Q2 2023 Royalty Pharma PLC Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the royalty pharma second quarter earnings Conference call.
Now like to turn the call over to George <unk> Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.
Good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma second quarter 2023 result.
Can find the press release with our earnings results implied this call on the investors page of our website at royalty pharma Dot com.
Moving to slide three I would like to remind you that information presented on 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-Q on file with the SEC for a description of these risks.
All forward looking statements.
Based on 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 Russell founder and Chief Executive Officer, Marshall Europe , EVP head of research and investment and Terry Cohen, EVP Chief Financial Officer.
Pablo will discuss key highlights.
Marcia will then provide a portfolio update after which Terry will review the financials.
Following my concluding remarks from Pablo we will hold a Q&A session, where we will be joined by Chris White, EVP and Vice chairman.
With that I'd like to turn the call over to Pablo.
Thank you George and welcome to everyone on the call.
I'm delighted to report another solid quarter of execution against our strategy as the leading funder of innovation in life Sciences.
Slide six summarizes our financial achievements in the second quarter, which again demonstrates our strong momentum and the power of our business model.
First we delivered.
Solid financial performance prior to the buyer hammer related payment we received in the second quarter of 2022.
Adjusted cash receipts, our top line grew by 7% adjusted EBITDA by 6% and adjusted cash flow grew by 9%.
Second on capital allocation year to date, we have not was royal jerk rotations of up to one 7 billion, including 659 million in upfront payments. We also initiated our 1 billion multiyear share repurchase program as of last night's close we have repurchased approximately.
6 million shares for a total spend of about 185 million.
Third we're raising our full year guidance for adjusted cash receipts to be.
Two nine and $2 97 5 billion.
Our guidance reflects expected underlying growth from our portfolio of between 6% and 10% prior to the buyer hammer 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 7% growth in our top line prior to the buyer hammer related payments in the prior period and 4%. If we include the statement.
Foreign exchange continued to represent a headwind.
Impacting our top line by around minus one to minus 3% in the quarter.
We also adjust for the foreign exchange impact, we would have delivered approximately 9% topline growth in the quarter underscoring the strong underlying momentum in the business.
Similar to our top line, we grew our adjusted EBITDA by 6% in the quarter prior to the buyer behavior and related payments and 4%, including this payment.
Adjusted EBITDA is an important non-GAAP measure for us, which is derived by deducting payments for operating and professional costs for my job.
Lastly, our adjusted cash flow, our Bottomline grew by 9% in the quarter prior to the buyer had been adjusted.
<unk>.
6%, including this payment.
Slide eight shows our impressive track record of strong topline growth since our IPO in June of 2020.
Despite foreign exchange headwinds and losses of exclusivity, we delivered 9% growth prior to the buy haven related payments in the first quarter of 2023.
This reflects our ability to consistently execute against our strategy.
With that I will hand, it over to Marshall to update you on our portfolio performance.
Thanks, Bob up consistent with the variable timing of our opportunities. This was a relatively quiet quarter in terms of new additions to the portfolio. We did make a small investment to acquire incremental royalties from UCLA on J&J is prostate cancer therapy or leader, which is already a part of our oncology port portfolio are.
Team remains incredibly busy as we continue to have an active and robust pipeline with a consistent mix of approved and unapproved products and pre existing and synthetic royalties across a wide variety of therapeutic areas.
But today I want to focus on the potential impact of the inflation reduction Act as we approach the announcement by CMS at the initial list of 10 drugs to be selected for 2026 price determination that is expected by September one.
Moving to slide 10.
As we've discussed previously with many of you there are three Medicare part D drugs in our portfolio, which we expect to be subject to IRI price concessions over the 2026 between 2007 period, namely <unk> <unk> and trilogy. However, based on the specific dynamics of each of these three party medicines.
We calculate the impact from the IRA to adjusted cash receipts to be in the low single digit percentage range for 2026, with an even lower portfolio NPV impact.
Taking these in turn.
<unk> loses exclusivity in 2027 as we have indicated previously so we faced only around one and a half years of exposure to additional price concessions.
In the case of <unk> as you are all aware competition is driving sales erosion and it is likely to represent a substantially smaller portion of our royalty received by 2026th than it does today.
And lastly on trilogy, which could be impacted in 2027. We note. The product is already highly rebated and thats. The additional price impact from IRA may prove more modest. Furthermore.
Though not factored into our IRA impact analysis increased utilization could help to offset potential pricing pressure.
And as a reminder, we do not have any meaningful exposure to therapies in Medicare part b that will be.
Selected for IRI price determination.
Now taking a step back on a strategic level and this IRR era, we remain in a very strong position given the many unique attributes of our business model, our unique therapeutic area and modality agnostic approach affords us broad strategic flexibility to focus our attention on the most attractive opportunities and those therapies for which we see the highest.
