Part I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Royalty Pharma is the largest buyer of biopharmaceutical royalties, funding innovation through a diversified, capital-efficient portfolio - **Royalty Pharma is the largest buyer** of biopharmaceutical royalties, having assembled a portfolio with royalties on over 35 commercial products and 12 development-stage candidates[18](index=18&type=chunk) - The company's business model is capital-efficient, **reducing exposure to common industry risks** like early-stage development, high R&D costs, and fixed manufacturing/marketing costs[19](index=19&type=chunk) - Since 2012, the company has executed transactions valued at over **$24 billion**, representing an estimated **60% market share** of all announced royalty transactions by value[20](index=20&type=chunk)[42](index=42&type=chunk) 2022 Financial Highlights | Metric | Value (in billions) | | :--- | :--- | | Net cash from operating activities | $2.1 | | Adjusted Cash Receipts | $2.8 | | Adjusted EBITDA | $2.6 | | Adjusted Cash Flow | $2.2 | | Cash deployed for acquisitions | $2.5 | [Portfolio Overview](index=6&type=section&id=Portfolio%20Overview) The portfolio is diversified across numerous products, with key revenue drivers ensuring a long weighted average royalty duration Top 5 Royalties by 2022 Receipts | Royalties | 2022 Royalty Receipts (in millions) | 2022 End Market Sales (in millions) | | :--- | :--- | :--- | | Cystic fibrosis franchise | $811 | $8,931 | | Nurtec ODT/Biohaven payment | $560 | $764 | | Tysabri | $370 | $2,028 | | Imbruvica | $313 | $5,820 | | Xtandi | $187 | $4,817 | - The portfolio is highly diversified; in 2022, no individual therapy, therapeutic area, or marketer accounted for more than **21%, 29%, and 25% of royalty receipts**, respectively[32](index=32&type=chunk) - The estimated weighted average royalty duration of the portfolio is approximately **13 years**, with key growth driver Trikafta expected to have exclusivity through 2037[33](index=33&type=chunk) [Our Strategy](index=10&type=section&id=Our%20Strategy) The company's strategy focuses on acquiring royalties on clinically validated therapies through diverse transaction structures - The company's strategy involves four main transaction structures: acquiring **Third-party Royalties**, creating **Synthetic Royalties**, providing **Launch and Development Capital**, and engaging in **M&A-related royalty acquisitions**[45](index=45&type=chunk) - From 2012 through 2022, the company deployed **$8.3 billion** in development-stage product candidates, with a **77% success rate** for assets that have reached an approval decision[46](index=46&type=chunk)[47](index=47&type=chunk) [Competition](index=21&type=section&id=Competition) The company faces intense competition for royalty acquisitions and from alternative financing and therapeutic products - Competition for acquiring suitable royalty assets is intense and comes from other potential royalty buyers, financial institutions, and the marketers of the products themselves[117](index=117&type=chunk) - The underlying biopharmaceutical products face significant competition, which can render them obsolete or non-competitive due to new products, generics, or changes in healthcare policy[118](index=118&type=chunk)[119](index=119&type=chunk) [Corporate Responsibility and Human Capital](index=22&type=section&id=Corporate%20Responsibility%20and%20Human%20Capital) The company's ESG strategy focuses on value creation, while all operations are handled by an external Manager - The company is externally managed and has no employees, relying on the Manager for all operations; as of December 31, 2022, the Manager had **75 employees**[125](index=125&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk) - The company's ESG efforts include providing capital to non-profits like the Cystic Fibrosis Foundation to further scientific research and supporting patient advocacy groups[124](index=124&type=chunk) [Governmental Regulation and U.S. Investment Company Act Status](index=23&type=section&id=Governmental%20Regulation%20and%20U.S.%20Investment%20Company%20Act%20Status) The company operates to avoid regulation as an investment company under the U.S. Investment Company Act of 1940 - The company operates to avoid being regulated as an investment company under the U.S. Investment Company Act, relying on **Section 3(c)(5)(A)** and a 2010 SEC staff no-action letter[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - If the SEC were to adopt a contrary interpretation, the company could be required to register as an investment company, which would **materially and adversely affect the business**[136](index=136&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks related to product sales, royalty acquisitions, its organizational structure, and financial market factors [Risks Relating to Our Business](index=26&type=section&id=Risks%20Relating%20to%20Our%20Business) Key business risks include reliance on product sales, development uncertainties, external marketers, and regulatory changes like the IRA - Product sales may be lower than expected due to pricing pressures, competition, or clinical trial failures, which would reduce or cease royalty payments[145](index=145&type=chunk) - Acquiring royalties on development-stage products is uncertain; products may fail to gain regulatory approval or achieve commercial success, as exemplified by the **$273.6 million impairment charge on gantenerumab** in 2022[147](index=147&type=chunk) - The company is dependent on external marketers for product development, regulatory approval, and commercialization, and these marketers' interests may not align with Royalty Pharma's[185](index=185&type=chunk)[188](index=188&type=chunk) - The **U.S. Inflation Reduction Act (IRA) of 2022** introduces significant drug pricing provisions, which could adversely affect product pricing and the company's royalties[197](index=197&type=chunk) [Risks Relating to Our Organization and Structure](index=43&type=section&id=Risks%20Relating%20to%20Our%20Organization%20and%20Structure) As a holding company, its ability to pay dividends depends on receiving funds from its operating subsidiaries - As a holding company, Royalty Pharma is **dependent on dividends and other payments from its subsidiaries** to meet its financial obligations and pay dividends to its shareholders[251](index=251&type=chunk) [Risks Relating to Our Ordinary Shares](index=44&type=section&id=Risks%20Relating%20to%20Our%20Ordinary%20Shares) Share-related risks include market price volatility and differences in shareholder rights under English law versus U.S. law - The market price of Class A ordinary shares has been and may continue to be volatile; during 2022, the share price fluctuated between a low of **$37.46** and a high of **$44.65**[254](index=254&type=chunk) - As an English public limited company, **shareholder rights differ from those of a U.S. corporation**, and it may be difficult for U.S. investors to enforce civil liabilities[258](index=258&type=chunk)[259](index=259&type=chunk) [Risks Relating to Taxation](index=48&type=section&id=Risks%20Relating%20to%20Taxation) The company's tax structure faces risks from changes in law and its classification as a Passive Foreign Investment Company (PFIC) - The company's subsidiaries rely on benefits from the U.S.-Ireland income tax treaty; a failure to qualify could subject U.S.-source royalties to a **30% withholding tax**[278](index=278&type=chunk)[279](index=279&type=chunk) - The company expects to be classified as a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. shareholders[291](index=291&type=chunk)[292](index=292&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=53&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A shares trade on Nasdaq, with regular dividends paid and performance tracked against major indices - The company's Class A ordinary shares are traded on the Nasdaq under the symbol **"RPRX"**[305](index=305&type=chunk) - In 2022, the company paid four quarterly cash dividends of **$0.19 per Class A ordinary share**, totaling **$333.3 million** for the year[308](index=308&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) GAAP operating income declined due to impairments, while non-GAAP metrics showed strong growth driven by a key asset redemption [Results of Operations](index=63&type=section&id=Results%20of%20Operations) Operating and net income fell sharply due to significant provisions and non-cash impairment charges, despite a slight revenue dip Consolidated Results of Operations (2022 vs 2021) | Metric (in millions) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total income and other revenues | $2,237.2 | $2,289.5 | (2.3)% | | Total operating expenses, net | $1,930.2 | $858.7 | 124.8% | | Operating income | $307.1 | $1,430.7 | (78.5)% | | Net income attributable to Royalty Pharma plc | $42.8 | $619.7 | (93.1)% | - The provision for changes in expected cash flows increased to **$904.2 million** in 2022, primarily due to declines in sales forecasts for Imbruvica, Tysabri, and Tazverik[369](index=369&type=chunk) - The company recognized **$615.8 million in non-cash impairment charges** in 2022 related to gantenerumab ($273.6M), otilimab ($160.1M), and Gavreto ($182.1M)[374](index=374&type=chunk) [Key Developments and Upcoming Events Relating to Our Portfolio](index=66&type=section&id=Key%20Developments%20and%20Upcoming%20Events%20Relating%20to%20Our%20Portfolio) The portfolio saw mixed results, with positive approvals for Trodelvy offset by significant development setbacks for gantenerumab and otilimab - **Pfizer acquired Biohaven** in October 2022, taking over the commercialization of Nurtec ODT and development of zavegepant[392](index=392&type=chunk) - Gilead's Trodelvy received full FDA approval for metastatic triple-negative breast cancer and later for **pre-treated