Royalty Pharma plc - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to __________

Commission file number 001-39329

Royalty Pharma plc

(Exact name of registrant as specified in its charter)


England and Wales									98-1535773
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

110 East 59th Street
New York, New York 10022

(Address of principal executive offices and zip code)

(212) 883-0200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A ordinary shares, par value $0.0001	RPRX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 2, 2023, Royalty Pharma plc had 444,886,039 Class A ordinary shares outstanding and 152,546,046 Class B ordinary shares outstanding.

ROYALTY PHARMA PLC

INDEX


PART I.	FINANCIAL INFORMATION		1

	Item 1.	Condensed Consolidated Financial Statements	1

		Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)	1

		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)	2

		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (unaudited)	3

		Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	4

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	6

		Notes to Condensed Consolidated Financial Statements (unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

	Item 4.	Controls and Procedures	54

PART II.	OTHER INFORMATION		54

	Item 1.	Legal Proceedings	54

	Item 1A.	Risk Factors	54

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83

	Item 3.	Defaults Upon Senior Securities	83

	Item 4.	Mine Safety Disclosures	83

	Item 5.	Other Information	84

	Item 6.	Exhibits	85

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “target,” “forecast,” “guidance,” “goal,” “predicts,” “project,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective assets, our industry, our beliefs and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of the numerous risks outlined in Part II under Item 1A. under “Risk Factors.”

These risks and uncertainties include factors related to, among other topics:

•sales risks of biopharmaceutical products on which we receive royalties;

•the ability of RP Management, LLC (the “Manager”) to locate suitable assets for us to acquire;

•uncertainties related to the acquisition of interests in development-stage biopharmaceutical product candidates and our strategy to add development-stage product candidates to our product portfolio;

•the assumptions underlying our business model;

•our ability to successfully execute our royalty acquisition strategy;

•our ability to leverage our competitive strengths;

•actual and potential conflicts of interest with the Manager and its affiliates;

•the ability of the Manager or its affiliates to attract and retain highly talented professionals;

•the effect of changes to tax legislation and our tax position; and

•the risks, uncertainties and other factors we identify elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission (“SEC”).

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

PART 1. FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	As of September 30,		As of December 31,
	2023		2022
Assets
Current assets
Cash and cash equivalents	$	936,448	$	1,710,751

Marketable securities	—		24,421
Financial royalty assets	742,160		691,319
Accrued royalty receivable	16,360		16,830

Available for sale debt securities	5,300		1,300

Other royalty income receivable	21,553		19,767
Other current assets	6,784		90,520
Total current assets	1,728,605		2,554,908

Financial royalty assets, net	13,230,474		13,493,106

Equity securities	144,342		112,348
Available for sale debt securities	353,600		226,300

Equity method investments	378,291		397,175
Other assets	20,212		29,629

Total assets	$	15,855,524	$	16,813,466

Liabilities and shareholders’ equity
Current liabilities
Distributions payable to legacy non-controlling interests	$	101,711	$	94,803
Accounts payable and accrued expenses	13,627		7,906
Interest payable	12,595		54,162


Current portion of long-term debt	—		997,512

Other current liabilities	—		12,400
Total current liabilities	127,933		1,166,783

Long-term debt	6,131,194		6,118,810

Other liabilities	11,300		2,500

Total liabilities	6,270,427		7,288,093

Commitments and contingencies
Shareholders’ equity

Class A ordinary shares, $0.0001 par value; issued and outstanding: 2023–445,843 and 2022–443,166	45		44
Class B ordinary shares, $0.000001 par value; issued and outstanding: 2023–152,546 and 2022–164,058	—		—
Class R redeemable shares, £1 par value; issued and outstanding: 2023–50 and 2022–50	63		63
Deferred shares, $0.000001 par value; issued and outstanding: 2023–382,837 and 2022–371,325	—		—


Additional paid-in capital	4,006,758		3,666,160
Retained earnings	2,134,680		1,964,689
Non-controlling interests	3,446,175		3,897,223

Treasury interests	(2,624)		(2,806)

Total shareholders’ equity	9,585,097		9,525,373

Total liabilities and shareholders’ equity	$	15,855,524	$	16,813,466

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Income and other revenues
Income from financial royalty assets	$	508,657	$	551,682	$	1,674,689	$	1,578,555
Revenue from intangible royalty assets	252		1,073		597		37,196
Other royalty income	27,404		20,708		83,200		55,716
Total income and other revenues	536,313		573,463		1,758,486		1,671,467

Operating expenses

Provision for changes in expected cash flows from financial royalty assets	277,137		305,061		637,169		595,396
Research and development funding expense	50,500		25,500		51,500		126,606
Amortization of intangible assets	—		—		—		5,670
General and administrative expenses	57,234		50,692		190,563		154,075

Total operating expenses, net	384,871		381,253		879,232		881,747

Operating income	151,442		192,210		879,254		789,720

Other expense/(income)
Equity in losses/(earnings) of equity method investees	5,222		3,251		(28,614)		2,117
Interest expense	46,033		46,977		139,932		141,006

Losses/(gains) on derivative financial instruments	8,680		(25,785)		2,290		(97,590)
(Gains)/losses on equity securities	(1,541)		(5,168)		(31,994)		22,970

Gains on available for sale debt securities	(7,300)		(44,243)		(122,500)		(97,985)
Interest income	(23,436)		(14,034)		(65,791)		(34,482)
Other non-operating expense, net	1,707		10,798		3,429		13,590
Total other expense/(income), net	29,365		(28,204)		(103,248)		(50,374)
Consolidated net income before tax	122,077		220,414		982,502		840,094
Income tax expense	—		—		—		—
Consolidated net income	122,077		220,414		982,502		840,094

Net income attributable to non-controlling interests	49,963		77,763		342,008		341,178

Net income attributable to Royalty Pharma plc	$	72,114	$	142,651	$	640,494	$	498,916

Earnings per Class A ordinary share:
Basic	$	0.16	$	0.32	$	1.43	$	1.14
Diluted	$	0.16	$	0.32	$	1.43	$	1.14
Weighted average Class A ordinary shares outstanding:
Basic	448,439		439,293		448,162		436,542
Diluted	601,138		607,226		604,717		607,209

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Consolidated net income	$	122,077	$	220,414	$	982,502	$	840,094
Other comprehensive income/(loss):

Unrealized gains on available for sale debt securities	—		13,050		—		24,000
Reclassification of unrealized gains on available for sale debt securities	—		(7,111)		—		(24,053)
Other comprehensive income/(loss):	$	—	$	5,939	$	—	$	(53)
Comprehensive income	$	122,077	$	226,353	$	982,502	$	840,041
Comprehensive income attributable to non-controlling interests	49,963		80,161		342,008		341,109
Comprehensive income attributable to Royalty Pharma plc	$	72,114	$	146,192	$	640,494	$	498,932

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


	Class A Ordinary Shares			Class B Ordinary Shares			Class R Redeemable Shares			Deferred Shares			Additional Paid-in Capital		Retained Earnings		Non-Controlling Interests		Treasury Interests		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at June 30, 2023	450,352	$	46	152,896	$	—	50	$	63	382,487	$	—	$	4,031,242	$	2,252,945	$	3,532,019	$	(2,629)	$	9,813,686
Contributions	—	—		—	—		—	—		—	—		—		—		2,850		—		2,850
Distributions	—	—		—	—		—	—		—	—		—		—		(120,198)		—		(120,198)
Dividends ($0.20 per Class A ordinary share)	—	—		—	—		—	—		—	—		—		(89,751)		—		—		(89,751)
Other exchanges	350	—		(350)	—		—	—		350	—		18,454		—		(18,459)		5		—
Share-based compensation and related issuances of Class A ordinary shares	3	—		—	—		—	—		—	—		581		—		—		—		581
Repurchases of Class A ordinary shares	(4,862)	(1)		—	—		—	—		—	—		(43,519)		(100,628)		—		—		(144,148)
Net income	—	—		—	—		—	—		—	—		—		72,114		49,963		—		122,077




Balance at September 30, 2023	445,843	$	45	152,546	$	—	50	$	63	382,837	$	—	$	4,006,758	$	2,134,680	$	3,446,175	$	(2,624)	$	9,585,097


	Class A Ordinary Shares			Class B Ordinary Shares			Class R Redeemable Shares			Deferred Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Non-Controlling Interests		Treasury Interests		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at June 30, 2022	437,139	$	44	170,081	$	—	50	$	63	365,302	$	—	$	3,570,585	$	2,446,132	$	13,177	$	4,380,938	$	(2,752)	$	10,408,187
Contributions	—	—		—	—		—	—		—	—		—		—		—		2,970		—		2,970
Distributions	—	—		—	—		—	—		—	—		—		—		—		(137,880)		—		(137,880)
Dividends ($0.19 per Class A ordinary share)	—	—		—	—		—	—		—	—		—		(83,809)		—		—		—		(83,809)
Other exchanges	3,963	—		(3,963)	—		—	—		3,963	—		61,736		—		186		(61,886)		(36)		—
Share-based compensation and related issuances of Class A ordinary shares	2	—		—	—		—	—		—	—		582		—		—		—		—		582
Net income	—	—		—	—		—	—		—	—		—		142,651		—		77,763		—		220,414
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—	—		—	—		—	—		—	—		—		—		7,781		5,269		—		13,050
Reclassification of unrealized gains on available for sale debt securities	—	—		—	—		—	—		—	—		—		—		(4,240)		(2,871)		—		(7,111)

Balance at September 30, 2022	441,104	$	44	166,118	$	—	50	$	63	369,265	$	—	$	3,632,903	$	2,504,974	$	16,904	$	4,264,303	$	(2,788)	$	10,416,403

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


	Class A Ordinary Shares			Class B Ordinary Shares			Class R Redeemable Shares			Deferred Shares			Additional Paid-in Capital		Retained Earnings		Non-Controlling Interests		Treasury Interests		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2022	443,166	$	44	164,058	$	—	50	$	63	371,325	$	—	$	3,666,160	$	1,964,689	$	3,897,223	$	(2,806)	$	9,525,373
Contributions	—	—		—	—		—	—		—	—		—		—		9,690		—		9,690
Distributions	—	—		—	—		—	—		—	—		—		—		(386,590)		—		(386,590)
Dividends ($0.60 per Class A ordinary share)	—	—		—	—		—	—		—	—		—		(268,989)		—		—		(268,989)
Other exchanges	11,512	2		(11,512)	—		—	—		11,512	—		415,972		—		(416,156)		182		—
Share-based compensation and related issuances of Class A ordinary shares	54	—		—	—		—	—		—	—		1,740		—		—		—		1,740
Repurchases of Class A ordinary shares	(8,889)	(1)		—	—		—	—		—	—		(77,114)		(201,514)		—		—		(278,629)
Net income	—	—		—	—		—	—		—	—		—		640,494		342,008		—		982,502



Balance at September 30, 2023	445,843	$	45	152,546	$	—	50	$	63	382,837	$	—	$	4,006,758	$	2,134,680	$	3,446,175	$	(2,624)	$	9,585,097


	Class A Ordinary Shares			Class B Ordinary Shares			Class R Redeemable Shares			Deferred Shares			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Non-Controlling Interests		Treasury Interests		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2021	432,963	$	43	174,213	$	—	50	$	63	361,170	$	—	$	3,507,533	$	2,255,179	$	16,491	$	4,471,951	$	(2,715)	$	10,248,545
Contributions	—	—		—	—		—	—		—	—		—		—		—		9,173		—		9,173


Distributions	—	—		—	—		—	—		—	—		—		—		—		(433,822)		—		(433,822)





Dividends ($0.57 per Class A ordinary share)	—	—		—	—		—	—		—	—		—		(249,121)		—		—		—		(249,121)
Other exchanges	8,095	1		(8,095)	—		—	—		8,095	—		123,783		—		397		(124,108)		(73)		—
Share-based compensation and related issuances of Class A ordinary shares	46	—		—	—		—	—		—	—		1,587		—		—		—		—		1,587

Net income	—	—		—	—		—	—		—	—		—		498,916		—		341,178		—		840,094
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—	—		—	—		—	—		—	—		—		—		14,262		9,738		—		24,000
Reclassification of unrealized gains on available for sale debt securities	—	—		—	—		—	—		—	—		—		—		(14,246)		(9,807)		—		(24,053)

Balance at September 30, 2022	441,104	$	44	166,118	$	—	50	$	63	369,265	$	—	$	3,632,903	$	2,504,974	$	16,904	$	4,264,303	$	(2,788)	$	10,416,403

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Cash collections from financial royalty assets	$	2,454,054	$	1,843,899
Cash collections from intangible royalty assets	1,067		72,406
Other royalty cash collections	84,275		51,607
Distributions from equity method investees	18,823		33,316
Interest received	63,135		10,556



Development-stage funding payments - ongoing	(1,500)		(1,606)
Development-stage funding payments - upfront and milestone	(50,000)		(125,000)
Payments for operating and professional costs	(188,839)		(141,653)

Interest paid	(165,841)		(169,476)
Net cash provided by operating activities	2,215,174		1,574,049

Cash flows from investing activities:
Distributions from equity method investees	39,225		—
Investments in equity method investees	(10,550)		(9,896)
Purchases of equity securities	—		(62,785)
Proceeds from equity securities	—		46,158
Purchases of available for sale debt securities	—		(393,737)
Proceeds from available for sale debt securities	—		46,875
Purchases of marketable securities	—		(234,869)
Proceeds from sales and maturities of marketable securities	24,391		676,705

Acquisitions of financial royalty assets	(1,113,283)		(1,491,399)
Acquisitions of other financial assets	—		(21,215)
Milestone payments	(12,400)		—
Net cash used in investing activities	(1,072,617)		(1,444,163)

Cash flows from financing activities:

Distributions to legacy non-controlling interests - royalty receipts	(284,637)		(322,726)
Distributions to legacy non-controlling interests - other	—		(2,335)
Distributions to continuing non-controlling interests	(95,045)		(110,964)
Dividends to shareholders	(268,989)		(249,121)

Repurchases of Class A ordinary shares	(274,559)		—
Contributions from legacy non-controlling interests - R&D	455		971
Contributions from non-controlling interests - other	5,915		4,869

Repayment of long-term debt	(1,000,000)		—




Net cash used in financing activities	(1,916,860)		(679,306)

Net change in cash and cash equivalents	(774,303)		(549,420)

Cash and cash equivalents, beginning of period	1,710,751		1,541,048
Cash and cash equivalents, end of period	$	936,448	$	991,628

See accompanying notes to these unaudited condensed consolidated financial statements.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Purpose

Royalty Pharma plc is a public limited company incorporated under the laws of England and Wales that was created to facilitate the initial public offering (“IPO”) of our Class A ordinary shares. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis.

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

RP Holdings is the sole owner of Royalty Pharma Investments 2019 ICAV (“RPI 2019 ICAV”), which is an Irish collective asset management vehicle, and is the successor to Royalty Pharma Investments, an Irish unit trust (“Old RPI”). RP Holdings is owned by RPI US Partners 2019, LP, a Delaware limited partnership, RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”) and Royalty Pharma plc. Prior to the Exchange Offer (defined below), Old RPI was owned by various partnerships (the “Legacy Investors Partnerships”).

RP Management, LLC (the “Manager”), a Delaware limited liability company, is responsible for our management, including our day-to-day operations, pursuant to advisory and management agreements (collectively, the “Management Agreement”).

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

Exchange Offer

We consummated an exchange offer on February 11, 2020 (the “Exchange Offer”) to facilitate the IPO. Through the Exchange Offer, investors which represented 82% of the aggregate limited partnership in the Legacy Investors Partnerships exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in the Continuing Investors Partnerships. Following the Exchange Offer, we became the indirect owner of an 82% economic interest in Old RPI through our subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust (“RPI Intermediate FT”). We are entitled to 82% of the economics of Old RPI’s wholly-owned subsidiary RPI Finance Trust, a Delaware statutory trust (“RPIFT”), and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”). The remaining 34% of RPCT is owned by the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly owned by Royalty Pharma Select, an Irish unit trust.

2. Summary of Significant Accounting Policies

Basis of Preparation and Use of Estimates

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

In the opinion of management, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist of normal and recurring adjustments. Certain information and footnote disclosures have been condensed or omitted as permitted under GAAP. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2022, included in our Annual Report on Form 10-K.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of income, revenues and expenses during the reporting period. Actual results may differ from those estimates. The results for the interim periods are not necessarily indicative of results for the full year.

Basis of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Royalty Pharma and all majority-owned and controlled subsidiaries, as well as variable interest entities, where we are the primary beneficiary. We consolidate based upon evaluation of our power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance. For consolidated entities where we own or are exposed to less than 100% of the economics, we record Net income attributable to non-controlling interests in our condensed consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties.

In 2022, we became an indirect owner of an 82% economic interest in Royalty Pharma Investments ICAV (“RPI ICAV”), which previously was owned directly by Old RPI.

We report four non-controlling interests: (1) the Legacy Investors Partnerships’ ownership of approximately 18% in Old RPI and RPI ICAV and (2) a de minimis interest in RPCT held by RPSFT (together, the “legacy non-controlling interests”). The legacy non-controlling interests are the only historical non-controlling interests existing prior to our IPO. Additionally, following the consummation of our IPO, we also report non-controlling interests related to (3) the Continuing Investors Partnerships’ ownership in RP Holdings through their ownership of RP Holdings Class B Interests (the “continuing non-controlling interests”) and (4) RPI EPA Holdings, LP’s (“EPA Holdings”) ownership of RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest”). Income will not be allocated to EPA Holdings until certain performance conditions are met.

All intercompany transactions and balances have been eliminated in consolidation.

Reclassification

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

Concentrations of Credit Risk

Financial instruments that subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, available for sale debt securities, financial royalty assets, derivatives and receivables. Our cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds are needed for operations. Our cash and cash equivalents and marketable securities balances as of September 30, 2023 and December 31, 2022 were held with Bank of America, State Street, Scotiabank, Citibank, TD Bank, DNB Bank and U.S. Bank. Our primary operating accounts significantly exceed the Federal Deposit Insurance Corporation limits.

The majority of our financial royalty assets and receivables arise from contractual royalty agreements that entitle us to royalties on the sales of underlying biopharmaceutical products in the United States, Europe and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The products in which we hold royalties are marketed by leading industry participants, including, among others, Vertex, Biogen, AbbVie, Johnson & Johnson, Merck & Co., Pfizer, Astellas, Novartis and Gilead. As of September 30, 2023 and December 31, 2022, Vertex, as the marketer and payor of our royalties on the cystic fibrosis franchise, represented the largest individual marketer and payor of our royalties, accounting for 31% of our current portion of financial royalty assets.

We monitor the financial performance and creditworthiness of the counterparties to our royalty agreements so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant losses with respect to the collection of income or revenue on our royalty assets.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Significant Accounting Policies

There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the year ended December 31, 2022.

3. Available for Sale Debt Securities

Cytokinetics Commercial Launch Funding

On January 7, 2022, we entered into a long-term funding agreement, which was later amended in 2022, with Cytokinetics, Incorporated (“Cytokinetics”). We agreed to provide funding of up to $300 million (“Cytokinetics Commercial Launch Funding”) in five tranches. The initial tranche of $50 million was funded upon closing. Cytokinetics is required to draw $50 million if a certain contingency is met and has the option to draw the remaining $200 million upon the occurrence of certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”). Because the regulatory milestones for the second and third tranches were not met, $75 million of the optional funding is no longer available. For tranches one, four and five, we expect to receive a return of 1.9 times the amount drawn over 34 consecutive quarterly payments beginning on the last business day of the seventh quarter following the quarter of the funding date of each tranche. As of September 30, 2023, $125 million of the optional $200 million remained available under the Cytokinetics Funding Commitments.

We elected the fair value option to account for the Cytokinetics Commercial Launch Funding as it most accurately reflects the nature of the funding arrangement. The funded Cytokinetics Commercial Launch Funding is recorded within Available for sale debt securities on the condensed consolidated balance sheets. The Cytokinetics Funding Commitments, which include options and forwards over the subsequent tranches, are recognized at fair value within Other liabilities on the condensed consolidated balance sheets. The changes in the fair value of the funded Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments are recorded within Gains on available for sale debt securities in the condensed consolidated statements of operations.

MorphoSys Development Funding Bonds

On June 2, 2021, we announced a long-term strategic funding agreement with MorphoSys AG (“MorphoSys”) to support its acquisition of Constellation Pharmaceuticals, Inc. which closed on July 15, 2021. As part of the funding agreement, we agreed to provide MorphoSys up to $350 million of capital (“Development Funding Bonds”), of which MorphoSys was required to draw a minimum of $150 million. In September 2022, we funded $300 million of the Development Funding Bonds, which represents $150 million in additional funding above the minimum funding commitment (“Additional Funding”), and settled our forward commitment. We expect to receive a return of 2.2 times the funded amount of the Development Funding Bonds, payable on a quarterly basis over nine years, with the first payment beginning in the fourth quarter of 2024.

We elected the fair value option to account for the Development Funding Bonds as it most accurately reflects the nature of the instruments. The Development Funding Bonds are recorded within Available for sale debt securities on the condensed consolidated balance sheets. The changes in the fair value of the Development Funding Bonds are recorded within Gains on available for sale debt securities in the condensed consolidated statements of operations.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The table below summarizes our available for sale debt securities recorded at fair value as of September 30, 2023 and December 31, 2022 (in thousands):


	Cost		Unrealized(Losses)/Gains		Fair Value		Current Assets		Non-Current Assets		Non-Current Liabilities		Total
As of September 30, 2023
Debt securities (1)	$	359,400	$	(500)	$	358,900	$	5,300	$	353,600	$	—	$	358,900

Funding commitments (2)	(7,300)		(4,000)		(11,300)		—		—		(11,300)		(11,300)
Total available for sale debt securities	$	352,100	$	(4,500)	$	347,600	$	5,300	$	353,600	$	(11,300)	$	347,600

As of December 31, 2022
Debt securities (1)	$	359,400	$	(131,800)	$	227,600	$	1,300	$	226,300	$	—	$	227,600
Funding commitments (2)	(9,400)		6,900		(2,500)		—		—		(2,500)		(2,500)
Total available for sale debt securities	$	350,000	$	(124,900)	$	225,100	$	1,300	$	226,300	$	(2,500)	$	225,100

(1)The cost associated with the funded Cytokinetics Commercial Launch Funding reflects the fair value on the purchase date. The cost of the Development Funding Bonds represents the amount funded.

(2)Related to Cytokinetics Funding Commitments for which related tranches remain available as of respective balance sheet dates. The cost associated with the Cytokinetics Funding Commitments represents the fair value on the purchase date.

4. Fair Value Measurements and Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	As of September 30, 2023								As of December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:


Money market funds (1)	$	605,422	$	—	$	—	$	605,422	$	5,068	$	—	$	—	$	5,068



Marketable securities


Certificates of deposit	—		—		—		—		—		11,501		—		11,501
U.S. government securities	—		—		—		—		—		12,920		—		12,920

Available for sale debt securities (2)	—		—		5,300		5,300		—		—		1,300		1,300

Derivative instruments (3)	—		—		—		—		—		—		86,150		86,150

Total current assets	$	605,422	$	—	$	5,300	$	610,722	$	5,068	$	24,421	$	87,450	$	116,939

Equity securities	140,170		—		4,172		144,342		103,876		—		8,472		112,348

Available for sale debt securities (2)	—		—		353,600		353,600		—		—		226,300		226,300



Derivative instruments (3)	—		—		—		—		—		—		10,460		10,460
Royalty at fair value (4)	—		—		16,331		16,331		—		—		14,500		14,500
Total non-current assets	$	140,170	$	—	$	374,103	$	514,273	$	103,876	$	—	$	259,732	$	363,608

Liabilities:






Funding commitments (5)	—		—		(11,300)		(11,300)		—		—		(2,500)		(2,500)
Total non-current liabilities	$	—	$	—	$	(11,300)	$	(11,300)	$	—	$	—	$	(2,500)	$	(2,500)

(1)Recorded within Cash and cash equivalents on the condensed consolidated balance sheets.

(2)Reflects the fair value of the funded portions of the Development Funding Bonds and the Cytokinetics Commercial Launch Funding.

(3)Reflects the fair value of the Milestone Acceleration Option (defined below) which was recorded within Other current assets and Other assets on the condensed consolidated balance sheets. As of December 31, 2022, the fair value for the current portion of the derivative instruments related to the intranasal indication of zavegepant which settled in March 2023 when the U.S. Food and Drug Administration (“FDA”) approved Zavzpret and the fair value of the non-current portion of the derivative instruments related to the oral indication of zavegepant.

(4)Recorded within Other assets on the condensed consolidated balance sheets. See Note 7–Non-Consolidated Affiliates for additional discussion.

(5)Related to the fair value of the Cytokinetics Funding Commitments recorded within Other liabilities on the condensed consolidated balance sheets.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

For the third quarter and first nine months of 2023, we recognized gains of $1.5 million and $32.0 million, respectively, on equity securities still held as of September 30, 2023. For the third quarter and first nine months of 2022, we recognized losses of $0.9 million and $27.7 million, respectively, on equity securities still held as of September 30, 2023.

The tables presented below summarize the change in the combined fair value (current and non-current) of Level 3 financial instruments (in thousands):


	For the Three Months Ended September 30, 2023
	Equity Securities		Debt Securities		Funding Commitments		Derivative Instruments		Royalty at Fair Value
Balance at the beginning of the period	$	5,718	$	348,800	$	(8,500)	$	8,680	$	16,583


Losses on equity securities	(1,546)		—		—		—		—
Losses on derivative financial instruments	—		—		—		(8,680)		—

Gains/(losses) on available for sale debt securities included in earnings	—		10,100		(2,800)		—		—
Other non-operating expense	—		—		—		—		(252)



Balance at the end of the period	$	4,172	$	358,900	$	(11,300)	$	—	$	16,331


	For the Three Months Ended September 30, 2022
	Equity Securities		Debt Securities		Forwards		Funding Commitments		Derivative Instruments		Royalty at Fair Value
Balance at the beginning of the period	$	28,785	$	363,000	$	28,100	$	(8,100)	$	71,800	$	21,215
Purchases	—		314,579		—		—		—		—
Losses on initial recognition (1)	—		(8,800)		—		—		—		—
Losses on equity securities	(10,489)		—		—		—		—		—
Gains on derivative financial instruments	—		—		—		—		25,790		—
Unrealized gains on available for sale debt securities included in other comprehensive income/(loss)	—		13,050		—		—		—		—
Gains/(losses) on available for sale debt securities included in earnings	—		14,200		40,643		(1,800)		—		—
Other non-operating expense	—		—		—		—		—		(7,278)
Settlement (2)	—		2,427		(2,427)		—		—		—

Redemptions	—		(15,625)		—		—		—		—
Balance at the end of the period	$	18,296	$	682,831	$	66,316	$	(9,900)	$	97,590	$	13,937

(1)Represents the losses on initial recognition of debt securities related to the difference in (a) the fair value of the Additional Funding of the Development Funding Bonds and (b) the actual additional funded amount of $150 million.

(2)Reflects the fair value attributed to our commitment to purchase Series B Biohaven Preferred Shares that were settled simultaneously with the acquisition of the Series B Biohaven Preferred Shares. Amounts also reflect the fair value attributed to our forward commitment on the Development Funding Bonds which was settled upon funding in September 2022. Following Pfizer’s acquisition of Biohaven in October 2022, we purchased all remaining unissued Series B Biohaven Preferred Shares and we received accelerated redemption payments for all outstanding Series B Biohaven Preferred Shares.


