Royalty Pharma plc 10-K

Item 8. Financial Statements and Supplementary Data ROYALTY PHARMA PLC Index to Audited Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 78 Consolidated Balance Sheets as of December 31, 202 4 and 20 23 81 Consolidated Statements of Operations for the years ended December 31, 202 4 , 202 3 and 202 2 82 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 4 , 202 3 and 202 2 83 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 202 4 , 202 3 and 20 2 2 84 Consolidated Statements of Cash Flows for the years ended December 31, 202 4 , 202 3 and 202 2 85 Notes to Consolidated Financial Statements 86 77 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Royalty Pharma plc Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Royalty Pharma plc (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 12, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 78 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Financial Royalty Assets and related Interest Income Description of the Matter As disclosed in Note 6 to the consolidated financial statements, the Company’s total financial royalty assets, net, were carried at $15,910,928 thousand as of December 31, 2024. For the year ended December 31, 2024, the Company recognized income from financial royalty assets of $2,149,422 thousand. As explained in Note 2 to the consolidated financial statements, the Company’s financial royalty assets are measured at amortized cost using the prospective effective interest rate method. Auditing the valuation of the financial royalty assets and related interest income involved complex auditor judgment, because the assumptions used by management to forecast the expected cash flows from the underlying royalties are forward-looking and are therefore affected by future economic and market conditions, such as the impact of the entry of competing or generic products to the market, among other uncertainties. The key assumptions used in the valuation of the financial royalty assets and related interest income are product growth rates applied to forecasted sales and the royalty duration. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls related to the valuation of financial royalty assets and related interest income. This included testing controls over management’s review of the significant assumptions and other inputs used in estimating the royalty duration and product growth rates. To test the valuation of the financial royalty assets and related interest income, our audit procedures included, among others, evaluating the methodology and completeness and accuracy of the data used to develop the key assumptions identified above. For example, with the support of statistical modelling specialists, we evaluated management’s statistical methodology for sales growth forecasts and performed sensitivity analysis over the resulting forecasted product sales. We also tested the inputs to the model, principally comprising historic product sales and third-party analyst estimates of nearer-term sales amounts, by comparing to analyst reports or published sales information. For royalty duration, among other procedures, we compared management’s assessment of the likely date of expiry of the Company’s cash flows against original purchase agreements, as well as independently assessing the royalty duration against available published information sources, such as those from regulatory bodies, counterparties, and product marketers. We assessed the historical accuracy of management’s estimates by comparing expected cash flows to actual cash receipts. We also evaluated the related disclosures in the consolidated financial statements. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2022. New York, New York February 12, 2025 79 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Royalty Pharma plc Opinion on Internal Control Over Financial Reporting We have audited Royalty Pharma plc’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Royalty Pharma plc (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 12, 2025 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, New York February 12, 2025 80 ROYALTY PHARMA PLC CONSOLIDATED BALANCE SHEETS (In thousands, except par value) As of December 31, 2024 2023 Assets Current assets Cash and cash equivalents $ 929,026 $ 477,010 Financial royalty assets 783,770 738,438 Available for sale debt securities 58,200 18,300 Other royalty income receivable 26,956 22,405 Other current assets 4,187 18,040 Total current assets 1,802,139 1,274,193 Financial royalty assets, net 15,127,158 14,088,655 Equity securities 186,960 199,487 Available for sale debt securities 693,500 437,100 Equity method investments 379,424 375,894 Other assets 33,534 6,522 Total assets $ 18,222,715 $ 16,381,851 Liabilities and shareholders’ equity Current liabilities Distributions payable to legacy non-controlling interests $ 75,811 $ 83,155 Accounts payable and accrued expenses 13,370 15,165 Interest payable 98,062 51,682 Current portion of long-term debt 997,773 — Other current liabilities 68,600 11,375 Total current liabilities 1,253,616 161,377 Long-term debt 6,614,653 6,135,285 Other liabilities 12,080 900 Total liabilities 7,880,349 6,297,562 Commitments and contingencies Shareholders’ equity Class A ordinary shares, $ 0.0001 par value; issued and outstanding: 2024– 445,985 and 2023– 446,692 45 45 Class B ordinary shares, $ 0.000001 par value; issued and outstanding: 2024– 143,128 and 2023– 150,743 — — Class R redeemable shares, £ 1 par value; issued and outstanding: 2024– 50 and 2023– 50 63 63 Deferred shares, $ 0.000001 par value; issued and outstanding: 2024– 392,255 and 2023– 384,640 — — Additional paid-in capital 4,103,482 4,011,435 Retained earnings 2,845,653 2,517,583 Non-controlling interests 3,395,785 3,557,792 Treasury interests ( 2,662 ) ( 2,629 ) Total shareholders’ equity 10,342,366 10,084,289 Total liabilities and shareholders’ equity $ 18,222,715 $ 16,381,851 See accompanying notes to these consolidated financial statements. 81 ROYALTY PHARMA PLC CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Years Ended December 31, 2024 2023 2022 Income and other revenues Income from financial royalty assets $ 2,149,422 $ 2,197,754 $ 2,125,096 Other royalty income and revenues 114,154 156,800 112,119 Total income and other revenues 2,263,576 2,354,554 2,237,215 Operating expense Provision for changes in expected cash flows from financial royalty assets 732,461 560,656 904,244 Research and development funding expense 2,000 52,000 177,106 Amortization of intangible assets — — 5,670 General and administrative expenses 236,671 249,748 227,303 Financial royalty asset impairment — — 615,827 Total operating expense, net 971,132 862,404 1,930,150 Operating income 1,292,444 1,492,150 307,065 Other (income)/expense Equity in (earnings)/losses of equity method investees ( 29,611 ) ( 28,882 ) 8,973 Interest expense 225,512 187,187 187,961 Losses/(gains) on derivative financial instruments 6,000 2,290 ( 96,610 ) (Gains)/losses on equity securities ( 39,549 ) ( 87,139 ) 33,442 (Gains)/losses on available for sale debt securities ( 154,906 ) ( 230,840 ) 6,815 Interest income ( 47,343 ) ( 72,291 ) ( 78,335 ) Other non-operating expenses, net 1,528 21,737 14,755 Total other (income)/expense, net ( 38,369 ) ( 207,938 ) 77,001 Consolidated net income before tax 1,330,813 1,700,088 230,064 Income tax expense — — — Consolidated net income 1,330,813 1,700,088 230,064 Net income attributable to non-controlling interests 471,830 565,254 187,232 Net income attributable to Royalty Pharma plc $ 858,983 $ 1,134,834 $ 42,832 Earnings per Class A ordinary share: Basic $ 1.92 $ 2.54 $ 0.10 Diluted $ 1.91 $ 2.53 $ 0.10 Weighted average Class A ordinary shares outstanding: Basic 448,185 447,601 437,963 Diluted 594,108 602,900 437,972 See accompanying notes to these consolidated financial statements. 82 ROYALTY PHARMA PLC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years Ended December 31, 2024 2023 2022 Consolidated net income $ 1,330,813 $ 1,700,088 $ 230,064 Other comprehensive income/(loss): Unrealized gains on available for sale debt securities — — 24,000 Reclassification of unrealized gains on available for sale debt securities — — ( 53,432 ) Other comprehensive loss: $ — $ — $ ( 29,432 ) Comprehensive income $ 1,330,813 $ 1,700,088 $ 200,632 Comprehensive income attributable to non-controlling interests 471,830 565,254 175,418 Comprehensive income attributable to Royalty Pharma plc $ 858,983 $ 1,134,834 $ 25,214 See accompanying notes to these consolidated financial statements. 83 ROYALTY PHARMA PLC CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY ( In thousands, except per share amounts ) Class A Ordinary Shares Class B Ordinary Shares Class R Redeemable Shares Deferred Shares Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests Treasury Interests Total Shareholders’ Equity Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2021 432,963 $ 43 174,213 $ — 50 $ 63 361,170 $ — $ 3,507,533 $ 2,255,179 $ 16,491 $ 4,471,951 $ ( 2,715 ) $ 10,248,545 Contributions — — — — — — — — — — — 11,596 — 11,596 Distributions — — — — — — — — — — — ( 604,248 ) — ( 604,248 ) Dividends ($ 0.76 per class A ordinary share) — — — — — — — — — ( 333,322 ) — — — ( 333,322 ) Other exchanges 10,155 1 ( 10,155 ) — — — 10,155 — 156,457 — 1,127 ( 157,494 ) ( 91 ) — Share-based compensation and related issuances of Class A ordinary shares 48 — — — — — — — 2,170 — — — — 2,170 Net income — — — — — — — — — 42,832 — 187,232 — 230,064 Other comprehensive income/(loss): Unrealized gains on available for sale debt securities — — — — — — — — — — 14,262 9,738 — 24,000 Reclassification of unrealized gains on available for sale debt securities — — — — — — — — — — ( 31,880 ) ( 21,552 ) — ( 53,432 ) Balance at December 31, 2022 443,166 $ 44 164,058 $ — 50 $ 63 371,325 $ — $ 3,666,160 $ 1,964,689 $ — $ 3,897,223 $ ( 2,806 ) $ 9,525,373 Contributions — — — — — — — — — — — 11,855 — 11,855 Distributions — — — — — — — — — — — ( 487,721 ) — ( 487,721 ) Dividends ($ 0.80 per class A ordinary share) — — — — — — — — — ( 358,327 ) — — — ( 358,327 ) Other exchanges 13,315 2 ( 13,315 ) — — — 13,315 — 428,629 — — ( 428,808 ) 177 — Share-based compensation and related issuances of Class A ordinary shares 57 — — — — — — — 2,357 — — — — 2,357 Repurchases of Class A ordinary shares ( 9,846 ) ( 1 ) — — — — — — ( 85,711 ) ( 219,047 ) — — — ( 304,759 ) Net income — — — — — — — — — 1,134,834 — 565,254 — 1,700,088 Purchase of non-controlling interest in RPCT — — — — — — — — — ( 4,566 ) — ( 11 ) — ( 4,577 ) Balance at December 31, 2023 446,692 $ 45 150,743 $ — 50 $ 63 384,640 $ — $ 4,011,435 $ 2,517,583 $ — $ 3,557,792 $ ( 2,629 ) $ 10,084,289 Contributions — — — — — — — — — — — 9,038 — 9,038 Distributions — — — — — — — — — — — ( 476,632 ) — ( 476,632 ) Dividends ($ 0.84 per class A ordinary share) — — — — — — — — — ( 376,465 ) — — — ( 376,465 ) Other exchanges 7,615 1 ( 7,615 ) — — — 7,615 — 166,275 — — ( 166,243 ) ( 33 ) — Share-based compensation and related issuances of Class A ordinary shares 81 — — — — — — — 2,344 — — — — 2,344 Repurchases of Class A ordinary shares ( 8,403 ) ( 1 ) — — — — — — ( 76,572 ) ( 153,340 ) — — — ( 229,913 ) Net income — — — — — — — — — 858,983 — 471,830 — 1,330,813 Purchase of non-controlling interest in RPCT — — — — — — — — — ( 1,108 ) — — — ( 1,108 ) Balance at December 31, 2024 445,985 $ 45 143,128 $ — 50 $ 63 392,255 $ — $ 4,103,482 $ 2,845,653 $ — $ 3,395,785 $ ( 2,662 ) $ 10,342,366 See accompanying notes to these consolidated financial statements. 84 ROYALTY PHARMA PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2024 2023 2022 Cash flows from operating activities: Cash collections from financial royalty assets $ 2,983,410 $ 3,201,410 $ 2,507,236 Cash collections from intangible royalty assets 14,647 1,302 72,943 Other royalty cash collections 108,846 158,843 69,891 Distributions from equity method investees 13,396 18,823 39,142 Interest received 46,482 71,604 24,982 Development-stage funding payments - ongoing ( 2,000 ) ( 2,000 ) ( 2,106 ) Development-stage funding payments - upfront and milestone — ( 50,000 ) ( 175,000 ) Payments for operating and professional costs ( 236,225 ) ( 243,012 ) ( 222,969 ) Interest paid ( 159,570 ) ( 169,168 ) ( 170,139 ) Net cash provided by operating activities 2,768,986 2,987,802 2,143,980 Cash flows from investing activities: Distributions from equity method investees 23,641 43,882 — Investments in equity method investees ( 10,955 ) ( 12,542 ) ( 9,896 ) Purchases of equity securities ( 62,500 ) — ( 87,785 ) Proceeds from equity securities 98,575 — 211,158 Purchases of available for sale debt securities ( 150,000 ) — ( 479,559 ) Proceeds from available for sale debt securities 19,786 1,440 542,044 Purchases of marketable securities — — ( 234,869 ) Proceeds from sales and maturities of marketable securities — 24,391 792,341 Acquisitions of financial royalty assets ( 2,505,701 ) ( 2,115,522 ) ( 1,741,640 ) Acquisitions of other financial assets ( 18,000 ) — ( 21,215 ) Milestone payments ( 75,000 ) ( 12,400 ) — Other 2,039 ( 2,038 ) — Net cash used in investing activities ( 2,678,115 ) ( 2,072,789 ) ( 1,029,421 ) Cash flows from financing activities: Distributions to legacy non-controlling interests - Portfolio Receipts ( 362,280 ) ( 376,987 ) ( 441,963 ) Distributions to legacy non-controlling interests - other — — ( 31,301 ) Distributions to continuing non-controlling interests ( 125,159 ) ( 119,534 ) ( 144,115 ) Dividends to shareholders ( 376,465 ) ( 358,327 ) ( 333,322 ) Repurchases of Class A ordinary shares ( 229,651 ) ( 304,759 ) — Contributions from legacy non-controlling interests - R&D 747 543 1,059 Contributions from non-controlling interests - other 4,360 6,933 6,133 Cash acquired in connection with purchase of non-controlling interest — 4,973 — Proceeds from revolving credit facility — 350,000 — Repayment of revolving credit facility — ( 350,000 ) — Repayment of long-term debt — ( 1,000,000 ) — Proceeds from issuance of long-term debt, net of discount 1,471,235 — — Debt issuance costs and other ( 12,616 ) ( 1,596 ) ( 1,347 ) Other ( 9,026 ) — — Net cash provided by/(used in) in financing activities 361,145 ( 2,148,754 ) ( 944,856 ) Net change in cash and cash equivalents 452,016 ( 1,233,741 ) 169,703 Cash and cash equivalents, beginning of period 477,010 1,710,751 1,541,048 Cash and cash equivalents, end of period $ 929,026 $ 477,010 $ 1,710,751 See accompanying notes to these consolidated financial statements. 