Ladies and gentlemen, thank you for standing by. Welcome to Royalty Pharma's conference call on the MorphoSys transaction. 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 transaction with MorphoSys. You can find the slides from this call on the investors page of our website at royaltypharma.com. Moving to slide three, I'd like to remind you that information presented in this 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-K on file with the SEC for a description of these risks. With that, please advance to slide four. Our speakers on the call today are Pablo Legorreta , Founder and Chief Executive Officer, Christopher Hite, EVP Vice Chairman, Marshall Urist, EVP, Co-Head of Research and Investments, and Terence Coyne, EVP Chief Financial Officer.
Pablo will discuss the key highlights of the transaction, after which Chris will discuss our role in M&A as part of the funding solutions we provide. Marshall will then provide details on the royalties we're acquiring through this transaction before Terry reviews the financial aspects. After concluding remarks from Pablo, we will hold a Q&A session. With that, I'd like to turn the call over to Pablo.
Thank you, George, and welcome to everyone on the call. Today's $2 billion strategic funding partnership with MorphoSys is our biggest and boldest transaction since Royalty Pharma went public last year. It is also a great example of the important partnering role we can play in the broader biopharma ecosystem and our ability to advance win-win funding solutions for the companies involved as well as for patients. More specifically, our strategic funding partnership with MorphoSys will enable its transformative acquisition of Constellation Pharmaceuticals, which will accelerate its growth strategy. Through this acquisition, MorphoSys will add promising pipeline candidates, bolster its position in hematology and solid tumors, and strengthen its research and technology capabilities. The scale of upfront capital we're providing to MorphoSys to accomplish this deal is unprecedented for an acquirer of their size and highlights the unique value of Royalty Pharma as a partner.
On slide seven, I'm delighted to share with you why we believe this transaction is so strategically and financially attractive for Royalty Pharma. First, for Royalty Pharma, the anchor of this transaction is the royalty we will receive on TREMFYA, a leading immunology blockbuster in the growing psoriasis market. Second, we will add four attractive development stage therapies to our royalty pipeline, with two coming from MorphoSys and two from Constellation Pharmaceuticals. Each of these therapies offers significant upside potential to the transaction. Third, not only does this deal significantly diversify our portfolio across therapeutic classes, products, and marketers, but it will also significantly enhance our expected long-term growth potential, as Terry will discuss in more detail.
By providing development funding bonds as part of the consideration for the transaction, we believe this rounds out the overall risk-return profile of the deal by providing a stable, long-duration cash flow stream with an attractive IRR and multiple. Lastly, our ability to execute such a complex transaction really speaks to the breadth of our funding capabilities and our unique role in M&A. We served as one-stop shop for MorphoSys to pursue its strategic goals. For us, this is a strong demonstration of our flexible and leading approach to funding life sciences innovation for the benefit of patients globally. On slide eight, you see a summary of the funding we're providing to MorphoSys. The largest element is an upfront amount of $1.425 billion, which we will pay upon closing of MorphoSys' acquisition of Constellation, underpinned by a royalty on J&J's TREMFYA.
On top of this, we will make up to $150 million in payments related to the achievement of clinical, regulatory, and commercial milestones. In order to advance MorphoSys' pipeline, we have agreed to provide up to $350 million in development funding bonds with flexibility to draw over a one-year period with a minimum draw of $150 million. We will receive fixed payments on these bonds for 9 years, with the first payment beginning 8 quarters after the first draw. We expect our returns likely north of 2x and low teens IRR on these bonds. Lastly, we have agreed to acquire $100 million in MorphoSys equity, which is expected to be priced using a five-day volume-weighted average price of MorphoSys common equity at around the time that the acquisition of Constellation Pharmaceuticals closes.
All considered, this component's total funding of around $2 billion, making it the third-largest royalty-based funding deal ever in biopharma. Slide nine provides more detail on the strategic elements of the transaction. In TREMFYA, we have the opportunity for our new top royalty within our current portfolio by 2025. Based on blockbuster sales from its approved indications, also with the potential for label expansion into other immunological disorders such as ulcerative colitis and Crohn's. From MorphoSys' in-house royalty portfolio, we're also acquiring royalties on gantenerumab, which would be marketed by Roche if approved, and Otilimab, which would be marketed by GSK if approved. These are two attractive phase III therapies which could enter potentially large markets for Alzheimer's disease and rheumatoid arthritis respectively.
