March 12, 2020
Pablo Legorreta
Chief Executive Officer
Royalty Pharma plc
110 East 59th Street
New York, New York 10022
Re: Royalty Pharma plc
Draft Registration Statement on Form S-1
Submitted February 13, 2020
CIK No. 0001802768
Dear Mr. Legorreta:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1 submitted February 13, 2020
Our Portfolio, page 4
1. For each of the commercial products and product candidates shown in your
table, please
expand the table to include a brief indication of how you have invested
in these products
or product candidates. In this regard, we note your disclosure under
"Acquisition of
royalties" on page 101 of the classifications of the various structures
through which you
acquire the rights to royalties. Please advise us if those
classifications would be the most
useful way to present the requested information to investors in this
section.
2. Please revise the table to remove the estimated "Total End Market Sales"
figures for each
third-party drug or explain why you believe it is appropriate to
highlight prominently
these figures in the table. Also, tell us your basis for highlighting a
single year of royalty
Pablo Legorreta
Royalty Pharma plc
March 12, 2020
Page 2
receipts by discussing whether this information provides investors
with an adequate basis
to assess the significance of each royalty right.
3. For each product, disclose the expected duration of the royalty
obligations to which you
are entitled, including, where appropriate, by disclosing the
expiration dates of the
underlying patents or projected expiration dates for any patents that
may issue from
pending applications. If patent cliffs will materially impact your
royalty receipts in the
next few years, then please revise the table to prominently disclose
this information and
discuss such cliffs in other sections of the prospectus, where
appropriate.
Our portfolio is highly diversified across products, therapeutic areas and
marketers, page 5
4. We refer to your risk factor disclosure on page 25 concerning your
reliance on a limited
number of products. Please balance your prospectus summary disclosure
concerning your
high degree of product diversification by also addressing your
reliance on a limited
number of products.
The Manager, page 9
5. Please revise to identify the Manager and discuss the relationship
between the Manager
and your officers and directors. Also, briefly indicate the formula
for determining how
the fixed fee payable to the Manager on Adjusted Cash Receipts, and
the fixed fee payable
to the Manager on "certain assets," will be determined. Similarly,
briefly indicate the
formula for determining how the quarterly dividends payable to Equity
Performance
Award Holdings, an affiliate of the Manager, will be determined.
The Reoganization Transactions, page 9
6. Please revise your diagram on page 10 and on page 53 to show that the
Manager will be
entitled to Operating and Personnel Payments, to Equity Performance
Awards and to
dividends through its ownership interests of RPI GP 2019, LP.
7. Given the information in your diagram on page 10 that you will be
entitled to 82% of the
Existing Royalties and 100% of the New Royalties, please make it more
clear in your
disclosure that investors in your offering will be making an investment
decision based on
FirstName LastNamePablo Legorreta
a royalty stream that is more heavily weighted towards New Royalties as
compared to
Comapany NameRoyalty Pharma plcalso tell us if these arrangements present any
additional risk
your legacy investors. Please
March factors, or conflicts of interests, that should be disclosed to investors
in your offering.
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Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
Comapany2020
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Summary of the Offering Structure, page 11
8. We note your disclosure that your offering is being conducted through
an "Up-C"
structure. Please tell us whether you are entering into any tax
receivable agreements as
part of the reorganization.
Risk Factors, page 12
9. With reference to your disclosures on pages 47 and 169, please revise
the summary to
highlight your anticipated PFIC status and risks to U.S. holders if
they do not file timely a
QEF election and/or fail to file annual information returns on IRS
Form 8621.
Risk Factors, page 21
10. Although we note your disclosure in the seventh bullet point under
"Risk Factors" on page
12, we see limited risk factors addressing actual and potential
conflicts of interest with the
Manager and its affiliates. In this regard, we note your disclosure
under "Conflicts of
Interest" on page 144 regarding Mr. Legorreta's involvement with
BioPharma Credit PLC
and the potential for conflicts of interest described in that section.
Please ensure that your
risk factors address all material actual and potential conflicts of
interest.
We have no employees and will be entirely dependent upon the Manager for all
the services we
require, page 23
11. We note from your disclosure under "The Manager" on page 134 that you
will retain the
right to remove the Manager in "certain circumstances." If your
ability to remove the
Manager is limited, please expand this risk factor as appropriate.
We make assumptions regarding the royalty duration for terms that are not
contractually fixed...,
page 25
12. Please revise to clarify the risk by indicating whether a shortened
royalty term has
caused a permanent impairment in recent years.
