Theravance Biopharma(TBPH) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' deficit, and cash flows, with accompanying notes, for periods ended September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' deficit as of September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (September 30, 2021 vs. December 31, 2020) | (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Assets | | | | Total current assets | $297,172 | $393,341 | | Total assets | $403,109 | $469,057 | | Liabilities and Shareholders' Deficit | | | | Total current liabilities | $66,082 | $123,571 | | Convertible senior notes due 2023, net | $227,767 | $226,963 | | Non-recourse notes due 2035, net | $375,570 | $372,873 | | Total liabilities and shareholders' deficit | $403,109 | $469,057 | | Total shareholders' deficit | $(323,592) | $(303,751) | - Total current assets decreased by $96.169 million (24.45%) from $393.341 million at December 31, 2020, to $297.172 million at September 30, 2021, primarily due to a decrease in short-term marketable securities[7] - Total current liabilities decreased by $57.489 million (46.52%) from $123.571 million at December 31, 2020, to $66.082 million at September 30, 2021[7] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance, including revenue, expenses, and net loss, for the three and nine months ended September 30, 2021 and 2020 Condensed Consolidated Statements of Operations and Comprehensive Loss (Three Months Ended September 30) | (In thousands, except per share data) | 2021 | 2020 | Change ($) | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | :--------- | | Total revenue | $13,194 | $18,257 | $(5,063) | (27.73)% | | Research and development | $43,739 | $67,371 | $(23,632) | (35.08)% | | Selling, general and administrative | $21,299 | $27,501 | $(6,202) | (22.55)% | | Restructuring and related expenses | $1,771 | $— | $1,771 | NM | | Loss from operations | $(53,615) | $(76,615) | $23,000 | 30.02% | | Income from investment in TRC, LLC | $30,208 | $13,403 | $16,805 | 125.38% | | Net loss | $(35,308) | $(73,643) | $38,335 | 52.05% | | Basic and diluted net loss per share | $(0.48) | $(1.16) | $0.68 | 58.62% | Condensed Consolidated Statements of Operations and Comprehensive Loss (Nine Months Ended September 30) | (In thousands, except per share data) | 2021 | 2020 | Change ($) | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | :--------- | | Total revenue | $40,365 | $53,127 | $(12,762) | (24.02)% | | Research and development | $162,431 | $195,788 | $(33,357) | (17.04)% | | Selling, general and administrative | $77,780 | $78,606 | $(826) | (1.05)% | | Restructuring and related expenses | $1,771 | $— | $1,771 | NM | | Loss from operations | $(201,617) | $(221,267) | $19,650 | 8.88% | | Income from investment in TRC, LLC | $68,681 | $48,299 | $20,382 | 42.20% | | Net loss | $(167,392) | $(219,583) | $52,191 | 23.77% | | Basic and diluted net loss per share | $(2.46) | $(3.55) | $1.09 | 30.70% | Condensed Consolidated Statements of Shareholders' Deficit This section outlines changes in the company's shareholders' deficit, reflecting the impact of net loss, share issuances, and share-based compensation for the nine months ended September 30, 2021 Shareholders' Deficit Changes (Nine Months Ended September 30, 2021) | (In thousands) | Balance at Dec 31, 2020 | Net proceeds from sale of ordinary shares | Employee share-based compensation expense | Net loss | Balance at Sep 30, 2021 | | :-------------------------------- | :---------------------- | :---------------------------------------- | :---------------------------------------- | :------- | :---------------------- | | Total Shareholders' Deficit | $(303,751) | $108,180 | $45,143 | $(167,392) | $(323,592) | - The total shareholders' deficit increased from $(303,751) thousand at December 31, 2020, to $(323,592) thousand at September 30, 2021, primarily due to a net loss of $(167,392) thousand, partially offset by $108,180 thousand from the sale of ordinary shares and $45,143 thousand in share-based compensation expense[11] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | (In thousands) | 2021 | 2020 | Change ($) | | :----------------------------------- | :--- | :--- | :--------- | | Net cash used in operating activities | $(165,424) | $(185,478) | $20,054 | | Net cash provided by (used in) investing activities | $113,670 | $(41,647) | $155,317 | | Net cash provided by financing activities | $91,711 | $262,342 | $(170,631) | | Net increase in cash, cash equivalents, and restricted cash | $39,957 | $35,218 | $4,739 | | Cash, cash equivalents, and restricted cash at end of period | $122,257 | $94,115 | $28,142 | - Net cash used in operating activities decreased by $20.054 million, from $(185.478) million in 2020 to $(165.424) million in 2021, primarily due to a lower net loss and adjustments for non-cash items[12] - Net cash provided by investing activities significantly increased by $155.317 million, shifting from a net outflow of $(41.647) million in 2020 to a net inflow of $113.670 million in 2021, mainly driven by net purchases and maturities of marketable securities[12] - Net cash provided by financing activities decreased by $170.631 million, from $262.342 million in 2020 to $91.711 million in 2021, largely due to the proceeds from the issuance of Non-Recourse 2035 Notes in 2020 and the repayment of Non-Recourse 2033 Notes[12] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, revenue recognition, debt, and other financial information 1. Organization and Summary of Significant Accounting Policies This section describes Theravance Biopharma's business focus on respiratory medicines and outlines the significant accounting policies used in preparing the unaudited interim financial statements - Theravance Biopharma is a biopharmaceutical company focused on the discovery, development, and commercialization of respiratory medicines[14] - The condensed consolidated financial statements are unaudited