Royalty Pharma (RPRX) risk factors, FY2024 10-K

Risks Relating to Our Business

1. 01Biopharmaceutical products are subject to sales risks
2. 02The royalty market may not grow at the same rate as it has in the past, or at all, and we may not be able to acquire sufficient royalties to sustain the growth of our business
3. 03Acquisitions of royalties from our investments in development-stage biopharmaceutical product candidates are subject to additional risks and uncertainties
4. 04We may undertake strategic acquisitions of operating biopharmaceutical companies or acquire securities of biopharmaceutical companies. Our failure to realize expected benefits of such acquisitions could adversely affect our business, financial condition or results of operations
5. 05We use leverage in connection with our capital deployment, which magnifies the potential for loss if the royalties acquired do not generate sufficient income to us
6. 06We do not employ our own personnel and are entirely dependent upon the Manager for all the services we require
7. 07The success of our business depends upon key members of the Manager’s advisory team who may not continue to work for the Manager
8. 08There can be no assurance that the policies and procedures we have established to mitigate conflicts of interest will be effective in doing so
9. 09Our business is subject to interest rate, foreign exchange, inflation and banking industry risk
10. 10Information available to us about the biopharmaceutical products underlying the royalties we buy may be limited and therefore our ability to analyze each product and its potential future cash flow may be similarly limited
11. 11Our future income is dependent upon numerous royalty-specific assumptions and, if these assumptions prove not to be accurate, we may not achieve our expected rates of returns
12. 12We make assumptions regarding the royalty duration for terms that are not contractually fixed, and a shortened royalty term could result in a reduction in the effective interest rate, a decline in income from royalties, significant reductions in royalty payments compared to expectations, or a permanent impairment
13. 13Most of our royalties are classified as financial assets that are measured at amortized cost using the effective interest method as a result of which our GAAP results of operations can be volatile and unpredictable
14. 14Our reliance on a limited number of products may adversely affect our business, financial condition and results of operation
15. 15We face competition in acquiring royalties and locating suitable royalties to acquire
16. 16Biopharmaceutical products are subject to substantial competition
17. 17Marketers of products that generate our royalties are outside of our control
18. 18The marketers of biopharmaceutical products are, generally, entirely responsible for the ongoing regulatory approval, commercialization, manufacturing and marketing of products
19. 19License agreements relating to products may, in some instances, be unilaterally terminated or disputes may arise which may affect our royalties
20. 20The insolvency of a marketer could adversely affect our receipt of cash flows on the related royalties that we hold
21. 21Unsuccessful attempts to acquire new royalties could result in significant costs and negatively impact subsequent attempts to locate and acquire other assets
22. 22The products that generate our royalties are subject to uncertainty related to healthcare reimbursement policies, managed care considerations, pricing pressures and the regulation of the healthcare industry
23. 23The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies, which could reduce the value of the royalties that we hold
24. 24Sales of products that generate our royalties are subject to regulatory approvals and actions in the United States and foreign jurisdictions that could harm our business
25. 25The manufacture and distribution of a biopharmaceutical product may be interrupted by regulatory agencies or supplier deficiencies
26. 26Product liability claims may diminish the returns on biopharmaceutical products
27. 27We are typically not involved in maintaining, enforcing and defending patent rights on products that generate our royalties
28. 28The existence of third-party patents in relation to products may result in additional costs for the marketer and reduce the amount of royalties paid to us
29. 29Disclosure of trade secrets of marketers of products could negatively affect the competitive position of the products underlying our biopharmaceutical assets
30. 30Our board of directors may make decisions with respect to the cash generated from our operations that may result in our not paying dividends or not repurchasing our ordinary shares
31. 31The royalties that we acquire may fall outside the biopharmaceutical industry, and any such assets, and the cash flows therefrom, may not resemble the assets in our current portfolio

Risks Relating to Our Organization and Structure

1. 32We are a holding company with no operations and rely on our subsidiaries to provide us with the funds necessary to meet our financial obligations and to pay dividends
2. 33Our structure will result in tax distributions as a result of the RP Holdings Class C Special Interest
3. 34Our ability to pay periodic dividends to our shareholders or make share repurchases may be limited by applicable provisions of English law and contractual restrictions and obligations
4. 35If we were determined to be an investment company under the U.S. Investment Company Act of 1940, applicable restrictions could make it impractical for us to continue our business as contemplated and could adversely affect our business, financial condition or results of operations
5. 36The equity performance awards payable to an affiliate of the Manager may create incentives that are not fully aligned with the interests of our shareholders
6. 37The Manager may be the subject of a change of control resulting in a disruption in our operations that could adversely affect our business, financial condition or results of operations
7. 38The Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify the Manager against certain liabilities. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable
8. 39Operational risks may disrupt our businesses, result in losses or limit our growth
9. 40The EU directive on alternative investment fund managers (the “AIFM Directive”) may significantly increase our compliance costs

Risks Relating to Our Internalization

1. 41The Internalization may not close due to a variety of factors, including the failure or significant delay in obtaining required regulatory approvals, and, even if it does close, we may not realize the anticipated benefits
2. 42The Share Consideration in connection with the Internalization, and future sales of our Class A ordinary shares by the Sellers may adversely affect the market price of our Class A ordinary shares
3. 43Certain of our officers and directors have interests in the Internalization that are different from, and may potentially conflict with, the interests of us and our shareholders
4. 44We may be exposed to risks to which we have not historically been exposed, including liabilities with respect to the assets acquired from the Manager

Risks Relating to Our Ordinary Shares

1. 45The market price of our Class A ordinary shares has been and may in the future be volatile, which could cause the value of our shareholders’ investment to decline
2. 46These and other factors may cause the market price of and demand for our Class A ordinary shares to fluctuate significantly, which may limit or prevent our shareholders from reselling their Class A ordinary shares at or above the purchase price
3. 47U.S. investors may have difficulty enforcing civil liabilities against our company, our directors or members of senior management
4. 48The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation
5. 49As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure
6. 50If our Class A ordinary shares are not eligible for continued deposit and clearing within the facilities of DTC, then transactions in our securities may be disrupted
7. 51The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members

Risks Relating to Taxation

1. 52Our structure involves complex provisions of tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis
2. 53We could be liable for significant taxes due to changes in our eligibility for certain income tax treaty benefits or challenges to our tax positions with respect to the application of income tax treaties
3. 54We believe that dividends received by us and RP Holdings should be exempt from U.K. corporation tax, but it cannot be guaranteed that this will continue to be the case
4. 55Cybersecurity vulnerabilities or other failures in information systems could result in information theft, data corruption and significant disruption of our business operations
5. 56Changes in the application of accounting standards issued by the U.S. Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements
6. 57The outbreak of infectious or contagious diseases could adversely affect our results of operations, financial condition and cash flows
7. 58Legal claims and proceedings could adversely affect our business
8. 59Corporate responsibility matters and any related reporting obligations may impact our business