Q1 2024 Royalty Pharma PLC Earnings Call
Conference call. I would like now to turn the conference over to George Grophic, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.
Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Farmers' first quarter 2024 results. You can find the press release with our earnings results and slides to this call on the investors' page of our website at royaltyfarmata.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 10k on file with the SEC for 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-GAP liquidity measures will be used to help you understand our financial performance. The reconciliation of these measures to our GAAP financial s is provided in the earnings press release available on our website.
And with that, please advance the slide four. Our speakers on the call today are Pablo Legeretta, founder and chief executive officer, Marshall Uris, EVP, head of research and investment, Chris Height, EPP, Vice Chairman, and Terry Coyne, EVP, Chief Financial Officer.
Pablo will discuss the key highlights, after which Marshall will give a portfolio update. Next, Chris will discuss our health and stage portfolio, after which Terry will review the financials. Following concluding remarks from Pablo, we will hold the 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 a successful start to 2024 as we execute against our vision to be the leading partner funding innovation in the life sciences.
In terms of the financials, we delivered 40% growth in royalty receipts. This represents our recurring cash flows, and the strong performance in our quarter reflects the quality of our diversified portfolio of more than 35 commercial products.
Militons and other contractual pay receipts.
which are more variable declined reflecting the high base effect of the year ago quarter from a non-recurring bioheaven related payment. As a result, portfolio receipts are top line declined to 717 million, which was in line with our expectations.
Turning to capital allocation, today we're announcing an exciting transaction which is expected to take our capital deployment to approximately $670 million.
Marshall will take you through the details, but in summary we have agreed to acquire royalties and milestones on Sanofi's Fregxalamab for approximately $525 million, including estimated transaction
This is an exciting development stage therapy with multi-blockbuster potential and multiple sclerosis and other immune indications.
Following the 5% increase in our dividend in the first quarter, I'm also delighted to announce today a new commitment to grow our dividend by mid-single-digit percentage on an annual basis.
Looking at our portfolio, we will have 15 development stage therapies, which we estimate have the combined potential to generate significantly greater than 1 billion in peak royalties.
Most of these therapies have blockbuster sales potential and are in development by premier global marketers.
We believe our development stage portfolio is highly attractive and underappreciated by the market. And Chris will expand on the multiple potential events we expect over the next year.
Lastly, I am pleased to reconfirm
our 24 full year guidance.
We continue to expect portfolio receipts to be between $2.6 billion and $2.7 billion.
based on expected growth in royalties of around 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.
Slide 7.
shows our impressive track record of strong growth since our IPO.
As I noted earlier, we delivered 14% growth in royalty receipts in our first quarter. This is the highest quarter growth rate we have achieved since the first quarter of 2022 and sets us up well to deliver our full year guidance.
The slide also illustrates the variable contribution from milestones and other contractual receipts when we look at the overall trend in portfolio receipts.
Overall, the track record of strong growth speaks to our ability to execute successfully and consistently against our strategy in the growing market for biopharma royalties.
With that, I will hand it over to Marshall to update you on our portfolio.
Thanks, Pablo. I want to focus today on the exciting transaction we just announced for Santa Feud's Ruxalamap.
Slide 9 summarizes the details of the transaction and the scale of the opportunity.
We have agreed to purchase a royalty interest in Frexalamap from Immunext, a privately held biotech, and expect to pay approximately $525 million, including estimated transaction costs.
In return, we will be entitled to receive a royalty ranging from high single to low double digits on worldwide sales.
Also, we will share a minority of the royalty with the former Immunex shareholders on sales above $2 billion. Importantly, the royalty is long duration running to 2041, which is central when we think about the returns.
In addition to royalties, we will be entitled to receive significant potential milestones.
In terms of the commercial opportunity, Sanefi has stated that Frexalamab has the potential to achieve non-risk-adjusted peak sales of over 5 billion euros across multiple indications.
In our view, the multiple sclerosis opportunity alone has the potential to generate over $3 billion in peak sales based on its differentiated profile. Should Frexalimab generate $5 billion in peak sales, this would suggest peak annual royalty receipts to royalty pharma of over $400 million.
Fricelomab is a first-in-class antibody with a novel mechanism of action targeting CD40 ligand. This pathway is thought to be involved in the development and progression of multiple sclerosis and may play a critical role in other immune diseases.
Santa Feastuteu data was recently published in New England Journal of Medicine and highlights the clear potential of frexalimab as a high-efficacy non-lipocyte-depleting therapy for multiple sclerosis.
Frexalimab significantly reduced disease activity as measured by MRI, and the clinical relapse rate was close to zero at 48 weeks. Importantly, the treatment was well tolerated with no notable safety signals.
Based on this compelling profile, Santa Fe has initiated Phase III clinical development in multiple sclerosis with results in regulatory submissions anticipated for 2027.
Phase two studies are also underway in type 1 diabetes and lupus, two immune diseases, in which a role for the CD40 pathway has also been implicated.
Slide 11 provides an overview of the fundamental drivers of our excitement in the exceptional opportunity offered by Frexalamap.
On top of the compelling phase two efficacy, the differentiated mechanism of action may provide a potential safety differentiator versus existing high efficacy multiple sclerosis therapies.
We would also note that strong phase two data in MS has historically been highly predictive of success in the phase three setting. Furthermore, our statistical analysis confirmed that SANFEs studies are well designed and powered for success. Commercially,
Our proprietary U.S. claims analyses suggest that nearly 100,000 patients will have discontinued anti-CD20 therapy by the time Frexalimab launches in 2028, a large addressable market that alone supports blockbuster potential for fexhalomab, although we anticipate use, and a broader set of MS patients, if approved.
Moving to slide 12, Vrexalimab checks all the boxes for us. Clearly aligning with our product selection framework, it's a potential first-in-class therapy with strong scientific rationale and a clear commercial position. It has very supportive phase two clinical data, and it will be marketed by a leading global immunology company.
Pryxalimab is, as Santa Fe describes it, a pipeline and a product across several immunology indications, and importantly, has the potential to contribute significantly to our growth in our royalty receipts with an attractive returns profile and long duration. And with that, I'll hand it over to Chris.
Thanks, Marshall. I want to expand on the Fexalamap transaction and highlight the broader potential of our growing development stage pipeline, which we think is underappreciated by the market.
In terms of the commercial opportunity <unk> stated that <unk> has the potential to achieve non risk adjusted peak sales of over 5 billion euros across multiple indications in our view the multiple sclerosis opportunity alone has the potential to generate over $3 billion in peak sales based on its differentiated profile shouldn't bricks allomap generate 5 billion.
A strong pipeline is central to our strategy.
Instead of focusing on any one project in detail, we want to provide an overview of our current development stage portfolio.
And peak sales this would suggest peak annual royalty receipts to royalty pharma of over $400 million.
Slide 14 summarizes the key take-home messages.
In short, since our IPO, we have assembled a portfolio that consists of 15 development stage therapies which we believe have the potential to contribute greater than 1 billion combined peak annual royalties.
<unk> is a first in class antibody with a novel mechanism of action targeting CD 40 ligand.
This pathway are thought to be involved in the development and progression of multiple sclerosis, and may play a role in other immune diseases.
Most of these therapies in development are potential blockbusters and are in the hands of powerful marketers.
<unk> Phase III data was recently published in New England Journal of Medicine, and highlights the clear potential of bricks allomap as a high efficacy non lymphocyte depleting therapy for multiple sclerosis, flex allomap significantly reduce disease activity as measured by MRI and the clinical relapse rate was close to zero at 48 weeks importantly, the treatment was well.
We have carefully managed the risk profile of this portfolio by selecting therapies which meet our product framework and that are primarily in late stage development.
We've also built in risk-mitigating deal structures where possible.
Lastly, we see the potential to begin unlocking the value of this exciting portfolio through multiple clinical and regulatory events which we expect over the next 12 to 18 months.
Tolerated with no notable safety signals.
Based on this compelling profile Santa Fe has initiated phase III clinical development in multiple sclerosis with results and regulatory submissions anticipated for 2027.
These include the FDA action date for CAR-X-D, FDA filings for Apicampson and Palapacrisib, and Pivotal study results for CELTuraxin, Teva-749, and Trimphia and Crohn's.
Phase II studies are also underway in type one diabetes in lupus two immune diseases in which a role for the CD 40 pathway has also been implicated.
Slide 11 provides an overview of the fundamental drivers of our excitement in the exceptional opportunity offered by <unk> Allomap.
And in 2025, we expect outcomes data for Pellekarsen, which has the potential to be a very significant royalty for our portfolio.
On top of the compelling phase II efficacy the differentiated mechanism of action may provide potential safety differentiator versus some high efficacy multiple sclerosis therapies.
Slide 15 highlights that we have deployed capital of close to $23 billion since 2012 with a healthy balance between approved and development stage therapies.
