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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-39329
Royalty Pharma plc
(Exact name of registrant as specified in its charter)
England and 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 classTrading symbol(s)Name of each exchange on which registered
Class A ordinary shares, par value $0.0001RPRXThe 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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes       No  





As of May 2, 2022, Royalty Pharma plc had 435,316,420 Class A ordinary shares outstanding and 171,861,661 Class B ordinary shares outstanding.

ROYALTY PHARMA PLC

INDEX

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




















Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective assets, our industry, our beliefs and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of the numerous risks outlined in Part I under Item 1A. under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

These risks and uncertainties include factors related to:
sales risks of biopharmaceutical products on which we receive royalties;
our ability to locate suitable assets 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 RP Management, LLC (the “Manager”) to attract and retain highly talented professionals;
the effect of changes to tax legislation and our tax position; and
the risks, uncertainties and other factors we identify elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission.

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






PART 1.     FINANCIAL INFORMATION
Item 1.         CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 As of March 31, As of December 31,
20222021
Assets
Current assets
Cash and cash equivalents$1,791,517 $1,541,048 
Marketable securities484,221 581,872 
Financial royalty assets570,684 614,351 
Accrued royalty receivable51,190 53,286 
Available for sale debt securities64,800 66,000 
Other royalty income receivable14,618 15,023 
Other current assets5,388 6,631 
Total current assets2,982,418 2,878,211 
Financial royalty assets, net13,467,211 13,718,245 
Intangible royalty assets, net 5,670 
Equity securities267,638 269,800 
Available for sale debt securities239,600 204,400 
Equity method investments418,151 435,394 
Other assets3,870 4,145 
Total assets$17,378,888 $17,515,865 
Liabilities and shareholders’ equity
Current liabilities
Distributions payable to non-controlling interests$116,010 $107,934 
Accounts payable and accrued expenses6,662 5,620 
Interest payable13,199 57,696 
Total current liabilities135,871 171,250 
Long-term debt7,101,138 7,096,070 
Total liabilities7,237,009 7,267,320 
Commitments and contingencies
Shareholders’ equity
Class A ordinary shares, $0.0001 par value; 435,316 and 432,963 issued and outstanding, respectively
43 43 
Class B ordinary shares, $0.000001 par value; 171,862 and 174,213 issued and outstanding, respectively
  
Class R redeemable shares, £1 par value; 50 and 50 issued and outstanding, respectively
63 63 
Deferred shares, $0.000001 par value; 363,521 and 361,170 issued and outstanding, respectively
  
Additional paid-in capital3,543,204 3,507,533 
Retained earnings2,224,677 2,255,179 
Non-controlling interests4,364,324 4,471,951 
Accumulated other comprehensive income12,304 16,491 
Treasury interests(2,736)(2,715)
Total shareholders’ equity10,141,879 10,248,545 
Total liabilities and shareholders’ equity$17,378,888 $17,515,865 
See accompanying notes to these unaudited condensed consolidated financial statements.
1




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

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




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

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

See accompanying notes to these unaudited condensed consolidated financial statements.

3




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Class A
Ordinary Shares
Class B
Ordinary Shares
Class R
Redeemable Shares
Deferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2021432,963$43 174,213$ 50$63 361,170$ $3,507,533 $2,255,179 $16,491 $4,471,951 $(2,715)$10,248,545 
Contributions— — — — — — — — — — — 3,323 — 3,323 
Distributions— — — — — — — — — — — (148,976)— (148,976)
Dividends ($0.19 per Class A ordinary share)
— — — — — — — — — (82,263)— — — (82,263)
Other exchanges2,351 — (2,351)— — — 2,351 — 35,175 — 130 (35,284)(21) 
Share-based compensation and related issuances of Class A ordinary shares2 — — — — — — — 496 — — — — 496 
Net income— — — — — — — — — 51,761 — 76,322 — 128,083 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 957 668 — 1,625 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (5,274)(3,680)— (8,954)
Balance at March 31, 2022435,316$43 171,862$ 50$63 363,521$ $3,543,204 $2,224,677 $12,304 $4,364,324 $(2,736)$10,141,879 

