Royalty Pharma : Q2 2024 Pre-Quarterly Results Communication

PRE-QUARTERLY RESULTS COMMUNICATION

NEW YORK, NY, June 27, 2024 - Royalty Pharma plc (Nasdaq: RPRX) intends to announce its financial results for the second quarter of 2024 on August 8, 2024. An invitation for the results webcast will follow shortly. To assist in the financial modeling of its second quarter of 2024 results, the company has compiled the following items.

Performance Metrics and Non-GAAP Liquidity Measures

Portfolio Receipts is a key performance metric that represents Royalty Pharma's ability to generate cash from its portfolio investments, the primary source of capital that Royalty Pharma can deploy to make new portfolio investments. Portfolio Receipts includes Royalty Receipts and milestones and other contractual receipts.

Royalty Pharma focuses on certain non-GAAP liquidity measures that represent sources of capital that are critical for investors to understand its business. These measures, which are presented as supplemental measures to GAAP financial information, include Adjusted EBITDA and Portfolio Cash Flow.

Royalty Pharma believes these non-GAAP liquidity measures provide meaningful information on the company's ability to successfully operate the business by generating capital to fund investments in royalty-generating assets, debt repayments, dividends and other discretionary investments. In addition, non-GAAP liquidity measures can help identify underlying trends in the business and facilitate a better understanding of the performance of the company (see section 'Use of Non-GAAP Measures').

Please refer to our fourth quarter 2023 financial results presentation (link here) and earnings press release (link here) for details on the updates to our non-GAAP liquidity measures announced on February 15, 2024.

Prior-period results, details on selected royalty terms, as well as consensus sales estimates associated with selected royalties are available for download on the Quarterly Results page of the company's website under Supplemental Financial Information (link here).

Second Quarter 2023 Portfolio Receipts

Table 1 provides historical Portfolio Receipts for the second quarter of 2023, which will form the basis for comparison to second quarter of 2024 Portfolio Receipts. For reference, the Portfolio Receipts for the first quarter of 2024 is also included.

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Table 1 - Portfolio Receipts Highlights (unaudited)

($ in millions)

Second Quarter 2023First Quarter 2024

Products:

Cystic fibrosis franchise	170		218
Trelegy	37		71
Tysabri	70		69
Imbruvica	52		50
Evrysdi	13		45
Promacta	32		43
Xtandi	33		41
Tremfya	22		36
Cabometyx/Cometriq	15		18
Trodelvy	8		10
Erleada	5		9
Orladeyo	7		9
Spinraza	13		7
Nurtec ODT/Zavzpret	4		6
Other products(5)	65		73
Royalty Receipts	545		705
Milestones and other contractual receipts		-	12
	Portfolio Receipts			545			717

Amounts may not add due to rounding. For footnote references, see 'Notes' on page 10.

Portfolio Receipts

As communicated on the company's first quarter of 2024 financial results call, Royalty Pharma anticipates Portfolio Receipts to grow in the high single digits in the second quarter of 2024, compared to the second quarter of 2023.

Portfolio Receipts is defined as the sum of Royalty Receipts and Milestones and other contractual receipts. Royalty Receipts includes variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that are attributed to Royalty Pharma. Milestones and other contractual receipts include sales-based or regulatory milestones payments and other fixed contractual receipts, net of contractual payments to the legacy non-controlling interests, that are attributed to Royalty Pharma.

• Royalty Receipts generally lags product performance by one quarter. Royalty Receipts can be estimated by applying the company's publicly disclosed royalty rates to the preceding quarter's marketer-announced net sales on a product-by-product basis and applying the percent attributable to Royalty Pharma (i.e. royalty net of the legacy non-controlling interests). For example, the Royalty Receipts on Trodelvy received by Royalty Pharma in the second quarter of 2024 reflected worldwide net sales of the product in the first quarter of 2024 ($309 million based on reported results from Gilead), the disclosed royalty rate on annual worldwide net sales and the 82.4% attributable to Royalty Pharma. Tables 2 and 3 include reported net sales performance of selected approved products in the first quarter of 2024 and the royalty terms, where disclosed.