We would also note that strong phase II data NMS has historically been highly predictive of success in the phase III setting. Furthermore, our statistical analyses confirm that Santa Fe studies are well designed and powered for success.
Over the period, the majority of our capital has been deployed to acquire royalties on approved products.
And even with the expansion of our development stage pipeline I just referenced, this waiting towards approved products has remained the case since our IPO.
Commercially.
Our proprietary U S claims analysis suggests that nearly 100000 patients will just continued anti CD 20 therapy by the time <unk> launches in 2028, a large addressable market that alone supports blockbuster potential perfect solid map, although we anticipate use in a broader set of MF patients if approved moving to slide 12.
However, when we look on an annual basis, there is considerable variability in this mix, which reflects the opportunistic nature of our business.
Slide 16 shows that our development stage pipeline has grown five-fold since our June 2020 IPO.
<unk> checks all the boxes for us clearly aligning with our product selection framework. It's a potential first in class therapy with strong scientific rationale and a clear commercial position. It has very supportive phase II clinical data and it will be marketed by a leading global immunology company breaks Allomap is as Dan if he described it a pipeline and a product okay.
The graphic on the right hand side illustrates that our pipeline is nicely diversified by therapeutic area, including neurology, psychiatry, cardiology, cancer, rare disease, and immunology.
When it comes to investing in development stage therapies, we have a strong track record.
Several immunology indications and importantly has the potential to contribute significantly to our growth in our royalty received with attractive returns profile and long duration.
On slide 17, you can see that we have invested around $9 billion in this category, and that our success rate has been high.
And with that I'll hand, it over to Chris.
Approximately 70% of our development stage investments have gone on to receive a regulatory approval. Around 20% are still in development, and only 10% have not reached the market.
Chris: Thanks, Marshall I wanted to expand on the <unk> transaction and highlight broader potential of our growing development stage pipeline, which we think is underappreciated by the market.
This record reflects our diligence process, including the product selection framework Marshall spoke to, our ability to identify therapies with unmet and underserved patient needs and our large opportunity set.
Chris: A strong pipeline are central to our strategy.
Chris: Instead of focusing on any one project in detail, we want to provide an overview of our current development stage portfolio.
Chris: Slide 14 summarizes the key take home messages and.
Chris: In short since our IPO, we have assembled a portfolio that consists of 15 development stage therapies, which we believe have the potential to contribute greater than $1 billion combined peak annual royalties.
To balance the higher inherent risk versus approved products, we target returns in the teams for development stage investments.
Expanding on my previous point on slide 18, we believe we have a unique and powerful approach to development stage investing.
Chris: Cost of these therapies in development are potential blockbusters in our in the hands of powerful marketers.
In terms of product selection, in addition of requiring strong proof of concept data, we often partner directly with the innovators so that we have access to additional insights into the clinical program and sales potential.
Chris: We have carefully managed the risk profile of this portfolio by selecting therapies, which meet our product framework and that are primarily in late stage development.
Once we have made the product selection, we typically then structure the transaction to include risk mitigation strategies and also ensure we are strongly aligned with the interests of our partner.
Chris: We've also built in risk mitigating deal structures where possible.
Chris: Lastly, we see the potential to begin unlocking the value of this exciting portfolio through multiple clinical and regulatory events, which we expect over the next 12 months to 18 months.
These strategies can include investing in post-pivotal study therapies, our deep due diligence supported by patient-level data and regulatory correspondence, and receiving a portion of return through milestones and staged investing to name a few.
Chris: Include the FDA action date for <unk>.
Chris: Filings for epic Hampton and <unk>.
Chris: Pivotal study results for <unk> to have a 749 interim fire in Crohn's.
You can see here a number of examples that illustrate our unique approach, including our investments in CARXT, Aphi-Canton, Precilomab, and Merck 8189.
Chris: And in 2025, we expect outcomes data for pellet Carson, which has the potential to be a very significant royalty for our portfolio.
Chris: Slide 15 highlights that we have deployed capital of close to $23 billion since 2012 with a healthy balance between approved and development stage therapies.
Slide 19 is my final slide, shows our late stage of Elman pipeline by potential peak sales and the associated royalty
we could receive, expect to receive. Importantly, these all have first or best in class potential and are supported by world-class marketers.
Chris: Over the period the majority of our capital has been deployed to acquire royalties on approved products.
Chris: And even with the expansion of our development stage pipeline I just referenced this weighting towards approved products has remained the case since our IPO.
The majority have multi-blockbuster potential, and in aggregate, we estimate their combined peak sales at over $25 billion on a non-risk-adjusted basis.
Chris: However, when we look on an annual basis. There is consider considerable variability in the mix, which reflects the opportunistic nature of our business.
Based on the respective royalty rates, this could potentially translate to over one and a quarter billion in annual peak royalties for royalty pharma, with fresolomab and Ulpacarum potentially the largest individual contributors.
Chris: Slide 16 shows that our Goldman stage pipeline has grown fivefold since our June 2020 IPO.
Chris: The graphic on the right hand side illustrates that our pipeline is nicely diversified by therapeutic area, including neurology.
I would also add that we are pleased with a positive news announced by Teva that Teva 749, a long-acting injectable version of the antipsychotic atlantapine, achieved its primary efficacy endpoint in its phase three study, and continues to have an encouraging safety profile.
Chris: <unk> cardiology cancer rare disease and immunology.
Chris: When it comes to investing in development stage therapies, we have a strong track record.
We look forward to additional updates in the second half of the year. As a reminder, in the fall of 2023, royalty pharma partnered with Teva to provide up to $125 million in R&D funding for the Teva 749 Phase 3 program.
Chris: On Slide 17, you can see that we have invested around $9 billion in this category and.
Chris: And that our success rate has been high.
Chris: Approximately 70% of our development stage investments have gone on to receive regulatory approval.
Chris: Around 20% of our film development and only 10% have not reached the market.
We will receive a milestone payment on FDA approval, as well as low to mid-single-digit royalties on its sales.
Chris: This record reflects our diligence process, including the product selection framework Marshall spoke to our ability to identify therapies with unmet and underserved patient needs.
Given its emerging differentiated safety profile in a market with significant unmet need, we are excited about the commercial potential for Teva 749.
This once again highlights our unique ability to identify attractive products across the Biofarm industry and partner with innovators to accelerate development. As these products become commercial, they will contribute to our attractive compounding growth in the years ahead.
Chris: Our large opportunity set.
Chris: The balance of higher inherent risk versus approved products.
Chris: We target returns in the teens for development stage investment.
Chris: Expanding on my previous point on Slide 18, we believe we have a unique and powerful approach to development stage investing.
To close, we have an exciting development stage portfolio with multiple expected upcoming events so you can see why we expect to continue to deliver attractive compounding growth in the year to head.
Chris: In terms of product selection, and addition of requiring strong proof of concept data.
Chris: We have been partnering with <unk>. So that we have access to additional insights into the clinical program and sales potential.
With that, I would like to hand it over to Terry.
Thanks, Chris. Let's move to slide 21.
Chris: Once we have made the product selection. We typically then structured transaction to include risk mitigation strategies and also ensure we are strongly aligned with the interest of our partner.
Royalty receipts grew by 14% in the first quarter, reflecting the strength of our diversified portfolio. The key drivers of growth were the strong performance of our base business, notably our Cystic fibrosis franchise and trilogy, as well as the acquisition of incremental Everisdi royalties.
Chris: These strategies can include investing in post pivotal study therapies.
Chris: Our deep due diligence supported by patient level data and regulate regulatory correspondence.
Portfolio receipts are top line declined by 37% reflecting the impact of non-recurring items in milestones and other contractual receipts in the year ago quarter.
Chris: And receiving a portion of returns milestones and staged investing to name a few.
Chris: You can see here a number of examples that illustrate our unique approach, including our investments in car T. <unk> Canton, <unk> Allomap and Merck 80 189.
Specifically, in the first quarter of 2023, we received a $475 million milestone payment following the FDA approval of Pfizer-Zavsopret.
Chris: Slide 19 is my final slide shows our late stage development pipeline by potential peak sales and the associated royalty.
As a result of this non-recurring item, milestones, and other contractual receipts declined to $12 million in the quarter. This decline was entirely consistent with expectations and fully reflected in our full year 2024 guidance.
Chris: We could receive expect receipt importantly, these all these all have first or best in class potential and are supported by World class marketers.
Slide 22 shows how our efficient business model generates substantial cash flow to be reinvested.
Chris: The majority have multi blockbuster potential.
Chris: And in aggregate, we estimate their combined peak sales at over 25 billion on a non risk adjusted basis.
Portfolio receipts amounted to $717 million in the first quarter.
As we move down the column, operating and professional costs equated to 8.4% of portfolio receipts.
