Royalty Pharma Plc Q4 FY2024 earnings call

• 2024 saw excellent financial performance with Portfolio Receipts at $2.8 billion, a 13% growth in Royalty Receipts exceeding initial guidance.
• Added royalties on AD therapy and saw positive news across the portfolio like FDA approvals of Voranigo, Cobenfy, etc.
• Deployed $2.8 billion in royalty transactions and $230 million in share repurchases; announced a $3 billion share repurchase plan and intention to repurchase $2 billion in 2025.
• Monetized MorphoSys development funding ones to generate over $0.5 billion in cash.
• Plan to acquire external manager to become an integrated company, expected to close in Q2 2025.
• In 2024, reviewed over 440 potential royalty transactions, signed 153 confidentiality agreements, 99 in-depth reviews, and 42 proposals submitted, executing 8 transactions totaling $2.8 billion.
• Achieved a record year for synthetic royalties in 2024 with $925 million, more than doubling since 2020.
• Five launching therapies in 2025 with total consensus peak sales forecast over $10 billion, adding over $430 million to annual portfolio receipts.

In 2024, Royalty Pharma delivered Portfolio Receipts of $2.8 billion, representing a 13% growth in Royalty Receipts, which significantly exceeded the initial guidance of 5% to 9%. For 2025, the company expects Portfolio Receipts to be in the range of $2.9 billion to $3.05 billion. The portfolio includes over 35 approved products and 14 development stage therapies, with significant capital deployment in 2024, including $2.8 billion in royalty transactions and $230 million in share repurchases.

• Expect Portfolio Receipts for 2025 to be $2.9 billion to $3.05 billion.
• Board authorized a new $3 billion share repurchase plan with intention to repurchase $2 billion in 2025.
• Anticipate internalization of external manager to close in Q2 2025, expecting strategic and financial benefits.
• Operating and professional costs expected to be approximately 10% of portfolio receipts in 2025, with interest paid expected around $250 million in 2025.

• Early impact of new healthcare policies in D.C. are being closely monitored, but no immediate tax impact foreseen.
• The company is watching the evolution of the IRA Part D redesign and its potential impact on products with high Part D exposure.

Q: On guidance, any additional detail on lift truck assumptions and milestones assumed in portfolio received guidance?

A: Terry mentioned they haven't provided specific product-by-product guidance, looked at range of scenarios for Alyftrek and others, and assumed around $60 million in milestones for 2025.

Q: On synthetic royalties, how do returns compare to traditional structures and growth in TAM?

A: Christopher Hite said synthetic royalties have seen mind shift in the sector, offer win-win solutions, retain operational control, and they feel good about the return profile.

Q: On Vertex royalty and arbitration timing?

A: Terrance Coyne said they continue to feel confident in their position, but can't provide specifics on arbitration timing yet.

Q: On guidance being conservative given past outperformance?

A: Terrance Coyne said it's early in 2025, range is wider, but confident about portfolio momentum and hope for higher numbers as year evolves.

Q: On screening process, most common reasons for not pursuing transactions?

A: Marshall Urist said it's across quality of product, impact on patients, strength of partners, clinical data, clinical profile, commercial potential of IP, stage of development, IP, and product profile.

Q: On pace of initial reviews continuing and global scope?

A: Marshall Urist and Pablo Legorreta said they have a large investment team with global reach, continue to have broad scope of opportunities, and are excited about opportunities in China and globally.

Q: On impact of IRA Part D redesign and Vertex arbitration?

A: Marshall Urist said IRA exposure in portfolio is modest, watching its evolution; Terrance Coyne said can't provide specifics on Vertex arbitration timing.

Q: On operating and professional costs guide and savings from internalization?

A: Terry said 10% operating professional cost guidance doesn't reflect internalization, savings of over $100 million expected in 2026 post-internalization, and can't provide specifics on Alyftrek timing.