Royalty Pharma plc (Nasdaq: RPRX) today reported financial results
for the third quarter of 2020 and updated full-year 2020 guidance
for Adjusted Cash Receipts(1) (a non-GAAP financial measure).
“Our performance in the third quarter underscored the strong
momentum in the business", said Pablo Legorreta, Royalty Pharma
founder and Chief Executive Officer. "Net cash provided by
operating activities increased by 17%, while Adjusted Cash Receipts
increased 12%, driving Adjusted Cash Flow growth of 27%. At the
same time, we strengthened our balance sheet through our inaugural
bond offering, locking in an attractive cost of debt and more than
doubling our maturity profile. We also achieved notable success
with our hybrid funding strategy as a result of Gilead’s
acquisition of Immunomedics, which not only provides an accelerated
return for our shareholders but also enhances the prospects for
Trodelvy, an innovative new therapy for cancer patients. Following
the recent deal to expand our cystic fibrosis (CF) royalties, we
have now announced $2.3 billion in new transactions this year. This
speaks to the growing role of royalties as an important tool in the
funding of innovation which is supported by our robust transaction
pipeline".
GAAP financial results demonstrate continued strong
operating cash flow generation and revenue growth
- Cash provided by operating activities increased to $509 million
in the third quarter of 2020 compared with $436 million on a
pro forma basis in the same period of 2019 primarily due to higher
royalty receipts.
- Cash used in investing activities of $1,042 million largely
reflected two royalty acquisitions.
- Cash used in financing activities of $357 million resulted from
repayment of debt and dividends paid.
- Total income and other revenues of $538 million grew 16% driven
by the CF franchise and Imbruvica.
Non-GAAP financial results driven by strong, broad-based
growth across the portfolio
- Adjusted Cash Receipts(1) increased 12% on a pro forma basis
led by the CF franchise and Imbruvica.
- Adjusted Cash Flow(2) grew 27% on a pro forma basis to $394
million, supported by lower interest payments.
Portfolio continues to expand with new royalty
acquisitions and regulatory and clinical milestones
achieved
- Expansion of agreement with the CF Foundation brings announced
transactions to $2.3 billion this year.
- Regulatory approvals granted for Kaftrio by the European
Commission and Evrysdi by the FDA.
- Positive clinical study results presented for Trodelvy in
metastatic triple-negative breast and urothelial cancer.
Financial
Summary |
For the three months ended September 30 |
|
(unaudited) |
($ and shares in millions) |
2020 |
2019(3)Pro Forma |
Change |
Net cash provided by
operating activities (GAAP) |
509 |
436 |
17% |
Net cash used in
investing activities (GAAP) |
(1,042) |
n/a |
n/a |
Net cash used in
financing activities (GAAP) |
(357) |
n/a |
n/a |
Total income and other
revenues (GAAP) |
538 |
464 |
16% |
|
|
|
|
Adjusted Cash Receipts
(1) (non-GAAP) |
472 |
421 |
12% |
Adjusted Cash Flow (2)
(non-GAAP) |
394 |
309 |
27% |
|
|
|
|
Fully diluted Class A
shares outstanding as of September 30, 2020 |
607 |
n/a |
n/a |
Third quarter 2020 financial results
|
|
|
For the three months ended September 30 |
|
|
|
(unaudited) |
($ in millions) |
|
|
2020 |
2019Pro forma(3) |
Change |
Net cash provided by operating activities
(GAAP) |
509 |
436 |
17% |
|
|
|
|
|
|
Royalty Receipts: |
Marketer: |
Therapeutic
Area: |
|
|
|
CF
franchise |
Vertex |
Rare diseases |
157 |
116 |
36% |
Tysabri |
Biogen |
Neurology |
77 |
83 |
(8)% |
Imbruvica |
AbbVie/Johnson & Johnson |
Cancer |
78 |
67 |
16% |
HIV
franchise |
Gilead,
others |
Infectious
disease |
67 |
63 |
6% |
Januvia,
Janumet, Other DPP-IVs |
Merck &
Co., others |
Diabetes |
34 |
34 |
2% |
Xtandi |
Pfizer,
Astellas |
Cancer |
38 |
32 |
21% |
Promacta |
Novartis |
Hematology |
40 |
31 |
28% |
Farxiga/Onglyza |
AstraZeneca |
Diabetes |
8 |
— |
n/a |
Prevymis |
Merck &
Co. |
Infectious
diseases |
7 |
— |
n/a |
Crysvita |
Ultragenyx,
Kyowa Kirin |
Rare diseases |
3 |
— |
n/a |
Erleada |
Johnson &
Johnson |
Cancer |
2 |
2 |
30% |
Emgality |
Eli
Lilly |
Neurology |
3 |
1 |
155% |
Tazverik |
Epizyme |
Oncology |
0 |
— |
n/a |
Nurtec
ODT |
Biohaven |
Neurology |
0 |
— |
n/a |
Trodelvy |
Gilead |
Cancer |
1 |
— |
n/a |
Lyrica |
Pfizer |
Neurology |
5 |
32 |
(85)% |
Letairis |
Gilead |
Cardiology |
9 |
29 |
(70)% |
Other Products (4) |
|
|
59 |
59 |
1% |
Total Royalty Receipts |
588 |
550 |
7% |
Distributions to non-controlling interests |
(116) |
(128) |
(9)% |
Adjusted Cash Receipts (non-GAAP) (1) |
472 |
421 |
12% |
Amounts shown in the table may not add due to roundingThe
difference between pro forma and reported results for Total Royalty
Receipts relate to the treatment of Legacy SLP interest in “Other
Products.” |
Net cash provided by operating activities
(GAAP) was $509 million in the third quarter of 2020
compared to $436 million on a pro forma basis in the same period of
2019. The increase over the prior period resulted from higher cash
collections from financial royalty assets, primarily from the CF
franchise, Imbruvica and Promacta and a decline in interest paid
due to a change in the payment schedule to semi-annual interest
payments. This was partially offset by higher payments for
operating and professional costs in the third quarter of 2020
incurred in connection with Royalty Pharma's initial public
offering and debt refinancing.