Chris: Based on their respective royalty rates this could potentially translate to over one and a quarter billion in annual peak royalty to royalty pharma with <unk> allomap in El Paso, and potentially the largest individual contributors.
Net interest paid of $73 million reflected the semi-annual timing of our interest payment schedule, with payments falling due in the first and third quarters.
Chris: I would also add that we are pleased with the positive news announced by Teva tip 749, a long acting injectable version of the antipsychotic Olanzapine.
Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to adjusted ebidata less net interest paid, or as we call it, portfolio cash flow.
Chris: <unk> its primary efficacy endpoint in its phase III study and continues to have an encouraging safety profile.
Chris: We look forward to additional updates in the second half of the year.
This amounted to $584 million in the quarter, equivalent to a margin of around 81%.
Chris: As a reminder, in the fall of 2023 royalty pharma partnered with Teva to provide up to $125 million in R&D funding for the <unk> 749 Phase III program.
High level of cash conversion once again highlights the efficiency of our business model.
Capital deployment in the first quarter was a little under $100 million, but will be approximately $670 million after we acquire the Frexalimab royalty.
Chris: We will receive a milestone payment on FDA approval as well as low to mid single digit royalties on <unk> sales.
Chris: Given its emerging differentiated safety profile in a market with significant unmet need.
Slide 23 shows that we continue to maintain significant financial capacity for future royalty acquisitions.
Chris: We're excited about the commercial potential for <unk> 749, it's.
In total, we have over $3.5 billion available through a combination of cash on our balance sheet, the cash our business generates, and access to the debt markets.
Chris: This once again highlights our unique ability to identify attractive products across the biopharma industry and partner with innovators to accelerate development.
At the end of the first quarter, we had cash in equivalence of $843 million.
Chris: As these products become commercial they will contribute to our attractive compounding growth in the years ahead.
Following the approximately $525 million of cash payments related to the MUNX transaction, this will take our cash in equivalence to approximately $320 million on a pro forma basis.
Chris: To close we have an exciting development stage portfolio with multiple expected upcoming events. So you can see why we expect to continue to deliver attractive compounding growth in the years ahead.
When we turn to our borrowing position, on top of our $6.3 billion of investment-grade bonds, we maintain significant leverage capacity, which we can take up to four times at the right opportunity arose.
Chris: With that I would like to hand, it over to Terry.
Terry: Thanks, Chris let's move to slide 21.
Terry: Royalty receipts grew by 14% in the first quarter, reflecting the strength of our diversified portfolio the.
Furthermore, we have additional undrawn financial capacity from the $1.8 billion revolver.
Terry: The key drivers of growth were the strong performance of our base business, notably our cystic fibrosis franchise and trilogy as well as the acquisition of incremental <unk> royalties.
To taking together with our strong cash generation, we feel good about our ability to continue to execute transactions and create shareholder value.
Terry: Portfolio receipts, our top line declined by 37%, reflecting the impact of nonrecurring items in milestones and other contractual receipts in the year ago quarter.
Slide 24 sets out our unchanged full year 2024 financial guidance.
We expect portfolio receipts to be in the range of $2.6 billion to $2.7 billion.
Terry: Specifically in the first quarter of 2023, we received a $475 million milestone payment following the FDA approval of Pfizer's adds depressed.
Let me walk you through our assumptions.
First, within our overall top line guidance, we expect to deliver continued attractive growth and royalty receipts of around 5% to 9%.
Terry: As a result of this nonrecurring item milestones and other contractual receipts declined $12 million in the quarter. This.
We anticipate the strength of our diversified portfolio will more than offset in Breivica and Tysabri headwinds.
Terry: This decline was entirely consistent with expectations and fully reflected in our full year 2020 for guidance.
Second, we face a high base of comparison in 2023 as a result of the $525 million of Biohaven-related payments we received last year.
Terry: Slightly to slide 22.
Terry: Shows how our efficient business model generates substantial cash flow to be reinvested.
Terry: Portfolio receipts amounted to $717 million in the first quarter.
As you have seen today, the largest element, the $475 million dollars Avza Pratt milestone, was received in the first quarter of 2023.
Terry: As we move down the column offerings and professional costs equated to eight 4% of portfolio.
Milestones and other contractual receipts are therefore expected to decline from around $600 million in 2023 to approximately $30 million in 2024.
Terry: Net interest paid of seven $3 million reflected semiannual timing of our interest payment schedules.
Terry: Payments falling due.
Terry: Okay.
Terry: Yes.
Terry: Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value enhancing royalties.
Lastly, our guidance assumes a negligible foreign exchange impact.
Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today, does not take into account the benefit of any future royalty acquisitions.
Terry: We look to adjusted EBITDA less net interest paid or as we call it portfolio cash flow.
Terry: This amounted to $584 million in the quarter equivalent to a margin of around 81%.
For the second quarter, we also anticipate portfolio receipts to grow in the high single digits compared to last year's second quarter.
Terry: High level of cash conversion once again highlights the efficiency of our business model.
Tourney's operating costs. Payments for operating and professional costs are expected to be approximately 8% to 9% of portfolio receipts in 2024.
Terry: Capital deployment in the first quarter was a little under $100 million, but will be approximately $670 million. After we acquire the fresh salad that royalty.
We continue to believe that the degree of margin protection provided by our unique business model is impressive.
Terry: Slide 23 shows that we continue to maintain significant financial capacity for future royalty acquisitions.
Interest paid for full year 2024 is expected to be around $160 million, with the minimum amounts to be paid in Q2 and Q4.
Terry: In total we have over $3 5 billion available through a combination of cash on our balance sheet, the cash our business generates and access to the debt markets.
This does not take into account any interest received on our cash balance, which was $6 million in the first quarter.
At the end of the first quarter, we had cash and equivalents of $843 million.
With that, I would like to hand the call back to Pablo for his closing comments.
Terry: Following the approximately $525 million of cash payments related to the <unk> transaction.
Thanks, Terry. Let me begin my concluding remarks by saying how delight I am with our start to 2024. We delivered double-digit growth in royalty receipts.
This will take our cash and equivalents to approximately $320 million on a pro forma basis.
We strengthen our exciting development-stage pipeline, and we have announced a strong new commitment on our dividend growth.
Terry: When we turn to our borrowing position.
Terry: On top of our $6 $3 billion of investment grade bonds, we maintained significant leverage capacity, which we can take up to four times at the right opportunity arose.
On my final slide, I want to highlight our incredible track record of consistently identifying exciting waves of biofarm innovation and finding ways to participate.
Terry: Furthermore, we have additional undrawn financial capacity from the $1 8 billion revolver.
from retoxin, the first monoclonal antibody for cancer, to Gilead's HIV franchise to Humira, where we invested in 2006 and it later became the industry's biggest selling product.
Terry: Taken together with our strong cash generation, we feel good about our ability to continue to execute transactions and create shareholder value.
Terry: So slide 24 sets out our unchanged full year 2024 financial guidance.
to more recent life-changing therapies like praecafta for cystic fibrosis and a brisdie for spinal muscular atrophy.
Terry: We expect portfolio receipts to be in the range of $2 6 billion to $2 7 billion.
And when we look ahead, we expect to see a number of the exciting development stage therapies we talked about today, joined this list, transforming the lives of patients with multiple sclerosis, cardiovascular disease, and schizophrenia, among others.
Speaker Change: Let me walk you through our assumptions.
Speaker Change: First within our overall topline guidance.
Speaker Change: To deliver continued attractive growth in royalty receipts of around 5% to 9%.
Speaker Change: We anticipate the strength of our diversified diversified portfolio will more than offset <unk> and tysabri headwinds.
The ability to identify new waves of innovation and to constantly replenish our portfolio with life-changing therapies is our DNA, and we're confident that it can continue.
Speaker Change: Second we face a high base of comparison in 2023 as a result of the $525 million of bio Haven related payments, we received last year.
With our simple but powerful business model, our deep access to capital, we're confident we can continue to deliver attractive, compounding growth or the remainder of this decade and beyond. With that, we would be happy to take your questions.
Speaker Change: As you have seen today.
Speaker Change: Largest element to 475 million.
Speaker Change: Milestone was received in the first quarter of 2023.
Milestones and other contractual receipts are therefore expected to decline from around $600 million in 2023 to approximately $30 million in 2024.
One moment. One moment. First question.
Okay, and our first question comes from Chris Shubitani with Goldman Sachs. Your line is open.
Speaker Change: Lastly, our guidance assumes a negligible foreign exchange impact.
Thank you very much. Good morning. Congratulations on the deal with Frexelimab. The opportunity that is at the forefront, clearly in MS, but they're also in advanced clinicals. Maybe Marshall, can you help us how you risk assess and think about the potential in the other indications? I think there's Shogran's
Speaker Change: Importantly, and consistent with our standard practice. This guidance is based on our portfolio as of today does.