The success of our business depends upon key members of the Manager's senior
advisory
team..., page 35
13. We note your disclosure on page 144 that Mr. Legorreta is a co-founder
of, and has
significant influence over, Pharmakon Advisors. Given this position,
please expand your
risk factor disclosure, if appropriate, to discuss any material
constraints on the time that
Mr. Legorreta has to devote to you and/or the Manager.
If our Class A ordinary shares are not eligible for deposit and clearing within
the facilities of
DTC..., page 45
14. Please tell us, and revise as applicable to clarify, whether this risk
applies to all publicly
traded companies or whether the risk is more pronounced for public
companies
Pablo Legorreta
Royalty Pharma plc
March 12, 2020
Page 4
incorporated in the U.K. Also, clarify whether your shares could
continue to be listed on
the NYSE or Nasdaq in the event that DTC ceased to act as a depositary
and clearing
agency for your ordinary shares.
We expect to be treated as a PFIC for U.S. federal income tax purposes..., page
47
15. We note your disclosure that you "expect to provide information to all
electing
shareholders needed to comply with the QEF election, including with
respect to any of
[y]our subsidiaries that may be classified as a PFIC" and that "no
assurance can be given
that [you] will be able to provide information necessary to make QEF
elections with
respect to any subsidiary that is a PFIC and that you will not
control." Please disclose any
material adverse consequences to your shareholders if you are not able
to provide the
information necessary for them to make QEF elections with respect to
any subsidiary that
is a PFIC and that you do not control.
Unaudited Pro Forma Financial Information, page 62
16. Please note that once you have included complete pro forma financial
information in your
Form S-1, we will need sufficient time to review such information and
may have
additional comments based on your compliance with Article 11 of
Regulation S-X. We
also encourage you to present your pro forma adjustments in separate
columns to more
clearly illustrate the impacts of the various transactions (e.g.,
Exchange Offer
Transactions, Reorganization Transactions, sale of Class A ordinary
shares in IPO, etc. )
to which you are giving effect.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
80
17. Please describe material known trends or uncertainties that have had,
or that you
reasonably expect will have, a material favorable or unfavorable
impact on total income
and revenues or results of operations. For example, if the Operating
and Personnel
Payments under the new Management Agreement or other aspects of the
Exchange Offer
Transactions and Reorganization Transactions will materially impact
your general and
administrative expenses or your total operating expenses, or impact
your operating
income, please include appropriate disclosure. Please also disclose
any known funding
commitments that would be material to an understanding of your
operating results and
financial condition.
FirstName LastNamePablo of Operations, page 84
Understanding Our Results Legorreta
Comapany NameRoyalty Pharma plc
18. Please quantify the term "de minimis" in paragraph 4 and tell us why it
would not be
March appropriate to reflect this interest in your organizational diagram on
pages 10 and 53.
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Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
Comapany2020
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Income from royalty assets, page 89
19. You provide an overview of your royalty portfolio on page 83 which
disaggregates both
your growth and mature product royalties by product and quantifies the
royalties received
from each. Please consider providing a similar presentation for your
income from royalty
assets in order to more clearly illustrate the underlying changes in
this income from period
to period. In this regard, consider disaggregating your royalty income
by product for each
period along with the corresponding yield for that period.
Income from royalty assets -- Years ended December 31, 2018 and 2017, page 90
20. Please quantify the increases and the offsets for the product
categories described in the
second sentence of the first paragraph of this section.
Provision for changes in expected cash flows from royalty assets, page 91
21. Please revise your discussion of changes in your provision to address
the credits recorded
to the provision related to your cystic fibrosis franchise in both
2018 and 2017 as well as
for Letairis in 2018.
Non-GAAP Financial Results, page 93
22. So that you do not give undue prominence to your discussion of
non-GAAP measures,
please revise your discussion of your Results of Operations beginning
on page 89 to
incorporate your discussion on pages 95-97 regarding each of your
products to the extent
that this information also impacts the amount of royalty income and
revenues recognized
in your financial statements for each period.
Commitments, Contingencies and Guarantees, page 102
23. Please revise footnote 3 to your table in this section to clarify, if
true, that the table
excludes the Operating and Personnel Payments payable under the new
Management
Agreement. If Operating and Personnel Payments will be payable under
the New
Management Agreement, as described in footnote 3, during the
"2022-2023" and
"Thereafter" periods, please revise the table to indicate the
potential for such payments
rather than indicating "N/A" in the table for those periods.
Credit and Counterparty Risk, page 106
24. Although we note your reference to the Company Overview within your
MD&A for a
discussion of your concentration of receivables balances with select
marketers, we do not
see this disclosure in your filing at this time. Please advise.
