Q4 2023 Royalty Pharma PLC Earnings Call
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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Q4 2023 EARNINGS CONFERENCE CALL. I would like to now turn the conference over to George Grofick, Senior Vice President, Head of Investor Relations and Communications. Please go ahead.
Ladies and gentlemen, thank you for standing by welcome to the royalty Pharma Q4, 2023 earnings conference call.
I would like to now turn the conference over to George <unk> Senior Vice President head of Investor Relations and Communications. Please go ahead.
George Grofick: Thank you. And good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's fourth quarter and full year 2023 results. You can find the press release with our earnings results and slides for this call on the investors page of our website at royaltypharma.com. Moving to slide three, I would like to remind you that the 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.
Thank you and good morning, or good afternoon to everyone on the call. Thank you for joining us to review royalty pharma fourth quarter and full year of 2023 results you can find the press release with our earnings results and fly the 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.
George Grofick: 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 liquidity measures will be used to help you understand our financial performance. The reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to slide four.
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 liquidity measures will be used to help you understand our financial performance. A reconciliation of these measures to our GAAP financials 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 retro founder and Chief Executive Officer, Chris height, EVP, Vice Chairman Marshall Europe, EVP head of research and investment and Terry Quaint EVP Chief Financial Officer, Pablo will discuss the key highlights Chris will then provide more detail on our transaction pipeline.
George Grofick: Our speakers on the call today are Pablo Legareta, founder and chief executive officer; Chris Hite, EVP, vice chairman; Marshall Urist, EVP, head of research and investment; and Terry Coyne, EVP, chief financial officer. Pablo will discuss the key highlights. Chris will then provide more detail on our transaction pipeline, after which Marshall will give a portfolio update. Next, Terry will review the financials, and following concluding remarks from Pablo, we will hold a Q&A session. And with that, I'd like to turn the call over to Pablo.
After which Marshall will give a portfolio update.
Chris Schott: Next Terry will review the financials and following concluding remarks, and Pablo we will hold a Q&A session and with that I'd like to turn the call over to Pablo.
Pablo Legareta: Thank you, George, and welcome to everyone on the call. I am delighted to report another successful year of execution against our vision to be the leading partner funding innovation in life science. I am very proud of our achievements in..., which are summarized on slide six. We maintained our track record of strong business momentum with excellent financial performance and significant enhancements of our portfolio. In terms of the financials, we delivered 9% growth in portfolio receipts, our top line, with royalty receipts up 8%. As Terry will discuss later, we have refined and simplified the presentation of our non-GAAP measures to improve analysis and tracking of our financial performance.
Pablo: Thank you George and welcome to everyone on the call.
Pablo: Added to report another successful year of execution against our vision to be the leading partner funding innovation in life Sciences.
Pablo: I am very proud of our achievements in 2023, which are summarized on slide six.
Pablo: We maintained our track record of strong business momentum with excellent financial performance and significant enhancement of our portfolio.
Pablo: In terms of the financials, we delivered 9% growth and productivity receipts, our topline with royalty receipts up 8%.
Pablo: Terry will discuss later, we have refined and simplified the presentation of our non-GAAP measures to improve analysis and tracking of our financial performance in.
Pablo Legareta: In addition, in what we view as a big step towards further simplifying the analysis of Royalty Pharma for current and future investors, we're also posting supplemental financial information to our website, which brings together in one place all of the relevant financial data for our business, including a detailed product build and consensus forecast. During the year, we added royalties on eight therapies, including incremental royalties on the exciting blockbuster therapy, Ebresti. We also saw a number of positive clinical and regulatory events for our portfolio assets. In terms of capital allocation, 2023 was very strong, with $4 billion in announced transactions and $2.2 billion in actual cash deployed. Notably, it was our highest ever year for synthetic royalty transactions.
Pablo: In addition, and what we view as a big step towards further simplifying the analysis of royalty from our for current and future investors were also posting supplemental financial information to our website, which which brings together in one place all of the relevant financial data for our business, including.
Pablo: A detailed product build and consensus forecasts.
Pablo: During the year, we added royalties on <unk> therapies, including incremental royalties on the exciting blockbuster therapy at Bruce B.
Pablo: We also saw a number of positive clinical and regulatory events for our portfolio of assets.
Pablo: In terms of capital allocation 2023 was very strong with 4 billion and announced transactions and $2 2 billion in actual cash deployed.
Pablo: Notably it was our highest every year for synthetic royalty transactions.
Pablo Legareta: We also announced a $1 billion buyback program earlier in the year because of the disconnect we see in the share price from our Strong Fundamental Outlook. Lastly, we're reflecting the strong momentum in our business in our 2024 full-year guidance. We expect portfolio receipts to be between $2.6 and $2.7 billion based on expected underlying growth from our portfolio of between 5% and 9%. As with our standard practice, our guidance is based on our current portfolio and does not include the benefit of any future transactions.
Pablo: We also announced a 1 billion buyback program earlier in the year because of the disconnect we see.
Pablo: And the share price from our strong fundamental outlook.
Lastly, we're reflecting the strong momentum in our business and our 2024 for full year guidance, we expect portfolio receipts to be between $2 six and $2 7 billion based on expected underlying growth from our portfolio.
Pablo: Between 5% to 9% consistent with our standard practice our guidance is based on our current portfolio and does not include the benefit of any future transactions.
Pablo Legareta: Slide seven shows our strong growth in royalty receipts in the fourth quarter and for the full year. As I noted earlier, we delivered 8% growth in royalty receipts in 2023, which included 10% growth in the fourth quarter. This speaks to the excellent momentum of our diversified portfolio of more than 35 approved products.
Pablo: Slide seven shows our strong.
Pablo: Growth in royalty receipts in the fourth quarter and for the full year.
As I noted earlier, we delivered 8% growth in royalty receipts in 2023, which include 10% growth in the fourth quarter. This speaks to the excellent momentum of our diversified portfolio of more than 35 approved products.
Pablo Legareta: In addition to our strong growth, Slide 8 illustrates that we have significantly broadened our portfolio through the approximate $13 billion of transactions we have announced since 2020. To put this in perspective, at the time of our IPO, we guided to greater than $7 billion in royalty acquisitions through 2025. Thus, we have exceeded this figure by a substantial margin.
Pablo: In addition to our strong growth slide eight illustrates what we that we have significantly broadened our portfolio through the approximate 13 billion of transactions, we have announced since 2020.
Pablo: To put this in perspective at the time of our IPO.
Pablo: We guided to greater than $7 billion and royalty acquisitions through 2025 so.
Pablo: So we have exceeded.
Pablo: This figure by a substantial margin over that period, we have acquired royalties on 34 unique therapies of which 17 are either currently are projected to be blockbusters and nearly two thirds were approved at the time of acquisition.
Pablo Legareta: Over the period, we have acquired royalties on 34 unique therapies, of which 17 are either currently or projected to be blockbusters, and nearly two-thirds were approved at the time of acquisition. These new royalties are expected to add approximately $1.2 billion to our top line in 2025, using consensus estimates. The ability to continue to expand the portfolio with attractive, long-duration royalties is another unique feature of our business model and underscores my high level of confidence in Royalty Pharma's prospects. With that, I will hand it over to Chris to update you on our transaction pipeline. Thanks, Pablo.
Pablo: The ZIP royalties are expected to add approximately $1 2 billion to our top line in 2025 using consensus estimates.
Pablo: The ability to continue to expand the portfolio with attractive long duration royalties is another unique feature of our business model and underscores my high level of confidence and royalty pharma prospects.
Pablo: With that I will hand, it over to Chris to update you on our transaction pipeline.
Chris Schott: Thanks Pablo.
Chris Schott: Slide 10 really explains the excitement we have for our market. 2023 saw very strong momentum for the royalty market with $7.4 billion of announced transactions. Not only did this represent the strongest year ever for royalty funding, but the dollar value was over 12 times that in 2015, and the long-term upward trend is visible despite some year-to-year volatility. What this tells us is that royalties are becoming a core funding mechanism for the biopharma industry. Importantly, we maintain our leading share of this market in 2023 with a 53% market share. For comparison, the number two royalty buyer has only a 13% market share in 2023.