Levels of innovation patient need and commercial opportunity.
Moreover, given our flexibility we are already reflecting the potential impact of IRA and the valuation and investment structure of new royalties, we may acquire and with that I'll hand, it over to Terry.
Thanks, Marshall, let's move to slide 12.
Total royalty receipts grew 1% in the second quarter versus the year ago period.
Excluding the bio haven related payment in the prior year period royalty receipts grew approximately 3%.
The increase was mainly due to the strong performance statistics fibrosis franchise, and the addition of royalties on <unk> and riser.
We also saw growth contributions from most of our other key royalties, including double digit increases from Promacta trimmed fire Carver medics at risky Android L D.
These positive factors were partially offset by the loss of the DPP four royalties weakness in <unk>, and tysabri and adverse currency movements and.
In addition, our royalty on extending faced a high base of comparison due to a true up in the prior year period.
Turning to adjusted cash receipts slide 13 provides a deeper dive into our top line performance in the quarter to show the various moving parts.
The solid performance of our base business and the acquisition of spin rise of royalties allowed us to deliver 7% top line growth before taking into account the impact of the prior period bio Haven related payments.
Royalty X rays, and foreign exchange represented a combined headwind to growth of around minus six to minus 8%.
Slide 14 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 noncontrolling interests.
This amounted to $545 million in the quarter or growth of 4% compared with last year's second quarter.
As I just noted adjusting for the prior period dial haven't related payment growth would have been 7% in the quarter.
Operating a professional costs were approximately 9% of adjusted cash receipts in the quarter.
As a result, we reported 4% growth in adjusted EBITDA in the quarter broadly consistent with our topline growth.
When we think of the cash generated by the business to be redeployed into new value enhancing loyalty.
Look to adjusted EBITDA less net interest.
During the quarter, we received positive net interest of $18 million, reflecting the semiannual timing of the payments on our seven 3 billion.
Of unsecured notes, which occur in the first and third quarters.
We benefited from higher interest rates in the quarter, given our strong balance sheet cash position.
After de Minimis ongoing payments for development stage funding.
Adjusted cash so our bottom line grew by 6% to $512 million or <unk> 85 per share for the quarter based on weighted average diluted class a shares outstanding of about $606 million.
We would expect greater benefit from the recent share repurchase activity in the third quarter as the impact in the second quarter was muted largely due to the timing of the repurchases.
Lastly.
Our adjusted cash flow margin was 94%, which once again highlights the efficiency of our business model.
Let's now move to slide 15, and our financial position.
We continue to maintain significant financial firepower for future royalty acquisitions.
Year to date, we deployed over $680 million of capital on royalty acquisition as well as close to $380 million combined on dividends and share repurchases.
This was more than offset by our strong cash flow generation. So the cash and marketable securities increased to $2 2 billion at the end of June .
Expanding briefly on our share buyback program, we repurchased approximately 4 million shares in the quarter and repurchased another 2 million shares through yesterdays close for a total outlay of about $185 million.
Slide 16 updates our full year 2023 financial guidance.
We now expect adjusted cash receipts to be in the range of two 9% to $2 97 $5 billion based on our strong portfolio performance.
As a reminder, this guidance includes the $475 million as a prep milestone we received in the first quarter.
Our guidance also assumes an FX impact of approximately minus one to minus 2%, which.
Which is unchanged from previous guidance.
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.
We expect payments for operating and professional costs to be approximately 8% to eight 5% of adjusted cash receipts in 2023, which is at the low end compared to our previous guidance range of 8% to 9%.
Interest paid for full year 2023 is still expected to be around $170 million and deal with and to follow the established quarterly pattern with de Minimis amounts paid in Q2 and Q4.
This does not take into account interest received on our cash balance which was $35 million for the first six months of 2023.
Finally, we expect to make a $50 million milestone payment decided kinetics in the second half of this year based on their guidance that they will initiate a pivotal trial with epic Hampton and non obstructive hypertrophic cardiomyopathy in September .
This $50 million will be recorded as a development stage funding expense.
Slide 17 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 face a high base of comparison due to the $509 million of Biohacking related payments, which we received in 2022.
Adjusting for this these payments brings the underlying base for 2022, adjusted cash receipts to 228 billion.
On the right hand side, if we if we start from the adjusted cash receipt base prior to bio Haven, we expect underlying growth of 6% to 10% this year prior to hit that milestone payment.
This compares with underlying growth of 4% to 9% under our previous guidance.
And as I mentioned earlier this growth does not include the benefit of any future acquisitions.
After taking into into account that $475 million milestone payment on <unk> are raised topline guidance is $2 90 to $2 97 5 billion.
