Earnings Call: Q2 2021

Aug 10, 2021

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Second Quarter 2021 Earnings Conference Call. I would now like to turn the call over to George Grofik, SVP, 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 Pharma's 2nd quarter results. You can find the slides of this call on the Investors page of our website at royaltypharma.com. Moving to Slide 3, I would like to remind you that information presented in Call contains forward looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. I refer you to our 10 ks on file with the SEC for a description of these risks. With that, please advance to Slide 4. Our speakers on the call today are Pablo LaGuerrecha, Founder and Chief Executive Officer Jim Redick, EVP, Co Head of Research and Investments and Chief Scientific Officer Marshall Urest, EVP, Co Head of Research and Investments and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Jim and Marshall will provide an update on our royalty portfolio and acquisitions. Terry will then review the financials and after concluding remarks from Pablo, we will hold a Q and A session. Chris Hite, our Vice Chairman, will also join the Q and 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 that Royalty Pharma continued to execute very well against our strategy in the second quarter. We continue to deliver double digit bottom line growth despite losses of exclusivity. We maintained our strong deal momentum With year to date transactions announced of $2,800,000,000 and we completed an innovative bond issuance To strengthen our capital structure and expand our competitive advantage. Taken together, based on our strong business dynamics, We're again raising our guidance for adjusted cash receipts for full year 2021. On Slide 7, you can see our financials in a little more detail. In the 2nd quarter, We delivered 3% growth in adjusted cash receipts and 16% in adjusted cash flow, what we consider to be Our top and bottom line, respectively. The continued business momentum puts us in a great position to deliver another year A strong financial performance in 2021. As Terry will speak to when he discusses our raised guidance for the current year. Slide 8 takes a step back and sets out what we have achieved since our IPO in June 2020. I am particularly proud of this slide as it really speaks to the strength of our business model and our competitive position. In just over a year, we have announced $4,700,000,000 in royalty acquisitions across 9 transactions spanning 4 therapeutic categories and 17 therapies. Meanwhile, we have converted Our top line efficiency to cash with an 85% adjusted cash flow margin over the period And we have grown our bottom line by 25%. These milestones are a testament to our market leadership position In a rapidly growing royalty funding market and the innovative approach of our team. And as you will hear Through the course of this presentation, our prospects for sustained long term growth continue to be excellent. With that, I will hand over to Jim and Marshall to update you on our royalty portfolio. Thank you, Pablo, and hello, everyone. As shown on Slide 10, we have seen strong early progress of our recently acquired royalties. As noted on the last slide, We deployed about $4,700,000,000 in capital since our IPO. However, if we look a little further back to the beginning of 2020, Our capital deployment is around $5,300,000,000 The graphic on the right here shows the evolution in consensus sales forecast since we acquired each of the royalties. And while the products underlying our royalties do not need to outperform consensus to reach our targeted returns, we are very encouraged to see that consensus Has evolved positively for most of our recent royalty acquisitions with 4 therapies outperforming consensus estimates at the time of the deal And only one underperforming. While it is still early days for these deals, with many of the products expected to generate growing royalties well into the next decade, We are definitely encouraged by these trends. We believe this speaks to our ability at Royalty Pharma through our deep due diligence and unique competitive advantages to identify therapies that deliver important and potentially transformative benefits to patients. Slide 11 analyzes our royalty acquisitions by therapy area and type of royalty deal. Around 40% of the new These we added to our portfolio since the beginning of last year are for rare diseases with the balance divided between oncology, immunology and neurology. All are targeted at areas of high unmet patient need. And as a reminder, a strength of our business model is that we are Therapeutic category agnostic and we evaluate each opportunity on a case by case basis, so we can quickly pivot our focus to areas where breakthrough medical innovations are happening. And when we look at our royalty acquisitions by type, roughly 2 thirds have been Existing royalties and 1 third are newly created or synthetic royalties. Through our MorphoSys transaction, A significant portion of each category relates to enabling mid cap M and A where we see considerable opportunity for future deal flow. And with that, I'll hand it over to Marshall. Thank you, Jim, and good morning and afternoon to everyone. Let me just add that I'm really excited about the royalty acquisitions we have announced since our IPO and our team remains very busy in assessing new potential opportunities. I want to take a couple of minutes now to highlight the MorphoSys transaction and to discuss upcoming portfolio events. Slide 13 provides a summary of what was a highly customized transaction of up to $2,000,000,000 which enabled MorphoSys to acquire Constellation Pharmaceuticals. Pablo described this at the time as our biggest and boldest transaction since we went public. And I would echo this with my personal view that Royalty Pharma is Uniquely positioned with the technical, scientific and financial capabilities in place to deliver such a carefully tailored funding structure in what we believe is a true win win M and A deal. As a reminder, we paid $1,425,000,000 upfront to MorphoSys and purchased $100,000,000 of equity. Beyond this, we agreed to provide up to $150,000,000 in clinical, regulatory and commercial milestone payments and up to $350,000,000 in development funding bonds. In return, we will receive 6 cash flow streams With the cornerstone being the royalty on Tremfya, a leading immunology blockbuster marketed by Johnson and Johnson. On top of this, We added 4 attractive development stage opportunities to our royalty pipeline. We received royalty rights to otilumab, A novel approach to rheumatoid arthritis by targeting GM CSF under development in GSK. At a June investor event, we note that GSK provided an outlook For peak otilumab sales of between GBP 1,000,000,000 to GBP 2,000,000,000 on a non risk adjusted basis, with Phase 3 data expected towards the end of 2022. As a reminder, we acquired 80% of MorphoSys' tiered