UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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Incorporation or Organization) | Identification No.) | |
(Address of Principal Executive Offices) | (Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Smaller Reporting Company | |
Non-accelerated Filer ☐ | Emerging Growth Company | |
Accelerated Filer ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 1, 2023, the number of the registrant’s outstanding ordinary shares was
THERAVANCE BIOPHARMA, INC.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THERAVANCE BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
March 31, | December 31, | |||||
| 2023 |
| 2022 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Short-term marketable securities |
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| | ||
Receivables from collaborative arrangements |
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Prepaid clinical and development services | | | ||||
Other prepaid and current assets | | | ||||
Total current assets |
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Long-term marketable securities |
| |
| — | ||
Property and equipment, net |
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Operating lease assets | | | ||||
Future contingent milestone and royalty assets | | | ||||
Restricted cash |
| |
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Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Shareholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued personnel-related expenses |
| |
| | ||
Accrued clinical and development expenses |
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Accrued general and administrative expenses | | | ||||
Operating lease liabilities | | | ||||
Deferred revenue |
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Other accrued liabilities |
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Total current liabilities |
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Long-term operating lease liabilities | | | ||||
Future royalty payment contingency | | | ||||
Long-term deferred revenue | | | ||||
Unrecognized tax benefits | | | ||||
Other long-term liabilities | | | ||||
Commitments and contingencies | ||||||
Shareholders’ Equity | ||||||
Preferred shares, $ |
| |||||
Ordinary shares, $ |
| | | |||
Additional paid-in capital |
| | | |||
Accumulated other comprehensive income (loss) |
| |
| ( | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
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, | |||||||
| 2023 |
| 2022 |
| |||
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 |
| ( |
| ( | |||
Interest expense | ( | ( | |||||
Interest income and other income (expense), net |
| | ( | ||||
Loss from continuing operations before income taxes |
| ( |
| ( | |||
Provision for income tax benefit (expense) |
| | ( | ||||
Net loss from continuing operations | ( | ( | |||||
Income from discontinued operations before income taxes | — | | |||||
Provision for income tax expense | — | — | |||||
Net income from discontinued operations | — | | |||||
Net loss | $ | ( | $ | ( | |||
Net unrealized gain (loss) on available-for-sale investments | | ( | |||||
Total comprehensive loss | $ | ( | $ | ( | |||
Net loss per share: | |||||||
Continuing operations - basic and diluted | $ | ( | $ | ( | |||
Discontinued operations - basic and diluted | $ | — | $ | | |||
Net loss - basis and diluted | $ | ( | $ | ( | |||
Shares used to compute basis and diluted net loss per share |
| | | ||||
(1) |
Three Months Ended March 31, | ||||||
(In thousands) |
| 2023 |
| 2022 | ||
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’ EQUITY (DEFICIT)
(Unaudited)
(In thousands)
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Ordinary Shares | Paid-In | Comprehensive | Accumulated | Shareholders' | |||||||||||||
Shares |
| Amount |
| Capital |
| Gain (Loss) |
| Deficit |
| Equity | |||||||
Balances at December 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Repurchase of ordinary shares, net of transaction costs | ( | — | ( | — | — | ( | |||||||||||
Employee share-based compensation expense | — | — | | — | — | | |||||||||||
Issuance of restricted shares | | — | — | — | — | — | |||||||||||
Option exercises | — | — | — | — | — | — | |||||||||||
Repurchase of shares to satisfy tax withholding | ( | — | ( | — | — | ( | |||||||||||
Net unrealized gain on marketable securities | — | — | — | | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at March 31, 2023 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
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 | | $ | | $ | | $ | ( | $ | ( | $ | ( |
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, | ||||||
| 2023 |
| 2022 | |||
Operating activities | ||||||
Net loss | $ | ( | $ | ( | ||
Less: Net income from discontinued operations | — | | ||||
