Finance

Royalty Pharma Is a Stock Worth Crowning

This column is part of the Heard on the Street stock-picking contest. You’re invited to play along with us here.

Drug development is among the most lucrative segments of U.S. industry, and perhaps the single most risky. With Royalty Pharma , investors looking for a middle ground can find their Prince Charming.

The upside of a given biotech investment is readily apparent. Covid-19 vaccine developers like Moderna, Pfizer and BioNTech expect to book more than $50 billion in combined revenue this year at fat profit margins, resulting in huge gains for some investors.

Yet the sector is often too volatile and dangerous for the average individual investor. The reality is that drug development is expensive and difficult. The majority of drug candidates fail to reach the market, and spending hundreds of millions of dollars developing a product that generates zero sales is hardly uncommon.

Enter Royalty Pharma. The company, which was founded in 1996 and went public in June last year, helps fund expensive clinical trials for a promising new drug in a typical transaction. In exchange, the drugmaker sends Royalty a predetermined slice of that drug’s revenue in the years after it reaches the market. The company owns rights to drugs sold by the likes of Johnson & Johnson , AbbVie , Pfizer, Gilead Sciences and Vertex Pharmaceuticals .


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