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spk07: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Fourth Quarter 2020 Financial Results Conference Call. I would now like to turn the call over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.
spk02: Thank you, Operator, and good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's Fourth Quarter results. You can find the slides to the call on the Investors page of our website at RoyaltyPharma.com. Moving to slide three, I would like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainty, and other factors that may cause actual results to differ materially. I refer you to our S-1 prospectus on file with the SEC for a description of these risk factors. And with that, please advance to slide four. Our speakers on the call today are Pablo Legareta, Founder and Chief Executive Officer, Jim Reddick, EVP, Co-Head of Research and Investment, and Chief Scientific Officer, Marshall Uris, EVP, Co-Head in Research and Investments, and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Jim and Marshall will provide an update on our royalty acquisitions. Terry will then review the financials, and after concluding remarks from Pablo, we will hold a Q&A session. Chris Height, our Vice Chairman, will also join the Q&A session. And with that, I'd like to turn the call over to Pablo.
spk01: Thank you, George, and welcome to everyone on the call. 2020 was truly a landmark year for Royalty Pharma. I want to start by focusing on the highlights of the incredible year for our company. First, we strengthened our capital base and our access to future capital through our successful IPO and bond offerings. With our balance sheets strengthened and with our ability to rapidly delever, we're in a very strong position to execute our strategy. Second, we further expanded our royalty portfolio with eight announced acquisitions totaling $2.4 billion, maintaining our market leadership and enhancing the outlook for our adjusted cash receipts. These royalty transactions span multiple therapy areas but have one thing in common. They are associated with potentially transformative medicines, and we're very optimistic about their patient benefit as well as their commercial value. Terry will discuss how this impacts our long-term outlook later on in the call. And lastly, we have navigated this complex and busy year while delivering double-digit bottom line growth and building the organization to strengthen our market-leading position. We have made a number of senior-level hires, expanded our board of directors, and started an important new strategy and analytics initiative. On slide seven, you can see our financial resource for the fourth quarter and full year. In the fourth quarter, we delivered 9% growth in adjusted cash receipts, our top line, and 22% growth in adjusted cash flow, which is our bottom line. This excellent momentum puts us in a great position to deliver another year of strong performance in 2021, as Terry will discuss in a bit. For the full year, our top-line growth was 1% and bottom-line growth was 15%. When thinking about our adjusted cash receipts growth, keep in mind that we had a large payment for TechFedera in 2019, which affected year-over-year comparisons in the first quarter but has no further impact. Excluding Texedera, our adjusted cash receipts would have grown at 9% for the full year. So overall, I am delighted with our progress in 2020, and we're very confident in our long-term outlook. With that, I will hand the call over to Jim and Marshall to update you on our royalty portfolio.
spk13: Thank you, Pablo, and good morning and good afternoon, everyone. As shown on slide 9, 2020 was a record year for biopharma royalty funding. Based on our market intelligence, we believe there were 23 major royalty transactions in the year with a combined value of $5.4 billion. Inevitably, there is some volatility in the trends from year to year. However, as an indicator, the 2020 transaction count and value figures are more than double the average of the preceding five years, and each represent record highs. In short, the market is growing significantly, and we are confident that the tailwinds supporting this growth will continue for the foreseeable future. These tailwinds include the fast-growing demand for capital from the biopharma industry, the extraordinary pace of innovation taking place across the entire life science ecosystem, and the secular trends driving increased biopharma market sales. Slide 10 illustrates our transaction funnel in 2020. During the year, we reviewed more than 265 potential transactions. This, in turn, led to around 70 CDAs being signed and 38 proposals being submitted. Ultimately, we announced eight transactions for a total value of $2.4 billion. The math shows that we transacted on just 3% of the royalty opportunities we initially reviewed. This speaks to both our ability to execute on promising royalty opportunities and to the intense level of scientific diligence and financial discipline we apply in the process. The rigor of our approach is part of our unique skill set, and it is a key reason why Royalty Pharma has delivered and continues to deliver attractive returns to our investors. Slide 11 provides an overview of the eight transactions I just referenced. We are excited that these encompass a range of transformative therapies across five therapeutic areas. Of the 12 royalty-bearing products included in these transactions, nine were for approved therapies and three were for development stage therapies at the time the deals were signed. The products we added to the portfolio spanned five therapeutic areas, including rare disease, cancer, neurology, GI, and infectious disease. This speaks to the unique approach that we take in adding high-quality assets to our portfolio, regardless of therapeutic area. One notable development stage deal that we completed in 2020 was for the exciting SMA drug Evirizdi. Around a month after we acquired this royalty, Evirizdi was subsequently approved and launched by Roche, again underscoring the high level of due diligence that we apply in our processes. Looking ahead, the street expects a number of these medicines to become blockbusters in the next several years, and we estimate, based on consensus analyst forecasts, that these transactions will add more than $400 million to our adjusted cash receipts by 2025. And with that, I will hand the call over to Marshall.
