Q4 2024 Royalty Pharma PLC Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the royalty pharma fourth quarter earnings Conference call I would like now to turn the conference over to George.
Speaker Change: Senior Vice President head of Investor Relations and Communications. Please go ahead Sir.
Speaker Change: Good morning, and good afternoon to everyone on the call. Thank you for joining us to review all departments of the fourth quarter and full year 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 royalty pharma dotcom.
Speaker Change: 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.
Speaker Change: For you to our most recent 10-Q on file with the <unk>.
Speaker Change: For a description of these risks.
Speaker Change: 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.
Speaker Change: non-GAAP liquidity measures will be used to help you understand our financial results.
Speaker Change: A reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website.
Pablo Arezzo: And with that please advance to slide four our speakers on the call today are Pablo like Arezzo, founder and Chief Executive Officer, Chris White, EVP Vice Chairman.
Terry Cohen: Marshall Europe, EVP head of research and investment and Terry Cohen, EVP Chief Financial Officer.
Marshall Europe: Pablo will discuss key highlights afterwards, and Marshall will provide an update on our transaction pipeline and portfolio.
Marshall Europe: He will then review the financial and finally, concluding remarks from Pablo we will hold a Q&A session.
Speaker Change: And with that I'd like to turn the call over to Pablo.
Pablo Arezzo: Thank you George and welcome to everyone on the call and it gives me great pleasure to report another successful year of execution against our threat that the leading thunder of interventional and life Sciences.
Pablo Arezzo: Moving to slide six we're very proud of our achievements in 2024, we again delivered excellent financial performance and significantly enhanced our portfolio.
Pablo Arezzo: On capital deployment.
Pablo Arezzo: Because every quarter for lowering our.
Pablo Arezzo: Our topline of $2 8 billion for the year.
Pablo Arezzo: At the high end of our guidance range.
Pablo Arezzo: In underlying terms.
Pablo Arezzo: Presents growth.
Pablo Arezzo: 13%.
Pablo Arezzo: To receipts and continues our track record of strong performance since our IPO.
Pablo Arezzo: I should also point out that our 13% growth significantly exceeded our initial guidance of 5% to 9%.
Pablo Arezzo: 2025, we expect important point of receipts of two nine to 305 billion.
Pablo Arezzo: In terms of our portfolio, we added royalties on eight new therapies, including four development stage therapies you.
Pablo Arezzo: We saw positive news across our portfolio, including FDA approval of Remy go for brain cancer, Kabam, <unk> for schizophrenia and from fire hurdles rental Carolinas.
Pablo Arezzo: And FDA acceptance of the NDA for center Kinetics Africa, Captain for obstructive hypertrophic cardiomyopathy.
Pablo Arezzo: In terms of capital allocation, we got a very attractive year for royalty transactions and we deployed capital of $2 8 billion to further broaden our portfolio as well as 230 million on share repurchases.
Pablo Arezzo: Last month, we announced an evolution in our capital allocation framework, and which in which we will scale our buybacks depending on the desk and go buy shares.
Share price to intrinsic value.
Pablo Arezzo: As part of this our board authorized a new 3 billion border share repurchase plan and our intention is to repurchase $2 billion in 2025.
Pablo Arezzo: In the past month, we also generated over half a billion dollars in cash by monetizing the more focused development funding bonds, which will we will be deployed.
Pablo Arezzo: Lastly at the start of 2025.
Pablo Arezzo: 20th transformative step in the evolution of bridal departments with our planned acquisition of our external manager to become an integrated company we.
Pablo Arezzo: We expect multiple strategic and financial benefits from this highly compelling internalization transaction, which we anticipate will close in the second quarter of this year.
Pablo Arezzo: Moving to slide seven.
Speaker Change: Highlights the journey, we have been on since I started the business in 1996 from our closed end funds to an ongoing business, but with an indefinite life then moving through an expansion of our investment scope to our IPO in June of 2020 last month's announcement of the internalization of the manager is the logical next step.
Pablo Arezzo: Our evolution and best position <unk> for future growth and shareholder value creation.
Pablo Arezzo: Slide eight gives more background a royalty from its current structure.
Pablo Arezzo: He has been exciting managed since its creation in 1996 under this structure, which is common among alternative asset managers royalty pharma owns its unique industry, leading portfolio of more than 35 approved product and 14th development stage therapies.
Which include 15 blockbuster therapies.
Pablo Arezzo: It has no employees and fat and pays a management fee of six 5% of our portfolio receipts as top line. So the manager which in turn provides the platform.
Pablo Arezzo: Following the internalization the intellectual capital will transfer entirely to royalty pharma and the company will integrate with your employees and scaled investment platform into one entity.