From Constellation's portfolio, we will gain synthetic royalties on 2 earlier stage therapies, namely pelabresib, which has demonstrated impressive phase II results in myelofibrosis and CPI-0209 for solid tumors and hematological malignancies. Lastly, the development funding bonds provide a stable long duration cash flow stream that lowers the overall risk profile of the deal for Royalty Pharma and provides funding flexibility for MorphoSys. Slide 10 sets out how this transaction aligns with all three of our stated strategic pillars. On TREMFYA, it provides Royalty Pharma with royalties on market-leading approved therapy with a long duration and significant growth ahead. It also provides royalties on late-stage therapies with strong proof of concept data that could be important treatment options in large markets.
Overall, it provides a diverse set of royalties acquired through an M&A transaction in which we play an important funding role to enable a partner to achieve its strategic objectives in advanced life sciences innovation. Slide 11 shows our clear leadership position in larger royalty transactions. In summary, Royalty Pharma has transacted on 14 of the 16 royalty deals above $500 million, as well as the top three largest biopharma royalty deals ever, showing the distinct benefit of our scale, cost of capital, and proven due diligence process that gives us confidence to pursue larger transactions. We also have an overall market share of nearly 90% in these large deals. This reflects our many years of experience in tailoring flexible win-win funding solutions for our partners, as well as the exceptional caliber and reputation of our research and investments team.
We expect to remain a leader in funding life sciences innovation for many years to come. Let me now hand over to Chris to expand on our unique role in M&A.
Thank you, Pablo, and good morning to everyone. Advancing to slide 13, I want to expand on the third strategic pillar that Pablo just described, as we see major potential to enhance our core royalty business through M&A-linked transactions. If we take a step back and think about the position of many mid-cap biopharma companies, there has historically been real funding challenges when considering M&A opportunities. Banks and other lenders are just not in a position to lend or provide bridge financing to mid-cap biopharma companies that do not have a track record of earnings. This has resulted in mid-cap biopharma acquirers attempting to acquire other companies using just their equity as a form of consideration. Not only has equity been the only viable funding source, it's even more challenging for those acquirers that are pre-profitable.
Without tangible, predictable cash flows, there has been a natural hesitancy for these companies to use their stock, given different perceptions of value and the dilution concerns. The boards of most targets prefer all or mostly cash as consideration, which is why over 90% of the deals are all cash. For these reasons, M&A has never been a viable option for many mid-cap biotechs. In addition, the universe of mid-cap biopharma companies has grown fourfold in the past five years to around 200 companies, creating multiple new opportunities for consolidation and growth. Despite the dominance of large cap biopharma companies in M&A in the past decade, we believe there's a clear opportunity for mid-cap M&A, where Royalty Pharma can provide the capital needed using the types of flexible, tailored funding solutions you see today in this deal.
In addition, the recent comments about potential heightened scrutiny on M&A deals where large cap biopharma is the acquirer could also make mid-cap to mid-cap M&A even more viable. Advancing to slide 14, Royalty Pharma has truly differentiated capabilities that can meet the funding needs for mid-cap M&A. Not only do we have the track record and experience providing the tailored win-win solutions that Pablo mentioned, but we can do so at scale due to our access to capital, our ability to create unique ways of monetizing non-strategic assets, our ability to create synthetic royalties where no royalties exist, and the long-term focus of our business. All of these elements came together in this exciting transaction with MorphoSys.
By building a close relationship with MorphoSys and understanding its needs, we were able to provide up to approximately $2 billion in acquisition and pipeline funding, enabling it to acquire Constellation, and in so doing, helping MorphoSys to build a focused oncology platform with a significant cash runway. In return, Royalty Pharma will receive three royalties that were non-strategic for MorphoSys, including those from TREMFYA, royalties tied to two products from MorphoSys' acquisition of Constellation, and development funding payments. Across the six cash flow streams for Royalty Pharma, we expect to deliver an attractive return for our shareholders. We are confident that this is the first of many M&A deals in the mid-cap biopharma space, we look forward to playing a leading role in this space.
With that, let me hand to Marshall to tell you more about the royalties we are acquiring.
Thank you, Chris, and hello, everyone. Through today's transaction, as you have heard, we are acquiring royalties on five products, one approved and four in the development stage. As Pablo noted, this will further diversify our portfolio in terms of therapeutic areas, products, and marketers. Turning to slide 16. This transaction is largely anchored on the mid-single-digit royalty we are acquiring on Janssen's TREMFYA. TREMFYA is a leading anti-IL-23 antibody used in the treatment of psoriasis and psoriatic arthritis. TREMFYA sales exceeded $1.3 billion in 2020, with consensus estimates reaching over $5 billion by 2030. This is based on category growth and the potential for label expansion into Crohn's disease and ulcerative colitis. Based on consensus sales projections, TREMFYA will enhance our long-term growth rate and is expected to become one of our top royalty streams by 2025.
