Royalty Pharma plc - Ordinary Shares - Class A Stock

Ladies and Gentlemen, welcome to the Royalty Pharma third quarter 2026 earnings conference call. I would now like to turn the call over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's third quarter results. You can find the press release with our earnings results and slides to this call on the Investors page of our website at royaltypharma.com.

On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from the statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website.

And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Marshall will provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we'll hold a Q&A session when we will be joined by Chris Hite, Chairman, Partnering and Investments. And with that, I'd like to turn the call over to Paulo.

Thank you, George, and welcome to everyone on the call. It gives me great pleasure to report another strong quarter in 2026 as we execute towards our goal to be the premier capital allocator in Life Sciences with consistent compounding growth. .

Slide 5 summarizes our strong business momentum in the third quarter. Starting with the financials. We delivered 9% growth in portfolio receipts, our top line and also in royalty received, which are our recurring cash flows. On a year-to-date basis, royalty receipts have grown by 12%, reflecting the strength of our diversified portfolio of high-quality royalties. We also maintained attractive returns in our business with return on invested capital of 14.3% and return on invested equity of 20.2%.

By combining strong growth and superior returns, we're confident we have a clear path to drive shareholder value creation. Turning to capital allocation. We have deployed $1.6 billion of capital so far this year with an announced value of $1.9 billion. Most recently, we acquired a royalty on Arcutis’ Zoryve and approved therapy for immune diseases of the skin. We also acquired a royalty on Takeda's Mimrylo, a potential blockbuster therapy for rare blood disorders, polycythemia vera. As we look ahead, our deal pipeline remains robust, supported by continued powerful fundamental tailwinds. Under our value-driven capital allocation framework, we also returned close to $590 million to shareholders in dividends and share repurchases in the first 9 months of the year.

Moving to our portfolio. We're excited to see a number of positive clinical and regulatory updates, which we expect to support our growth over the medium to long term. Our partner Revolution Medicines received FDA approval and a positive regulatory opinion in Europe for Rasonque in pancreatic cancer. Teva also received FDA approval for schizophrenia therapy Weltruza. What we were, of course, disappointed by the Phase III results for Novartis' pelacarsen. The overwhelming weight of news across our portfolio was positive with successful Phase III results for Amgen's Imdelltra in first-line small cell lung cancer and Pharvaris’ deucrictibant XR in Hereditary angioedema.

We also structured the pelacarsen investment in a protective way where we will still make our money back plus a small return. As Marshall will explain later, our track record of success in development stage investing remains outstanding. Looking ahead, we're increasing our 2026 full year guidance for the third consecutive quarter. Based on the excellent business momentum I just highlighted. Slide 6 is a slide we show every quarter. It demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in year out regardless of the market backdrop. This reflects the quality of our asset selection and our unique business model. It's a track record that I believe very few companies in the health care space can match.

With that, I will hand it over to Marshall.

Thanks, Pablo. I want to focus today on our recent royalty deals for Mimrylo and Zoryve and to give a broader update on our development stage portfolio.

Beginning on Slide 8, we recently acquired Zealand Pharma's royalty interest in Takedo's Mimrylo for a total of $100 million. In return, Royalty Pharma is entitled to receive a 1% royalty on annual worldwide sales of up to $1.5 billion, tiering down to 0.75% above this sales threshold. We are also eligible to receive up to $23 million in milestones.

Mimrylo is an exciting first-in-class therapy for polycythemia vera, or PV; a rare chronic blood disorder. In PV, there is excessive red blood cell production, which thickens the blood, resulting in increased risk of clotting in cardiovascular events. There is a high unmet need for new treatment options as many patients are still relying on frequent phlebotomy or blood draws. Mimrylo reduces the excessive red blood cell production. And in Phase III, it demonstrated significant clinical benefit across a range of parameters, including phlebotomy burden and fatigue.

Based on the compelling results, the FDA approved Mimrylo in August 2026. Takeda has provided peak annual sales for Mimrylo of between $1 billion and $2 billion. we see clear blockbuster potential. Polycythemia vera is a potentially large market with a prevalence of around 155,000 patients in the U.S. alone. Based on this, we would expect to generate an unlevered IRR in the low double-digit percentage range consistent with our target for approved products.

Moving to Slide 9 and our latest transaction. In September, we agreed to pay AstraZeneca $100 million upfront for a 3% royalty on worldwide sales of Zoryve. This is an approved once-daily topical, which is marketed by Arcutis' biotherapeutics for 3 skin disorders. Plaque psoriasis, seborrhoic dermatitis and atopic dermatitis. Zoryve offers an effective and safer alternative to widely used topical steroids. This represents a significant commercial opportunity for Zoryve based on growing physician recognition of the local and long-term side effects of chronic steroid use. The scale of this opportunity is underscored by the penetration to date of branded nonsteroidal topicals, which only represents 7% of the market.

Arcutis' commercial execution has been impressive and their message is resonating with physicians. Zoryve is expected to grow by more than 40% in 2026 to over $0.5 billion, and we see clear blockbuster potential. Consensus currently predict Zoryve sales will reach $1.6 billion in the early part of the next decade, while Arcutis' has supplied a peak sales estimate of $2.3 billion to $3 billion across Zoryve's current indications. We expect the transaction to generate an unlevered IRR consistent with our target range for approved products. I want to move on now to our development stage pipeline.

Slide 10 shows our scorecard for 2026 for key clinical and regulatory. As Pablo noted, while the outcomes trial for pelacarsen was not successful, the transaction to require this royalty was structured in a protective manner. And as a reminder, our $500 million funding agreement with Ionis included stable and predictable royalties in SPINRAZA with upside from the pelacarsen royalty. Based on the pelacarsen results, our royalty interest in SPINRAZA will revert to Ionis after we receive royalty payments of $550 million or 1.1x return on the total amount funded.

Overall, we remain pleased with the progress of our development stage portfolio entirety. So far in 2026, we are proud to have 5 successful pivotal Phase III trials from our development stage therapies and 9 positive regulatory events, including 6 FDA approvals and 3 FDA filings. Our overall track record for development stage and testing continues to be well ahead of industry averages with a success rate of approximately 90%. We Importantly, many of the therapies shown on this slide have the potential to be truly transformative for patients as well as highly commercially successful.

Revolution Medicines Rasonque for pancreatic cancer and Cytokinetics, Myqorzo for nonobstructive hypertrophic cardiomyopathy are the 2 most obvious examples. In the year is not over yet, with the upcoming FDA regulatory decision expected later this year on GSK's Neladelkib for non-small cell lung cancer and Phase III results expected for Biogen's lidafilimab in systemic lupus. Consequently, we feel really good about both the progress of our development stage pipeline this year as well as the potential of these therapies of the therapies we added this year to be very significant royalty contributors over the long term.

Slide 11 details our development stage pipeline by year of potential launch. Here's a list of a dozen potential blockbuster launches over the coming years that can power our growth through 2030 and beyond. Importantly, all are either first-in-class or best-in-class and all have been through our rigorous diligence process. As a result, we expect a significant proportion to reach the market successfully and deliver transformative benefits to patients.

To wrap up, we're extremely excited about our pipeline that in aggregate has the potential to add peak royalties of more than $1.7 billion to our top line in the future, and we expect to continue to add new and exciting therapies to our development stage pipeline in the years to come.

And with that, let me hand it over to Terry.

Thanks, Marshall. Let's move to Slide 13. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 9% in the third quarter, reflecting the strength of our diversified portfolio. As Pablo noted earlier, this takes our growth in the first 9 months to 12%. Milestones and other contractual receipts, which are more variable were relatively modest in the quarter, but increased year-over-year. .

Taken together, portfolio receipts, our top line grew 9% in the quarter to $890 million. As we move down the column, operating and professional costs equated to 5.6% of portfolio receipts in the third quarter. This line continues to demonstrate the benefit of the cash savings we are delivering from the internalization transaction, which we completed in May of 2025. Net aid was $167 million in the quarter, this reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters together with the interest we received from the cash on our balance sheet.

Moving further down the column, we have consistently stated that when we think of the cash generated by the business and then be redeployed into value-enhancing royalties, we look to portfolio, which is adjusted EBITDA less net interest paid amounted to $673 million for the quarter. Our margin of around 76% in the quarter and 82% year-to-date underscores the high underlying level of cash conversion and efficiency in the business.

Capital deployment in the quarter of $362 million mainly reflected R&D funding for J&J 4804 and upfront payments for ClarAmatuk, Zoryve and Mimrylo. Lastly, our weighted average share count declined by approximately 3 million shares in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 14 provides more detail on the evolution of our top line year-to-date. Royalty receipts, which we consider our recurring cash inflows grew by 12%. The Key drivers were the strong performances of Tremfya, Voranigo, Evrysdi and Imdelltra.

Importantly, we have been able to absorb significant declines from Promacta and Imbruvica amounting to an approximately 5% combined headwind and still delivered double-digit growth in royalty receipts. Moving to portfolio receipts. These grew by 9% in the first 9 months, reflecting lower milestones and other contractual receipts, which is consistent with our full year 2026 guidance.

Slide 15 updates our portfolio return metrics for the quarter. Return on invested capital was 14.3% for the last 12 months ending in the third quarter of 2026, and return on invested equity, which shows the impact of conservative leverage on our equity returns was 20.2% for the last 12 months. This is the fifth straight quarter we've reported these metrics and their remarkable stability demonstrates that we are continuing to invest at attractive returns that will drive long-term value for our shareholders.

Slide 16 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of September 2026, we had cash and equivalents of $514 million. In terms of borrowings, we have investment-grade debt outstanding of $8.8 billion with a weighted average duration of around 12 years. Our leverage now stands at 2.7x total debt to adjusted EBITDA or 2.5x on a net basis. We also have access to our $1.8 billion revolver, which was undrawn at the end -- as of the end of the third quarter.

All considered, we have access to approximately $4.8 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We deployed just over $1.2 billion of capital on attractive royalty deals in the first 9 months of 2026. At the same time, we returned approximately $590 million to our shareholders through share repurchases of over $180 million and our growing dividend. In total, we have returned about 28% of our portfolio cash flow this year to shareholders. On Slide 17, we are again raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.5 billion to $3.55 billion, up from $3.4 billion to $3.5 billion previously.

This assumes growth in royalty receipts of around 10% to 11% compared with 7% to 10% previously, which reflects the strong underlying momentum of our diversified portfolio. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $65 million in 2026. Importantly, consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions.

Turning to expenses. Payments for operating and professional costs are expected to be in the range of 5.5% to 6% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. We continue to expect interest paid to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be a de minimis amount in Q4. This guidance reflects repayment of the $380 million term loan in July, but does not take into account interest received on our cash balance, which was $18 million in the first 9 loss. To close, we've had an excellent first 9 months. We've raised our guidance for the third consecutive quarter, and we expect to deliver another full year of strong financial performance in 2026.

With that, I would like to hand the call back to Pablo.

Thanks, Terry. To conclude, I'm very pleased with our continued execution against our strategy in the the first 9 months of 2026. We have consistently delivered strong growth and returns. We've again deployed significant capital on exciting new biopharma royalties. We've tirelessly innovated to open up major new opportunities such as pharma R&D co-funding. And last but not least, we have enhanced our leadership team and capabilities to ensure we remain at the forefront of our highly attractive industry.

On Slide 19, I also wanted to draw your attention to something we're very proud of that we don't often highlight. As a leading founder of innovation, we recognize the importance of integrating sustainability-related principles into our strategies and investments. We were, therefore, delighted to have recently been awarded a AAA ESG rating by MSCI that we are an industry leader in managing the most significant sustainability risks and opportunities. This adds to our already strong ESG ratings from ISS.

For Royalty Pharma and our investors, we believe this is important as it supports our belief that we're conducting our business in the right way based on the core pillars of strong corporate governance, talent management and a business model that is aligned with patients' needs. I want to close on Slide 20 with a recap on why we believe we're well positioned to drive continued strong value creation. First, we're the long-standing leader in the rapidly expanding biopharma royalty market with powerful fundamental tailwinds, reflecting the huge demand for funding life sciences innovation.

First, we're the long-standing leader in the rapidly expanding biopharma royalty market with powerful fundamental tailwinds, reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by Premier biopharma companies. By expanding our global platform and capabilities, we expect to remain the undisputed dealer in our industry. Third, we expect to deliver strong low volatility, top and bottom line growth through 2030 and beyond.

Lastly, we have an incredible track record of delivering consistent and attractive returns including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20%-plus range. I have never been more excited about our future and the opportunities ahead.

And with that, we would be happy to take your questions.

We will now open the call to your questions. Operator, please take the first question.

[Operator Instructions]

Our first question comes from the line of Asad Haider with Goldman Sachs.

Great. Terrific. Congrats on the continued strong execution guys, really great to see. A couple of pipeline economics. First, on Amgen’s Imdelltra, just in the context of a strong data in first-line small cell lung cancer seen at ESMO, which is really a standout. Just maybe talk about how this shifts our view of the overall opportunity versus what was reflected when you did the deal with them. And then second, in the context of the pelacarsen failure, where you took a $150 million noncash impairment charge, can you just provide any context on economics on Amgen's olpasiran and the impact of Royalty, if that trial also fails? .

Sure. Marshall, that's a question for you.

Sure. Thanks for the question on Imdeltra. So thanks for pointing out the recent positive first-line small cell lung cancer maintenance data. It was spectacular and is real real advance for patients, and we are certainly excited to have it in our portfolio. So it is a significant expansion in the marketplace. And I would say, when we make these investments, we always think about a lot of scenarios and have to think through how the product could evolve in the future with major label expansions like this.

So we are -- it's certainly -- the data was ahead of our expectations. And so we are really excited about what this means for obviously, for patients and then also for the downstream commercial benefits of that and the royalties to us. So certainly a really nice royalty that we have. And I think just taking a step back, it's a good example of our team's ability to identify really exciting therapies wherever those opportunities lie. This time, we were really happy to work with B1 to acquire this royalty.

So really, I think, a great product and a great example of how we build our portfolio. And your second question was on Olpasiran. So yes, we're a few days away from seeing all the detailed data. I think at AHA this weekend. So let's see what comes out of that and in the future, what it might mean for -- what it might mean for Olpasiran in this class. And this class going forward. And then we can have a more informed discussion about what it means about specifically what it means for us in our remaining investment in Olpasiran.

I think he was also asking about the economics. And I think what's interesting for us there is that the royalty on Amgen's drug is bigger, and we've made a bigger investment. So potentially, we could end up -- if it works, we could end up having a really positive driver of growth and cash flow. .

Our next question comes from the line of Chris Schott with JPMorgan.

Great. I said 2 here. Maybe first on just competition within therapeutic areas. It seems like the window between when we see a therapeutic breakthrough and when competition arrives, continues to shrink, and I think that seems particularly true with the rise of the Chinese biotech industry. I guess do you agree with that view? And how does that impact your approach towards deals? Does that lead you to focus on areas with less competition? Is it multiple deals per therapeutic area or some of these fast followers, in some cases, better companies to bet on. Just any just perspective there would be great. .

And then the second question is, you called out this pharma co-funding deals. You've had $1 billion year-to-date. I guess just with rising R&D budgets across the large cap space and a patent cycle approaching, just can you help frame out how meaningful an opportunity this could be for royalty as we think through the direction of some of these large biopharma companies are going with their R&D budgets?

Thanks for the question. And I think Marshall will take the first one and Chris the second one.

Chris, -- great question. So specifically in terms of how we think about in therapeutic areas. And it is something that we think a lot about and certainly, the dynamic of China as a new source of products definitely puts a finer puts a finer point on it. There isn't one answer as you alluded to. We still think about think how do we prioritize a lot of different factors, which is we've always said being first can be a major competitive advantage, who is our partner, whose hands it in and do we believe in their ability to -- and do we believe in their ability to execute.

But then also, we have the unique ability, as you pointed out, to make multiple investments in the same therapeutic area. And so we don't see it as a zero-sum game that we have to choose one, and I think it's a very unique aspect of our business. So if anything, as we talked about the increase in new programs has 2 tailwinds for our business. We don't see it as competition. It's an opportunity for us. And I think, number one, it gives us more opportunities to support companies. And it will certainly from the China perspective as we talked about, will create more licenses, and that means more royalties and a lot of those royalties are in the hands of some of the biggest, most capable companies in the world. And so we've -- as we've talked about in the past, we've expanded our team to make sure that we have the team on the ground in Asia to maximize those opportunities, and that team is off to a great start.

And on your second question, Chris, thanks for the question around R&D co-funding. We see this as a tremendous growth opportunity for us. As you've seen this year alone, we announced $1 billion of R&D co-funding deals, $500 million with J&J and $500 million with Teva. And those conversations and opportunities continue to accelerate in our deal funnel. And it's obvious the reasons why the amount of R&D spend happening at pharma over the next 5 years is expected to exceed $1 trillion. The capital need is there. The accounting framework is there, especially under U.S. GAAP, and we've seen some companies take advantage outside of the United States under IFRS as well. So that's a positive tailwind for us.

And as the companies see the deals announced, it's opening up even more opportunities because they're seeing their competitors use R&D co-funding to expand our pipelines and accelerate their pipelines. And so they themselves would like to do it as well. So it's a confluence of tailwinds really pushing that opportunity forward, and we're just super excited about it.

The next question comes from the line of Mike Nedelcovych with TD Cowen.

I have 2 questions and a follow-up. My follow-up is on Olpasiran. As you noted, we're going to get the Phase III Horizon data this weekend. I'm curious, Marshall, what specifically will you be looking for in the presentation to help you understand whether Olpasiran still has potential. So that's one. My other question relates to Rasonque. Revolution Medicines declines to take tranche 3 of funding from Royalty Pharma. So it seems like a reasonable base case to assume the royalty rate will stay where it is now. I'm curious to what extent that's a swing factor relative to your $4.7 billion top line target in 2030, if at all.

And then my last question relates to capital deployment. It looks like you're on track to deploy less capital this year relative to each of the last couple of years. Correct me if I'm wrong on that. But -- and I know that annual fluctuations are to be expected, but I'm wondering if there is any specific reason for this or if maybe we should look for a rebound in the near future.

Yes. So thanks for the question. Marshall will take the first one and then Terry will take the second one.

Yes. Thanks, Mike. So yes, we are looking forward to seeing the pelacarsen Horizon data this weekend and to understand really our first glimpse at understanding this target. And so I think there's going to be a lot of questions that we're looking -- that we are looking to understand better is most basically baseline factors like baseline Lp(a) or baseline LDL, how much did that impact it? How did -- was there any evidence that pelacarsen itself played any role? And then are there other subgroups in there to really understand and give us a sense of who may or may not benefit from this target. So I think there's going to be a lot of detail, a lot of discussion this weekend, and we're certainly looking forward to learning more.

And then, Mike, on your second and third question. So Rasonque, no impact on 2030. We're still very confident in that exceeding that guidance. So feel really good there. And then on your question on capital deployment, I think it's -- first of all, we're at $1.6 billion through today. So versus historical years, maybe a little bit lower, but it's kind of in the range. I think we all feel internally like we're extremely busy. And we can't always predict the timing of when transactions are going to close. That's why we've said since dating back to the IPO that the capital deployment was going to be kind of uneven from a year-to-year basis, and you really needed to look at it on a multiyear basis. We feel like there are a lot of great tailwinds.

There's still a couple of months left in the year as well. So we'll see how things shake out for the end of the year. But we're very busy. The pipeline is really strong. you feel like we're getting a lot of momentum in sort of the core areas we're focused on, synthetic royalties, pharma R&D co-funding and feel like over the long term, we're going to be very comfortable with the guidance that we've given and then see a clear path to doing well ahead of that around $2.5 billion per year. So feel really good about it and stay tuned.

The next question comes from the line of Geoff Meacham with Citi.

Just had a couple. The first is on deal structuring. So on deals where you have a novel mechanism or a disruptive class, let's say, the Lp(a) category. Going forward, are you guys biased to more contingent considerations or has some protection to preserve your returns maybe as a boiler plate type of structure?

And the second one is that when you look at some of the categories, you guys have done some great deals in the past few years, but there are still some big categories across pharma that are high growth or high opportunity like GLP-1s or neuro, for example, is there still an interest in looking at opportunities like that, maybe it's more competitive, but co-funding would be one solution for that. So I just want to get your perspective on some of the the bigger opportunities? And maybe do you guys have FOMO looking at some of those when you look at the range of deals?

Yes. Thanks for the question. I'll take the first one on structuring and then Marshall can take the second one. But regarding structuring, I think what we've done for 3 decades is been very open-minded about everything. And the approach we take when we meet with companies is that we want to understand their needs, their constraints and understand the asset really well. And we -- what I tell the team often is we need to approach everything with a sort of open minds and sort of blank piece of paper. Obviously, the experience and structures we've used in the past are helpful. .

But it's better to approach things in a fresh way because each asset is different. Each opportunity is different to the companies. And so we're very open-minded. But what I would tell you is that when we're looking at investments and deploying capital, we tend to favor transactions that are driven more by royalties versus things like milestone payments because obviously, that is what drives more long-term value creation. So that's an important thing for us.

And in terms of downside protection, often interesting, useful. But we actually are really focused on understanding the risk reward profile really well. And because downside protection, it's not a good way of thinking about a business when you're deploying capital. it's more -- we get the kind of protection by diversifying, right, and having great assets in the portfolio.

But I'll stop there and let Marshall take the second.

Geoff, thanks for the question. So I think our approach hasn't changed. We are absolutely open to every therapeutic area, every modality, and it's really about what it has always been over those same 3 decades, which is identifying great products in the hands of great partners and structuring a win-win transaction and we have a lot of discipline. So -- we don't really think of it as FOMO. It's more a matter of when we find the right thing in a given therapeutic area, we will go after it aggressively, and I think our -- I think our track record groups out our ability to do that. We are though focused on expanding the number of ways that we can work with partners so that we are the best positioned player in our industry.

And so that's why, as you mentioned, co-funding and that growth is another broadens the aperture of the number of companies and products that we can work with. We mentioned China as another way that we continue to make sure that our platform and our team is positioned to work with as broad spectrum of companies and partners and products in therapeutic areas as possible. And so -- we again have a very full and active pipeline that's highly diverse across many, many therapeutic areas, and that underscores the optimism that Terry just talked about.

The next question comes from the line of Terence Flynn with Morgan Stanley.

I guess first on litefilumab, there's -- we're expecting some upcoming Phase III data in SLE this year and then CLE next year. I know Biogen has talked about lupus being an $8 billion commercial opportunity . I saw you had highlighted some of the sales potential on your slides. But maybe, Marshall, if you could just talk through how you guys are thinking about the commercial opportunity, both in SLE and CLE.

And then the second question is just on China. I know you guys have people on the ground now over there. So just any update in terms of how that ramp is going and when we might see -- expect to see some capital deployment on the China side.

Marshall, why don't you take the litofilimab question and then maybe Chris can take the China question. .

Thanks for the question on lidabilumab. Yes, we are getting excited to see the Biogen SLE data coming up. Just as a reminder for everyone, we did a $250 million R&D co-funding agreement with Biogen to fund the Phase III trials for litefilimab in 2 indications, SLE and CLE. And I think we are excited about both of them and this deal was structured in a way that makes a lot of sense for our shareholders. And I think if either one of them proves to be successful, this is going to be a great investment. And if both are successful, it will be even better. .

Our view on lupus has been that this is an area of significant unmet need, and there's a need for new products. And I think one of the things we've seen in other spaces in autoimmune and I&I more broadly, is that the category and the market grows significantly as you have more products and more companies and doctors and patients have options. And so I think what Biogen is doing here, they have a great program. They've really nicely against litafilimab.

And I think having another product here is going to grow the market. And then also, interestingly, starting to subset the market with CLE and being able to really focus and offer a new option for those patients as well. So we think this can be a big product and excited to see the data and it will be a nice addition to our portfolio and a great example of how R&D co-funding allow those to access a broader spectrum of products.

And on your second question, Terence, on China. Thanks for the question. It's obviously a very exciting and strong strategic longer-term market opportunity for us. You've seen the rapid and growing out-licensing that has occurred out of China into Western multinationals. I think in 2020, I think there was only around out-licensing deals and therefore, royalties created versus over 50 last year. So the growth is exponential. We've actually -- we feel we've already deployed capital last year when we bought B1's royalty on Amgen’s Imdelltra for over $900 million. That certainly caught the attention of a lot of the Chinese pharmaceutical companies when they saw that.

So that was a great example of how we can work and deploy capital in China. We obviously hired Ken Sun, who ran Morgan Stanley's Healthcare Asian business. He's on the ground and up and running. We spend a lot of time in country with him and continue to develop those relationships. And as those out-licensing deals mature, we're obviously tracking all of those products and programs that were out-licensed to Western multinational companies. And as they mature, through the pipelines at the big pharma companies that in-license those programs, that's where we can strike and really hope to obtain those royalty streams from the Chinese companies.

It's a really exciting opportunity for us. We're excited to hire Ken, and we're excited to see what the future holds on acquiring those royalties.

Our next question comes from the line of Ash Verma with UBS.

Maybe just I wanted to understand your thought process on pursuing royalty transactions with private companies. Obviously, most of the deals have been with the public part of you've done with private. Is that something that could become a bigger piece of the pie? And what potentially is holding it back?

And then secondly, a lot of focus on AI, in general, everything, but I guess 1 question that I had was around -- how are you using AI in your day-to-day investment process, either to process the ideas at a much faster pace or any other way like getting up to speed on the opportunities are driving the partnership discussions.

Thanks for the question. I'll take a first crack at it, but then maybe Marshall can get into some of the specifics of AI and in the investment process. But regarding private companies, I mean there's absolutely no restriction or issue -- like our business model is totally open ended, and we can do transactions with private companies, public companies. I think there is there are interesting opportunities for us in the case of private companies to actually be there and provide capital because some of these private companies, funding is more complicated, right?

They don't have access to the capital markets where sometimes capital is more readily available, that bigger scale, lower cost -- so we can, in those cases, be incredibly effective and add a lot of value to those companies. Also, we have situations where an M&A where these private companies can be acquired by bigger companies. And we can come in and help fund the pipeline. So that is not dilutive to the bigger companies. But we have done transactions with private companies over and over again, and that really shows the reach of our business. And 2 of them are actually what we did with Zoryve and Voranigo.

Obviously, the transaction we acquired from a public company, but then also faring. So we have a track record doing things with these companies. And AI is something that is really important for us. As you know, we hired a great person that is leading our efforts there, Lucas Glass, that was the Head of AI for IQVIA. And I can tell you that in the 6 months since he has joined us here. He's starting to have a real impact in how we approach things and the depth and breadth of our analytical capabilities. But Marshall, why don't you maybe take that question also.

Absolutely. Yes, as Pablo mentioned, we have been really aggressively pursuing because we're pursuing integrating AI into multiple aspects of our business, certainly, the research and investment process is just 1 of them, and Lucas has been an incredible addition to the team. We've been -- specifically to your question, how we've been using it, I think it's really kind of multiple ways to rethink, invigorate reinvigorate our research process and make sure that we're doing that we are at the absolute forefront of how this is done in our industry.

And it is -- yes, it is about identifying things identifying more things looking more broadly, helping us do that. It is about helping us move faster. But I think the other really powerful thing that we're seeing is it's really allowing us greater and greater analytical depth over time. And we are being able to look at more data, certainly do it more broadly, more quickly it's been and it is really, really exciting. And I think the entire team is engaged in this. And so we are off to a super strong start and are really excited about where this will lead us.

The next question comes from the line of Umer Raffat with Evercore.

I wanted to touch up on a couple of products. Perhaps first, congrats again on ESMO data, would it I guess what I was trying to understand is, so it's a 7% royalty on worldwide sales. But my understanding is there's some royalty sharing with B1 above $1.5 billion, which is really where the maintenance data starts to take effect. So is your royalty above $1.5 billion, half of that 7%. I just wanted to put some parameters on that.

Secondly, on litifilimab, obviously, important Phase III is coming up. I'm just trying to think about how you see the commercial opportunity between systemic versus cutaneous, the sales breakdown, but also how it ties together with some of the breakthrough designations we're seeing on oral TLR7/8. And then finally, a quick clarification, if I may. I think on the IL-15 collaboration with Teva, you guys mentioned a $500 million commitment, of which I think $75 million co-funding was for Vitiligo in particular. I guess I just wanted to confirm, the scope of your arrangement is on the molecule, meaning any progress on Celiac would also be part of that .

Yes. Thanks for the question, Umer. And it's good to hear you. Marshall can take the question on litifilimab and the IL-15 deal with Teva, and then Terry can address the other question about Imdelltra and the economics there.

Perfect. Yes. We'll answer you in a slightly different order. So first on the commercial opportunity for SLE and CLE, we are honestly excited about both of them. The CLE is obviously a kind of a newer indication in a market that is going to take time that it will take some time to develop. But I think certainly have product there. And importantly, as we've seen having multiple products in this space is really what is really what grows really what grows the category over time. So we think that having multiple products is a positive and actually makes the opportunity bigger.

So we haven't said specifically what we think the relative contribution is, but we think they are both significant opportunities. On your second question on IL-15. So yes, just to be crystal clear about this, so it's a $500 million commitment. Of that, it's structured, it's $75 million to help fund to be in vitiligo. And then the balance, $425 million would go to fund the Phase II the Phase III trial in vitiligo. But the royalty is on all indications for the IL-15 program.

So wherever that, wherever it goes in the future, there's been a lot of focus on Celiac and that's certainly exciting to see or we'll get a royalty on our sales. It was structured based on -- it was structured to Vitiligo as a trigger for funding, simply because that was the more concrete development program at the time. So it was much easier to bring capital in through that. when -- and so we could structure that and move forward, whereas the celiac program. still developing. And so we -- and so it was triggered to vitiligo, but it is a royalty on all sales in all indications. .

And then, Umer, on your question on Imdelltra, we haven't given really a lot of specifics there. But what I can say is, you're right, we share about $1.5 billion would be [ $1 billion ]. I think the way to think about it is that -- and there's different tiers. But as we get above $1.5 billion or up until about $2.5 billion, we really have the vast majority -- and then above that, we still have a significant majority, maybe not quite as much as that point between $1.5 billion and $2.5 billion.

Our last question comes from the line of Jason Gerberry with Bank of America. .

One on ecopipam. Just curious, what do you see as sort of the key determinants of pricing power for this asset? Is it something that in the labeling outcomes here? I'm just curious -- do you think there's a lot of pricing power here given the availability of some generic alternatives. So I just love to get your high-level perspectives there?

And then 1 for Pablo. Just as you wake up this morning to midterm results, I'm just wondering if you have any unique perspective as to where -- what things look like in the next few years. on the drug price policy side of the equation. I think the consensus view is just gridlock and maybe some congressional hearings. But wondering if you have any unique perspectives here and longer term, I guess, risks to the existing U.S. government agreements and potentially Democratic champions of Medicare for all. Just wondering how high on the radar that is for you. .

Sure. Thanks for the question. And I'll take the 1 about the political situation and then Marshall can take the other one. I think it's early days, early to see how this is going to evolve. We're going to obviously pay a lot of attention to what happens in the next weeks, months. But maybe just stepping back, I want to provide a perspective that I think analysts, investors underappreciate. And it's something that I think maybe now it's better understood because obviously, investors have paid more attention and our stock has done well.

But what is unique about Royalty Pharma, when I look at 3 decades of running and building it is that the business can do well in good markets, bad markets, and we lived through so many cycles in the financial markets and the business had remarkably well. We can do good well in different political environments, different kinds of administrations. And that is something very unique that has allowed us to really deliver incredible performance returns growth over 3 decades. I think the 1 thing that is important is for the U.S. to maintain its lead in funding of innovation and continue to invest in basic science, continue to invest through NIH in academic research. And

I think that will continue in my mind. I think maybe the chances now of U.S. supporting research are -- have increased, which is what the public wants, what the U.S. population wants. They've always been supportive of that. So I think I'm excited about the performance of our business long term. and really don't see any negatives in what's happened politically.

But Marshall, I'll turn it back to you on the other question.

Sure. And then on Ecopipam, thanks for the question. Before getting the specifics of your question, I think it's -- this is a good opportunity to just to remind everyone that of our investment in ecopipam and how it came to be and brings together some of the themes from prior questions, which is -- this was a royalty that our team identified on a product in development for what is really a new indication where there's been essentially no innovation that was being developed by a private company, and we got excited about it and bought the royalty. It was subsequently acquired by Teva and now is in the hands of a company that can really maximize its value.

So I think a great example of our ability to identify novel opportunities and in being open to new therapeutic areas where there might not be a lot of focus elsewhere elsewhere in our space. Specifically on pricing, probably a better question for Teva. I think we certainly think that Teva, given what they've done, commercializing branded products, you -- everyone has seen how well they've executed. And so we certainly have all the confidence in the world that they will be able to execute at the same level for ecopipam.

And the fact that this is a first-in-class molecule in a disease and a condition that has not seen innovation in decades, suggest that Teva will have some flexibility in how they price and how they position the product, and we're excited to see that happen.

This concludes the question-and-answer session. I will now turn it back to Pablo for closing remarks.

Thank you, operator, and thanks to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George Grofik and his team. Thanks.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good morning. My name is Richard Wagner. I work with Jason Gerberry covering U.S. large cap pharma based in London. On his behalf, I'm pleased to welcome Terry Coyne, CFO of Royalty Pharma and Greg Butz and Managing and Partnering for a 40-minute fireside chat. So thank you both.

Thanks for having us.

My pleasure. So if we could start with pharma policy, what are you paying close attention to ahead of the midterm elections, how would be impactful biopharma ecosystem.

Yes. So it's a great question. I think there's a lot of moving pieces on the policy front. And I wouldn't point to anything -- any one thing in particular. Obviously, MFA continues to come up. But I think we're paying attention to sort of the broad better coming out of [indiscernible] and has any strong views one way or another on how this all shaked out, but we're definitely paying close attention.

You mentioned in -- this question is from the OUS impact. So there was a publication in The Lancet that argued that biopharma was under pressure to increase U.S. launch prices, but potentially forego commercialization in certain EU countries. So in the past, Royalty framed the OUS impacts from MFN, TBD. Are these dynamics becoming clearer, one? And then second, are they factoring into your...

So I would still say it's largely TBD. I don't think we have full clarity. There's going to be some important launches coming up over the next new year or so that I think will help inform that a bit more. But as far as the deal models go, we absolutely are factoring this in. I don't think we have -- I don't think we know exactly how it's going to shake out.

But when we think about pricing as an important lever and obviously, geography as an important lever of sales though [indiscernible], we're -- we try to take kind of a scenario-based approach. Look at a lot of different scenarios. Do they launch? Do they not launch? Do they -- the price -- the price a fraction of the U.S. price? What does that do to the U.S. price? And so we try to kind of look at it in a lot of different ways. I think for the most part, we're pretty aligned with the marketers.

They honestly want -- they want sort of maximize the sales of these drugs. And so I think that there is strong alignment there. But I don't think we have a crystal ball to know exactly how it all plays out. And I think the safest thing is to kind of look at a lot of different scenarios and get comfortable that if it plays out to the downside, we're still okay with the investment that we made.

So you said on AI that it would deepen and accelerate diligence rather than simply increasing the deal count. So it's not throughput that's the constraint. Where would the benefits show up? Would it be win rate? Would it be pricing discipline, lower loss rate, partner access?

Yes. So I think it's a number of things. I mean the enhancing the quality of the diligence that we can do can obviously lead to better forecast, better investments, higher probabilities of success, although I think we're already pretty high on our ability to pick things that are going to do well.

I think speed of -- or the ability to process multiple deals at the same time, for example, if there's a -- when we're working directly with a pharma or a biotech company, there's a lot of data that they give us access to. And to the extent that we can use AI to help process that data can allow us to get through it more quickly, more rapidly, catch things earlier. So I think that all of those things are things that can really enhance the process. I think longer term, it's something -- so we have made big investments in AI.

We hired somebody to run our AI effort earlier this year. He came from IQVIA, where he was running AI at IQVIA. So obviously, huge data firm, and we're really happy to have him joining us to lead that effort. And I think we see it initially being something that enhances the diligence process internally. But longer term, we think that it can also be a tool that we provide to our partners as well. And so to help them with clinical trial design, for example, things like that. So I think we're still right in the earlier stages, but it's a big focus of ours.

That would be within the context of a partnership or [indiscernible].

Yes. Yes. I think the way we see an opportunity to differentiate ourselves, we want to be viewed -- we don't want to be viewed as purely financial partner. We want to be viewed as sort of a strategic partner to help our partners grow. And to the extent that we can bring resources to the table to help them with, make their products bigger, make their products launch better, help them design clinical trials that increase the probability of success, that accrues to them and accrues to us, and it makes us very different than just a capital provider, which anyone can do.

And I think that's part of the reason why you see such consistent sort of repeat partners. We have a track record of repeat business with the same people. And I think that, that speaks to us bringing more to the table than just capital that bringing in sort of a true partnership mentality.

That's a point that Roche often speaks about when it works with smaller companies from the perspective of the smaller company, they're looking at who's going to be the best partner. So would that be, again, the proper way to think about the profile that would be a prelaunch biotech company rather than a large pharma?

In what -- well, kind of going -- you're also doing R&D funding.

Yes, yes. And that's a separate thing. I mean I think the reality is large -- big pharma probably doesn't need our advice. They're usually pretty qualified to run these trials pretty interesting on the margins. But I think that in general, they're looking for something different. But for a smaller biotech company that has less resources, I think we can bring a lot of our resources to the table to help them.

And then for our AI, you mentioned analyzing a massive amount of data. So it seems like those R&D funding deals that you're doing with pharma would be a great case study to [indiscernible].

Yes, absolutely. We're happy to talk more about that pharma R&D [indiscernible]. It is an area where we see a lot of growth.

So if we could focus on China. So you've done a transaction around Imdelltra with BeiGene, you're building out your Asia presence. And I guess the question, what do you think is the pace in which China can become a repeatable source of transactions for [ movement ]?

Sure. Yes, I'll start. So first off, you made the point around team. So we're investing in team. We hired Ken Sun from Morgan Stanley. He's building a team there. Much like large pharma, we think having local presence is very important, which is why Ken is there in Hong Kong. So the investment teams have point to the investment in education on Royalty financing as an alternative for companies as they think about how to monetize this growing pool of passive royalties.

So it's educating the market in China about what we can do. Obviously, our competitors are doing the same thing as well and educating them on who we are. Again, I think very analogous to how we built out in Western markets over the last 25 years. And then I think from a focus perspective, it's on the passive royalties that have been created over the last 5, 6 years through just an explosion [indiscernible] between Chinese companies and Western multinationals that have gone there to source innovation.

And so the pool of passive royalties has grown immensely as everyone here has seen. We think that was going to continue and you're probably hearing that from a lot of the multinationals that are here today. And that will be our focus is on that passive set of royalties that are owned by the Chinese companies against products that will be developed and ultimately commercialized in Western markets. Again, those are the same partners, the large biopharmas and large pharmas that we work with now. So from the standpoint of their skill set and developing and commercializing, that ultimately is exposure that we want to have.

So we think it's going to take some time to make those investments. The team, the education against the growing opportunity set. That's why we don't include China contribution in that $2 billion to $2.5 billion in capital deployment that we've spoken about. But you should hear from us the excitement and the opportunity, the team, the education that's going on and that in time will contribute to...

So you had mentioned essentially the historic deal structure would be there would be a retained royalty for the China company. That could be monetized by the Chinese company. So that's the landscape as it exists. But as you continue to create this market segment, is that the best risk-adjusted entry point for Royalty Pharma buying the retained royalty. Could you also consider funding the Western licensee or structuring with those?

I think for us now, it's a passive royalty opportunity set, in terms of funding the Western development. I think that's analogous to the co-funding that Terry just spoke about. And again, we see that as a growth opportunity for us in the U.S. But I think for our team now, it's focusing on education on royalties in that market and the passive royalties that exist. And again, what is going to happen is those royalties will all mature, meaning those are products that are going to continue through development, ultimately become approved. And that's, I think, where we see the intersection between the risk profile, the investment returns and then our ability to transact in that market.

So the out-licensing royalties for China could be structurally higher than traditional academic royalties. So how much of that yield is compensation for the earlier stage risk or contract complexity? Is it true excess return? Or is it simple can be explained by those other factors?

Yes. I think it's really case by case. I don't think there's necessarily a reason those royalties are structurally higher or lower other than just when those deals were struck with the Western marketing partner. So we'll look at each deal on its own merits from the risk profile. The partner is the forecast that we have conviction in and then is the return attractive from our standpoint. So each -- like we do with our other investments on a case-by-case basis in the same criteria that we apply from a return profile for assets in Western markets are not applicable to how we think about the Chinese opportunity.

When you think about sort of this typical academic royalty, those are -- they're usually -- there's probably a drug, but it's probably not in the clinic yet. It's probably not in patients. So they kind of -- at that stage, they're getting low to mid-single-digit royalties. As you move into the clinic and you have proof of concepts and you have a sort of maybe a validated target, you're able to get higher royalty. And so I think that that's why a lot of the Chinese royalties are just a little further along. And so royalty tend to be a little bit higher.

