On August 8, 2023 Royalty Pharma plc (Nasdaq: RPRX) reported financial results for the second quarter of 2023 and raised full-year 2023 guidance for Adjusted Cash Receipts(1) (a non-GAAP financial measure) (Press release, Royalty Pharma , AUG 8, 2023, View Source [SID1234633991]).
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"We reported another quarter of strong financial performance as we continued to execute on our strategy," said Pablo Legorreta, Royalty Pharma’s founder and Chief Executive Officer. "We remain very confident in our outlook based on our growth drivers, broad portfolio and robust deal pipeline. This year, we have already announced transactions of up to $1.7 billion, taking our total to $10 billion since our June 2020 IPO. This underscores our strong momentum in scaling the business and further cements our leadership position in the biopharma royalty market. Furthermore, as part of our balanced capital allocation strategy, we began repurchasing our Class A ordinary shares under our share repurchase program, which reflects our attractive prospects for compounding growth."
Second quarter 2023 GAAP financial results demonstrate solid operating cash flow growth
Net cash provided by operating activities grew 6% to $608 million; Net cash used in investing activities was $63 million; Net cash used in financing activities was $347 million.
Total income and other revenues were $538 million.
Second quarter 2023 non-GAAP financial results show continued business momentum
Adjusted Cash Receipts(1) increased 4% to $545 million, driven by strong portfolio performance and new royalties, partially offset by royalty expirations, Imbruvica headwinds and unfavorable foreign exchange movements; Adjusted Cash Receipts(1) grew 7% prior to the Biohaven related fixed payment received in the prior year period.
Adjusted EBITDA(2) grew 4% to $498 million; Adjusted Cash Flow(3) increased 6% to $512 million.
Positive business updates during the second quarter 2023
Johnson & Johnson reported positive Phase 3 results for Tremfya in ulcerative colitis; Gilead announced approval of Trodelvy in pre-treated HR+/HER2- metastatic breast cancer in Europe.
Purchased incremental royalty on Johnson & Johnson’s Erleada.
Increasing mid-point of financial guidance range for 2023 (excludes contributions from new transactions)
Royalty Pharma now anticipates 2023 Adjusted Cash Receipts(1) (non-GAAP) to be between $2,900 million and $2,975 million (previously $2,850 million to $2,950 million), excluding future transactions.
This guidance represents underlying growth of 6%(4) to 10%(4) prior to the Zavzpret milestone payment in 2023 and payments related to the Biohaven Preferred Shares in 2022.
Financial Summary Three Months Ended June 30,
(unaudited)
($ and shares in millions) 2023 2022 Change
Net cash provided by operating activities (GAAP) 608 575 6%
Net cash used in investing activities (GAAP) (63) (30) 110%
Net cash used in financing activities (GAAP) (347) (228) 52%
Total income and other revenues (GAAP) 538 536 0%
Adjusted Cash Receipts(1) (non-GAAP) 545 524 4%
Adjusted EBITDA(2) (non-GAAP) 498 480 4%
Adjusted Cash Flow(3) (non-GAAP) 512 482 6%
Weighted average Class A ordinary shares outstanding – diluted 606 607 0%
Second Quarter 2023 Financial Results
Three Months Ended June 30,
(unaudited)
($ in millions) 2023 2022 Change
Net cash provided by operating activities (GAAP) 608 575 6%
Royalties: Marketers: Therapeutic Area:
Cystic fibrosis franchise Vertex Rare disease 206 182 13%
Tysabri Biogen Neurology 84 93 (9)%
Imbruvica AbbVie, J&J Cancer 63 80 (22)%
Xtandi Pfizer, Astellas Cancer 40 52 (22)%
Promacta Novartis Hematology 39 35 12%
Trelegy GSK Respiratory 37 — n/a
Tremfya Johnson & Johnson Immunology 22 18 21%
Cabometyx/Cometriq Exelixis, Ipsen, Takeda Cancer 15 13 18%
Prevymis Merck & Co. Infectious disease 14 10 38%
Evrysdi Roche Rare disease 13 8 60%
Spinraza Biogen Neurology 13 — n/a
Farxiga/Onglyza AstraZeneca Diabetes 10 11 (10)%
Trodelvy Gilead Cancer 9 6 52%
Erleada Johnson & Johnson Cancer 7 5 37%
Orladeyo BioCryst Rare disease 7 5 38%
Crysvita Ultragenyx, Kyowa Kirin Rare disease 5 5 5%
Emgality Lilly Neurology 4 4 0%
Nurtec ODT/Biohaven payment* Pfizer Neurology 4 19 (78)%
Other products(5) 45 86 (48)%
Total royalty receipts 637 633 1%
Distributions to legacy non-controlling interests – royalty receipts (92) (109) (15)%
Adjusted Cash Receipts(1) (non-GAAP) 545 524 4%
Amounts shown in the table may not add due to rounding.