Pablo Arezzo: Importantly, now that rail terminal will own the unique engine that drives future investment, we believe that way of the preference shares.
Pablo Arezzo: Should reflect the value of the world class investment platform on top of the value of our one time one of our current portfolio of royalties on deepened biopharmaceutical products.
Pablo Arezzo: Slide nine.
Pablo Arezzo: Provides more detail on the multiple benefits for shareholders from the Internet penetration.
Pablo Arezzo: Financially, we expect cost savings.
From extinguishing the management fee.
Pablo Arezzo: Accumulate over time and 2026, we expect savings of over $100 million, although a nice tight over the next 10 years cumulative savings are expected to be greater than one 6 billion. This compares the total consideration of $1 1 billion.
Pablo Arezzo: In addition by ending the management fee. The net returns on royalty investments will increase for our shareholders.
Pablo Arezzo: Exactly there are many important benefits first management and shareholder alignment will be substantially strengthened given.
Pablo Arezzo: Given the majority of the consideration will be paid in stock vesting.
Pablo Arezzo: Five.
Pablo Arezzo: Five years to nine years.
Pablo Arezzo: Second with all employees transferring to royalty pharma. This ensures continuity of personnel and operations with a long term equity vesting to maximize retention.
Pablo Arezzo: Third it enhances our commitment to robust governance practices lastly, simplification will increase comparability, our biopharma to other companies and enhanced transparency.
Pablo Arezzo: This transaction is highly compelling for shareholders and further strengthens our prospects for long term value creation and success.
Chris: With that I will hand, it over to Chris.
Chris: Thanks Pablo.
Chris: To give a brief update on our transaction pipeline and the tremendous opportunity set ahead of us.
Chris: Slide 11 shows our transaction funnel.
Chris: In 2024 are reviewing more than 440 potential royalty transactions.
Chris: It was a record for us.
Chris: The increase of around 10% versus the prior year.
Chris: It speaks to the strong secular tailwind driving demand for royalty financing as well as our competitive moats as the clear market leader.
Chris: We then move down the funnel. These initial reviews resulted in 153 confidentiality agreement signed.
Chris: <unk> 99 in depth reviews, and 42 proposals submitted.
Chris: We continue to be disciplined and highly selective in our approach as we executed only eight transactions or just 2% of our initial reviews.
Chris: For a total transaction value of $2 8 billion.
Chris: You can see on this slide the eight potential new therapies on which we will receive royalties, which are nicely balanced between approved development stage therapies.
Chris: Many of these have blockbuster or even multi blockbuster potential.
Slide 12 provides an update on one of the fastest growing part of our opportunity set namely synthetic royalties.
Chris: This innovative solution involves creating new royalties at the non dilutive funding solutions for our partners.
Chris: There are many reasons why this represents a true win win approach for our partners.
Chris: It allows us to tailor our solution to meet their needs.
Chris: Provides independent validation of the asset.
Chris: And it allows the partner to retain operational control.
Chris: It aligns our long term interests and lastly, we can add value through our proprietary analytics.
Chris: Biopharma funding has historically been dominated by equity licensing deals and that.
Chris: Synthetic royalties have represented less than 5% of overall funding.
Chris: We are confident this proportion will increase based on our ongoing partnership discussions which revealed that synthetic royalties.
Chris: Being routinely discussed at the board level and C suite is an important funding modality.
Chris: Consistent with this growing opportunity we see.
Chris: <unk> a record record year for our synthetic royalty transactions of $925 million in 2024.
Chris: This figure has more than doubled since 2020.
Chris: With the advantages I described and the huge funding requirements for life Sciences innovation.
Chris: We see tremendous scope for further growth in synthetic royalty funding.
Marshall Europe: That all ended over to Marshall.
Marshall Europe: Thanks, Chris I wanted to focus today on an exciting group of five products from recent royalty transactions that are launching this year and will contribute to royalty pharma as growth in 2025 and beyond.
Marshall Europe: Slide 14 summarizes these five launching therapies, what stands out as theyre novelty being either first or best in class and covering a diversity of diseases and technologies.
Marshall Europe: Your scores are well honed therapeutic area agnostic approach that focuses on transformational science and patient need.
Marshall Europe: Touching on each of these we see a large an underappreciated royalty opportunity from for an ego in brain cancer based on our double digit royalty potentially exceeding $150 million in annual royalty receipts.
Marshall Europe: <unk> launch is tracking well and we are excited to see additional progress in 2025.
Marshall Europe: You are probably well aware of Cove empty Bristol's new treatment for schizophrenia consensus estimates point to significant sales potential which would generate as much as $100 million in peak royalties.
Marshall Europe: <unk> and <unk> yogurt path are off to a good start and Nick Tim both launch is now underway.
