Q3 2023 Royalty Pharma PLC Earnings Call
Yeah.
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the royalty farmer third quarter 'twenty to 'twenty three earnings conference call I would like now to turn the conference over to George.
Senior Vice President head of Investor Relations and Communications. Please go ahead.
Good morning, and good afternoon to everyone on the call. Thank you for joining us to review royalty pharma third quarter 2023 results you can find the press release with our earnings results on slide 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 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. 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 Nebraska, founder and Chief Executive Officer, Chris White, EVP, Vice Chairman Marty.
Partially good Europe EVP head of research and about the inner Bestbuy, Terry Cohen, EVP Chief Financial Officer.
Pablo will discuss key highlights Chris will then provide an update on the PTC partnership after which Marshall will discuss other portfolio update.
Charlie will review the financial and finally, concluding remarks from Pablo we will hold a Q&A session.
With that I'd like to turn the call over to Pablo.
Thank you George and welcome to everyone on the call I am delighted to report another successful quarter of execution against our strategy as a leading thunder of innovation in life Sciences.
Slide six summarizes our financial portfolio and portfolio achieve mentioned, the third quarter, which again underscore tremendous momentum in our business.
First we delivered strong financial performance adjusted cash receipts, our topline grew by 9% adjusted EBITDA by 9% and adjusted cash flow grew by 10%.
All of those metrics are prior to the bivalent related payments, which were received in the third quarter of 2022.
Second on capital allocation, which had a very active past few months acquired royalties on attractive therapies with announced transactions of $2 2 billion.
I am, particularly pleased with our recently expanded PTC partnership, where we acquired incremental royalties on a breezy which is.
For the treatment of spinal muscular atrophy.
This transaction enhances our long term growth diversifies, our portfolio and is expected to generate an attractive return.
Digits.
As Chris will explain later this transaction was a great example of our unique ability to create.
Tailored win win solutions. This was also our busiest quarter ever for synthetic royalty acquisitions with exciting transactions onto approved therapy Skype.
Great.
And that's the landrum.
On a year to date basis, we have announced royalty transaction of up to $3 8 billion, including $2 $1 billion in upfront payments.
Lastly, we continue to believe we continue to believe our shares are fundamentally undervalued and we repurchased an additional 144 million of our shares in the third quarter.
Our total year to date repurchases to $305 million as of last night's close.
Third we're raising our full year guidance for adjusted cash received to between $2 95 billion and 3 billion. Our guidance reflects expected underlying growth from our portfolio of around 10% prior to the buy haven 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.
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On slide seven you can see our financials in more detail, we delivered 9% growth in our top line prior to bye bye haven't related payment.
The prior period and 7% growth. If we include this payments.
Like the last several quarters the impact of foreign exchange had a negligible impact on our topline growth.
Similar to our top line, we grew our adjusted EBITDA by 9% in the quarter prior to that by having related payments and 6%, including this payments.
Lastly, adjusted cash flow grew by 10% in the quarter prior to the buyer hammer related payments and 8%, including this payment both this quarter and the prior period included development stage payments.
Slide eight shows our impressive track record of strong topline growth since our IPO in June of 2020, we delivered 9% growth prior to the by human related payment through the first three quarters of 2023. After a strong growth in 2021 and 2022 this speaks to our ability.
To execute successfully and consistently against our strategy and the growing market for Biopharma royalties.
Slide nine shows why we're well positioned in the evolving interest rate environment.
We're committed to maintaining an investment grade credit rating and our.
Existing capital structure benefits from a long duration low cost debt profile.
That being said when making investments in a higher rate environment, our marginal cost of borrowing.
Protiviti rise however, what is critical to recognize.
And that is our royalty return expectations also adjust to this higher rate environment.
Allows us to continue to deliver attractive returns.
<unk> above our cost of capital.
The other important factor to consider is that our opportunity set has expanded dramatically driven by the huge capital needs of the industry and the increased role of royalties and this strategy has been accelerated by the macro environment, which has increased the cost of other sources of financing for both buyer for Biopharma.
It is.
So taken together, we're confident that royalty pharma will continue to thrive and perform strongly in an evolving rate environment.
