Earnings Call: Q1 2021

May 11, 2021

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma First Quarter 2021 Financial Results Conference Call. I would now like to turn the call over to George Grofert, 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 1st quarter results. You can find the slides to this call on the Investors page of our website at royaltypharma.com. Moving to Slide 3, I would like to remind you that information 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 Leguero, Founder and Chief Executive Officer Marshall Urest, EVP, Co Head of Research and Investments Jim Redick, EVP, Co Head of Research and Investments and Chief Scientific Officer and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Marshall and Jim will provide an update on our royalty acquisitions and portfolio. Terry will then review the financials and after concluding remarks on Pablo, we will hold the Q and A session. Chris Hite, our Vice Chairman will also join the Q and A session. And 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 a great start to the year for Royalty Pharma, building off our strong momentum in 2020. Our financial performance in the Q1 was excellent with strong double digit top line and bottom line growth. In addition, we continue to execute well against our strategy. We announced up to $787,000,000 in new royalty transactions as well as an exciting new thematic index collaboration with MSCI. And looking ahead, our pipeline continues to be very active As the demand for royalty funding of Life Sciences Innovation is exceptionally strong. Lastly, We're also raising our guidance for adjusted cash receipts for 2021. On slide 7, you can see our financials in a little more detail. In the Q1, we delivered 37% growth in both adjusted cash receipts and adjusted cash flow, What we consider to be our top and bottom lines, respectively. This excellent momentum positions us well To deliver another year of strong performance as Terry will speak to when he discusses our raised guidance for this year. So overall, I'm extremely pleased with our start to 2021. And for reasons we will highlight during this presentation, we continue to believe Our prospects look very promising. Before I hand it over to Marshall And Jim, to update you on our royalty portfolio, I would like to elaborate a bit more on our recently announced collaboration with MSCI to develop and market thematic indexes in life sciences, biotechnology and the pharmaceutical spaces. Dramatic Investing is a fast growing category of assets under management globally, and we believe we can leverage our unique skill set Based around our deep scientific and clinical knowledge and our data analytics capabilities to develop novel indexes in partnership with MSCI, an with MSCI, an innovative index provider. We see this collaboration as having a number of benefits to Royalty Pharma. First, it is expected to create a recurring and growing license revenue stream on Global Life Sciences under management linked to these indexes. 2nd, we believe it expands our commitment and recognition as a leading funder of innovation in the biopharmaceutical industry. And third, we expect that upfront costs required will be minimal as we already have the capabilities in place to contribute to this important new collaboration. In terms of the financial contribution, we expect this collaboration to start small and play out over a longer period of time. That said, Themedic Index Investing is a rapidly growing area with more That $400,000,000,000 of assets under management, of which approximately $100,000,000,000 are invested in ETFs and 300 $1,000,000,000 in mutual funds. With healthcare representing an important segment of the economy contributing to around 18% To U. S. GDP, we think this collaboration could be an attractive source of recurring cash flow over time. With that, I will hand it over to you, Marshall. Thank you, Pablo, and good morning and good afternoon to everyone. We are really excited about the royalty acquisitions we have announced so far in 2021, and I'd like to take a couple of minutes to highlight 2 of our recent transactions, which expanded our portfolio of Innovative High Growth Therapies. Beginning on Slide 10, in April, we announced the acquisition of GlaxoSmith client's royalty interest in the cabozantinib products, CABOMETYX and COMETRIQ for an upfront payment of $342,000,000 and potential milestones of $50,000,000 based on approvals in lung and prostate cancer, we will receive a 3% royalty on worldwide net sales. CABOMETYX is a leading PKI approved for renal cell carcinoma and hepatocellular carcinoma and is marketed by Exelixis in the U. S. And by Ipsen and Takeda outside the U. S. Most recently, CABOMETYX received regulatory approvals in the U. S. And Europe for use in combination with the PD-one inhibitor Opdivo in first line renal cell carcinoma. CABOMETYX is also in a number of ongoing combination studies in kidney, Liver, Lung and Prostate Cancer. Overall, we see a tremendous opportunity for this therapy to improve treatment outcomes for a large and growing number of cancer And as reported by Exelixis last week, the early launch in first line kidney cancer in combination with Opdivo is off to a good start. In terms of the financials, The Street expects CABOMETYX and COMETRIX sales to grow from just over $1,000,000,000 in 2020 to $3,000,000,000 by 20.20 And we are excited to add this important therapy to our portfolio and expect it to deliver an attractive return for Royalty Pharma as Now moving to Slide 11, we're excited by the opportunity for oxalummo, a transformative medicine that significantly improves the lives of patients suffering on the ultra rare genetic disorder primary hyperoxaluria type 1 or PH1. Oxalomo is an RNA interparent therapeutic, which lowers levels of oxalate that are abnormally elevated in PH1 resulting in kidney