Everybody? I guess it's on. Okay, all fixed. Welcome, everyone. Thanks for joining us. My name's Michael Schmidt. I'm part of TD Cowen's Pharmaceuticals Research team. I'm very pleased to be joined by top management from Royalty Pharma, Terry Coyne, who is EVP and CFO, and Marshall Urist, who is an EVP and the Head of Research & Investments. Thank you for joining us.
Thanks, Mike.
Thanks for having us.
Royalty Pharma has a phenomenal portfolio. There's a ton to talk about. I actually wanna start, though, with an announcement you made recently vis-à-vis your ambitions in China and Asia more broadly. You hired a head of Asia. It seemed like an impressive hire and quite the coup. Maybe you could tell us a little bit about the new head of Asia and your ambitions in that region.
Yeah, sure. We made a really exciting announcement yesterday. We announced that we were hiring Ken Xuan, who is joining us from Morgan Stanley, where he was head of Asia Pacific Healthcare Investment Banking. That Morgan Stanley has an incredible franchise in China. It was really, you know, I think we got the best person we could possibly get there. It's really exciting for us. It's a big opportunity. There's been a lot of licensing deals out of China. We had our first transaction last year with BeiGene, which is its roots are in China. We think that there can be a lot more royalty opportunities coming from China over the years.
We felt like it was really important to have a local presence, and so we started a process to figure out who would be the right fit for us culturally, who had a great reputation, and Ken brings all of those things. We're really excited. We think that over the next couple of years, China could become a more and more important market for us and for our business. We helped establish the royalty market in the U.S. and in the West, and we think that we can do the same in China with Ken's help, so we're really excited about it.
Great. I failed to mention at the top, if anybody has a question in the room, please feel free to raise your hands, and we can call on you. Can you elaborate a little bit more on the China opportunity? What's so important about the region? How is it an opportunity for Royalty Pharma specifically?
Yeah. I think it probably not lost on anyone in this room or at this conference the kind of explosion of business development activity, licenses, partnerships that's happened over the last few years and, you know, one of the exciting things for us is, you know, it's a whole new market that is creating new royalties, right? When you look at what these are, these are, you know, royalties in the hands of multinational pharma companies that are being paid to a, you know, kind of biotech innovator. If that fact pattern, you don't mention China, has been our business from the very beginning, right?
You know, like Terry said, you know, just the volume of activity, I think, you know, momentum there, we will see that continue and, you know, that's a real opportunity for us, and we wanna be there. It's early, right? The, you know, you haven't seen any, you know, a, very many deals other than our transaction with BeiGene last year. you know, we see this as a, you know, as sort of a greenfield opportunity, and we're hiring the right team, and we have the patience to develop that market.
Great. Let's talk about some of your recent deals. You actually just announced one with Zymeworks. Can you summarize that deal and the asset in question?
Sure. Yesterday we announced a $250 million transaction where we bought a royalty from Zymeworks on a product marketed by Jazz called zanidatamab or Ziihera. It just had some incredible data for gastric cancer for HER2 positive gastric cancer. Horrible disease with a horrible outcome, this product showed a really robust overall survival benefit in a phase III trial. We're super excited about that product, sort of very consistent with our strategy of, you know, high-quality products that are bringing real value to patients. The way that investment will work is, like I said, we paid Zymeworks $250 million upfront.
We'll get 30% of their global royalties both from Jazz, who has the rights in the U.S. and Europe, then from BeiGene, who has the rights in Asia. You know, that will continue until we until we achieve a certain cumulative return, when it will go back to them. But we expect to own this for a while at this point, you know, nice, long duration. Sort of checked all the boxes for us.
Great. Maybe are there one or two other deals that you've done over, say, the last 12- 18 months that you would highlight because they're notable for one reason or another, or maybe, for the uninitiated, that exemplify what Royalty Pharma does and what the opportunity is that lies before you?
I think the Revolution Medicines deal that we announced last year was sort of a marquee transaction for us last year. It on a lot of fronts, it was very large, over $2 billion, so the scale was really big. It also kind of created what we think is a roadmap for other emerging small, mid-cap biopharma companies who want to retain the rights to their product and, but have big ambitions to develop, you know, become a global player in these markets.
