Royalty Pharma (RPRX) Q3 2026 Earnings Call Transcript

DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer and Chairman of the Board - Pablo Legorreta
• EVP, Head of Research and Investments - Marshall Urist
• EVP, Chief Financial Officer - Terry Coyne
• Senior Vice President, Head of Investor Relations and Communications - George Grofik
• Chairman, Partnering and Investments - Chris Hite

TAKEAWAYS

• Portfolio Receipts -- $890 million, representing 9% growth driven by strong underlying performance across the royalty portfolio.
• Royalty Receipts -- $883 million, growing 9% year over year and 12% on a year-to-date basis, reflecting the stability of the recurring cash flow base.
• Full Year 2026 Portfolio Receipts Guidance -- $3.5 billion to $3.55 billion, representing a raise from the previous range of $3.4 billion to $3.5 billion for the third consecutive quarter.
• Royalty Receipts Growth Guidance -- 10% to 11% for the full year, an increase from the previous guidance of 7% to 10% based on strong underlying business momentum.
• Tremfya Royalties -- $80 million, representing 61% growth driven by its performance in immunology indications.
• Evrysdi Royalties -- $71 million, an increase of 38% reflecting higher sales and the acquisition of additional royalties in late 2025.
• Voranigo Royalties -- $55 million, growing 65% year over year following its commercial performance in oncology.
• Imdelltra Royalties -- $19 million, contributing to the portfolio for the first time following its launch for small cell lung cancer.
• Cystic Fibrosis Franchise Receipts -- $225 million, representing 1% growth and remaining the largest contributor to total royalty receipts.
• Capital Deployment -- $1.6 billion, deployed during the first nine months of 2026 across new biopharmaceutical royalties and R&D funding agreements.
• Announced Transaction Value -- $1.9 billion, including potential future milestones associated with deals closed during the first nine months of the year.
• Zoryve Acquisition -- $100 million, paid upfront to AstraZeneca for a 3% royalty on worldwide sales of the topical therapy for immune diseases of the skin.
• Mimrylo Acquisition -- $100 million, comprising $50 million paid upfront and $50 million due on the first anniversary of the deal for a royalty on the rare blood disorder treatment.
• Return on Invested Capital -- 14.3%, maintained over the last 12 months ending in the third quarter of 2026.
• Return on Invested Equity -- 20.2%, demonstrating the impact of conservative leverage on equity returns over the same trailing 12-month period.
• Adjusted EBITDA -- $840 million, representing a margin of approximately 76% relative to portfolio receipts in the quarter.
• Portfolio Cash Flow -- $673 million, reflecting the cash generated for redeployment after net interest payments of $167 million.
• Shareholder Capital Returns -- $590 million, returned in the first nine months of 2026 through $183 million in share repurchases and consistent dividend payments.
• Operating and Professional Costs -- 5.6% of portfolio receipts, reflecting savings realized from the internalization of the manager completed in May 2025.
• Total Debt -- $8.8 billion, with a weighted average duration of approximately 12 years and a net leverage ratio of 2.5x.
• Financial Flexibility -- $4.8 billion, consisting of cash on the balance sheet, a $1.8 billion undrawn revolver, and business cash generation.
• Promacta Royalties -- $9 million, a 75% decline resulting from the impact of generic competition in the United States.
• Imbruvica Royalties -- $31 million, representing a 24% decline as the therapy faces competitive headwinds.
• Pelacarsen Impairment -- $150 million, recorded as a non-cash charge following the failure of the Phase III HORIZON clinical trial.
• Interest Paid Guidance -- $350 million to $360 million, expected for the full year 2026 with interest paid anticipated to be a de minimis amount in the fourth quarter.

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RISKS

• Pablo Legorreta stated, "While we were, of course, disappointed by the Phase III results for Novartis' pelacarsen," which did not meet its primary endpoint in reducing cardiovascular events.
• Terry Coyne noted that generic competition for Promacta and the performance of Imbruvica created "an approximately 5% combined headwind" for the company's royalty receipts year to date.

SUMMARY

Royalty Pharma plc (NASDAQ:RPRX) reported quarterly portfolio receipts of $890 million and raised its full-year 2026 guidance for the third consecutive time, citing strong recurring cash flows from its core pharmaceutical holdings. Management highlighted the continued expansion of its R&D co-funding initiative, with $1 billion in such transactions announced this year, as a key driver for future growth through 2030. The company maintained its capital allocation framework by deploying $1.6 billion year to date and returning $590 million to shareholders, while reporting stable investment returns in the mid-teens to low 20% range. Strategic initiatives discussed on the call included the integration of advanced analytical capabilities through a new artificial intelligence leadership role and an expanded geographic presence in Asia to capture growing out-licensing opportunities.