Marshall Europe: Putting all of this together total consensus peak sales forecast for the spine therapies and the amount to over $10 billion.
Marshall Europe: Which would add over $130 million to annual portfolio receipts after applying neuroprotective royalty rates.
Marshall Europe: <unk> revenue contribution from just one year of new investment activity is clearly very meaningful in the context of our 2024 portfolio receipts of $2 8 billion.
Marshall Europe: Furthermore, when you layer these launches on top of our development stage pipeline of 2014 therapies.
Marshall Europe: If I base that portfolio receipts and the market opportunity that Chris highlighted you can see why we feel confident that we will continue to generate strong returns and growth and with that I'll hand, it over to Gerry.
Gerry: Thanks, Marshall, let's move to slide 16.
Gerry: This slide shows how our efficient business model will generate substantial cash flow to be reinvested.
Gerry: Royalty receipts grew by 12% in the fourth quarter and 13% for the year, reflecting the strength of our diversified portfolio.
Gerry: Key drivers for the strong performance of risky cystic fibrosis franchise trilogy, Sandy insurance by them.
Gerry: The decrease for the year in portfolio receipts, our topline primarily reflected onetime bio <unk> related milestone payments received in 2023.
Gerry: As we move down the column.
Gerry: Operating and professional cost equated to nine 8% of portfolio receipts in the fourth quarter and eight 4% for the year consistent with our guidance.
Gerry: Net interest in the fourth quarter was de Minimis, reflecting the timing of our interest payments in the first and third quarters.
Speaker Change: Net interest paid was $113 million.
Speaker Change: You should note that this did not reflect interest on the $1 5 billion of incremental debt that we raised this past summer.
Speaker Change: The first interest payments from those new tranches expected in the first quarter of 2025.
Speaker Change: Moving further down the column, we've consistently stated that when we think of the cash generated by the business to then be redeployed into value enhancing royalties.
Speaker Change: Look to portfolio cash flow, which is adjusted EBITDA less net interest paid.
Speaker Change: This amounted to $678 million in the quarter.
Speaker Change: I went to a margin of 91%.
Speaker Change: The full year based basis portfolio cash flow was $2 $45 billion.
Speaker Change: Margin of just under 88%.
Speaker Change: This high level of cash conversion once again underscores the efficiency of our business model.
Speaker Change: Capital deployment in the third quarter was $552 million, taking our total for the year to approximately $2 8 billion.
Speaker Change: Slide 17 shows that our unique business model is powered strong royalty receipts cribs since our IPO.
Speaker Change: We delivered double digit growth in three of the four years since our IPO with an average annual growth over the period of 12%.
Speaker Change: We are particularly particularly proud of this track record of consistent strong growth.
Speaker Change: Slide 18 provides more detail on the evolution of our topline in 2024.
Speaker Change: As I highlighted earlier significant fire related payments in 2023 impacted year over year comparisons portfolio receipts our topline.
Speaker Change: Royalty receipts.
Speaker Change: We consider our recurring cash inflows grew by 13%.
Speaker Change: Well ahead of our initial guidance of around 5% to 9%.
Speaker Change: Importantly, as you can see on this slide strong base business performance, but the primary driver of our royalty receipts performance in 2024.
Speaker Change: Slide 19 shows that we continue to maintain significant financial capacity to execute our strategy through a combination of cash on our balance sheet.
Speaker Change: Cash our business generates an access to the debt markets.
Speaker Change: At the end of the year, we had cash and equivalents of $929 million.
Speaker Change: They also include the proceeds from the more posted development funding bonds in January.
Speaker Change: Cash and equivalents stood at just over $1 $4 billion on a pro forma basis.
Speaker Change: On the Morphosis development funding bonds, we received proceeds of $511 million on the sale, which results in an IRR on that investment of approximately 25%.
Speaker Change: In terms of our borrowing position in investment grade debt outstanding of $7 8 billion.
Speaker Change: Our leverage leverage now stands around three times total debt to EBITDA.
Speaker Change: We also have undrawn financial capacity from a $1 $8 billion revolver.
Speaker Change: We continue to take advantage of a fundamental disconnect in our share price and repurchased $50 million of our shares in the fourth quarter, taking our total spend on buybacks to $230 million during 2024.
Speaker Change: As a reminder.
Speaker Change: We announced a $3 billion share repurchase authorization on January 10.
Speaker Change: We'll provide an update on our progress on that new authorization on our first quarter earnings call.
Speaker Change: Slide 20 lays out our capital allocation framework.
Speaker Change: We have a dynamic framework, which balances our view of the share price valuation against the attractiveness of royalty deals.
Speaker Change: And our share price is trading at a discount to its intrinsic value share buybacks will be an important part of our capital allocation.
