Royalty Pharma plc
05/06/2026 | Press release | Distributed by Public on 05/06/2026 07:05
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations, cash flows, other changes in financial condition and business performance. MD&A is provided as a supplement to, and should be read in conjunction with, our 2025 Annual Report on Form 10-K and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Special Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q and in Part II, Item 1A. Risk Factors.
Royalty Pharma plc is a public limited company that is incorporated under the laws of England and Wales and is a holding company. "Royalty Pharma," the "Company," "we," "us" and "our" refer to Royalty Pharma plc and its subsidiaries on a consolidated basis. Our principal asset is a controlling equity interest in Royalty Pharma Holdings Ltd ("RP Holdings"), a private limited company incorporated under the laws of England and Wales. We conduct our business through RP Holdings and its subsidiaries.
Business Overview
We are the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry. Since our founding in 1996, we have been pioneers in the royalty market, collaborating with innovators from academic institutions, research hospitals and not-for-profits through small and mid-cap biotechnology companies to leading global pharmaceutical companies. We have assembled a portfolio of royalties which entitles us to payments based directly on the top-line sales of many of the industry's leading therapies, which includes royalties on more than 35 commercial products, including Vertex's Trikafta and Alyftrek, GSK's Trelegy, Biogen's Tysabri and Spinraza, Roche's Evrysdi, Astellas and Pfizer's Xtandi, Johnson & Johnson's Tremfya, AbbVie and Johnson & Johnson's Imbruvica, Servier's Voranigo, Gilead's Trodelvy, Amgen's Imdelltra and Alnylam's Amvuttra, among others, and 19 development-stage product candidates.
Background and Format of Presentation
RP Holdings is owned by Royalty Pharma plc and, indirectly, by various partnerships (the "Continuing Investors Partnerships") and, in addition, post-Internalization (as defined below), by the Holders of RP Holdings Class E Interests (as defined below). 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. In 2022, we became an indirect owner of an 82% economic interest in Royalty Pharma Investments ICAV, which was previously owned directly by Royalty Pharma Investments. In connection with the Internalization, Royalty Pharma Investments distributed all of its assets to Royalty Pharma Investments 2011 ICAV (together with Royalty Pharma Investments ICAV, "Old RPI").
We consummated an exchange offer on February 11, 2020 (the "Exchange Offer") to facilitate our initial public offering ("IPO"). Prior to the Exchange Offer, Royalty Pharma Investments was owned by various partnerships (the "Legacy Investors Partnerships"). 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 RPI US Partners 2019, LP and RPI International Holdings 2019, LP which are part of the Continuing Investors Partnerships. Following the Exchange Offer, we became the indirect owner of an 82% economic interest in Royalty Pharma Investments which entitled us to 82% of the economics of its wholly-owned subsidiary RPI Finance Trust, a Delaware statutory trust ("RPIFT") and 66% of Royalty Pharma Collection Trust, a Delaware statutory trust ("RPCT"). In December 2023, we acquired the remaining interest in RPCT owned by Royalty Pharma Select Finance Trust, a Delaware statutory trust ("RPSFT").
Prior to the Internalization (as defined below), we were externally managed by RP Management, LLC, a Delaware limited liability company (the "Legacy Manager" or "RPM"), pursuant to advisory and management agreements (collectively, the "Legacy Management Agreement").
On January 10, 2025, we entered into an agreement (as amended, the "Purchase Agreement") with RPM, Royalty Pharma Manager, LLC, a Delaware limited liability company ("RP Manager") and the sellers named therein (the "Sellers"). Pursuant to the Purchase Agreement, RPM contributed substantially all of its assets and liabilities to RP Manager and we agreed to acquire all of the equity interests of RP Manager from the Sellers (the "Internalization"). The Sellers included our founder, chief executive officer and chairman, Pablo Legorreta, RPM I, LLC and RP MIP Holdings, LLC ("RP MIP Holdings"). The equity interest holders of RP MIP Holdings include our named executive officers and certain employees of the Legacy Manager, who became employees of Royalty Pharma, LLC, a wholly-owned subsidiary of RP Holdings, in connection with the Internalization. We completed the acquisition of RP Manager on May 16, 2025.
Understanding Our Financial Reporting
Our portfolio of investments contains royalties and royalty-like terms held through different forms or instruments. Most of the royalties we acquire are treated as investments in cash flow streams and are classified as financial assets measured under the effective interest method in accordance with generally accepted accounting principles in the United States ("GAAP"). Under this accounting methodology, we calculate the effective interest rate on each financial royalty asset using a forecast of the expected cash flows to be received over the life of the financial royalty asset relative to the initial acquisition price. The yield, which is calculated at the end of each reporting period and applied prospectively, is then recognized via accretion into our income at the effective rate of return over the expected life of the financial royalty asset.
The measurement of income from our financial royalty assets requires significant judgments and estimates, including management's judgment in forecasting the expected future cash flows of the underlying royalties and the expected duration of each financial royalty asset. Our cash flow forecasts are updated each reporting period primarily using sell-side equity research analysts' consensus sales estimates. We then calculate our expected royalty receipts by applying our royalty terms to these consensus sales forecasts. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly in the condensed consolidated statements of operations as non-cash provision expense. If, in a subsequent period, there is an increase in expected cash flows or if actual cash flows are greater than cash flows previously expected, we reverse the provision expense previously recorded in part or in full by recording a non-cash credit to the provision, or provision income.
As a result of the non-cash charges associated with applying the effective interest method accounting methodology to our financial royalty assets, our condensed consolidated statements of operations activity can be volatile and unpredictable. Small declines in sell-side equity research analysts' consensus sales forecasts over a long time horizon can result in an immediate non-cash income statement expense recognition, even though the applicable cash inflows will not be realized for many years into the future. For example, in late 2014 we acquired the cystic fibrosis franchise and shortly after, declines in near-term sales forecasts of sell-side equity research analysts caused us to recognize non-cash provision expense in our condensed consolidated statements of operations. Over the course of the next 10 quarters, we continued to recognize non-cash provision expense because of these changes in sales forecasts, ultimately reaching a peak cumulative allowance of $1.30 billion by September 30, 2017. With the approval of Vertex's Trikafta, in October 2019, sell-side equity research analysts' consensus sales forecasts increased to reflect the larger addressable market and the extension of the expected duration of the Trikafta royalty, resulting in the reversal of the remaining $1.10 billion cumulative allowance. The recognition of the associated non-cash provision income of $1.10 billion in 2019 was not tied to royalty receipts, but rather to the increase in sales forecasts due to the U.S. Food and Drug Administration ("FDA") approval of Trikafta. This example illustrates the volatility caused by our accounting model in our condensed consolidated statements of operations.
We believe there is no direct correlation between income from financial royalty assets and royalty receipts due to the nature of the accounting methodology applied for financial royalty assets. Further, income from financial royalty assets and the provision for changes in expected cash flows related to these financial royalty assets can be volatile and unpredictable.
Our operations have historically been financed primarily with cash flows generated by our royalties. Given the importance of cash flows and their predictability to management's operation of the business, management uses Portfolio Receipts (as defined below) as a primary measure of our operating performance. See "-Portfolio Overview" for additional discussion regarding Portfolio Receipts.
Understanding Our Results of Operations
We report non-controlling interests related to the portion of ownership interests of consolidated subsidiaries not owned by us and which are attributable to:
1. The Legacy Investors Partnerships' ownership of approximately 18% in Old RPI, which is the only remaining historical non-controlling interest that existed prior to our IPO. The value of this non-controlling interest will continue to decline over time as the assets in Old RPI expire. The Legacy Investors Partnerships are referred to as the "legacy non-controlling interests."
2. The Continuing Investors Partnerships' indirect ownership in RP Holdings through their indirect ownership of RP Holdings' Class B ordinary shares (the "RP Holdings Class B Interests"). RP Holdings Class B Interests are exchangeable into our Class A ordinary shares. As the Continuing Investors Partnerships conduct exchanges, the Continuing Investors Partnerships' indirect ownership in RP Holdings decreases and the value of this non-controlling interest decreases.
