Royalty Pharma upgraded at Morgan Stanley on valuation
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Morgan Stanley has upgraded Royalty Pharma (NASDAQ:RPRX
+1.0%) to Overweight from Equal-weight, highlighting its valuation discrepancy relative to the sector.
The analyst Terence Flynn notes that the buyer of biopharmaceutical royalties generated $2.6 billion of royalty revenue in 2021 thanks to its portfolio of rights to nearly 50 commercial and development-stage drugs.
While its topline growth stands among the highest in its coverage, the stock is trading at ~11x, indicating a discount to the pharma average of ~14x in terms of 2023 earnings, according to the firm.
âIn our view, the company's growth profile and diversified portfolio deserves at least an in-line multiple and hence our Overweight rating,â the analyst added, raising the price target to $48 from $46 per share to imply a premium of ~21% to the last close.
As one of the main concerns for downside risk, Flynn highlighted the companyâs reliance on the royalty stream from Vertex Pharmaceuticals (VRTX), which accounted for nearly 30% of its royalty revenue.
As potential catalysts that could further raise the upside, the analyst points to Rocheâs (OTCQX:RHHBY) experimental Alzheimer's drug, Gantenerumab (Gmab), and Tremfya, a treatment for plaque psoriasis/ psoriatic arthritis marketed by Johnson & Johnson (JNJ).
Flynn sees a positively skewed risk-reward setup ahead of Phase 3 data expected for Gmab later this year.
In 2021, Royalty Pharma (RPRX) announced a partnership with German biotech, MorphoSys (MOR), to acquire royalties on multiple assets, including Tremfya and Gmab.