ROYALTY PHARMA PLC
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 and financial condition, 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 I, Item 1A. Risk Factors in our
Annual Report on Form 10-K.
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. "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, AbbVie and Johnson & Johnson's Imbruvica, Astellas and Pfizer's Xtandi, GSK's Trelegy, Novartis' Promacta, Biohaven and 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, 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 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 2021, we have deployed$15.0 billion of cash to acquire royalties on approved products. From 2012 through 2021, we have acquired$10.2 billion of royalties 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 2021, we have deployed
While we classify our acquisitions in these two broad categories, several of our
acquisitions of royalties on approved products were driven by the long-term
potential of these products in other, unapproved indications. Similarly, some of
our royalty acquisitions in development-stage product candidates are for
products that are approved in other indications.
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--------------------------------------------------------------------------------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/R&D Funding - 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 created by the developer and/or marketer of a therapy in exchange for funding. A synthetic royalty may also include contingent milestone payments. We also fund ongoing research and development ("R&D"), typically for large biopharmaceutical companies, in exchange for future royalties and/or 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.
•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. One example is our strategic alliance with MSCI Inc. ("MSCI") to develop thematic life sciences indices.
Background and Format of Presentation
We consummated an exchange offer onFebruary 11, 2020 to facilitate our IPO. Through the exchange offer, investors which represented 82% of the aggregate limited partnership 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 theLegacy Investors Partnerships for limited partnership interests inRPI US Partners 2019, LP, aDelaware limited partnership orRPI International Holdings 2019, LP, aCayman Islands exempted limited partnership (together, the "Continuing Investors Partnerships"). The exchange offer transaction together with (i) the concurrent incurrence of indebtedness under senior 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." We controlRoyalty Pharma Holdings Ltd ("RP Holdings ") through our ownership ofRP Holdings' Class A ordinary shares andRP Holdings' Class B ordinary shares (the "RP Holdings ClassB Interests ").RP Holdings is the sole owner of RPI 2019 ICAV, which is an Irish collective asset management entity formed to facilitate our Exchange Offer Transactions, and is the successor to Old RPI. As a result of the Exchange Offer Transactions, we own indirectly an 82% economic interest in Old RPI through our subsidiary RPI 2019Intermediate Finance Trust , aDelaware statutory trust ("RPI Intermediate FT"). We are legally entitled to 82% of the economics of Old RPI's wholly-owned subsidiaries,RPI Finance Trust , aDelaware statutory trust ("RPIFT") andRPI Acquisitions (Ireland), Limited ("RPI Acquisitions"), an Irish private limited company, and 66% ofRoyalty Pharma Collection Trust , aDelaware statutory trust ("RPCT").
The remaining 34% of RPCT is owned by the
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--------------------------------------------------------------------------------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 inthe 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 generated and updated each reporting period by manually compiling sell-side equity research analysts' consensus sales estimates for each of the products in which we own royalties. We then calculate our expected royalty cash flows using these consensus sales forecasts. In any given reporting period, any decline or increase in the expected future cash flows associated with a financial royalty asset is recognized in our income statement as non-cash provision expense or provision income, respectively. As a result of the non-cash charges associated with applying the effective interest method accounting methodology, our income statement activity can be volatile and unpredictable. Small declines in sell-side equity research analysts' consensus sales forecasts over a long term horizon can result in an immediate non-cash income statement expense recognition which generates a corresponding cumulative allowance that reduces the gross asset balance, 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 royalty and 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 expense. Over the course of 10 quarters, we recognized non-cash provision expense as a result of these changes in forecasts including non-cash provision expense of$743.2 million in 2016, ultimately reaching a peak cumulative allowance of$1.30 billion bySeptember 30, 2017 related to this financial royalty asset. With the approval of the Vertex triple combination therapy, Trikafta, inOctober 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 over the course of 2017 and 2018, there remained a$1.10 billion cumulative allowance that was fully reduced by recognizing 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. This example illustrates the volatility caused by our accounting model. In addition, due to the nature of our effective interest methodology, there is no direct correlation between our income from financial royalty assets and our royalty receipts. Therefore, management believes investors should not look to income from royalties and the associated provision for changes in future cash flows as a measure of our near-term financial performance or as a source for predicting future income or growth trends. Our operations have historically been financed primarily with cash flows generated by our royalties. Given the importance of cash flows and their predictability to management's operation of the business, management uses royalty receipts as the primary measure of our operating performance. 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. In addition to analyzing our results on a GAAP basis, management also reviews our results on a non-GAAP basis. The closest comparable GAAP measure to each of the non-GAAP measures that management review is Net cash provided by operating activities. The key non-GAAP metrics we focus on are Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow, each of which is further discussed in the section titled "Non-GAAP Financial Results." Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key liquidity measures in the evaluation of our ability to generate cash from operations. Both measures are an indication of our strength and the performance of the business. Management uses Adjusted Cash Flow to compare its performance against non-GAAP adjusted net income used by companies in the biopharmaceutical industry. Adjusted EBITDA, which is derived from Adjusted Cash Receipts, is used by our lenders to assess our ability to meet our financial covenants.
Refer to the section titled "Non-GAAP Reconciliations" for additional discussion of management's use of non-GAAP measures as supplemental financial measures.
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--------------------------------------------------------------------------------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 three and six months endedJune 30, 2022 and 2021 by product in order of contribution to royalty receipts for the six months endedJune 30, 2022 (in thousands). For the Three Months EndedJune 30 ,
For the Six Months Ended
Royalties Marketer(s) Therapeutic Area 2022 2021 2022 2021
Cystic fibrosis franchise (1) Vertex Rare disease $ 181,968 $ 156,023 $ 383,851 $ 322,832
Tysabri Biogen Neurology 93,128 92,070 190,567 178,991
Imbruvica AbbVie, Johnson & Johnson Cancer 80,381 87,289 167,552 176,424
Xtandi Pfizer, Astellas Cancer 51,988 35,767 95,383 76,812
Promacta Novartis Hematology 34,715 32,341 82,612 76,466
Januvia, Janumet, Other DPP-IVs
(2) Merck & Co., others Diabetes 35,695 39,438 71,377 75,200
Tremfya Johnson & Johnson Immunology 18,428 - 46,653 -
Nurtec ODT/Biohaven payment (3) Biohaven, Pfizer Neurology 18,715 16,721 39,090 33,222
Cabometyx/Cometriq Exelixis, Ipsen, Takeda Cancer 13,055 10,129 25,911 10,129
Farxiga/Onglyza AstraZeneca Diabetes 11,346 9,113 20,815 17,675
Evrysdi Roche Rare disease 8,134 2,971 17,331 4,648
Prevymis Merck & Co. Infectious disease 9,997 8,772 14,123 17,402
Trodelvy Gilead Cancer 6,040 2,992 10,932 5,597
Erleada Johnson & Johnson Cancer 4,834 3,116 9,720 6,220
Crysvita Ultragenyx, Kyowa Kirin Rare disease 4,933 3,929 9,645 7,516
Orladeyo BioCryst Rare disease 4,765 957 9,191 969
Emgality Lilly Neurology 4,425 3,550 9,188 6,814
Oxlumo Alnylam Rare disease 583 - 1,349 -
Other products (4) 50,038 82,502 138,909 220,241
Total royalty receipts $ 633,168 $ 587,680 $
1,344,199
(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio. (2)Januvia, Janumet, Other DPP-IVs include the following approved products: Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by AstraZeneca, Novartis and Takeda. (3)We have received quarterly redemption payments of$15.6 million beginning in the first quarter of 2021 related to the Series A Biohaven Preferred Shares (presented as Proceeds from available for sale debt securities on the statements of cash flows). The remaining cash receipts 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 on the statements of cash flows), Cimzia, Entyvio, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Soliqua, Tazverik and contributions from the Legacy SLP Interest (defined below). 33 --------------------------------------------------------------------------------
Financial Overview
Financial Highlights
•Net cash provided by operating activities totaled$1.0 billion and$1.1 billion for the six months endedJune 30, 2022 and 2021, respectively. Net cash provided by operating activities is the closest comparable GAAP financial measure to the supplemental non-GAAP liquidity measures that follow. •Adjusted Cash Receipts (a non-GAAP metric) totaled$1.1 billion and$999.0 million for the six months endedJune 30, 2022 and 2021, respectively. •Adjusted EBITDA (a non-GAAP metric) totaled$1.0 billion and$917.2 million for the six months endedJune 30, 2022 and 2021, respectively. •Adjusted Cash Flow (a non-GAAP metric) totaled$848.6 million and$838.0 million for the six months endedJune 30, 2022 and 2021, respectively.