3. Pablo Legorreta's ultimate ownership of the RP Holdings' Class C ordinary share (the "RP Holdings Class C Special Interest") which entitles him to receive Equity Performance Awards ("Founder's Equity").
Equity Performance Awards ("EPAs") represent 20% of the Net Economic Profit (as defined below) generated from investments made during each two-year investment period (each, a "Portfolio"). Net Economic Profit is defined as the aggregate cash receipts for all new portfolio investments in a Portfolio less Total Expenses, which is defined as interest expense, operating expense and recovery of acquisition cost related to that Portfolio. Distributions of EPAs occur only upon the satisfaction of specified performance and return thresholds. EPAs are generally settled in RP Holdings' Class B Interests, which are immediately exchanged upon issuance for Class A ordinary shares. A portion of the EPAs may be paid in cash as a tax advance to cover income tax obligations incurred by the beneficial owners of the RP Holdings Class C Special Interest.
Mr. Legorreta granted ownership units in the entities that hold the RP Holdings Class C Special Interest to certain employees of RPM, who became employees of Royalty Pharma, LLC, a wholly-owned subsidiary of RP Holdings, in connection with the Internalization. These grants allow such employees to participate on a pro rata basis in the economic returns of the EPAs for a specific Portfolio (the "Employee EPAs"). Prior to the Internalization, Founder's Equity, which included the Employee EPAs, was accounted for as an equity transaction and recorded as non-controlling interest. Following the Internalization, Founder's Equity, which no longer includes Employee EPAs, continues to be accounted as non-controlling interest.
4. The Sellers' indirect ownership in RP Holdings through their indirect ownership of RP Holdings' Class E ordinary shares (the "RP Holdings Class E Interests"). In connection with the Internalization, we issued 24.5 million RP Holdings Class E Interests, subject to vesting conditions, to the Sellers (the "Holders of RP Holdings Class E Interests") as part of the transaction considerations. Upon vesting, the RP Holdings Class E Interests become exchangeable on a one-for-one basis for Class A ordinary shares, and upon such exchange, the value of this non-controlling interest decreases.
The Continuing Investors Partnerships, the Founder's Equity and the Holders of RP Holdings Class E Interests, collectively, are referred to as the "continuing non-controlling interests."
Total income and other revenues
Total income and other revenues is primarily comprised of interest income from our financial royalty assets and royalty income generally arising from successful commercialization of products developed through research and development ("R&D") funding arrangements. Most of our royalties are classified as financial assets as our ownership rights are generally passive in nature.
The royalty payor that accounted for greater than 10% of our total income and other revenues is shown in the table below:
| For the Three Months Ended March 31, | ||||||||||||||||||||
| Royalty Payor | Royalty | 2026 | 2025 | |||||||||||||||||
| Vertex | Cystic fibrosis franchise | 34 | % | 34 | % | |||||||||||||||
Income from financial royalty assets
Our financial royalty assets represent investments in cash flow streams with yield components that most closely resemble loans measured at amortized cost under the effective interest method. We calculate the effective interest rate using forecasted expected cash flows to be received over the life of the royalty asset relative to the initial acquisition price. Interest income is recognized at the effective rate of return over the expected life of the asset, which is calculated at the end of each reporting period and applied prospectively. As changes in sell-side equity research analysts' consensus sales estimates are updated on a quarterly basis, the effective rate of return changes. For example, if sell-side equity research analysts' consensus sales forecasts increase, the yield to derive income on a financial royalty asset will increase and result in higher income for subsequent periods.
Variables affecting the recognition of interest income from financial royalty assets under the prospective effective interest method include any one of the following: (1) additional acquisitions, (2) changes in expected cash flows of the underlying pharmaceutical products, derived primarily from sell-side equity research analysts' consensus sales forecasts, (3) regulatory approval of additional indications which leads to new cash flow streams, (4) changes to the estimated duration of the royalty (e.g., patent expiration date), (5) changes in amounts and timing of projected royalty receipts and milestone payments and (6) changes in the portion of sales that are subject to the royalty, which is referred to as royalty bearing sales. Our financial royalty assets are directly linked to sales of underlying pharmaceutical products whose life cycle typically peaks at a point in time, followed frequently by declining sales trends due to the entry of generic competition, resulting in natural declines in the asset balance and periodic interest income over the life of our royalties. The recognition of interest income from royalties requires management to make estimates and assumptions around many factors, including those impacting the variables noted above.
Other royalty income and revenues
Other royalty income and revenues primarily includes income from financial royalty assets that have been fully amortized and income from synthetic royalties and milestones arising out of R&D funding arrangements. Occasionally, a royalty asset may be amortized on an accelerated basis due to collectability concerns, which, if resolved, may result in future cash collections when no financial royalty asset remains. Similarly, we may continue to collect royalties on a fully amortized financial royalty asset beyond the estimated duration. In each scenario where a financial royalty asset has been fully amortized, income from such royalty is recognized as Other royalty income and revenues.
Provision for changes in expected cash flows from financial royalty assets
The Provision for changes in expected cash flows from financial royalty assets includes the following:
•non-cash expense or income related to the current period activity resulting from adjustments to the cumulative allowance for changes in expected cash flows; and
•non-cash expense or income related to the provision for current expected credit losses, which reflects the activity for the period, primarily due to new financial royalty assets with limited protective rights and changes to cash flow estimates for financial royalty assets with limited protective rights.
As discussed above, income is accreted on our financial royalty assets using the effective interest method. As we update our forecasted cash flows on a periodic basis and recalculate the present value of the remaining future cash flows, any shortfall when compared to the carrying value of the financial royalty asset is recorded directly in the condensed consolidated statements of operations through the line item Provision for changes in expected cash flows from financial royalty assets. If, in a subsequent period, there is an increase in expected cash flows or if actual cash flows are greater than cash flows previously expected, we reverse the provision expense previously recorded in part or in full by recording a credit to the provision, or provision income.
The same variables and management's estimates affecting the recognition of interest income on our financial royalty assets noted above also directly impact the provision.
Provision for credit losses on unfunded commitments
The provision for credit losses on unfunded commitments, a non-cash item, represents the current expected credit losses on the unfunded portions of our funding arrangements with Revolution Medicines, Inc. ("Revolution Medicines"). Because we have limited protective rights with respect to each unfunded portion once the committed funding is provided, we are required to recognize an allowance for current expected credit losses based on our estimate of probability of future funding. We estimate this allowance using the probability of default and loss given default method. We are required to reassess our estimate of current expected credit losses as of each reporting date and any subsequent change to such allowance, which can be income or expense, is reflected within Provision for credit losses on unfunded commitments in the condensed consolidated statements of operations.
R&D funding expense
R&D funding expense consists of certain development-stage funding payments that we have made to counterparties to acquire royalties or milestones on product candidates. The payments can be made on an upfront basis, upon pre-approval milestones or over time as the related product candidates undergo clinical trials.
General and administrative expenses
Prior to the Internalization, the most significant component of general and administrative ("G&A") expenses was the Management Fees (as defined below). Under the Legacy Management Agreement, we paid a quarterly operating and personnel payment to RPM or its affiliates equal to 6.5% of the cash receipts from Royalty Investments (as defined in the Legacy Management Agreement) and 0.25% of the value of our security investments under GAAP as of the end of such quarter ("Management Fees").
Following the Internalization, we no longer pay Management Fees; instead, employee compensation expenses represent the most significant component of G&A expenses. Employee compensation includes cash-based and share-based expenses. Share-based compensation expenses arising from the Internalization primarily include the following:
1.Approximately 22.8 million RP Holdings Class E Interests with an aggregate fair value of approximately $755.4 million, which are expensed over vesting periods on a straight-line basis of generally five to nine years. As of March 31, 2026, we had $609.8 million of unrecognized compensation expense related to 18.4 million RP Holdings Class E Interests that are expected to vest over a weighted average period of 5.3 years.
