Royalty Pharma plc - Ordinary Shares - Class A Aktie

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.

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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?

Yes. Thank you for the question. And I think I'll start by just saying that as the largest royalty buyer in the market, you can sort of assume that we look at every deal. This product is also a competitor to [ Trodelvy ], where we have a royalty, we funded the Phase III. So we're very familiar with the space.

And regarding the deal specifically, what I would say is that it's just great to see how this idea of using royalties to fund trials, not only with biotech companies, but also with big pharma is really becoming mainstream, which speaks to the big opportunity that we have in front of us. And I think this is going to just continue to grow, and it's a really big opportunity if you think of the scale of capital needed required by these companies. So we're very optimistic about these transactions continuing to happen. And I think with respect to the transaction specifically, as I said, we actually looked at it but decided at the end that it was not for us and continue to be very active with many big pharmas to talk about this kind of funding. Thank you.

And the next question will come from Geoff Meacham with Citi.

Thanks for the question. I guess, Terry or maybe Pablo, on the IRR, I'm assuming that's likely to tick up. And by the way, thanks for presenting that data. It's likely to tick up as you hit a tipping point of new launches I guess the bigger picture is, does that change royalty's willingness to look to maybe moderately earlier programs or maybe just take bigger risks. I know you're not obviously going to materially change the model, but the question is more of a tilt going forward on the risk side.

Sure. Why don't you take that question, Terry. But I think just one very top-level comment about it. You can imagine that we've been actually tracking this for 3 decades. And it really doesn't change much our behavior. If we see an attractive transaction in an approved product or an attractive transaction in a product that is in development, we will do it. And the fact that this calculation these returns are going to move up and down a little bit. will not really impact our behavior in terms of us looking at transactions and deploying capital. But go ahead, Terry.

Yes. Pablo, that's exactly the point. And I would say on the specifics on the return on invested capital and return on invested equity metrics that we started to highlight, I think the thing that we're most proud of really is the stability and the consistency. And so as we've continued to scale our investments, it's remained remarkably stable. And we think that it's going to bounce around a little bit quarter in and quarter out. But it should remain for return on invested capital in that mid-teens range for the foreseeable future, which we think really speaks to the value creation of our business model.

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

This is Mike DiFiore in for Umer. Two for me. I want to drill down on the [ Anbuntra ] deal. You mentioned significant competition from [ nucrisiran ] potentially, but could you provide any color on the range of scenarios that factor in significant competition from this asset. And in the scenario where it does get approved and launches in 2030, how quickly might you see [ Anbuntra ] eroding? And quickly separately, any updates on the market for synthetic royalties in the obesity space?

Marshall, why don't you take both questions?

Sure. Mike, thanks for the question. So specifically on how we thought about [ Anbuntra ] over its whole product life cycle. As we highlighted at the beginning of the call, we are really excited about this product. It's completely consistent with the kind of products that we've invested in, in the past. And I think the strong launch in [ Alnylam's ] strong execution behind it are all examples of that. Specifically to your question, as we always do, we looked at a pretty broad range of scenarios for both timing and the slope of how nucrisiran might enter the market. We obviously have a case study, a very recent case study of the [ ONPATTRO to Anbuntra ] transition to sort of to help us and guide us as one scenario. But we certainly looked at a lot of sensitivities around that as well with the message being and why we talked about that, that we're confident in an IRR of low double digits or better when we look across that range of scenarios even baking in that range of [indiscernible] scenarios.

Second, on the obesity market. So it continues to be, I think, message very consistently with what we said in the past, certainly on our radar looking for the right opportunities there. We don't just want to we don't just want to have a royalty on an obesity product for the sake of it, we want it to be an important product that differentiates itself in this space, and we'll be disciplined in waiting to find the right thing that creates value for our shareholders.

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

Two for me. First, congrats on [ Anbuntra ] deal. I think Blackstone originally signed a deal with [ Alnylam ] back in 2020. And Pablo, given your comments that you guys look at everything, I'm assuming you had a look at it back then. So I'm just wondering what's different now versus that 2020 deal? And then on the LP(a) front, probably a question for Marshall. Amgen, as I'm sure you guys heard last night talked about the [ Olpasiran ] Phase III event rate tracking slower than expected. Just any thoughts there on your views on implications for probability of success here for this study?

Sure. Marshall will take the second part of the question, but maybe to provide some color on the first one regarding [ Anbuntra ]? Yes, it is part of a larger deal that was done in 2020, which was about $1 billion. That actually related much more to [indiscernible]. And this small royalty 1% on [ Anbuntra ] was sort of an add-on to the transaction. It was sort of a $70 million part of the overall transaction. And we did look at that -- the whole deal at the time. But again, we decided it was not for us.

And I think one thing I will comment on because obviously, I think this provides some color regarding this question that we've had for -- since we went public 5 years ago about competition. And obviously, regarding the motivations of why Blackstone sold, you should ask them, but they've been in this investment for 5 years, and it's an attractive return given the investment they made specifically on this.

But I think one thing to comment on, as we highlighted in our Investor Day is that we do have a very unique structure as a company now, ongoing business. Perpetual versus many of our competitors that are structured as close in funds where they have investment horizons that are much shorter than ours. And as you know, royalties are very, very long. It can be 10, 15 years. So what's very unique about Royalty Pharma is that were structured to actually invest in assets that are very long and hold them to maturity. And I think this really speaks to the differences in the business models where we are really set up to own royalties that are going to cash flow for 10, 15 or longer than that. And so we have sort of different investment horizons.

And I think the last thing I would say is that this transaction also highlights something unique about Royalty Pharma, which is that given our diligence process that has been honed over decades, we were able to develop a differentiated view about the sales trajectory and importantly, the persistence and duration of the [ Anbuntra ] royalties that maybe differs from other people's perspectives. And that's why we think this is a very attractive investment that will deliver attractive returns for us. But the other question for you, Marshall.

Thanks for the question on Lp(a). So specifically, [ Amgen ] did talk about a slower event rate in that study last night. I think that probably shouldn't come necessarily as a surprise given or other given Novartis where we also have an investment in their Lp(a) product had a similar observation from their trial I think when we did the initial diligence when you're running a first-in-class outcome study for a target in a population where there's not a lot of precedent, I think we were eyes open about the fact that there ultimately would be some uncertainty around timing and the exact event rate.

So what that means to us -- to your question is it doesn't change our view of the probability of success? And we continue to be really excited about having two royalties in the two leading therapies in this class that we think could be a very large, many multibillion-dollar class in the future, and we're really excited to be a part of it.

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

I have two. My first is also on the Lp(a) space. And specifically, I'm wondering if the HORIZON trial fails in 2026, to what extent do you think differences in trial design could ride to the rescue as it relates to Olpasiran's prospects in 2027?

And my second question is on [ obexelimab ]. This agent posted some very interesting Phase II MS data right after Royalty Pharma announced its deal I'm just curious if that has changed your thinking at all around peak potential? Or was MS upside already taken into account?

Sure. Thanks for the question again. This is for you, Marshall.

Sure. Mike, thank you for the question. So specifically, your question on Lp(a), just for everyone very quickly who might not be familiar with all the details here. So Mike, your question is if the first outcomes trial that will read out Horizon from Novartis were not to be positive, what would the implications be for the second one coming, which is Amgen's trial for [ Olpasiran ].

And I think there are certainly some differences in trial design. There are some differences in depth of Lp(a) lowering. So we are optimistic about both trials. But certainly, there are differences in the trial design, which could differentiate the Olpasiran outcome from Horizon and pelacarsen. Hard to comment really specifically on that right now until we see -- until we see the details in what happens. So are certainly optimistic and excited to see the first one next year.

Your second question on obexelimab. So yes, we were the MS data that Zenas is reported looked great. And I think as we highlighted in the prepared remarks, it really kind of validates the underlying kind of scientific and clinical question here, which is if you have a non B-cell depleting but B cell activity modulating antibody, what would be -- what would that mean for activity in various autoimmune diseases. And I think the MS data and really showing very strong suppression of disease activity is very validating of the view that this is a new and different way of treating autoimmune disease, which is exciting. The near-term launch, and I think what we were really working with Zenas on funding is certainly focused on IgG4-related disease. And so that was really the -- that was the focus of the deal because I think in a lot of ways, from a commercial perspective, that drives the near-term capital need. But they have a great team over there at Zenas and excited to see what they do with obexelimab in addition to IgG4-related disease.

Thank you. I show no further questions in the queue at this time. I would now like to turn the call back over 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. Thanks. .

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

All right. So I will do a quick intro and then we can get going.

Okay. Great.

So thank you all for being here today. It's wonderful to have Royalty Pharma here with us. We are very, very privileged to have you joining us for the conversation. For anyone who doesn't know me yet, my name is Courtney Breen. I cover the large cap pharma names focused on the U.S. at Bernstein. And I'm very privileged to have this conversation today. I think Royalty is in a unique space in the market and kind of plays across kind of biotech partners through large-cap pharma partners. And so looking forward to diving into that a little bit.

But first of all, we're going to let Marshall take us through a few slides, learn a little bit about Royalty Pharma together, and then we'll dive into Q&A. Just a reminder for everyone, we do have the Pigeonhole app. So if you have particular questions that you want me to integrate into the Q&A, please send those through, and I will integrate them into the conversation. But with that, Marshall, thank you so much for being with us, and I will let you take the floor and run us through a couple of slides that you have.

Absolutely. Great. Thank you so much for having us. So just to introduce myself, my name is Marshall Urist. I head up the research and investments team at Royalty Pharma, been there for going on 12 years now. So as we said, why don't we take -- go through a few slides just to introduce everyone to who we are and what we do, which is well timed because we actually just finished up our Investor Day this year about 10 days ago. So if anyone wants to take a deep dive, go to our website and spend 3, 4 hours with us going through everything you could ever possibly want to know about Royalty Pharma.

So just maybe to level set for a little bit to give everyone a sense of who we are and our scale. So we are the #1 buyer, the largest buyer of biopharmaceutical royalties in the world. We've been at this for coming up on 30 years. So our founder and CEO was one of the sort of originators and creators of this space. And I think that competitive -- that kind of market lead kind of still gives us some real advantages to this day. We're a big company now for our space. So we have over 50 products in our portfolio. We are guiding to portfolio receipts. That's kind of like the aggregate royalties that we receive every year of $3.1 billion this year. Cash flow of about $2.5 billion. We have a market cap of $20-plus billion, about 100 employees right now.