• Marshall Urist noted that the success rate for the company's development-stage investments is approximately 90%, which Urist stated is "well ahead of industry averages."
• Chris Hite reported that the pipeline for R&D co-funding is expanding, noting that pharmaceutical R&D spend is expected to exceed $1 trillion over the next five years.
• Management integrated a new artificial intelligence function led by Lucas Glass to enhance analytical depth and improve the speed of the research and investment process.
• The company hired Ken Sun to lead efforts in China, where Hite indicated out-licensing deals have grown from two in 2020 to over 50 in 2025.
• The company achieved a AAA ESG rating from MSCI, which Pablo Legorreta stated indicates that the firm is an "industry leader in managing the most significant sustainability risks and opportunities."
• The structure of the pelacarsen investment ensures that the company will still receive $550 million in total royalty payments from Spinraza, representing a 1.1-fold return on the funded amount despite the trial failure.

INDUSTRY GLOSSARY

• Portfolio Receipts: The sum of royalty receipts and milestones or other contractual payments received from portfolio investments.
• Royalty Receipts: The recurring cash inflows derived from sales-based payments on marketed therapies.
• R&D Co-funding: A strategic arrangement where the company provides capital to pharmaceutical partners to fund clinical trials in exchange for future royalties.
• Internalization Transaction: The process completed in May 2025 where the company acquired its outside manager to eliminate management fees and improve margins.
• Polycythemia vera (PV): A rare chronic blood disorder characterized by excessive red blood cell production, addressed by the newly acquired royalty on Mimrylo.
• PDE4 inhibitor: A class of drugs that block the phosphodiesterase type 4 enzyme to treat inflammatory conditions, such as the skin disorders addressed by Zoryve.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Third Quarter 2026 Earnings 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.

George Grofik: Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's third quarter results. You can find the press release with our earnings results and slides to this call on the Investors page of our website at royaltypharma.com. On Slide 2, 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 from these statements. We refer you to our most recent 10-K on file with the SEC for a 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 liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Marshall will provide a portfolio update and Terry will review the financials.

Following concluding remarks from Pablo, we will hold a Q&A session when we will be joined by Chris Hite, Chairman, Partnering and Investments. And with that, I'd like to turn the call over to Pablo.

Pablo Legorreta: Thank you, George, and welcome to everyone on the call. It gives me great pleasure to report another strong quarter in 2026 as we execute towards our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide 5 summarizes our strong business momentum in the third quarter. Starting with the financials, we delivered 9% growth in Portfolio Receipts, our top line, and also in Royalty Receipts, which are our recurring cash flows. On a year-to-date basis, Royalty Receipts have grown by 12%, reflecting the strength of our diversified portfolio of high-quality royalties. We also maintained attractive returns in our business with return on invested capital of 14.3% and return on invested equity of 20.2%.

By combining strong growth and superior returns, we're confident we have a clear path to drive shareholder value creation. Turning to capital allocation. We have deployed $1.6 billion of capital so far this year with an announced value of $1.9 billion. Most recently, we acquired a royalty on Arcutis' Zoryve, an approved therapy for immune diseases of the skin. We also acquired a royalty on Takeda's Mimrylo, a potential blockbuster therapy for rare blood disorders, polycythemia vera. As we look ahead, our deal pipeline remains robust, supported by continued powerful fundamental tailwinds. Under our value-driven capital allocation framework, we also returned close to $590 million to shareholders in dividends and share repurchases in the first 9 months of the year.

Moving to our portfolio. We're excited to see a number of positive clinical and regulatory updates, which we expect to support our growth over the medium- to long-term. Our partner, Revolution Medicines received FDA approval and a positive regulatory opinion in Europe for Rasonque in pancreatic cancer. Teva also received FDA approval for its schizophrenia therapy, Weltruza. While we were, of course, disappointed by the Phase III results for Novartis' pelacarsen. The overwhelming weight of news across our portfolio was positive with successful Phase III results for Amgen's Imdelltra in first-line small cell lung cancer and Pharvaris' deucrictibant XR in hereditary angioedema.

We also structured the pelacarsen investment in a protective way where we will still make our money back plus a small return. As Marshall will explain later, our track record of success in development stage investing remains outstanding. Looking ahead, we're increasing our 2026 full year guidance for the third consecutive quarter based on the excellent business momentum I just highlighted. Slide 6 is a slide we show every quarter. It demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. This reflects the quality of our asset selection and our unique business model.

It's a track record that I believe very few companies in the health care space can match. With that, I will hand it over to Marshall.

Marshall Urist: Thanks, Pablo. I want to focus today on our recent royalty deals for Mimrylo and Zoryve and to give a broader update on our development stage portfolio. Beginning on Slide 8, we recently acquired Zealand Pharma's royalty interest in Takeda's Mimrylo for a total of $100 million. In return, Royalty Pharma is entitled to receive a 1% royalty on annual worldwide sales of up to $1.5 billion, tiering down to 0.75% above the sales threshold. We are also eligible to receive up to $23 million in milestones. Mimrylo is an exciting first-in-class therapy for polycythemia vera or PV, a rare chronic blood disorder.

In PV, there is excessive red blood cell production, which thickens the blood, resulting in increased risk of clotting and major cardiovascular events. There is a high unmet need for new treatment options as many patients are still reliant on frequent phlebotomy or blood draws. Mimrylo reduces the excessive red blood cell production. In Phase III, it demonstrated significant clinical benefit across a range of parameters, including phlebotomy burden and fatigue. Based on the compelling results, the FDA approved Mimrylo in August 2026. Takeda has provided peak annual sales for Mimrylo of between $1 billion and $2 billion, and we see clear blockbuster potential.

