✔
| | Director | | | Ownership
Guidelines(1) | | | Shares
Owned(2) | | | Value of
Shares
($)(3) | | | Met
Guidelines | | | Bonnie Bassler, Ph.D. | | | 5x | | | 47,762 | | | 1,341,635 | | |
| | | Errol De Souza, Ph.D. | | | 5x | | | 564,585 | | | 15,859,193 | | |
| | | Catherine Engelbert | | | 5x | | | 34,221 | | | 961,268 | | | | | | Henry Fernandez | | | 5x | | | 489,298 | | | 13,744,381 | | | | | | M. Germano Giuliani | | | 5x | | | 10,330,339 | | | 290,179,223 | | |
| | | David Hodgson
| | | 5x | | | 16,421 | | | 461,266 | | | * | | | Ted Love, M.D. | | | 5x | | | 36,941 | | | 1,037,673 | | | | | | Gregory Norden | | | 5x | | | 209,105 | | | 5,873,759 | | |
| | | Rory Riggs | | | 5x | | | 3,020,099 | | | 84,834,581 | | | | |
= Met guidelines. *
| Mr. Hodgson joined our Board in June 2022 and has until June 2027 to come into compliance with the Director Share Ownership Guidelines. |
(1)
| Director Share Ownership Policy adopted by our Board. |
(2)
| Represents shares owned outright and RSUs issued for service on our Board. |
(3)
| Fair market value based on closing price of our Class A ordinary shares of $39.85 our closing share price$28.09 on December 31, 2021.29, 2023. |
Royalty Pharma | | | 2024 Proxy Statement | 40 |
TABLE OF CONTENTS Equity Compensation Plan Information The following table shows information, as of December 31, 2021,2023, regarding Royalty Pharma’s Class A ordinary shares authorized for issuance under Royalty Pharma’s 2020 Independent Director Equity Incentive Plan.Plan (the “EIP”), which is described in more detail below. As of December 31, 2021,2023, other than as described below, no equity securities were authorized for issuance under equity compensation plans not approved by shareholders. | Director | | | Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights(a) | | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights(1)
($)(b) | | | Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))(c) | | | Equity compensation plans approved by shareholders | | | 0 | | | N/A | | | 485,196 | |
We maintain the EIP in order to motivate and reward our independent directors to further the best interests of the Company and its shareholders. The EIP permits for the grant of the following types of awards to independent directors of the Company: (i) market value options; (ii) share appreciation rights; (iii) restricted stock / restricted stock unit awards; (iv) performance awards (awards subject to performance conditions) and (v) other share-based awards. For purposes of the EIP, a director is considered independent if he or she (i) is not a full- or part-time officer or employee of the Company, the Manager or any affiliate or subsidiary of either; (ii) is “independent” for purposes service on the Board within the meaning of the listing rules of Nasdaq; and (iii) was not appointed to the Board by the exercise of a power of appointment by a shareholder of the Company. Subject to the terms of the EIP, awards can be granted in respect of our Class A ordinary shares, American Depositary Shares (“ADSs”), cash or a combination thereof. Subject to adjustment, the aggregate number of Class A ordinary shares (or ADSs, as applicable) available for issuance under the EIP will not exceed 800,000 Class A ordinary shares. Royalty Pharma | | | 0
| | | N/A
| | | 657,149
| |
Royalty Pharma
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TABLE OF CONTENTS EXECUTIVE OFFICERS | | | TABLE OF CONTENTS
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The names of our executive officers, their ages and their positions are shown below. | Name | | | Age(1) | | | Title | | | Pablo Legorreta | | | 58 60 | | | Chairman and Chief Executive Officer | | | Terrance Coyne | | | 40 42 | | | Executive Vice President & Chief Financial Officer | | | Christopher Hite | | | 55 57 | | | Executive Vice President & Vice Chairman | | | George Lloyd | | | 62 64 | | | Executive Vice President, Investments & General Counsel Chief Legal Officer | | | James Reddoch,Marshall Urist, M.D., Ph.D.
| | | 52 48 | | | Executive Vice President & Chief Scientific Officer
| | | Marshall Urist, M.D., Ph.D.
| | | 46
| | | Executive Vice President, Research & Investments | |
(1)
| As of the Record Date of the 20222024 Annual Meeting. |
All of our executive officers are employees of the Manager and provide all of their services to Royalty Pharma under the Management Agreement between us and the Manager. There are no family relationships among any of our executive officers.
| | | Mr. Legorreta’s biographical information is set forth under the caption “Proposal One-Election of Directors” above. | | | | Terrance Coyne joined RP Management in 2010. He serves as our Executive Vice President & Chief Financial Officer. Previously, Mr. Coyne was a biotechnology equity research associate, a senior analyst at JP Morgan and a biotechnology equity research associate at Rodman & Renshaw. Mr. Coyne began his career at Wyeth Pharmaceuticals. Mr. Coyne received a B.S. in business administration from La Salle University and an M.B.A. from La Salle University. |
| | | Christopher Hite joined RP Management in March 2020. Mr. Hite serves as our Executive Vice President & Vice-Chairman. Previously, Mr. Hite was Vice Chairman and Global Head of Healthcare at Citibank, where he worked from 2008 to 2020, and Global Head of Healthcare Investment Banking at Lehman Brothers. Mr. Hite previously served as a director of Acceleron Pharma Inc. from 2020 to 2021. Mr. Hite is a member of the FasterCures Board, a center of the Milken Institute. Mr. Hite received a B.S. from Lehigh University and a J.D./M.B.A. from the University of Pittsburgh. | | | | George Lloyd joined RP Management in 2011 after representing Royalty Pharma Investments on all royalty acquisition transactions since 2006. Mr. Lloyd serves as our Executive Vice President, Investments & General Counsel.Chief Legal Officer. Previously, Mr. Lloyd was a partner at Goodwin Procter LLP in Boston, MA, and an associate at Davis Polk & Wardwell LLP in New York, NY and Paris. Mr. Lloyd received an A.B. from Princeton University and a J.D. from New York University Law School. | | | | James Reddoch, Ph.D. joined RP Management in July 2008. Dr. Reddoch serves as our Executive Vice President & Chief Scientific Officer. Previously, Dr. Reddoch was Managing Director and Head of Healthcare Equity Research at Friedman Billings Ramsey, and a biotechnology equity research analyst at Banc of America Securities and CIBC World Markets Corp. (now Oppenheimer & Co.). Dr. Reddoch received a B.A. from Furman University and a Ph.D. in Biochemistry and Molecular Genetics from the University of Alabama at Birmingham. He was a postdoctoral fellow at the Yale University School of Medicine.
| | | | Marshall Urist, M.D., Ph.D. joined RP Management in 2013. Dr. Urist serves as RP Management’s Executive Vice President, Research & Investments. Previously, Dr. Urist worked at Morgan Stanley in equity research, most recently as Executive Director and as a senior biotechnology analyst. Earlier at Morgan Stanley, he covered the life science tools and diagnostics sectors, where he was recognized in Institutional Investor’s All-America Research Team. Dr. Urist graduated from Johns Hopkins University and holds an M.D. and a Ph.D. from Columbia University. |
Royalty Pharma | | | 20222024 Proxy Statement | 39 42
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TABLE OF CONTENTS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS | | | TABLE OF CONTENTS
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table shows information regarding the beneficial ownership of our shares as of April 12, 20222024 by: Each person, or group of affiliated persons, known by us to own beneficially more than 5% of any class of our share capital; Each of the directors and theour named executive officers individually; and All directors and our executive officers as a group. The amounts and percentages of Class A ordinary shares and Class B ordinary shares beneficially owned are reported on the basis of the rules and regulations of the SEC governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days, including those Class A ordinary shares issuable pursuant to the Exchange Agreement. Unless otherwise noted below, the address of the persons listed on the table is c/o Royalty Pharma plc, 110 East 59th Street, New York, NY 10022. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Class A ordinary shares. | 5% Equity Holders
| | | | | | | | | | | | | | | | | | Continuing US Investors Partnership | | | — | | | — | | | 170,212,351 | | | 99.04% | | | 28.03% | | | Continuing International Investors Partnership | | | — | | | — | | | 1,649,310 | | | * | | | * | | | Adage Capital Management LP(4) | | | 24,842,715 | | | 5.71% | | | — | | | * | | | 4.09% | | | GG 1978 SICAF SIF S.A.(5) | | | 46,316,170 | | | 10.64% | | | — | | | * | | | 7.63% | | | EPA Holdings(6) | | | — | | | * | | | 31,309,570 | | | 18.22% | | | 5.16% | | | Morgan Stanley(7) | | | 56,011,010 | | | 12.87% | | | — | | | * | | | 9.22% | | | FMR LLC(8) | | | 22,079,795 | | | 5.07% | | | — | | | * | | | 3.64% | | | The Vanguard Group(9) | | | 29,636,565 | | | 6.81% | | | | | | | | | 4.88% | | | Directors and Named Executive Officers
| | | Pablo Legorreta(10) | | | 3,158,980 | | | * | | | 75,602,060 | | | 43.99% | | | 12.97% | | | Terrance Coyne(11) | | | 1,050,390 | | | * | | | 4,729,680 | | | 2.75% | | | * | | | Christopher Hite(12) | | | 70,000 | | | * | | | 885,910 | | | * | | | * | | | George Lloyd(13) | | | 1,646,831 | | | * | | | 6,190,960 | | | 3.60% | | | 1.29% | | | Bonnie Bassler, Ph.D. | | | 18,968 | | | * | | | — | | | * | | | * | | | Errol De Souza, Ph.D. | | | 44,644 | | | * | | | 500,140 | | | * | | | * | | | Catherine Engelbert | | | 13,410 | | | * | | | — | | | * | | | * | | | Henry Fernandez(14) | | | 71,374 | | | * | | | 389,130 | | | * | | | * | | | William Ford(15) | | | 2,040,639 | | | * | | | 26,499,810 | | | 15.42% | | | 4.70% | | | M. Germano Giuliani(16) | | | 12,604,660 | | | 2.90% | | | — | | | * | | | 2.08% | | | David Hodgson(17) | | | — | | | * | | | — | | | * | | | * | | | Ted Love, M.D. | | | 17,140 | | | * | | | — | | | * | | | * | | | Gregory Norden | | | 44,644 | | | * | | | 144,660 | | | * | | | * | | | Rory Riggs(18) | | | 701,899 | | | * | | | 5,340,590 | | | 3.11% | | | * | | | Marshall Urist, M.D., Ph.D.(19) | | | 19,020 | | | * | | | 2,125,940 | | | 1.24% | | | * | | | All Directors and Executive Officers as a Group (Fifteen Persons) | | | 22,698,429 | | | 5.21% | | | 128,221,580 | | | 74.61% | | | 24.86% | |
| | | | Class A Ordinary Shares
Beneficially Owned | | | Class B Ordinary Shares
Beneficially Owned(1) | | | Combined
Voting
Power(2) | | | Name of Beneficial Owner | | | Number | | | Percent | | | Number | | | Percent | | | 5% Equity Holders
| | | | | | | | | | | | | | | | | | Continuing US Investors Partnership | | | — | | | — | | | 145,106,931 | | | 99.08% | | | 24.29% | | | Continuing International Investors Partnership | | | — | | | — | | | 1,349,310 | | | * | | | * | | | General Atlantic(3) | | | 1,515,271 | | | * | | | 24,743,870 | | | 16.90% | | | 4.40% | | | GISEV Trustees Limited(4) | | | 43,651,170 | | | 9.68% | | | — | | | — | | | 7.31% | | | Morgan Stanley(5) | | | 41,159,749 | | | 9.13% | | | — | | | — | | | 6.89% | | | FMR LLC(6) | | | 31,583,926 | | | 7.00% | | | — | | | — | | | 5.29% | | | The Vanguard Group(7) | | | 37,997,522 | | | 8.43% | | | — | | | — | | | 6.36% | | | Directors and Named Executive Officers
| | | Pablo Legorreta(8) | | | 3,668,170 | | | * | | | 74,095,660 | | | 50.59% | | | 13.02% | | | Terrance Coyne(9) | | | 840,390 | | | * | | | 6,478,180 | | | 4.42% | | | 1.22% | | | Christopher Hite(10) | | | 70,000 | | | * | | | 1,466,410 | | | 1.00% | | | * | | | George Lloyd(11) | | | 1,076,831 | | | * | | | 7,691,520 | | | 5.25% | | | 1.47% | | | Marshall Urist, M.D., Ph.D.(12) | | | 65,687 | | | * | | | 2,685,940 | | | 1.83% | | | * | | | Bonnie Bassler, Ph.D. | | | 40,015 | | | * | | | — | | | — | | | * | | | Errol De Souza, Ph.D. | | | 56,698 | | | * | | | 500,140 | | | * | | | * | | | Catherine Engelbert | | | 26,474 | | | * | | | — | | | — | | | * | | | Henry Fernandez(13) | | | 92,421 | | | * | | | 389,130 | | | * | | | * | | | M. Germano Giuliani(14) | | | 10,322,592 | | | 2.29% | | | — | | | — | | | 1.73% | | | David Hodgson | | | 8,674 | | | * | | | — | | | — | | | * | | | Ted Love, M.D. | | | 29,194 | | | * | | | — | | | — | | | * | | | Gregory Norden | | | 56,698 | | | * | | | 144,660 | | | * | | | * | | | Rory Riggs(15) | | | 412,539 | | | * | | | 2,700,000 | | | 1.84% | | | * | | | All Directors and Executive Officers as a Group (Fourteen Persons) | | | 16,766,383 | | | 3.72% | | | 96,151,640 | | | 65.65% | | | 18.90% | |
*
| Indicates beneficial ownership of less than 1%. |
(1)
| Continuing International Investors Partnership and Continuing US Investors Partnership will, upon instruction of any of their partners from time to time, distributeRepresents the RP Holdings Class B ordinary shares (the “RP Holdings Class B Interests”) held on behalf of such partner that are subject to such instruction which will then be exchanged for our Class A ordinary shares. |
Royalty Pharma
| | | 2022 Proxy Statement | 40
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TABLE OF CONTENTS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
| | | TABLE OF CONTENTS
|
(2)
| The Continuing Investors indirectly own RP Holdings Class B Interests and a corresponding number of Class B ordinary shares heldbeneficially owned by limited partners in Continuing Investors Partnerships. Such Class B shares (together with Class B ordinary shares of RP Holdings) may be exchanged for Class A ordinary shares at the applicable Holders Partnership andoption of the limited partners of the Continuing Investors Partnerships. Class B ordinary shares are entitled to one vote for each Class B share held by them.per share. |
(3) (2)
| Represents Class A ordinary shares to be issued upon exchange of interests in the Continuing Investors Partnerships. Represents percentage of voting power of the Class A ordinary shares and Class B ordinary shares voting together as a single class. |
(4) (3)
| Based solely on a Schedule 13G/A filed on February 10, 2022. Reflects sharesConsists of interests in RP US Partners 2019, LP held by Adage Capital Management, L.P., which are held through Adage Capital Partners, LP, a Delaware limited partnership (the “Fund”). Adage Capital Partners, GP,General Atlantic (RP) Collections, LLC (“ACPGP”GA RP Collections”), serves as the general partner of the Fund and as such has discretion over the portfolio of securities beneficially owned by the Fund. Adage Capital Advisors, LLC, a Delaware limited liability company exchangeable for 24,743,870 Class A ordinary shares. In addition, GA RP Holding, L.P. (“ACA”GA RP Holding”), is managing member of ACPGP and directs ACPGP’s operations. Robert Atchinson and Phillip Gross are the managing members of ACPGP and ACA and general partners of the Fund. Robert Atchinson and Phillip Gross disclaim beneficial ownership of the reported securities except to the extent of their pecuniary interest therein. The address of ACPGP is 200 Clarendon St. 52nd Floor, Boston, MA 02116. holds 1,500,000 Class A ordinary shares. General Atlantic, L.P. (“GA LP”) holds 15,271 |
(5) Royalty Pharma | | | 2024 Proxy Statement | 43 |
TABLE OF CONTENTS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS | | | |
Class A ordinary shares. The members of GA RP Collections that share beneficial ownership of the interests held by GA RP Collections are indirectly held by the following General Atlantic investment funds, (the “GA Funds”): General Atlantic Partners AIV-1 A, L.P. (“GAP AIV-1 A”), General Atlantic Partners AIV-1 B, L.P. “(GAP AIV-1 B”), GAP Coinvestments CDA, L.P. (“GAPCO CDA”), GAP Coinvestments III, LLC (“GAPCO III”), GAP Coinvestments IV, L.P. (“GAPCO IV”) and GAP Coinvestments V, LLC (“GAPCO V”). General Atlantic (SPV) GP, LLC (“GA SPV”) is the sole non-member manager of GA RP Collections. The general partner of GAP AIV-1 A and GAP AIV-1 B is General Atlantic GenPar, L.P. (“GA GenPar”). The general partner of GA GenPar is GA LP. GA LP is the sole member of GA SPV, the managing member of GAPCO III, GAPCO IV and GAPCO V and the general partner of GAPCO CDA. The limited partners that share beneficial ownership of the shares held by GA RP Holding are the following General Atlantic investment funds: General Atlantic Partners (Bermuda) EU, L.P. (“GAP EU”), General Atlantic Partners (Bermuda) IV, L.P. (“GAP IV”), General Atlantic Partners (Lux) SCSp (“GAP Lux”), GAPCO III, GAPCO IV, GAPCO V and GAPCO CDA. The general partner of GAP Lux is General Atlantic GenPar, (Lux) ScSp (“GA GenPar Lux”) and the general partner of GA GenPar Lux is General Atlantic (Lux) S.à r.l. (“GA Lux”). The general partner of GAP EU, GAP IV and GA Lux is General Atlantic GenPar (Bermuda), L.P. (“GenPar Bermuda”). GAP (Bermuda) Limited (“GAP (Bermuda) Limited”) is the general partner of GenPar Bermuda. The general partner of GA RP Holding is GA RP Holding, Ltd. (“GA RP Holding, Ltd.”). GAP (Bermuda) Limited is the sole shareholder of GA RP Holding, Ltd. There are nine members of the management committee of GASC MGP, LLC (the “GA Management Committee”). The members of the GA Management Committee are also members of the management committee of GAP (Bermuda) Limited. GA LLC, GAP (Bermuda) Limited, GA RP Holding Ltd., GenPar Bermuda, GA Lux, GA GenPar Lux, GAP Lux, GAP IV, GAP EU, GA GenPar, GA SPV, GAP AIV-1 A, GAP AIV-1 B, GAPCO III, GAPCO IV, GAPCO V, GAPCO CDA (collectively, the “GA Group”) are a “group” within the meaning of Rule 13d-5 of the Exchange Act. Each of the members of the GA Management Committee disclaims ownership of the ordinary shares except to the extent he or she has a pecuniary interest therein. The business address the GA Group is c/o General Atlantic Service Company, L.P., 55 East 52nd Street, 33rd Floor, New York, NY 10055. (4)
| Reflects 21,426,170 Class A ordinary shares held by GG1978 SICAF SIF S.A. – GG Strategic (“GG Strategic”), a sub-fund of GG 1978 SICAF SIF S.A., which is owned by the GG Trust, for which Achille G. Severgnini is the protector and 22,225,000 Class A ordinary shares held by MGG Strategic SICAF SIF S.A. – MGG Strategic, a sub-fund of MGG Strategic SICAF SIF S.A., which is owned by the MGG Trust, for which Achille G. Severgnini is the protector, each a closed-ended investment entity organized under the laws of the Grand Duchy of Luxembourg. A board of directors consisting of Giammaria Giuliani, Achille G. Severgnini, Marco Sterzi and Franco Toscano has voting and dispositive power over the securities managed by GG 1978 SICAF. A board of directors consisting of M. Germano Giuliani, Achille G. Severgnini, Marco Sterzi and Franco Toscano has voting and dispositive power over the securities managed by MGG SICAF. Each member of each board of directors disclaims beneficial ownership over such shares. GG 1978 SICAF is owned by the GG Trust, of which Giammaria Giuliani is the beneficiary. MGG SICAF is owned by the MGG Trust of which M. Germano Giuliani is the beneficiary. The MGG Trust is the 100% economic owner of the shares held by MGG Strategic. The GG Trust is the 100% economic owner of the shares held by GG Strategic. EachNeither of M. Germano Giuliani and Giammaria Giuliani disclaimhave investment power or voting power over such shares and each disclaims beneficial ownership over the shares beneficially owned by MGG Strategic and GG Strategic. The trustee of each of the Trusts is GISEV Trustees Limited. The protector of each of the Trusts is Achille G. Severgnini, who has the power to remove and replace the trustee of each the Trusts. The address of each of MGG Strategic, MGG SICAF, GG Strategic and GG 1978 SICAF is 18, Avenue de la Porte Neuve, L-2227 Luxembourg. |
(6)
| Represents shares held by RPI EPA Holdings, LP (“EPA Holdings”), which constitute the IPO Contingent Appreciation Interests (as defined below). |
(7) (5)
| Based solely on a Schedule 13G/A filed on February 10, 2022.9, 2024. Morgan Stanley and Morgan Stanley Investment Management Inc. exercise shared voting power with respect to 50,578,96736,541,689 Class A ordinary shares and shared dispositive power with respect to 56,011,01041,159,749 Class A ordinary shares. The business address of Morgan Stanley and Morgan Stanley Investment Management is 1585 Broadway, New York, NY 10036 and the business address of Morgan Stanley Investment Management is 522 5th Avenue, 6th Floor, New York, NY 10036.. |
(8) (6)
| Based solely on Schedule 13G/A filed on February 9, 2022.2024. FMR LLC has sole voting power with respect to 2,640,47230,462,241 Class A ordinary shares, and sole investment power with respect to 22,079,79531,583,926 Class A ordinary shares. Abigail P. Johnson is a Director, the Chairman and the Chief Executive Officer of FMR LLC, has sole investment power with respect to 24,942,54531,583,926 Class A Ordinary Shares. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”) advised by Fidelity Management & Research Company LLC (“FMR Co. LLC”), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. FMR Co. LLC carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees. The business address of FMR LLC is 245 Summer Street, Boston, MA 02210. |
(9) (7)
| Based solely on a Schedule 13G13G/A filed with the SEC on February 10, 202213, 2024 by The Vanguard Group. The Schedule 13G13G/A indicates that as of December 31, 2021,29, 2023, Vanguard had shared voting power with respect to 317,267312,509 shares, had sole dispositive power with respect to 28,903,02737,028,326 shares and had shared dispositive power with respect to 733,538969,196 shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. |
(10) (8)
| Represents shares owned by Mr. Legorreta and by family vehicles controlled by Mr. Legorreta. Mr. Legorreta has agreed with the CompanyRoyalty Pharma to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships exchangeable into approximately 51,033,928 Class A ordinary shares. Our Board has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Mr. Legorreta has pledged interests in Continuing Investors Partnerships exchangeable for 55,623,6306,000,000 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Mr. Legorreta. Actual amount of borrowings against pledged shares is subject to the 20%50% loan to value limitation of our Policy on MitigatingRestricting Pledging Risk and any borrowings against pledged shares may be less than 20%50% of the total value of the shares pledged. Includes shares beneficially owned by EPA Holdings, which constitute the IPO Contingent Appreciation Interests. EPA Holdings holds unvested IPO Contingent Appreciation Interests exchangeable into 4,810,500 Class A ordinary shares on behalf of named executive officers other than Mr. Legorreta. Includes shares beneficially owned by Mr. Legorreta’s spouse and children. |
(11) (9)
| Represents shares owned by Mr. Coyne and by family vehicles controlled by Mr. Coyne. Mr. Coyne has agreed with our Manager to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships that are exchangeable into 4,663,9286,062,728 Class A ordinary shares. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Includes vested IPO Contingent Appreciation Interests exchangeable into 1,765,0003,513,500 Class A ordinary shares. In addition, EPA Holdings holds unvested IPO Contingent Appreciation Interests exchangeable into 1,765,000 Class A ordinary shares on behalf of Mr. Coyne and by family vehicles controlled by Mr. Coyne. Mr. Coyne has pledged 1,000,000790,000 Class A ordinary shares and interests in Continuing Investors Partnerships exchangeable for 2,964,6802,612,340 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Mr. Coyne. Actual amount of borrowings against pledged shares is subject to the 20%50% loan to value limitation of our Policy on MitigatingRestricting Pledging Risk and any borrowings against pledged shares may be less than 20%50% of the total value of the shares pledged. Includes shares beneficially owned by Mr. Coyne’s spouse. |
(12) (10)
| Represents shares owned by Mr. Hite and by a family vehicle controlled by Mr. Hite. Mr. Hite has agreed with our Manager to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships that are exchangeable into 464,400928,800 Class A ordinary shares. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Includes vested IPO Contingent Appreciation Interests exchangeable into 580,5001,161,000 Class A ordinary shares. In addition, EPA Holdings holds unvested IPO Contingent Appreciation Interests exchangeable into 580,500 Class A ordinary shares on behalf of Mr. Hite. |
(13) (11)
| Represents shares owned by Mr. Lloyd and by family vehicles controlled by Mr. Lloyd. Mr. Lloyd has agreed with our Manager to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships that are exchangeable into 5,985,0967,397,096 Class A ordinary shares. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Includes vested IPO Contingent Appreciation Interests exchangeable into 3,530,000 Class A ordinary shares. Mr. Lloyd has pledged 347,930 Class A ordinary shares and interests |
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TABLE OF CONTENTS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS | | | TABLE OF CONTENTS
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Contingent Appreciation Interests exchangeable into 1,765,000 Class A ordinary shares. In addition, EPA Holdings holds unvested IPO Contingent Appreciation Interests exchangeable into 1,765,000 Class A ordinary shares on behalf of family vehicles controlled by Mr. Lloyd. Mr. Lloyd has pledged 870,000 Class A ordinary shares and interests in Continuing Investors Partnerships exchangeable for 4,367,0702,206,150 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Mr. Lloyd. Actual amount of borrowings against pledged shares is subject to the 20%50% loan to value limitation of our Policy on MitigatingRestricting Pledging Risk and any borrowings against pledged shares may be less than 20%50% of the total value of the shares pledged. Includes shares beneficially owned by Mr. Lloyd’s spouse.
