Royalty Pharma plc (Nasdaq: RPRX) today reported financial results
for the second quarter of 2023 and raised full-year 2023 guidance
for Adjusted Cash Receipts(1) (a non-GAAP financial measure).
“We reported another quarter of strong financial performance as
we continued to execute on our strategy,” said Pablo Legorreta,
Royalty Pharma’s founder and Chief Executive Officer. “We remain
very confident in our outlook based on our growth drivers, broad
portfolio and robust deal pipeline. This year, we have already
announced transactions of up to $1.7 billion, taking our total to
$10 billion since our June 2020 IPO. This underscores our strong
momentum in scaling the business and further cements our leadership
position in the biopharma royalty market. Furthermore, as part of
our balanced capital allocation strategy, we began repurchasing our
Class A ordinary shares under our share repurchase program, which
reflects our attractive prospects for compounding growth.”
Second quarter 2023 GAAP financial results demonstrate
solid operating cash flow growth
- Net cash provided by operating activities grew 6% to $608
million; Net cash used in investing activities was $63 million; Net
cash used in financing activities was $347 million.
- Total income and other revenues were $538 million.
Second quarter 2023 non-GAAP financial results show
continued business momentum
- Adjusted Cash Receipts(1) increased 4% to $545 million, driven
by strong portfolio performance and new royalties, partially offset
by royalty expirations, Imbruvica headwinds and unfavorable foreign
exchange movements; Adjusted Cash Receipts(1) grew 7% prior to the
Biohaven related fixed payment received in the prior year
period.
- Adjusted EBITDA(2) grew 4% to $498 million; Adjusted Cash
Flow(3) increased 6% to $512 million.
Positive business updates during the second quarter
2023
- Johnson & Johnson reported positive Phase 3 results for
Tremfya in ulcerative colitis; Gilead announced approval of
Trodelvy in pre-treated HR+/HER2- metastatic breast cancer in
Europe.
- Purchased incremental royalty on Johnson & Johnson’s
Erleada.
Increasing mid-point of financial guidance range for
2023 (excludes contributions from new transactions)
- Royalty Pharma now anticipates 2023 Adjusted Cash Receipts(1)
(non-GAAP) to be between $2,900 million and $2,975 million
(previously $2,850 million to $2,950 million), excluding future
transactions.
- This guidance represents underlying
growth of 6%(4) to 10%(4) prior to the Zavzpret milestone payment
in 2023 and payments related to the Biohaven Preferred Shares in
2022.
Financial Summary |
Three Months Ended June 30, |
|
(unaudited) |
($ and shares in millions) |
2023 |
2022 |
Change |
Net cash provided by operating activities (GAAP) |
608 |
575 |
6% |
Net cash used in investing activities (GAAP) |
(63) |
(30) |
110% |
Net cash used in financing activities (GAAP) |
(347) |
(228) |
52% |
Total income and other revenues (GAAP) |
538 |
536 |
0% |
Adjusted Cash Receipts(1) (non-GAAP) |
545 |
524 |
4% |
Adjusted EBITDA(2) (non-GAAP) |
498 |
480 |
4% |
Adjusted Cash Flow(3) (non-GAAP) |
512 |
482 |
6% |
Weighted average Class A ordinary shares outstanding - diluted |
606 |
607 |
0% |
Second Quarter 2023 Financial Results
|
|
|
Three Months Ended June 30, |
|
|
|
(unaudited) |
($ in millions) |
|
|
2023 |
2022 |
Change |
Net cash provided by operating activities
(GAAP) |
608 |
575 |
6% |
Royalties: |
Marketers: |
Therapeutic Area: |
|
|
|
Cystic fibrosis franchise |
Vertex |
Rare disease |
206 |
182 |
13% |
Tysabri |
Biogen |
Neurology |
84 |
93 |
(9)% |
Imbruvica |
AbbVie, J&J |
Cancer |
63 |
80 |
(22)% |
Xtandi |
Pfizer, Astellas |
Cancer |
40 |
52 |
(22)% |
Promacta |
Novartis |
Hematology |
39 |
35 |
12% |
Trelegy |
GSK |
Respiratory |
37 |
— |
n/a |
Tremfya |
Johnson & Johnson |
Immunology |
22 |
18 |
21% |
Cabometyx/Cometriq |
Exelixis, Ipsen, Takeda |
Cancer |
15 |
13 |
18% |
Prevymis |
Merck & Co. |
Infectious disease |
14 |
10 |
38% |
Evrysdi |
Roche |
Rare disease |
13 |
8 |
60% |
Spinraza |
Biogen |
Neurology |
13 |
— |
n/a |
Farxiga/Onglyza |
AstraZeneca |
Diabetes |
10 |
11 |
(10)% |
Trodelvy |
Gilead |
Cancer |
9 |
6 |
52% |
Erleada |
Johnson & Johnson |
Cancer |
7 |
5 |
37% |
Orladeyo |
BioCryst |
Rare disease |
7 |
5 |
38% |
Crysvita |
Ultragenyx, Kyowa Kirin |
Rare disease |
5 |
5 |
5% |