Understanding Our Results of Operations
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' 18% ownership interest in Old RPI. The value of this non-controlling interest will decline over time as the assets in Old RPI expire. 2. The RP Holdings ClassB Interests held indirectly by the Continuing Investors Partnerships, which represent an approximate 28% ownership interest inRP Holdings as ofJune 30, 2022 and are exchangeable for our Class A ordinary shares. The value of this non-controlling interest will decline over time if the investors who indirectly own the RP Holdings ClassB Interests conduct exchanges for our Class A ordinary shares.
3. A de minimis interest in RPCT held by RPSFT as a result of a 2011 reorganization transaction. The value of this non-controlling interest will decline over time as the royalty assets owned by RPCT expire and is expected to be substantially eliminated by the end of 2022.
4. The RP Holdings Class C ordinary share (the "RP Holdings ClassC Special Interest") held byRPI EPA Holdings, LP ("EPA Holdings "), an affiliate ofRP Management, LLC (the "Manager"). Income will not be allocated to this non-controlling interest until certain conditions are met.
All of the results of operations of
EPA Holdings is entitled to receive Equity Performance Awards through its RP Holdings ClassC Special Interest. Equity Performance Awards owed toEPA 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 ClassC Special Interest. The Equity Performance Awards will be payable in RP Holdings ClassB Interests that will be exchanged upon issuance for Class A ordinary shares. 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.
Total income and other revenues
Total income and other revenues is primarily comprised of income from our
financial royalty assets, royalty revenue from our intangible royalty assets,
and royalty income generally arising from successful commercialization of
products developed through R&D funding arrangements. Most of our royalties on
both approved products and development-stage product candidates that are not
accounted for as R&D funding expense are classified as financial assets as our
ownership rights are generally 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.
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We recognize interest income related to our financial royalty assets. Royalty
revenue relates solely to revenue from our DPP-IV products for which the patent
rights have been licensed to various counterparties. For the three and six
months ended June 30, 2022 and 2021, the royalty payors accounting for greater
than 10% of our total income and other revenues in any one period are shown in
the table below:
For the Three Months Ended June For the Six Months Ended June 30,
30,
Royalty Payor Royalties 2022 2021 2022 2021
Vertex Cystic fibrosis franchise 38 % 33 % 36 % 33 %
AbbVie Imbruvica 15 % 17 % 15 % 17 %
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 on individual products 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 (i.e., 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 three months endedMarch 31, 2022 . Our royalties on other DPP-IVs have also substantially ended and we do not expect any material revenue from our DPP-IV in the future periods.
Other royalty income
Other royalty income primarily includes income from financial royalty assets
that have been fully amortized by the expected expiration date and royalty
income from synthetic royalties 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 financial royalty asset beyond the estimated duration
by which the financial asset was fully amortized. 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.
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--------------------------------------------------------------------------------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:
•expense or income related to the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows; and •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 to 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). Most of the same variables and management's estimates affecting the recognition of interest income on our financial royalty assets also impact the provision. In any period, we will recognize provision income or expense as a result of the following factors: (1) changes in expected cash flows of the underlying pharmaceutical products, derived primarily from sell-side equity research analysts' consensus sales forecasts, (2) regulatory approval of additional indications which leads to new cash flow streams, (3) changes to the estimated duration of the royalty (i.e., patent expiration date) and (4) changes in amounts and timing of projected royalty receipts and milestone payments.
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, and 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 agreements (collectively, the "Management Agreement"), we
pay quarterly operating and personnel expenses 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 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.
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--------------------------------------------------------------------------------Equity in earnings of equity method investees
Equity in 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 Transactions, we acquired an equity method investment from the Continuing Investors Partnerships in the form of a special limited partnership interest in theLegacy 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 and royalties if products are commercialized. Our investments inAvillion Financing I, LP ("Avillion I") andBAv Financing II, LP ("Avillion II", or, together with Avillion I, the "Avillion Entities") are accounted for using the equity method. Other income, net
Other income, net primarily includes the change in fair market value of our equity securities, the unrealized gains or losses on 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 the Legacy Investors Partnerships' approximately 18% share of earnings in Old RPI. As the Legacy Investors Partnerships no longer participate in investment opportunities, the related net income attributable to this non-controlling interest is expected to decline over time. Net income attributable to non-controlling interests includes theRP Holdings ClassB Interests held by the Continuing Investors Partnerships and will include net income attributable to the RP Holdings ClassC Special Interest held byEPA Holdings once certain conditions have been met. Future net income attributable to the non-controlling interest related to the RP Holdings ClassB Interests held by the Continuing Investors Partnerships will decline over time if the investors who indirectly own the RP Holdings ClassB Interests conduct exchanges for our Class A ordinary shares. Net income attributable to non-controlling interests also includes RPSFT's 20% share of earnings in RPCT, which is a consolidated subsidiary of Old RPI. We expect net income attributable to this non-controlling interest to decline over time as the royalty assets owned by RPCT expire and to be substantially eliminated by the end of 2022.
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 as described in section titled "Understanding Our Financial Reporting."
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--------------------------------------------------------------------------------Results of Operations
For the Three and Six Months Ended
The comparison of our historical results of operations for the three and six
months ended
For the Three Months Ended June
(in thousands) 30, Change For the Six Months Ended June 30, Change
2022 2021 $ % 2022 2021 $ %
Income and other revenues:
Income from financial royalty assets $ 515,350 $ 503,414 $ 11,936 2.4 % $ 1,026,873 $ 1,033,039 $ (6,166) (0.6) %
Revenue from intangible royalty assets 2,537 40,127 (37,590) (93.7) % 36,123 76,188 (40,065) (52.6) %
Other royalty income 18,068 11,422 6,646 58.2 % 35,008 18,763 16,245 86.6 %
Total income and other revenues 535,955 554,963 (19,008) (3.4) % 1,098,004 1,127,990 (29,986) (2.7) %
Operating expenses:
Provision for changes in expected cash
flows from financial royalty assets 105,714 (243,762) 349,476 (143.4) % 290,335 48,499 241,836 *
Research and development funding
expense 606 3,122 (2,516) (80.6) % 101,106 5,763 95,343 *
Amortization of intangible assets - 5,733 (5,733) (100.0) % 5,670 11,404 (5,734) (50.3) %
General and administrative expenses 51,843 44,921 6,922 15.4 % 103,383 88,077 15,306 17.4 %
Total operating expenses/(income), net 158,163 (189,986) 348,149 (183.2) % 500,494 153,743 346,751 225.5 %
Operating income 377,792 744,949 (367,157) (49.3) % 597,510 974,247 (376,737) (38.7) %
Other (income)/expense:
Equity in earnings of equity method
investees (737) (17,701) 16,964 (95.8) % (1,134) (15,783) 14,649 (92.8) %
Interest expense 46,966 37,426 9,540 25.5 % 94,029 74,841 19,188 25.6 %
Other income, net (160,034) (81,531) (78,503) 96.3 % (115,065) (50,545) (64,520) 127.6 %
Total other (income)/expenses, net (113,805) (61,806) (51,999) 84.1 % (22,170) 8,513 (30,683) (360.4) %
Consolidated net income 491,597 806,755 (315,158) (39.1) % 619,680 965,734 (346,054) (35.8) %
Net income attributable to
non-controlling interests 187,093 365,979 (178,886) (48.9) % 263,415 455,839 (192,424) (42.2) %
Net income attributable to Royalty
Pharma plc $ 304,504 $ 440,776 $ (136,272) (30.9) % $ 356,265 $ 509,895 $ (153,630) (30.1) %
*Percentage change is not meaningful.