Chris Schott: Slide 10 really explains the excitement we have for our market.
2023 saw very strong momentum for the royalty market was $7 4 billion of announced transactions.
Chris Schott: Not only does this represent the strongest year ever for royalty funding, but the dollar value has ever 12 times that in 2015, and the long term upward trend is visible despite some year to year volatility.
Chris Schott: What this tells US is that royalties are becoming a core funding mechanism for the biopharma industry.
Chris Schott: Importantly, we maintain our leading share of this market in 2023 with a 53% market share.
Chris Schott: For comparison, the number two royalty buyer, that's only a 13% market share in 2023.
Chris Schott: Slide 11 drills down deeper into our transaction funnel. As you can see here, we were incredibly busy and reviewed more than 400 potential royalty transactions. This resulted in 126 CDAs signed, 93 in-depth reviews, and 47 proposals submitted.
Chris Schott: Slide 11 drills down deeper into our transaction funnel.
As you can see here, we were incredibly busy and are reviewed more than 400 potential royalty transactions.
Chris Schott: This resulted in a 126 CDA signed 93 in depth reviews, and 47 proposals submitted.
Chris Schott: We continue to be very financially disciplined in our approach as we executed only seven transactions, or just 2% of our initial review. Slide 12 illustrates the strong underlying trends in our transaction funnel, not just in 2023 but over a multi-year period. On the left-hand side, the number of in-depth reviews we conducted has more than doubled since 2019, which was the year prior to us going public. We view this as an important data point, as this is when our team starts to invest a significant amount of time reviewing opportunities. The expansion in this number speaks to the growing number of quality opportunities we're seeing.
We continue to be very financially disciplined in our approach as we executed only seven transactions or just 2% of our initial reviews.
Chris Schott: Slide 12 illustrates the strong underlying trends in our transaction funnel.
Chris Schott: Not just in 2023, but over a multiyear period.
Chris Schott: On the left hand side the number of in depth reviews, we conducted has more than doubled since 2019.
Chris Schott: Which was the year prior to us going public.
Chris Schott: We view this as an important data point as this is when our team starts to invest a significant amount of time reviewing opportunities.
Chris Schott: Expansion in this number speaks to the growing number of quality opportunities we're seeing.
Chris Schott: On the right-hand side, you can see that the transaction value reached $4 billion in 2023, which is about double what we achieved in 2019. Looking ahead, we're confident we can scale up our capital deployment over time while maintaining a high-quality bar and attractive return. Slide 13 shows the strong growth in synthetic royalty transactions since last year. We pioneered this innovative solution in which we create new royalties as a non-dilutive funding solution for our partners. Historically, biopharma funding has been dominated by equity, licensing deals, and debt. Synthetic royalties have been a small part, just 3% of the overall funding picture over the last five years.
Chris Schott: On the right hand side, you can see that the transaction value reached $4 billion in 2023, which is about double what we achieved in 2019.
Chris Schott: Looking ahead, we're confident we can scale up our capital deployment over time, while maintaining a high quality bar and attractive returns.
Chris Schott: Slide 13 shows the strong growth in synthetic royalty transaction since last year we.
Chris Schott: We pioneered this innovative solution in which we create new royalties as a non dilutive funding solution for our partners.
Chris Schott: Historically biopharma funding has been dominated by equity licensing deals in that.
Chris Schott: Synthetic royalties have been a smart small part just 3% of the overall funding picture over the last five years.
Chris Schott: However, we strongly believe that synthetic royalties offer an attractive win-win approach to our partners, and consequently, our expectation is that they will be a fast-growing business opportunity in the coming years. This is backed by our ongoing partnership discussions where we now see that synthetic royalties are being routinely discussed at the board level and C-suites as a potential funding modality. Consistent with this growing opportunity, we announced synthetic royalty transactions of nearly $800 million in 2023, which represents a doubling since the year of our IPO. We see this as just the start of a really important trend. And with that, I'll hand it over to Marshall. Thanks, Chris.
Chris Schott: However, we strongly believe that synthetic royalty to offer an attractive win win approach through our partners.
Chris Schott: Consequently, our expectation is that they will be a fast growing business opportunity in the coming years.
Chris Schott: This is backed up by our ongoing partnership discussions where we now see that synthetic royalties are being routinely discussed at the board level and C suites as a potential funding modality.
Consistent with this growing opportunity, we announced synthetic royalty transactions of nearly $800 million in 2023.
Chris Schott: Which represents a doubling since the year of our IPO.
Chris Schott: See this is just the start of a really important trend.
Chris Schott: With that I'll hand, it over to Marshall.
Marshall Urist: As Pablo noted, not only did we deploy substantial capital to enhance our portfolio in 2023, but we saw a number of positive clinical and regulatory events for therapies in our portfolio. In addition, we benefited from strong market performance for many of our recent portfolio acquisitions. Slide 15 shows the performance of our transactions since 2020.
Marshall: Thanks, Chris as Tableau noted not only did we deploy substantial capital to enhance our portfolio in 2023, but we saw a number of positive clinical and regulatory events for therapies in our portfolio. In addition, we benefited from strong in market performance for many of our recent portfolio acquisitions.
Marshall: Okay.
Marshall: Slide 15 shows the performance of our transaction since 2020, the graphic on the left hand side shows that the consensus 2025 sales estimates for the majority of our recent investments has increased significantly.
Marshall Urist: The graphic on the left shows that the consensus 2025 sales estimates for the majority of our recent investments have increased significantly. Over half have seen more than 20% increases in consensus sales, and a couple have increased them by more than 50%, notably Everisdi, on which we acquired incremental royalties in 2023. The graphic on the right-hand side highlights that the majority of our recent development stage investments have delivered positive clinical or regulatory milestones.
Marshall: Have had seen more than 20% increases in consensus sales and a couple of increased spend by more than 50%, notably ever risky and which we acquired incremental royalties in 2023.
Marshall: Graphic on the right hand side highlights that the majority of our recent development stage investments have delivered positive clinical and regulatory milestones.
Marshall Urist: The takeaway is that our team has a strong track record of identifying attractive commercial and development stage opportunities driven by our disciplined and time-tested approach. Expanding on our development stage portfolio, we're very excited about several notable successes over the past year. Slide 16 lists six important recent highlights from our portfolio, including the positive phase three results from cytokinetics cardiovascular drug Aficamptin and the $13 billion acquisition of Karuna by Bristol Myers Squibb to gain CAR-XP for schizophrenia, where we have a royalty. Also, last week, Novartis announced a $3 billion acquisition of Morphosis, where we have a royalty on the lead program collaborative $300 million of development funding bonds, where we will receive a 2.2x return over time, as well as approximately $100 million of Morphosis equity.
Marshall: Takeaway is that our team has a strong track record of identifying attractive commercial and development stage opportunities driven by our disciplined and time tested approach.
Marshall: Expanding on our development stage portfolio, we're very excited about several notable successes over the past year slide.
Marshall: Slide 16 lists.
Marshall: Six important recent highlights from our portfolio, including the positive phase III results from Cytogenetics cardiovascular drug Appy campaign, and the $13 billion acquisition of Corona by Bristol Myers Squibb in car XP for schizophrenia, where we have a royalty.
Marshall: Also last week, Novartis announced that $3 billion acquisition of Morphosis, where we have a royalty on our lead program <unk> $300 million of development funding bonds, where we will receive a 2.2 extra turn over time as well as approximately $100 million of more versus equity.
Marshall Urist: Each of these development stage therapies has the potential to be an important contributor, potential upcoming milestones for our portfolio in 2024 and beyond. Lastly, I should note that we made a small but exciting investment in Emelex's Ecopipam in January, which is potentially the first drug specifically developed for Tourette's syndrome. With that, I'll hand over to Terry. Thanks, Marshall.
Marshall: Each of these development stage therapies has the potential to be an important contributor to our long term growth and returns and we have a number of exciting.
