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
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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)
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term marketable securities |
| |
| | ||
Receivables from collaborative arrangements |
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| | ||
Amounts due from TRC, LLC | | | ||||
Prepaid clinical and development services | | | ||||
Other prepaid and current assets | | | ||||
Total current assets |
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Property and equipment, net |
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Operating lease assets | | | ||||
Equity in net assets of TRC, LLC | | | ||||
Restricted cash |
| |
| | ||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Shareholders' Deficit | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued personnel-related expenses |
| |
| | ||
Accrued clinical and development expenses |
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Accrued general and administrative expenses | | | ||||
Accrued interest payable | | | ||||
Current portion of non-recourse notes due 2035, 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 2035, net | | | ||||
Long-term operating lease liabilities | | | ||||
Long-term deferred revenue | | | ||||
Other long-term liabilities | | | ||||
Commitments and contingencies | ||||||
Shareholders’ Deficit | ||||||
Preferred shares, $ |
| |||||
Ordinary shares, $ |
| | | |||
Additional paid-in capital |
| | | |||
Accumulated other comprehensive loss |
| ( |
| — | ||
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 | |||||||
March 31, | |||||||
| 2022 |
| 2021 |
| |||
Revenue: | |||||||
Viatris collaboration agreement | $ | | $ | | |||
Collaboration revenue | | | |||||
Licensing revenue | | — | |||||
Total revenue |
| |
| | |||
Expenses: | |||||||
Research and development (1) |
| | | ||||
Selling, general and administrative (1) | | | |||||
Restructuring and related expenses (1) | | — | |||||
Total expenses |
| |
| | |||
Loss from operations |
| ( |
| ( | |||
Income from investment in TRC, LLC | | | |||||
Interest expense | ( | ( | |||||
Interest income and other income (expense), net |
| ( | ( | ||||
Loss before income taxes |
| ( |
| ( | |||
Provision for income tax expense |
| ( | ( | ||||
Net loss | $ | ( | $ | ( | |||
Net unrealized loss 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 |
| | | ||||
| (1) | Amounts include share-based compensation expense as follows: |
Three Months Ended | ||||||
March 31, | ||||||
(In thousands) |
| 2022 |
| 2021 | ||
Research and development | $ | | $ | | ||
Selling, general and administrative |
| |
| | ||
Restructuring and related expenses | | — | ||||
Total share-based compensation expense | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
4
THERAVANCE BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Unaudited)
(In thousands)
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
Shares |
| Amount |
| Capital |
| Loss |
| Deficit |
| Deficit | |||||||
Balances at December 31, 2021 | | $ | | $ | | $ | — | $ | ( | $ | ( | ||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Repurchase of shares to satisfy tax withholding | ( | — | ( | — | — | ( | |||||||||||
Net unrealized loss on marketable securities | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at March 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Deficit | ||||||
Balances at December 31, 2020 | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
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 March 31, 2021 | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
See accompanying notes to condensed consolidated financial statements.
5
THERAVANCE BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Operating activities | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Amortization and accretion income, net | | | ||||
Share-based compensation |
| |
| | ||
Gain on disposal of property and equipment | ( | — | ||||
Amortization of right-of-use assets | | | ||||
Undistributed earnings from TRC, LLC | ( | | ||||
Interest shortfall on 2035 notes, net | | — | ||||
Other | — | | ||||
Changes in operating assets and liabilities: | ||||||
Receivables from collaborative and licensing arrangements |
| |
| | ||
Prepaid clinical and development services | | | ||||
Other prepaid and current assets | | | ||||
Other assets | | | ||||
Accounts payable |
| ( |
| ( | ||
Accrued personnel-related expenses, accrued clinical and development expenses, and other accrued liabilities |
| ( |
| ( | ||
Accrued interest payable | | | ||||
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 |
| |
| | ||
Proceeds from the sale of property and equipment | | — | ||||
Net cash provided by investing activities |
| |
| | ||
Financing activities | ||||||
Principal payment on 2035 notes | — | ( | ||||
Proceeds from option exercises | — | | ||||
Repurchase of shares to satisfy tax withholding | ( | ( | ||||
Net cash used in financing activities |
| ( |
| ( | ||
Net increase in cash, cash equivalents, and restricted cash |
| |
| | ||
Cash, cash equivalents, and restricted cash at beginning of period |
| |
| | ||
Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | | $ | | ||
Cash (received) paid for income taxes, net | $ | — | $ | — | ||
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 biopharmaceutical company primarily focused on the discovery, development, and commercialization of respiratory medicines. The Company’s core purpose is to create medicines that make a difference® in people's lives.
Basis of Presentation
The Company’s condensed consolidated financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021 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, 2021 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.
The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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, 2021.
Recently Adopted Accounting Pronouncements
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 became effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. The Company evaluated ASU 2020-06 and determined that its adoption did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company has evaluated other recently issued accounting pronouncements and does not currently believe that any of these pronouncements will have a material impact on its condensed consolidated financial statements and related disclosures.
7
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 | ||||||
March 31, | ||||||
(In thousands, except per share data) |
| 2022 |
| 2021 | ||
Numerator: | ||||||
Net loss | $ | ( | $ | ( | ||
Denominator: |
| |||||
Weighted-average ordinary shares outstanding | | | ||||
Less: weighted-average ordinary shares subject to forfeiture | — | ( | ||||
Weighted-average ordinary shares used to compute basic and diluted net loss per share | | | ||||
Basic and diluted net loss per share | ( | ( | ||||
For the three months ended March 31, 2022 and 2021, 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 | ||||
March 31, | ||||
(In thousands) |
| 2022 |
| 2021 |
Share issuances under equity incentive plans and ESPP | | | ||
Share issuances upon the conversion of convertible senior notes | | | ||
Total |
| | | |
3. Revenue
Revenue from Collaborative Arrangements
Viatris
In January 2015, the Company and Viatris Inc. (“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 acute care setting.
In the US, Viatris is leading the commercialization of YUPELRI, and the Company co-promotes the product under a profit and loss sharing arrangement (
As of March 31, 2022, the Company is eligible to receive from Viatris potential global development, regulatory and sales milestone payments totaling up to $
8
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 $
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.