Speaker Change: <unk> does not take into account the benefit of any future royalty acquisitions.
Speaker Change: For the second quarter, we also anticipate portfolio receipts to grow in the high single digits compared to last year's second quarter.
as well as type 1 diabetes and lupus, the latter two in particular, historically quite challenging.
Speaker Change: Turning to operating costs.
Hi, Chris, good morning. Absolutely. We are really excited to be adding a Frexylumab to the portfolio. And as you correctly observed, you know, the core of our thesis and our view was really based on MS where there's a very consistent and compelling set of phase two data. As we mentioned, Santa Fe is going forward in other indications, type 1 diabetes and lupus. both are interesting. I think, you know, certainly we'll wait to see how the Phase 2 data there works out. There's not, you know, a lot of precedent data for CD40 in those areas, but I think they would, you know, definitely add potential sources.
Speaker Change: Payments for operating and professional costs are expected to be approximately 8% to 9% of portfolio receipts in 2024.
Speaker Change: We continue to believe that the degree of margin protection provided by our unique business model is impressive.
Speaker Change: Interest paid for full year 2024 expected to be around $160 million with de minimis amounts to be paid in Q2 and Q4.
Speaker Change: This does not take into account any interest received on our cash balances, which was $6 million in the first quarter.
Speaker Change: With that I would like to hand, the call back to Pablo for his closing comments.
Pablo: Thanks, Barry let me begin by my concluding remarks by saying how delighted I am with our start to 2024, we delivered double digit growth in royalty receipts, we strengthen our exciting development stage pipeline and we have announced a strong new commitments on our dividend growth on <unk>.
sources of upside to the transaction. And then just as a reminder, Santa Fe has said that in Shogran's, they actually
aren't going forward there in phase two. But as we said, based on MS was really the base of this investment, and we're really excited to have this as part of the portfolio.
Pablo: Final slide I want to highlight our incredible track record of consistently identifying exciting ways, our biopharma innovation and finding ways to participate.
Thank you.
One moment for the next question.
Pablo: <unk> the first monoclonal antibody for cancer to Gilead HIV HIV franchise through Humira, where we invested in 2006 and later became the industry's biggest selling product to more recent life changing therapies like bread CAFTA.
Our next question comes from Jeff Meacham with Bank of America Securities. Your lines open.
Hey guys, thanks so much for the question.
Just have a couple, the first maybe for Marshall, another one on Frexalamab.
Pablo: For cystic fibrosis, and the Brexit for spinal muscular atrophy.
Just walk us through kind of the idea here of the MS market being, you know, kind of a void to fill with respect to Tysabri. Is there a thought that maybe you had to ultimately replace the market?
And when we look ahead, we expect to see a number of the exciting development stage therapies. We've talked about joining joined this list transforming the lives of patients with multiple sclerosis, cardiovascular disease and schizophrenia among others.
The economics, you know, from Tysabri in the longer term, obviously the MS market, you know, can be a little challenged when it comes to a
Pablo: Ability to identify new waves of innovation and to constantly replenish our portfolio with life changing therapies is our DNA and we're confident that it can continue.
you know, to generics today. And then the second question, maybe for Terry or Pablo,
On capital deployment, when you think about the share bybacks, you guys didn't do a lot of share buybacks when that was first announced. And I just wanted to know the context for the commitment.
Pablo: With our simple, but powerful business model, our deep access to capital. We're confident we can continue to deliver attractive compounding growth.
now to a dividend, you know, versus buyback. You guys generate a lot of cash, and so I wanted to kind of kind of get that perspective from you guys. Thank you.
Pablo: For the remainder remainder of this decade and beyond with that we would be happy to take your questions.
Speaker Change: Good morning.
Thanks for the question, Jeff. And I think Marshall can definitely take the question on Fraxalam, but then I think Terry will talk about cap deployment and our commitment to dividend growth.
Speaker Change: First of all.
Speaker Change: Okay and our first question comes from Chris <unk> with Goldman Sachs. Your line is open.
Chris: Thank you very much good morning, congratulations on the deal with the Forex Allomap.
Absolutely. So, hi, Jeff. Good morning. So just quickly on Frexalimab. So no, the rationale behind Frexylumab was not, you know, was not to fill any sort of void around to Sabri. It was the outcome of the strategy and our approach to building the portfolio that we've talked about, that we talked about with everyone, which is looking for really exciting quality products that have, that check all the boxes in our product selection framework that we talked about. that we talked about at the beginning at the beginning of the call and I think that was really that was really the core of it in our approach and we are really excited to have it as part of the portfolio and specifically on the commercial opportunity the way we thought about
Chris: The opportunity that is at the forefront clearly in EMS, but theyre also in advanced clinical maybe.
Chris: Maybe Marshall can you help us how you risk assess and think about the potential in the other indications I think their showrooms as well as type one diabetes and Lucas the latter two in particular.
Chris: Historically quite challenging.
Marshall: Hey, Chris Good morning, absolutely, we are really excited to be adding <unk> to the portfolio and as you correctly observed.
Chris: The core of our thesis and our view was really based on MFS, where there's a very considered consistent.
Chris: And compelling set of phase II data.
Chris: As we mentioned Cfe is going is going forward in other indications.
it was, you know,
There are certainly, you know, the dominance of the CD20 class today is, you know, is really compelling and has been really important for patients. But what we see is as this market develops, that there's going to be a need for high efficacy, alternative mechanisms of action. And that's exactly what frexalomab offers. And so that was really the core of our thesis and why we think this is going to be, you know, an exciting product for patients and for royalty pharma.
Chris: <unk> diabetes and lupus.
Chris: Both are both are interesting I think certainly.
Chris: We'll wait to see how the phase II data there works out there's not a lot of precedent data for CD 40 in those areas, but I think they would definitely add potential sources. The sources of upside to the transaction and then just as a reminder, sand if he has said that in sjogren they actually.
I mean, one thing just to quickly add to what Marshall said is there's no question that
Royalty for my has had great success investing in diseases like multiple sclerosis with Tysabri and, you know, also may remember that we had a royalty on Tech Federa. So, you know, in total, I think we had invested $3.4 billion in MS with great results. And now with this, you know, another 500 million or so. So it's an area we like where we still huge potential for improvement in. in current therapies.
Chris: Sure.
Chris: Arent going forward there.
Chris: In phase II, but I think but as we said based on MFS was really the base of this investment and we're really excited to have this as part of the portfolio.
Speaker Change: Thank you.
Speaker Change: One moment for the next question.
Speaker Change: Our next question comes from Geoff Meacham with Bank of America Securities. Your line is open.
Geoffrey Meacham: Hey, guys. Thanks, so much for the question.
Geoffrey Meacham: Just have a couple the first maybe for Marshall another one on Forex Allomap, just walk us through kind of the idea here.
And then Jeff, on your question on capital allocation,
As we said in the past, our number one priority is buying new royalties.
Geoffrey Meacham: EMS market be kind.
Geoffrey Meacham: Avoid to fill with respect to Tysabri is there a thought that maybe you had to ultimately replace the economics from Tysabri and the longer term, obviously, the EMS market can be a little challenged when it comes to.
We think that's how we can drive the most long-term value.
We have been paying a dividend since our IPO and actually the 20 years prior to our IPO and been growing it consistently every year.
since the IPO we've grown at mid single digits or better. And so, and it was fully our plan to continue to grow at mid single digits. So, you know, I think that
Geoffrey Meacham: Generics today and.
Speaker Change: And then the second question for Terry.
Speaker Change: Pablo on capital deployment, and when you think about.
The commitment today is simply a reflection of what our plans had already been. We thought it was important to sort of put that out there so investors understood that aspect of our capital allocation.
Speaker Change: Share buybacks you guys didn't do a lot share buybacks when that was first announced and just wanted another context for you know for the commitment.
Speaker Change: Now to a dividend versus versus buyback you guys generate cash and so I wanted to kind of get that perspective from you guys. Thank you.
And then in terms of the share buyback, it's certainly something that, as we've said before, it's a tool that we really like having. I think when we think about the buyback, we also think about
Speaker Change: Thanks for the question, Jeff and I think Marshall good enough for me to take the question on <unk> and then I think Teri will talk about capital deployment and our commitment to delivering growth.
in the context of some of the opportunities that we're seeing out there as well. And I would say that the team is extremely busy
Teri: Absolutely So hi, Jeff Good morning, So just quickly on Fracs allomap so no.
Teri: The rationale behind <unk> was not.
We're really excited about the overall opportunities that we never know when transactions are going to happen, but that, you know, I think, is a factor when we think about deploying capital because, as I mentioned,
Marshall: It was not to fill any sort of avoid around to celebrate was the outcome of this strategy and our approach to building the portfolio that we've talked about that we talked about with everyone, which is looking for really exciting quality products that have that checks all the boxes in our product selection framework that we talked about.
our number one use of capital that we think is buying new royalties.
