UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
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(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.
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).
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.
| 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
Securities registered pursuant to Section 12(b) of the Act:
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| Name of each exchange on which registered | |
As of October 25, 2019, the number of the registrant’s outstanding ordinary shares was
THERAVANCE BIOPHARMA, INC.
TABLE OF CONTENTS
2
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 | $ | | $ | | ||
Short-term marketable securities |
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Accounts receivable, net of allowances of $ |
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Receivables from collaborative arrangements |
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Amounts due from TRC, LLC | | | ||||
Short-term restricted cash | | — | ||||
Other prepaid and current assets | | | ||||
Total current assets |
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Property and equipment, net |
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Long-term marketable securities |
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Operating lease assets | | — | ||||
Tax receivable | | — | ||||
Restricted cash |
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Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Shareholders' Deficit | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued personnel-related expenses |
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Accrued clinical and development expenses |
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Accrued interest payable | | | ||||
Non-recourse notes due 2033, net | | — | ||||
Operating lease liabilities | | — | ||||
Deferred revenue |
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Other accrued liabilities |
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Total current liabilities |
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Convertible senior notes due 2023, net | | | ||||
Non-recourse notes due 2033, net | | | ||||
Deferred rent |
| — |
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Long-term operating lease liabilities | | — | ||||
Long-term deferred revenue | | | ||||
Other long-term liabilities | | | ||||
Commitments and contingencies | ||||||
Shareholders’ Deficit | ||||||
Preferred shares, $ |
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Ordinary shares, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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| ( | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ deficit |
| ( |
| ( | ||
Total liabilities and shareholders’ deficit | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
THERAVANCE BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||
Revenue: | |||||||||||||
Product sales | $ | — | $ | | $ | — | $ | | |||||
Collaboration revenue | | | | | |||||||||
Licensing revenue | — | — | | — | |||||||||
Mylan collaboration agreement |
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| — |
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| — | |||||
Total revenue |
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Costs and expenses: | |||||||||||||
Cost of goods sold |
| — |
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| — |
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Research and development (1) |
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Selling, general and administrative (1) |
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Total costs and expenses |
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Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Income from investment in TRC, LLC | | | | | |||||||||
Interest expense | ( | ( | ( | ( | |||||||||
Interest and other income, net |
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Loss before income taxes |
| ( |
| ( |
| ( |
| ( | |||||
Provision for income tax benefit |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net unrealized (loss) gain on available-for-sale investments | ( | | | | |||||||||
Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per share: | |||||||||||||
Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Shares used to compute basic and diluted net loss per share |
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(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 | $ | | $ | | $ | | $ | | |||||
Selling, general and administrative |
| |
| |
| |
| | |||||
Total share-based compensation expense | $ | | $ | | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
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 | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Proceeds from ESPP purchases | — | — | — | — | — | — | |||||||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Option exercises | | — | | — | — | | |||||||||||
Repurchase of shares to satisfy tax withholding | ( | — | ( | — | — | ( | |||||||||||
Net unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2019 | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Deficit | ||||||
Balances at December 31, 2018 | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
Proceeds from ESPP purchases | | — | | — | — | | |||||||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Option exercises | | — | | — | — | | |||||||||||
Repurchase of shares to satisfy tax withholding | ( | — | ( | — | — | ( | |||||||||||
Net unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2019 | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Deficit | ||||||
Balances at June 30, 2018 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Proceeds from ESPP purchases | — | — | — | — | — | — | |||||||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Option exercises | | — | | — | — | | |||||||||||
Repurchase of shares to satisfy tax withholding | — | — | ( | — | — | ( | |||||||||||
Net unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2018 | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Deficit | ||||||
Balances at December 31, 2017 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Proceeds from ESPP purchases | | — | | — | — | | |||||||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Option exercises | | — | | — | — | | |||||||||||
Cumulative effect upon the adoption of ASC 606 | — | — | — | — | | | |||||||||||
Repurchase of shares to satisfy tax withholding | ( | — | ( | — | — | ( | |||||||||||
Net unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2018 | | $ | | $ | | $ | ( | $ | ( | $ | ( |
See accompanying notes to condensed consolidated financial statements.
