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Royalty Pharma Pulls the Off Largest IPO of 2020

Investors' pandemic-driven appetites for shares of newly listed biopharmaceutical companies seem to know no bounds in 2020. Royalty Pharma (NASDAQ: RPRX) made its stock market debut at $44 per share on Tuesday, valuing the company at a whopping $26.2 billion and the market pushed the stock more than 60% higher during its first day of trading.

The size of the offering was raised from 70,000,000 million shares to 77,680,670 shares, and the company will most likely sell an additional 11,652,250 to the offering's underwriters.

Image source: Getty Images.

Thinking long term

The largest initial public offering of 2020 so far is a pharma company that has no intention of developing or sell any drugs directly. As the name implies, Royalty Pharma helps other biopharmaceutical companies by giving them cash to use for drug development in exchange for a percentage of any future sales those drugs might generate.

They can't all be winners, but the company only needs to pick well a handful of times and hang on tight to eventually produce steady profits for its shareholders. For example, in 2014 the Cystic Fibrosis Foundation sold Royalty Pharma a share of the royalties for cystic fibrosis treatments developed by Vertex Pharmaceuticals (NASDAQ: VRTX) for $3.3 billion.

First-quarter sales of Vertex's cystic fibrosis drugs soared 77% year over year to an annualized $6.1 billion. Royalty Pharma is entitled to a percentage of these drugs' sales that ranges from the low- to mid-single digits. The company (and its investors) expect those royalties will flow steadily through 2037.

Royalty Pharma's most recent investment entitles the company to a percentage of the Idhifa sales that Bristol Myers Squibb (NYSE: BMY) owes its collaboration partner, Agios Pharmaceuticals (NASDAQ: AGIO).

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.


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