stones and ultimately kidney failure. Oxaluva was approved in the U. S. And Europe in November 2020 and is marketed by Alnylam, a company that has pioneered RNA interference therapies and successfully launched other for Disease Medicine. Last month, we acquired Dicerna's mid- to high single digit loyalty interest in OXOLUMO for an upfront payment of $180,000,000 and $60,000,000 of potential sales based milestones. Following its launch at the end of last year, The uptake has been encouraging and we are optimistic that the number of patients that could benefit from oXolumo should expand with increased awareness and diagnosis. Consensus estimates show sales of $333,000,000 in 2025 and Alnylam has described a potential market opportunity in excess of $500,000,000 Similar to CABOMETYX, we expect OXIMO to generate an attractive return for royalty pharma. And with that, I will hand it over to Jim. Thanks, Marshall, and good morning, everyone. As shown on slide 13, we have seen Strong progress from our portfolio in the Q1 and there are multiple upcoming clinical and regulatory events that could impact our portfolio throughout 2021. So far in 2021, we have seen an important development for our migraine portfolio with the start of The Phase twothree study on Biohaven's intranasal zavegepant. As a reminder, we agreed in August 2020 To fund the development of this therapy by providing up to $250,000,000 to Biohaven. Should this therapy be approved in migraine, we will receive 1.9 times the funded amount or $475,000,000 which would be paid over a 10 year period and also a royalty on sales. Additionally, in the Q1, Biohaven filed for European approval of its oral migraine therapy Nurtec ODT. And lastly, The European regulators approved Roche's evirizdni for SMA as well as BioCryst or LIDEO for hereditary angioedema. In April, the FDA granted full approval for Trodelbi in triple negative breast cancer and accelerated approval in urothelial cancer. In addition, we saw the European approval of the subcutaneous formulation of Tysebri. For the rest of the year, I would call out the that would be marketed by AstraZeneca. So in short, you can see the multiple milestones over the coming quarters showing the continued development of our portfolio. With that, I'll turn it to Terry. Thanks, Jim. Let's move to Slide 15. We delivered a very strong Q1 with total royalty receipts of 19% year over year. As you can see, royalties from our largest franchise cystic fibrosis grew 68% this quarter. This substantial growth was driven by 2 factors. First, the continued strong performance of the franchise, led by growth of Trifacta, Trikafta in the U. S. And Captrio in the EU. The impact of which was enhanced by our acquisition of the residual royalty interest from the Cystic Fibrosis Foundation in November of last year. And second, A one time adjustment related to Vertex's agreement with the French authorities around reimbursement for ORKAMBI that reduced royalty receipts in the Q1 of 2020. IMBRUVICA, Xtandi and Promacta also contributed double digit growth in the quarter. We are also pleased with the contribution from several recently approved therapies, including TRIDELVY, EVRISD and Nurtec ODT. Neurotech is becoming an increasingly important contributor to our business after we received a $16,000,000 payment from Biohaven on the Series A preferred equity this quarter. This payment was triggered by the approval of the product last year and is the first of 16 consecutive We also experienced a couple of headwinds this quarter. Specifically, the HIV franchise was down significantly, primarily as a result of the LOEs for Truvada and Atripla as well as a lower percentage of combination sales attributable to emtricitabine in the United States. We expect similar dynamics to impact the HIV franchise in the Q2, leading to year over year declines. Taken together, the portfolio drivers mentioned previously as well as contributions from several recently approved products more than offset the impact of declines in royalties for the HIV franchise, delivering strong growth in total royalty receipts. Slide 16 shows how our royalty receipts translated to strong adjusted cash flow in the quarter. As you're aware, adjusted cash receipts is a key non GAAP metric for us, which we arrive at after deducting non controlling interests. This amounted to $524,000,000 in the quarter, growth of 37% compared to last year's Q1, as Pablo noted earlier. We did recognize a high base of comparison in the Q1 of 2020 that increased our growth rate in the Q1 of 2021. Excluding this item, year over year adjusted cash receipt growth would have still been 22%. When we move left to right, Operating and professional costs of $42,000,000 equated to 8% of adjusted cash receipts. This percentage is lower than in the past couple quarters, which included certain IPO expenses as well as expenses related to our bond offering. Net interest of $63,000,000 reflected the first Semi annual interest payment following our $6,000,000,000 unsecured note offering in 2020. As a reminder, The next semiannual interest payment is due in September, meaning our net interest expense will be de minimis in the second and fourth quarters. After other items of $7,000,000 we reported adjusted cash flow, our bottom line earnings, of $409,000,000 or $0.67 per share. This translates to an adjusted cash flow margin of 78.1%, Again, highlighting the strong cash conversion in our business model. Turning to our balance sheet on Slide 17. We ended the quarter with cash and marketable securities of $1,800,000,000 The decrease of just over $200,000,000 Since the start of the year reflects the $521,000,000 deployed on royalty acquisitions, which was largely offset by the strong adjusted cash flow I just described. We finished the quarter with $6,000,000,000 in investment grade debt, which Alongside our undrawn $1,500,000,000 