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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma Second Quarter Earnings Conference Call.
I would now like to turn the call over to George Grofik, SVP, Head of Investor Relations and Communications. Please go ahead, sir.
Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's second quarter 2022 results.
You can find the press release with our earnings results and slides for this call on the Investors page of our website at royaltypharma.com.
Moving to Slide 3. I would like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from these statements. I refer you to our 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements.
Non-GAAP financial measures will be used to help you understand our financial performance, and the GAAP to non-GAAP reconciliations are provided in the earnings press release available on our website.
With that, please advance to Slide 4. Our speakers on the call today are Pablo Legorreta, Founder and Chief Executive Officer; Marshall Urist, EVP, Head of Research & Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights after which Marshall will provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. Chris Hite, our Vice Chairman will also join the Q&A session.
And with that, I'd like to turn the call over to Pablo.
Thank you, George, and welcome to everyone on the call.
I am delighted to report another quarter of strong execution on our strategy as the leading funder of innovation in life sciences, the partner of choice, all innovative in the life sciences ecosystem.
Slide 6 summarizes our financial and portfolio achievements in second quarter, which again are of course the excellent momentum in our business. First, we delivered 10% growth in adjusted cash receipts [Technical Difficulty] our impressive track record of double-digit growth. Second, we have announced transactions of $2.5 billion year-to-date, including the Trelegy Royalty acquisition, which we completed just after the quarter end. This reflects the strong growth in demand for innovative royalty-based funding solutions. Third, we saw positive progress across our portfolio. Pfizer's proposed acquisition of Biohaven will accelerate value creation to Royalty Pharma. And Marshall will walk you through this shortly. In addition, we have -- we were pleased to see the FDA acceptance of the regulatory filings of PT027 in asthma as well as intranasal zavegepant in migraine.
This important milestones potentially bring this important closer today. Lastly, raising our full-year guidance was cash receipts based on the strong underlying performance of our existing portfolio and the addition of the Trelegy Royalty. And we now expect 7% to 10% top-line growth. This growth reflects a roughly 3% to 4% unfavorable impact from foreign exchange that we expect to face this year, which Terry will talk to you more about in a minute. I would also remind you that our guidance excludes the impact of any investments that we make over the remainder of 2022.
On Slide 7, you can see our financials in a little more detail. In the second quarter, we delivered 10% growth in our top-line. We estimate that foreign exchange had a negative 2% to 3% impact in the quarter. The strong double-digit momentum positions us to achieve another year of impressive top-line performance in 2022. Below our top-line, I am also pleased to report that we grew our adjusted EBITDA by 10%. Adjusted EBITDA is an important non-GAAP measure for us, which is arrived at by deducting operating and professional expenses from our top-line. Lastly, our adjusted cash flow our bottom line grew by 12%. So another quarter of strong double-digit growth across all our key non-GAAP metrics, even with clear foreign exchange headwinds that have been felt across the industry.
Slide 8, shows our impressive track record of strong top-line growth since our IPO in June of 2020. This track record reflect the power of our business model and our ability to execute successfully against our strategy.
As many of you heard at our May 17 Investor Day by consistently innovating funding solutions and replenishing our portfolio, we're able to drive compounding growth and absorb losses of exclusivity in a way that is not possible for most biopharma companies.
An important element of this shown on Slide 9 is our unique ability to identify and add blockbuster therapies to our portfolio. Trelegy of course is the most recent example of this unique attribute of our model. Blockbusters bring a number of key advantages to Royalty Pharma. They typically receive heightened market focus and investment. They enhance our scale and diversification of our portfolio with some of the most transformative therapies in the industry. They often have leverage capacity and cash flow that we can deploy to further diversify our portfolio. Lastly, they provide a strong foundation to continue to build our portfolio across different stages of development with different risk profiles.
Today, around a quarter of our streams come from blockbuster products. In fact, 13 products in our portfolio have end market sales of more than $1 billion and of these four have end market sales greater than $3 billion. This means our portfolio has around 1.6 times the exposure to blockbusters compared to the top 15 biopharma companies.
Furthermore, we continue to add to this list of transformative therapies. Since 2020, we have added 10 future potential blockbusters to our portfolio based potential sales. Constantly identifying and adding this on marquee products to our portfolio, we're able to drive continued portfolio replenishment, diversify the business, reduce risk, and ultimately grow our top-line and generate the value.
With that, I will hand it over to Marshall to update you on our portfolio.
Thanks, Pablo.
Let's move to Slide 11. Trelegy is a medicine we had been tracking for some time. It's the leading triple combination therapy for chronic obstructive pulmonary disease in asthma and is marketed by GSK, a company with a leading presence in respiratory disease. Our interest in Trelegy reflected it's first-in-category status, strong clinical data, high unmet patient need and impressive growth since launch.
Last month, we were therefore delighted to be able to execute a highly complex transaction to acquire Royalty's on Trelegy. This was no simple task as the acquisition involved multiple parties Innoviva, Theravance and GSK. Royalty Pharma brought all the parties together creating a win-win solution for everyone based on our deep industry relationships and ability to creative restructure the transaction. In this deal, GSK previously paid upward tiering royalties of between 6.5% to 10% on global Trelegy sales, which were split between Theravance and Innoviva. Royalty Pharma agreed to acquire the entire royalty stream for a combined total of $1.31 billion upfront and up to $300 million in potential sales milestones.
