UNITED STATES
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Table of Contents

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 September 30, 2019

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)

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 

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

As of October 25, 2019, the number of the registrant’s outstanding ordinary shares was 56,762,307.

Table of Contents

THERAVANCE BIOPHARMA, INC.

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 (unaudited)

4

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

36

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

68

Item 6. Exhibits

69

Signatures

70

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

September 30, 

December 31, 

    

2019

    

2018

Assets

Current assets:

Cash and cash equivalents

$

102,403

$

378,021

Short-term marketable securities

 

217,278

 

127,255

Accounts receivable, net of allowances of $0 at September 30, 2019 and December 31, 2018

 

87

 

620

Receivables from collaborative arrangements

 

4,595

 

10,053

Amounts due from TRC, LLC

16,661

5,422

Short-term restricted cash

7,496

Other prepaid and current assets

7,132

11,452

Total current assets

 

355,652

 

532,823

Property and equipment, net

 

12,189

 

13,176

Long-term marketable securities

 

24,939

 

11,869

Operating lease assets

46,755

Tax receivable

3,664

Restricted cash

 

833

 

833

Other assets

1,305

1,534

Total assets

$

445,337

$

560,235

Liabilities and Shareholders' Deficit

Current liabilities:

Accounts payable

$

8,713

$

9,028

Accrued personnel-related expenses

 

25,801

 

23,803

Accrued clinical and development expenses

 

10,907

 

11,876

Accrued interest payable

7,568

3,086

Non-recourse notes due 2033, net

8,701

Operating lease liabilities

6,833

Deferred revenue

 

33,751

 

43,402

Other accrued liabilities

 

6,549

 

7,359

Total current liabilities

 

108,823

 

98,554

Convertible senior notes due 2023, net

225,622

224,818

Non-recourse notes due 2033, net

222,008

229,535

Deferred rent

 

 

7,976

Long-term operating lease liabilities

48,620

Long-term deferred revenue

14,169

26,179

Other long-term liabilities

8,900

24,762

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; 56,762 and 55,681 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

1

1

Additional paid-in capital

 

1,000,094

960,721

Accumulated other comprehensive income (loss)

 

94

 

(166)

Accumulated deficit

 

(1,182,994)

 

(1,012,145)

Total shareholders’ deficit

 

(182,805)

 

(51,589)

Total liabilities and shareholders’ deficit

$

445,337

$

560,235

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

    

Revenue:

Product sales

$

$

3,849

$

$

12,889

Collaboration revenue

8,836

8,989

21,666

31,744

Licensing revenue

18,500

Mylan collaboration agreement

 

3,591

 

 

3,749

 

Total revenue

 

12,427

 

12,838

 

43,915

 

44,633

Costs and expenses:

Cost of goods sold

 

 

705

 

 

83

Research and development (1)

 

52,006

 

52,693

 

152,223

 

149,079

Selling, general and administrative (1)

 

25,622

 

21,890

 

73,035

 

71,601

Total costs and expenses

 

77,628

 

75,288

 

225,258

 

220,763

Loss from operations

 

(65,201)

 

(62,450)

 

(181,343)

 

(176,130)

Income from investment in TRC, LLC

7,197

3,119

21,792

5,754

Interest expense

(8,068)

(2,137)

(23,827)

(6,411)

Interest and other income, net

 

2,089

 

1,376

 

7,258

 

4,144

Loss before income taxes

 

(63,983)

 

(60,092)

 

(176,120)

 

(172,643)

Provision for income tax benefit

 

5,552

 

659

 

5,271

 

7,305

Net loss

$

(58,431)

$

(59,433)

$

(170,849)

$

(165,338)

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

(35)

194

260

402

Total comprehensive loss

$

(58,466)

$

(59,239)

$

(170,589)

$

(164,936)

Net loss per share:

Basic and diluted net loss per share

$

(1.05)

$

(1.10)

$

(3.08)

$

(3.07)

Shares used to compute basic and diluted net loss per share

 

55,858

 

54,248

 