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--------------------------------------------------------------------------------Total income and other revenues
Income from financial royalty assets
Income from financial royalty assets by top products for the three and six
months ended
(in thousands) For the Three Months Ended June For the Six Months Ended June 30,
30, Change Change
2022 2021 $ % 2022 2021 $ %
Cystic fibrosis franchise
8.7 % $ 396,121 $ 370,413 $ 25,708 6.9 %
Imbruvica 80,638 96,315 (15,677) (16.3) % 168,265 195,430 (27,165) (13.9) %
Tysabri 51,403 50,650 753 1.5 % 103,924 101,749 2,175 2.1 %
Xtandi 24,021 25,738 (1,717) (6.7) % 48,939 52,718 (3,779) (7.2) %
Promacta 23,786 19,680 4,106 20.9 % 44,590 35,964 8,626 24.0 %
Tremfya 25,666 - 25,666 - % 41,816 - 41,816 - %
Other 108,172 125,434 (17,262) (13.8) % 223,218 276,765 (53,547) (19.3) %
Total income from financial
royalty assets $ 515,350 $ 503,414 $ 11,936 2.4 % $ 1,026,873 $ 1,033,039 $ (6,166) (0.6) %
Three months ended
Income from financial royalty assets increased by$11.9 million , or 2.4%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily driven by income related to newly acquired assets, primarily Tremfya, for which there was no comparable activity in the three months endedJune 30, 2021 , and the performance of the cystic fibrosis franchise. The increase was partially offset by the maturity of our royalties from the HIV franchise and declines in sell-side equity research analysts' consensus sales forecasts for Imbruvica.
Six Months Ended
Income from financial royalty assets decreased by$6.2 million , or 0.6%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by the maturity of our royalties from the HIV franchise and declines in sell-side equity research analysts' consensus sales forecasts for Imbruvica. The decrease in income was partially offset by income from newly acquired assets, primarily Tremfya, for which there was no comparable activity in the six months endedJune 30, 2021 , and the performance of the cystic fibrosis franchise and Promacta.
Revenue from intangible royalty assets
Three months ended
Revenue from intangible royalty assets decreased by$37.6 million , or 93.7%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily driven by the maturity of our royalties on Januvia and Janumet in the three months endedMarch 31, 2022 .
Six Months Ended
Revenue from intangible royalty assets decreased by$40.1 million , or 52.6%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by the maturity of our royalties on Januvia and Janumet in the three months endedMarch 31, 2022 . 39 --------------------------------------------------------------------------------
Other royalty income
Three months ended
Other royalty income increased by$6.6 million , or 58.2%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily related to growth in the ongoing product launches of Trodelvy and Nurtec ODT that arose from our R&D funding agreements with Immunomedics and Biohaven, respectively.
Six Months Ended
Other royalty income increased by$16.2 million , or 86.6%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily related to income from Trodelvy and Nurtec ODT.
Provision for changes in expected cash flows from financial royalty assets
The breakdown of our provision for changes in expected future cash flows
includes the following:
•expense or income related to the current period activity resulting from
adjustments to the cumulative allowance for changes in expected cash flows; and
•expense or income related to the provision for current expected credit losses.
As the provision activity is a combination of income and expense items, the
provision breakdown by royalty, exclusive of the provision for current expected
credit losses, is as follows, based on the largest contributors to each period's
provision income or expense:
(in thousands)
For the Three For the Three
Royalty Months Ended Royalty Months Ended
June 30, 2022 June 30, 2021
Imbruvica $ 71,385 Tysabri $ (114,354)
Cystic fibrosis franchise 54,609 Xtandi (101,172)
Promacta 29,295 Cystic fibrosis franchise (53,092)
Tysabri (30,613) Lexiscan (34,286)
Xtandi (43,804) Imbruvica 46,378
Other 38,220 Other 13,473
Total provision, exclusive of 119,092 Total provision, exclusive of (243,053)
provision for credit losses provision for credit losses
Provision for current expected (13,378) Provision for current expected (709)
credit losses credit losses
Total provision $ 105,714 Total provision $ (243,762)
(in thousands)
For the Six For the Six
Product Months Ended Product Months Ended
June 30, 2022 June 30, 2021
Imbruvica $ 180,294 Imbruvica $ 109,792
Tazverik 78,171 Tazverik 61,391
IDHIFA 38,112 Emgality 55,253
Promacta 29,295 Xtandi (58,320)
Emgality 27,843 Tysabri (112,720)
Other (421) Other (42,129)
Total provision, exclusive of 353,294 Total provision, exclusive of 13,267
provision for credit losses provision for credit losses
Provision for current expected (62,959) Provision for current expected 35,232
credit losses credit losses
Total provision expense $ 290,335 Total provision $ 48,499
40--------------------------------------------------------------------------------
Three months ended
In the three months endedJune 30, 2022 , we recorded provision expense of$105.7 million , comprised of$119.1 million in provision expense for changes in expected cash flows and$13.4 million in provision income for current expected credit losses. We recorded provision expense for changes in expected cash flows for Imbruvica and the cystic fibrosis franchise primarily due to significant declines in sell-side equity research analysts' consensus sales forecasts, which was partially offset by provision income for Xtandi and Tysabri due to a significant increase in sell-side equity research analysts' consensus sales forecasts. The provision income for credit losses was primarily driven by a decrease in current expected credit losses related to Tazverik as a result of the corresponding decline in the financial asset value. In the three months endedJune 30, 2021 , we recorded provision income of$243.8 million , of which$243.1 million and$0.7 million related to provision income for changes in expected cash flows and current expected credit losses, respectively. We recorded provision income primarily due to increases in sell-side equity research analysts' consensus sales forecasts for Tysabri, Xtandi and the cystic fibrosis franchise. Offsetting the provision income was provision expense related to Imbruvica, primarily due to declines in sell-side equity research analysts' consensus forecasts.
Six Months Ended
In the six months endedJune 30, 2022 , we recorded provision expense of$290.3 million , comprised of$353.3 million in provision expense for changes in expected cash flows and$63.0 million in provision income for current expected credit losses. We recorded provision expense for changes in expected cash flows for Imbruvica and Tazverik, primarily due to declines in sell-side equity research analysts' consensus sales 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 corresponding significant decline in the financial asset value. In the six months endedJune 30, 2021 , we recorded provision expense of$48.5 million , of which$13.3 million and$35.2 million related to provision expense for changes in expected cash flows and current expected credit losses, respectively. We recorded provision expense for Imbruvica, primarily due to declines in sell-side equity research analysts' consensus sales forecasts, and for Tazverik as a result of a slower than expected product launch. Offsetting the provision expense was provision income from a significant increase in sell-side equity research analysts' consensus forecasts for Tysabri and Xtandi. During the six months endedJune 30, 2021 , the provision expense for current expected credit losses was primarily driven by certain additions to our portfolio of financial royalty assets, including the incremental$100.0 million financial royalty asset related to the start of the oral zavegepant Phase 3 program and a new royalty interest in Cabometyx/Cometriq.
