Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma third quarter 2026 earnings conference call. I would now like to turn the call over to George Grofik, Senior Vice President, 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 third quarter results. You can find the press release with our earnings results and slides to this call on the investors page of our website at royaltypharma.com. On slide two, I'd 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 the statements. We refer you to our most recent 10-K on file with the FCC for 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 liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to slide three. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board, Marshall Urist, EVP, Head of Research and 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 when we'll be joined by Chris Hite, Chairman, Partnering and Investment. And with that, I'd like to turn the call over to Pablo.

Thank you, George, and welcome to everyone on the call. It gives me great pleasure to report another strong quarter in 2026 as we execute towards our goal to be the premier capital allocator in life sciences with consistent compounding growth. Slide five summarizes our strong business momentum in the third quarter. Starting with the financials, we delivered 9% growth in portfolio receipts, our top line, and also in royalty receipts, which are our recurring cash flows. On a year-to-date basis, royalty receipts have grown by 12%, reflecting the strength of our diversified portfolio of high-quality royalties. We also maintain attractive returns in our business, with return on invested capital of 14.3% and return on invested equity of 20.2%. By combining strong growth and superior returns, we're confident we have a clear path to drive shareholder value creation. Turning to capital allocation, we have deployed $1.6 billion of capital so far this year, with an announced value of $1.9 billion. Most recently, we acquired a royalty on Arcutis Sorib, an approved therapy for immune diseases of the skin. We also acquired a royalty on Takeda's Membrilo, a potential blockbuster therapy for rare blood disorders, Polycystemia Vera. as we look ahead our deal pipeline remains robust supported by continued powerful fundamental tailwinds under our value-driven capital location framework we also return close to 590 million to shareholders in dividends and share repurchases in the first nine months of the year moving to our portfolio we're excited to see a number of positive clinical and regulatory updates which we expect to support our growth over the medium to long term Our partner Revolution Medicines received FDA approval and a positive regulatory opinion in Europe for razonque in pancreatic cancer. CEVA also received FDA approval for its schizophrenia therapy, Weltruza. While we were, of course, disappointed by the phase three results for Novartis' Pelacarcin, the overwhelming weight of news across our portfolio was positive, with successful phase three results for Amgen's and Deltra in first-line small cell lung cancer, and Farber is, the Trictivant XR and Hereditary Angioedema. We also structured the Pella Carson investment in a protective way where we will still make our money back plus a small return. As Marshall will explain later, our track record of success in development stage investing remains outstanding. Looking ahead, we're increasing our 2026 full year guidance for the third consecutive quarter based on the excellent business momentum I just highlighted. Slide six is a slide we show every quarter. It demonstrates our consistent double digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. This reflects the quality of our asset selection and our unique business model. It's a track record that I believe very few companies in the healthcare space can match. With that, I will hand it over to Marshall.