Marshall: That we talked about at the beginning at the beginning of the call and I think that was really that was really the core of it.
One moment for the next question.
Marshall: In our approach and we are really excited to have it as part of the portfolio and specifically on the commercial opportunity the way we thought about it was.
Our next question comes from Chris Scott with J.P. Morgan. Your line is open.
Marshall: There are certainly.
Hi, this is Ethan on for Chris Schott. Thanks for taking our questions. I just have two quick ones. So first off,
Marshall: The dominance of the CD 20 class today is is.
Marshall: Is really compelling and it's been really important for patients, but what we see is as this market develops that theres going to be a need for high efficacy alternative mechanisms of action and that's exactly what <unk> offers and so that was really the core of our thesis and why we think this is going to be an exciting product for <unk> and for royalty pharma.
With the 15 development stage assets that you noted, how do you think about the balance of royalties portfolio at this point and maybe more specifically?
As the company becomes larger and more diversified going forward, is there an ability or desire to skew capital deployment more towards the development stage where you might get greater potential returns? And then the second question is just how you think about the 2025
Speaker Change: One thing just to quickly up to what Marshall said is there is no question that Royal before my has had great success investing in diseases like multiple sclerosis with Tysabri.
Medicare Part D redesign and any estimate on the impact to your portfolio at this point. Thanks for the questions.
Speaker Change: No.
Speaker Change: You may remember that we had a royalty architecture thereof.
Speaker Change: In total I think we had invested $3 $4 billion.
Sure, so I'm going to ask Marshall and Chris to talk about the
Speaker Change: MFS with great results and now with this.
Medicare and other questions, but just the very top level. You know, the business has been incredibly successful over many decades by, and actually really over a decade when we started to invest in unapproved.
Speaker Change: Another 500 million or so.
Speaker Change: So it's an area we like.
Speaker Change: Sure Joe huge potential for improvement in current therapies.
Speaker Change: And then Jeff on your question on capital allocation.
And we think that this balance that, you know, has been 60, 40 of approved and unapproved is a good way to continue to grow our business. Could it be 50-50, sure. But what really happens in our business, you know, that...
Speaker Change: As we said in the past our number one priority.
Speaker Change: Is buying new royalties, we think thats, how we can drive the most long term value.
Speaker Change: We have been paying a dividend.
Speaker Change: Since our IPO and actually the 20 years prior to our IPO and been growing consistently every year.
measurement of 6040 is sort of the cumulative capital and deployed in approved and unapproved but in reality what happens with our business is that
Speaker Change: Since the IPO, we've grown at mid single digits or better and so and it was fully our plan to continue to grow at mid single digits. So I think that the commitment today is simply sort of a reflection of what our current what are plans had already been we thought it was important to sort of put that out there.
You know the nine billion or so that we've invested in unapproved so many of those got approved as you saw on a slide you know 70 or so percent I think we also have really good data on several others that are not yet approved You know like a car XT and Africanton has Haltorexent that you know
Speaker Change: So investors understood that aspect of our capital allocation.
Speaker Change: And then in terms of the share buyback is certainly something that as we've said before it's a tool that we really like having.
those we view as, you know, very high probability of approval. But the point is that, you know, this is sort of a moving average suggestion because the
Speaker Change: I think when we think about the buyback we also think about.
Speaker Change: In the context of some of the opportunities that we're seeing out there as well and I will say that.
$9 billion reflects the cumulative and what happens is that several of those get approved and it gives us the capacity the opportunity to actually continue to invest Significantly and unapproved and as the business grows, I think you know maintaining that balance of you know around half and approved and half and unapproved is probably a good target for us, but Marshall
Speaker Change: The team is extremely busy.
Speaker Change: We are.
Speaker Change: About the overall opportunity set we never know when transactions are going to happen but.
Speaker Change: That I think is it.
Speaker Change: Is it after when we think about deploying capital because as I mentioned, our number one use of capital that we think is buying new royalties.
Back to you. Great. Yeah, good morning. And then the last part of your question was on the 2025 Medicare Part D redesign. And so I think like a lot of the world, the specifics of that on a product-by-product basis are something that we're still thinking through. But just to remind everyone, you know, the Relative Formal portfolio doesn't have at a high level a lot of exposure to Medicare Part D. And we've highlighted three products in the context of certainly the potential for IRA negotiation, Extandi and Berwicka and Trelogy that are significant products in our portfolio. But I think specifically, but the same conclusion.
Speaker Change: Thank you.
Speaker Change: For the next question.
Speaker Change: Our next question comes from Chris Scott with Jpmorgan. Your line is open.
Speaker Change: Hi, This is Ethan on for Chris Schott, Thanks for taking our question.
Ethan: Two quick ones.
Ethan: So first off with the 15 development stage assets that you noted how do you think about the balance of royalties portfolio at this point and maybe more specifically.
Ethan: As the company becomes larger and more diversified going forward is there an ability or desire to skew capital deployment more towards the development stage, where you might get greater potential return and then the second question is just how you think about the 2025.
I think holds for the Medicare Part D redesign, which is
which is that we don't think there's going to be a significant impact on our portfolio. And certainly we have a balance there of products that are higher priced and something like Trellogy, which is lower priced. And obviously we'll see very different dynamics inputs and takes within the Medicare Part D redesign. But I think the important thing is there isn't a lot of exposure right now. And as we continue to invest and build a portfolio, with products like Frexalimab, you know, we will continue to add more and more diversity to the portfolio.
Ethan: Medicare part D redesign and any estimate on the impact to your portfolio at this point thanks for the question.
Speaker Change: Sure, So I'm going to ask Marshall and Chris to talk about.
Speaker Change: The.
Speaker Change: Medicare and other questions, but just the very top level.
Speaker Change: The business has been incredibly successful over many decades by I'm actually really over a decade, when we started to invest in unapproved.
Speaker Change: We think that this balance.
One moment for the next question.
Speaker Change: That has been fixed.
Speaker Change: 60 40.
Speaker Change: Approved and unapproved.
The next question comes from Peter Burdalt with City. Your line is open.
Speaker Change: As a good.
Speaker Change: Way to continue to grow our business could it be 50 50.
Yeah, thank you. It's Pete Bill here from City. Just a few questions, please. Just kicking off with Frick-Salamab. We like this answer a lot, so it might to see the deal.
Speaker Change: But what really happens in our business.
Speaker Change: Got that.
Speaker Change: Measurement of $6 40.
Speaker Change: Sort of the cumulative capital.
Just to be clear, Marshall, is this deal, is it all valued and structured around MS or have you put in any sort of placeholder value for lupus in type 1? That's question number one.
Speaker Change: <unk> deployed.
Speaker Change: Approved and unapproved, but in reality, what happens with our business.
Speaker Change: The $9 billion or so that we've invested in unapproved. So many of those got approved.
Number two is lots of good stuff going on in terms of development pipeline, but there have been some, should we say, recent setback. So I would be interested to hear how you're thinking about the risk profile around proliferative in light of the emerging, safety concerns, anything you're able to say right now.
Speaker Change: You saw on the slide 70, or so percent I think we also have really good data on several others that are not yet approved.
Speaker Change: Sure.
Speaker Change: Card fee.
Speaker Change: Sure.
Speaker Change: Captain filter excellent.
And then lastly, Marshall, just a clarification. Sorry to be gnarly, but when I look at the immune express release, they're stating that if Frex sales...
Speaker Change: Sure.
Speaker Change: Those we view.
Speaker Change: Very high probability of approval.
Speaker Change: Point is that.
Speaker Change: This is sort of a moving average suggestion because the.
exceed $2 billion, the royalty goes from having all the royalties to a minority share. I just want to make sure that's your comment earlier in the presentation about getting 400 million royalties of $5 billion. Does that chime with what is in that immune express release? Thank you.
Speaker Change: 9 billion reflects the cumulative then what happens is that several of those get approved and it gives us the capacity the opportunity to actually continue to invest.
Speaker Change: Inefficiently non approved.
Speaker Change: And as the business grows I think.
Hey, Pete. Welcome to the call. So just to make sure I hit all of those. So first on Prexalamab, the core of our thesis was definitely centered on MS. So our kind of base view is a MS-driven one. You know, certainly we want one thing we really like about the transaction is the potential for further indications to come along for Sanofi invest in those, which would drive further, which would drive further. which would drive further sales as well. So not part of the base case, but we definitely like investments like this where, you know, there are, there is optionality on indication expansion.
Speaker Change: Maintaining that balance of <unk>.
Speaker Change: Around half an approved and have an unapproved is probably a good target for us but Marshall.
Speaker Change: Back to you.