Polycythemia vera is a potentially large market with a prevalence of around 155,000 patients in the U.S. alone. Based on this, we would expect to generate an unlevered IRR in the low double-digit percentage range, consistent with our target for approved products. Moving to Slide 9 and our latest transaction. In September, we agreed to pay AstraZeneca $100 million upfront for a 3% royalty on worldwide sales of Zoryve. This is an approved once-daily topical, which is marketed by Arcutis Biotherapeutics for 3 skin disorders, plaque psoriasis, seborrheic dermatitis and atopic dermatitis. Zoryve offers an effective and safer alternative to widely used topical steroids.

This represents a significant commercial opportunity for Zoryve based on growing physician recognition of the local and long-term side effects of chronic steroid use. The scale of this opportunity is underscored by the modest penetration to date of branded nonsteroidal topicals, which only represents 7% of the market. Arcutis' commercial execution has been impressive and their message is resonating with physicians. Zoryve is expected to grow by more than 40% in 2026 to over $0.5 billion, and we see clear blockbuster potential. Consensus currently predicts Zoryve sales will reach $1.6 billion in the early part of the next decade, while Arcutis has supplied a peak sales estimate of $2.3 billion to $3 billion across Zoryve's current indications.

We expect the transaction to generate an unlevered IRR consistent with our target range for approved products. I want to move on now to our development stage pipeline. Slide 10 shows our scorecard for 2026 for key clinical and regulatory events. As Pablo noted, while the outcomes trial for pelacarsen was not successful, the transaction to acquire this royalty was structured in a protective manner. As a reminder, our $500 million funding agreement with Ionis included stable and predictable royalties in Spinraza with upside from the pelacarsen royalty. Based on the pelacarsen results, our royalty interest in Spinraza will revert to Ionis after we receive royalty payments of $550 million or a 1.1x return on the total amount funded.

Overall, we remain pleased with the progress of our development stage portfolio in its entirety. So far in 2026, we are proud to have 5 successful pivotal Phase III trials from our development stage therapies and 9 positive regulatory events, including 6 FDA approvals and 3 FDA filings. Our overall track record for development stage investing continues to be well ahead of industry averages with a success rate of approximately 90%. Importantly, many of the therapies shown on this slide have the potential to be truly transformative for patients as well as highly commercially successful. Revolution Medicines' Rasonque for pancreatic cancer and Cytokinetics' Myqorzo for nonobstructive hypertrophic cardiomyopathy are the 2 most obvious examples.

The year is not over yet with the upcoming FDA regulatory decision expected later this year on GSK's neladalkib for non-small cell lung cancer and Phase III results expected for Biogen's litifilimab in systemic lupus. Consequently, we feel really good about both the progress of our development stage pipeline this year as well as the potential of these therapies -- of the therapies we added this year to be very significant royalty contributors over the long-term. Slide 11 details our development stage pipeline by year of potential launch. Here is a list of a dozen potential blockbuster launches over the coming years that can power our growth through 2030 and beyond.

Importantly, all are either first-in-class or best-in-class and all of them through our rigorous diligence process. As a result, we expect a significant proportion to reach the market successfully and deliver transformative benefits to patients. To wrap up, we're extremely excited about our pipeline that in aggregate has the potential to add peak royalties of more than $1.7 billion to our top line in the future, and we expect to continue to add new and exciting therapies to our development stage pipeline in the years to come. And with that, let me hand it over to Terry.

Terrance Coyne: Thanks, Marshall. Let's move to Slide 13. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty Receipts grew by 9% in the third quarter, reflecting the strength of our diversified portfolio. As Pablo noted earlier, this takes our growth in the first 9 months to 12%. Milestones and other contractual receipts, which are more variable, were relatively modest in the quarter but increased year-over-year. Taken together, Portfolio Receipts, our top line grew 9% in the quarter to $890 million. As we move down the column, operating and professional costs equated to 5.6% of Portfolio Receipts in the third quarter.

This line continues to demonstrate the benefit of the cash savings we are delivering from the internalization transaction, which we completed in May of 2025. Net interest paid was $167 million in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters, together with the interest we received from the cash on our balance sheet. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $673 million for the quarter.

Our margin of around 76% in the quarter and 82% year-to-date underscores the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $362 million mainly reflected R&D funding for JNJ-4804 and upfront payments for cliramitug, Zoryve and Mimrylo. Lastly, our weighted average share count declined by approximately 3 million shares in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 14 provides more detail on the evolution of our top line year-to-date. Royalty Receipts, which we consider our recurring cash inflows grew by 12%. Key drivers were the strong performances of Tremfya, Voranigo, Evrysdi and Imdelltra.