On these next three slides I want to spend a little time discussing the cystic fibrosis franchise.
We understand there has been significant investor interest on this topic with fair tax, indicating the phase III data for the new triple could be available by early 2024.
As a reminder, the new triple as a potential follow on to <unk>, Texas flagship product track CAFTA.
This slide highlights the common investor questions, we receive on the new Triple and the key levers that will impact our business.
These include the royalty rate the duration of the royalty potential uptake of the new triple and implications for Texas CF franchise growth of the new Triple.
We will address each of these in the following slides, including book ending the range of potential outcomes to our topline.
We would note that the analysis on these slides is consistent with our previous comments that lays out our view in more detail.
Slide 19 illustrates why we continue to believe that the cystic fibrosis franchise will be a very important part of our portfolio for many years to come.
And why we see only a potentially limited financial impact from <unk>, Texas, New Triple under downside scenarios.
Taking a step back for those less familiar with our story.
The key question is the royalty rate on one component of the new triple the deteriorating either capture component.
Let's start with the different royalty rate scenarios.
On the left hand side of the graphic you can see that we currently receive royalty from vertex of approximately 9% of total net sales of <unk>.
If theyre, new triple come to market and we receive royalties on the deuterate it either capture components.
Our royalty rate would be around 8% of total net sales on the new triple.
As we have said previously we strongly believe that generated IV chapter is the same as IV catheter and should therefore carry the same royalty rate as IV catheter.
Under a hypothetical downside scenario in which we do not receive any royalties on the <unk> IV catheter component.
The royalty rate would be approximately 4% of total net sales on the new triple.
Now, let's think about the potential value of the cystic fibrosis portfolio as we look longer term.
Vertex has provided 2023 guidance for net sales net franchise sales nine 7% to $9 8 billion.
And current at current consensus estimates have this increasing to around 11 5 billion in 2030.
Our view is that the CF franchise, including the new Triple could reached $13 billion or more which is above consensus in 2030.
This view is based on increased penetration rates in the younger age groups and new geographies as well as the up to 6000 patients who discontinued therapy and are candidates to reinitiate therapy with the new triple that vertex has identified as an important opportunity.
The next column.
This graph it pulls together these factors to quantify the potential impact to our adjusted cash receipts, our topline in 2030 based on a number of different possible scenarios.
As a reminder, we recorded total royalties and then pay a portion to our noncontrolling interests to arrive at adjusted cash receipts.
For those who want to see the detailed calculation of how we arrive at adjusted cash receipts under the various CF franchise scenarios. Please refer to page 27 in the appendix of today's presentation.
Let's start with consensus as a baseline.
Looking out to 2030, our adjusted cash receipts from the cystic fibrosis franchise are expected to be around $900 million, an increase from around $750 million and adjusted cash receipts for the cystic fibrosis franchise expected in 2023.
Now, let's look at the scenarios with a new triple.
As a reminder, <unk> has transformed the lives of CF patients globally, setting an extremely high bar and we expect it to play an important role over the long term given its impressive clinical profile.
However to help investors explore the impact of the potential new triple for this analysis, we conservatively assume robust uptake of the new triple with 50% to 75% of patients switching from <unk>.
We believe this suggests a significantly improved profile compared it to try catheter, which may not come to fruition.
If we are correct and the royalty rate is 8% our adjusted cash receipts could possibly be a little higher at around 900 million to $950 million due to higher sales of the new triple and current consensus estimates.
So under this scenario there could be some upside to our CF franchise royalties.
If we then consider the hypothetical downside scenario in which we do not receive royalties on the generated either capture component and again, 50% to as many as 75% of patients switched to the new triple.
We estimate our adjusted cash receipts from CF will decline to around $600 million to $700 million in 2030.
Therefore, even in this downside scenario the impact on royalty pharma as adjusted cash receipts or topline is only around $200 million to $300 million compared with estimated 2030 cash adjusted cash receipts implied by current consensus estimates.
To put this figure in context.
The $600 million to $700 million and adjusted cash receipts in the downside scenario is only modestly below our expected 2023, adjusted cash receipts from the cystic fibrosis franchise.
Furthermore, we would benefit from the extended duration of the CF franchise at the new Triple would have patent protection to potentially between 2039% and 2041 as compared to 2037 <unk> catheter.
This would reduce the potential NPV impact to us even in the downside royalty rate scenario.
So putting this altogether in potential downside scenarios, we estimate there would only be around.
One to $2 per share negative impact to the NPV of our existing portfolio as of today.
Taking a step back we must consider any impact of our Texas, new triple therapy in the context of royalty pharma is broader business we.
We continue to execute strongly on our strategy and are targeting a top line CAGR of 10% plus over this decade, regardless of the royalty rate right we ultimate.
