002. Royalty Pharma ($RPRX)
Tagged Tickers: RPRX.
Just thought I’d show the interesting business of Royalty Pharma. This company pioneered the royalty business in pharmaceuticals and functions exactly like you’d think royalties would work in something more familiar like the music business where the artist (or their label) gets a part of the sales of records, shows, merchandise, etc.
They provide funding and counsel with their board packed with physicians and long-time pharmaceutical leaders to companies which need some help to get through the later stages of clinical trials in exchange for a percentage of the top-line sales should they succeed. This enables RPRX to mitigate their exposure to the early-stage development risk while still being able to profit from the longevity of products, non-cyclical revenues, and the high barriers to entry. They’ve acquired royalties on 35 commercial products resulting in $3.2 billion dollars in royalty receipts in 2022, up from $2.6 billion in 2021 (breakdown attached *numbers represented in thousands*).
This company exists in a space between a financial services company and a pharmaceutical consulting firm and found a method to dominate the space. From 2012 on, 60% of all royalties on pharmaceutical belong to RPRX and then when looking the largest deals (>$500 million), 86% of them belong to Royalty Pharma. In the same time period (2012 – 2023) they’ve been able to complete $24 billion in transactions, their closest competitor in the same timeframe is estimated to have done about $3 billion. Royalties on pharmaceutical products are still uncommon but seeing how profitable and successful this company is, I would only expect wider adoption.
This company just reminds me that there are entire industries generating billions of dollars, that you may have never heard of.
Check out the company if it interests you and let me know what you think of this business model.