* In 2022, royalty receipts include the $16 million quarterly redemption payment related to the Series A Biohaven Preferred Shares(6) (presented as Proceeds from available for sale debt securities on the statement of cash flows). The Series A Biohaven Preferred Shares were fully redeemed in October 2022 following Pfizer’s acquisition of Biohaven. The remaining amounts, which relate to ongoing royalty receipts from Nurtec ODT, increased by 35% in second-quarter 2023 versus the prior year period.
Net cash provided by operating activities (GAAP) was $608 million in the second quarter of 2023, an increase of 6% compared to $575 million in the same period of 2022. The increase was largely attributable to the performance of the cystic fibrosis franchise and the additions of Trelegy and Spinraza royalties. The increase was partially offset by lower cash collections from Januvia, Janumet and other DPP-IVs, which substantially ended in the second quarter of 2022, and declines in Imbruvica and Xtandi royalties, the latter of which faced a high base of comparison due to a true-up of royalties received in the prior year period.
Total royalty receipts were $637 million in the second quarter of 2023, an increase of 1% compared to $633 million in the same period of 2022. The drivers of the increase in total royalty receipts are the same as noted above for Net cash provided by operating activities.
Drivers of total royalty receipts in the second quarter of 2023 are discussed below, based on commentary from the marketers of the products underlying the royalties in the preceding quarter (as royalty receipts generally lag product performance by one calendar quarter). The section below excludes comments from marketers on the impact of foreign exchange rates, which was generally a modest headwind across the portfolio. Refer to Table 6 for a description of approved indications.
Cystic fibrosis franchise* ($206 million, +13%) Driven by the strong uptake of Kaftrio outside the United States, including its uptake in children ages 6 through 11, and the continued performance of Trikafta in the U.S.
Tysabri ($84 million, -9%) Decrease largely driven by pricing pressure, competition and channel dynamics.
Imbruvica ($63 million, -22%) Performance was impacted by increased competition and the cumulative impact of a suppressed chronic lymphocytic leukemia market.
Xtandi ($40 million, -22%) Decrease driven by a high base of comparison from a true-up of royalties received in the second quarter of 2022, which negatively impacted year-over-year growth by 29%. Xtandi continued to maintain strong sales performance in markets outside the U.S.
Promacta ($39 million, +12%) Driven by increased use in chronic immune thrombocytopenia purpura and as a first- and/or second-line treatment for severe aplastic anemia.
Trelegy ($37 million, n/a) Benefited from increased patient demand globally and growth of the single inhaler triple therapy market. Royalty Pharma acquired a royalty interest in Trelegy in July 2022 and began receiving royalty receipts in the third quarter of 2022.
Tremfya ($22 million, +21%) Driven by market growth and market share gains in psoriasis and psoriatic arthritis, partially offset by unfavorable patient mix.
Cabometyx / Cometriq ($15 million, +18%) Increase primarily due to uptake in combination with Opdivo as a first-line treatment for patients with advanced renal cell carcinoma.
Evrysdi ($13 million, +60%) Experienced strong growth globally, driven by switch and treatment naive patient starts in the U.S. and share gains in all major markets outside the U.S.
Spinraza ($13 million, n/a) Increase primarily driven by growth outside the U.S., offset by fewer new patient starts and channel dynamics in the U.S. Royalty Pharma acquired the Spinraza royalty in the first quarter of 2023.
Trodelvy ($9 million, +52%) Driven by increased adoption in metastatic triple-negative breast cancer
in the U.S. and Europe, as well as the launch of the indication for pretreated HR+/HER2- metastatic breast cancer in the U.S.
Orladeyo ($7 million, +38%) Driven by strong new patient growth in the U.S. and an acceleration in the launch of Orladeyo outside the U.S.