Marshall: Yes, good morning, and then the.
Marshall: The last part of your question was on the 2025, Medicare part D redesign and so I think like a lot of the world the specifics of that on a product by product basis or something that we're that we're still that we're still thinking through but just to remind everyone.
Marshall: The royalty pharma portfolio.
Marshall: It doesn't have at a high level a lot of exposure to Medicare part D and we've highlighted three products.
The second question was on Pallabrasib. So not much to say beyond what's in the public domain, we're following the same thing you guys are, but I would just recommend, I would just remind everyone that, you know, to think about Pallaborib in the broader context of the morphosis investment. So Pallaborative was an interesting product. We're excited to see what happens with it, but was a small overall part of that transaction, which was really focused on. you know, on the great royalty on Tramphia that that we acquired there. And then your third question was the royalty structure? So no. So the way it works is we always have a majority
Marshall: In the context of certainly the potential for IRA negotiation.
Marshall: <unk> and trilogy.
Marshall: That are significant products in our portfolio, but I think specifically, but the same conclusion I think holds for the Medicare part D redesign which is.
Marshall: Which is that.
Marshall: Which is that we don't think theres going to be a significant impact.
Marshall: On our portfolio and certainly we have a balance there are products that are higher priced and something like <unk>, which which is lower priced and obviously, we will see very different dynamics.
Marshall: And puts and takes with within the Medicare part D redesign, but I think the important thing is.
Marshall: There isn't a lot of exposure right now and as we as we continue to invest and build the portfolio with products like flex Allomap, we will continue to add more and more diversity to the portfolio.
of the royalty, a significant majority of the royalty. Once sales exceed $2 billion, there is some sharing with the former shareholders of IMEAXT, but no, we still maintain the majority of the royalty, which is a structure that that sort of sharing and that structure is something we've used in the past in other transactions.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Peter.
Peter: With Citi. Your line is open.
Great. Thanks, well.
Peter: Yes. Thank you.
One moment for the next question.
Peter: <unk> from Citi. Just a few questions. Please just taking all of which fixed element.
Our next question comes from Umeir-Roffet with Evercore. Your line is open.
Peter: We always have said not so much to do.
Peter: Just to be clear Marshall is this is it.
Speaker Change: So have you been structured around emmis have you put in any sort of placeholder value.
Hey guys, this is Mike D. Fury in for Omer. Thanks for taking my question and congrats on the deal. A few for me on Phytalab and then one follow-up.
Speaker Change: The lupus in Taiwan of question number one.
Speaker Change: Number two is lots of good stuff going on in terms of the development pipeline, but there have been some should we say recent setback so it would be interesting.
On Phyllab, would you be able to quantify the minority share of royalties, like what percentage you get above $2 billion?
Speaker Change: How youre thinking about the risk profile around represent.
also the total amount of milestone payments and the cadence of them. And also on slide 11 regarding the unmet need, it implies that there is significant opportunity after patients discontinue anti-CD20s.
Speaker Change: In light of the emerging safety concerns and Youll say right now and then lastly, just a clarification. So it's been <unk>.
Speaker Change: When I look at the press release that spacing.
Speaker Change: Strict fix sales.
which also implies that either patients are still not too far long in their disease after they can discontinue.
Speaker Change: Exceed $2 billion.
Speaker Change: The royalty guys, probably all the royalties to a minority shares I just want to make sure does that still is your comment.
or they have entered the non-relapsing SPMS phase and that proxelabetic can be efficacious in this setting. What gives you confidence that this may be the case and have a follow-up. Thank you.
Speaker Change: Earlier in the presentation about getting 400 million royalty of $5 billion.
Speaker Change: Your line.
Speaker Change: What is in that.
Speaker Change: Today's press release.
Sure, so just to make sure I hit all of those. So Mike, we haven't quantified what, we haven't quantified the amount of sharing, but I think just to reiterate the answer to Pete's question is that we maintain a majority of the royalty above $2 billion. And then on the milestones, we haven't given a lot of detail there.
Speaker Change: Hey, Pete welcome to the call. So just to make sure I hit all of those so first on Fracs allomap.
Pete: The core of our thesis was definitely centered on MFS. So our kind of base view is a MFS driven one certainly we one thing we really like about the transaction is potential for further indications too.
Mike, we did say though in the pressure lease that just to give you some context that, sorry, we said it in the slides, that nearly half of the purchase price could potentially be returned in what we view as higher probability milestones. So that gives you a little bit of a context of the scale.
Speaker Change: To come along for standard fee invest in notes, which would which would drive further which would drive further sales as well so not not part of the base case, but we definitely like investments like this where there are there is optionality on indication expansion.
Speaker Change: The second question was on <unk>, so not much to say beyond what's in the public domain. We're following the same thing you guys are but I would just recommend I would just remind everyone that to think about <unk> in the broader context of the more focused investment so.
Okay, great. And then I hope that helps. And then the last piece was on the unmet need. So what we were trying to say was not,
and your question is a good one, was not that, you know, we're taking a view on secondary progressive MS at this point, but that when we look into our claims data closely, what we see is that patients are on CD20s for a very long time. They're great drugs, but we do see that patients do come off over time, and that population is at least one that will be pretty significant by the time Frexalomab, by the time Frexalomab launches. And, you know, if you do the at the MS conferences and neurology conferences, we are starting to see KOLs and others talk about some of the long-term side effects of chronic B-cell depletion over the long-term. And so when we put that together,
Speaker Change: Palaver SIB was ace is an interesting product.
Speaker Change: We're excited to see what happens with it but it was a small overall overall part of that transaction, which was really focused on.
Speaker Change: On the great royalty entre via debt that we acquired there.
Speaker Change: And then your third question was the royalty structure. So no so the.
Speaker Change: The way. It works is we always have a majority of the royalty a significant majority of the royalty.
Speaker Change: <unk> sales exceed 2 billion there is some sharing with the former shareholders of EMEA next but no. We still maintain the majority of the royalty which is the structure that that sort of sharing in that structure is something we've used in the past.
I think that's one potential interesting and attractive and large market for Frexalimab. That being said, we think there's use well beyond, well beyond that population as well. We were really trying to focus on
Speaker Change: In other transactions.
Speaker Change: Great. Thanks, Paul.
Speaker Change: One moment to the next question.
Speaker Change: Our next question comes from EMEA, Ross <unk> with Evercore. Your line is open.
you know, how, that there is an unmet, there's an unmet need here, a need for new mechanisms, and we think Frexalimab is well positioned to be a part of the solution there.
Ross: Hey, guys. This is Mike <unk> here.
Ross: And for <unk>. Thanks for taking my question and congrats on the deal.
Mike: A few for me on <unk> and then one follow up.
Got it.
And my follow-up is just on the pace of deals. Can we expect the deal pace to pick up in the back half of a year, recognizing that today's deal was phenomenal? And how might the higher for longer outlook on interest rates factor into the types of deals that royalty farmers considering? Thank you.
Ross: <unk>.
Speaker Change: Would you be able to quantify the.
Speaker Change: Minority share royalties like what percentage you get above $2 billion and also the total amount of milestone payments and the cadence of them and also on slide 11 regarding the unmet need it implies that there is significant opportunity after patients discontinue anti <unk>.
Yeah, Chris can take the question on deal flow and what to expect, and I think maybe Terry can talk about interest rates.
Speaker Change: Which also implies that either patients or still too far along in their disease. After they could discontinue.
Yeah, thanks Mike for the question.
Speaker Change: Or they have entered the non relapsing <unk> phase in that for example that can be efficacious in this setting.
You know, we continue to see a very robust environment. You know, when we look at potential investments,
Speaker Change: What gives you confidence that this may be the case and I have a follow up thank you.
Bye.
And we're super excited about the opportunity set in front of us. You know, as you know, it's hard to predict, you know, when the deals will actually happen. But we're very encouraged with what we're seeing from a funnel perspective and the opportunity set in front of us.
Speaker Change: Sure. So just to make sure I hit all of those so.
Speaker Change: Mike we haven't quantified.
Speaker Change: What we haven't quantified the amount of sharing but I think just to reiterate.
Speaker Change: The answer is the answer to Pete's question is that we maintain a majority of royalty above.
And then on Red's mic,
Speaker Change: <unk> 2 billion.
I think what we've tried to reiterate is that our business is really sort of agnostic to the rate environment.
Speaker Change: Then.
Speaker Change: On the milestones we haven't given a law.
Speaker Change: Lot of detail there.
Speaker Change: Mike We did say, though in.
Speaker Change: The press release that just to give you some context.
And we've been sort of highlighting this with the deals that we've done, I think even including the deal today, which we think is going to generate really attractive returns longer term.
Speaker Change: That sorry, we said it in the slides that nearly half of the purchase price could potentially be returned in what we view as higher probability milestones. So that gives you a little bit of a context of the scale.