revolving credit facility gives us a strong liquidity position. Taken together with leverage of 2.4x EBITDA on a net basis and 3.4x EBITDA on a gross basis, We remain well positioned to continue to fund important innovation in biopharma. My final slide provides our 2021 full year guidance. We now expect adjusted cash receipts to be in the range of $1,940,000,000 to $1,980,000,000 an increase from our previous guidance. Our new adjusted cash receipt guidance represents an increase of between 8% to 10% over the $1,800,000,000 we delivered in 2020 and reflects a number of pushes and pulls. In particular, this raised guidance reflects the new royalty acquisitions Marshall spoke about as well as the strength of our portfolio, offset by declines in HIV that were more substantial than we initially expected. We are quite encouraged to see that despite headwinds within our HIV franchise, which we do not expect to be a contributor to Our business beyond 2021, we are still able to increase guidance to year over year growth of 8% to 10%. Looking forward to the Q2, we expect adjusted cash receipts excluding new investments to be at a similar level as the Q2 of last year. Turning to operating costs. We expect these to be approximately 9% to 10% of adjusted cash receipts for the year, which is unchanged from our prior guidance. Consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account any future acquisitions. With that, I would like to hand the call back to Pablo for his closing comments. Thanks, Terry. So in conclusion, we're experiencing a really strong start to the year. We continue to be very excited about the growing role of royalty funding to advance health outcomes for patients globally as well as the powerful dynamics in our business. With that, I would like to open the call to Q and A. Back to you, George. Thanks, Pablo. We will now open the call to your questions. Operator, please take the first Our first question comes from Christopher Schott with JPMorgan. Your line is open. Good morning. This is Chris Nair on for Chris Schott. So first question is a high level one on inflation. How does the potential for higher inflation impact Royalty Pharma's business model going forward? And specifically, how do you view the balance between the cost of funding and for future transactions and the potential for lower sector valuations. Second one is on synthetic royalty deals. Royalty Pharma introduced synthetic royalty deals several years ago and has completed several transactions, but this remains a fairly small portion of the royalty market overall. How much of these transactions are you do you see as part of your business mix going forward? And how much traction have you received negotiating synthetic royalty deals with your potential partners? Thanks so much. Terry, would you mind taking the first question and maybe Marshall can take the second one? Yes. And maybe before I Answer the first one. I just could you just sort of clarify the question? I want to make sure I understand the question. Yes. So with the higher inflation, we're seeing the potential for kind of a Negative impact on sector valuations. So we're just I'm just trying to think through all the pushes and pulls on Royalty Pharma's business model And what impact inflation may have on your business going forward? Okay, understood. So Others should could weigh in as well. But I would say, our view is, If valuations across the sector are impacted by higher inflation, then that could actually increase our opportunity set As companies look for alternative ways to fund themselves beyond just the traditional equity capital markets, We think that that could actually enhance our business. That makes sense to talk to them. Good morning. On the second half of your question on synthetic royalties, so Yes, thanks for the question. We as we've talked about in the past, we are really excited about the potential for synthetic Royalties as a new and ultimately important way of funding drug development and innovation in our sector. We are Very active there and expected to become an important and increasing part of our business over time. I think as you've seen in the past, We do have a very high bar when we look at new opportunities and we're going to maintain that going forward. So I think this is I think it's exciting. We are seeing a lot I would remind everyone our last transaction there with BioCryst at the end of last year, Orla Deo's launch There is off to a great start. So we think the BioCryst team is doing a great job with that launch. And I think you'll continue to see us do those deals in the future and continue to add to our portfolio through synthetic royalties over the coming Thanks for taking the questions. Our next question comes from Geoff Meacham with Bank of America. Your line is open. Hey, guys. Good morning and thanks for the question. I just have The first one is, how much of a contributor can the MSCI collaboration ultimately be? I just want to know if you guys have any more detail about How it could generate cash for royalty? And the second question is, Terry, you mentioned that the HIV erosion was worse than you guys originally modeled. I know you typically look at consensus numbers for each product, but going forward are there additional analyses that you could conduct? I'm just trying So I'll take the first question, Jeff. Thank you for the question and good to hear you. And I think just very briefly on HIV, I mean, this is The end of this investment, so it really is not going to drive much regarding the future. But Terry can give you more information there. So regarding MSCI, if I step back a little bit just from a big picture perspective, let me just mention a few things. One is it's a business that I've Product for decades because I know Will have a relationship with the Chairman and CEO of decades. And I recall in conversations