(14) (12)
| Represents shares owned by Dr. Urist and by a family vehicle controlled by Dr. Urist. Dr. Urist has agreed with our Manager to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships that are exchangeable into 2,545,940 Class A ordinary shares. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Includes vested IPO Contingent Appreciation Interests exchangeable into 1,400,000 Class A ordinary shares. Dr. Urist has pledged 46,667 Class A ordinary shares and interests in Continuing Investors Partnerships exchangeable for 416,670 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Dr. Urist. Actual amount of borrowings against pledged shares is subject to the 50% loan to value limitation of our Policy Restricting Pledging and any borrowings against pledged shares may be less than 50% of the total value of the shares pledged. |
(13)
| Represents shares owned by Mr. Fernandez and 58,200 shares held by the Fernandez 2007 Children’s Trust of which the spouse of Mr. Fernandez is the trustee and his children are the beneficiaries. |
(15)
| Consists of interests in RP US Partners 2019, LP held by General Atlantic (RP) Collections, LLC (“GA RP Collections”) exchangeable for 24,743,870 Class A ordinary shares. In addition, GA RP Holding, L.P. (“GA RP Holding”) holds 1,500,000 Class A ordinary shares. Mr. Ford is employed by an entity affiliated with GA RP Collections. The members of GA RP Collections that share beneficial ownership of the interests held by GA RP Collections are indirectly held by the following General Atlantic investment funds, (the “GA Funds”): General Atlantic Partners AIV-1 A, L.P. (“GAP AIV-1 A”), General Atlantic Partners AIV-1 B, L.P. “(GAP AIV-1 B”), GAP Coinvestments CDA, L.P. (“GAPCO CDA”), GAP Coinvestments III, LLC (“GAPCO III”), GAP Coinvestments IV, L.P. (“GAPCO IV”) and GAP Coinvestments V, LLC (“GAPCO V”). General Atlantic (SPV) GP, LLC (“GA SPV”) is the sole non-member manager of GA RP Collections. The general partner of GAP AIV-1 A and GAP AIV-1 B is General Atlantic GenPar, L.P. (“GA GenPar”). The general partner of GA GenPar is General Atlantic LLC (“GA LLC”). GA LLC is the sole member of GA SPV, the managing member of GAPCO III, GAPCO IV and GAPCO V and the general partner of GAPCO CDA. The limited partners that share beneficial ownership of the shares held by GA RP Holding are the following General Atlantic investment funds: General Atlantic Partners (Bermuda) EU, L.P. (“GAP EU”), General Atlantic Partners (Bermuda) IV, L.P. (“GAP IV”), General Atlantic Partners (Lux) SCSp (“GAP Lux”), GAPCO III, GAPCO IV, GAPCO V and GAPCO CDA. The general partner of GAP Lux is General Atlantic GenPar, (Lux) ScSp (“GA GenPar Lux”) and the general partner of GA GenPar Lux is General Atlantic (Lux) S.à r.l. (“GA Lux”). The general partner of GAP EU, GAP IV and GA Lux is General Atlantic GenPar (Bermuda), L.P. (“GenPar Bermuda”). GAP (Bermuda) Limited (“GAP (Bermuda) Limited”) is the general partner of GenPar Bermuda. The general partner of GA RP Holding is GA RP Holding, Ltd. (“GA RP Holding, Ltd.”). GAP (Bermuda) Limited is the sole shareholder of GA RP Holding, Ltd. There are nine members of the management committee of GA LLC (the “GA Management Committee”). The members of the GA Management Committee are also members of the management committee of GAP (Bermuda) Limited. Mr. Ford is a member of the GA Management Committee. GA LLC, GAP (Bermuda) Limited, GA RP Holding Ltd., GenPar Bermuda, GA Lux, GA GenPar Lux, GAP Lux, GAP IV, GAP EU, GA GenPar, GA SPV, GAP AIV-1 A, GAP AIV-1 B, GAPCO III, GAPCO IV, GAPCO V, GAPCO CDA (collectively, the “GA Group”) are a “group” within the meaning of Rule 13d-5 of the Exchange Act. Each of the members of the GA Management Committee disclaims ownership of the ordinary shares except to the extent he or she has a pecuniary interest therein. Mr. Ford is Chief Executive Officer and a Managing Director of GA LLC and GAP (Bermuda) Limited. Mr. Ford disclaims ownership of the Class A ordinary shares owned by GA RP Collections and GA RP Holding except to the extent he has a pecuniary interest therein. In addition, Steamboat Park Investments, LLC (“SPI”) and Madison Park Capital, LLC (“MPC”), two other U.S. based entities within the General Atlantic private equity group, directly and indirectly hold interests exchangeable for 2,295,708 Class A ordinary shares in the Company. Mr. Ford has a private membership interest in SPI and MPC as an individual and through a family vehicle, and is an officer and a member of the Board of Managers of each of SPI and MPC. Mr. Ford disclaims ownership of such ordinary shares except to the extent he has a pecuniary interest therein. The business address of Mr. Ford, the GA Group, SPI and MPC is c/o General Atlantic Service Company, L.P., 55 East 52nd Street, 33rd Floor, New York, NY 10055. |
(16) (14)
| Reflects 9,077,1407,795,072 shares held directly by Skyeline Management Ltd, and 3,477,5202,477,520 shares held directly by Avara Management Ltd.Ltd and 50,000 shares held directly by the spouse of Mr. Giuliani. Skyeline Management Ltd is wholly-owned by Avara Management Ltd. Avara Management Ltd is wholly-owned by M. GermanoMr. Giuliani. This amount excludes 23,390,00022,225,000 Class A ordinary shares owned by MGG Strategic, which is owned by a trust of which Mr. Giuliani is the beneficiary. Mr. Giuliani has no investment or voting power over such shares. Mr. Giuliani disclaims beneficial ownership over the shares beneficially owned by each of MGG Strategic, MGG SICAF, GG Strategic and GG 1978 SICAF. Skyeline Management Ltd has pledged 8,772,1052,990,000 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Skyeline Management Ltd. Actual amount of borrowings against pledged shares is subject to the 20%50% loan to value limitation of our Policy on MitigatingRestricting Pledging Risk and any borrowings against pledged shares may be less than 20%50% of the total value of the shares pledged. |
(17)
| Mr. Hodgson is seeking election as a director on our Board for a term that would begin on the date of the Annual Meeting. |
(18) (15)
| Represents shares owned by Mr. Riggs, and 85,187 shares held by New Ventures III, LLC.LLC and 15,000 shares beneficially owned by Mr. Riggs’ spouse. Mr. Riggs has voting and investment control with respect to the shares held by New Ventures Select, LLC, New Ventures I, LLC and New Ventures III, LLC. Mr. Riggs has pledged 592,74812,352 Class A ordinary shares and interests in Continuing Investors Partnerships exchangeable for 5,340,5902,097,530 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Mr. Riggs. Actual amount of borrowings against pledged shares is subject to the 20%50% loan to value limitation of our Policy on MitigatingRestricting Pledging Risk and any borrowings against pledged shares may be less than 20%50% of the value of the shares pledged. Includes shares beneficially owned by Mr. Riggs’ spouse. |
(19)
| Represents shares owned by Dr. Urist and by a family vehicle controlled by Dr. Urist. Dr. Urist has agreed with our Manager to retain and not sell before February 2025 certain of his interests in Continuing Investors Partnerships that are exchangeable into 1,985,940 Class A ordinary shares. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship. Includes vested IPO Contingent Appreciation Interests exchangeable into 700,000 Class A ordinary shares. In addition, EPA Holdings holds unvested IPO Contingent Appreciation Interests exchangeable into 700,000 Class A ordinary shares on behalf of Dr. Urist. Dr. Urist has pledged interests in Continuing Investors Partnerships exchangeable for 725,000 Class A ordinary shares pursuant to a pledge agreement to secure a loan made to Dr. Urist. Actual amount of borrowings against pledged shares is subject to the 20% loan to value limitation of our Policy on Mitigating Pledging Risk and any borrowings against pledged shares may be less than 20% of thetotal value of the shares pledged. |
Delinquent Section 16(a) 16(a) Reports Section 16(a) of the Exchange Act requires our executive officers, directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such executive officers, directors and 10% shareholders are also required by securities laws to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of these reports, or written representations from reporting persons, we believe that during the year ended December 31, 2021,2023, our executive officers, directors and persons who own more than 10% of a registered class of our equity securities filed under Section 16(a) on a timely basis, except for the following Form 3 holdings or Form 4 transactionstransaction which werewas filed on an untimely basis: one transaction for Pablo Legorreta in connection with a gift of shares to an entity affiliated with Mr. Legorreta. Royalty Pharma | | | 20222024 Proxy Statement | 42 45
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basis: (i) the holdings of certain interests held by Pablo Legorreta from his Form 3; (ii) two transactions for Pablo Legorreta in connection with the acquisition of certain rights to exchange limited partnership interests into Class A ordinary shares; and (iii) one transaction for Terrance Coyne in connection with the conversion of certain interests into Class A ordinary shares.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS We have adopted a written Related Person Transactions Policy that is administered by the Nominating and Corporate Governance Committee. A copy of our Related Person Transactions Policy can be found on our website, www.royaltypharma.com,, under “Investors - Governance.— Corporate governance.” We have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of 5% or more of our shares and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the approval or ratification of the Nominating and Corporate Governance Committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of 5% or more of our shares or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest, must be presented to our Nominating and Corporate Governance Committee to determine whether the related person involved has a direct or indirect material interest in the transaction and whether the proposed transaction is on arm’s-length terms. In reviewing any such proposal, our Nominating and Corporate Governance Committee are to consider the relevant facts of the transaction, including the risks, costs and benefits to us and whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances. In addition, under the U.K. Companies Act certain transactions with directors and their connected parties will require the approval of shareholders. Management Agreement We are externally managed and have no personnel of our own. Historically,We, RP Holdings and RPI have entered into management agreements with the Manager (collectively, the “Management Agreement”) who manages our business has been managed by the Manager and will continue to be managed by the Manager pursuant to the Management Agreement. Under the Management Agreement, the Manager manages the existing assets of our business and sources and evaluates new royalty acquisitions.investment opportunities. Advisory Team Our advisory team for purposes of the Management Agreement currently consists of a team of experienced management personnel, as detailed in “Executive Officers.” None of the Manager’s advisory professionalsmanagement personnel receives any direct compensation from us in connection with the management of our assets. Mr. Legorreta, through his ownership interests in the Manager, is entitled to a portion of any profits earnedThe Manager’s management personnel are compensated by the Manager, which includes the Operating and Personnel Payment (as defined below) payable to the Manager under the terms of the Management Agreement, less expenses incurred by the Manager in performing its services under the Management Agreement.Manager. Certain Obligations of the Advisory Team Pursuant to the Management Agreement, the Manager cannot manage another entity that invests in or acquires royalties other than any legacy vehicle related to Royalty Pharma Investments (“Old RPIRPI”) or RPI. Executives of the Manager are subject to a non-compete agreement following termination of their employment with the Manager, and we are a beneficiarybeneficiaries of this agreement.these agreements. In addition, executives of the Manager must devote substantially all of their business time to managing us and any legacy vehicle related to Old RPI or RPI, unless otherwise approved by the Board. Operating and Personnel Payment Under the Management Agreement, we pay a quarterly fee (the “Operatingoperating and personnel payment to the Manager or its affiliates (“Operating and Personnel Payment”) in respect of operating and personnel expenses to the Manager equal to 6.5% of the cash receipts from royalty investmentsRoyalty Investments, or Portfolio Receipts for such quarter, and 0.25% of the value of our security investments under GAAP as of the end of such quarter, which the Manager is entitled to receive regardless of whether we realize any gains on the security investments when sold.quarter. Under the Management Agreement, the Operating and Personnel Payment is payable quarterly in advance as of the first business day of each fiscal quarter. The Company, RP Holdings and RP Holdings’ subsidiaries, including RPI, have no personnel of their own. The Operating and Personnel Payment is intended to fund operating and personnel expenses of the Manager, including EPA Holdings. The Operating and Personnel Payment payable to the Manager is based on a fixed percentage of cash receipts from royalty investments and is not subject to subsequent adjustment based on actual operating and personnel expenses of the Manager. The Manager is responsible for 50% of all broken deal expenses as an offset against the Operating and Personnel Payment. OncePayment, provided that once continued work on an investment opportunity is approved by the Board, the Manager will not beis no longer responsible for any broken deal expenses relating to such investment opportunity. Duration and Termination The Management Agreement was approved by our Board prior to our IPO.and became effective in June 2020. The Management Agreement has an initial term of ten years, after which it canwill be renewed for an additional term of three years, unless either the CompanyRoyalty Pharma or the Manager provides notice of nonrenewal at least 180 days prior to the expiration of the initial term or any renewal term. During the initial term and each renewal term, the Management Agreement may Royalty Pharma
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only be terminated for Cause (as defined below). A termination or nonrenewal of the Management Agreement will automatically lead to the removal of the Manager as the manager of RPI and terminate the right of RPI EPA Holdings, asLP (“EPA Holdings”) to receive Equity Performance Awards on investments made after the general partnerdate of termination of the Continuing Investors Partnerships.Manager. In such event, the CompanyRoyalty Pharma shall be entitled to designate a new general partner for the Continuing Investors Partnerships.manager of RPI. Royalty Pharma | | | 2024 Proxy Statement | 46 |
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The Board has the right to terminate the appointment of EPA Holdings and the Manager following (i) a determination of Cause by a court or governmental body of competent jurisdiction in a final judgementjudgment or (ii) an admission of Cause by EPA Holdings or the Manager. In the event thatIf Mr. Legorreta commits an act constituting Cause while acting as our CEO, such action would be imputed to EPA Holdings and the Manager so long as Mr. Legorreta is acting as chief executive officer of the Company, otherwiseManager. Otherwise, any act of Mr. Legorreta’s will not be imputed to EPA Holdings or the Manager. Any act constituting Cause committed by any other executive of EPA Holdings or the Manager would notwill be imputed to EPA Holdings or the Manager and may beunless cured by EPA Holdings and the Manager by termination of such employee. In the event of a termination for Cause of Mr. Legorreta or any other executive of EPA Holdings or the Manager, Mr. Legorreta or such executive, as the case may be, would forfeit his or her share of Equity Performance Awards (as defined below in “Equity Performance Awards”) on any investments made by the RPI and its subsidiaries during the two-year period prior to such termination and would also be required to reimburse the CompanyRoyalty Pharma for any losses incurred by the CompanyRoyalty Pharma as a result of such Cause event. Except as provided above, EPA Holdings’ interest in Equity Performance Awards in respect of investments made after February 11, 2020 (the “Exchange Date”) and prior to any termination of the Management Agreement (with or without Cause) would continue following such termination. “Cause” will exist where (i) EPA Holdings, the Manager or an executive of EPA Holdings or the Manager (including Mr. Legorreta) (each an “Applicable Party”) has committed (or in the case of Applicable Parties who are executives, caused EPA Holdings or the Manager to commit) a material breach of the governing documents of the Company,Royalty Pharma, the limited partnership agreementagreements of the Continuing US Investors Partnership or the Continuing International Investors Partnership,Investor Partnerships, or the Management Agreement; (ii) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused EPA Holdings or the Manager to commit) willful misconduct in connection with the performance of his or its duties under the terms of the governing documents of the Company,Royalty Pharma, the limited partnership agreementagreements of the Continuing US Investors Partnership or the Continuing International Investors Partnership,Investor Partnerships, or the Management Agreement, (iii) there is a declaration of bankruptcy by the Applicable Party andor (iv) there is a determination by any court with proper jurisdiction that an Applicable Party has committed an intentional felony or engaged in any fraudulent conduct, in each such case of clauses (ii) and (iv) which has a material adverse effect on the business, assets or condition (financial or otherwise) or prospects of the RPI, its subsidiaries and its affiliates (taken as a whole). The Manager would beis subject to a 12-month non-compete following any termination of the Management Agreement by us for Cause, or nonrenewal by the Manager. The Management Agreement contains temporary and permanent succession plans for Mr. Legorreta and other members of the senior management. Indemnification The Management Agreement provides that, to the fullest extent permitted by law, the CompanyRoyalty Pharma will indemnify each of the Manager and its affiliates (including EPA Holdings) and their respective officers, directors, shareholders, members, employees, agents and partners, and any other person who is entitled to indemnification (each, an “Indemnitee”) from and against any and all claims, liabilities, damages, losses, penalties, actions, judgments, costs and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated that are incurred by any Indemnitee or to which such Indemnitee may be subject by reason of its activities on behalf of the CompanyRoyalty Pharma or any of its subsidiaries except to the extent that such Indemnitee’s conduct did not constituteconstituted fraud, bad faith, willful misconduct, gross negligence (as such concept is interpreted under the laws of the State of New York), material breach of the Management Agreement that is not cured in accordance with the terms of the Management Agreement or a violation of applicable securities laws. Royalty Pharma | | | 20222024 Proxy Statement | 45 47
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Equity Performance Awards To ensure economic alignment between shareholders and the Manager, Equity Performance Awards (as defined below) are determined on a portfolio-by-portfolio basis, so as to ensure that the Manager does not get paid incentive compensation unless each Portfolio is profitable, rather than specific investments, to ensure economic alignment between shareholders and the Manager.investments. Investments made during each two-year period will beare grouped together as separate portfolios (each, a “Portfolio”). The first Portfolio commenced on the Exchange Date and ended on December 31, 2021. The second Portfolio commenced on January 1, 2022 and ended on December 31, 2023. The third Portfolio commenced on January 1, 2024 and will end on December 31, 2023.2025. Subject to the three tests listed below and applicable law, 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 Interestsordinary shares that will be exchanged upon issuance for Class A ordinary shares of the Company.Royalty Pharma. The number of Class A ordinary shares of the CompanyRoyalty Pharma payable is based on a 10-day trailing VWAP ending 2 days prior to the payment date. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of it holding such RP Holdings Class C Special Interest, calculated using an assumed tax rate. To the extent EPA Holdings receives any such periodic cash advance, the amount of the RP Holdings Class B Interestsordinary shares ultimately received by EPA Holdings will be reduced by the amount of such periodic cash advance. EPA Holdings is not entitled to Equity Performance Awards on any Net Economic Profit derived from investments made by Old RPI prior to the Exchange Date and contributed to RPI and its subsidiaries in the Exchange Offer Transactions.subsidiaries. Such investments of Old RPI will be inrepresent a separate Portfolio (the “Old RPI Portfolio”).Portfolio. On any quarterly equity distribution date, the Equity Performance Awards payable is subject to each of the following three tests: Test One: Cumulative Net Economic Profit for such Portfolio for all periods prior to the relevant quarterly determination date is positive. Cumulative Net Economic Profit is positive if the aggregate cash receipts for all investments in a Portfolio for all prior periods is greater than the Total Expenses allocated to such Portfolio for all prior periods. Test Two: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in such Portfolio for all periods commencing after such quarterly determination date are equal to or greater than one hundred and thirty-five percent (135%) of the projected Total Expenses for all investments in such Portfolio through the expected termination dates of all investments in such Portfolio. Test Three: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in all Portfolios other than the Old RPI Portfolio, for all periods commencing after such quarterly determination date are equal to or greater than one hundred and thirty-five percent (135%) of the projected Total Expenses for all of the Portfolios through the termination or disposition dates of all investments in all of the Portfolios, other than the Old RPI Portfolio.Portfolios. Portfolios are based on two-year periods, to mitigate the risk that Equity Performance Awards are paid on a profitable investment even though, in the aggregate, the investments made over a two yeartwo-year period are not profitable. The three tests above are also intended to reduce the risk that Equity Performance Awards are payable at a time when either an individual portfolio or our overall portfolio of investments is not performing well. We do not currently expect any material Equity Performance Awards to be payable until the second half of this decade. IPO Contingent Appreciation Interest
In connection with the consummation of the Exchange Offer Transactions, the Continuing Investors Partnerships issued to EPA Holdings a special limited partnership interest (the “IPO Contingent Appreciation Interest”) which resulted in the transfer of a number of limited partnership interests in the Continuing Investors Partnerships from the Continuing Investors to EPA Holdings since the trading price of our Class A ordinary shares attained specified levels during the three year period after the expiration of the underwriter lock-up period in connection with our IPO. These limited partnership interests will be exchangeable for RP Holdings Class B Interests that in turn will be exchangeable for Class A ordinary shares of the Company.