On slide 10, we wanted to unpack why remain so excited about our ability to create compounding value for our shareholders. When we make investments we focus on our cost of capital.
Then the spreads that we're able to generate in excess of our cost of capital. The beauty of our business is that we can quickly adjust to changing to the changing macro environment.
Historically, when we look at the period from 2012 to 2021, our cost of capital was roughly 6%.
We were very fortunate to take advantage of all time low interest rate environment in 2020 and 2021 Lucky.
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Ladies and gentlemen, please stand by we are at.
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Ladies and gentlemen, please standby the call will resume momentarily.
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Ladies and gentlemen, please standby the call will resume momentarily.
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If you would just go to.
Slide no start in slide 10.
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Hello, operator are we are.
Yes, you may resume your call.
Okay apologies for that on slide 10, we want to in fact, why we remain so excited about our ability to create compounding value for our shareholders. When we make investments we focus on our cost of capital and then the spreads that we're able to generate in excess of our cost of capital.
<unk> of our business is that we can quickly adjust to changing macro environment. Historically, when we look at the period from 2012 to 2021, our cost of capital was roughly 6%.
We were very fortunate to take advantage.
The all time low rate environment in 2020 in 2021 locking in long duration low cost debt at around two and a quarter. However for most of this time period. The business was funded consistently with around 4% debt. When we look at the investment for approved therapies, we made or where the spirit we.
This app to generate attractive returns with fred's above our cost of capital when we shift to the current environment, our cost of capital has increased to around 7% to 8%.
So our marginal cost of debt has increased to seven 5% to 7%. However, the returns we're targeting on a proved royalties have risen as well, allowing us to maintain attractive spreads above our cost of capital.
While important is that the opportunity set has expanded dramatically with a value of announced transactions up nearly two times with our pipeline showing no signs of slowing down.
Taken together. These factors will result in greater value creation for our shareholders with that I will hand, it over to Chris to update you on our on the PTC partnership.
Thanks Pablo.
Since our last earnings call, we have been quite busy getting some really exciting royalty transactions over the finish line.
Want to focus on slide 12 on our expanded partnership with PTC on ever risky.
We gained our first exposure to this exciting therapy in July 2020, when we acquired 43% of PTC royalties interest for $650 million upfront.
Giving us a royalty that equated to three 4% six 9% of global <unk> sales.
This transaction was structured so that the royalties to royalty pharma would cease once we had received $1 3 billion in aggregate royalties or double our original investment.
At the time of our 2020 investment ever is D was on the cusp of FDA approval.
Since then our initial conviction in the profile of <unk> has been validated by strong global launch by Roche.
More than 11000 SMA patients have now been treated with EVAR is D and sales reached $1 2 billion in 2022.
<unk> is now approaching global category leadership and consensus forecast has risen substantially with sales now expected to reach three 3 billion by 2030.
Last month's in return for an upfront payment of 1 billion.
We acquired 67% of Ptc's remaining royalty without any cap.
This takes our ownership to 81% of the tier royalties before the cap weren't effective royalty of $6, 5% to 13% beverage global sales.
The duration of the royalty now extend to 2035 to 2036 from the early 2030.
Additionally, there is a joint option structure for the remainder of Ptc's royalty interest.
This allows PTC to sell all of its residual 19% of the royalty to us by the end of 2025 and return for a $500 million payment less royalties received.
Alternatively, if PTC chooses not to exercise its option, we have the right to purchase half of Ptc's remaining residual royalty for $250 million in the first quarter of 2026, let's royalties received.
As creative structure highlights our unique ability to tailor win win solutions with our partners.
As a result of this transaction.
Or is he is expected to become a top tier of royalty for us by 2025 with a contribution to adjusted cash receipts in excess of $200 million.
It takes all of the boxes for us clearly aligning with their product selection of framework.
On a purely financial basis, it diversifies our portfolio.
Hence as our growth and we expect it to deliver an unlevered return in the double digits based on consensus sales forecast.
And with that I'll hand, it over to Marshall.
Thanks, Chris Let's now move to slide 14 to discuss our recent synthetic royalty transaction.
Their combined value of up to $650 million sets a record for synthetic royalty financing in a quarter and we believe is clear evidence of the growing attractiveness of this form of funding.