spk09: Thank you, Jim, and hello to everyone this morning. Turning to slide 13. Let me start by highlighting that 2020 was a strong year in terms of the scale of royalty acquisition and builds off of a similarly strong year in 2019. In fact, if we look over the past two years, we announced 14 transactions totaling approximately $5 billion. As a result, we have significantly expanded our portfolio of innovative therapies with long-duration patents, further diversifying our revenue mix, and we are confident that we will generate returns consistent with our targets. On this slide, you see a summary of our recent portfolio addition since last quarter's call, adding one approved product and two development stage therapies. In December, we acquired a royalty from Biochrist on Orladeo, the first oral therapy for hereditary angioedema. Orladeo was recently approved in the US and Japan, and a European approval decision is expected in the second quarter of this year. As an oral agent, we believe Orladeo will expand options for patients bringing greater convenience and potentially expanding the use of prophylaxis in this serious disease. The $125 million we provided to Biochrist will be used to support the launch of Oral-Adeo, as well as to fund development of their oral factor D inhibitor, BCX9930, and complement mediated diseases. In return, Royalty Pharma is entitled to 8.75% of sales of Oral-Adeo, up to $350 million, with step-downs above this up to $550 million. We will also receive a 1% royalty on sales of BCX 9930 if commercialized. We look forward to seeing the progress of BCX 9930 during 2021. This is a great example of the type of non-dilutive deal structure we are able to offer to our partners. In this case, to a biotechnology company to facilitate pipeline expansion and the transition to a commercial company. Now, moving to our most recent portfolio addition, we announced in January the acquisition of Minerva Neuroscience's royalty interest in Seltorexan, a compound which is in Phase III development by Johnson & Johnson for the treatment of major depressive disorder with insomnia symptoms. In return for an upfront payment of $60 million and up to $95 million in additional milestone payments, we are entitled to receive a mid-single-digit royalty on worldwide sales of Seltorexan. We are very excited by this opportunity. Acelturexan is potentially the first medicine to address this important unmet need in patients suffering from depression. And while this is a therapy that potentially fits at the higher end of the clinical risk spectrum for us, our extensive due diligence provided significant comfort on the clinical profile based on strong trooper concept data to date. This included four placebo and active controlled efficacy trials that demonstrated consistent safety and efficacy. So to summarize, two very different partners which take us into new therapeutic categories, and each with the potential to bring important innovation to patients. And with that, I'll hand it over to Terry.
spk08: Thanks, Marshall. Let's move to slide 15. We had another good quarter with total royalty receipts of 9% compared to last year's fourth quarter on a pro forma basis. On a full year basis, growth of 2% reflected our final receipt associated with Tecfidera, of $150 million in the first quarter of 2019. As you can see, royalties from our largest franchise, Cystic Fibrosis, grew 37% this quarter and 30% for the full year, driven by the strong launch of Trikaft in the US and Kaftrio in the EU. Imbruvica, Xtandi, and Promacta also contributed strong double-digit growth, both for the quarter and on a full-year basis. 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 interest. This is what we view as our top line, and it amounted to $484 million in the quarter, representing growth of 9% compared with last year's fourth quarter on a pro forma basis. When we move left to right, Operating and professional costs of $50 million equated to 10.4% of adjusted cash receipts. This was somewhat below the level of the third quarter, which included certain expenses related to our IPO and bond offering. R&D funding remained at a relatively low level and substantially lower than in the year-ago quarter, given larger ongoing development stage funding payments in 2019. Net interest of just $1 million was sharply lower as it reflected the debt refinancing and a shift to semiannual interest payments arising from our bond offering. The next interest payment will be in March of this year. Interest paid in Q4 would have been $33 million if our interest payments were paid quarterly instead of semiannually. The other item of $9 million includes expenses related to our investment in non-consolidated affiliates. primarily a funding payment to Avilion for ongoing development of AstraZeneca's PTO27. This resulted in adjusted cash flow, our bottom line earnings, of $423 million, or 70 cents per share. This translated to an adjusted cash flow margin of 87.3 percent, highlighting the very strong cash conversion in our business model. Looking at our balance sheet on slide 17, We ended 2020 with cash and marketable securities of $2 billion. The increase over the year was driven by the adjusted cash flow I just mentioned, together with the proceeds from debt refinancings of $728 million and IPO proceeds of $1.9 