Royalty Pharma Fourth Quarter and Full Year 2025 Earnings Call - Internalization, record synthetic royalties, and a deep pipeline set up mid-teens TSR

Conference Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Royalty Pharma Fourth Quarter 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, sir.

George Grofik, Senior Vice President, Head of Investor Relations and Communications, Royalty Pharma: Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma’s fourth quarter and full year 2025 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 two, 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 reconciling 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 three. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Chris Hite, EVP, Vice Chairman, Marshall Urista, EVP, Head of Research and Investments, and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss our transaction pipeline. Marshall will then provide a portfolio update, and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. And with that, I’d like to turn the call over to Pablo.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Thank you, George, and welcome to everyone on the call. 2025 was truly a landmark year for Royalty Pharma as we executed successfully towards our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide 5 summarizes a strong momentum over the year. Starting with the financials, we delivered strong double-digit growth in both portfolio receipts, our top line, and royalty receipts, which are our recurring cash flows. We raised our guidance 3 times in the year and delivered full-year results slightly above the top end of our most recent update. This tremendous momentum was driven by the strength of our diversified portfolio. We maintained strong returns in our business with return on invested capital of 15.8% and return on invested equity of 22.8% for the year.

By combining strong growth and attractive returns, we believe we have a clear path to drive shareholder value creation. Looking ahead, our 2026 full-year guidance implies 3%-8% growth in royalty receipts, which reflects the strength of our base business. As usual, our guidance is based on our current portfolio and does not include the benefit of any future transactions. In 2025, we also completed one of the most transformative steps in our company’s evolution through the internalization of our external manager. This brought together our valuable intellectual capital and our unique royalty portfolio. We’re already seeing benefits from improved alignment and governance, as well as from a significant reduction in costs. Turning to capital allocation, we announced $4.7 billion of transactions on attractive therapies during the year and deployed capital of $2.6 billion.

At the same time, we returned $1.7 billion of capital to shareholders. We repurchased 37 million shares for a total of $1.2 billion and paid over $500 million in dividends, and we increased our dividend by 7% in the first quarter of 2026, consistent with our mid-single-digit growth target. We’re also delighted to see multiple positive clinical and regulatory updates across our portfolio, including FDA approval of aficamten and positive phase 3 results on Tremfya, TEV-749, Trikafta, and Trodelvy. Looking ahead, we see the potential to unlock significant additional value from our large, and we think, underappreciated development stage pipeline, where, as Marshall will highlight, we expect multiple pivotal readouts in the relatively near future.

As many as you know, slide 6 is a particularly favorite of mine, as 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 backlog. This speaks to the quality of our asset selection and our unique business model. Slide 7 underscores an important trend. In 2025, the biopharma market reached $10 billion in announced transaction value for the first time ever. The strong growth trajectory is clear. Over the past 5 years, the average annual value nearly doubled versus the prior 5 years and has nearly tripled the level of 15 years ago. This is a market that Royalty Pharma pioneered and that we continue to lead in both share and innovation.

Most importantly, we expect this growth to continue, driven by the increasing recognition of the benefits of biopharma royalties, the huge demand for capital in life sciences, and the incredible pace of scientific innovation. On slide 8, my final slide, we show that we’re executing exceptionally well against our financial targets. At our 2022 Investor Day, we introduced clear targets for top-line growth and capital deployment, and I am pleased to report that we delivered on both. We achieved compounded annual portfolio receipts growth of 13%, squarely within our target range of 11%-14% for the first half of this decade. Importantly, we remain well on track to achieve our long-term outlook of 10% or greater top-line growth over the decade as a whole.

We have also reached our five-year capital deployment target of $10 billion-$12 billion, approximately one year ahead of schedule. Furthermore, I’m incredibly proud of the breadth and quality of the deals we have announced, and our transaction pipeline remains strong. I could not be more excited for the potential to scale our capital deployment, given the strong fundamental tailwinds underpinning our business. Now, before turning the call over to Chris, I’d like to offer a bigger picture perspective on Royalty Pharma, particularly in an environment of significant uncertainty. Royalty Pharma is a unique compounding machine. We grow consistently year in and year out, and delivered an impressive 16% growth last year. Our business delivers consistent returns to our shareholders. As you will hear later from Marshall, we have also a number of potential value-enhancing pipeline readouts in the near term.

Our business is resilient, and in a time of uncertainty, we believe we offer a very compelling investment proposition. With that, I will hand it over to Chris.

Chris Hite, EVP, Vice Chairman, Royalty Pharma: Thanks, Pablo. It’s my pleasure to give an update on our transaction pipeline and the growing demand for synthetic royalties, the attractive, non-dilutive funding paradigm that we pioneered. Beginning on slide 10, this provides a broad overview of the investments we made in 2025 in our transaction funnel. As you can see, we were incredibly busy and reviewed more than 480 potential royalty transactions. This resulted in 155 confidentiality agreements signed, 109 in-depth reviews, and 35 proposals submitted. Our disciplined and highly selective approach resulted in us executing eight transactions for nine therapies, or just 2% of our initial reviews, for an announced value of $4.7 billion. Slide 11 expands on the funnel with a longer-term perspective on our investment activity.