Class A
Ordinary Shares
Class B
Ordinary Shares
Class R Redeemable SharesDeferred SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeNon-Controlling InterestsTreasury InterestsTotal Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2020388,135 $39 218,976 $ 50 $63 316,407 $ $2,865,964 $1,920,635 $34,395 $5,077,036 $(2,317)$9,895,815 
Contributions— — — — — — — — — — — 3,253 — 3,253 
Distributions— — — — — — — — — — — (145,378)— (145,378)
Dividends ($0.17 per Class A ordinary share)
— — — — — — — — — (65,983)— — — (65,983)
Other exchanges4,721 — (4,721)— — — 4,721 — 64,572 — 542 (65,072)(42) 
Share-based compensation and related issuances of Class A ordinary shares1 — — — — — — — 713 — — — — 713 
Net income— — — — — — — — — 69,119 — 89,860 — 158,979 
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities— — — — — — — — — — 2,712 2,413 — 5,125 
Reclassification of unrealized gains on available for sale debt securities— — — — — — — — — — (8,197)(7,294)— (15,491)
Balance at March 31, 2021392,857$39 214,255$ 50$63 321,128$ $2,931,249 $1,923,771 $29,452 $4,954,818 $(2,359)$9,837,033 

See accompanying notes to these unaudited condensed consolidated financial statements.
4




ROYALTY PHARMA PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three Months Ended March 31,
20222021
Cash flows from operating activities:
Cash collections from financial royalty assets$621,689 $573,946 
Cash collections from intangible royalty assets35,682 35,761 
Other royalty cash collections17,345 6,821 
Distributions from equity method investees20,690 17,325 
Interest received482 1,548 
Development-stage funding payments - ongoing(500)(2,641)
Development-stage funding payments - upfront and milestones (100,000) 
Payments for operating and professional costs(48,902)(42,160)
Interest paid(86,216)(64,500)
Net cash provided by operating activities460,270 526,100 
Cash flows from investing activities:
Investments in equity method investees(3,050)(8,714)
Purchases of equity securities(34,000) 
Purchases of available for sale debt securities(64,579)(17,585)
Proceeds from available for sale debt securities15,625 15,625 
Purchases of marketable securities(177,354)(505,339)
Proceeds from sales and maturities of marketable securities274,608 419,783 
Acquisitions of financial royalty assets(85)(503,070)
Net cash provided by/(used in) investing activities11,165 (599,300)
Cash flows from financing activities:
Distributions to non-controlling interests(106,385)(125,721)
Distributions to non-controlling interests- other(34,515)(37,183)
Dividends to shareholders(82,263)(65,983)
Contributions from non-controlling interests- R&D624 1,997 
Contributions from non-controlling interests- other1,573 220 
Net cash used in financing activities(220,966)(226,670)
Net change in cash and cash equivalents250,469 (299,870)
Cash and cash equivalents, beginning of period1,541,048 1,008,680 
Cash and cash equivalents, end of period$1,791,517 $708,810 

See accompanying notes to these unaudited condensed consolidated financial statements.

5

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

1. Organization and Purpose

Royalty Pharma plc is an English public limited company incorporated under the laws of England and Wales that was created for the purpose of consolidating our predecessor entities and facilitating the initial public offering (“ IPO”) of our Class A ordinary shares that was completed in June 2020. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis.

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

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

RP Holdings is the sole owner of Royalty Pharma Investments 2019 ICAV (“RPI 2019 ICAV”), which is an Irish collective asset management entity formed to facilitate our Exchange Offer Transactions (defined below), and is the successor to Royalty Pharma Investments, an Irish unit trust (“Old RPI”), for accounting and financial reporting purposes. RP Holdings is directly or indirectly owned by RPI US Partners 2019, LP, a Delaware limited partnership, RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”), and Royalty Pharma plc. Old RPI is a unit trust established in August 2011 under the laws of Ireland and authorized by the Central Bank of Ireland pursuant to the Unit Trusts Act, 1990. Prior to the Exchange Offer Transactions, Old RPI was owned by various partnerships (the “Legacy Investors Partnerships”).

RP Management, LLC (the “Manager”), a Delaware limited liability company, is an external adviser responsible for our management, including our day-to-day operations. Prior to, and as a condition precedent to the closing of the IPO, we executed a new management agreement with the Manager (the “Management Agreement”).

