UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20212022
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 Wales98-1535773
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
110 East 59th Street
New York, New York 10022
(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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐     No  






As of May 7, 2021,2, 2022, Royalty Pharma plc had 392,857,300 shares of435,316,420 Class A ordinary shares outstanding and 214,255,202171,861,661 Class B ordinary shares outstanding.

ROYALTY PHARMA PLC

INDEX

PART I.FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 20212022 and December 31, 20202021 (unaudited)
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 20212022 and 20202021 (unaudited)
Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 20212022 and 20202021 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 20212022 and 20202021 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
























Special Note Regarding Forward-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-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. You should evaluate 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 Item 1A. under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.

These risks and uncertainties include factors related to:
sales risks of biopharmaceutical products on which we receive royalties;
theour ability of RP Management, LLC (the “Manager”) to locate suitable assets for us to acquire;
uncertainties related to the acquisition of interests in development-stage biopharmaceutical product candidates and our strategy to add development-stage product candidates 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

ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 As of March 31, As of December 31, As of March 31, As of December 31,
2021202020222021
AssetsAssetsAssets
Current Assets
Current assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$708,810 $1,008,680 Cash and cash equivalents$1,791,517 $1,541,048 
Marketable securitiesMarketable securities1,068,913 983,279 Marketable securities484,221 581,872 
Financial royalty assetsFinancial royalty assets522,388 587,193 Financial royalty assets570,684 614,351 
Accrued royalty receivableAccrued royalty receivable33,454 33,155 Accrued royalty receivable51,190 53,286 
Available for sale debt securitiesAvailable for sale debt securities69,261 69,984 Available for sale debt securities64,800 66,000 
Other royalty income receivableOther royalty income receivable6,541 6,011 Other royalty income receivable14,618 15,023 
Other current assetsOther current assets6,657 8,596 Other current assets5,388 6,631 
Total current assetsTotal current assets2,416,024 2,696,898 Total current assets2,982,418 2,878,211 
Financial royalty assets, netFinancial royalty assets, net12,599,080 12,368,084 Financial royalty assets, net13,467,211 13,718,245 
Intangible royalty assets, netIntangible royalty assets, net22,995 28,666 Intangible royalty assets, net— 5,670 
Equity securitiesEquity securities244,503 298,689 Equity securities267,638 269,800 
Available for sale debt securitiesAvailable for sale debt securities179,939 163,016 Available for sale debt securities239,600 204,400 
Derivative financial instruments2,884 5,439 
Investments in non-consolidated affiliates444,407 454,936 
Equity method investmentsEquity method investments418,151 435,394 
Other assetsOther assets4,256 4,558 Other assets3,870 4,145 
Total assetsTotal assets$15,914,088 $16,020,286 Total assets$17,378,888 $17,515,865 
Liabilities and equity
Liabilities and shareholders’ equityLiabilities and shareholders’ equity
Current liabilitiesCurrent liabilitiesCurrent liabilities
Distribution payable to non-controlling interest$108,840 $126,366 
Distributions payable to non-controlling interestsDistributions payable to non-controlling interests$116,010 $107,934 
Accounts payable and accrued expensesAccounts payable and accrued expenses8,272 10,775 Accounts payable and accrued expenses6,662 5,620 
Interest payableInterest payable10,271 42,146 Interest payable13,199 57,696 
Accrued purchase obligation110,000 110,000 
Milestone payable18,600 18,600 
Total current liabilitiesTotal current liabilities255,983 307,887 Total current liabilities135,871 171,250 
Long-term debtLong-term debt5,821,072 5,816,584 Long-term debt7,101,138 7,096,070 
Total liabilitiesTotal liabilities6,077,055 6,124,471 Total liabilities7,237,009 7,267,320 
Commitments and contingenciesCommitments and contingencies00Commitments and contingencies00
Shareholders’ equityShareholders’ equityShareholders’ equity
Class A ordinary shares, $0.0001 par value; 392,857 and 388,135 issued and outstanding, respectively39 39 
Class B ordinary shares, $0.000001 par value; 214,255 and 218,976 issued and outstanding, respectively
Class A ordinary shares, $0.0001 par value; 435,316 and 432,963 issued and outstanding, respectivelyClass A ordinary shares, $0.0001 par value; 435,316 and 432,963 issued and outstanding, respectively43 43 
Class B ordinary shares, $0.000001 par value; 171,862 and 174,213 issued and outstanding, respectivelyClass B ordinary shares, $0.000001 par value; 171,862 and 174,213 issued and outstanding, respectively— — 
Class R redeemable shares, £1 par value; 50 and 50 issued and outstanding, respectivelyClass R redeemable shares, £1 par value; 50 and 50 issued and outstanding, respectively63 63 Class R redeemable shares, £1 par value; 50 and 50 issued and outstanding, respectively63 63 
Deferred shares, $0.000001 par value, 321,128 and 316,407 issued and outstanding, respectively
Deferred shares, $0.000001 par value; 363,521 and 361,170 issued and outstanding, respectivelyDeferred shares, $0.000001 par value; 363,521 and 361,170 issued and outstanding, respectively— — 
Additional paid-in capitalAdditional paid-in capital2,931,249 2,865,964 Additional paid-in capital3,543,204 3,507,533 
Retained earningsRetained earnings1,923,771 1,920,635 Retained earnings2,224,677 2,255,179 
Non-controlling interest4,954,818 5,077,036 
Non-controlling interestsNon-controlling interests4,364,324 4,471,951 
Accumulated other comprehensive incomeAccumulated other comprehensive income29,452 34,395 Accumulated other comprehensive income12,304 16,491 
Treasury interestsTreasury interests(2,359)(2,317)Treasury interests(2,736)(2,715)
Total shareholders’ equityTotal shareholders’ equity9,837,033 9,895,815 Total shareholders’ equity10,141,879 10,248,545 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$15,914,088 $16,020,286 Total liabilities and shareholders’ equity$17,378,888 $17,515,865 
See accompanying notes to these unaudited condensed consolidated financial statements.
1




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(In thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
March 31,
20212020
Total income and revenues
Income from financial royalty assets$529,625 $462,844 
Revenue from intangible royalty assets36,061 34,983 
Other royalty income7,341 3,052 
Total income and other revenues573,027 500,879 
Operating expenses
Provision for changes in expected cash flows from financial royalty assets292,262 88,012 
Research and development funding expense2,641 7,639 
Amortization of intangible assets5,671 5,733 
General and administrative expenses43,156 38,065 
Total operating expenses, net343,730 139,449 
Operating income229,297 361,430 
Other expense/(income)
Equity in loss of non-consolidated affiliates1,918 9,074 
Interest expense37,415 53,584 
Unrealized loss on derivative financial instruments2,555 33,445 
Loss on equity securities54,186 153,166 
Unrealized gain on available for sale debt securities(9,115)
Interest income(16,598)(2,858)
Other non-operating (income)/expense, net(43)5,923 
Total other expense, net70,318 252,334 
Consolidated net income before tax158,979 109,096 
Income tax expense
Consolidated net income158,979 109,096 
Less: Net income attributable to non-controlling interest(89,860)(37,856)
Net income attributable to controlling interest69,119 71,240 
Other comprehensive income/(loss)
Reclassification of loss on interest rate swaps4,066 
Unrealized gain on available for sale debt securities5,125 52,725 
Reclassification of unrealized gain on available for sale debt securities(15,491)
Other comprehensive (loss)/income(10,366)56,791 
Comprehensive income58,753 128,031 
Less: Other comprehensive loss/(income) attributable to non-controlling interest4,881 (9,672)
Comprehensive income attributable to controlling interest$63,634 $118,359 
Earnings per Class A ordinary share:
     Basic$0.18 N/A
     Diluted$0.18 N/A
Weighted average Class A ordinary shares outstanding:
     Basic389,760 N/A
     Diluted607,148 N/A

For the Three Months Ended March 31,
20222021
Total income and revenues
Income from financial royalty assets$511,523 $529,625 
Revenue from intangible royalty assets33,586 36,061 
Other royalty income16,940 7,341 
Total income and other revenues562,049 573,027 
Operating expenses
Provision for changes in expected cash flows from financial royalty assets184,621 292,262 
Research and development funding expense100,500 2,641 
Amortization of intangible assets5,670 5,671 
General and administrative expenses51,540 43,156 
Total operating expenses, net342,331 343,730 
Operating income219,718 229,297 
Other (income)/expense
Equity in (earnings)/losses of equity method investees(397)1,918 
Interest expense47,063 37,415 
Losses on derivative financial instruments— 2,555 
Losses on equity securities36,162 54,186 
Unrealized losses/(gains) on available for sale debt securities16,579 (9,115)
Interest income(9,529)(16,598)
Other non-operating expense/(income), net1,757 (43)
Total other expenses, net91,635 70,318 
Consolidated net income before tax128,083 158,979 
Income tax expense— — 
Consolidated net income128,083 158,979 
Net income attributable to non-controlling interests76,322 89,860 
Net income attributable to Royalty Pharma plc$51,761 $69,119 
Earnings per Class A ordinary share:
     Basic$0.12 $0.18 
     Diluted$0.12 $0.18 
Weighted average Class A ordinary shares outstanding:
     Basic433,956 389,760 
     Diluted607,201 607,148 
See accompanying notes to these unaudited condensed consolidated financial statements.
2




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

For the Three Months Ended March 31,
20222021
Consolidated net income$128,083 $158,979 
Changes in other comprehensive income/(loss):00
Unrealized gains on available for sale debt securities1,625 5,125 
Reclassification of unrealized gains on available for sale debt securities(8,954)(15,491)
Total other comprehensive losses$(7,329)$(10,366)
Comprehensive income$120,754 $148,613 
Comprehensive income attributable to non-controlling interests73,310 84,979 
Comprehensive income attributable to Royalty Pharma plc$47,444 $63,634 

See accompanying notes to these unaudited condensed consolidated financial statements.

3




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Class A Ordinary SharesClass B Ordinary SharesClass R Redeemable SharesDeferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2020388,135 $39 218,976 $50 $63 316,407 $$2,865,964 $1,920,635 $34,395 $5,077,036 $(2,317)$9,895,815 
Contributions— — — — — — — — — — — 3,253 — 3,253 
Distributions— — — — — — — — — — — (145,378)— (145,378)
Dividends— — — — — — — — — (65,983)— — — (65,983)
Other exchanges4,721 — (4,721)— — — 4,721 — 64,572 — 542 (65,072)(42)
Share based compensation and related issuance of Class A ordinary shares— — — — — — — 713 — — — — 713 
Net income— — — — — — — — — 69,119 — 89,860 — 158,979 
Other comprehensive income:
Unrealized gain on available for sale debt securities— — — — — — — — — — 2,712 2,413 — 5,125 
Reclassification of unrealized gain on available for sale debt securities— — — — — — — — — — (8,197)(7,294)— (15,491)
Balance at March 31, 2021392,857$39 214,255$0 50$63 321,128$0 $2,931,249 $1,923,771 $29,452 $4,954,818 $(2,359)$9,837,033 

Shareholders’ ContributionsRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestTreasury InterestsTotal Equity
Balance at December 31, 2019$3,282,516 $2,825,212 $2,093 $35,883 $(4,266)$6,141,438 
Contributions307,646 — — 1,133,629 — 1,441,275 
Transfer of interests(1,037,161)— — 1,037,161 — 
Cumulative adjustment for adoption of ASU 2016-13— (192,705)— — — (192,705)
Distributions— (141,776)— (251,426)— (393,202)
Net income— 71,240 — 37,856 — 109,096 
Other comprehensive income:
Unrealized gain on available for sale debt securities— — 43,053 9,672 — 52,725 
Reclassification of loss on interest rate swaps— — 4,066 — — 4,066 
Balance at March 31, 2020$2,553,001 $2,561,971 $49,212 $2,002,775 $(4,266)$7,162,693 
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— — — — — — — — — — — 3,323 — 3,323 
Distributions— — — — — — — — — — — (148,976)— (148,976)
Dividends ($0.19 per Class A ordinary share)— — — — — — — — — (82,263)— — — (82,263)
Other exchanges2,351 — (2,351)— — — 2,351 — 35,175 — 130 (35,284)(21)— 
Share-based compensation and related issuances of Class A ordinary shares— — — — — — — 496 — — — — 496 
Net income— — — — — — — — — 51,761 — 76,322 — 128,083 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 957 668 — 1,625 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (5,274)(3,680)— (8,954)
Balance at March 31, 2022435,316$43 171,862$ 50$63 363,521$ $3,543,204 $2,224,677 $12,304 $4,364,324 $(2,736)$10,141,879 

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 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— — — — — — — — — — — 3,253 — 3,253 
Distributions— — — — — — — — — — — (145,378)— (145,378)
Dividends ($0.17 per Class A ordinary share)— — — — — — — — — (65,983)— — — (65,983)
Other exchanges4,721 — (4,721)— — — 4,721 — 64,572 — 542 (65,072)(42)— 
Share-based compensation and related issuances of Class A ordinary shares— — — — — — — 713 — — — — 713 
Net income— — — — — — — — — 69,119 — 89,860 — 158,979 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 2,712 2,413 — 5,125 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (8,197)(7,294)— (15,491)
Balance at March 31, 2021392,857$39 214,255$ 50$63 321,128$ $2,931,249 $1,923,771 $29,452 $4,954,818 $(2,359)$9,837,033 

See accompanying notes to these unaudited condensed consolidated financial statements.
34




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three Months Ended March 31,For the Three Months Ended March 31,
2021202020222021
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Cash collections from financial royalty assetsCash collections from financial royalty assets$573,946 $488,028 Cash collections from financial royalty assets$621,689 $573,946 
Cash collections from intangible royalty assetsCash collections from intangible royalty assets35,761 34,788 Cash collections from intangible royalty assets35,682 35,761 
Other royalty cash collectionsOther royalty cash collections6,821 535 Other royalty cash collections17,345 6,821 
Distributions from non-consolidated affiliates17,325 20,293 
Distributions from equity method investeesDistributions from equity method investees20,690 17,325 
Interest receivedInterest received1,548 2,236 Interest received482 1,548 
Swap collateral received45,252 
Swap termination payments(35,448)
Ongoing development-stage funding payments(2,641)(7,639)
Development-stage funding payments - ongoingDevelopment-stage funding payments - ongoing(500)(2,641)
Development-stage funding payments - upfront and milestonesDevelopment-stage funding payments - upfront and milestones(100,000)— 
Payments for operating and professional costsPayments for operating and professional costs(42,160)(25,838)Payments for operating and professional costs(48,902)(42,160)
Interest paidInterest paid(64,500)(51,103)Interest paid(86,216)(64,500)
Net cash provided by operating activitiesNet cash provided by operating activities526,100 471,104 Net cash provided by operating activities460,270 526,100 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Investments in non-consolidated affiliates(8,714)(13,142)
Investments in equity method investeesInvestments in equity method investees(3,050)(8,714)
Purchases of equity securitiesPurchases of equity securities(50,000)Purchases of equity securities(34,000)— 
Purchases of available for sale debt securitiesPurchases of available for sale debt securities(17,585)Purchases of available for sale debt securities(64,579)(17,585)
Proceeds from available for sale debt securitiesProceeds from available for sale debt securities15,625 Proceeds from available for sale debt securities15,625 15,625 
Purchases of marketable securitiesPurchases of marketable securities(505,339)(703,935)Purchases of marketable securities(177,354)(505,339)
Proceeds from sales and maturities of marketable securitiesProceeds from sales and maturities of marketable securities419,783 104,613 Proceeds from sales and maturities of marketable securities274,608 419,783 
Acquisitions of financial royalty assetsAcquisitions of financial royalty assets(503,070)(99,290)Acquisitions of financial royalty assets(85)(503,070)
Net cash used in investing activities(599,300)(761,754)
Net cash provided by/(used in) investing activitiesNet cash provided by/(used in) investing activities11,165 (599,300)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Distributions to shareholders/unitholders(141,776)
Distributions to non-controlling interest(125,721)(161,387)
Distributions to non-controlling interest- other(37,183)
Distributions to non-controlling interestsDistributions to non-controlling interests(106,385)(125,721)
Distributions to non-controlling interests- otherDistributions to non-controlling interests- other(34,515)(37,183)
Dividends to shareholdersDividends to shareholders(65,983)Dividends to shareholders(82,263)(65,983)
Contributions from non-controlling interest- R&D1,997 1,260 
Contributions from non-controlling interest- other220 29,764 
Scheduled repayments of long-term debt(47,100)
Repayments of long-term debt(5,170,396)
Proceeds from issuance of long-term debt6,040,000 
Debt issuance costs and other(7,841)
Contributions from non-controlling interests- R&DContributions from non-controlling interests- R&D624 1,997 
Contributions from non-controlling interests- otherContributions from non-controlling interests- other1,573 220 
Net cash (used in)/provided by financing activities(226,670)542,524 
Net cash used in financing activitiesNet cash used in financing activities(220,966)(226,670)
Net change in cash and cash equivalentsNet change in cash and cash equivalents(299,870)251,874 Net change in cash and cash equivalents250,469 (299,870)
Cash and cash equivalents, beginning of periodCash and cash equivalents, beginning of period1,008,680 246,199 Cash and cash equivalents, beginning of period1,541,048 1,008,680 
Cash and cash equivalents, end of periodCash and cash equivalents, end of period$708,810 $498,073 Cash and cash equivalents, end of period$1,791,517 $708,810 

See accompanying notes to these unaudited condensed consolidated financial statements.

45

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



1. Organization and Purpose

Royalty Pharma plc is an 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”(“ IPO”) of our Class A ordinary shares that was completed in June 2020. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis.

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.

Following our IPO, we control 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 (the “RP Holdings Class A Interests”) 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 and include RP Holdings and its subsidiaries in our condensed consolidated financial statements.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”), for accounting and financial reporting purposes. RP Holdings is directly or indirectly owned directly by RPI US Partners 2019, LP, a Delaware limited partnership, RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”), and Royalty Pharma plc. Old RPI is a unit trust established in August 2011 under the laws of Ireland and authorized by the Central Bank of Ireland pursuant to the Unit Trusts Act, 1990. Prior to the Exchange Offer Transactions, Old RPI was owned by various partnerships (the “Legacy Investors Partnerships”).

RP Management, LLC (the “Manager”), a Delaware limited liability company, is an external adviser which is responsible for our management. RP Management (Ireland) Ltd. (“RP Ireland”), is the manager of Old RPImanagement, including our day-to-day operations. Prior to, and equivalentas a condition precedent to the boardclosing of directors ofthe IPO, we executed 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 investmentnew management of Old RPI to its parent company,agreement with the Manager in accordance with the investment objectives and policies of Old RPI.(the “Management Agreement”).

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

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

ReorganizationExchange Offer Transactions

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

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



As a result of the Exchange Offer Transactions, we own, through our subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust (“RPI Intermediate FT”), an 82% economic interest in Old RPI. Through our 82% indirect ownership of Old RPI, we are legally entitled to 82% of the economics of Old RPI’s wholly-owned subsidiaries, RPI Finance Trust, a Delaware statutory trust (“RPIFT”) and RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”), an Irish private limited company, and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”). The remaining 34% of RPCT is owned by the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly owned by Royalty Pharma Select, an Irish unit trust. 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 ceased making new investments and each of Old RPI and the Legacy Investors Partnerships became legacy entities. Following the Legacy Date, we have made and plan to make new investments through our subsidiaries, 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 “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.
IPO

On June 18, 2020, we completed our IPO on the Nasdaq Global Select Market under the ticker symbol “RPRX”, in which we issued 89,334 thousand shares of Class A ordinary shares at a price to the public of $28.00 per share, of which 71,652 thousand and 17,682 thousand shares were offered by the Company and selling shareholders, respectively. We used the net proceeds from the IPO to acquire the RP Holdings Class A Interests and, as a result, we own 100% of RP Holdings Class A Interests.

Upon consummation of the IPO, certain of the Continuing Investors agreed to exchange, pursuant to the Exchange Offer Transactions, interests in the Continuing Investors Partnerships represented by their ownership of 294,176 thousand RP Holdings Class B Interests into an aggregate of 294,176 thousand Class A ordinary shares of Royalty Pharma plc. Upon completion of the exchange, Royalty Pharma plc indirectly owned 294,176 thousand RP Holdings Class B Interests. The remaining investors in the Continuing Investors Partnerships who did not elect to exchange into Class A ordinary shares held 241,207 thousand newly issued Class B ordinary shares of Royalty Pharma plc. As a result, the Continuing Investors Partnerships held a number of our Class B ordinary shares equal to the number of RP Holdings Class B Interests indirectly held by them at such time which are exchangeable on a one-for-one basis for Class A ordinary shares of Royalty Pharma plc.

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”).

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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, 2020,2021, included in our Annual Report on 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 of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of income, revenues and expenses during the reporting period. Actual results may differ from those estimates. The results for the interim periods are not necessarily indicative of results for the full year.

The precise extentAs the United States and global economies have begun to whichrecover from the COVID-19 pandemic willwith many health and safety restrictions lifted and increased vaccine distribution, we continue to monitor the impact from the COVID-19 pandemic on our operational and financial performance will depend on various factors.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 materially impactedresulted in a material effect to our financial performanceresults of operations and liquidity and we do not believe it is reasonably likely to in the future. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in certain of our results of operations until future periods.

Basis of consolidationConsolidation

The unaudited condensed consolidated financial statements include the accounts of Royalty Pharma and all majority-owned and controlled subsidiaries, as well as variable interest entities, where we are the primary beneficiary. We consolidate based upon evaluation of our power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance. For consolidated entities where we own or are exposed to less than 100% of the economics, we record Net income attributable to non-controlling interestinterests in 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 Royalty Pharma both before and after the Exchange Date, Royalty Pharma 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 to a de minimis interest in RPCT held by RPSFT. As a result of the Exchange Offer Transactions in February 2020, a new non-controlling interest was created related toto: (1) the Legacy Investors Partnerships’ ownership of approximately 18% in Old RPI.

Following the consummation of our IPO in June 2020, 2 new non-controlling interests were created: (1) a non-controlling interest related toRPI, (2) the Continuing Investors Partnerships’ ownership in RP Holdings through their ownership of the RP Holdings Class B Interests, which amounted to approximately 35% as(3) a de minimis interest in RPCT held by RPSFT and (4) RPI EPA Holdings, LP’s (“EPA Holdings”) ownership of March 31, 2021 and (2) a non-controlling interest attributable to the RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest held by EPA Holdings, an affiliate of the Manager.Interest”). Income will not be allocated to the latter non-controlling interestEPA Holdings until certain conditions are met, which we do not expect to occur for several years.met.