Since 2020, the year of our IPO, the team has nearly doubled the volume of initial reviews conducted and has more than doubled the number of in-depth reviews. The growth in our funnel has come during periods of both strong and more restrictive capital markets, highlighting how the benefits of royalties are becoming more widely recognized. Furthermore, we are encouraged that the growth in our in-depth reviews, which is where our team spends more time in due diligence, has kept pace with initial reviews, indicating that an increasing number of high-quality biopharma companies are evaluating royalties as part of their capital structure. Moving to slide 12, 2025 was our strongest year ever for synthetic royalty, royalty transactions, with 4 synthetic deals totaling more than $2 billion. This was over 5 times higher than the transaction value in 2020.

In each of the 4 transactions, we acquired a royalty on a potentially transformative, best-in-class therapy. In 2026 has continued in a similar fashion with a synthetic deal on Teva’s potential vitiligo therapy, TEV-48574, for up to $500 million. Let’s look more broadly at the synthetic royalty opportunity on slide 13. 2025 set a new record for synthetic royalty transactions, with the market value jumping by about 50% versus the prior year, to $4.7 billion. The graphic on the right shows that over the past 5 years, biopharma funding has been dominated by equity, licensing deals, and debt. Synthetic royalties have been a small part, just 5%. From our ongoing partnership discussions, we see synthetic royalties being routinely discussed at the board level and C-suites as an important and growing funding modality. Why is this?

Simply put, synthetic royalties solve problems, funding problems in a way that equity and debt can’t, and are increasingly being recognized as an important part of a biopharma company’s capital structure. More specifically, compared with traditional debt and equity financing, they offer greater flexibility, no operational restrictions, they are non-dilutive to equity holders, and they can be tailored to the individual needs of a company. This drove our groundbreaking transaction with Revolution Medicines. And given our leadership in this space, we believe we are optimally positioned to benefit from this important paradigm shift in biotech funding. So to close, we are confident that synthetics will be an important growth driver in the coming years. With that, let me hand it over to Marshall.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Thanks, Chris. I want to discuss two important aspects of our portfolio today. First, a look back at 2025 capital deployment to highlight some key themes, and then second, to look forward toward important 2026 events in our broad development stage portfolio... Slide 15 demonstrates how well we executed against our capital deployment strategy in 2025. We deployed capital of close to $900 million in the fourth quarter alone, highlighting our scalable and flexible diligence deal execution capabilities. We acquired existing royalties on approved products, Amvuttra for ATTR Amyloidosis, Evrysdi for SMA, as well as a synthetic royalty on the expected approval of Denali’s groundbreaking therapy for a rare condition called Hunter Syndrome. We also acquired existing royalties on Nuvalent, two lung cancer therapies that are expected to be FDA-approved in 2026 and 2027.

This busy quarter took our total capital deployment for the year to $2.6 billion, which resulted, as Pablo highlighted, in the achievement of our five-year capital deployment target of $10 billion-$12 billion, one year ahead of schedule. Taking a step back shows how we were able to deliver balanced capital deployment to our shareholders year in and year out, with 67% of our 2025 investments in approved products and 33% in development stage therapies, right in line with our historical average. What’s also remarkable is the diversity of investments underlying our $4.7 billion in announced transaction value. As a reminder, announced value is a broader measure than capital deployment that includes potential future payments and obligations in addition to upfront amounts.

2025 was also the first year that synthetic royalties exceeded existing royalties and committed capital, reinforcing Chris’s comments about the important role of synthetic royalties in the biopharma funding ecosystem. Slide 16 summarizes the four exciting transactions that we completed over the last three months for a combined announced value of $1.4 billion. The first thing to note is that the transactions cover four very different therapeutic areas, marketers, and development stages, showing how our investment approach consistently produces diversity in our royalties. Second, two of the four transactions are synthetic royalty deals, including Denali and, most recently, Teva’s potentially transformative vitiligo therapy, TEV-48574. The existing royalty transactions cover Nuvalent, two development stage drugs for small cell lung cancer, and the residual royalty in Roche’s blockbuster, Evrysdi. Third, these largely are or are expected by consensus to be blockbuster medicines.

This highlights our disciplined focus on innovative first or best-in-class medicines to drive our diversified, sustainable, and attractive growth profile. Next, I’ll turn to our development stage pipeline and upcoming events. We’re exceptionally well positioned for our next wave of value creation, with one of the deepest and most innovative development stage pipelines in the industry. Slide 17 shows that our portfolio already delivered a number of successful phase 3 readouts and regulatory approvals in 2025. Most recently, the FDA approval and launch of Cytokinetics’ aficamten and obstructive hypertrophic cardiomyopathy, and these events together will lead to several new royalty-generating launches this year. Now, unlike many biopharma business models, Royalty Pharma is not defined by any single clinical trial outcome. Slide 18 shows that there is much more to come from our development stage pipeline, with multiple pivotal readouts expected over the next 24 months.