billion. Cash outflows over the period amounted to $2.5 billion, primarily resulting from the $2.2 billion in capital deployed on royalty acquisition. Turning to our dividend, we recently announced a 13% increase in our quarterly dividend to 17 cents per Class A ordinary share, which signals our confidence in our growth outlook. We finished the year with $6 billion in investment grade debt, which combined with our $1.5 billion revolving credit facility gives us a strong liquidity position. With leverage of 2.4 times EBITDA on a net basis and 3.6 times EBITDA on a gross basis, we remain well positioned to execute on our business plan. On slide 18, we set out our full year guidance for 2021. We expect adjusted cash receipts to be in the range of $1.91 billion to $1.96 billion. As you know, our practice is to guide based on our portfolio as of today, and importantly, this does not take into account any future acquisition. This guidance represents an increase of between 6% to 9% for our existing portfolio only. Turning to operating costs, we expect these to be approximately 9% to 10% of adjusted cash receipts. Lastly, we expect interest paid will be approximately $130 million for the year. Based on the semiannual interest payment schedule for our existing bonds, Interest paid is anticipated to be approximately $64 million in the first and third quarters, with a de minimis amount recorded in the second and fourth quarters. This projection assumes no additional debt financing in 2021. Turning to my final slide, in August, we stated that our objective was to maintain a long-term compounded annual growth rate in the range of 6% to 9% from 2020 to 2025. Today, we are increasing this outlook to a compounded annual growth rate in the range of 7% to 10%, which is off of a higher base in 2020 than was expected when we first provided this outlook. The increase in our long-term outlook is due to a couple of important factors. First, our existing portfolio was performing quite well, and we now forecast it to grow in the mid-single digits. Our confidence in the growth of the royalty market and in the sustainability of our leadership position has increased with the multiple tailwinds we see and with our strong overall performance in 2020. With that, I would like to hand the call back to Pablo.
spk01: Thanks, Terry. Let me quickly close by saying that I'm more confident than ever that Royalty Pharma is well positioned to continue our leadership of the rapidly growing market for biopharma royalty funding. With our strong 2021 outlook and our raised long-term guidance, we have many exciting years ahead. This is a remarkable time in the history of our industry with incredible innovation and groundbreaking therapies that are changing the lives of patients globally. Royalty Pharma is uniquely positioned as a levered play on the innovation in life sciences. With that, I would like to open the call to Q&A. Back to you, George.
spk02: Thank you, Pablo. Operator, we'll now open the call to your questions. Operator, please take the first question.
spk07: Thank you. To ask a question, you'll need to press star 1 on your telephone. Our first question comes from Steve Scala with Cowan. Your line is open.
spk04: Thank you very much, and congratulations on a great 2020. For deals that Royalty Pharma considered but did not do in 2020, what was the most frequent reason? Was Royalty Pharma not sufficiently comfortable with the risk involved? Did a competitor offer more attractive economics? Or was there some other reason? I assume risk and economics always go hand in hand. So how do you know you have the optimal balance? and how might that balance change in 2021? Thank you.
spk01: Sure, Steve. So I'm going to ask Jim to add to maybe some initial remarks, but I think as you probably have heard us already explain in the past, a lot of the sort of thing that drives our evaluation of transactions is just a huge amount of discipline because over two decades um of investing you know we've actually looked at so many things um and many of which we have passed on and many that we've done but also we have the experience of transactions that we did that didn't work out and you know we always try to learn from those and understand what happened that didn't um What part of the thesis was incorrect? And then try to apply that in the future. It's not always easy. It's difficult, actually, to always, you know, because what's also so interesting in this industry is that every opportunity is different in life sciences, right? Every product is different. The clinical program is different. The size of the market is different. You know, the competitive landscape is different in some cases. You know, in many cases, we have unique products with very little competition. But in others, there's more competition. So there's many, many factors that we have to take into consideration. But always, discipline is key. And I always tell the team, making a bad investment is very, very difficult, very painful to correct the impact of a bad investment. So it's always trying to find that balance of very attractive underlying attributes that the products have with very attractive upside. and also, you know, understanding the downside well, you know, understanding where things could fail well. But, Jim, do you want to add to what I just said?
