Company Reports

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.

Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. 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 R&D and/or manufacturing costs. Its uniqueness also lies in the diversity of royalties across different therapeutic areas. This stands in contrast to a typical biotech firm’s focus on developing specialized therapies targeting certain diseases.

Narrow-moat Royalty Pharma’s first-quarter results were in line with our expectations. We are leaving our $52 fair value estimate unchanged and continue to believe the market is undervaluing Royalty Pharma’s high-quality drug portfolio. With the recent addition of frexalimab (for relapsing multiple sclerosis), the company’s development-stage product pipeline looks increasingly attractive to us, which should support a high-single-digit annualized growth rate for its portfolio receipts over the next decade.

Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. 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 R&D and/or manufacturing costs. Its uniqueness also lies in the diversity of royalties across different therapeutic areas. This stands in contrast to a typical biotech firm’s focus on developing specialized therapies targeting certain diseases.

Narrow-moat Royalty Pharma reported fourth-quarter earnings slightly above our expectations. We maintain our fair value estimate of $52 per share after updating our drug sales forecasts. Our capital deployment projection of $2.6 billion annually between 2024 and 2028 remains intact, and we continue to think the market is underappreciating Royalty Pharma's diverse portfolio that is resilient to headwinds certain portfolio drugs might face. After the Feb. 15 3% rally, the stock is still trading in 5-star territory.

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.

Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. 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 R&D and/or manufacturing costs. Its uniqueness also lies in the diversity of royalties across different therapeutic areas. This stands in contrast to a typical biotech firm’s focus on developing specialized therapies targeting certain diseases.