HR+/HER2- metastatic breast cancer** in February 2023[392](index=392&type=chunk)[400](index=400&type=chunk) - Significant setbacks occurred for development-stage assets, including **Roche discontinuing gantenerumab trials** and GSK deciding not to pursue regulatory submission for otilimab[419](index=419&type=chunk)[425](index=425&type=chunk) [Non-GAAP Financial Results](index=72&type=section&id=Non-GAAP%20Financial%20Results) Non-GAAP metrics showed strong growth, primarily driven by an accelerated redemption payment and new asset contributions Non-GAAP Financial Results (2022 vs 2021) | Metric (in millions) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total royalty receipts | $3,231.3 | $2,608.5 | 23.9% | | Adjusted Cash Receipts | $2,789.3 | $2,128.9 | 31.0% | | Adjusted EBITDA | $2,566.3 | $1,944.4 | 32.0% | | Adjusted Cash Flow | $2,235.2 | $1,573.4 | 42.1% | - The significant increase in Adjusted Cash Receipts was primarily driven by the **accelerated redemption of all outstanding Biohaven Preferred Shares**, contributing **$479.5 million**[437](index=437&type=chunk)[434](index=434&type=chunk) [Investments Overview](index=79&type=section&id=Investments%20Overview) The company deployed $2.5 billion in cash for new royalty acquisitions, including significant investments in Trelegy and olpasiran Capital Deployed (2020-2022) | (in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Approved/marketed royalties | $1,955.0 | $1,819.9 | $1,404.2 | | Development-stage royalties | $562.2 | $830.7 | $894.5 | | **Total capital deployed** | **$2,517.2** | **$2,650.6** | **$2,298.7** | - Major 2022 investments included acquiring royalties on **Trelegy ($1.31B upfront)**, **olpasiran ($250M upfront)**, and **Gavreto ($175M upfront)**[465](index=465&type=chunk) [Liquidity and Capital Resources](index=81&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with substantial cash from operations, reserves, and an undrawn credit facility - Net cash provided by operating activities was **$2.1 billion** in 2022; as of year-end, cash and cash equivalents were **$1.7 billion**[467](index=467&type=chunk)[476](index=476&type=chunk) Debt Summary as of Dec 31, 2022 | Instrument | Principal Amount (in billions) | Undrawn Capacity (in billions) | | :--- | :--- | :--- | | Senior Unsecured Notes | $7.3 | N/A | | Revolving Credit Facility | $0.0 | $1.5 | - Primary uses of capital are acquisitions, dividends (paid **$333.3 million** in 2022), debt service, and other funding arrangements[481](index=481&type=chunk)[483](index=483&type=chunk)[484](index=484&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to foreign currency, interest rate, and counterparty credit risks, though most debt is fixed-rate - The company is exposed to foreign currency risk as some royalties are paid in currencies like the Euro, British pound, and Japanese yen[508](index=508&type=chunk) - Interest rate risk is primarily related to its **$1.5 billion variable-rate Revolving Credit Facility**, which was undrawn; all **$7.3 billion** in notes have fixed interest rates[512](index=512&type=chunk) - The company faces counterparty credit risk, with the largest concentration from **Vertex**, which accounted for **31%** of the current portion of Financial royalty assets[515](index=515&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=91&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited financial statements and the auditor's report, which identifies royalty asset valuation as a critical audit matter - The independent auditor, Ernst & Young LLP, issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting[521](index=521&type=chunk)[522](index=522&type=chunk) - The **critical audit matter** identified was the valuation of financial royalty assets and related interest income, highlighting the subjective nature of management's forecasts[525](index=525&type=chunk)[527](index=527&type=chunk) [Consolidated Financial Statements](index=95&type=section&id=Consolidated%20Financial%20Statements) The financial statements show total assets of $16.8 billion and a significant decrease in consolidated net income for 2022 Key Balance Sheet Items (as of Dec 31) | (in billions) | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $16.8 | $17.5 | | Financial royalty assets, net | $14.2 | $14.3 | | Total Liabilities | $7.3 | $7.3 | | Total Shareholders' Equity | $9.5 | $10.2 | Key Income Statement Items (Year Ended Dec 31) | (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total income and other revenues | $2,237.2 | $2,289.5 | | Consolidated net income | $230.1 | $1,241.2 | | Net income attributable to Royalty Pharma plc | $42.8 | $619.7 | | Diluted EPS | $0.10 | $1.49 | [Notes to the Consolidated Financial Statements](index=101&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail critical accounting policies, the composition of financial assets, significant impairments, and the company's debt structure - The company's accounting for financial royalty assets uses the **prospective effective interest method**, which relies heavily on management's forecasts of future cash flows[589](index=589&type=chunk)[591](index=591&type=chunk) - In 2022, the company recorded non-cash impairment charges totaling **$615.8 million** on its financial royalty assets for otilimab, gantenerumab, and Gavreto[689](index=689&type=chunk) - As of December 31, 2022, the company had **$7.3 billion in senior unsecured notes** outstanding and an undrawn **$1.5 billion** senior unsecured revolving credit facility[713](index=713&type=chunk)[721](index=721&type=chunk) [Item 9A. Controls and Procedures](index=132&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and the independent auditor concluded that the company's disclosure controls and internal controls were effective - Management concluded that the company's disclosure controls and procedures, as well as its internal control over financial reporting, were **effective as of December 31, 2022**[773](index=773&type=chunk)[774](index=774&type=chunk) Part III [Items 10-14](index=133&type=section&id=Items%2010-14) Information regarding governance, compensation, and related party transactions is incorporated by reference from the 2023 Proxy Statement - The information for Items 10, 11, 12, 13, and 14 is **incorporated by reference** from the company's 2023 Proxy Statement[780](index=780&type=chunk)[781](index=781&type=chunk)[782](index=782&type=chunk)[783](index=783&type=chunk)[784](index=784&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=134&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Form 10-K, with many incorporated by reference - This section contains the list of all financial statements and exhibits filed with the Form 10-K[787](index=787&type=chunk)

ROYALTY PHARMA ROYALTY PHARMA Royalty Pharma plc Q3 2022 Financial Results November 8, 2022 2 Forward Looking Statements & Non-GAAP Financial Information This presentation has been prepared by Royalty Pharma plc (the "Company"), is made for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information set forth herein does not purport to be complete or to contain all of the information you may desire. Statements contained herein are mad ...

Financial Performance - Adjusted Cash Receipts increased by 10% to $524 million in Q2 2022[10, 15] - Adjusted EBITDA also grew by 10% to $480 million in Q2 2022[10, 15] - Adjusted Cash Flow increased by 12% to $482 million, or $079 per share, in Q2 2022[15] - The company is raising full-year Adjusted Cash Receipts guidance to $2275 million - $2350 million, reflecting approximately 7% to 10% year-over-year growth[10, 58] Portfolio and Transactions - Year-to-date transactions announced total $25 billion, including $17 billion upfront payments[10] - Royalty Pharma acquired an upward tiering 65%-10% royalty on Trelegy sales, expecting at least $200 million to Adjusted Cash Receipts in 2025[26] - The company acquired Blueprint Medicines' royalty on Gavreto for up to $340 million, with high-teens to mid-twenties percent royalty on annual sales outside the United States, excluding Greater China[34] Biohaven Acquisition - Pfizer's acquisition of Biohaven is expected to accelerate Royalty Pharma's returns on common and preferred equity[10, 36] - Royalty Pharma is entitled to milestones of up to 19 to 295x funded amount of $250 million related to zavegepant[36] Foreign Exchange Impact - The company estimates an adverse foreign exchange impact of approximately -3% to -4% (-$65 million to -$85 million) on Adjusted Cash Receipts[10, 58]

