On February 15, 2024 Royalty Pharma plc (Nasdaq: RPRX) reported financial results for the fourth quarter and full year of 2023 and introduced full year 2024 guidance for Portfolio Receipts. "Royalty Pharma delivered outstanding results in 2023," said Pablo Legorreta, Royalty Pharma’s founder and Chief Executive Officer (Press release, Royalty Pharma , FEB 15, 2024, View Source [SID1234640151]).
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"We reported another year of strong growth in royalty receipts and deployed substantial capital in value-enhancing transactions, including our strongest year ever for synthetic royalty transactions. Furthermore, a number of positive clinical and regulatory milestones strengthened the outlook for our diversified royalty portfolio. Based on the strong fundamental tailwinds underpinning our business, our strong balance sheet and robust deal pipeline, I am confident we are in an excellent position to fund life sciences innovation and deliver attractive, long-term compounding growth."
Portfolio Receipts show strong growth for full year 2023
Portfolio Receipts (previously referred to as Adjusted Cash Receipts) decreased 31% to $736 million in the fourth quarter, reflecting the accelerated Biohaven payments received in the fourth quarter of 2022.
Portfolio Receipts increased 9% to $3,049 million for full year 2023, driven primarily by strong portfolio performance and new royalty acquisitions, and consistent with the raised guidance provided on January 8, 2024.
Royalty receipts grew 10% for the quarter and 8% for the full year.
Significant transaction activity in 2023 with eight potentially transformative therapies added to portfolio
Announced value of new transactions was $4.0 billion for full year 2023.
Transactions since 2020 expected to add approximately $1.2 billion to Portfolio Receipts in 2025.
Positive updates in the fourth quarter across development-stage royalty portfolio
Phase 3 results for Cytokinetics’ aficamten met the primary endpoint for hypertrophic cardiomyopathy.
Bristol Myers Squibb announced the acquisition of Karuna (marketer of KarXT for schizophrenia).
Phase 3 results for MorphoSys’ pelabresib met the primary endpoint in myelofibrosis; Novartis announced the acquisition of MorphoSys.
Financial guidance for full year 2024 (excludes contribution from future transactions)
Royalty Pharma expects 2024 Portfolio Receipts to be between $2,600 million and $2,700 million.
2024 Portfolio Receipts guidance includes expected growth in royalty receipts of 5% to 9%.
Financial & Liquidity Summary
Three Months Ended
December 31,
Twelve Months Ended
December 31,
(unaudited)
($ and shares in millions)
2023
2022
2023
2022
Portfolio Receipts
736
1,064
3,049
2,789
Net cash provided by operating activities
773
570
2,988
2,144
Adjusted EBITDA (non-GAAP)*
682
983
2,806
2,566
Portfolio Cash Flow (non-GAAP)*
687
996
2,708
2,421
Weighted average/fully diluted Class A ordinary shares outstanding
598
607
603
607
* See "Liquidity and Capital Resources" section. Adjusted EBITDA and Portfolio Cash Flow are non-GAAP liquidity measures calculated in accordance with the credit agreement. Portfolio Cash Flow is a non-GAAP measure that is calculated as Adjusted EBITDA minus interest paid or received, net.
Fourth Quarter 2023 Portfolio Receipts
As previously announced (January 8, 2024 press release), Portfolio Receipts is now being reported as a key performance metric. The calculation of Portfolio Receipts will result in the same amount as Royalty Pharma’s previous presentation of Adjusted Cash Receipts (which will no longer be reported).
This change of presentation will facilitate increased transparency into the economics of individual royalties as royalty receipts by product and franchise will now be reported net of legacy non-controlling interests. In addition, Royalty receipts and Milestones and other contractual receipts will be reported as two separate subtotals summing to Portfolio Receipts. This change will provide greater clarity on the underlying trends of Royalty Pharma’s royalty portfolio versus other contractual payments which may be more variable over time. Prior-period results using this updated presentation are available for download on the Quarterly Results page of the company’s website under Supplemental Financial Information (link here).