R&D funding expense
Three months ended
R&D funding expense was relatively flat in the three months ended
Six Months Ended
R&D funding expense increased by$95.3 million , for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , primarily driven by upfront and milestone development-stage funding payments of$100.0 million to Cytokinetics to acquire a royalty on a development-stage product in the three months endedMarch 31, 2022 . G&A expenses
Three months ended
G&A expenses increased by$6.9 million , or 15.4%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily driven by higher Operating and Personnel Payments due to increased cash receipts from royalty investments. 41 --------------------------------------------------------------------------------
Six Months Ended
G&A expenses increased by$15.3 million , or 17.4%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by higher Operating and Personnel Payments due to increased cash receipts from royalty investments.
Equity in earnings of equity method investees
Three months ended
Equity in earnings of equity method investees decreased by$17.0 million , or 95.8%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily driven by a$20.9 million decrease in equity in earnings from the Legacy SLP Interest.
Six Months Ended
Equity in earnings of equity method investees decreased by$14.6 million , or 92.8%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by a$21.5 million decrease in equity in earnings from the Legacy SLP Interest.
Interest expense
Three months ended
Interest expense increased by$9.5 million , or 25.5%, in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , primarily driven by the issuance of$1.3 billion senior unsecured notes inJuly 2021 ("2021 Notes"). The weighted average coupon rate was 2.245% and 2.125% in the three months endedJune 30, 2022 and 2021, respectively.
Six Months Ended
Interest expense increased by$19.2 million , or 25.6% in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by the issuance of the 2021 Notes. The weighted average coupon rate was 2.245% and 2.125% in the six months endedJune 30, 2022 and 2021, respectively.
Refer to the "Liquidity and Capital Resources" section for additional discussion of the Notes.
Other income, net
Three months ended
Other income, net increased by$78.5 million , or 96.3%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily driven by gains on derivative instruments of$71.8 million and higher gains on available for sale debt securities in the three months endedJune 30, 2022 partially offset by lower gains on equity securities. The gains on derivative instruments and higher gains on available for sale debt securities are primarily driven by an estimated high probability of a change of control event for Biohaven within the next year.
Six Months Ended
Other income, net increased by$64.5 million , or 127.6%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by gains on derivative instruments of$71.8 million and higher gains on available for sale debt securities partially offset by losses on equity securities of$28.1 million and lower interest income in the six months endedJune 30, 2022 . The gains on derivative instruments and higher gains on available for sale debt securities are primarily driven by an estimated high probability of a change of control event for Biohaven within the next year. 42 --------------------------------------------------------------------------------
Net income attributable to non-controlling interests
Three months ended
Net income attributable to the Legacy Investors Partnerships decreased by$72.1 million in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , primarily driven by lower net income attributable to Old RPI. Net income attributable to the Continuing Investors Partnerships decreased by$93.7 million in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 , primarily driven by lower net income attributable toRP Holdings in the three months endedJune 30, 2022 . Exchanges by investors in the Continuing Investors Partnerships who indirectly own the RP Holdings ClassB Interests for our Class A ordinary shares resulted in a decline in the Continuing Investors Partnerships' ownership ofRP Holdings . Net income attributable to RPSFT decreased by$13.0 million in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . We expect net income attributable to RPSFT to continue to decline as the assets held by RPCT mature.
Six Months Ended
Net income attributable to the Legacy Investors Partnerships decreased by
Net income attributable to the Continuing Investors Partnerships decreased by$111.6 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 , primarily driven by lower net income attributable toRP Holdings in the six months endedJune 30, 2022 . Exchanges by investors in the Continuing Investors Partnerships who indirectly own the RP Holdings ClassB Interests for our Class A ordinary shares resulted in a decline in the Continuing Investors Partnerships' ownership ofRP Holdings . Net income attributable to RPSFT decreased by$23.0 million in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . We expect net income attributable to RPSFT to continue to decline as the assets held by RPCT mature.
Key Developments and Upcoming Events Relating to Our Portfolio
The key developments impacting our cash receipts and income and revenue from our royalty interests are discussed below:
Commercial Products
•Cystic fibrosis franchise. InApril 2021 , Vertex announcedEuropean Commission ("EC") approval for Kaftrio in combination with ivacaftor for the treatment of patients with cystic fibrosis ages 12 and older who have at least one F508del mutation. InJune 2021 , Vertex announced thatU.S. Food and Drug Administration ("FDA") approved Trikafta for the treatment of children with cystic fibrosis ages 6 through 11 who have at least one F508del mutation or have certain mutations that are responsive to Trikafta based on in vitro data. InJanuary 2022 , Vertex announced that the EC granted approval for the label expansion of Kaftrio in combination with ivacaftor for the treatment of cystic fibrosis in patients ages 6 through 11 years old who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator gene.
•Tysabri. In
43
--------------------------------------------------------------------------------
In August 2021 , Biogen announced results from Phase 3b NOVA study evaluation
every six-week dosing with Tysabri intravenous administration in
relapsing-remitting multiple sclerosis. Results show that every six-week Tysabri
intravenous administration provides a high level of efficacy in controlling
multiple sclerosis disease activity in patients who switched from the approved
every four-week dosing regimen.
•Imbruvica. In June 2021 , Johnson and Johnson announced Phase 3 GLOW study
results for Imbruvica in combination with Venetoclax for the treatment of
first-line chronic lymphocytic leukemia and small lymphocytic lymphoma
demonstrated superior progression-free survival versus chlorambucil plus
obinutuzumab as a first-line treatment of chronic lymphocytic leukemia. The
study also showed improved duration of remission and significantly improved
depth of remission. Johnson & Johnson had indicated that approval could occur in
2022.
In August 2021 , AbbVie announced that the U.S. District Court for the District
of Delaware had issued a decision holding patent rights relating to Imbruvica
were valid and infringed by a generic product from Alvogen and Natco. The
decision, which is subject to appeal, prohibits regulatory approval of that
generic product until the last AbbVie patent expires. Previously, AbbVie entered
into several settlement and license agreements with other generic companies.
Consequently, AbbVie does not expect any generic product entry prior to March
30, 2032 , assuming pediatric exclusivity is granted.
In June 2022 , Johnson & Johnson announced primary results from the Phase 3 SHINE
study, which demonstrated that the combination of once-daily oral Imbruvica plus
bendamustine-rituximab (BR) and rituximab maintenance significantly reduced the
risk of disease progression or death by 25% compared to patients who received
placebo plus BR and rituximab maintenance in patients aged 65 years or older
with newly diagnosed mantle cell lymphoma. With a median follow-up of 84.7
months, the Imbruvica plus BR and rituximab maintenance combination showed a
statistically significant and clinically meaningful 2.3 year improvement in
median progression-free survival (6.7 years) vs. BR (4.4 years). The safety
profile of the Imbruvica plus BR regimen was consistent with the known safety
profiles of Imbruvica as well as BR.