and prepared in accordance with US GAAP for interim financial information, including all necessary normal recurring adjustments[15] - The adoption of ASU 2019-12, which simplifies accounting for income taxes, did not have a material impact on the company's financial statements[19][21] - ASU 2020-06, simplifying accounting for debt with conversion and other options, is effective after December 15, 2021, and is not expected to have a material impact[22] 2. Net Loss per Share This section presents the calculation of basic and diluted net loss per share, along with the weighted-average ordinary shares used, for the three and nine months ended September 30, 2021 and 2020 Net Loss per Share (Three and Nine Months Ended September 30) | (In thousands, except per share data) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(35,308) | $(73,643) | $(167,392) | $(219,583) | | Weighted-average ordinary shares used to compute basic and diluted net loss per share | 73,574 | 63,303 | 67,945 | 61,881 | | Basic and diluted net loss per share | $(0.48) | $(1.16) | $(2.46) | $(3.55) | - Diluted and basic net loss per share were identical for all periods presented because potential ordinary shares were anti-dilutive[25] Anti-dilutive Securities (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Share issuances under equity incentive plans and ESPP | 8,900 | 8,063 | 8,307 | 6,566 | | Share issuances upon the conversion of convertible senior notes | 6,676 | 6,676 | 6,676 | 6,676 | | Total anti-dilutive securities | 15,576 | 14,739 | 14,983 | 13,242 | 3. Revenue This section details the company's revenue streams, including collaboration and licensing revenue, and the Viatris collaboration agreement, for the three and nine months ended September 30, 2021 and 2020 Collaboration Revenue (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Janssen | $2,788 | $7,252 | $8,621 | $19,353 | | Other | $9 | $9 | $28 | $28 | | Total collaboration revenue | $2,797 | $7,261 | $8,649 | $19,381 | - Collaboration revenue decreased by $4.464 million (61%) for the three months and $10.732 million (55%) for the nine months ended September 30, 2021, compared to the same periods in 2020, primarily due to reduced R&D costs for the Janssen Agreement as the izencitinib Phase 2 studies near completion[27][32][33][165] - The company recognized $10.397 million and $31.716 million in revenue from the Viatris collaboration agreement for the three and nine months ended September 30, 2021, respectively, representing its 35% share of YUPELRI net sales[10][42][170] - The company incurred $4.7 million and $18.3 million in R&D costs related to the Janssen Agreement for the three and nine months ended September 30, 2021, respectively[34] Reduction to R&D Expense from Reimbursement Payments (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Janssen | $2,205 | $1,461 | $4,730 | $4,231 | | Viatris | $1,096 | $(57) | $1,257 | $1,565 | | Total reduction to R&D expense, net | $3,301 | $1,404 | $5,987 | $5,796 | - Licensing revenue decreased by $1.5 million for the nine months ended September 30, 2021, due to a non-recurring milestone achievement in the prior year related to the Viatris agreement for revefenacin in China[10][51][166] 4. Cash, Cash Equivalents, and Restricted Cash This section provides a breakdown of the company's cash, cash equivalents, and restricted cash balances as of September 30, 2021, and September 30, 2020 Cash, Cash Equivalents, and Restricted Cash (September 30) | (In thousands) | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Cash and cash equivalents | $121,424 | $93,282 | | Restricted cash | $833 | $833 | | Total cash, cash equivalents, and restricted cash | $122,257 | $94,115 | - Restricted cash is maintained for certain lease agreements, letters of credit, and debt servicing of the 9.5% non-recourse 2035 notes[53] 5. Investments and Fair Value Measurements This section details the company's available-for-sale securities and their fair value measurements as of September 30, 2021, including US government securities, corporate notes, and commercial paper Available-for-Sale Securities (September 30, 2021) | (In thousands) | Level | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :----------------------------------- | :---- | :------------- | :--------------------- | :---------------------- | :------------------- | | US government securities | Level 1 | $5,000 | $— | $— | $5,000 | | Corporate notes | Level 2 | $4,800 | $6 | $— | $4,806 | | Commercial paper | Level 2 | $94,978 | $4 | $— | $94,982 | | Marketable securities | | $104,778 | $10 | $— | $104,788 | | Money market funds | Level 1 | $80,836 | $— | $— | $80,836 | | Total | | $185,614 | $10 | $— | $185,624 | - As of September 30, 2021, all available-for-sale securities had contractual maturities within 6 months, with a weighted-average maturity of approximately one month[56] - The company did not have any available-for-sale debt securities with material unrealized losses as of September 30, 2021[57] 6. Debt This section outlines the company's debt components, including the 9.5% Non-Recourse 2035 Notes and 3.25% Convertible 2023 Notes, as of September 30, 2021 Debt Components (September 30, 2021) | (In thousands) | Amount | | :----------------------------------- | :----- | | 9.5% Non-Recourse 2035 Notes (net) | $388,100 | | 3.25% Convertible 2023 Notes (net) | $227,767 | | Total debt | $615,867 | - The Non-Recourse 2035 Notes are secured by 63.75% of the economic interests in TRC, which receives royalties from worldwide net sales of TRELEGY[62] - During the three months ended September 30, 2021, $5.7 million of net interest shortfall was added to the principal amount of the Non-Recourse 2035 Notes[63] - The Convertible Senior 2023 Notes had an estimated fair value of $212.8 million as of September 30, 2021[67] 7. Leases This section details the company's lease activities, including the termination of office space and a new sublease agreement, and