So we went public in the summer of 2020, and I think we've really enjoyed the challenge of executing in front of the public markets over the last 5 years and are super confident and excited about the future. So we've delivered low double-digit 12% kind of CAGR of our royalty receipts every year. We gave at our recent Investor Day some kind of detailed look at our returns. We've delivered unlevered. I think it's important point of the unlevered IRRs in the mid-teens consistently since our IPO over the last 5 years, we've grown the company significantly. Our team has deployed a lot of capital, deployed $14 billion since our IPO. But at the same time, and this is an important theme, we allocate capital really carefully, and we've returned over $4 billion through buybacks and repurchases over that time. And we are always trying to kind of simplify and optimize our structure. And so we internalized our investment manager for anyone who is kind of familiar with the technicalities of that structure.

So I think one of the most exciting things about our business is the dramatic growth and expansion that our space is seeing. We've seen an explosion of biotech innovation. And with that has come the need for a broader number of capital sources that serve company needs in different ways, and that is really the role that we play across all the parts of our business. You can see the business has grown very significantly over the last nearly 30 years. So this is one of the key themes that we talk about. I think a really important thing and message about how we think about our company, which is we always want to be the optimized buyer of royalties in the world. And what that means at a very high level is we are always evolving our company, if it's our approach, our structure, how we buy royalties to make sure that we maintain market leadership. We certainly don't rest on our position in the industry. We always want to be pushing.

And so as I mentioned, we really kind of founded this industry in a lot of ways and have kind of built on all of our competitive advantages that are all here over that time. But I think an important thing about the spirit of how we do it is that we are always trying to get better in every way. So our kind of big -- our overarching ambition is to be the best capital allocator in the life sciences space. And so this is the framework that we talk about with our shareholders, which is we are always thinking every investment really carefully about how we are allocating capital is every dollar we send out the door the highest and best use of that capital for our shareholders.

And so this is kind of the framework that we think about it. When we think about -- and it's our stock price and how attractive the royalty opportunities are. So when there's a lot of attractive opportunities and our stock is trading at a discount to its intrinsic value like it has been recently, we've been doing both. We've been deploying capital to grow our portfolio and new royalties and also buying back stock. And so as the world -- as things evolve as the market for royalties maybe is more or less attractive over time and our share price, obviously, hope it shifts to the right here over time as well. We will incorporate all of that information into how we allocate capital.

So one of the things and the team that I lead that we're really proud of is our investment approach. And we are highly, highly selective into how we choose the products that we want to be involved with. Our #1 product selection criteria is the quality and the importance of the product. It's not -- do we see a return here? Simply, it's -- is this an important medicine that we want to be a part of our portfolio. And when you look at the products we have in our portfolio, I think you'll see a clear theme of that across all the products. We might touch on some of those today. But to achieve that, we have to have a very flexible approach and a really open model.

So we've built our team to be able to invest in any therapeutic area, approved, unapproved, any therapeutic area. And we've invested across, I think, something like 60 different therapeutic areas or 60 different diseases over the last 5 years alone. And I think we have -- we talked about the consistency of our returns, but we really think a lot about risk reward and how can we structure our investments to sort of be optimally positioned for us and for our shareholders and for our partners.

So this is what our kind of transaction funnel looks like in 2024. So we saw -- because we are the biggest player in a growing space, we saw a ton of things, right? We saw over 440 different things last year -- and the sort of -- this funnel sort of shows you just how selective we are, right? We looked at 440 things and ended up doing 8 deals, right, last year. So we are highly, highly selective in the products that we're involved with. And to the point I just made, you can see some of the things that we invested in last year, some really premier products that are having great launches this year like Voranigo or Niktimvo, Yorvipath from Ascendis, some really great products here.

So did I skip? No, that's right. Okay. So last -- one of the exciting things about our market is we do buy royalties like you think about a pre-existing royalty is one part of our business. It's a royalty that comes out of a licensing transaction. The other big part of our business is what we call synthetic royalties, and that's basically when we work directly with the company to invest in that company and create a royalty. So we basically get a portion of future revenue to fund the business. And as you can see here, this market has been expanding dramatically over $3 billion $3 billion in 2024, and we think the future is really exciting for these.

Synthetic royalties represented over the last 4 years, I guess, 5 years, excuse me, just low single digits, so 3% of all the capital raised in our space, and we've grown and this has been a big growth driver for us. And this tells you why we're so excited about this because that number could double or triple. It would still be that 3% could double or triple, and that's a really attractive growth opportunity for us and still would be a small minority of the capital that's raised in our space. And I think that's an important theme that we see how this industry should be funded, which is it's going to take all of these things, right, equity, debt, partnership, whatever it might be, and royalty is going to be an important part of the kind of biopharma capital structure of the future.

How are we tracking towards our financial targets? So here's 2 that we talked about. So we talked -- we have -- our financial target #1 is a portfolio receipt CAGR of 10% or more between the decade 2020 to 2030. And you could see we're tracking above that 12% CAGR through this year. So we are -- we feel really good about where we are. Second, we had a 5-year capital deployment target that we talked about in 2022 of $10 billion to $12 billion. And you can see we're tracking really nicely towards that. If you think about it purely on actual capital out the door. If you think about total capital committed, we're already well above that target. So really finding attractive places to invest.

We have publicly communicated return targets for our investments have been consistent. We haven't really changed. We haven't changed these at all since we went public. this is a common question for investors, which is approved products. We target an unlevered IRR that unlevered is important, talk about that in 1 minute of high single to low double digits. But in reality, I think we've seen an environment that's really kind of a low double-digit kind of unlevered IRRs for our approved products, development stage products are teens, and you can see we've been -- we've also been in that range or above.

So I think we -- why don't we stop there? I think this puts together why we are in a great market. We have the platform that is optimized to invest in this space. We've consistently generated attractive returns and our growth outlook is really attractive. So that's a quick spin through RP, but happy to talk about any of these topics or anything else.

Fantastic. Thank you so much, Marshall. I think that's really good underpinning for contextualizing royalty and where you're at today and the journey that you've been on. Kind of as I heard you go through the slides and as I kind of spent some time digging through your website and digging through the Investor Day, I think there are a couple of things that I noticed. First is kind of that distinctive ability to identify deals that are going to be positive. And the second was also identifying opportunities that translate to a lucrative outcome, not only for you, but also for the partner at play, the kind of royalty payer over the time.

I want to start with a few basics to understand and kind of begin to kind of understand your approach to delivering that. And so first is you also spoke in these slides about 60 different disease areas over the last 5 years. And certainly, kind of from my experience and when you talk to large cap pharma companies, they say, well, to be able to look at kind of research that's going on outside, I need to be doing research inside to fully understand what good looks like. How on earth do you have the capability spread and the context to be able to look at those 60 disease states and feel good about those opportunities? What's your secret sauce here? And also kind of -- how early do you start evaluating these opportunities kind of versus when you actually decide I've got enough data in my hands to feel good about this? Kind of how do you get along that kind of comfort pathway to...

Yes, those are key questions. So we've -- as I mentioned, we've been at this for a while, right? And so we've developed a system to kind of deal with that complexity. And we've had to evolve a lot because the world has gotten more complex over the past few years. So the way our team operates, kind of everyone in our team kind of operates as a generalist, right? And so that's why we have incredible people on our team, and we develop them to be generalists.

So the way we can kind of work on 60 different things over time is what we've gotten really good at is our internal team we supplement our internal team by going out for each and every transaction and identifying the very, very best people for that specific project to work with us for that project. And so that's clinical, commercial, manufacturing, formulation, devices, whatever it might be, we will build a team around that disease area or that specific product for each and every investment. And being able to sort of grow that team and then transact or not transact and move on is how we kind of build our team to be able to do that.

The other thing is, and this sounds simple, but is really important is that we do really start with important products that have good data because I know -- we all know when you're sitting there, when you have to squint at the data and squint at the curves or is this a difference or work hard to convince yourself, usually, that tells you something. And so that's something that really guides us, which is if we have to work hard to convince ourselves that it's important data, usually, there's value in that. So that's the other thing that really helps us because we really try to focus on things that are kind of important in some way.

And so that's why the other part of your question was that's also why when you're working on great drugs, great data, it's also really helpful in terms of getting to a great answer with your partner because at that point, you kind of both want the same thing. It's not like a zero-sum game. It's we're really excited about this product. We want to put capital into it to help you move faster, get it to the next stage in a way that works for you and works for us, right? And that's how we operate. And so it's more like a partnership than it is sort of a kind of us versus them kind of adversarial zero-sum approach. And it's been really powerful for us.

The other part here is the other question was -- yes. So a couple of things. I think -- oh, you asked when. So basically, we have been investing pre-approval now for over a decade plus. If you look historically, about 40% of our dollars invested have been prior to approval, and that percentage has been pretty consistent over time. If you look even recently, it surprised us in a way, but we put more capital to work in approved products over the past few years than I think we necessarily expected.

So we usually are Phase III and later. And that's for 2 reasons. One is that, that's when the capital needs are greatest, right? So we're a big company to do transactions that matter, we need to focus on when capital needs are greatest, which naturally sort of forces us later, which speaks to your other part of your question, which is probability of success, which is we are sort of privileged and lucky in the sense that there -- we work with companies who have done the really hard work to get things to that stage. And where the risk is highest is not where we are most active. And I think that really helps us.

And then the last piece is coming back to this theme, we are sort of high conviction, right? When it's a royalty, it's not whether it's 70% or 80% because 80% of 0 from a royalty perspective is still 0. So we really focus on super high conviction things. And if we don't feel it, we don't do it. So that's sort of why we've been sort of fortunate to have the track record we have.

Super helpful. And maybe just to dig in a little bit more as you think about kind of the ideal partner or the ideal therapy or modality, are there particular kind of segments that stand out that kind of just become more no-brainers than other areas where you have to spend a bit more time kind of convincing yourself?

Yes. So we -- so the kind of high level to answer your question is no, right? Because we are so product-based, like everything is about the fact pattern around that single product. And so that's why you've seen us invest. There's no rhyme or reason to it. It's sort of all over the place.

We do definitely have like thematic things that we think are interesting. I'll give you an example and how it led to some of our investments. So one of the things we had noticed several years ago is there were like some really big markets that pharma in sort of the total shift to kind of specialty and high-priced drugs had kind of left behind, right? Migraine was one example for us, right? Like you had seeds of generics, they were all like the same drug. And so we said that's interesting, right?

And so we went out and looked for are there things that are interesting. We ended up making several investments in the CGRP space. that were interesting. Psychiatry was another one, right? Totally -- had been totally kind of abandoned by pharma, and we went and look for opportunities there. We've made a couple of investments there. We invested in Cobenfy, which is a product Bristol is launching now, and we made an investment in Teva's Phase III for a long-acting injectable of olanzapine that Teva recently presented some great data for. We invested in that.

