Royalty Pharma : U.K. Companies Act Annual Report - 2024

Published: 2025-04-11 14:07:10 ET RPRX

Royalty Pharma plc

Company Registered Number 12446913

Annual Report and Financial Statements for the year ended December 31, 2024

INTRODUCTION

INTRODUCTION AND CONTENTS

Royalty Pharma plc (the "Company" or the "Parent Company") is a public limited company incorporated under the laws of England and Wales and is listed on The Nasdaq Global Select Market. The term "Group" refers to Royalty Pharma plc and its subsidiaries on a consolidated basis. RP Management, LLC (the "Manager") is an external advisor which provides the Company with all advisory and day-to-day management services. This section therefore covers the requirements for being a quoted company within the meaning of the Companies Act 2006, as follows:

COMPANY INFORMATION

Registered Office

The Pavilions,

Bridgwater Road,

Bristol, England,

BS13 8AE

Company Registered Number

12446913

Directors

Pablo Legorreta

Bonnie Bassler

Errol De Souza

Catherine Engelbert

Henry Fernandez

M. Germano Giuliani

- served through June 6, 2024

David Hodgson

Ted Love

Gregory Norden

Rory Riggs

- served through June 6, 2024

Company Secretary

Computershare Company Secretarial Services Limited

The Pavilions,

Bridgwater Road,

Bristol, England,

BS13 8AE

Independent Auditors

Ernst & Young Chartered Accountants

EY Building,

Harcourt Centre,

Harcourt Street,

Dublin 2

Ireland

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC

Opinion

In our opinion:

We have audited the financial statements of Royalty Pharma plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2024 which comprise:

Group

Parent company

Consolidated balance sheet as at 31 December 2024

Balance sheet as at 31 December 2024

Consolidated income statement for the year then ended

Statement of changes in equity for the

year then ended

Consolidated statement of changes in equity for the year then ended

Related notes 1 to 12 to the financial statements including a summary of significant accounting policies

Consolidated statement of cash flows for the year then ended

Related notes 1 to 18 to the financial statements, including a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland"] (United Kingdom Generally Accepted Accounting Practice). The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including United Kingdom Generally Accepted Accounting Practice.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group and parent company's ability to continue to adopt the going concern basis of accounting included

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's ability to continue as a going concern.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

Overview of our audit approach

Audit scope

• All audit work performed for the purposes of the audit was undertaken by

the Group audit team.

• We performed an audit of the complete financial information of the

subsidiaries.

• We performed an audit of the complete financial information of the

standalone parent company.

Key audit

• Group: Fair Valuation of financial assets and liabilities using the Monte Carlo

matters

Simulation method

• Parent: Recoverability of the investment in subsidiary undertaking

Materiality

• Overall group materiality of $233 million which represents 1.5% of

consolidated net assets.

An overview of the scope of the parent and group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group wide controls and changes in the business environment when assessing the level of work to be performed at each company.

All audit work performed for the purposes of the audit was undertaken by the Group audit team

Climate change

Stakeholders are increasingly interested in how climate change will impact Royalty Pharma plc. The Group has determined that the most significant future impacts from climate change on their operations could be the potential increased operating costs due to additional regulatory requirements and the risk of disruptions to the business. These are explained on page 21 in the UK Statutory Strategic Report, which form part of the "Other information," rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on "Other information".

In planning and performing our audit we assessed the potential impacts of climate change on the Group's business and any consequential material impact on its financial statements.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

The Group has explained in the Governmental Regulation and Environmental Matters note on page 21 how they have reflected the impact of climate change in their financial statements. This disclosure also explains where governmental and societal responses to climate change risks are still developing, these changes means that they cannot be taken into account when determining asset and liability valuations under the requirements of United Kingdom Generally Accepted Accounting Practice

Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management's assessment of the impact of climate risk and the significant judgements and estimates disclosed in the Governmental Regulation and Environmental Matters note and whether these have been appropriately reflected. As part of this evaluation, we performed our own risk assessment to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit.

We also challenged the Directors' considerations of climate change risks in their assessment of going concern and associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above.

Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

Risk

Our response to the risk

Key observations

communicated to the Audit

Committee

Fair Value of financial assets and

We obtained an understanding,

Our planned audit procedures were

liabilities, specifically the Financial

completed without material exception.

evaluated the design and tested the

Royalty Assets, Legacy SLP interests

operating effectiveness of controls

and Class C Special Interests, using

related to the valuation of financial

the Monte Carlo Simulation method

assets and liabilities and the related

income statement accounts. This

As disclosed in Note 4 to the

included testing controls over

consolidated financial statements, the

management's review of the significant

group's total financial royalty assets were

assumptions and other inputs used in

carried at $22,922,408 thousand (2023:

estimating the royalty duration and

$22,872,935 thousand), the groups

product growth rates.

