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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to

Commission file number: 001-36033

THERAVANCE BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

Cayman Islands

    

98-1226628

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

PO Box 309

Ugland House, South Church Street

George Town, Grand Cayman, Cayman Islands

KY1-1104

(Address of Principal Executive Offices)

(Zip Code)

(650) 808-6000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Ordinary Share $0.00001 Par Value

TBPH

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

    

Smaller Reporting Company 

Non-accelerated Filer

Emerging Growth Company

Accelerated Filer 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of July 30, 2021, the number of the registrant’s outstanding ordinary shares was 73,470,151.

THERAVANCE BIOPHARMA, INC.

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (unaudited)

4

Condensed Consolidated Statements of Shareholders’ Deficit for the three and six months ended June 30, 2021 and 2020 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

34

Item 1A. Risk Factors

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 6. Exhibits

72

Signatures

73

2

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

June 30, 

December 31, 

    

2021

    

2020

Assets

Current assets:

Cash and cash equivalents

$

204,949

$

81,467

Short-term marketable securities

 

60,004

 

211,474

Receivables from collaborative arrangements

 

12,220

 

15,868

Amounts due from TRC, LLC

27,741

53,799

Prepaid clinical and development services

15,913

20,374

Other prepaid and current assets

12,353

10,359

Total current assets

 

333,180

 

393,341

Property and equipment, net

 

16,583

 

16,422

Operating lease assets

41,508

43,260

Equity in net assets of TRC, LLC

35,822

12,750

Restricted cash

 

833

 

833

Other assets

1,325

2,451

Total assets

$

429,251

$

469,057

Liabilities and Shareholders' Deficit

Current liabilities:

Accounts payable

$

10,702

$

6,775

Accrued personnel-related expenses

 

14,635

 

35,238

Accrued clinical and development expenses

 

19,457

 

28,799

Accrued general and administrative expenses

3,269

6,048

Accrued interest payable

3,900

3,974

Current portion of non-recourse notes due 2035, net

6,941

19,334

Operating lease liabilities

1,037

9,867

Deferred revenue

 

5,690

 

11,523

Other accrued liabilities

 

1,496

 

2,013

Total current liabilities

 

67,127

 

123,571

Convertible senior notes due 2023, net

227,499

226,963

Non-recourse notes due 2035, net

375,069

372,873

Long-term operating lease liabilities

57,768

47,220

Long-term deferred revenue

329

348

Other long-term liabilities

1,833

1,833

Commitments and contingencies

Shareholders’ Deficit

Preferred shares, $0.00001 par value: 230 shares authorized, no shares issued or outstanding

 

Ordinary shares, $0.00001 par value: 200,000 shares authorized; 73,470 and 64,328 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

1

1

Additional paid-in capital

 

1,358,318

1,222,818

Accumulated other comprehensive income

 

8

 

47

Accumulated deficit

 

(1,658,701)

 

(1,526,617)

Total shareholders’ deficit

 

(300,374)

 

(303,751)

Total liabilities and shareholders’ deficit

$

429,251

$

469,057

See accompanying notes to condensed consolidated financial statements.

3

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Revenue:

Collaboration revenue

$

1,980

$

5,488

5,852

12,120

Licensing revenue

1,500

Viatris collaboration agreement

 

10,934

 

9,520

 

21,319

 

21,250

Total revenue

 

12,914

 

15,008

 

27,171

 

34,870

Costs and expenses:

Research and development (1)

 

51,093

 

62,404

118,692

128,417

Selling, general and administrative (1)

 

25,931

 

24,780

56,481

51,105

Total costs and expenses

 

77,024

 

87,184

 

175,173

 

179,522

Loss from operations

 

(64,110)

 

(72,176)

 

(148,002)

 

(144,652)

Income from investment in TRC, LLC

21,926

21,381

38,473

34,896

Interest expense

(11,612)

(11,391)

(23,485)

(21,332)

Loss on extinguishment of debt

(15,464)

Interest and other income (expense), net

 

1,171

 

(662)

937

798

Loss before income taxes

 

(52,625)

 

(62,848)

 

(132,077)

 

(145,754)

Provision for income tax benefit (expense)

 

220

 

(39)

(7)

(186)

Net loss

$

(52,405)

$

(62,887)

$

(132,084)

$

(145,940)

Net unrealized gain (loss) on available-for-sale investments

(9)

(232)

(39)

135

Total comprehensive loss

$

(52,414)

$

(63,119)

$

(132,123)

$

(145,805)

Net loss per share:

Basic and diluted net loss per share

$

(0.80)

$

(1.00)

$

(2.03)

$

(2.39)

Shares used to compute basic and diluted net loss per share

 

65,669

 

62,861

 

65,085

 

61,162

(1) Amounts include share-based compensation expense as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

    

2021

    

2020

2021

    

2020

Research and development

$

7,315

$

8,098

$

15,236

$

15,963

Selling, general and administrative

 

7,626

 

8,487

 

15,537

 

15,898

Total share-based compensation expense

$

14,941

$

16,585

$

30,773

$

31,861

See accompanying notes to condensed consolidated financial statements.