Total Royalty Receipts were $588 million, an
increase of 7% in the third quarter of 2020 compared to the same
period of 2019 on a pro forma basis. This was largely attributable
to the performance of the CF franchise, Imbruvica, Promacta and the
addition of new royalties, partially offset by a decrease in
royalties for Lyrica and Letairis resulting from losses of
exclusivity.
Drivers of royalty receipts in the third quarter of 2020 are
discussed below, based on commentary from the marketers of the
products underlying the royalties in the preceding quarter (as
royalty receipts generally lag product performance by one calendar
quarter).
- CF franchise – Royalty receipts from Vertex’s
CF franchise, which includes Kalydeco, Orkambi, Symdeko/Symkevi and
Trikafta/Kaftrio, all approved for patients with certain mutations
causing CF, were $157 million in the third quarter of 2020, an
increase of 36% compared to the same period of 2019, primarily
driven by the highly successful launch of Trikafta in the U.S.
- Tysabri – Royalty receipts from Tysabri, which
is marketed by Biogen for the treatment of multiple sclerosis, were
$77 million in the third quarter of 2020, a decrease of 8% compared
to the same period of 2019. The performance was impacted by
inventory dynamics and COVID-19, given delays in dosing at infusion
sites.
- Imbruvica – Royalty receipts from Imbruvica,
which is marketed by AbbVie and Johnson & Johnson for the
treatment of blood cancers and chronic graft versus host disease,
were $78 million in the third quarter of 2020, an increase of
16% compared to the same period of 2019 driven by the continued
penetration in patients with chronic lymphocytic
leukemia.
- HIV franchise – Royalty receipts from the HIV
franchise, which are based on products marketed by Gilead that
contain emtricitabine, including Biktarvy, Genvoya and Truvada,
among others, were $67 million in the third quarter of 2020, an
increase of 6% compared to the same period of 2019.
- Januvia, Janumet, Other DPP-IVs – Royalty
receipts from the DPP-IVs for type 2 diabetes, which include
Januvia and Janumet, both marketed by Merck & Co., were
$34 million in the third quarter of 2020, an increase of 2%
compared to the same period of 2019.
- Xtandi – Royalty receipts from Xtandi, which
is marketed by Pfizer and Astellas for the treatment of prostate
cancer, were $38 million in the third quarter of 2020, an
increase of 21% compared to the same period of 2019, driven by
demand across various prostate cancer indications.
- Promacta – Royalty receipts from Promacta,
which is marketed by Novartis for the treatment of chronic immune
thrombocytopenia purpura (ITP) and aplastic anemia, were $40
million in the third quarter of 2020, an increase of 28% compared
to the same period of 2019. Global growth was driven by increased
use in ITP and further uptake as first-line treatment for severe
aplastic anemia in the US.
Distributions to non-controlling interests,
which reduces royalty receipts to arrive at Adjusted Cash Receipts,
were $116 million in the third quarter of 2020, a decrease of
9% compared to the same period of 2019 on a pro forma basis.
Adjusted Cash Receipts (non-GAAP) (1) were $472
million in the third quarter of 2020, an increase of 12% compared
to the same period of 2019 on a pro forma basis, reflecting growth
in Total Royalty Receipts and lower Distributions to
non-controlling interests.
Adjusted EBITDA (5) is a non-GAAP measure used
by Royalty Pharma which comprises Adjusted Cash Receipts less
payments for operating costs and professional services. In the
third quarter of 2020, Adjusted EBITDA was $413 million, a 7%
increase compared to Adjusted EBITDA of $386 million on a pro
forma basis in the same period of 2019:
- The increase was largely attributable to the 12% growth in
Adjusted Cash Receipts.
- Payments for operating and professional costs amounted to $59
million in the third quarter of 2020 (representing 13% of Adjusted
Cash Receipts) as compared to $36 million (representing 8% of
Adjusted Cash Receipts) in the third quarter of 2019 on a pro forma
basis, with the increase relating to expenses for the initial
public offering and inaugural bond offering.