All intercompany transactions and balances have been eliminated in consolidation.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Adjustment to prior period presentation

In connection with the preparation of our condensed consolidated interim financial statements for the three months ended September 30, 2020, we identified an adjustment to the classification of our short-term investments on our consolidated balance sheet, as of December 31, 2019 based on the original maturity dates of the investments. The adjustment resulted in an increase of $88.8 million to Marketable securities and a corresponding decrease to Cash and cash equivalents on the consolidated balance sheet as of March 31, 2020. The adjustments resulted in an increase of $66.7 million and a decrease of $22.1 million in cash activity related to Purchases of marketable securities and Proceeds from sales and maturities of marketable securities, respectively, within Net cash used in investing activities for the three months ended March 31, 2020, with a net impact on net cash flow from investing of $88.8 million. We evaluated the adjustment and determined that, based on our quantitative and qualitative analysis, it was not material to the condensed consolidated financial statements as of and for the three months ended March 31, 2020.

Reclassification

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

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, financial royalty assets and 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 as of March 31, 20212022 and December 31, 20202021 were held with State Street and Bank of America. Our primary operating accounts significantly exceed the FDICFederal Deposit Insurance Corporation limits.

The majority of our financial royalty assets and receivables arise from contractual royalty agreements that entitle us 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 products in which we hold royalties are marketed by leading industry participants, including, among others, AbbVie, Amgen, Bristol-Myers Squibb, Gilead, Johnson & Johnson, Lilly, Merck & Co., Pfizer, Astellas, Novartis, Biogen Roche/Genentech and Vertex. As of March 31, 20212022 and December 31, 2020,2021, Vertex, wasas the marketer and payor making upof our royalties on the largest balancecystic fibrosis franchise, accounted for 32% of our current portion of Financial royalty assets, net, accounting for 28% and 27%, respectively, asrepresented the largest individual marketer and payor of our royalties on the cystic fibrosis franchise.royalties.

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ROYALTY PHARMA PLC
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.

Recently adopted and issued accounting standards

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

Significant Accounting Policies

There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the year ended December 31, 2020.2021.

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



3. Fair Value Measurements and Financial Instruments

Fair value measurements

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

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

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

Level 3: Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable. Our Level 3 assets consist of our investments in the Series A Biohaven Preferred Shares, Series B Biohaven Preferred Shares and the Series B Forwards. See Note 5––Available for Sale Debt Securities for a description of our investments in the Series A Biohaven Preferred Shares, Series B Biohaven Preferred Shares and the Series B Forwards.

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.Cytokinetics Commercial Launch Funding

Fair value hierarchyOn 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 up to $300 million of capital (“Cytokinetics Commercial Launch Funding”) which is available in 5 tranches, including an initial tranche of $50 million that was funded upon closing. Cytokinetics is required to draw $25 million if a certain contingency is met and has the option to draw the remaining $225 million upon the occurrence of certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”). Each tranche has an interest-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.

The following is a summary ofCytokinetics Commercial Launch Funding and the inputs used to value our financial assets and liabilities measuredCytokinetics Funding Commitments are recognized at fair value as of March 31, 2021 and December 31, 2020 (in thousands):
As of March 31, 2021
Level 1Level 2Level 3Total
Assets:
Cash equivalents
Money market funds$201,439 $$$201,439 
Certificates of deposit91,660 91,660 
Marketable securities
Commercial paper369,037 369,037 
Certificates of deposit699,876 699,876 
Available for sale debt securities69,261 69,261 
Total current assets$201,439 $1,160,573 $69,261 $1,431,273 
Equity securities$244,503 $$$244,503 
Available for sale debt securities157,539 157,539 
Forwards (1)22,400 22,400 
Warrants (2)2,884 2,884 
Total non-current assets$244,503 $2,884 $179,939 $427,326 
(1)The Series B Forwards, recorded within Available for sale debt securities in the condensed consolidated balance sheetsheets. We have elected the fair value option to account for the Cytokinetics Commercial Launch Funding as of March 31, 2021, relate to our obligation to fundit most accurately reflects the acquisitionnature of the Series B Biohaven Preferred Shares.
(2)funding arrangement. The unrealized change in fair value of the funded Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments are recorded within Related to the Epizyme transaction as described in Note 4––Derivative Instruments and recorded in the non-current asset portion of Derivative financial instrumentsUnrealized losses/(gains) on available for sale debt securities inon the condensed consolidated balance sheet asstatements of March 31, 2021.operations.

The net unrealized lossMorphoSys Development Funding Bonds

On June 2, 2021, we announced a long-term strategic funding partnership with MorphoSys AG (“MorphoSys”) to support MorphoSys’ acquisition of Constellation Pharmaceuticals, Inc. (“Constellation”) that closed on July 15, 2021. As part of the funding agreement, we agreed to provide MorphoSys up to $350 million of capital (the “Development Funding Bonds”), which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million. Our commitment to fund at least $150 million of the Development Funding Bonds is recognized as the Development Funding Bond Forward. Once drawn, we expect to receive a return of 2.2 times the amount funded on equity securities still held asthe Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding is drawn. As of March 31, 2021 was a loss of $54.2 million and $119.6 million2022, MorphoSys has not drawn any amount under the Development Funding Bonds.

We have elected the fair value option to account for the three months ended March 31, 2021 and 2020, respectively.Development Funding Bond Forward as it most accurately reflects the nature of the instrument. The Development Funding Bond Forward is recorded within Available for sale debt securities in our condensed consolidated balance sheets. The unrealized change in fair value of the Development Funding Bond Forward is recorded within Unrealized losses/(gains) on available for sale debt securities on the condensed consolidated statements of operations.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



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


The tables presented below summarize the change in the combined carrying value (current and non-current) of Level 3 financial instruments, which relate to our investment in the Series A Biohaven Preferred Shares, Series B Biohaven Preferred Shares and the Series B Forwards (in thousands).
For the three months ended March 31,
20212020
Series A Biohaven Preferred Shares
Balance at the beginning of the period$214,400 $131,280 
Unrealized gains on available for sale debt securities (1)5,125 52,725 
Transfer to Level 2(184,005)
Redemption(15,625)
Balance at the end of the period$203,900 $0 

For the three months ended March 31,
20212020
Series B Biohaven Preferred Shares
Balance at the beginning of the period$$
Purchases17,585 
Settlement of forwards (2)5,315 
Balance at the end of the period$22,900 $0 

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



For the three months ended March 31,
20212020
Series B Forwards
Balance at the beginning of the period$18,600 $
Unrealized gains included in earnings (3)9,115 
Settlement of forwards (2)(5,315)
Balance at the end of the period$22,400 $0 
(1)     Recorded in other comprehensive income within Unrealized gain on available for sale debt securities on the condensed consolidated statements of comprehensive income.
(2)     Reflects the fair value attributed to the Series B Forwards that were settled in the period, which is included in the fair value of the Series B Biohaven Preferred Shares. See Note 5––Available for Sale Debt Securities.
(3)     Recorded in earnings within Unrealized gain on available for sale debt securities on the condensed consolidated statements of comprehensive income.

Valuation inputs

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

Investment in Series A Biohaven Preferred Shares

The fair value ofOn August 7, 2020, we entered into the Series AB Biohaven Preferred Shares as of March 31, 2021 and December 31, 2020 was based on the cash flows due to us fromShare Purchase Agreement (“Series B Biohaven Preferred Share Agreement”) with Biohaven Pharmaceutical Holding Company Ltd. (“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 U.S. Food and Drug Administration (“FDA”) approval and starting one-year after FDA approval, through December 31, 2024. The FDA approved Nurtec ODT (rimegepant) in February 2020, at which pointwhere we became entitled to receive a fixed payment amount of $250.0 million payable in equal quarterly payments from March 31, 2021 through December 31, 2024. For additional discussion of our investment in the Series A Biohaven Preferred Shares, see Note 5––Available for Sale Debt Securities.

The fair value of the Series A Biohaven Preferred Shares as of March 31, 2021 and December 31, 2020 was calculated using probability-adjusted discounted cash flow calculations incorporating Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability of a change of control event occurring during the investment term, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a four-year time period and developing a risk-adjusted discount rate requires significant judgement. Our estimate of a risk adjusted discount rate of 7.9% as of March 31, 2021 and 8.3% as of December 31, 2020 could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series A Biohaven Preferred Shares, which would mean that the estimated fair value could be significantly higher or lower. As of March 31, 2021 and December 31, 2020, we estimated a fair value for the Series A Biohaven Preferred Shares of $203.9 million and $214.4 million, respectively, which we classified as Available for sale debt securities in our condensed consolidated balance sheet. The unrealized movement in the fair value of the Series A Preferred Shares is recorded in other comprehensive income within Unrealized gain on available for sale debt securities on the condensed consolidated statements of comprehensive income.

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

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



Investment in Series B Biohaven Preferred Shares

We have committed to acquiringacquire 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 $200.0$200 million payable on a quarterly basis between the three months ended March 31, 2021 and the three months ended December 31, 2024 (“Series B Forwards”). As of March 31, 2021, we have acquired 351 shares of2024. Our commitment to purchase the Series B Biohaven Preferred Shares. In return,Shares is recognized as the Series B Forwards. Biohaven will be required to redeem the Series B Biohaven Preferred Shares in a series of equal fixed quarterly payments between the three months ended March 31, 2025 and the three months ended December 31, 2030 at a price equal to approximately 1.8 times the original purchase price of the Series B Biohaven Preferred Shares. If Biohaven effects any change of control event, then we will have the option to cause Biohaven to issue to us all unissued Series B Biohaven Preferred Shares and to redeem, in a single payment, any outstanding Series B Biohaven Preferred Shares at a price equal to approximately 1.8 times the original issue price per share between March 31, 2025 and December 31, 2030. For additional discussion of our investment in the Series B Biohaven Preferred Shares, see Note 5–Available for Sale Debt Securities.

The fair value of the Series B Biohaven Preferred Shares as of March 31, 2021 and the fair value of theShares. Biohaven may redeem at their election, any outstanding Series B Forwards as of March 31, 2021 and December 31, 2020 were based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates andBiohaven Preferred Shares, in a single payment, at a price equal to approximately 1.8 times the probability that there will be a change of control event in different periods of time, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a 10-year time period and developing a risk-adjusted discount rate requires significant judgement. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date. Our estimate of a risk adjusted discount rate could reasonably be different than the discount rate selected by a market participant in the event of a sale oforiginal issue price for the Series B Biohaven Preferred Shares orShares.

In the three months ended March 31, 2021, we began purchasing the Series B Forwards, which would mean that the estimated fair value could be significantly higher or lower.Biohaven Preferred Shares. As of March 31, 2022, we have acquired 1,697 shares of Series B Biohaven Preferred Shares. We have elected the fair value option to account for ourthe Series B Forwards and the Series B Biohaven Preferred Shares, which are recorded in aggregate on the condensed consolidated balance sheets as Available for sale debt securities. We believe the fair value option most accurately reflects the nature of these instruments. The unrealized change in fair value of the Series B Biohaven Preferred Shares and Series B Forwards as it most accurately reflects the nature of our investment in the Series B Biohaven Preferred Shares. The Series B Biohaven Preferred Shares and the Series B Forwards areis recorded within Available for sale debt securities in our condensed consolidated balance sheet.

The unrealized movement in fair value of the Series B Preferred Shares and Series B Forwards is recorded in earnings within Unrealized gainlosses/(gains) on available for sale debt securities on the condensed consolidated statements of comprehensive income.operations.

Other financial instruments

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

Financial assets not measured at fair value

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

March 31, 2021December 31, 2020
Fair valueCarrying value, netFair valueCarrying value, net
Financial royalty assets, net$18,464,028 $12,599,080 $18,718,179 $12,368,084 

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



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 March 31, 2021, we do not hold any interest rate swap contracts. In connection with the Exchange Offer Transactions described in Note 1–Organization and Purpose, RPIFT terminated all outstanding interest rate swaps in February 2020. We paid $35.4 million in the three months ended March 31, 2020 to terminate our swaps and reclaimed $45.3 million of collateral that was held by the respective counterparties. We did not apply hedge accounting and recognized all movement in fair value through earnings. During the three months ended March 31, 2020, we recorded unrealized losses of $10.9 million on interest rate swaps in the condensed consolidated statements of comprehensive income.

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, which Epizyme exercised in February 2020.

The warrant was recognized at fair value of $2.9 million and $5.4 million within the non-current asset portion of Derivative financial instruments on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. We recorded an unrealized loss on derivative contracts of $2.6 million and $16.7 million related to the change in the fair value of the warrants on the condensed consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020, respectively.

Biohaven written put option

We determined there was a derivative associated with the Second Tranche (as defined below) of the Series A Biohaven Preferred Shares 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 (rimegepant) was accepted by the FDA for Priority Review, to require Royalty Pharma to purchase up to an additional $75.0 million of Series A Biohaven 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.

The Biohaven written put option was not exercised and expired in the year ended December 31, 2020. See Note 5–Available for Sale Debt Securities for a description of our investment in the Series A Biohaven Preferred Shares.

Summary of derivatives and reclassifications

The table below summarizes the change in fair value of derivatives for the three months ended March 31, 2021 and 2020 and the line items within the condensed consolidated statements of comprehensive income where the (gains)/losses on derivatives are recorded (in thousands).

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



For the three months ended
March 31,
Condensed Consolidated Statement of Comprehensive Income location
20212020
Derivatives in hedging relationships (1)
Interest Rate Swaps:
Amount of loss reclassified from Accumulated Other Comprehensive Income into income$$4,066 Unrealized loss on derivative financial instruments
Change in fair value of interest rate swaps(73)Unrealized loss on derivative financial instruments
Interest expense114 Interest expense
Derivatives not designated as hedging instruments
Interest Rate Swaps:
Change in fair value of interest rate swaps6,908 Unrealized loss on derivative financial instruments
Interest expense408 Interest expense
Warrant:
Change in fair value of warrant2,555 16,744 Unrealized loss on derivative financial instruments
Forward purchase contract:
Change in fair value of forward purchase contract5,800 Unrealized loss on derivative financial instruments
(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 Accumulated Other Comprehensive Income have been released into earnings.

5. Available for Sale Debt Securities

Series A Biohaven Preferred Shares

On April 5, 2019, RPIFT funded the purchase of 2,495 Series A Biohaven Preferred Shares from Biohaven at a price of $50,100.00$50,100 per preferred share, for a total of $125.0$125 million. The approval of Nurtec ODT (rimegepant) by the FDAU.S. Food and Drug Administration (“FDA”) in February 2020 resultsresulted in a payment due to us of two2 times the original purchase price of the Series A Biohaven Preferred Shares payable in equal quarterly installments beginning onin the three months ended March 31, 2021 through the three months ended December 31, 2024. In the three months ended March 31, 2021, we received our first paymentbegan receiving payments from the quarterly redemption of the Series A Biohaven Preferred Shares. If Biohaven effects any change of control event, then we will have the option to cause Biohaven to redeem, in a single payment, any outstanding Series A Biohaven Preferred Shares at a price equal to two2 times the original purchase price of the Series A Biohaven Preferred Shares. Biohaven may redeem at their election, any outstanding Series A Biohaven Preferred Shares, in a single payment, at a price equal to two times the original purchase price. In the event that Biohaven defaults on any obligation to redeem

The Series A Biohaven Preferred Shares when required,are classified as Available for sale debt securities in our condensed consolidated balance sheets. The unrealized change in the redemption amount shall accrue interest atfair value of the rate of 18% annually until the redemption price for such unredeemed Series A Biohaven Preferred Shares is paid in full, subjectrecorded within Unrealized gains on available for sale debt securities on the condensed consolidated statements of comprehensive income. In the three months ended March 31, 2022 and 2021, $9.0 million and $15.5 million of the unrealized gains were reclassified from other comprehensive income to applicable law. If any such default continues for at least one year, we will be entitled to convert all unredeemed Series A Biohaven Preferred Shares into common shares equal toInterest income on the redemption price, plus accrued interest, divided by the five-day volume-weighted trading price immediately preceding the conversion date.

condensed consolidated statements of operations, respectively.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Series B Biohaven Preferred Shares

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

In the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares which are classified as Available for sale debt securities on the condensed consolidated balance sheet. We have elected the fair value option to account for the Series B Forwards and the Series B Biohaven Preferred Shares, which are recorded in aggregate on the condensed consolidated balance sheet as Available for sale debt securities. We believe the fair value option most accurately reflects the nature of the Series B Forwards and the associated Series B Biohaven Preferred Shares.

The table below summarizes our available for sale debt securities recorded at fair value as of March 31, 20212022 and December 31, 20202021 (in thousands):

CostUnrealized gainsFair Value (1)
As of March 31, 2021
Series A Biohaven Preferred Shares$125,121 $78,779 $203,900 
Series B Biohaven Preferred Shares17,585 5,315 22,900 
Series B Forwards22,400 22,400 
Total available for sale debt securities$142,706 $106,494 $249,200 
As of December 31, 2020
Series A Biohaven Preferred Shares$125,121 $89,279 $214,400 
Series B Forwards18,600 18,600 
Total available for sale debt securities$125,121 $107,879 $233,000 
CostUnrealized Gains/(Losses)Fair ValueCurrent AssetsNon-Current AssetsTotal
As of March 31, 2022
Debt securities (1)$271,817 $42,183 $314,000 $64,800 $249,200 $314,000 
Forwards (2)— (1,200)(1,200)— (1,200)(1,200)
Funding commitments (2)(9,400)1,000 (8,400)— (8,400)(8,400)
Total available for sale debt securities$262,417 $41,983 $304,400 $64,800 $239,600 $304,400 
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)Cost for Series A Biohaven Preferred Shares represents amortized cost. Cost for Series B Biohaven Preferred Shares represents the amounts paid to purchase the instruments. The cost associated with the funded Cytokinetics Commercial Launch Funding reflects the fair value on the purchase date.
(2)There are no costs associated with the forwards. The cost associated with the funding commitments represents the fair value on the purchase date.


4. Fair Value Measurements and Financial Instruments

Fair Value Hierarchy

We determine the fair value of assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3: Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.

Our financial instruments consist primarily of cash and cash equivalents, marketable securities, equity securities, derivatives, available for sale debt securities and long-term debt. Cash and cash equivalents, marketable securities, equity securities, derivatives and available for sale debt securities are reported at their respective fair values in 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. Long-term debt and financial royalty assets are reported at their amortized costs in our condensed consolidated balance sheets but for which fair values are disclosed. The remaining financial instruments are reported in our condensed consolidated balance sheets at amounts that approximate current fair values.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above (in thousands):
As of March 31, 2022As of December 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Cash equivalents
Money market funds$421,329 $— $— $421,329 $598,253 $— $— $598,253 
Commercial paper— 56,540 — 56,540 — 13,997 — 13,997 
Certificates of deposit— — — — — 40,954 — 40,954 
U.S. government securities— 27,598 — 27,598 — — — — 
Marketable securities
Commercial paper— 224,460 — 224,460 — 207,457 — 207,457 
Certificates of deposit— 235,699 — 235,699 — 374,415 — 374,415 
U.S. government securities— 24,062 — 24,062 — — — — 
Available for sale debt securities
Debt securities (1)— — 64,800 64,800 — — 66,000 66,000 
Total current assets$421,329 $568,359 $64,800 $1,054,488 $598,253 $636,823 $66,000 $1,301,076 
Equity securities205,100 — 62,538 267,638 226,787 — 43,013 269,800 
Available for sale debt securities
Debt securities (1)— — 249,200 249,200 — — 187,700 187,700 
Forwards (2)— — (1,200)(1,200)— — 16,700 16,700 
Funding commitments (3)— — (8,400)(8,400)    
Total non-current assets$205,100 $ $302,138 $507,238 $226,787 $ $247,413 $474,200 
(1)Reflects the fair value of the Series A Biohaven Preferred Shares and Series B Biohaven Preferred Shares. As of March 31, 2022, amounts also include the fair value of the funded Cytokinetics Commercial Launch Funding.
(2)Relates to our obligations to fund the acquisitions of the Series B Biohaven Preferred Shares and Development Funding Bonds.
(3)Reflects the fair value of the Cytokinetics Funding Commitments.

For the three months ended March 31, 2022 and 2021, $69.3we recognized losses of $36.2 million and $134.6$39.0 million, respectively, on equity securities still held as of March 31, 2022.

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Equity SecuritiesDebt SecuritiesForwardsFunding CommitmentsEquity SecuritiesDebt SecuritiesForwardsFunding Commitments
Balance at the beginning of the period$43,013 $253,700 $16,700 $ $ $214,400 $18,600 $ 
Purchases— 64,579 — — — 17,585 — — 
Gains/(losses) on initial recognition (1)— 9,400 — (9,400)— — — — 
Gains on equity securities19,525 — — — — — — — 
Unrealized gains included in other comprehensive losses (2)— 1,625 — — 5,125 — — 
Unrealized (losses)/gains included in earnings (3)— (1,600)(15,979)1,000 — — 9,115 — 
Settlement of forwards (4)— 1,921 (1,921)— — 5,315 (5,315)— 
Redemption of debt securities— (15,625)— — — (15,625)— — 
Balance at the end of the period$62,538 $314,000 $(1,200)$(8,400)$ $226,800 $22,400 $ 
(1)Represents the adjustment to the purchase price to arrive at the appropriate fair value on initial recognition.
(2)Recorded within Unrealized gains on available for sale debt securities in the condensed consolidated statements of comprehensive income for unrealized gains related to Series A Biohaven Preferred Shares are recorded in the current and non-current asset portion of Shares.
(3)AvailableRecorded within Unrealized losses/(gains) on available for sale debt securities, respectively, onin the condensed consolidated balance sheet. Asstatements of December 31, 2020, $70.0 million and $144.4 million related to the Series A Preferred Shares were recorded as the current and non-current asset portion of Availableoperations for sale debt securities, respectively, on the condensed consolidated balance sheet. As of March 31, 2021 and December 31, 2020, balancesunrealized losses/(gains) related to Series B Biohaven Preferred Shares and Series B Forwards are recordedfor the three months ended March 31, 2022 and 2021. For the three months ended March 31, 2022, amounts also reflect unrealized losses related to the Development Funding Bond Forward and unrealized gains related to the funded Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments.
(4)Reflects the fair value attributed to the Series B Forwards that were settled simultaneously with the acquisition of the Series B Biohaven Preferred Shares, which is included in the non-current portionfair value of the Series B Biohaven Preferred Shares.
Available
Valuation Inputs

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

Cytokinetics Commercial Launch Funding

The fair value of the funded Cytokinetics Commercial Launch Funding as of March 31, 2022 was based on 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 in the event of a sale of the instrument, 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.