•Xtandi. In
InSeptember 2021 , Astellas and Pfizer announced that Xtandi plus androgen deprivation therapy reduced the risk of death by 34% compared to placebo plus androgen deprivation therapy in the Phase 3ARCHES study in men with metastatic hormone-sensitive prostate cancer. The primary results from theARCHES trial were published in 2019. InJuly 2022 , Pfizer indicated that there could be a potential readout of the Phase 3 EMBARK trial for high-risk non-metastatic prostate cancer in the second half of 2022. •Nurtec ODT. InMay 2021 , Biohaven announced that the FDA approved Nurtec ODT for the preventative treatment of migraine, indicated for adult patients with episodic migraine who experience less than 15 headache days per month. InApril 2022 , Pfizer and Biohaven announced that the EC has granted marketing authorization for Vydura (rimegepant) for both the acute treatment of migraine with or without aura, and prophylaxis of episodic migraine in adults who have at least four migraine attacks per month. InMay 2022 , Pfizer and Biohaven announced that they entered into a definitive agreement under which Pfizer will acquire Biohaven. Pfizer will acquire all outstanding shares of Biohaven not already owned by Pfizer for$148.50 per share in cash for a total of approximately$11.6 billion . Pfizer will also make payments at closing to settle Biohaven's third-party debt and for the redemption of all outstanding shares of Biohaven's redeemable preferred stock. The transaction is expected to close by early 2023. •Trodelvy. InApril 2021 , Gilead announced the FDA granted full approval to Trodelvy for adult patients with unresectable locally advanced or metastatic triple-negative breast cancer (TNBC) who have received two or more prior systemic therapies, at least one of them for metastatic disease. The approval is supported by data from the Phase 3 ASCENT study. 44 -------------------------------------------------------------------------------- InApril 2021 , Gilead announced that the FDA granted an accelerated approval of Trodelvy for use in adult patients with locally advanced or metastatic urothelial cancer who have previously received a platinum-containing chemotherapy and either a programmed death receptor-1 or a programmed death-ligand 1 inhibitor. The accelerated approval was based on data from the international Phase 2, single-arm TROPHY study. InJune 2021 , Gilead announced superior outcomes to standard of care in second-line treatment of metastatic TNBC in the Phase 3 ASCENT study. Trodelvy more than doubled overall survival as a second-line treatment in the new ASCENT subgroup analysis.
In
InNovember 2021 , Gilead announced that the EC granted marketing authorization for Trodelvy as a monotherapy indicated for the treatment of adult patients with unresectable or metastatic TNBC who have received two or more prior systemic therapies, at least one of them for advanced disease.The EC's decision is supported by results from the Phase 3 ASCENT study where Trodelvy reduced the risk of death by 49% and improved median overall survival to 11.8 months versus 6.9 months with physician's choice of chemotherapy. InJanuary 2022 , Gilead announced it has entered into two clinical trial collaboration and supply agreements with Merck & Co. to evaluate the combination of Trodelvy and Merck & Co.'s anti-PD-1 therapy Keytruda in first-line metastatic non-small cell lung cancer (NSCLC). As part of the collaboration, Merck & Co. will sponsor a global Phase 3 clinical trial of Trodelvy in combination with Keytruda as a first-line treatment of patients with metastatic NSCLC.
Additionally, Gilead and Merck & Co. established an agreement where Gilead will sponsor a Phase 2 signal-seeking study evaluating combinations that include pembrolizumab in first-line NSCLC.
InJune 2022 , Gilead announced results from the primary analysis of the Phase 3 TROPiCS-02 study of Trodelvy versus physicians' choice of chemotherapy in heavily pre-treated HR+/HER2- metastatic breast cancer patients who received prior endocrine therapy, CDK4/6 inhibitors and two to four lines of chemotherapy. The study met its primary endpoint of progression-free survival with a statistically significant and clinically meaningful 34% reduction in the risk of disease progression or death. The first interim analysis of the key secondary endpoint of overall survival demonstrated a trend in improvement. Patients will be followed for a subsequent overall survival analysis. The safety profile for Trodelvy was consistent with prior studies. •Cabometyx. InJanuary 2021 , Exelixis announced that the FDA approved Cabometyx for patients with advanced renal cell carcinoma (RCC) as a first-line treatment in combination with Bristol Myers Squibb's Opdivo. The approval was based on the Phase 3 CheckMate 9ER trial, in which the combination of Cabometyx and Opdivo significantly improved overall survival while doubling progression-free survival and objective response rate versus sunitinib as a first-line treatment for patients with advanced RCC.
In
InAugust 2021 , Exelixis announced that their partners Takeda and Ono received approval inJapan for Cabometyx in combination with Opdivo for the treatment of unresectable or metastatic RCC. InSeptember 2021 , Exelixis announced detailed results from the expanded Cohort 6 of the Phase 1b COSMIC-021 trial of Cabometyx in combination with atezolizumab in patients with metastatic castration-resistant prostate cancer, which included patients with metastatic castration-resistant prostate cancer who had been previously treated with novel hormone therapies enzalutamide or abiraterone acetate used along with prednisone. Following discussions with FDA, Exelixis announced that it will not pursue a regulatory submission for the combination regimen based on cohort 6 of COSMIC-021. Exelixis believes that CONTACT-02, a global Phase 3 pivotal trial that initiated enrollment inJune 2020 may serve as a basis for future regulatory applications. 45 -------------------------------------------------------------------------------- InSeptember 2021 , Exelixis announced FDA approved Cabometyx for patients with previously treated radioactive iodine-refractory differentiated thyroid cancer. The approval was based on the Phase 3 COSMIC-311 pivotal trial. InMarch 2022 , Exelixis announced results from the final analysis of the second primary endpoint of overall survival from the Phase 3 COSMIC-312 trial, which evaluated cabozantinib in combination with atezolizumab versus sorafenib in patients with previously untreated advanced hepatocellular carcinoma. The final analysis showed neither improvement nor detriment in overall survival for cabozantinib in combination with atezolizumab versus sorafenib. InMay 2022 , Ipsen announced that it received approval from the EC for Cabometyx as a monotherapy for the treatment of adult patients with locally advanced or metastatic differentiated thyroid carcinoma, refractory or not eligible to radioactive iodine who have progressed during or after prior systemic therapy. InJuly 2022 , Exelixis announced that COSMIC-313, an ongoing Phase 3 trial evaluating Cabometyx, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC, met its primary endpoint, demonstrating significant improvement in progression-free survival at the primary analysis. At a prespecified interim analysis for the secondary endpoint of overall survival, the combination of Cabometyx, nivolumab and ipilimumab did not demonstrate a significant benefit. The trial will continue to the next analysis of overall survival. Exelixis intends to discuss the results with the FDA to determine next steps toward a potential regulatory submission.
Exelixis has indicated it expects initial Phase 3 data in the second half of 2022 from CONTACT-01 in metastatic NSCLC and CONTACT-03 in advanced or metastatic RCC.
•Evrysdi. InMarch 2021 , Roche announced that the EC approved Evrysdi for the treatment of spinal muscular atrophy (SMA) in patients two months of age and older, with a clinical diagnosis of SMA Type 1, Type 2 or Type 3 or with one to four splicing modifier of motor neuron 2 copies.
In
InMay 2022 , Roche announced that the FDA has approved a label extension for Evrysdi to include infants under two months old with SMA. The approval is based on the interim efficacy and safety data from the RAINBOWFISH study in newborns, which showed that the majority of pre-symptomatic infants treated with Evrysdi achieved key milestones such as sitting and standing with half walking after 12 months of treatment. •Orladeyo. InJanuary 2021 , Orladeyo was approved inJapan , becoming the first and only prophylactic hereditary angioedema (HAE) medication approved in the region.