So -- but we never go out and say, I need a product in obesity, right? We don't have an obesity investment right now. You might imagine we get asked like every day, we go out, what are you doing in obesity. But we're not going to go out and check a box just to have something in a space. If it doesn't make sense, we're not going to do it. There's plenty of places for us to invest. We don't need to sort of say, I must be in this space or that space.

Fantastic. I think what you've done through the presentation and answering a couple of these questions is kind of paint a very compelling case for kind of Royalty Pharma's business model and kind of what you're able to do. Why aren't there other Royalty Pharmas out there? Kind of why -- what makes you the clear leader in this space and kind of there aren't many followers kind of trying to replicate exactly what you're doing? What puts -- what enables you to stand apart and perhaps deliver this uniquely compared to others?

It's a great question. It actually was one of the kind of thematic organizing principles for this last Investor Day that we just did. So there's lots of directions to that question. I think one is we have a very, very unique structure, the way Royalty Pharma is structured, right? This business started 30 years ago as a typical -- you think about a serial fund model, right? So like what private equity does, you raise the money, you invest it. If the returns are good, people give you more money and you keep going, right?

I think our founder tells the story that he invested a royalty fund. It was a ton of work, right? And he had this like great base of royalties. And then he sort of thinking about starting over, right? And he was fortunate at the time to have an investor base that wasn't institutional and was actually in the early 2000s, able to convert Royalty Pharma to an ongoing evergreen business model, right, which is -- it was -- it's like a profound event for us because what it meant is it turned us into a totally different thing than a typical investor, right? Because it became a self-funding business model, right? So the way it works is we -- so the capital we invest is obviously the royalties from our prior investments and the business scaled and scaled and scaled.

And so that did 2 really important things. One is our cost of capital came down dramatically, right? Because you are an ongoing business model, you could lever the business, right? The debt became an important part of our structure. And so that brought our cost of capital down very dramatically. The second thing is it allowed us to invest in a totally different way, right? Because just at a high level, a royalty is usually a 10-, 15-, 20-year stream, right? Owning that in a fund that has a 5- to 10-year life is really not very efficient, right? And so we are structured to match what we do, right? And so I think that is something that's very, very hard to recreate, number one.

The second thing is everything we invest in, there's only one of them, right? And so you -- to even think about recreating kind of who we are, right, it would take 3 decades and billions and billions of dollars, and I'm not even sure then you could do it, right? And so I think that is why I think there isn't someone who looks exactly like us. But I think the other thing to point in mind, the other thing is that there's been different flavors of competition in our space over time, and we really welcome it, right? Having a robust market where sellers feel like there's multiple bidders is really positive, right? So we don't see this as we are the only kind of player in our space. We dictate price. There's no competition. That's not how it works at all.

We are unique, and I think that gives us multiple competitive advantages in a growing space. But we certainly think there will be other players in our space who are successful. They probably won't do it just like us, but we see, given the size of the opportunity, we want there to be sort of a vibrant marketplace for royalties.

Absolutely. And you've done a variety of different deals recently, and you spoke about a few of them that were particularly asset specific. You also did a pretty sizable transaction with Revolution Medicines, which was -- looks like it's a bit unique compared to perhaps what you've done in the past. Can you kind of share some of the basics on this particular transaction, how it differs to prior deals and why this made sense for you and for Revolution now?

Yes. So no, it's a good question. So it was a very exciting deal that we signed over the summer. So for anyone who doesn't know, Revolution Medicines is an oncology biotech that's in Phase III and works in a target called RAS and they're in Phase III for pancreatic cancer and looks like they -- we certainly believe they have what is going to be the first real breakthrough in pancreatic cancer, which, as I'm sure everyone knows, is just a horrible disease, and there's been no real progress in this disease despite all of the innovation in our space.

And we -- the background of the deal was that Revolution Medicines was at a point that we as very familiar to people who have been following this space, which is you've built and built and built. You're in Phase III, you're thinking about commercialization. You have to invest in your pipeline behind you to continue to scale. Oncology is an extremely competitive space. So you need to move as fast as possible, push everything as fast as possible. And you need a lot of capital at that point. And historically, the only way to really access that kind of capital was you went and signed a partnership with a big company, right?

And a partnership with a big company has some positives to it, but it has some huge negatives we all know. One is that you end up giving away a huge amount of value, right? Is it -- it can be half of everything globally or it can be a huge part of the ex U.S. and it sort of strategically changes your company. You have a partner, they probably slow you down, right? You got to have committees and meetings about everything. And so they were at this point. And so in the past, you would have to go do this deal. And that can kind of limit shareholder value creation, right, because you sort of signed away a big piece of the pie.

And so what we were able to craft with Revolution Medicines was a $2 billion partnership. So capital at the scale that you could get from a big company, but allows them to remain completely independent, control their own destiny and to continue to develop all of their drugs as long as they want to. It doesn't mean they won't sign a partnership or we might be in the future, but allows them to continue to do it and allows them to accrue more value for their shareholders. So -- and what we designed was very unique. So I think the scale of it in our space was completely novel.

And then the second thing is that it's a staged deal, which is kind of unique because we put $250 million in upfront and then there's 4 more tranches of $250 million along the way, which is -- each brings successively more synthetic royalty to us, right? So we really partnered with them to give them significant capital now when the Phase III works out, when the product is approved, when they hit a certain sales milestone and then when they get a major label expansion. We also gave them access to senior secured debt, right, and of another $750 million of senior secured debt. So it was sort of like a major package of funding that sort of allows them to continue to push as fast and as hard as they want to, but gives them a lot of flexibility because of that -- of the $2 billion, only $750 million of it is actually is that they will take, right? And the rest of it is at their option.

So the other thing that was unique about it was the way it was structured was the tranches in the future actually come at successively lower cost of capital to our partner, which is cool, right, because we are prewiring all of that now. And then we'll give them a form of capital, which they can decide at the time, right? How does this compare to the cost of their cost of equity or whatever they might do in the future. But we have a royalty, which we think will be competitively priced at that time. So it was a super novel structure.

And I think an important thing is sort of reflects to your last question, our progress in becoming an institution in our space, right? Because Revolution Medicines is an incredible company, great team, and they're really partnering with us and trusting us, right, like they would Merck or Pfizer, whoever might partner with them that in 5 years, 6 years, whenever some of these cards might turn over, we're going to be there, and we're a partner who can -- who will be there with you over that whole time.

And again, to your question, that's probably very difficult for someone in the fund structure to do that kind of thing, right? And we kind of -- and so we're really excited about this. We think for really strong companies who are in a strong position, right, this is a really attractive way to fund your business. We've gotten a lot of incoming inquiries from companies around the space since this has been -- since we put this out there. We've had to explain to people, not everyone is sort of ready for this kind of deal, but we think for the right companies, we're excited about offering kind of an innovative package like this.

Fantastic. That's super helpful to understand because it is very unique and kind of exactly as you say, offers a different way to access kind of those expansion opportunities for your business when kind of you feel like you have so much promise, but you just need a lot of cash.

Right, exactly. That's expensive, exactly.

One other angle that I kind of wanted to probe this from is when we look at where kind of the biotech through pharma sector is today, there is kind of fragmented research that's going on. It's now fragmented across many more biotechs contributing to late-stage pipelines, also fragmented more geographically with kind of China becoming a bigger and bigger player and contributor of innovative biomedicines. And then on the other side of the equation, kind of you look at these large cap names and they have narrowed their focus away from consumer and devices and all these other places and perhaps become more risk on because they're focused on innovative biopharma, which is kind of probability of success and patent cliff, and you've got to navigate through a whole lot more. As you think about those pressures kind of does that translate to a higher kind of path for royalty environment? Or do some of those things kind of get in the way of the trajectory for royalty pharma and royalties becoming a larger and larger source of business going forward?

Yes. It's a good observation. I think everything you mentioned to us creates opportunity, right, for a whole host of reasons. Look, the fragmentation of the industry has been going on for a long time, right? And a lot of that fragmentation, each time there's a transition point of innovation across the industry, there's a royalty created or something in a license. And so that nature of the industry creates our opportunity. And one of the cool things about our space is it also renews our opportunity all the time, right, as those things happen.

Pharma, same thing, right? We have -- another part of our business we didn't touch on is we partner with large pharma companies on -- to fund specific R&D programs. It's another part of what we've done. We've done it with Pfizer, Merck, Sanofi, AbbVie, like lots of companies around the world. And certainly, as they feel more stress, more need to move faster, I think that different ways to fund the pipeline in a way that is sort of P&L bandwidth expanding is attractive, and I think we offer that to companies as well.

And then you mentioned China, super interesting and I think kind of highlights one of the attractive parts of our model, which is what we see with all that China licensing activity is that's another, I don't know, in aggregate, how many transactions there's been 75, 100. But all of those generally create new royalties, right? A lot of them are create new royalties that are in the hands of multinational pharma companies around the world. And that's our bread and butter, right? So to us, you've created a new -- a whole new sort of source of innovation, a whole new market. We have been doing the work to be positioned to be able to hopefully have that as a part of our business in the future. But we're excited about that, too, right? Because if one of these VEGF PD-L1 drugs turns out to be big and it's in the hands of Bristol, Pfizer, whoever it is, right, that's an attractive royalty that we could potentially transact on.

Fantastic. Maybe coming at some of these different pressures in another angle as well, kind of one part of this is you're talking about a royalty stream. Royalty streams are usually a percentage of revenue. So knowing what revenue is going to look like in the future is really, really important. There's a lot of uncertainty in the world as we think about drug pricing, as we think about different geographical opportunities going forward. In addition, you kind of put that great fun off on the slide earlier, where you're saying you're talking -- you looked at 440 opportunities and 8 came out the bottom. And so you've got to think about these scenarios, run this analysis in a very efficient way to evaluate what might be the parameters that we're playing in, kind of what investments have you made to set yourselves up for success here, kind of what data, what infrastructure do you use? But also kind of how do you think about the world that we're playing in and how much variety there might be in the future in terms of the economics for a product?

It feels like we've been living with the question of sort of price uncertainty forever. And certainly, the volume has been turned up to 11 recently. So look, we obviously think really deeply about that. And there is no one answer right now. We are -- try to gather all the intelligence that we can to understand it. But I think what -- we take a few different approaches to it. One is we are believers that when you focus on important drugs that offer real value, whatever happens in the future, those drugs are going to be better positioned.

Second is we do -- our portfolio right now is in a good position with a lot of these cross currents. A couple -- we get sort of questions about portfolio composition. I think one of the things we have relatively little or limited, I should say, kind of government -- U.S. government pay exposure right now. So Medicaid, I think, is less than 10% or so of our business. Medicare is maybe similarly sized, maybe slightly larger, but has a couple of pieces, which are shorter duration royalties right now where we're closer to the end of the royalty. So we own royalties in Imbruvica and XTANDI, in Trelegy. Imbruvica and XTANDI have been negotiated, but we're going to go out of our portfolio naturally anyway. So we just -- we're pretty well we're pretty well positioned right now.

