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 June 30, 20202021
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 WalesNot applicable98-1535773
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
110 E 59thEast 59th Street
New York,New York10022
(Address of principal executive offices and zip code)

(212) 883-0200
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)symbol(s)Name of each exchange on which registered
Class A ordinary shares, par value $0.0001RPRXThe Nasdaq Global SelectStock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes     No   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐     No  

As of August 7, 2020, Royalty Pharma plc had 365,899,235 shares of Class A ordinary shares outstanding.




As of August 6, 2021, Royalty Pharma plc had 427,005,888 shares of Class A ordinary shares outstanding and 180,166,365 Class B ordinary shares outstanding.

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC

INDEX

PART I.FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets atas of June 30, 2020 (unaudited)2021 and December 31, 20192020 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 20202021 and 20192020 (unaudited)
Condensed Consolidated Statements of Shareholder'sShareholders’ Equity for the Three and Six Months Ended June 30, 20202021 and 20192020 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20202021 and 20192020 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
























Special Note Regarding Forward LookingForward-Looking Statements

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward lookingforward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective assets, our industry, our beliefs and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under Part II, Item 1A. Risk Factors statements.You should specifically considerevaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of the numerous risks outlined in Part I under Risk FactorsItem 1A. under “Risk Factors” in our prospectus (the “Prospectus”) relating to our Registration StatementAnnual Report on Form S-1, as amended (Registration No. 333-238632), filed with10-K for the SEC pursuant to Rule 424(b) under the Securities Act.fiscal year ended December 31, 2020.

These risks and uncertainties include factors related to:
sales risks of biopharmaceutical products on which we receive royalties;
the ability of the ManagerRP Management, LLC (the “Manager”) to locate suitable assets for us to acquire;
uncertainties related to the acquisition of interests in development-stage biopharmaceutical product candidates and our strategy to add development-stage product candidates and late stage funding opportunities to our product portfolio;
the assumptions underlying our business model;
our ability to successfully execute our royalty acquisition strategy;
our ability to leverage our competitive strengths;
actual and potential conflicts of interest with the Manager and its affiliates;
the ability of the Manager or its affiliates to attract and retain highly talented professionals;
the effect of changes to tax legislation and our tax position; and
the risks, uncertainties and other factors we identify elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.U.S. Securities and Exchange Commission.

Although we believe the expectations reflected in the forward-looking statements are reasonable, any of those expectations could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and business objectives will be achieved. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.






PART 1.     FINANCIAL INFORMATION
Item 1.         CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value) As of June 30, As of December 31,
20202019
Assets(unaudited)
Current Assets
Cash and cash equivalents$2,443,430  $283,682  
Marketable securities343,679  56,972  
Financial royalty assets, net526,937  452,560  
Accrued royalty receivable32,307  33,525  
Available for sale debt securities28,500  —  
Other royalty income receivable3,147  5,241  
Other current assets12,789  92  
Total current assets3,390,789  832,072  
Financial royalty assets, net11,169,857  10,842,052  
Intangible royalty assets, net40,258  51,724  
Equity securities477,185  380,756  
Available for sale debt securities162,454  131,280  
Derivative financial instruments14,717  42,315  
Investments in non-consolidated affiliates430,296  124,061  
Other assets—  45,635  
Total assets$15,685,556  $12,449,895  
Liabilities and equity
Current liabilities
Royalty distribution payable to affiliates$122,771  $31,041  
Accounts payable and accrued expenses34,366  11,177  
Accrued purchase obligation111,610  —  
Current portion of long-term debt182,226  281,984  
Derivative financial instruments—  9,215  
Total current liabilities450,973  333,417  
Long-term debt5,729,622  5,956,138  
Derivative financial instruments—  18,902  
Other liabilities110,000  —  
Total liabilities6,290,595  6,308,457  
Commitments and contingencies
Shareholders'/Unitholders' equity
Shareholders' contributions—  3,282,516  
Class A ordinary shares, $0.0001 par value; 365,899 and 0 issued and outstanding, respectively37  —  
Class B shares, $0.000001 par value; 241,207 and 0 issued and outstanding, respectively—  —  
Class R redeemable shares, £1 par value; 50 and 0 issued and outstanding, respectively63  —  
Deferred shares, $0.000001 par value, 294,176 and 0 issued and outstanding, respectively—  —  
Additional paid-in capital2,557,237  —  
Retained earnings1,571,399  2,825,212  
Non-controlling interest5,237,829  35,883  
Accumulated other comprehensive income30,515  2,093  
Treasury interests(2,119) (4,266) 
Total shareholders'/unitholders' equity9,394,961  6,141,438  
Total liabilities and shareholders'/unitholders' equity$15,685,556  $12,449,895  
(In thousands, except par value)
(Unaudited)
 As of June 30, As of December 31,
20212020
Assets
Current assets
Cash and cash equivalents$1,142,281 $1,008,680 
Marketable securities842,685 983,279 
Financial royalty assets596,851 587,193 
Accrued royalty receivable34,143 33,155 
Available for sale debt securities68,702 69,984 
Other royalty income receivable10,694 6,011 
Other current assets12,098 8,596 
Total current assets2,707,454 2,696,898 
Financial royalty assets, net12,932,077 12,368,084 
Intangible royalty assets, net17,262 28,666 
Equity securities184,042 298,689 
Available for sale debt securities202,498 163,016 
Investments in non-consolidated affiliates465,620 454,936 
Other assets5,960 9,997 
Total assets$16,514,913 $16,020,286 
Liabilities and equity
Current liabilities
Distribution payable to non-controlling interest$117,378 $126,366 
Accounts payable and accrued expenses9,393 10,775 
Interest payable42,904 42,146 
Accrued purchase obligation110,000 110,000 
Other current liabilities4,314 18,600 
Total current liabilities283,989 307,887 
Long-term debt5,825,559 5,816,584 
Total liabilities6,109,548 6,124,471 
Commitments and contingencies00
Shareholders’ equity
Class A ordinary shares, $0.0001 par value; 427,006 and 388,135 issued and outstanding, respectively42 39 
Class B ordinary shares, $0.000001 par value; 180,166 and 218,976 issued and outstanding, respectively
Class R redeemable shares, £1 par value; 50 and 50 issued and outstanding, respectively63 63 
Deferred shares, $0.000001 par value, 355,217 and 316,407 issued and outstanding, respectively
Additional paid-in capital3,415,598 2,865,964 
Retained earnings2,291,966 1,920,635 
Non-controlling interest4,671,686 5,077,036 
Accumulated other comprehensive income28,672 34,395 
Treasury interests(2,662)(2,317)
Total shareholders’ equity10,405,365 9,895,815 
Total liabilities and shareholders’ equity$16,514,913 $16,020,286 
See accompanying notes to these unaudited condensed consolidated financial statements.
1




Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share amounts)For the three months ended
June 30,
For the six months ended
June 30,
2020201920202019
Total income and revenues
Income from financial royalty assets$474,177  $416,945  $937,021  $799,161  
Revenue from intangible royalty assets33,445  35,476  68,428  78,722  
Other royalty income3,310  5,187  6,362  14,608  
Total income and other revenues510,932  457,608  1,011,811  892,491  
Operating expenses
Research and development funding expense5,776  21,457  13,415  44,448  
Provision for changes in expected cash flows from financial royalty assets47,278  72,210  135,290  22,177  
Amortization of intangible assets5,733  5,733  11,466  12,332  
General and administrative expenses42,799  30,349  80,864  54,775  
Total operating expenses, net101,586  129,749  241,035  133,732  
Operating income409,346  327,859  770,776  758,759  
Other (income)/expense
Equity in (earnings)/loss of non-consolidated affiliates(29,292) 8,144  (20,218) 13,673  
Interest expense34,189  69,168  87,773  136,434  
Unrealized (gain)/loss on derivative contracts(647) 39,414  32,798  65,254  
Unrealized (gain)/loss on equity securities(193,895) 36,800  (40,729) (16,944) 
Interest income(2,724) (4,474) (5,582) (14,501) 
Other non-operating (income)/expense, net(261) 37  5,662  (21) 
Total other (income)/expense, net(192,630) 149,089  59,704  183,895  
Consolidated net income before tax601,976  178,770  711,072  574,864  
Income tax expense—  —  —  —  
Consolidated net income601,976  178,770  711,072  574,864  
Less: Net income attributable to non-controlling interest(159,902) (27,057) (197,758) (55,707) 
Net income attributable to controlling interest442,074  151,713  513,314  519,157  
Other comprehensive income
Reclassification of loss on interest rate swaps included in net income—  1,602  4,066  3,189  
Change in unrealized movement on available for sale debt securities6,949  2,939  59,674  2,939  
Other comprehensive income6,949  4,541  63,740  6,128  
Comprehensive income449,023  156,254  577,054  525,285  
Less: Other comprehensive income attributable to non-controlling interest(1,624) —  (11,296) —  
Comprehensive income attributable to controlling interest$447,399  $156,254  $565,758  $525,285  
Earnings per share of Class A ordinary shares (1):
     Basic$0.09  N/A$0.09  N/A
     Diluted$0.09  N/A$0.09  N/A
Weighted-average shares of Class A shares outstanding (1):
     Basic353,979  N/A353,979  N/A
     Diluted353,980  N/A353,980  N/A
(1) Represents earnings(In thousands, except per share ofamounts)
(Unaudited)
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
2021202020212020
Total income and revenues
Income from financial royalty assets$503,414 $474,177 $1,033,039 $937,021 
Revenue from intangible royalty assets40,127 33,445 76,188 68,428 
Other royalty income11,422 3,310 18,763 6,362 
Total income and other revenues554,963 510,932 1,127,990 1,011,811 
Operating expenses
Provision for changes in expected cash flows from financial royalty assets(243,762)47,278 48,499 135,290 
Research and development funding expense3,122 5,776 5,763 13,415 
Amortization of intangible assets5,733 5,733 11,404 11,466 
General and administrative expenses44,921 42,799 88,077 80,864 
Total operating (income)/expense, net(189,986)101,586 153,743 241,035 
Operating income744,949 409,346 974,247 770,776 
Other (income)/expense
Equity in earnings of non-consolidated affiliates(17,701)(29,292)(15,783)(20,218)
Interest expense37,426 34,189 74,841 87,773 
Loss/(gain) on derivative financial instruments1,909 (647)4,464 32,798 
Gain on equity securities(55,495)(193,895)(1,309)(40,729)
Unrealized gain on available for sale debt securities(14,015)(23,130)
Interest income(14,037)(2,724)(30,635)(5,582)
Other non-operating expense/(income), net107 (261)65 5,662 
Total other (income)/expense, net(61,806)(192,630)8,513 59,704 
Consolidated net income before tax806,755 601,976 965,734 711,072 
Income tax expense
Consolidated net income806,755 601,976 965,734 711,072 
Net income attributable to non-controlling interest365,979 159,902 455,839 197,758 
Net income attributable to controlling interest440,776 442,074 509,895 513,314 
Other comprehensive income/(loss)
Reclassification of loss on interest rate swaps4,066 
Unrealized gain on available for sale debt securities6,025 6,949 11,150 59,674 
Reclassification of unrealized gain on available for sale debt securities(13,299)(28,790)
Other comprehensive (loss)/income(7,274)6,949 (17,640)63,740 
Other comprehensive (loss)/income attributable to non-controlling interest(3,231)1,624 (8,112)11,296 
Other comprehensive (loss)/income attributable to controlling interest(4,043)5,325 (9,528)52,444 
Comprehensive income attributable to controlling interest$436,733 $447,399 $500,367 $565,758 
Earnings per Class A ordinary share (1):
     Basic$1.08 $0.09 $1.28 $0.09 
     Diluted$1.08 $0.09 $1.25 $0.09 
Weighted average Class A ordinary shares outstanding (1):
     Basic409,344 353,979 399,606 353,979 
     Diluted607,163 353,980 607,151 353,980 
(1) Prior year figures represent earnings per Class A ordinary sharesshare and weighted-averageweighted average Class A ordinary shares outstanding for the period from June 16, 2020 through June 30, 2020, the period following our initial public offering (see(“IPO”). See Note 13).

13–Earnings per Share.
See accompanying notes to these unaudited condensed consolidated financial statements.
2




Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Class A Ordinary SharesClass B Ordinary SharesClass R Redeemable SharesDeferred SharesAdditional Paid-In CapitalShareholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
(in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance at March 31, 2020—  $—  —  $—  —  $—  —  $—  $—  $2,553,001  $2,561,971  $49,212  $2,002,775  $(4,266) $7,162,693  
Contributions—  —  —  —  —  —  —  —  —  —  —  —  6,691  —  6,691  
Distributions—  —  —  —  —  —  —  —  —  —  (171,632) —  (124,851) —  (296,483) 
Initial share issuance upon registration of plc—  —  —  —  50  63  —  —  —  —  —  —  —  —  63  
Net income prior to IPO—  —  —  —  —  —  —  —  —  —  408,602  —  107,187  —  515,789  
Issuance of Class B shares to Continuing Investors Partnerships—  —  535,383   —  —  —  —  —  —  —  —  —  —   
Effect of exchange by Continuing Investors of Class B shares for Class A shares and reallocation of historical equity294,176  30  (294,176) (1) —  —  294,176  —  1,402,762  (2,553,001) (1,261,014) (24,022) 2,433,098  2,147  (1) 
Issuance of Class A shares sold in initial public offering, net of offering costs71,652   —  —  —  —  —  —  1,150,735  —  —  —  758,590  —  1,909,332  
Share based compensation—  —  —  —  —  —  —  —  3,740  —  —  —  —  —  3,740  
Issuance of Class A shares under equity incentive plan71  —  —  —  —  —  —  —  —  —  —  —  —  —  —  
Net income subsequent to IPO—  —  —  —  —  —  —  —  —  —  33,472  —  52,715  —  86,187  
Other comprehensive income:
Change in unrealized movement on available for sale debt securities—  —  —  —  —  —  —  —  —  —  —  5,325  1,624  —  6,949  
Balance at June 30, 2020365,899  $37  241,207  $—  50  $63  294,176$—  $2,557,237  $—  $1,571,399  $30,515  $5,237,829  $(2,119) $9,394,961  
Class A
Ordinary Shares
Class B
Ordinary Shares
Class R
Redeemable Shares
Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at March 31, 2021392,857$39 214,255$50$63 321,128$$2,931,249 $1,923,771 $29,452 $4,954,818 $(2,359)$9,837,033 
Contributions— — — — — — — — — — — 11,519 — 11,519 
Distributions— — — — — — — — — — — (170,808)— (170,808)
Dividends ($0.17 per Class A ordinary share)— — — — — — — — — (72,581)— — — (72,581)
Other exchanges34,089 (34,089)— — — 34,089 — 483,628 — 3,263 (486,591)(303)
Share based compensation and related issuance of Class A ordinary shares60 — — — — — — — 721 — — — — 721 
Net income— — — — — — — — — 440,776 — 365,979 — 806,755 
Other comprehensive income/(loss):— 
Unrealized gain on available for sale debt securities— — — — — — — — — — 3,348 2,677 — 6,025 
Reclassification of unrealized gain on available for sale debt securities— — — — — — — — — — (7,391)(5,908)— (13,299)
Balance at June 30, 2021427,006$42 180,166$0 50$63 355,217$0 $3,415,598 $2,291,966 $28,672 $4,671,686 $(2,662)$10,405,365 


Class A
Ordinary Shares
Class B
Ordinary Shares
Class R Redeemable SharesDeferred SharesAdditional Paid-In CapitalShareholders’ ContributionsRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at March 31, 2020$$$$$$2,553,001 $2,561,971 $49,212 $2,002,775 $(4,266)$7,162,693 
Contributions— — — — — — — — — — — — 6,691 — 6,691 
Distributions— — — — — — — — — — (171,632)— (124,851)— (296,483)
Initial share issuance upon registration of Royalty Pharma plc— — — — 50 63 — — — — — — — — 63 
Net income prior to IPO— — — — — — — — — — 408,602 — 107,187 — 515,789 
Issuance of Class B ordinary shares to Continuing Investors Partnerships— — 535,383 — — — — — — — — — — 
Effect of exchange by Continuing Investors of Class B ordinary shares for Class A ordinary shares and reallocation of historical equity294,176 30 (294,176)(1)— — 294,176 — 1,402,762 (2,553,001)(1,261,014)(24,022)2,433,098 2,147 (1)
Issuance of Class A ordinary shares sold in IPO, net of offering costs71,652 — — — — — — 1,150,735 — — — 758,590 — 1,909,332 
Share based compensation and related issuance of Class A ordinary shares71 — — — — — — — 3,740 — — — — — 3,740 
Net income subsequent to IPO— — — — — — — — — — 33,472 — 52,715 — 86,187 
Other comprehensive income:
Unrealized gain on available for sale debt securities— — — — — — — — — — — 5,325 1,624 — 6,949 
Balance at June 30, 2020365,899$37 241,207$0 50$63 294,176$0 $2,557,237 $0 $1,571,399 $30,515 $5,237,829 $(2,119)$9,394,961 
(in thousands)Unitholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
Balance at March 31, 2019$3,282,516  $1,385,728  $(8,668) $48,088  $(2,327) $4,705,337  
Distributions—  (198,380) —  (35,153) —  (233,533) 
Net income—  151,713  —  27,057  —  178,770  
Other comprehensive income/(loss):
Change in unrealized movement on available for sale debt securities—  —  2,939  —  —  2,939  
Reclassification of loss on interest rate swaps—  —  1,602  —  —  1,602  
Purchase of treasury interests—  —  —  —  (1,901) (1,901) 
Balance at June 30, 2019$3,282,516  $1,339,061  $(4,127) $39,992  $(4,228) $4,653,214  
See accompanying notes to these unaudited condensed consolidated financial statements.statements.
3




Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Class A Ordinary SharesClass B Ordinary SharesClass R Redeemable SharesDeferred SharesAdditional Paid-In CapitalShareholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
(in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2019—  $—  —  $—  $—  $—  —  $—  $—  $3,282,516  $2,825,212  $2,093  $35,883  $(4,266) $6,141,438  
Contributions—  —  —  —  —  —  —  —  —  307,646  —  —  1,140,319  —  1,447,965  
Transfer of interests—  —  —  —  —  —  —  —  —  (1,037,161) —  —  1,037,161  —  —  
Cumulative adjustment for adoption of ASU 2016-13—  —  —  —  —  —  —  —  —  —  (192,705) —  —  —  (192,705) 
Distributions—  —  —  —  —  —  —  —  —  —  (313,408) —  (376,276) —  (689,684) 
Initial share issuance upon registration of plc—  —  —  —  50  63  —  —  —  —  —  —  —  —  63  
Net income prior to IPO—  —  —  —  —  —  —  —  —  —  479,842  —  145,043  —  624,885  
Issuance of Class B shares to Continuing Investors Partnerships—  —  535,383   —  —  —  —  —  —  —  —  —  —   
Effect of exchange by Continuing Investors of Class B shares for Class A shares and reallocation of historical equity294,176  30  (294,176) (1) —  —  294,176  —  1,402,762  (2,553,001) (1,261,014) (24,022) 2,433,098  2,147  (1) 
Issuance of Class A shares sold in initial public offering, net of offering costs71,652   —  —  —  —  —  —  1,150,735  —  —  —  758,590  —  1,909,332  
Share based compensation—  —  —  —  —  —  —  —  3,740  —  —  —  —  —  3,740  
Issuance of Class A shares under equity incentive plan71  —  —  —  —  —  —  —  —  —  —  —  —  —  —  
Net income subsequent to IPO—  —  —  —  —  —  —  —  —  —  33,472  —  52,715  —  86,187  
Other comprehensive income:
Change in unrealized movement on available for sale debt securities—  —  —  —  —  —  —  —  —  —  —  48,378  11,296  —  59,674  
Reclassification of loss on interest rate swaps—  —  —  —  —  —  —  —  —  —  —  4,066  —  —  4,066  
Balance at June 30, 2020365,899  $37  241,207  $—  50$63  294,176  $—  $2,557,237  $—  $1,571,399  $30,515  $5,237,829  $(2,119) $9,394,961  
(in thousands)Unitholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
Balance at December 31, 2018$3,282,516  $1,215,953  $(10,255) $63,865  $—  $4,552,079  
Distributions—  (396,049) —  (79,580) —  (475,629) 
Net income—  519,157  —  55,707  —  574,864  
Other comprehensive income/(loss):
Change in unrealized movement on available for sale debt securities—  —  2,939  —  —  2,939  
Reclassification of loss on interest rate swaps—  —  3,189  —  —  3,189  
Purchase of treasury interests—  —  —  —  (4,228) (4,228) 
Balance at June 30, 2019$3,282,516  $1,339,061  $(4,127) $39,992  $(4,228) $4,653,214  
Class A
Ordinary Shares
Class B
Ordinary Shares
Class R
Redeemable Shares
Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2020388,135 $39 218,976 $50 $63 316,407 $$2,865,964 $1,920,635 $34,395 $5,077,036 $(2,317)$9,895,815 
Contributions— — — — — — — — — — — 14,772 — 14,772 
Distributions— — — — — — — — — — — (316,186)— (316,186)
Dividends ($0.34 per Class A ordinary share)— — — — — — — — — (138,564)— — — (138,564)
Other exchanges38,810 (38,810)— — — 38,810 — 548,200 — 3,805 (551,663)(345)
Share based compensation and related issuance of Class A ordinary shares61 — — — — — — — 1,434 — — — — 1,434 
Net income— — — — — — — — — 509,895 — 455,839 — 965,734 
Other comprehensive income/(loss):
Unrealized gain on available for sale debt securities— — — — — — — — — — 6,060 5,090 — 11,150 
Reclassification of unrealized gain on available for sale debt securities— — — — — — — — — — (15,588)(13,202)— (28,790)
Balance at June 30, 2021427,006$42 180,166$0 50$63 355,217$0 $3,415,598 $2,291,966 $28,672 $4,671,686 $(2,662)$10,405,365 

See accompanying notes to these unaudited condensed consolidated financial statementsstatements.

.













4




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Class A
Ordinary Shares
Class B
Ordinary Shares
Class R
Redeemable Shares
Deferred SharesAdditional Paid-In CapitalShareholders’ ContributionsRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2019$$$$$$3,282,516 $2,825,212 $2,093 $35,883 $(4,266)$6,141,438 
Contributions— — — — — — — — — 307,646 — — 1,140,319 — 1,447,965 
Transfer of interests— — — — — — — — — (1,037,161)— — 1,037,161 — 
Cumulative adjustment for adoption of ASU 2016-13— — — — — — — — — — (192,705)— — — (192,705)
Distributions— — — — — — — — — — (313,408)— (376,276)— (689,684)
Initial share issuance upon registration of Royalty Pharma plc— — — — 50 63 — — — — — — — — 63 
Net income prior to IPO— — — — — — — — — — 479,842 — 145,043 — 624,885 
Issuance of Class B ordinary shares to Continuing Investors Partnerships— — 535,383 — — — — — — — — — — 
Effect of exchange by Continuing Investors of Class B ordinary shares for Class A ordinary shares and reallocation of historical equity294,176 30 (294,176)(1)— — 294,176 — 1,402,762 (2,553,001)(1,261,014)(24,022)2,433,098 2,147 (1)
Issuance of Class A ordinary shares sold in IPO, net of offering costs71,652 — — — — — — 1,150,735 — — — 758,590 — 1,909,332 
Share based compensation and related issuance of Class A ordinary shares71 — — — — — — — 3,740 — — — — — 3,740 
Net income subsequent to IPO— — — — — — — — — — 33,472 — 52,715 — 86,187 
Other comprehensive income:
Unrealized gain on available for sale debt securities— — — — — — — — — — — 48,378 11,296 — 59,674 
Reclassification of loss on interest rate swaps— — — — — — — — — — — 4,066 — — 4,066 
Balance at June 30, 2020365,899$37 241,207$0 50$63 294,176$0 $2,557,237 $0 $1,571,399 $30,515 $5,237,829 $(2,119)$9,394,961 

See accompanying notes to these unaudited condensed consolidated financial statements.
5




Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)(In thousands)
(in thousands)For the six months ended
June 30,
20202019
Cash flows from operating activities:
Cash collections from financial royalty assets$1,003,504  $895,150  
Cash collections from intangible royalty assets69,646  73,821  
Other royalty cash collections8,548  20,456  
Interest received3,597  14,458  
Swap collateral received45,252  360  
Swap collateral posted—  (26,670) 
Swap termination payments(35,448) —  
Distributions from non-consolidated affiliates31,840  14,059  
Development-stage funding payments - ongoing(13,415) (44,448) 
Payments for operating and professional costs(69,985) (47,144) 
Interest paid(83,431) (130,265) 
Net cash provided by operating activities960,108  769,777  
Cash flows from investing activities:
Distributions from non-consolidated affiliates15,084  —  
Purchases of available for sale debt securities—  (125,117) 
Purchase of equity securities(50,000) —  
Proceeds from available for sale debt securities—  150,000  
Purchase of marketable securities(637,235) —  
Proceeds from sales and maturities of marketable securities353,717  —  
Investments in non-consolidated affiliates(29,262) (18,684) 
Acquisitions of financial royalty assets(574,620) (1,231,736) 
Milestone payments—  (250,000) 
Net cash used in investing activities(922,316) (1,475,537) 
Cash flows from financing activities:
Distributions to shareholders/unitholders(285,355) (396,049) 
Distributions to non-controlling interest(284,546) (77,858) 
Distributions to non-controlling interest- other(28,055) —  
Contributions from non-controlling interest- acquisitions17,359  —  
Contributions from non-controlling interest- R&D5,114  —  
Contributions from non-controlling interest- other12,625  —  
Scheduled repayments of long-term debt(94,200) (147,000) 
Repayments of long-term debt(5,170,396) —  
Proceeds from issuance of long-term debt6,040,000  —  
Debt issuance costs and other(8,819) —  
Purchase of treasury interests—  (4,228) 
Proceeds from issuance of ordinary shares upon initial public offering, net of offering costs1,918,229  —  
Net cash provided by/(used in) financing activities2,121,956  (625,135) 
Net change in cash and cash equivalents2,159,748  (1,330,895) 
Cash and cash equivalents, beginning of period283,682  1,924,211  
Cash and cash equivalents, end of period$2,443,430  $593,316  
(Unaudited)

For the Six Months Ended
June 30,
20212020
Cash flows from operating activities:
Cash collections from financial royalty assets$1,094,094 $1,003,504 
Cash collections from intangible royalty assets75,200 69,646 
Other royalty cash collections14,088 8,548 
Distributions from non-consolidated affiliates22,003 31,840 
Interest received2,332 3,597 
Derivative collateral received11,470 45,252 
Derivative collateral posted(9,340)
Termination payments on derivative instruments(35,448)
Ongoing development-stage funding payments(5,763)(13,415)
Payments for operating and professional costs(81,764)(69,985)
Interest paid(64,500)(83,431)
Net cash provided by operating activities1,057,820 960,108 
Cash flows from investing activities:
Distributions from non-consolidated affiliates523 15,084 
Investments in non-consolidated affiliates(17,427)(29,262)
Purchases of equity securities(50,000)
Proceeds from equity securities109,367 
Purchases of available for sale debt securities(35,170)
Proceeds from available for sale debt securities31,250 
Purchases of marketable securities(728,025)(703,934)
Proceeds from sales and maturities of marketable securities868,689 336,012 
Acquisitions of financial royalty assets(683,741)(574,620)
Milestone payments(18,600)
Net cash used in investing activities(473,134)(1,006,720)
Cash flows from financing activities:
Distributions to shareholders/unitholders(285,355)
Distributions to non-controlling interest(238,197)(284,546)
Distributions to non-controlling interest- other(86,978)(28,055)
Dividends to shareholders(138,564)
Contributions from non-controlling interest- R&D4,080 5,114 
Contributions from non-controlling interest- other8,574 29,984 
Scheduled repayments of long-term debt(94,200)
Repayments of long-term debt(5,170,396)
Proceeds from issuance of long-term debt6,040,000 
Debt issuance costs and other(8,819)
Proceeds from issuance of Class A ordinary shares upon IPO, net of offering costs1,918,229 
Net cash (used in)/provided by financing activities(451,085)2,121,956 
Net change in cash and cash equivalents133,601 2,075,344 
Cash and cash equivalents, beginning of period1,008,680 246,199 
Cash and cash equivalents, end of period$1,142,281 $2,321,543 
See accompanying notes to these unaudited condensed consolidated financial statements.

56

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



1. Organization and Purpose

Royalty Pharma plc is a newly formedan English public limited company incorporated under the laws of England and Wales that was created for the purpose of consolidating our predecessor entities and facilitating the initial public offering (the "IPO” or the "Offering”)IPO of our Class A ordinary shares that was completed in June 2020 (discussed below). 2020.

Following our IPO, we operate and control the business affairs of Royalty Pharma Holdings Ltd. (“RP Holdings”), a private limited company incorporated under the laws of England and Wales and U.K. tax resident. Throughresident through our controlling ownership of RP Holdings’ Class A ordinary shares (the “RP Holdings Class A Interests”) and RP Holdings'Holdings’ Class B ordinary shares (the “RP Holdings Class B Interests”), we. We conduct our business through RP Holdings and its subsidiaries and include RP Holdings and its subsidiaries in our condensed consolidated financial statements.

RP Holdings is the sole owner of Royalty Pharma Investments 2019 ICAV (“RPI 2019 ICAV”), which is an Irish collective asset management entity formed to facilitate our Exchange Offer Transactions (defined below), and is the successor to Royalty Pharma Investments, an Irish Unit Trustunit trust (“Old RPI”), for accounting and financial reporting purposes. RP Holdings is owned directly by RPI US Partners 2019, LP, a Delaware limited partnership, RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”), and Royalty Pharma plc. Old RPI is a unit trust established in August 2011 under the laws of Ireland and authorized by the Central Bank of Ireland pursuant to the Unit Trusts Act, 1990. Prior to the Exchange Offer Transactions, Old RPI was owned by various partnerships (the “Legacy Investors Partnerships”).

“Royalty Pharma,” “Royalty Pharma Investments,” “RPI,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. After the consummation of the Reorganization Transactions (defined below) and before the consummation of the Offering, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma Investments 2019 ICAV. Prior to the Reorganization Transactions, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Old RPI.
We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. We fund innovation in the biopharmaceutical industry both directly and indirectly—directly when we partner with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties, and indirectly when we acquire existing royalties from the original innovators. We acquire royalties in a variety of ways that can be tailored to the needs of our partners. We classify our acquisitions according to the following structures:
Third-party Royalties - A royalty is the contractual right to a percentage of top-line sales from a licensee’s use of a product, technology or intellectual property. The majority of our current portfolio consists of royalties that had been previously created by other parties prior to our acquisition.
Synthetic / Hybrid Royalties - A synthetic royalty is the contractual right to a percentage of top-line sales created by the developer and/or marketer of a therapy in exchange for funding. In many of our synthetic royalty acquisitions, we also make investments in the public equity of the company, where the main value driver of the company is the product on which we concurrently acquired a royalty.
R&D Funding - We fund R&D, typically for large biopharmaceutical companies, in exchange for future royalties and/or milestones if the product or indication we are funding is approved.
Acquisitions of Companies - We acquire royalties in connection with M&A transactions, often from the buyers of biopharmaceutical companies when they dispose of the non-strategic assets of the target company following the closing of the acquisition. We also seek to partner with companies to acquire other biopharmaceutical companies that own significant royalties. We may also seek to acquire biopharmaceutical companies that have significant royalties or where we can create royalties in subsequent transactions.

RP Management, LLC (the “Manager”), a Delaware limited liability company, is an external adviser which is responsible for the management of Royalty Pharma.our management. RP Management (Ireland) Ltd. (“RP Ireland”), is the manager of Old RPI and equivalent to the board of directors of a company or general partner of a partnership and is responsible for the day to day operations of Old RPI. Its functions can be delegated to third parties. RP Ireland delegated responsibility for investment management of Old RPI to its parent company, the Manager, in accordance with the investment objectives and policies of Old RPI.

“Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. After the consummation of the Reorganization Transactions (defined below) and before the consummation of the IPO, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to RPI 2019 ICAV. Prior to the Reorganization Transactions, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Old RPI.

We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. We fund innovation in the biopharmaceutical industry both directly and indirectly—directly when we partner with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties, and indirectly when we acquire existing royalties from the original innovators.

Reorganization Transactions

In connection with our IPO, we consummated an exchange offer on February 11, 2020 (the “Exchange Date”). Through the exchange offer, investors representing 82% of the aggregate limited partnership in the Legacy Investors Partnerships, exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in the
6

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Continuing Investors Partnerships. The exchange offer transaction together with (i) the concurrent incurrence of indebtedness under our new credit facility and (ii) the issuance of additional interests in Continuing Investors Partnerships to satisfy performance payments payable in respect of assets acquired prior to the date of the IPO are referred to as the “Exchange Offer Transactions.”

7

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



As a result of the Exchange Offer Transactions, we own, through our wholly-owned subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust (“RPI Intermediate FT”), an 82% economic interest in Old RPI. Through our 82% indirect ownership of Old RPI, we are legally entitled to 82% of the economics of Old RPI’s wholly-owned subsidiaries, RPI Finance Trust, a Delaware statutory trust (“RPIFT”) and RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”), an Irish private limited company, and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”). The remaining 34% of RPCT is owned by the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly owned by Royalty Pharma Select, an Irish Unit trust (“RPS”).unit trust. From the Exchange Date until the expiration of the Legacy Investors Partnerships’ investment period on June 30, 2020 (the “Legacy Date”), the Legacy Investors Partnerships were offered to participate proportionately in any investment made by Old RPI. Following the Legacy Date, Old RPI has ceased making new investments and each of Old RPI and the Legacy Investors Partnerships became legacy entities. Following the Legacy Date, we willhave made and plan to make new investments through our subsidiaries, (together with RPI, the “RPI Group”), including RPI Intermediate FT.
As part of the Exchange Offer Transactions, the Legacy Investors Partnerships and RPI Intermediate FT entered into new credit facilities in the amount of $1.3 billion and $6.0 billion, respectively, the proceeds of which were used to repay the $6.3 billion outstanding debt of RPIFT and, in the case of RPI Intermediate FT, willwere also available to be used to fund future investments. As part of the new credit facilities, RPI Intermediate FT repaid $5.2 billion, its pro rata portion of RPIFT’s outstanding debt and accrued interest. RPIFT also terminated all outstanding interest rate swaps in connection with the debt refinancing.
Prior to, and as a condition precedent to the closing of the IPO, various reorganization transactions became effective, including the following:
the Exchange Offer Transactions (as described above); and
the execution of a new management agreement with the Manager (the "New Management Agreement"“Management Agreement”).

We refer to these transactions collectively as the “Reorganization Transactions.”

As Old RPI is our predecessor for financial reporting purposes, we have recorded Old RPI’s assets and liabilities at the carrying value reflected on Old RPI'sRPI’s balance sheet as of the Exchange Date. The references in the following notes for the periods prior to the Exchange Date refer to the financial results of Old RPI for the same periods.
June 2020 IPO
Our IPO was completed on
On June 18, 2020, wherebywe completed our IPO on the Nasdaq Global Select Market under the ticker symbol “RPRX”, in which we issued 89,333,92089,334 thousand shares of Class A ordinary shares at a price to the public of $28.00 per share, of which 71,652,25071,652 thousand and 17,681,67017,682 thousand shares were offered by the Company and selling shareholders, respectively. The number of Class A ordinary shares issued at closing included the exercise in full of the underwriters’ option to purchase 11,652,250 additional Class A ordinary shares from the Company. The Company received net proceeds of approximately $1.9 billion from the IPO after deducting underwriting discounts and commissions of approximately $86.3 million. The Class A ordinary shares began trading on the Nasdaq Global Select Market under the ticker symbol “RPRX” on June 16, 2020. We used the net proceeds from the IPO to acquire the RP Holdings Class A Interests shortly after completion of the Offering. Asand, as a result, we own 100% of RP Holdings Class A Interests.

In connection withUpon consummation of the IPO, pursuant to agreements with the Continuing Investors Partnerships, certain of the Continuing Investors agreed to exchange, upon consummation ofpursuant to the IPO,Exchange Offer Transactions, interests in the Continuing Investors Partnerships represented by their ownership of 294,175,555294,176 thousand RP Holdings Class B Interests into an aggregate of 294,175,555294,176 thousand Class A ordinary shares of the Company. FollowingRoyalty Pharma plc. Upon completion of the exchange, Royalty Pharma plc indirectly owns 294,175,555owned 294,176 thousand RP Holdings Class B Interests. The remaining investors in the Continuing Investors Partnerships who did not elect to exchange into Class A ordinary shares hold 241,207,425held 241,207 thousand newly issued Class B ordinary shares of Royalty Pharma.Pharma plc. As a result, the Continuing Investors Partnerships holdheld a number of our Class B ordinary shares equal to the number of RP Holdings Class B Interests indirectly held by them at such time which are exchangeable on a one-for-one basis for Class A ordinary shares of Royalty Pharma plc. Our Class B shares will not be publicly traded and holders of Class B shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company. However, the RP Holdings Class B Interests will be entitled to dividends and distributions from
7

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



RP Holdings. Our Class A ordinary and Class B shares will vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law, with each share entitled to one vote.