I should also add that Janssen is a premier marketer with a deep presence in immunology, meeting the key criteria we consider when acquiring royalties. On slide 17, the other two MorphoSys-generated royalties will also benefit from strong marketers, Roche for gantenerumab and GlaxoSmithKline for otilimab. Gantenerumab is an anti-amyloid-beta antibody in late-stage development by Roche for Alzheimer's disease, with Phase III data expected in the second half of 2022. While this royalty certainly sits on the higher end of the risk spectrum for our portfolio, it also offers significant upside potential given the size of the AD market, with around eight million patients in the U.S. and 16 million patients globally. Roche has taken an intelligent approach to its Phase III design based on learnings from previous trials, including a focus on patient selection, higher levels of dosing, and long duration of therapy.
We also like the potential commercial advantages created by gantenerumab's subcutaneous dosing. otilimab is an anti-GM-CSF antibody in phase III for rheumatoid arthritis by GSK. We expect data from three ongoing phase III studies in RA in 2022. Each of these two attractive phase III medicines has a potentially differentiated clinical profile, and each would diversify the TA coverage of our portfolio and maintain its long duration. For gantenerumab, MorphoSys is entitled to tiered royalties between 5.5% and 7%, and we are acquiring 60% of those royalties. For otilimab, MorphoSys is entitled to tiered double-digit royalties, of which we are acquiring 80%. Additionally, MorphoSys is entitled to royalties from GSK that we are purchasing 100% of. Advancing to slide 18. As part of the transaction with MorphoSys, we are also creating synthetic royalties amounting to 3% of worldwide net sales for pelabresib and CPI-0209.
Pelabresib is a BET inhibitor in phase III for myelofibrosis. CPI-0209 is an EZH2 inhibitor in phase II for solid tumors and hematological malignancies. These are the key assets underpinning MorphoSys' $1.7 billion acquisition of Constellation. Both of these development-stage therapies offer a unique clinical profile. With that, let me hand the call over to Terry.
Thanks, Marshall. Let's move to slide 20. We are very excited about the shareholder value creation potential of this transaction. In terms of our non-GAAP income statement, we expect this transaction to add at least $150 million to Adjusted Cash Receipts by 2025, with a growing contribution in subsequent years. This figure conservatively assumes just the TREMFYA royalties and cash payments related to $150 million of development funding bonds. With multiple shots on goal from development-stage therapies with very attractive sales potential, this figure could prove conservative. We also expect to generate an attractive unlevered IRR on this transaction, with TREMFYA and the development funding bonds forming a solid base return for the deal, with significant upside potential from the development-stage therapies. As Marshall said, this will further diversify our portfolio with long-duration innovative therapies and provide a compelling mix of growing cash flows and pipeline optionality.
In terms of financing, we expect to fund the transaction with existing cash on the balance sheet. As a reminder, we ended the first quarter with $1.8 billion of cash on the balance sheet, and given our highly efficient operating structure, the business generates significant cash each quarter. This represents the third-largest transaction that we have ever done, and in aggregate, we have now announced approximately $4 billion in new transactions since our IPO from balance sheet cash and cash flow generated by our business. These new royalty transactions, and in particular, the transaction with MorphoSys, enhance the scale, diversity, and duration of growth of our portfolio. This transaction is expected to be leverage-enhancing with our June 30th pro forma debt to EBITDA estimated to be approximately 3.3 times.
As a reminder, the way we think about our sources of capital for funding royalty acquisitions is we will first look to cash on the balance sheet, then look to the debt markets with a clear commitment to maintain our investment-grade credit rating, and finally look to the equity markets. Given the cash generation of the business and pro forma leverage of 3.3 times, we feel very comfortable with our dry powder to acquire attractive new royalties. As a reminder, we said in the past that we are comfortable taking leverage up to four times or even a touch above four times when there is a clear path to de-levering over the near term. Our $1.5 billion undrawn revolver also provides us with significant financial flexibility.
In terms of timing, the deal will be effective upon the closing of MorphoSys' acquisition of Constellation, which is expected in the third quarter of 2021. Depending on the precise close, we will receive our first TREMFYA royalty receipt in either the third or fourth quarter of this year. With that, I'll hand the call back to Pablo.