2026 will be an exciting year. We’ll see the first Phase 3 data on Revolution Medicines’ RMC-6236 in pancreatic cancer, a drug which has the potential to revolutionize this devastating disease. We’ll also see the results of the first outcomes trial for our investments in the Lp(a) class of drugs with Novartis’ pelacarsen. We continue to believe that the Lp(a) class could be the next major class of cardiovascular disease drugs, and we’re perfectly positioned with the two lead pipeline products in pelacarsen and Amgen’s olpasiran. We’ll also see data for Biogen’s litifilimab in lupus late this year or early next year. And while not on this slide, we expect to see data this year for aficamten in non-obstructive hypertrophic cardiomyopathy, which is a potentially large new indication.

In 2027, we expect pivotal data from Sanofi’s frexalimab in multiple sclerosis and from J&J’s seldorexant in major depressive disorder. We’ll also see the Lp(a) outcomes trial from olpasiran. Each of these potentially transformative therapies would add very significant royalties to our top line. More broadly, when we look across our entire pipeline of 20 development-stage therapies, we estimate combined peak sales of over $43 billion on a non-risk-adjusted basis, which could translate to over $2.1 billion in peak annual royalties to Royalty Pharma. So to close, there is really significant but underappreciated potential in our pipeline, and the next 2 years will see multiple events that could unlock substantial value. At the same time, this isn’t it, and our ongoing capital deployment will allow us to expand and repopulate our pipeline in the years to come.

With that, I’ll hand it over to Terry.

Terry Coyne, EVP, Chief Financial Officer, Royalty Pharma: Thanks, Marshall. Let’s move to slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 17% in the fourth quarter and 13% for the year, reflecting the strength of our diversified portfolio. When we add in milestones and other contractual receipts, portfolio receipts, our top line grew 18% in the quarter and 16% for the year. As we move down the column, operating and professional costs equated to 6.7% of portfolio receipts in the fourth quarter and 8.9% for the year. The quarter clearly demonstrates the benefit of cash savings from the internalization transaction, which we completed in May. Net interest paid was de minimis in the quarter.

This reflects the semi-annual 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. For the year, net interest paid was $242 million. 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 $815 million for the quarter and $2.7 billion for the year. Our margin for the year of around 84% again demonstrates the high underlying level of cash conversion and efficiency in the business.

Capital deployment in the quarter of $887 million took us to $2.6 billion on a full year basis, reflecting the high level of transaction activity you heard about earlier. Lastly, our weighted average share count declined by approximately 6% in the quarter versus the prior period, prior year period, and by 5% for the year, reflecting the impact of our share buyback program. Slide 21 provides more detail on the evolution of our top line in 2025. Royalty receipts, which we consider our recurring cash inflows, grew by 13%. Key drivers were the strong performance of Voranigo, Trelstar, Tremfya, and the cystic fibrosis franchise, with very little contribution from new acquisitions made in the year.

Portfolio receipts grew by 16% at the high end of our guidance of 14%-16% and well ahead of our initial guidance of around 4%-9%. Slide 22 updates our recently introduced portfolio return metrics for the full year. Return on invested capital has been remarkably stable at around 15% on average from 2019 to 2025, and was 15.8% in 2025. Return on invested equity, which shows the impact of conservative leverage on our equity return, has been consistently in the low 20% range and was 22.8% in 2025. Both figures for 2025 included a benefit from the sale of the MorphoSys development funding bonds.

As a reminder, we sold the MorphoSys development funding bonds in the first quarter for proceeds of $511 million, which resulted in an IRR of approximately 25% on our investment. As I have said previously, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of 2025, we had cash and equivalents of $619 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion, including the $2 billion of notes we issued in the third quarter, and the weighted average duration of our senior unsecured notes is around 13 years.

Our leverage now stands at around 3x total debt to Adjusted EBITDA, or 2.8x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to over $3.5 billion of financial capacity 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 $2.6 billion of capital on attractive royalty deals in 2025. At the same time, we returned a record $1.7 billion to our shareholders, including share repurchases of $1.2 billion and our growing dividend. Slide 24 provides our full year 2026 financial guidance.

We expect portfolio receipts to be in the range of $3.275 billion-$3.425 billion. This assumes growth in royalty receipts of around 3%-8%, reflecting the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta, as well as the launch of biosimilar Tysabri in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 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.

Payments for operating and professional costs are expected to be in the range of 5.5%-6.5% of portfolio receipts in 2026. This significant reduction, when compared with 8.9% in 2025, is primarily the result of cost savings from the internalization of the manager. Lastly, interest paid is expected to be around $350 million-$360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in each of the first and third quarters, with de minimis amounts payable in Q2 and Q4. The year-over-year increase reflects interest payments on the $2 billion in notes issued in September 2025, for which the first payment will be paid in the first quarter.