Thanks, Pablo. I want to focus today on our recent royalty deals for Memrylo and Zorive and to give a broader update on our development stage portfolio. Beginning on slide 8, we recently acquired Zeeland Pharma's royalty interest in Cicada's Memrylo for a total of $100 million. In return, Royalty Pharma is entitled to receive a 1% royalty on annual worldwide sales of up to $1.5 billion, tearing down to 0.75% above this sales threshold. We are also eligible to receive up to $23 million in milestones. Memorilo is an exciting first-in-class therapy for polycythemia vera, or PV, a rare chronic blood disorder. In PV, there is excessive red blood cell production, which thickens the blood, resulting in increased risk of clotting and major cardiovascular events. There is a high unmet need for new treatment options as many patients are still reliant on frequent phlebotomy, or blood draws. MemriLo reduces the excessive red blood cell production, and in phase three, it demonstrated significant clinical benefit across a range of parameters, including phlebotomy burden and fatigue. Based on the compelling results, the FDA approved MemriLo in August, 2026. Takeda has provided peak annual sales for MemriLo of between one and $2 billion. We see clear blockbuster potential. Polycythemia vera is a potentially large market with a prevalence of around 155,000 patients in the U.S. alone. Based on this, we would expect to generate an unlevered IRR in the low double-digit percentage range consistent with our target for approved products. Moving to slide 9, in our latest transaction, in September, we agreed to pay AstraZeneca $100 million up front for a 3% royalty on worldwide sales of Zorise. This is an approved once-daily topical which is marketed by Arcutis Biotherapeutics for three skin disorders, plaque psoriasis, subarachid dermatitis, and atopic dermatitis. Zoriv offers an effective and safer alternative to widely used topical steroids. This represents a significant commercial opportunity for Zoriv based on growing physician recognition of the local and long-term side effects of chronic steroid use. The scale of this opportunity is underscored by the modest penetration to date of branded non-steroidal topicals, which only represent 7% of the market. Arcutis' commercial execution has been impressive and their message is resonating with physicians. Zoriv is expected to grow by more than 40% in 2026 to over half a billion dollars and we see clear blockbuster potential. Consensus currently predicts Zoriv's sales will reach $1.6 billion in the early part of the next decade while our QDIS has supplied a peak sales estimate of $2.3 to $3 billion across Zoriv's current indications. We expect the transaction to generate an unlevered IRR consistent with our target range for approved products. I want to move on now to our development stage pipeline. Slide 10 shows our scorecard for 2026 for key clinical and regulatory events. As Pablo noted, while the outcomes trial for Pelocarson was not successful, The transaction to acquire this royalty was structured in a protective manner. And as a reminder, our $500 million funding agreement with Ionis included stable and predictable royalties in Spinraza with upside from the Pella Carson royalty. Based on the Pella Carson results, our royalty interest in Spinraza will revert to Ionis after we receive royalty payments of $550 million for a 1.1x return on the total amount funded. Overall we remain pleased with the progress of our development stage portfolio in its entirety. So far in 2026 we are proud to have five successful pivotal phase three trials from our development stage therapies and nine positive regulatory events including six FDA approvals and three FDA filings. Our overall track record for development station testing continues to be well ahead of industry averages with a success rate of approximately 90 percent. Importantly Many of the therapies shown on this slide have the potential to be truly transformative for patients as well as highly commercially successful. Revolution Medicine's Razon Q for pancreatic cancer and cytokinetics mycorso for non-obstructive hypertrophic cardiomyopathy are the two most obvious examples. And the year is not over yet with the upcoming FDA regulatory decision expected later this year on GSK's Nela Delkip for non-small cell lung cancer and phase 3 results expected for Biogen's lidophilumab in systemic lupus. Consequently, we feel really good about both the progress of our development stage pipeline this year as well as the potential of the therapies we added this year to be very significant royalty contributors over the long term. Slide 11 details our development stage pipeline by year of potential launch. Here's a list of a dozen potential blockbuster launches over the coming years that can power our growth through 2030 and beyond. Importantly, all are either first in class or best in class, and all have been through our rigorous diligence process. As a result, we expect a significant proportion to reach the market successfully and deliver transformative benefits to patients. To wrap up, we're extremely excited about our pipeline, that in aggregate has the potential to add peak royalties of more than $1.7 billion to our top line in the future, and we expect to continue to add new and exciting therapies to our development stage pipeline in the years to come. And with that, let me hand it over to Terry.