their financial impact - In July 2021, the company terminated approximately 8,000 square feet of office space, resulting in a $1.9 million gain that partially offset operating expenses[68] - The company entered into a sublease agreement for approximately 21,000 square feet of its South San Francisco space, starting October 2021, with initial monthly base rent of $0.1 million[69] 8. Theravance Respiratory Company, LLC This section describes the company's 85% economic interest in TRC, which receives royalties from TRELEGY sales, and the accounting treatment under the equity method - The company holds an 85% economic interest in TRC, which is entitled to receive royalties on worldwide net sales of TRELEGY from GSK[70] - TRC is accounted for under the equity method, as the company is not its primary beneficiary[72] Income from Investment in TRC, LLC (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net royalty income | $30,208 | $13,403 | $68,681 | $48,299 | | Company's share of TRC's expenses | $0.2 | $0.5 | $3.2 | $1.2 | | Net unrealized gain on equity investments | $0.1 | N/A | $0.5 | N/A | - An arbitration ruling in March 2021 stated that Innoviva and TRC had not breached the TRC LLC Agreement by investing TRELEGY royalties at current levels, but future investments may require the company's consent if they materially adversely affect its economic interest[78][80] 9. Share-Based Compensation This section details the share-based compensation expense recognized for research and development and selling, general and administrative activities for the three and nine months ended September 30, 2021 and 2020 Share-Based Compensation Expense (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $6,956 | $7,761 | $22,192 | $23,724 | | Selling, general and administrative | $7,414 | $7,803 | $22,951 | $23,701 | | Total share-based compensation expense | $14,370 | $15,564 | $45,143 | $47,425 | | Performance-contingent awards expense | $0.1 | $0.7 | $0.7 | $3.1 | 10. Income Taxes This section presents the provision for income tax benefit or expense for the three and nine months ended September 30, 2021 and 2020, and discusses the valuation allowance against deferred tax assets Provision for Income Tax Benefit (Expense) (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Provision for income tax benefit (expense) | $7 | $(93) | $— | $(279) | - The company recognized an income tax benefit of $7 thousand for the three months ended September 30, 2021, and no income tax expense for the nine months ended September 30, 2021, primarily due to estimates of contingent liabilities for uncertain tax positions[10][84][193] - Deferred tax assets are fully offset by a valuation allowance as of September 30, 2021[85] 11. Public Offering of Ordinary Shares This section details the public offering of ordinary shares on June 29, 2021, including the number of shares sold and the gross proceeds generated - On June 29, 2021, the company sold 7,705,000 ordinary shares (including underwriter option) at $15.00 per share, generating approximately $115.6 million in gross proceeds[90][198] 12. Corporate Restructuring This section outlines the corporate restructuring announced in September 2021, focusing on respiratory therapeutics, the resulting headcount reduction, and estimated restructuring charges - On September 15, 2021, the company announced a corporate restructuring to focus on respiratory therapeutics, reducing headcount by approximately 75% (270 positions)[91][101] - The company incurred $1.771 million in restructuring charges for employee-related separation costs for the three and nine months ended September 30, 2021[10][92][180] - Total cash expenses related to the restructuring are estimated at $18.0 million to $20.0 million, with the majority expected by Q1 2022[92][102][180] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business developments, strategic shifts, and financial performance drivers Management Overview This section provides an overview of Theravance Biopharma's core business as a biopharmaceutical company focused on respiratory medicines, including its FDA-approved product YUPELRI® and economic interest in GSK-partnered programs - Theravance Biopharma is a biopharmaceutical company focused on discovering, developing, and commercializing respiratory medicines, including FDA-approved YUPELRI® (revefenacin) inhalation solution for COPD[97][99] - The company holds an 85% economic interest in potential future payments from GSK related to certain programs, including TRELEGY[100] Strategic Actions to Focus on Respiratory Diseases This section outlines the company's corporate restructuring in September 2021, aimed at focusing resources on respiratory programs, reducing headcount, and achieving cash flow positivity - In September 2021, the company approved a corporate restructuring to focus resources on promising respiratory programs, reducing headcount by approximately 75% (estimated 270 positions)[101] - The restructuring is expected to generate estimated annualized operating expense savings of approximately $165.0 million in 2022 (excluding share-based compensation and one-time costs)[102] - The company aims to become sustainably cash flow positive starting in the second half of 2022 by narrowing R&D focus to YUPELRI label updates and inhaled JAK inhibitor portfolio (nezulcitinib)[103][104] Impact of COVID-19 Pandemic This section discusses the ongoing challenges posed by the COVID-19 pandemic, including its impact on employees, patients, clinical trials, and business operations, and the company's mitigation strategies - The COVID-19 pandemic continues to pose substantial public health and economic challenges, impacting employees, patients, clinical trials, and business operations[105] - The company implemented a work-from-home policy, limited non-essential travel, and continues to monitor the pandemic's impact on YUPELRI sales and clinical development programs[106][108] Respiratory Program