Royalty Pharma plc (Nasdaq: RPRX) today reported financial results
for the third quarter of 2022 and raised full-year 2022 guidance
for Adjusted Cash Receipts(1) (a non-GAAP financial measure).
“Our business momentum continued in the third quarter,” said
Pablo Legorreta, Royalty Pharma’s founder and Chief Executive
Officer. “We have announced substantial capital deployment this
year – approaching $3.0 billion – driven by strong and growing
demand for royalty transactions and our powerful market position.
We are particularly excited by our R&D funding collaboration
with Merck which may serve as a model for future partnerships with
global biopharma. There is significant opportunity for R&D
funding partnerships with global biopharmas where total R&D
expenditures are expected to approach $1 trillion over the next
five years. Looking ahead, we remain confident in our ability to
deliver long-term, compounding growth given our unique business
model and the significant capital needs of the life sciences
industry.”
Third quarter 2022 GAAP financial results demonstrate
robust operating cash flow growth
- Net cash provided by operating activities increased 15% to $539
million; Net cash used in investing activities was $1.4 billion;
Net cash used in financing activities was $230 million.
- Total income and other revenues decreased 2% to $573
million.
Third quarter 2022 non-GAAP financial results highlight
execution against financial objectives
- Adjusted Cash Receipts(1) increased 2% to $597 million, driven
by strong portfolio performance and the acquisition of royalties on
Trelegy, partially offset by royalty expirations, unfavorable
foreign exchange movements and a one-time milestone payment on
Soliqua in the third quarter of 2021. Through the first nine months
of 2022, Adjusted Cash Receipts(1) increased 9% compared to the
first nine months of 2021.
- Adjusted EBITDA(4) grew 3% to $548 million in the third quarter
of 2022.
- Adjusted Cash Flow(2) increased 26% to $441 million in the
third quarter of 2022.
Positive updates across marketed and development-stage
royalty portfolio
- Acquired a royalty interest in Merck’s MK-8189, an oral PDE10A
inhibitor in Phase 2b for the treatment of schizophrenia; R&D
funding collaborations with large biopharma represent a significant
growth opportunity.
- Development-stage pipeline now includes 13 NMEs and
approximately 40 projects in late-stage development.
- Pfizer’s acquisition of Biohaven accelerated value creation for
Royalty Pharma’s shareholders.
Raising financial guidance for 2022
- Royalty Pharma now anticipates full-year 2022 Adjusted Cash
Receipts(1) to be between $2,750 million and $2,800 million (~+29%
to 32% year/year), excluding transactions announced subsequent to
the date of this release and including the $458 million payment in
October from Pfizer’s acquisition of Biohaven.
- Guidance reflects an estimated
foreign exchange impact of ~-3% to -4% (-$65 million to -$85
million)(9) for FY 2022 year/year Adjusted Cash Receipts(1) growth,
assuming current exchange rates prevail for the balance of
2022.
Financial
Summary |
Three Months Ended September 30, |
|
(unaudited) |
($ and shares in millions) |
2022 |
|
2021 |
|
Change |
Net cash provided by operating activities (GAAP) |
539 |
|
470 |
|
15% |
|
Net cash used in investing activities (GAAP) |
(1,425) |
|
(845) |
|
69% |
|
Net cash (used in)/provided by financing activities (GAAP) |
(230) |
|
1,034 |
|
(122)% |
|
Total income and other revenues (GAAP) |
573 |
|
586 |
|
(2)% |
|
Adjusted Cash Receipts (1) (non-GAAP) |
597 |
|
587 |
|
2% |
|
Adjusted EBITDA (4) (non-GAAP) |
548 |
|
533 |
|
3% |
|
Adjusted Cash Flow (2) (non-GAAP) |
441 |
|
351 |
|
26% |
|
Weighted average Class A ordinary shares outstanding - diluted |
607 |
|
607 |
|
0% |
|
Third Quarter 2022 Financial Results
|
|
|
Three Months Ended September 30, |
|
|
|
(unaudited) |
($ in millions) |
|
|
2022 |
|
2021 |
|
Change |
Net cash provided by operating activities
(GAAP) |
539 |
|
470 |
|
15% |
|
|
|
|
|
|
|
Royalties: |
Marketers: |
Therapeutic Area: |
|
|
|
Cystic fibrosis franchise |
Vertex |
Rare disease |
208 |
|
183 |
|
14% |
|
Tysabri |
Biogen |
Neurology |
91 |
|
96 |
|
(5)% |
|
Imbruvica |
AbbVie, J&J |
Cancer |
74 |
|
88 |
|
(15)% |
|
Promacta |
Novartis |
Hematology |
50 |
|
48 |
|
4% |
|
Xtandi |
Pfizer, Astellas |
Cancer |
46 |
|
40 |
|
14% |
|
Trelegy |
GSK |
Respiratory |
43 |
|
— |
|
n/a |
Tremfya |
Johnson & Johnson |
Immunology |
21 |
|
17 |
|
29% |
|
Nurtec ODT/Biohaven payment* |
Pfizer* |
Neurology |
20 |
|
18 |
|
14% |
|
Cabometyx/Cometriq |
Exelixis, Ipsen, Takeda |
Cancer |
15 |
|
12 |
|
21% |
|
Farxiga/Onglyza |
AstraZeneca |
Diabetes |
12 |
|
9 |
|
24% |
|
Prevymis |
Merck & Co. |
Infectious disease |
11 |
|
10 |
|
11% |
|
Evrysdi |
Roche |
Rare disease |
10 |
|
6 |
|
63% |
|
Trodelvy |
Gilead |
Cancer |