4

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

(In thousands)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at March 31, 2021

65,218

$

1

$

1,233,060

$

17

$

(1,606,296)

$

(373,218)

Net proceeds from sale of ordinary shares

7,705

108,180

108,180

Proceeds from ESPP purchases

189

2,862

2,862

Employee share-based compensation expense

14,941

14,941

Issuance of restricted shares

399

Option exercises

2

2

Repurchase of shares to satisfy tax withholding

(41)

(727)

(727)

Net unrealized gain on marketable securities

(9)

(9)

Net loss

(52,405)

(52,405)

Balances at June 30, 2021

73,470

$

1

$

1,358,318

$

8

$

(1,658,701)

$

(300,374)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at December 31, 2020

64,328

$

1

$

1,222,818

$

47

$

(1,526,617)

$

(303,751)

Net proceeds from sale of ordinary shares

7,705

108,180

108,180

Proceeds from ESPP purchases

189

2,862

2,862

Employee share-based compensation expense

30,773

30,773

Issuance of restricted shares

1,587

Option exercises

5

5

Repurchase of shares to satisfy tax withholding

(339)

(6,320)

(6,320)

Net unrealized loss on marketable securities

(39)

(39)

Net loss

(132,084)

(132,084)

Balances at June 30, 2021

73,470

$

1

$

1,358,318

$

8

$

(1,658,701)

$

(300,374)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at March 31, 2020

63,004

$

1

$

1,173,204

$

512

$

(1,331,653)

$

(157,936)

Net proceeds from sale of ordinary shares

Proceeds from ESPP purchases

168

2,545

2,545

Employee share-based compensation expense

16,585

16,585

Issuance of restricted shares

353

Option exercises

33

733

733

Repurchase of shares to satisfy tax withholding

(43)

(1,144)

(1,144)

Net unrealized gain on marketable securities

(232)

(232)

Net loss

(62,887)

(62,887)

Balances at June 30, 2020

63,515

$

1

$

1,191,923

$

280

$

(1,394,540)

$

(202,336)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

Shares

   

Amount

   

Capital

   

Income

   

Deficit

   

Deficit

Balances at December 31, 2019

57,015

1

1,024,614

145

(1,248,600)

$

(223,840)

Net proceeds from sale of ordinary shares

5,500

139,915

139,915

Proceeds from ESPP purchases

168

2,545

2,545

Employee share-based compensation expense

31,861

31,861

Issuance of restricted shares

1,097

Option exercises

41

936

936

Repurchase of shares to satisfy tax withholding

(306)

(7,948)

(7,948)

Net unrealized gain on marketable securities

135

135

Net loss

(145,940)

(145,940)

Balances at June 30, 2020

63,515

$

1

$

1,191,923

$

280

$

(1,394,540)

$

(202,336)

See accompanying notes to condensed consolidated financial statements.

5

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended June 30, 

    

2021

    

2020

Operating activities

Net loss

$

(132,084)

$

(145,940)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

2,926

 

4,034

Amortization and accretion income, net

31

(854)

Share-based compensation

 

30,773

 

31,861

Amortization of right-of-use assets

1,752

1,420

Undistributed earnings from TRC, LLC

2,986

(6,934)

Interest shortfall on 2035 notes, net

1,093

Loss on extinguishment of debt

15,464

Other

(168)

(4)

Changes in operating assets and liabilities:

Receivables from collaborative and licensing arrangements

 

3,648

 

10,583

Prepaid clinical and development services

4,461

(5,775)

Other prepaid and current assets

(1,993)

(264)

Other assets

997

(373)

Accounts payable

 

4,026

 

6,012

Accrued personnel-related expenses, accrued clinical and development expenses, and other accrued liabilities

 

(33,125)

 

(5,753)

Accrued interest payable

(74)

(1,957)

Deferred revenue

(5,852)

(12,120)

Operating lease liabilities

1,718

885

Other long-term liabilities

 

 

175

Net cash used in operating activities

 

(119,978)

 

(108,447)

Investing activities

Purchases of property and equipment

 

(1,923)

 

(3,322)

Purchases of marketable securities

 

(40,014)

 

(280,495)

