Good morning once again. We'd like to welcome Royalty Pharma to the Cowen Conference. We're delighted to have them with us. Representing the company are three members of management, Terrance Coyne, who is Executive Vice President and Chief Financial Officer, Christopher Hite, who is Executive Vice President and Vice Chairman, and Marshall Urist, who is Executive Vice President and Head of Research and Investments. Thank you so much for being with us. We'd like to start out with kind of a big picture question, and that is that in the past, and I think it was specifically at your analyst meeting, a little less than a year ago, I guess it was, that you noted that, while you remain therapeutic area and modality agnostic, you see particularly large opportunities in a few areas. We're just wondering how things have evolved over time, because we've seen some good data, bad data in probably all of these indications. First was under-innovated large markets. Second was new modalities for existing diseases. Third was brain diseases, and fourth was targeted therapy beyond oncology. Maybe you could tell us how your thoughts have evolved and maybe give us an example in each. Sure, Steve. Thanks, and good morning, everyone. Thanks for having us. I can start on that. I think to just put a point on it, I think when we talked about that, the goal there was to talk about thematically some big picture things that we think are interesting. Our core investment strategy remains the same, which is, you know, we're gonna look for the most exciting, meaningful opportunities that we're seeing. Those kinds of themes guide our thinking, but are not a kind of top-down approach to how we're looking at the portfolio or looking at the new opportunities at any point in time. Maybe to get back to the core of it, I think some of those themes and examples, you know, under-innovated large markets is an interesting one. You know, their big picture for everyone is that, you know, there are markets where there's tons of volume, but have seen relatively few that are, you know, typically dominated a lot by generics and, you know, where there are relatively few new branded drugs. An example, you know, examples there historically are investment. We just, you know, Pfizer just finished, but with Biohaven, there was a great example of migraine which hadn't seen new mechanisms in decades. You know, you launch a new drug with the right strategy into that space, and they can do well. We made couple of interesting investments over the last few months in a new cardiovascular target called Lp(a). Another area in cardiovascular disease where it's been all LDL basically for as long as anyone can remember. That's a new next generation target there. We think those are good, you know, interesting themes. We talked about targeted therapy outside of oncology. We've had a great partnership with Cytokinetics over the years. You know, their program in hypertrophic cardiomyopathy is a good example there as well, where you're bringing sort of genetically informed treatment strategies to new areas that are not cancer. You know, lots to talk about, but that's a few, you know, a couple of examples there. Within the under-innovated, large markets, we kind of have seen, assets, for hypertension kind of poking their heads out after 20 years. Are you seeing that as well? I mean, is this, the next big area for innovation, or is this just kind of a random thing that is unlikely to develop intent? You know, as we've all seen, there's been, you know, more development in that space, you know, M&A in that space. Yeah, at a high level, that's another good example, right? A space where, you know, there's lots and lots of generics and no new targets, and you're seeing, you know, you're seeing companies invest and come back to those areas. That's another, that's another example, certainly. You mentioned Lp(a) as something you've invested in and something that holds great promise. It also obviously harbors great risk, right? Because we know it's a risk factor, but that doesn't always mean it'll translate into a drug. How did you become comfortable with the risk profile here? Sure. Just two comments there. I think the first is that, you know, when we look at the investments that we've made there in the context of the breadth of and depth of Royalty Pharma's portfolio, both today and as we continue to diversify and build the portfolio, that having a place there for, you know, things like Lp(a), which have, you know, tremendous upside and a really solid underpinning from a data perspective, certainly have an important place in our portfolio. At a high level, I think, you know, there's a lot of different pieces, if you think about the spectrum there that supports that target. You know, at the most basic level, when you look at what Lp(a) is, the very, you know, biggest component of Lp(a) is actually LDL, which we all know is a validated target. You're, you know, when you're showing very meaningful reductions in Lp(a), so you're very much adjacent, you know, you're in a neighborhood very close to a, you know, one of the best validated targets in cardiovascular disease. Beyond that, there's obviously very, very deep work on, you know, on the genetics of Lp(a), population-based work about, you know, very clearly associating, you know, Lp(a) with lifetime risk of cardiovascular disease. I think there's a lot of different pieces. You're right, the