Emgality |
Lilly |
Neurology |
4 |
4 |
0% |
Nurtec ODT/Biohaven payment* |
Pfizer |
Neurology |
4 |
19 |
(78)% |
Other products(5) |
45 |
86 |
(48)% |
Total royalty receipts |
637 |
633 |
1% |
Distributions to legacy non-controlling interests - royalty
receipts |
(92) |
(109) |
(15)% |
Adjusted Cash Receipts(1)
(non-GAAP) |
545 |
524 |
4% |
Amounts shown in the table may not add due to rounding.* In
2022, royalty receipts include the $16 million quarterly redemption
payment related to the Series A Biohaven Preferred Shares(6)
(presented as Proceeds from available for sale debt securities on
the statement of cash flows). The Series A Biohaven Preferred
Shares were fully redeemed in October 2022 following Pfizer’s
acquisition of Biohaven. The remaining amounts, which relate to
ongoing royalty receipts from Nurtec ODT, increased by 35% in
second-quarter 2023 versus the prior year period.
Net cash provided by operating activities
(GAAP) was $608 million in the second quarter of 2023, an
increase of 6% compared to $575 million in the same period of 2022.
The increase was largely attributable to the performance of the
cystic fibrosis franchise and the additions of Trelegy and Spinraza
royalties. The increase was partially offset by lower cash
collections from Januvia, Janumet and other DPP-IVs, which
substantially ended in the second quarter of 2022, and declines in
Imbruvica and Xtandi royalties, the latter of which faced a high
base of comparison due to a true-up of royalties received in the
prior year period.
Total royalty receipts were $637 million in the
second quarter of 2023, an increase of 1% compared to $633 million
in the same period of 2022. The drivers of the increase in total
royalty receipts are the same as noted above for Net cash provided
by operating activities.
Drivers of total royalty receipts in the second quarter of 2023
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 on the
impact of foreign exchange rates, which was generally a modest
headwind across the portfolio. Refer to Table 6 for a description
of approved indications.
Cystic fibrosis franchise* |
($206 million, +13%) Driven by the strong uptake of Kaftrio outside
the United States, including its uptake in children ages 6 through
11, and the continued performance of Trikafta in the U.S. |
Tysabri |
($84 million, -9%) Decrease largely driven by pricing pressure,
competition and channel dynamics. |
Imbruvica |
($63 million, -22%) Performance was impacted by increased
competition and the cumulative impact of a suppressed chronic
lymphocytic leukemia market. |
Xtandi |
($40 million, -22%) Decrease driven by a high base of comparison
from a true-up of royalties received in the second quarter of 2022,
which negatively impacted year-over-year growth by 29%. Xtandi
continued to maintain strong sales performance in markets outside
the U.S. |
Promacta |
($39 million, +12%) Driven by increased use in chronic immune
thrombocytopenia purpura and as a first- and/or second-line
treatment for severe aplastic anemia. |
Trelegy |
($37 million, n/a) Benefited from increased patient demand globally
and growth of the single inhaler triple therapy market. Royalty
Pharma acquired a royalty interest in Trelegy in July 2022 and
began receiving royalty receipts in the third quarter of 2022. |
Tremfya |
($22 million, +21%) Driven by market growth and market share gains
in psoriasis and psoriatic arthritis, partially offset by
unfavorable patient mix. |
Cabometyx / Cometriq |
($15 million, +18%) Increase primarily due to uptake in combination
with Opdivo as a first-line treatment for patients with advanced
renal cell carcinoma. |
Evrysdi |
($13 million, +60%) Experienced strong growth globally, driven by
switch and treatment naive patient starts in the U.S. and share
gains in all major markets outside the U.S. |
Spinraza |
($13 million, n/a) Increase primarily driven by growth outside the
U.S., offset by fewer new patient starts and channel dynamics in
the U.S. Royalty Pharma acquired the Spinraza royalty in the first
quarter of 2023. |
Trodelvy |
($9 million, +52%) Driven by increased adoption in metastatic
triple-negative breast cancerin the U.S. and Europe, as well as the
launch of the indication for pretreated HR+/HER2- metastatic breast
cancer in the U.S. |
Orladeyo |
($7 million, +38%) Driven by strong new patient growth in the U.S.