This guidance does not take into account interest received on our cash balance, which was $34 million in 2025. As a final consideration, we expect to issue equity performance awards, which is our long-term incentive compensation program, due to the success of investments in 2020 and 2021. We expect equity performance awards to be approximately $85 million in 2026, with approximately half of that value reflected in the share count over the course of the year. This is very similar to the $81 million in equity performance awards that were earned in 2025. Slide 25, my final slide, drills down deeper into our 2026 top-line guidance.

We expect royalty receipts to benefit from multiple growth drivers, including established royalty streams on Trelegy, Tremfya, and Evrysdi, as well as the strong launch trajectory of Voranigo and the recent royalty acquisitions on Imdelltra and Amvuttra. Together, we expect these drivers to allow us to absorb the impact of LOEs on Promacta and Tysabri, while still driving royalty receipts growth of 3%-8%. Portfolio receipts, of course, includes the more variable milestones and other contractual receipts, which are expected to be approximately $70 million lower in 2026, as I already noted. To close, we delivered a strong fourth quarter and full year, and our guidance for 2026 puts us well on track to achieve our long-term financial objectives. With that, I would like to hand the call back to Pablo.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Thanks, Terry. To conclude, I would like to stress how delighted I am with our performance in 2025. I started out by saying it was a landmark year. On all key measures, growth, returns, strengthening our portfolio, and maintaining a market leadership, we delivered. I want to close on slide 27 with a reminder of why we believe we’re all well-positioned to drive strong value creation. First, we’re the clear leader in the rapidly expanding biopharma royalty market, with strong 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, and we expect to remain the undisputed leader. And looking ahead, we’re excited about the prospect of expanding our team and platform in China, so stay tuned.

Third, 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 of over 20%. Lastly, we expect to deliver strong low volatility, top and bottom-line growth through 2030 and beyond. As a result, we’re confident we’re on track to generate annualized total shareholder returns of at least the mid-teens over the next five years. With the manager now internalized, our shareholders are positioned to benefit from durable value creation in 2026 and beyond. With that, we will be happy to take your questions.

George Grofik, Senior Vice President, Head of Investor Relations and Communications, Royalty Pharma: We will now open up the call to your questions. Operator, please take the first question.

Conference Operator: To ask a question, please press star one one on your telephone and wait for your name to be announced, and to withdraw your question, press star one one again. The first question comes from Jeff Meacham with Citi. Your line is now open.

Speaker 5: All right, great. Thanks for the question, guys. Just have two. The first, on dividend and buybacks, last year, you guys had a big step up. You know, how sustainable is that looking to 2026? Do you feel like, you know, that could have been better spent on royalty deals? I guess I’m just trying to get a sense for how the deployment mix can evolve. And the second question is, you know, you have thawing of the capital markets this year. Is there a creative way for royalty to get more involved in, say, privates or crossovers or even IPOs? I wasn’t sure how you view the returns there versus a more mature process. Thank you.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Sure, Jeff, thanks for your question. Terry, why don’t you take the first question, and then Chris can answer the second one on capital markets.

Terry Coyne, EVP, Chief Financial Officer, Royalty Pharma: Sure, Jeff. So, at the time of the internalization, we laid out what we call our dynamic capital allocation framework, where, you know, we’re thinking about how we’re gonna deploy capital based on the relative attractiveness of the royalty opportunities, weighed against the relative value of our stock price relative to intrinsic value. So I think when you look at 2025, it’s a pretty good example of, you know, how we think about it. We started the year, deal activity in the beginning of the year was a little bit slower, and our stock price was, you know, we thought, at a really attractive valuation. And so we accelerated our share repurchases in the beginning of the year, particularly in the first quarter and also into the second quarter.

Then, as deal activity picked up a lot in the second half of the year, we dialed back our share repurchases. You know, we spent a lot of capital on new investments, which we think drove really--will drive really attractive long-term returns. I think going forward, we’re gonna continue to take the same approach. We’re gonna look at relative value. Right now, I would say, you know, we feel really, really excited about the pipeline and the opportunities for royalties. But, you know, we’re gonna continue to return capital to shareholders via share repurchases and dividends. But I think, you know, the priority, you know, right now is probably a little bit more biased towards the royalties.

Chris Hite, EVP, Vice Chairman, Royalty Pharma: And on your second question, Jeff, the thawing of the capital markets, I mean, and whether we could get more involved potentially with private companies, you know, we’re very focused on high-quality pharmaceutical products, biopharmaceutical products, and if they’re housed within a private company, you know, we look at those all the time. And our focus really is on investing in high-quality assets. You know, we have made some investments, you know, on private companies over the years, you know, small equity investments associated with potential royalties, and that’s something we always do. But I think we’re excited, really, with just the growth of the opportunity set, whether the markets are strong or weak. You’ve seen our—

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: ... our revenues and our opportunity set grow in any environment in the capital market. That’s really the focus. You know, we’re really hunting for really high-quality assets wherever they are.