The IPO Contingent Appreciation Interest only affected the Continuing Investors’ ownership of the Continuing Investor Partnerships and did not affect the number of our outstanding ordinary shares or have a dilutive effect on our Class A ordinary shares.
The IPO Contingent Appreciation Interest was intended to incentivize the management team of the Manager to complete an IPO and to maximize our trading price performance subsequent to the IPO.
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Pharmakon Advisors Mr. Legorreta, our chief executive officer, is also a co-founder of and has significant influence over Pharmakon Advisors, which shares physical premises with the Manager. Pharmakon manages BioPharma Credit PLC (LSE: BPCR) and other investment vehicles that collectively are leading providers of debt capital to the biopharmaceutical industry. Mr. Legorreta also has a substantial investment in BioPharma Credit. From time to time, the Manager and Pharmakon may pursue similar investment opportunities for their respective clients, although we believe that actual conflicts of interest are rare due to the differing investment strategies of the CompanyRoyalty Pharma and Pharmakon, and the fact that royalty holders, rather than the CompanyRoyalty Pharma and Pharmakon, determine the type of transaction they seek. Under arrangements with Pharmakon, the Manager subleases office space to Pharmakon, and the parties may provide research, business development, legal, compliance, financial and administrative services to one another. The Manager and Pharmakon reimburse each other to the extent that one of them provides materially more services to the other than they receive in return. In consideration of the support provided to Pharmakon by the Manager, certain employees of the Manager receive compensation from Pharmakon. In November 2017, we purchased from Bristol-Myers Squibb (“BMS”), a percentage of BMS’s future royalties on worldwide sales of Onglyza, Farxiga, and related diabetes products marketed by AstraZeneca, in exchange for installment payments to BMS over time. In December 2017, we sold 50% of the royalty to BioPharma Credit, in exchange for BioPharma Credit’s agreement to pay 50% of the installment payments owed by us to BMS.
RP Holdings Articles We are the sole owner of the RP Holdings Class A ordinary shares, which have the sole voting power in RP Holdings (subject to certain exceptions as described herein), and as. As a result, we have the right to appoint the board of directors of RP Holdings and therefore control the business and Royalty Pharma | | | 2024 Proxy Statement | 48 |
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affairs of RP Holdings and, through RP Holdings and its subsidiaries including RPI, conduct our business. The board of directors of RP Holdings determines when dividends will be paid to the shareholders of RP Holdings and the amount of any such dividends (subject to the requirements with respect to the dividends paid to EPA Holdings in respect of its RP Holdings Class C Special Interest for the purpose of tax distributions as described above). If RP Holdings pays a dividend, such dividend will be paid to us and the Continuing Investors Partnerships, pro rata and pari passu in accordance with our respective ownership of RP Holdings Class A ordinary shares and RP Holdings Class B Interests.ordinary shares. As the sole holder of the RP Holdings Class A ordinary shares, we also have the ability tocan direct the board of directors of RP Holdings to recommendpay dividends subject to and in accordance with the terms of the RP Holdings Articles and to the extent lawful. Registration Rights Agreements Certain of our shareholders, including M. Germano Giuliani, were provided withhave unlimited piggyback and twice annual demand registration rights and ourrights. Our directors and named executive officers were provided withhave unlimited piggyback registration rights subject to customary limitations and restrictions. Exchange Agreement The Continuing International Investors Partnership and Continuing US Investors Partnership will, upon instruction of any of their partners from time to time, distribute the RP Holdings Class B Interestsordinary shares held on behalf of such partner that are subject to such instruction which will then be exchangedpartner for exchange for our Class A ordinary shares. Director Appointment Agreement
We have entered into an agreement (the “Director Appointment Agreement”) with M. Germano Giuliani. The terms of the Director Appointment Agreement generally provide that if and so long as (a) the ordinary shares of the Company owned by Mr. Giuliani and his affiliates represent at least 5% of the outstanding ordinary shares (on an aggregate basis treating the Class A ordinary shares and Class B ordinary shares of the Company as a single class) and (b) Mr. Giuliani maintains voting control over at least 5% of the outstanding ordinary shares (on an aggregate basis treating the Class A ordinary shares and Class B ordinary shares of the Company as a single class), then Mr. Giuliani, subject to the approval of our Nominating and Corporate Governance Committee and applicable law, will be re-nominated as part of the Company’s slate of directors at the two annual meetings following our initial public offering. Such nomination commitment is subject to Mr. Giuliani’s agreement, on behalf of himself and his controlled affiliates, that for so long as he serves on the Board, he will (i) vote all ordinary shares of the Company owned or controlled by him and his affiliates in favor of the Company’s slate of directors, (ii) comply with customary public company standstill provisions and (iii) refrain from making transfers of ordinary shares of the Company to any purchaser who, following such transfer, would own 5% or more of the outstanding ordinary shares of the Company.
Mr. Giuliani serves as a member of our Board.
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MSCI Cooperation Agreement Henry Fernandez, our lead independent director, is a director and Chairman of the Board and Chief Executive Officer of MSCI. In April 2021, we entered into a cooperation agreement with MSCI, pursuant to which we will assist MSCI in MSCI’s construction of life sciences index products in exchange for a share of MSCI’s revenues from those products. The financial impact associated with the MSCI Cooperation Agreement was not material for the year ended December 31, 2021.2023. Employment Arrangement with an Immediate Family Member of our Lead Independent Director Henri Fernandez, the son of Henry Fernandez, our lead independent director, is employed by the Manager as ana Senior Associate, Investments. During 2021,2023, Mr. Henri Fernandez received an annualtotal compensation, including base salary, bonus and equity compensation, of $120,750 in addition to incentive compensation.$304,005. Mr. Henri Fernandez’s compensation will be based onhas been determined by reference to external market practice offor similar positions or internal pay equity when compared to the compensation paid to employees in similar positions who are not related to the lead independent director of our Board. Mr. Henri Fernandez Ecopipam Transaction In January 2024, we acquired a royalty on sales of ecopipam. Ecopipam is also eligible for equity awardsin Phase 3 development by Emalex Biosciences, Inc (“Emalex”). Errol De Souza, Ph.D. was a former shareholder of Psyadon Pharmaceuticals, Inc. (“Psyadon”), which was acquired by Emalex in August 2018. Emalex was obligated to pay a royalty on the same general terms and conditions as applicable to employees in similar positions who were not relatedsales of ecopipam to the lead independent directorformer shareholders of our Board.Psyadon. We acquired the royalty on sales of ecopipam, including Dr. De Souza’s approximately 5% of the ecopipam royalty. Dr. De Souza received an upfront payment of $2.5 million and could receive milestone payments of up to $2.22 million. Dr. De Souza has recused himself from all discussions regarding the ecopipam transaction. Indemnification of Directors and Officers We generally willhave agreed to indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts on an after tax basis: any director or officer, any director or officerperson who is or was serving at our request as a director, officer, employee, member, partner, tax matters partner, agent, fiduciary or trustee of another person, any person who is a director or a person performing similar functions and any person the Board in its sole discretion designates as an indemnitee, which includes the members of the board of directors of RP Holdings.indemnitee. We have agreed to provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct, subject to the limitations set forth in the following paragraph. We have also agreed to provide this indemnification for criminal proceedings, subject to the limitations set forth in the following paragraph. Any indemnification under these provisions will only be out of our assets. The U.K. Companies Act renders void an indemnity for a director against any liability that would otherwise attach to that director in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director. Furthermore, any provision that purports to oblige a company to indemnify (directly or indirectly) a director of that company or an associated company from any liability that would otherwise attach to that director in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director is void other than with respect to certain permitted indemnity obligations in connection with the provision of insurances, qualifying third party indemnities and qualifying pension scheme indemnities. We may also purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against such liabilities. In addition, we have entered into indemnification agreements with each of our directors. The indemnification agreements provide our directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted by law. We will also indemnify such persons to the extent they serve at our request as directors, officers, employees or other agents of any other entity, to the fullest extent permitted by law.
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TABLE OF CONTENTS | | | VOTE ON A NON-BINDING ADVISORY BASIS ON THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
| The Board recommends that shareholders vote “FOR” the approval of named executive officer compensation. | |
In accordance with Section 14A of the Exchange Act, we are asking shareholders to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. We urge shareholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, which describes in more detail our executive compensation policies and procedures as well as the Summary Compensation Table for the year ended December 31, 2021,2023, and other related compensation tables and narrative discussions, which provide detailed information ofon the compensation of our named executive officers. Each of ourOur named executive officers isare compensated for histheir services to us by the Manager and doesdo not receive any compensation directly from us. We do not reimburse the Manager for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of this compensation. For a description of our obligations to pay the Operating and Personnel Payment to the Manager under the Management Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” The Management Agreement was approved by our Board prior to our IPO and may only be terminated for Cause (as defined above).
Our Management Development and Compensation Committee believes that the policies and procedures articulated in the “Compensation Discussion and Analysis” section of this Proxy Statement are effective in achieving our goals and that the compensation of our named executive officers reported in this Proxy Statement help position us for long-term success. We currently hold advisory votes on the compensation of our named executive officers on an annual basis. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Please note that this vote is advisory and non-binding on us, our Board or the Management Development and Compensation Committee. This non-binding vote is not meant to address any particular element of our executives’ compensation arrangements. Our Board believes that approving named executive officer compensation is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 49 50
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COMPENSATION DISCUSSION AND ANALYSIS Overview The following Compensation Discussion and Analysis (“CD&A”) provides a description of the compensation provided to our named executive officers by the Manager. Each of ourOur named executive officers isare compensated for his servicestheir service to us by the Manager and doesdo not receive any compensation directly from us. We do not reimburse the Manager for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of this compensation. Accordingly, our Management Development and Compensation Committee is not responsible for designing the executive compensation program for our named executive officers. Instead, our Management Development and Compensation Committee reviews the performance of the Manager under the Management Agreement. For a description of our obligations to pay the Operating and Personnel Payment to the Manager under the Management Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” This CD&A focuses on the following officers of Royalty Pharma and the Manager that we consider as our named executive officers for the fiscal year ended December 31, 2021:2023: | | | Pablo Legorreta
Chairman of the Board and Chief Executive Officer | | | | Terrance Coyne
Executive Vice President & Chief Financial Officer | | | | Christopher Hite
Executive Vice President & Vice Chairman | | | | George Lloyd
Executive Vice President, Investments & General CounselChief Legal Officer | | | | Marshall Urist, M.D., Ph.D.
Executive Vice President, Research & Investments |
Compensation Program Best Practices | What the Executive Compensation Program Does: | | | | | | Comprehensive risk management related to our compensation and share ownership programs Share Retention Obligation | | | | | | Compensation Recovery/Clawback Share Ownership Requirements | | | | | | Share Retention Obligation Strong controls through our Policy Restricting Pledging | | | | | | Share Ownership Requirements Compensation Recovery/Clawback | | | | | | Align pay with performance, including through use of equity performance awards Equity Performance Awards | | | | | | Long-term Equity Performance Awards are settled in equity | | | | | | Strong controls throughComprehensive risk management related to our Policy on Mitigating Pledging Risk Equity Performance Awards | | | | | | Robust Investor Outreach | | | | | | 100% Independent Directors on Management Development and Compensation Committee | | | | | | Independent Compensation Consultant | | | | | | Annual Say-on-Pay vote | |
| What the Executive Compensation Program Does Not Do: | | | | | | Encourage excessive risk taking | | | | | | No employment agreements | | | | | | No supplemental severance benefits | | | | | | No short sales and derivative transactions in our equity and hedging of our shares | | | | | | No excise tax “gross-up” payments in the event of a change in control | | | | | | No excessive or unusual perquisites | | | | | | No excessive or unusualtax “gross-up” payment on perquisites for named executive officers | | | | | | No tax “gross-up” payment on perquisites for named executive officers special health and welfare benefits | | | | | | No special health and welfare benefits
| | | | | | No supplemental executive retirement benefits | | | | | | No supplemental severance benefits
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Performance of the Manager Under the Management Agreement The Management Development and Compensation Committee believes that the performance of the Manager under the Management Agreement has been strong and believes that the amount of the management fee paid to the Manager (the Operating and Personnel Payment described below under “Elements of Compensation–Management Fee”) to manage our business and is reasonable and appropriate. The Manager brings over 25 years of strategic leadership experience and an unparalleled knowledge of Royalty Pharma’s business. The Management Development and Compensation Committee considers an array of factors when evaluating the performance of the Manager, including: Current and projected growth in Portfolio Receipts and the performance of our business; Capital deployment in value enhancing investments; The active development of the pipeline of royalty opportunities; Shareholder value creation and total shareholder return; Succession planning for key employees of the Manager; and Overall engagement of the employees of the Manager. During 2023, the Management Development and Compensation Committee noted, in particular, the addition of royalties on eight therapies, including incremental royalties on blockbuster Evrysdi. In addition, 2023 was our highest year ever for synthetic royalty transactions as we announced nearly $800 million in transactions. During 2023, our Portfolio Receipts increased by 9%, demonstrating strong growth in our cash generative business, while our selling, general and administrative expenses (“SG&A”) as a percentage of total Portfolio Receipts remained unchanged at 8%. The Operating and Personnel Payment paid to the Manager represents the largest component of our SG&A. The Management Development and Compensation Committee believes that the high operating margins that the Company realizes because of the terms of the Management Agreement are very attractive. The Management Development and Compensation Committee continues to be excited by the Company’s rapidly expanding opportunity set. As announced at our May 2022 Investor Day, the Company has raised its capital deployment goal to $10 billion to $12 billion over the next five years. In 2023, we exceeded this increased target, announcing up to $4.0 billion in investments as we maintained our leading share of the royalty funding market. The Management Development and Compensation Committee is satisfied by the Manager’s temporary and permanent succession plans for key employees of the Manager. To support this priority, the Management Development and Compensation Committee discusses talent development and management succession for senior leaders with our Chief Executive Officer, who provides his assessment of those leaders and their potential to succeed in key roles. During 2023, we expanded the senior leadership team by appointing a new Chief Technology Officer. Overall engagement of employees of the Manager has been a critical component of our success. The Management Development and Compensation Committee believes that the Manager has an appropriate focus on management development, training, retention, diversity and inclusion. In 2023, we focused on advancing human capital development through employee engagement, professional development and our ongoing internship opportunities. Based on the factors described above collectively, the Management Development and Compensation Committee believes that the performance of the Manager under the Management Agreement has been strong and the management fee paid to the Manager is reasonable and appropriate. Advisory Vote on Executive Compensation and Shareholder Engagement The executive compensation program is grounded in a compensation philosophy aimed at achieving strong alignment between our long-term strategic goals and our shareholders’ interests. The Management Development and Compensation Committee and our Manager consider feedback received through direct dialogue with investors, as well as our prior year Say-on-Pay results. At our 20212023 Annual Meeting, we held a shareholder advisory vote on the compensation of our named executive officers (the “say-on-pay vote”). Our shareholders approved the compensation of our named executive officers, with approximately 90.5%94.5% of the votes cast in favor of our 20212023 say-on-pay resolution. While our Say-on-Pay vote received meaningful support in 2021, In 2023, we proactively made enhancements to our governance policies (including the addition of Executive Share Ownership Guidelines and an expansion of our Clawback Policy as described below) and engaged with shareholders to better understand what drove their 2021 votes.perspectives on our executive compensation program and practices. Key points of discussion oninvestor feedback related to our governance and compensation policies and practices include:discussed during these meetings included: Our Policy on MitigatingRestricting Pledging Risk is robust in its protections of shareholder interests and appropriately balanced in light ofconsidering the significant share retention obligation of our named executive officers; Addition of Executive Share Ownership Guidelines further reinforces our ownership model;
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Equity Performance Awards are performance-based with rigorous goals and payout criteria; and Our enhanced Clawback Policy reflects our commitment to sustainable growth and pay-for-performance. Overall, we found shareholders were generally supportive of the executive compensation program and practices and continue to support thisour pay-for-performance model. Shareholders generally encouraged us to enhance disclosuresAs result of feedback from our shareholders and in light of the position of ISS, we updated our Policy on MitigatingRestricting Pledging Risk and the elements of the executive compensation program.as described above. We are continuously strivingstrive to align our strategic priorities and reflect feedback received from our shareholders. Say-on-Frequency Vote
At our 2021 Annual Meeting, a majority of our shareholders recommended that we hold a non-binding, advisory shareholder vote on the compensation of theour named executive officers every year. In light of this recommendation from our shareholders, as well as other factors, we are holding an advisory vote with respect to the compensation of theour named executive officers at our 20222024 Annual Meeting. Compensation Program Philosophy and ObjectivesOur business as the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry is dependent on the performance of our named executive officers and other key employees. Among other things, we depend on their ability to find, select and execute transactions, find and develop relationships with innovators from academic institutions, research hospitals and non-profitsnot-for-profits through small and mid-cap biotechnology companies to leading global pharmaceutical companies and provide other services essential to our success. The executive compensation program is designed to attract, motivate, retain and retain talented professionals who drivereward highly-skilled executives with the business experience and acumen that we believe are necessary for achievement of our success.long-term business objectives. The compensation philosophyprogram has several primary objectives: establish a clear relationship between performance and compensation to drive our business and financial performance; align the interests of our named executive officers and other key employees with the long-term interests of our shareholders to maximize value; and provide competitive compensation opportunities, with an appropriate balance between short-term and long-term incentives, to attract, motivate and retain key executives crucial to Royalty Pharma’s long-term success. Base salaries are dictated by employee proficiency and experience in their roles. In addition to base salary, the Manager utilizes annual bonuses and Equity Performance Awards to further incentivize and retain talent and provide an overall compensation package that is competitive with the market. Annual bonuses are generally paid to employees annually based on our profitability, market conditions and employee performance. Certain of our professionals may also receive Equity Performance Awards which we believe align the interests of our named executive officers and other key employees with those of our shareholders, and thisshareholders. This alignment has been a key contributor to our strong performance and growth. We also believe that ownershipthe significant shareholdings in the CompanyRoyalty Pharma by our named executive officers results in alignment of their interests with those of our shareholders.
The compensation program is a management tool supporting our mission and values. We believe the program supports, reinforces and aligns our values, business strategy and operations with the goalour goals of increasing the number of biopharmaceutical royalties in our portfolio and profitability.portfolio. Compensation arrangements with our named executive officers are described below under “Elements of Compensation.” Royalty Pharma
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Compensation Risk The Manager’s compensation policies are targeteddesigned to incentivize investing in a risk-controlled fashion and are intended to discourage undue risk. Therefore, aA key element of the compensation program consists of Equity Performance Awards for our named executive officers. We believe this policy encourages long-term thinking and protects us against excessive risk and investing for short-term gain. We do not believe that the compensation program creates risks that are reasonably likely to have a material adverse effect on the Company.Royalty Pharma. Importantly, the value of the Equity Performance Awards of any named executive officer is a function of the profitability of the royalties we acquiredacquire as a whole, rather than specific investments, meaning that theyour named executive officers have a material interest in every investment. This approach discourages excessive risk taking, since a particularly successful single royalty acquisition or investmentlosses on investments will result inreduce Equity Performance Awards only if our overall portfolio is successful.on profitable investments. In addition, the share retention obligations and ownership requirements set forth in our executive share ownership policyExecutive Share Ownership Guidelines discourage excessive risk-taking because the value of these interests is tied directly to the long-term performance of our Class A shares. Our Management Development and Compensation Committee is responsible for reviewing any risks associated with the compensation program for our named executive officers, as described in more detail under “Board Oversight of Risk Management” above. Royalty Pharma | | | 2024 Proxy Statement | 53 |
TABLE OF CONTENTS COMPENSATION DISCUSSION AND ANALYSIS | | | |
Elements of Compensation The primary elements of the compensation program for our named executive officers, excludingother than Mr. Legorreta, are base salary, annual bonuses and Equity Performance Awards, and,Awards. Mr. Legorreta does not receive employee compensation for his services. However, Mr. Legorreta is entitled to Equity Performance Awards. In addition, as a result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consists of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and Equity Performance Awards.the compensation of the employees of the manager, including our named executive officers. We believe that the elements of compensation for our named executive officers serve the primary objectives of the compensation program. The Manager periodically reviews the compensation of our key employees, including our named executive officers, and, from time to time, wethe Manager may implement new plans or programs or otherwise makes changes to the compensation structure relating to current or future key employees, including our named executive officers. In 2021,2023, compensation decisions and decisions regarding the allocation of Equity Performance Awards to our named executive officers and senior professionals were made by our Manager and not by our Management Development and Compensation Committee or independent directors. Management Fee As the sole memberWe are externally managed and have no personnel of theour own. The Manager Mr. Legorretamanages our business and assets and sources and evaluates new royalty acquisitions. The Manager employs a team of experienced management personnel, as detailed in “Executive Officers.” The Manager is entitled to a share of the Manager’s profits lessresponsible for funding operating and personnel expenses. The Manager’s revenues for 2021, 2020 and 2019 include the management fee paid by us under the Management Agreement with the Manager.