and an acceleration in the launch of Orladeyo outside the U.S. |
Nurtec ODT/Biohaven payment |
($4 million, -78%) Impacted by prior year comparisons as Royalty
Pharma no longer receives Series A Preferred Shares redemption
payments following Pfizer’s acquisition of Biohaven in the fourth
quarter 2022. Underlying Nurtec ODT royalties increased $1 million,
or 35%, compared to the prior year period, driven by strong growth
in demand. |
Percentages shown represent year-over-year changes.*Includes
Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.
Distributions to legacy non-controlling interests -
royalty receipts, which reduce royalty receipts to arrive
at Adjusted Cash Receipts(1), were $92 million in the second
quarter of 2023, a decrease of 15% compared to the same period of
2022. 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 a percentage of total
royalty receipts, distributions to legacy non-controlling interests
- royalty receipts decreased to 15% in the second quarter of 2023,
compared to 17% in the prior year period. In addition to reduced
royalties from maturing or expired products, the decrease as a
percentage of total royalty receipts was also driven by the
additions of Trelegy and Spinraza, which have no distributions to
legacy non-controlling interests.
Adjusted Cash
Receipts(1)
(non-GAAP) were $545 million in the second quarter
of 2023, an increase of 4% compared to $524 million for the same
period of 2022, reflecting higher royalty receipts from existing
products, including the cystic fibrosis franchise, the additions of
Trelegy and Spinraza and a decrease in distributions to legacy
non-controlling interests. This increase was partially offset by a
decline in royalty receipts from maturing royalties, lower
royalties on Imbruvica and Xtandi, the end of redemption payment
related to the Biohaven Series A Preferred Shares, as well as from
unfavorable foreign exchange movements. Prior to the Biohaven
related redemption payment in the second quarter of 2022, Adjusted
Cash Receipts(1) growth was 7% in the second quarter of 2023
compared to the prior year period.
Adjusted
EBITDA(2)
(non-GAAP) is comprised of Adjusted Cash
Receipts(1) less payments for operating and professional costs.
Adjusted EBITDA(2) was $498 million in the second quarter of 2023,
an increase of 4% compared to Adjusted EBITDA(2) of $480 million in
the second quarter of 2022, and was largely attributable to growth
in Adjusted Cash Receipts(1). Additionally, payments for operating
and professional costs of $47 million (representing 9% of Adjusted
Cash Receipts(1)) in the second quarter of 2023 increased by 7%
compared to the $44 million reported in the same period of 2022
(representing 8% of Adjusted Cash Receipts(1)). Prior to the
Biohaven related redemption payment in the second quarter of 2022,
Adjusted EBITDA(2) growth was 6% in the second quarter of 2023
compared to the year ago period.
Adjusted Cash
Flow(3)
(non-GAAP) is comprised of Adjusted EBITDA(2) less
Development-stage funding payments - ongoing, Development-stage
funding payments - upfront and milestone, net interest received and
miscellaneous other items. In the second quarter of 2023, Adjusted
Cash Flow(3) was $512 million, a 6% increase compared to $482
million for the same period of 2022. The increase in Adjusted Cash
Flow(3) was primarily due to growth in Adjusted EBITDA(2) and
higher net interest received. Prior to the Biohaven related
redemption payment in the second quarter of 2022, Adjusted Cash
Flow(3) growth was 9% in the second quarter of 2023 compared to the
prior year 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 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.