85 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Purpose Royalty Pharma plc is a public limited company that was incorporated under the laws of England and Wales to facilitate the initial public offering (“IPO”) of our Class A ordinary shares. “Royalty Pharma,” the “Company,” “we,” “us” and “our” refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. We control Royalty Pharma Holdings Ltd (“RP Holdings”), a private limited company incorporated under the laws of England and Wales and U.K. tax resident, through our ownership of RP Holdings’ Class A ordinary shares (the “RP Holdings Class A Interests”) and RP Holdings’ Class B ordinary shares (the “RP Holdings Class B Interests”). We conduct our business through RP Holdings and its subsidiaries. RP Holdings is the sole owner of Royalty Pharma Investments 2019 ICAV (“RPI 2019 ICAV”), which is an Irish collective asset management vehicle, and is the successor to Royalty Pharma Investments, an Irish unit trust (“Old RPI”). RP Holdings is owned by Royalty Pharma plc, and, indirectly, by RPI US Partners 2019, LP, a Delaware limited partnership, and RPI International Holdings 2019, LP, a Cayman Islands exempted limited partnership (together, the “Continuing Investors Partnerships”). Prior to the Exchange Offer (defined below), Old RPI was owned by various partnerships (the “Legacy Investors Partnerships”). RP Management, LLC (the “Manager”), a Delaware limited liability company, is responsible for our management, including our day-to-day operations, pursuant to advisory and management agreements (collectively, the “Management Agreement”) . In January 2025, we agreed to acquire the Manager for approximately $ 1.1 billion in total consideration (the “Internalization”). Refer to Note 16–Subsequent Events for additional discussion. We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. We fund innovation in the biopharmaceutical industry both directly and indirectly - directly when we partner with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties, and indirectly when we acquire existing royalties from the original innovators. 2. Summary of Significant Accounting Policies Basis of Preparation and Use of Estimates The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of income, revenues and expenses during the reporting period. Actual results may differ from those estimates. Basis of Consolidation The consolidated financial statements include the accounts of Royalty Pharma and all majority-owned and controlled subsidiaries, as well as variable interest entities, where we are the primary beneficiary. We consolidate based upon evaluation of our power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance. For consolidated entities where we own or are exposed to less than 100% of the economics, we record Net income attributable to non-controlling interests in our consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties. 86 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS We consummated an exchange offer on February 11, 2020 (the “Exchange Offer”) to facilitate the IPO. Through the Exchange Offer, investors which represented 82 % of the aggregate limited partnership in the Legacy Investors Partnerships exchanged their limited partnership interests in the Legacy Investors Partnerships for limited partnership interests in the Continuing Investors Partnerships. Following the Exchange Offer, we became the indirect owner of an 82 % economic interest in Old RPI through our subsidiary RPI 2019 Intermediate Finance Trust, a Delaware statutory trust. We are entitled to 82 % of the economics of Old RPI’s wholly-owned subsidiar y RPI Finance Trust, a Delaware statutory trust (“RPIFT”) , and 66 % of Royalty Pharma Collection Trust, a Delaware statutory trust (“RPCT”). In 2022, we became an indirect owner of an 82 % economic interest in Royalty Pharma Investments ICAV (“RPI ICAV”), which was previously owned directly by Old RPI. In December 2023, RPI 2019 ICAV acquired the remaining interest in RPCT owned by Royalty Pharma Select Finance Trust, a Delaware statutory trust (“RPSFT”), at which time RPSFT ceased to hold a non-controlling interest in RPCT. Prior to December 2023, the remaining 34 % of RPCT was owned by the Legacy Investors Partnerships and RPSFT, which was wholly owned by Royalty Pharma Select, an Irish unit trust. Following the above transaction in December 2023, we report three non-controlling interests: (1) the Legacy Investors Partnerships’ ownership of approximately 18 % in Old RPI and RPI ICAV, which existed prior to our IPO, and, following the consummation of our IPO, (2) the Continuing Investors Partnerships’ indirect ownership in RP Holdings through their indirect ownership of RP Holdings Class B Interests (the “continuing non-controlling interests”) and (3) RPI EPA Vehicle, LLC’s (“EPA Vehicle”) ownership of the RP Holdings’ Class C ordinary share (the “RP Holdings Class C Special Interest”). Income will not be allocated to EPA Vehicle until certain performance conditions are met. All intercompany transactions and balances have been eliminated in consolidation. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. Concentrations of Credit Risk Financial instruments that subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, available for sale debt securities, financial royalty assets, derivatives and receivables. Our cash management and investment policy limits investment instruments to investment-grade securities with the objective to preserve capital and to maintain liquidity until the funds are needed for operations. Our cash and cash equivalents balances as of December 31, 2024 and 2023 were held with Bank of America, State Street, TD Bank, Citibank, U.S. Bank, DNB Bank and Scotiabank. Our primary operating accounts significantly exceed the Federal Deposit Insurance Corporation limits. The majority of our financial royalty assets and receivables arise from contractual royalty agreements that entitle us to royalties on the sales of underlying biopharmaceutical products in the United States, Europe and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The products in which we hold royalties are marketed by leading industry participants, including, among others, Vertex, GSK, Roche, Johnson & Johnson, Biogen, AbbVie, Astellas, Novartis, Pfizer and Gilead. As of December 31, 2024 and 2023, Vertex, as the marketer and payor of our royalties on the cystic fibrosis franchise, accounted for 34 % and 32 % of our current portion of financial royalty assets, respectively, and represented the largest individual marketer and payor of our royalties. We monitor the financial performance and creditworthiness of the counterparties to our royalty agreements so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant credit losses with respect to the collection of income or revenue on our royalty assets. 87 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Recently Adopted and Issued Accounting Standards In November 2023, the Financial Accounting Standards Board issued a new accounting standard that amends the guidance for required disclosures related to a public entity’s reportable segments (ASU 2023-07). The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. It also requires disclosure of the amount and description of the composition of other segment items and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. This update became effective for us in 2024 and our expanded disclosures are included below under “Segment Information.” Segment Information Our CODM is our Chief Executive Officer, who reviews financial information presented on a consolidated basis to allocate resources, evaluate financial performance and make overall operating decisions. As such, we concluded that we operate as one single reportable segment, which is primarily focused on acquiring biopharmaceutical royalties. The measure of segment profit or loss that is most consistent with our consolidated financial statements is consolidated net income. The accounting policies of our single reportable segment are the same as those for the consolidated financial statements. The level of disaggregation and amounts of significant segment expenses that are regularly provided to the CODM are the same as those presented in the consolidated statements of operations. Likewise, the measure of segment assets is reported on the consolidated balance sheets as total assets. Royalty Assets An acquisition of a royalty asset provides the buyer with contractual rights to cash flows from the sale of patent-protected biopharmaceutical products by unrelated biopharmaceutical companies. The majority of our royalties provide us with rights that are protective and passive in nature. In other words, we do not own the intellectual property or have the right to commercialize the underlying products. These contractual cash flow rights have yield components that most closely resemble loans and are classified as financial royalty assets. In the limited instances where we possess rights to exploit the underlying patents, rights to the intellectual property related to the biopharmaceutical products, or the ability to influence the amount or duration of future royalty payments, these royalties are classified as intangible royalty assets. The cost of an intangible royalty asset is amortized over the expected life of the asset on a straight-line basis. Financial Royalty Assets, Net Although a financial royalty asset does not have the contractual terms typical of a loan (such as contractual principal and interest), we account for financial royalty assets under Accounting Standards Codification (“ASC”) Topic 310 Receivables. In limited instances, our royalty assets may be classified as contract assets and recorded as part of financial royalty assets because they are accounted for in the same manner. Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30 Imputation of Interest . The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated each reporting period as differences between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate. The carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income and decreased by cash receipts in the period to arrive at the ending balance. If the ending balance is greater than the net present value of the expected future cash flows, a provision is recorded to reduce the asset balance to the net present value. The provision is recorded through the statements of operations as Provision for changes in expected cash flows from financial royalty assets and the carrying value of Financial royalty assets, net is presented net of the cumulative allowance for changes in expected cash flows. 88 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The application of the prospective approach to measure our financial royalty assets at amortized cost requires management’s judgment in forecasting the expected future cash flows of the underlying royalties. The amounts and duration of forecasted expected future cash flows used to calculate and measure interest income are largely impacted by sell-side equity research analyst coverage, commercial performance of the product, and royalty duration, each discussed in further detail below . • Analyst coverage. Forecasts of expected future cash flows are developed from sales projections of the underlying biopharmaceutical products as published in sell-side equity research analyst reports. In projecting future cash flows, our policy is to rely on sell-side research analysts’ consensus sales forecasts to derive annual sales projections for each financial royalty asset over the periods for which we are entitled to royalties or milestones. These forecasts are based on market research that analyzes factors such as growth in global economies, industry trends and product life cycles. We generally utilize statistical curves to project future sales for a portion of the royalty duration when sell-side equity research coverage ends or when estimates are not available for the duration of the royalty. The statistical curves are modelled from a combination of historical trends and available sell-side equity research analyst consensus sales estimates. Based on the level of detail in sell-side equity research analyst models, management can also be required to apply assumptions to the sales forecasts to estimate the quarterly and geographical allocation from annual sales projections and, for franchised products, to estimate the product mix and pricing mix, or to exclude from projections sales forecasts for unapproved products. Our contractual royalty terms, rates, and any milestones are then applied to the adjusted sales projections to calculate the expected royalty or milestone payments over the term of the financial royalty asset’s life, forming the basis for our forecast of expected future cash flows used to calculate and measure interest income. • Commercial performance. The approval of a product for use in new indications can extend the date through which we are entitled to royalties or milestones on that product. For certain financial royalty assets, such as the cystic fibrosis franchise, we are entitled to royalties on approved combination products and on future combination products, which create new cash flow streams that were previously not reflected. We generally do not recognize income from, or forecast sales for, unapproved products unless they are incorporated into analyst consensus forecasts in such a way that we cannot isolate the probability of regulatory success that is built into the analyst’s estimates. If a product is removed from all or a portion of a market, subsequent sell-side equity research analysts’ consensus sales forecasts will reflect the expected drop in sales. Both the new cash flow streams and the cessation of cash flow streams related to a product’s performance in the market over the royalty term can materially affect our forecast of expected future cash flows, which directly impacts the measurement of interest income. • Royalty duration. The duration of a royalty can be based on a variety of factors, such as regulatory and marketing approval dates, patent expiration dates, the number of years from first commercial sale, the first date of manufacture of the patent-protected product, the entry of generics or a contractual date arising from litigation, which are all impacted by the point in time in the product’s life cycle at which we acquire the royalty. Royalty durations vary by geography as the United States, European Union and other jurisdictions may be subject to different country-specific patent protection terms or exclusivity based on contractual terms. Products may be covered by a number of patents and, where a royalty term is linked to the existence of valid patents, management is required to make judgments about the patent providing the strongest protection to align the period over which management forecasts expected future cash flows to the royalty term. It is common for the latest expiring patent in effect at the date we acquire a financial royalty asset to be extended, adjusted or replaced with newer dated patents subsequent to our acquisition of a royalty due to new information, resulting in changes to the royalty duration in later periods. Patents may expire earlier than expected at the time of the acquisition due to the loss of patent protection, loss of data exclusivity on intellectual property, contractual licensing terms limiting royalty payments based on time from product launch, recent legal developments or litigation. Macroeconomic factors, such as changes in economies or the competitive landscape, including the unexpected loss of exclusivity to the products underlying our portfolio of royalties, changes in government legislation, product life cycles, industry consolidations and other changes beyond our control could result in a positive or negative impact on our forecast of expected future cash flows and the related measurement of interest income. 