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 JuneSeptember 30, 20202022
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 filer☐☒Accelerated 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 November 4, 2022, Royalty Pharma plc had 441,104,204 Class A ordinary shares outstanding and 166,117,591 Class B ordinary shares outstanding.

Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC

INDEX

PART I.FINANCIAL INFORMATION
1
Item 1.Condensed Consolidated Financial Statements
1
Condensed Consolidated Balance Sheets at Juneas of September 30, 2020 (unaudited)2022 and December 31, 20192021 (unaudited)
1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)
2
Condensed Consolidated Statements of Comprehensive Income for the Three and SixNine Months Ended JuneSeptember 30, 20202022 and 2019 (unaudited)
2
Condensed Consolidated Statements of Shareholder's Equity for the Three and Six Months Ended June 30, 2020 and 20192021 (unaudited)
3
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)
4
Condensed Consolidated Statements of Cash Flows for the SixNine Months Ended JuneSeptember 30, 20202022 and 20192021 (unaudited)
56
Notes to Condensed Consolidated Financial Statements (unaudited)
67
Item 2.Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
2931
Item 3.Quantitative and Qualitative Disclosures About Market Risk
5464
Item 4.Controls and Procedures
5664
PART II.OTHER INFORMATION
5664
Item 1.Legal Proceedings
5664
Item 1A.Risk Factors
5664
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5664
Item 3.Defaults Upon Senior Securities
5765
Item 4.Mine Safety Disclosures
5765
Item 5.Other Information
5765
Item 6.Exhibits
5765


























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, 2021.

These risks and uncertainties include factors related to:
•sales risks of biopharmaceutical products on which we receive royalties;
•theour ability of 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 affiliatesRP Management, LLC (the “Manager”) 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 September 30, As of December 31,
20222021
Assets
Current assets
Cash and cash equivalents$991,628 $1,541,048 
Marketable securities139,926 581,872 
Financial royalty assets675,857 614,351 
Accrued royalty receivable15,712 53,286 
Available for sale debt securities409,347 66,000 
Other royalty income receivable19,131 15,023 
Other current assets90,515 6,631 
Total current assets2,342,116 2,878,211 
Financial royalty assets, net14,287,399 13,718,245 
Intangible royalty assets, net— 5,670 
Equity securities262,820 269,800 
Available for sale debt securities339,800 204,400 
Equity method investments409,857 435,394 
Other assets30,613 4,145 
Total assets$17,672,605 $17,515,865 
Liabilities and shareholders’ equity
Current liabilities
Distributions payable to non-controlling interests$105,731 $107,934 
Accounts payable and accrued expenses16,112 5,620 
Interest payable13,199 57,696 
Current portion of long-term debt996,583 — 
Total current liabilities1,131,625 171,250 
Long-term debt6,114,677 7,096,070 
Other liabilities9,900 — 
Total liabilities7,256,202 7,267,320 
Commitments and contingencies
Shareholders’ equity
Class A ordinary shares, $0.0001 par value; 441,104 and 432,963 issued and outstanding, respectively44 43 
Class B ordinary shares, $0.000001 par value; 166,118 and 174,213 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; 369,265 and 361,170 issued and outstanding, respectively— — 
Additional paid-in capital3,632,903 3,507,533 
Retained earnings2,504,974 2,255,179 
Non-controlling interests4,264,303 4,471,951 
Accumulated other comprehensive income16,904 16,491 
Treasury interests(2,788)(2,715)
Total shareholders’ equity10,416,403 10,248,545 
Total liabilities and shareholders’ equity$17,672,605 $17,515,865 

See accompanying notes to these unaudited condensed consolidated financial statements.
1



Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(In thousands, except per share amounts)
(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 per share of Class A ordinary shares and weighted-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 Note 13).

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Income and other revenues:
Income from financial royalty assets$551,682 $505,832 $1,578,555 $1,538,871 
Revenue from intangible royalty assets1,073 63,406 37,196 139,594 
Other royalty income20,708 16,535 55,716 35,298 
Total income and other revenues573,463 585,773 1,671,467 1,713,763 
Operating expenses
Provision for changes in expected cash flows from financial royalty assets305,061 137,837 595,396 186,337 
Research and development funding expense25,500 90,500 126,606 96,263 
Amortization of intangible assets— 5,796 5,670 17,200 
General and administrative expenses50,692 48,588 154,075 136,665 
Total operating expenses, net381,253 282,721 881,747 436,465 
Operating income192,210 303,052 789,720 1,277,298 
Other expense/(income)
Equity in losses/(earnings) of equity method investees3,251 (2,749)2,117 (18,532)
Interest expense46,977 44,327 141,006 119,168 
(Gains)/losses on derivative financial instruments(25,785)16,972 (97,590)21,436 
(Gains)/losses on equity securities(5,168)19,289 22,970 17,980 
(Gains)/losses on available for sale debt securities(44,243)14,885 (97,985)(8,246)
Interest income(14,034)(12,261)(34,482)(42,896)
Other non-operating expense, net10,798 793 13,590 858 
Total other (income)/expenses, net(28,204)81,256 (50,374)89,768 
Consolidated net income before tax220,414 221,796 840,094 1,187,530 
Income tax expense— — — — 
Consolidated net income220,414 221,796 840,094 1,187,530 
Net income attributable to non-controlling interests77,763 119,867 341,178 575,706 
Net income attributable to Royalty Pharma plc$142,651 $101,929 $498,916 $611,824 
Earnings per Class A ordinary share:
     Basic$0.32 $0.24 $1.14 $1.49 
     Diluted$0.32 $0.24 $1.14 $1.49 
Weighted average Class A ordinary shares outstanding:
     Basic439,293 428,230 436,542 409,253 
     Diluted607,226 607,174 607,209 607,152 
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' EQUITYCOMPREHENSIVE INCOME
(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  1  —  —  —  —  —  —  —  —  —  —  1  
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  7  —  —  —  —  —  —  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  

For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Consolidated net income$220,414 $221,796 $840,094 $1,187,530 
Changes in other comprehensive income/(loss):
Unrealized gains/(losses) on available for sale debt securities13,050 (2,575)24,000 8,574 
Reclassification of unrealized gains on available for sale debt securities(7,111)(11,756)(24,053)(40,545)
Other comprehensive income/(loss)$5,939 $(14,331)$(53)$(31,971)
Comprehensive income$226,353 $207,465 $840,041 $1,155,559 
Comprehensive income attributable to non-controlling interests80,161 113,867 341,109 561,594 
Comprehensive income attributable to Royalty Pharma plc$146,192 $93,598 $498,932 $593,965 

(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.
3

statements.


Royalty Pharma plc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(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  1  —  —  —  —  —  —  —  —  —  —  1  
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  7  —  —  —  —  —  —  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  
See accompanying notes to unaudited condensed consolidated financial statements.
43



Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amounts)
(Unaudited)

Class A
Ordinary Shares		Class B
Ordinary Shares		Class R
Redeemable Shares		Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at June 30, 2022437,139$44 170,081$— 50$63 365,302$— $3,570,585 $2,446,132 $13,177 $4,380,938 $(2,752)$10,408,187 
Contributions— — — — — — — — — — — 2,970 — 2,970 
Distributions— — — — — — — — — — — (137,880)— (137,880)
Dividends ($0.19 per Class A ordinary share)— — — — — — — — — (83,809)— — — (83,809)
Other exchanges3,963 — (3,963)— — — 3,963 — 61,736 — 186 (61,886)(36)— 
Share-based compensation and related issuances of Class A ordinary shares2 — — — — — — — 582 — — — — 582 
Net income— — — — — — — — — 142,651 — 77,763 — 220,414 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 7,781 5,269 — 13,050 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (4,240)(2,871)— (7,111)
Balance at September 30, 2022441,104$44 166,118$— 50$63 369,265$— $3,632,903 $2,504,974 $16,904 $4,264,303 $(2,788)$10,416,403 

Class A
Ordinary Shares		Class B
Ordinary Shares		Class R Redeemable SharesDeferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at June 30, 2021427,006 $42 180,166 $— 50 $63 355,217 $— $3,415,598 $2,291,966 $28,672 $4,671,686 $(2,662)$10,405,365 
Contributions— — — — — — — — — — — 6,030 — 6,030 
Distributions— — — — — — — — — — — (159,714)— (159,714)
Dividends ($0.17 per Class A ordinary share)— — — — — — — — — (73,017)— — — (73,017)
Other exchanges2,503 1 (2,503)— — — 2,503 — 38,115 — 212 (38,305)(23)— 
Share-based compensation and related issuances of Class A ordinary shares2 — — — — — — — 505 — — — — 505 
Net income— — — — — — — — — 101,929 — 119,867 — 221,796 
Other comprehensive loss:
Unrealized losses on available for sale debt securities— — — — — — — — — — (1,497)(1,078)— (2,575)
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (6,834)(4,922)— (11,756)
Balance at September 30, 2021429,511$43 177,663$— 50$63 357,720$— $3,454,218 $2,320,878 $20,553 $4,593,564 $(2,685)$10,386,634 

See accompanying notes to these unaudited condensed consolidated financial statements.

4



ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amounts)
(Unaudited)

Class A
Ordinary Shares		Class B
Ordinary Shares		Class R
Redeemable Shares		Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2021432,963 $43 174,213 $— 50 $63 361,170 $— $3,507,533 $2,255,179 $16,491 $4,471,951 $(2,715)$10,248,545 
Contributions— — — — — — — — — — — 9,173 — 9,173 
Distributions— — — — — — — — — — — (433,822)— (433,822)
Dividends ($0.57 per Class A ordinary share)— — — — — — — — — (249,121)— — — (249,121)
Other exchanges8,095 1 (8,095)— — — 8,095 — 123,783 — 397 (124,108)(73)— 
Share based compensation and related issuances of Class A ordinary shares46 — — — — — — — 1,587 — — — — 1,587 
Net income— — — — — — — — — 498,916 — 341,178 — 840,094 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 14,262 9,738 — 24,000 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (14,246)(9,807)— (24,053)
Balance at September 30, 2022441,104$44 166,118$— 50$63 369,265$— $3,632,903 $2,504,974 $16,904 $4,264,303 $(2,788)$10,416,403 

Class A
Ordinary Shares		Class B
Ordinary Shares		Class R
Redeemable Shares		Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury 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— — — — — — — — — — — 20,803 — 20,803 
Distributions— — — — — — — — — — — (475,901)— (475,901)
Dividends ($0.51 per Class A ordinary share)— — — — — — — — — (211,581)— — — (211,581)
Other exchanges41,313 4 (41,313)— — — 41,313 — 586,315 — 4,017 (589,968)(368)— 
Share-based compensation and related issuances of Class A ordinary shares63 — — — — — — — 1,939 — — — — 1,939 
Net income— — — — — — — — — 611,824 — 575,706 — 1,187,530 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 4,562 4,012 — 8,574 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (22,421)(18,124)— (40,545)
Balance at September 30, 2021429,511$43 177,663$— 50$63 357,720$— $3,454,218 $2,320,878 $20,553 $4,593,564 $(2,685)$10,386,634 

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



ROYALTY 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 Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Cash collections from financial royalty assets$1,843,899 $1,733,147 
Cash collections from intangible royalty assets72,406 113,133 
Other royalty cash collections51,607 27,469 
Distributions from equity method investees33,316 28,213 
Interest received10,556 3,004 
Derivative collateral received— 34,660 
Derivative collateral posted— (34,660)
Termination payments on derivative instruments— (16,093)
Development-stage funding payments - ongoing(1,606)(6,263)
Development-stage funding payments - upfront and milestone(125,000)(90,000)
Payments for operating and professional costs(141,653)(135,272)
Interest paid(169,476)(129,759)
Net cash provided by operating activities1,574,049 1,527,579 
Cash flows from investing activities:
Distributions from equity method investees— 523 
Investments in equity method investees(9,896)(28,320)
Purchases of equity securities(62,785)(100,013)
Proceeds from equity securities46,158 115,957 
Purchases of available for sale debt securities(393,737)(52,755)
Proceeds from available for sale debt securities46,875 46,875 
Purchases of marketable securities(234,869)(755,668)
Proceeds from sales and maturities of marketable securities676,705 1,493,135 
Acquisitions of financial royalty assets(1,491,399)(2,019,768)
Acquisitions of other financial assets(21,215)— 
Milestone payments— (18,600)
Net cash used in investing activities(1,444,163)(1,318,634)
Cash flows from financing activities:
Distributions to non-controlling interests(322,726)(363,624)
Distributions to non-controlling interests- other(113,299)(119,507)
Dividends to shareholders(249,121)(211,581)
Contributions from non-controlling interests- R&D971 6,083 
Contributions from non-controlling interests- other4,869 11,524 
Proceeds from issuance of long-term debt, net of discount— 1,272,533 
Debt issuance costs and other— (12,245)
Net cash (used in)/provided by financing activities(679,306)583,183 
Net change in cash and cash equivalents(549,420)792,128 
Cash and cash equivalents, beginning of period1,541,048 1,008,680 
Cash and cash equivalents, end of period$991,628 $1,800,808 

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). 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. Through our controlling ownership of RP Holdings’ Class A ordinary shares (the “RP Holdings Class A Interests”) and RP Holdings' Class B ordinary shares (the “RP Holdings Class B Interests”), 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, 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 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, (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,”shares. “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 royaltiescontrol Royalty Pharma Holdings Ltd. (“RP Holdings”), a private limited company incorporated under the laws of England and Wales and U.K. tax resident, through our ownership of RP Holdings’ Class A ordinary shares and RP Holdings’ Class B ordinary shares (the “RP Holdings Class B Interests”). The Continuing Investors Partnerships (defined below) have a non-controlling interest in RP Holdings through their ownership of RP Holdings Class B Interests. We conduct our business through RP Holdings and its subsidiaries.

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 trust (“Old RPI”). RP Holdings is directly or indirectly owned by RPI US Partners 2019, LP, a variety of ways that can be tailoredDelaware limited partnership, RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”) and Royalty Pharma plc. Prior 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 createdExchange Offer Transactions, Old RPI was owned 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.various partnerships (the “Legacy Investors Partnerships”).

RP Management, LLC (the “Manager”), a Delaware limited liability company, is an external adviser which is responsible for our management, including our day-to-day operations, pursuant to advisory and management agreements (collectively, the management of Royalty Pharma. RP Management (Ireland) Ltd. (“RP Ireland”“Management Agreement”), 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..

ReorganizationExchange Offer Transactions
In connection with our IPO, we
We consummated an exchange offer on February 11, 2020 (the “Exchange Date”).to facilitate the IPO. Through the exchange offer, investors representingwhich represented 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 newsenior secured credit facilityfacilities 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.”

As a result of the Exchange Offer Transactions, we own indirectly an 82% economic interest in Old RPI 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. 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 ownedwholly-owned by Royalty Pharma Select, an Irish Unit trust (“RPS”). 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 will 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, will also 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").
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'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 June 18, 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. 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. As a result, we own 100% of RP Holdings Class A Interests.

In connection with the IPO, pursuant to agreements with the Continuing Investors Partnerships, certain of the Continuing Investors agreed to exchange, upon consummation of the IPO, interests in the Continuing Investors Partnerships represented by their ownership of 294,175,555 RP Holdings Class B Interests into an aggregate of 294,175,555 Class A ordinary shares of the Company. Following the exchange, Royalty Pharma plc indirectly owns 294,175,555 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 241,207,425 newly issued Class B ordinary shares of Royalty Pharma. As a result, the Continuing Investors Partnerships hold a number of our Class B shares equal to the number of RP Holdings Class B Interests indirectly held by them at such time which are exchangeable 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.unit trust.

2. Summary of Significant Accounting Policies

Basis of preparationPreparation and useUse of estimatesEstimates

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”).

7
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, 2019,2021, 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.

We continue to monitor the impact from the COVID-19 pandemic on our operational and financial performance. To date, certain marketers have commented that the performance of products on which we own royalties have been impacted by the COVID-19 pandemic. However, the COVID-19 pandemic has not had a material impact on our results of operations and liquidity and we do not believe it is reasonably likely to in the future.

Basis of consolidationConsolidation

The unaudited condensed consolidated financial statements include the accounts of Royalty Pharma as well as itsplc and 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 of such entity, we record net (income)/lossNet income attributable to non-controlling interest ininterests on our unaudited condensed consolidated statements of comprehensive incomeoperations 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 RPI both before and after the Exchange Date, RPI recognized Old RPI’s assets and liabilities at the carrying value reflected on Old RPI’s balance sheet as of the Exchange Date.

PriorWe report non-controlling interests related to the Exchange Offer Transactions, our only historical non-controlling interest wasportion of ownership interests of consolidated subsidiaries not owned by us which are attributable toto: (1) the Legacy Investors Partnerships’ ownership of approximately 18% in Old RPI, (2) the Continuing Investors Partnerships’ ownership in RP Holdings through their ownership of RP Holdings Class B Interests, (3) 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' ownership of approximately 18% in Old RPI.

As a result of the IPO in June 2020, 2 new non-controlling interests were created: 1) a non-controlling interest related to the Continuing Investors Partnerships' ownership of approximately 40% in RPRPSFT and (4) RPI EPA Holdings, through theirLP’s (“EPA Holdings”) ownership of the RP HoldingsHoldings’ Class B Interests, and 2) a non-controlling interest attributable to the RPC 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 interestEPA Holdings until certain performance conditions are met, which we do not expect to occur for several years.met.

All intercompany transactions and balances have been eliminated in consolidation.

Concentrations of credit riskCredit Risk

Financial instruments that subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, available for sale securities, financial royalty assets, receivables,derivatives 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 at Juneas of September 30, 20202022 and
8
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



December 31, 20192021 were held with State Street, Bank and Trust, Deutsche Bank, Merrill Lynch, Pierce, Fenner & Smith, and Bank of America N.A.and Scotiabank. 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,Vertex, Biogen, AbbVie, Amgen, Bristol-Myers Squibb, Celgene, Gilead Sciences, Johnson & Johnson, Lilly, Merck & Co., Pfizer, Astellas, Novartis Biogen-Idec, Roche/ Genentech, and Vertex.Gilead. As of September 30, 2022 and December 31, 2021, Vertex, as the marketer and payor of our royalties on the cystic fibrosis franchise, products, accounted for 27%31% and 17%32%, respectively, of our current portion of Financialfinancial royalty assetsas and represented the largest individual marketer and payor of June 30, 2020 and December 31, 2019, respectively.our royalties.

Recently adopted and issued accounting standards
8
ROYALTY PHARMA PLC
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.NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

We monitor the financial performance and creditworthiness of the counterparties to our royalty 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 income or revenue on our royalty assets.

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, 2021.

Allowance
3. Available for current expected credit lossesSale Debt Securities

Cytokinetics Commercial Launch Funding

On January 7, 2022, we entered into a long-term funding agreement with Cytokinetics, Incorporated (“Cytokinetics”) to support further development of aficamten and potential commercialization of omecamtiv mecarbil. As part of the funding agreement, we agreed to provide capital (“Cytokinetics Commercial Launch Funding”) of up to $300 million, which is comprised of five tranches, including an initial tranche of $50 million that was funded upon closing. In the three months ended June 30, 2022, we amended the long-term funding agreement with Cytokinetics to increase the required draw amount. Cytokinetics is required to draw $50 million if a resultcertain contingency is met and has the option to draw the remaining $200 million upon the occurrence of adopting ASU 2016-13,certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”). As of September 30, 2022, we now recognizeexpect $125 million of the optional $200 million to remain available under the Cytokinetics Commercial Launch Funding due to the likelihood that certain regulatory milestones will not be met by December 31, 2022. Each tranche has an allowanceinterest-free and payment-free period of six calendar quarters, followed by 34 calendar quarters of installment re-payments totaling 1.9 times the amount drawn.

We elected the fair value option to account for current expected credit lossesthe Cytokinetics Commercial Launch Funding, recorded within Available for sale debt securities on the portion of our portfolio of financial royalty assets that is subject to credit risk. The credit loss allowance is estimated usingcondensed consolidated balance sheets, as it most accurately reflects 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 defaultnature of the marketers responsiblefunding arrangement. The Cytokinetics Funding Commitments, which include options and forwards over the subsequent tranches, are recognized at fair value within Other liabilities as of September 30, 2022 and within Available for paying our royalties and resulting loss given default. Current expected credit loss allowance is presented net within the non-current portionsale debt securities as of Financial royalty assets, netDecember 31, 2021 on the condensed consolidated balance sheets. Any subsequent movementThe unrealized changes in the allowancefair value of the funded Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments are recorded within (Gains)/losses on available for credit losses is recorded assale debt securities in the condensed consolidated statements of operations.

MorphoSys Development Funding Bonds

On June 2, 2021, we announced a long-term strategic funding partnership with MorphoSys AG (“MorphoSys”) to support its acquisition of Constellation Pharmaceuticals, Inc. which closed on July 15, 2021. As part of the Provisionfunding agreement, we agreed to provide MorphoSys up to $350 million of capital (the “Development Funding Bonds”), of which MorphoSys was required to draw a minimum of $150 million. Our commitment to fund at least $150 million of the Development Funding Bonds was recognized as the Development Funding Bond Forward. During the three months ended September 30, 2022, we funded $300 million of the Development Funding Bonds, which represents additional funding of $150 million above the minimum funding commitment (“Additional Funding”) and we settled the Development Funding Bond Forward at the same time. We have no remaining funding commitment under the Development Funding Bonds. 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 during the three months ended December 31, 2024.

We elected the fair value option to account for the Development Funding Bonds and the Development Funding Bond Forward as it most accurately reflects the nature of the instruments. The Development Funding Bonds and the Development Funding Bond Forward are recorded within Available for sale debt securities on our consolidated balance sheet. The changes in expected future cash flowsthe fair values of the Development Funding Bonds and the Development Funding Bond Forward are recorded within (Gains)/losses on available for sale debt securities in the condensed consolidated statements of operations.

9
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Series A Biohaven Preferred Shares

On April 5, 2019, RPIFT funded the purchase of 2,495 Series A Biohaven Preferred Shares from financial royalty assetsBiohaven Pharmaceutical Holding Company Ltd. (“Biohaven”) at a price of $50,100 per preferred share for a total of $125 million. The approval of Nurtec ODT by the U.S. Food and Drug Administration (“FDA”) in February 2020 resulted 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 in the three months ended March 31, 2021 through the three months ended December 31, 2024. In the three months ended March 31, 2021, we began receiving payments from the quarterly redemption of the Series A Biohaven Preferred Shares.

On October 3, 2022, Pfizer acquired Biohaven, which was a change of control event that accelerated the redemption of all outstanding Series A Biohaven Preferred Shares at a price equal to two times the original purchase price. In connection with the completion of Pfizer’s acquisition of Biohaven, all outstanding Series A Biohaven Preferred Shares were redeemed in a lump sum payment. We no longer hold any Series A Biohaven Preferred Shares.

The Series A Biohaven Preferred Shares are classified as Available for sale debt securities on our condensed consolidated balance sheets. The unrealized change in the fair value of the Series A Biohaven Preferred Shares is recorded within Unrealized gains/(losses) on available for sale debt securities in the condensed consolidated statements of comprehensive income. In the three and nine months ended September 30, 2022, $7.1 million and $24.1 million, respectively, of the unrealized gains were reclassified from other comprehensive income to Interest income in the condensed consolidated statements of operations. In the three and nine months ended September 30, 2021, $11.8 million and $40.5 million, respectively, of the unrealized gains were reclassified from other comprehensive income to Interest income in the condensed consolidated statements of operations.

Refer to Note 7 for further information.Series B Biohaven Preferred Shares

EarningsOn August 7, 2020, we entered into the 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 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 the three months ended March 31, 2021 and the three months ended December 31, 2024. Our commitment to purchase the Series B Biohaven Preferred Shares is recognized as the Series B Forwards.

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Royalty Pharma plc byOn October 3, 2022, Pfizer acquired Biohaven, which was a change of control event that accelerated the weighted average numberissuance 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 Classall unissued Series 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,Biohaven Preferred Shares and the treasury stock methodredemption of all outstanding Series B Biohaven Preferred Shares at a price equal to determineapproximately 1.8 times the potentially dilutive effectoriginal issue price. In connection with the completion of Pfizer’s acquisition of Biohaven, we purchased all remaining Series B Biohaven Preferred Shares simultaneously with the unvested RSUs.redemption of all outstanding Series B Biohaven Preferred Shares, for which we received a lump sum payment. We no longer hold any Series B Biohaven Preferred Shares.