The fair value of the Cytokinetics Funding Commitments as of March 31, 2022 was determined 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 13.2%. 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 in the event of a sale of the instrument, which would mean that the estimated fair value could be significantly higher or lower.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


BioCryst Equity Securities

In November 2021, we purchased 3,846 thousand shares of common stock in BioCryst Pharmaceuticals, Inc. (“BioCryst”), calculated based on the volume-weighted average price of BioCryst common stock over a period preceding the closing of the transaction. As part of the transaction, we are restricted from selling the common stock for six months following the close of the transaction. The fair value of the BioCryst common stock as of March 31, 2022 and December 31, 2021 was 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 common stock to match the duration of the transfer restriction. This methodology incorporates Level 3 inputs, including the estimated volatility of the BioCryst common stock, which requires the use of significant judgement. Our estimated volatility could be reasonably different than the actual volatility for the common stock which would mean that the estimated fair value for the common stock could be significantly higher or lower than the fair value determined by management at any particular date.

MorphoSys Development Funding Bonds

The fair value of the Development Funding Bond Forward as of March 31, 2022 and December 31, 2021 was based on a discounted cash flow calculation using an estimated risk-adjusted discount rate, which is a Level 3 fair value input. Our estimate of a risk adjusted discount rate could reasonably be different than the discount rate selected by a market participant in the event of a sale of the instrument, which would mean that the estimated fair value could be significantly higher or lower.

Series B Biohaven Preferred Shares

The fair value of the Series B Biohaven Preferred Shares and Series B Forwards as of March 31, 2022 and December 31, 2021 were based on probability-adjusted discounted cash flow calculations using Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability that there will be a change of control event in different periods of time, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over the duration of the Series B Biohaven Preferred Shares and developing a risk-adjusted discount rate requires significant judgement. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date. Our estimate of a risk adjusted discount rate could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series B Biohaven Preferred Shares or the Series B Forwards, which would mean that the estimated fair value could be significantly higher or lower.

Series A Biohaven Preferred Shares

The fair value of the Series A Biohaven Preferred Shares as of March 31, 2022 and December 31, 2021 was based on the cash flows due to us from Biohaven of two times 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. The FDA approved Nurtec ODT in February 2020, at which point we became entitled to receive a fixed payment amount of $250 million payable in equal quarterly payments between the three months ended March 31, 2021 and the three months ended December 31, 2024.

The fair value of the Series A Biohaven Preferred Shares as of March 31, 2022 and December 31, 2021 was calculated using probability-adjusted discounted cash flow calculations incorporating Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rates and the probability of a change of control event occurring during the investment term, which would result in accelerated payments and redemptions. Assessing the probability that there will be a change of control event over a four-year time period and developing a risk-adjusted discount rate requires significant judgement. Our estimate of a risk adjusted discount rate of 10.5% and 9.5% as of March 31, 2022 and December 31, 2021, respectively, could reasonably be different than the discount rate selected by a market participant in the event of a sale of the Series A Biohaven Preferred Shares, which would mean that the estimated fair value could be significantly higher or lower.

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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 with the help of third party pricing services that either provide quoted market prices in active markets for identical or similar securities or observable inputs for their pricing without applying significant adjustments.

Financial Assets Not Measured at Fair Value

Financial royalty assets are measured and carried on the condensed consolidated balance sheets.sheets at amortized cost using the effective interest method. The current portion of financial royalty assets approximates fair value. The fair value of financial royalty assets is calculated by management using the forecasted royalty payments we expect to receive based on the projected product sales for all royalty bearing products as estimated by sell-side equity research analysts’ consensus sales forecasts or, 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 Level 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. Estimated fair values based on Level 3 inputs and related carrying values for the non-current portion of our financial royalty assets as of March 31, 2022 and December 31, 2021 are presented below (in thousands):

March 31, 2022December 31, 2021
Fair ValueCarrying Value, netFair ValueCarrying Value, net
Financial royalty assets, net$18,639,293 $13,467,211 $19,047,183 $13,718,245 

6.5. 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 us and our subsidiaries to receive a portion of income from the sale of thosesuch products by unrelated companies.third parties.

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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 as of March 31, 20212022 and December 31, 20202021 are as follows (in thousands):
March 31, 2021Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (e)
As of March 31, 2022
Estimated Royalty Duration (1)Gross Carrying ValueCumulative Allowance for Changes in Expected Cash Flows (Note 6)Net Carrying Value (5)
Cystic fibrosis franchiseCystic fibrosis franchise2037 (b)$5,292,904 $(53,092)$5,239,812 Cystic fibrosis franchise2037 (2)$5,328,216 $— $5,328,216 
TysabriTysabri(c)1,967,974 (114,354)1,853,620 Tysabri(3)1,801,152 (30,613)1,770,539 
ImbruvicaImbruvica2027-20291,416,270 (110,285)1,305,985 Imbruvica2027-20321,439,186 (345,780)1,093,406 
XtandiXtandi2027-20281,136,270 (188,417)947,853 Xtandi2027-20281,081,587 (196,958)884,629 
TremfyaTremfya2031-2032869,596 — 869,596 
EvrysdiEvrysdi2030-2035 (d)688,189 688,189 Evrysdi2030-2035 (4)736,665 (20,797)715,868 
Promacta2025-2028658,287 658,287 
OtherOther2020-20393,517,660 (730,280)2,787,380 Other2020-20394,661,059 (1,024,195)3,636,864 
TotalTotal$14,677,554 $(1,196,428)$13,481,126 Total$15,917,461 $(1,618,343)$14,299,118 
Less: Cumulative allowance for credit losses (Note 7)(359,658)
Less: Cumulative allowance for credit losses (Note 6)Less: Cumulative allowance for credit losses (Note 6)(261,223)
Total financial royalty assets, netTotal financial royalty assets, net$13,121,468 Total financial royalty assets, net$14,037,895 
a)(1)Dates shown represent management’sour estimates as of the current reporting date of when a royalty will substantially end, which may depend on ourclinical 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. Royalty expiration dates can change due to patent, regulatory, commercial or other developments. There can be no assurances that our royalties will expire when expected.
b)(2)Royalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on timing of potential generic entry.
c)(3)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management has applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed.
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.
e)(5)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 7—6– Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information.

December 31, 2020Estimated royalty duration (a)Gross carrying valueCumulative allowance for changes in expected cash flows (Note 7)Net carrying value (e)
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 franchiseCystic fibrosis franchise2037 (b)$5,274,896 $$5,274,896 Cystic fibrosis franchise2037 (2)$5,335,641 $(48,636)$5,287,005 
TysabriTysabri(c)2,003,797 (112,720)1,891,077 Tysabri(3)1,846,069 (16,617)1,829,452 
ImbruvicaImbruvica2027-20291,406,291 (46,872)1,359,419 Imbruvica2027-20321,438,730 (236,871)1,201,859 
XtandiXtandi2027-20281,150,335 (145,565)1,004,770 Xtandi2027-20281,100,065 (172,101)927,964 
Promacta2025-2027686,129 686,129 
TremfyaTremfya2031-2032881,671 — 881,671 
EvrysdiEvrysdi2030-2035 (d)675,440 675,440 Evrysdi2030-2035 (4)727,774 — 727,774 
OtherOther2020-20393,022,213 (634,950)2,387,263 Other2020-20394,697,591 (909,916)3,787,675 
TotalTotal$14,219,101 $(940,107)$13,278,994 Total$16,027,541 $(1,384,141)$14,643,400 
Less: Cumulative allowance for credit losses (Note 7)(323,717)
Less: Cumulative allowance for credit losses (Note 6)Less: Cumulative allowance for credit losses (Note 6)(310,804)
Total financial royalty assets, netTotal financial royalty assets, net$12,955,277 Total financial royalty assets, net$14,332,596 
a)(1)Dates shown represent management’sour estimates as of the current reporting date of when a royalty will substantially end, which may depend on ourclinical 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. Royalty expiration dates can change due to patent, regulatory, commercial or other developments. There can be no assurances that our royalties will expire when expected.
b)(2)Royalty is perpetual; year shown represents Trikafta expected patent expiration and potential sales decline based on timing of potential generic entry.
c)(3)Under terms of the agreement, RPIFT acquired a perpetual royalty on net sales of Tysabri. Management has applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed by the management.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.
e)(5)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 7—6– Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information.

15
7.

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

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

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

16

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



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

The periodic movement in the cumulative allowance is presented on the condensed consolidated statements of comprehensive income as the Provision for changes in expected future cash flows from financial royalty assets.

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 our portfolio of financial royalty assets. The current period provision for changes in expected cash flows from financial royalty assets reflects the activity for the period that relates to the change in estimates applied to calculate the allowance for credit losses, namely anyprimarily associated with new financial royalty assets with limited protective rights and changes in the underlying cash flow forecasts used in the effective interest model to measure income from ourof financial royalty assets. Refer to Note 2Summary of Significant Accounting Policies for further information.assets with limited protective rights.

The following tables settable 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 (in thousands):
Activity for the periodPeriod
Balance at December 31, 2020 (a)2021 (1)$(1,263,824)(1,694,945)
Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets(283,617)(319,191)
Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets27,29684,989 
Current period provision for credit losses, (b)net (2)(35,941)49,581 
Balance at March 31, 20212022$(1,556,086)(1,879,566)
(a)     (1)Includes $323.7$310.8 million related to cumulative allowance for credit losses.
(b)     Primarily related to provision for credit losses resulting from increases to our portfolio of financial royalty assets in(2)In the three months ended March 31, 2021, predominantly2022, the $100.0 million increaseprovision income for credit losses was primarily related to our zavegepanta significant decline in the financial royalty asset related to the funding payment we made to Biohaven upon the start of the oral zavegepant Phase 3 program and a new royalty interest in the cabozantinib products.value for Tazverik.

8.7. Intangible Royalty Assets, Net

The following schedules of the intangible royalty assets presenttables summarize the cost, accumulated amortization and net carrying value of our intangible royalty assets as of March 31, 20212022 and December 31, 20202021 (in thousands).:
As of March 31, 2021CostAccumulated amortizationNet carrying value
As of March 31, 2022As of March 31, 2022CostAccumulated AmortizationNet Carrying Value
DPP-IV patentsDPP-IV patents$606,216 $583,221 $22,995 DPP-IV patents$606,216 $606,216 $— 
Total intangible royalty assetsTotal intangible royalty assets$606,216 $583,221 $22,995 Total intangible royalty assets$606,216 $606,216 $— 
As of December 31, 2020CostAccumulated amortizationNet carrying value
As of December 31, 2021As of December 31, 2021CostAccumulated AmortizationNet Carrying Value
DPP-IV patentsDPP-IV patents$606,216 $577,550 $28,666 DPP-IV patents$606,216 $600,546 $5,670 
Total intangible royalty assetsTotal intangible royalty assets$606,216 $577,550 $28,666 Total intangible royalty assets$606,216 $600,546 $5,670 

The DPP-IV patents associated with the intangible royalty assets terminate at various dates up to 2022. The weighted average remaining lifewere fully amortized as of the intangible royalty assets is one year. We project amortization expense will be $17.3 millionMarch 31, 2022 as our royalties on Januvia and $5.7 millionJanumet expired in the remainder of 2021 and 2022, respectively.three months ended March 31, 2022. Our royalties on the other DPP-IV products have also substantially ended.

Our revenue is tied to underlying patent protected sales of other DPP-IV products of various licensees. Such revenue from royalty assets is earned from sales occurring primarily in the United States and Europe; however, we do not have the ability to disaggregate our royalty revenue from licensees based on the geography of the underlying sales, as this level of information is not always included in royalty reports provided to us. The marketers paying us royalties on these products do not always provide, and are not necessarily required to provide, the breakdown of product sales by geography. Individual licensees exceeding 10% or more of revenue from intangible royalty assets accounted for 99%96% and 94%99% of our revenues from intangible royalty assets in the three months ended March 31, 20212022 and 2020,2021, respectively.

17
16

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




9.8. 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.

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”) from the Continuing Investors Partnerships for $303.7 million in exchange for issuing shares in 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. The Legacy Investors Partnerships no longer participate in investment opportunities from 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 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 historical results in the subsequent period. During the three months ended March 31, 2022 and 2021, we received cash distributions of $3.9 million from the Legacy Investors Partnerships and recorded an income allocation of $4.5 million and $5.2 million, respectively, withinEquity in loss(earnings)/losses of non-consolidated affiliatesequity method investees. DuringWe received cash distributions from the Legacy SLP Interest of $7.3 million and $3.9 million in the three months ended March 31, 2020, we received cash distributions of $6.9 million from the Legacy Investors Partnerships2022 and recorded an income allocation of $3.2 million related to the period subsequent to the Exchange Date, for which the income allocation was recorded within Equity in loss of non-consolidated affiliates.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, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the entities. During the three months ended March 31, 20212022 and 2020,2021, we recorded a loss allocation from the Avillion Entities of $7.1$4.1 million and $12.2$7.1 million, respectively, within Equity in loss(earnings)/losses of non-consolidated affiliatesequity 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.approval under its co-development agreement with Pfizer. Subsequent to the asset sale, the only operations of Avillion I are the collection of cash and unwinding of discount on the series of fixed annual payments due from Pfizer. We received distributions from Avillion I of $13.4 million from Avillion I during each of the three months ended March 31, 20212022 and 2020, respectively,2021 in connection with Avillion I’s receipt of the fixed annual payments due under its co-development agreement with Pfizer.

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

In May 2018, RPIFT entered into an additional agreement, which was amended in July 2021, to invest up to $105.0$122.5 million in Avillion II, which is a party to a co-development agreement with AstraZeneca, over multiple years to fund approximately 44%a portion of the costs of Phase 2 and 3 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.

As of March 31, 20212022 and December 31, 2020,2021, RPIFT had $19.9$8.2 million and $28.6$11.2 million, respectively, of unfunded commitments related to the Avillion Entities. Our maximum exposure to loss at any particular reporting date is limited to the current carrying value of the investment plus the unfunded commitments.

1817

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



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

R&D funding expense consists of upfront and ongoing development-stage funding payments that we have made to counterparties to acquire royalties and/or milestones on product candidates. Upfront development-stage funding includes payments made at the close of acquisitions and subsequent milestone payments. Ongoing development-stage funding payments are made as the related product candidates undergo clinical trials with our counterparties. During the three months ended March 31, 2022 and 2021, we did not enter into any new ongoing R&D funding arrangements.

We recognized R&D funding expense of $100.5 million and $2.6 million during the three months ended March 31, 2022 and $7.62021, respectively. R&D funding expense for the three months ended March 31, 2022 primarily related to upfront and milestone development-stage funding payments of $100.0 million ofto Cytokinetics to acquire a royalty on a development-stage product candidate. R&D funding expense for the three months ended March 31, 2021 and 2020, respectively, primarily related to ongoing development-stage funding paymentsR&D expenses under our co-funding agreement with Sanofi.

As of March 31, 20212022, we have a remaining commitment of $13.9$10.5 million related to our R&D funding agreement with Sanofi.

11.10. Borrowings

Our borrowings as of March 31, 20212022 and December 31, 20202021 consisted of the following (in thousands):

Type of BorrowingMaturityInterest rateMarch 31, 2021December 31, 2020
Senior Unsecured Notes:
Senior unsecured notes (issued at 99.322% of par)9/20230.75%$1,000,000 $1,000,000 
Senior unsecured notes (issued at 98.875% of par)9/20251.20%1,000,000 1,000,000 
Senior unsecured notes (issued at 98.284% of par)9/20271.75%1,000,000 1,000,000 
Senior unsecured notes (issued at 97.760% of par)9/20302.20%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.556% of par)9/20403.30%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.306% of par)9/20503.55%1,000,000 1,000,000 
Senior Unsecured Revolving Credit Facility
Unamortized debt discount and issuance costs(178,928)(183,416)
Total debt carrying value5,821,072 5,816,584 
Less: Current portion of long-term debt0
Total long-term debt$5,821,072 $5,816,584 
Type of BorrowingDate of IssuanceMaturityMarch 31, 2022December 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(198,862)(203,930)
Total debt carrying value7,101,138 7,096,070 
Less: Current portion of long-term debt— 
Total long-term debt$7,101,138 $7,096,070 

Senior Unsecured Notes

On September 2, 2020,July 26, 2021, we issued $6.0$1.3 billion of senior unsecured notes (the “Notes”“2021 Notes”). Our obligations under the Notes are fully comprised of $600.0 million principal amount of notes due September 2031 and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary.$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 arrears on March 2 and September 2 of each year, commencedbeginning on March 2, 2021.2022. The 2021 Notes were issued at a total discount of $149.0 million. We$27.5 million and we capitalized approximately $40.4$12.3 million in debt issuance costs primarily composed of underwriting fees. The 2021 Notes have a weighted average coupon rate and a weighted average effective interest rate of 2.80% and 3.06%, respectively.

On 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 repay in full the outstanding principal amounts of term loans under our prior senior secured credit facilities. Interest on each series of the 2020 Notes accrues at the 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 thewe capitalized approximately $40.4 million in debt issuance costs are recorded as a direct deduction from the carrying amountprimarily comprised of the Notes on our condensed consolidated balance sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity.underwriting fees. The 2020 Notes have a weighted average coupon rate and a weighted average effective interest rate of 2.125% and 2.50% as of March 31, 2021, respectively.
18

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

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

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

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 March 31, 2021,2022, we were in compliance with all applicable covenants.

We usedAs of March 31, 2022 and December 31, 2021, the net proceeds from thefair value of our outstanding Notes offering, together with available cash on hand, to repay in full the senior secured credit facilities.using Level 2 inputs was approximately $6.4 billion and $7.2 billion, respectively.

19

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



Senior Unsecured Revolving Credit Facility

On September 18, 2020,15, 2021, we entered into an amended and restated revolving credit agreement (the “Credit Agreement”). The Credit Agreement amends and restates the existing 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”) which provides forwith borrowing capacity of up to $1.5 billion for general corporate purposes. We capitalized approximately $6.1 million in debt issuance costs relatedThe Credit Agreement extends the maturity of the Revolving Credit Facility to the revolving credit facility which is recorded within Other current assets for the current portion and Other assets for the non-current portion.September 15, 2026. As of March 31, 20212022 and December 31, 2020,2021, there were 0no outstanding borrowings under the Revolving Credit Facility.

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

The revolving credit agreement (the “Credit Agreement”)Credit Agreement that governs the Revolving Credit Facility contains certain customary covenants, that among other things, require us to maintain (i) a consolidated leverage ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1.00 following a qualifying material acquisition) of consolidated funded debt to consolidated EBITDA, each as defined and calculated with the ratio level calculated with further adjustments as set forth in the Credit Agreement and (ii) a consolidated coverage ratio at or above 2.50 to 1.00 of consolidated EBITDA to consolidated charges,interest expense, each as defined and calculated with further adjustments as set forth in the Credit Agreement. All obligations under the Revolving Credit Facility are unconditionally guaranteed by us. 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 March 31, 2021,2022, RP Holdings was in compliance with these covenants.

Senior Secured Credit Facilities
19

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

On February 11, 2020, in connection with the Exchange Offer Transactions (as discussed in Note 1–Organization and Purpose) and using funds contributed by RPI Intermediate FT and the Legacy Investors Partnerships, RPIFT repaid its outstanding debt and accrued interest, and terminated all outstanding interest rate swaps. RPI Intermediate FT, as borrower, entered into a term loan credit agreement (the “Senior Secured Credit Agreement”) with Bank of America, N.A., as administrative agent, the lenders party thereto from time to time and the other parties thereto. The senior secured credit facilities contained in the Senior Secured Credit Agreement consisted 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. In September 2020, we repaid in whole the outstanding principal amounts of term loans under the senior secured credit facilities governed by the Senior Secured Credit Agreement with net proceeds from the Notes and available cash on hand.

RPIFT Senior Secured Credit Facilities

The RPIFT Senior Secured Credit Facilities were repaid in full in February 2020 in connection with the Exchange Offer Transactions. We recorded a loss on debt extinguishment of $5.4 million as part of Other non-operating (income)/expense, net, during the three months ended March 31, 2020.

Principal Payments on the Notes

The future principal payments for our borrowings as of March 31, 20212022 over the next five years and thereafter are as follows (in thousands):

YearYearPrincipal PaymentsYearPrincipal Payments
Remainder of 2021$
2022
Remainder of 2022Remainder of 2022$— 
202320231,000,000 20231,000,000 
202420242024— 
202520251,000,000 20251,000,000 
20262026— 
ThereafterThereafter4,000,000 Thereafter5,300,000 
Total (1)Total (1)$6,000,000 Total (1)$7,300,000 
(1)Excludes unamortized debt discount and loan issuance costs on long-term debt of $178.9$198.9 million as of March 31, 2021,2022, which are amortized through interest expense over the remaining life of the underlying debt obligations.

20

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



As of March 31, 2021, the fair value of our outstanding Notes was approximately $5.8 billion and is classified as a Level 2 measurement within the fair value hierarchy.

12.11. Shareholders’ Equity

Capital structureStructure

Following the completion of our IPO as discussed in Note 1–Organization and Purpose, weWe have two2 classes of voting shares: Class A ordinary shares and Class B ordinary shares, each of which has one1 vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company.

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by the Board of Directors. The holders of Class B shares do not have any rights to receive dividends; however, the RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. As of March 31, 2021, we have outstanding 392,857 thousand Class A ordinary shares and 214,255 thousand Class B ordinary shares.

The RP Holdings Class B Interests are exchangeable on a one-for-one basis for our Class A ordinary shares pursuant to anAn 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”) that governs the exchange of RP Holdings Class B Interests held by the Continuing Investors Partnerships for Class A ordinary shares. Pursuant to the Exchange Agreement, the Continuing Investors Partnerships have the ability to exchange their RP Holdings Class B interests are exchangeable on a one-for-one basis for Class A ordinary shares on a quarterly basis. As of March 31, 2022, we have outstanding 435,316 thousand Class A ordinary shares and 171,862 thousand Class B ordinary shares. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. As of March 31, 2021,2022, we have outstanding deferred shares of 321,128363,521 thousand.

In addition, we have in issue 50 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 our option in the future. Any such redemption would be at the nominal value of £1 each.