Thanks, Terry. In conclusion, this is not only an attractive transaction in its own right for MorphoSys and Royalty Pharma, but one that firmly establishes us at the forefront of providing tailored win-win solutions in mid-cap M&A, a market that could grow substantially in the coming years. This, in turn, will help to sustain our unique leadership role in funding the golden age of life sciences innovation. I would like to open up the call to Q&A. Back to you, George.
Thank you, Pablo. We'll now open up the call to your questions. Operator, please take the first question.
Our first question comes from Geoff Meacham with Bank of America. Your line is open.
Hi, good morning. This is Bill Mon for Geoff Meacham. Congrats on the deal. Two questions for me. How do you view the ulcerative colitis and Crohn's indications for TREMFYA in terms of magnitude versus the currently approved indication? On gantenerumab, how are you thinking about the likelihood of success there? Do you think that this upcoming PDUFA for aducanumab may affect that one way or the other? Thank you.
Sure. Thank you for the question. Marshall, can you please take the question?
Sure. Good morning. Thanks for the question. On TREMFYA, I think when we look at the various sources of growth there, I think there are very meaningful contributions from multiple sources. The first is ongoing volume growth in the current two indications, psoriasis and psoriatic arthritis. Those markets have shown remarkable growth over the past few years, even as you've had more competitors. There is just a secular growth driver there that biologics remain under-penetrated in psoriasis, plus improving profile in terms of efficacy and convenience for the available agents. We expect continued significant growth contribution there. On IBD, that is also an important pillar of the growth story. We're starting to see some readouts from others in the class, and certainly, we expect TREMFYA to play a significant role in IBD.
I think the important thing to mention there is Janssen obviously has very deep experience in that market. That will be important as the TREMFYA data readout and IBD launches. On gantenerumab, I think your question was on the aducanumab PDUFA. The way we thought about that was this investment in gantenerumab wasn't really premised on one outcome or the other for the aducanumab PDUFA. Obviously, a tremendous amount of focus on that with it coming up this week. As we thought about it, and as we mentioned in the prepared remarks, the gantenerumab-based program really stands on its own. It's two large, well-controlled studies that incorporates a lot of the learnings over the last few years in how to design these trials, what population to include, how long to dose, what dose to use.
We really came at it from that perspective rather than thinking that the outcome for aducanumab here, just given all the complexities that you guys are very familiar with would really impact that one way or the other.
Okay, thank you very much.
Our next question comes from Gregg Gilbert with Truist Securities. Your line is open.
Thank you. Good morning. I have two. First, a kind of a nuts and bolts consensus question. Do you think consensus estimates for the assets involved are pretty reasonable, or would you point to any particular strong differentiated view you have on sort of revenue potential? My other question, perhaps for Christopher Hite, I was really intrigued by the mid-cap M&A comment and where Royalty Pharma could fit in there. When you're talking about banks and their lack of willingness to sort of fund mid-caps that lack cash flow, is it really a financial question about cash flow? Is it banks' lack of willingness to take an educated view on the NPV of an unapproved asset, and that's where you come in, maybe put a little more meat on the bones there as to what you're willing to do that banks just don't do or can't do. Thanks.
Maybe Marshall Urist can provide an answer to the first part of the question. Chris Hite should answer for sure the second one. One comment I would make is that there's just no history, and it's highly unlikely that a bank is going to put capital at risk to fund a transaction where there's significant value that's based on binary outcomes, a trial readout or those kinds of things. That just doesn't happen. That funding is not available when you actually are basically relying on something that has a binary outcome. We can take a view on products, and we can take a view on trials reading out, and we can come in and provide significant capital in those cases. Marshall Urist, do you want to take the first question?
Sure. Thanks, Gregg. Just on consensus. First, I think it's important to keep in mind that for each of the products in this partnership with MorphoSys, we obviously generate our own internal forecasts and look at a number of different scenarios of potential commercial outcomes. It really is a scenario-based analysis like we've talked to you before. When we look at consensus, I don't think we're going to comment specifically on any one product and the consensus estimates there except to say, we looked at a range of outcomes here, and we're comfortable with this investment on that basis. When you look at the development stage products, consensus can be a little complex to look at just because there's varying levels of risk adjustment and what indications are included, et cetera. Always challenging to know exactly what's in those numbers.
Suffice it to say, I think we are optimistic and excited about this group of products that we're investing in. I'll pass it over to Chris.