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
The following YUPELRI-related amounts were recognized within revenue in the Company’s condensed consolidated statements of operations:
Three Months Ended | ||||||
March 31, | ||||||
(In thousands) | 2022 | 2021 | ||||
Viatris collaboration agreement - Amounts receivable from Viatris | $ | | $ | | ||
While Viatris records the total net sales of YUPELRI within its consolidated financial statements, Viatris collaboration agreement revenue includes the Company’s implied
Other Collaborative Arrangements
The Company recognized revenues from its other collaborative arrangements as follows:
Three Months Ended | ||||||
March 31, | ||||||
(In thousands) |
| 2022 |
| 2021 | ||
Other | $ | | $ | | ||
Janssen | — | | ||||
Total collaboration revenue | $ | | $ | | ||
9
All of the recognized revenues from the Company’s other collaborative arrangements presented in the table 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 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 $
Reimbursement of R&D Expenses
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 | ||||||
March 31, | ||||||
(In thousands) |
| 2022 |
| 2021 | ||
Viatris | $ | | $ | | ||
Janssen | — | | ||||
Total reduction to R&D expense, net | $ | | $ | | ||
Revenue from Licensing Arrangements
Pfizer
In December 2019, the Company entered into a global license agreement with Pfizer Inc. (“Pfizer”) for our preclinical skin-selective, locally-acting pan-JAK inhibitor program (the “Pfizer Agreement”). The compounds in this program are designed to target validated pro-inflammatory pathways and are specifically designed to possess skin-selective activity with minimal systemic exposure.
Under the Pfizer Agreement, Pfizer has an exclusive license to develop, manufacture and commercialize certain compounds for all uses other than gastrointestinal, ophthalmic, and respiratory applications. The Company received an upfront cash payment of $
As of March 31, 2022, the Company is eligible to receive up to an additional $
10
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 amounts shown on the condensed consolidated statements of cash flows.
March 31, | ||||||
(In thousands) | 2022 | 2021 | ||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated | $ | | $ | | ||
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. Separately, the Company also maintains restricted cash for debt servicing of its
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:
March 31, 2022 | ||||||||||||||
|
|
| Gross |
| Gross |
| ||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||
(In thousands) | Cost | Gains | Losses | Fair Value | ||||||||||
US government securities | Level 1 | $ | | $ | — | $ | ( | $ | | |||||
Corporate notes | Level 2 |
| | — | ( |
| | |||||||
Commercial paper | Level 2 | | — | ( | | |||||||||
Marketable securities | | — | ( | | ||||||||||
Money market funds | Level 1 | | — | — | | |||||||||
Total | $ | | $ | — | $ | ( | $ | | ||||||
December 31, 2021 | ||||||||||||||
|
|
| Gross |
| Gross |
| ||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||
(In thousands) | Cost | Gains | Losses | Fair Value | ||||||||||
US government securities | Level 1 | $ | | $ | — | $ | ( | $ | | |||||
Corporate notes | Level 2 |
| |
| — |
| ( |
| | |||||
Commercial paper | Level 2 | | | ( | | |||||||||
Marketable securities | | | ( | | ||||||||||
Money market funds | Level 1 | | — | — | | |||||||||
Total | $ | | $ | | $ | ( | $ | | ||||||
As of March 31, 2022, all of the Company’s available-for-sale securities had contractual maturities within
11
between Level 1 and 2 during the periods presented, and there have been no material changes to the Company’s valuation techniques during the three months ended March 31, 2022.
Available-for-sale debt securities with unrealized losses are summarized below:
March 31, 2022 | ||||||||||||||||||
Less than 12 Months | Greater than 12 Months | Total | ||||||||||||||||
|
| Gross |
| Gross |
| Gross | ||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||
(In thousands) | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||
US government securities | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Corporate notes | | ( | — | — | | ( | ||||||||||||
Commercial paper | | ( | — | — | | ( | ||||||||||||
Total | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
December 31, 2021 | ||||||||||||||||||
Less than 12 Months | Greater than 12 Months | Total | ||||||||||||||||
|
| Gross |
| Gross |
| Gross | ||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||
(In thousands) | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||
US government securities | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Corporate notes | | ( | — | — | | ( | ||||||||||||
Commercial paper | | ( | — | — | | ( | ||||||||||||
Total | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
The Company invests primarily in high credit quality and short-term maturity debt securities with the intent to hold such securities until maturity at par value. The Company does not intend to sell the investments that are currently in an unrealized loss position, and it is unlikely that it will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. The Company reviewed its available-for-sale debt securities and determined that there were
As of March 31, 2022, the Company’s accumulated other comprehensive income (loss) on its condensed consolidated balance sheets consisted of net unrealized gains (losses) on available-for-sale investments. For the three months ended March 31, 2022 and 2021, the Company did not sell any marketable securities.
6. Debt
Debt consisted of the following:
March 31, | |||
(In thousands) |
| 2022 | |
Principal amount | $ | | |
Less: | ( | ||
Unamortized debt issuance costs - |
| ( | |
Unamortized debt issuance costs - Modified | ( | ||
| |||
Principal amount | | ||
Unamortized debt issuance costs | ( | ||
| |||
Total debt | $ | | |
12
On February 21, 2020, Theravance Biopharma R&D, Inc. (“Theravance R&D”), a wholly-owned subsidiary of the Company, and Triple Royalty Sub II LLC (the “Issuer II” or “Triple II”), a wholly-owned subsidiary of Theravance Biopharma R&D, entered into certain note purchase agreements (“Note Purchase Agreements”) with certain note purchasers (“Note Purchasers”), relating to the private placement by Issuer II of $
The Non-Recourse 2035 Notes are secured by all of Issuer II’s right, title and interest as a holder of certain membership interests (the “Issuer II Class C Units”) in Theravance Respiratory Company, LLC (“TRC”). TRC holds the right to receive upward-tiering royalties ranging from
The source of principal and interest payments for the Non-Recourse 2035 Notes are the future royalty payments generated from the TRELEGY program, and as a result, the holders of the Non-Recourse 2035 Notes have no recourse against the Company even if the TRELEGY payments are insufficient to cover the principal and interest payments for the Non-Recourse 2035 Notes. Prior to and including the December 5, 2024 payment date, in the event that the distributions received by the Issuer II from TRC in a quarter are less than the interest accrued for that quarter, the principal amount of the Non-Recourse 2035 Notes will increase by the interest shortfall amount for that quarter. While the holders of the Non-Recourse 2035 Notes have no recourse against the Company, the terms of the Non-Recourse 2035 Notes also provide that the Company, at its option, may satisfy the quarterly interest payment obligations by making a capital contribution to the Issuer II.
