Shareholders' Equity

12 Months Ended

Dec. 31, 2021

Shareholders’ Equity

Capital structure

Following the completion of our IPO as discussed in Note 1–Organization and Purpose, we have two classes of voting shares: Class A ordinary shares and Class B ordinary shares, each of which has one vote per ordinary share. The Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by applicable law. Our Class B ordinary shares are not publicly traded and holders of Class B ordinary shares only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company.

An exchange agreement entered into by us, RP Holdings, the Continuing Investors Partnerships, RPI International Partners 2019, LP and EPA Holdings (the “Exchange Agreement”) governs the exchange of RP Holdings Class B Interests held by the Continuing Investors Partnerships for Class A ordinary shares. Pursuant to the Exchange Agreement, RP Holdings Class B interests are exchangeable on a one-for-one basis for Class A ordinary shares on a quarterly basis. As of December 31, 2021, we have outstanding 432,963 thousand Class A ordinary shares and 174,213 thousand Class B ordinary shares. Each such exchange also results in the re-designation of the same number of our Class B ordinary shares as deferred shares. As of December 31, 2021, we have outstanding deferred shares of 361,170 thousand.

In addition, we have in issue 50 thousand Class R redeemable shares, which do not entitle the holder to voting or dividend rights. The purpose of the Class R redeemable shares was to ensure Royalty Pharma Limited had sufficient sterling denominated share capital at the time it was re-registered as a public limited company to Royalty Pharma plc, as required by the U.K. Companies Act. The Class R redeemable shares may be redeemed at our option in the future. Any such redemption would be at the nominal value of £1 each.

Non-controlling interests

The only non-controlling interest in the year ended December 31, 2019 related to RPSFT, for which the net change in the related balance is as presented in the statements of shareholders’ equity. The net change in the balance of our four non-controlling interests for the years ended December 31, 2021 and 2020 is as follows (in thousands):


	RPSFT		Legacy Investors Partnerships		Continuing Investors Partnerships (1)		EPA Holdings		Total
December 31, 2019	$	35,883	$	—	$	—	$	—	$	35,883
Contributions	—		1,165,258		9,418		—		1,174,676
Transfer of interests	—		1,037,161		—		—		1,037,161
Distributions	(112,339)		(594,592)		(85,426)		—		(792,357)
Net Income prior to IPO	42,151		102,892		—		—		145,043
Effect of exchange by Continuing Investors of Class B ordinary shares for Class A ordinary shares and reallocation of historical equity	—		(750)		2,433,848		—		2,433,098
Issuance of Class A ordinary shares sold in IPO, net of offering costs	—		—		758,354		—		758,354
Other exchanges	—		—		(309,566)		—		(309,566)
Net income subsequent to IPO	46,741		218,137		316,993		—		581,871
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—		15,015		7,488		—		22,503
Reclassification of unrealized losses on available for sale debt securities	—		(3,612)		(6,018)		—		(9,630)
December 31, 2020	$	12,436	$	1,939,509	$	3,125,091	$	—	$	5,077,036

(1) Related to the Continuing Investors Partnerships’ ownership of approximately 36% in RP Holdings through their ownership of the RP Holdings Class B Interests as of December 31, 2020. Royalty Pharma plc owns the remaining 64% of RP Holdings through its ownership of RP Holdings Class A Interests and Class B Interests as of December 31, 2020.


	RPSFT		Legacy Investors Partnerships		Continuing Investors Partnerships (1)		EPA Holdings		Total
December 31, 2020	$	12,436	$	1,939,509	$	3,125,091	$	—	$	5,077,036
Contributions	—		35,148		13,391		—		48,539
Distributions	(56,490)		(425,050)		(133,433)		—		(614,973)
Other exchanges	—		—		(642,974)		—		(642,974)
Net Income	57,582		266,570		297,321		—		621,473
Other comprehensive income/(loss):
Unrealized gains on available for sale debt securities	—		2,038		3,227		—		5,265
Reclassification of unrealized losses on available for sale debt securities	—		(8,946)		(13,469)		—		(22,415)
December 31, 2021	$	13,528	$	1,809,269	$	2,649,154	$	—	$	4,471,951

(1) Related to the Continuing Investors Partnerships’ ownership of approximately 29% in RP Holdings through their ownership of the RP Holdings Class B Interests as of December 31, 2021. Royalty Pharma plc owns the remaining 71% of RP Holdings through its ownership of RP Holdings Class A Interests and Class B Interests as of December 31, 2021.

RP Holdings Class C Special Interest held by EPA Holdings

EPA Holdings is entitled to Equity Performance Awards (as defined below) through its RP Holdings Class C Special Interest based on our performance, as determined on a portfolio-by-portfolio basis. Investments made during each two-year period will be grouped together as separate portfolios (each, a “Portfolio”). Subject to certain conditions, at the end of each fiscal quarter, EPA Holdings is entitled to a distribution from RP Holdings in respect of each Portfolio equal to 20% of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the “Equity Performance Awards”). The Equity Performance Awards will be allocated and paid by RP Holdings to EPA Holdings as the holder of the RP Holdings Class C Special Interest. The Equity Performance Awards will be payable in RP Holdings Class B Interests for which we will issue the same number of Class B ordinary shares, which may be subsequently exchanged for our Class A ordinary shares. We do not currently expect any material Equity Performance Awards to be payable until the performance conditions discussed above are met.

Dividends

The holders of Class A ordinary shares are entitled to receive dividends subject to approval by the board of directors. The holders of Class B ordinary shares do not have any rights to receive dividends; however the RP Holdings Class B Interests are entitled to dividends and distributions from RP Holdings, our consolidated subsidiary. In the year ended December 31, 2021, we declared and paid four quarterly cash dividends of $0.17 per Class A ordinary share for an aggregate amount of $285.2 million to holders of our Class A ordinary shares.

2020 Independent Directors Equity Incentive Plan

On June 15, 2020, our 2020 Independent Director Equity Incentive Plan was approved and became effective, whereby 800 thousand Class A ordinary shares have been reserved for future issuance to our independent directors. As of December 31, 2021, approximately 620 thousand shares remain reserved for future issuance under the Equity Incentive Plan.

RSU activity and share-based compensation

We grant RSUs to our independent directors under the 2020 Independent Director Equity Incentive Plan. Share-based compensation expense is recognized based on estimated fair value of the award on the grant date and amortized on a straight-line basis over the requisite service period of generally one year as part of General and administrative expenses in the consolidated statement of comprehensive income. The estimated fair value of RSUs is based on the closing price of our Class A ordinary shares on the grant date.

We recognized share-based compensation of approximately $3.1 million and $5.7 million for the years ended December 31, 2021 and 2020, which is recorded as part of General and administrative expenses in the consolidated statement of operations. There were no share-based awards or related expenses in periods prior to the IPO. As of December 31, 2021, the total unrecognized share-based compensation expense related to total outstanding RSUs was less than $1.0 million, which we expect to recognize in the next six months.