Marshall: Potential upcoming milestones for our portfolio in 2024 and beyond lastly, I should note that we made a small but exciting investment in <unk> in January which is potentially the first drug specifically developed for asking John with that I'll hand over to Terry.
Terry: Thanks, Marshall, let's move to slide 18.
Terry Coyne: You will have seen from our press release today that we have made changes to our financial presentation in order to enhance transparency and disclosures for investors and to better reflect the nature of our cash flow. First, as we previously announced on January 8th, we replaced adjusted cash receipts with portfolio receipts. While this key performance metric sums to the same amount as adjusted cash receipts, the change will facilitate increased transparency into the economics of individual royalties, as these will now be reported net of legacy non-controlling insurance. Additionally, portfolio receipts will be broken down into two subcategories, namely royalties and Milestone and other contractual receipts.
Terry: You will have seen from our press release today that we have made changes to our financial presentation. Accordingly in order to enhance transparency and disclosure for investors and better reflect the nature of our cash flows.
First as we previously announced on January eight and replaced adjusted cash receipts with portfolio receipts.
While this key performance metrics to the same amount of adjusted cash receipts. The change will facilitate increased transparency into the economics of individual royalties as these will now be reported net of legacy non controlling interest.
Terry: Additionally portfolio receipts will be broken down into two subcategories, namely royalty receipt and.
Terry: In milestone and other contractual receipt receipts.
Terry Coyne: This new disclosure is intended to provide greater clarity on the underlying trends in our royalty portfolio versus other contractual payments, which may be more variable over time. Additionally, to better reflect our cash flows, we are introducing a non-GAAP liquidity measure, portfolio cash, along with a new performance metric, capital deployment. We believe these new measures will help focus investors on the simplicity of our business model and the cash inflows and cash outflows of our business. Finally, you should note that our long-term outlook is unchanged by this new presentation.
Terry: This new disclosure is intended to provide greater clarity on the underlying trends in our royalty portfolio versus other contractual payments, which may be more variable over time.
Terry: Second to better reflect our cash flows we are introducing a non-GAAP liquidity measure portfolio cash flow along with a new performance metric capital deployment.
Terry: We believe these new measures will help focus investors on the simplicity of our business model and the cash inflows and cash outflows of our business.
Terry: Finally, you should note that our long term outlook is unchanged by this new presentation.
Terry Coyne: All guidance states... to be made for adjusted cash receipts now applied to portfolio receipts. In other words, we expect a compounded annual growth rate in portfolio receipts of between 11% to 14% over 2020 to 2025 and of 10% or more from 2020 to 2030. In totality, we believe these changes provide greater insight into our business and are more aligned with how we manage our customers. It should be noted that these changes have been discussed with the FEC. Slide 19 provides more granular detail on our non-GAAP liquidity measures and performance. As I just noted, the calculation of portfolio receipts is identical to the previous adjusted cash flow, but the new disclosures provide greater transparency into the underlying economics and trends within our portfolio. Adjusted EBITDA is unchanged as a key non-GAAP liquidity measure.
Terry: All guidance guidance statement, which we made for adjusted cash receipt now apply to portfolio receipt.
Terry: In other words.
Terry: The compounded annual growth rate and portfolio receipts of between 11% to 14% over 2020 to 2025, and a 10% or more from 2020% to 2030.
In totality.
Italy. These changes provide greater insight into our business and are more aligned with how we manage our business.
Terry: It should be noted that these changes have been discussed with the SEC.
Terry: Slide 19 provides more granular detail on our non-GAAP liquidity measures and performance metrics.
Terry: As I just noted the calculation of portfolio receipts is identical to the previous adjusted cash receipts.
Terry: But the new disclosures provide greater transparency into the underlying economics and trends within our portfolio.
Terry: Adjusted EBITDA is unchanged at our key non-GAAP liquidity metrics.
Terry Coyne: Portfolio Cash Flow. Another key non-gap liquidity measure is calculated as adjusted EBITDA less net interest paid. It replaces adjusted cash flow and measures substantially all cash generated by the business. The primary difference between portfolio cash flow and adjusted cash flow is the exclusion of upfront development stage payments and milestones, which are now included in capital deployment. Capital Deployment measures substantially all cash outflows related to our investment activity in a single line and is an aggregate amount which reflects cash payments for new and previously announced transactions as opposed to announced transaction values which may also include milestones to be paid in future periods. We include a detailed breakdown of capital deployment and our earnings. Management thinks about the ability to pursue our strategy.
Terry: Portfolio cash flow.
Terry: Another key non-GAAP liquidity measure is calculated as adjusted EBITDA less net interest paid.
Terry: It replaces adjusted cash flow and measure substantially all cash generated by the business.
Terry: The primary difference between portfolio cash flow and adjusted cash flow is the exclusion of upfront development stage payments and milestones.
Which are now included in capital deployment.
Terry: Capital deployment measures substantially all cash outflows related to our investment activity in a single line.
In an aggregate amount, which reflects cash payments for previously announced transactions as opposed to announced transaction value, which may also include milestones to be paid in future periods.
Terry: We include a detailed breakdown of capital deployment in our earnings release on page four.
Terry: Management thinks about the ability to pursue our strategy, we look at portfolio receipts at the cash inflows, we subtract cash expenses to provide to arrive at portfolio cash flow and we deploy the vast majority of that capital is attractive royalties to drive future value creation and growth.
Terry Coyne: We look at portfolio receipts as the cash inflow. We subtract cash expenses to arrive at portfolio cash flow, and we deploy the vast majority of that capital in attractive royalties to drive future value creation and growth. The virtuous cycle of our business is critical to understanding how we generate long-term value. Following these updates, we will no longer report adjusted cash receipts or adjusted cash flow.
Terry: The virtuous cycle of our business is critical to understanding how we generate long term value.
Terry: Following these updates we will no longer report adjusted cash receipts or adjusted cash flow.
Terry Coyne: We have posted on our website the historical financials under this new framework dating back to 2019, and we are also providing significant additional information on the investor section of our website, including key royalty terms, consensus estimates for key products, and NCI byproduct to assist in your model. Let's now move on to the financials, starting with our full-year top-line performance on Flight 20. The underlying trends remain quite encouraging.
Terry: We have posted to our website historical financials under this new framework dating back to 2019.
We are also providing significant additional information on the investors section of our website, including key royalty terms consensus estimates for key products and NCI byproduct to assist in your modeling.
Terry: Let's now move onto the financials, starting with our full year top line performance on slide 20.
The underlying trends remain quite encouraging royalty receipts grew by 8% for the full year, reflecting the strength of our diversified portfolio.
Terry Coyne: Royalty receipts grew by 8% for the full year, reflecting the strength of our diversified portfolio. Additionally, the new disclosures on milestones and other contractual receipts show the impact of the BioHaven-related payments on reported performance. As a reminder, in 2020-2022, we received $509 million in Biohaven-related payments, while in 2023, we received $525 million in Biohaven-related payments, with the net impact being a relatively modest benefit for full year 2020-30. Overall, milestones and other contractual receipts grew by 15% in 2023, contributing to 9% growth in portfolio receipts. Slide 21 shows how our portfolio receipts performance in the fourth quarter and full year in more detail, including individual royalties. Beginning with royalty receipts, growth of 10% in the quarter and 8% for the year was mainly due to the strong performances of the Cystic Fibrosis franchise, Trelegy, and Tremfaya, as well as the acquisition of the Spinraza Royals. We also saw growth contributions from most of our key royalties, including Evrizdi, Trudelvi, Promacta, and Coblematic. However, these positive factors were partially offset by weakness in Imbruvica and Tysabri, as well as by royalty expirations in the other product categories.
Additionally, the new disclosures on milestones and other contractual receipts.
Terry: The impact of the bio Hayden related related payments on reported performance.
Terry: As a reminder, 2000 22022, we received $509 million in bio Hayden related payments while in 2023.
Terry: Received $525 million and dial hatred related tenants.