2. Summary of Significant Accounting Policies

Basis of preparation and use of estimates

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

8

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



In the opinion of management, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal and recurring adjustments. Certain information and footnote disclosures have been condensed or omitted as permitted under U.S. GAAP. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2019,2020, included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amendedour Annual Report on June 17, 2020 (“the Prospectus”).Form 10-K.

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities and the unaudited condensed consolidateddisclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes. The current outbreak of the novel coronavirus, or COVID-19, could materially and adversely affect our results of operations, financial condition and cash flows. The full extent of the impact due to the COVID-19 pandemic will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact. Givenreported amounts of income, revenues and expenses during the uncertainty around the extent and timing of the potential future spread or mitigation efforts related to the current outbreak of COVID-19, the financial impact cannot be reasonably estimated at this time.reporting period. Actual results may differ from those estimates. The results for the interim periods are not necessarily indicative of results for the full year.

The precise extent to which the COVID-19 pandemic will impact our operational and financial performance will depend on various factors. To date, the pandemic has not materially impacted our financial performance and we do not believe it is reasonably likely to in the future. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in certain of our results of operations until future periods.

Basis of consolidation

The unaudited condensed consolidated financial statements include the accounts of Royalty Pharma as well as itsand all majority-owned and controlled subsidiaries. We hold interests insubsidiaries, as well as variable interest entities, where we have assessed that we are not the primary beneficiary and therefore do notbeneficiary. We consolidate these entities.based upon evaluation of our power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net (income)/lossNet income attributable to non-controlling interest in our unaudited condensed consolidated statements of comprehensive income equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties.

Following management’s determination that a high degree of common ownership existed in RPIRoyalty Pharma both before and after the Exchange Date, RPIRoyalty Pharma recognized Old RPI’s assets and liabilities at the carrying value reflected on Old RPI’s balance sheet as of the Exchange Date.

Prior to the Exchange Offer Transactions, our only historical non-controlling interest was attributable to a de minimis interest in RPCT held by RPSFT. As a result of the Exchange Offer Transactions in February 2020, a new non-controlling interest was created related to the Legacy Investors Partnerships'Partnerships’ ownership of approximately 18% in Old RPI.

As a resultFollowing the consummation of theour IPO in June 2020, 2 new non-controlling interests were created: 1)(1) a non-controlling interest related to the Continuing Investors Partnerships'Partnerships’ ownership of approximately 40% in RP Holdings through their ownership of the RP Holdings Class B Interests, which amounted to approximately 30% as of June 30, 2021 and 2)(2) a non-controlling interest attributablerelated to RPI EPA Holdings, LP (“EPA Holdings”), an affiliate of the Manager through its ownership of the RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest held by EPA Holdings, an affiliate of the Manager.Interest”). Income will not be allocated to the latter non-controlling interest until certain conditions are met, which we do not expect to occur for several years.

All intercompany transactions and balances have been eliminated in consolidation.

Adjustment to prior period presentation

In connection with the preparation of our condensed consolidated interim financial statements for the three months ended September 30, 2020, we identified an adjustment to the classification of our short-term investments on our consolidated balance sheet, as of December 31, 2019 based on the original maturity dates of the investments. The adjustments resulted in an increase of $66.7 million and a decrease of $17.7 million in cash activity related to Purchases of marketable securities and Proceeds from sales and maturities of marketable securities, respectively, within Net cash used in investing activities for the six months ended June 30, 2020, with a net impact on net cash flow from investing of $84.4 million. We evaluated the adjustment and determined that, based on our quantitative and qualitative analysis, it was not material to the condensed consolidated financial statements as of and for the six months ended June 30, 2020.

9

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation.

Concentrations of credit risk

Financial instruments that subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, financial royalty assets receivables, and derivatives.receivables. Our cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds are needed for operations. Our cash and cash equivalents and marketable securities balances atas of June 30, 20202021 and
8

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



December 31, 20192020 were held with State Street Bank and Trust, Deutsche Bank, Merrill Lynch, Pierce, Fenner & Smith, and Bank of America, N.A.America. Our primary operating accounts significantly exceed the FDICFederal Deposit Insurance Corporation limits.

The majority of our financial royalty assets and receivables arise from contractual royalty agreements that entitle the Companyus to royalties on the sales of underlying biopharmaceutical products in the United States, Europe and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The marketers paying us royalties on these products do not always provide, and are not necessarily required to provide, the breakdown of product sales by geography. The products in which we hold royalties are marketed by leading industry participants, including, among others, Abbott, AbbVie, Amgen, Bristol-Myers Squibb, Celgene, Gilead, Sciences, Johnson & Johnson, Lilly, Merck, & Co., Pfizer, Novartis, Biogen-Idec,Biogen, Roche/Genentech and Vertex. As of June 30, 2021 and December 31, 2020, Vertex was the marketer and payor making up the largest balance of our current portion of Financial royalty assets, net, accounting for 29% and 27%, respectively, as the marketer and payor of our royalties on the cystic fibrosis franchise products, accounted for 27%franchise.

We monitor the financial performance and 17%creditworthiness of the counterparties to our current portionroyalty agreements so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant losses with respect to the collection of Financialincome or revenue on our royalty assetsas of June 30, 2020 and December 31, 2019, respectively.assets.

Recently adopted and issued accounting standards

Upon the January 1, 2020 adoption of ASU 2016-13,, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), we recorded a cumulative adjustment to Retained earnings of $192.7 million to recognize an allowance for current expected credit losses on the portion of our portfolio of financial royalty assets that is subject to credit risk. Refer to Note 7–Cumulative Allowance for Changes in Expected Cash Flows from Financial Royalty Assets for additional discussion.

Significant Accounting Policies

There have been no material changes to the Company’sour significant accounting policies described infrom our 2019 audited consolidated financial statements included inAnnual Report on Form 10-K for the Prospectus that have had a material impact on the Company’s unaudited condensed consolidated financial statements and related notes, other than those noted below.year ended December 31, 2020.

Allowance for current expected credit losses
10

As a result of adopting ASU 2016-13, we now recognize an allowance for current expected credit losses on the portion of our portfolio of financial royalty assets that is subject to credit risk. The credit loss allowance is estimated using the probability of default and loss given default methods. The credit rating, which is primarily based on publicly available data and updated on a quarterly basis, is the primary credit quality indicator used to determine the probability of default of the marketers responsible for paying our royalties and resulting loss given default. Current expected credit loss allowance is presented net within the non-current portion of Financial royalty assets, net on the condensed consolidated balance sheets. Any subsequent movement in the allowance for credit losses is recorded as part of the Provision for changes in expected future cash flows from financial royalty assets on the condensed consolidated statements of comprehensive income.

Refer to Note 7 for further information.

Earnings per share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Royalty Pharma plc by the weighted average number of Class A ordinary shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Royalty Pharma plc, including the impact of potentially dilutive securities, by the weighted average number of Class A ordinary shares outstanding during the period, including the number of Class A ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include the outstanding Class B ordinary shares and restricted stock units (“RSU”) issued under our 2020 Independent Director Equity Incentive Plan. We use the “if-converted” method to determine the potentially dilutive effect of Class B ordinary shares, and the treasury stock method to determine the potentially dilutive effect of the unvested RSUs.

There were no shares of Class A or Class B ordinary shares outstanding prior to June 16, 2020; therefore, no earnings per share information has been presented for any period prior to that date.

3. Fair Value Measurements and Financial Instruments

Fair value measurements
9

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



3. Available for Sale Debt Securities

Series A Biohaven Preferred Shares

On April 5, 2019, RPIFT funded the purchase of 2,495 Series A Biohaven Preferred Shares from Biohaven Pharmaceutical Holding Company Ltd. (“Biohaven”) at a price of $50,100.00 per preferred share, for a total of $125.0 million (the “First Tranche”). The summary below presents information about our assetsapproval of Nurtec ODT (rimegepant) by the U.S. Food and liabilities that are measured at fair valueDrug Administration (“FDA”) in February 2020 results in a payment due to us of two times the original purchase price of the Series A Biohaven Preferred Shares payable in equal quarterly installments beginning on a recurring basis as of June 30, 2020 andMarch 31, 2021 through December 31, 2019, and2024. In the valuation techniquesthree months ended March 31, 2021, we utilizedbegan receiving payment from the quarterly redemption of the Series A Biohaven Preferred Shares. If Biohaven effects any change of control event, then we will have the option to determinecause Biohaven to redeem, in a single payment, any outstanding Series A Biohaven Preferred Shares at a price equal to two times the original purchase price of the Series A Biohaven Preferred Shares. Biohaven may redeem at their election, any outstanding Series A Biohaven Preferred Shares, in a single payment, at a price equal to two times the original purchase price. In the event that Biohaven defaults on any obligation to redeem Series A Biohaven Preferred Shares when required, the redemption amount shall accrue interest at the rate of 18% annually until the redemption price for such fair value.unredeemed Series A Biohaven Preferred Shares is paid in full, subject to applicable law. If any such default continues for at least one year, we will be entitled to convert all unredeemed Series A Biohaven Preferred Shares into common shares equal to the redemption price, plus accrued interest, divided by the five-day volume-weighted trading price immediately preceding the conversion date.

The Series A Biohaven Preferred Shares are classified as Level 1: Unadjusted quoted pricesAvailable for sale debt securities in active markets that are accessible atour condensed consolidated balance sheets. The unrealized change in the measurement date for identical, unrestricted assets or liabilities. Our level 1 assets consistfair value of equity securities with readily determinable fair values and money market funds.
the Series A Biohaven Preferred Shares is recorded in other comprehensive income within Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Our level 2 assets generally include marketable securities, warrants, derivatives,Unrealized gain on available for sale debt securities and our interest rate swap contracts, which may be in an asset or liability position.
Level 3: Prices or valuation that requires inputs that are both significant toon the fair value measurement and unobservable. Our level 3 assets historically consistedcondensed consolidated statements of our investment in the Biohaven Preferred Shares. See Note 5 for a description of our investment in the Biohaven Preferred Shares.comprehensive income.

For financial instruments which are carriedSeries B Biohaven Preferred Shares

On August 7, 2020 we entered into a Series B Biohaven Preferred Share Purchase Agreement (“Series B Biohaven Preferred Share Agreement”) with Biohaven where we committed to acquire 3,992 shares of Series B Biohaven Preferred Shares at fair value,a price of $50,100 per preferred share (the “Commercial Launch Preferred Equity”), for a total of $200 million payable on a quarterly basis between March 31, 2021 and December 31, 2024. Our commitment to purchase the levelSeries B Biohaven Preferred Shares is recognized as the Series B Forwards. In return, Biohaven will be required to redeem the Series B Biohaven Preferred Shares in a series of equal fixed quarterly payments between March 31, 2025 and December 31, 2030 at a price equal to approximately 1.8 times the original purchase price of the Series B Biohaven Preferred Shares. If Biohaven effects any change of control event, then we will have the option to cause Biohaven to issue to us all unissued Series B Biohaven Preferred Shares and to redeem, in a single payment, any outstanding Series B Biohaven Preferred Shares at a price equal to approximately 1.8 times the Series B original issue price per share. Biohaven may redeem at their election, any outstanding Series B Biohaven Preferred Shares, in a single payment, at a price equal to approximately 1.8 times the Series B original issue price. In the event that Biohaven defaults on any obligation to redeem Series B Biohaven Preferred Shares, the redemption amount shall accrue interest on the applicable original issue price at the rate of 18% annually until the redemption price for such unredeemed Series B Biohaven Preferred Shares is paid in full, subject to applicable law. If any such default continues for at least one year, we will be entitled to convert any or all unredeemed Series B Biohaven Preferred Shares into common shares equal to the redemption price, plus accrued interest, divided by the five-day volume-weighted trading price immediately preceding the conversion date.

In the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares. As of June 30, 2021, we have acquired 702 shares of Series B Biohaven Preferred Shares. We have elected the fair value hierarchy is based onoption to account for the lowest level of inputs that is significant toSeries B Forwards and the fair value measurement in its entirety.

Fair value hierarchy
The following is a summary of the inputs used to value our financial assets and liabilities measured at fair value as of June 30, 2020 and December 31, 2019:
As of June 30, 2020
Level 1Level 2Level 3Total
(in thousands)
Assets:
Cash equivalents
Money market funds$143,859  $—  $—  $143,859  
Commercial paper—  107,889  —  107,889  
Certificates of deposit—  14,010  —  14,010  
Marketable securities
U.S. government securities—  42,994  —  42,994  
Corporate debt securities—  38,698  —  38,698  
Certificates of deposit—  261,987  —  261,987  
Available for sale debt securities—  28,500  —  28,500  
Total current assets$143,859  $494,078  $—  $637,937  
Equity securities477,185  —  —  477,185  
Available for sale debt securities—  162,454  —  162,454  
Warrants (1)—  14,717  —  14,717  
Total non-current assets$477,185  $177,171  $—  $654,356  
(1)Related to Epizyme transaction as described in Note 4 andSeries B Biohaven Preferred Shares, which are recorded in the non-current asset portion of Derivative financial instruments inaggregate on the condensed consolidated balance sheetsheets as Available for sale debt securities. We believe the fair value option most accurately reflects the nature of June 30, 2020.these instruments. The unrealized change in fair value of the Series B Biohaven Preferred Shares and Series B Forwards is recorded in earnings within Unrealized gain on available for sale debt securities on the condensed consolidated statements of comprehensive income.

1011

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



As of December 31, 2019
Level 1Level 2Level 3Total
(in thousands)
Assets:
Cash equivalents
Money market funds$222,296  $—  $—  $222,296  
Commercial paper—  21,502  —  21,502  
Certificates of deposit—  20,011  —  20,011  
Marketable securities
U.S. government securities—  12,877  —  12,877  
Certificates of deposit—  44,095  —  44,095  
Total current assets$222,296  $98,485  $—  $320,781  
Equity securities380,756  —  —  380,756  
Available for sale debt securities—  —  131,280  131,280  
Warrants (1)—  30,815  —  30,815  
Forward purchase contract (1)—  11,500  —  11,500  
Total non-current assets$380,756  $42,315  $131,280  $554,351  
Liabilities:
Interest rate swaps—  (9,215) —  (9,215) 
Total current liabilities$—  $(9,215) $—  $(9,215) 
Interest rate swaps—  (18,902) —  (18,902) 
Total non-current liabilities$—  $(18,902) $—  $(18,902) 
MorphoSys Development Funding Bonds
(1)
On June 2, 2021, we announced a long-term strategic funding partnership with MorphoSys AG (“MorphoSys”) to support MorphoSys’ acquisition of Constellation Pharmaceuticals, Inc. (“Constellation”), which closed on July 15, 2021. As part of the funding agreement, we agreed to provide MorphoSys up to $350 million of capital (the “Development Funding Bonds”), which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million. Our commitment to fund at least $150 million of the Development Funding Bonds is recognized as the Development Funding Bond Forward. We expect to receive a return of 2.2 times the amount funded on the Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding.

We have elected the fair value option to account for the Development Funding Bond Forward as it most accurately reflects the nature of the instrument. The Development Funding Bond Forward is recorded within Related to Epizyme warrants and put option as describedAvailable for sale debt securities in Note 4 andour condensed consolidated balance sheet. The unrealized change in fair value of the Development Funding Bond Forward is recorded in the non-current asset portion ofearnings within Derivative financial instrumentsUnrealized gain on available for sale debt securities inon the condensed consolidated balance sheet asstatements of December 31, 2019.comprehensive income.

The table presented below summarizes the change in the carrying value of level 3 financial instruments, which related entirely to the investment in Biohaven Preferred Shares (discussed below) for the three and six months ended June 30, 2020 and 2019.
For the three months ended
June 30, 2020June 30, 2019
(in thousands)
Available for sale debt securities
Balance at the beginning of the period$— $— 
Purchases— 125,121 
Change in unrealized movement— 2,939 
Balance at the end of the period$— $128,060 
11

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



For the six months ended
June 30, 2020June 30, 2019
(in thousands)
Available for sale debt securities
Balance at the beginning of the period$131,280  $—  
Purchases—  125,121  
Change in unrealized movement52,725  2,939  
Transfer to level 2(184,005) —  
Balance at the end of the period$—  $128,060  

Valuation inputs
Below is a discussion of the valuation inputs used for financial instruments classified as level 2 and level 3 measurements in the fair value hierarchy.

Investment in Biohaven Preferred Shares
The fair value of the Biohaven Preferred Shares at June 30, 2020 was based on the defined cash flow from the achievement of certain contractual terms, namely the February 2020 approval by the United States Food and Drug Administration (“FDA”) of Nurtec ODT (rimegepant), which resulted in a payment due to Royalty Pharma of two times (2x) the original purchase price of the Series A Preferred Shares payable in equal quarterly installments following FDA approval and starting one-year after FDA approval, through December 31, 2024. The fixed payment amount of $250.0 million results in nominal quarterly payments of $15.6 million over this period. Using Biohaven's weighted average cost of capital of 11.1% obtained from a publiclyour available third party source, management arrived at a fair value of $191.0 million at June 30, 2020 for the Biohaven Preferred Shares, which are recorded as Available for sale debt securities (see Note 5) and classified as a level 2 measurement at this date for the reasons noted above.

The fair value of the Biohaven Preferred Shares at December 31, 2019 was determined based on significant inputs that were not observable in the market, referred to as level 3 inputs. The valuation was performed using a Black-Derman-Troy (“BDT”) lattice model, which takes into account the purchase terms and various probability-weighted redemption and payback scenarios that impact the return on investment. Key inputs to the BDT model included, most notably, the probability (1) of Biohaven’s pipeline product, rimegepant, being approved by the FDA by specific dates, (2) of a Change of Control event by specific dates, and (3) that Biohaven will elect to redeem the Preferred Shares for a lump sum payment as opposed to payback over time. Probabilities for the above considerations were developed by our Research team, who have significant healthcare and finance expertise to make such assessments. The most critical assumption that impacted the valuation of our Biohaven Preferred Shares at December 31, 2019 was the probability that rimegepant would be approved by the FDA. If the probability that such FDA approval occurs were reduced by 20%, the value of our Biohaven Preferred Shares would not change materially at December 31, 2019.

Assumptions used in the valuation model as of December 31, 2019 included the following significant unobservable inputs:
Change of Control probability on a quarterly basis (0%)
Likelihood of FDA approval (0%-86%)
Likelihood of FDA approval at the end of any given quarter by December 31, 2024 (Range: 0%-59%).

Other financial instruments
We use a third party pricing service for level 2 inputs used to value cash equivalents and short term investments, which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. Warrants are valued using a Black-Scholes option pricing model which considers observable and unobservable inputs. Level 2 derivative instruments are typically valued using counterparty confirmations, LIBOR yield curves and credit valuation adjustments.

Financial assets not measuredrecorded at fair value
Financial royalty assets are measured and carried on the condensed consolidated balance sheets at amortized cost using the effective interest method. The current portion of financial royalty assets approximates fair value. The fair value of financial royalty assets is calculated by management using the forecasted royalty payments we expect to receive based on the projected
12

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



product sales for all royalty bearing products as estimated by sell-side equity research analysts. These projected future royalty payments by asset are then discounted to a present value using appropriate individual discount rates. The fair value of our financial royalty assets is classified as level 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. Estimated fair values based on level 3 inputs and related carrying values for the non-current portion of our financial royalty assets as of June 30, 20202021 and December 31, 2019 are presented below.2020 (in thousands):
(in thousands)June 30, 2020December 31, 2019
Fair valueCarrying value, netFair valueCarrying value, net
Financial royalty assets, net$17,024,285  $11,169,857  $16,501,819  $10,842,052  

Cost (1)Unrealized gainsFair ValueCurrent AssetsNon-Current AssetsTotal
As of June 30, 2021
Series A Biohaven Preferred Shares$143,211 $51,089 $194,300 $68,702 $125,598 $194,300 
Series B Biohaven Preferred Shares35,170 10,930 46,100 46,100 46,100 
Series B Forwards21,500 21,500 21,500 21,500 
Development Funding Bond Forward9,300 9,300 9,300 9,300 
Total available for sale debt securities$178,381 $92,819 $271,200 $68,702 $202,498 $271,200 
As of December 31, 2020
Series A Biohaven Preferred Shares$145,647 $68,753 $214,400 $69,984 $144,416 $214,400 
Series B Forwards18,600 18,600 18,600 18,600 
Total available for sale debt securities$145,647 $87,353 $233,000 $69,984 $163,016 $233,000 

(1) Cost for Series A Biohaven Preferred Shares represents amortized cost. Cost for Series B Biohaven Preferred Shares represents the amounts paid to purchase the instruments. There were no costs associated with the Series B Forwards and Development Funding Bond Forward.


4. Derivative Instruments

We have historically managed the impact of foreign currency exchange rate and interest rate risk through various financial instruments, including derivative instruments such as treasury rate lock contracts, interest rate swap contracts and foreign currency forward contracts. Our policy is to use derivatives strategically to hedge existing and future interest rate exposure and to minimize volatility in cash flow arising from our exposure to interest rate risk and foreign currency risk. We may also acquire other financial instruments that are classified as derivatives. We do not enter into derivative instruments for trading or speculative purposes.

Treasury rate lock contracts

In June 2021, we entered into treasury rate lock contracts with notional amounts totaling $600.0 million to manage the impact of fluctuations in the underlying benchmark interest rate associated with the 2021 Notes issuance (as further discussed in Note 11–Borrowings and Note 18–Subsequent Events). The treasury rate lock contracts were not designated as hedge instruments. The treasury rate lock contracts were recognized by individual counterparty at a fair value of $0.6 million within Other current assets and $1.6 million within Other current liabilities on the condensed consolidated balance sheet as of June 30, 2021.

12

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Under our International Swaps and Derivatives Association (“ISDA”) agreements, we have the right of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. We have elected to offset such derivative instrument fair values by counterparty in the condensed consolidated balance sheets.

All of the treasury rate lock contracts had collateral requirements. We elected not to offset fair value amounts of any outstanding derivatives against the related cash collateral receivable or payable. As of June 30, 2021, we had a receivable of $0.6 million in cash collateral previously posted to counterparties and an obligation to return $2.7 million in cash collateral to counterparties that were recorded in Other current assets and Other current liabilities on the condensed consolidated balance sheet, respectively.

The treasury rate lock contracts were unwound and settled in connection with the 2021 Notes issuance (as further discussed in Note 11–Borrowings and Note 18–Subsequent Events) and the resulting net loss was recognized in earnings in the same period. We paid $16.1 million in July 2021 to terminate our treasury rate lock contracts.

Interest rate swaps

As of June 30, 2020,2021, we do not hold any interest rate swap contracts. In connection with the Exchange Offer Transactions described in Note 1,1–Organization and Purpose, RPIFT terminated all outstanding interest rate swaps in February 2020. We paid $35.4 million to terminate our swaps and reclaimed $45.3 million of collateral that was held by the respective counterparties.

As of December 31, 2019, RPIFT held interest rate swap contracts to effectively convert a portion of its floating-rate debt to a fixed basis. The notional values and fixed rates payable on the swap contracts are shown in the table below.
Notional Value
(in millions)
Fixed RateMaturity Date
$6002.019 %November 9, 2020
$2502.094 %March 27, 2023
$5002.029 %March 27, 2023
$2502.113 %March 27, 2023
$5002.129 %March 27, 2023

We dodid not apply hedge accounting and recognize all movementrecognized change in fair value through earnings. All outstanding interest rate swaps were terminated in February 2020; therefore, there were 0 related unrealized gains or losses during the three months ended June 30, 2020. During the three months ended June 30, 2019 we recorded in earnings unrealized losses of $39.4 million on interest rate swaps in the condensed consolidated statements of comprehensive income. During theand six months ended June 30, 2020, and 2019 we recorded in earnings unrealized losses of $10.9 million and $65.3 million, respectively, on interest rate swaps in the condensed consolidated statements of comprehensive income.

The fair value of the swaps at December 31, 2019 was a net liability of $28.1 million (a current liability of $9.2 million and a non-current liability of $18.9 million) and included within Derivative financial instruments on the condensed consolidated balance sheets.

RPIFT had master International Swaps and Derivatives Association (“ISDA”) agreements in place with its derivative instrument counterparties which provide for final close out netting with counterparties for all positions in the case of default or termination of the ISDA agreement. Under these agreements, RPIFT has set-off rights with the same counterparty but elected not to offset such derivative instrument fair values in the condensed consolidated balance sheets.

RPIFT generally had executed a Credit Support Annex (“CSA”) under the ISDA it maintains with each of its over-the-counter (“OTC”) derivative counterparties that requires both posting and accepting collateral either in the form of cash or high-quality securities. These CSAs are bilateral agreements that require collateral postings by the party “out-of-the-money” or in a net derivative liability position. Various thresholds for the amount and timing of collateralization of net liability positions are
13

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



applicable. RPIFT elected not to offset fair value amounts of any outstanding derivatives against the fair value amounts recognized for the related cash collateral receivable or payable that arise from those derivative instruments on the condensed consolidated balance sheets.

Only the swaps maturing in 2023 had collateral requirements. At December 31, 2019, RPIFT had a receivable of $45.6 million in cash collateral previously posted to trade counterparties, which was recorded in Other assetson the condensed consolidated balance sheets. At December 31, 2019, RPIFT did not have the obligation to return any cash collateral to counterparties, as it did not hold any cash collateral at that date.

Epizyme put option and warrant

In November 2019, RPIFT made an equity investment in Epizyme Inc. (“Epizyme”) of $100.0 million. Under the terms of its agreement with Epizyme, RPIFT made an upfront payment of $100.0 million for (1) shares of Epizyme common stock, (2) a warrant to purchase an additional 2.5 million shares of Epizyme common stock at $20 per share over a three-yearthree-year term, and (3) Epizyme’s royalty on sales of Tazemetostat in Japan payable by Eisai Co., Ltd (“Eisai”). In addition, Epizyme had an 18 month put option to sell an additional $50.0 million of its common stock to RPIFT at then prevailing prices, not to exceed $20 per share.

share, which Epizyme notified the Company of its intention to exercise the put option on December 31, 2019. As a result, we recorded a forward purchase contract equal to the difference between the market value and exercise price of $11.5 million in the non-current asset portion of Derivative financial instruments on the consolidated balance sheet at December 31, 2019. The exercise of the put option was settledexercised in February 2020.

The warrant was recognized at fair value of $14.7$1.9 million and $30.8$5.4 million within the non-current asset portion of Derivative financial instrumentsOther Assets on the condensed consolidated balance sheet atsheets as of June 30, 20202021 and December 31, 2019,2020, respectively. We recorded an unrealized loss on derivative financial instruments of $0.9 million and $3.5 million related to the change in the fair value of the warrant on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021, respectively. We recorded an unrealized gain on derivative contractsfinancial instruments of $0.6 million and an unrealized loss on derivative contractsfinancial instruments of $16.1 million related to the change in the fair value of the warrant on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2020, respectively.

Biohaven written put option
We determined there was a derivative associated with the Second Tranche of the Biohaven Preferred Share Agreement that was entered into in April 2019. The derivative related to Biohaven’s option, exercisable within 12 months from when the NDA for Nurtec ODT was accepted by the FDA for Priority Review, to require Royalty Pharma to purchase up to an additional $75.0 million of Preferred Shares (the “Second Tranche”) at the same price and on the same terms as the First Tranche, in one or more transactions of no less than $25.0 million. As of June 30, 2020 and December 31, 2019, management determined that the value of the Second Tranche written put option was immaterial, and therefore no liability has been recognized on the condensed consolidated balance sheets at this time. See Note 5 for a description of our investment in the Biohaven Preferred Shares.

Summary of derivatives and reclassifications

The tables below summarize the change in the fair value of the derivatives for the three and six months ended June 30, 20202021 and 2019,2020 and the line items within the condensed consolidated statements of comprehensive income where the gains/(losses)losses/(gains) on these derivatives are recorded.recorded (in thousands).
For the three months ended June 30,Condensed Consolidated Statements of Comprehensive Income location
20212020
Derivatives not designated as hedging instruments
Warrant:
Change in fair value of warrant$941 $(647)Loss/(gain) on derivative financial instruments
Treasury rate lock contracts:
Change in fair value of treasury rate lock contracts968 Loss/(gain) on derivative financial instruments

1413

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



For the three months endedCondensed Consolidated Statement of Comprehensive Income location
June 30, 2020June 30, 2019
Derivatives in hedging relationships (1)(in thousands)
Interest Rate Swaps:
Amount of loss reclassified from AOCI into income$— $(1,602)Unrealized gain/loss on derivative contracts
Change in fair value of interest rate swaps— (8,011)Unrealized gain/loss on derivative contracts
Interest income— 3,115 Interest expense
Derivatives not designated as hedging instruments
Interest Rate Swaps:
Change in fair value of interest rate swaps— (29,801)Unrealized gain/loss on derivative contracts
Interest income— 1,479 Interest expense
Warrant:
Change in fair value of warrant647 — Unrealized gain/loss on derivative contracts
For the six months ended June 30,Condensed Consolidated Statements of Comprehensive Income location
20212020
Derivatives in hedging relationships (1)
Interest Rate Swaps:
Amount of loss reclassified from Accumulated Other Comprehensive Income into income$$4,066 Loss/(gain) on derivative financial instruments
Change in fair value of interest rate swaps(73)Loss/(gain) on derivative financial instruments
Interest expense114 Interest expense
Derivatives not designated as hedging instruments
Interest Rate Swaps:
Change in fair value of interest rate swaps6,908 Loss/(gain) on derivative financial instruments
Interest expense408 Interest expense
Warrant:
Change in fair value of warrant3,496 16,097 Loss/(gain) on derivative financial instruments
Forward purchase contract:
Change in fair value of forward purchase contract5,800 Loss/(gain) on derivative financial instruments
Treasury rate lock contracts:
Change in fair value of treasury rate lock contracts968 Loss/(gain) on derivative financial instruments
For the six months endedCondensed Consolidated Statement of Comprehensive Income location
June 30, 2020June 30, 2019
Derivatives in hedging relationships (1)(in thousands)
Interest Rate Swaps:
Amount of loss reclassified from AOCI into income$(4,066) $(3,189) Unrealized gain/loss on derivative contracts
Change in fair value of interest rate swaps73  (14,307) Unrealized gain/loss on derivative contracts
Interest (expense)/income(114) 6,888  Interest expense
Derivatives not designated as hedging instruments
Interest Rate Swaps:
Change in fair value of interest rate swaps(6,908) (47,758) Unrealized gain/loss on derivative contracts
Interest (expense)/income(408) 3,032  Interest expense
Warrant:
Change in fair value of warrant(16,097) —  Unrealized gain/loss on derivative contracts
Forward purchase contract:
Change in fair value of forward purchase contract(5,800) —  Unrealized gain/loss on derivative contracts
(1)     Certain older interest rate swaps were previously designated as cash flow hedges. These swaps became ineffective as debt refinancings occurred between 2013 and 2016. As a result of the termination of interest rate swaps in February 2020, all amounts associated with interest rate swaps previously designated as cash flow hedges and recorded in AOCIAccumulated other comprehensive income have been released into earnings.

5. Fair Value Measurements and Financial Instruments

Fair value measurements

The summary below presents information about our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, and the valuation techniques we utilized to determine such fair value.

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Our Level 1 assets consist of equity securities with readily determinable fair values and money market funds.

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Our Level 2 assets generally include marketable securities, warrants, derivatives, treasury rate lock contracts, and, historically, our interest rate swap contracts.

Level 3: Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable. Our Level 3 assets consist of our investments in the Series A Biohaven Preferred Shares, Series B Biohaven Preferred Shares, the Series B Forwards and the Development Funding Bond Forward. See Note 3–Available for Sale Debt Securities for a description of these investments.

A summary of our available for sale debt securities recordedFor financial instruments which are carried at fair value, is shown below as of June 30, 2020 and December 31, 2019:
CostUnrealized gainsFair Value (1)
As of June 30, 2020(in thousands)
Biohaven preferred shares$125,121  $65,833  $190,954  
Total available for sale debt securities$125,121  $65,833  $190,954  
As of December 31, 2019
Biohaven preferred shares$125,121  $6,159  $131,280  
Total available for sale debt securities$125,121  $6,159  $131,280  
(1)As of June 30, 2020, $28.5 million and $162.5 million are recorded as the current and non-current asset portion of Available for sale debt securities, respectively,level in the condensed consolidated balance sheet. The entire balancefair value hierarchy is based on the lowest level of inputs that is significant to the Biohaven Preferred Shares was recorded as a non-current asset as of December 31, 2019.fair value measurement in its entirety.

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Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



Fair value hierarchy

The following is a summary of the inputs used to value our financial assets and liabilities measured at fair value as of June 30, 2021 and December 31, 2020 (in thousands):
As of June 30, 2021
Level 1Level 2Level 3Total
Assets:
Cash equivalents
Money market funds$510,092 $$$510,092 
Certificates of deposit10,001 10,001 
Marketable securities
Commercial paper165,658 165,658 
Certificates of deposit677,027 677,027 
Available for sale debt securities68,702 68,702 
Treasury rate lock contracts (1)616 616 
Total current assets$510,092 $853,302 $68,702 $1,432,096 
Equity securities$184,042 $$$184,042 
Available for sale debt securities171,698 171,698 
Forwards (2)30,800 30,800 
Warrant (3)1,944 1,944 
Total non-current assets$184,042 $1,944 $202,498 $388,484 
Liabilities:
Treasury rate lock contracts (1)1,584 1,584 
Total current liabilities$0 $1,584 $0 $1,584 
(1)The treasury rate lock contracts are recorded by counterparty within Other current assets and Other current liabilities in the condensed consolidated balance sheet as of June 30, 2021, respectively. See Note 4–Derivative Instruments for additional discussion.
(2)The Series B Forwards and the Development Funding Bond Forward, recorded within Available for sale debt securities (Biohaven in the condensed consolidated balance sheet as of June 30, 2021, relate to our obligation to fund the acquisition of the Series B Biohaven Preferred Shares)Shares and $150 million of the Morphosys Development Funding Bonds, respectively. See Note 3–Available for Sale Debt Securities for additional discussion.
On April 5, 2019, RPIFT funded(3)Related to the purchaseEpizyme transaction as described in Note 4–Derivative Instruments and recorded in Other assets in the condensed consolidated balance sheet as of 2,495June 30, 2021.


For the three and six months ended June 30, 2021, we recognized an unrealized gain of $28.3 million and unrealized loss of $10.7 million on equity securities still held as of June 30, 2021, respectively. For the three and six months ended June 30, 2020, we recognized an unrealized gain of $48.5 million and an unrealized loss of $57.5 million on equity securities still held as of June 30, 2021, respectively.

15

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



As of December 31, 2020
Level 1Level 2Level 3Total
Assets:
Cash equivalents
Money market funds$24,302 $$$24,302 
Commercial paper77,176 77,176 
Certificates of deposit74,502 74,502 
Marketable securities
Corporate debt securities32,754 32,754 
Commercial paper444,554 444,554 
Certificates of deposit505,971 505,971 
Available for sale debt securities69,984 69,984 
Total current assets$24,302 $1,134,957 $69,984 $1,229,243 
Equity securities (1)$298,689 $$$298,689 
Available for sale debt securities144,416 144,416 
Forwards (2)18,600 18,600 
Warrant (3)5,439 5,439 
Total non-current assets$298,689 $5,439 $163,016 $467,144 
(1)Upon Gilead’s acquisition of Immunomedics in October 2020, our investment in Immunomedics common stock was redeemed, resulting in a gain of $292.3 million recognized within (Gain)/loss on equity securities in the year ended December 31, 2020.
(2)The Series B Forwards, recorded within Available for sale debt securities in the condensed consolidated balance sheet as of December 31, 2020, relate to our obligation to fund the acquisition of the Series B Biohaven Preferred Shares.
(3)Related to the Epizyme transaction as described in Note 4–Derivative Instruments and recorded in Other assets in the condensed consolidated balance sheet as of December 31, 2020.