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Royalty Pharma plc's unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2022 and December 31, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202022%20and%20December%2031%2C%202021%20(unaudited)) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total Assets | $17,740,413 | $17,515,865 | $224,548 | 1.28% | | Total Liabilities | $7,332,226 | $7,267,320 | $64,906 | 0.89% | | Total Shareholders' Equity | $10,408,187 | $10,248,545 | $159,642 | 1.56% | | Cash and cash equivalents | $2,108,037 | $1,541,048 | $566,989 | 36.79% | | Financial royalty assets, net | $13,423,629 | $13,718,245 | $(294,616) | -2.15% | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021%20(unaudited)) Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total income and other revenues | $535,955 | $554,963 | $(19,008) | -3.43% | | Operating income | $377,792 | $744,949 | $(367,157) | -49.29% | | Consolidated net income | $491,597 | $806,755 | $(315,158) | -39.07% | | Net income attributable to Royalty Pharma plc | $304,504 | $440,776 | $(136,272) | -30.92% | | Basic EPS | $0.70 | $1.08 | $(0.38) | -35.19% | | Diluted EPS | $0.70 | $1.08 | $(0.38) | -35.19% | | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total income and other revenues | $1,098,004 | $1,127,990 | $(29,986) | -2.66% | | Operating income | $597,510 | $974,247 | $(376,737) | -38.67% | | Consolidated net income | $619,680 | $965,734 | $(346,054) | -35.83% | | Net income attributable to Royalty Pharma plc | $356,265 | $509,895 | $(153,630) | -30.13% | | Basic EPS | $0.82 | $1.28 | $(0.46) | -35.94% | | Diluted EPS | $0.82 | $1.25 | $(0.43) | -34.40% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021%20(unaudited)) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Comprehensive income | $492,934 | $799,481 | $(306,547) | -38.34% | | Comprehensive income attributable to Royalty Pharma plc | $305,296 | $436,733 | $(131,437) | -30.09% | | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Comprehensive income | $613,688 | $948,094 | $(334,406) | -35.27% | | Comprehensive income attributable to Royalty Pharma plc | $352,740 | $500,367 | $(147,627) | -29.50% | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021%20(unaudited)) Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric | Balance at June 30, 2022 | Balance at December 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Total Shareholders' Equity | $10,408,187 | $10,248,545 | $159,642 | 1.56% | | Retained earnings | $2,446,132 | $2,255,179 | $190,953 | 8.47% | | Non-controlling interests | $4,380,938 | $4,471,951 | $(91,013) | -2.03% | | Class A ordinary shares outstanding | 437,139 | 432,963 | 4,176 | 0.96% | | Class B ordinary shares outstanding | 170,081 | 174,213 | (4,132) | -2.37% | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021%20(unaudited)) Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $1,035,222 | $1,057,820 | $(22,598) | -2.14% | | Net cash used in investing activities | $(19,013) | $(473,134) | $454,121 | -96.00% | | Net cash used in financing activities | $(449,220) | $(451,085) | $1,865 | -0.41% | | Net change in cash and cash equivalents | $566,989 | $133,601 | $433,388 | 324.39% | | Cash and cash equivalents, end of period | $2,108,037 | $1,142,281 | $965,756 | 84.55% | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) [1. Organization and Purpose](index=10&type=section&id=1.%20Organization%20and%20Purpose) - Royalty Pharma plc is the **largest buyer of biopharmaceutical royalties** and a **leading funder of innovation**, directly co-funding late-stage clinical trials and new product launches in exchange for future royalties, and indirectly acquiring existing royalties[28](index=28&type=chunk) - The company controls Royalty Pharma Holdings Ltd. (RP Holdings) and conducts its business through RP Holdings and its subsidiaries; **RP Management, LLC (the "Manager") is responsible for day-to-day operations**[29](index=29&type=chunk)[31](index=31&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions; the **COVID-19 pandemic has not had a material impact on operations or liquidity**[33](index=33&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company consolidates majority-owned and controlled subsidiaries, including variable interest entities where it is the primary beneficiary; **non-controlling interests are reported for portions not owned by Royalty Pharma**[37](index=37&type=chunk)[38](index=38&type=chunk) - Credit risk concentrations are managed through investment-grade securities and a broad range of royalty payors across geographies; **Vertex accounted for 32% of current financial royalty assets as of June 30, 2022**[40](index=40&type=chunk)[41](index=41&type=chunk) [3. Available for Sale Debt Securities](index=12&type=section&id=3.%20Available%20for%20Sale%20Debt%20Securities) - The company entered a long-term funding agreement with Cytokinetics for up to **$300 million**, with an initial **$50 million funded**; as of June 30, 2022, **$250 million remains unfunded**, with **$125 million expected to remain available** due to unmet regulatory milestones[44](index=44&type=chunk)[127](index=127&type=chunk) - A strategic funding partnership with MorphoSys involves up to **$350 million in Development Funding Bonds**, with a minimum draw of **$150 million by September 12, 2022**; MorphoSys intends to draw **$300 million in September 2022**[46](index=46&type=chunk)[128](index=128&type=chunk) - The company holds Series A and Series B Biohaven Preferred Shares, classified as Available for sale debt securities, with fair value option elected; **quarterly redemption payments for Series A began in Q1 2021**[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [4. Fair Value Measurements and Financial Instruments](index=14&type=section&id=4.%20Fair%20Value%20Measurements%20and%20Financial%20Instruments) - Fair value measurements are categorized into **Level 1 (quoted prices in active markets)**, **Level 2 (observable inputs)**, and **Level 3 (unobservable significant inputs)**[56](index=56&type=chunk) Assets and Liabilities Measured at Fair Value (in thousands) | Category | June 30, 2022 Total | December 31, 2021 Total | | :-------------------------------- | :-------------------- | :-------------------- | | Total current assets at fair value | $1,242,781 | $1,301,076 | | Total non-current assets at fair value | $397,262 | $474,200 | | Total non-current liabilities at fair value | $(43,700) | $0 | - Level 3 financial instruments, including equity securities, a royalty interest, a derivative instrument, and available for sale debt securities, saw a balance of **$28,785 thousand for equity securities** and **$363,000 thousand for debt securities** at June 30, 2022[61](index=61&type=chunk) - The fair value of the Milestone Acceleration Option, an embedded derivative related to Biohaven, was **$71.8 million as of June 30, 2022**, with a corresponding unrealized gain recognized in the statements of operations[76](index=76&type=chunk) [5. Financial Royalty Assets](index=20&type=section&id=5.%20Financial%20Royalty%20Assets) - Financial royalty assets are contractual rights to cash flows from patent-protected biopharmaceutical products, measured at amortized cost using the effective interest method[80](index=80&type=chunk) Net Carrying Value of Top Financial Royalty Assets (in thousands) | Product | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Cystic fibrosis franchise | $5,293,302 | $5,287,005 | | Tysabri | $1,759,427 | $1,829,452 | | Imbruvica | $1,022,278 | $1,201,859 | | Xtandi | $900,467 | $927,964 | | Tremfya | $876,834 | $881,671 | | Evrysdi | $744,532 | $727,774 | | Total financial royalty assets, net | $14,062,873 | $14,332,596 | [6. Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets](index=21&type=section&id=6.%20Cumulative%20Allowance%20and%20the%20Provision%20for%20Changes%20in%20Expected%20Cash%20Flows%20from%20Financial%20Royalty%20Assets) Activity in Cumulative Allowance for Changes in Expected Cash Flows (in thousands) | Activity for the Period | Amount | | :-------------------------------------------------------------------------- | :------- | | Balance at December 31, 2021 | $(1,694,945) | | Increases to the cumulative allowance for changes in expected cash flows | $(556,020) | | Decreases to the cumulative allowance for changes in expected cash flows | $202,726 | | Current period provision for credit losses, net | $62,959 | | Balance at June 30, 2022 | $(1,985,280) | - The cumulative allowance increased to **$(1,985,280) thousand by June 30, 2022**, primarily due to increases in the allowance for changes in expected cash flows, partially offset by provision income for credit losses related to a decline in the Tazverik financial royalty asset value[87](index=87&type=chunk)[88](index=88&type=chunk) [7. Intangible Royalty Assets, Net](index=21&type=section&id=7.%20Intangible%20Royalty%20Assets%2C%20Net) - Intangible royalty assets, primarily DPP-IV patents, were **fully amortized as of June 30, 2022**, as royalties on Januvia and Janumet expired in Q1 2022, and other DPP-IV products have substantially ended[89](index=89&type=chunk) Intangible Royalty Assets (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Cost | $606,216 | $606,216 | | Accumulated Amortization | $606,216 | $600,546 | | Net Carrying Value | $0 | $5,670 | [8. Non-Consolidated Affiliates](index=22&type=section&id=8.%20Non-Consolidated%20Affiliates) - The company holds equity investments in ApiJect, Legacy SLP Interest, and Avillion Entities, accounted for using the fair value option or equity method due to significant influence[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) Equity in Earnings of Equity Method Investees (in thousands) | Affiliate | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | | Legacy SLP Interest | $4,700 | $25,600 | | Avillion Entities | $(4,000) | $(7,900) | | Total | $737 (income) | $17,701 (income) | | Affiliate | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | | Legacy SLP Interest | $9,300 | $30,800 | | Avillion Entities | $(8,200) | $(15,000) | | Total | $1,134 (income) | $15,783 (income) | - Unfunded commitments related to the Avillion Entities increased to **$35.7 million as of June 30, 2022**, from **$11.2 million at December 31, 2021**, following an amendment to increase funding[97](index=97&type=chunk)[98](index=98&type=chunk) [9. Research & Development ("R&D") Funding Expense](index=23&type=section&id=9.%20Research%20%26%20Development%20(%22R%26D%22)%20Funding%20Expense) R&D Funding Expense (in thousands) | Period | Amount | | :--------------------------- | :------- | | 3 Months Ended June 30, 2022 | $606 | | 3 Months Ended June 30, 2021 | $3,122 | | 6 Months Ended June 30, 2022 | $101,106 | | 6 Months Ended June 30, 2021 | $5,763 | - R&D funding expense significantly increased in the six months ended June 30, 2022, primarily due to a **$100.0 million upfront and milestone payment to Cytokinetics** for a development-stage product candidate[100](index=100&type=chunk) [10. Borrowings](index=23&type=section&id=10.