6 |
|
3 |
|
158% |
|
Orladeyo |
BioCryst |
Rare disease |
6 |
|
3 |
|
150% |
|
Erleada |
Johnson & Johnson |
Cancer |
6 |
|
4 |
|
50% |
|
Crysvita |
Ultragenyx, Kyowa Kirin |
Rare disease |
5 |
|
5 |
|
15% |
|
Emgality |
Lilly |
Neurology |
5 |
|
5 |
|
3% |
|
Januvia, Janumet, Other DPP-IVs |
Merck & Co., others |
Diabetes |
1 |
|
38 |
|
(97)% |
|
Oxlumo |
Alnylam |
Rare disease |
1 |
|
1 |
|
(9)% |
|
Other products (3) |
73 |
|
129 |
|
(43)% |
|
Total royalty receipts |
704 |
|
712 |
|
(1)% |
|
Distributions to non-controlling interests |
(107) |
|
(125) |
|
(15)% |
|
Adjusted Cash
Receipts(1)
(non-GAAP) |
597 |
|
587 |
|
2% |
|
Amounts
shown in the table may not add due to rounding. *Quarterly
redemption payments of $16 million commenced in the first quarter
of 2021 related to the Series A Biohaven Preferred Shares. The
remaining amounts relate to royalty receipts from Nurtec ODT. In
October 2022, Pfizer completed its acquisition of Biohaven (see
discussion below). |
Net cash provided by operating activities
(GAAP) was $539 million in the third quarter of 2022, an
increase of 15% compared to $470 million in the same period of
2021. This increase was largely attributable to higher cash
collections from financial royalty assets and lower upfront and
milestone development-stage funding payments. The increase was
partially offset by lower cash collections from Januvia, Janumet
and other DPP-IVs, which substantially ended in the three months
ended June 30, 2022, and by higher net interest paid. Additionally,
there was a $16 million one-time cash payment in the third quarter
of 2021 related to the $1.3 billion of senior unsecured notes
issued in 2021 (“2021 Notes”).
Total royalty receipts were $704 million in the
third quarter of 2022, a decrease of 1% compared to $712 million in
the same period of 2021. The quarter saw strong growth from the
cystic fibrosis franchise, Xtandi and Tremfya, as well as the
addition of the Trelegy royalty. These growth drivers were offset
by the end of the royalty term for Januvia and Janumet as well as
declines from Imbruvica and Soliqua, the latter of which benefited
from a one-time milestone payment of $45 million in the prior year
period. Additionally, unfavorable foreign exchange impacted royalty
receipts in the third quarter of 2022.
Drivers of royalty receipts in the third quarter of 2022 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). The section below excludes comments from marketers around
foreign exchange, which was a headwind across the company’s
portfolio.
- Cystic
fibrosis franchise: Royalty receipts from Vertex’s cystic
fibrosis franchise, which includes Kalydeco, Orkambi,
Symdeko/Symkevi and Trikafta/Kaftrio, all approved for patients
with certain mutations causing cystic fibrosis, were $208 million
in the third quarter of 2022, an increase of 14% compared to the
same period of 2021. The increase was primarily driven by the
continued strong uptake of Kaftrio in countries outside the United
States and the performance of Trikafta in the United States,
including its uptake in children ages 6 through 11 years old.
-
Tysabri: Royalty receipts from Tysabri, which is
marketed by Biogen for the treatment of multiple sclerosis, were
$91 million in the third quarter of 2022, a decrease of 5% compared
to the same period of 2021. The decrease was primarily attributable
to modest U.S. volume declines offset by patient growth outside the
United States.
-
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 $74
million in the third quarter of 2022, a decrease of 15% compared to
the same period of 2021. The decrease was largely due to
slower-than-anticipated recovery of the chronic lymphocytic
leukemia market from COVID-19 and increased competition from newer
therapies in the United States.
-
Promacta: Royalty receipts from Promacta, which is
marketed by Novartis for the treatment of chronic immune
thrombocytopenia purpura (ITP) and aplastic anemia, were $50
million in the third quarter of 2022, an increase of 4% compared to
the same period of 2021, primarily resulting from increased use in
ITP and further uptake as a first-line treatment for severe
aplastic anemia in the United States.
-
Xtandi: Royalty receipts from Xtandi, which is
marketed by Pfizer and Astellas for the treatment of prostate
cancer, were $46 million in the third quarter of 2022, an increase
of 14% compared to the same period of 2021, primarily driven by
demand across various prostate cancer indications.
-
Trelegy: Royalty receipts from Trelegy, which is
marketed by GSK for the maintenance treatment of chronic
obstructive pulmonary disease (COPD) and asthma, were $43 million
in the third quarter of 2022, primarily attributable to strong
patient demand and growth of the single inhaler triple therapy
market. Royalty Pharma acquired a royalty interest in Trelegy in
July 2022.