89 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As part of the preparation of the forecasted expected future cash flows, which relies on the sources and variables discussed above, management is required to make assumptions around the following forecast inputs: (1) estimates of the duration of the royalty, which includes consideration of the strength of patent protection and anticipated timing for entry of generics, (2) product growth rates and sales trends in outer years, generally projected through statistical curves, (3) the product and pricing mix for franchised products, (4) the geographical allocation of annual sales data from sell-side equity research analysts’ models, and (5) the portion of sales that are subject to royalties, which is referred to as royalty bearing sales. The most sensitive of these assumptions relates to management’s estimate of the royalty duration in the final years of an asset’s life. In some cases, patent protection may extend to a later period than the expiration date management has estimated. Management may apply a shorter royalty term in this situation if, based on its experience and expertise, management believes that it is more likely that the associated patents are subject to opposition or infringement, that the market for a particular product may shift based on pipeline approvals and products, or that product sales may be harmed by competition from generics. For products providing perpetual royalties, management applies judgment in establishing the duration over which it forecasts expected future cash flows . A shortened royalty term can result in a reduction in the effective interest rate, a decline in the carrying value of the financial royalty asset, a decline in income from financial royalty assets, significant reductions in royalty payments compared to expectations, or a permanent impairment. Additionally, royalty payments may occasionally continue beyond the estimated royalty expiration date for such reasons we cannot foresee such as excess inventory in the channel or additional scope of patent protection identified after expiry, including royalties we may become entitled to from new indications, new compounds, or for new regulatory jurisdictional approvals . Certain acquisition agreements provide for future incoming or outgoing contingent payments based on the commercial, regulatory or clinical performance of the related biopharmaceutical product generally over a multi-year period. For purposes of measuring income from financial royalty assets, commercial milestones payable or receivable are reflected in the forecasted expected future cash flows in the period in which the milestone criteria is projected to be satisfied based on sell-side equity research analysts’ consensus sales forecasts. Milestones based on regulatory approval or clinical criteria are generally not reflected in the expected future cash flows until such approval or criteria is achieved. We assess all milestone payments to determine whether we must account for these arrangements as derivatives instruments under ASC 815 – Derivatives and Hedging. Amounts related to outgoing contingent milestone payments are not considered contractual obligations as they are contingent on the successful completion of the defined milestones. Payments under these agreements generally become due and payable upon achievement of certain commercial milestones, or when the contingency is resolved. The current portion of financial royalty assets represents an estimation for current quarter royalty receipts which are collected during the subsequent quarter and for which the estimates are derived from the latest external publicly available sell-side equity research analyst reports, reported in arrears. Cumulative Allowance and Provision for Changes in Expected Cash Flows from Financial Royalty Assets We evaluate financial royalty assets for impairment on an individual basis by comparing the effective interest rate at each reporting date to that of the prior period. If the effective interest rate is lower for the current period than the prior period, and if the gross cash flows have declined (expected and collected), we record provision expense for the change in expected cash flows. The provision is measured as the difference between the financial royalty asset’s amortized cost basis and the net present value of the expected future cash flows, calculated using the prior period’s effective interest rate. The amount recognized as provision expense increases the financial royalty asset’s cumulative allowance, which reduces the net carrying value of the financial royalty asset . In a subsequent period, if there is an increase in expected future cash flows, or if actual cash flows are greater than cash flows previously expected, we reduce the previously established cumulative allowance in part or in full, resulting in a non-cash credit to the provision recorded through the Provision for changes in expected cash flows from financial royalty assets on the consolidated statements of operations. We also recalculate the amount of accretable yield to be received based on the revised remaining future cash flows. The adjustment to the accretable yield is treated as a change in estimate and is recognized prospectively over the remaining life of the financial royalty asset by adjusting the effective interest rate used to calculate income . 90 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movements in the cumulative allowance for changes in expected cash flows, which forms part of the Financial royalty assets, net line item on the consolidated balance sheets, are accompanied by corresponding provision income or expense. Amounts not expected to be collected are written off against the allowance at the time that such a determination is made. In some cases, when a financial royalty asset’s contractual cash flows expire, the final royalty payment may differ from the remaining net carrying value. We account for this non-cash true-up at the end of the royalty term as either Provision for changes in expected cash flows from financial royalty assets or as Income from financial royalty assets on the consolidated statements of operations . Allowance for Current Expected Credit Losses We recognize an allowance for current expected credit losses under ASC 326 – Financial Instruments – Credit Losses on our portfolio of financial royalty assets with limited protective rights. The credit loss allowance is estimated using the probability of default and loss given default method. The credit rating, which is assessed primarily based on publicly available data and updated quarterly, is the primary credit quality indicator used to determine the probability of default of the marketers responsible for paying our royalties and the resulting loss given default. The allowance for current expected credit losses is presented net within the non-current portion of financial royalty assets on the consolidated balance sheets. Any subsequent provision for credit losses is recorded as part of the Provision for changes in expected cash flows from financial royalty assets on the consolidated statements of operations . Income from Financial Royalty Assets We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The accretable yield is recognized as income at the effective rate of return over the expected life of financial royalty assets. An acquisition of a royalty on a development-stage product classified as a financial royalty asset is generally placed in non-accrual status where income is not recognized until we are able to reliably estimate expected cash flows, generally when the product receives regulatory approval. We evaluate such financial royalty assets held at cost for impairment based on, among other factors, a review of development progress and publicly available information around regulatory discussions, clinical trial results and approval status. An impairment loss is recognized if it is probable that we will be unable to recover the carrying value of the financial royalty asset held at cost and the amount of loss can be reasonably estimated. Other Royalty Income and Revenues Other royalty income and revenues includes income from financial royalty assets that have been fully amortized and income from synthetic royalties and milestones arising out of research and development (“R&D”) funding arrangements. Other royalty income and revenues also includes revenues from intangible royalty assets and income from royalties that are recorded at fair value. Financial Instruments and Fair Value Measurements Our financial instruments consist primarily of cash and cash equivalents, equity securities, derivatives, available for sale debt securities, royalty interests and long-term debt. Cash and cash equivalents, equity securities, derivatives, available for sale debt securities and certain royalty interests are reported at their respective fair values on our consolidated balance sheets. Outstanding borrowings under our senior unsecured notes and non-current financial royalty assets are reported at amortized cost on our consolidated balance sheets, for which fair values are disclosed. The remaining financial instruments are reported on our consolidated balance sheets at amounts that approximate fair value. For financial instruments carried at fair value, the level in the fair value hierarchy is based on the lowest level of inputs that is significant to the fair value measurement in its entirety. We determine the fair value of assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value as follows: • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. 91 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. • Level 3: Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable. Cash and Cash Equivalents Cash and cash equivalents include cash held at financial institutions and all highly liquid financial instruments with original maturities of 90 days or less. Equity Securities and Available for Sale Debt Securities Our equity securities primarily consist of investments in publicly traded equity securities. The equity securities are measured and recorded at fair value with unrealized gains and losses recorded in earnings. For equity securities without a readily determinable fair value, recorded within Other assets on the consolidated balance sheets, we use the fair value measurement alternative and measure the securities at cost less impairment, if any. Investments classified as available for sale debt securities are recorded at fair value. We elect to apply the fair value option for available for sale debt securities when the fair value option better aligns with the economics of the investment. Upon such election, the entire investment is measured at fair value on a recurring basis, with movements in fair value recognized in earnings. For available for sale debt securities for which we did not elect the fair value option, the unrealized change in fair value is recorded within in Accumulated other comprehensive income and is reclassified to earnings as interest income is recognized when we can reliably estimate forecasted cash flows. A decline in the market value of any available for sale debt security below its cost that is deemed to have resulted from a credit loss results in a reduction in carrying amount to fair value and is recognized in earnings. Derivatives Derivatives are measured at fair value on the consolidated balance sheets with movements in fair value recognized in earnings. Investment in Non-Consolidated Affiliates Investments in entities that provide us with the ability to exercise significant influence, but not a controlling financial interest, and where we are not the primary beneficiary are accounted for under the equity method or as equity securities under the fair value option. Investments accounted for under the equity method are initially recorded at fair value. If there is a difference between the fair value and the carrying amount of the equity method investment at inception, we quantify the basis difference and amortize it in a rational manner over the life of the investment. Subsequently, we recognize through earnings our proportionate share of the investee’s net income or loss, net of any adjustment to reflect the amortization of basis differences. We generally record our share of the results of our investees one quarter in arrears within Equity in (earnings)/losses of equity method investees in the consolidated statements of operations. The investment is reflected as Equity method investments on the consolidated balance sheets. We have variable interests in entities formed for the purposes of entering into co-development arrangements for potential biopharmaceutical products (the “Avillion entities”). The Avillion entities are variable interest entities for which we are not the primary beneficiary as we do not have the power to direct the activities that most significantly influence the economic performance of the entity. In determining whether we are the primary beneficiary of an entity, management applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant. Management continuously assesses whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of one or more of its investees. When we have committed to provide further support to the investee through capital call commitments and the investment has been reduced to zero, we provide for additional losses, resulting in a negative equity method investment, which is presented as a liability on the consolidated balance sheets. 