Royalty Pharma shares surged 59 per cent on Tuesday in the biggest US initial public offering of the year so far, as the pharmaceutical group joined a wave of companies taking the opportunity to float following a stock market rebound from March lows.
The listing raised $2.2bn after the sale of 77.7m shares at $28 each by the company and existing shareholders. At the IPO price, which was set at the top of the marketed range, Royalty was valued at $16.7bn after the amount of shares sold was increased by almost 11 per cent based on strong investor demand.
The shares finished the first day at $44.50, lifting the company’s market valuation to $26.5bn.
The company launched in 1996 and earns money on royalties paid by pharmaceutical companies such as Merck, Gilead and Johnson & Johnson for producing drugs. The bulk of the money raised would go towards acquiring more royalty rights, the group said.
“We’re in the golden age of biotech and academic research,” said Pablo Legorreta, founder and chief executive of Royalty Pharma. The sale of royalties helped to finance new drugs, especially in the later, expensive stages of trials, he said. “This industry needs a huge amount of capital to continue to meet unmet medical needs.”
The Royalty Pharma listing edged out Warner Music’s IPO earlier this month as the year’s largest in the US, and comes during a rush of flotations as companies look to raise money to weather the economic downturn caused by the pandemic. Ample appetite from investors has allowed many of the companies, including Warner Music, either to price shares above marketed ranges or to increase the number of shares sold in their IPOs.*
The listing is one of five scheduled this week in the US, all of which are pharmaceutical companies. The activity comes after 16 listings over the past two weeks.
Royalty Pharma generated $1.6bn in revenue from royalties last year, up 8 per cent from 2018. A quarter of its 2019 royalty revenues came from a group of drugs to treat cystic fibrosis that it acquired six years ago for $3.3bn — a portion of the $18bn it has spent on acquiring royalties since it launched.
“The company is the global leader in pharma royalty agreements,” said Bill Smith, chief executive of Renaissance Capital, an investor in IPOs. “Royalty Pharma is highly profitable and generates strong cash flow.”
Royalty Pharma has held talks with biotech companies about funding research for drugs to address Covid-19, Mr Legorreta said. “The amount of resources that have been put to addressing the virus will eventually lead to a positive outcome,” he said. “It’s something we’re following very closely.”
Healthcare stocks have outperformed the broader market this year. The sector is down 1.7 per cent for the year, better than the 3.1 per cent drop for the S&P 500 benchmark.
The sector has benefited from the diminished prospect of sweeping reforms to US healthcare after Joe Biden, former vice-president, beat Bernie Sanders, Vermont senator, to become the presumptive Democratic party nominee for the presidency.
*This has been updated to reflect Warner Music priced its shares within a range marketed to investors