-
Tremfya: Royalty receipts from Tremfya, which is
marketed by Johnson & Johnson for the treatment of plaque
psoriasis and active psoriatic arthritis, were $21 million in the
third quarter of 2022, an increase of 29% compared to the same
period of 2021, largely driven by market growth and continued share
gains.
- Nurtec
ODT/Biohaven payment: Royalty receipts from Nurtec ODT,
which is marketed by Pfizer for the acute and preventative
treatment of migraine, were $20 million in the third quarter of
2022, an increase of 14% compared to the same period of 2021. This
was comprised of $16 million related to the fixed payment from the
Series A Preferred Shares and $5 million from Nurtec ODT royalties.
Royalty receipts in the third quarter increased 108% due to strong
volume growth of Nurtec ODT compared to the same period of 2021.
Following Pfizer’s redemption of the Series A and B Preferred
Shares in October, Royalty Pharma will only receive royalties from
underlying product sales beginning in 2023 in addition to potential
future milestone payments related to zavegepant.
-
Cabometyx/Cometriq: Royalty receipts from
Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda
for the treatment of various forms of cancer, were $15 million in
the third quarter of 2022, an increase of 21% compared to the same
period of 2021. The increase was primarily due to the uptake of
Cabometyx in combination with Opdivo as a first-line treatment for
patients with advanced renal cell carcinoma.
- 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 $1 million in the third quarter
of 2022, a decrease of 97% compared to the same period of 2021.
Royalty receipts from Januvia, Janumet and other DPP-IVs
substantially ended in the second quarter of 2022.
- Additional
highlights:
-
Evrysdi: Royalty receipts from Evrysdi, which is
marketed by Roche for the treatment of spinal muscular atrophy in
adults and children two months of age and older, were $10 million
in the third quarter of 2022, an increase of 63% compared to the
same period of 2021, demonstrating strong growth across all
regions.
-
Trodelvy: Royalty receipts from Trodelvy, which is
marketed by Gilead for the treatment of metastatic triple-negative
breast cancer and metastatic urothelial cancer, were $6 million in
the third quarter of 2022, an increase of 158% compared to the same
period of 2021, primarily driven by demand in second-line
metastatic triple-negative breast cancer in the United States and
Europe and metastatic urothelial cancer in the United States.
-
Orladeyo: Royalty receipts from Orladeyo, which is
marketed by BioCryst for the treatment of hereditary angioedema,
were $6 million in the third quarter of 2022, an increase of 150%
compared to the same period of 2021, largely driven by strong
patient demand, including uptake from patients switching from other
prophylactic therapies and acute-only therapy. Royalty Pharma
acquired a royalty interest in Orladeyo in December 2020 and an
additional royalty interest in November 2021.
Distributions to non-controlling interests,
which reduce royalty receipts to arrive at Adjusted Cash
Receipts(1), were $107 million in the third quarter of 2022, a
decrease of 15% compared to the same period of 2021. As a
percentage of total royalty receipts, distributions to
non-controlling interests decreased to 15% in the third quarter of
2022, compared to 18% in the prior year period. The decrease was
largely due to reduced royalties from maturing or expired products,
such as Januvia, Janumet and other DPP-IVs, where the percentage of
royalties attributed to non-controlling interests is higher, as
well as the addition of new royalties, such as Trelegy, which have
no distributions to non-controlling interests.
Adjusted Cash
Receipts(1)
(non-GAAP) were $597 million in the third quarter
of 2022, an increase of 2% compared to the same period of 2021,
reflecting the addition of new royalties, higher royalty receipts
from existing products, and a decrease in distributions to
non-controlling interests. The increase was partially offset by a
decline in royalty receipts from expired products, lower Imbruvica
royalties, a one-time Soliqua milestone payment of $37 million in
the third quarter of 2021, and unfavorable foreign exchange
rates.
Adjusted
EBITDA(4)
(non-GAAP) is comprised of Adjusted Cash
Receipts(1) less payments for operating and professional costs.
Adjusted EBITDA was $548 million in the third quarter of 2022, an
increase of 3% compared to Adjusted EBITDA of $533 million in the
third quarter of 2021, and was largely attributable to growth in
Adjusted Cash Receipts(1). Additionally, payments for operating and
professional costs of $49 million (representing 8% of Adjusted Cash
Receipts(1)) in the third quarter of 2022 decreased by 9% compared
to $54 million reported in the same period of 2021 (representing 9%
of Adjusted Cash Receipts(1)).
Adjusted Cash
Flow(2)
(non-GAAP) is comprised of Adjusted EBITDA(4) less
Development-stage funding payments - ongoing, Development-stage
funding payments - upfront and milestone, net interest paid and
miscellaneous other items. In the third quarter of 2022, Adjusted
Cash Flow(2) was $441 million, a 26% increase compared to Adjusted
Cash Flow(2) of $351 million for the same period of 2021, and
included a $25 million upfront development-stage payment related to
ampreloxetine. The increase in Adjusted Cash Flow(2) in the current
period was primarily due to lower upfront and milestone
development-stage funding payments compared to the prior year
period, which included $90 million in upfront development-stage
funding payments as part of the MorphoSys transaction.