There were noAs of September 30, 2022, we have acquired 2,279 shares of ClassSeries B Biohaven Preferred Shares. We elected the fair value option to account for the Series B Biohaven Preferred Shares and the Series B Forwards, which are recorded in aggregate as Available for sale debt securities on the condensed consolidated balance sheets. We believe the fair value option most accurately reflects the nature of these instruments. The unrealized changes in the fair values of the Series B Biohaven Preferred Shares and Series B Forwards are recorded within (Gains)/losses on available for sale debt securities in the condensed consolidated statements of operations.
10
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The table below summarizes our available for sale debt securities recorded at fair value as of September 30, 2022 and December 31, 2021 (in thousands):

CostUnrealized Gains/(Losses)Fair ValueCurrent AssetsNon-Current AssetsCurrent LiabilitiesNon-Current Liabilities (3)Total
As of September 30, 2022
Debt securities (1)$584,824 $98,007 $682,831 $343,031 $339,800 $— $— $682,831 
Forwards (2)— 66,316 66,316 66,316 — — — 66,316 
Funding commitments (2)(9,400)(500)(9,900)— — — (9,900)(9,900)
Total available for sale debt securities$575,424 $163,823 $739,247 $409,347 $339,800 $— $(9,900)$739,247 
As of December 31, 2021
Debt securities (1)$204,509 $49,191 $253,700 $66,000 $187,700 $— $— $253,700 
Forwards (2)— 16,700 16,700 — 16,700 — — 16,700 
Total available for sale debt securities$204,509 $65,891 $270,400 $66,000 $204,400 $— $— $270,400 
(1)The cost for the Series A or ClassBiohaven Preferred Shares represents amortized cost. The cost for the Series B ordinary shares outstanding priorBiohaven Preferred Shares represents the amounts paid to June 16, 2020; therefore,purchase the instruments. The cost of the Development Funding Bonds represents the amounts funded. The cost associated with the funded Cytokinetics Commercial Launch Funding reflects the fair value on the purchase date.
(2)There are no earnings per share information has been presented for any period prior to thatcosts associated with the forwards. The cost associated with the funding commitments represents the fair value on the purchase date.
(3)Reflected within Other liabilities on the condensed consolidated balance sheet.

3.4. Fair Value Measurements and Financial Instruments

Fair value measurements
9
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Value Hierarchy



The summary below presents information about ourWe determine the fair value of assets and liabilities that are measured atusing the fair value on a recurring basishierarchy, which establishes three levels of inputs that may be used to measure fair value as of June 30, 2020 and December 31, 2019, and the valuation techniques we utilized to determine such fair value.follows:

•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, 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 requiresrequire inputs that are both significant to the fair value measurement and unobservable. Our level 3 assets historically consisted of our investment in the Biohaven Preferred Shares. See Note 5 for a description of our investment in the Biohaven Preferred Shares.

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, equity securities, derivatives, available for sale debt securities, royalty interests and long-term debt. Cash and cash equivalents, marketable securities, equity securities, derivatives, available for sale debt securities and certain royalty interests are reported at their respective fair values on our condensed consolidated balance sheets. For financial instruments which are carried at fair value, the level in the fair value hierarchy is based on the lowest level of inputs that is significant to the fair value measurement in its entirety. Outstanding borrowings and non-current financial royalty assets are reported at their amortized costs on our condensed consolidated balance sheets, for which fair values are disclosed. The remaining financial instruments are reported on our condensed consolidated balance sheets at amounts that approximate fair values.

11
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Assets and Liabilities Measured at Fair value hierarchyValue on a Recurring Basis

The following is a summary of the inputs used to value our financialtable summarizes assets and liabilities measured at fair value as of June 30, 2020 and December 31, 2019:on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above (in thousands):
As of June 30, 2020
Level 1Level 2Level 3TotalAs of September 30, 2022As of December 31, 2021
(in thousands)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:Assets:Assets:
Cash equivalentsCash equivalentsCash equivalents
Money market fundsMoney market funds$143,859  $—  $—  $143,859  Money market funds$— $— $— $— $598,253 $— $— $598,253 
Commercial paperCommercial paper—  107,889  —  107,889  Commercial paper— — — — — 13,997 — 13,997 
Certificates of depositCertificates of deposit—  14,010  —  14,010  Certificates of deposit— — — — — 40,954 — 40,954 
Marketable securitiesMarketable securitiesMarketable securities
Commercial paperCommercial paper— 27,750 — 27,750 — 207,457 — 207,457 
Certificates of depositCertificates of deposit— 88,087 — 88,087 — 374,415 — 374,415 
U.S. government securitiesU.S. government securities—  42,994  —  42,994  U.S. government securities— 24,089 — 24,089 — — — — 
Corporate debt securities—  38,698  —  38,698  
Certificates of deposit—  261,987  —  261,987  
Available for sale debt securitiesAvailable for sale debt securities—  28,500  —  28,500  Available for sale debt securities
Debt securities (1)Debt securities (1)— — 343,031 343,031 — — 66,000 66,000 
Forwards (2)Forwards (2)— — 66,316 66,316 — — — — 
Derivative instruments (3)Derivative instruments (3)— — 84,860 84,860 — — — — 
Total current assetsTotal current assets$143,859  $494,078  $—  $637,937  Total current assets$— $139,926 $494,207 $634,133 $598,253 $636,823 $66,000 $1,301,076 
Equity securitiesEquity securities477,185  —  —  477,185  Equity securities244,524 — 18,296 262,820 226,787 — 43,013 269,800 
Available for sale debt securitiesAvailable for sale debt securities—  162,454  —  162,454  Available for sale debt securities
Warrants (1)—  14,717  —  14,717  
Debt securities (1)Debt securities (1)— — 339,800 339,800 — — 187,700 187,700 
Forwards (2)Forwards (2)— — — — — — 16,700 16,700 
Derivative instruments (3)Derivative instruments (3)— — 12,730 12,730 — — — — 
Royalty at fair value (4)Royalty at fair value (4)— — 13,937 13,937 — — — — 
Total non-current assetsTotal non-current assets$477,185  $177,171  $—  $654,356  Total non-current assets$244,524 $— $384,763 $629,287 $226,787 $— $247,413 $474,200 
Liabilities:Liabilities:
Available for sale debt securitiesAvailable for sale debt securities
Funding commitments (5)Funding commitments (5)— — (9,900)(9,900)— — — — 
Total non-current liabilitiesTotal non-current liabilities$— $— $(9,900)$(9,900)$— $— $— $— 
(1)Reflects the fair value of the Series A Biohaven Preferred Shares and Series B Biohaven Preferred Shares. As of September 30, 2022, amounts also include the fair value of the funded portion of the Cytokinetics Commercial Launch Funding and the Development Funding Bonds.
(2)Reflects the fair value of our obligations to fund the acquisitions of the Series B Biohaven Preferred Shares as recorded within current assets as of September 30, 2022 and within non-current assets as of December 31, 2021. As of December 31, 2021, the amount also reflects the fair value of our obligations to fund the Development Funding Bonds as recorded within non-current assets.
(3)Related to Epizyme transaction as described in Note 4 andthe Milestone Acceleration Option (defined below) recorded in the non-current asset portion ofwithin Derivative financial instrumentsOther current assets and inOther assets on the condensed consolidated balance sheetsheet.
(4)Recorded within Other assets on the condensed consolidated balance sheet. See Note 8–Non-Consolidated Affiliates for additional discussion.
(5)Related to the fair value of the Cytokinetics Funding Commitments as reflected within Other liabilities on the condensed consolidated balance sheet.

For the three and nine months ended September 30, 2022, we recognized gains of $5.2 million and losses of $12.8 million, respectively, on equity securities still held as of JuneSeptember 30, 2020.
10
Royalty Pharma plc2022. For the three and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
nine months ended September 30, 2021, we recognized gains of $10.0 million and $22.6 million, respectively, on equity securities still held as of September 30, 2022.



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) 
(1)Related to Epizyme warrants and put option as described in Note 4 and recorded in the non-current asset portion of Derivative financial instruments in the condensed consolidated balance sheet as of December 31, 2019.

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  
12
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The tables presented below summarize the change in the combined fair value (current and non-current) of Level 3 financial instruments, which relate to equity securities, a royalty interest, derivative instruments and available for sale debt securities,including the underlying securities, forwards and funding commitments (in thousands):

For the Three Months Ended September 30, 2022For the Three Months Ended September 30, 2021
Equity SecuritiesDebt SecuritiesForwardsFunding CommitmentsDerivative InstrumentsRoyalty at Fair ValueDebt SecuritiesForwards
Balance at the beginning of the period$28,785 $363,000 $28,100 $(8,100)$71,800 $21,215 $240,400 $30,800 
Purchases— 314,579 — — — — 17,585 — 
Losses on initial recognition (1)— (8,800)— — — — — — 
Losses on equity securities(10,489)— — — — — — — 
Gains on derivative financial instruments— — — — 25,790 — — — 
Unrealized gains/(losses) on available for sale debt securities included in other comprehensive income/(losses) (2)— 13,050 — — — — (2,575)— 
Gains/(losses) on available for sale debt securities included in earnings (3)— 14,200 40,643 (1,800)— — (200)(14,685)
Other non-operating expense— — — — — (7,278)— — 
Settlement of forwards (4)— 2,427 (2,427)— — — 4,215 (4,215)
Redemption of debt securities— (15,625)— — — — (15,625)— 
Balance at the end of the period$18,296 $682,831 $66,316 $(9,900)$97,590 $13,937 $243,800 $11,900 
(1)Represents the difference in (a) the fair value of the Additional Funding (as defined above) of the Development Funding Bonds and (b) the actual additional funded amount of $150 million. Refer to footnote (3) below for discussion on the change in fair value of the Development Funding Bond Forward.
(2)Related to Series A Biohaven Preferred Shares.
(3)Amounts reflect changes in the fair values of the Series B Biohaven Preferred Shares, Series B Forwards, and Development Funding Bond Forward. For the three months ended September 30, 2022, amounts also reflect the change in the fair value of the funded portion of the Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments.
(4)Amounts reflect the fair value attributed to the Series B Forwards that were settled as we acquired the Series B Biohaven Preferred Shares, which is included in the fair value of the Series B Biohaven Preferred Shares. Amounts also reflect the fair value attributed to the Development Funding Bond Forward that was settled upon funding the Development Funding Bonds in the three months ended September 30, 2022, which is included in the fair value of the Development Funding Bonds.

13
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

For the Nine Months Ended September 30, 2022For the Nine Months Ended September 30, 2021
Equity SecuritiesDebt SecuritiesForwardsFunding CommitmentsDerivative InstrumentsRoyalty at Fair ValueDebt SecuritiesForwards
Balance at the beginning of the period$43,013 $253,700 $16,700 $— $— $— $214,400 $18,600 
Purchases28,785 393,737 — — — 21,215 52,755 — 
Gains/(losses) on initial recognition (1)— 600 — (9,400)— — — — 
Losses on equity securities(12,810)— — — — — — — 
Gains on derivative financial instruments— — — — 97,590 — — — 
Unrealized gains on available for sale debt securities included in other comprehensive losses (2)— 24,000 — — — — 8,574 — 
Gains/(losses) on available for sale debt securities included in earnings (3)— 44,400 62,885 (500)— — 301 7,945 
Other non-operating expense— — — — — (7,278)— — 
Settlement of forwards (4)— 13,269 (13,269)— — — 14,645 (14,645)
Transfer out of Level 3 (5)(40,692)— — — — — — — 
Redemption of debt securities— (46,875)— — — — (46,875)— 
Balance at the end of the period$18,296 $682,831 $66,316 $(9,900)$97,590 $13,937 $243,800 $11,900 
(1)Represents purchase price allocation to arrive at the appropriate fair value on initial recognition. Amounts also represent the difference in (a) the fair value of the Additional Funding (as defined above) of the Development Funding Bonds and (b) the actual additional funded amount of $150 million. Refer to footnote (3) below for discussion on the change in fair value of the Development Funding Bond Forward.
(2)Related to Series A Biohaven Preferred Shares.
(3)Amounts reflect changes in the fair values of the Series B Biohaven Preferred Shares, Series B Forwards and Development Funding Bond Forward. For the nine months ended September 30, 2022, amounts also reflect the change in the fair value of the funded portion of the Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments.
(4)Amounts reflect the fair value attributed to the Series B Forwards that were settled as we acquired the Series B Biohaven Preferred Shares, which is included in the fair value of the Series B Biohaven Preferred Shares. Amounts also reflect the fair value attributed to the Development Funding Bond Forward that was settled upon funding the Development Funding Bonds in the three months ended September 30, 2022, which is included in the fair value of the Development Funding Bonds.
(5)Related to transfer restriction expiration of BioCryst common stock.

Valuation inputsInputs for Recurring Fair Value Measurements

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

ApiJect Investment

We utilized the discounted cash flow method using Level 3 inputs, including forecasted cash flows and the weighted average cost of capital, to estimate the fair value as of September 30, 2022 of the equity securities and revenue participation right that we acquired from ApiJect Holdings, Inc. (“ApiJect”), a private company, in Biohaven Preferred SharesApril 2022. Our estimate of the forecasted cash flows and the weighted average cost of capital could reasonably be different than those selected by a market participant in the event of a sale of the instruments, which would mean that the estimated fair value could be significantly higher or lower. Refer to Note 8–Non-Consolidated Affiliates for additional discussion.

14
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Cytokinetics Commercial Launch Funding

We estimated the fair value of the funded Cytokinetics Commercial Launch Funding as of September 30, 2022 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including an estimated risk-adjusted discount rate and the probability that there will be a change of control event, which would result in accelerated payments. Developing a risk-adjusted discount rate and assessing the probability that there will be a change of control event over the duration of the Cytokinetics Commercial Launch Funding requires significant judgement. Our estimate of the risk-adjusted discount rate could reasonably be different than the discount rate selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. 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.

We estimated the fair value of the Cytokinetics Funding Commitments as of September 30, 2022 using a Monte Carlo simulation methodology that includes simulating the interest rate movements using a Geometric Brownian Motion-based pricing model. This methodology simulates the likelihood of future discount rates exceeding the counterparty’s assumed cost of debt, which would impact Cytokinetics’ decision to exercise its option to draw on each respective tranche. This methodology incorporates Level 3 fair value measurements and inputs, including an assumed interest rate volatility of 30% and an assumed risk-adjusted discount rate of 17.9%. We also assumed probabilities for the occurrence of each regulatory or clinical milestone, which impacts the availability of each future tranche of funding. Our estimate of the risk-adjusted discount rate, the interest rate volatility and the probabilities of each underlying milestone could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

BioCryst Common Stock

In November 2021, we purchased 3,846 thousand shares of common stock of BioCryst Pharmaceuticals, Inc. (“BioCryst”), calculated based on the volume-weighted average price of BioCryst’s common stock over a period preceding the closing of the transaction. As part of the transaction, we were restricted from selling the BioCryst common stock for six months following the close of the transaction. We determined the fair value of the BioCryst common stock as of December 31, 2021 based on the closing stock price and adjusted for the transfer restriction, which was determined by calculating the value of a put option over the BioCryst common stock to match the duration of the transfer restriction. This methodology incorporated Level 3 inputs, including the estimated volatility of the BioCryst common stock, which required the use of significant judgement. Our estimated volatility could be reasonably different than the actual volatility of BioCryst’s common stock, which would mean that the estimated fair value for the BioCryst common stock could be significantly higher or lower than the fair value determined by management at any particular date. The transfer restriction expired and the BioCryst common stock was transferred from a Level 3 to a Level 1 asset during the three months ended June 30, 2022.

MorphoSys Development Funding Bonds

The fair value of the Development Funding Bonds and the Development Funding Bond Forward as of September 30, 2022 and December 31, 2021, respectively, 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. During the three months ended September 30, 2022, the Development Funding Bond Forward was settled upon funding the Development Funding Bonds.

Series A Biohaven Preferred Shares

The fair value of the Series A Biohaven Preferred Shares at Juneas of September 30, 20202022 and December 31, 2021 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 paymentflows 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 the three months ended December 31, 2024. TheWhen the FDA approved Nurtec ODT in February 2020, we became entitled to receive a fixed payment amount of $250.0$250 million resultspayable in nominalequal quarterly payments of $15.6 million over this period. Using Biohaven's weighted average cost of capital of 11.1% obtained from a publicly available third party source, management arrived at abetween the three months ended March 31, 2021 and the three months ended December 31, 2024.

15
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

We estimated the fair value of $191.0 million at June 30, 2020 for the Series A Biohaven Preferred Shares as of September 30, 2022 and December 31, 2021 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 are recordedwould 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. As of September 30, 2022, we estimated that a change of control event was imminent and, as Available for sale debt securities (see Note 5) and classifiedsuch, we did not apply a discount rate. Our estimate of a risk adjusted discount rate was 9.5% as of December 31, 2021.Our estimated discount rate could reasonably be different than the discount rate selected by a level 2 measurement at this date formarket participant, which would mean that the reasons noted above.estimated fair value could be significantly higher or lower.

Series B Biohaven Preferred Shares

The fair value of each of the Series B Biohaven Preferred Shares atand Series B Forwards as of September 30, 2022 and December 31, 2019 was determined2021 were based on significantprobability-adjusted discounted cash flow calculations using Level 3 fair value measurements and 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 termsincluding estimated risk-adjusted discount rates 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)that there will be a change of Biohaven’s pipeline product, rimegepant, being approved bycontrol event in different periods of time, which would result in accelerated payments and redemptions. Assessing the FDA by specific dates, (2)probability that there will be a change of control event over the duration of the Series B Biohaven Preferred Shares and developing a risk-adjusted discount rate requires significant judgement. As of September 30, 2022, we estimated that a change of control event was imminent. Our estimate of a Changerisk adjusted discount rate, expectation of Controlthe probability and timing of the occurrence of a change of control event could reasonably be different than those determined by specific dates,a market participant, which would mean that the estimated fair value could be significantly higher or lower.

Milestone Acceleration Option

On August 7, 2020, we entered into an expanded funding agreement with Biohaven, including the Series B Biohaven Preferred Share Agreement, to fund the development of zavegepant and (3) that Biohaven will electthe commercialization of Nurtec ODT in exchange for royalties and success-based milestones payable over time. We exercised our right to redeem the Preferred Shares foraccelerate outstanding zavegepant milestone payments in a lump sum payment as opposedamount (“Milestone Acceleration Option”) in connection with Pfizer’s acquisition of Biohaven. The Milestone Acceleration Option is an embedded derivative instrument for which the associated fair value was not material prior to payback over time. Probabilities forthree months ended June 30, 2022, when Pfizer announced its intended acquisition of Biohaven. As of September 30, 2022, 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%, thefair value of our Biohaven Preferred Shares would notthe Milestone Acceleration Option was $97.6 million, of which $84.9 million was recorded within Other current assets and $12.7 million was recorded within Other assets on the condensed consolidated balance sheet. For the three and nine months ended September 30, 2022, we recorded unrealized gains of $25.8 million and $97.6 million, respectively, related to the change materially at December 31, 2019.

Assumptions used in the valuation model asfair value of December 31, 2019 included the following significant unobservable inputs:
•Milestone Acceleration Option within Change(Gains)/losses on derivative financial instruments in the condensed consolidated statements 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%).operations.

We estimated the fair value of the Milestone Acceleration Option as of September 30, 2022 using the “with-and-without” methodology, which is a variation of the income approach and is based on the difference between cash flows for two different scenarios. The prospective cash flows for the success-based milestone payments include the Milestone Acceleration Option in the first scenario. For the second scenario, the prospective cash flows are estimated assuming they remain payable over time. The difference between the fair value of these two scenarios represents the fair value of the Milestone Acceleration Option. This methodology includes the use of Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates, estimated probabilities of achieving the success-based milestones, and the probability that there will be a change of control event in different periods of time, which would result in accelerated milestone payments. Assessing the probability that there will be a change of control event, the likelihood that the success-based milestones are achieved over the duration of the Milestone Acceleration Option and developing a risk-adjusted discount rate requires significant judgement; however, as of September 30, 2022, we estimated that a change of control was imminent. Our estimate of a risk adjusted discount rate, probabilities of achieving marketing approval, and the probability and timing of the occurrence of a change of control event could reasonably be different than those determined by a market participant, which would mean that the estimated fair value could be significantly higher or lower.
16
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Other Financial Instruments

Financial instruments whose fair values are measured on a recurring basis using Level 2 inputs primarily consist of commercial paper, certificates of deposit and U.S. government securities. We measure the fair value of these financial instruments
We use a third party with the help of third-party pricing serviceservices that either provide quoted market prices in active markets for level 2identical or similar securities or observable inputs used to value cash equivalents and short term investments, which provides documentation on an ongoing basis that includes, among other things,for their 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 valuationwithout applying significant adjustments.

Financial assets not measuredAssets Not Measured at fair valueFair 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. TheManagement calculates the fair value of financial royalty assets is calculated by management using the forecasted royalty payments we expectthat are expected to receivebe received 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.analysts’ consensus sales forecasts. Where such consensus sales forecasts are not available, management uses reasonable judgment to make assumptions about the projected product sales. These projected future royalty payments by asset along with any projected incoming or outgoing milestone payments are then discounted to a present value using appropriate individual discount rates. The fair value of our financial royalty assets is classified as levelLevel 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. Estimated fair values based on levelLevel 3 inputs and related carrying values for the non-current portion of our financial royalty assets as of JuneSeptember 30, 20202022 and December 31, 20192021 are presented below.
(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  
below (in thousands):

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 interest rate swap contracts and foreign currency forward contracts. Our policy is to use derivatives strategically to hedge existing 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.

Interest rate swaps
As of June 30, 2020, we do not hold any interest rate swap contracts. In connection with the Exchange Offer Transactions described in Note 1, 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 do not apply hedge accounting and recognize all movement 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 the 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-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.

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 settled in February 2020.

The warrant was recognized at fair value of $14.7 million and $30.8 million within the non-current asset portion of Derivative financial instruments on the condensed consolidated balance sheet at June 30, 2020 and December 31, 2019, respectively. We recorded an unrealized gain on derivative contracts of $0.6 million and an unrealized loss on derivative contracts of $16.1 million related to the change in fair value 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 fair value of the derivatives for the three and six months ended June 30, 2020 and 2019, and the line items within the condensed consolidated statements of comprehensive income where the gains/(losses) on these derivatives are recorded.

14
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(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$— $(1,602)Unrealized gain/loss on derivative contracts
Change in fair value of interest rate swaps— (8,011)Unrealized gain/loss on derivative contracts
Interest income— 3,115 Interest expense
Derivatives not designated as hedging instruments
Interest Rate Swaps:
Change in fair value of interest rate swaps— (29,801)Unrealized gain/loss on derivative contracts
Interest income— 1,479 Interest expense
Warrant:
Change in fair value of warrant647 — Unrealized gain/loss on derivative contracts
For the six months endedCondensed Consolidated Statement of Comprehensive Income location
June 30, 2020June 30, 2019
Derivatives in hedging relationships (1)(in thousands)
Interest Rate Swaps:
Amount of loss reclassified from AOCI into income$(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 AOCI have been released into earnings.
As of September 30, 2022As of December 31, 2021
Fair ValueCarrying Value, netFair ValueCarrying Value, net
Financial royalty assets, net$18,490,959 $14,287,399 $19,047,183 $13,718,245 

5. Available for Sale Debt Securities

A summary of our available for sale debt securities recorded 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, in the condensed consolidated balance sheet. The entire balance of the Biohaven Preferred Shares was recorded as a non-current asset as of December 31, 2019.

15
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



Available for sale debt securities (Biohaven Preferred Shares)
On April 5, 2019, RPIFT funded the purchase of 2,495 Series A 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, pursuant 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 million in the aggregate (and no less than $25.0 million at each additional closing) of additional Series A 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 price of the Series A Preferred Shares upon the closing 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 through December 31, 2024.
•If a Change of Control is announced after October 5, 2019 and 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 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 approval and starting one-year after approval, through December 31, 2024. Refer to Note 3 for discussion of the valuation of our Investment in the Biohaven Preferred Shares.