Thanks, Marshall. Let's move to slide 13. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 9% in the third quarter, reflecting the strength of our diversified portfolio. As Pablo noted earlier, this takes our growth in the first nine months to 12%. Milestones and other contractual receipts, which are more variable, were relatively modest in the quarter but increased year over year. Taking together portfolio receipts, our top line grew 9% in the quarter to $890 million. As we move down the column, operating and professional costs equated to 5.6% of portfolio receipts in the third quarter. This line continues to demonstrate the benefit of the cash savings we are delivering from the internalization transaction, which we completed in May of 2025. Net interest paid was $167 million in the quarter. This reflects the semi-annual timing of our interest payment schedule, with payments primarily in the first and third quarters, together with the interest we received from the cash on our balance sheet. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA, less net interest paid. This amounted to $673 million for the quarter. Our margin of around 76% in the quarter and 82% year to date underscores the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $362 million mainly reflected R&D funding for J&J 4804 and upfront payments for Claramatug, Zoriv, and Memrilo. Lastly, our weighted average share count declined by approximately 3 million shares in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 14 provides more detail on the evolution of our top line year to date. Royalty receipts, which we consider our recurring cash inflows, grew by 12%. Key drivers were the strong performances of Trumfaya, Boronigo, Evrizdi, and Indeltra. Importantly, we have been able to absorb significant declines from Promacta and Imbruvica, amounting to an approximately 5% combined headwind, and still delivered double-digit growth in royalty receipts. Moving to portfolio receipts, these grew by 9% in the first nine months, reflecting lower milestones and other contractual receipts, which is consistent with our full-year 2026 guidance. Slide 15 updates our portfolio return metrics for the quarter. Return on invested capital was 14.3% for the last 12 months ending in the third quarter of 2026, and return on invested equity, which shows the impact of conservative leverage on our equity returns, was 20.2% for the last 12 months. This is the fifth straight quarter we've reported these metrics and their remarkable stability demonstrates that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 16 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of September 2026, we had cash and equivalents of $514 million. In terms of borrowings, we have investment grade debt outstanding of $8.8 billion with a weighted average duration of around 12 years. Our leverage now stands at 2.7 times total debt to adjusted EBITDA or 2.5 times on a net basis. We also have access to our $1.8 billion revolver which was undrawn as of the end of the third quarter. all considered we have access to approximately 4.8 billion dollars of financial flexibility through cash on our balance sheet the cash our business generates and access to the debt markets turning to our capital allocation framework we deployed just over 1.2 billion dollars of capital on attractive royalty deals in the first nine months of 2026 at the same time we returned approximately 590 million dollars to our shareholders through share repurchases of over $180 million and our growing dividend. In total, we have returned about 28% of our portfolio cash flow this year to shareholders. On slide 17, we are again raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.5 billion to $3.55 billion, up from $3.4 billion to $3.5 billion previously. This assumes growth in royalty receipts of around 10% to 11% compared with 7% to 10% previously, which reflects the strong underlying momentum of our diversified portfolio. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $65 million in 2026. Importantly, and consistent with our standard practice, This guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. Turning to expenses, payments for operating and professional costs are expected to be in the range of 5.5% to 6% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. We continue to expect interest paid to be around $350 million to $360 million in 2026. Based on our semi-annual payment cycle, we anticipate interest paid to be a de minimis amount in Q4. This guidance reflects repayment of the $380 million term loan in July but does not take into account interest received on our cash balance, which was $18 million in the first nine months. To close, we've had an excellent first nine months. We've raised our guidance for the third consecutive quarter and we expect to deliver another full year of strong financial performance in 2026. With that, I would like to hand the call back to Pablo.

Thanks Terry. To conclude, I'm very pleased with our continued execution against our strategy in the first nine months of 2026. We have consistently delivered strong growth and returns. We've again deployed significant capital on exciting new biopharma royalties. We've tirelessly innovated to open up major new opportunities such as Pharma R&D co-funding. And last but not least, we have enhanced our leadership team and capabilities to ensure we remain at the forefront of our highly attractive industry. On slide 19, I also wanted to draw your attention to something we're very proud of that we don't often highlight. As a leading founder of innovation, We recognize the importance of integrating sustainability related principles into our strategies and investments. We were therefore delighted to have recently been awarded a AAA ESG rating by MSCI, indicating that we are an industry leader in managing the most significant sustainability risks and opportunities. This adds to our already strong ESG ratings from ISS. For Royalty Pharma and our investors, we believe this is important as it supports our belief that we're conducting our business in the right way based on the core pillars of strong corporate governance, talent management, and a business model that is aligned with patients' needs. I want to close on slide 20 with a recap on why we believe we're well positioned to drive continued strong value creation. First, we're the long-standing leader in the rapidly expanding biopharma royalty market with powerful fundamental tailwinds reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies. By expanding our global platform and capabilities, we expect to remain the undisputed leader in our industry. Third, we expect to deliver strong, low volatility top and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including An IRR and return on invested capital in the mid-teens and return on invested equity in the 20% plus range. I have never been more excited about our future and the opportunities ahead. And with that, we would be happy to take your questions. We now open up the call to your questions.

Operator, please take the first question.

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Asad Haider with Goldman Sachs. Your line is now open.

Great, terrific. Thanks for taking the question and congrats on the continued strong execution. That's really great to see. A couple on pipeline economics. First, on Amgen and MDeltra, just in the context of the strong data in first-line small cell lung cancer seen at ESMO, which is really a standout, you know, just maybe talk about how this shifts your view of the overall opportunity versus what was reflected when you did the deal with them. And then second, in the context of the Pellicaceran failure, where you took a $150 million non-cash impairment charge, Can you just provide any context on economics on Amgen's Alpacerin and the impact of royalty if that trial also fails? Thank you.