%20Borrowings) Long-Term Debt (in thousands) | Type of Borrowing | June 30, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------ | :---------------- | | Senior Unsecured Notes (total principal) | $7,300,000 | $7,300,000 | | Unamortized debt discount and issuance costs | $(193,801) | $(203,930) | | Total debt carrying value | $7,106,199 | $7,096,070 | - The company issued **$1.3 billion of senior unsecured notes in July 2021** and **$6.0 billion in September 2020**, with weighted average coupon rates of **2.80% and 2.125% respectively**; all covenants were in compliance as of June 30, 2022[102](index=102&type=chunk)[103](index=103&type=chunk)[107](index=107&type=chunk) - A **$1.5 billion Senior Unsecured Revolving Credit Facility**, maturing September 15, 2026, remains undrawn as of June 30, 2022, and the company was in compliance with its covenants[108](index=108&type=chunk)[110](index=110&type=chunk) Future Principal Payments for Borrowings (in thousands) | Year | Principal Payments | | :---------------- | :----------------- | | Remainder of 2022 | $0 | | 2023 | $1,000,000 | | 2024 | $0 | | 2025 | $1,000,000 | | 2026 | $0 | | Thereafter | $5,300,000 | | Total | $7,300,000 | [11. Shareholders' Equity](index=25&type=section&id=11.%20Shareholders%27%20Equity) - The company has **Class A (voting, publicly traded)** and **Class B (voting, limited liquidation rights, not publicly traded) ordinary shares**; Class B shares are exchangeable for Class A shares on a one-for-one basis[112](index=112&type=chunk)[113](index=113&type=chunk) Non-Controlling Interests (in thousands) | Non-Controlling Interest | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | RPSFT | $8,882 | $13,528 | | Legacy Investors Partnerships | $1,716,186 | $1,809,269 | | Continuing Investors Partnerships | $2,655,870 | $2,649,154 | | EPA Holdings | $0 | $0 | | Total | $4,380,938 | $4,471,951 | - Dividends of **$0.19 per Class A ordinary share** were declared and paid in the six months ended June 30, 2022, totaling **$165.3 million**, an increase from **$0.17 per share ($138.6 million)** in the prior year[118](index=118&type=chunk) [12. Earnings per Share](index=28&type=section&id=12.%20Earnings%20per%20Share) - Basic EPS is calculated by dividing net income attributable to Royalty Pharma plc by weighted average Class A ordinary shares outstanding; **Diluted EPS includes the impact of potentially dilutive securities** like exchangeable Class B ordinary shares and unvested RSUs[121](index=121&type=chunk)[122](index=122&type=chunk) Earnings per Class A Ordinary Share | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Basic EPS | $0.70 | $1.08 | | Diluted EPS | $0.70 | $1.08 | | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Basic EPS | $0.82 | $1.28 | | Diluted EPS | $0.82 | $1.25 | [13. Indirect Cash Flow](index=29&type=section&id=13.%20Indirect%20Cash%20Flow) Adjustments to Reconcile Consolidated Net Income to Net Cash Provided by Operating Activities (in thousands) | Adjustment | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Consolidated net income | $619,680 | $965,734 | | Income from financial royalty assets | $(1,026,873) | $(1,033,039) | | Provision for changes in expected cash flows from financial royalty assets | $290,335 | $48,499 | | Cash collected on financial royalty assets | $1,181,354 | $1,094,094 | | Net cash provided by operating activities | $1,035,222 | $1,057,820 | [14. Commitments and Contingencies](index=29&type=section&id=14.%20Commitments%20and%20Contingencies) - Unfunded commitments include **$250 million for Cytokinetics Commercial Launch Funding** (with **$125 million expected to remain available**), **$350 million for MorphoSys Development Funding Bonds** (MorphoSys intends to draw **$300 million in July 2022**), and **$100.4 million for Series B Biohaven Preferred Shares**[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - The company is party to legal actions in the ordinary course of business, but does not believe the outcome of any existing proceedings will materially adversely affect its business, financial condition, or results of operations[132](index=132&type=chunk) [15. Related Party Transactions](index=30&type=section&id=15.%20Related%20Party%20Transactions) - Operating and Personnel Payments to the Manager or its affiliates totaled **$36.0 million and $77.2 million for the three and six months ended June 30, 2022, respectively**, based on **6.5% of cash receipts from royalty investments** and **0.25% of security investments**[134](index=134&type=chunk)[135](index=135&type=chunk) Distributions Payable to Non-Controlling Interests (in thousands) | Recipient | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Due to Legacy Investors Partnerships | $107,886 | $92,608 | | Due to RPSFT | $8,104 | $15,326 | | Total | $115,990 | $107,934 | [16. Subsequent Events](index=32&type=section&id=16.%20Subsequent%20Events) - In July 2022, Royalty Pharma acquired equity interests in Theravance Respiratory Company, LLC for an upfront payment of **$1.31 billion**, entitling it to royalties on Trelegy sales, with up to **$300 million in additional contingent payments**[143](index=143&type=chunk) - The Theravance acquisition also includes **$25 million in upfront funding** and a potential **$15 million regulatory milestone payment** to support ampreloxetine's clinical development[143](index=143&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Royalty Pharma plc's financial condition, operations, and cash flows for the three and six months ended June 30, 2022 and 2021, covering its business model, portfolio, key metrics, investments, and liquidity [Business Overview](index=33&type=section&id=Business%20Overview) - Royalty Pharma is the **largest buyer of biopharmaceutical royalties** and a **leading funder of innovation**, with a portfolio of royalties on over **35 commercial products** and **11 development-stage product candidates**[147](index=147&type=chunk) - The company's capital-efficient business model benefits from **long product life cycles** and **high barriers to entry**, with reduced exposure to early-stage development risk and high R&D costs[148](index=148&type=chunk) - Acquisitions are classified into **Approved Products (deployed $15.0 billion since inception)** and **Development-Stage Product Candidates (deployed $7.8 billion since 2012)**[149](index=149&type=chunk) [Background and Format of Presentation](index=34&type=section&id=Background%20and%20Format%20of%20Presentation) - The company consummated an exchange offer in February 2020 to facilitate its IPO, resulting in an **indirect 82% economic interest in Old RPI** through its subsidiary RPI 2019 Intermediate Finance Trust[151](index=151&type=chunk)[152](index=152&type=chunk) - Royalty Pharma controls RP Holdings, which is the **sole owner of RPI 2019 ICAV**, the successor to Old RPI[151](index=151&type=chunk) [Understanding Our Financial Reporting](index=35&type=section&id=Understanding%20Our%20Financial%20Reporting) - Most royalty acquisitions are treated as financial assets measured under the effective interest method, with income recognized via accretion at an effective rate of return over the asset's life[154](index=154&type=chunk) - Income statement activity can be volatile due to **non-cash provision expense/income** from changes in expected future cash flows, driven by updates to sell-side equity research analysts' consensus sales forecasts[155](index=155&type=chunk)[156](index=156&type=chunk) - Management uses royalty receipts as the primary measure of operating performance and reviews **non-GAAP metrics like Adjusted Cash Receipts, Adjusted EBITDA, and Adjusted Cash Flow** for liquidity assessment[157](index=157&type=chunk)[158](index=158&type=chunk) [Portfolio Overview](index=36&type=section&id=Portfolio%20Overview) - The portfolio includes royalties on over **35 marketed therapies** and **11 development-stage product candidates** across therapeutic areas like rare disease, cancer, and neurology[160](index=160&type=chunk) Total Royalty Receipts (in thousands) | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total royalty receipts | $633,168 | $587,680 | $1,344,199 | $1,237,158 | Top Royalty Receipts by Product (6 Months Ended June 30, in thousands) | Royalty | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------- | :--------- | :--------- | :--------- | :--------- | | Cystic fibrosis franchise | $383,851 | $322,832 | $61,019 | 18.9% | | Tysabri | $190,567 | $178,991 | $11,576 | 6.5% | | Imbruvica | $167,552 | $176,424 | $(8,872) | -5.0% | | Xtandi | $95,383 | $76,812 | $18,571 | 24.2% | | Promacta | $82,612 | $76,466 | $6,146 | 8.0% | | Januvia, Janumet, Other DPP-IVs | $71,377 | $75,200 | $(3,823) | -5.1% | [Financial Overview](index=37&type=section&id=Financial%20Overview) Financial Highlights (6 Months Ended June 30, in millions) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net cash provided by operating activities | $1,035 | $1,058 | $(23) | -2.1% | | Adjusted Cash Receipts (non-GAAP) | $1,129 | $999 | $130 | 13.0% | | Adjusted EBITDA (non-GAAP) | $1,036 | $917 | $119 | 12.9% | | Adjusted Cash Flow (non-GAAP) | $849 | $838 | $11 | 1.3% | [Understanding Our Results of Operations](index=37&type=section&id=Understanding%20Our%20Results%20of%20Operations) - Non-controlling interests are reported for Legacy Investors Partnerships (18% in Old RPI), Continuing Investors Partnerships (approx. 