For the three months ended March 2022, $
The Non-Recourse 2035 Notes are not convertible into Company equity and have no security interest in nor rights under any agreement with GSK. The Non-Recourse 2035 Notes may be redeemed by Issuer II on and after February 28, 2022, in whole or in part, at specified redemption premiums. The Non-Recourse 2035 Notes bear an annual interest rate of
As of March 31, 2022, the net principal and estimated fair value of the Non-Recourse 2035 Notes were $
The Company had $
13
prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
7. Theravance Respiratory Company, LLC
Through the Company’s
In May 2014, the Company entered into the TRC LLC Agreement with Innoviva, Inc. (“Innoviva”) that governs the operation of TRC. Under the TRC LLC Agreement, Innoviva is the manager of TRC, and the business and affairs of TRC are managed exclusively by the manager, including (i) day to day management of the drug programs in accordance with the existing GSK agreements; (ii) preparing an annual operating plan for TRC; and (iii) taking all actions necessary to ensure that the formation, structure and operation of TRC complies with applicable law and partner agreements. The Company is responsible for its proportionate share of TRC’s administrative expenses incurred, and communicated to the Company, by Innoviva.
The Company analyzed its ownership, contractual and other interests in TRC to determine if it is a variable-interest entity (“VIE”), whether the Company has a variable interest in TRC and the nature and extent of that interest. The Company determined that TRC is a VIE. The party with the controlling financial interest, the primary beneficiary, is required to consolidate the entity determined to be a VIE. Therefore, the Company also assessed whether it is the primary beneficiary of TRC based on the power to direct TRC’s activities that most significantly impact TRC’s economic performance and its obligation to absorb TRC’s losses or the right to receive benefits from TRC that could potentially be significant to TRC. Based on the Company’s assessment, the Company determined that it is not the primary beneficiary of TRC, and, as a result, the Company does not consolidate TRC in its condensed consolidated financial statements. The Company’s maximum exposure to loss, as a result of its involvement with TRC, are the amounts recorded in the condensed consolidated balance sheets within “Amounts due from TRC, LLC” and “Equity in net assets of TRC, LLC”, as noted below. TRC is recognized in the Company’s condensed consolidated financial statements under the equity method of accounting.
For the three months ended March 31, 2022, the Company recognized net royalty income of $
For the three months ended March 31, 2021, the Company recognized net royalty income of $
For the three months ended March 31, 2022, the Company received $
TRC’s summarized income statement information is presented below:
Three Months Ended | ||||||
March 31, | ||||||
(In thousands) |
| 2022 |
| 2021 | ||
Royalty revenue and gross profit | $ | | $ | | ||
Income from continuing operations | | | ||||
Net income | | | ||||
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TRC Arbitration
The Company initiated an arbitration proceeding in October 2020 against Innoviva and TRC, challenging the authority of Innoviva and TRC to pursue a business plan to use TRELEGY royalties to invest in certain privately-held companies, rather than distribute such funds that would otherwise be available for distribution to the Company under the terms of the TRC LLC Agreement in a manner that it believes is consistent with the TRC LLC Agreement and its
On March 30, 2021, the arbitrator ruled that the Company had not shown that, at the then current levels of investment, Innoviva and TRC had breached the TRC LLC Agreement as of the date of the arbitration. The arbitrator further ruled that Innoviva and TRC had not breached the implied covenant of good faith and fair dealing or their fiduciary duties. The arbitrator also ruled that (i) Innoviva is entitled to indemnification from TRC for all legal fees and expenses reasonably incurred in the arbitration and (ii) the Company is entitled to indemnification from TRC for legal fees and costs incurred in defending an action Innoviva brought against it in the Delaware Court of Chancery. The arbitrator noted in the ruling that although the Company failed to show that Innoviva’s investment activities, at the then current levels of investment, have or will have a material and adverse effect on its economic interest in TRC, this does not mean that any future investments or actions will not require the Company’s consent. The arbitrator noted in the ruling that the Company may, in the future, have a consent right over the decision to continue this investment strategy or whether to make a particular investment if, for example, Innoviva develops a track record of poor investments, over allocates royalties to these investment activities, or fails to distribute sufficient investment returns, and such facts cause the strategy or investment to have a material adverse effect on the Company’s economic interest in TRC.
Pursuant to the terms of the TRC LLC Agreement, Innoviva is required to deliver to the Company a draft quarterly financial plan 30 days prior to the end of each fiscal quarter covering the next fiscal quarter. While the TRC LLC Agreement provides that Innoviva must consider in good faith any comments the Company provides, an applicable financial plan becomes effective 30 days after the draft plan is provided to the Company. The Company has objected to the proposed investments in private companies presented in draft TRC quarterly financial plans to date. If TRC identifies and consummates investments and incurs associated fees identified in a TRC quarterly plan, even over the Company’s objections, distributions by TRC to its members in subsequent quarters will be reduced.
The Company’s objections with regard to a TRC quarterly plan or other actions by TRC could result in additional legal proceedings between the Company, TRC and Innoviva, as was the case when the Company initiated arbitration proceedings against Innoviva and TRC in May 2019 and again in October 2020. Any such legal proceedings could divert the attention of management and cause the Company to incur significant costs, regardless of the outcome, which the Company cannot predict. If such proceedings were pursued, there can be no assurance that they would result in the Company receiving additional distributions from TRC. An adverse result could materially and adversely affect the funds that the Company would otherwise expect to receive from TRC in the future.