spk13: Yeah. Yeah, thanks, Steve. I mean, I think that you mentioned, you know, a couple of things, you know, risk and economics and, you know, occasionally competition. But, you know, I would add to that, and it's really, you know, a mixture of all of these, that, you know, in some cases the target, you know, company that we're speaking with that was acquired or ends up, you know, doing a different flavor of financing or in some cases is still considering, you know, our proposal and other proposals. So it just hasn't really happened yet. So it's really, you know, a mixture, you know, of all of those. But, you know, I'm really proud. I think we're all really proud of, you know, generating the 260 plus, you know, number of opportunities at the top of the funnel. And I think that's really, you know, a testament to the number of parties, both, you know, corporate and academic and otherwise, that are considering royalty transactions these days, because that number is growth from the previous year and from prior years. And also that we saw, you know, 70 opportunities that were really worth, you know, going in depth on and getting confidential information. And we want to be aggressive and putting proposals out there as well so that I think that 30 plus number, you know, represents us, you know, really wanting to get term sheets out there. But, you know, in some cases, you know, those, for reasons that, you know, we're mentioning now, you know, don't end up crossing the finish line. But, you know, as Pablo says, we want to keep a very high bar for things that we ultimately transact on.
spk01: And realize, Steve, that what we invested in last year, the $2-plus billion of transactions that we did, which is what's great is that, you know, just looking out, these transactions will add over $400 million of revenue in the 2025 timeframe with what we believe are conservative forecasts and, you know, with a good level of predictability. So that is quite a positive thing. outcome for us based on the things that happened last year. Thank you. Thank you.
spk07: Thank you. Our next question comes from Jeff Meacham with Bank of America. Your line is open.
spk03: Morning, guys. Thanks for the question. Just had a couple. Another one on future deals. I get the question, does the law of large numbers begin to apply as you As you continue to grow the top line, I know there are a ton of smaller deals you can do, as you just highlighted on slide 10, but I think the goal is to find perhaps another CF type of opportunity in terms of the magnitude. And then the second question is, Terry, what are the longer-term considerations of a rising interest rate environment? I don't know if you guys have used hedging strategies in the past, but could you deploy that going forward? Thank you.
spk01: Chris, do you want to take the first part of the question about, you know, the scale of the opportunities we see and also some potential for big deals maybe through M&A? Sure. And Terry can answer the second part.
spk10: Sure. Thanks, Pablo, and thanks for the question, Jeff. Yeah, look, I mean, we, as Jim went through the funnel and Pablo went through the funnel, we see a lot of opportunities and we see a lot of, you know, ranging opportunities, right? Smaller and larger. And I think even this past year, you know, we actually did a wide range of deals, right? From smaller deals to like a bigger deal around the CF and also around Everisby. And I think, you know, one of the things Pablo just mentioned was M&A. I think we've been actively sort of having discussions around helping people around M&A situations and creating synthetic royalties there. And we sort of see that as, you know, an interesting opportunity in addition to the synthetic royalties, which is also we see, you know, really sort of picking up steam. So obviously we're looking across the spectrum for deals, and they can be small or big, but we don't see a lack of opportunity out there to grow our top lines.
spk08: And then Jeff, on your question on long-term rising rates, we were lucky that we were able to take advantage of the markets in the summer at a very attractive time in sort of history in terms of issuing bonds. And now 100% of our $6 billion of debt is fixed. And so it's not something that we have to be as focused on in the near term. The other thing I would say is that, you know, as our bonds have traded in the market and bond investors have gotten to know Royalty Pharma better, our spreads have tightened significantly. So, you know, the spread on our 10-year, while the 10-year treasury has increased, the spread on the 10-year has actually tightened by almost 80 basis points. So I think we're, you know, we feel like we're still in a great position. To the extent that rates really do, you know, see a significant uptick in the long term, I also think that that will be reflective in asset prices and, you know, prices will be adjusted accordingly. So it is sort of a natural hedge in the way that our business works because we're constantly reinvesting and it would be reflected in asset prices. Okay. Thanks, guys.
spk07: Thank you. Our next question comes from Chris Schott with J.P. Morgan. Your line is open.
spk11: Great. Thanks so much for the questions. Just if I look at 2020, it was obviously a bigger year for capital deployment for the company and the broader royalty market. And I know deal flow can be choppy year to year, but the trend seems to clearly be moving higher here. So when I think about the longer term guidance, I think I want to be conservative here. But is there any reason we shouldn't think about capital deployment closer to the range we saw in 2020 versus, I think, the roughly billion and a half or so that you're reflecting in that guidance? I'm just trying to see is there any rate-limiting factors other than just finding attractive terms, whether it's capital structure, et cetera? And then the second question I had was just on the funnel of transactions. Like, you've talked about a couple sources of deals, whether these are Smidt Cap Biotech, M&A, Academic. Did you see the mix of those change it all in 2020 in favor of one of those verticals versus another? Or are you seeing more opportunities as we, again, think about biotech versus academic versus other sources? I'm trying to get a sense of how that's changing as the market evolves over time. Thanks so much.
