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Internalization | 3 Months Ended
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Mar. 31, 2026
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] |
Internalization | Internalization 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 previously held 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”), as the former equity owners of RPM. 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 subsidiary of RP Manager, in connection with the Internalization. We completed the acquisition of RP Manager on May 16, 2025 and accounted for the transaction as a business combination in accordance with ASC 805. The announced transaction value for the Internalization of $1.1 billion included cash and 24.5 million newly issued RP Holdings Class E Interests, of which 1.7 million shares were recognized as part of the purchase price and 22.8 million shares were subject to vesting, with related share-based compensation expense to be recognized over the vesting period post-Internalization. The announced transaction value also included the assumption of a $380 million term loan. In accordance with ASC 805, the $380 million term loan was not recognized as part of the purchase price. Instead, it was recorded as a liability acquired in the preliminary allocation of purchase price below. In addition, we issued replacement equity awards in the form of RSUs to employees and recognized a liability related to the Employee EPAs. As described and each term as defined in Note 5–Shareholders’ Equity, the Employee EPAs represent the participation of certain employees in the economic returns of the EPAs for a specific Portfolio, which exclude Founder’s Equity, which represents Mr. Legorreta’s retained EPAs. Accordingly, at the closing of the Internalization, the portions of each of these components attributable to the pre-Internalization service period were included as part of the purchase price. The following table presents the components of the total purchase price to acquire RP Manager (in thousands):
Cash | $ | 81,950 |
Fair value of equity attributable to pre-Internalization service period: |
RP Holdings Class E Interests | 57,000 |
Employee RSUs | 3,778 |
Employee EPAs | 422,479 |
Total purchase price | $ | 565,207 |
RP Holdings Class E Interests We issued 24.5 million RP Holdings Class E Interests and an equal number of Royalty Pharma plc Class B ordinary shares to the Sellers, with an aggregate fair value of $812.4 million based on our stock price of $33.12 upon the closing of the Internalization. Approximately 1.7 million of the RP Holdings Class E Interests valued at approximately $57.0 million, were considered to be attributable to services rendered pre-Internalization and were included as part of the purchase price. The remaining 22.8 million RP Holdings Class E Interests with an aggregate fair value of approximately $755.4 million are subject to straight-line vesting generally over five to nine years and forfeiture if vesting conditions are not met. We recognize the related share-based compensation expense over the corresponding vesting periods. Employee RSUs We issued approximately 316 thousand Class A ordinary shares as replacement awards to certain employees (the “Employee RSUs”) valued at $10.5 million based on our stock price of $33.12 upon the closing of the Internalization. Approximately $3.8 million of the Employee RSUs were considered to be attributable to service rendered pre-Internalization and were included as part of the purchase price. The remaining Employee RSUs are subject to straight-line vesting generally over a period up to four years and forfeiture if vesting conditions are not met. Employee EPAs As described and each term as defined in Note 5–Shareholders’ Equity, after the Internalization, employees who participate in the EPAs became employees of Royalty Pharma, LLC, and the service required for vesting became service required to be rendered to the Company. Accordingly, we began to account for the Employee EPAs under ASC 718 as compensation arrangements and began recognizing share-based compensation expense over the remaining post-Internalization service period. The Employee EPAs exclude Founder’s Equity, which represents Mr. Legorreta’s retained EPAs. The periodic cash distributions as tax advances related to the Employee EPAs are presented as an operating activity in the condensed consolidated statement of cash flows. As a result of the Internalization, we recognized a liability for the Employee EPAs. The fair value of approximately $422.5 million, measured as of the closing of the Internalization, was considered attributable to service rendered pre-Internalization and was included as part of the purchase price. The fair value of the remaining Employee EPAs is recorded as share-based compensation expense over the corresponding vesting period. The fair value of the Employee EPAs is recognized as a liability within Accrued compensation liabilities on the condensed consolidated balance sheets and is estimated using a Monte Carlo simulation methodology. See Note 4–Share-Based Compensation for additional discussion. Preliminary Allocation of the Purchase Price We allocated the purchase price to the estimated fair values of assets and liabilities acquired. The purchase price allocation is based on management’s estimates and assumptions, as well as information compiled by management. Our estimates and assumptions are subject to change during the measurement period of up to twelve months from the date of the Internalization as further information becomes available. The excess of the total purchase price over the fair value of the net assets acquired was allocated to goodwill. The goodwill recorded as part of the Internalization includes the assembled workforce and synergies resulting from the Internalization. The following is a summary of a preliminary allocation of the purchase price (in thousands):
| Preliminary allocation of purchase price |  | Location on Condensed Consolidated Balance Sheet
Cash and cash equivalents | $ | 7,535 |  |  | Cash and cash equivalents
Other current assets | 1,458 |  |  | Other current assets
Property, plant and equipment | 23,085 |  |  | Other assets
Operating lease right of use asset | 20,967 |  |  | Other assets
Other assets | 172 |  |  | Other assets
Accounts payable and accrued liabilities | (1,867) |  |  | Accounts payable and accrued liabilities
Interest payable | (3,822) |  |  | Interest payable
Term Loan | (380,000) |  |  | Long-term debt
Operating lease liabilities, current | (2,749) |  |  | Other current liabilities
Operating lease liabilities | (18,218) |  |  | Other liabilities
Other liabilities | (5,988) |  |  | Other liabilities
Goodwill | 924,634 |  |  | Goodwill
Total purchase price | $ | 565,207 |  |  |
Following the Internalization, we no longer pay Management Fees (as defined in Note 16–Related Party Transactions). The Internalization did not result in the recognition of gains or losses in the condensed consolidated statements of operations. We recorded approximately $28.9 million of acquisition-related costs within General and administrative expenses in the consolidated statement of operations for the year ended December 31, 2025. These costs, primarily related to legal, advisory and professional services, were paid during 2025 and are included within Payments for operating and professional costs on the consolidated statement of cash flows for the year ended December 31, 2025.

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