	For the Nine Months Ended September 30, 2023
	Equity Securities		Debt Securities		Funding Commitments		Derivative Instruments		Royalty at Fair Value
Balance at the beginning of the period	$	8,472	$	227,600	$	(2,500)	$	96,610	$	14,500


Losses on equity securities	(4,300)		—		—		—		—
Losses on derivative financial instruments	—		—		—		(2,290)		—

Gains/(losses) on available for sale debt securities included in earnings	—		131,300		(8,800)		—		—
Other non-operating income	—		—		—		—		1,831
Settlement (1)	—		—		—		(94,320)		—


Balance at the end of the period	$	4,172	$	358,900	$	(11,300)	$	—	$	16,331

(1)Represents the fair value of the Milestone Acceleration Option (defined below) attributable to the intranasal indication of zavegepant which was settled when the FDA approved Zavzpret in March 2023.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	For the Nine Months Ended September 30, 2022
	Equity Securities		Debt Securities		Forwards		Funding Commitments		Derivative Instruments		Royalty at Fair Value
Balance at the beginning of the period	$	43,013	$	253,700	$	16,700	$	—	$	—	$	—
Purchases	28,785		393,737		—		—		—		21,215
Gains/(losses) on initial recognition (1)	—		600		—		(9,400)		—		—
Losses on equity securities	(12,810)		—		—		—		—		—
Gains on derivative financial instruments	—		—		—		—		97,590		—
Unrealized gains on available for sale debt securities included in other comprehensive income/(loss)	—		24,000		—		—		—		—
Gains/(losses) on available for sale debt securities included in earnings	—		44,400		62,885		(500)		—		—
Other non-operating expense	—		—		—		—		—		(7,278)
Settlements (2)	—		13,269		(13,269)		—		—		—
Transfer out of Level 3 (3)	(40,692)		—		—		—		—		—
Redemptions	—		(46,875)		—		—		—		—
Balance at the end of the period	$	18,296	$	682,831	$	66,316	$	(9,900)	$	97,590	$	13,937

(1)Represents purchase price allocation to arrive at the appropriate fair value on initial recognition. Amounts also reflect the initial recognition of debt securities related to the difference in (a) the fair value of the Additional Funding of the Development Funding Bonds and (b) the actual additional funded amount of $150 million.

(3)Related to the expiration of the transfer restriction on BioCryst common stock.

Valuation Inputs for Recurring Fair Value Measurements

Below is a discussion of the valuation inputs used for financial instruments classified as Level 2 and Level 3 measurements as of September 30, 2023 and December 31, 2022 in the fair value hierarchy.

ApiJect Investment

We estimated the fair value of the equity securities and revenue participation right that we acquired from ApiJect Holdings, Inc. (“ApiJect”), a private company, as of September 30, 2023 and December 31, 2022 by utilizing a discounted cash flow calculation using Level 3 inputs, including forecasted cash flows and the weighted average cost of capital. Our estimate of the forecasted cash flows and the weighted average cost of capital could reasonably be different than those selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Refer to Note 7–Non-Consolidated Affiliates for additional discussion.

Cytokinetics Commercial Launch Funding and Cytokinetics Funding Commitments

We estimated the fair value of the funded Cytokinetics Commercial Launch Funding as of September 30, 2023 and December 31, 2022 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including an estimated risk-adjusted discount rate and the probability that there will be a change of control event, which would result in accelerated payments. Developing a risk-adjusted discount rate and assessing the probability that there will be a change of control event over the duration of the Cytokinetics Commercial Launch Funding require significant judgement. Our estimate of the risk-adjusted discount rate could reasonably be different than the discount rate selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We estimated the fair value of the Cytokinetics Funding Commitments as of September 30, 2023 and December 31, 2022 using a Monte Carlo simulation methodology that includes simulating the interest rate movements using a Geometric Brownian Motion-based pricing model. This methodology simulates the likelihood of future discount rates exceeding the counterparty’s assumed cost of debt, which would impact Cytokinetics’ decision to exercise its option to draw on each respective tranche. As of September 30, 2023 and December 31, 2022, this methodology incorporates Level 3 fair value measurements and inputs, including an assumed risk-adjusted discount rate of 15.4% and 13.5%, respectively, and an assumed interest rate volatility of 32.5% and 30.0%, respectively. We also assumed probabilities for the occurrence of each regulatory or clinical milestone, which impacts the availability of each future tranche of funding. Our estimate of the risk-adjusted discount rate, the interest rate volatility and the probabilities of each underlying milestone could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

MorphoSys Development Funding Bonds

We estimated the fair value of the Development Funding Bonds as of September 30, 2023 and December 31, 2022 based on a discounted cash flow calculation using estimated risk-adjusted discount rates, which are Level 3 fair value inputs. Our estimate of the risk adjusted discount rates could reasonably be different than the discount rates selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

Milestone Acceleration Option

On August 7, 2020, we entered into an expanded funding agreement with Biohaven to fund the development of zavegepant and the commercialization of Nurtec ODT in exchange for royalties and success-based milestones payable over time. Following Pfizer’s acquisition of Biohaven on October 2, 2022, which was a change of control event, we elected to accelerate the payment of the zavegepant milestone payments, if triggered, into a lump sum amount (“Milestone Acceleration Option”). The Milestone Acceleration Option is an embedded derivative instrument for which the associated fair value was not material prior to the second quarter of 2022, when Pfizer announced its intended acquisition of Biohaven. In March 2023, the FDA approved Zavzpret (zavegepant), a calcitonin gene-related peptide receptor antagonist nasal spray for the acute treatment of migraine with or without aura in adults, which triggered a milestone payment of $475 million that we received in the same month and resulted in a partial settlement of the derivative instrument.

We estimated the fair value of the Milestone Acceleration Option as of December 31, 2022 using the “with-and-without” methodology, which is a variation of the income approach and is based on the difference between cash flows for two different scenarios. The prospective cash flows for the success-based milestone payments include the Milestone Acceleration Option in the first scenario. For the second scenario, the prospective cash flows are estimated assuming they remain payable over time. The difference between the fair value of these two scenarios represents the fair value of the Milestone Acceleration Option. This methodology includes the use of Level 3 fair value measurements and inputs, including estimated risk-adjusted discount rate which was primarily based on Pfizer’s cost of debt and management’s estimated probabilities of achieving the success-based milestones. Assessing the likelihood that the success-based milestones are achieved over the duration of the Milestone Acceleration Option and developing a risk-adjusted discount rate require significant judgement. Our estimate of a risk adjusted discount rate and the probabilities of achieving marketing approval could reasonably be different than those determined by a market participant, which would mean that the estimated fair value could be significantly higher or lower.

Other Financial Instruments

As of September 30, 2023, we did not have any financial instruments recorded at fair value using Level 2 inputs. As of December 31, 2022, financial instruments whose fair values are measured on a recurring basis using Level 2 inputs primarily consisted of certificates of deposit and U.S. government securities. We measure the fair value of these financial instruments with the help of third-party pricing services that provide quoted market prices in active markets for similar securities or observable inputs for their pricing without applying significant adjustments.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Financial Assets Not Measured at Fair Value

Financial royalty assets are measured and carried on the condensed consolidated balance sheets at amortized cost using the effective interest method. The current portion of financial royalty assets approximates fair value. Management calculates the fair value of financial royalty assets using the forecasted royalty payments that are expected to be received based on the projected product sales for all royalty bearing products which are estimated using sell-side equity research analysts’ consensus sales forecasts. These projected future royalty payments by asset along with any projected incoming or outgoing milestone payments, are then discounted to a present value using appropriate individual discount rates. The fair value of financial royalty assets is classified as Level 3 within the fair value hierarchy since it is determined based upon inputs that are both significant and unobservable. The estimated fair values and related carrying values of the non-current portion of financial royalty assets as of September 30, 2023 and December 31, 2022 are presented below (in thousands):


	As of September 30, 2023				As of December 31, 2022
	Fair Value		Carrying Value, net		Fair Value		Carrying Value, net
Financial royalty assets, net	$	17,356,414	$	13,230,474	$	17,314,094	$	13,493,106

5. Financial Royalty Assets

Financial royalty assets consist of contractual rights to cash flows relating to royalty payments derived from the expected sales of patent-protected biopharmaceutical products that entitle us and our subsidiaries to receive a portion of income from the sale of such products by third parties.

The gross carrying value, cumulative allowance for changes in expected cash flows, exclusive of the allowance for credit losses, and net carrying value for the current and non-current portion of financial royalty assets as of September 30, 2023 and December 31, 2022 are as follows (in thousands):


		As of September 30, 2023
	Estimated Royalty Duration (1)	Gross Carrying Value		Cumulative Allowance for Changes in Expected Cash Flows (Note 6)		Net Carrying Value (5)

Cystic fibrosis franchise	2037 (2)	$	5,304,675	$	—	$	5,304,675
Tysabri	(3)	1,557,167		(356,280)		1,200,887
Trelegy	2029-2030	1,237,514		(65,715)		1,171,799
Tremfya	2031-2032	927,465		(151,563)		775,902
Evrysdi	2030-2035 (4)	772,667		—		772,667
Xtandi	2027-2028	939,653		(296,160)		643,493
Other	2024-2041	6,375,151		(2,125,113)		4,250,038
Total		$	17,114,292	$	(2,994,831)	$	14,119,461
Less: Cumulative allowance for credit losses (Note 6)						(146,827)
Total current and non-current financial royalty assets, net						$	13,972,634

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

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

(3)RPIFT acquired a perpetual royalty on net sales of Tysabri. We have applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed.

(4)Key U.S. patents on Evrysdi expire in 2035. Our royalty will end when aggregate royalties paid to us equal $1.3 billion.

(5)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 6–Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information.

As of September 30, 2023, the balance of $14.0 billion for total current and non-current financial royalty assets, net included $562.1 million in unapproved financial royalty assets held at cost related to olpasiran, pelacarsen, KarXT and seltorexant.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


		As of December 31, 2022
	Estimated Royalty Duration (1)	Gross Carrying Value		Cumulative Allowance for Changes in Expected Cash Flows (Note 6)		Net Carrying Value (4)

Cystic fibrosis franchise	2037 (2)	$	5,333,535	$	(10,908)	$	5,322,627
Tysabri	(3)	1,683,441		(212,283)		1,471,158
Trelegy	2029-2030	1,284,054		(24,126)		1,259,928
Tremfya	2031-2032	894,160		—		894,160
Imbruvica	2027-2032	1,436,969		(660,703)		776,266
Xtandi	2027-2028	1,009,168		(235,625)		773,543
Other	2024-2041	5,134,980		(1,332,815)		3,802,165
Total		$	16,776,307	$	(2,476,460)	$	14,299,847
Less: Cumulative allowance for credit losses (Note 6)						(115,422)
Total current and non-current financial royalty assets, net						$	14,184,425

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

(3)RPIFT acquired a perpetual royalty on net sales of Tysabri. We have applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed.

(4)The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 6–Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information.

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

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

•the movement in the cumulative allowance related to changes in forecasted royalty payments expected to be received based on projected product sales for royalty bearing products which are estimated by sell-side equity research analysts’ consensus sales forecasts,

•the write-off of cumulative allowance at the end of a royalty asset’s life which only impacts the condensed consolidated balance sheets, and

•the movement in the cumulative allowance for current expected credit losses, primarily associated with new financial royalty assets with limited protective rights and changes in the underlying cash flow forecasts of financial royalty assets with limited protective rights.

The following table sets forth the activity in the cumulative allowance for changes in expected cash flows from financial royalty assets, inclusive of the cumulative allowance for credit losses, as of the dates indicated (in thousands):


	Activity for the Period
Balance at December 31, 2022 (1)	$	(2,591,882)

Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets	(860,242)
Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets	254,478
Write-off of cumulative allowance	87,393

Current period provision for credit losses, net (2)	(31,405)
Balance at September 30, 2023	$	(3,141,658)

(1)Includes $115.4 million related to cumulative allowance for credit losses.

(2)The provision expense for credit losses was primarily related to the additions of Adstiladrin and Skytrofa to our portfolio of financial royalty assets with limited protective rights.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. Non-Consolidated Affiliates

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

ApiJect

In April 2022, we acquired common stock and a revenue participation right from ApiJect. We elected the fair value option to account for our investments in ApiJect because it is more reflective of current values for such investments. We are also required to purchase additional common stock from ApiJect if certain milestones are achieved. The fair value of our equity investment in ApiJect is recorded within Equity securities and the change in fair value is recorded within (Gains)/losses on equity securities. The fair value of the revenue participation right is recorded within Other assets and the change in fair value is recorded within Other non-operating expense, net. No amounts were due from ApiJect as of September 30, 2023.

The Legacy SLP Interest

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

The income allocation from the Legacy SLP Interest is based on an estimate as the Legacy Investors Partnerships are private partnerships that are expected to report on a lag subsequent to the date of this quarterly report. Management’s estimate of equity in earnings from the Legacy SLP Interest for the current period will be updated for historical results in the subsequent period. Equity in earnings from the Legacy SLP Interest is recorded within Equity in losses/(earnings) of equity method investees. We recorded a loss allocation of $2.3 million and an income allocation of $0.6 million in the third quarter and first nine months of 2023, respectively. We recorded a loss allocation of $2.1 million and an income allocation of $7.2 million in the third quarter and first nine months of 2022, respectively. We collected cash receipts from the Legacy SLP Interest of $4.8 million and $9.7 million in the third quarter and first nine months of 2023, respectively. We collected cash receipts from the Legacy SLP Interest of $5.8 million and $19.9 million in the third quarter and first nine months of 2022, respectively.

The Avillion Entities

We account for our partnership interests in Avillion Financing I, LP and its related entities (“Avillion I”) and BAv Financing II, LP and its related entities (“Avillion II” and, together with Avillion I, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the Avillion Entities. Equity in earnings from the Avillion Entities is recorded within Equity in losses/(earnings) of equity method investees. During the third quarter of 2023 and first nine months of 2023, we recorded a loss allocation of $3.0 million and an income allocation of $28.0 million, respectively. We recorded loss allocations of $1.2 million and $9.3 million in the third quarter and first nine months of 2022, respectively.

On December 19, 2017, the FDA approved a supplemental New Drug Application for Pfizer’s Bosulif. Avillion I is eligible to receive fixed payments from Pfizer based on this approval under its co-development agreement with Pfizer. The only operations of Avillion I are the collection of cash and unwinding of the discount on the series of fixed annual payments due from Pfizer. We received distributions from Avillion I of $13.6 million and $13.4 million in the first nine months of 2023 and 2022, respectively.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In May 2018, RPIFT entered into an agreement with Avillion II, which was amended in July 2021 and June 2022, to fund a total of $150 million over multiple years for a portion of the costs of Phase 2 and 3 clinical trials to advance Airsupra, formerly known as PT027, which was approved by the FDA in January 2023. Avillion II is a party to a co-development agreement with AstraZeneca to develop Airsupra for the treatment of asthma in exchange for royalties, a series of success-based milestones and other potential payments. In January 2023, AstraZeneca notified Avillion II that it elected to pay a fee of $80 million to Avillion II to exercise an option to commercialize Airsupra in the United States. In March 2023, we received our pro rata portion of the exercise fee of $34.8 million from Avillion II.

Our maximum exposure to loss at any particular reporting date is limited to the carrying value of our equity method investments plus the unfunded commitments. As of September 30, 2023 and December 31, 2022, we had unfunded commitments related to the Avillion Entities of $18.3 million and $28.8 million, respectively.

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

R&D funding expense consists of payments that we have made to counterparties to acquire royalties or milestones on product candidates. R&D funding expense includes development-stage funding payments that are made upfront or upon pre-approval milestones and development-stage funding payments that are made over time as the related product candidates undergo clinical trials with our counterparties. During the first nine months of 2023 and 2022, we did not enter into any new ongoing R&D funding arrangements.

We recognized R&D funding expense of $50.5 million and $51.5 million in the third quarter and first nine months of 2023, respectively. We recognized R&D funding expense of $25.5 million and $126.6 million in the third quarter and first nine months of 2022, respectively. The R&D funding expense in 2023 was primarily related to a $50.0 million clinical milestone payment that was triggered under the agreement with Cytokinetics. During the first nine months of 2022, R&D funding expense primarily related to upfront and milestone development-stage funding payments of $100.0 million and $25.0 million to acquire royalties on development-stage product candidates from Cytokinetics and Theravance Biopharma, Inc., respectively.

9. Borrowings

Our borrowings as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


Type of Borrowing	Date of Issuance	Maturity	As of September 30, 2023		As of December 31, 2022
Senior Unsecured Notes:
$1,000,000, 0.75% (issued at 99.322% of par)	9/2020	9/2023	$	—	$	1,000,000
$1,000,000, 1.20% (issued at 98.875% of par)	9/2020	9/2025	1,000,000		1,000,000
$1,000,000, 1.75% (issued at 98.284% of par)	9/2020	9/2027	1,000,000		1,000,000
$1,000,000, 2.20% (issued at 97.760% of par)	9/2020	9/2030	1,000,000		1,000,000
$600,000, 2.15% (issued at 98.263% of par)	7/2021	9/2031	600,000		600,000
$1,000,000, 3.30% (issued at 95.556% of par)	9/2020	9/2040	1,000,000		1,000,000
$1,000,000, 3.55% (issued at 95.306% of par)	9/2020	9/2050	1,000,000		1,000,000
$700,000, 3.35% (issued at 97.565% of par)	7/2021	9/2051	700,000		700,000


Unamortized debt discount and issuance costs			(168,806)		(183,678)
Total debt carrying value			6,131,194		7,116,322
Less: Current portion of long-term debt			—		(997,512)
Total long-term debt			$	6,131,194	$	6,118,810

Senior Unsecured Notes

Interest on each series of the $1.3 billion senior unsecured notes issued in 2021 (the “2021 Notes”) accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year, which began on March 2, 2022. The 2021 Notes were issued at a total discount of $27.5 million and we capitalized approximately $12.3 million in debt issuance costs primarily composed of underwriting fees. The 2021 Notes were issued with a weighted average coupon rate and a weighted average effective interest rate of 2.80% and 3.06%, respectively.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Interest on each series of the $6.0 billion senior unsecured notes issued in 2020 (the “2020 Notes”) accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year. The 2020 Notes were issued at a total discount of $149.0 million and we capitalized approximately $40.4 million in debt issuance costs primarily comprised of underwriting fees. The 2020 Notes were issued with a weighted average coupon rate and a weighted average effective interest rate of 2.13% and 2.50%, respectively.

The 2020 Notes and the 2021 Notes (the “Notes”) may be redeemed at our option at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis at the treasury rate, plus a make-whole premium as defined in the indenture. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption.

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

Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly-owned subsidiary. We are required to comply with certain covenants under our Notes and as of September 30, 2023, we were in compliance with all applicable covenants.

In September 2023, we repaid $1.0 billion of senior unsecured notes upon maturity.

As of September 30, 2023 and December 31, 2022, the fair value of our outstanding Notes using Level 2 inputs was approximately $4.6 billion and $5.7 billion, respectively.

Senior Unsecured Revolving Credit Facility

On September 15, 2021, we entered into an amended and restated revolving credit agreement, which was further amended on October 31, 2022 (the “Credit Agreement”). The Credit Agreement amended and restated the prior credit agreement that our subsidiary RP Holdings, as borrower, entered into on September 18, 2020, which provided for a five-year unsecured revolving credit facility (the “Revolving Credit Facility”) with borrowing capacity of up to $1.5 billion for general corporate purposes. The Revolving Credit Facility has a maturity date of October 31, 2027. As of September 30, 2023 and December 31, 2022, there were no outstanding borrowings under the Revolving Credit Facility. In October 2023, we drew $350.0 million on the Revolving Credit Facility to fund a portion of our acquisition of additional royalties on Roche’s Evrysdi.

The Revolving Credit Facility is subject to an interest rate, at our option, of either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime rate, (2) the federal funds rate plus 0.5% and (3) Term SOFR plus 1% or (b) Daily SOFR, Term SOFR, the Alternative Currency Term Rate or the Alternative Currency Daily Rate (each as defined in the Credit Agreement), plus in each case, the applicable margin. The applicable margin for the Revolving Credit Facility varies based on our public debt rating. Accordingly, the interest rates for the Revolving Credit Facility fluctuate during the term of the facility based on changes in the applicable interest rate and future changes in our public debt rating.

The Credit Agreement that governs the Revolving Credit Facility contains certain customary covenants, that among other things, require us to maintain (i) a consolidated leverage ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1.00 following a qualifying material acquisition) of consolidated funded debt to consolidated EBITDA, each as defined and calculated with the ratio level calculated with further adjustments as set forth in the Credit Agreement and (ii) a consolidated coverage ratio at or above 2.50 to 1.00 of consolidated EBITDA to consolidated interest expense, each as defined and calculated with further adjustments as set forth in the Credit Agreement. All obligations under the Revolving Credit Facility are unconditionally guaranteed by us. Noncompliance with the leverage ratio and interest coverage ratio covenants under the Credit Agreement could result in our lenders requiring us to immediately repay all amounts borrowed. The Credit Agreement includes customary covenants for credit facilities of this type that limit our ability to engage in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets. As of September 30, 2023, RP Holdings was in compliance with these covenants.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Principal Payments on the Notes

The future principal payments for our borrowings as of September 30, 2023 over the next five years and thereafter are as follows (in thousands):



Year	Principal Payments
Remainder of 2023	$	—
2024	—
2025	1,000,000
2026	—
2027	1,000,000
Thereafter	4,300,000
Total (1)	$	6,300,000

(1)Excludes unamortized debt discount and issuance costs of $168.8 million as of September 30, 2023, which are amortized through interest expense over the remaining life of the underlying debt obligations.

10. Shareholders’ Equity

Capital Structure

We have two classes of voting shares: Class A ordinary shares and Class B ordinary shares, each of which has one vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up. As of September 30, 2023, we have 445,843 thousand Class A ordinary shares and 152,546 thousand Class B ordinary shares outstanding.

An exchange agreement entered into in connection with the IPO by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings (the “Exchange Agreement”) governs the exchange of RP Holdings Class B Interests held by the Continuing Investors Partnerships for Class A ordinary shares. Pursuant to the Exchange Agreement, RP Holdings Class B interests are exchangeable on a one-for-one basis for Class A ordinary shares on a quarterly basis. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. As of September 30, 2023, we have 382,837 thousand deferred shares outstanding.

In addition, we have in issue 50 thousand Class R redeemable shares, which do not entitle the holder to voting or dividend rights. The Class R redeemable shares may be redeemed at our option in the future. Any such redemption would be at the nominal value of £1 each.

Class A Ordinary Share Repurchases

In March 2023, our board of directors authorized a share repurchase program under which we may repurchase up to $1.0 billion of our Class A ordinary shares. The authorization for the share repurchase program expires on June 23, 2027 and repurchases may be made in the open market or in privately negotiated transactions. Amounts paid to repurchase shares in excess of the par value are allocated between Additional paid-in capital and Retained earnings. We began repurchasing our Class A ordinary shares in April 2023. In the first nine months of 2023, we repurchased and retired 8,889 thousand shares at a cost of approximately $278.6 million.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Non-Controlling Interests

The changes in the balances of our four non-controlling interests for the third quarter and first nine months of 2023 and 2022 are as follows (in thousands):


	Legacy Investors Partnerships		RPSFT		Continuing Investors Partnerships		EPA Holdings		Total
June 30, 2023	$	1,420,864	$	(103)	$	2,111,258	$	—	$	3,532,019
Contributions	1,413		—		1,437		—		2,850
Distributions	(88,112)		(848)		(31,238)		—		(120,198)
Other exchanges	—		—		(18,459)		—		(18,459)
Net income	25,623		285		24,055		—		49,963



September 30, 2023	$	1,359,788	$	(666)	$	2,087,053	$	—	$	3,446,175


	Legacy Investors Partnerships		RPSFT		Continuing Investors Partnerships		EPA Holdings		Total
June 30, 2022	$	1,716,186	$	8,882	$	2,655,870	$	—	$	4,380,938
Contributions	1,570		—		1,400		—		2,970
Distributions	(95,084)		(4,175)		(38,621)		—		(137,880)
Other exchanges	—		—		(61,886)		—		(61,886)
Net income	21,432		1,935		54,396		—		77,763
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	2,294		—		2,975		—		5,269
Reclassification of unrealized gains on available for sale debt securities	(1,250)		—		(1,621)		—		(2,871)
September 30, 2022	$	1,645,148	$	6,642	$	2,612,513	$	—	$	4,264,303


	Legacy Investors Partnerships		RPSFT		Continuing Investors Partnerships		EPA Holdings		Total
December 31, 2022	$	1,527,887	$	(597)	$	2,369,933	$	—	$	3,897,223
Contributions	6,614		—		3,076		—		9,690
Distributions	(286,674)		(4,755)		(95,161)		—		(386,590)
Other exchanges	—		—		(416,156)		—		(416,156)
Net income	111,961		4,686		225,361		—		342,008



September 30, 2023	$	1,359,788	$	(666)	$	2,087,053	$	—	$	3,446,175


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

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Continuing Investors Partnerships hold a number of our Class B ordinary shares equal to the number of RP Holdings Class B Interests held by them. As the Continuing Investors Partnerships exchange RP Holdings Class B Interests held for Class A ordinary shares, the Continuing Investors Partnerships’ ownership in RP Holdings decreases. We operate and control the business affairs of RP Holdings through our ownership of RP Holdings Class A Interests and RP Holdings Class B Interests. In connection with our repurchase of Class A ordinary shares, RP Holdings also began to retire RP Holdings Class A Interests held by us which reduces our ownership in RP Holdings. The change in RP Holdings ownership between the Continuing Investors Partnerships and us as a result of (1) the exchanges of RP Holding Class B Interests for Class A ordinary shares and (2) retirement of RP Holdings Class A Interests is reflected through Other exchanges in the above tables and in our condensed consolidated statements of shareholders’ equity.

As of September 30, 2023, the Continuing Investors Partnerships owned approximately 25% of RP Holdings with the remaining 75% owned by Royalty Pharma plc. As of September 30, 2022, the Continuing Investors Partnerships owned approximately 27% of RP Holdings with the remaining 73% owned by Royalty Pharma plc.

RP Holdings Class C Special Interest Held by EPA Holdings

EPA Holdings, an affiliate of the Manager, is entitled to Equity Performance Awards (as defined below) through its RP Holdings Class C Special Interest based on our performance, as determined on a portfolio-by-portfolio basis. Investments made during each two-year period are grouped together as separate portfolios (each, a “Portfolio”). Subject to certain conditions, at the end of each fiscal quarter, EPA Holdings is entitled to a distribution from RP Holdings in respect of each Portfolio equal to 20% of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the “Equity Performance Awards”). The Equity Performance Awards will be allocated and paid by RP Holdings to EPA Holdings as the holder of the RP Holdings Class C Special Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests that will be exchanged upon issuance for Class A ordinary shares. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. We do not expect any material Equity Performance Awards to be payable until certain performance conditions discussed above are met. Similarly, we do not expect any material income to be allocated to EPA Holdings until such performance conditions are met.

Dividends

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by our board of directors. The holders of Class B ordinary shares do not have any rights to receive dividends; however, RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. In the first nine months of 2023, we declared and paid three quarterly cash dividends of $0.20 per Class A ordinary share for an aggregate amount of $269.0 million to holders of our Class A ordinary shares.

2020 Independent Directors Equity Incentive Plan

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

RSU Activity and Share-based Compensation

We grant RSUs to our independent directors under the 2020 Independent Director Equity Incentive Plan. Share-based compensation expense is recognized based on estimated fair value of the award on the grant date and amortized on a straight-line basis over the requisite service period of generally one year as part of General and administrative expenses in the condensed consolidated statements of operations. In the third quarter and first nine months of 2023 and 2022, respectively, we did not recognize material share-based compensation expense.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. Earnings per Share

For the third quarter and first nine months of 2023 and 2022, Class B ordinary shares contingently issuable to EPA Holdings were evaluated and were determined not to have any dilutive impact.

The following table sets forth reconciliations of the numerators and denominators used to calculate basic and diluted earnings per Class A ordinary share for the third quarter and first nine months of 2023 and 2022 (in thousands, except per share amounts):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator
Consolidated net income	$	122,077	$	220,414	$	982,502	$	840,094
Less: Net income attributable to continuing non-controlling interests	24,055		54,396		225,361		194,281
Less: Net income attributable to legacy non-controlling interests	25,908		23,367		116,647		146,897
Net income attributable to Royalty Pharma plc - basic	72,114		142,651		640,494		498,916
Add: Reallocation of net income attributable to non-controlling interest from the assumed conversion of Class B ordinary shares	24,055		54,396		225,361		194,281
Net income attributable to Royalty Pharma plc - diluted	$	96,169	$	197,047	$	865,855	$	693,197

Denominator
Weighted average Class A ordinary shares outstanding - basic	448,439		439,293		448,162		436,542
Add: Dilutive effects as shown separately below
Class B ordinary shares exchangeable for Class A ordinary shares	152,691		167,927		156,541		170,651
Unvested RSUs	8		6		14		16
Weighted average Class A ordinary shares outstanding - diluted	601,138		607,226		604,717		607,209

Earnings per Class A ordinary share - basic	$	0.16	$	0.32	$	1.43	$	1.14
Earnings per Class A ordinary share - diluted	$	0.16	$	0.32	$	1.43	$	1.14

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12. Indirect Cash Flow

Adjustments to reconcile consolidated net income to net cash provided by operating activities are summarized below (in thousands):


	For the Nine Months Ended September 30,
	2023		2022
Cash flow from operating activities:
Consolidated net income	$	982,502	$	840,094
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from financial royalty assets	(1,674,689)		(1,578,555)
Provision for changes in expected cash flows from financial royalty assets	637,169		595,396
Amortization of intangible assets	—		5,670
Amortization of debt discount and issuance costs	15,658		16,026

Losses/(gains) on derivative financial instruments	2,290		(97,590)
(Gains)/losses on equity securities	(31,994)		22,970
Equity in (earnings)/losses of equity method investees	(28,614)		2,117


Distributions from equity method investees	18,823		33,316



Share-based compensation	1,740		1,587
Interest income accretion	—		(24,053)
Gains on available for sale debt securities	(122,500)		(97,985)


Other	3,263		3,443
Changes in operating assets and liabilities:
Cash collected on financial royalty assets	2,454,054		1,843,899

Accrued royalty receivable	470		37,574

Other royalty income receivable	(669)		(4,108)
Other current assets	(2,412)		8,253

Accounts payable and accrued expenses	1,650		10,492
Interest payable	(41,567)		(44,497)


Net cash provided by operating activities	$	2,215,174	$	1,574,049

13. Commitments and Contingencies

Cytokinetics Funding Commitments

As of September 30, 2023, $125 million of the optional $200 million remained available under the Cytokinetics Funding Commitments. Additionally, Cytokinetics is required to draw $50 million if a certain contingency is met.