Maturities of marketable securities

 

191,400

 

155,703

Proceeds from the sale of marketable securities

19,927

Proceeds from the sale of property and equipment

1

Net cash provided by (used in) investing activities

 

149,463

 

(108,186)

Financing activities

Proceeds from the sale of ordinary shares, net

108,180

139,915

Proceeds from issuance of 2035 notes, net

380,000

Payment of issuance costs on 2035 notes

(5,326)

Principal payment on 2035 notes

(10,730)

Payment of redemption premium on 2033 notes

(11,470)

Principal payment on 2033 notes

(235,347)

Proceeds from ESPP purchases

2,862

2,545

Proceeds from option exercises

5

936

Repurchase of shares to satisfy tax withholding

(6,320)

(7,948)

Net cash provided by financing activities

 

93,997

 

263,305

Net increase in cash, cash equivalents, and restricted cash

 

123,482

 

46,671

Cash, cash equivalents, and restricted cash at beginning of period

 

82,300

 

58,897

Cash, cash equivalents, and restricted cash at end of period

$

205,782

$

105,568

Supplemental disclosure of cash flow information

Cash paid for interest

$

22,490

$

20,287

Cash paid for income taxes, net

$

12

$

14

See accompanying notes to condensed consolidated financial statements.

6

THERAVANCE BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Theravance Biopharma, Inc. (“Theravance Biopharma” or the “Company”) is a diversified biopharmaceutical company primarily focused on the discovery, development and commercialization of organ-selective medicines. The Company’s purpose is to create transformational medicines to improve the lives of patients suffering from serious illnesses. The Company’s research is focused in the areas of inflammation and immunology.

Basis of Presentation

The Company’s condensed consolidated financial information as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020 is unaudited but includes all adjustments (consisting only of normal recurring adjustments), which are considered necessary for a fair presentation of the financial position at such date and of the operating results and cash flows for those periods, and have been prepared in accordance with United States (“US”) generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated December 31, 2020 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any other interim period or for any future period. These condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Significant Accounting Policies

There have been no material revisions in the Company’s significant accounting policies described in Note 1 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards. ASU 2019-12 removes certain exceptions from Topic 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation when there is a loss from continuing operations and income or a gain from other items such as discontinued operations or other comprehensive income; (ii) the exception to accounting for outside basis differences of equity method investments and foreign subsidiaries; and (iii) the exception to limit the tax benefit recognized in interim periods in cases when the year-to-date losses exceed anticipated losses. ASU 2019-12 also simplifies GAAP in several other areas of Topic 740 such as (i) franchise taxes and other taxes partially based on income; (ii) step-up in tax basis goodwill considered part of a business combination in which the book goodwill was originally recognized or should be considered a separate transaction; (iii) separate financial statements of entities not subject to tax; and (iv) interim recognition of enactment of tax laws or rate changes. ASU 2019-12 became effective for annual reporting periods and interim periods within those years beginning after December 15, 2020. The

7

adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging: Contracts in Entity’s Own Equity (Subtopic 815-10) (“ASU 2020-06”). ASU 2020-06 simplifies the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity by removing certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. The standard also enhances the consistency of earnings-per-share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings-per-share calculations. ASU 2020-06 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2020-06 on its condensed consolidated financial statements and related disclosures.

The Company has evaluated other recently issued accounting pronouncements and does not currently believe that any of these pronouncements will have a material impact on its condensed consolidated financial statements and related disclosures.

2. Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding, less ordinary shares subject to forfeiture. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding, less ordinary shares subject to forfeiture, plus all additional ordinary shares that would have been outstanding, assuming dilutive potential ordinary shares had been issued for other dilutive securities.

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands, except per share data)

    

2021

    

2020

2021

    

2020

Numerator:

Net loss

$

(52,405)

$

(62,887)

$

(132,084)

$

(145,940)

Denominator:

 

 

Weighted-average ordinary shares outstanding

65,669

63,275

65,199

61,676

Less: weighted-average ordinary shares subject to forfeiture

(414)

(114)

(514)

Weighted-average ordinary shares used to compute basic and diluted net loss per share

65,669

62,861

65,085

61,162

Basic and diluted net loss per share

$

(0.80)

$

(1.00)

$

(2.03)

$

(2.39)

For the three and six months ended June 30, 2021 and 2020, diluted and basic net loss per share were identical since potential ordinary shares were excluded from the calculation, as their effect was anti-dilutive.

