Royalty Pharma plc (NASDAQ:RPRX) Q2 2023 Earnings Conference Call August 8, 2023 8:00 AM ET Company Participants Pablo Legorreta - Chief Executive Officer Marshall Urist - Executive Vice President, Head of Research and Investment Terrance Coyne - Executive Vice President, Chief Financial Officer Chris Hite - Executive Vice President, Vice Chairman George Grofik - Head of Investor Relations and Communications Conference Call Participants Chris Shibutani - Goldman Sachs Hardik Parekh - JP Morgan Geoff Meacha ...

Financial Performance - Total royalty receipts for the second quarter of 2023 were $637.1 million, slightly up from $633.2 million in the same period of 2022, while total receipts for the first six months of 2023 reached $1.86 billion, compared to $1.34 billion in 2022, representing a 39% increase [148]. - Total income and other revenues for the first six months of 2023 increased by $124.2 million, or 11.3%, compared to the same period in 2022, reaching $1,222.2 million [172]. - Consolidated net income for the first six months of 2023 was $860.4 million, an increase of $240.7 million, or 38.8%, compared to the same period in 2022 [172]. - Net income attributable to Royalty Pharma plc decreased by $76.9 million, or 25.2%, in Q2 2023 compared to Q2 2022 [172]. - Income from financial royalty assets increased by $139.2 million, or 13.6%, in the first six months of 2023, driven by a $475.0 million milestone payment from Pfizer's Zavzpret [176]. Royalty Income - The cystic fibrosis franchise generated royalty receipts of $206.2 million in Q2 2023, compared to $182.0 million in Q2 2022, reflecting a growth of 13% [148]. - Royalty income from the cystic fibrosis franchise accounted for 39% of total income for Q2 2023, compared to 38% in Q2 2022 [158]. - Royalty receipts from the cystic fibrosis franchise grew by 10.1% to $422.8 million, driven by the uptake of Kaftrio and continued performance of Trikafta [236]. - Royalty receipts from Tysabri decreased by 10.7% to $170.2 million, impacted by pricing pressure and competition [236]. - Royalty receipts from Imbruvica fell by 21.4% to $131.7 million due to increased competition and market suppression [236]. Investments and Acquisitions - The company has deployed $17.0 billion to acquire royalties, milestones, and related assets on approved products since its inception in 1996, with $12.1 billion deployed from 2012 to 2022 [136]. - For development-stage product candidates, the company has invested $8.3 billion since 2012, indicating a strong commitment to funding innovation in the biopharmaceutical sector [136]. - The company invested $682.1 million in royalties, milestones, and related assets during the first six months of 2023 [205]. - In June 2023, the company acquired a royalty interest in Erleada for an upfront payment of $59 million [206]. Cash Flow and Liquidity - Cash and cash equivalents totaled $2.2 billion as of June 30, 2023, an increase from $1.7 billion as of December 31, 2022 [209]. - Net cash provided by operating activities was $1.6 billion for the first six months of 2023, compared to $1.0 billion for the same period in 2022 [208]. - Adjusted Cash Receipts for the first six months of 2023 were $1,675.6 million, up from $1,128.7 million in 2022, reflecting a significant increase in cash generation from royalty investments [226]. - Adjusted Cash Flow for the first six months of 2023 was $1,485.8 million, an increase from $848.6 million in 2022 [226]. - Current assets increased to $143.3 million as of June 30, 2023, up from $92.8 million as of December 31, 2022, indicating a significant growth in liquidity [255]. Operating Expenses - Total operating expenses for the first six months of 2023 were $494.4 million, a slight decrease of 1.2% compared to the same period in 2022 [172]. - The company recorded provision expense of $241.2 million in Q2 2023, significantly higher than the $105.7 million recorded in Q2 2022 [182]. - In the first six months of 2023, R&D funding expense decreased by $100.1 million, or 99.0%, compared to the same period in 2022, with no upfront and milestone R&D funding expense recognized in 2023 [186]. - G&A expenses increased by $29.9 million, or 29.0%, in the first six months of 2023 compared to the same period in 2022, primarily due to higher Operating and Personnel Payments [188]. Debt and Financing - The par value of total outstanding borrowings was $7.3 billion as of June 30, 2023, with $1.0 billion of senior unsecured notes maturing in September 2023 [210]. - The company’s total long-term debt as of June 30, 2023, was $6.13 billion, slightly up from $6.12 billion at the end of 2022 [241]. - The company issued $6.0 billion of senior unsecured notes in September 2020 with a weighted average coupon rate of 2.13% and annual interest payments of approximately $127.5 million [242]. - Future principal and interest payments under the notes total approximately $7.3 billion and $2.6 billion, respectively, over the next five years [251]. Strategic Initiatives - The company’s flexible business model allows it to acquire royalties across diverse therapeutic areas and treatment modalities, reducing exposure to common industry challenges [135]. - The company’s strategic alliance with MSCI Inc. aims to develop thematic life science indexes, indicating ongoing efforts to leverage capabilities for market expansion [137]. - The company’s business model relies on cash generated from existing royalties to fund investments in new royalties, highlighting its unique approach in the biopharmaceutical industry [217]. Non-GAAP Measures - Non-GAAP measures such as Adjusted Cash Receipts, Adjusted EBITDA, and Adjusted Cash Flow are critical for assessing the company's liquidity and operational performance [222]. - Adjusted EBITDA for the first six months of 2023 was $1,541.8 million, compared to $1,035.7 million in the same period of 2022 [226]. - Adjusted Cash Receipts rose by $547 million to $1.68 billion in the first half of 2023, primarily driven by a $475 million milestone payment from the FDA approval of Zavzpret [233].