2.The vesting of the Employee EPAs over their remaining service periods and the subsequent change in their fair value. The fair value of the Employee EPAs is driven by the performance of the investments within the Portfolio and will fluctuate based on the timing and amount of investments made during the investment period as well as the actual and expected returns on the investments.
Additionally, as each new Portfolio commences after the Internalization, any related Employee EPAs will also be recognized as share-based compensation expense over the required service periods of generally four years and included within General and administrative expenses in the condensed consolidated statement of operations. Lastly, G&A expenses include rent, legal fees and other expenses for professional services.
Equity in earnings of equity method investees
Equity in earnings of equity method investees primarily includes the results of our share of income or loss from the following non-consolidated affiliates:
1.Legacy SLP Interest. In connection with the Exchange Offer, we acquired an equity method investment from the Continuing Investors Partnerships in the form of a special limited partnership interest in the Legacy Investors Partnerships (the "Legacy SLP Interest") in exchange for issuing shares in our subsidiary. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and a performance income allocation on a similar basis. As the Legacy Investors Partnerships no longer participate in investment opportunities, the value of the Legacy SLP Interest is expected to decline over time.
2.The Avillion Entities. The Avillion Entities (as defined below) partner with global biopharmaceutical companies to perform R&D in exchange for success-based milestones or royalties if products are commercialized. Our investments in Avillion Financing I, LP ("Avillion I") and BAv Financing II, LP ("Avillion II" and together with Avillion I, the "Avillion Entities") are accounted for using the equity method.
Other expense, net
Other expense, net primarily includes the changes in fair value of our equity securities and available for sale debt securities, including related forwards and funding commitments, and interest income.
Net income attributable to non-controlling interests
The net income attributable to non-controlling interests includes income attributable to the legacy non-controlling interests and the continuing non-controlling interests. Since the Legacy Investors Partnerships no longer participate in investment opportunities, the related net income attributable to the legacy non-controlling interests is expected to continue to decline over time as the assets held by Old RPI mature.
The net income attributable to the continuing non-controlling interests related to the Continuing Investors Partnerships and the Holders of RP Holdings Class E Interests is expected to decline over time if the investors who indirectly own the RP Holdings Class B Interests and RP Holdings Class E Interests, respectively, conduct exchanges for our Class A ordinary shares.
Net income attributable to non-controlling interests above can fluctuate significantly from period to period, primarily driven by volatility in the income statement activity of the respective underlying entity as a result of the non-cash charges associated with applying the effective interest accounting methodology to our financial royalty assets as described in the section titled "Understanding Our Financial Reporting."
Further, the net income attributable to the continuing non-controlling interests includes EPAs attributable to Founder's Equity.
Results of Operations
Our historical results of operations for 2025 have been recast to reflect the adoption of ASU 2025-07 by removing the losses previously recognized on derivative. The comparison of our historical results of operations is as follows (in thousands):
| For the Three Months Ended March 31, | Change | |||||||||||||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||||||||||||
| Income and other revenues | ||||||||||||||||||||||||||
| Income from financial royalty assets | $ | 594,992 | $ | 539,490 | 55,502 | 10.3 | ||||||||||||||||||||
| Other royalty income and revenues | 35,584 | 28,757 | 6,827 | 23.7 | ||||||||||||||||||||||
| Total income and other revenues | 630,576 | 568,247 | 62,329 | 11.0 | ||||||||||||||||||||||
| Operating (income)/expense | ||||||||||||||||||||||||||
| Provision for changes in expected cash flows from financial royalty assets | (197,485) | (127,140) | (70,345) | 55.3 | ||||||||||||||||||||||
| Provision for credit losses on unfunded commitments | (3,700) | - | (3,700) | n/a | ||||||||||||||||||||||
| Research and development funding expense | 39,790 | 50,500 | (10,710) | (21.2) | ||||||||||||||||||||||
| General and administrative expenses | 159,490 | 110,705 | 48,785 | 44.1 | ||||||||||||||||||||||
| Financial royalty asset impairment | 69,443 | - | 69,443 | n/a | ||||||||||||||||||||||
| Total operating expense, net | 67,538 | 34,065 | 33,473 | 98.3 | ||||||||||||||||||||||
| Operating income | 563,038 | 534,182 | 28,856 | 5.4 | ||||||||||||||||||||||
| Other (income)/expense | ||||||||||||||||||||||||||
| Equity in earnings of equity method investees | (21,758) | (6,443) | (15,315) | 237.7 | ||||||||||||||||||||||
| Interest expense | 93,722 | 65,261 | 28,461 | 43.6 | ||||||||||||||||||||||
| Other expense, net | 22,818 | 40,931 | (18,113) | (44.3) | ||||||||||||||||||||||
| Total other expense, net | 94,782 | 99,749 | (4,967) | (5.0) | ||||||||||||||||||||||
| Consolidated net income | 468,256 | 434,433 | 33,823 | 7.8 | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | 173,566 | 195,084 | (21,518) | (11.0) | ||||||||||||||||||||||
| Net income attributable to Royalty Pharma plc | $ | 294,690 | $ | 239,349 | 55,341 | 23.1 | ||||||||||||||||||||
Total income and other revenues
Income from financial royalty assets
Income from financial royalty assets by top products is as follows, in order of contribution to income for the first quarter of 2026 (in thousands):
| For the Three Months Ended March 31, | Change | |||||||||||||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||||||||||||
| Cystic fibrosis franchise | $ | 211,981 | $ | 195,115 | 16,866 | 8.6 | ||||||||||||||||||||
| Evrysdi | 55,715 | 51,777 | 3,938 | 7.6 | ||||||||||||||||||||||
| Tremfya | 46,690 | 38,125 | 8,565 | 22.5 | ||||||||||||||||||||||
| Voranigo | 43,790 | 30,526 | 13,264 | 43.5 | ||||||||||||||||||||||
| Trelegy | 39,072 | 34,777 | 4,295 | 12.4 | ||||||||||||||||||||||
| Tysabri | 26,968 | 31,327 | (4,359) | (13.9) | ||||||||||||||||||||||
| Other products | 170,776 | 157,843 | 12,933 | 8.2 | ||||||||||||||||||||||
| Total income from financial royalty assets | $ | 594,992 | $ | 539,490 | 55,502 | 10.3 | ||||||||||||||||||||
Income from financial royalty assets increased by $55.5 million, or 10.3%, in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to $19.3 million of interest income from Imdelltra, which was acquired in the third quarter of 2025 and is reflected within other products in the above table, as well as increases in interest income from the cystic fibrosis franchise and Voranigo. The increase in income from the cystic fibrosis franchise was primarily driven by higher interest income following the reversal of the allowance for changes in expected cash flows related to the FDA approval of Alyftrek in the fourth quarter of 2024. The increase from Voranigo reflects the asset's strong performance since its FDA approval in August 2024.
Other royalty income and revenues
Other royalty income and revenues increased by $6.8 million, or 23.7%, in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by income from fully amortized financial royalty assets.
Provision for changes in expected cash flows from financial royalty assets
Provision activity is a combination of income and expense items. The provision breakdown by royalty asset (exclusive of the provision for current expected credit losses) based on the largest contributors to each period's provision income or expense (in thousands) is as follows:
| For the Three Months Ended March 31, 2026 | For the Three Months Ended March 31, 2025 | |||||||||||||||||||
| Royalty | Royalty | |||||||||||||||||||
| Evrysdi | $ | (104,480) | Cystic fibrosis franchise | $ | (234,421) | |||||||||||||||
| Tysabri | (91,388) | Trelegy | (66,647) | |||||||||||||||||
| Xtandi | (41,679) | Xtandi | (20,799) | |||||||||||||||||
| Trelegy | (17,356) | Evrysdi | 122,301 | |||||||||||||||||
| Adstiladrin | 56,226 | Tremfya | 61,048 | |||||||||||||||||
| Other | 8,242 | Other | 24,884 | |||||||||||||||||
| Total provision, exclusive of provision for credit losses | (190,435) | Total provision, exclusive of provision for credit losses | (113,634) | |||||||||||||||||
| Provision for current expected credit losses | (7,050) | Provision for current expected credit losses | (13,506) | |||||||||||||||||
| Total provision | $ | (197,485) | Total provision | $ | (127,140) | |||||||||||||||
In the first quarter of 2026, we recorded provision income of $197.5 million, comprised of $190.4 million in provision income for changes in expected cash flows and $7.1 million in provision income for current expected credit losses. We recorded provision income for changes in expected cash flows primarily related to Evrysdi, Tysabri and Xtandi due to increases in sell-side equity research analysts' consensus sales forecasts, partially offset by provision expense related to Adstiladrin due to changes in sales forecasts.