You know, RevMed is just that, and I think that, for us, we see royalties emerging as not just the alternative to traditional equity financing or converts or debt, but also emerging as an, as an alternative to a pharma partnership where we can bring the same scale that a pharma partnership would bring without the other baggage that comes along with a partner and losing sort of the strategic control and, the strategic optionality. By maintaining that, I think is something that will accrue to RevMed's benefit, their shareholders' benefit, and we think that it's a model for other companies to follow. That was a really big deal last year and one that we think every company, you know, that's...
A lot of companies in these hallways took notice of that, and it's led to a lot of really good discussions and hopefully some deals that come from it over the next two years. I don't know if maybe other ones to talk about.
I think some other just to give people a sense of the spectrum of what we do. You know, we've funded large clinical development programs, mostly in phase III. We did a deal with Biogen at the beginning of last year to fund a program they have in lupus, so we can work with, you know, big pharma to help them fund R&D. Terry mentioned synthetic royalty, and then we, and then, you know, a typical kind of royalty transaction, we're still doing those as well.
We bought a royalty, that we referenced earlier on a great lung cancer product called Imdelltra last year for almost $1 billion from BeiGene that Amgen's launching right now and has, you know, and is doing really well commercially. Gives you a sense of the spectrum of how we work with all the parts of the ecosystem.
Let's talk about capital deployment. You're tracking ahead of your five-year goal for capital deployment, at least toward royalty acquisitions. Tell us a little bit about how you've achieved that level of capital deployment, what we should expect going forward.
It's, we're really happy with the level of deployment, but it's not just the number. That's, that matters much less than the quality of the products that we're bringing in. That's really what the what drives us and why has it grown so much over the last, you know, couple years. It's, it's because companies are recognizing the role of royalties as a, as a really attractive alternative funding source. The Royalty Pharma is recognized as a really great partner for companies. We can be there as they continue to scale. All of these things... Also, I mean, the, the macro is that the capital needs of the industry are large and growing.
Every company needs to be thinking about a whole menu of options that they can use to fund themselves, and royalties are, you know, at the top of the list. We haven't displaced equity, and we're probably not gonna displace equity, but we're kind of in that number two spot, which is pretty remarkable considering 10 years ago, there were barely any companies looking at royalties as a way that they funded themselves. When we think about the forward, you know, we've continued to say that we're gonna do at least $2 billion-$2.5 billion.
We would describe that more as sort of a modeling assumption that we're giving to investors is like, plug this in your model if you need to think about what the cash flows are gonna look like from new investments, assume $2 billion to two and a half billion dollars. I think everyone at Royalty Pharma feels like that's probably a pretty conservative number, and that the number could be a lot bigger than that. It's gonna be totally dependent on the quality of the products that come along, and we don't feel like we have to do more. If there are years where we can't even do that's totally fine. We'll be patient. We'll wait for the right things to come along.
The market has clearly shown that it's a lot deeper now than it was, you know, a couple years ago, and that's a really good thing for our business.
Okay. Any questions from the room? Of course, all these deals are meant to drive your top line. You have some long-term guidance out to 2030 for $4.7 billion in revenue. What does that imply about your growth from here, and how do we achieve that goal?
I think we feel like, at our Investor Day in September, we laid out. Actually, we reiterated the guidance that we had given a couple years prior, $4.7 billion. At that time, consensus for Royalty Pharma was only $4.1 billion. It's ticked up a little bit, but it's still not all the way there. What that implied at the time of Investor Day was at least around 9%, I think, was the growth number. That stacks up really favorably, you know, as you know, to any other large pharma company.
When you think about how we're gonna get there, about half of it is from things we already own, and then half of it are things that we're gonna invest in over time. We feel like that number, you know, could that number be bigger? Yeah, you know, potentially.
Sorry. Half of the growth.
Half of the growth. Yeah. Yeah. Sorry. Half of the growth. Could that number be bigger? Absolutely, I think, but we feel like at this when we gave the number, consensus was still quite, you know, quite low, and it still hasn't even gotten to that number. Feel like we're in a really good spot and, you know, can continue to show investors that we can deliver predictable, top-tier, long-term growth that's diversified because our portfolio is so diversified. That translates to continual cash flow that we get to reinvest in new deals and continue to generate really attractive returns.