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 thosesuch products by unrelated companies.third parties.

17
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 at Juneof September 30, 20202022 and December 31, 20192021 are as follows.follows (in thousands):
16
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2022
Estimated Royalty Duration (1)
Gross Carrying ValueCumulative Allowance for Changes in Expected Cash Flows (Note 6)
Net Carrying Value (4)
Cystic fibrosis franchise
2037 (2)
$5,343,413 $— $5,343,413 
Tysabri(3)1,722,204 (119,691)1,602,513 
Trelegy2029-20301,298,901 — 1,298,901 
Imbruvica2027-20321,441,303 (550,915)890,388 
Tremfya2031-2032885,917 — 885,917 
Xtandi2027-20281,032,627 (226,217)806,410 
Other2023-20405,523,607 (1,195,662)4,327,945 
Total$17,247,972 $(2,092,485)$15,155,487 
Less: Cumulative allowance for credit losses (Note 6)(192,231)
Total financial royalty assets, net$14,963,256 

(1)Durations shown represent our estimates as of the current reporting date of when a royalty will substantially end, which may depend on clinical trial results, regulatory approvals, contractual terms, commercial developments, estimates of patent expiration dates (which may include estimated patent term extensions) or other factors and may vary by geography. There can be no assurances that our royalties will expire when expected.

(2)Royalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on timing of potential generic entry.

June 30, 2020Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (d)
(in thousands)
Cystic fibrosis franchise(b)$4,692,567  $(98,381) $4,594,186  
Tysabri(c)2,065,179  (34,353) 2,030,826  
Imbruvica20291,368,322  (31,543) 1,336,779  
Xtandi20281,174,247  (219,405) 954,842  
Promacta2026740,543  (8,924) 731,619  
Tazverik2036346,902  —  346,902  
Other2019- 20362,502,483  (499,455) 2,003,028  
Total$12,890,243  $(892,061) $11,998,182  
Less: Cumulative allowance for credit losses (Note 7)(301,388) 
Total financial royalty assets, net$11,696,794  
a)(3)Dates shown are based on the patent duration or management’s best estimate of the date through which the Company will be entitled to royalties. Royalty durations can change due to the grant of additional patents, the invalidation of patents, and other reasons.
b)The estimated duration for the Cystic fibrosis franchise is 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.
c)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management hasWe have applied an end date of 2031 for purposes of accreting income over the royalty term.term, which is periodically reviewed.
d)(4)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 76–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  

As of December 31, 2021
Estimated Royalty Duration (1)
Gross Carrying ValueCumulative Allowance for Changes in Expected Cash Flows (Note 6)
Net Carrying Value (5)
Cystic fibrosis franchise
2037 (2)
$5,335,641 $(48,636)$5,287,005 
Tysabri(3)1,846,069 (16,617)1,829,452 
Imbruvica2027-20321,438,730 (236,871)1,201,859 
Xtandi2027-20281,100,065 (172,101)927,964 
Tremfya2031-2032881,671 — 881,671 
Evrysdi
2030-2035 (4)
727,774 — 727,774 
Other2023-20404,697,591 (909,916)3,787,675 
Total$16,027,541 $(1,384,141)$14,643,400 
Less: Cumulative allowance for credit losses (Note 6)(310,804)
Total financial royalty assets, net$14,332,596 
a)(1)DatesDurations shown arerepresent our estimates as of the current reporting date of when a royalty will substantially end, which may depend on clinical trial results, regulatory approvals, contractual terms, commercial developments, estimates of patent expiration dates (which may include estimated patent term extensions) or other factors and may vary by geography. There can be no assurances that our royalties will expire when expected.
(2)Royalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on the patent duration or management’s best estimatetiming of the date through which the Company will be entitled to royalties. Royalty duration can change due to the grant of additional patents, the invalidation of patents, and other reasons.potential generic entry.
b)(3)The estimated duration for the Cystic fibrosis franchise is 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.
c)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management hasWe have applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed by the management.reviewed.
d)(4)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.
(5)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 6–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.

1718
Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(UNAUDITED)



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

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

•the movement in the Cumulativecumulative allowance forrelated to changes in forecasted royalty payments expected future cash flows,to be received based on projected product sales for royalty bearing products as estimated by sell-side equity research analysts’ consensus sales forecasts, 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 $192.7 million to recognize an allowance for current expected credit losses, on the portion of our portfolio ofprimarily associated with new financial royalty assets that is subject to credit risk. The provision for changes in expected cash flows from financial royalty assets reflects the activity for the period that relates to the change in estimates applied to calculate the allowance for credit losses, namely any changes in the credit ratings of the marketers responsible for paying our royaltieswith limited protective rights and changes in the underlying cash flow forecasts used in the effective interest model to measure income from ourof financial royalty assets. assets with limited protective rights.
Refer to Note 2 for further information.
The following table sets forth the activity in the cumulative allowance for changes in expected cash flows from financial royalty assets, inclusive of the cumulative allowance for credit losses, as of the dates indicated:indicated (in thousands):
(in thousands)Activity for the periodPeriod
Balance at December 31, 20192021 (1)$(868,418)(1,694,945)
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)(987,507)
Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets262,980273,538 
ReversalWrite-off of cumulative allowance (a)2,9645,625 
Current period provision for credit losses, net (2)(108,683)118,573 
Balance at JuneSeptember 30, 20202022$(1,193,449)(2,284,716)
(a) Relates(1)Includes $310.8 million related to amounts reversed outcumulative allowance for credit losses.
(2)In the nine months ended September 30, 2022, the provision income for credit losses was primarily related to a change in the payor for a particular product and a significant decline in the value of the allowance at the end of aTazverik financial royalty asset's life to bring the account balance to zero. Reversals solely impact the asset account and allowance account, there is no impact on the condensed consolidated statements of comprehensive income.asset.

8.7. Intangible Royalty Assets, Net

The following schedules of the intangible royalty interests presenttables summarize the cost, accumulated amortization and net carrying value of our intangible royalty assets as of JuneSeptember 30, 20202022 and December 31, 2019.2021 (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 September 30, 2022CostAccumulated AmortizationNet Carrying Value
DPP-IV patents$606,216 $606,216 $— 
Total intangible royalty assets$606,216 $606,216 $— 
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, 2021CostAccumulated AmortizationNet Carrying Value
DPP-IV patents$606,216 $600,546 $5,670 
Total intangible royalty assets$606,216 $600,546 $5,670 

The patents associated withAs of September 30, 2022, the intangible royalty interests classifiedassets were fully amortized as intangible assets terminate at various dates up to 2022. The weighted average remaining life of the royalty interests classified as intangible assets is 1.75 years. The projected amortization expense is $11.6 million, $23.0 million,our royalties on Januvia and $5.7 millionJanumet expired in the remainder of 2020, 2021 and 2022, respectively.three months ended March 31, 2022. Our royalties on the other DPP-IV products have also substantially ended.

Our revenueRevenue from intangible assets 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 royaltysuch revenue from licensees based on the geography of the underlying sales as this level of information ismay not always included in royalty reportsbe provided to us by marketers. For the Company.three months ended September 30, 2022, revenue from intangible royalty assets was not material. Individual licensees exceeding 10% or more of revenue from intangible royalty assets accounted for 96% and 92%63% of our revenues from intangible royalty assets in the three months ended JuneSeptember 30, 2020 and 2019, respectively.2021. Individual licensees exceeding 10% or more of revenue from intangible royalty assets accounted for 95%90% and 91%80% of our revenues from intangible royalty assets in the sixnine months ended September 30, 2022 and 2021, respectively.

19
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

8. Non-Consolidated Affiliates

We have equity investments in certain entities at a level that provide us with significant influence. We account for such investments as equity method investments or as equity securities for which we have elected the fair value option.

ApiJect

During the three months ended June 30, 20202022, we acquired common stock and 2019, respectively.a revenue participation right from ApiJect. We elected the fair value option to account for our investments in ApiJect because it is more reflective of current values for our investments in ApiJect. We are also required to purchase additional common stock from ApiJect if certain milestones are achieved. The fair value of our equity investment was recorded within Equity securities and the change in fair value was recorded within (Gains)/losses on equity securities. The fair value of the revenue participation right was recorded within Other assets andthe change in fair value was recorded within Other non-operating expense, net. No amounts were due from ApiJect as of September 30, 2022.

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.Partnerships, net of amortization of the basis difference. 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 indirectly 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 nine months ended JuneSeptember 30, 2020,2022, we received cash distributionsrecorded a loss allocation of $5.3$2.1 million from the Legacy Investors Partnerships and recorded an income allocation of $20.2$7.2 million, respectively, withinEquity in losses/(earnings)/loss of non-consolidated affiliatesequity method investees. During the sixthree and nine months ended JuneSeptember 30, 2020,2021, we received cash distributionsrecorded income allocations of $12.2$11.2 million and recorded an income allocation of $23.4$41.9 million, respectively, within Equity in losses/(earnings)/loss of non-consolidated affiliatesequity method investees. .We received cash distributions from the Legacy SLP Interest of $5.8 million and $19.9 million in the three and nine months ended September 30, 2022, respectively. We received cash distributions from the Legacy SLP Interest of $6.2 million and $14.8 million in the three and nine months ended September 30, 2021, respectively.

The Avillion Entities

We account for our partnership interests in Avillion Financing I, LP and its related entities (“Avillion I”) and, BAv Financing II, LP and its related entities (“Avillion II”, or,II,” together with Avillion I, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the entities.Avillion Entities. During the three and nine months ended September 30, 2022, we recorded a loss allocation from the Avillion Entities of $1.2 million and $9.3 million, respectively, within Equity in losses/(earnings) of equity method investees. During the three and nine months ended September 30, 2021, we recorded a loss allocation from the Avillion Entities of $8.4 million and $23.4 million, respectively, within Equity in losses/(earnings) of equity method investees.

On December 19, 2017, the Avillion Entities announced that the FDA approved a supplemental New Drug Application for Pfizer’s BOSULIF® (bosutinib).Bosulif. Avillion I is eligible to receive fixed payments from Pfizer based on this approval. Subsequent to the asset sale, theapproval under its co-development agreement with Pfizer. The only operations of Avillion I are the collection of cash and unwinding of the discount on the series of fixed annual payments due from Pfizer. We received distributions from Avillion I of $13.4 million and $14.1 million from Avillion I during each of the sixnine months ended JuneSeptember 30, 20202022 and 2019, respectively, in connection with Avillion I’s receipt of the fixed annual payments due under its co-development agreement with Pfizer.2021, respectively.

In March 2017 RPIFT entered into an agreement to invest approximately $15.0 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.
20
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In May 2018, RPIFT entered into an additional agreement, which was amended in July 2021 and was further amended in June 2022, to invest up to $105.0increase the funding amount by $27.5 million, which totaled $150.0 million over multiple years in Avillion II, over multiple yearswhich is a party to a co-development agreement with AstraZeneca, to fund approximately 44%a portion of the costs of Phase II2 and III3 clinical trials to advance Pearl Therapeutics, Inc.'s product PT-027 (the “AZ Asset”)PT027 through a global clinical development program for the treatment of asthma in exchange for royalties, a series of deferred paymentssuccess-based milestones and success-based milestones.other potential payments.

In December 2019, the Avillion II agreement was amended to increase RPIFT’s funding commitment by an additional $4.0 million in respect 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.

RPIFT had $41.5 million and $70.8 million of unfunded commitments related to the Avillion Entities as of June 30, 2020 and December 31, 2019, respectively. 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 As of September 30, 2022 and Subsidiaries
NotesDecember 31, 2021, RPIFT had unfunded commitments related to the Condensed Consolidated Financial Statements
(Unaudited)



Avillion Entities of $28.8 million and $11.2 million, respectively.

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

R&D funding expense consists of payments that we have made to counterparties to acquire royalties or milestones on product candidates. R&D funding expense includes development-stage funding payments that are made upfront or upon pre-approval milestones and development-stage funding payments that are made over time as the related product candidates undergo clinical trials with our counterparties. During the sixnine months ended JuneSeptember 30, 20202022 and 2021, we did not enter into any new ongoing R&D funding arrangements.

We recognized R&D funding expense incurred inof $25.5 million and $126.6 million for the first sixthree and nine months ended September 30, 2022, respectively. We recognized R&D funding expense of 2020$90.5 million and $96.3 million for the three and nine months ended September 30, 2021, respectively. During the nine months ended September 30, 2022, R&D funding expense primarily related to ongoing development stageupfront and milestone development-stage funding payments primarily under our Sanofi agreement. of $100.0 million and $25.0 million to acquire royalties on development-stage product candidates from Cytokinetics and Theravance Biopharma, Inc., respectively. During the nine months ended September 30, 2021, we recognized $90.0 million as upfront 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 million and $12.4 million of R&D funding expenseexchange for the three and six months ended June 30, 2020, respectively 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 agreements 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.

future royalties on two development-stage products from MorphoSys.
As of June 30, 2020 we have a remaining commitment of $21.0 million related to an R&D funding agreement with Sanofi.

11.10. Borrowings

New Our borrowings as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

Type of BorrowingDate of IssuanceMaturityAs of September 30, 2022As of December 31, 2021
Senior Unsecured Notes:
$1,000,000, 0.75% (issued at 99.322% of par)9/20209/2023$1,000,000 $1,000,000 
$1,000,000, 1.20% (issued at 98.875% of par)9/20209/20251,000,000 1,000,000 
$1,000,000, 1.75% (issued at 98.284% of par)9/20209/20271,000,000 1,000,000 
$1,000,000, 2.20% (issued at 97.760% of par)9/20209/20301,000,000 1,000,000 
$600,000, 2.15% (issued at 98.263% of par)7/20219/2031600,000 600,000 
$1,000,000, 3.30% (issued at 95.556% of par)9/20209/20401,000,000 1,000,000 
$1,000,000, 3.55% (issued at 95.306% of par)9/20209/20501,000,000 1,000,000 
$700,000, 3.35% (issued at 97.565% of par)7/20219/2051700,000 700,000 
Unamortized debt discount and issuance costs(188,740)(203,930)
Total debt carrying value7,111,260 7,096,070 
Less: Current portion of long-term debt(996,583)—
Total long-term debt$6,114,677 $7,096,070 

Senior Secured Credit FacilitiesUnsecured Notes

On February 11, 2020,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 and $700.0 million principal amount of notes due September 2051. Interest on each series of the 2021 Notes accrues at the respective rate per annum and is payable semi-annually in connectionarrears on March 2 and September 2 of each year, which began on March 2, 2022. The 2021 Notes were issued at a total discount of $27.5 million and we capitalized approximately $12.3 million in debt issuance costs primarily composed of underwriting fees. The 2021 Notes were issued with the Exchange Offer Transactions (as discussed in Note 1)a weighted average coupon rate 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 consist 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 anweighted average effective interest rate of 1.50% above LIBOR2.80% and matures in February 2025. Tranche B-1 has an interest rate of 1.75% above LIBOR and matures in February 2027.3.06%, respectively.
21
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Credit Agreement contains covenants that, among other things, restrict our abilityOn September 2, 2020, we issued $6.0 billion of senior unsecured notes (the “2020 Notes” and, together with the 2021 Notes, the “Notes”). We used the net proceeds from the 2020 Notes offering, together with available cash on hand, to make certain distributions, incur additional debt, engagerepay 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 Agreementprior senior secured credit facilities. Interest on each series of the 2020 Notes accrues at any time prior to the maturity dates,respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year. The 2020 Notes were issued at a total discount of $149.0 million and we capitalized approximately $40.4 million in debt issuance costs primarily comprised of underwriting fees. The 2020 Notes were issued with certain voluntary prepayments that may be subject to a customary prepayment premium governed by the Credit Agreement.weighted average coupon rate and a weighted average effective interest rate of 2.125% and 2.50%, respectively.

Financial CovenantsOn August 3, 2021, we completed an exchange offer for the 2020 Notes where certain holders elected to tender their unregistered outstanding notes for freely tradable exchange notes that were registered under the Securities Act of 1933.

The 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. 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.

Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly-owned subsidiary. We are required to comply with certain covenants under our Notes and as of September 30, 2022, we were in compliance with all applicable covenants.

As of September 30, 2022 and December 31, 2021, the fair value of our outstanding Notes using Level 2 inputs was approximately $5.6 billion and $7.2 billion, respectively.

Senior Unsecured Revolving Credit Facility

On September 15, 2021, we entered into an amended and restated revolving credit agreement (the “Credit Agreement”). The Credit Agreement amended and restated the prior credit agreement that our subsidiary RP Holdings, as borrower, entered into on September 18, 2020, which provided for a five-year unsecured revolving credit facility (the “Revolving Credit Facility”) with borrowing capacity of up to $1.5 billion for general corporate purposes. The Credit Agreement extended the maturity of the Revolving Credit Facility to September 15, 2026. As of September 30, 2022 and December 31, 2021, there were no 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% or (b) the Eurocurrency Rate or the Alternative Currency Daily Rate (each as defined in the Credit Agreement), plus in each case, the applicable margin. The applicable margin for the Revolving Credit Facility varies based on our public debt rating. Accordingly, the interest rates for the Revolving Credit Facility fluctuates during the term of the facility based on changes in the applicable interest rate and future changes in our public debt rating.

The Credit Agreement that governs the Revolving Credit Facility contains financialcertain customary covenants, requiringthat among other things, require us to maintain (i) a Consolidated Leverage Ratioconsolidated leverage ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1:001.00 following a Qualifying Material Acquisition)qualifying material acquisition) of Consolidated Funded Debtconsolidated funded debt to Consolidatedconsolidated EBITDA, (eacheach as defined and calculated with the ratio level calculated with further adjustments as set forth in the Credit Agreement)Agreement and (ii) a Consolidated Coverage Ratioconsolidated coverage ratio at or above 2.50 to 1.00 of Consolidatedconsolidated EBITDA minus Consolidated Capital Expenditures to Consolidated Charges (eachconsolidated interest expense, each as defined and calculated with further adjustments as set forth in the Credit Agreement). RPI Intermediate FTAgreement. All obligations under the Revolving Credit Facility are unconditionally guaranteed by us. Noncompliance with the leverage ratio and interest coverage ratio covenants under the Credit Agreement could result in our lenders requiring us to immediately repay all amounts borrowed. If these financial covenants are not satisfied, the Credit Agreement prohibits us from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets. As of September 30, 2022, RP Holdings was in compliance with these covenants at June 30, 2020.

Our borrowings at June 30, 2020 and December 31, 2019 consisted of the following:covenants.
2022
Royalty Pharma plc and SubsidiariesROYALTY PHARMA PLC
Notes to the Condensed Consolidated Financial StatementsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(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, includingPrincipal Payments on the current portion, approximates its fair value.Notes

AmortizationThe future principal payments for our borrowings as of Term Loans
As of JuneSeptember 30, 2020, we are required to repay the term loans under the Credit Agreement2022 over the next five years and thereafter are as follows:follows (in thousands):
(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  

YearPrincipal Payments
Remainder of 2022$— 
20231,000,000 
2024— 
20251,000,000 
2026— 
Thereafter5,300,000 
Total (1)$7,300,000 
(1)Excludes unamortized debt discount on long-term debt of $30.0 million and loan issuance costs of $3.9$188.7 million as of September 30, 2022, which are amortized through interest expense over the remaining life of the underlying debt obligations.

RPIFT Senior Secured Credit Facilities (the “Old Credit Facility”)
The Old Credit Facility was repaid in full in February 2020 in connection with the Exchange Offer. As 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 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 amounts on deposit in the Collection Trust Account.

The Old Credit Facility contained 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.

12. Shareholders'11. Shareholders’ Equity

Capital structure
21
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Structure



Following the completionWe have two classes of our IPO as discussed in Note 1, there have been no changes in our capital structure. As of June 30, 2020, we have outstanding 365,899,235voting shares: Class A ordinary shares and 241,207,425 Class 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. As of September 30, 2022, we had 441,104 thousand Class A ordinary shares and 166,118 thousand Class B ordinary shares outstanding.

An exchange agreement entered into in connection with the IPO by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings (the “Exchange Agreement”) 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, RP Holdings Class B interests are exchangeable on a one-for-one basis 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 September 30, 2022, we had outstanding deferred shares of 369,265 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
23
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Non-Controlling 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.

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 sixnine months ended JuneSeptember 30, 20202022 and 2021 is 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  
Contributions—6,691——6,691
Distributions(25,270)(99,581)——(124,851)
Net income prior to IPO17,22589,962——107,187
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 IPO3,40017,75531,560—52,715
Other comprehensive income:
Change in unrealized movement on available for sale debt securities—1,222402—1,624
June 30, 2020$26,918  $1,986,511  $3,224,400  $—  $5,237,829  
RPSFTLegacy Investors PartnershipsContinuing Investors PartnershipsEPA HoldingsTotal
June 30, 2022$8,882 $1,716,186 $2,655,870 $— $4,380,938 
Contributions— 1,570 1,400 — 2,970 
Distributions(4,175)(95,084)(38,621)— (137,880)
Other exchanges— — (61,886)— (61,886)
Net Income1,935 21,432 54,396 — 77,763 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— 2,294 2,975 — 5,269 
Reclassification of unrealized gains on available for sale debt securities— (1,250)(1,621)— (2,871)
September 30, 2022$6,642 $1,645,148 $2,612,513 $— $4,264,303 

(1) Related to
RPSFTLegacy Investors PartnershipsContinuing Investors PartnershipsEPA HoldingsTotal
December 31, 2021$13,528 $1,809,269 $2,649,154 $— $4,471,951 
Contributions— 4,964 4,209 — 9,173 
Distributions(20,188)(302,670)(110,964)— (433,822)
Other exchanges— — (124,108)— (124,108)
Net Income13,302 133,595 194,281 — 341,178 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— 4,218 5,520 — 9,738 
Reclassification of unrealized gains on available for sale debt securities— (4,228)(5,579)— (9,807)
September 30, 2022$6,642 $1,645,148 $2,612,513 $— $4,264,303 

RPSFTLegacy Investors PartnershipsContinuing Investors PartnershipsEPA HoldingsTotal
June 30, 2021$20,640 $1,894,027 $2,757,019 $— $4,671,686 
Contributions— 3,300 2,730 — 6,030 
Distributions(18,562)(109,780)(31,372)— (159,714)
Other exchanges— — (38,305)— (38,305)
Net income13,851 63,424 42,592 — 119,867 
Other comprehensive loss:— 
Unrealized losses on available for sale debt securities— (453)(625)— (1,078)
Reclassification of unrealized gains on available for sale debt securities— (2,066)(2,856)— (4,922)
September 30, 2021$15,929 $1,848,452 $2,729,183 $— $4,593,564 

24
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

RPSFTLegacy Investors PartnershipsContinuing Investors PartnershipsEPA HoldingsTotal
December 31, 2020$12,436 $1,939,509 $3,125,091 $— $5,077,036 
Contributions— 13,207 7,596 — 20,803 
Distributions(44,691)(332,069)(99,141)— (475,901)
Other exchanges— — (589,968)— (589,968)
Net income48,184 233,424 294,098 — 575,706 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— 1,507 2,505 — 4,012 
Reclassification of unrealized gains on available for sale debt securities— (7,126)(10,998)— (18,124)
September 30, 2021$15,929 $1,848,452 $2,729,183 $— $4,593,564 

The Continuing Investors Partnerships’ ownership in RP Holdings decreases as the Continuing Investors Partnerships' ownership of approximately 40% inPartnerships exchange RP Holdings Class B Interests held for Class A ordinary shares. As of September 30, 2022, the Continuing Investors Partnerships owned approximately 27% of RP Holdings with the remaining 73% owned by Royalty Pharma plc.

RP Holdings Class C Special Interest Held by EPA Holdings

EPA Holdings, an affiliate of the Manager, is entitled to Equity Performance Awards (as defined below) through their ownershipits 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 are 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 B Interests.