As described above under “Management Agreement,” we pay a quarterly Operating and Personnel Payment in respect of operating and personnel expenses to the Manager or its affiliates equal to 6.5% of the cash receipts from royalty investmentsRoyalty Investments, or Portfolio Receipts for such quarter, and 0.25% of the value of security investments under GAAP including equity securities and derivative financial instruments, as of the end of such quarter. As the Company, RP Holdings and RP Holdings’ subsidiaries, including RPI, have no personnel of their own, the Manager is responsible for funding operating and personnel expenses. Base Salary The Manager pays each of our named executive officers, other than Mr. Legorreta a base salary the details of which areas set out in the Summary Compensation Table that follows. It is intended that the base salary of eachfor our named executive officerofficers reflect histheir position, duties and responsibilities, as well as recognize histheir anticipated contribution to our ongoing initiatives and future success. Although we believe that the base salary of our named executive officers should not typically be the most significant amount of total compensation, it is intended that any base salary amounts should attract and retain top talent as well as assist with the payment of basic living costs throughout the year. Mr. Legorreta does not receive a base salary. Annual Bonus Each of our named executive officers, other than Mr. Legorreta participates in the Manager’s annual cash bonus plan, which provides each participant with an annual cash bonus opportunity in an amount to be determined by our Manager. Mr. Legorreta does not participate in our annual cash bonus plan. The primary factors considered in determining the discretionary bonuses for Messrs. Coyne, Hite, Lloyd and Urist are discussed below. The subjective factors that contributed to the determination of the bonus amounts included an assessment of the performance of Royalty Pharma and our portfolio, the individual performance and contributions of theour named executive officer to our business during 20212023 and theour named executive officer’s potential to enhance portfolio returns and contribute to long-term shareholder value. Each of Messrs. Coyne, Hite, Lloyd and Urist provided critical and significant contributions to Royalty Pharma’s achievements in 2021.2023. In assessing Mr. Coyne’s performance, the Manager considered his oversight of our accounting, finance and treasury functions, as well as his management of our balance sheet and focus on managing costs. In assessing Mr. Hite’s performance, the Manager considered his leadership in drivingsourcing and analyzing investment performanceopportunities to create value for our shareholders in his rolesrole as Vice Chairman. In assessing Mr. Lloyd’s performance, the Manager considered his oversight of our legal team and his efforts to address legal and regulatory considerations applicable to our business and to our firm as a public company. In assessing Dr. Urist’s performance, the Manager considered his leadership in sourcing and analyzing investment opportunities to create value for our shareholders in his role as head of Research and Investments. Royalty Pharma
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Equity Performance Awards Equity Performance Awards (as defined below) are determined on a portfolio-by-portfolio basis, so to ensure that our executive officers do not get paid incentive compensation unless each portfolio is profitable, rather than specific investments, toTo ensure economic alignment between shareholders and our named executive officers.officers, each of our named executive officers receives or is entitled to Equity Performance Awards (as defined below). Equity Performance Awards are determined based on portfolios (“Portfolios”) consisting of investments made over a two-year period. During 20212022 and 2020, all of our named executive officers were granted an allocation of Equity Performance Awards, which represent a percentage interest in the Net Economic Profits to be realized on two-year Portfolios of royalties acquired by RP Holdings in respect of investments made after the Exchange Date.we acquired. We refer to these grants as “Equity Performance Awards.” We consider these awards to have a zero fair value as of the date of grant. We do not currently expect any material Equity Performance Awards to be payable until certain performance tests are met, which we do not expect to occur until the mid-2020s.
Portfolios are based on two-year periods, to mitigate the riskRoyalty Pharma | | | 2024 Proxy Statement | 54 |
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To ensure that Equity Performance Awards are not paid on a profitable investmentPortfolio even though our investments are not profitable in the aggregate, the investments made over a two-year period are not profitable. Onon any quarterly equity distribution date, the Equity Performance Awards payable isare subject to each of the following three tests: Test One: Cumulative Net Economic Profit for such Portfolio for all periods prior to the relevant quarterly determination date is positive. Cumulative Net Economic Profit is positive if the aggregate cash receipts for all investments in a Portfolio for all prior periods is greater than the Total Expenses allocated to such Portfolio for all prior periods. Test Two: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in such Portfolio for all periods commencing after such quarterly determination date are equal to or greater than one hundred and thirty-five percent (135%) of the projected Total Expenses for all investments in such Portfolio through the expected termination dates of all investments in such Portfolio. Test Three: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in all Portfolios other than the Old RPI Portfolio, for all periods commencing after such quarterly determination date are equal to or greater than one hundred and thirty-five percent (135%) of the projected Total Expenses for all of the Portfolios through the termination or disposition dates of all investments in all of the Portfolios, other than the Old RPI Portfolio.Portfolios. The three tests above are intended to reduce the risk that Equity Performance Awards are payable at a time when either an individual portfolioPortfolio or our overall portfolio of investments is not performing well. Accordingly, Equity Performance AwardsThat is, the above rules are designed to ensure an executive officer does not get paid incentive compensation unless all of the portfoliosour investments as a whole are profitable, rather than specific investments, ensuring economic alignment between the executive officers and our shareholders, and discouraging undue risk taking byand aligning each officer’s compensation with the long-term performance of our business. See “Certain Relationships and Related Party Transactions—Equity Performance Awards.” Conversion of Performance Awards into Limited Partnership Interests Exchangeable for Class A Ordinary Shares
During 2019, all of our named executive officers (other than Mr. Hite, who joined the Manager in March 2020) were granted beneficial interests in the carried interest held by Pharmaceutical Investors, LP in royalties acquired by Old RPI in 2019. We referred to these grants of beneficial interests in this carried interest as “Performance Awards.” We considered these awards to have a zero fair value as of the date of grant.
Each Performance Award represented a percentage interest in the net profits realized by Old RPI or RPI on acquisitions of royalties. The actual amount of any carried interest distributions to any named executive holder was thus a function of the profitability of the royalties we acquired. Accordingly, the Manager believes that each grant of a Performance Award to an executive officer aligns the interests of the officer with those of our shareholders by closely aligning the officer’s compensation with the long-term performance of our business.
Distributions in respect of a Performance Award are determined on the basis of the award’s percentage participation in the net profits realized on an acquired royalty. The percentage participation of each named executive officer under a Performance Award with respect to each royalty acquisition varies from time to time and from acquisition to acquisition based on many factors, including the named executive officer’s contribution to the royalty acquisition transaction.
In February 2020, in connection with the Exchange Offer Transactions, Pharmaceutical Investors, L.P. contributed all of its carried interest in Old RPI to the Continuing US Investors Partnership in exchange for limited partnership interests in that entity. As a result of this exchange, each of the Performance Awards held by our named executive officers was converted into limited partnership interests in the Continuing US Investors Partnership. Because limited partnership interests in the Continuing US Investors Partnership are exchangeable into our Class A ordinary shares, we believe this change has further served to align the interests of our named executive officers with those of our shareholders.
Mr. Legorreta has agreed with the Company to retain and not sell before February 2025, certain limited partnership interests resulting from the exchange of Performance Awards as described above. Our Board has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship.
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Messrs. Coyne, Lloyd and Urist have agreed with the Manager to retain and not sell before February 2025 certain limited partnership interests resulting from the exchange of Performance Awards as described above. Our Manager has agreed to consider waiving this restriction for important life events or where this restriction would otherwise impose a hardship.
Role of Compensation Consultant The Management Development and Compensation Committee directly engaged Semler Brossy Consulting Group, LLC (“Semler Brossy”) in 20212023 to serve as its independent compensation consultant. The Management Development and Compensation Committee takes into consideration the advice of Semler Brossy to inform its decision-making process and has sole authority for retaining and terminating its compensation consultant, as well as approving the terms of engagement, including fees. Services provided by Semler Brossy to the Management Development and Compensation Committee relating to executive compensation in 20212023 included: attended Committee meetings to present and offer independent recommendations, insights and perspectives on executive compensation matters; assessed how the executive compensation program aligns with pay for performance; and updated the Management Development and Compensation Committee on emerging trends and best practices in the areas of compensation governance and executive compensation. The Management Development and Compensation Committee meets multiple times throughout the year with the compensation consultant in executive session without management present. Semler Brossy does not provide any other services to the Company.Royalty Pharma. The Management Development and Compensation Committee has determined Semler Brossy to be independent from management and that its engagement did not present any conflicts of interest. From time to time, the Management Development and Compensation Committee may engage other consultants and advisors in connection with various compensation matters. Royalty Pharma | | | 2024 Proxy Statement | 55 |
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Biopharmaceutical Peer and Financial Services Comparator Groups Semler Brossy assisted in review of a group of relevant companies and provided historical compensation data regarding such companies as a reference point in connection with the Management Development and Compensation Committee’s evaluation of the Manager’s compensation. Our business is at the intersection of the biopharmaceutical and financial services sectors. In many ways, our investments in biopharmaceutical royalties are similar to alternative investments made by asset management firms, though it is necessary that our employees be leading experts in the biopharmaceutical space. As a result, we draw the vast majority of our employees from the biopharmaceutical and financial services spaces, To that end, Semler Brossy and the Management Development and Compensation Committee felt it was necessary to create a peer group that reflected the influence of these two industries on our approach to talent management and, given our higher margin business, establish the group using profitability as the core sizing metric. Our peer group consisted of the companies listed in the charts below. | Biopharmaceutical Peer Group (14) (13) | | | • Eli Lilly
• Johnson& Johnson
• Merck & Co.
• Pfizer | | | • AbbVie
• Bristol-Myers Squibb
• Amgen
• Gilead | | | • Biogen
• Vertex Pharmaceuticals
• Incyte
• Regeneron | | | • Horizon Therapeutics
• BioMarin
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| Financial Services Comparator Group (10) (9) | | | • Blackstone
• T. Rowe Price
• Carlyle | | | • Apollo
• Ares
• Invesco | | | • Jefferies
• Affiliated Managers Group
• Lazard | | | • Sculptor Capital Management | |
Strong Clawback Policy Accountability is a fundamental value of Royalty Pharma. To reinforce this value through our executive compensation program, our Manager and executive officers are subject to a strong compensation recovery (“clawback”) policy. Under our prior policy, the Manager must repay any excess compensation from an accounting restatement with any financial reporting requirement under the U.S. federal securities law. Under our enhanced policy, ourOur Management Development and Compensation Committee may also seek to recover payments of compensation made to our Manager or an executive officer in connection with a material breach by the Manager or an executive officer of covenants in agreements between us and the Manager or officer or as a result of the Manger’sManager’s or the officer’s misconduct that harms the business or reputation of the Company.Royalty Pharma. Our clawback policy is available on our website at www.royaltypharma.com under “Investors—Governance.Corporate governance.” We have also adopted a Financial Statement Compensation Recoupment Policy to comply with Nasdaq listing standards in accordance with SEC Rule 10D-1. Royalty Pharma | | | 20222024 Proxy Statement | 54 56
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Robust Share Retention Obligations and Executive Share Ownership Policyand Guidelines Our named executive officers and certain other senior executives are required to maintain a minimum equity stake in Royalty Pharma. This policy embodies our Management Development and Compensation Committee’s belief that our most senior executives should maintain a significant personal financial stake in Royalty Pharma to promote a long-term perspective in managing our business. In addition, the share retention requirements andour share ownership policy helps align executive and shareholder interests, which reduces incentive for excessive short-term risk taking. Our executive officers who were serving at the timeown 16.4% of our IPO have agreed to retain a substantial percentageordinary shares. We believe this insider ownership exceeds that of shares they owned asover 95% of the datecompanies in the S&P and creates strong alignment between shareholders and our executive officers, directors and their related entities. To complement our compensation programs and further align the interests of our IPO in June 2020 for five years after the date of the IPO. The percentage of the shares that our named executive officers have agreedwith those of our shareholders, our Board adopted Executive Share Ownership Guidelines pursuant to retain and their share ownership as a multiple of their base salary is as shown below.which the following persons are expected to own equity in Royalty Pharma with the following aggregate market values: | Individual(s) | | | Guideline | | | Name and Principal PositionValue
($) | | | CEO | | | Greater of 5x base salary or
1,000,000 shares | | | Percentage
of Shares
Subject to
Retention
| | | Share
Ownership
as a Multiple
of Salary28,090,000(1)
| | | Pablo Legorreta
ChiefOther Named Executive Officer Officers | | | 3x base salary | | | 65%
| | | 392x
| | | Terrance Coyne
Executive Vice President & Chief Financial Officer
| | | 81%
| | | 219x
| | | Christopher Hite
Executive Vice President & Vice Chairman
| | | 49%
| | | 36x
| | | George Lloyd
Executive Vice President, Investments & General Counsel
| | | 76%
| | | 298x
| | | Marshall Urist, M.D., Ph.D.
Executive Vice President, Research and Investments
| | | 93%
| | | 122x3,600,000(2)
| |
(1)
| Valued at $28.09 our closing share price on December 29, 2023. Mr. Legorreta does not receive a base salary. |
(2)
| Based on each named executive officer’s base salary for the year ended December 31, 2021.2023. |
In addition to the share retention requirements, each covered executive is required to acquire and maintain ownership of Royalty Pharma equal to a specified amount or multiple of his or her base salary, which for our Named Executives, as shown in the table below. | CEO
| | | Greater of 5x base salary or
1,000,000 shares
| | | 40,000,000
| | | Other Named Executive Officers
| | | 3x base salary
| | | 3,150,000
| |
(1)
| Valued at $39.85 our closing share price on December 31, 2021. Based on each named executive officer’s base salary for the year ended December 31, 2021, except for Dr. Urist who is expected to own $2,100,000 of our equity. |
In 2021,2023, each of our Named Executives complied with our share ownership policy. OurPledged shares do not count towards meeting share ownership policy restricts the inclusion of shares that are subject to pledging arrangements.requirements. Our share ownership policy is available on our website at www.royaltypharma.com under “Investors—Governance.Corporate governance.”
Our named executive officers are expected to attain compliance with these ownership guidelines by the fifth anniversary of the later of our IPO or their hire or promotion date. Thereafter, named executive officers are required to certify their compliance with these ownership guidelines at least once each year. As of December 31, 2023, each of our named executive officers was in compliance with the share ownership guidelines. Named Executive Officer’s Agreement to Retain and Not Sell at least 50% of Shares for Five Years After IPO In connection with our IPO in February 2020, our named executive officers agreed to retain and not sell for five years after our IPO at least 50% of the ordinary shares they owned at the time of the IPO. The number and percentage of the ordinary shares currently owned by our named executive officers that they have agreed to retain and not sell through February 2025 as of December 31, 2023 is as shown below. | Name and Principal Position | | | Number
of Shares
Subject to
Retention | | | Percentage
of Shares
Subject to
Retention | | | Pablo Legorreta
Chief Executive Officer | | | 51,033,928 | | | 66% | | | Terrance Coyne
Executive Vice President & Chief Financial Officer | | | 6,062,728 | | | 83% | | | Christopher Hite
Executive Vice President & Vice Chairman | | | 928,800 | | | 60% | | | George Lloyd
Executive Vice President, Investments & Chief Legal Officer | | | 7,397,096 | | | 84% | | | Marshall Urist, M.D., Ph.D.
Executive Vice President, Research and Investments | | | 2,545,940 | | | 93% | |
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Policy on MitigatingRestricting Pledging Risk AsOur Board believes that the promotion of long-termism and an ownership culture aligns the interests of our directors and executive officers with those of our shareholders. While pledging shares as collateral for personal loans can create risks, including the risk of a forced sale of our Class A ordinary shares, at the same time:
the Board believes that prohibiting the pledging of shares would simply lead directors and executive officers to sell shares in order to obtain the liquidity they desire, thereby reducing their investment in Royalty Pharma and reducing the alignment of their personal interests with those of Royalty Pharma; and as a result of the significant retention obligations of thethat our named executive officers described above,agreed to at the time of the IPO, with our named executive officers agreeing to retain at least 50% of their shares for at least five years after our IPO, their ability to sell shares in order to obtain liquidity is severely restricted. The As such, the Board determinedbelieves that allowingthe unusual degree of alignment between public shareholders and our directors and executive officers to pledgeresulting from their shares subject to significant limitations for personal liquidity needs insteadsubstantial share ownership, and the commitment of selling their shares is in the best interests of the Company and its shareholders as it encourages its directors andour executive officers to retain their shares and aligns the interests of its directors and executive officers with thosenot sell for five years after our IPO at least 50% of the Company and its shareholders. Theshares they owned at the time of the IPO is a unique characteristic of Royalty Pharma that the Board wishes to encourage. After careful consideration, the Board has therefore designed the Policy on MitigatingRestricting Pledging, Riskwhich has been further enhanced in 2023, to balance these concerns and mitigate risk to the CompanyRoyalty Pharma and our shareholders, particularlyshareholders. As a result, we have adopted enhancements to our Policy Restricting Pledging, which resulted in lighta reduction in the number of shares pledged by directors and executive officers from 78,450,885 shares to 17,519,639 shares, which is equivalent to a reduction in the number of shares pledged from 43.9 days of average daily trading volume at the time of our 2023 Annual Meeting to 6.6 days of average daily trading volume as of the significant retention obligations ofRecord Date for our named executive officers described above.2024 Annual Meeting. In order to reduce the risk of forced sales of pledged shares as a result of a margin call following a decline in the market price of our Class A ordinary shares, our Policy on MitigatingRestricting Pledging Risk limits the amount of debt that can be incurred by our directors and executive officers secured by the pledge of our shares. Pursuant to our Policy on Mitigating Pledging Risk, directors and executive officers may not incur a loan secured by the pledge of our shares ifand the loan balancenumber of trading days any pledged position would take to “unwind.” While we already had a Policy Restricting Pledging, the Audit Committee concluded that a stronger prohibition on pledging was appropriate. Pursuant to our Policy Restricting Pledging: Named Executive Officers, including the Chief Executive Officer, and directors may not pledge more than 50% of their shares; Any loans incurred may not exceed 20%50% of the value of shares pledged on the date the loan is incurred. pledged;Royalty Pharma
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Example: An executive officer wishes toThe Chief Executive Officer and directors may not pledge 100,000 Class A ordinary shares as collateral for a personal loan, and the current share price is $40 per Class A ordinary share. The executive officer may borrow up to 20% of 100,000 x $40, or $800,000, secured by a pledge of such Class A ordinary shares.
|
Assuming a typical 60% loan to value margin loan maintenance requirement, if an officer were to borrow an amount equal to 20% of the valuenumber of shares pledged,exceeding four days average daily trading volume (“ADTV”); and
Named Executive Officers, other than the Class A ordinaryChief Executive Officer, may not pledge a number of shares would need to decline by over 60% to trigger a margin call. Given the low volatilityexceeding two days of our Class A ordinary shares, the Board considers the risk of a 60% decline in the price of Class A ordinary shares, even in the event of a market crisis, to be remote. In order to monitor the risk associated with secured by shares, the Audit Committee of the Board receives reports from the Manager at least quarterly regarding the amount of any loans by management secured by shares and compliance with the 20% loan to value limitation. We believe that this monitoring is effective and we have confirmed that each of our directors and executive officers who have pledged shares are and have been compliant with this policy since our last confirmation.ADTV.
The Policy on MitigatingRestricting Pledging Risk requires the Audit Committee to review all pledging arrangements, assess any risks to Royalty Pharma and its shareholders and report on the arrangements and risks to the Board. The Policy on Mitigating Pledging RiskThis policy provides that all pledges must comply with, and be precleared under, Royalty Pharma’s Insider Trading Policy and must be pre-cleared as specified in accordance with its trading pre-clearance procedures.Policy. The Audit Committee may seek outside advice in connection with its oversight of pledging arrangements. In order to monitor the risk associated with loans secured by shares, the Audit Committee of the Board receives reports from the Manager at least quarterly regarding pledging arrangements. In accordance with the Policy Restricting Pledging, the Audit Committee shall weigh some or all of the following factors when reviewing pledging arrangements: historical information and trends regarding pledging arrangements; the purpose, amount and key terms of the loans under which shares have been pledged as collateral; the number and value of shares that have been pledged as collateral; the aggregate number of shares that are pledged in relation to the total number of shares outstanding; the market value of Royalty Pharma’s Class A ordinary shares; the number of days that it would take to unwind any pledged position; the ability of each director or executive officer to repay any loans or provide additional collateral without recourse to the pledged shares; and any other relevant factors. After examining these factors, the Audit Committee was satisfied that this monitoring is effective and confirmed that our directors and executive officers who have pledged shares are and have been compliant with this policy, except for one director who has been granted a partial waiver of this policy. The Audit Committee considered it reasonable to grant this waiver given that this director had previously been in Royalty Pharma | | | 2024 Proxy Statement | 58 |
TABLE OF CONTENTS COMPENSATION DISCUSSION AND ANALYSIS | | | |
compliance with our prior Policy Restricting Pledging and needed additional time to bring himself into compliance with our new Policy Restricting Pledging. The Audit Committee expects that all directors and executive officers will be in compliance with the Policy Restricting Pledging after the Annual Meeting. The Audit Committee will continue to monitor pledging arrangements and encourage all directors and executive officers to comply with the Policy Restricting Pledging. See “Policy on Mitigating Pledging Risk” under Corporate GovernanceRestricting Pledging” and “Security Ownership of Certain Beneficial Owners” under Corporate Governance for information regarding shares pledged by our executive officers as of the Record Date. Note that such disclosure reports the total number of shares pledged. However, the actual amount of borrowings against such sharessecurities as of such date is subject to the 20% loan to value limitationlimitations described above and in some cases is much less than 20% of the value of the shares pledged.above. Management Development and Compensation Committee Report The Management Development and Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the Management Development and Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2021.2023. This report is provided by the following independent directors, who comprise the Management Development and Compensation Committee. William FordDavid Hodgson (Chair)
Bonnie Bassler, Ph.D.