Q1 2023 Financial Results Forward Looking Statements & Non-GAAP Financial Information 3 | --- | --- | --- | |-------------------|----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------| | Portfolio Update | Marshall Urist | EVP, Head of Research & Investments | | Financial Results | Terrance Coyne | EVP, Chief Financial Officer | | Conclusion | Pablo Legorreta | Founder & Chief Executiv ...

Financial Data and Key Metrics Changes - The company reported an 11% growth in adjusted cash receipts and adjusted EBITDA in the first quarter of 2023, with adjusted cash flow growing by 49% prior to Biohaven-related payments [7][8][37] - Including Biohaven-related payments, top-line growth was 87%, driven by a $475 million milestone payment from Pfizer and $13 million in fixed Biohaven payments received in the same period a year ago [8][12] - Adjusted cash flow for the quarter amounted to $973 million, resulting in an adjusted cash flow margin of 86% [42][136] Business Line Data and Key Metrics Changes - Total royalty receipts grew by 72% year-over-year, with an 8% growth excluding Biohaven-related payments [12] - Strong contributions came from the cystic fibrosis franchise, Tremfya, and Trelegy royalties, alongside growing contributions from Evrysdi and Cabometyx [12][136] - The company added three new therapies to its portfolio, including Spinraza and potential blockbusters pelacarsen and KarXT [36] Market Data and Key Metrics Changes - The company expects underlying growth of 4% to 9% for adjusted cash receipts in 2023, driven by the cystic fibrosis franchise, Tremfya, and a full year of Trelegy royalties [139] - Foreign exchange impacts are expected to be a headwind of approximately 1% to 2% on top-line growth [17] Company Strategy and Development Direction - The company aims to maintain a balanced royalty acquisition strategy, with a target of $10 billion to $12 billion in capital deployed over the next five years [43][112] - The management expressed confidence in the ability to execute on the business plan and create shareholder value through a combination of capital generation and strategic acquisitions [15][137] - The company is focused on under-innovated markets, particularly in the areas of schizophrenia and neurodegenerative diseases, to drive future growth [133][141] Management's Comments on Operating Environment and Future Outlook - Management noted that the competitive landscape has not significantly changed, with a growing marketplace in biopharma and a continued dominance in larger transactions [54] - The company reaffirmed its full-year guidance for adjusted cash receipts between $2.85 billion and $2.95 billion, reflecting strong underlying growth [113][140] - Management highlighted the importance of maintaining a strong cash position and efficient capital allocation to drive shareholder returns [137][141] Other Important Information - The company announced a multiyear share repurchase program of up to $1 billion, reflecting confidence in the value of its shares [3][137] - The company expects to make a $50 million milestone payment to Cytokinetics in the second half of 2023, which will reduce adjusted cash flow for the year [16] Q&A Session All Questions and Answers Question: What is the company's view on the balance between development stage and commercial royalties? - Management expressed confidence in the current balance of approved and development stage therapies, emphasizing a focus on finding therapies that are important to patients and the medical system [118][124] Question: How does the company view the competitive landscape in light of recent M&A activity? - Management noted that while competition exists, it does not hinder the company's ability to engage in royalty agreements, and the M&A environment presents opportunities for acquiring royalties [62][98] Question: What are the company's thoughts on the Alzheimer's disease market? - Management indicated that they are monitoring the Alzheimer's disease area for potential opportunities, recognizing the excitement around new therapies [51][143]