22
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(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  

(1) Related to the Continuing Investors Partnerships' ownership of approximately 40%C Special Interest. The Equity Performance Awards will be payable in RP Holdings through their ownershipClass B Interests that will be exchanged upon issuance for Class A ordinary shares. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. We do not expect any material Equity Performance Awards to be payable until certain performance conditions discussed above are met.

Dividends

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by our board of directors. The holders of Class B Interests.ordinary shares do not have any rights to receive dividends; however, RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. In the nine months ended September 30, 2022, we declared and paid three quarterly cash dividends of $0.19 per Class A ordinary share for an aggregate amount of $249.1 million to holders of our Class A ordinary shares. In the nine months ended September 30, 2021, we declared and paid three quarterly cash dividends of $0.17 per Class A ordinary share for an aggregate amount of $211.6 million to holders of our Class A ordinary shares.

2020 Independent DirectorDirectors Equity Incentive Plan
In
On June 15, 2020, our 2020 Independent Director Equity Incentive Plan (“2020 Equity Incentive Plan”) was approved and became effective, on June 15, 2020. Under the 2020 Equity Incentive Plan, 800,000 shares of ourwhereby 800 thousand Class A ordinary shares have been reserved for future issuance.issuance to our independent directors.

Restricted Stock UnitsRSU Activity and Share-based Compensation
In connection with the IPO, we granted a total of 71,430 fully-vested shares with a
We grant date fair value of $50.90 per shareRSUs to our independent directors under the provisions of our 2020 Independent Director Equity Incentive Plan to 2 directors in recognition of their extensive past services to the Old RPI board 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. CompensationPlan. Share-based compensation expense is amortizedrecognized 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 statementstatements of comprehensive income foroperations. In the three and sixnine months ended JuneSeptember 30, 2020.2022 and 2021, respectively, we did not recognize material share-based compensation expenses.

There was 0 share based compensation in periods prior to the IPO.
25
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

13.12. Earnings per Share

Basic earnings per share ("EPS"(“EPS”) is computedcalculated 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 computedcalculated 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 includeOur Class B ordinary shares, Class R redeemable shares and deferred shares do not share in the earnings or losses attributable to us and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share for Class B ordinary shares, Class R redeemable shares and deferred shares under the two-class method has not been presented.

Our outstanding Class B ordinary shares are, however, considered potentially dilutive shares of Class A ordinary shares because Class B ordinary shares, together with the related RP Holdings Class B Interests, are exchangeable into Class A ordinary shares on a one-for-one basis. Potentially dilutive securities also include 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. For the three and nine months ended September 30, 2022 and 2021, Class B ordinary shares contingently issuable to EPA Holdings were evaluated and were determined not to have any dilutive impact.

23
Royalty Pharma plcThe following table sets forth reconciliations of the numerators and Subsidiariesdenominators used to calculate basic and diluted earnings per Class A ordinary share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Numerator
Consolidated net income$220,414 $221,796 $840,094 $1,187,530 
Less: Net income attributable to Continuing Investors Partnerships54,396 42,592 194,281 294,098 
Less: Net income attributable to Legacy Investors Partnerships and RPSFT23,367 77,275 146,897 281,608 
Net income attributable to Royalty Pharma plc - basic142,651 101,929 498,916 611,824 
Add: Reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B ordinary shares54,396 42,592 194,281 294,098 
Net income attributable to Royalty Pharma plc - diluted$197,047 $144,521 $693,197 $905,922 
Denominator
Weighted average Class A ordinary shares outstanding - basic439,293 428,230 436,542 409,253 
Add: Dilutive effects as shown separately below
Class B ordinary shares exchangeable for Class A ordinary shares167,927 178,942 170,651 197,881 
Unvested RSUs6 2 16 18 
Weighted average Class A ordinary shares outstanding - diluted607,226 607,174 607,209 607,152 
Earnings per Class A ordinary share - basic$0.32 $0.24 $1.14 $1.49 
Earnings per Class A ordinary share - diluted$0.32 $0.24 $1.14 $1.49 



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. Class R redeemable shares and deferred shares do not share in the earnings or losses attributable to Royalty Pharma plc and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of 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. Class B ordinary shares was evaluated under the if-converted method for potential dilutive effects and were determined to be anti-dilutive.

The basic and diluted earnings per share period for the three and six months ended June 30, 2020, represents only the period from June 16, 2020 to 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. The following table sets forth reconciliations used to compute basic and diluted earnings per share of Class A ordinary shares.

(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 units1  1  
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  

(1) Reflected as net income attributable to controlling interest on the unaudited condensed consolidated statement of comprehensive income


14. Indirect Cash Flow

24
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



26
ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

13. 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,
20202019
Cash flow from operating activities:
Consolidated net income$711,072  $574,864  
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Provision for changes in expected cash flows from financial royalty assets135,290  22,177  
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  
Distributions from non-consolidated affiliates31,840  14,059  
Loss on extinguishment of debt5,405  —  
Share based compensation3,740  —  
Other3,398  289  
(Increase)/decrease in operating assets:
Financial royalty assets(937,021) (799,161) 
Cash collected on financial royalty assets1,003,504  895,150  
Available for sale debt securities—  (150,000) 
Accrued royalty receivable1,218  (600) 
Other receivables—  150,000  
Other royalty income receivable2,094  5,670  
Other current assets(12,634) 4,171  
Other assets45,635  (26,352) 
Increase/(decrease) in operating liabilities:
Accounts payable and accrued expenses13,862  (769) 
Derivative financial instruments(34,952) —  
Net cash provided by operating activities$960,108  $769,777  
For the Nine Months Ended September 30,
20222021
Cash flow from operating activities:
Consolidated net income$840,094 $1,187,530 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from financial royalty assets(1,578,555)(1,538,871)
Provision for changes in expected cash flows from financial royalty assets595,396 186,337 
Amortization of intangible assets5,670 17,200 
Amortization of debt discount and issuance costs16,026 14,822 
(Gains)/losses on derivative financial instruments(97,590)21,436 
Losses on equity securities22,970 17,980 
Equity in losses/(earnings) of equity method investees2,117 (18,532)
Distributions from equity method investees33,316 28,213 
Loss on extinguishment of debt— 358 
Share-based compensation1,587 1,939 
Interest income accretion(24,053)(40,545)
Gains on available for sale debt securities(97,985)(8,246)
Termination of derivative financial instruments— (16,093)
Other3,443 3,263 
Decrease/(increase) in operating assets:
Cash collected on financial royalty assets1,843,899 1,733,147 
Accrued royalty receivable37,574 (26,502)
Other royalty income receivable(4,108)(7,833)
Other current assets and other assets8,253 (473)
Increase/(decrease) in operating liabilities:
Accounts payable and accrued expenses10,492 (2,138)
Interest payable(44,497)(25,413)
Net cash provided by operating activities$1,574,049 $1,527,579 

Non-cash investing
14. Commitments and financing activities are summarizedContingencies

Funding Commitments

We have various funding commitments as of September 30, 2022 as described below. See Note 3–Available for Sale Debt Securities for additional discussion of the respective arrangements.
(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

Cytokinetics Commercial Launch Funding

As of September 30, 2022, $250 million of the Cytokinetics Commercial Launch Funding remained unfunded. Cytokinetics is required to draw $50 million if a certain contingency is met and has the option to draw the remaining $200 million upon the occurrence of certain regulatory and clinical development milestones. As of September 30, 2022, we expect $125 million of the optional $200 million to remain available under the Cytokinetics Commercial Launch Funding due to the likelihood that certain regulatory milestones will not be met by December 31, 2022.

2527
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)Series B Biohaven Preferred Shares

Comprehensive income is comprisedAs of net income and other comprehensive income/(loss). We include unrealized gains and losses on available for sale debt securities and unrealized gains/(losses) on the interest rate swaps that were designated as cash flow hedges in other comprehensive income/(loss).

Changes in accumulated other comprehensive income/(loss) by component are as follows:
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  

16. Related Party Transactions

The Manager
The Manager is an affiliateSeptember 30, 2022, we have a remaining commitment of RP Ireland, is the Administrator of RPIFT and RPI 2019 Intermediate Finance Trust ("RPI Intermediate FT") and is the investment manager for RPI. The sole member of the Manager holds an interest in the Company and serves as the Company’s Chief Executive Officer and Chairman of the Board, and as a director on the board of RP Holdings.

Historically, the Manager received Operating and Personnel Payments payable in equal quarterly installments and increasing by 5% annually on a compounded basis$85.8 million under the termsCommercial Launch Preferred Equity to purchase 1,713 shares of its management agreement with Old RPISeries B Biohaven Preferred Shares. On October 3, 2022, Pfizer acquired Biohaven which was a change of control event that accelerated the issuance and the Legacy Investors Partnerships. RP Ireland receives an annual management fee payable in advance by Old RPI in equal quarterly installments under termsredemption of the Limited 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.

all unissued Series B Biohaven Preferred Shares. In connection with 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. Pursuantcompletion of Pfizer’s acquisition of Biohaven, we have no remaining commitment related to the new management agreements, RPI pays quarterly Operating and Personnel Payments in respect of operating and personnel expenses to the Manager or its affiliates equal to 6.5% of 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 during the three and six months ended June 30, 2020 were $27.6 million and $47.3 million, respectively.Series B Biohaven Preferred Shares.

Royalty Distribution Payable
The Royalty distribution payable to affiliates 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.

26
Royalty Pharma plc and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



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, was appointed as a director of Epizyme, for which he will receive compensation in cash and shares, all of which will be contributed to the Manager and used to reduce costs and expenses which would otherwise be billed to the Company or its affiliates.

Acquisition from Bristol-Myers Squibb
In November 2017, RPI Acquisition entered into a Purchase 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. 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 with a wholly owned subsidiary of BioPharma Credit PLC (LSE: BPCR, “BPCR”), an affiliate of RPI. BPCR is a related entity due to the sole member of the investment manager having significant influence over both entities. 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.Other Commitments

We began making installment paymentshave commitments to BMS duringadvance funds to counterparties through our investment in the second quarterAvillion Entities. Please refer to Note 8–Non-Consolidated Affiliates for details of 2018. Upon transfer of funds from BPCRthese arrangements. We also have requirements to RPI Acquisitions to meetmake Operating and Personnel Payments over the quarterly funding obligation to BMS, RPI Acquisitions derecognizes 50%life of the financial royalty asset. Cash received from BPCRManagement Agreement as described in respect of each funding obligation equals the carrying amount of the assigned transfer of interest, therefore no gain or loss is recognized upon the transfer. The financial royalty asset of $159.6 millionNote 15–Related Party Transactions, which are variable and $150.3 million included in financial royalty assets, netprimarily based on 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.cash receipts.

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 when our installment funding obligation was completed and we received our first royalty payment on the BMS asset in the second quarter of 2020.

Other transactions
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 acquired 27,210 limited partnership interests in an affiliate of, and an equity method investor in, Old RPI and RPIFT, whose only substantive operations are its investment in Old RPI. The total investment of $4.3 million is recorded as treasury interests, of which $2.1 million is held by non-controlling interests in the consolidated balance sheet as of June 30, 2020.

Based on its ownership percentage of Royalty Pharma Investments 2019 ICAV 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 Company and any subsidiary of the Company, including any third-party expenses of managing the Company and any subsidiary of the Company, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations, and insurance expenses relating to the affairs of the Company and any subsidiary of the Company.

17. Commitments and ContingenciesIndemnifications

In the ordinary course of itsour 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 proceedingsoccurrences taking place in the future is remote.

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 are recorded in the current and long-term liabilities on the condensed consolidated balance sheet at June 30, 2020, respectively.

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 development arrangements. Please refer to Notes 4, 9, and 10, 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, 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 below inproceedings on our condensed consolidated balance sheetssheets. When we determine that a loss is both probable and reasonably estimable, we record a liability, and, if the liability is material, we disclose the amount of the liability reserved. We do not believe the outcome of any existing legal proceedings to which we are a party, either individually or in the aggregate, will adversely affect our business, financial condition or results of operations.

15. Related Party Transactions

The Manager

The Manager is the investment manager of Royalty Pharma plc and its subsidiaries. The sole member of the Manager, Pablo Legorreta, holds an interest in us and serves as our Chief Executive Officer and Chairman of our board of directors.

Pursuant to the Management Agreement, we pay quarterly operating and personnel expenses to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5% of the cash receipts from royalty investments for such quarter and 0.25% of the value of our security investments under GAAP as of Junethe 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 on our consolidated net income, 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 nine months ended September 30, 20202022, total operating and December 31, 2019.personnel payments incurred were $40.6 million and $117.8 million, respectively, including the amounts attributable to Old RPI, and were recognized within General and administrative expenses in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, total operating and personnel payments incurred were $39.9 million and $108.0 million, respectively, including the amounts attributable to Old RPI, and were recognized within General and administrative expenses in the condensed consolidated statements of operations.

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

Distributions Payable to Non-Controlling Interests

The distributions payable to non-controlling interestsrepresent 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 distributions payable to non-controlling interests include the following (in thousands):
As of September 30, 2022As of December 31, 2021
Due to Legacy Investors Partnerships$98,601 $92,608 
Due to RPSFT7,130 15,326 
Total distributions payable to non-controlling interests$105,731 $107,934 

Acquisition from Bristol Myers Squibb

In November 2017, RPI Acquisitions, a consolidated subsidiary, entered into a purchase 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 (the “Purchase Agreement”). On December 2015, Boehringer Ingelheim International GmBH8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“BI”Assignment Agreement”) notified Royalty Pharma that (a) BI had revised its interpretationwith a wholly-owned subsidiary of BioPharma Credit PLC (“BPCR”), an entity related to us. Under the terms of the license agreement between BI and Royalty Pharma, (b) as a result BI believed that it had overpaid royalties on salesAssignment Agreement, RPI Acquisitions assigned the benefit 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 interpretation50% of the license agreement and has had extensive discussions with BIpayment stream acquired from BMS to BPCR in an effortconsideration for BPCR meeting 50% of the funding obligations owed 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 toBMS under the uncertainty at this time, we have not accrued any amounts related to this matter and any legal costs will be expensed as incurred.Purchase Agreement.

As of September 30, 2022 and December 31, 2021, the financial royalty asset of $110.9 million and $130.9 million, respectively, on the condensed consolidated balance sheets represents only our right to the future payment streams acquired from BMS.
18.
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 September 30, 2022 and December 31, 2021. The financial impact associated with this transaction has not been material to date.

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 8–Non-Consolidated Affiliates for additional discussion of the Legacy SLP Interest and our investments in other non-consolidated entities.

RPIFT owns 27,210 limited partnership interests in the Continuing Investors Partnership whose only substantive operations are their investment in our subsidiaries. The total investment of $4.3 million is recorded as treasury interests, of which $1.5 million and $1.6 million were held by non-controlling interests as of September 30, 2022 and December 31, 2021, respectively.

Based on its ownership percentage of RP 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 us and any of our subsidiaries, including any third-party expenses of managing us and any of our subsidiaries, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations and insurance expenses relating to our affairs and those of any subsidiary.

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

16. Subsequent Events

In July 2020,October 2022, we acquiredentered into a royalty on risdiplam,R&D funding agreement with MSD International Business GmbH (“Merck”) to co-fund the development of MK-8189, an investigational oral PDE10A inhibitor currently being evaluated in a development-stage product candidatePhase 2b study for the treatment of spinal muscular atrophy (SMA) from PTC Therapeutics, Inc., inschizophrenia. We funded $50 million upon closing, and if Merck decides to proceed with Phase 3. we have the option to fund up to an additional $375 million. In exchange, for an upfront paymentwe are eligible to receive milestone payments upon certain regulatory approvals and royalties on annual worldwide sales of $650 million.any approved product.

In August 2020, we entered into an expanded agreement with Biohaven Pharmaceuticals for up to $450 million to fundOctober 2022, GSK plc (“GSK”) announced that the development of zavegepant andlimited efficacy demonstrated in 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 phaseContRAst Phase 3 program in exchangedoes not support a suitable benefit/risk profile for otilimab as a potential treatment for rheumatoid arthritis. As a result, GSK has decided not to progress with regulatory submissions. Following this announcement, we wrote off the financial 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 launchasset associated with otilimab, which had a carrying value of Nurtec ODT through the purchase$160.1 million as of committed, non-contingent Commercial Launch Preferred Equity for a total of $200 million payable between 2021 and 2024.September 30, 2022.
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Item 2.         MANAGEMENT'SMANAGEMENT’S 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.shares. “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 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. Refer to Note 1 to our condensed consolidated financial statements for further discussion.

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 35 commercial products, including Vertex’s Trikafta, Kalydeco, Orkambi and Symdeko, Biogen’s Tysabri, AbbVie and Johnson & Johnson’s Imbruvica, Januvia, Kalydeco, Trikafta, Truvada, TysabriAstellas and Xtandi.Pfizer’s Xtandi, GSK’s Trelegy, Novartis’ Promacta, Pfizer’s Nurtec ODT, Johnson & Johnson’s Tremfya, Roche’s Evrysdi,Gilead’s Trodelvy, and 13 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 2019,2021, we have deployed $12$15.0 billion of cash to acquire royalties on approved products. From 2012 through 2019,2021, we have acquired $7.0$10.2 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 2019,2021, we have deployed $6.1$7.8 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 acquisitions according to the followingpartners through a variety of structures:

•Third-party Royalties – Existing royalties on approved or late-stage development therapies with high commercial potential. 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 RoyaltiesRoyalties/R&D Funding – Newly-created royalties on approved or late-stage development therapies with strong proof of concept and high commercial potential. 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 ourA synthetic royalty acquisitions, wemay 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 –include contingent milestone payments. We also fund ongoing research and development (“R&D,&D”), typically for large biopharmaceutical companies, in exchange for future royalties and/or milestones if the product or indication we are funding is approved.

•Launch and Development Capital – Tailored supplemental funding solutions, generally included as a component within a transaction, increasing the scale of our capital. Launch and development capital is generally provided in exchange for a long-term stream of fixed payments with a predetermined schedule around the launch of a drug. Launch and development capital may also include a direct investment in the public equity of a company.

•Mergers and Acquisitions (“M&A&A”) Related – 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.

Additionally, we may identify additional opportunities, platforms or technologies that leverage our capabilities. One example is our strategic alliance with MSCI Inc. (“MSCI”) to develop thematic life sciences indices.

Background and Format of Presentation

We consummated an exchange offer on February 11, 2020 to facilitate our IPO. Through the exchange offer, investors which represented 82% of the aggregate limited partnership in the various partnerships (the “Legacy Investors Partnerships”) that owned Royalty Pharma plc isInvestments, an Irish unit trust (“Old RPI”), 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 senior credit facilities 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. Following our IPO, we operate andare referred to as the “Exchange Offer Transactions.”

We control the business affairs of Royalty Pharma Holdings Ltd.,Ltd (“RP Holdings”) through our ownership of 100% of the RP Holdings’ Class A ordinary shares (“and RP Holdings’ Class B ordinary shares (the “RP Holdings Class AB Interests”) and 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).and is the successor to Old RPI.

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, through its wholly-owned subsidiary RPI Intermediate FT, ownswe own indirectly an 82% economic interest in 82% of Old RPI. Through its 82% indirect ownership of Old RPI through our subsidiary RPI is legally2019 Intermediate Finance Trust, a Delaware statutory trust (“RPI Intermediate FT”). We are 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, that is owned by RPIFT.a Delaware statutory trust (“RPCT”).

From the Exchange Date until the expirationThe remaining 34% of the Legacy Investors Partnerships’ investment period on the Legacy Date,RPCT is owned by the Legacy Investors Partnerships had the option to participate proportionately in any investment madeand Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly-owned 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 will make new investments 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 GlobalRoyalty Pharma 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.an Irish unit trust.

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Following management’s determination that a high degree of common ownership exists in RPI both before and after the Exchange Date, RPI 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 references in the following discussion to the three and six months ended June 30, 2019 refer to the financial results of Old RPI for the same periods.

Understanding Our Financial Reporting

In accordance with generally accepted accounting principles in the United States, or GAAP, mostMost 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 loansassets measured at amortized cost under the effective interest method in accordance with generally accepted accounting methodology.principles in the United States (“GAAP”). 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 requires significant judgments and estimates, 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 sales estimates for each of the products in which we own royalties. We then calculate our expected royalty cash flows using these consensus sales forecasts. In any given reporting period, any decline or increase in the expected future cash flows associated with a financial royalty asset is recognized as a provision which is expensed throughin our income statement as a non-cash charge.provision expense or provision income, respectively.

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 sales forecasts over a long timeterm horizon can result in an immediate non-cash income statement expense recognition which generates a corresponding cumulative allowance that reduces the gross asset balance, 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. Beginningfranchise royalty and beginning in the second quarter of 2015, declines in near-term sales forecasts of sell-side equity research analysts caused us to build up arecognize non-cash provision for this royalty asset.expense. Over the course of 10 quarters, we recognized non-cash charges to the income statementprovision expense 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, ultimately reaching a peak cumulative allowance of $1.30 billion by September 30, 2017 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 sales forecasts increased to reflect the larger addressable market and the increase inextension of the expected duration of the Trikafta.Trikafta royalty. While small reductions in the cumulative provisionallowance for the cystic fibrosis franchise were recognized inas provision income over the course of 2017 and 2018, there remained a $1.10 billion cumulative provision balanceallowance that was fully offsetreduced by arecognizing provision income of $1.10 billion credit to the provision in 2019 as a result of an increase in sell-side equity research analysts’ consensus sales forecasts associated with the Trikafta approval. This example illustrates the volatility caused by our accounting model.

In addition, due to the nature of our effective interest methodology, there is no direct correlation between our income from financial royalty assets and our royalty receipts. 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 accounting methodology. Given the importance of cash flows and their predictability 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 Statementconsolidated statements of Cash Flows: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 affiliatesequity method investees (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 theour 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.

Refer to the section titled “Non-GAAP Reconciliations” for additional discussion of management’s use of non-GAAP measures as supplemental financial measures.

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Portfolio Overview

Our portfolio consists of royalties on more than 4535 marketed therapies and four13 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 sixnine months ended JuneSeptember 30, 20202022 and 2019, grouped2021 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.product in order of contribution to royalty receipts for the nine months ended September 30, 2022 (in thousands).
RoyaltiesMarketer(s)Therapeutic AreaFor the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Cystic fibrosis franchise (1)VertexRare disease$207,882 $182,876 $591,733 $505,708 
TysabriBiogenNeurology91,252 95,805 281,819 274,796 
ImbruvicaAbbVie, Johnson & JohnsonCancer74,391 87,924 241,943 264,348 
XtandiPfizer, AstellasCancer45,717 40,237 141,100 117,049 
PromactaNovartisHematology50,067 48,151 132,679 124,617 
Januvia, Janumet, Other DPP-IVs (2)Merck & Co., othersDiabetes1,029 37,934 72,406 113,133 
TremfyaJohnson & JohnsonImmunology21,409 16,610 68,062 16,610 
Nurtec ODT/Biohaven payment (3)Pfizer (5)Neurology20,459 17,948 59,549 51,170 
TrelegyGSKRespiratory42,720 — 42,720 — 
Cabometyx/CometriqExelixis, Ipsen, TakedaCancer14,612 12,038 40,523 22,167 
Farxiga/OnglyzaAstraZenecaDiabetes11,522 9,321 32,336 26,996 
EvrysdiRocheRare disease9,602 5,897 26,933 10,546 
PrevymisMerck & Co.Infectious disease11,052 9,929 25,174 27,331 
TrodelvyGileadCancer6,496 2,521 17,428 8,118 
OrladeyoBioCrystRare disease6,265 2,502 15,456 3,471 
ErleadaJohnson & JohnsonCancer5,586 3,736 15,305 9,957 
CrysvitaUltragenyx, Kyowa KirinRare disease5,241 4,576 14,887 12,092 
EmgalityLillyNeurology4,657 4,542 13,845 11,356 
OxlumoAlnylamRare disease596 653 1,945 653 
Other products (4)73,349 129,003 212,260 349,242 
Total royalty receipts$703,904 $712,203 $2,048,103 $1,949,360 

(1)
(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  

(1) The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, SymdekoSymdeko/Symkevi and Trikafta.Trikafta/Kaftrio.
(2) 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 include 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.
(3)Quarterly redemption payments of $15.6 million commenced in the first quarter of 2021 related to the Series A Biohaven Preferred Shares (presented as Proceeds from available for sale debt securities on the statements of cash flows). The remaining amounts are related to royalty receipts from Nurtec ODT.
(4)Other Growth Productsproducts primarily include royaltiesroyalty receipts on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion I, for which receipts are presented as Distributions received from non-consolidated affiliatesequity method investees on the Statementstatements of Cash Flows)cash flows), Cimzia, Conbriza/Fablyn/Viviant, Emgality, Entyvio, Erleada, Farxiga/Onglyza,Gavreto, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Nurtec, Prevymis, Priligy, Soliqua, Tazverik and Trodelvy. Other Growth Products also include contributions from the Legacy SLP Interest and a distribution from Avillion in respect of the Merck Asset, 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.(defined below).
(5) Receipts from Tecfidera milestone payments are presented as Proceeds from available for sale debt securities on the StatementIn October 2022, Pfizer completed its acquisition of Cash Flows.Biohaven.
(6)Other Mature Products primarily include royalties on the following products: Prezista, Rotateq, Savella and Thalomid.