Compensation for the investment.

Yes, exactly. And then there has been a level of derisking along the way.

So as we know, there's a lot of debate around U.S.-China policy specifically with regard to these partnerships. So how could -- how do you underwrite the possibility that there can be changes in policies that would have impact on your deals during the royalty lifetime? I know in the second quarter, you mentioned domiciling IP outside of China could mitigate this.

Yes. I think, honestly, if you think about what we're buying, it's no different than what we operate, what we do every day. These are products that are in the hands of Western companies. The royalties generally sit outside of China structurally. So there isn't like a direct transaction with China.

And so -- but I think the question is more does deal activity slow, there's already royalties that are standard, it's still a little early. They're not quite matured yet. There's not -- I don't think there's really any products yet that have come to market from this [ drop ] of royalties, but they're coming. And so in the next couple of years, there's going to be some things that come to market.

And as we see Phase III data, this will be very transactable for us. It's hard to imagine policy getting in the way of those types of deals. Longer term, does policy slow down the pace of in-licensing by Western multinationals of Chinese assets, it's possible. It hasn't happened yet. And so I think it's still little early to say, but there's clearly a big pool of things that already exist that we see an opportunity.

So transitioning to the newer deal structure. So RevMed, for example, potential new model for funding late-stage development, without in this case, RevMed going to the pharma for a partnership. How scalable are these types of opportunities, the first question? And could you see additional transactions of similar size over the next 12 years?

Sure. So first off, we're very excited about that transaction and now like all of us going to watch the early stages of the launch. And I think you can imagine on the back of that structure and the data now we've gotten a lot of inbound interest from others that saw a lot of the attributes of that transaction and that they were applicable to their situation, late-stage development capital, capital to pursue an independent commercialization. And so we view that as a structure as, yes, repeatable.

From a scale perspective, we have the financial means to pursue multiple of those types of deals. But again, just like in China, we look at on a case-by-case basis and make sure that the risk and the return profile matches is consistent with our hurdle rates. And as you think about then just the reproducibility, this trend will continue in terms of helping companies, fund products stay independent longer really pursue that path to value creation that they can do on their own. And some of our competitors, maybe this is an opportunity that is meaningful along with [indiscernible] another co-funding deals that we're talking about.

I mean it's unique. It's the first time that you've seen a true scaled alternative to pharma, right? Historically, companies raise equity along the way. And then you really need to full scale partner with pharma, a lot of times you sell yourselves to pharma. But now we're able to come in and say, we can step in the shoes of that pharma partnership. I mean, equity is available and equity would have been available to RevMed.

But at a certain point, you want to supplement that with additional sources of capital. And the reality is royalties are lower cost than that. We certainly were for RevMed. And so adding royalties to the mix and sort of pushing off that decision point of pharma until you turn that card over and -- or if you're into your launch and you're showing that you can do this on your own, that the tremendous value can accrue to the equity of those companies when they do that.

And so we're excited about the potential. It's not -- it doesn't fit every company. And there's some companies that simply can't go alone and they kind of know that. But for the companies that really can or can go further alone, this is -- we think it will be a very powerful tool.

So you had mentioned that the royalties have made a comparison to the cost of equity. So that's a significant share of the announced deal value. Is there a natural upper bound to how large synthetic royalties can become within your portfolio? And does broader adoption risk, does it make terms less favorable over time?

So it's not -- I mean, at this point, we don't see an upper bound. It's not obvious. It's not like we feel like we're saturating the market. We're about 5% share of the market. Synthetic royalties for small mid-cap biotech companies are 5% share. It's nothing.

So there's a lot of room to go from that perspective. In terms of competition, I think the reality is the market is growing a lot faster than the competition is growing. And we have a lot of competitive differentiators. It's still risky. You can't forget that. And so you have to be prepared to lose. You're going to have something -- you're going to have some misses. And so from our perspective, we obviously hate when things don't work, but it's not going to change our business one way or another.

We have huge scale, huge diversified cash flows that's reproducing every quarter. We know that we're going to be able to, over time, generate really attractive returns across the entire portfolio. And so you can -- if you invest couple of hundred million dollars, $1 billion, $2 billion in development stage investments. It's not going to change the overall outlook of Royalty Pharma, but it's going to open up a whole new pool of opportunities that we may not have otherwise seen. So I don't think this is going to be for everyone, but there will certainly be some competition at this level. It's just -- it's complicated.

And Richard, I think that the competition is much from other capital allocators as it is from alternate forms of capital. Terry mentioned equity, there's convertible debt. There's licensing dollars, and we view that pool of alternatives to be as much competition to our dollars. We want to do as a strategic partner. So we're replacing the capital that otherwise would come to another company through a licensing transaction.

And then I think we can successfully make the cost of capital argument next to common equity or convertible debt. And again, to complement that, I don't think there's always going to be a case where we're truly substituting, but as a complement to help companies scale their capital base, I think is the way we see it.

Yes. It's totally right. It's not someone or the other, but it should be a piece of puzzle for every successful, really successful biopharma company. I think we see a future where royalties are just part of the mix, not the whole thing, but a healthy part of the mix, supplementing that with equity, once they get through later stages, we've seen with Revolution Medicines. We saw it with Cytokinetics. We saw it Immunomedics. We saw it with original Biohaven, probably a couple of others that I'm not thinking of. But where royalties were 20%, 30% of the total capital that they raised. And I think that's a road map for the industry.

Going back to the RevMed transaction, so the contingent payment payout. So to confirm that future tranches under that kind of agreement do apply against the guided $2 billion to $2.5 billion of target deal flow?

Yes. So when we say $2 billion to $2.5 billion, that's capital that we -- that's straight from our cash flow statement, capital that we deploy every year. And so there are going to be years where it's a mix of deals we signed up in prior years and deals that we announced that year. And so that is -- there is an element of, like, for example, the Johnson & Johnson deal we announced earlier this year is a $500 million commitment to co-fund the clinical trials. That will be -- a portion of that will hit our capital deployment this year. A portion of it will hit next year, and I'm not sure exactly how long that goes, but, that actually...

And so the annual run rate, that $2 billion to $2.5 billion, so that's -- should investors understand it as a conservative proxy that Royalty can surpass if the right deals come along. I guess the question is really, is there an incentive to guide higher because that would convince yourself to higher deal?

That's exactly it. I mean we're going to take the opportunities as they come. We feel like $2 billion to $2.5 billion is kind of, we don't need to do a lot to achieve that each year. So we described that as more conservative modeling assumptions. There's a lot of reasons to believe that the number could be much higher. But we're -- if it's not, it's because we're patient and we're waiting for the right opportunities. We're not -- we don't want to ever feel forced to deploy capital. That's a very bad situation to be in. It would impact returns.

It would impact probabilities of success. We're just not in that business. We want to be making investments in the right products. And I think if you look at where we've invested, take last year, we had a funnel of 400 [indiscernible] opportunities that we looked at the top of the funnel and we did 8 transactions and you look at those products that we invested in, and they're going to be almost across the board, they're going to be amazing products. And so the bar is high. It was a 2% rate that we invest of the total amount of deals we've looked at. So it's -- the bar is going to stay that high. I think that sort of pull-through rate is going to stay probably very low.

So your total debt to adjusted EBITDA, your leverage is about 2.8. You have significant liquidity. Is there a hard leverage ceiling when you move, for example, to 3.5 a particular compelling transaction?

Absolutely. Yes. I mean we wouldn't go above 4. You have to be really, really compelling to go above 4, but we need to know that we're going to delever pretty quickly from there. We're now BBB rated across all -- by all 3 agencies, something we're really happy about. It's been a long time coming, but I think it just speaks to the quality of the predictability of the portfolio. But look, we want to always have -- if the right things come along, we've been really clear with our lenders and our equity investors that we would take leverage up, but critical to maintain that investment-grade credit.

On buybacks, I understand that you apply your capital to the deals, into buybacks. So internally, when considering when to engage in buybacks, what are you comparing? Is it the internal rate of return on new deals versus the implied rate of return out repurchasing your own shares implying that there might be a stock price or valuation where buybacks again [indiscernible].

Yes. So it's dynamic. I think we're looking at the relative value of our equity and comparing that directly against the attractiveness of royalty opportunities. And so I think 2025 is a really good example of how we think about it. So first half of that year, particularly in the first quarter, our stock was -- we thought very depressed. Deal flow was a little bit slower for whatever reason. And so we dialed up buybacks.

And in the first half of the year, we bought back $1 billion of stock. And then as we got into the second half of the year, deal flow picked up in a huge way. We did the RevMed deal. We bought the Industrial royalty that you mentioned earlier from P1. And we were just seeing a lot of opportunities. And so we dialed down buybacks and dialed up investments. And I think as we've continued from second half of 2025 into 2026, we're just continuing to see really, really interesting deal flow.

And so that's where our focus has been. We're still doing buybacks, but it's definitely been -- it's not been at the same scale as it was in the first half of '25. But look, if we see a pullback, it slows down, pull back up again. And that's a really kind of nice tool to have, I think. And you look at -- I think we've been pretty good about where we bought back. We probably bought back $2 billion of stock and it's been in the 30s. So it's $30 per share. The stock is close to $60 now. So I think we've been pretty disciplined about that. And I think our investors have been [indiscernible] policy.

So you've guided 2030 cash flow target of $7.50 per share. That implies a certain level of return, 11% CAGR, highlighted conservatism around your deployment assumptions, and you're also planning for downside on the Vertex royalty resolution with [indiscernible]. If either factor were to be more favorable for royalty, so either faster deployment of capital or positive arbitration outcome in the first half of '27, would there be potential upside? And how should investors think about?

Yes. So just to sort of clarify that, we're not planning for downside for Vertex, but both of the -- for that arbitration we just are comfortable that we can hit that target regardless of what happens with that. So it downside case pumps, we're still comfortable that we can exceed [indiscernible].

But I think that we feel really good about it. We've been deploying capital in really great deals. The portfolio is performing really well. Amazing performance from things like Tremfya, ORLADEYO, Trelegy very excited to see the launch of daraxonrasib. So I think that we feel like we're in a really good position. Deal flow continues to be strong as well. So it's still -- it's been a year since we gave that guidance. So we feel like we're in a very nice spot right now.

So you mentioned some of the top 5 products that contribute a meaningful share of the receipts. So does your late-stage pipeline portfolio reduce that concentration quickly enough? Or conversely, does it become skewed to a few binary assets like or [indiscernible].

Yes. So it's not driven -- going to be driven by any one asset. That's the amazing thing about our business is that right now, the top 3 products account for around 45% of our top line. Compare that with pharma, it's around 55%. So we're a little better than pharma. But as we get towards the end of this decade, we think the top 3 products are going to be around 30%.

And pharma is probably going to stay about the same at like around 50%. So we feel like we're confident that, that's going to happen under a range of scenarios, just sort of naturally as we're -- we have a lot of products that are ramping significantly. We're making new investments every day -- not every day, but every quarter, every year. And we feel really confident that the diversification is going to look -- it's going to improve pretty significantly by the end of this decade. And then as you get into the following decade, it's going to continue to improve.

And the other thing that I think is worth pointing out is that when you look at our diversification on the top line, it's the exact same on the bottom line versus a pharma company where everyone knows that the biggest products are such outside contributors on the bottom line to their profits. We don't have that issue. So there's a lot more predictability and safety in our earnings as well from that diversification, which I think is something that oftentimes gets [ prolonged ].

Probably you mentioned your pipeline. What are the 3 to 4 most important readouts in the next 18 months, second half...

Yes. So one that we're looking forward to later this year is litifilimab, Biogen product lupus, [indiscernible] cutaneous lupus by the end of the year, getting into 2027, we'll see mechanical [indiscernible]. And then the other big ones that we focused on, which [indiscernible] which is interesting.

And then frexalimab in multiple sclerosis. And we're also going to be looking forward to seeing the full data for pelacarsen in -- we know what happened with pelacarsen that was a disappointing outcome, but we'll see the data. And I think it will probably have some readthrough to olpasiran, which is another a little bit longer. I think that's 2028, I could be mistaken, but a little further out there, but it's obviously something that we think could still be effective drug.

Are there any questions in the room? So if I could continue. So when assets acquired by major pharma is a common exit for biotech, how do you -- how does royalty think about those takeouts impacting true value? So you can imagine setting like migraine would be positive for the asset value to have large pharma marketing support as opposed to a targeted specialty market where the takeout like...

So every investment we make is done on the premise that the marketing partner that we have at the time of the investment is the one that will be commercializing the drug and doing so independently. So when an acquisition occurs as uncommon in biopharma and marketing partner then becomes a large pharma, large biotech, that has, in most cases, a positive impact on expectations on the forecast being achieved in the time frame that we model it, that's an [indiscernible] an upside driver in our investments.

But that's something that we can predict for the win. And so I think that's why we have to have conviction in the marketing partner at the time of the deal. They have the right team, they have the right plan, do we have conviction in the product? Do they have enough capital to see their way through a successful commercialization. Those are the attributes that we have to have conviction in at the [indiscernible].

Okay. Going back to the '26, '27, so you mentioned the litifilimab. Is one or the other indication more important to the value for the transaction?

Sooner than later. It's tough for me to say right now. I think CLE is certainly differentiated because there's therapies for CLE, but SLE is also a very large market. So I think we're excited about both.

Any pushes and pulls in the portfolio in 2027 before considering the new deals, LOE headwinds, I think mostly in '26?

Yes. So in '26, '25, we have this [indiscernible] LOE. Amazingly, and I think, again, it speaks to the strength of the business that we're growing through that just fine. And we've seen it before. I actually think that this proving out has been something which is very helpful for our investors to understand we're different. We have an easier time managing through the bottom line impact for sure, but also on managing through LOE. So in 2021, we lost our fourth largest royalty stream. It was Gilead's HIV franchise. '22, we lost maybe our fifth largest that was Merck's Januvia. And then over that period, we also had some headwinds from was underperforming.

And we grew -- I think our CAGR from 2020 to 2025 was 13%. We grew right through that, sailed right through it. And now in 2025, we saw -- we saw [ Lumacta ] going generic and that had an impact in the second half of '25 and even more in 2026 and again, continuing to grow through that. So I think it's an amazing strength of the business is our ability to grow through LOEs, something that would be much harder for a pharma to achieve. When we look at '27, as we get towards the end of the year, I don't think it's really going to have much of an impact, but XTANDI generic in the U.S. like late summer. So it could have kind of a little bit of an impact in the fourth quarter. But then we're pretty clean. Sort of normal [indiscernible] through the end of the decade.

Okay. And no questions, but thank you for [indiscernible]. Thank you very much.

Appreciate it.

Okay. Great. Thanks for joining us, everybody. I'm Terence Flynn, Morgan Stanley's U.S. biopharma analyst. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

I'm very pleased to be hosting this afternoon, Royalty Pharma. From -- presenting from the company, we have Pablo Legorreta, the company's CEO and Chairman. Thank you. And we have Marshall Urist, who is Head of Research and Investments. Thank you both so much for being here today to join us on the first day of our conference. Really looking forward to it.

I thought maybe we'd start high level, Pablo. And then again, we'll go to some of the pipeline portfolio questions later on for Marshall. But again, as I look back, your 5-year deployment target that you set was $10 billion to $12 billion back in 2022 at your Investor Day, you hit that about a year ahead of schedule now. So how are you thinking about the next set of targets here and the deployment goal as you think about the business?

Well first of all, thank you for the invitation to participate in your conference and for the relationship with you and Morgan Stanley, which has been key to our growth over decades. And so yes, we have been able to invest the amount we guided when we went public, $10 billion to $12 billion quicker, a year quicker. And that's obviously because the deal flow has been really robust. It continues to be very active.

There's a couple of things that have become real opportunities for us that I think we did not guide to when we went public in 2020. And the guidance just for everyone's -- so we are all on the same page was $2 billion to $2.5 billion per year and $10 billion to $12 billion over 5 years. But the 2 things -- and a lot of that guidance was based on deals that we have been doing for decades, buying royalties from universities, hospitals, foundations, biotechs, pharmas on approved products, but also funding late-stage trials and what we call synthetic royalties that had become a really important part of our business.

The 2 things that are new that were not that important at the time were deals with big pharma in China. And those have materialized. And I'll briefly mention -- talk a little bit about both. So in the case of big pharma, you saw us last year do a deal with Biogen, funding a really exciting lupus drug that they referred to as the crown jewel of the company, a deal with Teva on an LAI, long-acting injectable for schizophrenia. And then this year, a deal with Teva on a drug for vitiligo, $0.5 billion deal.

And then a deal with J&J, a really exciting deal where they're combining 2 antibodies. It's a market we know extremely well because we have been investing in this therapeutic area for decades with Humira, Remicade and Cimzia and the early-stage drugs and then Tremfya. And this one is a combination of Tremfya and Simponi essentially to try to treat patients that are progressing, $0.5 billion investment.

And we have done deals in the past with Merck and other companies. But I think the fact that a company as important as J&J has decided to do this with one of their top programs really send a signal to the industry that this is something that is worth doing for big pharma. And that has resulted in so many discussions we're having daily with big pharmas globally, not only in the U.S. And so it's very active.

I think we have a decent chance of this really becoming an important driver of growth for Royalty Pharma. And it's a whole new thing. We're very excited about it because it will require many billions of dollars per year. Obviously, we have to be very selective and see what we want to fund.

And then the other opportunity is China that we actually have now really made steps to be present in that market, hiring one of the top bankers in Hong Kong focused on China. He's in the room, Ken Sunn, and he's going to help us build the business there. And we did a large deal last year with BeOne for $900 million plus upfront, buying a royalty on Amgen's Imdelltra in that product. And we can talk later if you want to more details as to why China and what we see exciting in China and also big pharma.

But obviously, the capital deployment has been very strong, and we think it's going to maybe accelerate. So I think are we going to invest more than 2, 2.5 per year? We have been doing that. I think we will continue to do it. But we still want to be conservative in terms of the guidance. And I think how much capital we deploy is important.

I think another metric that is important for us is the top line growth, and we've guided to double-digit top line growth through 2030. I think it will go on for much longer than that, given all of the growth drivers.

Okay. Great. We'll unpack a bunch of these over the next half hour or so here. I guess the R&D co-funding opportunity, I know we talked a lot about in the past on the synthetic opportunity. R&D co-funding, we haven't spent as much time on. But again, it sounds like you're seeing a real change here. So maybe just remind us like why does pharma want to do these deals? Like what are they trying to solve for? Again, you guys always like to be the go-to party for these kind of transactions, but what are they solving for?

So we started this in 2012 when we decided to actually -- in addition to investing in approved products where there was already a license in place. And we said we're going to fund late-stage clinical trials for biotech and pharma. And we proactively started that in 2012. Since then, we've deployed $28 billion, of which about $18 billion is in approved products and $10 billion, $11 billion is in products in development. So it's become an important part of our business.

And we started to talk to big pharma back then. And I had a meeting one-on-one earlier today when someone was asking, is there a negative bias there with big pharma that they may want us to fund the less interesting products in their pipeline. And absolutely, there was a negative bias initially. We would go and talk to these big companies, and I'm going to give some numbers just to illustrate, but big company that might have 80, 90 programs in Phase I, Phase II and Phase III, and they might have in their P&L, it's not about cash because they have cash. They might have $30 billion of cash, $20 billion of cash. It's about the P&L. And they might have a P&L budget where they have R&D of $12 billion per year. And that $12 billion allows them to fund 60 programs, but they cannot fund programs 60 to 90, 30 programs that get delayed or shelf.

And they wanted -- when we started to talk to them, they would say, oh, look at the bottom 30. And we would say, thank you, but no, thank you. How are we going to get excited with a program that you're not excited about, you decided not to fund. And we would say to them, and eventually, we managed to figure out how to persuade them to open up and let us look at the more interesting programs. And -- what I would say to them is we want to win with you. And if we want to be your partner, if you want us to be your partner in 5 years, 10 years, we need to win with you. So we need to be funding the top program, and we're going to be able to put a lower discount rate on something that is priority.

And the math also works, Terence, because if you think of us funding one of the bottom programs, we're not going to do it because there's no interest. Why would we do it? But just as a mathematical exercise, if the drug is going to be smaller, $0.5 billion, for us to put a lot of money on the table, hundreds of millions, so that it really matters for them, we would require a high royalty, big burden. It doesn't work. If we are able to fund some of the top programs, multibillion-dollar drugs, we can put hundreds of dollars on the -- millions of dollars on the table and ask for a mid-single-digit royalty, the math works. So everything works.

Now how does this work? Years ago, there was a transaction that was taken to the SEC by a big pharma and unfortunately, the conclusion after analyzing the accounting was negative. And it really put slowed down the -- building this business for us. And we didn't like it. And we said, no, no, no, we need to fix this because we want to build a business from the big pharma.

So we had to go out, hire a guy that used to work in an accounting -- one of the top accounting firms that is help us to work with big pharma, how they account for deals. Bottom in, with him, we spent years, 4, 5 years trying to fix this. And we managed to do it. We were able to change the way that FASB and the accounting firms account for this transaction.

And the solution is that it's contra R&D. If like in this deal we did with J&J where we committed $0.5 billion, we're going to spend that say, over 3 years. And in one quarter, and it's going to be every quarter, we will write a check for half of the money spent. And if in one quarter, the amount was $80 million, we would write a check for $40 million. And that $40 million that we spent becomes contra R&D for the big pharma. It lowers their R&D expenditure. So what happens is that we essentially, by doing that, created $50 million of capacity for them to go and fund another program that might be program 61, 65, they can decide. But by doing that, what we're really doing is we're expanding the P&L bandwidth.

Now the other important thing is risk mitigation. If it doesn't work, they're not going to lose $1 billion. They will lose half. Obviously, for us, that will be a negative thing, and we want to make sure that, that doesn't happen. But it's both things, risk mitigation and allowing them to fund more things.

I think there's many things in our business that when I started where it's just not the case, it was a greenfield. Investing in royalties was not done before I started it. And it's been a question of just focusing, trying to get the market and players change their mentality and accept things and for those things to become mainstream. I think the idea, for example, of us funding biotech companies has become mainstream. I think the idea of us funding big pharma could become mainstream, and that will be a huge source of opportunity for us.

So it sounds like if it's not mainstream yet, it's not as competitive. Is that a fair assumption on...

I think it's a good question. We've always kind of existed in a competitive environment. I think there are other people who are doing this. It's a smaller group. There's no question. But I don't think we're super focused on competition right now in this space. I think to Pablo's point, it's really about growing the pie and trying to make this a large ongoing source of business for us. And honestly, having multiple players in the market is a good thing, right, where if there's depth of the market, it gives all the pharmas out there confidence that this is -- that they're getting sort of good competitive tension and a good price.

Okay. What -- and then maybe just talk about the return profile for those. I'm assuming it's pre-commercial that would require a higher return potentially because you're taking on risk.

So since we went public, we guided investors to a high single-digit, low double-digit return on approved products unlevered. The reality when we look at what's happened over the last 3-ish years, maybe a bit longer, when we look at capital that has been deployed in approved products is that the returns are higher than that. It's probably ranging in the 12%, 13% unlevered, which we're very happy about. But then in unapproved, the returns are in the high teens and even into the 20s depending on the asset and the risk. But they are higher, and those returns are unlevered.

And what I think happens with our business all the time is we make an investment that was modeled at high teens, low 20s, it gets approved. And all of a sudden, that asset now can be levered, not before, but once approved, they can be levered. And if you add leverage at our cost of debt, which is right now, it's 3.7%, the weighted average coupon is 3.7%, it really boosts the returns to a much higher level. So it's become part of our -- an important part of our business and with very attractive returns.

Now obviously, there's things that don't work. You saw what happened with pelacarsen. It was a $150 million investment. It's part of our portfolio. There's many. And we would expect that in a portfolio, there are some things that are not going to work. And obviously, the ones that work and that have compensated for the ones that have not worked.

But these pharma R&D deals are without question in the targets that we've set out for unapproved projects. And I think something that is maybe overlooked a little bit is having a partner where the scale and the people and the infrastructure to run Phase III to commercialize globally is a massively positive thing, right? When we work with smaller companies, part of our calculus is what is achievable, is someone going to come along and buy them. So here, we don't -- it's a very different way of thinking.

Okay. Makes sense. Maybe just on pelacarsen. I have some other questions first, but maybe there, just given the timeliness, maybe just anything you want to share in terms of your views? I know it's early, Marshall, but like we haven't seen the data, but what was your kind of big picture takeaway? I know you guys put out a press release kind of to frame the financial impact. But just maybe from a high level, how do you think about what that means for olpasiran, I guess?

Yes. So the negative outcome for pelacarsen, obviously a disappointing thing for us. I think like we outlined, we did, of course, buy it in a very kind of risk-protected way, which I think is an important lesson for all of our shareholders about how we think about structuring and how -- and when we deploy capital. It's very early to say. I mean, I think we can have a much more informed conversation about this once we see the full data here in a couple of months. But there are certain reasons to think that olpasiran could have a better outcome. It wouldn't be the first time that the first person who runs a big cardiovascular outcome study, everyone else coming behind them learns the lessons of their unfortunate outcome. So we're excited to see it, and we can have a conversation when we know more.

Yes. Okay. Maybe just the one important thing there is that the deal with olpasiran and the Amgen drug is for much bigger dollars to put a lot more money in that investment and also the royalty is higher. So there's a scenario here where if that one does work, which we think there's reasons to believe why it will work, Amgen could end up for a period of time, dominating the space, bigger drug, there's not going to be a competition and us having a bigger royalty and also have invested more money could result in a very attractive outcome for us.

Okay. Great. Maybe going back to the high level. I mean, I think another thing you guys have talked about in terms of a competitive advantage is just your data platform. You guys have spent a lot of time building that out. And so as you think about kind of layering AI on top of that data platform, maybe just talk to us through kind of like how that's going? What are the advantages that you see in terms of your kind of business model leaning into that and how you think that really sets you apart from some other?

I'll give you some top-level comments and then maybe Marshall can drill into how we're using it and what we see on a day-to-day basis. But we've been investing in data since I started the business 30 years ago, initially, it was like IMS data on subscriptions. And a decade ago, we started to buy data from many data providers. And as you know, we have data on 200 million Americans, claims data, which is really interesting data, gives you much more information than, for example, historically other sources. Electronic medical records for 44 million Americans, we have longitudinal data.

So we've been investing. We've been building a data science team, and we have a team in place for 5, 6 years. And we hired a guy that used to be the CTO of Verisk, this company that actually gathers insurance policy and casualty information for the entire insurance industry and then gives data back to the insurance company. He was CTO of Verisk. He came to work with us like 3, 4 years ago and started to help us take the data science part of our business to the next level.

But more recently, I was very excited because we wanted to bring to Royalty Pharma someone with a lot of AI expertise. And we looked at -- I think we interviewed like 30 people. And at the end of the process, we found one person that top of the list, and I was super happy that he agreed to join us. And he was the guy that was responsible for AI of IQVIA. So this is the biggest CRO in the world that has 1,200 clinical trials running at any point in time. And then they have the data side of the business, which used to be IMS Health. IQVIA is a merger between Quintiles and IMS Health. So this Lucas Glass had about 300 people under him, and he was introducing AI throughout all of IQVIA, a company with 100,000 people, and he decided to join a company with 100 people, Royalty Pharma, so you understand the scale.

Now the reality is that in conversations, what we concluded was that he was the right person because of a lot of things. He's a guy that loves to code really hands-on versus other people we have interviewed that were not that nature. But also what I think he concluded was that he wanted to join a company smarter, more entrepreneurial that could really drive how AI is going to impact this entire ecosystem. And he thought that with our platform, he could really help us to take this to the next level. And that is already happening. I mean, he's already starting to have an impact in our business with a lot of things that we're doing. And I'm super excited.

When I had the interview with him, I showed him 2 slides. One slide, many more, but he focused on 2, one that had 1,700 opportunities that we have reviewed over the last 3 years, 450 in oncology, 250 in CNS and so on. And I said, Lucas, we get agreement, we get patient level data for all of these assets that we review, we get FDA minutes and many more information. And when we use -- the way we used to do things is you would put clinical trial side by side and compare and say, okay, this trial worked, it didn't. What are the -- what happened? And the human brain cannot connect the dots when you have 450 trials in oncology, maybe you're looking at specific cancer, could be 40 trials and also so many variables, right?

But you apply AI to that and the insights that you gain are really interesting. And that is going to help us, again, make us a better investor, but we can share those insights with the companies we're working with. That's a big distinction between us and our competitors, where we are trying to position Royalty Pharma not only as a capital provider, but also as a partner that can share insights based on data with our partners to help them think about their clinical trials, about commercial. But I showed them that slide, and he said, absolutely, like anyway.

And then I showed them another slide, which has all of the modules of all of the diligence. All of the things we do, 20 different modules. And he basically concluded every one of the things we do with diligence with doctors, with payers, every one of those things can be made more efficient with AI. And I think what's going to happen with our business over the next years is it's going to evolve, and we're going to embrace AI.

But maybe you want to talk a little bit about how it's helping the diligence process and the...

Yes, absolutely. And I think it's a good example, maybe to start at a high level of how we have really been dedicated to investing and extending a competitive advantage, right? Like Pablo said, I think we were out ahead in our part of the world on use of data and data investments. Now we've made a big investment on the -- we continue to invest there, adding -- investing aggressively in AI behind that to, again, just be really committed to innovating and being at the forefront of how we do what we do. I think specifically, what we've seen is it's very early, but it's been really exciting to see on how we've gotten better in 2 ways.

I think one is depth, right? You can -- how much data you can analyze at scale, right? Pablo mentioned individual patient data. That is extremely time-consuming. But once some of the tools we're developing really makes it sort of tractable at scale. So we can do more deeper work, important as we think about pharma R&D deals and other things like that.

And then the second is speed, right? I think the other important thing is we continue to want to position structured finance or royalty financing as an alternative to other things that are out there. The extent to which we can be faster, more responsive, give people confidence that we have an outline of an economic deal that we're going to run really hard towards executing. We are an increasingly attractive alternative to other things. And so I think going -- we're pushing -- we're at the very beginning. I think what we're seeing is super exciting, and it's only going to get better from here.

What we're doing now, and it's going to take time is train the models, right, because we have so much information of 3 decades of looking at deals and products, and we can feed all of that into models, train them. And it's going to be incredibly helpful. And like people are always asking, is it going to make you like change the business in a positive way or a negative? I think it will change it in a positive way because you still need the human intelligence judgment in a lot of these things. But you also -- we have an advantage because we have a lot of data that we've collected over decades that is going to be very useful.

Yes. What about the number of deals? Does it increase like the throughput through the funnel? I know you want to maintain a high level of discernment as you look at these deals, but does it allow you to scale and essentially do more deals? I know you guys are constrained by the number of people, obviously, that you have working on these things, but does it help you look at more deals effectively?

I don't think we see it as necessarily a path to be doing more because I think we feel pretty good that we've identified the quality important things that investments we wanted to go after. It certainly does help with our sort of first path that things can be deeper and quicker. I think a lot of people are kind of applying in that way. And we'll see where it takes us. But I think the important things for shareholders that we can do are, again, depth and quality of our work, right, when we bring it to bear. And then I think that's going to, as Pablo said, filter through to our partners that we're a better partner, a more constructive partner, and I think that's going to be a win-win for everybody.

Okay. Maybe I want to go to one of your other recent pipeline wins is the RevMed deal and the approval. This is a synthetic opportunity. So maybe just, Pablo, outline for us why you're excited about these synthetic opportunities. And again, this is like the latest example, I think. But then, Marshall, maybe you could just elaborate on kind of the approval, the label and how you think about the commercial opportunity for this asset.

So I think this is a synthetic deal where we agreed to fund a biotech with a really exciting program. And we have been doing that for a decade. What's different about this one is the scale. And also the asset, there's a lot of differences, okay? And we had been in contact with Revolution Medicines for a while and have been following them. In about late '24, early '25, we started to hear that they were looking to raise -- they wanted to raise a lot of money, $2 billion, and they were potentially considering a big pharma partnership. Obviously, with that asset they had in their hands, the data they had, this was an incredibly attractive asset, probably one of the most attractive, not the most in biotech.

And we decided to engage. And I flew with Marshall and the team to San Francisco March of last year, '25, came to see Mark Goldsmith and his team and essentially said to him, we will deliver the $2 billion to you. And we're going to propose something that is going to be much more attractive than a big pharma partnership because in our case, we'll give you the $2 billion. It will be a 7% royalty and the $2 billion is $1.25 billion for the 7% royalty and Marshall can explain how the royalty deal is structured. But then $750 million as debt that can be pulled once the drug is approved.

And what I told Mark is we will give you that money, commit it. And the economics we will get are far lower than a big pharma partnership. Big pharma partnership will be a 50-50 deal, could have different versions of that, U.S., whatever. But roughly, in our case, it's going to be much less. So you're going to keep 93% plus of the economics.

And then the other thing is that we will be passive. We can share data with you. We can share insights. We'll be your partner, but we will essentially be passive. No need for a steering committee. And I told them one thing, I was on Lazard for 10 years before starting Royalty Pharma, and there was a very wise man, Felix Rohatyn who had incredible quotes. Felix used to say the problem with -- one of many quotes. The problem with partners is that partners have opinions.

So what I told Mark is you're going to have a big pharma partner. They're going to have an opinion. Their opinion is going to be different than yours. They're going to want to design the Phase III in a certain way, maybe not the same as yours. Commercial, they'll have a view. And you're going to have to compromise. You have to have a steering committee like they might slow you down. And I said we're going to be passive. So at the end, they agreed. The deal was announced in June.

In my quote, the day we announced the deal, I said this really shows that Royalty Pharma can be the alternative to a big pharma partnership, $2 billion. We had a lot of calls from many biotechs in the months that followed that wanted to potentially do a deal like that.

What's interesting for the company is that if you looked at the market cap of Revolution Medicines before the deal, between March, June, whatever, it was $6 billion, $7 billion, $8 billion, somewhere in that range. And by January of '25 at the JPMorgan conference, the market has gone up to $20 billion. Why? Because I think investors realize they have the money now, $2 billion. They can do it by themselves. They'll capture all of the upside. They've gone to $20 billion. By the time the data came out, it was already at $30 billion. And I had a conversation with Mark at the time and I said, wow, your investors went from $7 billion, $8 billion to $30 billion. If you have done a big pharma partnership, it will be probably half of $30 billion and maybe less because then like you have one big pharma partner. And any takeout situation, you have a buyer, maybe not many. And now it's 45%, some number like that. So it's been an incredible deal for them, for us. Obviously, in our case, we're delighted to be involved with this incredible product that has -- is going to change patients' lives.

There was a recent article in the Wall Street, which I think talked about the fact that what they did was really an interesting deal that allowed them to stay independent, not have to do a big pharma partnership. So that's why I think it was a really attractive deal for us. And hopefully, that there will be many more like that, where we can really help companies achieve their goals, but also create a lot of value and also help patients, which is really why we're all here. But you want to...

Yes. I think the other things that were definitely innovative about it about that structure as we talked through it. So Pablo mentioned, it had 2 parts. One was a $1.25 billion synthetic royalty that was divided into 5 different $250 million tranches. The first one was at close. The second one was when the Phase III trial read out positively, and that was so $500 million of synthetic royalty. And that gets us -- we now own a downward tiering royalty that starts at 4.5%. The remaining $750 million is at their option, right? So it gives them the ability to think about at important points in time. One just happened actually the approval. There's a sales milestone and then the other one is on the frontline approval.

So what's interesting about that is the flexibility, number one, right? It's huge scaled capital but they have flexibility to kind of curate capital structure as they move through time.

The second really innovative thing about it was each of the individual tranches actually had a lower cost of capital, right? Because at each of those points in time, right, these are positive developments for the company, for the product. The risk comes down. That has to be reflected in each of those tranches. So that declining cost of capital as the company progresses was hardwired into the deal, which is another, I think, very cool kind of innovative part of it. So yes, so everything from here is at RevMed's option.

On the debt side, there is a -- that $750 million, $250 million of that is required now based on the approval and the rest of it is at their option. So I think it's a great way to show our flexibility to show how we can design something that works for one of the most innovative companies in this space. And then lastly, how we can commit over a really long period of time, right? It's first dollar in to the last tranche trigger is going to be, I don't know what the most recent time lines are, but many years, right? And so us as an institutional partner is a different kind of investor in a different way that we can partner than what else is available out there.

Yes. And then just anything on the market opportunity that you want to highlight for us in terms of the initial label approval?

Look, I think it's exciting. We definitely didn't -- we thought it was a great drug. I think the data has certainly surprised the upside. I think the breadth of the label also surprised to the upside as well. Obviously, I think it's no secret, it's probably it's going to be a great launch. So we're excited to see it happen.

Great. Maybe just in the last few minutes because you touched on it early in your remarks, Pablo, just your strategy in China, that's obviously a new endeavor for you guys. And so how should we think about the time lines and the scale of that business? I mean is this something that could reach the scale of what your current business is here in the U.S. I know it took you a long time.

So Marshall and I and other members of our team went to China about 10 years ago, an explorer trip. We met the VCs, the company. At the time, we said it's a bit premature. But then as time went by and we started to see how science was progressing, maturing, we said we need to pay attention. That led to the deal we did last year with BeOne, where we bought the Imdelltra for $900 million plus. And then what we ended up doing is going out and trying to build a business, and that's when we decided to go and hire Ken, who's here. And we went through a process. Again, we looked at many people, and we were so fortunate that the #1 guys on our list was him and he agreed to join us. And we're going to build this business.

What's so interesting about China for us is, in conversations with Ken and others, what they pointed to me is that there's something like 3,000 biotech companies in China according to them. Huge number. 8,000 was the number I had in my head globally, but maybe the number is bigger because there's 3,000 in China. And when you think about it, except for a few companies that are potentially global and can run global trials, BeOne, one of them and maybe there's a few others, the vast majority of these companies are local companies, great science, good management teams, but they need a U.S. and European partner to run the trials and to commercialize. So that will lead to transactions where they license the drugs.

And for the European and U.S. companies to do a deal with a Chinese company, what they also want to see generally is for the IP to be outside of China. So the IP generally is put into a subsidiary that could be in Cayman or Jersey or whatever. And -- so the deals that get done generally are also done based on contract based on U.S. or European laws.

So from our perspective, if we invest in a royalty like the one from BeOne or we buy a royalty from another biotech company in China, it's very likely that the product is going to be in the hands of a U.S. or European company. So it's no different. And the contract will be -- the IP will be in a subsidiary. The contract will be U.S. or European law contract. And the payer will be, like in the case of Imdelltra, it's Amgen paying us directly. The cash flows don't go to China. The credit worthiness of the payer is Amgen. So it's no different.

Now what's so interesting, when I look back at how the business started when I was buying royalties from academic institutions in the U.S., the royalties were generally single digit, 2%, 4%, 7% was a big royalty. And what we've seen now with the Chinese companies is that the royalties are higher in the teens and 20s. Why are they higher? Because they add value. They take the drugs through Phase I, Phase II, so there's more value. There's also a competitive process. There's scarcity for attractive assets. So big companies that are licensing the drug have paid higher, they share more. So it's a very interesting business.

The last thing I would say is that it's a royalty, not equity. And investing in equity is more complicated to structure the deal. Sometimes governments have negative views about investments in equity, hurdles, other issues. A royalty is under the radar. It's a contractual agreement.

And we just -- and now the last thing also is the capital needs of Chinese companies are very, very significant. And the capital markets, even though Ken did an amazing job taking companies public, it's still a more limited market, not as big as the U.S. or other markets. So -- and the capital needs are so big that we can really become a funder of the company through structures like the ones we've been applying in the U.S. all the time, and it's very exciting. I think it will be big. I think we're going to be patient because we want to find the right product, but it's a big source of revenue growth for us, that -- and as I said, big pharma. And those things were not in our guidance in the past. And I think we need to start to think of how that's going to impact our business because I think they could become really important.

Great. Well, I think we're up against time. But Pablo, Marshall, I appreciate it. Thank you.

Thank you.

Thank you.

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma's Second Quarter 2026 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President Head of Investor Relations and Communications. Please go ahead, sir.

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's second quarter results. You can find the press release with our earnings results and slides of this call on the Investors page of our website at royaltypharma.com.

On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements.

Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website.

And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Marshall Urist, EVP, Head of Research and Investments; Chris Hite, Chairman, Partnering and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Marshall will provide a portfolio update Chris will then discuss our development stage pipeline, and Terry will review the financials. Following concluding remarks from Pablo, we will hold the Q&A session.

And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome, everyone. I am pleased to report another quarter of strong financial performance and disciplined execution. Our 25th consecutive quarter as a public company with strong predictable double-digit growth and we're achieving this as we continue to deliver on our goal of being the premier capital allocator in life sciences, driving consistent compounding growth. Slide 5 summarizes our strong business momentum in the second quarter.

Starting with the financials. We delivered 6% growth in portfolio receipts, our top line and 14% growth in total receipts, which are our recurring cash flows. Our top line performance was ahead of our guidance for the quarter and reflects the tremendous momentum of our diversified portfolio. We also maintained attractive returns in our business with return on invested capital of 14.2% and return on invested equity of 20.1%. By consistently delivering strong growth and superior returns, we believe we have a clear path to drive continued shareholder value creation.