55,445

 

53,771

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands)

    

2019

    

2018

    

2019

    

2018

    

Research and development

$

6,458

$

6,294

$

18,338

$

19,757

Selling, general and administrative

 

6,561

 

5,452

 

18,200

 

19,842

Total share-based compensation expense

$

13,019

$

11,746

$

36,538

$

39,599

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at June 30, 2019

56,637

$

1

$

987,209

$

129

$

(1,124,563)

$

(137,224)

Proceeds from ESPP purchases

Employee share-based compensation expense

13,019

13,019

Issuance of restricted shares

209

Option exercises

29

428

428

Repurchase of shares to satisfy tax withholding

(113)

(562)

(562)

Net unrealized loss on marketable securities

(35)

(35)

Net loss

(58,431)

(58,431)

Balances at September 30, 2019

56,762

$

1

$

1,000,094

$

94

$

(1,182,994)

$

(182,805)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at December 31, 2018

55,681

$

1

$

960,721

$

(166)

$

(1,012,145)

$

(51,589)

Proceeds from ESPP purchases

145

2,605

2,605

Employee share-based compensation expense

36,538

36,538

Issuance of restricted shares

898

Option exercises

151

2,973

2,973

Repurchase of shares to satisfy tax withholding

(113)

(2,743)

(2,743)

Net unrealized gain on marketable securities

260

260

Net loss

(170,849)

(170,849)

Balances at September 30, 2019

56,762

$

1

$

1,000,094

$

94

$

(1,182,994)

$

(182,805)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at June 30, 2018

55,104

$

1

$

937,437

$

(525)

$

(902,526)

$

34,387

Proceeds from ESPP purchases

Employee share-based compensation expense

11,730

11,730

Issuance of restricted shares

242

Option exercises

64

1,225

1,225

Repurchase of shares to satisfy tax withholding

(1,548)

(1,548)

Net unrealized gain on marketable securities

194

194

Net loss

(59,433)

(59,433)

Balances at September 30, 2018

55,410

$

1

$

948,844

$

(331)

$

(961,959)

$

(13,445)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at December 31, 2017

54,381

$

1

$

913,650

$

(733)

$

(797,740)

$

115,178

Proceeds from ESPP purchases

135

2,742

2,742

Employee share-based compensation expense

39,599

39,599

Issuance of restricted shares

971

Option exercises

69

1,306

1,306

Cumulative effect upon the adoption of ASC 606

1,119

1,119

Repurchase of shares to satisfy tax withholding

(146)

(8,453)

(8,453)

Net unrealized gain on marketable securities

402

402

Net loss

(165,338)

(165,338)

Balances at September 30, 2018

55,410

$

1

$

948,844

$

(331)

$

(961,959)

$

(13,445)

See accompanying notes to condensed consolidated financial statements.

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THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended

September 30, 

    

2019

    

2018

    

Operating activities

Net loss

$

(170,849)

$

(165,338)

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

Depreciation and amortization

 

4,676

 

3,195

Amortization and accretion income, net

(2,599)

(887)

Share-based compensation

 

36,538

 

39,599

Reversal of inventory purchase commitment liability

(2,250)

Amortization of right-of-use assets

3,029

Undistributed earnings from investment in TRC, LLC

(11,239)

(2,803)

Other

148

(68)

Changes in operating assets and liabilities:

Accounts receivable

 

534

 

(771)

Receivables from collaborative arrangements

 

5,458

 

3,202

Other prepaid and current assets

(681)

(493)

Inventories

 

 

(552)

Tax receivable

(3,700)

5,092

Other assets

3

(115)

Accounts payable

 

(543)

 

(1,665)

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

 

(9,846)

 

(14,324)

Accrued interest payable

4,482

Deferred rent

 

 

3,370

Deferred revenue

(21,661)

79,266

Operating lease liabilities

(2,307)

Other long-term liabilities

 

(5,288)

 

(5,147)

Net cash used in operating activities

 

(173,845)

 

(60,689)

Investing activities

Purchases of property and equipment

 

