Royalty Pharma PLC

Royalty Pharma PLC (NASDAQ - RPRX) is a biopharmaceutical company that invests in late-stage biopharmaceutical medicines. From small and mid-cap biotechnology startups to multinational pharmaceutical corporations, the Company invests in academic institutions, research hospitals, and not-for-profits. Its strategic interests comprise Vertex’s Kalydeco, Astellas and Pfizer’s Xtandi, Novartis’ Promacta, AbbVie and J&J’s Imbruvica, Trikafta, Gilead’s HIV brand, and many more.

Latest news

• Recent acquisitions: In January 2022, Royalty Pharma paid 150 million to Cytokinetics for a royalty interest in aficamten, which included a 50 million initial payment and two extra $50 million transactions contingent on the start of prospective crucial clinical studies for oHCM and non-obstructive hypertrophic cardiomyopathy.  For an initial capital investment of 150 million in November 2021, Royalty Pharma purchased additional royalty interests in BCX9930 and Orladeyo from BioCryst.
• Declaration of second-quarter 2022 dividend: Royalty Pharma has announced on 18^th April 2022, that the company will be paying dividends for Q2 2022 of 0.19 per class A ordinary share. This dividend will be paid to the shareholders of record at the close of business on May 20, 2022 and the date of payment will be on 15^th June 2022.
• Announcement of Q1 2022 results date: On April 13^th, 2022, Royalty pharma PLC announced that it will be announcing its Q1 2022 financial results on Thursday, May 5, 2022, before the US financial markets open.

Q4FY21 results

• Q4 2021 result reflecting the expansion of development-stage portfolio: Cash supplied by operational activities fell 1% for the year, while cash used in investment activities fell to $552 million in the fourth quarter and 1,870 million for the year. Lastly, cash (used in)/provided by financing activities fell to (198) million in the fourth quarter and 385 million for the year.
• Financial figures indicating robust double-digit growth: Net revenues increased by 12% in the 4th quarter to 543 million, and by 18% to 2,129 million for the entire year, owing to solid portfolio performance and new purchases. In addition, Adjusted Cash Flow increased by 15% to $488 million in the fourth quarter and by 19% to $1,767 million for the year.

  Source: Company filing

Key Risks

• Most important risk faced by Royalty Pharma PLC is the failure of trials done by the recent strategic acquisitions done of Cytokinetics and Biocryst.
• Another significant risk that RPRX faces is interest rate risk. The principal value of RPRX's long-term debt is 7.3 billion. As a result, an increase in interest rates can result in larger interest payments to creditors, and because the principal amount is so large, even a minor change in interest rate can have a significant impact on the financials.
• Insolvency risk can be another risk because of the high financial leverage of the firm.

Outlook

By 2025, transactions done in 2020 and 2021 are estimated to increase adjusted cash receipts by more than $750 million. With an agreement to supply Cytokinetics with up to $450 million in finance, the year 2022 is off to a strong start. According to the corporation, adjusted cash receipts for FY22 are estimated to range between $2,225 million and $2,300 million.

Technical analysis

Royalty Pharma PLC has been in an uptrend in April generating a return of almost 9%. Simultaneously the price broke both short-term (50-day) and long-term (200-day) SMAs from the downside in the month of April. 50-day SMA has crossed 200-day SMA from below signaling a start of the bull cycle for RPRX in the long term. RSI went to 80s and overbought zone a few days back but has corrected itself to 58.5.  It is also expected from RPRX to come back and retest the SMAs at $39.5-$40 for a healthy long-term movement upwards as per the technical analysis.

One-year technical chart (as of April 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

Valuation methodology – PE multiple based relative valuation

Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

In the month of April, RPRX stock began a nice bullish cycle, which is predicted to continue after the golden crossing occurrence in April 2022. We have valued the stock using the PE relative valuation methodology and arrived at a target price of 47.86.

Considering the bullish momentum in the stock price, strong financial results, solid topline performance, positive outlook, associated risks, technical analysis, and current valuation. We recommend a "Hold" rating on the stock at the closing price of 42.31, as of April 25, 2022.

Technical Price Chart (as on April 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting 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 - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.