Speaker 11: Okay, great. Thanks, guys.

Conference Operator: Thank you. Our next question will come from Mike Nedelcovic with TD Cowen. Your line’s open.

Speaker 8: Hi, thanks for the questions. I have two. My first is on Alyftrek. I know the arbitration around the royalty is ongoing, so my question is not about the royalty, but rather about the products and market performance. We’re now past one year into the launch of the drug. How has Vertex’s conversion of CF patients over to Alyftrek been tracking relative to your assumptions? At peak, Vertex expects to convert the majority of patients. Do you agree with that outlook? And how long do you think it could take? That’s my first question.

And then my second question is, relates to your view of the general medicine and cardiometabolic disease categories, which I know is kind of a broad topic, but there’s something of a debate as to whether long-acting injectables or daily orals are best positioned to capture the largest slice of the commercial opportunity in diseases like high cholesterol, hypertension, and obesity. Do you have an opinion on this? If you were to wade more deeply into the chronic disease waters, should we expect Royalty Pharma to exhibit a strong opinion on drug delivery format, or would you try to diversify? Thank you.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Thanks for your question, Mike. Terry, why don’t you take the first one on Alyftrek, and then, Marshall can take on the second question.

Terry Coyne, EVP, Chief Financial Officer, Royalty Pharma: Sure, Mike. It’s a great question. You know, when Alyftrek first launched, I think there was, from investors, a lot of, you know, debate about how rapid the conversion would be. And I think there were many that thought that the conversion would be pretty rapid. And we had a different view at the time, that we thought that, you know, it would be gradual. And it’s really because Trikafta is just an amazing drug that’s totally transformed that disease. And so, you know, it’s sometimes hard to switch from something that’s working really well. So I think by and large, it’s been pretty consistent with what we thought. It has. You know, it’s been gradual but steady.

I think it’s tough for us to speculate at this point on what percent will ultimately go to Alyftrek. But I think either way, what we laid out at our investor day, I think, is how we think about it long term, where, you know, we think that by 2030, even with a lot of patients switching to Alyftrek and under a downside case where we are not successful in the arbitration, that we still would recognize portfolio receipt or royalty receipts from the CF franchise of, you know, around $800 million, which is above what our initial sort of downside range was a couple of years ago. So, overall, we expect CF to remain a really important contributor over the long term, and it was great to see in 2025, it actually grew.

Our royalty receipts actually grew 7% for the year, even in the face of, you know, conversion to Alyftrek, where we’re currently getting a lower royalty rate.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Great. Mike, good morning. And to your question on general medicine products and the cardiovascular and the cardiometabolic market specifically, you know, first of all, I’d just make a general comment, which is, you know, when we look at that whole area, general medicine, you know, cardiovascular disease, cardiometabolic disease, you know, we’re certainly excited about that and see a lot of opportunity there in the future, and it’s a place where, you know, we continue to look for, look for opportunities, you know, like you’ve seen us, seen us do in the past. I think to your question specifically about, you know, what will sort of be a preferred delivery option, you know, I would point to the lessons that we’ve seen from, you know, current markets, right? You know, you look at next-generation cholesterol agents, right?

You have kind of two very different, you know, two very different dosing profiles there, and, you know, they’ve both found success. So I think the incredible thing about those markets is they’re so big, there’s such a diversity of, you know, patient need and preference that, you know, there’s opportunities for lots of different profiles. And you’ll see us approach it in the same way we’ve done in the past, which is, you know, finding a combination of a differentiated product that’s important to patients in the hands of a marketer that we believe, you know, certainly with our, you know, potentially with our partnership, could maximize the value of, of that product. And I ...

You know, and we continue to look for those opportunities and, you know, we’ll bring the same discipline and patience that we have in the past, and when we find the right thing, we will certainly go after it, vigorously.

Speaker 8: Great. Thanks so much.

Conference Operator: Thank you. The next question will come from Terrance Flynn with Morgan Stanley. Your line’s open.

Speaker 11: Great. Thanks for taking the questions. I had two as well. Chris, you mentioned on one of your slides that this is the first year, I think, that synthetic royalties and announced value has exceeded traditional royalties. So just as you think about the trend this year, do you think that will continue on mix? I know it’s a little bit opportunistic, but just how do you think about that on the forward? And then one for Marshall, on Lp(a). Again, you know, you guys are levered to a few of the late-stage products here. Novartis’ trial, as everyone knows, was delayed to the second half of this year.

So just, you know, how do you think about that in terms of likelihood of success, for maybe this trial, but then any implications for the, the second readout, which I believe we’re gonna get from Amgen in 2027? Thank you.

