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UNITED STATES

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒

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

For the quarterly period ended September 30, 2021

☐

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

For the transition period from to

Commission file number: 001-36033

THERAVANCE BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)


Cayman Islands		98-1226628
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

PO Box 309
Ugland House, South Church Street
George Town, Grand Cayman, Cayman Islands		KY1-1104
(Address of Principal Executive Offices)		(Zip Code)

(650) 808-6000

(Registrant’s Telephone Number, Including Area Code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary Share $0.00001 Par Value	TBPH	The Nasdaq Global Market

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

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

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


Large Accelerated Filer ☒		Smaller Reporting Company ☐
Non-accelerated Filer ☐		Emerging Growth Company ☐
Accelerated Filer ☐

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

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

As of October 29, 2021, the number of the registrant’s outstanding ordinary shares was 73,698,388.

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THERAVANCE BIOPHARMA, INC.

TABLE OF CONTENTS


	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4
Condensed Consolidated Statements of Shareholders’ Deficit for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	36

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 6. Exhibits	75
Signatures	76

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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,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	121,424	$	81,467
Short-term marketable securities		94,789		211,474
Receivables from collaborative arrangements		14,001		15,868
Amounts due from TRC, LLC		43,773		53,799
Prepaid clinical and development services		13,242		20,374
Other prepaid and current assets		9,943		10,359
Total current assets		297,172		393,341
Property and equipment, net		16,003		16,422
Operating lease assets		40,718		43,260
Equity in net assets of TRC, LLC		45,086		12,750
Restricted cash		833		833
Other assets		3,297		2,451
Total assets	$	403,109	$	469,057

Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable	$	8,900	$	6,775
Accrued personnel-related expenses		8,635		35,238
Accrued clinical and development expenses		20,607		28,799
Accrued general and administrative expenses		3,854		6,048
Accrued interest payable		5,808		3,974
Current portion of non-recourse notes due 2035, net		12,530		19,334
Operating lease liabilities		1,016		9,867
Deferred revenue		2,902		11,523
Other accrued liabilities		1,830		2,013
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
Long-term operating lease liabilities		54,353		47,220
Long-term deferred revenue		320		348
Other long-term liabilities		2,609		1,833
Commitments and contingencies

Shareholders’ Deficit
Preferred shares, $0.00001 par value: 230 shares authorized, no shares issued or outstanding		—		—
Ordinary shares, $0.00001 par value: 200,000 shares authorized; 73,698 and 64,328 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		1		1
Additional paid-in capital		1,370,402		1,222,818
Accumulated other comprehensive income		14		47
Accumulated deficit		(1,694,009)		(1,526,617)
Total shareholders’ deficit		(323,592)		(303,751)
Total liabilities and shareholders’ deficit	$	403,109	$	469,057

See accompanying notes to condensed consolidated financial statements.

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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,
	2021		2020		2021		2020

Revenue:
Collaboration revenue	$	2,797	$	7,261		8,649		19,381
Licensing revenue		—		—		—		1,500
Viatris collaboration agreement		10,397		10,996		31,716		32,246
Total revenue		13,194		18,257		40,365		53,127

Expenses:
Research and development (1)		43,739		67,371		162,431		195,788
Selling, general and administrative (1)		21,299		27,501		77,780		78,606
Restructuring and related expenses		1,771		—		1,771		—
Total expenses		66,809		94,872		241,982		274,394

Loss from operations		(53,615)		(76,615)		(201,617)		(221,267)
Income from investment in TRC, LLC		30,208		13,403		68,681		48,299
Interest expense		(11,742)		(11,573)		(35,227)		(32,905)
Loss on extinguishment of debt		—		—		—		(15,464)
Interest and other income (expense), net		(166)		1,235		771		2,033
Loss before income taxes		(35,315)		(73,550)		(167,392)		(219,304)
Provision for income tax benefit (expense)		7		(93)		—		(279)
Net loss	$	(35,308)	$	(73,643)	$	(167,392)	$	(219,583)

Net unrealized gain (loss) on available-for-sale investments		6		(158)		(33)		(23)
Total comprehensive loss	$	(35,302)	$	(73,801)	$	(167,425)	$	(219,606)

Net loss per share:
Basic and diluted net loss per share	$	(0.48)	$	(1.16)	$	(2.46)	$	(3.55)
Shares used to compute basic and diluted net loss per share		73,574		63,303		67,945		61,881

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		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

See accompanying notes to condensed consolidated financial statements.