Speaker Change: Firstly on our shares approach a premium to intrinsic value you would plan to dialed back our share repurchases and focus on higher returning royalty deals.
Speaker Change: And the environment, where neither attractive royalty deals or share repurchases are available we have other options available for our cash including growing cash wait for the right deals.
Speaker Change: I mean down debt or increasing dividend distributions.
Ultimately, we are focused on driving shareholder value through allocating capital as efficiently and effectively as possible.
Speaker Change: Today, we believe we're operating in the upper left quadrant, where we see many attractive royalty opportunities in a discount to the intrinsic value of our stock.
Speaker Change: For this reason, we announced a new $3 billion share repurchase program last month.
Speaker Change: The intention to repurchase up to $2 billion of shares in 2025, depending on the level of discount to intrinsic value.
Speaker Change: Slide 21 provides more granular detail on the evolution of our balanced capital allocation framework to drive shareholder returns.
Speaker Change: We expect to maintain significant financial capacity to execute royalty deals in 2025.
Speaker Change: Consistent with our guidance of between two and $2 $5 billion of capital deployment per year on average.
Speaker Change: We are maintaining our investment target returns, but also note that irr's have trended higher in recent years.
Speaker Change: We also maintain a strong commitment to an investment grade credit rating.
Speaker Change: Lastly, there's no change to our dividend policy, which is to grow by a mid single digit percentage annually.
Speaker Change: Slide 22 provides our full year 2025 financial guidance.
Speaker Change: In fact portfolio received to be in the range of $2.
Speaker Change: 9% to $3, <unk> $5 billion, which equates to growth of around 4% to 9%.
Speaker Change: This guidance reflects the momentum of our diversified portfolio.
Speaker Change: It also takes into account a range of scenarios that launching a lift track the new vertex triple as well as for Promacta generics.
Speaker Change: Similar tysabri and the impact of Medicare part D redesign.
Speaker Change: Milestones and other contractual receipts are expected to increase from $31 million in 2024 to.
Speaker Change: So approximately $60 million in 2025.
Speaker Change: $511 million upfront for monetization of the Morpheus It development funding bonds.
Speaker Change: Not be recorded portfolio receipts and will instead be treated as an asset sale.
Speaker Change: Importantly, and consistent with our standard practice. This guidance is based on our portfolio as of today.
Speaker Change: It does not take into account the benefit of any future royalty acquisition.
Speaker Change: You'll also note that our topline would have been approximately $150 million higher in 2025.
Speaker Change: The long term payments related to bio related to bio Nathan and morphosis had not been accelerated which increased the irr's on both of those investments.
Speaker Change: Turning to operating costs payments for operating and professional costs are expected to be approximately 10% of portfolio receipts in 2025.
Speaker Change: Collecting the efficiency of our business model.
Speaker Change: This figure takes into account one time expenses related to the post this development funding bond sale to <unk>.
Speaker Change: Increased.
Speaker Change: Operating professional caused by around one percentage point.
Speaker Change: Furthermore, our guidance does not take into account the benefits of the internalization transaction, we will provide an update after it closes.
Speaker Change: Interest paid in 2025 is expected to be around $260 million minimus amounts due in Q2 and Q4.
Speaker Change: Year over year increase reflects interest payments on our one $5 billion of notes issued in June of 2024 for which the first payment.
Speaker Change: Paid in the first quarter.
Speaker Change: This guidance does not take into account interest received on our cash balance was $9 million in the fourth quarter of 2024.
Speaker Change: $46 million for the full year.
Speaker Change: And also does not reflect the additional interest.
Speaker Change: Interest expense, which will follow the internalization transaction.
Speaker Change: As a final consideration.
While share repurchase, which will clearly increase our average share count in 2025, there will be a slight offset from the issuance of equity performance Award.
Speaker Change: Which is our long term incentive compensation program.
Speaker Change: Which reflects the success of our investments in 2000 22021.
We expect equity performance awards to be approximately $45 million in 2025.
Speaker Change: Approximately half of that value reflected in share count over the course of the year.
Speaker Change: Close we expect to deliver another year of strong financial performance in 2025.
Speaker Change: We're excited by the opportunity accelerate shareholder value.
Speaker Change: Share repurchase program and the internalization transaction.
Pablo Arezzo: I would like to hand, the call back to Pablo.
Pablo Arezzo: Thanks Terry.
Speaker Change: Move to slide 24 for a summary of the key message as you have heard today.
Speaker Change: First we delivered strong performance with 30% growth in royalty receipts in 2024 during which we significantly.
Speaker Change: Mifid complete exceeded our initial guidance.
Speaker Change: We also deployed substantial capital of $2 8 billion as we acquired eight exciting new royalties, adding further diversification and long term growth.
