Royalty Pharma is an interesting business – despite the “pharma” letter in the name, it is not a pharma, but it is an investment firm that buys royalties.
However, Royalty Pharma is more exposed to drug pricing issue than any other traditional pharma because its revenue is from royalty on pharma products (i.e. drugs).
Royalty Pharma has been very weak this year (stock is down -17% YTD) as investors see that RPRX is highly exposed to drug pricing headwind – a rare bipartisan effort in currently highly polarized political environment in the United States.
However, are things worse than what investors expect? It looks like insider activities suggest that insiders have a negative view on the outlook of the company.
WHAT ARE NOTABLE RECENT INSIDER ACTIVITIES?
George Lloyd, EVP – Investments and CLO, SOLD $6.4M WORTH OF RPRX SHARES.
Sold 79,000 shares at ~$33.82 per share between june 2nd and June 6th -> this looks to represent >50% of his stake at RPRX per form 4
George Lloyd, EVP – Investments and CLO, SOLD $6.4M WORTH OF RPRX SHARES
Sold 79,000 shares at ~$34 per share between june 2nd and June 6th -> this looks to represent >50% of his stake at RPRX per form 4
Rory Riggs, Board member and co-founder, sold $58M WORTH OF RPRX SHARES
Sold 1.75M shares on 05/22 at $33 per share on 05/22. This looks like it represents >95% of his stake at RPRX per form 4
Pablo Legoretta, Chairman and CEO, bought $5M WORTH OF RPRX SHARES
Bought 150K shares on 05/24 at ~$32 per share. Generally CEO buying is a positive, but this one may not be as positive given that
1) he had pledged to buy upto $50M and is only spending $5M here (is he saving the rest so he can buy lower?)
2) he is a billionaire – spending $5M to buy back stock isn’t much of a commitment from him.
CEO is clearly buying to defend the stock, but unfortunately other insiders are selling in size (probably much bigger portion of their wealth and in much more in shares)
Historically RPRX management team have been significant sellers of their stock since its IPO – red flags are sale and green is buy – it is predominantly red flags.
SO WHAT IS GOING ON WITH RPRX?
Royalty Pharma is facing massive LOE as key products that drove success are facing significant competitive pressure and LOE.
Products highlighted in yellow drive significant portion of revenue today, but they are going LOE as early as 2024 (Tysabri) and facing significant pressure. For Trikafta, VRTX is now developing new triplet regimen that VRTX is telling investors would significantly reduce royalty burden (investors see potential to reduce royalty to RPRX by upto 50%).
Cystic fibrosis royalty revenue presents ~25-30% of recurring revenue for RPRX -> 50% reduction could represent ~10-15%p revenue hole for RPRX.
Bull thesis for RPRX is about TRUST IN THE MANAGEMENT TEAM
Investors must believe that management team will be able to continue its successful deal-making. However, management or board member, who should have the best insight on deal making, are selling stock aggressively.
I am leaning negative on RPRX given that fundamentals appear to be undergoing secular decline – bull thesis appears to be getting weaker given management, which is core to bull thesis, is aggressively selling stock.
With dividend yield at <2.5%, aren’t there more interesting dividend names without this level of LOE risk?
What do you think? why do you think management team is selling?
*not investment advice. Please do your own research