Highlights This section highlights key developments and performance of the company's respiratory programs, including YUPELRI, the Viatris collaboration, and the nezulcitinib and TD-8236 JAK inhibitor programs YUPELRI(revefenacin) Inhalation Solution This section describes YUPELRI, an FDA-approved nebulized LAMA for COPD, its market performance, and plans for a Phase 4 study to support a potential label update - YUPELRI (revefenacin) inhalation solution is a once-daily, nebulized LAMA approved for maintenance treatment of COPD in the US[109][110] - YUPELRI has been profitable on a brand basis since H2 2020, but sales growth was impacted by COVID-19, showing increased volatility through 2021[110] - A Phase 4 study comparing YUPELRI to tiotropium in severe COPD patients with suboptimal inspiratory flow rate is expected to initiate in December 2021 or January 2022 to support a possible label update[112] Viatris Collaboration This section details the company's co-development and commercialization agreement with Viatris for revefenacin, including profit/loss sharing and potential milestone payments - The company co-develops revefenacin with Viatris for COPD, with Viatris leading US commercialization under a 65% (Viatris) / 35% (Theravance Biopharma) profit/loss sharing arrangement[113][114] - Viatris was granted exclusive development and commercialization rights for nebulized revefenacin in China and adjacent territories in June 2019, with potential for $54.0 million in development and sales milestones[116] - As of September 30, 2021, the company is eligible for up to $257.5 million in potential global development, regulatory, and sales milestone payments from Viatris[117] Lung-selective, Nebulized Pan-Janus Kinase (JAK) Inhibitor (Nezulcitinib) This section discusses nezulcitinib, a lung-selective, nebulized JAK inhibitor in clinical development for Acute Lung Injury (ALI) caused by COVID-19, and its Phase 2 study results - Nezulcitinib is a lung-selective, nebulized JAK inhibitor in clinical development for hospitalized patients with Acute Lung Injury (ALI) caused by COVID-19[118] - Phase 2 study results showed nezulcitinib was generally well-tolerated and demonstrated a favorable trend in 28-day all-cause mortality compared to placebo, particularly in patients with C-reactive protein (CRP) <150 mg/L, but did not meet the primary endpoint of Respiratory Failure-Free Days[120][121] Lung-selective Pan-JAK Inhibitor Program (TD-8236) This section describes TD-8236, an inhaled lung-selective pan-JAK inhibitor, its Phase 2a study results in allergic asthma, and the decision to pause its clinical program for strategic refinement - TD-8236, an inhaled lung-selective pan-JAK inhibitor, showed target engagement in the lung but did not protect against lung function decline in a Phase 2a allergen challenge study in mild allergic asthma patients[123][124] - The clinical program for TD-8236 is paused, with plans to refine and expand molecules in the inhaled JAK inhibitor portfolio and seek a strategic partnership for the next-generation compound[125] Non-Core Asset Highlights This section provides updates on the company's non-core assets, including ampreloxetine, izencitinib, and TD-5202, and the Janssen Biotech collaboration, following recent clinical study results and strategic shifts - Key operational activities for all izencitinib and ampreloxetine studies are expected to be completed by the end of Q1 2022[127] Ampreloxetine (TD-9855) This section discusses ampreloxetine, a norepinephrine reuptake inhibitor developed for neurogenic orthostatic hypotension (nOH), and the outcome of its Phase 3 clinical study - Ampreloxetine, a wholly-owned norepinephrine reuptake inhibitor, was being developed for symptomatic neurogenic orthostatic hypotension (nOH)[128] - The SEQUOIA Phase 3 clinical study for ampreloxetine did not meet its primary endpoint in September 2021[130] Gut-selective Pan-JAK Inhibitor Program (Izencitinib) This section describes izencitinib, an orally administered, gut-selective pan-JAK inhibitor for inflammatory intestinal diseases, and the results of its Phase 2b/3 ulcerative colitis study - Izencitinib, an orally administered, gut-selective pan-JAK inhibitor, was designed to treat inflammatory intestinal diseases[131] - The Phase 2b/3 (RHEA) study for ulcerative colitis did not meet its primary or key secondary endpoints in August 2021[133] - The Phase 2 (DIONE) study in Crohn's disease has completed enrollment, with top-line results expected in Q1 2022[134] Irreversible JAK3 Inhibitor (TD-5202) This section introduces TD-5202, an investigational, orally administered, gut-selective, irreversible JAK3 inhibitor for T-cell mediated inflammatory intestinal diseases, and its Phase 1 study data - TD-5202 is an investigational, orally administered, gut-selective, irreversible JAK3 inhibitor designed for T-cell mediated inflammatory intestinal diseases[135][137] - Phase 1 study data indicated TD-5202 was generally well tolerated with low plasma pharmacokinetics, consistent with a gut-selective approach[138] Janssen Biotech Collaboration This section outlines the global co-development and commercialization agreement with Janssen for izencitinib, including upfront payments and potential milestones, and the impact of recent clinical study results - The company has a global co-development and commercialization agreement with Janssen for izencitinib, with an upfront payment of $100.0 million and potential for an additional $900.0 million in payments[140] - Due to unfavorable Phase 2b ulcerative colitis study results, the $200.0 million opt-in payment from Janssen has been excluded from assumptions and forecasts[140] Economic Interest in GSK-Partnered Respiratory Programs This section details the company's 85% economic interest in future payments from GSK to TRC, primarily related to TRELEGY, and the mechanism for receiving these royalties - The company holds an 85% economic interest in