Non-Consolidated Affiliates

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Non-Consolidated Affiliates

Non-Consolidated Affiliates

The Legacy SLP Interest

In connection with the Exchange Offer, we acquired a special limited partnership interest in the Legacy Investors Partnerships (the “Legacy SLP Interest”) valued at $303.7 million in exchange for issuing shares in the Company. As a result, we became a special limited partner in the Legacy Investors Partnerships. The Legacy SLP Interest entitles us to the equivalent of performance distribution payments that would have been paid to the general partner of the Legacy Investors Partnerships and an income allocation on a similar basis. Our income allocation is equal to the general partner’s former contractual rights to the income of the Legacy Investors Partnerships. The Legacy SLP Interest is treated as an equity method investment as our Manager is also the Manager of the Legacy Investors Partnerships and has the ability to exercise significant influence. The Legacy Investors Partnerships no longer participate in investment opportunities from June 30, 2020 and, as such, the value of the Legacy SLP Interest is expected to decline over time. The Legacy Investors Partnerships also own a non-controlling interest in Old RPI.

The income allocation from the Legacy SLP Interest is based on an estimate, as the Legacy Investors Partnerships are private partnerships that are expected to report on a lag subsequent to the date of this quarterly report. Management’s estimate of equity in earnings from the Legacy SLP Interest for the current period will be updated for historical results in the subsequent period. During the three months ended September 30, 2020, we received cash distributions of $4.2 million from the Legacy Investors Partnerships and recorded an income allocation of $24.2 million within Equity in (earnings)/loss of non-consolidated affiliates. During the nine months ended September 30, 2020, we received cash distributions of $16.4 million from the Legacy Investors Partnerships and recorded an income allocation of $47.6 million within Equity in (earnings)/loss of non-consolidated affiliates.

The Avillion Entities

We account for our partnership interests in Avillion Financing I, LP (“Avillion I”) and BAv Financing II, LP (“Avillion II”, or, together, the “Avillion Entities”) as equity method investments because RPIFT has the ability to exercise significant influence over the entities. We recorded a loss allocation of $10.5 million and $13.6 million within Equity in (earnings)/loss of non-consolidated affiliates during the three and nine months ended September 30, 2020. We recorded a loss allocation of $8.0 million and $21.7 million within Equity in (earnings)/loss of non-consolidated affiliates during the three and nine months ended September 30, 2019.

On December 19, 2017, the Avillion Entities announced that the FDA approved a supplemental New Drug Application for Pfizer’s Bosulif (bosutinib). Avillion I is eligible to receive fixed payments from Pfizer based on this approval. Subsequent to the asset sale, the only operations of Avillion I are the collection of cash and unwinding of discount on the series of fixed annual payments due from Pfizer. We received distributions of $13.4 million and $14.1 million from Avillion I during the nine months ended September 30, 2020 and 2019, respectively, in connection with Avillion I’s receipt of the fixed annual payments due under its co-development agreement with Pfizer.

In March 2017, RPIFT entered into an agreement to invest approximately $15.0 million to fund approximately 50% of the costs of a phase II clinical trial for the use of Merck KGaA’s anti-IL 17 nanobody M1095 (the “Merck Asset”) for the treatment of psoriasis in exchange for certain milestone and royalty payments. In May 2018 RPIFT entered into an additional agreement to invest up to $105.0 million in Avillion II over multiple years to fund approximately 44% of the costs of Phase II and III clinical trials to advance Pearl Therapeutics, Inc.’s product PT-027 (the “AZ Asset”) through a global clinical development program for the treatment of asthma in exchange for a series of deferred payments and success-based milestones.

In December 2019, the Avillion II agreement was amended to increase RPIFT’s funding commitment by an additional $4.0 million in respect of the Merck Asset, for a total funding cap of $19.0 million. We received a distribution of $21.3 million from Avillion II in respect of the Merck Asset, for which development has ceased, during the nine months ended September 30, 2020.

RPIFT had $41.5 million and $70.8 million of unfunded commitments related to the Avillion Entities as of September 30, 2020 and December 31, 2019, respectively. Our maximum exposure to loss at any particular reporting date is limited to the current carrying value of the investment plus the unfunded commitments.