We ultimately receive on the new Triple as we indicated at our Investor day in May of 2022.
This growth target implies adjusted cash receipts of around $4 $7 billion or more and importantly includes downside CF scenarios as you can see in the graphic.
To this end we would note that transactions just since 2020.
Are expected to add around $1 billion in adjusted cash receipts by 2025.
Furthermore.
The at risk portion of our CF franchise royalties of around $200 million to $300 million that we quantified on the prior slide would be a small percentage of our significantly larger top line that we expect by the end of this decade.
Specifically.
As we continue to diversify our business the CF franchise as intimates anticipated the decline from around 30% of our top line to a teens percentage by 2030.
So all considered we continue to believe any potential impact of the new CF Triple combination therapy would be limited and manageable in the context of our broad and growing portfolio.
With that I would like to hand, the call back to Pablo for his closing comments.
Thanks, Terry let me start my concluding remarks by saying how pleased I am with our continued strong execution against our strategic priorities in 2023.
We're well on track not only to deliver our raised guidance for the full year, but to drive shareholder value creation and transform patients' lives globally.
On slide 22, I want to highlight an important event in partnership with the Massachusetts Institute of technology that took place in the quarter and underscores our role in advancing the health care ecosystem.
In June we sponsored our third annual accelerating by Innovation Conference. This year's Abi Conference at MIP, followed similar conference as we organized and the University of Cambridge in the United Kingdom in 2019 and 2022.
The aim of this unique conference is to facilitate discussions on translational sciences, and drug development and to connect diverse parties in the Biopharma ecosystem.
This year, we had a tremendous turnout of 280, <unk> lifesciences executives, including 76, Ceos <unk> Sciences, and three novel lawyers.
Audience was balanced between industry and academia.
Long representation of both U S and next year's participants as well as finance professionals, including many leading VC firms.
The feedback we received from the conference was uniformly positive and sets royalty pharma up well for future dialogue with many of the innovators in attendance in short. These unique cultures is another example of a win win approach and keeps us front of mind for those seeking a partner to fund our innovation.
To finish on slide <unk>, we just passed the third anniversary of our June 2020, IPO and I would like to take a moment to highlight our significant accomplishments since that.
First we delivered significant growth.
If we set aside the biogen related payments are raised top line guidance for 2023 is around 35% higher at the midpoint compared to the $1 8 billion, we delivered in 2020.
Furthermore, we increased our five year growth outlook from 6% to 9%.
11% to 14% a more than 65% increase.
This growth profile positions us at the upper end of projected growth and large cap biopharma.
Second we significantly expanded our capital deployment based on the strength of our business model our competitive moat.
The baas opportunity set.
We have the broad capital well ahead of our initial expectations.
Due to an increase in our five year target for capital deployment by more than 50% to between $10 billion to $12 billion.
What I'm most proud of when I look back at our investments over this three year period is the quality of the new royalties. We have added to the portfolio. The bar has remained very high.
Third we have significantly strengthened our portfolio. We have added 21 therapy in the past three years, a 50% uplift on the prior three years and we have more than tripled our number of development stage therapies to 11.
Lastly, we have substantially strengthened and scaled our platform.
Employees now number 86, compared with 35 prior to the IPO.
We have added important capabilities in data and analytics and we have cemented our leadership precision and royalty funding.
And in line with our expanding opportunity set we have been able to take on significantly larger workloads.
Within vessel opportunities to reviews, increasing by 40% over the past three years.
My team and I are very proud of this accomplishment and excited for the years ahead, when we expect to deliver many more milestones.
In closing I remain highly confident that royalty pharma has its best years ahead.
We're on track to deliver a very attractive growth and return profile with that we will be happy to take your questions.
To add some of your questions.
Thanks.
Yes.
Yes.
To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
The first question comes from Chris <unk> with Goldman Sachs. Your line is open.
Thank you very much good morning.
I appreciated the very thorough and thoughtful discussion of two issues, which have been debated amongst investors on the triple combination vertex during their recent call said that they viewed the difference in the royalty potential as substantially lower which you outlined as a difference between potentially 8% versus the worse.
Case of 4% to 4% difference is there any dispute over the actual royalty levels and the magnitude of the difference in those scenario and then on the <unk> could you help us understand since we're on the verge of 12 months ahead understanding better how implementation will occur.
Ranges of price discounts.
Factored in in order to extrapolate your kind of exposure risks just for some perspective that would be helpful. Thank you.
Thank you Chris.
Gary is going to take your question on the Triple.
The CF Triple and then Marshall will address your question on.
The Irish.
Yes, so so Chris.
When you look at the rates that we described on the page. There is there's no debate about the right on track captor.
The only question is do we get the and Thats all based on the contract. The only question is do we.
Are we entitled to royalties on the generated IV catheter component.