outcome studies are being run for a reason, and they're gonna validate the target. By the way, if there are questions in the audience as we go along, please just raise your hand. There's probably, I think, at least four late-stage Lp(a) programs in development. Was this the kind of thing where you looked at each and went with pelacarsen, or was this the one that was available and you considered them all kind of the same, so this was a good way to invest? I, you know, I think at a high level, I think the interesting thing is or what's happened with Lp(a) in our portfolio highlights, I think a really, you know, unique part of the Royalty Pharma model, which is, you know, we've made the two investments in the two leading programs for Lp(a) with pelacarsen that you just mentioned from Novartis, and then we bought a royalty on Amgen's olpasiran from Arrowhead, you know, in the second half of last year. There, I think it's pretty unique as a company that we're able to identify an interesting area like that and have multiple products in the same class. We've done that historically in prostate cancer, in migraine, in TNS historically. Lots of different areas. I think we saw it as a really great opportunity to have the two leaders, by far the two leaders in this space. You know, as we've all seen, I think, you know, having two is, you know, sometime much better than one when you have two big companies investing in developing a new market. I think the, you know, having more than one is, you know, can be really important to actually driving that market globally. Brain diseases is still on the list of areas you target, even though, your most recent investment here, didn't work out ideally. Is it still an area that you think holds promise? Yeah. I mean, look, you know, there is a lot of opportunity there when you think about the diseases that are out there where, you know, there is, you know, really fundamental unmet need, not actually a limited amount of innovation in certain pockets of that space. You know, that's another area which, you know, we're looking at opportunities there alongside, you know, alongside the rest of the portfolio. In addition to your investment in gantenerumab, you also had exposure to their Brainshuttle concept. The Brainshuttle concept continues on at Roche- Mm-hmm. in their MS program, I believe it is. Do you have any economic tie to that because it's still Brainshuttle or don't you? What was your analysis of the Brainshuttle technology itself? We have exposure to the Brainshuttle gantenerumab, which continues in, you know, continues, I think it's in a Phase 2 trial at Roche today. Yes, we have a royalty on that. Again, you know, when we made that investment, it was very early in development. I think we thought, as I'm sure you know, a lot of people do, it's very cool technology. You know, we're seeing it get validated. Seeing the general approach get validated in some other orphan diseases. You know, we'll have to see, right? You know, I think a little more to wait before we see what the sorta, you know, balance to safety and efficacy is for that approach. I was actually unaware that the gantenerumab Brainshuttle was still in Phase 2. Okay. That's interesting. We'll follow up this afternoon with them. Mm-hmm. Maybe it's tomorrow. These are the areas where you're perhaps most intrigued, but that implies that in any bell curve, there's another side to it, right? There must be some areas where you're less intrigued. I know that you're intrigued in all areas, but we still have a bell curve, and there's still some that you're less intrigued by. Tell us about some of those and why you're less intrigued? Chris, you wanna go there? Yeah, keep going. Yeah. You're doing a great job. So Steve, you know, I'm probably not gonna answer your question directly in the sense that, you know, we very much are a case-by-case approach and, you know, don't wanna be caught by our, you know, preexisting biases. We've all, you know, as a team, we've been together for a long time. You know, we've seen a lot. We really try to have discipline to come to things with an open mind, right. I think we've certainly, you know, seen. You know, I think we have a good sort of debate, a culture of sort of debate and discussion where our views on things can evolve over time. We've put things down, you know, picked them back up multiple times. You know, as the facts change and as the, you know, as the sort of, you know, as the industry changes around them or competitors change, we always wanna be able to go back and, you know, really be able to have that open mind. I think that's, you know, that's an important thing. The honest answer to your question is, you know, we're not a, "I would never, ever do XYZ" kind of place. You know, if it makes sense, we'll look into it, and we try to be open-minded. We have a sort of a saying that nothing ever dies at Royalty Pharma. You know, to Marshall's point, it could seem uninteresting, couple months later, something new happens, we reengage, transactions happen that way all the time. That's kind of the sort of nimble aspect of our business. The only thing I would add to that is it's tough to make investments if the end market is very small. Because what we don't want to do is overburden the product with a royalty, to get a return. You know, smallish products, those are tougher to do regardless of, you know, therapeutic area. That touches upon another