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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 June 30, 2020
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
Not applicable
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
110 E 59th Street
New York,New York10022
(212) 883-0200

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 sharesRPRXThe Nasdaq Global Select Market

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 and posted on its corporate web site, if any, 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 August 7, 2020, Royalty Pharma plc had 365,899,235 shares of Class A ordinary shares outstanding.





Royalty Pharma plc and Subsidiaries

INDEX

PART I.FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2020 (unaudited) and December 31, 2019
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)
Condensed Consolidated Statements of Shareholder's Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (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, including those factors discussed under Part II, Item 1A. Risk Factors You should specifically consider the numerous risks outlined under Risk Factors in our prospectus (the “Prospectus”) relating to our Registration Statement on Form S-1, as amended (Registration No. 333-238632), filed with the SEC pursuant to Rule 424(b) under the Securities Act.

These risks and uncertainties include factors related to:
sales risks of biopharmaceutical products on which we receive royalties;
the ability of 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 and late stage funding opportunities 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 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 (Unaudited)

Royalty Pharma plc and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value) As of June 30, As of December 31,
20202019
Assets(unaudited)
Current Assets
Cash and cash equivalents$2,443,430  $283,682  
Marketable securities343,679  56,972  
Financial royalty assets, net526,937  452,560  
Accrued royalty receivable32,307  33,525  
Available for sale debt securities28,500    
Other royalty income receivable3,147  5,241  
Other current assets12,789  92  
Total current assets3,390,789  832,072  
Financial royalty assets, net11,169,857  10,842,052  
Intangible royalty assets, net40,258  51,724  
Equity securities477,185  380,756  
Available for sale debt securities162,454  131,280  
Derivative financial instruments14,717  42,315  
Investments in non-consolidated affiliates430,296  124,061  
Other assets  45,635  
Total assets$15,685,556  $12,449,895  
Liabilities and equity
Current liabilities
Royalty distribution payable to affiliates$122,771  $31,041  
Accounts payable and accrued expenses34,366  11,177  
Accrued purchase obligation111,610    
Current portion of long-term debt182,226  281,984  
Derivative financial instruments  9,215  
Total current liabilities450,973  333,417  
Long-term debt5,729,622  5,956,138  
Derivative financial instruments  18,902  
Other liabilities110,000    
Total liabilities6,290,595  6,308,457  
Commitments and contingencies
Shareholders'/Unitholders' equity
Shareholders' contributions  3,282,516  
Class A ordinary shares, $0.0001 par value; 365,899 and 0 issued and outstanding, respectively37    
Class B shares, $0.000001 par value; 241,207 and 0 issued and outstanding, respectively    
Class R redeemable shares, £1 par value; 50 and 0 issued and outstanding, respectively63    
Deferred shares, $0.000001 par value, 294,176 and 0 issued and outstanding, respectively    
Additional paid-in capital2,557,237    
Retained earnings1,571,399  2,825,212  
Non-controlling interest5,237,829  35,883  
Accumulated other comprehensive income30,515  2,093  
Treasury interests(2,119) (4,266) 
Total shareholders'/unitholders' equity9,394,961  6,141,438  
Total liabilities and shareholders'/unitholders' equity$15,685,556  $12,449,895  
See accompanying notes to unaudited condensed consolidated financial statements.
1




