Royalty Pharma PLC, which recently listed on the Nasdaq after a $2.01 billion IPO, is seeking deals for pharmaceutical royalties in an industry eager to recover from the COVID-19 pandemic using outside funding.
New York-based Royalty Pharma quickly followed up the IPO by signing a major deal with PTC Therapeutics Inc. on July 20 for 43% of the royalty interest in risdiplam for a one-time payment of $650 million. Risdiplam is being developed to treat spinal muscular atrophy in a collaboration between PTC and Swiss pharmaceutical giant Roche Holding AG.
Royalty Pharma has also this year signed a deal worth $255 million to acquire rights to Bristol-Myers Squibb Co.'s blood cancer therapy Idhifa and another Aug. 7 with Biohaven Pharmaceutical Holding Co. Ltd. for $450 million for rights to two migraine drugs.
The COVID-19 pandemic has stalled drug development and sent companies looking for new ways to continue clinical research, said Karen Young, U.S. pharmaceutical and life science leader at professional services firm PwC.
"Funding key research and development and commercial activities are a high priority as companies across the pharmaceutical and life sciences industry look to emerge stronger from the COVID crisis," Young said.
While Young could not speak specifically to Royalty Pharma's potential deal-making, she said pharmaceutical companies are having to postpone clinical trials, re-prioritize R&D pipelines — even divest core assets or prioritize programs. This leaves an opening for a company like Royalty Pharma to swoop in with an innovative funding model for R&D.
"Royalty transactions have always been a focus in the pharmaceutical and life sciences industry," Young said. "However, with historically high levels of capital available, the search for yield has also led new investors to explore these opportunities."
An upsized offering
Royalty Pharma acquires biopharmaceutical royalties and funds clinical developments in the industry, as well as co-funding late-stage clinical studies and new product launches in exchange for future royalties. The company has deployed a total $18 billion to acquire biopharmaceutical royalties since being founded in 1996 by current CEO Pablo Legorreta.
The company went public in June in an upsized offering of 70,000,000 shares at $28 apiece. Now listed as RPRX on Nasdaq, the company raised $2.01 billion to become the largest IPO of 2020 to date. The company said the funds from the IPO would be used to acquire more royalties.
"We started to fund research of products in the hands of biotech companies, but once they get to phase 3 a lot more capital is required. At that moment, we come in and provide capital for them to launch the product," Legorreta said in a June interview with CNBC. "We take a risk, but if it's approved we have great success."
Since 2014, Royalty Pharma has acquired rights to 17 drugs — 11 of which are FDA-approved, while the remaining six are in the pre-approval stage. The list includes AbbVie Inc.'s Humira — the best selling drug in the world — and the company's leukemia drug Imbruvica. Royalty Pharma also has a stake in Gilead Sciences Inc.'s HIV franchise, which includes Descovy, Truvada and Genvoya.
The largest stake held by Royalty Pharma is in Vertex Pharmaceuticals Inc.'s cystic fibrosis franchise, which was a $3.3 billion acquisition in 2014. The franchise brought in $140 million for the first three months of 2020 and $422.6 million for all of 2019, according to Royalty Pharma's IPO prospectus.
Total income for all products for the first quarter was $462.8 million and $1.65 billion for full year 2019.
Just as AbbVie is maneuvering to replace sales dollars that are expected to be lost as Humira loses patent protection beginning in 2023, Royalty Pharma similarly needs to make new acquisitions to support long term growth. Moody's Investors Service estimated in January that the company's top three drugs make up about 50% of revenue, which is expected to continue in the near future.
"Given the recent and upcoming royalty terminations, the company's next phase of royalty acquisitions is critical to its long-term success," Moody's wrote. "The company focuses primarily on marketed products, but we anticipate a rising shift in investing in products still in development."
Moody's called the opportunity for royalty acquisitions abundant but did not predict where Royalty Pharma may strike next.
PwC's Young said royalty companies tend to seek diverse investments across the pharmaceutical life cycle, ranging from universities and biotechs to the biggest pharmaceutical companies.
"While deals to acquire royalties on approved drugs still appear to comprise the bulk of royalty transactions, there does seem to be a growing appetite for investing in late-stage, pre-approved drugs," Young said.