The tables presented below summarize the change in the combined carrying value (current and non-current) of Level 3 financial instruments, which relate to available for sale debt securitiesand forwards (in thousands).
For the three months ended
June 30,
For the six months ended
June 30,
2021202020212020
Debt Securities
Balance at the beginning of the period$226,800 $$214,400 $131,280 
Purchases17,585 35,170 
Unrealized gains on available for sale debt securities (1)6,525 11,650 52,725 
Settlement of forwards (2)5,115 10,430 
Transfer to Level 2(184,005)
Redemption(15,625)(31,250)
Balance at the end of the period$240,400 $0 $240,400 $0 

16

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



For the three months ended
June 30,
For the six months ended
June 30,
2021202020212020
Forwards
Balance at the beginning of the period$22,400 $$18,600 $
Unrealized gains included in earnings (3)13,515 22,630 
Settlement of forwards (2)(5,115)(10,430)
Balance at the end of the period$30,800 $0 $30,800 $0 
(1)     The unrealized change in the fair value of the Series A Biohaven Preferred Shares fromis recorded in other comprehensive income within Unrealized gain on available for sale debt securities while the unrealized change in the fair value of the Series B Biohaven Pharmaceutical Holding Company Ltd (“Biohaven”) at a pricePreferred Shares is recorded in earnings within Unrealized gain on available for sale debt securities on the condensed consolidated statements of $50,100.00 per preferred share, for a total of $125.0 million, pursuantcomprehensive income.
(2)     Reflects the fair value attributed to the Preferred Share Agreement. Pursuant to the Preferred Share Agreement, Biohaven may issue and sell to RPIFT, and RPIFT will purchase from Biohaven, the Second Tranche of up to $75.0 millionSeries B Forwards that were settled in the aggregate (and no less than $25.0 million at each additional closing)period as the Series B Biohaven Preferred Shares were acquired, which is included in the fair value of additionalthe Series B Biohaven Preferred Shares. See Note 3–Available for Sale Debt Securities.
(3)     Recorded in earnings within Unrealized gain on available for sale debt securities on the condensed consolidated statements of comprehensive income.

Valuation inputs

Below is a discussion of the valuation inputs used for financial instruments classified as Level 2 and Level 3 measurements in the fair value hierarchy.

Investment in Series A Biohaven Preferred Shares subject to the acceptance by the FDA of both New Drug Applications (“NDAs”) with respect to the tablet formulation of rimegepant and the orally disintegrating tablet formulation of rimegepant. As a condition for the issuance of the Second Tranche, one NDA must be accepted under the priority review designation pathway. The issuance of the Second Tranche is subject to customary closing conditions and is entirely at Biohaven's option.

The Series A Preferred Shares provided RPIFT with the right to require Biohaven to redeem its shares under the following circumstances:
If a Change of Control is announced on or before October 5, 2019, Biohaven has the option to redeem the Series A Preferred Shares for one point five times (1.5 x) the original purchase pricefair value of the Series A Biohaven Preferred Shares upon the closingas of the Change of Control. If Biohaven does not elect to redeem the Series A Preferred Shares for 1.5x the original purchase price at the closing of Change of Control, then Biohaven is required to redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable in equal quarterly installments following closing of the Change of Control throughJune 30, 2021 and December 31, 2024.
If a Change of Control is announced after October 5, 2019 and2020 was based on the Series A Preferred Shares have not previously been redeemed, Biohaven must redeem the Series A Preferred Shares for two times (2x) the original purchase price of the Series A Preferred Shares payable in a lump sum at the closing of the Change of Control or in equal quarterly installments following the closing of the Change of Control through December 31, 2024.
If an NDA for rimegepant is not approved by December 31, 2021, RPIFT has the option at any time thereafter to require Biohaven to redeem the Series A Preferred Shares for one point two times (1.2x) the original purchase price of the Series A Preferred Shares.
If no Change of Control has been announced, the Series A Preferred Shares have not previously been redeemed and (i) rimegepant is approved on or before December 31, 2024, following approval and starting one-year after approval, Biohaven must redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable in a lump sum or in equal quarterly installments through December 31, 2024 (provided that if rimegepant is approved in 2024, the entire redemption amount must be paid by December 31, 2024) or (ii) rimegepant is not approved by December 31, 2024, Biohaven must redeem the Series A Preferred Shares for two times (2x) the original purchase price on December 31, 2024.
Biohaven may redeem the Series A Preferred Shares at its option at any time for two times (2x) the original purchase price, which redemption price may be paid in a lump sum or in equal quarterly installments through December 31, 2024. In the event that Biohaven defaults on any obligation to redeem Series A Preferred Shares when required, the redemption amount shall accrue interest at the rate of eighteen percent (18%) per annum. If any such default continues for at least one year, RPIFT will be entitled to convert, subject to certain limitations, such Series A Preferred Shares into common shares, with no waiver of its redemption rights.
Under all circumstances, the Series A Preferred Shares are required to be redeemed by Biohaven by December 31, 2024.

Nurtec ODT (rimegepant) was approved by the FDA in February 2020, which results in a paymentcash flows due to Royalty Pharmaus from Biohaven of two times (2x) the original purchase price of the Series A Biohaven Preferred Shares payable in equal quarterly installments of $15.6 million following the FDA approval and starting one-year after FDA approval, through December 31, 2024. ReferThe FDA approved Nurtec ODT (rimegepant) in February 2020, at which point we became entitled to Note 3 for discussionreceive a fixed payment amount of the valuation of our Investment$250.0 million payable in the Biohaven Preferred Shares.equal quarterly payments from March 31, 2021 through December 31, 2024.

The fair value of the Series A Biohaven Preferred Shares as of June 30, 2021 and December 31, 2020 was calculated using probability-adjusted discounted cash flow calculations incorporating Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability of a change of control event occurring during the investment term, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a four-year time period and developing a risk-adjusted discount rate requires significant judgement. Our estimate of a risk adjusted discount rate of 7.1% as of June 30, 2021 and 8.3% as of December 31, 2020 could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series A Biohaven Preferred Shares, which would mean that the estimated fair value could be significantly higher or lower.

Our investment in the Series A Biohaven Preferred Shares was transferred from a Level 3 asset to a Level 2 asset in February 2020, when Nurtec ODT (rimegepant) received FDA approval, at which time we began using a discounted cash flow analysis that relied on observable inputs. During the three months ended December 31, 2020, information pertaining to Biohaven’s issuance of debt and its effective interest rate became available and we refined our valuation of the Series A Biohaven Preferred shares as of December 31, 2020 to incorporate this significant unobservable input. As a result, we reclassified the investment from a Level 2 to a Level 3 asset during the three months ended December 31, 2020.

17

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Investment in Series B Biohaven Preferred Shares

The fair value of the Series B Biohaven Preferred Shares as of June 30, 2021 and the fair value of the Series B Forwards as of June 30, 2021 and December 31, 2020 were based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability that there will be a change of control event in different periods of time, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a 10-year time period and developing a risk-adjusted discount rate requires significant judgement. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date. Our estimate of a risk adjusted discount rate could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series B Biohaven Preferred Shares or the Series B Forwards, which would mean that the estimated fair value could be significantly higher or lower.

MorphoSys Development Funding Bonds

The fair value of the Development Funding Bond Forward as of June 30, 2021 was based on a discounted cash flow calculation using an estimated risk-adjusted discount rate, which is a Level 3 fair value input. Our estimate of a risk adjusted discount rate could reasonably be different than the discount rate selected by a market participant in the event of a sale of the instrument, which would mean that the estimated fair value could be significantly higher or lower. We have elected the fair value option to account for the Development Funding Bond Forward as it most accurately reflects the nature of the instrument.

Other financial instruments

We use third party pricing services for Level 2 inputs used to value cash equivalents, marketable securities, treasury rate lock contracts and borrowings, which provide documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. Warrants are valued using a Black-Scholes option pricing model which considers observable and unobservable inputs.

Financial assets not measured at fair value

Financial royalty assets are measured and carried on the condensed consolidated balance sheets at amortized cost using the effective interest method. The current portion of financial royalty assets approximates fair value. The fair value of financial royalty assets is calculated by management using the forecasted royalty payments we expect to receive based on the projected product sales for all royalty bearing products as estimated by sell-side equity research analysts’ consensus forecasts. These projected future royalty payments by asset are then discounted to a present value using appropriate individual discount rates. The fair value of our financial royalty assets is classified as Level 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. Estimated fair values based on Level 3 inputs and related carrying values for the non-current portion of our financial royalty assets as of June 30, 2021 and December 31, 2020 are presented below (in thousands).

June 30, 2021December 31, 2020
Fair valueCarrying value, netFair valueCarrying value, net
Financial royalty assets, net$19,082,368 $12,932,077 $18,718,179 $12,368,084 

18

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



6. Financial Royalty Assets, Net

Financial royalty assets, net consist of contractual rights to cash flows relating to royalty payments derived from the expected sales of patent-protected biopharmaceutical products that entitle the Companyus and itsour subsidiaries to receive a portion of income from the sale of those products by unrelated companies.

The gross carrying value, cumulative allowance for changes in expected cash flows, exclusive of the allowance for credit losses, and net carrying value for the current and non-current portion of financial royalty assets classified as financial assets atof June 30, 20202021 and December 31, 20192020 are as follows.follows (in thousands):
16

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



June 30, 2020Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (d)
June 30, 2021June 30, 2021Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (e)
(in thousands)
Cystic fibrosis franchiseCystic fibrosis franchise(b)$4,692,567  $(98,381) $4,594,186  Cystic fibrosis franchise2037 (b)$5,322,478 $$5,322,478 
TysabriTysabri(c)2,065,179  (34,353) 2,030,826  Tysabri(c)1,926,555 1,926,555 
ImbruvicaImbruvica20291,368,322  (31,543) 1,336,779  Imbruvica2027-20291,425,298 (156,664)1,268,634 
XtandiXtandi20281,174,247  (219,405) 954,842  Xtandi2027-20281,126,241 (87,245)1,038,996 
EvrysdiEvrysdi2030-2035 (d)703,153 703,153 
PromactaPromacta2026740,543  (8,924) 731,619  Promacta2025-2028645,626 (7,600)638,026 
Tazverik2036346,902  —  346,902  
OtherOther2019- 20362,502,483  (499,455) 2,003,028  Other2020-20393,670,181 (680,145)2,990,036 
TotalTotal$12,890,243  $(892,061) $11,998,182  Total$14,819,532 $(931,654)$13,887,878 
Less: Cumulative allowance for credit losses (Note 7)Less: Cumulative allowance for credit losses (Note 7)(301,388) Less: Cumulative allowance for credit losses (Note 7)(358,950)
Total financial royalty assets, netTotal financial royalty assets, net$11,696,794  Total financial royalty assets, net$13,528,928 
a)Dates shown are basedrepresent management’s estimates of when a royalty will substantially end, which may depend on theour estimates of patent durationexpiration dates (which may include estimated patent term extensions) or management’s best estimate of the date through which the Company will be entitled to royalties.other factors and may vary by geography. Royalty durationsexpiration dates can change due to the grant of additional patents, the invalidation of patents, andpatent, regulatory, commercial or other reasons.developments. There can be no assurances that our royalties will expire when expected.
b)The estimated duration for the Cystic fibrosis franchiseRoyalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on the patent expiration date for Trikafta, a franchise product which was approved in the US in October 2019. Management estimates that the most material patents provide protection through 2037.generic entry.
c)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management has applied an end date of 2031 for purposes of accreting income over the royalty term.term, which is periodically reviewed.
d)Key patents on Evrysdi in the United States expire in 2035, but our royalty will cease when aggregate royalties paid to us equal $1.3 billion.
e)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 77–Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information.
December 31, 2019Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value
(in thousands)
Cystic fibrosis franchise (d)(b)$4,639,045  $—  $4,639,045  
Tysabri(c)2,131,272  (71,789) 2,059,483  
Imbruvica20291,332,077  —  1,332,077  
Xtandi20281,193,918  (332,624) 861,294  
Promacta2026776,555  —  776,555  
Crysvita2032321,234  —  321,234  
Other2019-20361,768,929  (464,005) 1,304,924  
Total$12,163,030  $(868,418) $11,294,612  

December 31, 2020Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (e)
Cystic fibrosis franchise2037 (b)$5,274,896 $$5,274,896 
Tysabri(c)2,003,797 (112,720)1,891,077 
Imbruvica2027-20291,406,291 (46,872)1,359,419 
Xtandi2027-20281,150,335 (145,565)1,004,770 
Promacta2025-2027686,129 686,129 
Evrysdi2030-2035 (d)675,440 675,440 
Other2020-20393,022,213 (634,950)2,387,263 
Total$14,219,101 $(940,107)$13,278,994 
Less: Cumulative allowance for credit losses (Note 7)(323,717)
Total financial royalty assets, net$12,955,277 
a)Dates shown are basedrepresent management’s estimates of when a royalty will substantially end, which may depend on theour estimates of patent durationexpiration dates (which may include estimated patent term extensions) or management’s best estimate of the date through which the Company will be entitled to royalties.other factors and may vary by geography. Royalty durationexpiration dates can change due to the grant of additional patents, the invalidation of patents, andpatent, regulatory, commercial or other reasons.developments. There can be no assurances that our royalties will expire when expected.
b)The estimated duration for the Cystic fibrosis franchiseRoyalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on the patent expiration date for Trikafta, a franchise product which was approved in the US in October 2019. Management estimates that the most material patents provide protection through 2037.generic entry.
c)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management has applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed by the management.
d)Key patents on Evrysdi in the United States expire in 2035, but our royalty will cease when aggregate royalties paid to us equal $1.3 billion.
e)The Vertex triple combination therapy, Trikafta, was approvednet carrying value by asset is presented before the FDA in October 2019. Sell-side equity research analysts’ consensus forecasts increased due to expected sales of the newly approved Cystic fibrosis franchise product and resulted in a reversal of the entire cumulative allowance for changescredit losses. Refer to Note 7–Cumulative Allowance and the Provision for Changes in expected cash flows in the fourth quarter of 2019 related to this royalty asset.

Cystic fibrosis franchise clawback
In November 2019, Vertex announced that it reached an agreement with the French AuthoritiesExpected Cash Flows from Financial Royalty Assets for a national reimbursement deal for Orkambi. As a result, management expected a reduction to royalty receipts in 2020 of approximately $35.0 million to $45.0 million, to reflect a true up related to prior periods where we collected royalties on French sales of Orkambi at a higher selling price. We recognized a reduction to the current portion of Royalty assets, net - financial asset of $41.0 million as of December 31, 2019. Upon receipt of the royalty payment in the first quarter of 2020, we did not recognize any material adjustments related to our clawback estimate.additional information.

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Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



7. Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets

The Cumulativecumulative allowance for changes in expected future cash flows from financial royalty assets is presented net within the non-current portion of Financial royalty assets, net on the condensed consolidated balance sheets and includes the following activities:

the movement in the cumulative allowance related to changes in forecasted royalty payments we expect to receive based on projected product sales for royalty bearing products as estimated by sell-side equity research analysts’ consensus forecasts, and
the movement in the cumulative allowance for current expected credit losses.

The periodic movement in the cumulative allowance is presented on the condensed consolidated statements of comprehensive income as the Provision for changes in expected future cash flows from financial royalty assets includes the following activities:
the movement in the Cumulative allowance for changes in expected future cash flows, and.
the movement in the allowance for current expected credit losses; both are presented net within the non-current portion of Financial royalty assets, net on the condensed consolidated balance sheets.
Upon the January 1, 2020 adoption of ASU 2016-13,, we recorded a cumulative adjustment to Retained earnings of $192.7 million to recognize an allowance for current expected credit losses on the portion of our portfolio of financial royalty assets that is subject to credit risk.assets. The current period provision for changes in expected cash flows from financial royalty assets reflects the activity for the period that relates to the change in estimates applied to calculate the allowance for credit losses, namely any changes in the credit ratings of the marketers responsible for paying our royaltiesnew financial royalty assets with limited protective rights and changes in the underlying cash flow forecasts used in the effective interest model to measure income from our financial royalty assets.
Refer to Note 2 for further information.
The following table sets forth the activity in the cumulative allowance for changes in expected cash flows from financial royalty assets, inclusive of the cumulative allowance for credit losses, as of the dates indicated:indicated (in thousands).
(in thousands)Activity for the period
Balance at December 31, 20192020 (a)$(868,418)(1,263,824)
Cumulative adjustment for adoption of ASU 2016-13(192,705)
Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets(289,587)(409,793)
Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets262,980396,526 
ReversalWrite-off of cumulative allowance (a)(b)2,96421,719 
Current period provision for credit losses (c)(108,683)(35,232)
Balance at June 30, 20202021$(1,193,449)(1,290,604)
(a)     Includes $323.7 million related to cumulative allowance for credit losses.
(b)     Relates to amounts reversed out ofremoved from the allowance at the end of a royalty asset'sasset’s life to bring the account balance to zero. ReversalsWrite-offs solely impact the asset account and allowance account, there is no impact on the condensed consolidated statements of comprehensive income.
(c)     Primarily related to the provision for credit losses resulting from increases to our portfolio of financial royalty assets in the six months ended June 30, 2021, primarily the $100.0 million increase to our zavegepant financial royalty asset related to the funding payment we made to Biohaven upon the start of the oral zavegepant Phase 3 program, and a new royalty interest in Cabometyx/Cometriq.

8. Intangible Royalty Assets, Net

The following schedules of the intangible royalty interestsassets present the cost, accumulated amortization and net carrying value as of June 30, 20202021 and December 31, 2019.2020 (in thousands).
As of June 30, 2020CostAccumulated amortizationNet carrying value
(in thousands)
DPP-IV Inhibitors$606,216  $565,958  $40,258  
Total intangible royalty assets$606,216  $565,958  $40,258  
As of June 30, 2021CostAccumulated amortizationNet carrying value
DPP-IV patents$606,216 $588,954 $17,262 
Total intangible royalty assets$606,216 $588,954 $17,262 
As of December 31, 2019CostAccumulated amortizationNet carrying value
(in thousands)
DPP-IV Inhibitors$606,216  $554,492  $51,724  
Total intangible royalty assets$606,216  $554,492  $51,724  
As of December 31, 2020CostAccumulated amortizationNet carrying value
DPP-IV patents$606,216 $577,550 $28,666 
Total intangible royalty assets$606,216 $577,550 $28,666 

20

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



The DPP-IV patents associated with the intangible royalty interests classified as intangible assets terminate at various dates up tointo 2022. The weighted average remaining life of the intangible royalty interests classified as intangible assets is 1.75 years. The projectedless than one year. We project amortization expense iswill be $11.6 million, $23.0 million and $5.7 million in the remainder of 2020, 2021 and 2022, respectively.

Our revenue is tied to underlying patent protected sales of other DPP-IV products of various licensees. Such revenue from royalty assets is earned from sales occurring primarily in the USUnited States and Europe; however, we do not have the ability to
18

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



disaggregate our royalty revenue from licensees based on the geography of the underlying sales, as this level of information is not always included in royalty reports provided to us. The marketers paying us royalties on these products do not always provide, and are not necessarily required to provide, the Company.breakdown of product sales by geography. Individual licensees exceeding 10% or more of revenue from intangible royalty assets accounted for 96%90% and 92%96% of our revenues from intangible royalty assets in the three months ended June 30, 20202021 and 2019,2020, respectively. Individual licensees exceeding 10% or more of revenue from intangible royalty assets accounted for 95%94% and 91%95% of our revenues from intangible royalty assets in the six months ended June 30, 20202021 and 2019,2020, respectively.

9. Non-Consolidated Affiliates

The Legacy SLP Interest

In connection with the Exchange Offer Transactions, we acquired a special limited partnership interest in the Legacy Investors Partnerships (the “Legacy SLP Interest”) valued atfrom the Continuing Investors Partnerships for $303.7 million in exchange for issuing shares in the Company.our subsidiary. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and an income allocation on a similar basis. Our income allocation is equal to the general partner’s former contractual rights to the income of the Legacy Investors Partnerships. The Legacy SLP Interest is treated as an equity method investment as our Manager is also the Manager of the Legacy Investors Partnerships and has the ability to exercise significant influence. As theThe Legacy Investors Partnerships are no longer participatingparticipate in investment opportunities afterfrom June 30, 2020 and, as such, the value of the Legacy SLP Interest is expected to decline over time. The Legacy Investors Partnerships also own a non-controlling interest in Old RPI.

The income allocation from the Legacy SLP Interest is based on an estimate, as the Legacy Investors Partnerships are private partnerships that are expected to report on a lag. Management'slag subsequent to the date of this quarterly report. Management’s estimate of equity in earnings from the Legacy SLP Interest for the current period will be updated for actualshistorical results in the subsequent period. During the three and six months ended June 30, 2021, we recorded an income allocation of $25.6 million and $30.8 million, respectively. During the three and six months ended June 30, 2020, we received cash distributions of $5.3 million from the Legacy Investors Partnerships and recorded an income allocation of $20.2 million and $23.4 million, respectively, in each case related to the period subsequent to the Exchange Date. The income allocation from the Legacy SLP Interest is recorded withinEquity in (earnings)/lossearnings of non-consolidated affiliates. DuringWe received cash distributions from the Legacy SLP Interest of $4.7 million and $8.6 million in the three and six months ended June 30, 2021, respectively. We received cash distributions from the Legacy SLP Interest of $5.3 million and $12.2 million during the three and six months ended June 30, 2020, we received cash distributions of $12.2 million and recorded an income allocation of $23.4 million within Equity in (earnings)/loss of non-consolidated affiliates.respectively.

The Avillion Entities

We account for our partnership interests in Avillion Financing I, LP (“Avillion I”) and BAv Financing II, LP (“Avillion II”, or, together, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the entities. During the three and six months ended June 30, 2021, we recorded a loss allocation of $7.9 million and $15.0 million, respectively. During the three and six months ended June 30, 2020, we recorded an income allocation of $9.1 million and a loss allocation of $3.2 million, respectively. The income or loss allocation from the Avillion Entities is recorded within Equity in earnings of non-consolidated affiliates.

On December 19, 2017, the Avillion Entities announced that the FDA approved a supplemental New Drug Application for Pfizer’s BOSULIF®Bosulif (bosutinib). Avillion I is eligible to receive fixed payments from Pfizer based on this approval. Subsequent to the asset sale, the only operations of Avillion I are the collection of cash and unwinding of discount on the series of fixed annual payments due from Pfizer. We received distributions of $13.4 million and $14.1 million from Avillion I during the six months ended June 30, 20202021 and 2019,2020, respectively, in connection with Avillion I’s receipt of the fixed annual payments due under its co-development agreement with Pfizer.
21

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




In March 2017, RPIFT entered into an agreement with Avillion II, amended in 2019, to invest approximately $15.0$19.0 million to fund approximately 50% of the costs of a phase IIPhase 2 clinical trial for the use of Merck KGaA’s anti-IL 17 nanobody M1095 (the “Merck KGaA Asset”) for the treatment of psoriasis in exchange for certain milestone and royalty payments. Development for the Merck KGaA Asset ceased in 2020, for which we received a distribution of $21.3 million from Avillion II during the three months ended June 30, 2020.

In May 2018, RPIFT entered into an additional agreement to invest up to $105.0 million in Avillion II over multiple years to fund approximately 44% of the costs of Phase II2 and III3 clinical trials to advance Pearl Therapeutics, Inc.'s’s product PT-027 (the “AZ Asset”) through a global clinical development program for the treatment of asthma in exchange for a series of deferred payments and success-based milestones.

In December 2019, the Avillion II agreement was amended to increase RPIFT’s funding commitment by an additional $4.0 million in respectAs of the Merck Asset, for a total funding cap of $19.0 million. We received a distribution of $21.3 million from Avillion II in respect of the Merck Asset, for which development has ceased, during the three months ended June 30, 2020.

2021 and December 31, 2020, RPIFT had $41.5$11.2 million and $70.8$28.6 million, respectively, of unfunded commitments related to the Avillion Entities as of June 30, 2020 and December 31, 2019, respectively.Entities. Our maximum exposure to loss at any particular reporting date is limited to the current carrying value of the investment plus the unfunded commitments.
19

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)




10. Research and& Development (“R&D”) Funding Expense

During the six months ended June 30, 20202021, we did not enter into any new R&D funding arrangements. We recognized R&D funding expense incurred inof $3.1 million and $5.8 million for the firstthree and six months of 2020 related to ongoing development stage funding payments, primarily under our Sanofi agreement.ended June 30, 2021, respectively. We recognized R&D funding expense in 2019 primarily related to funding agreements with both Sanofi and Pfizer. We completed our funding commitments in the fourth quarter of 2019 under our agreement with Pfizer.

We recognized $5.3$5.8 million and $12.4$13.4 million offor the three and six months ended June 30, 2020, respectively. R&D funding expense for the three and six months ended June 30, 2021 and 2020 respectivelyprimarily related to ongoing development-stage funding payments under our Sanofi agreement. We recognized $21.5 million of R&D funding expense during the three months ended June 30, 2019, of which $3.1 million and $17.8 million related to our funding agreementsco-funding agreement with Sanofi and Pfizer, respectively. We recognized $44.4 million of R&D funding expense during the six months ended June 30, 2019, of which $7.1 million and $36.3 million related to our funding agreements with Sanofi and Pfizer, respectively.Sanofi.

As of June 30, 20202021, we have a remaining commitment of $21.0$11.4 million related to anour R&D funding agreement with Sanofi.

11. Borrowings

New Our borrowings as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

Type of BorrowingMaturityInterest rateJune 30, 2021December 31, 2020
Senior Unsecured Notes:
Senior unsecured notes (issued at 99.322% of par)9/20230.75%$1,000,000 $1,000,000 
Senior unsecured notes (issued at 98.875% of par)9/20251.20%1,000,000 1,000,000 
Senior unsecured notes (issued at 98.284% of par)9/20271.75%1,000,000 1,000,000 
Senior unsecured notes (issued at 97.760% of par)9/20302.20%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.556% of par)9/20403.30%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.306% of par)9/20503.55%1,000,000 1,000,000 
Senior Unsecured Revolving Credit Facility
Unamortized debt discount and issuance costs(174,441)(183,416)
Total debt carrying value5,825,559 5,816,584 
Less: Current portion of long-term debt0
Total long-term debt$5,825,559 $5,816,584 

22

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Senior Unsecured Notes

On September 2, 2020, we issued $6.0 billion of senior unsecured notes (the “Notes”). Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary. Interest on each series of the Notes accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year, and commenced on March 2, 2021. The Notes were issued at a total discount of $149.0 million. We capitalized approximately $40.4 million in debt issuance costs primarily composed of underwriting fees. The discount and the capitalized debt issuance costs are recorded as a direct deduction from the carrying amount of the Notes on our condensed consolidated balance sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. The Notes have a weighted average coupon rate and a weighted average effective interest rate of 2.125% and 2.50% as of June 30, 2021, respectively.

Our Notes may be redeemed at our option at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis at the treasury rate, plus a make-whole premium as defined in the indenture. Our Notes maturing after 2023 also have a call feature, exercisable at our option, to redeem the Notes at par in whole or in part one to six months immediately preceding maturity. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption.

Upon the occurrence of a change of control triggering event and downgrade in the rating of our Notes by two of three credit agencies, the holders may require us to repurchase all or part of their Notes at a price equal to 101% of the aggregate principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

We are required to comply with certain covenants under our Notes and as of June 30, 2021, we were in compliance with all applicable covenants.

We used the net proceeds from the Notes offering, together with available cash on hand, to repay in full the senior secured credit facilities.

Subsequent to the three months ended June 30, 2021, we completed an exchange offer for the Notes whereby holders could elect to tender their unregistered outstanding notes for freely tradable exchange notes (the “Exchange Notes”) that have been registered under the Securities Act of 1933 (the “Securities Act”). The Exchange Notes are substantially identical to the Notes, except that the Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration rights agreement provisions applicable to the Notes.

Senior Unsecured Revolving Credit Facility

On September 18, 2020, our subsidiary RP Holdings, as borrower, entered into a five-year unsecured revolving credit facility (the “Revolving Credit Facility”) which provides for borrowing capacity of up to $1.5 billion for general corporate purposes. We capitalized approximately $6.1 million in debt issuance costs related to the revolving credit facility which is recorded within Other current assets for the current portion and Other assets for the non-current portion. As of June 30, 2021 and December 31, 2020, there were 0 outstanding borrowings under the Revolving Credit Facility.

The Revolving Credit Facility is subject to an interest rate, at our option, of either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime rate, (2) the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR, plus 1% per annum (“ABR”) or (b) adjusted LIBOR, plus in each case, the applicable margin. The applicable margin for the Revolving Credit Facility varies based on our consolidated leverage ratio. Accordingly, the interest rates for the Revolving Credit Facility fluctuates during the term of the facility based on changes in the ABR, LIBOR and future changes in our consolidated leverage ratio.

The revolving credit agreement (the “Credit Agreement”) that governs the Revolving Credit Facility contains certain customary covenants, that among other things, require us to maintain (i) a consolidated leverage ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1.00 following a qualifying material acquisition) of consolidated funded debt to consolidated EBITDA, each as defined and calculated with the ratio level calculated with further adjustments as set forth in the Credit Agreement and (ii) a consolidated coverage ratio at or above 2.50 to 1.00 of consolidated EBITDA to consolidated charges, each as defined and calculated with further adjustments as set forth in the Credit Agreement. All obligations under the Revolving Credit Facility are unconditionally guaranteed by us. As of June 30, 2021, RP Holdings was in compliance with these covenants.
23

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




Senior Secured Credit Facilities

On February 11, 2020, in connection with the Exchange Offer Transactions (as discussed in Note 1)1–Organization and Purpose) and using funds contributed by RPI Intermediate FT and the Legacy Investors Partnerships, RPIFT repaid its outstanding debt and accrued interest, and terminated all outstanding interest rate swaps. RPI Intermediate FT, as borrower, entered into a term loan credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, the lenders party thereto from time to time and the other parties thereto. The new senior secured credit facilities contained in the Credit Agreement consistconsisted of a term loan A (“Tranche A-1”) and term loan B (“Tranche B-1”) in the amounts of $3.20 billion and $2.84 billion, respectively. Tranche A-1 has an interest rate of 1.50% above LIBOR and maturesIn September 2020, we repaid in February 2025. Tranche B-1 has an interest rate of 1.75% above LIBOR and matures in February 2027.

The Credit Agreement contains covenants that, among other things, restrict our ability to make certain distributions, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates or make investments. The Credit Agreement also contains customary events of default. We may voluntarily prepay in whole or in partfull the outstanding principal amounts of term loans under our Credit Agreement at any time prior to the maturity dates, with certain voluntary prepayments that may be subject to a customary prepayment premium governed by the Credit Agreement.

Financial Covenants
The Credit Agreement contains financial covenants requiring us to maintain (i) a Consolidated Leverage Ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1:00 following a Qualifying Material Acquisition) of Consolidated Funded Debt to Consolidated EBITDA (each as defined and calculated with the ratio level calculated with further adjustments as set forth in the Credit Agreement) and (ii) a Consolidated Coverage Ratio at or above 2.50 to 1.00 of Consolidated EBITDA minus Consolidated Capital Expenditures to Consolidated Charges (each as defined and calculated with further adjustments as set forth in the Credit Agreement). RPI Intermediate FT was in compliance with these covenants at June 30, 2020.

Our borrowings at June 30, 2020 and December 31, 2019 consisted of the following:
20

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



(in thousands)MaturitySpread over LIBOR (1)June 30, 2020December 31, 2019
New RPI Intermediate FT Senior Secured Credit Facilities:
 Term Loan A Facility
    Tranche A-12/2025150 bps$3,120,000  $—  
 Term Loan B Facility
   Tranche B-12/2027175 bps2,825,800  —  
RPIFT Senior Secured Credit Facilities:
 Term Loan B Facility
   Tranche B-63/2023200 bps—  4,123,000  
 Term Loan A Facility
    Tranche A-45/2022150 bps—  2,150,000  
Loan issuance costs(3,929) (1,691) 
Original issue discount(30,023) (33,187) 
Total value of senior secured debt (2)5,911,848  6,238,122  
Less: Current portion of long-term debt(182,226) (281,984) 
Total long-term debt$5,729,622  $5,956,138  
(1) Borrowings under our senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin.
(2) The carrying value of our long term debt, includingwith net proceeds from the current portion, approximates its fair value.

Amortization of Term Loans
As of June 30, 2020, we are required to repay the term loans under the Credit Agreement over the next five yearsNotes and thereafter as follows:
(in thousands)Term loan amortization
YearTranche A-1Tranche B-1Total
Remainder of 2020$80,000  $14,200  $94,200  
2021160,000  28,400  188,400  
2022160,000  28,400  188,400  
2023160,000  28,400  188,400  
2024160,000  28,400  188,400  
Thereafter2,400,000  2,698,000  5,098,000  
Total (1)$3,120,000  $2,825,800  $5,945,800  
(1)Excludes discountavailable cash on long-term debt of $30.0 million and loan issuance costs of $3.9 million, which are amortized through interest expense over the life of the underlying debt obligations.hand.

RPIFT Senior Secured Credit Facilities (the “Old

The RPIFT Senior Secured Credit Facility”)
The Old Credit Facility wasFacilities were repaid in full in February 2020 in connection with the Exchange Offer. AsOffer Transactions. We recorded a loss on debt extinguishment of December 31, 2019, RPIFT’s Loan Facility included 2 term loans, Term Loan A and Term Loan B. Tranche A-4 required annual amortization$5.4 million as part of 5.9% per year and tranche B-6 required annual amortization of 3.2% per year. The Old Credit Facility was secured by a grant by RPIFT of a security interest in substantially all of its personal property and a grant by RPCT of a security interest in RPIFT’s share (80%) of all amountsOther non-operating expense/(income), net, during the six months ended June 30, 2020.


Principal Payments on deposit in the Collection Trust Account.Notes

The Old Credit Facility containedfuture principal payments for our borrowings as of June 30, 2021 over the following covenants measured quarterly: (i) maximum total leverage ratio of 4:00 to 1:00; (ii) debt coverage ratio of greater than 3.50 to 1.00. RPIFT was in compliance with these covenants at December 31, 2019.next five years and thereafter are as follows (in thousands):

YearPrincipal Payments
Remainder of 2021$
2022
20231,000,000 
2024
20251,000,000 
Thereafter4,000,000 
Total (1)$6,000,000 
12. Shareholders' Equity(1)     Excludes unamortized debt discount and issuance costs of $174.4 million as of June 30, 2021, which are amortized through interest expense over the remaining life of the underlying debt obligations.

Capital structureAs of June 30, 2021, the fair value of our outstanding Notes was approximately $6.0 billion and is classified as a Level 2 measurement within the fair value hierarchy.

2021 Notes

On July 26, 2021, we issued $1.3 billion of senior unsecured notes (the “2021 Notes”) comprised of $600.0 million principal amount of notes due September 2031 issued at 98.263% of par and $700.0 million principal amount of notes due September 2051 issued at 97.565% of par with a coupon rate of 2.15% and 3.35%, respectively. Interest on each series of the 2021 Notes accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year, commencing on March 2, 2022. Our obligations under the 2021 Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary.

2124

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



12. Shareholders’ Equity

Capital structure

Following the completion of our IPO as discussed in Note 1, there have been no changes in our capital structure. As of June 30, 2020,1–Organization and Purpose, we have outstanding 365,899,235two classes of voting shares: Class A ordinary shares and 241,207,425Class B ordinary shares, each of which has one vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company.

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by the Board of Directors. The holders of Class B shares do not have any rights to receive dividends; however, the RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. As of June 30, 2021, we have outstanding 427,006 thousand Class A ordinary shares and 180,166 thousand Class B ordinary shares.

The RP Holdings Class B Interests are exchangeable on a one-for-one basis for our Class A ordinary shares pursuant to an exchange agreement entered into by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings (the “Exchange Agreement”) that governs the exchange of RP Holdings Class B Interests held by the Continuing Investors Partnerships for Class A ordinary shares. Pursuant to the Exchange Agreement, the Continuing Investors Partnerships have the ability to exchange their RP Holdings Class B interests for Class A ordinary shares on a quarterly basis. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. As of June 30, 2021, we have outstanding deferred shares of 355,217 thousand.

In addition, we have in issue 50,00050 thousand Class R redeemable shares, which do not entitle the holder to voting or dividend rights. The purpose of the Class R redeemable shares was to ensure Royalty Pharma Limited had sufficient sterling denominated share capital at the time it was re-registered as a public limited company to Royalty Pharma plc, as required by the U.K. Companies Act. The Class R redeemable shares may be redeemed at the Company'sour option in the future. Any such redemption would be at the nominal value of £1 each.

