Royalty Pharma PLC

RPRX Details

Key Positives:

Industry leading EBITDA margin (40.1% in Q1FY22 vs Industry Median of 24.8%), Robust Net Margins (22.8% in Q1FY22 vs Industry Median of 3.4%), Industry Above TTM ROE (11.3% vs Industry Median of 9%%), Major Buyer of Biopharmaceutical Royalties, High Institutional Holding (63.37%) with Morgan Stanley Investment Management Inc, The Vanguard Group, Inc., BlackRock, Inc., Berkshire Hathaway Inc. are among the major shareholders.

Key Negatives:

Customer Concentration Risk, Foreign Exchange Risk, Significant Leverage Risk (Debt/ Equity Ratio of 1.23x at the end of FY21), Weakness in the Broader market, and other macro-economic uncertainties 

Royalty Pharma PLC (NASDAQ: RPRX) is the largest buyer of biopharmaceutical royalties and a significant investor in biopharmaceutical research and development. The firm has amassed a royalties portfolio that allows it to cash based on top-line sales of several of the industry's pharmaceuticals, including royalties on over 35 blockbuster products.

Latest News:

• Recent Acquisitions: Royalty Pharma paid Cytokinetics USD 150 million for a royalty stake in aficamten in January 2022, with a USD 50 million upfront payment and two further USD 50 million payments depending on the initiation potentially critical clinical trials for oHCM and non-obstructive hypertrophic cardiomyopathy. Royalty Pharma obtained further royalty interests in BCX9930 and Orladeyo from BioCryst in November 2021 for an initial capital expenditure of USD 150 million.
• Dividend Declaration: On April 18, 2022, Royalty Pharma Plc declares second quarter 2022 dividend of USD0.19 per Class A ordinary share, payable on June 15, 2022.

Q1FY22 Results:

• Increase in Total Royalties Receipt: Total royalty collections increased by 9% to USD 711 million in Q1FY22, compared to USD 649 million in 2021. The increase was largely attributable to the performance of the cystic fibrosis franchise, Tysabri and the addition of new royalties. However, partially offset by a decline in royalties from the HIV franchise, which reached the end of its royalty term in 2021.
• Margin Decline in Total Income: Total income and other revenues decreased 2% to USD 562 million vs. USD 573 million reported in the same period of the previous financial year.
• Increase in Adjusted EBITDA: Adjusted EBITDA grew 15% to USD 556 million, driven by strong growth in Adjusted Cash Receipts.
• Decline in Net Cash Provided by Operating Activities: During the quarter under consideration, the company’s reported Net cash provided by operating activities (GAAP) was USD 460 million in the first quarter of 2022, a decrease of 13%, compared to USD 526 million in the same period of 2021. The decrease was primarily driven by Development-stage funding payments – upfront and milestones of $100 million to Cytokinetics to acquire a royalty on aficamten.

Key Risks:

• Foreign Exchange Risk: Any borrowings under the Revolving Credit Facility and investments in money market accounts and marketable securities, most of which have a variable interest rate, expose them to interest rate fluctuation.
• High Leverage: RPRX's long-term debt has a principal value of 7.1 billion dollars. As a result, a rise in interest rates can result in higher interest payments to creditors. Because the principal amount is so huge, even a small change in interest rate can significantly influence the numbers.

Outlook:

• FY22 Guidance Reaffirmed: Royalty Pharma confirmed that Adjusted Cash Receipt for the year 2022 would be between USD 2,225 million and USD 2,300 million, barring additional transactions disclosed after this announcement.

Valuation Methodology: Price to Book Value Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

RPRX's stock price has fallen 9.39% in the past month and is leaning towards the lower end of its 52-week range of USD 47.10 to USD 34.86. We have valued the stock using the Price to Book value-based relative valuation methodology and arrived at a target price of USD 44.17.

Considering the reaffirmed positive outlook, strong royalties receipts, leading margin profile, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing market price of USD 37.53, down 5.51% as of May 9, 2022.

  RPRX’s 1 Year Technical Price Chart (as of May 9, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

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.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.