Royalty Pharma (RPRX)

Healthcare royalties company Royalty Pharma (NASDAQ:RPRX) reported  Q4 CY2025 sales.

Correction note:

The previous version of this report had incorrect analysts' sales estimates. This has been updated in the current version.

Company Overview

Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ:RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.

Looking ahead, the branded pharmaceutical industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Royalty Pharma's competitors include other healthcare royalty investors such as HealthCare Royalty Partners, Oberland Capital, and OrbiMed Advisors, as well as specialized investment firms like Drug Royalty Corporation and Ligand Pharmaceuticals (NASDAQ:LGND).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $2.38 billion in revenue over the past 12 months, Royalty Pharma lacks scale in an industry where it matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Royalty Pharma’s sales grew at a tepid 2.3% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Royalty Pharma’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can better understand the company’s revenue dynamics by analyzing its most important segment, Portfolio Receipts. Over the last two years, Royalty Pharma’s Portfolio Receipts revenue averaged 11.5% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Royalty Pharma’s revenue grew by 4.7% year on year to $622 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 13.9% over the next 12 months, an improvement versus the last two years. This projection is commendable and suggests its newer products and services will spur better top-line performance.

Royalty Pharma has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average operating margin of 52.8%.

Looking at the trend in its profitability, Royalty Pharma’s operating margin rose by 3.1 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.

In Q4, Royalty Pharma generated an operating margin profit margin of 62.4%, up 1.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Royalty Pharma, its EPS declined by 8.5% annually over the last five years while its revenue grew by 2.3%. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into Royalty Pharma’s earnings to better understand the drivers of its performance. A five-year view shows Royalty Pharma has diluted its shareholders, growing its share count by 39.5%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, Royalty Pharma reported EPS of $0.64, up from $0.35 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Royalty Pharma has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 21.8% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Royalty Pharma’s margin expanded by 61.3 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Royalty Pharma’s free cash flow clocked in at $827 million in Q4, equivalent to a 133% margin. This result was good as its margin was 95.6 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Royalty Pharma reported $619 million of cash and $8.95 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.97 billion of EBITDA over the last 12 months, we view Royalty Pharma’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $92.97 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Overall, this was a weaker quarter. The stock remained flat at $44.22 immediately after reporting.

Updated: February 11, 2026 at 11:20 PM EST

When considering an investment in Royalty Pharma, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Royalty Pharma isn’t a terrible business, but it doesn’t pass our bar. First off, its revenue growth was uninspiring over the last five years.

Royalty Pharma’s P/E ratio based on the next 12 months is 8.3x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $49.56 on the company (compared to the current share price of $44.98).