Anti-dilutive Securities

The following ordinary equivalent shares were not included in the computation of diluted net loss per share because their effect was anti-dilutive:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

    

2021

    

2020

    

2021

    

2020

Share issuances under equity incentive plans and ESPP 

6,228

5,713

8,307

5,741

Share issuances upon the conversion of convertible senior notes

6,676

6,676

6,676

6,676

Total

 

12,904

12,389

14,983

12,417

8

3. Revenue

Revenue from Collaborative Arrangements

The Company recognized revenues from its collaborative arrangements as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

    

2021

    

2020

2021

    

2020

Janssen

$

1,971

$

5,479

$

5,833

$

12,101

Other

9

9

19

19

Total collaboration revenue

$

1,980

$

5,488

$

5,852

$

12,120

All of the recognized revenues from the Company’s collaborative arrangements presented above were included in deferred revenue at the beginning of the respective periods.

Janssen Biotech

In February 2018, the Company entered into a global co-development and commercialization agreement with Janssen Biotech, Inc. (“Janssen”) for izencitinib (formerly known as TD-1473) and related back-up compounds for inflammatory intestinal diseases, including ulcerative colitis and Crohn’s disease (the “Janssen Agreement”). Under the terms of the Janssen Agreement, the Company received an upfront payment of $100.0 million. The Company is conducting a Phase 2 (DIONE) study of izencitinib in Crohn’s disease and a Phase 2b/3 (RHEA) induction and maintenance study of izencitinib in ulcerative colitis. Following the initial Phase 2 development period, including the completion of the Phase 2 Crohn’s study and the Phase 2b induction portion of the ulcerative colitis study, Janssen can elect to obtain an exclusive license to develop and commercialize izencitinib and certain related back-up compounds by paying the Company a fee of $200.0 million. Upon any such election, the Company and Janssen will jointly develop and commercialize izencitinib in inflammatory intestinal diseases and share profits in the US and expenses related to Phase 3 development and registration activities (67% to Janssen; 33% to Theravance Biopharma). The Company would receive royalties on ex-US sales at double-digit tiered percentage royalty rates, and the Company would be eligible to receive up to an additional $700.0 million in development and commercialization milestone payments from Janssen.

The Janssen Agreement is considered to be within the scope of Accounting Standards Codification, Topic 808, Collaborative Arrangements (“ASC 808”), as the parties are active participants and exposed to the risks and rewards of the collaborative activity. The Company evaluated the terms of the Janssen Agreement and determined it is partially within the scope of Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”) as the research and development activities to be performed through the initial Phase 2 development period of the collaborative arrangement are considered to be part of the Company’s ordinary activities. The Company has identified research and development activities as its only performance obligation. The Company further determined that the transaction price under the arrangement was the $100.0 million upfront payment which was allocated to the single performance obligation.

The $900.0 million in future potential payments, inclusive of the $200.0 million opt-in fee and $700.0 million future development and commercialization milestones, is considered variable consideration if Janssen elects to remain in the collaboration arrangement following completion of the initial Phase 2 development period, as described above and, as such, was not included in the transaction price, as the potential payments were all determined to be fully constrained under ASC 606. As part of the Company’s evaluation of this variable consideration constraint, it determined that the potential payments are contingent upon developmental and regulatory milestones that are uncertain and are highly susceptible to factors outside of its control. The Company expects that any consideration related to royalties and sales-based milestones will be recognized when the subsequent sales occur.

For the three and six months ended June 30, 2021, the Company recognized $2.0 million and $5.8 million, respectively, as revenue from collaboration arrangements related to the Janssen Agreement. The remaining transaction price of $5.6 million, related to the $100.0 million upfront payment, was recorded in deferred revenue on the condensed consolidated balance sheets and will be recognized as collaboration revenue as the research and development services are delivered over the Phase 2 development period which is currently expected to continue through the late fourth quarter of 2021 or early first quarter of 2022. Collaboration revenue is recognized for the research and development services based on a

9

measure of the Company’s efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g., costs incurred compared to total budget). Consequently, delays in trial activity and/or changes to the total budget will impact the timing and amount of revenue recognized in any given reporting period. For the three and six months ended June 30, 2021, the Company incurred $6.1 million and $13.5 million, respectively, in research and development costs related to the Janssen Agreement. For the three and six months ended June 30, 2020, the Company incurred $9.0 million and $19.2 million, respectively, in research and development costs related to the Janssen Agreement. In future reporting periods, the Company will reevaluate the estimates related to its efforts towards satisfying the performance obligation and may record a change in estimate if deemed necessary.

Viatris

In January 2015, the Company and Viatris Inc. (formerly, Mylan Ireland Limited) (“Viatris”) established a strategic collaboration (the “Viatris Agreement”) for the development and commercialization of revefenacin, including YUPELRI® (revefenacin) inhalation solution. The Company entered into the collaboration to expand the breadth of its revefenacin development program and extend its commercial reach beyond the hospital setting.