Financial Covenants, page 107
25. We note your disclosure in the first paragraph of this section that
the Credit Agreement
contains financial covenants that require you to maintain compliance
with specified
Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
Comapany2020
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financial ratios. Although we note your disclosure regarding Adjusted
EBITDA and your
Secured Leverage ratio in the next paragraph, please revise future
amendments to disclose
clearly whether you are and have been in compliance with the financial
covenants
specified in the first paragraph of this section.
Senior Secured Credit Facilities, page 107
26. Although we note your disclosure that the maturity dates and interest
rates applicable to
certain tranches of term loans under the Credit Agreement are
described in "Long-term
Debt," we do not see this disclosure in your filing at this time.
Please advise. Also please
advise whether you will update the "Borrowings" presentation included
on page 101 to
add the terms of the new Credit Agreement, and any balances as of
March 31, 2020.
Development-Stage Product Candidates, page 130
27. Please revise the disclosure in this section to provide royalty rate
disclosures applicable to
the development-stage product candidates.
U.S. Investment Company Act Status, page 135
28. Please note we will continue to assess the disclosure in this section
and in the risk factor
on pages 34-35 and may have further comment.
Management, page 137
29. We note your disclosure in the last risk factor on page 23 that your
success will be largely
dependent upon the expertise and services of others, including the
investment committee.
Accordingly, please disclose who is serving or will be serving on the
investment
committee.
Directors (who are not Executive Officers), page 138
30. Refer to Regulation S-K Item 401(e)(1) and ensure that you have
described the business
experience during the past five years of each director and each
person's principal
occupations and employment during the past five years. As examples,
please disclose: (i)
when Dr. De Souza become the Executive Chairman of Bionomics Ltd.;
(ii) whether Mr.
Norden's position as Chief Financial Officer of Wyeth ended within the
last five years;
(iii) Mr. Giuliani's principal business occupations and employment
during the past five
years; and (iv) whether Mr. Riggs continues to serve on the Investment
Committee.
Executive Officer Compensation, page 142
31. With reference to your disclosure at the bottom of page F-28, please
provide us an
analysis explaining why you do not include Regulation S-K, Item 402
disclosure for fiscal
2019. Please also provide us with additional analysis to support your
position that Item
402 disclosure will not be required for future periods given your
newly adopted structure.
Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
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March 12, NameRoyalty Pharma plc
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Certain Relationships and Related Party Transactions, page 144
32. Please file the agreements related to the Equity Performance Awards
and the Director
Appointment Agreement as exhibits to your filing.
Operating and Personnel Payment, page 145
33. With respect to the 0.25% fee payable on the GAAP value of security
investments at the
end of the quarter, it appears that the Manager would be entitled to
this fee based on the
mark-to-market value of those securities at the end of every quarter
even though you
might not actually realize any gains in those securities when sold. If
that is the case,
please make that clear. If this fee structure presents a conflict of
interest, please include
appropriate disclosure, including risk factor disclosure.
Equity Performance Awards, page 146
34. We note that the Equity Performance Awards are based on a
portfolio-by-portfolio basis
and that investments made during each two-year period will be grouped
together as a
separate portfolio. Please disclose the business purpose for
separating your investments
into portfolios based on two-year periods for purposes of the Equity
Performance
Awards. Since investors in your Class A ordinary shares will have
exposure to all of your
investments, please expand your penultimate risk factor on page 35 to
disclose any
additional material risks to investors in your offering from the
Equity Performance
Awards being determined on a portfolio-by-portfolio basis, including
that there may be
Equity Performance Awards payable to your affiliates when your overall
portfolio of
investments is not performing as well as the portfolios used as the
basis for measuring the
Equity Performance Awards.
35. Since the Equity Performance Awards will be payable in RP Holdings
Class B Interests
that will be exchanged upon issuance for Class A ordinary shares,
please disclose the
potential for dilution to holders of the Class A ordinary shares as a
result of the Equity
Performance Awards. Please also disclose if there will be a potential
range of such
dilution on a yearly or other basis, or a maximum cap on the Equity
Performance
Awards, and include risk factor disclosure if appropriate.
Review, Approval or Ratification of Transactions with Related Parties, page 149
36. Please disclose the standards that will be applied in determining
whether to approve any
of the transactions described in this section. Refer to Item
404(b)(1)(ii) of Regulation S-
K.
Security Ownership of Certain Beneficial Owners and Management, page 151
37. We note from footnote 1 to your table that beneficial ownership of the
Class A ordinary
shares reflects beneficial ownership of RP Holdings' Class B Interests
exchangeable for
Class A ordinary shares "immediately following the offering." Given
the disclosure in the
Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
Comapany2020
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first sentence of footnote 1, which indicates that the exchanges of
the Class B Interests for
Class A ordinary shares may not occur until after the expiration of
the underwriters' lock-
up agreements, it is not clear from your current disclosure how the
Class B Interests will
be reflected in your beneficial ownership table. Please advise and
revise your disclosure
as necessary for clarity.