So, uh-
Return capital to shareholders.
Actually, maybe you could talk a little bit about how that $4.7 billion falls to the bottom line, and some of the specifics around Royalty Pharma's P&L that make it, we think, very attractive.
Yeah, the beauty of the business is it's pretty simple. $4.7 billion on the top line. We've said that we expect our operating and professional costs to be about 4%-5% of that, so call it 95% Adjusted EBITDA margins. The only other cost below that is interest expense. You know, we've guided to, in the around $360 million-$370 million this year, I think, of interest expense. George, correct me if I'm wrong. That's kind of the run rate. It'll go up a little bit as we refinance and, you know, rates have gone up a little bit, so.
Overall, it's a very efficient business model. All of that cash drops to the bottom line. We have a lot of optionality in what we can do with it. We can increase our the volume of royalty deals and increase the amount of capital we deploy, we can increase the dividend, and we can also increase our share repurchase program. We already have a repo in place. We have $1.8 billion remaining on that as of the end of last year and, you know, that's one of the tools that we'll also keep using.
Great. So you touched on this a little bit already, Terry, but your ability and the cadence of capital deployment depends a bit on the opportunity set and the quality thereof. Let's say we get to 2032, we look back five years. What do you think is the likelihood that Royalty Pharma has deployed less capital in that span of the previous five years? It sounds like the likelihood is pretty low. Maybe you can answer that question, and then just tell us what are the forces that push in either direction, Marshall, in terms of quality versus quantity?
Yeah. I think like Terry said, the first part of your question, I think we feel super confident in the scale of the opportunity. You know, when you look at how much the role of royalties in funding our ecosystem has changed, I think we still feel really strongly we're still on the upswing with that. You know, that's why we mentioned, you know, companies that own royalties are increasingly seeing them as a source of capital. Companies see creating royalties to fund their launch or their phase III trial as a key part of the capital structure, you know, there's the opportunity to fund R&D with global pharma companies. When you think about all of those things coming together, the capital needs of the industry is only growing.
You know, I think we feel good about the opportunity and certainly upside to it. The most important thing though, Terry mentioned it too, is that look, we are really disciplined and patient, right? If it's not there, we're not gonna do it. You know, I'm sure we'll talk about our capital deployment framework, we've sort of laid out for shareholders kind of how we think about all of that if, you know, there's not a pressure on us to deploy capital. You know, I think it is gonna be opportunity driven, you know, there's just so much of that out there that we're really excited.
Any questions from the room? Let's talk a bit about the portfolio, but from a bird's eye view. What is the source of your royalties and the split of your current portfolio in terms of biopharma, foundations, universities, and then also development stage versus commercial stage, and how has that changed over the years?
In terms of the mix of biopharma versus foundations and universities, the dominant source is biopharma. The foundation, the CF royalty came from the Cystic Fibrosis Foundation, that's a big one, but we don't really have much else there. We certainly have a number of academic royalties, but the area that's been growing the most has been the biopharma market, and particularly synthetic royalties. Those are royalties that we created, like the Revolution Medicines deal. As far as the mix of the portfolio right now of development stage versus approved, development stage represents around 10% of our total capital at work. It's pretty small when you think about the overall portfolio. Within that, there are things. There are products with varying levels of risk.
There are things that have already seen their phase III card read out, and we're just waiting for FDA approval. There are things that we're still, you know, in phase III trials and waiting for that card to turn over. When we think about the overall risk profile of the business, it's quite low and quite, and we think really manageable. It's been around that, you know, high single digit, 10% level for a while. It will, you know, I think could it go up a little bit from there? Potentially. Overall, the, you know, when you think about the size of the overall portfolio, it's a very manageable risk level.
Okay.
The other cool context for that, I think, is if you compare that to our capital deployment on that same metric, right? Which is, you know, pre-approval capital deployment has been closer to probably 40% of our total capital over the last, over the last 10 years. It's been very stable there. You think about what's been happening, and I think that's a, you know, interesting part about our business is, you know, it's cumulatively it's 40%. At any one time, like Terry said, it's like high single digits, 10%, because, you know, the things, the composition changes, right? We've had really great success with phase III trials reading out positively, products being approved and launches, and then they obviously go into our commercial portfolio.