As of June 30, 2021, the Company is eligible to receive from Viatris potential global (ex-China and adjacent territories) development, regulatory and sales milestone payments totaling up to $205.0 million in the aggregate, with $160.0 million associated with YUPELRI monotherapy, and $45.0 million associated with future potential combination products. Of the $160.0 million associated with monotherapy, $150.0 million relates to sales milestones based on achieving certain levels of net sales and $10.0 million relates to regulatory actions in the European Union (“EU”). The $45.0 million associated with future potential combination products relates solely to development and regulatory actions.

The Viatris Agreement is considered to be within the scope of ASC 808 and partially within the scope of ASC 606, as the parties are active participants and exposed to the risks and rewards of the collaborative activity with a unit of account provided to Viatris as a customer. Under the terms of the Viatris Agreement, which included the delivery by the Company of a license to Viatris to develop and commercialize revefenacin in exchange for $15.0 million received in 2015, Viatris was responsible for reimbursement of the Company’s costs related to the registrational program up until the approval of the first new drug application in November 2018, thereafter, R&D expenses are shared. Performing R&D services for reimbursement is considered to be a collaborative activity under the scope of ASC 808. Reimbursable program costs are recognized proportionately with the performance of the underlying services and accounted for as reductions to R&D expense. For this unit of account, the Company did not recognize revenue or analogize to ASC 606 and, as such, the reimbursable program costs are excluded from the transaction price. The Company determined the license to develop and commercialize revefenacin to be a unit of account and a separate performance obligation for which Viatris is a customer with the $15.0 million for the delivery of the license as the transaction price.

The future potential milestone amounts for the Viatris Agreement were not included in the transaction price, as they were all determined to be fully constrained following the concepts of ASC 606. As part of the Company’s evaluation of the development and regulatory milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals which are not within its control and uncertain at this stage. The Company expects that the sales-based milestone payments and royalty arrangements will be recognized when the sales occur or the milestone is achieved.

The Company is also entitled to a share of US profits and losses (65% to Viatris; 35% to Theravance Biopharma) received in connection with commercialization of YUPELRI, and the Company is entitled to low double-digit tiered royalties on ex-US net sales. Viatris is the principal in the sales transactions, and as a result, the Company does not reflect the product sales in its condensed consolidated financial statements.

Following the US Food and Drug Administration (“FDA”) approval of YUPELRI in November 2018, net amounts payable to or receivable from Viatris each quarter under the profit-sharing structure are disaggregated according to their individual components. In accordance with the applicable accounting guidance, amounts receivable from Viatris in connection with the commercialization of YUPELRI are recorded within the condensed consolidated statements of operations as revenue from “Viatris collaboration agreement” irrespective of whether the overall collaboration is profitable. Amounts payable to Viatris, if any, in connection with the commercialization of YUPELRI are recorded within the condensed consolidated statements of operations as a collaboration loss within selling, general and administrative expenses. Any

10

reimbursement from Viatris attributed to the 65% cost-sharing of the Company’s R&D expenses is characterized as a reduction of R&D expense, as the Company does not consider performing research and development services for reimbursement to be a part of its ordinary activities.

The following YUPELRI-related amounts were recognized within revenue in the Company’s condensed consolidated statements of operations:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

2021

2020

2021

2020

Viatris collaboration agreement - Amounts receivable from Viatris

$

10,934

$

9,520

$

21,319

$

21,250

While Viatris records the total net sales of YUPELRI within its consolidated financial statements, Viatris collaboration agreement revenue includes the Company’s implied 35% share of net sales of YUPELRI for the three and six months ended June 30, 2021 of $14.6 million and $27.5 million, respectively, before deducting shared expenses.

For the three and six months ended June 30, 2020, the Company’s implied 35% share of net sales of YUPELRI was $10.6 million and $23.5 million, respectively, before deducting shared expenses.

Reimbursement of R&D Expense

As noted above, under certain collaborative arrangements the Company is entitled to reimbursement of certain R&D expenses. Activities under collaborative arrangements for which the Company is entitled to reimbursement are considered to be collaborative activities under the scope of ASC 808. For these units of account, the Company does not analogize to ASC 606 or recognize revenue. The Company records reimbursement payments received from its collaboration partners as reductions to R&D expense.

