Royalty Pharma plc Q4 FY2025 earnings call

Key Points

• 2025 was a landmark year with strong double-digit growth in portfolio and royalty receipts, and the company raised guidance three times, delivering results above the top end of the most recent update.
• Internalization of the external manager brought benefits like improved alignment, governance, and cost reduction.
• $4.7 billion of transactions were announced in 2025, with $2.6 billion deployed and $1.7 billion returned to shareholders.
• Multiple positive clinical and regulatory updates across the portfolio, including FDA approval of Mycorso and positive Phase III results on TERNFIA.
• 2025 was the first year synthetic royalties exceeded existing royalties in committed capital, with 4 synthetic deals totaling over $2 billion.
• The biopharma market reached $10 billion in announced transaction value for the first time in 2025, showing strong growth trajectory.
• Achieved compounded annual portfolio receipts growth of 13% within the target range, and reached the five-year capital deployment target of $10 billion to $12 billion one year ahead of schedule.

Royalty receipts grew by 13% for the year, and portfolio receipts grew by 16%. Return on invested capital was 15.8% and return on invested equity was 22.8% for the year. In 2025, $2.6 billion was deployed in capital, and $1.7 billion was returned to shareholders through share repurchases and dividends. Royalty receipts, considered recurring cash inflows, saw strong performance from products like Voronego, Trelegy, Tremfya, and the cystic fibrosis franchise. Portfolio receipts grew at the high end of the guidance range of 14% to 16%.

2026 Guidance

• Expect portfolio receipts to be in the range of $3.275 billion to $3.425 billion, implying growth in royalty receipts of around 3% to 8%.
• Payments for operating and professional costs are expected to be in the range of 5% to 6.5% of portfolio receipts in 2026, a significant reduction from 8.9% in 2025.
• Interest paid is expected to be around $350 million to $360 million in 2026, with the year-over-year increase due to interest payments on the $2 billion in notes issued in September 2025.
• Equity performance awards are expected to be approximately $85 million in 2026.

Risks

• Uncertainties in clinical trial outcomes that could impact the value of the development stage pipeline.
• Market conditions affecting the attractiveness of royalty transactions.
• Potential impact of exclusivity loss for certain products, such as the loss of exclusivity for Promacta.
• Regulatory uncertainties that could affect the approval and commercialization of products.

Q: Geoffrey Meacham asked about the sustainability of dividends and buybacks in 2026 and the deployment mix evolution, and if royalty could get more involved in privates or crossovers.

A: Terrance Coyne said the dynamic capital allocation framework considers relative attractiveness of royalty opportunities vs. stock price, and they'll continue to return capital to shareholders while prioritizing royalties. Christopher Hite mentioned they're focused on high-quality pharmaceutical products and hunt for such assets wherever they are.

Q: Michael Nedelcovych asked about Alephrek's end market performance and views on general medicine and cardiometabolic disease drug delivery formats.

A: Terrance Coyne said Alistair's conversion has been gradual but steady, and CF franchise is expected to remain a key contributor. Marshall Urist said they're excited about general medicine markets, see diversity in drug delivery options, and will approach opportunities with discipline and patience.

Q: Terence Flynn asked about synthetic royalties exceeding traditional royalties in 2025 and the likelihood of success for LP trials.

A: Christopher Hite said synthetic royalty market is growing with increased awareness, and they maintain discipline in investing in high-quality opportunities. Marshall Urist said the LP trial timing shift isn't surprising, and they're eagerly awaiting results.

Q: Asad Haider asked about underappreciated assets in the portfolio and China opportunities.

A: Marshall Urist highlighted the diversity and potential of the development stage pipeline, and Christopher Hite mentioned China opportunity with increasing in-licensing deals and plans to expand team in China.

Q: Christopher Schott asked about the attraction of Teva's asset and Verengio's growth.

A: Marshall Urist said Teva's asset was attractive due to unmet need and creative structure, and Verengio is performing well with strong launch and potential for blockbuster status.

Q: Ashwani Verma asked about Mycorzo's non-obstructive HCM study and operating costs.

A: Marshall Urist said they're excited about Mycorzo's commercialization, and Terrance Coyne said operating costs run rate reflects savings from internalization.

Q: Umer Raffat (Mikey Furey) asked about J&J's IL-23 icotide and Trelegy's contribution.

A: Marshall Urist said J&J's IL-23 icotide is market expanding, and Trelegy's growth is expected to continue despite GSK's actions.

Q: Jason Gerberry (Tina Ramadan) asked about China deal structures and LP trial effect size.

A: Pablo Legorreta said China deals follow same diligence process, and Marshall Urist said effect size matters in the LP trial and will be discussed based on data.