with him many years ago where I said to him, I think your business is really, really interesting because If you think about it, the index is really what they produce is royalty on global assets Under management, the way index creators and publishers, MSCI being in my view the most creative Of the 3 big ones, the way they get compensated is that all of the asset managers that license Their indexes pay them basis points, 3, 5, 6 basis points on the assets managed by the specific fund. So if you have Capri Fidelity Mundi that is licensing those indexes, they would pay MSCI, basis points as I said on their assets under management. And if you think about it Over long periods of time, assets under management grow. They could fluctuate from 1 quarter to the other because of the volatility in the market. But if you look over a 5, 10, 20 year period, there's obviously significant growth in assets under management. Why? Because economies Grow people, save more. So it's a very interesting dynamic there. And I recall in our conversation with Henry, I said to him, I love your business. You really have this royalty Global Assets Under Management. So, look, relationship continue, because he's obviously on our Board now. And about a year ago, we started to Discuss about the opportunity in Life Sciences because it's an incredibly important part of the world economy and maybe broader than Life Sciences, All Healthcare and growing and highly complex. If you just take biopharma for example, We have the big pharma, there's an index there and we have biotech also with an index and biotech. But it's probably as far as it goes, there might be 1 or 2 other small indexes That are maybe not that common or investors don't pay too much attention to. But if you think of biotech with more than 8,000 biotech companies and $3,000 public, highly complex. You have companies that focus on one product and then there might be an oncology or in Multiple sclerosis, companies that have technology platforms either gene therapies or you name it. It's Highly complex. So it's very difficult for investors really to understand how to invest in biotech. Obviously, they do it by investing in mutual funds. But if you then look at indexes in Life Sciences, so if you look at indexes in general, We all grew up with indexes that were sector indices like utilities, banks, insurance companies. And a very interesting new trend, recent trend It's indexes that are somatic where investors can invest based on a specific theme they like. And when we saw this in Life Sciences, we just thought that there was just an incredible opportunity to start to create indexes that would actually track better what's going on in Specific themes within Life Sciences. So you could create an oncology index. You could create an early stage biotech index where investors could invest in Early stage biotech that offer huge upside potential, but are risky. And if you do it by investing in an ETF that gives you exposure to Early stage biotech, it's much more interesting safer than actually picking 1 or 2 stocks where it could be tough and you could lose money. So and if you just think about it, we could create indexes that maybe track Chinese companies, indexes that are going to track other aspects. It Could be a CRO index or a hospital index. And so from our perspective at Royal What's so interesting for us is that, we're going to apply our knowledge built over decades, This knowledge base and expertise we have and just monetize it, create from that knowledge that we already have, We're going to create a revenue stream for us that is really a royalty on investments in Life Sciences, global assets under management, invested in Life Sciences linked to the Syndaxes. And it's going to be a sharing of the top line. We're going to get a percentage of the top line, That is not quite sort of fifty-fifty because obviously we recognize that this is a very significant business for MSCI and it's actually they have all of the infrastructure worldwide to distribute these indexes, But it's a decent size royalty not far from an equal sharing. So it's very exciting to us. It will start low, but if we look into the future maybe 3, 5 years, 10 years from now, I think it will be an important revenue contributor. And another really important thing is that it's actually The cost for us is very marginal because we're already we have a lot of this knowledge. We're actually investing In with the new group that we created, the Strategy and Analytics Group Trying to even enhance more our knowledge base. So for us to actually provide this and The service we need to provide in the collaboration with MSCI, it's going to be $500,000 incremental investment, which is well worth it. And maybe just to finish to give you a sense of why this is exciting. If we look at all of this RobTech technologies that are Changing the world. And here I'm talking about technology in general, Internet, all of the things that we Always talk about, but also biotech very important. It is estimated that the Creation of value, if you look at the market cap created by all of these disruptive technologies, which is about $10,000,000,000,000 in 2020, It's expected to get over $60,000,000,000,000 in additional market cap Created all of the new companies that end up going public and then achieving nice growth. This is expected to get up to about $16,000,000,000,000 by the mid-two thousand and thirty. And if we look at thematic investing, it's already a $400,000,000,000 market Where you have about $100,000,000,000 invested in ETFs and $300,000,000,000 invested in mutual funds. So and that is growing very fast. It was about $150,000,000,000 in 2015 and it's 400,000,000,000 in 2020. So that gives you a sense of the growth opportunity. And I hope that answers your question, Jeff. And then Jeff on HIV and how we think about consensus. We still do feel