double digit royalty. We also received royalty rights on gantenerumab for Alzheimer's, which is in development at Roche. Since the deal was announced, Biogen's Aduhelm was approved by the FDA, indicating a potentially more favorable regulatory environment for Alzheimer's therapies, and we are cautiously optimistic that the upcoming gantenerumab Phase 3 data will support a best The opportunity is clearly significant and we like the upside potential this therapy offers in the context of the MorphoSys deal as well as our broader portfolio. As a reminder, we acquired 60% of MorphoSys' 5.5% to 7% royalty. We also created 2 synthetic royalties on oncology assets from Constellation, mainly collaborative for myelofibrosis and CP-two zero nine, which is being assessed in several oncology settings. Lastly, we are entitled to receive Stable fixed payments on the development funding bond. These fixed payments, which will generate a 2.2x multiple and roughly 13% unlevered IRR mitigate risk return profile of the deal. Our ability to execute such a complex transaction underscores the breadth of our funding capabilities and our unique role in M and A, which we see as a major business opportunity going forward. Slide 14 sets out the upcoming clinical and regulatory events that are expected over the next 12 to 18 months for our portfolio. Looking to the balance of 2021, we expect several important data readouts, including the Phase 3 results for AstraZeneca's PT027 in asthma, Biohaven's Phase twothree results for intranasal zavegepant in migraine and Gilead's pivotal results for Tridelby in HR positive breast cancer. When we look out into 2022, we have potentially very meaningful clinical trial readouts, particularly the Phase 3 results for gantenerumab in Alzheimer's, as well as Tremfya in ulcerative colitis and Crohn's and otilumab in rheumatoid arthritis among several others. Turning to regulatory decisions. In the past quarter, the FDA approved Tradelvia in urothelial cancer as well as the expansion of the ODT label to include migraine prevention and Trikafta in CF in 6 to 11 year olds. In summary, we're approaching a number of clinical regulatory milestones over the next 12 months to support the continued development of our portfolio. And if positive, many of these could add significantly to our long term outlook for adjusted cash With that, I will hand it over to Terry. Thanks, Marshall. Let's move to Slide 16. Total royalty receipts were slightly ahead of the year ago period consistent with the commentary we provided on our Q1 earnings call. Growth drivers in the quarter included our largest franchise, cystic fibrosis, together with payments from Biohaven and the addition of new royalties such as CABOMETYX. These positive factors were largely offset by a more than 50% decline in royalty receipts from the HIV franchise. As a reminder, our royalties are generally booked 1 quarter in arrear from actual performance and that many biopharma companies reported a softer Q1. These dynamics will largely reverse next quarter as you have seen in the recent reporting season. Slide 17 shows how our royalty receipts translated to strong adjusted cash flow in the 2nd quarter. As you're aware, adjusted cash receipts is a key non GAAP metric for us, which we arrive at after deducting non controlling interest. This amounted to $475,000,000 in the quarter, growth of 3% compared with last year's Q2, as Pablo noted earlier. The NCI line declined 9% as royalties from products with a larger NCI percentage like emtricitabine and Loteris have declined in 2021 due to loss of exclusivity. When we move from left to right, operating professional costs of $40,000,000 equated to 8% of adjusted cash receipts, representing a similar ratio to the Q1. Net interest was de minimis and reflected the fact that this Along with the Q4, we do not incur the semiannual interest payments associated with our $6,000,000,000 unsecured note offering in 2020. As a reminder, the next semiannual interest payment of approximately $64,000,000 will be in the 3rd quarter. This does not reflect our recent $1,300,000,000 debt offering with the 1st interest payment from that offering expected in the Q1 of 2022. After other items of $5,000,000 plus adjusted cash flow, Our bottom line earnings were $429,000,000 or $0.71 per share. This resulted in an adjusted cash flow margin of 90.2%, again underscoring the strong leverage in our business model. Slide 18 shows how we continue to strengthen our balance sheet after the quarter end Through an innovative debt issuance, which raised $1,300,000,000 in July. With maturities of 2,031 and 2,051 for the 2 tranches, We extended the majority of our debt profile to 2,030 and beyond at very attractive rates. On the right hand side of the slide, you can see how our total debt profile compares favorably with our biopharma peers. We are particularly pleased that the $600,000,000 of the bonds we issued are in the form of a social bond, which underscores our commitment to ESG and corporate Specifically, our social bond framework is linked to SDGs 39, which promotes social health and well-being as well as enhanced scientific research and innovation. The proceeds from the social bond will go toward Funding innovation in areas such as orphan diseases, top diseases as defined by the WHO and or UN as well as other underserved diseases. This can also be applied retroactively to deals that were done in the 2 years prior to the bond offering, Such as the residual royalty interest in the CF franchise that we acquired from the CF Foundation in November of last year. On Slide 19, you can see we ended the quarter with cash and marketable securities of $2,000,000,000 similar to our position at the end of 2020. Cash inflows over the 6 months included adjusted cash flow of $838,000,000 These inflows were broadly offset by the $790,000,000 we deployed on royalty acquisitions and by $226,000,000 in dividends and distributions, hence the limited change over the period on a net basis. Following the quarter end, we closed the MorphoSys transaction and the debt offering I just described. If we adjust for these factors, our pro form a cash and marketable securities would have been just over $1,700,000,000 We currently have $7,300,000,000 of investment grade debt and our pro form a leverage is approximately 3 times EBITDA on a net basis and 4 times EBITDA on a total basis. Our cash balance, strong cash generation of the business Along with our untapped $1,500,000,000 revolving credit facility gives us a strong liquidity position and leaves us well positioned to execute on our business plan. Slide 20 demonstrates why we believe we are uniquely positioned to fund innovation. First, We have deep access to debt capital to fund royalty acquisitions. For example, we have raised $2,200,000,000 in debt at attractive rates since 20 20, which compares to the $5,300,000,000 in deals we've announced. 