92 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Research and Development Funding Expense We enter into transactions where we agree to fund a portion of the R&D performed by our partners for products undergoing late-stage clinical trials in exchange for future royalties or milestones if the products are successfully developed and commercialized. In accordance with ASC 730 – Research and Development , we account for the funded amounts as R&D expense when we have the ability to obtain the results of the R&D, the transfer of financial risk is genuine and substantive and, at the time of entering into the transaction, it is not yet probable that the product will receive regulatory approval. If these conditions are not met, we may record the funded amounts as a financial royalty asset. We may fund R&D upfront or over time as the underlying products undergo clinical trials. Royalties earned on successfully commercialized products generated from R&D arrangements are recognized as Other royalty income and revenues in the same period in which the sale of the product occurs. Fixed or milestone payments receivable based on the achievement of contractual criteria for products arising out of our R&D arrangements are also recognized as Other royalty income and revenues in the period that the milestone threshold is met. Milestone thresholds are typically not triggered until after all funding obligations have been completed. Income Taxes We periodically assess if our activities, as conducted through our subsidiaries, and as currently contemplated, constitute being engaged in the conduct of a trade or business within the United States. Neither the U.S. Internal Revenue Code (“the Code”) nor the applicable Treasury regulations provide a general definition of what constitutes as being engaged in the conduct of a trade or business within the United States, and the limited case law on the subject does not provide definitive guidance. Based on our periodic assessment, we believe that we are not engaged in the conduct of a trade or business within the United States, and as such, we do not record a provision for U.S. income taxes with respect to effectively connected income for the years presented in the consolidated financial statements . We have funding arrangements in place where our counterparties have drawn on capital or are allowed to draw on capital over a prescribed period of time. Income from these funding arrangements is subject to U.S. taxation and we record a provision for U.S. income taxes within General and administrative expenses in accordance with ASC 740 – Income Taxes, with respect to this income. We expect the associated income tax provision expense to become more significant in the future as we enter into more funding arrangements. Additionally, we entered into an arrangement with MSCI Inc. (“MSCI”) during 2021 as discussed in Note 15–Related Party Transactions that will be subject to U.S. taxation when we begin to recognize revenue . At that time, we will record a provision for U.S. income taxes in accordance with ASC 740 – Income Taxes , with respect to revenue from the MSCI transaction. We operate so as to be treated solely as resident in the U.K. for tax purposes. As a U.K. tax resident company, we are subject to U.K. corporation tax on our worldwide taxable profits and gains. U.K. tax resident companies are subject to U.K. corporation tax on receipt of dividends or other income distributions in respect of shares held by them, unless those dividends or other distributions fall within an exempt class. We believe that dividends received by us from RP Holdings, and dividends received by RP Holdings from RPI 2019 ICAV, should fall within such an exempt class and therefore should not be subject to U.K. corporation tax. As such, we do not record a provision for U.K. income taxes with respect to the dividends received from RP Holdings or with respect to the dividends received by RP Holdings from RPI 2019 ICAV . We are also subject to the U.K.’s “controlled foreign companies” rules (the “U.K. CFC Rules”). The U.K. CFC Rules, broadly, apply to U.K. tax resident companies that have, alone or together with certain other persons, interests in a non-U.K. tax resident company (the “Controlled Foreign Company”) which is controlled by a U.K. person or persons. The charge under the U.K. CFC Rules applies by reference to certain types of chargeable profit arising to the Controlled Foreign Company, whether or not that profit is distributed, subject to specific exemptions. Certain non-U.K. entities in which we hold a greater than 25% interest, including RPI 2019 ICAV (which is an Irish tax resident) and Old RPI (which is an Irish tax resident and is held indirectly by us through our participation in RP Holdings), are considered Controlled Foreign Companies for U.K. tax purposes. We are therefore required to apply the U.K. CFC Rules in respect of our direct and indirect interests in these entities on an ongoing basis. We do not expect material tax charges to arise under the U.K. CFC Rules with respect to our direct and indirect interests in these entities and we therefore do not record a provision for U.K. income taxes related to this matter . 93 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other Taxation Matters We are subject to U.S. federal withholding tax on certain fixed or determinable annual or periodic gains, profits and income, such as royalties from sources within the United States, unless reduced or eliminated under an applicable tax treaty or provision of the Code. Generally, this tax is imposed by withholding 30% of the payments, or deemed payments, that are subject to this tax. We believe our subsidiaries are eligible for benefits under the U.S.-Ireland income tax treaty, and, under that treaty, are not subject to any U.S. withholding taxes on U.S.-source royalty, interest or other income payments. Earnings per Share Basic earnings per share (“EPS”) is calculated by dividing net income attributable to us by the weighted average number of Class A ordinary shares outstanding during the period. Diluted EPS is calculated by dividing net income attributable to us by the weighted average number of Class A ordinary shares outstanding during the period, including the number of Class A ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Our Class B ordinary shares, Class R redeemable shares and deferred shares do not share in the earnings or losses attributable to us and are therefore not participating securities. Our outstanding Class B ordinary shares are, however, considered potentially dilutive shares of Class A ordinary shares because Class B ordinary shares, together with the related RP Holdings Class B Interests, are exchangeable into Class A ordinary shares on a one -for-one basis. Potentially dilutive securities also include Class B ordinary shares contingently issuable to EPA Vehicle related to Equity Performance Awards and RSUs issued under our 2020 Independent Director Equity Incentive Plan. We include potentially dilutive shares in the denominator to compute diluted EPS if (i) the inclusion of the ordinary shares is dilutive for the respective reporting periods, and (ii) contingencies are satisfied as of the end of the reporting period for ordinary shares that are contingently issuable. We use the “if-converted” method to determine the potentially dilutive effect of our outstanding Class B ordinary shares, and the treasury stock method to determine the potentially dilutive effect of the unvested RSUs. Shares Repurchases Amounts paid to repurchase shares in excess of the par value are allocated between Additional paid-in capital and Retained earnings . 3. Available for Sale Debt Securities Funding Arrangements with Cytokinetics In May 2024, we expanded our funding collaboration with Cytokinetics, Incorporated (“Cytokinetics”) to provide up to $ 575 million. As part of the expanded funding collaboration, we provided funding of $ 100 million (“Cytokinetics Development Funding”) for Cytokinetics’ Phase 3 clinical trial of omecamtiv mecarbil and amended the funding agreement that we entered into with Cytokinetics in 2022 to provide two additional funding tranches (as amended, “Cytokinetics Commercial Launch Funding”). Following the amendment in May 2024, the Cytokinetics Commercial Launch Funding is comprised of seven tranches with a total funding of up to $ 525 million. Our return on the Cytokinetics Development Funding depends on the outcome of omecamtiv mecarbil’s Phase 3 clinical trial and approval by the U.S. Food and Drug Administration (the “FDA”). If omecamtiv mecarbil’s Phase 3 clinical trial is successful and approval by the FDA is received within a specific timeframe, we will receive a return of $ 100 million and the greater of an incremental 2.0 % royalty on annual net sales of omecamtiv mecarbil or quarterly fixed payments for 18 quarters and an incremental 2.0 % royalty thereafter. If FDA approval is not received within a specific timeframe, we will receive a return of 2.4 times the Cytokinetics Development Funding over 18 quarters. If the Phase 3 clinical trial is not successful within a specific timeframe, we will receive a return of 2.3 times the Cytokinetics Development Funding over 22 quarters. 94 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Out of the seven tranches of the Cytokinetics Commercial Launch Funding, tranches one and six have been funded. Tranches two and three are no longer available because the related regulatory milestones were not met. Tranches four , five and seven are available for draw upon the occurrence of certain regulatory and clinical development milestones (“Cytokinetics Funding Commitments”) and have a one-year draw period from the date when such contingency is met. The contingencies for the fourth and fifth tranches were met in April and December 2024, respectively. Up to $ 75 million is available to be drawn under tranche 4 until April 2025, and up to $ 100 million is available to be drawn under tranche 5 until December 2025. A minimum of $ 50 million is required to be drawn under either tranche 4 or tranche 5. The condition for $ 175 million to become available to be drawn under tranche 7 has not yet been satisfied. For tranches one, four, five, six and seven, we expect to receive a return of 1.9 times the amount drawn over 34 consecutive quarterly payments beginning on the last business day of the seventh quarter following the quarter of the funding date of each tranche. In the fourth quarter of 2023, we began receiving quarterly repayments on tranche one. We elected the fair value option to account for the Cytokinetics Development Funding and the Cytokinetics Commercial Launch Funding (collectively the “Cytokinetics Funding Arrangements”) as it most accurately reflects the nature of the funding arrangements. The funded Cytokinetics Funding Arrangements are recorded within Available for sale debt securities on the consolidated balance sheets. The Cytokinetics Funding Commitments, which include options and forwards, are recognized at fair value within Other liabilities on the consolidated balance sheets. The changes in the fair value of the funded Cytokinetics Funding Arrangements and Cytokinetics Funding Commitments are recorded within (Gains)/losses on available for sale debt securities in the consolidated statements of operations. Further, as part of the expanded funding collaboration in May 2024, we purchased Cytokinetics common stock and provided funding for clinical trials of CK-586 in exchange for a royalty, which is further described in Note 4–Derivative Instruments. Lastly, the funding collaboration also included the restructuring of our royalty on aficamten. The table below summarizes the components of our funding collaboration with Cytokinetics, including the expanded funding collaboration in May 2024 and related funding status as of December 31, 2024 (in thousands): Funded Required Future Draw Potential Future Draw Total Cytokinetics Commercial Launch Funding (1) $ 100,000 $ 50,000 $ 250,000 $ 400,000 Cytokinetics Development Funding 100,000 — — 100,000 Cytokinetics R&D Funding Derivative (2) 50,000 — 150,000 200,000 Cytokinetics Common Stock 50,000 — — 50,000 Total $ 300,000 $ 50,000 $ 400,000 $ 750,000 (1) Potential future draw of $ 250 million assumes no more than $ 25 million will be drawn under tranche 4. (2) Related to our funding for the clinical trials of CK-586. We have the option to fund up to an additional $ 150 million. See Note 4–Derivative Instruments for additional discussion . MorphoSys Development Funding Bonds In September 2022, we provided MorphoSys funding of $ 300 million (“MorphoSys Development Funding Bonds”). Our return on the MorphoSys Development Funding Bonds is 2.2 times the amount funded. We began receiving quarterly repayment in the fourth quarter of 2024. In 2024, MorphoSys was acquired by Novartis. In January 2025, the MorphoSys Development Funding Bonds were sold for approximately $ 511 million. We elected the fair value option to account for the MorphoSys Development Funding Bonds as it most accurately reflects the nature of the instrument. The MorphoSys Development Funding Bonds are recorded within Available for sale debt securities on the consolidated balance sheets. The changes in the fair value of the MorphoSys Development Funding Bonds are recorded within (Gains)/losses on available for sale debt securities in the consolidated statements of operations. 95 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The table below summarizes our available for sale debt securities recorded at fair value (in thousands): Cost Unrealized Gains Fair Value Current Assets Non-Current Assets Non-Current Liabilities Total As of December 31, 2024 Debt securities (1) $ 516,329 $ 235,371 $ 751,700 $ 58,200 $ 693,500 $ — $ 751,700 Funding commitments (2) ( 12,300 ) 220 ( 12,080 ) — — ( 12,080 ) ( 12,080 ) Total $ 504,029 $ 235,591 $ 739,620 $ 58,200 $ 693,500 $ ( 12,080 ) $ 739,620 As of December 31, 2023 Debt securities (1) $ 359,667 $ 95,733 $ 455,400 $ 18,300 $ 437,100 $ — $ 455,400 Funding commitments (2) ( 7,300 ) 6,400 ( 900 ) — — ( 900 ) ( 900 ) Total $ 352,367 $ 102,133 $ 454,500 $ 18,300 $ 437,100 $ ( 900 ) $ 454,500 (1) The cost related to tranches one and six of the Cytokinetics Commercial Launch Funding and the cost for the Cytokinetics Development Funding reflect the fair values on their respective funding dates. The cost of the Development Funding Bonds represents the amount funded. The costs are amortized as quarterly repayments are received. (2) Related to Cytokinetics Funding Commitments for which certain tranches remain available as of the respective balance sheet dates. The costs associated with the Cytokinetics Funding Commitments represent the fair values on their respective transaction dates. 