Trodelvy |
In July 2023, Gilead announced the European Commission approved
Trodelvy as a monotherapy for the treatment of adult patients with
unresectable or metastatic hormone receptor (HR)-positive,
HER2-negative breast cancer. |
Cystic fibrosis franchise |
In
July 2023, Vertex announced the European Commission approved the
label extension of Orkambi for the treatment of children with
cystic fibrosis ages 1 to less than 2 years old.In May 2023, Vertex
announced the U.S. Food and Drug Administration (“FDA”) approved
Kalydeco for use in children with cystic fibrosis ages 1 month to
less than 4 months old.In April 2023, Vertex announced the FDA
approved the expanded use of Trikafta to include children with
cystic fibrosis ages 2 through 5 years. |
Xtandi |
In
June 2023, Pfizer announced the FDA approved Talzenna in
combination with Xtandi for the treatment of adult patients with
homologous recombination repair gene-mutated metastatic
castration-resistant prostate cancer.In April 2023, Pfizer and
Astellas announced that Xtandi plus leuprolide significantly
reduced the risk of metastasis or death by 58% versus placebo plus
leuprolide, as assessed by the primary endpoint of metastasis-free
survival in men with non-metastatic hormone-sensitive prostate
cancer. A positive trend in the key secondary endpoint of overall
survival was also observed in the Xtandi combination arm at the
time of the analysis, but these data were not yet mature. Patients
in the trial will be followed for a subsequent final overall
survival analysis. |
Tremfya |
In
May 2023, Johnson & Johnson announced positive results from the
Phase 3 QUASAR Induction Study evaluating the investigational use
of Tremfya in adults with moderately to severely active ulcerative
colitis who had an inadequate response or intolerance to
conventional and/or advanced therapies. The data showed
statistically significant and clinically meaningful improvements
across symptomatic and histo-endoscopic outcome measures, as well
as a greater proportion of patients treated with Tremfya compared
to placebo achieved clinical remission at week 12, the study’s
primary endpoint. |
Summary of Recent Royalty Acquisition
Activity
Royalty Pharma has announced new transactions of up to $1.7
billion year-to-date, including $659 million in upfront payments.
Recent transactions include:
- In June 2023, Royalty Pharma
acquired an incremental royalty interest in Erleada from the
Regents of the University of California.
Liquidity and Capital Resources
- As of June 30, 2023, Royalty Pharma
had cash and cash equivalents of $2.2 billion and total debt with
principal value of $7.3 billion.
- During the second quarter of 2023,
Royalty Pharma began repurchasing its Class A ordinary shares and
repurchased approximately four million shares for $134 million.
Through August 7, 2023, Royalty Pharma has repurchased
approximately six million shares for $185 million. The
weighted-average diluted Class A ordinary shares outstanding for
the second quarter of 2023 was 606 million as compared to 607
million for the first quarter of 2023.
2023 Financial Outlook
Royalty Pharma has provided its guidance for full year 2023,
excluding transactions announced after the date of
this release, as follows:
|
Provided August 8, 2023 |
Previous |
Adjusted Cash
Receipts(1)
(non-GAAP) |
$2,900 million to $2,975 million |
$2,850 million to $2,950 million |
Payments for operating and professional costs |
8.0% to 8.5% of Adjusted Cash Receipts(1) |
8% to 9% of Adjusted Cash Receipts(1) |
Interest paid |
$170 million |
$170 million |
Development-stage funding payments - upfront and
milestone |
$50 million |
$50 million |
This Adjusted Cash Receipts(1) guidance represents underlying
growth of 6%(4) to 10%(4) prior to the Zavzpret milestone payment
in the first quarter of 2023 and the payments related to the
Biohaven Preferred Shares received in 2022.
Additionally, this guidance reflects an estimated foreign
exchange impact of approximately -1%(10) to -2%(10) for full year
2023 Adjusted Cash Receipts(1) growth, assuming current foreign
exchange rates prevail for 2023.
Total interest paid is based on the semi-annual interest payment
schedule of Royalty Pharma’s existing notes and is anticipated to
be approximately $170 million in 2023. Interest paid is anticipated
to be approximately $85 million in the third quarter of 2023 with a
de minimis amount recorded in the fourth quarter. The projection
assumes no incremental debt financing in 2023. Through the first
six months of 2023, Royalty Pharma also received interest of $35
million on its cash and cash equivalents, which partially offset
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 2023 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 second quarter 2023 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 and
Spinraza, 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 11 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, 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 amended
and restated credit agreement that Royalty Pharma’s subsidiary
entered to provide for a five-year unsecured revolving credit
facility with borrowing capacity of up to $1.5 billion (“Credit
Agreement”). The definition of Adjusted EBITDA used by Royalty
Pharma is the same as the definition of consolidated EBITDA in the
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 believes Adjusted Cash Flow provides meaningful
information about Royalty Pharma’s operating performance because
one of its core business strategies is to generate consistent cash
flows that can be redeployed into new royalty investments. Tracking
Adjusted Cash Flow over time helps to identify underlying trends in
the business and permits management and investors to better
understand Royalty Pharma’s performance. Management uses Adjusted
Cash Flow for decision-making purposes related to the funding of
investments in royalty-generating assets, debt repayments,
dividends and other discretionary investments. Management also uses
Adjusted Cash Flow to compare its performance against non-GAAP
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 4.