2nd, we have aligned our debt maturity profile with the average duration of our royalty profile at around 13 to 14 years. And 3rd, with conservative leverage, We can considerably amplify that returns to our shareholders. We target returns in the high single digit to teens percentage range Depending on the transaction type, which compares with our average debt coupon of 2.24%. We believe the power of our capital structure is a strength that is consistently overlooked, providing us with the lowest cost of capital to buy assets while also delivering Attractive returns to equity holders. My final slide sets out our new full year 2021 guidance. We now expect adjusted cash receipts to be in the range of $2,080,000,000 to $2,120,000,000 an an increase of approximately $140,000,000 from our previous guidance. Around half of this increase was driven by the strength of our portfolio With particularly strong performance from the CF franchise, Tysabri as well as recently launched therapies, EBRISD, TEGFECT and YUPAYA. Around a quarter of the increase was driven by the addition of Tremfya and another quarter was driven by a one time $37,000,000 milestone payment related to our Sluiqua royalty, which we previously expected to occur in 2022. Our new adjusted cash receipt guidance represents growth of above where analyst consensus stood for adjusted cash receipt at the time of our IPO. Turning to operating costs, We expect these to be approximately 9% to 10% of adjusted cash receipts, which is unchanged versus our prior guidance. While our operating costs have been around 8% of our adjusted cash receipts in the first half of this year, our guidance implies a bit of a step up in the second half due to the timing of various expenses. Lastly, our interest paid guidance for 2021 is unchanged at $130,000,000 Our recent $1,300,000,000 debt offering will not impact our net interest line in 2021, but will increase net interest paid in 2022 to approximately $170,000,000 with semi interest payments split fairly evenly between the 1st and third quarter, Although in 2022, the payments will be skewed slightly to the Q1. The second and fourth quarters of 2 are expected to have de minimis payments. In line with our established practice, you should note that this guidance is based on our portfolio as of today and does not take into account any future acquisitions. With that, I'd like to hand the call back to Pablo for his closing comments. Thanks, Terry. Let me close by first reiterating that I'm extremely pleased with how Our business has progressed in 2021. We have delivered strong financial performance, raising our full year guidance. We have continued to find innovative funding solutions for our partners, and we have demonstrated That same innovative approach to our own capital structure, which positions us to compete in the growing biopharma royalty market. Our market has strong momentum, growing over 70% by volume and value in the past year, And we have captured the majority share of that value. Looking ahead, we expect the powerful Fundamental tailwinds supporting this growth to continue for the foreseeable future based on the rapid pace of scientific advance Across the biopharma ecosystem and the need to fund that innovation. On my final two slides, I want To step back and put our deal activity over the past couple of years in perspective. Over our history, We have maintained a consistent and strong pace of capital deployment. Up to the year prior to going public, We deployed a total of around $18,000,000,000 in capital from $5,000,000,000 in 2012 Or a total of $13,000,000,000 deployed over 8 years. Since the start of 2020, we have continued the strong trend With $5,300,000,000 in announced transactions, this puts us well above the run rate we have previously indicated for $7,000,000,000 of capital deployed to 2025. This pace of capital deployment Position us well to deliver strong long term growth and importantly to deliver value to our shareholders. It also really speaks to the increased awareness and acceptance of royalty funding in biopharma And the significant opportunities for growth ahead of us. On this next slide, when we look back at our deals over the Past 5 years, we deployed about $1,800,000,000 per year, which demonstrates our ability The second graphic shows that based on actual results And the current consensus sales estimates, this level of capital deployment is expected to result in significant cash receipts 5 years later, about $350,000,000 on average. In other words, Every $1,000,000,000 of capital we deploy is estimated to translate to approximately $170,000,000 In royalty receipts 5 years later. This shows how our scale and expertise enables us to grow and diversify And drive value enhancing long term growth. Furthermore, we believe the compounding effect of our business It's very powerful as we're adding new royalties each year on top of an attractive portfolio of leading products and franchises. We remain as excited as ever about our pipeline and expect to continue to layer new cash flows cash flow streams on our existing business and delivered top tier growth in biopharma. With that, I would like to open the call to Q and A. Back to you, George. Thanks, Pablo. And we'll now open the call to your questions. Operator, please take the first question. Our first question comes from Chris Scott with JPMorgan. Your line is open. Great. Thanks so much for the questions. Just two for me. First on Alzheimer's, I know you talked a little bit about this, but can you just elaborate on your thoughts on the development of this market since the Genmab deal? I guess, Do you see an attractive opportunity for your product or for the royalty stream even if we don't see a meaningful cognitive benefit with the data With the new guidelines or do you think cognition is really going to be key to success in this market? And then my second question, I know you've talked about this in the past, but When we think about the new triple that Vertex is advancing, what would that mean for your royalty levels if approved? And very importantly with that, to the extent there is a disagreement between the parties in interpreting the agreement, what is the resolution pathway? Is that something that we'll be able to get Clarity on ahead of a launch or something we'll have to wait until an approval to see how that plays out? Because it does seem like the companies are maybe communicating slightly different things about the Implications for the longer term royalties. Thanks so much. Sure. Thanks, Chris. Good to hear you. And I'll ask Marshall to take on the first question about Alzheimer's and then Terry and I will touch on the your question regarding a Lot of topics related to CF. Marshall? Yes. Thanks, Pablo. Hey, Chris. Good morning. So on Our view on Alzheimer's and everything that's happened, it's certainly been an active area since we announced The MorphoSys transaction and our interest in gantenerumab. And we are like everyone, I think in our industry watching I'm observing what's happening with the Aduhelm launch and as we come into the NCD sometime next year And watching how this market develops. But I wanted to just remind everyone, what we liked about gantenerumab to your question about cognition is, We really thought Roche had designed a very large robust clinical trial program to really Give gantenerumab its best chance to succeed. So and I think Roche sees it the same way as they commented On their call this year. So I think like we said, we are cautiously optimistic about those data next year and we're going to see How what the data show and how this market develops. So we are excited like we said to have that in the portfolio. Yes. And Chris, on your question on the new triple that Vertex is developing. So First of all, just to sort of walk through the royalty rates on that. We don't see a scenario in which we end up with a low single digit 1st, our royalties on tesacaftor will bring the royalty rate on the new triple to 4%. 