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Financial Overview

Financial highlightsHighlights

•Net cash provided by operating activities totaled $960.1 million$1.6 billion and $769.8 million$1.5 billion for the sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, 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 million$1.7 billion and $1,075.6 million$1.6 billion for the sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, respectively.
•Adjusted EBITDA (a non-GAAP metric) totaled $774.1 million$1.6 billion and $1,028.5 million$1.5 billion for the sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, respectively.
•Adjusted Cash Flow (a non-GAAP metric) totaled $666.5 million$1.3 billion and $823.2 million$1.2 billion for the sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, respectively.

Understanding Our Results of Operations

Following our IPO, Royalty Pharma plc is a holding company whose principal asset is a controlling equity interest in RP Holdings, which is the sole equity owner of Royalty Pharma Investments 2019 ICAV and is included in our condensed consolidated financial statements. We report non-controlling interests related to four minoritythe portion of ownership interests in ourof consolidated subsidiaries heldnot owned by third parties.us which are attributable to:

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 Special Interests held by EPA Holdings described under “Certain Relationships and Related Party Transactions—Equity Performance Awards” in our Prospectus. 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 27% ownership interest in RP Holdings as of September 30, 2022 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 sharesconduct exchanges for our Class A ordinary shares of Royalty Pharma plc.shares.

4.The fourth minority interest is attributable to a3.     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 royalty assets in the Collection Trustowned by RPCT expire and is expected to be substantially eliminated by the end of 2022.

334.     The RP Holdings Class C ordinary share (the “RP Holdings Class C Special Interest”) held by RPI EPA Holdings, LP (“EPA Holdings”), an affiliate of RP Management, LLC (the “Manager”). Income will not be allocated to this non-controlling interest until certain performance conditions are met.

The fourth non-controlling interest related to RPSFT’s ownership in the Collection Trust 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. 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 for the first quarter of 2020. 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 while EPA Holdings is entitled to receive Equity Performance Awards through its RP Holdings Class C Special Interests following the IPO.Interest. 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 Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests at that time.will be exchanged upon issuance for Class A ordinary shares. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. We do not currently expect any material Equity Performance Awards to be payable until certain performance conditions are met, which we do not expect to occur until the mid-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 generally arising from successful commercialization of products developed through joint researchR&D funding arrangements, and development funding arrangements.a declining contribution of royalty revenue from our intangible royalty assets for which patent rights have materially expired. 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 assetsroyalties as intangible assets.

The majority of our royalties are recorded as financial assets, for which we
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We recognize interest income.income related to our financial royalty assets. Royalty revenue relates solely to revenue from our DPP-IV patent estateproducts for which the patent rights have been licensed to various counterparties. For the three and sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, the royalty payors accounting for greater than 10% 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 %
For the Three Months Ended September 30,For the Nine Months Ended September 30,
Royalty PayorRoyalties2022202120222021
VertexCystic fibrosis franchise35 %33 %36 %33 %
AbbVieImbruvica13 %16 %15 %17 %

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 sales estimates are updated on a quarterly basis, the effective rate of return changes. For example, if sell-side equity research analysts’ consensus sales 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 prospective 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 sales forecasts, (3) regulatory approval of additional indications which leads to new cash flow streams, (4) changes to the estimated duration of the royalty (i.e., patent expiration date) and (5) changes in amounts and timing of projected royalty receipts.receipts and milestone payments. 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
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interest income over the life of our royalties. The recognition of interest 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 oursales of Januvia, Janumet and other DPP-IV patents classified as intangible assets.products by our licensees. Our royalties on Januvia and Janumet expired in the three months ended March 31, 2022. Our royalties on other DPP-IVs have also substantially ended and we do not expect any material revenue from our DPP-IVs in the future periods.

Other royalty income

Other royalty income primarily includes income from former royalties for which the asset balancesfinancial royalty assets that have been fully depletedamortized by the expected expiration date and royalty income from synthetic royalties and milestones 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 dateduration by which the financial asset was amortized in full.fully amortized. In each scenario where a financial royalty asset no longer remains,has been fully amortized, income onfrom such royalty asset is recognized as Other royalty income. Other royalty income also includes income from royalties that are recorded at fair value on our condensed consolidated balance sheets.

Research and development funding expense
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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  

Provision for changes in expected cash flows from financial royalty assets

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

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

• the movement in the allowance for credit losses upon adoption of ASU 2016-13 on January 1, 2020.

The provision for changes in expected cash flows isexpense or income related to the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows,flows; and
•expense or income related to the provision for current expected credit losses, which is a contra balance sheet account linkedreflects the activity for the period, primarily due to our Financialnew financial royalty assets with limited protective rights and changes to cash flow estimates for financial royalty assets with limited protective rights.
,
net balance on the condensed consolidated balance sheet. 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 provision income (i.e., a credit to provision expense.the provision).

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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 sales forecasts, (2) regulatory approval of additional indications which leads to new cash flow streams, (3) changes to the estimated duration of the royalty (i.e., patent expiration date) and (4) changes in amounts and timing of projected royalty receipts.receipts and milestone payments.

R&D funding expense
Upon
R&D funding expense consists of payments that we have made to counterparties to acquire royalties or milestones on product candidates. It includes development-stage funding payments that are made upfront or upon pre-approval milestones, and development-stage funding payments that are made over time as 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 ofrelated product candidates undergo clinical trials with our portfolio of financial royalty assets that is subject to credit risk. The 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 current expected credit losses, namely any changes in the credit ratings of the marketers responsible for paying our royaltiescounterparties.

General and changes in the underlying cash flow forecasts used in the effective interest model to measure income from our financial royalty assets.administrative expenses

General and administrative (“G&A”) expenses

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

Beginning The expenses incurred in 2020, we expect therespect of Operating and Personnel Payments paidare expected to our Manager to be significantly higher than they were in historical periods. Priorcomprise the most significant component of G&A expenses on an ongoing basis.

Under the management agreements (collectively, the “Management Agreement”), we pay quarterly operating and personnel expenses to the Reorganization Transactions, the Manager or its affiliates (“Operating and Personnel Payments were fixed, growing at 5% per annum and not linkedPayments”) equal to any financial line item. Under the New Management Agreement effective from the Exchange Date, the Operating and Personnel Payment for RPI is calculated as 6.5% of the Adjusted Cash Receiptscash receipts from royalty investments for eachsuch quarter and 0.25% of the GAAP value of our security investments under GAAP as of the end of such quarter, adjusted to reflect the actual GAAP value of our security investments. 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 of income, is payable in equal quarterly installments and increases by 5% annually on a compounded basis through the Legacy Date, after which it will beG&A expenses, are calculated as the greater of $1 million per quarter and 0.3125% of royalties from Royalty Investments (as defined therein). The expenses incurred in respectthe limited partnership agreements of the Operating and Personnel Payments are expected to compriseLegacy Investors Partnerships) during the most significant componentprevious twelve calendar months.

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Equity in losses/(earnings) of G&A expenses in 2020 and on an ongoing basis.equity method investees

Equity in losses/(earnings) of equity method investees primarily includes the results of our share of income or loss of nonconsolidated affiliatesfrom the following non-consolidated affiliates:

1. Legacy SLP Interest
Interest.
In connection with the Exchange Offer Transactions, we acquired a newan 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 participatingparticipate in investment opportunities, the value of the Legacy SLP Interest is expected to decline over time. As of the Exchange Date, our equity method investee, the Legacy Investors Partnerships, also owns a non-controlling interest in Old RPI.

2. The Avillion Entities.The Avillion Entities

During 2014, we entered into an agreement with our equity method investee (“Avillion I”) to invest up to $46.0 million over three years to fund a portion of the costs of a pivotal Phase III study for Pfizer’s Bosulif to expand its label into front-line chronic myeloid leukemia. The FDA approved a supplemental New Drug Application (“sNDA”) for Pfizer’s 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 distributions from non-consolidated affiliates on the Statement of Cash Flows.

In 2018, we agreed to fund up to approximately $105 million over multiple years to fund a portion of the costs for Phase III clinical trials of our equity method investee (“Avillion II,” or together with Avillion I, the “Avillion Entities”), who
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simultaneously entered into a co-development agreement with AstraZeneca to advance PT027 (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 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 (as defined below) partner with global biopharmaceutical companies to perform R&D in exchange for success-based milestones and/orand royalties onceif products are commercialized. Our investments in Avillion Financing I, LP (“Avillion I”) and BAv Financing II, LP (“Avillion II”, or, together with Avillion I, the “Avillion Entities”) are accounted for using the equity method.

Other (income) expense,/expenses, net

Other (income) expense,/expenses, 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 extinguishment ofderivative instruments and available for sale debt securities, including related forwards and funding commitments, and interest income.

Net income attributable to non-controlling interestinterests

The net income attributable to non-controlling interest prior tointerests includes the Exchange Date, as discussed earlier in this MD&A, relates to RPSFT’s 20%Legacy Investors Partnerships’ approximately 18% share of earnings in the Collection Trust, which is a consolidated subsidiary of Old RPI.

As of the Exchange Date, the non-controlling interest balance on the unaudited condensed consolidated balance sheets includes a new non-controlling interest related to the ownership in Old RPI by the Legacy Investors Partnerships of approximately 18%. 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 IPO, this line item also includes netNet income attributable to thenon-controlling interests includes RP Holdings Class B Interests held by the Continuing Investors Partnerships and will include net income attributable to the RP Holdings Class C Special InterestsInterest held by EPA Holdings once certain performance conditions have been met. NetFuture 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 sharesconduct exchanges for our Class A ordinary shares of Royalty Pharma plc.shares.

Net income attributable to non-controlling interests also includes RPSFT’s 20% share of earnings in 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 royalty assets owned by RPCT expire and to be substantially eliminated by the end of 2022.

Net income attributable to non-controlling interests above can fluctuate significantly from period to period, primarily driven by volatility in the income statement activity of the respective underlying entity as a result of the non-cash charges associated with applying the effective interest accounting methodology to our financial royalty assets as described in section titled “Understanding Our Financial Reporting.”


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Results of Operations

For the threeThree and six months ended JuneNine Months Ended September 30, 20202022 and 20192021

The comparison of our historical results of operations for the three and sixnine months ended JuneSeptember 30, 20202022 and 20192021 is as follows:

(in thousands)For the Three Months Ended September 30,ChangeFor the Nine Months Ended September 30,Change
20222021$%20222021$%
Income and other revenues:
Income from financial royalty assets$551,682 $505,832 $45,850 9.1 %$1,578,555 $1,538,871 $39,684 2.6 %
Revenue from intangible royalty assets1,073 63,406 (62,333)(98.3)%37,196 139,594 (102,398)(73.4)%
Other royalty income20,708 16,535 4,173 25.2 %55,716 35,298 20,418 57.8 %
Total income and other revenues573,463 585,773 (12,310)(2.1)%1,671,467 1,713,763 (42,296)(2.5)%
Operating expenses:
Provision for changes in expected cash flows from financial royalty assets305,061 137,837 167,224 121.3 %595,396 186,337 409,059 219.5 %
Research and development funding expense25,500 90,500 (65,000)(71.8)%126,606 96,263 30,343 31.5 %
Amortization of intangible assets— 5,796 (5,796)(100.0)%5,670 17,200 (11,530)(67.0)%
General and administrative expenses50,692 48,588 2,104 4.3 %154,075 136,665 17,410 12.7 %
Total operating expenses, net381,253 282,721 98,532 34.9 %881,747 436,465 445,282 102.0 %
Operating income192,210 303,052 (110,842)(36.6)%789,720 1,277,298 (487,578)(38.2)%
Other expense/(income):
Equity in losses/(earnings) of equity method investees3,251 (2,749)6,000 (218.3)%2,117 (18,532)20,649 (111.4)%
Interest expense46,977 44,327 2,650 6.0 %141,006 119,168 21,838 18.3 %
Other (income)/expenses, net(78,432)39,678 (118,110)(297.7)%(193,497)(10,868)(182,629)*
Total other (income)/expenses, net(28,204)81,256 (109,460)(134.7)%(50,374)89,768 (140,142)(156.1)%
Consolidated net income220,414 221,796 (1,382)(0.6)%840,094 1,187,530 (347,436)(29.3)%
Net income attributable to non-controlling interests77,763 119,867 (42,104)(35.1)%341,178 575,706 (234,528)(40.7)%
Net income attributable to Royalty Pharma plc$142,651 $101,929 $40,722 40.0 %$498,916 $611,824 $(112,908)(18.5)%
*Percentage change is not meaningful.

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(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)%


Total income and other revenues

Income from financial royalty assets

Income from financial royalty assets by product for our top products for the three and sixnine months ended JuneSeptember 30, 20202022 and 20192021 is as follows, in order of contribution to income for the sixnine months ended JuneSeptember 30, 2020:2022:

(in thousands)(in thousands)Three Months Ended
June 30,		ChangeSix Months Ended
June 30,		Change(in thousands)For the Three Months Ended September 30,ChangeFor the Nine Months Ended September 30,Change
20202019$%20202019$%20222021$%20222021$%
Cystic fibrosis franchiseCystic fibrosis franchise$149,013  $103,470  $45,543  44.0  $289,044  $205,578  $83,466  40.6  Cystic fibrosis franchise$203,383 $192,832 $10,551 5.5 %$599,504 $563,245 $36,259 6.4 %
ImbruvicaImbruvica97,228  85,596  11,632  13.6  195,467  167,097  28,370  17.0  Imbruvica76,251 94,626 (18,375)(19.4)%244,515 290,056 (45,541)(15.7)%
HIV franchise63,726  63,626  100  0.2  129,502  122,804  6,698  5.5  
TysabriTysabri53,955  56,981  (3,026) (5.3) 110,230  113,706  (3,476) (3.1) Tysabri54,029 54,335 (306)(0.6)%157,953 156,083 1,870 1.2 %
XtandiXtandi25,849  26,371  (522) (2.0) 49,236  52,095  (2,859) (5.5) Xtandi24,724 28,527 (3,803)(13.3)%73,662 81,245 (7,583)(9.3)%
TremfyaTremfya30,493 6,765 23,728 *72,309 6,765 65,544 *
PromactaPromacta12,872  10,382  2,490  24.0  26,389  13,211  13,178  99.8  Promacta22,321 19,287 3,034 15.7 %66,911 55,250 11,661 21.1 %
OtherOther71,534  70,519  1,015  1.4  137,153  124,670  12,483  10.0  Other140,481 109,460 31,021 28.3 %363,701 386,227 (22,526)(5.8)%
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$551,682 $505,832 $45,850 9.1 %$1,578,555 $1,538,871 $39,684 2.6 %
*Percentage change is not meaningful.

Three months ended JuneSeptember 30, 20202022 and 20192021

Income from financial royalty assets increased by $57.2$45.9 million, or 9.1%, in the second quarter of 2020three months ended September 30, 2022 compared to the same period of the prior year,three months ended September 30, 2021, primarily driven by strong performance of the cystic fibrosis franchise following the prior year approval of Trikafta as well as strong performance of Imbruvica. Additionally, we recorded $23.2 million in income related to recently acquired assets, primarily Trelegy and Tremfya, acquired in the second quarter of 2020 related to new assets acquired subsequent to the second quarter of 2019, including primarily Tazverik, Crysvita,three months ended September 30, 2022 and Prevymis, which2021, respectively. The increase was partially offset by declines from maturing assets, such as Lyrica and Letairis.in sell-side equity research analysts’ consensus sales forecasts for Imbruvica.

SixNine Months Ended JuneSeptember 30, 20202022 and 20192021

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Income from financial royalty assets increased by $137.9$39.7 million, or 2.6%, in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of the prior year,nine months ended September 30, 2021, primarily driven by income from recently acquired assets, primarily Trelegy and Tremfya, in addition to the same factors as described above. Additionally, we recorded $38.8 millionstrong performance of the cystic fibrosis franchise. The increase 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 the maturing of our royalties from the HIV franchise and declines in sell-side equity research analysts’ consensus sales forecasts for Imbruvica and Tazverik.

Revenue from maturingintangible royalty assets such as Lyrica

Three months ended September 30, 2022 and Letairis.2021

Revenue from intangible royalty assets decreased by $62.3 million, or 98.3%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily driven by the maturity of our royalties on Januvia and Janumet in the three months ended March 31, 2022 and the recognition of underpaid royalties on Tradjenta of approximately $21.7 million in the three months ended September 31, 2021.

Three months ended JuneNine Months Ended September 30, 20202022 and 20192021

Revenue from intangible royalty interests declinedassets decreased by $2.0$102.4 million, or 73.4%, in the second quarter of 2020nine months ended September 30, 2022 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 sixnine months ended JuneSeptember 30, 2020 compared to the prior year period2021, primarily driven by the same factors as described above.maturity of our royalties on Januvia and Janumet and the recognition of underpaid royalties on Tradjenta in the prior year period.

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Other royalty income

Three months ended JuneSeptember 30, 20202022 and 20192021

Other royalty income increased by $4.2 million, or 25.2%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily related to growth in the ongoing product launches of Trodelvy and Nurtec ODT that arose from our R&D funding agreements with Immunomedics and Biohaven, respectively.

Nine Months Ended September 30, 2022 and 2021

Other royalty income decreasedincreased by $1.9$20.4 million, or 57.8%, in the second quarter of 2020 primarily due to the expiration of our Prezista royalty in 2019.

Six Months Ended June 30, 2020 and 2019

Other royalty income decreased by $8.2 million in the sixnine months ended JuneSeptember 30, 20202022 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

Threenine months ended JuneSeptember 30, 20202021, primarily related to income from Trodelvy 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 compared to the same period of the prior year due to the same reason as described above.Nurtec ODT.

Provision for changes in expected cash flows from financial royalty assets

The breakdown of our provision for changes in expected future cash flows includes the following:
(1)•expense or income related to the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows; and
•expense or income related to the provision for current expected credit losses, andlosses.
(2)
income and expense activity for financial royalty assets whose cash flow forecasts have changed from the prior period.
As the latterprovision activity is a combination of income and expense items, the provision breakdown by product,royalty, exclusive of the provision for current expected credit losses, is as follows, based on the largest contributors to each period’s provision income or expense:

(in thousands)For the Three Months Ended September 30, 2022For the Three Months Ended September 30, 2021
RoyaltyRoyalty
Imbruvica$133,750 Tazverik$(98,381)$115,546 
Tysabri119,691 Xtandi(53,142)58,917 
Xtandi73,063 Cabometyx/Cometriq(44,263)12,022 
Tazverik46,804 Promacta(19,900)9,682 
Cystic fibrosis franchise(54,609)Nesina127,241 2,506 
Other41,976 Other24,589 (2,261)
Total provision, exclusive of provision for credit losses360,675 Total provision, exclusive of provision for credit losses196,412 
Provision for current expected credit losses(55,614)Provision for current expected credit losses(58,575)
Total provision$305,061 Total provision$137,837 

(in thousands)For the Nine Months Ended September 30, 2022For the Nine Months Ended September 30, 2021
RoyaltyRoyalty
 Imbruvica$314,044 Tazverik$176,937 
 Tazverik124,975 Imbruvica107,542 
 Tysabri103,073 Emgality54,902 
 Xtandi54,116 Cabometyx/Cometriq40,499 
 Cystic fibrosis franchise(48,636)Tysabri(112,720)
Other166,397 Other(57,480)
Total provision, exclusive of provision for credit losses713,969 Total provision, exclusive of provision for credit losses209,680 
Provision for current expected credit losses(118,573)Provision for current expected credit losses(23,343)
Total provision$595,396 Total provision$186,337 
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(in thousands)
Three months ended June 30,Three months ended June 30,
Product2020Product2019
Cystic fibrosis franchise$98,381  Xtandi$109,071  
Soliqua29,491  Tysabri28,950  
Crysvita9,764  Erleada13,169  
Tysabri(94,842) HIV franchise10,571  
Xtandi(11,188) Cystic fibrosis franchise(69,852) 
Other(11,053) Other(19,699) 
Total provision, exclusive of provision for credit losses20,553  Total provision, exclusive of provision for credit losses72,210  
Provision for current expected credit losses26,725  Provision for current expected credit losses—  
Total provision$47,278  Total provision$72,210  
Three months ended September 30, 2022 and 2021

(in thousands)
Six months ended June 30,Six months ended June 30,
Product2020Product2019
Cystic fibrosis franchise$98,381  Xtandi$94,092  
Crysvita44,263  Tysabri17,038  
Imbruvica31,543  Erleada13,169  
Xtandi(113,219) Cystic fibrosis franchise(81,918) 
Tysabri(37,437) Alogliptin(21,714) 
Other3,076  Other1,510  
Total provision, exclusive of provision for credit losses26,607  Total provision, exclusive of provision for credit losses22,177  
Provision for current expected credit losses108,683  Provision for current expected credit losses—  
Total provision$135,290  Total provision$22,177  

In the
Threethree months ended JuneSeptember 30, 2020 and 2019
2022
In the second quarter of 2020,, we recordedrecorded provision expense of $47.3$305.1 million, comprised of $360.7 million in provision expense for changes in expected cash flows and $55.6 million in comparison to aprovision income for current expected credit losses. We recorded provision expense of $72.2 millionfor changes in expected cash flows primarily related to Imbruvica, Tysabri, Xtandi and Tazverik due to significant declines in sell-side equity research analysts’ consensus sales forecasts, which was partially offset by provision income for the same period of the prior year. Increases to the provision for Cysticcystic fibrosis franchise Soliqua and Crysvita weredue to an increase in sell-side equity research analysts’ consensus sales forecasts. The provision income for credit losses was primarily driven by a change in the payor for a particular product.

In the three months ended September 30, 2021, we recorded provision expense of $137.8 million, comprised of $196.4 million in provision expense for changes in expected cash flows and $58.6 million in provision income for current expected credit losses. We recorded provision expense for changes in expected cash flows for Tazverik and Xtandi, primarily due to significant declines in sell-side equity research analysts’ consensus forecasts. Offsetting theThe provision expenseincome for credit losses was driven by a large reversalsignificant decrease in current expected credit losses related to Tazverik as a result of the cumulative allowances for Tysabricorresponding significant decline in the financial asset value.

Nine Months Ended September 30, 2022 and Xtandi due to an increase in consensus forecasts.2021

In the nine months ended September 30, 2022, we recorded secondprovision expense of $595.4 million, comprised of $714.0 million in provision quarter of 2019, we recognizedexpense for changes in expected cash flows and $118.6 million in provision income for current expected credit losses. We recorded provision expense for Xtandi,changes in expected cash flows for Imbruvica, Tazverik, and Tysabri Erleada, and Emtriva primarily due to significant declines in sell-side equity research analysts’ consensus sales forecasts. The provision income for credit losses was primarily driven by a significant decrease in current expected credit losses related to Tazverik as a result of the decline in the financial asset value as well as a change in the payor for a particular product.

In the nine months ended September 30, 2021, we recorded provision expense of $186.3 million, comprised of $209.7 million in provision expense for changes in expected cash flows and $23.3 million in provision income for current expected credit losses. We recorded provision expense for changes in expected cash flows for Tazverik, Imbruvica and Emgality, primarily due to declines in sell-side equity research analysts’ consensus forecasts, which was partially offset by a large reversal of the cumulative allowanceprovision income forCystic fibrosis franchise Tysabri due to an increase in consensus forecasts.