4. Derivative Instruments We have historically managed the impact of interest rate risk through various financial instruments, including derivative instruments such as treasury rate lock contracts. Our policy is to use derivatives strategically to hedge existing and future interest rate exposure and to minimize volatility in cash flow arising from our exposure to interest rate risk. We may also acquire other financial instruments that are classified as derivatives. We do not enter into derivative instruments for trading or speculative purposes. In 2024, 2023 and 2022, we did not hold any derivatives that were designated as hedging instruments. Cytokinetics R&D Funding Derivative In May 2024, we funded $ 50 million upfront in exchange for a royalty on CK-586. We have an option to fund up to an additional $ 150 million for which we would be eligible to receive milestone payments of up to $ 150 million upon regulatory approvals and an incremental royalty on CK-586. Upon a change of control event, we have the option to cause Cytokinetics to pay us 1.5 times the initial and additional funding amounts in a lump sum to terminate our rights to receive royalties and milestone payments. Our funding arrangement on CK-586 is accounted for as a derivative instrument and is recorded at fair value (“Cytokinetics R&D Funding Derivative”). As of December 31, 2024, the fair value of the Cytokinetics R&D Funding Derivative of $ 12.0 million was recorded within Other assets on the consolidated balance sheet. Milestone Acceleration Option In August 2020, we entered into an expanded funding agreement with Biohaven to fund the development of zavegepant and the commercialization of Nurtec ODT in exchange for royalties and success-based milestones payable over time. Following Pfizer Inc.’s (“Pfizer”) acquisition of Biohaven on October 3, 2022, which was a change of control event, we elected to accelerate the payment of the zavegepant milestone payments into a lump sum amount (“Milestone Acceleration Option”). In March 2023, the FDA approved Zavzpret, the intranasal formulation of zavegepant, and we received a $ 475 million milestone payment which resulted in partial settlement of the derivative instruments. The Milestone Acceleration Option had no remaining fair value as of December 31, 2023. The table below summarizes the changes in fair value by derivative instrument which were recorded within Losses/(Gains) on derivative financial instruments in the consolidated statements of operations (in thousands): Years Ended December 31, 2024 2023 2022 Cytokinetics R&D Funding Derivative $ 6,000 $ — $ — Milestone Acceleration Option — 2,290 ( 96,610 ) 96 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. Fair Value Measurements and Financial Instruments Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table summarizes assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands): As of December 31, 2024 As of December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Money market funds (1) $ 568,317 $ — $ — $ 568,317 $ 157,420 $ — $ — $ 157,420 Available for sale debt securities (2) — — 58,200 58,200 — — 18,300 18,300 Total current assets $ 568,317 $ — $ 58,200 $ 626,517 $ 157,420 $ — $ 18,300 $ 175,720 Equity securities (3) 184,719 — 2,241 186,960 199,190 — 297 199,487 Available for sale debt securities (2) — — 693,500 693,500 — — 437,100 437,100 Derivative instrument (4) — — 12,000 12,000 — — — — Royalty at fair value (3) — — 5,323 5,323 — — 1,778 1,778 Total non-current assets $ 184,719 $ — $ 713,064 $ 897,783 $ 199,190 $ — $ 439,175 $ 638,365 Liabilities: Funding commitments (5) — — ( 12,080 ) ( 12,080 ) — — ( 900 ) ( 900 ) Total non-current liabilities $ — $ — $ ( 12,080 ) $ ( 12,080 ) $ — $ — $ ( 900 ) $ ( 900 ) (1) Recorded within Cash and cash equivalents on the consolidated balance sheets. (2) Related to tranche one of the Cytokinetics Commercial Launch Funding and the MorphoSys Development Funding Bonds. As of December 31, 2024, amount also included tranche six of the Cytokinetics Commercial Launch Funding, and the Cytokinetics Development Funding. (3) The amounts reflected within Level 3 are related to equity securities and a revenue participation right acquired from ApiJect Holdings, Inc. (“ApiJect”), a private company. We estimated the fair value s related to both instruments using a discounted cash flow with Level 3 inputs, including forecasted cash flows and the weighted average cost of capital. The revenue participation right was recorded within Other assets on the consolidated balance sheets. See Note 8–Non-Consolidated Affiliates for additional discussion. (4) Related to the Cytokinetics R&D Funding Derivative recorded within Other assets on the consolidated balance sheet. (5) Related to the Cytokinetics Funding Commitments recorded within Other liabilities on the consolidated balance sheets. For 2024, 2023 and 2022, we recognized losses of $ 8.6 million, gains of $ 55.6 million and losses of $ 7.3 million, respectively, on equity securities still held as of December 31, 2024. The tables presented below summarize the change in the combined fair value (current and non-current) of Level 3 financial instruments (in thousands): Year Ended December 31, 2024 Equity Securities Debt Securities Funding Commitments Derivative Instrument Royalty at Fair Value Balance at the beginning of the period $ 297 $ 455,400 $ ( 900 ) $ — $ 1,778 Purchases 46,500 150,000 — 18,000 — Gains/(losses) on initial recognition (1) — 5,000 ( 5,000 ) — — Gains on equity securities 1,562 — — — — Losses on derivative financial instruments — — — ( 6,000 ) — Gains/(losses) on available for sale debt securities — 161,086 ( 6,180 ) — — Other non-operating income — — — — 3,545 Transfer out of Level 3 (2) ( 46,118 ) — — — — Redemptions (3) — ( 19,786 ) — — — Balance at the end of the period $ 2,241 $ 751,700 $ ( 12,080 ) $ 12,000 $ 5,323 (1) Represents purchase price allocation to arrive at the appropriate fair value on initial recognition. (2) Related to the expiration of the transfer restriction on Cytokinetics common stock. (3) Amount relates to quarterly repayments on tranche one of the Cytokinetics Commercial Launch Funding and the MorphoSys Development Funding Bonds. 97 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2023 Equity Securities Debt Securities Funding Commitments Derivative Instruments Royalty at Fair Value Balance at the beginning of the period $ 8,472 $ 227,600 $ ( 2,500 ) $ 96,610 $ 14,500 Losses on equity securities ( 8,175 ) — — — — Losses on derivative financial instruments — — — ( 2,290 ) — Gains on available for sale debt securities — 229,240 1,600 — — Other non-operating expense — — — — ( 12,722 ) Settlements — — — ( 94,320 ) — Redemptions (1) — ( 1,440 ) — — — Balance at the end of the period $ 297 $ 455,400 $ ( 900 ) $ — $ 1,778 (1) Amount relates to the quarterly repayment on tranche one of the Cytokinetics Commercial Launch Funding. Valuation Inputs for Recurring Fair Value Measurements Below is a discussion of the valuation inputs used for financial instruments classified as Level 3 measurement as of December 31, 2024 and 2023 in the fair value hierarchy. As of December 31, 2024 and 2023, we did not have any financial instruments recorded at fair value using Level 2 inputs. Cytokinetics R&D Funding Derivative We estimated the fair value of the Cytokinetics R&D Funding Derivative as of December 31, 2024 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including the probabilities of us exercising the additional funding option, regulatory approvals and the occurrence of a change of control event during the duration of the arrangement. We also assumed a risk-adjusted discount rate of 11.1 % as of December 31, 2024. Our estimate of expectation of timing and probabilities of us exercising the additional funding option, regulatory approvals and a change of control event, the risk-adjusted discount rate and the interest rate volatility could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Cytokinetics Funding Arrangements and Cytokinetics Funding Commitments We estimated the fair values of the funded Cytokinetics Funding Arrangements as of December 31, 2024 and 2023 by utilizing probability-adjusted discounted cash flow calculations using Level 3 inputs, including an estimated risk-adjusted discount rate and the probability that there will be a change of control event, which would result in accelerated payments. Developing a risk-adjusted discount rate and assessing the probability that there will be a change of control event over the duration of the Cytokinetics Funding Arrangements require significant judgement. Our estimate of the risk-adjusted discount rate could reasonably be different than the discount rate selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Our expectation of the probability and timing of the occurrence of a change of control event could reasonably be different than the timing of an actual change of control event, and if so, would mean that the estimated fair value could be significantly higher or lower than the fair value determined by management at any particular date. We estimated the fair value of the Cytokinetics Funding Commitments as of December 31, 2024 and 2023 using a Monte Carlo simulation methodology that includes simulating the interest rate movements using a Geometric Brownian Motion-based pricing model. This methodology simulates the likelihood of future discount rates exceeding the counterparty’s assumed cost of debt, which would impact Cytokinetics’ decision to exercise its option to draw on each respective tranche. As of December 31, 2024 and 2023 this methodology incorporates Level 3 inputs, including the probability of a change of control event occurring during the investment term, an assumed interest rate volatility of 40.0 % and 37.5 %, respectively, and an assumed risk-adjusted discount rate of 11.1 % and 10.9 %, respectively. We also assumed probabilities for the occurrence of each regulatory or clinical milestone, which impacts the availability of each future tranche of funding. Our estimate of expectation of the probability and timing of the occurrence of a change of control event, the risk-adjusted discount rate, the interest rate volatility and the probabilities of each underlying milestone could reasonably be different than the assumptions selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. 98 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MorphoSys Development Funding Bonds We estimated the fair value of the MorphoSys Development Funding Bonds as of December 31, 2024 and 2023 based on a discounted cash flow calculation using estimated risk-adjusted discount rates, which are Level 3 inputs. Our estimate of the risk adjusted discount rates could reasonably be different than the discount rates selected by a market participant, which would mean that the estimated fair value could be significantly higher or lower. Financial Assets Not Measured at Fair Value Financial royalty assets are measured and carried on the consolidated balance sheets at amortized cost using the effective interest method. Financial royalty assets do not include our entire portfolio of investments and specifically exclude the following: 1. development-stage product candidates where the funding was (i) expensed as upfront R&D upon acquisition (e.g., Trodelvy and Nurtec ODT), (ii) expensed as ongoing R&D (e.g., historically, Soliqua from our co-funding agreement with Sanofi) or (iii) treated as a derivative instrument (e.g., CK-586); and 2. contractual funding arrangements ( e.g., the MorphoSys Development Funding Bonds and the Cytokinetics Funding Arrangements), which are accounted for as available for sale debt securities. The fair value of financial royalty assets is classified as Level 3 within the fair value hierarchy since it is determined based on inputs that are both significant and unobservable. Fair value of financial royalty assets as of December 31, 2024 In 2024, we refined our methodology to value our financial royalty assets given the growing complexity of the portfolio. The valuation approach applied in 2024 used a Monte Carlo simulation under the option pricing framework to calculate the fair value of financial royalty assets as of December 31, 2024. The Monte Carlo model allows us to simulate a range of different outcomes based on various inputs, primarily the underlying projected product sales of each royalty bearing product, to project the cash flows, including royalty receipts and milestone payments, based on each of the simulated sales scenarios. The Monte Carlo methodology also takes volatility at the sales level into consideration. As of December 31, 2024, the estimated fair values of the current and non-current portions of financial royalty assets were $ 0.8 billion and $ 21.4 billion, respectively. As of December 31, 2024, approximately 9 % of the current portion and 8 % of the non-current portion of the financial royalty assets was attributable to the legacy non-controlling interests. Fair value of financial royalty assets as of December 31, 2023 As of December 31, 2023, we calculated the fair value of financial royalty assets using forecasted royalty receipts based on the projected product sales for all royalty bearing products which are estimated using sell-side equity research analysts’ consensus sales forecasts. These projected future royalty receipts by asset, along with any projected incoming or outgoing milestone payments, are then discounted to a present value using appropriate individual discount rates. As of December 31, 2023, the estimated fair values of the current and non-current portions of financial royalty assets were $ 0.7 billion and $ 19.1 billion, respectively. As of December 31, 2023, approximately 10 % of the current portion and 9 % of the non-current portion of the financial royalty assets was attributable to the legacy non-controlling interests. 