2nd, and we've been very clear about our position here that we believe that deuterated KALYDECO is simply KALYDECO and that would bring the royalty rate on the new triple to 8%. On the 3rd component, we'll just have to wait and see if it's royalty bearing and at what rate, we really can't comment on that one at this point. I think just to sort of take a step back, we also have to remember that Trikafta sets an extremely high bar for safety and efficacy. I think we share the views of a lot of others who have commented on the recent Phase 2 data. These were obviously small patient numbers, but when we looked at the data, There was nothing that we saw to suggest that the new triple will offer a meaningful improvement over Trikafta. We've also now learned that the new triple is going to require a large non inferiority trials with 48 week endpoints. These trials will have to enroll in a population that's already very well served by Trikafta. And if the new triple does succeed, Unlikely to be on the market before the middle of the decade, and if it does come to market, many patients will have over 5 years of experience on Trikafta. This is a drug that Vertex has pointed out many times has completely transformed the disease for many CF patients. So for all those reasons, we're really confident that the CF franchise will be an important contributor to our business over the long term. On your question on the resolution pathway, there is a dispute resolution clause in our contract and We would obviously make sure that we defend our rights under the contract. It's really too early right now to get into any potential legal strategies there. Chris, I'd like to just add to some of Terry's comments. And I'll just start by saying that From our perspective, investors, analysts have expressed some concern about a potential impact To Royalty Pharma from issues with our CF royalties. Personally, I believe it's so overblown, The concern for many reasons that Terry already touched on, but I'm going to add some color. So just thinking of Time lines, which are really critical here. We're in 2021. If we look at What might take to develop this triple, thinking of A trial that is probably going to take a couple of years to enroll, and then 48 week follow-up On patients, so we're talking about 2 to 3 years, more likely 3 years. So 2022, 2023, 2024. Then the trial will be completed. It takes time to go through data to file FDA approval. So we're talking about mid-twenty five, late-twenty five for a potential launch. And then Obviously, we're not conceding one bit that there's going to be an issue with Kalydeco. We're super comfortable. You have to also just think of the fact that we've been following this for a very long time since we made the investment in 2014. We actually invested a lot more last year when we bought the residual interest and did an Incredibly thorough analysis of everything around this investment, which gave us a very significant level of confidence to go ahead And make this additional $600,000,000 or so investment. So we're not conceding anything. But just thinking of What may happen, if there is a small shortfall in revenue, when you look at What analysts have projected for CF in our numbers, which is somewhere in the $800,000,000 plus revenue. And if there is a small shortfall, just think about this, launch in 'twenty five, 'twenty six, For it to get some traction, we're probably looking at the later half of this decade. And by then, Royalty Pharma will be much, much bigger. Just think of the revenues that analysts have projected, analyst by 2025 of about $2,700,000,000 And then think and that's based on what we have today, the portfolio we have today. As you know, we're going to be Very active adding much more capital deployed more revenue to our top line. And we went through the figures of what every $1,000,000,000 of investment adds to our top line. So now if we think of where our revenue might be by the end of the decade, we're Probably looking at something north of $3,000,000,000 somewhere in the $3,000,000,000 to $4,000,000,000 maybe more. So if you think of a potential shortfall In one asset of a couple of $100,000,000 it is really immaterial. We're talking about a couple of percentage points to the top line. So that's why I think this issue has been overblown. And maybe just in summary, I think I'd like to mention a couple of important concepts here. This is an industry that has uncertainty, Whether it is competition, clinical study results, patents, etcetera. So focusing on any one issue For any one product in our portfolio misses the bigger picture, which is that the strength of our business model And the unique role we play in this industry really makes Royalty Pharma such a highly Diversified business with some of the most attractive assets in the industry and with very high predictable growth. And again, just to put this in context, my last slide showed that over the past 5 years, Every $1,000,000,000 we deployed resulted in an average of around $170,000,000 in adjusted cash receipts 5 years later. We've announced over $5,000,000,000 of transactions since the beginning of 2020, a year and a half. So I think if we project into the future, I think it's important just to realize what's going to happen with this business As we continue to deploy, 1,000,000,000 of capital every year. And I think I'll just finish by saying That we went public. We tried to come out with conservative assumptions, but there's no question Looking now a year and a half or a year after our public offering, we have a feeling now among myself and the team that this opportunity set For us, it's pretty big and that's why we're so confident on our long term growth prospects. So concerns about any single product in our Portfolio misses the most important driver of our business that we add innovative therapies to our portfolio year in, year out, growing and diversifying our revenue base. I'm sorry to extend myself, but I just wanted to make sure that I shared