In the first quarter of 2025, we recorded provision income of $127.1 million, comprised of $113.6 million in provision income for changes in expected cash flows and $13.5 million in provision income for current expected credit losses. We recorded provision income for changes in expected cash flows primarily related to cystic fibrosis franchise due to increase in sell-side equity research analysts' consensus sales forecasts. The provision income for changes in expected cash flows was partially offset by provision expense related to Evrysdi due to declines in sell-side equity research analysts' consensus sales forecasts.
Provision for credit losses on unfunded commitments
Provision for credit losses on unfunded commitments was $3.7 million in the first quarter of 2026, related to our funding arrangement with Revolution Medicines entered into in June 2025.
R&D funding expense
R&D funding expense decreased by $10.7 million, or 21.2% in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to lower R&D funding for litifilimab, partially offset by R&D expense for TEV-'408.
G&A expenses
G&A expenses increased by $48.8 million, or 44.1%, in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by additional share-based compensation expenses recognized following the Internalization which was completed on May 16, 2025. G&A expenses in the first quarter of 2025 primarily consisted of Management Fees, including a $33.0 million payment related to the sale of the MorphoSys Development Funding Bonds.
Financial royalty asset impairment
We recognized a financial royalty asset impairment charge of $69.4 million in the first quarter of 2026 related to Tazverik following announcements by Ipsen and Eisai in March 2026 of the voluntary withdrawal of Tazverik across all indications and markets. We did not recognize impairment charges in the first quarter of 2025.
Equity in earnings of equity method investees
Equity in earnings of equity method investees increased by $15.3 million, or 237.7%, in the first quarter of 2026 as compared to the first quarter of 2025. Equity in earnings of equity method investees in the first quarter of 2026 was primarily driven by a $15.2 million gain related to our portion of the Airsupra sales-based milestone that the Avillion Entities received from AstraZeneca. Equity in earnings of equity method investees in the first quarter of 2025 was primarily driven by an income allocation from the Legacy SLP Interest of $8.2 million.
Interest expense
Interest expense increased by $28.5 million, or 43.6%, in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by the issuance of $2.0 billion of senior unsecured notes in September 2025 and the $380 million term loan that we assumed as part of the Internalization. The weighted average coupon rate on our senior unsecured notes outstanding as of March 31, 2026 and 2025 was 3.75% and 3.06%, respectively.
Refer to the "Liquidity and Capital Resources" section for additional discussion of our debt financing arrangements.
Other expense, net
Other expense, net of $22.8 million in the first quarter of 2026 was primarily comprised of $20.2 million of losses on equity securities and $6.7 million of losses on available for sale debt securities primarily driven by the changes in fair value of the Cytokinetics Funding Arrangements, partially offset by $6.2 million of interest income earned on cash and cash equivalents.
Other expense, net of $40.9 million in the first quarter of 2025 was primarily comprised of $45.9 million of losses on equity securities partially offset by $11.3 million of interest income on cash and cash equivalents.
Net income attributable to non-controlling interests
Net income attributable to Legacy Investors Partnerships decreased by $13.6 million in the first quarter of 2026 as compared to first quarter of 2025, primarily driven by lower net income attributable to Old RPI as a result of impairment charges related to Tazverik.
Net income attributable to Continuing Investors Partnerships was relatively flat in the first quarter of 2026 as compared to first quarter of 2025.
Net income attributable to Founder's Equity decreased by $25.6 million in the first quarter of 2026 as compared to first quarter of 2025, primarily driven by the Internalization completed in May 2025. In the first quarter of 2025, net income attributable to Founder's Equity included both Mr. Legorreta's retained EPAs and employee participation in the EPAs. In the first quarter of 2026, Founder's Equity includes only Mr. Legorreta's retained EPAs.
Net income attributable to RP Holdings Class E Interests was $16.4 million in the first quarter of 2026. The RP Holdings Class E Interests were issued in connection with the Internalization.
Portfolio Overview
Our business model is different from that of traditional operating companies in the biopharmaceutical industry. Our operating performance is a function of our liquidity as our operations have historically been financed primarily with cash flows generated by our royalties. We use the cash generated by our existing royalties to fund investments in new royalties. We consider a variety of metrics in assessing the performance of our business. Portfolio Receipts is a key performance metric that represents our ability to generate cash from our portfolio investments, the primary source of capital that we can deploy to make new portfolio investments. Portfolio Receipts also enables management to better analyze our liquidity and long-term growth prospects by providing a more granular product-by-product presentation of the underlying cash generation of our royalty investments.
Portfolio Receipts is defined as the sum of royalty receipts and milestones and other contractual receipts. Royalty receipts include variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that are attributed to us ("Royalty Receipts"). Milestones and other contractual receipts include sales-based or regulatory milestone payments and other fixed contractual receipts, net of contractual payments to the legacy non-controlling interests, that are attributed to us. Portfolio Receipts does not include royalty receipts and milestones and other contractual receipts that were received on an accelerated basis under the terms of the agreement governing the receipt or payment. Portfolio Receipts also does not include proceeds from equity securities or proceeds from purchases and sales of marketable securities, both of which are not central to our fundamental business strategy.
Portfolio Receipts is calculated as the sum of the following line items from our GAAP condensed consolidated statements of cash flows: Cash collections from financial royalty assets, Cash collections from intangible royalty assets, Other royalty cash collections, Proceeds from available for sale debt securities and Distributions from equity method investees less Distributions to legacy non-controlling interests - Portfolio Receipts, which represent contractual distributions of Royalty Receipts, milestones and other contractual receipts to the Legacy Investors Partnerships.