Other Commitments

We have commitments to advance funds to counterparties through our investment in the Avillion Entities. Please refer to Note 7–Non-Consolidated Affiliates for details of these arrangements. We also have requirements to make Operating and Personnel Payments (defined below) over the life of the Management Agreement as described in Note 14–Related Party Transactions.

Indemnifications

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

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Legal Proceedings

We are a party to legal actions with respect to a variety of matters in the ordinary course of business. Some of these proceedings may be based on complex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the probability of loss or estimate damages, and therefore we have not established accruals for any of these proceedings on our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. When we determine that a loss is both probable and reasonably estimable, we record a liability, and, if the liability is material, we disclose the amount of the liability reserved. We do not believe the outcome of any existing legal proceedings to which we are a party, either individually or in the aggregate, will adversely affect our business, financial condition or results of operations.

14. Related Party Transactions

The Manager

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

In connection with the Exchange Offer (discussed in Note 1–Organization and Purpose), the Manager entered into the Management Agreement with us and our subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the Management Agreement, we pay a quarterly operating and personnel payment to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5% of the cash receipts from royalty investments for such quarter and 0.25% of the value of our security investments under GAAP as of the end of such quarter. The operating and personnel payment for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected on our consolidated net income, is calculated as the greater of $1 million per quarter and 0.3125% of royalties from Royalty Investments (as defined in the limited partnership agreements of the Legacy Investor Partnerships) during the previous twelve calendar months. Additionally, we also pay certain costs and expenses of the Manager.

Total operating and personnel payments incurred, including the amounts attributable to Old RPI, are recognized within General and administrative expenses in the condensed consolidated statements of operations. During the third quarter and first nine months of 2023, total operating and personnel payments incurred, including the amounts attributable to Old RPI, were $43.0 million and $154.9 million, respectively. During the third quarter and first nine months of 2022, total operating and personnel payments incurred, including the amounts attributable to Old RPI, were $40.6 million and $117.8 million, respectively.

Distributions Payable to Legacy Non-Controlling Interests

The distributions payable to legacy non-controlling interests represent the contractual cash flows required to be distributed based on the Legacy Investors Partnerships’ non-controlling interest in Old RPI and RPI ICAV and RPSFT’s non-controlling interest in RPCT. The distributions payable to legacy non-controlling interests include the following (in thousands):


	As of September 30, 2023		As of December 31, 2022
Payable to Legacy Investors Partnerships	$	98,439	$	87,522
Payable to RPSFT	3,272		7,281
Total distributions payable to legacy non-controlling interests	$	101,711	$	94,803

Acquisition from Bristol Myers Squibb

In November 2017, RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”), a consolidated subsidiary, entered into a purchase agreement with Bristol Myers Squibb (“BMS”) to acquire from BMS a percentage of its future royalties on worldwide sales of Onglyza, Farxiga and related diabetes products marketed by AstraZeneca (the “Purchase Agreement”). On December 8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“Assignment Agreement”) with a wholly-owned subsidiary of BioPharma Credit PLC (“BPCR”), an entity related to us. Under the terms of the Assignment Agreement, RPI Acquisitions assigned the benefit of 50% of the payment stream acquired from BMS to BPCR in consideration for BPCR meeting 50% of the funding obligations owed to BMS under the Purchase Agreement.

ROYALTY PHARMA PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of September 30, 2023 and December 31, 2022, the financial royalty asset of $82.6 million and $103.4 million, respectively, on the condensed consolidated balance sheets represented only our right to the future payment streams acquired from BMS.

Other Transactions

Henry Fernandez, the lead independent director of our board of directors, serves as the chairman and chief executive officer of MSCI Inc. (“MSCI”). On April 16, 2021, we entered into an agreement with MSCI with an initial term of seven years to develop thematic life sciences indexes. In return, we will receive a percentage of MSCI’s revenues from those indexes. No amounts were due from MSCI as of both September 30, 2023 and December 31, 2022. The financial impact associated with this transaction has not been material to date.

In connection with the Exchange Offer, we acquired the Legacy SLP Interest from the Continuing Investors Partnerships in exchange for issuing shares in our subsidiary. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy Investors Partnerships own a non-controlling interest in Old RPI and RPI ICAV. Refer to Note 7–Non-Consolidated Affiliates for additional discussion of the Legacy SLP Interest and our investments in other non-consolidated entities.

RPIFT owns 27,210 limited partnership interests in the Continuing Investors Partnerships, whose only substantive operations are their investment in our subsidiaries. The total investment of $4.3 million was recorded as treasury interests, of which $1.6 million and $1.5 million were held by non-controlling interests as of September 30, 2023 and December 31, 2022, respectively.

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

15. Subsequent Events

In October 2023, we acquired additional royalties on Roche’s Evrysdi, an approved product for the treatment of spinal muscular atrophy, from PTC Therapeutics, Inc (“PTC”) for $1.0 billion upfront. Until December 31, 2025, PTC has an option to sell its remaining royalties for $500 million less royalties received in five equal tranches. If PTC exercises its options for fewer than three tranches, we have an option to acquire half of PTC’s remaining royalties for $250 million less royalties received until March 31, 2026.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Royalty Pharma plc is a public limited company incorporated under the laws of England and Wales that was created to facilitate the initial public offering (“IPO”) of our Class A ordinary shares on June 16, 2020. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis.

Business Overview

We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. Since our founding in 1996, we have been pioneers in the royalty market, collaborating with innovators from academic institutions, research hospitals and not-for-profits through small and mid-cap biotechnology companies to leading global pharmaceutical companies. We have assembled a portfolio of royalties which entitles us to payments based directly on the top-line sales of many of the industry’s leading therapies, which includes royalties on more than 35 commercial products, including Vertex’s Trikafta, Kalydeco, Orkambi and Symdeko, Biogen’s Tysabri and Spinraza, AbbVie and Johnson & Johnson’s Imbruvica, Astellas and Pfizer’s Xtandi, GSK’s Trelegy, Novartis’ Promacta, Pfizer’s Nurtec ODT, Johnson & Johnson’s Tremfya, Roche’s Evrysdi, Gilead’s Trodelvy, and 11 development-stage product candidates. We fund innovation in the biopharmaceutical industry both directly and indirectly—directly when we partner with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties or milestones, and indirectly when we acquire existing royalties from the original innovators.

Our capital-efficient business model enables us to benefit from many of the most attractive characteristics of the biopharmaceutical industry, including long product life cycles, significant barriers to entry and noncyclical revenues, but with substantially reduced exposure to many common industry challenges such as early stage development risk, therapeutic area constraints, high research and development (“R&D”) costs, and high fixed manufacturing and marketing costs. We have a highly flexible approach that is agnostic to both therapeutic area and treatment modality, allowing us to acquire royalties on the most attractive therapies across the biopharmaceutical industry.

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

•Approved Products – We acquire royalties in approved products that generate predictable cash flows and may offer upside potential from unapproved indications. Since inception in 1996 through 2022, we have deployed $17.0 billion of cash to acquire royalties, milestones and related assets on approved products. From 2012 through 2022, we have deployed $12.1 billion to acquire royalties, milestones and related assets on approved products.

•Development-Stage Product Candidates – We acquire royalties on development-stage product candidates that have demonstrated strong clinical proof of concept. From 2012, when we began acquiring royalties on development-stage product candidates, through 2022, we have deployed $8.3 billion to acquire royalties, milestones and related assets on development-stage product candidates.

While we classify our acquisitions in these two broad categories, several of our approved product transactions are driven by the long-term expanded potential of these existing commercial products in indications that are unapproved at the time of acquisition. Similarly, some of our development-stage product candidate transactions are specifically related to indications that are unapproved at the time of acquisition, on products that are already approved and commercialized in other indications.

We acquire product royalties in ways that can be tailored to the needs of our partners through a variety of structures:

•Third-party Royalties – Existing royalties on approved or late-stage development therapies with high commercial potential. A royalty is the contractual right to a percentage of top-line sales from a licensee’s use of a product, technology or intellectual property. The majority of our current portfolio consists of third-party royalties.

•Synthetic Royalties – Newly-created royalties on approved or late-stage development therapies with strong proof of concept and high commercial potential. A synthetic royalty is the contractual right to a percentage of top-line sales by the developer or marketer of a therapy in exchange for funding. A synthetic royalty may also include contingent milestone payments. We also fund ongoing R&D for biopharmaceutical companies in exchange for future royalties and milestones if the product or indication we are funding is approved.

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

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

Additionally, we may identify additional opportunities, platforms or technologies that leverage our capabilities such as our strategic alliance with MSCI Inc. (“MSCI”) to develop thematic life science indexes.

Background and Format of Presentation

We consummated an exchange offer on February 11, 2020 (the “Exchange Offer”) to facilitate our IPO. Through the Exchange Offer, investors which represented 82% of the aggregate limited partnership interests in the various partnerships (the “Legacy Investors Partnerships”) that owned Royalty Pharma Investments, an Irish unit trust (“Old RPI”) exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in RPI US Partners 2019, LP, a Delaware limited partnership, or RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”).

We operate and control the business affairs of Royalty Pharma Holdings Ltd (“RP Holdings”). We include RP Holdings and its subsidiaries in our condensed consolidated financial statements. RP Holdings is the sole owner of Royalty Pharma Investments 2019 ICAV, which is an Irish collective asset management vehicle and is the successor to Old RPI.

Following the Exchange Offer, we became the indirect owner of an 82% economic interest in Old RPI through our subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust. We are entitled to 82% of the economics of Old RPI’s wholly-owned subsidiary RPI Finance Trust, a Delaware statutory trust, and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”). The remaining 34% of RPCT is owned by the Legacy Investors Partnerships and Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), which is wholly-owned by Royalty Pharma Select, an Irish unit trust.

In 2022, we became the indirect owner of an 82% economic interest in Royalty Pharma Investments ICAV (“RPI ICAV”), which was previously owned directly by Old RPI.

Understanding Our Financial Reporting

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

The measurement of income from our financial royalty assets requires significant judgments and estimates, including management’s judgment in forecasting the expected future cash flows of the underlying royalties and the expected duration of the financial royalty asset. Our cash flow forecasts are updated each reporting period primarily using sell-side equity research analysts’ consensus sales estimates for each of the products in which we own royalties. We then calculate our expected royalty receipts by applying our royalty terms to these consensus sales forecasts. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly in the income statement as non-cash provision expense. If, in a subsequent period, there is an increase in expected cash flows or if actual cash flows are greater than cash flows previously expected, we reverse the provision expense previously recorded in part or in full by recording a non-cash credit to the provision.

As a result of the non-cash charges associated with applying the effective interest method accounting methodology to our financial royalty assets, our condensed consolidated income statement activity can be volatile and unpredictable. Small declines in sell-side equity research analysts’ consensus sales forecasts over a long time horizon can result in an immediate non-cash income statement expense recognition, even though the applicable cash inflows will not be realized for many years into the future. For example, in late 2014 we acquired the cystic fibrosis franchise and shortly after, declines in near-term sales forecasts of sell-side equity research analysts caused us to recognize non-cash provision expense in our condensed consolidated income statements. Over the course of 10 quarters, we continued to recognize non-cash provision expense as a result of these changes in forecasts, ultimately reaching a peak cumulative allowance of $1.30 billion by September 30, 2017. With the approval of the Vertex triple combination therapy, Trikafta, in October 2019, sell-side equity research analysts’ consensus sales forecasts increased to reflect the larger addressable market and the extension of the expected duration of the Trikafta royalty, resulting in the reversal of the remaining $1.10 billion cumulative allowance. The recognition of the associated non-cash provision income of $1.10 billion in 2019 was not tied to royalty receipts, but rather to the increase in sales forecasts. This example illustrates the volatility caused by our accounting model in our condensed consolidated income statements.

We believe there is no direct correlation between income from financial royalty assets and royalty receipts due to the nature of the accounting methodology applied for financial royalty assets. Further, income from financial royalty assets and the provision for changes in expected cash flows related to these financial royalty assets can be volatile and unpredictable.

Our operating performance is a function of our liquidity as our operations have historically been financed primarily with cash flows generated by our royalties. We use the cash generated by our existing royalties to fund investments in new royalties. Given the importance of cash flows and their predictability to management’s operation of the business, management uses total royalty receipts as a key measure of our operating performance. Total royalty receipts refer to the summation 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. Total royalty receipts are an important input for our non-GAAP liquidity measures. Management believes that analyzing our non-GAAP financial results alongside our GAAP financial results is critical for investors to understand management’s ability to execute on its strategy and the business’s future growth potential. Refer to the section titled “Liquidity and Capital Resources” for additional discussion of management’s use of non-GAAP measures as supplemental financial measures.

Portfolio Overview

Our portfolio consists of royalties on more than 35 marketed therapies and 11 development-stage product candidates. The therapies in our portfolio address therapeutic areas such as rare disease, cancer, neurology, infectious disease, hematology and diabetes, and are delivered to patients across both primary and specialty care settings. The table below includes royalty receipts for the third quarter and first nine months of 2023 and 2022 by product in order of contribution to total royalty receipts for the first nine months of 2023 (in thousands).


			Royalty Receipts
Royalties	Marketer(s)	Therapeutic Area	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
			2023		2022		2023		2022
Cystic fibrosis franchise (1)	Vertex	Rare disease	$	237,902	$	207,882	$	660,673	$	591,733
Zavzpret milestone (2)	Pfizer	Neurology	—		—		475,000		—
Tysabri	Biogen	Neurology	86,704		91,252		256,932		281,819
Imbruvica	AbbVie, Johnson & Johnson	Cancer	62,174		74,391		193,895		241,943
Trelegy	GSK	Respiratory	58,240		42,720		143,111		42,720
Promacta	Novartis	Hematology	54,122		50,067		142,406		132,679
Xtandi	Pfizer, Astellas	Cancer	47,119		45,717		131,366		141,100
Tremfya	Johnson & Johnson	Immunology	27,194		21,409		81,117		68,062
Cabometyx/Cometriq	Exelixis, Ipsen, Takeda	Cancer	17,294		14,612		48,234		40,523
Evrysdi	Roche	Rare disease	15,749		9,602		46,318		26,933
Farxiga/Onglyza	AstraZeneca	Diabetes	10,478		11,522		32,274		32,336
Prevymis	Merck & Co.	Infectious disease	15,343		11,052		29,157		25,174
Trodelvy	Gilead	Cancer	11,058		6,496		28,137		17,428
Spinraza	Biogen	Neurology	15,253		—		27,815		—
Erleada	Johnson & Johnson	Cancer	8,959		5,586		22,390		15,305
Orladeyo	BioCryst	Rare disease	7,776		6,265		21,130		15,456
Crysvita	Ultragenyx, Kyowa Kirin	Rare disease	4,679		5,241		15,696		14,887
Nurtec ODT/Biohaven payment (3)	Pfizer	Neurology	6,218		20,459		15,659		59,549
Emgality	Lilly	Neurology	4,903		4,657		14,350		13,845
Other products (4)			46,241		74,974		211,784		286,611
Total royalty receipts			$	737,406	$	703,904	$	2,597,444	$	2,048,103

(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.

(2)Related to a $475.0 million milestone payment that we received in the first quarter of 2023 following the U.S. Food and Drug Administration (“FDA”) approval of Zavzpret.

(3)In 2022, amounts include the $15.6 million quarterly redemption payments related to the Series A Biohaven Preferred Shares (presented as Proceeds from available for sale debt securities on the condensed consolidated statements of cash flows). The Series A Biohaven Preferred Shares were fully redeemed in October 2022 following Pfizer’s acquisition of Biohaven. The remaining amounts are related to royalty receipts from Nurtec ODT.

(4)Other products primarily include royalty receipts on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion I, for which receipts are presented as Distributions from equity method investees in the operating section of the condensed consolidated statements of cash flows), Cimzia, Entyvio, IDHIFA, Januvia, Janumet, Other DPP-IVs, Lexiscan, Nesina, and Soliqua. Other products also include distributions from the Legacy SLP Interest (defined below) which are presented as Distributions from equity method investees in both the investing and operating section of the condensed consolidated statements of cash flows. In the first nine months of 2023, we received $34.8 million from our joint venture investee, Avillion II, for our pro rata portion of the $80 million fee paid by AstraZeneca to exercise the option to commercialize Airsupra in the United States (presented as Distributions from equity method investees in the investing section of the condensed consolidated statements of cash flows).

Key Developments and Upcoming Events Relating to Our Portfolio

Recent key developments related to products in our portfolio are discussed below:

Commercial Products

•Tysabri. In September 2023, Sandoz announced that the European Commission granted marketing authorization for biosimilar Tyruko for relapsing forms of multiple sclerosis. This follows FDA approval of biosimilar Tyruko in August 2023.

•Evrysdi. In August 2023, Roche announced that the European Commission approved Evrysdi for babies under two months old with spinal muscular atrophy.

•Cabometyx. In August 2023, Exelixis and Ipsen announced that Cabometyx in combination with atezolizumab compared with a second novel hormonal therapy in patients with metastatic castration-resistant prostate cancer in the Phase 3 CONTACT-02 trial demonstrated a statistically significant improvement in progression-free survival (PFS) at the primary analysis. At a prespecified interim analysis for the primary endpoint of overall survival (OS) that occurred at the same time as the primary analysis of PFS, a trend toward improvement of OS was observed. The trial will continue to the next analysis of OS.

•Trodelvy. In July 2023, Gilead announced the European Commission approved Trodelvy as a monotherapy for the treatment of adult patients with unresectable or metastatic hormone receptor (HR)-positive, HER2-negative breast cancer.

•Cystic fibrosis franchise. In July 2023, Vertex announced the European Commission approved the label extension of Orkambi for the treatment of children with cystic fibrosis ages 1 to less than 2 years old.

Development-Stage Product Candidates

•Trontinemab. In October 2023, at the Clinical Trials on Alzheimer’s Disease medical conference, Roche presented interim results of a phase 1b/2a study for trontinemab, a novel Brainshuttle Amyloid β antibody for the treatment of Alzheimer’s disease. This study demonstrated that trontinemab rapidly reduces amyloid plaque reduction in patients with Alzheimer’s disease.

•KarXT. In September 2023, Karuna Therapeutics announced the submission of its New Drug Application to the FDA for KarXT for the treatment of schizophrenia.

•Aficamten. In September 2023, Cytokinetics announced the start of ACACIA-HCM, a Phase 3 clinical trial of aficamten in patients with symptomatic non-obstructive hypertrophic cardiomyopathy (nHCM). The initiation of ACACIA-HCM triggered a $50 million milestone payment to Cytokinetics in September 2023.

Understanding Our Results of Operations

We report non-controlling interests related to the portion of ownership interests of consolidated subsidiaries not owned by us and which are attributable to:

1. The Legacy Investors Partnerships’ ownership of approximately 18% of Old RPI and RPI ICAV. The value of this non-controlling interest will decline over time as the assets in Old RPI and RPI ICAV expire.

2. A de minimis interest in RPCT held by RPSFT. The value of this non-controlling interest was substantially eliminated as of December 31, 2022.

The Legacy Investors Partnership together with RPSFT are referred to as the “legacy non-controlling interests.” The legacy non-controlling interests are the only historical non-controlling interests that existed prior to our IPO.

Additionally, following the consummation of our IPO, we also report non-controlling interests related to:

3. The Continuing Investors Partnerships’ ownership in RP Holdings through their ownership of RP Holdings Class B Interests was approximately 25% as of September 30, 2023. RP Holdings Class B Interests are exchangeable into Class A ordinary shares. As the Continuing Investors Partnerships conduct exchanges, the Continuing Investors Partnerships’ ownership in RP Holdings decreases and the value of this non-controlling interest decreases. Additionally, RP Holdings began to retire RP Holdings Class A Interests held by us in connection with our repurchase of Class A ordinary shares. As RP Holdings retires RP Holding Class A Interests, our ownership in RP Holdings decreases and the value of this non-controlling interest increases.

The Continuing Investors Partnerships are referred to as the “continuing non-controlling interests.”

4. RPI EPA Holdings, LP’s (“EPA Holdings”) ownership of RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest”).

EPA Holdings is entitled to receive equity distributions through its RP Holdings Class C Special Interest (“Equity Performance Awards”). Equity Performance Awards owed to EPA Holdings will be recognized as an equity transaction when the obligation becomes due and will impact the income allocated to non-controlling interest related to the RP Holdings Class C Special Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests that will be exchanged upon issuance for Class A ordinary shares. EPA Holdings may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. We do not currently expect any material Equity Performance Awards to be payable until certain performance conditions are met, which we do not expect to occur until the mid-2020s.

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

Total income and other revenues

Total income and other revenues is primarily comprised of interest income from our financial royalty assets, royalty income generally arising from successful commercialization of products developed through R&D funding arrangements, and a declining contribution of royalty revenue from our intangible royalty assets for which patent rights have materially expired. Most of our royalties are classified as financial assets as our ownership rights are generally protective and passive in nature. In instances in which we acquire a royalty that does include more substantial rights or ownership of the underlying intellectual property, we classify such royalties as intangible assets.

We recognize interest income related to our financial royalty assets. Royalty revenue solely relates to our intangible royalty assets from our DPP-IV products. Our royalties on DPP-IV products have substantially ended in the first quarter of 2022 and we do not expect any material revenue in the future periods. For the third quarter of 2023 and 2022 and the first nine months of 2023 and 2022, the royalty payors that accounted for greater than 10% of our total income and other revenues are shown in the table below:



		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Royalty Payor	Royalty	2023		2022		2023		2022
Vertex	Cystic fibrosis franchise	41	%	35	%	36	%	36	%

AbbVie	Imbruvica	*		13	%	*		15	%

*Represents less than 10%.

Income from financial royalty assets

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

Variables affecting the recognition of interest income from financial royalty assets under the prospective effective interest method include any one of the following: (1) additional acquisitions, (2) changes in expected cash flows of the underlying pharmaceutical products, derived primarily from sell-side equity research analysts’ consensus sales forecasts, (3) regulatory approval of additional indications which leads to new cash flow streams, (4) changes to the estimated duration of the royalty (e.g., patent expiration date) and (5) changes in amounts and timing of projected royalty receipts and milestone payments. Our financial royalty assets are directly linked to sales of underlying pharmaceutical products whose life cycle typically peaks at a point in time, followed frequently by declining sales trends due to the entry of generic competition, resulting in natural declines in the asset balance and periodic interest income over the life of our royalties. The recognition of interest income from royalties requires management to make estimates and assumptions around many factors, including those impacting the variables noted above.

Revenue from intangible royalty assets

Revenue from intangible royalty assets is derived from sales of Januvia, Janumet and other DPP-IV products by our licensees. Our royalties on Januvia and Janumet expired in the first quarter of 2022. Our royalties on other DPP-IV products have also substantially ended and we do not expect any material revenue from the other DPP-IV products in the future periods.

Other royalty income

Other royalty income primarily includes income from financial royalty assets that have been fully amortized and income from synthetic royalties and milestones arising out of R&D funding arrangements. Occasionally, a royalty asset may be amortized on an accelerated basis due to collectability concerns, which, if resolved, may result in future cash collections when no financial royalty asset remains. Similarly, we may continue to collect royalties on a fully amortized financial royalty asset beyond the estimated duration. In each scenario where a financial royalty asset has been fully amortized, income from such royalty is recognized as Other royalty income. Other royalty income also includes income from royalties that are recorded at fair value on our condensed consolidated balance sheets.

Provision for changes in expected cash flows from financial royalty assets

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

•non-cash expense or income related to the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows; and

•non-cash expense or income related to the provision for current expected credit losses, which reflects the activity for the period, primarily due to new financial royalty assets with limited protective rights and changes to cash flow estimates for financial royalty assets with limited protective rights.

As discussed above, income is accreted on our financial royalty assets using the effective interest method. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly in the income statement through the line item Provision for changes in expected cash flows from financial royalty assets. If, in a subsequent period, there is an increase in expected cash flows or if actual cash flows are greater than cash flows previously expected, we reduce the cumulative allowance previously established for a financial royalty asset for the incremental increase in the present value of cash flows expected to be collected. This results in provision income (i.e., a credit to the provision).

The same variables and management’s estimates affecting the recognition of interest income on our financial royalty assets noted above also directly impact the provision.

R&D funding expense

R&D funding expense consists of payments that we have made to counterparties to acquire royalties or milestones on product candidates. It includes development-stage funding payments that are made upfront or upon pre-approval milestones, and development-stage funding payments that are made over time as the related product candidates undergo clinical trials with our counterparties.

General and administrative expenses

General and administrative (“G&A”) expenses include primarily Operating and Personnel Payments (defined below), legal expenses, other expenses for professional services and share-based compensation. The expenses incurred in respect of Operating and Personnel Payments are expected to comprise the most significant component of G&A expenses on an ongoing basis.

Under the Management Agreement, we pay a quarterly operating and personnel payment to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5% of the cash receipts from royalty investments, which is Adjusted Cash Receipts (a non-GAAP measure as further discussed in the section titled “Liquidity and Capital Resources”), for such quarter and 0.25% of the value of our security investments under GAAP as of the end of such quarter.

The operating and personnel payments for Old RPI, an obligation of the Legacy Investors Partnerships as a non-controlling interest in Old RPI and for which the expense is reflected in G&A expenses, are calculated as the greater of $1 million per quarter and 0.3125% of royalties from Royalty Investments (as defined in the limited partnership agreements of the Legacy Investors Partnerships) during the previous twelve calendar months.

Equity in losses/(earnings) of equity method investees

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

1. Legacy SLP Interest. In connection with the Exchange Offer, we acquired an equity method investment from the Continuing Investors Partnerships in the form of a special limited partnership interest in the Legacy Investors Partnerships (the “Legacy SLP Interest”) in exchange for issuing shares in our subsidiary. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and a performance income allocation on a similar basis. As the Legacy Investors Partnerships no longer participate in investment opportunities, the value of the Legacy SLP Interest is expected to decline over time.

2. The Avillion Entities. The Avillion Entities (as defined below) partner with global biopharmaceutical companies to perform R&D in exchange for success-based milestones or royalties if products are commercialized. Our investments in Avillion Financing I, LP (“Avillion I”) and BAv Financing II, LP (“Avillion II” and together with Avillion I, the “Avillion Entities”) are accounted for using the equity method.

Other income, net

Other income, net primarily includes the changes in fair market value of our equity securities, derivative instruments and available for sale debt securities, including related forwards and funding commitments, and interest income.

Net income attributable to non-controlling interests

The net income attributable to non-controlling interests includes income attributable to the legacy non-controlling interests and the continuing non-controlling interests. As the Legacy Investors Partnerships and RPSFT no longer participate in investment opportunities, the related net income attributable to the legacy non-controlling interests is expected to decline over time as the assets held by RPCT, Old RPI and RPI ICAV mature.

Net income attributable to the continuing non-controlling interests includes RP Holdings Class B Interests held by the Continuing Investors Partnerships and will include net income attributable to the RP Holdings Class C Special Interest held by EPA Holdings once certain performance conditions have been met. Future net income attributable to the non-controlling interest related to RP Holdings Class B Interests held by the Continuing Investors Partnerships will decline over time if the investors who indirectly own RP Holdings Class B Interests conduct exchanges for our Class A ordinary shares.