Errol De Souza, Ph.D.
Gregory NordenRory Riggs
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Summary Compensation Table The following table provides summary information concerning the compensation awarded to, earned by or paid to each of our named executive officers for the fiscal year ended December 31, 20212023 for services rendered in all capacities during the last three fiscal years during which such individuals were named executive officers. | Pablo Legorreta
Chief Executive Officer | | | 2021 | | | 8,000,000 | | | — | | | — | | | 41,513,461 | | | 49,513,461 | | | 2020 | | | — | | | — | | | — | | | 55,674,558 | | | 55,674,558 | | | 2019 | | | — | | | — | | | — | | | 28,545,792 | | | 28,545,792 | | | Terrance Coyne
Executive Vice President & Chief Financial Officer | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | — | | | 3,900,000 | | | 2020 | | | 895,000 | | | 2,500,000 | | | — | | | — | | | 3,395,000 | | | 2019 | | | 425,625 | | | 1,500,000 | | | — | | | — | | | 1,925,625 | | | Christopher Hite(6)
Executive Vice President & Vice Chairman | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | 106,250 | | | 4,006,250 | | | 2020 | | | 776,923 | | | 2,500,000 | | | — | | | 367,788 | | | 3,644,711 | | | 2019 | | | — | | | — | | | — | | | — | | | — | | | George Lloyd
Executive Vice President, Investments & General Counsel | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | — | | | 3,900,000 | | | 2020 | | | 895,000 | | | 2,500,000 | | | — | | | — | | | 3,395,000 | | | 2019 | | | 682,500 | | | 1,500,000 | | | — | | | — | | | 2,182,500 | | | Marshall Urist, M.D., Ph.D.(7)
Executive Vice President, Research & Investments | | | 2021 | | | 700,000 | | | 2,850,000 | | | — | | | — | | | 3,550,000 | |
As discussed above under “Certain Relationships and Related Party Transactions–Management Agreement,” we are externally managed and have no personnel of our own. We, RP Holdings and RPI have entered into the Management Agreement with the Manager who manages our business and assets and sources and evaluates new royalty acquisitions. The Manager employs our named executive officers. As discussed above under “Compensation Discussion and Analysis–Overview,” our named executive officers are compensated for their service to us by the Manager and do not receive any compensation directly from us. We do not reimburse the Manager for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of this compensation. For a description of our obligations to pay the Operating and Personnel Payment to the Manager under the Management Agreement, please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” Our CEO, Mr. Legorreta, does not receive employee compensation for his services. However, Mr. Legorreta is entitled to Equity Performance Awards. In addition, as a result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consist of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager, including our named executive officers. The profits of the Manger are shown in the table below entitled the “Profits of the Manager.” Please also refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” | Name and Principal Position | | | Year | | | Salary
($)(1) | | | Bonus
($)(2) | | | Stock
Awards
($)(3) | | | All Other
Compensation
($)(4) | | | Total
($) | | | Pablo Legorreta*
Chief Executive Officer | | | 2023 | | | See below under “Profits of the Manager” | | | 2022 | | | 2021 | | | Terrance Coyne
Executive Vice President & Chief Financial Officer | | | 2023 | | | 1,200,000 | | | 3,360,000 | | | — | | | — | | | 4,560,000 | | | 2022 | | | 1,150,000 | | | 3,200,000 | | | — | | | — | | | 4,350,000 | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | — | | | 3,900,000 | | | Christopher Hite
Executive Vice President & Vice Chairman | | | 2023 | | | 1,200,000 | | | 3,360,000 | | | — | | | — | | | 4,560,000 | | | 2022 | | | 1,150,000 | | | 3,200,000 | | | — | | | — | | | 4,350,000 | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | 106,250 | | | 4,006,250 | | | George Lloyd
Executive Vice President, Investments & Chief Legal Officer | | | 2023 | | | 1,200,000 | | | 3,360,000 | | | — | | | — | | | 4,560,000 | | | 2022 | | | 1,150,000 | | | 3,200,000 | | | — | | | — | | | 4,350,000 | | | 2021 | | | 1,050,000 | | | 2,850,000 | | | — | | | — | | | 3,900,000 | | | Marshall Urist, M.D., Ph.D.
Executive Vice President, Research & Investments | | | 2023 | | | 1,200,000 | | | 3,360,000 | | | — | | | — | | | 4,560,000 | | | 2022 | | | 1,150,000 | | | 3,200,000 | | | — | | | — | | | 4,350,000 | | | 2021 | | | 700,000 | | | 2,850,000 | | | — | | | — | | | 3,550,000 | |
(1)
| Reflects salary paid by the Manager to each named executive officer for services.services, except for Mr. Legorreta who does not receive employee compensation. However, Mr. Legorreta is entitled to Equity Performance Awards because of his ownership of EPA Holdings. In addition, as result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager as described in more detail under “Profits of the Manager” below. |
(2)
| Reflects bonuses paid by the Manager under the Manager’s discretionary annual cash bonus program for services. |
(3)
| Neither the Company nor the Manager granted any stock awards to any of our named executive officers in 2023. Each of our named executive officers received Equity Performance Awards in 2021 and 2020.2022. Each Equity Performance Award amountedamounts to an allocation in the Net Economic Profits to be realized on royalties acquired by RP Holdings.Holdings as described in “Compensation Discussion and Analysis” above. We consider these awards to have a fair value of zero on the date of grant and consequently we have not included any amount of compensation for awards granted in this Summary Compensation Table disclosure. The actual amount realized by our named executive officers in respect of the Equity Performance Awards upon settlement will be reported in the Options Exercised and Stock Vested Table for the year of settlement of such awards. For additional details regarding Equity Performance Awards, see “Equity Performance Awards” above. |
(4)
| For Mr. Legorreta,Hite, amounts shown represent earnings resultingrepresented cash payments to Mr. Hite on unvested limited partnership interests in RPI US Partners 2019, LP. |
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TABLE OF CONTENTS COMPENSATION DISCUSSION AND ANALYSIS | | | |
Profits of the Manager Our CEO, Mr. Legorreta, does not receive employee compensation for his services. However, Mr. Legorreta is entitled to Equity Performance Awards. In addition, because of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consist of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager, including our named executive officers. Mr. Legorreta founded Royalty Pharma in 1996 and, as such, brings over 25 years of strategic leadership experience and an unparalleled knowledge of Royalty Pharma’s business. The Board considers that Mr. Legorreta’s interests are highly aligned with shareholders due to his significant shareholdings in Royalty Pharma. | | | | Profits of the Manager(1) | | | Year | | | Recurring(2)
($) | | | Biohaven
Related(2)
($) | | | Total
($) | | | 2023 | | | 50,712,077 | | | 34,125,000 | | | 84,837,077 | | | 2022 | | | 65,476,809 | | | 28,001,593 | | | 93,478,402 | | | 2021 | | | 49,513,461 | | | — | | | 49,513,461 | | | 2020 | | | 55,674,558 | | | — | | | 55,674,558 | |
(1)
| As a result of his ownership ofinterest in the Manager. The earningsManager, Mr. Legorreta is entitled to certain profits of the Manager, consistwhich consists of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager. For Mr. Coyne, 2020 compensation excludes $719,460 in cash paid to Mr. Coyne in exchange for cancelling certain phantom carried interest allocations in certain Portfolios of Pharmaceutical Investors, LP. For Mr. Hite, amounts shown represent cash payments to Mr. Hite on unvested limited partnership interests in the Continuing US Investors Partnership.Manger, including our named executive officers. |
(5) (2)
| EachFor 2023, Biohaven Related profits of our named executive officersthe Manager related to a $475.0 million milestone payment received Equity Performance Awardsfollowing the U.S. Food and Drug Administration’s approval of Zavzpret in March 2023 and a one-time $50.0 million payment from Pfizer related to the oral formulation of zavegepant. For 2022, the profits of the Manager increased significantly as compared to 2021, primarily due to the acceleration of redemption payments of $479.5 million for all outstanding Biohaven Series A and 2020. Each Equity Performance Award amounted to an allocationSeries B Preferred Shares following Pfizer’s acquisition of Biohaven in the Net Economic Profits to be realized on royalties acquired by RP Holdings.October 2022. We consider these awards to have a fair valuethe profits of zero on the date of grant and consequently we have not included any amount of compensation for awards granted in this Summary Compensation Table disclosure. |
(6)
| Mr. Hite joined the Manager in March 2020other than those related to Biohaven payments as recuring payments. Please refer to the section entitled “Certain Relationships and performed no services for Royalty Pharma or the Manager in 2019. |
(7)
| Dr. Urist became a named executive officer in 2021. Dr. Reddoch was previously considered to be a named executive officer in 2020 and 2019.Related Party Transactions—Management Agreement.” |
Grants of Plan-Based Awards The Manager did not make any grants of cash incentive plan awards in 2021, 20202023, 2022 or 2019.2021. Equity Performance Awards were granted to our named executive officers in 20212022 and 2020, but we consider these awards to have a fair value of zero as of the date of grant. Royalty Pharma
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Outstanding Equity Awards at 20212023 Fiscal Year-End The following table provides information on the market value of Equity Performance Awards held by each of our named executive officers as of December 31, 2021.2023. | | | | Equity Performance
Awards
| | | Pablo Legorreta | | | 108,574,037 181,131,343 | | | Terrance Coyne | | | 18,377,849 32,943,639 | | | Christopher Hite | | | 18,377,849 32,943,639 | | | George Lloyd | | | 18,377,849 32,943,639 | | | Marshall Urist, M.D., Ph.D.
| | | 13,783,387 27,022,308 | |
(1)
| Represents an estimate of the aggregate net present value as of December 31, 202129, 2023 of each named executive officer’s Equity Performance Awards as described under “Equity Performance Awards.” For illustrative purposes, assuming the Equity Performance Awards became payable and were settled as of December 31, 2021,2023, the aggregate number of Class A ordinary shares that would have been delivered to each of our named executive officers in respect of their Equity Performance Awards would have been as follows: for Mr. Legorreta, 2,806,3036,448,250 Class A ordinary shares; for Mr. Coyne 474,9641,172,789 Class A ordinary shares; for Mr. Hite, 474,964 Class A ordinary shares; for Mr. Lloyd, 474,964 Class A ordinary shares; and for Dr. Urist, 356,223 Class A ordinary shares. The actual amount realized by our named executive officers in respect of the Equity Performance Awards upon settlement will be reported in the Options Exercised and Stock Vested Table for the year of settlement of such awards. For additional details regarding Equity Performance Awards, see “Equity Performance Awards” above. |
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TABLE OF CONTENTS COMPENSATION DISCUSSION AND ANALYSIS | | | |
ordinary shares; for Mr. Hite, 1,172,789 Class A ordinary shares; for Mr. Lloyd, 1,172,789 Class A ordinary shares; and for Dr. Urist, 961,990 Class A ordinary shares. The actual amount realized by our named executive officers in respect of the Equity Performance Awards upon settlement will be reported in the Options Exercised and Shares Vested Table for the year of settlement of such awards. For additional details regarding Equity Performance Awards, see “Equity Performance Awards” above. Option Exercises and Shares Vested in 20212023 As weNo Equity Performance Awards became payable during the year ended December 31, 2023. We have never issued any options and, accordingly, our named executive officers had no option exercises during the year ended December 31, 2021. The named executive officer listed below had Equity Performance Awards vest during the year ended December 31, 2021.2023.
| Christopher Hite(1) | | | 625,000 | | | 29,366,188 | |
(1)
| The value for Mr. Hite is based on the value of interests in Continuing Investors Partnerships that are exchangeable into 625,000 Class A ordinary shares received upon the vesting of Equity Performance Awards on March 23, 2021. |
(2)
| The value realized on vesting was calculated by multiplying the number of Class A ordinary shares that could have been acquired on vesting by the volume weighted average price of the Class A ordinary shares for the ten trading days immediately prior to such date. |
Pension Benefits We do not provide pension benefits to our named executive officers. Nonqualified Deferred Compensation We do not provide defined contribution plans for the deferral of compensation on a basis that is not tax-qualified. Royalty Pharma
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Potential Payments upon Termination or Change in Control The Manager maintains a separation pay plan that provides for an unspecified amount of separation payOur named executive officers are not entitled to any additional payments or benefits upon a qualifying termination of employment, upon a change in control or upon retirement, death or disability, except that, for certain of our named executive officers, certain of their Equity Performance Awards will accelerate upon termination of such named executive officers’ services to us by reason of death or disability of such named executive officer. Equity Performance Awards are generally biennial awards and forfeitable upon termination of employment in certain circumstances.
Non-Competition and Non-Solicitation Agreements Each of our named executive officers is party to a non-competition and non-solicitation agreement with the Manager under which he has agreed that for 18 months following termination of employment for any reason, he will not compete with the Manager or solicit the services of any person who is then an employee of Royalty Pharma or solicit any investor or potential investor in Royalty Pharma. Management Agreement We have entered into the Management Agreement with the Manager pursuant to which the Manager will receive a separate Operating and Personnel Payment for its provision of advisory and management services to our business. To the extent that the Manager outsources any of its functions we will pay the fees associated with such functions on a direct basis without profit to the Manager. See “Certain Relationships and Related Party Transactions—Management Agreement.” Indemnification Agreements We and the Manager, as in connectionapplicable, have entered into indemnification agreements (or deed poll indemnities) with a reductionor as to each of force, job eliminationour named executive officers and the Manager’s other officers and directors, as well as with individuals serving as directors or voluntary acceptanceofficers of a Manager-initiated termination.the Manager’s subsidiaries, providing for the indemnification of, and advancement of expenses to, these persons to the fullest extent permitted by law. See “Certain Relationships and Related Party Transactions—Indemnification of Directors and Officers.” Tax and Accounting Considerations The Manager considers the impact of accounting implications and tax treatment of significant compensation decisions. As accounting standards and applicable tax laws change and develop, it is possible that the Manager may consider revising certain features of the executive compensation program to align with theits overall compensation philosophy. However, these tax and accounting considerations are only one aspect of determining executive compensation and shouldare not expected to unduly influence compensation program design elements that are consistent with theits overall compensation philosophy and objectives. Accordingly, the Manager retains the discretion to design and implement compensation elements and programs that may not be tax deductible and/or that could have adverse accounting consequences. Non-Competition and Non-Solicitation Agreements
Each of our named executive officers is party to a non-competition and non-solicitation agreement with the Manager under which he has agreed that for 18 months following termination of employment for any reason, he will not compete with the Manager or solicit the services of any person who is then an employee of Royalty Pharma or solicit any investor or potential investor in Royalty Pharma.
Management Agreement
We have entered into the Management Agreement with the Manager pursuant to which the Manager will receive a separate Operating and Personnel Payment for its provision of advisory and management services to our business. To the extent that the Manager outsources any of its functions we will pay the fees associated with such functions on a direct basis without profit to the Manager. See “Certain Relationships and Related Party Transactions—Management Agreement.”
Indemnification Agreements
We and the Manager, as applicable, have entered into indemnification agreements (or deed poll indemnities) with or as to each of the named executive officers and the Manager’s other officers and directors, as well as with individuals serving as directors or officers of the Manager’s subsidiaries, providing for the indemnification of, and advancement of expenses to, these persons to the fullest extent permitted by law. See “Certain Relationships and Related Party Transactions—Indemnification of Directors and Officers.”
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TABLE OF CONTENTS INDEPENDENT DIRECTOR EQUITY INCENTIVE PLAN CEO PAY RATIO | | | TABLE OF CONTENTS
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Independent Director Equity Incentive PlanWe maintain our 2020 Independent Director Equity Incentive Plan (the “EIP”) in order to motivate and reward our independent directors to further the best interests of the Company and its shareholders.
Eligibility, Awards and Administration
The EIP provides for the grant of the following types of awards to independent directors of the Company: (i) market value options; (ii) share appreciation rights; (iii) restricted stock / restricted stock unit awards; (iv) performance awards (awards subject to performance conditions) and (v) other share-based awards.
For purposes of the EIP, a director is considered independent if he or she (i) is not a full- or part-time officer or employee of the Company, the Manager or any affiliate or subsidiary of either; (ii) is “independent” for purposes service on the Board within the meaning of the listing rules of Nasdaq; and (iii) was not appointed to the Board by the exercise of a power of appointment by a shareholder of the Company.
Subject to the terms of the EIP, awards can be granted in respect of our Class A ordinary shares, American Depositary Shares (“ADSs”), cash or a combination thereof. References in this section to our Class A ordinary shares will be deemed references to ADSs, as applicable.
The EIP is administered by the Management Development and Compensation Committee unless the Management Development and Compensation Committee designates one or more directors as a subcommittee who may act for the Management Development and Compensation Committee if necessary. The Board may also choose to administer the EIP itself.
Limitation on Awards
Subject to adjustment, the aggregate number of shares available for issuance under the EIP will not exceed 800,000 Class A ordinary shares.
Share Options
Nonstatutory share options may be granted under the EIP pursuant to stock option agreements adopted by the Management Development and Compensation Committee. The committee determines the exercise price for a share option, within the terms and conditions of the EIP, provided that the exercise price of a share option cannot be less than the fair market value of our Class A ordinary shares on the date of grant. Share options vest at the rate specified by the committee. The committee determines the term of share options granted under the EIP, up to a maximum of 10 years. The committee shall also determine the time or times at which a share option may be exercised in whole or in part, the methods by which, and the forms in which payment of the exercise price with respect to share options may be made or deemed to have been made, including cash, Class A ordinary shares, other property, net settlement (including broker-assisted cashless exercise) or any combination thereof, with any such payment having a fair market value on the exercise date equal to the relevant exercise price.
Share Appreciation Rights
Share Appreciation Rights (“SARs”) may be granted under the EIP pursuant to SAR agreements adopted by the Management Development and Compensation Committee, either alone or in connection with other awards granted under the plan. The exercise price per Class A ordinary share under a SAR shall be determined by the Committee, but will not be less than the fair market value of a Class A ordinary share on the date of grant. The term of each SAR shall be fixed by the committee but shall not exceed 10 years from the date of grant. The committee shall also determine the time or times at which a SAR may be exercised or settled in whole or in part.
Upon the exercise of a SAR, the Company shall pay to the recipient an amount equal to the number of Class A ordinary shares subject to the SAR multiplied by the excess, if any, of the per-share fair market value of such shares on the exercise date over the exercise price of such SAR. The Company shall pay such excess in cash, in Class A ordinary shares valued at fair market value, or any combination thereof, as determined by the Management Development and Compensation Committee.
Restricted Share and Restricted Share Units
Awards of restricted shares and restricted share units or “RSUs” may be granted under the EIP pursuant to a restricted share or RSU agreement adopted by the Management Development and Compensation Committee. The Committee shall determine the vesting schedule, whether any award of restricted shares or RSUs is entitled to dividends or dividend equivalents, voting rights or any other rights. With respect to RSUs, the committee shall determine the delivery schedule and the form or forms (including cash, shares or other property) in which payment may be made.
Independent Director Performance Awards
Performance awards may be granted under the EIP and may be denominated as a cash amount, a number of shares or a combination thereof. Performance awards may be earned upon achievement or satisfaction of performance conditions specified by the Management Development and Compensation Committee. The committee may specify that any other type of award shall constitute a performance award by conditioning
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INDEPENDENT DIRECTOR EQUITY INCENTIVE PLAN
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the right to exercise the award or have it settled, and the timing thereof, upon achievement or satisfaction of performance conditions. The committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the EIP, the committee may determine the length of any performance period, the goals to be achieved during any such period, the amount of any performance award and the amount of any payment or transfer to be made based on satisfaction of such goals. A performance award relating to shares shall not provide for the payment of any dividend (or dividend equivalent) with respect to those shares prior to the time at which such award (or a portion thereof), is earned.
Performance criteria may be measured on an absolute (e.g., plan or budget) or relative basis, and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments. Relative performance may be measured against a group of peer companies, a financial market index or other acceptable objective and quantifiable indices. If the Management Development and Compensation Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances render the performance objectives unsuitable, the committee may modify the minimum acceptable level of achievement, in whole or in part, as the committee deems appropriate and equitable. Performance objectives may be adjusted for material items not originally contemplated in establishing the performance target for items resulting from discontinued operations, extraordinary gains and losses, the effect of changes in accounting standards or principles, acquisitions or divestitures, changes in tax rules or regulations, capital transactions, restructuring, nonrecurring gains or losses or unusual items. Performance measures may vary from award to award, and from participant to participant, and may be established on a stand-alone basis, in tandem or in the alternative. The committee shall have the power to impose such other restrictions on awards as it may deem necessary or appropriate to ensure that such awards satisfy all requirements of any applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
Other Share-Based Awards
The Management Development and Compensation Committee is authorized, subject to limitations under applicable law, to grant such other awards under the EIP that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, our Class A ordinary shares or factors that may influence the value of such shares. The committee shall determine the terms and conditions of such Awards.
Leavers
Unvested awards will usually lapse on termination of service (including voluntary departure) save for potentially different good leaver treatment. The effect of a participant’s termination of service on outstanding awards, including whether the awards may be exercised, settled, vested, paid or forfeited, will be determined by the Management Development and Compensation Committee and may be set forth in the participant’s award agreement.
Certain Transactions
In the event of certain corporate transactions, including a change of control, the Management Development and Compensation Committee may determine the appropriate treatment of an award, which may include (but is not limited to) it vesting in full, being settled in cash or being varied or replaced so as to relate to other assets (including shares in another company).
The number and type of securities subject to award and any exercise price may also be adjusted for various events that may affect the value of ordinary shares or ADSs and for changes in applicable laws, regulations or accounting principles.
Amendment and Termination
The Board may amend, alter, suspend, discontinue or terminate the EIP or any portion thereof at any time, subject to shareholder approval where required by applicable law or the rules of the stock market or exchange, if any, on which the shares are principally quoted or traded.
However, no such action by the Board that would materially adversely affect participants’ rights under an outstanding award may be taken without such participants’ consent, except to the extent that such action is made to cause the EIP to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations or to impose any recoupment provisions on any awards in accordance with the EIP.
No award may be granted under the EIP after the earliest to occur of: (i) the tenth anniversary of the effective date of the EIP; provided that to the extent permitted by the listing rules of any stock exchange on which we are listed, such ten-year term may be extended indefinitely so long as the maximum number of shares available for issuance under the EIP have not been issued; (ii) the maximum number of shares available for issuance under the EIP have been issued; and (iii) the termination of the EIP by our Board.