Turning to capital allocation. We have deployed $1.1 billion of capital on Royalty acquisitions so far this year, with an announced value of $1.7 billion. Most importantly, we acquired a royalty on AstraZeneca's cliramitug, a potential blockbuster therapy for trans-orienmyloid cardiomyopathy. As we look ahead, our deal pipeline remains robust. Under our value-driven capital allocation framework, we also returned around $370 million to shareholders in dividends and share repurchases in the first half of the year.

Moving to our portfolio. We continue to see a number of positive updates. Our partner Revolution Medicines completed its rolling submission for daraxonrasib in pancreatic cancer with accelerated review also underway in Europe. We were also delighted to see key regulatory approvals for Gilead's Trodelvy, GSK's Jideytro and Amgen's Imdelltra. We look forward to these therapies contributing to our top line in the years ahead. Looking ahead, we're increasing our 2026 full year guidance for the second consecutive quarter based on the strong business momentum I just highlighted.

Slide 6 is one that I returned to each quarter as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in and year out, regardless of the market backdrop. This reflects the quality of our asset selection and our unique business model.

Slide 7, my final slide underscores the quality of our diligence process and our deep understanding of the life sciences ecosystem. In short, we've been ahead of the curve in identifying some of the most exciting innovators. Nuvalent and MLX are just the latest examples of companies whose therapies we acquired royalties on that were subsequently acquired by large pharma companies. This, of course, validated our internal views of their programs and will also likely increase the value of our royalties as large pharma brings significant clinical resources and commercial scale.

With that, I will hand it over to Marshall.

Thanks, Pablo. I want to focus today on our recent royalty deal for cliramitug, which is our second investment in TTR amyloidosis. Beginning on Slide 9, we recently acquired a portion of Neurimmune's royalty interest in AstraZeneca's cliramitug for up to $425 million. The transaction was structured to include $125 million upfront payment to Neurimmune, an additional $125 million payment in the first quarter of 2027 and up to $175 million payable on key clinical and regulatory milestones. In return, Royalty Pharma will receive a royalty of 3.75% on worldwide net sales.

Cliramitug is a highly novel therapy for TTR amyloidosis with cardiomyopathy for ATTR-CM. ATTR-CM is an age-associated progressive disease in which misfolded TTR proteins accumulate in the heart, severely impacting hard function and ultimately survival. There are several approved therapies for this indication, including Amvuttra, our first investment in this indication. The approved therapies slow disease progression by preventing ATTR accumulation, but they do not impact the amyloid deposits that have already accumulated in the heart.

As a first-in-class TTR fibril depleting antibody, cliramitug is designed to remove amyloid and potentially reverse the course of the disease a clearly differentiated role for cliramitug with significant benefit for patients. The early clinical data for cliramitug are impressive, Phase I demonstrated strong amyloid clearance via biomarkers that correlate with improved cardiovascular outcomes. A Phase III outcomes trial is fully enrolled around 1,200 patients and results are expected in 2028.

We see clear blockbuster potential for cliramitug in an expanding market, which was more than $7 billion last year. There are over 0.5 million patients worldwide with ATTR-CM, including around 200,000 in the U.S., and of these, around 80% of patients are untreated, underscoring the scale of the unmet need and the scope for market growth.

AstraZeneca has provided peak annual sales for cliramitug of between $3 billion to $5 billion. Based on this, we would expect to generate an internal rate of return in the teens consistent with our development stage target range and peak annual royalties of approximately $110 million to $190 million based on AstraZeneca's peak sales expectations.

Moving to Slide 10. This latest transaction is a compelling example of how Royalty Pharma builds significant therapeutic expertise over many years, allowing us to invest in the best potentially transformative medicines often across multiple products in the same class. In the case of ATTR, we've been closely following this therapeutic category over the past decade and have evaluated many of the therapies that are now approved. Our first investment was Amvuttra in 2025, which has had a strong launch in cardiomyopathy. With the addition of Parmatech to our portfolio, we now have 2 differentiated approaches to this serious rare disease.

As you have seen us do this, in many other indications, such as prostate cancer, spinal muscular atrophy, immunology and multiple sclerosis. This ability to build a portfolio with multiple therapies in a category is unique to Royalty Pharma. When combined with our proven deep diligence, we are well positioned to invest in the most practice-changing and innovative therapeutic categories in the industry for years to come.

With that, let me hand over to Chris.

Thanks, Marshall. My section of today's presentation, I want to highlight the significant expansion of our development stage pipeline, together with important upcoming events across the portfolio. You can see on Slide 12 that we have achieved strong, consistent growth in our development stage pipeline since our IPO in June 2020. At that time, we had 3 potential therapies in the pipeline.

Today, we have 19, a more than sixfold increase. More importantly, the peak royalty potential of our pipeline has increased by more than 30-fold over the period with peak potential royalties from our late-stage pipeline now totaling approximately $2 billion. We have also demonstrated an excellent success rate with around 90% of our development-stage investments ultimately achieving regulatory approval which provides us confidence that these products will be an important driver of growth into 2030 and beyond.

The track record of success is underscored by Slide 13 which shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory events so far in 2026. These include positive clinical trial results for Cytokinetics Myqorzo, Zenas' obexelimab and Biogen's litifilimab. FDA approvals of GSK's Jideytro, Denali's Avlayah and Gilead's Trodelvy as well as a number of FDA regulatory submissions.

Expanding on this theme, Slide 14 shows there is much more to come from our development stage pipeline with several major pivotal trial readouts expected through 2027. In 2026, we expect to see the results of the outcomes trial for Novartis' pelacarsen. We continue to believe that the Lp(a) class could be the next major class of cardiovascular disease drugs, and we're strongly positioned to leverage this with the 2 lead pipeline products in pelacarsen and Amgen's olpasiran. We'll also see Phase III data for Biogen's litifilimab in systemic lupus.

In 2027, we expect Phase III results from daraxonrasib in lung cancer and litufilimab in cutaneous lupus. We also expect pivotal data from Sanofi's frexalimab in MS and from J&J's seltorexant major depressive disorder. Each of these potentially transformative therapies would add significant royalties to our top line. Taking a step back, when looking at these opportunities that we are currently evaluating, we are pleased to see a balanced opportunity set that includes both attractive approved products as well as exciting development stage opportunities across a range of potential partners.

To finish, I want to provide context on the composition of our portfolio, which is broadly unchanged and remains well balanced. Slide 15 illustrates that we currently have around $22 billion of total invested capital at work with around 84% of either products, which were approved when we invested or were development-stage assets which have gone on to receive approval.

Additionally, while 12% of our current invested capital work is in development-stage therapies, roughly 1/3 of that capital at work has been invested in development stage programs that have already had positive pivotal results. This means that despite the expansion of our pipeline, our overall capital work for development-stage therapies is relatively small. Furthermore, we have a great track record when investing in development-stage therapies, which reflects the quality of our diligence and asset selection.

With that, I'd like to hand it over to Terry.

Thanks, Chris. Let's move to Slide 17. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 14% in the second quarter, reflecting the strength of our diversified portfolio. milestones and other contractual receipts, which are more variable declined substantially reflecting a onetime payment in the prior year period. As a result, portfolio receipts are top line grew 6% in the quarter to $773 million, slightly ahead of our expectations.

As we move down the column, operating and professional costs equated to 4.8% of portfolio receipts in the second quarter. This line continues to demonstrate the benefit of the cash savings we are delivering from the internalization transaction, which we completed in May of 2025. Net interest paid was de minimis in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters, together with the interest we received from the cash on our balance sheet.

Moving further down the column. We have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $736 million for the quarter. Our margin of around 95% again demonstrate the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $349 million mainly reflected royalty funding for daraxonrasib and R&D funding for J&J's 4804 and litufilimab.

Lastly, our weighted average share count declined by approximately 5 million shares or 1% in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 18 provides more detail on the evolution of our top line in the second quarter. Royalty receipts, which we consider our recurring cash inflows grew by 14%. Key drivers were the strong performances of Tremfya, Voranigo, Emdeltra and Evrysdi. Importantly, as we saw in the first quarter, we were able to absorb significant headwinds from Promacta and IMBRUVICA and still delivered double-digit growth in royalty receipts.

Moving to portfolio receipts. These grew by 6% reflecting lower milestones and other contractual receipts given a onetime payment in the prior year period, as I already noted. Slide 19 updates our portfolio return metrics for the quarter. Return on invested capital was 14.2% for the last 12 months ending in the second quarter of 2026, and return on invested equity, which shows the impact of conservative leverage on our equity returns was 20.1% for the last 12 months. The remarkable stability of these metrics demonstrate that we are continuing to invest at attractive returns that will drive long-term value for our shareholders.

Slide 20 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of June 2026, we had cash and equivalents of $812 million. In terms of borrowings, we had investment grade debt outstanding of $9.2 billion with a weighted average duration of around 12 years. Our leverage now stands at 2.8x total debt to adjusted EBITDA, or 2.6x on a net basis. We also have access to our $1.8 billion revolver, which was undrawn at the end of the second quarter.

Following S&P's rating upgrade in June, I am delighted to say that Royalty Pharma is now BBB rated across all major credit rating agencies. This important milestone reflects the tremendous progress we have made as a company since our IPO, including our consistent strong top line growth, improved diversification and growing cash flows. For financial capacity, we have access to over $4 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets.

Turning to our capital allocation framework. We deployed $877 million of capital on attractive royalty deals in the first half of 2026. At the same time, we returned approximately $367 million to our shareholders, including share repurchases of around $100 million. In total, we have returned about 25% of our portfolio cash flow this year to shareholders.

On Slide 21, we are again raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.4 billion to $3.5 billion up from $3.325 billion to $3.45 billion previously. This assumes growth in royalty receipts of around 7% to 10% compared with 4% to 8% previously which reflects the strong underlying momentum of our diversified portfolio.

This guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar TYSABRI in the United States and the potential impact of IR. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026. Importantly and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions.

Turning to expenses. Payments for operating and professional costs are still expected to be in the range of 5.5% to 6.5% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. We continue to expect interest paid to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in the third quarter, with a de minimis amount payable in Q4.

This guidance reflects repayment of the $380 million term loan in July but does not take into account interest received on our cash balance, which was $11 million in the first half. To close, we've had a great first half. We have again raised our guidance, and we expect to continue to deliver another full year of strong financial performance in 2026.

With that, I would like to hand the call back to Pablo.

Thanks, Terry. To conclude, I am delighted with our continued execution against our strategy in the first half of 2026. We have again delivered compelling growth and returns. We further diversified our portfolio of attractive biopharma royalties, and we have continued to strengthen our leadership team and capabilities.

On that note, I want to close on Slide 23 with a reminder of why we believe we're well positioned to drive continued strong value creation. First, we're the clear leader in the rapidly expanding biopharma royalty market with powerful fundamental tailwinds reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma company.

By expanding our global platform and capabilities, we expect to remain the undisputed leader in our industry. We further strengthened our platform with the addition of Greg Raskin to lead our academic royalty effort. Greg is uniquely qualified to lead work with academic partners, having led the technology transfer group at Memorial Sloan Kettering for 12 years. I continue to be amazed by the level of talent we're able to attract to Royalty Pharma.

Third, we expect to deliver strong, low volatility top line and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity in a 20%-plus range.

With that, we will be happy to take your questions.

Thanks, Pablo. I will now open up the call to questions. Operator, please take the first question.

[Operator Instructions] The first question comes from Geoff Meacham with Citi.

I got a couple for you, Terry. So we've seen a big step-up in pharma biotech M&A, and maybe there's some pharma to pharma M&A to come. The question is, what is the flexibility to tilt your deal structure with increasing weight on equity? Is there any preference by the companies. And the second question is, does your credit rating, which you cited is improving or the direction of rates downward does that bias you to put more money to work each quarter? It seems like you could be more opportunistic here?

Sure, Geoff. So Yes. I think -- look, we highlighted on in my section that we have a lot of financial flexibility. And so to the extent that some of the M&A across the sector creates opportunities, which it certainly could. We feel like we are in a really great position to sort of partner with these companies in any way that they need and sort of add great royalties for Royalty Pharma. So yes, we'll see how that plays out over time.

As far as rates, I think that the way that we view rates is we truly are agnostic to the rate environment. Rates over a couple of years were rising. We deployed a lot of capital, generated great returns in excess of our cost of capital. to the extent that rates start going down, we still feel like we can deploy capital and generate great returns. So we really do feel like we're agnostic, and we'll continue to access the debt markets from time to time when we need it with a very strong focus on maintaining that investment grade rating. And we're really happy that we're now BBB rated across all 3 agencies.

And the next question will come from Terence Flynn with Morgan Stanley.

This one is probably for Marshall. The recent cardio transform data created some questions in the TTR market recognize you guys have a multidrug portfolio approach here. But just high-level thoughts on implications for Amvuttra as you think about the forward outlook here. And then again, maybe for Chris, would just be curious, any update on kind of the synthetic royalty opportunity in terms of those -- the level of discussions or openness for boards to go down that path? I know you guys have talked about the longer-term opportunity, but just curious to get kind of a mark-to-market.

Yes. Thanks, Terence. So on your first question on the implications of cardio transform. At a high level, we're really happy now with the 2 investments we have in TTR amyloidosis. And really, I think that's still a very interesting market, and we added something highly novel and potentially transformative in cliramitug, as I discussed.

Specifically to your question on cardio transform, we're kind of uniquely positioned here for -- with the royalty in Amvuttra in the sense that we think there still is a lot of physician interest and potential in that product certainly I'm excited to see what Alnylam does. But it is unique in the sense that it is positioned in some ways to drive at least some benefit from the unfortunate outcome of cardio transform, which we certainly are never sort of welcome seeing trials sale for patients, but specifically with Amvuttra certainly does take away a near-term competitor.

And because our royalty is specific to Amvuttra and not Alnylam's follow-on, if there is any delay or other changes in the expectations for the follow-on product [ olpasiran ], that would also uniquely accrue to the benefit of Amvuttra. So I think we're really excited about where we stand, and we'll certainly as we talked about today, continue to look for opportunities like cliramitug to build our innovative portfolio.

And then, Terence, on the question on synthetics. Thanks for the question. We are still very excited about the synthetic royalty opportunity. Last year, we announced synthetics for just over $2 billion, including the Rev Med deal, which was really one of the largest synthetics ever. So that was a great deal. The growth rate in the synthetic marketplace is, I think, around 40% since 2015. Last year was the biggest year ever, just under $5 billion for the product itself.

And the synthetic royalty opportunity only really represents about 5% of the capital raised by biopharma funding over the last 5 years, so not even really penetrated into that marketplace of capital formation. And given all the clear advantages of synthetics, nondilutive, lower cost of capital, program-specific funding, independent valuation validation, excuse me, there's a lot of advantages to it. And as our survey of all the biotech CFOs and CEOs really showed, it's really taking hold, and we're super excited about the opportunity. So it still is a big growth driver for our business.

And the next question will come from Chris Schott with JPM.

I just want to go -- like I think on Slide 15, you highlighted invested capital spend has been split kind of 2/3 approved 1/3 development stage over time. I guess as Royalty has grown, you've built out a broader team, you have even more ability to diligence assets. Is there any interest in leaning more into the development stage side of the business where returns could be higher or is this kind of 2/3, 1/3 mix, the right balance, I guess, if we think about risk versus return.

And then maybe just a second question. I know you've been building out more of a presence in China. Just any updates in terms of initial learnings as you've kind of targeted that market what type of opportunities you see for Royalty? And does that maybe skew towards larger deals or some of these JV assets or more towards some of the smaller earlier-stage businesses there?

Sure. Thanks for the question. So regarding the split between unapproved and approved I think that ratio of 65%, 35% has been sort of consistent over the last 5, 10 years. And we -- the way we look at this is not looking at independent years, but looking at what's going on over a sort of rolling 2-, 3-year period, and we think it's going to be maintained at a relatively similar level.

Now when you look at our invested capital, the $22 billion or so that we have of invested capital. The amount invested in unapproved, as you can see, is relatively low. It's about 12%. That number could trend up to mid- to high teens. And it would still be a portfolio that has relatively low risk. So we -- this figure could increase over time. And we would be very, very comfortable with that kind of risk on the overall portfolio in unapproved investments.

Regarding China, it's sort of early days for us in terms of capital deployed. We've been paying attention to that market for several years now. And as you know, we hired a really top player in the market. And we have started to get much more active there participating in many conferences that are being organized in China with teams present. I'm personally going to be going to China to meet with biotech, biopharma CEOs and really make sure that our model is understood by many and build the market. It takes time but we're totally committed to building that market because we believe it's actually pretty attractive and large.

So I think you should just -- we are going to be patient and people should be patient about how this develops. But we think it can be a really large opportunity for us in the long run.

And the next question will come from Michael Nedelcovych with TD Cowen.

I have 2. My first relates to operating costs, apologies if I missed it, but what was the reason for relatively low operating costs in Q2. And given that guidance was reiterated for this line, what will be the reason for an apparent increase in the second half? It's my first question.

My second question is something of a bigger picture question for Pablo. Pablo, on one of our recent meetings, when you received a question about competition, you suggested that if given the opportunity today, even you would not be able to build a new competitor that resembled Royalty Pharma. So could you remind us of your reasons for that view? Why is it that investors should not be concerned about the emergence of a competitor that has the same form, function and scale as Royalty Pharma.

Yes, maybe I'll take that question first and then turn it over to Terry to address the other question about the expenses. My point is that when you look at what Royalty Pharma is today, we had -- there's a lot of barriers to enter, right? So obviously, scale is important. And you saw -- we just talked about the scale of our sort of capped at work $22 billion. That's the amount of capital that has been invested in those royalties. The portfolio is worth a lot more than the $22 billion, that's cost.

But -- so scale is one. Cost of capital is another one. the team that we have is superb. And we just added another really great individual to our team that's going to head our academic initiatives. And it's a team that we have this incredible culture at Royalty Pharma that gets stronger and stronger. But the comment and the point you made about how it's difficult it is to replicate Royalty pharma is more or less the following. And what I say is that if people said to me, can you replicate Royalty Pharma today, if you -- someone gave you $20 billion. My answer is absolutely not. It would be impossible for me to replicate Royalty Pharma the way it is today. And it's not only because it takes time to build the team and all of the other things, but there's just one aspect that is really interesting.

When you look at the portfolio that Royalty Pharma has today. It's a portfolio that produces $3.2 billion last year of recurring revenue, predictable recurring revenue from a very well-diversified portfolio of products and its top products marketed by top companies. It took us over a decade to assemble that portfolio. And as examples, for example, we have a Royalty in what is becoming one of the top drugs that J&J markets TREMFYA. It's a large Royalty or for that matter, trilogy or cystic fibrosis.

And when you look at those assets, we made those investments 5 to 10, even 15 years ago, and they're producing cash flow today. And there's only one TREMFYA royalty, and we own it. And there's one Trelegy royalty, and we own it. There's one -- there will be one daraxonrasib royalty, the investment we made last year in this pancreatic cancer drug, and we own it. So it's impossible they're sort of one-of-a-kind assets. And it's -- the portfolio is sort of irreproducible, you cannot find another TREMFYA royalty. You cannot find another dara royalty.

And what I would also say is that when you look at our pipeline today, that has this incredible group of products that have -- could be blockbusters, many of them generating billions of dollars of revenue for us in sort of a 5-year time frame, 5- to 10-year time frame. It took us 5 years, 6 years, 7 years to assemble that portfolio of the pipeline. And again, they're unique. It's hard to see how there's going to be other royalties like that. And those are the assets that are going to be producing revenue and driving the growth in the next decade or so.

And again, so I think that is what is so difficult to replicate. It would be impossible to do it spontaneously even if you had $20 billion, $30 billion of capital, it's the work of decades. So that's my answer to your question. And I hope you appreciate the huge moat and barrier to entry that, that provides us.

And then, Mike, on operating costs, we are very happy to see that we are realizing the synergies of the internalization transaction. But specifically as it relates to first half versus second half, I think there's just some seasonality to it. And since this is completely cash-based, the second half is going to tend to be a little bit higher than the first half. So that's what's going on there.

And the next question comes from Ash Verma with UBS.

Congrats on the quarter. Maybe just first one, just going back to Slide 15, the invested capital at work. Can you remind us what type of IRR are you able to drive in the development stage assets versus the approved? I know you've given these numbers before just where you are at the latest. And then secondly, on the Lp(a) readout for pelacarsen, just latest thoughts if you can provide on what level of MACE risk reduction would be clinically meaningful. It seems like a lot of debate on this. And then if your answer changes in the high baseline NPA [indiscernible] to know that.

Marshall, why don't you take the 2 questions?

Sure. Thanks, Ash. So your first question on our return expectations. So just to level set for everyone. So what we've communicated is that for approved products are -- or on-market products are unlevered IRR expectations or are in the high single to low double-digit range. And we've indicated we're really more typically, very typically investing these days at the higher end of that range.

For things that are unapproved, our IRR expectations are above that. So in the teens, and that can range depending on the specifics of the product at this stage, the risk profile, the counterparty, all of those things. But as we talked about at our Investor Day, I think it's important to remember that those are unlevered IRR expectations. And so to reference back to what Pablo said something very unique about Royalty Pharma because of our capital structure, our ability to use leverage in our capital structure, the levered returns that we see, which are the returns that our shareholders actually enjoy are significantly higher than that. So thanks for that question, and we remain very comfortable with those ranges for our new investments today.

Your question on pelacarsen. Yes, there has been a lot of discussion these days about what our -- about expectations and what would be clinically relevant. And I think we're very excited after waiting for several years for these results to be on the doorstep here of seeing the first trial readout I think Novartis has been pretty explicit about their expectations for what is clinically relevant. So we would certainly defer to them.

But I think you bring up a really important point, which is this is the first outcome study where the world is going to see for Lp(a). So there's certainly a lot we will learn in terms of benefit what to your question specifically, what is the higher -- what does higher baseline levels of LP(a) mean for mean for patients and their ability to benefit from these therapies. So we are eagerly awaiting the results with everyone else and look forward to discussing them once we have some data to talk about.

And the next question is going to come from Umer Raffat with Evercore.

This is Mike DiFiore in for Umer. Two for me. For the cliramitug transaction, the Royalty is ultimately dependent on the Phase III cardiovascular outcomes trial. Perhaps walk us through how you handicap Phase III based on the Phase I biomarker effects as well as the existing correlation data, given the unproven mechanism.

And then more general, my second question is regarding R&D co funding. It's a very large underpenetrated opportunity. So my question is, as R&D co-funding scales, how do you prevent adverse selection where partner companies retained the program for the best internal risk-adjusted returns and offer you those with perhaps less favorable hidden biology or commercial optionality.

Marshall will take your first question on cliramitug and then Chris will take the question on this other huge opportunity of R&D funding.

Thanks, Mike. So we were really happy to add cliramitug to our portfolio. And what underlies our enthusiasm for this. I would talk about it in a couple of different areas. First is there are some really intriguing biomarker data across from the earlier studies across imaging data of the heart to show that you're actually removing amyloid, other important biomarkers like NP proBNP, which is a marker of heart wall stress and many others in the data that are consistent with cliramitug doing what we think it does, which is remove amyloid from the heart.

And just to remind everyone, TTR amyloidosis is a disease where every product has gone into a Phase III outcome study based on biomarker data. And as we've seen with the 2 oral therapies that are out there with the -- and with Amvuttra, which is in our portfolio, you've certainly seen that biomarker data translate into positive end up positive CV benefit in an outcome study.

And then maybe a little bit further a little bit less direct is just really interesting data that we've seen with amyloid depletion in other amyloid driven diseases like Alzheimer's disease, where we're learning we're increasingly learning that removal of amyloid can drive clinical benefit. And then in an unrelated amyloidosis condition called AL amyloidosis, AstraZeneca has recently shown some very interesting data with another amyloid depleter product in that disease, which suggests a benefit on -- which suggests the cardiovascular benefit from depleting that form of amyloid. So certainly, we put all those together to really inform our confidence and excitement about this.

And then on your second question, Mike, on adverse selection and co-funding of pharma R&D. It's a good question, and it's something that we emphasize on every initial call we have with pharma. Some of the opportunities we look at with pharma co-funding we're going to them and saying, this is what we want to fund. Some of those conversations are initiated by pharma and them saying what they want to fund.

But in -- I just want to remind you that our bar is extraordinarily high when we're making these investments, right? We're putting lots of capital, deploying a lot of capital in those transactions as evidenced by the 2 transactions we did this year with Teva and J&J. And we really emphasized in every situation that we want to fund their most exciting assets. And that is a key criteria for us, and we're very disciplined about that. And I think if you look at the 2 deals we did this year with Teva and J&J, you can see that is exactly what's happening.

And our next question will come from Nick Jennings with Goldman Sachs.

It's Asad, sorry about that. Congrats on the performance. One for Terry first. Just in light of the continued strong results over the past few quarters, just curious as to how you're tracking towards the $4.7 billion portfolio receipts 2030 and if and when you're thinking of potentially updating that?

And then for Marshall, you noted in the slides that there are several therapeutic areas where you've built expertise and have conviction in, oftentimes placing multiple bets at the same -- in the same space. So just maybe looking across the landscape, what are some of the emerging TAs that are catching your interest today and that we could see you moving into over time?

Sure. So on our long-term guidance of $4.7 billion or more on the top line by 2030, we feel really good about where we're tracking. I think it's -- really focused on that guidance at our Investor Day in September. So it's probably still early to be thinking about any changes there, but we feel like we're tracking really well. We're really happy with how the portfolio is performing. And feel really good about the opportunities to deploy capital in new royalties as well. So overall, we're in a really good place there.

And Asad, on your second question, thanks for that question, and it's a good one. And without being specific, I think it does -- I think what's informative maybe is how we think about it and how we approach it. I think as Pablo mentioned, we couldn't be prouder of the team that the team that we have built our culture around investing the discipline that we've shown in terms of how we approach investing. And the way we have set up the team to get to your question, is we want to have the ability to be as broad as we possibly can be. to be generalists in the sense that we are open and ready to open and ready to analyze any therapeutic area, any product, really anywhere in the world now that we see that could be interesting.

So like we've always said, we don't necessarily think about the portfolio from a top-down perspective, we want to be open to create products in whatever TA and whatever form they come to us and make sure our team is ready to set up and execute and for us to be a great partner.

And our next question will come from Jason Gerberry with Bank of America.

Just a follow-up on China and the commentary about just taking a patient approach with respect to that market and leveraging innovation coming out of Chinese biotech companies. Just thoughts on U.S. policy risk and proposed any proposed license restrictions I know pharma and bio are both opposed to these measures. But do you view this as a risk? Is this something -- when you think about taking a patient approach just taking a wait to see how the dust settles sort of thought there.

And then I appreciate the commentary on milestone dynamics first half '26 versus prior year. As we look to the second half, I know there's a couple of PDUFAs, including like Sahara. So wondering if it's realistic to be thinking about milestones being a more meaningful contributor in second half?

Yes. So I'm just going to make a very quick comment about China, but Chris is going to add and then Marshall will pick up the other question. China is a really interesting opportunity. And I've talked in the past about why. And if you think about it, the innovation is really extraordinary, and there's so many companies there with attractive assets, but they all need U.S. and European partners to actually run the clinical trials that are necessary in these markets to get approval by FDA and EMA. And they also need a commercial partner.

So what's going to happen, and it's been happening is that they're going to out-license their product, and that creates royalties. And what also happens is that, for the most part, the IP is put into an offshore entity. It's not left in a Chinese entity and the transaction is entered into between Cayman company or an offshore entity owned, obviously, by the Chinese company and Western U.S. or European pharma company. And the contract is not a Chinese contract, but it's a contract based on U.S. or European loss.

So -- and if you look at the deal we did last year with Amgen, where we bought Imdelltra, it's like no different than the typical Royalty transactions we do, where we're getting paid by Amgen, and it was a contract again, in the jurisdictions where we are very comfortable and experienced. So it's a very similar business to what we do today. I think the other last comment I would make is that royalties are different than equity. And you can see how sometimes it's more public equity, it's more complicated, more visible, and it's easier for governments actually to put restrictions on equity investments. But our Royalty is a contract and that gives rise to payments. So very different sort of more under the radar.

But Chris, do you want to add anything?

Yes. Just to add, I mean, we're obviously monitoring what's going on with the Coins Act and the proposed amendments and the Ben's Act and whatnot. And it's really sort of too early to comment on the specifics. And -- but we are obviously following that closely. The bottom line is we're very committed to the opportunity there.

We've hired Ken Sun, super excited about that hire and building out that opportunity. We'll continue to monitor the situation here in Washington but it's important to have a local presence there and the opportunity, I would note that the opportunity already exists because the last 5 or 6 years of all the out-licensing the Western multinationals, there is a substantial number of Royalty agreements that already are in place regardless of what happens in Washington. So that's a pretty big opportunity already.

And then, Jason, your question on milestones, just to sort of reiterate what we said previously, we continue to expect milestones and other contractual receipts to be around $60 million for the year.

I am showing no further questions. At this time, I will now turn the call back to Pablo for closing remarks.

Thank you, operator, and thanks to everyone on the call for your continued interest in Royal to Pharma. Just want to finish with one quick comment, which is that looking back to this business that we've been building over 30 years and also then our public offering in 2020. It's just remarkable to me how this business has performed with incredible very, very high consistency in growth and profitability and very high level of predictability.

And I mentioned at the beginning of the call that we -- this is our 25th quarter after our IPO in 2020. So more than 6 years of being a public company. And with this extraordinary record of predictable strong growth. So anyway, I just thought I would mention that. And again, if anybody has any questions, please feel free to reach out to George Grofik and his team. But thank you very much.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. Let's get right into it, to our next session. Very excited to have Chris Hite, Chairman of Royalty Pharma with us here today.

Chris, maybe just to tee you up, give us -- start with like 10,000 feet for those new to the story, give us a brief history on the evolution of the company, its core players, what the fundamental thesis is and why investors should be looking at Royalty Pharma today?

Well, first of all, thank you very much for having us here. We're really delighted to be here at the Goldman Conference and great investor meetings today, and so thank you very much.

So Royalty Pharma was founded about 30 years ago. We're celebrating our 30th anniversary by our current CEO and Chairman, Pablo Legorreta. The basic premise back then was there's fragmented innovation across the sector. And that innovation can occur at universities and hospitals and foundations in addition to biotech and pharma companies. And every time that was occurring, ultimately, the foundational research would get licensed out to pharma and a royalty was created. And Pablo was very savvy about approaching these universities and hospitals, about acquiring those royalty streams. And that allowed the company -- the university or the hospital that had those roll to streams to take the upfront capital, reploy that, and he would take the risk on the commercial side of those assets.

That was the founding of the company 30 years ago. We still do that today. That's a piece of our business. We still acquire existing royalty streams wherever they may be. And they are still at universities and hospitals and biotech companies and pharma companies. So that is still part of our business.

But the business has really grown in so many ways. We went public in 2020 and today have about a 30 -- just over $30 billion equity value. We're an investment-grade rated company. And this year, we're guiding to revenue about $3.4 billion, really attractive EBITDA margins. And what we do now is we still buy those existing royalty streams, but we also help companies through what we call synthetic royalty streams, which is we create a contractual royalty, in exchange we provide capital and that could be to help them co-fund R&D and it could be to help them launch a drug. Whatever the capital is needed for, we create contractually that royalty stream, so that we call that synthetic royalties. And that's a big piece of our business today.

The business has really also grown because of R&D funding around pharmaceutical companies. This year alone, we've done $0.5 billion R&D deal with Teva to fund their vitiligo program, and we've also done a $0.5 billion co-funding R&D deal with J&J.

And so the business has grown dramatically. The royalty market has grown dramatically. And we really see this as just a dramatic growth opportunity. And I think that's why people really focused on the TAM is large, we're just really sort of coming into the market today, and it's a really exciting time to be in the area.

And I want to unpack a lot of that. But before we do that, and thank you for that great overview, I think people will find it very helpful, just sort of as a stage set. Talk a little bit about the external environment, maybe as a -- to start at a high level. You guys are exposed to the external macro environment to some extent that's been impacting biopharma. I mean how are you finding it this year? And how is that influencing your operations?

Yes. So I would say, we typically -- when we are doing a synthetic royalty, that is with a company that is -- we're investing post proof of concept. If we're funding R&D, it's really around a pivotal study. Companies like Revolution Medicine that we did a big deal last year with, with $2 billion deal. Those companies typically can raise capital in any capital markets environment. We're really sort of doing late-stage biotech development there.

So we actually find it whether the markets are really hot and everybody can finance or not so good and only really the best companies can finance. We're typically really only working with those best companies that are later-stage development that can fund in any environment. So regardless of capital markets, we really have found it really a steady stream of opportunities.

What has really emerged, I'd say in the last couple of years, is the large pharmaceutical companies' interest in our co-funding their late-stage R&D pipeline. And they really find a lot of benefit in that. And of course, they have lots of capital. They have low cost of capital. But what it allows it to do is risk share with a passive party. So we don't need a JDC. We don't need a JFC. We don't need half of the U.S. commercial rights. We're a passive financial investor that allows them to expand their P&L capacity to do more R&D with us. And that's where we really found really a -- it's an awful lot of opportunity really in the last couple of years, that's a new sort of growth opportunity for us.

So let's maybe talk a little bit about the deal sourcing environment, broadly speaking for existing royalties and biotech synthetic royalties and then this large pharma R&D partnering that you're alluding to. I guess at a high level for each of those 3 components, if you could talk to the current dynamics and what we should be aware of in each of those categories?

So the existing royalty streams opportunities are -- that's where the company was founded, as I mentioned. The fragmentation of the R&D has only accelerated in the sector, generally speaking. So a lot of biotech companies do a lot of the early innovation. They partner with pharma at some point along the way. That could create the royalty then. University is still a lot of foundational research happening there. They create royalties. That market has been steady for the last 30 years. It's steadily growing.

At our Analyst Day in 2022, we showed some data around the number of FDA approvals, how many of those had sort of been -- what was the sort of the ratio of the partners around those newly approved drugs, that has been steadily growing over the last several years. So that existing royalty stream marketplace is there. It's always going to be there because where the basic foundational research is occurring, those aren't typically the people who are selling the drug tenor 20 years later, right? It's large pharma.

So we -- as an example, last year, we did existing royalty streams with a drug marketed by Amgen called Imdelltra. We bought that from B1 for just around $900 million. Super exciting drug just recently launched by Amgen. That's a really fast-growing drug.

Another existing royalty stream was in the news today, Nuvalent. We bought a small royalty on their existing programs. GSK acquired that company today.

So those existing royalties are out there. Those are good examples.

On the synthetic royalty side, that's really where we've seen an explosion in growth. I was an investment banker for 25 years, not at Goldman. But I'd say I joined Royalty Pharma in early 2020. When I was a banker, you didn't really hear about synthetic royalties. You went to a client, you met the CFO and the CEO and biotech company that needed to raise capital and you brought your capital markets team, you talked about doing a follow-on equity offering or a convertible bond offering. They needed the capital. That's what they thought about and that's what they did.

We've really come a long way with synthetic side. We have a chart in our Analyst Day deck from last year. I think the last 5 years ending sort of 2025 was about $290 billion of capital raised by unprofitable biotechs across -- that's across IPOs, follow-ons, debt, partnering. Around 5% of that $290 billion was synthetic royalties over the last 5 years. It's around a $15 billion opportunity just in the last 5 years. The prior 5 years before that really very, very small.

And so what has happened really in the last, I'd say, 5 years, 6 years since us going public is, a lot of our investors understand the benefit to a biotech company of doing a synthetic royalty. Why? Much lower cost of capital. When a company, a biotech company sells its equity at that stage of development, prelaunch, they don't expect their stock to grow 10%, right? They're expecting their stock to double, triple, quadruple. And if you think about selling equity at that point in time in your life cycle, that's expensive cost of capital. We've educated the marketplace on that. Our investors, who are investors and biotech companies, have educated the market on that. Deloitte did a great survey last year around the sector. And it is really now commonplace for CFOs, Boards of biotechnology companies to understand the benefit of synthetic royalties. And so when bankers go out and talk to clients today, they're talking equity, they're talking converts and they're talking synthetic royalties. And synthetic royalties really have been a commonplace now for a part of the capital structure.

We're not going to say -- we're not going to replace follow-on offerings. We're not going to replace convertible bond offerings. But for companies at the late stage of development that have attractive, derisked assets, we can play in that environment where we can give them capital to help them grow, and it's going to be a lot cheaper than selling equity. So that market is really exploding, increasing our opportunity set.

And then the last piece is the pharma R&D.

Maybe talk a little bit more on the pharma R&D. I mean how does the complexity compare versus synthetic royalties and with smaller biotechs? And how do you view the risk payoff profile comparatively versus your other investment alternatives?

Pharma, the nice thing about working with pharma is sometimes -- one of our criteria is who is the marketer, right? Pharma is a great marketer. And so when we're looking at partnering with a company like J&J, we're not necessarily worrying about can they launch this drug? Can they launch it globally? That's a box checked. They're also, I think, probably more realistic around the sales curves and the launch curves than a biotechnology company. They're not as overly aggressive in their view, right? They're probably just have better modeling skills or not as aggressive, just more experience in doing those things.

So we actually have really enjoyed -- like I said, this is a relatively new development with large pharma. We've done deals with Merck, J&J, Teva, Biogen, Pfizer, Sanofi, where they have done R&D funding with us for their risk sharing. They're doing it in a way where they can get contra R&D accounting, which allows them to expand their R&D P&L. And we're passive. So it's a really attractive business proposition for them.

And so we like that. We like a lot of those aspects. The key for us is doing the deals. We want to really fund things that they're excited about, that are at the highest priority levels for them, that they're focused on with their investors. And so that's where that lands.

Contrasting that with biotech, one of the things that we always have to assume is that the party we're partnering with on the biotech side that we're comfortable with their capability to launch. We don't assume any acquisition ever takes place. If we're partnering with a biotech company, we were assuming that that's the team that's going to launch the drug. We never bet that this company is going to be acquired, despite a Nuvalent getting acquired, as an example or Immunomedics got acquired as an example or Biohaven. Those were all companies that biotechnology companies that we did deals...

Got good trades, though.

A great track record. Great track record. But that is sometimes the constraint we face is, can they launch this? Can they achieve this? Do they have the capability and the resource capability to launch a drug? It's a lot of hard work.

Let's maybe talk about market growth. In your September Investor Day deck, you talked about how -- you noted how it's synthetic royalties with 3% of biopharma funding the pie through 2024. In the current corporate deck, I think it shows 5% through 2025. So what does that translate to dollar-wise, like for Worksuite investors on a yearly basis, what does that translate to? And how much do you think that grows over the next 5 to 10 years?

Yes. So all I can say is that it's a transformation of the acceptance of that as a funding mode. That 5% in that pie chart is 5% of any way they raise capital. And that's that 5% of the $290 billion's raised by the sector over the last 5 years, translate to about $15 billion in synthetic royalties. That's versus IPOs, follow-ons, debt, partnering primarily.

Where that goes? Hard to put an exact number on it, but it's going to go up because, once again, I think the market has been educated that the most expensive cost of capital you can do at the Phase III stage biotech company is selling equity.

Now maybe that's your only choice and you've got to sell equity to raise the capital. We get that. Everybody in this room gets that. But if you have the ability to at least lower the amount of equity you need to raise by doing a synthetic royalty, the math just proves out, it's to your best cost of capital you can raise.

And so that has taken hold. And I think it's going to -- I mean, it grew from that 3% slice, I think in our 2022 deck to a 5%. In a couple of years, I think it's going to grow pretty dramatically. And I think even banks like Goldman and your competition, everybody has a team now that's talking synthetic royalties when they go and meet CFOs and CEOs and they're talking about capital formation.

So we think it's a great product for the sector. And it's -- we look forward to the growth there.

Another place where everybody has a team is China.

Yes.

So let's talk about the China opportunity, Chris. I mean you've called out China as a large market opportunity. I think you put a team in place now on the ground. You've hired someone. How have those dynamics evolve? What stage of development on a global basis would you prefer to transact in that region? And maybe also talk to us about whether any kind of political policy considerations that we should be thinking about in the architecture of those deals?

Yes. So China is a new growth opportunity for us for sure. We hired recently Ken Sun. He started last month. He ran health care banking in Asia for Morgan Stanley. And we're super excited to get him on board.

As everyone's very well aware, there's been really a large amount of out-licensing of compounds to Western multinationals. It's almost every day you wake up and there's another large deal with Bristol or GSK or Merck or whomever. I mean, everyone...

They're getting larger.

Yes, and they're -- so we have a great chart in our deck that really shows even 5, 6, 7 years ago, there was virtually 0 out-licensing by the Hengruis, the Hansas of the world to Western multinationals and now it's exploding.

That opportunity for us is -- it exists today because those compounds are at Western multinationals, the big pharmas of the world, and we're tracking their development. And those development deals are at every stage, right, pre-IND to clinical development stage.