Sure. Marshall, that's a question for you.

Sure. Good morning, and thanks for the question. I am . So, you know, thanks for pointing out the recent positive first line small cell lung cancer maintenance data. It was spectacular and is real. Real Advance for Patients. And we are certainly excited to have it in our portfolio. So it is a significant expansion in the marketplace. And I would say when we make these investments, we always think about a lot of scenarios and have to think through how the Thank you for joining us today. of you know our team's ability to identify you know really exciting therapies um wherever wherever those opportunities lie this time we were really happy to work with work with b1 to to to acquire this royalty so you know really i i think a great product and a great example of how we build our portfolio um and your second question was on old passer and So, yeah, we're a few days away from seeing all the detailed data, I think, at AHA this weekend. So, you know, so let's see what comes out of that and in the future what it might mean for what it might mean for all pass around in this class and this class going forward. And then we can have a have a more informed discussion about what it means

I think he was also asking about the economics and I think what's interesting for us there is that the royalty on Amgen's drug is bigger and we've made a bigger investment so potentially we could end up, if it works, we could end up having a really positive driver of growth and cash flow. Operator, next question, please.

Great. Thank you. Our next question comes from the line of Chris Schott with JPMorgan. Your line is now open.

Great. Thanks so much for the question. I said two here. Maybe first on just competition within therapeutic areas. It seems like the window between When we see a therapeutic breakthrough and when competition arrives, continues to shrink. And I think that seems particularly true with the rise of the Chinese biotech industry. I guess, do you agree with that view and how does that impact your approach towards deals? Does that lead you to focus on areas with less competition? Is it multiple deals per therapeutic area? Are some of these fast followers in some cases better companies to bet on? Just any perspective there would be great. and then the second question is you called out this Pharma co-funding deals you've had a billion dollars year to date I guess just with rising R&D budgets across the large cap space and a patent cycle approaching just can you frame out how meaningful an opportunity this this could be for Royalty as we think through the direction some of these large biopharma companies are going with their R&D budgets thanks so much thanks for the question and I think Marshall will take the first one and Chris the second one hi Chris good morning and great question so

Specifically, in terms of how we think about competition in therapeutic areas. And, you know, it is something that we think a lot about and certainly the dynamic of China as a new source of products, you know, definitely puts a finer point on it. There isn't one answer, as you alluded to. We definitely still think about how do we prioritize a lot of different factors, which is we've always said being first can be a major competitive advantage. Who is our partner? Whose hand is it in, and do we believe in their ability to execute? But then also we have the unique ability, as you pointed out, to make multiple investments in the same therapeutic area. And so we don't see it as a zero-sum game that we have to choose one. And I think it's a very unique aspect of our business. So if anything, as we've talked about, the increase in new programs has two tailwinds for our business. We don't just see it as competition. It's an opportunity for us. And I think number one, it gives us more opportunities to support companies. And it will certainly from the China perspective, as we talked about, we'll create more licenses, and that means more royalties. And a lot of those royalties are in the hands of some of the biggest, most capable companies in the world. And so we've, as we've talked about in the past, we've expanded our team to make sure that we have the team on the ground. in Asia to maximize those opportunities, and that team is off to a great start.

And on your second question, Chris, thanks for the question around R&D co-funding. We see this as a tremendous growth opportunity for us. As you've seen this year alone, we announced $1 billion of R&D co-funding deals, $500 million with J&J and $500 million with Teva. and those conversations and opportunities continue to accelerate uh in our in our deal funnel and you know it's obvious the reasons why the the amount of r d spend happening at our at pharma over the next five years is expected to exceed a trillion dollars the capital need is there uh the accounting framework is there especially under us gap and we've seen some companies take advantage outside of the United States under IFRS as well so that's a positive tailwind for us and as the companies see the deals announced it's opening up even more opportunities because they're seeing their competitors use R&D co-funding to expand their pipelines and accelerate their pipelines and so they themselves would like to do it as well so It's a confluence of tailwinds really pushing that opportunity forward and we're just super excited about it.