The other thing that we do a lot about, we think about this in structuring, right? So we have conversations with our partners and say, look, there's a lot that can happen. We need to sort of share in that together. And so we can have structures where if there are underperformance scenarios because of that, the royalty rate might adjust. So there's lots of things that we can do to help mitigate that. But certainly, we are looking forward to more -- hopefully, one day having more clarity on how all this is going to play out.

We all -- and in the last few minutes, I really wanted to just take a step back and ask you to talk a little bit about kind of deal structures and Royalty Pharma over the next 5 to 10 years. What does good look like? We've talked a little bit about kind of the last 3 decades and the evolution that the business has been on. As you think about the future and as you're starting to perhaps invest a little earlier in some opportunities, do some new deal structures, what might the proportion of business or what might kind of the shape of Royalty Pharma look like over the next decade?

Yes. We are really excited about where we sit in the ecosystem. And we've been -- one of the things we really love to do is innovate on structure. And that's why the Revolution Medicines deal that we talked a lot about is so exciting because that is -- we have really taken pride in the fact that we've tried to be a real innovator and are a real innovator in structuring and coming up with new ways to fund companies through royalties, because that obviously feeds back positively because it then creates more opportunity for us to invest into the future.

So I think we're going to be doing kind of all of the above when you look forward. When I look at our pipeline today, where we are, the variety is incredible across the board in terms of regular royalties, synthetic royalties, working with pharma on R&D. So it's all moving forward. There are -- where might we innovate. There probably are areas where we could -- and we have done a proof of principle like this with Merck, actually, where we invested very small dollars to us in something that is maybe post proof of concept, but needs to find a dose but then where we're committed to, once the card turns over positively, really blow out and expand that investment to fund Phase III. And so that's a way where for very selected opportunities, we wanted to use our scale and the depth of our resources to put very much smaller dollars to work and things are a little earlier that would commit us to funding it as the capital needs grow. So -- and I'm sure we'll come up with new and different ways to innovate as well.

Fantastic. Thank you so much for sharing a little bit about Royalty Pharma with us today. I think this has been a super interesting conversation, and we certainly pay at a really interesting place in the entire sector, particularly as we think about the pressures, the evolution and all the things that are going on in the environment as not to mention kind of the funding environment that we're all in as well. So...

Yes. Well, thank you for having us. Super fun and great questions.

Thank you so much, Marshall.

Good morning, everyone. My name is George Grofik, and I head Investor Relations and Communications at Royalty Pharma. It's my privilege to extend a warm welcome to our Investor Day, and thank you all for attending.

Before we start, I'd like to go through a few housekeeping details. First, for those who are reviewing our live webcast, a copy of our presentation can be found on the Investors page of our webcast at royaltypharma.com. You'll also find a copy of the press release for this event on our website.

Second, there will be two question-and-answer sessions during the event. If you do ask a question, please identify yourself and use a microphone. And lastly, after the final Q&A session, there will be an opportunity to join Royalty Pharma's management team for lunch and to ask questions in a more informal setting.

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 for these measures is provided in the earnings presentation on our website.

So you'll be hearing from a number of members of our leadership team today. Pablo will start off by discussing the successful execution of our strategy in 2020 -- since our IPO in 2020 and how as a premier capital allocator, we are set up to deliver strong growth and returns in the fast-growing royalty market.

After that, Ashwin will present key findings from a first-of-its-kind survey of the biopharma royalty market by Deloitte, which really underscores this attractive outlook. Chris will then detail how we are leveraging the powerful tailwinds, which are driving the growth of the market. And after this, Brienne will highlight a recent case study, which demonstrates how we continue to innovate and stay ahead of the competition. We will then move to the first Q&A session, followed by a short break.

In the second session, Marshall will discuss how we are building on the capabilities of our unrivaled Research & Investment team so that we continue to win in the marketplace. And as part of this discussion, we'll feature a video from some of our key partners, including Chief Executive Officers of Biogen, Revolution Medicines, Teva and Cytokinetics.

Terry will then detail the clear path we see to drive significant value creation in the coming years. And after some brief final remarks from Pablo, we will close the formal part of the event with a second Q&A session. As I mentioned earlier, there will be a lunch with management afterwards, and it would be great if you could join us.

Now in planning the detailed agenda for today's event, we aim to provide clear and comprehensive answers to the most frequently asked questions we get from investors, many of which are listed here.

And I won't go through them all, but they include, for example, what is your market opportunity and long-term growth outlook? What are your competitive advantages? Can you provide more details on your historical returns and are they sustainable? What's your outlook for cystic fibrosis franchise? And who is your peer group? We hope that the information presented today will answer these questions.

Now before moving to the main presentation, I'd like to play a short video, which highlights the people and culture of Royalty Pharma. We believe our team-based approach is critical to our success, and we have worked diligently to maintain this unique culture despite tripling our headcount since 2020.

[Presentation]

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

Thank you, George. And I'd like to add my own warm welcome to our Investor Day. I'm thrilled so many of you have been able to join us in-person or online.

Before I begin, I would like to take a moment to recognize the significance of today's date, September 11. The events in New York City on that terrible day in 2001 will forever be etched in our memories. My team and I would like to pay our respects to those who lost their lives and to those who continue to be affected.

And I would like to thank those in attendance listening online for taking the time on this important day to learn more about our business. And with that, I would like to move ahead with the Investor Day.

I would like to set the scene by reminding you that Royalty Pharma is the pioneer, an undisputed leader in the biopharma royalty market. This is a simple and bold statement, which masks a tremendous evolution in our business since its foundation in 1996 and our IPO in June of 2020.

As you will hear from the team today, by combining our relentless focus on innovation and our unique and powerful business model, we're meeting the growing capital needs of our biopharma partners in even more creative ways. Through executing against our strategy, we have delivered excellent performance and strong returns while also helping to transform the lives of patients.

Standing here today, our prospects have never looked better. We expect to significantly grow the business over the next 5 years across a number of key performance metrics in a market that is expanding rapidly, and we continue to strengthen our competitive moats.

We have a clear path to deliver substantial shareholder value creation as a premier capital allocator funding life sciences innovation. We have a really exciting story to tell, and I am delighted we have this opportunity to start it with you today.

Now let me move to the four key messages for today. First, we have executed extremely well. We've delivered on all key strategic and financial priorities we set out at our IPO and our 2022 Investor Day. I am very proud that we're on track to deliver double-digit top line growth for this decade.

Second, as the leader and innovator in this space, we're really helping to drive rapid growth in the royalty market. Royalties are increasingly becoming recognized as a critical funding paradigm for biopharma, and the market has more than doubled in size over the 5 years since 2020.

Third, we have redefined -- refined our business model and our competitive advantages over nearly 30 years so that we're now the optimized buyer of royalties. We're constantly innovating to deliver win-win solutions for our partners that keeps us in a powerful position as the partner of choice in our industry.

Fourth, we're laser-focused on value creation. We've delivered consistently mid-teens returns on invested capital through a rigorous investment process. We have an owner-operator mindset that aligns us with our shareholders, and the recent internalization of the manager has further increased our alignment.

We have a history of executing against our financial targets. We're confident in achieving our 2030 targets for our top and bottom line, which currently sit at more than 10% above the analyst consensus. Lastly, we have a clear path to drive substantial growth in our top and bottom lines and the intrinsic value of our business. Taken all together, we envision we will deliver at least a mid-teens shareholder return over the next 5 years.

Here, you can see that we have delivered against our priorities since our IPO. Based on our 2025 guidance, we expect to achieve a 12% top line CAGR since 2020. Over that period, we have deployed around $14 billion in capital on new royalty transactions, and we've generated a 15% return on invested capital, which is more than double our cost of capital. We've also returned around $4 billion to shareholders in dividends and buybacks within the framework of our dynamic capital allocation approach.

At an organizational level, we have scaled our platform to meet the growing demand for royalty financing, increasing our headcount threefold and investing in new skill sets, such as data analytics. Importantly, we have recently simplified the company through the internalization of the manager. Meaning, our valuable intellectual capital and investment platform is now combined with our diversified royalty portfolio.

By bringing our platform under one roof, I am highly confident we will not only deliver attractive growth and returns, but we will create significant value for our shareholders.

At our first Investor Day in May of 2020, we set out two clear long-term financial targets. We're targeting a compounded annual growth in portfolio receipts of 10% or more between 2020 and 2030, which means a top line of at least $4.7 billion by the end of this decade.

As we said, we intended to set up our rate of capital deployment to $10 billion to $12 billion over the next 5 years, which was an increase compared to the greater than $7 billion we had previously given. I am delighted to say we're on track to achieve these goals. In fact, we're ahead of the run rate on both measures.

And while we are reaffirming the targets today, given our dynamic capital allocation framework, which allocates capital to the highest return activity, whether it is deploying capital on royalties or share buybacks; we clearly see the potential to scale our capital deployment over time. This speaks both to the power -- the powerful fundamental tailwinds driving our industry as well as to the successful execution of our strategy.

So why are the fundamentals behind our industry is so compelling? The answer is simple. Royalties feel like critical funding role for biopharma. They are increasingly being seen as an important part of a biopharma company's capital structure with clear advantages to traditional debt and equity in multiple scenarios.

For a biopharma company seeking funding, of course, the main advantage of debt is that it has the lowest cost of capital and is not dilutive to equity. However, that typically comes with strict operational covenants. Also, the scale and availability of that depends very much on the macro environment.

Equity on the other hand, has been the only source of funding for most biotech companies, which is why it has been so popular historically. However, it comes with the highest cost of capital. It is broadly dilutive to shareholders, and it can be highly dependent on market conditions.

This all changed when Royalty Pharma introduced royalties as a new more flexible source of funding. Royalties offer the greatest flexibility, no operational restrictions and are non-dilutive to equity holders. Furthermore, royalties are targeted and can be tailored to the individual needs of a company, which is clearly recognized today by so many biotechs.

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, we provide our partners many advantages over a traditional licensing deal.

For example, our partners retain operational control along with a much higher proportion of the economics. They encounter less administrative complexity from joint decision-making. They also can access capital at a much lower cost than through partnering.

Our transaction with Revolution Medicines is a great example of a company deciding to pursue royalties instead of partnering with a global pharma player. And you will hear more about this exciting transaction later today.

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. It's also important to recognize that biopharma, our industry, has a number of unique characteristics that make it ideally suited for royalties.

Royalties may not be a funding option for all industries. So we believe there is a scarcity value for our business as a differentiated and attractive investment. To highlight a few of these characteristics, product life cycles are long, typically around 15 years. Profitability is high, and so too are the capital needs, which average over $2 billion per drug approval.