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• In instances where royalty rates are tiered, they typically reset at the beginning of the year and lower rates may apply in the earlier quarters of the year until pre-specified sales thresholds have been reached. As a result, royalty rates for certain products or franchises (such as the cystic fibrosis franchise and Promacta) have the potential to increase during the calendar year, with second quarter Royalty Receipts (reflecting first quarter sales) often including royalties on sales at the lowest royalty tier and first quarter Royalty Receipts (reflecting fourth quarter sales) often including royalties on sales at the highest royalty tier.
• Additionally, whereas the majority of our royalties are paid quarterly, royalties on certain products are paid annually or semi-annually, which may affect the sequential growth of quarterly Portfolio Receipts. For example, the Entyvio and Soliqua royalties, which are recorded in Other products, are generally paid in the first and third quarters of the year.

In June 2024, Royalty Pharma announced that PTC Therapeutics, Inc. had exercised an option to sell half of its retained royalties on Roche's Evrysdi to Royalty Pharma for approximately $242 million upfront. Royalty Pharma will receive the increased royalty beginning in the third quarter of 2024 in respect of second quarter 2024 sales.

Third party data indicates that generic versions of Lexiscan were launched in March of 2023, which impacted Royalty Pharma's results beginning in the third quarter of 2023. Royalty Receipts on Lexiscan amounted to $26 million and $47 million in 2023 and 2022, respectively, and are included in Other products.

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Table 2 - Net Sales Performance of Selected Approved Products - First Quarter 2024 (unaudited)

($ in millions)

Marketers

Revenues

First Quarter 2024

% Change Year/Year

Products

Cystic fibrosis franchise	Vertex	2,691	13
Trelegy(1)	GSK	749	33
Tysabri	Biogen	431	(9)
Imbruvica(2)	AbbVie, Johnson & Johnson	1,128	(6)
Evrysdi(3)	Roche	407	7
Promacta	Novartis	520	(5)
Xtandi(3)	Pfizer, Astellas	1,284	28
Tremfya	Johnson & Johnson	808	26
Cabometyx/Cometriq(4)	Exelixis, Ipsen, Takeda	560	8
Trodelvy	Gilead	309	39
Erleada	Johnson & Johnson	689	27
Orladeyo	BioCryst	89	30
Spinraza	Biogen	341	(23)
Nurtec ODT/Vydura	Pfizer	178	7
Notes:

1. Trelegy revenues represent sales in U.S. dollars as reported by GSK. Trelegy growth rate represents year-over-year growth as reported by GSK in British pounds.
2. Sales for Imbruvica include U.S. revenues reported by AbbVie and ex-U.S. revenues reported by Johnson & Johnson.
3. Sales for Evrysdi and Xtandi reported in foreign currency by the respective marketers are translated to U.S. dollars at the average exchange rates for each quarter. Growth rates represent year-over-year growth as reported by each marketer.
4. Sales for Cabometyx/Cometriq include revenues reported by Exelixis in U.S. dollars, revenues reported by Ipsen in Euro and revenues reported by Takeda in Japanese yen. Sales reported in foreign currency are translated to U.S. dollars at the average exchange rates for each quarter.

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Table 3 - Public Disclosures of Royalty Terms of Selected Approved Products