The following table summarizes the reductions to R&D expense related to the reimbursement payments:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

    

2021

    

2020

2021

    

2020

Janssen

$

1,193

$

1,563

$

2,525

$

2,770

Viatris

67

351

161

1,622

Total reduction to R&D expense, net

$

1,260

$

1,914

$

2,686

$

4,392

Revenue from Licensing Arrangements

Viatris

In June 2019, the Company announced the expansion of the Viatris Agreement (the “Viatris Amendment”) to grant Viatris exclusive development and commercialization rights to nebulized revefenacin in China and adjacent territories. In exchange, the Company received an upfront payment of $18.5 million (before a required tax withholding) and will be eligible to receive potential development and sales milestones totaling $54.0 million and low double-digit tiered royalties on net sales of nebulized revefenacin, if approved. Of the $54.0 million in potential milestones, $9.0 million is associated with the development of YUPELRI monotherapy, $7.5 million associated with the development of future potential combination products, and $37.5 million is associated with sales milestones. Viatris is responsible for all aspects of development and commercialization in the partnered regions, including pre- and post-launch activities and product registration and all associated costs.

The Viatris Amendment is accounted for under ASC 606 as a separate contract from the original Viatris Agreement that was entered into in January 2015. The Company identified a single performance obligation comprising of the delivery of the license to develop and commercialize revefenacin in China and adjacent territories. The transaction price was determined to be the upfront payment of $18.5 million which the Company recognized as licensing revenue following the completion of the performance obligation in June 2019.

11

The future potential milestone amounts for the Viatris Amendment were not included in the transaction price, as they were all determined to be fully constrained following the concepts of ASC 606. As part of the Company’s evaluation of the development milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals which are not within its control and uncertain at this stage. The Company expects that the sales-based milestone payments and royalty arrangements will be recognized when the sales occur or the milestone is achieved. The Company will re-evaluate the transaction price each quarter and as uncertain events are resolved or other changes in circumstances occur.

In March 2020, the Company earned a $1.5 million development milestone payment for the acceptance of a clinical trial application associated with the use of YUPELRI monotherapy in China and adjacent territories.

4. Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the current period and comparable prior year period condensed consolidated balance sheets that sum to the total of the same such amount shown on the condensed consolidated statements of cash flows.

June 30, 

(In thousands)

2021

2020

Cash and cash equivalents

$

204,949

$

104,735

Restricted cash

833

833

Total cash, cash equivalents, and restricted cash shown on the condensed
consolidated statements of cash flows

$

205,782

$

105,568

The Company maintains restricted cash for certain lease agreements and letters of credit by which the Company has pledged cash and cash equivalents as collateral. The Company also maintained restricted cash for debt servicing of its 9.5% non-recourse 2035 notes. See “Note 6. Debt” for further information regarding the 9.5% non-recourse 2035 notes. The cash-related amounts reported in the table above exclude the Company’s investments in short and long-term marketable securities that are reported separately on the condensed consolidated balance sheets.

5. Investments and Fair Value Measurements

Available-for-Sale Securities

The estimated fair value of marketable securities is based on quoted market prices for these or similar investments obtained from a commercial pricing service. The fair market value of marketable securities classified within Level 1 is based on quoted prices for identical instruments in active markets. The fair value of marketable securities classified within Level 2 is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-driven valuations whose inputs are observable or whose significant value drivers are observable. Observable inputs may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

Available-for-sale securities are summarized below:

June 30, 2021

    

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

(In thousands)

Cost

Gains

Losses

Fair Value

US government securities

Level 1

$

20,014

$

3

$

$

20,017

Commercial paper

Level 2

52,868

5

52,873

Marketable securities

72,882

8

72,890

Money market funds

Level 1

162,607

162,607

Total

$

235,489

$

8

$

$

235,497

12

December 31, 2020

    

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

(In thousands)

Cost

Gains

Losses

Fair Value

US government securities

Level 1

$

75,036

$

34

$

$

75,070

US government agency securities

Level 2

 

74,971

 

18

 

 

74,989

Corporate notes

Level 2

 

5,046

 

 

(1)

 

5,045

Commercial paper

Level 2

56,374

1

(5)

56,370

Marketable securities

211,427

53

(6)

211,474

Money market funds

Level 1

Total

$

211,427

$

53

$

(6)

$

211,474

As of June 30, 2021, all of the Company’s available-for-sale securities had contractual maturities within 6 months and the weighted-average maturity of marketable securities was approximately 1 month. There were no transfers between Level 1 and Level 2 during the periods presented, and there have been no material changes to the Company’s valuation techniques during the three and six months ended June 30, 2021.