Non-controlling interests
20

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

Non-Controlling Interests

Prior to the Exchange Offer Transactions in February 2020, the only non-controlling interest related to RPSFT, for which the related movements are presented in the historical statements of shareholders’ equity. The net change in the balance of our four4 non-controlling interests for the three months ended March 31, 2022 and 2021 and 2020 areis as follows (in thousands):

RPSFTLegacy Investors PartnershipsContinuing Investors Partnerships (1)EPA HoldingsTotal
December 31, 2020$12,436 $1,939,509 $3,125,091 $0 $5,077,036 
Contributions— 3,253 — 3,253 
Distributions(13,653)(94,542)(37,183)— (145,378)
Net income15,058 36,257 38,545 — 89,860 
Other exchanges— — (65,072)— (65,072)
Other comprehensive income:
Unrealized gain on available for sale debt securities— 901 1,512 — 2,413 
Reclassification of unrealized gain on available for sale debt securities— (2,723)(4,571)— (7,294)
March 31, 2021$13,841 $1,882,655 $3,058,322 $0 $4,954,818 
RPSFTLegacy Investors PartnershipsContinuing Investors Partnerships (1)EPA HoldingsTotal
December 31, 2021$13,528 $1,809,269 $2,649,154 $ $4,471,951 
Contributions— 1,970 1,353 — 3,323 
Distributions(10,260)(104,201)(34,515)— (148,976)
Other exchanges— — (35,284)— (35,284)
Net Income5,141 50,520 20,661 — 76,322 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— 286 382 — 668 
Reclassification of unrealized gains on available for sale debt securities— (1,575)(2,105)— (3,680)
March 31, 2022$8,409 $1,756,269 $2,599,646 $ $4,364,324 
(1)Related to the Continuing Investors Partnerships’ ownership as of March 31, 2022 of approximately 28% of RP Holdings through their ownership of the RP Holdings Class B Interests. Royalty Pharma plc owns the remaining 72% of RP Holdings through its ownership of RP Holdings Class A Interests and RP Holdings Class B Interests as of March 31, 2022.

RPSFTLegacy Investors PartnershipsContinuing Investors Partnerships (1)EPA HoldingsTotal
December 31, 2020$12,436 $1,939,509 $3,125,091 $ $5,077,036 
Contributions— 3,253 — — 3,253 
Distributions(13,653)(94,542)(37,183)— (145,378)
Other exchanges— — (65,072)— (65,072)
Net income15,058 36,257 38,545 — 89,860 
Other comprehensive income:
Unrealized gains on available for sale debt securities— 901 1,512 — 2,413 
Reclassification of unrealized gains on available for sale debt securities— (2,723)(4,571)— (7,294)
March 31, 2021$13,841 $1,882,655 $3,058,322 $ $4,954,818 
(1)Related to the Continuing Investors Partnerships’ ownership as of March 31, 2021 of approximately 35% inof RP Holdings through their ownership of the RP Holdings Class B Interests. Royalty Pharma plc owns the remaining 65% of RP Holdings through its ownership of RP Holdings Class A Interests and RP Holdings Class B Interests as of March 31, 2021.
21

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



RPSFTLegacy Investors PartnershipsTotal
December 31, 2019$35,883 $0 $35,883 
Contributions— 1,133,629 1,133,629 
Transfer of interests— 1,037,161 1,037,161 
Distributions(29,246)(222,180)(251,426)
Net income24,926 12,930 37,856 
Other comprehensive income:
Unrealized gain on available for sale debt securities— 9,672 9,672 
March 31, 2020$31,563 $1,971,212 $2,002,775 

RP Holdings Class C Special Interest heldHeld by EPA Holdings

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

21

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

Dividends

WeThe holders of Class A ordinary shares are entitled to receive dividends subject to approval by the board of directors. The holders of Class B ordinary shares do not have any rights to receive dividends; however, the RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. In the three months ended March 31, 2022, we declared and paid one quarterly cash dividend of $0.19 per Class A ordinary share for an aggregate amount of $66.0$82.3 million or $0.17 per share during the three months ended March 31, 2021 to holders of our Class A ordinary shares. We did not have any Class A ordinary shares outstanding inIn the three months ended March 31, 2020. Future dividends are subject2021, we declared and paid one quarterly cash dividend of $0.17 per Class A ordinary share for an aggregate amount of $66.0 million to declaration by the boardholders of directors.our Class A ordinary shares.

2020 Independent Directors Equity Incentive Plan

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

RSU activityActivity and share-based compensationShare-based Compensation

We grant RSUs to our independent directors under the 2020 Independent Director Equity Incentive Plan. Share-based compensation expense is recognized based on estimated fair value of the award on the grant date and amortized on a straight-line basis over the requisite service period of generally one year. We recognized share-based compensation of approximately $0.9 million for the three months ended March 31, 2021, which is recordedyear as part of General and administrative expenses in the condensed consolidated statementstatements of comprehensive income.operations. We recognized share-based compensation expense of approximately $0.7 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively.

There were 0 share-based awards or related share-based compensation in periods prior to the IPO.

22

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



13.12. Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to us by the weighted average number of Class A ordinary shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to us, including the impact of potentially dilutive securities, by the weighted average number of Class A ordinary shares outstanding during the period, including the number of Class A ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include the outstanding Class B ordinary shares, Class B ordinary shares contingently issuable to EPA Holdings related to Equity Performance Awards, and unvested RSUs issued under our 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.

Prior to the IPO, our capital structure included predominantly unitholder interests. We analyzed the calculation of earnings per interest for periods prior to the IPO and determined that the resultant values would not be meaningful to the users of these unaudited condensed consolidated financial statements. Therefore, earnings per share information has not been presented for the three months ended March 31, 2020.

Our 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 shares of Class B ordinary shares, together with the related RP Holdings Class B Interests, are exchangeable into Class A ordinary shares on a one-for-one1-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 months ended March 31, 2022 and 2021, Class B ordinary shares contingently issuable to EPA Holdings were evaluated and were determined not to have any dilutive impact for the three months ended March 31, 2021.impact.

22

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

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A ordinary share for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts).:
For the Three Months Ended March 31,
20222021
Numerator
Consolidated net income$128,083 $158,979 
Less: Net income attributable to Continuing Investors Partnerships20,661 38,545 
Less: Net income attributable to Legacy Investors Partnerships and RPSFT55,661 51,315 
Net income attributable to Royalty Pharma plc - basic51,761 69,119 
Add: Reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B ordinary shares20,661 38,545 
Net income attributable to Royalty Pharma plc - diluted$72,422 $107,664 
Denominator
Weighted average Class A ordinary shares outstanding - basic433,956 389,760 
Add: Dilutive effects as shown separately below
Class B ordinary shares exchangeable for Class A ordinary shares173,220 217,350 
Unvested RSUs25 38 
Weighted average Class A ordinary shares outstanding - diluted607,201 607,148 
Earnings per Class A ordinary share - basic$0.12 $0.18 
Earnings per Class A ordinary share - diluted$0.12 $0.18 

Three Months Ended March 31, 2021

Numerator:
Consolidated Net Income$158,979 
Less: Net income attributable to Continuing Investor Partnerships38,545 
Less: Net income attributable to non-controlling interest - Legacy Investors Partners and RPSFT51,315 
Net income attributable to Royalty Pharma plc - basic69,119 
Add: Reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B ordinary shares38,545 
Net income attributable to Royalty Pharma plc - diluted$107,664 
Denominator
Weighted average Class A ordinary shares outstanding - basic389,760
Add: Dilutive effects as shown separately below
Class B ordinary shares exchangeable for Class A ordinary shares217,350
Unvested RSUs38
Weighted average Class A ordinary shares outstanding - diluted607,148
Earnings per Class A ordinary share - basic$0.18 
Earnings per Class A ordinary share - diluted$0.18 




23

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



14.13. Indirect Cash Flow

Adjustments to reconcile consolidated net income to net cash provided by operating activities are summarized below (in thousands).:
For the Three Months Ended March 31,
20212020
Cash flow from operating activities:
Consolidated net income$158,979 $109,096 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from financial royalty assets(529,625)(462,844)
Provision for changes in expected cash flows from financial royalty assets292,262 88,012 
Amortization of intangible assets5,671 5,733 
Amortization of debt discount and issuance costs4,790 2,478 
Unrealized loss on derivative contracts2,555 33,445 
Loss on equity securities54,186 153,166 
Equity in loss of non-consolidated affiliates1,918 9,074 
Distributions from non-consolidated affiliates17,325 20,293 
Loss on extinguishment of debt5,406 
Share-based compensation713 
Interest income accretion(15,491)
Unrealized gain on available for sale debt securities(9,115)
Loss on derivative financial instruments(34,952)
Other958 3,469 
Decrease/(increase) in operating assets:
Cash collected on financial royalty assets573,946 488,028 
Accrued royalty receivable(299)(196)
Other royalty income receivable(530)(2,619)
Other current assets1,939 40 
Other assets45,007 
(Decrease)/increase in operating liabilities:
Accounts payable and accrued expenses(2,207)8,468 
Interest payable(31,875)
Net cash provided by operating activities$526,100 $471,104 

Non-cash investing and financing activities are summarized below (in thousands).
For the Three Months Ended March 31,
20212020
Supplemental schedule of non-cash investing / financing activities:
Receipt of contribution of investment in Legacy Investors Partnerships (Note 9)$$303,679 
Settlement of Epizyme forward purchase contract (Note 4)5,700 
Accrued purchase obligation - Tazverik (Note 17)110,000 
Repayments of long-term debt by contributions from non-controlling interest (1)1,103,774 
(1) Related to the pro rata portion of RPIFT’s outstanding debt repaid by the Legacy Investors Partnerships
For the Three Months Ended March 31,
20222021
Cash flow from operating activities:
Consolidated net income$128,083 $158,979 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from financial royalty assets(511,523)(529,625)
Provision for changes in expected cash flows from financial royalty assets184,621 292,262 
Amortization of intangible assets5,670 5,671 
Amortization of debt discount and issuance costs5,343 4,790 
Losses on derivative financial instruments— 2,555 
Losses on equity securities36,162 54,186 
Equity in (earnings)/losses of equity method investees(397)1,918 
Distributions from equity method investees20,690 17,325 
Share-based compensation496 713 
Interest income accretion(8,954)(15,491)
Unrealized losses/(gains) on available for sale debt securities16,579 (9,115)
Other1,523 958 
Decrease/(increase) in operating assets:
Cash collected on financial royalty assets621,689 573,946 
Accrued royalty receivable2,096 (299)
Other royalty income receivable405 (530)
Other current assets and other assets1,242 1,939 
Increase/(decrease) in operating liabilities:
Accounts payable and accrued expenses1,042 (2,207)
Interest payable(44,497)(31,875)
Net cash provided by operating activities$460,270 $526,100 

15. Accumulated Other Comprehensive Income14. Commitments and Contingencies

Comprehensive income is comprised of net income and other comprehensive income/(loss). Funding Commitments

We include unrealized gains and losses on available for sale debt securities related to Series A Biohaven Preferred Shares, which is the only component of accumulated other comprehensive incomehave various funding commitments as of March 31, 2021 and December 31, 2020. As a result2022 as summarized below. See Note 3– Available for Sale Debt Securities for additional discussion of the terminationrespective arrangements.

Cytokinetics Commercial Launch Funding

As of interest rate swaps in February 2020, all amounts associated with interest rate swaps previously designated as cash flow hedgesMarch 31, 2022, $250 million of the Cytokinetics Commercial Launch Funding remained unfunded. Cytokinetics is required to draw $25 million if a certain contingency is met and recorded in accumulated other comprehensive income were released into earnings duringhas the option to draw the remaining $225 million upon the occurrence of certain regulatory and clinical development milestones.

MorphoSys Development Funding Bonds

As of March 31, 2022, $350 million of the MorphoSys Development Funding Bondsremained unfunded. MorphoSys is required to draw a minimum of $150 million over a one-year period from July 15, 2021, the close of its acquisition of Constellation.

Series B Biohaven Preferred Shares

As of March 31, 2022, we have a remaining commitment of $115.0 million under the Commercial Launch Preferred Equity to purchase 2,295 shares of Series B Biohaven Preferred Shares on a quarterly basis through the three months ended MarchDecember 31, 2020.2024.
24

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



Other Commitments

ChangesWe have commitments to advance funds to counterparties through our investment in accumulated other comprehensive incomethe Avillion Entities and R&D arrangements. Please refer to Note 8– Non-Consolidated Affiliates and Note 9– Research & Development (“R&D”) Funding Expense, respectively, for details of these arrangements. We also have requirements to make Operating and Personnel Payments over the life of the management agreement as described in Note 15– Related Party Transactions, which are as follows (in thousands):
Unrealized gain/(loss) on available for sale debt securities
Balance at December 31, 2020$34,395 
Reclassifications to net income(8,197)
Activity for the period2,712 
Reclassifications from non-controlling interest542 
Balance at March 31, 2021$29,452 
variable and primarily based on cash receipts.

Indemnifications

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

Legal Proceedings

We are a party to legal actions with respect to a variety of matters in the ordinary course of business. Some of these proceedings may be based on availablecomplex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the probability of loss or estimate damages, and therefore we have not established accruals for sale debt securitiesany of $15.5 million for the three months endedthese proceedings in our condensed consolidated balance sheets as of March 31, 20212022 and December 31, 2021. When we determine that a loss is presented in earnings within Interest income onboth probable and reasonably estimable, we record a liability, and, if the condensed consolidated statementsliability is material, we disclose the amount of comprehensive income, including $8.2 million attributablethe liability reserved. We do not believe the outcome of any existing legal proceedings to controlling interest as notedwhich we are a party, either individually or in the table above and $7.3 million attributable to the non-controlling interest.aggregate, will adversely affect our business, financial condition or results of operations.

16.15. Related Party Transactions

The ManagerLegal Proceedings

The Manager is the investment managerWe are a party to legal actions with respect to a variety of Royalty Pharma and its subsidiaries. The Manager is an affiliate of RP Ireland, the administrator of RPIFT and RPI Intermediate FT. The sole member of the Manager, Pablo Legorreta, holds an interest in us and serves as our Chief Executive Officer and Chairman of the board of directors, and as a director on the board of directors of RP Holdings.

In connection with the Exchange Offer Transactions (discussed in Note 1–Organization and Purpose), the Manager entered into Management Agreements with us and our subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the Management Agreements, we pay quarterly operating and personnel expenses to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5% of the Adjusted Cash Receipts (both, as definedmatters in the Management Agreement)ordinary course of business. Some of these proceedings may be based on complex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the probability of loss or estimate damages, and therefore we have not established accruals for such quarter and 0.25%any of the GAAP value of our security investments as of the end of such quarter. The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflectedthese proceedings in our income statement, is calculated as the greater of $1 million per quarter and 0.3125% of Royalty Investments (as defined in the limited partnership agreements of the Legacy Investor Partnerships) during the previous twelve calendar months. During the three months ended March 31, 2021, Operating and Personnel Payments incurred were $35.7 million, including the amount attributable to Old RPI, and were recognized within General and administrative expenses on the condensed consolidated statements of comprehensive income.

Prior to the Exchange Date, the Manager received operating and personnel payments payable in equal quarterly installments that increased by 5% annually on a compounded basis under the terms of its management agreement with Old RPI and the Legacy Investors Partnerships. RP Ireland receives an annual management fee payable in advance by Old RPI in equal quarterly installments under terms of the limited partnership agreements of the Legacy Investors Partnerships. After the Exchange Date, operating and personnel payments were calculated in accordance with the methodology discussed in the paragraph above. During the three months ended March 31, 2020, total operating and personnel payments incurred were $19.7 million and were recognized within General and administrative expenses on the condensed consolidated statements of comprehensive income.

25

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



Distribution Payable to Non-Controlling Interest

The Distribution payable to non-controlling interest represents the contractual cash flows required to be distributed based on the Legacy Investors Partnerships’ non-controlling interest in Old RPI and RPSFT’s non-controlling interest in RPCT. The Distribution payable to non-controlling interest of $108.8 millionbalance sheets as of March 31, 2021 includes the following: (1) $91.7 million due to the Legacy Investors Partnerships from Old RPI in connection with the Legacy Investors Partnerships’ non-controlling interest in Old RPI that arose in the Reorganization Transactions2022 and (2) $17.1 million due to RPSFT from RPCT in connection with RPSFT's non-controlling interest in RPCT. The Distribution payable to non-controlling interest of $126.4 million at December 31, 2020 includes2021. When we determine that a loss is both probable and reasonably estimable, we record a liability, and, if the following: (1) $100.0 million due toliability is material, we disclose the Legacy Investors Partnerships from Old RPI in connection with the Legacy Investors Partnerships’ non-controlling interest in Old RPI that arose in the Reorganization Transactions and (2) $26.3 million due to RPSFT from RPCT in connection with RPSFT's non-controlling interest in RPCT.

Acquisition from Epizyme

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

Acquisition from Bristol-Myers Squibb

In November 2017, RPI Acquisitions 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”). We agreed to make payments to BMS based on sales of the products over eight quarters beginning with the first quarter of 2018 in exchange for a high single-digit royalty on worldwide sales of the products from 2020 through 2025.

On December 8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“Assignment Agreement”) with a wholly owned subsidiary of BioPharma Credit PLC (“BPCR”), an affiliate of us. 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.

We began making installment payments to BMS during the second quarter of 2018 and completed our funding in the first quarter of 2020. As of March 31, 2020, we funded a cumulative amount of $162.4 million, net of the assigned funding obligations. During the three months ended March 31, 2020, installment payments made to BMS totaled $24.3 million, of which RPI Acquisitions funded $12.1 million. Upon transfer of funds from BPCR to RPI Acquisitions to meet the quarterly funding obligation to BMS, RPI Acquisitions derecognized 50% of the financial royalty asset. Cash received from BPCR in respect of each funding obligation equaled the carrying amount of the assigned transferliability reserved. We do not believe the outcome of interest, therefore no gainany existing legal proceedings to which we are a party, either individually or loss was recognized upon the transfer.

We began to measure this financial royalty asset using the effective interest method once our installment funding obligation was completed and we received our first royalty payment on the asset in the second quarteraggregate, will adversely affect our business, financial condition or results of 2020. As of March 31, 2021 and December 31, 2020, the financial royalty asset of $146.1 million and $150.6 million, respectively, included in Financial royalty assets, net on the condensed consolidated balance sheets represents only our right to the future payment streams acquired from BMS.

Other transactions

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

26

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



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 $1.9 million and $1.9 million are held by non-controlling interest as of March 31, 2021 and December 31, 2020, 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.operations.

17. Commitments and Contingencies15. Related Party Transactions

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

On August 7, 2020, we entered into a funding agreement with Biohaven, including the Series B Biohaven Preferred Share Agreement, for up to $450.0 million to fund the development of zavegepant and the commercialization of Nurtec ODT in exchange for royalties and success-based milestones. Biohaven received $150.0 million at closing and received an additional $100.0 million in the three months ended March 31, 2021, upon the start of the oral zavegepant Phase 3 program. Pursuant to the Series B Biohaven Preferred Share Agreement, we agreed to provide further support for the ongoing launch of Nurtec ODT with the purchase of committed, non-contingent Commercial Launch Preferred Equity for a total of $200.0 million payable on a quarterly basis between March 31, 2021 and December 31, 2024. In return, Biohaven will be required to redeem the Series B Biohaven Preferred Shares in a series of equal fixed quarterly payments between March 31, 2025 and December 31, 2030. During the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares. We have a remaining commitment of $182.4 million under our Commercial Launch Preferred Equity as of March 31, 2021.

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 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, which is recorded within the current liabilities on the condensed consolidated balance sheet as of March 31, 2021.

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

Legal Proceedings

We are a party to legal actions with respect to a variety of matters in the ordinary course of business. Some of these proceedings may be based on complex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the probability of loss or estimate damages, and therefore we have not established accruals for any of these proceedings in our condensed consolidated balance sheets as of March 31, 20212022 and December 31, 2020.2021. 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.

27
15. Related Party Transactions


The Manager
18. Subsequent Events
The Manager is the investment manager of Royalty Pharma 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 the board of directors.

In April 2021,connection with the Exchange Offer Transactions (discussed in Note 1– Organization and Purpose), the Manager entered into management agreements with us and our subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the Management Agreement, we acquiredpay 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 the end of such quarter. The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a royaltynon-controlling interest in Oxlumo (lumasiran) from Dicerna Pharmaceuticals, Inc.Old RPI and for an upfront cash paymentwhich the expense is reflected in our consolidated net income, is calculated as the greater of $180$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 months ended March 31, 2022 and 2021, total operating and personnel payments incurred were $41.2 million and up$35.7 million, respectively, including the amounts attributable to $60 million in contingent sales-based milestone payments. Oxlumo, which has been approved byOld RPI, and were recognized within General and administrative expenses on the FDA and European Medicines Agency for the treatmentcondensed consolidated statements of primary hyperoxaluria (PH) type 1, is marketed by Alnylam Pharmaceuticals, Inc.operations.

2825

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 as of March 31, 2022 and December 31, 2021 include the following (in thousands):
As of March 31, 2022As of December 31, 2021
Due to Legacy Investors Partnerships$102,179 $92,608 
Due to RPSFT13,831 15,326 
Total distributions payable to non-controlling interests$116,010 $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 8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“Assignment Agreement”) with a wholly owned subsidiary of BioPharma Credit PLC (“BPCR”), an entity related to us. 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.

As of March 31, 2022 and December 31, 2021, the financial royalty asset of $125.4 million and $130.9 million, respectively, on the condensed consolidated balance sheets represents only our right to the future payment streams acquired from BMS.

Other Transactions

Henry Fernandez, the lead independent director of our board of directors, serves as the chairman and chief executive officer of MSCI Inc. (“MSCI”). On April 16, 2021, we entered into an agreement with MSCI with an initial term of seven years to assist MSCI in the design of a classification framework and index methodologies in order to expand MSCI’s thematic index suite with the launch of new indexes. In return, we will receive a percentage of MSCI’s revenues from those indexes. No amounts were due from MSCI as of both March 31, 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.

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 are held by non-controlling interests as of March 31, 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.

26

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

Item 2.         MANAGEMENTS 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 notes to our consolidated financial statements included in our Annual Report on 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 Special Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K.

Royalty Pharma plc is an 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 IPOinitial public offering (“IPO”) of our Class A ordinary shares that was completed in June 2020. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. After the consummation of the Exchange Offer Transactions (as defined below) and execution of the Management Agreement (as defined below) (collectively, the “Reorganization Transactions”) in February 2020 and before the consummation of the IPO, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma Investments 2019 ICAV (“RPI 2019 ICAV”). Prior to the Reorganization Transactions, “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma Investments, an Irish unit trust (“Old RPI”).

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 4535 commercial products, including AbbVie and J&J’sJohnson & Johnson’s Imbruvica, Astellas and Pfizer’s Xtandi, Biogen’s Tysabri, Johnson & Johnson’s Tremfya, Gilead’s HIV franchise, Merck’sTrodelvy, Merck & Co.’s Januvia, Novartis’ Promacta, Vertex’s Kalydeco, Orkambi, Symdeko and Trikafta, and fiveten development-stage product candidates. 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.

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 on the most attractive therapies across the biopharmaceutical industry.