8. Share-Based Compensation
Performance-Contingent Awards
The Company periodically grants performance-contingent share-based awards to employees. For the three months ended March 31, 2022, the Company recognized $
Share-Based Compensation Modification Due to Corporate Restructuring
As a result of the Company’s corporate restructuring announcement in September 2021 (see “Note 10. Corporate Restructuring”), the Board of Directors’ Compensation Committee approved the acceleration of certain equity awards for employees affected by the restructuring. The Company accounted for this acceleration as a Type III modification (improbable to probable) which resulted in a fair value of $
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previously recognized for these awards of $
9. Income Taxes
For the three months ended March 31, 2022, the Company recognized an income tax expense of $
The Company follows the accounting guidance related to accounting for income taxes which requires that a company reduce its deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. As of March 31, 2022, the Company’s deferred tax assets were offset in full by a valuation allowance.
The Company records liabilities related to uncertain tax positions in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period. The Company includes any applicable interest and penalties within the provision for income taxes in the condensed consolidated statements of operations.
The Company is currently under Internal Revenue Service (“IRS”) examination for the tax year ended December 31, 2018. The Company believes that an adequate provision has been made for any material adjustments that may result from the tax examination.
The Company’s future income tax expense may be affected by such factors as changes in tax laws, its business, regulations, tax rates, interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations, its international organization, shifts in the amount of income before tax earned in the US as compared with other regions in the world, and changes in overall levels of income before tax.
10. Corporate Restructuring
On September 15, 2021, the Company announced a strategic update and corporate restructuring (the “Restructuring”) to focus on leveraging its expertise in developing and commercializing respiratory therapeutics. As part of the Restructuring, the Company initiated a reduction in workforce of approximately
For the three months ended March 31, 2022, the Company incurred Restructuring and related expenses of $
Since the Restructuring announcement in September 2021, the Company has incurred total Restructuring and related expenses of $
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The Company estimates that it will incur total Restructuring and related expenses of approximately $
Selected information relating to accrued cash-related Restructuring expenses was as follows:
(In thousands) |
| ||
Balance at December 31, 2021 | $ | | |
Net accruals | | ||
Cash paid |
| ( | |
Balance at March 31, 2022 | $ | |
The Company expects to recognize the remaining Restructuring and related expenses of approximately $
The Company also evaluated the impact of the Restructuring on the carrying value of its long-lived assets, such as property and equipment and operating lease assets. This process included evaluating the estimated remaining lives, significant changes in the use, and potential impairment charges related to its long-lived assets. Based on its evaluation, the Company determined that its long-lived assets were not impaired as of March 31, 2022, and it has not recognized any impairment charges related to its long-lived assets since the Restructuring announcement.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
You should read the following discussion in conjunction with our condensed consolidated financial statements (unaudited) and related notes included elsewhere in this report. This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve risks, uncertainties, and assumptions. All statements in this report, other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, intentions, designs, expectations, and objectives are forward-looking statements. The words “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “designed,” “developed,” “drive,” “estimate,” “expect,” “forecast,” “goal,” “indicate,” “intend,” “may,” “mission,” “opportunities,” “plan,” “possible,” “potential,” “predict,” “project,” “pursue,” “represent,” “seek,” “suggest,” “should,” “target,” “will,” “would,” and similar expressions (including the negatives thereof) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements reflect our current views with respect to future events or our future financial performance, are based on assumptions, and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We may not actually achieve the plans, intentions, expectations or objectives disclosed in our forward-looking statements and the assumptions underlying our forward-looking statements may prove incorrect. Therefore, you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, expectations and objectives disclosed in the forward-looking statements that we make. Factors that we believe could cause actual results or events to differ materially from our forward-looking statements include, but are not limited to, those discussed in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2021. Our forward-looking statements in this report are based on current expectations and we do not assume any obligation to update any forward-looking statements for any reason, even if new information becomes available in the future. In addition, while we expect the effects of COVID-19, including new variants, to
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continue to adversely impact our business operations and financial results, the extent of the impact on our ability to generate revenue from YUPELRI® (revefenacin), our clinical development programs, and the value of and market for our ordinary shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. These potential future developments include, but are not limited to, the ultimate duration of the COVID-19 pandemic, travel restrictions, quarantines, vaccination levels, social distancing and business closure requirements in the United States and in other countries, other measures taken by us and those we work with to help protect individuals from contracting COVID-19, and the effectiveness of actions taken globally to contain and treat the disease, including vaccine availability, distribution, acceptance and effectiveness. When used in this report, all references to “Theravance Biopharma”, the “Company”, or “we” and other similar pronouns refer to Theravance Biopharma, Inc. collectively with its subsidiaries.
Management Overview
Theravance Biopharma, Inc. (“we,” “our,” “Theravance Biopharma” or the “Company”) is a biopharmaceutical company primarily focused on the discovery, development, and commercialization of respiratory medicines. Our core purpose is to create medicines that make a difference® in people's lives.
In pursuit of our purpose, we leverage decades of respiratory expertise to discover and develop transformational medicines that make a difference. These efforts have led to the development of the United States (“US”) Food and Drug Administration (the “FDA”) approved YUPELRI® (revefenacin) inhalation solution indicated for the maintenance treatment of patients with chronic obstructive pulmonary disease (“COPD”). Our respiratory pipeline of internally discovered programs is targeted to address significant patient respiratory needs.
We have an economic interest in potential future payments from Glaxo Group or one of its affiliates (“GSK”) pursuant to our agreements with Innoviva, Inc. (“Innoviva”) relating primarily to TRELEGY.
Corporate Restructuring
As previously announced in September 2021, our board of directors approved a plan to focus our resources on our most promising respiratory programs and reduce the size of the Company in order to maximize shareholder value. The corporate restructuring (the “Restructuring”) resulted in us reducing headcount by approximately 75%. Approximately 75% of the total reduction in workforce occurred at the end of November 2021, and the remainder was completed at the end of February 2022.
Since the Restructuring was announced, we incurred $29.5 million in Restructuring and related expenses through the first quarter of 2022, and we expect to recognize the remaining Restructuring and related expenses of approximately $3.5 million, comprised of $0.8 million in cash-related expenses and $2.7 million in non-cash expenses, by the third quarter of 2022. The remaining Restructuring expense estimates are subject to a number of assumptions, and actual final amounts may differ.
