UPDATE: Morgan Stanley Assumes Royalty Pharma (RPRX) at Overweight

(Updated - April 6, 2022 4:53 AM EDT)

Morgan Stanley analyst Terrance Flynn upgraded Royalty Pharma (NASDAQ: RPRX) from Equalweight to Overweight with a price target of $48.00 (from $46.00).

The analyst comments "RPRX is the largest player in the business of acquiring royalties on drug sales and the company’s current portfolio consists of royalties on ~50 marketed and development-stage drugs across a range of therapeutic areas that generated royalty revenues of $2.6bn in 2021. RPRX has one of the highest top line growth rates in our coverage (MSe ~11% CAGR for 2020-2025 vs. RPRX guidance of 7-10%) and is trading at a discount on 2023 P/E (~11x vs. pharma average of ~14x). In our view, the company's growth profile and diversified portfolio deserves at least an in-line multiple and hence our Overweight rating. We acknowledge that RPRX must continue to deploy capital towards new deals given patent/royalty expiries in order to sustain HSD growth in 2025-2030, but management has a strong historical track record on this front (mid-teens unlevered IRR since 2012). We see two areas of potential upside to estimates that could meaningfully move the needle – Roche’s Gantenerumab (Gmab) for Alzheimer’s and JNJ’s Tremfya for psoriasis/IBD. Gmab Phase 3 data are expected later this year and we see risk/reward skewed to the upside. One of the main areas of potential downside risk to our estimates relates to the company's royalty stream from VRTX and we provide a sensitivity analysis in our bear case scenario."

For an analyst ratings summary and ratings history on Royalty Pharma click here. For more ratings news on Royalty Pharma click here.

Shares of Royalty Pharma closed at $39.84 yesterday.

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