Adjusted Cash Flow (2) is a non-GAAP measure
which is comprised of Adjusted EBITDA less development-stage
funding payments —ongoing, net interest paid and miscellaneous
other items relating to swap arrangements, investment in
non-consolidated affiliates plus contributions from non-controlling
interests—R&D. In the third quarter of 2020, Adjusted Cash Flow
was $394 million, a 27% increase compared to Adjusted Cash
Flow of $309 million for the same period of 2019 on a pro
forma basis. The increase primarily resulted from the growth in
Adjusted Cash Receipts as well as lower net interest paid and
development-stage funding payments. Items in the period
included:
- Development-stage funding payments of $5 million in the
third quarter of 2020 was significantly lower than the
$23 million in the same period in 2019, as certain ongoing
R&D programs (primarily related to the Phase 3 adjuvant studies
of Ibrance) reached completion at the end of 2019.
- Net interest paid of $15 million was lower than the
$55 million paid in the same period of 2019 on a pro forma
basis due to the impact of debt refinancing and a shift to
semi-annual interest payments with the issuance of $6 billion of
senior unsecured notes (the "Notes").
- Investment in non-consolidated affiliates was zero compared
with $4 million in the third quarter of 2019 as there were no
funding requirements in the period.
A more comprehensive discussion of the non-GAAP measures
utilized by Royalty Pharma to manage its business can be found in
the section of this earnings release entitled ‘Use of Non-GAAP
Measures’.
Key Developments Relating to the Portfolio
The key developments impacting cash receipts and income and
revenue from royalty interests are discussed below:
- Evrysdi (risdiplam): In August 2020, Evrysdi
was approved by the FDA, representing the first oral treatment
approved for infants, children and adults with all spinal muscular
atrophy ("SMA") types. Subsequently, the commercial launch for
Evrysdi, marketed by Roche, began in August 2020.
- CF franchise: In August 2020, Vertex announced
that the European Commission had granted marketing authorization
for Kaftrio in a combination regimen with ivacaftor to treat people
with CF ages 12 years and older with one F508del mutation and one
minimal function mutation, or two F508del mutations in the cystic
fibrosis transmembrane conductance regulator gene.
- Trodelvy (sacituzumab govitecan-hziy): In
September 2020, Immunomedics presented results from the
confirmatory Phase 3 ASCENT study that showed that Trodelvy
significantly extended overall survival (OS) and improved overall
response rate and clinical benefit rate, compared to treatment of
choice standard single-agent chemotherapy in brain
metastases-negative patients with metastatic triple-negative breast
cancer who had previously received at least two prior therapies for
metastatic disease. Immunomedics also announced positive results
from cohort 1 of cisplatin-eligible patients in the pivotal Phase 2
TROPHY U-01 study of Trodelvy in metastatic urothelial cancer.
Results confirm the interim findings and prior Phase 1/2 study
results showing Trodelvy has significant activity and is safe in
patients with heavily-pretreated metastatic urothelial cancer who
progressed on both platinum-based chemotherapy and checkpoint
inhibitors. In September 2020, Gilead and Immunomedics announced
that Gilead would acquire Immunomedics for $88.00 per share in
cash, which valued Immunomedics at approximately $21 billion. In
2018, Royalty Pharma entered into a partnership with Immunomedics
whereby it acquired a tiered, sales-based royalty on Trodelvy for
$175 million and acquired 4,373,178 shares of Immunomedics common
stock for $75 million. The acquisition closed in October 2020,
resulting in gross cash proceeds of $385 million related to Royalty
Pharma’s equity position in Immunomedics.
- Ibrance (palbociclib): In October 2020, Pfizer
announced that the Phase 3 PENELOPE-B trial did not meet the
primary endpoint of improved invasive disease-free survival (iDFS)
in women with hormone receptor-positive (HR+), human epidermal
growth factor-negative (HER2-) early breast cancer (eBC) who have
residual invasive disease after completing neoadjuvant
chemotherapy.
- Nurtec ODT (rimegepant) and zavegepant: In
October 2020, Biohaven announced that the FDA had accepted for
review its recently submitted supplemental New Drug Application
("sNDA") for Nurtec ODT for the preventive treatment of migraine.
In September, Biohaven’s oral zavegepant, a third generation CGRP
receptor antagonist, received authorization to proceed into
clinical trials from the FDA and achieved first-in-human
dosing.
- Omecamtiv mecarbil: In October 2020, Amgen,
Cytokinetics and Servier announced topline results from
GALACTIC-HF, a Phase 3 trial of omecamtiv mecarbil in patients with
heart failure. The trial met the primary composite endpoint of
reduction in cardiovascular death or heart failure events, but did
not meet the secondary endpoint of reduction in cardiovascular
death. Detailed results including sub-group analysis are expected
to be presented at the AHA Scientific Sessions 2020.
Summary of Recent Royalty Acquisition
Activity
- Evrysdi (risdiplam): In July 2020, Royalty
Pharma acquired a royalty on Evrysdi, a development-stage product
candidate for the treatment of Types 1, 2 and 3 SMA, from PTC
Therapeutics in exchange for an upfront payment of $650 million.
