Royalty Pharma Earnings: Vertex Dispute Brings Uncertainty to Near-Term Outlook

Narrow-moat Royalty Pharma reported second-quarter results in line with our expectations. However, we are lowering our fair value estimate to $47 from $52 due to heightened risks from the company’s ongoing royalty rate dispute with narrow-moat Vertex Pharmaceuticals over the new vanza triple drug. Vertex has submitted the new drug application to the US and EU regulators for review, with an expected regulatory action date of January 2025. This leaves both parties with limited time to reach a settlement. Despite the reduction to our fair value estimate, we still believe Royalty Pharma’s shares are significantly undervalued given the diversity and quality of its portfolio.