Royalty Pharma Investor Relations and
Communications
+1 (212) 883-6772ir@royaltypharma.com
Royalty Pharma plc |
Condensed Consolidated Statements of Operations
(unaudited) |
Table 1 |
|
|
Three Months Ended June 30, |
($ in millions) |
2023 |
2022 |
Income and other revenues |
|
|
Income from financial royalty assets |
501 |
515 |
Revenue from intangible royalty assets |
0 |
3 |
Other royalty income |
37 |
18 |
Total income and other revenues |
538 |
536 |
Operating expenses |
|
|
Provision for changes in expected cash flows from financial royalty
assets |
241 |
106 |
Research and development funding expense |
1 |
1 |
General and administrative expenses |
48 |
52 |
Total operating expenses, net |
289 |
158 |
Operating income |
249 |
378 |
Other expense/(income) |
|
|
Equity in losses/(earnings) of equity method investees |
1 |
(1) |
Interest expense |
47 |
47 |
Other income, net |
(150) |
(160) |
Total other income, net |
(102) |
(114) |
Consolidated net income before tax |
351 |
492 |
Income tax expense |
— |
— |
Consolidated net income |
351 |
492 |
Net income attributable to non-controlling interests |
124 |
187 |
Net income attributable to Royalty Pharma plc |
228 |
305 |
Amounts may not add due to rounding.
Royalty Pharma plc |
Selected Balance Sheet Data (unaudited) |
Table 2 |
|
($ in millions) |
As of June 30, 2023 |
As of December 31, 2022 |
Cash and cash equivalents |
2,173 |
1,711 |
Marketable securities |
— |
24 |
Total current and non-current financial royalty assets, net |
13,998 |
14,184 |
Total assets |
17,121 |
16,813 |
Current portion of long-term debt |
999 |
998 |
Long-term debt, net of current portion |
6,127 |
6,119 |
Total liabilities |
7,308 |
7,288 |
Total shareholders’ equity |
9,814 |
9,525 |
Royalty Pharma plc |
Condensed Consolidated Statements of Cash Flows
(unaudited) |
Table 3 |
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
($ in millions) |
2023 |
2022 |
2023 |
2022 |
Cash flows from operating activities: |
|
|
|
|
Cash collections from financial royalty assets |
595 |
560 |
1,746 |
1,181 |
Cash collections from intangible royalty assets |
0 |
36 |
1 |
71 |
Other royalty cash collections |
40 |
15 |
60 |
33 |
Distributions from equity method investees |
2 |
7 |
19 |
28 |
Interest received |
19 |
3 |
35 |
3 |
Development-stage funding payments - ongoing |
(1) |
(1) |
(1) |
(1) |
Development-stage funding payments - upfront and milestone |
— |
— |
— |
(100) |
Payments for operating and professional costs |
(47) |
(44) |
(134) |
(93) |
Interest paid |
(1) |
(1) |
(83) |
(87) |
Net cash provided by operating activities |
608 |
575 |
1,642 |
1,035 |
Cash flows from investing activities: |
|
|
|
|
Distributions from equity method investees |
— |
— |
35 |
— |
Investments in equity method investees |
(3) |
— |
(7) |
(3) |
Purchases of equity securities |
— |
(29) |
— |
(63) |
Purchases of available for sale debt securities |
— |
(15) |
— |
(79) |
Proceeds from available for sale debt securities |
— |
16 |
— |
31 |
Purchases of marketable securities |
— |
(58) |
— |
(235) |
Proceeds from sales and maturities of marketable securities |
— |
251 |
24 |
526 |
Acquisitions of financial royalty assets |
(60) |
(175) |
(662) |
(175) |
Acquisitions of other financial assets |
— |
(21) |
— |
(21) |
Milestone payments |
— |
— |
(12) |
— |
Net cash used in investing activities |
(63) |
(30) |
(622) |
(19) |
Cash flows from financing activities: |
|
|
|
|
Distributions to legacy non-controlling interests - royalty
receipts |
(92) |
(109) |
(184) |
(216) |
Distributions to continuing non-controlling interests |
(31) |
(38) |
(64) |
(72) |
Dividends to shareholders |
(91) |
(83) |
(179) |
(165) |
Repurchases of Class A ordinary shares |
(134) |
— |
(134) |
— |
Contributions from legacy non-controlling interests - R&D |
0 |
0 |
0 |
1 |
Contributions from non-controlling interests - other |
1 |
2 |
4 |
3 |
Net cash used in financing activities |
(347) |
(228) |
(557) |
(449) |
Net change in cash and cash equivalents |
197 |
317 |
462 |
567 |
Cash and cash equivalents, beginning of period |
1,976 |
1,792 |
1,711 |
1,541 |
Cash and cash equivalents, end of period |
2,173 |
2,108 |
2,173 |
2,108 |
Amounts may not add due to rounding.