Net loss from continuing operations | ( | ( | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Amortization and accretion income, net | ( | | ||||
Future royalty payment contingency interest accretion | | — | ||||
Share-based compensation |
| |
| | ||
Undistributed earnings from TRC, LLC | — | | ||||
(Gain) loss on disposal of property and equipment | | ( | ||||
Interest payable on 2023 notes | — | | ||||
Amortization of right-of-use assets | | | ||||
Changes in operating assets and liabilities: | ||||||
Receivables from collaborative and licensing arrangements |
| |
| | ||
Prepaid clinical and development services | ( | | ||||
Other prepaid and current assets | | | ||||
Right-of-use lease assets | ( | — | ||||
Other assets | | | ||||
Accounts payable |
| |
| ( | ||
Accrued personnel-related expenses, accrued clinical and development expenses, and other accrued liabilities |
| ( |
| ( | ||
Deferred revenue | ( | ( | ||||
Operating lease liabilities | ( | ( | ||||
Other long-term liabilities |
| ( |
| | ||
Net cash used in operating activities - continuing operations | ( | ( | ||||
Net cash provided by operating activities - discontinued operations | — | | ||||
Net cash used in operating activities |
| ( |
| ( | ||
Investing activities | ||||||
Purchases of property and equipment |
| ( |
| ( | ||
Purchases of marketable securities |
| ( |
| ( | ||
Maturities of marketable securities |
| |
| | ||
Sale of short-term investments and marketable securities | | — | ||||
Proceeds from the sale of property and equipment | | | ||||
Net cash (used in) provided by investing activities - continuing operations | ( | | ||||
Net cash provided by (used in) investing activities - discontinued operations | — | — | ||||
Net cash (used in) provided by investing activities |
| ( |
| | ||
Financing activities | ||||||
Ordinary share repurchases | ( | — | ||||
Repurchase of shares to satisfy tax withholding | ( | ( | ||||
Net cash used in financing activities - continuing operations | ( | ( | ||||
Net cash provided by (used in) financing activities - discontinued operations | — | — | ||||
Net cash used in financing activities |
| ( |
| ( | ||
Net (decrease) 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 paid for income taxes, net | $ | | $ | — | ||
Supplemental disclosure of non-cash investing and financing activities | ||||||
Recognition of tenant improvement allowance assigned to sublease | $ | | $ | — |
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 development, and commercialization of medicines. The Company’s focus is to deliver medicines that make a difference® in people's lives.
Basis of Presentation
The Company’s condensed consolidated financial information as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 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, 2022 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023.
The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, 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.
On July 20, 2022, the Company completed a monetization of its ownership interests in a significant equity method investment which had a major effect on the Company’s financial results for the year ended December 31, 2022 (see “Note 7. Discontinued Operations”). In accordance with GAAP, the transaction was accounted for as a sale of a financial asset. For all periods presented, the results of the sale have been included as discontinued operations on these condensed consolidated financial statements.
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.
The Company expects its cash, cash equivalents and marketable securities will be sufficient to fund its capital return program and its operations for at least the next twelve months from the issuance date of these condensed consolidated financial statements based on current operating plans and financial forecasts.
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, 2022.
Recently Issued Accounting Pronouncements Not Yet Adopted
7
The Company has evaluated 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.
2. Net Loss per Share
Basic net loss per share is computed by dividing the net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period, excluding shares subject to repurchase and without consideration of potentially dilutive securities. Diluted net loss per share is computed by giving effect to all potentially dilutive ordinary shares outstanding for the period, which primarily consist of instruments issued and outstanding under the Company’s equity incentive and employee share purchase plans and shares issuable upon note conversion. Ordinary share equivalents are excluded from the computation in periods in which they have an anti-dilutive effect unless the consideration of any one of them gives a dilutive effect.