If we are and they are the same as.
As the IV capture component.
Then we think that the royalty would be 8%.
And.
If we are not correct and ultimately it would it would we would only receive royalties on the Taser catheter component so the royalty would be 4%.
So those are sort of the bookends that we laid out there.
Great and Hi, Chris Good morning on your second question on IRA just at a high level. We took I think a broad approach in terms of looking at different scenarios and without getting into numbers, specifically, we did take what.
I think we all feel like is it pretty.
<unk> view in terms of what.
In terms of what the price reductions related to IRR might be and so wanted to cover I think again, a wide range of scenarios there so and the other part of your question was does the implementation I think were.
We're all watching and trying to understand how all of that is going to work out. There is obviously lots of moving pieces. There in terms of benefit structure and how formularies change once the once the negotiated price products are available at that price. So I think there is a lot to watch and a lot to learn but we did take a pretty conservative view.
And and wanted to provide everyone. Some some some guidance and thoughts on what it might mean for royalty pharma.
Chris One thing I suggest you may want to do is go to the appendix on slide 27.
Laid out in greater detail the calculation of <unk>.
Royalties on the cystic fibrosis franchise.
On this.
Different scenarios.
So that's maybe something that will be helpful. In your <unk>.
This is.
Forecasts.
Great. Thank you.
Please standby for the next question.
The next question comes from Chris Schott with Jpmorgan. Your line is open.
Hi, this is hard to break in for Chris Schott.
A quick question on immunology space. So we've seen a strong focus there and kind of recent acquisitions in the pharma space.
And I know you already have exposure to <unk>.
How are you thinking about kind of additional exposure to the immunology space.
How do you see the opportunity for royalty pharma. Thank you.
Sure Marshall why don't you take that question.
Yes of course, thanks for the question.
You pointed out it is today, an important focus for us with <unk>.
And has been historically.
Many of you know we have a long history in this space with.
With the <unk> all the way back to the beginning so we are watching all of the all of the developments in this space.
In terms of new markets and in terms of oral opportunities against.
Again, some of the targets in this space.
Continue to look for great opportunities. There I think we are really excited to have <unk>.
As a part of as a part of the portfolio when we see what it's doing in psoriasis, and then with inflammatory bowel disease to come backed by a great marketer and J&J and exactly the kind of high quality products and large growth markets that we're looking to add to the portfolio.
Okay.
Operator next question please.
Operator.
The next question comes from Geoff Meacham with Bank of America. Your line is open.
Hey, guys. Thanks for the question I just had two.
Sir Terry So super helpful Math for CF I really appreciate that I know youre not going to go into legal strategy, but can you talk about the just the timing of when we could get.
Some resolution does the discussion with vertex start when human vans are captured launches or or can there be anything and resolved before.
And the second question.
Marshall on 529, you guys show the royalty pipeline.
I know today is a strong contribution from rare disease, but going forward. It doesn't look like that I wasn't sure.
If this was an intentional strategy and you guys are emphasizing maybe broader markets are bigger deals going forward or if that was just the way. It played out thank you.
Thanks, a regression Jeff.
Gary why don't you just elaborate on the first part of your question and then Marshall you can go ahead and talk about the pipeline.
Yes, so sure Jeff so in terms of timing.
Totally understand that investors want to understand the timing.
The.
The first set of cards turnover will be the actual data, which will sort of see in early 2024.
But beyond that we really at this point, it's just difficult for us to elaborate on any specifics around timing.
But obviously the first critical question is what is this drug look like and is it something that could be approved and competitive with truck catheter.
And Hey, Jeff Good morning on your on your second question on the pipeline with respect to orphan disease.
No nothing there in terms of any sort of strategic change or shift or focus.
Orphaned orphan space remains in the range of the place where we continue to look at opportunities and be active in may.
Make two comments one is just to remind you we did a deal for an orphan product what's been Rosa at the very beginning of this year. So.
So it remains really really central to our strategy and opportunities that were considering but again just a reminder, this strategy remains to look at all look broadly all opportunities in therapeutic areas defined to find the most exciting and actionable opportunities in front of us and that's our strategy.
So that mean, sometimes we might be a little bit more active in one space at one point in time and a little less active but when you look over a longer period, I think covering the whole waterfront.
<unk> remains the core strategy.
Thank you.
Please standby for the next question.
The next question comes from Terence Flynn with Morgan Stanley . Your line is open.
Great. Thanks, so much for taking the questions maybe two from me just just wondering how youre thinking about share repurchases from here.
Obviously, we saw some activity in the first half of the year, but just how should we think about that on the forward and then again I apologize if I missed this but Terry just in terms of the <unk>.
<unk> chapter profile, you assume in your $50 to 75% conversion scenario.