Royalty Pharma plc |
GAAP to Non-GAAP Reconciliation (unaudited) |
Table 4 |
|
|
Three Months Ended June 30, |
($ in millions) |
2023 |
2022 |
Net cash provided by operating activities
(GAAP) |
608 |
575 |
Adjustments: |
|
|
Proceeds from available for sale debt securities(6)(7) |
— |
16 |
Interest received, net(7) |
(18) |
(2) |
Development-stage funding payments - ongoing(8) |
1 |
1 |
Payments for operating and professional costs |
47 |
44 |
Distributions to legacy non-controlling interests - royalty
receipts(7) |
(92) |
(109) |
Adjusted Cash
Receipts(1)
(non-GAAP) |
545 |
524 |
Net cash provided by operating activities
(GAAP) |
608 |
575 |
Adjustments: |
|
|
Proceeds from available for sale debt securities(6)(7) |
— |
16 |
Interest received, net(7) |
(18) |
(2) |
Development-stage funding payments - ongoing(8) |
1 |
1 |
Distributions to legacy non-controlling interests - royalty
receipts(7) |
(92) |
(109) |
Adjusted
EBITDA(2)
(non-GAAP) |
498 |
480 |
Net cash provided by operating activities
(GAAP) |
608 |
575 |
Adjustments: |
|
|
Proceeds from available for sale debt securities(6)(7) |
— |
16 |
Contributions from legacy non-controlling interests -
R&D(7) |
0 |
0 |
Distributions to legacy non-controlling interests - royalty
receipts(7) |
(92) |
(109) |
Investments in equity method investees(7)(9) |
(3) |
— |
Adjusted Cash
Flow(3)
(non-GAAP) |
512 |
482 |
Amounts may not add due to rounding.
Royalty Pharma plc |
Non-GAAP Financial Measures (unaudited) |
Table 5 |
|
|
Three Months Ended June 30, |
($ in millions) |
2023 |
2022 |
Change |
Net cash provided by operating activities
(GAAP) |
608 |
575 |
6% |
Royalties: |
|
|
|
Cystic fibrosis franchise |
206 |
182 |
13% |
Tysabri |
84 |
93 |
(9)% |
Imbruvica |
63 |
80 |
(22)% |
Xtandi |
40 |
52 |
(22)% |
Promacta |
39 |
35 |
12% |
Trelegy |
37 |
— |
n/a |
Tremfya |
22 |
18 |
21% |
Cabometyx/Cometriq |
15 |
13 |
18% |
Prevymis |
14 |
10 |
38% |
Evrysdi |
13 |
8 |
60% |
Spinraza |
13 |
— |
n/a |
Farxiga/Onglyza |
10 |
11 |
(10)% |
Trodelvy |
9 |
6 |
52% |
Erleada |
7 |
5 |
37% |
Orladeyo |
7 |
5 |
38% |
Crysvita |
5 |
5 |
5% |
Emgality |
4 |
4 |
0% |
Nurtec ODT/Biohaven payment* |
4 |
19 |
(78)% |
Other products(5) |
45 |
86 |
(48)% |
Total royalty receipts |
637 |
633 |
1% |
Distributions to legacy non-controlling interests - royalty
receipts |
(92) |
(109) |
(15)% |
Adjusted Cash
Receipts(1)
(non-GAAP) |
545 |
524 |
4% |
Payments for operating and professional costs |
(47) |
(44) |
7% |
Adjusted
EBITDA(2)
(non-GAAP) |
498 |
480 |
4% |
Development-stage funding payments - ongoing |
(1) |
(1) |
(17)% |
Interest received, net |
18 |
2 |
nm |
Investments in equity method investees |
(3) |
— |
n/a |
Contributions from legacy non-controlling interests - R&D |
0 |
0 |
(18)% |
Adjusted Cash
Flow(3)
(non-GAAP) |
512 |
482 |
6% |
Amounts may not add due to rounding.*In 2022, royalty receipts
includes the $16 million quarterly redemption payment related to
the Series A Biohaven Preferred Shares(6) (presented as Proceeds
from available for sale debt securities on the statement of cash
flows). The Series A Biohaven Preferred Shares were fully redeemed
in October 2022 following Pfizer’s acquisition of Biohaven. The
remaining amounts, which relate to ongoing royalty receipts from
Nurtec ODT, increased by 35% in second-quarter 2023 versus the
prior year period.