To get to the point of commercialization, often, multiple royalties are created, potentially starting in academia. Furthermore, industry data suggests that 250 licensing deals are announced each year on potential new therapies, which drives royalty creation. When we add it all together, there are about 400 companies that need funding annually. And the total addressable market for funding over the next decade is over $1 trillion.

When you combine these characteristics with the potential benefits that royalties bring, this explains why we are in such a vibrant and growing industry. So let's put numbers to the market we're discussing.

Over the past 5 years, the value of announced royalty transactions has averaged $6.2 billion per year. That's more than double the previous 5 years and nearly triple the level of 15 years ago. Not surprisingly, market growth hasn't been linear. But the upward trend is strong and clear to see.

So to summarize my comments on industry growth, our market has expanded rapidly, and we expect it to continue to do so. This reflects the growing capital needs of the biopharma ecosystem, underscored by the incredible pace of scientific innovation and the increasing awareness of the benefits that royalties can bring.

Our unique and attractive business model raises the question of how investors should think about and benchmark royalty pharma. In fact, a frequent question we get in investor meetings is, who is your peer set? It's not an easy question to answer as we're the clear leader in our market with no obvious publicly traded comp. We're truly an end of one for investors.

To try to answer that question, we believe Royalty Pharma combines the attractive attributes of certain industries, biopharma for 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 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.

While none of these industries exactly mirror our business, we believe this diverse group of peers offers important comparisons and a valid benchmark for our performance. We believe we compare well, given our track record of diversified double-digit growth and sustained attractive returns.

In light of this discussion about our peer group, we have also thought long and hard about redefining the essence of what we do and how we think Royalty Pharma should be viewed by investors. Today, I would like to define who we are and our ambition.

Our goal is to be the premier capital allocator in life sciences with consistent compounding growth. We're excited about delivering against this ambitious goal and we will achieve this through dynamically allocating capital in the best interest of our shareholders to deliver sustained, attractive returns and to strengthen our competitive moats in the fast-growing biopharma royalty market.

I want to explain in my next few slides why we are highly confident we will do this. It starts with our powerful business model, which we have constantly evolved over the past 30 years to make us the optimized buyer of royalties.

Marshall will take you through the details later. But to summarize, we pioneered the industry in the 1990s with a closed-end serial fund focused on existing royalties on approved products. Over the next 30 years, we honed our business model and established a number of important moats around our business. Our competitive advantages include deep access to low-cost capital at scale and an unrivaled brand and network of relationships across the entire biopharma ecosystem.

We have a track record of success in delivering win-win solutions for our partners. Lastly, we have the biggest and most diverse portfolio of royalties in the industry and a cash-generative and highly efficient business model. Today, we have the strongest royalty investment platform, bar none, with close to $22 billion of capital at work and $14 billion of equity capital at work.

Taking all of this competitive advantages together, no one else can replicate this powerful platform. By leveraging our platform, we're able to allocate capital as effectively and efficiently as possible, so we can create long-term value.

At the start of this year, we introduced a new value-driven dynamic capital allocation framework, which guides our investment decisions. Terry will elaborate on this. But in short, this balances our view of the share price valuation against the attractiveness of royalty deals. This rigorous framework means we can deploy our cash in the most effective way possible to drive shareholder value.

In the first half of 2025, we repurchased $1 billion of shares and returned $1.3 billion to shareholders, a record for Royalty Pharma. At the same time, we have continued to deploy substantial capital on royalty acquisitions, such as the exciting funding agreement with Revolution Medicines we announced in June or the royalty on Imdelltra we acquired from BeOne a few weeks ago. So far this year, we have deployed capital of $1.7 billion.

When we deploy capital and royalties, we have an investment approach, which has been refined over decades and is designed to optimize risk and reward. We're highly selective when it comes to product selection, with patient impact a key priority.

We have an institutionalized and comprehensive due diligence process to assess the clinical and commercial outlook. This selectivity means we have historically transacted on about only 2% of initial reviews.

We're also therapeutic area agnostic. This allows us to maximize our opportunity set and diversification. For example, since 2020, we have invested in 60 different disease areas. In terms of returns, we expect to deliver a mid-teens unlevered IRR on our investments since 2020. That's more than double our average cost of capital for the -- over the period, which we are very proud of.

And because we typically invest in royalties for their full term, we have a very long investment horizon that allows us to capture higher cash-on-cash multiples than most, if not all, of our competitors.

Lastly, we only invest where we see compelling proof of concept. And where possible, we work hard to structure deals to mitigate risk. This result is more than 90% of our royalty investments since 2020, are projected to exceed our cost of capital. Let me repeat, 90% of our royalty investments since 2020 are projected to exceed our cost of capital.

Since 2012, we have deployed approximately $27 billion in royalty investments. Our aim is always to maintain a healthy balance between approved and development-stage investments. Of course, the mix can be highly variable on a year-to-year basis given the timing of opportunities. However, over time, we have typically had a roughly 65-35 split between approved products and development-stage therapies.

This is not necessarily a target, but it is generally a good rule of thumb for our capital deployment mix. Expanding on my earlier point about risk mitigation, we deployed capital in low-risk opportunities. where there is proof-of-concept data or the product is already approved.

On this slide, you see the industry probability of success at each phase of development. We're not investing in Phase I or Phase II opportunities, but only where industry success rates are the highest. This approach to risk differentiates us from biopharma companies which invest across all stages of development, including in preclinical and early stage development, where the probabilities of success are less than 15%.

And by following this disciplined risk/reward approach, we have built a strong track record of success. In fact, and this is important, around 90% of our development-stage investments have received approval, which is well ahead of the typical industry success rate.

Our portfolio is also relatively low risk. As you can see on the slide, for example, 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 relatively low and has historically always remained low. This is due to the success of our development stage investments, which made many having been approved since we acquired the royalty and our capital deployment on approved products.

Put another way, at the moment, only 11% of our capital is in development-stage therapies, a number of which already have positive pivotal data. And many of these therapies we're excited about and expect to receive approval in the future. Lastly, highlighting the success in our development-stage investing, only 3% of our capital has been in unsuccessful investments, which we believe is an impressive figure.

This slide is one I am particularly proud of, as it illustrates our consistent ability over many years, decades to identify and invest in best-in-class or first-in-class products. Lots of transformative blockbuster therapies that many of you will recognize, including Rituxan, HUMIRA, the cystic fibrosis franchise, Tremfya and so on.

Every single product outperformed consensus substantially, on average, delivering double the expected peak sales compared to when we initially made the investment. This builds on the previous slide and illustrates that we are good at identifying opportunities that have not been appreciated by the investment community.

As you can see here, most of our recent investments have performed well since our IPO, many of this are still in the earlier stages of their product life cycle and so -- and on strong growth trajectories. When we weigh the outcomes by the capital we deployed, the analyst consensus for year 5 sales has increased by about 40% on average since we invested.

While our investment decisions are always driven by our own internal forecasts, Using the consensus is a good proxy for showing our ability to identify winners. What you will also notice on this slide is that the larger transactions have tended to significantly outperform such as the deals for Trelegy, Evrysdi, Tremfya and Voranigo. For the deals where the consensus has decreased, they have tended to be on the smaller side, such as OXLUMO.

Importantly, when we look at returns, even for transactions where the consensus has decreased, you can see that all but 2 are on track to achieve our target returns. Again, this drives home the point that our investments are underpinned by our own internal forecast as well as our ability to creatively structure transactions that mitigate risk, which Marshall will touch on later.

While many of our investments do outperform we do not necessarily need to be at or above the consensus for our investments to achieve attractive returns for our shareholders.

Now drilling down on our development-stage therapies, we have a very strong track record of investing successfully. Since 2012, we have deployed around $9 billion on unapproved late-stage products. Today, our portfolio includes 17 development-stage therapies, many which have multi-blockbuster potential, and we expect them to contribute significantly to our growth in the coming years.

I mentioned success rates earlier. To put numbers to this, across our development-stage investments, only 7% have failed to gain approval, 64% have been approved and 29% are still in clinical development.

When you do the math, that's around 90% success rate for deals where there has been a regulatory decision. This beats industry benchmarks. This is the result of our rigorous due diligence process that we have fine-tuned over the past couple of decades. It begins with the requirement for compelling proof-of-concept data in an area of unmet patient need. On top of this, we will only invest if the range of commercial scenarios we model, supports returns in the teens or better.

On my final few slides, I want to turn to our path to drive substantial value creation for our shareholders. I'm very confident we will deliver. And it starts with scaling our platform to meet the huge and growing opportunity ahead.

Since our IPO, we have tripled our headcount, bringing in new talent and powerful capabilities in data and analytics. For example, our world-class team is second to none. We've also scaled our capital deployment to match our growing opportunity set. In the past 5 years, we have deployed over $12 billion of capital, up more than 70% over the prior 5-year period.

We have also maintained the highly selective investment approach. I have outlined each year transacting on only low single-digit percentage of initial reviews we conduct. We're an incredibly efficient business and will become even more so. Through the internalization of the manager, which I will discuss momentarily, we expect to drive our adjusted EBITDA margin from an already healthy 90% in 2020 to around 95% next year.

And lastly, we have an owner-operator mindset that fully aligns management's interest with those of our shareholders. Around 20% of our stock is owned by management, which is substantially higher than what you see in pharma. Furthermore, the vast majority of executive compensation will be in the form of equity as a result of the internalization.

Speaking of the internalization, this recent step to integrate the external manager is an important part of our journey. It's a key enabler and accelerator for our business going forward.

For those less familiar with the background, Royalty Pharma has continuously evolved since I started the business in 1996 from a closed-end serial fund to an ongoing business with an indefinite life, a perpetual capital structure, then investing -- extending our investment scope to invest in unapproved products, culminating in our IPO in 2020, with each step improving our competitive positioning and moat.

Until this year, Royalty Pharma owned its industry-leading royalty portfolio, but it did not own the intellectual capital. By internalizing the manager, we're now an integrated public company. Shareholders will own both the royalty portfolio and the intellectual capital in one entity.

What began as a small fund educating universities on the value of royalties has evolved into what I believe is the leading investment platform in life sciences. I'm incredibly proud to work alongside a world-class team, whose talent and dedication have helped institutionalize royalties as a mainstream funding solution in the sector.

Together, we've built unmatched capabilities and forged deep enduring relationships across the life sciences ecosystem, which will sustain this business for decades to come. Given the benefits of the internalization, we strongly believe that the valuation of Royalty Pharma shares should, over time, reflect both the value of our world-class investment platform and our one-of-a-kind portfolio of royalties on leading biopharma products.