(1,873)

 

(5,740)

Purchases of marketable securities

 

(366,412)

 

(166,412)

Maturities of marketable securities

 

266,168

 

249,450

Proceeds from the sale of VIBATIV business, net

5,000

Proceeds from the sale of fixed assets

5

17

Net cash (used in) provided by investing activities

 

(97,112)

 

77,315

Financing activities

Proceeds from ESPP purchases

2,605

2,742

Proceeds from option exercises

2,973

1,306

Repurchase of shares to satisfy tax withholding

(2,743)

(8,452)

Net cash provided by (used in) financing activities

 

2,835

 

(4,404)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

(268,122)

 

12,222

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

 

378,854

 

89,813

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

$

110,732

$

102,035

Supplemental disclosure of cash flow information

Cash paid for interest

$

17,097

$

3,738

Cash paid (received) for income taxes, net

$

22

$

(5,027)

Right-of-use assets obtained in exchange for lease obligations (1)

$

49,847

$

(1)Amounts for the nine months ended September 30, 2019 include the transition adjustment for the adoption of ASC 842.

See accompanying notes to condensed consolidated financial statements.

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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 September 30, 2019, and the three and nine months ended September 30, 2019 and 2018 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 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, 2018 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019.

The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, 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

Other than the recently adopted accounting pronouncements below, 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, 2018.

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”) under the required modified retrospective approach. ASU 2016-02 was aimed at making leasing activities more transparent and comparable, and requires leases with terms greater than one year to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability.

The Company elected the optional transition method to initially account for the impact of the adoption with a cumulative adjustment to accumulated deficit, if any, on the effective date of ASU 2016-02 of January 1, 2019, rather than applying the transition provisions in the earliest period presented, and the Company elected a package of practical expedients that allowed entities to not: (i) reassess whether any expired or existing contracts are considered or contain leases; (ii) reassess the lease classification for any expired or existing leases; and (iii) reassess initial direct costs for any existing leases. In addition, the Company elected other practical expedients that allowed entities to: (i) use hindsight in determining the term

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of a lease when the lease includes an option to extend the lease term; (ii) exclude all leases, on a go forward basis, that have a lease term of 12-months or less; and (iii) combine lease and non-lease components (e.g., office common area maintenance expenses) when recognizing a lease on an entity’s balance sheet on a go forward basis.

As a result of the adoption of ASU 2016-02, on January 1, 2019, the Company recorded a right-of-use operating lease asset of $48.3 million and an operating lease liability of $56.3 million related to its office leases in South San Francisco, California and Dublin, Ireland. The lease liability included $8.0 million related to deferred rent liabilities. The adoption of ASU 2016-02 did not have an impact on the Company’s consolidated results of operations, lease expense, or cash flows.

Effective January 1, 2019, the Company adopted ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 was issued to provide clarity and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provided guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Essentially, an entity will not have to account for the effects of a modification if: (i) the fair value of the modified award is the same immediately before and after the modification; (ii) the vesting conditions of the modified award are the same immediately before and after the modification; and (iii) the classification of the modified award as either an equity instrument or liability instrument is the same immediately before and after the modification. The adoption of ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as of January 1, 2019.

Effective January 1, 2019, the Company adopted the new final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company has included condensed consolidated statements of shareholders’ equity (deficit) in this Form 10-Q for the three and nine months ended September 30, 2019 and 2018.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13"). This guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of a credit loss or other factors. An entity will recognize an allowance for credit losses on available-for-sale debt securities rather than an other-than-temporary impairment that reduces the cost basis of the investment. ASU 2016-13 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2019. The Company does not currently expect ASU 2016-13 to have a material impact on its consolidated financial statements and related disclosures based on the historically high credit quality of the Company’s financial instruments.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, ASU 2018-15 requires a customer in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU 2018-15 on its consolidated financial statements and related disclosures.

