Royalty Pharma Eyes AI, China Growth While Navigating Biopharma Policy Shifts

Key Points

• Royalty Pharma is expanding its strategic capabilities by using AI to accelerate diligence, improve forecasting and potentially support partners with clinical-trial design. It is also building a China team, initially targeting royalty streams from licensing deals involving Chinese drug developers.
• The company is preparing for policy uncertainty, including potential U.S. most-favored-nation drug-pricing rules and U.S.-China tensions, by modeling multiple pricing, market-access and commercialization scenarios. China-related investments are excluded from its $2 billion–$2.5 billion annual deployment outlook because the opportunity is expected to take time to mature.
• Management emphasized disciplined capital allocation, investment-grade leverage and portfolio diversification. Royalty Pharma reviewed 480 opportunities but completed only eight transactions last year, while expecting its three largest products’ share of revenue to decline from about 45% currently to roughly 30% by the end of the decade.

Royalty Pharma NASDAQ: RPRX executives said the company is monitoring a shifting biopharma policy environment, expanding its artificial-intelligence capabilities and building a presence in China, while maintaining a disciplined approach to capital deployment and leverage.

Speaking during a fireside chat, Chief Financial Officer Terry Coyne said policy developments in Washington remain fluid ahead of the midterm elections. He cited most-favored-nation, or MFN, policies as an ongoing topic of attention but said the company does not have a firm view on how the policy landscape will ultimately develop.

On potential effects outside the U.S., Coyne said the implications for drug pricing and commercialization in Europe are still “largely TBD.” However, he said Royalty Pharma incorporates a range of outcomes into its investment models, including whether products launch in certain markets, differences between U.S. and international pricing, and potential effects on U.S. prices.

AI Focused on Diligence and Strategic Partnerships

Coyne said Royalty Pharma views artificial intelligence primarily as a way to improve and accelerate due diligence rather than simply increase the number of transactions it completes. AI could help the company process information from pharmaceutical and biotechnology partners more quickly, improve forecasts and identify issues earlier in the evaluation process, he said.

The company hired an executive earlier in the year to lead its AI effort, according to Coyne. The hire previously led AI efforts at IQVIA. Over time, Royalty Pharma also sees potential to offer AI-related capabilities to partners, including support for clinical-trial design.

“We don’t want to be viewed as purely financial partner,” Coyne said. “We want to be viewed as a strategic partner to help our partners grow.”

He said these resources may be particularly useful for smaller biotechnology companies with fewer internal capabilities, while larger pharmaceutical companies generally have substantial expertise in running clinical trials.

China Opportunity Expected to Take Time

Greg Butz, executive vice president of partnering and investments, said Royalty Pharma is investing in a local team and educating companies in China about royalty financing. The company hired Ken Sun from Goldman Sachs to build its team in the region, with Sun based in Hong Kong.

Butz said the company’s initial focus is on passive royalties held by Chinese companies following the rise in licensing deals between Chinese drug developers and Western pharmaceutical companies. Those royalties are tied to products expected to be developed and commercialized in Western markets.

Royalty Pharma does not include contributions from China in its stated annual capital-deployment target of $2 billion to $2.5 billion, Butz said, reflecting the time needed for the market opportunity to mature. Coyne added that many products underlying these royalty streams have not yet reached the market, though some could become more actionable as late-stage clinical data emerge over the next several years.

On U.S.-China policy risk, Coyne said the company generally purchases royalties connected to products controlled by Western companies, with royalty structures typically located outside China. He said the longer-term question is whether policy could slow Western pharmaceutical companies’ licensing activity involving Chinese assets.

New Funding Structures and Capital Deployment

Executives also discussed Royalty Pharma’s transaction with Revolution Medicines, which they described as an example of funding late-stage development and allowing a company to remain independent longer rather than immediately pursuing a large-pharma partnership.

Butz said the structure has generated inbound interest and could be repeatable, though each transaction would be evaluated individually for risk and return. Coyne said synthetic royalties can complement equity, convertible debt and licensing proceeds as part of a biotech company’s broader capital structure.

“We don’t want to ever feel forced to deploy capital,” Coyne said. He characterized the company’s $2 billion to $2.5 billion annual deployment outlook as a conservative modeling assumption rather than a ceiling, adding that the company reviewed 480 opportunities last year and completed eight transactions.

Coyne said future payments under existing commitments, including a $500 million clinical-trial co-funding commitment with Johnson & Johnson, are included in annual capital-deployment figures as the cash is funded.

On leverage, he said Royalty Pharma could increase debt levels for a particularly compelling transaction but would generally not go above four times leverage and would seek to delever quickly. He said the company is rated BBB by all three major rating agencies and intends to preserve its investment-grade status.

Portfolio Diversification and Pipeline Readouts

Coyne said Royalty Pharma’s three largest products currently account for about 45% of revenue, compared with roughly 55% for a typical pharmaceutical company. By the end of the decade, the company expects its top three products to represent about 30% of revenue as other products ramp and new investments are added.

The company expects several clinical and commercial updates over the next 18 months, including a cutaneous lupus readout for Biogen’s litifilimab by the end of 2026 and systemic lupus data in 2027. Other assets identified by Coyne included daraxonrasib, frexalimab in multiple sclerosis and full data for pelabresib.

Coyne said Royalty Pharma has continued to grow despite loss-of-exclusivity headwinds, citing prior losses of royalties tied to Gilead’s HIV franchise and Merck’s Januvia, as well as the genericization of Plaquenil. He said Xtandi is expected to face U.S. generic competition in late summer 2027, which could have a limited fourth-quarter effect, while the company otherwise sees a relatively clean 2027 from a loss-of-exclusivity standpoint.

About Royalty Pharma (NASDAQ:RPRX)

Royalty Pharma plc is a biopharmaceutical royalty company that provides funding to life sciences companies in exchange for rights to receive future royalty payments from commercialized or late-stage therapies. Rather than developing and marketing medicines itself, the company invests in pharmaceutical and biotechnology innovations and seeks to generate income from the resulting royalty streams.

Its portfolio is linked to a range of therapies across areas including oncology, immunology, neuroscience, rare diseases and other specialty markets.

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