RP Holdings Class B Interests are exchangeable on a one-for-one basis for our Class A ordinary shares pursuant to an Exchange Agreement entered into by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings that governs the exchange of RP Holdings Class B Interests held by the Continuing International Investors Partnership for Class A ordinary shares. Each such exchange also results in the re-designation of the same number of our Class B ordinary share as a deferred share. As of June 30, 2020, we have outstanding deferred shares of 294,175,555.
25

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Non-controlling interests
In the prior year periods, the only non-controlling interest related to RPSFT for which the related movements are presented in the historical statements of changes in shareholders' equity.
The net change in the balance of our four non-controlling interests for the three and six months ended June 30, 2021 and 2020 isare as follows.follows (in thousands):

(in thousands)RPSFTLegacy Investors PartnershipsContinuing Investors Partnership (1)EPA HoldingsTotal
March 31, 2020$31,563  $1,971,212  $—  $—  $2,002,775  
Contributions6,6916,691
Distributions(25,270)(99,581)(124,851)
Net income prior to IPO17,22589,962107,187
Effect of exchange by Continuing Investors of Class B shares for Class A shares and reallocation of historical equity(750)2,433,8482,433,098
Issuance of Class A shares sold in initial public offering, net of offering costs758,590758,590
Net income subsequent to IPO3,40017,75531,56052,715
Other comprehensive income:
Change in unrealized movement on available for sale debt securities1,2224021,624
June 30, 2020$26,918  $1,986,511  $3,224,400  $—  $5,237,829  

RPSFTLegacy Investors PartnershipsContinuing Investors Partnerships (1)EPA HoldingsTotal
December 31, 2020$12,436 $1,939,509 $3,125,091 $0 $5,077,036 
Contributions— 3,253 — — 3,253 
Distributions(13,653)(94,542)(37,183)— (145,378)
Net income15,058 36,257 38,545 — 89,860 
Other exchanges— — (65,072)— (65,072)
Other comprehensive income:
Unrealized gain on available for sale debt securities— 901 1,512 — 2,413 
Reclassification of unrealized gain on available for sale debt securities— (2,723)(4,571)— (7,294)
March 31, 202113,841 1,882,655 3,058,322 0 4,954,818 
Contributions— 6,654 4,865 — 11,519 
Distributions(12,476)(127,747)(30,585)— (170,808)
Net income19,275 133,743 212,961 — 365,979 
Other exchanges— — (486,591)— (486,591)
Other comprehensive income:
Unrealized gain on available for sale debt securities— 1,059 1,618 — 2,677 
Reclassification of unrealized gain on available for sale debt securities— (2,337)(3,571)— (5,908)
June 30, 2021$20,640 $1,894,027 $2,757,019 $0 $4,671,686 
(1)     Related to the Continuing Investors Partnerships'Partnerships’ ownership as of June 30, 2021 of approximately 30% in RP Holdings through their ownership of the RP Holdings Class B Interests. Royalty Pharma plc owns the remaining 70% of RP Holdings through its ownership of RP Holdings Class A Interests and Class B Interests as of June 30, 2021.

26

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



RPSFTLegacy Investors PartnershipsContinuing Investors Partnerships (1)EPA HoldingsTotal
December 31, 2019$35,883 $0 $0 $0 $35,883 
Contributions— 1,133,628 — — 1,133,628 
Transfer of interests— 1,037,161 — — 1,037,161 
Distributions(29,246)(222,179)— — (251,425)
Net income prior to IPO24,926 12,930 — — 37,856 
Other comprehensive income:
Unrealized gain on available for sale debt securities— 9,672 — — 9,672 
March 31, 202031,563 1,971,212 0 0 2,002,775 
Contributions— 6,691 — — 6,691 
Distributions(25,270)(99,581)— — (124,851)
Net income prior to IPO17,225 89,962 — — 107,187 
Effect of exchange by Continuing Investors of Class B shares for Class A ordinary shares and reallocation of historical equity— (750)2,433,848 — 2,433,098 
Issuance of Class A ordinary shares sold in IPO, net of offering costs— — 758,590 — 758,590 
Net income subsequent to IPO3,400 17,755 31,560 — 52,715 
Other comprehensive income:
Unrealized gain on available for sale debt securities— 1,222 402 — 1,624 
June 30, 2020$26,918 $1,986,511 $3,224,400 $0 $5,237,829 
(1)     Related to the Continuing Investors Partnerships’ ownership as of June 30, 2020 of approximately 40% in RP Holdings through their ownership of the RP Holdings Class B Interests. Royalty Pharma plc owns the remaining 60% of RP Holdings through its ownership of RP Holdings Class A Interests and Class B Interests as of June 30, 2020.

RP Holdings Class C Special Interest held by EPA Holdings

EPA Holdings is entitled to Equity Performance Awards (as defined below) through its RP Holdings Class C Special Interest based on our performance, as determined on a portfolio-by-portfolio basis. Investments made during each two-year period will be grouped together as separate portfolios (each, a “Portfolio”). Subject to certain conditions, at the end of each fiscal quarter, EPA Holdings is entitled to a distribution from RP Holdings in respect of each Portfolio equal to 20% of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the “Equity Performance Awards”). The Equity Performance Awards will be allocated and paid by RP Holdings to EPA Holdings as the holder of the RP Holdings Class C Special Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests for which we will issue the same number of Class B ordinary shares, which may be subsequently exchanged for our Class A ordinary shares. We do not currently expect any material Equity Performance Awards to be payable until the mid to late 2020s.

Dividends

In the six months ended June 30, 2021, we declared and paid two quarterly cash dividends of $0.17 per share for an aggregate amount of $138.6 million to holders of our Class A ordinary shares. Future dividends are subject to declaration by the board of directors.

2020 Independent Directors Equity Incentive Plan

On June 15, 2020, our 2020 Independent Director Equity Incentive Plan was approved and became effective, whereby 800 thousand Class A ordinary shares have been reserved for future issuance to our independent directors.

2227

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



(in thousands)RPSFTLegacy Investors PartnershipsContinuing Investors Partnership (1)EPA HoldingsTotal
December 31, 2019$35,883  $—  $—  $—  $35,883  
Contributions—  1,140,319  —  —  1,140,319  
Transfer of interests—  1,037,161  —  —  1,037,161  
Distributions(54,516) (321,760) —  —  (376,276) 
Net income prior to IPO42,151  102,892  —  —  145,043  
Effect of exchange by Continuing Investors of Class B shares for Class A shares and reallocation of historical equity—  (750) 2,433,848  —  2,433,098  
Issuance of Class A shares sold in initial public offering, net of offering costs—  —  758,590  —  758,590  
Net income subsequent to IPO3,400  17,755  31,560  —  52,715  
Other comprehensive income:
Change in unrealized movement on available for sale debt securities—  10,894  402  —  11,296  
June 30, 2020$26,918  $1,986,511  $3,224,400  $—  $5,237,829  
RSU activity and share-based compensation

(1) RelatedWe grant RSUs to independent directors under the Continuing Investors Partnerships' ownership of approximately 40% in RP Holdings through their ownership of the RP Holdings Class B Interests.

2020 Independent Director Equity Incentive Plan
In June 2020, our 2020 Independent Director Equity Incentive Plan (“2020 Equity Incentive Plan”) was approved and became effectivePlan. Share-based compensation expense is recognized based on June 15, 2020. Under the 2020 Equity Incentive Plan, 800,000 shares of our Class A ordinary shares have been reserved for future issuance.

Restricted Stock Units Activity
In connection with the IPO, we granted a total of 71,430 fully-vested shares with a grant dateestimated fair value of $50.90 per share under the provisions of our 2020 Equity Incentive Plan to 2 directors in recognition of their extensive past services toaward on the Old RPI boardgrant date and continued service on our board. Additionally, we granted a total of approximately 39,000 RSUs to independent directors that will vest in the second quarter of 2021. Compensation expense is amortized on a straight-line basis over the requisite service period.

There were no share based awards in periods prior to the IPO.

Share based compensation
We recognized share based compensationperiod of approximately $3.7 million which is recordedgenerally one year as part of the General and administrative expenses in the condensed consolidated statement of comprehensive incomeincome. We recognized share-based compensation expense of approximately $0.9 million and $1.7 million for the three and six months ended June 30, 2021, respectively. We recognized share-based compensation expense of approximately $3.7 million in the partial period subsequent to the IPO in the three and six months ended June 30, 2020.

There waswere 0 share based compensationshare-based awards or related expenses in periods prior to the IPO.

13. Earnings per Share

Basic earnings per share ("EPS"(“EPS”) is computed by dividing net income attributable to Royalty Pharma plcus by the weighted average number of Class A ordinary shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Royalty Pharma plc,us, including the impact of potentially dilutive securities, by the weighted average number of Class A ordinary shares outstanding during the period, including the number of Class A ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include the outstanding Class B ordinary shares, Class B ordinary shares contingently issuable to EPA Holdings related to Equity Performance Awards and unvested RSUs issued under our 2020 Independent Director Equity Incentive Plan. We use the “if-converted” method to determine the potentially dilutive effect of our outstanding Class B ordinary shares, and the treasury stock method to determine the potentially dilutive effect of the unvested RSUs.

23

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Prior to the IPO, our capital structure included unitholder interests and shareholder interests. We analyzed the calculation of earnings per interest unit for periods prior to the IPO and determined that the resultant values would not be meaningful to the users of these unaudited condensed consolidated financial statements. Therefore, earnings per share information has not been presented for the three and six months ended June 30, 2019.

Our Class B ordinary shares.shares, Class R redeemable shares and deferred shares do not share in the earnings or losses attributable to Royalty Pharma plcus and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share offor Class B ordinary shares, Class R redeemable shares and deferred shares under the two-class method has not been presented. Our Class B ordinary shares are, however, considered potentially dilutive shares of Class A ordinary shares because shares of Class B ordinary shares, together with the related RP Holdings Class B Interests, are exchangeable into shares of Class A ordinary shares on a one-for-one basis. For the three and six months ended June 30, 2021 and 2020, Class B ordinary shares wascontingently issuable to EPA Holdings were evaluated and were determined not to have any dilutive impact.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A ordinary share for the three and six months ended June 30, 2021 (in thousands, except per share amounts).
Three Months Ended
June 30, 2021
Six Months Ended
June 30, 2021
Numerator
Consolidated Net Income$806,755 $965,734 
Less: Net income attributable to Continuing Investor Partnerships212,961 251,506 
Less: Net income attributable to non-controlling interest - Legacy Investors Partners and RPSFT153,018 204,333 
Net income attributable to Royalty Pharma plc - basic440,776 509,895 
Add: Reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B ordinary shares212,961 251,506 
Net income attributable to Royalty Pharma plc - diluted$653,737 $761,401 
Denominator
Weighted average Class A ordinary shares outstanding - basic409,344 399,606
Add: Dilutive effects as shown separately below
Class B ordinary shares exchangeable for Class A ordinary shares197,773 207,508
Unvested RSUs46 37
Weighted average Class A ordinary shares outstanding - diluted607,163 607,151
Earnings per Class A ordinary share - basic$1.08 $1.28 
Earnings per Class A ordinary share - diluted$1.08 $1.25 

28

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Prior to the IPO, our capital structure included mainly unitholder interests. We analyzed the calculation of earnings per interest for periods prior to the IPO and determined that the resultant values would not be meaningful to the users of these unaudited condensed consolidated financial statements. Therefore, the basic and diluted earnings per share for the three and six months ended June 30, 2020 is only applicable for the period from June 16, 2020 to June 30, 2020, which represents the period in which we had outstanding Class A ordinary shares. Additionally, Class B ordinary shares in issue were evaluated under the if-converted method for potential dilutive effects and were determined to be anti-dilutive.

The basic and diluted earnings per share periodanti-dilutive for the three and six months ended June 30, 2020, represents onlyand therefore were excluded from the period from June 16, 2020 tocomputation of diluted earnings per shares of Class A ordinary share. As of June 30, 2020, which represents the period wherein we had outstanding Class A ordinary shares. We have 607.1 million fully diluted Class A share outstanding as of June 30, 2020. ordinary shares outstanding.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A ordinary shares.share for the three and six months ended June 30, 2020 (in thousands, except per share amounts).

(in thousands, except per share amounts)Three months ended June 30, 2020Six months ended June 30, 2020
Basic net income per share:
Numerator
Consolidated net income$601,976  $711,072  
Less: net income attributable to Continuing Investors Partnerships prior to the offering (1)408,602  479,842  
Less: net income attributable to non-controlling interest - Class B subsequent to the offering31,560  31,560  
Less: net income attributable to non-controlling interest - Legacy Investors Partnerships and RPSFT128,342  166,198  
Net income attributable to Royalty Pharma plc$33,472  $33,472  
Denominator
Weighted-average shares of Class A ordinary outstanding - basic353,979  353,979  
Earnings per share of Class A common stock - basic$0.09  $0.09  
Diluted net income per share:
Numerator
Net income attributable to Royalty Pharma plc$33,472  $33,472  
Denominator
Weighted-average shares of Class A ordinary outstanding - basic353,979  353,979  
Dilutive effect of unvested restricted units  
Weighted-average shares of Class A ordinary shares outstanding - diluted353,980  353,980  
Earnings per share of Class A ordinary shares - diluted$0.09  $0.09  

Three months ended June 30, 2020Six months ended June 30, 2020
Numerator
Consolidated net income$601,976 $711,072 
Less: net income attributable to Continuing Investors Partnerships prior to the IPO (1)408,602 479,842 
Less: net income attributable to non-controlling interest - Class B subsequent to the IPO31,560 31,560 
Less: net income attributable to non-controlling interest - Legacy Investors Partnerships and RPSFT128,342 166,198 
Net income attributable to Royalty Pharma plc - basic and diluted$33,472 $33,472 
Denominator
Weighted average Class A ordinary shares outstanding - basic353,979 353,979 
Add: Dilutive effect of unvested RSUs
Weighted average Class A ordinary shares outstanding - diluted353,980 353,980 
Earnings per Class A ordinary share - basic$0.09 $0.09 
Earnings per Class A ordinary share - diluted$0.09 0.09 
(1) Reflected as net income attributable to controlling interest on the unaudited condensed consolidated statementstatements of comprehensive incomeincome.


29
14. Indirect Cash Flow

24

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



14. Indirect Cash Flow

Adjustments to reconcile consolidated net income to net cash provided by operating activities are summarized below.below (in thousands).
(in thousands)For the six months ended
June 30,
For the Six Months Ended June 30,
2020201920212020
Cash flow from operating activities:Cash flow from operating activities:Cash flow from operating activities:
Consolidated net incomeConsolidated net income$711,072  $574,864  Consolidated net income$965,734 $711,072 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:Adjustments to reconcile consolidated net income to net cash provided by operating activities:Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from financial royalty assetsIncome from financial royalty assets(1,033,039)(937,021)
Provision for changes in expected cash flows from financial royalty assetsProvision for changes in expected cash flows from financial royalty assets135,290  22,177  Provision for changes in expected cash flows from financial royalty assets48,499 135,290 
Amortization of intangible assetsAmortization of intangible assets11,404 11,466 
Amortization of debt discount and issuance costsAmortization of debt discount and issuance costs9,583 4,340 
Amortization of intangible assets11,466  12,332  
Amortization of loan issuance and discount on long-term debt4,340  5,964  
Unrealized loss on derivative contracts32,798  65,254  
Unrealized gain on equity securities(40,729) (16,944) 
Equity in (earnings)/loss of non-consolidated affiliates(20,218) 13,673  
Loss on derivative financial instrumentsLoss on derivative financial instruments4,464 32,798 
Gain on equity securitiesGain on equity securities(1,309)(40,729)
Equity in earnings of non-consolidated affiliatesEquity in earnings of non-consolidated affiliates(15,783)(20,218)
Distributions from non-consolidated affiliatesDistributions from non-consolidated affiliates31,840  14,059  Distributions from non-consolidated affiliates22,003 31,840 
Loss on extinguishment of debtLoss on extinguishment of debt5,405  —  Loss on extinguishment of debt5,405 
Share based compensation3,740  —  
Share-based compensationShare-based compensation1,434 3,740 
Interest income accretionInterest income accretion(28,790)
Unrealized gain on available for sale debt securitiesUnrealized gain on available for sale debt securities(23,130)
Termination of derivative financial instrumentsTermination of derivative financial instruments(34,952)
OtherOther3,398  289  Other2,049 3,398 
(Increase)/decrease in operating assets:
Financial royalty assets(937,021) (799,161) 
Decrease/(increase) in operating assets:Decrease/(increase) in operating assets:
Cash collected on financial royalty assetsCash collected on financial royalty assets1,003,504  895,150  Cash collected on financial royalty assets1,094,094 1,003,504 
Available for sale debt securities—  (150,000) 
Accrued royalty receivableAccrued royalty receivable1,218  (600) Accrued royalty receivable(988)1,218 
Other receivables—  150,000  
Other royalty income receivableOther royalty income receivable2,094  5,670  Other royalty income receivable(4,683)2,094 
Other current assetsOther current assets(12,634) 4,171  Other current assets3,703 (12,634)
Other assetsOther assets45,635  (26,352) Other assets45,635 
Increase/(decrease) in operating liabilities:
(Decrease)/increase in operating liabilities:(Decrease)/increase in operating liabilities:
Accounts payable and accrued expensesAccounts payable and accrued expenses13,862  (769) Accounts payable and accrued expenses(913)13,862 
Interest payableInterest payable758 
Other current liabilitiesOther current liabilities2,730 
Derivative financial instruments(34,952) —  
Net cash provided by operating activitiesNet cash provided by operating activities$960,108  $769,777  Net cash provided by operating activities$1,057,820 $960,108 

Non-cash investing and financing activities are summarized below.below (in thousands).
(in thousands)For the six months ended
June 30,
20202019
Supplemental schedule of non-cash investing / financing activities:
Contribution of investment in Legacy Investors Partnerships (1)$303,679  $—  
Settlement of Epizyme forward purchase contract (2)5,700  —  
Accrued purchase obligation - Tazverik (3)220,000  —  
Repayments of long-term debt by contributions from non-controlling interest (4)1,103,774  —  
Accrued purchase obligation1,610  —  
Accrued capitalized offering costs (5)8,897  —  
(1) See Note 9
(2) See Note 4
(3) See Note 17
(4) Related to the pro rata portion of RPIFT's outstanding debt repaid by the Legacy Investors Partnerships
(5) Related to capitalized offering costs incurred in connection with our IPO that have not been paid
For the Six Months Ended June 30,
20212020
Supplemental schedule of non-cash investing / financing activities:
Receipt of contribution of investment in Legacy Investors Partnerships (Note 9)$$303,679 
Settlement of Epizyme forward purchase contract (Note 4)5,700 
Accrued purchase obligation - Tazverik (Note 17)220,000 
Repayments of long-term debt by contributions from non-controlling interest (1)1,103,774 
Accrued purchase obligation1,610 
Accrued capitalized offering costs (2)8,897 
(1) Related to the pro rata portion of RPIFT’s outstanding debt repaid by the Legacy Investors Partnerships
(2) Related to capitalized offering costs incurred in connection with our IPO that were not paid as of June 30, 2020

2530

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



15. Accumulated Other Comprehensive Income (Loss)

Comprehensive income is comprised of net income and other comprehensive income/(loss). We include unrealized gains and losses on available for sale debt securities and unrealized gains/(losses) onrelated to Series A Biohaven Preferred Shares, which is the interest rate swaps that were designated as cash flow hedges inonly component of accumulated other comprehensive income/(loss).income as of June 30, 2021 and December 31, 2020.

Changes in accumulated other comprehensive income/(loss) by componentincome are as follows:follows (in thousands):
Unrealized gain/(loss) on available for sale debt securitiesUnrealized gain/(loss) on interest rate swapsTotal Accumulated Other Comprehensive Income/(Loss)
(in thousands)
Balance at December 31, 2019$6,159  $(4,066) $2,093  
Reclassifications to income—  4,066  4,066  
Activity for the period48,378  —  48,378  
Reclassifications to NCI(24,022) —  (24,022) 
Balance at June 30, 2020$30,515  $—  $30,515  
Unrealized gain/(loss) on available for sale debt securities
Balance at December 31, 2020$34,395 
Reclassifications to net income(15,588)
Activity for the period6,060 
Reclassifications from non-controlling interest3,805 
Balance at June 30, 2021$28,672 

The total reclassification of unrealized gains on available for sale debt securities of $28.8 million for the six months ended June 30, 2021 is presented in earnings within Interest income on the condensed consolidated statements of comprehensive income, including $15.6 million attributable to controlling interest as noted in the table above and $13.2 million attributable to the non-controlling interest.

16. Related Party Transactions

The Manager

The Manager is the investment manager of Royalty Pharma and its subsidiaries. The Manager is an affiliate of RP Ireland, is the Administratoradministrator of RPIFT, and RPI 2019 Intermediate Finance Trust ("RPI Intermediate FT")FT and is the investment manager for RPI.RPSFT. The sole member of the Manager, Pablo Legorreta, holds an interest in the Companyus and serves as the Company’sour Chief Executive Officer and Chairman of the Board,board of directors, and as a director on the board of directors of RP Holdings.

Historically,In connection with the Exchange Offer Transactions (discussed in Note 1–Organization and Purpose), the Manager entered into Management Agreements with us and our subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the Management Agreements, we pay quarterly operating and personnel expenses to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5% of the Adjusted Cash Receipts (both, as defined in the Management Agreement) for such quarter and 0.25% of the GAAP value of our security investments as of the end of such quarter. The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected in our income statement, is calculated as the greater of $1 million per quarter and 0.3125% of Royalty Investments (as defined in the limited partnership agreements of the Legacy Investor Partnerships) during the previous twelve calendar months. During the three and six months ended June 30, 2021, total operating and personnel payments incurred were $32.4 million and $68.1 million, respectively, including the amount attributable to Old RPI, and are recognized within General and administrative expenses on the condensed consolidated statements of comprehensive income.

Prior to the Exchange Date, the Manager received Operatingoperating and Personnel Paymentspersonnel payments payable in equal quarterly installments and increasingthat increased by 5% annually on a compounded basis under the terms of its management agreement with Old RPI and the Legacy Investors Partnerships. RP Ireland receives an annual management fee payable in advance by Old RPI in equal quarterly installments under terms of the Limited Partnership Agreementslimited partnership agreements of the Legacy Investors Partnerships. Operating and Personnel Payments incurred during the three and six months ended June 30, 2019 were $15.0 million and $30.0 million, respectively and were recognized within General and administrative expenses on the condensed consolidated statements of comprehensive income.

In connection withAfter the Exchange Offer Transactions (discussed in Note 1), the Manager has entered into new management agreements with RPI and its subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the new management agreements, RPI pays quarterly Operating and Personnel Payments in respect ofDate, operating and personnel expenses topayments were calculated in accordance with the Manager or its affiliates equal to 6.5% ofmethodology discussed in the Adjusted Cash Receipts (as defined therein) for such quarter and 0.25% of the GAAP value of our security investments as of the end of such quarter. The Operating and Personnel Payment for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected in our income statement, is payable in equal quarterly installments and increases by 5% annually on a compounded basis. Operating and Personnel Payments incurred duringparagraph above. During the three and six months ended June 30, 2020, total operating and personnel payments incurred were $27.6 million and $47.3 million, respectively.
respectively, and were recognized within
General and administrative expenses
Royalty Distribution Payable
The Royalty distribution payable to affiliates on the condensed consolidated statements of $122.8 million at June 30, 2020 includes the following: (1) $96.2 million of royalty receipts due from Old RPI to RPI Intermediate FT in connection with the Legacy Investors Partnerships' non-controlling interest in Old RPI that arose in the Reorganization Transactions, and (2) $26.6 million of royalty receipts due from RPCT to RP Select Finance Trust in connection with its non-controlling interest in RPCT. The Royalty distribution payable to affiliates of $31.0 million at December 31, 2019 represents royalty receipts due from RPCT to RPSFT. The accrual is recorded based on estimated royalty receipts for the period, which are derived from estimates generated from analyst consensus forecasts for each product, and will be collected one quarter in arrears, and is payable to the non-controlling interest owners under the terms of collection account control agreements whereby RPCT and Old RPI are required to disperse royalty receipts collected to the minority owners in proportion to their ownership interests.comprehensive income.

2631

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



Distribution Payable to Non-Controlling Interest

The Distribution payable to non-controlling interest represents the contractual cash flows required to be distributed based on the Legacy Investors Partnerships’ non-controlling interest in Old RPI and RPSFT’s non-controlling interest in RPCT. The Distribution payable to non-controlling interest as of June 30, 2021 and December 31, 2020 included the following (in thousands).
As of June 30, 2021As of December 31, 2020
Due to Legacy Investors Partnerships$106,031 $100,047 
Due to RPSFT11,347 26,319 
Total distribution payable to non-controlling interest$117,378 $126,366 

Acquisition from Epizyme Inc.

In November 2019, in connection with an equity investment in Epizyme Inc. of $100.0 million made by RPIFT, Pablo Legorreta, Royalty Pharma’s CEO,our Chief Executive Officer, was appointed as a director of Epizyme, for which he willreceived, and continues to receive, compensation in cash and shares of Epizyme, all of which will be contributed to the Manager and used to reduce costs and expenses, which would otherwise be billed to the Companyus or itsour affiliates.

Acquisition from Bristol-Myers Squibb

In November 2017, RPI AcquisitionAcquisitions entered into a Purchase Agreementpurchase agreement with Bristol-Myers Squibb (“BMS”) to acquire from BMS a percentage of its future royalties on worldwide sales of Onglyza, Farxiga, and related diabetes products marketed by AstraZeneca.AstraZeneca (the “Purchase Agreement”). We agreed to make payments to BMS based on sales of the products over the eight quarters beginning with the first quarter of 2018 in exchange for a high single-digit royalty on worldwide sales of the products from 2020 through 2025.

On December 8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“Assignment Agreement”) with a wholly owned subsidiary of BioPharma Credit PLC (LSE: BPCR, “BPCR”(“BPCR”), an affiliate of RPI.us. We considered BPCR isas a related entityparty due to the sole member of the investment managerManager having significant influence over both entities.BPCR’s investment manager. Under the terms of the Assignment Agreement, RPI Acquisitions assigned the benefit of 50% of the payment stream acquired from BMS to BPCR in consideration for BPCR meeting 50% of the funding obligations owed to BMS under the Purchase Agreement.

We began making installment payments to BMS duringin 2018 and completed our funding requirement, net of the second quarterassigned funding obligations, totaling $162.4 million in the three months ended March 31, 2020. During the three months ended March 31, 2020, installment payments made to BMS totaled $24.3 million, of 2018.which RPI Acquisitions funded $12.1 million. Upon transfer of funds from BPCR to RPI Acquisitions to meet the quarterly funding obligation to BMS, RPI Acquisitions derecognizesderecognized 50% of the financial royalty asset. Cash received from BPCR in respect of each funding obligation equalsequaled the carrying amount of the assigned transfer of interest, therefore no gain or loss iswas recognized upon the transfer. The

We began to measure this financial royalty asset of $159.6 million and $150.3 million included in financial royalty assets, net onusing the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively, represents only the Company's right to the future payment streams acquired from BMS.

Our funding was completed in the first quarter of 2020. We have funded a cumulative amount of $162.4 million, net of the assignment. We began to recognize income from the BMS asset wheneffective interest method once our installment funding obligation was completed and we received our first royalty payment in the three months ended June 30, 2020. As of June 30, 2021 and December 31, 2020, the financial royalty asset of $141.2 million and $150.6 million, respectively, included in Financial royalty assets, neton the BMS asset incondensed consolidated balance sheets represents only our right to the second quarter of 2020.future payment streams acquired from BMS.

Other transactions

Henry Fernandez, the lead independent director of our board of directors, serves as the chairman and chief executive officer of MSCI, Inc (“MSCI”). On April 16, 2021, we entered into an agreement with MSCI with an initial term of seven years to assist MSCI in the design of a classification framework and index methodologies in order to expand MSCI’s thematic index suite with the launch of new indexes. In return, we will receive a percentage of MSCI’s revenues from those indexes. No amounts were due from MSCI as of both June 30, 2021 and December 31, 2020. We do not expect the financial statement impact associated with this transaction to be material for the year ended December 31, 2021.

32

ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



In connection with the Exchange Offer Transactions, we acquired the Legacy SLP Interest from the Continuing Investors Partnerships in exchange for issuing shares in our subsidiary. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy Investors Partnerships own a non-controlling interest in Old RPI. Refer to Note 9–Non-Consolidated Affiliates for additional discussion.

During the three and six months ended June 30, 2020, the Company reimbursed Pablo Legorreta, Royalty Pharma’s CEO, approximately $1.0 million for the cost of purchasing and donating ventilators to hospitals on behalf of Royalty Pharma.

During the year ended December 31, 2019, RPIFT acquiredowns 27,210 limited partnership interests in an affiliate of, and an equity method investor in, Old RPI and RPIFT,the Continuing Investors Partnership whose only substantive operations are itstheir investment in Old RPI.our subsidiaries. The total investment of $4.3 million is recorded as treasury interests, of which $2.1$1.6 million isand $1.9 million are held by non-controlling interests in the consolidated balance sheetinterest as of June 30, 2020.2021 and December 31, 2020, respectively.

Based on its ownership percentage of Royalty Pharma Investments 2019 ICAVRP Holdings relative to the Company, each Continuing Investor Partnership pays a pro rata portion of any costs and expenses in connection with the contemplation of, formation of, listing and ongoing operation of the Companyus and any subsidiary of the Company,our subsidiaries, including any third-party expenses of managing the Companyus and any subsidiary of the Company,our subsidiaries, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations and insurance expenses relating to theour affairs and those of the Company and any subsidiary of the Company.subsidiary.

17. Commitments and Contingencies

In the ordinary course of its business, we may enter into contracts or agreements that contain customary indemnifications relating to such things as confidentiality agreements and representations as to corporate existence and authority to enter into contracts. The maximum exposure under such agreements is indeterminable until a claim, if any, is made. However, no such claims have been made against Royalty Pharmaus to date and we believe that the likelihood of such proceedings taking place in the future is remote.

On June 2, 2021, we announced a long-term strategic funding partnership of up to $2.025 billion with MorphoSys to support MorphoSys’ acquisition of Constellation, which closed on July 15, 2021. In connection with the closing of MorphoSys’ acquisition of Constellation, we made an upfront payment of $1.425 billion to MorphoSys and purchased 1,337,552 ordinary shares of MorphoSys for $100 million at a price of €63.35 per ordinary share, based on the average trading price of the ordinary shares over a period preceding the closing of the acquisition. As part of the funding agreement, we also agreed to make additional milestone payments of up to $150 million and provide up to $350 million of Development Funding Bonds, which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million, for which we have recognized the Development Funding Bond Forward within Available for sale debt securities on the condensed consolidated balance sheet as of June 30, 2021 (See Note 3–Available for Sale Debt Securities for additional discussion). In return, we acquired MorphoSys’ right to receive future royalties on Johnson & Johnson’s Tremfya (guselkumab) and rights to receive royalties and certain milestone payments on 4 development-stage therapies including gantenerumab, otilimab, pelabresib and CPI-0209. We expect to receive a return of 2.2 times the amount funded on the Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding.

On August 7, 2020, we entered into a funding agreement with Biohaven, including the Series B Biohaven Preferred Share Agreement, for up to $450.0 million to fund the development of zavegepant and the commercialization of Nurtec ODT in exchange for royalties and success-based milestones. Biohaven received $150.0 million at closing and received an additional $100.0 million in the three months ended March 31, 2021, upon the start of the oral zavegepant Phase 3 program. Pursuant to the Series B Biohaven Preferred Share Agreement, we agreed to provide further support for the ongoing launch of Nurtec ODT with the purchase of committed, non-contingent Commercial Launch Preferred Equity for a total of $200.0 million payable on a quarterly basis between March 31, 2021 and December 31, 2024. In return, Biohaven will be required to redeem the Series B Biohaven Preferred Shares in a series of equal fixed quarterly payments between March 31, 2025 and December 31, 2030. During the three months ended March 30, 2021, we began purchasing the Series B Biohaven Preferred Shares. We have a remaining commitment of $164.8 million under the Commercial Launch Preferred Equity, for which we have recognized the Series B Forwards within Available for sale debt securities on the condensed consolidated balance sheet as of June 30, 2021 (See Note 3–Available for Sale Debt Securities for additional discussion),

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ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



In November 2019, RPIFT agreed to pay $330.0 million to purchase Eisai’s royalties on future worldwide sales of Tazverik (tazemetostat), a novel targeted therapy in late-stage clinical development that was approved by the FDA in January 2020 for
27

Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



epithelioid sarcoma, and with the potential to be approved in several cancer indications. Under the terms of its agreement with Eisai, RPIFT acquired Eisai’s future worldwide royalties on net sales by Epizyme of Tazverik outside of Japan, for an upfront payment of $110.0 million plus up to an additional $220.0 million for the remainder of the royalty upon FDA approval of Tazverik for certain indications. The FDA approval of Tazverik in January 2020 triggered our obligation to fund the second $110.0 million tranche in November 2020. In June 2020, the FDA approval of additional indications of Tazverik triggered our obligation to fund the final $110.0 million tranche in November 2021. The second and the final $110.0 million tranches are2021, which is recorded in the current and long-term liabilitiesas Accrued purchase obligation on the condensed consolidated balance sheet atas of June 30, 2020, respectively.2021.

We have commitments to advance funds to counterparties through our contingent funding of the Second Tranche of Biohaven Preferred Shares, our investment in the Avillion Entities and research and developmentR&D arrangements. Please refer to Notes 4, 9,Note 9–Non-Consolidated Affiliates and 10,Note 10–Research & Development (“R&D”) Funding Expense, respectively, for details of these arrangements. We also have requirements to make Operating and Personnel Payments over the life of the management agreement as described in Note 16,16–Related Party Transactions, which are variable and based on projected cash receipts.

Legal Proceedings

We are a party to various legal actions. The most significantactions with respect to a variety of matters in the ordinary course of business. Some of these are described below.proceedings may be based on complex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the outcomeprobability of loss or estimate damages, and therefore we have not established accruals for any of these matters, and we cannot reasonably estimate the maximum potential exposure or the range of possible loss. We did not have any material accruals for the matter described belowproceedings in our condensed consolidated balance sheets as of June 30, 20202021 and December 31, 2019.

In December 2015, Boehringer Ingelheim International GmBH (“BI”) notified Royalty Pharma2020. When we determine that (a) BI had revised its interpretationa loss is both probable and reasonably estimable, we record a liability, and, if the liability is material, we disclose the amount of the license agreement between BI and Royalty Pharma, (b) asliability reserved. We do not believe the outcome of any existing legal proceedings to which we are a result BI believed that it had overpaid royalties on salesparty, either individually or in the aggregate, will adversely affect our business, financial condition or results of Tradjenta, Jentadueto and Glyxambi, the DPP-IVs, for periods prior to 2015 by €7.7 million, and (c) BI was seeking a refund in that amount. Management does not agree with BI’s interpretation of the license agreement and has had extensive discussions with BI in an effort to reach an amicable settlement of this dispute. On January 21, 2019, RPCT filed a lawsuit in England against BI seeking recovery of €23.1 million in underpaid royalties. We intend to pursue this claim vigorously, but there can be no assurance that we will prevail in this dispute. Due to the uncertainty at this time, we have not accrued any amounts related to this matter and any legal costs will be expensed as incurred.operations.

18. Subsequent Events

In connection with the closing of MorphoSys’ acquisition of Constellation on July 2020,15, 2021, we acquired a royalty on risdiplam, a development-stage product candidate for the treatment of spinal muscular atrophy (SMA) from PTC Therapeutics, Inc., in exchange formade an upfront payment of $650 million.$1.425 billion to MorphoSys and purchased 1,337,552 ordinary shares of MorphoSys for $100 million at a price of €63.35 per ordinary share, based on the average trading price of the ordinary shares over a period preceding the closing of the acquisition. See Note 17–Commitments and Contingencies for additional discussion.

In August 2020,On July 26, 2021, we entered into an expanded agreementissued $1.3 billion of 2021 Notes which is comprised of $600.0 million principal amount of 2031 Notes issued at 98.263% of par and $700.0 million principal amount of 2051 Notes issued at 97.565% of par with Biohaven Pharmaceuticalsa coupon rate of 2.15% and 3.35%, respectively. See Note 11–Borrowings for up to $450 million to fund the development of zavegepant and the commercialization of Nurtec ODT. Biohaven will receive a $150 million upfront payment and an additional $100 million payment upon the start of the oral zavegepant phase 3 program in exchange for a royalty on Nurtec ODT and zavegepant and success-based milestone payments based on zavegepant regulatory approvals. We will also provide further support for the ongoing launch of Nurtec ODT through the purchase of committed, non-contingent Commercial Launch Preferred Equity for a total of $200 million payable between 2021 and 2024.discussion.
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Item 2.         MANAGEMENT'SMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition, cash flows and other changes in financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the accompanying Notesnotes to our consolidated financial statements included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amendedour Annual Report on June 17, 2020 (“the Prospectus”).Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth “in Part II, Item 1A. Risk Factors” andin Special Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q and in the Prospectus.Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K.

Royalty Pharma plc is a newly formedan English public limited company incorporated under the laws of England and Wales that was created for the purpose of consolidating our predecessor entities and facilitating the initial public offering (“the IPO”) of our Class A ordinary shares that was completed in June 2020. “Royalty Pharma,” “Royalty Pharma Investments,” “RPI,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. After the consummation of the ReorganizationExchange Offer Transactions (as defined below) and execution of the Management Agreement (as defined below) (collectively, the “Reorganization Transactions”) in February 2020 and before the consummation of the Offering,IPO, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma Investments 2019 ICAV.ICAV (“RPI 2019 ICAV”). Prior to the Reorganization Transactions, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma Investments, an Irish unit trust (“Old RPI. Refer to Note 1 to our condensed consolidated financial statements for further discussion.RPI”).