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, 2023 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 ...

Financial Data and Key Metrics Changes - Adjusted cash receipts grew by 10% in Q4 2022 and for the full year, adjusted EBITDA increased by 10% and adjusted cash flow rose by 15% prior to the accelerated Biohaven redemption payments [15][22] - Total royalty receipts grew by 79% in Q4 and 24% for the full year 2022 compared to the respective year-ago periods, with adjusted cash receipts amounting to $1.1 billion in Q4, reflecting a 96% growth [41][42] - Adjusted cash flow for the full year was $2.2 billion, representing a margin of 80% [45] Business Line Data and Key Metrics Changes - The company added 6 new therapies to its portfolio, including the blockbuster Trelegy, contributing to strong financial performance [15][16] - Royalty contributions from cystic fibrosis franchise, Xtandi, Tremfya, and Trelegy royalties were significant, while losses were noted from the DPP-IV royalties and weaknesses in Imbruvica [41][42] Market Data and Key Metrics Changes - The royalty funding market has seen a sixfold increase in transactions from 2015 to 2022, with the dollar value of transactions rising tenfold to $6.2 billion [26][68] - Royalty Pharma accounted for more than $0.5 billion in transaction value and over 25% of transaction volume in 2022, maintaining a leading share in larger transactions [26] Company Strategy and Development Direction - The company aims to deploy $10 billion to $12 billion over the next 5 years, reflecting a significant increase in capital deployment goals [21][66] - The focus remains on investing in approved therapies, with approximately 70% of capital deployed since 2020 on approved products [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to changes in the industry, including the impact of the IRA, and highlighted the unique business model that minimizes early-stage development risk [54][72] - The company anticipates continued strong performance in 2023, with adjusted cash receipts expected to be in the range of $2.375 billion to $2.475 billion, excluding potential milestone payments [48] Other Important Information - The company has absorbed significant losses of exclusivity over the past two years while still delivering double-digit top line growth, showcasing the resilience of its business model [17][24] - The company has a strong financial position with $1.7 billion in cash and marketable securities at the end of December 2022, providing significant firepower for future acquisitions [46] Q&A Session All Questions and Answers Question: Thoughts on the current deal environment and funding challenges - Management noted a significant increase in the funnel of opportunities due to the challenging funding environment, leading to a higher capital deployment than in previous years [66][68] Question: Impact of IRA on royalty opportunities - Management believes the company is well-positioned to adapt to changes brought by the IRA, viewing it as an opportunity rather than a challenge [71][72] Question: Long-term prospects of Spinraza and market creation for Lp(a) - Management expressed confidence in Spinraza's role in SMA treatment and highlighted the potential for Lp(a) therapies to create a significant market, especially if clinical outcomes are favorable [83][74]

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)