This story was originally published here.
We have covered the biotechnology sector extensively in these pages as well as in my premium research services this year. COVID-19 has put the entire industry in the spotlight, and we have seen record amounts of capital flow into the space. And that brings us to today’s insight…
Last Tuesday, a company named Royalty Pharma (RPRX) raised nearly $2.2 billion in its initial public offering (IPO). This was the largest IPO in the entire history of the biotechnology industry.
And shares of Royalty Pharma have screamed higher since it went public. As I write, the stock is up 89%. That’s a massive gain in just a week. Royalty Pharma is now valued at an incredible $35 billion.
And get this – Royalty Pharma does not have a pipeline of therapeutics products, and it never will. The company has no research and development programs for drug development. That means Royalty Pharma is not actually a biotech company.
Instead, Royalty Pharma is, as its name implies, a biopharma royalty company. It invests in biotech and pharmaceutical companies needing to raise capital to fund their development. In exchange, Royalty Pharma gets a royalty stream from the therapies in those companies’ pipelines.
Investors may recognize this model from the gold and silver mining industry. Often, the best companies in that space are royalty companies that do not do any mining themselves. They simply finance the mining companies in exchange for a certain percentage of gold and silver produced.
And the business model has been equally successful in the biopharma industry.
In fact, Royalty Pharma worked out a great deal with the Cystic Fibrosis Foundation that enabled it to benefit from the success of Vertex Pharmaceuticals (VRTX).
Readers of my Near Future Report know Vertex well. This is the company that partnered with CRISPR Therapeutics (CRSP) on its lead CRISPR genetic editing therapy. My readers are up more than 90% with Vertex as I write this.
What’s attractive here is that Royalty Pharma does not have to navigate the Food and Drug Administration (FDA) approval process itself. That’s a time-consuming process that ultimately costs biotech companies hundreds of millions of dollars if they are successful.
And many companies fail to get their therapy approved even after spending extraordinary amounts of money on development.
By building a portfolio of royalties, Royalty Pharma mitigates the risk that some therapies ultimately won’t make it. And it controls how much money it invests in any single therapy as well. The diversification reduces the risk profile dramatically compared to investing in any single company.
I expect we will see more biopharma royalty companies formed in the years to come. The incredible success of Royalty Pharma’s IPO has not gone unnoticed. And the market likes this business model.
So I’ll be watching this trend very closely from here. I would not recommend Royalty Pharma at these levels – a pullback is almost inevitable at some point. But we may have some fantastic opportunities to invest in this trend down the road.
Tech guru makes his next “BIG” prediction again…
Jeff Brown – Silicon Valley’s most successful angel investor… he was just off the campus of Yale University presenting the next tech cash cow….
He’s just shared with the public for the first time… a piece of tech that could be worth a $100 billion dollars right now and it’s inside the object on the table.
It’s the missing piece to the most anticipated new market — 5G could be worth $667.90 billion dollars…
By June it’s estimated 30 million American’s will have 5G access. And by the end of the year, almost 100% of the country will be 5G capable.
That’s just America… 5G mobile phones will take over the world… Currently, 65 million Chinese people already have 5G access.
And every single new 5G phone will need this small piece…
The shocking thing is…. only one unknown company produces this invaluable missing piece… and it’s stock is going to blow.
Jeff’s last prediction was Nvidia… and now it’s worth $13.3 billion dollars… and Jeff is almost always right.
This time he believes this stock to be the #1 stock of 2020…
And in this video, he’ll explain everything there is to it… this is just the tip of the iceberg…