Speaker Change: Second we continue to have a very attractive opportunity set we conducted initial reviews on over 440 potential royalty transactions.
Speaker Change: Record for radio Department.
Speaker Change: Which speaks both to the fast growing demand for royalty funding and two our continued leadership position. We did so in a very disciplined manner in order to drive strong returns, which have trended higher in recent years third we have started 2025 with two important steps.
Speaker Change: To further enhance shareholder value with our new 3 billion share repurchase program and our internalization transaction.
Speaker Change: Also considered.
Speaker Change: Confidence that royalty pharma is increasingly well positioned to deliver attractive compounding growth and to drive value for shareholders.
Speaker Change: With that we would be happy to take your questions.
Speaker Change: We will now open up the call to your questions. Operator. Please take the first question. Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced in to withdraw. Your question. Please press star one one again and the first question will come from Geoff Meacham with Citi. Your line is now.
Dan.
Geoff Meacham: Good morning, guys. Thanks for the question just.
Geoff Meacham: Just had a few Terry on the guidance I know you don't want to provide a point estimate, but maybe if you give us any additional detail on the lift truck assumptions.
Geoff Meacham: You are making for the year same on on Tysabri and I know morphosis isn't included but are there any milestones are assumed in the 25%.
Speaker Change: Portfolio received guidance and the second question more of a bigger picture for Pablo I know, we've seen a lot of new policies coming out.
Geoff Meacham: D C sort of fast and furious what would you say.
Geoff Meacham: There are risks to royalty from maybe a tax or IRR perspective, I wasn't sure. If you guys had engagement with the new administration are taking more of a a reactive stance. Thank you.
Jeff: Sure, Jeff so on the guidance.
Geoff Meacham: Yes, we haven't.
Geoff Meacham: Provided specific product by product guidance, that's not our normal practice I would just say for a lift.
Geoff Meacham: And Tysabri.
Geoff Meacham: As you can imagine we looked at a range at a range of scenarios for both of those.
Geoff Meacham: And.
Geoff Meacham: Continue to believe that they will be.
Geoff Meacham: The CF franchise will continue to be a very important contributor for.
Geoff Meacham: Royalty pharma 2025, and also over the long term and also we expect that Tysabri will continue to be a very important contributor to royalty pharma.
Geoff Meacham: But yes.
Geoff Meacham: As far as specific there we haven't given anything but looked at a range of scenarios.
Geoff Meacham: In terms of milestones of sand.
Geoff Meacham: Our 2025 guidance we assumed.
Geoff Meacham: $60 million or so of milestones have not.
Geoff Meacham: A particular, particularly.
Geoff Meacham: Large component of the portfolio received guidance for this year.
Geoff Meacham: And also excluding the.
Geoff Meacham: From a process right right, yes they.
Geoff Meacham: Sure.
Geoff Meacham: We did get a payment from our business in the first quarter is relatively small.
Geoff Meacham: But the large $511 million related to the sale of a more positive development funding bonds.
Geoff Meacham: It is not part of that guidance that was treated as an asset sale. So it's not going to show up.
Geoff Meacham: In our portfolio overseas.
Geoff Meacham: So with respect to your bigger picture question of the New administration and the initiatives.
Geoff Meacham: Related to health care.
Geoff Meacham: It's early days, Jeff we're following it very closely.
Geoff Meacham: In terms of your question regarding taxes, we don't foresee any impact or any change in the taxation of our business.
Geoff Meacham: Sure.
Geoff Meacham: The other thing I would say.
Geoff Meacham: We're fortunate to have on our board Taglock who's the chairman of Bayou, So I've been in discussions with them.
Geoff Meacham: In fact into what's going on and how the industry is reacting and another thing that we plan to just got much more involved.
Geoff Meacham: Through <unk> with.
Geoff Meacham: Industry under administration.
Geoff Meacham: You.
And our next question comes from Chris Schott with Jpmorgan. Your line is now open.
Chris Schott: Okay, great. Thanks, so much just two questions from me.
Speaker Change: Maybe some synthetic royalties can you just talk a little bit about how your returns on the synthetics have compared to maybe more traditional structures.
Speaker Change: To get a sense if the growth in this newer source of royalties is more about expanding the Tam and breadth of assets you can pursue or for you also think about higher returns here as well.
Speaker Change: And then my second question was was on the vertex royalty with the lift truck launch.
Speaker Change: Walk us through I know you.
Speaker Change: You can't provide too many details, but just how we should think of it the timing of the arbitration process and when the street might have more visibility on how the royalty situation is going to play out. Thank you.
Chris Schott: Sure. Thanks for the question So Chris why don't you take the question on synthetic royalties the scale of the opportunity tend to returns and then Terry can talk about vertex and.