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THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

(In thousands)


						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid-In		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Deficit
Balances at June 30, 2021	73,470	$	1	$	1,358,318	$	8	$	(1,658,701)	$	(300,374)
Employee share-based compensation expense	—		—		14,370		—		—		14,370
Issuance of restricted shares	391		—		—		—		—		—
Repurchase of shares to satisfy tax withholding	(163)		—		(2,286)		—		—		(2,286)
Net unrealized gain on marketable securities	—		—		—		6		—		6
Net loss	—		—		—		—		(35,308)		(35,308)
Balances at September 30, 2021	73,698	$	1	$	1,370,402	$	14	$	(1,694,009)	$	(323,592)

						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid-In		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Deficit
Balances at December 31, 2020	64,328	$	1	$	1,222,818	$	47	$	(1,526,617)	$	(303,751)
Net proceeds from sale of ordinary shares	7,705		—		108,180		—		—		108,180
Proceeds from ESPP purchases	188		—		2,862		—		—		2,862
Employee share-based compensation expense	—		—		45,143		—		—		45,143
Issuance of restricted shares	1,978		—		—		—		—		—
Option exercises	—		—		5		—		—		5
Repurchase of shares to satisfy tax withholding	(501)		—		(8,606)		—		—		(8,606)
Net unrealized loss on marketable securities	—		—		—		(33)		—		(33)
Net loss	—		—		—		—		(167,392)		(167,392)
Balances at September 30, 2021	73,698	$	1	$	1,370,402	$	14	$	(1,694,009)	$	(323,592)

						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid-In		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Deficit
Balances at June 30, 2020	63,515	$	1	$	1,191,923	$	280	$	(1,394,540)	$	(202,336)
Employee share-based compensation expense	—		—		15,564		—		—		15,564
Issuance of restricted shares	493		—		—		—		—		—
Option exercises	2		—		24		—		—		24
Repurchase of shares to satisfy tax withholding	(54)		—		(987)		—		—		(987)
Net unrealized loss on marketable securities	—		—		—		(158)		—		(158)
Net loss	—		—		—		—		(73,643)		(73,643)
Balances at September 30, 2020	63,956	$	1	$	1,206,524	$	122	$	(1,468,183)	$	(261,536)

						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid-In		Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Deficit
Balances at December 31, 2019	57,015		1		1,024,614		145		(1,248,600)	$	(223,840)
Net proceeds from sale of ordinary shares	5,500		—		139,915		—		—		139,915
Proceeds from ESPP purchases	168		—		2,545		—		—		2,545
Employee share-based compensation expense	—		—		47,425		—		—		47,425
Issuance of restricted shares	1,590		—		—		—		—		—
Option exercises	43		—		960		—		—		960
Repurchase of shares to satisfy tax withholding	(360)		—		(8,935)		—		—		(8,935)
Net unrealized loss on marketable securities	—		—		—		(23)		—		(23)
Net loss	—		—		—		—		(219,583)		(219,583)
Balances at September 30, 2020	63,956	$	1	$	1,206,524	$	122	$	(1,468,183)	$	(261,536)

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,
	2021		2020
Operating activities
Net loss	$	(167,392)	$	(219,583)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,551		5,394
Amortization and accretion income, net		9		(1,023)
Share-based compensation		45,143		47,425
Amortization of right-of-use assets		2,758		2,213
Gain from lease modification		(1,863)		—
Undistributed earnings from TRC, LLC		(22,310)		(20,337)
Interest shortfall on 2035 notes, net		5,713		10,144
Loss on extinguishment of debt		—		15,464
Other		35		(42)
Changes in operating assets and liabilities:
Receivables from collaborative and licensing arrangements		1,867		9,597
Prepaid clinical and development services		7,132		(18,025)
Other prepaid and current assets		(99)		(2,274)
Other assets		(1,006)		578
Accounts payable		2,206		2,133
Accrued personnel-related expenses, accrued clinical and development expenses, and other accrued liabilities		(36,573)		(178)
Accrued interest payable		1,834		132
Deferred revenue		(8,648)		(19,382)
Operating lease liabilities		443		2,021
Other long-term liabilities		776		265
Net cash used in operating activities		(165,424)		(185,478)