Business Overview

We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. Since our founding in 1996, we have been pioneers in the royalty market, collaborating with innovators from academic institutions, research hospitals and not-for-profits through small and mid-cap biotechnology companies to leading global pharmaceutical companies. We have assembled a portfolio of royalties which entitles us to payments based directly on the top-line sales of many of the industry’s leading therapies, which includes royalties on more than 45 commercial products, including AbbVie and J&J’s Imbruvica, Astellas and Pfizer’s Xtandi, Biogen’s Tysabri, Gilead’s Trodelvy, Merck’s Januvia, Novartis’ Promacta, Vertex’s Kalydeco, Trikafta, Truvada, TysabriOrkambi, Symdeko/Symkevi and Xtandi.Trikafta/Kaftrio, and nine development-stage product candidates. We fund innovation in the biopharmaceutical industry both directly and indirectly—indirectly - directly when we partner with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties, and indirectly when we acquire existing royalties from the original innovators.

Our capital-efficient business model enables us to benefit from many of the most attractive characteristics of the biopharmaceutical industry, including long product life cycles, significant barriers to entry and noncyclical revenues, but with substantially reduced exposure to many common industry challenges such as early stage development risk, therapeutic area constraints, high research and development costs, and high fixed manufacturing and marketing costs. We have a highly flexible approach that is agnostic to both therapeutic area and treatment modality, allowing us to acquire royalties inon the most attractive therapies across the biopharmaceutical industry. The success of our business has been the result of a focused strategy of actively identifying and tracking the development and commercialization of key new therapies, allowing us to move quickly to make acquisitions when opportunities arise. We acquire royalties on approved products, often in the early stages of their commercial launches, and development-stage product candidates with strong proof of concept data, mitigating development risk and expanding our opportunity set.

We classify our royalty acquisitions by the approval status of the therapy at the time of acquisition:

Approved Products – We acquire royalties in approved products that generate predictable cash flows and may offer upside potential from unapproved indications. Since inception in 1996 and through 2019,2020, we have deployed $12$13.2 billion of cash to acquire royalties on approved products. From 2012 through 2019,2020, we have acquired $7.0$8.4 billion of royalties on approved products.

Development-Stage Product Candidates – We acquire royalties on development-stage product candidates that have demonstrated strong clinical proof of concept. From 2012, when we began acquiring royalties on development-stage product candidates, through 2019,2020, we have deployed $6.1$7.0 billion to acquire royalties on development-stage product candidates.

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While we classify our acquisitions in these two broad segments,categories, several of our acquisitions of royalties on approved products were driven by the long-term potential of these products in other, unapproved indications. Similarly, some of our royalty acquisitions in development-stage product candidates are for products that are approved in other indications.
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We acquire product royalties in a variety of ways that can be tailored to the needs of our partners. We classify our product royalty acquisitions according to the following structures:

Third-party Royalties – A royalty is the contractual right to a percentage of top-line sales from a licensee’s use of a product, technology or intellectual property. The majority of our current portfolio consists of royalties that had been previously created by other parties prior to our acquisition.third-party royalties.

Synthetic / Hybrid Royalties – A synthetic royalty is the contractual right to a percentage of top-line sales created by the developer and/or marketer of a therapy in exchange for funding. In many of our synthetic royalty acquisitions,royalties, we also make investments in the public equity of the company, where the main value driver of the company is the product on which we concurrently acquired a royalty.

Research & Development (“R&D&D”) Funding – We fund R&D, typically for large biopharmaceutical companies, in exchange for future royalties and/or milestones if the product or indication we are funding is approved.

Mergers and Acquisitions (“M&A&A”) – We acquire royalties in connection with mergers and acquisitionsM&A transactions, often from the buyers of biopharmaceutical companies when they dispose of the non-strategic assets of the target company following the closing of the acquisition. We also seek to partner with companies to acquire other biopharmaceutical companies that own significant royalties. We may also seek to acquire biopharmaceutical companies that have significant royalties or where we can create royalties in subsequent transactions.

Background and Format of Presentation

Royalty Pharma plc isIn connection with our IPO, we consummated an exchange offer on February 11, 2020 (the “Exchange Date”). Through the exchange offer, investors representing 82% of the aggregate limited partnership in the various partnerships owned by Old RPI (the “Legacy Investors Partnerships”), exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in RPI US Partners 2019, LP, a newly formed English publicDelaware limited company incorporatedpartnership or RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”). The exchange offer transaction together with (i) the concurrent incurrence of indebtedness under a new credit facility and (ii) the lawsissuance of England and Wales created foradditional interests in Continuing Investors Partnerships to satisfy performance payments payable in respect of assets acquired prior to the purposedate of consolidating our predecessor entities and facilitating the IPO of our Class A ordinary shares that was completed in June 2020. are referred to as the “Exchange Offer Transactions.”

Following our IPO, we operate and control the business affairs of Royalty Pharma Holdings Ltd.,Ltd, (“RP Holdings”) through our controlling ownership of 100% of the RP Holdings’ Class A ordinary shares (“RP(the “RP Holdings Class A Interests”) and weRP Holdings’ Class B ordinary shares (the “RP Holdings Class B Interests”). We include RP Holdings and its subsidiaries in our condensed consolidated financial statements. RP Holdings is the sole owner of Royalty Pharma InvestmentsRPI 2019 ICAV, which is an Irish collective asset management entity formed to facilitate our Exchange Offer Transactions (as discussed in Note 1 of our financial statements included in this Quarterly Report on Form 10-Q).Transactions.

Pursuant to the Exchange Offer Transactions, which were consummated on February 11, 2020, certain investors who invested in Old RPI through the Legacy Investors Partnerships exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in the Continuing Investors Partnerships. As a result of the Exchange Offer Transactions, RPI,we own, through its wholly-ownedour subsidiary RPI 2019 Intermediate FT, ownsFinance Trust, a Delaware statutory trust (“RPI Intermediate FT”), an 82% economic interest in 82% of Old RPI. Through itsour 82% indirect ownership of Old RPI, RPI iswe are legally entitled to 82% of the economics of Old RPI’s wholly-owned subsidiaries, RPIFTRPI Finance Trust, a Delaware statutory trust (“RPIFT”) and RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”), an Irish private limited company, and 82%66% of the 80% of theRoyalty Pharma Collection Trust, thata Delaware statutory trust (“RPCT”).

The remaining 34% of RPCT is owned by RPIFT.

the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly owned by Royalty Pharma Select, an Irish unit trust. From the Exchange Date until the expiration of the Legacy Investors Partnerships’ investment period on the Legacy Date,June 30, 2020 (the “Legacy Date”), the Legacy Investors Partnerships had the option to participate proportionately in any investment made by Old RPI. Following the Legacy Date, Old RPI has ceased making new investments and each of Old RPI and the Legacy Investors Partnerships became legacy entities. Following the Legacy Date, we willhave made and plan to make new investments solely through our wholly-owned subsidiaries, including RPI Intermediate FT.

Our IPO was completed in June 2020, whereby we issued 89,333,920 shares of Class A ordinary shares at a price to the public of $28.00 per share, of which 71,652,250 and 17,681,670 shares were offered by the Company and selling shareholders, respectively. The number of Class A ordinary shares issued at closing included the exercise in full of the underwriters’ option to purchase 11,652,250 additional Class A ordinary shares from the Company. We received net proceeds of approximately $1.9 billion from the IPO after deducting underwriting discounts and commissions of approximately $86.3 million.The Class A ordinary shares began trading on the Nasdaq Global Select Market under the ticker symbol “RPRX” on June 16, 2020. Following the IPO, we are a holding company and our principal asset is a controlling equity interest in RP Holdings, the sole equity owner of RPI.

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Following management’s determination that a high degree of common ownership exists in RPIRoyalty Pharma both before and after the Exchange Date, RPIRoyalty Pharma recognized Old RPI’s assets and liabilities at the carrying value reflected on Old RPI’s balance sheet as of the Exchange Date. Old RPI is our predecessor for financial reporting purposes. The referencesresults of operations in the following discussion to the three and six months ended June 30, 2019 refer tois comprised of the financial results of Old RPI forprior to the same periods.Reorganization Transactions, RPI 2019 ICAV subsequent to the Reorganization Transactions and before the consummation of the IPO, and Royalty Pharma plc subsequent to the consummation of the IPO.
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Understanding Our Financial Reporting

In accordance with generally accepted accounting principles in the United States or GAAP,(“GAAP”), most of the royalties we acquire are treated as investments in cash flow streams and are thus classified as financial assets. These investments have yield components that most closely resemble loans measured at amortized cost under the effective interest accounting methodology. Under this accounting methodology, we calculate the effective interest rate on each financial royalty asset using a forecast of the expected cash flows to be received over the life of the financial royalty asset relative to the initial acquisition price. The yield, which is calculated at the end of each reporting period and applied prospectively, is then recognized via accretion into our income at the effective rate of return over the expected life of the financial royalty asset.

The preparation of our financial statements in this manner requires the use of estimates, judgments and assumptions that affect both our reported assets and liabilities and our income and revenue and expenses. The most significant judgments and estimates applied by management are associated with the measurement of income derived from our financial royalty assets, including management’s judgment in forecasting the expected future cash flows of the underlying royalties and the expected duration of the financial royalty asset. Our cash flow forecasts are generated and updated each reporting period by manually compiling sell-side equity research analysts’ consensus estimates for each of the products in which we own royalties. We then calculate our expected royalty cash flows using these consensus forecasts. In any given reporting period, any decline in the expected future cash flows associated with a financial royalty asset is recognized as a provision which is expensed through our income statement as a non-cash charge.

As a result of the non-cash charges associated with applying the effective interest method accounting methodology, our income statement activity in respect of many of our royalties can be volatile and unpredictable. Small declines in sell-side equity research analysts’ consensus forecasts over a long time horizon can result in an immediate non-cash income statement expense recognition, even though the applicable cash inflows will not be realized for many years into the future. For example, in late 2014 we acquired our financial royalty asset on the cystic fibrosis franchise.franchise royalty, which was classified as a financial royalty asset. Beginning in the second quarter of 2015, declines in near-term sales forecasts of sell-side equity research analysts caused us to build up a provision for this financial royalty asset. Over the course of 10 quarters, we recognized non-cash charges to the income statement as a result of these changes in forecasts, ultimately accumulating a peak cumulative non-cash provision of $1.30 billion by September 30, 2017, including non-cash provision expense of $743.2 million in 2016 related to this financial royalty asset. With the approval of the Vertex triple combination therapy, Trikafta, in October 2019, sell-side equity research analysts’ consensus forecasts increased to reflect the larger addressable market and the increase in the expected duration of the Trikafta.Trikafta royalty. While small reductions in the cumulative provision for the cystic fibrosis franchise were recognized in 2017 and 2018, there remained a $1.10 billion cumulative provision balance that was fully offset by a $1.10 billion credit to the provision in 2019 as a result of an increase in sell-side equity research analysts’ consensus forecasts associated with the Trikafta approval. This example illustrates the volatility caused by our accounting model. Therefore, management believes investors should not look to income from royalties and the associated provision for changes in future cash flows as a measure of our near-term financial performance or as a source for predicting future income or growth trends.

Our operations have historically been financed primarily with cash flows generated by our royalties. Due to the nature of our accounting methodology for our financial royalty assets, there is no direct correlation between our income from royalties and our royalty receipts. As noted above, income from such royalties is measured at amortized cost under the effective interest method accounting methodology. Given the importance of cash flows to management’s operation of the business and their predictability, management uses royalty receipts as the primary measure of our operating performance. Royalty receipts refer to the summation of the following line items from our GAAP Statement of Cash Flows: Cash collections from financial royalty assets, Cash collections from intangible royalty assets, Other royalty cash collections, Proceeds from available for sale debt securities, and Distributions from non-consolidated affiliates (which line item is included in both Net cash provided by operating activities and Net cash used in investing activities).

In addition to analyzing our results on a GAAP basis, management also reviews our results on a non-GAAP basis. The closest comparable GAAP measure to each of the non-GAAP measures that management review is Net cash provided by operating activities. The key non-GAAP metrics we focus on are Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow, each of which is further discussed in the section titled “Non-GAAP Financial Results.”
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Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of our ability to generate cash from operations. Both measures are an indication of the strength of the Company and the performance of the business. Management uses Adjusted Cash Flow to compare its performance against non-GAAP adjusted net income used by companies in the biopharmaceutical industry. Adjusted EBITDA, which is derived from Adjusted Cash Receipts, is used by our lenders to assess our ability to meet our financial covenants.
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Refer to the section titled “Non-GAAP Reconciliations” for additional discussion of management’s use of non-GAAP measures as supplemental financial measures.

Portfolio Overview

Our portfolio consists of royalties on more than 45 marketed therapies and fournine development-stage product candidates. The therapies in our portfolio address therapeutic areas such as rare diseases, oncology,disease, cancer, neurology, HIV, cardiologyinfectious disease, hematology and diabetes, and are delivered to patients across both primary and specialty care settings. The table below includes royalty cash receipts for the three and six months ended June 30, 2021 and 2020 and 2019, grouped by Growth Products and Mature Products. “Growth Products” are defined as royalties with a duration expiring after December 31, 2020. We define all other royalties as Mature Products.in order of contribution to income for the three months ended June 30, 2021.

(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
MarketerTherapeutic area2020201920202019
Growth Products
Cystic fibrosis franchise (1)VertexRare diseases$136,119  $85,745  $235,522  $192,684  
TysabriBiogenNeurology92,517  81,985  176,324  164,620  
ImbruvicaAbbVie/Johnson & JohnsonCancer81,513  66,247  159,222  127,349  
HIV franchise (2)Gilead, othersInfectious diseases64,692  52,193  148,579  128,576  
Januvia, Janumet, Other DPP-IVs (3)Merck & Co., othersDiabetes34,859  41,082  69,647  73,820  
XtandiPfizer, AstellasCancer34,131  27,040  68,908  54,608  
PromactaNovartisHematology26,653  19,335  62,401  19,335  
Farxiga/OnglyzaAstraZenecaDiabetes8,257  —  8,257  —  
PrevymisMerck & Co.Infectious diseases6,413  —  6,413  —  
CrysvitaUltragenyx, Kyowa KirinRare diseases2,620  —  2,620  —  
ErleadaJohnson & JohnsonCancer1,772  —  3,210  —  
EmgalityEli LillyNeurology2,236  —  4,213  —  
Other Growth Products (4)76,211  36,206  144,929  92,846  
Total Royalty Receipts - Growth Products$567,993  $409,833  $1,090,245  $853,838  
Mature Products
Tecfidera (5)BiogenNeurology$—  $—  $—  $150,000  
LyricaPfizerNeurology6,470  35,134  12,557  64,739  
LetairisGileadCardiology7,713  22,458  22,275  60,917  
RemicadeJohnson & Johnson, Merck & Co.Immunology—  —  —  6,068  
Other mature products (6)2,802  7,761  3,545  17,924  
Total Royalty Receipts - Mature Products$16,985  $65,353  $38,377  $299,648  

(in thousands)MarketerTherapeutic areaThree Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Products
Cystic fibrosis franchise (1)VertexRare disease$156,023 $136,119 $322,832 $235,522 
TysabriBiogenNeurology92,070 92,517 178,991 176,324 
ImbruvicaAbbVie/Johnson & JohnsonCancer87,289 81,513 176,424 159,222 
Januvia, Janumet, Other DPP-IVs (2)Merck, othersDiabetes39,438 34,859 75,200 69,647 
XtandiPfizer, AstellasCancer35,767 34,131 76,812 68,908 
PromactaNovartisHematology32,341 26,653 76,466 62,401 
HIV franchise (3)Gilead, othersInfectious disease28,623 64,692 75,123 148,579 
Nurtec ODT/Biohaven payment (4)BiohavenNeurology16,721 — 33,222 — 
Cabometyx/CometriqExelixis, Ipsen, TakedaCancer10,129 — 10,129 — 
Farxiga/OnglyzaAstraZenecaDiabetes9,113 8,257 17,675 8,257 
PrevymisMerckInfectious disease8,772 6,413 17,402 6,413 
CrysvitaUltragenyx, Kyowa KirinRare disease3,929 2,620 7,516 2,620 
EmgalityLillyNeurology3,550 2,236 6,814 4,213 
ErleadaJohnson & JohnsonCancer3,116 1,772 6,220 3,210 
TrodelvyGileadCancer2,992 — 5,597 — 
EvrysdiRocheRare disease2,971 — 4,648 — 
IDHIFABristol-Myers SquibbCancer2,602 — 5,489 — 
OrladeyoBioCrystRare disease957 — 969 — 
TazverikEpizymeCancer743 96 1,207 96 
Other products (5)50,534 93,100 138,422 183,210 
Total royalty receipts$587,680 $584,978 $1,237,158 $1,128,622 
(1) The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, SymdekoSymdeko/Symkevi, and Trikafta.Trikafta/Kaftrio.
(2) Januvia, Janumet, Other DPP-IVs include the following approved products: Tradjenta, Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by Boehringer Ingelheim, AstraZeneca, Novartis and Takeda.
(3) The HIV franchise includes the following approved products: Atripla, Truvada, Emtriva, Complera, Stribild, Genvoya, Descovy, Odefsey, Symtuza and Biktarvy. The HIV franchise is marketed by Gilead, Bristol-Myers Squibb and Merck & Co.
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(3) Januvia, Janumet, Other DPP-IVs includeRoyalties are received on the following approved products: Eli Lilly, Tradjenta, Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by Boehringer Ingelheim, AstraZeneca, Novartis and Takeda.emtricitabine portion of sales only.
(4) Includes royalty receipts for Nurtec of $1.1 million and $2.0 million for the three and six months ended June 30, 2021, respectively, and the redemption of the Series A Biohaven Preferred Shares of $15.6 million and $31.3 million (presented as Proceeds from available for sale debt securities on the Statement of Cash Flows) for the three and six months ended June 30, 2021, respectively.
(5) Other Growth Productsproducts primarily include royalties on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion, for which receipts are presented as Distributions received from non-consolidated affiliates on the Statement of Cash Flows), Letairis, Lyrica, Cimzia, Conbriza/Fablyn/Viviant, Emgality, Entyvio, Erleada, Farxiga/Onglyza, Lexiscan, Mircera, Myozyme, Nesina, Nurtec, Prevymis, Priligy, Soliqua and Trodelvy. Other Growth Products also include contributions from the Legacy SLP Interest and a distribution from Avillion in respect of the Merck KGaA Asset (defined below), for which development ceased in 2020, and for which the receipt is presented as Distributions received from non-consolidated affiliates in both the operating and investing section of the Statement of Cash Flows. Subsequent to the Exchange Offer Transactions, Other products also includes contributions from the Legacy SLP Interest (defined below).
(5) Receipts from Tecfidera milestone payments are presented as Proceeds from available for sale debt securities on the Statement of Cash Flows.
(6)Other Mature Products primarily include royalties on the following products: Prezista, Rotateq, Savella and Thalomid.

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Financial Overview

Financial highlights

Net cash provided by operating activities totaled $960.1 million$1.1 billion and $769.8$960.1 million for the six months ended June 30, 2021 and 2020, and 2019, respectively. Net cash provided by operating activities is the mostclosest comparable GAAP financial measure to the supplemental non-GAAP liquidity measures that follow.
Adjusted Cash Receipts (a non-GAAP metric) totaled $844.1$999.0 million and $1,075.6$844.1 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Adjusted EBITDA (a non-GAAP metric) totaled $774.1$917.2 million and $1,028.5$774.1 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Adjusted Cash Flow (a non-GAAP metric) totaled $666.5$838.0 million and $823.2$666.5 million for the six months ended June 30, 20202021 and 2019,2020, respectively.

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Understanding Our Results of Operations

FollowingIn connection with our IPO, Royalty Pharma plc isbecame a holding company whose principal asset is a controlling equity interest in RP Holdings, which is the sole equity owner of Royalty Pharma InvestmentsRPI 2019 ICAV, andan entity that is included in our condensed consolidated financial statements. We report non-controlling interestsinterest related to four minority interests in our subsidiaries held by third parties.

1.     The first minority interest is attributable to the Legacy Investors Partnerships’ 18% ownership interest in Old RPI. The value of this non-controlling interest will decline over time as the assets in Old RPI expire.

2.The second minority interest is attributable to the RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special InterestsInterests”) held by RPI EPA Holdings, described under “Certain Relationships and Related Party Transactions—Equity Performance Awards” in our Prospectus.LP (“EPA Holdings”), an affiliate of the Manager. Income will not be allocated to this non-controlling interest until certain conditions are met, which we do not expect to occur for several years.

3.The third minority interest is attributable to the RP Holdings Class B Interests held indirectly by the Continuing Investors Partnerships, which represent approximately 40%an approximate 30% ownership interest in RP Holdings as of June 30, 2021 and are exchangeable for our Class A ordinary shares of Royalty Pharma plc following the expiration of the underwriter lockup.shares. The value of this non-controlling interest will decline over time if the investors who indirectly own the RP Holdings Class B Interests exchange those shares for our Class A ordinary shares. During the three and six months ended June 30, 2021, 34,089 thousand and 38,810 thousand RP Holdings Class B Interests were exchanged for our Class A shares, of Royalty Pharma plc.respectively.

4.The fourth minority interest is attributable to a de minimis interest in the Collection TrustRPCT held by certain legacy investorsRPSFT as a result of a 2011 reorganization transaction that created a prior legacy entity.transaction. The value of this non-controlling interest will decline over time as the assets in the Collection TrustRPCT expire and is expected to be substantially eliminated by the end of 2022.

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The fourth non-controlling interest related to RPSFT’s ownership in the Collection TrustRPCT held by RPSFT, is the only non-controlling interest that existed prior to the Reorganization Transactions and, therefore, exists in the historical financial statements for periods through December 31, 2019 discussed in this MD&A.Exchange Offer Transactions. The non-controlling interest related to the Legacy Investors Partnerships’ 18% ownership interest in Old RPI exists from the Exchange Date and is reflected in our financial statements forfrom and after the first quarter of 2020.Exchange Date. The other two non-controlling interests are reflected in our financial statements from and after the date of our IPO. All of the results of operations of RP Holdings, Old RPI and the Collection TrustRPCT are consolidated into theour financial statements of Royalty Pharma plc.statements.

Following the Reorganization Transactions, the Manager is entitled to receive Operating and Personnel Payments whileIPO, EPA Holdings is entitled to receive Equity Performance Awards through its RP Holdings Class C Special Interests following the IPO.Interests. Equity Performance Awards owed to EPA Holdings will be recognized as an equity transaction when the obligation becomes due and will impact the income allocated to non-controlling interestsinterest related to the RP Holdings Class C Special Interests at that time.We do not currently expect any material Equity Performance Awards to be payable until the mid to late 2020s.

Total income and other revenues

Total income and other revenues is primarily comprised of income from our financial royalty assets, royalty revenue from our intangible royalty assets, and royalty income arising from successful commercialization of products developed through joint research and developmentR&D funding arrangements. Most of our royalties on both approved products and development-stage product candidates are classified as financial assets as our ownership rights are generally passive in nature. In instances in which we acquire a royalty asset that does include more substantial rights or ownership of the underlying intellectual property, we classify such royalty assets as intangible assets.

The majority of our royalties are recorded as financial assets, for which weWe recognize interest income.income related to our financial royalty assets. Royalty revenue relates solely to revenue from our DPP-IV patent estate for which the patent rights have been licensed to various counterparties. For the three and six months ended June 30, 20202021 and 2019,2020, the royalty payors accounting for greater than 10% or more of our total income and other revenues in any one period are shown in the table below:

Contribution to total income and other revenues for the
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Royalty payorRoyalty asset
VertexCystic fibrosis franchise29 %23 %29 %23 %
AbbVieImbruvica19 %19 %19 %19 %
GileadHIV franchise12 %14 %13 %14 %
BiogenTysabri11 %12 %11 %13 %
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Three Months Ended June 30,Six Months Ended
June 30,
Royalty payorRoyalty asset2021202020212020
VertexCystic fibrosis franchise33 %29 %33 %29 %
AbbVieImbruvica17 %19 %17 %19 %
GileadHIV franchise, Letairis, Trodelvy (1)%14 %%15 %
BiogenTysabri%11 %%11 %
(1) We began recognizing income related to Trodelvy in the three months ended June 30, 2020.

Income from financial royalty assets

Our financial royalty assets represent investments in cash flow streams with yield components that most closely resemble loans measured at amortized cost under the effective interest method. We calculate the effective interest rate using forecasted expected cash flows to be received over the life of the royalty asset relative to the initial acquisition price. The accretable yieldInterest income is accreted into incomerecognized at the effective rate of return over the expected life of the assets,asset, which is calculated at the end of each reporting period and applied prospectively. As changes in sell-side equity research analystanalysts’ consensus estimates are updated on a quarterly basis, the effective rate of return changes. For example, if sell-side equity research analysts’ consensus forecasts increase, the yield to derive income on a financial royalty asset will increase and result in higher income for subsequent periods. Refer to Note 2 in our 2019 audited consolidated financial statements for additional information.

Variables affecting the recognition of interest income from financial royalty assets on individual products under the perspective effective interest method include any one of the following: (1) additional acquisitions, (2) changes in expected cash flows of the underlying pharmaceutical products, derived primarily from sell-side equity research analysts’ consensus forecasts, (3) regulatory approval of additional indications which leads to new cash flow streams, (4) changes to the duration of the royalty (i.e., patent expiration date) and (5) amounts and timing of royalty receipts. Our royalties classified as financial royalty assets are directly linked to sales of underlying pharmaceutical products whose life cycle typically peaks at a point in time, followed frequently by declining sales trends due to the entry of generic competition, resulting in natural declines in the asset balance and periodic
34


interest income over the life of our royalties. The recognition of income from royalties requires management to make estimates and assumptions around many factors, including those impacting the variables noted above.

Revenue from intangible royalty assets

Revenue from intangible royalty assets is derived from our Januvia, Janumet and other DPP-IV patents classified as intangible royalty assets.

Other royalty income

Other royalty income primarily includes income from former royalties for which the asset balances have been fully depletedamortized and royalty income from synthetic royalties arising out of research and developmentR&D funding arrangements. Occasionally, a royalty asset may be depletedamortized on an accelerated basis due to collectability concerns, which, if resolved, may result in future cash collections when no financial royalty asset remains. Similarly, we may continue to collect royalties on a financial royalty asset beyond the estimated patent expiration date by which the financial asset was amortized in full. In each scenario where a financial royalty asset no longer remains, income on such royalty asset is recognized as Otherother royalty income.

Research and development funding expense

R&D funding expense (“R&D”) consists of (1) upfront R&D payments we have made to counterparties to acquire royalties on development-stage product candidates and (2) amounts we incurred to jointly fund development-stage product candidates undergoing clinical trials with our partners in exchange for royalties if the products are successfully developed and commercialized. These expenditures relate to the activities performed by our counterparties to develop and test new products, to test existing products for treatment in new indications, and to ensure product efficacy and regulatory compliance prior to launch.

Below is a summary of the R&D agreements in place and the associated R&D funding expense during the three and six months ended June 30, 2020 and 2019:

(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
Partner/ CounterpartyProductCurrent stage of development2020201920202019
PfizerPalbociclib/ IbranceIn Phase III clinical trial for adjuvant breast cancer; approved for other indications$—  $17,818  $—  $36,337  
OtherVariousVarious5,776  3,639  13,415  8,111  
Total R&D funding expense$5,776  $21,457  $13,415  $44,448  
income.

Provision for changes in expected cash flows from financial royalty assets

The provision for changes in expected future cash flows from financial royalty assets includes the following activities:following:

the movement in the Cumulativecumulative allowance for changes in expected future cash flows,, and

expense or income related to the movement in the allowanceprovision for current expected credit losses uponsubsequent to adoption of ASU 2016-13 on January 1, 2020.

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The provision for changes in expected cash flows is the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows, which is a contra balance sheet account linked to ournetted against the Financial royalty assets, net balance on the condensed consolidated balance sheet.sheets. As discussed above, income is accreted on our financial royalty assets using the effective interest method. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly to the income statement through the line item Provision for changes in expected future cash flows from financial royalty assets. If, in a subsequent period, there is significantan increase in expected cash flows or if actual cash flows are significantly greater than cash flows previously expected, we reduce the cumulative allowance previously established for a financial royalty asset for the incremental increase in the present value of cash flows expected to be collected. This results in a credit to provision expense.

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Most of the same variables and management’s estimates affecting the recognition of interest income on our financial royalty assets also impact the provision. In any period, we will recognize provision income (i.e., a credit to the provision) or expense as a result of the following factors: (1) changes in expected cash flows of the underlying pharmaceutical products, derived primarily from sell-side equity research analysts’ consensus forecasts, (2) regulatory approval of additional indications which leads to new cash flow streams, (3) changes to the duration of the royalty (i.e., patent expiration date) and (4) amounts and timing of royalty receipts.

Upon the adoption on January 1, 2020 of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), we recorded a cumulative adjustment to Retained earnings of $192.7 million to recognize an allowance for current expected credit losses on the portion of our portfolio of financial royalty assets that is subject to credit risk.assets. The provisionProvision for changes in expected cash flows from financial royalty assets reflects the activity for the period that relates to the change in estimates applied to calculate the allowance for current expected credit losses, namely any changes in the credit ratings of the marketers responsible for paying our royaltiesnew financial royalty assets with limited protective rights and changes in the underlying cash flow forecasts used in the effective interest model to measure income from our financial royalty assets.

R&D funding expense

R&D funding expense consists of (1) upfront R&D payments we have made to counterparties to acquire royalties on development-stage product candidates and (2) ongoing R&D payments to fund development-stage product candidates undergoing clinical trials with our partners in exchange for royalties if the products are successfully developed and commercialized. These expenditures relate to the activities performed by our counterparties to develop and test new products, to test existing products for treatment in new indications, and to ensure product efficacy and regulatory compliance prior to launch.

During the three and six months ended June 30, 2021 and 2020, R&D funding expense incurred primarily related to ongoing development stage funding payments under our co-funding agreement with Sanofi.

General and administrative expenses

General and administrative (“G&A”) expenses

G&A expenses includes primarily include Operating and Personnel Payments bad debt expense,(defined below), legal reserves,expenses, other expenses for professional services and share basedshare-based compensation.

Beginning in 2020, we expect the Operating and Personnel Payments paid to our Manager to bewere significantly higher than they were in historical periods. Prior to the Reorganization Transactions, the Operatingoperating and Personnel Paymentspersonnel payments were fixed, growing at 5% per annumannually and not linked to any financial line item. Under the New Management Agreementmanagement agreement which is effective from the Exchange Date (“Management Agreement”), we pay quarterly operating and personnel expenses to the Manager or its affiliates (“Operating and Personnel Payment for RPI is calculated asPayments”) equal to 6.5% of the Adjusted Cash Receipts for each quarter and 0.25% of the GAAP value of our security investments as of the end of such quarter, adjusted to reflect the actual GAAP value of our security investments.each quarter. The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected in our condensed consolidated statements ofnet income, is payable in equal quarterly installments and increases by 5% annually on a compounded basis through the Legacy Date, after which it will beis calculated as the greater of $1 million per quarter and 0.3125% of royalties from Royalty Investments (as defined therein)in the limited partnership agreements of the Legacy Investors Partnerships). The expenses incurred in respect of the Operating and Personnel Payments are expected to comprise the most significant component of G&A expenses in 2020 and on an ongoing basis.

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Equity in (earnings)/loss of nonconsolidatednon-consolidated affiliates

Legacy SLP Interest

In connection with the Exchange Offer Transactions, we acquired a new equity method investment from the Continuing Investors Partnerships in the form of a special limited partnership interest in the Legacy Investors Partnerships (the “Legacy SLP Interest”) in exchange for issuing shares in the Company.our subsidiary. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and a performance income allocation on a similar basis. The performance income allocation attributable to us is equal to the general partner’s former contractual rights to the income of the Legacy Investors Partnerships.

As the Legacy Investors Partnerships are no longer participatingparticipates in investment opportunities, the value of the Legacy SLP Interest is expected to decline over time. As of the Exchange Date, ourOur equity method investee, the Legacy Investors Partnerships, also owns a non-controlling interest in Old RPI.

The Avillion Entities

During 2014, we entered into an agreement with our equity method investee Avillion Financing I, LP (“Avillion I”) to invest up to $46.0 million over three years to fund a portion of the costs of a pivotal Phase III3 study for Pfizer’s Bosulif (bosutinib) to expand its label into front-line chronic myeloid leukemia. The FDAU.S. Food and Drug Administration (“FDA”) approved a supplemental New Drug Application (“sNDA”) for Pfizer’s bosutinibBosulif (bosutinib) in December 2017, which triggered a series of contractual fixed payments from Pfizer to Avillion I over a 10-year period, which we recognize through receipt of distributionsDistributions from non-consolidated affiliates on the Statement of Cash Flows.

In March 2017, we entered into an agreement with BAv Financing II, LP (“Avillion II”, or, together with Avillion I, the “Avillion Entities”), amended in December 2019, to invest approximately $19.0 million to fund approximately 50% of the costs of a Phase 2 clinical trial for the use of Merck KGaA’s anti-IL 17 nanobody M1095 (the “Merck KGaA Asset”) for the treatment of psoriasis in exchange for certain milestone and royalty payments. Development for the Merck KGaA Asset ceased during the three months ended June 30, 2020 and we do not expect to record significant earnings or losses in the future related to this investment.

In 2018, we agreed to fund up to approximately $105$105.0 million over multiple years to fund a portion of the costs for Phase III2 and 3 clinical trials of our equity method investee (“Avillion II,” or together with Avillion I, the “Avillion Entities”), who
36


simultaneously entered into a co-development agreement with AstraZeneca to advance PT027 (the “AZ asset”Asset”) through a global clinical development program for the treatment of asthma in exchange for a series of deferred payments and success-based milestones.

In March 2017, and through an amendment in December 2019, we entered into an agreement to invest $19.0 million to fund approximately 50% of the costs of a phase II clinical trial for the use of Merck KGaA’s anti-IL 17 nanobody M1095 (the “Merck Asset”) for the treatment of psoriasis in exchange for certain milestone and royalty payments. Development for the Merck Asset ceased in 2020 and we do not expect to record significant earnings or losses in the future related to this investment.

The business model of the Avillion Entities includes partnering with global biopharmaceutical companies to perform R&D in exchange for success-based milestones and/or royalties once products are commercialized.

Other (income)/expense, net

Other (income)/expense, net primarily includes the unrealized gains or losses on our derivatives, the change in fair market value of our equity securities, the unrealized gains or losses on our available for sale debt securities, including related forwards and derivatives. Other (income)/expense, net also includes losses on extinguishment of debt and interest income.

Net income attributable to non-controlling interest

The non-controlling interest priorPrior to the Exchange Date, as discussed earlier in this MD&A,the net income attributable to non-controlling interest relates to RPSFT’s 20% share of earnings in the Collection Trust,RPCT, which is a consolidated subsidiary of Old RPI. We expect net income attributable to this non-controlling interest to decline over time as the assets in RPCT expire and to be substantially eliminated by the end of 2022.

As of and following the Exchange Date, the net income attributable to non-controlling interest balance on the unaudited condensed consolidated balance sheetsalso includes a new non-controlling interest related to the ownership in Old RPI by the Legacy Investors Partnerships approximately 18% share of approximately 18%.earnings in Old RPI. As the Legacy Investors Partnerships are no longer participatingparticipate in investment opportunities, of RPI, the value ofrelated net income attributable to this non-controlling interest is expected to decline over time.

