> pharmaceuticals.
The nature of the universe that we live in.
And so.
When pharmaceutical companies are looking at.
Acquiring a company. They are they are modeling whatever the economics of that product are in most of the acquisitions that come with an encumbered product. So thats just very rare.
Our regular way for large pharma when theyre looking at a target.
And.
Yes, they are used to that and so as you know.
The companies that we talk to and obviously, we had we had.
<unk> with bio Haven at Immunomedics.
Where we have royalties and both ended up being acquired but.
As a former person who did a lot of those transactions representing a large pharma on the banking side. It's just part of the way. They think about it is just the universe that they live in and so it's not really something that prevents M&A and it's not really something that prevents a company.
You need to do a transaction with us on the royalty side.
So it doesn't prevent our business flow in and.
It's not a chill to the M&A environment either.
Thank you.
At this time I'd like to turn it back over to Pablo for further comment.
Sure. Thank you operator.
And thank you to everyone on the call for your continued interest and royalty pharma.
Any follow up questions. Please feel free to reach out to absorb.
Thank you.
Sure.
Okay.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
[music].
Okay.
Yes.
[music].
Okay.
[music].
Yes.
Sure.
[music].
Yes.
[music].
[music].
[music].