In
In
•Oxlumo. InJuly 2021 , Alnylam announced results from ILLUMINATE-C, a Phase 3 open-label study of lumasiran in patients of all ages with advanced primary hyperoxaluria type 1 associated with progressive decline in renal function. Results from the primary analysis at six months demonstrated a substantial reduction in plasma oxalate from baseline in patients with advanced disease, including those on hemodialysis. The safety and tolerability profile of lumasiran following six months of treatment was encouraging across all ages, with no drug related serious adverse events and injection site reactions as the most common adverse event. 46 -------------------------------------------------------------------------------- InMarch 2022 , the FDA accepted Alnylam's supplemental New Drug Application ("NDA") for lumasiran for the reduction of plasma oxalate in the treatment of patients with advanced primary hyperoxaluria type 1. The FDA has set an action date forOctober 6, 2022 . Additionally, a Type II Variation for lumasiran to amend the label in patients with advanced primary hyperoxaluria Type 1 was submitted and validated by theEuropean Medicines Agency ("EMA") inDecember 2021 . •Tremfya. InFebruary 2022 , Johnson & Johnson announced results from the Phase 2a VEGA proof-of-concept study. Results showed that the combination of Tremfya and golimumab, a tumor necrosis factor-alpha antagonist, induced higher rates of clinical response, clinical remission, endoscopic improvement and a composite histologic-endoscopic endpoint at 12 weeks than either treatment alone in adults with moderately to severely active ulcerative colitis. Rates of adverse events were comparable among treatment groups. InFebruary 2022 , Johnson & Johnson announced results from the Phase 2b QUASAR Induction Study 1. Results showed that a significantly greater proportion of adults with moderately to severely active ulcerative colitis who previously had an inadequate response or intolerance to conventional therapies or selected advanced therapies and were treated with Tremfya achieved clinical response at week 12 (Tremfya 200 mg: 61.4% and Tremfya 400 mg: 60.7%), the study's primary endpoint compared with placebo (27.6%). Safety data at week 12 was consistent with the safety profile for Tremfya in approved indications. •Tazverik: InJune 2022 , Ipsen and Epizyme announced that they had entered into a definitive merger agreement under which Ipsen will acquire Epizyme. Ipsen intends to initiate a tender offer to acquire all outstanding shares of Epizyme at a price of$1.45 per share in cash at the closing of the transaction for an initial estimated aggregate consideration of$247 million plus a contingent value right of$1 per share. The transaction is anticipated to close by the end of the third quarter of 2022.
Development-Stage Product Candidates
•Aficamten. In
InFebruary 2022 , Cytokinetics announced positive topline results from Cohort 3 of the REDWOOD-HCM Phase 2 trial. Results from Cohort 3 showed that substantial reductions in the average resting left ventricular outflow tract pressure gradient (LVOT-G) as well as the post-Valsalva LVOT-G were achieved for patients with oHCM and a resting or post-Valsalva LVOT-G of greater than 50 mmHg whose background therapy included disopyramide and in the majority a beta-adrenergic blocker. The safety and tolerability of aficamten were consistent with prior experience in REDWOOD-HCM with no treatment interruptions and no serious adverse events attributed to treatment reported by the investigators. •BCX9930. InApril 2022 , BioCryst announced that it is pausing enrollment in clinical trials with BCX9930, while BioCryst investigates elevated serum creatinine levels seen in some patients. BioCryst will not enroll new patients in the REDEEM-1, REDEEM-2 or RENEW clinical trials during the investigation. Patients currently enrolled in the trials are expected to continue on the study drug. InMay 2022 , BioCryst announced that it plans to discuss with regulators whether clinical trials with amended protocols could resume using stepped dosing to 400 milligrams twice-daily of BCX9930 by the end of the third quarter of 2022. •Gantenerumab. InOctober 2021 , Roche announced that gantenerumab, an anti-amyloid beta antibody developed for subcutaneous administration, has been granted breakthrough therapy designation by the FDA for the treatment of people living with Alzheimer's disease. This designation is based on data showing that gantenerumab significantly reduced brain amyloid plaque, a pathological hallmark of Alzheimer's disease, in the ongoing SCarlet RoAD and Marguerite RoAD open-label extension trials, as well as other studies. 47 -------------------------------------------------------------------------------- InMarch 2022 , Roche announced a new Phase 3 Alzheimer's disease prevention trial (SKYLINE). Roche has stated that it intends to enter into a collaboration agreement with Banner Alzheimer's Institute's Alzheimer's Prevention Initiative,Massachusetts General Hospital and theUniversity of Southern California Alzheimer's Therapeutic Research Institute to further exchange scientific insights and advance the trial goals. SKYLINE aims to evaluate the potential of gantenerumab to slow disease progression in people with the earliest biologic signs of Alzheimer's disease and who show no signs of cognitive impairment.
Roche has indicated it expects Phase 3 data from the GRADUATE 1/2 trial in Alzheimer's disease in the fourth quarter of 2022.
•Omecamtiv mecarbil. InFebruary 2022 , Cytokinetics announced that FDA has accepted and filed its NDA for omecamtiv mecarbil. The FDA assigned the NDA a standard review with a PDUFA date ofNovember 30, 2022 . The FDA also indicated that it is currently not planning to hold an advisory committee meeting to discuss the application. The submission is supported by GALACTIC-HF, which demonstrated a positive effect on the primary composite endpoint of cardiovascular death or heart failure events in patients with heart failure and reduced ejection fraction who were receiving standard of care plus omecamtiv mecarbil. InFebruary 2022 , Cytokinetics announced results from METEORIC-HF, a Phase 3 trial evaluating the effect of treatment with omecamtiv mecarbil compared to placebo on exercise capacity in patients with heart failure with reduced ejection fraction. After 20 weeks of treatment, there was no change in peak oxygen uptake in patients treated with omecamtiv mecarbil versus placebo. InJune 2022 , Cytokinetics announced that the FDA had informed the company that theCardiovascular and Renal Drugs Advisory Committee will review its NDA onDecember 13, 2022 . Additionally, the FDA has assigned the NDA a PDUFA date ofFebruary 28, 2023 .
•Otilimab. GlaxoSmithKline has indicated it expects Phase 3 data from the contRast trials in rheumatoid arthritis in the second half of 2022.
•Pelabresib. InDecember 2021 , MorphoSys presented the latest data from the Phase 2 MANIFEST study evaluating pelabresib in the treatment of myelofibrosis. As ofSeptember 10, 2021 , the data cut-off, a total of 84 JAK inhibitor-naive patients were enrolled and received the first-line combination of pelabresib and ruxolitinib. The data showed 68% (n=57) of patients treated with the combination achieved a greater than or equal to 35% reduction in spleen volume from baseline at week 24 and 60% (n=47) maintained a greater than or equal to 35% reduction in spleen volume at week 48. Most patients also saw their symptoms reduced with 56% (n=46) achieving greater than or equal to 50% reduction in total symptom score from baseline at week 24. •PT027. InSeptember 2021 , AstraZeneca and Avillion announced positive results from MANDALA and DENALI, two Phase 3 trials evaluating PT027 (albuterol/budesonide) in patients with asthma. PT027 is a potential first-in-class inhaled, fixed-dose combination of albuterol, a short-acting beta2-agonist, and budesonide, an inhaled corticosteroid. In MANDALA, PT027 demonstrated a statistically significant and clinically meaningful reduction in the risk of severe exacerbations compared to albuterol, when used as a rescue medicine in response to symptoms. In DENALI, PT027 showed a statistically significant improvement in lung function measured by forced expiratory volume in one second, compared to the individual components albuterol and budesonide, and compared to placebo. The safety and tolerability of PT027 in both trials was consistent with the known profiles of the components. InMay 2022 ,Avillion LLP , a drug development company focused on the co-development and financing of pharmaceutical candidates from proof-of-concept through to regulatory approval, announced that FDA accepted for filing the NDA for AstraZeneca's PT027. The proposed indication is for the as-needed treatment or prevention of bronchoconstriction and for the prevention of exacerbation of asthma. The co-development partnership between AstraZeneca and Avillion also recently expanded to include the BATURA study, a randomized Phase 3b decentralized trial to further assess the role of PT027 in preventing asthma exacerbations. 48 -------------------------------------------------------------------------------- •Zavegepant. InMarch 2021 , Biohaven announced that it enrolled the first patient in a Phase 2/3 clinical trial of oral zavegepant for the preventive treatment of migraine. Accordingly, per the agreement with Biohaven announced inAugust 2020 ,Royalty Pharma paid$100 million to Biohaven for the achievement of this milestone, bringing total zavegepant funding to$250 million . InDecember 2021 , Biohaven announced positive topline results from the second pivotal clinical trial evaluating the safety and efficacy of intranasal zavegepant for the acute treatment of migraine in adults. The Phase 3 study achieved its co-primary regulatory endpoints of pain freedom and freedom of most bothersome symptom at two hours and showed broad efficacy by demonstrating statistically significant superiority to placebo across a total of 15 prespecified primary and secondary outcome measures.
