Royalty Pharma Plc Q3 FY2024 earnings call

• Pablo reported 15% growth in Portfolio and Royalty Receipts, with continued business momentum. - Marshall discussed recent royalty transactions like the $350 million deal with Syndax for Niktimvo, and other transactions totaling around $300 million, highlighting unmet patient needs and attractive returns. - Chris explained the appeal of synthetic royalties as a nondilutive funding solution, noting they pioneered this and it's an increasingly important funding modality, with synthetic royalty transactions totaling $775 million in 2023 and $800 million in 2024. - Terry reviewed financials, noting Portfolio Receipts grew 15% to $735 million, operating and professional costs at 7.5% of Portfolio Receipts, portfolio cash flow at $617 million, and $950 million in cash and equivalents at the end of the third quarter. Capital deployment for the year was approximately $2.6 billion, with $180 million spent on share buybacks through 9 months of 2024.

Royalty Pharma delivered 15% growth in both Portfolio Receipts and Royalty Receipts in the third quarter. Royalty receipts represent recurring cash inflows driven by a high-quality portfolio of over 35 commercial products. Year-to-date, capital deployment stood at approximately $2.6 billion, and $95 million of shares were repurchased in the quarter. Recent acquisitions include royalties on 3 novel therapies, with synthetic royalty transactions being a key area of focus.

• Raised full year 2024 guidance for Portfolio Receipts to between $2.75 billion and $2.8 billion. - Expected Royalty Receipts growth of around 11% to 13%, up from previous guidance of 9% to 12%. - Guidance is based on current portfolio and does not include future transactions. - Key drivers of growth include the diversified portfolio's performance, with strong underlying Royalty Receipts growth expected.

• Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. - Referred to the most recent 10-Q on file with the SEC for a description of risks. - Risks related to market conditions, competition, and regulatory changes affecting the biopharma royalty market.

Q: Just wondering on the recent Cobenfy/KarXT label, avoided the kind of the typical black box that you see with kind of other antipsychotics. And I'm just wondering, how does that compare to your base case scenario?

A: Marshall Urist responded that they were happy with the Cobenfy approval, saw the label as great, and it's a new part of the portfolio, with Bristol able to maximize its benefit for patients and commercial value.

Q: Terry, when I look at the growth in the CF business, it's moderated a bit over the past few years, and that could continue going forward or perhaps even get worse. So the question is, does this change the urgency that you guys have for newer deals or how you look at the magnitude of newer investments? I wasn't sure if the CF contribution had any impact on your thinking there. And second question for Marshall, I guess. When you look at the -- some of the more rapid high-impact launches past couple of years, like I'm thinking about COVID or GLP-1s, the commercial piece for those categories came together pretty quickly. Has your process or sort of your filter evolved to capture more of these types of opportunities that could inflect faster? Or is it -- has it changed at all?

A: Terry Coyne responded that CF has been a great contributor but still has nice growth ahead, and they'll continue with their consistent approach of identifying great assets. Pablo Legorreta added on the diversification and unique double-digit growth. Terry also said the process of thinking about ramp and launch shape hasn't changed as it's always been fundamental to their process.

Q: A quick question on Niktimvo. Maybe could you outline the expected timeline for U.S. market penetration and ramp to peak sales following its early 2025 launch? As well as any thoughts on how we should think about its probability of success in IPF?

A: Marshall Urist said they were hopeful about Niktimvo's launch with material demand, had insight from the market, and IPF was still early with mechanistic reasons to be hopeful but in early Phase II trial.

Q: Great. I know you guys aren't going to provide guidance yet for '25. But maybe, Terry, if you could just talk high level about some of the puts and takes here? And then, Chris, maybe just how you think about the deal environment shaping up for 2025? And any implications from the election here as you think about your business model on the forward?

A: Terry Coyne said it was premature to talk much about 2025, but they feel good about the portfolio. Chris Hite said they see an ever-increasing opportunity in the deal environment, with demand for capital in biopharma immense, and it's too soon to tell on election implications but they've shown ability to invest regardless of administration.

Q: I have two. My first relates to Cobenfy. I'm curious if you have an expectation for the upcoming emraclidine readout from AbbVie. And if that agent ends up showing a clinical profile similar to Cobenfy, would you view that as a competitive threat or more of a rising-tide-lifts-all-boats type scenario? And then my second question is on Tremfya in UC. In remodeling, do you assume significant uptake in frontline UC? Or do you think that Tremfya will primarily compete in sort of second- or third-line biologics space?

A: Marshall Urist responded that they thought about competition in the sector, expecting multiple members, and saw it as a good thing for the market. On Tremfya, they thought it had a great combination and saw a significant opportunity in IBD but it was hard to generalize on first vs second/third line.

Q: With the synthetic royalties and the opportunities that you announced, particularly with Syndax, and then juxtaposing this against the fact that historically, you've been able to adapt some of the deal structures and expand upon relationships; can you just educate us a little bit in terms of some of the parameters that were set up here, in particular, the 2.35x cap? And how that is defined in the context of potential additional opportunities for Niktimvo? And is it structured in a way that lets you to continue to specifically adopt the opportunity with Niktimvo? Or if you were to go back essentially to Syndax and do another deal, would it have to be for another product?

A: Chris Hite responded that synthetic royalty transactions are tailored to create win-win situations, with many repeat deals with existing partners, and the 2.35 cap is specific to the Syndax deal, but every deal is different.

Q: Just going back to Niktimvo, what are your thoughts on the IV administration and whether that becomes a bottleneck for adoption? All these GvHD patients develop the disease effectively more than 100 days after the transplant. So majority of these patients don't necessarily need to visit the hospital. So do you think that the deep penetration of orals will be an impediment for Niktimvo adoption?

A: Marshall Urist responded that they thought about IV administration, reflected in their forecast, but saw significant unmet patient need for those who had failed other therapies, and were excited about the commercial opportunity despite IV administration.