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 through 2020,2021, we have deployed $13.2$15.0 billion of cash to acquire royalties on approved products. From 2012 through 2020,2021, we have acquired $8.4$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 2020,2021, we have deployed $7.0$7.8 billion to acquire royalties on development-stage product candidates.

While we classify our acquisitions in these two broad 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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ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

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

Synthetic / 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. A synthetic royalty may also include contingent milestone payments, or be structured as a long-term stream of fixed payments with a predetermined schedule. In many of our synthetic royalties, we may also make investments in the public equity of the company, where the main value driver of the company is the product on which we concurrently acquired a royalty.

Research & Development (“R&D”)Development-stage Funding – We fund have historically funded 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. We have also made upfront development-stage funding payments to biotechnology companies to acquire royalties and/or milestones on development-stage product candidates.

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

Background and Format of Presentation

In connection with our IPO, we consummated an exchange offer on February 11, 2020 (the “Exchange Date”).2020. Through the exchange offer, investors representing 82% of the aggregate limited partnership in the various partnerships owned by Old RPI (the “Legacy Investors Partnerships”) that own Royalty Pharma Investments, 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 Delaware limited partnership or RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”). The exchange offer transaction together with (i) the concurrent incurrence of indebtedness under a newsenior 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.”Transactions”.

Following our IPO, we operate and control the business affairs of Royalty Pharma Holdings Ltd, (“RP Holdings”) 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 include RP Holdings and its subsidiaries in our consolidated financial statements. RP Holdings is the sole owner of RPI 2019 ICAV, which is an Irish collective asset management entity formed to facilitate our Exchange Offer Transactions.

As a result of the Exchange Offer Transactions, we own, through our wholly-owned subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust (“RPI Intermediate FT”), an 82% economic interest in Old RPI. Through our 82% indirect ownership of Old RPI, we are legally entitled to 82% of the economics of Old RPI’s wholly-owned subsidiaries, RPI Finance Trust, a Delaware statutory trust (“RPIFT”) and RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”), an Irish private limited company, and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”).

The remaining 34% of RPCT is owned by the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly owned by Royalty Pharma Select, an Irish unit trust. 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 had the option to participate proportionately in any investment made by Old RPI. Following the Legacy Date, Old RPI ceased making new investments and each of Old RPI and the Legacy Investors Partnerships became legacy entities. Following the Legacy Date, we have made and plan to make new investments solely through our subsidiaries, including RPI Intermediate FT.

Following management’s determination that a high degree of common ownership exists in Royalty Pharma both before and after the Exchange Date, Royalty Pharma recognized Old RPI’s assets and liabilities at the carrying value reflected on Old RPI’s balance sheet as of the Exchange Date. Old RPI is our predecessor for financial reporting purposes. The results of operations for the three months ended March 31, 2020 in the following discussion is comprised of the financial results of Old RPI prior to the Reorganization Transactions and RPI 2019 ICAV subsequent to the Reorganization Transactions.

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Understanding Our Financial Reporting

In accordance with generally accepted accounting principles in the United States (“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.

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

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 the cystic fibrosis franchise royalty which was classified as a financial royalty asset. Beginningand 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 financial 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 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 method 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.

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.”Results”.

Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of our ability to generate cash from operations. Both measures are an indication of the strength of the Company and the performance of the business. Management uses Adjusted Cash Flow to compare its performance against non-GAAP adjusted net income used by companies in the biopharmaceutical industry. Adjusted EBITDA, which is derived from Adjusted Cash Receipts, is used by our lenders to assess our ability to meet our financial covenants.

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

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


Portfolio Overview

Our portfolio consists of royalties on more than 4535 marketed therapies and fiveten development-stage product candidates. The therapies in our portfolio address therapeutic areas such as rare disease, oncology,cancer, neurology, infectious disease, cardiologyhematology and diabetes, and are delivered to patients across both primary and specialty care settings. The table below includes royalty cash receipts for the three months ended March 31, 2022 and 2021 and 2020.in order of contributions to royalty receipts for the three months ended March 31, 2022 (in thousands).
RoyaltiesMarketer(s)Therapeutic AreaFor the Three Months Ended March 31,
20222021
Cystic fibrosis franchise (1)VertexRare disease$201,882 $166,809 
TysabriBiogenNeurology97,439 86,921 
ImbruvicaAbbVie, Johnson & JohnsonCancer87,171 89,135 
PromactaNovartisHematology47,897 44,126 
XtandiPfizer, AstellasCancer43,395 41,045 
Januvia, Janumet, Other DPP-IVs (2)Merck & Co., othersDiabetes35,682 35,761 
TremfyaJohnson & JohnsonImmunology28,224 — 
Nurtec ODT/Biohaven payment (3)Biohaven, PfizerNeurology20,375 16,501 
Cabometyx/CometriqExelixis, Ipsen, TakedaCancer12,857 — 
Farxiga/OnglyzaAstraZenecaDiabetes9,469 8,562 
EvrysdiRocheRare disease9,197 1,677 
TrodelvyGileadCancer4,892 2,605 
ErleadaJohnson & JohnsonCancer4,886 3,104 
EmgalityLillyNeurology4,764 3,264 
CrysvitaUltragenyx, Kyowa KirinRare disease4,712 3,588 
OrladeyoBioCrystRare disease4,426 12 
PrevymisMerck & Co.Infectious disease4,126 8,630 
OxlumoAlnylamRare disease766 — 
Other products (4)88,871 137,738 
Total royalty receipts$711,031 $649,478 

(1)
(in thousands)Three Months Ended
March 31,
MarketerTherapeutic area20212020
Products
Cystic fibrosis franchise (1)VertexRare disease$166,809 $99,403 
ImbruvicaAbbVie/Johnson & JohnsonCancer89,135 77,709 
TysabriBiogenNeurology86,921 83,807 
HIV franchise (2)Gilead, othersInfectious disease46,500 83,887 
PromactaNovartisHematology44,126 35,748 
XtandiPfizer, AstellasCancer41,045 34,777 
Januvia, Janumet, Other DPP-IVs (3)Merck, othersDiabetes35,761 34,788 
Nurtec ODT/Biohaven payment (4)BiohavenNeurology16,501 — 
PrevymisMerckInfectious disease8,630 — 
Farxiga/OnglyzaAstraZenecaDiabetes8,562 — 
CrysvitaUltragenyx, Kyowa KirinRare disease3,588 — 
EmgalityEli LillyNeurology3,264 1,977 
ErleadaJohnson & JohnsonCancer3,104 1,438 
IDHIFABristol-Myers SquibbCancer2,888 — 
TrodelvyGileadCancer2,605 — 
EvrysdiRocheRare disease1,677 — 
TazverikEpizymeCancer464 — 
Other Products (5)87,898 90,110 
Total Royalty Receipts$649,478 $543,644 

(1) The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi, and Trikafta/Kaftrio.
(2) The HIV franchise includes the following approved products: Atripla, Truvada, Emtriva, Complera, Stribild, Genvoya, Descovy, Odefsey, Symtuza and Biktarvy. Royalties are received on the emtricitabine portion of sales only.
(3) Januvia, Janumet, Other DPP-IVs include the following approved products: Tradjenta, Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by Boehringer Ingelheim, AstraZeneca, Novartis and Takeda.
(4) (3)Includes royalty receipts for Nurtec ODT of $4.8 million and $0.9 million for the three months ended March 31, 2022 and the redemption2021, respectively, and quarterly redemptions of $15.6 million in 2022 and 2021 of the Series A Biohaven Preferred Shares of $15.6 million (presented as Proceeds from available for sale debt securities on the Statementstatements of Cash Flows)cash flows).
(5) (4)Other 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 from non-consolidated affiliatesequity method investees on the Statementstatements of Cash Flows)cash flows), Letairis, Lyrica, Cimzia, Conbriza/Fablyn/Viviant, Entyvio, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Priligy, Soliqua, Orladeyo, ThalomidTazverik and contributions from the Legacy SLP Interest.Interest (defined below).

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

Financial Overview

Financial highlightsHighlights

Net cash provided by operating activities totaled $526.1$460.3 million and $471.1$526.1 million for the three months ended March 31, 20212022 and 2020,2021, respectively. Net cash provided by operating activities is the closest comparable GAAP financial measure to the supplemental non-GAAP liquidity measures that follow.
Adjusted Cash Receipts (a non-GAAP metric) totaled $523.8$604.6 million and $382.3$523.8 million for the three months ended March 31, 20212022 and 2020,2021, respectively.
Adjusted EBITDA (a non-GAAP metric) totaled $481.6$555.7 million and $356.4$481.6 million for the three months ended March 31, 20212022 and 2020,2021, respectively.
Adjusted Cash Flow (a non-GAAP metric) totaled $409.3$367.1 million and $297.8$409.3 million for the three months ended March 31, 20212022 and 2020,2021, respectively.

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Understanding Our Results of Operations

In connection with our IPO, Royalty Pharma plc became a holding company whose principal asset is a controlling equity interest in RP Holdings, which is the sole equity owner of RPI 2019 ICAV, an entity that is included in our condensed consolidated financial statements. We report non-controlling interestinterests 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, an affiliate of the Manager. Income will not be allocated to this non-controlling interest until certain conditions are met, which we do not expect to occur for several years.

3.     The third minority interest is attributable to the RP Holdings Class B Interests held indirectly by the Continuing Investors Partnerships, which represent an approximate 35%28% ownership interest in RP Holdings as of March 31, 20212022 and are exchangeable for our Class A ordinary 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. During the three months ended March 31, 2021, 4,721 thousand RP Holdings Class B Interests were exchanged for our Class A shares.

4.     The fourth minority interest is attributable to a3.     A de minimis interest in RPCT 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 inowned by RPCT expire and is expected to be substantially eliminated by the end of 2022.

4.     The fourthRP Holdings Class C ordinary share (the “RP Holdings Class C Special Interest”) held by RPI EPA Holdings, LP (“EPA Holdings”), an affiliate of the Manager. Income will not be allocated to this non-controlling interest related to ownership in RPCT held by RPSFT, is the only non-controlling interest that existed prior to the Reorganization Transactions. The non-controlling interest related to the Legacy Investors Partnerships’ 18% ownership interest in Old RPI is reflected in our financial statements from and after the Exchange Date. The other two non-controlling interestsuntil certain conditions are reflected in our financial statements from and after the date of our IPO. met.

All of the results of operations of RP Holdings, Old RPI and RPCT are consolidated into our financial statements.

Following the IPO, EPA Holdings is entitled to receive Equity Performance Awards through its RP Holdings Class C Special Interests.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 interest related to the RP Holdings Class C Special InterestsInterest at that time. The Equity Performance Awards will be payable in RP Holdings Class B Interests for which we will issue the same number of our Class B ordinary shares, which may be subsequently exchanged for our Class A ordinary shares. We do not currently expect any material Equity Performance Awards to be payable until certain performance conditions are met, which we do not expect to occur until the mid to late 2020s.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 R&D funding arrangements. Most of our royalties on both approved products and development-stage product candidates that are not accounted for as R&D funding expense 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.

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

We recognize interest income related to our financial royalty assets. Royalty revenue relates solely to revenue from our DPP-IV patent estate for which the patent rights have been licensed to various counterparties. For the three months ended March 31, 20212022 and 2020,2021, the royalty payors accounting for greater than 10% or more of our total income and other revenues in any one period are shown in the table below:

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Three Months Ended March 31,For the Three Months Ended March 31,
Royalty payorRoyalty asset20212020
Royalty PayorRoyalty PayorRoyalties20222021
VertexVertexCystic fibrosis franchise32 %28 %VertexCystic fibrosis franchise35 %32 %
AbbVieAbbVieImbruvica17 %20 %AbbVieImbruvica16 %17 %
GileadGileadHIV franchise, Letairis, Trodelvy (1)11 %16 %GileadHIV franchise, Letairis, Lexiscan, Trodelvy*12 %
BiogenTysabri%11 %

* Represents less than 10%.
(1) We began recognizing income related to Trodelvy in the three months ended June 30, 2020.

Income from financial royalty assets

Our financial royalty assets represent investments in cash flow streams with yield components that most closely resemble loans measured at amortized cost under the effective interest method. We calculate the effective interest rate using forecasted expected cash flows to be received over the life of the royalty asset relative to the initial acquisition price. Interest income is recognized at the effective rate of return over the expected life of the asset, which is calculated at the end of each reporting period and applied prospectively. As changes in sell-side equity research analysts’ 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.

Variables affecting the recognition of interest income from financial royalty assets on individual products under the perspectiveprospective 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 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 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 asproducts 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-IV intangible royalty assets.assets 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 amortized by the expected expiry date and royalty income from synthetic royalties arising out of R&D funding arrangements. Occasionally, a royalty asset may be amortized 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 from such royalty is recognized as otherOther royalty income.income.

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

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:

expense or income related to the movement incurrent period activity resulting from adjustments to the cumulative allowance for changes in expected future cash flows,flows; and
expense or income related to the provision for current expected credit losses, subsequentwhich reflects the activity for the period, primarily due to adoption of ASU 2016-13 on January 1, 2020.new financial royalty assets with limited protective rights and changes to cash flow estimates for financial royalty assets with limited protective rights.

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The provision for changes in expected cash flows is the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows, which is netted against the Financial royalty assets, net balance on the condensed consolidated balance sheets. As discussed above, income is accreted on our financial royalty assets using the effective interest method. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly to the income statement through the line item Provision for changes in expected future cash flows from financial royalty assets. If, in a subsequent period, there is an 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).

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.

Upon the adoption on January 1, 2020 of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), we recorded a cumulative adjustment to Retained earnings of $192.7 million to recognize an allowance for current expected credit losses on our portfolio of financial royalty assets. 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 new financial royalty assets with limited protective rightsreceipts and changes in the underlying cash flow forecasts used in the effective interest model to measure income from our financial royalty assets.milestone payments.

R&D funding expense

R&D funding expense consists of (1) upfront R&Dand ongoing development-stage funding payments we have made to counterparties to acquire royalties and/or milestones on development-stage product candidatescandidates. Upfront development-stage funding expense includes payments made at the close of acquisitions and (2) ongoing R&Dsubsequent milestone payments. Ongoing development-stage funding payments to fund development-stageare made as the related product candidates undergoingundergo clinical trials with our partners in exchange for royalties if the products are successfully developed and commercialized.counterparties. These expenditures relate to the activities performed by our counterparties to develop and test new products, to test existing products for treatment in new indications, and to ensure product efficacy and regulatory compliance prior to launch.

During the three months ended March 31, 2021 and 2020, R&D funding expense incurred primarily related to ongoing development stage funding payments under our co-funding agreement with Sanofi.

General and administrative expenses

General and administrative (“G&A”) expenses include primarily include Operating and Personnel Payments (define(defined below), legal expenses, other expenses for professional services and share-based compensation.

Beginning The expenses incurred in 2020, therespect of Operating and Personnel Payments paidare expected to our Manager were significantly higher than they were in historical periods. Prior tocomprise the Reorganization Transactions, the operating and personnel payments were fixed, growing at 5% annually and not linked to any financial line item. most significant component of G&A expenses on an ongoing basis.

Under the management agreement which isthat became effective from the Exchange Date (“Managementon February 11, 2020 (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 Adjusted Cash Receiptscash receipts from royalty investments for each quarter and 0.25% of the GAAP value of our security investments under GAAP as of the end of each quarter.

The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected in our net income, is payable in equal quarterly installments and isG&A expenses, are calculated as the greater of $1 million per quarter and 0.3125% of royalties from Royalty Investments (as defined in the limited partnership agreements of the Legacy Investors Partnerships). The expenses incurred in respect of Operating and Personnel Payments are expected to comprise during the most significant component of G&A expenses on an ongoing basis.previous twelve calendar months.

3633

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

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

Legacy SLP InterestEquity in (earnings)/losses of equity method investees primarily includes the results of our share of income or loss from the following non-consolidated affiliates:

1. Legacy SLP 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 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. Our equity method investee, the Legacy Investors Partnerships, also owns a non-controlling interest in Old RPI.

2. The Avillion Entities
Entities.
During 2014, we entered into an agreement with our equity method investee The Avillion Financing I, LP (“Avillion I”) to invest up to $46.0 million over three years to fund a portion of the costs of a pivotal Phase 3 study for Pfizer’s Bosulif (bosutinib) to expand its label into front-line chronic myeloid leukemia. The U.S. Food and Drug Administration (“FDA”) approved a supplemental New Drug Application (“sNDA”) for Pfizer’s Bosulif (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 March 2017, we entered into an agreement with BAv Financing II, LP (“Avillion II”, or, together with Avillion I, the “Avillion Entities”), amended in December 2019, to fund up to $19.0 million of the costs of a clinical trial for the use of the Merck KGaA Asset for the treatment of psoriasis in exchange for certain milestone and royalty payments. Development for the Merck KGaA Asset ceased during the three months ended June 30, 2020 and we do not expect to record significant earnings or losses in the future related to this investment.

In 2018, we agreed to fund up to approximately $105.0 million over multiple years to fund a portion of the costs for Phase 2 and 3 clinical trials of Avillion II, who 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.

The business model of the Avillion Entities includes partneringentities (as defined below) partner with global biopharmaceutical companies to perform R&D in exchange for success-based milestones and/or royalties once 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 expense, net

Other expense, net primarily includes the change in fair market value of our equity securities and the unrealized gains orand losses on our available for sale debt securities, including related forwards derivatives, losses on extinguishment of debtand funding commitments, and interest income.

Net income attributable to non-controlling interestinterests

Prior to the Exchange Date, theThe net income attributable to non-controlling interest relates to 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 asinterests includes the assets in RPCT expire and to be substantially eliminated by the end of 2022.

As of and following the Exchange Date, the net income attributable to non-controlling interest also includes Legacy Investors Partnerships approximately 18% share of earnings in Old RPI. As the Legacy Investors Partnerships no longer participate in investment opportunities, of Royalty Pharma, the related net income attributable to this non-controlling interest is expected to decline over time.

37


In connection with our IPO, this line item also includes netNet income attributable to non-controlling interests includes the 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 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.

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 as described in section titled “Understanding Our Financial Reporting”.


38
34

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

Results of Operations

For the three months endedThree Months Ended March 31, 20212022 and 20202021

The comparison of our historical results of operations for the three months ended March 31, 20212022 and 20202021 is as follows:

(in thousands)(in thousands)Three Months Ended
March 31,
Change(in thousands)For the Three Months Ended March 31,2022 vs. 2021 Change
20212020$%20222021$%
Income and other revenues:Income and other revenues:Income and other revenues:
Income from financial royalty assets Income from financial royalty assets$529,625 $462,844 $66,781 14.4 %Income from financial royalty assets$511,523 $529,625 $(18,102)(3.4)%
Revenue from intangible royalty assets Revenue from intangible royalty assets36,061 34,983 1,078 3.1 %Revenue from intangible royalty assets33,586 36,061 (2,475)(6.9)%
Other royalty income Other royalty income7,341 3,052 4,289 140.5 %Other royalty income16,940 7,341 9,599 130.8 %
Total income and other revenuesTotal income and other revenues573,027 500,879 72,148 14.4 %Total income and other revenues562,049 573,027 (10,978)(1.9)%
Operating expenses:Operating expenses:Operating expenses:
Provision for changes in expected cash flows from financial royalty assets Provision for changes in expected cash flows from financial royalty assets292,262 88,012 204,250 232.1 %Provision for changes in expected cash flows from financial royalty assets184,621 292,262 (107,641)(36.8)%
Research and development funding expense Research and development funding expense2,641 7,639 (4,998)(65.4)%Research and development funding expense100,500 2,641 97,859 *
Amortization of intangible royalty assets5,671 5,733 (62)(1.1)%
Amortization of intangible assetsAmortization of intangible assets5,670 5,671 (1)0.0 %
General and administrative expenses General and administrative expenses43,156 38,065 5,091 13.4 %General and administrative expenses51,540 43,156 8,384 19.4 %
Total operating expenses343,730 139,449 204,281 146.5 %
Total operating expenses, netTotal operating expenses, net342,331 343,730 (1,399)(0.4)%
Operating incomeOperating income229,297 361,430 (132,133)(36.6)%Operating income219,718 229,297 (9,579)(4.2)%
Other expense:
Equity in loss of non-consolidated affiliates1,918 9,074 (7,156)(78.9)%
Other (income)/expense:Other (income)/expense:
Equity in (earnings)/losses of equity method investeesEquity in (earnings)/losses of equity method investees(397)1,918 (2,315)(120.7)%
Interest expense Interest expense37,415 53,584 (16,169)(30.2)%Interest expense47,063 37,415 9,648 25.8 %
Other expense, net Other expense, net30,985 189,676 (158,691)(83.7)%Other expense, net44,969 30,985 13,984 45.1 %
Total other expenses, netTotal other expenses, net70,318 252,334 (182,016)(72.1)%Total other expenses, net91,635 70,318 21,317 30.3 %
Consolidated net incomeConsolidated net income158,979 109,096 49,883 45.7 %Consolidated net income128,083 158,979 (30,896)(19.4)%
Less: Net income attributable to non-controlling interest(89,860)(37,856)(52,004)137.4 %
Net income attributable to controlling interest$69,119 $71,240 $(2,121)(3.0)%
Net income attributable to non-controlling interestsNet income attributable to non-controlling interests76,322 89,860 (13,538)(15.1)%
Net income attributable to Royalty Pharma plcNet income attributable to Royalty Pharma plc$51,761 $69,119 $(17,358)(25.1)%
*Percentage change is not meaningful.

Total income and revenues

Income from financial royalty assets

Income from financial royalty assets by product for our top products for the three months ended March 31, 20212022 and 20202021 is as follows, in order of contribution to income for the three months ended March 31, 2021:2022:

(in thousands)(in thousands)Three Months Ended March 31,Change(in thousands)For the Three Months Ended March 31,2022 vs. 2021 Change
20212020$%20222021$%
Cystic fibrosis franchiseCystic fibrosis franchise$184,816 $140,031 $44,785 32.0 %Cystic fibrosis franchise$194,457 $184,816 $9,641 5.2 %
ImbruvicaImbruvica99,115 98,239 876 0.9 %Imbruvica87,627 99,115 (11,488)(11.6)%
TysabriTysabri51,098 56,276 (5,178)(9.2)%Tysabri52,521 51,098 1,423 2.8 %
HIV franchise49,546 65,776 (16,230)(24.7)%
XtandiXtandi26,980 23,388 3,592 15.4 %Xtandi24,917 26,980 (2,063)(7.6)%
Tazverik20,338 6,932 13,406 193.4 %
PromactaPromacta20,804 16,284 4,520 27.8 %
EvrysdiEvrysdi18,088 14,426 3,662 25.4 %
OtherOther97,732 72,202 25,530 35.4 %Other113,109 136,906 (23,797)(17.4)%
Total income from financial royalty assetsTotal income from financial royalty assets$529,625 $462,844 $66,781 14.4 %Total income from financial royalty assets$511,523 $529,625 $(18,102)(3.4)%

3935

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

Three Months Endedmonths ended March 31, 20212022 and 20202021

Income from financial royalty assets increaseddecreased by $66.8$18.1 million, or 14%3.4%, in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020,2021, primarily driven by strong performancedeclines in sell-side equity research analysts’ consensus sales forecasts for Imbruvica and the maturity of our royalties from the cystic fibrosis franchise,HIV franchise. The decrease in income was partially offset by income related to newly acquired assets, primarily Tremfya, Cabometyx/Cometriq and Oxlumo, for which included interest income attributable to the residual royalty interest in the cystic fibrosis franchise that we acquired in October 2020. Additionally, we recorded $26.2 million of income from financial royalty assetsthere was no comparable activity in the three months ended March 31, 2021 related to new assets acquired subsequent to the three months ended March 31, 2020, primarily Evrysdi, Prevymis and Orladeyo. The increase was partially offset by declines from the HIV franchise, reflecting the loss of exclusivity of Truvada and Atripla in the United States in October 2020, and from maturing assets such as Lyrica.
2021.