- Nurtec ODT (rimegepant) and zavegepant: In
August 2020, Royalty Pharma announced an expanded agreement with
Biohaven Pharmaceuticals for up to $450 million to fund the
development of zavegepant and the commercialization of Nurtec ODT.
To support the zavegepant Phase 3 program, Biohaven received a $150
million upfront payment and will receive an additional $100 million
payment upon the start of the oral zavegepant Phase 3 program.
Royalty Pharma will receive a royalty of 0.4% on Nurtec ODT, a
royalty of up to 3% on zavegepant and success-based milestone
payments based on zavegepant regulatory approvals. Royalty Pharma
will also provide further support for the ongoing launch of Nurtec
ODT through the purchase of committed, non-contingent commercial
launch preferred equity for a total of $200 million payable between
2021 and 2024 in exchange for a series of fixed quarterly payments
between 2025 and 2030.
- CF franchise: In November 2020, Royalty Pharma
announced that it acquired the residual royalty interest in
Vertex’s CF treatments owned by the CF Foundation for an upfront
payment of $575 million and a potential milestone of $75 million
payable under certain circumstances. As part of previous agreements
with the CF Foundation, Royalty Pharma purchased all of the CF
Foundation’s royalty interests on Vertex’s CF franchise. Under the
terms of those agreements, Royalty Pharma was obligated to pay the
CF Foundation 50% of royalties attributable to revenue over $5.8
billion in any calendar year. This obligation is eliminated with
this transaction and entitles Royalty Pharma to all royalties above
the previous revenue threshold.
Liquidity and Capital Resources
- As of September 30, 2020, Royalty Pharma had cash, cash
equivalents and marketable securities in the amount of $2.1 billion
and long-term debt with principal value of $6.0 billion.
- In September 2020, Royalty Pharma completed a $6.0 billion
issuance of Notes across six tranches with a weighted-average
coupon of 2.125% that will pay interest semi-annually, with the
initial interest payment occurring in March 2021. Royalty Pharma
used the net proceeds from the Notes, together with available cash
on hand, to repay in full its senior secured credit facilities
entered into in February 2020. This transaction more than doubled
Royalty Pharma's weighted average maturity to 12.5 years as of
September 2020.
- In October 2020, Royalty Pharma announced the closing of a
secondary offering of 17,343,037 shares of its Class A ordinary
shares by selling shareholders in an underwritten public offering
at a price to the public of $42.00 per share. Royalty Pharma did
not receive any of the proceeds and did not pay any underwriting
costs from the sale of its Class A ordinary shares by the selling
shareholders.
2020 Financial Outlook
Royalty Pharma has updated guidance for full-year 2020 as
follows:
|
Provided November 10, 2020 |
Adjusted Cash Receipts (non-GAAP) excluding new
transactionsannounced after the date of this release |
$1,780 million to $1,800 million |
Royalty Pharma also expects that payments for operating and
professional costs will be approximately 10% of Adjusted Cash
Receipts in 2020.
Royalty Pharma today provides this guidance based on its
nine-month performance and on its most up-to-date view on its
prospects. This guidance assumes no major unforeseen adverse events
and excludes the contributions from transactions announced
subsequent to the date of this press release. Furthermore, Royalty
Pharma reserves the right to amend its guidance in the event it
engages in new royalty transactions which have a material near-term
financial impact on the company.
Royalty Pharma has not reconciled its non-GAAP 2020 guidance to
the most directly comparable GAAP measure, net cash provided by
operating activities, at this time due to the inherent difficulty
in accurately forecasting and quantifying certain amounts that are
necessary for such reconciliation, including, primarily, payments
for operating and professional costs, distributions from
non-consolidated affiliates and interest received. Royalty Pharma
is not able to forecast on a GAAP basis with reasonable certainty
all adjustments needed in order to project net cash provided by
operating activities at this time.
Financial Results Conference Call
Royalty Pharma will host a conference call and simultaneous
webcast to discuss this financial results release at 8:00 a.m.,
Eastern Time on November 11, 2020. A live webcast may be accessed
from the “Investors” page of the company’s website at
https://www.royaltypharma.com/investors/news-and-events/events.
Please allow at least five minutes for registering and accessing
the presentation. A replay of the conference call and webcast will
be archived on the company's website for at least 30 days.
To ask a question during the live broadcast or listen without
Internet access, please dial in at least 15 minutes in advance to
ensure a timely connection to the call. The conference call can be
accessed live over the phone by dialing (833) 519-1253, or for
international callers by dialing (914) 800-3826. The passcode to
access the conference call is 8067315.