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In November 2018, the FASB issued ASU 2018-18, Collaboration Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). The issuance of Topic 606 raised questions about the interaction between the guidance on collaborative arrangements and revenue recognition. ASU 2018-18 addresses this uncertainty by: (i) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaboration arrangement participant is a customer; (ii) adding unit of account guidance to assess whether the collaboration arrangement or a part of the arrangement is with a customer; and (iii) precluding a company from presenting transactions with collaboration arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers. ASU 2018-18 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2018-18 on its consolidated financial statements and related disclosures.

The Company is currently evaluating other recently issued accounting pronouncements and does not currently believe that any of those pronouncements will have a material impact on its 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 of 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

Nine Months Ended

September 30, 

September 30, 

(In thousands)

    

2019

    

2018

    

2019

    

2018

Numerator:

Net loss

$

(58,431)

$

(59,433)

$

(170,849)

$

(165,338)

Denominator:

 

 

 

 

Weighted-average common shares outstanding

56,690

55,230

56,308

54,920

Less: weighted-average common shares subject to forfeiture

(832)

(982)

(863)

(1,149)

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

55,858

54,248

55,445

53,771

Basic and diluted net loss per share

$

(1.05)

$

(1.10)

$

(3.08)

$

(3.07)

For the three and nine months ended September 30, 2019 and 2018, diluted and basic net loss per share was 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

Nine Months Ended

September 30, 

September 30, 

(In thousands)

    

2019

    

2018

    

2019

    

2018

Share issuances under equity incentive plans and ESPP 

7,340

3,783

6,491

4,741

Restricted shares

4

4

Share issuances upon the conversion of convertible senior notes

6,676

6,676

6,676

6,676

Total

 

14,016

10,463

 

13,167

11,421

As of September 30, 2019 and 2018, there were 414,000 and 978,750 shares, respectively, subject to performance-based vesting criteria which have been excluded from the anti-dilutive securities table above.

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3. Revenue

Revenue from Collaborative Arrangements

The Company recognized revenues from its collaborative arrangements as follows:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands)

    

2019

    

2018

    

2019

    

2018

Janssen

$

8,807

$

8,866

$

21,522

$

21,044

Alfasigma

 

23

 

117

 

121

 

10,650

Other

6

6

23

50

Total collaboration revenue

$

8,836

$

8,989

$

21,666

$

31,744

Changes in Deferred Revenue Balances

The changes in the deferred revenue balances arose as a result of the Company recognizing the following revenue from collaborative arrangements during the periods below:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands)

2019

2018

2019

2018

Collaboration revenue recognized in the period from:

Amounts included in deferred revenue at the beginning of the period

$

8,836

$

7

$

21,661

$

39

Performance obligations satisfied in previous period

Janssen Biotech

In February 2018, the Company entered into a global co-development and commercialization agreement with Janssen Biotech, Inc. (“Janssen”) for 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 TD-1473 in Crohn’s disease and a Phase 2b/3 (RHEA) induction and maintenance study of TD-1473 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 TD-1473 and certain related back-up compounds by paying us a fee of $200.0 million. Upon any such election, the Company and Janssen will jointly develop and commercialize TD-1473 in inflammatory intestinal diseases and share profits in the United States (“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 have analogized to Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”) for the research and development activities to be performed through the initial Phase 2 development period of the collaborative arrangement that are considered to be part of the Company’s ongoing major or central operations. Using the concepts of ASC 606, 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

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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 nine months ended September 30, 2019, the Company recognized $8.8 million and $21.5 million, respectively, as revenue from collaboration arrangements related to the Janssen Agreement. The remaining transaction price of $47.4 million was recorded in deferred revenue on the condensed consolidated balance sheets and is expected to be recognized as collaboration revenue as the research and development services are delivered over the initial Phase 2 development period. Collaboration revenue is recognized for the research and development services based on a 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). For the three and nine months ended September 30, 2019, the Company incurred $11.5 million and $29.1 million, respectively, in research and development costs related to the Janssen Agreement, and for the three and nine months ended September 30, 2018, the Company incurred $10.5 million and $28.1 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.