As a result of the Restructuring, we plan to become sustainably cash-flow positive beginning in the second half of 2022 and going forward on an annual basis.
Ongoing Impact of COVID-19 Pandemic
The effects of the COVID-19 pandemic and the related actions by governments, companies, and individuals around the world in an attempt to contain the spread of the virus (including new variants of COVID-19) continue to present a substantial public health and economic challenge and are affecting our employees, patients, communities, clinical trial sites, suppliers, business partners and business operations. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition, including revenue, expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain and may be impacted by the emergence of new information concerning the COVID-19 pandemic, ongoing spread of the disease across the US and the globe, and the actions taken to contain or treat the disease, including vaccine availability, distribution, acceptance and effectiveness.
As part of our response to the ongoing COVID-19 pandemic, we have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to
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address the COVID-19 pandemic. We expect to continue to implement measures as may be required or recommended by government authorities or as we determine are in the best interests of our employees, clinical trial sites and participants, the patients we serve, and other stakeholders in light of COVID-19.
Respiratory Program Highlights
YUPELRI (revefenacin) Inhalation Solution
YUPELRI (revefenacin) inhalation solution is a once-daily, nebulized long-acting muscarinic antagonist (“LAMA”) approved for the maintenance treatment of COPD in the US. LAMAs are recognized by international COPD treatment guidelines as a cornerstone of maintenance therapy for COPD, regardless of severity of disease. Our market research indicates there is an enduring population of COPD patients in the US that either need or prefer nebulized delivery for maintenance therapy. The stability of revefenacin in both metered dose inhaler and dry powder inhaler (“MDI/DPI”) formulations suggests that revefenacin could also serve as a foundation for novel handheld combination products.
We co-developed YUPELRI with our collaboration partner, Viatris, and YUPELRI was approved by the FDA for the maintenance treatment of patients with COPD in November 2018. In the US, Viatris is leading the commercialization of YUPELRI, and we co-promote the product under a profit and loss sharing arrangement (65% to Viatris; 35% to Theravance Biopharma). Outside the US (including China and adjacent territories), Viatris is responsible for development and commercialization and will pay us a tiered royalty on net sales at percentage royalty rates ranging from low double-digits to mid-teens.
Under the terms of the Viatris Development and Commercialization Agreement, as of March 31, 2022, we are eligible to receive from Viatris potential global development, regulatory and sales milestone payments totaling up to $257.5 million in the aggregate with $205.0 million associated with YUPELRI monotherapy and $52.5 million associated with future potential combination products. Of the $205.0 million associated with monotherapy, $187.5 million relates to sales milestones based on achieving certain levels of net sales and $17.5 million relates to global development and regulatory actions. The $52.5 million associated with future potential combination products relates solely to global development and regulatory actions.
Since March 2020, YUPELRI’s growth trajectory has been impacted by the COVID-19 respiratory pandemic. However, in late 2021, we began to observe a return to growth in YUPELRI sales. We continue to monitor external factors that are associated with the current healthcare market which may be impacting demand for YUPELRI due to the ongoing pandemic. These include the duration of use, the rate of new patients starting on YUPELRI, and the return of customer orders to pre-pandemic utilization levels. Although some pandemic restrictions have eased in many regions at this time, we are not able to predict with certainty the ultimate disruptive impact of the ongoing pandemic on YUPELRI sales, but it is possible the pandemic may continue to put downward pressure on our sales. As a result, the observed sales volatility may continue throughout 2022. As we have throughout the pandemic, we will continue to track key performance metrics to gauge success in continuing to grow market adoption, including formulary inclusion success and the various aspects of market access. We and Viatris continue to supply YUPELRI to our patients and currently do not anticipate any interruptions in supply.
In August 2021, we announced that in collaboration with our partner Viatris, we were initiating a Phase 4 study comparing improvements in lung function in adults with severe to very severe COPD and suboptimal inspiratory flow rate following once-daily treatment with either YUPELRI delivered via standard jet nebulizer or tiotropium delivered via a dry powder inhaler (Spiriva® HandiHaler®). This study is aimed at helping to better inform decisions when physicians are designing a personalized COPD treatment plan with patients and is intended to support a possible label update for YUPELRI, which would capture more of YUPELRI’s addressable market and further strengthen its competitive advantage. We pay 35% of the Phase 4 study costs, and Viatris pays 65% of the study costs. In January 2022, we announced the enrollment of the first patient in the Phase 4 study.
Lung-selective, Nebulized Pan-Janus Kinase (JAK) Inhibitor (Nezulcitinib)
Nezulcitinib (formerly known as TD-0903) is a lung-selective, nebulized JAK inhibitor, in clinical development for the potential treatment of hospitalized patients with Acute Lung Injury (“ALI”) caused by COVID-19. We discovered nezulcitinib, and it has been shown in experimental murine models to have potent, broad inhibition of JAK-STAT signaling
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in the airways following challenges with multiple cytokines. Preclinical studies suggest that nezulcitinib has a high lung to plasma ratio and rapid metabolic clearance resulting in low systemic exposure, compatible with its lung selectivity. Nezulcitinib is administered via nebulized inhalation solution, which further enhances its lung selectivity. Preclinical pharmacodynamic studies indicate that nezulcitinib has an extended duration of action that should enable once daily dosing in humans.
We believe nezulcitinib has the potential to inhibit the cytokine storm associated with ALI and prevent progression to Acute Respiratory Distress Syndrome (“ARDS”). The first healthy volunteer was dosed in a Phase 1 study of nezulcitinib in April 2020, and in June 2020, we completed Phase 1 and entered a two-part Phase 2 study. Phase 2 was designed to evaluate the efficacy, safety, and tolerability of nezulcitinib in subjects with confirmed symptomatic COVID-19 hospitalized for symptomatic respiratory insufficiency. This study also evaluated the PK of nezulcitinib in these subjects. To expedite enrollment, we opened additional sites in other regions including Europe, the US, and South America.