Revenue from intangible royalty assets

Three Months Endedmonths ended March 31, 20212022 and 20202021

Revenue from intangible royalty interests was relatively flat in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020.2021.

Other royalty income

Three Months Endedmonths ended March 31, 20212022 and 20202021

Other royalty income increased by $4.3$9.6 million, or 141%130.8%, in the three months ended March 31, 20212022 compared to the three months ended March 31, 2021, primarily related to growth in the ongoing product launches of Nurtec ODT and Trodelvy that arose from our R&D funding agreements with Biohaven and Immunomedics, respectively. Other royalty income in the three months ended March 31, 2020, primarily related to other2022 also includes income from Letairis, a fully amortized financial royalty incomeasset, but for Trodelvy, which we provided upfront R&D funding to Immunomedics in 2018 and which was approved by the FDA in the three months ended June 30, 2020.expect minimal residual royalty income.

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:
expense or income and expenserelated to the current period activity resulting from adjustments to the cumulative allowance for financial royalty assets whosechanges in expected cash flow forecasts have changed from the prior period,flows; and
expense or income related to the provision for current expected credit losses subsequent to the adoption of ASU 2016-13 on January 1, 2020.losses.

As the formerprovision 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)(in thousands)Three Months Ended March 31,Three Months Ended March 31,(in thousands)For the Three Months Ended March 31,For the Three Months Ended March 31,
Product2021Product2020
RoyaltyRoyalty2022Royalty2021
ImbruvicaImbruvica$63,414 Tysabri$57,405 Imbruvica$108,910 Imbruvica$63,414 
TazverikTazverik64,356 Cystic fibrosis franchise53,092 
IDHIFAIDHIFA38,491 Tazverik48,422 
XtandiXtandi24,857 Xtandi42,852 
Cystic fibrosis franchiseCystic fibrosis franchise53,092 Crysvita34,499 Cystic fibrosis franchise(48,636)Emgality35,236 
Tazverik48,422 Imbruvica34,247 
Xtandi42,852 Promacta14,785 
Emgality35,236 Xtandi(102,032)
OtherOther13,305 Other(32,850)Other46,224 Other13,305 
Total provision, exclusive of provision for credit lossesTotal provision, exclusive of provision for credit losses256,321 Total provision, exclusive of provision for credit losses6,054 Total provision, exclusive of provision for credit losses234,202 Total provision, exclusive of provision for credit losses256,321 
Provision for current expected credit lossesProvision for current expected credit losses35,941 Provision for current expected credit losses81,958 Provision for current expected credit losses(49,581)Provision for current expected credit losses35,941 
Total provision$292,262 Total provision$88,012 
Total provision expenseTotal provision expense$184,621 Total provision expense$292,262 

4036

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

Three Months Endedmonths ended March 31, 20212022 and 20202021

In the three months ended March 31, 2022, we recorded provision expense of $184.6 million, comprised of $234.2 million in provision expense for changes in expected cash flows and $49.6 million in provision income for current expected credit losses. We recorded provision expense for Imbruvica and Tazverik, primarily due to significant declines in sell-side equity research analysts’ consensus sales forecasts partially offset by provision income for the cystic fibrosis franchise due to a significant increase in sell-side equity research analysts’ consensus sales forecasts. During the three months ended March 31, 2022, 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 corresponding significant decline in the financial asset value.

In the three months ended March 31, 2021, we recorded provision expense of $292.3 million, of which $256.3 million and $35.9 million related to provision expense for changes in expected cash flows and current expected credit losses, respectively. We recorded provision expense for Imbruvica, the cystic fibrosis franchise, Tazverik, Xtandi and Emgality, primarily due to declines in sell-side equity research analysts’ consensus sales forecasts. During the three months ended March 31, 2021, the provision expense for current expected credit losses was predominantlyprimarily driven by increases to our portfolio of financial royalty assets, including the incremental $100 million financial royalty asset related to zavegepant and a new royalty interest in the cabozantinib products.

In the three months ended March 31, 2020, we recorded provision expense of $88.0 million, of which $6.1 million and $82.0 million related to provision expense for changes in expected cash flows and current expected credit losses, respectively. We recorded provision expenses for Tysabri, Crysvita and Imbruvica, primarily due to declines in sell-side equity research analysts’ consensus forecasts. Offsetting the provision expense was a large reversal of the cumulative allowance for Xtandi due to an increase in consensus forecasts. During the three months ended March 31, 2020, we recognized a provision expense for current expected credit losses predominantly driven by increases to our portfolio of financial royalty assets, including the second $110.0 million tranche of Tazverik.Cabometyx/Cometriq.

R&D funding expense

Three Months Endedmonths ended March 31, 20212022 and 20202021

R&D funding expense declinedincreased by $5.0$97.9 million or 65% forin the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, comparedprimarily driven by upfront and milestone development-stage funding payments of $100.0 million to Cytokinetics to acquire a royalty on a development-stage product in the three months ended March 31, 2020, primarily due to lower funding requirements under our co-funding agreement with Sanofi.2022.

G&A expenses

Three Months Endedmonths ended March 31, 20212022 and 20202021

G&A expenses increased $5.1by $8.4 million, or 13%19.4%, in the three months ended March 31, 2021,2022 compared to the three months ended March 31, 2020,2021, primarily driven by an increase inhigher Operating and Personnel Payments under the Management Agreement and ongoing expenses associated with the directors and officers liability insurance policy entered into in June 2020. Offsetting the increase was a decrease in non-recurring costs for professional services incurred in the three months ended March 31, 2020 in connection with the Reorganization Transactions, the refinancing of our senior secured credit facilities and the preparation for our IPO for which we did not have comparable activities in the three months ended March 31, 2021.

41


Equity in losses of non-consolidated affiliates

Three Months Ended March 31, 2021 and 2020due to increased cash receipts from royalty investments.

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

Three months ended March 31, 2022 and 2021

Equity in earnings of equity method investees was $1.9 million and $9.1$0.4 million in the three months ended March 31, 2021 and 2020, respectively, and was comprised of2022 compared to equity in losses fromof equity method investees of $1.9 million the Avillion Entities offset by equity in earnings from the Legacy SLP Interest, an investment which arose through the Exchange Offer Transactions.three months ended March 31, 2021.

Equity in earnings from the Legacy SLP Interest was $5.2$4.5 million and $3.2$5.2 million, in the three months ended March 31, 2022 and 2021, respectively. Equity in losses of the Avillion entities was $4.1 million and 2020, respectively. The increase in equity in earnings from the Legacy SLP Interest reflects a partial period of equity in earnings subsequent to the Exchange Date$7.1 million in the three months ended March 31, 2020.

Equity in losses of the Avillion Entities was $7.1 million2022 and $12.2 million for the three months ended March 31, 2021, and 2020, respectively. The decrease in equity in losses is primarily driven by the 2020 cessation of the phase 2 clinical trial for the Merck KGaA Asset.

Interest expense

Three Months Endedmonths ended March 31, 20212022 and 20202021

Interest expense decreasedincreased by $16.2$9.6 million, or 30%25.8%, in the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020,2021, primarily due to a lower weighted average interest rate ondriven by the $6.0issuance of $1.3 billion senior unsecured notes issued in September 2020 (the “Notes”July 2021 (“2021 Notes”) compared to the interest. The weighted average coupon rate on the senior secured credit facilities that were in placewas 2.245% and 2.125% in the three months ended March 31, 2020.2022 and 2021, respectively.

Refer to the “Liquidity and Capital Resources” section for additional discussion of the Notes and our debt refinancings in 2020.2021 Notes.

37

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

Other expense, net

Three Months Endedmonths ended March 31, 20212022 and 20202021

Other expense, net of $45.0 million in the three months ended March 31, 2022, was primarily comprised of losses on equity securities of $36.2 million driven by a net decrease in the share price of our investees and losses on available for sale debt securities of $16.6 million, offset by interest income of $9.5 million primarily related to our Series A Biohaven Preferred Shares. The $16.6 million in unrealized losses on available for sales debt securities included a loss of $10.2 million related to the unrealized movement in fair value of the MorphoSys Development Funding Bond Forward for which there was no comparable activity in the prior period.

Other expense, net was $31.0 million in the three months ended March 31, 2021, primarily comprised of losses on equity securities of $54.2 million driven by a decreased share price of our investees. ThisThe decrease was partially offset by interest income of $16.6 million, primarily related to our Series A Biohaven Preferred Shares and a gain of $9.1 million related to the unrealized movement in fair value of the Series B Biohaven Preferred Shares and related Series B Forwards recorded as Available for sale debt securities.

Other expense, net was $189.7 million in the three months ended March 31, 2020, primarily comprised of losses on equity securities and unrealized losses on warrants of $170.9 million due to equity market declines.

Net income attributable to non-controlling interestinterests

Three Months Endedmonths ended March 31, 20212022 and 20202021

Net income attributable to the Legacy Investors Partnerships and the Continuing Investors Partnerships was $36.3increased by $14.3 million and $38.5 million, respectively, in the three months ended March 31, 2021. The non-controlling interest related2022 as compared to the Continuing Investors Partnerships arose in connection with the IPO while the non-controlling interest related to the Legacy Investors Partnerships arose in February 2020 in connection with the Reorganization Transactions. During the three months ended March 31, 2020, we recorded net income attributable to the Legacy Investors Partnerships of $12.9 million, which only reflected a partial period.

During the three months ended March 31, 2021, and 2020, we recordedprimarily driven by higher net income attributable to Old RPI.

Net income attributable to the Continuing Investors Partnerships decreased by $17.9 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily driven by lower net income attributable to RP Holdings in the three months ended March 31, 2022. The ongoing exchanges by investors in the Continuing Investors Partnerships who indirectly own the RP Holdings Class B Interests for our Class A ordinary shares resulted in a decline in the Continuing Investors Partnerships’ ownership of RP Holdings.

Net income attributable to RPSFT of $15.1decreased by $9.9 million and $24.9 million, respectively.in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. We expect net income attributable to RPSFT to continue to decline as the assets held by RPCT mature.

42


Key developmentsDevelopments and upcoming events relatingUpcoming Events Relating to our portfolioOur Portfolio

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

Commercial Products

Cystic fibrosis franchise. In August 2020,April 2021, Vertex announced that the European Commission (EC) had granted marketing authorization of(“EC”) approval for Kaftrio in a combination regimen with ivacaftor for the treatment of patients with cystic fibrosis ages 12 years and older withwho have at least one F508del mutation and one minimal function mutation, or two F508del mutations in the CFTR gene.mutation.

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

In JanuaryJune 2021, Vertex announced that the U.S. FDA accepted a supplemental NewFood and Drug Application (sNDA) forAdministration (“FDA”) approved Trikafta for the treatment of children with cystic fibrosis ages 6 tothrough 11 who have at least one F508del mutation or have certain mutations that are responsive to Trikafta based on in vitro data. The U.S. FDA granted Priority Review of the sNDA and assigned a Prescription Drug User Fee Act (PDUFA) target action date of June 8, 2021.

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.

38

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

Tysabri. In January 2019, Biogen announced the start of the two-year global Phase 3b NOVA study evaluating the efficacy and safety of extended interval dosing for natalizumab compared to standard interval dosing in patients with relapsing multiple sclerosis. Data from the study is expected in 2021.

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

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 April 2020, Imbruvica received U.S. FDA approval for use in combination with rituximab for the treatment of previously untreated patients with chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL).

In August 2020, the EC granted marketing authorizationJune 2021, AbbVie announced Phase 3 GLOW study results for Imbruvica in combination with rituximabVenetoclax for the treatment of adult patients with previously untreated CLL. This milestone marked the 11th U.S. FDA approval for Imbruvica since it was first approved in 2013first-line CLL and sixth in CLL.

The primary completion date for the Phase 3 SHINE trial forSLL demonstrated superior progression-free survival versus chlorambucil plus obinutuzumab as a first-line treatment of frontline mantle cell lymphoma is expected to be June 2021CLL. The study also showed improved duration of remission and significantly improved depth of remission. AbbVie has indicated that approval could occur in 2022.

The primary completion dateIn August 2021, AbbVie announced that the U.S. District Court for the Phase 3 GLOW trialDistrict of Delaware had issued a decision holding patent rights relating to Imbruvica in combinationwere 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 Venetoclax for treatment of frontline CLL and SLL was February 2021 andother generic companies. Consequently, AbbVie has indicated that approval could occur in 2022.does not expect any generic product entry prior to March 30, 2032, assuming pediatric exclusivity is granted.

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

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

In September 2021, Astellas Pharma and Pfizer announced that Xtandi plus androgen deprivation therapy (ADT) reduced the risk of death by 34% compared to placebo plus ADT 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.

Astellas and Pfizer have indicated that there could be a potential readout of the Phase 3 EMBARK trial for high-risk non-metastatic prostate cancer in the second half of 2022.

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 November 2021, Biohaven announced a strategic collaboration with Pfizer for the commercialization of rimegepant outside the United States. Pfizer also gains rights outside the United States to zavegepant, which is being studied in an intranasal delivery and an oral formulation in Phase 3 clinical trials for migraine indications.

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. The EC approval will be valid for all 27 European Union member states as well as Iceland, Liechtenstein and Norway and local reimbursement approval will follow.

Trodelvy. In April 2020, Immunomedics announced that the U.S. FDA granted accelerated approval of Trodelvy for the treatment of patients with metastatic triple-negative breast cancer (TNBC)who have received at least two prior therapies for metastatic disease.

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In September 2020, Gilead and Immunomedics announced that Gilead would acquire Immunomedics for approximately $21 billion in cash and the transaction closed in October 2020. In 2018, we entered into a partnership with Immunomedics whereby we acquired a tiered sales-based royalty on Trodelvy for $175.0 million and acquired 4,373,178 shares of Immunomedics common stock for $75.0 million. Gilead's acquisition of Immunomedics closed in October, resulting in gross cash proceeds upon redemption of our Immunomedics common stock of approximately $385 million.

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

In March 2021, Gilead announced that the EMA had validated the marketing authorization application (MAA) filing for Trodelvy for the treatment of adult patients with unresectable locally advanced or metastatic TNBC who have received at least two prior therapies, including at least one prior therapy for locally advanced or metastatic disease. The MAA is under accelerated review by the EMA and Gilead has indicated that approval may occur as early as December 2021.

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

Nurtec ODT.
In February 2020, BiohavenJune 2021, Gilead announced that the U.S. FDA approved Nurtec ODT for the acutesuperior outcomes to standard of care in second-line treatment of migrainemetastatic TNBC in adults. The U.S. FDA approval of Nurtec ODT triggeredthe Phase 3 ASCENT study. Trodelvy more than doubled overall survival as a redemption provision related to our investmentsecond-line treatment in Biohaven’s Series A Preferred Shares, which entitles us to receive a fixed payment amount of $250.0 million payable in equal quarterly payments from March 31, 2021 through December 31, 2024.
the new ASCENT subgroup analysis.

In October 2020, Biohaven2021, 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 U.S. FDA had filed and acceptedEC granted marketing authorization for review its recently submitted sNDA for Nurtec ODTTrodelvy as a monotherapy indicated for the preventive treatment of migraine.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 PDUFA target date for completionEC’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 U.S. FDA reviewcollaboration, Merck & Co. will sponsor a global Phase 3 clinical trial of the preventive application for Nurtec ODT isTrodelvy in the second quartercombination with Keytruda as a first-line treatment of 2021.patients with metastatic NSCLC.

Additionally, Gilead and Merck & Co. recently established an agreement where Gilead will sponsor a Phase 2 signal-seeking study evaluating combinations that include pembrolizumab in first-line NSCLC.

In March 2021, Biohaven2022, Gilead announced that its filing for rimegepant was submitted and accepted for review byresults from the EMA for the treatment of migraine, inclusive of both acute and preventive treatment.

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

In March 2021, Roche announced that the EC approved Evrysdi for the treatment of SMA
Phase 3 TROPiCS-02 study evaluating Trodelvy in patients with HR+/HER2- metastatic breast cancer who received prior endocrine therapy, CDK4/6 inhibitors and two monthsto four lines of age and older,chemotherapy met its primary endpoint with a clinical diagnosisstatistically significant improvement in progression-free survival versus physician’s choice of SMA Type 1, Type 2 or Type 3 or with one to four splicing modifier of motor neuron 2 (SMN2) copies.

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

In January 2021, Orladeyo was approved in Japan, becoming the first and only prophylactic HAE medication approvedchemotherapy. The trial targeted a 30% reduction in the region.

In April 2021, BioCryst announced thatrisk of disease progression or death and the EC approved Orladeyoprimary endpoint results were consistent with those observed in the Phase 1/2 IMMU-132-01 study in a subset of HR+/HER2- metastatic breast cancer patients. The first interim analysis of the key secondary endpoint of overall survival demonstrated a trend in improvement for the prevention of recurrent hereditary angioedema attacks in HAE patients 12 years and older.overall survival. Patients will be followed for a subsequent overall survival analysis. The safety profile for Trodelvy was consistent with prior studies.

Cabometyx. In January 2021, Exelixis announced that the U.S. FDA approved Cabometyx for patients with advanced renal cell carcinoma (RCC) as a first-line treatment in combination with Bristol Myers Squibb’s Opdivo.
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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 CRPC, which included patients with metastatic CRPC who had been previously treated with novel hormone therapies enzalutamide and/or abiraterone acetate used along with prednisone. Following discussions with FDA, Exelixis will not pursue a regulatory submission for the combination regimen based on cohort 6 of COSMIC-021. 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.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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.

Exelixis has indicated it expects Phase 3 data from the COSMIC-313 trial in 1L RCC in the first half of 2022 and initial Phase 3 data in the second half of 2022 from CONTACT-01 in metastatic NSCLC and 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.

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 New Drug Application 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 European Medicines Agency (“EMA”) in December 2021.

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.

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 and/or selected advanced therapies and were treated with Tremfya achieved clinical response at week 12 (Tremfya 200mg: 61.4% and Tremfya 400mg: 60.7%), the study’s primary endpoint, compared with placebo (27.6%). Safety data at week 12 were consistent with the safety profile for Tremfya in approved indications.

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

Development-Stage Product Candidates

Zavegepant.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 ≥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 continuing on the study drug.

Gantenerumab. In October 2020, Biohaven began2021, 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 one-year long-term safetypathological 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 intends to enter into a collaboration agreement with Banner Alzheimer’s Institute’s Alzheimer’s Prevention Initiative, Massachusetts General Hospital and the University of zavegepant. BiohavenSouthern 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.

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 the company’s New Drug Application (NDA) for omecamtiv mecarbil. The FDA assigned the NDA a standard review with a PDUFA target action 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.

Otilimab. GlaxoSmithKline has indicated it expects Phase 3 data from the contRast trials in rheumatoid arthritis in the second half of 2022.

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

Pelabresib. In December 2021, MorphoSys presented the latest 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 (SVR35) from baseline at week 24 and 60% (n=47) maintained SVR35 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 NDA filing atfirst-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 endrisk of 2021 ifsevere 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 pivotal acute trial provesindividual components albuterol and budesonide, and compared to be positive.placebo. The safety and tolerability of PT027 in both trials was consistent with the known profiles of the components. AstraZeneca has indicated PT027 regulatory submissions will occur in the first half of 2022.

Zavegepant.In March 2021, Biohaven announced that it enrolled the first patient in a Phase 2/3 clinical trial of oral zavegepant for the preventive treatment of migraine. Accordingly, per the agreement with Biohaven announced in August 2020, Royalty Pharma paid $100 million to Biohaven for the achievement of this milestone, bringing the total zavegepant funding to $250 million.

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

Ibrance.In May 2020, Pfizer reported thatDecember 2021, Biohaven announced positive topline results from the independent data monitoring committeesecond pivotal clinical trial evaluating the safety and efficacy of intranasal zavegepant for the PALLAS trial had concluded afteracute 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 2 hours and showed broad efficacy by demonstrating statistically significant superiority to placebo across a total of 15 prespecified primary and secondary outcome measures. Biohaven plans to file an NDA for zavegepant with the interim analysis that the PALLAS trial was “unlikely to show a statistically significant improvementFDA in the primary endpointfirst half of invasive disease-free survival.” In October 2020, Pfizer announced that the Phase 3 PENELOPE-B trial did not meet the primary endpoint of improved invasive disease-free survival in women with hormone receptor-positive, human epidermal growth factor-negative early breast cancer who have residual invasive disease after completing neoadjuvant chemotherapy. As a result, we will not be entitled to any royalties or milestone payments from this R&D funding arrangement.

2022 and other countries thereafter.

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 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 Reconciliations” 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 product: (i) Cash collections from royalty assets (financial assets and intangible assets), (ii) Other royalty cash collections, (iii) Distributions from non-consolidated affiliates,equity method investees, plus (2) Proceeds from available for sale debt securities and; less (3)(1) Distributions to non-controlling interestinterests, which represents contractual distributions of royalty receipts and proceeds from available for sale debt securities to our historical non-controlling interest attributable to a de minimis interest in RPCT held by certain legacy investors and to a new non-controlling interest that was created as a result of the Exchange Offer Transactions in February 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.

45


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 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 costs and Payments for rebatesfrom the Statementstatements of Cash Flows.cash flows.

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

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

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.