Can you give us your thoughts on what that assumes in terms of FPV in sweat chloride. Thank you.
Sure. Thank you Darren.
Maybe just a very top level.
About the share repurchase program.
It's obvious.
To us when we look at the fundamentals of this business.
Whether you look at it on a DCF basis or multiple basis.
We believe that at this levels.
Stock is.
Very very attractive purchase so as a result of that we launched this billion dollar share repurchase program, where royalty pharma.
We will be buying shares over time and as you saw we acquired $185 million.
Through last night.
Personally.
Either also to purchase shares at those levels and have done so at a smaller scale, but a meaningful amount for me given.
Given the fact that I own already so much of the stocks, but I have been very active also acquiring shares.
And.
We're going to continue but we think that this.
Obviously, a very attractive purchase at those levels.
Terry do you want to add anything else about the share repurchase program.
And then Marshall will talk about the other part of your question yes.
Yes, the only thing I would add is it.
We think it will continue to sort of be a balanced approach.
Our number one priority and this has not changed is to buy is to buy royalties.
And that's going to be the number one use of capital, but when when we see opportunity to return capital to shareholders at what we view as extremely attractive prices. We think that that's also a nice tool that we can have in the toolkit. We think it's a great way to create some additional value for <unk>.
Shareholders.
And then two tenants Youre question on our assumptions for this new triple in the clinical profile and we looked at we obviously considered a range of scenarios. We followed this space for a really long time.
Made our first investment here Pablo made the first investment in CF 25 years ago.
So we know the space really well and I think our view is in order to get to that 75% type share scenario.
Our view is that the new triple would need to be meaningfully better than try CAFTA.
On both sweat chloride and <unk>.
So we'll have to wait and see that's why we wanted to.
Kind of take the debate off the table by showing what it could look like if that does end up being the case and as you can see if 75% of patients were to switch.
It's still.
Pretty very.
Distant with the with the topline adjusted cash receipts that were going to record. This year from CF. So there isn't really seem to be this perception.
That the downside was really significant that somehow this franchise was going away in that.
That's not the case that as the analysis that we show today demonstrates.
I think what Terry Man was I don't know if it was totally clear or not.
But.
This year, we're going to record about $700 million.
And from our investment in CF and in the downside scenario.
700 by 2030 so.
Very similar but there is obviously be scenarios, where this could be higher as we as we highlighted so.
Even some potential upside for us from the current levels.
You bet I'm assuming.
75% switch or other other assumptions.
There could be some upside.
Please standby for the next question.
Okay.
The next question comes from Andrew Baum with Citi. Your line is open.
Yes.
Thank you again for taking the time to walk through the CF matched. So my question is I mean, everything that you explained has matched that.
We and I'm sure others on the call have done previously and yet the share price I think much to your frustration is.
Reflecting what many think gets worse.
Which seems to suggest that it's not really the CF concerned that may be driving it it's more fundamental lack of belief in the future I beg any reflection to the historic one perhaps you could talk to what are the factors that you think about could be contributing to the onto performance of the stock.
And aside from the buyback is there anything we can do a pop from deploying capital and prosecuting your business and hoping that the market reflects at some point.
Many thanks.
Yes, I'm going to ask Chris to actually talk a little bit more broadly about the.
A big market opportunity in front of us.
But I think.
Just want to remind.
All of you of another important thing that has occurred with royalty pharma, but it's fairly unusual.
Which is that.
We have a massive massive shift in the shareholder base.
From the legacy shareholders.
We have and where our partners for 20 plus years, when we were private to the new current shareholder base we have.
A lot of the investors, we haven't royalty pharma.
Doug grew with us and supported us and we're incredibly loyal over more than 20.
24 years.
296 to 2020.
We're tighter worst individuals family offices, many of which when they invested.
Where people actually approached.
They trusted us and the business model, but vendor shares went to second and even third generations and they were.
Sort of split.
Many of the investor groups into many different hands.
And also there was a very large component of investors that were.
Foundations.
Environments like Harvard Management Company at Columbia University.
Boston University Emory many.
Nature.
Some foundations like the Robert Wood, Johnson Foundation and others.
And we go public in June of 2020, and many of this investors haven't been in the stock for over two decades, and having achieved very very significant value creation have sold their shares.
Specifically the endowments.
And foundations.
From them viewing us as a manager that they could allocate capital to and actually did so every time, we raise money they would invest more because of the very strong performance now.
Now, becoming a stock and as you know University endowments are not stock pickers, that's not their business, we don't fit any box and those kinds of investors.
Portfolios. So when we became public they have to sell.
Have to sell because it is.
Their business to be actually.
Investing in specific stocks, they allocate money to managers that do so so we have this massive shift in the shareholder base, where over 62% to 63% of the shareholders change cabs.