this views with you. I appreciate all the comments. Thank you for that. Our next question comes from Matthew Harrison with Morgan Stanley. Your line is open. Hi, thanks for taking the question. This is Charlie on for Matthew. Just kind of think about like kind of long term in terms of The large transaction that potentially kind of coming out over the next few years, how you're thinking about that given your existing kind of Guidance of greater than $7,000,000,000 through 2025, and I know you're exceeding that by quite a bit. But I think that You're also trying to maintain that investment grading and it seems like the leverage right now is close to 4%. I just wonder how you're thinking about that in terms of taking down more debt or doing more large transaction in the coming years? Thank you. Sure. Thanks for the question. Terry, can you please take this question? Yes, sure. So, yes, we feel very, very confident in our ability to continue To pursue large royalty deals over the coming years, we have $1,700,000,000 of cash on the balance sheet. We're just going to naturally delever over time as EBITDA grows. And when we bring in cash flow products that have cash flows, we can obviously add leverage then And then the business throws off a lot of cash. So we feel like we're very well positioned with the opportunity set ahead of us, I feel really good about the trajectory. Obviously, Pablo mentioned, we're tracking well ahead of the original target that we gave. We feel very good about the opportunities ahead of us. And that target is something that We'll look to update as we update other long term guidance metrics because they're all related, but we feel very, very, very confident in the business and Very confident in the opportunity set. Thank you. Our next question comes from Geoff Meacham with Bank of America. Your line is open. Hi, good morning. This is Bill Maughan on for Geoff Meacham. So my question is on the social bonds. Just wanted to A little more color on exactly kind of the intent and plan for those for what we might be seeing For the investment from those social bonds and correct me if I misheard, but you mentioned I believe that it could be applied Sort of retroactively to CF from the past few years. Can you just kind of walk through what that means logistically In terms of what that looks like on the balance sheet? Thanks. Sure. Thanks for the question. And I think, look, Terry will answer it, but I think This again highlights how we can be creative and innovative. I think we're the 2nd life sciences company to issue Social bonds. And we've just realized that there was this very attractive new instrument that we could Used to fund the business and we moved quickly, took advantage of it and ended up being able to issue bonds with a lower cost than Normal bonds. So Terry, do you want to Yes, sure. I mean, I think that they did sort of taking a step back. The social bonds, We published our social bond framework on our website, but they really highlight the unique role that we play in this industry. So In terms of how we can help to recycle capital back into the industry for places like the Cystic Fibrosis Foundation To go and fund their mission to attempt to find a permanent cure for this disease. So types of deals that would be eligible would be sort of the CF Foundation deal, The deal that we did with UCLA back in 2016, where the proceeds that we gave them were going back into funding Medical research and funding scholarships and things like that. So in terms of how it could be applied And that we're not saying that that's exactly how it's going to happen, but we'll ultimately provide an annual report Until the funds are allocated. And so that would be disclosed in the annual report and how those funds were allocated. And we also would Attempt to show sort of the impact metrics of how those funds were allocated. Thank you. Our next question comes from Steve Scala with Cowen. Your line is open. Thank you and congratulations on another well executed quarter. I have two questions. Can you discuss the $37,000,000 milestone on Saliqua performance that will be booked in the Q3 quarter. Saliqua has been a modest Success for Sanofi. So the milestone really seems outsized versus its sales. So maybe you can tell us how that milestone is calculated. And then secondly, I'm curious and I apologize if you've addressed this in the past, but I'm curious if the royalty on gantenerumab Also covers the brain shuttle version of gantenerumab, which at least to our understanding is a distinct and separate molecular entity. Thank you. Thank you for the question. Terry is going to answer the first question Related to the Saliqua milestone and then Marshall will address your question on ganterumab. Yes. So On SLEEPRA, it was a commercial milestone. We haven't gotten into any of the specifics, But it is something that we previously and we were obviously a little conservative forecast that it would happen in 2022 and it's now 2021 event, but we haven't got we're not going to be any more specific than that on the sort of threshold there. And can you tell us are there future milestones on Saliqua that we should anticipate? So we do have other milestones in the portfolio. We're not probably going to talk about specific milestones right now, but I think when we do anticipate that they will come into adjusted cash receipts, we'll try to give you a heads up on that. That's why we did it this quarter. But I think that to the extent that we're aware that something is going to affect that particular year, we'll try our best So it gives guidance ahead of time that that's going to be a factor. Thank you. Hey, Steve. Good morning. Thanks for the question on the brain shuttle version. So yes, the brain shuttle version of the antenerumab is included The in the royalty agreement between MorphoSys and Roche, but we have not gotten into any more details On it, beyond the fact that, yes, it is included. Okay. Thank you. Our next question comes from Terence Flynn with Goldman Sachs. Your line is open. Great. Thanks for taking the questions. 