Additionally, there was a $16 million one-time cash payment in the
third quarter of 2021 related to the 2021 Notes.
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 press release entitled ‘Use of Non-GAAP
Measures.’
Key Developments Relating to the Portfolio
The key developments related to Royalty Pharma’s royalty
interests are discussed below based on disclosures from the
marketers of the products.
-
Tulmimetostat: In October 2022, MorphoSys
announced preliminary Phase 1/2 results of tulmimetostat
(CPI-0209), an oral, investigational next-generation selective dual
inhibitor of EZH2 and EZH1, in heavily pretreated patients with
advanced cancers. Results showed responses or disease stabilization
in five cohorts with evaluable patients. The safety profile of
tulmimetostat was consistent with the mechanism of action of EZH2
inhibition.
-
Otilimab: In October 2022, GSK announced that the
limited efficacy demonstrated in the ContRAst Phase 3 program does
not support a suitable benefit/risk profile for otilimab as a
potential treatment for rheumatoid arthritis. As a result, GSK has
decided not to progress with regulatory submissions. Following this
development, Royalty Pharma wrote off the $160 million carrying
value of the financial royalty asset as of September 30, 2022 in
the fourth quarter of 2022.
-
Oxlumo: In October 2022, Alnylam announced that
the U.S. Food and Drug Administration (FDA) approved a label
expansion for Oxlumo, now indicated for the treatment of primary
hyperoxaluria type 1 to lower urinary oxalate and plasma oxalate
levels in pediatric and adult patients. The approval was based on
the positive efficacy and safety results of the ILLUMINATE-C Phase
3 study of Oxlumo in patients with severe renal impairment,
including those on hemodialysis.
-
Xtandi: In October 2022, Pfizer announced positive
topline results from the Phase 3 TALAPRO-2 study of Talzenna, an
oral poly ADP-ribose polymerase inhibitor, in combination with
Xtandi compared to placebo plus Xtandi in men with metastatic
castration-resistant prostate cancer. The study met its primary
endpoint with a statistically significant and clinically meaningful
improvement in radiographic progression-free survival. The safety
of Talzenna plus Xtandi were generally consistent with the known
safety profile of each medicine. Pfizer intends to share these data
with global regulatory authorities to potentially support a
regulatory filing.
- Nurtec
ODT: In October 2022, Pfizer completed its acquisition of
Biohaven. Pfizer acquired all outstanding shares of Biohaven not
already owned by Pfizer for $148.50 per share in cash for a total
of approximately $11.6 billion. Pfizer also made payments at
closing to settle Biohaven’s third party debt and to redeem
Biohaven’s outstanding redeemable Preferred Shares.
-
Trodelvy: In September 2022, Gilead announced
positive overall survival results from the Phase 3 TROPiCS-02 study
evaluating Trodelvy versus comparator physicians’ choice of
chemotherapy in patients with HR+/HER2- metastatic breast cancer
who received endocrine-based therapies and at least two
chemotherapies. In the study, Trodelvy demonstrated a statistically
significant and clinically meaningful improvement in overall
survival compared to chemotherapy. The TROPiCS-02 study met its
primary endpoint of progression-free survival earlier this year and
demonstrated improved median progression-free survival in both
HER2-low and IHC0 groups. The FDA has accepted for priority review
the supplemental Biologics License Application based on the data
and assigned a Prescription Drug User Fee Act target action date
for February 2023.
-
Cabometyx: In September 2022, Exelixis announced
detailed results from COSMIC-313, an ongoing Phase 3 trial
evaluating Cabometyx, nivolumab and ipilimumab versus the
combination of nivolumab and ipilimumab in patients with previously
untreated advanced intermediate- or poor-risk renal cell carcinoma,
which met its primary endpoint, demonstrating significant
improvement in progression-free survival at the primary analysis.
At a prespecified interim analysis for the secondary endpoint of
overall survival, the combination of Cabometyx, nivolumab and
ipilimumab did not demonstrate a significant benefit. Following
discussions with FDA, Exelixis does not intend to submit a
supplemental new drug application based on currently available data
but will plan to discuss a potential regulatory submission with FDA
when results of the next overall survival analysis are
available.
-
Imbruvica: In August 2022, AbbVie and Johnson
& Johnson announced that the FDA approved Imbruvica for the
treatment of pediatric patients one year and older with chronic
graft-versus-host disease.In August 2022, Johnson & Johnson
announced that the European Commission granted marketing
authorization for the expanded use of Imbruvica in an all-oral,
fixed-duration treatment combination with venetoclax for adults
with previously untreated chronic lymphocytic leukemia. The
approval was based on the pivotal Phase 3 GLOW study and the
fixed-duration treatment cohort of the Phase 2 CAPTIVATE
study.
-
Tazverik: In August 2022, Ipsen completed its
acquisition of Epizyme. Ipsen acquired all the outstanding shares
of Epizyme at a price of $1.45 per share plus a contingent value
right of $1 per share.