Today, we see minimal value being given to our platform. The valuation of our shares is driven almost entirely by the significant value creation delivered by our portfolio and our track record of success since our IPO.

What is not reflected, in our view, is the intellectual capital and investment platform that Royalty Pharma now owns, the unique engine for future royalty acquisitions that our unified and integrated team brings and the huge competitive advantages we enjoy and continue to build.

We think there is significant additional value to be realized for our shareholders. And we're confident we will demonstrate this over time. One thing we're very proud of is our history of execution against our financial targets. As I mentioned previously, we're on track to achieve our 2025 and 2030 top line targets as well as our 5-year capital deployment target.

This slide shows how the consensus estimates for our 2025 portfolio receipts, our top line have increased by 15% since our IPO from $2.7 billion to $3.1 billion, underscoring the strength of our portfolio and our ability to deploy capital in transformative products.

We remain highly confident in our ability to hit our 2030 top line outlook of $4.7 billion or more. Today, we're also introducing a new target of at least $7.50 of portfolio cash flow per share by 2030, which translates to a 12%-plus CAGR in from 2025 to 2030. Terry will walk through this in more detail later. Importantly, both of these metrics are more than 10% above the current analyst consensus.

On my final slide, I want to reiterate some key messages. Royalty Pharma is a powerful business that is positioned to drive strong value creation. We operate and are the clear leader in an expanding market with strong fundamental tailwinds, reflecting the huge demand for funding in life sciences innovation even more in more creative ways. We have a best-in-class platform for investing in the most exciting and innovative products marketed by premier biopharma companies.

I want to pause here to make another really important point about the evolution of Royalty Pharma and its platform.

10 years ago, I was a huge part of nearly every deal that the company did, from the relationship side all the way through the final deal negotiations. But I realized that if I wanted this business to grow and thrive over the long term, I needed to prioritize growing the team and hiring and nurturing really strong people to lead this business into the future.

Today, I am so pleased that the team has scaled dramatically. The members of the management team that you will hear from today as well as the broader team you see in the room today are the ones driving the business and have been for some time now.

While I remain as committed to Royalty Pharma as ever, these leaders run the business day to day with limited involvement from me as I focus on longer-term strategic goals. Our team has built unmatched capabilities and forge deep, enduring relationships across the life sciences ecosystem, which positions us to remain the undisputed leader in this space for decades to come.

This team is behind our outstanding track record of delivering consistent attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity of over 20%. And we expect to sustain similar returns of our cost of capital in the future.

Lastly, we're on track to deliver strong low-volatility growth through 2030 and beyond. We expect to achieve our goal of being a premier capital allocator with consistent compounding growth. Together, we think this adds up to a very attractive investment proposition with the potential to deliver annualized total shareholder returns at least in the mid-teens over the next 5 years.

Now before handing over to Ashwin, I'd like to also highlight Royalty Pharma's philanthropic activities. At Royalty Pharma, we believe two of our greatest strengths, our financial resources and our people, should be used to help patients in need of hope, elevate underserved communities and support the next generation of scientists.

As George noted, culture is at the heart of who we are. And philanthropy and public service are core to that culture. Over the past 5 years, we've worked with leading nonprofit and academic institutions to advance their missions.

This includes advancing health equity through the Mount Sinai Royalty Pharma Alliance for Health Equity Research, supporting research via Blood Cancer United, what used to be the Lymphoma Leukemia Society, and the Prostate Cancer Foundation, a few of them; empowering women, scientists, entrepreneurs at MIT and promoting STEM education and public health to more than 30 partners.

Just as importantly, more and more of our colleagues are stepping up serving on nonprofit boards, mentoring and guiding research projects and participating in community fundraising events.

I'm deeply proud of these contributions, which reflect the values we stand for. And we're just getting started. We're committed to deepening our impact and ramping up our involvement to make a lasting difference in the communities where we live and work.

With that, let me hand it over to Ashwin.

Thank you, Pablo. I'm Ashwin Pai, EVP of the Investments team. I joined Royalty Pharma 2 years ago. Previously, I led the West Coast biotech investment banking business at Morgan Stanley, where I helped companies with capital raising and M&A. I joined because I believe that royalties have a significant role to play in financing the biotech industry.

Yesterday, Deloitte released its market study on senior biotech executive views on using royalties to finance their companies. The study is the first of its kind and speaks to two main points: one, royalties have become an important strategic funding modality; and two, royalties have significant growth potential.

Deloitte conducted one-on-one interviews and surveyed over 100 biotech executives and board members. These are the types of people I worked with in my prior position helping to evaluate how to finance their companies.

About 1/3 were our CEOs and almost half were CFOs. This survey puts a finer point on many of the key themes Pablo spoke about regarding where royalties fit in the ecosystem. The study makes it clear that royalties are viewed as a strategic addition to the capital structure. Many benefits were cited.

About 2/3 mentioned the lack of equity dilution. Importantly, given the rapidly evolving nature of biotech, as companies bring in assets and seek to run additional clinical trials, the lack of covenants in maintaining operational control or additional key benefits that participants cited.

A great example of this is Revolution Medicines, where our transaction allowed them to avoid partnering their asset with large-cap pharma. Pablo mentioned this earlier, and you'll hear more about it later this morning from Brienne.

Other benefits that were cited included the scale of capital available and the ability to customize deal terms. Executives understanding of these benefits continues to grow. 54% Of them reported an increased interest in using royalty financing over the last 3 years.

The report also makes it clear that there is future significant growth potential for royalties. 65% of executives noted that their companies would need to raise over $250 million in capital over the next 3 years. 34% they need -- said they needed to raise over $500 million in capital over that period of time.

These are large amounts of capital that are not always available in the equity or debt markets. 87% of executives said they would consider using royalties for at least some of these capital needs. The survey speaks to how established royalties are becoming in the biopharma ecosystem. This certainly matches my experience, where 10 years ago, royalties were rarely discussed as a funding alternative to today where they're broadly discussed.

Some select quotes from the study to bring it to life, non-dilutive and simpler than debt, operate how you want, available when the equity capital markets were closed for us. Later this morning, you'll hear directly from some of our partners as to why they chose royalties and why working with royalty pharma is compelling.

Now a few stats and conclusion to leave you with.

Most importantly, and as mentioned before, 87% said they would consider using royalties to finance their companies over the next 3 years. 67% said they would consider using royalties instead of or in addition to equity. The number for debt is 77%. And the report highlights that royalties have become an attractive alternative to either equity or debt. Given the capital needs of the biotech industry, there is significant future growth potential for royalties.

I'll now turn it over to Chris to talk about the market opportunity.

Okay. Good morning. I'm Chris Hite. I'm an Executive Vice President and Vice Chairman of Royalty Pharma. I want to thank everybody for being here today. There's a lot of old friends out there in the audience. So I'm going to talk about megatrends in the sector, in the biopharma sector that are leading to large and a growing royalty opportunity and why Royalty Pharma is the clear industry leader in this sector.

But before I get into that and some of those megatrends, as many of you know, but some may not, we went public about 5 years ago. The company has been around -- Pablo founded it about 30 years ago. And we've learned a lot since going public in 2020. One, around the sector itself, the demand for royalty financing is far larger than we thought in -- even in 2020.

I remember on the IPO roadshow, we gave guidance. We're going to deploy $7 billion over 5 years. And I remember all the questions. "really, you think you can do $7 billion over 5 years?" Okay. Well, 5 years later, we've done $14 billion.

Scale drives strong competitive advantages. You're going to hear a lot about scale. We're an investment-grade rated company, $3 billion-ish of revenue, 95% margins, EBITDA margins. We can deploy a lot of capital in any one single transaction at attractive returns for us and attractive cost of capital for our partners. That scale matters, and you're going to hear a little bit about that later today.

Finally, on the royalty funding market itself, we've discovered that it's attractive than any market. Capital markets are up, they're down; IPOs are closed, they're open. You're going to see that this royalty market has really grown over the last 5, 6 years, consistently every year.

As it relates to the learnings we've had on Royalty Pharma itself, we really feel that we have differentiated access to the opportunities. Why? We're the largest player, dominant share. You're not going to sell a royalty without calling us first. Reputationally, relationship-wise, we have all of those things.

A lot of us have been in this industry, I'm embarrassed to say, 30 years, probably 30-plus years; you have a lot of relationships when you've been doing the same thing for 30 years. And we have that access to those opportunities because of our scale, relationships, reputation.

We strengthened our competitive moats. You're going to hear a lot from Marshall about the research and investments team and our data analytics team, and we've strengthened our legal team and our transaction team. We've really worked very hard to bring in great human capital with great skills. And all of that has led to a sustainable and attractive return on the transactions.

I also remember IPO, "Do you really think you can maintain these spreads? Do you think you maintain these returns?" The answer is yes. And Terry is going to go through that.

Okay. So let's go into the megatrends that are driving the Royalty Pharma, the royalty industry. One, global innovation is occurring at a rapid pace. There's been dramatic increases in scientific breakthroughs that have led to a record number of FDA approvals. And it's not just in the United States, it's in Europe, it's in Asia. And in particular, we'll spend a second today on China on one of my slides.

Another megatrend is R&D fragmentation creates and leads to existing royalty opportunities. And this has been the case since Pablo founded the company 30 years ago. R&D happens across many, many companies and universities and foundations. It's very segmented. And every time that they partner one of those assets out, universities with biotech, biotech with pharma, pharma with biotech; it's creating an existing royalty opportunity. So we'll spend some time on that.

And the last megatrend that I'm going to talk about is biopharma capital trends are large and growing. We anticipate that the capital requirements expected over the next decade is going to be in excess of $1 trillion. It's a big number. So let's dive into these megatrends.

I talked a little bit about innovation, right? Scientific breakthroughs. We read it every day. It's remarkable. Like I said, I've been doing this for 30 years. What's happening on the basic science side, biology, chemistry, technologically is amazing.

The result is the number of new drugs getting approved by the FDA over the last 5 years with 324 new FDA approvals. That's an over 50% increase from a 5-year period ended in 2009. So that innovation is resulting in new drug approvals. So obviously very helpful when you're buying a royalty on one of those drugs.

The other thing that I talked about, another big megatrend is fragmentation. So since 2018, on average, there's been about 250 licensing/partnering deals in the sector.

And many of you are involved in the sector, you'll open up your e-mail every morning, you see something from [ stat ] news or one of the research houses and this company licensed, this company partnered, this university partnered, something happened. Every time that happens, there's an existing royalty opportunity being created, 250 every year. It's pretty remarkable. It's a deep pool for us to play in.

Last megatrend I'm going to speak about is the capital intensity of the sector, right? This is a great slide. It's one I actually presented at our last Analyst Day. But I like it, so I wanted to present it again because it really does encapsulate the ecosystem that we play in.