spk01: Sure, Chris. Thank you. And I think in terms of the guidance, we're a brand new public company, so we want to be conservative. But, you know, obviously the tailwinds are incredibly, incredibly strong for the industry in general and also for us specifically, you know, based on the service, you know, that we provide, the potential solutions that we provide to many, you know, companies that require, you know, very significant amounts of capital. And I think the, you know, sort of – Difficult thing to predict is, and I think there was a prior question about, you know, a deal like the CF deal that we did in 2014, which was over $3 billion, one transaction, and that year we invested four. And I think in our case, it's not likely that it will be, you know, an academic royalty of that size or a foundation royalty of that size, but where we could have you know, a large transaction, you know, significant transaction would be in an M&A situation. And those, you know, those kinds of transactions are obviously difficult to predict. And, you know, it's not something that is sort of the bread and butter, you know, deals that we can do every quarter. But I think over the next, you know, three to five years, it's likely that there will be a couple of those, at least a couple, I think. And that's the more difficult variable to predict in terms of the scale of our investment over the next, you know, five years or so. But let me turn it over to Marshall now who can provide some perspective on the funnel and, you know, where do we think deals will come from.
spk09: Thanks, Pablo. Hey, Chris. So to your question about the kind of mix of sources of transactions. So, you know, I don't think anything has necessarily fundamentally changed in terms of the mix of sources of transactions. Obviously, that can change year to year. You know, if you look at 2020, it was a good mix of sources. You know, there is academic or foundation royalties there, you know, in R&D funding transactions, synthetic royalties and traditional royalties as well across the years. There's a pretty good mix. And I think that's reflective of the underlying, you know, of the underlying fundamentals of the markets we see. You know, I think we are, as we said before, you know, optimistic about the synthetic royalty opportunity and growing that business. in the years to come with, you know, with Biochrist at the end of last year being a good example. So, you know, we certainly see growth in that part of the market. But, you know, fundamentally, I think you'll continue to see a good mix of different sources of opportunities for us. Thank you.
spk07: Thank you. Our next question comes from Greg Gilbert with Truist Securities. Your line is open.
spk05: Thank you. Going back to that funnel slide again, I was curious to what degree either companies or collections of royalties, existing collections of royalties, factored into that funnel before or if any exist now. And curious as well, Terry, I don't know if you're willing to be more specific about what specifically changed in the updated CAGR guidance. Any comments would be helpful. And lastly, Pablo, I was hoping you could comment on how data science may inform your sourcing strategy going forward. Thank you.
spk01: Of course. So, Jim, do you want to take the question on the funnel, and then Terry will answer the second part of the question. I'll close with a comment on data science.
spk13: Yes. Greg, correct me if I'm wrong, but I think your question was sort of how we count data. uh, you know, the, the number of opportunities and whether it's on sort of a per company or a per molecule basis. Um, and I think the answer is, you know, to, or the answer is that, you know, it's a per molecule basis, you know, so, um, uh, you know, in the case of Biohaven last year, which included NERTEC and Zivegipant, that would be, you know, sort of two, um, opportunities that we would see. And, and, you know, I think that, Increasingly, and Biochrist is the same way, that also included two molecules, and increasingly we are seeing this positive trend that companies that we like and trust to really apply best practices developmentally and commercially have multiple assets that we're interested in. So I think that both of those represent times where we can kind of get two interesting assets in one fell swoop, And also, you know, start to follow these assets, the earlier assets at an earlier stage and to, you know, really get comfortable with them in an attempt to kind of grow our commitments and, you know, our financial commitment to that product over time.
spk08: So, Greg, on your question on sort of what's driving the long-term growth the increase in our long-term outlook. I think it's, you know, it's a mix. So, you know, one, we had, we had a really good year of investing in 2020. We added a number of attractive products that, that are, that are, you know, going to be contributors there. That being said, a number of them were already in, in sort of our initial guidance that we provided back in August. But it's also the strength of the, of our existing portfolio sort of broadly. but it's driven by, you know, in particular CF and Bruvica, Xtandi. Isabri has continued to perform quite well in Promacta. And then also, you know, our outlook for some of the launching products like Chordelzi and Evrizdi. And then, you know, I think the last thing is just our confidence in the growth of the market and the tailwinds and, you know, our ability to maintain our leadership position and continue to bring in really attractive assets. I think all of those factored in and gave us a lot of confidence that we could raise that long-term guidance, long-term outlook.