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

Results of Operations

The comparison of our historical results of operations for the third quarter and first nine months of 2023 and 2022 is as follows (in thousands):


	For the Three Months Ended September 30,				Change				For the Nine Months Ended September 30,				Change
	2023		2022		$		%		2023		2022		$		%
Income and other revenues
Income from financial royalty assets	$	508,657	$	551,682	$	(43,025)	(7.8)	%	$	1,674,689	$	1,578,555	$	96,134	6.1	%
Revenue from intangible royalty assets	252		1,073		(821)		(76.5)	%	597		37,196		(36,599)		(98.4)	%
Other royalty income	27,404		20,708		6,696		32.3	%	83,200		55,716		27,484		49.3	%
Total income and other revenues	536,313		573,463		(37,150)		(6.5)	%	1,758,486		1,671,467		87,019		5.2	%
Operating expenses
Provision for changes in expected cash flows from financial royalty assets	277,137		305,061		(27,924)		(9.2)	%	637,169		595,396		41,773		7.0	%
Research and development funding expense	50,500		25,500		25,000		98.0	%	51,500		126,606		(75,106)		(59.3)	%
Amortization of intangible assets	—		—		—		n/a		—		5,670		(5,670)		(100.0)	%
General and administrative expenses	57,234		50,692		6,542		12.9	%	190,563		154,075		36,488		23.7	%

Total operating expenses, net	384,871		381,253		3,618		0.9	%	879,232		881,747		(2,515)		(0.3)	%
Operating income	151,442		192,210		(40,768)		(21.2)	%	879,254		789,720		89,534		11.3	%
Other expense/(income)
Equity in losses/(earnings) of equity method investees	5,222		3,251		1,971		60.6	%	(28,614)		2,117		(30,731)		*
Interest expense	46,033		46,977		(944)		(2.0)	%	139,932		141,006		(1,074)		(0.8)	%

Other income, net	(21,890)		(78,432)		56,542		(72.1)	%	(214,566)		(193,497)		(21,069)		10.9	%
Total other expense/(income), net	29,365		(28,204)		57,569		*		(103,248)		(50,374)		(52,874)		105.0	%
Consolidated net income	122,077		220,414		(98,337)		(44.6)	%	982,502		840,094		142,408		17.0	%
Net income attributable to non-controlling interests	49,963		77,763		(27,800)		(35.7)	%	342,008		341,178		830		0.2	%
Net income attributable to Royalty Pharma plc	$	72,114	$	142,651	$	(70,537)	(49.4)	%	$	640,494	$	498,916	$	141,578	28.4	%

*Percentage change is not meaningful.

Total income and other revenues

Income from financial royalty assets

Income from financial royalty assets by top products for the third quarter and first nine months of 2023 and 2022 is as follows, in order of contribution to income for the first nine months of 2023 (in thousands):


	For the Three Months Ended September 30,				Change				For the Nine Months Ended September 30,				Change
	2023		2022		$		%		2023		2022		$		%
Cystic fibrosis franchise	$	218,938	$	203,383	$	15,555	7.6	%	$	631,813	$	599,504	$	32,309	5.4	%
Zavzpret	—		—		—		n/a		153,649		—		153,649		n/a
Imbruvica	38,463		76,251		(37,788)		(49.6)	%	136,785		244,515		(107,730)		(44.1)	%
Tysabri	42,682		54,029		(11,347)		(21.0)	%	130,658		157,953		(27,295)		(17.3)	%
Tremfya	36,937		30,493		6,444		21.1	%	114,422		72,309		42,113		58.2	%
Trelegy	32,234		25,582		6,652		26.0	%	96,571		25,582		70,989		*
Other products	139,403		161,944		(22,541)		(13.9)	%	410,791		478,692		(67,901)		(14.2)	%
Total income from financial royalty assets	$	508,657	$	551,682	$	(43,025)	(7.8)	%	$	1,674,689	$	1,578,555	$	96,134	6.1	%

*Percentage change is not meaningful.

Three months ended September 30, 2023 and 2022

Income from financial royalty assets decreased by $43.0 million, or 7.8%, in the third quarter of 2023 compared to the third quarter of 2022, primarily due to declines in sell-side equity research analysts’ consensus sales forecasts for Imbruvica and Tysabri. The decrease was partially offset by the strong performances of the cystic fibrosis franchise, Trelegy and Tremfya as well as income related to recently acquired assets, such as Spinraza, which was acquired in the first quarter of 2023.

Nine months ended September 30, 2023 and 2022

Income from financial royalty assets increased by $96.1 million, or 6.1%, in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by the FDA approval of Pfizer’s Zavzpret in March 2023. This FDA approval resulted in our receipt of a $475.0 million milestone payment and $153.6 million of interest income recognized in the first quarter of 2023. The difference between the milestone payment and interest income is attributable to the derecognition of the related financial royalty asset and the settlement of the related derivative instrument. Income from recently acquired assets, primarily Trelegy, contributed to the increase, partially offset by declines in sell-side equity research analysts’ consensus sales forecasts for Imbruvica and Tysabri.

Revenue from intangible royalty assets

Three months ended September 30, 2023 and 2022

Revenue from intangible royalty assets was relatively flat in the third quarter of 2023 compared to the third quarter of 2022.

Nine months ended September 30, 2023 and 2022

Revenue from intangible royalty assets decreased by $36.6 million, or 98.4%, in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by the maturity of our royalties on Januvia and Janumet in the first quarter of 2022.

Other royalty income

Three months ended September 30, 2023 and 2022

Other royalty income increased by $6.7 million, or 32.3%, in the third quarter of 2023 compared to the third quarter of 2022, primarily driven by growth in the ongoing product launch of Trodelvy that arose from our R&D funding agreement with Immunomedics.

Nine months ended September 30, 2023 and 2022

Other royalty income increased by $27.5 million, or 49.3% in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by income from fully amortized financial royalty assets which was reflected as Income from financial royalty assets in the first nine months of 2022 and growth of Trodelvy.

Provision for changes in expected cash flows from financial royalty assets

Provision activity is a combination of income and expense items. The provision breakdown by royalty asset (exclusive of the provision for current expected credit losses) based on the largest contributors to each period’s provision income or expense (in thousands) is as follows:


	For the Three Months Ended September 30, 2023			For the Three Months Ended September 30, 2022
Royalty			Royalty
Tysabri	$	145,004	Imbruvica	$	133,750
Xtandi	52,705		Tysabri	119,691
Tremfya	45,873		Xtandi	73,063
Tazverik	6,606		Tazverik	46,804
Crysvita	(11,467)		Cystic fibrosis franchise	(54,609)
Other	8,504		Other	41,976
Total provision, exclusive of provision for credit losses	247,225		Total provision, exclusive of provision for credit losses	360,675
Provision for current expected credit losses	29,912		Provision for current expected credit losses	(55,614)
Total provision	$	277,137	Total provision	$	305,061


	For the Nine Months Ended September 30, 2023			For the Nine Months Ended September 30, 2022
Royalty			Royalty
Imbruvica	$	231,453	Imbruvica	$	314,044
Tremfya	151,563		Tazverik	124,975
Tysabri	143,998		Tysabri	103,073
Xtandi	60,536		Xtandi	54,116
Evrysdi	(46,077)		Cystic fibrosis franchise	(48,636)
Other	64,291		Other	166,397
Total provision, exclusive of provision for credit losses	605,764		Total provision, exclusive of provision for credit losses	713,969
Provision for current expected credit losses	31,405		Provision for current expected credit losses	(118,573)
Total provision	$	637,169	Total provision	$	595,396

Three months ended September 30, 2023 and 2022

In the third quarter of 2023, we recorded provision expense of $277.1 million, comprised of $247.2 million in provision expense for changes in expected cash flows and $29.9 million in provision expense for current expected credit losses. We recorded provision expense for changes in expected cash flows primarily related to Tysabri, Xtandi and Tremfya due to declines in sell-side equity research analysts’ consensus sales forecasts. The provision expense for credit losses was primarily driven by the additions of Skytrofa and Adstiladrin to our portfolio of financial royalty assets with limited protective rights.

In the third quarter of 2022, we recorded provision expense of $305.1 million, comprised of $360.7 million in provision expense for changes in expected cash flows and $55.6 million in provision income for current expected credit losses. We recorded provision expense for changes in expected cash flows primarily related to Imbruvica, Tysabri, Xtandi and Tazverik due to significant declines in sell-side equity research analysts’ consensus sales forecasts, which was partially offset by provision income for the cystic fibrosis franchise due to an increase in sell-side equity research analysts’ consensus sales forecasts. The provision income for credit losses was primarily driven by a change in the payor for a particular product.

Nine months ended September 30, 2023 and 2022

In the first nine months of 2023, we recorded provision expense of $637.2 million, comprised of $605.8 million in provision expense for changes in expected cash flows and $31.4 million in provision expense for current expected credit losses. We recorded provision expense for changes in expected cash flows for Imbruvica, Tremfya and Tysabri primarily due to declines in sell-side equity research analysts’ consensus sales forecasts. The provision expense for credit losses was primarily driven by the additions of Skytrofa and Adstiladrin to our portfolio of financial royalty assets with limited protective rights.

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

R&D funding expense

Three months ended September 30, 2023 and 2022

R&D funding expense increased by $25.0 million, or 98.0%, in the third quarter of 2023 as compared to the third quarter of 2022. In the third quarter of 2023, we recognized R&D funding expense of $50.0 million related to a clinical milestone payment that was triggered under the agreement with Cytokinetics, Incorporated (“Cytokinetics”). In the third quarter of 2022, we recognized R&D funding expense of $25.0 million to acquire a royalty on a development-stage product from Theravance Biopharma, Inc (“Theravance”).

Nine months ended September 30, 2023 and 2022

R&D funding expense decreased by $75.1 million, or 59.3%, for the first nine months of 2023 as compared to the first nine months of 2022. In the first nine months of 2023, we recognized R&D funding expense of $50.0 million related to a clinical milestone payment that was triggered under the agreement with Cytokinetics. In the first nine months of 2022, we recognized R&D funding expense of $125.0 million to acquire royalties and milestones on development-stage products from Cytokinetics and Theravance.

G&A expenses

Three months ended September 30, 2023 and 2022

G&A expenses increased by $6.5 million, or 12.9%, in the third quarter of 2023 as compared to the third quarter of 2022, primarily driven by higher Operating and Personnel Payments due to increased cash receipts from royalty investments.

Nine months ended September 30, 2023 and 2022

G&A expenses increased by $36.5 million, or 23.7%, in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by higher Operating and Personnel Payments due to increased cash receipts from royalty investments, specifically the $475.0 million Zavzpret milestone payment received in the first quarter of 2023.

Equity in losses/(earnings) of equity method investees

Three months ended September 30, 2023 and 2022

Equity in losses of equity method investees was relatively flat in the third quarter of 2023 as compared to the third quarter of 2022.

Nine months ended September 30, 2023 and 2022

Equity in earnings of equity method investees was $28.6 million in the first nine months of 2023 compared to equity in losses of equity method investees of $2.1 million in the first nine months of 2022, primarily driven by an income allocation from the Avillion Entities of $28.0 million in the first nine months of 2023 as compared to a loss allocation of $9.3 million in the first nine months of 2022. The income allocation in the first nine months of 2023 from the Avillion Entities was primarily driven by an $80 million payment the Avillion Entities received related to AstraZeneca’s election to exercise an option to commercialize Airsupra in the United States.

Interest expense

Three months ended September 30, 2023 and 2022

Interest expense was relatively flat in the third quarter of 2023 as compared to the third quarter of 2022. In September 2023, we repaid $1.0 billion of senior unsecured notes. The weighted average coupon rate on our senior unsecured notes outstanding as of September 30, 2023 and 2022 was 2.48% and 2.24%, respectively.

Nine months ended September 30, 2023 and 2022

Interest expense was relatively flat in the first nine months of 2023 compared to the first nine months of 2022.

Refer to the “Liquidity and Capital Resources” section for additional discussion of debt financing arrangements.

Other income, net

Three months ended September 30, 2023 and 2022

Other income, net of $21.9 million in the third quarter of 2023 was primarily comprised of $23.4 million of interest income earned on cash held in banks and money market funds.

Other income, net of $78.4 million in the third quarter of 2022 was primarily comprised of $44.2 million of gains on available for sale debt securities and $25.8 million of gains on the milestone acceleration option derivative financial instrument, primarily driven by the estimated high probability of a change of control event for Biohaven.

Nine months ended September 30, 2023 and 2022

Other income, net of $214.6 million in the first nine months of 2023 was primarily comprised of $122.5 million of gains on available for sale debt securities, $65.8 million of interest income earned on cash held in banks and money market funds and $32.0 million of gains on equity securities. The gains on available for sale debt securities were primarily driven by the change in fair value of the Development Funding Bonds.

Other income, net of $193.5 million in the first nine months of 2022 was primarily comprised of $98.0 million of gains on available for sale debt securities and $97.6 million of gains on the milestone acceleration option derivative financial instrument, both driven by the estimated high probability of a change of control event for Biohaven.

Net income attributable to non-controlling interests

Three months ended September 30, 2023 and 2022

Net income attributable to the Legacy Investors Partnerships increased by $4.2 million in the third quarter of 2023 as compared to the third quarter of 2022, primarily driven by higher net income attributable to Old RPI and RPI ICAV.

Net income attributable to the Continuing Investors Partnerships decreased by $30.3 million in the third quarter of 2023 as compared to the third quarter of 2022, primarily driven by lower net income attributable to RP Holdings in the third quarter of 2023 and a decline in the Continuing Investors Partnerships’ ownership of RP Holdings resulting from the exchanges by investors in the Continuing Investors Partnerships who indirectly own RP Holdings Class B Interests for our Class A ordinary shares.

Net income attributable to RPSFT decreased by $1.7 million in the third quarter of 2023 as compared to the third quarter of 2022 in line with our expectation as the assets held by RPCT mature.

Nine months ended September 30, 2023 and 2022

Net income attributable to the Legacy Investors Partnerships decreased by $21.6 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by lower net income attributable to Old RPI.

Net income attributable to the Continuing Investors Partnerships increased by $31.1 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by higher net income attributable to RP Holdings as a result of increased interest income related to the FDA approval of Zavzpret in March 2023. This was partially offset by exchanges by investors in the Continuing Investors Partnerships who indirectly own RP Holdings Class B Interests for our Class A ordinary shares, which resulted in a decline in the Continuing Investors Partnerships’ ownership of RP Holdings.

Net income attributable to RPSFT decreased by $8.6 million in the first nine months of 2023 compared to the first nine months of 2022 in line with our expectations as the underlying assets mature.

Investments Overview

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

During the first nine months of 2023, we invested $1.2 billion in royalties, milestones and related assets. While volatility exists in the total amount of our new acquisitions on a year-to-year basis due to the unpredictable timing of new investment opportunities, we have consistently deployed significant amounts of cash when measured over multi-year periods. Our approach is rooted in a highly disciplined evaluation process that is not dictated by a minimum annual investment threshold.

Summary of Royalty Acquisition Activities

•In October 2023, we acquired additional royalties on Roche’s Evrysdi, an approved product for the treatment of spinal muscular atrophy, from PTC Therapeutics, Inc. (“PTC”) for an upfront payment of $1 billion. Until December 31, 2025, PTC has an option to sell its remaining royalties for $500 million less royalties received in five equal tranches. If PTC exercises its options for fewer than three tranches, we have an option to acquire half of PTC’s remaining royalties for $250 million less royalties received until March 31, 2026.

•In September 2023, we acquired a royalty interest in Skytrofa from Ascendis Pharma A/S for an upfront payment of $150 million. Skytrofa is approved for the treatment of pediatric patients with growth failure due to inadequate secretion of endogenous growth hormone.

•In August 2023, we acquired a royalty interest in Adstiladrin from Ferring Pharmaceuticals for an upfront payment of $300 million and a $200 million additional milestone payment contingent on certain manufacturing goals. Adstiladrin is approved for the treatment of adult patients with high-risk Bacillus Calmette-Guérin unresponsive non-muscle invasive bladder cancer with carcinoma in situ with or without papillary tumors.

•In June 2023, we acquired an incremental royalty interest in Erleada from the Regents of the University of California for an upfront payment of $59 million. Erleada is approved for the treatment of prostate cancer and is marketed by Johnson & Johnson.

•In March 2023, we acquired a royalty interest in KarXT from PureTech Health plc for an upfront payment of $100 million and up to $400 million in milestone payments contingent on the achievement of certain regulatory and commercial milestones. KarXT is in Phase 3 development by Karuna Therapeutics for the treatment of psychiatric and neurological conditions, including schizophrenia as a monotherapy and adjunctive therapy and psychosis in Alzheimer’s disease.

•In January 2023, we acquired royalty interests in Spinraza and pelacarsen from Ionis Pharmaceuticals, Inc. for an upfront payment of $500 million and committed up to $625 million in additional payments contingent upon the achievement of certain pelacarsen milestones. Spinraza is approved for the treatment of spinal muscular atrophy and pelacarsen is in Phase 3 development by Novartis for the treatment of cardiovascular disease.

•In November 2022, we acquired a royalty interest in olpasiran from Arrowhead Pharmaceuticals for an upfront payment of $250 million and certain contingent clinical, regulatory, and sales-based milestones of up to $160 million. Olpasiran is currently in Phase 3 development for the treatment of atherosclerotic cardiovascular disease and is licensed to Amgen.

•In October 2022, we entered into a R&D funding agreement with MSD International Business GmbH (“Merck”) to co-fund the development of MK-8189, an investigational oral PDE10A inhibitor currently being evaluated in a Phase 2b study for the treatment of schizophrenia. We funded $50 million upon closing, and if Merck decides to proceed with Phase 3, we have the option to fund up to an additional $375 million. In exchange, we are eligible to receive milestone payments associated with certain regulatory approvals as well as royalties on annual worldwide sales of any approved product.

•In July 2022, we acquired all of the equity interests in Theravance Respiratory Company, LLC from Theravance and Innoviva, Inc. which entitles us to the right to receive royalties on the annual worldwide sales of Trelegy for an upfront payment of $1.31 billion and up to $300 million in additional payments contingent upon the achievement of certain sales milestones. Additionally, we agreed to provide Theravance $25 million in upfront funding and a potential $15 million regulatory milestone payment to support the clinical development of ampreloxetine.

•In June 2022, we acquired an ex-U.S. royalty interest in Gavreto from Blueprint Medicines for an upfront payment of $175 million and contingent sales-based milestones up to $165 million. During the fourth quarter of 2022, we impaired our financial royalty asset related to Gavreto and recorded a non-cash impairment charge of $182.1 million.

•In April 2022, we acquired common stock and a revenue participation right from ApiJect Holdings, Inc. for $50 million.

•In January 2022, we acquired a royalty interest in aficamten, a development-stage product for obstructive hypertrophic cardiomyopathy (“oHCM”), for an upfront payment of $50 million and two additional contingent $50 million payments, which are triggered upon the initiation of potential pivotal clinical trials for oHCM and nHCM, respectively. In February 2022, one of the $50 million contingent milestone payments was triggered following Cytokinetics’ announcement that it initiated the clinical trial for oHCM. In September 2023, Cytokinetics announced the start of ACACIA-HCM, a Phase 3 clinical trial of aficamten in patients with symptomatic nHCM. The initiation of ACACIA-HCM triggered a $50 million milestone payment to Cytokinetics in September 2023. Additionally, we entered into a funding agreement to provide Cytokinetics long-term capital of up to $300 million (“Cytokinetics Commercial Launch Funding”) to support further development of aficamten and potential commercialization of omecamtiv mecarbil, both development-stage products. The Cytokinetics Commercial Launch Funding is available in five tranches, including an initial tranche of $50 million that was funded upon closing. In June 2022, we amended the funding agreement to increase the required draw amount and further amended the funding agreement in December 2022 to extend the draw periods and increase the repayment terms of the second and third tranche. Both tranches two and three became unavailable for draw due to the regulatory milestones not being met by March 31, 2023.

Liquidity and Capital Resources

Overview

Our primary source of liquidity is cash provided by operations. For the first nine months of 2023 and 2022, we generated $2.2 billion and $1.6 billion, respectively, in Net cash provided by operating activities. We believe that our existing capital resources, cash provided by operating activities and access to our undrawn Revolving Credit Facility (defined below) will continue to allow us to meet our operating and working capital requirements, to fund planned strategic acquisitions and R&D funding arrangements, and to meet our debt service obligations for the foreseeable future. We have historically operated at a low level of fixed operating costs. Our primary cash operating expenses, other than R&D funding commitments, include interest expense, our Operating and Personnel Payments, and legal and professional fees.

As of September 30, 2023, our cash and cash equivalents totaled $936.4 million. We did not hold any marketable securities as of September 30, 2023. As of December 31, 2022, our cash and cash equivalents and marketable securities totaled $1.7 billion and $24.4 million, respectively. We intend to fund short-term and long-term financial obligations as they mature through cash and cash equivalents, sales of marketable securities, future cash flows from operations or the issuance of additional debt. Our ability to generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the sales of the underlying pharmaceutical products in which we hold royalties, deterioration in our key financial ratios or credit ratings, or other material unfavorable changes in business conditions. Currently, we believe that we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives.

We have access to substantial sources of funds in the capital markets and we may, from time to time, seek additional capital through a combination of additional debt or equity financings. In September 2023, we repaid $1.0 billion of senior unsecured notes upon maturity. As of September 30, 2023 and December 31, 2022, the par values of our total outstanding borrowings were $6.3 billion and $7.3 billion, respectively. Additionally, we have a Revolving Credit Facility which provides for borrowing capacity of up to $1.5 billion. In October 2023, we drew $350 million on the Revolving Credit Facility, resulting in a remaining borrowing capacity of $1.15 billion under the Revolving Credit Facility. A summary of our borrowing activities, balances and compliance with certain debt covenants under various financing arrangements is included in Note 9–Borrowings of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Our ability to satisfy our working capital needs, debt service and other obligations, and to comply with the financial covenants under our financing agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.

Cash Flows

The following table and analysis of cash flow changes presents a summary of our cash flow activity for the first nine months of 2023 and 2022 (in thousands):


	For the Nine Months Ended September 30,
	2023		2022		Change
Cash provided by (used in):
Operating activities	$	2,215,174	$	1,574,049	$	641,125
Investing activities	(1,072,617)		(1,444,163)		371,546
Financing activities	(1,916,860)		(679,306)		(1,237,554)

Analysis of Cash Flow Changes

Operating Activities

Cash provided by operating activities increased by $641.1 million in the first nine months of 2023 compared to the first nine months of 2022, driven by an increase in cash collections from financial royalty assets of $610.2 million, including a $475.0 million milestone payment related to Zavzpret, and lower development-stage funding payments in the first nine months of 2023. The increase was partially offset by lower cash collections from intangible assets of $71.3 million, as our royalty receipts on Januvia, Janumet and other DPP-IVs substantially ended in the second quarter of 2022, and higher payments for operating and professional costs.

Investing Activities

Cash used in investing activities decreased by $371.5 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by a $378.1 million decrease in cash used for acquisitions of financial royalty assets and a decrease of $346.9 million from purchases of and redemptions from available for sale securities in 2022 that did not occur in 2023. Lower net cash provided by marketable securities of $417.4 million partially offset the decrease in cash used in investing activities in the first nine months of 2023 compared to the first nine months of 2022.

Financing Activities

Cash used in financing activities increased by $1.2 billion in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by $1.0 billion in debt repayment and $274.6 million in repurchases of Class A ordinary shares. The increase was partially offset by lower distributions of royalty receipts to legacy non-controlling interests as royalties jointly owned by the Legacy Investors Partnerships and RPSFT are maturing.

Sources of Capital

Our business model is different from that of traditional operating companies in the biopharmaceutical industry. We use the cash generated by existing royalties to fund investments in new royalties and believe that each of our non-GAAP measures represent sources of capital that are critical for investors to understand our business and to evaluate management’s ability to execute on our strategy. Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow are each presented as non-GAAP liquidity measures that are supplemental to our GAAP measures.

Adjusted Cash Receipts and Adjusted Cash Flow reflect management’s ability to successfully operate the business by generating capital to fund investments in royalty-generating assets, debt repayments, dividends and other discretionary investments. Our non-GAAP measures exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. In each case, because our operating performance is a function of our liquidity, the non-GAAP measures used by management are presented and defined as supplemental liquidity measures. Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow are most directly comparable to the GAAP measure Net cash provided by operating activities. Each of our non-GAAP measures are calculated using inputs directly from our GAAP statements of cash flows.

Adjusted Cash Receipts enables investors to better analyze our liquidity and long-term growth prospects by providing a more granular presentation of the underlying cash generation of its royalty investments. Adjusted Cash Receipts is a measure calculated with inputs directly from the statements of cash flows and includes total royalty receipts: (i) Cash collections from royalty assets (financial assets and intangible assets), (ii) Other royalty cash collections, (iii) Distributions from equity method investees, and (iv) Proceeds from available for sale debt securities; less Distributions to legacy non-controlling interests - royalty receipts, which represent contractual distributions of royalty receipts and proceeds from available for sale debt securities to the Legacy Investors Partnerships and RPSFT.

Adjusted EBITDA is an important non-GAAP used by our lenders to assess our ability to meet our financial covenants. Adjusted EBITDA is calculated as Adjusted Cash Receipts less Payments for operating and professional costs. The definition of Adjusted EBITDA is the same as the definition of consolidated EBITDA in the Credit Agreement (defined below). We believe the covenants in the Credit Agreement related to consolidated EBITDA are material terms of the Credit Agreement. Refer to the Senior Unsecured Revolving Credit Facility section below for additional discussion of the Credit Agreement calculation of Adjusted EBITDA.

Our operating performance is a function of our liquidity. Adjusted Cash Flow provides meaningful information about our operating performance because one of our core business strategies is to generate consistent cash flows that can be redeployed into new royalty investments. Adjusted Cash Flow is defined as core cash collections less cash charges, including net interest paid, and reflects management’s ability to successfully operate the business and generate cash flow. Tracking Adjusted Cash Flow over time helps to identify underlying trends in the business and permits management and investors to better understand our performance. Management uses Adjusted Cash Flow for decision-making purposes related to the funding of investments in royalty-generating assets, debt repayments, dividends and other discretionary investments.

Adjusted Cash Flow is calculated as Adjusted Cash Receipts less (1) Payments for operating and professional costs (2) Development-stage funding payments - ongoing, (3) Development-stage funding payments - upfront and milestone, (4) Interest paid, net of Interest received, (5) Investments in equity method investees and (6) Other (including Derivative collateral posted, net of Derivative collateral received, and Termination payments on derivative instruments) plus (1) Contributions from legacy non-controlling interests - R&D, all directly reconcilable to the statements of cash flows.

The non-GAAP measures used in this Quarterly Report on Form 10-Q have limitations as analytical tools, and you should not consider them in isolation or as a substitute for the analysis of our results as reported under GAAP. We caution readers that amounts presented in accordance with our definitions of Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate the non-GAAP measures we use in the same manner. We compensate for these limitations by using non-GAAP measures as supplements to GAAP measures and by presenting the reconciliations of the non-GAAP measures to their most comparable GAAP measures, in each case being Net cash provided by operating activities.

To reconcile Adjusted Cash Receipts, we start with Net cash provided by operating activities and adjust for the following items from the statements of cash flows: to add back (1) Proceeds from available for sale debt securities (redemption of Biohaven Preferred Shares), which are cash inflows that management believes are derived from royalties and form part of our core business strategy, (2) Distributions from equity method investees, which are classified as cash inflows from investing activities, (3) Interest paid, net of Interest received, (4) Development-stage funding payments, (5) Payments for operating and professional costs, (6) Payments for rebates and (7) Termination payments on derivative instruments, and to deduct (1) Distributions to legacy non-controlling interests - royalty receipts and (2) Derivative collateral posted or (received), net, both of which are excluded when management assesses its operating performance through cash collections, or Adjusted Cash Receipts.

To reconcile Adjusted EBITDA, we start with Net cash provided by operating activities and adjust for the following items from the statements of cash flows: to add back (1) Proceeds from available for sale debt securities (redemption of Biohaven Preferred Shares), (2) Distributions from equity method investees, which are classified as cash inflows from investing activities, (3) Interest paid, net of Interest received, (4) Development-stage funding payments and (5) Termination payments on derivative instruments, and to deduct (1) Distributions to legacy non-controlling interests - royalty receipts and (2) Derivative collateral posted or (received), net.

To reconcile Adjusted Cash Flow, we start with Net cash provided by operating activities and adjust for the following items from the statements of cash flows: to add back (1) Proceeds from available for sale debt securities (redemption of Biohaven Preferred Shares), (2) Distributions from equity method investees classified as cash inflows from investing activities and (3) Contributions from legacy non-controlling interests - R&D, and to deduct (1) Distributions to legacy non-controlling interests - royalty receipts and (2) Investments in equity method investees. This is intended to present an Adjusted Cash Flow measure that is representative of cash generated from the broader business strategy of acquiring royalty-generating assets that is available for reinvestment and for discretionary purposes.