Generally pretty comfortable with using consensus for sort of the guidance that we provide. HIV is a little unique in that there's sort of two factors. There There's net sales of the Gilead's products, but then there's also the percent of those sales that is attributable to emtricitabine. And that's actually the part that actually came in much lower than we initially anticipated. But as Pablo mentioned, HIV has been an amazing investment for us, but it's not a part of our future and we're really encouraged to see that The growth across the rest of the business more than offset those substantial declines within HIV. Okay, great. Thanks guys for all the detail. Our next question comes from Terence Flynn with Goldman Sachs. Your line is open. Great. Thanks so much for taking the question. I had one on TRIDELVY. There's been some Discussion recently about the impact of prior CDK4six treatment that that could have on the efficacy of the drug in the ongoing HR positive Phase 3 trial. If you look back at the Phase onetwo data in HR positive, there is a bigger benefit for the drug People that were naive to CDK4six versus those that were previously exposed. So just wondering Marshall, if you could comment and if you have any perspective on This trial, as I know, it's a pretty important growth driver for the future opportunity here. Thank you. Sure. Hey, Terrence, good morning. So on Tredelvi, thanks for the question. We've certainly been Following all of the kind of debate out there and it's certainly interesting. I'd say bigger picture. 1st, just bigger picture taking a step back. We think TRUDEAVY is an exciting and going to be and is and will And certainly HR positive is one aspect of that. But if you think taking a step back, there's a lot more So this has been a real kind of win win for us in terms of adding this To our portfolio in terms of a great example of the power of a synthetic royalty transaction. That being said, with respect Specifically to the HR positive trial, we have we know what you guys know about this. So I think we're following this and look forward to the readout this year. Gilead obviously took a close look at this, I think as they have talked about and has powered the trial adequately for what will hopefully be a positive readout later this year. So I think something that is interesting, but regardless, we think there's a lot of growth in future for Trodelvi. Thank you, Karen. Operator, we'll take our next question. Our next question comes from Greg Gilbert with Tuohy Securities. Your line is open. Good morning, team. A couple of strategy questions. You've made it clear that you would continue to consider development stage deals For products and pipelines, but what's your appetite to invest in earlier stage, but maybe more platform oriented technologies that could Later respond multiple products in multiple areas where you're not sure what those areas or products are yet. And then back to the MSCI CI arrangement, really interesting announcement there. Are there other themes under consideration in the near term or is the goal to sort of observe these 2 and see how they go? But maybe as an offshoot of that, is this effort potentially helpful to your core business in sourcing Pablo, are you on? Sorry, sorry. I was muted. So Jim can provide the answer to the question related to the early stage investments and I'll answer your question About MSCI. So I think what this really shows is how Royalty Pharma's model It's actually not constrained. We can be creative and look for ways to actually creating New sources of revenue like we have with this MSCI collaboration. And I think There could be other things that over time develop like this that could create sources of revenue. For us, it's interesting because It will give us potentially an exposure economic exposure to other parts of Life Sciences where we are not likely to invest in. So the focus as you know is therapeutics. We can and Probably will over time invest in other things that are not therapeutics like it could be diagnostics and devices. We're very careful there because We want to make sure that these assets have very long life cycles, which is an important thing, which therapeutics do have. But we will also potentially we're able to create indexes that are going to track those things like devices And diagnostics, but also as I said, it could be an index for CROs or other things. So that's obviously in the index category, but there could be other things. And maybe just other thing that occurred to me just to give people a sense of the economics here. So if you have a fund that has $10,000,000,000 of assets under management And MSCI is going to charge somewhere between 3 and 6 basis points. It generates $3,000,000 to $6,000,000 of revenue Per year now if that fund doubles or triples over time, the revenues will double or triple. And I think what's also very interesting for us about this is that it's perpetual. As you know, The royalties that we invest in have a life of 10, 12, 15 years, sometimes a little bit more, but they expire and we need to replace them. In the case of the indexes, this is perpetual. It will go on for many forever. So with that, I'll turn it over I'll turn Back to Jim to give you a little bit more perspective on our strategy regarding earlier stage investments. Hey, Greg. Thanks for the question. Yes. It's a good question on going earlier stage and looking at whether there Our opportunities to invest in platforms and potentially bring in multiple products at I do think that over the years, we've demonstrated that we're creative and really kind of push the envelope in the royalty Industry for going earlier and finding ways that are risk aware to Go into earlier stages of development. We kind of push the envelope into pre approval. We've since Then done products that are even pre Phase 3 in a smart way and gotten returns