About Royalty Pharma plc
Founded in 1996, Royalty Pharma is the largest buyer of
biopharmaceutical royalties and a leading funder of innovation
across the biopharmaceutical industry, collaborating with
innovators from academic institutions, research hospitals and
not-for-profits through small and mid-cap biotechnology companies
to leading global pharmaceutical companies. Royalty Pharma has
assembled a portfolio of royalties which entitles it to payments
based directly on the top-line sales of many of the industry’s
leading therapies. Royalty Pharma funds innovation in the
biopharmaceutical industry both directly and indirectly - directly
when it partners with companies to co-fund late-stage clinical
trials and new product launches in exchange for future royalties,
and indirectly when it acquires existing royalties from the
original innovators. Royalty Pharma’s current portfolio includes
royalties on more than 45 commercial products, including AbbVie and
J&J’s Imbruvica, Astellas and Pfizer’s Xtandi, Biogen’s
Tysabri, Gilead’s HIV franchise, Merck’s Januvia, Novartis’
Promacta, and Vertex’s Kalydeco, Orkambi, Symdeko and Trikafta, and
three development-stage product candidates.
Forward-Looking Statements
The information set forth herein does not purport to be complete
or to contain all of the information you may desire. Statements
contained herein are made as of the date of this document unless
stated otherwise, and neither the delivery of this document at any
time, nor any sale of securities, shall under any circumstances
create an implication that the information contained herein is
correct as of any time after such date or that information will be
updated or revised to reflect information that subsequently becomes
available or changes occurring after the date hereof.
This document contains statements that constitute
“forward-looking statements” as that term is defined in the United
States Private Securities Litigation Reform Act of 1995, including
statements that express the company’s opinions, expectations,
beliefs, plans, objectives, assumptions or projections regarding
future events or future results, in contrast with statements that
reflect historical facts. Examples include discussion of Royalty
Pharma's strategies, financing plans, growth opportunities and
market growth. In some cases, you can identify such forward-looking
statements by terminology such as “anticipate,” “intend,”
“believe,” “estimate,” “plan,” “seek,” “project,” “expect,” “may,”
“will,” “would,” “could” or “should,” the negative of these terms
or similar expressions. Forward-looking statements are based on
management’s current beliefs and assumptions and on information
currently available to the company. However, these forward-looking
statements are not a guarantee of Royalty Pharma's performance, and
you should not place undue reliance on such statements.
Forward-looking statements are subject to many risks, uncertainties
and other variable circumstances, and other factors. Such risks and
uncertainties may cause the statements to be inaccurate and readers
are cautioned not to place undue reliance on such statements. Many
of these risks are outside of the company’s control and could cause
its actual results to differ materially from those it thought would
occur. The forward-looking statements included in this document are
made only as of the date hereof. The company does not undertake,
and specifically declines, any obligation to update any such
statements or to publicly announce the results of any revisions to
any such statements to reflect future events or developments,
except as required by law.
Certain information contained in this document relates to or is
based on studies, publications, surveys and other data obtained
from third-party sources and the company's own internal estimates
and research. While the company believes these third-party sources
to be reliable as of the date of this document, it has not
independently verified, and makes no representation as to the
adequacy, fairness, accuracy or completeness of, any information
obtained from third-party sources. In addition, all of the market
data included in this document involves a number of assumptions and
limitations, and there can be no guarantee as to the accuracy or
reliability of such assumptions. Finally, while the company
believes its own internal research is reliable, such research has
not been verified by any independent source.
For further information, please reference Royalty Pharma's
reports and documents filed with the U.S. Securities and Exchange
Commission ("SEC") by visiting EDGAR on the SEC's website at
www.sec.gov.
Use of Non-GAAP Measures
Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow
are non-GAAP measures presented as supplemental measures to Royalty
Pharma's GAAP financial performance. These non-GAAP financial
measures exclude the impact of certain items and therefore have not
been calculated in accordance with GAAP. In each case, because
operating performance is a function of liquidity, the non-GAAP
measures used by management are presented and defined as
supplemental liquidity measures. Royalty Pharma cautions readers
that amounts presented in accordance with the definitions of
Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow may
not be the same as similar measures used by other companies. Not
all companies and analysts calculate the non-GAAP measures Royalty
Pharma uses in the same manner. Royalty Pharma compensates for
these limitations by using non-GAAP financial measures as
supplements to GAAP financial measures and by presenting the
reconciliations of the non-GAAP financial measures to their most
comparable GAAP financial measures, in each case being net cash
provided by operating activities.
Royalty Pharma believes that Adjusted Cash Receipts and Adjusted
Cash Flow provide meaningful information about its operating
performance because the business is heavily reliant on its ability
to generate consistent cash flows and these measures reflect the
core cash collections and cash charges comprising its operating
results. Management strongly believes that Royalty Pharma's
significant operating cash flow is one of the attributes that
attracts potential investors to its business.
In addition, Royalty Pharma believes that Adjusted Cash Receipts
and Adjusted Cash Flow help identify underlying trends in the
business and permit investors to more fully understand how
management assesses the performance of the company, including
planning and forecasting for future periods. Adjusted Cash Receipts
and Adjusted Cash Flow are used by management as key liquidity
measures in the evaluation of the company’s ability to generate
cash from operations. Both measures are an indication of the
strength of the company and the performance of the business.