In August we acquired a five 1% royalty on U S sales of ads collateral from bearing for up to $500 million, which is approved for bladder cancer. This is the first gene therapy in our portfolio. Our royalty is expected to increase to 8% in 2025, assuming a manufacturing milestone is achieved and extends to the early to mid <unk>.
130.
Then in September we acquired a royalty of 915% on U S sales of Sky Trophy from incentives for $150 million. This is the first FDA approved weekly growth hormone therapy for pediatrics and addresses a significant unmet patient need which is reflected in consensus sales forecast of around $450 million by 2030.
In both cases, our partner had a need for non dilutive capital to advance their commercial strategy and we were able to provide a flexible funding solution that met their needs and our return requirements.
On slide 15, the ever risky transaction illustrates an important feature of our business model, namely our unique ability to invest mulch.
Multiple times in the same therapeutic area and even in the same product. We've demonstrated this across a number of therapeutic areas, including prostate cancer migraine multiple sclerosis, schizophrenia, and the emerging L. P Little a class and the expanded investment in ever Etsy for SMA is the latest example of BD unique aspects of our business model.
Slide 16 provides our perspective on how we approach the contribution of approved and development stage therapies to our portfolio growth strategy of the approximately $23 billion in capital deployed since we started investing in development stage therapies around 60% has been an approved products. This balanced approach has allowed us to maintain strong.
Risk adjusted returns than 15 attractive Greg.
And my final side I wanted to take a step back to underscore the growth in our opportunity to fund life Science innovation over the past three years, we have seen a substantial increase in the announced value of transactions with 2023 tracking to be among our best years ever we have averaged $3 $4 billion over the past three years, which is almost double the announced value of <unk>.
<unk> compared to the prior three years. This speaks to the powerful secular growth behind royalty based funding as an attractive way to fund the life Sciences.
With that I'd like to hand, it over to Terry.
Thanks, Marshall, let's move to slide 19.
Total royalty receipts grew 5% in the third quarter versus the year ago period.
<unk> the bio Hayden related payment in the prior year period royalty receipts grew approximately 7%.
The increase was mainly due to the strong performance of the cystic fibrosis franchise and <unk> as well as newly acquired royalties on spin rabbit.
We also saw growth contributions from the majority of our other key royalties, including Embracery from Fiat <unk> Promacta and <unk>.
These positive factors were partially offset by weakness and improve Luca and tysabri.
Slide 20 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 together with new royalty acquisition allowed us to deliver 9% topline growth before the impact of the prior period biohazard related payment.
Royalty expertise, primarily lexis scan represented a headwind to growth of around 2%.
Pablo noted the impact of foreign exchange was negligible this quarter.
A strong underlying dynamics once again highlight the power of our unique business model to replenish the portfolio and to drive compounding growth.
Slide 21 shows how our efficient business model generates substantial cash flow to be redeployed.
As Youre aware when you arrive at adjusted cash receipts after deducting distributions to Noncontrolling interests.
This amounted to $637 million in the quarter, representing growth of 7% compared with last year's third quarter or 9%, if we adjust for the prior period bio hidden related payment.
Operating and professional costs were approximately 9% of adjusted cash receipts in the quarter.
As a consequence, we reported 6% 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 rid redeployed into new value enhancing royalties, we look to adjusted EBITDA less net interest net interest paid.
Net interest paid in the quarter of $54 million reflected the semiannual timing of the payments on our unsecured notes, which occur in the first and third quarters and interest received on our cash balance.
You should note that we repaid $1 billion of these notes in the quarter, so that our debt our balance now stands at $6 3 billion.
Development stage funding payments and that amounted to $51 million in the quarter substantially all of which related to the initiation of the pivotal study of avid Camden and non obstructive hypertrophic cardiomyopathy.
Taking this into account adjusted cash flow our bottom line grew by 8% to $474 million or <unk> 79 per share for the quarter.
This resulted in an adjusted cash flow margin of 74%, which again highlights the efficiency of our business model.
Let's move now to slide 22, and our financial position.
Following the recent PTC transaction, we continue to maintain significant financial capacity for future royalty acquisitions with.
