Royalty Pharma will sell $2.2bn of its shares in the biggest US initial public offering of the year on Tuesday, following a burst of listings as the stock market has rallied since March.
The pharmaceutical group plans to sell 77.7m shares at $28 each, pricing at the top of its previously announced range in a deal that was expanded by 10 per cent, it said on Monday. The increased sale size reflects strong investor demand and will give Royalty a valuation of $16.7bn.
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.
The listing will edge out Warner Music’s IPO earlier this month as the year’s largest, and comes during a rush of US flotations as companies look to raise money to weather the downturn caused by the coronavirus. Many of these deals, including Warner Music’s, have exceeded their pricing ranges and have expanded the amount of shares sold as companies have upsized the listings to meet demand.
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 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.”
Healthcare stocks have outperformed the broader market this year. The sector is down 4.3 per cent for the year, better than the 5.1 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, edged out Bernie Sanders, Vermont senator, to clinch the Democratic party nomination to run for president.
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, Mr Smith said, as “the IPO market’s summer surge continues”.
JPMorgan, Morgan Stanley, Bank of America, Goldman Sachs, Citigroup and UBS are the lead managers for the listing.