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Osaka Matsui Management: Royalty Pharma shares rally 59% higher after year’s biggest U.S. IPO

The shares closed at $44.50 on the first day, boosting Royalty Pharma' market valuation to $26.5bn reported Akita Michinoku Capital

According to analysts at Osaka-based financial services company, Osaka Matsui Management, shares of Royalty Pharma rallied 59 per cent on Tuesday in the biggest initial public offering in the U.S. so far this year, as the pharmaceutical firm joined a surge of companies taking the opportunity to float following a stock market turnaround from the lows of March.

Michael Carter, Head of Global Equities at Osaka Matsui Management, said “The IPO raised $2.2bn after the company and existing shareholders sold 77.7m shares at $28 each. At the listing price, which was set at the top of the marketed range, Royalty Pharma was valued at $16.7bn following an almost 11% rise in the number of shares sold based on strong investor demand.”

The shares closed at $44.50 on the first day, boosting the company’s market valuation to $26.5bn.

Royalty Pharma was established in 1996 and earns money on royalties for drug production paid by pharmaceutical firms including Merck, Gilead and Johnson & Johnson. The majority of the funds generated from this deal will go towards acquiring additional royalty rights, said the group.

“We are in the golden age of biotech and academic research,” said Royalty Pharma founder and chief executive, Pablo Legorreta. The selling of royalties helped fund new drugs, especially in the later, expensive stages of trials. “This sector needs a huge amount of capital to keep meeting unmet medical needs,” he added.

The Royalty Pharma listing surpassed Warner Music’s IPO from earlier this month as the biggest in the U.S. this year and came amid a flotation rush as companies try to generate money to weather the pandemics economic downturn. Ample investor appetite has enabled many of the companies, including Warner Music, to either price shares above marketed ranges or to boost the number of shares sold in their IPOs.

“Royalty Pharma raised $1.6bn in revenue from last year’s royalties, up 8% from 2018. A quarter of its 2019 royalty revenues came from a group of drugs to treat cystic fibrosis which it purchased for $3.3bn six years ago, a portion of the $18bn it has spent on acquiring royalties since it decided to launch,” said Alistair Richmond, Director of Corporate Trading at Osaka Matsui Management.

This year, healthcare stocks have outperformed the wider market. The sector is down 1.7 per cent for the year, better than the S&P 500 benchmark’s 3.1 per cent decline.

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