5
THERAVANCE BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended | |||||||
September 30, | |||||||
| 2019 |
| 2018 |
| |||
Operating activities | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization |
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| | |||
Amortization and accretion income, net | ( | ( | |||||
Share-based compensation |
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Reversal of inventory purchase commitment liability | — | ( | |||||
Amortization of right-of-use assets | | — | |||||
Undistributed earnings from investment in TRC, LLC | ( | ( | |||||
Other | | ( | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable |
| |
| ( | |||
Receivables from collaborative arrangements |
| |
| | |||
Other prepaid and current assets | ( | ( | |||||
Inventories |
| — |
| ( | |||
Tax receivable | ( | | |||||
Other assets | | ( | |||||
Accounts payable |
| ( |
| ( | |||
Accrued personnel-related expenses, accrued clinical and development expenses, and |
| ( |
| ( | |||
Accrued interest payable | | — | |||||
Deferred rent |
| — |
| | |||
Deferred revenue | ( | | |||||
Operating lease liabilities | ( | — | |||||
Other long-term liabilities |
| ( |
| ( | |||
Net cash used in operating activities |
| ( |
| ( | |||
Investing activities | |||||||
Purchases of property and equipment |
| ( |
| ( | |||
Purchases of marketable securities |
| ( |
| ( | |||
Maturities of marketable securities |
| |
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Proceeds from the sale of VIBATIV business, net | | — | |||||
Proceeds from the sale of fixed assets | | | |||||
Net cash (used in) provided by investing activities |
| ( |
| | |||
Financing activities | |||||||
Proceeds from ESPP purchases | | | |||||
Proceeds from option exercises | | | |||||
Repurchase of shares to satisfy tax withholding | ( | ( | |||||
Net cash provided by (used in) financing activities |
| |
| ( | |||
Net (decrease) increase in cash, cash equivalents, and restricted cash |
| ( |
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Cash, cash equivalents, and restricted cash at beginning of period |
| |
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Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid for interest | $ | | $ | | |||
Cash paid (received) for income taxes, net | $ | | $ | ( | |||
Right-of-use assets obtained in exchange for lease obligations (1) | $ | | $ | — |
See accompanying notes to condensed consolidated financial statements.
6
THERAVANCE BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Theravance Biopharma, Inc. (“Theravance Biopharma” or the “Company”) is a diversified biopharmaceutical company primarily focused on the discovery, development and commercialization of organ-selective medicines. The Company’s purpose is to create transformational medicines to improve the lives of patients suffering from serious illnesses. The Company’s research is focused in the areas of inflammation and immunology.
Basis of Presentation
The Company’s condensed consolidated financial information as of 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
7
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 $
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.
8
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 | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: |
|
|
|
| ||||||||
Weighted-average common shares outstanding | | | | | ||||||||
Less: weighted-average common shares subject to forfeiture | ( | ( | ( | ( | ||||||||
Weighted-average common shares used to compute basic and diluted net loss per share | | | | | ||||||||
Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( |
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 | | | | | ||||
Restricted shares | — | | — | | ||||
Share issuances upon the conversion of convertible senior notes | | | | | ||||
Total |
| | |
| | |
As of September 30, 2019 and 2018, there were
9
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 | $ | | $ | | $ | | $ | | ||||
Alfasigma |
| |
| |
| |
| | ||||
Other | | | | | ||||||||
Total collaboration revenue | $ | | $ | | $ | | $ | |
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 | $ | | $ | | $ | | $ | | ||||
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 $
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 $
The $
10
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 $
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 $
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 $
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) $
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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
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, $
The Company is also entitled to a share of US profits and losses (
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 | $ | | $ | | ||
Collaboration loss - Amounts payable to Mylan | $ | — | $ | |
Prior to the FDA approval of YUPELRI in late 2018, the Company recognized its
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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