With the ground $3 billion available through a combination of cash on our balance sheet, the cash our business generates and access to the debt markets.
At the end of the third quarter, we had cash and equivalents of $936 million.
After quarter end, we funded $1 billion upfront payment to PTC through cash on our balance sheet and a $350 million draw on our revolving credit facility.
If we adjust for this transaction together with projected net cash flow from our business of approximately $425 million to $475 million in the fourth quarter.
We expect to have projected cash and equivalents of around $700 million to $750 million at the end of 2023.
With $6 $3 billion of investment grade bonds, plus 300, plus the $350 million pre payable revolver draw. This results in pro forma leverage of around two times EBITDA on both the total and net debt basis.
Keep in mind that we are comfortable taking gross leverage up to around four times for the right royalty acquisition opportunity.
Furthermore, we have additional financial capacity from the 111.
One 5 billion.
Balance of the revolver as well as the strong cash generation that I've already highlighted.
Consequently, we feel good about our ability to continue to execute transactions and create shareholder value.
Slide 23 updates our full year 2023 financial guidance.
We now expect adjusted cash receipts to be in the range of $2 95 billion to $3 billion.
We have raised the midpoint of the range by approximately $40 million compared with the previous guidance based on our strong portfolio performance.
As a reminder, this guidance includes the $475 million as a prep milestone that we received in the first quarter.
Additionally for your modeling consideration, we want to provide a bit more color on our expectations for the other product line, which includes around 20 royalties.
Looking ahead to 2024, we are currently estimating around $200 million to $250 million and other product royalty receipts.
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.
As it relates to operating professional costs and interest paid there is no change to our previous guidance.
Please note that the interest paid guidance does not take into account interest received on our cash balance which was $63 million year to date.
My final slide drills down further on our adjusted cash received 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 bio Hayden related payments, which we received in 2022.
Adjusting for these payments brings the underlying base for 2022, adjusted cash receipt to 2.28 billion.
On the right hand side, if we start from the adjusted cash receipts space prior to Biohazard, we expect underlying growth of 9% to 11% this year.
Including the $475 million payment on jobs at Pratt we arrive at our raised top line guidance of $2 95 billion to three points here of $1 billion.
With that I would like to hand, the call back to Pablo <unk> for his closing comments.
Thanks, Terry let me start by competing with micro grid in March by saying, how pleased I am with the third quarter report today, you have heard about strong financial performance and some really exciting new royalty transactions, which put 2023 on track to be one of our best years ever for capital deployment.
Next slide put this into perspective.
Slide 26 highlights that we have announced transactions worth up to $7 3 billion since the start of 2022 with a healthy balance between approved and development stage therapies. This extraordinary extraordinary level of activity highlights the power of our business model as well as the tailwind.
In our industry. It also puts us on track to meet or exceed our five year capital deployment target of $10 billion to $12 billion.
My final slide highlights some of our key accomplishments in 2020.
This strong performance taken together with our profit expanded expanding opportunity set and powerful competitive mode.
Rich highly confident we will deliver our attractive long term financial outlook.
That means a top line CAGR of 11% to 14% over 2022, 2025, and 10% plus.
Plus when we look to 2030 with that we would be happy to take your questions.
Last question operator, please take the first question.
Thank you.
Please standby, while we compile the Q&A roster.
Yes.
The first question comes from Chris Schott with Jpmorgan. Your line is open.
Great. Thanks, so much for the questions here, maybe just two for me first you talked about the macro environment expanding your opportunity set dramatically and I'm just interested to see where youre seeing kind of maybe the greatest incremental opportunities. So as is this development stage deals are companies that need funding.
Companies needing launch capital to get to get products off the ground or is it feels more like the PTC deal where companies are looking to monetize existing royalties have a strong sense of like us.
As buckets as one really standing out over the other and then my second.
One was just on competitive environment I think you are in that.
Enviable position that you're able to kind of recycle capital and self fund much of your BD in this environment, which is a bit different than peers. So can you just talk about what youre seeing for the competitive environment for deals out there and has that changed at all versus where we were a year or two ago.
Thank you, Chris So I'll ask.
Chris.
Take the first part of the question.
Sure. Thanks, Pablo Thanks for the question, Chris the macro environment.