spk01: So to answer your question about the new initiative on, you know, sort of strategy and analytics, a lot of it is data science. So let me just step back a little bit and explain something. So a big part of the strength of our sourcing and evaluating data of opportunities over the last several decades has been the very singular focus we have on products and in life sciences. It's all about understanding products and, you know, and the strength comes from the fact that, for example, we have a team that has been working together for a very long time. I think Molly is close to 15 years and, you know, Jim also here. Anyway, people have been working with him for a very long time, and the fact that we can follow. So, for example, if you look at specific therapeutic areas, multiple sclerosis or TNFs or hematology, we follow these areas very closely, systematically, every quarter, looking at products that are on the market, what they're reporting, prescriptions, the trends, talking to the prescribers regularly, you know, over and over again over years and understanding them, understanding how they're, you know, how they're using the drugs and how all of that is changing. And then, you know, obviously all of that effort includes also trying to understand the products that are being developed and how they're gonna fit into the, you know, whole landscape and how they're gonna be used and trying to then see if they're gonna be important drugs three, five, even 10 years out, some of the drugs might have, you know, trials that read out, you know, many years into the future that could impact, you know, the later years in our investments. And understanding all of that is really critical. And we've done that. We've been able to do that well at Royalty Pharma. But I think just thinking ahead for several years, I've been thinking that we really need to take this to the next level. And, you know, now with tools that exist that are out there in terms of, you know, like there's databases that have, you know, patient data, longitudinal patient data, 30 million, 50 million patients that you can actually now, you know, look at and analyze that data and understand with greater detail the implications for the industry. So understanding all of that, in detail and actually starting to integrate it a lot more into what we do every day, I think is going to give us an edge. I also believe that one of the things that we're trying to accomplish with this group is to really understand clinical development of products in a very broad sense. So if you think of hematology, understanding all of the trials that are being run in all of the different settings, all of the different combinations of products that are being used in great detail. This is important because as we finance companies that are developing products and we have conversations with them, if we can add value to them by actually somehow influencing the clinical programs they have, and in some cases suggesting, you know, you may want to consider changing the trial this way because if you do that, it's going to give you a much bigger market opportunity, commercial opportunity. You're going to be able to, you know, address this unmet medical need that other products that are being developed will not address. So we can get to that level where, which we do, just to be, you know, we do part of that today when we're having conversations with companies when we're trying to, you know, discuss potentially funding their trials, but there's a lot more that we can do, you know, much more refined, much more added value. And if we can have those kinds of conversations with you know, the hundreds of biotech companies and even big pharma companies that are out there that need capital, it's going to be a much better situation for us because by having that kind of conversation, I think they will recognize the unique value we bring to the table and, you know, it's going to prevent competition. They will want to work with us and not with others because of the value we have. And that should result in better economics for us, better terms, you know, when we're negotiating a potential transaction. So it is all about the future. It is all about understanding also what are going to be the important therapeutic areas and modalities, you know, to treat patients. Not today, not in a year or two, but three or five years from now because we need to start to think of how the industry is going to change and treatments are going to change in three, five, ten years and get ahead of that and then make investments that are going to capture that potential Maybe I gave a long answer, but anyway, that's the impetus of that initiative.
spk05: Thanks a lot.
spk07: Thank you. Our next question comes from Terrence Flynn with Goldman Sachs. Your line is open.
spk00: Great. Thanks for taking the questions. Congrats on 2020. On the long-term guidance, I was just wondering, I know in the past you had mentioned that, you know, half of the growth was from existing deals and half was from going to be from new deals. I'm assuming now that's maybe shifted where maybe over half is from existing deals, less than half from new. So just wondering, Terry, if you could provide any incremental color there. And then a question probably from Marshall on Tredelvi, obviously one of the growth assets you guys have talked about longer term. Would love your perspective on the potential for this asset beyond breast cancer. Thank you.
spk08: Sure, Terrence. So on the guidance, yeah, so 7% to 10% is sort of the total number. And as you correctly pointed out, that also includes the impact of new investments. For our base, you know, current portfolio as it stands today, we expect growth in the mid-single digits. And so the rest would come from additional investments.