question, and that is from the perspective of the royalty seller, so obviously not Royalty Pharma, but from the royalty seller, what factors make a program or an asset a good candidate to sell a royalty? You just answered part of the question. Small products do not make good candidates. What other features, if you're a royalty seller, would you say, "Wow, there's one. That's a great candidate"? I think about that question from a standpoint of if you're the CFO charged with raising enough capital to achieve the goals of the company, you're thinking about equity, you're thinking about convertible bonds. I think over the last five years, you know, structured financing through royalty deals is clearly another viable alternative that more and more CFOs and CEOs and boards are. Getting exposure to and understanding. What they're really understanding is that the cost of capital associated with the synthetic royalty is much more attractive if you truly believe in the equity of your company, that we offer a very attractive cost of capital. In large part because when we invest, we're assuming success. We're taking, you know, if it's development risk, regulatory risk, commercial risk, we're assuming a level of success of that program, whereas the equity market, in large part, is always putting a POS on clinical, regulatory, maybe shorting the launch, whatever the case may be. You know, for a lot of reasons, our cost of capital that we can provide our partners is just much more attractive. We're risk-sharing along with them. You know, we're betting on long-dated risk around the product performing, and that's to a lot of boards, that's very attractive. They want a partner that's willing to share that risk. Questions from the audience? Yes. For your own cost of capital to also gone up with rates going up. I think in one of your letters you mentioned that you expect that to be offset with better valuations so on. Can you flesh that out a little bit? Kind of your own changing cost of capital, has that impacted maybe the areas that you focus on, or is it just the deal structures, or how has that impacted your business? Do you mind paraphrasing the question, for the purpose of? Yeah. Yeah, do you wanna do that, Terry? Yeah. Sure, I can have a shot at that. Yeah. The question was how the change in our cost of capital has impacted deal terms and the structures and where we're looking to invest. Is that correct? Yeah. It's obviously the markets are dynamic, right? Our cost of capital has certainly gone up a little bit. We're very fortunate, though, that all of our debt is fixed rate, 60% of it matures in 2030 and beyond, and we're very well capitalized. We generate a lot of cash and have a lot of cash on our balance sheet. We're in a very strong financial position. We did say, though, that we would expect that sort of since we're constantly reinvesting, that there would be some sort of natural offset as our cost of capital increases, that sort of the risk-adjusted returns that we're looking at would also increase a little bit. I think we have seen that. We have felt like that is happening. If you sort of think about some of the assets that we've been able to add to the portfolio, I think Evrysdi is a great example, where that was a company that, you know, was thinking about they had capital needs for their own internal programs. In a different environment, we might not have been able to buy that royalty from them. I think that the environment does create, you know, certain opportunities for us, and that's where that sort of risk-adjusted return offset is where we're seeing that. Maybe just to add to that, for folks that maybe don't know us as well, you know, we were an investment grade rated company, which is highly unusual for a lot of companies in the sector, but we're investment grade rated when we did a lot of our debt, you know, was at the low points in the treasury bond market in the summer of 2020. You know, we as Terry said, our weighted average cost of our debt across $7 billion roughly, with 30-year and 20-year and 10-year maturities, et cetera, you know, was about 2.2%, which, you know, is pretty remarkable, when you consider that as part of your weighted average cost of capital. That's embedded in our capital structure. Yeah, rates have gone up, so if we had to refinance today, we would pay a slightly higher rate, but everybody's rates have gone up. I think that's embedded in everybody's weighted average cost of capital when they're considering financing alternatives. Their own WAC have gone up, our partners. Other questions? In various meetings with big cap Pharma, they, to varying degrees, talk about how they're going to change their development practices because of IRA. I should have prefaced this by saying, we know at the end of the day, your central mission is to get the best assets. We know that. But still, we have this thing now, IRA, and it's kinda messing things up. So there must be some additional analyses or features or thought processes that Royalty Pharma is now going to go through as it selects its assets because of IRA. Can you just share with us what those additional thought processes are? Sure. I can start on that one. Yeah, there's no question, and I think it speaks to the, sort of, the flexibility of our model, right? That, you know, as we're learning more, you know, every day and as the weeks and months pass about IRA, right, we can incorporate that