Mylan

In January 2015, the Company and Mylan Ireland Limited (“Mylan”) established a strategic collaboration (the “Mylan 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.

Under the Mylan Agreement, Mylan paid the Company an upfront fee of $15.0 million for the delivery of the revefenacin license in 2015 and, in 2016, Mylan paid the Company a milestone payment $15.0 million for the achievement of 50% enrollment in the Phase 3 twelve-month safety study. Separately, pursuant to an agreement to purchase ordinary shares entered into on January 30, 2015, Mylan Inc., a subsidiary of Mylan N.V., made a $30.0 million equity investment in the Company, buying 1,585,790 ordinary shares from the Company in February 2015 in a private placement transaction at a price of approximately $18.918 per share, which represented a 10% premium, equal to $4.2 million, over the volume weighted-average price per share of the Company’s ordinary shares for the five trading days ending on January 30, 2015.

Under the Mylan Agreement, as of September 30, 2019, the Company is eligible to receive from Mylan 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 Mylan Agreement is considered to be within the scope of ASC 808, as the parties are active participants and exposed to the risks and rewards of the collaborative activity. Under the terms of the Mylan Agreement, Mylan 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, research and development (“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 analogized to ASC 606 for the accounting for two performance obligations: (1) delivery of the license to develop and commercialize revefenacin; and (2) joint steering committee participation. The Company determined the license to be distinct from the joint steering committee participation. The Company further determined that the transaction price under the arrangement was comprised of the following: (1) $15.0 million upfront license fee received in 2015; (2) $4.2 million premium related to the ordinary share purchase agreement received in 2015; and (3) $15.0 million milestone for 50% enrollment in the Phase 3 twelve-month safety study received in 2016. The total transaction price of $34.2 million was

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allocated to the two performance obligations based on the Company’s best estimate of the relative stand-alone selling price. For the delivery of the license, the Company based the stand-alone selling price on a discounted cash flow approach and considered several factors including, but not limited to: discount rate, development timeline, regulatory risks, estimated market demand and future revenue potential. For the committee participation, the Company based the stand-alone selling price on the average compensation of its committee members estimated to be incurred over the performance period. The Company expects to recognize collaboration revenue from the committee participation ratably over the performance period of approximately seventeen years.

The future potential milestone amounts for the Mylan 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 are 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.

As of September 30, 2019, $0.3 million was recorded in deferred revenue on the condensed consolidated balance sheets under the Mylan Agreement. This amount reflects revenue allocated to joint steering committee participation which will be recognized as collaboration revenue over the course of the remaining performance period of approximately twelve years.

The Company is also entitled to a share of US profits and losses (65% to Mylan; 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. Mylan is the principal in the sales transactions, and as a result, the Company does not reflect the product sales in its financial statements.

Following the US Food and Drug Administration (“FDA”) approval of YUPELRI in November 2018, net amounts payable to or receivable from Mylan each quarter under the profit sharing structure are disaggregated according to their individual components. Any reimbursement received from Mylan for the Company’s R&D expense 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 ongoing major or central operations. All other amounts receivable from, or payable to, Mylan in connection with the commercialization of YUPELRI are recorded within the condensed consolidated statements of operations as revenue from “Mylan collaboration agreement” or as a collaboration loss within selling, general and administrative expenses, respectively. The following YUPLERI-related amounts were recognized in the Company’s condensed consolidated statements of operations:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands)

2019

2019

Mylan collaboration agreement - Amounts receivable from Mylan

$

3,591

$

3,749

Collaboration loss - Amounts payable to Mylan

$

$

1,582

Prior to the FDA approval of YUPELRI in late 2018, the Company recognized its 35% share of expenses within R&D expense and selling, general and administrative expense on its condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, the arrangement resulted in total collaboration expense, net of reimbursements from Mylan, of $1.5 million and $3.3 million, respectively.

Reimbursement of R&D Expense

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.

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands)

    

2019

    

2018

    

2019

    

2018

    

Janssen

$

930

$

610

$

3,125

$

610

Mylan

53

2,598