Royalty Pharma: High-Quality Portfolio Earns the Company a Narrow Moat; Shares Undervalued

We have launched coverage of Royalty Pharma, the largest buyer of biopharmaceutical royalties with a portfolio of more than 35 commercial products and 10 development-stage product candidates. The company makes lump-sum payments in exchange for future cash flows linked to those products’ sales revenue, which differentiates it from other biotech companies that are exposed to high research and development or manufacturing costs. We assign Royalty Pharma a fair value estimate of $52 per share. The stock is currently trading in 5-star territory, roughly 45% below our fair value estimate. We believe Royalty Pharma has a narrow economic moat thanks to its high-quality royalty portfolio with an average royalty duration of around 12 years.