Exchange Offer Transactions

In connection with our IPO, we consummated an exchange offer on February 11, 2020. Through the exchange offer, investors representing 82% of the aggregate limited partnership in the Legacy Investors Partnerships exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in the Continuing Investors Partnerships. The exchange offer transaction together with (i) the concurrent incurrence of indebtedness under senior secured credit facilities and (ii) the issuance of additional interests in Continuing Investors Partnerships to satisfy performance payments payable in respect of assets acquired prior to the date of the IPO are referred to as the “Exchange Offer Transactions”.

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

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”).

6

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

In the opinion of management, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal and recurring adjustments. Certain information and footnote disclosures have been condensed or omitted as permitted under 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, 2021, included in our Annual Report on Form 10-K.

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.

As the United States and global economies have begun to recover from the COVID-19 pandemic with many health and safety restrictions lifted and increased vaccine distribution, we continue to monitor the impact from the COVID-19 pandemic on our operational and financial performance. To date, certain marketers have commented that the performance of products on which we own royalties have been impacted by the COVID-19 pandemic. However, the COVID-19 pandemic has not 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.

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 unaudited 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.

We report non-controlling interests related to the portion of ownership interests of consolidated subsidiaries not owned by us which are attributable to: (1) the Legacy Investors Partnerships’ ownership of approximately 18% in Old RPI, (2) the Continuing Investors Partnerships’ ownership in RP Holdings through their ownership of the RP Holdings Class B Interests, (3) a de minimis interest in RPCT held by RPSFT and (4) RPI EPA Holdings, LP’s (“EPA Holdings”) ownership of the RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest”). Income will not be allocated to EPA Holdings until certain conditions are met.

All intercompany transactions and balances have been eliminated in consolidation.

Concentrations of Credit Risk

Financial instruments that subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, financial royalty assets and receivables. Our cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds are needed for operations. Our cash and cash equivalents and marketable securities balances as of March 31, 2022 and December 31, 2021 were held with State Street and Bank of America. 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, AbbVie, Gilead, Johnson & Johnson, Merck & Co., Pfizer, Astellas, Novartis, Biogen and Vertex. As of March 31, 2022 and December 31, 2021, Vertex, as the marketer and payor of our royalties on the cystic fibrosis franchise, accounted for 32% of our current portion of Financial royalty assets, net, and represented the largest individual marketer and payor of our royalties.

7

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

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

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, 2021.

3. Available for Sale Debt Securities

Cytokinetics Commercial Launch Funding

On January 7, 2022, we entered into a long-term funding agreement with Cytokinetics, Incorporated (“Cytokinetics”) to support further development of aficamten and potential commercialization of omecamtiv mecarbil. As part of the funding agreement, we agreed to provide up to $300 million of capital (“Cytokinetics Commercial Launch Funding”) which is available in five tranches, including an initial tranche of $50 million that was funded upon closing. Cytokinetics is required to draw $25 million if a certain contingency is met and has the option to draw the remaining $225 million upon the occurrence of certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”). Each tranche has an interest-free and payment-free period of six calendar quarters, followed by 34 calendar quarters of installment re-payments totaling 1.9 times the amount drawn.

The Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments are recognized at fair value within Available for sale debt securities in the condensed consolidated balance sheets. We have 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 unrealized change in fair value of the funded Cytokinetics Commercial Launch Funding and the Cytokinetics Funding Commitments are recorded within Unrealized losses/(gains) on available for sale debt securities on the condensed consolidated statements of operations.

MorphoSys Development Funding Bonds

On June 2, 2021, we announced a long-term strategic funding partnership with MorphoSys AG (“MorphoSys”) to support MorphoSys’ acquisition of Constellation Pharmaceuticals, Inc. (“Constellation”) that closed on July 15, 2021. As part of the funding agreement, we agreed to provide MorphoSys up to $350 million of capital (the “Development Funding Bonds”), which MorphoSys may draw over a one-year period from the close of its acquisition of Constellation. MorphoSys is required to draw a minimum of $150 million. Our commitment to fund at least $150 million of the Development Funding Bonds is recognized as the Development Funding Bond Forward. Once drawn, we expect to receive a return of 2.2 times the amount funded on the Development Funding Bonds payable on a quarterly basis over nine years, with the first payment beginning two years after the funding is drawn. As of March 31, 2022, MorphoSys has not drawn any amount under the Development Funding Bonds.