Following the
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In connection with our IPO, this line item also includes net income attributable to the RP Holdings Class B Interests held by the Continuing Investors Partnerships, and will include net income attributable to the Class C Special Interests held by EPA Holdings once certain conditions have been met. Net income attributable to the non-controlling interest related to the RP Holdings Class B Interests held by the Continuing Investors Partnerships will decline over time if the investors who indirectly own the RP Holdings Class B Interests exchange those shares for our Class A ordinary shares of Royalty Pharma plc.shares.
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Results of Operations

For the three and six months ended June 30, 20202021 and 20192020

The comparison of our historical results of operations for the three and six months ended June 30, 20202021 and 20192020 is as follows:

37


(in thousands)Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20202019$%20202019$%
Income and other revenues:
     Income from financial royalty assets$474,177  $416,945  $57,232  13.7 %$937,021  $799,161  $137,860  17.3 %
     Revenue from intangible royalty assets33,445  35,476  (2,031) (5.7)%68,428  78,722  (10,294) (13.1)%
     Other royalty income3,310  5,187  (1,877) (36.2)%6,362  14,608  (8,246) (56.4)%
Total income and other revenues510,932  457,608  53,324  11.7 %1,011,811  892,491  119,320  13.4 %
Operating expenses:
     Research and development funding expense5,776  21,457  (15,681) (73.1)%13,415  44,448  (31,033) (69.8)%
     Provision for changes in expected cash flows from financial royalty assets47,278  72,210  (24,932) (34.5)%135,290  22,177  113,113  510.0 %
     Amortization of intangible royalty assets5,733  5,733  —  — %11,466  12,332  (866) (7.0)%
     General and administrative expenses42,799  30,349  12,450  41.0 %80,864  54,775  26,089  47.6 %
Total operating expenses101,586  129,749  (28,163) (21.7)%241,035  133,732  107,303  80.2 %
Operating income409,346  327,859  81,487  24.9 %770,776  758,759  12,017  1.6 %
Other (income)/expense:
     Equity in (earnings)/loss of non-consolidated affiliates(29,292) 8,144  (37,436) (459.7)%(20,218) 13,673  (33,891) (247.9)%
     Interest expense34,189  69,168  (34,979) (50.6)%87,773  136,434  (48,661) (35.7)%
     Other (income) expense, net(197,527) 71,777  (269,304) (375.2)%(7,851) 33,788  (41,639) (123.2)%
Total other (income) expenses, net(192,630) 149,089  (341,719) (229.2)%59,704  183,895  (124,191) (67.5)%
Consolidated net income601,976  178,770  423,206  236.7 %711,072  574,864  136,208  23.7 %
     Less: Net income attributable to non-controlling interest(159,902) (27,057) (132,845) 491.0 %(197,758) (55,707) (142,051) 255.0 %
Net income attributable to controlling interest$442,074  $151,713  $290,361  191.4 %$513,314  $519,157  $(5,843) (1.1)%

(in thousands)Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change
20212020$%20212020$%
Income and other revenues:
     Income from financial royalty assets$503,414 $474,177 $29,237 6.2 %$1,033,039 $937,021 $96,018 10.2 %
     Revenue from intangible royalty assets40,127 33,445 6,682 20.0 %76,188 68,428 7,760 11.3 %
     Other royalty income11,422 3,310 8,112 245.1 %18,763 6,362 12,401 194.9 %
Total income and other revenues554,963 510,932 44,031 8.6 %1,127,990 1,011,811 116,179 11.5 %
Operating expenses:
     Provision for changes in expected cash flows from financial royalty assets(243,762)47,278 (291,040)(615.6)%48,499 135,290 (86,791)(64.2)%
     Research and development funding expense3,122 5,776 (2,654)(45.9)%5,763 13,415 (7,652)(57.0)%
     Amortization of intangible royalty assets5,733 5,733 — — %11,404 11,466 (62)(0.5)%
     General and administrative expenses44,921 42,799 2,122 5.0 %88,077 80,864 7,213 8.9 %
Total operating (income)/expense, net(189,986)101,586 (291,572)(287.0)%153,743 241,035 (87,292)(36.2)%
Operating income744,949 409,346 335,603 82.0 %974,247 770,776 203,471 26.4 %
Other (income)/expense:
     Equity in earnings of non-consolidated affiliates(17,701)(29,292)11,591 (39.6)%(15,783)(20,218)4,435 (21.9)%
     Interest expense37,426 34,189 3,237 9.5 %74,841 87,773 (12,932)(14.7)%
     Other income, net(81,531)(197,527)115,996 (58.7)%(50,545)(7,851)(42,694)543.8 %
Total other (income)/expense, net(61,806)(192,630)130,824 (67.9)%8,513 59,704 (51,191)(85.7)%
Consolidated net income806,755 601,976 204,779 34.0 %965,734 711,072 254,662 35.8 %
     Net income attributable to non-controlling interest365,979 159,902 206,077 128.9 %455,839 197,758 258,081 130.5 %
Net income attributable to controlling interest$440,776 $442,074 $(1,298)(0.3)%$509,895 $513,314 $(3,419)(0.7)%

Total income and revenues

Income from financial royalty assets

Income from financial royalty assets by product for our top products for the three and six months ended June 30, 20202021 and 20192020 is as follows, in order of contribution to income for the six months ended June 30, 2020:2021:

(in thousands)(in thousands)Three Months Ended
June 30,
ChangeSix Months Ended
June 30,
Change(in thousands)Three Months Ended June 30,ChangeSix Months Ended
June 30,
Change
20202019$%20202019$%20212020$%20212020$%
Cystic fibrosis franchiseCystic fibrosis franchise$149,013  $103,470  $45,543  44.0  $289,044  $205,578  $83,466  40.6  Cystic fibrosis franchise$185,597 $149,013 $36,584 24.6 %$370,413 $289,044 $81,369 28.2 %
ImbruvicaImbruvica97,228  85,596  11,632  13.6  195,467  167,097  28,370  17.0  Imbruvica96,315 97,228 (913)(0.9)%195,430 195,467 (37)— %
TysabriTysabri50,650 53,955 (3,305)(6.1)%101,749 110,230 (8,481)(7.7)%
HIV franchiseHIV franchise63,726  63,626  100  0.2  129,502  122,804  6,698  5.5  HIV franchise18,255 63,726 (45,471)(71.4)%67,802 129,502 (61,700)(47.6)%
Tysabri53,955  56,981  (3,026) (5.3) 110,230  113,706  (3,476) (3.1) 
XtandiXtandi25,849  26,371  (522) (2.0) 49,236  52,095  (2,859) (5.5) Xtandi25,738 25,849 (111)(0.4)%52,718 49,236 3,482 7.1 %
Promacta12,872  10,382  2,490  24.0  26,389  13,211  13,178  99.8  
TazverikTazverik17,619 9,619 8,000 83.2 %37,956 16,552 21,404 129.3 %
OtherOther71,534  70,519  1,015  1.4  137,153  124,670  12,483  10.0  Other109,240 74,787 34,453 46.1 %206,971 146,990 59,981 40.8 %
Total income from financial royalty assetsTotal income from financial royalty assets$474,177  $416,945  $57,232  13.7  $937,021  $799,161  $137,860  17.3  Total income from financial royalty assets$503,414 $474,177 $29,237 6.2 %$1,033,039 $937,021 $96,018 10.2 %

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Three months ended June 30, 20202021 and 20192020

Income from financial royalty assets increased by $57.2$29.2 million, or 6.2%, in the second quarter of 2020three months ended June 30, 2021 compared to the same period of the prior year,three months ended June 30, 2020, primarily driven by strong performance ofadditional interest income attributable to the residual royalty interest in the cystic fibrosis franchise following the prior year approval of Trikafta as well as strong performance of Imbruvica.that we acquired in October 2020. Additionally, we recorded $23.2$38.2 million in income in the second quarter of 2020three months ended June 30, 2021 related to new assets acquired subsequent to the second quarter of 2019, includingthree months ended June 30, 2020, primarily Tazverik, Crysvita,Evrysdi, Cabomeytx/Cometriq and Prevymis, whichOrladeyo. The increase was partially offset by declines from maturing assets, such as Lyricathe HIV franchise, reflecting the loss of exclusivity of Truvada and Letairis.Atripla in the United States in October 2020.

Six Months Ended June 30, 20202021 and 20192020

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Income from financial royalty assets increased by $137.9$96.0 million, or 10.2%, in the six months ended June 30, 20202021 compared to the same period of the prior year, primarily driven by the same factors as described above. Additionally, we recorded $38.8 million in income in the first six months of 2020 related to the new assets acquired subsequent to the second quarter of 2019 discussed above, which was partially offset by declines from maturing assets, such as Lyrica and Letairis.

Revenue from intangible royalty assets

Three months ended June 30, 2020 and 2019

Revenue from intangible royalty interests declined by $2.0 million in the second quarter of 2020 compared to the prior year period primarily due to the Januvia, Janumet and other DPP-IV royalties approaching maturity.

Six Months Ended June 30, 2020 and 2019

Revenue from intangible royalty interests declined by $10.3 million in the six months ended June 30, 2020, compared to the prior year period primarily driven by strong performance from the same factorscystic fibrosis franchise. Additionally, we recorded $58.2 million of income from financial royalty assets in the six months ended June 30, 2021 related to new assets acquired subsequent to the six months ended June 30, 2020, primarily Evrysdi, Cabomeytx/Cometriq and Orladeyo. The increase was partially offset by declines from the HIV franchise and from maturing assets, such as described above.Lyrica.

Other royalty income

Three months ended June 30, 20202021 and 20192020

Other royalty income decreasedincreased by $1.9$8.1 million, or 245.1%, in the second quarter of 2020 primarily duethree months ended June 30, 2021 compared to the expiration ofthree months ended June 30, 2020, primarily related to income from Trodelvy, which arose from our PrezistaR&D funding agreement with Immunomedics in 2018 and which was approved by the FDA in the three months ended June 30, 2020 and Letairis, a financial royalty in 2019.asset that was fully amortized by June 30, 2021, but for which we still expect minimal residual royalty income.

Six Months Ended June 30, 20202021 and 20192020

Other royalty income decreasedincreased by $8.2$12.4 million, or 194.9%, in the six months ended June 30, 20202021 compared to the prior year primarily due to Remicade, which expired in 2018 but for which we continued collecting royalties through the first quarter of 2019.

Research and development funding expense

Three months ended June 30, 2020 and 2019

R&D funding expense declined in the second quarter of 2020 as compared to the same period of the prior year as a result of satisfying our funding commitments in the fourth quarter of 2019 under our agreement with Pfizer.

Six Months Ended June 30, 2020 and 2019

R&D funding expense declined in the six months ended June 30, 2020, as comparedprimarily related to the same period of the prior year due to the same reason as described above.income from Trodelvy and Letairis.

Provision for changes in expected cash flows from financial royalty assets

The breakdown of our provision for changes in expected cash flows includes the
(1)the movement in the cumulative allowance for changes in expected future cash flows, and
expense or income related to the provision for current expected credit losses and
(2)income and expense activity for financial royalty assets whose cash flow forecasts have changed fromsubsequent to the prior period.adoption of ASU 2016-13 on January 1, 2020.
As the latterformer activity is a combination of income and expense items, the provision breakdown by product, exclusive of the provision for current expected credit losses, is as follows, based on the largest contributors to each period’s income or expense:

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(in thousands)(in thousands)(in thousands)Three Months Ended June 30,Three Months Ended June 30,
Three months ended June 30,Three months ended June 30,
ProductProduct2020Product2019Product2021Product2020
Cystic fibrosis franchise$98,381  Xtandi$109,071  
Soliqua29,491  Tysabri28,950  
Crysvita9,764  Erleada13,169  
TysabriTysabri(94,842) HIV franchise10,571  Tysabri$(114,354)Cystic fibrosis franchise$98,381 
XtandiXtandi(11,188) Cystic fibrosis franchise(69,852) Xtandi(101,172)Soliqua29,491 
Cystic fibrosis franchiseCystic fibrosis franchise(53,092)Crysvita9,764 
LexiscanLexiscan(34,286)Xtandi(11,188)
ImbruvicaImbruvica46,378 Tysabri(94,842)
OtherOther(11,053) Other(19,699) Other13,473 Other(11,053)
Total provision, exclusive of provision for credit lossesTotal provision, exclusive of provision for credit losses20,553  Total provision, exclusive of provision for credit losses72,210  Total provision, exclusive of provision for credit losses(243,053)Total provision, exclusive of provision for credit losses20,553 
Provision for current expected credit lossesProvision for current expected credit losses26,725  Provision for current expected credit losses—  Provision for current expected credit losses(709)Provision for current expected credit losses26,725 
Total provisionTotal provision$47,278  Total provision$72,210  Total provision$(243,762)Total provision$47,278 

(in thousands)(in thousands)(in thousands)Six Months Ended June 30,Six Months Ended June 30,
Six months ended June 30,Six months ended June 30,
ProductProduct2020Product2019Product2021Product2020
Cystic fibrosis franchise$98,381  Xtandi$94,092  
Crysvita44,263  Tysabri17,038  
ImbruvicaImbruvica31,543  Erleada13,169  Imbruvica$109,792 Cystic fibrosis franchise$98,381 
TazverikTazverik61,391 Crysvita44,263 
EmgalityEmgality55,253 Imbruvica31,543 
XtandiXtandi(113,219) Cystic fibrosis franchise(81,918) Xtandi(58,320)Tysabri(37,437)
TysabriTysabri(37,437) Alogliptin(21,714) Tysabri(112,720)Xtandi(113,219)
OtherOther3,076  Other1,510  Other(42,129)Other3,076 
Total provision, exclusive of provision for credit lossesTotal provision, exclusive of provision for credit losses26,607  Total provision, exclusive of provision for credit losses22,177  Total provision, exclusive of provision for credit losses13,267 Total provision, exclusive of provision for credit losses26,607 
Provision for current expected credit lossesProvision for current expected credit losses108,683  Provision for current expected credit losses—  Provision for current expected credit losses35,232 Provision for current expected credit losses108,683 
Total provisionTotal provision$135,290  Total provision$22,177  Total provision$48,499 Total provision$135,290 

Three months ended June 30, 20202021 and 20192020

In the second quarterthree months ended June 30, 2021, we recorded provision income of 2020, we recorded$243.8 million, of which $243.1 million and $0.7 million related to provision expense of $47.3 millionincome for changes in expected cash flows and current expected credit losses, respectively. We recorded provision income primarily due to significant increases in comparison to asell-side equity research analysts’ consensus forecasts for Tysabri, Xtandi and the cystic fibrosis franchise. Offsetting the provision income was provision expense related to Imbruvica, primarily due to declines in sell-side equity research analysts’ consensus forecasts.

In the three months ended June 30, 2020, we recorded provision expenseof $72.2$47.3 million, of which $20.6 million and $26.7 million related to provision expense for changes in expected cash flows and current expected credit losses, respectively. We recorded provision expense for the same period of the prior year. Increases to the provision for Cysticcystic fibrosis franchise and Soliqua, and Crysvita were primarily driven bydue to declines in sell-side equity research analysts’ consensus forecasts. Offsetting the provision expense was a large reversal of the cumulative allowances for Tysabri and Xtandi due to ansignificant increase in consensus forecasts.forecasts for Tysabri. During the three months ended June 30, 2020, the provision expense for current expected credit losses was primarily driven by increases to our portfolio of financial royalty assets, including the final $110.0 million tranche of Tazverik for the remainder of the royalty upon FDA approval.
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Six Months Ended June 30, 2021 and 2020

In the six months ended June 30, 2021, we recorded secondprovision expense quarter of 2019, we recognized$48.5 million, of which $13.3 million and $35.2 million related to provision expense for Xtandi, Tysabri, Erleada,changes in expected cash flows and Emtriva current expected credit losses, respectively. We recorded provision expense for Imbruvica, primarily driven bydue to declines in sell-side equity research analysts’ consensus forecasts, and for Tazverik as a result of a slower than expected product launch. offset by Offsetting the provision expense was provision income from a large reversal of the cumulative allowance forCystic fibrosis franchise due to ansignificant increase in sell-side equity research analysts’ consensus forecasts.forecasts for Tysabri and Xtandi.

During the
In connection with the adoption of ASU 2016-13 on January 1, 2020, we recognized a six months ended June 30, 2021, the provision expense for current expected credit losses of $26.7 million in the second quarter of 2020 for which we did not have comparable activity in the same period prior year. The primary drivers of the current period provision expense relatewas primarily driven by increases to an increase in the balanceour portfolio of financial royalty assets, subjectincluding the incremental $100.0 million financial royalty asset related to credit riskthe start of the oral zavegepant Phase 3 program and the credit rating of associated marketers.a new royalty interest in Cabometyx/Cometriq.

Six Months Ended June 30, 2020 and 2019

In the first six months ended June 30, 2020, we recorded provision expense of $135.3 million, of which $26.6 million and $108.7 million related to provision expense for changes in expected cash flows in comparison to aand current expected credit losses, respectively. We recorded provision expense of $22.2 millionexpenses for the same period of the prior year. Increases to the provision for Cysticcystic fibrosis franchise, Crysvita and Imbruvica, were primarily driven bydue to declines in sell-side equity research analysts’ consensus forecasts. Offsetting the provision expense was a large reversal of the cumulative allowance for Xtandi and Tysabri due toprovision income from an increase in consensus forecasts.
40


In the first six months of 2019, we recognized provision expense for Xtandi, Tysabri and Erleada primarily driven by declines in sell-side equity research analysts’ consensus forecasts for Xtandi and Tysabri. Doffseturing the six months ended June 30, 2020, we recognized a provision expense for current expected credit losses, primarily driven by a large reversalincreases to our portfolio of financial royalty assets, including the final two $110.0 million tranches of Tazverik for the remainder of the cumulative allowance forCystic fibrosis franchise due to an increase in consensus forecasts.royalty upon FDA approval.

R&D funding expense
In addition, we recognized a provision
Three months ended June 30, 2021 and 2020

R&D funding expense declined by $2.7 million, or 45.9%, for current expected credit losses of $108.7the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 due to our co-funding agreement with Sanofi approaching completion.

Six Months Ended June 30, 2021 and 2020

R&D funding expense declined by $7.7 million, in thor 57.0%, for the e first six months ofended June 30, 2021 as compared to the six months ended June 30, 2020 for which we did not have comparable activity in the same period prior year. The primary drivers of the current period provision expense are the same as those described above.due to lower funding requirements under our co-funding agreement with Sanofi.

G&A expenses

Three months ended June 30, 20202021 and 20192020

G&A expenses increased $12.5 millionwere relatively flat in the second quarter of 2020three months ended June 30, 2021 compared to the same period of the prior year, primarily as a result of an increase in the Operating and Personnel Fees following the execution of the New Management Agreement, increased cost of non-recurring professional services incurred in preparation for our IPO, and share-based compensation associated with shares granted in the second quarter of 2020, offset by lower legal expenses.three months ended June 30, 2020.

Six Months Ended June 30, 20202021 and 20192020

G&A expenses increased $26.1 millionwere relatively flat in the six months ended June 30, 20202021 compared to the same period of the prior year, primarily driven by the factors as described above. Additionally, the increase is also driven by higher cost of non-recurring professional services incurred in connection with the Reorganization Transactions and our IPO, including fees related to the refinancing of our debt in the first quarter ofsix months ended June 30, 2020.

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Equity in loss/(earnings)earnings of non-consolidated affiliates

Three months ended June 30, 20202021 and 2019

In connection with the Exchange Offer, we acquired the Legacy SLP Interest valued at $303.7 million in exchange for issuing shares in the Company. During the second quarter of 2020 we recorded equity in earnings of $20.2 million attributable to our income allocation in the Legacy Investors Partnerships.

Equity in earnings of the Avillion Entities was highernon-consolidated affiliates decreased $11.6 million, or 39.6%, in the second quarter of 2020three months ended June 30, 2021 compared to the same periodthree months ended June 30, 2020.

Equity in 2019earnings from the Legacy SLP Interest was $25.6 million and $20.2 million, in the three months ended June 30, 2021 and 2020, respectively. The increase in equity in earnings of the Legacy SLP Interest was primarily driven by higher net income attributable to Old RPI.

We recognized equity in losses from the Avillion entities of $7.9 million in the three months ended June 30, 2021 as compared to equity in earnings of $9.1 million in the three months ended June 30, 2020. The equity in earnings we recognized from the Avillion entities during the three months ended June 30, 2020 was primarily driven by a gain related to the completioncessation of the Phase 2 clinical trial for the Merck development program during the second quarter of 2020,KGaA Asset, which triggered a distribution received in the period.three months ended June 30, 2020.

Six Months Ended June 30, 20202021 and 20192020

DuringEquity in earnings of non-consolidated affiliates decreased $4.4 million, or 21.9%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Equity in earnings from the Legacy SLP Interest was $30.8 million and $23.4 million in the six months ended June 30, 2021 and 2020, respectively. The increase in equity in earnings of the Legacy SLP Interest reflects a partial period of equity in earnings subsequent to the Exchange Date in the six months ended June 30, 2020.

Equity in losses of the Avillion Entities was $15.0 million and $3.2 million for the six months ended June 30, 2021 and 2020, respectively. In the six months ended June 30, 2020, we recordedthe equity in earnings of $23.4 million attributablelosses was smaller due to our income allocation ina gain we recognized related to the Legacy Investors Partnerships.

Equity in earningscessation of the Avillion Entities was higher in the six months ended June 30, 2020 compared to the same period in 2019clinical trial for the reasons as described above.Merck KGaA Asset.

Interest expense

Three months ended June 30, 20202021 and 20192020

Interest expense declined $35.0 millionwas relatively flat in the second quarter of 2020three months ended June 30, 2021 as compared to the same period of the prior year as a result of the Reorganization Transactions and subsequent refinancing of RPIFT’s prior credit facilities that occurred in Februarythree months ended June 30, 2020. Our subsidiary issued $6.0 billion of new debt in February of 2020 at lower interest rates. Refer to the Liquidity and Sources of Capital section within this MD&A for additional discussion of our new credit facilities.

Six Months Ended June 30, 20202021 and 20192020

41


Interest expense declined $48.7decreased by $12.9 million, or 14.7%, in the six months ended June 30, 2020 as2021 compared to the same period ofsix months ended June 30, 2020, primarily due to a lower weighted average interest rate on the prior year as a result of$6.0 billion senior unsecured notes issued in September 2020 (the “Notes”) compared to the Reorganization Transactions and subsequent refinancing of RPIFT’s priorweighted average interest rate on the senior secured credit facilities as described above.that were in place during the six months ended June 30, 2020.

Refer to the “Liquidity and Capital Resources” section for additional discussion of the Notes and our debt refinancings in 2020.

49


Other (income) expense,income, net

Three months ended June 30, 20202021 and 20192020

Other income, net of $81.5 million in the three months ended June 30, 2021, was primarily comprised of gains on equity securities of $55.5 million driven by a net increase in the share price of our investees. During the three months ended June 30, 2021, we sold all of our Cytokinetics common stock and a portion of our Biohaven common stock. We also recognized interest income of $14.0 million, primarily related to our Series A Biohaven Preferred Shares, a gain of $14.0 million related to the unrealized change in fair value of the Series B Biohaven Preferred Shares, Series B Forwards and Development Funding Bond Forward recorded as Available for sale debt securities for which there were no comparable activities in the prior year period.

Other income, net was $197.5 million in the second quarterthree months ended June 30, 2020, primarily comprised of 2020 compared to other expense of $71.8 million in the second quarter of 2019. We recorded unrealized gains on equity securities in the second quarter of 2020 of $193.9 million primarily due to andriven by increased share priceprices of our investees. In the prior year period, we recorded $39.4 million in unrealized loss related to our interest swap and $36.8 million in unrealized loss related to our equity securities.

Six Months Ended June 30, 20202021 and 20192020

Other income, net was $50.5 million in the six months ended June 30, 2021, primarily comprised of interest income of $30.6 million related to our Series A Biohaven Preferred Shares for which there was no comparable activity in the prior year period. We also recognized a gain of $23.1 million related to the unrealized change in fair value of the Series B Biohaven Preferred Shares, Series B Forwards and Development Funding Bond Forward recorded as Available for sale debt securities for which there were no comparable activities in the prior period.

Other income, net was $7.9 million in the six months ended June 30, 2020, compared to other expenseprimarily comprised of $33.8 million in the six months ended June 30, 2019. In the first six months of 2020, we recorded unrealized gains on equity securities of $40.7 million, primarily an netdriven by increased share priceprices of our investees, which was offset by unrealized losses on derivative contractsfinancial instruments of $32.8 million primarily related to unrealized losslosses on our interest rate swaps due to adverse movements in the LIBOR curve prior to the termination of interest rate swaps in February 2020 and a decrease in fair value related toof our Epizyme warrant. In the prior year period, we recorded $65.3 million in unrealized loss on derivative contracts related to our interest rate swaps and $16.9 million in unrealized gain on equity securities.

Net income attributable to non-controlling interest

Three months ended June 30, 20202021 and 20192020

As of the Exchange Date, a new non-controlling interest exists related to the ownership in Old RPI by the Legacy Investors Partnerships of approximately 18%. As a result of the IPO, holders of our Class B ordinary shares also represent a non-controlling interest.

During the second quarter of 2020, we recorded netNet income attributable to the Legacy Investors Partnerships, andwhich arose in February 2020 in connection with the Exchange Offer Transactions, was $133.7 million in the three months ended June 30, 2021, an increase of $26.0 million, compared to the three months ended June 30, 2020 primarily driven by higher net income attributable to Old RPI.

Net income attributable to the Continuing Investors Partnerships, for their ownership of RP Holdings Class B Interests of $107.7which arose in connection with the IPO, was $213.0 million and $31.6 million respectively. The net income attributable to non-controlling interest in each period of 2020 is larger than in the comparable prior year periods as a result of ownership changes related to the Reorganization Transactionsthree months ended June 30, 2021 and the IPO. We now have four different components of non-controlling interest and total ownership by non-controlling interest of 56% versus ownership by non-controlling interest related solely to RPSFT in the prior year period of less than 1%.

During the second quarter of 2020, and 2019, we recorded net income attributable to RPSFT of $20.6 million and $27.1 million, respectively. Net income attributable to the Continuing Investors Partnerships was lower in the three months ended June 30, 2020 as it reflected a partial period.

Net income attributable to RPSFT is expectedwas $19.3 million and $20.6 million in the three months ended June 30, 2021 and 2020, respectively. We expect net income attributable to RPSFT to continue to decline as the assets held by RPCT mature.

Six Months Ended June 30, 20202021 and 20192020

InNet income attributable to the Legacy Investors Partnerships was $170.0 million and $120.6 million in the six months ended June 30, 2021 and 2020, respectively. Net income attributable to the Legacy Investors Partnerships was lower in the six months ended June 30, 2020 we recorded netas it reflected a partial period.

Net income attributable to the LegacyContinuing Investors Partnerships was $251.5 million and $31.6 million, in the six months ended June 30, 2021 and 2020, respectively. Net income attributable to the Continuing Investors Partnerships for their ownership of RP Holdings Class B Interests of $120.6 million and $31.6 million, respectively.

Duringwas lower in the six months ended June 30, 2020 and 2019, we recorded netas it reflected a partial period.

Net income attributable to RPSFT ofwas $34.3 million and $45.6 million in the six months ended June 30, 2021 and $55.7 million,2020, respectively. Income attributable to RPSFT is expected to continue to decline as the assets held by the Collection Trust mature.

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Key developments and upcoming events relating to our portfolio in 2019-2020

The key developments impacting our cash receipts and income and revenue from our royalty interests are discussed below:

Erleada. In September 2019, the FDA approved an supplemental New Drug Application ("sNDA") for Erleada for the treatment of men with metastatic castration-sensitive prostate cancer.Commercial Products

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Cystic fibrosis franchise. In October 2019, Trikafta,August 2020, Vertex announced that the Vertex tripleEuropean Commission (EC) had granted marketing authorization of Kaftrio in a combination therapy, received FDA approvalregimen with ivacaftor for the treatment of patients with cystic fibrosis in people ages 12 years and older with one F508del mutation and one minimal function mutation, or two F508del mutations in the CFTR gene.

In December 2020, the FDA expanded the eligibility for Trikafta to include people with cystic fibrosis ages 12 and older with certain mutations that are responsive to Trikafta based on in vitro data.

In April 2021, Vertex announced EC approval for Kaftrio in combination with Ivacaftor for the treatment of patients with cystic fibrosis ages 12 and older who have at least one F508del mutation of the cystic fibrosis transmembrane conductance regulator (CFTR) gene. This approval significantly expanded the addressable market that can be treated with Vertex’s cystic fibrosis products, all of which we are entitled royalties on, and also increased the duration of our royalty to 2037.

In November 2019, Vertex announced that it reached an agreement with France’s Economic Committee of Health Care Products (CEPS) for a national reimbursement deal of Orkambi. As a result, we experienced a reduction in our royalty receipts in 2020 of approximately $41 million, to reflect a true-up related to prior periods where we collected royalties on sales in France of Orkambi at a higher selling price. In October 2019, Vertex announced that it reached an agreement with National Health Service England, where eligible patients will receive access to Orkambi and Symkevi, and access to Kalydeco will be expanded.mutation.

In June 2020,2021, Vertex announced that EMA’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinionthe FDA approved Trikafta for the triple combination therapy in a combination with Kalydeco in people ages 12 and oldertreatment of children with cystic fibrosis with the most common genotype. If granted Marketing Authorization, people ages 12 and older in Europe6 to 11 who have at least one F508del mutation and one minimal function mutation willor have certain mutations that are responsive to Trikafta based on in vitro data. Vertex has also filed a regulatory submission for the first time be ableuse of Kaftrio in children ages 6 to benefit from a medicine that treats11 to the underlying cause of the disease, and people 12 years of age and older who have two F508del mutations also will be eligible for the new triple combination regimen.European Medicines Agency (EMA).

Tysabri.In June 2020, VertexBiogen submitted a supplemental Biologics License Application (sBLA) for a subcutaneous formulation of Tysabri to the FDA. This followed a regulatory submission for a subcutaneous formulation of Tysabri to the EMA in March 2020. In April 2021 Biogen announced that the EC granted marketing authorization for a subcutaneous injection of Tysabri to treat relapsing-remitting multiple sclerosis. Biogen also announced that it had expandedreceived a Complete Response Letter (CRL) from the FDA for its reimbursement agreementsBLA for subcutaneous Tysabri. The CRL indicates that the FDA is unable to approve Biogen’s filing as submitted. Biogen announced that it is evaluating the CRL and will determine next steps in the United States.

In August 2021, Biogen announced results from Phase 3b NOVA study evaluation every six-week dosing
with NHS England forTysabri IV administration in relapsing-remitting multiple sclerosis. Results show that every six-week Tysabri IV administration provides a high level of efficacy in controlling multiple sclerosis disease activity in patients who switched from the company’s cystic fibrosis medicines to include Kaftrio, in a combination regimen with Kalydeco, ahead of the medicine’s anticipated approval by the European Commission. The new expanded agreement includes reimbursed access to Vertex’s currently licensed medicines, as well as the triple combination therapy if approved and any future additional licensed indications for all of these medicines.every four-week dosing regimen.

Imbruvica.In January 2019, theApril 2020, Imbruvica received FDA approved Imbruvicaapproval for use in combination with obinutuzumab asrituximab for the first non-chemotherapy anti-CD20 combination regimen for treatment-naïvetreatment of previously untreated patients with chronic lymphocytic leukemia (“CLL”) patients. (CLL) or small lymphocytic lymphoma (SLL).

In August 2019,2020, the EMA broadened the labelEC granted marketing authorization for Imbruvica to include two new uses: in combination with obinutuzumab in adult patients with previously untreated CLL and in combination with rituximab for the treatment of adult patients with WM. previously untreated CLL. This milestone marked the 11th FDA approval for Imbruvica since it was first approved in 2013 and sixth in CLL.

In November 2019, AbbVie submitted an sNDA to the FDAJune 2021, Phase 3 GLOW study results were announced for Imbruvica in combination with rituximabVenetoclax for treatment-naïve younger adults withthe treatment of first-line CLL and SLL demonstrated superior progression-free survival versus chlorambucil plus obinutuzumab as a first-line treatment of CLL. The study also showed improved duration of remission and significantly improved depth of remission. AbbVie has indicated that approval could occur in 2022.

Soliqua.Xtandi. Astellas and Pfizer have indicated that there could be a potential readout of the Phase 3 EMBARK trial for high-risk non-metastatic prostate cancer in 2021, with a primary trial completion date anticipated in 2023.

In February 2019, the FDA approved the expanded use of Soliqua to include patients with type 2 diabetes who are uncontrolled on oral antidiabetic medicines.

Bosulif. On December 19, 2017, AvillionMay 2021, Astellas and Pfizer announced that the FDAEC approved an sNDA for Pfizer’s Bosulif (bosutinib). Avillion is eligible to receive fixed payments from Pfizer based on this approval over a 10-year period. We received our first annual distribution of $39.4 million from Avillion in the first quarter of 2018 and our second annual distribution of $14.1 million in the first quarter of 2019, reflected as Distributions from non-consolidated affiliates on the Statement of Cash Flows.

Tazverik. In December 2019, the Oncologic Drugs Advisory Committee of the FDA voted in favor of the benefit-risk profile of tazemetostat as a treatment for patients with metastatic or locally advanced epithelioid sarcoma (“ES”), not eligible for curative surgery. On January 23, 2020, the FDA granted accelerated approval of Tazverik (tazemetostat) in ES.

In addition, in December 2019 Epizyme submitted an NDA to the FDA for accelerated approval of tazemetostat for the treatment of patients with relapsed or refractory follicular lymphoma (“rrFL”), both with or without EZH2 activating mutations, who have received at least two prior lines of systemic therapy.

In February 2020, the FDA accepted Epizyme’s regulatory submission for accelerated approval of Tazverik in rrFL and set a Prescription Drug User Fee Act (“PDUFA”) in June 2020. In June 2020, Epizyme announced that the FDA approved the sNDA for Tazverik (tazemetostat) for rrFL.

In June 2020, Epizyme, Inc. announced that the FDA granted accelerated approval of the supplemental New Drug Application (sNDA) for Tazverik for two distinct follicular lymphoma (FL) indications, including adult patients with relapsed or refractory FL whose tumors are positive for an EZH2 mutation as detected by an FDA-
43


approved test and who have received at least two prior systemic therapies and adult patients with relapsed or refractory FL who have no satisfactory alternative treatment options.

Trodelvy (sacituzumab govitecan-hziy). In December 2019, Immunomedics announced the resubmission of the biologics licensing application seeking accelerated approval of sacituzumab govitecanXtandi for the treatment of patients with metastatic triple-negative breast cancer who have received at least two prior therapies for metastatic disease in December 2019. This resubmission followed the receipt of a complete response letter from the FDA in January 2019.hormone-sensitive prostate cancer.

Trodelvy.In April 2020, Immunomedics announced that the FDA granted accelerated approval of Trodelvy (sacituzumab govitecan-hziy) for the treatment of patients with metastatic triple-negative breast cancer (“TNBC”) (TNBC)who have received at least two prior therapies for metastatic disease.
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In September 2020, Gilead and Immunomedics announced that Gilead would acquire Immunomedics for approximately $21 billion in cash and the transaction closed in October 2020. In 2018, we entered into a partnership with Immunomedics whereby we acquired a tiered sales-based royalty on Trodelvy for $175.0 million and acquired 4,373,178 shares of Immunomedics common stock for $75.0 million. Gilead’s acquisition of Immunomedics closed in October 2020, resulting in gross cash proceeds upon redemption of our Immunomedics common stock of approximately $385 million.

In January 2021, Gilead announced that progression-free survival data from the Phase 3 TROPiCS-02 trial testing Trodelvy versus physician’s choice in hormone receptor positive/human epidermal growth factor receptor 2 negative metastatic breast cancer who have previously failed at least two, and no more than four, prior chemotherapy regimens for metastatic disease was expected in the second half of 2021.

In March 2021, Gilead announced that the EMA had validated the marketing authorization application (MAA) filing for Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic TNBC who have received at least two prior therapies, including at least one prior therapy for locally advanced or metastatic disease. The MAA is the first antibody-drug conjugate (“ADC”) approvedunder accelerated review by the FDA specifically for TNBC.EMA and Gilead has indicated that approval may occur as early as the second half of 2021.

In April 2021, Gilead announced the FDA granted full approval to Trodelvy for adult patients with unresectable locally advanced or metastatic TNBC who have received two or more prior systemic therapies, at least one of them for metastatic disease. The approval is supported by data from the Phase 3 ASCENT study.

In April 2021, Gilead announced that the FDA granted an accelerated approval of Trodelvy for use in adult patients with locally advanced or metastatic urothelial cancer who have previously received a platinum-containing chemotherapy and either a programmed death receptor-1 (PD-1) or a programmed death-ligand 1 (PD-L1) inhibitor. The accelerated approval was based on data from the international Phase 2, single-arm TROPHY study.

In June 2021, Gilead announced superior outcomes to standard of care in second-line treatment of metastatic triple-negative breast cancer in Phase 3 ASCENT study. Trodelvy more than doubled overall survival as second-line treatment in new ASCENT subgroup analysis.

Nurtec ODT (rimegepant).ODT. Biohaven submitted two New Drug Applications (“NDAs”) to the FDA for two formulations of rimegepant in the second quarter of 2019 using a priority review voucher to expedite the regulatory review period. In February 2020, Biohaven announced that the FDA approved Nurtec ODT (rimegepant) for the acute treatment of migraine in adults. The U.S. FDA approval of Nurtec ODT triggered a redemption provision related to our investment in the Series A Biohaven Preferred Shares, which entitles us to receive a fixed payment amount of $250.0 million payable in equal quarterly payments from March 31, 2021 through December 31, 2024.

In October 2020, Biohaven announced that the FDA had filed and accepted for review its recently submitted sNDA for Nurtec ODT for the preventive treatment of migraine. The PDUFA target date for completion of the FDA review of the preventive application for Nurtec ODT is in the second quarter of 2021.

In March 2021, Biohaven announced that its filing for rimegepant was submitted and accepted for review by the EMA for the treatment of migraine, inclusive of both acute and preventive treatment.

In May 2021, Biohaven announced that the FDA approved Nurtec ODT for the preventative treatment of migraine, indicated for adult patients with episodic migraine who experience less than 15 headache days per month.