Royalty Pharma plc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share amounts)For the three months ended
June 30,
For the six months ended
June 30,
2020201920202019
Total income and revenues
Income from financial royalty assets$474,177  $416,945  $937,021  $799,161  
Revenue from intangible royalty assets33,445  35,476  68,428  78,722  
Other royalty income3,310  5,187  6,362  14,608  
Total income and other revenues510,932  457,608  1,011,811  892,491  
Operating expenses
Research and development funding expense5,776  21,457  13,415  44,448  
Provision for changes in expected cash flows from financial royalty assets47,278  72,210  135,290  22,177  
Amortization of intangible assets5,733  5,733  11,466  12,332  
General and administrative expenses42,799  30,349  80,864  54,775  
Total operating expenses, net101,586  129,749  241,035  133,732  
Operating income409,346  327,859  770,776  758,759  
Other (income)/expense
Equity in (earnings)/loss of non-consolidated affiliates(29,292) 8,144  (20,218) 13,673  
Interest expense34,189  69,168  87,773  136,434  
Unrealized (gain)/loss on derivative contracts(647) 39,414  32,798  65,254  
Unrealized (gain)/loss on equity securities(193,895) 36,800  (40,729) (16,944) 
Interest income(2,724) (4,474) (5,582) (14,501) 
Other non-operating (income)/expense, net(261) 37  5,662  (21) 
Total other (income)/expense, net(192,630) 149,089  59,704  183,895  
Consolidated net income before tax601,976  178,770  711,072  574,864  
Income tax expense        
Consolidated net income601,976  178,770  711,072  574,864  
Less: Net income attributable to non-controlling interest(159,902) (27,057) (197,758) (55,707) 
Net income attributable to controlling interest442,074  151,713  513,314  519,157  
Other comprehensive income
Reclassification of loss on interest rate swaps included in net income  1,602  4,066  3,189  
Change in unrealized movement on available for sale debt securities6,949  2,939  59,674  2,939  
Other comprehensive income6,949  4,541  63,740  6,128  
Comprehensive income449,023  156,254  577,054  525,285  
Less: Other comprehensive income attributable to non-controlling interest(1,624)   (11,296)   
Comprehensive income attributable to controlling interest$447,399  $156,254  $565,758  $525,285  
Earnings per share of Class A ordinary shares (1):
     Basic$0.09  N/A$0.09  N/A
     Diluted$0.09  N/A$0.09  N/A
Weighted-average shares of Class A shares outstanding (1):
     Basic353,979  N/A353,979  N/A
     Diluted353,980  N/A353,980  N/A
(1) Represents earnings per share of Class A ordinary shares and weighted-average Class A ordinary shares outstanding for the period from June 16, 2020 through June 30, 2020, the period following our initial public offering (see Note 13).

See accompanying notes to unaudited condensed consolidated financial statements.
2




Royalty Pharma plc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Class A Ordinary SharesClass B Ordinary SharesClass R Redeemable SharesDeferred SharesAdditional Paid-In CapitalShareholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
(in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance at March 31, 2020  $    $    $    $  $  $2,553,001  $2,561,971  $49,212  $2,002,775  $(4,266) $7,162,693  
Contributions—  —  —  —  —  —  —  —  —  —  —  —  6,691  —  6,691  
Distributions—  —  —  —  —  —  —  —  —  —  (171,632) —  (124,851) —  (296,483) 
Initial share issuance upon registration of plc—  —  —  —  50  63  —  —  —  —  —  —  —  —  63  
Net income prior to IPO—  —  —  —  —  —  —  —  —  —  408,602  —  107,187  —  515,789  
Issuance of Class B shares to Continuing Investors Partnerships—  —  535,383  1  —  —  —  —  —  —  —  —  —  —  1  
Effect of exchange by Continuing Investors of Class B shares for Class A shares and reallocation of historical equity294,176  30  (294,176) (1) —  —  294,176  —  1,402,762  (2,553,001) (1,261,014) (24,022) 2,433,098  2,147  (1) 
Issuance of Class A shares sold in initial public offering, net of offering costs71,652  7  —  —  —  —  —  —  1,150,735  —  —  —  758,590  —  1,909,332  
Share based compensation—  —  —  —  —  —  —  —  3,740  —  —  —  —  —  3,740  
Issuance of Class A shares under equity incentive plan71  —  —  —  —  —  —  —  —  —  —  —  —  —  —  
Net income subsequent to IPO—  —  —  —  —  —  —  —  —  —  33,472  —  52,715  —  86,187  
Other comprehensive income:
Change in unrealized movement on available for sale debt securities—  —  —  —  —  —  —  —  —  —  —  5,325  1,624  —  6,949  
Balance at June 30, 2020365,899  $37  241,207  $  50  $63  294,176$  $2,557,237  $  $1,571,399  $30,515  $5,237,829  $(2,119) $9,394,961  


(in thousands)Unitholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
Balance at March 31, 2019$3,282,516  $1,385,728  $(8,668) $48,088  $(2,327) $4,705,337  
Distributions—  (198,380) —  (35,153) —  (233,533) 
Net income—  151,713  —  27,057  —  178,770  
Other comprehensive income/(loss):
Change in unrealized movement on available for sale debt securities—  —  2,939  —  —  2,939  
Reclassification of loss on interest rate swaps—  —  1,602  —  —  1,602  
Purchase of treasury interests—  —  —  —  (1,901) (1,901) 
Balance at June 30, 2019$3,282,516  $1,339,061  $(4,127) $39,992  $(4,228) $4,653,214  
See accompanying notes to unaudited condensed consolidated financial statements.
3




Royalty Pharma plc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Class A Ordinary SharesClass B Ordinary SharesClass R Redeemable SharesDeferred SharesAdditional Paid-In CapitalShareholders' ContributionsRetained EarningsAccumulated Other Comprehensive Income/(Loss)Non-Controlling InterestTreasury InterestsTotal Equity
(in thousands)SharesAmountSharesAmountShares