28% in RP Holdings), RPSFT (de minimis in RPCT), and EPA Holdings (RP Holdings Class C Special Interest)[167](index=167&type=chunk) - Total income and other revenues primarily comprise income from financial royalty assets, revenue from intangible royalty assets (DPP-IV products), and other royalty income from R&D funding arrangements[169](index=169&type=chunk) - The Provision for changes in expected cash flows from financial royalty assets includes adjustments to the cumulative allowance for changes in forecasted royalty payments and for current expected credit losses[175](index=175&type=chunk) - General and administrative (G&A) expenses are mainly composed of Operating and Personnel Payments to the Manager, calculated as **6.5% of cash receipts from royalty investments** and **0.25% of security investments**[178](index=178&type=chunk)[179](index=179&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) [Total Income and Other Revenues](index=42&type=section&id=Total%20income%20and%20other%20revenues) Income from Financial Royalty Assets (in thousands) | Product | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Cystic fibrosis franchise | $201,664 | $185,597 | $16,067 | 8.7% | | Imbruvica | $80,638 | $96,315 | $(15,677) | -16.3% | | Tysabri | $51,403 | $50,650 | $753 | 1.5% | | Tremfya | $25,666 | $0 | $25,666 | —% | | Total income from financial royalty assets | $515,350 | $503,414 | $11,936 | 2.4% | | Product | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Cystic fibrosis franchise | $396,121 | $370,413 | $25,708 | 6.9% | | Imbruvica | $168,265 | $195,430 | $(27,165) | -13.9% | | Tysabri | $103,924 | $101,749 | $2,175 | 2.1% | | Tremfya | $41,816 | $0 | $41,816 | —% | | Total income from financial royalty assets | $1,026,873 | $1,033,039 | $(6,166) | -0.6% | - Revenue from intangible royalty assets decreased by **93.7% (3 months)** and **52.6% (6 months)** due to the maturity of royalties on Januvia and Janumet in Q1 2022[191](index=191&type=chunk)[192](index=192&type=chunk) - Other royalty income increased by **58.2% (3 months)** and **86.6% (6 months)**, primarily driven by growth in product launches of Trodelvy and Nurtec ODT from R&D funding agreements[193](index=193&type=chunk)[194](index=194&type=chunk) [Provision for Changes in Expected Cash Flows from Financial Royalty Assets](index=43&type=section&id=Provision%20for%20changes%20in%20expected%20cash%20flows%20from%20financial%20royalty%20assets) Provision for Changes in Expected Cash Flows (in thousands) | Period | Total Provision Expense | | :--------------------------- | :---------------------- | | 3 Months Ended June 30, 2022 | $105,714 | | 3 Months Ended June 30, 2021 | $(243,762) (income) | | 6 Months Ended June 30, 2022 | $290,335 | | 6 Months Ended June 30, 2021 | $48,499 | - In Q2 2022, provision expense was **$105.7 million**, driven by declines in sales forecasts for Imbruvica and cystic fibrosis franchise, partially offset by increases for Xtandi and Tysabri, and provision income for credit losses related to Tazverik[196](index=196&type=chunk) - For the six months ended June 30, 2022, provision expense was **$290.3 million**, mainly due to declines in sales forecasts for Imbruvica and Tazverik, with provision income for credit losses from Tazverik's asset value decline[198](index=198&type=chunk) [R&D Funding Expense](index=44&type=section&id=R%26D%20funding%20expense) - R&D funding expense increased by **$95.3 million for the six months ended June 30, 2022**, primarily due to a **$100.0 million upfront and milestone payment to Cytokinetics**[201](index=201&type=chunk) [G&A Expenses](index=44&type=section&id=G%26A%20expenses) - G&A expenses increased by **15.4% (3 months)** and **17.4% (6 months)** due to higher Operating and Personnel Payments resulting from increased cash receipts from royalty investments[202](index=202&type=chunk)[203](index=203&type=chunk) [Equity in Earnings of Equity Method Investees](index=45&type=section&id=Equity%20in%20earnings%20of%20equity%20method%20investees) - Equity in earnings decreased by **95.8% (3 months)** and **92.8% (6 months)**, primarily driven by a **$20.9 million and $21.5 million decrease, respectively, from the Legacy SLP Interest**[204](index=204&type=chunk)[205](index=205&type=chunk) [Interest Expense](index=45&type=section&id=Interest%20expense) - Interest expense increased by **25.5% (3 months)** and **25.6% (6 months)**, primarily due to the issuance of **$1.3 billion senior unsecured notes in July 2021**[206](index=206&type=chunk)[207](index=207&type=chunk) [Other Income, Net](index=45&type=section&id=Other%20income%2C%20net) - Other income, net, increased by **96.3% (3 months)** and **127.6% (6 months)**, mainly driven by **$71.8 million in gains on derivative instruments** and higher gains on available for sale debt securities, attributed to an estimated high probability of a Biohaven change of control event[209](index=209&type=chunk)[210](index=210&type=chunk) [Net Income Attributable to Non-Controlling Interests](index=46&type=section&id=Net%20income%20attributable%20to%20non-controlling%20interests) - Net income attributable to Legacy Investors Partnerships decreased by **$72.1 million (3 months)** and **$57.8 million (6 months)** due to lower net income attributable to Old RPI[211](index=211&type=chunk)[214](index=214&type=chunk) - Net income attributable to Continuing Investors Partnerships decreased by **$93.7 million (3 months)** and **$111.6 million (6 months)** due to lower net income attributable to RP Holdings and a decline in their ownership from Class A ordinary share exchanges[212](index=212&type=chunk)[215](index=215&type=chunk) - Net income attributable to RPSFT decreased by **$13.0 million (3 months)** and **$23.0 million (6 months)**, expected to continue declining as RPCT assets mature[213](index=213&type=chunk)[216](index=216&type=chunk) [Key Developments and Upcoming Events Relating to Our Portfolio](index=46&type=section&id=Key%20Developments%20and%20Upcoming%20Events%20Relating%20to%20Our%20Portfolio) - Vertex's cystic fibrosis franchise received **EC approval for Kaftrio in patients aged 12+ (April 2021)** and **6-11 (January 2022)**, and **FDA approval for Trikafta in children aged 6-11 (June 2021)**[217](index=217&type=chunk) - Biohaven's Nurtec ODT received **FDA approval for preventative migraine treatment (May 2021)** and **EC marketing authorization for Vydura (rimegepant) for acute and prophylactic migraine (April 2022)**; Pfizer announced its intent to acquire Biohaven for **$11.6 billion by early 2023**[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk) - Gilead's Trodelvy received **full FDA approval for metastatic TNBC (April 2021)**, **accelerated FDA approval for urothelial cancer (April 2021)**, and **EC marketing authorization for TNBC (November 2021)**; Gilead also announced collaborations with Merck & Co. for Trodelvy in NSCLC[223](index=223&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk) - Cytokinetics' aficamten received **FDA breakthrough therapy designation for oHCM (December 2021)** and showed **positive Phase 2 results (February 2022)**; its omecamtiv mecarbil NDA was accepted by FDA with a **PDUFA date of February 28, 2023**, and an advisory committee meeting scheduled for **December 13, 2022**[240](index=240&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - BioCryst paused enrollment in BCX9930 clinical trials due to elevated serum creatinine levels, with plans to discuss resuming trials with amended protocols by Q3 2022[240](index=240&type=chunk) - Biohaven's zavegepant nasal spray NDA was accepted by FDA for acute migraine treatment, with a **PDUFA date in Q1 2023**[246](index=246&type=chunk) [Non-GAAP Financial Results](index=53&type=section&id=Non-GAAP%20Financial%20Results) [Adjusted Cash Receipts (non-GAAP)](index=55&type=section&id=Adjusted%20Cash%20Receipts%20(non-GAAP)) Adjusted Cash Receipts (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Adjusted Cash Receipts | $1,128,656 | $998,961 | $129,695 | 13.0% | - Adjusted Cash Receipts increased by **$129.7 million**, driven by higher royalty receipts from the cystic fibrosis franchise and newly acquired royalties (e.g., Tremfya, Cabometyx/Cometriq, Evrysdi, Orladeyo), partially offset by declines from matured royalties (e.g., HIV franchise) and unfavorable foreign exchange movements[257](index=257&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) [Distributions to Non-Controlling Interests](index=57&type=section&id=Distributions%20to%20Non-Controlling%20Interests) Distributions to Non-Controlling Interests (in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Distributions to non-controlling interests | $(215,543) | $(238,197) | $22,654 | -9.5% | - Distributions to non-controlling interests decreased by **$22.7 million**, positively impacting Adjusted Cash Receipts, primarily due to maturing royalties jointly owned by Legacy Investors Partnerships and RPSFT[262](index=262&type=chunk) [Adjusted EBITDA (non-GAAP)](index=57&type=section&id=Adjusted%20EBITDA%20(non-GAAP)) Adjusted EBITDA (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :----------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Adjusted EBITDA | $1,035,653 | $917,197 | $118,456 | 12.9% | - Adjusted EBITDA increased by **$118.5 million**, driven by the same factors impacting Adjusted Cash Receipts; payments for operating and professional costs also increased due to higher cash receipts from royalty investments[263](index=263&type=chunk) [Adjusted Cash Flow (non-GAAP)](index=57&type=section&id=Adjusted%20Cash%20Flow%20(non-GAAP)) Adjusted Cash Flow (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :---------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Adjusted Cash Flow | $848,610 | $838,049 | $10,561 | 1.3% | - Adjusted Cash Flow increased by **$10.6 million**, primarily due to higher Adjusted Cash Receipts and Adjusted EBITDA, partially offset by a **$100.0 million upfront payment to Cytokinetics** and a **$21.5 million increase in net interest paid**[264](index=264&type=chunk) [Non-GAAP Reconciliations](index=57&type=section&id=Non-GAAP%20Reconciliations) - Adjusted Cash Receipts, Adjusted EBITDA, and Adjusted Cash Flow are **non-GAAP liquidity measures** used by management to evaluate operating performance and cash generation, supplementing GAAP measures like Net cash provided by operating activities[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[269](index=269&type=chunk) Non-GAAP Reconciliations to Net Cash