Management uses Adjusted Cash Receipts and Adjusted Cash Flow when
considering available cash, including for decision-making purposes
related to funding of acquisitions, voluntary debt repayments,
dividends and other discretionary investments. Further, these
non-GAAP financial measures help management, the audit committee
and investors evaluate the company’s ability to generate liquidity
from operating activities.
Management believes that Adjusted EBITDA is an important
non-GAAP measure in analyzing liquidity and is a key component of
certain material covenants contained within the company’s Credit
Agreement. Noncompliance with the interest coverage ratio and
leverage ratio covenants under the credit agreement could result in
lenders requiring the company to immediately repay all amounts
borrowed. If Royalty Pharma cannot satisfy these financial
covenants, it would be prohibited under the credit agreement from
engaging in certain activities, such as incurring additional
indebtedness, paying dividends, making certain payments, and
acquiring and disposing of assets. Consequently, Adjusted EBITDA is
critical to the assessment of Royalty Pharma's liquidity.
Management uses Adjusted Cash Flow to evaluate its ability to
generate cash and performance of the business and to evaluate the
company’s performance as compared to its peer group. Management
also uses Adjusted Cash Flow to compare its performance against
non-GAAP adjusted net income measures used by many companies in the
biopharmaceutical industry, even though each company may customize
its own calculation and therefore one company’s metric may not be
directly comparable to another’s. Royalty Pharma believes that
non-GAAP financial measures, including Adjusted Cash Flow, are
frequently used by securities analysts, investors and other
interested parties to evaluate companies in Royalty Pharma's
industry.
The non-GAAP financial measures used in this earnings release
have limitations as analytical tools, and you should not consider
them in isolation or as a substitute for the analysis of Royalty
Pharma's results as reported under GAAP. The company has provided a
reconciliation of each non-GAAP financial measure, except for its
non-GAAP outlook to the most directly comparable GAAP financial
measure, in each case being net cash provided by operating
activities at Table 5.
Royalty Pharma
plcCondensed Consolidated Income Statement
(unaudited)Table 1
|
|
|
For the three months
ended September 30, |
($ in millions) |
2020 |
2019 |
Total income
and revenues |
|
|
Income from financial
royalty assets |
499 |
430 |
Revenue from
intangible royalty assets |
35 |
32 |
Other royalty
income |
5 |
2 |
Total income
and other revenues |
538 |
464 |
|
|
|
Operating
expenses |
|
|
Research and
development funding expense |
5 |
23 |
Provision for changes
in expected cash flows from financial royalty assets |
(34) |
(122) |
Amortization of
intangible assets |
6 |
6 |
General and
administrative expenses |
51 |
26 |
Total
operating expenses, net |
28 |
(68) |
|
|
|
Operating
income |
511 |
532 |
|
|
|
Other
(income)/expense |
|
|
Equity in
(earnings)/loss of non-consolidated affiliates |
(14) |
8 |
Interest expense |
31 |
69 |
Other
(income)/expense |
(131) |
16 |
Total other
(income)/expense, net |
(114) |
92 |
|
|
|
Consolidated net
income before tax |
624 |
440 |
Income tax
expense |
— |
— |
Consolidated net
income |
624 |
440 |
Less: Net income
attributable to non-controlling interest |
(334) |
(31) |
Net income
attributable to controlling interest |
291 |
409 |
Amounts may not add due to rounding.
Royalty Pharma
plcSelected Balance Sheet
DataTable 2
|
(unaudited) |
($ in millions) |
As ofSeptember 30, 2020 |
As ofDecember 31, 2019 |
Cash and cash
equivalents |
1,553 |
284 |
Marketable
securities |
580 |
57 |
Total assets |
15,991 |
12,450 |
Current portion of
long-term debt |
— |
282 |
Long-term debt,
excluding current portion |
5,812 |
5,956 |
Total liabilities |
6,192 |
6,308 |
Total shareholders’
equity |
9,799 |
6,141 |
|
|
|
|
Royalty Pharma
plcCondensed Consolidated Statements of Cash Flows
(unaudited)Table 3
|
|
|
($ in
millions) |
For the three months ended September 30 |