Between development stage launch capital monetization of existing royalties like the PTC deal.
Look it's we were.
Sure.
Last year, we showed a slide that we looked at 350.
Opportunities greater than it is at the top of our funnel.
And as you might imagine that.
Comprised all of those different set of opportunities and yes.
When we've done deals around development stage like funding R&D like we did with Merck last year in.
And the synthetic royalties like we've done this year I would what I would tell you is the entire environment is increasing.
It's hard for me to say, Oh, we're getting more development stage deals or more monetization deals right now all I can really tell you is and I think as Pablo highlighted.
Yes.
Just the amount of opportunities and the opportunity set has grown dramatically.
We don't see any slowdown in that and it's really evidenced by the fact that we've deployed.
Since 2020.
Announced deal volume nearly 13 billion with nearly $9 billion upfront. So that's that's sort of the proof in the pudding I guess.
Yes, Chris.
Marshall can answer the second part of your question related to the competitive environment.
Hey, Chris Good morning, it's a good question on overall I think the message is.
No real change in the competitive environment I think we've talked in the past about we have always operated in a competitive environment and certainly the.
Kind of.
Complexion of that.
The competition changes depending on the type of deal, but I think no real change, but I think the really important thing is as we continue to execute.
Against our strategy as the business gets bigger and bigger it really continues to expand our competitive advantages versus versus the rest of the market in terms of our.
Our flexibility our ability to do large deals our ability to really partner long term with our partners our creativity to continue to evolve how we work with companies to meet.
The needs of life science innovators across the space. So I think we feel really confident about where we are in overall no real change on the competitive front grate.
Great. Thanks, so much.
Please standby for the next question.
The next question comes from Stephen Scala with Gd Cowen Your line is open.
Thank you very much I have two questions I assume that royalty pharma analyzes clinical trials prior to their readout. What is your analysis, telling you on the readouts of the new vertex Triple studies.
Does your analysis suggest that they will achieve their endpoints if they don't achieve their endpoints then what is the most likely reason.
Your answer maybe that you don't talk about other companies trials, but this is material to your stock. So I think your view would be useful to your shareholders.
My question is I'm curious what surprised you regarding the initial list of 10 drugs from the IRA negotiation.
Procedure, whether it be what was included or excluded and how does it influence your future progression relative to investments. Thank you.
Sure. So Terry will take your first question related to cystic fibrosis, and then Marshall can talk about the mix of the.
10 drugs and IRA.
Yes sure Steve.
Of course, we are.
Focused on this this readout as well as I'm sure many investors are.
Our expectation is that that the trial will succeed.
And I think we'll have to wait to see the full.
The full data to sort of get a sense of that.
The overall benefit but.
And what we've seen in the phase II trial.
It's hard to say at this point that there that it's that it's clearly better than try captor. So we'll wait and see there, but I think the key thing for royalty pharma.
Is that last quarter, we really tried to unpack.
The potential impact to our business.
Under a range of scenarios, including.
Share conversion scenarios, where a lot of patient switch and also lower royalty rate scenarios.
And what we've what we've pointed to and we still feel really good about this is that the impact on our business.
Under any scenario is <unk>.
Very very manageable couple of hundred million dollars is how we've described it and we still feel really good about that and we still feel also feel really good about our ability to.
Grow over this decade by 10% or more.
Even under even under those scenarios, so we'll wait and see we'll wait and see the full data.
The bar is obviously really high with Tri CAFTA.
But it sounds like we'll see something in early <unk>.
And Steve Good morning briefly on the IRS. So we were really focused on the the impact to royalty pharma and I think there is.
We had highlighted two products for this year.
That could have been on their <unk> and <unk>.
<unk>, obviously was extending was not.
So I guess that was a little bit of a surprise, but like we have said with <unk>.
Patent life ending shortly thereafter, it wasn't really a material impact to royalty pharma anyway.
Beyond that in terms of what was on the list or the approach that was taken to put the list together will probably refrain from commenting there I think it's still early in terms of how that.
How the lift has generated what factors come in.
And a lot of that.
Insight to be added there, but certainly with respect to royalty pharma, we felt like it was a constructive outcome.