Importantly, we have been able to absorb significant declines from Promacta and Imbruvica, amounting to an approximately 5% combined headwind and still delivered double-digit growth in royalty receipts. Moving to Portfolio Receipts. These grew by 9% in the first 9 months, reflecting lower milestones and other contractual receipts, which is consistent with our full year 2026 guidance. Slide 15 updates our portfolio return metrics for the quarter. Return on invested capital was 14.3% for the last 12 months ending in the third quarter of 2026 and return on invested equity, which shows the impact of conservative leverage on our equity returns was 20.2% for the last 12 months.

This is the fifth straight quarter we've reported these metrics and their remarkable stability demonstrates that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 16 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of September 2026, we had cash and equivalents of $514 million. In terms of borrowings, we have investment-grade debt outstanding of $8.8 billion with a weighted average duration of around 12 years. Our leverage now stands at 2.7x total debt to adjusted EBITDA or 2.5x on a net basis.

We also have access to our $1.8 billion revolver, which was undrawn as of the end of the third quarter. All considered, we have access to approximately $4.8 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We deployed just over $1.2 billion of capital on attractive royalty deals in the first 9 months of 2026. At the same time, we returned approximately $590 million to our shareholders through share repurchases of over $180 million and our growing dividend. In total, we have returned about 28% of our portfolio cash flow this year to shareholders.

On Slide 17, we are again raising our full year 2026 financial guidance. We now expect Portfolio Receipts to be in the range of $3.5 billion to $3.55 billion, up from $3.4 billion to $3.5 billion previously. This assumes growth in Royalty Receipts of around 10% to 11% compared with 7% to 10% previously, which reflects the strong underlying momentum of our diversified portfolio. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $65 million in 2026. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. Turning to expenses.

Payments for operating and professional costs are expected to be in the range of 5.5% to 6% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. We continue to expect interest paid to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be a de minimis amount in Q4. This guidance reflects repayment of the $380 million term loan in July, but does not take into account interest received on our cash balance, which was $18 million in the first 9 months. To close, we've had an excellent first 9 months.

We've raised our guidance for the third consecutive quarter, and we expect to deliver another full year of strong financial performance in 2026. With that, I would like to hand the call back to Pablo.

Pablo Legorreta: Thanks, Terry. To conclude, I'm very pleased with our continued execution against our strategy in the first 9 months of 2026. We have consistently delivered strong growth and returns. We've again deployed significant capital on exciting new biopharma royalties. We've tirelessly innovated to open up major new opportunities such as pharma R&D co-funding. Last but not least, we have enhanced our leadership team and capabilities to ensure we remain at the forefront of our highly attractive industry. On Slide 19, I also wanted to draw your attention to something we're very proud of that we don't often highlight. As a leading funder of innovation, we recognize the importance of integrating sustainability-related principles into our strategies and investments.

We were, therefore, delighted to have recently been awarded a AAA ESG rating by MSCI, indicating that we are an industry leader in managing the most significant sustainability risks and opportunities. This adds to our already strong ESG ratings from ISS. For Royalty Pharma and our investors, we believe this is important as it supports our belief that we're conducting our business in the right way based on the core pillars of strong corporate governance, talent management and a business model that is aligned with patients' needs. I want to close on Slide 20 with a recap on why we believe we're well positioned to drive continued strong value creation.

First, we're the long-standing leader in the rapidly expanding biopharma royalty market with powerful fundamental tailwinds, reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies. By expanding our global platform and capabilities, we expect to remain the undisputed leader in our industry. Third, we expect to deliver strong low volatility top and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20%-plus range.

I have never been more excited about our future and the opportunities ahead. And with that, we would be happy to take your questions.

George Grofik: We will now open up the call to your questions. Operator, please take the first question.

Operator: [Operator Instructions] Our first question comes from the line of Asad Haider with Goldman Sachs.

Asad Haider: Congrats on the continued strong execution, guys. Really great to see. A couple on pipeline economics. First, on Amgen's Imdelltra, just in the context of the strong data in first-line small cell lung cancer seen at ESMO, which is really a standout. Just maybe talk about how this shifts your view of the overall opportunity versus what was reflected when you did the deal with them? And then second, in the context of the pelacarsen failure where you took a $150 million noncash impairment charge, can you just provide any context on economics on Amgen's olpasiran and the impact to royalty if that trial also fails?

Pablo Legorreta: Sure. Marshall, that's a question for you.

Marshall Urist: Sure. Thanks for the question on Imdelltra. Thanks for pointing out the recent positive first-line non-small cell lung cancer maintenance data. It was spectacular and is a real advance for patients, and we are certainly excited to have it in our portfolio. It is a significant expansion in the marketplace. I would say when we make these investments, we always think about a lot of scenarios and have to think through how the product could evolve in the future with major label expansions like this. So, we are -- it's certainly -- the data was ahead of our expectations. We are really excited about what this means for.

Obviously, for patients and then also for the downstream commercial benefits of that and the royalties to us. Certainly, a really nice royalty that we have. I think just taking a step back, it's a good example of our team's ability to identify really exciting therapies wherever those opportunities lie. This time, we were really happy to work with BeOne to acquire this royalty. Really, I think, a great product and a great example of how we build our portfolio. Your second question was on olpasiran. Yes, we're a few days away from seeing all the detailed data, I think, at AHA this weekend.