But, you know, I think that the key for us is that we feel like we're able to continue to maintain the same spreads above our cost of capital on new investments.
Speaker Change: Got it okay. Okay, great and then that I hope that helps and then the last piece was on the unmet need.
regardless of the rate environment. And so you'll see that as rates are sort of as they drifted higher,
Speaker Change: So what we were what we were trying to say was not.
Speaker Change: And your question is a good one was not that.
We're targeting slightly higher returns, you know, and I think that that really shows how our business really is agnostic to the right environment.
Speaker Change: We're taking a view on secondary progressive Ms. At this point, but that when we look into our claims data closely what we see is that patients are on <unk> for a for a very long time theyre great drugs, but.
Super helpful. Thanks again.
One moment for the next question.
Speaker Change: We do see that patients do come off over time and that population is at least one that will be pretty significant by the time for allomap by the time <unk> launches and if you do the.
Next question comes from Steve Scholar with TV Cohen. Your line is open.
Thank you so much. Just to be clear on Frexalimab, it sounds as though type 1 diabetes and lupus are not part of the initial deal. Maybe you can confirm that, but is subcube part of the initial deal.
Speaker Change: At the <unk> at the EMS conferences in neurology conferences, we are starting to see Kols and others talk about some of the long term side effects of chronic b cell depletion over the long term and so when we put that together I think that's one potential interesting and attractive and large market for <unk> allomap.
And what aspects of the molecule were the toughest
for you to become comfortable. So that's the first question. Second question, Chris, you mentioned milestones for this year. Apologies if I missed it, but did you mention the PDE 10A inhibitor phase two data from Merck, which is expected? And if not, why didn't you mention it?
Speaker Change: That being said, we think theres use well beyond well beyond that population as well we were we were really trying to focus on.
Speaker Change: That there is an unmet unmet need here a need for new mechanisms and we think <unk> allomap is well positioned to be a part of the solution there.
And then the last question is you've gotten the obesity question, I think every quarter for a while now, and every quarter you say you're always looking.
Speaker Change: Got it.
But within obesity, does RPRX have a preference for oral versus sub-Q?
Speaker Change: And then my follow up is just on the pace of deals can we expect the deal pace to pick up in the back half of the year recognizing that today's deal was phenomenal.
muscle sparing versus not muscle sparing and degree of weight loss. So in other words, is more the better always the case or is it not necessary for the masses? So you're not necessarily pursuing that. Thank you.
Speaker Change: And how might be higher for longer outlook on interest rates.
Speaker Change: The types of deals that royalty pharma is considering thank you.
Speaker Change: Yes, Chris can take the question on deal flow and what to expect and I think maybe Terry can talk about interest rates.
Yes, thanks for the question Steve. I mean, just to clarify, I think for whatever reason, the terms of the Forexsalim deal might be a bit confusing to several of you, but the
Chris: Yes, Thanks, Mike for the question.
Chris: Yes.
Chris: Yes.
Terry: We continue to see a very robust environment.
Chris: When we look at potential investments.
license that underlies our transaction.
Terry: And we're super excited about the opportunity set in front of US as you know it's hard to predict.
And they entitled us to receive royalties on all potential indications for the product. And they're all included. All we were saying is that
Chris: Sure.
Chris: When when the deals will actually happen, but we're very encouraged with what we're seeing from a funnel perspective and the opportunity set in front of us.
You know, for us to get comfortable with a really attractive investment with really attractive returns.
Chris: And then on rates Mike.
Mike: I think what we've tried to reiterate.
we had to get comfortable that this product was going to achieve
Chris: Is that or our business is really sort of agnostic to the rate environment.
you know, a good level of sales
in
Chris: And we've been sort of highlighting this with the deals that we've done I think even inclusive of deal today, which we think is going to generate really attractive returns.
in MS and you know we think that in MS we're very comfortable with it getting to the 3 billion plus range and
And then we see us upside, you know, other indications.
Chris: Longer term.
Chris: I think that the.
Chris: The key for US is that we feel like we're able to continue to maintain the same spreads above our cost of capital on new investments.
And obviously the two that are interesting and, you know, sort of being looked at,
are type 1 diabetes.
Chris: Regardless of the rate environment, and so you see you will see that as rates are sort of as they drifted higher.
and lupus and the terms of the transaction are such that we would be entitled to receive royalties on those
And there is in the structure, in addition to the $525 million up-from payment, some sharing with the shareholders of Indynex above $2 billion of sales. But as we have said, the sharing is a sort of percentage that is less than 50 percent. In fact, we've just said.
Chris: We're targeting.
Chris: Targeting slightly higher returns.
Chris: And I think that that that really shows how our business really is agnostic to the rate environment.
Speaker Change: Super helpful. Thanks again.
Speaker Change: One moment for the next question.
Speaker Change: Okay.
Speaker Change: Next question comes from Steve Scala with TD Cowen Your line is open.
Steve Scala: Thank you so much.
Steve Scala: Just to be clear on <unk>, it sounds as though type one diabetes and lupus are not part of the initial deal maybe you can confirm that but its sub Q part of the initial deal.
that we're going to retain a significant majority of all of the royalties above $2 billion.
And also regarding the milestones, when we looked at the total milestones that the license produces, which is over north of 400 million, we've identified about half of those 240 or so as high probability milestones that are tied to things like filing.
Steve Scala: And what aspects of the molecule where the tougher for you to become comfortable so that's the first question second question, Chris You mentioned milestones for this year apologies if I missed it but did you mention the PDE 10 inhibitor phase two data from Merck, which is expected and if not.
you know, and dozing in other indications, you know, phase three trials and things like that, which we think is highly likely likely to happen. And we saw that as an attractive part of the transaction. But let me turn it over to Marshall that can talk about Merrick and then obesity.
Steve Scala: Why why didn't you mentioned it and then the last question is you've gotten the obesity question I think every quarter for awhile now and every quarter, you say youre always looking.
Sure, so on Merck,
Steve Scala: But within obesity does <unk> have a preference for oral versus sub Q.
Steve, nothing to interpret there. I think much of Chris's comments were really focused on the later stage programs within our pipeline. As a reminder, 8189 has a phase 2B trial that reads out relatively soon. And so we...
Steve Scala: <unk> sparing versus not muscle sparing and degree of weight loss. So in other words.
Steve Scala: Is more of the better always the case or is it not necessary for the masses, so you're not necessarily pursuing that thank you.
Speaker Change: Yes. Thanks for the question so just to clarify I think.
And so that was maybe why it wasn't
Speaker Change: For whatever reason.
it was not sort of discussed as prominently as some of the others, but we remain excited about the potential there and look forward to and look forward to learning more. Finally, in obesity, yep, no, I think you're going to hear a similar answer in our approach there, but I think part of your, but implicit in your question, I think is the key thing, which is, you know, there are a lot of different approaches to what is obviously a very, very, very, large and attractive market and we're continuing to look at our opportunities within all of those different dynamics in terms of form of delivery, biology, et cetera.
Speaker Change: The.
Speaker Change: The terms of the FERC settlement.
Speaker Change: There might be a bit of confusion to several of you but.
Speaker Change: The.
Speaker Change: License that underlies our transaction.
Speaker Change: And they are entitled to receive royalties on all potential indications for the product.
Speaker Change: Theyre all included.
Speaker Change: All we were saying is that.
Speaker Change: For us to get comfortable with a really attractive investment with really attractive returns.
Speaker Change: We have to get comfortable that this.
Speaker Change: Product was going to achieve.
Speaker Change: A good level of sales.
Speaker Change: In.
And, you know, our view at a high level is that there's going to be opportunities for multiple types of products for different patients at different times in the management of their obesity, and that's going to create opportunity. And we'll continue to take the same opportunistic approach of looking for the right thing at the right time that makes sense for us and our partner.
Speaker Change: In MF.
Speaker Change: We think that in them.
Speaker Change: Yes, we're very comfortable with getting to the $3 billion plus range and then we see upside.
Speaker Change: Other indications.
Speaker Change: And obviously the two that are interesting and.
Speaker Change: Sort of being looked at.
Speaker Change: Our.
Speaker Change: Type one diabetes.
Speaker Change: Thank you. One moment for the next question.
Speaker Change: And Lewis.
Speaker Change: And the terms of the transaction are such that we would be entitled to receive royalties on those.
The next question comes from Terrence Flynn with Morgan Stanley . Your line is open.
Speaker Change: And there is our infrastructure.
Speaker Change: In addition to the $525 million.
Hi, this is Dan on for Terrence. Thanks for taking our question. I was just wondering on Tramphia in Crohn's disease at this point, kind of how you're thinking about market share capture and the indication and views on the competitive profile versus Skyrizi. Thank you.
Speaker Change: <unk>.