Speaker Change: So it's a timing we expect.
Speaker Change: Yes, thanks for the question Chris.
Speaker Change: The synthetic royalty opportunity as we said.
Speaker Change: We had a record year last year.
Speaker Change: You saw the trends are very very positive.
Speaker Change: We've really seen just and I think we've talked about this a little bit, but we've really seen a mind shift in the sector.
Speaker Change: So when you think over the last five years are.
Speaker Change: The sector has really embraced alternative forms of capital.
Speaker Change: Namely synthetic royalties when they are considering raising capital to fund their business.
Speaker Change: As opposed to partnering with pharma or raising equity or debt capital, obviously, when youre partnering with pharma and Youre, giving up some operational control typically U S rights.
Speaker Change: So they find our capital and our partner us being a partner with them extremely attractive because they retain operational control maintain.
Speaker Change: Maintain the ability that continued marketing in the United States as an example.
Speaker Change: And we just create win win solutions for them.
Speaker Change: As evidenced by all the deals we did last year.
Speaker Change: And as it relates to returns we feel really good about the returns the return profile that we're able to achieve on those transactions.
Speaker Change: Obviously, we wouldn't be doing them, if we didn't like the returns and we highlight to them. The win win nature of those transactions all of the benefits I just mentioned as we.
Speaker Change: As we.
Speaker Change: I'll discuss our return profile. So we're really excited about it we are really excited about the returns and the opportunity set in front of us.
Chris Schott: And then Chris.
Speaker Change: On.
Speaker Change: Less track timing of arbitration so.
Speaker Change: To reiterate what we've said previously the continued strongly about this.
Speaker Change: Iterate and Kalydeco.
Speaker Change: The same thing as quiet it bill.
Speaker Change: And so we do feel very confident in that position in terms of.
Speaker Change: The timing of any potential arbitration, we don't have an update right now, but what we can say is that arbitration. Unlike.
Speaker Change: A typical court process.
Speaker Change: <unk> is not a long drawn out process.
Speaker Change: We can't really provide any specifics right now around timing.
Speaker Change: And our next question will come from Michael narrow Kovich with TV Cowen Your line is open.
Speaker Change: Thank you for the questions I have two my first is on guidance again going back at least 2022, I believe royalty pharma as year end performance and each year ended up outstripping. Your initial guidance by a healthy margin is it fair then to assume that the top line guidance for 2025 may be somewhat.
Speaker Change: <unk>.
Speaker Change: And my second question is on your screening process winnowing from 440 reviews to only eight transactions is very impressive.
Speaker Change: Would you say are the most common reasons that you do not pursue a given transaction.
Speaker Change: Sure Terry why don't you taking the question on guidance and then Marshall.
Speaker Change: One of the funnel and so thats the bulk of it.
Speaker Change: You are correct that historically, we have tended to outperform and I think that's just kind of the nature of the types of products that we invested in the portfolio.
Speaker Change: It's just early right now.
Speaker Change: We're just starting the year and so our range is a little bit wider as you can imagine.
Speaker Change: But we feel.
Speaker Change: There's a lot of great momentum in the portfolio, we're very confident about how things are going and hope that as the year evolves.
Speaker Change: We can be.
Speaker Change: Yes.
Speaker Change: Heading towards higher numbers, but.
Speaker Change: It's early days right now.
Speaker Change: And great. Thanks for your question on the funnel. So it's a good question.
Speaker Change: Disciplined debt that debt.
Speaker Change: That the funnel entail if there is something that is kind of absolutely core to our to our investment process. We never we never feel compelled to you any any single deal is really focusing on the quality of the product what's important to patients to strength of our partner is the clinical data the clinical profile.
Speaker Change: The commercial potential of the intellectual property so.
Speaker Change: I think if you looked at the top of the funnel and what.
Speaker Change: What what.
Speaker Change: With skinny down all of all of the all the opportunities that we look at.
Speaker Change: I do think it's probably spread pretty broadly across all of across all of those things that I just mentioned I think.
Speaker Change: I think stage of development is an important one.
Speaker Change: IP can be another important factor and then I think that the product profile either in terms of.
Speaker Change: If it's a development stage or a commercial stage product. So it really is across the board, but I think that discipline and that focus on only adding really high quality important products to the portfolio is sort of our north star and what will continue to guide our process. This year and beyond if I can just maybe very briefly.
Speaker Change: Just a couple of other prospectus on the investment process.
Speaker Change: Final.
Speaker Change: We have a practice here at royalty pharma that we felt for decades and this is what.
Speaker Change: Until the team.
Speaker Change: For a long time that we need to really look at everything.
Speaker Change: Out there are all opportunities that come to us and spend time with management teams.