46
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ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The table below includes the royalty receipts and non-GAAP financial results for the three months ended March 31, 2022 and 2021 and 2020 by product.
(in thousands)Three months ended March 31,Change
20212020$%
Products
Cystic fibrosis franchise (1)$166,809 $99,403 $67,406 67.8 %
Imbruvica89,135 77,709 11,426 14.7 %
Tysabri86,921 83,807 3,114 3.7 %
HIV franchise (2)46,500 83,887 (37,387)(44.6)%
Promacta44,126 35,748 8,378 23.4 %
Xtandi41,045 34,777 6,268 18.0 %
Januvia, Janumet, Other DPP-IVs (3)35,761 34,788 973 2.8 %
Nurtec ODT/Biohaven payment (4)16,501 — 16,501 — %
Prevymis8,630 — 8,630 — %
Farxiga/Onglyza8,562 — 8,562 — %
Crysvita3,588 — 3,588 — %
Emgality3,264 1,977 1,287 65.1 %
Erleada3,104 1,438 1,666 115.9 %
IDHIFA2,888 — 2,888 — %
Trodelvy2,605 — 2,605 — %
Evrysdi1,677 — 1,677 — %
Tazverik464 — 464 — %
Other Products (5)87,898 90,110 (2,212)(2.5)%
Total Royalty Receipts$649,478 $543,644 $105,834 19.5 %
Distributions to non-controlling interest(125,721)(161,387)35,666 (22.1)%
Adjusted Cash Receipts (non-GAAP)$523,757 $382,257 $141,500 37.0 %
Payments for operating and professional costs(42,160)(25,838)(16,322)63.2 %
Adjusted EBITDA (non-GAAP)$481,597 $356,419 $125,178 35.1 %
Ongoing development-stage funding payments$(2,641)$(7,639)$4,998 (65.4)%
Interest paid, net(62,952)(48,867)(14,085)28.8 %
Swap collateral received— 45,252 (45,252)(100.0)%
Swap termination payments— (35,448)35,448 (100.0)%
Investment in non-consolidated affiliates(8,714)(13,142)4,428 (33.7)%
Contributions from non-controlling interest- R&D1,997 1,260 737 58.5 %
Adjusted Cash Flow (non-GAAP)$409,287 $297,835 $111,452 37.4 %
Weighted average Class A ordinary shares outstanding - diluted607,148n/a
product in order of contribution to royalty receipts for the three months ended March 31, 2022 (in thousands).

RoyaltiesFor the Three Months Ended March 31,2022 vs. 2021 Change
20222021$%
Cystic fibrosis franchise (1)$201,882 $166,809 $35,073 21.0 %
Tysabri97,439 86,921 10,518 12.1 %
Imbruvica87,171 89,135 (1,964)(2.2)%
Promacta47,897 44,126 3,771 8.5 %
Xtandi43,395 41,045 2,350 5.7 %
Januvia, Janumet, Other DPP-IVs (2)35,682 35,761 (79)(0.2)%
Tremfya28,224 — 28,224 — %
Nurtec ODT/Biohaven payment (3)20,375 16,501 3,874 23.5 %
Cabometyx/Cometriq12,857 — 12,857 — %
Farxiga/Onglyza9,469 8,562 907 10.6 %
Evrysdi9,197 1,677 7,520 *
Trodelvy4,892 2,605 2,287 87.8 %
Erleada4,886 3,104 1,782 57.4 %
Emgality4,764 3,264 1,500 46.0 %
Crysvita4,712 3,588 1,124 31.3 %
Orladeyo4,426 12 4,414 *
Prevymis4,126 8,630 (4,504)(52.2)%
Oxlumo766 — 766 — %
Other products (4)88,871 137,738 (48,867)(35.5)%
Total royalty receipts$711,031 $649,478 $61,553 9.5 %
Distributions to non-controlling interests(106,385)(125,721)19,336 (15.4)%
Adjusted Cash Receipts (non-GAAP)$604,646 $523,757 $80,889 15.4 %
Payments for operating and professional costs(48,902)(42,160)(6,742)16.0 %
Adjusted EBITDA (non-GAAP)$555,744 $481,597 $74,147 15.4 %
Development-stage funding payments - ongoing(500)(2,641)2,141 (81.1)%
Development-stage funding payments - upfront and milestones(100,000)— (100,000)— %
Interest paid, net(85,734)(62,952)(22,782)36.2 %
Investments in equity method investees(3,050)(8,714)5,664 (65.0)%
Contributions from non-controlling interests- R&D624 1,997 (1,373)(68.8)%
Adjusted Cash Flow (non-GAAP)$367,084 $409,287 $(42,203)(10.3)%
Weighted average Class A ordinary shares outstanding - diluted607,201607,148
*Percentage change is not meaningful.

(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.
(2) The HIV franchise includes the following approved products: Atripla, Truvada, Emtriva, Complera, Stribild, Genvoya, Descovy, Odefsey, Symtuza and Biktarvy. Royalties are received on the emtricitabine portion of sales only.
(3) Januvia, Janumet, Other DPP-IVs include the following approved products: Tradjenta, Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by Boehringer Ingelheim, AstraZeneca, Novartis and Takeda.
(4) (3)Includes royalty receipts for Nurtec ODT of $4.8 million and $0.9 million for the three months ended March 31, 2022 and the redemption2021, respectively, and quarterly redemptions of $15.6 million in 2022 and 2021 of the Series A Biohaven Preferred Shares of $15.6 million (presented as Proceeds from available for sale debt securities on the Statementstatements of Cash Flows)cash flows).
(5) (4)Other 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 from non-consolidated affiliatesequity method investees on the Statementstatements of Cash Flows)cash flows), Letairis, Lyrica, Cimzia, Conbriza/Fablyn/Viviant, Entyvio, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Priligy, Soliqua, Orladeyo, ThalomidTazverik and contributions from the Legacy SLP Interest.






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


Adjusted Cash Receipts (non-GAAP)

Three Months Ended March 31, 20212022 and 20202021

Adjusted Cash Receipts increased by $141.5$80.9 million to $523.8$604.6 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020,2021, primarily driven by an increase of $72.6 million in royalty receipts from the performance ofexisting products, including the cystic fibrosis franchise,,Imbruvica and new assets acquired subsequent to offset by a decline of $52.9 million from matured royalties, primarily the three months ended March 31, 2020. Offsetting the increase inHIV franchise. Additionally, we received royalty receipts is a decline in royalty receipts from theHIV franchise, due to loss of exclusivity for Truvada and Atripla, and the maturities of Lyrica and Letairis. The increase in Adjusted Cash Receipts is further driven by a decrease in distributions to non-controlling interest, primarily due to a non-recurring distribution to the Legacy Investors Partnerships in connection with the Exchange Offer Transactions in February 2020 that occurred$41.8 million in the three months ended March 31, 2020.2022 from newly acquired assets, primarily Tremfya, Cabometyx/Cometriq and Oxlumo, The increase in Adjusted Cash Receipts also reflects a decline in distributions to non-controlling interests due to maturing royalties jointly owned by the legacy investors.

Below we discuss the key drivers of royalty receipts.

Royalty Receipts

Cystic fibrosis franchise – Royalty receipts from the cystic fibrosis franchise, which includes Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio, all approvedwhich are marketed by Vertex for patients with certain mutations causing cystic fibrosis, increased by $67.4$35.1 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020.2021. The increase was primarily driven by a clawback adjustment related to Vertex’s agreement with the French Authorities around reimbursementlaunch of Kaftrio in multiple additional countries outside the United States and the performance of Trikafta in the United States, including its uptake in children 6 through 11 years old.

Tysabri – Royalty receipts from Tysabri, which is marketed by Biogen for Orkambi that reduced royalty receiptsthe treatment of multiple sclerosis, increased by $10.5 million in the three months ended March 31, 2020, as well as growth in sales for the overall cystic fibrosis franchise resulting from continued uptake of Trikafta in the United States and Kaftrio in Europe. Following our acquisition of the residual interest from the Cystic Fibrosis Foundation in2022 compared to the three months ended DecemberMarch 31, 2020, Royalty Pharma is entitled to all royalty receipts on annual worldwide net sales above $5.8 billion.2021, primarily driven by continued global patient growth and positive channel dynamics in 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 $11.4$2.0 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020, driven by continued penetration in patients with chronic lymphocytic leukemia.

Tysabri – Royalty receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, increased by $3.1 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

HIV franchise – Royalty receipts from the HIV franchise, which is based on products marketed by Gilead that contain emtricitabine, including Biktarvy, Genvoya and Truvada, among others, decreased by $37.4 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease wasprimarily driven by a declineslower-than-anticipated market recovery from COVID-19 in sales volumes of Truvadachronic lymphocytic leukemia and Atripla following loss of exclusivityincreased share pressure from newer therapies in the United StatesStates. This decline was partially offset by growth in October 2020 as well as a lower percentage of combination sales attributable to emtricitabine inregions outside the United States.

Promacta – Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia purpura (ITP) and aplastic anemia, increased by $8.4$3.8 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020.2021. This growth was primarily driven by increased use in immune thrombocytopeniaITP and further uptake as first-line treatment for severe aplastic anemia in the United States.

Xtandi – Royalty receipts from Xtandi, which is marketed by Pfizer and Astellas for the treatment of prostate cancer, increased by $6.3$2.4 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020,2021, primarily driven by demand across various prostate cancer indications.

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., was relatively consistent in three months ended March 31, 20212022 compared to the three months ended March 31, 2020.2021.

Tremfya – Royalty receipts from Tremfya, which is marketed by Johnson & Johnson for the treatment of plaque psoriasis and active psoriatic arthritis, were $28.2 million in the three months ended March 31, 2022 primarily driven by continued market share gains. We acquired the Tremfya royalty in July 2021.

Nurtec ODTODT/Biohaven payment – Royalty receipts from Nurtec ODT, marketed by Biohaven and Pfizer for the acute and preventative treatment of migraine, were $0.9 million in the first quarter of 2021. In addition, as a result of the approval of Nurtec ODT in February 2020,
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Royalty Pharma received a $15.6 million fixed payment from Biohaven, the first of 16 consecutive quarterly payments to be received from Biohaven relating to the Series A Preferred Shares.

Distributions to Non-Controlling Interest

Distributions to non-controlling interest decreasedincreased by $35.7 million to $125.7$3.9 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020,2021. In addition, we received $15.6 million in fixed payments from Biohaven related to the Series A Biohaven Preferred Shares during each of the three months ended March 31, 2022 and 2021.

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

Cabometyx/Cometriq – Royalty receipts from Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda, were $12.9 million in the three months ended March 31, 2022, primarily driven by 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 decreased by $19.3 million to $106.4 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, which positively impacted Adjusted Cash Receipts. The decrease in distributions to non-controlling interestinterests is primarily due to a non-recurring distribution tomaturing royalties jointly owned by the Legacy Investors Partnerships in connection with the Exchange Offer Transactions in February 2020 that occurred in the three months ended March 31, 2020.legacy investors.

Adjusted EBITDA (non-GAAP)

Three Months Ended March 31, 20212022 and 20202021

Adjusted EBITDA increased by $125.2$74.1 million to $481.6$555.7 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 20202021 as a result of the factors noted above in “Adjusted Cash Receipts (Non-GAAP). Payments for operating and professional costs, the only adjustment between Adjusted Cash Receipts and Adjusted EBITDA, increased in 2021 as a result of higher costs for Operating and Personnel Payments under the terms of our Management Agreement offset by a decrease in non-recurring professional services fees and refinancing fees incurred in the three months ended March 31, 2020 in connection with the Reorganization Transactions.2022, primarily driven by higher Operating and Personnel Payments due to increased cash receipts from royalty investments.

Adjusted Cash Flow (non-GAAP)

Three Months Ended March 31, 20212022 and 20202021

Adjusted Cash Flow increaseddecreased by $111.5$42.2 million to $409.3$367.1 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 20202021, primarily for the same reasons noted above in “Adjusted Cash Receipts (Non-GAAP).” Thedriven by upfront and milestone development-stage funding payments of $100.0 million to Cytokinetics to acquire a royalty on a development-stage product candidate and a $22.8 million increase in Adjusted Cash Flow was offset by a $14.1 million increase innet interest paid in the three months ended March 31, 20212022 due to a shift to semi-annual interest payments on the Notes, for which we made our first interest payment of $63.8 millionon the 2021 Notes. The decrease in March 2021. Further, the Adjusted Cash Flow for the three months ended March 31, 2020 was positively impactedpartially offset by the net cash received uponincreases in “Adjusted Cash Receipts” and “Adjusted EBITDA” (non-GAAP) noted above and lower funding requirements by the termination of our interest rate swaps in February 2020 for which we did not have comparable activity.Avillion Entities.

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.

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.

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

In addition, we believe that Adjusted Cash Receipts and Adjusted Cash Flow help identify underlying trends in the business and permit investors to more fully understand how management assesses the performance of the Company, including planning and forecasting for future periods. Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of the Company’s ability to generate cash from operations. Both measures are an indication of the strength of the Company and the performance of the business. Management uses Adjusted Cash Receipts and Adjusted Cash Flow when considering available cash, including for decision-making purposes related to funding of acquisitions, voluntary debt repayments, dividends and other discretionary investments. Further, these non-GAAP financial measures help management, the audit committee and investors evaluate our 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. Noncompliance with the interest coverage ratio and leverage ratio covenants under the credit agreement could result in our lenders requiring the Company to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited under our credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the assessment of our liquidity.

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

The non-GAAP financial measures used in this Quarterly 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 being Net 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 (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 received, (4) Development-stage funding payments, (5) Payments for operating and professional costs, (6) Payments for rebates, and (7)Swap termination Termination payments on derivative instruments, and to deduct (1) Distributions to non-controlling interestinterests, 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 (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 Interest received, and (4) Development-stage funding payments and (5) Swap terminationTermination payments on derivative instruments, and to deduct (1) Distributions to non-controlling interestinterests and (2) SwapDerivative collateral posted or (received), net.

To arrive at Adjusted Cash Flow, we start with Net cash provided by operating activities and adjust for the following items from the Statementstatements of Cash Flows:cash flows: to add back (1) Proceeds from available for sale debt securities (redemption of Biohaven Preferred Shares), (2) Distributions from non-consolidated affiliatesequity method investees classified as Cash used incash inflows from investing activities (3) Upfront development-stage funding payments, and (4)(3) Contributions from non-controlling interest- Rinterests-R&D, and to deduct (1) Distributions to non-controlling interestinterests and (2) InvestmentInvestments in non-consolidated affiliatesequity 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.

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

(in thousands)(in thousands)For the three months ended
March 31,
(in thousands)For the Three Months Ended March 31,
2021202020222021
Net cash provided by operating activities (GAAP)Net cash provided by operating activities (GAAP)$526,100 $471,104 Net cash provided by operating activities (GAAP)$460,270 $526,100 
Adjustments:Adjustments:Adjustments:
Proceeds from available for sale debt securities (1), (2)Proceeds from available for sale debt securities (1), (2)15,625 — Proceeds from available for sale debt securities (1), (2)15,625 15,625 
Interest paid, net (2)Interest paid, net (2)62,952 48,867 Interest paid, net (2)85,734 62,952 
Ongoing development-stage funding payments (3)2,641 7,639 
Development-stage funding payments - ongoing (3)Development-stage funding payments - ongoing (3)500 2,641 
Development-stage funding payments - upfront and milestones (3)Development-stage funding payments - upfront and milestones (3)100,000 — 
Payments for operating and professional costsPayments for operating and professional costs48,902 42,160 
Payments for operating and professional costs42,160 25,838 
Swap termination payments— 35,448 
Distributions to non-controlling interest (2)(125,721)(161,387)
Swap collateral received— (45,252)
Distributions to non-controlling interests (2)Distributions to non-controlling interests (2)(106,385)(125,721)
Adjusted Cash Receipts (non-GAAP)Adjusted Cash Receipts (non-GAAP)$523,757 $382,257 Adjusted Cash Receipts (non-GAAP)$604,646 $523,757 
Net cash provided by operating activities (GAAP)Net cash provided by operating activities (GAAP)$526,100 $471,104 Net cash provided by operating activities (GAAP)$460,270 $526,100 
Adjustments:Adjustments:Adjustments:
Proceeds from available for sale debt securities (1), (2)Proceeds from available for sale debt securities (1), (2)15,625 — Proceeds from available for sale debt securities (1), (2)15,625 15,625 
Interest paid, net (2)Interest paid, net (2)62,952 48,867 Interest paid, net (2)85,734 62,952 
Ongoing development-stage funding payments (3)2,641 7,639 
Development-stage funding payments - ongoing (3)Development-stage funding payments - ongoing (3)500 2,641 
Development-stage funding payments - upfront and milestones (3)Development-stage funding payments - upfront and milestones (3)100,000 — 
Swap termination payments— 35,448 
Distributions to non-controlling interest (2)(125,721)(161,387)
Swap collateral received— (45,252)
Distributions to non-controlling interests (2)Distributions to non-controlling interests (2)(106,385)(125,721)
Adjusted EBITDA (non-GAAP)Adjusted EBITDA (non-GAAP)$481,597 $356,419 Adjusted EBITDA (non-GAAP)$555,744 $481,597 
Net cash provided by operating activities (GAAP)Net cash provided by operating activities (GAAP)$526,100 $471,104 Net cash provided by operating activities (GAAP)$460,270 $526,100 
Adjustments:Adjustments:Adjustments:
Proceeds from available for sale debt securities (1), (2)Proceeds from available for sale debt securities (1), (2)15,625 — Proceeds from available for sale debt securities (1), (2)15,625 15,625 
Distributions to non-controlling interest (2)(125,721)(161,387)
Investment in non-consolidated affiliates (2), (4)(8,714)(13,142)
Contributions from non-controlling interests-R&D (2)Contributions from non-controlling interests-R&D (2)1,997 1,260 Contributions from non-controlling interests-R&D (2)624 1,997 
Distributions to non-controlling interests (2)Distributions to non-controlling interests (2)(106,385)(125,721)
Investments in equity method investees (2), (4)Investments in equity method investees (2), (4)(3,050)(8,714)
Adjusted Cash Flow (non-GAAP)Adjusted Cash Flow (non-GAAP)$409,287 $297,835 Adjusted Cash Flow (non-GAAP)$367,084 $409,287 

(1) Receipts from the quarterly redemption of ourthe Series A Biohaven Preferred Shares are presented as Proceeds from available for sale debt securities on the Statementstatements of Cash Flows.cash flows.
(2) The table below shows the line item for each adjustment and the direct location for such line item on the Statementstatements of Cash Flows.cash flows.
Reconciling adjustmentAdjustmentStatementStatements of Cash Flows classificationClassification
Proceeds from available for sale debt securitiesInvesting activities
Investments in non-consolidated affiliatesequity method investeesInvesting activities
Distributions to non-controlling interestinterestsFinancing activities
Interest paid, net
Operating activities (Interest paid less Interest received)
Contributions from non-controlling interest-interests- R&DFinancing activities
(3) Our lenders consider all payments made to support R&D activities for products undergoing late-stage developmentdevelopment-stage product candidates similar to asset acquisitions as these funds are expected to generate operational returns in the future. All ongoing and upfront development-stage funding payments are reported in R&D funding expense in net income and are added back in aggregate to Net cash provided by operating activities to arrive at Adjusted EBITDA. As a result, Adjusted EBITDA captures the full add-back for R&D funding payments while Adjusted Cash Flow only reflects the add-back for the upfront portion of development-stage funding payments due to the fact that ongoing development-stage funding payments are considered an ongoing business expense.payments.
(4) We consider all payments to fund our operating joint ventures that are performing R&D activities for products undergoing late stage developmentdevelopment-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.
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ROYALTY PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. We evaluate an array of royalty acquisition opportunities on a continuous basis and expect to continue to make acquisitions in the ordinary course of our business. Our team has established a strong track record of identifying, evaluating and investing in royalties tied to leading products across therapeutic areas and treatment modalities. We invest in approved products and development-stage product candidates that have generated robust proof of concept data. We invest in these therapies through the purchase of royalties, by making hybrid investments and by acquiring businesses with significant existing royalty assets or the potential for the creation of such assets.

During the three months ended March 31, 2021, we invested $514.4 million in royalties and related assets, including two new investments. For the three months ended March 31, 2020,2022, we invested $170.1$202.2 million in royalties and related assets, including two new investments.assets. While volatility exists in the quantum of our new acquisitions on a year-to-year basis due to the unpredictable timing of new investment opportunities, we have consistently deployed significant amounts of cash when measured over multi-year periods. Our approach is rooted in a highly disciplined evaluation process that is not dictated by a minimum annual investment threshold.

Summary of Royalty Acquisition Activity

In January 2022, we acquired a royalty interest in aficamten from Cytokinetics, Incorporated (“Cytokinetics”) for $150 million comprised of an upfront payment of $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. Cytokinetics is required to draw $25 million if a certain contingency is met and has the option to draw the remaining $225 million upon the occurrence of certain regulatory and clinical development milestones.

In November 2021, we acquired incremental royalty interests in BCX9930 and Orladeyo (berotralstat) from BioCryst for an upfront cash payment of $150 million. Additionally, we paid $50 million to purchase 3,846 thousand shares of common stock in BioCryst, 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 investment in the global launch of Orladeyo (berotralstat).

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

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

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

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

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

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

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

In August 2020,April 2021, we entered into an expanded agreement with Biohaven Pharmaceuticals for upMSCI Inc. (“MSCI”), a leading provider of critical decision support tools and services, to $450 millionassist MSCI in the design of a classification framework and index methodologies to fundexpand MSCI’s thematic index suite with the developmentlaunch of zavegepant and the commercialization of Nurtec ODT. Biohaven received an upfront payment of $150 million at closing and received an additional $100 million payment in March 2021 upon the start of the oral zavegepant phase 3 program. Wenew indexes. In return, we will receive a royalty on Nurtec ODTportion of MSCI’s revenues from those indexes. The financial impact associated with this transaction has not been material to date and zavegepant and success-based milestone payments based on zavegepant regulatory approvals. We will also provide further supportis not expected to be material for the ongoing launch of Nurtec ODT through the purchase of committed, non-contingent Commercial Launch Preferred Equity for a total of $200 million payable between 2021 and 2024 which we started funding in the three monthsyear ended MarchDecember 31, 2021. In return, Biohaven will pay a series of equal fixed payments between 2025 and 2030.

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

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

In the first quarter of 2020, we acquired a royalty on Entyvio, an approved product for the treatment of ulcerative colitis and Crohn’s disease, from The General Hospital Corporation in exchange for an upfront payment of $86.6 million.2022.

Liquidity and Capital Resources

Overview

Our primary source of liquidity is cash provided by operations. For both the three months ended March 31, 20212022 and 2020,2021, we generated $526.1$460.3 million and $471.1$526.1 million, respectively, in Net cash provided by operating activities. We believe that our existing capital resources, cash provided by operating 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 R&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, other than R&D funding commitments, include interest expense, our Operating and Personnel Payments, and legal and professional fees.

