Royalty Pharma plc

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Farmer Third Quarter 2023 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead.

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Farmer's Third Quarter 2023 results. You can find the press release with our earnings results and slides to this call on the investor's 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, uncertainties, and other factors that may cause actual results to differ materially from these statements. I refer you to our 10-K on file with the SEC for description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma and we assume no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand our financial performance. The GAAP to non-GAAP reconciliations are provided in their earnings press release available on our website. And with that, please advance to slide four. Our speakers on the call today are Pablo Legareta, Founder and Chief Executive Officer, Chris Height, EVP, Vice Chairman, Marshall Uris, EVP, Head of Research and Investment, and Kerry Coyne, EVP, Chief Financial Officer. Pablo will discuss key highlights. Chris will then provide an update on the PTC partnership, after which Marshall will discuss other portfolio updates. Next, Kerry will review the financials. Following concluding remarks from Pablo, we will hold the Q&A session. And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome to everyone on the call. I am delighted to report another successful quarter of execution against our strategy as a leading funder of innovation and life sciences. Slide six summarizes our financial portfolio and portfolio achievements in the third quarter, which again underscored tremendous momentum in our business. First, we delivered strong financial performance. Adjusted cash receipts, our top line, grew by 9%, adjusted EBITDA by 9%, and adjusted cash flow grew by 10%. All of these metrics are prior to the Biohaven-related payments which we received in the third quarter of 2022. Second, on capital allocation, we had a very active past few months acquiring royalties on attractive therapies with announced transactions of $2.2 billion. I am particularly pleased with a recently expanded PTC partnership where we acquired incremental royalties on a Brizzy, which is for the treatment of spinal muscular atrophy. This transaction enhances our long-term growth diversifies our portfolio, and is expected to generate an attractive on-level return in the double digits. As Chris will explain later, this transaction was a great example of our unique ability to create tailored win-win solutions. This was also our busiest quarter ever for synthetic royalty acquisitions, with exciting transactions on two approved therapies, Skytropha and Astiladrin. On a year-to-date basis, we have announced royalty transactions of up to $3.8 billion, including $2.1 billion in upfront payments. Lastly, we continue to believe our shares are fundamentally undervalued and we repurchased an additional $144 million of our shares in the third quarter, taking our total year-to-date repurchases to $305 million as of last night's close. Third, we're raising our full-year guidance for adjusted cash receipts to between $2.95 billion and $3 billion. Our guidance reflects expected underlying growth from a portfolio of around 10% prior to the buy haven related payment. Consistent with our standard practice, our guidance is based on our current portfolio and does not include the benefit of any future acquisitions. On slide seven, you can see our financials in more detail. We delivered 9% growth in our top line prior to the by heaven related payments in the prior period and 7% growth if we include this payment. Unlike the last several quarters, the impact of foreign exchange had a negligible impact on our top line growth. Similar to our top line, we grew our adjusted EBITDA by 9% in the quarter prior to the by heaven related payments and 6% including this payment. Lastly, adjusted cash flow grew by 10% in the quarter prior to the bio-human related payment and 8% including this payment. Both this quarter and the prior period included development stage payments. Slide eight shows our impressive track record of strong top line growth since our IPO in June of 2020. We delivered 9% growth prior to the bio-human related payment through the first three quarters of 2023 after strong growth in 2021 and 2022. This speaks to our ability to execute successfully and consistently against our strategy in the growing market for biopharma royalties. Slide nine shows why we're well positioned in the evolving interest rate environment. We're committed to maintaining an investment grade credit rating and our existing capital structure benefits from a long duration, low cost debt profile. That being said, when making investments in a higher rate environment, our marginal cost of borrowing will inevitably rise. However, what is critical to recognize, and that is our royalty return expectations, also adjust to this higher rate environment. This allows us to continue to deliver attractive returns above our cost of capital. The other important aspect to consider is that our opportunity set has expanded dramatically, driven by the huge capital needs of the industry and the increased role of royalties. And this trend has been accelerated by the macro environment, which has increased the cost of other sources of financing for biopharma companies. So taken together, we're confident that Royalty Pharma will continue to thrive and perform strongly in an evolving rate environment. On slide 10, we want to unpack why we remain so excited about our ability to create compounding value for shareholders. When we make investments, we focus on our cost of capital and then the spread that we're able to generate in excess of our cost of capital. The beauty of our business is that we can quickly adjust to changing macro environments. Historically, when we look at the period from 2012 to 2021, our cost of capital was roughly 6%. We were very fortunate to take advantage of the all-time low rate environments in 2020 and 2021, locking in long duration, low cost debt at around two and a quarter. However, for most of this time period, the business was funded consistently with around 4% debt. When we look at the investment for approved therapies we made over this period, we expected them to generate attractive returns with spreads above our cost of capital. When we shift to the current environment, our cost of capital has increased to around seven to 8%. as our marginal cost of debt has increased to 5% to 7%. However, the returns we're targeting on approved royalties have risen as well, allowing us to maintain attractive spread of our cost of capital. Equally important is that the opportunity set has expanded dramatically with a value of announced transactions of nearly two times with our pipeline showing no signs of slowing down. Taken together, this factor should result in greater value creation for our shareholders. With that, I will hand it over to Chris to update you on the PTC partnership.