Chris Hite, EVP, Vice Chairman, Royalty Pharma: ... Yeah, thanks for the question, Terrance. And, actually, it was actually Marshall on his slide that he commented on, on the one pie chart where synthetics were, a little bit larger than the existing royalty capital deployment, at least around the announced value of the deal, so 44% last year versus 40% for an existing royalty. Look, we’re—the bottom line is we’re super excited about the synthetic royalty market. As, as we’ve said at our Analyst Day and on these calls, I think you’re really seeing that come through. The Deloitte survey really, highlighted, I think, the growth and, and the awareness of how we can work with companies and why synthetic royalties are a better solution in some cases, and, and a lot of cases compared to debt or equity financing for companies.

We see the excitement in the sector every single day. We’re getting calls every single day around that opportunity, and for us, it’s really always just maintaining discipline and investing in really high-quality opportunities. But, you know, the opportunity set is there, and it’s, we see the growth continuing for sure.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Then, Terrance, your question on Lp(a). So no change in our enthusiasm there as we’ve been highlighting, you know, we are really excited about the potential of this class. The news on the timing, I think as we’ve talked about in the past, you know, when you run a first-in-class outcomes trial, you know, a big question is, of course, going to be the event rate. And specifically, in this case, you know, this is a population where, you know, the exact event rate, you know, hasn’t really been characterized. Certainly in a group of patients who are, you know, pretty well treated in terms of other factors like LDL cholesterol.

So, you know, in our mind, there was always a, you know, pretty significant range on what the event rate could be and what the timing would be. So, you know, to see it kind of shifting around a little bit here, it doesn’t come as a particular surprise to us and doesn’t change our view. We’re still eagerly awaiting the results from Novartis this year.

George Grofik, Senior Vice President, Head of Investor Relations and Communications, Royalty Pharma: Thank you. Operator, next question, please.

Conference Operator: Our next question will come from Asad Haider with Goldman Sachs. Your line’s open.

Speaker 0: Great. Thanks for taking the questions, and congrats on all the continuing strong execution. I have two. First, for Marshall, just on the broader portfolio, just, you know, appreciate all the framing on the catalyst part. But maybe just based on your own diligence and sizing of the markets and the opportunities, what assets do you think are still most underappreciated in current Wall Street models? And then, I have one for Chris. Chris, you’ve talked in the past about the China opportunity as an area of strategic importance and focus. Any updates there would be helpful. You know, when could these opportunities start to become a funnel into the transaction pipeline? Thank you.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Great. Thanks, Asad. Good morning. So as we look at the pipeline, you know, I think there are. You know, the biggest takeaway for us, and we think about how the world looks at our pipeline is, I think it’s also just important to take a step back and think about the aggregate potential there. And I think that was one of the things that we wanted to highlight was, you know, there’s very significant potential for value creation right now in our pipeline. As I mentioned, as we mentioned in prepared remarks, you know, about $2 billion or so of potential non-risk adjusted peak royalties. You think about that in the context of where our top line is today, you know, that’s a very significant potential, and we’ll continue to add there.

We’ll continue to add to the development stage portfolio, and then, of course, the marketed portfolio as well. When you look across here, you know, we do get a significant number of questions on Lp and Revolution Medicines, but the other ones, the other products we highlighted here, you know, Biogen’s solanezumab will have phase 3 results here coming up. Sanofi frexalimab, we’ve highlighted the post CD20 or non-CD20 part of the market, and the real need for new targets in MS is exciting to us.

And then another product that we highlighted was J&J depression product that is a little off the radar, but, you know, but J&J has, you know, has put a lot of development resources into, and we’ll have data for that next year. So, you know, what we really like is the diversity of it, the depth of our development stage pipeline, and, you know, taking a step back and thinking about the aggregate potential for value creation for our shareholders in the next years.

Chris Hite, EVP, Vice Chairman, Royalty Pharma: And then on the China question, you know, we are very excited about that opportunity. You know, I showed a slide in the Analyst Day that, I think in 2020, there were only two out licensing deals out of China into the Western sort of multinational companies that created royalties. And it’s almost like every day you wake up, and you’re reading about a new deal where, you know, a Western multinational’s in licensing something out of China. So that opportunity set is... You know, we’re very excited about it. I’ve mentioned that multiple teams have gone to China multiple times last year.

and then I think we did, you know, a deal last year with BeiGene, which, yeah, certainly I think a lot of the Chinese companies look at BeiGene as a leader and a company that, you know, formerly was based in China. And they saw-

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: ... That transaction we did for Imdelltra, which was, you know, $885 million up front, and I think that definitely opened a lot of eyes of the Chinese companies that we’ve spoken to around the opportunity to monetize their royalty streams. And then I would just remind you that a lot of those transactions are at somewhat of the earlier stage in nature, you know, so we, you know, are really tracking and following those deals and how they progress within the multinationals, the Western multinationals clinical pipelines. And, you know, we are, you know, eagerly awaiting the opportunity to put those into the funnel, to your point.

And then lastly, I would just say, you know, we are looking at expanding our team and our platform in China, and we hope to have an announcement on that in the very near term.

Conference Operator: Thank you. The next question comes from Christopher Schott with JPM. Your line’s open.