(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Cash flow data (GAAP basis)
Net cash provided by/(used in):
Operating activities	$	573,520	$	538,827	$	2,215,174	$	1,574,049
Investing activities	(450,658)		(1,425,150)		(1,072,617)		(1,444,163)
Financing activities	(1,359,491)		(230,086)		(1,916,860)		(679,306)

Net cash provided by operating activities (GAAP)	$	573,520	$	538,827	$	2,215,174	$	1,574,049
Adjustments:
Proceeds from available for sale debt securities (1), (2)	—		15,625		—		46,875
Distributions from equity method investees (2)	4,458		—		39,225		—
Interest paid, net (2)	53,967		75,302		102,706		158,920
Development-stage funding payments - ongoing (3)	500		500		1,500		1,606
Development-stage funding payments - upfront and milestone (3)	50,000		25,000		50,000		125,000
Payments for operating and professional costs	54,961		48,650		188,839		141,653

Distributions to legacy non-controlling interests - royalty receipts (2)	(100,246)		(107,183)		(284,637)		(322,726)

Adjusted Cash Receipts (non-GAAP)	$	637,160	$	596,721	$	2,312,807	$	1,725,377

Net cash provided by operating activities (GAAP)	$	573,520	$	538,827	$	2,215,174	$	1,574,049
Adjustments:
Proceeds from available for sale debt securities (1), (2)	—		15,625		—		46,875
Distributions from equity method investees (2)	4,458		—		39,225		—
Interest paid, net (2)	53,967		75,302		102,706		158,920
Development-stage funding payments - ongoing (3)	500		500		1,500		1,606
Development-stage funding payments - upfront and milestone (3)	50,000		25,000		50,000		125,000

Distributions to legacy non-controlling interests - royalty receipts (2)	(100,246)		(107,183)		(284,637)		(322,726)

Adjusted EBITDA (non-GAAP) (4)	$	582,199	$	548,071	$	2,123,968	$	1,583,724

Net cash provided by operating activities (GAAP)	$	573,520	$	538,827	$	2,215,174	$	1,574,049
Adjustments:
Proceeds from available for sale debt securities (1), (2)	—		15,625		—		46,875
Distributions from equity method investees (2)	4,458		—		39,225		—

Contributions from legacy non-controlling interests - R&D (2)	88		240		455		971
Investments in equity method investees (2), (5)	(3,984)		(6,846)		(10,550)		(9,896)

Distributions to legacy non-controlling interests - royalty receipts (2)	(100,246)		(107,183)		(284,637)		(322,726)
Adjusted Cash Flow (non-GAAP)	$	473,836	$	440,663	$	1,959,667	$	1,289,273

(1)In 2022, amounts related to the quarterly redemptions of the Series A Biohaven Preferred Shares are presented as Proceeds from available for sale debt securities on the condensed consolidated statements of cash flows.

(2)The table below shows the line item for each adjustment and the direct location for such line item on the condensed consolidated statements of cash flows.


Reconciling Adjustment			Condensed Consolidated Statements of Cash Flows Classification
Interest paid, net			Operating activities (Interest paid less Interest received)

Distributions from equity method investees			Investing activities
Investments in equity method investees			Investing activities

Proceeds from available for sale debt securities			Investing activities
Distributions to legacy non-controlling interests - royalty receipts			Financing activities
Contributions from legacy non-controlling interests - R&D			Financing activities

(3)Our lenders consider all payments made to support R&D activities for development-stage product candidates similar to asset acquisitions as these funds are expected to generate operational returns in the future. All ongoing development-stage funding payments and upfront and milestone development-stage funding payments are reported as R&D funding expense in net income and are added back in aggregate to Net cash provided by operating activities to arrive at Adjusted EBITDA. As a result, Adjusted EBITDA captures the full add-back for development-stage funding payments.

(4)Refer to the discussion of our Senior Unsecured Revolving Credit Facility below for additional discussion of the Credit Agreement calculation of Adjusted EBITDA.

(5)Our lenders consider all payments to fund our operating joint ventures that are performing R&D activities for development-stage product candidates similar to asset acquisitions as these funds are expected to generate operational returns in the future. As a result, amounts funded through capital calls by our equity method investees, the Avillion Entities, are deducted to arrive at Adjusted Cash Flow, but are not deducted in Adjusted EBITDA.

The table below includes the royalty receipts and non-GAAP financial results for the third quarter and first nine months of 2023 and 2022 by product in order of contribution to total royalty receipts for the first nine months of 2023 (in thousands).


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Nine Months Year-to-Date Change
	2023		2022		2023		2022		$		%
Cystic fibrosis franchise (1)	$	237,902	$	207,882	$	660,673	$	591,733	$	68,940	11.7	%
Zavzpret milestone (2)	—		—		475,000		—		475,000		n/a
Tysabri	86,704		91,252		256,932		281,819		(24,887)		(8.8)	%
Imbruvica	62,174		74,391		193,895		241,943		(48,048)		(19.9)	%
Trelegy	58,240		42,720		143,111		42,720		100,391		*
Promacta	54,122		50,067		142,406		132,679		9,727		7.3	%
Xtandi	47,119		45,717		131,366		141,100		(9,734)		(6.9)	%
Tremfya	27,194		21,409		81,117		68,062		13,055		19.2	%
Cabometyx/Cometriq	17,294		14,612		48,234		40,523		7,711		19.0	%
Evrysdi	15,749		9,602		46,318		26,933		19,385		72.0	%
Farxiga/Onglyza	10,478		11,522		32,274		32,336		(62)		(0.2)	%
Prevymis	15,343		11,052		29,157		25,174		3,983		15.8	%
Trodelvy	11,058		6,496		28,137		17,428		10,709		61.4	%
Spinraza	15,253		—		27,815		—		27,815		n/a
Erleada	8,959		5,586		22,390		15,305		7,085		46.3	%
Orladeyo	7,776		6,265		21,130		15,456		5,674		36.7	%
Crysvita	4,679		5,241		15,696		14,887		809		5.4	%
Nurtec ODT/Biohaven payment (3)	6,218		20,459		15,659		59,549		(43,890)		(73.7)	%
Emgality	4,903		4,657		14,350		13,845		505		3.6	%
Other products (4)	46,241		74,974		211,784		286,611		(74,827)		(26.1)	%
Total royalty receipts	$	737,406	$	703,904	$	2,597,444	$	2,048,103	$	549,341	26.8	%
Distributions to legacy non-controlling interests - royalty receipts	(100,246)		(107,183)		(284,637)		(322,726)		38,089		(11.8)	%
Adjusted Cash Receipts (non-GAAP)	$	637,160	$	596,721	$	2,312,807	$	1,725,377	$	587,430	34.0	%
Payments for operating and professional costs	(54,961)		(48,650)		(188,839)		(141,653)		(47,186)		33.3	%

Development-stage funding payments - ongoing	(500)		(500)		(1,500)		(1,606)		106		(6.6)	%
Development-stage funding payments - upfront and milestone	(50,000)		(25,000)		(50,000)		(125,000)		75,000		(60.0)	%
Interest paid, net	(53,967)		(75,302)		(102,706)		(158,920)		56,214		(35.4)	%
Investments in equity method investees	(3,984)		(6,846)		(10,550)		(9,896)		(654)		6.6	%


Contributions from legacy non-controlling interests - R&D	88		240		455		971		(516)		(53.1)	%
Adjusted Cash Flow (non-GAAP)	$	473,836	$	440,663	$	1,959,667	$	1,289,273	$	670,394	52.0	%

Weighted average Class A ordinary shares outstanding - diluted	601,138		607,226		604,717		607,209

*Percentage change is not meaningful

(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio.

(2)Related to a $475.0 million milestone payment that we received in the first quarter of 2023 following the FDA approval of Zavzpret.

(4)Other products primarily include royalty receipts on the following products: Bosulif (a product co-developed by our joint venture investee, Avillion I, for which receipts are presented as Distributions from equity method investees in the operating section of the condensed consolidated statements of cash flows), Cimzia, Entyvio, IDHIFA, Januvia, Janumet, Other DPP-IVs, Lexiscan, Nesina and Soliqua. Other products also include distributions from the Legacy SLP Interest which are presented as Distributions from equity method investees in both the investing and operating section of the condensed consolidated statements of cash flows. In the first nine months of 2023, we received $34.8 million from our joint venture investee, Avillion II, for our pro rata portion of the $80 million fee paid by AstraZeneca to exercise the option to commercialize Airsupra in the United States (presented as Distributions from equity method investees in the investing section of the condensed consolidated statements of cash flows).

Adjusted Cash Receipts (non-GAAP)

Adjusted Cash Receipts increased by $587.4 million to $2.3 billion in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by a $475.0 million milestone payment that we received following the FDA’s approval of Zavzpret in March 2023, royalty receipts from newly acquired royalties, an increase in royalty receipts from the strong performance of the cystic fibrosis franchise and a decrease in distributions of royalty receipts to legacy non-controlling interests due to maturing royalties jointly owned by the Legacy Investors Partnerships and RPSFT. The increase in cash receipts was partially offset by a decline in royalty receipts from maturing royalties, primarily Januvia, Janumet and other DPP-IVs, as well as a decrease in royalty receipts from Imbruvica. Additionally, we received redemption payments related to Series A Biohaven Shares in the first nine months of 2022 for which there was no comparable activity in the first nine months of 2023 as the Series A Biohaven Preferred Shares were fully redeemed in October 2022.

Below we discuss the key drivers of total royalty receipts.

•Cystic fibrosis franchise – Royalty receipts from the cystic fibrosis franchise, which includes Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio, which are marketed by Vertex for patients with certain mutations causing cystic fibrosis, increased by $68.9 million in the first nine months of 2023 compared to the first nine months of 2022. The increase was primarily driven by the rapid uptake of Kaftrio outside the United States and the continued performance of Trikafta in the United States, including their uptake in younger age groups.

•Zavzpret milestone – We received a $475.0 million milestone payment in the first nine months of 2023 following FDA approval of Zavzpret (zavegepant), a calcitonin gene-related peptide receptor antagonist nasal spray for the acute treatment of migraine with or without aura in adults, which is marketed by Pfizer.

•Tysabri – Royalty receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, decreased by $24.9 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by pricing pressure, competition and channel dynamics.

•Imbruvica – Royalty receipts from Imbruvica, which is marketed by AbbVie and Johnson & Johnson for the treatment of blood cancers and chronic graft versus host disease, decreased by $48.0 million in the first nine months of 2023 compared to the first nine months of 2022. Imbruvica continues to be unfavorably impacted by increased competition and the cumulative impact of a suppressed chronic lymphocytic leukemia market.

•Trelegy – Royalty receipts from Trelegy, which is marketed by GSK for the maintenance treatment of chronic obstructive pulmonary disease and asthma, were $143.1 million in the first nine months of 2023, primarily driven by strong patient demand globally and the growth of the single inhaler triple therapy market. We acquired the Trelegy royalty in the third quarter of 2022.

•Promacta – Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia purpura (ITP) and aplastic anemia, increased by $9.7 million in the first nine months of 2023 compared to the first nine months of 2022. This growth was primarily driven by increased use in chronic ITP and further uptake as first-line and/or second-line treatment for severe aplastic anemia.

•Xtandi – Royalty receipts from Xtandi, which is marketed by Pfizer and Astellas for the treatment of prostate cancer, decreased by $9.7 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by underperformance in the United States, offset by the sales performance in established markets.

•Tremfya – Royalty receipts from Tremfya, which is marketed by Johnson & Johnson for the treatment of plaque psoriasis and active psoriatic arthritis, increased by $13.1 million in the first nine months of 2023 compared to the first nine months of 2022, primarily due to market growth and continued market share gains, which were partially offset by an unfavorable prior period adjustment taken by Johnson & Johnson, patient mix and rebates.

•Cabometyx/Cometriq – Royalty receipts from Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda, increased by $7.7 million in the first nine months of 2023 compared to the first nine months of 2022, primarily due to the uptake of Cabometyx in combination with Opdivo as a first-line treatment for patients with advanced renal cell carcinoma.

•Spinraza – Royalty receipts from Spinraza, which is marketed by Biogen for the treatment of spinal muscular atrophy, were $27.8 million in the first nine months of 2023, primarily driven by growth outside the United States, offset by fewer new patient starts and channel dynamics in the United States. We acquired the Spinraza royalty in the first quarter of 2023.

•Nurtec ODT/Biohaven payment – Royalty receipts from Nurtec ODT, which is marketed by Pfizer for the acute and preventative treatment of migraine, increased by $3.0 million in the first nine months of 2023 compared to the first nine months of 2022, primarily driven by demand growth. In the first nine months of 2022, we also received $46.9 million in redemption payments related to the Series A Biohaven Preferred Shares. The Series A Biohaven Preferred Shares were fully redeemed in October 2022 following Pfizer’s acquisition of Biohaven.

•Other products – Royalty receipts from other products decreased by $74.8 million in the first nine months of 2023 compared to the first nine months of 2022, driven by a decline in royalty receipts from maturing royalties, primarily Januvia, Janumet and other DPP-IVs, and from Lexiscan due to generic competition. The decrease was partially offset by a $34.8 million receipt from our joint venture investee, Avillion II, for our pro rata portion of the $80 million fee paid by AstraZeneca to exercise the option to commercialize Airsupra in the United States.

Distributions to legacy non-controlling interests - royalty receipts

Distributions of royalty receipts to legacy non-controlling interests decreased by $38.1 million to $284.6 million in the first nine months of 2023 compared to the first nine months of 2022, which positively impacted Adjusted Cash Receipts. The decrease in distributions to non-controlling interests is primarily due to maturing royalties jointly owned by the Legacy Investors Partnerships and RPSFT.

Adjusted Cash Flow (non-GAAP)

Adjusted Cash Flow increased by $670.4 million to $2.0 billion in the first nine months of 2023 compared to the first nine months of 2022, primarily for the same reasons noted above in “Adjusted Cash Receipts.” The increase was further driven by lower development-stage funding payments. In the first nine months of 2023, we made a $50.0 million clinical milestone payment that was triggered under the agreement with Cytokinetics. In the first nine months of 2022, we paid $125.0 million to acquire royalties on development-stage product candidates from Cytokinetics and Theravance. The increase was partially offset by payments for operating and professional costs which increased in the first nine months of 2023 as our Operating and Personnel Payments are primarily comprised of a fixed percentage of 6.5% of cash receipts from our royalties, which is Adjusted Cash Receipts.

Borrowings

Our borrowings as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	Date of Issuance	Maturity	As of September 30, 2023		As of December 31, 2022
Senior Unsecured Notes:
$1,000,000, 0.75% (issued at 99.322% of par)	9/2020	9/2023	$	—	$	1,000,000
$1,000,000, 1.20% (issued at 98.875% of par)	9/2020	9/2025	1,000,000		1,000,000
$1,000,000, 1.75% (issued at 98.284% of par)	9/2020	9/2027	1,000,000		1,000,000
$1,000,000, 2.20% (issued at 97.760% of par)	9/2020	9/2030	1,000,000		1,000,000
$600,000, 2.15% (issued at 98.263% of par)	7/2021	9/2031	600,000		600,000
$1,000,000, 3.30% (issued at 95.556% of par)	9/2020	9/2040	1,000,000		1,000,000
$1,000,000, 3.55% (issued at 95.306% of par)	9/2020	9/2050	1,000,000		1,000,000
$700,000, 3.35% (issued at 97.565% of par)	7/2021	9/2051	700,000		700,000
Total senior unsecured debt			6,300,000		7,300,000
Unamortized debt discount and issuance costs			(168,806)		(183,678)
Total long-term debt, including current portion			6,131,194		7,116,322
Less: Current portion of long-term debt			—		(997,512)
Total long-term debt			$	6,131,194	$	6,118,810

Senior Unsecured Notes

On July 26, 2021, we issued $1.3 billion of senior unsecured notes (the “2021 Notes”) with a weighted average coupon rate of 2.80%. On September 2, 2020, we issued $6.0 billion of senior unsecured notes (the “2020 Notes”) with a weighted average coupon rate of 2.13%. We refer to the 2020 Notes and 2021 Notes, collectively, as the “Notes.” The Notes require semi-annual interest payments. Indentures governing the Notes contain certain covenants with which we were in compliance as of September 30, 2023.

Senior Unsecured Revolving Credit Facility

On September 15, 2021, we entered into an amended and restated revolving credit agreement, which was further amended on October 31, 2022 (the “Credit Agreement”). The Credit Agreement amended and restated the credit agreement that our subsidiary RP Holdings, as borrower, entered into on September 18, 2020, which provided for a five-year unsecured revolving credit facility (the “Revolving Credit Facility”) with borrowing capacity of up to $1.5 billion for general corporate purposes. The Revolving Credit Facility has a maturity date of October 31, 2027. The Credit Agreement contains certain customary covenants which we were in compliance with as of September 30, 2023. In October 2023, we drew $350 million on the Revolving Credit Facility to fund a portion of our acquisition of additional royalties on Roche’s Evrysdi, resulting a remaining borrowing capacity of $1.15 billion under the Revolving Credit Facility.

Adjusted EBITDA, which is the same as our definition of consolidated EBITDA in the Credit Agreement, is a non-GAAP measure that is a key component of certain material covenants contained within the Credit Agreement. Noncompliance with the interest coverage ratio and leverage ratio covenants under the Credit Agreement could result in our lenders requiring us to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited under our Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the assessment of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for the analysis of our results as reported under GAAP. The table below is a tabular calculation of Adjusted EBITDA, defined in our Credit Agreement as consolidated EBITDA for the third quarter and first nine months of 2023 and 2022 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Total royalty receipts	$	737,406	$	703,904	$	2,597,444	$	2,048,103
Distributions to legacy non-controlling interests - royalty receipts	(100,246)		(107,183)		(284,637)		(322,726)
Adjusted Cash Receipts (non-GAAP)	637,160		596,721		2,312,807		1,725,377
Payments for operating and professional costs	(54,961)		(48,650)		(188,839)		(141,653)
Adjusted EBITDA (non-GAAP)	$	582,199	$	548,071	$	2,123,968	$	1,583,724

Uses of Capital

Acquisitions of Royalties

We acquire product royalties in ways that can be tailored to the needs of our partners through a variety of structures:

•Synthetic Royalties – Newly-created royalties on approved or late-stage development therapies with strong proof of concept and high commercial potential. A synthetic royalty is the contractual right to a percentage of top-line sales by the developer or marketer of a therapy in exchange for funding. A synthetic royalty may also include contingent milestone payments. We also fund ongoing R&D, for biopharmaceutical companies, in exchange for future royalties and milestones if the product or indication we are funding is approved.

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

Additionally, we may identify additional opportunities, platforms or technologies that leverage our capabilities such as our strategic alliance with MSCI to develop thematic life sciences indexes.

Distributions to Shareholders

We paid dividends to holders of our Class A ordinary shares of $269.0 million and $249.1 million in the first nine months of 2023 and 2022, respectively. We do not have a legal obligation to pay a quarterly dividend or dividends at any specified rate or at all.

Class A Ordinary Share Repurchases

Other Funding Arrangements

In January 2022, we entered into a long-term funding agreement, which was amended later in the same year, with Cytokinetics. We agreed to provide funding of up to $300 million (“Cytokinetics Commercial Launch Funding”) in five tranches. The initial tranche of $50 million was funded upon closing. Cytokinetics is required to draw $50 million if a certain contingency is met and has the option to draw the remaining $200 million upon the occurrence of certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”). The regulatory milestones for the second and third tranches were not met and as such $75 million of the optional funding is no longer available. As of September 30, 2023, $125 million of the optional $200 million remains available under the Cytokinetics Funding Commitments.

We may have other funding arrangements where we are contractually obligated to fund R&D activities performed by our development partners. We also have funding arrangements related to our equity method investments in the Avillion Entities. As our committed capital requirements are based on phases of development, the completion of which is highly uncertain, only the capital required to fund the current stage of development under such funding arrangements is considered committed capital, which approximates $30.3 million as of September 30, 2023.

We also have certain milestone payments that are contingent on the successful achievement of certain development, regulatory approval or commercial milestones. These contingent milestone payments are not considered contractual obligations. In the first nine months of 2023, we made a $12.4 million sales-based milestone payment related to Erleada and a $50.0 million milestone payment to Cytokinetics which was triggered following the initiation of the first pivotal clinical trial in nHCM. In the first nine months of 2022, we made a $50 million milestone payment to Cytokinetics which was triggered following the initiation of the first pivotal clinical trial in oHCM.

Debt Service

In September 2023, we repaid $1.0 billion of senior unsecured notes upon maturity. As of September 30, 2023, the future principal and interest payments under our Notes over the next five years and thereafter are as follows (in thousands):


Year	Principal Payments		Interest Payments
Remainder of 2023	$	—	$	—
2024	—		156,350
2025	1,000,000		156,350
2026	—		144,350
2027	1,000,000		144,350
Thereafter	4,300,000		1,925,900
Total (1)	$	6,300,000	$	2,527,300

Operating and Personnel Payments

Under the Management Agreement, we pay quarterly Operating and Personnel Payments equal to 6.5% of the cash receipts from royalty investments, which is Adjusted Cash Receipts, for such quarter and 0.25% of our security investments under GAAP as of the end of each quarter. Because the Operating and Personnel Payments are determined based on cash receipts, the amounts are variable. The payment for our Operating and Personnel Payment is the most significant component of Payments for operating and professional costs presented on the statements of cash flows. Additionally, the expenses incurred in respect of Operating and Personnel Payments are expected to comprise the most significant component of G&A expenses on an ongoing basis.

Guarantor Financial Information

Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly owned subsidiary (the “Guarantor Subsidiary”). Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) do not guarantee the Notes. Under the terms of the indenture governing the Notes, Royalty Pharma plc and the Guarantor Subsidiary each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on the Notes. As of September 30, 2023, the par value and carrying value of the total outstanding and guaranteed Notes was $6.3 billion and $6.1 billion, respectively.

The following financial information presents summarized combined balance sheet information as of September 30, 2023 and December 31, 2022 and summarized combined statement of operations information for the first nine months of 2023 for Royalty Pharma plc and RP Holdings. All intercompany balances and transactions between Royalty Pharma plc and RP Holdings are eliminated in the presentation of the combined financial statements. RP Holdings’ most significant asset is its investment in operating subsidiaries, which has been eliminated in the table below to exclude investments in Non-Guarantor Subsidiaries. Our operating subsidiaries hold the majority of our cash and cash equivalents, marketable securities and financial royalty assets. As a result, our ability to make required payments on the Notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on distributions from the operating subsidiaries. Amounts presented below do not represent our total consolidated amounts as of September 30, 2023 and December 31, 2022 or for the first nine months of 2023 (in thousands).


Summarized Combined Balance Sheets
	As of September 30, 2023		As of December 31, 2022
Current assets	$	52,477	$	92,805
Current interest receivable on intercompany notes due from Non-Guarantor Subsidiaries	32,584		14,744
Current intercompany notes receivable due from Non-Guarantor Subsidiaries	—		269,617
Non-current assets	3,243		4,033
Non-current intercompany notes receivable due from Non-Guarantor Subsidiaries	1,890,582		1,986,906

Current liabilities	18,268		1,053,942
Current interest payable on intercompany notes due to Non-Guarantor Subsidiaries	3,195		14,744

Current intercompany notes payable due to Non-Guarantor Subsidiaries	—		269,617
Non-current liabilities	6,130,293		6,118,022
Non-current intercompany notes payable due to Non-Guarantor Subsidiaries	1,557,693		1,655,842


Summarized Combined Statement of Operations	For the Nine Months Ended September 30, 2023


Interest income on intercompany notes receivable due from Non-Guarantor Subsidiaries	$	64,393
Other income	7,029
Operating expenses	154,753
Interest expense on intercompany notes due to Non-Guarantor Subsidiaries	35,005

Net loss	118,336

Critical Accounting Policies and Use of Estimates

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

Our most critical accounting policies relate to our financial royalty assets. Similarly, the most significant judgments and estimates applied by management are associated with the measurement of our financial royalty assets at amortized cost using the prospective effective interest method. The application of the prospective approach to calculate interest income from our financial royalty assets requires management’s judgment in forecasting the expected future cash flows of the underlying royalties. There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk exposures that affect the disclosures presented in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in the Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the third quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For a description of our legal proceedings, refer to Note 13–Commitments and Contingencies, which is incorporated herein by reference.

Item 1A. RISK FACTORS

Described below are certain risks that we believe apply to our business. You should carefully consider the following information about these risks, together with the other information contained in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business.

Summary of Risk Factors

Our business is subject to a number of risks, including risks that may adversely affect our business, financial condition and results of operations. These risks are discussed more fully below and include, but are not limited to, risks related to:

Risks Relating to Our Business

•sales risks of biopharmaceutical products on which we receive royalties;

•the growth of the royalty market;

•the ability of the Manager to identify suitable assets for us to acquire;

•potential strategic acquisitions of biopharmaceutical companies;

•our use of leverage in connection with our capital deployment;

•our ability to leverage our competitive strengths;

•marketers of products that generate our royalties are outside of our control and are responsible for development, pursuit of ongoing regulatory approval, commercialization, manufacturing and marketing;

•governmental regulation of the biopharmaceutical industry;

•interest rate risk, foreign exchange fluctuations and inflation;

•our reliance on the Manager for all services we require and key members of the Manager’s senior advisory team;

•actual and potential conflicts of interest with the Manager and its affiliates;

•the ability of the Manager or its affiliates to attract and retain highly talented professionals;

•the assumptions underlying our business model;

•our reliance on a limited number of products;

•the competitive nature of the biopharmaceutical industry;

Risks Relating to Our Organization and Structure

•our organizational structure, including our status as a holding company;

Risks Relating to Our Class A Ordinary Shares

•volatility of the market price of our Class A ordinary shares;

•our incorporation under English law;

Risks Relating to Taxation

•the effect of changes to tax legislation and our tax position; and

General Risk Factors

•the impact of COVID-19, or the future outbreak of any other infectious or contagious diseases, on our operations.

Risks Relating to Our Business

Biopharmaceutical products are subject to sales risks.

Biopharmaceutical product sales may be lower than expected due to a number of reasons, including pricing pressures, insufficient demand, product competition, failure of clinical trials, lack of market acceptance, changes in the marketer’s strategic priorities, obsolescence, lack of acceptance by government healthcare programs and private insurance plans, loss of patent protection, government regulations, the impact of the COVID-19 global pandemic or other factors, and development-stage product candidates may fail to reach the market. Unexpected side effects, safety or efficacy concerns can arise with respect to a product, leading to product recalls, withdrawals, declining sales or litigation. As a result, payments of our royalties may be reduced or cease. In addition, these payments may be delayed, causing our near-term financial performance to be weaker than expected.

The royalty market may not grow at the same rate as it has in the past, or at all, and we may not be able to acquire sufficient royalties to sustain the growth of our business.

We have been able to grow our business over time by primarily acquiring royalties. However, we may not be able to identify and acquire a sufficient number of royalties, or royalties of sufficient scale, to invest the full amount of capital that may be available to us in the future, or at our targeted amount and rate of deployment, which could prevent us from executing our growth strategy and negatively impact our results of operations. Changes in the royalty market, including its structure, participants and growth rate, changes in preferred methods of financing and capital raising in the biopharmaceutical industry, or a reduction in the growth of the biopharmaceutical industry, could lead to diminished opportunities for us to acquire royalties, fewer royalties (or fewer royalties of significant scale) being available, or increased competition for royalties. Even if we continue to acquire royalties, they may not generate a meaningful return for a period of several years, if at all, due to numerous factors including the structure of the transaction, or circumstances relating to the underlying products. As a result, we may not be able to continue to grow as we have in the past, or at all.

Acquisitions of royalties on development-stage biopharmaceutical product candidates are subject to a number of uncertainties.

We may acquire more royalties on development-stage product candidates that have not yet received marketing approval by any regulatory authority. There can be no assurance that the FDA, the Medicines and Healthcare products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), Pharmaceuticals and Medical Devices Agency (“PMDA”) or other regulatory authorities will approve such products or that such products will be brought to market timely or at all, or that the market will be receptive to such products. For example, in June 2021, we acquired from MorphoSys the right to receive royalties and certain milestone payments on gantenerumab, an anti-amyloid-beta monoclonal antibody that was in Phase 3 development for Alzheimer’s disease by Roche. Subsequently on November 30, 2022, Roche stated that it would discontinue clinical trials of gantenerumab after the GRADUATE I and II studies evaluating gantenerumab in people with early Alzheimer’s disease did not meet their primary endpoint of slowing clinical decline. As a result, we concluded that a non-cash impairment charge of $273.6 million related to the financial royalty asset associated with gantenerumab was required.