Thank you.
Please standby for the next question.
The next question comes from Andrew Baum with Citigroup. Your line is open.
Good morning. Thank you a couple of questions. Firstly for Terry just following on your comments on the ability to increase leverage at royalty.
Should I read into this a guide to larger capital deployment Alternatively.
Even a big upsizing of your buyback given the comments about the MTA valuation of the stock.
Second if you could just update us on the sell down of your pre IPO shareholders and then finally could you just confirm theres no.
Impacts from the cap removal in Medicaid on your portfolio many thanks.
Okay.
Sure. So on the on the question about leverage I think the message. There is that we have a lot of a lot of dry powder and a lot of financial flexibility and sale.
If the right opportunities come along and we've been we've been deploying a lot of capital.
As Chris mentioned, we're not seeing any signs of that slowing down we feel like we have access to the capital that will need to take advantage of those opportunities.
And when they present themselves. So we feel really good about that.
On the question about share buyback.
We've.
Repurchased or add a little over $300 million.
Year to date, we have $1 billion repurchase authorization.
And I think we will continue to be opportunistic and balance that against other opportunities, particularly opportunities to buy really excite royalties on really exciting products like the announcement that we made a couple of weeks ago O&M Brzycki. So as you know are our number one priority is buying royalties.
But we do think that with our stock at these levels.
Returning some share some capital to shareholders.
Through share repurchases is also really attractive tool that we will certainly look at from time to time.
Your second question.
Okay.
On pre IPO shareholders, yes on pre IPO shareholders. So we did see.
Major shift in the shareholder base.
Over over the last couple of years, we feel like we feel like that has.
Mostly run it actually it's really run its course at this point so there's not really much left.
<unk> that is really obvious to us.
But that was definitely something that was a headwind.
For the for the business as there as we saw that transition.
But we do feel like that's largely run its course.
And then just quickly on your last question.
So.
The answer is no. We don't think that theres any kind of major material exposure. There. The only caveat I would say is and we've discussed this before that we don't always have perfect insight into the payer mix of some of our royalties. So.
So there is some lack of precision there, but as of right now.
No. We don't think there is a material impact.
Okay.
Many thanks.
Please standby for the next question.
The next question comes from EMEA, Ross <unk> with Evercore. Your line is open.
Hi, guys. This is might be jewelry and four omer.
So much for taking our questions and congrats on all the progress this quarter too.
Two questions one big picture one on the pipeline the Big picture one dovetails on what was asked previously a little bit I mean, clearly royalty pharma has been pursuing less development stage deal since 2020, despite deploying increasingly greater capital and my.
The question is are compelling or high conviction phase III three opportunities, becoming increasingly scarce. Despite a growing opportunity set or has there been a fundamental change in royalty pharma as a risk tolerance or could it be more macro interest rate driven.
A follow up.
Sure. Thank you Marshall do you want to take that question sure. Mike. Thanks. Thanks for the question. So overall no. There's no change in strategy or how we think about approved versus unapproved investments.
We've shown it.
One of the slides and the prepared remarks about how it has really varied when you'd be approved and unapproved from from year to year, we have seen more.
We have seen greater levels of investment in approved and approved products over the past couple of years, but I wouldnt interpret that to say that thats, a permanent sort of strategic positioning as we've talked about in the past. It really is about finding the things that we are most excited about in any period of time and so that's what that.
Looked like over the past couple of years, but I think we do think about the business and the strategy over over years over many years at a time and so I would continue to expect there to be some variance in approved in development stage investments from year to year like you've seen historically.
Got it Super helpful and my product specific question is on <unk>.
From Roche <unk> data showed very little area and some folks out there think that Roche simply got lucky.
Given that then the notably high C. Max.
<unk> is what gives you confidence that ARIA rates will remain low and that this.
Investment in Trenton, Nomad, who will remain competitive thank you.
Sure Mike we were excited to see that trend can you map data and.
And I think.
We are looking forward to seeing more as to your specific question on ARIA.
Hard to generalize right now I think.
Given the technology given.
The dynamics of how the drug is taken up into the brain is probably very hard.
To compare it to historical datasets and I think we're just going to have to see how roche moves it forward, but I do think it.
