NEW YORK - Royalty Pharma plc (NASDAQ:RPRX), a pharmaceutical company with a robust EBITDA of $2.57 billion and market capitalization of $11.64 billion, has announced the acquisition of its external manager, RP Management, LLC, a move expected to generate significant cost savings and enhance shareholder value. This strategic decision is anticipated to save over $100 million annually by 2026, with savings increasing to over $175 million by 2030, culminating in more than $1.6 billion in savings over the next decade. According to InvestingPro analysis, the company maintains a "GREAT" overall financial health score, suggesting strong fundamentals to support this strategic move.
The acquisition aligns with Royalty Pharma's goal to strengthen shareholder relationships, improve corporate governance, and ensure management continuity. As part of the deal, the majority of the consideration for the acquisition will be equity-based, vested over 5 to 9 years, replacing cash bonuses for senior management until 2033. The transaction is set to close in the second quarter of 2025, pending shareholder and regulatory approvals.
In addition to the internalization, Royalty Pharma's Board of Directors has authorized a new $3 billion share repurchase program. The company plans to buy back $2 billion of its shares this year, dependent on market conditions. The repurchase strategy reflects the company's confidence in its financial outlook and the perceived undervaluation of its shares. InvestingPro data shows the stock trading at an attractive P/E ratio of 10.25, with management actively buying back shares. Based on InvestingPro's Fair Value analysis, the stock appears to be slightly undervalued at current levels.
Royalty Pharma, which has been externally managed since its inception in 1996, will become an integrated company upon the transaction's completion. All employees of the Manager will join Royalty Pharma, ensuring operational continuity. The internalization is expected to simplify the company's structure and potentially attract a broader investor base over time, potentially enhancing long-term valuation.
The acquisition terms include approximately 24.5 million shares of Royalty Pharma equity, about $100 million in cash, and the assumption of $380 million in existing Manager debt. The equity will represent around 4% of the outstanding shares, provided all shares vest. Notably, the equity component will be more than offset by the projected cash savings.
Royalty Pharma also reaffirmed its commitment to its investment strategy, including maintaining an investment-grade credit rating and continuing its policy of mid-single-digit percentage annual dividend growth. The company will keep its capacity for new royalty transactions within the previously stated annual capital deployment range of $2.0 to $2.5 billion.
This announcement is based on a press release statement issued by Royalty Pharma. The company will host an investor call today to discuss the transaction details further. For investors seeking deeper insights, InvestingPro offers a comprehensive Pro Research Report on Royalty Pharma, one of 1,400+ US stocks covered in detail, including additional ProTips and advanced financial metrics that can help inform investment decisions.
In other recent news, Royalty Pharma showcased robust growth in its third quarter, with a 15% increase in both Portfolio Receipts and Royalty Receipts, totaling $735 million. The company also revised its full-year 2024 guidance to $2.75 billion to $2.8 billion, forecasting Royalty Receipts growth of 11% to 13%. This surge follows strategic acquisitions and share repurchases, highlighting the company's dedication to growth and shareholder value.
In line with recent developments, Royalty Pharma completed a restructuring process, amending its exchange agreement and revising its articles of association. The restructuring involved several partner entities, including Royalty Pharma Holdings Limited, RPI US Partners 2019, LP, and RPI International Holdings 2019, LP. The specifics of the agreement have been filed with the SEC.
Furthermore, TD Cowen, a research firm, identified several pharmaceutical events expected in 2025, with some having individual implications of over $1 billion. The report indicates that Royalty Pharma, along with other notable companies, will be central to these events. The Phase III HORIZON readout of Pelacarsen, a therapy being developed by Novartis (SIX:NOVN) and Royalty Pharma, is among the key events.
Looking to the future, Royalty Pharma is targeting $10 billion to $12 billion in royalty acquisitions over the next five years. The company also acquired royalties for three novel therapies, with anticipated FDA approvals expected to drive growth. These are the recent developments in the company's journey.
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