Portfolio Receipts Highlights
Three Months Ended December 31,
(unaudited)
($ in millions)
2023
2022
Change
Products:
Marketers:
Therapeutic Area:
Cystic fibrosis franchise
Vertex
Rare disease
208
187
11%
Tysabri
Biogen
Neuroscience
68
73
(7)%
Trelegy
GSK
Respiratory
60
47
28%
Imbruvica
AbbVie, Johnson & Johnson
Cancer
50
58
(13)%
Promacta
Novartis
Hematology
44
40
9%
Xtandi
Pfizer, Astellas
Cancer
38
38
1%
Tremfya
Johnson & Johnson
Immunology
35
29
21%
Evrysdi
Roche
Rare disease
20
14
44%
Cabometyx/Cometriq
Exelixis, Ipsen, Takeda
Cancer
18
15
18%
Spinraza
Biogen
Rare disease
17
—
n/a
Trodelvy
Gilead
Cancer
10
6
64%
Erleada
Johnson & Johnson
Cancer
9
5
72%
Orladeyo
BioCryst
Rare disease
8
6
29%
Nurtec ODT/Zavzpret
Pfizer
Neuroscience
5
4
20%
Other products(5)
63
71
(12)%
Royalty receipts
651
593
10%
Milestones and other contractual receipts
84
470
(82)%
Portfolio Receipts
736
1,064
(31)%
Results for full year 2023 and 2022 are shown in Table 4. Amounts shown in the table may not add due to rounding.
Portfolio Receipts was $736 million in the fourth quarter of 2023, a decrease of 31% compared to the same period in 2022. The decrease in the fourth quarter was attributable to the accelerated redemption of all outstanding Series A and Series B Biohaven Preferred Shares following Pfizer’s acquisition of Biohaven in October 2022, which is reflected within milestones and other contractual receipts. Royalty receipts increased 10%, primarily driven by growth in the cystic fibrosis franchise, Trelegy and Evrysdi, and the addition of new royalties on Spinraza. These positive factors were partially offset by declining royalty receipts on Imbruvica, Tysabri and other products.
Liquidity and Capital Resources
Royalty Pharma’s liquidity and capital resources are summarized below:
As of December 31, 2023, Royalty Pharma had cash and cash equivalents of $477 million and total debt with principal value of $6.3 billion.
Liquidity Summary
Three Months Ended
December 31,
Twelve Months Ended
December 31,
($ in millions)
2023
2022
2023
2022
Portfolio Receipts
736
1,064
3,049
2,789
Payments for operating and professional costs
(54)
(81)
(243)
(223)
Adjusted EBITDA (non-GAAP)*
682
983
2,806
2,566
Interest received/(paid), net
5
14
(98)
(145)
Portfolio Cash Flow (non-GAAP)*
687
996
2,708
2,421
Amounts may not add due to rounding.
*Adjusted EBITDA and Portfolio Cash Flow are calculated in accordance with the credit agreement.
Adjusted EBITDA and Portfolio Cash Flow are supplemental non-GAAP liquidity measures that are key components of certain material covenants contained in Royalty Pharma’s credit agreement.
Adjusted EBITDA (non-GAAP) was $682 million in the fourth quarter of 2023. Adjusted EBITDA is calculated in accordance with the credit agreement as Portfolio Receipts minus payments for operating and professional costs. The calculation of Adjusted EBITDA results in the same total as under Royalty Pharma’s previous presentation of Adjusted EBITDA.
Portfolio Cash Flow (non-GAAP) was $687 million in the fourth quarter of 2023. Portfolio Cash Flow is calculated in accordance with the credit agreement as Adjusted EBITDA minus interest paid or received, net. This non-GAAP measure was added to our disclosure to align with a material covenant contained in Royalty Pharma’s credit agreement. This measure reflects the cash generated by Royalty Pharma’s business that can be redeployed into value-enhancing royalty acquisitions, used to repay debt, returned to shareholders through dividends or share purchases or utilized for other discretionary investments. The calculation of Portfolio Cash Flow does not include development-stage funding payments – upfront and milestone. This is the primary material difference from Royalty Pharma’s previous presentation of Adjusted Cash Flow (which will no longer be reported).
Royalty Pharma has provided a reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure, net cash provided by operating activities in Table 5.
