General Atlantic-backed Royalty Pharma makes big IPO splash

General Atlantic invested approximately $415m in the biopharma royalty giant in Feburary, according to a source familiar with the matter. 

Investor excitement around Royalty Pharma’s public debut is another example of why more PE firms want to access the upside of life sciences and therapeutic innovation. 

In the largest IPO of 2020 so far, Royalty Pharma went public at a nearly $17 billion valuation Tuesday.

Led by billionaire Pablo Legorreta, Royalty Pharma is the biggest player in a niche area of the life sciences ecosystem. The company acquires the future royalty streams of drugs and co-funds late stage clinical trials, acting as a crucial funding source for biopharmaceutical development.  

“Royalty Pharma will act as another positive data point that people are going to look to – versus a new catalyst – as more PE players continue to come into life sciences and pharma,” said Peter Lafer of General Atlantic, a pre-IPO investor in the company.

The global growth-equity firm, which did not sell any shares in the offering, is poised to ride the continued growth of Royalty Pharma. The company raised $2.2 billion in its Tuesday IPO, with shares skyrocketing 59 percent to finish the first day of trading at $44.50. 

It was less than five months ago that General Atlantic struck an investment in Royalty Pharma. Its February growth equity investment was valued at approximately $415 million, according to a source familiar with the matter. 

Royalty Pharma’s other pre-IPO investors include Adage Capital Management and Nogra Group. 

The world is turning toward biotech and pharma for a solution to covid-19, according to Lafer, vice president and a member of GA’s life sciences team. But covid or no covid, “the assets that Royalty Pharma pursues are critical, lifesaving drugs for patients really in need.” 

For example, the 22 therapies in Royalty Pharma’s portfolio in 2019 included treatments for rare diseases, oncology, neurology, HIV, cardiology and diabetes. “We believe this is a durable model,” Lafer said, and “not a ‘because-of-covid’” model or growth story.

As drugs become more complex with more stakeholders involved in the R&D process, Lafer said the royalty market will likely become more important and robust.

The company said in its S-1 filing that it has deployed a total of $18 billion of cash to acquire biopharma royalties, as of December. That equates to more than 50 percent of all royalty transactions since its founding almost 25 years ago, the company said. 

“They’ve [Royalty Pharma] really created this category that has become critical to funding future therapeutics and innovation,” he said. 

“We really do view this ultimately as a biopharma company,” Lafer said. “What drives them is the sales of drugs for which they have royalties. What drives them is the exact same thing that drives Pfizer or other big biotechs you’re looking at.” 

Royalty Pharma was founded in 1996 by Pablo Legorreta, a pioneer in the biopharmaceutical industry. 

The company has a long track record of growth, reflected by its financial performance. 

Royalty Pharma grew its adjusted cash receipts at a CAGR of 11 percent from 2012 to $2.1 billion in 2019. Alongside operating cash flow of $1.7 billion, it posted a $2.45 billion profit in 2019, up from $581 million in 2015. 

Action Item: Check out Royalty Pharma’s S-1 filing for more info