-
BCX9930: In August 2022, BioCryst announced that
the FDA lifted its partial clinical hold on the BCX9930 program.
BioCryst will resume enrollment in global clinical trials under
revised protocols at a reduced dose of 400 mg twice daily of
BCX9930. This includes the REDEEM-1 and REDEEM-2 pivotal trials in
patients with paroxysmal nocturnal hemoglobinuria and the RENEW
proof-of-concept trial in patients with C3 glomerulopathy,
immunoglobulin A nephropathy and primary membranous nephropathy.
Additionally, screening has begun for new patients to participate
in the trials and the company expects to have data from
approximately 15 newly-enrolled patients by the middle of 2023 to
inform its decision to either fully invest in the pivotal program,
or to discontinue the BCX9930 program.
Summary of Recent Royalty Acquisition
Activity
Royalty Pharma has announced new transactions of up to $3.0
billion year-to-date, including $1.7 billion in upfront payments.
Royalty Pharma recently announced the following transactions:
-
MK-8189: In October 2022, Royalty Pharma announced
an R&D funding collaboration with Merck on MK-8189, a potential
treatment for schizophrenia. This transaction utilizes a novel
structure involving a modest $50 million upfront payment to support
Phase 2b development. This will be followed by a decision to
potentially scale the investment to co-fund the phase 3 studies in
the amount of an additional $375 million. Royalty Pharma will be
eligible for milestone payments associated with certain regulatory
approvals for MK-8189 as well as royalties on annual worldwide
sales of any approved product. Royalty Pharma believes the
risk-sharing structure of this collaboration with Merck may serve
as a model for future transactions with large biopharma
companies.
-
Trelegy: In July 2022, Royalty Pharma acquired a
royalty interest in Trelegy from Theravance Biopharma and Innoviva
for $1.31 billion in net cash upfront and up to $300 million in
additional payments contingent on the achievement of certain sales
milestones. Trelegy, marketed by GSK, is the leading triple
combination therapy for the maintenance treatment of COPD and
asthma.
Liquidity and Capital Resources
- As of September 30,
2022, Royalty Pharma had cash, cash equivalents and marketable
securities in the amount of $1.1 billion and total debt with
principal value of $7.3 billion.
- In October 2022,
Pfizer closed its $11.6 billion acquisition of Biohaven at $148.50
per share in cash. This resulted in the redemption of Royalty
Pharma’s Series A and Series B Biohaven Preferred Shares, as well
as a gain on Royalty Pharma’s Biohaven common shares. This
transaction resulted in incremental net cash inflows of $508
million in the fourth quarter of 2022 which comprised of (i) the
use of $86 million to purchase the remaining unissued Series B
Preferred Shares, (ii) $458 million in proceeds from the redemption
of Series A and B Preferred Shares, net of distributions to
non-controlling interests, and (iii) $136 million of proceeds from
common shares of Biohaven, net of distributions to non-controlling
interests.
2022 Financial Outlook
Royalty Pharma has provided its guidance for full-year 2022,
excluding transactions announced after the date of
this release, as follows:
|
Provided November 8, 2022 |
Provided August 4, 2022 |
Adjusted Cash
Receipts(1)
(non-GAAP) |
$2,750 million to $2,800 million(~+29% to 32% year/year
growth) |
$2,275 million to $2,350million(~+7% to 10% year/year growth) |
Payments for operating and professional costs |
8.0% to 8.5% of Adjusted Cash Receipts |
8% to 9% of Adjusted Cash Receipts |
Interest expense |
$170 million |
$170 million |
Development-stage funding payments – upfront and
milestone |
$175 million |
$125 million |
Royalty Pharma’s 2022 guidance includes an incremental $458
million related to Pfizer’s redemption of the Series A and Series B
Biohaven Preferred Shares due to its acquisition of Biohaven ($480
million contribution to royalty receipts less $22 million
distribution to non-controlling interest).
The above guidance reflects an estimated foreign exchange impact
of approximately -3% to -4% (-$65 million to -$85 million)(9) for
full-year 2022 year/year Adjusted Cash Receipts(1) growth, assuming
current exchange rates prevail for the balance of 2022.
Royalty Pharma expects to record a $50 million upfront
development-stage funding payment in its GAAP and non-GAAP
financial results in the fourth quarter of 2022 related to the
Merck transaction for MK-8189.
Total interest paid is based on the semi-annual interest payment
schedule of Royalty Pharma’s existing notes. Interest paid is
anticipated to be a de minimis amount in the fourth quarter of
2022. The projection assumes no additional debt financing in 2022.
Through the first nine months of 2022, Royalty Pharma also received
interest of $11 million on its cash, cash equivalents and
marketable securities, which partially offsets interest paid.
Royalty Pharma today provides this guidance based on its most
up-to-date view on its prospects. This guidance assumes no major
unforeseen adverse events and excludes the contributions from
transactions announced subsequent to the date of this press
release. Furthermore, Royalty Pharma may amend its guidance in the
event it engages in new royalty transactions which have a material
near-term financial impact on the company.
