Full Press Release Details
ROYALTY PHARMA ANNOUNCES TRANSFORMATIVE
COMPANY'S EVOLUTION WITH ACQUISITION OF ITS EXTERNAL
MANAGER AND $3 BILLION SHARE REPURCHASE PROGRAM
NEW YORK, NY, January
10, 2025 - Royalty Pharma plc (Nasdaq: RPRX) today announced two major steps to enhance
Henry Fernandez, lead independent director of Royalty
Pharma's Board of Directors and Chairman and Chief Executive Officer of MSCI Inc., said "the Board of Directors of Royalty
Pharma is pleased to announce this transaction which it believes increases shareholder alignment and enhances corporate governance. Coupled
with the new $3 billion share repurchase authorization, we expect these actions to drive shareholder value creation over the long-term."
Pablo Legorreta, founder and Chief Executive Officer
of Royalty Pharma commented, "We see the internalization of RP Management as a highly compelling next step in the evolution of our
business which will yield many financial and strategic benefits to shareholders. We are also planning to significantly increase our share
repurchases given the discount at which our shares are trading relative to intrinsic value. Our strong balance sheet and healthy cash
flow will allow us to execute this plan while continuing to add attractive new royalties to our portfolio."
Key Strategic Benefits to Shareholders
The internalization transaction is expected to provide
multiple significant benefits to shareholders including:
RP Management Internalization Transaction Terms
Royalty Pharma will acquire the Manager
for approximately 24.5 million shares of Royalty Pharma equity that will vest over 5 to 9 years, approximately $100 million in cash1,
and the assumption of $380 million of existing Manager debt. The total transaction value of approximately $1.1 billion (based on the
closing price of Royalty Pharma plc common stock of $26.20 on January 8, 2025), with the majority paid in long-term deferred equity,
is expected to be more than offset by cumulative cash savings of greater than $1.6 billion over the next ten years. The equity component
will represent approximately 4% of shares outstanding, assuming all shares vest.
1 The cash component of the
consideration consists of $200 million in cash less the amount of the management fees paid to the Manager from January 1, 2025 through
the closing of the transaction. The transaction is estimated to close during the second quarter of 2025 and the management fee paid through
the closing is expected to be approximately $100 million.
Royalty Pharma plc will continue to be obligated to
pay Equity Performance Awards (which are based on long-term investment performance) on existing and future investments on the current
The closing of the internalization transaction will
be subject to shareholders' approval of the issuance of the share consideration and other customary closing conditions, including
required regulatory approvals. Members of the Board of Directors and management of Royalty Pharma who control approximately 25% of the
fully diluted shares of Royalty Pharma have agreed to vote in favor of the transaction. The transaction is expected to close during the
second quarter of 2025.
Increased Share Repurchase Program
Royalty Pharma plc's Board of Directors has approved
a $3 billion share repurchase program. Reflecting the company's confidence in its strong fundamental outlook, the company intends
to repurchase $2 billion of shares in 2025, subject to market conditions. The total value of shares repurchased will depend on the discount
to the intrinsic value at which the shares are trading. This $3.0 billion share repurchase program replaces the unused $465 million of
the company's original $1.0 billion share repurchase program that was announced in March 2023.
Maintaining Guidance for New Royalty Investments,
Dividend Policy, and Commitment to Investment Grade Credit Rating
Royalty Pharma will maintain the financial capacity
to execute on its previously announced guidance for average annual capital deployment of between $2.0 and $2.5 billion per year. Royalty
Pharma also remains committed to growing its dividend by mid-single digit percentages annually and maintaining its investment grade credit
Background on the Manager
Royalty Pharma has been externally managed since its
founding in 1996, and the Manager conducts all aspects of Royalty Pharma's business and operations. The Manager is owned by Pablo
Legorreta and other members of senior management. Prior to this transaction, Royalty Pharma had no employees, but instead relied on the
employees of the Manager to manage the business. Royalty Pharma currently pays the Manager a quarterly management fee of 6.5% of Portfolio
Receipts and 0.25% of the value of security investments. The management fee expense is reported within General and administrative expenses
in Royalty Pharma's consolidated statements of operations and the cash paid is reported as Payments for operating and professional
costs on its consolidated statements of cash flows and within its non-GAAP liquidity measures. Following the closing of the internalization
transaction, Royalty Pharma will cease to be externally managed and will operate as an integrated company with all current employees of
the Manager becoming employees of Royalty Pharma.