Provided by Operating Activities (in thousands) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities (GAAP) | $1,035,222 | $1,057,820 | | **Adjusted Cash Receipts (non-GAAP)** | $1,128,656 | $998,961 | | **Adjusted EBITDA (non-GAAP)** | $1,035,653 | $917,197 | | **Adjusted Cash Flow (non-GAAP)** | $848,610 | $838,049 | [Investments Overview](index=60&type=section&id=Investments%20Overview) - New investments are crucial for long-term growth, supplementing existing portfolio growth and offsetting declines from royalties losing market exclusivity; the company invested **$442.4 million in royalties and related assets** in the six months ended June 30, 2022[278](index=278&type=chunk)[279](index=279&type=chunk) [Summary of Royalty Acquisition Activity](index=60&type=section&id=Summary%20of%20Royalty%20Acquisition%20Activity) - In July 2022, acquired equity interests in Theravance Respiratory Company, LLC for an upfront payment of **$1.31 billion**, plus up to **$300 million in contingent payments** for Trelegy royalties, and **$25 million upfront funding** for ampreloxetine[281](index=281&type=chunk) - In June 2022, acquired ex-U.S. royalty interest in Gavreto from Blueprint Medicines for **$175 million upfront** and up to **$165 million in contingent sales-based milestones**[281](index=281&type=chunk) - In January 2022, acquired a royalty interest in aficamten from Cytokinetics for **$150 million** (including **$50 million upfront** and two **$50 million conditional payments**), plus up to **$300 million in Cytokinetics Commercial Launch Funding**[281](index=281&type=chunk) - Other recent acquisitions include a strategic funding partnership with MorphoSys (June 2021), Oxlumo royalty (April 2021), Cabometyx/Cometriq royalty (March 2021), and seltorexant royalty (January 2021)[281](index=281&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) [Overview](index=61&type=section&id=Overview) - Primary liquidity source is cash from operations, generating **$1.0 billion and $1.1 billion in net cash provided by operating activities** for the six months ended June 30, 2022 and 2021, respectively[283](index=283&type=chunk) - The company has access to substantial capital markets, including **$7.1 billion in long-term debt outstanding** and an **undrawn $1.5 billion Revolving Credit Facility** as of June 30, 2022[284](index=284&type=chunk) [Cash Flows](index=62&type=section&id=Cash%20Flows) Summary of Cash Flow Activity (in thousands) | Activity | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | | Operating activities | $1,035,222 | $1,057,820 | $(22,598) | | Investing activities | $(19,013) | $(473,134) | $454,121 | | Financing activities | $(449,220) | $(451,085) | $1,865 | [Analysis of Cash Flow Changes](index=62&type=section&id=Analysis%20of%20Cash%20Flow%20Changes) - Operating cash flow decreased by **$22.6 million**, primarily due to a **$100.0 million upfront payment to Cytokinetics** and a **$22.4 million increase in interest paid**, partially offset by an **$87.3 million increase in cash collections from financial royalty assets**[288](index=288&type=chunk) - Cash used in investing activities decreased by **$454.1 million**, driven by a **$508.6 million decrease in cash used for financial royalty asset acquisitions** and a **$150.4 million increase in net cash from marketable securities**[289](index=289&type=chunk) - Financing activities cash use remained relatively consistent[290](index=290&type=chunk) [Sources of Capital](index=62&type=section&id=Sources%20of%20Capital) - As of June 30, 2022, cash and cash equivalents totaled **$2.1 billion**, and marketable securities totaled **$290.4 million**; the company intends to fund obligations through these resources, future cash flows, or additional debt[291](index=291&type=chunk) [Borrowings](index=63&type=section&id=Borrowings) Total Long-Term Debt (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Total senior unsecured debt | $7,300,000 | $7,300,000 | | Total long-term debt | $7,106,199 | $7,096,070 | - The company's Senior Unsecured Notes total **$7.3 billion in principal**, with weighted average coupon rates of **2.80% (2021 Notes)** and **2.125% (2020 Notes)**; the **$1.5 billion Revolving Credit Facility remains undrawn**[293](index=293&type=chunk)[294](index=294&type=chunk) [Uses of Capital](index=63&type=section&id=Uses%20of%20Capital) - Capital is used for acquisitions of royalties (third-party, synthetic/R&D funding, launch/development capital, M&A related), distributions to shareholders, and other funding arrangements[295](index=295&type=chunk)[297](index=297&type=chunk) - Funding commitments include up to **$300 million for Cytokinetics Commercial Launch Funding**, up to **$350 million for MorphoSys Development Funding Bonds**, and **$100.4 million for Series B Biohaven Preferred Shares**[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) Future Principal and Interest Payments on Notes (in thousands) | Year | Principal Payments | Interest Payments | | :---------------- | :----------------- | :---------------- | | Remainder of 2022 | $0 | $81,925 | | 2023 | $1,000,000 | $163,850 | | 2024 | $0 | $156,350 | | 2025 | $1,000,000 | $156,350 | | 2026 | $0 | $144,350 | | Thereafter | $5,300,000 | $2,070,250 | | Total | $7,300,000 | $2,773,075 | [Guarantor Financial Information](index=65&type=section&id=Guarantor%20Financial%20Information) - Royalty Pharma plc and RP Holdings (Guarantor Subsidiary) fully and unconditionally guarantee the Notes; **RP Holdings' most significant asset is its investment in operating subsidiaries**, which hold the majority of cash, marketable securities, and financial royalty assets[305](index=305&type=chunk)[306](index=306&type=chunk) Summarized Combined Balance Sheet (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :---------------------------------------------------------------- | :------------ | :---------------- | | Current assets | $57,188 | $95,946 | | Non-current assets | $3,591 | $4,145 | | Current liabilities | $56,646 | $59,030 | | Non-current liabilities | $7,105,495 | $7,095,450 | Summarized Combined Statement of Operations (in thousands, 6 Months Ended June 30, 2022) | Metric | Amount | | :---------------------------------------------------------------- | :------- | | Interest income on intercompany notes receivable from Non-Guarantor Subsidiaries | $28,181 | | Operating expenses | $104,266 | | Net loss | $101,855 | [Critical Accounting Policies and Use of Estimates](index=66&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) - The most critical accounting policies relate to financial royalty assets, specifically their measurement at amortized cost using the prospective effective interest method, which requires significant judgment in forecasting future cash flows[309](index=309&type=chunk) [Recent Accounting Pronouncements](index=66&type=section&id=Recent%20Accounting%20Pronouncements) - No material changes to critical accounting policies and estimates were reported, with additional information on recently issued accounting standards referenced in Note 2[309](index=309&type=chunk)[310](index=310&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in market risk exposures compared to those disclosed in the Annual Report on Form 10-K - No material changes in market risk exposures were identified compared to the Annual Report on Form 10-K[311](index=311&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness, and confirms no material changes in internal control over financial reporting during the period - Management, with CEO and CFO participation, concluded that **disclosure controls and procedures were effective at a reasonable assurance level** as of June 30, 2022[312](index=312&type=chunk)[314](index=314&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended June 30, 2022[313](index=313&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 14 for a description of legal proceedings, indicating that the company does not believe the outcome of any existing legal proceedings will adversely affect its business - Legal proceedings are discussed in Note 14–Commitments and Contingencies; the company does not believe the outcome of any existing legal proceedings will adversely affect its business, financial condition, or results of operations[315](index=315&type=chunk)[132](index=132&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K were reported[316](index=316&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or issuer purchases of equity securities during the period - No recent sales of unregistered securities or issuer purchases of equity securities were reported[317](index=317&type=chunk)[318](index=318&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities were reported[319](index=319&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Not applicable; no mine safety disclosures were reported[320](index=320&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - Not applicable; no other information was reported[321](index=321&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits filed include **certifications from the CEO and CFO (31.1, 31.2, 32)** and **XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)**[322](index=322&type=chunk)

Royalty Pharma plc (NASDAQ:RPRX) Q1 2022 Earnings Conference Call May 5, 2022 8:00 AM ET Company Participants George Grofik - Senior Vice President, Head-Investor Relations & Communications Terry Coyne - Executive Vice President & Chief Financial Officer Marshall Urist - Head, Research & Investments Chris Hite - Vice Chairman Conference Call Participants Chris Schott - JPMorgan Terence Flynn - Morgan Stanley Chris Shibutani - Goldman Sachs Geoff Meacham - Bank of America Umer Raffat - Evercore Andrew Baum - ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39329 Royalty Pharma plc (Exact name of registrant as specified in its charter) England and Wales 98-1535773 (State or other jur ...