on those. We actually made an investment just recently as part of the Orla Deo investment. We made an investment in BioCryst Factor D drug called 9,930 which was in Phase onetwo right now. That's an example of us going early as a part of a larger deal. So there are a variety of creative structures that we're Looking at right now that can give us some exposure to exciting new platforms and modalities and perhaps Kind of groupings of products. So I think that We'll just leave it at we're exploring those as a way to keep the opportunities coming. But we do think It's a good thing for us to be apprised of. And actually part of the reason that we wanted to form the Strategy and Analytics team is to make sure that we're using data in the best way to make sure we know where all the promising opportunities are To really kind of be mining opportunities earlier than we would before, as a way of A, following them, from an earlier stage, But B, I'm seeing if there might be opportunities for us to invest earlier. Thanks a lot. Our next question comes from Kathy Miner with Cowen and Company. Your line is open. Thank you very much for taking the questions. Just a couple. First, could you just clarify on the HIV that the royalty expires this year? Or is it sometime during the year? And are there any other notable royalties that expire during 2021? 2nd question is on the adjusted cash Receipts guidance that you gave, you said the increase was based both on the existing portfolio and on some of your recent additions. But is there Also, any change in your expectations for distributions? And the last question is a little more big picture. Do you expect drug pricing reform to Thank you. Sarah, can you take the questions please? Yes. So on your question on HIV, what we've said is that we expect it substantially end in 2021 and we have not been more specific than that. Your question On distributions as it relates to adjusted cash receipts, I assume you're referring to the distributions to non controlling interest? And in the back of our deck, we actually lay out what those different non controlling interests Are or were for the quarter? And so that's a pretty good guide for you for How to think about what they'll look like going forward? And then your last question was on Drug Pricing, and I think that Marshall is probably the best person to answer that one. Sure. Thanks, Terry. Good morning. Thanks for the question on So specifically to your question of how we think what the outcome of what may happen On the drug pricing front could impact our opportunity set for royalties. And regardless of what happens, I think We are very optimistic about the size of our market, the number of companies that are going Looking for potential funding. I think certainly we're all watching what It's going to happen in Washington and all of the stops and starts and puts and takes that we've seen. But I think we would we're focused on 2 things. One is, I think in terms of our current portfolio, we are we have a portfolio that's highly diversified Across products, therapeutic areas, marketers, geographies, payer types, all different types of diversification. And we've really focused on important drugs that are that really impacts patients' lives. So regardless of what happens, I think we feel good about where our portfolio stands now. I think looking forward, we really Don't think that whatever happens will meaningfully impact the number of new When you look at the rate of company formation over the last few years, we see that as a really encouraging leading indicator of the number of companies and the number of opportunities for us, the amount of innovation, how much is happening right now, We think those are all kind of overwhelmingly positive in terms of how things may look going forward. So I think Certainly, for all of us who have been around the industry for a long time, we are continuing to follow What's happening on the policy front, but we think all the positives and tailwinds for our business are remain and will remain in Our next question comes from David Risinger with Morgan Stanley. Your line is open. Yes. Thanks very much and thank you for the comprehensive update. So I have two questions. First, regarding the MSCI Indices Global recurring revenue opportunity. Could you just put that in a little bit more Perspective, I mean, it makes a lot of strategic sense for you. I think you had mentioned, Pablo, 3 to 6 basis points On assets for MSCI, what could Royalty Pharma realize? And should we think about this as being a Potentially $5,000,000 revenue opportunity in a couple of years for Royalty Pharma or a $20,000,000 revenue Just so that we have some context, that would be appreciated. And then second, Vertex has been aiding at recent investor conferences that it's excited about novel cystic fibrosis candidate Development including potentially reducing royalties as part of that, could you remind us about your position and next developments to watch. Thanks very much. Thank you, David. So With respect to MSCI, I actually would like at this stage to just be very cautious about The revenue contribution, just because it's something totally new to us that we would like to Understand better. And we do believe that revenue contribution This year probably we won't get anything. Why? Because the indexes have to be created then they have to be sold to The team at MSCI and ourselves will start to talk to some of the major investors in life sciences To actually see if they want to license the indexes, but what you will start to see is maybe some of the bigger ones A BlackRock or a Mundi or others, they might create an ETF if we launch an oncology index and oncology ETF or we Launch an early stage biotech and maybe an early stage biotech ETF and then mutual funds. So it will take time. And I even think that the revenue next year is going to probably