Thanks for the question, Gregg. I think the data that we pulled and looked at, we actually put on slide 13, I think you've been in the industry a long time, I think everybody recognizes the lack of mid-cap M&A where the acquirer is the mid-cap party. When you actually pull the data and look at it sort of is striking, right. Companies under $5 billion from an acquirer perspective only make up 4% of the deal volume. We all know it, when you see it is quite striking. I think Pablo actually hit the nail on the head, which is banks aren't going to buy these royalty assets or take binary bets on buying the royalty assets. They are lenders. They're looking at cash flow. They're looking at LTM cash flow.
For many companies like MorphoSys that actually have they're in launch mode or late-stage development assets that they want to consolidate. Obviously, there are lots of deals out there where it makes sense to consolidate mid-cap biopharma companies. The cash flow is just not there for the banks to lend against. We think we can play a role there, and we think that there could be a lot more M&A deals like this going forward in the sector. We hope to play a role.
Maybe just adding one quick thing to what Chris said here, just to give you a little bit more color. Even situations where a company may have one drug, and it's very difficult for lenders to actually lend against one product. Generally, they want a diversified portfolio. If we can actually provide capital when there's no approved product, obviously with one approved product, we can also do that, and do it at scale. That's another thing to keep in mind that I think gives us a great advantage to partner with companies to help them achieve their strategic initiatives.
Thank you.
Thank you, Gregg. Operator, take the next question.
Our next question comes from Terence Flynn with Goldman Sachs.
Hi. Thanks for taking the questions. Maybe two for me. First was wondering if you could comment on your targeted IRR for the TREMFYA royalty piece and the bonds. I know you commented on the bond piece, but again, if you look at both of those together, kind of what you're targeting there. Then for Chris, a follow-up to the last question on the mid-cap to mid-cap M&A. Have you guys already had similar conversations with other companies like you've had with MorphoSys, as you referenced in your prepared remarks? Do you think this deal will catch people's attention and essentially lead to more of those conversations? Just kind of curious about the top of the funnel and what you're seeing already in terms of the mid-cap M&A. Thank you.
Maybe to answer the first part of the question, which is the one related to the expected rates of return. The TREMFYA investment fits very well within our target returns of high single digit, low double digit for an approved product. This, by the way, is very attractive because it has an incredibly strong marketer, one of the best marketers in the world, in a very attractive space, and it's a drug that has very significant growth potential. There was a question asked about ulcerative colitis and other indications, and we're excited about those. It actually, as I said, meets the target expectations we have. Also the bonds, I think that kind of financing is very attractive, I think, for companies at this stage because it's very long-term, very flexible capital.
We can provide money, commit today, allow a company to draw when they need that capital in a year, and then also give some time for them with no payments. When we think about these things, these companies need to invest. It's silly for us to give them money and then ask them for us to start to earn our return very quickly. So we can be patient. In this case, for example, there would be about two years of no payments because they can draw a year from now, then there's a year of no payment. Then we collect over a long period of time, nine years. It's actually very flexible, very long-term. It's scalable. We're committed. They could draw another $200 million as needed.
That provides a company like MorphoSys with a very attractive pipeline it has, the flexibility to fund it and invest in it. We're very excited about being able to provide that kind of supplemental capital to our partners to help them achieve their initiatives. I'll turn it over to Chris about sort of a mid-cap M&A. One thing I would say is that myself and the team are very active in having many discussions with Big Pharma, with mid-cap pharma about M&A, and we're proactive. We actually go to companies and talk about potential transactions, things that we think could be attractive to them. In some cases, it's things that maybe they had not contemplated. This is an area where I think there's significant potential for Royalty Pharma. Maybe I'll just finish by adding one thing.
MorphoSys is a company that we've known for more than a decade. I think Jim and I went and visited them in Germany more than a decade ago. We had extensive discussions with them about five, six years ago about funding their pipeline, drug that already got approved. Finally, after back-and-forth dialogue with them of over 10 years, we actually ended up doing this very attractive transaction for them and for us. That also tells you that these things don't happen overnight. You plant a seed, you have discussions with management, they get to know you, we get to know them, and eventually something important happens, and we can be there for them and really help them. Chris, you want to add anything else about mid-cap M&A?
