Royalty Pharma : U.K. Companies Act Annual Report - 2023

Group

Parent company

Consolidated balance sheet as at 31 December 2023

Balance sheet as at 31 December

2023

Consolidated statement of operations for the year then ended

Statement of changes in equity for

the year then ended

Consolidated statement of comprehensive income for the year

Related notes 1 to 12 to the financial

then ended

statements including a summary of

significant accounting policies

Consolidated statement of shareholder's equity for the year

then ended

Consolidated statement of cash flows for the year then ended

Related notes 1 to 15 to the financial statements, including a

summary of significant accounting policies

Audit scope

ξ All audit work performed for the purposes of the audit was undertaken by

the Group audit team.

ξ We performed an audit of the complete financial information of the

subsidiaries.

ξ We also performed an audit of the complete financial information of the

standalone parent company.

Key audit

ξ Group: Valuation of financial royalty assets and related interest income

matters

ξ Parent: Recoverability of the investment in subsidiary undertaking

Materiality

ξ Overall group materiality of $52 million (2022: $56 million) which

represents 5% (2022: 5% of consolidated net income) of the average

consolidated net income for the latest period of three years.

ξ Parent materiality of $125 million (2022: $182 million) which represents 1%

(2022: 1%) of net assets.

Risk

Our response to the risk

Key observations

communicated to the Audit

Committee

Group: Valuation of financial

We obtained an understanding,

Our planned audit procedures were

royalty assets and related

evaluated the design and tested the

completed without material

interest income

operating effectiveness of controls

exception.

related to the valuation of financial

As disclosed in Note 6 to the

royalty assets and related interest

consolidated financial statements,

income. This included testing

the group's total financial royalty

controls over management's review

assets, net, were carried at

of the significant assumptions and

$14,827,093 thousand (2022:

other inputs used in estimating the

$14,184,425 thousand) as of

royalty duration and product growth

December 31, 2023. For the year

rates.

ended December 31, 2023, the

To test the valuation of the financial

group recognized income from

royalty assets and related interest

financial royalty assets of

income, our audit procedures

$2,197,754 thousand (2022:

included, among others, evaluating

$2,125,096 thousand). As explained

the methodology and completeness

in Note 2 to the consolidated

and accuracy of the data used to

financial statements, the group's

develop the key assumptions

financial royalty assets are

identified. For example, with the

measured at amortized cost using

support of statistical modelling

the prospective effective interest

specialists, we evaluated

rate method.

management's statistical

Auditing the valuation of the

methodology for sales growth

financial royalty assets and related

forecasts and performed sensitivity

interest income involved complex

analysis over the resulting

auditor judgment, because the

forecasted product sales. We also

assumptions used by management

tested the inputs to the model,

to forecast the expected cash flows

principally comprising historic

from the underlying royalties are

product sales and third-party

forward-looking and are therefore

analyst estimates of nearer-term

affected by future economic and

sales amounts, by comparing to

market conditions, such as the

analyst reports or published sales

impact of the entry of competing or

information. For royalty duration,

generic products to the market,

among other procedures, we

among other uncertainties. The key

compared management's

assumptions used in the valuation of

assessment of the likely date of

the financial royalty assets and

expiry of the group's cash flows

related interest income are product

against original purchase

growth rates applied to forecasted

agreements, as well as

sales and the royalty duration.

independently assessing the royalty

duration against available published

information sources, such as those

from regulatory bodies,

counterparties, and product

marketers.

We assessed the historical

accuracy of management's

estimates by comparing expected

cash flows to actual cash receipts.

We also evaluated the related

disclosures in the consolidated

financial statements.

Risk

Our response to the risk

Key observations

communicated to the Audit

Committee

Parent: Recoverability of the

We obtained management's

Our planned audit procedures were

investment in subsidiary

impairment assessment and

completed without material

undertaking

reviewed the calculations.

exception.

The parent company's investment in

With the support of valuation

its subsidiary undertaking, Royalty

specialists, we assessed the

methodology, which is based on a

Pharma Holdings Ltd., was carried

comparison of the market price for

at $12,547,565 thousand (2022:

the parent company's shares, as

$18,173,400 thousand) as of 31

adjusted, to the carrying amount of

December 2023. Under FRS 102

the investment in subsidiary held by

the investment is recorded at cost

the parent company.

less impairment. Refer to the

summary of significant accounting

We also audited the financial

policies in Note 2 and also to Note 4

of the parent company financial

statements of Royalty Pharma

Holdings Ltd., and we considered

statements.

the results of our work over profits

The carrying amount of the parent

and net assets

company's investment in Royalty

Pharma Holdings Ltd., together with

the related impairment charge,

represents substantially all (2022:

99.6%) of the parent company's net

assets and total expenses as at 31

December 2023, respectively. The

recoverability of this asset is not at a

high risk of significant material

misstatement or subject to

significant judgment. However, due

to its materiality in the context of the

parent company's financial

statements, this is considered to be

the area that had the greatest effect

on our overall audit of the parent

company.