As I mentioned, our bread and butter is either post proof of concept, so Phase III in the registration and approved drugs. I mean we don't go earlier than proof of concept. So we're tracking all of those out-licensing deals to the large pharmaceutical companies monitoring their development programs and building those relationships with those out-licensers in China. So all of those companies that everyone is familiar with.

Ken Sun on the ground in China has existing relationships with those companies. We'll continue to develop and build those relationships and facilitate those partnering opportunities for us where we can acquire those royalty streams from those China. That's the opportunity in front of us.

We did a large deal last year. I mentioned that on Amgen's drug called Imdelltra, partnered with B1, which obviously is now a Swiss came in company, but a lot of people do associate B1 as a historically Chinese company.

Beijing.

Exactly. And I think that opened a lot of eyes in China of those companies that have been doing a lot of the out-licensing. When you see us pay $800 million upfront and potential near-term milestones, that's a lot of capital that they need. And that caught a lot of people's attention. That's a great sort of building block for us to build those relationships to hopefully get those royalties when they're appropriate for us to want to buy them.

Let's have another big pickup question, Chris. You guys really sort of started this business, trailblaze date. As you've done -- like talk to us a little bit about the competitive environment, how's the competition? How has the competitive landscape evolved? It seems like a number of other large funds have woken up to this opportunity that you guys were early sort of pioneers in, how do you still win in an increasingly competitive environment coming from a few different angles now?

Yes. Well, I'd say it hasn't been a surprise when you see the royalty market grow the way it has grown. And last year, I think it topped combined of existing royalty sales and synthetics, $10 billion marketplace.

When you think of the R&D spend required by, I think, large pharma's R&D spend is going to be about $2 trillion over the next 10 years, unprofitable biotech, about $1 trillion. That's a large TAM. So you wouldn't be surprised when you see private equity firms and other folks want to get involved in this really large market opportunity.

We actually welcome additional players into the sector, because when you see smart investors and they're smart investors, as another voice out there in the marketplace to educate the biotech and pharmaceutical companies about the advantages of working with financial players to help fund their pipelines, help fund and raise capital for them at attractive cost of capital. It really, I think, helps develop the market. We -- and so we think the market is growing so rapidly, and the TAM is so large, the competition is not the concern. I think that voice -- additional voices out there help percolate and grow the market. And to us, it's really about doing good deals. We really have to focus on doing good deals, staying very disciplined structuring win-win deals with our partners is really important to us. We have a lot of repeat business with existing partners because it's not winner take all. We want to work with people where it's a win-win when we structure deals appropriately. So to me, it's really about doing the right deal.

How many deals does the team see a year?

Last year -- so we have a -- for those out there, we have a funnel slide somewhere in this deck.

I wanted to give you the opportunity to talk about it.

But last year, we looked at 480 opportunities, which is basically almost doubled in the last 5 years. It just shows you the growth of the -- just the acceptance of this funding source. And this year, I don't know where we are right now, but it's an incredible opportunity set. And -- but we -- it's really staying disciplined. That's the key. I think we do a really good job also. A lot of people have come and approached us. They want us to work with them and their data is not quite yet there, right? So you might see people say, well, gee, you sign 150 CDAs or something and deep dive diligence on a lot of things. Some of that is -- things that are just a little early but we develop those relationships with those companies. And so they understand then at a certain point in time when they have proof-of-concept data, and we can really characterize and underwrite the risk of the Phase III study. They understand how we work and they come back to us. So a lot of our early work might be early, but we enjoy getting to know 1 another, and then a year or 2 later, it's surprising how often it happens, but there's a comfort level with both sides, and that's another way that funnel works.

I want to dig into some of the specific deals, Chris. But before we do that, maybe I just want to take a pause and see if any questions from the audience? Okay. There's 3 that I want to touch on. One Revlimid, Rev Med rather. Impressive data, obviously, big focus plenary at ASCO and all of that, right, getting a lot of attention on a press. Your potential peak royalties are $180 million to $340 million. First, just unpack what it would take to reach those numbers as you thought about it?

Okay. So that range is something we've put out there. For those that don't know, Revolution Medicines, we did a deal last year and it was a $2 billion headline -- by the way, I mean, the data was amazing, it's -- I'm just thrilled. And the team there is an amazing team, Mark and Peg and everyone. It's just incredible effort that they did. So hats off to them, an incredible partner.

The transaction just for people's reference, $1.25 billion of the $2 billion was the synthetic royalty and $750 million of the $2 billion is a term loan. So focusing on the $1.25 billion, at close, we funded $250 million. So last year at closing, they got $250 million. The next tranche, which we've also closed on was on the data recently. And so they have now funded $500 million of the $1.25 billion synthetic. So there's now a royalty, and it's a tiering down royalty on that $500 million that is in existence. That results in that lower end of that range. So if they didn't draw any other tranches of the $1.25 billion, we would hit that number given the consensus that is out there for the product. I think the consensus is around -- I mean, people are going to look it up. I think it's $11 billion. But I think our royalty above $8 billion is 0. So it doesn't really matter whether it's 9 or 10 or 11 or wherever it goes to. So that's that lower bound.

The upper bound of what you -- of the range you mentioned, is that they drew the other 3 tranches. So if they drew the other $750 million available to them on the synthetic side, that gets the higher royalty rate in that is the Rev Med range, the $750 million, $250 million that's mandatory on approval the other $500 million is at their option.

So it's a great example of win-win. I mean they are really smart people. I think that was a great negotiation where both sides ended up with a very happy deal. For them at a time where their market cap was somewhere around $7 billion or $8 billion, I can't exactly remember, they did an incredible financing. If you take a step back and think about where their stock is today, and you talk about cost of capital and equity financings, I think if they raise that money back then where their market cap was and their stock's gone up, I don't know, 4 or 5 fold. That's expensive cost of capital. Instead, they did this royalty deal with us, and that's a really smart deal by Mark and Peg and Jack.

And so that's a great example of synthetic royalties and why they're so attractive. And for them, they don't have to draw the rest of the $750 million. They could not draw it, but maybe they decided to draw it because maybe they view that as still really attractive cost of capital. The great way about that deal is, which -- with each successive tranche, that asset is more and more derisked. So at close, it was pre data. The second tranche was data. The third tranche is approval. And so each tranche, that asset becomes more and more derisked. And so the cost of capital for each tranche is lower for them. So they really designed a really smart deal plus they have access to the term loan. So it's a $2 billion funding arrangement at a time where it really save them on the equity front.

And if they were to get acquired, does the structure of the deal change at all?

No, the 2 tranches that have been drawn, that's it, they're drawn. There would be a small -- on the term loan, if it happens before term loan was drawn, it would be a small, little tiny, tiny, little incremental fee, but that's it. So it's -- it is what it is.

What about Lp(a)? We've all been eagerly awaiting the data you're partnered with a couple of programs. Just maybe high-level views on the class prospects for the trials, the opportunity set for Royalty Pharma. I know Marshall is not here, but it's just a high level...

Yes. Sure. Yes. So we did 2 deals in the Lp(a) class, 1 with -- 1 on pelacarsen, which is Novartis' and 1 with olpasiran. Ionis and Arrowhead were the 2 -- our 2 counterparties on these transactions with AMGN's olpasiran.

So Lp(a) is a super exciting genetic biomarker and LDL and a former cholesterol, and we're super excited to see the results of the trial. I think when we take a bigger step back and we think about our portfolio, we invest about 60% of our capital over a very long period of time, maybe 15 years in approved products, and the rest is an unapproved. And a lot of those unapproved investments are post-Phase III pre-approval. So they're really derisked. When you have a portfolio like that, that's really grounded and risk-adjusted return is very strong, I think you can afford to take what we would all consider a clinical bet. Those 2 drugs clearly lower Lp(a). They've shown really strong effects in lowering Lp(a). What's super exciting and unknown is whether that lowering of the Lp(a) will result in clinical outcomes that matter, and we're about to find out, right, I think with Novartis.

So it's a great example of our ability to sort of look at our portfolio holistically, where we've made a lot of really solid bets on approved assets or near approved assets, and we're getting really strong risk-adjusted returns. It allows us to take a little bit more of a clinical bet on something that is -- could be a transformative class at a really large class with 2 world-class cardiovascular marketers of Amgen and Novartis. So we couldn't be more thrilled with the partners. And we're really hopeful Novartis has good news later this year.

Okay. And then I guess, instead of asking -- me asking on my third deal, why don't I hand it back to you is that, why don't you terms -- let's talk about another deal that you're excited about in the last minute.

Yes. I would say we're really excited about the most recent R&D deal we did with J&J. So $0.5 billion -- that's the combination where they're combining their TNF and...

That was my third.

Yes. Okay. That's good. All right. That's good. So we are currently partnered with J&J on Tremfya -- so they're combining Tremfya with their TNF and...

All the phenomenon asset.

And running a Phase III in refractory IBD and UC and Crohn's, really exciting area. I actually saw it in your AbbVie presentation today, they were talking about refractory IBD indications.

I mean, J&J is a world-class marketer in IBD and I&I, we -- world-class partner, just a great experience with them, working with them on this historic R&D deal with them. So we're super excited about that, the prospects of that as well.

So are we, Chris. So well, I think that's a great place to stop, we're right at time. Congratulations on all the progress, seems like it's starting to get more recognized by investors just judging by the stock price. So I hope the momentum keeps going, stock outperformance rather than the stock price. And thanks again for the discussion.

Yes. Thank you very much. Thank you.

[Audio Gap]

Company, which is Royalty Pharma, and it's my pleasure to

To have with me today Marshall Urist, who is the EVP, Executive Vice President and Head of Research and Investments at the company. Let me start with an interesting anecdote because I know I have big shoes to fill with respect to Greg leaving, and he was the one that interviewed you last year, but I covered my first Royalty company actually in the late 1990s before it was taken over. And it's interesting because I cover a couple of them right now,

But you guys have done such an incredible job over the last decade and even more, but while you've been public. And with that, how we'd like to start this conversation is I want you to share your perspective on the outlook for royalty financing right now in the context of the current macro environment.

But also, there's been a few things that have been going on in the market, the way I understand it, in the alt and private credit groups that have acquired some of these royalties and may not want them anymore.

And I'm just curious if that's something you'd look at? Or is the duration simply too short and not of the quality that you're typically focused on?

Sure. So great to be here, Doug, and thanks to you and RBC for having us. So the first part of your question was sort of on the outlook for royalty financing. And we are really excited about where things stand today. I think we see our market and our TAM as expanding in sort of several directions at this point. I'll loop in what you mentioned with the macro environment.

I think if you look back, our view is that on the synthetic royalty and just a quick definition, that's where we create a royalty to fund -- to directly fund a company where one didn't exist before. And we've done that with small companies and large companies. And I think what we've seen over the last 5 years is that from a secular point of view, the -- our kind of the biopharma world's view has kind of come to put royalties as kind of a core piece of how people fund companies right?

And we've been talking about it for a while for a very long time. It's great to see it happening that Royalties are becoming kind of a core part of the capital structure alongside equity, various forms of debt partnerships, whatever it takes, right?

Our industry is so capital intensive that as it matures, the need for different forms of capital just has created a space, I think, where royalties have thrived, and we're super excited about that part of the market. If we look at where we are today, our team put together, if you look at total capital raised by biopharma over the last 5 years or so, royalties was only like 5% of that, right?

So you think about the headroom that we have is super exciting, and there's just a lot of room to go. But we're also expanding in other directions. We've talked a lot recently about how we can be a great partner to the biggest pharma companies in the world, right, by directly funding R&D. And we just announced a really exciting deal with J&J to fund one of their IBD programs. And we see that as another exciting direction that our business can grow.

And then we should also think globally, we've talked about China as another direction where things have expanded, right? We've seen just an amazing explosion of licensing deals. Every one of those licensing deals creates a royalty, right? So we've been paying attention.

And so we're -- we've announced recently that just given the scale of what's happened there, we're building a team locally in China to start to develop the kind of Asian Royalty ecosystem, right? It doesn't exist before. Our team and our team and certainly our founder was kind of key to building the Royalty market here, and we see a really exciting opportunity to do that in Asia as well.

And so we're there to sort of we're there for the long term to build the business there. So you asked about macro. We don't think it's so much macro as it is sort of -- as it is kind of just core that our form of funding is kind of growing up in a way and having -- has become a core part of the way we do business.

Okay. Perfect. When you think about the market share that royalties have as the whole construct, whether it be equity financing debt, et cetera, et cetera, where do you think that number is right now? And where do you think it could do as a total amount of that funding for these types of companies?

Yes. Like I mentioned previously, pinning it down exactly is difficult, but we're a single-digit number, right, sort of probably that mid-single digits kind of range. We haven't said, but is it, we haven't said exactly where we think it could go, but you just think about how the number of companies, the total capital need out there, the pie is still growing, right?

And so I think that share will only increase as we look forward. give an example of -- we did a very large exciting deal with Revolution Medicines last year. That was a total of a $2 billion commitment over time, right? So you think about -- as an example of how things are growing, right?

When you think about that scale and looking to scale and be a long-term partner to companies, there's just so much headroom on the synthetic royalty side for us to grow.

I do want to talk about China and also the co-funding with pharma. But I am curious about a couple of other things first. When you think about the synthetic royalties and risk, how should they be viewed as an unsecured form of risk or a different type of risk?

Yes. I think the way -- sort of part of your question is what kind of asset is a synthetic royalty, right, sort of a technical question in a way. And the way we think about it is we're buying equity in a product, right? And so that is a royalty.

We own a slice of the future revenue of that product. So that product changes hands for any reason, we travel with it. So that's how we think about it. The other part of your question, I think, highlights an important aspect of synthetic royalties and why -- another reason why I think it's grown is the flexibility to structure is basically infinite, right?

We can -- to your question about where does the risk lie, we work with our partners all the time to say, let's develop a structure that works for both of us. And so the core of that conversation is always how do we kind of balance and share the upside and how do we balance and share the downside risks as well, right?

And so that's why you see often those deals have structure where if things go really well, there's one set of kind of structures around that. And if things don't go so well, right, we can marry that with things which might mitigate our downside in underperformance scenarios.

And that's based on the structure of the Royalties...

Exactly. Exactly. And there's no -- when we go to our partners, our founder and CEO likes to say that we approach everything with a blank sheet of paper. And that is absolutely true, right? We come in and it's really a conversation. It's not a one-size fits all by any stretch. We say, what's important to you? We have a view of the product, and we sort of bring that together.

And I think something we've gotten really good at over time is how do we be a really good partner and find something that's fair, that's a win-win for both us and our partner.

Perfect. I want to spend a second on the competitive environment because when I think of most companies, they have a defined competitive marketplace. This is really a new business, let's call it, a couple of decades old. But you are so dominant, I'd say, in this space. How do you see competition?

Yes. No, it's a good question. And there's a couple of different ways to sort of give you some insight. Number one is, as we think about where do we spend our time and what do we worry about, competition is not like a defining thing that we sit around worrying about all the time, right? Where do we spend our time?

We spend our time trying to grow the pie and make our market bigger, right? That is where our time is best spent. But we exist in a competitive marketplace. There are competitors out there. And I think this is misunderstood by some of our investors sometimes. From our point of view, competition has, without question, been a good thing, right? Because it makes markets bigger. It makes people -- makes partners be more confident in selling.

And so having other people out there is a good thing, right? There's more people talking about royalties, right? All those things. It's like when a pharma company when in drugs like same concept all the time, right? You have 2 companies investing in a market, it makes that market bigger.

So all that being said, I'll just finish by saying, look, we have built our business and our team to compete, right? So we feel like we have the lowest cost of capital in the space. We are the sort of -- we are completely focused on this one market. I think we have the best sort of diligence and execution and business development team out there.

So we don't ignore the competition, but we're more focused on us making the market bigger. And ultimately, that's how we've been able to build the portfolio that we have.

Perfect. I do want to spend some time now on the R&D co-funding because I thought that was really unique. We know that we've seen $1 billion in Q1, 55% of the global industry is focusing on this now. But there's -- I don't know if there's -- there could be a few other companies, but certainly yourselves, you're the only one that can really service those types of large pharma companies.

Can you talk about the opportunity there? Like I just think it's absolutely enormous relative to how people originally thought of Royalties and not the synthetic type, your traditional types.

Yes. So look, there -- we do have -- there are a couple of our competitors in this space. But you're right, it's a pretty narrow set of people who can do it. And what's exciting there, it's sort of a cliche, but this is like it feels like an overnight success that took 15 years because we've been talking about these deals for a long time, right, with pharma. And we had done them over the years, right? We sort of did a handful of them over the years.

I think a couple of things have changed and sort of brought it together, we really feel like it's reached critical mass. I think one is sort of macro in the current drug development environment, right, which is there is more competition.

There's more pressure in any given therapeutic area to move faster and do more in parallel and companies have been doing more M&A, right? And so all of that puts a lot of pressure on capital allocation within -- on the P&L, right? And that's the core question is these companies have so much cash flow, why do they need you, right?

And so the -- but what's actually going on is that's true. They have tons of cash flow, but they don't have infinite P&L bandwidth, right? And so that's where we are a great partner to pharma is we can help to kind of expand that R&D bandwidth and allow them to invest in more things in parallel.

And we're able to do that because, look, we have scale to kind of act like a partner, but we're more of like a financial partner in that way. We have a cost of capital that is competitive with the biggest pharma companies in the world. And so that's -- this is a really exciting opportunity. So we spent some time talking about this on our last quarterly call.

And this is another aspect of our market, which we're really optimistic about, and you've seen some big transactions in the past year by us and others. And I think this is another -- we talked about how our market is growing, a new TAM. This is certainly an example of that.

Okay. Excellent. I thought I'd switch now to more on the R&D side and we can talk about a few products and things like that. And you have Dara, you have Myqorzo, you have Avlayah that just got approved recently. When you think of those products, can you comment on what peak royalties could be from that group of products there, let's say, simply based on what consensus numbers are or something like that?

And it's a great question. And I think it maybe to help frame it a little bit of why it's important is we -- is that our top line this year is going to be over $3 billion, right? So we are the biggest player in the space, but we're certainly not massive from a revenue point of view at this point in time.

And so what's so exciting about some of these that have happened is it sort of gives everyone a sense of scale of how we can continue to really grow the business from some of these individual products even. So we talked about our deal with Revolution Medicines.

So they obviously had some -- you couldn't miss it in our space, some very exciting data recently that we're going to see here in a couple of weeks. So we did a $2 billion deal with them, $1.25 billion of that was synthetic royalty. Now of that, sorry for all the numbers to everyone here, but of that, $500 million of it was the company had to take, and we've now made that investment. It was $250 million at the time we closed the deal and another $250 million based on the positive outcome from this trial.

So right now, on that piece of it alone, we have a royalty that starts at 4.55% and then tiers down and then our royalty is 0 over $8 billion. Based on consensus sales, that piece alone will be $180 million of royalties to Royalty Pharma once you get to $8 billion. And I think given where that product is and the momentum that it has, we certainly think it's going to get there.

Consensus is well north of that, right? So that's going to be a really nice contributor. Now if Revolution Medicines draws more of that and that will become available to them.

Do you think they will draw?

Look, I think we'll see. I think it was designed. It's important to keep that in mind because I think we talked about structuring flexibility, right? It was designed to give them flexibility, right? And again, that concept of fairness, right, of sort of a win-win. We've -- our minimum investment there was $500 million. I think we're thrilled with that investment. That's great. And our -- the remaining $750 million is available to them. It was -- I think it was an important transaction for them because it gives them kind of the long-term runway of potential access to that.

And the nice thing is, look, they can make that capital allocation decision at the time and decide the cost of capital of that versus equity versus their other options. So we'll see. I think the structure, though is -- the structure of that is kind of functioning completely as intended.

If they were to draw the whole thing, that would be $340 million of royalties to us. But look, based on what we have, I think that -- I think really nice to add a really important meaningful product like that, that's also really meaningful to our top line as well.

You asked about Myqorzo and Cytokinetics, another company that we funded in Phase III, and we've been really thrilled to see what they've done both in terms of the current approval. And then very recently, we got some good news on a label expansion trial into non-obstructive hypertrophic cardiomyopathy.

So that one, consensus sales for that, I think, are a little over $5 billion. That would give us a royalty of, call it, $230 million or so as well. So again, like another sort of really, really exciting partnership in a way that we're using these -- using synthetic royalties to really continue to refresh and build our portfolio.

Now Denali was a smaller deal for us. And -- but look, such exciting technology, right, with being able to put -- get drugs into the central nervous system. And what we really like there was, look, you have a product that really addresses the unmet need in a horrible orphan disease.

Now that's smaller for us, probably $50-ish million of royalties, but it was a $200 million investment, right?

So you have to think about all of these in relation to how much we invested. But it does give you some insight through all of these into how we select products, right, which is we really want drugs that we feel like are important in their respective diseases, right? Daraxonrasib goes without saying, right?

Denali and novel target, novel chemistry gets to one of the drivers of the disease. Say the same thing about Denali, right? You can finally get the drug where that causes the major symptom complex of that disease. Cytokinetics is the same.

So 3 great examples. Thanks for asking about 3 good ones. Three great examples that shows how we build the portfolio.

Another deal you did recently, which was a little unusual was the Zymeworks deal. Can you tell me why that was attractive?

It's a completely -- the way I think about it is it was a completely normal deal down the middle for us and a slightly different structure, right, that sort of helped our partner. So that -- so just so everyone knows, we bought a slice of Zymeworks royalty on Jazz' Ziihera, which is the same theme, right, gastric cancer, horrible disease. This is a product that has -- when added on to the current standard of care, continues to push out survival and add value to patients there.

And so it's a pretty exciting drug from that point of view and the data is great, and we bought a slice of a kind of pre-existing royalty from Zymeworks. And so sort of normal course for us. It was structured in a slightly different way, again, that helped our partner out for a whole host of reasons.

But the theme, I think, here would be, look, we -- despite doing this for decades, right, we will -- we want to find structures that work for our partners, and we are set up to be like total flexibility that way. And so that's a good example of how we needed to do a slightly different flavor structured as a royalty-backed note. But again, we're sort of -- that's what we do and what we've shown we can do to work with our partners.

Okay. Another exciting area I see anyway is the lipoprotein A class. You've got interest in 2 products. Can you give me your thoughts there and what the opportunity might be and how successful -- not successful, the odds of seeing some good results out of these trials later this year?

Yes. So we have made investments in the #1 and #2 Lp(a) products out there, the Novartis product, which I think we're going to see data here in the second half of this year. And then we also own a royalty in Amgen's product, which is 1.5 years behind.

One of the things we're obviously out to do strategically is identify targets and drugs that have the potential to be the next big thing in a large market. And I think cardiovascular disease, particularly cholesterol management is an area where, yes, there's been some innovation in PCSK9, but we've been like banging on LDL for a long time.

Lp(a) is kind of a whole new concept. It's a form of cholesterol, but it's a genetically driven form of cholesterol. So you have a population of patients who have a really well-established risk factor. And I think the kind of question at this point is, is lowering this form of cholesterol going to lead to an outcomes benefit.

Obviously, we think it will. There is lots of questions about effect size and what is the right population of patients to treat in terms of baseline levels of Lp(a). But I think you take a step back, right, this is a target that affects millions of people around the world.

It's in the hands of 2 of the kind of premier cardiovascular marketers out there. And it's an example of how we can have things in our portfolio that admittedly are maybe a little bit -- have a little bit higher clinical risk.

But give us the potential opportunity to have meaningful interest in a multi-blockbuster class. And so this is one example of that. We will certainly continue to add things like this to our portfolio over time. But in the context of the scale of Royalty Pharma, it's great to have 2 exciting potential opportunities like this.

Okay. So a couple of questions to wrap up on the scale side of things. You've indicated you've got $30 billion of projected capital capacity ahead of you, and you're thinking about $2 billion to $2.5 billion of investment annually. Could you be meaningfully above that if the right deals came along?

Yes, it's a good question. The answer to that is yes. We've talked about doing $2 billion to $2.5 billion a year of new -- to average that in terms of new investments. But the way to think about that is we just wanted to give the market and people something to anchor around because it's important -- obviously, new investments is kind of the -- one of the core parts of our business.

But it's not like we wake up on January 1 and say, okay, we have to find a path to $2 billion to $2.5 billion a year, right? We're looking to make the best investments we can every year in great products. And so could we be meaningfully above that? Absolutely, right?

It's not like we stop every year because we get to $2 billion to $2.5 billion, right? It is really about finding great products. And if we find those great products that have attractive returns for our shareholders, we're going to make those investments.

So what I want to wrap up with is sort of how the market sees this company from a valuation standpoint. Right now, I'd say that you internalize the external manager. I think a lot of people like that, attracted new investors. But this company, the way it's structured, trades at a discount to almost everything out there.

And yet it has some of the best, I'd say, properties, let's call it that, using a [indiscernible] term. And I'm just curious if people could start to wake up to the fact that this is a very well-diversified company that has access to a number of these attractive products. when are people going to start to even wake up more? Yes. I know it's doubled, but from...

Yes. No, no, good. Yes. So I appreciate the question, and it's an important one. And I think the key message is that we really see ourselves as being one of the premier capital allocators in life sciences that is the -- and we have the true ability to compound growth, right, because we're constantly reinvesting.

And so I think we -- from our point of view, we are an N of one. There is no one else like us out there. And so I think certainly, people are starting to understand our story, but we are just at the beginning. And so we are really excited and really excited about the future.

And please, everyone, watch us execute and hope that we're going to -- that will create a lot of value for shareholders along the way.

Well, Marshall, thank you for coming back again this year. Thank you. Appreciate it.

Great questions. Thank you.

[Audio Gap] BofA Annual Healthcare Conference. My name is Jason Gerberry. I cover biotech and pharma, and I am pleased to be introducing Royalty Pharma. We've got Terrance Coyne, EVP and CFO; and Marshall Urist is going to be joining us in a minute, EVP, Head of Research and Investments. So Terrance, thanks for joining us.

Thanks, Jason. Thanks for having us.

So maybe I'll kick things off. Just state of the landscape and the royalty financing business, which you guys are in, and we are seeing some changes in the competitive landscape. And so I thought it would just be -- your overall view on market share, competitive moat and a lot of the efficiencies that you provide for partners? How are you seeing those dynamics play out in the royalty financing market?

Sure. I can start on that. I'm sure we both have perspective on that. So I think the simple message is that we feel really, really confident about both our broader marketplace and our role in it and where we stand from a competitive point of view. I mean you look at the transactions we've announced this year, right? We've done 3 really exciting transactions. Most recently, a really exciting and I think, innovative Phase III financing deal. I'm sure we'll talk about that broader market with J&J. We bought a sort of traditional royalty from Zymeworks on a Jazz oncology product and then did another Phase III financing deal with Teva.

When I think about our kind of competitive advantages and where we sit. We've talked a lot about this. But simply, I think Royalty Pharma has been built and we talk about this concept of optimized as our structure to be the biggest and strongest and most competitive buyer and originator of royalties on drugs in the world. And I think we feel like the wind is at our back. Our market continues to grow. The demand for our type of financing is only increasing. And we highlighted on our last earnings call that there's been kind of a whole new source of demand from large pharma companies in terms of helping us partner and funding R&D.

And so from that perspective, I think our market is only expanding. We're excited about China as a new geography to originate royalties. And so we feel really good about where we are. And certainly, any market that attractive is going to attract other competitors who want to be in it. But I'd say just 2 quick things on that, which is, one, competition in our case, I think, has only served to expand the market, right? It's been -- no question, it's been a positive to have multiple people out there talking about royalties, convincing sellers that this is a robust market. And second is we feel really good about our ability to compete, right? There's no and no change on that front. So that's kind of our take on where things stand today.

Okay. So we cover all those companies that you just mentioned that you did deals with, and they're not companies that I typically think of as resource constrained. Typically, a lot of the synthetic royalties that you do, the SMID-cap biotech companies, you think of as more traditionally resource constrained. But when I think about those deals, those are assets with multi-indication potential. We had a meeting with Teva yesterday, and they framed the deal is like giving us speed, the ability to move faster to go after more in risk share.

So as pharma crowds into certain categories with these like multi-indicated drugs and they've got to interrogate assets and probably take on risk, is that sort of the wind at your sails for these sort of larger pharma deals that are now opening up for you? You mentioned the Teva, the J&J type deals.

Yes. No, I think that's part of it. Certainly, that the -- there's just sort of a -- they need to do more quicker. And so you need to be able to pull in a lot of resources to do that. We know that companies have -- they have only so much that they can spend on R&D. And as their pipelines grow richer and richer and they need to accelerate more, they need to be thoughtful about where they're allocating resources, and that's where we can come in and play a big role, where we can, for a fairly low overall royalty contribute a significant portion of the funding. In a lot of cases, it's half or even more than half of the total funding of a Phase III trial.

So there's a risk-sharing component. There's a speed component. It also enhances the returns that they generate on those programs because they're spending less and -- but they're still keeping a lot of -- the vast majority of the economics. And so -- and it allows them to kind of expand their R&D capacity. So overall, we think that this is actually an area that could see a lot of growth. We announced, obviously, the J&J deal, the Teva deal. Last year, we did a deal with Biogen.

But we feel like we're still at just the sort of tip of the iceberg here. And prior to last year, it was a very small part of our overall business, and we've been deploying a lot of capital year in and year out without this. And so we're very excited about this because we think it could pretty dramatically expand our total addressable market.

Yes. And you talked about a lot of different mechanisms even involving China and innovation coming out of there. How would you frame the 2 or 3 biggest growth sources as you see in like the next 3 years where your deal flow could get allocated to at least?

Yes, I can start on that one. So you mentioned a lot of them, right, which is, look, I think fundamentally, our core market is still growing, right? The world of biopharma, even if you exclude the large global players, their need for capital is only increasing. We're obviously -- we're seeing a lot of M&A, yes, but we're also seeing a lot of companies that want to build and become the next Vertexes like with RevMed or like in Insmed recently of companies that are really scaling into the future. And so that's creating a lot of demand for capital across the space.

We talked about pharma R&D. And then I also think we talked about China as well as like 3 kind of big pillars of that. The other thing I think is important for Royalty Pharma as a growth driver is we're coming into a period where a lot of the seeds that we've planted in our pipeline, our unapproved pipeline are starting to read out. We've had some really good successes so far this year. But I think as we think growth for Royalty Pharma, I think certainly, that's another source of growth that's going to become more and more visible to the market and to our shareholders.

How do you need to scale the human resource side of the equation to keep up with this growth in all these deals that you're analyzing? And I imagine it is growing a bit like a mushroom.

We are we are scaling. We've scaled a lot over the last 5 years. We've probably tripled our headcount since our IPO. But we're still going to grow. I think it's probably going to be a bit more surgical at this point. Marshall's team is going to continue to grow because the deal flow is growing, and we need people, great people to analyze these things.

We've been growing on the data side. We hired a new Head of AI, which we're really excited about because -- and in a way, that's also going to enhance the ability of Marshall's team to do great research and identify great drugs and structure and diligence investments. So it ultimately increases our probability of success and increases the returns on our invested capital.

So -- but overall, it's not going to be huge numbers. We -- it took us a while that we were hovering around 100 people for the last almost 2 years. And we finally cracked 100, and I don't know if we'll go to 110 or 120, but it's not going to be dramatic, and it will mostly be fairly junior people on the research team because we like to really develop people internally. We did have a really exciting hire, Greg Butz, who is actually ironically at healthcare banking at Bank of America. So -- but he's going to be a great addition to the team and work with Chris Hite on and Marshall, obviously, on sort of the relationship side, and bringing deal flow and helping us to drive the business.

Great. Great. And so you did mention your unique tax status versus competition. Can you talk about how that's a competitive advantage just to the operational structure?

So I don't know that tax is actually the key advantage. I think it's more the way that we're structured as kind of an ongoing business rather than tax. So I think that most of our competition is probably pretty tax efficient as well. But where we are unique is that we -- because of our structure in that, we're not set up like a fund, Fund I, Fund II, Fund III. Every asset contributes to the overall portfolio and it lowers our cost of capital in a huge way.

So that's, I think, where we see our structure is most differentiating is that we are able to borrow in the investment-grade debt market. We're investment grade rated, have been for a very long time, have access to significant capital and it's a pretty attractive cost of capital. And that, I think, drives down our overall cost of capital, allows us to win more deals, but also allows us to generate really attractive equity returns to our shareholders.

Okay. And there's always going to be something to talk about on the policy front as it pertains to the landscape, and there's always going to be changing dynamics. Mccary is out. There are IRA permutations that haven't been codified. Some people don't know if they'll actually be -- have teeth to them, the GLOBE and the GUARD pilot programs outside of the large pharma that have struck deals with the Trump administration. I guess there's -- I don't have the best clarity on how this is going to affect the biotech ecosystem that has not struck these deals. So maybe just a word on the policy front and what -- as you have discussions with prospective partners, if any of this is coming into the discussion at all and how you kind of think about pricing things?

Yes. No, it's a great question. And I think us, like everyone else, doesn't really have all the answers or many of the answers here. We are in a time where I think a lot of this is uncertain about where it's going to play out. Our approach to that has been several fold.

I think number one is we do make sure that from kind of a policy and DC intelligence perspective, we have good resources around the table to help us. But of course, in this environment, I think we all acknowledge that only takes you so far. So we have been -- we have always taken a very kind of scenario-based approach to sort of ask ourselves based on a variety of outcomes that could happen with MFN with -- from a policy perspective to get comfortable that we can generate attractive returns for our shareholders across a range of outcomes.

I'd say a couple of things, competitive advantages we have in this space is, number one, when we work directly with companies, we are on the inside a lot of times. So we do have a lot of really good insight into what are the specifics of the regulatory process you referenced the FDA. So we see a lot of the details that allow us to build kind of a good view of the likelihood of approval, more importantly, what's the label going to say, how broad is it, et cetera. And so we certainly have -- we have that advantage in the way we invest.

And then the other thing is, I think royalties have a natural advantage in that we are aligned with our partners, right? They are aligned to -- they are incentivized to maximize sales. And in turn, that is what we want to see too, to maximize the value of the royalty. So we do live in times where a lot of these are questions, and we're certainly going into it eyes open. But certainly, this is certainly something we think we can navigate.

Okay. Maybe you've got 2030 target for portfolio receipts. I think it implies 9% growth CAGR of 2025. Consensus isn't there yet. Can you frame maybe the building blocks to getting there from your perspective. How much of that is going to come from like the existing royalty base versus future deal flow?

Yes. So what I can say is that at the time of our Investor Day in the fall, we said that around half of the growth was going to come from things that were already in the portfolio and half was going to come from new deals. A lot of time has passed since then, and we've done a lot since then. And so now a big chunk of it can already be sort of allocated -- or can already be accounted for by things that we've already done that are already in the portfolio. Obviously, we still need to continue to invest and create new royalties, and we're going to try our best to do that. But overall, we feel really good about being on track there. I think hopefully, we can do even better, but we feel really good about that target at this point.

Okay. And so you deployed about $2.5 billion last year. Thinking ahead to upcoming years, what -- do you think that you can push even higher to even closer to the $3 billion number?

So taking a step back, we are always going to maintain a really high bar to make investments. So putting targets out there is always tough because then you kind of like -- we wouldn't want to make investments that we weren't excited about. So we're really confident that we'll continue to deliver that kind of $2 billion to $2.5 billion under a lot of scenarios, including scenarios where the market doesn't grow like we think it would.

But I think in the end, what we described that guidance is kind of more of a conservative modeling assumption. There's a lot of reasons to believe that it could be a lot higher and that -- especially as we're adding pharma -- these pharma R&D deals as the synthetic royalties continue to grow as China starts to become a factor. So -- but we're not planning and we're not raising our target. We're going to see what happens and kind of take it as it comes. If it -- could it be 3? Could it be 4? Absolutely. But I think we're just going to be -- we're going to just make sure that we're investing in the right products. And whatever happens from there, we think we'll benefit our shareholders.

And remind me the leverage guardrails that you'd operate within if you found the right transaction?

Yes. So we -- right now, we're at 2.9x total debt to EBITDA. And we've said that we can go up to around 4x, maybe a little bit more, maintain our rating, particularly as long as we have a clear path to delever from there. So we have a lot of dry powder. If we -- and we -- at our Investor Day, we said that based on our -- if we just do $2 billion to $2.5 billion and we pay -- and we continue to grow the dividend as we've committed to do and we finish the rest of our share buyback program, we would have -- we would allocate about $20 billion on those things. But we said we have capacity to do about $30 billion. And that's assuming that the portfolio doesn't outperform, and it's been performing really well. So we have an extra $10 billion of capacity to add new royalties over that period if the right things come along.

Yes. How would you address the question with more competition? Has that compressed deal terms, royalty rates, things like that? I imagine the answer is somewhat complicated, right, because there's different types of deals that are in the mix now as well, different risk profiles tied to that. But any way that you could maybe quantify last 1 to 2 years versus, say, a historical benchmark? We don't see a lot of deals with like maybe a Vertex like royalty now. So I just wonder if that's more of a relic of maybe the past, it's harder to get deal terms like that.

Yes. The way it might help you -- help everyone think about that is just a simple -- sort of a simple observation, which is we've been public for 5 years, right? And we have maintained our return targets, the exact same return targets for both approved and unapproved royalties the whole time. And even sitting here today, I think we feel very confident about our ability to continue to generate those kinds of really attractive returns for our shareholders.

I think the thing that competition question overlooks sometimes, and we referenced this earlier is the biggest effect of competition has been to make the pie bigger to grow the market, right, which is this is such a big market. There is such need. There is, I think, plenty of opportunity for us to continue to be really successful and compete for the royalties that we want as part of our portfolio, delivering those with the returns that we've promised to our shareholders. So that's why we really feel like competition has been a real positive because it has just grown the market.

Okay. Maybe we'll shift to the development stage pipeline catalysts. As we look ahead, I think you -- the development stage portfolio is like roughly 20 assets with $40 billion or so of combined peak sales potential. As we look to '26, '27, are there 3 or 4 individual catalyst events that you'd point to that are most exciting and maybe give a little bit of clarity on what success looks like for those?

Sure. So I mean, I -- first of all, just to remind everyone, we've already had a couple of really nice ones from that portfolio to start the year with Revolution Medicines in daraxonrasib, right? We've had a -- we now have a $500 million investment in that with the potential for that to grow much larger for everyone. To remind everyone, we committed $2 billion to RevMed last summer, $1.5 billion of that is synthetic royalty, and then there's a senior debt facility as part of that.

So obviously, very nice data, very high-profile data. Just had one very recently with our Cytokinetics partnership for aficamten, a nice label expansion there. So I think we're really excited to start the year to have some really nice checkmarks there.

Going forward, yes, there are several, right? The next one coming up is we made a couple of investments in the Lp(a) class over the last few years. We're going to have the card for the first one of those, I think, sometime in the second half of this year. We're really excited to see that, that could be a very large class of cardiovascular drugs, and we have investments in 2 of them. So we're really excited to see that, that could be a very meaningful contributor to our top line in the years to come. So that's another one this year. Terry, what else would you add?

Then I think probably point to maybe next year, we have data for frexalimab in multiple sclerosis. That's a product that's in development by Sanofi. We have a $525 million investment there. It's a big royalty. And we think that there's -- MS is kind of a market that's been overlooked a couple of times in the past. And we think that there's still a really big unmet need there and a lot of opportunity for a new sort of modality. So that's why we're really excited about that one.

Yes. The -- I feel like the market is a little bit torn on Lp(a) as a modality. Arguably, the just hasn't been an outcomes trial run with this approach, although the genetic data is pretty interesting. So I don't know, do you have a sense of -- it does seem like the Street is very focused on a more profound hazard ratio benefit, whereas the company would -- companies would communicate, like as long as it's stat sig or even like a 15% risk reduction, this could be a big class of drug?

Yes. So we're getting close to the event here. So I think everyone is sort of sharpening their pencils as we get closer, which is -- we've all seen this play out before. So look, I think we -- this is a whole new target of a whole new profile of patients where their cardiovascular risk is genetic in terms of their level of Lp(a). So we are really excited to see the card turnover.

We -- I think Novartis has been pretty clear about to your -- as you just outlined about how they see this playing out. And so we're really excited to see it. And it's going to be -- it's likely to be a sort of multilayered sort of debate about what is the overall data? Are there subgroups based on your baseline Lp(a) where you see certain levels of benefit. So I think we're really excited to see this. We also -- as a reminder, we have an investment, another sizable royalty in Amgen's program, which is the next one up after this. And so we're excited to see how this class comes together.

Yes. I mean, obviously, a lot of attention on revolutions just given the Wall Street Journal articles and some big numbers that we've never seen for a Phase II asset. If those numbers are real or they could be CVR dollars, we don't know. Ultimately, I think we get more pancreatic data this year. Just curious what moves the needle there in terms of your view on this as a really big mega blockbuster drug?

Yes. So we are -- RevMed, I think, is doing an incredible job moving as fast as they possibly can to bring this medicine and this target to as many patients and indications as possible. So we've only seen the first card turnover, which is in second-line pancreatic cancer. I think it was not lost on anyone that the performance in second-line pancreatic cancer is better in terms of survival than what's been seen historically in first-line pancreatic cancer, which is pretty amazing.