And then in addition to just to give you a sense 62 63 have sold.
Which meant that we had to replace $16 billion or so of capital with new investors and we've done that over the last three years. So we have this is very significant.
Second headwind.
Constant.
Turnover and selling of shares that's behind US and then the remaining.
Ownership.
$32 30.
<unk> percent is owned by management and the board. So I think when you add those two numbers are 62, 63%.
We're close to 695% sorry, so all of that is now behind us and obviously, what we need to do now going forward.
Start to cultivate many other investors, but I think we.
We believe we will see regulatory myself very attractive <unk>.
<unk> proposition many generalists in Europe that could see on investments are loyal to them as a way to invest in the cutting edge.
Biotech innovation in the U S.
<unk> Sciences innovation.
And that's something we're committed to.
Over the next few years and it takes a lot of work because we are an N of one so we need to educate investors about our business model.
<unk> about it and the very very strong performance that it can achieve that we have achieved already.
Since the IPO and we can talk more about that later.
But I'll stop there, Chris maybe you want to talk about other aspects about.
The big opportunity, we have ahead of us.
Sure Thanks, Pablo and thanks for the question Andrew.
We just need to continue to execute we see the opportunity in front of US we've talked a lot historically.
About the overall R&D spend in the sector between profitable large pharma and the needs of emerging biopharma as well as the.
The R&D spend and the fragmentation of the sector in terms of R&D spend by governments and non profits and all of that leads.
Our increasing opportunity set and I think Pablo did a nice job on slide 23, where we talked about.
Increasing our capital deployment goals.
The 10 to 12 billion over the next five years, that's a 55% increase from our initial targeted IPO, we've actually announced.
Transactions since 2020 for a total transaction value of over $10 billion.
Which is.
Three times greater than what we had done in the prior three years. So we see the enormous opportunity set in front of US we think the market.
<unk>.
Growing in a sense of.
Their understanding of how royalties can be.
Component of their capital.
Formation and so we're extremely excited about the future and we just need to continue to execute.
Please standby or is there next question.
Yes.
The next question comes from.
Well Ross that with Evercore. Your line is open.
Hi, guys. This is Mike <unk> on for Omar. Thanks, So much for taking my questions. Two from me again. Thanks, so much for the at the math on how different sales scenarios could play out.
With respect to the CF royalties streams.
Two questions for this.
Why include the slide now I mean, this is a bit of debate forever.
Royalty pharma, perhaps not as confidence in the integrity of these future royalty streams and the second part of that question is that.
And the 50% to 75% conversion scenario you are running the scenarios at a higher sales base.
How confident are you in are you in that 13 $1 billion estimate and.
So our math implies.
More.
More shortfall than the $200 million to $300 million that you are.
Calculating and then I have a follow up thank you.
Sure. Thanks for the question.
The reality is that we're very confident very very confident on our legal position and we're going to obviously do whatever.
It takes two to stand behind that the contract and the.
The covenants, we have the reason we decided to actually.
Out this as clearly as possible is because we have heard from many investors and this goes back to the question that Andrew had also.
What are investors missing, but we had been hearing a lot from many investors when we talk to them in conferences or in one on ones.
There's a lot of investors that are sort of they see the stock and they see it as a very attractive way of investing in life sciences. They see the current level.
Where it is trading now.
Based on different metrics as a very attractive.
<unk>, but many of them remain on the sidelines because they feel that this.
Situation.
Could be unimportant downside or headwinds and we're just.
Just after hearing that over and over again, we said it seems like we need to clarify this and really make it very clear explain how.
We believe that the downside is honestly very minor and when you look at our business, where we think we forecast that we'll get to about $4 $7 billion of revenue by 2030 based on our on our 10% plus guidance.
When you look at that swing in revenue.
$2 million to $300 million, it's really really minor on the business that should have revenues of $4 7 billion. So we saw clarifying all of this.
What's really important and related to your comment or question about the $13 billion.
We do see that.
Rio possible scenario, that's why we're putting it forward.
We wouldn't.
Based on the current dynamics in the whole CF market.
But maybe.
Gary one too.
Some additional perspective here on your question.
Yes, I mean, I can elaborate a little bit on the $13 billion.
This has been a franchise that has consistently outperformed quarter ending quarter out patient numbers ended up being bigger than people thought uptake has been really strong.
And so and as they've continued to move to.
Younger and younger age groups and expand geographically the growth has been really.
Consistent ahead of expectations.
And then the last point is just vertex themselves I have talked about over 6000 patients that have previously dropped out meaning that sort of low hanging fruit for this new triple.
And so when you sort of add all that together.
We do feel like $13 billion or more.
Very realistic and Thats, why we put that number out there.
Thank you Mike Operator next question.
Please standby for the next question.