Royalty Pharma has not reconciled its non-GAAP 2022 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 equity
method investees 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 Call
Royalty Pharma will host a conference call and simultaneous
webcast to discuss its third quarter 2022 results today at 8:00
a.m., Eastern Time. Please visit the “Investors” page of the
company’s website at
https://www.royaltypharma.com/investors/news-and-events/events to
obtain conference call information and to view the live webcast. A
replay of the conference call and webcast will be archived on the
company’s website for at least 30 days.
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
non-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 35 commercial products, including Vertex’s
Trikafta, Kalydeco, Orkambi and Symdeko, Biogen’s Tysabri, AbbVie
and Johnson & Johnson’s Imbruvica, Astellas and Pfizer’s
Xtandi, GSK’s Trelegy, Novartis’ Promacta, Pfizer’s Nurtec ODT,
Johnson & Johnson’s Tremfya, Roche’s Evrysdi, Gilead’s
Trodelvy, and 13 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 from operations, the performance of the business and
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 press 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 Investor Relations and
Communications
+1 (212) 883-6772ir@royaltypharma.com
Royalty Pharma plc
Condensed Consolidated Income Statement
(unaudited)
Table 1
|
|
|
Three Months Ended September 30, |
($ in millions) |
2022 |
|
2021 |
|
Income and other revenues: |
|
|
Income from financial royalty assets |
552 |
|
506 |
|
Revenue from intangible royalty assets |
1 |
|
63 |
|
Other royalty income |
21 |
|
17 |
|
Total income and other revenues |
573 |
|
586 |
|
Operating expenses: |
|
|
Provision for changes in expected cash flows from financial royalty
assets |
305 |
|
138 |
|
Research and development funding expense |
26 |
|
91 |
|
Amortization of intangible assets |
— |
|
6 |
|
General and administrative expenses |
51 |
|
49 |
|
Total operating expenses, net |
381 |
|
283 |
|
Operating income |
192 |
|
303 |
|
Other expense/(income): |
|
|
Equity in losses/(earnings) of equity method investees |
3 |
|
(3) |
|
Interest expense |
47 |
|
44 |
|
Other (income)/expense, net |
(78) |
|
40 |
|
Total other expense, net |
28 |
|
81 |
|
Consolidated net income before tax |
220 |
|
222 |
|
Income tax expense |
— |
|
— |
|
Consolidated net income |
220 |
|
222 |
|
Net income attributable to non-controlling interests |
78 |
|
120 |
|
Net income attributable to Royalty Pharma plc |
143 |
|
102 |
|
Amounts may not add due to rounding.
Royalty Pharma plc
Selected Balance Sheet Data
(unaudited)
Table 2
|
|
($ in millions) |
As of September 30, 2022 |
As of December 31, 2021 |
Cash and cash equivalents |
992 |
1,541 |
Marketable securities |
140 |
582 |
Total financial royalty assets, net |
14,963 |
14,333 |
Total assets |
17,673 |
17,516 |
Current portion of long-term debt |
997 |
— |
Long-term debt, net of current portion |
6,115 |
7,096 |
Total liabilities |
7,256 |
7,267 |
Total shareholders’ equity |
10,416 |
10,249 |
Royalty Pharma plc
Condensed Consolidated Statements of Cash
Flows (unaudited)
Table 3
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
($ in millions) |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Cash collections from financial royalty assets |
663 |
|
639 |
|
1,844 |
|
1,733 |
|
Cash collections from intangible royalty assets |
1 |
|
38 |
|
72 |
|
113 |
|
Other royalty cash collections |
19 |
|
13 |
|
52 |
|
27 |
|
Distributions from equity method investees |
6 |
|
6 |
|
33 |
|
28 |
|
Interest received |
7 |
|
1 |
|
11 |
|
3 |
|
Derivative collateral received |
— |
|
23 |
|
— |
|
35 |
|
Derivative collateral posted |
— |
|
(25) |
|
— |
|
(35) |
|
Termination payments on derivative instruments |
— |
|
(16) |
|
— |
|
(16) |
|
Development-stage funding payments - ongoing |
(1) |
|
(1) |
|
(2) |
|
(6) |
|
Development-stage funding payments - upfront and milestone |
(25) |
|
(90) |
|
(125) |
|
(90) |
|
Payments for operating and professional costs |