You know, it's been a really important driver of our business, but if you take that snapshot, it's actually very small, which I think is, you know, and it's really attractive part of our business where, you know, it's not binary event driven. You know, it doesn't have that aspect of what, you know, a lot of biopharma investing is.
Sure. Maybe we could talk about the market backdrop and whether that affects Royalty Pharma's business at all. A lot of macro in the news at the moment. Does the performance of public markets matter to your ability to deploy capital or your rate of return?
This comes up all the time, and there seems to be an assumption that we will do better in bad markets where the capital markets are closed, and worse in good markets where funding is readily available. We don't feel like that's true at all. We feel like our business is totally agnostic to the market backdrop. We had great years in 2020 and 2021 when the markets were booming, and we did well throughout 2023, 2024, and 2025. We don't feel like we're driven by the overall market environment. Why is that? Because I understand why people would make that assumption. It's because the needs are so big. The capital needs are so big that for a company to bring a drug to market, it's billions of dollars.
They have to pull from so many different resources. It's hard to do that all with equity. Even if you're really successful and even if the markets are open, it's very tough to do that all with equity. We're also more attractive than equity from a cost to capital perspective, from a dilution perspective. It's product specific. We're taking risk alongside the partner directly in a program. For all of those reasons, we, you know, feel like it's a really attractive alternative to equity even when companies' valuations are stronger. We've shown it. So we feel like we can continue. Who knows what the rest of this year's gonna look like? We think we can continue to perform well, regardless of the backdrop. Anything else to add?
No.
Okay.
Let's talk about competition to the extent that there is any. What would you say are the key differences between Royalty Pharma and your competitors?
I think this is another question we get asked a lot. I think there's also a perception that in the past, the market was totally not competitive, and today it's competitive, and I think that's not true, right? You know, there have always been competitors around, and we've continued to build the business and be successful because of those competitive advantages, which I'll talk about in a second. The other really important thing is, I think if you ask all of us on our team, we really think that competition has been a major positive, having other people in the market for our market. It has, without question, made the market bigger, deeper, stronger, created more volume. The pie is bigger, and we've benefited from that.
I think, you know, as royalties are and structured financing is more attractive, there's gonna be other people around. We're not here to do every deal in our space, right? I think having a really robust market is, without question, been a real positive. You know, why have we been successful? I think it's a few things. I think number one, it's our brand and our tenure in this market, right? We've been here for 30 years. We operate in a really partner-friendly, win-win way, and I think we say what we're gonna do, and we do it, and we try to be a really great partner. I think that's number one. Number two, the scale that we have and our core underlying financial strength of our business is without peer in our industry by a wide margin.
You know, having $3 billion plus of royalty revenue every year, being able to redeploy $2 billion-$2.5 billion as a self-funding evergreen business is completely differentiated from how other people function in our market, and I think that's a, that's a major differentiator that allows us to compete from deals like we announced yesterday, which is a very mature, about to launch product, to, you know, working on phase III with things that are not gonna be on the market for years and years. The third thing I'd mention is, you know, is our team. Our infrastructure and our ability to due diligence and really invest in our analytical and due diligence platform that we have is also bigger and bigger and broader and deeper than any of our peers.
You know, you bring all of that together, and I think, you know, we feel really excited about our ability to not just to compete, but to be an innovator who can grow our market and figure out new and different ways for us to work with companies.
Okay. Any questions from the room? The marketers of the drugs on which you purchase royalties are not always competitors for those royalties, but they are competitors in the sense that they compete for the attention and capital of the folks in this room. What are some of the differences between Royalty Pharma's business model and traditional biopharma that should make them pay more attention to you than perhaps they do?
It's just very different. I mean, we're a very large, diversified business that has a consistent growth and cash flow. The cash flow is always a very big difference versus a lot of the other companies that are presenting at this conference probably. I mean, and the diversification is something that also oftentimes gets overlooked. Right now, in 2025, the top three products in our portfolio represented around 30% of our top line. Or sorry, 45% of our top line. When you compare that to big pharma, top three products represented around 55% of their top line.