Evrysdi. In August 2020, the FDA approved Evrysdi, the first at-home, orally administered treatment for spinal muscular atrophy (SMA) in adults and children ages 2 months and older.

In March 2021, Roche announced that the EC approved Evrysdi for the treatment of SMA in patients two months of age and older, with a clinical diagnosis of SMA Type 1, Type 2 or Type 3 or with one to four splicing modifier of motor neuron 2 (SMN2) copies.

In June 2021, Evrysdi was approved in Japan for the treatment of SMA.

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Orladeyo. In December 2020, BioCryst announced that Orladeyo was approved by the FDA for prophylaxis to prevent attacks of hereditary angioedema (HAE) in patients ages 12 years and older.

In January 2021, Orladeyo was approved in Japan, becoming the first and only prophylactic HAE medication approved in the region.

In April 2021, BioCryst announced that the EC approved Orladeyo for the prevention of recurrent hereditary angioedema attacks in HAE patients 12 years and older.

In April 2021, BioCryst announced approval of Japanese National Health Insurance System price listing of Orladeyo for prophylactic treatment of hereditary angioedema.

Cabometyx. In January 2021, Exelixis announced that the FDA approved Cabometyx for patients with advanced renal cell carcinoma (RCC) as a first-line treatment in combination with Bristol Myers Squibb’s Opdivo. The approval was based on the Phase 3 CheckMate -9ER trial, in which the combination of Cabometyx and Opdivo significantly improved overall survival while doubling progression-free survival and objective response rate versus sunitinib as a first-line treatment for patients with advanced RCC.

In March 2021, Ipsen announced that the EC approved the combination of Cabometyx and Opdivo for the first-line treatment of advanced RCC.

In May 2021, Exelixis announced results from cohort six of COSMIC-021, a Phase 1b trial evaluating Cabometyx in combination with atezolizumab in patients with locally advanced or metastatic solid tumors, including patients with metastatic castration-resistant prostate cancer (CRPC). In high-risk patients, the combination of Cabometyx and atezolizumab resulted in objective response rates of 27% and 18% per investigator assessment and Blinded Independent Radiology Committee, respectively. Exelixis announced that it intends to discuss the results with the FDA to determine next steps towards regulatory submission for patients with high-risk metastatic CRPC.

In June 2021, Exelixis and Ipsen announced that COSMIC-312, a Phase 3 trial evaluating Cabometyx in combination with atezolizumab versus sorafenib in patients with previously untreated advanced hepatocellular carcinoma (HCC). The trial met one of its primary endpoints by demonstrating significant improvement in progression-free survival (PFS) at the planned primary analysis. However, a prespecified interim analysis was not statistically significant for the second primary endpoint of overall survival (OS). Based on the preliminary OS data, Exelixis anticipates that the probability of reaching statistical significance at the time of the final analysis is low. The final OS analysis is anticipated in early 2022. Exelixis announced that it plans to present these results at a future medical meeting and discuss the results with FDA to determine next steps towards a potential regulatory submission for the combination regimen for patients with previously untreated advanced HCC.

In August 2021, Exelixis announced that the FDA accepted for priority review the sNDA for Cabometyx for patients with previously treated radioactive iodine-refractory differentiated thyroid cancer with a PDUFA action date of December 4, 2021.

Development-Stage Product Candidates

Oxlumo. In July 2021, Alnylam announced results from ILLUMINATE-C, a phase 3 open-label study of lumasiran in patients of all ages with advanced primary hyperoxaluria type 1 (PH1) associated with progressive decline in renal function. Results from the primary analysis at six months demonstrated a substantial reduction in plasma oxalate from baseline in patients (n=21) with advanced disease, including those on hemodialysis. The safety and tolerability profile of lumasiran following six months of treatment was encouraging across all ages, with no drug related serious adverse events (SAEs) and injection site reactions (ISRs) as the most common adverse event (AE). Based on these results, Alnylam announced that it plans to submit a sNDA for lumasiran with the FDA and a Type II Variation with the EMA in late 2021.

Zavegepant. In October 2020, Biohaven began a one-year long-term safety trial of zavegepant. Biohaven expects a potential NDA filing by end of 2021 if the pivotal acute trial proves to be positive.
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In March 2021, Biohaven announced that it enrolled the first patient in a Phase 2/3 clinical trial of oral zavegepant for the preventive treatment of migraine. Accordingly, per the agreement with Biohaven announced in August 2020, Royalty Pharma paid $100 million to Biohaven for the achievement of this milestone, bringing the total zavegepant funding to $250 million.

Omecamtiv mecarbil. In November 2020, Amgen, Cytokinetics and Servier presented the results of GALACTIC-HF study, a Phase 3 trial of omecamtiv mecarbil in patients with heart failure, at the American Heart Association Scientific Sessions. The trial met the primary composite endpoint of reduction in cardiovascular death or heart failure events, but did not meet the secondary endpoint of reduction in cardiovascular death. Cytokinetics subsequently regained global rights to develop and commercialize omecamtiv mercarbil when Amgen and Servier elected to terminate their collaboration agreement effective, May 2021. Following the Phase 3 results and termination of the collaboration, we recorded a $90 million write-off in December 2020 to the royalty investment given the uncertainty around the future of omecamtiv.

In the second quarter of 2021, Cytokinetics announced that it has engaged with the FDA in both a Type C meeting and a pre-NDA meeting to inform its plans to submit NDA for omecamtiv mecarbil in the second half of 2021. The submission will be based on GALACTIC-HF which demonstrated a positive effect on the primary composite endpoint of cardiovascular death or heart failure events in patients with heart failure and reduced ejection fraction who were receiving standard of care plus omecamtiv mecarbil.

Ibrance. In May 2020, Pfizer reported that the independent data monitoring committee for the PALLAS trial had concluded after the recent interim analysis that the PALLAS trial iswas “unlikely to show a statistically significant improvement in the primary endpoint of invasive disease-free survival.” If Pfizer’sIn October 2020, Pfizer announced that the Phase 3 PENELOPE-B trial is successful,did not meet the primary endpoint of improved invasive disease-free survival in women with hormone receptor-positive, human epidermal growth factor-negative early breast cancer who have residual invasive disease after completing neoadjuvant chemotherapy. As a result, we will not be entitled to receive approval-based fixedany royalties or milestone payments of $250 million.from this R&D funding arrangement.

Tecfidera. We continued collecting milestone receipts quarterly throughout 2018; however, our contractual agreement covering our milestones on cumulative sales of Tecfidera ended in 2018, and therefore receipts from Tecfidera ceased after the final milestone was collected in the first quarter of 2019.

Non-GAAP Financial Results

In addition to analyzing our results on a GAAP basis, management also reviews our results on a non-GAAP basis. There is no direct correlation between income from financial royalty assets and royalty receipts due to the nature of the accounting methodology applied for classified as financial royalty assets. Further, income from financial royalty assets and the provision for changes in expected cash flows related to these financial royalty assets can be volatile and unpredictable. As a result, management places importance on royalty receipts as they are predictable and we use them as a measure of our operating performance. Refer to section titled “Non-GAAP ReconciliationReconciliations” for additional discussion of management’s use of non-GAAP measures as supplemental financial measures and reconciliations from the most directly GAAP comparable measures of Net cash provided by operating activities.

Adjusted Cash Receipts is a measure calculated with inputs directly from the Statement of Cash Flows and includes (1) royalty receipts by royalty asset:product: (i) Cash collections from royalty assets (financial assets and intangible assets), (ii) Other royalty cash collections, (iii) Distributions from non-consolidated affiliates, and (iv)plus (2) Proceeds from available for sale debt securities;securities and less (3) Distributions to non-controlling interest, which represents contractual distributions of royalty receipts and proceeds from available for sale debt securities to our historical non-controlling interest attributable to a de minimis interest in RPCT held by certain legacy investors and to a new non-controlling interest that was created as a result of the Exchange Offer Transactions in February 2020 related to the Legacy Investors Partnerships'Partnerships’ ownership of approximately 18% in Old RPI. Adjusted Cash Receipts is most directly comparable to the GAAP measure of Net cash provided by operating activities.

Adjusted EBITDA and Adjusted Cash Flow are similar non-GAAP liquidity measures that are both most closely comparable to the GAAP measure, Net cash provided by operating activities. Adjusted EBITDA is important to our lenders and is defined under the credit agreementCredit Agreement as Adjusted Cash Receipts less paymentsPayments for operating and professional costs. OperatingPayments for operating and professional costs are comprised of Payments for operating costs and professional servicescosts andPayments for rebates from the Statement of Cash Flows.

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Adjusted Cash Flow is defined as Adjusted EBITDA less (1) Development-stageOngoing development-stage funding payments ongoing, (2) Interest paid, net of interest received,(3) SwapOther (including Derivative collateral (posted) orposted, net of Derivative collateral received net,and Termination payments on derivative instruments) and (4) Swap termination payments, and (5) InvestmentInvestments in non-consolidated affiliates, and plus (1) Contributions from non-controlling interest- R&D, all directly reconcilable to the Statement of Cash Flows.
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Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of our ability to generate cash from operations. Both measures are an indication of the strength of the Company and the performance of the business. Management also uses Adjusted Cash Flow to compare its performance against non-GAAP adjusted net income used by companies in the biopharmaceutical industry. Adjusted EBITDA, as derived from Adjusted Cash Receipts, is used by our lenders to assess our ability to meet our financial covenants.

The table below includes the royalty receipts and non-GAAP financial results for the three and six months ended June 30, 2021 and 2020 and 2019 by royaltyproduct in order of contribution to income for our Growth Products and Mature Products, as defined in “—Portfolio Overview” above, and the period-over-period variance.three months ended June 30, 2021.
(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
Six-Months Year-to-date Change
2020201920202019$%
Growth Products
Cystic fibrosis franchise$136,119  $85,745  $235,522  $192,684  $42,838  22.2 %
Tysabri92,517  81,985  176,324  164,620  11,704  7.1 %
Imbruvica81,513  66,247  159,222  127,349  31,873  25.0 %
HIV franchise64,692  52,193  148,579  128,576  20,003  15.6 %
Januvia, Janumet, Other DPP-IVs34,859  41,082  69,647  73,820  (4,173) (5.7)%
Xtandi34,131  27,040  68,908  54,608  14,300  26.2 %
Promacta26,653  19,335  62,401  19,335  43,066  222.7 %
Farxiga/Onglyza8,257  —  8,257  —  8,257  —  
Prevymis6,413  —  6,413  —  6,413  —  
Crysvita2,620  —  2,620  —  2,620  —  
Erleada1,772  —  3,210  —  3,210  —  
Emgality2,236  —  4,213  —  4,213  —  
Other Growth Products (1)76,211  36,206  144,929  92,846  52,083  56.1 %
     Total Royalty Receipts - Growth Products$567,993  $409,833  $1,090,245  $853,838  $236,407  27.7 %
Mature Products
Tecfidera (2)$—  $—  $—  $150,000  $(150,000) (100.0)%
Lyrica6,470  35,134  12,557  64,739  (52,182) (80.6)%
Letairis7,713  22,458  22,275  60,917  (38,642) (63.4)%
Remicade—  —  —  6,068  (6,068) (100.0)%
Other mature products (3)2,802  7,761  3,545  17,924  (14,379) (80.2)%
     Total Royalty Receipts - Mature Products$16,985  $65,353  $38,377  $299,648  $(261,271) (87.2)%
Distributions to non-controlling interest(123,159) (36,398) (284,546) (77,858) (206,688) 265.5 %
Adjusted Cash Receipts (non-GAAP)$461,819  $438,788  $844,076  $1,075,628  $(231,552) (21.5)%
Payments for operating and professional costs(44,147) (29,439) (69,985) (47,144) (22,841) 48.4 %
Adjusted EBITDA (non-GAAP)$417,672  $409,349  $774,091  $1,028,484  $(254,393) (24.7)%
Development-stage funding payments - ongoing(5,776) (21,457) (13,415) (44,448) 31,033  (69.8)%
Interest paid, net(30,967) (61,458) (79,834) (115,807) 35,973  (31.1)%
Swap collateral received or (posted), net—  (25,950) 45,252  (26,310) 71,562  (272.0)%
Swap termination payments—  —  (35,448) —  (35,448) —  
Investment in non-consolidated affiliates(16,120) (9,842) (29,262) (18,684) (10,578) 56.6 %
Contributions from non-controlling interest- R&D3,854  —  5,114  —  5,114  —  
Adjusted Cash Flow (non-GAAP)$368,663  $290,642  $666,498  $823,235  $(156,737) (19.0)%
Fully diluted shares outstanding607,107  n/a607,107  n/a
(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
Six-Months Year-to-date Change
2021202020212020$%
Products
Cystic fibrosis franchise (1)$156,023 $136,119 $322,832 $235,522 $87,310 37.1 %
Tysabri92,070 92,517 178,991 176,324 2,667 1.5 %
Imbruvica87,289 81,513 176,424 159,222 17,202 10.8 %
Januvia, Janumet, Other DPP-IVs (2)39,438 34,859 75,200 69,647 5,553 8.0 %
Xtandi35,767 34,131 76,812 68,908 7,904 11.5 %
Promacta32,341 26,653 76,466 62,401 14,065 22.5 %
HIV franchise (3)28,623 64,692 75,123 148,579 (73,456)(49.4)%
Nurtec ODT/Biohaven payment (4)16,721 — 33,222 — 33,222 — %
Cabometyx/Cometriq10,129 — 10,129 — 10,129 — %
Farxiga/Onglyza9,113 8,257 17,675 8,257 9,418 114.1 %
Prevymis8,772 6,413 17,402 6,413 10,989 171.4 %
Crysvita3,929 2,620 7,516 2,620 4,896 186.9 %
Emgality3,550 2,236 6,814 4,213 2,601 61.7 %
Erleada3,116 1,772 6,220 3,210 3,010 93.8 %
Trodelvy2,992 — 5,597 — 5,597 — %
Evrysdi2,971 — 4,648 — 4,648 — %
IDHIFA2,602 — 5,489 — 5,489 — %
Orladeyo957 — 969 — 969 — %
Tazverik743 96 1,207 96 1,111 1157.3 %
Other products (5)50,534 93,100 138,422 183,210 (44,788)(24.4)%
Total royalty receipts$587,680 $584,978 $1,237,158 $1,128,622 $108,536 9.6 %
Distributions to non-controlling interest(112,476)(123,159)(238,197)(284,546)46,349 (16.3)%
Adjusted Cash Receipts (non-GAAP)$475,204 $461,819 $998,961 $844,076 $154,885 18.3 %
Payments for operating and professional costs(39,604)(44,147)(81,764)(69,985)(11,779)16.8 %
Adjusted EBITDA (non-GAAP)$435,600 $417,672 $917,197 $774,091 $143,106 18.5 %
Ongoing development-stage funding payments$(3,122)$(5,776)$(5,763)$(13,415)$7,652 (57.0)%
Interest received/(paid), net784 (30,967)(62,168)(79,834)17,666 (22.1)%
Other2,130 — 2,130 9,804 (7,674)(78.3)%
Investments in non-consolidated affiliates(8,713)(16,120)(17,427)(29,262)11,835 (40.4)%
Contributions from non-controlling interest- R&D2,083 3,854 4,080 5,114 (1,034)(20.2)%
Adjusted Cash Flow (non-GAAP)$428,762 $368,663 $838,049 $666,498 $171,551 25.7 %
Weighted average Class A ordinary shares outstanding - diluted607,163n/a607,151n/a

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(1) The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.
(2) Januvia, Janumet, Other Growth ProductsDPP-IVs include the following approved products: Tradjenta, Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by Boehringer Ingelheim, AstraZeneca, Novartis and Takeda.
(3) The HIV franchise includes the following approved products: Atripla, Truvada, Emtriva, Complera, Stribild, Genvoya, Descovy, Odefsey, Symtuza and Biktarvy. Royalties are received on the emtricitabine portion of sales only.
(4) Includes royalty receipts for Nurtec of $1.1 million and $2.0 million for the three and six months ended June 30, 2021, respectively, and the redemption of the Series A Biohaven Preferred Shares of $15.6 million and $31.3 million (presented as Proceeds from available for sale debt securities on the Statement of Cash Flows) for the three and six months ended June 30, 2021, respectively.
(5) Other products primarily include royalties on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion, for which receipts are presented as Distributions received from non-consolidated affiliates on the Statement of Cash Flows), Letairis, Lyrica, Cimzia, Conbriza/Fablyn/Viviant, Entyvio, Lexiscan, Mircera, Myozyme, Nesina, Priligy, and Soliqua. Other Growth Products also include contributions from the Legacy SLP InterestSoliqua and a distribution from Avillion in respect of the Merck KGaA Asset, for which development ceased in
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2020, and for which the receipt is presented as Distributions received from non-consolidated affiliates in both the operating and investing section of the Statement of Cash Flows.
(2) Receipts Subsequent to the Exchange Offer Transactions, Other products also includes contributions from our Tecfidera milestone payments are presented as Proceeds from available for sale debt securities on the Statement of Cash Flows.Legacy SLP Interest.
(3) Other Mature Products primarily include royalties on the following products: Prezista, Rotateq, Savella and Thalomid.

Adjusted Cash Receipts (non-GAAP)

Six Months Ended June 30, 2021 and 2020

Adjusted Cash Receipts declinedincreased by $231.6$154.9 million to $999.0 million in the six months ended June 30, 20202021 compared to the same period of 2019six months ended June 30, 2020, primarily driven by increased distribution to non-controlling interest as a result of a new non-controlling interest created related to the Legacy Investors Partnerships' ownership of approximately 18% in Old RPI following our Exchange Offer Transactions in February 2020. The decline in Adjusted Cash Receipts is further attributable to a decline in royalty receipts related to Mature Products, the most significant of which was Tecfidera. The decline was offset by an increase in royalty receipts from our Growth Productsthe cystic fibrosis franchise, including royalty receipts related to the residual interest in the cystic fibrosis franchise that we acquired in November 2020, fixed payments from Biohaven on the Series A Biohaven Preferred Shares and new assets acquired subsequent to the six months ended June 30, 2020. Offsetting the increase in royalty receipts is a decline in royalty receipts from theHIV franchise, due to loss of $236.4exclusivity for Truvada and Atripla, and a decline in royalty receipts from maturing assets, including Lyrica and Letairis. Additionally, we received a distribution of $21.3 million from Avillion II during the three months ended June 30, 2020 in connection with the cessation of the Merck KGaA Asset development for which there was no comparable activity in the six months ended June 30, 2020 compared2021. The increase in Adjusted Cash Receipts is further driven by a decrease in distributions to non-controlling interest, primarily due to a non-recurring distribution to the same period of 2019, driven primarily byLegacy Investors Partnerships in connection with the performance of Cystic fibrosis franchise, Imbruvica,Exchange Offer Transactions that occurred in the 2019 acquisition of Promacta, and 2020 acquisitions including Entyvio and the Legacy SLP Interest, both of which are included in Other Growth Products. three months ended March 31, 2020.

Below we discuss the key drivers of royalty receipts from our Growth Products.receipts.

Growth ProductsRoyalty Receipts

Cystic fibrosis franchise – Royalty receipts from the cystic fibrosis franchise, which includes Kalydeco, Orkambi, SymdekoSymdeko/Symkevi and Trikafta,Trikafta/Kaftrio, all approved for patients with certain mutations causing cystic fibrosis, increased by $42.8$87.3 million in the six months ended June 30, 20202021 compared to the same period of 2019, primarilysix months ended June 30, 2020. The increase was driven by the highly successful launch of Trikafta in the U.S. and partially offset by a clawback adjustment related to Vertex’s agreement with the French Authorities for a nationalaround reimbursement deal for Orkambi duringthat reduced royalty receipts in the first quarterthree months ended March 31, 2020, as well as growth in sales for the overall cystic fibrosis franchise resulting from continued uptake of 2020.Trikafta in the United States and Kaftrio in Europe. Following our acquisition of the residual interest from the Cystic Fibrosis Foundation in the three months ended December 31, 2020, Royalty Pharma is entitled to all royalty receipts on annual worldwide net sales above $5.8 billion and received royalty receipts related to the residual interest in the cystic fibrosis franchise in the six months ended June 30, 2021.

Tysabri – Royalty receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, increased by $11.7$2.7 million in the six months ended June 30, 20202021 compared to the same period of 2019, benefiting from extra shipping days and a pricing adjustment in Italy related to prior periods as well asaccelerated sales that occurred related to COVID-19.six months ended June 30, 2020, driven by continued patient growth.

Imbruvica – Royalty receipts from Imbruvica, which is marketed by AbbVie and Johnson & Johnson for the treatment of blood cancers and chronic graft versus host disease, increased by $31.9$17.2 million in the six months ended June 30, 20202021 compared to the same period of 2019,six months ended June 30, 2020, driven by continued penetration in patients with chronic lymphocytic leukemia.leukemia, favorable pricing and partially offset by lower new patient starts due to the COVID-19 pandemic as well as the impact of a COVID-19 inventory stocking benefit in the six months ended June 30, 2020.

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Januvia, Janumet, Other DPP-IVs – Royalty receipts from the DPP-IVs for type 2 diabetes, which includes Januvia and Janumet, both marketed by Merck, increased by $5.6 million in six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Xtandi – Royalty receipts from Xtandi, which is marketed by Pfizer and Astellas for the treatment of prostate cancer, increased by $7.9 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, driven by demand across various prostate cancer indications.

Promacta – Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia and aplastic anemia, increased by $14.1 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. This growth was driven by increased use in immune thrombocytopenia and as first-line treatment for severe aplastic anemia in the United States.

HIV franchise – Royalty receipts from the HIV franchise, which is based on products marketed by Gilead that contain emtricitabine, including Biktarvy, Genvoya and Truvada, among others, increaseddecreased by $20.0$73.5 million in the six months ended June 30, 20202021 compared to the same period of 2019.six months ended June 30, 2020. This increasedecrease was driven by strong performance of Biktarvy offset by decreasesa decline in sales volumes of other combination products.Truvada and Atripla following loss of exclusivity in the United States as well as seasonal trends given a COVID-19 inventory stocking benefit in the six months ended June 30, 2020.

Januvia, Janumet, Other DPP-IVsCabometyx/Cometriq – Royalty receipts from the DPP-IVs for type 2 diabetes, which includes Januvia and Janumet, both marketed by Merck & Co., declined slightly primarily driven by the continued pricing pressure in the U.S.

Xtandi – Royalty receipts from Xtandi,Cabometyx/Cometriq, which is marketed by PfizerExelixis, Ipsen and Astellas for the treatment of prostate cancer, increased by $14.3Takeda, were $10.1 million in the six months ended June 30, 2020 compared to2021. We acquired the same period of 2019, driven by demandCabometyx/Cometriq royalty in across various prostate cancer indications.March 2021.

PromactaNurtec ODT – Royalty receipts from Promacta, which isNurtec ODT, marketed by NovartisBiohaven for the acute treatment of chronic immune thrombocytopenia and aplastic anemia, increased by $43.1migraine, were $2.0 million in the six months ended June 30, 2021. In addition, as a result of the approval of Nurtec ODT in February 2020, comparedRoyalty Pharma received $31.3 million in fixed payments from Biohaven during the six months ended June 30, 2021 which represent the first two of 16 consecutive quarterly payments to be received from Biohaven relating to the same period of 2019. We acquired the Promacta royalty in March 2019 and did not record royalty receipts for Promacta until the second quarter of 2019.Series A Biohaven Preferred Shares.

Mature Products

The declines in our royalty receipts from Mature Products were primarily related to Tecfidera. Our contractual agreement covering our milestones on cumulative sales of Tecfidera up to $20 billion ended in 2018 and therefore, receipts
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from Tecfidera ceased after the final milestone was collected in the first quarter of 2019. We also saw declines in receipts from the losses of exclusivity for Lyrica and Letairis.

Distributions to Non-Controlling InterestsInterest

Distributions to non-controlling interests increasedinterest decreased by $206.7$46.3 million to $238.2 million in the six months ended June 30, 20202021 compared to the same period of 2019,six months ended June 30, 2020, which negatively impactspositively impacted Adjusted Cash Receipts. This increaseThe decrease in distributions to non-controlling interest is primarily due to the additional 18% contractual non-controlling interest held by the Legacy Investors Partnerships that arose in the Exchange Offer. The increased distributions relateda non-recurring distribution to the Legacy Investors Partnerships were partially offset by a decline in distributions related to RPSFT fromconnection with the maturation of several royalties held byExchange Offer Transactions that occurred in the RPCT, including Humira and Remicade.three months ended March 31, 2020.

Adjusted EBITDA (non-GAAP)

Six Months Ended June 30, 2021 and 2020

Adjusted EBITDA declinedincreased by $254.4$143.1 million to $917.2 million in the six months ended June 30, 20202021 compared to the same period of 2019, alsosix months ended June 30, 2020 as a result of the factors noted above in “Adjusted Cash Receipts (Non-GAAP).” In addition, paymentsPayments for operating and professional costs, the only adjustment between Adjusted Cash Receipts and Adjusted EBITDA, increased in 20202021 as a result of higher costs for Operating and Personnel Payments under the terms of our New Management Agreement and increased costs foroffset by a decrease in non-recurring professional services paidfees, restructuring fees and refinancing fees incurred in the six months ended June 30, 2020 in connection with the ReorganizationExchange Offer Transactions and ourthe IPO.

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Adjusted Cash Flow (non-GAAP)

Six Months Ended June 30, 2021 and 2020

Adjusted Cash Flow declinedincreased by $156.7$171.6 million to $838.0 million in the six months ended June 30, 20202021 compared to the same period of 2019six months ended June 30, 2020 primarily for the same reasons noted above in “Adjusted Cash Receipts (Non-GAAP).” In 2020, weFurther, the increase in Adjusted Cash Flow was also due to a $17.7 million decrease in net interest paid $35.4 millionin the six months ended June 30, 2021 due to terminate oura lower weighted average interest rate swaps executedon the $6.0 billion of Notes that were issued in connectionSeptember 2020 compared to the weighted average interest rate on the senior secured credit facilities that were in place during the six months ended June 30, 2020. The increase is further attributed to the lower ongoing development-stage funding requirements under our co-funding agreement with Sanofi and the Reorganization Transactions, which was offsetlower funding requirements by the returnAvillion entities following the cessation of collateral, lower ongoingthe Merck KGaA Asset development stage funding payments and lower interest payments on our new credit facilities.in 2020.

Non-GAAP Reconciliations

Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow are non-GAAP measures presented as supplemental measures to our GAAP financial performance. These non-GAAP financial measures exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. In each case, because our operating performance is a function of our liquidity, the non-GAAP measures used by management are presented and defined as supplemental liquidity measures. We caution readers that amounts presented in accordance with our definitions of Adjusted Cash Receipts, Adjusted EBITDA, and Adjusted Cash Flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate the non-GAAP measures we use in the same manner. We compensate for these limitations by using non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures, in each case being Net cash provided by operating activities.activities.

We believe that Adjusted Cash Receipts and Adjusted Cash Flow provide meaningful information about our operating performance because the business is heavily reliant on its ability to generate consistent cash flows and these measures reflect the core cash collections and cash charges comprising our operating results. Management strongly believes that our significant operating cash flow is one of the attributes that attracts potential investors to our business.

In addition, we believe that Adjusted Cash Receipts and Adjusted Cash Flow help identify underlying trends in the business and permit investors to more fully understand how management assesses the performance of the Company, including planning and forecasting for future periods. Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of the Company’s ability to generate cash from operations. Both measures are an indication of the strength of the Company and the performance of the business. Management uses Adjusted Cash Receipts and Adjusted Cash Flow when considering available cash, including for decision-making purposes related to funding of acquisitions, voluntary debt repayments, dividends and other discretionary investments. Further, these non-GAAP financial measures help management, the audit committee and investors evaluate the Company’sour ability to generate liquidity from operating activities.

Management believes that Adjusted EBITDA is an important non-GAAP measure in analyzing our liquidity and is a key component of certain material covenants contained within the Company’s Credit Agreement.credit agreement. Noncompliance with the interest coverage ratio and leverage ratio covenants under the credit agreement could result in our lenders requiring the Company to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited
47


under our credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the assessment of our liquidity.

Management uses Adjusted Cash Flow to evaluate its ability to generate cash and performance of the business and to evaluate the Company’s performance as compared to its peer group. Management also uses Adjusted Cash Flow to compare its performance against non-GAAP adjusted net income measures used by many companies in the biopharmaceutical industry, even though each company may customize its own calculation and therefore one company’s metric may not be directly comparable to another’s. We believe that non-GAAP financial measures, including Adjusted Cash Flow, are frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.

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The non-GAAP financial measures used in this earnings releaseQuarterly Report on Form 10-Q have limitations as analytical tools, and you should not consider them in isolation or as a substitute for the analysis of our results as reported under GAAP. We have provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, in each case beingNet cash provided by operating activities below.

To arrive at Adjusted Cash Receipts, we start with the GAAP line item, Net cash provided by operating activities, and adjust for the following items from the Statement of Cash Flows: to add back (1) Proceeds from available for sale debt securities (Tecfidera milestone payments) (redemption of Biohaven Preferred Shares), which are cash inflows that management believes are derived from royalties and form part of our core business strategy, (2) Distributions from non-consolidated affiliates classified as Cash used in investing activities, (3) Interest paid, net of interest Interest received, (4) Development-stage funding payments, that are intended to generate royalties in the future, (5) Payments for operating and professional services,costs, (6) Payments for rebates, and (7) Swap termination Termination payments on derivative instruments, and to deduct (1) Distributions to non-controlling interests,interest, which represents distributions to our historical non-controlling interest attributable to a de minimis interest in RPCT held by certain legacy investors and to a new non-controlling interest that was created as a result of the Exchange Offer Transactions in February 2020 related to the Legacy Investors Partnerships'Partnerships’ ownership of approximately 18% in Old RPI, and (2) SwapDerivative collateral posted or (received), net, both of which are excluded when management assesses its operating performance through cash collections, or, Adjusted Cash Receipts.

To arrive at Adjusted EBITDA, we start with Net cash provided by operating activities and adjust for the following items from the Statement of Cash Flows: to add back (1) Proceeds from available for sale debt securities (Tecfidera milestone payments) (redemption of Biohaven Preferred Shares), (2) Distributions from non-consolidated affiliates classified as Cash used in investing activities, (3) Interest paid, net of interestInterest received and (4) Development-stage funding payments and (5) Swap termination Termination payments on derivative instruments, and to deduct (1) Distributions to non-controlling interest and (2) SwapDerivative collateral posted or (received), net.

To arrive at Adjusted Cash Flow, we start with Net cash provided by operating activities and adjust for the following items from the Statement of Cash Flows: to add back (1) Proceeds from available for sale debt securities (Tecfidera milestone payments) (redemption of Biohaven Preferred Shares), (2) Distributions from non-consolidated affiliates classified as Cash used in investing activities, (3) Development-stageUpfront development-stage funding payments – upfront,, and (4) Contributions from non-controlling interest- R&D, and to deduct (1) Distributions to non-controlling interest and (2) Investment Investments in non-consolidated affiliates.affiliates. This is intended to present an Adjusted Cash Flow measure that is representative of cash generated from the broader business strategy of acquiring royalty-generating assets that are available for reinvestment and for discretionary purposes.

4859


(in thousands)For the three months ended
June 30,
For the six months ended
June 30,
2020201920202019
Net cash provided by operating activities (GAAP)$489,004  $336,881  $960,108  $769,777  
Adjustments:
Tecfidera milestone payments (1)—  —  —  150,000  
Distributions from non-consolidated affiliates - investing (2)15,084  —  15,084  —  
Interest paid, net (2)30,967  61,458  79,834  115,807  
Development stage funding payments - ongoing (3)5,776  21,457  13,415  44,448  
Payments for operating costs and professional costs44,147  29,439  69,985  47,144  
Swap termination payments—  —  35,448  —  
Distributions to non-controlling interests(123,159) (36,398) (284,546) (77,858) 
Swap collateral posted or received, net (2)—  25,950  (45,252) 26,310  
Adjusted Cash Receipts (non-GAAP)$461,819  $438,787  $844,076  $1,075,628  
Net cash provided by operating activities (GAAP)489,004  336,881  960,108  769,777  
Adjustments:
Tecfidera milestone payments (1)—  —  —  150,000  
Distributions from non-consolidated affiliates - investing (2)15,084  —  15,084  —  
Interest paid, net (2)30,967  61,458  79,834  115,807  
Development stage funding payments - ongoing (3)5,776  21,457  13,415  44,448  
Swap termination payments—  —  35,448  —  
Distributions to non-controlling interests(123,159) (36,398) (284,546) (77,858) 
Swap collateral posted or received, net (2)—  25,950  (45,252) 26,310  
Adjusted EBITDA (non-GAAP)$417,672  $409,348  $774,091  $1,028,484  
Net cash provided by operating activities (GAAP)489,004  336,881  960,108  769,777  
Tecfidera milestone payments (1)—  —  —  150,000  
Distributions from non-consolidated affiliates - investing (2)15,084  —  15,084  —  
Distributions to non-controlling interests (2)(123,159) (36,398) (284,546) (77,858) 
Investment in non-consolidated affiliates (2)(16,120) (9,842) (29,262) (18,684) 
Contributions from non-controlling interests-R&D (2), (4)3,854  —  5,114  —  
Adjusted Cash Flow (non-GAAP)$368,663  $290,641  $666,498  $823,235  
(in thousands)For the three months ended
June 30,
For the six months ended
June 30,
2021202020212020
Net cash provided by operating activities (GAAP)$531,720 $489,004 $1,057,820 $960,108 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 — 31,250 — 
Distributions from non-consolidated affiliates - investing (2)523 15,084 523 15,084 
Interest (received)/paid, net (2)(784)30,967 62,168 79,834 
Ongoing development-stage funding payments (3)3,122 5,776 5,763 13,415 
Payments for operating and professional costs39,604 44,147 81,764 69,985 
Termination payments on derivative instruments— — — 35,448 
Distributions to non-controlling interest (2)(112,476)(123,159)(238,197)(284,546)
Derivative collateral received, net (2)(2,130)— (2,130)(45,252)
Adjusted Cash Receipts (non-GAAP)$475,204 $461,819 $998,961 $844,076 
Net cash provided by operating activities (GAAP)$531,720 $489,004 $1,057,820 $960,108 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 — 31,250 — 
Distributions from non-consolidated affiliates - investing (2)523 15,084 523 15,084 
Interest (received)/paid, net (2)(784)30,967 62,168 79,834 
Ongoing development-stage funding payments (3)3,122 5,776 5,763 13,415 
Termination payments on derivative instruments— — — 35,448 
Distributions to non-controlling interest (2)(112,476)(123,159)(238,197)(284,546)
Derivative collateral received, net (2)(2,130)— (2,130)(45,252)
Adjusted EBITDA (non-GAAP)$435,600 $417,672 $917,197 $774,091 
Net cash provided by operating activities (GAAP)$531,720 $489,004 $1,057,820 $960,108 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 — 31,250 — 
Distributions from non-consolidated affiliates - investing (2)523 15,084 523 15,084 
Distributions to non-controlling interest (2)(112,476)(123,159)(238,197)(284,546)
Investments in non-consolidated affiliates (2), (4)(8,713)(16,120)(17,427)(29,262)
Contributions from non-controlling interests-R&D (2)2,083 3,854 4,080 5,114 
Adjusted Cash Flow (non-GAAP)$428,762 $368,663 $838,049 $666,498 

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(1) Receipts from the redemption of our Tecfidera milestone paymentsSeries A Biohaven Preferred Shares are presented as Proceeds from available for sale debt securities on the Statement of Cash Flows.
(2) The table below shows the line item for each adjustment and the direct location for such line item on the Statement of Cash Flows.
Reconciling adjustmentStatement of Cash Flows classification
Proceeds from available for sale debt securitiesInvesting activities
Investments in non-consolidated affiliatesInvesting activities
Distributions to non-controlling interestsinterestFinancing activities
Interest (received)/paid, net
Operating activities (Interest(Interest paid less Interest received)received)
SwapDerivative collateral posted or (received),received, net
Operating activities (Swap(Derivative collateral received less Derivative collateral received less Swap collateral posted)posted)
Contributions from non-controlling interest- R&DFinancing activities
Distributions from non-consolidated affiliates - investingInvesting activities
(3) Our lenders consider all payments made to support R&D activities for products undergoing late-stage development similar to asset acquisitions as these funds are expected to generate operational returns in the future. All ongoing and upfront development-stage funding payments - ongoing and upfront - run throughare reported in R&D funding expense in net income and are added back in aggregate to Net cash provided by operating activities to arrive at Adjusted EBITDA. As a result, Adjusted EBITDA captures the full add-back for R&D funding payments while Adjusted Cash Flow only reflects the add-back for the upfront portion of development-stage funding payments due to the fact that ongoing development-stage funding payments – ongoing are considered an ongoing business expense.
(4) We consider all payments to fund our operating joint ventures that are performing research and developmentR&D activities for products undergoing late stage development similar to asset acquisitions as these funds are expected to generate operational returns in the future. As a result, amounts funded through capital calls by our equity method investees, the Avillion entities,Entities, are added backdeducted to arrive at Adjusted Cash Flow.Flow, but are not deducted in Adjusted EBITDA.