Speaker 3: Hi, great. Thanks very much. You recently did a deal with Teva for its IL-15. Can you talk us a little bit more about what attracted you to that asset? And, and maybe as part of that, just bigger picture, I think this is a bit earlier than historically where Royalty Pharma has gone. And is, is that a trend we should be thinking about of Royalty looking maybe more at mid-stage assets as you get larger and kinda can diversify the portfolio more? The second one for me was on, Vorenigo. Just that launch has ramped really nicely. I think it’s an asset that’s a little bit less understood by The Street.

Maybe just elaborate a little bit more on just how you’re thinking about growth for that product from here and how large of an asset that could become for Royalty Pharma over time. Thank you.

Speaker 13: Sure. Chris, how are you? So Marshall will take the questions, but, you know, maybe... Yeah, go ahead, Marshall.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Sure. Christopher, thanks, thanks for those two questions. So first of all, on Teva. So what attracted us there? You know, I think it was a few basic things. You know, first was vitiligo is a market that has real unmet need, and there’s real need, and it’s that as a autoimmune indication, where there just hasn’t been enough innovation for patients. And two, you know, the science of it, not to get too far into the details, but the target, IL-15 of the product that we invested in with Teva is, you know, really kind of fundamental to the biology and pathophysiology of vitiligo, and so that, you know, made a really strong story for us.

And then third, you know, like we said, you know, we got a sense of, you know, some. You know, looking at the available data, and, you know, that came together to get us really excited about this market that, you know, is underappreciated and has blockbuster potential. And you asked about the structure and are we thinking about, you know, is this any sign of moving earlier? You know, not at all. I think it’s consistent with what you’ve seen us do, which is be creative in structure to where we can tranche capital over time.

That’s really effective, because if you think about it, we’re making a relatively small investment here to help fund the phase IIb of $75 million. And then we will have, following that, the option to significantly scale up that investment to help fund phase III. So, you know, that’s a very powerful mechanism to us and a very powerful structure, you’ve seen us do it, that allows us to access more innovation, be a better partner, be a more flexible partner in a way that doesn’t at all change the kind of risk profile of our portfolio for our shareholders. So, you know, we think it’s a very cool structure and another example of how we’ve been innovating with royalty-based financing to expand the opportunity and expand the role.

Your second question, thanks for asking about Voranigo. You know, we are... You know, we couldn’t be more thrilled with how that product is launched and how Servier, and how Servier has done with it. You know, that product, again, another great example of serving a profound unmet need. So, you know, it’s had a very strong launch. We continue to be excited about its potential. You know, we’ve talked about how, you know, this is a drug that could have, you know, a very long duration of therapy as it kind of helps to control and helps to control the growth of these low-grade gliomas and could be a, you know, we saw very significant commercial potential there.

I think at our last update, we’ve shown it’s very well on its way to being a blockbuster product. And, you know, if you look at the trajectory there, I think we still feel great about the trajectory that it’s on and excited to see what the future holds.

Conference Operator: Thank you. The next question will come from Ash Verma with UBS. Your line is open.

Speaker 1: Hi, thanks for taking my question. I had a portfolio question and one on the P&L. So maybe just on the portfolio, like micros, how are you thinking about the potential implication for this upcoming non-obstructive HCM study? There’s a fair bit of heterogeneity in this patient population, and Kymriah has also failed, so just curious if you’re thinking about it as sort of like an upside driver or expect it to work. And then on the operating and professional cost, the run rate that you provided for 2026, is this a good way to think about just think on a going-forward basis, or is there any additional phasing out of the impact that’s not reflected on the internalization front? Thanks.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: ... Sure, thanks for the question, Ash. Marshall will answer the first one on aficamten, and then Terry can address the question on, on PNL and operating expenses.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Hi, Ash. Good morning. Thanks for the question on Cytokinetics and Aficamten. So first, I think it highlights, as we mentioned in the prepared remarks, you know, we’re really happy to see that approval, and it’s a great example of how our development stage portfolio, you know, can continue to drive and contribute to our top line growth in portfolio receipts. We’re super excited to see, you know, commercialization, and Cytokinetics has been a great partner for us, and they’ve put together a great team. You know, specifically to your question on non-obstructive cardiomyopathy, you know, our base case when we made this investment was premised on the currently approved indication of obstructive disease. So you know, that we did not assume that this trial turned out positively when we made the investment.

That being said, I think, you know, the data that they’ve shown in phase 2 is compelling. They’ve had the opportunity, I think, to learn from, you know, Camzyos’ experience there. And so, you know, I think we’ll, we are with you and the world waiting to see, you know, with excitement to see what this trial holds. But, you know, our basic thesis for this investment was really focused on obstructive disease.

Terry Coyne, EVP, Chief Financial Officer, Royalty Pharma: And then, Ash, your question on operating professional costs. We’re very pleased with how things are tracking. At the time of the announcement of the internalization, we said we expected to realize $100 million in savings in 2026, and we’re on track to realize that. Looking out a little bit, you know, longer term, we continue to be, you know, we continue to feel like we’re on track to get to that 4%-5% range over time. Things are going really well, and we are, you know, realizing a lot of the benefits, financially, of the internalization.