Speaker Change: Some sharing with the shareholders are in the next.
Speaker Change: Above $2 billion of sales, but as we have said the <unk>.
Speaker Change: During.
Speaker Change: As.
Speaker Change: Sort of percentage that is less than 50% in fact, we've just said that.
Sure, thanks for the question on Tramphia. So that's one that we remain really excited about. So, you know, I think with the recent updates from Jansen, you know, were we were as part of our thesis when we added that to the portfolio and continued to be excited about the potential in IBD, the data so far that we've seen looks very compelling and competitive. And just as important, in this space as data is the strength of the strength of the marketer and the scale of their platform behind it. And so, you know, we're really happy to have this product in the hands of J&J who, you know, is one of the biggest
Speaker Change: We're going to retain.
Speaker Change: Significant majority of all of the royalties above $2 billion and also regarding the milestones.
Speaker Change: When we looked at the total milestones up the license.
Speaker Change: Our producers, which has over $400 million, we've identified about half of those 240 or so of high probability milestones that are tied to things like filing.
Speaker Change: <unk>.
Speaker Change: And those in.
Speaker Change: In other indications phase III trials and things like that which we think is highly likely to happen.
Speaker Change: You saw that as an attractive part of the production, but let me turn it over to.
Speaker Change: Marshall about can talk about Merck and then obesity.
marketers in this space and we think we'll be able to maximize, you know, the value of Trimphia in IBD in the IL23 class, which is attractive and growing really nicely.
Marshall: Sure so on Merck.
Marshall: Steve nothing to interpret their I think much of Chris most of Chris's comments, we're really focused on the later stage.
Bye.
Marshall: The later stage programs within our pipeline.
Please stand by for the next question.
Marshall: As a reminder, a 80 189 had that phase <unk> trial that that reads out relatively soon and so we.
The next question comes from Dijal with UBS. Your line is open.
Marshall: And so that that was maybe why it wasn't.
Hi, good morning. This is the on behalf of Ash. Thanks for taking our questions. We have one for our fact data map. Since like CD 40s have had like complex history with some ballic events,
Marshall: It was not sort of discussed as prominently as some of the others, but we remain excited about the potential there and look forward to.
Marshall: We look forward to learning more.
So I understand from your perspective, like Flexa may not have these issues, but has Sanofi provided you any data beyond what was shown in the phase two that gives you like strong conviction on assets here? Thanks.
Marshall: Finally in obesity.
Speaker Change: Yes, no I think youre going to hear a similar.
Marshall: A similar answer in our approach there, but I think part of your but implicit in your question I think the key thing, which is there are a lot of different approaches to what is obviously, a very very large and attractive market and we're continuing to look at our opportunities within all.
Sure. Marshall, wanted you take this question. Yeah, no, good question on the history of these antibodies. So, you know, as you might imagine, that history was something we looked at closely in the diligence, and the team did a really good job in terms of the diligence process. We also had the luxury and the benefit of working with the Immunex team who did a lot of the work to generate phrexalomab with all the learnings from the first, generation antibodies, which, as you mentioned, did have a
Marshall: All of those different dynamics.
Marshall: In terms of form of delivery.
Marshall: Biology, et cetera, and our view at a high level is that theres going to be opportunities for multiple types of perpetual war.
Marshall: Okay.
Marshall: <unk> patients at different times.
Marshall: Okay.
Marshall: Okay.
did have a safety issue. But what got us comfortable, I think, was two things I'd mentioned, which is one. The engineering and the design of the antibody, you know, was designed with, you know, with certain changes to engineer out that risk, and certainly all of the basic science and preclinical work supports that. But more importantly, the proof is in what we've seen so far in from clinical data is that, you know, patients have been, that there's a significant. treated patient-based at this time. You know, as we mentioned, the MS data, these patients have now been treated out to a year, and we haven't seen that safety signal. So, you know, certainly that was what went into our view that this was an issue with the first
Marshall: Okay.
Marshall: Sure.
Marshall: The right thing at the right time that makes sense for us and our partner.
Speaker Change: Thank you.
Speaker Change: One moment for the next question.
Speaker Change: The next question comes from Terence Flynn with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is Dan on for Terence. Thanks for taking my question I was just wondering on from fire and Crohns disease. At this point kind of how youre thinking about market share capture in the indication and views on the competitive profile versus Sky Ritchie. Thank you.
Speaker Change: Sure. Thanks for the question on <unk>. So that's one that we remain really excited about so.
generation antibodies and we look forward to learning more about Frexalamaz clinical profile and MS and other indications in the future.
Speaker Change: I think with the recent update from Janssen.
Speaker Change: Where we were as part of our thesis when we added that to the portfolio and continue to be excited about the potential in IBD.
Thank you. Very helpful.
I show no further questions at this time. I would now like to turn the call back to Pablo for closing remarks.
Speaker Change: Data so far that we've seen.
Speaker Change: <unk> looks very compelling and competitive and just as important in this space.
Sure, operator, thank you. And I think maybe just before we wrap up today, one of the things that I just wanted to highlight for all of you listening, our shareholders and analysts, is that we actually had this great deal announced today
Speaker Change: As data is the is the strength of the strength of the marketer and the scale of their platform behind it and so we're really happy to have this product in the hands of J&J who is.
Speaker Change: One of the biggest marketers in this space and we think we'll be able to maximize the value of shrimp.
is again a demonstration of her royalty firm has been able to
consistently identify really attractive potential blockbusters marketed by super strong companies.
Speaker Change: In IBD in the IL, 23 class, which is attractive and growing really nicely.
Speaker Change: Please standby for the next question.
And we have this slide that really shows have we been able to consistently make investments in the most exciting new drugs in sort of every wave of innovation. And the other thing that we've done today is really spent time talking about this incredible pipeline that we have in unapproved products.
UBS: The next question comes from <unk> <unk> with UBS. Your line is open.
Speaker Change: Yeah.
UBS: Hi, Good morning, this is <unk>.
UBS: On behalf of Ash, Thanks for taking our question.
Ash: We have one four off the map.
Speaker Change: CD 40.
that we've sort of assembled over, you know, sort of a decade or so or five years of investing and really try to highlight the very significant potential that Royalty Farma has in all of this unapproved product that will over the next, you know, two, three years, you know, progress and, you know, result in, you know, attractive events as data, we have data readouts and then approvals. And I think, as I said, it's sort of an underappreciated part of royalty pharma that we're very, very excited about.
Ash: With the above Bally Keybanc.
Ash: I understand from your perspective like Blackstone May now have to you soon.
Ash: Sanofi provided you any stayed out the out but we're still in the phase two that can feel like somehow makes sense.
Speaker Change: Yes. Thanks.
Speaker Change: Sure Marshall why don't you take.
Marshall: Yeah no. Good question on the history of <unk>.
Marshall: These of these antibody so.
Marshall: As you might imagine that history was something we looked at closely in the diligence and the team did a really good job.
Ash: In terms of the diligence process, where we are.
Ash: Also had the luxury and the benefit of working with of working with the immune X team, who did a lot of the work to generate fracs allomap with all of the learnings from the.
So with that, you know, I'd like to thank everyone on the call for your continued interest in Royalty Pharma. And again, if you have any follow-up questions, please feel free to reach out to George Grofick and his team. But thank you, everyone.
This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Thank you very helpful.
Speaker Change: I show no further questions at this time I would now like to turn the call back to Pablo for closing remarks.
Pablo: Sure I'll better thank you.
Pablo: I think maybe just before.
Pablo: Before we wrap up today, one of the things that I just wanted to highlight for all of you listening are shareholders. An analyst is that you know we actually had this great deal announced today that.
Pablo: Is again, a demonstration of a royalty department has been able to consistently identify really attractive potential blockbusters marketed by Superstrong companies you know.
Pablo: We have the slide that really shows have we been able to consistently you know make investments and the most exciting new drugs and sort of every wave of innovation and the other thing that we've done today is really spend time talking about this incredible pipeline that we have an unapproved correct.
Pablo: <unk> you know, we sort of assembled over you know sort of a decade or so or five years of investing and really try to highlight the very significant potential that royalty from my has and all of this unapproved products that will over the next you know two or three years.
Pablo: You know progress and you know resolved and you know attractive events as as data we have data Readouts and then approvals and I think as I said, it's sort of an under appreciated part of a royalty primer that we're very very excited about uhm so with that.
Speaker Change: You know I'd like to thank everyone on the call for your continued interest in royalty farmer and again, if you have any follow up questions. Please feel free to reach out to George <unk> grow up again his team, but thank you everyone.
Pablo: Yes.
Speaker Change: Conference call. Thank you for your participation you may know just connect.
Speaker Change: Mmm Mmm mmm.
Pablo: [music].
Pablo: [music].
Pablo: [music].
Pablo: Okay.