Royalty Pharma to pay up to $2 billion to Revolution Medicines for cancer drug

Audio By Carbonatix

By Christy Santhosh

(Reuters) -Royalty Pharma will pay up to $2 billion to Revolution Medicines to support the development and sales of an experimental drug to treat pancreatic and lung cancers, the biotech investor firm said on Tuesday.

Under the deal, Royalty Pharma will provide up to $1.25 billion, including a $250 million upfront payment, in exchange for a synthetic royalty on annual worldwide net sales of daraxonrasib. It will also extend $750 million in secured debt to Revolution Medicines.

Synthetic royalty financing allows companies to generate upfront capital by selling a portion of their future revenue stream without relinquishing ownership of the asset.

Revolution shares dropped 5% to $38 in premarket trading. At least three analysts said the decline was driven by fading investor hopes that the company could be an acquisition target.

“If anyone was expecting the company to be taken out, it is less likely after them obtaining access to this capital,” Needham analyst Ami Fadia said.

The company’s drug daraxonrasib is in late-stage development to treat pancreatic cancer and non-small cell lung cancer.

It works by blocking the action of a protein called RAS, one of the most common drivers of cancer growth.

Royalty Pharma buys royalties on potential blockbuster drugs from academic labs and biotechnology companies, which in turn use the cash to fund their research.

It owns royalties on more than 35 commercial products, including Bristol Myers Squibb’s schizophrenia drug KarXT and Johnson & Johnson’s blockbuster treatments Imbruvica and Tremfya.

Some of its recent deals include a $250 million investment to support Biogen’s experimental lupus treatment and a $125 million payment for a synthetic royalty on Geron’s newly approved blood cancer drug.

In January, the company simplified its corporate structure by buying RP Management, an organization that manages the healthcare firm’s operations, for about $1.1 billion.

(Reporting by Christy Santhosh in Bengaluru; Editing by Tasim Zahid and Sahal Muhammed)