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CEO PAY RATIO
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As noted above, Mr. Legorreta does not receive a salary. As a result of his ownership interest in the Manager, Mr. Legorreta is entitled to certain profits of the Manager, which consist of the management fee from Royalty Pharma less the expenses of the Manager, including operating expenses and the compensation of the employees of the Manager, including our named executive officers. Please refer to the section entitled “Certain Relationships and Related Party Transactions—Management Agreement.” We are providing the following information regarding the relationship between the annual total compensation of the median employee of the Manager and the annual total compensationprofits of the Manager in 2023, which accrued to the benefit of our Chief Executive Officer, Mr. Legorreta. We have selected December 31 of each fiscal year as the determination date for the calculation of the CEO pay ratio. Our methodology for identifying the median employee of the Manager for the 20212023 determination date (December 31, 2021)2023) included the following: We collected total compensation information for 20212023 from our payroll register for all employees of the Manager. Total compensation generally included an employee’s gross income, including wages, bonuses and other cash incentives. We annualized total compensation for our new hires and for those employees on unpaid leave for any period of time during the respective measurement period. We then sorted the total compensation for each employee (excluding our Chief Executive Officer) from lowest to highest and identified the employee who was paid the median 20212023 annual total compensation amount. Our analysis determined that the median employee of the Manager earned $373,719$353,061 in total compensation for 2021, determined utilizing the same methodology used to determine compensation paid to our Chief Executive Officer in 2021 for purposes2023. The profits of the Summary Compensation Table. Our Chief Executive Officer’s total compensation value as disclosedManager received by Mr. Legorreta were $84,837,077 in the Summary Compensation Table for 2021, was $49,513,461. Our2023. Using this methodology, our ratio of Chief Executive Officer to median employee pay was 132240 to 1. As the SEC rules allow for companies to adopt a wide range of methodologies to calculate their CEO pay ratio, the estimated ratio should not be used as a basis for comparison to that of other companies. Royalty Pharma | | | 20222024 Proxy Statement | 62 63
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TABLE OF CONTENTS PAY VERSUS PERFORMANCE The following table reports the compensation of our CEO who is our principal executive officer and the average compensation of the other named executive officers (“Non-CEO NEOs”) as reported in the “Summary Compensation Table” for the past three fiscal years, as well as their “compensation actually paid” as calculated pursuant to SEC rules and certain performance measures required by such rules. | Year | | | Summary
Compensation
Table Total
for CEO
($) | | | Compensation
Actually Paid
to CEO
($) | | | Average
Summary
Compensation
Table Total
for Non-CEO
NEOs
($) | | | Average
Compensation
Actually Paid
to Non-CEO
NEOs
($) | | | Value of Initial
Fixed $100 Investment
Based on: | | | Net
Income
($ Millions) | | | Portfolio
Receipts
Growth
(%) | | | Supplemental
Metrics | | | TSR
($) | | | Peer
Group
TSR
($) | | | SG&A as %
of Portfolio
Receipts
(%) | | | Adjusted
EBITDA
Margin
(%) | | | (a) | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | | (k) | | | 2023 | | | See above
under “Profits
of the Manager” | | | 26,793,427 | | | 4,560,000 | | | 11,235,243 | | | 68.83 | | | 173.07 | | | 1,135 | | | 9 | | | 8.0 | | | 92.0 | | | 2022 | | | 45,763,879 | | | 4,350,000 | | | 11,908,830 | | | 92.72 | | | 155.00 | | | 43 | | | 31 | | | 8.0 | | | 92.0 | | | 2021 | | | 57,044,154 | | | 3,839,063 | | | 12,269,171 | | | 91.75 | | | 137.29 | | | 620 | | | 18 | | | 8.7 | | | 91.3 | | | 2020 | | | 51,529,883 | | | 3,457,428 | | | 12,256,554 | | | 113.15 | | | 106.01 | | | 975 | | | 1 | | | 10.0 | | | 90.0 | |
Column (b). See above under “Profits of the Manager” for a discussion of the compensation of our CEO, Mr. Legorreta, for the respective years shown. Amounts shown in column (b) above do not include the $84,837,077, $93,478,402, $49,513,461 and $55,674,558 for 2023, 2022, 2021 and 2020, respectively, in profits of the manager to which Mr. Legorreta was entitled. Column (c). “Compensation actually paid” to our CEO in each of 2023, 2022, 2021 and 2020 reflects the respective amounts set forth in column (b) of the table above, adjusted as set forth in the table below, as determined in accordance with SEC rules. The dollar amounts reflected in column (c) of the table above do not reflect the actual amount of compensation earned by or paid to our CEO during the applicable year. Further, the increase in the dollar amounts between columns (b) and (c) in the table above represents the year-over-year changes in the aggregate net present value of outstanding Equity Performance Awards. For additional information regarding Equity Performance Awards, see “Equity Performance Awards” above. For information regarding the CEO’s compensation for each fiscal year and his entitlement to the profits of the Manager, please see the Compensation Discussion and Analysis sections of the proxy statements reporting pay for the fiscal years covered in the table above. | Year | | | 2020
($) | | | 2021
($) | | | 2022
($) | | | 2023
($) | | | SCT Total Compensation | | | See above under “Profits of the Manager” | | | Plus: Year-End Net Present Value of Outstanding Equity Performance Awards Granted in the Covered Year | | | 51,529,883 | | | — | | | 9,966,920 | | | — | | | Plus: Change in Net Present Value of Outstanding Equity Performance Awards Granted in Prior Years | | | — | | | 57,044,154 | | | 35,796,959 | | | 26,793,427 | | | Plus: Change in Net Present Value of Equity Performance Awards Granted in Prior Years which Became Payable in the Covered Year | | | — | | | — | | | — | | | — | | | Less: Prior Year Net Present Value of Equity Performance Awards Forfeited in the Covered Year | | | — | | | — | | | — | | | — | | | Compensation Actually Paid | | | 51,529,883 | | | 57,044,154 | | | 45,763,879 | | | 26,793,427 | |
As we consider the Equity Performance Awards to have a fair value of zero as of the date of grant, no adjustments were necessary to deduct the grant date fair value of Equity Performance Awards from the Total Compensation reported in the Summary Compensation Table for any applicable year. There were no Equity Performance Awards which were granted and became payable in the same year and no dividends or other earnings paid on Equity Performance Awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year. In addition, as our CEO does not receive pension benefits, no adjustments were required with respect thereto. REPORT OF THE AUDIT COMMITTEE
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TABLE OF CONTENTS REPORT OF THE AUDIT COMMITTEEColumn (d). The following Non-CEO named executive officers are included in the average figures shown:In2020: Terrance Coyne, Christopher Hite, George Lloyd and James Reddoch, Ph.D.
2021, 2022 and 2023: Terrance Coyne, Christopher Hite, George Lloyd and Marshall Urist, M.D., Ph.D. Column (e). Average “compensation actually paid” for our Non-CEO NEOs in each of 2023, 2022, 2021 and 2020 reflects the respective amounts set forth in column (d) of the table above, adjusted as set forth in the table below, as determined in accordance with its charter,SEC rules. The dollar amounts reflected in column (e) of the Audit Committee assiststable above do not reflect the Boardactual amount of compensation earned by or paid to our Non-CEO NEOs during the applicable year. Further, the increase in fulfilling its responsibilitythe dollar amounts between columns (d) and (e) in the table above represents the year over year changes in the average salaries, bonuses and aggregate net present value of Equity Performance Awards. For additional information regarding Equity Performance Awards, see “Equity Performance Awards” above. For information regarding the Non-CEO NEOs’ compensation for oversighteach fiscal year, please the Compensation Discussion and Analysis sections of the proxy statements reporting pay for the fiscal years covered in the table above. | Year | | | 2020
Average
($) | | | 2021
Average
($) | | | 2022
Average
($) | | | 2023
Average
($) | | | SCT Total Compensation | | | 3,457,428 | | | 3,839,063 | | | 4,350,000 | | | 4,560,000 | | | Plus: Year-End Net Present Value of Outstanding Equity Performance Awards Granted in the Covered Year | | | 8,799,126 | | | — | | | 1,878,336 | | | — | | | Plus: Change in Net Present Value of Outstanding Equity Performance Awards Granted in Prior Years | | | — | | | 8,430,108 | | | 5,680,494 | | | 6,675,243 | | | Plus: Change in Net Present Value of Equity Performance Awards Granted in Prior Years which Became Payable in the Covered Year | | | — | | | — | | | — | | | — | | | Less: Prior Year Net Present Value of Equity Performance Awards Forfeited in the Covered Year | | | — | | | — | | | — | | | — | | | Compensation Actually Paid | | | 12,256,554 | | | 12,269,171 | | | 11,908,830 | | | 11,235,243 | |
As we consider the Equity Performance Awards to have a fair value of zero as of the date of grant, no adjustments were necessary to deduct the grant date fair value of Equity Performance Awards from the Total Compensation reported in the Summary Compensation Table for any applicable year. There were no Equity Performance Awards which were granted and became payable in the same year and no dividends or other earnings paid on Equity Performance Awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year. In addition, as our Non-CEO NEOs do not receive pension benefits, no adjustments were required with respect thereto. Column (f). Represents our cumulative total shareholder return (“TSR”) for the measurement periods beginning on June 16, 2020, the first trading day after our IPO, and ending on December 31 of each respective year. Column (g). Represents the cumulative TSR of our accountingBiopharmaceutical Peer and Financial Services Comparator Groups as described above in “Compensation Discussion and Analysis” for the measurement periods beginning on June 16, 2020, the first trading day after our IPO, ending on December 31 of each respective year. Column (h). Reflects “Net Income attributable to Royalty Pharma plc” in our Consolidated Statements of Operations included in our Annual Report on Form 10-K. As the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry, our revenue is comprised mostly of income from royalty assets. Consequently, we did not use net income as a performance measure in our compensation program because we classify most royalty assets that we acquire as financial reporting processesassets that are measured at amortized cost using the prospective effective interest method which can be volatile and unpredictable. We do not believe the relationship between our net income and compensation actually paid to our NEOs during the periods presented is a key metric for our investors. Column (i). Our Company-selected Measure is Portfolio Receipts Growth which is described below. For 2020, Portfolio Receipts Growth has been calculated based on twelve months ended December 31, 2019 figures presented on an unaudited pro forma basis, which adjusts certain cash flow line items as if Royalty Pharma’s Reorganization Transactions (as described in the Company’s final prospectus filed with the SEC on June 17, 2020) and its internalIPO had taken place on January 1, 2019. Refer to the section “Appendix A – Reconciliations of Non-GAAP Measures” in this Proxy Statement for reconciliation of this non-GAAP measure to its corresponding GAAP measure. Royalty Pharma | | | 2024 Proxy Statement | 65 |
TABLE OF CONTENTS Columns (j) and external audit processes.(k). We have also presented two additional financial measures—SG&A as % of Portfolio Receipts and Adjusted EBITDA Margin because they illustrate how compensation actually paid to our NEOs results in much lower SG&A versus our peers. Refer to the section “Appendix A – Reconciliations of Non-GAAP Measures” of this Proxy Statement for reconciliations of non-GAAP measures to their corresponding GAAP measure. Portfolio Receipts Growth was chosen from the following four most important financial measures used by the Manager to compare compensation actually paid to the CEO and Non-CEO NEOs to our performance. The Audit Committee has implemented procedures to ensure that it devotesother measures in this table are not ranked. As our CEO and Non-CEO NEOs are not compensated directly by us, Portfolio Receipts Growth and the attention necessary to eachother financial measures listed in the chart below reflect the financial measures utilized by, and reflect the decision of, the matters assigned to it under its charter.Manager, rather than by our Management Development and Compensation Committee. In discharging its oversight responsibility, the Audit Committee has reviewed and discussed our audited consolidated financial statements and related footnotes contained in
| Measure | | | Explanation | | | Portfolio Receipts Growth | | | Portfolio Receipts is defined as the sum of royalty receipts and milestones and other contractual receipts. Royalty receipts include variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that is attributed to us. Milestones and other contractual receipts include sales-based or regulatory milestone payments and other fixed contractual receipts, net of contractual payments to legacy non-controlling interests, that is attributed to us. Portfolio Receipts does not include proceeds from equity securities or proceeds from purchases and sales of marketable securities, both of which are not central to our fundamental business strategy. | | | Portfolio Receipts | | | Portfolio Receipts is calculated as the sum of the following line items from our GAAP consolidated statements of cash flows: Cash collections from financial royalty assets, Cash collections from intangible royalty assets, Other royalty cash collections, Proceeds from available for sale debt securities and Distributions from equity method investees less Distributions to legacy non-controlling interests—Portfolio Receipts, which represent contractual distributions of royalty receipts and milestones and other contractual receipts to the legacy investors. | | | Adjusted EBITDA | | | A non-GAAP liquidity measure comprised of Portfolio Receipts less payments for operating and professional costs. | | | Portfolio Cash Flow | | | A non-GAAP liquidity measure comprised of Adjusted EBITDA less net interest paid/received. | | | SG&A as % of Portfolio Receipts | | | Payments for operating and professional costs as a percentage of Portfolio Receipts. | | | Adjusted EBITDA Margin | | | Adjusted EBITDA as a percentage of Portfolio Receipts. | |
See our Annual Report on Form 10-K for additional discussion on Portfolio Receipts, Adjusted EBITDA and Portfolio Cash Flow. In the fiscal year ended December 31, 2021“Compensation Discussion and Analysis” section of this Proxy Statement, we provide greater detail on the elements of the compensation program and the independent registered public accounting firm’s report on those financial statements, with managementcompensation philosophy of our Manager. We are externally managed and with Ernst & Young,do not directly employ our independent registered public accounting firm. Management representedexecutive officers. Please refer to the Audit Committee that our financial statements in our Annual Report on Form 10-K were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Audit Committee has discussed with Ernst & Young the matters required to be discussed under the applicable requirements of the Public Company Accounting Oversight Boardsection entitled “Certain Relationships and the SEC. As part of its responsibilities for oversight of risk management, the Audit Committee reviewed and discussed our policies with respect to risk assessment and risk management, including discussions of individual risk areas.
The Audit Committee recognizes the importance of maintaining the independence of our independent registered public accounting firm. Consistent with its charter, the Audit Committee has evaluated Ernst & Young’s qualifications, performance, and independence, including that of the lead audit partner. The Audit Committee has received and reviewed the written disclosures and the letter from Ernst & Young required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee, and has discussed with Ernst & Young, its independence from the Company.
Based on the review and discussions described above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for filing with the SEC.
AUDIT COMMITTEE
Gregory Norden (Chair)
Catherine Engelbert
Henry FernandezRelated Party Transactions—Management Agreement.”
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TABLE OF CONTENTS Relationship Between Compensation Actually Paid and Performance Measures The table below reflects the relationship between the CEO and the average Non-CEO NEO compensation actually paid and the performance measures shown in the pay versus performance table. With respect to the relationship between compensation actually paid and the performance measures described below, as noted above, our CEO Mr. Legorreta does not receive compensation for his services but instead, because of his ownership interest in the Manager, is entitled to certain profits of the Manager. Our Non-CEO NEOs are also not employed or compensated directly by us, but are instead employed by our Manager. The compensation of our CEO and Non-CEO NEOs reflect the decisions of the Manager, rather than by our Management Development and Compensation Committee. Moreover, we generally seek to incentivize long-term performance, and therefore we do not specifically align our performance measures with “compensation actually paid” (as computed in accordance with Item 402(v) of Regulation S-K) for a particular year. In accordance with Item 402(v) of Regulation S-K, we are providing the following descriptions of the relationships between information presented in the Pay versus Performance table. | Period | | | Compensation
Actually Paid
to CEO(1)
(%) | | | Average
Compensation
Actually Paid
to Non-CEO
NEOs
(%) | | | TSR
(%) | | | Peer
Group TSR
(%) | | | Change
in Net
Income
(%) | | | Change in
Portfolio
Receipts Growth
(%) | | | 2022 to 2023 | | | (41.5) | | | (5.7) | | | (25.8) | | | 11.7 | | | 2,549.5 | | | 9 | | | 2021 to 2022 | | | (19.8) | | | (2.9) | | | 1.1 | | | 12.9 | | | (93.1) | | | 31 | | | 2020 to 2021 | | | 10.7 | | | 0.1 | | | (18.9) | | | 29.4 | | | (36.4) | | | 18 | |
(1)
| Amounts shown do not reflect year-over-year changes in the amount of profits of the Manager to which Mr. Legorreta was entitled because Mr. Legorreta does not receive employee compensation for his services. |
• | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our TSR. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 25.8% decrease in our TSR over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 1.1% increase in our TSR over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 18.9% decrease in our TSR over the same time period. |
• | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Net Income. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 2,549.5% increase in our Net Income over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 93.1% decrease in our Net Income over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 36.4% decrease in our Net Income over the same time period. In addition to analyzing our results on a GAAP basis, management also reviews our key performance metric, Portfolio Receipts, which represents our ability to generate cash from our portfolio investments, the primary source of capital that we can deploy to make new portfolio investments. See “—Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Portfolio Receipts Growth.” |
• | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Portfolio Receipts Growth. From 2022 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to a 9% increase in our Portfolio Receipts over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 31% increase in our Portfolio Receipts over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 18% increase in our Portfolio Receipts over the same time period. |
• | Relationship Between our TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group TSR. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group (described above in “Compensation Discussion and Analysis”) increased by 11.7% from 2022 to 2023 as compared to our TSR, which decreased by 25.8% over the same time period. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group increased by 12.9% from 2021 to 2022 as compared to our TSR, which increased by 1.1% over the same time period. The TSR and our Biopharmaceutical Peer and Financial Services Comparator Peer Group increased by 29.4% from 2020 to 2021 as compared to our TSR, which decreased by 18.9% over the same time period. |
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TABLE OF CONTENTS Relationship Between Compensation Actually Paid and Supplemental Performance Measures We generally seek to incentivize long-term performance, and therefore we are providing the following supplemental performance measures which reflect our performance-driven compensation philosophy. | Period | | | Compensation
Actually Paid
to CEO(1)
(%) | | | Average
Compensation
Actually Paid
to Non-CEO
NEOs
(%) | | | Change in
SG&A as %
of Portfolio
Receipts
(%) | | | Change in
Adjusted
EBITDA
Margin
(%) | | | 2022 to 2023 | | | (41.5) | | | (5.7) | | | — | | | — | | | 2021 to 2022 | | | (19.8) | | | (2.9) | | | (0.7) | | | 0.7 | | | 2020 to 2021 | | | 10.7 | | | 0.1 | | | (1.3) | | | 1.3 | |
(1)
| Amounts shown do not reflect year-over-year changes in the amount of profits of the Manager to which Mr. Legorreta was entitled because Mr. Legorreta does not receive employee compensation for his services. |
• | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our SG&A as a % of Portfolio Receipts. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to no change in our SG&A as a % of Portfolio Receipts over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 0.7% decrease in our SG&A as a % of Portfolio Receipts over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 1.3% decrease in our SG&A as a % of Portfolio Receipts over the same time period. |
• | Relationship Between Compensation Actually Paid to our CEO and the Average of the Compensation Actually Paid to the Non-CEO NEOs and our Adjusted EBITDA Margin. From 2022 to 2023, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 41.5% and 5.7%, respectively, compared to no change in our Adjusted EBITDA Margin over the same time period. From 2021 to 2022, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs decreased by 19.8% and 2.9%, respectively, compared to a 0.7% increase in our Adjusted EBITDA Margin over the same time period. From 2020 to 2021, the compensation actually paid to our CEO and the average of the compensation actually paid to the Non-CEO NEOs increased by 10.7% and 0.1%, respectively, compared to a 1.3% increase in our Adjusted EBITDA Margin over the same time period. |
The following chart demonstrates how our Adjusted EBITDA Margin compares to the EBITDA Margins of our Biopharmaceutical Peer and Financial Services Comparator Groups for the last four fiscal years. Royalty Pharma | | | 2024 Proxy Statement | 68 |
TABLE OF CONTENTS | | | RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
| The Board recommends that shareholders vote “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.2024. | |
Our Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022. The2024.The Audit Committee reviews the performance of the independent registered public accounting firm annually. In making the determination to appoint Ernst & Young LLP, the Audit Committee considered, among other factors, the independence and performance of Ernst & Young LLP, and the quality and candor of Ernst & Young LLP’s communications with the Audit Committee and management. Ernst & Young LLP has served as Royalty Pharma’s independent registered public accounting firm since 2022. Ernst & Young Global Limited’s Irish member firm, Ernst & Young previously served as the independent registered public accounting firm since our IPO and continues to serve as our statutory auditor in the United Kingdom. At the Annual Meeting, our shareholders are being asked to ratify the appointment of Ernst & Young LLP as Royalty Pharma’s independent registered public accounting firm. Although the appointment of Ernst & Young LLP does not require ratification, the Board has directed that the appointment of Ernst & Young LLP be submitted to shareholders for ratification because we value our shareholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and they will be given an opportunity to make a statement at the Annual Meeting if they desire to do so, and will be available to respond to appropriate questions.