Royalty Pharma announced new transactions of up to $4.0 billion in 2023, which includes upfront payments and potential future milestones. Royalty Pharma is now providing an aggregate amount for total Capital Deployment, which reflects cash payments during the period for new and previously announced transactions. Capital Deployment was $1.0 billion in the fourth quarter and $2.2 billion in 2023. See the detail of Capital Deployment by category below.
Capital Deployment Details
Three Months Ended
December 31,
Twelve Months Ended
December 31,
($ in millions)
2023
2022
2023
2022
Acquisitions of financial royalty assets
(1,002)
(250)
(2,116)
(1,742)
Development-stage funding payments – upfront and milestone
—
(50)
(50)
(175)
Development-stage funding payments – ongoing
(1)
(1)
(2)
(2)
Purchases of available for sale debt securities
—
(86)
—
(480)
Milestone payments
—
—
(12)
—
Investments in equity method investees
(2)
—
(13)
(10)
Acquisitions of other financial assets
—
—
—
(21)
Contributions from legacy non-controlling interests – R&D
0
0
1
1
Total Capital Deployment
(1,005)
(386)
(2,192)
(2,428)
Amounts may not add due to rounding.
In October 2023, Royalty Pharma drew $350 million under its existing unsecured revolving credit facility, which was repaid during the fourth quarter of 2023. Royalty Pharma also executed an amendment to its credit agreement during the fourth quarter of 2023 to increase its borrowing capacity under the revolving credit facility to $1.8 billion and to extend the maturity for a portion of the commitments.
Royalty Pharma began repurchasing its Class A ordinary shares in April 2023 under a $1.0 billion multi-year share repurchase program. During the fourth quarter of 2023, Royalty Pharma repurchased approximately 957,000 shares for $26 million. The weighted-average diluted Class A ordinary shares outstanding for the fourth quarter of 2023 was approximately 598 million and the fully diluted Class A ordinary shares outstanding was approximately 607 million for the fourth quarter of 2022. Royalty Pharma repurchased approximately 10 million shares for $305 million in 2023 under this repurchase program.
Recent Transactions
During the fourth quarter of 2023, Royalty Pharma announced new transactions of up to $1.6 billion. Announced transactions amount reflects the entire amount of capital committed for new transactions during the year, including potential future milestones.
Recent transactions include:
In November 2023, Royalty Pharma acquired a royalty interest in long-acting injectable olanzapine (TEV-’749), a Phase 3 development-stage product for the treatment of schizophrenia, from Teva Pharmaceuticals Industries Ltd. (press release). Under the terms of the agreement, Royalty Pharma will provide R&D funding of up to $125 million to support the development of TEV-’749.
In October 2023, Royalty Pharma acquired additional royalties on Roche’s Evrysdi (press release), an approved product for the treatment of spinal muscular atrophy, from PTC Therapeutics, Inc. (PTC) for an upfront payment of $1.0 billion. Until December 31, 2025, PTC will have the option to sell the remainder of the Evrysdi royalty retained by PTC to Royalty Pharma for $500 million less royalties received in five equal tranches. If PTC exercises fewer than three of these options, Royalty Pharma has the option to purchase 50% of the remaining PTC royalty for $250 million less royalties received until March 31, 2026.
Additionally, in January 2024, Royalty Pharma acquired a royalty interest in ecopipam for an upfront payment of $49 million and up to $44 million in milestone payments contingent on the achievement of certain regulatory milestones. Ecopipam is in Phase 3 development by Emalex Biosciences for the treatment of Tourette Syndrome.
The information in this section should be read together with Royalty Pharma’s reports and documents filed with the SEC at www.sec.gov and the reader is also encouraged to review all other press releases and information available in the Investors section of Royalty Pharma’s website at www.royaltypharma.com.
Key Developments Relating to the Portfolio
The key developments related to Royalty Pharma’s royalty interests are discussed below based on disclosures from the marketers of the products.
Pelabresib
In February 2024, Novartis announced that it has entered into an agreement to make a voluntary public takeover offer to acquire MorphoSys at an offer price of €68.00 per share in cash, for a total equity value of €2.7 billion. The closing is expected in the first half of 2024.