Thank you. One moment for our next question. The next question comes from the line of Mike Niedelkoslich with TD Cohen. Please go ahead, your line is open.

Hi, thanks for the questions. I have two questions and a follow up. My follow up is on old pass around. As you noted, we're going to get the phase three horizon data this weekend. I'm curious, Marshall, what specifically will you be looking for in the presentation to help you understand whether old pass around still has potential? That's one. My other question relates to RezonQ. Revolution Medicines declined to take tranche three of funding from Royalty Pharma, so it seems like a reasonable base case to assume the royalty rate will stay where it is now. I'm curious to what extent that's a swing factor relative to your $4.7 billion top line target in 2030, if at all. And then my last question relates to capital deployment. It looks like you're on track to deploy less capital this year relative to each of the last couple years. Correct me if I'm wrong on that. And I know that annual fluctuations are to be expected, but I'm wondering if there's any specific reason for this or if maybe we should look for a rebound in the near future. Thanks.

Yeah, so thanks for the question. Marshall will take the first one and then Terry will take the second one.

Yeah, thanks, Mike, and good morning. So yeah, we are looking forward to seeing the Pella Carson Horizon data this weekend and to understand, you know, really our first glimpse at understanding this target. And so I think there's going to be a lot of questions that we are looking to understand better. Is, you know, most basically, you know, Baseline factors like baseline LP little a or baseline LDL, how much did that impact it? Was there any evidence that pellicarsin itself played any role? And then are there other subgroups in there to really understand and give us a sense of give us a sense of who may or may not benefit from this target. So I think there's going to be a lot of detail, a lot of discussion this weekend, and we're certainly looking forward to learning more.

And then, Mike, on your second and third question, so on ResonQ, no impacts on 2030. We're still very confident in meeting or exceeding that guidance, so feel really good there. and then on your question on capital deployment you know I think it's first of all we're at 1.6 billion through today so versus historical years maybe it's a little bit lower but it's kind of in the range I think we all feel internally like we're extremely busy and we can't always predict the timing of when transactions are going to close that's why we've said you know since dating back to the IPO that the capital deployment was going to be kind of uneven from a year to year basis and you really needed to look at it on a multi-year basis we feel like there are a lot of great tailwinds there's still a couple months left in the year as well so so you know we'll see how how things shake out for the end of the year but we're we're very busy uh the pipeline's really strong um We feel like we're getting a lot of momentum in sort of the core areas we're focused on, you know, synthetic royalties, pharma R&D co-funding, and, you know, feel like over the long term, we're going to be very comfortable, you know, with the guidance that we've given, and then, you know, see a clear path to doing well ahead of that, you know, around two and a half billion dollars per year. So, So feel really good about it and stay tuned.

Thank you.

Thank you. One moment for our next question. The next question comes from the line of Jeff Meacham with Citi. Your line is now open.

Morning, guys. Thanks for the question. Just have a couple. The first is on deal structuring. So on deals where you have a novel mechanism or a disruptive class, let's say the LP little a category. Going forward, are you guys biased to more contingent considerations or, you know, have some protection to preserve your returns, maybe as a boilerplate type of, you know, type of structure? And the second one is that when you look at some of the categories, you guys have done some great deals the past few years, but there are still some big categories across Pharma, you know, that are high growth or high opportunity like GLP-1s or, you know, Neuro, for example. Is there still an interest in looking at opportunities like that? Maybe it's more competitive, but co-funding would be one solution for that. So I just want to get your perspective on some of the bigger opportunities and maybe do you guys have FOMO looking at some of those when you look at the range of deals? Thanks.

Yeah, thanks for the question. I'll take the first one on structuring and then Marshall can take the second one. but regarding structuring I think you know what we've done for three decades is been very open-minded about you know everything and the approach we take when we meet with companies is that we want to understand their needs their constraints and understand the asset really well and we you know what I tell the team often is we need to approach everything with a you know sort of open mind and sort of you know blank piece of paper obviously the experience Thank you very much. That is what drives more long-term value creation. So that's an important thing for us. And in terms of downside protection, yes, often interesting, useful. But we actually are really focused on understanding the risk-reward profile really well. And because downside protection, It's not a good way of thinking about a business when you're deploying capital. We get the kind of protection by diversifying and having great assets in the portfolio. But I'll stop there and let Marshall take the second question.