Voting Rights, page 155
38. Refer to to Regulation S-K Item 202(a)(1)(v) and specify the vote
required by security
holders to take action on ordinary resolutions.
Annual Accounts and Independent Auditor, page 158
39. We note your disclosure in the first paragraph on page 159 that annual
accounts and
reports must be presented to the shareholders at a general meeting
prepared in accordance
with IFRS as adopted by the European Union. If you will not also be
providing such
reports in U.S. GAAP, please revise your disclosure as appropriate.
Class A Ordinary Shares Eligible for Future Sale, page 161
40. We refer to your disclosure in the parenthetical of the first sentence
of the third paragraph
of this section and the similar disclosure in parenthetical of the
second paragraph under
"Lock-Up Arrangements" on page 162. Please tell us why the numbers or
percentage in
these parentheticals would change if the underwriters exercise their
option to purchase
additional shares in full and "after giving effect to the use of the
net proceeds
therefrom," or revise your disclosure as appropriate.
U.K. taxation of dividends; and
U.K. taxation on capital gains, page 163
41. We note your disclosure in these sections that U.S. holders, under the
circumstances
described, "should not" be subject to U.K. tax in respect of any
dividends, "should not" be
liable to U.K. capital gains tax, and "should not be" liable for U.K.
corporation tax.
Please unequivocally state what the tax consequences will be, not what
they "should" or
"should not" be. If you are unable to provide an unequivocal
statement, for each material
tax consequence where uncertainty exists, please disclose the reason
for the uncertainty,
the degree of the uncertainty, the possible alternatives, and the
risks to investors, including
appropriate prospectus summary and risk factor disclosure. For
guidance, refer to Section
III.C of Staff Legal Bulletin 19, Legality and Tax Opinions in
Registered Offerings
(October 14, 2011).
Consolidated Balance Sheet, page F-3
42. Please revise both your current and non-current line items "Royalty
assets, net - financial
assets" to parenthetically quantify the amount of the allowance for
changes in expected
cash flows.
Pablo Legorreta
Royalty Pharma plc
March 12, 2020
Page 9
Consolidated Statements of Comprehensive Income, page F-4
43. In order to more clearly understand and differentiate your revenue
streams from royalty
assets, please consider revising your revenue line items to indicate
the specific royalty
assets from which such revenues are derived. For example, consider
labeling your
revenue streams as "Income from financial royalty assets" and "Revenue
from intangible
royalty assets" or something similar.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Royalty Assets, page F-9
44. Please demonstrate how you determined that the accounting in ASC 310 -
Receivables, is
the appropriate accounting guidance to account for the "royalty
assets, net - financial
assets" applying the guidance to your specific facts and
circumstances. In this regard, tell
us whether there were any accounting alternatives that you considered.
Investment in non-consolidated affiliates, page F-14
45. For both of the Avillion entities in which you have made an
investment, please provide us
with your analysis supporting your conclusion that you do not have the
power to direct the
activities that most significantly influence the economic performance
of the entity.
Concentrations of credit risk, page F-15
46. Please file your agreement with Vertex as an exhibit or provide us
with an analysis
supporting your determination that you are not substantially dependent
on that agreement.
7. Cumulative Allowance for Changes in Expected Cash Flows from Royalty Assets,
page F-22
47. Please revise to present your allowance rollforward by product similar
to the level of
disaggregation in your royalty assets table on page F-21.
Signatures, page II-4
48. Please revise to indicate who is signing in the capacity of your
principal financial officer
and to include the signature of your authorized representative in the
United States. Please
refer to Instruction 1 to Signatures to Form S-1.
General
49. Please supplementally provide us with copies of all written
communications, as defined in
FirstName LastNamePablo Legorreta
Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your behalf,
Comapany NameRoyalty Pharma plc reliance on Section 5(d) of the Securities Act,
whether or
present to potential investors in
March not they retain 9
12, 2020 Page copies of the communications.
FirstName LastName
Pablo Legorreta
FirstName LastNamePablo Legorreta
Royalty Pharma plc
Comapany2020
March 12, NameRoyalty Pharma plc
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You may contact Christine Torney at (202) 551-3652 or Angela Connell at
(202) 551-
3426 if you have questions regarding comments on the financial statements and
related matters.
Please contact Tim Buchmiller at (202) 551-3635 or Joseph McCann at (202)
551-6262 with
any other questions.
Sincerely,
Division of
Corporation Finance
Office of Life
Sciences
cc: Marcel Fausten, Esq.