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Here's What Caused Royalty Pharma's Mixed Results in Q4

By Keith Speights - Feb 17, 2021 at 2:00PM

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The company's royalties revenue soared, but its earnings sank.

Most investors would view Royalty Pharma (RPRX -2.06%) as a disappointment. The company conducted its much-heralded initial public offering (IPO) last year. Shares ended 2020 up only 12%, well below the major market indexes. Its stock is in negative territory so far this year.

Royalty Pharma announced its fourth-quarter results before the market opened on Wednesday. And it didn't completely disappoint investors even though the healthcare stock slipped a little after the update. Here are the highlights from Royalty Pharma's Q4 results.

Lab worker using micro pippette.

Image source: Getty Images.

By the numbers

Royalty Pharma reported Q4 revenue of $572 million, a 25% increase from the $457 million reported in the same quarter of the previous year. This result trounced the average analysts' revenue estimate of $480.7 million.

The company generated net income in the fourth quarter of $171 million based on generally accepted accounting principles (GAAP). This reflected a steep decline from GAAP earnings of $1.4 billion posted in the prior-year period. GAAP earnings per share (EPS) in Q4 came in at $0.29, well below the average analysts estimate of $0.69. 

Royalty Pharma ended the fourth quarter with cash and cash equivalents of $2 billion. Its long-term debt totaled $5.8 billion.

Behind the numbers

The company's name provides a good hint at its business model. Royalty Pharma ranks as the largest buyer of royalties from biopharmaceutical companies. Unsurprisingly, its revenue stems from royalties generated by the sales of drugs for which it has conducted transactions.

Royalty Pharma's biggest moneymaker in Q4 was Vertex Pharmaceuticals' (VRTX -3.62%) cystic fibrosis (CF) franchise, with royalty receipts jumping 37% year over year to $159 million. Biogen's multiple sclerosis drug Tysabri made Royalty Pharma $93 million in the fourth quarter, a 10% year-over-year increase.

A couple of other drugs weren't too far behind Tysabri. Blockbuster cancer drug Imbruvica, which is marketed by AbbVie and Johnson & Johnson, brought in royalties totaling $85 million, up 12% from the prior-year period. Gilead Sciences' HIV franchise kicked in another $78 million in royalty receipts, a 10% year-over-year increase.

Merck's diabetes drugs, Pfizer's prostate cancer drug Xtandi, and Novartis' bone marrow stimulant Promacta each generated close to $40 billion in royalties for Royalty Pharma in Q4. The rest of the company's receipts were spread across a large number of drugs.

Why did Royalty Pharma's bottom line decline year over year despite its strong revenue growth? The main culprit was a big boost from a provision for changes in expected cash flows from royalties in the prior-year period of $919 million. 

Looking ahead

Royalty Pharma projects adjusted cash receipts will be between $1.91 million and $1.96 million for full-year 2021. Over the longer period through 2025, the company expects adjusted cash receipts will increase by a compound annual growth rate (CAGR) of 7% to 10%. That's an increase from the previous outlook of CAGR between 6% and 9%.

One key thing to watch this year is Vertex's continued launch of CF drug Kaftrio in Europe. The U.S. launch of the drug (under the brand name Trikafta) has been a huge success. However, Vertex's guidance given in its Q4 update anticipates a significant slowdown in growth in 2021. If that forecast proves to be overly pessimistic (which seems possible), it will be great news for Royalty Pharma.

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Stocks Mentioned

Royalty Pharma plc Stock Quote
Royalty Pharma plc
$40.51 (-2.06%) $0.85
Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
$252.35 (-3.62%) $-9.49
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$92.10 (-0.97%) $0.90
Johnson & Johnson Stock Quote
Johnson & Johnson
$175.50 (-1.86%) $-3.32
Pfizer Inc. Stock Quote
Pfizer Inc.
$50.40 (-1.83%) $0.94
Novartis AG Stock Quote
Novartis AG
$87.68 (-0.27%) $0.24
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$63.22 (0.06%) $0.04
Biogen Inc. Stock Quote
Biogen Inc.
$195.71 (-3.54%) $-7.19
AbbVie Inc. Stock Quote
AbbVie Inc.
$152.43 (-1.52%) $-2.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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