Speaker Change: Learn.
Speaker Change: But their products.
Speaker Change: Technology, the science behind our products.
Speaker Change: And we do that because it gives us a really good perspective on how the whole ecosystem is developing what things are are.
Speaker Change: Potentially you are going to be really successful in 510 year from now so we look at everything there is many things that are early stage, but but looking at those things also allows us to when we listen to management and spend an hour to hour so hearing their stories.
Speaker Change: You had a perspective.
Speaker Change: On.
Speaker Change: What they planned to do and then sometimes we sell them. Its early we will meet in a year or two but having had the opportunity to hear thats already early on allows US then to actually.
Speaker Change: See whether management was able to deliver and do what they told US they were going to do so it's a very dynamic process and the breadth of it is also really important.
Speaker Change: And our next question comes from Chris Shoe Battani with Goldman Sachs. Your line is open.
Chris Schott: Great. Thank you very much I always appreciate this quarter with the funnel and if I go back to every slide every year over the past since the IPO theres been a subsequent slide that talks about the growth in your capacity through each of those stages and starting last year and also in this year that the highlight of <unk>.
Chris Schott: <unk> growth and initial reviews was removed numerically. It has increased from mid 200 to $303 5400 should we expect that pace of initial reviews to continue at this numeric level, though it is decelerating.
Speaker Change: And what are the constraints potentially to that and with regard to constraints. The second question would be can you talk to us about what your scope of access and exposure is globally industry. Certainly has been doing a lot more searching and partnering of assets in particular of late from China do you have.
Speaker Change: Print there any thoughts and should we look for you to perhaps become active or is that not an ecosystem that necessarily is embracing the royalty based approach. Thank you.
Marshall Europe: Marshalls should take the question on the <unk>.
Speaker Change: Funnel than initial reviews.
Speaker Change: Our business is global and we have been successful in investing globally for decades.
Speaker Change: Without having a physical presence in Europe, we were able to make.
Speaker Change: Great investments years ago for example than Humira.
Speaker Change: Transaction.
Speaker Change: Acquiring a royalty from Astrazeneca in Cabozantinib Electric Motors, we now have presence in Europe, not yet signed up but that doesn't mean that we're not looking at things in China.
Speaker Change: What we have done.
Speaker Change: Just travel and going to need companies that meet them when they come to the U S which has obviously.
Speaker Change: It happens all the time, so we do.
Speaker Change: If you look at the top Chinese.
Speaker Change: Biotech companies that are really developing of great technologies and licensing them to western companies, we've known them for.
Speaker Change: 10 years 15 years have got dialogues with them and.
Speaker Change: Keep in touch and I think we intend to actually increase our interactions are in China and plan to be there this year again.
Speaker Change: Marshall.
Chris Schott: Chris Thanks, and thanks for your question I think what you pointed out is exactly right I think our track record since the since the IPO and the growth in the number of opportunities.
Speaker Change: I think hopefully has convinced.
Vince: Vince everyone about what we saw when we went public which is we thought the opportunity for royalty based funding for alternative forms of capital and Biopharma was what was the big opportunity and something that we werent excited about capturing and I think.
Vince: I think how the number of things that we have looked at how the size of our market has scaled over the last five years. Since we went public has really proven that out. So I think that's the message from here I think we will continue to have a very very broad scope of opportunities to look at but the important thing.
Vince: Is that are we finding really impactful important products to add to the portfolio and I think when you look at what we did last year. That's a great example of exactly the kind of thing that we want to do every year, adding really attractive launching products as well as adding to our pipeline.
Vince: Of development stage products as well so.
Speaker Change: So that I think that that is how we see the world and I think we're really excited about the opportunity in front of us and as Pablo mentioned I think what we've seen in terms of the <unk>.
Speaker Change: Licensing and from from Chinese products is a great example of how the ecosystem continues to expand and as there are royalties being created in licensing deals from China to the multinational pharma companies that just adds another source of royalties for us in further expanding.
Chris Schott: The market opportunity. So we are really excited about the opportunity in front of us Chris maybe just adding it Kristen. We also another angle that is important.
Speaker Change: And here is that.
Speaker Change: As I said, our business is global and what really matters to be able to action.
Speaker Change: Uh huh.
Speaker Change: Take advantage of the very significant amount of opportunities that exist that are out there 400, plus things we looked at last year.
Speaker Change: As the size of our team and the scale of our team.
Speaker Change: I would say that.
Speaker Change: Royalty pharma has one of the largest.
Speaker Change: Investment teams in life Sciences and also.
Speaker Change: That is totally focused on specific way of making investments in life Sciences, obviously, if we go into <unk>.
Speaker Change: In equities.
Speaker Change: Thousands of biotech companies that are public.