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

8

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

Series B Biohaven Preferred Shares

On August 7, 2020, we entered into the Series B Biohaven Preferred Share Purchase Agreement (“Series B Biohaven Preferred Share Agreement”) with Biohaven Pharmaceutical Holding Company Ltd. (“Biohaven”) where we committed to acquire 3,992 shares of Series B Biohaven Preferred Shares at a price of $50,100 per preferred share (the “Commercial Launch Preferred Equity”), for a total of $200 million payable on a quarterly basis between the three months ended March 31, 2021 and the three months ended December 31, 2024. Our commitment to purchase the Series B Biohaven Preferred Shares is recognized as the Series B Forwards. Biohaven will be required to redeem the Series B Biohaven Preferred Shares in a series of equal fixed quarterly payments between the three months ended March 31, 2025 and the three months ended December 31, 2030 at a price equal to approximately 1.8 times the original purchase price of the Series B Biohaven Preferred Shares. If Biohaven effects any change of control event, then we will have the option to cause Biohaven to issue to us all unissued Series B Biohaven Preferred Shares and to redeem, in a single payment, any outstanding Series B Biohaven Preferred Shares at a price equal to approximately 1.8 times the original issue price of the Series B Biohaven Preferred Shares. Biohaven may redeem at their election, any outstanding Series B Biohaven Preferred Shares, in a single payment, at a price equal to approximately 1.8 times the original issue price for the Series B Biohaven Preferred Shares.

In the three months ended March 31, 2021, we began purchasing the Series B Biohaven Preferred Shares. As of March 31, 2022, we have acquired 1,697 shares of Series B Biohaven Preferred Shares. We have elected the fair value option to account for the Series B Forwards and the Series B Biohaven Preferred Shares, which are recorded in aggregate on the condensed consolidated balance sheets as Available for sale debt securities. We believe the fair value option most accurately reflects the nature of these instruments. The unrealized change in fair value of the Series B Biohaven Preferred Shares and Series B Forwards is recorded within Unrealized losses/(gains) on available for sale debt securities on the condensed consolidated statements of operations.

Series A Biohaven Preferred Shares

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

The Series A Biohaven Preferred Shares are classified as Available for sale debt securities in our condensed consolidated balance sheets. The unrealized change in the fair value of the Series A Biohaven Preferred Shares is recorded within Unrealized gains on available for sale debt securities on the condensed consolidated statements of comprehensive income. In the three months ended March 31, 2022 and 2021, $9.0 million and $15.5 million of the unrealized gains were reclassified from other comprehensive income to Interest income on the condensed consolidated statements of operations, respectively.
9

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 March 31, 2022 and December 31, 2021 (in thousands):

CostUnrealized Gains/(Losses)Fair Value Current AssetsNon-Current AssetsTotal
As of March 31, 2022
Debt securities (1)$271,817 $42,183 $314,000 $64,800 $249,200 $314,000 
Forwards (2) (1,200)(1,200) (1,200)(1,200)
Funding commitments (2)(9,400)1,000 (8,400) (8,400)(8,400)
Total available for sale debt securities$262,417 $41,983 $304,400 $64,800 $239,600 $304,400 
As of December 31, 2021
Debt securities (1)$204,509 $49,191 $253,700 $66,000 $187,700 $253,700 
Forwards (2) 16,700 16,700  16,700 16,700 
Total available for sale debt securities$204,509 $65,891 $270,400 $66,000 $204,400 $270,400 
(1)Cost for Series A Biohaven Preferred Shares represents amortized cost. Cost for Series B Biohaven Preferred Shares represents the amounts paid to purchase the instruments. The cost associated with the funded Cytokinetics Commercial Launch Funding reflects the fair value on the purchase date.
(2)There are no costs associated with the forwards. The cost associated with the funding commitments represents the fair value on the purchase date.


4. Fair Value Measurements and Financial Instruments

Fair Value Hierarchy

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

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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

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

Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Equity SecuritiesDebt SecuritiesForwardsFunding CommitmentsEquity SecuritiesDebt SecuritiesForwardsFunding Commitments
Balance at the beginning of the period$43,013 $253,700 $16,700 $ $ $214,400 $18,600 $ 
Purchases— 64,579 — — — 17,585 — — 
Gains/(losses) on initial recognition (1)— 9,400 — (