Let's see what comes out of that and in the future, what it might mean for olpasiran and this class going forward. Then we can have a more informed discussion about what it means about specifically what it means for us and our remaining investment in olpasiran.

Pablo Legorreta: I think he was also asking about the economics. I think what's interesting for us there is that the royalty on Amgen's drug is bigger, and we've made a bigger investment. Potentially, we could end up -- if it works, we could end up having a really positive driver of growth and cash flow.

Operator: Our next question comes from the line of Chris Schott with JPMorgan.

Christopher Schott: I said 2 here. Maybe first on just competition within therapeutic areas. It seems like the window between when we see a therapeutic breakthrough and when competition arrives, continues to shrink, and I think that seems particularly true with the rise of the Chinese biotech industry. I guess do you agree with that view? And how does that impact your approach towards deals? Does that lead you to focus on areas with less competition? Is it multiple deals per therapeutic area or some of these fast followers in some cases, better companies to bet on? Just any just perspective there would be great.

And then the second question is you called out the pharma co-funding deals you've had $1 billion year-to-date. I guess just with rising R&D budgets across the large cap space and a patent cycle approaching, just can you help frame out how meaningful an opportunity this could be for royalty as we think through the direction some of these large biopharma companies are going with their R&D budgets?

Pablo Legorreta: Thanks for the question. And I think Marshall will take the first one and Chris, the second one.

Marshall Urist: Chris, great question. Specifically in terms of how we think about competition in therapeutic areas. It is something that we think a lot about and certainly, the dynamic of China as a new source of products definitely puts a finer point on it. There isn't one answer, as you alluded to. We definitely still think about -- think how do we prioritize a lot of different factors, which is we've always said being first can be a major competitive advantage, who is our partner, whose hands is it in and we believe in their ability to -- and do we believe in their ability to execute.

But then also, we have the unique ability, as you pointed out, to make multiple investments in the same therapeutic area. We don't see it as a zero-sum game that we have to choose one. I think it's a very unique aspect of our business. If anything, as we've talked about, the increase in new programs has 2 tailwinds for our business. We don't just see it as competition. It's an opportunity for us. I think, number one, it gives us more opportunities to support companies. It will certainly, from the China perspective, as we talked about, will create more licenses, and that means more royalties.

A lot of those royalties are in the hands of some of the biggest, most capable companies in the world. So we've -- as we've talked about in the past, we've expanded our team to make sure that we have the team on the ground in Asia to maximize those opportunities, and that team is off to a great start.

Christopher Hite: On your second question, Chris, thanks for the question around R&D co-funding. We see this as a tremendous growth opportunity for us. As you've seen this year alone, we announced $1 billion of R&D co-funding deals, $500 million with J&J and $500 million with Teva. Those conversations and opportunities continue to accelerate in our deal funnel. It's obvious the reasons why the amount of R&D spend happening at pharma over the next 5 years is expected to exceed $1 trillion. The capital need is there. The accounting framework is there, especially under U.S. GAAP, and we've seen some companies take advantage outside of the United States under IFRS as well. That's a positive tailwind for us.

As the companies see the deals announced, it's opening up even more opportunities because they're seeing their competitors use R&D co-funding to expand their pipelines and accelerate their pipelines. They themselves would like to do it as well. It's a confluence of tailwinds really pushing that opportunity forward, and we're just super excited about it.

Operator: The next question comes from the line of Mike Nedelcovych with TD Cowen.

Michael Nedelcovych: I have 2 questions and a follow-up. My follow-up is on olpasiran. As you noted, we're going to get the Phase III HORIZON data this weekend. I'm curious, Marshall, what specifically will you be looking for in the presentation to help you understand whether olpasiran still has potential. So that's one. My other question relates to Rasonque. Revolution Medicines declined to take tranche 3 of funding from Royalty Pharma. So it seems like a reasonable base case to assume the royalty rate will stay where it is now. I'm curious to what extent that's a swing factor relative to your $4.7 billion top line target in 2030, if at all? And then my last question relates to capital deployment.

It looks like you're on track to deploy less capital this year relative to each of the last couple of years. Correct me if I'm wrong on that. But -- and I know that annual fluctuations are to be expected, but I'm wondering if there is any specific reason for this or if maybe we should look for a rebound in the near future.

Pablo Legorreta: Yes. Thanks for the question. Marshall will take the first one, and then Terry will take the second one.

Marshall Urist: Yes. Thanks, Mike. Yes, we are looking forward to seeing the pelacarsen, HORIZON data this weekend and to understand -- really our first glimpse at understanding this target. I think there's going to be a lot of questions that we -- that we are looking to understand better. Is most basically baseline factors like baseline Lp(a) or baseline LDL, how much did that impact it? How did -- was there any evidence that pelacarsen itself played any role? And then are there other subgroups in there to really understand and give us a sense of who may or may not benefit from this target.

So I think there's going to be a lot of detail, a lot of discussion this weekend, and we're certainly looking forward to learning more.