Speaker Change: And that requires another skill set we have a very specific way of investing in the team we have.
Speaker Change: As large.
Speaker Change: Our global reach.
Speaker Change: That's another thing I wanted to convince them.
Speaker Change: Thank you.
Speaker Change: And our next question will come from Jason <unk> with Bank of America Securities. Your line is now open.
Speaker Change: Hi, Good morning. This is Dana on for Jason Thanks for taking our question.
Speaker Change: Two from US one on the impact of the IRI part D redesign.
Speaker Change: Do you view the redesign as material and are there any products. You believe are mis modeled by the street, how do you redesign elements impacting products at high part D exposure, such as Olanzapine Lai AI and then just a quick follow up on the sorry tax matter are you able to provide any color on your expectations.
That there will definitely be an official arbitration process versus the probability that there could be a more amicable resolution. Thank you.
Marshall Europe: Sure. So Marshall if you wanted to take the.
Speaker Change: Question on the impact of any array and maybe George can take the question on vertex.
Terry Cohen: Terry actually.
Terry Cohen: Great. So just quickly on IRA and Terry can add anything in terms of how we thought about it for for our guidance for 2025. So.
Terry Cohen: In a portfolio as broad as ours with some.
Terry Cohen: Some multi blockbuster is an important products we have in the portfolio.
Terry Cohen: Is something we are watching I think one of the important things you've highlighted overall is that when you take a step back and look at the portfolio.
Terry Cohen: The IRA exposure the initial part D exposure is actually pretty modest we've highlighted three products there improve our guide which was of course on the lift last year for price negotiation and then for this year extending and trilogy. So at completely as expected for us and I think beyond that in the portfolio we will.
Terry Cohen: <unk> to watch how this evolves and up and some of the positives in terms of.
Terry Cohen: Lower out of pocket exposure as well and how that is balanced against.
Terry Cohen: Against the more negative aspects from a revenue perspective, but it's something we're definitely continuing continuing to watch.
On a lift truck.
Terry Cohen: We can't we just can't get into any specifics around arbitration at this point and if there is.
Terry Cohen: <unk>.
Terry Cohen: Anything to update we will definitely update investors at that time.
Speaker Change: And our next question will come from Ash Verma with UBS. Your line is open.
Ash Verma: Hi, Thanks for taking my question and congrats on all the progress. So I had two questions. One is just on the guide for operating and proficient cost at 10% of the portfolio to see wanted to make sure. This does not reflect the internalization yet.
Speaker Change: And then the $100 million Jamie that you had mentioned previously is that versus the 10% level.
Ash Verma: Or are the prior 8% to $8 five <unk>.
Speaker Change: Before.
Speaker Change: And then as we take to the extent that you can comment.
Speaker Change: We'll just have to be resolved before the first store LDC becomes due at <unk> or can it go beyond that thank you.
Speaker Change: It's very one of the things that question sure. So.
Speaker Change: The 10% operating cost guidance does not reflect the internalization as we mentioned on our call on the internalization.
Speaker Change: We think that that number.
Speaker Change: Hi.
Speaker Change: Following the internalization would be around 4% to 5%. We continue to believe that would be the case so.
Speaker Change: What to think about for 2020, as an example, which would be the first full year post internalization.
Speaker Change: There is just a little tough because it's kind of it it's going to be.
Speaker Change: <unk> year.
Speaker Change: Pre and post internalization.
Speaker Change: The.
Speaker Change: And the savings the $100 million savings is reflected in that 4% to 5%.
Speaker Change: Number that I gave.
Speaker Change: In terms of electric again.
Speaker Change: Recognize that investors are <unk>.
Speaker Change: We're here to learn more about timing, we just can't provide any specifics at this time and we will update investors at the appropriate time, if there is an uptake.
Pablo Arezzo: I show no further questions in the queue at this time I would like to turn the call back over to Pablo for closing remarks.
Pablo Arezzo: Thank you operator, and thank you to everyone on the call for your continued interest and royalty pharma.
Pablo Arezzo: It sounds like maybe Dwayne.
Pablo Arezzo: We look forward to the closing of the internalization transaction in the next few months and then to update you on an exciting year ahead as we start to see the benefits of the internalization.
Speaker Change: Our share.
Pablo Arezzo: Share buyback.
Pablo Arezzo: Share repurchase program and then.
Pablo Arezzo: The continuation of our capital deployment, and some really exciting products.
Pablo Arezzo: And so if you have any follow up questions. Please feel free to reach out to George.
Pablo Arezzo: Thank you.
Pablo Arezzo: This concludes today's conference call. Thank you for participating you may now disconnect.
Pablo Arezzo: Okay.
Pablo Arezzo: [music].