be very small, because again it's all in the launch phase. But at some point this will gain momentum. And if you just look at the fact that today there's $400,000,000,000 invested in thematic indexes already $100,000,000,000 in ETFs and $300,000,000,000 in mutual funds and a lot of that is technology Because there is really Life Sciences is behind. It hasn't really happened. Could that $400,000,000,000 grow over the next 10 years to $1,000,000,000,000 I think it will probably. And what share of that is going to be life sciences? And then you have to sort of go through The economics that MSCI will get and then what we will get. So I think this is something that looking in Sort of the second half of this decade could become important, but maybe as time evolves And we get a better sense of how this could grow, we could be a little bit more specific. At this stage, I am very excited because It not only shows what we can do with the Royal Pharma model and things that were totally Unexpected. I mean, nobody thought of this, had it in their model. So it's potentially something new for us. And it also will benefit I mean, there was a question before about whether this will benefit our core business and absolutely it will. Why? Because In that effort of us really looking into Life Sciences and Trying to look in 3, 5 years as to what are going to be the important therapeutic areas And we'll also start to look at the companies that are starting to invest in that many of which may have things in preclinical. But if you start to look at those companies Track them through an index and you start to see how the value creation begins or how capital is shifting from Into those areas, it will give us a feel for that. And just as an illustration, I mean, things that Chinese biotech, for example, we looked at it last fall as we were starting to talk to MSCI about this. And I was blown away to realize we myself and the team have been going to China in the past years to try to explore If there's anything for us to do in that market. And I was blown away last fall where when I checked the market cap of Chinese biotech, It was about $700,000,000,000 And I think it went to size maybe $1,000,000,000,000 And there's about 800 Chinese Biotech companies that are public, 800 biotech companies, which is a very significant number. So it gives you a sense of what's going on in other markets And it will help us at Royal Pharma to make sure we're really understanding the space in a very deep way and we can understand the trends better. So that's Additional perspective that I wanted to provide. And then Dave on your question on the cystic fibrosis franchise, We've certainly heard comments from Vertex about future potential combinations and Potential lower royalty rates on those combos, our position is unchanged. So as it relates to any Combination that includes deuterated KALYDECO. Our position is that deuterated KALYDECO is simply KALYDECO and KALYDECO is a Collaboration compound that's royalty bearing. With regard to any other components Of combination products, I think there's a number of factors to consider. So which components are they? And Are they royalty bearing and at what level? And then as those combos move forward, it's time to enroll the Clinical trials in a population that is at this point pretty well served and then the Success and timing of potential regulatory approvals and then ultimate uptake versus Trikafta, which is A pretty remarkable drug for CF patients. So our view is we expect CF to be a very important contributor to our business for many years to come. And in the meantime, we're going to keep focusing on executing our business plan and adding Innovative new therapies to the portfolio. Thank you. Our next question comes from Umer Raffat with Evercore. Your line is open. Hi, guys. This is Mike DeFiori in for Umer. Thanks so much for taking my Just two for me. Just to piggyback on the previous question before on VERTEX. They've again recently been very clear that What their next gen triple combo may be and that Phase 3 is going to start this year. So my question is given that things are starting to To be more definitive, has anything changed regarding Royalty Pharma's long term outlook and potential willingness to do earlier stage deals, Just given the more certain step down in future royalties. And secondly and separately, Just the oral CGRP market outlook, especially with AbbVie's recent atogepant data and preventative migraine, Has your outlook changed regarding the implications for Biohaven's future royalty potential? Thank you. Thanks for the question, Mike. Terry, can you take the CF question and Marshall the migraine CGRP question? Yes. Mike, I think to be honest, I think it's really premature to be talking about any changes to our long term outlook. I think What I just said holds, we feel really confident in the long term performance of the CF franchise. As other products come along, it's all going to be sort of case dependent, but they are going to have to compete against Trikafta, which again It's a great drug and we're entitled to very attractive royalties on Trikafta. And then Would it change our strategy? No, absolutely not. I think we're going to keep doing what we've been doing And keep reinvesting in what we think are the most exciting wave of new products in this industry and that's the plan And that's what we're going to stick to. Hey, Mike. Good morning. Thanks for the questions on the CGRP class. So I think there's multiple aspects to it of what You're raising. I think at a high level, we are excited by what we're seeing on the oral CGRP market in terms of the uptake and the success that Biohaven and AbbVie are having there. And I think we've heard AbbVie On prior conference calls this quarter and prior ones really expressed their enthusiasm and excitement about potential of this category and