Three Months Ended March 31, | ||||||
(In thousands, except per share data) |
| 2023 |
| 2022 | ||
Numerator: | ||||||
Net loss from continuing operations | $ | ( | $ | ( | ||
Net income from discontinued operations | — | | ||||
Net loss | $ | ( | $ | ( | ||
Denominator: |
| |||||
Weighted-average ordinary shares outstanding - basic and diluted | | | ||||
Net loss per share: | ||||||
Continuing operations - basic and diluted | $ | ( | $ | ( | ||
Discontinued operations - basic and diluted | $ | — | $ | | ||
Net loss per share - basic and diluted | $ | ( | $ | ( |
Anti-dilutive Securities
In accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share, if a company incurred a loss related to its continuing operations, then potential ordinary shares are considered anti-dilutive for the periods in which the loss was recognized. For the three months ended March 31, 2023 and 2022, the Company recognized losses from continuing operations. As a result, the following ordinary equivalent shares were not included in the computation of diluted net loss per share for both continuing operations and discontinuing operations:
Three Months Ended March 31, | ||||
(In thousands) |
| 2023 |
| 2022 |
Share issuances under equity incentive plans and employee share purchase plans | | | ||
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 November 2018, YUPELRI was approved by the US Food and Drug Administration (the “FDA”) for the maintenance treatment of patients with chronic obstructive pulmonary disease (“COPD”).
8
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, 2023, the Company is eligible to receive from Viatris potential global development, regulatory and sales milestone payments (excluding China and adjacent territories) totaling up to $
The Viatris Agreement is considered to be within the scope of ASC 808, Collaborative Arrangements, 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, 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 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, Revenue Recognition, and, as such, the reimbursable program costs are excluded from 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.
Following the 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) | 2023 | 2022 | ||||
Viatris collaboration agreement - Amounts receivable from Viatris | $ | | $ | |
While Viatris records the total net sales of YUPELRI within its condensed consolidated financial statements, Viatris collaboration agreement revenue includes the Company’s implied
9
three months ended March 31, 2023 and 2022 of $
Other Collaborative Arrangement Revenues
The Company’s other collaborative arrangement revenues consisted of:
Three Months Ended March 31, | ||||||
(In thousands) |
| 2023 |
| 2022 | ||
Viatris | $ | | $ | | ||
Other | — | | ||||
Total collaboration revenue | $ | | $ | |
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.
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 expenses related to reimbursement payments:
Three Months Ended March 31, | ||||||
(In thousands) |
| 2023 |
| 2022 | ||
Viatris | $ | | $ | |
Revenue from Licensing Arrangements
Pfizer
In December 2019, the Company entered into a global license agreement with Pfizer Inc. (“Pfizer”) for its 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, 2023, 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) | 2023 | 2022 | ||||
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. The cash-related amounts reported in the table above exclude the Company’s investments in short and long-term marketable securities, if any, that are reported separately on the condensed consolidated balance sheets.
The Company periodically engages in foreign exchange transactions as a part of its operations. For the three months ended March 31, 2023 and 2022, the Company recognized net realized and unrealized foreign currency gains (losses) of $
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, 2023 | ||||||||||||||
|
|
| Gross |
| Gross |
| ||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||
(In thousands) | Cost | Gains | Losses | Fair Value | ||||||||||
US government securities | Level 1 | $ | | $ | | $ | ( | $ | | |||||
US government agency securities | Level 2 |
| | | — |
| | |||||||
Corporate notes | Level 2 |
| | | ( |
| | |||||||
Commercial paper | Level 2 | | — | ( | | |||||||||
Marketable securities | | | ( | | ||||||||||
Money market funds | Level 1 | | — | — | | |||||||||
Total | $ | | $ | | $ | ( | $ | |
11
December 31, 2022 | ||||||||||||||
|
|
| Gross |
| Gross |
| ||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||
(In thousands) | Cost | Gains | Losses | Fair Value | ||||||||||
US government securities | Level 1 | $ | | $ | | $ | — | $ | | |||||
US government agency securities | Level 2 |
| |
| |
| — |
| | |||||
Commercial paper | Level 2 | | — | ( | | |||||||||
Marketable securities | | | ( | | ||||||||||
Money market funds | Level 1 | | — | — | | |||||||||
Total | $ | | $ | | $ | ( | $ | |