The next question comes from Steven Scala with Cowen Your line is open.
Thank you I have three questions, but they're all brief.
Based on what GSK reported trilogy sales actually beat in Q2, yet royalty pharma royalties missed at least our estimate was there some sort of adjustment in royalties in Q2, perhaps one time.
Second this is picky, but the two to 300 million Delta in the worst case for the CF franchise. My recollection was that this previously.
It was a $200 million delta.
Is a modest change, but curious what changed I assume just better than expected franchise growth, but please clarify.
And then lastly.
Pablo in your summary of a royalty pharma accomplishments since the IPO I don't think you mentioned that you raised guidance and the majority of quarters since that IPO as you reflect back on that time since the IPO what have been the biggest drivers to this outperformance and to what extent will the info.
Going forward, what's interesting is that your business really doesn't lend itself to beats and raises yet you are pretty good at it. So just just wondering what you think the drivers have been thank you.
Of course.
Terry do you want to take the first two questions regarding trilogy, and then maybe also the two to 300 and I'll come back to the last investment.
Yes, sure so so.
So Steve.
On <unk> I think it's just the peering issue.
Royalty resets at the beginning of the year and so the.
The first quarter sort of sales.
Which is second quarter royalties for us.
Are often times going to be sort of at a lower tier in that that tears out throughout the year. So to the extent that maybe some people had sort of flat rates throughout the year that would probably explain why that looked a little off.
But we still feel really great about the challenging investment is performing really well and it's probably just a sort of a royalty carrying issue.
On the question about the $200 million to $300 million. What we said previously was a couple of hundred million dollars, we feel like that's within that range.
So nothing nothing really has changed there.
I would say.
We tried to bookend, what we think is a very extreme downside scenario.
For royalty pharma, when we talked about 75% and I wouldn't say that that's necessarily what we what we believe internally and so that might also explain a little bit why why theres a difference there.
So related to your question about outperformance consistent outperformance quarter after quarter of our business.
Reality is that we saw that when we were private.
During more than two decades now.
Every quarter not every quarter, but the vast majority of quarters.
And third can be every year.
When you looked at the forecast, we had for our business and where the numbers came in.
The numbers were better and the reason for this outperformance has been.
Very.
Fundamental to our very.
Important for our business that we have consistently been able to invest in the top products marketed by the top companies in life Sciences, and you can look over more than two decades, we're getting close to three decades and how in every cycle of innovation, we have been able to invest in that.
Leading drugs that are driving.
Great outcomes for patients and drugs that are transforming.
Diseases.
And when you do that consistently and the drugs, obviously are marketed by the best companies.
The drugs are the ones that outperformed maybe when you look at a big company.
That doesn't happen, but because we're able to select the.
Products of the top companies that and we have many of them that has resulted in very significant out performance. Another really important characteristic of our business. That's super Super unique is the stability that we have to add blockbusters to our franchise.
Every year.
Years ago, we did this analysis looking at the ability of big pharma, Big biotech and smaller biotechs, adding blockbusters to their businesses and it's limited.
Every three to five years when you look at big biotech is like a biogen or ourselves.
One blockbuster at a rate of like every three years every five years.
And big Pharma is maybe a little bit more or less for acquisitions, but when you look at royalty pharma. We have this ability to add two or three for blockbusters every year and if you look back at the performance over the last few years, obviously, it's been driven by great drugs for example, amazing drug.
Now in <unk>, we talked about trilogy, but there's many others.
And I think.
When I look at the future royalty pharma and I look at your opportunity set we have in front of us, but so remarkable is that we have.
Many more opportunities now and in front of us than we had 10 years ago or 15 years ago.
It is bigger the number of products.
Our ability to add these blockbusters to our portfolio has increased we're doing it more consistently.
So I think as we've said.
The prior question.
What we're going to do as the team is just continuing to focus on delivering great performance.
No.
Top line growth.
Exceeds our guidance bottom line growth as well and then just continuing to add great assets to our business and eventually the share price will take care of itself.
And will reflect this very attractive business model and that's very consistent.
Performance, so that is very unique and life sciences.
Thank you.
I show no further questions at this time I would now like to turn the call back to Pablo for closing remarks.
Thank you operator, and thank you to everyone on the call for your continued interest and royalty pharma and if you have any follow up questions. Obviously, please feel free to.
To reach out to George <unk>.
IR team, but I think I'll just finish to say that.
Myself and the team are incredibly excited about our business I already mentioned that and we feel really good about our situation with CF, which we believe has been a headwind and we just thought it was really important to clarify that now and really show the very limited downside.
Our business.
Just when you look at that investment itself and obviously much more a.
A much smaller when you look at the magnitude.
All of our business.
At the end of this decade, but thank you everyone for listening to our call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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