As of June 30, 2021, the Company did not have any available-for-sale debt securities with unrealized losses. Available-for-sale debt securities with unrealized losses as of December 31, 2020 is summarized below:

December 31, 2020

Less than 12 Months

Greater than 12 Months

Total

    

    

Gross

    

Gross

    

Gross

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

(In thousands)

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Corporate notes

$

5,045

$

(1)

$

$

$

5,045

$

(1)

Commercial paper

39,375

(5)

39,375

(5)

Total

$

44,420

$

(6)

$

$

$

44,420

$

(6)

The Company invests primarily in high credit quality and short-term maturity debt securities with the intent to hold such securities until maturity at par value. The Company does not intend to sell the investments that are currently in an unrealized loss position, and it is unlikely that it will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. The Company reviewed its available-for-sale debt securities and determined that there were no credit-related losses to be recognized as of June 30, 2021.

As of June 30, 2021, the Company’s accumulated other comprehensive income on its condensed consolidated balance sheets consisted of net unrealized gains on available-for-sale investments. For the three and six months ended June 30, 2021, the Company did not sell any marketable securities, and for the three and six months ended June 30, 2020, the Company sold marketable securities for total proceeds of $5.0 million and $19.9 million, respectively, and recognized minimal net realized gains from the sales based on the specific identification method.

13

6. Debt

Debt consisted of the following liability components:

June 30, 

(In thousands)

    

2021

9.5% Non-Recourse 2035 Notes:

Principal amount

$

407,277

Less: 5% retained by the Company

(20,364)

Unamortized debt issuance costs - 9.5% Non-Recourse 2035 Notes

 

(3,470)

Unamortized debt issuance costs - Modified 9.0% Non-Recourse 2033 Notes

(1,433)

382,010

3.25% Convertible 2023 Notes:

Principal amount

230,000

Unamortized debt issuance costs

(2,501)

227,499

Total debt

$

609,509

9.5% Non-Recourse Notes Due 2035

On February 21, 2020, Theravance Biopharma R&D, Inc. (“Theravance R&D”), a wholly-owned subsidiary of the Company, and Triple Royalty Sub II LLC (the “Issuer II” or “Triple II”), a wholly-owned subsidiary of Theravance Biopharma R&D, entered into certain note purchase agreements (“Note Purchase Agreements”) with certain note purchasers (“Note Purchasers”), relating to the private placement by Issuer II of $400.0 million 9.5% Fixed Rate Term Notes due on or before 2035 (the “Non-Recourse 2035 Notes”). Ninety-five percent of the Non-Recourse 2035 Notes were sold to the Note Purchasers pursuant to the Note Purchase Agreements. The remaining 5% of the Non-Recourse 2035 Notes (the “Retained Notes”) were retained by the Company to comply with Regulation RR — Credit Risk Retention (17 C.F.R. Part 246). The Retained Notes are eliminated in the Company’s condensed consolidated financial statements.

The Non-Recourse 2035 Notes are secured by all of Issuer II’s right, title and interest as a holder of certain membership interests (the “Issuer II Class C Units”) in Theravance Respiratory Company, LLC (“TRC”). TRC holds the right to receive upward-tiering royalties ranging from 6.5% to 10% on worldwide net sales of TRELEGY, and the Company holds an 85% economic interest in TRC. The Issuer II Class C Units represent 75% of the Company's 85% economic interest, which equates to 63.75% of the economic interests in TRC.

The source of principal and interest payments for the Non-Recourse 2035 Notes are the future royalty payments generated from the TRELEGY program, and as a result, the holders of the Non-Recourse 2035 Notes have no recourse against the Company even if the TRELEGY payments are insufficient to cover the principal and interest payments for the Non-Recourse 2035 Notes. Prior to and including the December 5, 2024 payment date, in the event that the distributions received by the Issuer II from TRC in a quarter are less than the interest accrued for that quarter, the principal amount of the Non-Recourse 2035 Notes will increase by the interest shortfall amount for that quarter. While the holders of the Non-Recourse 2035 Notes have no recourse against the Company, the terms of the Non-Recourse 2035 Notes also provide that the Company, at its option, may satisfy the quarterly interest payment obligations by making a capital contribution to the Issuer II. During the six months ended June 30, 2021, the net principal amount of the Non-Recourse 2035 Notes decreased by $10.7 million which represented royalties received in excess of the interest payable through the respective payment date.

The Non-Recourse 2035 Notes are not convertible into Company equity and have no security interest in nor rights under any agreement with Glaxo Group Limited or one of its affiliates (“GSK”). The Non-Recourse 2035 Notes may be redeemed by Issuer II on and after February 28, 2022, in whole or in part, at specified redemption premiums. The Non-Recourse 2035 Notes bear an annual interest rate of 9.5%, with interest and principal paid quarterly beginning June 5, 2020. Since the principal and interest payments on the Non-Recourse 2035 Notes are ultimately based on royalties from TRELEGY product sales, which will vary from quarter to quarter, the Non-Recourse 2035 Notes may be repaid prior to the final maturity date in 2035. Following the redemption or repayment of the Non-Recourse 2035 Notes, all TRELEGY-related pledged cash flows will revert back to the Company.