Independent Registered Public Accounting Firm Fees and Services The following table shows the billed and expected to be billed fees for professional services rendered by Royalty Pharma’s independent registered public accounting firm for each of the fiscal years ended December 31, 20212023 and 2020:2022: | Audit Fees(1) | | | 2,861,880 | | | 3,695,402 | | | Audit Related Fees(2) | | | — | | | 242,000 | | | Tax Fees(3) | | | 515,789 | | | 531,567 | | | Other Fees(4) | | | — | | | — | | | Total Fees | | | 3,377,669 | | | 4,468,969 | |
| | | | 2023
($) | | | 2022
($) | | | Audit Fees(1) | | | 3,242,645 | | | 3,004,742 | | | Audit Related Fees(2) | | | — | | | 55,000 | | | Tax Fees(3) | | | 608,874 | | | 468,943 | | | Other Fees(4) | | | 100,000 | | | — | | | Total Fees | | | 3,951,519 | | | 3,528,685 | |
(1)
| “Audit fees” include fees for audit services primarily related to the audit of our annual consolidated financial statements; audits of the effectiveness of our internal control over financial reporting; the review of our quarterly consolidated financial statements; statutory audits; consents and assistance with and review of documents filed with the SEC; and other accounting and financial reporting consultation and research work billed as audit fees or necessary to comply with the standards of the Public Company Accounting Oversight Board. |
(2)
| “Audit-related fees” includes fees for assurance and related services that are reasonably related to the performanceinclude attestation procedures performed during 2022 on our social bond consisting of the audit or review of our financial statements.$600 million fixed-rate 10-year notes issued in 2021. |
(3)
| “Tax fees” include fees for tax compliance and advice. Tax advice fees encompass a variety of permissible tax services, including technical tax advice related to federal and state and international income tax matters. |
(4)
| “Other fees” includes fees for services other than the services reported in audit fees, audit-related fees and tax fees.include attestation procedures performed during 2023 on our greenhouse gas emissions. |
Royalty Pharma | | | 20222024 Proxy Statement | 64 69
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TABLE OF CONTENTS PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | TABLE OF CONTENTS
|
Audit Committee Pre-Approval Policies for Audit and Non-Audit Services of Independent Registered Public Accounting Firm Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm, the scope of services provided by the independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the services performed to date. All of the services relating to the fees described in the table above were approved by our Audit Committee. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Our Board believes that the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022,2024, is advisable and in the best interests of Royalty Pharma and our shareholders. Please note that this vote is advisory and not binding on us or the Board in any way. If Ernst & Young LLP is not ratified by our shareholders, the Audit Committee will review its future selection of Ernst & Young LLP as our independent registered public accounting firm. Even if the auditor is ratified, the Audit Committee may decide to change auditors. Royalty Pharma | | | 20222024 Proxy Statement | 65 70
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TABLE OF CONTENTS REPORT OF THE AUDIT COMMITTEE | | | |
REPORT OF THE AUDIT COMMITTEE In accordance with its charter, the Audit Committee assists the Board in fulfilling its responsibility for oversight of our accounting and financial reporting processes and its internal and external audit processes. The Audit Committee has implemented procedures to ensure that it devotes the attention necessary to each of the matters assigned to it under its charter. In discharging its oversight responsibility, the Audit Committee has reviewed and discussed our audited consolidated financial statements and related footnotes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and the independent registered public accounting firm’s report on those financial statements, with management and with Ernst & Young, our independent registered public accounting firm. Management represented to the Audit Committee that our financial statements in our Annual Report on Form 10-K were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Audit Committee has discussed with Ernst & Young the matters required to be discussed under the applicable requirements of the Public Company Accounting Oversight Board and the SEC. As part of its responsibilities for oversight of risk management, the Audit Committee reviewed and discussed our policies with respect to risk assessment and risk management, including discussions of individual risk areas. The Audit Committee recognizes the importance of maintaining the independence of our independent registered public accounting firm. Consistent with its charter, the Audit Committee has evaluated Ernst & Young’s qualifications, performance, and independence, including that of the lead audit partner. The Audit Committee has received and reviewed the written disclosures and the letter from Ernst & Young required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee, and has discussed with Ernst & Young, its independence from Royalty Pharma. Based on the review and discussions described above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for filing with the SEC. AUDIT COMMITTEE
Gregory Norden (Chair)
Catherine Engelbert
Henry Fernandez
David Hodgson Royalty Pharma | | | 2024 Proxy Statement | 71 |
TABLE OF CONTENTS | | | VOTE TO RECEIVE U.KU.K. ANNUAL REPORT AND ACCOUNTS |
| The Board recommends that shareholders vote “FOR” to receive the U.K. Annual Report and Accounts for fiscal year ended December 31, 2021.2023. | |
Under the U.K. Companies Act, we are required to present the U.K. Annual Report and Accounts at a meeting of shareholders, which include the U.K. statutory audited annual accounts and related directors' and auditor's reports for the fiscal year ended December 31, 20212023 and we are providing our shareholders at the Annual Meeting an opportunity to receive the U.K. Annual Report and Accounts. The U.K. Annual Report and Accounts will be delivered to the Registrar of Companies in the U.K. following the Annual Meeting. We will also provide our shareholders an opportunity at the Annual Meeting to ask relevant questions of the representative of Ernst & Young in attendance at the Annual Meeting. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Our Board believes that receiving our U.K. Annual Report and Accounts is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 66 72
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TABLE OF CONTENTS | | | VOTE TO APPROVE THE U.K. DIRECTORS’ REMUNERATION
POLICY |
| The Board recommends that shareholders vote ‘“FOR” the approval of the U.K. Directors’ Remuneration Policy as contained in the U.K. Directors’ Remuneration Report. | |
Pursuant to the U.K. Companies Act, we are required to obtain binding shareholder approval of our U.K. Directors’ Remuneration Policy and we are therefore seeking such binding approval at the Annual Meeting. We are required to seek re-approval for the U.K. Directors’ Remuneration Policy at least every three years. The Company’s first U.K. Directors’ Remuneration Policy was approved at our 2021 annual meeting of shareholders and we are therefore seeking the approval of the U.K. Directors’ Remuneration Policy at this Annual Meeting. The U.K. Directors’ Remuneration Policy proposed for approval by shareholders at the Annual Meeting is substantially consistent with the prior policy approved by our shareholders at the 2021 annual meeting of shareholders. We are asking shareholders to approve our prospective U.K. Directors’ Remuneration Policy, which is set out in the U.K. Annual Report and Accounts. The U.K. Directors’ Remuneration Policy describes our forward-looking policy on directors' remuneration, including the components of the remuneration of our directors. We believe that our directors' remuneration policy will serve to attract, motivate and retain directors who are important to our long-term success. In accordance with the U.K. Companies Act, the U.K. Directors’ Remuneration Policy has been approved by and signed on behalf of the Board. We encourage shareholders to read the U.K. Directors’ Remuneration Policy. If the U.K. Directors’ Remuneration Policy is approved at the Annual Meeting, it will take effect immediately and will be valid for three years without the need for new shareholder approval, unless changes are proposed. All payments by us to our directors and former directors (in their capacity as directors) will be made in accordance with the U.K. Directors’ Remuneration Policy. If the U.K. Directors’ Remuneration Policy is not approved at the Annual Meeting, we will incur additional expenses to comply with English law as we will be required to hold additional shareholder meetings until the policy is approved. In addition, if the U.K. Directors’ Remuneration Policy is not approved, we may not be able to pay expected compensation to our directors which could materially harm our ability to retain directors. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Our Board believes that the adoption of the ordinary resolution approving the U.K Directors’ Remuneration Policy is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 2024 Proxy Statement | 73 |
TABLE OF CONTENTS | | | Proposal 6
VOTE ON A NON-BINDING ADVISORY BASIS TO APPROVE
THE U.K. DIRECTORS’ REMUNERATION REPORT |
| The Board recommends that shareholders vote “FOR” the approval of the U.K. Directors’ Remuneration Report for the fiscal year ended December 31, 2021.2023. | |
In accordance with U.K. Companies Act, we are required to seek an annual non-binding advisory vote from our shareholders to approve the U.K. Directors' Remuneration Report (other than the U.K. Directors’ Remuneration Policy which was putis subject to shareholders for a binding vote at the 2021 Annual Meeting)least every three years and is considered in Proposal 5), and we are therefore seeking, shareholders approval, on an advisory basis, of the U.K. Directors’ Remuneration Report. The report sets out the remuneration that has been paid to each person who has served as a director at any time during the fiscal year ended December 31, 2021.2023. We encourage shareholders to read the U.K. Directors’ Remuneration Report, which can be found in our U.K. Annual Report and Accounts. As this vote is advisory and not binding, a vote against this proposal will not overrule any decisions made by our Board or our Management Development and Compensation Committee, or require our Board or our Management Development and Compensation Committee to take any action with respect to the remuneration decisions set out therein. However, our Management Development and Compensation Committee will take into account the outcome of the vote when considering future compensation decisions. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Please note that this vote is advisory and not binding on us, our Board or the Management Development and Compensation Committee in any way. Our Board believes that the adoption of the ordinary resolution approving the U.K. Directors’ Remuneration Report is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 67 74
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TABLE OF CONTENTS | | | VOTE TO APPROVE RE-APPOINTMENT OF OUR U.K. STATUTORY
AUDITOR |
| The Board recommends that shareholders vote “FOR” the re-appointment of Ernst & Young as our U.K. statutory auditor to hold office until the conclusion of the next general meeting of shareholders at which the U.K. Annual Report and Accounts are presented to shareholders. | |
The statutory auditor of an English-incorporated company is responsible for conducting the statutory audit of such company's U.K. statutory accounts in accordance with the U.K. Companies Act. Under the U.K. Companies Act, our U.K. statutory auditor must be appointed at each meeting at which the U.K. Annual Report and Accounts are presented to shareholders. Our current U.K. statutory auditor is Ernst & Young and our Audit Committee has approved their re-appointment to serve as our U.K. statutory auditor for 2021.2023. We are asking shareholders to approve the re-appointment of Ernst & Young to hold office from the conclusion of the Annual Meeting until the conclusion of the next general meeting of shareholders at which the U.K. Annual Report and Accounts are presented to shareholders. If the re-appointment of Ernst & Young as our U.K. statutory auditor is not approved at the Annual Meeting, the Board may appoint an auditor to fill the vacancy. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Our Board believes, following a recommendation to this effect by our Audit Committee, that the re-appointment of Ernst & Young as our U.K. statutory auditor is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 68 75
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TABLE OF CONTENTS | | | VOTE TO AUTHORIZE THE BOARD OF DIRECTORS TO DETERMINE
DETERMINE THE REMUNERATION OF OUR U.K. STATUTORY AUDITOR
|
| The Board recommends that shareholders vote “FOR” authorizing them to determine our U.K. statutory auditor’s remuneration. | |
Under the U.K. Companies Act, the remuneration of our U.K. statutory auditor must be fixed in a general meeting or in such manner as may be determined in a general meeting. We are asking our shareholders to authorize our Board to determine the remuneration of Ernst & Young in its capacity as our U.K. statutory auditor under the U.K. Companies Act in accordance with applicable law. Recommendation and Required Vote For this resolution to be passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. Our Board believes that authorizing them to determine the remuneration of Ernst & Young as our U.K. statutory auditor is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 69 76
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TABLE OF CONTENTS | | | VOTE TO APPROVEAUTHORIZE THE TERMS OF THE AGREEMENTS AND COUNTERPARTIES PURSUANTBOARD TO WHICH WE MAY
PURCHASE OUR CLASS A ORDINARYALLOT SHARES
|
| The Board recommends that shareholders vote “FOR” authorizing the approval of the terms of the agreements and counterparties pursuantBoard to which we may purchase our Class A ordinaryallot shares. | |
This resolution is required under the U.K. Companies Act for the Company to have the on-going flexibility to allot shares or to grant rights to subscribe for, or to convert any security into, shares and is customary for public limited companies incorporated under the laws of England and Wales. This authorization is required as a matter of English law and is an additional step not generally required when companies organized within the United States are issuing shares. Under the U.K. Companies Act, we, like other U.K. companies,directors are, prohibited from purchasing our outstandingwith certain exceptions, unable to allot, or issue, shares unlesswithout being authorized either by the shareholders in a general meeting or by the company’s articles of association. In either case, any such purchase has been approved by a resolution of our shareholders. U.K. companies may purchase their own shares by “market” purchases or “off-market” purchases. Any purchase by a U.K. company of its own shares other than on a recognized investment exchange is considered to be an “off-market” purchase. NASDAQ, which is the only exchange on which our shares are traded, does not fall within the definition of a “recognized investment exchange” for the purposes of the U.K. Companies Act. As such, weauthorization may only conduct off-market purchases pursuant to a form of share repurchase contract, the terms of which have been approved by our shareholders. Shareholder authorization for share repurchases may only belast for a maximum period of 5 years. The Company’s existing authorization expires on May 31, 2025, which is before the anticipated date of the Company’s annual general meeting to be held in 2025. The purpose of this resolution is to give the Board authority to allot shares in the Company on and subject to such terms as the Board shall, in its discretion, consider appropriate. Other than in connection with routine matters (such as the allotment and issue of shares to directors of the Company pursuant to incentive plans), the Board has no present intention to exercise the authority sought under this resolution. However, the Board believe that it is important for the Company to retain the flexibility to allot shares if the Board determines it is necessary or advisable and in the best interests of shareholders, without incurring the costs or delays associated with calling a special meeting and preparing and circulating proxy materials to approve specific allotments of shares. The Company therefore proposes that the shareholders at the Annual Meeting provide Board with a new authorization to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to five yearsa maximum aggregate nominal amount of $9,049, which represents an amount that is approximately 20% of the Company’s existing issued share capital as of the Record Date). If granted, this authorization will replace the existing authorization and will expire at the end of the next annual general meeting of the Company or, if earlier, the close of business on the date that is fifteen (15) months after the date on which the resolution is passed, which is in line with the approach taken by public companies listed in the UK. Going forward, the Company intends to seek renewal of this authorization at each year’s annual general meeting of shareholders. The following resolution is submitted for shareholder vote at the Annual Meeting: “RESOLVED, that, the directors of the relevant shareholder approval. Any approval by shareholdersCompany be and are hereby generally and unconditionally authorized for the repurchasepurposes of section 551 of the Companies Act 2006, in substitution for any prior authority conferred upon the directors of the Company (but without prejudice to the continuing authority of the directors of the Company to allot equity securities pursuant to an offer or agreement made by the Company before the expiry of the authority pursuant to which such offer or agreement was made), to exercise all the powers of the Company to allot shares would be furtherin the Company or grant rights to subscribe for or convert any security into shares in the Company on and subject to onesuch terms as the directors of the Company shall, in their discretion, consider appropriate up to an aggregate nominal amount of $9,049, provided that (unless previously revoked, varied or more Board authorizationsrenewed by the Company) this authority will expire on the earlier of the Company’s annual general meeting in 2025 and 15 months after the date this resolution is passed, save that the directors of the Company may, before this authority expires, make offers or agreements which would among other terms, restrictor might require shares in the amountCompany to be allotted, or monetary value ofrights to subscribe for or convert securities into shares that canto be repurchasedgranted, after its expiry and the time period over whichdirectors of the Company may allot shares may be acquired. The Board will exerciseor grant rights to subscribe for or convert securities into shares pursuant to such offers or agreements as if this authority only after careful consideration, taking into account prevailing market conditions, other investment opportunities and our overall financial position.had not expired.” Our Board considers it prudent for us to have the flexibility to authorize a share repurchase program under which we would be able to effect off-market purchases of a certain number or value of our Class A ordinary shares. This share repurchase program may be implemented in conjunction with our brokers and other financial institutions and may be effected through open market transactions or privately negotiated transactions, including pursuant to agreements intended to comply with Rule 10b5-1 under the Exchange Act.
In order to ensure the effectiveness of any repurchase program that our Board may implement, and offer greater flexibility, we are seeking shareholder approval of the terms of two forms of share repurchase contracts.
We are also seeking approval for two forms of share repurchase contracts which may be entered into with the Approved Counterparties (as defined below) (the “Repurchase Contracts”).
One form of agreement provides that we may instruct the Approved Counterparty from time to time to purchase for resale to us such number of our Class A ordinary shares and at such price(s) as we may instruct from time to time, subject to the conditions and limitations specified in the form of agreement itself and in Rule 10b-18 under the Exchange Act. The Approved Counterparty would receive a commission for any share purchases effected pursuant to this agreement. The agreement provides that the Approved Counterparty will purchase our Class A ordinary shares as principal and sell any Class A ordinary shares so purchased to us.
The other form of agreement is a form of repurchase plan that provides us with the ability to periodically repurchase a specified dollar amount of our Class A ordinary shares each day through the Approved Counterparty if the Class A ordinary shares are trading below a specified price pursuant to a purchase agreement intended to comply with Rule 10b5-1 under the Exchange Act. The amount to be purchased each day, the limit price and the total amount that may be purchased under the agreement will be determined at the time the plan is executed. Adopting a repurchase plan that satisfies the conditions of Rule 10b5-1 allows us to repurchase our shares at times when we might otherwise be prevented from doing so due to self-imposed trading blackout periods or pursuant to insider trading laws. The Approved Counterparty may receive a commission pursuant to this agreement. The agreement provides that the Approved Counterparty will purchase our Class A ordinary shares as principal and sell any Class A ordinary shares so purchased to us.
Royalty Pharma | | | 20222024 Proxy Statement | 70 77
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TABLE OF CONTENTS PROPOSAL 8 - VOTE TO APPROVE THE TERMS OF THE AGREEMENTS AND COUNTERPARTIES PURSUANT TO WHICH WE MAY PURCHASE OUR CLASS A ORDINARY SHARES
| | | TABLE OF CONTENTS
|
We may only enter into the Repurchase Contracts with counterparties approved by our shareholders. Accordingly, we are seeking approval to conduct share repurchases through the following counterparties (or their subsidiary undertakings (as defined in section 1162 of the U.K. Companies Act) or affiliates (as defined in Rule 12b-2 of the Exchange Act) from time to time) (collectively, the “Approved Counterparties”): | • BofA Securities, Inc.
• Citigroup Global
Markets Inc.
• Goldman Sachs
& Co. LLC
• J.P. Morgan
Securities LLC
• Morgan Stanley
& Co. LLC
• Truist Securities, Inc.
| | | • DNB Markets, Inc.
• SVB Securities LLC
• Scotia Capital
(USA) Inc.
• TD Securities
(USA) LLC
• Academy Securities, Inc.
• AmeriVet Securities, Inc.
| | | • Blaylock Van, LLC
• Cabrera Capital
Markets LLC
• R. Seelaus & Co., LLC
• Samuel A. Ramirez
& Company, Inc.
• Siebert Williams
Shank & Co., LLC
• Tigress Financial
Partners, LLC
| | | • Cowen and
Company, LLC
• Evercore Group L.L.C.
• UBS Securities LLC
• Jefferies LLC
| |
We are also seeking authority for all and any of our directors to enter into, complete and do all things necessary to effect each of the Repurchase Contracts for and on behalf of us.
Approval of the Repurchase Contracts and counterparties does not constitute the approval of any share repurchase program or the amount or timing of any share repurchase activity, which will be at the discretion of our Board. There can be no assurance as to the duration, amount, or timing of any such repurchases under our authorized share repurchase program. Any repurchases of our Class A ordinary shares pursuant to this authority would be conducted in accordance with all applicable U.S. and U.K. laws. Under the U.K. Companies Act, shares repurchased may be held in treasury or may be cancelled. If the terms of the Repurchase Contracts are approved by our shareholders and shares are repurchased under such agreements, we will decide at the time of purchase whether to cancel them immediately or to hold them in treasury. If the forms of contract and counterparties do not receive shareholder approval, we will not be able to repurchase any of our Class A ordinary shares until such time as an alternative procedure enabling us to make “off-market” purchases is obtained.
The authorization to approve the terms of the Repurchase Contracts and the counterparties thereto and to authorize our directors to enter into, complete and do all things necessary to effect each of the Repurchase Contracts, if granted, will be valid for five (5) years after the date the resolution is passed by our shareholders.
Each of the Repurchase Contracts will be made available in accordance with the U.K. Companies Act for inspection by our shareholders (i) at our registered office for not less than 15 days ending with the date of the Annual Meeting and (ii) at the Annual Meeting itself.