Our portfolio consists of royalties on more than 35 marketed therapies and 19 development-stage product candidates. The therapies in our portfolio address therapeutic areas such as rare diseases, neuroscience, oncology, hematology, immunology, respiratory and diabetes, and are delivered to patients across both primary and specialty care settings. The table below shows Portfolio Receipts, including Royalty Receipts by product and milestones and other contractual receipts, in order of contribution to total Royalty Receipts for the first quarter of 2026 (in thousands):
|
Products
|
Marketer(s) | Therapeutic Area | For the Three Months Ended March 31, | Change | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||
|
Cystic fibrosis franchise(1)
|
Vertex | Rare disease | $ | 253,254 | $ | 249,731 | 3,523 | 1.4 | ||||||||||||||||||||||||||||||
| Trelegy | GSK | Respiratory | 97,681 | 85,235 | 12,446 | 14.6 | ||||||||||||||||||||||||||||||||
| Evrysdi | Roche | Rare disease | 79,657 | 52,654 | 27,003 | 51.3 | ||||||||||||||||||||||||||||||||
| Tremfya | Johnson & Johnson | Immunology | 63,983 | 35,647 | 28,336 | 79.5 | ||||||||||||||||||||||||||||||||
| Tysabri | Biogen | Neuroscience | 59,338 | 61,066 | (1,728) | (2.8) | ||||||||||||||||||||||||||||||||
| Xtandi | Pfizer, Astellas | Oncology | 51,028 | 52,478 | (1,450) | (2.8) | ||||||||||||||||||||||||||||||||
| Voranigo | Servier | Oncology | 46,839 | 19,542 | 27,297 | 139.7 | ||||||||||||||||||||||||||||||||
| Imbruvica | AbbVie, Johnson & Johnson | Oncology | 37,911 | 45,852 | (7,941) | (17.3) | ||||||||||||||||||||||||||||||||
| Cabometyx/Cometriq | Exelixis, Ipsen, Takeda | Oncology | 22,593 | 20,668 | 1,925 | 9.3 | ||||||||||||||||||||||||||||||||
| Promacta | Novartis | Hematology | 17,183 | 44,189 | (27,006) | (61.1) | ||||||||||||||||||||||||||||||||
| Imdelltra | Amgen | Oncology | 16,736 | - | 16,736 | n/a | ||||||||||||||||||||||||||||||||
| Trodelvy | Gilead | Oncology | 13,430 | 12,605 | 825 | 6.5 | ||||||||||||||||||||||||||||||||
| Spinraza | Biogen | Rare disease | 11,689 | 12,891 | (1,202) | (9.3) | ||||||||||||||||||||||||||||||||
| Amvuttra | Alnylam | Rare disease | 8,266 | - | 8,266 | n/a | ||||||||||||||||||||||||||||||||
|
Other products(2)
|
107,588 | 95,721 | 11,867 | 12.4 | ||||||||||||||||||||||||||||||||||
|
Royalty Receipts
|
$ | 887,176 | $ | 788,279 | 98,897 | 12.5 | ||||||||||||||||||||||||||||||||
|
Milestones and other contractual receipts
|
38,186 | 51,013 | (12,827) | (25.1) | ||||||||||||||||||||||||||||||||||
|
Portfolio Receipts(3)
|
$ | 925,362 | $ | 839,292 | 86,070 | 10.3 | ||||||||||||||||||||||||||||||||
(1)The cystic fibrosis franchise includes the following approved products: Kalydeco, Orkambi, Symdeko/Symkevi, Trikafta/Kaftrio and Alyftrek.
(2)Other products primarily include Royalty Receipts on the following products: Crysvita, Emgality, Erleada, Farxiga/Onglyza, IDHIFA, Niktimvo, Nurtec ODT, Orladeyo, Skytrofa, Soliqua, Yorvipath and distributions from the Legacy SLP Interest, which are presented as Distributions from equity method investees on the condensed consolidated statements of cash flows.
(3)Portfolio Receipts for 2025 does not include the $511 million of proceeds from our sale of the MorphoSys Development Funding Bonds because it was treated as an asset sale.
Analysis of Portfolio Receipts
The key drivers of Portfolio Receipts are discussed below:
•Cystic fibrosis franchise - Royalty Receipts from the cystic fibrosis franchise, including Kalydeco, Orkambi, Symdeko/Symkevi, Trikafta/Kaftrio and Alyftrek, which is marketed by Vertex for the treatment of cystic fibrosis, increased by $3.5 million in the first quarter of 2026 as compared to the first quarter of 2025. The increase was primarily due to strong cystic fibrosis patient demand, a modest benefit from channel inventory and higher net prices in the United States, while ex-U.S. saw solid performance across multiple geographies.
•Trelegy - Royalty Receipts from Trelegy, which is marketed by GSK for the maintenance treatment of chronic obstructive pulmonary disease and asthma, increased by $12.4 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by continued strong volume growth across all regions, reflecting patient demand, single inhaler triple therapy class growth, and increased market share.
•Evrysdi - Royalty Receipts from Evrysdi, which is marketed by Roche for the treatment of spinal muscular atrophy, increased by $27.0 million in the first quarter of 2026 as compared to the first quarter of 2025, attributable to growth in international markets due to tender-related buying and strong performance in Europe. Additionally, Royalty Receipts benefited from the incremental royalties we acquired in the fourth quarter of 2025.
•Tremfya - Royalty Receipts from Tremfya, which is marketed by Johnson & Johnson for the treatment of plaque psoriasis, active psoriatic arthritis and inflammatory bowel disease, increased by $28.3 million in the first quarter of 2026 as compared to the first quarter of 2025 driven by market share gains and market growth, including strong uptake across recently launched inflammatory bowel disease indications.
•Tysabri - Royalty Receipts from Tysabri, which is marketed by Biogen for the treatment of multiple sclerosis, decreased by $1.7 million in the first quarter of 2026 as compared to the first quarter of 2025, due to increased competition in rest of world, partially offset by continued resilience in the United States.
•Xtandi - Royalty Receipts from Xtandi, which is marketed by Pfizer and Astellas for the treatment of prostate cancer, decreased by $1.5 million in the first quarter of 2026 as compared to the first quarter of 2025, attributable to lower sales in the United States, partially offset by continued growth across ex-U.S. regions.
•Voranigo - Royalty Receipts from Voranigo, which is marketed by Servier for the treatment of low-grade glioma, increased by $27.3 million in the first quarter of 2026 compared to first quarter of 2025, primarily driven by its strong launch in the United States.
•Imbruvica - Royalty Receipts from Imbruvica, which is marketed by AbbVie and Johnson & Johnson for the treatment of blood cancers and chronic graft versus host disease, decreased by $7.9 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to continued competitive dynamics and Medicare Part D redesign.
•Cabometyx/Cometriq - Royalty Receipts from Cabometyx/Cometriq, which is marketed by Exelixis, Ipsen and Takeda, primarily for the treatment of advanced renal cell carcinoma, hepatocellular carcinoma and neuroendocrine tumors, increased by $1.9 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by continued demand growth from uptake in combination with Opdivo in first-line renal cell carcinoma and previously treated advanced neuroendocrine tumors.
•Promacta - Royalty Receipts from Promacta, which is marketed by Novartis for the treatment of chronic immune thrombocytopenia purpura and aplastic anemia, decreased by $27.0 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to generic competition as well as revenue deduction adjustments in the United States.
•Imdelltra - Royalty Receipts from Imdelltra, which is marketed by Amgen for the treatment of extensive-stage small cell lung cancer ("ES-SCLC") were $16.7 million in the first quarter of 2026, primarily driven by its strong global launch as it establishes a new standard of care in second-line ES-SCLC. We acquired the Imdelltra royalty in the third quarter of 2025 and began receiving Royalty Receipts in the fourth quarter of 2025.
•Trodelvy - Royalty Receipts from Trodelvy, which is marketed by Gilead for the treatment of metastatic triple-negative breast cancer and pre-treated hormone receptor-positive, human epidermal growth factor receptor 2 ("HER2")-negative metastatic breast cancer, increased by $0.8 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily driven by higher demand in breast cancer treatment.
•Spinraza - Royalty Receipts from Spinraza, which is marketed by Biogen for the treatment of spinal muscular atrophy ("SMA"), decreased by $1.2 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to higher sales in the first nine months of 2025 as compared to the first nine months of 2024, which resulted in less royalty-bearing sales in the fourth quarter of 2025 due to the $1.5 billion sales cap, which was achieved in both years.
•Amvuttra - Royalty Receipts from Amvuttra, which is marketed by Alnylam for the treatment of transthyretin ("TTR") amyloidosis with cardiomyopathy and for hereditary TTR amyloidosis with polyneuropathy were $8.3 million in the first quarter of 2026, mainly due to strong performance in the United States following its second quarter 2025 launch in transthyretin amyloidosis cardiomyopathy. We acquired the Amvuttra royalty in the fourth quarter of 2025 and began receiving Royalty Receipts in the first quarter of 2026.
•Other products - Royalty Receipts from other products increased by $11.9 million in the first quarter of 2026 as compared to the first quarter of 2025, driven by Niktimvo, Skytrofa and Yorvipath, partially offset by the timing of Soliqua royalty payments.
•Milestones and other contractual receipts decreased by $12.8 million in the first quarter of 2026 as compared to the first quarter of 2025. and includes payments for Airsupra, Bosulif and Cytokinetics. The change is primarily attributable to the $9.7 million quarterly repayment on the MorphoSys Development Funding Bonds received in the prior year period.