Legacy SLP interests were carried at

To test the valuation of the financial

$253,000 thousand (2023: $272,000

assets and liabilities and the related

thousand) and the Class C Special

income statement accounts, our audit

Interest was carried at $884,000

procedures included, among others,

thousand (2023: $819,000 thousand) as

evaluating the methodology and

of 31 December 2024.

completeness and accuracy of the data

used to develop the key assumptions

Auditing the fair valuation of the financial

identified. For example, with the support

assets and liabilities and the related

of statistical modelling specialists, we

income statement accounts is complex

evaluated management's statistical

due to the high subjectivity and

methodology for sales growth forecasts

estimation uncertainty of the

and performed sensitivity analysis over

assumptions used by management to

the resulting forecasted product sales.

estimate the fair value using the Monte

We tested the inputs to the cashflows

Carlo Simulation model. The key

included in the model, principally

assumptions in the determination of the

comprising historic product sales and

expected cash flows used in the model,

third-party analyst estimates of nearer-

are estimates of product growth rates in

term sales amounts, by comparing to

the royalty life and royalty duration. The

analyst reports or published sales

other key unobservable inputs used in

information. For royalty duration, among

the Mote Carlo Simulation model include

other procedures, we compared

the WACC, volatility, operating leverage

management's assessment of the likely

and market price of risk. This area

date of expiry of the group's cash flows

requires the most significant level of

against original purchase agreements,

audit effort in terms of involvement from

as well as independently assessing the

the audit team executives and specialists

royalty duration against available

and the overall numbers of hours

published information sources, such as

allocated to the testing of the valuation of

those from regulatory bodies,

the financial assets and liabilities.

counterparties, and product marketers.

We assessed the historical accuracy of

management's estimates by comparing

expected cash flows to actual cash

receipts.

We engaged audit team members with

specialised valuation knowledge to gain

an understanding of the approach taken

by Management's valuation specialist

and to assess the appropriateness of

the methodology used, specifically the

Monte Carlo simulation method, and to

develop their own point estimate for the

financial assets and liabilities held at fair

value. This included testing of key inputs

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

Risk

Our response to the risk

Key observations communicated to the Audit Committee

such as the WACC, Volatility, Operating leverage and MPR. This was done by developing the input independently or through using alternative inputs. We also evaluated the related disclosures in the consolidated financial statements.

Parent: Recoverability of the

We obtained management's impairment

Our planned audit procedures were

investment in subsidiary undertaking

assessment and reviewed the

completed without material exception.

calculations.

The parent company's investment in its

With the support of valuation specialists,

subsidiary undertaking, Royalty Pharma

we assessed the inputs used to estimate

Holdings Ltd., was carried at

the recoverable amount and value in

$12,573,902 thousand (2023:

use calculations. Additionally, we

$12,547,565 thousand) as of 31

recomputed the impairment calculation

December 2024. Under FRS 102 the

investment is recorded at cost less

We also audited the financial statements

impairment. Refer to the summary of

of Royalty Pharma Holdings Ltd., and

significant accounting policies in Note 2

we considered the results of our work

and also to Note 4 of the parent

over its financial results and net assets

company financial statements.

The carrying amount of the parent company's investment in Royalty Pharma Holdings Ltd., together with the related impairment charge, represents substantially all of the parent company's net assets and total expenses as at 31 December 2024, respectively. The recoverability of this asset is not at a high risk of significant material misstatement or subject to significant judgment. However, due to its materiality in the context of the parent company's financial statements, this is considered to be the area that had the greatest effect on our overall audit of the parent company.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ROYALTY PHARMA PLC (continued)

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be $233 million, which is 1.5% of consolidated net assets. We considered Net Assets to be an appropriate basis for determining materiality in the current year as the majority of assets and liabilities are measured at fair value through profit or loss. The basis of materiality is in line with the expectation of users of these financial statements and the overall business environment.

We determined materiality for the Parent Company to be $190 million (2023: $125 million), which is

1.5% (2023: 1%) of net assets. The % used to measure materiality was changed to be consistent with group.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 50% of our planning materiality, namely $116.5 million. We have set performance materiality at this percentage to ensure that the risk of errors exceeding performance materiality was appropriately managed.

With respect to the parent company, on the basis of our risk assessments, together with our assessment of the parent company's overall control environment, our judgement was that performance materiality was 50% (2023: 50%) of our planning materiality, namely $95 million (2023: $62.5 million). We have set performance materiality at this percentage to ensure that the risk of errors exceeding performance materiality was appropriately managed.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $11.7 million, which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report as set out on pages 14- 47 other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Disclaimer

Royalty Pharma plc published this content on April 11, 2025, and is solely responsible for the information contained herein. Distributed via , unedited and unaltered, on April 11, 2025 at 18:06 UTC.