Terrance Coyne: Then, Mike, on your second and third question. On Rasonque, no impact on 2030. We're still very confident in that meeting or exceeding that guidance. I feel really good there. Then on your question on capital deployment, I think it's -- first of all, we're at $1.6 billion through today. Versus historical years, maybe it's a little bit lower, but it's kind of in the range. I think we all feel internally like we're extremely busy, and we can't always predict the timing of when transactions are going to close.

That's why we've said since dating back to the IPO that the capital deployment was going to be kind of uneven from a year-to-year basis, and you really needed to look at it on a multiyear basis. We feel like there are a lot of great tailwinds. There's still a couple of months left in the year as well. We'll see how things shake out for the end of the year. But we're very busy. The pipeline is really strong.

We feel like we're getting a lot of momentum in sort of the core areas we're focused on, synthetic royalties, pharma R&D co-funding and feel like over the long-term, we're going to be very comfortable with the guidance that we've given and then see a clear path to doing well ahead of that around $2.5 billion per year. So feel really good about it, and stay tuned.

Operator: The next question comes from the line of Geoff Meacham with Citi.

Geoffrey Meacham: I just have a couple. The first is on deal structuring. So on deals where you have a novel mechanism or a disruptive class, let's say, the Lp(a) category, going forward, are you guys biased to more contingent considerations or has some protection to preserve your returns maybe as a boiler plate type of structure? And the second one is that when you look at some of the categories, you guys have done some great deals in the past few years, but there are still some big categories across pharma that are high growth or high opportunity like GLP-1s or neuro, for example. Is there still an interest in looking at opportunities like that?

Maybe it's more competitive, but co-funding would be one solution for that. So I just want to get your perspective on some of the bigger opportunities. And maybe do you guys have FOMO looking at some of those when you look at the range of deals?

Pablo Legorreta: Yes. Thanks for the question. I'll take the first one on structuring and then Marshall can take the second one. Regarding structuring, I think what we've done for 3 decades is been very open-minded about everything. The approach we take when we meet with companies is that we want to understand their needs, their constraints and understand the asset really well. What I tell the team often is we need to approach everything with a sort of open mind and sort of blank piece of paper. Obviously, the experience and structures we've used in the past are helpful. It's better to approach things in a fresh way because each asset is different, each opportunity is different, the companies.

We're very open-minded. But what I would tell you is that when we're looking at investments and deploying capital, we tend to favor transactions that are driven more by royalties versus things like milestone payments because obviously, that is what drives more long-term value creation. That's an important thing for us. In terms of downside protection, yes, often interesting, useful. We actually are really focused on understanding the risk/reward profile really well. Because downside protection, it's not a good way of thinking about a business when you're deploying capital. It's more -- we get the kind of protection by diversifying, right, and having great assets in the portfolio. But I'll stop there and let Marshall take the second question.

Marshall Urist: Geoff, thanks for the question. I think our core approach hasn't changed. We are absolutely open to every therapeutic area, every modality. It's really about what it has always been over those same 3 decades, which is identifying great products in the hands of great partners and structuring a win-win transaction, and we show a lot of discipline. We don't really think of it as FOMO. It's more a matter of when we find the right thing in a given therapeutic area, we will go after it aggressively. I think our track record proves out our ability to do that.

We are, though, focused on expanding the number of ways that we can work with partners so that we are the best positioned player in our industry. That's why, as you mentioned, R&D co-funding and that growth is another broadens the aperture of the number of companies and products that we can work with. We mentioned China as another way that we continue to make sure that our platform and our team is positioned to work with as broad a spectrum of companies and partners and products and therapeutic areas as possible. We, again, have a very full and active pipeline that's highly diverse across many, many therapeutic areas, and that underscores the optimism that Terry just talked about.

Operator: The next question comes from the line of Terence Flynn with Morgan Stanley.

Terence Flynn: I guess, first on litifilimab, there's -- we're expecting some upcoming Phase III data in SLE this year and then CLE next year. I know Biogen has talked about lupus being an $8 billion commercial opportunity. I saw you had highlighted some of the sales potential on your slides. But maybe, Marshall, you could just talk through how you guys are thinking about the commercial opportunity, both in SLE and CLE. And then the second question is just on China. I know you guys have people on the ground now over there. So just any update in terms of how that ramp is going and when we might see -- expect to see some capital deployment on the China side?

Pablo Legorreta: Marshall, why don't you take the litifilimab question, and then maybe Chris can take the China question.

Marshall Urist: Terence, thanks for the question on litifilimab. Yes, we are getting excited to see the Biogen SLE data coming up. Just as a reminder for everyone, we did a $250 million R&D co-funding agreement with Biogen to fund the Phase III trials for litifilimab in 2 indications, SLE and CLE. I think we are excited about both of them, and this deal was structured in a way that makes a lot of sense for our shareholders. I think if either one of them proves to be successful, this is going to be a great investment. If both are successful, it will be even better.

Our view on lupus has been that this is an area of significant unmet need, and there are -- there's a need for new products. I think one of the things we've seen in other spaces in autoimmune and I&I more broadly is that the categories grow and the market grows significantly as you have more products and more companies and doctors and patients have options. I think what Biogen is doing here, they have a great program. They've executed really nicely against litifilimab. I think having another product here is going to grow the market.