Conference Operator: Thank you. The next question will come from Umer Raffat with Evercore. Your line is open.

Speaker 7: Hi, guys. This is Mike DiFiore in for Umer. Two questions for me. Thanks for taking my questions. The first on J&J, they’re talking about what’s next in immunology with their oral IL-23 icotrokinra. Do you feel or view that as incremental market expansion or as a cannibalization risk to Tremfya over time? And my second question concerns Trelegy. GSK described Trelegy as a durable respiratory franchise and noted the Trelegy legacy team supporting the Nucala COBT launch while they invest behind longer-acting options. How do you think about Trelegy’s contribution to your portfolio over the next few years, given what I just said? Thank you.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Thanks, Mike, for those two questions on two great products. Go ahead, Marshall.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Yep. Hi, Mike. So your first question on the IL-23 oral at J&J and whether or not we saw that as market expanding or would have an impact on Tremfya. We definitely see it as market expanding. I think, you know, that that is a great product, but Tremfya is a great product as well, and you’re seeing that in the very strong momentum in the inflammatory bowel disease launch for Tremfya. And I think that echoes J&J’s comments, that they see, you know, that they see very significant potential for both products when they look forward. So we’re still very enthusiastic about Tremfya’s trajectory, and, you know, we think an oral product just is a new option for patients, potentially even at different stages of their disease.

Your second question was on another one of our, another product we really like, and that’s Trelegy. You know, GSK has one of the strongest respiratory franchises out there. You know, you’ve seen that in the, you’ve seen that in the, in, in the performance of, in, in Trelegy’s performance, which has, you know, I think, continued to outperform people’s expectations in terms of the durability of that growth. And, you know, we are, we, we are certainly excited about, about Trelegy’s growth, growth from here, even as, you know, GSK does, does what you would expect, which is continue to deepen and broaden, and broaden their, their, their respiratory franchise. And we, we don’t believe that’s gonna come, that we don’t believe Trelegy is gonna pay any kind of price because of that.

Speaker 7: Great. Thank you.

Conference Operator: Thank you. And the next question will come from Jason Gerberry with Bank of America. Your line’s open.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: Hi, good morning. This is Dina Ramadin on for Jason. Thanks for taking our question. We just had two follow-ups to some prior discussion points. I guess first on the China market, could you characterize how future deal structures may differ in China from the way you’ve kind of done historical deals, if at all? Like, are you finding that the diligence process comes with any added or expected process-related hurdles that impact normal efficiency? And then second is just on the Lp(a) lowering class readouts. How important, in your view, is a treatment effect size coming above or below a 15%-20% risk reduction to the commercial peak sales opportunity? Thank you.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Sure. Maybe I’ll take your China question. You know, we don’t foresee any change in the way we structure transactions and how we actually diligence them. You asked also about diligence. It’s exactly the same process that we follow for products. You know, just realize that what is likely to happen in China deals is that we would be buying a royalty from a Chinese company that licensed a product to a company in the U.S. or Europe. And they did that because, you know, the vast majority of Chinese companies do not have clinical and marketing infrastructure in the U.S. and Europe. They need a partner to help them run the trials in the U.S., in Europe, and eventually to market their products.

So the payer of the royalty will be a U.S. or European company, like in the case of the deal we did with V-One, the marketer is Amgen. And for us, you know, the payer is Amgen, the credit risk is Amgen, so, you know, we feel very comfortable. Now, in terms of being effective in that market, you know, we have mentioned on this call that what we need is presence locally, and that’s something that, you know, you will see very soon from us with a local team with exceptional people. And it’s a market that we intend to build and really focus on because we do see, you know, very significant opportunities coming from China. Thank you for the question.

Marshall Urista, EVP, Head of Research and Investments, Royalty Pharma: And then your second question on scenarios around the effect size in the upcoming Novartis Lp(a) trial. You know, there’s no question, and it won’t surprise you to hear us say that the effect size does matter. I think we should, given that, you know, we’re a few months away at this point from seeing this data, you know, I think there will be a lot of discussion, I am sure, based on, you know, based on what it ultimately shows. And I think it will matter, you know, in the range that you talked about. You know, the types of patients who benefited, were there any subgroups where particularly—where there was particularly strong benefit or had a particular impact on benefit?

I think, you know, the physician community will work that out for who are the patients most likely to benefit. So, you know, again, you know, just, I think it does highlight the incredible potential of our development stage portfolio. We’re really excited to see this, you know, after waiting a few years at this point for this event. As you might imagine, we are eager to see it and discuss the data with everybody.

Conference Operator: Thank you. I am showing no further questions in the queue. I would now like to turn the call back over to Pablo for closing remarks.

Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Royalty Pharma: Thank you, operator, and thank you 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. Thank you, everyone.

Conference Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.