into our process and how we think about things on a very kinda dynamic basis. You know, there's no. Sort of, you know, like you asked about the lack of sort of therapeutic area focus or the breadth of what we do means, you know, we can sort of pivot and think differently on a real-time basis, which I think is a, you know, is a strength. You're right, we have to start and we have started thinking about IRA in our analyses. You know, there is I'd say at this point, there's probably more unknown than known at this point about it, and I think we're sort of all waiting and learning more. You know, there are, and it's the things we talk a lot about, which is the list and price negotiation and everything else, and, you know, what does that mean? You know, I think just as important in our mind are all of the second order effects beyond that, right? Which is, you know, what does the various benefit redesigns mean as sort of the, you know, risk and cost exposure is shifting in different ways across the industry. That itself will have different effects. I think we're very much taking a kind of scenario-based approach to this and trying to say, like, within certain bounds, you know, how do we feel about our returns? You know, we can be kinda straightforward, you know, if it is a situation where you have a very heavily, like the classic example of a, like, heavily Part D small molecule, right? That's gonna be one sort of analysis and set of conversations. There's 1 million, you know, variations, I think, in between that. Pharma companies have, again, to the same point, listed three or four things that they would contemplate, and you mentioned one of them. Maybe less small molecules, maybe less Part D drugs, maybe less cancer drugs. These are all things that they put forth as potential ways they could get around IRA. The question is, do you expect the companies actually to pursue these initiatives, or do you think they're just talking about it, but are unlikely to do anything, that they're gonna continue on their current path? Chris, you wanna comment? It's hard. I think it's gonna be across the spectrum. I think, it's hard to know. I think As Marshall said, we've been really focused on this legislative enactment and really talk to consultants in D.C. all the time and pharma partners. We're trying to get a grip on it just like everybody else and, how CMS ends up negotiating and, you know, there's still a lot to know, and I think that's going to inform pharma on how they behave. I think the only thing I would add to what Marshall said around the IRA generally is one of the beautiful things about our business model is we can adapt pretty quickly to things. We don't have a manufacturing infrastructure or TA infrastructure or a sales force infrastructure out there tied to a certain area. We can make new investments where our public goal is to deploy $2 billion-$2.5 billion a year. We can adjust pretty quickly in how we make those investments based upon the facts on the ground and how the IRA is being implemented without the burden of historical TA infrastructure or manufacturing infrastructure or whatever. I think that's another great aspect of our model. Yeah, I think, you know, from our perspective, we also... If there's an exciting target and it's a small molecule Part D drug, it could change the way that companies invest in those programs, which could also create opportunities for us where that investment gets pulled forward because you don't wanna waste time moving to, from, you know, later lines to front line. That could create opportunity where we're as excited about the target as they are. Many of your deals were inked before we knew what IRA was. I'm thinking about Imbruvica, which goes out, I believe, to 2032. Evrysdi, I think, goes out a long way, small molecule. Did the language in the contracts contemplate any unknowns such as IRA, even though we didn't know what IRA was or what it would look like? No. I mean, that is the reason to do a deal with Royalty Pharma is that we take that risk. That is part of the pitch, is that this is a world where an asset could be 15 years long. There's a lot of uncertainty of what those end years are gonna look like. We have this big, broad, diversified portfolio. We are ideally suited to have those types of risks in the portfolio. Got it. And so that is the- That was true pre-IRA as well. Yeah. We had the same conversation pre-IRA as well. Yeah. Yeah. I'm curious if the different counterparties that you all approach can be a university, it can be a nonprofit, it can be a company. Do you find that your terms and returns differ based on the counterparty from which you're purchasing royalty or is it kinda similar in regards? I don't know if we've ever done that. That's a good question. I don't think we've ever really looked back and done a sort of post-hoc. Have we looked at returns profiles, based upon the seller? There certainly are sellers that are more optimistic about what they own than others. Yeah. that can require more creativity on our part to bridge gaps. Yeah. That's definitely... If you see a lot of milestones, you might say that's a company that might have had a slightly more optimistic view than- Than we did. I ask in part because, one could imagine that some are maybe more sophisticated than others, and that might accrue to your advantage in one way or another. In a scenario like that, you could also imagine that maybe there