(49) |
|
(54) |
|
(142) |
|
(135) |
|
Interest paid |
(83) |
|
(65) |
|
(169) |
|
(130) |
|
Net cash provided by operating activities |
539 |
|
470 |
|
1,574 |
|
1,528 |
|
Cash flows from investing activities: |
|
|
|
|
Distributions from equity method investees |
— |
|
— |
|
— |
|
1 |
|
Investments in equity method investees |
(7) |
|
(11) |
|
(10) |
|
(28) |
|
Purchases of equity securities |
— |
|
(100) |
|
(63) |
|
(100) |
|
Proceeds from equity securities |
46 |
|
7 |
|
46 |
|
116 |
|
Purchases of available for sale debt securities |
(315) |
|
(18) |
|
(394) |
|
(53) |
|
Proceeds from available for sale debt securities |
16 |
|
16 |
|
47 |
|
47 |
|
Purchases of marketable securities |
— |
|
(28) |
|
(235) |
|
(756) |
|
Proceeds from sales and maturities of marketable securities |
151 |
|
624 |
|
677 |
|
1,493 |
|
Acquisitions of financial royalty assets |
(1,316) |
|
(1,336) |
|
(1,491) |
|
(2,020) |
|
Acquisitions of other financial assets |
— |
|
— |
|
(21) |
|
— |
|
Milestone payments |
— |
|
— |
|
— |
|
(19) |
|
Net cash used in investing activities |
(1,425) |
|
(845) |
|
(1,444) |
|
(1,319) |
|
Cash flows from financing activities: |
|
|
|
|
Distributions to non-controlling interests |
(107) |
|
(125) |
|
(323) |
|
(364) |
|
Distributions to non-controlling interests- other |
(41) |
|
(33) |
|
(113) |
|
(120) |
|
Dividends to shareholders |
(84) |
|
(73) |
|
(249) |
|
(212) |
|
Contributions from non-controlling interests- R&D |
0 |
|
2 |
|
1 |
|
6 |
|
Contributions from non-controlling interests- other |
2 |
|
3 |
|
5 |
|
12 |
|
Proceeds from issuance of long-term debt, net of discount |
— |
|
1,273 |
|
— |
|
1,273 |
|
Debt issuance costs and other |
— |
|
(12) |
|
— |
|
(12) |
|
Net cash (used in)/provided by financing
activities |
(230) |
|
1,034 |
|
(679) |
|
583 |
|
Net change in cash and cash equivalents |
(1,116) |
|
659 |
|
(549) |
|
792 |
|
Cash and cash equivalents, beginning of period |
2,108 |
|
1,142 |
|
1,541 |
|
1,009 |
|
Cash and cash equivalents, end of period |
992 |
|
1,801 |
|
992 |
|
1,801 |
|
Amounts may not add due to rounding.
Royalty Pharma plc
Non-GAAP Financial Measures
(unaudited)
Table 4
|
Three Months Ended September 30, |
($ in millions) |
2022 |
|
2021 |
|
Change |
Net cash provided by operating activities
(GAAP) |
539 |
|
470 |
|
15% |
|
|
|
|
|
Royalties: |
|
|
|
Cystic fibrosis franchise |
208 |
|
183 |
|
14% |
|
Tysabri |
91 |
|
96 |
|
(5)% |
|
Imbruvica |
74 |
|
88 |
|
(15)% |
|
Promacta |
50 |
|
48 |
|
4% |
|
Xtandi |
46 |
|
40 |
|
14% |
|
Trelegy |
43 |
|
— |
|
n/a |
Tremfya |
21 |
|
17 |
|
29% |
|
Nurtec ODT/Biohaven payment* |
20 |
|
18 |
|
14% |
|
Cabometyx/Cometriq |
15 |
|
12 |
|
21% |
|
Farxiga/Onglyza |
12 |
|
9 |
|
24% |
|
Prevymis |
11 |
|
10 |
|
11% |
|
Evrysdi |
10 |
|
6 |
|
63% |
|
Trodelvy |
6 |
|
3 |
|
158% |
|
Orladeyo |
6 |
|
3 |
|
150% |
|
Erleada |
6 |
|
4 |
|
50% |
|
Crysvita |
5 |
|
5 |
|
15% |
|
Emgality |
5 |
|
5 |
|
3% |
|
Januvia, Janumet, Other DPP-IVs |
1 |
|
38 |
|
(97)% |
|
Oxlumo |
1 |
|
1 |
|
(9)% |
|
Other products (3) |
73 |
|
129 |
|
(43)% |
|
Total royalty receipts |
704 |
|
712 |
|
(1)% |
|
Distributions to non-controlling interests |
(107) |
|
(125) |
|
(15)% |
|
Adjusted Cash Receipts
(non-GAAP)(1) |
597 |
|
587 |
|
2% |
|
Payments for operating and professional costs |
(49) |
|
(54) |
|
(9)% |
|
Adjusted EBITDA
(non-GAAP)(4) |
548 |
|
533 |
|
3% |
|
Development-stage funding payments - ongoing |
(1) |
|
(1) |
|
0% |
|
Development-stage funding payments - upfront and milestone |
(25) |
|
(90) |
|
(72)% |
|
Interest paid, net |
(75) |
|
(65) |
|
17% |
|
Investments in equity method investees |
(7) |
|
(11) |
|
(37)% |
|
Contributions from non-controlling interests- R&D |
0 |
|
2 |
|
(88)% |
|
Other |
— |
|
(18) |
|
(100)% |
|
Adjusted Cash Flow
(non-GAAP)(2) |
441 |
|
351 |
|
26% |
|
Amounts may not add due to rounding.*Quarterly redemption
payments of $16 million commenced in the first quarter of 2021
related to the Series A Biohaven Preferred Shares(5). The remaining
amounts are related to royalty receipts from Nurtec ODT.