Terry: With the net impact being a relatively modest benefit to full year 2023.
Terry: Overall milestones and other contractual receipts grew by 15% in 2023.
Terry: Tribute into 9% growth in portfolio receipts.
Terry: Slide 21 shows how our portfolio receipts performance in the fourth quarter and full year in more detail.
Terry: Including individual royalty contributions.
Terry: Guinea with royalty receipts growth of 10% in the quarter and 8% for the year was mainly due to the strong performances of the cystic fibrosis franchise <unk> interim fire as well as the acquisition of the spin RASM royalties. We also saw growth contributions from most of our key royalties, including University shared Lv.
Terry: Promacta and Cabo medics these.
Terry: These positive factors were partially offset by weakness in Peru, BRCA and tysabri as well as by royalty explorations in the other products category.
Terry Coyne: When we move to milestones and other contractual receipts, year-over-year comparisons were impacted by the BioHaven-related payments, as I just noted. Taking together, Portfolio Receipts grew by 9% for the fourth quarter. Slide 22 shows how our efficient business model generates substantial cash flow to be reinvested. Portfolio receipts amounted to $736 million in the fourth quarter and $3.05 billion for the full year
Terry: When we moved to milestones and other contractual receipts year over year comparisons were impacted by the dial having related payments as I just noted.
Terry: Taken together portfolio receipts grew by 9% for the full year.
Terry: Slide 22 shows how our efficient business model generates substantial cash flow to be reinvested.
Terry: Portfolio receipts amounted to $736 million in the fourth quarter and $3 <unk> 5 billion for the full year.
Terry Coyne: As we move down the column, operating and professional costs equated to 7.4% of portfolio receipts in the quarter and 8% for the full year. Moving further down the page, we have consistently stated that when we take the cash generated by the business to then be redeployed into value-enhancing royalties... We look to adjust it even without a lower net interest paid, or what we now call portfolio cash flow. This amounted to $687 million in the quarter and $2.71 billion for the full year. Equivalent to margins of around 93 percent and 89 percent.
Terry: As we move down the column operating and professional costs created that seven 4% of portfolio receipts in the quarter and 8% for the full year.
Terry: Moving further down the column, we have consistently stated that when we say that the cash generated by the business to then be redeployed into value enhancing royalties.
Terry: We look to adjusted EBITDA less net interest paid or what we now call portfolio cash flow.
Terry: This amounted to $687 million in the quarter and $2 $71 billion for the full year.
Terry: Equivalent in margins of around 93% and 89% respectively.
Terry Coyne: These high levels of cash conversion once again highlight the efficiency of our business. Furthermore, based on this strong cash generation program... We were comfortably able to support capital deployment of approximately $1 billion in the fourth quarter and $2.2 billion for the full year, as well as to repurchase $305 million of our stock. Slide 23 shows that while 2023 was a substantial year for capital deployment, we continue to maintain significant financial capacity for future royalty acquisitions. In total, we have granted $3.5 billion in sales through a combination of cash on our balance sheet and access to the debt market. At the end of the fourth quarter, we had cash in equivalence of $477 million.
Terry: These high levels of cash conversion once again highlight the efficiency of our business model.
Terry: Furthermore, <unk>.
Terry: Based on this strong cash generation profile.
Terry: We were comfortably able to support capital deployed approximately $1 billion in the fourth quarter and $2 2 billion and the full year as well as to repurchase $305 million of our stock.
Terry: Slide 23 shows that while 2023 was a substantial year for capital deployment.
Terry: Continued to maintain significant financial capacity for future royalty acquisitions.
Terry: Total, we have greater than $3 $5 billion available through a combination of cash on our balance sheet and access to the debt markets.
Terry: We ended the fourth quarter, we had cash and equivalents of $477 million.
Terry Coyne: On top of our $6.3 billion investment-grade bonds, we've maintained significant leverage capacity, which we previously said we could take up to four times total debt to EBITDA if the right opportunity arose. Furthermore, we have additional financial capacity from the $1.8 billion revolver, on which you should note we repaid the $350 million draw in the fourth quarter. Taken together with a strong cash generation, we feel good about our ability to continue to execute transactions and create shareholder value. Slide 24 provides our full year 2024 financial. We expect portfolio receipts to be in the range of $2.6 billion to $2.7 billion.
Terry: On top of our $6 3 billion.
Terry: Great Don we maintained significant leverage capacity, which we previously have said, we could take up to four times total debt to EBITDA is the right opportunity arose.
Terry: Furthermore, we have additional financial capacity from the $1 8 billion revolver.
Terry: What you should note, we repaid the $350 million draw in the fourth quarter.
Terry: Taken together with our strong cash generation, we feel good about our ability to continue to execute transactions and create shareholder value.
Terry: Slide 24 provides our full year 2024 financial guidance.
Terry: We expect portfolio receipts to be in the range of $2 6 billion to $2 7 billion.
Terry Coyne: Let me walk you through our assumptions. First, within our overall top line guide, we expect to deliver continued attractive growth in royalty receipts. We anticipate the strength of our diversified portfolio will more than offset continued Imbruvica and Tysabri headwinds, as well as a potential launch of Permacta generics. Second, on a reported basis, we face a high base of comparisons in 2023 as a result of the $525 million of Biohaven-related pain we received last year. For your modeling consideration, I remind you that the largest element...
Terry: Let me walk you through our assumptions.
Terry: First.
Terry: Within our overall topline guidance we.
Terry: We expect to deliver continued attractive growth in royalty receipts.
Terry: We anticipate the strength of our diversified portfolio were more than offset continued in <unk> and tysabri headwinds as well as the potential launch of <unk> generics.
Terry: Second on a reported basis, we face a high base of comparison in 2023 as a result of the $525 million of violating related payment we received last year.
Terry: For your modeling consideration I remind you that the largest element the $475 million asset milestone was received in the first quarter 2023.
Terry Coyne: The $475 million Zazzaprep milestone was received in the first quarter of 2023. As a consequence, milestones and other contractual receipts are expected to be substantially lower in 2024. Lastly, our guidance assumes a negligible effect.
As a consequence milestones and other contractual receipts are expected to be substantially lower in 2024.
Terry: Lastly, our guidance assumes a negligible FX impact.
Terry Coyne: 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 act. Turning to operating expenses, we expect payments for operating and professional costs to be approximately 8% to 9% of full-year receipts in 2024. Interest paid for full year 2024 is expected to be around $160 million and will follow the established quarterly pattern with de minimis amounts payable in Q2 and Q4. This does not take into account any interest received on our cash balance, which amounted to $72 million for full year 2023.
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 obligations.
Terry: Turning to operating expenses, we expect payments for operating and professional costs to be approximately 8% to 9% portfolio receipts in 2024.
Terry: Interest paid for full year 2024 is expected to be around $160 million and do a follow the.
The established quarterly pattern with de Minimis amounts payable in Q2 and Q4.
Terry: This does not take into account any interest received on our cash balance which amounted to $72 million for full year 2023 eight.
Terry Coyne: $8 million in the fourth quarter. Slide 25 provides more detail on the expected evolution of royalty receipts versus milestones and other contractual receipts in 2024. For royalty receipts, we expect growth of around 5% to 9%, while Milestones and other contractual receipts are expected to decline from around $600 million in 2023 to approximately $30 million in 2023. The key message here is the continued, attractive, underlying growth of our royalty portfolio, which we expect to deliver in 2021. With that, I'd like to hand the call back to Pablo. Thanks, Kerry.
Terry: $8 million in the fourth quarter.
Terry: Slide 25 provides more detail on the expected evolution of royalty receipts versus milestones and other contractual receipts in 2024.
Terry: For royalty receipts, we expect growth of around 5% to 9%, while milestones and other contractual receipts are expected to decline from around $600 million in 2023 to approximately $30 million in 2024.
Terry: The key message here is the continued attractive underlying growth of our royalty portfolio, which we expect to deliver in 2024.
Terry: With that I'd like to hand, the call back to Pablo.
