Royalty Pharma plc Q3 FY2025 earnings call

Pablo's Remarks

• Highlighted strong business momentum with 11% growth in portfolio and royalty receipts. Raised full-year 2025 top line guidance to $3.2 billion to $3.25 billion. Expanded development-stage pipeline to 17 therapies.

Marshall's Remarks

• Discussed deal activity: $950 million upfront for Imdelltra, $310 million for Amvuttra, and $75 million upfront for obexelimab. Highlighted diverse disease areas and unlevered IRR expectations for each deal.

Chris's Remarks

• Updated on development-stage pipeline with 17 therapies, emphasizing Phase III investments with lower risk, synthetic royalty components, and broad disease area coverage. Mentioned 60+ disease areas invested in since 2020.

Terry's Remarks

• Reviewed financials: Portfolio cash flow (adjusted EBITDA less net interest paid) was $657 million in Q3. Capital deployment included upfronts for Imdelltra and obexelimab. Shared first quarterly update on portfolio returns, with return on invested capital and equity metrics.

In the third quarter, Royalty Pharma delivered 11% growth in portfolio receipts (top line) and royalty receipts (recurring cash flow). Return on invested capital was 15.7% and return on invested equity 22.9% for the last 12 months. Capital deployed $1 billion in the quarter, with $1.15 billion spent on share repurchases in the first 9 months. The company acquired royalties on Amgen's Imdelltra (up to $950 million), Zenas Biopharma's obexelimab (up to $300 million funding agreement), and Alnylam's Amvuttra ($310 million). The development-stage pipeline expanded to 17 therapies.

• Raised full-year 2025 portfolio receipts guidance to $3.2 billion to $3.25 billion, representing 14%-16% growth. Milestones and other contractual receipts expected at $125 million. Operating costs expected at 9%-9.5% of portfolio receipts. Anticipates minimal royalties from Promacta in 2026 and interest paid between $350 million to $360 million in 2026.

• Competition from other therapies (e.g., nucresiran for Amvuttra) impacting revenue projections. Potential impact of changing interest rate environments on deal valuations and capital deployment. Uncertainties in development-stage trial outcomes affecting royalty potential.

Q: Recently, there's an uptick in biotech M&A and lower interest rates. How does this impact Royalty-driven deal activity and target returns? Also, any updates on China strategy?

A: Christopher Hite stated increased M&A has little impact on Royalty's activity, sees it as beneficial for capital needs. On China, Royalty is excited about out-licensing from China to multinationals and has teams building relationships there.

Q: Thoughts on frequency of collaborations with large pharma as they head towards patent cycles?

A: Pablo Legorreta noted the growing mainstream use of royalties for funding, expecting more collaborations. Stated Royalty is very active with big pharmas discussing such funding.

Q: On IRR, does it change willingness to look at earlier programs or take bigger risks?

A: Pablo Legorreta and Terry Coyne noted that return metrics' fluctuations don't materially impact Royalty's behavior in evaluating transactions; they will pursue attractive transactions in approved or development products regardless.

Q: Color on Amvuttra competition from nucresiran and updates on obesity synthetic royalties?

A: Marshall Urist said Royalty considered broad scenarios for nucresiran's impact on Amvuttra, confident in low double-digit or better IRR. On obesity, Royalty is disciplined and waiting for the right differentiated product.

Q: Differences in 2020 Amvuttra deal vs. current deal? Thoughts on LP(a) study by Amgen?

A: Pablo Legorreta mentioned the 2020 deal was larger related to nucresiran, and this deal is a smaller royalty on Amvuttra. Marshall Urist stated Amgen's LP(a) study event rate slowdown doesn't change Royalty's view on probability of success for olpasiran.

Q: Impact of Horizon trial failing on olpasiran's prospects? Thoughts on obexelimab's MS data impact?

A: Marshall Urist said differences in trial design could differentiate olpasiran's outcome. On obexelimab, MS data validates the scientific approach, and Royalty is excited about obexelimab's potential beyond IgG4-related disease