Key Developments Relating to Our Portfolio
Recent key developments related to products in our portfolio are discussed below:
Commercial Products
•Myqorzo. In May 2026, Cytokinetics announced positive topline results from ACACIA-HCM, the pivotal phase 3 clinical trial of Myqorzo in patients with non-obstructive hypertrophic cardiomyopathy. ACACIA-HCM met both dual primary endpoints, demonstrating statistically significant improvements from baseline to Week 36 compared to placebo.
In February 2026, Cytokinetics announced that the European Commission ("EC") approved Myqorzo for the treatment of symptomatic obstructive hypertrophic cardiomyopathy in adult patients.
•Ziihera. In April 2026, Jazz Pharmaceuticals announced that the FDA accepted for filing, with Priority Review, a supplemental Biologics License Application for Ziihera in combination regimens for the first-line treatment of adult patients with HER2-positive metastatic gastroesophageal adenocarcinoma. The FDA has set a Prescription Drug User Fee Act target action date of August 25, 2026.
•Spinraza. In March 2026, Biogen announced that the FDA approved the high dose regimen of Spinraza for SMA.
In January 2026, Biogen announced that the EC granted marketing authorization for a high dose regimen of Spinraza for SMA.
•Avlayah. In March 2026, Denali Therapeutics announced that the FDA granted accelerated approval of Avlayah (tividenofusp alfa) for the treatment of Hunter syndrome. Avlayah is the first FDA-approved biologic specifically designed to cross the blood-brain barrier and reach the whole body, including the brain.
•Tazverik. In March 2026, Ipsen announced that it was voluntarily withdrawing Tazverik from all Ipsen markets based on emerging data from the ongoing Phase Ib/III SYMPHONY-1 trial. In addition, Eisai announced plans to discontinue sales of Tazverik in Japan. In the first quarter of 2026, we recorded $69 million of non-cash impairment charges related to Tazverik.
Development-Stage Product Candidates
•Daraxonrasib. In April 2026, Revolution Medicines announced positive Phase 3 results from the RASolute-302 trial evaluating daraxonrasib in patients with previously treated metastatic pancreatic cancer. Based on these results, Revolution Medicines intends to submit the data to global regulatory authorities, including the FDA, as part of a future New Drug Application ("NDA") under the Commissioner's National Priority Voucher program.
•Neladalkib. In April 2026, Nuvalent announced the submission of an NDA to the FDA for neladalkib, an investigational anaplastic lymphoma kinase ("ALK")-selective inhibitor, for tyrosine kinase inhibitors pre-treated advanced ALK-positive non-small cell lung cancer.
•Litifilimab. In March 2026, Biogen reported positive Phase 2 results from the AMETHYST Phase 2/3 study (Part A) of litifilimab in cutaneous lupus erythematosus ("CLE"), demonstrating reductions in skin disease activity through week 24.
In January 2026, Biogen announced that the FDA granted Breakthrough Therapy Designation for litifilimab for the treatment of CLE.
•Ampreloxetine. In March 2026, Theravance Biopharma ("Theravance") reported that the Phase 3 CYPRESS study evaluating ampreloxetine in patients with symptomatic neurogenic orthostatic hypotension due to multiple system atrophy did not meet the primary endpoint. As a result, Theravance will wind down the ampreloxetine program.
•TEV-'749. In February 2026, Teva Pharmaceuticals announced that the FDA accepted the NDA for olanzapine extended-release injectable suspension (TEV-'749) for the treatment of schizophrenia in adults.
•Pelabresib. In January 2026, Novartis announced plans to submit a European Union regulatory filing for pelabresib in 2026, and that it would begin a new Phase 3 study in the United States, China and Japan.
•Obexelimab. In January 2026, Zenas BioPharma ("Zenas") announced positive results from the Phase 3 INDIGO trial of obexelimab in Immunoglobulin G4-related disease ("IgG4-RD"), which met the primary endpoint demonstrating a clinically meaningful and highly statistically significant reduction in risk of IgG4-RD flare. Zenas anticipates submitting a Biologics License Application in Q2 2026 and a Marketing Authorization Application to the European Medicines Agency in the second half of 2026.
Investments Overview
Ongoing investment in new royalties is fundamental to the long-term prospects of our business. New investments provide a source of growth for our Royalty Receipts, supplementing growth within our existing portfolio and offsetting declines for royalties on products that have lost market exclusivity. We evaluate an array of royalty acquisition opportunities on a continuous basis and expect to continue to make acquisitions in the ordinary course of our business. We have established a strong track record of identifying, evaluating and investing in royalties tied to leading products across therapeutic areas and treatment modalities. We invest in approved products and development-stage product candidates that have generated robust proof of concept data. We invest in these therapies through the purchase of royalties, milestones and other contractual receipts by making hybrid investments and by acquiring businesses with significant existing royalty assets or the potential for the creation of such assets.
During the first quarter of 2026, we invested $527.9 million in royalties, milestones and other contractual receipts. While volatility exists in the funding of new acquisitions on a year-to-year basis due to the unpredictable timing of new investment opportunities, we have consistently deployed significant amounts of cash when measured over multi-year periods. Our approach is rooted in a highly disciplined evaluation process that is not dictated by a minimum annual investment threshold.
Summary of Acquisition Activities
•In March 2026, we acquired a royalty interest in Denali Therapeutics' Avlayah upon FDA accelerated approval for $200 million. Avlayah is Denali's lead investigational Transport VehicleTM-enabled enzyme replacement therapy for the treatment of mucopolysaccharidosis type II ("MPS II, or Hunter syndrome"). We will make a $75 million payment upon European Medicines Agency approval if achieved by December 31, 2029.
•In March 2026, we entered into an R&D co-funding arrangement with Johnson & Johnson to provide $500 million over two years for the development of JNJ-4804, an investigational medicine for autoimmune diseases.
•In March 2026, we acquired a royalty interest in Ziihera from Zymeworks Inc. for $250 million. Ziihera, which is marketed by Jazz Pharmaceuticals and BeOne Medicines, is approved for HER2-positive metastatic biliary tract cancer and is in development for HER2-positive gastric cancer.
•In January 2026, we announced a funding agreement with Teva Pharmaceuticals for TEV-'408 for up to $500 million. The agreement includes up to $75 million to co-fund a Phase 2b study for vitiligo targeted for 2026. Based on the results of this study, we have the option to provide up to an additional $425 million to co-fund the Phase 3 development program.
Liquidity and Capital Resources
Overview
Our primary source of liquidity is cash provided by operations. For the first quarter of 2026 and 2025, we generated $718.2 million and $596.1 million, respectively, in Net cash provided by operating activities. We believe that our existing capital resources, cash provided by operating activities and access to our Revolving Credit Facility (as defined below) will continue to allow us to meet our operating and working capital requirements, to fund planned strategic acquisitions and R&D funding arrangements, and to meet our debt service obligations for the foreseeable future. We have historically operated at a low level of fixed operating costs. We no longer pay Management Fees following the Internalization, which comprised the majority of our cash G&A expenses historically. Our primary cash operating expenses, other than R&D funding commitments, include interest expense, employee personnel costs, rent expense and legal and professional fees.
We have access to substantial sources of funds in the capital markets and we may, from time to time, seek additional capital through a combination of additional debt or equity financings. As of March 31, 2026 and December 31, 2025, the par value of all of our outstanding borrowings was $9.2 billion, respectively. Additionally, we have up to $1.8 billion of available revolving commitments under our Revolving Credit Facility (as defined below) and up to $350.0 million of an uncommitted line of credit under our Uncommitted Credit Facility (as defined below). A summary of our borrowing activities, balances and compliance with certain debt covenants under various financing arrangements is included in Note 12-Borrowings of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We have historically funded our investments through operating cash flows, equity contributions and debt. Our low operating costs coupled with a lack of capital expenditures and low taxes have contributed to our strong financial profile, resulting in high operating leverage and high cash flow conversion. We expect to continue funding our current and planned operating costs (excluding acquisitions) principally through our cash flow from operations and investments through cash flow and issuances of equity and debt. We have supplemented our available cash and cash equivalents on hand with attractive debt capital to fund certain strategic acquisitions.