Pablo Legareta: Let me start my closing remarks by saying how pleased I am with our performance in 2023. We delivered strong growth, we maintained our industry leadership, and we deployed substantial capital on value-enhancing royalty acquisition, all against a positive fundamental backdrop in which royalties are becoming a core funding modality for life sciences innovation. On slide 27, my final slide.
Pablo: Thanks, Terry let me start by concluding remarks by saying how pleased I am with our performance in 2023, we delivered strong growth we maintained our industry leadership and we deployed substantial capital on value enhancing royalty acquisitions.
Pablo: All against the Basel, the fundamental backdrop in which royalties are becoming a core funding modality for life science and innovation.
Pablo: On Slide 27, my final slide.
Pablo Legareta: I wanted to leave you with a key message. Navigating the science and business opportunities in biopharma is extremely complex. For investors, we circumvent that complexity by having a simple but powerful business model that we're confident will deliver attractive growth and shareholder returns over the long term. It starts with our diversified portfolio of over 45 royalties that form the bedrock of our compounding growth. This portfolio is unique and cannot be replicated by new entrants.
Speaker Change: I wanted to leave you with a key message.
Speaker Change: <unk>.
Speaker Change: Science and business opportunity and Biopharma is extremely complex for investors, we circumvent that complexity by having a simple but powerful business model, which we're confident will deliver attractive growth and shareholder returns over the long term.
Speaker Change: It starts with our diversified portfolio of over 45 royalties.
Speaker Change: The bedrock of our compounding growth.
Speaker Change: This portfolio is unique and cannot be replicated by new entrants.
Pablo Legareta: This, in turn, provides us with substantial cash flow to allocate primarily to value-enhancing royalty opportunities. However, we also return capital to shareholders through an attractive and growing dividend and share repurchases. We maintain a high-quality bar so that we can sustain attractive returns above our cost of capital.
Speaker Change: This in turn provides us with substantial cash flow to allocate primarily on value enhancing royalty opportunities. However, we also returned capital to shareholders through an attractive and growing dividend and share repurchases.
Speaker Change: We maintain a high quality bar, so that we can sustain attractive returns above our cost of capital and the strong returns.
Pablo Legareta: And the strong returns have, in turn, propelled our track record of impressive growth, which we expect to maintain over this decade. With that, we would be happy to take your questions. Thanks, Pablo.
Speaker Change: These strong returns cash and turn propelled our track record of impressive growth, which we expect to maintain over this decade.
Speaker Change: With that we would be happy to take your questions.
Operator: And we will now open up the call to questions. Operator, please take the first question. Thank you. Our first question comes from Geoff Meacham with Bank of America. Your line is open. Hey, guys. Good morning. Thanks for the questions. I just have a couple.
Speaker Change: Thanks, Pablo and we will now open up the call to your questions. Operator, Please take the first question.
Speaker Change: Thank you.
Speaker Change: First question comes from Geoff Meacham with Bank of America. Your line is open.
Geoff Meacham: Hey, guys. Good morning, Thanks for the question.
Geoff Meacham: So the first is that now that we have Vanzacaptor data, you know, I wanted to ask, what are the next steps? you know, the royalty levels and then, when you guys look at the sensitivities around the switch rate from Trikafta to Vanzikafta retrofitting, you know, what are your thoughts as you plan, you know, kind of realty economics going forward? And the second question, maybe a higher level for Terry.
Geoff Meacham: Just have a couple so the first is that now that we have been to capture data and I wanted to ask what are the next steps in the dispute the royalty levels and then.
Geoff Meacham: When you guys look at the sensitivities around the switch rate from tried CAFTA vanda capture regimens. What are your what are your high level thoughts as you plan kind of royalty economics going forward and the second question, maybe higher level for Terry does the new emphasis on portfolio receipts does that imply that you are.
Geoff Meacham: Does the new emphasis on portfolio imply that you're putting greater weight going forward on equity investments over royalties as the driver? Thank you. Sure, thank you for those two questions. Terry, do you want to take them, please?
Geoff Meacham: Putting greater weight going forward on equity investments over.
Geoff Meacham: Over royalties as the driver thank you.
Speaker Change: Sure. Thank you for those two questions Kerry do you want to take them. Please sure so.
Terry Coyne: Sure. So, thanks, Geoff. No update on any potential dispute with Vertex. And if something comes around there, we would certainly update you guys at the appropriate time on the switch rate. So we obviously were very focused on this data, and it came in very consistent with our expectations and very similar to the phase 2 data. There was no benefit on the primary endpoint of lung function and a small improvement on sweat chloride.
Terry: Thanks, Jeff.
Terry: No update on.
Terry: Any potential dispute with vertex.
Terry: And.
Kerry: We would.
Kerry: If something comes comes around there we would certainly update you guys at the appropriate time.
Kerry: On the the switch rate.
Kerry: So we obviously were.
Kerry: Very focused on this data and it came in very consistent with our expectations and very similar to the phase II data.
Kerry: There is no benefit on the primary endpoint of lung function and a small improvement on sweat chloride.
Terry Coyne: And so you may remember, on our second quarter call, we outlined the potential impact of different scenarios related to the CF franchise. And, as a reminder, we looked at downside scenarios, with 50% to even as much as 75% of patients switching.
Kerry: And so you may remember on our second quarter call, we outlined the potential impact of different scenarios related to the CF franchise and we as a reminder, we looked at downside scenarios where.
Kerry: 50% to as much as 75% of patients switch.
Terry Coyne: And also, where the ultimate royalty rate on the new triple is half of what we believe we're entitled to, and that downside sensitivity showed a headwind of a couple hundred million dollars on our top line towards the end of this decade. And as we highlighted then, we feel even more confident about now that this is very manageable for our business. And we're still very confident that we can deliver top-line growth over this decade with a CAGR of 10% or more. So I think in terms of the switch, we think the data that they showed, the scenarios that we highlighted still hold, and that's probably the best thing to reference would be our second-quarter earnings. And then your question on portfolio receipts and whether we would be more focused on equity. No, not at all.
Kerry: And also where the ultimate royalty rate on the new triple.
Kerry: Is half of what we believe we are entitled to.
Kerry: And that downside sensitivity showed a headwind of a couple of hundred million dollars on our topline towards the end of this decade and as we highlighted then we feel even more confident about now this is very manageable for our business.
Kerry: And we're still very confident that we can that we can.
Kerry: However, top line growth over this decade, with a CAGR of 10% or more so.
Kerry: Think in terms of the switches.
Kerry: Data, we think the data.
Kerry: That they showed.
Kerry: The scenarios that we highlighted still hold and that's probably the best thing to reference would be our second quarter earnings deck.
Kerry: Yes.
Speaker Change: Alright, and then your question on.
Speaker Change: Portfolio received trend equity, whether we would be more focused on equity no not at all.
Terry Coyne: Our number one focus is buying royalties, and that's why we think that portfolio receipts, the way that we're breaking them out, is actually really, really helpful now and provides even more transparency because we now have these two subcategories. We have portfolio receipts, and then we have milestones and other, sorry, we have royalty receipts and milestones and other contractual receipts. And as you can see, royalty receipts are by far the biggest driver of the business. And they're going to be the most consistent grower over time.
Speaker Change: Our number one focus is buying royalties and thats why we think that portfolio received the way that we're breaking it out is actually really really helpful. Now.
Speaker Change: And provide even more transparency because we now have these two subcategories, we have portfolio receipts and then we have milestones and other sorry, we have royalty receipts and milestones and other contractual receipts.
Speaker Change: And as you can see royalty receipts are by far the biggest driver of the business, they're going to be the most consistent grower over time, and Thats really where were spending spending all of our energy is trying to add to that that bucket.
Terry Coyne: And that's really where we're spending all of our energy trying to add to that bucket. We also, from time to time, have these milestones and other contractual receipts that provide very attractive cash flow. But the more consistent element of the business will end up being royalties. That's the core of the business. Thank you, guys.
Speaker Change: Also.
Speaker Change: From time to time have these milestones and other contractual received that provide very attractive cash flow.