Royalty Pharma plc
GAAP to Non-GAAP Reconciliation
(unaudited)
Table 5
|
Three Months Ended September 30, |
($ in millions) |
2022 |
|
2021 |
|
Net cash provided by operating activities
(GAAP) |
539 |
|
470 |
|
Adjustments: |
|
|
Proceeds from available for sale debt securities(5)(6) |
16 |
|
16 |
|
Interest paid, net(6) |
75 |
|
65 |
|
Development-stage funding payments - ongoing(7) |
1 |
|
1 |
|
Development-stage funding payments - upfront and milestone(7) |
25 |
|
90 |
|
Payments for operating and professional costs |
49 |
|
54 |
|
Termination payments on derivative instruments |
— |
|
16 |
|
Distributions to non-controlling interests(6) |
(107) |
|
(125) |
|
Derivative collateral posted, net(6) |
— |
|
2 |
|
Adjusted Cash Receipts
(non-GAAP)(1) |
597 |
|
587 |
|
Net cash provided by operating activities
(GAAP) |
539 |
|
470 |
|
Adjustments: |
|
|
Proceeds from available for sale debt securities(5)(6) |
16 |
|
16 |
|
Interest paid, net(6) |
75 |
|
65 |
|
Development-stage funding payments - ongoing(7) |
1 |
|
1 |
|
Development-stage funding payments - upfront and milestone(7) |
25 |
|
90 |
|
Termination payments on derivative instruments |
— |
|
16 |
|
Distributions to non-controlling interests(6) |
(107) |
|
(125) |
|
Derivative collateral posted, net(6) |
— |
|
2 |
|
Adjusted EBITDA
(non-GAAP)(4) |
548 |
|
533 |
|
Net cash provided by operating activities
(GAAP) |
539 |
|
470 |
|
Adjustments: |
|
|
Proceeds from available for sale debt securities(5)(6) |
16 |
|
16 |
|
Contributions from non-controlling interests- R&D(6) |
0 |
|
2 |
|
Distributions to non-controlling interests(6) |
(107) |
|
(125) |
|
Investments in equity method investees(6)(8) |
(7) |
|
(11) |
|
Adjusted Cash Flow
(non-GAAP)(2) |
441 |
|
351 |
|
Amounts may not add due to rounding.
Notes
(1) |
Adjusted Cash Receipts is a measure calculated with inputs directly
from the statements of cash flows and includes (1) royalty
receipts by product: (i) cash collections from royalty assets
(financial assets and intangible assets), (ii) Other royalty cash
collections, (iii) Distributions from equity method investees,
plus (2) Proceeds from available for sale debt securities, and
less (1) Distributions to non-controlling interests, which
represent contractual distributions of royalty receipts and
proceeds from available for sale debt securities to the Company’s
historical non-controlling interests related to the Legacy
Investors Partnerships and Royalty Pharma Select Finance Trust
(RPSFT). See Royalty Pharma’s Annual Report on Form 10-K filed with
the SEC on February 15, 2022 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) Development-stage funding payments - upfront and
milestone, (3) Interest paid, net of Interest received, (4)
Investments in equity method investees and (5) Other (including
Derivative collateral posted, net of Derivative collateral received
and Termination payments on derivative instruments) plus (1)
Contributions from non-controlling interests- R&D, all directly
reconcilable to the statements of cash flows. See GAAP to Non-GAAP
reconciliation at Table 5. |
(3) |
Other products primarily include
royalty receipts on the following products: Cimzia, Entyvio,
Gavreto, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera,
Myozyme, Nesina, Soliqua, Tazverik and contributions from the
Legacy SLP Interest. |
(4) |
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 reflect Payments for operating and
professional costs from the statements of cash flows. See GAAP to
Non-GAAP reconciliation at Table 5. |
(5) |
Receipts from the quarterly
redemption of Royalty Pharma’s Series A Biohaven Preferred Shares
are presented as Proceeds from available for sale debt securities
on the condensed consolidated statements of cash flows. |
(6) |
The table below shows the line
item for each adjustment and the direct location for such line item
on the statements of cash flows. |
Reconciling Adjustment |
Statements of Cash Flows Classification |
Proceeds from available for sale debt securities |
Investing activities |
Investments in equity method investees |
Investing activities |
Distributions to non-controlling interests |
Financing activities |
Interest paid, net |
Operating activities (Interest paid less Interest received) |
Derivative collateral posted, net |
Operating activities (Derivative collateral received less
Derivative collateral posted) |
Contributions from non-controlling interest- R&D |
Financing activities |
(7) |
Royalty Pharma’s lenders consider all payments made to support
R&D activities for development-stage product candidates similar
to asset acquisitions as these funds are expected to generate
operational returns in the future. All ongoing development-stage
funding payments and upfront and milestone development-stage
funding payments are reported in 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. |
(8) |
Royalty Pharma considers all
payments to fund its operating joint ventures that are performing
R&D activities for development-stage product candidates 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 deducted to arrive at Adjusted Cash
Flow, but are not deducted in Adjusted EBITDA. |
(9) |
Foreign exchange impact
represents an estimate of the difference in results that are
attributable to fluctuations in currency exchange rates based on
certain assumptions of prevailing exchange rates, contractual
terms, geographies from which royalties are derived, timing of
payments and other factors. The marketers paying royalties may not
provide or may not be required to provide the breakdown of product
sales by geography. Actual foreign exchange impact may be different
than estimates. |
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