Our ability to satisfy our working capital needs, debt service and other obligations, and to comply with the financial covenants under our financing agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.
Cash Flows
The following table and analysis of cash flow changes presents a summary of our cash flow activities (in thousands):
| For the Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
|
Cash provided by/(used in):
|
|||||||||||||||||
| Operating activities | $ | 718,233 | $ | 596,076 | $ | 122,157 | |||||||||||
| Investing activities | (477,865) | 503,917 | (981,782) | ||||||||||||||
| Financing activities | (272,669) | (941,299) | 668,630 | ||||||||||||||
Analysis of Cash Flow Changes
Operating Activities
Cash provided by operating activities increased by $122.2 million in the first quarter of 2026 as compared to the first quarter of 2025, primarily due to increase in cash collections from financial royalty assets and decrease in payments for operating and professional costs as a result of the Internalization, partially offset by higher interest payments.
Investing Activities
Cash used in investing activities in the first quarter of 2026 was $477.9 million as compared to cash provided by investing activities of $503.9 million in the first quarter of 2025. In the first quarter of 2026, cash used in investing activities was primarily driven by cash used for acquisitions of financial royalty assets. In the first quarter of 2025, cash provided by investing activities was primarily driven by the sale of the MorphoSys Development Funding Bonds.
Financing Activities
Cash used in financing activities decreased by $668.6 million in first quarter of 2026 as compared to the first quarter of 2025, primarily driven by decreases in repurchases of our Class A ordinary shares.
Sources of Capital
As of March 31, 2026 and December 31, 2025, our cash and cash equivalents totaled $586.4 million and $618.7 million, respectively. We intend to fund short-term and long-term financial obligations as they mature through cash and cash equivalents, future cash flows from operations or the issuance of additional debt. Our ability to generate cash flows from operations, issue debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the sales of the underlying pharmaceutical products in which we hold royalties, deterioration in our key financial ratios or credit ratings, or other material unfavorable changes in business conditions. Currently, we believe that we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives.
Borrowings
Our borrowings consisted of the following (in thousands):
|
Type of Borrowing
|
Date of Issuance | Maturity | As of March 31, 2026 | As of December 31, 2025 | ||||||||||||||||||||||
| Senior Unsecured Notes: | ||||||||||||||||||||||||||
| $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 | 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, 4.45% (issued at 98.909% of par) | 9/2025 | 3/2031 | 600,000 | 600,000 | ||||||||||||||||||||||
| $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 | 500,000 | ||||||||||||||||||||||
| $900,000, 5.20% (issued at 97.989% of par) | 9/2025 | 9/2035 | 900,000 | 900,000 | ||||||||||||||||||||||
| $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 | 500,000 | ||||||||||||||||||||||
| $500,000, 5.95% (issued at 95.824% of par) | 9/2025 | 9/2055 | 500,000 | 500,000 | ||||||||||||||||||||||
| Term Loan | See below | 7/2026 | 380,000 | 380,000 | ||||||||||||||||||||||
| Total senior unsecured debt | 9,180,000 | 9,180,000 | ||||||||||||||||||||||||
| Unamortized debt discount and issuance costs | (223,557) | (229,083) | ||||||||||||||||||||||||
| Total debt carrying value | 8,956,443 | 8,950,917 | ||||||||||||||||||||||||
| Less: Current portion of long-term debt | (380,000) | (380,000) | ||||||||||||||||||||||||
| Total long-term debt | $ | 8,576,443 | $ | 8,570,917 | ||||||||||||||||||||||
Senior Unsecured Notes
As of March 31, 2026, our total principal amount of senior unsecured notes outstanding was $8.8 billion (the "Notes") with a weighted average coupon rate of 3.75%. The Notes require semi-annual interest payments. Indentures governing the Notes contain certain covenants with which we were in compliance as of March 31, 2026.
Term Loan assumed from Internalization
In connection with the Internalization, RP Holdings and RP Manager were each joined as a borrower under RPM's then existing $380 million term loan (the "Term Loan") with Bank of America, N.A (as amended, the "Loan Agreement"). Pablo Legorreta, Legorreta Investments, LLC and Legorreta Investments II LLC are guarantors under the Term Loan. Upon the closing of the Internalization, RPM was released as a borrower under the Term Loan. In the third quarter of 2025, the Loan Agreement was amended to accelerate the maturity of the Term Loan to July 31, 2026 and decrease the applicable interest rate. Following the amendment, the Term Loan is subject to an interest rate, at our option, of either (i) the Daily SOFR plus 1.25% or (ii) Term SOFR plus 1.25%, each as defined in the Loan Agreement. Interest is payable in arrears quarterly. We made the first interest payment in the third quarter of 2025. The Term Loan is subject to certain customary covenants, that among other things, require us to maintain (i) a Consolidated Leverage Ratio, (ii) a Consolidated Coverage Ratio, and (iii) a Consolidated Portfolio Cash Flow Ratio, each as described further below under the description of the Credit Agreement that governs the Revolving Credit Facility.
Uncommitted Credit Facility
In August 2025, we entered into an uncommitted line of credit agreement with Société Générale (the "Uncommitted Credit Facility") which provides for an aggregate borrowing capacity of up to $350.0 million for general corporate purposes within a quarter. As of March 31, 2026, there were no outstanding borrowings under the Uncommitted Credit Facility.
Senior Unsecured Revolving Credit Facility
Our subsidiary, RP Holdings, as borrower, initially entered into 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 and April 8, 2025, we entered into Amendments No. 4 and 5, respectively, to the Credit Agreement to make certain technical modifications. As of March 31, 2026, we have a borrowing capacity of $1.8 billion under the Revolving Credit Facility.
The Credit Agreement that governs the Revolving Credit Facility and the amended loan agreement that governs the Term Loan contain 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. We were in compliance with the financial covenants as of March 31, 2026.
Adjusted EBITDA and Portfolio Cash Flow are non-GAAP liquidity measures that are key components of certain material covenants contained within the Credit Agreement. Noncompliance with the financial covenants under the Credit Agreement could result in our lenders requiring us to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited under our Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments and acquiring and disposing of assets.
The table below presents Adjusted EBITDA and Portfolio Cash Flow, each as calculated according to its respective definition in our Credit Agreement (in thousands):
| For the Three Months Ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Portfolio Receipts | $ | 925,362 | $ | 839,292 | ||||||||||
|
Payments for operating and professional costs(1)
|
(36,251) | (101,696) | ||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 889,111 | $ | 737,596 | ||||||||||
|
Interest paid, net
|
(167,029) | (126,797) | ||||||||||||
| Portfolio Cash Flow (non-GAAP) | $ | 722,082 | $ | 610,799 | ||||||||||
(1)In the first quarter of 2025, amount included a $33 million payment related to the Management Fees on the sale of the MorphoSys Development Funding Bonds.