6. Financial Royalty Assets Financial royalty assets consist of contractual rights to cash flows relating to royalties derived from the expected sales of patent-protected biopharmaceutical products that entitle us and our subsidiaries to receive a portion of income from the sale of such products by third parties. 99 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The gross carrying value, cumulative allowance for changes in expected cash flows, exclusive of the allowance for credit losses, and net carrying value for the current and non-current portion of financial royalty assets are as follows (in thousands): As of December 31, 2024 Estimated Royalty Duration (1) Gross Carrying Value Cumulative Allowance for Changes in Expected Cash Flows (Note 7) Net Carrying Value (4) Cystic fibrosis franchise 2039-2041 (2) $ 5,126,521 $ ( 259,353 ) $ 4,867,168 Evrysdi 2035-2036 2,085,851 ( 378,565 ) 1,707,286 Trelegy 2029-2030 1,121,980 ( 66,647 ) 1,055,333 Tysabri (3) 1,319,298 ( 276,134 ) 1,043,164 Voranigo 2038 946,588 — 946,588 Tremfya 2031-2032 935,069 ( 77,895 ) 857,174 Other 2025-2042 8,164,902 ( 2,492,565 ) 5,672,337 Total $ 19,700,209 $ ( 3,551,159 ) $ 16,149,050 Less: Cumulative allowance for credit losses (Note 7) ( 238,122 ) Total current and non-current financial royalty assets, net $ 15,910,928 (1) Durations shown represent our estimates as of the current reporting date of when a royalty will substantially end, which may vary by geography and may depend on clinical trial results, regulatory approvals, contractual terms, commercial developments, estimates of regulatory exclusivity and patent expiration dates (which may include estimated patent term extensions) or other factors. There can be no assurances that our royalties will expire when expected. (2) Royalty is perpetual. We estimate royalty duration of 2039-2041 due to expected Alyftrek patent expiration and potential generic entry thereafter leading to sales decline. (3) Royalty is perpetual. We have applied an end date of 2035 for purposes of accreting income over the royalty term, which is periodically reviewed based on our estimates of impact from biosimilars. (4) The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 7–Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information. As of December 31, 2024, the balance of $ 15.9 billion above for total current and non-current financial royalty assets, net included $ 1.2 billion in unapproved financial royalty assets held at cost related to frexalimab for $ 522.6 million and other assets, primarily olpasiran, pelacarsen and olanzapine (TEV-’749). As of December 31, 2023 Estimated Royalty Duration (1) Gross Carrying Value Cumulative Allowance for Changes in Expected Cash Flows (Note 7) Net Carrying Value (4) Cystic fibrosis franchise 2037 (2) $ 5,288,833 $ ( 2,539 ) $ 5,286,294 Evrysdi 2035-2036 1,793,088 — 1,793,088 Trelegy 2029-2030 1,208,807 — 1,208,807 Tysabri (3) 1,511,957 ( 434,568 ) 1,077,389 Tremfya 2031-2032 927,488 ( 120,733 ) 806,755 Xtandi 2027-2028 911,045 ( 268,701 ) 642,344 Other 2024-2041 6,251,020 ( 2,100,897 ) 4,150,123 Total $ 17,892,238 $ ( 2,927,438 ) $ 14,964,800 Less: Cumulative allowance for credit losses (Note 7) ( 137,707 ) Total current and non-current financial royalty assets, net $ 14,827,093 (1) Durations shown represent our estimates as of December 31, 2023 of when a royalty will substantially end, which may vary by geography and may depend on clinical trial results, regulatory approvals, contractual terms, commercial developments, estimates of regulatory exclusivity and patent expiration dates (which may include estimated patent term extensions) or other factors. There can be no assurances that our royalties will expire when expected. (2) Royalty is perpetual. We estimate expected Trikafta patent expiration in 2037 and potential generic entry thereafter leading to sales decline. (3) Royalty is perpetual. We have applied an end date of 2031 for purposes of accreting income over the royalty term, which is periodically reviewed based on our estimates of impact from biosimilars. (4) The net carrying value by asset is presented before the allowance for credit losses. Refer to Note 7–Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets for additional information. 100 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. Cumulative Allowance and the Provision for Changes in Expected Cash Flows from Financial Royalty Assets The cumulative allowance for changes in expected cash flows from financial royalty assets is presented net within the non-current portion of financial royalty assets on the consolidated balance sheets and includes the following: • the movement in the cumulative allowance related to changes in forecasted royalty payments to be received based on royalty bearing products’ projected sales which are primarily derived from sell-side equity research analysts’ consensus sales forecasts, • the write-off of cumulative allowance at the end of a royalty asset’s life which only impacts the consolidated balance sheets, and • the movement in the cumulative allowance for current expected credit losses, primarily associated with new financial royalty assets with limited protective rights and changes in the underlying cash flow forecasts of financial royalty assets with limited protective rights . The following table sets forth the activity in the cumulative allowance for changes in expected cash flows from financial royalty assets, inclusive of the cumulative allowance for credit losses (in thousands): Activity for the Year Balance at December 31, 2021 (1) $ ( 1,694,945 ) Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets ( 1,394,679 ) Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets 296,637 Write-off of cumulative allowance 5,723 Write-off of credit loss allowance 1,584 Provision for credit losses, net (2) 193,798 Balance at December 31, 2022 $ ( 2,591,882 ) Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets ( 1,006,933 ) Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets 468,562 Write-off of cumulative allowance 87,393 Provision for credit losses, net (2) ( 22,285 ) Balance at December 31, 2023 $ ( 3,065,145 ) Increases to the cumulative allowance for changes in expected cash flows from financial royalty assets ( 1,438,001 ) Decreases to the cumulative allowance for changes in expected cash flows from financial royalty assets 805,955 Write-off of cumulative allowance 8,325 Provision for credit losses, net (2) ( 100,415 ) Balance at December 31, 2024 $ ( 3,789,281 ) (1) Includes $ 310.8 million related to cumulative allowance for credit losses. (2) In 2022, the provision income for credit losses was primarily related to a declines in the value of Tazverik and changes in the payors for certain products with stronger credit profiles, which were partially offset by the addition of Trelegy to our portfolio. In 2023, the provision expense for credit losses was primarily related to the additions of Adstiladrin and Skytrofa to our portfolio. In 2024, the provision expense for credit losses was primarily related to the addition of Niktimvo to our portfolio. 8. Non-Consolidated Affiliates We have equity investments in certain entities at a level that provide us with significant influence. We account for such investments as equity method investments or as equity securities over which we have elected the fair value option. 101 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ApiJect In April 2022, we acquired common stock and a revenue participation right from ApiJect. We elected the fair value option to account for our investments in ApiJect because it is more reflective of current values for such investments. We are also required to purchase additional common stock from ApiJect if certain milestones are achieved. The fair value of our equity investment in ApiJect is recorded within Equity securities and the change in fair value is recorded within (Gains)/losses on equity securities . The fair value of the revenue participation right is recorded within Other assets and the change in fair value is recorded within Other non-operating expense, net . No amounts were due from or to ApiJect related to the revenue participation right as of December 31, 2024 and 2023. The Legacy SLP Interest In connection with the Exchange Offer, we acquired a special limited partnership interest in the Legacy Investors Partnerships (the “Legacy SLP Interest”) from the Continuing Investors Partnerships for $ 303.7 million in exchange for issuing shares in our subsidiary. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and an income allocation on a similar basis. Our income allocation is equal to the general partner’s former contractual rights to the income of the Legacy Investors Partnerships, net of amortization of the basis difference. The Legacy SLP Interest is accounted for under the equity method as our Manager is also the Manager of the Legacy Investors Partnerships and has the ability to exercise significant influence. The Legacy Investors Partnerships no longer participate in investment opportunities from June 30, 2020 and, as such, the value of the Legacy SLP Interest is expected to decline over time. The Legacy Investors Partnerships also indirectly own a non-controlling interest in Old RPI and RPI ICAV. The income allocation from the Legacy SLP Interest is based on an estimate as the Legacy Investors Partnerships are private partnerships that report on a lag. Management’s estimate of equity in earnings from the Legacy SLP Interest for the current period will be updated for historical results in the subsequent period. Equity in earnings from the Legacy SLP Interest is recorded within Equity in (earnings)/losses of equity method investees. We recorded income allocations of $ 10.4 million, $ 4.3 million and $ 3.0 million in 2024, 2023 and 2022, respectively. We collected cash receipts from the Legacy SLP Interest of $ 22.7 million, $ 14.3 million and $ 25.7 million during 2024, 2023 and 2022, respectively. The Avillion Entities We account for our partnership interests in Avillion Financing I, LP and its related entities (“Avillion I”) and BAv Financing II, LP and its related entities (“Avillion II” and, together with Avillion I, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the Avillion Entities. Equity in earnings from the Avillion Entities is recorded within Equity in (earnings)/losses of equity method investees. We recorded income allocations of $ 19.2 million and $ 24.6 million and a loss allocation of $ 12.0 million in 2024, 2023 and 2022, respectively. On December 19, 2017, the FDA approved a supplemental New Drug Application for Pfizer’s Bosulif. Avillion I is eligible to receive fixed payments from Pfizer based on this approval under its co-development agreement with Pfizer. The only operations of Avillion I are the collection of cash and unwinding of the discount on the series of fixed annual payments due from Pfizer. We received distributions from Avillion I of $ 13.4 million, $ 13.6 million and $ 13.4 million in 2024, 2023 and 2022, respectively. In May 2018, RPIFT entered into an agreement with Avillion II, which was subsequently amended, to fund a total of $ 155 million over multiple years for a portion of the costs of Phase 2 and 3 clinical trials to advance Airsupra, formerly known as PT027, which was approved by the FDA in January 2023. Avillion II is a party to a co-development agreement with AstraZeneca to develop Airsupra for the treatment of asthma in exchange for royalties, a series of success-based milestones and other potential payments. In the first quarter of 2023, AstraZeneca notified Avillion II that it elected to pay a fee of $ 80 million to Avillion II to exercise an option to commercialize Airsupra in the United States and we received our pro rata portion of the exercise fee of $ 34.8 million from Avillion II. In 2024, we received distributions of $ 1.0 million from Avillion II related to the Airsupra royalty. In the fourth quarter of 2024, Airsupra met the primary endpoint in the Phase 3 clinical trial, triggering a milestone payment of $ 55 million from AstraZeneca to Avillion II. We received our pro rata portion of the milestone of approximately $ 27.4 million from Avillion II in January 2025. 102 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Our maximum exposure to loss at any particular reporting date is limited to the carrying value of our equity method investments plus the unfunded commitments. As of December 31, 2024 and 2023, we had unfunded commitments related to the Avillion Entities of $ 10.3 million and $ 16.3 million, respectively. 9. Research and Development Funding Expense R&D funding expense consists of payments that we have made to counterparties to acquire royalties or milestones on product candidates. R&D funding expense includes development-stage funding payments made to counterparties on an upfront basis or upon pre-approval milestones, and development-stage funding payments that are made to counterparties over time as the related product candidates undergo clinical trials with our counterparties. We did not enter into any new ongoing R&D funding arrangements in 2024, 2023 or 2022. We recognized R&D funding expense of $ 2.0 million, $ 52.0 million and $ 177.1 million in 2024, 2023 and 2022, respectively. The R&D expense in 2024 is related to ongoing development-stage funding payments. The R&D expense in 2023 is primarily related to a $ 50.0 million clinical milestone payment to Cytokinetics for aficamten. The R&D expenses in 2022 are primarily related to upfront and milestone development-stage funding payments of $ 100.0 million, $ 25.0 million and $ 50.0 million to acquire royalties on development-stage products from Cytokinetics, Theravance Biopharma, Inc., and MSD International Business GmbH, respectively. 