PART I [Business](index=5&type=section&id=Item%201.%20Business) Royalty Pharma is the largest buyer of biopharmaceutical royalties, acquiring streams on over 35 commercial products and 10 development-stage candidates - Royalty Pharma is the largest buyer of biopharmaceutical royalties and a leading funder of innovation, collaborating with academic institutions, biotech companies, and large pharmaceutical firms[18](index=18&type=chunk) 2021 Key Financial and Investment Metrics (USD) | Metric | Value (USD) | | :--- | :--- | | Cash from operating activities | $2.0 billion | | Adjusted Cash Receipts | $2.1 billion | | Adjusted Cash Flow | $1.8 billion | | Cash deployed for royalties and securities | $2.7 billion | - The company's portfolio includes royalties on more than **35 commercial products** and **ten development-stage product candidates**, with key products like Imbruvica, Xtandi, Tysabri, and the Vertex cystic fibrosis franchise[18](index=18&type=chunk)[22](index=22&type=chunk) - The business model is capital-efficient, providing exposure to the biopharmaceutical industry's attractive characteristics while mitigating common risks like early-stage development, R&D costs, and fixed manufacturing/marketing costs[19](index=19&type=chunk) - Since 1996, the company has deployed over **$22 billion** to acquire royalties, representing over **50% of all royalty transactions** in that period, and from 2012 to 2021, it deployed over **$17 billion**, capturing approximately **60% of the market share**[20](index=20&type=chunk) [Portfolio Overview](index=5&type=section&id=Portfolio%20Overview) Top 5 Products by 2021 Royalty Receipts (in millions) | Product(s) | Marketer(s) | 2021 Royalty Receipts | 2021 End Market Sales | | :--- | :--- | :--- | :--- | | Cystic fibrosis franchise | Vertex | $702 | $7,573 | | Tysabri | Biogen | $369 | $2,063 | | Imbruvica | AbbVie, Johnson & Johnson | $353 | $6,943 | | Promacta | Novartis | $174 | $2,016 | | Xtandi | Pfizer, Astellas | $158 | $4,582 | - The portfolio includes ten development-stage product candidates in Phase 2 or Phase 3 trials, targeting conditions such as Alzheimer's disease, hypertrophic cardiomyopathy, and myelofibrosis[24](index=24&type=chunk) [Our Business Model](index=7&type=section&id=Our%20Business%20Model) - The portfolio is highly diversified, with no single therapy accounting for more than **19% of royalty receipts**, no therapeutic area for more than **29%**, and no marketer for more than **27%** in 2021[35](index=35&type=chunk) - The portfolio has a long duration, with an estimated weighted average royalty duration of approximately **13 years**, and key royalty on Vertex's Trikafta is expected to have exclusivity through **2037**[37](index=37&type=chunk) - The company holds a leadership position in the royalty market, executing **9 of the 11 largest transactions (over $500 million)** since 2012, representing over **80% market share** in this segment[44](index=44&type=chunk) - The company has a significant cost of capital advantage with **$7.3 billion in senior unsecured notes** at a weighted average coupon of **2.24%** and a weighted-average maturity of approximately **13 years** as of December 31, 2021[42](index=42&type=chunk) [Our Strategic Plan to Grow the Portfolio](index=10&type=section&id=Our%20Strategic%20Plan%20to%20Grow%20the%20Portfolio) - The growth strategy is built on three pillars: - Acquiring royalties on approved products with dependable cash flows - Acquiring royalties on attractive development-stage product candidates with strong clinical proof of concept - Acquiring royalties in connection with M&A transactions[49](index=49&type=chunk) - From 2012 through 2021, the company deployed **$7.8 billion in cash** for royalties on development-stage candidates, with an **81% success rate** to date (**$6.3 billion** on products that have since been approved)[48](index=48&type=chunk) - The company takes a disciplined approach to acquisitions, focusing on therapies that are clinically validated, address high unmet needs, offer significant patient benefits, have a unique competitive position, and are marketed by strong partners[52](index=52&type=chunk)[53](index=53&type=chunk) [Our Portfolio Details](index=12&type=section&id=Our%20Portfolio%20Details) Royalty Portfolio Summary (Selected Products) | Product | Therapeutic Area | Est. Expiration | Royalty Rate Details | | :--- | :--- | :--- | :--- | | Cystic fibrosis franchise | Rare disease | 2037 | Tiered single-digit to sub-teen percentages | | Tysabri | Neurology | Perpetual | 18% on sales up to $2.0B, 25% above | | Imbruvica | Cancer | 2027-2032 | Tiered mid-single digits | | Xtandi | Cancer | 2027-2028 | Slightly less than 4% | | Tremfya | Immunology | 2031-2032 | Mid-single digit, tiered | | Trodelvy | Cancer | Perpetual | 4.15% on sales up to $2B, tiered down to 1.75% | Fixed Payment Arrangements Summary | Funding Arrangement | Key Terms | | :--- | :--- | | Biohaven Series A Preferred Shares | 16 quarterly payments of $15.6M (total $250M) from Q1 2021 to Q4 2024 | | Biohaven Series B Preferred Shares | 24 quarterly payments of $14.8M (total $354.5M) from Q1 2025 to Q4 2030 | | Zavegepant Success-Based Milestones | Payments up to 2.95x the $250M funded amount, contingent on regulatory approvals | | MorphoSys Development Funding Bonds | Payments totaling ~2.2x the amount drawn (up to $350M available) | | Cytokinetics Commercial Launch Funding | Payments totaling 1.9x the amount drawn (up to $300M available) | [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to its business, organizational structure, stock, and taxation, including sales performance, reliance on its Manager, and potential changes in tax laws - **Business Risks:** The company's revenue is subject to the sales performance of biopharmaceutical products, which can be affected by pricing pressures, competition, clinical trial failures, and loss of patent protection, and the company also relies heavily on its external Manager to identify and acquire suitable assets[147](index=147&type=chunk)[160](index=160&type=chunk) - **Financial & Accounting Risks:** The use of leverage magnifies potential losses, and accounting for most royalty assets under the effective interest method can lead to volatile and unpredictable GAAP results due to sensitivity to long-term sales forecasts[158](index=158&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - **Regulatory & Legal Risks:** The business could be adversely affected if the SEC changes its interpretation of the U.S. Investment Company Act, potentially requiring impractical registration as an investment company[224](index=224&type=chunk)[228](index=228&type=chunk) - **Tax Risks:** The company's structure involves complex tax laws, with a key risk being the potential loss of benefits under the U.S.-Ireland income tax treaty, which could subject a substantial portion of its U.S.-source royalty revenue to a **30% withholding tax**[273](index=273&type=chunk)[276](index=276&type=chunk) - **General Risks:** The COVID-19 pandemic and future outbreaks could disrupt the global economy, affecting partners' clinical trials, manufacturing, and product sales, which could in turn impact the company's results[292](index=292&type=chunk)[293](index=293&type=chunk) [Properties](index=51&type=section&id=Item%202.%20Properties) The company's executive offices are located in New York, NY, provided by its external Manager, and are considered suitable and adequate for business operations - Executive offices are located in New York, NY and are provided by the Manager[298](index=298&type=chunk) [Legal Proceedings](index=51&type=section&id=Item%203.%20Legal%20Proceedings) The company may be a party to various legal matters in the ordinary course of business but does not expect any current proceedings to have a material adverse effect on its financial condition or operations - The company is not currently party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition[298](index=298&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Royalty Pharma's Class A ordinary shares trade on the Nasdaq Global Select Market under "RPRX", and in 2021, the company declared and paid four quarterly cash dividends totaling **$0.68 per share** - The company's Class A ordinary shares are traded on the Nasdaq Global Select Market under the symbol **"RPRX"**[301](index=301&type=chunk) - In the year ended December 31, 2021, the company declared and paid four quarterly cash dividends of **$0.17 per Class A ordinary share**, totaling **$285.2 million**[303](index=303&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, Royalty Pharma's total income grew 7.9% to **$2.3 billion**, but consolidated net income decreased 27.1% to **$1.2 billion**, mainly due to increased provisions and R&D funding expenses 2021 vs. 2020 Results of Operations (in thousands) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total income and other revenues | $2,289,463 | $2,122,353 | 7.9% | | Total operating expense, net | $858,748 | $526,954 | 63.0% | | Operating income | $1,430,715 | $1,595,399 | (10.3)% | | Consolidated net income | $1,241,201 | $1,701,954 | (27.1)% | 2021 vs. 2020 Non-GAAP Financial Results (in thousands) | Non-GAAP Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total royalty receipts | $2,608,542 | $2,344,399 | 11.3% | | Adjusted Cash Receipts | $2,128,938 | $1,800,447 | 18.2% | | Adjusted EBITDA | $1,944,427 | $1,620,738 | 20.0% | | Adjusted Cash Flow | $1,766,647 | $1,482,898 | 19.1% | - The increase in Adjusted Cash Receipts was driven by growth from the cystic fibrosis franchise, fixed payments from Biohaven, and newly acquired assets, partially offset by declines from maturing assets like the HIV franchise[421](index=421&type=chunk) - The company invested **$2.7 billion** in royalties and related assets in 2021 across five transactions, including a strategic funding partnership with MorphoSys and royalty acquisitions on Tremfya, Oxlumo, and Cabometyx[445](index=445&type=chunk)[449](index=449&type=chunk) - As of December 31, 2021, the company had total long-term debt of **$7.1 billion**, consisting of senior unsecured notes, and an undrawn **$1.5 billion revolving credit facility**, indicating a strong liquidity position[453](index=453&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include foreign currency exchange rate volatility and interest rate sensitivity, with all outstanding debt having fixed interest rates as of December 31, 2021 - Primary market risks include foreign currency exchange risk (from royalties paid in currencies like the Euro, Swiss Franc, etc.) and interest rate risk (on cash equivalents and marketable securities)[500](index=500&type=chunk)[501](index=501&type=chunk) - As of December 31, 2021, **100% of the company's outstanding debt** has fixed interest rates, minimizing exposure to interest rate fluctuations on its liabilities, though the **$1.5 billion revolving credit facility**, if drawn, would have a variable rate[505](index=505&type=chunk) - The company is exposed to credit and counterparty risk, with the largest concentration being with Vertex, which accounted for **32% of the current portion of net financial royalty assets** as of year-end 2021[507](index=507&type=chunk) [Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for Royalty Pharma plc for 2021, 2020, and 2019, including balance sheets, statements of operations, and cash flows, along with detailed notes Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,541,048 | $1,008,680 | | Financial royalty assets, net | $14,332,596 | $12,955,277 | | Total Assets | $17,515,865 | $16,020,286 | | Long-term debt | $7,096,070 | $5,816,584 | | Total Shareholders' Equity | $10,248,545 | $9,895,815 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total income and other revenues | $2,289,463 | $2,122,353 | $1,814,254 | | Operating income | $1,430,715 | $1,595,399 | $2,623,176 | | Consolidated net income | $1,241,201 | $1,701,954 | $2,461,419 | | Net income attributable to controlling interest | $619,728 | $975,040 | $2,348,535 | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $2,017,536 | $2,034,629 | $1,667,239 | | Net cash used in investing activities | $(1,870,280) | $(2,759,320) | $(2,153,625) | | Net cash provided by/(used in) financing activities | $385,112 | $1,487,172 | $(1,191,626) | [Controls and Procedures](index=133&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes identified - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[776](index=776&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2021, and the independent registered public accounting firm issued an unqualified audit report on its effectiveness[777](index=777&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=133&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2022 Annual General Meeting of Shareholders[782](index=782&type=chunk) [Executive Compensation](index=134&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders - Information regarding executive compensation is incorporated by reference from the company's Proxy Statement[783](index=783&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=134&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders - Information regarding security ownership of beneficial owners and management is incorporated by reference from the company's Proxy Statement[784](index=784&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=134&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement[785](index=785&type=chunk) [Principal Accountant Fees and Services](index=134&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for the 2022 Annual General Meeting of Shareholders - Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement[786](index=786&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=135&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents, material contracts, and required certifications - This section contains a list of all exhibits filed with the 10-K, including corporate governance documents, material contracts, and required certifications[789](index=789&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39329 Royalty Pharma plc (Exact name of registrant as specified in its charter) Indicate by check mark whether the registrant h ...