spk09: Marshall? Great. Hi, Terrence. Good morning. So on Tridelvi, we are really excited about that it is off to a good start and also that Gilead has recognized that value and is putting enormous resources globally behind the product. So certainly when we originally partnered with Immunomedics, The triple negative, the late line triple negative breast cancer indication was our, you know, was the core of what we were looking at. And, you know, we are optimistic about, you know, both moving earlier and triple negative and the HR positive data, which we'll see later this year. And then, you know, the next two indications, bladder and lung cancer, bladder is a competitive space, but, you know, we do think that Tridel B has a unique kind of combination of efficacy and tolerability in that disease as well. So we are, you know, we're excited to see how that rolls out as well. And then, you know, all of the activity in TROP2 positive cancers, including the lung cancer opportunity, are certainly intriguing, and we will be eagerly awaiting how that progresses and how Gilead moves lung and other indications forward in the future.
spk07: Thank you. Our next question comes from Umar Rafat with Evercore. Your line is open.
spk12: Hi, guys. This is Mike DeFury, InfraOmer. Congrats on the quarter, and thanks so much for taking my question. Just two, if I may. Again, with regards to your update to long-term outlook, it would seem to be now more of a 60-40 organic versus inorganic contributive split. Just focusing on organic growth, what would you say would be the biggest product drivers to this mid-single-digit growth, and how much does product pricing factor in here? And as a follow-up, in terms of inorganic future deal growth, is this predicated more so on riskier development stage deals in the past? And I know you said that M&A types of deals are kind of harder to predict. And if you could provide more color on how earlier stage deals as well as M&A stage deals could factor into this mix going forward. Thank you.
spk01: Yeah, so I'll take the last part of your question and then Jerry can answer the first part. So I think, you know, if you look at what's happened over the last eight years, it turns out that it's been pretty balanced, you know, roughly half and half. I mean, maybe 55-45 between approved and unapproved and 55 approved and 45 unapproved. And I think... You know, over the long term, it probably will be a similar ratio where, you know, it could be close to evenly split. It could go, you know, maybe larger approved or maybe larger than the other one. It's going to be hard to predict. But what has happened over the last couple of years is that we have invested a lot more capital on approved products. You know, Jim mentioned that already. in his prepared remarks. But I think the unapproved opportunity for us is really big because, you know, as we've talked multiple times in the past, the biotech industry is in its sort of, you know, golden age, and there's so much demand, need for capital among biotechs that, you know, have been created over the last 10 years many of which have gone public over the last five years and raised a huge amount of capital, close to $100 billion of capital raised by biotechs and IPOs and follow-ons. And all of that money, obviously, is funding early stage trials, but these companies will need funding for the larger Phase III trials. And I think... you know, that's where I think there's going to be very interesting opportunities for us. And I think, you know, over time, maybe the balance will shift to have a little bit more investment in unapproved, you know, maybe getting to half and half. But it's a risk we're very happy to take because it comes with very attractive upside. And I think I would also note that we are actually having discussions today about funding you know, late-stage trials, not only with biotechs, but with some of the bigger companies that also have very, very attractive portfolios that require so much capital that they want to actually work with us to mitigate risk. So it is an attractive opportunity for us. It's one where if you look at the amount of capital we have today invested in unapproved, it's so low on a relative basis that, you know, we could invest, $2 billion, $3 billion over the next two, three years and unapproved. And that would probably bring it back to about a 50-50 ratio. And, you know, it's something that would be very attractive for Royalty Pharma to achieve very attractive returns for our investors. But I'll pass it on to Terry now for the other part of the question.
spk08: Yeah, so your question on sort of the growth drivers for the long-term outlook is, You know, I think certainly we're lucky that we have a number of products that are still, you know, in the early or middle innings of their growth. So when we look across the portfolio, I think that, you know, the bigger drivers will still be CF, but also Bruvica and Evrizdi and Trodelvi and Extendi and also Nertec. I think we do expect all of those, you know, products to be healthy contributors and to also offset some of the expirations that we will face over the next couple of years. In terms of the mix of volume versus price, our expectation is the vast, vast majority of growth will be driven by volume and price will be less of a factor.
spk01: One thing to just mention, just adding to what Terry said, is all of those products, I think you mentioned five or six, that are just incredible drugs, blockbusters, that many companies have one or two of those. We have six of these amazing drugs with very significant growth, double-digit growth. Some are growing at 30% per year or more because they're in their launch phases. But what's very attractive about Royalty Pharma is that the growth is driven by a diversified portfolio of blockbusters, differentiated blockbusters, not one, not two, but many of them. So that makes our growth much more predictable than many companies. And I think that's something that many investors have probably not appreciated enough that, you know, it is, you know, the diversification we have helps our top line and our bottom line and makes both the top line and the bottom line fairly predictable. Anyway, I'll stop there. Great. Thanks so much.
