Is Royalty Pharma (RPRX) Undervalued On Its $100 Million Zealand Pharma Royalty Deal?

Royalty Pharma’s new royalty deal on rare blood disorder therapy

Royalty Pharma (RPRX) has agreed to provide US$100 million in funding to Zealand Pharma in return for economic rights linked to rusfertide, a potential first in class treatment for polycythemia vera.

See our latest analysis for Royalty Pharma.

Royalty Pharma shares trade at US$60.58 after a small 1 day pullback of 1.86%. However, the 90 day share price return of 11.16% and 1 year total shareholder return of 70.08% point to strong, ongoing momentum.

If news around rare disease royalties has your attention, it can be useful to see what else the market is rewarding in adjacent areas by reviewing 40 healthcare AI stocks

Royalty Pharma’s strong one year run now meets a fresh pullback and a new royalty deal in rare disease. Is the current price mainly a read on business fundamentals, or on changing sentiment around the stock before looking at valuation next?

Most Popular Narrative: 2% Overvalued

Compared with the last close at $60.58, the most followed narrative fair value of $59.25 implies Royalty Pharma trades a little above that estimate, which rests on very specific assumptions about future cash flows and risk.

The robust scientific pipeline, driven by advancements in biologics, gene therapies, and next-generation medicines like daraxonrasib, creates high-value assets that can enter into blockbuster status. Participation in these early, high-impact assets (as in the Revolution Medicines deal) positions Royalty Pharma for long-duration, high-growth royalty streams, directly benefitting long-term revenue and earnings.

Read the complete narrative.

Want to see what sits under that fair value call? The narrative leans on faster top line expansion, sharply higher margins and a reset earnings multiple. Curious how those three pieces fit together.

Result: Fair Value of $59.25 (OVERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, the Royalty Pharma story can shift quickly if the Alyftrek royalty dispute is resolved unfavorably or if key blockbuster royalties face faster than expected generic pressure.

Find out about the key risks to this Royalty Pharma narrative.

Another View: Royalty Pharma Through a Cash Flow Lens

The analyst narrative suggests Royalty Pharma is slightly overvalued around $60.58 versus a $59.25 fair value built on earnings assumptions and a future P/E. Our DCF model points in a very different direction, with an estimated value of $195.31, which frames the current price as heavily discounted. Which framework do you think better fits the risks and growth assumptions?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Royalty Pharma for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

Mixed messages on Royalty Pharma can be useful if they prompt you to look more closely at the full picture and act quickly to form your own stance with 2 key rewards and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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