I think you covered it. I think the one thing that sort of strikes me, you heard us during the IPO and since talk about synthetic royalties. When you look at this deal announced today, it is sort of like Royalty Pharma 1.0 through 4.0 that we talked about on the IPO, which is we're acquiring a marquee approved product royalty, which from TREMFYA, we're acquiring a high-quality development stage royalties with gantenerumab and otilimab, and then the creation of synthetic royalties at Constellation Pharmaceuticals, and then the development node. It's full scale, everything in sort of one transaction. It just really shows that we can be creative and flexible and really take a long-term view of our capital. We think there's tremendous opportunity to slot in one or any one of those various product offerings that we've highlighted in this transaction, in future transactions.
Thank you, Terrance. Operator, we'll take the next question.
Our next question comes from Chris Schott with J.P. Morgan. Your line is open.
Great. Thanks so much for the questions. I guess the first one on the development staged assets, I know you're not going to comment on specific consensus, but when you think about these, are there any of these assets that really stand out versus others in terms of either your level excitement or conviction in the products? I'm just trying to get a sense of how many of these are really core to the deal versus kind of nice to have once you get the anchor asset with TREMFYA kind of as part of the transaction. The second question was on the development funding bonds. Are these things that you'd only really consider as add on to existing deals or partners, or could we think about Royalty looking to do transactions like this independent of Royalty deals?
I think you're highlighting this unmet need in the market, but I'm just trying to sense of these usually should we think about these linked to existing transactions or a new market being created on its own? Thanks so much.
I think, Chris, thank you for the question, and good to hear you. I think regarding the bonds, we think this kind of capital is very effective and could be used like in the case of Biohaven, where we invested in their migraine products and have royalties in the migraine products. We actually supplied similar very long-term capital, and in that case, it was predicated on the launch. We view that as launch capital, where we're actually helping the company invest in the launch of NURTEC ODT, and that makes a royalty more valuable. It's long-term, it's flexible, it's scalable. In this case, with MorphoSys, we felt that there was a need to supplement the investment here to help develop the products.
We can actually tailor it to achieve different goals, and it's very unique, and we believe that there's a huge need for this kind of capital in the industry, and it's always done as part of an overall or a larger transaction. That's how we've done it so far. We need to be open-minded. Could there be other situations where it's used in different ways? Maybe. We're going to be creative and open-minded, but so far it's been as a part of a larger transaction. I'll let Marshall answer the question on the development assets. I think, just from my own perspective, looking at all of them, I think they're all very interesting. There's one that from my perspective stands out as one that has very significant upside. It's risky, but very significant upside, which is, again, Aduhelm, the Alzheimer's product.
It's in the hands of one of the best companies in the world, and it has had one of the best clinical development programs in that space, which has been really tailored, taking into consideration a lot of the lessons learned from many of the failures. We think that has a decent chance and the potential is very, very large. Marshall, do you want to talk about?
Sure. Thanks, Pablo. Sure. Hey, Chris, good morning. Thanks for that question. Just to add to what Pablo said, maybe a different frame or different dynamic is that, one of the things we liked about this group of development stage assets and development stage products in total is that they're all complementary in the sense that they have different risks around them. Different kinds of risks. Pablo mentioned, aducanumab does carry clinical risk, but a much more kind of white space from a commercial point of view. Otilimab in RA may be something people haven't followed as closely, but has pretty strong clinical proof of concept in phase II from it and other GM-CSF antibodies. Is a commercial marketplace that we all know is formed and there are multiple players in that market.
The Constellation assets are earlier and so have their own kind of dynamic around them. I think one of the things we liked was just how even amongst these development stage products in the portfolio, there's a lot of diversity and kind of non-overlapping characteristics around each of them, which is something that we thought was pretty cool and attracted to that.
Thank you, Chris. Operator, next question.
Our next question comes from David Risinger with Morgan Stanley. Your line is open.
Yes, thanks very much. I wanted to add my congrats on the transaction and opening people's eyes to the broader set of potential mid-cap M&A opportunities in the future. Most of my questions have been asked. I just wanted to ask one on leverage. The slide indicates pro forma leverage of approximately 3.3 times. Could you talk about, at a high level, your target leverage ratio and the opportunity to potential issue equity in the future if there are substantial transactions that are highly compelling?
Terry, you should obviously take that question. Thank you, David.
Yeah, sure. The way we think about leverage is we don't have a specific target. We've always sort of said that we're going to try to operate in a band. We think of it sort of in the three times to four times total debt to EBITDA, and sometimes we're going to go a little bit above four when we make big acquisitions like we did in 2014. Obviously, we're very committed to maintaining our investment-grade rating. When we do that, we'll go up to four, a little bit above. We have to have a clear path to de-levering from there. Sometimes when we're not doing as many deals and products are growing, then we'll go a little bit below three. We think of it like a band.