In midcap biotech, it's more like 85%. When you fast-forward to our estimate for 2030, we think that the top three products in our portfolio are only gonna be around 30% of our top line. Big pharma's gonna stay around the same. They're around 50%, and mid-cap biotech is expected to be around 75%. When you take it a step further, and this is something that oftentimes gets overlooked with our business, the strength of our business, is our diversification on the top line is exactly the same on the bottom line, so there are no costs that come along with these drugs. 2030, top three products are expected to represent 30% of our top line, 30% of our bottom line.
Compare that to big pharma, where we know that the biggest products tend to have an outsized impact on their profits. The top 3 products are expected to represent around 80% of their bottom line. Mid-cap biotech, they're using all of their profits and then some to fund their pipelines, that's an area where we feel like it's, you know, a real differentiator for our business model. It allows us to deliver this predictable top and bottom line growth. Just the size of the market and how we operate in the market is so different from everyone else because we're completely therapeutic area agnostic. When you look at the deals we did last year, you know, we touched almost every different therapeutic area.
We do that year in and year out, and we're focused on the highest quality products. We have no sort of constraints driven by previous infrastructure or therapeutic area biases. That allows us to find the best products that consistently outperform, and we have a track record of really strong consistent outperformance.
Great.
The last thing I should mention is just returns. We're in the returns business. We've delivered consistent IRRs on the deals we did since our IPO. We're expected to generate mid-teens IRRs. Our return on invested capital has been consistently year in and year out in the mid-teens. Our return on equity has been in the low 20% range. These are real differentiators when you compare us with other companies that probably don't know what their returns are when they're doing business development deals.
Maybe to make one other point related to that, which is, you know, the other thing I think that's differentiated about our business is I think our ability to grow through the, you know, natural loss of exclusivity.
That's another great point.
...in our portfolio. We have a way easier time than large pharma very often does. I mean, how much debate and time is spent thinking about sources to offset LOE of successful products, right? You know, what we've shown is because we're completely agnostic, because we can look everywhere, because we have no constraints, like Terry said, you know, our ability to continue to grow over time, you know, we have such a larger number of opportunities and sources to find those things to sustain our portfolio and our growth.
Especially over the next decade, that's gonna be an important differentiator.
Yeah.
I'm gonna ask you a very unfair question. It's one that I get a lot about you all. Are you better than your peers at picking molecules?
You know, look, we always wanna be humble, right, about this. You know, we come to every deal, you know, and really focus on doing the highest quality work and the deepest work than we can. I think one thing we do have over our peers is, look, we've been at this longer, right? We have more. We talked about this a lot at our Analyst Day. We have more institutional knowledge, you know, of doing royalty deals and looking at products, looking at products in the way a royalty investor should, right? We probably do bring greater sort of diligence resources, like I was saying.
You know, because we are set up as an ongoing business, you know, we can spend millions of dollars a year to do, you know, to have all the sources of data we have to do the work we need to do. You know, I think all of that comes together in the fact that we feel really confident, like Terry said, about our ability to pick winners and win the transactions we wanna win.
Right. A big theme so far at this conference, and obviously in the zeitgeist, is AI and its role in biopharma. Maybe we could distill it down to a single example, maybe just from the last week, where you all have used AI in your day-to-day business activity as a Royalty Pharma. Just an example.
Yeah. I'm only hesitating because, like, you know, I think we've done some really cool and interesting things to use AI in our diligence process, but maybe without talking about any sort of details, we've definitely seen lots and lots of opportunities to analyze data at scale, using LLMs in really interesting ways that we then combine with our internal datasets. You know, that being said, I think we're, you know, very open in trying to figure out exactly where are the best kind of value add opportunities out there, we're gonna continue to invest and, most importantly, make sure we have the right team there to, you know, to apply all of these incredible technologies in our business.
Great. We're just at the top of the hour, but I wanna ask a final question, which is: In 10 years, what will be the biggest surprise or change when we look at Royalty Pharma from that vantage point relative to today? Any of you.
From AI or just in general?
In general.
Yeah.
I hope that in 10 years people realize that this business is sustainable and that we can continue to grow consistently year in and year out, and we probably hopefully get less questions about competition.
Fair enough. Great place to end.
Yeah.
Thank you so much for your time, guys.
Yeah. Thanks for having us.
Greatly appreciate it. Thank you.