If the FDA, MHRA, the EMA, PMDA or other regulatory authority approves a development-stage product candidate that generates our royalties, the labeling, packaging, manufacturing, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with the product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, including for certain patient populations, and could include withdrawal of the product from the market. Uncertainty relating to development-stage product candidates also make it more difficult to develop precise and accurate assumptions for our internal models relating to any such development-stage product candidate, which can result in reduced royalties compared to estimates.

In addition, the developers of these development-stage product candidates may not be able to raise additional capital to continue their discovery, development and commercialization activities, which may cause them to delay, reduce the scope of, or eliminate one or more of their clinical trials or R&D programs. If other product developers introduce and market products that are more effective, safer or less expensive than the relevant products that generate our royalties, or if such developers introduce their products prior to the competing products underlying our royalties, such products may not achieve commercial success and thereby result in diminished returns, or potentially reduced royalties for us, adversely affecting our results of operations.

Further, the developers of such products may not have sales, marketing or distribution capabilities. If no sales, marketing or distribution arrangements can be made on acceptable terms or at all, the affected product may not be able to be successfully commercialized, which will result in a loss for us. Losses from such assets could adversely affect our business, financial condition and results of operations.

While we believe that we can evaluate the likelihood of a development-stage product candidate’s approval and achieving significant sales, there can be no assurance that our assumptions will prove correct, that regulatory authorities will approve such development-stage product candidates, that such development-stage product candidates will be brought to market timely or at all, or that such products will achieve commercial success.

Our strategy of acquiring royalty interests in development-stage product candidates, including by co-funding clinical development and acquiring securities of biopharmaceutical companies, is subject to risks and uncertainties.

We intend to continue to provide capital to innovators to co-fund clinical development of a product candidate in exchange for a share of the future revenues of that asset and when we do so, we do not control its clinical development. In these situations, the innovators may not complete activities on schedule or in accordance with our expectations or in compliance with applicable laws and regulations. Failure by one or more of these third parties to meet their obligations or our expectations, comply with applicable laws or regulations or any disruption in the relationships between us and these third parties, could delay or prevent the development, approval, manufacturing or commercialization of the development-stage product candidate for which we have provided funding.

We seek to further expand our market opportunity by acquiring securities issued by biopharmaceutical companies. Where we may acquire equity securities as all or part of the consideration for business development activities, the value of those securities will fluctuate, and may depreciate in value. We will likely not control the company in which we acquire securities, and as a result, we may have limited ability to determine its management, operational decisions and policies. Further, while we may seek to mitigate the risks and liabilities of such transactions through, among other things, due diligence, there may be risks and liabilities that such due diligence efforts fail to discover, that are not disclosed to us, or that we inadequately assess. In addition, as a result of our activities we receive material non-public information about other companies from time to time. Where such information relates to a company whose equity securities we hold, we may be delayed or prevented from selling such securities when we would otherwise choose to do so, and such delay or prohibition may result in a loss or reduced gain on such securities.

We may undertake strategic acquisitions of biopharmaceutical companies with significant royalty assets. Our failure to realize expected benefits of such acquisitions or our incurrence of unanticipated liabilities, could adversely affect our business, financial condition and results of operations.

We may acquire companies with significant royalty assets or where we believe we could create significant synthetic royalties. These acquired or created royalty assets may not perform as we project. Moreover, the acquisition of operating biopharmaceutical companies will result in the assumption of, or exposure to, liabilities of the acquired business that are not inherent in our other royalty acquisitions, such as direct exposure to product liability claims, high fixed costs and an expansion of our operations and expense structure, thereby potentially decreasing our profitability. The diversion of our management’s attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the disruption of our on-going business operations. Despite our business, financial and legal due diligence efforts, we have limited experience in assessing acquisition opportunities, and we ultimately may be unsuccessful in ascertaining or evaluating all risks associated with such acquisitions. Moreover, we may need to raise additional funds through public or private debt or equity financing to acquire any businesses or products, which may result in dilution for shareholders or the incurrence of indebtedness. As a result, our acquisition of biopharmaceutical companies could adversely affect our business, financial condition and results of operations.

We use leverage in connection with our capital deployment, which magnifies the potential for loss if the royalties acquired do not generate sufficient income to us.

We use borrowed funds to finance a significant portion of our deployed capital. The use of leverage creates an opportunity for an increased return but also increases the risk of loss if our assets do not generate sufficient income to us. The interest expense and other costs incurred in connection with such borrowings may not be covered by our cash flow. In addition, leverage may inhibit our operating flexibility and reduce cash flow available for dividends to our shareholders. The level of our indebtedness could limit our ability to respond to changing business conditions. The various agreements relating to our borrowings may impose operating and financial restrictions on us which could affect the number and size of the royalties that we may pursue. Therefore, no assurance can be given that we will be able to take advantage of favorable conditions or opportunities as a result of any restrictive covenants under our indebtedness. There can also be no assurance that additional debt financing, either to replace or increase existing debt financing, will be available when needed or, if available, will be obtainable on terms that are commercially reasonable. Additional risks related to our leverage include:

• our royalties may be used as collateral for our borrowings;

• in the event of a default under secured borrowings, if any, one or more of our creditors or their assignees could obtain control of our royalties and, in the event of a distressed sale, these creditors could dispose of these royalties for significantly less value than we could realize for them;

• we have to comply with various financial covenants in the agreements that govern our debt, including requirements to maintain certain leverage ratios and coverage ratios, which may affect our ability to achieve our business objectives;

• our ability to pay dividends to our shareholders may be restricted; and

• to the extent that interest rates at which we borrow increase, our borrowing costs will increase and our leveraging strategy will become more costly, which could lead to diminished net profits.

We do not employ our own personnel and are entirely dependent upon the Manager for all the services we require.

Because we are “externally managed,” we do not employ our own personnel, but instead depend upon the Manager, its executive officers and its employees for all of the services we require. The Manager selects and manages the acquisition of royalties and similar payment streams that meet our investment criteria and provides all our other administrative services. Accordingly, our success is dependent upon the expertise and services of the executive officers and other personnel provided to us through the Manager. The Management Agreement has an initial term of ten years, after which it can be renewed for an additional term of three years, unless either we or the Manager provide notice of non-renewal 180 days prior the expiration of the initial term or renewal term. The Manager may not be removed during the initial or any renewal term without cause. While our Management Agreement requires its executives to devote substantially all their time to managing us and any legacy vehicles related to RPI or Old RPI unless otherwise approved by the board of directors, such resources may prove to be inadequate to meet our needs.

The success of our business depends upon key members of the Manager’s senior advisory team who may not continue to work for the Manager.

We depend on the expertise, skill and network of business contacts of the advisory professionals of the Manager, who evaluate, negotiate, structure, execute, monitor and service our assets in accordance with the terms of the Management Agreement. Our future success depends to a significant extent on the continued service and coordination of the advisory professionals of the Manager, particularly Mr. Legorreta. Pursuant to the Management Agreement, executives of the Manager must devote substantially all of their business time to managing us, unless otherwise approved by the board of directors. Despite this, Mr. Legorreta and other key advisory professionals may have other demands on their time, and we cannot assure you that they will continue to be actively involved in our business. Each of these individuals is an employee of the Manager and is not subject to an employment contract with us. The departure of any of these individuals or competing demands on their time could adversely affect our business, financial condition and results of operations.

The key advisory professionals of the Manager have relationships with participants in the biopharmaceutical industry, financial institutions and other advisory professionals, which we rely upon to source potential asset acquisition opportunities. If the key advisory professionals of the Manager fail to maintain such relationships, or to develop new relationships with other sources, we may not be able to grow our portfolio. In addition, we can offer no assurance that these relationships, even if maintained, will generate asset acquisition opportunities for us in the future.

There can be no assurance that the policies and procedures we have established to mitigate conflicts of interest will be effective in doing so.

Pursuant to the Management Agreement, the Manager cannot manage another entity that invests in or acquires royalties other than any legacy vehicle related to RPI or Old RPI. Every executive of our Manager is subject to a non-compete agreement that is effective for 18 months following termination of their employment with the Manager for any reason. We are a beneficiary of these agreements. In addition, executives of the Manager must devote substantially all of their time to managing us and any legacy vehicle related to RPI or Old RPI, unless otherwise approved by the board of directors. Despite this, the ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement, may reduce the amount of time our Manager, its officers or other employees spend managing us.

Furthermore, there could be conflicts of interest between us and our advisory personnel. For instance, 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 has a substantial investment in BioPharma Credit. In addition, Mr. Legorreta serves as the chairperson of the board of directors of ProKidney Corp. and he has founded and participates in foundations that receive and provide medical research funding. Even though he has the involvement with Pharmakon, BioPharma Credit PLC, ProKidney Corp. and the foundations described above, Mr. Legorreta does not have any material constraints on the time he has available to devote to us and the Manager. 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 Pharmakon and us, and the fact that royalty holders, rather than Pharmakon and us, 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 addition, the structure of our Manager’s compensation arrangements may have unintended consequences. We have agreed to pay our Manager or its affiliates quarterly operating and personnel expenses (the “Operating and Personnel Payments”), a portion of which is based on the mark-to-market value of security investments, including equity securities and derivative financial instruments, at the end of each quarter and is payable to the Manager regardless of whether we realize any gain on the security investments when sold. Consequently, the Manager may be incentivized to have us make security investments regardless of our expected gain on such investments, which may not align with our or our shareholders’ interests.

To service our indebtedness and meet our other ongoing liquidity needs, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. If we cannot generate the required cash, we may not be able to make the required payments under our indebtedness.

As of September 30, 2023, our total principal amount of senior unsecured notes outstanding was $6.3 billion. In addition, we have up to $1.5 billion of available revolving commitments under our unsecured revolving credit facility (the “Revolving Credit Facility”). Except for RP Holdings, our subsidiaries that do not guarantee the senior unsecured notes will have no obligation, contingent or otherwise, to pay amounts due under the senior unsecured notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. We cannot assure you that our business will generate sufficient cash flow from operations to enable us to pay our indebtedness or to fund our other liquidity needs.

Absent sufficient cash flow and the ability to refinance, we could also be forced to sell assets to make up for any shortfall in our payment obligations. However, the terms of the agreements that govern our existing outstanding debt limit, our and our subsidiaries’ ability to sell assets and also restrict the use of proceeds from such a sale. Accordingly, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations on our indebtedness.

Our business is subject to interest rate, foreign exchange and inflation risk.

We are subject to interest rate fluctuation exposure through any borrowings under our Revolving Credit Facility and our investments in money market accounts and marketable securities, the majority of which bear a variable interest rate. In addition, the discontinuation, modification or other reform of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, such as the Secured Overnight Financing Rate (“SOFR”), could create uncertainty regarding the nature of potential changes to and future utilization of specific reference rates, require us to amend certain agreements or increase our interest expense. To the extent that interest rates generally increase, our borrowing costs will increase and our leveraging strategy will become more costly, leading to diminished net profits.

Certain products pay royalties in currencies other than U.S. dollars, which creates foreign currency risk primarily with respect to the Euro, Canadian dollar, British pound, Swiss franc and Japanese yen, as our functional and reporting currency is the U.S. dollar. In addition, our results of operations are subject to foreign currency exchange risk through transactional exposure resulting from movements in exchange rates between the time we recognize royalty income or royalty revenue and the time at which the transaction settles, or we receive the royalty payment. Because we are entitled to royalties on worldwide sales for various products, there is an underlying exposure to foreign currency as the marketer converts payment amounts from local currencies to U.S. dollars using a quarterly average exchange rate. Therefore, cash received may differ from the estimated receivable based on fluctuations in currency. We are also subject to foreign exchange rate risk caused by significant events with macroeconomic impacts, including, but not limited to, the Russia-Ukraine war, COVID-19 pandemic and actions taken by central banks to counter inflation. Changes in the value of currencies relative to the U.S. dollar, or high inflation in countries using a currency other than the U.S. dollar, can impact our revenues, costs and expenses and our financial guidance.

Information about the biopharmaceutical products underlying the royalties we buy available to us may be limited and therefore our ability to analyze each product and its potential future cash flow may be similarly limited.

We may have limited information concerning the products generating the royalties we are evaluating for acquisition. Often, the information we have regarding products following our acquisition of a royalty may be limited to the information that is available in the public domain. Therefore, there may be material information that relates to such products that we would like to know but do not have and may not be able to obtain. For example, we do not always know the results of studies conducted by marketers of the products or others or the nature or amount of any complaints from doctors or users of such products. In addition, the market data that we obtain independently may also prove to be incomplete or incorrect. Due to these and other factors, the actual cash flow from a royalty may be significantly lower than our estimates.

Our future income is dependent upon numerous royalty-specific assumptions and, if these assumptions prove not to be accurate, we may not achieve our expected rates of returns.

Our business model is based on multiple-year internal and external forecasts regarding product sales and numerous product-specific assumptions in connection with each royalty acquisition, including where we have limited information regarding the product. There can be no assurance that the assumptions underlying our financial models, including those regarding product sales or competition, patent expirations, exclusivity terms, license terms or license terminations for the products underlying our portfolio, are accurate. These assumptions involve a significant element of subjective judgment and may be, and in the past have been, adversely affected by post-acquisition changes in market conditions and other factors affecting the underlying product. The risks relating to these assumptions may be exacerbated for development-stage product candidates due to the uncertainties around their development, labeling, regulatory approval, commercialization timing, manufacturing and supply, competing products or related factors. Our assumptions regarding the financial stability or operational or marketing capabilities of the partner obligated to pay us royalties may also prove, and in the past have proven, to be incorrect. Due to these and other factors, the assets in our current portfolio or future assets may not generate expected returns or returns in line with our historical financial performance or in the time periods we expect or at all, which could adversely affect our financial condition and results of operation.

We make assumptions regarding the royalty duration for terms that are not contractually fixed, and a shortened royalty term could result in a reduction in the effective interest rate, a decline in income from royalties, significant reductions in royalty payments compared to expectations, or a permanent impairment.

In accordance with generally accepted accounting principles in the United States (“GAAP”), we classify most royalty assets that we acquire as financial assets that are measured at amortized cost using the prospective effective interest method described in ASC 835-30. The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount, net of any purchased receivables. A critical component of such forecast is our assumptions regarding duration of the royalty.

The royalty duration is important for purposes of accurately measuring interest income over the life of a royalty. In making assumptions around the royalty duration for terms that are not contractually fixed, we consider the strength of existing patent protection, expected entry of generics, geographical exclusivity periods and potential patent term extensions tied to the underlying product.

The duration of a royalty usually varies on a country-by-country basis and can be based on a number of factors, such as patent expiration dates, regulatory exclusivity, years from first commercial sale of the patent-protected product, the entry of competing generic or biosimilar products, or other terms set out in the contracts governing the royalty. It is common for royalty durations to expire earlier or later than anticipated due to unforeseen positive or negative developments over time, including with respect to the granting of patents and patent term extensions, the invalidation of patents, litigation between the party controlling the patents and third party challengers of the patents, the ability of third parties to design around or circumvent valid patents, the granting of regulatory exclusivity periods or extensions, timing for the arrival of generic or biosimilar competitor products, changes to legal or regulatory regimes affecting intellectual property rights or the regulation of pharmaceutical products, product life cycles, and industry consolidations.

If an unexpected shortening of a royalty term were to occur, it could result in a reduction in the effective interest rate, a decline in income from royalties, and a significant reduction in royalty payments compared to expectations, or a permanent impairment.

Most of our royalties are classified as financial assets that are measured at amortized cost using the effective interest method as a result of which our GAAP results of operations can be volatile and unpredictable.

In accordance with GAAP, most of the royalty assets we acquire are treated as investments in cash flow streams and are thus classified as financial assets. Under this classification, our financial royalty assets are treated as having a yield component that resembles loans measured at amortized cost under the effective interest accounting methodology. Under this accounting methodology, we calculate the effective interest rate on each financial royalty asset using a forecast of the expected cash flows to be received over the life of the financial royalty asset relative to the initial acquisition price. The yield, which is calculated at the end of each reporting period and applied prospectively, is then recognized via accretion into our income at the effective rate of return over the expected life of the financial royalty asset.

As a result of the non-cash charges associated with the application of the effective interest method accounting methodology, our income statement activity in respect of many of our royalties can be volatile and unpredictable. Small declines in sell-side equity research analysts’ consensus sales forecasts over a long time horizon can result in an immediate non-cash income statement expense recognition, even though the applicable cash inflows will not be realized for many years into the future. For example, in late 2014 we acquired the cystic fibrosis franchise, which is classified as a financial royalty asset. Beginning in the second quarter of 2015, declines in near-term sales forecasts of sell-side equity research analysts caused us to recognize non-cash provision expenses to the income statement and build up a corresponding cumulative allowance which reduced the gross balance for this financial royalty asset. Over the course of 10 quarters, we recognized non-cash provision expenses as a result of these changes in forecasts, including a non-cash expense of $743.2 million in 2016, ultimately reaching a peak cumulative allowance of $1.30 billion by September 30, 2017 related to this financial royalty asset. With the approval of the Vertex triple combination therapy, Trikafta, in October 2019, sell-side equity research analysts’ consensus sales forecasts increased to reflect the larger addressable market and the extension of the expected duration of the Trikafta royalty. While small reductions in the cumulative allowance for the cystic fibrosis franchise were recognized as provision income in 2017 and 2018, there remained a $1.10 billion cumulative allowance that was fully reduced by recognizing non-cash provision income of $1.10 billion in 2019 as a result of an increase in sell-side equity research analysts’ consensus sales forecasts associated with the Trikafta approval. The financial statement impact caused by the application of the effective interest accounting methodology could result in a negative perception of our results in a given period.

Our reliance on a limited number of products may adversely affect our business, financial condition and results of operation.

While our current asset portfolio includes royalties relating to over 35 marketed products and 11 development-stage product candidates, the top five product franchises accounted for 66% of our royalty receipts in the first nine months of 2023 (excluding receipt from Zavzpret milestone payment). In addition, our asset portfolio may not be fully diversified by geographic region or other criteria. Any significant deterioration in the cash flows from the top products in our asset portfolio could adversely affect our business, financial condition and results of operations.

We face competition in acquiring royalties and locating suitable royalties to acquire.

There are a limited number of suitable and attractive opportunities to acquire high-quality royalties available in the market. Therefore, competition to acquire such royalties is intense and may increase. We compete with other potential acquirers for these opportunities, including companies that market the products on which royalties are paid, financial institutions and others. These competitors may be able to access lower cost capital, may be larger than us, may have relationships that provide them access to opportunities before us, or may be willing to acquire royalties for lower projected returns than we are.

Biopharmaceutical products are subject to substantial competition.

The biopharmaceutical industry is a highly competitive and rapidly evolving industry. The length of any product’s commercial life cannot be predicted with certainty. There can be no assurance that one or more products on which we are entitled to a royalty will not be rendered obsolete or non-competitive by new or alternate products or improvements on which we are not entitled to a royalty made to existing products, either by the current marketer of such products or by another marketer. Current marketers of products may undertake these development efforts in order to improve their products or to avoid paying our royalty. Adverse competition, obsolescence or governmental and regulatory action or healthcare policy changes could significantly affect the revenues, including royalty-related revenues, of the products which generate our royalties.

Competitive factors affecting the market position and success of each product include:

•effectiveness;

•safety and side effect profile;

•price, including third-party insurance reimbursement policies;

•timing, introduction and marketer support of the product;

•efficacy and execution of marketing and commercialization strategy;

•market acceptance;

•manufacturing, supply and distribution;

•governmental regulation, including price caps;

•availability of lower-cost generics or biosimilars;

•intellectual property protection and exclusivity;

•treatment innovations that eliminate or minimize the need for a product; and

•product liability claims.

Products for which we have a royalty receivable or other interest may be rendered obsolete or non-competitive by new or alternate products, including generics or biosimilars, improvements on existing products, marketing or commercialization strategies, or governmental or regulatory action. In addition, as biopharmaceutical companies increasingly devote significant resources to innovate next-generation products and therapies, products on which we have a royalty may become unattractive to commercialize or obsolete. If a product’s market acceptance is diminished or it is withdrawn from the market, continuing payments with respect to biopharmaceutical products, including royalty payments and payments of interest on and repayment of the principal, may not be made on time or at all, which may affect our ability to realize the benefits of the royalty receivable or other interest in such product and may result in us incurring asset impairment charges. Further, any product for which we have a royalty receivable or other interest that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Many approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. Any of these developments could adversely affect products for which we have a royalty, and consequently could adversely affect our business, financial condition and results of operations.

Marketers of products that generate our royalties are outside of our control.

In the case of our royalty receivables, our cash flow consists primarily of payments supported by royalties paid by marketers. These marketers may have interests that are different from our interests. For example, these marketers may be motivated to maximize income by allocating resources to other products and, in the future, may decide to focus less attention on the products generating our royalties or by allocating resources to develop products that do not generate royalties to us. There can be no assurance that any marketer or person with whom the marketer has a working relationship has adequate resources or motivation to continue to produce, market and sell the products generating our royalties. Aside from any limited audit rights relating to the activities of the marketers that we may have in certain circumstances pursuant to the terms of our arrangements with the licensor, we do not have oversight rights with respect to the marketers’ operations and do not have rights allowing us to direct their operations or strategy nor do our agreements contain performance standards for their operations. The calculation of the royalty payments is subject to and dependent upon the adequacy and accuracy of our counterparties’ sales and accounting functions.

While we may be able to receive certain information relating to sales of products through the exercise of audit rights and review of royalty reports we receive from the licensor, such information may be received many months following our recognition of the royalty revenue, may require us to adjust our royalty revenues in later periods and may require expense on our part.

We have limited information on the marketers’ operations. We will not have the right to review or receive certain information relating to products that the marketers may have, including the results of any studies conducted by the marketers or others, or complaints from doctors or users of products. The market performance of the products generating our royalties may therefore be diminished by any number of factors relating to the marketers that are outside of our control.

The marketers of biopharmaceutical products are, generally, entirely responsible for the ongoing regulatory approval, commercialization, manufacturing and marketing of products.

Generally, the holders of royalties on products have granted exclusive regulatory approval, commercialization, manufacturing and marketing rights to the marketers of such products. The marketers have full control over those efforts and sole discretion to determine the extent and priority of the resources they will commit to their program for a product. Accordingly, the successful commercialization of a product depends on the marketer’s efforts and is beyond our control. If a marketer does not devote adequate resources to the ongoing regulatory approval, commercialization and manufacture of a product, or if a marketer engages in illegal or otherwise unauthorized practices, the product’s sales may not generate sufficient royalties, or the product’s sales may be suspended, and consequently, could adversely affect our business. In addition, if marketers of biopharmaceutical products decide to discontinue product programs or we believe the commercial prospects of assets have been reduced, we may recognize material non-cash impairment charges related to the financial royalty asset associated with those programs or assets.

License agreements relating to products may, in some instances, be unilaterally terminated or disputes may arise which may affect our royalties.

License agreements relating to the products generating our royalties may be terminated, which may adversely affect sales of such products and therefore the payments we receive. For example, under certain license agreements, marketers retain the right to unilaterally terminate the agreements with the licensors. When the last patent covering a product expires or is otherwise invalidated in a country, a marketer may be economically motivated to terminate its license agreement, either in whole or with respect to such country, in order to terminate its payment and other obligations. In the event of any such termination, a licensor may no longer receive all of the payments it expected to receive from the licensee and may also be unable to find another company to continue developing and commercializing the product on the same or similar terms as those under the license agreement that has been terminated.

In addition, license agreements may fail to provide significant protection for the licensor in case of the licensee’s failure to perform or in the event of disputes. License agreements which relate to the products underlying our royalties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what the licensor believes to be the scope of its rights to the relevant intellectual property or technology, or decrease the licensee’s financial or other obligations under the relevant agreement, any of which could in turn impact the value of our royalties and adversely affect our business, financial condition and results of operations. If a marketer were to default on its obligations under a license agreement, the licensor’s remedy may be limited either to terminating certain licenses related to certain countries or to generally terminate the license agreement with respect to such country. In such cases, we may not have the right to seek to enforce the rights of the licensor and we may be required to rely on the resources and willingness of the licensor to enforce its rights against the licensee.

In any of these situations, if the expected payments under the license agreements do not materialize, this could result in a significant loss to us and adversely affect our business, financial condition and results of operations.

The insolvency of a marketer could adversely affect our receipt of cash flows on the related royalties that we hold.

If a marketer were to become insolvent and seek to reorganize under Chapter 11 of Title 11 of the U.S. Code, as amended, or the Bankruptcy Code, or liquidate under Chapter 7 of the Bankruptcy Code (or foreign equivalent), such event could delay or impede the payment of the amounts due under a license agreement, pending a resolution of the insolvency proceeding. Any unpaid royalty payments due for the period prior to the filing of the bankruptcy proceeding would be unsecured claims against the marketer, which might not be paid in full or at all. While royalty payments due for periods after the filing may qualify as administrative expenses entitled to a higher priority, the actual payment of such post-filing royalty payments could be delayed for a substantial period of time and might not be in the full amount due under the license agreement. The licensor would be prevented by the automatic stay from taking any action to enforce its rights without the permission of the bankruptcy court. In addition, the marketer could elect to reject the license agreement, which would require the licensor to undertake a new effort to market the applicable product with another distributor. Such proceedings could adversely affect the ability of a payor to make payments with respect to a royalty, and could consequently adversely affect our business, financial condition and results of operations.

Unsuccessful attempts to acquire new royalties could result in significant costs and negatively impact subsequent attempts to locate and acquire other assets.

The investigation of each specific target royalty and the negotiation, drafting and execution of relevant agreements, disclosure and other documents requires substantial management time and attention and results in substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific acquisition, the costs incurred for the proposed transaction would not be recoverable from a third party. Furthermore, even if an agreement is reached relating to a specific target asset, we may fail to consummate the acquisition for any number of reasons, including, in the case of an acquisition of a royalty through a business combination with a public company, approval by the target company’s public shareholders. Multiple unsuccessful attempts to acquire new royalties could hurt our reputation, result in significant costs and an inefficient use of the Manager’s time. The opportunity cost of diverting management and financial resources could negatively impact our ability to locate and acquire other assets.

The products that generate our royalties are subject to uncertainty related to healthcare reimbursement policies, managed care considerations, pricing pressures and the regulation of the healthcare industry.

In both U.S. and non-U.S. markets, sales of biopharmaceutical products, and the success of such products, depends in part on governmental regulation and the availability and extent of coverage and reimbursement from third-party payors, including government healthcare programs in addition to private insurance plans.

In the United States, pharmaceutical product pricing is subject to enhanced government regulation, public scrutiny and calls for reforms. For example, in August 2022, President Biden signed into law the Inflation Reduction Act (“IRA”), which includes significant drug pricing provisions, including (i) inflation rebates, where drug manufacturers must pay a rebate to the government if the prices of their covered single-source drugs and biologics rise faster than the rate of inflation; (ii) Medicare Part D redesign where beneficiaries’ out-of-pocket costs are capped, payment obligation for initial coverage is redistributed with drug manufacturers paying 10% on all drugs and the coverage gap is eliminated, as well as requiring Part D plans to pay a larger portion of the catastrophic phase with drug manufacturers covering 20% of the costs; and (iii) Medicare negotiation, which requires the Department of Health and Human Services (“HHS”) to negotiate prices for certain drugs covered by Medicare Part B and Part D through a drug price negotiation program. In October 2022, President Biden signed an executive order that instructs HHS to consider whether to select for testing new health care payment and delivery models that would lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs. In addition, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the “ACA”) was enacted by Congress in March 2010 and established a major expansion of healthcare coverage, financed in part by a number of new rebates, discounts and taxes that had a significant effect on the expenses and profitability on the companies that manufacture the products that generate our royalties. These companies and their products face uncertainty due to federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the IRA and the ACA.

Other U.S. federal or state legislative or regulatory action or policy efforts could adversely affect the healthcare industry, including, among others, additional transparency and limitations related to product pricing, review the relationship between pricing and manufacturer patient programs, general budget control actions, changes in patent laws, the importation of prescription drugs from outside the United States at prices that are regulated by governments of various foreign countries, revisions to reimbursement of biopharmaceutical products under government programs, restrictions on U.S. direct-to-consumer advertising or limitations on interactions with healthcare professionals. No assurances can be provided that these laws and regulations will not adversely affect our business, financial condition and results of operations.