That's how we've actually been operating in a very similar way for almost 15 years now. It's sort of proven out to be a pretty good strategy. Equity has always been an option. We're always going to start with cash. Since the business generates so much cash, that's where we're going to start. That's where we're going to look first. Then we'll look to the debt markets while maintaining that investment-grade rating. Then the final source is equity. Obviously, that is a benefit to going public, was that we now have access to the deepest equity markets. I think, the way to think about it is, we're first going to use cash and sort of leverage capacity. Then, depending on how the pipeline plays out over time, it is an option for us. It's a great option for us to have.
Thank you.
Our next question comes from Umer Raffat with Evercore ISI. Your line is open.
Hi, Umer.
Umer, your telephone is muted. Please unmute.
This is Mike DiFiore in for Umer. Just out of curiosity, how competitive was this deal, just given the fact that banks can't do this financing?
There are other players, not many, but other players in the, I guess, royalty acquisition space. Just want to get some color as to the competitiveness of the deal. Thank you.
It's obviously hard for us to answer that question because we're on one side of the transaction and not on every side. We're having interactions with, obviously, the company that has become our partner, MorphoSys. We obviously did hear that they had explored other alternatives, which is very logical. Any good management team would do that. Obviously, there was always a healthy tension of, we need to arrive at a deal that makes sense for both parties, because we have other alternatives. Other alternatives, with the caveat that I mentioned, that it's difficult to actually provide significant capital for something like this. I do believe, though, that our scale and cost of capital is something that gives us a huge advantage in situations like this.
Because, for us, a transaction like this is not even one that is going to concentrate us, at all in either TREMFYA or unapproved products. In fact, TREMFYA will diversify us to a certain degree, which is great. The investments that we're making now on the unapproved is something that we really welcome because as you have heard us talk in the past, we historically had much higher exposure to unapproved. At some point, it was more than $3 billion of investments in unapproved, and now it's really low. Rebuilding that side of our portfolio is something that we look forward to.
At the end, we always, this is what I tell the team, have to not feel overconfident of things, and make sure that we're always being very cautious, understand how we need to be competitive, we need to be really flexible, creative so that we are winning as much as we can.
Great. Thanks so much.
Our next question comes from Steve Scala with Cowen. Your line is open.
Thank you. I have a few questions. First, are there any significant gating items to the MorphoSys acquisition of Constellation that you foresee? Second, can you give us some idea of what probability of success is assumed for each of the four pipeline assets to get to breakeven? Lastly, this question's been asked a few times, I apologize for asking it again, whatever that probability of success is, it seems that your diligence has produced higher probability of success in the pipeline assets than analysts have. It seems that the answer clearly is yes for gantenerumab. Would you disagree with that statement as it relates to all four assets? Thank you.
Sure. Maybe, I'm going to turn it over to Christopher Hite to talk about the gating items and then Marshall Urist, the rest of the question. It occurred to me that I just wanted also to provide another perspective on this question about competition. It's maybe just for all of you to get a sense of competition in our space versus others. If you think of private equity firms that exist, which are hundreds, with billions and billions of capital looking for attractive transactions, highly competitive. If you think of debt providers in more common debt markets, highly competitive. A lot less in biotech, and that's why we have this affiliate that actually is becoming one of the biggest providers of debt capital in biotech.
I think the point I want to make is that if you think of the market we're actually creating, because that's what's really happening, we're creating a new market, and this transaction is a great example of that. It's one where there's really, probably you cannot even count them with one hand, the number of potential providers of capital at scale for something like this. That also gives you a sense of the competitive environment. Chris, you want to talk about the gating items and Marshall about-
Thanks for the question. The gating items are, MorphoSys will launch a cash tender offer for Constellation shareholders. The regulatory hurdles or expiration of the HSR waiting period and applicable antitrust laws, and just other customary conditions. It's very straightforward to get to close.
Thanks, Chris. Yeah, hi Steve, thanks for the question on PTRS. I think we've touched on this in a couple different ways, but maybe to add some further comments. You asked about specific PTRS on each of the products. Rather than going there, I think I would go back to what we were talking about before, which is, I think one of the things we really liked about this was the diversity of the different types of risks and opportunities around each of these products. When we look at it as a package together, we thought it was pretty attractive, and we touched on how some of those are non-overlapping risks. Pablo called out gantenerumab, I think that clearly, as Pablo mentioned, as we mentioned in our prepared remarks, does have higher clinical risk.
