Among the largest buyers of biopharmaceutical royalties, Royalty Pharma plc’s (RPRX) portfolio comprises 45 commercial products and five development-stage candidates in various therapeutic areas, including rare disease and neurology.

The company went public through an IPO in June 2020, but its shares have fluctuated markedly since. In fact, they have  lost 12.4% over the past three months to close yesterday’s trading session at $42.83.

On February 17, RPRX raised its long-term guidance. It expects its adjusted cash receipts to increase at a CAGR of 7-10% through 2025. But its short-term prospects seem uncertain because its recent royalty interest acquisitions may or may not not be profitable.

Click here to checkout our Healthcare Sector Report for 2021

Here are the factors that we  think could influence RPRX’s performance in the coming months:

Royalty Interest Acquisitions

On January 19 RPRX announced that it will acquire Minerva Neurosciences, Inc. ‘s (NERV) royalty interest in seltorexant. The therapy  is currently in Phase 3 development for the treatment of major depressive disorder (MDD) with insomnia symptoms. The product is being developed by Janssen Pharmaceutica, N.V., a subsidiary of Johnson & Johnson (JNJ). Last December,  RPRX acquired royalty interest in Orladeyo and BCX9930 from BioCryst Pharmaceuticals, Inc. (BCRX). And last November, RPRX announced an agreement to acquire the residual royalty interest in Vertex Pharmaceuticals Incorporated’s (VRTX) cystic fibrosis (CF) treatments, which is  owned by the Cystic Fibrosis Foundation.

Mixed Financials

RPRX’s total income and other revenues increased 25.2% year-over-year to $572 million for the fourth quarter ended December 31, 2020. Its non-GAAP cash flow also increased nearly 22% year-over-year for the quarter to $423 million. Its  non-GAAP ebitda came in at $434 million, up 5.1% year-over-year.

However, RPRX’s  operating income declined 76.4% year-over-year in the fourth quarter and came in at $314 million. Also, the company’s net income in the quarter was  $171 million versus  $1.42 billion in the fourth quarter of 2019.

Immense Price Volatility

RPRX  has been operating for more than two decades but went public in June 2020.  After staging an impressive public debut, RPRX’s stock has fluctuated  over the past few months. It hit its all-time high of $56.50 on June 18,but it is currently trading 24.2% below its 52-week high. Moreover, it has lost 14.4% year-to-date and 8.9% over the past month.

POWR Ratings Don’t Indicate Enough Upside

RPRX has a C overall rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. RPRX has a C grade for Value also. This is consistent with its forward price/sales value of 8.08x, which is 9.1% higher than the industry average  7.40x. It also has a C grade for Stability.

The stock has a D grade for Momentum, which is in sync with its 12.4% loss over the past three months and 8.9% loss over the past month.

Click here to see RPRX’s ratings for Growth, Sentiment, and Quality as well.

Of 487 stocks in the F-rated Biotech industry, RPRX is ranked #69.

Better than RPRX: Click here to access 31 top-rated stocks in the same industry.

Bottom Line

RPRX is expected to gain in the long run by leveraging its unique business model. However, given its stock’s short track record, it’s hard to predict its near-term prospects. So, we think it’s better to avoid the stock until investors get a clear idea about the performance of its recent royalty acquisitions.

Click here to checkout our Healthcare Sector Report for 2021

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RPRX shares were trading at $42.71 per share on Friday morning, down $0.12 (-0.28%). Year-to-date, RPRX has declined -14.36%, versus a 5.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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