At a high level it really speaks to how we do build the portfolio and how it's really nice to have things like things like <unk> Kinder Matt.
In the portfolio that do give us.
Some option value and flexibility as as ads that development moves forward.
Great. Thanks, so much.
Please standby for the next question.
The next question comes from Terence Flynn with Morgan Stanley. Your line is open.
Hi, This is Dan on for Terence Thanks for taking our questions just two from US first on the opportunity set maybe can you talk a little more about the current state of the opportunity set for large pharma company partnerships and any common themes that are coming up in those discussions and then second on on the pipeline can you maybe talk about what you're hoping to see from niche from <unk> versus <unk>.
Head to head study in Crohn's disease. Following recent data from <unk> Z AD markets, Matt. Thank you.
Thank you Dan So Chris can answer the first question about the opportunity set and then Marshall will take the question on set our AUM from failure.
Sure. Thanks.
Thanks, Dan for the question.
<unk>.
Look.
Think I, probably referenced it a little bit my answer to one of the questions earlier, but we continue to see opportunities to invest with large pharma in their in their pipelines.
That has not slowed down I think there is in fact, there is probably a growing interest amongst them to share risk.
And partner with us fee for us, it's really we want to be very thoughtful.
Sure.
Sure.
And really pick the quality assets that they are most excited about.
And Thats really keeping a very high bar for us. So we are seeing an increasing set of opportunities to help fund R&D. It's just a question of <unk>.
Making sure we choose the right asset and being very disciplined.
And hi, Dan Good morning, so thanks for bringing that up this is one of our portfolio of products. We are really excited about.
The growth has really been spectacular and as we've discussed in the past.
As that gets into the label is going to drive another another wave of growth.
And as you point out I think it's pretty interesting to see the head to head studies that we've seen from other IL 20, threes and no reason to think of <unk> is not going to participate in that going forward. So I think we're really excited about it and again <unk>.
It is exactly the type of product that we're looking to add to the portfolio with incredible science incredible benefit to patients Super strong marketer in in <unk>, who can support who can support that.
The label development and run Big head to head studies like that to continue to expand this marketplace. So we're really excited to have that in the portfolio for years to come.
Please standby for the next question.
The next question comes from Geoff Meacham with Bank of America Securities. Your line is open.
Hi, Good morning. This is Susan on for Jeff.
Just a related question so on the upcoming catalyst in the fourth quarter when should we expect to see topline growth contributions.
The catalysts are positive and then just a follow up on one of the products and <unk>.
The primary endpoint are mixed as we saw with embedded Claxton Abbvie are.
Are there any special economics, we should be aware of.
Are there any sort of optionality on continuing Chad.
Ill add additional royalties or milestone payments.
Sure. Thank you for the question Terry.
Terry do you want to take the question on growth and then Marshall. The second question sure. So yes. There are there are a number of upcoming catalysts as you mentioned in the fourth quarter <unk>.
One of them as a captain.
We're going to see the phase III data collaborative as another so yes.
We're excited to see those readouts.
And.
I think that.
Our expectation is that <unk>.
Lee.
If they are positive that they would they would start contributing to growth.
Maybe it's from fire little sooner and the others, obviously would need would need to go through the regulatory approval process. So probably more like 2025 and beyond so that's the great thing about how we sort of build the portfolio is that we are we have a regular flow of catalysts like these.
But also.
A lot of sort of just organic growth within the portfolio as well so.
That's one of the strengths of our business model.
And then on your question on collaborative.
So nothing no nothing special in the agreement with respect with respect to Q2 that outcome I would just remind everyone.
We acquired that royalty as part of our transaction with morphosis too to support to support their their acquisition of <unk>.
The <unk> program. So it really was centered on from fire that verify a royalty, which we just discussed in the last in the last in the last question. So.
We are excited to see the outcome like I know many others are.
But overall remain really happy with that with the morphosis transaction and the App.
And the great royalty electrum fire that really anchored it.
Please standby for the next question.
Okay.
The next question.
Question comes from Chris <unk> with Goldman Sachs. Your line is open.
Thank you good morning, I think when we think about the stock which has been challenging.
You guys have been communicating effectively in terms of addressing tackling some of the debates.