I think it also highlights one of the really unique things about our business is just the scale and the diversity of our current portfolio really shows you how we're uniquely enabled to add something like gantenerumab and that risk and also very considerable upside opportunity that Pablo mentioned within our portfolio is extremely manageable. Third, I think part of your question was about track record versus others. Pablo said something important in terms of how we approach all of these, is that the bar is high. We have to stay humble, not be overly confident in this, and we always try to do as much diligence as we possibly can and have a culture of being able to say no when that makes sense.
I think that's one of the key points why I don't want to compare us to others who are out there, which is we're very different, right? We have the luxury of and the culture of being able to sort of pick our spots and to say no to things and really wait and be patient for the things that make sense for us. I think, that kind of gives you some insight into our approach, how we approach this, how we think about development stage opportunities. Honestly, some of the same principles apply to commercial opportunities as well.
Thank you.
We'll take our last question from Andrew Baum with Citi.
Thank you. A couple of questions have been answered, but one remains. Apologies if you've already addressed it at the earlier part of the call. Could you outline how much of that $1.425 billion upfront is accounted for by TREMFYA? Obviously, as you point out, a gem of an asset and anchoring it, the words you used, but if you could share with us the breakdown in any sense, that would be helpful.
Marshall, thanks for the question, and Marshall can provide a perspective here. Just from a very big picture perspective, the way we look at transactions when we're buying a portfolio like this with one approved and four unapproved, is that we actually are not really allocating value to one single thing. We create a lot of scenarios, almost like Monte Carlo simulation, where we look at the different assets and the revenues that each asset will produce. Obviously, assume for TREMFYA different scenarios with approvals in different indications, additional approvals in different indications. For the unapproved, we run scenarios where we assume that all of them get approved, that none of them get approved, which is obviously the worst-case scenario. Then things in between, maybe two or four get approved, obviously, each one has different scenarios.
We look at then the returns that we expect to earn on the total amount invested. We think that when we approach it from that perspective, the diversification is such an attractive aspect here, and one that results in very attractive returns on likely scenarios, right? We have no idea at the end of the day if all of them are going to get approved and all of them are going to perform as expected. We also think it's highly unlikely that none of them are going to get approved. We look at the more likely scenarios and get really comfortable with the return that we're going to earn on the total investment for those much more likely scenarios. Marshall, maybe you want to add something else.
Hi, Andrew. Good morning. Pablo, I think you covered most of it. Appreciate the question. As you said, we've described it as the anchor of the transaction, and I think Pablo mentioned earlier, that it certainly does meet our return hurdles that we talked about for approved products. I think that should give you a general sense of how we're thinking about it. I think it's important the point Pablo made about scenario and a scenario approach is closer to how we think about it given all the combinatorial outcomes of what might happen with all these programs.
Thank you. There are no further questions. I'd like to turn the call back over to Pablo Legorreta for any closing remarks.
Sure. Maybe just one last comment, sort of big picture perspective that I'd like to share as we close. Is that all of you have heard us talk about the potential for Royalty Pharma to really become the partner of choice of companies in M&A situations in life sciences. For us, things that are critical as we look at these things is really getting to know management teams, understanding their vision, their commitment to the space, their expertise. Then, seeing if we can partner with them, obviously in the case of MorphoSys, all of that was something we concluded was there. We had long conversations with them, as I said. Going back to my comment, we've always felt there's a huge potential for Royalty Pharma to do well by becoming the partner of choice of companies and management teams, helping them achieve their strategic initiatives.
This is a great example of that, and I think, as we've shared with you in the past, we think that there's just a very attractive set of opportunities for us that are much more conventional, where we buy royalties from different holders. It can be a university, hospital, foundation, it could be a biotech, or a big pharma like we did with Glaxo recently on cabozantinib. When there's sort of non-core assets and it's better for the holders to have cash to reinvest. Those sort of bread and butter transactions, I think, we're extremely well-positioned with the cost of capital we have and the relationships to actually continue to do really well there. The thing that is more unpredictable is this M&A kind of situations. We've said, we think there's going to be several of them if you look at a 3- to 5-year timeframe.
This is one, and it really illustrates how we can be very helpful to companies and create this win-win situation. With that, I'd like to thank everyone on the call for your continuing interest in Royalty Pharma. I just would like to say 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 or Terry. With that, I'll conclude the transaction and thank you for your time.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.