ROYALTY PHARMA ROYALTY PHARMA Royalty Pharma plc Q2 2021 Financial Results August 11, 2021 2 Forward Looking Statements & Non-GAAP Financial Information This presentation has been prepared by Royalty Pharma plc (the "Company"), is made for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information set forth herein does not purport to be complete or to contain all of the information you may desire. Statements contained herein are made ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Royalty Pharma plc as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020. It includes the balance sheets, statements of comprehensive income, statements of shareholders' equity, and statements of cash flows, along with detailed notes explaining the basis of preparation and significant accounting policies Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | $16,514,913 | $16,020,286 | | Cash and cash equivalents | $1,142,281 | $1,008,680 | | Financial royalty assets, net | $12,932,077 | $12,368,084 | | **Total Liabilities** | $6,109,548 | $6,124,471 | | Long-term debt | $5,825,559 | $5,816,584 | | **Total Shareholders' Equity** | $10,405,365 | $9,895,815 | Condensed Consolidated Statements of Comprehensive Income Highlights (Unaudited) | Metric | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | | Total income and other revenues | $1,127,990 | $1,011,811 | | Operating income | $974,247 | $770,776 | | Consolidated net income | $965,734 | $711,072 | | Net income attributable to controlling interest | $509,895 | $513,314 | | Basic EPS (Class A) | $1.28 | $0.09 | | Diluted EPS (Class A) | $1.25 | $0.09 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,057,820 | $960,108 | | Net cash used in investing activities | ($473,134) | ($1,006,720) | | Net cash (used in)/provided by financing activities | ($451,085) | $2,121,956 | | Net change in cash and cash equivalents | $133,601 | $2,075,344 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's significant accounting policies, IPO-related reorganization, and key financial asset and debt components - The company completed its IPO in June 2020, involving significant Reorganization Transactions, including an exchange offer for legacy investors and the creation of a new corporate structure. Old RPI is considered the predecessor for financial reporting purposes[32](index=32&type=chunk)[38](index=38&type=chunk)[42](index=42&type=chunk) - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2020, resulting in a cumulative adjustment to Retained Earnings of **$192.7 million** to recognize an allowance for expected credit losses on financial royalty assets[61](index=61&type=chunk)[125](index=125&type=chunk) Key Financial Assets as of June 30, 2021 (in thousands) | Asset Type | Net Carrying Value | | :--- | :--- | | Financial royalty assets, net | $13,528,928 | | Available for sale debt securities | $271,200 | | Investments in non-consolidated affiliates | $465,620 | Total Debt as of June 30, 2021 (in thousands) | Debt Component | Carrying Value | | :--- | :--- | | Senior Unsecured Notes (Par Value $6.0B) | $5,825,559 | | Senior Unsecured Revolving Credit Facility | $0 (undrawn) | | **Total long-term debt** | **$5,825,559** | - Subsequent to the quarter end, on July 15, 2021, the company made an upfront payment of **$1.425 billion** to MorphoSys and purchased **$100 million** of its shares. On July 26, 2021, the company issued an additional **$1.3 billion** of senior unsecured notes[217](index=217&type=chunk)[218](index=218&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's business model as the largest buyer of biopharmaceutical royalties, its portfolio of over 45 commercial products, and its financial reporting methodology. The MD&A highlights the use of non-GAAP metrics like Adjusted Cash Receipts due to the volatility of GAAP income recognition for financial royalty assets. The analysis covers results of operations, key portfolio developments, liquidity, capital resources, and recent investment activities - The company's business model focuses on acquiring biopharmaceutical royalties, which provides exposure to top-line sales of leading therapies with reduced R&D and commercialization risks[222](index=222&type=chunk)[223](index=223&type=chunk) - Due to the effective interest method of accounting for financial royalty assets, GAAP income can be volatile and unpredictable. Management therefore uses non-GAAP metrics, primarily Adjusted Cash Receipts, Adjusted EBITDA, and Adjusted Cash Flow, as key measures of operating performance and liquidity[229](index=229&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk) Non-GAAP Financial Highlights (Six Months Ended June 30) | Metric (non-GAAP) | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Adjusted Cash Receipts | $999.0 | $844.1 | 18.3% | | Adjusted EBITDA | $917.2 | $774.1 | 18.5% | | Adjusted Cash Flow | $838.0 | $666.5 | 25.7% | - For the six months ended June 30, 2021, the company invested **$706.9 million** in royalties and related assets. Key recent transactions include a strategic funding partnership with MorphoSys and royalty acquisitions for Oxlumo and Cabometyx[363](index=363&type=chunk)[365](index=365&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on changes in income from financial royalty assets and the provision for expected cash flows Comparison of Results (Six Months Ended June 30) | Metric (in thousands) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total income and other revenues | $1,127,990 | $1,011,811 | 11.5% | | Income from financial royalty assets | $1,033,039 | $937,021 | 10.2% | | Provision for changes in expected cash flows | $48,499 | $135,290 | (64.2)% | | Operating income | $974,247 | $770,776 | 26.4% | | Consolidated net income | $965,734 | $711,072 | 35.8% | - The increase in income from financial royalty assets for the six months ended June 30, 2021 was primarily driven by strong performance from the cystic fibrosis franchise and income from newly acquired assets like Evrysdi and Cabometyx/Cometriq, partially offset by declines from the HIV franchise due to loss of exclusivity for certain products[275](index=275&type=chunk) - The provision for changes in expected cash flows was an expense of **$48.5 million** in the first six months of 2021, compared to an expense of **$135.3 million** in the same period of 2020. The 2021 expense was driven by declines in forecasts for Imbruvica and Tazverik, partially offset by provision income from increased forecasts for Tysabri and Xtandi[283](index=283&type=chunk)[284](index=284&type=chunk) [Non-GAAP Financial Results](index=57&type=section&id=Non-GAAP%20Financial%20Results) This section presents key non-GAAP financial metrics, including Adjusted Cash Receipts and Adjusted Cash Flow, to provide a clearer view of operational performance - Adjusted Cash Receipts increased **18.3%** to **$999.0 million** for the first six months of 2021, driven by higher royalty receipts from the cystic fibrosis franchise, new assets, and fixed payments from Biohaven, partially offset by declines from the HIV franchise[337](index=337&type=chunk)[338](index=338&type=chunk) - Adjusted Cash Flow increased **25.7%** to **$838.0 million** for the first six months of 2021, benefiting from higher Adjusted Cash Receipts, lower net interest paid due to debt refinancing, and lower R&D funding payments[337](index=337&type=chunk)[346](index=346&type=chunk) Top Royalty Receipts (Six Months Ended June 30, 2021) | Product | Royalty Receipts (in millions) | | :--- | :--- | | Cystic fibrosis franchise | $322.8 | | Tysabri | $179.0 | | Imbruvica | $176.4 | | Xtandi | $76.8 | | Promacta | $76.5 | [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's sources of liquidity, cash position, marketable securities, and outstanding debt, including recent financing activities - The primary source of liquidity is cash from operations, which amounted to **$1.1 billion** for the six months ended June 30, 2021[368](index=368&type=chunk) - As of June 30, 2021, the company had **$1.1 billion** in cash and cash equivalents and **$842.7 million** in marketable securities. It also has an undrawn **$1.5 billion** revolving credit facility[369](index=369&type=chunk)[376](index=376&type=chunk) - Total long-term debt outstanding was **$5.8 billion** as of June 30, 2021, consisting entirely of senior unsecured notes issued in September 2020. An additional **$1.3 billion** in notes were issued in July 2021[371](index=371&type=chunk)[383](index=383&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposures are to interest rate sensitivity and foreign currency exchange risk. Interest rate risk affects investments in marketable securities and variable-rate debt, while foreign currency risk arises from royalties paid in non-USD currencies. The company uses derivative instruments to manage these risks but not for speculative purposes - The company is exposed to foreign currency risk as some royalties are paid in currencies other than the U.S. dollar, primarily the Euro, Canadian Dollar, Swiss Franc, and Japanese Yen[406](index=406&type=chunk) - Following the September 2020 Notes issuance, **100%** of the company's outstanding debt is at a fixed rate, mitigating interest rate risk on existing debt. However, the undrawn **$1.5 billion** revolving credit facility is variable-rate[410](index=410&type=chunk) - Credit and counterparty risk is concentrated with a few large pharmaceutical companies. As of June 30, 2021, Vertex was the largest payor, accounting for **29%** of the current portion of Financial royalty assets[412](index=412&type=chunk) [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021. There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls - The CEO and CFO concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective to a reasonable assurance level[414](index=414&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[415](index=415&type=chunk) [PART II. OTHER INFORMATION](index=73&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, updates on risk factors, and other miscellaneous information required for the quarterly report [Item 1. Legal Proceedings](index=74&type=section&id=Item%201.%20Legal%20Proceedings) The company may be involved in various legal matters in the ordinary course of business. Management does not believe that the ultimate liability from these proceedings will have a material adverse effect on the company's business, financial condition, or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse impact on its financial condition or operations[418](index=418&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K have been reported[419](index=419&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=74&type=section&id=Other%20Items) This section confirms that there were no unregistered sales of equity securities, no defaults upon senior securities, and no other material information to report for the period. It also lists the exhibits filed with the quarterly report - Item 2: There were no unregistered sales of equity securities during the period[420](index=420&type=chunk) - Items 3, 4, and 5 were not applicable[421](index=421&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk) - Item 6 lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files[424](index=424&type=chunk)