Nurtec ODT/Biohaven payment ($4 million, -78%) Impacted by prior year comparisons as Royalty Pharma no longer receives Series A Preferred Shares redemption payments following Pfizer’s acquisition of Biohaven in the fourth quarter 2022. Underlying Nurtec ODT royalties increased $1 million, or 35%, compared to the prior year period, driven by strong growth in demand.
Percentages shown represent year-over-year changes.
*Includes Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.
Distributions to legacy non-controlling interests – royalty receipts, which reduce royalty receipts to arrive at Adjusted Cash Receipts(1), were $92 million in the second quarter of 2023, a decrease of 15% compared to the same period of 2022. The decrease was largely due to reduced royalties from maturing or expired products, such as Januvia, Janumet and other DPP-IVs, where the percentage of royalties attributed to non-controlling interests is higher. As a percentage of total royalty receipts, distributions to legacy non-controlling interests – royalty receipts decreased to 15% in the second quarter of 2023, compared to 17% in the prior year period. In addition to reduced royalties from maturing or expired products, the decrease as a percentage of total royalty receipts was also driven by the additions of Trelegy and Spinraza, which have no distributions to legacy non-controlling interests.
Adjusted Cash Receipts(1) (non-GAAP) were $545 million in the second quarter of 2023, an increase of 4% compared to $524 million for the same period of 2022, reflecting higher royalty receipts from existing products, including the cystic fibrosis franchise, the additions of Trelegy and Spinraza and a decrease in distributions to legacy non-controlling interests. This increase was partially offset by a decline in royalty receipts from maturing royalties, lower royalties on Imbruvica and Xtandi, the end of redemption payment related to the Biohaven Series A Preferred Shares, as well as from unfavorable foreign exchange movements. Prior to the Biohaven related redemption payment in the second quarter of 2022, Adjusted Cash Receipts(1) growth was 7% in the second quarter of 2023 compared to the prior year period.
Adjusted EBITDA(2) (non-GAAP) is comprised of Adjusted Cash Receipts(1) less payments for operating and professional costs. Adjusted EBITDA(2) was $498 million in the second quarter of 2023, an increase of 4% compared to Adjusted EBITDA(2) of $480 million in the second quarter of 2022, and was largely attributable to growth in Adjusted Cash Receipts(1). Additionally, payments for operating and professional costs of $47 million (representing 9% of Adjusted Cash Receipts(1)) in the second quarter of 2023 increased by 7% compared to the $44 million reported in the same period of 2022 (representing 8% of Adjusted Cash Receipts(1)). Prior to the Biohaven related redemption payment in the second quarter of 2022, Adjusted EBITDA(2) growth was 6% in the second quarter of 2023 compared to the year ago period.
Adjusted Cash Flow(3) (non-GAAP) is comprised of Adjusted EBITDA(2) less Development-stage funding payments – ongoing, Development-stage funding payments – upfront and milestone, net interest received and miscellaneous other items. In the second quarter of 2023, Adjusted Cash Flow(3) was $512 million, a 6% increase compared to $482 million for the same period of 2022. The increase in Adjusted Cash Flow(3) was primarily due to growth in Adjusted EBITDA(2) and higher net interest received. Prior to the Biohaven related redemption payment in the second quarter of 2022, Adjusted Cash Flow(3) growth was 9% in the second quarter of 2023 compared to the prior year period.
A more comprehensive discussion of the non-GAAP measures utilized by Royalty Pharma to manage its business can be found in the section of this press release entitled ‘Use of Non-GAAP Measures’.
Key Developments Relating to the Portfolio
The key developments related to Royalty Pharma’s royalty interests are discussed below based on disclosures from the marketers of the products.
Trodelvy In July 2023, Gilead announced the European Commission approved Trodelvy as a monotherapy for the treatment of adult patients with unresectable or metastatic hormone receptor (HR)-positive, HER2-negative breast cancer.
Cystic fibrosis franchise In July 2023, Vertex announced the European Commission approved the label extension of Orkambi for the treatment of children with cystic fibrosis ages 1 to less than 2 years old.
In May 2023, Vertex announced the U.S. Food and Drug Administration ("FDA") approved Kalydeco for use in children with cystic fibrosis ages 1 month to less than 4 months old.
In April 2023, Vertex announced the FDA approved the expanded use of Trikafta to include children with cystic fibrosis ages 2 through 5 years.
Xtandi In June 2023, Pfizer announced the FDA approved Talzenna in combination with Xtandi for the treatment of adult patients with homologous recombination repair gene-mutated metastatic castration-resistant prostate cancer.