Speaker Change: But the more consistent element of the business will end up being the royalty receipts, that's the core of the business.
Speaker Change: Thank you guys.
Operator: Thank you. Our next question comes from Chris Scott with JPM. Your line is open. Great. Thanks so much.
Speaker Change: Thank you. Our next question comes from Chris Scott with J P. M. Your line is open.
Chris Schott: Alright, great. Thanks, so much just two bigger picture questions for me.
Chris Schott: Just two bigger picture questions for me. Maybe the first is on synthetic royalties. I think you mentioned it was a record year.
Chris Schott: The first is on synthetic royalties I think you mentioned it was a record year can you just elaborate a little bit more on what youre seeing in the market out there and whether you think about these transactions how it returns historically compared on your synthetic royalties versus more traditional royalty structure. So I guess this is more about expanding the pie or could these deals.
Chris Schott: Can you just elaborate a little bit more on what you're seeing in the market out there? And when you think about these transactions, how have returns historically compared on your synthetic royalties versus more traditional royalty structures? So I guess it is more about expanding the pie, or could these deals actually be kind of more attractive returns than traditional structures?
Chris Schott: Actually be kind of more and more attractive returns.
Chris Schott: Traditional structures and then my second question was just on.
Chris Schott: And then my second question was just on the $4 billion in transactions last year. Just as you think about the kind of quantum of opportunity for 2024, should we think about that $4 billion kind of number as kind of a new normal for Royalty Pharma? I know the numbers have ramped up over the last few years. I'm just trying to figure out if we should think about 2023 as an unusual year, or is that the kind of level of deployment we should anticipate going forward?
Chris Schott:
Chris Schott: The 4 billion of transactions last year, just as you think about kind of the quantum of opportunity for 2024 should we think about that $4 billion kind of number is that's kind of a new norm for royalty pharma I know the numbers have ramped over the last few years I'm trying to figure out if we should think about 'twenty. Three is an unusual year or is that kind of level of deployment. We should we should anticipate going forward. Thank you.
Pablo Legareta: Thank you. Thanks for the question, Chris, and I'm going to turn it over to Chris Hyde, but I'm just going to quickly answer your question about the returns. And, you know, synthetic royalties, when we create those royalties, what we're doing is funding late-stage trials for biotech and pharma companies. And, for sure, the returns on those investments are higher than when we buy a royalty sort of more conventional on an approved product, where, as you know, the returns are typically high single-digit or low double-digit. What we have been achieving is actually really in the low double-digit returns, 11, 13-ish, unlevered for the approved. But then for the synthetic royalties, we have a pretty good track record of achieving returns that are significantly higher than that, in the high teens and even into the low 20s when the products get approved. That's before leverage also, but, Chris, on to you. Yeah, no, thanks, Pablo.
Speaker Change: Thanks for the question, Chris I'm going to turn it over to.
Speaker Change: So Chris side, but I'm just going to.
Speaker Change: Quickly.
Speaker Change: Answer your question about the returns.
Speaker Change: Synthetic royalties when we create those royalties what we're doing is we're funding late stage trials for biotech and pharma companies and for sure. The returns on those investments are higher than when we buy a royalty sort of more conventional on an approved product where as you know the <unk>.
Speaker Change: Turns which had guided to high single digit low double digit on what we have been achieving is actually really in the low double digit returns 11 13 ish.
Speaker Change: Unlevered for the approved but then for the synthetic royalties.
Speaker Change: We have a pretty good track record of achieving returns that are significantly higher than that in the high teens and even into the low twenties when products get approved.
Speaker Change: Before leverage also but Chris.
Speaker Change: Yes.
Chris: Thanks, Pablo I think.
Chris Schott: I think, Chris, Pablo answered the first question. As for the second question, around $4 billion, is that the new norm? You know, we're not changing our capital deployment guidance that we gave last year at our Analysts' Day meeting of $10 billion to $12 billion over five years. I think what it does highlight is that there is strong momentum.
Chris: Chris.
Speaker Change: To answer the first question as it relates to the second question around $4 billion is that the new norm, we're not changing our capital deployment guidance that we gave last year at our analyst day.
Speaker Change: Meeting.
10 to 12 billion over five years.
Speaker Change: I think what it does highlight is there is a strong momentum.
Chris Schott: You can absolutely see it in our funnel and, obviously, the deals we've announced. We see it every day that royalty financing, and that can come in a lot of different ways, obviously synthetic and existing royalties, all kinds of different ways, is an absolutely growing trend within the sector. So we're super excited about the opportunity set, but we're not changing our long-term guidance. Thank you. Thank you. Our next question comes from Umer Raffat with Evercore. Your line is open. Hi guys, thanks for taking my question. I have a couple here, if I may.
Speaker Change: You can absolutely see it in our funnel and our obviously the deals we've announced we see it every day.
Speaker Change: That.
Speaker Change: Royalty financing and that can come in a lot of different ways, obviously synthetic and existing royalties all kinds of different ways.
Speaker Change: Fully growing trend within the sector.
Speaker Change: So.
Speaker Change: We're super excited about the opportunity set, but we're not changing our long term guidance.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question comes from <unk> <unk> with Evercore. Your line is open.
Evercore: Hi, guys. Thanks for taking my question I have a couple here if I may 1st Pablo I know you guys did 4 billion in transactions in 2023.
Umer Raffat: First, Pablo, I know you guys did $4 billion in transactions in 2023, and you did share buybacks of $300 million. And you clearly have conviction in the deals you did, but I'm also sure you believe the stock is undervalued. So how should we think about that ratio of external deployment and the IRR expectation there relative to shares and where they trade?
Pablo: And you did share buybacks of $300 million.
Evercore: And you clearly have conviction on the deals you're dead, but I'm also sure you believe the stock is undervalued. So how should we think about that ratio of external deployment in the IRR expectation, there relative to shares and where they trade and secondly, Terry these updates to the non-GAAP measures, where they prompted by an FCC request or was it volunteered by royalty pharma.
Umer Raffat: And secondly, Terry, these updates to the non-GAAP measures, were they prompted by an SEC request, or was it volunteered by Royalty Pharma? And was there any discussion in these SEC conversations around how you account for the subset of development stage funding payments that you guys feel like... So your first question, which was about capital deployment and also our share buyback program, I mean, one very clear message to give you and everyone is that the management of our business, us here, you should really view us as fellow shareholders, right? So we actually own a lot of this business. And we're very careful in the way we allocate capital.
Evercore: And was there any discussion in the SEC conversations around how you account for the subset of development stage funding payments that you guys feel exclude thank you.
Evercore: So.
Evercore: Your first question, which was about capital deployment.
Evercore: Also.
Evercore: Our share buyback program I mean, one very clear message to give you and everyone is.
Evercore: The management of our business here.
Evercore: Are you sure really view us as fellow shareholders right. So we actually own a lot of this business and we're very careful in the way we allocate capital.
Pablo Legareta: Our priority, as we've said multiple times in the past, is to actually make great investments because that's what's going to drive growth and value creation for all of our investors, including ourselves. But then what we have also seen is a big disconnect between the intrinsic value of Royalty Pharma, our portfolio, and our ability to continue to generate value by deploying capital. And that was what prompted this billion-dollar share buyback program. And as you know, we've actually repurchased about $300 million of that billion dollars, which was the goal for five years because of this disconnect.
Evercore: Our priority as we've said multiple times in the past is to actually made great investments because that's what's going to drive growth and value creation for all of our investors, including ourselves, but then what we have also seen is a big disconnect in.
Evercore: The intrinsic value of royalty pharma, our portfolio and our ability to continue to generate value by deploying capital and that was what prompted this $1 billion share buyback program and as you know, we've actually repurchased about $300 million of the $1 billion, which was the goal for five years.
Pablo Legareta: But, you know, we are obviously going to prioritize going forward new Royalty investments over, you know, buying back shares. And on to you, Terry, regarding... Yeah, so, Umer, thanks for the question. We've been a public company for three and a half years now.
Evercore: Because of this disconnect.