future payments from GSK to TRC related to GSK-Partnered Respiratory Programs, primarily TRELEGY[141] TRELEGY (the combination of fluticasone furoate/umeclidinium bromide/vilanterol) This section describes TRELEGY, its approvals for COPD and asthma, the company's economic interest in its royalties, and its global peak sales expectations - TRELEGY is approved in the US, EU, and other countries for once-daily maintenance treatment of COPD and received FDA approval for asthma in September 2020[143][144][146] - The company's economic interest in TRELEGY royalties ranges from 5.5% to 8.5% of worldwide net sales (net of TRC expenses)[143] - TRELEGY is currently expected to generate global peak sales exceeding $3.0 billion annually[146] Theravance Respiratory Company, LLC This section explains TRC's role as the mechanism for receiving GSK payments, the allocation of income for debt payment, and the outcome of the arbitration ruling regarding royalty investments - The company's 85% economic interest in TRC is the mechanism for receiving payments from GSK, with 75% of this income (63.75% of total TRC income) available only for payment of the Non-Recourse 2035 Notes[148][149] - An arbitration ruling in March 2021 confirmed that Innoviva and TRC had not breached the LLC Agreement by investing TRELEGY royalties at current levels, but future investments may require the company's consent under certain conditions[151][155] Other Economic Interests This section outlines the company's other economic interests, including the selective 5-HT4 agonist (TD-8954) under a Takeda collaboration and the skin-selective pan-JAK inhibitor program licensed to Pfizer Selective 5-HT4 Agonist (TD-8954) This section introduces TD-8954, a selective 5-HT4 receptor agonist in Phase 2 development for post-operative gastrointestinal dysfunction - TD-8954 is a selective 5-HT4 receptor agonist in Phase 2 development for post-operative gastrointestinal dysfunction[156][157] Takeda Collaborative Arrangement This section details the Takeda Agreement, under which Takeda is responsible for worldwide development and commercialization of TD-8954, with the company eligible for upfront payments, milestones, and royalties - Under the Takeda Agreement, Takeda is responsible for worldwide development and commercialization of TD-8954, with the company eligible for an upfront payment of $15.0 million, success-based milestones, and tiered royalties[157] Skin-selective Pan-JAK inhibitor Program This section describes the global license agreement with Pfizer for the company's preclinical skin-selective, locally-acting pan-JAK inhibitor program, including upfront payments and potential milestones - In December 2019, the company entered a global license agreement with Pfizer for its preclinical skin-selective, locally-acting pan-JAK inhibitor program[158] - The agreement includes an upfront cash payment of $10.0 million and eligibility for up to $240.0 million in development and sales milestone payments, plus tiered royalties[159] Research Projects This section outlines the company's streamlined R&D focus following the September 2021 restructuring, prioritizing high-value respiratory opportunities and halting non-respiratory disease-related programs - As a result of the September 2021 restructuring, the company will streamline its R&D focus on high-value core respiratory opportunities, including the YUPELRI PIFR clinical study and the inhaled JAK inhibitor portfolio (nezulcitinib)[160] - Development of all non-respiratory disease-related programs will halt, except for closing out the izencitinib Phase 2 Crohn's disease study and the ampreloxetine Phase 3 REDWOOD study[162] Critical Accounting Policies and Estimates This section confirms that there have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the critical accounting policies and estimates discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2020[163] Results of Operations This section provides a detailed analysis of the company's financial performance, including revenue, research and development expenses, selling, general and administrative expenses, and other income and expenses, for the three and nine months ended September 30, 2021 and 2020 Revenue This section analyzes the company's total revenue, including collaboration, licensing, and Viatris collaboration agreement revenue, for the three and nine months ended September 30, 2021 and 2020 Total Revenue (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Collaboration revenue | $2,797 | $7,261 | $(4,464) | (61)% | | Licensing revenue | $— | $— | $— | — | | Viatris collaboration agreement | $10,397 | $10,996 | $(599) | (5)% | | Total revenue | $13,194 | $18,257 | $(5,063) | (28)% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Collaboration revenue | $8,649 | $19,381 | $(10,732) | (55)% | | Licensing revenue | $— | $1,500 | $(1,500) | NM | | Viatris collaboration agreement | $31,716 | $32,246 | $(530) | (2)% | | Total revenue | $40,365 | $53,127 | $(12,762) | (24)% | - Collaboration revenue decreased due to reduced R&D costs for the Janssen agreement as izencitinib Phase 2 studies neared completion[165] - Licensing revenue decreased due to a non-recurring milestone in the prior year related to the Viatris agreement for revefenacin in China[166] - Demand doses for YUPELRI increased 21% in Q3 2021 compared to Q3 2020, but prescription volumes in pulmonology remain below pre-pandemic levels[170] Research and Development This section analyzes the company's research and development expenses, including employee-related, share-based compensation, external-related, and facilities costs, for the three and nine months ended September 30, 2021 and 2020 R&D Expenses (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Employee-related | $7,506 | $15,979 | $(8,473) | (53)% | | Share-based compensation | $6,956 | $7,761 | $(805) | (10)% | | External-related | $23,693 | $35,759 | $(12,066) | (34)% | | Facilities, depreciation