The growth of large managed care organizations and prescription benefit managers, as well as the prevalence of generic substitution, has hindered price increases for prescription drugs. Continued intense public scrutiny of the price of drugs, together with government and payor dynamics, may limit the ability of producers and marketers to set or adjust the price of products based on their value. There can be no assurance that new or proposed products will be considered cost-effective or that adequate third-party reimbursement will be available to enable the producer or marketer of such product to maintain price levels sufficient to realize an appropriate return. These pricing pressures may adversely affect our current royalties and the attractiveness of future acquisitions of royalties.

Outside the United States, numerous major markets, including the EU, Japan and China, have pervasive government regulation of healthcare and government involvement in funding healthcare, and, in that regard, fix the pricing and reimbursement of pharmaceutical products. Consequently, in those markets, the products generating our royalties are subject to government decision-making and budgetary actions.

In addition, many of the products in our portfolio benefit from regulatory exclusivity. If, in an effort to regulate pricing, regulatory exclusivity is not maintained, our business, financial condition and results of operations may be adversely impacted.

The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies, which could reduce the value of the royalties that we hold.

In an effort to contain the U.S. federal deficit, the biopharmaceutical industry could be considered a potential source of savings via legislative proposals. Government action to reduce U.S. federal spending on entitlement programs, including Medicare, Medicaid or other publicly funded or subsidized health programs, or to lower drug spending, may affect payment for the products that generate our royalties. These and any other cost controls or any significant additional taxes or fees that may be imposed on the biopharmaceutical industry as part of deficit reduction efforts could reduce cash flows from our royalties and therefore adversely affect our business, financial condition and results of operations.

Sales of products that generate our royalties are subject to regulatory approvals and actions in the United States and foreign jurisdictions that could harm our business.

The procedures to approve biopharmaceutical products for commercialization vary among countries and can involve additional testing and time. Such procedures may include on-site inspections by regulatory authorities at clinical trial sites or manufacturing facilities, which inspections may be delayed by travel restrictions imposed in response to the COVID-19 pandemic or other pandemics. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval and many include additional risks, such as pricing approval.

There can be no assurance that any of these regulatory approvals will be granted or not be revoked or restricted in a manner that would adversely affect the sales of such products and on the ability of payors to make payments with respect to such royalties to us.

The manufacture and distribution of a biopharmaceutical product may be interrupted by regulatory agencies or supplier deficiencies.

The manufacture of products generating our royalties is typically complex and is highly regulated. In particular, biopharmaceutical products are manufactured in specialized facilities that require the approval of, and ongoing regulation by, the FDA in the United States and, if manufactured outside of the United States, both the FDA and non-U.S. regulatory agencies, such as the MHRA and the EMA. With respect to a product, to the extent that operational standards set by such agencies are not adhered to, manufacturing facilities may be closed or production interrupted until such time as any deficiencies noted by such agencies are remedied. Any such closure or interruption may interrupt, for an indefinite period of time, the manufacture and distribution of a product and therefore the cash flows from the related biopharmaceutical asset may be significantly less than expected.

In addition, manufacturers of a product may rely on third parties for selected aspects of product development, such as packaging or to supply bulk raw material used in the manufacture of such product. In the United States, the FDA requires that all suppliers of pharmaceutical bulk materials and all manufacturers of pharmaceuticals for sale in or from the United States adhere to the FDA’s current “Good Manufacturing Practice” regulations and guidelines and similar requirements that exist in jurisdictions outside the United States. Licensees generally rely on a small number of key, highly specialized suppliers, manufacturers and packagers. Any interruptions, however minimal, in the operation of these manufacturing and packaging facilities could adversely affect production and product sales and therefore adversely affect our business, financial condition and results of operations.

Product liability claims may diminish the returns on biopharmaceutical products.

The developer, manufacturer or marketer of a product could become subject to product liability claims. A product liability claim, regardless of its merits, could adversely affect the sales of the product and the amount of any related royalty payments, and consequently, could adversely affect the ability of a payor to make payments with respect to a royalty.

Although we believe that we will not bear responsibility in the event of a product liability claim against the developer, manufacturer, marketer or other seller of the product that generates our royalty, such claims could adversely affect our business, financial condition and results of operations due to the lower than expected cash flows from the royalty.

We are typically not involved in maintaining, enforcing and defending patent rights on products that generate our royalties.

Our right to receive royalties generally depends on the existence of valid and enforceable claims of registered or issued patents in the United States and elsewhere in the world. The products on which we receive payments are dependent on patent protection and on the fact that the manufacturing, marketing and selling of such products do not infringe, misappropriate or otherwise violate intellectual property rights of third parties. Typically, we have no ability to control the prosecution, maintenance, enforcement or defense of patent rights, but must rely on the willingness and ability of our partners or their marketers to do so. There can be no assurance that these third parties will vigorously prosecute, maintain, enforce or defend such rights. Even if such third parties seek to prosecute, maintain, enforce or defend such rights, they may not be successful.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation. Furthermore, changes in patent laws or interpretation of patent laws in the United States and in other jurisdictions could increase the uncertainties surrounding the successful prosecution of patent applications and the successful enforcement or defense of issued patents by our partners, all of which could diminish the value of patent protection relating to the biopharmaceutical assets. As a result, the issuance, scope, validity, enforceability and commercial value of the patent rights of our partners and their marketers are highly uncertain. In addition, such third parties’ pending and future patent applications may not result in patents being issued which protect their products, development-stage product candidates and technologies or which effectively prevent others from commercializing competitive products, development-stage product candidates and technologies. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance.

Even if the patent applications our partners and their marketers license or own do issue as patents, they may not issue in a form that will provide them with any meaningful protection, prevent competitors or other third parties from competing with them or otherwise provide them with any competitive advantage. Competitors or other third parties may be able to circumvent patents of our partners and their marketers by developing similar or alternative products in a non-infringing manner. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit the ability of our partners and their marketers from preventing others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of their products, development-stage product candidates and technologies.

Any loss or reduction in the scope or duration of patent protection for any product that generates our royalties, or any failure to successfully prosecute, maintain, enforce or defend any patents that protect any such product may result in a decrease in the sales of such product and any associated royalties payable to us. Any such event would adversely affect the ability of the payor to make payments of royalties to us or may otherwise reduce the value of our royalty interest, and could consequently adversely affect our business, financial condition and results of operations. In cases where our contractual arrangements with our partner permit us to do so, we could participate in patent suits brought by third parties but this could result in substantial litigation costs, divert management’s attention from our core business and there can be no assurance that such suits would be successful.

The existence of third-party patents in relation to products may result in additional costs for the marketer and reduce the amount of royalties paid to us.

The commercial success of a product depends, in part, on avoiding infringement, misappropriation or other violations of the intellectual property rights and proprietary technologies of others. Third-party issued patents or patent applications claiming subject matter necessary to manufacture and market a product could exist or issue in the future. Such third-party patents or patent applications may include claims directed to the composition, manufacturing, mechanism of action or other unique features of a product. There can be no assurance that a license would be available to marketers for such subject matter if such infringement were to exist or, if offered, would be offered on reasonable or commercially feasible terms. Without such a license, it may be possible for third parties to assert infringement or other intellectual property claims against the marketer of such product based on such patents or other intellectual property rights.

Even if the marketer was able to obtain a license, it could be non-exclusive, thereby giving its competitors and other third parties access to the same technologies. In addition, if a marketer of a product that generates our royalties is required to obtain a license from a third party, the marketer may, in some instances, have the right to offset the licensing and royalty payments to such third party against royalties that would be owed to our partner, which may ultimately reduce the value of our royalty interest. An adverse outcome in infringement or other intellectual property-related proceedings could subject a marketer to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the marketer to cease or modify its manufacturing, marketing and distribution of any affected product, any of which could reduce the amount of cash flow generated by the affected products and any associated royalties payable to us and therefore adversely affect our business, financial condition and results of operations.

Disclosure of trade secrets of marketers of products could negatively affect the competitive position of the products underlying our biopharmaceutical assets.

The marketers of the products that generate our royalties depend, in part, on trade secrets, know-how and technology, which are not protected by patents, to maintain the products’ competitive position. This information is typically protected through confidentiality agreements with parties that have access to such information, such as collaborative partners, licensors, employees and consultants. Any of these parties may breach the agreements and disclose the confidential information or competitors might independently develop or learn of the information in some other way, which could harm the competitive position of the products and therefore reduce the amount of cash flow generated by our royalty interest.

The internal computer systems of our counterparties may fail or suffer security breaches, which could result in a significant disruption of their ability to operate their business effectively, adversely affect the cash flow generated by the related biopharmaceutical products, and adversely affect our business, financial condition and results of operations.

The internal computer systems and cloud-based computing services of our counterparties and those of their current and any future collaborators and other contractors or consultants are vulnerable to damage or interruption from computer viruses, data corruption, cyber-based attacks, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. We have been subject to cyber-based attacks and unauthorized access in the past. If such an event were to occur in the future and cause interruptions in their operations, it could result in a disruption of their development and commercialization programs and business operations, whether due to a loss of trade secrets or other proprietary information or other similar disruptions. To the extent that any disruption or security breach were to result in a loss of, or damage to, a counterparties’ data or applications, or inappropriate disclosure of confidential or proprietary information, our partners’ operations may be harmed and the development and commercialization of their products, development-stage product candidates and technologies could be delayed. Such an event may reduce the amount of cash flow generated by the related biopharmaceutical products and therefore adversely affect our business, financial condition and results of operations.

Our ability to pay periodic dividends to our shareholders or make share repurchases may be limited by applicable provisions of English law and contractual restrictions and obligations.

Under English law, we will only be able to declare dividends, make distributions or repurchase shares (other than out of the proceeds of a new issuance of shares for that purpose) out of profits available for distribution. Profits available for distribution are accumulated, realized profits, to the extent that they have not been previously utilized by distribution or capitalization, less its accumulated, realized losses, to the extent that they have not been previously written off in a reduction or reorganization of capital duly made. The amount of our distributable reserves is a cumulative calculation. We may be profitable in a single financial year but unable to pay a dividend or make share repurchases if our accumulated, realized profits do not offset all previous years’ accumulated, realized losses. Additionally, we may only make a distribution if our net assets are not less than the amount of our aggregate called-up share capital and distributable reserves, and if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

Subject to the terms of our indebtedness or other contractual obligations, the approval and payment of any interim dividends are at the sole discretion of our board of directors, which may change our dividend policy at any time and the payment of any final dividends will be subject to majority approval by holders of our Class A ordinary shares and Class B ordinary shares and in each case will be paid out of profits available for that purpose under English law. Our Articles of Association authorize the board of directors to approve interim dividends without shareholder approval to the extent that such dividends appear justified by profits available for such purpose. The board of directors may also recommend final dividends be approved and declared by shareholders at an annual general meeting. No such dividend may exceed the amount recommended by the board of directors.

There can be no assurance that any dividends, whether quarterly or otherwise, will or can be paid or that any shares will or can be repurchased. Whether we pay dividends to our shareholders or make share repurchases depends on a number of factors, including among other things, general economic and business conditions, our strategic plans and prospects, our business and acquisition opportunities, our financial condition and results of operations, working capital requirements and anticipated cash needs, contractual restrictions and obligations, including fulfilling our current and future capital commitments, legal, tax and regulatory restrictions, other restrictions and implications on the payment of dividends by us to our shareholders or making any share repurchases and such other factors as our board of directors may deem relevant.

A shareholder who receives a distribution under circumstances where he or she knows or has reasonable grounds for believing that the distribution is unlawful in the circumstances is obliged to repay such distribution (or that part of it, as the case may be) to us.

If we were determined to be an investment company under the U.S. Investment Company Act of 1940, applicable restrictions could make it impractical for us to continue our business as contemplated and could adversely affect our business, financial condition and results of operations.

We intend to conduct our business so as not to become regulated as an investment company under the U.S. Investment Company Act. An entity generally will be determined to be an investment company for purposes of the U.S. Investment Company Act if, absent an applicable exemption, (i) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the ICA 40% Test.

We do not hold ourselves out as being engaged primarily, or propose to engage primarily, in the business of investing, reinvesting or trading in securities, and believe that we are not engaged primarily in the business of investing, reinvesting or trading in securities. We believe that, for U.S. Investment Company Act purposes, we are engaged primarily, through one or more of our subsidiaries, in the business of purchasing or otherwise acquiring certain obligations that represent part or all of the sales price of merchandise. Our subsidiaries that are so engaged rely on Section 3(c)(5)(A) of the U.S. Investment Company Act, which, as interpreted by the SEC staff, requires each such subsidiary to invest at least 55% of its assets in “notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services,” which we refer to as the ICA Exception Qualifying Assets.

In a no-action letter, dated August 13, 2010, to our predecessor, the SEC staff promulgated an interpretation that royalty interests that entitle an issuer to collect royalty receivables that are directly based on the sales price of specific biopharmaceutical assets that use intellectual property covered by specific license agreements are ICA Exception Qualifying Assets under Section 3(c)(5)(A). We rely on this no-action letter for the position that royalty receivables relating to biopharmaceutical assets that we hold are ICA Exception Qualifying Assets under Section 3(c)(5)(A) and Section 3(c)(6), which is described below.

To ensure that we are not obligated to register as an investment company, we must not exceed the thresholds provided by the ICA 40% Test. For purposes of the ICA 40% Test, the term investment securities does not include U.S. government securities or securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on Section 3(c)(1) or Section 3(c)(7) of the U.S. Investment Company Act, such as majority-owned subsidiaries that rely on Section 3(c)(5)(A). We also may rely on Section 3(c)(6), which, based on SEC staff interpretations, requires us to invest, either directly or through majority-owned subsidiaries, at least 55% of our assets in, as relevant here, businesses relying on Section 3(c)(5)(A). Therefore, the assets that we and our subsidiaries hold and acquire are limited by the provisions of the U.S. Investment Company Act and the rules and regulations promulgated thereunder.

If the SEC or its staff in the future adopts a contrary interpretation to that provided in the no-action letter to our predecessor or otherwise restricts the conclusions in the SEC staff’s no-action letter such that royalty interests are no longer treated as ICA Exception Qualifying Assets for purposes of Section 3(c)(5)(A) and Section 3(c)(6), or the SEC or its staff in the future determines that the no-action letter does not apply to some or all types of royalty receivables relating to biopharmaceutical assets, our business will be materially and adversely affected. In particular, we would be required either to convert to a corporation formed under the laws of the United States or a state thereof (which would likely result in our being subject to U.S. federal corporate income taxation) and to register as an investment company, or to stop all business activities in the United States until such time as the SEC grants an application to register us as an investment company formed under non-U.S. law. It is unlikely that such an application would be granted and, even if it were, requirements imposed by the Investment Company Act, including limitations on our capital structure, our ability to transact business with affiliates and our ability to compensate key employees, could make it impractical for us to continue our business as currently conducted. Our ceasing to qualify for an exemption from registration as an investment company could materially and adversely affect the value of our Class A ordinary shares and our ability to pay dividends in respect of our Class A ordinary shares.

The equity performance awards payable to an affiliate of the Manager may create incentives that are not fully aligned with the interests of our shareholders.

Subject to certain conditions, at the end of each fiscal quarter, an affiliate of the Manager is entitled to a distribution in the form of equity 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 right to Equity Performance Awards may create an incentive for the Manager to make riskier or more speculative asset acquisitions. In addition, the Manager may cause us to incur more debt, finance additional asset acquisitions or otherwise use more leverage in connection with asset acquisitions, as generally the use of leverage can increase the rate of return on an investment and therefore our profits. Under certain circumstances, the use of borrowed money may pose higher risks for our business or increase the likelihood of default, which would disfavor our shareholders. In addition, there is no correlation between our profits and the obligation of our board of directors to pay dividends to shareholders. Consequently, shareholders may receive limited or no dividends while an affiliate of the Manager remains entitled to Equity Performance Awards based on our Net Economic Profit. In addition, even though Equity Performance Awards are payable on a portfolio-by-portfolio basis (with portfolios comprised of investments made during sequential two-year periods) in order to reduce the risks that affiliates of the Manager will be paid Equity Performance Awards on individual investments even though our overall portfolio of investments is not performing well, Equity Performance Awards may nevertheless be payable to affiliates of the Manager when our overall portfolio of investments is not performing as well as the individual portfolios that are used as the basis for measuring the Equity Performance Awards.

Our board of directors may make decisions with respect to the cash generated from our operations that may result in no dividends paid to our shareholders or no repurchases made of our ordinary shares.

Our board of directors is under no obligation to pay dividends, make distributions or repurchase our ordinary shares and it may decide to use cash to fund asset acquisitions or operations in lieu of paying dividends, making distributions or repurchasing our ordinary shares. We will pay Equity Performance Awards to an affiliate of the Manager based on our Net Economic Profit regardless of whether any dividends are paid to our shareholders or any ordinary shares are repurchased. Our board of directors’ decisions with respect to our cash may result in no dividends to our shareholders and no ordinary shares repurchased. Furthermore, our board of directors’ decisions with respect to dividends or repurchases of ordinary shares may adversely affect the market price of our Class A ordinary shares. In the event that we generate positive income, but pay limited or no dividends, holders of Class A ordinary shares may, if they have made certain elections for U.S. federal income tax purposes with respect to their Class A ordinary shares, have a tax liability on our income in excess of the actual cash dividends received by such holders. If our board of directors decides to approve limited or no dividends or repurchases of ordinary shares, the primary remedy for holders of Class A ordinary shares will be to sell their shares at the prevailing market price, including at a loss, which may be low due to unfavorable or inconsistent dividends or repurchases of our ordinary shares.

The royalties that we acquire may fall outside the biopharmaceutical industry, and any such assets, and the cash flows therefrom, may not resemble the assets in our current portfolio.

We have discretion as to the types of assets that we may acquire. While we expect the Manager to acquire assets that primarily fall within the biopharmaceutical industry, we are not obligated to do so and may acquire other types of assets that are peripheral to or outside of the biopharmaceutical industry. Consequently, our asset acquisitions in the future, and the cash flows from such assets, may not resemble those of the assets in our current portfolio. There can be no assurance that assets acquired in the future will have returns similar to the returns expected of the assets in our current portfolio or be profitable at all.

The Manager may be the subject of a change of control resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.

There could be a change of control of the Manager and, in such a case, the new controlling party may have a different philosophy, employ less experienced advisory professionals, be unsuccessful in identifying asset acquisition opportunities or have a track record that is not as successful as that of the Manager prior to such a change of control. If the foregoing were to occur, we could experience difficulty in making new asset acquisitions, and the value of our existing assets, our business, financial condition and results of operations could materially suffer.

The Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify the Manager against certain liabilities. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable.

The Manager does not assume any responsibility other than to render the services called for under the Management Agreement. The Manager and its affiliates (including RPI EPA Holdings, LP (“EPA Holdings”)) and their respective officers, directors, equity holders, members, employees, agents and partners, and any other person who is entitled to indemnification (each, an “Indemnitee”) is not liable to us, any subsidiary of ours, our directors, our shareholders or any subsidiary’s shareholders or partners for acts or omissions performed in accordance with to the Management Agreement, except those resulting from acts constituting fraud, bad faith, willful misconduct, gross negligence (as interpreted under New York law) and a material breach of the Management Agreement that is not cured or a violation of applicable securities laws.

In addition, to the fullest extent permitted by law, we have agreed to indemnify the Indemnitees 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 us or any of our subsidiaries to the extent that such Indemnitee’s conduct did not constitute fraud, bad faith, willful misconduct, gross negligence (as interpreted under New York law), material breach of the Management Agreement that is not cured or a violation of applicable securities laws. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable.

Operational risks may disrupt our businesses, result in losses or limit our growth.

We rely heavily on the Manager’s financial, accounting, information and other data processing systems and cloud computing services, as well as those of our current and future collaborators, contractors or consultants. Such systems are vulnerable to damage or interruption from computer viruses, data corruption, cyber-based attacks, unauthorized access, natural disasters, pandemics, such as the COVID-19 pandemic, terrorism, war and telecommunication and electrical failures. If any of these events occur and such systems do not operate properly or are disabled or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our business, loss of trade secrets or other proprietary information, liability to us, regulatory intervention or reputational damage.

Furthermore, federal, state and international laws and regulations relating to data privacy and protection, such as the European Union’s General Data Protection Regulation, which took effect in May 2018, and the California Consumer Privacy Act, which took effect in January 2020, can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties and significant legal liability, if our information technology security efforts or data privacy and protection compliance efforts fail. In addition, we operate a business that is highly dependent on information systems and technology. The Manager’s information systems and technology may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase. Such a failure to accommodate growth, or an increase in costs related to such information systems, could adversely affect our business, financial condition and results of operations.

A disaster or a disruption in the public infrastructure that supports our business, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, could adversely affect our ability to continue to operate our business without interruption. Our disaster recovery programs and those of the Manager may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.

In addition, sustaining our growth may require us or the Manager to commit additional management, operational and financial resources to identify new professionals to join the team and to maintain appropriate operational and financial systems to adequately support expansion. Due to the fact that the market for hiring talented professionals is competitive, we may not be able to grow at the pace we desire.

We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010 (“Bribery Act”), the U.S. Foreign Corrupt Practices Act of 1977, as amended the (“FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, the FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. We and the marketers of products that generate our royalties operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the “Trade Control laws.”

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by the United Kingdom, United States or other authorities could also have an adverse impact on our reputation, our business, financial condition and results of operations.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities or our business arrangements with third parties could be subject to challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices or the business practices of the marketers of products that generate our royalties may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations or the operations of the marketers of products that generate are royalties are found to be in violation of any of these laws or any other governmental regulations, we or marketers of products that generate our royalties may be subject to significant criminal, civil and administrative sanctions, including monetary penalties, damages, fines, disgorgement, individual imprisonment and exclusion from participation in government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we or marketers of products that generate our royalties become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm, and we or marketers of products that generate our royalties may be required to curtail or restructure operations, any of which could adversely affect our ability to operate our business and our results of operations.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

The EU directive on alternative investment fund managers (the “AIFM Directive”) may significantly increase our compliance costs.

The AIFM Directive has been implemented into the national law of the majority of member states of the European Economic Area and the United Kingdom (each an “AIFM state”). The AIFM Directive sets out minimum conditions related to the marketing of interests in alternative investment funds (such as our Class A ordinary shares) in the AIFM states and may impact our ability to attract investors in the AIFM states and may significantly increase our and the Manager’s compliance costs. Such conditions include requirements for us to register with the competent authority in the relevant AIFM state in order to market the Class A ordinary shares to investors, requirements to file periodic reports with the competent authority in the relevant AIFM state and requirements to comply with disclosure and reporting obligations in respect of investors in the relevant AIFM state. Such reports and disclosures may become publicly available. While such conditions are met in relation to the AIFM states where our Class A ordinary shares will be marketed, there can be no guarantee that this will continue to be the case. The AIFM Directive does not, however, prohibit an investor in such AIFM state from subscribing for our Class A ordinary shares at their own initiative in circumstances where such Class A ordinary shares have not been marketed in such AIFM state and we may issue our Class A ordinary shares to such investors, as long as they have provided us and the Manager with representations that they have done so at their own initiative.

In each AIFM state, our Class A ordinary shares may only be offered to investors in accordance with local measures implementing the AIFM Directive. Investors, together with any person making or assisting in the decision to invest in us, who are situated, domiciled or who have a registered office, in an AIFM state where our Class A ordinary shares are not being offered pursuant to private placement rules implementing the AIFM Directive may invest, or effect an investment in our Class A ordinary shares, but only in circumstances where they do so at their own initiative. Any investor acquiring our Class A ordinary shares at their own initiative in such AIFM state should note that as we have not been registered for marketing in that AIFM state, no reports will be filed with the competent authority in the relevant AIFM state by or in respect of us and no investor shall be entitled to receive any disclosure or report that is mandated in respect of an alternative investment fund being marketed pursuant to the AIFM Directive.

The United Kingdom implemented the AIFM Directive through the Alternative Investment Managers Regulations 2013 and the Financial Conduct Authority’s Handbook. Following the United Kingdom’s withdrawal the European Union and the expiration of the transitional period, the rules applicable to the marketing of interests in alternative investment funds in the United Kingdom and the other AIFM states remained largely aligned. However, there are now areas of divergence which are likely to grow as the United Kingdom seeks to adopt a new post-Brexit financial services regulatory regime. Such divergence may make it more time consuming and complex for us to market our Class A ordinary shares to investors in the United Kingdom and other AIFM states which, in turn, may significantly increase our and the Manager’s compliance costs.

Risks Relating to Our Organization and Structure

We are a holding company with no operations and rely on our subsidiaries to provide us with the funds necessary to meet our financial obligations and to pay dividends.

We are a holding company with no material direct operations. Our principal asset is our controlling equity interest in RP Holdings. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends or make distributions to our shareholders. Our subsidiaries are legally distinct from us and may be prohibited or restricted from providing loans, paying dividends or otherwise making funds available to us under certain conditions. If the cash we receive from our subsidiaries is insufficient for us to fund our financial obligations, we may be required to raise cash through the incurrence of debt, the issuance of equity or the sale of assets to fund. However, there is no assurance that we would be able to raise cash by these means. If the ability of any of our subsidiaries to pay dividends or make distributions or payments to us is materially restricted by regulatory or legal requirements, bankruptcy or insolvency, or our need to maintain our financial strength ratings, or is limited due to operating results or other factors, it could adversely affect our ability to meet our financial obligations and to pay dividends or make distributions to our shareholders.

Our structure will result in tax distributions as a result of the RP Holdings Class C Special Interest.

RP Holdings is treated as a partnership for U.S. federal income tax purposes and has owners that are subject to U.S. federal income taxation. RP Holdings is required to make cash distributions, or tax distributions, to the direct owner or beneficial owners of the RP Holdings Class C Special Interest, calculated using an assumed tax rate that is generally uniform for all recipients regardless of their tax status. Funds used by RP Holdings to satisfy its tax distribution obligations will not be available for reinvestment in our business.

Risks Relating to Our Ordinary Shares

The market price of our Class A ordinary shares has been and may in the future be volatile, which could cause the value of our shareholders’ investment to decline.

The market price of our Class A ordinary shares has been and may be volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. Market volatility, as well as general economic, market or political conditions, could reduce the market price of Class A ordinary shares in spite of our operating performance. In addition to the factors discussed in this Quarterly Report on Form 10-Q, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including:

• market conditions in the broader stock market in general, or in our industry in particular;

• variations in our quarterly operating results or dividends to shareholders;

• additions or departures of key management personnel at the Manager;

• timing and rate of capital deployment, including relative to estimates;

• changes in our portfolio mix or acquisition strategy;

• failure to meet analysts’ earnings estimates;

• publication of research reports about our industry;

• third-party healthcare reimbursement policies and practices;

• litigation and government investigations;

• changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business;

• no results, or projected results, from marketers of products that generate our royalties;

• results from, and any delays to, the clinical trial programs of development-stage product candidates underlying our biopharmaceutical assets or other issues relating to such products, including regulatory approval or commercialization;

• adverse market reaction to any indebtedness that we may incur or securities we may issue in the future;

• changes in market valuations of similar companies or speculation in the press or investment community;

• announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;

• economic and political conditions or events, such as the COVID-19 pandemic, inflation and rising interest rates and global conflicts, including the Russia-Ukraine war; and

• adverse publicity about us or the industries in which we participate or individual scandals.

These and other factors may cause the market price of and demand for our Class A ordinary shares to fluctuate significantly, which may limit or prevent our shareholders from reselling their Class A ordinary shares at or above the purchase price.

Stock markets in general have from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against public companies. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Our Articles of Association provide that the courts of England and Wales will be the exclusive forum for the resolution of all shareholder complaints other than complaints asserting a cause of action arising under the Securities Act and the Exchange Act, and that the U.S. federal district courts will be the exclusive forum for the resolution of any shareholder complaint asserting a cause of action arising under the Securities Act and the Exchange Act.

Our Articles of Association provide that the courts of England and Wales will be the exclusive forum for resolving all shareholder complaints other than shareholder complaints asserting a cause of action arising under the Securities Act and the Exchange Act, and that the U.S. federal district courts will be the exclusive forum for resolving any shareholder complaint asserting a cause of action arising under the Securities Act and the Exchange Act. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that such shareholder finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits. If a court were to find either choice of forum provision contained in our Articles of Association to be inapplicable or unenforceable, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our results of operations and financial condition.

U.S. investors may have difficulty enforcing civil liabilities against our company, our directors or members of senior management and the experts named herein.