Hi, Jeff. Thanks for the question. I think our core approach hasn't changed. We are absolutely open to every therapeutic area, every modality, and it's really about what it has always been over those same three decades, which is identifying great products in the hands of great partners and structuring a win-win transaction and we show a lot of discipline so we don't really think of it as FOMO it's more a matter of you know when when we find the right thing in a given therapeutic area we will go after it aggressively and I think our I think our track record proves out our ability to do that. We are though focused on expanding the number of ways that we can work with partners so that we are the best positioned player in our industry. And so that's why, you know, as you mentioned, R&D co-funding and that growth is another, you know, broadens the aperture of the number of companies and products that we can work with. We mentioned China as another way that we continue to make sure that our platform and our team is positioned to work with as broad a spectrum of companies and partners and products and therapeutic areas as possible. And so we again have a very full and active pipeline that's highly diverse across many, many therapeutic areas. And that underscores the optimism that Terry just talked about. Thanks guys.

Thank you. One moment for our next question. The next question comes from the line of Terrance Flynn with Morgan Stanley. Your line is now open.

Great. Thanks for taking the questions. I guess first on lidophilumab, we're expecting some upcoming phase three data in SLE this year and then CLE next year. I know Baijin has talked about lupus being an $8 billion commercial opportunity. I saw you had highlighted some of the sales potential on your slides, but maybe Marshall, you could just talk through how you guys are thinking about the commercial opportunity both in SLE and CLE. And then the second question is just on China. I know you guys have people on the ground now over there, so just any update in terms of how that ramp is going and when we might expect to see some capital deployment on the China side. Thank you.

Marshall, why don't you take the Litophilimab question and then maybe Chris can take the China question.

Hi Terrance, good morning and thanks for the question on Litophilimab. We are getting excited to see the Biogen, SLE data coming up. Just as a reminder for everyone, we did a 250 million dollar R&D co-funding agreement with Biogen to fund the phase three trials for lidophilumab in two indications, SLE and CLE. and I think we are excited about both of them and this deal was structured in a way that makes a lot of sense for our shareholders and I think if either one of them proves to be successful, this is going to be a great investment and if both are successful, it will be even better. Our view on lupus has been that this is an area of significant unmet need and there's a need for new products. And I think one of the things we've seen in other spaces in autoimmune and INI more broadly is that the categories grow and the market grows significantly as you have more products and more companies and doctors and patients have options. And so I think what Biogen is doing here, they have a great program. They've executed really nicely against lidophilumab. And I think having another product here is going to grow the market. and then also interestingly starting to subset the market with CLE and being able to really focus and offer a new option for those patients as well. So we think this can be a big product and excited to see the data and it'll be a nice addition to our portfolio and a great example of how R&D co-funding allows us to access a broader spectrum of products.

And on your second question, Terrance on China. Thanks for the question. You know, it's obviously a very exciting and strong strategic longer term market opportunity for us. You've seen the rapid and growing out licensing that has occurred out of China into Western multinationals. I think in 2020, I think there was only around two Outlicensing deals and therefore royalties created versus over 50 last year. So the growth is exponential. We feel we've already deployed capital last year when we bought B1's royalty on Amgen and Delta for over $900 million. That certainly caught the attention of a lot of the Chinese pharmaceutical companies when they saw that. And so that was a great example of how we can work and Deploy Capital in China. We obviously hired Ken Sun who ran Morgan Stanley's healthcare Asian business. He's on the ground and up and running. We spent a lot of time in country with him and continue to develop those relationships. And as those out licensing deals mature, we're obviously tracking all of those products and programs that were out licensed to Western multinational companies. And as they mature, through the pipelines at the big pharma companies that in license those programs. That's where we can strike and really hope to obtain those royalty streams from the Chinese companies. It's a really exciting opportunity for us. We're excited to hire Ken and we're excited to see what the future holds on acquiring those royalties.

Thank you. One moment for our next question. Our next question comes from the line of Ash Verma with UBS. Go ahead, your line is open.