Then also interestingly starting to subset the market with CLE and being able to really focus and offer a new option for those patients as well. We think this can be a big product and excited to see the data, and it will be a nice addition to our portfolio and a great example of how R&D co-funding allows us to access a broader spectrum of products.

Christopher Hite: On your second question, Terence, on China, thanks for the question. It's obviously a very exciting and strong strategic longer-term market opportunity for us. You've seen the rapid and growing out-licensing that has occurred out of China into Western multinationals. I think in 2020, I think there was only around 2 out-licensing deals and therefore, royalties created versus over 50 last year. The growth is exponential. We've actually -- we feel we've already deployed capital last year when we bought BeOne's royalty on Amgen's Imdelltra for over $900 million. That certainly caught the attention of a lot of the Chinese pharmaceutical companies when they saw that.

That was a great example of how we can work and deploy capital in China. We obviously hired Ken Sun, who ran Morgan Stanley's healthcare Asian business. He's on the ground and up and running. We spent a lot of time in country with him and continue to develop those relationships. As those out-licensing deals mature, we're obviously tracking all of those products and programs that were out-licensed to Western multinational companies. As they mature through the pipelines at the big pharma companies that in-license those programs, that's where we can strike and really hope to obtain those royalty streams from the Chinese companies. It's a really exciting opportunity for us.

We're excited to hire Ken, and we're excited to see what the future holds on acquiring those royalties.

Operator: Our next question comes from the line of Ash Verma with UBS.

Ashwani Verma: Maybe just I wanted to understand your thought process on pursuing royalty transactions with private companies. Obviously, most of the deals have been with the public, but you've done with private. Is that something that could become a bigger piece of the pie? And what potentially is holding it back? And then secondly, a lot of focus on AI in general and everything. But I guess one question that I had was around how are you using AI in your day-to-day investment process, either to process the ideas at a much faster pace or any other way like getting up to speed on the opportunities or driving the partnership discussions?

Pablo Legorreta: Ash, thanks for the question. I'll take a first crack at it, but then maybe Marshall can get into some of the specifics of AI and then the investment process. Regarding private companies, I mean, there's absolutely no restriction or issue -- like our business model is totally open-ended, and we can do transactions with private companies, public companies. I think there are interesting opportunities for us in the case of private companies to actually be there and provide capital because for some of these private companies, funding is more complicated, right? They don't have access to the capital markets where sometimes capital is more readily available at bigger scale, lower cost.

We can, in those cases, be incredibly effective and add a lot of value to those companies. Also, we have situations where in M&A where these private companies can be acquired by bigger companies and we can come in and help fund the pipeline so that it's not dilutive to the bigger companies. But we have done transactions with private companies over and over again, and that really shows the reach of our business. Two of them are actually what we did with Servier and with Voranigo. Obviously, the transaction we acquired from a public company, but then also Ferring. We have a track record doing things with these companies. AI is something that is really important for us.

As you know, we hired a great person that is leading our efforts there. Lucas Glass, that was the Head of AI for IQVIA. I can tell you that in the 6 months since he has joined us here, he's starting to have a real impact in how we approach things and the depth and breadth of our analytical capabilities. But Marshall, why don't you maybe take that question also?

Marshall Urist: Absolutely. Ash, Yes, as Pablo mentioned, we have been really aggressively pursuing integrating AI into multiple aspects of our business. Certainly, the research and investments process is just one of them. Lucas has been an incredible addition to the team. We've been -- specifically to your question, how we've been using it, I think it's really kind of multiple ways to rethink, invigorate, reinvigorate our research process and make sure that we're doing -- that we are at the absolute forefront of how this is done in our industry. It is about -- yes, it is about identifying things, identifying more things, looking more broadly, helping us do that. It is about helping us move faster.

But I think the other really powerful thing that we're seeing is it's really allowing us greater and greater analytical depth over time. We are being able to look at more data, certainly do it more broadly, more quickly and it's been -- and it is really, really exciting. I think the entire team is engaged in this. We are off to a super strong start and are really excited about where this will lead us.

Operator: The next question comes from the line of Umer Raffat with Evercore.

Umer Raffat: I wanted to touch up on a couple of products. Perhaps first, congrats again on ESMO data with the tarlatamab. I guess what I was trying to understand is, so it's a 7% royalty on worldwide sales. But my understanding is there's some royalty sharing with BeOne above $1.5 billion, which is really where the maintenance data starts to take effect. So is your royalty above $1.5 billion half of that 7%? I just wanted to put some parameters on that. Secondly, on litifilimab, obviously, important Phase III is coming up. I'm just trying to think about how you see the commercial opportunity between systemic versus cutaneous, the sales breakdown.

But also how it ties together with some of the breakthrough designations we're seeing on oral TLR7/8. And then finally, a quick clarification, if I may. I think on the IL-15 collaboration with Teva, you guys mentioned a $500 million commitment, of which I think $75 million co-funding was for vitiligo in particular. I guess I just wanted to confirm the scope of your arrangement is on the molecule, meaning any progress on celiac would also be part of that?