In
Non-GAAP Financial Results
In addition to analyzing our results on a GAAP basis, management also reviews
our results on a non-GAAP basis. 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. As a result, management places importance on royalty receipts as
they are predictable and we use them as a measure of our operating performance.
Refer to section titled "Non-GAAP Reconciliations" for additional discussion of
management's use of non-GAAP measures as supplemental financial measures and
reconciliations from the most directly GAAP comparable measures of Net cash
provided by operating activities.
Adjusted Cash Receipts is a measure calculated with inputs directly from the
statements of cash flows and includes (1) royalty receipts by product: (i) Cash
collections from royalty assets (financial assets and intangible assets), (ii)
Other royalty cash collections, (iii) Distributions from equity method
investees, plus (2) Proceeds from available for sale debt securities; less (1)
Distributions to non-controlling interests, which represent contractual
distributions of royalty receipts and proceeds from available for sale debt
securities to our historical non-controlling interests related to the Legacy
Investors Partnerships and RPSFT. Adjusted Cash Receipts is most directly
comparable to the GAAP measure of Net cash provided by operating activities.
Adjusted EBITDA and Adjusted Cash Flow are similar non-GAAP liquidity measures
that are both most closely comparable to the GAAP measure, Net cash provided by
operating activities. Adjusted EBITDA is important to our lenders and is defined
under the Credit Agreement as Adjusted Cash Receipts less Payments for operating
and professional costs. Payments for operating and professional costs are
comprised of Payments for operating and professional costs and Payments for
rebates from the statements of cash flows.
Adjusted Cash Flow is defined as Adjusted EBITDA less (1) Development-stage
funding payments - ongoing, (2) Development-stage funding payments - upfront and
milestone, (3) Interest paid, net of Interest received, (4) Investments in
equity method investees and (5) Other (including Derivative collateral posted,
net of Derivative collateral received, and Termination payments on derivative
instruments) plus (1) Contributions from non-controlling interests- R&D, all
directly reconcilable to the statements of cash flows.
Adjusted Cash Receipts and Adjusted Cash Flow are used by management as key
liquidity measures in the evaluation of our ability to generate cash from
operations. Both measures are an indication of the strength of the Company and
the performance of the business. Management also uses Adjusted Cash Flow to
compare its performance against non-GAAP adjusted net income used by companies
in the biopharmaceutical industry. Adjusted EBITDA, as derived from Adjusted
Cash Receipts, is used by our lenders to assess our ability to meet our
financial covenants.
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The table below includes the royalty receipts and non-GAAP financial results for
the six months ended June 30, 2022 and 2021 by product in order of contribution
to royalty receipts for the six months ended June 30, 2022 (in thousands).
For the Three Months Ended June
30, For the Six Months Ended June 30, Six MonthsYear-to-Date Change
Royalties 2022 2021 2022 2021 $ %
Cystic fibrosis franchise (1)$ 181,968 $ 156,023 $ 383,851$ 322,832 $ 61,019 18.9 % Tysabri 93,128 92,070 190,567 178,991 11,576 6.5 % Imbruvica 80,381 87,289 167,552 176,424 (8,872) (5.0) % Xtandi 51,988 35,767 95,383 76,812 18,571 24.2 % Promacta 34,715 32,341 82,612 76,466 6,146 8.0 % Januvia, Janumet, Other DPP-IVs (2) 35,695 39,438 71,377 75,200 (3,823) (5.1) % Tremfya 18,428 - 46,653 - 46,653 - % Nurtec ODT/Biohaven payment (3) 18,715 16,721 39,090 33,222 5,868 17.7 % Cabometyx/Cometriq 13,055 10,129 25,911 10,129 15,782 155.8 % Farxiga/Onglyza 11,346 9,113 20,815 17,675 3,140 17.8 % Evrysdi 8,134 2,971 17,331 4,648 12,683 272.9 % Prevymis 9,997 8,772 14,123 17,402 (3,279) (18.8) % Trodelvy 6,040 2,992 10,932 5,597 5,335 95.3 % Erleada 4,834 3,116 9,720 6,220 3,500 56.3 % Crysvita 4,933 3,929 9,645 7,516 2,129 28.3 % Orladeyo 4,765 957 9,191 969 8,222 * Emgality 4,425 3,550 9,188 6,814 2,374 34.8 % Oxlumo 583 - 1,349 - 1,349 - % Other products (4) 50,038 82,502 138,909 220,241 (81,332) (36.9) % Total royalty receipts$ 633,168 $ 587,680 $ 1,344,199 $ 1,237,158 $ 107,041 8.7 % Distributions to non-controlling (9.5) % interests (109,158) (112,476) (215,543) (238,197) 22,654 Adjusted Cash Receipts (non-GAAP)$ 524,010 $ 475,204 $ 1,128,656 $ 998,961 $ 129,695 13.0 % Payments for operating and 13.7 % professional costs (44,101) (39,604) (93,003) (81,764) (11,239) Adjusted EBITDA (non-GAAP)$ 479,909 $ 435,600 $ 1,035,653 $ 917,197 $ 118,456 12.9 % Development-stage funding payments - (80.8) % ongoing (606) (3,122) (1,106) (5,763) 4,657 Development-stage funding payments - upfront and milestone - - (100,000) - (100,000) - % Interest received/(paid), net 2,116 784 (83,618) (62,168) (21,450) 34.5 % Investments in equity method investees - (8,713) (3,050) (17,427) 14,377
(82.5) %
Contributions from non-controlling (82.1) % interests- R&D 107 2,083 731 4,080 (3,349) Other - 2,130 - 2,130 (2,130) (100.0) % Adjusted Cash Flow (non-GAAP)$ 481,526 $ 428,762 $ 848,610$ 838,049 $ 10,561 1.3 % Weighted average Class A ordinary shares outstanding - diluted 607,214 607,163 607,207 607,151
*Percentage change is not meaningful.
(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi and Trikafta/Kaftrio. (2)Januvia, Janumet, Other DPP-IVs include the following approved products: Onglyza, Kombiglyze, Galvus, Eucreas and Nesina. The Other DPP-IVs are marketed by AstraZeneca, Novartis and Takeda. (3)We have received quarterly redemption payments of$15.6 million beginning in the first quarter of 2021 related to the Series A Biohaven Preferred Shares (presented as Proceeds from available for sale debt securities on the statements of cash flows). The remaining cash receipts 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 on the statements of cash flows), Cimzia, Entyvio, HIV franchise, IDHIFA, Letairis, Lexiscan, Mircera, Myozyme, Nesina, Soliqua, Tazverik and contributions from the Legacy SLP Interest. 50
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Adjusted Cash Receipts (non-GAAP)
Six Months Ended
Adjusted Cash Receipts increased by$129.7 million to$1.1 billion in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by an increase in royalty receipts from the cystic fibrosis franchise and newly acquired royalties, which was partially offset by a decline in royalty receipts from matured royalties, primarily the HIV franchise, and unfavorable foreign exchange movements. The increase in Adjusted Cash Receipts also reflects a decline in distributions to non-controlling interests due to maturing royalties jointly owned by the Legacy Investors Partnerships and RPSFT.
Below we discuss the key drivers of royalty receipts.