As of March 31, 2023, all of the Company’s available-for-sale securities had contractual maturities within
Available-for-sale debt securities with unrealized losses are summarized below:
March 31, 2023 | ||||||||||||||||||
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, 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 | ||||||||||||
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, 2023, the Company’s accumulated other comprehensive income on its condensed consolidated balance sheets consisted of net unrealized gains on available-for-sale investments. For the three months ended March 31, 2023, the Company sold marketable securities for total proceeds of $
6. Subleases
In July 2021 and June 2022, the Company entered into two non-cancelable agreements under which it subleased a total of approximately
12
the Company also recognized increases to other assets and other long-term liabilities of approximately $
7. Discontinued Operations
Background
In July 2022, the Company completed the sale of all of its equity interests in Theravance Respiratory Company, LLC (“TRC”) representing its
At the closing of the TRC Transaction, the Company received approximately $
The Contingent Consideration was initially measured at fair value utilizing a Monte Carlo simulation model to calculate the present value of the risk-adjusted cash flows estimated to be received from the Contingent Consideration. The discount rate utilized in the valuation model was
The Contingent Consideration is subject to counterparty credit risk, and the carrying value of the Contingent Consideration represents the maximum amount of potential loss due to credit risk. To date, the Company has not recorded any credit losses related to the Contingent Consideration. The Contingent Consideration is presented on the condensed consolidated balance sheets as future contingent milestone and royalty assets.
Discontinued Operations
The TRC Transaction represented a monetization of a significant equity method investment that had a major effect on the Company’s financial results. In accordance with ASC 860, Transfers and Servicing of Financial Assets, the TRC Transaction was accounted for as a sale of a financial asset. For all periods presented, the balances and the results related to TRC have been classified as discontinued operations on the Company’s condensed consolidated financial statements.
13
The results of discontinued operations consisted of the following:
Three Months Ended March 31, | ||||||
(In thousands) |
| 2023 |
| 2022 | ||
Income from investments in TRC, LLC | $ | — | $ | | ||
Transaction-related legal expenses (prior to July 20, 2022) | — | ( | ||||
Interest expense on | — | ( | ||||
Provision for income tax expense | — | — | ||||
Net income from discontinued operations | $ | — | $ | |
TRC Summary Financial Information
Prior to the TRC Transaction, the Company analyzed its ownership, contractual and other interests in TRC to determine if it was a variable-interest entity (“VIE”), whether the Company had a variable interest in TRC and the nature and extent of that interest. The Company determined that TRC was 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 was 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 was not the primary beneficiary of TRC, and, as a result, the Company did not consolidate TRC in its condensed consolidated financial statements. The Company’s maximum exposure to loss, as a result of its involvement with TRC, were the amounts recorded in the condensed consolidated balance sheets within “Equity in net assets of TRC, LLC”. TRC was recognized in the Company’s condensed consolidated financial statements under the equity method of accounting.
Rule 4-08(g) of Regulation S-X requires that a company include summary financial information for equity method investees when such investees are individually significant for a company. For the prior year comparable period, the income from the Company’s investment in TRC was determined to be significant. As a result, TRC’s summary financial information, including the portion of equity interest that the Company did not own, was as follows:
Three Months Ended | |||
March 31, | |||
(In thousands) |
| 2022 | |
Royalty revenue and gross profit | $ | | |
Income from continuing operations | | ||
Net income | |
8. Share-Based Compensation
Market and Performance-Contingent Awards
The Company periodically grants performance-contingent share-based awards to employees. For the three months ended March 31, 2023, the Company granted
For the three months ended March 31, 2023, the Company also granted
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9. Income Taxes
For the three months ended March 31, 2023, the Company recognized an income tax benefit of $
No provision for income taxes has been recognized on undistributed earnings of the Company's foreign subsidiaries because it considers such earnings to be indefinitely reinvested.