For Royalty Pharma this transaction not only adds another blockbuster to our portfolio as Pablo noted, but we expected to significantly enhance our long-term growth by adding at least $200 million to our adjusted cash receipts in 2025, and deliver returns consistent with our target returns for approved therapies in the high-single to low double-digit range.
Slide 12 expands on why we are so excited by the market opportunity for Trelegy and the growth opportunities ahead. Trelegy was the first single device, triple combination inhaled therapy to be approved by the FDA for the maintenance treatment of both COPD and asthma. Both the respiratory diseases with a very high incidence in poorly controlled patients. The initial indication, compelling efficacy profile and easy to use single device helped establish Trelegy as a blockbuster and to grow the penetration of triple therapy.
In the last 12 months, GSK reported global Trelegy sales of approximately $2 billion representing year-over-year growth of 50%. Looking forward, we believe there is still very significant scope for sales growth based on increased penetration of triple therapies in the U.S. and expansion in international markets.
We note the consensus sellside forecast project that Trelegy sales will exceed $3.5 billion by 2025. This would represent an approximate doubling of sales compared with the $1.7 billion reported in 2021.
On Slide 13, I want to highlight our acquisition of royalties on Gavreto. This is a precision oncology medicine, which targets RET mutations and is marketed in certain territories outside the U.S. and Greater China by Roche. In Europe, Gavreto is approved in RET altered non-small cell lung cancer and a regulatory decision in thyroid cancer is expected by year-end.
Last month, we agreed to acquire Blueprint Medicines royalty on Gavreto in ex-U.S. markets, excluding Greater China for $175 million upfront and up to $165 million in sales-based milestones. In return, we will be entitled to receive an attractive royalty rate in the high-teens to mid-20%s on sales in those markets. Although, Gavreto is not expected to be a blockbuster with consensus sales approaching $400 million in Roche territories by 2030, this royalty has an exceptionally long duration potentially extending as far as 2040. Consequently, over the lifetime of the royalty stream, we expect Gavreto to be an important contributor to Royalty Pharma.
Moving to Slide 14. Pfizer's proposed acquisition of Biohaven is expected to significantly accelerate the returns on our various investments in Biohaven. We have had a longstanding and highly successful partnership with Biohaven in the development and launch of their CGRP migraine therapies. When we acquire royalties and equity from biotech partners, we do so based on our assessment of their organic prospects. If the company is subsequently acquired, however, it has the potential to accelerate returns and this looks to be the case with Biohaven. Following the closing of the Pfizer acquisition, which is currently expected in early 2023, we expect the cash returns to Royalty Pharma to total as much as $1.4 billion, which also assumes an accelerated milestone payment zavegepant approval. This amounts to a 1.8 times potential cash return on our investment of $760 million with further upside from the 2% to 3% blended royalty on Nurtec and zavegepant sales to the mid-2030s. With the addition of Pfizer's marketing resources, it's reasonable to assume a greater likelihood of achieving the full commercial potential of BioHaven's migraine portfolio, which Pfizer believes could exceed $6 billion in peak sales.
Let's move now to Slide 15 and the expected clinical and regulatory events for our portfolio over the next 12 months to 18 months. In terms of clinical news over the balance of 2022, we anticipate Phase 3 readouts for up to four potentially transformative therapies, including results from Cabometyx in combination with immunotherapy in a number of different settings, Pfizer and Astellas Xtandi in non-metastatic prostate cancer, Roche's gantenerumab in Alzheimer's, and GSK's otilimab in rheumatoid arthritis. In 2023, we anticipate readouts from a few important Phase 3 programs including BioHaven's oral zavegepant in migraine and Tremfya in IBD.
On the regulatory front, over the remainder of 2022, we would highlight the expected European approval decision on Gavreto in thyroid cancer and the FDA decision on PT027 in asthma. In 2023, we anticipate FDA approval decisions on intranasal zavegepant in migraine and on Omecamtiv in heart failure. As well as potentially advancing the standard of care for patients, many of these milestones represent major commercial opportunities and could add significantly to our long-term growth outlook.
Finally, I'd like to briefly touch on the impact of drug pricing reform in our portfolio. While nothing is final, and there could still be important changes and many unknowns remained with respect to the implementation, from what we have seen in the proposed legislation, our initial view is that we would anticipate only a very small headwind to our business without considering any increase in volume from potentially improved patient access.
With that, I'll hand it over to Terry.
Thanks, Marshall.
Let's move to Slide 17. Total royalty proceeds grew 8% in the second quarter versus the year ago period. Growth drivers in the quarter included the cystic fibrosis franchise Xtandi, which benefited from a prior period adjustment and the Tremfya royalty, which we acquired in July 2021.
We also saw significant growth contributions from Promacta from our Biohaven partnership and though not specifically shown on this slide from Cabometyx, Evrysdi and Orladeyo. These positive factors more than offset the loss of contribution from our legacy HIV franchise, as well as year-over-year declines from Imbruvica related to a slower recovery in the CLL market and competitive pressure.
Slide 18 shows how our royalty receipts translated to strong adjusted cash flow in the second quarter. As you're aware, adjusted cash receipts is a key non-GAAP metric for us, which we arrive at after deducting non-controlling interest. This amounted to $524 million in the quarter, growth of 10% compared with last year's second quarter. As mentioned earlier, we estimate this growth was achieved despite a 2% to 3% headwind from FX in the quarter. As we move down the column, operating and professional cost were approximately 8% of adjusted cash receipts. As a consequence, we reported 10% growth in adjusted EBITDA in the quarter, consistent with the growth in our top-line.
As Pablo noted, adjusted EBITDA is an important non-GAAP financial measure for us and one of the three key non-GAAP metrics by which we measure our performance. When we think of the cash generated by the business to then be redeployed into new value enhancing royalties, we look to adjusted EBITDA less interest paid.
We received modest net interest in the quarter, reflecting the semi-annual timing of interest payments on our $7.3 billion of unsecured notes, which are paid in the first and third quarters. After de minimis payments for ongoing development stage funding and other items we generated adjusted cash flow, our bottom line of $482 million or 79% -- $0.79 per share for the second quarter. This resulted in an adjusted cash flow margin of 92%, which one -- once again highlights the efficiency of our business model.
Let's move now to Slide 19 and our financial position. We continue to maintain significant financial firepower. We deployed $439 million of capital on Royalty acquisitions in the first half of the year, as well as $238 million on dividends and distributions. This was more than offset by our strong cash flow generation so that our cash and marketable securities increased to $2.4 billion at the end of June.
After the quarter end, as you heard from Marshall, we acquired the Trelegy royalty for a net upfront payment just over $1.3 billion in cash. Adjusting for this transaction, our pro forma cash and marketable securities position would've been $1.1 billion. On the same pro forma basis, our leveraged stood at 2.9x net debt to EBITDA and 3.3x total debt to EBITDA.
As a reminder, the fixed rate average coupon on our debt is slightly above 2%, which compares with our target returns on Royalty acquisition in the high-single-digit to teen percentage range. While interest rates have certainly moved substantially higher over the last six months, the majority of our debt matures in 2030 or beyond. And our flexible business model and strong cash generation put us in an excellent position to execute on our business plan and create value for shareholders.
On Slide 20, we are raising our full-year 2022 financial guidance. We now expect adjusted cash receipts to be in the range of $2.275 billion to $2.35 billion, an increase of between 7% to 10%, over the $2.1 billion we delivered in 2021, highlighting the momentum in our business.
Looking specifically to Q3, I want to highlight a few factors to help with your modeling. We received our final substantial payment for the DPP-IV royalty in the second quarter.
Lastly, the other product line will experience a high base of comparison in the third quarter, as we recorded a $37 million net milestone payment on Soliqua last year. And consistent with our standard practice, this guidance is based on our portfolio as of today, and does not take into account any future Royalty acquisitions.
Turning to our operating costs. We now expect payments for operating and professional costs to be approximately 8% to 9% of adjusted cash receipts in 2022. Our lower operating cost guidance reflects one of the unique aspects of our business model, which is our relatively low fixed cost base. We think this is especially impressive in light of today's highly inflationary environment.
Interest paid for full-year 2022 is still expected to be around $170 million.
Finally, we're going through our purchase price allocation exercise for the recent deal with Theravance. Our current expectation is that $25 million upfront R&D payment related to the development of ampreloxetine will be expensed in the third quarter on both our GAAP and non-GAAP P&Ls.
On Slide 21, I wanted to drill down further on our adjusted cash receipts guidance. This graphic is illustrative, but provides the various pushes and pulls, which are behind our raised top-line outlook for 2022. The primary driver of growth this year is expected -- is the expected strong underlying performance of our diversified Royalty portfolio, particularly the CF franchise, Tremfya and Evrysdi, which we will be enhanced by the addition of the Trelegy royalties in the third and fourth quarters. The expirations of our HIV and DPP-IV royalty stream, as well as Imbruvica underperformance are expected to partially offset the strong growth in our portfolio.
In addition, the broad strength of the U.S. dollar is expected to negatively impact growth by minus 3% to minus 4% for the year or between $65 million and $85 million assuming current FX rate for the remainder of the year.
We are pleased to be raising guidance with our top-line now expected to grow 7% to 10% in a year that our business faces LOE pressure from two prior top royalty streams, as well as significant FX headwinds. Not many companies in our industry have the diversified portfolio or growth characteristics to be able to achieve this once again, highlighting the resilience of our business model.
With that, I would like to hand the call back to Pablo for his closing comments.
Thanks, Terry.
So another strong quarter and we're on track to deliver excellent results in 2022.
Before I close, I wanted to spend a moment highlighting the strategic plan, which we detailed at our Investor Day. By executing against this clear plan, we're confident we will deliver rapid, consistent and value enhancing growth. Our strategy is based on five pillars.
First, capturing a leading share of third-party Royalty acquisitions for approved products in select late-stage development opportunities. Second, acquiring newly created royalties what we term synthetic royalties on both approved and development-stage products typically to help biotech partners fund R&D and commercial launches. Third, we will provide additional funding in the form of development and launch capital, which allows us to tailor individualized solutions for partners and return for royalty like payment streams. Cutting across each of these pillars is our fourth pillar M&A, where we have a multi-faceted strategy, which enables us to acquire royalties through facilitating corporate transactions. Lastly, since our IPO, we added a fifth pillar, which is to identify opportunities in synergistic adjacencies, which leverage our team's capabilities.
My final slide shows that we're delivering on all elements of our strategic plan. In 2021, as a result of the MorphoSys M&A transaction, another existing and synthetic royalty acquisition we deployed $3 billion of capital across all five strategic pillars. In 2022, year-to-date, we have deployed $2.5 billion across four of the five pillars, including the recent Trelegy deal. Although, it has only been two months since our Investor Day, the strong execution of our strategy puts us in a great position as we move towards achieving our five-year capital deployment target of $10 billion to $12 billion and to deliver the attractive compounding growth profile that we described.
With that, we would be happy to take your questions.
We'll now open the call to your questions. Operator, please take the first question.
Thank you. [Operator Instructions].
Our first question comes from Chris Shibutani with Goldman Sachs. You may proceed.
Good morning and thank you. I appreciate the updated comments and congratulations on continued progress. Two quick questions. One, following the investment that that you made with Trelegy, I believe that is one of the more sizable, if not second largest since the IPO. Can you comment about the impact on your capacity to do further deals during this calendar year? And then, second, Marshall appreciated your proactive mention of comments about U.S. drug pricing reform. Can you help us think about based upon the current proposals, how you think about potential implications on how you're assessing opportunities in particular, the industry team's focus on differences in the timelines of the durability and exposure of small molecules versus biologics. However that may be defined if you could share any further comments on how that changes your investment calculus. Thank you.
Sure. Thanks for the questions. Good to hear you. Maybe just brief, I'll pass it onto Marshall. But as you know, I've outlined the pillars of our strategy and I think there's no question that that the business that is driving and I think will continue to drive very significant growth going forward is the synthetic royalty opportunity in front of us, which is very, very significant. So the biotech essentially needs very significant amounts of capital to continue to fund innovation. And we are the partner of choice of this company and have really figure how to work with them in very creative ways. For example, with our new launch capital and development capital structures that are ideal for this company. So that that will give us a core of transactions, maybe half a dozen, maybe more, maybe less per year, that should result in very consistent capital deployment.
And in addition to that, there are this larger transactions that take time, a lot of skill, a lot of skill because one of the things that maybe people don't focus on or is how complex it can be to actually bring together diverse parties like Innoviva, Theravance and Glaxo with a common purpose and really align all of their different innovations and goals very difficult, but we have been patient and figure how to do this. And that obviously result in a fairly attractive, large transaction for a marquee product marketed by the strongest company in that space. So very excited about that. But those kinds of deals will give us additional opportunities to the employee significant capital, rare to get like M&A and that's why we've -- sorry, guidance for the next years. This industry is really in its sort of golden age. And we're playing this very important role here. But Marshall, I'll pass it on to you.
Sure. Thanks, Pablo. Hi Chris, good morning. So absolutely. So I think it's important to take a step back and think about the potential drug price from reforming the legislation in two pieces. I mean, the first is like as we commented in the script is that when you look at our current portfolio, we don't see a significant impact. We just don't have a lot of Medicare D, B and D exposure right now. And I think the power of that is that now we can turn immediately towards beginning to think about that as a frame for our new investments immediately. And we will certainly do that. I think there are as you mentioned in the script, a number of unknowns and uncertainties as exactly what it will look like exactly how it will be implemented, how things might change between now and 2026 and beyond when we would see at least the impact from a negotiation perspective.
So we are starting to think about those things. You highlighted the difference between Medicare B and D in terms of duration. And I think some of the -- on some of the other earnings calls, we've heard lots of perspectives on that. So I think what you'll see though is that we will certainly start to include the potential for that and think through those scenarios in terms of how we value and think about opportunities in the future.
And then, Chris, on your question on capacity, so we mentioned that pro forma for the Trelegy deal, we would've $1.1 billion of cash. We still feel like we have a lot of financial firepower. The business generates a lot of cash each quarter. And then we have our revolver, which is $1.5 billion. And we have -- we actually have a lot of leverage capacity. So we mentioned that we pro forma for the Trelegy deal we would be at 3.3x and that would be that sort of represents adjusted EBITDA of around 2.2 -- nearly $2.2 billion. And we could put as much as an additional turn if we needed to on our leverage. So plenty of flexibility feel really good about our ability to capitalize on the opportunity that we see.
Thank you. One moment for questions. Our next question comes from Chris Schott with J.P. Morgan. You may proceed.
Great. Thanks so much for the questions. Just two for me. I guess first on the raising rate environment we're in, I guess we continue to get questions for investors in terms of the impact this has in your business. And I know you talked about your debt, not maturing until post 2030. I know you funded a lot of deals with cash, but can you remind us again how you navigate this higher rate environment and do higher rates change at all the way you think about either the types of deals or sizes of deals you'd consider? I think this is still kind of a question that kind of like overhangs the story as we think about rates moving higher. My second question was on Tysabri and biosimilar competition there. I know that's one of your larger royalties, and I think we've had some movement on that front. But just maybe talk about just remind us how you're thinking about timelines and the potential for biosimilar competition for that product over time. Thanks so much.
Thank you for the questions, Chris. Terry, why don’t you take the question on interest rates and then Marshall the one on Tysabri.
Sure. So it's a great question. It's very topical. We feel very good about our business model in a rising rate environment. Obviously, the portfolio having a diversified portfolio of non-cyclical growth is really attractive in this environment. Our very low fixed cost base is also very attractive. And then, the fact that we were able to lock in rates on all of our debt at pretty historic lows with only less portfolio of non-cyclical growth is really attractive in this environment. Our very low fixed cost base is also very attractive.
And then the fact that we were able to lock in rates on all of our data at pretty historic lows with only less than half of it, I think it's around 60% or so maturing beyond 2030. So I think the way we think about the impact on our business, we do think if we -- will have maturities over the next couple years, and if we refinance it would be a -- it would obviously be at higher rates, but overall we would think that the impact on the overall business would be pretty immaterial.
And then when we think about the great thing about our business is we're always reinvesting and I -- we would expect that, that rising rate environment to also trickle through to the prices that we pay for assets. And so there is a very nice sort of natural hedge in the business. And we're very confident that we can continue to deliver as we have in the past and deliver very attractive uncorrelated long-term compounding returns.
Marshall?
Yes. And then your question on Tysabri. So first of all, I think just taking a step back on Tysabri, this has been a fantastic investment for Royalty Pharma, and we think it's going to continue to be a contributor into the future. We have been of course following the Sandoz Polpharma biosimilar for some time. And so this is the natural evolution of the news that we've seen recently with the acceptance of the filing.
So I think the important thing to keep in mind and Terry, you might want to comment as well, is that when you look at consensus through the end of the decade, it certainly reflects a significant impact on the product from a biosimilar.
So I think when you look over that -- over this period through 2030, certainly it's already in expectations. But diving in a little bit deeper on the details here, I think it's important to keep in mind, certainly that there continues to be patents in the U.S. through 2027 and Biogen has talked very clearly that they'll protect their intellectual property there. And so we'll continue to watch for updates there and the implications for timing of when and how the biosimilar will launch.
But there's other important things to keep in mind. First is that Tysabri is of course a very unique product with its safety profile and the ramp and Biogen's history in MS market are important.
Also of interest is that we've taken a look at our claims data, which with our strategy and analytics team and we looked at Tysabri closely, and it's interesting Tysabri actually is a very sticky product. When you look at 2021 only about 12% of total patients on Tysabri were actually new patients. So it is a really sticky product patients like this. So when you think about how many patients there are on ongoing therapy, it's -- there's a lot of different ways that the biosimilar could play out.
And then, lastly, it seems pretty unlikely that this will be a multi-sourced biosimilar market, which is most of the comparable markets that we've seen. Sandoz is the only known one right now to our knowledge. So there certainly aren't any clear comps. So we'll have to wait and see on if and when they are approved, when they might launch, but this has been a great investment for Royalty Pharma. And we certainly think there's a number of reasons why Tysabri could be resilient even in the phase of biosimilar launches.
It's difficult to manufacture. And we also met several years ago, four or five years ago, the team that actually developed this and license it. So we're quite familiar with the situation.
Thank you. Operator, take the next question.
One moment for questions. Our next question comes from Terence Flynn with Morgan Stanley. You may proceed.
Great. Thanks for taking the questions. Two from me. I guess, I was wondering if you could comment on the top of the funnel in terms of what you're seeing second half of the year versus either first half of this year or second half of last year, just from a opportunity perspective. Given the selloff in Biotech was just wondering if you're seeing a step up in incomings. And then what percentage of those would represent kind of larger transactions so things similar to MorphoSys and Trelegy. And then, my second question relates to 2022 guidance just a clarification. Terry, I think you said that the Trelegy royalties would contribute to both third quarter and fourth quarter revenues this year, but just wanted to make sure I heard that correctly given I think you'd announced the deal in July. Thanks so much.
Thanks for the question Terence. Marshall, you should take the question on the funne, and Terry, the one on guidance.
Sure. So, hi, Terence, good morning. So we've certainly seen increasing momentum in the top of the funnel in terms of the number of things we're looking at in it. It is certainly up both as you think about year-on-year, as you think about the -- or even in terms of the pace of new things as we've moved through this year, things have definitely been accelerating.
So I think -- and a lot of that under guards what we're saying about our confidence in the opportunity and the number of things we're seeing. As we've said before, our bar and our investment process remains the same. So we're really going to focus on things that we're really excited about and the best and most important opportunities. And that has been our strategy for years and will continue to be even as we are seeing a increased number of opportunities.
I -- you asked about large transactions too. There are always a number of large transactions that are in the funnel that we're watching that we're working on at various stages. But as we've commented before, large transactions, it's very hard to estimate when they'll happen at what pace they'll happen as you've seen with things like MorphoSys or as Pablo talked about with Trelegy, they do have it -- they do have often have significant number of moving parts and takes multiple things coming together for them to happen. So we continue to expect them to happen as you've seen. They certainly do since we've been public, but always hard to sort of say exactly when or at what pace it will happen.
And then on Trelegy yes, that's correct. We will record royalty receipts in the third and fourth quarter of this year for that product, so that was.
Thank you. Operator we'll take the next question.
Thank you. One moment for questions. Our next question comes from Andrew Baum with Citi. You may proceed.
Thank you and two questions, please. So the first one is Trelegy. Could you just share with us the anticipated duration of the royalties on Trelegy whether it's tied up to particular IP or other timelines such as anticipated generics? The reason I ask is given the complexity of inclusion three active ingredients and how it could be that this product doesn't face any generics for a very, very long time indeed if ever. And therefore that obviously has an impact on your returns dependent on what ties the royalty streams to the terms. Second, also on Trelegy given that dynamic, I'm curious why GSK was not a buyer given it obviously has the best visibility on the commercial outlook of that product. And then second question is for Pablo and Chris, I noticed in your comments on synthetic royalty, the focus was very much on biotech companies, which is not surprising. Previously I know you've spoken to large pharma, and you obviously have the PILOT trial, which Pfizer participated in. it is now knowledge member. Actually Pfizer, that the large company simply are not going to be tempted to use synthetic royalties to hedge risk and there are alternative preferred ways of financing. Thank you.
Yes. Maybe I'll just answer that question about Trelegy and Glaxo hiring. I think what I would tell you is that two party deal is complicated to align the interest negotiate terms that are acceptable to two parties. A three party deal is much more complex. And in this case it was a four party deal. I've never done that in my life. But we managed to do it. And it requires is someone that has the patients, the interest, their creativity, to listen to one party, understand what their emotions and goals are, process that listen to another party, understand their motivations and interests. And see if there's any common ground, see if you can somehow bring together something that's going to work for both. And then listen to the third one in this case, the market and then to bring all of that together. And it's not easy, it's highly, highly complex. And we given how nimble we are, small we are, can do those things. Much more difficult for a bigger company to be able to achieve that.
And I recall a transaction with it many years ago. It happened actually twice when we bought the Neupogen Company from Memorial Sloan-Kettering where on the second -- we bought first the U.S. royalty and then the ex-U.S. royalty and we partner with Amgen. And then a second time with Gilead to buy the royalty on decitabine from Emory University. And I recall how in a private comers, CFO of Gilead said to us, we would have never been able to do this transactions by ourselves if we just want directly by royalty from the university holder. And the reason for that was they were points during that transaction where one party wanted things to be done in the contract that were not acceptable to the other one. And there was an impact. And similarly, the other party wanted things in the contract that were not -- so we were in the middle and we were able to go to each party and say, look, this is unreasonable. This doesn't make sense. They're not going to give it to you. And it's not needed. And they would sort of move off from that point. And we would do the same thing with the other side.
And at the end, basically as I said, the CFO of Gilead at the time said, we had never been able to do this ourselves. And the fact that we were able to achieve that and which worked for everyone. And I guess this was just much more complex and we're ideally suited for complexity in deals like that. So I'll stop there, but pass it on to Marshall to answer the other part of the question.
Sure. Hey Andrew, good morning. So there are a number of questions there. If I am -- if I don't touch on any of them, please let me know.
The first one was about duration of Trelegy and the complexity given the various components and the device. So we haven't gotten into tremendous amount of detail in our IP analysis, et cetera. What we have said is generally our expectations of duration are the middle of 2029. So June 30, 2029 outside of the U.S. and the end of 2030 in the U.S., we're happy to take you through it in more detail, maybe offline. But the -- but I think overall, those are generally our expectations for how long we think the Trelegy piece will -- the Trelegy royalty will go.
The other question, I think you asked about why -- about large pharma using synthetic royalties and we've talked about working with smaller companies and does that say that we don't expect to be doing R&D partnership with larger companies. So I wouldn't interpret it that way. I certainly think the -- that a lot of the discussion has focused on synthetic royalties with smaller biopharma or emerging biopharma companies. I think that's -- that just reflects purely -- the -- purely the changing in the external funding environment in a number of those companies and we do think that as a funding modality, as we talk about many times where those companies, we do think synthetic royalties are going to be an important part of that.
But that, that, that doesn't imply that, that, that we don't think partnering with larger companies is not going to be a part of our business either. We continue to be optimistic there and think again, that, we have a high bar and again, our -- the larger companies and are -- what they want to partner on and what we want to work on has to meet up and create those opportunities. But we continue to think that's going to be a part of our business in the future.
I mean, one thing that also just remembering the whole process on this transaction, there was some history 12 of this other companies, which made it complicated, but just reflecting on the whole process started, you cannot -- I cannot even tell you the number of times during the conversations where one party wanted to the door and I just wouldn't give up, I said, no. Let's talk and I just said, I can persuade them to actually continue discussion and open the door and let's be reasonable. And anyway, so at the end, it -- that's what's required in transactions like this, and we have a lot of experience and we can be creative, but I'll stop there.
Thank you. One moment for questions. Our next question comes from Steven Scala with Cowen. You may proceed.
Thank you. Couple of questions. First, there's no shortage of changes underway at GSK. It's priorities are changing. They've deemphasized respiratory research and its recent respiratory launches, Breo, Anoro, Nucala, have been mixed some successful, some less so. I'm just wondering, how did you become comfortable that Trelegy will ultimately attain its full potential? So that's the first question. Second question is I'm curious if the drug price reform bill if passed and companies decide to pair back on some R&D programs and areas, whether that's an opportunity for Royalty Pharma to step in and fund programs, whether for the innovator or maybe an acquire. In other words, double down on small molecules and Part D drugs on attractive terms when others vacate the area. Thank you.
Thank you. Maybe Marshall and Chris should take this question, but I just my own personal comments to the question about Trelegy. I mean one thing to look at is the very significant sales and marketing effort behind this product, the amount of TV advertising, for example, that you see on Trelegy, it's just amazing. So I think this is just a great drug with amazing support from the leading company in the space, but Chris, Marshall, do you want to add more to my answer? Chris, you want to go ahead?
Sure. I mean, yes, sure. It's Chris. We're very confident in GSK's commitment to Trelegy and the respiratory franchise. Obviously, they've gone through a very large transformation themselves spinning off their consumer health business, most recently in focusing on their pharma and vaccine business. And Trelegy is going to be super important part of that standalone company GSK going forward. So we're very confident in their commitment to Trelegy.
As it relates to maybe supporting R&D at pharma or biotech given the potential pricing reform, obviously there's a lot to still that could happen around pricing. We're not sure what the ultimate legislation will be, if any. But as Marshall said, I think the backing of R&D at both large pharma and small cap biotech and the creation of synthetic royalties is going to be an ongoing part of our business. We're engaged in the conversations today with both large pharma and small cap biotech to help them on the R&D front. We think that'll be a big part of our business going forward.
Thank you. One moment for questions. Our next question comes from Geoff Meacham with Bank of America. You may proceed.
Hey guys, good morning. Thanks for the question. Terry, you guys have raised top and bottom line guidance, pretty consistently just given the strength of the business. And I know the goal here is to reinvest, but has your payout policy evolved as well? I wasn't sure where dividends fall in your capital priorities. And then I had a follow-up on just the synthetic royalty structure. I mean you guys talk a lot about this at your analyst event but it really hasn't been a component of major deals, is it that -- that that structure is it that sellers don't like the synthetic carve out or maybe just give us some a little bit more perspective on that. Thank you.
Terry and Marshall, you should take those questions. The payout, Terry, and then the other one on synthetic, Marshall.
Yes, sure. So on the payout, no changes there, Geoff. We -- last year or -- sorry, this year we increased our quarterly dividend by north of 10%. We said that we're committed to paying a dividend. But clearly, our capital allocation priority is investing in new royalty streams and that's where we're going to continue to focus. That's where we think we can create the most long-term value for shareholders.
And then the other thing that we -- the other area that we highlighted at our Investor Day is that over time we could look to share repurchase as an additional way to return capital to shareholders, but clearly our focus is on buying new royalties.
Great. And hey Geoff, good morning. So second question on synthetic, very much appreciate the question. I'd say overall I'd come back to some of the themes that we've touched on in the past with respect to our approach to synthetic royalties is that we do think this is going to be an important part of our business. But one thing that has really characterized our approach to building the portfolio over time has been we're patient, we're disciplined, and we're going to wait for, and we're going to wait for the right opportunities.
So we have a lot of conversations. I don't think there's any shortage of interest. But I do think finding later-stage development programs or launch or programs that are commercialized, that where that meet all of -- that meet our bar and the things we really want to put into the portfolio is something that we're going to let happen and make sure that we are building with the right opportunities.
I mean you've seen us do it with multiple products over time, Biohaven, BioCryst, Immunomedics, Cytokinetics, so we're doing them. But I think the discipline and the approach that I think everyone has come to expect from us, that we're going to continue to apply as we build our portfolio and build the market for synthetics.
If I may just add whether companies like or not synthetics at the end of the day, it doesn't matter to us. We're open-minded. We can do just a royalty deal, a royalty and equity deal, a royalty equity and/or also include launch capital, development capital. We are very open-minded and we don't insist that has to be one way or the other. In fact, being flexible is probably the best way to approach discussions with potential partners, but offering them the whole range of solutions is what actually results in us being successful and being a good partner.
And I would say if you look at companies, I think in our Investor Day, we had some statistics that if you look at companies like Biohaven a company that raised from May 2017 to now $3.2 billion of capital to develop their very fully $3.2 billion. We were 26 of that with about $800 million. You look at Cytokinetics $2 billion capital raised actually 20% of [Technical Difficulty]. BioCryst smaller amount from 2012 to $1.3 billion raised, we were 25% of the pharma. So it -- I think most companies understand the benefits of the different structures we can put in place. They really like it and they embrace it. And -- but it is a question of educating the market, right. Really companies understand the benefits to them of the way we can bring the power of our model to help them successfully develop their programs. And it is something that we're having a lot of really positive traction with many companies, particularly now where things are getting very difficult for companies and we're having a lot of conversations. I think management teams are eager to really understand what's unique and I think we're very optimistic about how things are going.