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$61.0 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase was primarily driven by the launch of Kaftrio in additional countries outsidethe United States and the performance of Trikafta inthe United States , including its uptake in children 6 through 11 years old. •Tysabri - Royalty receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, increased by$11.6 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by continued global patient growth and positive channel dynamics inthe United States . •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$8.9 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was largely due to a slower-than-anticipated recovery of the chronic lymphocytic leukemia market from COVID-19 and increased competition from newer therapies inthe United States .
•Xtandi - Royalty receipts from Xtandi, which is marketed by Pfizer and Astellas
for the treatment of prostate cancer, increased by
•Promacta - Royalty receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia purpura (ITP) and aplastic anemia, increased by$6.1 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . This growth was primarily driven by increased use in ITP and further uptake as first-line treatment for severe aplastic anemia inthe United States . •Januvia, Janumet, Other DPP-IVs - Royalty receipts from the DPP-IVs for type 2 diabetes, which includes Januvia and Janumet, both marketed by Merck & Co., decreased by$3.8 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 .
•Tremfya - Royalty receipts from Tremfya, which is marketed by Johnson & Johnson
for the treatment of plaque psoriasis and active psoriatic arthritis, were
•Nurtec ODT/Biohaven payment - Royalty receipts from Nurtec ODT, marketed by Biohaven and Pfizer for the acute and preventative treatment of migraine, increased by$5.9 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by prescription volume growth. In addition, we received$31.3 million in fixed payments from Biohaven related to the Series A Biohaven Preferred Shares during each of the six months endedJune 30, 2022 and 2021. 51 -------------------------------------------------------------------------------- •Cabometyx/Cometriq - Royalty receipts from Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda, were$25.9 million in the six months endedJune 30, 2022 , primarily driven by uptake of Cabometyx in combination with Opdivo as a first-line treatment for patients with advanced renal cell carcinoma. We acquired the Cabometyx/Cometriq royalty inMarch 2021 .
Distributions to Non-Controlling Interests
Distributions to non-controlling interests decreased by
Adjusted EBITDA (non-GAAP)
Six Months Ended
Adjusted EBITDA increased by$118.5 million to$1.0 billion in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 as a result of the factors noted above in "Adjusted Cash Receipts (Non-GAAP)." Payments for operating and professional costs, the only adjustment between Adjusted Cash Receipts and Adjusted EBITDA, increased in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by higher Operating and Personnel Payments from increased cash receipts from royalty investments.
Adjusted Cash Flow (non-GAAP)
Six Months Ended
Adjusted Cash Flow increased by$10.6 million to$848.6 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily driven by the factors noted above in "Adjusted Cash Receipts (non-GAAP)" and "Adjusted EBITDA (non-GAAP)." The increase was partially offset by upfront and milestone development-stage funding payments of$100.0 million to Cytokinetics to acquire a royalty on a development-stage product candidate and a$21.5 million increase in net interest paid in the six months endedJune 30, 2022 due to the first interest payment on the 2021 Notes.
Non-GAAP Reconciliations
Adjusted Cash Receipts, Adjusted EBITDA and Adjusted Cash Flow are non-GAAP
measures presented as supplemental measures to our GAAP financial performance.
These non-GAAP financial 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. 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 financial measures
as supplements to GAAP financial measures and by presenting the reconciliations
of the non-GAAP financial measures to their most comparable GAAP financial
measures, in each case being Net cash provided by operating activities.
We believe that Adjusted Cash Receipts and Adjusted Cash Flow provide meaningful
information about our operating performance because the business is heavily
reliant on its ability to generate consistent cash flows and these measures
reflect the core cash collections and cash charges comprising our operating
results. Management strongly believes that our significant operating cash flow
is one of the attributes that attracts potential investors to our business.
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In addition, we believe that Adjusted Cash Receipts and Adjusted Cash Flow help
identify underlying trends in the business and permit investors to more fully
understand how management assesses our performance, including planning and
forecasting for future periods. Adjusted Cash Receipts and Adjusted Cash Flow
are used by management as key liquidity measures in the evaluation of our
ability to generate cash from operations. Both measures are an indication of our
strength and the performance of the business. Management uses Adjusted Cash
Receipts and Adjusted Cash Flow when considering available cash, including for
decision-making purposes related to funding of acquisitions, voluntary debt
repayments, dividends and other discretionary investments. Further, these
non-GAAP financial measures help management, the audit committee and investors
evaluate our ability to generate liquidity from operating activities.
Management believes that Adjusted EBITDA is an important non-GAAP measure in
analyzing our liquidity and is a key component of certain material covenants
contained within our 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.
Management uses Adjusted Cash Flow to evaluate its ability to generate cash and
performance of the business and to evaluate our performance as compared to its
peer group. Management also uses Adjusted Cash Flow to compare its performance
against non-GAAP adjusted net income measures used by many companies in the
biopharmaceutical industry, even though each company may customize its own
calculation and therefore one company's metric may not be directly comparable to
another's. We believe that non-GAAP financial measures, including Adjusted Cash
Flow, are frequently used by securities analysts, investors and other interested
parties to evaluate companies in our industry.
The non-GAAP financial 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
have provided a reconciliation of each non-GAAP financial measure to the most
directly comparable GAAP financial measure, in each case being Net cash provided
by operating activities below.
To arrive at Adjusted Cash Receipts, we start with the GAAP line item, 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
non-controlling interests, which represents distributions to our historical
non-controlling interests related to the Legacy Investors Partnerships and
RPSFT, 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 arrive at 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
non-controlling interests and (2) Derivative collateral posted or (received),
net.
To arrive at 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
non-controlling interests-R&D, and to deduct (1) Distributions to
non-controlling interests 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 are available for reinvestment and for
discretionary purposes.
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(in thousands) For the Three Months Ended June
30, For the Six Months Ended June 30,
2022 2021 2022 2021
Net cash provided by operating activities (GAAP)
15,625 31,250 31,250
(1), (2)
Distributions from equity method investees - - 523 - 523
investing (2)
Interest (received)/paid, net (2) (2,116) (784) 83,618 62,168
Development-stage funding payments - ongoing (3) 606 3,122 1,106 5,763
Development-stage funding payments - upfront and - - 100,000 -
milestone (3)
Payments for operating and professional costs 44,101 39,604 93,003 81,764
Distributions to non-controlling interests (2) (109,158) (112,476)
(215,543) (238,197)
Derivative collateral received, net (2) - (2,130) - (2,130)
Adjusted Cash Receipts (non-GAAP) $ 524,010 $
475,204
Net cash provided by operating activities (GAAP)
15,625 31,250 31,250
(1), (2)
Distributions from equity method investees - - 523 - 523
investing (2)
Interest (received)/paid, net (2) (2,116) (784) 83,618 62,168
Development-stage funding payments - ongoing (3) 606 3,122 1,106 5,763
Development-stage funding payments - upfront and - - 100,000 -
milestone (3)
Distributions to non-controlling interests (2) (109,158) (112,476)
(215,543) (238,197)
Derivative collateral received, net (2) - (2,130) - (2,130)
Adjusted EBITDA (non-GAAP) $ 479,909 $
435,600
Net cash provided by operating activities (GAAP)
15,625 31,250 31,250
(1), (2)
Distributions from equity method investees - - 523 - 523
investing (2)
Contributions from non-controlling interests-R&D 107 2,083 731 4,080
(2)
Distributions to non-controlling interests (2) (109,158) (112,476)
(215,543) (238,197)
Investments in equity method investees (2), (4) - (8,713) (3,050) (17,427)
Adjusted Cash Flow (non-GAAP) $ 481,526 $
428,762 $ 848,610
(1)Receipts from the quarterly redemption of the Series A Biohaven Preferred Shares are presented as Proceeds from available for sale debt securities on the 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 statements of cash flows.
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