10. Borrowings Our borrowings consisted of the following (in thousands): Type of Borrowing Date of Issuance Maturity As of December 31, 2024 As of December 31, 2023 Senior Unsecured Notes: $ 1,000,000 , 1.20 % (issued at 98.875 % of par) 9/2020 9/2025 $ 1,000,000 1,000,000 $ 1,000,000 , 1.75 % (issued at 98.284 % of par) 9/2020 9/2027 1,000,000 1,000,000 $ 500,000 , 5.15 % (issued at 98.758 % of par) 6/2024 9/2029 500,000 — $ 1,000,000 , 2.20 % (issued at 97.760 % of par) 9/2020 9/2030 1,000,000 1,000,000 $ 600,000 , 2.15 % (issued at 98.263 % of par) 7/2021 9/2031 600,000 600,000 $ 500,000 , 5.40 % (issued at 97.872 % of par) 6/2024 9/2034 500,000 — $ 1,000,000 , 3.30 % (issued at 95.556 % of par) 9/2020 9/2040 1,000,000 1,000,000 $ 1,000,000 , 3.55 % (issued at 95.306 % of par) 9/2020 9/2050 1,000,000 1,000,000 $ 700,000 , 3.35 % (issued at 97.565 % of par) 7/2021 9/2051 700,000 700,000 $ 500,000 , 5.90 % (issued at 97.617 % of par) 6/2024 9/2054 500,000 — Unamortized debt discount and issuance costs ( 187,574 ) ( 164,715 ) Total debt carrying value 7,612,426 6,135,285 Less: Current portion of long-term debt ( 997,773 ) — Total long-term debt $ 6,614,653 $ 6,135,285 Senior Unsecured Notes In June 2024, we issued $ 1.5 billion of senior unsecured notes (the “2024 Notes”). The 2024 Notes were issued at a total discount of $ 28.8 million and we capitalized approximately $ 12.6 million in debt issuance costs primarily composed of underwriting fees. The 2024 Notes were issued with a weighted average coupon rate and a weighted average effective interest rate of 5.48 % and 5.92 %, respectively. We issued $ 1.3 billion and $ 6.0 billion of senior unsecured notes in 2021 (the “2021 Notes”) and 2020 (the “2020 Notes” and, collectively with the “2021 Notes” and “2024 Notes”, the “Notes”), respectively. The 2021 Notes and 2020 Notes were issued at a total discount of $ 176.4 million and we capitalized approximately $ 52.7 million in debt issuance costs primarily composed of underwriting fees. The 2021 Notes were issued with a weighted average coupon rate and a weighted average effective interest rate of 2.80 % and 3.06 %, respectively. The 2020 Notes were issued with a weighted average coupon rate and a weighted average effective interest rate of 2.13 % and 2.50 %, respectively. In September 2023, we repaid $ 1.0 billion of the 2020 Notes upon maturity. 103 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Interest on each series of the Notes accrues at the respective rate per annum and is payable semi-annually in arrears on March 2 and September 2 of each year. The first interest payment date for the 2024 Notes will be March 2, 2025. The Notes may be redeemed at our option at a redemption price equal to the greater of (i) 100 % of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis at the treasury rate, plus a make-whole premium as defined in the indenture. In each case, accrued and unpaid interest is also required to be redeemed to the date of redemption. Upon the occurrence of a change of control triggering event and downgrade in the rating of our Notes by two of three credit agencies, the holders may require us to repurchase all or part of their Notes at a price equal to 101 % of the aggregate principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to the date of repurchase. Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings, a non-wholly-owned subsidiary. We are required to comply with certain covenants under our Notes and as of December 31, 2024 , we were in compliance with all applicable covenants. As of December 31, 2024 and 2023, the fair value of our outstanding Notes using Level 2 inputs was approximately $ 6.5 billion and $ 5.1 billion, respectively. Senior Unsecured Revolving Credit Facility Our subsidiary, RP Holdings, as borrower, initially entered into to the Amended and Restated Revolving Credit Agreement (the “Credit Agreement”) on September 15, 2021, which provides for an unsecured revolving credit facility (the “Revolving Credit Facility”). Amendment No. 3 to the Credit Agreement, which was entered into on December 22, 2023, increased the borrowing capacity to $ 1.8 billion for general corporate purposes with $ 1.69 billion of the revolving commitments maturing on December 22, 2028 and the remaining $ 110.0 million of revolving commitments maturing on October 31, 2027. On January 24, 2024, we entered into Amendment No. 4 to the Credit Agreement to make certain technical modifications. As of December 31, 2024 and 2023, there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility is subject to an interest rate, at our option, of either (a) a base rate determined by reference to the highest of (1) the administrative agent’s prime rate, (2) the federal funds rate plus 0.5 % and (3) Term SOFR plus 1 % or (b) Daily SOFR, Term SOFR, the Alternative Currency Term Rate or the Alternative Currency Daily Rate (each as defined in the Credit Agreement), plus in each case, the applicable margin. The applicable margin for the Revolving Credit Facility varies based on our public debt rating. Accordingly, the interest rates for the Revolving Credit Facility fluctuate during the term of the facility based on changes in the applicable interest rate and future changes in our public debt rating. The Credit Agreement that governs the Revolving Credit Facility contains certain customary covenants, that among other things, require us to maintain (i) a consolidated leverage ratio at or below 4.00 to 1.00 (or at or below 4.50 to 1.00 following a qualifying material acquisition) of consolidated funded debt to Adjusted EBITDA, each as defined and calculated as set forth in the Credit Agreement, (ii) a consolidated coverage ratio at or above 2.50 to 1.00 of Adjusted EBITDA to consolidated interest expense, each as defined and calculated as set forth in the Credit Agreement and (iii) a consolidated Portfolio Cash Flow Ratio at or below 5.00 to 1.00 (or at or below 5.50 to 1.00 following a qualifying material acquisition) of consolidated funded debt to Portfolio Cash Flow, each as defined and calculated as set forth in the Credit Agreement. All obligations under the Revolving Credit Facility are unconditionally guaranteed by us. Noncompliance with the leverage ratio, portfolio cash flow ratio and interest coverage ratio covenants under the Credit Agreement could result in our lenders requiring us to immediately repay all amounts borrowed. The Credit Agreement includes customary covenants for credit facilities of this type that limit our ability to engage in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets. As of December 31, 2024 , RP Holdings was in compliance with these covenants. 104 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Principal Payments on the Notes The future principal payments for our borrowings as of December 31, 2024 over the next five years and thereafter are as follows (in thousands): Year Principal Payments 2025 $ 1,000,000 2026 — 2027 1,000,000 2028 — 2029 500,000 Thereafter 5,300,000 Total (1) $ 7,800,000 (1) Excludes unamortized debt discount and issuance costs of $ 187.6 million as of December 31, 2024, which are amortized through interest expense over the remaining life of the underlying debt obligations. 11. Shareholders’ Equity Capital Structure We have two classes of voting shares: Class A ordinary shares and Class B ordinary shares, each of which has one vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up. As of December 31, 2024, we have 445,985 thousand Class A ordinary shares and 143,128 thousand Class B ordinary shares outstanding. An exchange agreement entered into by, among others, us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP, RPI US Feeder 2019, LP, RPI International Feeder 2019, LP and EPA Vehicle (as amended from time to time, the “Exchange Agreement”) governs the exchange of RP Holdings Class B Interests indirectly held by the Continuing Investors Partnerships for our Class A ordinary shares. Pursuant to the Exchange Agreement, RP Holdings Class B Interests are exchangeable on a one -for-one basis for our Class A ordinary shares on a quarterly basis. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. Such deferred shares are non-voting and do not confer a right to participate in the profits of the Company or any right to receive dividends. As of December 31, 2024, we have 392,255 thousand deferred shares outstanding. In addition, we have in issue 50 thousand Class R redeemable shares, which do not entitle the holder to voting or dividend rights. As required by the U.K. Companies Act 2006, the Class R redeemable shares were issued to ensure Royalty Pharma Limited had sufficient sterling denominated share capital upon its re-registration in 2020 as Royalty Pharma plc, a public company. The Class R redeemable shares may be redeemed at our option in the future. Any such redemption would be at the nominal value of £ 1 each. Class A Ordinary Share Repurchases In March 2023, our board of directors authorized a share repurchase program under which we may repurchase up to $ 1.0 billion of our Class A ordinary shares. The repurchases may be made in the open market or in privately negotiated transactions. In 2024, we repurchased and retired 8.4 million shares at a cost of approximately $ 229.9 million. In 2023, we repurchased and retired 9.8 million shares at a cost of approximately $ 304.8 million. As of December 31, 2024, approximately $ 465.3 million remained available under the share repurchase program. In connection with the Internalization as discussed in Note 16–Subsequent Events, our board of directors authorized a new share repurchase program in January 2025 under which we may repurchase up to $ 3.0 billion of our Class A ordinary shares. This new share repurchase program replaces the unused capacity under the previous share repurchase program that was authorized in March 2023. The repurchases may be made in the open market or in privately negotiated transactions. The authorization for the new share repurchase program expires June 23, 2027. 105 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Non-Controlling Interests The changes in the balances of our non-controlling interests are as follows (in thousands): RPSFT Legacy Investors Partnerships Continuing Investors Partnerships EPA Vehicle Total December 31, 2021 $ 13,528 $ 1,809,269 $ 2,649,154 $ — $ 4,471,951 Contributions — 6,343 5,253 — 11,596 Distributions ( 24,687 ) ( 435,446 ) ( 144,115 ) — ( 604,248 ) Other exchanges — — ( 157,494 ) — ( 157,494 ) Net Income 10,562 152,895 23,775 — 187,232 Other comprehensive income/(loss): Unrealized gains on available for sale debt securities — 4,218 5,520 — 9,738 Reclassification of unrealized gains on available for sale debt securities — ( 9,392 ) ( 12,160 ) — ( 21,552 ) December 31, 2022 $ ( 597 ) $ 1,527,887 $ 2,369,933 $ — $ 3,897,223 Contributions — 7,981 3,874 — 11,855 Distributions ( 4,437 ) ( 363,635 ) ( 119,649 ) — ( 487,721 ) Other exchanges — — ( 428,808 ) — ( 428,808 ) Net income 5,045 167,483 392,726 — 565,254 Purchase of non-controlling interest in RPCT ( 11 ) — — — ( 11 ) December 31, 2023 $ — $ 1,339,716 $ 2,218,076 $ — $ 3,557,792 Contributions — 5,161 3,877 — 9,038 Distributions — ( 351,474 ) ( 125,158 ) — ( 476,632 ) Other exchanges — — ( 166,243 ) — ( 166,243 ) Net income — 194,937 276,893 — 471,830 December 31, 2024 $ — $ 1,188,340 $ 2,207,445 $ — $ 3,395,785 Continuing Investors Partnerships The Continuing Investors Partnerships hold the number of our Class B ordinary shares equal to the number of RP Holdings Class B Interests indirectly held by them. As the Continuing Investors Partnerships exchange RP Holdings Class B Interests indirectly held by them for Class A ordinary shares, the Continuing Investors Partnerships’ indirect ownership in RP Holdings decreases. We operate and control the business affairs of RP Holdings through our ownership of RP Holdings Class A Interests and RP Holdings Class B Interests. In connection with our repurchase of Class A ordinary shares that began in the second quarter of 2023, RP Holdings also began to retire RP Holdings Class A Interests held by us which reduces our ownership in RP Holdings. The change in RP Holdings ownership between the Continuing Investors Partnerships and us as a result of (1) the exchanges of RP Holding Class B Interests for Class A ordinary shares and (2) retirement of RP Holdings Class A Interests is reflected through Other exchanges in the above tables and in our consolidated statements of shareholders’ equity. The Continuing Investors Partnerships indirectly owned approximately 24 %, 25 % and 27 % of RP Holdings as of December 31, 2024, 2023 and 2022, respectively, with the remaining 76 %, 75 % and 73 % of RP Holding as of December 31, 2024, 2023 and 2022, respectively, owned by Royalty Pharma plc. RPSFT We historically reported a non-controlling interest related to a de minimis interest in RPCT held by RPSFT. In December 2023, we acquired the remaining interest in RPCT held by RPSFT by effectively purchasing the net assets of RPSFT and its parent entities, which primarily consisted of cash and RPSFT’s right to receive a portion of royalties received by RPCT. The estimated purchase price, subject to post-closing adjustments, was approximately $ 11.4 million and unpaid as of December 31, 2023. In 2024, we paid the finalized purchase price of approximately $ 12.5 million. Following this December 2023 transaction, RPSFT no longer holds a non-controlling interest in RPCT. 106 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS RP Holdings Class C Special Interest Held by EPA Vehicle EPA Vehicle is entitled to Equity Performance Awards (as defined below) through its RP Holdings Class C Special Interest based on our performance, as determined on a portfolio-by-portfolio basis. Investments made during each two-year period are grouped together as separate portfolios (each, a “Portfolio”). Subject to certain conditions, at the end of each fiscal quarter, EPA Vehicle is entitled to a distribution from RP Holdings in respect of each Portfolio equal to 20 % of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the “Equity Performance Awards”). The Equity Performance Awards will be allocated to EPA Vehicle, as the holder of the RP Holdings Class C Special Interest, and recorded as Net income attributable to non-controlling interests in the consolidated statements of operations. The Equity Performance Awards will be payable in RP Holdings Class B Interests that will be exchanged upon issuance for Class A ordinary shares. EPA Vehicle may also receive a periodic cash advance in respect of the RP Holdings Class C Special Interest to the extent necessary for EPA Vehicle or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of holding such RP Holdings Class C Special Interest. The Equity Performance Awards will be reflected as a transaction between equity holders in the consolidated statements of shareholders’ equity and related periodic cash distributions will be presented as a financing activity in the consolidated statements of cash flows. We expect the Equity Performance Awards to be payable in 2025 once certain performance conditions discussed above are met. Similarly, we expect income to be allocated to EPA Vehicle once such performance conditions are met. Dividends The holders of Class A ordinary shares are entitled to receive dividends subject to approval by our board of directors. The holders of Class B ordinary shares do not have any rights to receive dividends; however, RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings. During 2024, we declared and paid four quarterly cash dividends of $ 0.21 per Class A ordinary share in an aggregate amount of $ 376.5 million to holders of our Class A ordinary shares . 