In connection with the adoption of ASU 2016-13 on January 1, 2020, we recognized a provision 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 relate to an increase in the balance of financial royalty assets subject to credit risk and the credit rating of associated marketers.

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 for changes in expected cash flows in comparison to a provision expense of $22.2 million for the same period of the prior year. Increases to the provision for Cystic fibrosis franchise, Crysvita and Imbruvica were primarily driven by declines in sell-side equity research analysts’ consensus forecasts. Offsetting theThe provision income for credit losses was driven by a significant decrease in current expected credit losses related to Tazverik. The provision income for credit losses was partially offset by provision expense wasfor credit losses recognized as a large reversalresult of the cumulative allowanceincreases to our portfolio of financial royalty assets, including the incremental $100.0 million financial royalty asset related to the start of the oral zavegepant Phase 3 program and a new royalty interest in Cabometyx/Cometriq.

R&D funding expense

Three months ended September 30, 2022 and 2021

R&D funding expense decreased by $65.0 million, or 71.8%, in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily driven by lower upfront R&D funding expense. In the three months ended September 30, 2022, we recognized upfront R&D funding expense of $25.0 million in exchange for Xtandia royalty on a development-stage product from Theravance Biopharma, Inc. (“Theravance”). In the three months ended September 30, 2021, we recognized upfront R&D funding expense of $90.0 million in exchange for royalties on two development-stage products from MorphoSys AG (“MorphoSys”), paid on the closing of our strategic funding partnership with MorphoSys in July 2021.

Nine Months Ended September 30, 2022 and Tysabri due2021

R&D funding expense increased by $30.3 million, or 31.5%, for the nine months ended September 30, 2022 as compared to an increasethe nine months ended September 30, 2021. In the nine months ended September 30, 2022, we recognized upfront R&D funding expense of $125.0 million in consensus forecasts.
exchange for royalties on development-stage products from Cytokinetics and Theravance. In the nine months ended September 30, 2021, we recognized upfront R&D funding expense of $90.0 million in exchange for royalties on two development-stage products from MorphoSys.
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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, offset by a large reversal of the cumulative allowance forCystic fibrosis franchise due to an increase in consensus forecasts.

In addition, we recognized a provision for current expected credit losses of $108.7 million in the first six months 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 are the same as those described above.

G&A expenses

Three months ended JuneSeptember 30, 20202022 and 20192021

G&A expenses were relatively flat in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 and 2021

G&A expenses increased $12.5by $17.4 million, or 12.7%, in the second quarter of 2020nine months ended September 30, 2022 compared to the same period of the prior year,nine months ended September 30, 2021, primarily as a result of an increase in thedriven by higher Operating and Personnel Fees following the execution of the New Management Agreement,Payments due to 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.

Six Months Ended June 30, 2020 and 2019

G&A expenses increased $26.1 million in the six months ended June 30, 2020 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 of 2020.cash receipts from royalty investments.

Equity in loss/losses/(earnings) of non-consolidated affiliatesequity method investees

Three months ended JuneSeptember 30, 20202022 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.2021

Equity in losses of equity method investees was $3.3 million in the three months ended September 30, 2022 compared to equity in earnings of the Avillion Entities was higherequity method investees of $2.7 million in the second quarter of 2020 compared to the same period in 2019three months ended September 30, 2021, primarily driven by a gain related todecline in equity in earnings from the completion of the Merck development program during the second quarter of 2020, which triggered a distribution received in the period.Legacy SLP Interest.

SixNine Months Ended JuneSeptember 30, 20202022 and 2019

During the six months ended June 30, 2020, we recorded equity in earnings of $23.4 million attributable to our income allocation in the Legacy Investors Partnerships.2021

Equity in losses of equity method investees was $2.1 million in the nine months ended September 30, 2022 compared to equity in earnings of the Avillion Entities was higherequity method investees of $18.5 million in the sixnine months ended JuneSeptember 30, 2020 compared to2021, primarily driven by a decline in equity in earnings from the same periodLegacy SLP Interest which was partially offset by lower equity in 2019 for the reasons as described above.losses from Avillion.

Interest expense

Three months ended JuneSeptember 30, 20202022 and 20192021

Interest expense declined $35.0slightly increased by $2.7 million, or 6.0%, in the second quarter of 2020three months ended September 30, 2022 as compared to the same periodthree months ended September 30, 2021, primarily driven by the issuance of $1.3 billion senior unsecured notes in July 2021 (“2021 Notes”). The weighted average coupon rate was 2.245% and 2.212% in the three months ended September 30, 2022 and 2021, respectively.

Nine Months Ended September 30, 2022 and 2021

Interest expense increased by $21.8 million, or 18.3% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the issuance of the prior year as a result of2021 Notes. The weighted average coupon rate was 2.245% and 2.154% in the Reorganization Transactionsnine months ended September 30, 2022 and subsequent refinancing of RPIFT’s prior credit facilities that occurred in February 2020. Our subsidiary issued $6.0 billion of new debt in February of 2020 at lower interest rates. 2021, respectively.

Refer to the Liquidity“Liquidity and Sources of Capital Resources” section within this MD&A for additional discussion of our new credit facilities.

Six Months Ended June 30, 2020 and 2019

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Interest expense declined $48.7 million in the six months ended June 30, 2020 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 as described above.Notes.

Other (income) expense,/expenses, net

Three months ended JuneSeptember 30, 20202022 and 20192021

Other income, net was $197.5$78.4 million in the second quarter of 2020three months ended September 30, 2022 compared to other expense, net of $71.8$39.7 million in the second quarterthree months ended September 30, 2021. During the three months ended September 30, 2022, we recognized $44.2 million of 2019. We recorded unrealized gains on equityavailable for sale debt securities in the second quarterand $25.8 million of 2020gains on our milestone acceleration option derivative financial instruments, primarily driven by our estimate that a change of $193.9 million primarily due to an increased share price of our investees.control event for Biohaven was imminent. In the prior year period,three months ended September 30, 2021, we recorded $39.4recognized $17.0 million of losses on derivative financial instruments, primarily driven by the change in unrealized lossfair value of the treasury lock contracts related to our interest swap2021 Notes and $36.8the recognition of $14.9 million in unrealized loss related to our equityof losses on available for sale debt securities.

Six
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Nine Months Ended JuneSeptember 30, 20202022 and 20192021

Other income, was $7.9net increased by $182.6 million in the sixnine months ended JuneSeptember 30, 20202022 compared to other expense of $33.8 million in the sixnine months ended JuneSeptember 30, 2019.2021. The increase was primarily attributed to $98.0 million of gains on our available for sale debt securities and $97.6 million of gains on our milestone acceleration option derivative financial instruments recognized during the nine months ended September 30, 2022, primarily driven by our estimate that a change of control event for Biohaven was imminent. In the first sixnine months of 2020,ended September 30, 2021, we recorded unrealized gains on equity securitiesrecognized $21.4 million of $40.7 million primarily an net increased share price of our investees which was offset by unrealized losses on derivative contracts of $32.8 millioninstruments, primarily related to unrealized lossthe treasury lock contracts and we recognized $8.2 million of gains on our interest rate swaps due to adverse movements in the LIBOR curve and a decrease in fair value related to 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 equityavailable for sale debt securities.

Net income attributable to non-controlling interestinterests

Three months ended JuneSeptember 30, 20202022 and 20192021

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 anddecreased by $42.0 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily driven by lower net income attributable to Old RPI.

Net income attributable to the Continuing Investors Partnerships for their ownership ofincreased by $11.8 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily driven by higher net income attributable to RP Holdings in the three months ended September 30, 2022. This was partially offset by exchanges by investors in the Continuing Investors Partnerships who indirectly own RP Holdings Class B Interests of $107.7 million and $31.6 million, respectively. The net income attributable to non-controlling interestfor our Class A ordinary shares resulted in each period of 2020 is larger thana decline in the comparable prior year periods as a resultContinuing Investors Partnerships’ ownership of ownership changes related to the Reorganization Transactions 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%.RP Holdings.

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 RPSFT is expecteddecreased by $11.9 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. We expect net income attributable to RPSFT to continue to decline as the assets held by RPCT mature.

SixNine Months Ended JuneSeptember 30, 20202022 and 20192021

In the six months ended June 30, 2020, we recorded netNet income attributable to the Legacy Investors Partnerships anddecreased by $99.8 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily driven by lower net income attributable to Old RPI.

Net income attributable to the Continuing Investors Partnerships for their ownership ofdecreased by $99.8 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily driven by lower net income attributable to RP Holdings in the nine months ended September 30, 2022. Exchanges by investors in the Continuing Investors Partnerships who indirectly own RP Holdings Class B Interests for our Class A ordinary shares resulted in a decline in the Continuing Investors Partnerships’ ownership of $120.6 million and $31.6 million, respectively.RP Holdings.

DuringNet income attributable to RPSFT decreased by $34.9 million in the sixnine months ended JuneSeptember 30, 2020 and 2019, we recorded2022 as compared to the nine months ended September 30, 2021. We expect net income attributable to RPSFT of $45.6 million and $55.7 million, respectively. Income attributable to RPSFT is expected to continue to decline as the assets held by the Collection TrustRPCT mature.

Key developments relatingDevelopments and Upcoming Events Relating to our portfolio in 2019-2020Our Portfolio

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

Commercial Products

•Erleada.Cystic fibrosis franchise. In September 2019, the FDA approved an supplemental New Drug Application ("sNDA"April 2021, Vertex announced European Commission (“EC”) approval for ErleadaKaftrio in combination with ivacaftor for the treatment of menpatients with cystic fibrosis ages 12 and older who have at least one F508del mutation.

In June 2021, Vertex announced that U.S. Food and Drug Administration (“FDA”) approved Trikafta for the treatment of children with cystic fibrosis ages 6 through 11 who have at least one F508del mutation or have certain mutations that are responsive to Trikafta based on in vitro data.
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In January 2022, Vertex announced that the EC granted approval for the label expansion of Kaftrio in combination with ivacaftor for the treatment of cystic fibrosis in patients ages 6 through 11 years old who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator gene.

In November 2022, Vertex announced the submission of a New Drug Application (“NDA”) with the FDA for Trikafta in patients ages 2 through 5 years and that filings for approvals with the European Medicines Agency (“EMA”) and the Medicines and Healthcare products Regulatory Agency are expected by the end of 2022.

•Tysabri. 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 received a complete response letter from the FDA for its supplemental biologics license application for subcutaneous Tysabri. The complete response letter indicated that the FDA was unable to approve Biogen’s filing as submitted.

In August 2021, Biogen announced results from Phase 3b NOVA study evaluation every six-week dosing with Tysabri intravenous administration in relapsing-remitting multiple sclerosis. Results show that every six-week Tysabri intravenous administration provides a high level of efficacy in controlling multiple sclerosis disease activity in patients who switched from the approved every four-week dosing regimen.

•Imbruvica. In June 2021, Johnson and Johnson announced Phase 3 GLOW study results for Imbruvica in combination with Venetoclax for the treatment of first-line chronic lymphocytic leukemia and small lymphocytic lymphoma demonstrated superior progression-free survival versus chlorambucil plus obinutuzumab as a first-line treatment of chronic lymphocytic leukemia. The study also showed improved duration of remission and significantly improved depth of remission. Johnson & Johnson had indicated that approval could occur in 2022.

In August 2021, AbbVie announced that the U.S. District Court for the District of Delaware had issued a decision holding patent rights relating to Imbruvica were valid and infringed by a generic product from Alvogen and Natco. The decision, which is subject to appeal, prohibits regulatory approval of that generic product until the last AbbVie patent expires. Previously, AbbVie entered into several settlement and license agreements with other generic companies. Consequently, AbbVie does not expect any generic product entry prior to March 30, 2032, assuming pediatric exclusivity is granted.

In June 2022, Johnson & Johnson announced primary results from the Phase 3 SHINE study, which demonstrated that the combination of once-daily oral Imbruvica plus bendamustine-rituximab (BR) and rituximab maintenance significantly reduced the risk of disease progression or death by 25% compared to patients who received placebo plus BR and rituximab maintenance in patients aged 65 years or older with newly diagnosed mantle cell lymphoma. With a median follow-up of 84.7 months, the Imbruvica plus BR and rituximab maintenance combination showed a statistically significant and clinically meaningful 2.3 year improvement in median progression-free survival (6.7 years) vs. BR (4.4 years). The safety profile of the Imbruvica plus BR regimen was consistent with the known safety profiles of Imbruvica as well as BR.

In August 2022, AbbVie and Johnson & Johnson announced that the FDA approved Imbruvica for the treatment of pediatric patients one year and older with chronic graft-versus-host disease.

In August 2022, Johnson & Johnson announced that the European Commission granted marketing authorization for the expanded use of Imbruvica in an all-oral, fixed-duration treatment combination with venetoclax for adults with previously untreated chronic lymphocytic leukemia. The approval is based on the pivotal Phase 3 GLOW study and the fixed-duration cohort of the Phase 2 CAPTIVATE study.

•Xtandi. In May 2021, Astellas and Pfizer announced that the EC approved Xtandi for the treatment of patients with metastatic castration-sensitivehormone-sensitive prostate cancer.

In September 2021, Astellas and Pfizer announced that Xtandi plus androgen deprivation therapy reduced the risk of death by 34% compared to placebo plus androgen deprivation therapy in the Phase 3 ARCHES study in men with metastatic hormone-sensitive prostate cancer. The primary results from the ARCHES trial were published in 2019.

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45

In October 2022, Pfizer announced positive top-line results from the Phase 3 TALAPRO-2 study of Talzenna, an oral poly ADP-ribose polymerase inhibitor, in combination with Xtandi compared to placebo plus Xtandi in men with metastatic castration-resistant prostate cancer. The study met its primary endpoint with a statistically significant and clinically meaningful improvement in radiographic progression-free survival. The results of the primary endpoint exceeded the pre-specified hazard ratio of 0.696. The safety of Talzenna plus Xtandi was generally consistent with the known safety profile of each medicine. Pfizer intends to share data with global regulatory authorities to potentially support a regulatory filing.

In November 2022, Pfizer indicated that there could be a potential readout of the Phase 3 EMBARK trial for high-risk non-metastatic prostate cancer in the first half of 2023.

•Nurtec ODT. 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.

In April 2022, Pfizer and Biohaven announced that the EC has granted marketing authorization for Vydura (rimegepant) for both the acute treatment of migraine with or without aura, and prophylaxis of episodic migraine in adults who have at least four migraine attacks per month.

In October 2022, Pfizer completed its acquisition of Biohaven. Pfizer acquired all outstanding shares of Biohaven not already owned by Pfizer for $148.50 per share in cash for a total of approximately $11.6 billion. Pfizer also made payments at closing to settle Biohaven’s third-party debt and to redeem all of Biohaven’s outstanding redeemable preferred shares which we owned.

•Trodelvy. In April 2021, Gilead announced the FDA granted full approval to Trodelvy for adult patients with unresectable locally advanced or metastatic triple-negative breast cancer (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 or a programmed death-ligand 1 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 TNBC in the Phase 3 ASCENT study. Trodelvy more than doubled overall survival as a second-line treatment in the new ASCENT subgroup analysis.

In October 2021, Gilead announced a collaboration with Merck & Co. to investigate Trodelvy in combination with Keytruda as a first-line treatment for people with locally advanced or metastatic TNBC.

In November 2021, Gilead announced that the EC granted marketing authorization for Trodelvy as a monotherapy indicated for the treatment of adult patients with unresectable or metastatic TNBC who have received two or more prior systemic therapies, at least one of them for advanced disease. The EC’s decision is supported by results from the Phase 3 ASCENT study where Trodelvy reduced the risk of death by 49% and improved median overall survival to 11.8 months versus 6.9 months with physician’s choice of chemotherapy.

In January 2022, Gilead announced it has entered into two clinical trial collaboration and supply agreements with Merck & Co. to evaluate the combination of Trodelvy and Merck & Co.’s anti-PD-1 therapy Keytruda in first-line metastatic non-small cell lung cancer (NSCLC). As part of the collaboration, Merck & Co. will sponsor a global Phase 3 clinical trial of Trodelvy in combination with Keytruda as a first-line treatment of patients with metastatic NSCLC.

Additionally, Gilead and Merck & Co. established an agreement where Gilead will sponsor a Phase 2 signal-seeking study evaluating combinations that include pembrolizumab in first-line NSCLC.
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In June 2022, Gilead announced results from the primary analysis of the Phase 3 TROPiCS-02 study of Trodelvy versus physicians’ choice of chemotherapy in heavily pre-treated HR+/HER2- metastatic breast cancer patients who received prior endocrine therapy, CDK4/6 inhibitors and two to four lines of chemotherapy. The study met its primary endpoint of progression-free survival with a statistically significant and clinically meaningful 34% reduction in the risk of disease progression or death. The first interim analysis of the key secondary endpoint of overall survival demonstrated a trend in improvement. Patients will be followed for a subsequent overall survival analysis. The safety profile for Trodelvy was consistent with prior studies.

In September 2022, Gilead announced positive overall survival results from the Phase 3 TROPiCS-02 study evaluating Trodelvy versus comparator physicians’ choice of chemotherapy in patients with HR+/HER2- metastatic breast cancer who received endocrine-based therapies and at least two chemotherapies. In the study, Trodelvy demonstrated a statistically significant and clinically meaningful improvement of 3.2 months in overall survival compared to chemotherapy. The TROPiCS-02 study met its primary endpoint of progression-free survival earlier this year, and demonstrated improved median progression-free survival in both HER2-low and IHC0 groups. The FDA has accepted for priority review the supplemental Biologics License Application based on this data and assigned a Prescription Drug User Fee Act (“PDUFA”) date for February 2023.

•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 August 2021, Exelixis announced that their partners Takeda and Ono received approval in Japan for Cabometyx in combination with Opdivo for the treatment of unresectable or metastatic RCC.

In September 2021, Exelixis announced detailed results from the expanded Cohort 6 of the Phase 1b COSMIC-021 trial of Cabometyx in combination with atezolizumab in patients with metastatic castration-resistant prostate cancer, which included patients with metastatic castration-resistant prostate cancer who had been previously treated with novel hormone therapies enzalutamide or abiraterone acetate used along with prednisone. Following discussions with FDA, Exelixis announced that it will not pursue a regulatory submission for the combination regimen based on cohort 6 of COSMIC-021. Exelixis believes that CONTACT-02, a global Phase 3 pivotal trial that initiated enrollment in June 2020 may serve as a basis for future regulatory applications.

In September 2021, Exelixis announced FDA approved Cabometyx for patients with previously treated radioactive iodine-refractory differentiated thyroid cancer. The approval was based on the Phase 3 COSMIC-311 pivotal trial.

In March 2022, Exelixis announced results from the final analysis of the second primary endpoint of overall survival from the Phase 3 COSMIC-312 trial, which evaluated cabozantinib in combination with atezolizumab versus sorafenib in patients with previously untreated advanced hepatocellular carcinoma. The final analysis showed neither improvement nor detriment in overall survival for cabozantinib in combination with atezolizumab versus sorafenib.

In May 2022, Ipsen announced that it received approval from the EC for Cabometyx as a monotherapy for the treatment of adult patients with locally advanced or metastatic differentiated thyroid carcinoma, refractory or not eligible to radioactive iodine who have progressed during or after prior systemic therapy.

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In September 2022, Exelixis announced detailed results from COSMIC-313, an ongoing Phase 3 trial evaluating Cabometyx, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC, which met its primary endpoint, demonstrating significant improvement in progression-free survival at the primary analysis. At a prespecified interim analysis for the secondary endpoint of overall survival, the combination of Cabometyx, nivolumab and ipilimumab did not demonstrate a significant benefit. Following discussions with FDA, Exelixis does not intend to submit a supplemental NDA based on currently available data, but will plan to discuss a potential regulatory submission with FDA when results of the next overall survival analysis are available.

Exelixis has indicated it expects initial Phase 3 data by year-end 2022 from CONTACT-01 in metastatic NSCLC and in the first half of 2023 from CONTACT-03 in advanced or metastatic RCC.

•Evrysdi. In March 2021, Roche announced that the EC approved Evrysdi for the treatment of spinal muscular atrophy (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 copies.

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

In May 2022, Roche announced that the FDA has approved a label extension for Evrysdi to include infants under two months old with SMA. The approval is based on the interim efficacy and safety data from the RAINBOWFISH study in newborns, which showed that the majority of pre-symptomatic infants treated with Evrysdi achieved key milestones such as sitting and standing with half walking after 12 months of treatment.

•Orladeyo. In January 2021, Orladeyo was approved in Japan, becoming the first and only prophylactic hereditary angioedema (HAE) medication approved in the region.

In April 2021, BioCryst announced that the EC approved Orladeyo for the prevention of recurrent HAE attacks in 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 HAE.

•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 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 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 and injection site reactions as the most common adverse event.

In March 2022, the FDA accepted Alnylam’s supplemental NDA for lumasiran for the reduction of plasma oxalate in the treatment of patients with advanced primary hyperoxaluria type 1. The FDA has set an action date for October 6, 2022. Additionally, a Type II Variation for lumasiran to amend the label in patients with advanced primary hyperoxaluria Type 1 was submitted and validated by the EMA in December 2021.

In October 2022, Alnylam announced that the FDA approved a label expansion for Oxlumo, now indicated for the treatment of primary hyperoxaluria type 1 to lower urinary oxalate and plasma oxalate levels in pediatric and adult patients. The approval is based on positive efficacy and safety results of the ILLUMINATE-C Phase 3 study of Oxlumo in patients with severe renal impairment, including those on hemodialysis.

•Tremfya.In February 2022, Johnson & Johnson announced results from the Phase 2a VEGA proof-of-concept study. Results showed that the combination of Tremfya and golimumab, a tumor necrosis factor-alpha antagonist, induced higher rates of clinical response, clinical remission, endoscopic improvement and a composite histologic-endoscopic endpoint at 12 weeks than either treatment alone in adults with moderately to severely active ulcerative colitis. Rates of adverse events were comparable among treatment groups.

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In February 2022, Johnson & Johnson announced results from the Phase 2b QUASAR Induction Study 1. Results showed that a significantly greater proportion of adults with moderately to severely active ulcerative colitis who previously had an inadequate response or intolerance to conventional therapies or selected advanced therapies and were treated with Tremfya achieved clinical response at week 12 (Tremfya 200 mg: 61.4% and Tremfya 400 mg: 60.7%), the study’s primary endpoint compared with placebo (27.6%). Safety data at week 12 was consistent with the safety profile for Tremfya in approved indications.

•Tazverik: In August 2022, Ipsen completed its acquisition of Epizyme. Ipsen acquired all the outstanding shares of Epizyme at a price of $1.45 per share plus a contingent value right of $1 per share.

Development-Stage Product Candidates

•Aficamten. In December 2021, Cytokinetics announced the FDA granted breakthrough therapy designation for aficamten for the treatment of symptomatic obstructive hypertrophic cardiomyopathy (oHCM) based on results from REDWOOD-HCM.

In February 2022, Cytokinetics announced positive topline results from Cohort 3 of the REDWOOD-HCM Phase 2 trial. Results from Cohort 3 showed that substantial reductions in the average resting left ventricular outflow tract pressure gradient (LVOT-G) as well as the post-Valsalva LVOT-G were achieved for patients with oHCM and a resting or post-Valsalva LVOT-G of greater than 50 mmHg whose background therapy included disopyramide and in the majority a beta-adrenergic blocker. The safety and tolerability of aficamten were consistent with prior experience in REDWOOD-HCM with no treatment interruptions and no serious adverse events attributed to treatment reported by the investigators.

•BCX9930. In April 2022, BioCryst announced that it is pausing enrollment in clinical trials with BCX9930, while BioCryst investigates elevated serum creatinine levels seen in some patients. BioCryst will not enroll new patients in the REDEEM-1, REDEEM-2 or RENEW clinical trials during the investigation. Patients currently enrolled in the trials are expected to continue on the study drug.