In April 2023, Pfizer and Astellas announced that Xtandi plus leuprolide significantly reduced the risk of metastasis or death by 58% versus placebo plus leuprolide, as assessed by the primary endpoint of metastasis-free survival in men with non-metastatic hormone-sensitive prostate cancer. A positive trend in the key secondary endpoint of overall survival was also observed in the Xtandi combination arm at the time of the analysis, but these data were not yet mature. Patients in the trial will be followed for a subsequent final overall survival analysis.
Tremfya In May 2023, Johnson & Johnson announced positive results from the Phase 3 QUASAR Induction Study evaluating the investigational use of Tremfya in adults with moderately to severely active ulcerative colitis who had an inadequate response or intolerance to conventional and/or advanced therapies. The data showed statistically significant and clinically meaningful improvements across symptomatic and histo-endoscopic outcome measures, as well as a greater proportion of patients treated with Tremfya compared to placebo achieved clinical remission at week 12, the study’s primary endpoint.
Summary of Recent Royalty Acquisition Activity
Royalty Pharma has announced new transactions of up to $1.7 billion year-to-date, including $659 million in upfront payments. Recent transactions include:
In June 2023, Royalty Pharma acquired an incremental royalty interest in Erleada from the Regents of the University of California.
Liquidity and Capital Resources
As of June 30, 2023, Royalty Pharma had cash and cash equivalents of $2.2 billion and total debt with principal value of $7.3 billion.
During the second quarter of 2023, Royalty Pharma began repurchasing its Class A ordinary shares and repurchased approximately four million shares for $134 million. Through August 7, 2023, Royalty Pharma has repurchased approximately six million shares for $185 million. The weighted-average diluted Class A ordinary shares outstanding for the second quarter of 2023 was 606 million as compared to 607 million for the first quarter of 2023.
2023 Financial Outlook
Royalty Pharma has provided its guidance for full year 2023, excluding transactions announced after the date of this release, as follows:
Provided August 8, 2023 Previous
Adjusted Cash Receipts(1) (non-GAAP) $2,900 million to $2,975 million $2,850 million to $2,950 million
Payments for operating and professional costs 8.0% to 8.5% of Adjusted Cash Receipts(1) 8% to 9% of Adjusted Cash Receipts(1)
Interest paid $170 million $170 million
Development-stage funding payments – upfront and milestone $50 million $50 million
This Adjusted Cash Receipts(1) guidance represents underlying growth of 6%(4) to 10%(4) prior to the Zavzpret milestone payment in the first quarter of 2023 and the payments related to the Biohaven Preferred Shares received in 2022.
Additionally, this guidance reflects an estimated foreign exchange impact of approximately -1%(10) to -2%(10) for full year 2023 Adjusted Cash Receipts(1) growth, assuming current foreign exchange rates prevail for 2023.
Total interest paid is based on the semi-annual interest payment schedule of Royalty Pharma’s existing notes and is anticipated to be approximately $170 million in 2023. Interest paid is anticipated to be approximately $85 million in the third quarter of 2023 with a de minimis amount recorded in the fourth quarter. The projection assumes no incremental debt financing in 2023. Through the first six months of 2023, Royalty Pharma also received interest of $35 million on its cash and cash equivalents, which partially offset interest paid.
Royalty Pharma today provides this guidance based on its most up-to-date view on its prospects. This guidance assumes no major unforeseen adverse events and excludes the contributions from transactions announced subsequent to the date of this press release. Furthermore, Royalty Pharma may amend its guidance in the event it engages in new royalty transactions which have a material near-term financial impact on the company.
Royalty Pharma has not reconciled its non-GAAP 2023 guidance to the most directly comparable GAAP measure, net cash provided by operating activities, at this time due to the inherent difficulty in accurately forecasting and quantifying certain amounts that are necessary for such reconciliation, including, primarily, payments for operating and professional costs, distributions from equity method investees and interest received. Royalty Pharma is not able to forecast on a GAAP basis with reasonable certainty all adjustments needed in order to project net cash provided by operating activities at this time.
Financial Results Call
Royalty Pharma will host a conference call and simultaneous webcast to discuss its second quarter 2023 results today at 8:00 a.m., Eastern Time. Please visit the "Investors" page of the company’s website at View Source to obtain conference call information and to view the live webcast. A replay of the conference call and webcast will be archived on the company’s website for at least 30 days.