Royalty Pharma(RPRX) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 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 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 | $(294,616) | -2.15% | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | 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 | $(0.43) | -34.40% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | 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 | $(147,627) | -29.50% | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric | Balance at June 30, 2022 | Balance at December 31, 2021 | Change ($) | 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 | $(91,013) | -2.03% | | Class A ordinary shares outstanding | 437,139 | 432,963 | 4,176 | 0.96% | | Class B ordinary shares outstanding | 170,081 | 174,213 | (4,132) | -2.37% | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | 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 1. Organization and Purpose - 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] - 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][31] 2. Summary of Significant Accounting Policies - 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][35][36] - 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][38] - 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][41] 3. Available for Sale Debt Securities - 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][127] - 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][128] - 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][50][51] 4. Fair Value Measurements and Financial Instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable significant inputs)[56] 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] - 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] 5. Financial Royalty Assets - Financial royalty assets are contractual rights to cash flows from patent-protected biopharmaceutical products, measured at amortized cost using the effective interest method[80] 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 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][88] 7. Intangible Royalty Assets, Net - 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] 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 - 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][92][93][95] 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][98] 9. Research & Development ("R&D") Funding Expense 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] 10. Borrowings 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][103][107] - 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][110] 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 - 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][113] 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] 12. Earnings per Share - 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][122] 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 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 - 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][128][129] - 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] 15. Related Party Transactions - 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][135] 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 - 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - 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] - 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] - Acquisitions are classified into Approved Products (deployed $15.0 billion since inception) and Development-Stage Product Candidates (deployed $7.8 billion since 2012)[149] Background and Format of Presentation - 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][152] - Royalty Pharma controls RP Holdings, which is the sole owner of RPI 2019 ICAV, the successor to Old RPI[151] Understanding Our Financial Reporting - 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] - 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][156] - 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][158] Portfolio Overview - 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] 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 | $(3,823) | -5.1% | Financial Overview Financial Highlights (6 Months Ended June 30, in millions) | Metric | 2022 | 2021 | Change ($) | 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 | $11 | 1.3% | Understanding Our Results of Operations - Non-controlling interests are reported for Legacy Investors Partnerships (18% in Old RPI), Continuing Investors Partnerships (approx. 28% in RP Holdings), RPSFT (de minimis in RPCT), and EPA Holdings (RP Holdings Class C Special Interest)[167] - Total income and other revenues primarily comprise income from financial royalty assets, revenue from intangible royalty assets (DPP-IV products), and other royalty income from R&D funding arrangements[169] - The Provision for changes in expected cash flows from financial royalty assets includes adjustments to the cumulative allowance for changes in forecasted royalty payments and for current expected credit losses[175] - General and administrative (G&A) expenses are mainly composed of Operating and Personnel Payments to the Manager, calculated as 6.5% of cash receipts from royalty investments and 0.25% of security investments[178][179] Results of Operations Total Income and Other Revenues Income from Financial Royalty Assets (in thousands) | Product | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change ($) | 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][192] - 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][194] Provision for Changes in Expected Cash Flows from Financial Royalty Assets 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] - 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] R&D Funding Expense - 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] G&A Expenses - 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][203] Equity in Earnings of Equity Method Investees - 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][205] Interest Expense - 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][207] Other Income, Net - 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][210] Net Income Attributable to Non-Controlling Interests - 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][214] - 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][215] - 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][216] Key Developments and Upcoming Events Relating to Our Portfolio - 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] - 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 $11.6 billion by early 2023[221][222][223] - Gilead's Trodelvy received full FDA approval for metastatic TNBC (April 2021), accelerated FDA approval for urothelial cancer (April 2021), and EC marketing authorization for TNBC (November 2021); Gilead also announced collaborations with Merck & Co. for Trodelvy in NSCLC[223][224][226][227][228] - Cytokinetics' aficamten received FDA breakthrough therapy designation for oHCM (December 2021) and showed positive Phase 2 results (February 2022); its omecamtiv mecarbil NDA was accepted by FDA with a PDUFA date of February 28, 2023, and an advisory committee meeting scheduled for December 13, 2022[240][242][243] - BioCryst paused enrollment in BCX9930 clinical trials due to elevated serum creatinine levels, with plans to discuss resuming trials with amended protocols by Q3 2022[240] - Biohaven's zavegepant nasal spray NDA was accepted by FDA for acute migraine treatment, with a PDUFA date in Q1 2023[246] Non-GAAP Financial Results Adjusted Cash Receipts (non-GAAP) Adjusted Cash Receipts (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :--------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Adjusted Cash Receipts | $1,128,656 | $998,961 | $129,695 | 13.0% | - Adjusted Cash Receipts increased by $129.7 million, driven by higher royalty receipts from the cystic fibrosis franchise and newly acquired royalties (e.g., Tremfya, Cabometyx/Cometriq, Evrysdi, Orladeyo), partially offset by declines from matured royalties (e.g., HIV franchise) and unfavorable foreign exchange movements[257][260][261] Distributions to Non-Controlling Interests Distributions to Non-Controlling Interests (in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Distributions to non-controlling interests | $(215,543) | $(238,197) | $22,654 | -9.5% | - Distributions to non-controlling interests decreased by $22.7 million, positively impacting Adjusted Cash Receipts, primarily due to maturing royalties jointly owned by Legacy Investors Partnerships and RPSFT[262] Adjusted EBITDA (non-GAAP) Adjusted EBITDA (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | Change (%) | | :----------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Adjusted EBITDA | $1,035,653 | $917,197 | $118,456 | 12.9% | - Adjusted EBITDA increased by $118.5 million, driven by the same factors impacting Adjusted Cash Receipts; payments for operating and professional costs also increased due to higher cash receipts from royalty investments[263] Adjusted Cash Flow (non-GAAP) Adjusted Cash Flow (non-GAAP, in thousands) | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | 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] Non-GAAP Reconciliations - 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][266][267][269] 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 - 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][279] Summary of Royalty Acquisition Activity - 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] - 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] - 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] - 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] Liquidity and Capital Resources 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] - The company has access to substantial capital markets, including $7.1 billion in long-term debt outstanding and an undrawn $1.5 billion Revolving Credit Facility as of June 30, 2022[284] Cash Flows Summary of Cash Flow Activity (in thousands) | Activity | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change ($) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------- | | 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 - 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] - 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] - Financing activities cash use remained relatively consistent[290] Sources of Capital - 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] 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][294] Uses of Capital - 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][297] - 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][299][300] 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 - 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][306] 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 - 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] Recent Accounting Pronouncements - No material changes to critical accounting policies and estimates were reported, with additional information on recently issued accounting standards referenced in Note 2[309][310] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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][314] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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][132] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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][318] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities were reported[319] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Not applicable; no mine safety disclosures were reported[320] Item 5. Other Information This section indicates that there is no other information to report - Not applicable; no other information was reported[321] Item 6. Exhibits 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]