Investing activities
Purchases of property and equipment		(2,962)		(5,372)
Purchases of marketable securities		(104,774)		(337,556)
Maturities of marketable securities		221,400		281,318
Proceeds from the sale of marketable securities		—		19,928
Proceeds from the sale of property and equipment		6		35
Net cash provided by (used in) investing activities		113,670		(41,647)

Financing activities
Proceeds from the sale of ordinary shares, net		108,180		139,915
Proceeds from issuance of 2035 notes, net		—		380,000
Payment of issuance costs on 2035 notes		—		(5,326)
Principal payment on 2035 notes		(10,730)		—
Payment of redemption premium on 2033 notes		—		(11,470)
Principal payment on 2033 notes		—		(235,347)
Proceeds from ESPP purchases		2,862		2,545
Proceeds from option exercises		5		960
Repurchase of shares to satisfy tax withholding		(8,606)		(8,935)
Net cash provided by financing activities		91,711		262,342

Net increase in cash, cash equivalents, and restricted cash		39,957		35,218
Cash, cash equivalents, and restricted cash at beginning of period		82,300		58,897
Cash, cash equivalents, and restricted cash at end of period	$	122,257	$	94,115

Supplemental disclosure of cash flow information
Cash paid for interest	$	25,967	$	20,287
Cash (received) paid for income taxes, net	$	(3,814)	$	14

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 biopharmaceutical company primarily focused on the discovery, development and commercialization of respiratory medicines. The Company’s core purpose is to create medicines that help improve the lives of patients suffering from respiratory illness.

Basis of Presentation

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

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

Use of Estimates

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

Significant Accounting Policies

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

Recently Adopted Accounting Pronouncements

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

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

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging: Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity by removing certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. The standard also enhances the consistency of earnings-per-share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings-per-share calculations. ASU 2020-06 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company does not currently expect ASU 2020-06 to have a material impact on its consolidated financial statements and related disclosures.

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

2. Net Loss per Share

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2021		2020		2021		2020
Numerator:
Net loss	$	(35,308)	$	(73,643)	$	(167,392)	$	(219,583)
Denominator:
Weighted-average ordinary shares outstanding		73,574		63,717		68,021		62,361
Less: weighted-average ordinary shares subject to forfeiture		—		(414)		(76)		(480)
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)

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

Anti-dilutive Securities

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


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(In thousands)	2021	2020	2021	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	15,576	14,739	14,983	13,242

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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)	2021		2020		2021		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

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

Janssen Biotech

In February 2018, the Company entered into a global co-development and commercialization agreement with Janssen Biotech, Inc. (“Janssen”) for izencitinib (formerly known as TD-1473) and related back-up compounds for inflammatory intestinal diseases, including ulcerative colitis and Crohn’s disease (the “Janssen Agreement”). The Company received an upfront payment of $100.0 million.

Under the terms of the Janssen Agreement, following the initial Phase 2 development period, including the completion of the Phase 2 Crohn’s study, Janssen has the right to obtain an exclusive license to develop and commercialize izencitinib and certain related back-up compounds by paying the Company $200.0 million. Upon any such election, the Company and Janssen would jointly develop and commercialize izencitinib in inflammatory intestinal diseases and share profits in the US and expenses related to Phase 3 development and registration activities (67% to Janssen; 33% to Theravance Biopharma). The Company would receive royalties on ex-US sales at double-digit tiered percentage royalty rates, and the Company would be eligible to receive additional milestone payments from Janssen. In August 2021, the Company completed a Phase 2b/3 (RHEA) induction and maintenance study of izencitinib in ulcerative colitis and announced that the study results did not meet its primary endpoint. Based on those results, the Company does not expect to receive any future milestone payments under the Janssen Agreement related to izencitinib. A Phase 2 (DIONE) study of izencitinib in Crohn’s disease is expected to be completed in the first quarter of 2022.