So we're excited to see it move into -- move earlier into lines of therapy into earlier lines of therapy for pancreatic. They're looking at it in lung cancer as well. And I think you're going to see a very sort of extensive development program, and they've been kind of executing at the speed of light over there. So I think there's definitely more to come on that, and we're excited to see it play out.

Okay. And then maybe just in the approved portfolio, maybe some of the netting dynamics of growth versus LOE drags in the numbers this year. How you see that evolving? And does that -- do the drags carry out into '27 plus?

So the headwind this year is Promacta. And we still grew 10% in the first quarter despite Grew 10% in the first quarter despite a 3% headwind from Promacta. So that's something that we think is really important for investors to understand about our business. Not a lot of companies can have an LOE of a top 5 product and still grow double digits. But we've kind of shown that we can do that. And that's a unique element of our business. It's driven by our diversification. It's driven by constantly reinvesting at high rates of return and in exciting growing products and replenishing the portfolio. I think we can -- we're differentiated versus other pharma companies in our ability to do that, certainly in a value-enhancing way.

And so the headwinds, and this isn't new to us. We had headwinds in 2021 when we lost Gilead's HIV -- the royalties on Gilead's HIV franchise. That was a top 4 product at the time, and we still grew rate that year in 2022 with Januvia and expiry from Merck's DPP-4, again, another top 5 product at the time and still grew really nicely. So we're not really concerned about headwinds from LOEs. These things are going to happen. They're going to happen in this sector. But for us, we feel like we're better equipped than anyone to kind of grow through that, and we've shown it over time.

Okay. And then the last 30 seconds, just how would you frame exposure at this stage around Vertex and Vertex arbitration outcomes just given what we've seen with conversion?

Yes. So I think what we updated at our Investor Day is probably still holds that we said that under a downside case, if we lose the arbitration and our royalty on Alyftrek is only 4%, that we still think that the CF franchise will generate portfolio royalty receipts to Royalty Pharma of around $800 million. And then the upside, if we're correct and succeed in the arbitration as we hope we will, that will be north of $1 billion. So it's kind of the bookends are about $800 million to over $1 billion. Either way, it's going to be a very important product for us over the long term.

Understood. Great. Well, we're out of time. So gentlemen, thanks so much for joining.

Thanks.

Thanks.

Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma First Quarter 2026 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter results. You can find the press release with our earnings results and lines of this call on the Investors page of our website at royaltypharma.com.

On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors could cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website.

And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Chris Hite, Chairman, Partnering and Investments; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss the growing opportunity for R&D co-funding. Marshall will then provide a portfolio update, and Terry will review the financials. Following concluding remarks from Pablo, we will hold the Q&A session.

And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome to everyone on the call. I am happy to report a strong start to 2026 as we execute towards our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide 5 summarizes our strong business momentum in the first quarter. Starting with the financials. We delivered 10% growth in portfolio receipts, our top line, and 13% growth in royalty receipts, which our recurring cash flows. The sustained double-digit momentum was driven by strength of our diversified portfolio. We also maintained strong returns in our business with returns on invested capital of around 14% and returns on invested equity of around 20%. By combining strong growth and attractive returns, we're confident that we have a clear path to drive shareholder value creation.

Turning to capital allocation. We had a busy quarter with $1.25 billion of announced transactions on three attractive therapies, while capital employed was in excess of $0.5 billion. We also repurchased 1 million shares for $50 million in the quarter and increased our dividend by 7%.

Moving to our portfolio. We're thrilled to see a number of positive clinical and regulatory updates, including the extraordinary Phase III results for Revolution Medicines that are salanersen in pancreatic cancer, and FDA approval of Denali, AVLAYAH in Hunter syndrome. We also expanded our portfolio to R&D co-funding agreements with Teva, which we discussed on our previous earnings call, and recently with J&J for their autoimmune therapy 4804. Chris will highlight the growing market opportunity for R&D co-funding with global biopharma. Lastly, we were pleased to acquire a royalty on [ Jazz and D1 Sahara, ] and approved cancer therapy with blockbuster potential. Looking ahead, we're increasing our 2026 full year guidance based on the strong business momentum I just highlighted.

Slide 6 is one that I keep coming back to each quarter as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year-end year out regardless of the market backdrop. This speaks to the quality of our investment selection and our unique business model. In the first quarter, we also took major steps to strengthen our global platform and capabilities in partnering the Asia Pacific region and artificial intelligence. We have brought in exceptional new leaders to our team with Greg Ops, Ken Sen and Lucas Glass. Their expertise will support our long-term growth ambitions and help to strengthen our competitive mode as the undisputed leader in the biopharma royalty market. Chris Hite, who has served as our Vice Chairman throughout our journey as a public company, has moved into a new role as Chairman, Partnering and investments. In this role, we will continue to expand our global relationship network and play a central role in transactions. Chris has been an [indiscernible] partner, and I am delighted that he will continue to provide strong leadership and leverage relationships in this role.

With that, I will hand it over to Chris.

Thanks, Pablo. I'm genuinely excited about the new capabilities for building and the opportunity to forge even stronger or meaningful relationships across the biopharma ecosystem. For my section today, I want to focus on the major opportunity we see for R&D co-funding with global biopharma. Beginning on Slide 9, we see R&D co-funding as a win-win solution for Global Biopharma and for Royalty Pharma. This market has enormous potential with over $1 trillion of cumulative projected R&D spend by Global Biopharma in the next 5 years. Co-funding arrangements allow biopharma to share risk at scale to enhance program return on investment to expand R&D capacity and to diversify pipelines. From Royalty Pharma's perspective, we see multiple potential benefits. These include unlocking a new market opportunity, gaining access to high-priority clinical programs leveraging our partners' global development and commercialization expertise and the ability to conduct deep diligence to drive high conviction in our investments.

Slide 10 illustrates the strong momentum for this funding modality. The demand by biopharma was impacted by accounting uncertainty last decade, but over the last several years, more clarity around contra R&D accounting treatment has resulted in a surge for co-funding deals. As an example, in the first quarter alone, we signed deals with J&J and Teva totaling $1 billion in announced value. On the right-hand side of this slide, you can see that the number of global biopharma companies that have utilized this funding modality has doubled in 2020, which underscores the growing acceptance of this form of funding.

Slide 11 shows our capital deployment mix by funding modality, and how this has changed over time, and where we see it heading in the future. At the start of 2000, we were a business focused almost exclusively on acquiring existing royalties. Today, existing royalties remain a stable and an important component of our capital deployment, but we have evolved into a more diversified with a growing emphasis on providing capital through innovative funding structures, most notably synthetic royalties with emerging biopharma companies, which has been a key growth driver. While R&D co-funding with large biopharma companies has historically represented a smaller share of our activity, we see opportunity to scale this significantly in response to increasing demand. Importantly, this shift creates meaningful upside potential. In addition, potential business from acquiring existing royalties that have originated in China, where we are actively building a platform represents another avenue for future growth that could drive the existing royalty market significantly.

Slide 12 highlights a number of the R&D co-funding agreements that we have entered into since 2022. Together, these five highlighted deals at the time of announcement has the potential to provide up to $1.8 billion in capital to our partners, including up to $1 billion alone in the Teva and J&J transactions that we announced in the first quarter this year, as I previously noted. As you can see, these deals check the core elements of our investment framework. Specifically, each transaction involves a biopharma with deep clinical expertise in global commercial infrastructure and provides Royalty Pharma with royalty rights to a potentially transformative therapy covering a diverse range of indications.

On Slide 13, I want to close by highlighting why we are so confident that Royalty Pharma is well positioned to scale R&D co-funding. Remember that we have been partnering with io Pharma for approximately 30 years as we pioneered the royalty market. When we think about the depth of our relationships, our brand reputation, our responsiveness and our flexibility in structuring Royalty Pharma is the clear leader. In addition, we take a long-term view with royalties and milestones paid over many years, and we have a cost of capital similar to pharma and so we can offer competitive pricing and win more deals. For these reasons, we expect to be able to capitalize strongly on this tremendous growth opportunity in the coming years.

With that, let me hand it over to Marshall.

Thanks, Chris. I want to focus today on several exciting updates to our portfolio. First, our recent royalty deal for Ziihera in approved cancer therapy Second, the incredible Phase III data that was recently disclosed by our partner, Revolution Medicines for daraxonrasib in pancreatic cancer; and third, I look forward to important upcoming events across our broad development stage portfolio. Beginning on Slide 15. We entered into a strategic funding agreement in March with Zymeworks, where we provided $250 million upfront in return for 30% of their royalty on Jazz and BeOne Ziihera, which translates to a low to mid-single-digit royalty for Royalty Pharma. For those less familiar, Ziihera is a HER2-targeted bispecific antibody, which is FDA approved for a rare tumor, metastatic biliary tract cancer. From a patient and commercial perspective, the real excitement here is that the Hero was recently submitted for approval in gastric cancer, which represents a particularly high unmet need with a 5-year survival rate of less than 10%. The pivotal study in this indication demonstrated an impressive 5- to 7-month or nearly 40% overall survival advantage over currently available therapies.

In our view, this positions Ziihera to become the standard of care in this very tough to treat indication supporting blockbuster potential. Consensus models include peak sales of Ziihera of greater than $2 billion. Based on this outlook, we expect the transaction to deliver attractive returns with an unlevered IRR in the low double digits.

Moving to daraxonrasib on Slide 16. Revolution Medicine recently reported unprecedented results from the Resolute Phase III trial in second-line pancreatic cancer. On our last earnings call, I said that daraxonrasib has the potential to revolutionize this devastating disease, and these Phase III results certainly support this. The key headline is that daraxonrasib nearly doubled overall survival from just under 7 months with chemotherapy to over 13 months. These are truly remarkable outcomes for patients in the disease that has seen no true innovation for decades. The next step for Revolution Medicines is to submit for approval by global regulatory agencies, including the FDA under the Commissioner's National Priority Voucher that has the potential to speed the time to approval. In terms of the implications for Royalty Pharma. As a reminder, we agreed in 2025 to provide up to $2 billion in long-term funding to Revolution Medicines to help the company aggressively pursue clinical development and commercialization of daraxonrasib. With the positive data, Royalty Pharma has now invested a total of $500 million for a synthetic royalty that begins at 4.55% on sales up to $2 billion and then tiers down from there. Based on consensus peak annual sales of greater than $10 billion, we expect peak potential annual royalties to be in the range of approximately $180 million based on the currently funded amount and up to $340 million if they draw the additional $750 million of synthetic royalty funding. We are excited to see what the future holds for this incredible medicine backed by a phenomenal team.

Next, I'll turn to our development stage pipeline and upcoming events. We're exceptionally well positioned for our next wave of value creation with a deep and innovative pipeline. Slide 17 shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory approvals already in 2026. Just yesterday, we were thrilled to see the positive top line results for MYQORZO its pivotal trial in non-obstructive hypertrophic cardiomyopathy. Other highlights include positive clinical trial results presents obexelimab in IgG4-related disease, positive Phase II results for Biogen litifilimab.

Moving to daraxonrasib on Slide 16. Revolution Medicine's recently reported unprecedented results from the RESOLUTE Phase III trial in second line. Next, I'll turn to our development stage pipeline and upcoming events. We're exceptionally well positioned for our next wave of value creation with a deep and innovative pipeline.

Slide 17 shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory approvals already in 2026. Just yesterday, we were thrilled to see the positive top line results for MYQORZO in its pivotal trial in non-obstructive hypertrophic cardiomyopathy. Other highlights include positive clinical trial results for Zenas' obexelimab in IgG4-related disease positive Phase II results for Biogen litifilimab in cutaneous lupus. FDA approval of Denali AVLAYAH in Hunter syndrome and the filing of Nuvalent's neladalkib in ALK-positive non-small cell lung cancer. As you can see, there are plenty more events anticipated this year, and we expect these to lead to several new royalty-generating launches in 2026 and 2027.

To highlight positive news on one of our pipeline products last week, Teva announced the acquisition of MLX for up to $900 million with regulatory submission planned for Emalex' ecopipam for Tourette's in the second half of the year. As a reminder, Royalty Pharma is entitled to royalties of 6% on ecopipam sales up to $400 million and 10% on sales of $400 million or greater. And we are excited to see ecopipam in the hands that have a marketer with deep commercial expertise in neuroscience.

Expanding on this theme, Slide 18 shows that there is much more to come from our development stage pipeline with multiple major pivotal readouts expected over 2026 and 2027. Over the remainder of 2026, we'll see the results for the -- of the outcomes trial for Novartis' pelacarsen. We continue to believe that the Lp(a) class can be the next major class of drugs in cardiovascular disease, and we're perfectly positioned with the two lead pipeline products in pelacarsen and Amgen olpasiran. We'll also see Phase III data for litifilimab in systemic list. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis and from J&J's seltorexant in major depressive disorder. We also expect Phase III results from daraxonrasib in non-small cell lung cancer and litifilimab in cutaneous lupus. Each of these potentially transformative therapies would add significant royalties to our top line.

So to close, we see tremendous potential for our pipeline to unlock substantial value in the near term. With that, I'd like to hand it over to Terry.

Thanks, Marshall. Let's move to Slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 13% in the first quarter, reflecting the strength of our diversified portfolio. Portfolio receipts, our top line grew 10% in the quarter, which was strong performance considering a sizable year-over-year decline in milestones and other contractual receipts. As we move down the column, operating and professional costs were 3.9% of portfolio receipts in the first quarter. This is a clear reflection of the benefit of the cash savings we are delivering from the internalization transaction, which we completed last May. Net interest paid was $167 million in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters. Moving further down the -- we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $722 million for the quarter. Our net margin of around 78% again demonstrates the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $528 million mainly reflected upfront payments for the Ziihera and AVLAYAH and a milestone payment related to Telly. Lastly, our weighted average share count declined by approximately 4% in the quarter versus the prior year period, reflecting the impact of our share buyback program.

Slide 21 provides more detail on the evolution of our top line in the first quarter. Royalty receipts, which we consider our recurring cash inflows grew by 13%. The Key drivers were the strong performances of Tremfya, Voranigo and Evrysdi. In the case of Evrysdi, on top of the underlying growth, we benefited from the additional royalties we have hired in December. I should also note that we were able to absorb a 3% headwind to royalty receipts due to the loss of exclusivity of Promacta and still deliver double-digit growth. Moving to portfolio receipts. These grew by 10%, reflecting the lower onetime milestone and other contractual receipts.

Slide 22 updates our portfolio return metrics for the quarter. Return on invested capital was 14.1% for the last 12 months ending in the first quarter 2026 and return on invested equity, which shows the impact of conservative leverage on our equity returns was 19.7% for the last 12 months ending in the first quarter. As I've previously stated, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders.

Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of March 2026, we had cash and equivalents of $586 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion in weighted average and the weighted average duration is around 12 years. Importantly, Fitch recently upgraded our credit rating to BBB from BBB-. Our leverage now stands at 2.9x total debt to adjusted EBITDA or 2.7x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $4 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets.

Turning to our capital allocation framework. We deployed $528 million of capital on attractive royalty deals in the quarter. At the same time, we returned approximately $186 million to our shareholders, including share repurchases of $50 million and our growing dividend.

On Slide 24, we are raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.325 billion to $3.45 billion, up from $3.275 billion to $3.425 billion previously. This assumes growth in royalty receipts of around 4% to 8%, which reflects the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar TYSABRI in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. For modeling purposes, we would remind you that several of our largest royalties, such as the CF franchise, Trelegy, Evrysdi and others are upward-tiering royalties, which means they reset to a lower rate in the first quarter. As our royalty receipts lag reported sales by the marketers by one quarter, this has the effect of decreasing royalties sequentially in the second quarter. Given these dynamics, we are providing guidance for the second quarter portfolio reseats which we expect to be between -- sorry, which we expect to be between $740 million and $760 million.

Turning to expenses. Payments for operating and professional costs are still expected to be in the range of approximately 5.5% to 6.5% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. Interest paid is still expected to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in the third quarter with de minimis amounts table in Q2 and Q4. This guidance does not take into account interest received on our cash balance, which was $6 million in the first quarter.

To close, we have had a great start to the year. We have again raised our guidance, and we expect to deliver another full year of strong financial performance in 2026. Now before I hand it over to Pablo, I want to provide a brief update on the timing of the arbitration with Vertex. Based on the arbitration panel's final schedule, we now expect the dispute to be resolved by around the middle of 2027.

With that, I would like to hand the call back to Pablo.

Thanks, Terry. To conclude, I'm delighted with our strong start to 2026. We have again delivered strong growth and returns. We've continued to diversify our portfolio of attractive biopharma royalties, and we have strengthened our leadership team and capabilities. I want to close on Slide 26, with a reminder of why we believe we're well positioned to drive strong value creation. First, we're the clear leader in the ramp of the expanding biopharma royalty market for strong fundamental tailwinds reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies, and we expect to remain the undisputed leader. I am confident that the expansion of our global platform and capabilities that I talked about today will further strengthen our position at the forefront of our industry. Third, we expect to deliver strong low volatility top and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20%-plus range.

With that, we will be happy to take your questions.

Operator, please take your first question.

[Operator Instructions] The first question comes from Christopher Schott with JPMorgan.

This is Hardik Parikh in for Chris Schott. I think you said like a portfolio received target for 2030 approaching $5 billion. I was just wondering now with the recent updates you've had in your development pipeline. Can you talk about how much of that 2030 target is derisked? And how much do you think it comes from investors that are already commercial.

Terry, that's a question for you. If you can please take it.

Yes. So Hardik, we feel like we're really on track to meet or exceed that target. The portfolio is doing really well. We've had a lot of positive developments. We've executed some great deals. So we haven't gotten into specifics on that at this point, but I feel like we're very much on track or very confident in meeting or exceeding that long-term guidance.

The next question is going to come from Mike Nedelcovych with TD Cowen.

I have three, if you allow me. My first is on the arbitration update you just provided. Can you provide any insight into the reason for the push out? And then my second question is on MYQORZO. How much of an advantage do you think approval in the non-obstructive HCM setting could be relative to Camzyos? And did you assume success of the Acacia trial in your internal valuation. And then my third question is on frexalimab. The multiple sclerosis category is evolving somewhat rapidly, especially with the prospect of oral BTK inhibitors gaining approval, has anything changed relative to your initial assumptions around frexalimab's competitive positioning, assuming it succeeds in the clinic?

Sure. Thanks for the question, Mike. And I guess, Terry, you can take the question on arbitration and then Marshall will take the question on MYQORZO and frexalimab.

Sure. So on the timing of the arbitration, it's just simply based on the availability of the arbitration panel.

Hi, Mike. Good morning. So on your other two questions, so first thanks for the question on MYQORZO, there were, I think, multiple parts to it, but just to give you our thoughts, we're really excited to see the data yesterday. And I think it's clear evidence that by the strength of the team in a well-designed trial and a really good medicine in [indiscernible]. So multiple parts to your question. I think the first one was, did we assume that in our base thesis when we made the investment -- the answer to that is no, the base investment was really premised on the obstructive or the currently approved indication and its potential there. And I think the early evidence that we saw from the early launch with Cytokinetics yesterday, is evidences evidence of that, that the team is doing a great job launching into that market, and we're really excited to see where that goes. The adding non-obstructive to label can only be helpful, right? It gives a broader label. It provides another patient population for doctors to use the for doctors to use the medicine in. And overall, we'll certainly be helpful in the launch and certainly upside to our original estimates when we made that partnership with Cytokinetics. Your third question was on frexalimab and on the multiple sclerosis market in general. No real change. I think if you go back in our view, despite some of the changes that are going on with the orals -- with oral medicines there. What we said at the time of that investment was what really excited us and what we saw as an unmet need and what continues to be an unmet need in that market is novel mechanisms that aren't solely focused on B cells. And so I think that opportunity in the market very clearly still exists, and we're really excited about frexalimab and seeing those data next year.

And the next question comes from Geoff Meacham with Citi.

Just had a couple. The first one, maybe for Terry. You guys had a higher level of capital deployment this quarter or last are looking forward. Are you at the upper end of the range, leverage-wise? Is there a capacity constraint or just status quo? And then the second one, I guess for you Marshall. In deals like Rev Med or Servier where the royalties could really ramp pretty quickly based on a strong launch. Are there considerations on some of these types of products where you could add additional royalty investments depending on the pace of the launch, I think that -- I don't know if that's been under consideration before, but that seems like you'd want to add capital to to drugs that are launching pretty quickly?

Terry and Marshall, do you want to go ahead?

Yes. So Geoff, so on your leverage question, we're actually have quite low leverage right now, 2.9x total debt to adjusted EBITDA. And so we have a lot of financial flexibility if deal flow increases, we feel like we absolutely will be prepared to invest if the right opportunities come along. I think we laid out in our slides that we have $4 billion of financial capacity, and that grows every quarter, as you can imagine. So we feel like we're -- the balance sheet has never been stronger. We're in a really great position there.

And Geoff, on your other two questions. So on launching products and opportunities to deploy additional capital nothing specific with respect to the ramp. But I would say that the Voranigo launch, as you pointed out, has gone incredibly well, and we're so excited to have that as part of the portfolio. As a reminder, there is a sharing component to that one. So we do share a portion of the royalty above $1 billion with back to Agios. And then second, Rev Med, we are, as we talked about in the prepared remarks, you are really excited about this data, I agree with you that the unmet need is so great that this could be a really rapid really rapid launch? As a reminder, the Rev Med deal, we've done $500 million of $1.25 billion of synthetic royalties. There are additional opportunities that will come at FDA approval, which we expect to see this year. And then with a certain sales milestone and then there's a label expansion later on. So there are other opportunities However, the future tranches are all at the option of revolution medicine. So -- and it was one of the really, I think, attractive and exciting parts of our partnership with them that it gave our partner a lot of flexibility in terms of access to cattle going forward. So there certainly is that potential, and we will see what happens in the months and years to come.

And our next question is going to come from Jason Gerberry with Bank of America.

First is the policy question. I'm just curious how you guys are thinking about forecasting underwriting value for OUS launches around MFN risk, given that we haven't really seen how pharma companies launch behaviors and pricing strategies or mirroring in those select U.S. markets. So in the absence of that concrete information, I'm just kind of curious how you guys navigate that risk? And then on the R&D co-funding deals flagged in the slide, the two recent deals, can you help us understand the IRR expectations meaningfully differ at all for the co-funding structure versus a traditional royalty acquisition? And if those two deals have like Royalty payment, capping mechanism embedded in them?

Sure, Jason. Marshall, I think both questions are for you, the one on the ex-U.S. launches and also on co-funding.

Sure, Jason. Thanks for those two questions. So on your first policy question on MFN. It's certainly something that we, I think, like the rest of the industry is thinking through agree with you, there isn't a lot of precedent. So we've taken the approach that we always have, which is to think through a lot of different scenarios and make sure that given the wide range of possibilities in the future that we're still comfortable with the investment. So I think certainly something that we are taking into account and making sure that we unstructured and protect us and all of our shareholders appropriately when we think about all the ways this could play out in the future. It is still very new. So I think we're in the same boat with everyone else trying to think is to. Your second question on R&D co-funding. So the first part of your question was on IRR expectations. I think as Chris outlined, our -- the answer to your question is no. We have said that our return expectations for products that are not approved are kind of greater than the low double digits. And so we certainly see we certainly see returns in the IRR co-funding is very consistent with what we've communicated publicly in terms of return expectations. So that's one of the reasons that we're really excited about that opportunity. In terms of tapping, you asked about some of the structural features. We haven't disclosed all of the structural features for [indiscernible], so it's a little hard to comment generally. But I think our philosophy when we put these together is we're investing in a Phase III program, and we certainly want to have every opportunity to explore and benefit from the full potential of these products, both in the near term as the indications that are certainly being pursued right now play out. But then in the long term, as there's potential for label expansion, geographic expansion and and general market expansion of what we invest in. So our philosophy and our discipline in terms of how we structure these and how we make sure that we're getting appropriate risk-adjusted returns for us and for our shareholders are very much consistent with how we've been operating.

And the next question will come from Ash Verma with UBS.

This is the [indiscernible] asking question on for Ash. First on the quarter, I have two questions. The first one, can you update us on your view on thoughts about like potential royalty streams from micros. So I guess with the positive result now on non-obstructive do you believe there's a halo effect on their ongoing launch in the obstructive side? And then my second question is what are your thoughts on the consolidation among the smaller royalty players, like [indiscernible] and the [indiscernible] royalty recently, does this scale up in any way increase the competition for you in the smaller realty transaction space.

Sure. So maybe I'll take briefly your question on competition, and then I'll turn it back to Marshall to talk about the MYQORZO launch. And in terms of competition, we did -- I mean, we follow it all the time, and it's not news to us. And in fact, that consolidation might even reduce competition when you have [indiscernible] and acquire [indiscernible], there will be less competition, 1 entity consolidating 2 companies. But the reality is that if you just think of those two players in the market, we have very significant advantages versus companies that are in the royalty space. obviously, we've talked to many of these advantages in the past, scale is one. But also another issue that companies that are interested in that Grant Royalties have is that they're taxpayers. And as you know, we have a very efficient tax structure. And then other things like access to capital. In our case, it's significantly lower cost of capital and access to a lot more capital than the modern players. So it's no real big change in competition. And at the end, as we said in the past many times, we think competition is a good thing. We welcome it because it just expands the market. It makes a lot of the potential partners that we do business with have many alternatives, and it just gives them comfort to know that that it's a very dynamic market. So I'll turn it back to Marshall now for the question on MYQORZO.

Yes. So on MYQORZO, certainly, yes, we believe that the positive data yesterday provide an advantage to ecopipam in the marketplace, having a broader label, having experience in a broader selection of patients. can really only help the medicine as Cytokinetics launches it. So we're excited about the way Cytokinetics is going to execute in the current indication of obstructive disease. And then certainly, the broader label and the non-obstructive data is only a tailwind to that.

And the next question will come from Nick Jennings with Goldman Sachs.

It's Nick on for Asa and the Goldman team. We have two questions. First, Chris, congratulations on the new focus with global biopharma R&D co-funding. Our question is on the implications of this as a growing part of the portfolio. Should we expect the complexion of the overall portfolio to shift over time as more of these partnerships are done with global biopharma companies. And then second, how is the China market progressing? Any update on what types of assets you're looking at there? And when do you think we'll see the first deal?

Sure. Chris, why don't you take both questions?

Okay. Great. Thanks for the question. In terms of the first one around the R&D co-funding, we have been investing in development stage products in 2012. And for us, it's really just expanding the opportunity when we're now seeing more opportunity to co-fund R&D at the large pharma stage. If you look at our capital work slide, and it's -- I think it's in the appendix, you can see that roughly 85% of our capital work is in approved products today. And 10% is in -- roughly 10% is in development stage and roughly 3% of those in development stage has already had positive pivotal results. So that's exciting for us. I mean it's a huge opportunity the companies need a lot of money to fund their R&D. So we certainly are excited about the opportunity, and that certainly could lead to a greater percentage of capital work. But we're going to be very disciplined in how we approach that. In terms of China, I'd just remind you, Ben, obviously, we did the transaction with them last year, that for Imdelltra, which is roughly $900 million, obviously, that caught the attention of a lot of companies in China that look at BeOne as a great originally coming out of China. We hired Ken Sun. He starts actually next week. He was the former Head of Asia at Morgan Stanley. Super excited to have him on board. He will hit the ground running. We've obviously been to China a lot of the existing teams here at Royalty Pharma. So we are monitoring all of the out-licensing that's ongoing from China to Western multinationals. We have tracking those very aggressively. And I think the BeOne transaction evidence of those companies in China, what a great opportunity it is to potentially monetize those royalties they've created over the last five years or so. So we're super excited about China. Ken coming on board to really catalyze that effort.

And our next question is going to come from Dan Ziment with Morgan Stanley.

I guess two for me. Maybe first for Marshall, you could just provide your perspective on the J&J DUET data and what this ultimately might mean for the Tremfya tail given the co-formulation approach there? And then on the use of AI, I think many investors view the company as a beneficiary here. able to provide any kind of case studies of how you're implementing AI across your enterprise and in terms of your processes and what that means in terms of number of deals or efficiencies that you can comment on?

Sure, I'll take the first question or the second question on AI, and then I'll let Marshall take the other one. But Data is extremely extremely important for our business and for this whole ecosystem. Everything is based on data, as you know. And [indiscernible] has been making significant investments in data for many years, decades. And we had in our Investor Day a slide that actually provided a perspective on what we really mean by investing in data. We have about 200 million people claims data for 200 million Americans. And we have relationships with great data providers that are feeding us this data continuously, which have electronic [indiscernible] for 44 million Americans and about 9 years of [indiscernible]. And the way we use this is for our own internal purposes to make better investments, understand better what's going on with the product, and how we force them. But one of the very exciting things for Royalty Pharma is to actually use data with our partners and share insights that we gain as we do our analysis. And as we follow the ecosystem, and we think that is a differentiating aspect that is important to us because we don't see ourselves like others as purely cattle price but we see ourselves as partners with the companies that we're partnering with, where we can provide we add value by sharing data and insights for them, and they appreciate that. And in some cases, that has led to important to better terms on transactions. And we do have case studies, actually, I'll refer you to our Investor Day deck, a couple of them, where we have through claims data and other sources of information have been able to identify asymmetries of information where we see drugs that we believe could have much stronger launches or peak sales than what others see based on data. One of those is, for example, we're in [indiscernible], where we realized when we made that investment that in that form of answer, there were about 1,500 patients being diagnosed each year. But on the sidelines, about [ 50,000 ] as that were not recurring to treatment because the options were not attractive drugs that were toxic safety issues and not that effective. And obviously, when we're an Eagle Chem to market, it gave patients the opportunity to be treated with a drug that was very safe and very efficacious. And it brought into the market the warehousing of patients that existed. And that as a result of that, we were able to for as a much stronger launch for Voranigo than I think anybody was seeing and then higher sales. And that's a case study. But one of the -- I'll finish just by saying that, we're very fortunate recently to have hired Lucas Glass, as Head of the AI for Royalty Pharma. And he's going to be responsible for developing and implementing AI capabilities across our business. including automating all of our diligent processes. And strengthening how we evaluate and invest in royalties and also support our partners. Lucas comes from [ IQubia, ] where he was the Head of AI for this huge company that serves our ecosystem. As you know, it's the biggest CRO with Quintiles and also IMS Health, that part of the business was 1 of the biggest data providers in life sciences. So we're very excited about where we can take the business now with glucose and the team that we're building in addition to the team that we already had. And I'll turn it now to Marshall for the other question.

Thanks for the question on the J&J deal. So maybe just a general comment -- a general comment. I think this is a great example of exactly what Chris was talking about, right, that we get the opportunity to participate at scale in a first-in-class biologic combinations blockbuster market that's backed by the world-class one of the premier marketers in that space. And those are exactly the kind of opportunities that that we're so excited about the biopharma creating. The biopharma partnerships creating for us. Specifically on the data, obviously, that was something in diligence that we spent a good amount of time with. And I think our view is we're excited about the biologics combination opportunity broadly, [ 404 ] is the first of those, and I think you see the potential in what was a very refractory patient population who had been heavily pretreated, which when we look to continue Pablo's comments when we look into our claims data is a really rapidly growing part of this market is patients who have been treated through multiple lines. And I think we see that growing. And certainly, by the time 404 makes it to market, will -- is a really substantial opportunity that we're excited about. And we think there will be other -- certainly other biologic combinations to come that will look at other patient populations and other combinations. And so excited to see how that continues to expand the market. and we're excited to be partners with J&J there. The last part of your question on the tail I think for our base Tremfya royalty, just a reminder there that our royalty there is based on a separate set of IP that we acquired from MorphoSys. And so we've communicated that, that IP will expire in the early 2030s, 2031, 2032 time frame. So given the likely time lines for 404 probably won't have a significant benefit to the Tremfya royalty I think we've created a whole new royalty on this product, and we'll continue to be able to participate in it through 404. So thanks for the question.

On the next question will come from Umer Raffat with Evercore.

I feel like there's been a good amount of discussion today on a lot of the effort. Chris has been leading on R&D funding side. And I guess a question I have, maybe first for you, Pablo, how are you thinking about the split going forward for your capital deployment between RE co-funding versus the traditional royalty investments. And to what extent is that driven by your heavier emphasis on doing larger checks? And then maybe a quick follow-up to that also. My understanding or at least the feedback I've heard from some of the big pharmas on their late-stage pipeline programs is that when they go into these R&D co-funding conversations, they're really talking high single-digit IRRs [indiscernible]. Could you maybe speak to your experience working on the J&J [ 4804? ] I don't want to comp the Teva vitiligo there because it's much earlier stage. So I think the [ 4804 ] is a good example of the top IRR you guys got and maybe you can expand on that.

Umer, thanks for the question on allocation of capital. And in reality, the way we approach things is with a significant amount of flexibility because our business has the capacity to invest a huge amount of money. And I think, again, during our Investor Day, we actually had a interesting slide that showed that from now we have the capability of investing something like $30 billion, of which $12 billion or so are going to be -- is what we've guided to the $2 billion to $2.5 billion per year. And then when you add to that the share repurchases and dividends, it takes us to a higher level, but there is an additional sort of $10 billion of capacity that the business has that we might -- if the opportunities are there, just increase the investments every year, and it gives us, as I said, a capability of deploying more like $20 billion over the next 5 years in royalty acquisitions. But I think at the end of the day, as we've said in the past, the critical thing for us is the product. And that's really what drives our excitement for investments if we find really attractive differentiated products. that we think are going to do really well in the month term. And whether we end up making the investment because it's a royalty that sort of already exists, there's a license and a royalty holder, and we just acquired that royalty like in the case of of delta with BeOne or whether we create the royalty by funding a clinical trial. For us, it doesn't matter really where it comes from. Now I would point out just to finish, that when we put together our guidance and our business plan, there were several things that were really not included in a major way in our sort of $10 billion to $12 billion capital deployment guidance. And those things are China. It was not in our minds, and we do see that as an important driver of capital deployment and growth. And that is definitely now real market and one that we're very excited about. And then the second one is deal with big pharma. Again, we were super [ concerned ] and didn't really include in our forecast of business plan guidance, much of any capital deployment with big pharma, but that is definitely becoming a big opportunity for us and one that we're very, very excited. And I think as more deals like this get done, and we talked about the JJ one and also Teva and the others, we did agree with Merck several years ago. It actually is really starting to open the market. And we have noticed very significant excitement from many big pharmas that are now really looking at funding their trials with structures that we've developed R&D funding structures. And also, what's helped there is the fact that we've been for years of working with the accounting firms to make sure that we have the right accounting treatment for those transactions that they can be accounted for as contra R&D, but we have been proactive. There was a bad decision made years ago with one company going to to the SEC and with an accounting firm that actually set back the field. But because it's important to us we decided to hire an expert on accounting. And with him, we have completely turned the tide, and now it is something that is -- when you look at the accounting, it's accounted for correctly. So I'll stop there. But the reality [indiscernible] that we're super excited about the opportunities, the universe opportunities, which is really expanding.

And there are no further questions in the queue. I will now turn the call back over to Pablo for closing remarks.

Thank you, operator, and thanks to everyone on the call. And I'll just remind you that if there's any further questions or discussions you want to have, you should reach out to George Grofik and Dana, our IR team, and then we can get involved if it's appropriate. Thank you, everyone.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Welcome, everyone. Thanks for joining us. My name is Mike Nedelcovych. I'm part of TD Cowen's Pharmaceuticals Research team, and I'm very pleased to be joined by top management from Royalty Pharma, Terry Coyne, who is EVP and CFO; and Marshall Urist, who is an EVP and the Head of Research and Investments. Thank you for joining us.

Thanks, Mike.

Thanks for having us.

So Royalty Pharma has a phenomenal portfolio. There's a ton to talk about. I actually want to start though with an announcement you made recently vis-a-vis your ambitions in China and Asia more broadly. You hired a Head of Asia. It seemed like an impressive hire and quite the coup. Maybe you could tell us a little bit about the new Head of Asia and your ambitions in that region.

Yes, sure. So yes, we made a really exciting announcement yesterday. We announced that we are hiring Ken Sun, who is joining us from Morgan Stanley, where he was Head of Asia Pacific Healthcare Investment Banking. And that Morgan Stanley has an incredible franchise in China. And so it was really -- I think we got the best person we could possibly get there. And it's really exciting for us. It's a big opportunity. There's been a lot of licensing deals out of China.

We had our first transaction last year with BeOne, which is -- its roots are in China. And we think that there can be a lot more royalty opportunities coming from China over the years. We felt like it was really important to have a local presence. And so we started a process to figure out who would be the right fit for us culturally, who had a great reputation and Ken brings all of those things. So we're really excited. We think that over the next couple of years, China could become a more and more important market for us and for our business. And we want to kind of -- we helped establish the royalty market in the U.S. and the West, and we think that we can do the same in China with Ken's help. So we're really excited about it.

I fail to mention the top, if anybody has a question in the room, please feel free to raise your hands and we can call on you. Can you elaborate a little bit more on the China opportunity? What's so important about the region? How is it an opportunity for Royalty Pharma specifically?

Yes. I think probably not lost on anyone in this room or at this conference, the kind of explosion of business development activity, licenses, partnerships that's happened over the last few years. And the exciting thing -- one of the exciting things for us is it's a whole new market that is creating new royalties, right? And when you look at what these are, these are royalties in the hands of multinational pharma companies that are being paid to a kind of biotech innovator. And if that fact pattern, you don't mention China has been our business from the very beginning, right?

And so like Terry said, just the volume of activity, I think momentum there, we will see that continue. And that's a real opportunity for us, and we want to be there. It's early, right? You haven't seen any very many deals other than our transaction with BeOne last year. So we see this as sort of a greenfield opportunity, and we're hiring the right team, and we have the patience to develop that market.

Great. Let's talk about some of your recent deals. You actually just announced one with Zymeworks. Can you summarize that deal and the asset in question?

Sure. So yesterday, we announced a $250 million transaction where we bought a royalty from Zymeworks on a product marketed by Jazz called Zanidatamab or Ziihera. It just had some incredible data for gastric cancer for HER2-positive gastric cancer, horrible disease with a horrible outcome, and this product showed a really robust overall survival benefit in a Phase III trial. So we're super excited about that product sort of very consistent with our strategy of high-quality products that are bringing real value to patients.

And so the way that investment will work is, like I said, we paid Zymeworks $250 million upfront. We'll get 30% of their global royalties, both from Jazz, who has the rights in the U.S. and Europe and then from BeOne, who has the rights in Asia. And that will continue until we achieve a certain cumulative return when it will go back to them. And so -- but we expect to own this for a while at this point, nice long durations to sort of checked all the boxes for us.

Great. Maybe are there 1 or 2 other deals that you've done over, say, the last 12 to 18 months that you would highlight because they're notable for one reason or another or maybe for the uninitiated that exemplify what Royalty Pharma does and what the opportunity is that lies before you?

I think the Revolution Medicines deal that we announced last year was sort of a marquee transaction for us last year on a lot of fronts. when it was very large, over $2 billion. So the scale was really big. But it also kind of created what we think is a road map for other emerging small mid-cap biopharma companies who want to retain the rights to their product and have big ambitions to develop to become a global player in these markets. And RevMed is just that.

And I think that for us, it's -- we see royalties emerging as not just the alternative to traditional equity financing or converts or debt, but also emerging as an alternative to a pharma partnership where we can bring the same scale that a pharma partnership would bring without the other baggage that comes along with a partner and losing sort of the strategic control and the strategic optionality by maintaining that, I think, is something that will accrue to RevMed's benefit, their shareholders' benefit, and we think that it's a model for other companies to follow. So that was a really big deal last year and one that we think every company that's -- a lot of companies in these hallways took notice of that, and it's led to a lot of really good discussions and hopefully some deals that come from it over the next couple of years. I don't know if maybe other ones to talk about.

Yes. I think some other, just to give people a sense of the spectrum of what we do, we've done -- we funded large sort of -- we funded large clinical development programs mostly in Phase III. So we did a deal with Biogen at the beginning of last year to fund a program they have in lupus. So we can work with big pharma to help them fund R&D. Terry mentioned synthetic royalty and then a typical kind of royalty transaction, we're still doing those as well. So we bought a royalty that we referenced earlier on a great lung cancer product called Imdelltra last year for almost $1 billion from BeOne that Amgen is launching right now and has, and is doing really well commercially. So it gives you a sense of the spectrum of how we work with all the parts of the ecosystem.

Let's talk about capital deployment. You're tracking ahead of your 5-year goal for capital deployment at least toward royalty acquisitions. Tell us a little bit about how you've achieved that level of capital deployment, what we should expect going forward?

So it's -- we're really happy with the level of deployment, but it's not just the number. That matters much less than the quality of the products that we're bringing in. That's really what drives us. And why has it grown so much over the last couple of years? It's because companies are recognizing the role of royalties as a really attractive alternative funding source.