and other allocated expenses | $5,584 | $7,872 | $(2,288) | (29)% | | Total research & development | $43,739 | $67,371 | $(23,632) | (35)% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Employee-related | $39,521 | $45,285 | $(5,764) | (13)% | | Share-based compensation | $22,192 | $23,724 | $(1,532) | (6)% | | External-related | $78,551 | $101,556 | $(23,005) | (23)% | | Facilities, depreciation and other allocated expenses | $22,167 | $25,223 | $(3,056) | (12)% | | Total research & development | $162,431 | $195,788 | $(33,357) | (17)% | - R&D expenses decreased by $23.6 million (35%) for the three months and $33.4 million (17%) for the nine months ended September 30, 2021, primarily due to the completion or near-completion of priority programs and the September 2021 restructuring[171] - Reimbursements from collaboration partners reduced R&D expenses by $3.3 million and $6.0 million for the three and nine months ended September 30, 2021, respectively[175] Selling, General and Administrative This section analyzes the company's selling, general and administrative expenses for the three and nine months ended September 30, 2021 and 2020, highlighting the impact of restructuring and legal costs Selling, General and Administrative Expenses (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Selling, general and administrative | $21,299 | $27,501 | $(6,202) | (23)% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Selling, general and administrative | $77,780 | $78,606 | $(826) | (1)% | - SG&A expenses decreased by $6.2 million (23%) for the three months ended September 30, 2021, mainly due to reduced employee-related expenses from the annual corporate bonus reversal and lower external services, following the restructuring[176] - The nine-month decrease of $0.8 million (1%) was offset by increased legal costs related to the TRC arbitration[176] - A $1.9 million gain from a lease modification in July 2021 partially offset facility expenses within SG&A[178] Restructuring and Related Expenses This section details the restructuring and related expenses incurred by the company for the three and nine months ended September 30, 2021 and 2020, primarily due to employee-related separation costs Restructuring and Related Expenses (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Restructuring and related expenses | $1,771 | $— | $1,771 | NM | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Restructuring and related expenses | $1,771 | $— | $1,771 | NM | - The company incurred $1.771 million in restructuring charges for employee-related separation costs during the three and nine months ended September 30, 2021[180] - Total cash expenses for the restructuring are estimated at $18.0 million to $20.0 million, mostly for severance and related costs, to be incurred and paid by Q1 2022[180] Income from Investment in TRC, LLC This section analyzes the income from the company's investment in TRC, LLC for the three and nine months ended September 30, 2021 and 2020, highlighting the impact of TRELEGY royalties and arbitration expenses Income from Investment in TRC, LLC (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Income from investment in TRC, LLC | $30,208 | $13,403 | $16,805 | 125% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Income from investment in TRC, LLC | $68,681 | $48,299 | $20,382 | 42% | - Income from investment in TRC, LLC increased by $16.8 million (125%) for the three months and $20.4 million (42%) for the nine months ended September 30, 2021, driven by higher royalty payments from GSK on TRELEGY net sales[182][183] - The nine-month increase in 2020 included an $8.5 million share of a one-time fee from GSK for MABA program termination[183] - TRC income for the nine months ended September 30, 2021, was recorded net of $3.2 million in TRC expenses, primarily legal and related expenses from the Innoviva/TRC arbitration[184] Interest Expense This section details the company's interest expense for the 9.5% Non-Recourse 2035 Notes and 3.25% Convertible Senior 2023 Notes for the three and nine months ended September 30, 2021 and 2020 Interest Expense (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | 9.5% Non-recourse notes due 2035 | $(9,606) | $(9,437) | $(169) | 2% | | 3.25% Convertible senior notes due 2023 | $(2,136) | $(2,136) | $— | — | | Total interest expense | $(11,742) | $(11,573) | $(169) | 1% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | 9.5% Non-recourse notes due 2035 | $(28,817) | $(26,495) | $(2,322) | 9% | | 3.25% Convertible senior notes due 2023 | $(6,410) | $(6,410) | $— | — | | Total interest expense | $(35,227) | $(32,905) | $(2,322) | 7% | - Interest expense increased by $2.3 million (7%) for the nine months ended September 30, 2021, primarily due to an increase in the principal balance of the Non-Recourse 2035 Notes from refinancing and interest payment shortfalls[188] Loss on Extinguishment of Debt This section reports the loss on extinguishment of debt recognized for the nine months ended September 30, 2020, related to the issuance of Non-Recourse 2035 Notes and repayment of Non-Recourse 2033 Notes Loss on Extinguishment of Debt (Nine Months Ended September 30) | (In thousands) | 2021 | 2020 | Change ($) | Change (%) | | :----------------------------------- | :--- | :--- | :--------- | :--------- | | Loss on extinguishment of debt | $— | $(15,464) | $15,464 | NM | - A $15.5 million loss on extinguishment of debt was recognized for the nine months ended September 30, 2020, related to the issuance of the Non-Recourse 2035 Notes and repayment of the Non-Recourse 2033 Notes[189] Interest and Other Income (Expense), net This section analyzes the company's interest and other income (expense), net, for the three and nine months ended September 30, 2021 and 2020, highlighting the impact of investment balances, yields, and foreign currency fluctuations Interest and Other Income (Expense), net (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Interest