In May 2022, BioCryst announced that it plans to discuss with regulators whether clinical trials with amended protocols could resume using stepped dosing to 400 milligrams twice-daily of BCX9930 by the end of the third quarter of 2022.

In August 2022, BioCryst announced that FDA lifted its partial clinical hold on the BCX9930 program. BioCryst will resume enrollment in global clinical trials under revised protocols at a reduced dose of 400 mg twice daily of BCX9930. This includes the REDEEM-1 and REDEEM-2 pivotal trials in patients with paroxysmal nocturnal hemoglobinuria and the RENEW proof-of-concept trial in patients with C3 glomerulopathy, immunoglobulin A nephropathy and primary membranous nephropathy. Additionally, screening has begun for new patients to participate in the trials and BioCryst expects to have data from approximately 15 newly-enrolled patients by the middle of 2023 to inform its decision to either fully invest in the pivotal program, or to discontinue the BCX9930 program.

•Gantenerumab. In October 2021, Roche announced that gantenerumab, an anti-amyloid beta antibody developed for subcutaneous administration, has been granted breakthrough therapy designation by the FDA for the treatment of people living with Alzheimer’s disease. This designation is based on data showing that gantenerumab significantly reduced brain amyloid plaque, a pathological hallmark of Alzheimer’s disease, in the ongoing SCarlet RoAD and Marguerite RoAD open-label extension trials, as well as other studies.

In March 2022, Roche announced a new Phase 3 Alzheimer’s disease prevention trial (SKYLINE). Roche has stated that it intends to enter into a collaboration agreement with Banner Alzheimer’s Institute’s Alzheimer’s Prevention Initiative, Massachusetts General Hospital and the University of Southern California Alzheimer’s Therapeutic Research Institute to further exchange scientific insights and advance the trial goals. SKYLINE aims to evaluate the potential of gantenerumab to slow disease progression in people with the earliest biologic signs of Alzheimer’s disease and who show no signs of cognitive impairment.

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Roche has indicated it expects Phase 3 data from the GRADUATE 1/2 trial in Alzheimer’s disease in the fourth quarter of 2022.

•Omecamtiv mecarbil. In February 2022, Cytokinetics announced that FDA has accepted and filed its NDA for omecamtiv mecarbil. The FDA assigned the NDA a standard review with a PDUFA date of November 30, 2022. The FDA also indicated that it is currently not planning to hold an advisory committee meeting to discuss the application. The submission is supported by 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.

In February 2022, Cytokinetics announced results from METEORIC-HF, a Phase 3 trial evaluating the effect of treatment with omecamtiv mecarbil compared to placebo on exercise capacity in patients with heart failure with reduced ejection fraction. After 20 weeks of treatment, there was no change in peak oxygen uptake in patients treated with omecamtiv mecarbil versus placebo.

In June 2022, Cytokinetics announced that the FDA had informed the company that the Cardiovascular and Renal Drugs Advisory Committee will review its NDA on December 13, 2022. Additionally, the FDA has assigned the NDA a PDUFA date of February 28, 2023.

•Otilimab. In October 2022, GSK plc (“GSK”) announced that the limited efficacy demonstrated in the ContRAst Phase 3 program does not support a suitable benefit/risk profile for otilimab as a potential treatment for rheumatoid arthritis. As a result, GSK has decided not to progress with regulatory submissions.

•Pelabresib. In December 2021, MorphoSys presented data from the Phase 2 MANIFEST study evaluating pelabresib in the treatment of myelofibrosis. As of September 10, 2021, the data cut-off, a total of 84 JAK inhibitor-naive patients were enrolled and received the first-line combination of pelabresib and ruxolitinib. The data showed 68% (n=57) of patients treated with the combination achieved a greater than or equal to 35% reduction in spleen volume from baseline at week 24 and 60% (n=47) maintained a greater than or equal to 35% reduction in spleen volume at week 48. Most patients also saw their symptoms reduced with 56% (n=46) achieving greater than or equal to 50% reduction in total symptom score from baseline at week 24.

•PT027. In September 2021, AstraZeneca and Avillion announced positive results from MANDALA and DENALI, two Phase 3 trials evaluating PT027 (albuterol/budesonide) in patients with asthma. PT027 is a potential first-in-class inhaled, fixed-dose combination of albuterol, a short-acting beta2-agonist, and budesonide, an inhaled corticosteroid. In MANDALA, PT027 demonstrated a statistically significant and clinically meaningful reduction in the risk of severe exacerbations compared to albuterol, when used as a rescue medicine in response to symptoms. In DENALI, PT027 showed a statistically significant improvement in lung function measured by forced expiratory volume in one second, compared to the individual components albuterol and budesonide, and compared to placebo. The safety and tolerability of PT027 in both trials was consistent with the known profiles of the components. The FDA has accepted for filing the NDA for AstraZeneca’s PT027 and a regulatory decision is currently expected by the second half of 2022.

In May 2022, Avillion LLP, a drug development company focused on the co-development and financing of pharmaceutical candidates from proof-of-concept through to regulatory approval, announced that FDA accepted for filing the NDA for AstraZeneca’s PT027. The proposed indication is for the as-needed treatment or prevention of bronchoconstriction and for the prevention of exacerbation of asthma. The co-development partnership between AstraZeneca and Avillion also recently expanded to include the BATURA study, a randomized Phase 3b decentralized trial to further assess the role of PT027 in preventing asthma exacerbations.

•Tulmimetostat: In October 2022, MorphoSys announced preliminary Phase 1/2 results of tulmimetostat (CPI-0209), an oral, investigational next-generation selective dual inhibitor of EZH2 and EZH1, in heavily pretreated patients with advanced cancers. Results showed responses or disease stabilization in five cohorts with evaluable patients. The safety profile of tulmimetostat was consistent with the mechanism of action of EZH2 inhibition.

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•Cystic fibrosis franchise.Zavegepant. In October 2019, Trikafta, the Vertex triple combination therapy, received FDA approval for the treatment of cystic fibrosis in people ages 12 years 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, VertexMarch 2021, Biohaven announced that it reached anenrolled the first patient in a Phase 2/3 clinical trial of oral zavegepant for the preventive treatment of migraine. Accordingly, per the agreement with France’s Economic Committee of Health Care Products (CEPS) for a national reimbursement deal of Orkambi. As a result,Biohaven announced in August 2020, we experienced a reduction in our royalty receipts in 2020 of approximately $41paid $100 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.

In June 2020, Vertex announced that EMA’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinionBiohaven for the triple combination therapyachievement of this milestone, bringing total zavegepant funding to $250 million. Pfizer expects data from the trial in a combination with Kalydeco in people ages 12 and older with cystic fibrosis with the most common genotype. If granted Marketing Authorization, people ages 12 and older in Europe who have one F508del mutation and one minimal function mutation will for the first time be able to benefit from a medicine that treats the underlying causethird quarter 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.

In June 2020, Vertex announced that it had expanded its reimbursement agreement with NHS England for 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.

•Imbruvica. In January 2019, the FDA approved Imbruvica in combination with obinutuzumab as the first non-chemotherapy anti-CD20 combination regimen for treatment-naïve chronic lymphocytic leukemia (“CLL”) patients. In August 2019, the EMA broadened the label 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. In November 2019, AbbVie submitted an sNDA to the FDA for Imbruvica in combination with rituximab for treatment-naïve younger adults with CLL.2023.

•Soliqua. 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, Avillion announced that the FDA 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, Epizyme2021, Biohaven 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-
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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 govitecan 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 lettertopline results from the FDA in January 2019.

In April 2020, Immunomedics announced thatsecond pivotal clinical trial evaluating the FDA granted accelerated approvalsafety and efficacy of Trodelvy (sacituzumab govitecan-hziy) for the treatment of patients with metastatic triple-negative breast cancer (“TNBC”) who have received at least two prior therapies for metastatic disease. Trodelvy is the first antibody-drug conjugate (“ADC”) approved by the FDA specifically for TNBC.

•Nurtec ODT (rimegepant). 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)intranasal zavegepant for the acute treatment of migraine in adults. The Phase 3 study achieved its co-primary regulatory endpoints of pain freedom and freedom of most bothersome symptom at two hours and showed broad efficacy by demonstrating statistically significant superiority to placebo across a total of 15 prespecified primary and secondary outcome measures.

•Ibrance.In May 2020, Pfizer reported2022, Biohaven announced that the independent data monitoring committeeFDA accepted for review a NDA for zavegepant nasal spray for the PALLAS trial had concluded after the recent interim analysis that the PALLAS trialacute treatment of migraine in adults. The PDUFA date is “unlikely to show a statistically significant improvement in the primary endpoint of invasive disease-free survival.” If Pfizer’s PENELOPE-B trial is successful, we will be entitled to receive approval-based fixed milestone payments of $250 million.

•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 2019.2023.

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 Statementstatements of Cash Flowscash 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 affiliatesequity method investees, and (iv)plus (2) Proceeds from available for sale debt securities;securities; less (1) Distributions to non-controlling interestinterests, which representsrepresent 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 2020interests related to the Legacy Investors Partnerships' ownership of approximately 18% in Old RPI.Partnerships and RPSFT. 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 Statementstatements of Cash Flows.cash flows.

Adjusted Cash Flow is defined as Adjusted EBITDA less (1) Development-stage funding payments - ongoing, (2) Development-stage funding payments – ongoing - upfront and milestone, (2) (3) Interest paid, net (3) Swap collateral (posted) orof Interest received, net, (4) Swap termination payments,Investments in equity method investees and (5) Other (including Investment in non-consolidated affiliatesDerivative collateral posted, net of Derivative collateral received,and Termination payments on derivative instruments) plus (1) Contributions from non-controlling interest-interests- R&D, all directly reconcilable to the Statementstatements of Cash Flows.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.

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The table below includes the royalty receipts and non-GAAP financial results for the sixthree and nine months ended JuneSeptember 30, 20202022 and 20192021 by product in order of contribution to royalty receipts for our Growth Products and Mature Products, as defined in “—Portfolio Overview” above, and the period-over-period variance.nine months ended September 30, 2022 (in thousands).

(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  $(156,737) (19.0)%
Fully diluted shares outstanding607,107  n/a607,107  n/a
RoyaltiesFor the Three Months Ended September 30,For the Nine Months Ended September 30,Nine Months Year-to-Date Change
2022202120222021$%
Cystic fibrosis franchise (1)$207,882 $182,876 $591,733 $505,708 $86,025 17.0 %
Tysabri91,252 95,805 281,819 274,796 7,023 2.6 %
Imbruvica74,391 87,924 241,943 264,348 (22,405)(8.5)%
Xtandi45,717 40,237 141,100 117,049 24,051 20.5 %
Promacta50,067 48,151 132,679 124,617 8,062 6.5 %
Januvia, Janumet, Other DPP-IVs (2)1,029 37,934 72,406 113,133 (40,727)(36.0)%
Tremfya21,409 16,610 68,062 16,610 51,452 *
Nurtec ODT/Biohaven payment (3)20,459 17,948 59,549 51,170 8,379 16.4 %
Trelegy42,720 — 42,720 — 42,720 — %
Cabometyx/Cometriq14,612 12,038 40,523 22,167 18,356 82.8 %
Farxiga/Onglyza11,522 9,321 32,336 26,996 5,340 19.8 %
Evrysdi9,602 5,897 26,933 10,546 16,387 155.4 %
Prevymis11,052 9,929 25,174 27,331 (2,157)(7.9)%
Trodelvy6,496 2,521 17,428 8,118 9,310 114.7 %
Orladeyo6,265 2,502 15,456 3,471 11,985 *
Erleada5,586 3,736 15,305 9,957 5,348 53.7 %
Crysvita5,241 4,576 14,887 12,092 2,795 23.1 %
Emgality4,657 4,542 13,845 11,356 2,489 21.9 %
Oxlumo596 653 1,945 653 1,292 197.9 %
Other products (4)73,349 129,003 212,260 349,242 (136,982)(39.2)%
Total royalty receipts$703,904 $712,203 $2,048,103 $1,949,360 $98,743 5.1 %
Distributions to non-controlling interests(107,183)(125,427)(322,726)(363,624)40,898 (11.2)%
Adjusted Cash Receipts (non-GAAP)$596,721 $586,776 $1,725,377 $1,585,736 $139,641 8.8 %
Payments for operating and professional costs(48,650)(53,509)(141,653)(135,272)(6,381)4.7 %
Adjusted EBITDA (non-GAAP)$548,071 $533,267 $1,583,724 $1,450,464 $133,260 9.2 %
Development-stage funding payments - ongoing(500)(500)(1,606)(6,263)4,657 (74.4)%
Development-stage funding payments - upfront and milestone(25,000)(90,000)(125,000)(90,000)(35,000)38.9 %
Interest paid, net(75,302)(64,587)(158,920)(126,755)(32,165)25.4 %
Investments in equity method investees(6,846)(10,893)(9,896)(28,320)18,424 (65.1)%
Contributions from non-controlling interests- R&D240 2,003 971 6,083 (5,112)(84.0)%
Other— (18,223)— (16,093)16,093 (100.0)%
Adjusted Cash Flow (non-GAAP)$440,663 $351,067 $1,289,273 $1,189,116 $100,157 8.4 %
Weighted average Class A ordinary shares outstanding - diluted607,226607,174607,209607,152
*Percentage change is not meaningful.

(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 royaltiesthe following approved products: Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by AstraZeneca, Novartis and Takeda.
(3)Quarterly redemption payments of $15.6 million commenced in the first quarter of 2021 related to the Series A Biohaven Preferred Shares (presented as Proceeds from available for sale debt securities on the statements of cash flows). The remaining amounts are related to royalty receipts from Nurtec ODT.
(4)Other products primarily include royalty receipts on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion I, for which receipts are presented as Distributions received from non-consolidated affiliatesequity method investees on the Statementstatements of Cash Flows)cash flows), Cimzia, Conbriza/Fablyn/Viviant, Entyvio, Gavreto, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Priligy,Soliqua, Tazverik and Soliqua. Other Growth Products also include contributions from the Legacy SLP Interest and a distribution from Avillion in respect of the Merck Asset, for which development ceased inInterest.


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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 from our Tecfidera milestone payments are presented as Proceeds from available for sale debt securities on the Statement of Cash Flows.
(3) Other Mature Products primarily include royalties on the following products: Prezista, Rotateq, Savella and Thalomid.

Adjusted Cash Receipts (non-GAAP)

Nine Months Ended September 30, 2022 and 2021

Adjusted Cash Receipts declinedincreased by $231.6$139.6 million to $1.7 billion in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019nine months ended September 30, 2021, 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 Products of $236.4 millionthe cystic fibrosis franchise and newly acquired royalties. This growth was partially offset by a decline in royalty receipts from maturing royalties, such as the six months ended June 30, 2020 comparedHIV franchise and Januvia, Janumet and other DPP-IVs, as well as unfavorable foreign exchange movements. The increase in Adjusted Cash Receipts also reflects a decline in distributions to the same period of 2019, driven primarilynon-controlling interests due to maturing royalties jointly owned by the performance of Cystic fibrosis franchise, Imbruvica, the 2019 acquisition of Promacta,Legacy Investors Partnerships and 2020 acquisitions including Entyvio and the Legacy SLP Interest, both of which are included in Other Growth Products. RPSFT.

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, all approvedTrikafta/Kaftrio, which are marketed by Vertex for patients with certain mutations causing cystic fibrosis, increased by $42.8$86.0 million in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019,nine months ended September 30, 2021. The increase was primarily driven by the highly successful launch of Kaftrio in additional countries outside the United States and the performance of Trikafta in the U.S. and partially offset by a clawback adjustment related to Vertex’s agreement with the French Authorities for a national reimbursement deal for Orkambi during the first quarter of 2020.United States, including its uptake in children 6 through 11 years old.

•Tysabri – Royalty receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, increased by $11.7$7.0 million in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019, benefiting from extra shipping daysnine months ended September 30, 2021, largely due to continued global patient growth and a pricing adjustmentpositive channel dynamics in Italy related to prior periods as well asaccelerated sales that occurred related to COVID-19.the United States.

•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, increaseddecreased by $31.9$22.4 million in the sixnine months ended JuneSeptember 30, 20202022 compared to the same periodnine months ended September 30, 2021. The decrease was largely due to a slower-than-anticipated recovery of 2019, driven by continued penetration in patients withthe chronic lymphocytic leukemia.leukemia market from COVID-19 and increased competition from newer therapies in the United States.

•HIV franchiseXtandi – Royalty receipts from the HIV franchise,Xtandi, which is based on products marketed by Gilead that contain emtricitabine, including Biktarvy, GenvoyaPfizer and Truvada, among others,Astellas for the treatment of prostate cancer, increased by $20.0$24.1 million in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019. This increase wasnine months ended September 30, 2021, primarily driven by strong performancedemand across various prostate cancer indications and a true-up of Biktarvy offset by decreases in sales of other combination products.royalties from prior periods.

•Promacta – Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia purpura (ITP) and aplastic anemia, increased by $8.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This growth was mainly driven by increased use in ITP and uptake as first-line treatment for severe aplastic anemia.

•Januvia, Janumet, Other DPP-IVs – Royalty receipts from the DPP-IVs for type 2 diabetes, which includes Januvia and Janumet, both marketed by Merck & Co., declined slightly primarily drivendecreased by the continued pricing pressure$40.7 million in the U.S.nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Royalty receipts from Januvia, Janumet and other DPP-IVs substantially ended in the three months ended June 30, 2022.

•XtandiTremfya – Royalty receipts from Xtandi,Tremfya, which is marketed by Pfizer and AstellasJohnson & Johnson for the treatment of prostate cancer, increased by $14.3plaque psoriasis and active psoriatic arthritis, were $68.1 million in the sixnine months ended JuneSeptember 30, 2020 compared to the same period of 2019,2022, largely driven by demandmarket growth and continued market share gains. We acquired the Tremfya royalty in across various prostate cancer indications.July 2021.

• Promacta – Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia and aplastic anemia, increased by $43.1 million in the six months ended June 30, 2020 compared 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.

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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•Nurtec ODT/Biohaven payment – Royalty receipts from Tecfidera ceased afterNurtec ODT, which is marketed by Pfizer for the final milestone was collectedacute and preventative treatment of migraine, increased by $8.4 million in the first quarternine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by prescription volume growth. In addition, we received $46.9 million in fixed payments from Biohaven related to the Series A Biohaven Preferred Shares during each of 2019. We also saw declines in receipts from the losses of exclusivity for Lyricanine months ended September 30, 2022 and Letairis.2021.

•Trelegy – Royalty receipts from Trelegy, which is marketed by GSK for the maintenance treatment of chronic obstructive pulmonary disease and asthma, were $42.7 million in the nine months ended September 30, 2022, primarily attributable to strong patient demand and growth of the single inhaler triple therapy market. We acquired the Trelegy royalty in July 2022.

•Cabometyx/Cometriq – Royalty receipts from Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda, were $40.5 million in the nine months ended September 30, 2022, primarily due to the uptake of Cabometyx in combination with Opdivo as a first-line treatment for patients with advanced renal cell carcinoma. We acquired the Cabometyx/Cometriq royalty in March 2021.

Distributions to Non-Controlling Interests

Distributions to non-controlling interests increaseddecreased by $206.7$40.9 million to $322.7 million in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019,nine months ended September 30, 2021, which negatively impactspositively impacted Adjusted Cash Receipts. This increaseThe decrease in distributions to non-controlling interests is primarily due to the additional 18% contractual non-controlling interest heldmaturing royalties jointly owned by the Legacy Investors Partnerships that arose in the Exchange Offer. The increased distributions related to the Legacy Investors Partnerships were partially offset by a decline in distributions related to RPSFT from the maturation of several royalties held by the RPCT, including Humira and Remicade.RPSFT.

Adjusted EBITDA (non-GAAP)

Nine Months Ended September 30, 2022 and 2021

Adjusted EBITDA declinedincreased by $254.4$133.3 million to $1.6 billion in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019, alsonine months ended September 30, 2021 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 2020 as a result ofthe nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by higher costs for Operating and Personnel Payments under the terms offrom increased cash receipts from our New Management Agreement and increased costs for professional services paid in connection with the Reorganization Transactions and our IPO.royalties.

Adjusted Cash Flow (non-GAAP)

Nine Months Ended September 30, 2022 and 2021

Adjusted Cash Flow declinedincreased by $156.7$100.2 million to $1.3 billion in the sixnine months ended JuneSeptember 30, 20202022 compared to the same period of 2019nine months ended September 30, 2021, primarily fordriven by the same reasonsfactors noted above in “Adjusted Cash Receipts (Non-GAAP)(non-GAAP)” and “Adjusted EBITDA (non-GAAP).” In 2020, we paid $35.4 million to terminate our interest rate swaps executed in connection with the Reorganization Transactions, whichThe increase was partially offset by the return of collateral, lower ongoing development stagehigher upfront and milestone development-stage funding payments of $35.0��million and lowerhigher net interest paid of $32.2 million due to the first interest payments made on our new credit facilities.the 2021 Notes in the nine months ended September 30, 2022.

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.

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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 theour 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’sour ability to generate cash from operations. Both measures are an indication of theour 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.our credit agreement. Noncompliance with the interest coverage ratio and leverage ratio covenants under the credit agreement could result in our lenders requiring the Companyus to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited
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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 andfrom operations, the performance of the business and to evaluate the Company’sour performance as compared to itsour 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.

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 Statementstatements of Cash Flows: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 affiliatesequity method investees which are classified as Cash used incash inflows from 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, 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 2020interests related to the Legacy Investors Partnerships' ownership of approximately 18% in Old RPI,Partnerships and RPSFT, 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 Statementstatements of Cash Flows: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 affiliatesequity method investees which are classified as Cash used incash inflows from 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 interestinterests and (2) SwapDerivative collateral posted or (received), net.

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To arrive at Adjusted Cash Flow, we start with Net cash provided by operating activities and adjust for the following items from the Statementstatements of Cash Flows: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 affiliatesequity method investees classified as Cash used incash inflows from investing activities and (3) Development-stage funding payments – upfront, and (4) Contributions from non-controlling interest- Rinterests-R&D, and to deduct (1) Distributions to non-controlling interestinterests and (2) Investment Investments in non-consolidated affiliates.equity method investees. 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.

(in thousands)For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Net cash provided by operating activities (GAAP)$538,827 $469,759 $1,574,049 $1,527,579 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 15,625 46,875 46,875 
Distributions from equity method investees – investing (2)— — — 523 
Interest paid, net (2)75,302 64,587 158,920 126,755 
Development-stage funding payments - ongoing (3)500 500 1,606 6,263 
Development-stage funding payments - upfront and milestone (3)25,000 90,000 125,000 90,000 
Payments for operating and professional costs48,650 53,509 141,653 135,272 
Termination payments on derivative instruments— 16,093 — 16,093 
Distributions to non-controlling interests (2)(107,183)(125,427)(322,726)(363,624)
Derivative collateral received, net (2)— 2,130 — — 
Adjusted Cash Receipts (non-GAAP)$596,721 $586,776 $1,725,377 $1,585,736 
Net cash provided by operating activities (GAAP)$538,827 $469,759 $1,574,049 $1,527,579 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 15,625 46,875 46,875 
Distributions from equity method investees – investing (2)— — — 523 
Interest paid, net (2)75,302 64,587 158,920 126,755 
Development-stage funding payments - ongoing (3)500 500 1,606 6,263 
Development-stage funding payments - upfront and milestone (3)25,000 90,000 125,000 90,000 
Termination payments on derivative instruments— 16,093 — 16,093 
Distributions to non-controlling interests (2)(107,183)(125,427)(322,726)(363,624)
Derivative collateral received, net (2)— 2,130 — — 
Adjusted EBITDA (non-GAAP)$548,071 $533,267 $1,583,724 $1,450,464 
Net cash provided by operating activities (GAAP)$538,827 $469,759 $1,574,049 $1,527,579 
Adjustments:
Proceeds from available for sale debt securities (1), (2)15,625 15,625 46,875 46,875 
Distributions from equity method investees – investing (2)— — — 523 
Contributions from non-controlling interests-R&D (2)240 2,003 971 6,083 
Distributions to non-controlling interests (2)(107,183)(125,427)(322,726)(363,624)
Investments in equity method investees (2), (4)(6,846)(10,893)(9,896)(28,320)
Adjusted Cash Flow (non-GAAP)$440,663 $351,067 $1,289,273 $1,189,116 
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(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  
(1)Receipts from the quarterly redemption of the Series A Biohaven Preferred Shares are presented as Proceeds from available for sale debt securities on the statements of cash flows.