The Royalty Pharma is recognized as a really great partner for companies. We can be there as they continue to scale. And so all of these things -- and then also, I mean, the macro is that the capital needs of the industry are large and growing. And so every company needs to be thinking about a whole menu of options that they can use to fund themselves and royalties are at the top of the list. We haven't displaced equity, and we're probably not going to displace equity, but we're kind of in that #2 spot, which is pretty remarkable considering 10 years ago, there were barely any companies looking at royalties as a way that they funded themselves.

And so when we think about the forward, we've continued to say that we're going to do at least $2 billion to $2.5 billion. We would describe that more as sort of a modeling assumption that we're giving to investors is like plug this in your model, if you need to think about what the cash flows are going to look like from new investments, assume $2 billion to $2.5 billion. I think everyone at Royalty Pharma feels like that's probably a pretty conservative number. And that the number can be -- could be a lot bigger than that. But it's going to be totally dependent on the quality of the products that come along. And we don't feel like we have to do more. And if there are years where we can't even do that, that's totally fine. We'll be patient. We'll wait for the right things to come along. But the market has clearly shown that it's a lot deeper now than it was a couple of years ago, and that's a really good thing for our business.

Okay. Any questions from the room? So of course, all these deals are meant to drive your top line. You have some long-term guidance after 2030 for $4.7 billion in revenue. What does that imply about your growth from here? And how do we achieve that?

Yes. So I think we feel like at our Investor Day in September, we laid out actually, we reiterated the guidance that we had given a couple of years prior of $4.7 billion. And at that time, consensus for Royalty Pharma was only $4.1 billion. And it's ticked up a little bit, but it's still not all the way there. And so what that implied at the time of Investor Day was at least around 9%, I think, was the growth number. That stacks up really favorably, as you know, to any other large pharma company. And when you think about how we're going to get there, about half of it from things we already own and then half of it are things that we're going to invest in over time. We feel like that number -- could that number be bigger? Yes, potentially.

Half of the growth.

Half of the growth. Yes, yes, sorry. Half the growth. Could that number be bigger? Absolutely. I think but we feel like at this -- when we gave the number, consensus was still quite low, and it still hasn't even gotten to that number. So I feel like we're in a really good spot and can continue to show investors that we can deliver predictable top-tier long-term growth that's diversified because our portfolio is so diversified. And that translates to continual cash flow that we get to reinvest in new deals and continue to generate really attractive returns and return capital to shareholders.

Yes. Actually, maybe you could talk a little bit about how that $4.7 billion falls to the bottom line and some of the specifics around Royalty Pharma's P&L that make it, we think, very attractive.

Yes. So the beauty of the business is it's pretty simple. So $4.7 billion on the top line. We've said between that we expect our operating and professional costs to be about 4% to 5% of that, so call it, 95% adjusted EBITDA margins. And then the only other cost below that is interest expense. And we've guided to in the -- around $360 million, $370 million this year, I think, of interest expense, Urist, correct me if I'm wrong.

And that's kind of the run rate. It will go up a little bit as we refinance and rates have gone up a little bit. So -- but overall, it's a very efficient business model. So all of that cash drops to the bottom line. We have a lot of optionality in what we can do with it. We can increase the volume of royalty deals and increase the amount of capital we deploy. We can increase the dividend, and we can also increase our share repurchase program. So we already have -- we have a repo in place. We have $1.8 billion remaining on that as of the end of last year, and that's one of the tools that we'll also keep using.

So you touched on this a little bit already, Terry, but your ability and the cadence of capital deployment depends a bit on the opportunity set and the quality thereof. Let's say we get to 2032, we look back 5 years, what do you think is the likelihood that Royalty Pharma has deployed less capital in that span of the previous 5 years? It sounds like the likelihood is pretty low. But maybe you can answer that question. And then just tell us what are the forces that push in either direction, Marshall, in terms of quality versus quantity?

Yes. I think like Terry said, the first part of your question, I think we feel super confident in the scale of the opportunity. When you look at how much the role and the role of royalties in funding our ecosystem has changed. I think we still feel really strongly. We're still on the upswing with that. And that's why we mentioned companies that own royalties are increasingly seeing them as a source of capital. Companies see creating royalties to fund their launch of their Phase III trial as a key part of the capital structure. And there's the opportunity to fund R&D with global pharma companies. So when you think about all of those things coming together, the capital needs of the industry is only growing. I think we feel good about the opportunity and certainly upside to it.

The most important thing, though, Terry mentioned it, too, is that, look, we are really, really disciplined and patient, right? And so if it's not there, we're not going to do it. I'm sure we'll talk about our capital deployment framework, but we've sort of laid out for shareholders kind of how we think about all of that if there's not a pressure on us to deploy capital. So I think it is going to be opportunity driven, but there's just so much of that out there that we're really excited.

Any questions from the room? Let's talk a bit about the portfolio, but from a bird's eye view. What is the source of your royalties and the split of your current portfolio in terms of biopharma, foundations, universities and then also development stage versus commercial stage? And how has that changed over the years?

So in terms of the mix of biopharma versus foundations and universities, the dominant source is biopharma. The foundation -- the CF royalty came from the Cystic Fibrosis Foundation. So that's a big one. But we don't really have much else there. We certainly have a number of academic royalties, but the area that's been growing the most has been the biopharma market and particularly synthetic royalties. So those are royalties that we created like the Revolution Medicines deal. As far as the mix of the portfolio right now of development stage versus approved, development stage represents around 10% of our total capital at work. So it's pretty small when you think about the overall portfolio.

And within that, there are things -- there are products with varying levels of risk. There are things that have already been -- that have already seen their Phase III card readout, and we're just waiting for FDA approval. And then there are things that are -- that we're still in Phase III trials and waiting for that card to turn over. But when we think about the overall risk profile of the business, it's quite low and quite and we think really manageable. It's been around that high single-digit 10% level for a while. And I think could it go up a little bit from there, potentially. But overall, when you think about the size of the overall portfolio, it's a very manageable risk level.

The other cool context for that, I think, is if you compare that to our capital deployment on that same metric, right, which is pre-approval capital deployment has been closer to probably 40% of our total capital over the last 10 years. It's been very stable there.

So you think about what's been happening, and I think that's an interesting part about our business is it's -- cumulatively, it's 40%. At any one time, like Terry said, it's like high single digits, 10% because the things -- the composition changes, right? We've had really great success with Phase III trials reading out positively products being approved and launches and then they obviously go into our commercial portfolio. So it's been a really important driver of our business. But if you take that snapshot, it's actually very small, which I think is a really attractive part of our business where it's not binary event driven. It doesn't have that aspect of what a lot of biopharma investing is.

Maybe we could talk about the market backdrop and whether that affects Royalty Pharma's business at all. A lot of macro in the news at the moment. Does the performance of public markets matter to your ability to deploy capital or your rate of return?

So this comes up all the time, and there seems to be an assumption that we will do better in bad markets where the capital markets are closed and worse in good markets where funding is readily available. We don't feel like that's true at all. We feel like our business is totally agnostic to the market backdrop. We did -- we had great years in 2020 and 2021 when the markets were booming, and we did well throughout '23, '24, '25. We don't feel like we're driven by the overall market environment. Why is that?

Because I understand why people would make that assumption. It's because the needs are so big. The capital needs are so big that for a company to bring a drug to market, it's billions of dollars. They have to pull from so many different resources. It's hard to do that all with equity. even if you're really successful and even if the markets are open, it's very tough to do that all with equity. And we're also more attractive than equity from a cost of capital perspective, from a dilution perspective. It's product specific. We're taking risk alongside the partner directly in a program. For all of those reasons, we feel like it's a really attractive alternative to equity even when companies' valuations are stronger. And we've shown it. And so we feel like we can continue to have -- who knows what the rest of this year is going to look like, but we think we can continue to perform well regardless of the backdrop...

Talk about competition to the extent that there is any. What would you say are the key differences between Royalty Pharma and your competitors?

Yes. I think this is another question we get asked a lot. And I think there's also a perception that in the past, the market was totally not competitive. And today, it's competitive. And I think that's not true, right? There have always been competitors around. And we've continued to build the business and be successful because of those competitive advantages, which I'll talk about in a second. But the other really important thing is, I think if you ask all of us on our team, we really think that competition has been a major positive having other people in the market for our market. It is, without question, made the market bigger, deeper, stronger, created more volume. The pie is bigger, and we've benefited from that. So I think as royalties are and structured financing is more attractive, there's going to be other people around. We're not here to do every deal in our space, right? And I think having a really robust market is, without question, been a real positive.

Why have we been successful? I think it's a few things. I think, number one, it's our brand and our tenure in this market, right? We've been here for 30 years. We operate in a really partner-friendly win-win way. And I think we say what we're going to do and we do it, and we try to be a really great partner. I think that's number one. Number two, the scale that we have in our core underlying financial strength of our business is without peer in our industry by a wide margin. Having $3 billion plus of royalty revenue every year, being able to redeploy $2 billion to $2.5 billion as a self-funding evergreen business is completely differentiated from how other people function in our market. And I think that's a major differentiator that allows us to compete from deals like we announced yesterday, which is a very mature about to launch product to working on Phase III with things that are not going to be on the market for years and years.

And then the third thing I'd mention is our team and our infrastructure and our ability to do diligence and really invest in our analytical and due diligence platform that we have is also bigger and bigger and broader and deeper than any of our peers. And then you bring all of that together, and I think we feel really excited about our ability to not just to compete, but to be an innovator who can grow our market and figure out new and different ways for us to work with companies.

Any questions from the room? So the marketers of the drugs on which you purchase royalties are not always competitors for those royalties. So they are competitors in the sense that they compete for the attention and capital of the folks in this room. What are some of the differences between Royalty Pharma's business model and traditional biopharma that should make them pay more attention to you than perhaps they do?

It's just very different. I mean we're a very large diversified business with -- that has consistent growth in cash flow. So the cash flow is always a very big difference versus a lot of the other companies that are presenting at this conference probably. But yes, I mean, and that -- and the diversification is something that also oftentimes gets overlooked. So right now, in 2025, the top 3 products in our portfolio represented around 30% of our top line -- sorry, 45% of our top line.

When you compare that to big pharma, top 3 products represented around 55% of their top line and mid-cap biotech, it's more like 85%. When you fast forward to our estimate for 2030, we think that the top 3 products in our portfolio are only going to be around 30% of our top line. Big pharma is going to stay around the same at around 50% and mid-cap biotech is going to be -- is expected to be around 75%. When you take it a step further, and this is something that oftentimes gets overlooked with our business and the strength of our business is our diversification on the top line is exactly the same on the bottom line. So there are no costs that come along with these drugs. And so 2030, top 3 products are expected to represent 30% of our top line, 30% of our bottom line.

Compare that to big pharma, where we know that the biggest products tend to be have an outsized impact on their profits. The top 3 products are expected to represent around 80% of their bottom line. And then mid-cap biotech, they're using all of their profits and then some to fund their pipelines. And so that's an area where we feel like it's a real differentiator for our business model. It allows us to deliver this predictable top and bottom line growth. And then just the size of the market and how we operate in the market is so different from everyone else because we're completely therapeutic area agnostic. When you look at the deals we did last year, it's every different -- we touch almost every different therapeutic area. And we do that year in and year out, and we're focused on the highest quality products. We have no sort of constraints driven by previous infrastructure or therapeutic area biases. And so that allows us to generally find the best products that consistently outperform, and we have a track record of really strong consistent outperformance.

And the last thing I should mention is just returns. We're in the returns business. We've delivered consistent IRRs on the deals we did since our IPO. We're expected to generate mid-teens IRRs. Our return on invested capital has been consistently year in and year out in the mid-teens. Our return on equity has been in the low 20% range. And so these are real differentiators when you compare us with other companies that probably don't know what their returns are when they're doing business development deals.

Well, maybe to make one other point related to that, which is the other thing I think that's differentiated about our business is I think our ability to grow through the natural loss of exclusivity in our portfolio, we have a way easier time than large pharma very often does. I mean how much debate and time is spent thinking about sources to offset LOE of successful products, right? What we've shown is because we're completely agnostic, because we can look everywhere, because we have no constraints, like Terry said, our ability to continue to grow over time is we have such a larger number of opportunities and sources to find those things to sustain our portfolio and our growth.

Especially over the next decade, that's going to be an important differentiator.

Yes.

I'm going to ask you a very unfair question. It's one that I get a lot about you all. Are you better than your peers at picking molecules?

Look, we always want to be humble, right, about this. And we come to every deal and really focus on doing the highest quality work and the deepest work than we can. I think one thing we do have over our peers is, look, we've been at this longer, right? We have more -- we talked about this a lot at our Analyst Day. We have more institutional knowledge of doing royalty deals and looking at products and looking at products in the way a royalty investor should, right? We probably do bring greater sort of diligence resources like I was saying, because we are set up as an ongoing business, we can spend millions of dollars a year to do -- to have all the sources of data we have to do the work we need to do. So I think all of that comes together and the fact that we feel really confident, like Terry said, about our ability to pick winners and win the transactions we want to win.

Right. A big theme so far at this conference and obviously, in zeitgeist is AI and its role in biopharma. Maybe we can distill it down to a single example, maybe just from the last week, where you all have used AI in your day-to-day business activity at Royalty Pharma. Just an example.

Yes. So I'm only hesitating because like I think we've done some really cool and interesting things to use AI in our diligence process. But maybe without talking about any sort of details, we've definitely seen lots and lots of opportunities to analyze data at scale using LLMs in really interesting ways that we then combine with our internal data sets. That being said, I think we're very open and trying to figure out exactly where are the best kind of value-add opportunities out there. And we're going to continue to invest and most importantly, make sure we have the right team there to apply all of these incredible technologies in our business.

Great. We're just at the top of the hour, but I want to ask a final question, which is in 10 years, what will be the biggest surprise or change when we look at Royalty Pharma from that vantage point relative to today?

From AI or just in general?

In general?

I hope that in 10 years, people realize that this business is sustainable and that we can continue to grow consistently year in and year out, and we probably hopefully get less questions about competition.

Fair enough. Great place to end. Thank you so much for your time, guys.

Appreciate. Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to the Royalty Pharma Fourth Quarter Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir.

Good morning, and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's Fourth Quarter and Full Year 2025 results. You can find the press release with our earnings results and slides to this call on the Investors page of our website at royaltypharma.com. On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from these statements.

We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Chris Hite, EVP, Vice Chairman; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss our transaction pipeline. Marshall will then provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. And with that, I'd like to turn the call over to Pablo.

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

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

Turning to capital allocation. We announced $4.7 billion of transactions on attractive therapies during the year and deployed capital of $2.6 billion. At the same time, we returned $1.7 billion of capital to shareholders. We repurchased 37 million shares for a total of $1.2 billion and paid over $500 million in dividends. And we increased our dividend by 7% in the first quarter of 2026, consistent with our mid-single-digit growth target. We're also delighted to see multiple positive clinical and regulatory updates across our portfolio, including FDA approval of Myqorzo and positive Phase III results on Tremfya, TEV-749, deucrictibant and Trodelvy. Looking ahead, we see the potential to unlock significant additional value from our large and we think underappreciated development stage pipeline, where as Marshall will highlight, we expect multiple pivotal readouts in the relatively near future.

As many of you know, Slide 6 is a particularly favorite of mine as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backlog. This speaks to the quality of our asset selection and our unique business model. Slide 7 underscores an important trend. In 2025, the biopharma market reached $10 billion in announced transaction value for the first time ever. The strong growth trajectory is clear. Over the past 5 years, the average annual value nearly doubled versus the prior 5 years and is nearly triple the level of 15 years ago. This is a market that Royalty Pharma pioneered and that we continue to lead in both share and innovation.

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

Importantly, we remain well on track to achieve our long-term outlook of 10% or greater top line growth over the decade as a whole. We have also reached out -- reached our 5-year capital deployment target of $10 billion to $12 billion, approximately 1 year ahead of schedule. Furthermore, I'm incredibly proud of the breadth and quality of the deals we have announced and our transaction pipeline remains strong. I could not be more excited for the potential to scale our capital deployment given the strong fundamental tailwinds underpinning our business. Now before turning the call over to Chris, I'd like to offer a bigger picture perspective on Royalty Pharma, particularly in an environment of significant uncertainty.

Royalty Pharma is a unique compounding machine. We grow consistently year in and year out and delivered an impressive 16% growth last year. Our business delivers consistent returns to our shareholders. As you will hear later from Marshall, we have also a number of potential value-enhancing pipeline readouts in the near term. Our business is resilient and in a time of uncertainty, we believe we offer a very compelling investment proposition. And with that, I will hand it over to Chris.

Thanks, Pablo. It's my pleasure to give an update on our transaction pipeline and the growing demand for synthetic royalties, the attractive nondilutive funding paradigm that we pioneered. Beginning on Slide 10, this provides a broad overview of the investments we made in 2025 in our transaction funnel. As you can see, we were incredibly busy and reviewed more than 480 potential royalty transactions. This resulted in 155 confidentiality agreements signed, 109 in-depth reviews and 35 proposals submitted.

Our disciplined and highly selective approach resulted in us executing 8 transactions for 9 therapies or just 2% of our initial reviews for an announced value of $4.7 billion. Slide 11 expands on the funnel with a longer-term perspective on our investment activity. Since 2020, the year of our IPO, the team has nearly doubled the volume of initial reviews conducted and has more than doubled the number of in-depth reviews. The growth in our funnel has come during periods of both strong and more restrictive capital markets, highlighting how the benefits of royalties are becoming more widely recognized.

Furthermore, we are encouraged that the growth in our in-depth reviews, which is where our team spends more time and due diligence, has kept pace with initial reviews, indicating that an increasing number of high-quality biopharma companies are evaluating royalties as part of their capital structure. Moving to Slide 12, 2025 was our strongest year ever for synthetic royalty transactions with 4 synthetic deals totaling more than $2 billion. This was over 5x higher than the transaction value in 2020. In each of the 4 transactions, we acquired a royalty on a potentially transformative best-in-class therapy. And 2026 has continued in a similar fashion with a synthetic deal on Teva's potential vitiligo therapy, TEV-408, for up to $500 million.

Let's look more broadly at the synthetic royalty opportunity on Slide 13. 2025 set a new record for synthetic royalty transactions with a market value jumping by about 50% versus the prior year to $4.7 billion. The graphic on the right shows that over the past 5 years, biopharma funding has been dominated by equity, licensing deals and debt. Synthetic royalties have been a small part, just 5%. From our ongoing partnership discussions, we see synthetic royalties being routinely discussed at the Board level and C-suites as an important and growing funding modality. Why is this? Simply put, synthetic royalties solve problems -- funding problems in a way that equity and debt can't and are increasingly being recognized as an important part of a biopharma company's capital structure.

More specifically, compared with traditional debt and equity financing, they offer greater flexibility, no operational restrictions, they are nondilutive to equity holders, and they can be tailored to the individual needs of a company. This drove our groundbreaking transaction with Revolution Medicines. And given our leadership in this space, we believe we are optimally positioned to benefit from this important paradigm shift in biotech funding. So to close, we are confident that Synthetics will be an important growth driver in the coming years. With that, let me hand it over to Marshall.

Thanks, Chris. I want to discuss 2 important aspects of our portfolio today. First, a look back at 2025 capital deployment to highlight some key themes. And then second, to look forward toward important 2026 events in our broad development stage portfolio. Slide 15 demonstrates how well we executed against our capital deployment strategy in 2025. We deployed capital of close to $900 million in the fourth quarter alone, highlighting our scalable and flexible diligence deal execution capabilities. We acquired existing royalties on approved products, Amvuttra for ATTR amyloidosis, Evrysdi for SMA as well as a synthetic royalty on the expected approval of Denali's groundbreaking therapy for a rare condition called Hunter syndrome.

We also acquired existing royalties on Nuvalent's 2 lung cancer therapies that are expected to be FDA approved in 2026 and 2027. This busy quarter took our total capital deployment for the year to $2.6 billion, which resulted, as Pablo highlighted, in the achievement of our 5-year capital deployment target of $10 billion to $12 billion 1 year ahead of schedule. Taking a step back shows how we were able to deliver balanced capital deployment to our shareholders year in and year out with 67% of our 2025 investments in approved products and 33% in development stage therapies right in line with our historical average. What's also remarkable is the diversity of investments underlying our $4.7 billion in announced transaction value.

As a reminder, announced value is a broader measure than capital deployment that includes potential future payments and obligations in addition to upfront amounts. 2025 was also the first year that synthetic royalties exceeded existing royalties and committed capital, reinforcing Chris' comments about the important role of synthetic royalties in the biopharma funding ecosystem. Slide 16 summarizes the 4 exciting transactions that we completed over the last 3 months for a combined announced value of $1.4 billion. The first thing to note is that the transactions cover 4 very different therapeutic areas, marketers and development stages, showing how our investment approach consistently produces diversity in our royalties.

Second, 2 of the 4 transactions are synthetic royalty deals, including Denali and most recently, Teva's potentially transformative vitiligo therapy, TEV-408. The existing royalty transactions cover Nuvalent's 2 development stage drugs for small cell lung cancer and the residual royalty in Roche's blockbuster Evrysdi. Third, these largely are or are expected by consensus to be blockbuster medicines. This highlights our disciplined focus on innovative first or best-in-class medicines to drive our diversified, sustainable and attractive growth profile.

Next, I'll turn to our development stage pipeline and upcoming events. We're exceptionally well positioned for our next wave of value creation with one of the deepest and most innovative development stage pipelines in the industry. Slide 17 shows that our portfolio already delivered a number of successful Phase III readouts and regulatory approvals in 2025, most recently, the FDA approval and launch of cytokinetics Myqorzo in obstructive hypertrophic cardiomyopathy. And these events together will lead to several new royalty-generating launches this year. Now unlike many biopharma business models, Royalty Pharma is not defined by any single clinical trial outcome. Slide 18 shows that there is much more to come from our development stage pipeline with multiple pivotal readouts expected over the next 24 months. 2026 will be an exciting year.

We'll see the first Phase III data on Revolution Medicine daraxonrasib in pancreatic cancer, a drug which has the potential to revolutionize this devastating disease. We'll also see the results of the first outcomes trial for our investments in the Lp(a) class of drugs with Novartis' pelacarsen. We continue to believe that the Lp(a) class could be the next major class of cardiovascular disease drugs, and we're perfectly positioned with the 2 lead pipeline products in pelacarsen and Amgen's olpasiran.

We'll also see data for Biogen's litifilimab in lupus late this year or early next year. And while not on this slide, we expect to see data this year for Myqorzo in nonobstructive hypertrophic cardiomyopathy, which is a potentially large new indication. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis and from J&J's seltorexant in major depressive disorder. We'll also see the LPA outcomes trial for olpasiran. Each of these potentially transformative therapies would add very significant royalties to our top line.

More broadly, when we look across our entire pipeline of 20 development-stage therapies, we estimate combined peak sales of over $43 billion on a non-risk-adjusted basis, which could translate to over $2.1 billion in peak annual royalties to Royalty Pharma. So to close, there is really significant but underappreciated potential in our pipeline, and the next 2 years will see multiple events that could unlock substantial value. At the same time, this isn't it, and our ongoing capital deployment will allow us to expand and repopulate our pipeline in the years to come. And with that, I'll hand it over to Terry.

Thanks, Marshall. Let's move to Slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty Receipts grew by 17% in the fourth quarter and 13% for the year, reflecting the strength of our diversified portfolio. When we add in milestones and other contractual receipts -- portfolio receipts, our top line grew 18% in the quarter and 16% for the year. As we move down the column, operating and professional costs equated to 6.7% of Portfolio Receipts in the fourth quarter and 8.9% for the year. The quarter clearly demonstrates the benefit of cash savings from the internalization transaction, which we completed in May. Net interest paid was de minimis in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters, together with the interest we received from the cash on our balance sheet.

For the year, net interest paid was $242 million. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $815 million for the quarter and $2.7 billion for the year. Our margin for the year of around 84%, again demonstrates the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $887 million took us to $2.6 billion on a full year basis, reflecting the high level of transaction activity you heard about earlier.

Lastly, our weighted average share count declined by approximately 6% in the quarter versus the prior year period and by 5% for the year, reflecting the impact of our share buyback program. Slide 21 provides more detail on the evolution of our top line in 2025. Royalty Receipts, which we consider our recurring cash inflows grew by 13%. Key drivers were the strong performance of Voranigo, Trelegy, Tremfya and the cystic fibrosis franchise with very little contribution from new acquisitions made in the year. Portfolio Receipts grew by 16% at the high end of our guidance of 14% to 16% and well ahead of our initial guidance of around 4% to 9%.

Slide 22 updates our recently introduced portfolio return metrics for the full year. Return on invested capital has been remarkably stable at around 15% on average from 2019 to 2025 and was 15.8% in 2025. Return on invested equity, which shows the impact of conservative leverage on our equity returns has been consistently in the low 20% range and was 22.8% in 2025. Both figures for 2025 included a benefit from the sale of the MorphoSys development funding bonds. As a reminder, we sold the MorphoSys development funding bonds in the first quarter for proceeds of $511 million, which resulted in an IRR of approximately 25% on our investment. As I have said previously, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders.

Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of 2025, we had cash and equivalents of $619 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion, including the $2 billion of notes we issued in the third quarter, and the weighted average duration of our senior unsecured notes is around 13 years. Our leverage now stands at around 3x total debt to adjusted EBITDA or 2.8x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to over $3.5 billion of financial capacity through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We deployed $2.6 billion of capital on attractive royalty deals in 2025.

At the same time, we returned a record $1.7 billion to our shareholders, including share repurchases of $1.2 billion and our growing dividend. Slide 24 provides our full year 2026 financial guidance. We expect portfolio receipts to be in the range of $3.275 billion to $3.425 billion. This assumes growth in Royalty Receipts of around 3% to 8%, reflecting the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar Tysabri in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026.

Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. Payments for operating and professional costs are expected to be in the range of 5.5% to 6.5% of Portfolio Receipts in 2026. This significant reduction when compared with 8.9% in 2025 is primarily the result of cost savings from the internalization of the manager. Lastly, interest paid is expected to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in each of the first and third quarters with de minimis amounts payable in Q2 and Q4. The year-over-year increase reflects interest payments on the $2 billion of notes issued in September 2025, for which the first payment will be paid in the first quarter.

This guidance does not take into account interest received on our cash balance, which was $34 million in 2025. As a final consideration, we expect to issue equity performance awards, which is our long-term incentive compensation program due to the success of investments in 2020 and 2021. We expect equity performance awards to be approximately $85 million in 2026, with approximately half of that value reflected in the share count over the course of the year. This is very similar to the $81 million in equity performance awards that were earned in 2025. Slide 25, my final slide drills down deeper into our 2026 top line guidance. We expect Royalty Receipts to benefit from multiple growth drivers, including established royalty streams on Trelegy, Tremfya and Evrysdi as well as the strong launch trajectory of Voranigo and the recent royalty acquisitions on Imdelltra and Amvuttra.

Together, we expect these drivers to allow us to absorb the impact of LOEs on Promacta and Tysabri while still driving Royalty Receipts growth of 3% to 8%. Portfolio Receipts, of course, includes the more variable milestones and other contractual receipts, which are expected to be approximately $70 million lower in 2026, as I already noted. To close, we delivered a strong fourth quarter and full year, and our guidance for 2026 puts us well on track to achieve our long-term financial objectives. With that, I would like to hand the call back to Pablo.

Thanks, Terry. To conclude, I would like to stress how delighted I am with our performance in 2025. I started out by saying it was a landmark year on all key measures, growth, returns, strengthening our portfolio and maintaining a market leadership we delivered. I want to close on Slide 27 with a reminder of why we believe we're all well positioned to drive strong value creation. First, we're the clear leader in the rapidly expanding biopharma royalty market with strong fundamental tailwinds, reflecting the huge demand for funding life sciences innovation.

Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies, and we expect to remain the undisputed leader. And looking ahead, we're excited about the prospect of expanding our team and platform in China. So stay tuned. Third, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity of over 20%.

Lastly, we expect to deliver strong low volatility, top and bottom line growth through 2030 and beyond. As a result, we're confident we're on track to generate annualized total shareholder returns of at least the mid-teens over the next 5 years. With the manager now internalized, our shareholders are positioned to benefit from durable value creation in 2026 and beyond. With that, we will be happy to take your questions.

We will now open up the call to your questions. Operator, please take the first question.

[Operator Instructions] The first question comes from Jeff Meacham with Citi.

All right. Great. I just have 2. The first on dividend and buybacks. Last year, you guys had a big step-up. How sustainable is that looking to 2026? Do you feel like that could have been better spent on royalty deals? I guess I'm just trying to get a sense for how the deployment mix can evolve. And the second question is, you have thawing of the capital markets this year. Is there an accretive way for Royalty to get more involved in, say, private or crossovers or even IPOs? I wasn't sure how you view the returns there versus a more mature process.

Sure, Jeff. Thanks for your question. Terry, why don't you take the first question and then Chris can answer the second one on capital markets.

Sure, Jeff. So we -- at the time of the internalization, we laid out what we call our sort of dynamic capital allocation framework, where we're thinking about how we're going to deploy capital based on the relative attractiveness of the royalty opportunities weighed against the relative value of our stock price relative to intrinsic value. So I think when you look at 2025, it's a pretty good example of how we think about it. We started the year, deal activity in the beginning of the year was a little bit slower, and our stock price was, we thought at a really attractive valuation. And so we accelerated our share repurchases in the beginning of the year, particularly in the first quarter and also into the second quarter. And then as deal activity picked up a lot in the second half of the year, we dialed back our share repurchases.

And we spent a lot of capital on new investments, which we think drove really -- will drive really attractive long-term returns. So -- and I think going forward, we're going to continue to take the same approach. We're going to look at relative value. Right now, I would say we feel really, really excited about the pipeline and the opportunities for royalties. But we're going to continue to return capital to shareholders via share repurchases and dividends. But I think the priority right now is probably a little bit more biased towards the royalties.

And on your second question, Jeff, the thing of the capital markets, I mean -- and whether we could get more involved potentially with private companies, we're very focused on high-quality pharmaceutical products, biopharmaceutical products. And if they're housed within a private company, we look at those all the time. And our focus really is on investing in high-quality assets.

We have made some investments on private companies over the years, small equity investments associated with potential royalties. And that's something we always do. But I think we're excited really with just the growth of the opportunity set, whether the markets are strong or weak. You've seen our reviews and our opportunity set grow in any environment in the capital markets. So that's really the focus. We are really hunting for really high-quality assets wherever they are.

And our next question will come from Mike Nedelcovych with TD Cowen.

I have 2. My first is on Alyftrek. I know the arbitration around the royalty is ongoing. So my question is not about the royalty, but rather about the product's end market performance. We're now past 1 year into the launch of the drug. How has Vertex's conversion of CF patients over to Alyftrek been tracking relative to your assumptions? At peak, Vertex expects to convert the majority of patients. Do you agree with that outlook? And how long do you think it could take? That's my first question.

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

Sure. Thanks for your question, Mike. Terry, why don't you take the first one on Alyftrek and then Marshall can take on the second question.

Sure, Mike. So it's a great question. When Alyftrek first launched, I think there was from investors, a lot of debate about how rapid the conversion would be. And I think there were many that thought that the conversion would be pretty rapid. And we had a different view at the time that we thought that it would be gradual. And it's really because Trikafta is just an amazing drug that's totally transformed that disease. And so it's sometimes hard to switch from something that's working really well.

So I think by and large, it's been pretty consistent with what we thought. It has -- it's been gradual but steady. I think it's tough for us to speculate at this point on what percent will ultimately go to Alyftrek, but I think either way, what we laid out at our Investor Day, I think, is how we think about it long term, where we think that by 2030, even with a lot of patients switching to Alyftrek and under a downside case where we are not successful in the arbitration that we still would recognize Portfolio Receipt -- or Royalty Receipts from the CF franchise of around $800 million, which is above what our initial sort of downside range was a couple of years ago.

So overall, we expect CF to remain a really important contributor over the long term and it was great to see in 2025, it actually grew -- our Royalty Receipts actually grew 7% for the year, even in the face of conversion to Alyftrek where we're currently getting a lower royalty rate.

Great. Mike, to your question on general medicine products and the cardiovascular and the cardiometabolic market specifically, first of all, I'd just make a general comment, which is when we look at that whole area, general medicine, cardiovascular disease, cardiometabolic disease, we're certainly excited about that and see a lot of opportunity there in the future, and it's a place where we continue to look for opportunities like you've seen us do in the past.

I think to your question specifically about what will sort of be a preferred delivery option, I would point to the lessons that we've seen from current markets, right? You look at next-generation cholesterol agents, right? You have kind of 2 very different dosing profiles there, and they've both found success. So I think the incredible thing about those markets is they're so big there's such a diversity of patient need and preference that there's opportunities for lots of different profiles.

And you'll see us approach it in the same way we've done in the past, which is finding a combination of a differentiated product that's important to patients in the hands of a marker that we believe certainly with our -- potentially with our partnership could maximize the value of that product. And we continue to look for those opportunities, and we'll bring the same discipline in patients that we have in the past. And when we find the right thing, we will certainly go after it vigorously.

And the next question will come from Terence Flynn with Morgan Stanley.

I had 2 as well. Chris, you mentioned on one of your slides that this is the first year, I think that synthetic royalties and announced value has exceeded traditional royalties. So just as you think about the trend this year, do you think that will continue on mix? I know it's a little bit opportunistic, but just how do you think about that on the forward? And then one for Marshall on Lp(a). Again, you guys are levered to a few of the late-stage products here. Novartis' trial, as everyone knows, was delayed to the second half of this year. So just how do you think about that in terms of likelihood of success for maybe this trial, but then any implications for the second readout, which I believe we're going to get from Amgen in '27?

Yes. Thanks for the question, Terence. And actually, it was actually Marshall on his slide that he commented on the one pie chart where synthetics were a little bit larger than the existing royalty capital deployment, at least around the announced value of the deal, 44% last year versus 40% for an existing royalty. Look, we're -- the bottom line is we're super excited about the synthetic royalty market. As we said at our Analyst Day and on these calls, I think you're really seeing that come through.

The Deloitte survey really highlighted, I think, the growth and the awareness of how we can work with companies and why synthetic royalties are a better solution in some cases and in a lot of cases, compared to debt or equity financing for companies. And so we see the excitement in the sector every single day. We're getting calls every single day around that opportunity. And for us, it's really always just maintaining discipline and investing in really high-quality opportunities. But the opportunity set is there, and we see the growth continuing for sure.

And then, Terence, your question on Lp(a). So no change in our enthusiasm there. As we've been highlighted, we are really excited about the potential of this class. The news on the timing, I think as we've talked about in the past, when you run a first-in-class outcomes trial, a big question is, of course, going to be the event rate and specifically in this case, this is a population where the exact event rate hasn't really been characterized certainly in a group of patients who are pretty well treated in terms of other factors like LDL cholesterol.

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

And our next question will come from Asad Haider with Goldman Sachs.

Congrats on all the continuing strong execution. I have 2. First for Marshall, just on the broader portfolio, just appreciate all the framing on the catalyst part. But maybe just based on your own diligence and sizing of the markets and the opportunities, what assets do you think are still most underappreciated in current Wall Street models? And then I have one for Chris. Chris, you've talked in the past about the China opportunity as an area of strategic importance and focus. Any updates there would be helpful. When could these opportunities start to become a funnel into the transaction pipeline?

So as we look at the pipeline, I think there are -- the biggest takeaway for us and we think about how the world looks at our pipeline is I think it's also just important to take a step back and think about the aggregate potential there. And I think that was one of the things that we want to highlight was there's very significant potential for value creation right now in our pipeline. As I mentioned -- as we mentioned in the prepared remarks, about $2 billion or so of potential non-risk-adjusted peak royalties. You think about that in the context of where our top line is today, that's a very significant potential, and we'll continue to add there.

We'll continue to add to the development stage portfolio and then, of course, the marketed portfolio as well. When you look across here, we do get a significant number of questions on Lp(a) and Revolution Medicines. But the other ones, we -- the other products we highlighted here, Biogen's litifilimab, we'll have Phase III results here coming up. Sanofi, frexalimab, we've highlighted the non -- the post CD20 or non-CD20 part of the market and the real need for new targets in MS is exciting to us. And then another product that we highlighted was J&J, a depression product that is a little -- that is off the radar, but J&J has put a lot of development resources into, and we'll have data for that next year. So what we really like is the diversity of it, the depth of our development stage pipeline and taking a step back and thinking about the aggregate potential for value creation for our shareholders in the next few years.

And then on the China question, we are very excited about that opportunity. I showed a slide in the Analyst Day that I think in 2020, there were only 2 out-licensing deals out of China into the Western sort of multinational companies that created royalties. And it's almost like every day you wake up and you're reading about a new deal where a Western multinationals is in-licensing something out of China. So that opportunity set is -- we're very excited about it. I've mentioned that multiple teams have gone to China multiple times last year.

And so -- and then I think -- we did a deal last year with BeOne, which certainly, I think a lot of the Chinese companies look at BeOne as a leader and a company that formerly was based in China. And they saw that transaction we did for Imdelltra, which was $885 million upfront. And I think that definitely opened a lot of eyes of the Chinese companies that we've spoken to around the opportunity to monetize their royalty streams. And then I would just remind you that a lot of those transactions are somewhat of the earlier stage in nature. So we are really tracking and following those deals and how they progress within the multinationals, the Western multinationals clinical pipelines. And we are eagerly awaiting the opportunity to put those into the funnel, to your point. And then lastly, I would just say we are looking at expanding our team and our platform in China, and we hope to have an announcement on that in the very near term.

And the next question comes from Christopher Schott with JPM.

You recently did a deal with Teva for its IL-15. Can you just a little bit more about what attracted you to that asset? And maybe as part of that, just bigger picture, I think this is a bit earlier than historically where Royalty Pharma has gone. And is that a trend we should be thinking about of royalty looking maybe more mid-stage assets as you get larger and kind of can diversify the portfolio more?

The second one for me was on Voranigo. Just that launch has ramped really nicely. I think it's an asset that's a little bit less understood by the Street. Maybe just elaborate a little bit more on just how you're thinking about growth for that product from here and how large of an asset that could become for Royalty Pharma over time?

Sure. Chris, -- so Marshall will take the questions, but maybe -- yes, go ahead, Marshall.

Sure. Chris, thanks for those 2 questions. So first of all, on Teva. So what attracted us there? I think it was a few basic things. First was vitiligo is a market that has real unmet need, and there's real need in that as an autoimmune indication where there just hasn't been enough innovation for patients. And two, the science of it, not to get too far into the details, but the target IL-15 of the product that we invested in with Teva is really kind of fundamental to the biology and pathophysiology of vitiligo. And so that made a really strong story for us.

And then third, like we said, we got a sense of some -- looking at the available data, and that certainly intrigued and excited us. And that came together to get us really excited about this market that is underappreciated and has blockbuster potential. Are we -- and then you asked about the structure and are we thinking about, is this any sign of moving earlier? Not at all. I think it's consistent with what you've seen us do, which is be creative in structure to where we can tranche capital over time. And that's really effective because if you think about it, we're making a relatively small investment here to help fund the Phase IIb of $75 million. And then we will have following that, the option to significantly scale up that investment to help fund the Phase III.

So that's a very powerful mechanism to us and a very powerful structure. You've seen us do it that allows us to access more innovation, be a better partner, be a more flexible partner in a way that doesn't at all change the kind of risk profile of our portfolio for our shareholders. So we think it's a very cool structure and another example of how we've been innovating with royalty-based financing to expand the opportunity and expand the role. Your second question, thanks for asking about Voranigo. We are -- we couldn't be more thrilled with how that product is launched and how Servier has done with it. That product, again, another great example of serving a profound unmet need.

So it's had a very strong launch. We continue to be excited about its potential. We've talked about how this is a drug that could have a very long duration of therapy as it kind of helps to control the growth of these low-grade gliomas and could be -- we saw a very significant commercial potential there. I think at our last update, we've shown it's very well on its way to be a blockbuster -- to being a blockbuster product. And if you look at the trajectory there, I think we still feel great about the trajectory that it's on and excited to see what the future holds.

And the next question will come from Ash Verma with UBS.

I had a portfolio question and one on the P&L. So maybe just on the portfolio like Myqorzo, how are you thinking about the potential implication for this upcoming nonobstructive HCM study. There's a fair bit of heterogeneity in this patient population and Camzyos has also failed. So just curious if you're thinking about it as sort of like an upside driver or expect it to work. And then on the operating and professional costs, the run rate that you provided for 2026, is this a good way to think about just on a going-forward basis? Or is there any additional phasing out of the impact that's not reflected on the internalization front?

Thanks for the question, Ash. Marshall will answer the first one on Myqorzo, and then Terry can address the question on P&L and operating expenses.

Ash, thanks for the question on cytokinetics and Myqorzo. So first, just I think it highlights, as we mentioned in the prepared remarks, we're really happy to see that approval, and it's a great example of how our development stage portfolio can continue to drive and contribute to our top line growth in Portfolio Receipts. We are super excited to see commercialization and Cytokinetics has been a great partner for us, and they've put together a great team.