spk07: Thank you. And our next question comes from David Reisinger with Morgan Stanley. Your line is open.
spk14: Yes. Thanks very much. And let me add my congrats as well. So I have two questions. First, Pablo, if you could discuss the potential for future M&A transactions. So what could they look like? And when you say M&A transactions, could you provide a little bit more color on what the company could be acquiring beyond just royalties. And then second, with respect to the comment about funding late-stage trials, obviously Royalty Pharma has had some successes, but also a mixed track record. So how will the company ensure that it's not just taking on trials that big pharma or other biopharma companies are hesitant to fund internally. Thank you.
spk01: Yeah, so the last comment you made made me reflect that there are many things that we have passed on, because there was a question to Jim before of what are some of the themes of why we have passed on investments. And in many cases, it's exactly what you just said, that when we have discussions with companies, often they want us to fund assets that maybe don't make the cut that, you know, they decided not to fund. And it's amazing when I reflect on the past how many things, you know, with big companies, medium-sized companies where, you know, the asset looks great, and then when you dig in, you realize that at the end, you know, they decided not to fund it. And we end up passing in many of those cases. So that's something that's very important for us to tease out when we're having these conversations. And in fact, what we generally try to do is to tell those companies, what we would like to do is to fund the ones that you are funding, the top programs, and by us funding those, we're gonna free up capital that's gonna let you then expand the number of opportunities that you're funding into others that might be a little bit more risky. And that's worked out relatively well in many cases. I will also add that if you look at the track record in the past, you know, of the over $6 billion that we've invested in unapproved products over the last eight years, and now we're going into the ninth year, 90% of those worked out. And it just happened that after we went public, we had a couple of failures with Ibrant and the cytokinetics cardiovascular drug. but we have had, you know, maybe six or seven successes before that. So I think, you know, try to look at the ones that did work out and then, you know, on a relative basis, look at the, you know, outcome, the returns that those provide and how they make up for, you know, a lot of the, they make up for the losses on the ones that didn't work out and more than make up because obviously the returns in general are very attractive. So... You know, those are two comments on the funding. But then regarding M&A, there's been conversations that we've had in prior years of transactions that, you know, could be transformative, large, multiple billions of dollars of us deploying capital in M&A situations. And, you know, what happens in some of those cases is, you know, we had a conversation in one situation where it went far, we made an offer, and at the end another company paid more, but it was going to be a fairly large transaction for a large company and we were gonna put to work billions of dollars of capital creating a new royalty. So I think, what form will they take? I think in some cases, we will provide capital, invest capital and create a new royalty that could be fairly large, the investment we make. In some of these cases, it's rare that it's going to be a couple hundred million dollars because those numbers really don't move the needle for companies, right? So when a transaction like that happens, it's likely to be, you know, billion plus. It could be 500 million, okay, in a middle-sized M&A transaction, mid-sized M&A transaction. But, you know, for the larger ones, it's likely to be significantly more capital. And so we could, you know, put capital to work and then create a royalty or create In some cases, the target could have, you know, royalty assets that fit very well with us and do not fit at all with the acquirer, and it could also be fairly large. So those two themes are, you know, things that we're constantly looking at in M&A situations, you know, both creating a royalty or acquiring existing royalties that the target company will have. And you know it very well, biotechs, you know, might have two, three, four drugs in their, they might own two or three drugs that they have developed, and it's very often the case that, you know, drug number one or two was outlicensed, and that became a 10, 15, 20% royalty, and they now have drugs three and four and five, maybe three is more advanced than four and five, but, you know, where they are now developing that drug and trying to they haven't outlicensed it, and they want to preserve the economics in that drug for themselves. But if they become the target of an acquisition, the acquirer is looking at that, you know, third drug that is now, you know, maybe in late stages, close to approval or just got approved, and, you know, maybe also the pipeline, four and five, and, you know, they will probably not want to retain royalties that could be sizable in the teens in the first and second drug, and we become the ideal, the partner choice for those. But we could also, in some of those cases, even, you know, have a discussion where we could fund the trials on the pipeline, you know, the other drugs that are in the pipeline that might require meaningful funding. So, you know, I think we just need to be very open-minded and see how we can work with them in a win-win situation, provide solutions, and create a great outcome for the aquarium for us.
spk14: That's great. Thanks very much.
spk07: Thank you, and I'm showing no further questions at this time. I'd like to turn the call back to Mr. Pablo Legareta for closing remarks.
spk01: Thank you, Operator, and 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. Thank you for today, and we're here to continue having discussions with all of you.
spk07: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect, everyone. Have a great day.
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