Royalty Pharma plc |
Description of Approved Indications for Select Portfolio
Therapies |
Table 6 |
|
Cystic fibrosis franchise |
Cystic fibrosis |
Tysabri |
Relapsing forms of multiple sclerosis |
Imbruvica |
Hematological malignancies and chronic graft versus host
disease |
Xtandi |
Prostate cancer |
Promacta |
Chronic immune thrombocytopenia purpura and aplastic anemia |
Trelegy |
Chronic obstructive pulmonary disease and asthma |
Tremfya |
Plaque psoriasis and active psoriatic arthritis |
Cabometyx / Cometriq |
Kidney, liver and thyroid cancer |
Evrysdi |
Spinal muscular atrophy |
Spinraza |
Spinal muscular atrophy |
Trodelvy |
Breast and bladder cancer |
Orladeyo |
Hereditary angioedema prophylaxis |
Nurtec ODT |
Acute and preventative treatment of migraine |
Notes
(1) Adjusted Cash Receipts is a measure calculated with
inputs directly from the statements of cash flows and includes
total royalty receipts: (i) cash collections from royalty
assets (financial assets and intangible assets), (ii) Other royalty
cash collections, (iii) Distributions from equity method
investees, and (iv) Proceeds from available for sale debt
securities; less Distributions to legacy non-controlling interests
- royalty receipts, which represent contractual distributions of
royalty receipts and proceeds from available for sale debt
securities 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, 2023 for additional
discussion. See GAAP to Non-GAAP reconciliation at Table 4.
(2) Adjusted EBITDA is important to lenders and is defined
under the Credit Agreement as Adjusted Cash Receipts(1) 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 4.
(3) Adjusted Cash Flow is defined as Adjusted EBITDA(2)
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
legacy non-controlling interests - R&D, all directly
reconcilable to the statements of cash flows. See GAAP to Non-GAAP
reconciliation at Table 4.
(4) Underlying growth in 2023 Adjusted Cash Receipts(1) is
calculated based on Royalty Pharma’s 2023 guidance net of the $475
million Zavzpret milestone payment and Adjusted Cash Receipts of
$2,789 million in 2022 net of the $458 million accelerated Biohaven
payment from Pfizer’s acquisition of Biohaven and $52 million
related to contributions from quarterly redemption payments of
Series A Biohaven Preferred Shares in 2022.
(5) Other products primarily include royalty receipts on
the following products: Cimzia, IDHIFA, Januvia, Janumet, Other
DPP-IVs, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Oxlumo,
Soliqua, Tazverik and distributions from the Legacy SLP
Interest.
(6) Receipts from the quarterly redemption of the Series A
Biohaven Preferred Shares in 2022 are presented as Proceeds from
available for sale debt securities on the statements of cash
flows.
(7) 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 legacy non-controlling interests - royalty
receipts |
Financing activities |
Interest received, net |
Operating activities (Interest paid less Interest received) |
Contributions from legacy non-controlling interest - R&D |
Financing activities |
(8) 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(2).
As a result, Adjusted EBITDA(2) captures the full add-back for
development-stage funding payments.
(9) 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(3), but are not
deducted in Adjusted EBITDA(2).
(10) 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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