Pablo Legorreta: Yes. Thanks for the question, Umer, and it's good to hear you. Why does -- Marshall can take the question on litifilimab and the IL-15 deal with Teva, and then Terry can address the other question about Imdelltra and the economics there.

Marshall Urist: Perfect. Yes, we'll answer you in a slightly different order. First, on the commercial opportunity for SLE and CLE. We're honestly excited about both of them. The CLE is obviously a kind of a newer indication and market that is going to take time -- that will take some time to develop. But I think certainly, having a product there and importantly, as we've seen, having multiple products in the space is really what grows the category over time. We think that having multiple products is a positive and actually makes the opportunity bigger. We haven't said specifically what we think the relative contribution is, but we think they are both significant opportunities. On your second question on IL-15.

Yes, just to be crystal clear about this. It's a $500 million commitment -- of that, it's structured, it's $75 million to help fund the Phase IIb in vitiligo. Then the balance $425 million would go to fund the Phase III trial in vitiligo. The royalty is on all indications for the IL-15 program. Wherever it goes in the future, there's been a lot of focus on celiac, and that's certainly exciting to see. We will get a royalty on our sales. It was structured based on -- it was structured to vitiligo as a trigger for funding simply because that was the more sort of concrete development program at the time.

It was much easier to bring capital in through that when -- and so we could structure that and move forward, whereas the celiac program still developing. And so we -- and so it was triggered to vitiligo, but it is a royalty on all sales in all indications.

Terrance Coyne: Then, Umer, on your question on Imdelltra, we haven't given really a lot of specifics there. But what I can say is, you're right, we share above $1.5 billion with BeOne. I think the way to think about it is that -- and there's different tiers, but as we get above $1.5 billion up until about $2.5 billion, we really have the vast majority. Then above that, we still have a significant majority, maybe not quite as much as that point between $1.5 billion and $2.5 billion.

Operator: Our last question comes from the line of Jason Gerberry with Bank of America.

Jason Gerberry: One on ecopipam. Just curious, what do you see as sort of the key determinants of pricing power for this asset? Is it something that in the labeling outcomes here? I'm just curious, do you think there's a lot of pricing power here given the availability of some generic alternatives? So I'd just love to get your high-level perspectives there. And then one for Pablo. Just as you wake up this morning to the midterm results, I'm just wondering if you have any unique perspectives as to where -- what things look like in the next few years on the drug price policy side of the equation.

I think the consensus view is just gridlock and maybe some congressional hearings, but wondering if you have any unique perspectives here? And longer term, I guess, risks to the existing U.S. government agreements and potentially democratic champions of Medicare for all. Just wondering how high on the radar that is for you.

Pablo Legorreta: Sure. Thanks for the question. I'll take the one about the political situation and then Marshall can take the other one. I think it's early days, early to see how this is going to evolve. We're going to obviously pay a lot of attention to what happens in the next weeks, months. But maybe just stepping back, I want to provide a perspective that I think analysts, investors under-appreciate. It's something that I think maybe now it's better understood because, obviously, investors have paid more attention and our stock has done well.

But what is unique about Royalty Pharma, when I look at 3 decades of running it, building it is that the business can do well in good markets, bad markets, and we've lived through so many cycles in the financial markets, and the business has done remarkably well. We can do good, well in different political environments, different kinds of administrations. That is something very unique that has allowed us to really deliver incredible performance, returns, growth over 3 decades. I think the one thing that is important is for the U.S. to maintain its lead in funding of innovation and continue to invest in basic science, continue to invest through NIH in academic research.

I think that will continue in my mind. I think maybe the chances now of U.S. supporting research have increased, which is what the public wants, what the U.S. population wants. They've always been supportive of that. I think I'm excited about the performance of our business long-term and really don't see any negatives in what's happened politically. But Marshall, I'll turn it back to you on the other question.

Marshall Urist: Sure. Then on ecopipam, thanks for the question. Before getting the specifics of your question, I think it's -- this is a good opportunity to just remind everyone that -- of our investment in ecopipam and how it came to be and brings together some of the themes from prior questions, which is this was a royalty that our team identified on a product in development for what is really a new indication where there's been essentially no innovation that was being developed by a private company, and we got excited about it and bought the royalty that was subsequently acquired by Teva and now is in the hands of a company that can really maximize its value.

I think a great example of our ability to identify novel opportunities and in being open to new therapeutic areas where there might not be a lot of focus elsewhere in our space. Specifically on pricing, probably a better question for Teva. I think we certainly think that Teva, given what they've done commercializing branded products, everyone has seen how well they've executed. We certainly have all the confidence in the world that they will be able to execute at the same level for ecopipam.

The fact that this is a first-in-class molecule in a disease and a condition that has not seen innovation in decades suggests that Teva will have some flexibility in how they price and how they position the product, and we're excited to see that happen.

Operator: This concludes the question-and-answer session. I will now turn it back to Pablo for closing remarks.

Pablo Legorreta: Thank you, operator, and thanks to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George Grofik and his team. Thanks.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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