But we are obviously going to prioritize going forward.
Evercore: New royalty investments over buying back shares.
Evercore: <unk>.
Evercore: To you Terry regarding yes.
Terry: Thanks for the question.
Terry: We've been we've been a public company for three and a half years now.
Terry Coyne: And over that time, we've had lots of interactions with investors and analysts. And one area that's come up is the uniqueness of our financials. I mean, we really are, and we always highlight this, but our financials also... P and N of 1.
Terry: And over that time, we've had lots of interactions with investors and analysts in one area. That's come up is the uniqueness of our financials. I mean, we really are and we always we always highlight this but our financials also.
Terry: We're really an N of one.
Terry Coyne: And so what we're announcing today is the culmination of that feedback we received from investors and analysts and discussions with the SEC. As I mentioned in the prepared remarks, when we think about the ability to pursue our strategy, we look at the cash inflows from our diversified portfolio of royalties and subtract the relatively small cash expenses to run the business.
Terry: And so what we're announcing today is the culmination of that feedback we received from investors and analysts and discussions with the SEC.
As I mentioned in the prepared remarks, when we think about the ability to pursue our strategy.
We look at the cash inflows from our diversified portfolio of royalties, we subtract that relatively small cash expenses to run the business.
Terry Coyne: And we redeploy the vast majority of that capital in attractive new royalties to drive future value creation and growth. So our updated financial disclosures, which we're really happy with, really highlight the virtuous cycle of our business. Thank you so much.
Terry: And we deployed the vast we redeploy the vast majority of that capital and attractive new royalties to drive future value creation and growth. So our updated financial disclosures, which we're really happy with.
Terry: Really highlight the virtuous cycle of our business model.
Speaker Change: Thank you so much.
Operator: Thank you. Our next question comes from Terence Flynn with Morgan Stanley. Your line is open.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from Terence Flynn with Morgan Stanley. Your line is open.
Terence Flynn: Great. Thanks so much for taking the questions; two for me. I always appreciate the funnel slide that you guys present every year and was just wondering if you could provide a little bit more detail on the 47 proposals submitted. How many of those were, as you know, unilateral processes?
Terence Flynn: Great. Thanks, so much for taking the questions two from me.
Terence Flynn: I always appreciate the final slide that you guys present every year and I was just wondering if you could provide a little bit more detail on the 47 proposals submitted how many of those were.
Terence Flynn: I think in the past, you said that the majority of the proposals you submit are unilateral, but I was just wondering unilateral versus competitive, if you could kind of give us a mix there. And then the other one I had is just on your 24 guidance, Terry, can you give us any color about how you're thinking about the impact of Tysabri biosimilars? Because I know there's a range of outcomes here.
Unilateral processes I think in the past you've said that the majority of the proposals you submit a unilateral but just wondering unilateral versus competitive if you can kind of give us a mix there and then the other one I had is just on your 2000 and for guidance Terry can you give us any color about how youre thinking about that.
Terence Flynn: Impact from Tysabri, Biosimilars, because I know theres a range of outcomes here. Thank you.
Marshall Urist: Thank you. Thank you, Terence, for your question. So Marshall will take the first part of your question and then Gregg will take the second. Hi, Terence. Good morning. Thanks for the question on the funnel.
Terence Flynn: Yes.
Speaker Change: Thank you guys for your question. So Marshall will take the first part of your question and then.
Marshall: I'll take the second.
Marshall: Hi, Good morning, Thanks for the question on the funnel. So maybe just to answer your question qualitatively, which is I think when we looked at last year and the mix of the proposals that we made between.
Marshall Urist: So maybe just to answer your question qualitatively, which is, I think when we looked at last year and the mix of the proposals that we made between, you know, outgoing proposals that we, that our team, were proprietary to our team and we identified versus things that might have been incoming or processes, I think the mix was probably very consistent, very consistent with prior years, sort of underscoring what you heard from Paolo and Chris about our confidence in the underlying And I think as we look forward, we're certainly prioritizing those creating one-on-one opportunities or proprietary opportunities for two reasons. I think one is when we are one-on-one with a company that's, you know, when we do, when we're in the best position to solve their problems and their problems and create really great investments.
Marshall: Outgoing proposal that we that our team we are proprietary to our team and we identified versus things that might have been incoming or processes I think the mix was probably.
Marshall: Consistent very consistent with prior years underscoring what you heard from Pablo and Chris about our confidence in the underlying trends and I think as we look forward, we're certainly prioritizing.
Marshall: Those creating a one on one opportunities are proprietary opportunities for two reasons I think one is when we are one on one with a company that when we do.
Marshall: We're in the best position to solve to solve their problem and their problems and create really great investments and two we have been building the team and focusing more and more on a priori.
Terry Coyne: And two, you know, we have been building the team and focusing more and more on a priori identifying those products and programs that we think are really exciting and going after those to do everything we can to build the portfolio and make it as strong as it can be with the greatest medicines that can be in it. So we feel really good about the underlying trends in the business and where our team is to continue to execute as we've been doing. And then, Terence, on the Tysabri biosimilar. This is something we're obviously tracking. We, you know, have similar information to you in terms of timing there, and there's still a little bit of uncertainty. But we take a scenario-based approach to our guidance, and we definitely looked at downside scenarios in terms of the biosimilar launch and potential impact on the brand, and feel really good about the guidance that we gave there.
Marshall: Identifying those products and programs that we think are really exciting and going after those to do everything we can to build the portfolio and make it as strong as it can be with the greatest medicines that can be in it. So we feel really good about the underlying trends in the business and where our team is to continue to.
Marshall: Execute as we've been doing.
Marshall: And then <unk> on the Tysabri Biosimilar.
Marshall: This is something we're obviously tracking.
Marshall: We we have similar information to you in terms of timing.
Speaker Change: Sure and Theres still a little bit of uncertainty but.
Speaker Change: But we take really a scenario based approach.
Speaker Change: In our guidance and we definitely.
Speaker Change: Looked at downside scenarios in terms of a biosimilar launch and the potential impact to the brand.
And feel really good about the guidance that we gave there I would say the consensus now thats actually we now are including the consensus for.
Terry Coyne: I would say the consensus now that's actually, we now are including the consensus for our top products on our website to, again, sort of make it easier to sort of follow the portfolio. I would say that that consensus certainly seems to reflect some pretty substantial impact from a biosimilar. And again, one of the things that we've highlighted in the past is that Tysabri is a unique drug for a lot of different reasons.
Speaker Change: Our top products on our website.
Speaker Change: Again, it sort of make it easier to sort of follow the portfolio.
Speaker Change: I would say that that consensus certainly seems to reflect some pretty substantial impact from from a biosimilar.
Speaker Change: One of the things that we've highlighted in the past.
Speaker Change: Is that really a unique drug.
Speaker Change: And for a lot for a lot of different reasons.
Terry Coyne: And so we expect that it's still going to have significant sales even with a, you know, a biosimilar on the market. At this point, we're only aware of one that would potentially be, you know, a. Thank you. Our next question... Our next question comes from Tony with Goldman Sachs. Tony, your line is open. Great, thank you very much.
Speaker Change: And so we expect.
Speaker Change: It's still going to have significant sales.
Speaker Change: Even with a biosimilar on the market at this point, we are only aware of one.
Speaker Change: One that would potentially be a competitor.
Speaker Change: Okay.
Speaker Change: Thank you. Thanks Oliver next question are.
Speaker Change: Our next question comes from Chris <unk> with Goldman Sachs. Your line is open.
Christopher Schott: Two questions, if I could, just in general about opportunities that are on the horizon. Marshall, curious to know what your thinking is in particular about the cardiometabolic as you guys categorize it. Investors in the industry are clearly enthralled by the opportunity of metabolic disease, particularly obesity and allied conditions. Curious about your views there.
Chris: Great. Thank you very much two questions if I could just in general about opportunity sets on the forward Marshall curious to know what Youre thinking is in particular about the cardio metabolic is you guys categorize it.