and other income (expense), net | $(166) | $1,109 | $(1,275) | (115)% | | Costs related to GSK offering | $— | $126 | $(126) | NM | | Total interest and other income (expense), net | $(166) | $1,235 | $(1,401) | (113)% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest and other income (expense), net | $771 | $3,643 | $(2,872) | (79)% | | Costs related to GSK offering | $— | $(1,610) | $1,610 | NM | | Total interest and other income (expense), net | $771 | $2,033 | $(1,262) | (62)% | - Interest and other income (expense), net, decreased by $1.3 million (113%) for the three months and $1.3 million (62%) for the nine months ended September 30, 2021, primarily due to higher investment balances and lower yields in the prior year, and increased foreign currency losses[190][191] Provision for Income Tax Benefit (Expense) This section details the provision for income tax benefit or expense for the three and nine months ended September 30, 2021 and 2020, highlighting the impact of uncertain tax positions Provision for Income Tax Benefit (Expense) (Three and Nine Months Ended September 30) | (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Provision for income tax benefit (expense) | $7 | $(93) | $100 | (108)% | | (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Provision for income tax benefit (expense) | $— | $(279) | $279 | (100)% | - The provision for income tax expense decreased by $0.1 million for the three months and $0.3 million for the nine months ended September 30, 2021, compared to 2020, due to a lower estimate of uncertain tax positions[193] Liquidity and Capital Resources This section assesses the company's financial liquidity and capital resources, including cash balances, outstanding debt, and the impact of the recent corporate restructuring on future funding needs and cash flow projections - As of September 30, 2021, the company had $216.2 million in cash, cash equivalents, and marketable securities (excluding restricted cash)[194] - Outstanding debt included $230.0 million in principal Convertible Senior 2023 Notes and $392.6 million in principal Non-Recourse 2035 Notes[194] - The Non-Recourse 2035 Notes are secured by 63.75% of TRC's economic interest in GSK's TRELEGY payments, with no recourse against Theravance Biopharma[195] - The September 2021 restructuring is expected to result in annualized operating expense savings of approximately $165.0 million in 2022 and aims for the company to be sustainably cash flow positive by H2 2022[200] Adequacy of cash resources to meet future needs This section evaluates whether the company's current cash, cash equivalents, and marketable securities are sufficient to fund operations for at least the next twelve months, and discusses potential future financing options - The company expects its cash, cash equivalents, and marketable securities to be sufficient to fund operations for at least the next twelve months based on current operating plans[203] - Future financing may be sought through equity offerings, debt financing, or collaborations, but availability and terms are uncertain[204] Cash Flows This section summarizes the company's cash flow activities from operations, investing, and financing for the nine months ended September 30, 2021 and 2020, highlighting significant changes and their drivers Cash Flow Summary (Nine Months Ended September 30) | (In thousands) | 2021 | 2020 | Change ($) | | :----------------------------------- | :--- | :--- | :--------- | | Net cash used in operating activities | $(165,424) | $(185,478) | $20,054 | | Net cash provided by (used in) investing activities | $113,670 | $(41,647) | $155,317 | | Net cash provided by financing activities | $91,711 | $262,342 | $(170,631) | - Operating cash outflow decreased by $20.1 million in 2021, primarily due to a lower net loss[208] - Investing activities shifted to a net inflow of $113.7 million in 2021, driven by net purchases and maturities of marketable securities[210] - Financing cash inflow decreased by $170.6 million in 2021, mainly due to the 2020 issuance of Non-Recourse 2035 Notes and repayment of Non-Recourse 2033 Notes[212][213] Commitments and Contingencies This section addresses the company's indemnification obligations for its officers and directors, noting that the fair value of these agreements is deemed minimal - The company indemnifies its officers and directors for certain events, with the fair value of these agreements deemed minimal[214] Performance-Contingent Awards This section reports the share-based compensation and cash bonus expense recognized for performance-contingent awards for the nine months ended September 30, 2021 - For the nine months ended September 30, 2021, the company recognized $0.7 million in share-based compensation and cash bonus expense related to performance-contingent awards[216] Off-Balance Sheet Arrangements This section confirms that there have been no material changes in the company's off-balance sheet arrangements from those reported in its 2020 Annual Report on Form 10-K - There have been no material changes in off-balance sheet arrangements from those reported in the 2020 Annual Report on Form 10-K[217] Contractual Obligations and Commercial Commitments This section states that there have been no material changes in contractual obligations and commercial commitments from the 2020 Annual Report, but anticipates significant future decreases due to restructuring - No material changes in contractual obligations and commercial commitments from the 2020 Annual Report, but future obligations are anticipated to decrease significantly due to the restructuring[218] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company's market risks have not materially changed as of September 30, 2021, from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - Market risks as of September 30, 2021, have not materially changed from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2020[219] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness at a reasonable assurance level, and notes no material changes in internal control over financial reporting during the third quarter of 2021 Evaluation of Disclosure Controls and Procedures This section confirms that as of September 30, 2021, the company's disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level - As of September 30, 2021, the company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level[220] Limitations on the Effectiveness of Controls This section acknowledges that control systems provide only reasonable, not absolute, assurance and may not prevent all error and fraud due to inherent limitations and resource constraints - Management acknowledges that control systems provide only reasonable, not absolute, assurance and may not prevent all error and fraud due to inherent limitations and resource constraints[221] Changes in Internal Control over Financial Reporting This section states that there were no material changes in internal control over financial reporting during the third quarter of 2021 that affected or are reasonably likely to affect the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the third quarter of 2021 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[222] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section details the arbitration proceedings initiated by the company against Innoviva and TRC regarding the use of TRELEGY royalties, and the arbitrator's ruling on investment levels and consent requirements - The company initiated arbitration in October 2020 against Innoviva and TRC, challenging their plan to use TRELEGY royalties for investments instead of distributions[223] - On March 30, 2021, the arbitrator ruled that Innoviva and TRC had not breached the LLC Agreement at current investment levels, nor their fiduciary duties[224] - The arbitrator's modified final award, confirmed on September 16, 2021, noted that future investments or actions might require the company's consent if they materially adversely affect its economic interest in TRC[224][225] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect the company's business, financial condition, and operating results, spanning financial sustainability, market competition, regulatory compliance, and external factors Summary of Principal Risks Associated with Theravance Biopharma's Business This section summarizes the main risks facing Theravance Biopharma, including anticipated losses, the impact of health epidemics, lack of control over partnered programs, and challenges in clinical development and regulatory approvals - The company anticipates incurring losses for the foreseeable future and may not achieve or sustain profitability[227][229] - Risks include the adverse impact of health epidemics like COVID-19, lack of control over TRC and GSK-Partnered Respiratory Programs, and potential harm from adverse developments in these programs[227][229] - Delays or adverse results in clinical studies, failure to obtain regulatory approvals, insufficient capital, and partner non-compliance are significant risks[229] RISKS RELATING TO THE COMPANY This section details risks specific to the company, including its history of losses, the ongoing impact of the COVID-19 pandemic, lack of control over key partnered programs, execution risks from corporate restructuring, significant debt, and dependence on third-party manufacturers - The company expects to incur substantial losses for the foreseeable future, with a cumulative net loss of $1.7 billion as of September 30, 2021, and profitability is highly uncertain[229][232] - The COVID-19 pandemic continues to adversely affect business operations, YUPELRI sales, and clinical development programs, with unpredictable long-term impacts[233][238][241] - The company does not control TRC or GSK-Partnered Respiratory Programs, relying on Innoviva and GSK for development and commercialization, which introduces risks of delays, disputes, and adverse developments[242][244][245] - The September 2021 restructuring, involving a 75% workforce reduction, aims for $165.0 million in annualized operating expense savings by 2022 and sustainable cash flow positivity by H2 2022, but execution risks exist[101][102][200][300][303][304] - The company has significant debt, including Non-Recourse 2035 Notes ($392.6 million principal) and Convertible Senior 2023 Notes ($230.0 million principal), which could adversely affect shareholder distributions and require substantial cash for servicing[194][290][297] - Dependence on third-party manufacturers for API and drug products, including YUPELRI, creates supply chain risks if these single sources fail to meet demand[289] RISKS RELATED TO LEGAL AND REGULATORY UNCERTAINTY This section addresses risks arising from extensive regulatory oversight, potential generic competition, intellectual property protection challenges, product liability, evolving data protection laws, and changes in healthcare regulations - The company is subject to extensive FDA and other regulatory oversight, with non-compliance potentially leading to penalties, restrictions, or withdrawal of approved products[320][321][322][324] - Competition from generic versions of approved products like TRELEGY or YUPELRI poses a risk, as successful patent challenges could lead to substantial competition and harm business[326][328] - Failure to adequately protect intellectual property through patents, trade secrets, and confidentiality agreements could erode competitive position and hinder collaborations[349][350] - Product liability lawsuits are an inherent risk in pharmaceutical development and commercialization, potentially leading to substantial liabilities, reputational harm, and diversion of resources[356][358][360] - Non-compliance with evolving data protection laws (e.g., CCPA, GDPR) could result in government enforcement actions, fines, private litigation, and adverse publicity[361][363][366][3