Academics, nonprofits, government-sponsored entities are expected to spend greater than $1 trillion over the next 10 years on research; pharma, profitable pharma, greater than $2 trillion on R&D over the next 2 years -- 10 years; and unprofitable biotechs between SG&A and R&D spend, greater than $1 trillion.

That's a lot of money that these companies spend and need, and we're playing in that sector. The interesting thing about this is it also brings up the existing royalty opportunity that is created through all those partnering activities. So you see academics, nonprofits partnering with pharma, partnering with unprofitable biotech. That all leads those existing third-party royalties that we can acquire.

The other thing that I'm going to spend a lot of time on is the synthetic royalty. And Pablo touched upon the Rev Med deal, we did a deal with Zenas this year. We did a deal with Biogen this year. These are synthetic royalties, ones that we create. They don't exist, but we -- in exchange for funding the company, we create a royalty. We call that a synthetic royalty.

And you see that it's not just with biotech, it's with large pharma. We've done deals with Merck and Pfizer and Sanofi, where we've created synthetic royalties by risk sharing and funding some of their R&D. What's the end-user sales of all this spend? In 2035, biopharma revenue is expected to be about $2 trillion. These are big numbers, big numbers that we play in.

The last megatrend that I touched upon earlier is really about China. Every day, you sort of pick up a paper and see another large multinational corporation, U.S., Europe, Japanese, et cetera; licensing something out of China into their R&D pipeline. In 2019, there were zero deals. So you can see the growth rate. Last year is 43. This year, they're on pace to do more than that.

It's the comment around innovation is happening globally. These companies are seeking partners to help them develop these assets outside of China and ultimately market them outside of China. And if you think about it, that's another existing royalty growth opportunity for us to play in. But those royalty opportunities are typically a little bit bigger, right, because they're all of the markets outside of China.

So this royalty rates are a little bit bigger than what we've seen maybe traditionally amongst some of the existing partnering that goes on historically in the sector.

Okay. So what is all that doing with the royalty marketplace? This is what I talked about earlier, which is the IPO markets in black, the follow-on equity markets in blue, it's up, it's down year-to-year. But the royalty market, the 3-year rolling average, constant growth since late 2019. And there's a lot of reasons for that. Pablo spent reasons on why royalty funding is really attractive.

Honestly, I think it's also -- that is all true. But I also think it's really when we went public, we have shareholders, and they understand the benefit of working with us. And they're telling their -- the companies that they invest in, maybe you don't want to do an equity deal where you're going to dilute your shareholder base by 10% or 15% at a 10% or 20% or 30% discount. Maybe you want to do a synthetic royalty for Royalty Pharma.

There's a lot of push, pull going on that's driving the growth in the sector and we are the beneficiaries of that. This is a lot of what Pablo talked about, about why royalties are more attractive than equity, more attractive than debt. So I'm not going to spend a whole lot of time on the slide, but I do want to say one thing, the customized and tailored funding solutions row in this slide.

You don't see a checkmark next to debt, you don't see a check mark next to equity. Those are cookie cutters. None of our deals were cookie cutters. Not any of them. Why? Because we listen to our partners. What is important to our partners, what do they care about? When do they need the funding? How much funding do they need?

And you're going to hear that word a lot throughout today, partnership. We really care about our partners. We create win-win solutions with our partners, and that's what's leading to, I think, really the explosion in the synthetic royalty opportunity. Brienne is going to talk about that a little bit on the Rev Med deal.

So drilling down now a little bit on the synthetic royalty opportunity, right? These are royalties that didn't exist we created them with our partner. And what you're seeing here is this funding modality is becoming a part of the capital structure in the biotech sector.

So let's just take Revolution Medicines. They've raised $5.3 billion between equity, partnering other. And 38% of their capital, if they drew all of our funding deal that we've just recently announced with them, would be 38% of that capital Biohaven, 26% of the capital that they raised prior to selling the company was through working with us on synthetic royalties.

So what we're saying to you today is we're not going to replace the IPO market, the follow-on market or pharma partnering completely. But what we are doing is we're part of the conversation, we're part of the capital structure.

Every CFO in the sector is thinking about a synthetic royalty in addition to raising capital through equity, debt or partnering. Why? flexible, scalable partnership, right? Those are the reasons why it's a super attractive product, and we're really proud of this slide.

Capital required in the sector is enormous. I had that bubble slide, my favorite slide. This drills down a little bit on that. So let's just take Biohaven.

What this is really showing is the SG&A spend in order to launch a drug is enormous in the sector. 3 years prior to launching Nurtec, Biohaven spent $200 million on SG&A. The 3 years post launch of Nurtec, almost $2 billion, a tenfold increase in their SG&A required.

How is the company going to do that? You're the CFO of Biohaven or the CEO of [ that ], that's a daunting task, right? What did they do? They did 4 deals with us and raised a lot of capital to help them fund that product. What did that help? Instead of partnering with a pharma right out of the gate now in the U.S., for example, they did not partner in the U.S.; it preserved their strategic optionality and preserve the attractiveness of them to a strategic partner.

Ultimately, Pfizer bought them. Pfizer did partner with them in Europe, but they were able through dealing with us and working with us to maintain the rights to the program in the United States.

Next slide. This is the same concept, only it's focused on R&D investment, the sheer amount of capital required. So let's once again take the top row, Rev Med. Pre proof of concept, $750 million; post proof of concept, anticipated to be $3 billion, 4x spend. You can go down the list here.

The capital required to get these drugs over the line is enormous. We just did the launch, but this is to get them approved. And what you see here is the emergence, right, the other slide had checkmarks all the way down except for one company. Here, there's three checkmarks around R&D synthetic royalty funding.

That Rev Med deal, to me and to all of us actually, the whole management team; that really did illustrate to the sector that at scale, we can help companies preserve their independence, not have to partner and keep the assets to the next valuation inflection point through attractive capital. That's a landmark deal. And I think the next time we're all here together at our next Analyst Day, you're going to see more checkmarks on that slide.

So Ashwin talked about our Deloitte partner that just released their study. It was a great study to -- I think what it really illustrates is -- don't really take our word for what we're seeing in the marketplace on synthetics, take the results of the survey.

When you look at the survey, over the next 3 years, 80% of the executives surveyed said they're somewhat or highly interested in doing a synthetic royalty deal in the next 3 years. And look at some of the quotes on there. I think one of the my favorite ones is the first quote, which is really -- I'm sorry, the second quote, which is really about the partnering.

You were able to raise capital without the loss of operational control. Okay? When you partner, when you inherit a big pharma partner, you're not running the show anymore. At least you're going to have a 50-50 shot, committees, JDC, GSEs, you're inheriting somebody.

When you're working with us, we are a partner, and we're not going to be in your business, we're not going to be demanding JDCs. We are a partner, and that's what we're really proud of. And that's why this opportunity is growing.

Last slide before I hand it over to my partner, Brienne, is this is just now synthetic royalty growth. 2015, the product was basically nonexistent. Last year, $3.1 billion raised in synthetic royalties. We've already done $1.8 billion this year in synthetics. Last year was our largest year ever, we've already eclipsed it.

And what I'm really excited about is, over the last 5 years, on the right, the pie chart on the right; biotechs raised about $300 billion through follow-on offerings, convertible debt, IPOs, partnering, right? The synthetic royalty market was 3% of that $300 billion, just 3%. When you think about all the advantages that product offers and that amount of capital raised over the last 5 years, that's a big growth opportunity.

So with that, I'd like to hand it over to my partner, Brienne Kugler, to talk about Rev Med.

Hi, everyone. Thank you, Chris. Welcome for coming here. Thank you, everyone, for coming here today. I'm Brienne Kugler, I'm a Senior Vice President on our Research & Investments team. I've spent over a decade at Royalty Pharma, building up a large breadth of experience working on deals, everything from deal identification to diligence to execution of our transactions in order to better work with our partners.

And a great way for me to illustrate how we partner is for me to tell you about a recent partnership we did with a very exciting biotech company.

First, I want to spend some time talking about the biotech companies' perspective. Chris just talked about how much capital is required to fund late-stage clinical trials and to support drug launches. The CEO or CFO of a biotech company have a big task ahead of them. How can they raise that much capital? They could consider equity, but that depends on the share price and market conditions.

They could consider debt, but that might be limited for a pre-commercial stage company. They could consider a partnership, but then would give up operational control and it could impact an acquirer's perspective. And last, but certainly not least, if the asset is at the right stage, they could consider a royalty partnership.

So for some time, we've been following the very exciting data emerging from Revolution Medicines. When we first started talking to Mark and his team at Rev Med, it was clear that they had bold and visionary plans. We needed to come up with a novel structure to solve their big capital need in order to enable them to execute on those ambitious plans. A few months ago, we closed on that very innovative structure.

So what was so innovative about it? It was the scale of committed capital. We gave Rev Med up to $2 billion of capital at a stage of development when they were still in Phase III trials. Capital was split $1.25 billion of royalty, up to $750 million of debt, $250 million of the capital was upfront, and the rest of the capital is staged over time to align with when Rev Med would require that money.

So why did Rev Med want to partner with us? Well, first, they have a pipeline of very exciting products and a number of expensive and large Phase III trials that they want to start as quickly as possible. The significant quantum of capital from us enabled them to do a multiyear R&D investment.

Two, they're not giving up operational control there's no joint decisions, no joint steering committees for them to worry about.

Three, they remain fully in the driver seat. That helps enable their flexibility towards any future decisions that they may make. At the bottom of the page, you can see, in Rev Med's own words, why they thought that this deal made perfect sense for them. So we see this as a template for future deals, where we can partner early on high-quality assets and commit significant stage capital over time.

Since we did this groundbreaking deal, we received inbound interest from biotechs, who are interested in partnering with us instead of working with a traditional biopharma partner. They're particularly interested in our ability to support them with scale and flexibility.

And finally, I want to touch on why we at Royalty Pharma were so excited to partner with Revolution Medicines. It really starts with the data. We see a tremendous opportunity for their lead drug, Daraxonrasib, to transform standard of care in pancreatic cancer, which has traditionally been a devastating disease.

The survival data that we've seen is twice as long as that of chemotherapy. We see potential for Rev Med to go into earlier lines of therapy in pancreatic cancer and expand into other indications like non-small cell lung cancer.

So we believe that this extraordinary advancement in medicine will translate into a large commercial opportunity. On the right-hand side, you can see the consensus achieves almost $8 billion by 2035. And finally, we really like the unique deal structure with $250 million upfront and additional funding tranched over time upon certain milestones.

Altogether, we're thrilled to pass the opportunity to partner with Rev Med. So I hope you all appreciated this look into a partnership that we believe serves as a template for future deals.

With that, I'll turn it back to Chris. Thank you.