We completed Phase 2, Part 1, a small sub-study of 25 patients intended to assess safety, PK and exploratory clinical measures of three doses of nezulcitinib versus placebo. Data showed that inhaled administration of nebulized nezulcitinib, once daily over seven days, was generally well-tolerated and showed a numerical trend towards improved clinical status, reduced hospital stay and resulted in fewer deaths compared to placebo during a 28-day observation period. Nezulcitinib also demonstrated evidence of improvements in several relevant inflammatory biomarkers and low systemic exposure at all doses, which we believe demonstrates the lung-selective design features of the molecule.
The Phase 2 Dose Finding study was a randomized, double-blind, parallel-group study evaluating efficacy and safety of one dose (3 mg) of nezulcitinib (selected based on the data from Part 1) as compared with placebo in 200 patients. In June 2021, we announced top-line results from our Phase 2 study of 3 mg once-daily nezulcitinib compared to placebo, each in combination with standard of care, which generally included steroids. The study did not meet the primary endpoint of number of Respiratory Failure-Free Days from randomization through Day 28 in the intent-to-treat population. The study also did not meet secondary endpoints, with no difference shown in change from baseline at Day 7 in SaO2/FiO2 ratio, proportion of patients in each category of the eight-point Clinical Status scale, or proportion of patients alive and respiratory failure-free at Day 28. However, nezulcitinib demonstrated a favorable trend in improvement when compared to placebo for 28-day all-cause mortality. In addition, in a post-hoc analysis of patients with C-reactive protein (“CRP”) <150 mg/L, there was an improvement in those treated with nezulcitinib when compared to placebo in 28-day all-cause mortality and in time to recovery while there was no difference in these outcomes in patients with CRP >150 mg/L. Nezulcitinib was generally well-tolerated, and we intend to further investigate its therapeutic potential as part of our newly focused respiratory portfolio.
Lung-selective Pan-JAK Inhibitor Program
TD-8236, an inhaled lung-selective pan-JAK inhibitor, demonstrated a high affinity for each of the JAK family of enzymes (JAK1, JAK2, JAK3 and TYK2) that play a key role in cytokine signaling. Inhibiting these JAK enzymes interferes with the JAK/STAT signaling pathway and, in turn, modulates the activity of a wide range of pro-inflammatory cytokines. While orally-administered JAK inhibitors are currently approved for the treatment of a range of inflammatory diseases, no inhaled JAK inhibitor is approved for the treatment of airway disease, including asthma. The pan-JAK activity of TD-8236 suggests that it may impact a broad range of cytokines that have been associated both T2-high and T2-low asthma. Many moderate to severe asthma patients comprising both T2 phenotypes remain symptomatic despite being compliant on high doses of inhaled steroids. Importantly, TD-8236 was designed to distribute and exert its anti-inflammatory effect within the lungs following dry powder inhalation, with the potential to treat inflammation within that organ while minimizing systemic exposure. In preclinical assessments, TD-8236 has shown to potently inhibit targeted mediators of T2-high and T2-low asthma in human cells.
In September 2019, we announced positive results from a Phase 1 single-ascending dose and multiple-ascending dose clinical trial of TD-8236, an investigational, inhaled lung-selective pan-JAK inhibitor that has demonstrated a high affinity for each of the JAK family of enzymes (JAK1, JAK2, JAK3 and TYK2) that play a key role in cytokine signaling. The Part C extension portion of the Phase 1 trial, assessing additional biomarkers in patients with moderate to severe asthma, demonstrated that biomarkers of JAK target engagement (including exhaled nitric oxide and pSTAT1 and pSTAT6 in cellular fractions of bronchoalveolar lavage fluid) were reduced after 7 days of once-daily dosing at a dose level of 1500 µg. In December 2019, we announced the initiation of a Phase 2 allergen challenge study of TD-8236 in mild allergic asthma patients, and we reported results of the Phase 1C study in the third quarter of 2020. TD-8236 is the first JAK inhibitor to be
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studied in a Phase 2a Lung Allergen Challenge (“LAC”) study, but inconsistent with our expectations, it had no impact on decrease in lung function (FEV1) following allergen inhalation after 14 days of once-daily dosing at dose levels of 150 µg and 1500 µg compared to placebo and did not meet the primary study objective. The collective data set (preclinical, Phase 1, Phase 2a) demonstrates TD-8236 engages the JAK mechanism at a dose of 1500 µg as evidenced by the reduction in FeNO and reductions in pSTAT, but does not protect against the lung function decline seen after allergen inhalation.
After completing additional analysis on TD-8236 gene signature and biomarker data from the Phase 1C study, we found that the data are consistent with target engagement in the lung. However, based on our current understanding of TD-8236, we have decided to pause the clinical program for this compound in its current form and apply our learnings to refining and expanding molecules in our portfolio of inhaled JAK inhibitors.
Other Pipeline Asset Highlights
Ampreloxetine (TD-9855)
Ampreloxetine is an investigational, once-daily norepinephrine reuptake inhibitor (“NRI”) that we were developing for the treatment of patients with symptomatic neurogenic orthostatic hypotension (“nOH”). nOH is caused by primary autonomic failure conditions, including multiple system atrophy, Parkinson’s disease and pure autonomic failure. The compound has high affinity for binding to norepinephrine transporters. By blocking the action of these transporters, ampreloxetine causes an increase in extracellular concentrations of norepinephrine. Ampreloxetine is wholly owned by Theravance Biopharma.
Based on positive top-line four-week results from a small exploratory Phase 2 study in nOH and discussions with the FDA, we advanced ampreloxetine into a Phase 3 program. We announced the initiation of patient dosing in study in early 2019. The Phase 3 program consisted of two pivotal studies and one non-pivotal study. The first pivotal study (SEQUOIA), a four-week, randomized double-blind, placebo-controlled study, was designed to evaluate the efficacy and safety of ampreloxetine in patients with symptomatic nOH. The second pivotal study (REDWOOD), a four-month open label study followed by a six-week randomized withdrawal phase was designed to evaluate the durability of patient response of ampreloxetine. The third, non-pivotal study (OAK), was designed to allow patients who completed REDWOOD to have continued access to ampreloxetine for up to three and half years.