We are a public limited company with our registered office in England and our subsidiaries are incorporated in various jurisdictions, including jurisdictions outside the United States. One of our directors is not a resident of the United States, and a substantial portion of our assets and the assets of this director are located outside the United States. As a result, it may be difficult for investors to effect service of process on this director in the United States or to enforce judgments obtained in U.S. courts against us or this director based on the civil liability provisions of the U.S. securities laws or otherwise. Even if shareholders are successful in bringing an action of this kind, the laws of England may render shareholders unable to enforce a judgment against our assets or the assets of our directors and executive officers. In addition, it is doubtful whether English courts would enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. An award for monetary damages under the U.S. securities laws would likely be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in the United Kingdom will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. As a result of the above, shareholders may have more difficulty in protecting their interest through actions against our management, directors or other shareholders than they would as shareholders of a U.S. public company.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under English law. The rights of our shareholders are governed by English law, including the provisions of the Companies Act 2006 (the “U.K. Companies Act”), and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations.

The U.K. City Code on Takeovers and Mergers (the “Takeover Code”) applies, among other things, to an offer for a public company whose registered office is in the United Kingdom (or the Channel Islands or the Isle of Man) and whose securities are not admitted to trading on a regulated market in the United Kingdom (or the Channel Islands or the Isle of Man) if the company is considered by the Panel on Takeovers and Mergers (the “Takeover Panel”) to have its place of central management and control in the United Kingdom (or the Channel Islands or the Isle of Man). This is known as the “residency test.” Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the United Kingdom by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.

Given that our central management and control is situated outside the United Kingdom (or the Channel Islands or the Isle of Man), we do not anticipate that we will be subject to the Takeover Code. However, if at the time of a takeover offer, the Takeover Panel determines that we have our place of central management and control in the United Kingdom (or the Channel Islands or the Isle of Man), we would be subject to a number of rules and restrictions, including but not limited to the following: (i) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (ii) we might not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (iii) we would be obliged to provide equality of information to all bona fide competing bidders.

Under English law, and whether or not we are subject to the Takeover Code, an offeror for us that has acquired (i) 90% in value of; and (ii) 90% of the voting rights carried by the shares to which the offer relates may exercise statutory squeeze-out rights to compulsorily acquire the shares of the non-assenting minority. However, if an offer for us is conducted by way of a scheme of arrangement the threshold for the offeror obtaining 100% of Company shares comprises two components (i) approval by a majority in number of each class of Company shareholders present and voting at the shareholder meeting; and (ii) approval of Company shareholders representing 75% or more in value of each class of Company shareholders present and voting at that meeting.

As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure.

We are a public limited company incorporated under the laws of England and Wales. English law provides that a board of directors may only allot shares (or rights to subscribe for or convert into shares) with the prior authorization of shareholders, such authorization stating the aggregate nominal amount of shares that it covers and valid for a maximum period of five years, each as specified in the articles of association or relevant shareholder resolution. We have obtained authority from our shareholders to allot additional shares for a period expiring on May 31, 2025, which authorization will need to be renewed upon expiration (i.e., at least every five years) but may be sought more frequently for additional five-year terms (or any shorter period).

English law also generally provides shareholders with preemptive rights when new shares are issued for cash. However, it is possible for the articles of association, or for shareholders to pass a special resolution at a general meeting, being a resolution passed by at least 75% of the votes cast, to disapply preemptive rights. Such a disapplication of preemptive rights may be for a maximum period of up to five years from the date of adoption of the articles of association, if the disapplication is contained in the articles of association, or from the date of the shareholder special resolution, if the disapplication is by shareholder special resolution. In either case, this disapplication would need to be renewed by our shareholders upon its expiration (i.e., at least every five years). We have obtained authority from our shareholders to disapply preemptive rights for a period expiring on May 31, 2025, which disapplication will need to be renewed upon expiration (i.e., at least every five years) to remain effective, but may be sought more frequently for additional five-year terms (or any shorter period).

English law prohibits us from repurchasing our shares by way of “off market purchases” without the prior approval of shareholders by ordinary resolution (i.e., majority of votes cast by our shareholders), and other formalities. Such approval may be for a maximum period of up to five years but may be sought more frequently. English law prohibits us from conducting “on market purchases” as our shares are listed on the NASDAQ and will not be traded on a recognized investment exchange in the United Kingdom.

Our shareholders approved the authorization of certain “off market purchases” that will expire five years from June 23, 2022 unless renewed by our shareholders prior to the expiration date. We cannot assure shareholders that situations will not arise where such shareholder approval requirements for any of these actions would deprive our shareholders of substantial capital management benefits.

The United Kingdom’s withdrawal from the European Union and differing regulatory regimes may have a negative effect on global economic conditions, financial markets and our business, which could reduce the market price of our Class A ordinary shares.

The withdrawal of the United Kingdom from the European Union (commonly referred to as “Brexit”) took effect on January 31, 2020. On December 30, 2020, the United Kingdom passed legislation giving effect to a trade and cooperation agreement, with the EU, which became effective on May 1, 2021. The trade and cooperation agreement covers the general objectives and framework of the relationship between the United Kingdom and the European Union, including as it related to trade, transport, visas, judicial, law enforcement and security matters, and provides for continued participation in community programs and mechanisms for dispute resolution. Notably, under the trade and cooperation agreement, U.K. service suppliers no longer benefit from automatic access to the entire EU single market, U.K. goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the United Kingdom and the European Union. Currently, the United Kingdom has implemented EU legislation on the marketing, promotion and sale of medicinal products through the Human Medicines Regulations 2012, as amended. The regulatory regime in the United Kingdom therefore mostly aligns with EU regulations, however it is possible that these regimes will diverge in future as the trade and cooperation agreement does not provide for mutual recognition of U.K. and EU pharmaceutical legislation. Brexit and its related effects could adversely affect our operations and the market price of our Class A ordinary shares.

If our Class A ordinary shares are not eligible for continued deposit and clearing within the facilities of DTC, then transactions in our securities may be disrupted.

The facilities of The Depository Trust Company (“DTC”) are a widely-used mechanism that allow for rapid electronic transfers of securities between the participants in the DTC system, which include many banks and brokerage firms. While our Class A ordinary shares are eligible for deposit and clearing within the DTC system, DTC has discretion to cease to act as a depository and clearing agency for our Class A ordinary shares, including to the extent that any changes in U.K. law change the stamp duty or stamp duty reserve tax (“SDRT”) position in relation to the Class A ordinary shares. If DTC determined that the Class A ordinary shares were not eligible for continued deposit and clearance within its facilities, our Class A ordinary shares may not be eligible for continued listing on the NASDAQ and trading in the Class A ordinary shares would be disrupted. While we would pursue alternative arrangements to preserve our listing and maintain trading, any such disruption could adversely affect the market price of our Class A ordinary shares and our access to the capital markets.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the requirements of the U.S. Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and the requirements of the U.K. Companies Act and, if applicable, the Takeover Code. The requirements of these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources.

We are obligated to file with the SEC annual and quarterly information and other reports that are specified in the Exchange Act, and therefore will need to have the ability to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we are subject to other reporting and corporate governance requirements, including certain requirements of Nasdaq and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.

We are required to comply with Section 404 of the Sarbanes-Oxley Act, which requires management assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures. If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately and to prepare financial statements within required time periods could be adversely affected, which could subject us to regulatory consequences, including sanctions by the SEC, negatively affect investor confidence in our financial statements, restrict access to capital markets and adversely impact the market price of our Class A ordinary shares.

Our compliance with the requirements under the Exchange Act, the Sarbanes-Oxley Act, the U.K. Companies Act and, if applicable, the Takeover Code and the rules and regulations thereunder increases our legal and financial compliance costs and makes some activities more time consuming and costly. These rules and regulations have made it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, and we may in the future be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We may not be able to predict or estimate accurately the amount of additional costs we may incur or the timing of such costs.

Risks Relating to Taxation

Our structure involves complex provisions of tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.

Our tax treatment, including Irish, U.K. and U.S. federal income tax treatment, depends in some instances on determinations of fact and interpretations of complex provisions of applicable tax law for which no clear precedent or authority may be available. You should be aware that our tax position is not free from doubt, and that applicable tax rules are generally subject to ongoing review by legislative and administrative bodies and relevant tax authorities, as well as by the Organization for Economic Co-operation and Development (“OECD”), which is continuously considering recommendations for changes to existing tax rules. Furthermore, over 130 member jurisdictions of the G20/OECD Inclusive Framework have joined the Two-Pillar Solution to Address the Tax Challenges of the Digitalization of the Economy as part of the OECD’s base erosion and profit sharing project (“BEPS”), which includes a reallocation of taxing rights among market jurisdictions and a global minimum tax rate of 15%. As proposals to change tax laws and the implementation of the BEPS framework remain subject to further negotiation, we are currently unable to predict the extent to which any changes to tax laws, statutes, rules, regulations or ordinances will occur and, if so, the ultimate impact on our business. These review processes could result in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. No ruling will be sought from the relevant tax authority regarding any of the tax issues discussed herein, and no assurance can be given that the relevant tax authorities will not challenge any of our tax positions and that such challenge would not succeed. If any such position is successfully challenged, our tax liabilities could materially increase, which would adversely affect our profitability and cash flows.

There have been significant changes both made and proposed to international tax laws that increase the complexity, burden and cost of tax compliance for all multinational companies. We expect to continue to monitor these and other developments in international tax law.

We could be liable for significant taxes due to changes in our eligibility for certain income tax treaty benefits or challenges to our tax positions with respect to the application of income tax treaties.

Our subsidiaries expect to receive revenue from both U.S. and non-U.S. sources. We expect that our subsidiaries generally will be eligible for benefits under the applicable income tax treaties between Ireland and the jurisdictions where income is sourced. However, no assurances can be provided in this regard, and it is possible that a taxing authority could successfully assert that any of our subsidiaries does not qualify for treaty benefits as a result of its failure to satisfy the applicable requirements to be eligible to claim treaty benefits. If a taxing authority were to challenge our position regarding the application of an applicable income tax treaty, we could become subject to increased withholding taxes, and such taxes could be significant.

Specifically, with respect to certain U.S.-source income, we expect that our subsidiaries will be eligible for benefits under the U.S.-Ireland income tax treaty (the “Treaty”), and, under that Treaty, will not be subject to any U.S. withholding taxes on such U.S.-source payments. Our current treaty position with respect to U.S.-source payments relies in part on U.S. citizens or tax residents (as defined for purposes of the Treaty) owning, directly or indirectly, at least 50% of the beneficial interest in, or at least 50% of the aggregate vote and value of, each of our subsidiaries that earns U.S.-source income. Our treaty position is based on the current U.S. status of the majority of the existing indirect investors in RP Holdings and Old RPI. Subject to certain exceptions, the existing indirect U.S. investors in RP Holdings have the right to exchange their interests for our publicly traded Class A ordinary shares. Such publicly traded Class A ordinary shares could be further transferred on the public market to other persons. Therefore, it is possible that over time U.S. persons will own indirectly in the aggregate less than 50% of the interests in our subsidiaries. We currently expect that our Class A ordinary shares and other existing indirect interests in RP Holdings and Old RPI in the aggregate will continue to be owned in sufficient amount by U.S. citizens or tax residents, and that we will be able to establish such ownership, for purposes of satisfying the 50% ownership requirement under the Treaty. However, there is no assurance that RP Holdings and Old RPI will continue to be owned directly or indirectly by sufficient U.S. citizens or residents or that we will be able to establish to the IRS’ satisfaction such ownership for purposes of satisfying the 50% U.S. ownership requirement under the Treaty. It is possible that if the indirect U.S. ownership in our subsidiaries becomes lower than 50% (or we cannot establish such ownership) we may in the future be able to qualify for another applicable exemption from U.S. withholding under the Treaty, but there can be no assurance in this regard. A substantial portion of our revenue is, and is expected to continue to be, derived from U.S.-source royalties. Therefore, if our subsidiaries failed to qualify for an exemption from U.S. withholding tax under the Treaty (by satisfying either the 50% U.S. ownership requirement or an alternative Treaty exemption) and such royalties were subject to a 30% U.S. withholding tax, our financial position, profitability and cash flows could be adversely affected.

Furthermore, on August 25, 2016, the Irish Department of Finance announced that, in the context of the publication by the United States Treasury Department of a revised U.S. Model Income Tax Convention in February 2016, discussions have begun with the United States Treasury on updating certain elements of the Treaty. It is at this time not clear what elements of the Treaty may be updated, or when any such updates would go into effect. However, certain elements of the revised U.S. Model Income Tax Convention could, if included in an update to the Treaty, result in our subsidiaries being unable to qualify for the benefits of the Treaty or eliminate or reduce the benefits of the Treaty that otherwise would have been available to us. If our subsidiaries are unable to qualify for the benefits of the Treaty, or if any benefits of the Treaty that otherwise would have been available to us are eliminated or reduced, then all or a portion of our income may become subject to increased withholding taxes, and such taxes could be very significant and materially and adversely affect our financial position, profitability and cash flows.

If our subsidiaries are considered to be engaged in a U.S. trade or business, we could be liable for significant U.S. taxation.

In general, if a foreign corporation, such as Royalty Pharma plc, is considered to be engaged in a U.S. trade or business, such corporation’s share of any income that is effectively connected with such U.S. trade or business will be subject to regular U.S. federal income taxation (currently imposed at a maximum rate of 21%) on a net basis and, potentially, an additional 30% U.S. “branch profits” tax on distributions attributable to income that is effectively connected with such U.S. trade or business. In addition, it is possible that such corporation could be subject to taxation on a net basis by state or local jurisdictions within the United States. We intend to conduct our activities, through our subsidiaries, such that no income realized by us will be effectively connected with the conduct of a U.S. trade or business or otherwise subject to regular U.S. federal income taxation on a net basis. If we are able to conduct our activities in this way, income or gains realized by us will not be subject to U.S. net federal income taxation. However, no assurance can be provided in this regard. The proper characterization of our income and gains for U.S. tax purposes is not certain, and it is possible that all or a portion of our income and gains could be characterized as income that is “effectively connected” with the conduct of a U.S. trade or business. If our income and gains were characterized as effectively connected with a U.S. trade or business, we would be subject to significant U.S. taxes plus interest and possible penalties, and our financial position, cash flows and profitability could be materially and adversely affected.

We expect to operate, and expect that RP Holdings will operate, so as to be treated solely as a resident of the U.K. for tax purposes, but changes to our management and organizational structure or to the tax residency laws of other jurisdictions where we operate may cause the relevant tax authorities to treat us or RP Holdings as also being a resident of another jurisdiction for tax purposes.

Under current U.K. tax law, a company that is incorporated in the U.K. is regarded as resident for tax purposes in the U.K. unless (i) it is concurrently treated as resident for tax purposes in another jurisdiction (applying the rules of that other jurisdiction for determining tax residency) that has a double tax treaty with the U.K. and (ii) there is a residency tie-breaker provision in that tax treaty which allocates tax residence to that other jurisdiction.

Based upon our anticipated management and organizational structure, we believe that we and RP Holdings should be regarded as tax resident solely in the U.K. However, because this analysis is highly factual and may depend on future changes in our management and organizational structure, as well as future changes in the tax residency laws of other jurisdictions where we operate, there can be no assurance regarding the determination of our tax residence in the future.

As U.K. tax resident companies, we and RP Holdings will be subject to U.K. corporation tax on our worldwide taxable profits and gains. Should we (or RP Holdings) be treated as resident in a jurisdiction other than the U.K., we (or RP Holdings, as applicable) could be subject to taxation in that jurisdiction and may be required to comply with a number of material and formal tax obligations, including withholding tax or reporting obligations provided under the relevant tax law, which could result in additional costs and expenses.

We believe that we should not be subject to material U.K. corporation tax in respect of certain profits of our non-U.K. tax resident subsidiaries as a result of the U.K.’s “controlled foreign companies” rules but it cannot be guaranteed that this will continue to be the case.

As U.K. tax resident companies, we and RP Holdings will be subject to the U.K.’s “controlled foreign companies” rules (the “U.K. CFC Rules”). The U.K. CFC Rules, broadly, can impose a charge to U.K. tax on U.K. tax resident companies that have, alone or together with certain other persons, interests in a non-U.K. tax resident company (the “Controlled Foreign Company”) which is controlled by a U.K. person or persons. The charge under the U.K. CFC Rules applies by reference to certain types of chargeable profit arising to the Controlled Foreign Company, whether or not that profit is distributed, subject to specific exemptions. The types of profits of a Controlled Foreign Company that can potentially be subject to a U.K. corporation tax charge under the U.K. CFC Rules include business profits of the Controlled Foreign Company that are attributable to assets or risks that are managed by activities in the U.K., or certain finance profits of the Controlled Foreign Company that arise from capital or other assets contributed, directly or indirectly, to the Controlled Foreign Company from a connected U.K. tax resident company.

Certain non-U.K. entities in which we hold a greater than 25% interest, including RPI (which is Irish tax resident) and Old RPI (which is Irish tax resident and which is held indirectly by us through our participation in RP Holdings), will be Controlled Foreign Companies for U.K. tax purposes. We and RP Holdings will therefore be required to apply the CFC Rules in respect of our direct and indirect interests in these entities on an ongoing basis. We do not expect material U.K. corporation tax charges to arise under the U.K. CFC Rules in respect of our royalty assets or our financing arrangements, however no assurances can be given that this will continue to be the case. The U.K. CFC Rules are highly complex and fact-dependent, and changes to, or adverse interpretations of, these rules, or changes in the future activities of RPI or other non-U.K. companies in which we hold an interest, directly or indirectly, may alter this position and could impact our group’s effective tax rate.

We believe that dividends received by us and RP Holdings should be exempt from U.K. corporation tax, but it cannot be guaranteed that this will continue to be the case.

U.K. tax resident companies are subject to U.K. corporation tax on receipt of dividends or other income distributions in respect of shares held by them, unless those dividends or other distributions fall within an exempt class. We believe that dividends received by us from RP Holdings, and dividends received by RP Holdings from RPI, should fall within such an exempt class and therefore should not be subject to U.K. corporation tax. However, a number of conditions must be met in order for such dividends to qualify for this tax exemption, including (in respect of dividends paid by RPI, which are tax resident in Ireland) conditions relating to the application of Irish tax law. As such, it cannot be guaranteed that these conditions for the U.K. tax exemption in respect of distributions will continue at all times to be satisfied. If distributions received by us or by RP Holdings were not to fall within an exempt class, such distributions would likely be subject to U.K. corporation tax at the then prevailing corporation tax rate.

Even where distributions fall within an exempt class, certain anti-avoidance and recharacterization rules may also apply. For instance, if RPI were to constitute an “offshore fund” for U.K. tax purposes that has at any time in an accounting period more than 60% by market value of its investments in debt securities, money placed at interest (other than cash awaiting investment), certain contracts for differences, or in holdings in other offshore funds with, broadly, more than 60% of their investments similarly invested, RP Holdings’ shareholding in RPI may be subject to U.K. corporation tax as a deemed “loan relationship”, with the result that dividends received by RP Holdings from RPI could be subject to U.K. tax as deemed interest and RP Holdings may be subject to U.K. corporation tax on increases in the fair market value of its shareholding in RPI. The term “offshore fund” is defined for U.K. tax purposes through a characteristics-based approach and, broadly, can include arrangements constituted by a non-U.K. resident body corporate in which a reasonable investor would expect to be able to realize their investment entirely, or almost entirely, by reference to net asset value. We believe and have been advised that RP Holdings’ shareholding in RPI should not fall within these rules, however no guarantee can be offered that this will continue to be the case. Changes to, or adverse interpretations of, the offshore funds rules, or changes in the nature of our investments, may alter this position and could impact our group’s effective rate.

We expect to be classified as a PFIC for U.S. federal income tax purposes, which could subject U.S. holders of our Class A ordinary shares to adverse U.S. federal income tax consequences. Distributions that we pay to individual and other non-corporate U.S. holders will not be eligible for taxation at reduced rates, which could potentially adversely affect the value of our Class A ordinary shares.

We generally expect that our income, which consists primarily of passive income, and our assets, which consist primarily of assets that produce passive income, will result in our treatment as a PFIC for the current taxable year and future taxable years. We intend to annually furnish U.S. holders a “PFIC Annual Information Statement” with the information required to allow shareholders to make a qualified electing fund (“QEF”) election for United States federal income tax purposes on our website. U.S. holders who do not make a QEF election with respect to us or a mark-to-market election with respect to our Class A ordinary shares will be subject to potentially material adverse tax consequences, including (i) the treatment of any gain on disposition of our Class A ordinary shares as ordinary income and (ii) the application of a deferred interest charge on such gain and the receipt of certain distributions on our Class A ordinary shares. In addition, regardless of whether a QEF or mark-to-market election is made with respect to us, U.S. holders will be required to file an annual report on IRS Form 8621 containing such information with respect to its interest in a PFIC as the IRS may require. Failure to file IRS Form 8621 for each applicable taxable year may result in substantial penalties and result in audit by the IRS. Further, if we are a PFIC for any taxable year during which a U.S. holder owns our Class A ordinary shares, we generally would continue to be treated as a PFIC with respect to that U.S. holder for all succeeding years during which such person holds our Class A ordinary shares, even if we ceased to meet the threshold requirements for PFIC status, unless the U.S. holder makes a special “purging” election on IRS Form 8621. The effect of these adverse tax consequences could adversely affect our U.S. shareholders and make investment in our Class A ordinary shares less attractive to U.S. investors.

Distributions made to non-corporate U.S. holders will not be eligible for taxation at reduced tax rates generally applicable to dividends paid by certain U.S. corporations and “qualified foreign corporations” because of our status as a PFIC. The more favorable rates applicable to qualifying corporate dividends could cause individuals to perceive investment in our Class A ordinary shares to be less attractive than investment in the shares of other corporations because of our PFIC status, and this perception could adversely affect the value of our Class A ordinary shares.

General Risk Factors

Cyber-attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of our business operations.

We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. We have been subject to these attacks in the past and expect to be subject to them in the future. There can be no assurance that we will be successful in preventing cyber-attacks or mitigating their effects. Any cyber-attack or destruction or loss of data could adversely affect our business. In addition, we may suffer reputational harm or face litigation as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection measures.

Changes in the application of accounting standards issued by the U.S. Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements.

Our financial statements are prepared in accordance with GAAP, which are periodically revised, interpreted or expanded. From time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies. It is possible that future accounting standards we are required to adopt may require changes to the current accounting treatment that we apply to our consolidated financial statements and may require us to make significant changes to our systems. Such changes could adversely affect our financial condition and results of operations.

COVID-19, or the future outbreak of any other infectious or contagious diseases, could adversely affect our results of operations, financial condition and cash flows.

The outbreak of COVID-19 and its variants has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. COVID-19 and other future health outbreaks and pandemics could lead to quarantines, mandating business and school closures and restricting travel, or trigger global economic slowdowns or global recessions. COVID-19 or another pandemic could adversely affect us due to, among other factors:

• a general decline in business activity;

• the destabilization of the markets could negatively impact our partners in the biopharmaceutical industry and the sales of products generating our royalties;

• difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;

• the potential negative impact on the health of our Manager’s highly qualified personnel, especially if a significant number of them are impacted;

• a deterioration in our ability to ensure business continuity during a disruption;

• interruptions, shortages, delivery delays and potential discontinuation of supply to our partners, which could (i) delay the clinical trials of the development-stage product candidates underlying our assets and result in a loss of our market share for products generating our royalties or development-stage product candidates underlying our assets, if approved, and (ii) hinder our partners’ ability to timely distribute products generating our royalties and satisfy customer demand;

• travel restrictions, shelter-in-place policies or restrictions and other disruptions, which could cause or continue to cause delays and other direct impacts at our partners’ manufacturing sites, which could impact the ability of our partners to manufacture development-stage product candidates underlying our biopharmaceutical assets and products generating our royalties; and

• potential interruptions to our partners’ clinical trial programs of development-stage product candidates underlying our biopharmaceutical assets, including: (i) the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns; (ii) changes in hospital or research institution policies or government regulations, which could delay or adversely impact our partners’ ability to conduct their clinical trials; and (iii) pauses to or delays of trial procedures (particularly any procedures that may be deemed non-essential), patient dosing, shipment of our partners’ development-stage product candidates, distribution of clinical trial materials, study monitoring, site inspections and data analysis due to reasons related to the pandemic, each of which could cause or continue to cause a disruption or delay to the development or the approval of development-stage product candidates underlying our biopharmaceutical assets.

To date, certain marketers of some of our portfolio products have commented that the performance of these products have been impacted by the COVID-19 pandemic. However, the COVID-19 pandemic has not resulted in a material effect to our results of operations and liquidity and we do not believe it is reasonably likely to in the future. Nevertheless, COVID-19 and other future health outbreaks and pandemics present material uncertainty which could adversely affect our results of operations, financial condition and cash flows.

Legal claims and proceedings could adversely affect our business.

We may be subject to a wide variety of legal claims and proceedings. Regardless of their merit, these claims can require significant time and expense to investigate and defend. Since litigation is inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such claims or proceedings, or that our assessment of the materiality of these matters, including any reserves taken in connection therewith, will be consistent with the ultimate outcome of such matters. The resolution of, or increase in the reserves taken in connection with, one or more of these matters could adversely affect our business, financial condition and results of operations.

ESG matters and any related reporting obligations may impact our business.

U.S. and international regulators, investors and other stakeholders are increasingly focused on ESG matters. For example, new U.S. and international laws and regulations relating to ESG matters, including human capital, diversity, sustainability, climate change and cybersecurity, are under consideration or being adopted, which may include specific, target-driven disclosure requirements or obligations. Our response will require additional investments and implementation of new practices and reporting processes, all entailing additional compliance risk. In addition, we have announced a number of ESG initiatives and goals, which will require ongoing investment, and there is no assurance that we will achieve any of these goals or that our initiatives will achieve their intended outcomes. Perceptions of our efforts to achieve these goals often differ widely and present risks to our reputation. Any harm to our reputation resulting from our failure or perceived failure to meet such goals could impact employee retention, the willingness of our partners to do business with us, or investors’ willingness to purchase or hold our ordinary shares, any of which could adversely affect our business, financial condition and results of operations. In addition, our ability to implement some initiatives or achieve some goals is dependent on external factors. For example, our ability to meet certain sustainability goals or initiatives may depend in part on third-party collaboration, mitigation innovations or the availability of economically feasible solutions.

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

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

Share repurchase activities of our Class A ordinary shares during the third quarter of 2023 are as follows (in thousands, except per share amounts):


Periods	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
July 1, 2023 - July 31, 2023	1,296	$	31.03	1,296	$	825,319
August 1, 2023 - August 31, 2023	1,252	30.50		1,252	787,130
September 1, 2023 - September 30, 2023	2,314	28.42		2,314	721,371
Total	4,862	29.65		4,862

(1)On March 27, 2023, we announced our board of directors authorized a share repurchase program under which we may repurchase up to $1.0 billion of our Class A ordinary shares. The share repurchase program expires on June 23, 2027. The share repurchase program does not obligate us to acquire a minimum amount of our Class A ordinary shares. Under the share repurchase program, Class A ordinary shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

Rule 10b5-1 Trading Arrangements

The following table describes the written plans for the sale of our Class A ordinary shares adopted or terminated by our executive officers and directors during the third quarter of 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1 (each, a “Trading Plan”).

Name and Title

Action

Adoption/ Termination
Date

Scheduled Expiration Date of Trading Plan (1)

Maximum Shares Subject to Trading Plan

Terrance Coyne

Executive Vice President & Chief Financial Officer

Termination

September 12, 2023

June 13, 2024

900,000 (2)

Marshall Urist

Executive Vice President, Research and Investments

Adoption

September 29, 2023

December 29, 2023

46,667

Rory Riggs

Director

Adoption

September 29, 2023

December 31, 2024

470,000

(1)A Trading Plan may expire on an earlier date if all contemplated transactions are completed before such Trading Plan’s expiration date, upon termination by broker or the holder of the Trading Plan, or as otherwise provided in the Trading Plan.

(2)As of the termination date of this Rule 10b5-1 trading plan, 150,000 Class A ordinary shares had been sold under its terms.

Item 6. EXHIBITS

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


Exhibit No.			Description of Exhibit
31.1*			Certification of the Registrant ’s Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934
31.2*			Certification of the Registrant ’s Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934
32*			Certification of the Registrant’ Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document
101.SCH			XBRL Schema Document
101.CAL			XBRL Calculation Linkbase Document
101.DEF			XBRL Definition Linkbase Document
101.LAB			XBRL Label Linkbase Document
101.PRE			XBRL Presentation Linkbase

* Filed or furnished herewith

SIGNATURES

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


ROYALTY PHARMA PLC
(Registrant)

/s/ Pablo Legorreta
Pablo Legorreta
Chief Executive Officer

Date: November 8, 2023

/s/ Terrance Coyne
Terrance Coyne
Chief Financial Officer

Date: November 8, 2023