Adjusted EBITDA and Portfolio Cash Flow are non-GAAP liquidity measures that exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. We caution readers that amounts presented in accordance with our definitions of Adjusted EBITDA and Portfolio Cash Flow may not be the same as similar measures used by other companies or analysts. A reconciliation of Adjusted EBITDA and Portfolio Cash Flow to Net cash provided by operating activities, the closest GAAP measure, is presented below (in thousands):
| For the Three Months Ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Net cash provided by operating activities (GAAP) | $ | 718,233 | $ | 596,076 | ||||||||||
| Adjustments: | ||||||||||||||
|
Proceeds from available for sale debt securities(1), (2)
|
4,320 | 12,586 | ||||||||||||
|
Distributions from equity method investees(2)
|
42,306 | 36,262 | ||||||||||||
|
Interest paid, net(2)
|
167,029 | 126,797 | ||||||||||||
|
Development-stage funding payments
|
25,500 | 50,500 | ||||||||||||
|
Distributions to legacy non-controlling interests - Portfolio Receipts(2)
|
(77,973) | (84,625) | ||||||||||||
| Payments for Employee EPAs | 9,696 | - | ||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 889,111 | $ | 737,596 | ||||||||||
|
Interest paid, net(2)
|
(167,029) | (126,797) | ||||||||||||
|
Portfolio Cash Flow (non-GAAP)
|
$ | 722,082 | $ | 610,799 | ||||||||||
(1)Amounts include quarterly repayments on the Cytokinetics Commercial Launch Funding and a quarterly repayment on the MorphoSys Development Funding Bonds before they were sold in January 2025.
(2)The table below shows the line item for each adjustment and the direct location for such line item in the condensed consolidated statements of cash flows.
| Reconciling Adjustment | Statements of Cash Flows Classification | ||||
|
Interest paid, net
|
Operating activities (Interest paid less Interest received)
|
||||
| Distributions from equity method investees | Investing activities | ||||
| Proceeds from available for sale debt securities | Investing activities | ||||
|
Distributions to legacy non-controlling interests - Portfolio Receipts
|
Financing activities | ||||
Uses of Capital
Acquisitions of Royalties
We acquire product royalties in ways that can be tailored to the needs of our partners through a variety of structures:
•Third-party Royalties - Existing royalties on approved or late-stage development therapies. A royalty is the contractual right to a percentage of top-line sales from a licensee's use of a product, technology or intellectual property. The majority of our current portfolio consists of third-party royalties.
•Synthetic Royalties - Newly-created royalties on approved or late-stage development therapies with strong proof of concept. A synthetic royalty is the contractual right to a percentage of top-line sales by the developer or marketer of a therapy in exchange for funding.
•Other Funding Modalities - We may provide other forms of capital to our partners as a component within a royalty transaction, to increase the scale of our capital. This may include debt, direct equity investments and launch and development capital (in exchange for fixed long-term payments).
Additionally, we may identify additional opportunities, platforms or technologies that leverage our capabilities.
Distributions to Shareholders
We paid dividends and distributions of $135.7 million and $127.5 million in the first quarter of 2026 and 2025, respectively. We do not have a legal obligation to pay a quarterly dividend or dividends at any specified rate or at all.
Class A Ordinary Share Repurchases
In January 2025, our board of directors authorized a share repurchase program under which we may repurchase up to $3.0 billion of our Class A ordinary shares. The repurchases may be made in the open market or in privately negotiated transactions. The share repurchase program has been approved by our board of directors through June 2027 and shareholders have approved the terms of our share repurchase contracts and counterparties thereto through May 2030. In the first quarter of 2026, we repurchased 1.1 million shares at a cost of approximately $50.1 million. As of March 31, 2026, approximately $1.7 billion remained available under the share repurchase program.
Other Funding Arrangements
In March 2026, we entered into an R&D funding arrangement with Johnson & Johnson to provide $500 million in eight fixed quarterly payments commencing in the second quarter of 2026, for the development of JNJ-4804. As of March 31, 2026, $500 million of the commitment remained unfunded.
In June 2025, we entered into a $2 billion funding arrangement with Revolution Medicines, consisting of a synthetic royalty of up to $1.25 billion on daraxonrasib in five $250 million tranches, of which the first tranche was funded upfront, and a senior secured term loan of up to $750 million. As of March 31, 2026, $1.75 billion of the funding commitment remained unfunded. Following Revolution Medicines' announcement in April 2026 of positive Phase 3 results from its RASolute 302 trial of daraxonrasib, we funded the required second royalty tranche of $250 million on May 4, 2026.
We have a long-term funding arrangement with Cytokinetics which is comprised of seven tranches of up to $525 million in total funding ("Cytokinetics Commercial Launch Funding"). As of March 31, 2026, $175 million remained available under the Cytokinetics Commercial Launch Funding.
We may have other funding arrangements where we are contractually obligated to fund R&D activities performed by our development partners. We also have funding arrangements related to our equity method investments in the Avillion Entities. As our committed capital requirements are based on phases of development, the completion of which is highly uncertain, only the capital required to fund the current stage of development under such funding arrangements is considered committed capital, which was approximately $112.3 million as of March 31, 2026.
We also have certain milestones payable to our counterparties that are contingent on the successful achievement of certain development, regulatory approval or commercial milestones. These contingent milestone payments are not considered contractual obligations. We paid sales-based milestones of $50 million related to Trelegy in each of the first quarter of 2026 and 2025.
Guarantor Financial Information
Our obligations under the Notes are fully and unconditionally guaranteed by RP Holdings and RP Manager, our non-wholly owned subsidiaries (together, the "Guarantor Subsidiaries"). Our remaining subsidiaries (the "Non-Guarantor Subsidiaries") do not guarantee the Notes.
Under the terms of the indenture governing the Notes, Royalty Pharma plc and the Guarantor Subsidiaries each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on the Notes. As of March 31, 2026, the total outstanding and guaranteed Notes had a par value and carrying value was $8.8 billion and $8.6 billion, respectively.
The following financial information presents summarized combined balance sheet information as of March 31, 2026 and December 31, 2025 and summarized combined statement of operations information for the first quarter of 2026 for Royalty Pharma plc, RP Holdings and RP Manager. All intercompany balances and transactions between these entities are eliminated in the presentation of the combined financial statements. RP Holdings' most significant asset is its investment in operating subsidiaries, which has been eliminated in the table below to exclude investments in Non-Guarantor Subsidiaries. Our operating subsidiaries hold the majority of our cash and cash equivalents, marketable securities and financial royalty assets. As a result, our ability to make required payments on the Notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on distributions from the operating subsidiaries. Amounts presented below do not represent our total consolidated amounts (in thousands):
| Summarized Combined Balance Sheets | |||||||||||
| As of March 31, 2026 | As of December 31, 2025 | ||||||||||
| Current assets | $ | 29,700 | $ | 27,054 | |||||||
| Current interest receivable on intercompany notes due from Non-Guarantor Subsidiaries | 22,322 | 26,932 | |||||||||
| Non-current assets | 926,293 | 926,732 | |||||||||
| Non-current intercompany notes receivable due from Non-Guarantor Subsidiaries | 2,989,747 | 3,011,820 | |||||||||
| Current liabilities | 435,285 | 515,312 | |||||||||
| Current interest payable on intercompany notes due to Non-Guarantor Subsidiaries | 4,525 | 26,932 | |||||||||
| Non-current liabilities | 9,224,234 | 9,147,894 | |||||||||
| Non-current intercompany notes payable due to Non-Guarantor Subsidiaries | 1,974,268 | 2,208,840 | |||||||||
| Summarized Combined Statement of Operations | For the Three Months Ended March 31, 2026 | ||||
| Interest income on intercompany notes receivable due from Non-Guarantor Subsidiaries | $ | 39,068 | |||
| Other intercompany income from Non-Guarantor Subsidiaries | 25,743 | ||||
| Other income | 222 | ||||
| Interest expense on intercompany notes due to Non-Guarantor Subsidiaries | 21,272 | ||||
| Other intercompany operating expenses with Non-Guarantor Subsidiaries | 19,889 | ||||
| Operating expenses | 226,497 | ||||
| Net loss | 202,625 | ||||
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Certain of these policies are considered critical as they have the most significant impact on our financial condition and results of operations and require the most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of income and expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our most critical accounting policies relate to our financial royalty assets. Similarly, the most significant judgments and estimates applied by management are associated with the measurement of our financial royalty assets at amortized cost using the prospective effective interest method. The application of the prospective approach to calculate interest income from our financial royalty assets requires management's judgment in forecasting the expected future cash flows of the underlying royalties. There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K.
Royalty Pharma plc published this content on May 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 06, 2026 at 13:06 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]