Specifically to your question on nonobstructive cardiomyopathy, our base case when we made this investment was it was premised on the currently approved indication of obstructive disease. So that -- we did not assume that this trial turned out positively when we made the investment. That being said, I think the data that they've shown in Phase II is compelling. They've had the opportunity, I think, to learn from Camzyos' experience there. And so I think we'll -- we are with you and the world waiting to see -- with excitement to see what this trial holds. But our basic thesis for this investment was really focused on obstructive disease.

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

And the next question will come from Umer Raffat with Evercore.

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

Thanks, Mike, for those 2 questions on 2 great products. Go ahead, Marshall.

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

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

And the next question will come from Jason Gerberry with Bank of America.

This is Dina Ramadane on for Jason. We just had 2 follow-ups to prior discussion points. I guess, first on the China market. Could you characterize how future deal structures may differ in China from the way you've kind of done historical deals, if at all? Like are you finding that the diligence process comes with any added or expected process-related hurdles that impact normal efficiency? And then second is just on the Lp(a) lowering class readouts. How important in your view is the treatment effect size coming above or below a 15% to 20% risk reduction to the commercial peak sales opportunity?

Sure. Maybe I'll take your China question. And we don't foresee any change in the way we structure transactions and how we actually diligence them. You asked also about diligence. It's exactly the same process that we follow for products. Just realize that what is likely to happen in China deals is that we will be buying a royalty from a Chinese company that licensed a product to a company in the U.S. or Europe. And they did that because the vast majority of Chinese companies do not have clinical and marketing infrastructure in the U.S. and Europe.

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

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

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

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

Thank you, operator, and thank you to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George Grofik and his team. Thank you, everyone.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

So good morning, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be introducing Royalty Pharma today. It's a really unique business in our view, a company that's helping finance a lot of the innovation that's occurring across the biopharma space. From the company, we have Pablo Legorreta, the company's Founder and CEO. Pablo, Happy New Year and looking forward to the presentation.

Thank you, Chris. Happy New Year to you and to everyone in the room. It's a real pleasure for me to be here. I think it's probably my 28th year at JPMorgan, something like that, and sixth year since we're a public company. But good morning and good afternoon to those of you on the web. My name is Pablo Legorreta, and I'm the Founder and CEO of Royalty Pharma. I'm thrilled to be here to share my excitement for our business.

What I plan to leave you with today are two important takeaways. First, a clear appreciation of the rapid growth and enormous potential of the royalty funding in life sciences. And second, our clear path to deliver significant value creation and share price appreciation in the coming years. Before I begin, you can see on the slide our customary forward-looking statements.

For those investors who are less familiar with Royalty Pharma, we are the clear leader in the fast-growing biopharma royalty market, and we have no obvious public traded comp. This inevitably raises questions of how to value Royalty Pharma, how to benchmark the company's performance and what is an appropriate peer set. When we addressed many of these questions at our Investor Day in September 2025, the starting point was our new corporate goal, which clearly defines our ambition. Our goal is to be the premier capital allocator in life sciences with consistent compounding growth. We aim to deliver against this ambitious goal by dynamically allocating capital in the best interest of our shareholders to deliver sustained attractive returns and to strengthen our competitive moats.

Slide 4 summarizes how 2025 was one of the most important and defining years in Royalty Pharma's history, marked by strong financial performance, transformative strategic actions and impressive capital deployment. It was a truly remarkable year for us. Starting with the financials, we expect to deliver between 14% and 16% growth in portfolio receipts, our top line, driven by the strength of our diversified portfolio. We're also now reporting a return on invested capital and return on invested equity on a quarterly basis. In the third quarter, we maintained strong returns in our business with returns on invested capital of 15.7% and return on invested equity of 22.9% for the last 12 months. This performance is the result of a repeatable investment process that has delivered double-digit growth through multiple market environments.

We also completed one of the most transformative steps in our company's evolution through the internalization of our external manager. This brought together our unique royalty portfolio and our valuable intellectual capital. We are already seeing significant benefits from reduced costs as well as improved alignment and governance.

Turning to capital allocation. We deployed capital of $2.6 billion in the year on value-creating royalty transactions, bringing in new -- 8 new royalties. A particular highlight was our innovative transaction with Revolution Medicines on the exciting Phase III oncology therapy, daraxonrasib, which we believe establishes a new funding paradigm for biotech companies. And we also turned significant capital to our shareholders with a repurchase of $1.2 billion of shares and our growing dividend.

Lastly, looking at our portfolio, we received multiple positive clinical and regulatory updates, which we expect will contribute significantly to our growth and returns in the coming years. Slide 5 is a favorite of mine as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. In fact, over the period since our IPO, we've had consistent beats and raises. Slide 6 shows that we have delivered ahead of analyst expectations in 15 of the last 22 quarters. This speaks to the quality of our asset allocation and selection driven by our incredible investment process. Importantly, we don't believe this can be replicated by others. We're focused on identifying the best therapies in the biopharma industry, and our history has shown that this consistently outperformed.

On Slide 7, at our first Investor Day in 2022, we provided two clear long-term financial goals. We're targeting a compounded annual growth in portfolio receipts of 10% or more between 2020 and 2030, which means a top line of $4.7 billion or more by the end of this decade. We also increased our projected rate of capital deployment to $10 billion to $12 billion over the next 5 years compared with our prior target of greater than $7 billion. I am delighted to say that our strong performance in 2025 puts us ahead of the run rate of this measure.

Let's move on to Slide 8, which we believe shows the fundamentals behind our industry and why they are so compelling. The answer is simple. Royalties fill a critical funding role for biopharma. They are increasingly being recognized as an important part of a biopharma company's capital structure with clear advantages to traditional debt and equity in multiple scenarios. For debt funding, the main advantage is that it has the lowest cost of capital and is not dilutive to equity. However, it typically comes with strict operational covenants. Equity has been popular historically as it's been the only source of funding for most biotech companies. However, it comes with the highest cost of capital and is broadly dilutive to shareholders. This all changed when Royalty Pharma introduced royalties as a new source of funding. Royalties offer the greatest flexibility, no operational restrictions and are nondilutive to equity holders. Also, royalties are targeted and can be tailored to the individual needs of a company.

Slide 9 illustrates why for the right company, we also believe royalties offer important advantages versus partnering with a biopharma company. Royalties allow our partners to retain strategic optionality as the profile of their product or pipeline matures by creating new or as we call them synthetic royalties as well as providing launch capital, our partners enjoy many advantages over a licensing deal. For example, they retain operational control, a higher proportion of the economics in their product and avoid administrative complexity from joint decision-making. Our transaction with Revolution Medicines is a great example of a company deciding to pursue royalties instead of partnering with a global pharma partner. And as the quote on the right from a biotech CFO highlights, selling a large portion of the economics and decision-making rights to a larger pharma partner may also limit the potential attractiveness to an acquirer later down the line.

Our market is growing rapidly. On Slide 10, over the past 5 years, the value of announced royalty transactions has averaged $7.1 billion per year. That's around double the previous 5 years and nearly triple the level of 15 years ago. And 2025 was a record year with $10 billion in transactions. We expect this growth to continue, underscored by the increasing recognition of the benefits of biopharma royalties, the huge demand for capital in life sciences and the incredible pace of scientific innovation. Within the overall market, we expect synthetic royalties to be a very important growth driver, and I want to briefly focus on this next.

Slide 11 highlights the strong growth in synthetic royalty transactions as well as the huge potential for future expansion. Similarly to the broader royalty market, 2025 set a new record for synthetic royalty transactions with a value jumping 50% to $4.7 billion compared to 2024. This is almost half of the growth in the overall royalty market. And as we see so much growth -- and we see so much growth still to come. The graphic on the right shows that historically, biopharma funding has been dominated by equity, licensing deals and debt. Synthetic royalties have been a small part, just 5% of the overall funding picture over the last 5 years. From our ongoing partnership discussions, we see synthetic royalties being routinely discussed at the Board level and C-suites as an important and growing funding modality. This growing recognition was affirmed by the findings of Deloitte's first-of-its-kind report on the biopharma royalty market in September 2025, which surveyed more than 110 biopharma leaders. Our expectation is that the synthetics will continue to be a key growth driver in the coming years.

Moving to Slide 12. Royalty Pharma had our strongest year ever for synthetic royalty transactions in 2025, with 4 synthetic deals totaling more than $2 billion. This was over 5x higher than the transaction value in the year of our IPO. Each transaction was based around potentially transformative best-in-class therapies with the Revolution Medicines deal the largest. And 2026 is off to a strong start with a synthetic royalty transaction on Teva's potential vitiligo therapy, TEV-53408, with a value of up to $500 million.

Slide 13 looks more broadly at the investments we made in 2025 and our transaction funnel. As you can see, we were incredibly busy and reviewed more than 480 potential royalty transactions. This resulted in 155 CDAs signed, 109 in-depth reviews and 36 proposals submitted. Our disciplined and highly selective approach resulted in us executing 8 transactions for 9 therapies or just 2% of our initial reviews for an announced value of around $4.7 billion.

On Slide 14, I want to take a step back to highlight how we manage and mitigate risk. In short, we deploy our capital in opportunities with attractive risk reward, where there is compelling proof-of-concept data or the product is already approved. We rarely invest in early-stage opportunities and instead focus on where our team can drive the greatest conviction. As a result of this disciplined risk/reward approach, we built an exceptional track record with around 90% of our development stage investments going on to receive approval, which is well ahead of the typical industry success rate.

Slide 15 expands on this point by illustrating the relatively low risk profile of our portfolio. The vast majority, 86% of our invested capital at work, which is essentially our capital deployed for all active investments in our portfolio is currently in approved products. Our exposure to unapproved products is only around 11% and has historically always been low. This reflects the success of our development stage investments. Importantly, only 3% of our capital has been invested in investments that did not ultimately get approved, which we believe is an impressive figure.

Moving to Slide 16. We're good at identifying opportunities that have not been appreciated by the investment community. Most of our recent investments have performed well since our IPO, with many still in the early stages of their product life cycle and are in strong growth trajectories ahead. When we weigh the outcomes by the capital we deployed around $17 billion since 2020, the analyst consensus for 5-year sales has increased by 40% on average since we invested. That said, I should stress that our investment decisions are always driven by our own internal forecasts, but using the analyst consensus is a good proxy for showing our ability to identify winners.

Importantly, when we look at returns on Slide 17, even for transactions where the consensus has decreased, you can see that all but two are on track to achieve our target returns. This reflects the fact that our investments are underpinned by our own internal forecast as well as our ability to creatively structure transactions that mitigate risk.

In the next couple of slides, I want to highlight what we believe is one of the most unappreciated elements of our business, namely our pipeline of 20 exciting products that are in development stage. Slide 18 shows that we're exceptionally well positioned for the next wave of value creation with one of the deepest and most innovative development stage pipelines in the industry. This portfolio has already delivered with a number of successful Phase III readouts and filings in 2025. Most recently, the FDA approval and upcoming launch of Cytokinetics MYQORZO in obstructive hypertrophic cardiomyopathy. Based on these events, we expect to see several royalty-generating launches this year, beginning with MYQORZO later this month as well as Teva's 749 in schizophrenia and Emalex ecopipam in Tourette syndrome.

Slide 19 sets out why there is much more to come from our development stage pipeline with multiple pivotal trial readouts expected over the next 24 months. 2026 will be a big derisking year. We'll see the first Phase III data on daraxonrasib in pancreatic cancer, a drug which we believe has the potential to totally revolutionize this devastating disease. We'll also see the first outcomes trial for our investments in Lp(a) in the Lp(a) class of drugs with Novartis pelacarsen first. We continue to believe that the Lp(a) class could be the next major class of cardiovascular disease drugs, and we're perfectly positioned with the two lead pipeline products in pelacarsen and Amgen's olpasiran. We'll also see data on Biogen's litifilimab in lupus late this year or early next. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis as well as olpasiran, which I already mentioned. Each of these potentially transformative therapies could add very significant royalties to our top line.

Slide 20 shows the potential launches that we expect to power our attractive compounding growth beyond 2030, including the therapies I just discussed. We would argue this is one of the most exciting and innovative pipelines in all of biopharma. The vast majority are products that are either first-in-class or best-in-class with clear blockbuster potential. In aggregate, we estimate the combined peak sales at over $43 billion on a non-risk-adjusted basis. Based on the respective royalty rates, this could translate to over $2.1 billion in annual peak royalties to Royalty Pharma with daraxonrasib, frexalimab and the Lp(a) class potentially being the largest contributors.

Having focused on growth so far, I want to switch gears on Slide 21 and talk about returns. We're consistently investing at attractive returns that will drive long-term value creation for our shareholders. Our primary measure for analyzing deals has always been internal rate of return and cash-on-cash multiples. We aim to invest in long-duration assets at attractive IRRs that drive strong multiples on the cash that we're investing. But we also recognize our IRR can be challenging for investors to calculate on every single deal. That's why we recently introduced two new return metrics that are easy to calculate and speak to cash returns on the overall portfolio. The first is return on invested capital. It's been consistently around 15% since our IPO and is similar to the unlevered IRRs that we would expect on individual deals. The second is return on invested equity, which shows the impact of conservative leverage on our equity returns. That has been consistent in the low 20s. again, similar to the levered returns that we would expect on individual deals. Not only are these returns strong, but they have been remarkably stable, and we expect to maintain these returns into the future.

On Slide 22, I want to highlight the dynamic capital allocation framework, which drives how we deploy our capital. Essentially, it's driven by the relative attractiveness of royalties and the relative value of our equity. If royalties are more attractive, we'll allocate more capital to royalties. If our equity is more attractive, we'll shift our capital allocation to buybacks. If both are attractive, we'll take a blended approach. And if neither are attractive, we'll be patient and build up cash or we can pay down debt and increase our dividends. We look at every investment decision through this lens.

Slide 23 shows that we have significant financial capacity to execute our strategy and drive value creation. Looking out to 2030, we have the capacity to deploy around $30 billion of capital. The largest component will be royalties, at least $2 billion to $2.5 billion on average per year. That's a conservative figure. We also expect to return capital to shareholders through repurchasing shares, especially when there's dislocations versus intrinsic value and through growing our dividend. All of those decisions will be made through the lens of the dynamic capital allocation framework I just described. If the opportunity is bigger, we have access to over $10 billion of additional capacity, all while maintaining our strong commitment to our investment-grade credit rating.

Slide 24 addresses the question about benchmarking Royalty Pharma against a valid peer set. For investors, Royalty Pharma combines the attractive attributes of certain industries. With respect to biopharma, its exposure to transformative therapies that drive consistent strong growth, alternative asset managers for the rapid expansion of their addressable market and focus on sustained high returns for their shareholders, capital allocators for their acquisitive nature and the ability to allocate capital efficiently and effectively at high rates of return and royalty buyers in other parts of the economy, such as precious metals. None of these industries exactly mirror our business, but we think the diverse group -- this diverse group offers important comparisons and a valid benchmark for our performance. We believe we compare well and given our track record of diversified double-digit growth and sustained attractive returns.

On my final slide, we see a clear path to substantial share price appreciation. We expect very attractive growth supported by best-in-class pharma diversification. Our top line target of $4.7 billion or more in 2030 represents a CAGR of at least 9% plus from 2025 to 2030. Our top line growth is expected to translate to over $7.50 in portfolio cash flow per share in 2030 with a CAGR from 2025 to 2030 of 11% plus, a more than 60% increase compared to our 2025 estimates. Importantly, this is value-creating growth as we expect to deliver consistent mid-teens returns on invested capital with IRRs on deals well in excess of our cost of capital. Altogether, this positions us to deliver substantial value creation with at least a mid-teens annualized total shareholder return over the period. And with our appropriate recognition of our platform value, we see the potential for significantly greater share price appreciation in the years to come. This should be through multiple appreciation or increase. With that, I would be happy to take your questions. I think I'll stay up here and maybe my colleagues can join us here on the podium.

Great. Well, Pablo, I appreciate all those comments. Maybe just to start the conversation, you laid out the 2030 target, very healthy growth for the business. Can you just help us bridge a little bit when we think about that growth number, how much of that's coming from current royalties? How much of that is coming from assets late in development? How much of that is coming from future royalty deals?

Sure. I think I'll start, and Terry should get into the specifics, but I'll start just by saying that, that $4.7 billion number is super, super conservative. I think we're going to vastly exceed that figure. If you just look at the growth we will be reporting this year and actually what I talked about today, which is 15% top line growth, it's significantly higher than what is implied by these numbers, which is more like a 9%, 10% growth. So it's a conservative number. But Terry, do you want to go through the specifics of how much of it comes from the existing portfolio?

Yes. Sure. So about half. At the time of our Investor Day, we said about half of it would come from things that we already own today and then the other half would come from new deals. Since the Investor Day, we have done a couple of deals. So keep that factors in a little bit, but it's roughly that range.

And can I just follow up, I know some conservatism baked in here. The target of $2 billion to $2.5 billion of royalties per year, the market is obviously growing. You've expanded this market. The returns seem highly attractive. Why shouldn't we think about much more capital deployment going towards royalties these next few years?

I think the potential is definitely there for us to deploy more than the $2 billion to $2.5 billion. In fact, this year, I think cash out the door is more like $2.7 billion and total capital committed is about $4.7 billion. Obviously, that includes payments that we will make over time to deals that were structured in 2025. So it is a very conservative number. We've always been conservative. And I think there's new things that are happening in the markets that might, in the future, make us maybe be a little bit more realistic or maybe increase this. Things like China, for example, which is a whole new development, and we were able to do last year the first deal in our history with a Chinese company, BeOne, where we bought for $1 billion, the royalty, Imdelltra, the Amgen drug. And then as you saw, the synthetic market is really developing really, really strongly, and that's a market where we're extremely well positioned to continue to fund late-stage clinical trials for biotech companies. And the deal that we did with Revolution Medicines, which was, I think, a landmark deal really signaled to the market, biotech companies that Royalty Pharma is now an alternative to a big pharma partnership, a totally new thing that now biotech companies can think of to fund their products by themselves with us as their partner, retain a lot more of the economics and retain operational flexibility. So there are signs out there of us being able to deploy a lot more capital. And just stay tuned, and we'll see what happens.

Yes. Maybe just building on that RevMed deal. I know you said that deal structures some interest across the space. Can you talk a little bit about what the funnel for deals looks like on the synthetic side?

Sure, Marshall, why don't you take that question?

Yes, absolutely. So we're -- as Pablo communicated, super excited about that deal. And we're having multiple conversations with companies about deal structures that are like that or similar to that. I think in our mind, we're going to find the highest quality opportunities that make sense. A couple of things have to be true for a deal like that to work. It has to be an incredible drug and clinical plan behind it. And then two, it has to be with the right team who has the ambition to do big things, which is what the RevMed team had. And when you put those together with our scale and flexibility, we can do great deals like that. So I don't think it's not -- it's definitely not one size fits all, and there's tons of variety of things that look a little bit like that, that we'll do. But I think the message of us being flexible, innovative, trying to find the right structure for the company and the team to achieve their goals is what we'll continue to do and be creative about that.

Can I just on -- it seems like as you lay on the slides, a lot of rationale that makes sense for some of your partners to look at these synthetic royalties. What are the hurdles you're finding as you talk to these management teams and boards about considering the structure?

Yes. I'm not really sure. The hurdles are really from our perspective, do we -- we have a high bar, right? I mean I think last year, we looked at 480 transactions. I think we did 8. So as Pablo said, 2%. So I think maybe when I joined 6 years ago, and I think the evolution of synthetic market has really taken hold. We had that Deloitte survey last year that we referenced in our Analyst Day, where there's really an acceptance of this product now. And I think those -- the prior sort of maybe pushback you'd hear from a CFO or whatnot, you don't hear those anymore. It really is a -- in bank -- investment banking teams go out and they have equity capital markets, they have convert teams and now they have royalty teams because it really is an accepted form of capital for these companies. It's really on us, do we want to invest it? We have a very high bar.

But we still have to continue to educate the market of the uniqueness of royalties, and that's something we do all the time. And for example, speaking of China, we've been to China twice this past year with big teams and have, in one case, 40 meetings with companies, and we'll continue to go. And I was in Australia also meeting biotech companies. And there are areas of the world where Royalty Pharma is not known, and we need to educate these companies, and that should lead to more activity, and it's very exciting.

Excellent. Maybe one specific question on the RevMed deal. Obviously, there's been some headlines out there and I'm not asking to comment on likelihood of those. But just how do we think about that -- what happens to that transaction in the event that RevMed were to be acquired? I know that's in the past been some value unlock, but can you just elaborate on the deal structure?

Marshall, why don't you...

Yes, absolutely. So just to remind everyone, so we announced that transaction last summer. The synthetic royalty component to it is $1.25 billion, and we funded $250 million of that upfront, and we got a little over -- we got a downward tiering royalty that starts a little over 2.5%. And whether or not there's a transaction, if there's a transaction, there's absolutely no effect on that portion. Now the future tranches, it depends all it's timing. So if there is a transaction that's announced prior to the next tranche trigger, which is the Phase III trial that's coming up here in the first half, the acquirer would have the option to cancel that piece. But -- so it all depends on timing and what they decide to do. But the offset to that is if there was a transaction and this product ends up in the hands of a bigger company, I think it certainly enhances the value of the -- and the global potential and the number of indications of the piece that we do retain.

Absolutely. Excellent. You mentioned China as a growth opportunity for the company. What do you think it takes to be successful in that market? Is this -- you mentioned education being one part of this. I guess there are different kind of IP legal risks you can say to that market. But just talk a little bit about how meaningful of a potential growth driver that is for royalty.

I think it is a very significant opportunity. There's really strong science coming out of China, not highly innovative. It's not sort of new mechanism of action or modalities. But these teams that many of them were educated in the U.S. and have gone back to China to start biotech companies are really good. So it is a huge opportunity. And the way I see it is that if you think -- and in the past, we had a statistic of how many biotech companies exist in the world. And the number we used to talk about is probably 7,000, 8,000 biotech companies. Someone that is in the Chinese market and knows China told me recently that there's -- just in China, there's about 3,000 biotech companies, which is a huge number. Obviously, many are early stage. But the capital needs in China are very, very significant. And funding is not very straightforward. The amount of capital available to these companies is very limited. So it is a big opportunity. And what's interesting for us is that if you think of these Chinese companies, they're very local. There are some exceptions, BeOne, Zai Lab, Hengrui that have started to go out of China and have built businesses, clinical teams and maybe commercial teams in the U.S. and Europe, but they're starting. They're not established yet. They're starting. But leaving those companies aside, the vast majority of companies where there is a lot of innovation are local, and they will need Western partners, U.S. and European companies to partner with to help them run the clinical trials in the U.S. and European populations that are required to get these products approved. And then they need partners to help them commercialize. So the way we see it is that all of these products will be licensed to the Western companies, U.S. and European, and there will be a royalty attached to the product. So many more royalties attached to the Chinese products than what you see in the U.S. and Europe because of that reason. And obviously, that's -- those are really attractive targets for us. And then related to your question about IP and regulations, and we had a question -- this question yesterday in a one-on-one with a very large investor. And what I said to them is, in reality, there's not too much difference because if you think about it, the product developed in China will be patented in the U.S., in Europe, in China. And we obviously need to make sure that the IP is strong, which is part of our diligence. But there are concerns of many investors about IP infringement locally in China. But that's happening in China by Chinese entities of Western products IP. I do not think it's going to be an issue to have Chinese products that were developed in China that are patented in the U.S. and Europe to have issues of infringement. And then the other really key thing for us is that if you think about it, in all of these cases, the marker of the product is very likely to be a very strong U.S. or European company. Like in the case of Imdelltra, it's Amgen. So for us, the payer of the royalties, we bought the royalty from BeOne, but the payer of the royalty is Amgen. And there is a U.S. contract and other contracts under -- in this transaction. But that gives us great comfort.

The last thing I would say about China, and I had a conversation with one of our directors that invest a lot of money in China, in technology and other areas is that he was saying investing equity in China is very tricky. It's difficult to structure things. Sometimes there's political issues or sometimes governments question things related to equity investments in China. And what he said to me is you're in a very unique position because royalties are different. They're sort of under the radar. It's not equity. So you could do a transaction with a Chinese company where you're buying a royalty in their product that's marketed by a Western company, no issue. We could even fund maybe a Chinese biotech company when maybe they already have a partnership with a Western company, U.S. or European company. The product is in good hands, and there's need for investment in clinical trials, and we could fund them and create a royalty. So we've looked at this very carefully, and we're very comfortable.

Excellent. Can I just talk about share repo? You did a good amount of share repo last year. Stocks obviously had a great year last year. When you look at all the opportunities for capital deployment to royalties, et cetera. Like where does repo fit into the mix with where you're trading today?

Terry, you should take this question.

Yes. So Chris, I think 2025 is actually a perfect example of how we think about it. So we have -- we laid out this dynamic capital allocation framework, which is based on the relative value of the stock price, relative to intrinsic value and the relative attractiveness of royalties. And when you think about the beginning of last year, right around the time that we announced the internalization, the stock was really depressed at the time. We were focusing at that time on buybacks and less so on royalties. And it was partly driven by the pipeline. The pipeline was a little slower in the beginning of the year. But as the year progressed, our focus shifted. So we bought back a lot of stock in 1Q, dialed back a little bit in 2Q, dialed back further in 3Q. And over that period, we started doing way more deals. And so I think it's going to continue to be dynamic like that, like 2025, and it's going to be based on that sort of dynamic framework.

Great. And just with the environment you see today, is there a bias in terms of what direction you're leaning into in '26?

So it's a little early. And I think we'll kind of -- we'll take it day by day. We look at -- every time we look at a transaction, we look at, is this the best use of capital? Should we -- would this capital be better used if we were buying back stock right now? And I think right now, the pipeline is looking really strong. And so I think we do think there's going to be a lot of great deal opportunities in 2026.

Excellent. Last minute here or so, maybe not answer this one, but CF royalty, I know you've set a very kind of conservative baseline expectation for all of us. Any updates on just when we could get some clarity.

So Terry should answer that question, but that $4.7 billion target assumes that we lose. And that's, again, how we've been very conservative. And if we end up winning this case, there's significant upside for us in additional incremental royalties over the $4.7 billion. But Terry, why don't you take the question?

Yes. And I would add that I think the consensus expectations are -- imply the lower royalty rate as well. So we're in a good position there. As far as timing, we don't have any update. I think that we continue to expect this to be resolved around the end of 2026, give or take.

Excellent. We're out of time. Thank you for all the comments today, and congrats on all the progress.

Thank you, Chris, and thank you, everyone, for your interest in Royalty Pharma.

Thanks.

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Royalty Pharma plc; Terrance Coyne, CFO; Marshall Urist, EVP of Investments. Gentlemen, welcome. Thank you so much for making time to be with us at this conference.

Before we get into Q&A, I would just love to hear your kind of state of the union of the business and what we could look forward to in the next 12 months.

Yes. So Thanks, Mike and Umer and Evercore for having us. I think 2025 has been a pretty amazing year for Royalty Pharma, a transformational year. We started the year off with a bang when we announced the major strategic transaction where we internalized our external manager kind of put the company together as sort of one consolidated business, which was really important from a strategic and from a financial perspective.

And then we've had a lot of great deals throughout the year, returned a record amount of capital to shareholders and have performed really well financially. So overall, I feel like there's a ton of really positive momentum. Pipeline is really strong, and we're super excited to wrap this year up and get into 2026.

Fantastic. Terry, there's a lot of fundamental questions to go through, but maybe just at a very high level, macro question for folks because this comes up in some conversations.

Could you remind us, I think you've been on certain high-profit indices like Russell 1000 growth, et cetera, in the past. And I think the stock was in there, it's not in there, but now the cap is back, like, is there any conversations you've had on anything along -- any meaningful index-like changes coming?

That's a good question. I'll be honest...

Do you get notified ahead of time or they just do?

I think we find out at the same time that we -- yes. But, yes. I mean...

This stuff correlates with cap, right, for their...

I think that's right. Yes, definitely not an expert on that. But I think, yes, I mean, we're really happy with how the stock has performed this year and...

And just to level set also for everyone, can you remind us the leverage where it's at right now?

So it's -- yes, it's around 3x total debt to EBITDA. And so fairly low, fairly conservative. It's super important for us to maintain our investment grade credit rating is sort of critical to our cost of capital.

We're but we have a lot of financial flexibility. So if we need -- if a lot of deals come along, we can easily take leverage up to 4x. We have cash on the balance sheet, access to our revolver. So for us, having access and dry powder is critical because you never know when that big royalty is going to come along and we need to always make sure that we're in a position to jump on it if it does.

And one more sort of higher-level question also. I recall one of the themes that was starting to occur a couple of years ago was across a range of deals you guys were signing up, there was like this 1.6x to 2x cap on when those returns happen the royalty stop, which was starting to happen more frequently.

But I noticed in the last 12 months or so, almost last 2 years of deal was like hand compelling, I noticed it kind of stopped happening now maybe that correlates with how the market environment was as well. But is that something that was sort of very intentional and deliberate on your end?

I wouldn't say it's necessarily been a priority, right? We've talked about before. We use caps when we need them, right, or I think they're appropriate for the deal. I think you're right, though, this year, that has not been a characteristic of the deals we've done, which is, I think, exciting. Will we certainly see them in the future on some deals as it makes sense? Absolutely. So it's probably a more reflection of deal mix and type of seller, et cetera, more than anything else.

We try to approach every deal with sort of being pretty open-minded...

So the right product over the right one...

Yes. And it's a discussion. They have different goals. And so partners have different goals. We obviously are trying to generate attractive returns. And so it's trying to find the right balance. Makes sense.

Got it. As we think about just portfolio receipt growth during the next 5 years at your Investor Day, you guided to $4.7 billion plus in 2030, which reflects roughly a 9% annual CAGR from now until then and also assume steady annual capital deployment of around $2 million, $2.5 million. So what are the macro pushes and pulls that are kind of baked into that guidance? Can you just give us an idea of that?

Yes. So -- what we said at the time and the portfolio has evolved a little bit since then, but we said that around half of that growth would come from things that we already owned that are already in the portfolio. And then the other half of that growth would come from new investments that $2 billion to $2.5 billion per year. I think we would characterize that $2 billion to $2.5 billion is kind of a conservative modeling assumption. I think there's a lot of reasons to believe that we could do better than that. But I think we want to be -- we also want to make sure that we're comfortable that we can at least do that.

And so -- and then within the existing portfolio, we look at a lot of different scenarios. We have a lot of products that are growing with a lot of great growth ahead. A few over that time period, a few potential LOEs, but pretty small in the grand scheme of things. And we look at different scenarios for commercial outcomes for the different products as well.

So we feel really good about that number. At the time of our Investor Day, we pointed out that consensus was only at around $4.1 billion, I believe, was what we said. And we believe we're very comfortable that, that $4.7 billion plus is very doable. I think consensus has moved up a little bit, but it still hasn't gotten all the way there.

Got it. Okay. Considering that 50% of growth of portfolio receipts will come from the existing portfolio, that implies around $800 million, give or take. What products do you expect to mostly drive this?

So it's going to be a mix. I mean we have 45 products. And so the approved products that are -- have a lot of growth ahead our products like Voranigo, Tremfya, Trelegy, Cobenfy, Trodelvy and then Imdelltra was one that we recently added a couple of months ago.

So and then within the pipeline, we think we could get some contributions, although some of that could be more -- we have a lot of things that are going to kind of read out in the next couple of years and some approvals that could happen in the next couple of years. And could play into those numbers. But a lot of the pipeline will probably be more things that will drive beyond 2030.

On the pipeline, is that -- I mean I was just trying to map out like where the largest revenue streams might come from. And it felt like Rev Med, perhaps is one of them.

Definitely.

Lp(a) is perhaps one of them. What else, Marshall?

Absolutely. I put on that list -- we did a deal last year for a Sanofi product for MS called frexalimab, right? Yes, which is -- it's a nice sized royalty, double-digit royalty as well. So that -- and a drug that Sanofi has talked about having $5 billion plus of peak sales potential? That's one.

And then I guess the other one on the list is trontinemab, depending on how that market develops, we have a mid-single-digit royalty on Roche's brain shuttle that could be a big product as well.

Fascinating. So maybe just touching up on -- I want to kind of go through a little bit on each of those because they all have very interesting risk profiles and interesting data sets.

So I'll do it a little quickly. Perhaps starting with frexalimab. We had Sanofi here yesterday, and we were going through this in detail with them. So Paul Hudson brought up what you just pointed out in frexalimab. I remember -- I -- the way I asked them was that like OCREVUS has pretty meaningful relapse reduction. What does frexalimab add on top? And his point was twofold. One was on the total commercial infrastructure they have, which obviously certain launch profile. But also he said outside of relapse, you got to think about disability. And I wasn't necessarily aware that frexalimab has data both on disability and on relapse reduction side. Is that right?

They do. And I think commercially, our thesis to is the CD20s have been an incredible -- or an incredible class, right? But there are there are significant population of patients who have been through those drugs and either off because of infection side effects or other things. And so there's a big population of patients out there that need something else.

But isn't it the same thing mechanistically?

So it is a different mechanism sort of broader than just the B cells for CD20. So CD40 is a broader mechanism at kind of a different point in the immune system. So definitely have the potential to offer differentiated efficacy.

I see. Okay. Got it. When is the Phase III readout for this? It's ongoing, is my understanding.

It's ongoing. And I think it's a 2027 event.

Okay. Got it. So that was the first one. The second one was on the Lp(a) there's an -- you guys have economics on 2 of them, If I'm correct.

Yes.

Which one is it -- where is the economics more indexed to?

Yes, we definitely have. So we have 2 royalties as you mentioned, the pelacarsen is Novartis that will read out next year. That's a smaller royalties that's mid-single-digit royalty. We have a larger royalty kind of high single, low double on Amgen's olpasiran, which is sounds like that will be a 2027-plus event based on Amgen's latest.

Marshall, I got to believe you and your team have been doing work on trying to understand why the event rate has been slow to accrue, but also why the endpoints didn't deliver. And the understanding is the event rate is low, but also in the low cutoff, it's even slower. Any feedback you can share?

I mean we don't know much more than -- we don't know much more than the world does. Are we I think the observation that event rates have been lower in cardiovascular outcomes trials, it's a pretty general observation, not just across Lp(a), but other but other areas as well.

And then we're not surprised that this trial is going to the full -- to the final analysis. It was always our base assumption that given one, given that it's a new glass and you want as much safety information as possible to, we've seen the time is your friend in terms of effect size in these studies that there was a pretty strong bias to see this through the end.

Okay. Got it. And then as it relates to sort of Lp(a) and the effect size, I guess one thing that is unique about GLPs has been the CRP lowering outside of wave loss, et cetera, which drove which drove some of the outcomes benefit. But that logic over to Lp(a) and lack of CRP benefit. Do you think that biases the maximum possible outcomes benefit towards closer to 0.8 or so or...

That's a super hard question to answer, Umer. I think we are going to learn, right, what is the benefit in patients who have -- in the population of patients whose cardiovascular disease is presumably really driven by their high Lp(a).

So what that means in that population of patients, particularly the patients who have the highest levels of Lp(a) we're going to see. So I don't know that I'd conclude that because you don't have that sort of acute inflammatory effect like we see with GLP-1, you're somehow fundamentally limited. I think we're going to learn why Lp(a) disease really means.

Got it. Rev Med, I think you guys did the deal right around ASCO this year, if I remember correctly?

Yes, middle of the summer. .

So I'm assuming you saw some of the data -- because Rev Med has data in lung and pancreatic but the data focus has been on pancreatic. Within pancreatic, they have data both with FOLFIRINOX combo and gemcitabine combo. And they've only focused on sort of the gemcitabine nab-paclitaxel combos and not so much on FOLFIRINOX and external disclosures for your diligence, did you see all of that? And were you comfortable that with the profile they're showing and the type of mutations the responses are coming from that it's very competitive versus what's out there?

So one of the things that differentiates us when we do deals like Rev Med is that we are able to sort of see all of the available data at that time. So we got to do very, very. As we normally do very fulsome diligence. And yes, we're kind of -- we're confident in the profile and its competitiveness. We probably shouldn't get into details, that's Rev Meds our although we were -- we had a lot of resolution and insight into what the data were.

Sorry, I was just going to follow up with a question we've had some confusion around I don't really know the answer, but because it's so relevant commercially.

So when we think about the type of construct Rev Med is and if you could apply to G12D, it could apply to G12D, it could apply to a range of mutations. One thing we don't see in their disclosures is the responses they do have, are they driven by G12D patients or G12D patients, et cetera. Because if they're primarily driven by G12D, then I got to start comping versus G12D data sets as well. So I guess -- should we be worried about the G12D emerging drugs as we think about the commercial opportunity and the implied royalties? Or it's not a big concern?

The way we thought about it was there were kind of multiple ways win, right? We were very convinced about the lead program direct unrated, the pan RAS inhibitors activity in pancreatic cancer. I think the fact that Rev Med has a portfolio and can do combinations as well as another interesting angle for them in what is a competitive market. But yes, that was something we thought a lot about was the competitive landscape and really like being partnered with Rev Med.

Got it. And sorry, just 1 or 2 more on this just because it's relevant. Terry, I remember there was this table you put out a fair amount of detail on this Rev Med transaction. I was just curious how do we figure out and get comfortable on how many of those tranches they'll draw on? Or some of those are set in stone on how many they can -- they have to draw on as long as the data keeps developing a certain way?

So they have to drill on the second tranche.

Okay. That's the positive Phase III data?

Correct. The third through fifth tranches, which are at their option.

Approvals and sales driven?

Approval sales and then the first line expansion the first line.

So those are up to them .

That's up to them.

If they don't draw -- if there is possible, they don't draw beyond?

It's certainly possible. It's tough to say. I think that -- it shows -- this deal shows the creativity of how we can help these help our partners, and it's there for them if they want it, if they need it, and if they decide that they don't need it, then they don't have to draw on it.

So the first and second tranche being triggered is sub-5% royalty, correct?

Yes, the first tier, I think, together, it's like just over 4.5%, maybe, yes.

So it's still a real royalty.

Still a real royalty for what we think could be a very large drug for sure, yes.

Just while on the subject of Revolution Medicines so it's such a creative and unique structure. I mean, could this have established a new present for future deals? I remember, I think it was on your 3Q call, you said that after this deal, you kind of received in be from potential partners asking if they can get the same thing. You said it's not for everybody. Maybe could you please elaborate on that?

Yes. We definitely think there's lots of elements of this that, as we mentioned, got people's attention about a new way to fund at scale in a way that's flexible.

So we're going to -- I think you'll definitely see us partner with companies using elements of what we did with Rev Med, and we'll also continue to innovate and think of new ways. But definitely, I think it caught a lot of people's attention about what was the art of the possible with synthetic royalty.

I mean before there wasn't a true alternative to a pharma partnership. right? You could do equity, but to do $2 billion, in fact, we really hard. And so for the first time, we think that we've shown that this is a viable alternative to that pharma partnership. It allows companies to develop to turn those cards over to realize more value and to still retain all the optionality that they otherwise would have.

Just one more thing, Marshall, I was surprised because normally when you structure this, you've put in all the obvious clinical unlocking events, you always somehow reflect that in the way the structure is made. But you didn't put lung in any of this. Why was that? Or is that not in your model?

Yes. No, no, no. We think the drug has a real potential in lung at the end of the day, like Terry mentioned, when we start talking to companies, right, it's a real conversation about how much capital is ideally available to the company at what stages by what dates.

And it just so happened that in this transaction, it lined up really nicely on the pancreatic side for when the cadence of the draws would come for them, and that's kind of where we ended up. So I wouldn't read anything negatively about our view on lung.

Okay. Maybe just a quick 1 on China. Again, at your Investor Day, you said that you've been cultivating relationships in China for the past 10 years. And I think on your 3Q call, you said you made multiple trips to China alone just this year.

That was shopping, that was for shopping.

Given the fact that capital raising is much more challenging over there, like how might future deal structures differ than what you've historically done in the past? Like will synthetics play a bigger or less roll perhaps in china?

Yes, I can start. What we see that's exciting is everyone is talking a lot about the volume of licensing transactions that have left a lot of royalties in the hands of Chinese biopharma companies. And so the royalty monetization market there doesn't exist. I think we're certainly focused on being part of developing that as sort of the Stage 1 of this and the timing of when that's going to happen, who knows, but we want to be there and be a part of developing that market. And could it evolve to be synthetic royalties and other opportunities beyond that, Absolutely.

Got it. When Royalty partner need to establish operations locally in China in order to do the business there?

It's something that we're very -- we're exploring seriously and trying to get our arms around what approach makes the most sense. But we recognize that it's a huge market, and we absolutely need to be there and be very focused on it.

Last question, Terry, just to level set everyone. Can you just remind us just the time lines on Vertex resolution Rev Med Phase III data, Lp(a) next year. But just remind us like some of the key events just so that we could...

So Vertex, we've said that we expect that to be resolved by around the end of 2026.

End of '26?

That would be very soon. Yes. And then Rev Med...

Data is next year. Sometimes, I don't think Rev Med refined the timing. And then Lp(a), same thing is next year tracking for next year as well. So it should be an exciting year. Yes, pelacarsen.