are some low-hanging fruit that maybe have already been plucked and that won't be replenished. I don't know if that's a fair way to frame it or not. I would say, and you guys chime in, I think. You should assume that they're all pretty sophisticated. You know, they. They have trustees. Yeah, trustees. They have very smart people on their boards. Yeah. They don't wanna sell something and not get full value. Yeah. They usually hire bankers. Yeah ... to sell these things. I, you know. That really hasn't changed. You know, it's not like we're going into more sophisticated land or, you know, Yeah, that's been the case. I think, you know, I'd also say, Terry, we've watched this happen. I think, you know, lack of sophistication is usually associated with not doing deals, right? You're sort of like, you know, if I don't understand it, if I don't feel like I understand it. I think the general increase in sophistication has increased volumes in our space, you know, over the last 10 years, without question. There's a number of events coming up for Royalty Pharma this year, meaning your partners' events. Mm-hmm. name two or three that you're waiting on the edge of your seat for the readout or the event to happen. What are the most important ones? Go on. I mean, certainly from a clearly from a financial perspective, if zavegepant is approved for migraine, the PDUFA, I believe, is this month, we would get a $475 million milestone payment. That's important. I think we're pretty optimistic that that'll happen. You know, there's always some level of risk. That's definitely an important one from a financial perspective. I think Tremfya is certainly another big one where we have a big investment. Yes. There's more lines of growth there in IBD, hopefully, I guess, later this year. You know, the only thing I'd add to what Terry's saying, though, is that I think one of the beauty parts of Royalty Pharma, as opposed to other parts of our industry, is we're probably not sitting around all that often on the edge of our seats worrying about one event versus another that sort of defines our company. You know, they're all important, and I, you know, totally understand the question. You know, we, you know, part of the having, you know, the presence of unapproved things in our portfolio, and that's been an important driver of our portfolios, means we're gonna have these, a certain number of them every year. You know, again, we're kind of focused on, you know, building a portfolio, quality opportunities, and, you know, that, you know, in our mind is, I think what keeps us on the edge of our seats, you know, more than anything else. We're nearly out of time, allow me the final question, and that is, you probably have a pretty good idea of where investors think Royalty Pharma will be in a decade. You know, we kinda model things based on what we know, right? It's kinda just straight line. You have a much better understanding of the environment, right? You know more about Royalty Pharma. You know all the contracts. You know the landscapes. You talk to all the companies, all these things that you know that we don't. What will be the biggest surprise to us about Royalty Pharma in 10 years? I, others can weigh in, but I think it's just our ability to continually scale that I think people might underestimate, is how scalable this business is and how sort of fundamental over time we think royalties will become from sort of this niche, small component of the overall industry to a core component of the overall industry in the next 10 years. I think we all feel like we are optimally positioned to play a huge role in that and to fund the innovation in this industry and to generate really strong, you know, attractive compounding returns for our investors. I think it's, I would say scale is probably the thing that it doesn't get appreciated. Great. Scalability. I mean, the only thing I would add is the size of the market that we play in is, it's enormous. The industry spends an enormous amount on R&D. It's highly fragmented between universities, foundations, hospitals, biotech, large cap, small cap, they're always partnering with one another. Every time there's a partnership, whether it's collaboration or royalty, it presents an opportunity for us. You put on top of that the synthetic royalty opportunity where we're part of the capital structure thought going forward as opposed to doing an equity deal or a convertible bond deal. I just think it's so enormous, the total addressable market, that probably doesn't capture the mind as much as it should. Okay. Well, let me just ask you then this. This total addressable market- I thought that was your last question. It was a very provocative point you raised. Let's view this total addressable market as a sphere. How much of that sphere have royalties penetrated? Is it closest to 25%, 5%, or a fraction of 1%? Well, we have the data in our analyst today's slide. I think just on the capital formation part, where people are going out and raising capital and doing partnership deals, it's about 2% of the capital raised over the last five years. That doesn't really capture all of that industry fragmentation, R&D and collaboration profits and everything else. That's just really providing a synthetic royalty as opposed to equity convert or partnering. Okay, great. With that, we do need to conclude. Thank you so much for being with us. Thanks a lot. Thank you. Thank you.