In September 2021, we reported that the SEQUOIA Phase 3 clinical study did not meet its primary endpoint. Most treatment-related adverse events were mild or moderate in severity. Serious adverse events occurred in two patients on placebo and four on ampreloxetine and none of which were considered related to the study drug. No deaths were reported, and there was no signal for supine hypertension.
In April 2022, we reported that the REDWOOD Phase 3 clinical study’s primary endpoint was not statistically significant for the overall population of patients which included patients with Parkinson’s disease (“PD”), pure
autonomic failure (“PAF”) and Multiple System Atrophy (“MSA”). The pre-specified subgroup analysis by disease type suggests the benefit seen in patients receiving ampreloxetine was largely driven by MSA patients. The benefit to MSA patients in the study was observed in multiple endpoints including Orthostatic Hypotension Symptom Assessment Scale (“OHSA”) composite, Orthostatic Hypotension Daily Activities Scale (“OHDAS”) composite, Orthostatic Hypotension Questionnaire (“OHQ”) composite and OHSA #1. While the same benefit was not apparent in patients with PD or PAF, we continue to analyze the data to better understand this observation. Throughout the study, there was no indication of worsening of supine hypertension based on 24-hour monitoring. Data suggest that ampreloxetine was well-tolerated and no new safety signals were identified. Given the clear unmet need for MSA patients suffering from symptomatic nOH, we are engaging potential partners and planning health authority interactions to determine a path forward in hopes of expediting ampreloxetine as a possible treatment option for MSA patients with symptomatic nOH.
Inhaled ALK5i (TD-1058)
Our ALK5 inhibitor is a potential first-in-class, inhaled anti-fibrotic agent for the treatment of idiopathic pulmonary fibrosis (“IPF”), a fatal chronic lung disease with limited treatment options. Despite treatment with the current standard of care, IPF patients continue to experience disease progression and exacerbation, and therefore IPF treatment represents a significant unmet medical need. The compound targets the TGFβ pathway, a core signaling pathway that drives fibrosis. By
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being inhaled, the ALK5i efficiently inhibits TGFβ signaling locally in the lung which is expected to maximize its therapeutic effect. We have completed a single and multiple ascending dose study of TD-1058 in healthy subjects.
Economic Interest in GSK-Partnered Respiratory Programs
We hold an 85% economic interest in any future payments that may be made by GSK to Theravance Respiratory Company, LLC (“TRC”) pursuant to its agreements with Innoviva (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters) relating to the GSK-Partnered Respiratory Programs, which Innoviva partnered with GSK and assigned to TRC in connection with Innoviva’s separation of its biopharmaceutical operations into its then wholly-owned subsidiary Theravance Biopharma in June 2014. The GSK-Partnered Respiratory Programs consist primarily of the TRELEGY program, which is described in more detail below. We are entitled to this economic interest through our equity ownership in TRC. Our economic interest does not include any payments associated with RELVAR ELLIPTA/BREO ELLIPTA, ANORO ELLIPTA or vilanterol monotherapy.
The following information regarding the TRELEGY program is based solely upon publicly available information and may not reflect the most recent developments under the programs.
TRELEGY (the combination of fluticasone furoate/umeclidinium bromide/vilanterol)
TRELEGY provides the activity of an inhaled corticosteroid (FF) plus two bronchodilators (UMEC, a LAMA, and VI, a long-acting beta2 agonist, or LABA) in a single delivery device administered once-daily. TRELEGY is approved for use in the US, European Union (“EU”), and other countries for the long-term, once-daily, maintenance treatment of patients with COPD. We hold an 85% economic interest in the royalties payable by GSK to TRC on worldwide net sales (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters) through our interest in TRC. Those royalties are upward-tiering from 6.5% to 10%, resulting in cash flows to us of approximately 5.5% to 8.5% of worldwide net sales of TRELEGY (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters). Theravance Biopharma is not responsible for any of GSK’s costs related to the development or commercialization of TRELEGY.
Additionally, the FDA approved an sNDA for the use of TRELEGY to treat asthma in adults in September 2020 making TRELEGY the first once-daily single inhaler triple therapy for the treatment of both asthma and COPD in the US. GSK has obtained approval for the asthma indication in ten additional markets. TRELEGY is currently expected to generate global peak sales of $3.5 billion annually according to consensus estimates. Over the past three years, TRELEGY has shown substantial growth, with global net sales increasing from $663 million in 2019 to $1.1 billion in 2020 and to $1.7 billion in 2021.
Theravance Respiratory Company, LLC
Prior to the June 2014 spin-off from Innoviva, our former parent company, Innoviva assigned to Theravance Respiratory Company, LLC (“TRC”), a Delaware limited liability company formed by Innoviva, its strategic alliance agreement with GSK and all of its rights and obligations under its collaboration agreement with GSK, other than with respect to RELVAR ELLIPTA/BREO ELLIPTA, ANORO ELLIPTA and vilanterol monotherapy.
Our equity interest in TRC is the mechanism by which we are entitled to the 85% economic interest in any future payments made by GSK under the strategic alliance agreement and under the portion of the collaboration agreement assigned to TRC by Innoviva (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters). TRELEGY is currently the only commercial product arising out of the GSK agreements assigned by Innoviva to TRC. Royalty payments from GSK to TRC arising from the net sales of Trelegy are presented in our condensed consolidated statements of operations within “Income from investment in TRC, LLC” and is classified as non-operating income. Seventy-five percent of the “Income from investment in TRC, LLC,” as evidenced by the Issuer II Class C Units (defined below), is available only for payment of the $400.0 million original aggregate amount of 9.5% fixed rate non-recourse term notes due 2035 (the “Non-Recourse 2035 Notes”) and is not available to pay our other obligations or the claims of our other creditors.
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Our special purpose subsidiary Triple Royalty Sub II LLC (the “Issuer II”) issued the Non-Recourse 2035 Notes in February 2020, the proceeds of which were used in part to repay the outstanding balance of our 9.0% non-recourse notes, due on or before 2033 (the “Non-Recourse 2033 Notes”) that were issued in November 2018. The Non-Recourse 2035 Notes are secured by all of the Issuer II’s rights, title and interest as a holder of certain membership interests (the “Issuer II Class C Units”) in TRC. The Issuer II Class C Units entitle the Issuer II to receive 63.75% of the economic interest that TRC receives in any future payments made by GSK under the agreements described above, or 75% of the income from our 85% ownership interest in TRC.