And then the other Lp(a) for frexalimab is the following year.

Yes.

Okay. Fantastic. Thank you so much.

Great. Thank you guys. Thank you.

I'm biopharma analyst. And today, we have Royalty Pharma. We have Terry Coyne, CFO; Marshall Urist, EVP, Head of R&I, Research and Investments. Once that R&D and people got really -- Dino like almost fired me.

So I guess on the back of a very successful year, maybe, Terry, this is for you. You got rid of the external manager. You did a buyback. You sort of have the gradient of like is it buybacks? Is it uses of cash? You're obviously going to still invest in new assets, right? But help us with kind of where you are in that process? Are the price of assets change over the course of this year to where you would tilt towards maybe continued buybacks? Or just help us with kind of that thought.

Yes. So you mentioned the internalization that was a big strategic transaction that we did in the beginning of the year to internalize the external manager and sort of make everything into a single company, which was really important from both a strategic perspective and also a financial perspective. And with that, we also -- at that time, we announced a $3 billion share repurchase authorization. And we were very aggressive in the first half of the year, particularly in the first quarter. We took advantage of what we thought was really attractive valuation in our equity and bought back through the first 6 months, about $1 billion of stock.

We did slow down in the third quarter, and that was driven largely by actually just the deal flow. So we look at everything. We have a framework, a capital allocation framework that we've talked a bit about. It's based on the relative value of our stock price relative to intrinsic value and the attractiveness of the royalty opportunities. And so in the first half of the year, clearly, we were really focused on taking advantage of the really attractive valuation in our stock.

As the year progressed, the deal flow increased pretty significantly, and we had some amazing transactions that we were able to get across the finish line like Revolution Medicines in June and then Imdelltra over the summer. And I think that what we feel right now is that there is still a tremendous amount of momentum from the deal -- from a deal flow perspective. So we'll continue to look at everything through that lens going forward. And there could be periods where it tilts more one way or the other. I think as we've -- certainly in the second half of this year, our focus has been capitalizing on some of these really unique opportunities that we -- that have come across -- that have come our way.

Yes. And let me follow up on that. So if you look at the BD M&A environment this year, you see either biased towards like Chinese deals that are low upfront, bigger bio-bucks down the road or maybe this is for you, Marshall. Or you see a lot of deals that are CVRs, right, super creative structures. Is this entering you guys thinking more frequently like in terms of having a more novel structure? Or has it just been risk sort of stage amount paid? In other words, like has there been a demand from the sellers of royalties to have a more unique like pressing valuation sensitive? -- the puts and takes?

Yes. No, it's a good question. And I think certainly, as we are working with a broader range and type of company, I think the demand and the need to customize structures to fit their needs has continued to increase. And we really welcome that. I think creative structuring is something that we really pride ourselves on. I think we've been a leader in that. And as we get -- as the market demands more and more of it, I think we're more than happy to stay creative.

Terry mentioned Revolution Medicines. That's a deal with a structure that evolves along several dimensions, goes from a Phase III investment today to a -- that expands as data cards turn over as there's commercial performance, as there's label expansion. And that's going to span 5-plus years easily, right, of working with the company. And then that structure also evolves in terms of cost of capital, right? So the incremental draws that become available to the company as derisking events happen is reflected in the sort of prewired cost of capital. So I think there's a lot of moving pieces there, but I think it's a reflection of just we have the flexibility to meet partners' needs in new and different ways.

Okay. Yes, that's helpful. And just on the cost of capital. I mean you guys have very impressive like ROIC numbers that you've been very public about. As you look forward, do you have to take additional risks to keep at that level? Do you -- or is it sort of the natural stacking of some of these royalties and their contribution going to play a natural like sort of tailwind to the return numbers?

Yes, it's a great question. So yes, for the first time this September, we've always talked about internal rate of return as sort of the key metric that we look at. And for us, it's still -- that is still the major factor behind -- the major thing we consider when we're making investments is the IRR attractive? Is the duration of the investment attractive, so it can generate a really nice multiple on the cash. But what we realized over time is that IRR is tough for everyone to calculate on every single deal. And it doesn't really speak to the performance of the overall company. And so in September, we introduced these 2 new metrics, return on invested capital and return on equity. And what we showed is that very consistently over the last 5 years, our return on invested capital has been consistently in the mid-teens with very little variability. And our return on equity has been consistently in the low 20%.

I think looking forward, we are confident that we can maintain similar levels. And it doesn't require taking on more risk. I think we're going to continue to have a very balanced approach. There will be things that are approved and selling with really attractive growth like Imdelltra. And then things that are in development that have a lot of upside where we also feel pretty confident that the risk is pretty low like daraxonrasib. So I think we're going to continue to take a pretty balanced approach. And I think we all believe that those levels of return on invested capital, return on equity are sustainable for the foreseeable future.

And Terry, some of the historical numbers have been -- there's been a tailwind from some of the equity investments that you made that sort of Biohaven, et cetera, that have played out. Is that the assumption going forward that you'll continue to make equity investments and maybe that could be an additional tailwind? Or is it just sort of a plain vanilla royalty agreement you're going to look forward?

We actually -- we don't include the benefits of equity investments in those calculations. It's really the royalty investments that we've made. But they have -- we have made some equity investments that have created a lot of value. Going forward, our plan is to -- we'll do it from time to time. It's not going to be a core part of the business, but more as a supplement and typically the times where we use equity are times where they -- our partner has a goal of a quantum of cash, but they also have a goal of a royalty rate, a maximum royalty rate. And so sometimes the equity can be there to sort of solve for the gap, if the royalty can't be as big as the quantum of capital that they need.

Got you. Okay. If you look at -- we had a discussion this morning with the FDA Commissioner and he was talking about innovations and moving beyond just sort of weight loss and some of the cell and gene therapies, which are obvious. But from maybe a technology or a TA perspective, like Marshall, is there a category that you'd say royalty like absolutely has to participate in, in next like 2 to 3 to 4 years? Or you just look at every one of the opportunities kind of as a whiteboard and like on -- through almost an academic lens of what's the best IRR?

Yes. It is really about what is the best, most exciting product. And I don't think there isn't -- we certainly don't feel that there's any given therapeutic area that is kind of make or break or will define us and the success of our portfolio building going forward. I think the advantage we have and why we have that luxury is because we invest so broadly across every therapeutic area that there's just a lot of opportunity for us. And so I think if we're not in one, there's going to be opportunities in others, right? If you look at this year, it's been pretty broad across I&I and oncology. And there's like just a lot of variety in what we do. And I think that serves us well. And in a sense, it also mitigates any concerns people might have about our ability to continue to refresh and renew the portfolio because we can invest anywhere and have the team and the resources to do it. We don't -- there's nothing we would define as sort of must-win for us to be successful.

But let's talk about diabetes, for example, obesity like metabolic diseases overall. You've seen a lot of M&A. You've seen lots of aggressive deals. Obviously, from the top down, pharma knows they want to be there, and there's a lot of companies that want to turn the data card over and maybe they're cash constrained at the moment, like -- but you'd have to take more risk to get there, right? There's a lot of -- it's a high bar, right, for clinical risk?

Yes. And I think you can see our selection criteria and a lot of the deals we've done. So I think there may be, right, cardiometabolic development programs tend to be very expensive, right? And it's competitive and you want to move quickly. So if and when those opportunities arise, right, we're going to go through it and think, one, is this a program that matters? Two, do we think it's in the hands of someone who can make it a reality, right? I think small companies in obesity these days is probably a pretty hard game to play, right? So we have to have the right partner and the right program together. But given the capital needs of the industry, I think we're going to continue to see a great flow of opportunities.

Okay. Yes. And just on the back of one of those companies in Lilly to reach the agreement with the White House, I do feel like there's a number of pharmas and big cap biotechs that have kind of tried to mitigate the tariff risk with onshoring of capital. Has the -- I guess, the expectations of some of the sellers of royalties to you guys changed over time in terms of do they -- maybe they don't take as much risk now because they're onshoring resources and maybe they don't need as much money, but they still maybe want your validation or your support. I wasn't sure how the political environment has kind of changed the conversations that you've had with potential royalty partners?

If -- I don't think it's changed things dramatically. I think, if anything, people having a little bit more confidence in what the landscape is going to look like is helpful, right, because it's giving people more confidence to continue to invest. And given the -- like you said, the amount of M&A we've seen, I think everyone expects we'll see more. I think there's clearly an appetite. The amount of capital our industry needs is forever growing. So I think that's where our opportunity is continue -- going to continue to see great opportunities.

Yes. Yes. And just in terms of the deals and the capital deployment, Terry, you guys have had a 5-year target of $10 billion to $12 billion, although you've, I think, exceeded almost every year what you initially set out with the IPO. Looking forward, is it sort of more of the same and incremental higher number? Do you expect there to be sort of a step function? I guess it depends on the deals that are out there, but is there an urgency, I guess, to meet the targets and to do deals if it's something that you're not excited about, if you just want to...

So I guess the way I would describe it is more $2 billion to $2.5 billion is kind of baseline. And we feel though like there's a lot of momentum where that number could be much bigger. We're open to that. We're ready for that. But we're also not going to force the issue. We're obviously out there talking to every company and telling them about the benefits of royalties and having us as a partner. But we're not -- we don't feel like we have to deploy capital. We need to make sure we make good investments. So that is always the sort of driving force.

If you ask me, are we more likely to be higher than $2 billion to $2.5 billion in 5 years or lower, I think it's much more likely to be higher, right? But it really -- I think it's going to happen naturally as we continue to see all this momentum from synthetic deals, partnerships with pharma, all of the innovation that's leading to all the fragmentation in the industry that's leading to more and more royalties. All of those things are going to be tailwinds for our business. And I think that we feel very good about the ability to meet and beat those types of the $2 billion to $2.5 billion that we've described.

But it's not as though we sort of start the year and be like, oh, starting from 0, got to get the capital off. We're going to wait and be disciplined. If the deals aren't there, we'll wait.

Yes. I mean if you think about it, we -- this year, to start the year, we did the deal with Biogen R&D funding deal on litifilimab. And then almost 6 months went by, and we didn't do a single deal. And that's fine. And we weren't worried about it. We figured it's going to happen. But even if it doesn't happen this year, it will happen next year. And so -- and it just so happened that then all of a sudden, in 2 months, we announced almost $3 billion worth of total transactions. So we like to be patient, but we're always ready and resourced. We need to make sure that we're ready from a balance sheet perspective and a human capital perspective to sort of jump on the opportunities when they do come. And they always do come.

Yes. Let's talk about the Merck TROP2, the sort of co-funding deal. I know you guys had -- you probably said you had at least a look at that. Maybe help us with your thoughts about that overall as a strategy from pharma? And then looking forward, do you think those types of co-funding deals would be greater, like in frequency? Or do you think that's sort of a one-off?

Yes. No, it's a good question. So I think we really believe that the pharma R&D partnership deals are going to continue to evolve, and we'll see more of them. I mean except for a couple of companies, you can't name a company out there that doesn't have sort of pipeline and LOE stress out there. There is more pressure to put more through the pipeline to invest more in R&D. And these partnership deals are a really attractive complement in that situation.

If you think about what's on offer with those deals, right, you have a partner who takes full risk on a Phase III program, can fund in the hundreds of millions of dollars in exchange for what is a relatively modest piece of the economics long term. And the pharma has a partner who they still keep the vast majority of the economics and a partner who is passive, right? They still run the program. They don't lose any control, that's pretty attractive. -- right? And so all the elements are there. We did look at that Merck transaction. I think if we take a step back and say, look, that's Merck is obviously one of the greatest oncology development companies in the world. That's a high priority program over there. So seeing R&D partnerships at that visibility, we think it's just a sign of that, that is an area where you're going to continue to see more momentum.

Yes, I think that from -- just to add on to that, from our perspective, while we were not on the other side of that transaction, it's great to see momentum in the space for pharma deals, which it's been building. And it feels to us like as we look to the back half of this decade, there could be a lot of those types of deals. And that could be a really good opportunity for us to add great assets, great products to the portfolio and things that we're really excited about.

I mean it'll take time to see the return on that, but does it make you more nervous that a company like Blackstone could be more aggressive in this arena?

Not at all. No. I mean it's -- Blackstone and other companies have been in this space for a while now. And so -- and what we've said in the past, and we still believe this is if we're really excited about an asset, we should be able to win. We have the lowest cost of capital and we have a proven track record of being great partners. And so we don't feel any -- we continue to maintain that same level of confidence. But the more parties that are out there talking about the benefits of royalties, the better because it just adds depth to the market adds legitimacy to the market, and it will be ultimately a tailwind for us as well.

So I guess a growing TAM for the royalty market, I think is a...

Exactly. Exactly. Exactly.

And honestly, the more -- we've talked about this a lot, right, having other players in the marketplace is a good thing, right, because like Terry said, you have more people talking about it. But also when the partners see that there's like a robust environment out there, and there's multiple players that actually just give everyone more confidence to do more, right? So it grows the market.

Yes. I mean if you think back, Geoff, 10 years ago, even 5 years ago, royalties were a very bespoke thing. Only a few companies did them. Ten years ago, no one really did them, not synthetic royalties. But 5 years ago, it was still kind of new. And there were a couple of companies that were sort of at the forefront of that, like Immunomedics, Biohaven. But now it feels like it's become such an ingrained part of the capital solution for all of these -- for any company in biopharma, big and small. And that's a really great thing for our business.

And not to sort of ask a boilerplate type of question, but we hear a lot about AI and the use of analytics. How have you guys rolled out maybe this across royalties, either in the investment process or in the financial process? And would you say that the barriers to entry could be lower going forward if companies can deploy some sort of AI tool to kind of evaluate things? Or I mean, obviously, you have the reputation of Royalty, which is hard to put a number on, right, from a math context. But do you think there's going to be more entrants in the space if they're able to figure out how to engineer Royalty going forward?

I'll take a crack at that and Marshall can jump in. It's not going to solve the capital problems. So we have -- we -- it may enhance people's ability to do due diligence. We are doing that now. And we're trying to figure out more and more ways to embed it in our investment process. But people still are going to need tremendous amounts of capital to invest in this space and scale and diversification, all of which we have and all of which are very hard to come by. And so I think it will be an additive tool, but some of the barriers to entry that have existed will not be solved by AI.

Yes. I think there's no way that I think there's any substitute for the -- almost 30 years, we've been doing this, right? And all the accumulated institutional knowledge and experience that we have in terms of structuring, in terms of all of the financial scale that we've built over that time. None of that is that -- we at least don't think AI is going to help. And look, it can help with diligence. Does it give you conviction? Is it going to help with conviction to invest $1 billion in a single drug, right? I don't think that's the case, right? We're certainly, like everyone else, trying to figure out how do we get faster, how do we get more out of the deep data resources we've built. And we're doing all of those things, right? But again, you have to have all the sort of building blocks to even get started.

Yes, it does seem like you guys process is mostly the same that you could use AI to maybe make your process more efficient, but I wouldn't look to Royalty Pharma for margin expansion...

No, we're probably not going to -- not going to be a margin expansion story in the near term.

Not a lot of meat on the bone there. Yes.

Exactly. But could you use it, though, to look at therapeutic areas or portfolio -- royalty portfolio management to try to maybe optimize or fine-tune?

Yes. We are, I think, using it. I've been really impressed with the creativity of our team in terms of how we're using AI applications and diligence. And certainly, anything that helps with sort of large-scale data analytics can make it sort of faster and organize things faster and everything else. In some ways, it sort of just continues to add to our competitive advantage because we have a sort of a deep pool of experience and information to continue to stay at the forefront from a process perspective.

And when you look at the royalties that once you have sort of expiration of the patent and you see sort of a decay, has the more mature assets has their progression been as you guys had modeled before? I know it's probably a tiny...

So I think we would admit that we're pretty good at modeling things to go up. Understanding how something is going to erode from a generic entry is not a core strength of ours. But I think that we -- there's plenty of analogs out there, and we use them like everyone else.

I think where we do differentiate ourselves is modeling the impact of competition. So like let me take you back to -- we did the Tysabri investment in 2017. And at that time, most people thought that Tysabri was going to just go down, down, down. And by -- I think by 2020, it was going to be almost cut in half. And it was almost a $2 billion drug at that time. It has done so much better. And that was an area where we had a differentiated view that it would be a lot stickier and that it would -- it was such an important drug for the patients that were on it that it wasn't going to erode like some -- I think most -- a lot of people on the sell side thought. And that gave us conviction in making that investment and paying the price that we paid. As far as what happens with other products and their LOEs, I don't know, Marshall, it's definitely not -- it's not like what do we spend a lot of time.

Or maybe the way to think about it is when we make an investment, I think that the shape of the decline curve as like patents come off in various geographies is not a big driver of our return. Obviously, if it's slower, it's better, but that's never something that sort of makes it investable or not if the curve looks -- the shape of the decline curve to Terry's point. Very hard to do with any...

A lot of times, it would be pretty conservative and look at scenarios where it goes to 0 after the LOE versus scenarios where the erosion is a little bit slower and look at different sort of outcomes.

But the big thing, though, to your example with Tysabri, Terry, is that you did the Sanofi deal, right, recently. So you have core skills in oncology and neuro...

You've been following that space for...

We've invested almost $4 billion in MS, north of $4 billion, I think, in MS. So it's definitely a space that we know really well. And I think it's a space that we feel like it's been overlooked multiple times where people said, "Oh, MS, there's nothing to be done here." And then it happened with Tecfidera. I think it happened again with OCREVUS, and we think frexalimab is another example where that could be sort of another leg to the MS story.

And same thing you could say in the case of neuropsych, right, you guys picked Cobenfy, not emraclidine. And that's a category where the mechanism is exciting and could have a number of different indications. Is there another category? I know Alzheimer's and neurodegeneration, it's been super tough to predict what are the winners and losers. But is that a category you feel like it's still wide open for unique structures?

Yes. I think there's a ton of opportunity there. I think the emraclidine story is one that sort of keeps us all sort of humble in terms of what mechanism means in that setting, right? So yes, it is an area we look at a lot. We are sort of appropriately cautious and sort of being honest about what we really understand and don't understand. But there's certainly -- look, the drugs that we have even in large categories are like depression and other areas are suboptimal in many ways. And so it seems like there's definitely opportunity and need. And I think it's a matter of being patient and waiting for stuff where you can really have conviction.

Yes. And then I mean, in Alzheimer's, we're excited about -- we have a royalty in trontinemab, the Roche brain shuttle product, and it's going to be later in this decade that we'll see data there. But so far, it's very encouraging. It looks like it could be the most potent drug to lower amyloid. And so we will see, but I think we're pretty optimistic about that one as well. And certainly not something that we're -- feel like we get any credit for or that investors have much interest in from a Royalty Pharma perspective at least at this point.

Right. And looking at other assets, so go, talk a little bit about the process there because I think there is a theme where maybe consensus expectations are usually long term, remarkably lower than reality, but then you also want to keep some of the companies that you're doing the transaction with like grounded as well, right, in terms of their expectations. There's usually a delta, right, between what they think and consensus thinks and you guys are usually be in the middle or...

We -- so 2 parts to that. I think one is, yes, we certainly sort of build and our team sort of is encouraged not to look at consensus while we're sort of building our own forecast to sort of come at it in sort of a pure way as much as we can. But Voranigo, you asked about, too, this is a product that is a great -- something that we are excited about because, look, it's a kind of product that only we can kind of get access to right now, right, when it's being launched by a private French company, right? It's been an incredible launch annualizing at over $1 billion after, I think, 4 quarters, something like that of launch.

And so that's a great example of a product we identified, got excited about years ago and waited around until we had the opportunity and really went after it aggressively when we had the opportunity and we had the conviction we like the product. We saw a forecast that had lots of drivers for upside in terms of how long patients would end up staying on the drug, et cetera. So that's a great story for the kinds of unique assets that Royalty Pharma can get access to and for our investors have exposure to incredible products like that.

Is there a trend, Marshall, on that? So if you have a, let's say, a product that has much less visibility across the street, do you usually find that the seller expectations are way higher than reality? Or I don't know, just like if you have a crowded process that everyone sort of...

You mean lifts higher...

Peak sales and expectations?

It really depends. I mean we -- Voranigo is kind of a specific example because we were buying it from Agios and it was their drug originally, right? So they knew the product pretty well, and I think they had a view as well. Look, I think overall, one of the things that's made us successful over time is we do really try to pay fair and reasonable prices for drugs, right? So like everyone walks away happy, right? We feel like we're getting a reasonable deal and the seller feels like they're getting good value as well.

I think it's -- it would be sort of shortsighted to take a different approach, right, because if people feel like they're getting good value and it's a structure that makes sense for them, they're going to walk away happy. That's going to make our market bigger over time. And so that's really our approach is trying to always be fair. And look, maybe that means we're not -- it might be a situation where there's a piece of value that we don't want to pay for upfront, but we also acknowledge like, look, that could happen. Let's pay a milestone or share some value at that point. So we both feel like we have exposure to the upside scenario.

You don't want to have an adversarial relationship with your seller, right? So like it's a win-win.

Exactly.

You mentioned this came from Agios. So I guess that one of the things you guys have done the past couple of years is really engage with some of the earlier-stage companies just to kind of keep abreast of all the developments and innovation. So what's the -- has the sourcing changed over time? Instead of companies coming to you, have you just followed these companies along and then been proactive to reach out to them on types of deals? I wasn't sure if that kind of has changed since you guys have IPO-ed and become a much bigger top line and bottom line.

Well, honestly, there's been more of both, right? Certainly, one of the incredible things and maybe that we underestimated about the IPO is just what it did for our brand and people coming to us and our position in the industry. So look, the amount of incoming volume that we see has grown dramatically. But at the same time, right, we have also invested in our team and sourcing and making sure we have a very robust outgoing effort because the truth is we know what we like a lot of the times. And so it's not a great strategy to just wait for that to walk in the door when we go out. And so we have a team that interacts with companies very early, probably before they're investable, but to have that relationship to help be driving their conversation about how they see their capital structure when it does come time for them to be kind of in the zone, we have that relationship, and I think that's incredibly powerful. So it's a lot of both, actually.

But you wouldn't necessarily leverage those relationships to maybe get in earlier to the process. You still have kind of the same risk parameters, generally speaking.

Yes. You haven't -- I mean, if you look at what we've done, you haven't really seen us shift significantly like to be doing a different type of earlier things.

Yes. No, that's true. And you can't really AI the relationship, right? Like...

You cannot AI the relationship. I haven't figured that out yet. Have like an AI agent that goes out and does BD. Yes.

Exactly, exactly. Terry, I guess from an investment perspective, internally, you've seen -- you guys have hired a number of professionals and you -- I see the deal funnel, the flow still looks to be pretty compelling. But how are you thinking about the business like 5 years from now, like in terms of how you could scale the size and scope? Is it just a natural cadence to get to meaningfully higher? Or are you trying to move that along?

That's a great question. So the amazing thing about our business is there's -- it's so efficient. And since we are passive, we -- there isn't like a huge ongoing effort to add value, right? We basically make our investment and then we let the partner execute, and we're making investments in partners who we are confident can execute. And so where does the business look in 5 years? We will be bigger without a doubt. We'll be bigger from a financial perspective, but we will be bigger most likely from a people perspective.

But if we were to double our capital deployment, we do not need to double our people, might mean that we need to increase the investment team by, I don't know, Marshall, 1/3, but not double. And that's the amazing thing about our business is that we can -- we've set it up so we can be processing multiple deals at the same time. We had a period at one point this year where we were -- had 3 transactions going simultaneously. And that -- 5 years ago, we couldn't do that. It would have been really hard. And now we can do that.

And I think that could that be 5 transactions going simultaneously, 6, 8? Yes, for sure. And so I think that we just need to make sure that we're trying to stay one step ahead from a resourcing perspective. One of the other benefits of being a public company has just been attracting talent. We've been able to get amazing people to join the team. And I think that they -- it's a shared vision. It's people that are very long term who want to toil away on one investment for 3 months and be the expert on that investment. And it's -- we've -- I think Marshall and the team have done an amazing job of finding those types of people and integrating them into the company and then also just developing them over time.

Yes. Okay, guys. Thank you very much.

Yes. Thanks, Geoff. Good conversation. Thank you.

Thanks a lot, Geoff.

Ladies and gentlemen, thank you for standing by. Welcome to Royalty Pharma Third Quarter Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President Head of Investor Relations and Communications. Please go ahead, sir.

Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's Third Quarter 2025 results. You can find a press release with our earnings results and slides of this call on the Investors page of our website at royaltypharma.com.

On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks uncertainties and other factors that may cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements.

Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliations of these measures to our GAAP financials is provided in the earnings press release available on our website.

And with that, please advance to Slide 3, our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Marshall Urist, EVP, Head of Research and Investments; Chris Hite, EVP, Vice Chairman; and Terry Coyne, EVP, Chief Financial Officer.

Pablo will discuss the key highlights, after which Marshall will provide a portfolio update. Chris will then discuss our development stage pipeline, and Terry will review the financials. Following concluding remarks from Pablo, we will hold the Q&A session. And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome to everyone on the call. I am delighted to report another successful quarter of execution on our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide 5 summarizes our strong business momentum in the third quarter.

Starting with the financials. We delivered 11% growth in both portfolio receipts, our top line and royalty receipts which are recurring cash flow. The sustained momentum was driven by the strength of our diverse portfolio. We're also now starting to report on a quarterly basis our return on invested capital and return on invested equity.

In the third quarter, we maintained strong returns in our business with return on invested capital of 15.7% and return on invested equity of 22.9% for the last 12 months.

Turning to capital allocation. We deployed capital of $1 billion in the quarter on value-creating loyalty transactions. Taking our total to $1.7 billion in the first 9 months, and we repurchased 4 million shares in the quarter, taking the total value of share repurchases to $1.15 billion in the first 9 months.

Looking at our portfolio, we remain very active in the growing market for Royalty. We acquired our Royalty interest on [ Amgen's ] lung cancer drug, [ MDELDRA ], for up to $950 million. We entered into a funding agreement for up to $300 million with [ Zenas ] Biopharma for its development stage autoimmune drug of [ obexelimab ]. And since the quarter ended, we acquired a royalty on [ Alnylam's Anbuntra ] of blockbuster therapy for TTR aminoasis for $310 million. We're excited by each of these three transactions, and Marshall will take you through the details momentarily.

On the back of this busy year, our development stage pipeline has expanded to 17 therapies. And as Chris will highlight, we're looking forward to multiple pivotal readouts in the relatively near future. Lastly, we're pleased to raise our full year 2025 top line guidance, this is the third time we have raised guidance this year and the 14 since our IPO in 2020. We now expect portfolio receipts to be between $3.2 billion and $3.25 billion, which represents impressive growth of around 14% to 16%, driven by our diverse portfolio.

Consistent with our standard practice, our guidance is based on our current portfolio and does not include the benefit of any future transactions. Slide 6 is one I keep coming back to as it demonstrates our consistent double-digit growth on average since our IPO. As you heard at our Investor Day in September, we have delivered this impressive record year in and year out. regardless of the market backdrop. This reflects our ability to execute successfully and consistently against our strategy. With that, I will hand it over to Marshall.

Thanks, Pablo. We've had a busy last few months, and I want to provide more color on our recent deal activity. The breadth of these transactions totaling approximately $1.6 billion in announced value across three very different disease areas really highlights the power of Royalty Pharma's therapeutic area agnostic investment approach that focuses on innovative important new medicines to drive our diversified, sustainable and attractive growth profile.

Slide 8 takes you through our [ MDELDRA ] transaction. This is a great example of a large investment in the kind of transformational medicines that are the foundation of our market-leading portfolio. [ Amgen's MDELDRA ] was approved in 2024 as a first-in-class targeted immunotherapy for small cell lung cancer, where median survival is only 1 year after initial therapy. We acquired an existing royalty of about 7% of sales from B1 for up to $950 million, including an upfront of $885 million. B1 has the option to sell an additional portion of the royalty to us for up to $65 million. [ MDELDRA ] has strong clinical data in the second-line setting. And looking ahead, we have high conviction for expansion into newly diagnosed patients with the ongoing Phase III trials beginning to read out in 2027. [ MDELDRA ] has had a strong launch, currently annualizing at over $700 million with consensus sales reaching $2.7 billion by 2035. Based on this outlook, we expect the transaction to deliver an unlevered return in the low double-digit range, consistent with our target for transactions on approved products.

On Slide 9, I want to turn to our most recent transaction in which we acquired Blackstone's 1% royalty on [ Alnylam's Anbuntra ] for $310 million. [ Anbuntra ] is approved for TTR amyloidosis, a progressive, debilitating and fatal rare disease and is already a blockbuster medicine. The clinical data shows a compelling patient benefit with dosing once a quarter and an approximately 35% reduction in all-cause mortality for patients with the most common form of the disease, TTR cardiomyopathy. [ Alnylam ] recently reported very strong third quarter sales with TTR franchise guidance rising to between $2.475 billion and $2.525 billion for 2025 with [ Anbuntra ] adjusting its third year on the market. Consensus sales are expected to reach over $8 billion in 2030. We expect an unlevered IRR in the low double digits or better that factors in significant potential competition from [ Alnylam's ] follow-on therapy, [ incessant ].

The third transaction is our agreement with [ Zenas ] Biopharma for [ obexelimab ], an exciting Phase III product for autoimmune disease. Slide 10 sets out the key elements. [ Obexelimab ] is potentially the first nondepleting B-cell modulating therapy for a rare autoimmune disorder called [ IgG4-related disease ] with Phase III results expected around the end of this year. We will provide up to $300 million to acquire a 5.5% synthetic royalty on worldwide [ obexelimab ] sales.

Importantly, consistent with our careful approach to risk management, this investment is staged with an upfront of $75 million and the remainder to be paid on the achievement of certain clinical and regulatory milestones. The Phase II proof-of-concept data in [ IgG4-RD ] are strong, and Venus' recent Phase II results in relapsing multiple sclerosis, which showed an impressive near complete suppression of active inflammatory disease further increases our conviction in [ obexelimab's ] mechanism of action.

Commercially, we see blockbuster potential in [ IgG4-RD ] given a patient population of more than 20,000 and still low uptake of advanced therapies. As a result, we expect to deliver an unlevered IRR in the teens, consistent with our target for development stage therapies.

So to close three very different transactions but all consistent with our commitment to creating value for shareholders by investing in innovative therapies with high patient impact. With that, let me hand it over to Chris.

Thanks, Marshall. It's my pleasure to provide an update on our development stage pipeline. As a reminder, at our Investor Day, we highlighted that our pipeline is expected to generate over $36 billion in cumulative peak sales, which translates to over $2 billion in peak royalties to Royalty Pharma. So there's really significant potential in this pipeline.

Slide 12 illustrates that 3 of our 5 Royalty transactions this year have been on development-stage therapies, namely litifilimab, [indiscernible] and [ obexelimab ]. This expands our total pipeline to 17 therapies, most of which have become -- most of which have multi-blockbuster potential. Without going into the details of each deal, there are a few key takeaways. First, all three transactions include a synthetic royalty component. This speaks to the growing recognition of this attractive nondilutive funding paradigm which we pioneered and allows us to tailor solutions for our partners.

At our Investor Day, we presented findings from the Deloitte survey, which highlighted that the biopharma industry is evolving towards a more diversified funding model in which royalties and particularly synthetic royalties are becoming a growing part of the capital structure. Our deal activity in 2025 underscores this point. We have so far this year announced synthetic royalty transactions of up to $1.8 billion, which have already far exceeded 2024 as our best year ever.

The second point here is about risk mitigation. Each of these three therapies is in Phase III development, which carries a lower risk profile. We only consider development-stage investments if there is a compelling proof-of-concept data in an area of unmet patient need. And if the range of commercial scenarios we model supports returns in the teens or better.

Third, the broad spread of indications highlights our therapy area agnostic approach. In fact, since 2020, we have invested in 60 different disease areas. Without the therapy area constraints of most biopharma companies, we view the entire biopharma market as our pipeline of opportunities.

Slide 13 shows the balance of our capital deployment between approved and development stage investments. The mix varies significantly on a year-to-year basis given the timing of opportunities but has typically been a roughly 65-35 split over time between approved products and development stage therapies. We see this as generally a good rule of thumb for our capital deployment mix. However, this split does not tell the whole story. In fact, as a result of our success rate and development stage investment, our portfolio risk is low overall.

For example, 86% of our current capital at work is related to approved products, and this ratio has been very stable, averaging around 90% since 2012. Only 11% of our capital -- current capital at work is related to development stage products, of which around 2% have already received positive pivotal readouts.

Slide 14 expands on my earlier comments on risk mitigation. Here you see the industry probability of approval at each phase of development. Importantly, and in contrast with biopharma, we don't invest in Phase I or Phase II. Instead, we focus our investments where industry success rates are highest. By following this disciplined risk reward approach. And by layering on top additional risk mitigation through deal structuring, we've built a strong track record of success. This explains why we continue to beat industry benchmarks with around 90% of our development-stage investments going on to receive approval.

On Slide 15, I want to close by highlighting the multiple pivotal readouts that we expect for our development-stage investments over the next couple of years. In the fourth quarter of 2025 and 2026, we expect six Phase III readouts with [ tecriptobant ] first up in hereditary angioedema followed by [ obexelimab ] in [ IgG4-related ] disease. Additionally, 2026 readouts include the first outcomes trial for our investment in the LP(a) class of drugs with Novartis' pelacarsen as well as Phase III results for litifilimab in lupus and aficamten and nonobstructive hypotriphic cardiomyopathy.

Among these six therapies Three have the potential to generate peak annual royalties of up to $200 million, while [indiscernible] acid for pancreas cancer could be well above $200 million.

For 2027, we expect pivotal readouts from a host of potential blockbusters, including our second LP(a) investment [ Olpasiran ] as well as frexalimab in MS and [indiscernible] in lung cancer, to name just three.

To conclude, the next few years we'll see multiple events that have the potential to unlock substantial value from our development stage pipeline. And with that, I'd like to hand it over to Terry.

Thanks, Chris. Let's move to Slide 17. This slide shows how our efficient business model generates substantial cash flow to be reinvested. As you heard from Pablo, royalty receipts grew by 11% in the third quarter, reflecting the excellent momentum of our diversified portfolio. Key drivers were the strong growth of [ Bornigo ], Tremfya and the cystic fibrosis franchise. Milestones and other contractual receipts were modest, both in this quarter and the prior year quarter. As a result, we also delivered 11% growth in portfolio receipts, our top line to $814 million.

As we move down the column, operating and professional costs equated to 4.2% of portfolio receipts. This reflected cash savings from the internalization transaction and compares with over 12% in the first 6 months of the year. Net interest paid was $123 million in the quarter, reflecting the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters and the interest we received for our -- the cash on our balance sheet.

Moving further down the column. We have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $657 million in the quarter, equivalent to a margin of around 81% and reflects a high underlying level of cash conversion and efficiency. Capital deployment in the quarter was just over $1 billion. This primarily included the $885 million upfront from [ deltra ], $75 million upfront for obexelimab and R&D funding for litifilimab. Lastly, our weighted average share count declined by 33 million shares versus the third quarter of 2024, reflecting the impact of our share buyback program.

On Slide 18, a I am pleased to share our first quarterly update on portfolio returns. We introduced these new metrics at our Investor Day, and I hope the message came across loud and clear. We are in the returns business, and every capital allocation decision we make is in an effort to create economic value for shareholders. Return on invested capital has been remarkably stable at around 15% on average from 2019 to 2024. And in the third quarter was 15.7% for the last 12-month period ending September 30. Return on invested equity, which shows the impact of conservative leverage on our equity returns has been consistently in the low 20% range and was 22.9% for the last 12-month period ending September 30.

We believe these new metrics facilitate a deeper understanding of the cash yield for our business and demonstrate that we are continuing to invest at attractive returns that will drive long-term value for our shareholders.

Slide 19 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of the third quarter, we had cash and equivalents of $939 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion, including the $2 billion of notes we issued in the third quarter and a weighted average duration of around 13 years.

Our leverage now stands at around 3.2x total debt to adjusted EBITDA or 2.9x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $2.9 billion of financial capacity through cash on our balance sheet that CASA business generates and access to the debt markets.

Turning to our capital allocation framework. We have deployed $1.7 billion of capital on attractive royalty deals in the first 9 months of 2025. We have also returned a record $1.5 billion to our shareholders in the first 9 months of this year. Including share repurchases of $1.15 billion and our growing dividend.

On Slide 20, we are raising our full year 2025 financial guidance by approximately 4% at the midpoint. We now expect portfolio receipts to be in the range of $3.2 billion to $3.25 billion, an increase from $3.05 billion to $3.15 billion previously. Representing growth of around 14% to 16%. The increase from our previous guidance primarily reflects the strong momentum of our diversified portfolio.

Milestones and other contractual receipts are now expected to be around $125 million compared with $110 million previously. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions.

Turning to operating costs. Payments for operating and professional costs are still expected to be 9% to 9.5% of portfolio receipts in 2025. As a reminder, costs in the first half of the year were greater than 12% of portfolio receives driven by approximately $70 million of onetime expenses related to the internalization and other onetime items. Collectively, these items are expected to impact full year cost by a little more than 2% of portfolio receipts. Lastly, interest paid in 2025 is expected to be around $275 million with around $7 million to be paid in Q4. This guidance does not take into account interest received on our cash balance, which was $28 million in the first 9 months.

In summary, we delivered a strong third quarter and 9 months, which puts us on track to achieve another year of strong financial performance in 2025, reflected in our raised guidance.

To close, I want to highlight a few factors for the 2026 to help with your modeling. First, we expect minimal royalties from [ Promacta ] next year, which is facing the launch of generics in the United States and Europe in 2025. And second, we currently anticipate interest paid to be between $350 million to $360 million in 2026, which includes interest payments on the $2 billion of senior secured notes issued in September 2025.

We plan to provide full year 2026 guidance when we report fourth quarter 2025 earnings early next year. Consistent with our standard practice, this guidance will exclude contributions from any future investments. With that, I would like to hand the call back to Pablo.

Thanks, Terry. To conclude, I'm delighted with our performance in the quarter. We maintained our double-digit momentum, we expanded our portfolio, and we again raised our guidance. We also hosted a successful Investor Day where we were thrilled to share our plans for shareholder value creation. .

On that note, I want to close by reiterating some of the key messages from the day. We're the clear leader in an expanding market with strong fundamental tailwinds reflecting huge demand for funding life sciences innovation in even more creative ways. We have a best-in-class platform for investing in the most exciting and innovative products marketed by premier biopharma companies and expect to remain the undisputed leader.

We have announced an outstanding track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity of over 20%.

Lastly, we're on track to deliver strong low volatility growth through 2030 and beyond. Together, we think this adds up to a very attractive investment proposition with a potential for annualized total shareholder returns at least in the mid-teens over the next 5 years. With that, we would be happy to take your questions.

We will now open up the call to your questions. Operator, please take the first question. .

[Operator Instructions] The first question comes from Asad Haider with Goldman Sachs.

The progress. Just maybe a couple on the external environment. Recently, we are seeing a bit of an uptick in biotech M&A and we're also moving into a lower interest rate environment. So could you perhaps speak to the pushes and pulls that these changing backdrop across these external factors presents for Royalty-driven deal activity and how you're thinking about the opportunity set and your target returns? And then just second, just any updated thoughts on how you're thinking about the China opportunity that you discussed at your Investor Day back in September. Any updates or insights around your China strategy as it relates to the types of investments that you're considering there would be helpful and how, if at all, if the external environment impact that?

Thank you for the question. Chris, why don't you take this question, both of them.

Thanks for the question. you're right, there has been an uptick in the M&A marketplace. And that really has very little impact on anything that we're doing. What you've seen is, obviously, large pharma is looking to fill some of their pipelines and LOE exposure. And we actually see that as beneficial to what we're doing. I think in the sense of it's just the companies out there need a lot of capital. There's a variety of ways in which they can get capital, we're clearly providing a key source of capital in the sector, which we're super excited about. So increased M&A uptick really doesn't impact the royalty market.

In the sense of China, you're right. We're super excited. That's going to be -- and we've seen a lot of growth in the out licensing out of China to multinationals. We see that as another leg of growth on the existing royalty marketplace. As you know, we spend a lot of time looking at companies and investing companies post proof of concept. I made some remarks in the prepared remarks about what stage of development. We invest in a lot of those deals out of China have been early-stage development deals. We're going to track those transactions and those molecules as they progress with the companies that in-license them. And there certainly will be opportunities to acquire those royalties as there's more known about the compounds that were out-licensed to the multinationals. So we're super excited. We've had multiple teams go to China this year, multiple times, building relationships for that opportunity set. So we're excited about the opportunity. We see it just as another leg of growth on the existing royalty marketplace.

And our next question will come from Chris Parikh with JPMorgan.

This is Hardik Parikh in for Chris Schott. Just wondering, I know Merck had recently announced a royalty deal with one of your peers. And you guys have also done a couple of R&D collaborations with Biogen and Merck in the past. Do you think the frequency of these types of collaborations with large pharma will increase as those names head towards their patent cycles? What type of factors drive these deals from farmers perspective?