Thank you. One moment for questions. Our next question comes from Mike DiFiore with Evercore. You may proceed.
Hi guys, thanks so much for squeezing me in and taking my question and congrats on the continued progress. Just two quick ones. One is the IRR on the Trelegy deal. It definitely seems to close the -- the deal itself seems to close a royalty gap in the back half of the decade due to the CF LOE, but the IRR at least according to my math seems a bit mediocre. So how should we think about the discount rate in our calculations? And I know you mentioned mid-single-digits at your Investor Day, but wondering if you could add any additional color here. Separately, what are your expectations for ampreloxetine. The Street really isn't giving much credit if at all, given the prior Phase 3 failure and kind of want to see your thoughts on this. Thank you.
Yes. So just, I think the IRR, it's not mid-single-digit, it's more like high-single-digit. And I think one of the things that, that I think is important is that we like -- you're looking at it from the perspective of maybe either the analyst consensus or your own forecast. But we actually take a very deep dive and really try to understand the growth dynamics of products and like what we've seen happen over and over again like it's happened over the many, many times that the bigger products marketed by companies where they're so important to them. Our assets that tend to outperform our expectations, analyst expectations, so I think this is an asset that has the potential to do really well. And we're excited about it. So that's the answer related to the IRR.
And obviously this is one that is very leverageable because of the very strong cash flow that it produces. So it actually balances really well. The other part of our business, where we're taking more risk and investing in things that are not producing cash flow in the near-term, but maybe I'll pass it on to Terry to talk about the IP exploration of CF, because I think our view is that CF goes well beyond the decade into the next decade, but Terry and maybe I didn't get your question right. But do you want to take that question?
Yes. I think the -- can you -- Mike, can you repeat the question? I maybe -- I think I heard something different than Pablo. Sorry about that.
Yes, no, I was just saying that, that the deal itself seems very good and because it definitely seems to kind of close the royalty receipt shortfall due to any possible CF LOE in the back half of the decade. That's all I was saying.
Right. Okay.
Yes.
Got it. Yes. Okay. So I think Pablo touched on that, but we're really excited about it. And we think that we're -- we think that the IRR is very much consistent with what we've targeted and what we've said is high-single low-double for these approved products. And this is sort of right in that range with. What we think is some -- hopefully some upside potential there. I think you also had a question on our expectations for ampreloxetine. Maybe Marshall wants to take that?
Yes. Sure. Hey Mike, so on ampreloxetine a couple of important things to keep in mind. I think first of all, we all -- as we've talked about, and as Pablo touched on, we always try in our deals to be good partners and try and be as constructive and flexible as possible. And so that's why it was really -- it's -- it was really interesting to include ampreloxetine as part of the broader and very large Trelegy transaction with Theravance.
So important to keep in mind that it's an interesting product, but certainly a more modest part of what is a very large deal. That being said, the product has shown some interesting data we think in for orthostatic hypertension and in the subset of patients with multiple system atrophy as Theravance has talked about. So we're excited to see how that program develops and certainly could offer some interesting upside as the deal evolves.
Thank you, Operator, we'll take the last question.
Thank you. One moment. And our last question comes from Ash Verma with UBS. You may proceed.
Hi, thanks for taking my question. I just want -- had one on Trelegy. So just curious like what drove the upfront percentage amount in this deal? Does that represent a template for commercial safety or the upfront more than what you would typically say?
Marshall, can you take that question, please?
Sure. Ash, thanks for the question. So the way to think about it on how we structured it is, each deal is certainly a blank sheet of paper. And we do, as we outlined at our Analyst Day, very careful analysis of the commercial opportunity. And we work a lot with our partners to find a deal and a structure and evaluation that's a win-win for both of us.
And I think that was the approach that, that yielded the Trelegy deal. So I don't think you should necessarily take this as a template or anything like that. Like we've said every deal is different. Every deal has its specific dynamic. So here where there was an upfront and some additional milestones based on future commercial performance, what's the right structure? I'm sure we'll use a structure like that again in the future, but always we're trying to find the right structure for our partner and for that specific royalty.
Thank you. I would now like to turn the call back over to Pablo Legorreta for any further remarks.
Thank you, operator, and thanks to everyone on the call for your continuing interest in Royalty Pharma. And I'll just close by saying that we had recently our Investor Day and we spent a lot of time outlining Royalty Pharma, its uniqueness, our business strategy, how we do things, why companies want to partner with us, what we bring of value to companies. And also the very, very significant side of the opportunity we have in front of us funding, this incredible ecosystem that it's in its sort of golden age of innovation.
And we laid out, outlined also goals in terms of capital deployment and growth. And I think what you are seeing this year as the year has gone by is us delivering against those goals. We're up to $2.5 billion of capital deployed and we're halfway through the year. So we're super excited. I think Royalty Pharma is clear coming the partner of choice of all of the other innovators in life sciences. And we're excited to continue the relationship with all of you over time. And we're here to answer questions. So -- reach out to George and anyone in the team, but thank you all for listening today.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.