Pre IPO shareholders vertex triple the interest rate environment et cetera, what are the questions that comes up for US is this question of quarter the rate comps and this came up in a recent discussion in part because we see some royalty trust, which are obviously not exactly the same these in the metal and mining and oil.
Explorer for instance, with kind of a similar risk profile. So created a premium can you comment about how you think of comparable companies from an investment vehicle standpoint, and maybe if there any other sort of debates that are nettlesome that you feel that you have to address and then secondly on the creativity.
<unk> with a risky obviously there was particular circumstances with multiple players that lets you kind of double dip and expand into that opportunity does your creativity extend into thinking about some of the existing relationships that you have to also sort of further create additional structures that expand upon existing loyalty.
Given the fact that you have that relationship due diligence et cetera, or with the same entities, perhaps for other assets is that part of a proactive effort on your part to grow the book.
Yes, so I'll, let I'll answer.
The question on the second question on <unk> I think.
The way we approach.
The business and we've done it the same way for several decades.
We tried to get to know management teams we get.
Through all of the companies that they're running the products, they're developing really well.
And then have a constant dialogue with them about the challenges they face the capital they need and then see how we can best.
To help them.
Fund their programs.
And solve problems.
And we always approach this.
Dialogue with our Super open mind, I always tell the team we need to start with a sort of a blank piece of paper and not come with any preconceived ideas that understand the problem.
Understand.
Issues the challenges the need and then.
Reflect and see how we can come up with greater structures, but I think the business. Also has is very unique characteristic of repeat business with many.
Companies.
Even.
Cystic fibrosis foundation and others MSB.
<unk>, where we have done.
Multiple deals and we had a slide I think recently.
When we announced the PTC transaction of volume of repeat business, which is very significant.
It is definitely something that.
We.
<unk> known for because I think a lot of those management teams in this company's built.
I believe that one of the established a partnership with us and we know each other and our easy very easy to work with them very creative.
They can then continued through two.
<unk> worked with us over time in helping them.
No.
With other challenges they face.
I'll turn it over.
Two.
I guess first question was for Terry Yes, yes, so so Chris.
You raised a really good point and it's something we've thought a lot about is.
The cops and.
We really are an N of one and so.
There are elements of our business that look a lot like pharma.
And then there are elements that are different and there are elements that looked like a like another sort of gold mining royalty company or even in an alternative asset manager and so we don't fit squarely into any one bucket.
We think that that's a benefit of the business, but also is it does require more education on our part.
And just sort of meeting with investors and being out in front of people and explaining why this business is so unique in how you can get exposure to.
Some of the amazing elements of Biopharma without some of the.
Some of the challenges that the biopharma sector faces.
And that's taking time and I think that we're going to continue to work at it.
In the meantime, we're we feel like we're continuing to execute really well.
And.
Hopefully hopefully yes.
Overtime.
Investors start to be rewarded with a much stronger share price performance.
I'll just add to what Terry said, one concept that I think is really critical here.
Because.
The question of comps is an important one.
One that as you said youre getting often but I think just a much more fundamental.
Consideration is really what drives the performance of royalty pharma and when you think about it it's really.
No different than.
Pharma companies Biopharma companies failed for pharma products and what drives the sales of our product.
New indications.
Penetration into new markets, we have so many new therapies and our portfolio, we've been able over many decades to always invest in.
Most exciting.
New products that every wave of intervention has generated so we.
Half.
The drivers of Biopharma, which is.
The top line driven by by.
New products.
Market that didn't exist and I think get penetrated they have very very strong underlying growth and then third point that again, we are not exposed to some of the headwinds of this industry.
I think it's a very very unique investment proposition and one that investors.
When we really sit down with them and investors understand what's unique about royalty pharma.
I think the real is that this presents a very unique opportunity to invest in life Sciences.
Attractive diversified way with significant predictable growth and low risk.
Okay.
Alright, thanks for the comment Chris.
I show no further questions at this time I would now like to turn the call back over to Pablo <unk> for closing remarks.
Thank you operator, and thank you to everyone on the call for your continued interest and royalty pharma have you have any follow up questions. Please feel free to reach out to George.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
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Okay.
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