2 for me. I guess on Slide 24, Pablo. You talked a lot about capital deployment and how you're tracking above your historical run rate. Maybe just Give us your views on sustainability of that run rate. Should we think about that as kind of the go forward? Or do you expect some kind of mean reversion over time? And then the second question I had relates to Dicerna's recent nidosiran data. Just wondering if that changes how you're thinking about the peak Thank you for the question. So I think as Terry said, we're actually In the near future, I'm going to probably update analysts and investors on Several of our metrics, but I think, as I said, in Thinking of how to come out as a new company, we actually decided to guide conservatively. Now with a year of experience after going public, There's just no question that the opportunity set is Much bigger than we even thought years ago. And I think the things to think about are the following. On that Page 24, when you look at the those charts, If I think back of what the market looked like 5 or 10 years ago, it was Really an effort on our side to open up the market to educate owners of royalties About the attractiveness of monetizing them to fund in the case of universities and hospitals to fund buildings, to fund research, But also in the case of companies to really start to use Royalty structures to fund their R and D, it was not mainstream. It was a lot of hard work to actually Get companies, boards, management teams to consider royalty based structures To fund their business. I think that has started to become a lot more mainstream. And I think Chris Hite has talked a lot about how things have changed On the boardrooms and how there's a much greater acceptance today about what we do In partnership with companies and how that brings win win situation. So Chris, maybe you want to add a little bit to The change in mentality of the boardrooms and how this is becoming a lot more mainstream. Yes. Thanks, Pablo. Thanks for the question, Terence. Pablo is right. I'd say really there has been a mind shift at the Board level and at the CFO and the executive suites where they are looking Really for alternative ways of financing not only R and D, but commercial launches And as you saw most recently with MorphoSys M and A. And so as we've continued to innovate, I think it's been very accepted now at these Within these boards and within these executive suites to take advantage of our innovations through these development stage bondings bonds, Commercial funding, M and A support, and we just see just a tremendous set of opportunities going forward, just given both our innovation and the willingness to accept those innovations at the board level. So I think maybe just to finish, I mean, look at what happened in 'nineteen, 'twenty and 'twenty two, we're investing at a rate of $2,000,000,000 plus. So as I said, we'll come back In the near term to talk about the metrics of how you should judge our business. But I hope that answers your question. Great. And then, hey, China, good morning. Your question on Dicerna, Like we said at the time, our expectation for the Dicerna data relative to Oxlomo is that the products Looked more similar than different and we were really excited to be partnered with a company like Alnylam that's really Distinguishing themselves in building out a rare disease platform around the world. And so the DAYSARNA data in PH1 was more or less consistent with our expectations. And then certainly disappointing for PH2 Two patients out there. So, I think we'll continue to watch. I think their decision to find a commercial partner We'll likely slow things down and certainly accrue to the benefit of OXFluMo over the long term. But I think overall, I think the result in PH1 specifically was along the lines with what we were expecting. Our next question comes from Umer Raffat with Evercore ISI. Your line is open. Hi, guys. Thanks so much for taking my question. I wanted to touch upon 2 things, if I may. First, as I think about the potential Alzheimer's opportunity, one of the questions to think about is that, Not only gantenerumab subcutaneous versus the competitors, but also gantenerumab is not tapping into the same Payer pool, denanimab and aducanumab, and I'm referring to Part B. I guess my question to you is, How important is that to the commercial prospects? And how important is that to your sort of modeling of What the peak opportunity could look like, 1. Secondly, could you also walk us through your thoughts on gantenerumab not having the breakthrough designation and Roche's Not to file based on biomarker because presumably the approvals in the space have all been biomarker related, not data related. And then finally, Carrie, One of the points you mentioned, which I've been trying to think about for some time is the idea that deuterated Kalydeco is the same as Kalydeco. I guess one of the questions I had was, if a deuterated cladico does have its own composition of matter patent, I guess, how would you make that case legally if and we've seen this with some prior deuterated molecules as well where they have their own Composition of matter of patent because the structure is technically different. Thank you. Sure. So Marshall is going to take your first question about Alzheimer's, Umer, And then, Terry will answer CF. One thing just to reflect on as I was thinking about my comments about CF is that, Yes, CF is important for us today, a quarter of our revenues. But as I highlighted, as the business grows, it's going to become relatively We're going to get more diversified and bigger. But also, I think a lot of the focus of many people, I think that's why it has been a bit overblown is, on impact Potentially today. And the reality is that if as this plays out, we're talking about very long time frames. And that's one thing just to About that, that these things take very long to play out. So anyway, Marshall, maybe go through the Alzheimer's Question. Yes, sure. Hey, Umer, good morning. So, 2 good questions. So I think your first question on gantenerumab Having a little bit of a different commercial look because of the subcu and not a Part B story. There I think like we talked about at the time, we look at A lot of different scenarios and how different payer structures might impact a product. I think our feeling in Alzheimer's is That the over time the volume opportunity is just so big and there's going to be lots of different I think flavors and Parts of the market for and I think subcu has certain inherent advantages from a delivery perspective and we think Roche Roche will optimize that. So I think regardless, we think with as this market develops, there's a Large opportunity and room for multiple players. And I'd just point out, I think also that we've Seeing the other players in this market also talk about exploring subcu opportunities as well either For current products or for backup or pipeline products as well and looking at subcu delivery. So I think clearly The advantages and delivery advantages of that are clear and will serve different parts of the market. Your second question was Roche's comments on gantenerumab and Breakthrough designation. We listened to the same comments you guys did that Roche made recently on this. And I think overall it does really dovetail with our view of the Roche development program that It's a large program fully accrued, data is pretty near term. And so it sounds like that was He in their decision, but I think also it sounds to me like that from what Rose said, they still are Even short of potentially filing on biomarkers, looking at ways that they can accelerate the regulatory process. The data for gantenerumab is coming next year. So pretty near term, we're looking forward to that and then Those activities and doing everything they can do to accelerate the regulatory process. And then, Umer, on