Hi, thanks for taking my question. Maybe just I wanted to understand your thought process and pursuing royalty transactions with private companies. Obviously, most of the deals have been with the public, but you've done the private. Is that something that could become a bigger piece of the pie and what potentially is holding it back? and then secondly a lot of focus on AI in general is everything but I guess one question that I had was around how are you using AI in your day-to-day investment process either to process the ideas at a much faster pace or any other way like getting up to speed on the opportunities or driving the partnership discussions. Thanks.

Ash, thanks for the question. I'll take a first crack at it, but then maybe Marshall can get in some of the specifics of AI and the investment process. But regarding private companies, I mean, there's absolutely no restriction or issue. Our business model is totally open-ended, and we can do transactions with private companies, public companies. I think there are interesting opportunities for us in the case of private companies to actually be there and provide capital because for some of these private companies, funding is more complicated, right? They don't have access to the capital markets where sometimes capital is more readily available at bigger scale, lower cost. So we can, in those cases, be incredibly effective and add a lot of value to those companies. also you know we have situations where in M&A where these private companies can be acquired by bigger companies and we can come in and help fund the pipeline so that it's not dilutive to the bigger companies but we have done you know transactions with private companies over and over again and that really shows how the reach of our business and you know Two of them are actually what we did with Servier and with Voronego. Obviously the transaction we acquired from a public company, but then also fairing. So we have a track record doing things with these companies. And AI is something that is really important for us. As you know, we hired a great person that is leading our efforts there. Lucas Glass, that was the head of AI for IQVIA. And I can tell you that in the six months since he has joined us here, he's starting to have a real impact in how we approach things and the depth and breadth of our analytical capabilities. But Marshall, why don't you maybe take that question also?

Absolutely. Hi, Ash. As Pablo mentioned, we have been really aggressively pursuing integrating AI into multiple aspects of our business. Certainly, the research and investments process is just one of them. Lucas has been an incredible addition to the team. Specifically to your question, how we've been using it, I think it's really multiple ways to rethink, invigorate AI. reinvigorate our our our research process and make sure that we're doing that that we are at the absolute forefront of how this is done in our industry and it is about yes it is about identifying things identifying more things looking more broadly helping us do that it is about helping us move move faster but I think the other really powerful thing that we're seeing is it's really allowing us you know greater and greater analytical depth over time and you know we are being able to look at more data certainly do it more broadly more quickly um and it's been and it is and it is really really exciting and I think the the entire team is is engaged in this and so we it's we are off to a super strong start and are really excited about where this will lead us great thank you

Thank you. One moment for our next question. The next question comes from the line of Umar Rafat with Evercore. Your line is now open.

Morning guys. Thanks for squeezing us in. I wanted to touch up on a couple of products. Perhaps first, congrats again on Esmodata with the Tarlatamab. I guess what I was trying to understand is, so it's a 7% royalty on worldwide sales. But my understanding is there's some royalty sharing with B1 above $1.5 billion, which is really where the maintenance data starts to take effect. So is your royalty above $1.5 billion half of that 7%? We just wanted to put some parameters on that. Secondly, on Lipotilumab, obviously important phase three is coming up. I'm just trying to think about how you see the commercial opportunity between systemic versus cutaneous, the sales breakdown, but also How it ties together with some of the breakthrough designations we're seeing on oral TLR7 and 8. And then finally, a quick clarification, if I may. I think on the IL-15 collaboration with Teva, you guys mentioned a $500 million commitment, of which I think $75 million co-funding was for Vitiligo in particular. I guess I just wanted to confirm, the scope of your arrangement is on the molecule, meaning any progress on celiac would also be part of that. Thank you.

Yeah, thanks for the question, Umar, and it's good to hear you. Marshall can take the question on litophilimab and the IL-15 deal with Teva, and then Terry can address the other question about Indeltra and the economics there.

Perfect. Yeah, we'll answer you in a slightly different order. So first on the commercial opportunity for SLE and CLE, we're honestly excited about both of them. The CLE is obviously a kind of a newer indication and market that is going to take time that it will take some time to develop. But I think certainly, you know, having a product there and importantly, as we've seen having multiple products in the space is really what is really what grows is really what grows a category over time. So We think that having multiple products is a positive and actually makes the opportunity bigger. So we haven't said specifically what we think the relative contribution is, but we think they are both significant opportunities. On your second question on IL-15, so yes, just to be crystal clear about this, so it's a $500 million commitment. of that it's structured it's 75 million dollars to help fund the phase to be in vitiligo and then the balance 425 million dollars would go to fund the phase three the the phase three trial in vitiligo but that but the royalty is on all indications for the IL-15 program. So wherever that, wherever it goes in the future, there's been a lot of focus on Celiac and that's certainly exciting to see, we will get a royalty on our sales. It was structured based on, it was structured to Vitiligo as a trigger for funding Simply because that was the more sort of concrete development program at the time. So it was much easier to bring capital in through that when and so we could structure that and move forward. Whereas the Celiac program still still developing. And so we and so it was triggered to trigger to vitiligo, but it is a royalty on all sales in all indications.