Prior to 2024, Pablo Legorreta was the sole owner of
the Manager. In early 2024, with a view to further institutionalizing the Manager and creating an orderly path for long-term succession
and management continuity, 35 members of the management team were granted equity interests in the Manager that vest over 10 years. Members
of management other than Pablo Legorreta will receive approximately 50% of the equity consideration issued in the internalization transaction.
That equity will continue to vest through 2033, creating a powerful retention and incentivization tool, enhancing the partnership culture
at the company, and further aligning management's compensation with long-term shareholder returns. In addition, Pablo Legorreta's
ownership in the Manager was not subject to vesting prior to the internalization transaction as he was the founder of the Manager. However,
instead of receiving his
share of the equity issued in the internalization transaction
outright upon closing, Pablo Legorreta agreed that the shares of Royalty Pharma he will receive will vest over five years.
Morgan Stanley & Co. LLC is serving as financial
advisor and Davis Polk & Wardwell LLP is serving as legal counsel to the Board of Royalty Pharma plc. Evercore is serving as financial
advisor and Akin Gump LLP is serving as legal counsel to RP Management, LLC. BofA Securities, Inc. is also providing financial advice
to Royalty Pharma plc.
Royalty Pharma will host a conference
call and simultaneous webcast to discuss the transaction today, Friday, January 10th at 8:30 a.m. Eastern Time. Please visit the "Investors"
page of the company's website at https://www.royaltypharma.com/investors/events/
to obtain conference call information and to view the live webcast. A replay of the conference
call and webcast will be archived on the company's website for at least 30 days.
About Royalty Pharma
Founded in 1996, Royalty Pharma is the
largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry, collaborating
with innovators from academic institutions, research hospitals and non-profits through small and mid-cap biotechnology companies to leading
global pharmaceutical companies. Royalty Pharma has assembled a portfolio of royalties which entitles it to payments based directly on
the top-line sales of many of the industry's leading therapies. Royalty Pharma funds innovation in the biopharmaceutical industry
both directly and indirectly - directly when it partners with companies to co-fund late-stage clinical trials and new product launches
in exchange for future royalties, and indirectly when it acquires existing royalties from the original innovators. Royalty Pharma's
current portfolio includes royalties on more than 35 commercial products, including Vertex's Trikafta, GSK's Trelegy, Roche's
Evrysdi, Johnson & Johnson's Tremfya, Biogen's Tysabri and Spinraza, AbbVie and Johnson & Johnson's Imbruvica,
Astellas and Pfizer's Xtandi, Novartis' Promacta, Pfizer's Nurtec ODT and Gilead's Trodelvy, and 14 development-stage
product candidates. For more information, visit www.royaltypharma.com.
Forward-Looking Statements
The information set forth herein does not purport to
be complete or to contain all of the information you may desire. Statements contained herein are made as of the date of this document
unless stated otherwise, and neither the delivery of this document at any time, nor any sale of securities, shall under any circumstances
create an implication that the information contained herein is correct as of any time after such date or that information will be updated
or revised to reflect information that subsequently becomes available or changes occurring after the date hereof. This document contains
statements that constitute "forward-looking statements" as that term is defined in the United States Private Securities Litigation
Reform Act of 1995, including statements that express the company's opinions, expectations, beliefs, plans, objectives, assumptions
or projections regarding future events or future results, in contrast with statements that reflect historical facts. Examples include
discussion of Royalty Pharma's strategies, financing plans, growth opportunities, market growth, and plans for capital deployment,
plus the benefits of the internalization transaction, including cash savings, enhanced alignment with shareholders, increased investment
returns, expectations regarding management continuity,
transparency and governance, and the benefits of simplification