we are certainly excited to be a part of that With Biohaven. I'd remind you that we have multiple avenues exposure to this market, certainly, Nurtec ODT in the acute market is part of it right now. Biohaven has The filing to have the first ever dual label for acute and prevention and the PDUFA for that Is coming up, so we think that's interesting. And then it would remind you too that we did a that we of our deal with Biohaven from last summer to support the vegepant development program and they are also exploring oral vegepant in the prevention market as well. We think it is an exciting category and we're excited to have kind of multiple ways that we can participate in that. Just lastly, I think it's a this also highlights an exciting aspect of the Royalty Pharma business model In that we can have multiple ways to play or participate in an exciting class Like the CGRPs. So we also have a royalty on Lilly's Emgality and then also on multiple of the oral CGRPs, which we think is pretty unique Aspect of our business model that we see a class in a market that we like and has a lot of potential and I think certainly The early launch of the oral CGRPs are bearing that out that we have the strategic flexibility to be involved in that in multiple ways. So we're excited about the outlook for CGRPs. Always. So, we're excited about the outlook for CGRPs and look forward to seeing that play out in the coming years. Got it. Thanks so much. And our last question comes from Andrew Vaughan with Citi. Your line is open. Thank you. Global system shocks such as the pandemic seem to be reshaping the relationship Between governments and the industry in a number of dimensions, so you've already addressed drug pricing, but if you look at IP in light of the comments on vaccine waivers And also tax, you can see how there may be increased risk compared to what we might have envisaged previously. How do you think about those Individual characters in terms of the risk for your operating model going forward. So that would be the first question. And then the second question is, There has been an increase in the number of competitors in your space. So Patient Square to ex KKR executives have Moved into your space, they're not just doing royalties, they're doing SPACs as well. How are you looking at the competitive environment and confidence that your Motor cash flows gives you in terms of continuing to secure the most attractive assets? Many thanks. Yes. So maybe Chris can take the first question. With regards to competition, In fact, all of the facts that have been created that and there's many of them that are investing in Sciences, I see those as actually additive to our Effort because what's happening there is that there's a ton of capital that actually has been raised by the SPACs that are focused in life sciences, Many 1,000,000,000 of dollars. And again, that's going to fund private companies, give them the capital they need To continue to invest in research to bring products forward and eventually they could become partners of ours companies that we could Partnering Collaborate to help them eventually bring products to market. So I think The more capital that is invested in Life Sciences, the better. And one other comment to make About this new index collaboration, I was in a conversation I had with The MSCI team, the Chairman and CEO mentioned that in the conversations they've had with World Government, World Bank, Hsiao, capitals flow Around the globe in the investment community and when markets open And a key market is not only geographically, but also think about it from an industry perspective. The fact that MSCI creates indexes attracts many 1,000,000,000 of dollars of capital into that space. And I gave the example of maybe an early stage biotech index or an oncology index or you name it, it can be many others. And then what is likely to happen over time is that as products Are created like ETFs or mutual funds to focus on that specific theme or new market, capital flows and then Companies end up getting additional capital to fund their research. So it's a very interesting phenomenon, but one that Like this whole the development of somatic indexes in life sciences is going to make the whole life sciences Investment opportunity more understandable, more accessible to investors and this will attract capital. So it's quite interesting from that perspective. And I think it and so I'll let Chris answer the other Question about impact to Life Sciences from big trends. Sure. Thanks, Pablo. And Andrew, thanks for the question. I think as it relates specifically to the intellectual property waiver, Yes. We don't see that as something that's going to impact our business long term. I know the idea has been floated And obviously, there's a global pandemic. And from a compassionate perspective, you want to get as many vaccine doses around the world as You possibly can and there's probably more efficient ways to actually just transfer excess doses once the supply is there As opposed to trying to waive intellectual property and with know how, obviously these vaccines are very difficult to make and manufacture. So I think it's probably more efficient ways to get the vaccines around the world than just waiving intellectual property. We don't see The need for compassionate use right now is impacting the intellectual property laws going forward. So we don't see that as impacting our business There are no further questions. I'd like to turn the call back over to Pablo Leggaretta for concluding remarks. Sure, operator. Thank you. Thank you to everyone on the call for your continuing interest in Royalty Pharma, my team and I look forward to continuing to share our progress with you. If you have any follow-up questions, please feel free to reach out to George. And thank you for joining the call, and I hope everyone has a good week. Thank you.