(2)The table below shows the line item for each adjustment and the direct location for such line item on the statements of cash flows.
(1) Receipts from our Tecfidera milestone payments are presented as Reconciling AdjustmentStatements of Cash Flows Classification
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 classificationInvesting activities
Investments in non-consolidated affiliatesequity method investeesInvesting activities
Distributions to non-controlling interestsFinancing activities
Interest 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-interests- R&DFinancing activities
Distributions from non-consolidated affiliatesequity method investees - 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 development-stage funding payments - ongoing and upfront - run through 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 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 development 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, are added back to Adjusted Cash Flow.

(3)Our lenders consider all payments made to support R&D activities for development-stage product candidates similar to asset acquisitions as these funds are expected to generate operational returns in the future. All ongoing development-stage funding payments and upfront and milestone development-stage funding payments are reported as 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 development-stage funding payments.
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(4)
We consider all payments to fund our operating joint ventures that are performing R&D activities for development-stage product candidates 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, are deducted to arrive at Adjusted Cash Flow, but are not deducted in Adjusted EBITDA.

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 royalties on products in our portfolio that have lost market exclusivity. Our team hasWe 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. We have 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,nine months ended September 30, 2022, we invested $497.2 million$2.1 billion 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 4 new investments.assets. While volatility exists in the quantumtotal amount 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 activityRoyalty Acquisition Activity

•In August 2020,October 2022, we entered into an expandeda R&D funding agreement with Biohaven Pharmaceuticals for upMSD International Business GmbH (“Merck”) to $450 million to fundco-fund the development of zavegepantMK-8189, an investigational oral PDE10A inhibitor currently being evaluated in a Phase 2b study for the treatment of schizophrenia. We funded $50 million upon closing, and if Merck decides to proceed with Phase 3, we have the commercialization of Nurtec ODT. Biohaven will receive a $150 million upfront payment andoption to fund up to an additional $100 million payment upon the start of the oral zavegepant phase 3 program. Royalty Pharma will$375 million. In exchange, we are eligible to receive a royalty on Nurtec ODT and zavegepant and success-based milestone payments basedassociated with certain regulatory approvals as well as royalties on zavegepant regulatory approvals. We will also provide further support for the ongoing launchannual worldwide sales 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.any approved product.

•In July of 2020,2022, we acquired a royaltyall of the equity interests in Theravance Respiratory Company, LLC from Theravance and Innoviva, Inc. which entitles us to the right to receive royalties on risdiplam, a development-stage product for the treatmentannual worldwide sales of treatment of Types 1, 2 and 3 spinal muscular atrophy (SMA) from PTC Therapeutics, Inc., in exchangeTrelegy for an upfront payment of $650 million. Evrysdi (risdiplam) was subsequently approved by$1.31 billion and up to $300 million in additional payments contingent upon the FDAachievement of certain sales milestones. Additionally, we agreed to provide Theravance $25 million in August 2020, representingupfront funding and a potential $15 million regulatory milestone payment to support the first at home, oral treatment approved for infants, children and adults with all SMA types.clinical development of ampreloxetine.

•In the second quarter of 2020,June 2022, we acquired aan ex-U.S. royalty on 1) Prevymis, an approved product to prevent cytomegalovirus (“CMV”) infectioninterest in stem cell transplants,Gavreto from AiCuris Anti-infective Cures GmbH in exchangeBlueprint Medicines for an upfront payment of $220$175 million and 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 $255contingent sales-based milestones up to $165 million.

•In the first quarter of 2020,April 2022, we acquired common stock and a revenue participation right from ApiJect Holdings, Inc. for $50 million.
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•In January 2022, we acquired a royalty on Entyvio, an approved productinterest in aficamten from Cytokinetics, Incorporated (“Cytokinetics”) for the treatment$150 million comprised of ulcerative colitis and Crohn’s disease, from The General Hospital Corporation in exchange for an upfront payment of $86.6 million.$50 million and two additional $50 million payments, conditional upon the initiation of potential pivotal clinical trials for oHCM and nonobstructive hypertrophic cardiomyopathy, respectively. In February 2022, Cytokinetics announced that it initiated the clinical trial for oHCM, which triggered a $50 million payment from us in March 2022. Additionally, we will provide Cytokinetics long-term capital of up to $300 million (“Cytokinetics Commercial Launch Funding”) to support further development of aficamten and potential commercialization of omecamtiv mecarbil. The Cytokinetics Commercial Launch Funding is available in five tranches, including an initial tranche of $50 million funded upon closing.

•In the first quarterNovember 2021, we acquired incremental royalty interests in BCX9930 and Orladeyo (berotralstat) from BioCryst for an upfront cash payment of 2019,$150 million. Additionally, we entered into a preferred share purchase agreement with Biohaven through which we purchased $125paid $50 million in preferred shares and may be required to purchase up to an3,846 thousand shares of BioCryst common stock, which was calculated based on the volume-weighted average price of BioCryst common stock over a period preceding the closing of the transaction. The funds from this transaction will enable further advancement of BCX9930 and support additional $75 millioninvestment in preferred shares at Biohaven’s option, providing us with a fixed return on redemptionthe global launch 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) for the acute treatment of migraine in adults in February 2020.Orladeyo (berotralstat).

•In June 2021, we announced a long-term strategic funding partnership with MorphoSys to support its 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”). In connection with the first quarterclosing of 2019,its 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 September 2022, we funded $300 million under the Development Funding Bonds.

•In April 2021, we acquired the following: (1) a royalty on Promacta,interest in Oxlumo 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 productby the FDA and EMA for the treatment of chronic immune thrombocytopeniaprimary hyperoxaluria type 1, is marketed by Alnylam.

•In March 2021, we acquired a royalty interest in the cabozantinib products Cabometyx and aplastic anemia,Cometriq from Ligand in exchangeGSK for an upfront payment of $827$342 million (2)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 United States 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 Eli Lilly’s Emgality, an approved productthe achievement of certain clinical, regulatory and commercialization milestones. Seltorexant is currently in Phase 3 development for the treatment of migraine, from Atlas Ventures and Orbimed for $260 million and (3) a royalty onmajor depressive disorder with insomnia symptoms by 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.Johnson.

Additionally, in April 2021, we entered into an agreement with MSCI, a leading provider of critical decision support tools and services, to assist MSCI in the design of a classification framework and index methodologies to expand MSCI’s thematic index suite with the launch of new indexes. In return, we will receive a portion of MSCI’s revenues from those indexes. The financial impact associated with this transaction has not been material to date and is not expected to be material for the year ended December 31, 2022.

Liquidity and Capital Resources

Overview

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Our primary source of liquidity is cash provided by operations. For the sixnine months ended JuneSeptember 30, 20202022 and 2019,2021, we generated $960.1 million$1.6 billion and $769.8 million,$1.5 billion, respectively, inNet 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.

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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,July 2021, we completedissued $1.3 billion of senior unsecured notes. Additionally, we have a Revolving Credit Facility (defined below) which provides for borrowing capacity of up to $1.5 billion that remains undrawn and available to us as of September 30, 2022. As of September 30, 2022 and December 31, 2021, the par value of our IPOtotal outstanding borrowings was $7.3 billion and received net proceeds$7.3 billion, respectively. A summary of approximately $1.9 billion from the IPO after deducting underwriting discountsour borrowing activities, balances and commissions of approximately $86.3 million. Our ability to satisfy our working capital needs,compliance with certain debt service and other obligations, and to comply with the financial covenants under ourvarious financing agreements dependsarrangements is included in Note 10. Borrowings of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report 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.Form 10-Q.

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, 2020, we had total long-termOur ability to satisfy our working capital needs, debt outstanding of $5.7 billion. As of December 31, 2019, we had total long-term debt outstanding of $6.0 billion. In February 2020, in connectionservice and other obligations, and to comply with the Exchange Offer Transactions, we repaidfinancial covenants under our outstanding debt held by RPIFTfinancing agreements depends on our future operating performance and cash flow, which are in fullturn subject to prevailing economic conditions and issued new long-term debt at RPI Intermediate FT.other factors, many of which are beyond our control.

Cash flowsFlows

The following table summarizesand analysis of cash flow changes presents a summary of our cash flow activities:activity for the nine months ended September 30, 2022 and 2021:

(in thousands)(in thousands)Six Months Ended
June 30,		(in thousands)For the Nine Months Ended September 30,
2020201920222021Change
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$1,574,049 $1,527,579 $46,470 
Investing activities Investing activities$(922,316) $(1,475,537)  Investing activities(1,444,163)(1,318,634)(125,529)
Financing activities Financing activities$2,121,956  $(625,135)  Financing activities(679,306)583,183 (1,262,489)

Analysis of Cash Flow Changes

Operating activitiesActivities

Cash provided by operating activities increased by $190.3$46.5 million in the sixnine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by an increase in cash collections from financial royalty assets of $110.8 million. The increase in royalty receipts was partially offset by lower cash collections from intangible assets of $40.7 million as our royalties on Januvia, Janumet and other DPP-IVs have substantially ended in the three months ended June 30, 2020 compared2022 and higher interest paid of $39.7 million, primarily due to the same period offirst interest payments made on the prior year. The primary driver was an increase2021 Notes in financial royalty receipts of $108.4 million and $82.9 million increase in cash related to the termination of our swaps and lower interest paid under the refinanced credit facilities.nine months ended September 30, 2022.

Investing activitiesActivities

Cash used in investing activities declinedincreased by $553.2$125.5 million in the sixnine months ended JuneSeptember 30, 20202022 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 sixnine months ended JuneSeptember 30, 2020 and 2019. The decline is further attributable2021, primarily driven by a higher use of cash of $341.0 million to our Tysabri milestone payment made in the prior year period in addition to the purchase of available for sale debt securities and a $295.6 million decrease in the same prior year period. The overall declinenet cash provided by marketable securities. Partially offsetting this was a $528.4 million decrease in investing activities in the six months ended June 30, 2020 was partially offset by purchasescash used for acquisitions of marketable securities in the current period, which we did not have in the comparative period.financial royalty assets.

Financing activitiesActivities

Cash used in financing activities in the nine months ended September 30, 2022 was $679.3 million compared to cash provided by financing activities of $583.2 million in the nine months ended September 30, 2021, primarily driven by $1.3 billion net proceeds received from our issuance of 2021 Notes in July 2021.
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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 ordinary shares upon our initial public offering in June 2020 provided $1.9 billion, net of offering costs paid. The repayment of RPIFT’s outstanding debt in February 2020, including through amounts contributed by a non-controlling interest, and subsequent debt issuance resulted in net proceeds of $869.6 million. This was offset by a $234.7 million increase in distributions to non-controlling interest 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.

Sources of Capital

As of JuneSeptember 30, 2020,2022, our cash and cash equivalents and marketable securities totaled $2.4 billion.$991.6 million and $139.9 million, respectively. As of December 31, 2019,2021, our cash and cash equivalents and marketable securities totaled $283.7 million.$1.5 billion and $581.9 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 Secured Credit FacilitiesOur borrowings at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
Date of IssuanceMaturityAs of September 30, 2022As of December 31, 2021
Senior Unsecured Notes:
$1,000,000, 0.75% (issued at 99.322% of par)9/20209/2023$1,000,000 $1,000,000 
$1,000,000, 1.20% (issued at 98.875% of par)9/20209/20251,000,000 1,000,000 
$1,000,000, 1.75% (issued at 98.284% of par)9/20209/20271,000,000 1,000,000 
$1,000,000, 2.20% (issued at 97.760% of par)9/20209/20301,000,000 1,000,000 
$600,000, 2.15% (issued at 98.263% of par)7/20219/2031600,000 600,000 
$1,000,000, 3.30% (issued at 95.556% of par)9/20209/20401,000,000 1,000,000 
$1,000,000, 3.55% (issued at 95.306% of par)9/20209/20501,000,000 1,000,000 
$700,000, 3.35% (issued at 97.565% of par)7/20219/2051700,000 700,000 
Total senior unsecured debt7,300,000 7,300,000 
Unamortized debt discount and issuance costs(188,740)(203,930)
Total long-term debt, including current portion7,111,260 7,096,070 
Less: Current portion of long-term debt(996,583)— 
Total long-term debt$6,114,677 $7,096,070 

Senior Unsecured Notes

On February 11,July 26, 2021, we issued the 2021 Notes with a weighted average coupon rate of 2.80% and requiring annual interest payments of approximately $36.4 million, paid semi-annually. On September 2, 2020, we issued $6.0 billion of senior unsecured note (the “2020 Notes”) with a weighted average coupon rate of 2.125% and requiring annual interest payments of approximately $127.5 million, paid semi-annually. We used the net proceeds from the 2020 Notes offering, together with available cash on hand, to repay in connectionfull the outstanding principal amounts of term loans under our prior senior secured credit facilities. We refer to the 2020 Notes and 2021 Notes, collectively, as the “Notes.” Indentures governing the Notes contain certain covenants with the Exchange Offer Transactions (discussed earlierwhich we were 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,compliance as borrower,of September 30, 2022.

Senior Unsecured Revolving Credit Facility

On September 15, 2021, we entered into a term loanan amended and restated revolving 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 consistamends and restates the credit agreement that our subsidiary RP Holdings, as borrower, entered into on September 18, 2020, which provided for a five-year unsecured Revolving Credit Facility with borrowing capacity of a term loan A (“Tranche A-1”)up to $1.5 billion for general corporate purposes. The Credit Agreement extends the maturity of the Revolving Credit Facility to September 15, 2026. The Credit Agreement contains certain customary covenants which we were in compliance as of September 30, 2022. The Revolving Credit Facility remains undrawn and term loan B (“Tranche B-1”) in the amountsavailable to us as 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.”
We had the following indebtedness outstanding at JuneSeptember 30, 2020 and at December 31, 2019:

(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  

(1)Borrowings under our senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin.2022.

RPIFT Senior Secured Credit Facilities (the “Old Credit Facility”)
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The Old Credit Facility was issued by our wholly-owned subsidiary, RPIFT, and was 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 Old Credit Facility was repaid in full and new long-term debt was issued by RPI Intermediate FT.

Uses of Capital

Acquisitions of royaltiesRoyalties

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 followingpartners through a variety of structures:

•Third-party Royalties – Existing royalties on approved or late-stage development therapies with high commercial potential. 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.

•Synthetic / Hybrid RoyaltiesRoyalties/R&D Funding – Newly-created royalties on approved or late-stage development therapies with strong proof of concept and high commercial potential. A synthetic royalty is the contractual right to a percentage of top-line sales created by the ownerdeveloper and/or marketer of a therapy in exchange for funding. In many of ourA synthetic royalties, weroyalty may 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 –include contingent milestone payments. We also fund ongoing 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.

•Launch and Development Capital – Tailored supplemental funding solutions, generally included as a component within a transaction, increasing the scale of our capital. Launch and development capital is generally provided in exchange for a long-term stream of fixed payments with a predetermined schedule around the launch of a drug. Launch and development capital may also include a direct investment in the public equity of a company.

•M&A -Related – 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.

DistributionsAdditionally, we may identify additional opportunities, platforms or technologies that leverage our capabilities. One example is our strategic alliance with MSCI to Shareholders/Unitholdersdevelop thematic life sciences indices.

Distributions to Shareholders

We paid dividends to holders of our Class A ordinary shares of $249.1 million and $211.6 million in the nine months ended September 30, 2022 and 2021, respectively. We do not have a legal obligation to pay a quarterly dividend or dividends at any specified rate or at all.

Other Funding Arrangements

In January 2022, we entered into a long-term funding agreement with Cytokinetics to provide up to $300 million of capital (“Cytokinetics Commercial Launch Funding”) available in five tranches to support Cytokinetics for further development of aficamten and potential commercialization of omecamtiv mecarbil. We funded the initial tranche of $50 million of the Cytokinetics Commercial Launch Funding upon closing. In the sixthree months ended June 30, 2022, we amended the long-term funding agreement with Cytokinetics to increase the required draw amount. Cytokinetics is required to draw $50 million if a certain contingency is met and has the option to draw the remaining $200 million upon the occurrence of certain regulatory and clinical development milestones. As of September 30, 2022, we expect $125 million of the optional $200 million to remain available under the Cytokinetics Commercial Launch Funding due to the likelihood that certain regulatory milestones will not be met by December 31, 2022.

On August 7, 2020, we entered into the 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 a price of $50,100 per preferred share (the “Commercial Launch Preferred Equity”) for a total of $200 million payable on a quarterly basis from the three months ended March 31, 2021 through the three months ended December 31, 2024. In the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares and 2019,have a remaining commitment of $85.8 million under our Commercial Launch Preferred Equity as of September 30, 2022.

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On October 3, 2022, Pfizer acquired Biohaven, which was a change of control event that accelerated the issuance and redemption of all unissued Series B Biohaven Preferred Shares. In connection with the completion of Pfizer’s acquisition of Biohaven, we have no remaining commitment related to the Series B Biohaven Preferred Shares.

We may have other funding arrangements where we are contractually obligated to fund R&D activities performed by our development partners. We also have funding arrangements related to our equity method investments in the 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 $44.8 million as of September 30, 2022.

We also have certain milestone payments that are contingent on the successful achievement of certain development, regulatory approval or commercial milestones. These contingent milestone payments are not considered contractual obligations. In the nine months ended September 30, 2022, we made distributionsa $50 million payment to Cytokinetics in connection with its initiation of $285.4the first pivotal clinical trial in oHCM. In the nine months ended September 30, 2021, we made a $100 million and $396.0 million, respectively. See “Dividend Policy”payment to Biohaven related to a development milestone that was achieved upon the start of our Prospectus for a description of our dividend policy after the IPO.oral zavegepant Phase 3 program.

Debt serviceService

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 JuneSeptember 30, 2020, we are required to repay2022, the term loansfuture principal and interest payments under the Credit Agreementour Notes over the next five years and thereafter are 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  

(in thousands)Principal PaymentsInterest Payments
Year
Remainder of 2022$— $— 
20231,000,000 163,850 
2024— 156,350 
20251,000,000 156,350 
2026— 144,350 
Thereafter5,300,000 2,070,250 
Total (1)$7,300,000 $2,691,150 
(1)Excludes unamortized debt discount on long-term debt of $30.0 million and loan issuance costs of $3.9$188.7 million as of September 30, 2022, which are amortized through interest expense over the remaining life of the underlying debt obligations.

Operating and Personnel Payments
Commitments, Contingencies
Under the Management Agreement, we pay quarterly Operating and GuaranteesPersonnel Payments equal to 6.5% of the cash receipts from royalty investments for such quarter and 0.25% of our security investments under GAAP as of the end of each quarter. Because the Operating and Personnel Payments are determined based on cash receipts, the amounts are variable. The expenses incurred in respect of Operating and Personnel Payments are expected to comprise the most significant component of G&A expenses on an ongoing basis.

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. As of September 30, 2022, the par value and carrying value of the total outstanding and guaranteed Notes was $7.3 billion and $7.1 billion, respectively.

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WeThe following financial information presents summarized combined balance sheet information as of September 30, 2022 and December 31, 2021 and summarized combined statement of operations information for the nine months ended September 30, 2022 for Royalty Pharma plc and RP Holdings. All intercompany balances and transactions between Royalty Pharma plc and RP Holdings are currently involved in certain legal proceedings arisingeliminated in the ordinary course of business and, as required, accrue an estimatepresentation of the probable costs for resolution of those claims forcombined financial statements. RP Holdings’ most significant asset is its investment in operating subsidiaries, which has been eliminated in the occurrence of loss is probable andtable below to exclude investments in Non-Guarantor Subsidiaries. Our operating subsidiaries hold 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 effectivenessmajority of our strategies relatedcash and cash equivalents, marketable securities and financial royalty assets. As a result, our ability to these proceedings. Please refermake required payments on the Notes depends on the performance of our operating subsidiaries and their ability to Part I, Item I, Note 17. Commitmentsdistribute 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 September 30, 2022 and Contingencies.December 31, 2021 or for the nine months ended September 30, 2022.

Summarized Combined Balance Sheets
(in thousands)As of September 30, 2022As of December 31, 2021
Current assets$73,356 $95,946 
Current interest receivable on intercompany notes due from Non-Guarantor Subsidiaries8,859 16,974 
Current intercompany notes receivable due from Non-Guarantor Subsidiaries272,792 — 
Non-current assets3,309 4,145 
Non-current intercompany notes receivable due from Non-Guarantor Subsidiaries1,990,604 2,039,576 
Current liabilities1,012,209 59,030 
Current interest payable on intercompany notes due to Non-Guarantor Subsidiaries3,611 16,974 
Current intercompany notes payable due to Non-Guarantor Subsidiaries272,792 — 
Non-current liabilities6,113,932 7,095,450 
Non-current intercompany notes payable due to Non-Guarantor Subsidiaries1,675,604 2,039,576 
Other off-balance sheet arrangements
Summarized Combined Statement of OperationsFor the Nine Months Ended September 30, 2022
(in thousands)
Interest income on intercompany notes receivable from Non-Guarantor Subsidiaries$43,658 
Other income723 
Operating expenses155,585 
Interest expense on intercompany notes payable with Non-Guarantor Subsidiaries38,410 
Net loss149,614 

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 income and 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.financial royalty assets. Similarly, the most significant judgments and estimates applied by management are associated with the measurement of our financial royalty assets classified asat amortized cost using the prospective effective interest method. The application of the prospective approach to calculate interest income from our financial assets.royalty assets requires management’s judgment in forecasting the expected future cash flows of the underlying royalties. 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 condensed 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 volatilityThere have been no material changes in foreign currency exchange rates, interest rate movements. Our primary exposure to market risk is interest rate sensitivity, which is affected by changesexposures that affect the disclosures presented in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” 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 our marketable securities is generally short-term. Although we currently do not have any interest rate swaps or foreign currency forward contracts in place, we have historically managed the impact of foreign currency exchange rate and interest rate risk through various financial instruments, 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. 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 royaltiesAnnual Report 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 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, we held cash and cash equivalents of $2.4 billion, of which $2.2 billion was cash, $121.9 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 million was invested in interest-bearing money market funds. In addition, as of December 31, 2019 we had $57.0 million invested in U.S. government securities 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% of our debt was effectively fixed with a total weighted average interest rate of 3.69% across 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. 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.

In addition, it is expected that LIBOR will be phased out by the end of 2021. The Alternative Reference Rates Committee of the Federal Reserve Board has identified 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.

Credit and Counterparty Risk

We have credit risks that are generally 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. 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, Roche/Genentech and Vertex. The individual marketers making up the largest balance of our current portion of Financial royalty assets, net were Vertex as of June 30, 2020 and Biogen as of December 31, 2019, accounting for 27% and 18%, respectively. 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% of our total income and other revenues for the periods ended June 30, 2020 and 2019.

We monitor the financial performance and creditworthiness of the counterparties to our royalty agreements and to our derivative contracts 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
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maximum exposure with any single counterparty accounted for 29% of our total interest rate swap portfolio. If a counterparty becomes bankrupt, or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding.Form 10-K.

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, have 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 thatthis 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, has evaluated anyThere were no changes in our internal controls over financial reporting that occurredidentified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarterthree months ended JuneSeptember 30, 2020, and has concluded that there was no change during such quarter2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent LimitationLimitations on the Effectiveness Over Financial ReportingOf Controls

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

Item 1.         LEGAL PROCEEDINGS

For a description of our significant pending legal proceedings, please seerefer to Note 17. 14–Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.which is incorporated herein by reference.

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.

None.
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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 membersIssuer Purchases of Royalty Pharma’s management and board of directors.Equity Securities

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
10.1*
10.2*
10.3*
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
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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)

ROYALTY PHARMA PLC
(Registrant)
Date: August 12, 2020/s/ Pablo Legorreta
Pablo Legorreta
Chief Executive Officer
Date: August 12, 2020November 8, 2022
/s/ Terrance Coyne
Terrance Coyne
Chief Financial Officer
Date: November 8, 2022
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