2020 Independent Directors Equity Incentive Plan and Share-based Compensation On June 15, 2020, our 2020 Independent Director Equity Incentive Plan was approved and became effective, whereby 800 thousand Class A ordinary shares were authorized for issuance in the form of RSUs to our independent directors. As of December 31, 2024, approximately 409 thousand shares remain available for future issuance under the plan. RSUs granted under the plan generally vest over one year with the associated share-based compensation expense recorded as part of General and administrative expenses in the consolidated statements of operations. In 2024, 2023 and 2022, respectively, we did not recognize material share-based compensation expense. As of December 31, 2024, the total unrecognized share-based compensation expense related to total outstanding RSUs was not material. 12. Earnings per Share In 2024, 2023 and 2022, Class B ordinary shares contingently issuable to EPA Vehicle were evaluated and were determined not to have any dilutive impact. 107 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the reconciliation of the numerator and denominator used to calculate basic and diluted earnings per Class A ordinary share for 2024 and 2023 (in thousands, except per share amounts): Years Ended December 31, 2024 2023 Numerator Consolidated net income $ 1,330,813 $ 1,700,088 Less: Net income attributable to continuing non-controlling interests 276,893 392,726 Less: Net income attributable to legacy non-controlling interests 194,937 172,528 Net income attributable to Royalty Pharma plc - basic 858,983 1,134,834 Add: Reallocation of net income attributable to non-controlling interests from the assumed conversion of Class B ordinary shares 276,893 392,726 Net income attributable to Royalty Pharma plc - diluted $ 1,135,876 $ 1,527,560 Denominator Weighted average Class A ordinary shares outstanding - basic 448,185 447,601 Add: Dilutive effects as shown separately below Class B ordinary shares exchangeable for Class A ordinary shares 145,911 155,292 Unvested RSUs 12 7 Weighted average Class A ordinary shares outstanding - diluted 594,108 602,900 Earnings per Class A ordinary share - basic $ 1.92 $ 2.54 Earnings per Class A ordinary share - diluted $ 1.91 $ 2.53 Class B ordinary shares in issue were evaluated under the if-converted method for potential dilutive effects and were determined to be anti-dilutive for 2022, and therefore were excluded from the computation of diluted earnings per shares of Class A ordinary share. The following table sets forth reconciliations of the numerators and denominators used to calculate basic and diluted earnings per Class A ordinary share for 2022 (in thousands, except per share amounts): Year Ended December 31, 2022 Numerator Consolidated net income $ 230,064 Less: Net income attributable to continuing non-controlling interests 23,775 Less: Net income attributable to legacy non-controlling interests 163,457 Net income attributable to Royalty Pharma plc - basic and diluted $ 42,832 Denominator Weighted average Class A ordinary shares outstanding - basic 437,963 Add: Dilutive effect of unvested RSUs 9 Weighted average Class A ordinary shares outstanding - diluted 437,972 Earnings per Class A ordinary share - basic $ 0.10 Earnings per Class A ordinary share - diluted $ 0.10 108 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. Indirect Cash Flow Adjustments to reconcile consolidated net income to net cash provided by operating activities are summarized below (in thousands): Years Ended December 31, 2024 2023 2022 Cash flow from operating activities: Consolidated net income $ 1,330,813 $ 1,700,088 $ 230,064 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Income from financial royalty assets ( 2,149,422 ) ( 2,197,754 ) ( 2,125,096 ) Provision for changes in expected cash flows from financial royalty assets 732,461 560,656 904,244 Amortization of intangible assets — — 5,670 Amortization of debt discount and issuance costs 19,562 20,499 21,356 Losses/(gains) on derivative financial instruments 6,000 2,290 ( 96,610 ) (Gains)/losses on equity securities ( 39,549 ) ( 87,139 ) 33,442 Equity in (earnings)/losses of equity method investees ( 29,611 ) ( 28,882 ) 8,973 Distributions from equity method investees 13,396 18,823 39,142 Loss on extinguishment of debt — — 419 Share-based compensation 2,344 2,357 2,170 Interest income accretion — — ( 53,432 ) (Gains)/losses on available for sale debt securities ( 154,906 ) ( 230,840 ) 6,815 Financial royalty asset impairment — — 615,827 Other 1,105 20,912 11,098 Changes in operating assets and liabilities: Cash collected on financial royalty assets 2,983,410 3,201,410 2,507,236 Other royalty income receivable ( 4,551 ) ( 1,521 ) ( 4,744 ) Other current assets 13,844 3,147 38,654 Accounts payable and accrued expenses ( 2,290 ) 6,236 2,286 Interest payable 46,380 ( 2,480 ) ( 3,534 ) Net cash provided by operating activities $ 2,768,986 $ 2,987,802 $ 2,143,980 Non-cash investing and financing activities are summarized below (in thousands): Years Ended December 31, 2024 2023 2022 Milestone payable - Trelegy (1) $ 50,000 $ — $ — Milestone payable - Erleada (1) 18,600 — 12,400 Purchase of non-controlling interest in RPCT (2) — 11,375 — (1) Related to the achievements of the sales-based milestones that were not paid as of December 31, 2024 and 2022. (2) Related to the purchase of the remaining interest in RPCT held by RPSFT that was not paid as of December 31, 2023. Refer to Note 11–Shareholders’ Equity for additional discussion. 14. Commitments and Contingencies Cytokinetics Funding Commitments As of December 31, 2024, $ 350 million remained available under the Cytokinetics Funding Commitments and Cytokinetics is required to draw a minimum of $ 50 million. 109 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other Commitments We have commitments to advance funds to counterparties through our investment in the Avillion Entities. Please refer to Note 8–Non-Consolidated Affiliates for details of these arrangements. We also have requirements to make Operating and Personnel Payments (defined below) over the life of the Management Agreement as described in Note 15–Related Party Transactions. Indemnifications In the ordinary course of our business, we may enter into contracts or agreements that contain customary indemnifications relating to such things as confidentiality agreements and representations as to corporate existence and authority to enter into contracts. The maximum exposure under such agreements is indeterminable until a claim, if any, is made. However, no such claims have been made against us to date and we believe that the likelihood of such proceedings taking place in the future is remote. Legal Proceedings We are a party to legal actions with respect to a variety of matters in the ordinary course of business. Some of these proceedings may be based on complex claims involving substantial uncertainties and unascertainable damages. Unless otherwise noted, it is not possible to determine the probability of loss or estimate damages, and therefore we have not established accruals for any of these proceedings on our consolidated balance sheets as of December 31, 2024 and 2023. When we determine that a loss is both probable and reasonably estimable, we record a liability, and, if the liability is material, we disclose the amount of the liability reserved. We do not believe the outcome of any existing legal proceedings to which we are a party, either individually or in the aggregate, will adversely affect our business, financial condition or results of operations. 15. Related Party Transactions The Manager The Manager is the investment manager of Royalty Pharma plc and its subsidiaries. The managing member of the Manager, Pablo Legorreta, holds an interest in us and serves as our Chief Executive Officer and Chairman of our board of directors. In connection with the Exchange Offer, the Manager entered into the Management Agreement with us and our subsidiaries, the Continuing Investors Partnerships, and with the Legacy Investors Partnerships. Pursuant to the Management Agreement, we pay a quarterly operating and personnel payment to the Manager or its affiliates (“Operating and Personnel Payments”) equal to 6.5 % of the cash receipts from Royalty Investments (as defined in the Management Agreement) for such quarter and 0.25 % of the value of our security investments under GAAP as of the end of such quarter. The operating and personnel payment for Old RPI, an obligation of the Legacy Investors Partnerships and for which the expense is reflected on our consolidated net income, is calculated as the greater of $ 1 million per quarter and 0.3125 % of royalties from Royalty Investments (as defined in the limited partnership agreements of the Legacy Investors Partnerships) during the previous twelve calendar months. Additionally, we also pay certain costs and expenses of the Manager. 110 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Total operating and personnel payments incurred, including the amounts attributable to Old RPI, are recognized within General and administrative expenses in the consolidated statements of operations. During 2024, 2023 and 2022, total operating and personnel payments incurred, including the amounts attributable to Old RPI, were $ 188.6 million, $ 204.6 million and $ 188.4 million, respectively. In January 2025, we agreed to acquire the Manager for approximately $ 1.1 billion in total consideration. Refer to Note 16–Subsequent Events for additional discussion. Distributions Payable to Legacy Non-Controlling Interests The contractual cash flows required to be distributed based on the Legacy Investors Partnerships’ non-controlling interest in Old RPI and RPI ICAV are presented in the Distributions payable to legacy non-controlling interests on the consolidated balance sheets. Acquisition from Bristol Myers Squibb In November 2017, RPI Acquisitions (Ireland), Limited (“RPI Acquisitions”) , a consolidated subsidiary, entered into a purchase agreement with Bristol Myers Squibb (“BMS”) to acquire from BMS a percentage of its future royalties on worldwide sales of Onglyza, Farxiga and related diabetes products marketed by AstraZeneca (the “BMS Purchase Agreement”). On December 8, 2017, RPI Acquisitions entered into a purchase, sale and assignment agreement (“Assignment Agreement”) with a wholly- owned subsidiary of BioPharma Credit PLC (“BPCR”), an entity related to us. Under the terms of the Assignment Agreement, RPI Acquisitions assigned the benefit of 50 % of the payment stream acquired from BMS to BPCR in consideration for BPCR meeting 50 % of the funding obligations owed to BMS under the BMS Purchase Agreement. As of December 31, 2024 and 2023, the financial royalty asset of $ 44.7 million and $ 75.6 million, respectively, on the consolidated balance sheets represented only our right to the future payment streams acquired from BMS. Other Transactions In January 2024, we acquired a royalty interest in ecopipam which was previously owned by Psyadon Pharmaceuticals, Inc. (“Psyadon”). Errol De Souza, Ph.D., an independent director on our board of directors, was a shareholder of Psyadon. In connection with this transaction, Dr. De Souza received an upfront payment of $ 2.5 million and could receive milestone payments of up to $ 2.22 million in the future. In December 2023, RPI 2019 ICAV acquired the remaining interest in RPCT held by RPSFT. Refer to Note 11–Shareholders’ Equity for additional discussion. Henry Fernandez, the lead independent director of our board of directors, serves as the chairman and chief executive officer of MSCI. On April 16, 2021, we entered into an agreement with MSCI with an initial term of seven years to develop thematic life sciences indexes. In return, we will receive a percentage of MSCI’s revenues from those indexes. No amounts were due from MSCI as of both December 31, 2024 and 2023. The financial impact associated with this transaction has not been material to date. In connection with the Exchange Offer, we acquired the Legacy SLP Interest from the Continuing Investors Partnerships in exchange for issuing shares in our subsidiary. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy Investors Partnerships own a non-controlling interest in Old RPI and RPI ICAV. Refer to Note 8–Non-Consolidated Affiliates for additional discussion of the Legacy SLP Interest and our investments in other non-consolidated entities. RPIFT owns 27,210 limited partnership interests in the Continuing Investors Partnerships, whose only substantive operations are their investment in our subsidiaries. The total investment of $ 4.3 million was recorded as treasury interests, of which $ 1.6 million were held by non-controlling interests as of December 31, 2024 and 2023. 111 ROYALTY PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Each Continuing Investors Partnership pays a pro rata portion based on its ownership percentage of RP Holdings of any costs and expenses in connection with the contemplation of, formation of, listing and ongoing operation of us and any of our subsidiaries, including any third-party expenses of managing us and any of our subsidiaries, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations and insurance expenses relating to our affairs and those of any subsidiary. 16. Subsequent Events In January 2025, we agreed to acquire our Manager for an aggregate consideration of approximately $ 1.1 billion. The consideration consists of approximately 24.5 million of RP Holdings shares, $ 380 million of existing debt of the Manager and $ 200 million of cash less the amount of the Operating and Personnel Payments made to the Manager from January 1, 2025 through the closing of the transaction. The closing of the transaction is subject to the shareholders’ approval of the issuance of the share consideration and other customary closing conditions, including required regulatory approvals. The transaction is estimated to close during the second quarter of 2025. 112 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.