Royalty Pharma PLC

RPRX Details

Royalty Pharma PLC (NASDAQ: RPRX) is the primary purchaser of biopharmaceutical royalties and a key supporter of biopharmaceutical innovation. Its current portfolio includes royalties on more than 45 approved commercial products and five product candidates in the development stage. The company generates revenue through financial royalty assets, intangible royalty assets, and other royalty income.

Latest News:

• Funding Agreements: On January 7, 2022, RPRX announced that it had extended capital of approx. USD 450 million to Cytokinetics, a late-stage biopharmaceutical company, to support the potential commercialization of Omecamtiv Mecarbil, an investigational, selective, small molecule cardiac myosin activator, as well as the further development of Aficamten, an investigational small molecule cardiac myosin inhibitor under investigation for hypertrophic cardiomyopathy and granted Breakthrough Therapy Designation by the US FDA. RPRX purchases royalties on future Aficamten sales.

Q3FY21 Results:

• Growth in Topline: Total revenues climbed by 8.80% in Q3FY21 (ended September 30, 2021) to USD 585.77 million from USD 538.40 million in Q3FY20, driven by the performance of the cystic fibrosis franchise.
• Fall in Net Income: The company's consolidated net income declined to USD 221.80 million in Q3FY21 from USD 624.25 million in Q3FY20, due to an increase in operating expenses.
• Cash and Debt Position: As of September 30, 2021, the company had cash and cash equivalents (including marketable securities and financial royalty assets) of USD 2.69 billion with a total debt of USD 7.09 billion.

Key Risks:

• Customer Concentration Risk: Vertex makes up the most significant balance of its current component of Financial royalty assets, as of September 30, 2021, and December 31, 2020, accounting for 32% and 27%, respectively, as the marketer and payor of its royalties on the cystic fibrosis franchise. As a result, if a company relies too heavily on a few clients, its long-term financial health may suffer.
• Foreign Exchange Risk: As the company's functional and reporting currency is the US dollar, certain products pay royalties in currencies other than US dollars, introducing foreign currency risk. It may regularly use non-deliverable forward exchange contracts to control foreign currency exchange risk. However, it currently does not have any foreign exchange contracts in place.

Outlook:

• FY21 Estimates: As of November 10, 2021, RPRX anticipates that operational and professional expenses payments will be about 9% of Adjusted Cash Receipts in 2021. It also predicts that interest paid in FY21 will be around USD 130 million. 

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

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

Stock Recommendation:

RPRX' share price has risen only 11.91% in the past six months. It is currently leaning towards the mid-band of its 52-week range of USD 34.86 to USD 50.17. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 49.18.

Considering the company's proven track record, market dominance in the biopharmaceutical royalty industry, current valuation, and bottomline stress, we recommend a "Hold" rating on the stock at the current price of USD 41.09, up 1.31% as of February 02, 2022, at 2:35 PM ET.

Three-Year Technical Price Chart (as of February 02, 2022; at 2:35 PM ET). Analysis by Kalkine Group 

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.