Investors in the industry, clearly and trial by the opportunity at metabolic disease, particularly obesity in that light conditions.
Chris: Curious about your views there.
Christopher Schott: And then secondly, during the past two years or so, there's been a bit of a turnover in the shareholder base, particularly amongst the original IPO investors. Perhaps, can you comment on anything that can give us perspective on where we're at with that? I think that somewhat loomed as an overhang in investors' mindsets.
Chris: And then secondly <unk>.
Chris: During the past two years or so there has been a bit of a turnover at the shareholder base, particularly amongst the original IPO investors, perhaps can you comment on.
Chris: Anything that can give us perspective on where we're at with that I think that is.
Chris: Somewhat loomed, as an overhang and investors' mindsets, but on the forward.
Pablo Legareta: But on the forward, what would you guide investors to think about that? Thank you. Sure, I'll take your second question about the change in the shareholder base, and, you know, it has been very significant. I think the goal for us going forward now is really to focus on long-term holders of Royalty Pharma and cultivating new investors and educating new investors about our business, which is very unique and very, very attractive. And I think, you know, one of the very exciting things we're doing this quarter is revamping, as Terry reviewed, our financial information and reporting. But also, I would really encourage all of you to go to our website and now see how we've actually prepared a lot of interesting Excel spreadsheets that you're going to be able to see.
Speaker Change: What would you guide investors to think about that thank you.
Speaker Change: Sure I'll take.
Speaker Change: Your second question about <unk>.
Speaker Change: Changes in the shareholder base.
Speaker Change: It has been very significant.
Speaker Change: I think the goal for us going forward now is really to focus on.
Speaker Change: Long term holders of royalty pharma and cultivating new investors and educating new investors about our business, which is very unique and very very attractive.
Speaker Change: And I think one of the very exciting things we're doing this quarter is revamping as Terry.
Speaker Change: Reviewed.
Speaker Change: Our financial information and reporting but also I would really encourage all of you to go to our website and now see how we've actually prepared.
Speaker Change: A lot of.
Speaker Change: Interesting.
Excel spreadsheets, where youre going to be able to see we're going to really make it easy for investors and investors will be able to see.
Pablo Legareta: We're going to really make it easy for investors, and investors will be able to see, you know, the historical performance of the business, product by product, how royalties are calculated, and then the analyst consensus. And all of this in a spreadsheet, making it really easy for, you know, new investors and old investors to track performance and actually decide to make an investment in our business, model it, and monitor it.
Speaker Change: The historical performance of the business.
Speaker Change: The.
Speaker Change: Product by product how royalties are calculated and then the analysts' consensus and all of this in a spreadsheet, making it really easy for new investors old investors to track performance and actually.
Speaker Change: To make an investment in our business model it and monitor it.
Pablo Legareta: But, you know, I'll pass it on to, I think it was you, Marshall, on the first question. Absolutely. Yeah. Hi, Chris.
Speaker Change: Pass it onto.
Marshall: You Marshall on the first question, absolutely, Yes, Hi, Chris Good morning on your on your question on the CV metabolic space. No question as you might imagine we've been following all of the really exciting developments there with a lot of interest we do take a little bit broader view of all of the innovation that's been going on in that.
Marshall Urist: Good morning. On your question about the CV metabolic space, yeah, no question.
Marshall Urist: As you might imagine, we've been, you know, following all of the really exciting developments there with a lot of interest. You know, we do take a little bit broader view of all the innovation that's been going on in that area, you know, to find opportunities, certainly the investments in LP little a that we've made over the last 2 years, which is an exciting new new target in cholesterol management, is an example of that. And we're excited to see the results of those studies in the next couple of years. And specifically in obesity, as you might imagine, we're, you know, we're following the space closely, but, you know, really will continue to follow it in the context of our overarching strategy, which we've talked to you about before, which is to really be disciplined to look for opportunities that make sense for royalty pharma. And to wait until we see the right thing to add something in a particular therapeutic area rather than saying, you know, we really need to go out and and identify something in obesity or an indication related to obesity. But we want the right things.
Marshall: <unk>.
Q2 to find opportunities certainly the investment in LP Little a that we've made over the last two years, which is a exciting new new target in cholesterol management is.
Marshall: As an example, as an example of that and we're excited to see the results of those studies in over the next couple of years and specifically in obesity.
Marshall: As you might imagine we're we're following this space closely.
Marshall: But really we'll continue to follow it in the context of our overarching strategy, which we've which we've talked to you before about which is to really be disciplined to look for opportunities that make sense for royalty pharma and to wait until we see the right thing to add.
Marshall: Something in a particular in a particular therapeutic area, rather than saying, we really need to go out and identify something in in obesity or in a indication related to obesity, but we want the right things and we've been patient and I think as you've seen us.
Marshall Urist: And we've been patient. And I think, as you've seen us in multiple other areas, we really will have the discipline and the patience to wait and find the right thing for Royalty Pharma. When we see the right thing, we will go after it really aggressively, but we're certainly going to wait and show the same discipline that has served us well to date.
Marshall: Q in multiple other areas, we really will have the discipline and patience to wait and find the right thing for royalty pharma to when we see the right thing we will go after it really aggressively but we're certainly going to wait and show. The same discipline that has served us well to date.
Operator: Thank you. Thank you. Our next question: Scala with T.D.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Stephen Scouten with TD Cowen Your line is open.
Steve Scala: Callan, your line is open. Thank you very much. In response to an earlier question on the Virtex situation, you mentioned that there were no updates. Does that mean that nothing is going on, so the royalty is unchanged until some event occurs, or is there, are there discussions that you cannot detail? Is it possible that Virtex concluded Royalty Pharma was right all along and won't press the issue, or will Royalty Pharma start getting smaller royalty checks, so Royalty will have to initiate the litigation? And if the answer is you can't discuss it, can you tell us why you can't discuss it? Is it because you are on the advice of legal counsel or that you don't know anything at this time?
Stephen Scouten: Thank you very much in response to an earlier question on the vertex situation. You mentioned that there were no updates does that mean that nothing is going on so the royalty is unchanged until some event occurs and or is there are there discussions that you cannot detail is it possible.
Stephen Scouten: Well that vertex concluded royalty pharma was right all along and will impress the issue or will royalty pharma start getting smaller royalty checks. So a royalty pharma will have to initiate the litigation and if the answer is you can't discuss it can you tell us why you can't discuss it is it <unk>.
Speaker Change: It's on the advice of legal counsel or that you don't know anything at this time. Thank you.
Terry Coyne: Thank you for the questions, Steve. Terry, please go ahead. Yeah, Steve.
Speaker Change: Thank you for other questions Kerry. Please go ahead.
Terry Coyne: We know investors are curious about this, and unfortunately, we just can't provide any more. But I would just reiterate what I said earlier, you investors have the sensitivities that we provided on our second quarter call to understand the potential impact of the business under various downside scenarios, and we still feel like those sensitivities are appropriate, and we will provide updates in due course. Thank you. Thank you. There are no further questions at this time. I'd like to turn the call back over to Pablo for any closing remarks. Thank you, operator, and thanks to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George and the IR team. Thank you very much. Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day. Thanks for watching!
Kerry: Yes, Steve.
Speaker Change: We know investors are.
Kerry: I'm curious about this.
Kerry: And.
Kerry: Unfortunately, we just can't provide any updates at this point, but I would just reiterate what I said earlier.
Kerry: Investors have.
Kerry: The sensitivities that we provided on our second quarter call to understand the potential impact of the business under various downside scenarios and we still feel like those sensitivities.
Kerry: Appropriate.
Kerry: <unk>.
Kerry: And we will provide updates.
Kerry: In due course.
Speaker Change: Thank you.
Speaker Change: Thank you there are no further questions at this time I would like to turn the call back over to Pablo for any closing remarks.
Pablo: Thank you operator, and thanks to everyone on the call for your continued interest and royalty pharma. If you have any follow up questions. Please feel free to reach out to George <unk>.
Speaker Change: IR team. Thank you very much.
Speaker Change: Ladies and gentlemen, this does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.