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Investments Overview

Ongoing investment in new royalties is fundamental to the long-term prospects of our business. New investments provide a source of growth for our royalty receipts, supplementing growth within our existing portfolio and offsetting declines for products in our portfolio that have lost market exclusivity. We evaluate an array of royalty acquisition opportunities on a continuous basis and expect to continue to make acquisitions in the ordinary course of our business. Our team has established a strong track record of identifying, evaluating and investing in royalties tied to leading products across therapeutic areas and treatment modalities. We invest in approved products and development-stage product candidates that have generated robust proof of concept data. We invest in these therapies through the purchase of royalties, by making hybrid investments and by acquiring businesses with significant existing royalty assets or the potential for the creation of such assets.

DuringFor the second quarter of 2020,six months ended June 30, 2021, we invested $497.2$706.9 million in royalties and related assets, including two new investments. For the first six months of 2020, we invested $667.3 million in royalties and related assets, including 4three new investments. While volatility exists in the quantum of our new acquisitions on a year-to-year basis due to the unpredictable timing of new investment opportunities, we have consistently deployed significant amounts of cash when measured over multi-year periods. Our approach is rooted in a highly disciplined evaluation process that is not dictated by a minimum annual investment threshold.

Summary of royalty acquisition activity

In June 2021, we announced a long-term strategic funding partnership with MorphoSys AG (“MorphoSys”) to support MorphoSys’ acquisition of Constellation Pharmaceuticals, Inc. (“Constellation”), which closed on July 15, 2021. We agreed to provide up to $2.025 billion of funding to MorphoSys, comprised of an upfront payment of $1.425 billion, additional milestone payments of up to $150 million, up to $350 million of capital (“Development Funding Bonds”), which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million of Development Funding Bonds. In connection with the closing of MorphoSys’ acquisition of Constellation, we purchased 1,337,552 ordinary shares of MorphoSys for $100 million at a price of 63.35 per ordinary share, based on the average trading price of the ordinary shares over a period preceding the closing of the acquisition.

In April 2021, we acquired a royalty interest in Oxlumo (lumasiran) from Dicerna Pharmaceuticals, Inc. for an upfront cash payment of $180 million and up to $60 million in contingent sales-based milestone payments. Oxlumo, which has been approved by the FDA and EMA for the treatment of primary hyperoxaluria (PH) type 1, is marketed by Alnylam Pharmaceuticals, Inc.

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In March 2021, we acquired a royalty interest in the cabozantinib products Cabometyx and Cometriq from GlaxoSmithKline for an upfront payment of $342 million and up to $50 million in additional payments contingent on the achievement of regulatory approvals of cabozantinib for prostate cancer and lung cancer in the U.S. and Europe.

In January 2021, we acquired a royalty interest in seltorexant from Minerva Neurosciences, Inc. for an upfront payment of $60 million and up to $95 million in additional milestone payments, contingent on the achievement of certain clinical, regulatory and commercialization milestones. Seltorexant is currently in Phase 3 development for the treatment of major depressive disorder (MDD) with insomnia symptoms by Janssen Pharmaceutica, N.V., a subsidiary of Johnson & Johnson.

In December 2020, we acquired royalty interests from BioCryst on (1) ORLADEYO (betrotralstat) to support the launch of the product in hereditary angioedema (HAE) and (2) its development stage Factor D inhibitor BCX9930 in exchange for an upfront cash payment of $125 million.

In October 2020, we acquired the residual royalty interest in Vertex’s cystic fibrosis franchise owned by the Cystic Fibrosis Foundation. The agreement includes an upfront payment of $575 million and a potential milestone payment of $75 million.

In August 2020, we entered into an expanded agreement with Biohaven Pharmaceuticals for up to $450 million to fund the development of zavegepant and the commercialization of Nurtec ODT. Biohaven will receive areceived an upfront payment of $150 million upfront paymentat closing and received an additional $100 million payment in March 2021 upon the start of the oral zavegepant phase 3 program. Royalty PharmaWe will receive a royalty on Nurtec ODT and zavegepant and success-based milestone payments based on zavegepant regulatory approvals. We will also provide further support for the ongoing launch of Nurtec ODT through the purchase of committed, non-contingent Commercial Launch Preferred Equity for a total of $200 million payable between 2021 and 2024.2024 which we started funding in the three months ended March 31, 2021. In return, Biohaven will pay a series of equal fixed payments between 2025 and 2030.

In July of 2020, we acquired a royalty on risdiplam, a development-stage product for the treatment of treatment of Types 1, 2 and 3 spinal muscular atrophy (SMA) from PTC Therapeutics, Inc., in exchange for an upfront payment of $650 million. Evrysdi (risdiplam) was subsequently approved by the FDA in August 2020, representing the first, at home, oral treatment approved for infants, children and adults with all SMA types.

In the second quarter of 2020, we acquired a royalty on 1)(1) Prevymis, an approved product to prevent cytomegalovirus (“CMV”)(CMV) infection in stem cell transplants, from AiCuris Anti-infective Cures GmbH in exchange for an upfront payment of $220 million, and 2)(2) IDHIFA, an approved product a product for the treatment of adult patients with relapsed or refractory acute myeloid leukemia (AML) with an isocitrate dehydrogenase-2 (IDH2) mutation, from Agios Pharmaceuticals, Inc. in exchange for an upfront payment of $255 million.

In the first quarter of 2020, we acquired a royalty on Entyvio, an approved product for the treatment of ulcerative colitis and Crohn’s disease, from The General Hospital Corporation in exchange for an upfront payment of $86.6 million.

In the first quarter of 2019,Additionally, in April 2021, we entered into a preferred share purchasean agreement with Biohaven throughMSCI Inc. (“MSCI”), a leading provider of critical decision support tools and services where we will assist MSCI to design a classification framework and index methodologies which will expand MSCI’s thematic index suite with the launch of new indexes. In return, we purchased $125 million in preferred shares and maywill receive a portion of MSCI’s revenues from those indexes. We do not expect the financial statement impact associated with this transaction to be required to purchase up to an additional $75 million in preferred shares at Biohaven’s option, providing us with a fixed return on redemption of two times our investment on FDA approval of Biohaven’s pipeline product, Nurtec ODT (rimegepant), for migraine treatment. The FDA approved Nurtec ODT (rimegepant)material for the acute treatment of migraine in adults in February 2020.year ended December 31, 2021.

In the first quarter of 2019, we acquired the following: (1) a royalty on Promacta, an approved product for the treatment of chronic immune thrombocytopenia and aplastic anemia, from Ligand in exchange for an upfront payment of $827 million, (2) a royalty on Eli Lilly’s Emgality, an approved product for the treatment of migraine, from Atlas Ventures and Orbimed for $260 million and (3) a royalty on Johnson & Johnson’s Erleada, an approved product for the treatment of prostate cancer, from the Regents of the University of California for $105.4 million and potential future milestones.
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Liquidity and Capital Resources

Overview

50


Our primary source of liquidity is cash provided by operations. For the six months ended June 30, 20202021 and 2019,2020, we generated $960.1 million$1.1 billion and $769.8$960.1 million, respectively, in Net cash provided by operations.operating activities. We believe that our existing capital resources, and cash provided by operationsoperating activities and our Revolving Credit Facility (defined below) will continue to allow us to meet our operating and working capital requirements, to fund planned strategic acquisitions and research and developmentR&D funding arrangements, and to meet our debt service obligations for the foreseeable future. We have historically operated at a low level of fixed operating costs. Our primary cash operating expenses, after this offering, other than research and developmentR&D funding commitments, will include interest expense, our Operating and Personnel Payments, and legal and professional fees.

We have access to substantial sources of funds at numerous banks worldwidein the capital markets and we may, from time to time, seek additional capital through a combination of additional debt or equity financings. In June 2020, we completed our IPO and received net proceeds of approximately $1.9 billion from the IPO after deducting underwriting discounts and commissions of approximately $86.3 million. In September 2020, we refinanced our syndicated term loan facilities with $6.0 billion of Notes. Additionally, we entered into a five-year unsecured revolving credit facility which provides for borrowing capacity of up to $1.5 billion (the “Revolving Credit Facility”) in September 2020. The Revolving Credit Facility remains undrawn and available to us as of June 30, 2021. In July 2021, we issued an additional $1.3 billion of senior unsecured notes. Our ability to satisfy our working capital needs, debt service and other obligations, and to comply with the financial covenants under our financing agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.

We have historically funded our acquisition program through free cash flow, equity contributions and debt. Our low operating costs coupled with a lack of capital expenditures and low taxes have contributed to our strong financial profile, resulting in high operating leverage and high conversion of our Adjusted Cash Receipts to Adjusted Cash Flow. We expect to continue funding our current and planned operating costs (excluding acquisitions) principally through our cash flow from operations and our acquisition program through cash flow and issuances of equity and debt. In the past, we have supplemented our available cash and cash equivalents on hand with attractive debt capital to fund certain strategic acquisitions.

As of June 30, 2021 and December 31, 2020, we had total long-term debt outstanding of $5.7 billion. As of December 31, 2019, we had total long-term debt outstanding of $6.0 billion.$5.8 billion and $5.8 billion, respectively. In February 2020, in connection with the Exchange Offer Transactions, we repaid our outstanding debt held by RPIFT in full and issued new long-term debt at RPI Intermediate FT. In September 2020, we repaid in full our senior secured credit facilities entered into in February 2020 using the proceeds of the Notes in addition to cash on hand.

Cash flows

The following table summarizes our cash flow activities:

(in thousands)(in thousands)Six Months Ended
June 30,
(in thousands)Six Months Ended June 30,
2020201920212020
Cash provided by (used in):Cash provided by (used in):Cash provided by (used in):
Operating activities Operating activities$960,108  $769,777   Operating activities$1,057,820 $960,108 
Investing activities Investing activities$(922,316) $(1,475,537)  Investing activities$(473,134)$(1,006,720)
Financing activities Financing activities$2,121,956  $(625,135)  Financing activities$(451,085)$2,121,956 


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Analysis of Cash Flow Changes

Operating activities

Cash provided by operating activities increased by $190.3$97.7 million in the six months ended June 30, 20202021 compared to the same period of the prior year. The primary driver wassix months ended June 30, 2020, primarily driven by an increase in cash collections from financial royalty receiptsassets of $108.4$90.6 million and $82.9a decrease of $18.9 million in interest paid, primarily due to a lower weighted average interest rate on the Notes compared to the weighted average interest rate on the senior secured credit facilities that were in place during the six months ended June 30, 2020. Partially offsetting the increase in royalty receipts was an $11.8 million increase in cash related topayments for operating and professional costs. The increase in operating and professional costs was primarily driven by higher Operating and Personnel Payments under the terminationterms of our swapsManagement Agreement subsequent to our IPO, which was partially offset by lower professional costs associated with our IPO, refinancing and lower interest paid under the refinanced credit facilities.restructuring.

Investing activities

Cash used in investing activities declineddecreased by $553.2$533.6 million in the six months ended June 30, 20202021 compared to the same period of the prior year, primarily due to larger acquisitions of financial royalty asset in the prior year period. We acquired three new financial royalty assets in each of the six months ended June 30, 2020, primarily driven by a $508.6 million increase in the overall net cash provided by marketable securities and 2019. The decline is further attributableoffset by a $109.1 million increase in cash used to acquire financial royalty assets. Additionally, in the six months ended June 30, 2021, we received $109.4 million of proceeds from the sale of all of our Cytokinetics common stock and a portion of our Biohaven common stock compared to our Tysabri milestone payment made in the prior year period in addition to the purchase of available for sale debt$50.0 million of equity securities in the same prior year period. The overall declinesix months ended June 30, 2020.


Financing activities

Cash used in investingfinancing activities in the six months ended June 30, 2021 was $451.1 million compared to cash provided by financing activities of $2.1 billion in the six months ended June 30, 2020. Cash used in financing activities in the six months ended June 30, 2021 was primarily comprised of distributions to non-controlling interest of $325.2 million and $138.6 million in dividends paid to shareholders. Cash provided by financing activities in the six months ended June 30, 2020 was partially offset by purchasesprimarily comprised of marketable securities in the current period, which we did not have in the comparative period.

Financing activities

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In the six months ended June 30, 2020, we had cash provided by financing activities as opposed to cash used by financing activities in the comparative period. The proceeds from the issuance of Class A ordinary shares upon our initial public offering in June 2020 providedof $1.9 billion, net of offering costs paid. Thepaid and the repayment of our pro rata portion of RPIFT’s outstanding debt in February 2020 including through amounts contributed by a non-controlling interest, and subsequent debt issuance, which resulted in net proceeds of $869.6 million. Thismillion, for which there was offset by a $234.7 million increase in distributions to non-controlling interestno comparable activity in the six months ended June 30, 2020 due to the new contractual non-controlling interest held by the Legacy Investors Partnerships that arose in the Reorganization Transactions.2021.

Sources of Capital

As of June 30, 2021, our cash and cash equivalents and marketable securities totaled $1.1 billion and $842.7 million, respectively. As of December 31, 2020, our cash and cash equivalents and marketable securities totaled $2.4 billion. As of December 31, 2019, our cash$1.0 billion and cash equivalents totaled $283.7 million.$983.3 million, respectively. We intend to fund short-term and long-term financial obligations as they mature through cash and cash equivalents, sales of short-term marketable securities, future cash flows from operations or the issuance of additional debt. Our ability to generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the sales of the underlying pharmaceutical products in which we hold royalties, deterioration in our key financial ratios or credit ratings, or other material unfavorable changes in business conditions. Currently, we believe that we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives.

Borrowings

New Senior Unsecured Notes

On September 2, 2020, we issued $6.0 billion of Notes with a weighted average coupon rate of 2.125% and requiring interest payments of approximately $127.5 million on an annual basis, paid semi-annually. The Notes consist of the following:
$1.0 billion principal amount of 0.750% senior notes due 2023, issued at 99.322% of par;
$1.0 billion principal amount of 1.200% senior notes due 2025, issued at 98.875% of par;
$1.0 billion principal amount of 1.750% senior notes due 2027, issued at 98.284% of par;
$1.0 billion principal amount of 2.200% senior notes due 2030, issued at 97.760% of par;
$1.0 billion principal amount of 3.300% senior notes due 2040, issued at 95.556% of par; and
$1.0 billion principal amount of 3.550% senior notes due 2050, issued at 95.306% of par.
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The indenture governing the Notes contains certain covenants which we were in compliance with as of June 30, 2021. We used the net proceeds from the Notes offering, together with available cash on hand, to repay in full the senior secured credit facilities.

Revolving Credit Facility

On September 18, 2020, RP Holdings, as borrower, entered into a five-year unsecured revolving credit facility which provides for borrowing capacity up to $1.5 billion for general corporate purposes. Our revolving credit agreement includes certain customary financial covenants with which we were in compliance as of June 30, 2021. The Revolving Credit Facility remains undrawn and available to us as of June 30, 2021.

Senior Secured Credit Facilities

On February 11, 2020, in connection with the Exchange Offer Transactions (discussed earlier in this MD&A) and using funds contributed by RPI Intermediate FT and the Legacy Investors Partnerships, RPIFT repaid its outstanding debt and accrued interest, and terminated all outstanding interest rate swaps. RPI Intermediate FT, as borrower, entered into a term loan credit agreement (the “Credit“Senior Secured Credit Agreement”) with Bank of America, N.A., as administrative agent, the lenders party thereto from time to time and the other parties thereto. The newIn September 2020, we repaid in full the outstanding principal amounts of term loans under senior secured credit facilities contained ingoverned by the Senior Secured Credit Agreement consist of a term loan A (“Tranche A-1”) and term loan B (“Tranche B-1”) inwith net proceeds from the amounts of $3.20 billion and $2.84 billion, respectively. Tranche A-1 has an interest rate of 1.50% above LIBOR and matures in February 2025. Tranche B-1 has an interest rate of 1.75% above LIBOR matures in February 2027. See “Description of Material Indebtedness.”Notes.
We had the following indebtedness outstanding atas of June 30, 20202021 and at December 31, 2019:2020:

(in thousands)MaturitySpread over LIBOR (1)June 30, 2020December 31, 2019
New RPI Intermediate FT Senior Secured Credit Facilities:
   Term Loan A Facility2/2025150 bps$3,120,000  $—  
   Term Loan B Facility2/2027175 bps2,825,800  —  
RPIFT Senior Secured Credit Facilities:
   Term Loan B Facility
      Tranche B-63/2023200 bps—  4,123,000  
   Term Loan A Facility
       Tranche A-45/2022150 bps—  2,150,000  
Total senior secured debt5,945,800  6,273,000  
Loan issuance costs(3,929) (1,691) 
Original issue discount(30,023) (33,187) 
Total long-term debt, including current portion5,911,848  6,238,122  
Less: Current portion of long-term debt(182,226) (281,984) 
Total long-term debt$5,729,622  $5,956,138  
(in thousands)MaturityInterest rateJune 30, 2021December 31, 2020
Senior Unsecured Notes:
Senior unsecured notes (issued at 99.322% of par)9/20230.750%$1,000,000 $1,000,000 
Senior unsecured notes (issued at 98.875% of par)9/20251.200%1,000,000 1,000,000 
Senior unsecured notes (issued at 98.284% of par)9/20271.750%1,000,000 1,000,000 
Senior unsecured notes (issued at 97.760% of par)9/20302.200%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.556% of par)9/20403.300%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.306% of par)9/20503.550%1,000,000 1,000,000 
Total senior secured debt6,000,000 6,000,000 
Unamortized debt discount and issuance costs(174,441)(183,416)
Total long-term debt$5,825,559 $5,816,584 
RPIFT Senior Secured Credit Facilities

(1)Borrowings under our senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin.

The RPIFT Senior Secured Credit Facilities (the “Old“Prior Credit Facility”)
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The Old Credit Facility was were issued by our wholly-owned subsidiary, RPIFT, and waswere investment grade rated. RPIFT used interest rate swap agreements to fix a portion of its floating rate debt. In February 2020, in connection with the Exchange Offer Transactions, the OldPrior Credit Facility was repaid in full and new long-term debt was issued by RPI Intermediate FT.

2021 Notes

On July 26, 2021, we issued $1.3 billion of senior unsecured notes (the “2021 Notes”) comprised of $600.0 million principal amount of notes due September 2031 issued at 98.263% of par and $700.0 million principal amount of notes due September 2051 issued at 97.565% of par with a coupon rate of 2.15% and 3.35%, respectively. Interest on each series of the 2021 Notes accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year, commencing on March 2, 2022. Our obligations under the 2021 Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary.

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Guarantor Financial Information

Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary (the “Guarantor Subsidiary”). Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) do not guarantee the Notes. Under the terms of the indenture governing the Notes, Royalty Pharma plc and the Guarantor Subsidiary each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on the Notes. The par value and carrying value of the total outstanding and guaranteed Notes was $6.0 billion and $5.8 billion, respectively as of June 30, 2021.

The following financial information presents summarized combined balance sheet information as of June 30, 2021 and December 31, 2020, and summarized combined statement of comprehensive income information for the six months ended June 30, 2021 for Royalty Pharma plc and RP Holdings. All intercompany balances and transactions between Royalty Pharma plc and RP Holdings are eliminated in the presentation of the combined financial statements. RP Holdings’ most significant asset is its investment in operating subsidiaries, which has been eliminated in the table below to exclude investments in Non-Guarantor Subsidiaries. As a result, our ability to make required payments on the Notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on distributions from the operating subsidiaries. Amounts presented below do not represent our total consolidated amounts as of June 30, 2021 and December 31, 2020 or for the six months ended June 30, 2021.

Summarized Combined Balance SheetAs ofAs of
(in thousands)June 30, 2021December 31, 2020
Current assets$48,338 $51,625 
Current interest receivable on intercompany notes due from Non-Guarantor Subsidiaries13,99915,709
Non-current assets3,9504,558
Non-current intercompany notes receivable due from Non-Guarantor Subsidiaries1,731,3932,101,656
Current liabilities48,56644,161
Current interest payables on intercompany notes due to Non-Guarantor Subsidiaries13,99915,709
Current intercompany payables due to Non-Guarantor Subsidiaries1,182
Non-current liabilities5,825,0235,816,133
Non-current intercompany notes payable due to non-Guarantor Subsidiaries1,731,3932,101,656
Summarized Combined Statement of Comprehensive IncomeFor the six months ended
June 30, 2021
(in thousands)
Interest income on intercompany notes receivable from Non-Guarantor Subsidiaries$24,555 
Operating expenses83,140
Interest expenses on intercompany notes payable with Non-Guarantor Subsidiaries24,555
Other expenses653 
Net loss83,793

Uses of Capital

Acquisitions of royalties

We acquire product royalties in a variety of ways that can be tailored to the needs of our partners. We classify our product royalty acquisitions by the following structures:

Third-party Royalties – A royalty is the contractual right to a percentage of top-line sales from a licensee’s use of a product, technology or intellectual property. The majority of our current portfolio consists of third-party royalties.

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Synthetic / Hybrid Royalties – A synthetic royalty is the contractual right to a percentage of top-line sales created by the owner of a therapy in exchange for funding. In many of our synthetic royalties, we also make investments in the public equity of the company, where the main value driver of the company is the product for which we concurrently acquired a royalty.

R&D Funding – We fund R&D, typically for large biopharmaceutical companies, in exchange for future royalties and/or milestones if the product or indication we are funding is approved.

M&A - We acquire royalties in connection with M&A transactions, often from the buyers of biopharmaceutical companies when they dispose of the non-strategic assets of the target company following the closing of the acquisition. We also seek to partner with companies to acquire other biopharmaceutical companies that own significant royalties. We may also seek to acquire biopharmaceutical companies that have significant royalties or where we can create royalties in subsequent transactions.

Distributions to Shareholders/Unitholders

InWe paid dividends to holders of our Class A ordinary shares of $138.6 million in the six months ended June 30, 2021. We do not have a legal obligation to pay a quarterly dividend or dividends at any specified rate or at all.

We made distributions of $285.4 million to shareholders/unitholders in the six months ended June 30, 2020.

Commercial Launch Preferred Equity and Other Funding Arrangements

In June 2021, we announced a long-term strategic funding partnership with MorphoSys to support MorphoSys’ acquisition of Constellation, which closed on July 15, 2021. As part of the funding agreement, we agreed to provide MorphoSys up to $350 million of Development Funding Bonds, which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million. In return, we expect to receive a return of 2.2 times the amount funded on the Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding.

On August 7, 2020, and 2019, we made distributionsentered into the Series B Biohaven Preferred Share Purchase Agreement (“Series B Biohaven Preferred Share Agreement”) with Biohaven to purchase up to 3,992 shares of $285.4 million and $396.0 million, respectively. See “Dividend Policy”Series B Biohaven Preferred Shares at a price of our Prospectus$50,100 per preferred share (the “Commercial Launch Preferred Equity”), for a descriptiontotal of $200.0 million payable on a quarterly basis between March 31, 2021 and December 31, 2024. In the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares.

We have other funding arrangements where we are contractually obligated to fund R&D activities performed by our dividend policy afterdevelopment partners and to provide additional capital related to our equity method investment in the IPO.Avillion entities. As our committed capital requirements are based on phases of development, the completion of which is highly uncertain, only the capital required to fund the current stage of development under such funding arrangements is considered committed capital requirements which approximate $43.5 million as of June 30, 2021.

Debt service

In connection with our new Credit Agreement, we have substantial debt service requirements, including required annual amortization payments and payments for interest expense. As of June 30, 2020, we are required to repay2021, the term loansfuture principal and interest payments under the Credit Agreementour Notes over the next five years and thereafter are as follows:

(in thousands)Principal PaymentsInterest Payments
Year
Remainder of 2021$— $63,750 
2022— 127,500 
20231,000,000 127,500 
2024— 120,000 
20251,000,000 120,000 
Thereafter4,000,000 1,527,500 
Total (1)$6,000,000 $2,086,250 
(in thousands)Term loan amortization
YearTranche A-1Tranche B-1Total
Remainder of 2020$80,000  $14,200  $94,200  
2021160,000  28,400  188,400  
2022160,000  28,400  188,400  
2023160,000  28,400  188,400  
2024160,000  28,400  188,400  
Thereafter2,400,000  2,698,000  5,098,000  
Total (1)$3,120,000  $2,825,800  $5,945,800  

(1)Excludes unamortized debt discount on long-term debt of $30.0 million and loan issuance costs of $3.9$174.4 million as of June 30, 2021, which are amortized through interest expense over the remaining life of the underlying debt obligations.
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Commitments, Contingencies and Guarantees

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We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, accrue an estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. In general, estimates are developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to Part I, Item I, Note 17. Commitments and Contingencies.

Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval or commercial milestones. In the six months ended June 30, 2021, we made a $100.0 million payment to Biohaven related to a development milestone that was achieved upon the start of the oral zavegepant Phase 3 program.

We began purchasing the Series B Biohaven Preferred Shares in the three months ended March 31, 2021, and have a remaining commitment of $164.8 million under our Commercial Launch Preferred Equity as of June 30, 2021.

In connection with the closing of MorphoSys’ acquisition of Constellation on July 15, 2021, we made an upfront payment of $1.425 billion to MorphoSys and purchased 1,337,552 ordinary shares of MorphoSys for $100 million at a purchase price of 63.35 per ordinary share, based on the average trading price of the ordinary shares over a period preceding the closing of the acquisition. As part of the funding agreement, we also agreed to make additional milestone payments of up to $150 million and provide up to $350 million of Development Funding Bonds, which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million of Development Funding Bonds.

There have been no other significant changes to our contractual obligations disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K.

Other off-balance sheet arrangementsOff-Balance Sheet Arrangements

We do not have relationships with structured finance or special purpose entities that were established to facilitate off-balance sheet arrangements. Therefore, we are not exposed to any financing, liquidity, market or credit risk that may arise if we had engaged in such relationships. We consolidate variable interest entities when we are the primary beneficiary.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Certain of these policies are considered critical as they have the most significant impact on the Company’sour financial condition and results of operations and require the most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our most critical accounting policies relate to our royalties. Similarly, the most significant judgments and estimates applied by management are associated with the measurement of our financial royalty assets classified as financial assets. There have been no material changes to our critical accounting policies and estimates as described in our Prospectus.Annual Report on Form 10-K.

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Recent Accounting Pronouncements

See Note 22–Summary of Significant Accounting Policies to our consolidated financial statements for additional information on recently issued accounting standards.

Item 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are subject to certain risks which may affect our results of operations, cash flows and fair values of assets and liabilities, including volatility in foreign currency exchange rates and interest rate movements.rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents are primarily held in short-term money market funds and the nature of ourthe marketable securities is generally short-term. Although we currently do not have any interest rate swaps or foreign currency forward contracts in place,hold. In order to manage our exposures, we have historically managedfollow established risk management policies and procedures, including the impactuse of foreign currency exchange rate and interest rate risk through variousderivative financial instruments, such as swaps, rate locks and derivative instruments. We only use derivatives strategically to hedge existing interest rate exposure and to minimize volatility in cash flow and earnings arising from our exposure to foreign currency risk.forwards. We do not enter into derivative instruments for trading or speculative purposes. The counterparties to these contracts are all major financial institutions.

Foreign Currency Exchange Risk

Our results of operations are subject to foreign currency exchange risk through transactional exposure resulting from movements in exchange rates between the time we recognize royalty income or royalty revenue and the time at which the transaction settles, or we receive the royalty payment. The current portion of Financial royalty assets, net and Accrued royalty receivable account for the most common types of transactional exposure. Because we are entitled to royalties on worldwide sales for various products, there is an underlying exposure to foreign currency as the marketer converts payment amounts from local currencies to U.S. dollars using a quarterly average exchange rate. Therefore, cash received may differ from the estimated receivable based on fluctuations in currency. In addition, certain products pay royalties in currencies other than U.S. dollars,
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which also creates foreign currency risk primarily with respect to the Euro, Canadian Dollar, Swiss Franc and Japanese Yen, as our functional and reporting currency is the U.S. dollar. To manage foreign currency exchange risk, we may periodically utilize non-deliverable forward exchange contracts. We do not currently have any foreign exchange contracts in place.

Interest Rate Risk

We are subject to interest rate fluctuation exposure through our borrowings under our Senior Secured Credit Facilities and our investments in money market accounts, and marketable securities, the majority of which bear a variable interest rate. As of June 30, 2020,2021, we held cash and cash equivalents of $2.4$1.1 billion, of which $2.2 billion$622.2 million was cash, $121.9$10.0 million was invested in certificates of deposit and $510.1 million was invested in interest-bearing money market funds. We also held $842.7 million in marketable securities as of June 30, 2021 invested in commercial paper and certificates of deposit.

As of December 31, 2020, we had cash and cash equivalents of $1.0 billion, of which $832.7 million was cash, $151.7 million was invested in commercial paper and certificates of deposit and $143.9 million was invested in interest-bearing money market funds. We also held $343.7 million in marketable securities at June 30, 2020 invested in U.S. government securities, corporate debt securities and certificates of deposit.

As of December 31, 2019, we had cash and cash equivalents of $283.7 million, of which $19.9 million was cash, $41.5 million was invested in commercial paper and certificates of deposit and $222.3$24.3 million was invested in interest-bearing money market funds. In addition, as of December 31, 20192020 we had $57.0$983.3 million invested in U.S. governmentcorporate debt securities, commercial paper and certificates of deposit.
The objectives of our investment policy are the preservation of capital and fulfillment of liquidity needs. In order to maximize income without assuming significant market risk, we maintain our excess cash and cash equivalents in money market funds and marketable securities, largely composed of investment grade, short to intermediate term fixed income and debt securities. Because of the short term maturities of our cash equivalents and the short term nature of our marketable securities, we do not believe that a decrease in interest rates would have any material negative impact on the fair value of our cash equivalents or marketable securities.

Our debt portfolio is managed on a consolidated basis and management makes financing decisions to achieve the lowest cost of debt capital and to maximize portfolio objectives. As of December 31, 2019, 33%Following the Notes issuance in September 2020, 100% of our outstanding debt was effectivelybecame fixed with a total weighted average coupon rate of 2.125% as of June 30, 2021. In September 2020, we also entered into a five-year $1.5 billion Revolving Credit Facility with a variable interest rate that remained undrawn as of 3.69% acrossJune 30, 2021. We are subject to interest rate fluctuation exposure related to the portfolio. Assuming the current level of borrowings, a 25 basis-point adverse movement in LIBOR would have increased annual interest expense by $10.4 million for the year ended December 31, 2019.Revolving Credit Facility, if drawn. In connection with the Reorganization Transactions, we terminated all of our interest rate swaps and currently do not have in place any derivative hedging our debt.

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We manage our exposure to interest rate volatility on future debt issuances by entering into treasury rate lock contracts to lock in the rate on the interest payments related to anticipated debt issuances. In addition, it is expected that LIBOR will be phased out byJune 2021, we executed treasury rate lock contracts with notional amounts totaling $600.0 million to fix the endinterest rate on a portion of the principal related to our senior unsecured notes issued in July 2021. The Alternative Reference Rates Committee oftreasury lock contracts were terminated in July 2021, and the Federal Reserve Board has identifiedresulting net loss was recognized in earnings in the Secured Overnight Financing Rate (SOFR) as the preferred alternative to LIBOR. As our Senior Secured Credit Facilities utilize LIBOR as a factor in determining the applicable interest rate, the expected discontinuation and transition may require us to renegotiate certain terms of the agreement to replace LIBOR with a new reference rate, which could increase the cost of servicing our debt and have an adverse effect on our results of operations and cash flows.same period.

Credit and Counterparty Risk

We haveare exposed to credit risks that are generallyrisk related to the counterparties with which we do business. We are subject to credit risk from our royalty assets, our receivables and our derivative contracts.financial instruments. The majority of our royalty assets and receivables arise from contractual royalty agreements that pay royalties on the sales of underlying pharmaceutical products in the United States, Europe and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The products in which we hold royalties are marketed by leading biopharmaceutical industry participants, including, among others, AbbVie, Amgen, Bristol-Myers Squibb, Celgene, Gilead, Sciences, Johnson & Johnson, Lilly, Merck, & Co., Pfizer, Novartis, Biogen-Idec,Biogen, Roche/Genentech and Vertex. The individual marketersAs of June 30, 2021 and December 31, 2020, Vertex was the marketer and payor making up the largest balance of our current portion of Financial royalty assets, netwere Vertex as of June 30, 2020 and Biogen as of December 31, 2019, ,accounting for 27%29% and 18%27%, respectively.respectively, as the marketer and payor of our royalties on the cystic fibrosis franchise. Refer to “—Understanding Our Results of Operations” within this MD&A for a discussion of the marketers or royalty payors accounting for greater than 10% or more of our total income and other revenues for the periods ended June 30, 20202021 and 2019.2020.

We monitor the financial performance and creditworthiness of the counterparties to our royalty agreements and to our derivative contractsfinancial instruments so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant losses with respect to the collection of income or revenue on our royalty assets or on the settlement of our derivative contracts. Of the $2.1 billion of nominal interest rate swaps agreements in effect at December 31, 2019, the
55


maximum exposure with any single counterparty accounted for 29% of our total interest rate swap portfolio.financial instruments. If a counterparty becomes bankrupt, or otherwise fails to perform its obligations under a derivative contractfinancial instruments due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contractfinancial instruments in a bankruptcy or other reorganization proceeding.

Item 4.         CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, havehas evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were, in design and operation, effective to the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officers,Officer, has evaluated any changes in our internal controls over financial reporting that occurred during the quarterthree months ended June 30, 2020,2021, and has concluded that there was no change during such quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness Over Financial Reporting

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

PART II.     OTHER INFORMATION
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Item 1.         LEGAL PROCEEDINGS

ForFrom time to time, we or the Manager may be a descriptionparty to various claims, charges and litigation matters arising in the ordinary course of business. Management and legal counsel regularly review the probable outcome of such proceedings. While we cannot feasibly predict the outcome of these matters with certainty, we believe, based on examination of these matters, experience to date and discussions with counsel, that the ultimate liability, individually or in the aggregate, will not adversely affect our significant pending legal proceedings, please see Note 17. Commitments and Contingenciesbusiness, financial condition or results of the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.operations.

Item 1A.    RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in the Prospectus.Annual Report on Form 10-K.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.and results of operations.

Item 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

The following list sets forth information regarding all securities sold or issued by us in the three months ended June 30, 2020. No underwriters were involved in these sales. There was no general solicitation of investors or advertising, and we did not pay or give, directly or indirectly, any commission or other remuneration, in connection with the offering of these securities. In the transaction described below, appropriate legends were affixed to the securities issued in this transaction.

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In connection with the reorganization transaction incident to the IPO, Royalty Pharma issued 294,175,555 Class A ordinary shares, par value $0.0001 per share, to the Continuing Investors Partnerships.
In connection with the IPO, Royalty Pharma issued 71,430 Class A ordinary shares, par value $0.0001 per share, to certain members of Royalty Pharma’s management and board of directors.

The offer, sale and issuance of the securities described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering.


Use of Proceeds from our Initial Public Offering of Ordinary Shares

On June 15, 2020, our registration statement on Form S-1 (File No. 333-238632), as amended, was declared effective by the SEC for our IPO of our Class A ordinary shares, pursuant to which we offered and sold a total of 89,333,920 Class A ordinary shares at a price to the public of $28.00 per share, of which 71,652,250 and 17,681,670 shares were offered by the Company and selling shareholders, respectively. The number of Class A ordinary shares issued at closing included the exercise in full of the underwriters’ option to purchase 11,652,250 additional Class A ordinary shares from the Company. J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, BofA Securities, Inc., Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and UBS Securities LLC acted as representatives of the underwriters for the Offering.

The Company received net proceeds of approximately $1.9 billion from the IPO after deducting underwriting discounts and commissions of approximately $86.3 million. We used the net proceeds from the IPO to acquire the RP Holdings Class A Interests shortly after completion of the Offering. None of the underwriting discounts and commissions or other expenses were paid directly or indirectly to any director, officer or general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.None.

Item 3.         DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.        MINE SAFETY DISCLOSURES

Not applicable.

Item 5.         OTHER INFORMATION

Not applicable.

Item 6.         EXHIBITS

The following exhibits are filed as a part of this Quarterly Report on Form 10-Q:

Exhibit No.Description of Exhibit
31.1*
31.2*
32*
101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase

* Filed or furnished herewith
57
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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ROYALTY PHARMA PLC
(Registrant)

Date: August 12, 202011, 2021/s/ Pablo Legorreta
Pablo Legorreta
Chief Executive Officer
Date: August 12, 202011, 2021/s/ Terrance Coyne
Terrance Coyne
Chief Financial Officer
5872