Calculating the cash flows thrown off by drug treatments

Royalty Pharma pioneered the blockbuster business of accurately calculating the cash flows thrown off by all types of drug treatments. Public market investors are usually sceptical at first about novel businesses. But the opposite seems to be true for Royalty Pharma which has taken advantage of a red-hot market for life science companies. Earlier this week its IPO, the biggest listing of the year, raised more than $2 billion in total proceeds with cash raised both going to the company as well as paying out early shareholders. By Wednesday, its shares had nearly doubled from its IPO price valuing its equity at a whopping $30 billion. Since its founding in 1996, Royalty Pharma has deployed $18 billion to acquire dozens of drug royalties. Its current portfolio has 45 treatments though more than half of its revenue comes from just five… Royalty Pharma’s financial metrics are unique. It emphasises non-GAAP cash flow figures such as “adjusted cash receipts” and its own version of “adjusted ebitda”. The company, unsurprisingly, feels like a private equity firm… Still, the business model is relatively straightforward: pay upfront to pharma companies, biotechs, universities and hospitals which need liquidity and to derisk their businesses, in exchange for steady and growing cash flows. And then use those cash flows to pay out healthy dividends. 

Lex.

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