The Janssen Agreement was considered to be within the scope of Accounting Standards Codification, Topic 808, Collaborative Arrangements (“ASC 808”) and the Company 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 $200.0 million potential opt-in and other milestones payments were considered variable consideration and not included in the transaction price as they were all determined to be fully constrained under ASC 606. As part of the Company’s evaluation of this variable consideration constraint, it determined that the potential payments are contingent upon developmental and regulatory milestones that are uncertain and are highly susceptible to factors outside of its control.

For the three and nine months ended September 30, 2021, the Company recognized $2.8 million and $8.6 million, respectively, as revenue from collaboration arrangements related to the Janssen Agreement. The remaining transaction price of $2.8 million, related to the $100.0 million upfront payment, was recorded in deferred revenue on the condensed consolidated balance sheets and will be recognized as collaboration revenue as the research and development services are delivered over the remaining Phase 2 development period which is currently expected to continue through the first quarter of 2022.

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). Consequently, delays in trial activity and/or changes to the total budget will impact the timing and amount of revenue recognized in any given reporting period. For the three and

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nine months ended September 30, 2021, the Company incurred $4.7 million and $18.3 million, respectively, in research and development costs related to the Janssen Agreement. For the three and nine months ended September 30, 2020, the Company incurred $9.8 million and $29.0 million, respectively, in research and development costs related to the Janssen Agreement. In future reporting periods, the Company will reevaluate the estimates related to its efforts towards satisfying the performance obligation and may record a change in estimate if deemed necessary.

Viatris

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

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

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

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

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

Following the US Food and Drug Administration (“FDA”) approval of YUPELRI in November 2018, net amounts payable to or receivable from Viatris each quarter under the profit-sharing structure are disaggregated according to their individual components. In accordance with the applicable accounting guidance, amounts receivable from Viatris in connection with the commercialization of YUPELRI are recorded within the condensed consolidated statements of operations as revenue from “Viatris collaboration agreement” irrespective of whether the overall collaboration is profitable. Amounts payable to Viatris, if any, in connection with the commercialization of YUPELRI are recorded within the condensed consolidated statements of operations as a collaboration loss within selling, general and administrative expenses. Any reimbursement from Viatris attributed to the 65% cost-sharing of the Company’s R&D expenses is characterized as a

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reduction of R&D expense, as the Company does not consider performing research and development services for reimbursement to be a part of its ordinary activities.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		2020
Viatris collaboration agreement - Amounts receivable from Viatris	$	10,397	$	10,996	$	31,716	$	32,246

While Viatris records the total net sales of YUPELRI within its consolidated financial statements, Viatris collaboration agreement revenue includes the Company’s implied 35% share of net sales of YUPELRI for the three and nine months ended September 30, 2021 of $13.8 million and $41.3 million, respectively, before deducting shared expenses.

For the three and nine months ended September 30, 2020, the Company’s implied 35% share of net sales of YUPELRI was $13.0 million and $36.4 million, respectively, before deducting shared expenses.

Reimbursement of R&D Expense

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		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

Revenue from Licensing Arrangements

Viatris

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

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

The future potential milestone amounts for the Viatris Amendment were not included in the transaction price, as they were all determined to be fully constrained following the concepts of ASC 606. As part of the Company’s evaluation of

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the development milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals which are not within its control and uncertain at this stage. The Company expects that the sales-based milestone payments and royalty arrangements will be recognized when the sales occur or the milestone is achieved. The Company will re-evaluate the transaction price each quarter and as uncertain events are resolved or other changes in circumstances occur.

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

4. Cash, Cash Equivalents, and Restricted Cash

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


	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 shown on the condensed consolidated statements of cash flows	$	122,257	$	94,115

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

5. Investments and Fair Value Measurements

Available-for-Sale Securities

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

Available-for-sale securities are summarized below:


		September 30, 2021
				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
(In thousands)		Cost		Gains		Losses		Fair Value
US government securities	Level 1	$	5,000	$	—	$	—	$	5,000
Corporate notes	Level 2		4,800		6		—