Royalty Pharma plc Class A Ordinary Shares Morgan Stanley 24th Annual Global Healthcare Conference

Well, first of all, thank you for the invitation to participate in your conference, and for the relationship with you and Morgan Stanley, which has been key to our growth over decades. Yes, we have been able to invest the amount we guided when we went public, $10 billion-$12 billion quicker, a year quicker. That is obviously because the deal flow has been really robust. It continues to be very active. There are a couple of things that have become real opportunities for us that I think we did not guide to when we went public in 2020. The guidance just for everyone, so we all are all on the same page, was $2 billion-$2.5 billion per year and $10 billion-$12 billion over five years.

The two things. A lot of that guidance was based on deals that we had been doing for decades, buying royalties from universities, hospitals, foundations, biotechs, pharmas on approved products, but also funding late-stage trials in what we call synthetic royalties that had become a really important part of our business. The two things that are new that were not that important at the time were deals with big pharma in China, and those have materialized. I will briefly mention, talk a little bit about both. In the case of big pharma, you saw us last year do a deal with Biogen funding a really exciting lupus drug that they refer to as the crown jewel of the company, a deal with Teva on an LAI, a long-acting injectable for schizophrenia.

This year, a deal with Teva on a drug for vitiligo, a half a billion-dollar deal, then a deal with Johnson & Johnson. A really exciting deal where they are combining two antibodies. It is a market we know extremely well because we have been investing in this therapeutic area for decades with HUMIRA, REMICADE, and CIMZIA in the early stage drug, then TREMFYA. This one is a combination of TREMFYA and SIMPONI, essentially to try to treat patients that are progressing. A half a billion-dollar investment. We had done deals in the past with Merck and other companies, but I think the fact that a company as important as Johnson & Johnson has decided to do this with one of their top programs really sends a signal to the industry that this is something that is worth doing for big pharma.

That has resulted in so many discussions we are having daily with big pharmas globally, not only in the U.S. It is very active. I think we have a decent chance of this really becoming an important driver of growth for Royalty Pharma. It is a whole new thing. We are very excited about it because it will require many billions of dollars per year. Obviously, we have to be very selective and see what we want to fund. The other opportunity is China, that we actually have now really made steps to be present in that market, hiring one of the top bankers in Hong Kong focused on China. He is in the room, Ken Sun, and he is going to help us build a business there.

We did a large deal last year with BeiGene for $900 million-plus upfront, buying a royalty on amgensim delta in that product. We can talk later if you want to more details as to why China and what we see exciting in China and also big pharma. Obviously, the capital deployment has been very strong, and we think it is going to maybe accelerate. I think are we going to invest more than $2 billion, $2.5 billion per year? We have been doing that. I think we will continue to do it, but we still want to be conservative in terms of the guidance. I think how much capital we deploy is important. I think another metric that is important for us is the top-line growth, and we have guided to double-digit top-line growth through 2030.

I think it will go on for much longer than that given all of these growth drivers.

We started this in 2012 when we decided to actually, in addition to investing in approved products where there was already a license in place, we said we're going to fund late-stage clinical trials for biotech and pharma. We practically started that in 2012. Since then, we've deployed $28 billion, of which about $18 billion is in approved products and $11 billion is in products in development. So it's become an important part of our business. We started to talk to Big Pharma back then, and I had a meeting one-on-one earlier today when someone was asking, is there a negative bias there with Big Pharma that they may want us to fund the less interesting products in their pipeline? Absolutely, there was a negative bias initially.

We would go and talk to these big companies, and I'm going to give some numbers just to illustrate, but big company that might have 80, 90 programs in phase I, phase II, and phase III, and they might have in their P&L. It's not about cash because they have cash. They might have $30 billion of cash, $20 billion of cash. It's about the P&L. They might have a P&L budget where they have R&D of $12 billion per year. That $12 billion allows them to fund 60 programs, but they cannot fund programs 60 to 90. 30 programs that get delayed or shelved.

When we started to talk to them, they would say, "Oh, look at the bottom 30." We would say, "Thank you, but no thank you." How are we going to get excited with a program that you're not excited about and you've decided not to fund? We would say to them, and eventually we managed to figure out how to persuade them to open up and let us look at the more interesting programs. What I would say to them is, "We want to win with you. If we want to be your partner, if you want us to be your partner in 5 years, 10 years, we need to win with you.

So we need to be funding the top programs, and we're going to be able to put a lower discount rate on something that is priority." The math also works, Terence, because if you think of us funding one of the bottom programs, we're not going to do it because there's no interest. Why would we do it? But just as a mathematical exercise, if the drug is going to be smaller, $0.5 billion, for us to put a lot of money on the table, hundreds of millions, so that it really matters for them, we would require high royalty. Big burden. Doesn't work. If we are able to fund some of the top programs, multi-billion dollar drugs, we can put hundreds of dollars on the millions of dollars on the table, and ask for a mid-single digit royalty. The math works. Everything works.

Now, how does this work? Years ago, there was a transaction that was taken to the SEC by a Big Pharma, and unfortunately, the conclusion after analyzing the accounting was negative. It really slowed down building this business for us. We didn't like it, and we said, "No, we need to fix this because we want to build a business funding Big Pharma." So we had to go out, hire a guy that used to work in an accounting, one of the top accounting firms that his job was to work with Big Pharma, how they account for deals. Brought him in. With him, we spent years, four or five years, trying to fix this, and we managed to do it. We were able to change the way that FASB and the accounting firms account for these transactions. The solution is that it's contra R&D.