We have access to substantial sources of funds in 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 completed our IPO and received net proceeds of approximately $1.9 billion from the IPO after deducting underwriting discounts and commissions of approximately $86.3 million. In September 2020, we refinanced our syndicated term loan facilities with $6.0issued $1.3 billion of Notes.senior unsecured notes. Additionally, we entered intohave a $1.5 billion Revolving Credit Facility in September 2020. The 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 March 31, 2021. Our ability to satisfy our working capital needs,2022. As of March 31, 2022 and December 31, 2021, we had total long-term debt serviceoutstanding of $7.1 billion and other obligations, and to comply with the financial covenants under our financing agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.$7.1 billion, respectively.

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 March 31, 2021Our ability to satisfy our working capital needs, debt service and December 31, 2020, we had total long-term debt outstanding of $5.8 billionother obligations, and $5.8 billion, respectively. In February 2020, in connectionto 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. In September 2020, we repaid in fullother factors, many of which are beyond our Senior Secured Credit facilities entered into in February 2020 using the proceeds of the Notes in addition to cash on hand.control.

Cash flowsFlows

The following table summarizesand analysis of cash flow changes presents a summary of our cash flow activities:activity for the three months ended March 31, 2022 and 2021:

(in thousands)(in thousands)Three Months Ended March 31,(in thousands)For the Three Months Ended March 31,2022 vs. 2021
2021202020222021Change
Cash provided by (used in):Cash provided by (used in):Cash provided by (used in):
Operating activities Operating activities$526,100 $471,104  Operating activities$460,270 $526,100 $(65,830)
Investing activities Investing activities$(599,300)$(761,754) Investing activities11,165 (599,300)610,465 
Financing activities Financing activities$(226,670)$542,524  Financing activities(220,966)(226,670)5,704 


5351

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

Analysis of Cash Flow Changes

Operating activitiesActivities

Cash provided by operating activities increaseddecreased by $55.0$65.8 million in the three months ended March 31, 20212022 compared to the three months ended March 31, 2020,2021, primarily driven by upfront and milestone development-stage funding payments of $100.0 million to Cytokinetics to acquire a royalty on a development-stage product candidate. Additionally, interest paid increased by $21.7 million in the three months ended March 31, 2022 due to the first interest payment made on the 2021 Notes. The higher use of cash was partially offset by an increase in cash collections from financial royalty assets of $85.9$47.7 million. Partially offsetting

Investing Activities

Cash provided by investing activities was $11.2 million in the increasethree months ended March 31, 2022 compared to cash used in investing activities of $599.3 million in the three months ended March 31, 2021, primarily driven by a $503.0 million decrease in cash used to acquire financial royalty receipts wasassets and a $16.3$182.8 million increase in payments for operating and professional costs primarily driventhe overall net cash provided by Operating and Personnel Payments under the terms of our Management Agreement and a $13.4 million increase in interest paid, primarily due to the shift from quarterly to semi-annual interest payments with the issuance of the Notes.marketable securities. Additionally, in the three months ended March 31, 2020,2022, we received a net cash payment of $9.8paid approximately $84.0 million uponto purchase available for sales debt securities related to Cytokinetics Commercial Launch Funding and additional equity securities in Epizyme.

Financing Activities

Cash used in financing activities was relatively consistent in the termination our interest rate swaps for which we did not have comparable activity inthree months ended March 31, 2022 compared to the three months ended March 31, 2021.

Investing activities

Cash used in investing activities decreased by $162.5 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by a $513.8 million decrease in the overall cash movement related to marketable securities and offset by a $403.8 million increase in cash used to acquire financial royalty assets. Additionally, in the three months ended March 31, 2020, we used $50.0 million to purchase equity securities for which we did not have comparable activity in the three months ended March 31, 2021.

Financing activities

Cash used in financing activities in the three months ended March 31, 2021 was $226.7 million compared to cash provided by financing activities of $542.5 million in the three months ended March 31, 2020. Cash used in financing activities in the three months ended March 31, 2021 was primarily comprised of dividends paid to shareholders of $66.0 million and distributions to non-controlling interest of $162.9 million. Cash provided by financing activities in the three months ended March 31, 2020 was primarily comprised of the repayment of our pro rata portion of RPIFT’s outstanding debt in February 2020 and subsequent debt issuance, which resulted in net proceeds of $869.6 million, for which there was no comparable activity in the three months ended March 31, 2021.

Sources of Capital

As of March 31, 2022, our cash and cash equivalents and marketable securities totaled $1.8 billion and $484.2 million, respectively. As of December 31, 2021, our cash and cash equivalents and marketable securities totaled $708.8 million and $1.1 billion, respectively. As of December 31, 2020, our cash and cash equivalents and marketable securities totaled $1.0$1.5 billion and $983.3$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

Our borrowings at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):
Date of IssuanceMaturityMarch 31, 2022December 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(198,862)(203,930)
Total long-term debt$7,101,138 $7,096,070 
52

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


Senior Unsecured Notes

On 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 Notessenior unsecured note (the “2020 Notes”) with a weighted average coupon rate of 2.125% and requiring annual interest payments of approximately $125.7$127.5 million, on an annual basis, paid semi-annually. The Notes consist of the following:
$1.0 billion principal amount of 0.750% senior notes due 2023, issued at 99.322% of par;
$1.0 billion principal amount of 1.200% senior notes due 2025, issued at 98.875% of par;
$1.0 billion principal amount of 1.750% senior notes due 2027, issued at 98.284% of par;
$1.0 billion principal amount of 2.200% senior notes due 2030, issued at 97.760% of par;
$1.0 billion principal amount of 3.300% senior notes due 2040, issued at 95.556% of par; and
$1.0 billion principal amount of 3.550% senior notes due 2050, issued at 95.306% of par.

54


The indenture governing the Notes contains certain covenants which we were in compliance with as of March 31, 2021. We used the net proceeds from the 2020 Notes offering, together with available cash on hand, to repay in full the Senior Secured Credit Facilities.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 which we were in compliance as of March 31, 2022.

Senior Unsecured Revolving Credit Facility

On September 18, 2020,15, 2021, we entered into an amended and restated revolving credit agreement (the “Credit Agreement”). The Credit Agreement amends 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 which provides forRevolving Credit Facility with borrowing capacity of up to $1.5$1.5 billion for general corporate purposes. Our revolving credit agreement includesThe Credit Agreement extends the maturity of the Revolving Credit Facility to September 15, 2026. The Credit Agreement contains certain customary financial covenants with which we were in compliance as of March 31, 2021. 2022. The Revolving Credit Facility remains undrawn and available to us as of March 31, 2021.2022.

Senior Secured Credit FacilitiesUses of Capital

Acquisitions of Royalties

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

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

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. A synthetic royalty may also include contingent milestone payments, or be structured as a long-term stream of fixed-payments with a predetermined schedule. In many of our synthetic royalties, we also make investments in the public equity of the company, where the main value driver of the company is the product for which we concurrently acquired a royalty.

Development-stage Funding – We have historically funded 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. We have also made upfront development-stage funding payments to biotechnology companies to acquire royalties and/or milestones on development-stage product candidates.

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

Distributions to Shareholders

We paid dividends to holders of our Class A ordinary shares of $82.3 million and $66.0 million in the three months ended March 31, 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.
53

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


Other Funding Arrangements

In January 2022, we entered into a long-term funding agreement with Cytokinetics to provide capital 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. Cytokinetics is required to draw $25 million if a certain contingency is met and has the option to draw the remaining $225 million upon the occurrence of certain regulatory and clinical development milestones.

In June 2021, we announced a long-term strategic funding partnership with MorphoSys to support MorphoSys’ acquisition of Constellation, which closed on July 15, 2021. As part of the partnership, we agreed to provide MorphoSys up to $350 million of Development Funding Bonds, which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million of Development Funding Bonds. In return, we expect to receive a return of 2.2 times the amount funded on the Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding. As of March 31, 2022, MorphoSys has not drawn any amount under the Development Funding Bonds.

On February 11,August 7, 2020, in connection with the Exchange Offer Transactions 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,we entered into a term loan credit agreement (the “Senior Secured Creditthe Series B Biohaven Preferred Share Purchase Agreement (“Series B Biohaven Preferred Share Agreement”) with BankBiohaven where we committed to acquire 3,992 shares of America, N.A.Series B Biohaven Preferred Shares at a price of $50,100 per preferred share (the “Commercial Launch Preferred Equity”), as administrative agent, the lenders party thereto from time to time and the other parties thereto. In September 2020, we repaid in full the outstanding principal amountsfor a total of term loans under Senior Secured Credit Facilities governed by the Senior Secured Credit Agreement with net proceeds$200 million payable on a quarterly basis from the Notes.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 have a remaining commitment of $115.0 million under our Commercial Launch Preferred Equity as of March 31, 2022.

We have other funding arrangements where we are contractually obligated to fund R&D activities performed by our development partners and to provide additional capital related to our equity method investment 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 $36.7 million as of March 31, 2022.

We hadalso have certain milestone payments that are contingent on the following indebtedness outstandingsuccessful achievement of certain development, regulatory approval or commercial milestones. As such, these contingent milestone payments are not considered contractual obligations. In the three months ended March 31, 2022, we made a $50 million payment to Cytokinetics in connection with their initiation of the first pivotal clinical trial in oHCM. In the three months ended March 31, 2021, we made a $100 million payment to Biohaven related to a development milestone that was achieved upon the start of the oral zavegepant Phase 3 program.

Debt Service

As of March 31, 2022, the future principal and interest payments under our Notes over the next five years and thereafter are as follows:

(in thousands)Principal PaymentsInterest Payments
Year
Remainder of 2022$— $81,925 
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 $2,773,075 
(1)Excludes unamortized debt discount and issuance costs of $198.9 million as of March 31, 2021 and December 31, 2020:2022, which are amortized through interest expense over the remaining life of the underlying debt obligations.

(in thousands)MaturityInterest rateMarch 31, 2021December 31, 2020
Senior Unsecured Notes:
Senior unsecured notes (issued at 99.322% of par)9/20230.750%$1,000,000 $1,000,000 
Senior unsecured notes (issued at 98.875% of par)9/20251.200%1,000,000 1,000,000 
Senior unsecured notes (issued at 98.284% of par)9/20271.750%1,000,000 1,000,000 
Senior unsecured notes (issued at 97.760% of par)9/20302.200%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.556% of par)9/20403.300%1,000,000 1,000,000 
Senior unsecured notes (issued at 95.306% of par)9/20503.550%1,000,000 1,000,000 
Total senior secured debt6,000,000 6,000,000 
Unamortized debt discount and issuance costs(178,928)(183,416)
Total long-term debt, including current portion$5,821,072 $5,816,584 
54

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

RPIFT Senior Secured Credit FacilitiesOperating and Personnel Payments

Under the Management Agreement, we pay quarterly Operating and Personnel 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 RPIFT Senior Secured Credit Facilities (the “Prior Credit Facility”) were issued by our wholly-owned subsidiary, RPIFT,expenses incurred in respect of Operating and were investment grade rated. RPIFT used interest rate swap agreementsPersonnel Payments are expected to fix a portioncomprise the most significant component of its floating rate debt. In February 2020, in connection with the Exchange Offer Transactions, the Prior Credit Facility was repaid in full and new long-term debt was issued by RPI Intermediate FT.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. TheAs of March 31, 2022, the par value and carrying value of the total outstanding and guaranteed Notes was $6.0$7.3 billion and $5.8$7.1 billion, respectively as of March 31, 2021.respectively.

55


The following financial information presents summarized combined balance sheet information as of March 31, 20212022 and December 31, 2020,2021 and summarized combined statementstatements of comprehensive incomeoperations information for the three months ended March 31, 20212022 for Royalty Pharma plc and RP Holdings. All intercompany balances and transactions between Royalty Pharma plc and RP Holdings are eliminated in the presentation of the combined financial statements. RP Holdings’ most significant asset is its investment in operating subsidiaries, which has been eliminated in the table below to exclude investments in Non-Guarantor Subsidiaries. Our operating subsidiaries hold the majority of our cash and cash equivalents, marketable securities and financial royalty assets. As a result, our ability to make required payments on the Notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on distributions from the operating subsidiaries. Amounts presented below do not represent our total consolidated amounts as of March 31, 20212022 and December 31, 2020 and2021 or for the three months ended March 31, 2021.2022.

Summarized Combined Balance SheetSummarized Combined Balance SheetAs ofSummarized Combined Balance SheetAs ofAs of
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Current assetsCurrent assets$50,241 $51,625 Current assets$45,001 $95,946 
Current interest receivable on intercompany notes due from Non-Guarantor SubsidiariesCurrent interest receivable on intercompany notes due from Non-Guarantor Subsidiaries3,62515,709Current interest receivable on intercompany notes due from Non-Guarantor Subsidiaries4,889 16,974 
Non-current assetsNon-current assets4,2564,558Non-current assets3,870 4,145 
Non-current intercompany notes receivable due from Non-Guarantor SubsidiariesNon-current intercompany notes receivable due from Non-Guarantor Subsidiaries2,057,7622,101,656Non-current intercompany notes receivable due from Non-Guarantor Subsidiaries2,058,336 2,039,576 
Current liabilitiesCurrent liabilities12,82044,161Current liabilities15,369 59,030 
Current interest payables on intercompany notes due to Non-Guarantor Subsidiaries3,62515,709
Current intercompany payables due to Non-Guarantor Subsidiaries1,182
Current interest payable on intercompany notes due to Non-Guarantor SubsidiariesCurrent interest payable on intercompany notes due to Non-Guarantor Subsidiaries3,766 16,974 
Non-current liabilitiesNon-current liabilities5,820,5785,816,133Non-current liabilities7,100,476 7,095,450 
Non-current intercompany notes payable due to non-Guarantor Subsidiaries2,057,7622,101,656
Non-current intercompany notes payable due to Non-Guarantor SubsidiariesNon-current intercompany notes payable due to Non-Guarantor Subsidiaries2,013,336 2,039,576 
Summarized Combined Statement of Comprehensive IncomeOperationsFor the period endedThree Months Ended
March 31, 2022
(in thousands)March 31, 2021
Interest income on intercompany notes receivable from Non-Guarantor Subsidiaries$12,86514,139 
ExpensesOperating expenses40,46152,254 
Interest expensesexpense on intercompany notes payable with Non-Guarantor Subsidiaries12,86513,016 
Net loss40,46151,131 
Uses of Capital

Acquisitions of royalties

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

Third-party Royalties – A royalty is the contractual right to a percentage of top-line sales from a licensee’s use of a product, technology or intellectual property. The majority of our current portfolio consists of third-party royalties.
Synthetic / Hybrid Royalties – A synthetic royalty is the contractual right to a percentage of top-line sales created by the owner of a therapy in exchange for funding. In many of our synthetic royalties, we also make investments in the public equity of the company, where the main value driver of the company is the product for which we concurrently acquired a royalty.

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

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

5655


ROYALTY PHARMA PLC
Distributions to Shareholders/UnitholdersNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We paid dividends to holders of our Class A ordinary shares of $66.0 million in the three months ended March 31, 2021. We do not have a legal obligation to pay a quarterly dividend or dividends at any specified rate or at all.

We made distributions of $141.8 million to shareholders/unitholders in the three months ended March 31, 2020.

Commercial Launch Preferred Equity and Other Funding Arrangements

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

We have other funding arrangements where we are contractually obligated to fund R&D activities performed by our development partners and to provide additional capital related to our equity method investment 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 $55.7 million as of March 31, 2021.

Debt service

As of March 31, 2021, the future principal and interest payments under our Notes over the next five years and thereafter are as follows:

(in thousands)Principal PaymentsInterest Payments
Year
Remainder of 2021$— $63,750 
2022— 127,500 
20231,000,000 127,500 
2024— 120,000 
20251,000,000 120,000 
Thereafter4,000,000 1,527,500 
Total (1)$6,000,000 $2,086,250 

(1) Excludes unamortized discount and loan issuance costs on long-term debt of $178.9 million as of March 31, 2021, which are amortized through interest expense over the remaining life of the underlying debt obligations.

Commitments, Contingencies and Guarantees

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

Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval or commercial milestones. In the three months ended March 31, 2021, we made a $100.0 million payment to Biohaven related to a development milestone that was achieved upon the start of the oral zavegepant Phase 3 program.

We began purchasing the Series B Biohaven Preferred Shares in the three months ended March 31, 2021 and have a remaining commitment of $182.4 million under our Commercial Launch Preferred Equity as of March 31, 2021. There have been no other significant changes to our contractual obligations disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K.
57


(UNAUDITED)

Other Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Certain of these policies are considered critical as they have the most significant impact on our 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.assets at amortized cost using the prospective effective interest method. The application of the prospective approach to calculate interest income from our financial 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 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 2–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 volatility in foreign currency exchange rates and interest rate movements.rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the nature of the marketable securities we hold. AlthoughIn order to manage our exposures, we currently do not have any interest rate swaps or foreign currency forward contracts in place, we have historically managedfollow established risk management policies and procedures, including the impactuse of foreign currency exchange rate and interest rate risk through variousderivative financial instruments, such as swaps, rate locks and derivative instruments. We only use derivatives strategically to hedge existing interest rate exposure and to minimize volatility in cash flow and earnings arising from our exposure to foreign currency risk.forwards. We do not enter into derivative instruments for trading or speculative purposes. The counterparties to these contracts are all major financial institutions.

58


Foreign Currency Exchange Risk

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

56

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

Interest Rate Risk

We are subject to interest rate fluctuation exposure through our investments in money market accounts and marketable securities, the majority of which bear a variable interest rate. As of March 31, 2021,2022, we held cash and cash equivalents of $708.8 million,$1.8 billion, of which $415.7 million$1.3 billion was cash, $91.7$84.1 million was invested in certificates of depositcommercial paper and $201.4U.S. government securities and $421.3 million was invested in interest-bearing money market funds. We also held $1.1 billion$484.2 million in marketable securities as of March 31, 2022 invested in certificates of deposit, commercial paper and U.S. government securities.

As of December 31, 2021, we had cash and cash equivalents of $1.5 billion, of which $887.8 million was cash, $598.3 million was invested in interest-bearing money market funds and $55.0 million was invested in commercial paper and certificates of deposit. We also held $581.9 million in marketable securities at December 31, 2021 which was invested in commercial paper and certificates of deposit.

As of December 31, 2020, we had cash and cash equivalents of $1.0 billion, of which $832.7 million was cash, $151.7 million was invested in commercial paper and certificates of deposit and $24.3 million was invested in interest-bearing money market funds. In addition, as of December 31, 2020 we had $983.3 million invested in corporate debt securities, commercial paper and certificates of deposit.
The objectives of our investment policy are the preservation of capital and fulfillment of liquidity needs. In order to maximize income without assuming significant market risk, we maintain our excess cash and cash equivalents in money market funds and marketable securities, largely composed of investment grade, short to intermediate term fixed income and debt securities. Because of the short term maturities of our cash equivalents and the short term nature of our marketable securities, we do not believe that a decrease in interest rates would have any material negative impact on the fair value of our cash equivalents or marketable securities.

Our debt portfolio is managed on a consolidated basis and management makes financing decisions to achieve the lowest cost of debt capital and to maximize portfolio objectives. Following the Notes issuance in September 2020,As of March 31, 2022, 100% of our outstanding debt becamehas fixed withinterest rates. We have a total weighted average coupon rate of 2.125% as of March 31, 2021. In September 2020, we also entered into a five-year $1.5 billion Revolving Credit Facility with a variable interest rate that remained undrawn as of March 31, 2021.2022. We are subject to interest rate fluctuation exposure related to the Revolving Credit Facility, if drawn.

In connection with the Reorganization Transactions, we terminated all of
We may manage our exposure to interest rate swaps and currently do not havevolatility on future debt issuances by entering into treasury rate lock contracts to lock in place any derivative hedging our debt.the rate on the interest payments related to anticipated debt issuances.

Credit and Counterparty Risk

We are exposed to credit risk related to the counterparties with which we do business. We are subject to credit risk from our royalty assets, our receivables and our derivative contracts.financial instruments. The majority of our royalty assets and receivables arise from contractual royalty agreements that pay royalties on the sales of underlying pharmaceutical products in the United States, Europe and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The products in which we hold royalties are marketed by leading biopharmaceutical industry participants, including, among others, AbbVie, Amgen, Bristol-Myers Squibb, Celgene, Gilead, Johnson & Johnson, Lilly, Merck & Co., Pfizer, Astellas, Novartis, Biogen Roche/Genentech and Vertex. As of March 31, 20212022 and December 31, 2020,2021, Vertex, was theas marketer and payor making upof our royalties on the largest balancecystic fibrosis franchise, accounted for 32% of our current portion of Financial royalty assets, net,accounting for 28% and 27%, respectively, asrepresented the largest individual marketer and payor of our royalties on the cystic fibrosis franchise. Refer to “—Understanding Our Results of Operations” within this MD&A for a discussion of the marketers or royalty payors accounting for 10% or more of our total income and other revenues for the periods ended March 31, 2021 and 2020.royalties.

59


We monitor the financial performance and creditworthiness of the counterparties to our royalty agreements and to our derivative contractsfinancial instruments so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant losses with respect to the collection of income or revenue on our royalty assets or on the settlement of our derivative contracts.financial instruments. If a counterparty becomes bankrupt, or otherwise fails to perform its obligations under a derivative contractfinancial instruments due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contractfinancial instruments in a bankruptcy or other reorganization proceeding.

57

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

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 Officer, 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 three months ended March 31, 2021, 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

From time to time, we or the Manager may be a party to various claims, charges and litigation matters arising in the ordinary course of business. Management and legal counsel regularly review the probable outcome of such proceedings. While we cannot feasibly predict the outcome of these matters with certainty, we believe, based on examination of these matters, experience to date and discussions with counsel, that the ultimate liability, individually or in the aggregate, will not adversely affect our business, financial condition or results of operations.

Item 1A.    RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in the 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 adversely affect our business, financial condition and results of operations.

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

Recent Sales of Unregistered Securities

None.

60Issuer Purchases of Equity Securities


None.

Item 3.         DEFAULTS UPON SENIOR SECURITIES

Not applicable.
58

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


Item 4.        MINE SAFETY DISCLOSURES

Not applicable.

Item 5.         OTHER INFORMATION

Not applicable.

Item 6.         EXHIBITS

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

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

* Filed or furnished herewith
SIGNATURES

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

ROYALTY PHARMA PLC
(Registrant)

Date: May 11, 20215, 2022/s/ Pablo Legorreta
Pablo Legorreta
Chief Executive Officer
Date: May 11, 20215, 2022/s/ Terrance Coyne
Terrance Coyne
Chief Financial Officer
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