Thank you, Brienne. Okay. I'm back. Just a few more slides for me. This is a funnel slide. Everybody loves the funnel slide, right? Last year, we looked at 440 opportunities, initial reviews; signed 153 CDAs, 99 in-depth reviews where we liked it enough to really dig in and do some work. And we did 8 deals for $2.8 billion. You can see the deals we did on the right. Busy year. $2.8 billion transactions, highly disciplined, highly selective, great transactions.

When I was last here at the last Analyst Day, we talked about inbound, outbound, okay? In-depth reviews is where we really like something that's worth spending the time. And in 2021, the in-depth reviews, we did 61 of them. And about 70% of those reviews were from outbound calls. So we picked up the phone, we called the potential partner, said, "Hey, we want to dig in here and potentially work with you."

Last year, we did about 100 in-depth reviews, flipped it on its head. The outbounds were 30%, and the inbounds were 70%, right? There's definitely a shift happening here. And people recognize the benefit of working with us reputationally, partnership-wise, bringing scale around capital, all of those things. That's really driven that sort of dynamic.

And I think, as Brienne mentioned, after the Revolution Medicine, where you're doing a $2 billion deal to help somebody fund their R&D program. Those inbounds have really ticked up since that.

A couple more slides really on where we sit within the industry itself and how it's grown. On the pie charts on the left, 2015 to 2019, the royalty funding mark was $13 billion, 57% share of that. It's more than doubled. 130% growth 5-year period ending last year, $31 billion market, 50% share. Pretty remarkable growth rate. And our shares are remarkable, too.

When you think of these large transactions, we have over 70% share of transactions greater than $0.5 billion. That is really exciting to us, and that really demonstrates our ability to put large amounts of capital at work at scale.

This is probably my favorite slide now, replaced the bubble slide from a couple of years ago. Repeat business. If we weren't a good partner, this slide will be blank. There wouldn't be repeat business on the slide.

So if you think about the transactions we've done, Biohaven, I mentioned them earlier, launching Nurtec, 4 transactions with them. Cytokinetics, 3 transactions with them. PTC, 3 transactions. Why? I think we're a pretty good partner. I mean, we listen. We really want a win-win solution. And I think people recognize that, and that's what leads to this slide.

Just drilling down on that one a little bit more. Of the $19 billion that we've announced since 2020, remember, $19 billion announced value, $14 billion actually deployed; 32% of that $19 billion is from repeat business, $6 billion. That's great for us, it's great for our partners, speed of execution, we know each other. They know we're going to transact with them. We're very transparent. It's a great partnership. It's great for our business, and it's great for the industry.

So this is my last slide, just summing it up again. There's big megatrends in the sector, okay? Innovation, fragmentation, large amounts of capital, that's all leading to a very large and growing royalty opportunity, both on existing royalties from the fragmentation and on the synthetic royalties from deals like Rev Med.

And because of the team here and our scale, we have really become the industry leader. We have been, and we continue to be, and we're super excited about that, especially around the large transactions.

So with that, I'm going to turn it over to George.

Will now kick off the first of two Q&A sessions. And now if I may ask the Royalty Pharma team to take a seat on the stage. Great. Great. So we're ready to kick off the Q&A session. [Operator Instructions] A question from Chris.

Chris Schott from JPMorgan. Just two for me. My first one is post the Rev Med deal, it seems like you're highlighting these large-scale, late-stage funding transactions as a large opportunity for royalty. I guess, can you just help us a little bit in terms of how to think about the risk and return profile of these type of transactions versus, let's just say, some of the launch spend finance transactions we've seen in the past?

And then my second one was on China. I know I asked about this in the past. But I'm just trying to get my hands around what do you think is kind of rapid expansion of the China biotech industry means for biopharma as a whole? And how Royalty participates in this?

I guess specifically, is this you're looking to kind of buy these royalty streams or these licensing deals once they are commercialized? Or is Royalty really trying to get involved with synthetic transactions and help some of these companies navigate kind of the global financing environment?

Sure. Thank you, Chris, for the question. And I'm going to ask Marshall to take the first question, but I'm going to quickly just give you some perspectives on China.

The way we see it, it's sort of early days, it's beginning. We've been paying attention to China for a decade and visited Chinese companies, Chinese VCs, universities a decade ago and have constantly gone back to meet with companies, develop relationships.

And that's what that, for example, to this transaction, we announced this year of $1 billion with BeOne, a Chinese company that has now become a global company. And we met the CEO a decade ago and developed a relationship, and that led to this great transaction.

But China is really interesting. The quality of research and the innovation that's taking place there is really incredible, accelerating. And the statistics are obvious. Last year, of all of the licensing deals that took place, about 1/3 of them involve a Chinese-originated product. So as a company, we need to be there, and we will be there.

But a couple of interesting things about China. One is that all of these Chinese companies, there's a few that are starting to become global companies like BeOne, a few others, but a lot of them are very local. And what happens is that they need partners outside of China to commercialize their products in the U.S. and Europe.

So that leads necessarily for them to do deals with Western companies so that they can get their products into the U.S. and into Europe and elsewhere. And that creates royalties. So from our perspective, what we're seeing is that many more of the products that are being developed in China will carry royalties.

The second thing is the capital needs, and it's much more difficult to finance companies into China, for many reasons. And capital being more scarce in China, there's definitely a role for us to play.

I also was having a conversation with one of our directors, and he said to me, also royalties have an advantage, it's not equity. And obviously, when you see equity, there's a lot of implications, even political issues that have been mentioned or that have arisen when you invest in equity in a Chinese company, be it a public investor or a company, but royalties are not equity.

So it might be even easier to bring capital to some of these companies, structuring things with an equity-based financing.

And then the last thing is that the Chinese opportunity is definitely important. And you will see, as time goes by, that we're going to be making a big effort to really be in that market and again, dominate that market.

And anyway, that's the answer to that. But Marshall, the question on Rev Med.

And Chris, thanks for that question, and tell me if I answered the question. So I think just kind of two messages there, I think, of the two parts of your question.

One is I think what we wanted to highlight is how the Rev Med transaction really illustrates our kind of created open-minded approach to continuing to find and expand the different ways that royalties can help fund companies, right?

And I think the scale, the structure of Rev Med is illustrative of that. So I think we're excited to find other companies to do that with and find other, new and different ways to structure and use royalties to creatively solve problems.

The second part of your question, I think, was about how we think about returns and a structure like that. And that's actually something about that deal, which I think is really interesting and a little bit underappreciated, which is it's built in such a way that we're committing capital to that company over a multiyear period, right?

But we're doing it in a way that uses the same principles of the return metrics in the same way we think about risk, reward and risk management of all the investments you've seen us make to date. So not to go through the whole structure, but conceptually, right, we made a $250 million upfront investment on the product that -- while the product is in Phase III right?

If you think about it, more capital becomes available to them when their first trial reads out positively, more capital when the product is approved, more when it's commercialized and then again, more when there's a major label expansion into the frontline, right?

Apologies, you'll hear that again from me in my talk here in a couple of minutes. But I think -- but the interesting thing about it is the additional royalty that becomes available is also available at subsequently lower cost of capital over time, right?

If you look at the deal, there's less royalty each time, right? So that's how -- and it all fits within the return hurdles that we've communicated and are committed to and so that's the concept of how we do that. And I think it's sort of we're uniquely able to do that because of our model.

One additional comment about that transaction is that you've seen us over decades innovate, always push to do new things and new ways of funding the ecosystem. What's so unique about that transaction is that it really showed how Royalty Pharma can become an alternative to a big pharma partnership. It had not been done before, the scale of the $2 billion, the stage of development of the product.

And what happened with this company is the relationship has been -- was built over time. But we had a meeting with the management team, we flew out to San Francisco essentially to -- because they were in the process of deciding whether they were going to go in the direction of a big pharma partnership or something different.

And the point we made to them in that meeting is you're at crossroads. If you do a big pharma partnership, it's going to take you in one direction. You'll have a big pharma partner with a lot of constraints, and you're going to lose a lot of the economics, probably 50% of the economics. You do a deal with us, and you're going to have complete operational flexibility, and you will also lose 7% of the economics. The royalty we have is 7%.

So I think what's so unique about that and when I look back at all of the things that we've done over the years, I put that as something that was really a game changer for us and a game changer for the industry because now companies know that if they need capital at scale, they can come to us and do a deal like that and gain those two great advantages, flexibility and more of the economics, and more of the upside for the shareholders.

Take next question from Terence.

Terence, on Morgan Stanley. Just one -- first one is probably for Chris. I agree that -- I like that repeat business slide. It's a great addition and shows the strength of the team and the relationships.

The one related question I had is just I know you've given this number in the past. But the percent of deals that are single party versus multiparty competitive processes, can you just give us an update on kind of where that stands? Because I think that also speaks to kind of a similar point you guys are trying to make there.

And then the second question I had is on the size of the royalty market. You said $6.2 billion today. If we look out at 2035, you gave us total industry revenues of $2 trillion. Where do you think the royalty market will be at that point if we look out in terms of percentage of that or dollars?

So the first question, I think you're referencing, Terence, the -- by the way, thanks for the questions. You're referencing that slide I think we had in our last Investor Day about sort of comparing pharma sale processes and the number of competitors.

We actually probably stopped tracking that probably 3 years ago, 2 years ago. I would say, the industry -- last year, we did -- we looked at 440 things, right? And the competitive tension, in my mind, hasn't really gotten greater. We -- of course, we -- there are competitors out there. But from the standpoint of relationships, what I really come back to is we have deep, deep industry relationships, and we have deep reputations that I think really benefit us.

And yes, I mean, some of the transactions, there's competitive tension, some are not. I'm not sure we've ever lost since I've been here a transaction that we wanted to win. But I think it really comes back to the team the reputation, the partnering reputation and the relationships that we have across the industry that, quite frankly, I think people do checks on us or we know them really well, and they want to work with us.

That's probably the best way to answer that question. And the second question was how big do I think that's going to be. I don't think we're giving -- I'm going to look at -- maybe Terry wants to take that. It's a financial guidance question.

We think much larger than it is now. But I don't think we can give specific numbers at this point. But it's growing, clearly. We're optimally positioned to maintain a leadership position. So we're really excited. I think that came across pretty clearly in Chris' section.

I think in the past, we had a statistic where we said if the market is 3% of this $300 billion and when you look at the funding that is needed over the next 5 years, which is probably $500 billion to $600 billion, biotech, and you put a number of 4%, 8% to that 400; you get to numbers of much bigger, right, double what it is today.

So I don't know if that might be a way to think about it. But obviously, synthetics will grow. And are they going to be 4% to 8%, maybe somewhere in that range? So it will probably double or be a bit more than double.