For the nine months ended September 30 |
|
2020 |
2019 |
2020 |
2019 |
Cash flows
from operating activities: |
|
|
|
|
Cash collections from
financial royalty assets |
546 |
507 |
1,549 |
1,402 |
Cash collections from
intangible royalty assets |
34 |
34 |
104 |
108 |
Other royalty cash
collections |
4 |
4 |
13 |
25 |
Interest received |
4 |
4 |
7 |
18 |
Swap collateral
received |
— |
— |
45 |
— |
Swap collateral
posted |
— |
(19) |
— |
(46) |
Swap termination
payments |
— |
— |
(35) |
— |
Distributions from
non-consolidated affiliates |
4 |
— |
36 |
14 |
Development-stage
funding payments—ongoing |
(5) |
(23) |
(19) |
(67) |
Payments for operating
and professional costs |
(59) |
(23) |
(129) |
(70) |
Interest paid |
(19) |
(65) |
(102) |
(195) |
Net cash
provided by operating activities |
509 |
419 |
1,469 |
1,189 |
Cash flows
from investing activities: |
|
|
|
|
Distributions from
non-consolidated affiliates |
— |
— |
15 |
— |
Purchases of available
for sale debt securities |
— |
— |
— |
(125) |
Purchase of equity
securities |
— |
— |
(50) |
— |
Purchase of marketable
securities |
(496) |
(750) |
(1,133) |
(750) |
Proceeds from
available for sale debt securities |
— |
— |
— |
150 |
Proceeds from sales
and maturities of marketable securities |
256 |
162 |
610 |
162 |
Investments in
non-consolidated affiliates |
— |
(4) |
(29) |
(23) |
Acquisitions of
financial royalty assets |
(802) |
(23) |
(1,377) |
(1,255) |
Milestone
payments |
— |
— |
— |
(250) |
Net cash used
in investing activities |
(1,042) |
(615) |
(1,964) |
(2,091) |
Cash flows
from financing activities: |
|
|
|
|
Distributions to
shareholders/unitholders |
— |
(168) |
(285) |
(564) |
Distributions to
non-controlling interest |
(116) |
(39) |
(401) |
(117) |
Distributions to
non-controlling interest – other |
(46) |
— |
(74) |
— |
Dividends to
shareholders |
(55) |
— |
(55) |
— |
Contributions from
non-controlling interest- R&D |
1 |
— |
6 |
— |
Contributions from
non-controlling interest- other |
— |
— |
30 |
— |
Scheduled repayments
of long-term debt |
— |
(74) |
(94) |
(221) |
Repayments of
long-term debt |
(5,946) |
— |
(11,116) |
— |
Proceeds from issuance
of long-term debt |
5,851 |
— |
11,891 |
— |
Debt issuance costs
and other |
(38) |
— |
(47) |
— |
Purchase of treasury
interests |
— |
— |
— |
(4) |
Proceeds from issuance
of Class A ordinary shares upon IPO, net of offering costs |
(9) |
— |
1,910 |
— |
Net cash (used
in)/provided by financing activities |
(357) |
(281) |
1,765 |
(906) |
Net change in cash and
cash equivalents |
(891) |
(477) |
1,269 |
(1,808) |
Cash and cash
equivalents, beginning of period |
2,443 |
593 |
284 |
1,924 |
Cash and cash
equivalents, end of period |
1,553 |
116 |
1,553 |
116 |
Amounts may not add due to rounding.
Royalty Pharma
plcNon-GAAP Financial Measures
(unaudited)Table 4
($ in
millions) |
For the three months ended September 30 |
|
2020 |
2019Pro Forma(3) |
Change |
Net cash
provided by operating activities (GAAP) |
509 |
436 |
17 |
|
|
|
|
Royalty
Receipts: |
|
|
|
CF franchise |
157 |
116 |
36% |
Tysabri |
77 |
83 |
(8)% |
Imbruvica |
78 |
67 |
16% |
HIV franchise |
67 |
63 |
6% |
Januvia, Janumet,
Other DPP-IVs |
34 |
34 |
2% |
Xtandi |
38 |
32 |
21% |
Promacta |
40 |
31 |
28% |
Farxiga/Onglyza |
8 |
— |
n/a |
Prevymis |
7 |
— |
n/a |
Crysvita |
3 |
— |
n/a |
Erleada |
2 |
2 |
30% |
Emgality |
3 |
1 |
155% |
Tazverik |
0 |
— |
n/a |
Nurtec ODT |
0 |
— |
n/a |
Trodelvy |
1 |
— |
n/a |
Lyrica |
5 |
32 |
(85)% |
Letairis |
9 |
29 |
(70)% |
Other Products
(4) |
59 |
59 |
1% |
Total Royalty
Receipts |
588 |
550 |
7% |
Distributions to
non-controlling interest |
(116) |
(128) |
(9)% |
Adjusted Cash
Receipts (non-GAAP) (1) |
472 |
421 |
12% |
Payments for operating
and professional costs |
(59) |
(36) |
66% |
Adjusted
EBITDA (non-GAAP) (5) |
413 |
386 |
7% |
Development-stage
funding payments – ongoing |
(5) |
(23) |
(78)% |
Interest paid,
net |
(15) |
(55) |
(72)% |
Investment in
non-consolidated affiliates |
— |
(4) |
(100)% |
Contributions from
non-controlling interest- R&D |
1 |
5 |
(76)% |
Adjusted Cash
Flow (non-GAAP) (2) |
394 |
309 |
27% |
|
|
|
|
|
Amounts may not add due to rounding.