We initiated an arbitration proceeding in October 2020 against Innoviva and TRC, challenging the authority of Innoviva and TRC to pursue a business plan to use TRELEGY royalties to invest in certain privately-held companies, rather than distribute such funds that would otherwise be available for distribution to us under the terms of the TRC LLC Agreement in a manner that we believe is consistent with the TRC LLC Agreement and our 85% economic interest in TRC.
On March 30, 2021, the arbitrator ruled that, we had not shown that at their then current levels of investment, Innoviva and TRC had breached the TRC LLC Agreement as of the date of the arbitration. The arbitrator further ruled that Innoviva and TRC had not breached the implied covenant of good faith and fair dealing; or their fiduciary duties. The arbitrator also ruled that (i) Innoviva was entitled to indemnification from TRC for all legal fees and expenses reasonably incurred in the arbitration and (ii) we were entitled to indemnification from TRC for legal fees and costs incurred in defending an action Innoviva brought against us in the Delaware Court of Chancery. The arbitrator noted in the ruling that although we failed to show that Innoviva’s investment activities, at the then current levels of investment, have or will have a material and adverse effect on our economic interest in TRC, this does not mean that any future investments or actions will not require our consent. The arbitrator noted in the ruling that we may, in the future, have a consent right over the decision to continue this investment strategy or whether to make a particular investment if, for example, Innoviva develops a track record of poor investments, over allocates royalties to these investment activities, or fails to distribute sufficient investment returns, and such facts cause the strategy or investment to have a material adverse effect on our economic interest in TRC.
Pursuant to the terms of the TRC LLC Agreement, Innoviva is required to deliver to us a draft quarterly financial plan 30 days prior to the end of each fiscal quarter covering the next fiscal quarter. While the TRC LLC Agreement provides that Innoviva must consider in good faith any comments the Company provides, an applicable financial plan becomes effective 30 days after the draft plan is provided to the Company. We have objected to the proposed investments in private companies presented in draft TRC quarterly financial plans to date. If TRC identifies and consummates investments and incurs associated fees identified in a TRC quarterly plan, even over the Company’s objections, distributions by TRC to its members in subsequent quarters will be reduced.
Our objections with regard to a draft TRC quarterly plan or other actions by TRC could result in additional legal proceedings between us, TRC and Innoviva, as was the case when we initiated arbitration proceedings against Innoviva and TRC in May 2019 and again in October 2020. Any such legal proceedings could divert the attention of management and cause us to incur significant costs, regardless of the outcome, which we cannot predict. If such proceedings were pursued, there can be no assurance that they would result in us receiving additional distributions from TRC. An adverse result could materially and adversely affect the funds that our affiliates would otherwise expect to receive from TRC in the future. See “Risk Factors—We do not control the commercialization of TRELEGY and we do not control TRC; accordingly the amount of royalties we receive will depend on, among other factors, GSK’s ability to further commercialize TRELEGY and TRC’s decisions concerning use of cash in accordance with the TRC LLC Agreement” for additional information.
Other Economic Interests
Selective 5-HT4 Agonist (TD-8954)
TD-8954 is a selective 5-HT4 receptor agonist being developed for potential use in the treatment of gastrointestinal motility disorders.
Takeda Collaborative Arrangement
In June 2016, we entered into a License and Collaboration Agreement (the “Takeda Agreement”) with Millennium Pharmaceuticals, Inc. (“Millennium”), in order to establish a collaboration for the development and commercialization of
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TD-8954 (TAK-954). Millennium is an indirect wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”). TD-8954 is currently in a Phase 2 study as a potential treatment for post-operative gastrointestinal dysfunction. Under the terms of the Takeda Agreement, Takeda is responsible for worldwide development and commercialization of TD-8954. We received an upfront cash payment of $15.0 million and will be eligible to receive success-based development, regulatory and sales milestone payments from Takeda. We will also be eligible to receive a tiered royalty on worldwide net sales by Takeda at percentage royalty rates ranging from low double-digits to mid-teens.
Skin-selective Pan-JAK inhibitor Program
In December 2019, we entered into a global license agreement with Pfizer Inc. (“Pfizer”) for our preclinical skin-selective, locally-acting pan-JAK inhibitor program (the “Pfizer Agreement”). The compounds in this program are designed to target validated pro-inflammatory pathways and are specifically designed to possess skin-selective activity with minimal systemic exposure.
Under the Pfizer Agreement, Pfizer has an exclusive license to develop, manufacture and commercialize certain compounds for all uses other than gastrointestinal, ophthalmic, and respiratory applications. We received an upfront cash payment of $10.0 million in 2019, and in March 2022, we received a $2.5 million development milestone payment from Pfizer for the first patient dosed in a Phase 1 clinical trial of the skin-selective pan-JAK inhibitor program.
As of March 31, 2022, we are eligible to receive up to an additional $237.5 million in development and sales milestone payments from Pfizer. In addition, we are eligible to receive a tiered royalty on worldwide net sales of any potential products under the license at percentage royalty rates ranging from middle single-digits to low double-digits.
Research Projects
Our research projects leverage years of experience in developing lung-selective medicines to address the needs of patients suffering from respiratory illness. As a result of our strategic restructuring announced in September 2021, we intend to streamline and narrow our R&D focus on our highest value core respiratory opportunities. This would include the peak inspiratory flow rate (“PIFR”) clinical study, in partnership with Viatris, to support the label update of YUPELRI and continued investment in our investigational inhaled Janus kinase inhibitor portfolio, with focus on the most advanced clinical candidate, nezulcitinib, initially targeting acute lung injury.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with US Generally Accepted Accounting Principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and other related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition, including these estimates, will depend on future developments that are highly uncertain and may be impacted by the emergence of new information concerning the COVID-19 pandemic, ongoing spread of the disease across the US and the globe, and the actions taken to contain or treat the disease, including vaccine availability, distribution, acceptance and effectiveness. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.
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