Royalty Pharma PLC

Royalty Pharma PLC (NASDAQ: RPRX) is a buyer of biopharmaceutical royalties and a funder of innovation across the biopharmaceutical industry. The Company collaborate with innovators from academic institutions, research hospitals and not-for-profits through small and mid-cap biotechnology companies to global pharmaceutical companies.

RPRX Details

Latest News

• Announced a USD450 million expanding partnership with Cytokinetics underpinned by a royalty on Aficamten, a novel therapy in Phase 3 development for hypertrophic cardiomyopathy.
• In January 2022, Vertex announced that the EC granted approval for the label expansion of Kaftrio in a combination regimen with ivacaftor for the treatment of cystic fibrosis in children ages 6 through 11 years old who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator gene.

Key Takeaways from Q1 FY22 financial results

• In the first quarter of 2022, total royalties collected increased by 9% to USD711 million from USD649 million during the corresponding period in 2021. Tysabri's success as a cystic fibrosis treatment and the acquisition of additional royalties were primarily responsible for the rise. A decrease in royalties from the HIV franchise, whose period for royalties ended in 2021, somewhat offset the rise.
• Strong growth in Adjusted Cash Receipts helped to deliver a 15% increase in Adjusted EBITDA to USD556 million.
• This reflects an update to the treatment of certain development-stage funding payments in Royalty Pharma's non-GAAP measures to align with similar updates being applied by the biopharma industry. Adjusted Cash Flow decreased 10% to USD367 million, impacted primarily by USD100 million in payments related to Aficamten.

Key Risk

• Foreign Exchange Risk: They are subject to interest rate volatility if they borrow money through the revolving credit facility, invest in money market accounts, or purchase marketable assets, the majority of which have variable interest rates.
• High Leverage: The main amount of RPRX's long-term debt is USD 7.1 billion. A rise in interest rates may thus result in increased interest payments to creditors. Due to the size of the principal, even a minor adjustment in the interest rate might have a big impact on the results.

Outlook

• Adjusted Cash Receipts are still anticipated to be in the USD2.225 billion to USD2.3 billion range, up between 5 and 8 percent over the USD2.1 billion the business generated in 2021.
• Moving on to operational expenses, the business continues to forecast that it will represent around 9% of adjusted cash receipts in 2022.
• As a result of the net interest related to the bond issuance in July 2021, the net interest paid for the entire year of 2022 is still anticipated to be in the range of USD170 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

Source: REFINTIV, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past three months, RPRX's share price has improved by 4.51%. The stock is currently leaning towards the upper end of its 52-week range of USD 34.86 to USD 44.75. The current price is between the short-term (50-day) SMA and long-term (200-day) SMA with an RSI of 51.66. We have valued the stock using the EV/EBITDA multiple-based relative valuation method and arrived at a target price of USD 47.03. We believe that the company is trading at a high premium from its peer's average considering strong fundamentals, and higher profit margins compared to the industry median giving bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, associated risks, positive outlook, and current valuation, we give a "Hold" recommendation on the stock at the current price of USD 40.30, up 0.47% as of June 22, 2022, as of 07:20 AM PDT.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

1- Year Technical Chart, as of June 22, 2022, at 07:20 AM PDT. Data Source: REFINITIV, Analysis by Kalkine Group