In November 2023, MorphoSys announced positive topline results from the Phase 3 MANIFEST-2 study investigating pelabresib in combination with ruxolitinib compared with placebo plus ruxolitinib in JAK inhibitor-naive patients with myelofibrosis. A New Drug Application (NDA) is expected to be submitted to the U.S. Food and Drug Administration (FDA) in the second half of 2024.
Cystic fibrosis franchise
In February 2024, Vertex announced positive Phase 3 results from its new triple combination therapy for the treatment of cystic fibrosis (CF). Vertex plans to file for approval with global regulators for people with CF ages 6 years and older by mid-2024.
In November 2023, Vertex announced that the European Commission granted approval for the label expansion of Kaftrio in a combination regimen with ivacaftor for the treatment of children with CF ages 2 through 5 years old.
Trodelvy
In January 2024, Gilead announced that the Phase 3 EVOKE-01 study evaluating Trodelvy compared to docetaxel did not meet its primary endpoint of overall survival in patients with previously treated metastatic non-small cell lung cancer.
Aficamten
In December 2023, Cytokinetics announced positive topline results from SEQUOIA-HCM, the pivotal Phase 3 clinical trial of aficamten in patients with symptomatic obstructive hypertrophic cardiomyopathy. The full results will be presented at an upcoming conference.
KarXT
In December 2023, Bristol Myers Squibb announced it has agreed to acquire Karuna for $330 per share in cash, for a total equity value of $14.0 billion with an expected closing in the first half of 2024.
In November 2023, Karuna announced that the FDA accepted its NDA for KarXT for the treatment of schizophrenia with an FDA action date of September 26, 2024.
Skytrofa
In December 2023, Ascendis Pharma announced positive topline results from foresiGHt, its Phase 3 trial to compare TransCon hGH with placebo and daily hGH in adults with growth hormone deficiency. Ascendis plans to submit a supplemental Biologics License Application to the FDA in 2024.
Xtandi
In November 2023, Astellas and Pfizer announced that the companies received an approval by the FDA of a supplemental NDA for Xtandi for the treatment of patients with nonmetastatic castration-sensitive prostate cancer with biochemical recurrence at high risk for metastasis.
Trontinemab
In October 2023, Roche presented interim results of a Phase 1b/2a study for trontinemab, a novel brainshuttle Aβ antibody for the treatment of Alzheimer’s disease. This study demonstrated that trontinemab rapidly reduces amlyoid plaque reduction in patients with Alzheimer’s disease.
2024 Financial Outlook
Royalty Pharma has provided guidance for full year 2024, excluding transactions and borrowings announced after the date of this release, as follows:
Provided February 15, 2024
Portfolio Receipts
$2,600 million to $2,700 million
Payments for operating and professional costs
8% to 9% of Portfolio Receipts
Interest Paid
$160 million
The above Portfolio Receipts guidance includes expected royalty receipts growth of 5% to 9% in 2024.
Royalty Pharma’s full-year 2024 guidance reflects a negligible estimated foreign exchange impact to Portfolio Receipts, assuming current foreign exchange rates prevail for 2024.
Total interest paid is based on the semi-annual interest payment schedule of Royalty Pharma’s existing notes and is anticipated to be approximately $160 million in 2024. Interest paid is anticipated to be approximately $79 million in each of the first and third quarters of 2024 with de minimis amounts being recorded in the second and fourth quarters of 2024. The projection assumes no additional debt financing in 2024, including no drawdown on the revolving credit facility. In 2023, Royalty Pharma also collected interest of $72 million on its cash and cash equivalents, which partially offsets interest paid.
Royalty Pharma today provides this guidance based on its most up-to-date view on its prospects. This guidance assumes no major unforeseen adverse events and excludes the contributions from transactions announced subsequent to the date of this press release. Furthermore, Royalty Pharma may amend its guidance in the event it engages in new royalty transactions which have a material near-term financial impact on the company.
Financial Results Call
Royalty Pharma will host a conference call and simultaneous webcast to discuss its fourth quarter and full year 2023 results today at 8:00 a.m., Eastern Time. Please visit the "Investors" page of the company’s website at View Source to obtain conference call information and to view the live webcast. A replay of the conference call and webcast will be archived on the company’s website for at least 30 days.