Recommendation and Required Vote For the terms of the Repurchase Contracts and the counterparties theretothis resolution to be approved,passed, a simple majority of votes cast (whether in person or by proxy) at the Annual Meeting must be cast in favor of the resolution. The approval of this resolution by the Company’s shareholders will not substitute for any approvals that may be required for a specific transaction under any applicable Nasdaq listing rules. Our Board believes that the terms of each of the Repurchase Contracts and the authorizationauthorizing them to our directors to enter into, complete, and do all things necessary to effect the Repurchase Contracts areallot shares is advisable and in the best interests of Royalty Pharma and our shareholders. Royalty Pharma | | | 20222024 Proxy Statement | 71 78
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TABLE OF CONTENTS | | | Proposal 10
VOTE TO AUTHORIZE THE BOARD TO ALLOT SHARES WITHOUT
RIGHTS OF PRE-EMPTION |
| The Board recommends that shareholders vote “FOR” authorizing the Board to allot shares without rights of pre-emption. | |
This special resolution, like Proposal 9, is required because the Company is incorporated in England and Wales. Under the U.K. Companies Act, when an allotment of shares is for cash, the Company must first offer those shares on the same terms to existing shareholders of the Company on a pro-rata basis (commonly referred to as statutory pre-emption rights) unless disapplied by authorization of the shareholders in the form of a special resolution approved in a general meeting or by the company’s articles of association. In either case, any such disapplication may only last for a maximum period of 5 years. The Company’s existing disapplication expires on May 31, 2025, which is before the anticipated date of the Company’s annual general meeting to be held in 2025. The requirement to first offer shares to existing shareholders is an additional step not generally required when companies domiciled in the United States are issuing securities. The Board believe that it is important for the Company to retain the flexibility to issue shares for cash should the directors determine it is necessary or advisable and in the best interests of shareholders, without incurring the costs or delays associated with calling a special meeting and preparing and circulating proxy materials to disapply pre-emption rights in connection with specific allotments of shares. Other than in the circumstances outlined in Proposal 9 above, the Board has no present intention to exercise the authority sought under this special resolution, but the Board believes it is in the interests of shareholders for the Board to have this flexibility to allot shares for cash, should circumstances change. In this proposal, the Company is requesting that when the Board allots (issues) shares pursuant to the authorization referenced in Proposal 9 above, it not be required to offer pre-emption rights to existing shareholders. If granted, this authorization will replace the existing authorization and will expire at the end of the next annual general meeting of the Company or, if earlier, the close of business on the date that is fifteen (15) months after the date on which the special resolution is passed, which is in line with the approach taken by public companies listed in the UK. The Company intends to seek renewal of this authorization at each year’s annual general meeting of shareholders. The following resolution is submitted as a special resolution for shareholder vote at the Annual Meeting: “RESOLVED, that, subject to the passing of Resolution 9, the directors of the Company be and are hereby generally and unconditionally empowered to allot equity securities (as defined in section 560 of the Companies Act 2006) of the Company for cash pursuant to the authority conferred by Resolution 9 and/or to sell equity securities held as treasury shares for cash pursuant to section 727 of the Companies Act 2006 as if section 561(1) of the Companies Act 2006 did not apply to any such allotment or sale, provided that (unless previously revoked, varied or renewed by the Company) this power will expire on the earlier of the Company’s annual general meeting in 2025 and 15 months after the date this special resolution is passed, save that the directors of the Company may, before this power expires, make offers or agreements which would or might require equity securities to be allotted or equity securities held as treasury shares to be sold after its expiry, and the directors of the Company may allot equity securities and/or sell equity securities held as treasury shares pursuant to such offers or agreements as if this power had not expired.” Royalty Pharma | | | 2024 Proxy Statement | 79 |
TABLE OF CONTENTS Recommendation and Required Vote For this special resolution to be passed, the affirmative vote of holders of a majority of 75% (or more) of the total ordinary shares cast at the Annual Meeting must be cast in favor of the special resolution. The approval of this special resolution by the Company’s shareholders will not substitute for any approvals that may be required for a specific transaction under any applicable Nasdaq listing rules. Our Board believes that authorizing them to allot shares without rights of pre-emption is advisable and in the best interests of Royalty Pharma and our shareholders. GENERAL INFORMATION
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TABLE OF CONTENTS This Proxy Statement is being furnished to you in connection with the solicitation of proxies by the Board of Royalty Pharma plc for use at our 20222024 Annual Meeting of Shareholders. 20222024 Annual Meeting Date and Location
Royalty Pharma’s 20222024 Annual Meeting which will start at 9:00 a.m., U.S. Eastern Daylight Time, on June 23, 2022,6, 2024, will be our secondfourth Annual Meeting, and will be held at 110 East 59th Street, New York, New York. References in this Proxy Statement to the Annual Meeting also refer to any adjournments or changes in location of the meeting, to the extent applicable. Question and Answer Session We have structured our Annual Meeting so that it provides shareholders with the ability to ask questions in accordance with the meeting rules and procedures, which will be made available at our Annual Meeting. Delivery of Proxy Materials These materials were first sent or made available to shareholders on, or about, April 28, 2022.25, 2024. If you previously chose to receive proxy material by e-mail, we have arranged to have these materials delivered to you in accordance with that election. Shareholders may request to receive proxy materials electronically by e-mail during the voting period. Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you, as well as solicitation costs, if any.you. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminaterevoke it. If your shares are registered directly in your name with our transfer agent you are considered, with respect to those shares, the registered shareholder of record, and we are sending this Proxy Statement and the other proxy materials directly to you. As the shareholder of record, you have the right to grant your voting proxy directly to the named proxy holder or to vote in person at the meeting. We have enclosed a proxy card for you to use. Most shareholders hold their shares through a broker or other nominee rather than directly in their own name. If your shares are held by a broker, trustee or by another nominee, you are considered the beneficial owner of these shares even though they are held in “street-name,” and these proxy materials should be forwarded to you by the broker, trustee or nominee together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote and you are invited to attend the Annual Meeting. Since a beneficial owner is not the shareholder of record, you may not vote these shares at the meeting unless you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting. The 16-digit control number on your proxy card, Notice or voting instruction card will allow you to vote your shares. Your broker, trustee or nominee has enclosed or provided voting instructions for you to use in directing the broker, trustee or nominee how to instruct a proxy to vote your shares. Each registered shareholder will receive one copy of the Notice of Internet Availability per account even if at the same address, while most banks and brokers will deliver only one copy of such Notice of Internet Availability to consenting “street-name” shareholders (you own shares beneficially in the name of a bank, broker or other holder of record on the books of our transfer agent)person) who share the same address. This procedure reduces our printing and distribution costs. Those who wish to receive separate copies may do so by contacting their bank, broker or other nominee. Similarly, “street-name” shareholders who receive multiple copies of the Notice of Internet Availability at a single address may request that only a single copy be sent to them in the future by contacting their bank, broker or other nominee. If you hold your shares in “street-name” through a broker, bank or other nominee, you must provide the record holder of your sharesbank, broker, trustee or other nominee with instructions on how to instruct a proxy to vote the shares. Please follow the voting instructions provided by the bank or broker. Brokers, banks and other nominees who hold shares on behalf of their beneficial owners may not give a proxy to Royalty Pharma plc to vote those shares with respect to any proposals other than Proposals 3 and 6, without specific voting instructions from such beneficial owners. Any votes cast by street-name shareholders or brokers, banks or other nominees will be treated as though they were votes cast by the shareholder of record. You may not vote shares held in street-name by returning a proxy card directly to Royalty Pharma plc or by voting in person at the Annual Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Any votes cast pursuant to a “legal proxy” will be treated as though they were cast by the shareholder of record. Procedural Matters You can vote at the Annual Meeting or any adjournment or postponement thereof if you are a shareholder of record or beneficial owner of our shares on April 12, 20222024 (the “Record Date”). In addition, provisions under our Articles of Association allow shareholders of record as of 9:00 a.m., U.S. Eastern Daylight Time, on June 21, 2022,4, 2024, to vote at the Annual Meeting (the “CA Record Date”). Royalty Pharma | | | 20222024 Proxy Statement | 72 81
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Beneficial owners must comply with the April 12, 20222024 Record Date, as the CA Record Date only applies to shareholders of record. As of April 12, 2022,2024, there were 435,316,420450,981,030 Class A ordinary shares and 171,861,661146,456,241 Class B ordinary shares outstanding. Each of ourthose shares entitles its holder to one vote on all matters on which holders of such shares have the right to vote. Shareholders do not have cumulative voting rights. Voting Procedures Registered shareholders: Registered shareholders may vote their shares in person, by phone, via the internet or by mail, as described below. If a body corporate, the registered shareholder may appoint a corporate representative to attend the meeting in person and vote their shares. Beneficial owners whose shares are held in a brokerage account may vote by using the voting instruction form provided by the broker or by phone, the internet or in person as described below. Beneficial owners whose shares are held by a bank, and who have the power to vote or to direct the voting of the shares, can vote using the proxy or voting information form provided by the bank or, if made available by the bank, by phone, the internet or in person as described below. Beneficial owners whose shares are held in a trust under an arrangement that provides the beneficial owner with the power to vote or to direct the voting of the shares in accordance with the provisions of such arrangement. A beneficial owner can vote at the meeting provided that he or she obtains a “legal proxy” from the person or entity holding the shares for him or her (typically a broker, bank or trustee). A beneficial owner can obtain a legal proxy by making a request to the broker, bank or trustee. Under a legal proxy, the bank, broker or trustee confers all of its rights as a record holder to grant proxies or to vote at the in person Annual Meeting. Any person who is beneficially interestedcompletes a proxy card and returns it, gives a voting instruction or otherwise votes at the Annual Meeting in respect of shares heldregistered in the name of a depositary (oror its nominee) and who completes a proxy card or otherwise votes at the Annual Meetingnominee will, for the purposes of our Articles of Association, be doing so on behalf of the relevant depositary.depositary or its nominee as the registered holder of such shares. Vote by internet Prior to the Annual Meeting – Shareholders of record and beneficial owners of our shares can vote via the internet 24 hours a day until 11:59 p.m., U.S. Eastern Daylight Time, on Wednesday, June 22, 2022.5, 2024. Voting via the internet is permitted regardless of whether shareholders receive the Annual Meeting materials through the mail or via the internet. Instructions for voting are provided along with your notice, proxy card or voting instruction form. If you vote on the internet, please do not mail your proxy card if you received one (unless you intend for it to revoke your prior internet vote). Your internet vote will authorize the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Vote by phone Prior to the Annual Meeting – Shareholders of record can vote by phone. Instructions are provided along with your notice, proxy card or voting instruction form. If you vote by phone, do not mail your proxy card if you received one (unless you intend for it to revoke your prior vote submitted by phone). Your vote by phone will authorize the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Vote by mail Prior to the Annual Meeting – If you received this Proxy Statement by mail, simply sign and date the enclosed proxy card or voting instruction form and mail it according to the instructions in your proxy materials. If you mark your choices on the card or voting instruction form, your shares will be voted as you instruct. Tabulation of Votes Votes cast by proxy or in person at the meeting will be tabulated by the inspector of elections. Quorum Requirements and Effect of Abstention and Broker Non-Votes There must be a quorum of at least two qualifying persons, present in person or by proxy, who together represent at least one-third of the voting rights attached to the shares entitled to vote, present for any business to be transacted at the Annual Meeting. A shareholder present in person, or by proxy, at the Annual Meeting, who abstains from voting on any or all proposals will be included in the determination of shareholders present at the Annual Meeting for the purpose of determining the presence of a quorum, as will broker non-votes. If less than a quorum is represented at the Annual Meeting, the meeting will be adjourned by the chair of the meeting, or as otherwise provided in our Articles of Association, to such other day and such other time and/and place or placeelectronic platform as determined in accordance with our Articles of Association. Royalty Pharma | | | 2024 Proxy Statement | 82 |
TABLE OF CONTENTS If you hold shares in “street name” through a broker, in some cases, your shares may be voted even if you do not provide your bank, broker, banktrustee or other nominee with voting instructions. At the Annual Meeting, a broker will not have discretionary authority to vote on any of the proposals Royalty Pharma
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in the absence of timely instructions from the beneficial owners, except for Proposal 3 (ordinary resolution to ratify our Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021)2023) and Proposal 67 (ordinary resolution to re-appoint Ernst & Young as our U.K. statutory auditor under the U.K. Companies Act). Revocation of Proxies Shareholders of record may revoke their proxy at any time before it is voted at the Annual Meeting by either: Submitting another timely, later-dated proxy by mail; Delivering timely written notice of revocation in accordance with our Articles of Association; or Voting during the Annual Meeting and voting in person or via the internet. If your shares are held beneficially in street-name, you may revoke your proxy instructions by following the instructions provided by your bank, broker, trustee, nominee or depositary, as applicable. Annual Meeting Admission Participation at the Annual Meeting is limited to (a) a beneficial owner on the Record Date; and/or (b) a shareholder of record as of 9:00 a.m., U.S. Eastern Daylight Time on the CA Record Date. Beneficial owners must comply with the April 12, 20222024 Record Date, as the June 21, 20224, 2024 CA Record Date only applies to shareholders of record. Registration begins at 8:00 a.m., U.S. Eastern Daylight Time, on June 23, 2022,6, 2024, and you will be asked to present a valid picture identification and proof of share ownership as of the Record Date or CA Record Date. If you hold shares in a brokerage account, you must bring a copy of a brokerage account statement reflecting your share ownership as of the Record Date. If you plan to attend as the proxy or attorney of a shareholder, the shareholder must provide valid proof of your appointment no later than 11:59 p.m., U.S. Eastern Daylight Time, on June 22, 2022.5, 2024. If you plan to attend as a representative of a body corporate you must bring evidence of appointment to the Annual Meeting. Submitting your proxy now will not prevent you from voting your shares at the Annual Meeting if you desire to do so, as your proxy is revocable at your option. Cameras, recording devices and other electronic devices will not be permitted. If it is determined that a change in the date, time or location of the Annual Meeting is advisable or required, an announcement of such changes will be made through a press release, additional proxy materials filed with the SEC, and on the Investor Relations section of our website. Please check this website in advance of the meeting date if you are planning to attend in person. Announcement of the Voting Results We will announce the preliminary voting results at the Annual Meeting. We will report the final results in a current report on Form 8-K filed with the SEC shortly after the Annual Meeting. The results of the polls taken on the resolutions at the Annual Meeting and any other information required under the U.K. Companies Act will be made available on our website at www.royaltypharma.comunder “Investors” as soon as reasonably practicable following the Annual Meeting and for a period of two years thereafter. Royalty Pharma | | | 20222024 Proxy Statement | 74 83
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Solicitation of Proxies The Proxy accompanying this Proxy Statement is solicited by our Board. Proxies may be solicited by our officers, directors and employees, none of whom will receive any additional compensation for their services. We have retained Alliance AdvisorsInnisfree M&A Incorporated (“Innisfree”) to act as a proxy solicitor in conjunction with the Annual Meeting. We have agreed to pay Alliance Advisors $12,000,Innisfree $25,000, plus reasonable out-of-pocket expenses, for proxy solicitation services. Shareholder Proposals and Director Nominations Shareholders who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in our 20232025 proxy materials to be distributed in connection with next year’s annual meeting must submit their proposal so they are received by our General CounselChief Legal Officer at the address provided below no later than the close of business on December 29, 2022.26, 2024. Our Articles of Association provide for an advance notice procedure outside of SEC Rule 14a-8 for shareholders who wish to nominate persons for election to the Board or a proposal of business. Should an eligible shareholder or shareholders desire to nominate a candidate for director or propose any other business at the 20232025 Annual Meeting, such shareholder must give us timely written notice. As required under our Articles of Association, to be timely for the 20232025 Annual Meeting, a shareholder’s notice of a director nomination must be delivered to Royalty Pharma plc, c/o Company Secretary at The Pavilions, Bridgwater Road, Bristol, United Kingdom, BS13 8AE not earlier than the 120th day, no later than the 90th day before the anniversary of the date of the 20212024 Annual Meeting. As a result, any nomination given by a shareholder pursuant to these provisions of our Articles of Association (and not pursuant to SEC Rule 14a-8) must be received no earlier than the close of business (5:00 p.m., U.S. Eastern Standard Time) on February 23, 2023,6, 2025, and no later than the close of business (5:00 p.m., U.S. Eastern Standard Time) on March 25, 2023,8, 2025, unless our 20232024 Annual Meeting date occurs more than 30 days before or 60 days after June 23, 2023.6, 2025. In that case, notice of the nomination must be received by Royalty Pharma plc, c/o Company Secretary at The Pavilions, Bridgwater Road, Bristol, United Kingdom, BS13 8AE not earlier than close of business on the 120th day before the 20232025 Annual Meeting and not later than the close of business on the date that is the later of (i) the 90th day before the 20232025 Annual Meeting, and (ii) if the first public announcement of the date of such Annual Meeting is less than 100 days prior to the date of the Annual Meeting, the 10th day following the day on which Royalty Pharma first publicly announces the date of such meeting. The public announcement of an adjournment or postponement of an Annual Meeting shall not commence a new time period (or extend any time period) for the giving of a shareholder’s nomination as described above. The shareholder’s nomination must comply with applicable laws and our Articles of Association, which is available to shareholders free of charge upon request to our General CounselChief Legal Officer at the address provided below. Our Articles of Association is also available on our website at www.royaltypharma.com.www.royaltypharma.com. In addition to satisfying all of the requirements under our Articles of Association, to comply with the universal proxy card rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide a notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than April 7, 2025. This advance notice requirement under Rule 14a-19 does not override or supersede a longer advance notice requirement under our Articles of Association. In addition to SEC Rule 14a-8, 14a-19 and our Articles of Association, Section 338 of the U.K. Companies Act provides that (i) shareholders representing 5% or more of the total voting rights of all shareholders (excluding voting rights attached to any treasury shares) or (ii) 100 or more persons (being either (A) members who have a right to vote at the 20232025 Annual Meeting and hold shares in Royalty Pharma plc on which there has been paid up an average sum, per shareholder, of at least £100 or (B) persons satisfying the requirements set out in Section 153(2) of the U.K. Companies Act) have the right to require us to give shareholders notice of a resolution which may properly be moved and is intended to be moved at the 20232025 Annual Meeting. Such requests, made by the requisite number of shareholders, must be received by us not later than six weeks before the 20232025 Annual Meeting or, if later, the date on which notice of the 20232025 Annual Meeting is given. In addition, requests may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given and must be authenticated by the person or persons making it. Requests are to be submitted to Royalty Pharma plc, c/o Company Secretary at The Pavilions, Bridgwater Road, Bristol, United Kingdom, BS13 8AE. Pursuant to Section 338 of the U.K. Companies Act, a resolution will not be moved if (i) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or our Articles of Association or otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or vexatious. Notice of intention to submit a nomination or other proposal at the 2023 Annual Meeting and any requestRequest for a copy of our Articles of Association must be addressed to the General CounselChief Legal Officer at Royalty Pharma plc, 110 East 59th Street, New York, New York, 10022, USA.
Website Publication of Audit Concerns Under Section 527 of the U.K. Companies Act, shareholders meeting the threshold requirements set out in that section have the right to require us to publish on a website a statement setting out any matter relating to: the audit of our accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Annual Meeting; or Royalty Pharma | | | 2024 Proxy Statement | 84 |
TABLE OF CONTENTS any circumstances connected with an auditor of the Company ceasing to hold office since the previous annual general meeting. We may not charge the shareholders requesting any such website publication to pay our expenses to publish such statement. We must also forward the statement to our auditor not later than the time when we publish the statement on our website. The business which may be dealt with at the Annual Meeting includes any statement that we have been required under Section 527 of the U.K. Companies Act to publish on our website. House Holding and Combining Accounts Each registered shareholder (those that own shares in their own name on the books of our transfer agent) will receive one copy each of this Proxy Statement per account, even if at the same address. The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for Proxy Statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single Proxy Statement and annual report to those shareholders. This process, which is commonly referred to as “house holding,” is intended to reduce the volume of duplicate information shareholders receive and also reduce expenses for companies. While we do not utilize house holding, some intermediaries may be house holding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that it will be house holding materials to your address, house holding will continue until you are notified otherwise or until you revoke your consent. If you hold Royalty Pharma
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your shares through an intermediary that sent a single Proxy Statement and annual report to multiple shareholders in your household, we will promptly deliver a separate copy of each of these documents to you if you send a written request to:to us at: 110 East 59th Street, New York, New York, 10022, USA or fax a request to +1 (212) 883-2260 (USA).883-2260. You may also submit a request by telephone (from U.S. and Canada only) using the toll-free number listed on the proxy card. If you hold your shares through an intermediary that is utilizing house holding and you want to receive separate copies of our annual report and Proxy Statement in the future, or if you are receiving multiple copies of our proxy materials and annual report and wish to receive only one, you should contact your bank, broker or other nominee record holder. Where You Can Find More Information Our public internet site is www.royaltypharma.com. We make available free of charge, on our website at www.royaltypharma.com, under “Investors - Financial Information,SEC Filings,” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers and any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website are charters for our Audit Committee, Management Development and Compensation Committee, and Nominating and Corporate Governance Committee. Copies of these charters and our Corporate Governance Guidelines (which includes the lead independent director role) and Code of Business Conduct and Ethics governing our directors, officers and employees are also posted on our website under “Investors - Governance”.– Corporate governance.” Copies of these documents may be requested in print, at no cost, by telephone at +1 (212) 883-0200 or by mail at Royalty Pharma plc, 110 East 59th Street, New York, New York, 10022, USA, Attention: Investor Relations. In addition, you can access all of Royalty Pharma’s corporate responsibility reporting, including our Corporate Responsibility Report, GRI and SASB Summary and EEO-1 Report, as well as key corporate responsibility policies, through our website under “Responsibility—Responsibility resource center.” Royalty Pharma | | | By Order2024 Proxy Statement | 85
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TABLE OF CONTENTS Appendix A — ReconciliationS of Non-GAAP Measures In addition to financial results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we provide non-GAAP financial measures (as defined in Item 10(e) of Regulation S-K of the Securities Exchange Act of 1934, as amended) below: The table below presents Adjusted EBITDA and Portfolio Cash Flow for 2023 and 2022, each as calculated according to their respective definition in our Credit Agreement (in thousands): | | | | Years Ended December 31, | | | | | | 2023 | | | 2022 | | | Portfolio Receipts | | | $3,048,713 | | | $2,789,293 | | | Payments for operating and professional costs | | | (243,012) | | | (222,969) | | | Adjusted EBITDA (non-GAAP) | | | $2,805,701 | | | $2,566,324 | | | Interest paid, net | | | (97,564) | | | (145,157) | | | Portfolio Cash Flow (non-GAAP) | | | $2,708,137 | | | $2,421,167 | |
Adjusted EBITDA and Portfolio Cash Flow are non-GAAP liquidity measures that exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. We caution readers that amounts presented in accordance with our definitions of Adjusted EBITDA and Portfolio Cash Flow may not be the same as similar measures used by other companies or analysts. We compensate for these limitations by using the non-GAAP measures as supplements to GAAP measures and by presenting the reconciliation of the non-GAAP measures to their most comparable GAAP measure, being Net cash provided by operating activities. A reconciliation of Adjusted EBITDA and Portfolio Cash Flow to Net cash provided by operating activities, the closest GAAP measure, is presented below (in thousands): | | | | Years Ended December 31, | | | | | | 2023 | | | 2022 | | | Net cash provided by operating activities (GAAP) | | | $2,987,802 | | | $2,143,980 | | | Adjustments:
| | | | | | | | | Proceeds from available for sale debt securities(1),(2) | | | 1,440 | | | 542,044 | | | Distributions from equity method investees(2) | | | 43,882 | | | — | | | Interest paid, net(2) | | | 97,564 | | | 145,157 | | | Development-stage funding payments - ongoing | | | 2,000 | | | 2,106 | | | Development-stage funding payments - upfront and milestone | | | 50,000 | | | 175,000 | | | Distributions to legacy non-controlling interests - Portfolio Receipts(2) | | | (376,987) | | | (441,963) | | | Adjusted EBITDA (non-GAAP) | | | $2,805,701 | | | $2,566,324 | | | Interest paid, net(2) | | | (97,564) | | | (145,157) | | | Portfolio Cash Flow (non-GAAP) | | | $2,708,137 | | | $2,421,167 | |
(1)
| In the fourth quarter of 2023, we began receiving quarterly payments on the return of the Boardfirst tranche of Directors,the Cytokinetics Commercial Launch Funding (presented as Proceeds from available for sale debt securities on the statement of cash flows). In 2022, amount relates to the quarterly redemptions of the Series A Biohaven Preferred Shares and the accelerated redemption payments of all outstanding Series A and Series B Preferred Shares following Pfizer’s acquisition of Biohaven in October 2022 (presented as Proceeds from available for sale debt securities on the statement of cash flows). |
(2)
| The table below shows the line item for each adjustment and the direct location for such line item on the statements of cash flows. |
| Reconciling Adjustment | | | Statements of Cash Flows Classification | | | Interest paid, net | | | Operating activities (Interest paid less Interest received) | | | Distributions from equity method investees | | | Investing activities | | | Proceeds from available for sale debt securities | | | Investing activities | | | Distributions to legacy non-controlling interests - Portfolio Receipts | | | Financing activities | |
Royalty Pharma | | | | | | | | | | | George Lloyd
Executive Vice President, Investments & General Counsel
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