And then, Umar, on your question on Indeltera, we haven't given really a lot of specifics there, but what I can say is, you're right, we share above $1.5 billion with B1. I think the way to think about it is that, and there's different tiers, but as we get above $1.5 billion, up until about $2.5 billion, we really have the vast majority. and then above that we still have a significant majority, maybe not quite as much as that point between one and a half and two and a half billion. That's really helpful actually. Thank you.

Thank you. One moment for our next question. Our last question comes from the line of Jason Gerberry with Bank of America. Go ahead, your line is open.

Hey guys, thanks for taking our question. One on ECOPIPAM, just curious, what do you see as sort of the key determinants of pricing power for this asset? You know, is it something that in the labeling outcomes here, you know, I'm just curious, do you think there's a lot of pricing power here given the availability of some generic alternatives? So I'd just love to get your high level perspectives there. And then one for Pablo, just As you wake up this morning to the midterm results, I'm just wondering if you have any unique perspectives as to what things look like in the next few years on the drug price policy side of the equation. I think the consensus view is just gridlock and maybe some congressional hearings, but wondering if you have any unique perspectives here in longer term, I guess, risks to the existing U.S. government agreements and potentially democratic champions of Medicare for all, just

Thanks for the question and I'll take the one about the political situation and then Marshall can take the other one. I think it's early days to see how this is going to evolve. We're going to obviously pay a lot of attention to what happens in the next weeks, months, but Maybe just stepping back, I want to provide a perspective that I think analysts, investors underappreciate. It's something that I think maybe now it's better understood because obviously investors have paid more attention and our stock has done well. What is unique about Royalty Pharma, when I look at three decades of running it, building it, is that the business can do well in good markets, bad markets, and we've lived through so many cycles in the financial markets, and the business has done remarkably well. We can do well in different political environments, different kinds of administrations, and that is something very unique that has allowed us to really deliver incredible performance, returns, growth over three decades. I think the one thing that is important is for the US to maintain its lead in funding of innovation and continue to invest in basic science, continue to invest through NIH in academic research. And I think, you know, That will continue in my mind. I think maybe the chances now of US supporting research have increased, which is what the public wants, what the US population wants. They've always been supportive of that. So I think I'm excited about the performance of our business long term and really don't see any negatives in what's happened politically. But Marshall, I'll turn it back to you on the other question.

Sure. And then on Echo Pipem, thanks for the question. Before getting the specifics of your question, I think this is a good opportunity to just remind everyone of our investment in Echo Pipem and how it came to be and brings together some of the themes from prior questions, which is This was a royalty that our team identified on a product in development for what is really a new indication where there's been essentially no innovation that was being developed by a private company and we got excited about it and bought the royalty that was subsequently acquired by Teva and now is in the hands of a company that can really maximize its value. So I think a great example of our ability to identify identify novel opportunities and in being open to new therapeutic areas where there might not be a lot of focus elsewhere in our space. Specifically on pricing, probably a better question for Teva. I think we certainly think that, you know, Teva, given what they've done, you know, commercializing, you know, branded products, you know, everyone has seen how well they've executed. And so we certainly have all the confidence in the world that they will be able to execute at the same level for Ecopipam. And, you know, the fact that this is a first in class molecule in a disease, in a condition that has not seen innovation in decades. you know suggest that Teva will have some flexibility in how they price and how they position the product and we're excited to see that happen.

Great, thanks guys.

Thank you. This concludes the question and answer session. I will now turn it back to Pablo for closing remarks.

Thank you operator and thanks to everyone on the call for your continued interest in Royalty Pharma. If you have any follow-up questions, please feel free to reach out to George Grofik and his team. Thanks.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.