	Products			Estimated Royalty		Royalty Rates(2)			2023 % Attributable
			Duration(1)				to Royalty Pharma(3)
Cystic fibrosis franchise(4)	2037		Blended royalty of slightly over 9%	86.0%
Tysabri		Perpetual	Tiered payments of 18% on first $2 billion and	82.4%
						25% on sales >$2 billion
Imbruvica	2027-2032		Downward tiered mid-single digit royalty	82.4%
Trelegy(5)	2029-2030		Tiered royalty of 6.5% on first $750 million, up to	100.0%
						10% on sales >$2.25 billion
Promacta	2025-2028		Upward tiered 4.7% to 9.4% royalty	82.4%
Xtandi	2027-2028		Slightly less than 4% royalty	82.4%
Tremfya	2031-2032		Upward tiered mid-single digit royalty	100.0%
Evrysdi(6)	2035-2036		Tiered royalty of 6.5% on first $500 million, up to	100.0%
						13% on sales >$2 billion
Cabometyx/Cometriq(7)	2026-2029		3% royalty	100.0%
Spinraza(8)	2030-2035		Upward tiered 2.8% to 3.8% royalty, increasing to	100.0%
						5% to 6.8% in 2028
Trodelvy		Perpetual	Tiered royalty of 4.15% on first $2 billion, down to	82.4%
						1.75% on sales >$6 billion
Orladeyo(9)	2036-2039		Tiered royalty of 9.5% on first $350 million and	100.0%
						4.5% on sales up to $550 million
Erleada	2032		Low-single digit royalty	84.6%
Nurtec ODT/Zavzpret	2034-2036		Tiered royalty of ~2.5% on first $1.5 billion and	85.2%
						~1.9% on sales >$1.5 billion

Notes:

1. Durations shown represent our estimates, as of December 31, 2023, of when a royalty will substantially end, which may vary by geography and may depend on clinical trial results, regulatory approvals (including the timing of such approvals), contractual terms, commercial developments, estimates of regulatory exclusivity and patent expiration dates (which may include estimated patent term extensions) or other factors. There can be no assurances that our royalties will expire when estimated.
2. The royalties in our portfolio are subject to the underlying contractual agreements from which they arise and may be subject to reductions or other adjustments in accordance with the terms of such agreements. Royalty rates apply to annual worldwide net sales unless otherwise stated.
3. Ownership percentages for cystic fibrosis franchise, Erleada and Nurtec ODT/Zavzpret represent blended percentages across multiple royalty interests based on 2023 Royalty Receipts.
4. Royalty is perpetual; year shown represents Trikafta's expected patent expiration and potential sales decline based on timing of potential generic entry. For combination therapies, sales are allocated equally to each of the active pharmaceutical ingredients, with tiered royalties ranging from single digit to subteen percentages on sales of ivacaftor, lumacaftor and tezacaftor, and mid-single digit percentages on sales of elexacaftor.
5. We will pay Theravance Biopharma, Inc. 85% of the royalties in respect of ex-U.S. sales after June 30, 2029 and 85% of the royalties in respect of U.S. sales after December 31, 2030. Royalties are tiered based on sales at 6.5% up to $750 million, 8% between $750 million and $1.25 billion, 9% between $1.25 billion and $2.25 billion, and 10% over $2.25 billion.
6. Royalties are tiered based on sales at 6.5% up to $500 million, 8.9% between $500 million and $1 billion, 11.3% between $1 billion and $2 billion, and 13% over $2 billion. Our royalty rates are expected to be reduced by 18% in the early 2030s. Royalty entitlement does not reflect either PTC or Royalty Pharma exercising option to sell/purchase additional Evrysdi royalties. Beginning in the third quarter of 2024, royalty entitlement will increase to 7.2% to 14.5% to reflect PTC Therapeutics' exercising its option to sell half of its retained royalties on Evrysdi to Royalty Pharma.
7. We are entitled to royalties on sales of cabozantinib products in the U.S. through September 2026 and non-U.S. markets through the full term of the royalty.
8. Our royalty interest in Spinraza will revert to Ionis after we receive aggregate Spinraza royalties equal to $475 million or $550 million, depending on the timing and occurrence of certain events. We are entitled to 25% of Ionis' Spinraza royalty payments of 11% to 15% on sales up to $1.5 billion through 2027, increasing to 45% of royalty payments on sales up to $1.5 billion in 2028.
9. Royalty is perpetual; years shown represent estimated U.S. patent expiration for Orladeyo and potential sales decline based on timing of generic entry. We are also entitled to a tiered percentage of sublicense revenue for Orladeyo in certain territories.

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Liquidity and Capital Resources

As of March 31, 2024, Royalty Pharma had cash and cash equivalents of $843 million and total debt with principal value of $6.3 billion.

In June 2024, Royalty Pharma announced that PTC Therapeutics, Inc. had exercised an option to sell half of its retained royalties on Roche's Evrysdi to Royalty Pharma for approximately $242 million upfront. This option was agreed upon in the Evrysdi royalty transaction with PTC announced in October 2023 (press release). PTC retains an option to sell up to all of its retained royalties on Evrysdi to Royalty Pharma for up to $250 million less royalties received.

In June 2024, Royalty Pharma closed an offering of $1.5 billion of senior unsecured notes ("Notes") comprised of $500 million of 5.15% Notes due 2029, $500 million of 5.40% Notes due 2034 and $500 million of 5.90% Notes due 2054. The Notes bear interest that is payable in the first and third quarters of each year, with the first interest payment due in the first quarter of 2025. Following the completion of the offering, Royalty Pharma has total debt with principal value of $7.8 billion with a weighted average coupon of approximately 3.1% and a weighted average duration of approximately 13 years.

In May 2024, Royalty Pharma announced that it will acquire an interest in Agios Pharmaceuticals' royalty on Servier's vorasidenib for an upfront payment of $905 million contingent upon U.S. Food and Drug Administration approval of vorasidenib. Vorasidenib is being evaluated in Phase 3 clinical studies and, if approved, would be the first targeted therapy in IDH-mutant glioma, a progressive and incurable brain tumor. Vorasidenib has a Prescription Drug User Fee Act date of August 20, 2024.

In May 2024, Royalty Pharma announced an expanded strategic funding agreement with Cytokinetics totaling up to $575 million to support the commercial launch of aficamten and to advance their R&D pipeline. The transaction included funding for planned commercialization, development funding, royalty restructuring and revenue sharing, and the purchase of Cytokinetics' equity, together, providing Cytokinetics $250 million in upfront capital.

In May 2024, Royalty Pharma acquired royalties and milestones on frexalimab, which is owned by ImmuNext Inc., for approximately $525 million including estimated transaction costs. Frexalimab is being evaluated in Phase 3 clinical studies for the treatment of multiple sclerosis and is in Phase 2 clinical studies for systemic lupus erythematosus and Type 1 Diabetes.

Table 4 - Liquidity Summary (unaudited)

($ in millions)	Second Quarter 2023	First Quarter 2024
Portfolio Receipts	545	717
Payments for operating and professional costs	(47)	(61)
Adjusted EBITDA (non-GAAP)	498	656
Interest received/(paid), net	18	(73)
Portfolio Cash Flow (non-GAAP)	516	584

Amounts may not add due to rounding.

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Adjusted EBITDA and Portfolio Cash Flow are supplemental non-GAAP liquidity measures that are key components of certain material covenants contained in Royalty Pharma's credit agreement. Table 4 provides a summary of the non-GAAP liquidity measures and Table 5 provides a reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure which is net cash provided by operating activities.

• Adjusted EBITDA is calculated in accordance with the credit agreement as Portfolio Receipts minus payments for operating and professional costs. In the second quarter of 2023, payments for operating and professional costs were $47 million (which represented 9% of Portfolio Receipts).
• Portfolio Cash Flow is calculated in accordance with the credit agreement as Adjusted EBITDA minus interest paid or received, net. This measure reflects the cash generated by Royalty
  Pharma's business that can be redeployed into value-enhancing royalty acquisitions, used to repay debt, returned to shareholders through dividends or share purchases or utilized for other discretionary investments.
• Net interest paid reflects the weighted average cost of borrowings on the company's senior unsecured notes. Based on the semi-annual interest payment schedule of Royalty Pharma's outstanding notes, interest paid was $79 million in the first quarter and is anticipated to be approximately $79 million in the third quarter of 2024, with a de minimis amount recorded in the second and fourth quarters of 2024, assuming no additional debt financing in the remainder of 2024, including no drawdown on the revolving credit facility. In the first quarter of 2024, Royalty Pharma received $6 million on its cash and cash equivalents, which partially offset interest paid.

Royalty Pharma began repurchasing its Class A ordinary shares in April 2023 under a $1.0 billion multi-year share repurchase program. The weighted-average diluted Class A ordinary shares outstanding for the first quarter of 2024 was approximately 597 million as compared to approximately 607 million for the first quarter of 2023.

Table 5 - GAAP to Non-GAAP Reconciliation (unaudited)

($ in millions)

Second Quarter 2023

First Quarter 2024

Net cash provided by operating activities (GAAP)	608	665
Adjustments:
Proceeds from available for sale debt securities(6)	-	1
Distributions from equity method investees(6)	-	5
Interest (received)/paid, net(6)	(18)	73
Development-stage funding payments - ongoing	1	1
Distributions to legacy non-controlling interests - Portfolio Receipts(6)	(92)	(88)
Adjusted EBITDA (non-GAAP)	498	656
Interest received/(paid), net(6)	18	(73)
Portfolio Cash Flow (non-GAAP)	516	584

Amounts may not add due to rounding. For footnote references, see 'Notes' on page 10.

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Royalty Pharma announced new transactions of up to approximately $2.0 billion in the second quarter 2024, which include upfront payments and potential future milestones. Royalty Pharma is also providing an aggregate amount for Capital Deployment, which reflects cash payments during the period for new and previously announced transactions. Capital Deployment was $93 million in the first quarter of 2024, consisting primarily of the $49 million upfront payment for ecopipam and $36 million in R&D funding support for TEV-'749. See Table 6 for Capital Deployment by category for the second quarter of 2023 and first quarter of 2024.

In the second quarter of 2024, Royalty Pharma made a $50 million milestone payment to Arrowhead Pharmaceuticals related to olpasiran. Additionally, Royalty Pharma acquired royalties and milestones on frexalimab, which is owned by ImmuNext Inc., for approximately $525 million, including estimated transaction costs. Royalty Pharma also provided funding of $200 million upfront to Cytokinetics to support the company's further maturation and corporate development (this figure excludes the purchase of $50 million of Cytokinetics' equity, as equity is excluded from Royalty Pharma's calculation of Capital Deployment). Furthermore, PTC Therapeutics, Inc. exercised an option to sell half of its retained royalties on Roche's Evrysdi to Royalty Pharma for approximately $242 million upfront.

Table 6 - Capital Deployment Details (unaudited)

($ in millions)

Second Quarter 2023

First Quarter 2024

Acquisitions of financial royalty assets	(60)	(86)
Development-stage funding payments - ongoing	(1)	(1)
Investments in equity method investees	(3)	(7)
Contributions from legacy non-controlling interests - R&D	0	0
Capital Deployment	(64)	(93)

Amounts may not add due to rounding.

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Portfolio Receipts

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 is defined as the sum of Royalty Receipts and Milestones and other contractual receipts. Royalty Receipts includes variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that are attributed to Royalty Pharma.

Milestones and other contractual receipts include sales-based or regulatory milestone payments and other fixed contractual receipts, net of contractual payments to legacy non-controlling interests, that are attributed to Royalty Pharma. Portfolio Receipts does not include proceeds from equity securities or proceeds from purchases and sales of marketable securities, neither of which are central to our fundamental business strategy.

Portfolio Receipts is calculated as the sum of the following line items from our GAAP 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-controllinginterests - Portfolio Receipts, which represent contractual distributions of Royalty Receipts, milestones and other contractual receipts to RPSFT and the Legacy Investors Partnerships.

Use of Non-GAAP Measures

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. Management believes that Adjusted EBITDA and Portfolio Cash Flow are important non-GAAP measures used to analyze liquidity because they are key components of certain material covenants contained within Royalty Pharma's credit agreement. Royalty Pharma cautions readers that amounts presented in accordance with the definitions of Adjusted EBITDA and Portfolio Cash Flow may not be the same as similar measures used by other companies or analysts. These non-GAAP liquidity measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for the analysis of Royalty Pharma's results as reported under GAAP.

The definitions of Adjusted EBITDA and Portfolio Cash Flow used by Royalty Pharma are the same as the definitions in the credit agreement. Noncompliance with the interest coverage ratio, leverage ratio and Portfolio Cash Flow ratio covenants under the credit agreement could result in lenders requiring the company to immediately repay all amounts borrowed. If Royalty Pharma cannot satisfy these covenants, it would be prohibited under the credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA and Portfolio Cash Flow are critical to the assessment of Royalty Pharma's liquidity.

Adjusted EBITDA and Portfolio Cash Flow are used by management as key liquidity measures in the evaluation of the company's ability to generate cash from operations. Management uses Adjusted EBITDA and Portfolio Cash Flow when considering available cash, including for decision-making purposes related to funding of acquisitions, debt repayments, dividends and other discretionary investments. Further, these non-GAAP liquidity measures help management, the audit committee and investors evaluate the company's ability to generate liquidity from operating activities.

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The company has provided reconciliations of these non-GAAP liquidity measures to the most directly comparable GAAP financial measure, being net cash provided by operating activities in Table 5.

Notes

1. 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 is defined as the sum of Royalty Receipts and milestones and other contractual receipts. Royalty Receipts includes variable payments based on sales of products, net of contractual payments to the legacy non-controlling interests, that are attributed to Royalty Pharma ("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 Royalty Pharma. Portfolio Receipts does not include proceeds from equity securities or marketable securities, both of which are not central to our fundamental business strategy.

(2)

(3)

(4)

(5)

(6)

Portfolio Receipts is calculated as the sum of the following line items from our GAAP 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-controllinginterests - Portfolio Receipts, which represent contractual distributions of Royalty Receipts, and milestones and other contractual receipts to RPSFT and the Legacy Investors Partnerships.

Adjusted EBITDA is defined under the credit agreement as Portfolio Receipts minus payments for operating and professional costs. Operating and professional costs reflect Payments for operating and professional costs from the GAAP statements of cash flows. See GAAP to Non-GAAP reconciliation in Table 5.

Portfolio Cash Flow is defined under the credit agreement as Adjusted EBITDA minus interest paid or received, net. See GAAP to Non-GAAP reconciliation in Table 5. Portfolio Cash Flow reflects the cash generated by Royalty Pharma's business that can be redeployed into value-enhancing royalty acquisitions, used to repay debt, returned to shareholders through dividends or share purchases or utilized for other discretionary investments.

Capital Deployment is calculated as the summation of the following line items from our GAAP statements of cash flows: Investments in equity method investees, Purchases of available for sale debt securities, Acquisitions of financial royalty assets, Acquisitions of other financial assets, Milestone payments, Development-stagefunding payments - ongoing, Development-stagefunding payments - upfront and milestone less Contributions from legacy non-controllinginterests - R&D.

Other products primarily include Royalty Receipts on the following products: Cimzia, Crysvita, Emgality, Entyvio, Farxiga/Onglyza, IDHIFA, Januvia, Janumet, Other DPP-IVs, Lexiscan, Nesina, Prevymis, Soliqua and distributions from the Legacy SLP Interest, which is presented as Distributions from equity method investees on the GAAP statements of cash flows.

The table below shows the line item for each adjustment and the direct location for such line item on the GAAP statements of cash flows.

Reconciling Adjustment

Statements of Cash Flows Classification

Interest (received)/paid, net	Operating activities (Interest received less Interest paid)
Distributions from equity method investees	Investing activities
Proceeds from available for sale debt securities	Investing activities
Distributions to legacy non-controlling interests - Portfolio	Financing activities
Receipts

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