your question on deuterated Kalydeco, we can totally understand why analysts and investors are very Curious about what gives us confidence in our position on deuterated colitis, but we really can't get into our legal strategy around that at this time. Umer, maybe I'm going to add something else, because I was trying to express a perspective and I maybe didn't do a good job, but I'm going to try again. I personally view this whole CF deuterated Versus non deuterated Calyterico, the real thing, as near term noise, near term noise. And there's a lot of focus on that near term noise. That is not that noise is irrelevant and it's going to play out in 5 to 10 years. And by then, it's going to be a nothing. What people should really focus on right now are the positives. This franchise is vastly outperforming and we have a very significant interest in it. So that's what people should really be paying attention to the fact that it's driving very attractive growth for Royalty Pharma and really not focus On something that honestly is a nothing, which is this noise and that's going to, as I said, be resolved way out in the future when it's going to Be a lot less important. But anyway, that's what I wanted just to add. Thank you, guys. Our next question comes from Andrew Baum with Citi. Your line is open. Thank you. A couple of questions, please. Firstly, your stock has underperformed since the IPO. You don't need me to tell you that. But yet, as you outlined, You've completely executed on what your 7 terms of capital allocation, consensus upgrades and the ROIC, At least based on consensus forecasts. Now you've addressed cystic fibrosis concerns as being overblown. I know there's some discussion about Whether royalty is more exposed to future U. S. Drug pricing legislation. But I'm interested what other factors you think There are which are keeping investors away from the name given the valuation construct. Is it the definition of the investor base, so you'll bisect in healthcare investors versus credit? Is it concerned about emerging competition? Is the drug pricing concerned? Or do you think it's all driven by the overhang from CF? So that's the first question. The second in relation to the previous question on gantenerumab, Roche has indicated that they intend to seek reimbursement under Medicare Part B Similar to elastis, a B for Bertie, I just want to make sure that's consistent with your expectation even though it's subcu drug. And then finally, could you remind us the duration or durability of your IP on IMBRUVICA? Many thanks. Sure. Thank you. Maybe I'll add I'll start by making some comments about your question initially About the performance of the stock. And what I would say is that There is, as I said, noise on things that really don't matter about to the performance of Royalty Pharma That are near term. What really matters is the big picture and Just the fundamentals about our business that Royalty Pharma has become one of the most innovative, creative Funders of this industry, which is one of the most exciting industries in the planet in terms of innovation And an industry that requires a huge amount of capital. And when you then think of The position we have in this industry, which is very unique, nobody can do what we can do in terms of scale, in terms of creativity, In terms of making long term investments that deliver over the long term, where we can be very a very patient Partner to many of these companies. So all of those things are attributes that our business has that no other Peer has and it positioned us extremely well to take advantage of a growing Set of opportunities, rapidly growing set of opportunities. So I think that's really what investors should be focusing on. And I think there's other things that are quite unique about Royalty Pharma that I think investors should reflect on. So there's a huge, huge appetite for growth among the investment community. And In our industry, it's very interesting, but it's sort of polarized. You have biotechs that obviously do grow very fast, very risky, Single product companies, sometimes things work out really well and investors make Multiples on their investments, but often very often things don't work out and a lot of money is lost. And then you have on the other side, the much bigger companies that grow at 2% to 3%. There's a few of the bigger ones that grow in the mid single digits, 6%, 7%. And what's so unique about Royalty Pharma Is that we are capable of growing at a much faster rate than the bigger companies in life sciences. So the ones that go at mid single digits, we can grow much faster than they can. And you've seen the growth this year, which is in the teens. And again, looking at the growth, importantly, there is an underlying growth that our portfolio provides, but then acquisitions add to that growth. And we have had really good couple of years that have added to the growth such that we're growing in the mid teens. And I think, that's very unique to have a business with the diversity we have, with the Downside, like the thing of Royalty Pharma is so diversified our revenue base That the growth is much more predictable and it's high, which is very unique and investors should be paying attention to those things. They look for growth, we have the growth, We have diversified growth, we have durable growth and we have growth with Magics. The three things I talked about during the roadshow That we stand out because of 3 attributes of our growth: magnitude of growth, diversity of growth And duration of growth. And that is very unusual, very, very unusual. And I think we can deliver that to our investors in this very exciting industry. Marshall, I think Yes, hi Andrew. Hi, gantenerumab. So yes, so no, thanks for pointing it out. Like we like I referenced, I think it was Zimri's question. We did look at a lot of different scenarios in terms of physician administered Subcu products and how that might change or if it changes over time and what those different mixes and scenarios might look like From a payer and access perspective. So thanks for pointing it out and absolutely we thought through kind of different profiles and particularly how that might evolve Over time and Terry, if you wanted to I think Andrew had one more question on IMBRUVICA. Yes. So what we said on IMBRUVICA is That we expect the royalty to run through 2027 through 2029. We haven't been more specific. Obviously, there's various different scenarios that can play out with any product in terms of patent extensions or additional Patents, but we've said 2027 through 2029. Many thanks. Our next question comes from Greg Fraser with Truist Securities. Your line is open. Good morning, folks, and thanks for taking the questions. You're generally agnostic of therapeutic area. You have a broad portfolio of royalties on drugs in many areas. But I'm curious if there are any particular areas that you would point to that are of high interest where you haven't yet