Royalty Pharma plcGAAP
to Non-GAAP Reconciliation (unaudited)Table
5
|
For the three months ended September 30 |
($ in millions) |
2020 |
2019Pro Forma(3) |
Net cash
provided by operating activities (GAAP) |
509 |
436 |
Adjustments: |
|
|
Interest paid, net (6) |
15 |
55 |
Development-stage
funding payments – ongoing (7) |
5 |
23 |
Payments for operating and professional costs |
59 |
36 |
Distributions to non-controlling interests (6) |
(116) |
(128) |
Adjusted Cash
Receipts (non-GAAP) (1) |
472 |
421 |
|
|
|
Net cash
provided by operating activities (GAAP) |
509 |
436 |
Adjustments: |
|
|
Interest paid, net
(6) |
15 |
55 |
Development-stage funding payments – ongoing (7) |
5 |
23 |
Distributions to
non-controlling interests (6) |
(116) |
(128) |
Adjusted EBITDA (non-GAAP) (5) |
413 |
386 |
|
|
|
Net cash
provided by operating activities (GAAP) |
509 |
436 |
Adjustments: |
|
|
Contribution from
non-controlling interest- R&D (6) |
1 |
5 |
Distributions to
non-controlling interests (6) |
(116) |
(128) |
Investment in
non-consolidated affiliates (6) (8) |
— |
(4) |
Adjusted Cash
Flow (non-GAAP) (2) |
394 |
309 |
Amounts may not add due to rounding. Notes
(1) Adjusted Cash Receipts is a measure calculated with
inputs directly from the Statement of Cash Flows and includes
(1) royalty receipts: (i) cash collections from royalty
assets (financial assets and intangible assets), (ii) other royalty
cash collections, (iii) distributions from non-consolidated
affiliates, plus (2) proceeds from available for sale debt
securities (Tecfidera milestone payments), and less
(3) distributions to non-controlling interest, which
represents distributions to historical non-controlling interest
attributable to a de minimis interest in RPCT held by certain
legacy investors and to a new non-controlling interest that was
created as a result of the Exchange Offer Transactions in February
2020 related to the Legacy Investors Partnerships' ownership of
approximately 18% in Old RPI. See Royalty Pharma's final prospectus
filed with the SEC on June 17, 2020 (the "Prospectus") for
additional discussion. See GAAP to Non-GAAP reconciliation at Table
5.
(2) Adjusted Cash Flow is defined as Adjusted EBITDA
less (1) development-stage funding payments – ongoing, (2)
interest paid, net, (3) swap collateral (posted) or received, net,
(4) swap termination payments and (5) investment in
non-consolidated affiliates, and plus (1) contributions from
non-controlling interest- R&D, all directly reconcilable to the
Statement of Cash Flows. See GAAP to Non-GAAP reconciliation at
Table 5.
(3) To aid in comparability, three months ended
September 30, 2019 figures are presented on an unaudited pro
forma basis, which adjusts certain cash flow line items as if
Royalty Pharma’s Reorganization Transactions (as described in the
Prospectus) and its initial public offering had taken place on
January 1, 2019. The most significant difference between the pro
forma and reported figures is the new non-controlling interest that
resulted from the Reorganization Transactions. A new contractual
non-controlling interest arose in the Reorganization Transactions
that results in a higher distribution to non-controlling interests
on a pro forma basis as compared to prior historical periods. Less
material differences also arise in the Royalty Receipts line for
Other Products as well as payments for operating and professional
costs and interest paid, net.
(4) Other Products include royalties on the following
products: Bosulif (a product co-developed by Royalty Pharma's joint
venture investee, Avillion, for which receipts are presented as
distributions received from nonconsolidated affiliates on the
Statement of Cash Flows), Cimzia, Conbriza/Fablyn/Viviant, Entyvio,
Lexiscan, Mircera, Myozyme, Nesina, Prezista, Priligy, Rotateq,
Savella, Soliqua and Thalomid. Other Products also include
contributions from the Legacy SLP Interest.
(5) Adjusted EBITDA is important to lenders and is
defined under the credit agreement as Adjusted Cash Receipts less
payments for operating and professional costs. Operating and
professional costs are comprised of payments for operating costs
and professional services and payments for rebates from the
Statement of Cash Flows. See GAAP to Non-GAAP reconciliation at
Table 5.
(6) The table below shows the line item for each
adjustment and the direct location for such line item on the
Statement of Cash Flows.
|
|
Reconciling adjustment |
Statement of Cash Flows classification |
Investments in non-consolidated affiliates |
Investing activities |
Distributions to non-controlling interests |
Financing activities |
Interest paid, net |
Operating activities (Interest paid less interest received) |
Contributions from
non-controlling interest- R&D |
Financing activities |
|
|
(7) Lenders consider all payments made to support
R&D activities for products undergoing late-stage development
similar to asset acquisitions as these funds are expected to
generate operational returns in the future. All development-stage
funding payments - ongoing and upfront - run through R&D
funding expense in net income and are added back in aggregate to
net cash provided by operating activities to arrive at Adjusted
EBITDA. As a result, Adjusted EBITDA captures the full add-back for
R&D funding payments, while Adjusted Cash Flow only reflects
the add-back for the upfront portion of development-stage funding
payments due to the fact that development-stage funding payments –
ongoing are considered an ongoing business expense.
(8) Royalty Pharma considers all payments to fund
operating joint ventures that are performing research and
development activities for products undergoing late stage
development similar to asset acquisitions as these funds are
expected to generate operational returns in the future. As a
result, amounts funded through capital calls by Royalty Pharma's
equity method investees, the Avillion entities, are added back to
Adjusted Cash Flow.
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