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The portion of the Non-Recourse 2035 Notes classified as a current liability, if any, is based on the amount of royalties received, or receivable, as of June 30, 2021, that are expected to be used to make a principal repayment on the Non-Recourse 2035 Notes within the next 12 months.

As of June 30, 2021, the net principal and estimated fair value of the Non-Recourse 2035 Notes were $386.9 million and $388.8 million, respectively. The inputs to determine fair value of the Non-Recourse 2035 Notes are categorized as Level 2 inputs. Level 2 inputs include quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

3.25% Convertible Senior Notes Due 2023

The Company had $230.0 million of 3.25% convertible senior notes due in 2023 (“Convertible Senior 2023 Notes”) outstanding as of June 30, 2021 with an estimated fair value of $217.9 million. The estimated fair value was primarily based upon the underlying price of Theravance Biopharma’s publicly traded shares and other observable inputs as of June 30, 2021. The inputs to determine fair value of the Convertible Senior 2023 Notes are categorized as Level 2 inputs. Level 2 inputs include quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

7. Theravance Respiratory Company, LLC

Through the Company’s 85% equity interest in TRC, the Company is entitled to receive an 85% economic interest in any future payments made by GSK under the strategic alliance agreement and under the portion of the collaboration agreement assigned to TRC (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters). The primary drug program assigned to TRC is Trelegy.

In May 2014, the Company entered into the TRC LLC Agreement with Innoviva, Inc. (“Innoviva”) that governs the operation of TRC. Under the TRC LLC Agreement, Innoviva is the manager of TRC, and the business and affairs of TRC are managed exclusively by the manager, including (i) day to day management of the drug programs in accordance with the existing GSK agreements; (ii) preparing an annual operating plan for TRC; and (iii) taking all actions necessary to ensure that the formation, structure and operation of TRC complies with applicable law and partner agreements. The Company is responsible for its proportionate share of TRC’s administrative expenses incurred, and communicated to the Company, by Innoviva.

The Company analyzed its ownership, contractual and other interests in TRC to determine if it is a variable-interest entity (“VIE”), whether the Company has a variable interest in TRC and the nature and extent of that interest. The Company determined that TRC is a VIE. The party with the controlling financial interest, the primary beneficiary, is required to consolidate the entity determined to be a VIE. Therefore, the Company also assessed whether it is the primary beneficiary of TRC based on the power to direct TRC’s activities that most significantly impact TRC’s economic performance and its obligation to absorb TRC’s losses or the right to receive benefits from TRC that could potentially be significant to TRC. Based on the Company’s assessment, the Company determined that it is not the primary beneficiary of TRC, and, as a result, the Company does not consolidate TRC in its condensed consolidated financial statements. TRC is recognized in the Company’s condensed consolidated financial statements under the equity method of accounting.

For the three and six months ended June 30, 2021, the Company recognized net royalty income of $21.9 million and $38.5 million, respectively, in the condensed consolidated statements of operations within “Income from investment in TRC, LLC”. These amounts were recorded net of the Company’s share of TRC’s expenses of $0.3 million and $3.1 million for the three and six months ended June 30, 2021, respectively. The share of TRC expenses for the three and six months ended June 30, 2021 was primarily comprised of TRC legal and related fees associated with the most recent arbitration between Innoviva, as the manager of TRC, and TRC and the Company (see below for more information regarding the arbitration).

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For the three and six months ended June 30, 2020, the Company recognized net royalty income of $21.4 million and $34.9 million, respectively. These amounts were recorded net of the Company’s share of TRC’s expenses of $0.4 million and $0.6 million for the three and six months ended June 30, 2020, respectively.

For the three and six months ended June 30, 2021, the Company also recognized a net unrealized loss of $0.2 million and a net unrealized gain of $0.3 million, respectively, associated with the estimated fair market value of certain equity investments made by TRC.

As of June 30, 2021, the amounts due from TRC of $27.7 million were recorded as a current asset in the condensed consolidated balance sheets within “Amounts due from TRC, LLC”. In addition, the Company has recorded $35.8 million as a long-term asset within “Equity in net assets of TRC, LLC” in the condensed consolidated balance sheets which represented its share of TRC’s net assets including funds withheld by TRC for future investments.

TRC’s summarized income statement information is presented below: