Royalty Pharma plc — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. Royalty Pharma acquires biopharmaceutical royalties and funds development, generally receiving payments tied to product sales. Its portfolio included royalties on more than 35 marketed products and 12 development-stage candidates.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total income and other revenues | $2.237 billion | $2.289 billion | Down 2.3% |
| Operating income | $307.1 million | $1.431 billion | Down 78.5% |
| Consolidated net income | $230.1 million | $1.241 billion | Down 81.5% |
| Net income attributable to Royalty Pharma plc | $42.8 million | $619.7 million | Down 93.1% |
| GAAP diluted EPS | $0.10 | $1.49 | Down |
| Net cash from operating activities | $2.144 billion | $2.018 billion | Up $126.4 million |
| Adjusted Cash Receipts (non-GAAP) | $2.789 billion | $2.129 billion | Up 31.0% |
| Adjusted EBITDA (non-GAAP) | $2.566 billion | $1.944 billion | Up 32.0% |
| Adjusted Cash Flow (non-GAAP) | $2.235 billion | $1.573 billion | Up 42.1% |
Margins: GAAP operating margin was approximately 13.7% in 2022 versus 62.5% in 2021, reflecting substantially higher provisions and impairment charges. The filing does not present these as a conventional operating-company margin measure; royalty receipts and cash-flow measures are central management metrics.
- Total royalty receipts were $3.231 billion, up 23.9%. Growth included $542 million of Biohaven preferred-share redemptions following Pfizer’s acquisition of Biohaven, as well as increased receipts from the cystic fibrosis franchise and newer royalties.
- Cash and cash equivalents were $1.711 billion at year-end, with $24.4 million of marketable securities. The $1.5 billion revolving credit facility was undrawn and available.
- Senior unsecured notes totaled $7.3 billion principal, all fixed-rate, with a weighted-average coupon of 2.24% and approximately 12-year weighted-average maturity. $1.0 billion of principal is due in 2023. The company reported compliance with debt covenants.
- Royalty acquisitions and related investments used approximately $2.489 billion of cash in 2022. Four quarterly dividends of $0.19 per Class A share were paid, totaling $333.3 million.
Material changes and unusual items
- GAAP income fell sharply despite higher operating cash generation. The company recorded $904.2 million of provision expense for changes in expected royalty cash flows, compared with $452.8 million in 2021, and $615.8 million of financial royalty asset impairments.
- Impairments included $273.6 million for gantenerumab after Roche discontinued its trials, $160.1 million for otilimab after GSK declined to pursue regulatory submissions, and $182.1 million for Gavreto amid commercial uncertainty.
- 2022 income included $119.9 million of net other income, notably a $96.6 million gain on the Biohaven milestone-acceleration derivative and $78.3 million of interest income. Biohaven preferred shares were fully redeemed after Pfizer’s acquisition; the resulting redemption receipts are not recurring royalty sales.
- Royalty receipts from the cystic fibrosis franchise rose 15.5% to $811.1 million. Imbruvica receipts fell 11.4% to $312.7 million, attributed to competition and fewer U.S. new patient starts; receipts from Januvia, Janumet and other DPP-IV products substantially ended in 2022.
- The company acquired the Trelegy royalty for $1.31 billion upfront, with up to $300 million of contingent sales milestones, and made other portfolio investments. In January 2023, it acquired interests in Spinraza and pelacarsen for $500 million upfront, with up to $625 million of additional contingent pelacarsen payments.
Outlook, commentary and risks
Management said operating cash flow, existing capital resources and the undrawn facility should support operating needs, debt service and planned strategic acquisitions for the foreseeable future. The filing does not provide a specific earnings or revenue forecast. Future results depend on product sales, development outcomes, acquisition opportunities, patent and royalty duration, and counterparties’ commercialization decisions.
- Management highlights the sensitivity of GAAP results to estimates of future product sales and royalty duration under the effective-interest accounting method. Changes in forecasts can produce large non-cash provisions or income.
- Portfolio concentration remains relevant: the top five product franchises represented 69% of 2022 royalty receipts; the cystic fibrosis franchise generated 25% of receipts. Vertex accounted for 36% of total income and other revenues.
- Key risks include pricing and reimbursement changes, competition and generic entry, regulatory or clinical setbacks, patent disputes, reliance on third-party marketers, acquisition competition, interest-rate and foreign-exchange exposure, and dependence on the external Manager. The company also identifies tax and Investment Company Act status risks.
- Debt, dividends and investment commitments merit attention. The company has a $1.0 billion 2023 note maturity, contingent funding obligations, and dividends remain at the board’s discretion and subject to legal and contractual restrictions.
- The company reported no legal proceedings expected to have a material adverse effect. Its independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Separate recurring royalty receipts from the $542 million Biohaven preferred-share redemptions when assessing 2022 growth and future cash generation.
- Review the assumptions and asset-level effects behind the $904.2 million provision and $615.8 million impairments, particularly for Imbruvica, Tysabri, gantenerumab, otilimab and Gavreto.
- Assess the outlook for the largest royalty exposures, including Vertex’s cystic fibrosis franchise, and verify product concentration and estimated royalty durations.
- Confirm the plan and financing for the $1.0 billion note maturity in 2023, covenant headroom, and capacity for acquisitions, dividends and remaining funding commitments.
- Track clinical and regulatory outcomes for development-stage assets, including omecamtiv mecarbil, olpasiran, pelabresen, zavegepant and the newly acquired pelacarsen interest.