transacted? And then my second question is on the guidance. There any milestone payments baked in that are tied to the clinical or regulatory events that you laid out in the slides? Thank you. Jim, can you please take this question? Yes, I can start out and Marshall may add, but to the question of therapeutic areas, I mean, I think we're In such a golden age of tractability of new targets That can open up new areas that I think it really provides a lot for us to work on, even in sort of existing areas that we've already had Good many investments and some success such as rheumatoid arthritis. I mean, for example, otilumab, Which was mentioned earlier is a totally new approach to treating rheumatoid arthritis that has been enabled by just understanding the science of immunology better than we had before and allowing us to go broader than TNFs and JAKs in That area and related inflammatory immunology areas. So I still think there's a lot to do in that area, maybe even opening up lupus and some other previously hard to drug Or hard to treat areas. And we also want to keep an eye to New modalities, so cell therapy and gene therapy, we have not made Really investments in that area, but there certainly are a lot of interesting products moving forward that have royalties Because those are so highly engineered technologies that they usually come with potentially 1 or 2 or 3 royalties associated with them. So There is a lot to do there and we're following those areas really closely. But in general, I think because of the Improvement and understanding of these diseases, it's really opening up a lot more opportunities, even in fields where we made investments in the past. And then your question on the guidance, no, just the only milestone that's included in the guidance This year was the $37,000,000 Saliqua milestone that I mentioned. So we're very happy that we had a nice Significant raise in our guidance of around $140,000,000 and around a quarter of that was from The Saliqua impact. Operator, we'll take the next question. Our last question comes from Ivan Feinseth with Tigress Financial. Your line is open. Ivan, if your telephone is muted, please unmute. Yes. Thank you for taking my question and congratulations on the great results and ongoing progress. Can you Give some detail into your M and A strategy and pipeline and where do you see breakthroughs happening and what areas do you feel that Your funding presence could make the biggest impact. Sure. Thanks for the question. And Chris is really well positioned to answer this question. What I would say is that just a bit of perspective, As you know, Chris joined us a bit more than a year ago and has just a great Experience as one of the top M and A bankers in life sciences of his generation. But One of the things that has always been very exciting to me is opening up the market of M and A and us Partnering with companies in M and A. And the whole history of Royalty Pharma has been one of Developing markets from the very beginning. And I've talked in the past about how we've gone through different phases where A lot of the work was just to open markets. And I think that is one that is, at this point, really ripe for opening up. And I think what's so unique is that I think we've with a deal that we announced with MorphoSys, Put some light on kind of M and A that I I think has not happened in the past in life sciences that I think could drive very attractive Transactions midsize mid cap M and A for mid cap companies, but also for us. But Chris, why don't You provide your perspective on this. Sure, sure. Thanks, Pablo, and thanks for the question, Ivan. I agree with Pablo. I think if you Think back over time, there's really been a lack of midcap to midcap M and A in the space. And that's really Ben, for one main reason, which is a seller's Board of Directors would much Rather sell for all cash as opposed to a stock deal in most cases. And it's very difficult sometimes to If you're looking at 2 development stage companies or one company that has maybe a recent approval of a drug, But it's not really clear how the drug is going to perform. It's sometimes very difficult to value the stock of the acquiring company. So for that reason, there's been just a lack of M and A in that mid cap space and banks, which would typically provide the funding Is a great example of how mid cap M and A companies and obviously MorphoSys has an approved product, but hadn't yet really been profitable, Can do M and A and use all cash as the currency through funding by us. And Marcia went through a great slide that showed how we can advance funds to the acquiring company In many ways, whether it's development stage funding, equity investment, existing royalties, synthetic royalties, And we just see that, that is a huge opportunity going forward where we can provide the cash as opposed to a bank that's unwilling to provide the cash Upfront, so that the target company's Board can get comfortable and actually do the deal. So we see a huge opportunity for this going forward. Thanks and wishing ongoing success. I think the other thing just to think about is that If you look at biotech, companies often have diversified when they're doing research, they have Many products and not it's common that these products don't fit together. So what happens often Is that a company might then have one product that is the driver of value, driver of growth, but other multiple assets that are non core Where we can come in. And I think if you look at MorphoSys, it's a great example. This company We have very attractive royalties, but royalties that were not going to actually really create value for MorphoSys. For MorphoSys collecting cash flow is interesting, but it doesn't create value. And you have to really admire The boldness of the CEO of MorphoSys of how he realized that just collecting those royalties over 5, 10 years was not going to create value for his company And how he completely transformed this company overnight by partnering with us, selling the royalties and acquiring A company with assets that he can develop and those are assets that will create value for MorphoSys. So when you think of this industry and the thousands of companies that are out there That are going to face situations like this. We are the perfect partner And we can help them achieve their strategic initiatives. And I think MorphoSys is a great example. And obviously, It will take time, but I think they did the right thing and it created a win win situation for everyone. But anyway, I'll end there and just Thank all of you and everyone on the call for your continuing interest in Royalty Pharma. I'll just finish by saying that my team and I look forward to continuing to share our progress with you and that if you have any questions, Please feel free to reach out to George Grofek and Terry. But thank you for spending time with us today on our call. Bye. Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone, have a great day.