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. In 2022, the Company released its valuation allowance for federal purposes stemming from the effects of the TRC Transaction. As of March 31, 2023, the Company does not believe a valuation allowance should be re-established to offset it deferred tax assets for federal purposes. As of March 31, 2023, the Company continues to maintain a full valuation allowance on its US state, California, and foreign deferred tax assets.
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’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. Strategic Actions
On February 27, 2023, the Company announced and has since initiated the following strategic actions (the “2023 Strategic Actions”):
Capital Return Program Increase
The Company’s board of directors authorized a $
Discontinued Investment in Research Activities
The Company discontinued its research activities, including the inhaled Janus kinase (JAK) inhibitor program, resulting in a
As a result of the Company’s discontinued investment in research activities, for the three months ended March 31, 2023, the Company incurred restructuring and related expenses of $
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primarily related to the modification of equity-based awards for employees affected by the reduction in headcount. The Company does not expect to recognize any additional employee-related expenses, including share-based compensation, related to the 2023 Strategic Actions after March 31, 2023.
As a result of the broader 2021 Restructuring, for the three months ended March 31, 2022, the Company incurred restructuring and related expenses of $
Selected information relating to accrued cash-related restructuring expenses from the recently announced 2023 Strategic Actions was as follows:
(In thousands) |
| ||
Balance at December 31, 2022 | $ | — | |
Net accruals | | ||
Cash paid |
| ( | |
Balance at March 31, 2023 | $ | |
All of the restructuring expenses from the 2021 Restructuring were fully recognized and paid in 2022.
The Company also evaluated the impact of the 2023 Strategic Actions 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, 2023.
11. Commitments and Contingencies
Legal Proceedings
In January 2023, the Company received notice from Accord Healthcare, Inc.; Cipla USA, Inc. and Cipla Limited; Eugia Pharma Specialties Ltd.; Lupin Inc.; Mankind Pharma Ltd.; Orbicular Pharmaceutical Technologies Private Limited; and Teva Pharmaceuticals, Inc. (collectively, the “generic companies”), that they have each filed with FDA an abbreviated new drug application (“ANDA”), for a generic version of YUPELRI. The notices from the generic companies each included a paragraph IV certification with respect to five of the Company’s patents listed in FDA’s Orange Book for YUPELRI on the date of the Company’s receipt of the notice. The asserted patents relate generally to polymorphic forms of and a method of treatment using YUPELRI. In February 2023, the Company filed patent infringement suits against the generic companies in federal district courts, including the United States District Court for the District of New Jersey, the U.S. District Court for the District of Delaware, and the U.S. District Court for the Middle District of North Carolina. The suits in Delaware and North Carolina have been dismissed, as all generic companies have agreed to venue in New Jersey. The complaint alleges that by filing the ANDAs, the generic companies have infringed five of the Company’s Orange Book listed patents. The Company is seeking a permanent injunction to prevent the generic companies from introducing a generic version of YUPELRI that would infringe its patents. As a result of this lawsuit, a stay of approval through May 2026 will be imposed by FDA on the generic companies’ ANDAs pending any adverse court decision.
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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, 2022. 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 the effects of COVID-19, including new variants, may 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 uncertain and cannot be predicted with confidence at this time. These potential future developments include, but are not limited to, the continued impact of COVID-19, 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 manage 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 development and commercialization of medicines. Our focus is to deliver medicines that make a difference® in people’s lives.
In pursuit of our purpose, we leverage decades of expertise, which has 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”). Ampreloxetine, our late-stage investigational norepinephrine reuptake inhibitor in development for symptomatic neurogenic orthostatic hypotension, has the potential to be a first in class therapy effective in treating a constellation of cardinal symptoms in multiple system atrophy patients. We are committed to creating/driving shareholder value.
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2023 Strategic Actions
On February 27, 2023, we announced additional strategic actions (the “2023 Strategic Actions”) to sharpen the Company’s focus and further deliver on its commitment to create shareholder value:
● | Capital Return Program increased to $325.0 million – Our board of directors authorized a $75.0 million increase to the existing $250.0 million capital return program initiated in September 2022, bringing the total capital return program to $325.0 million. For the three months ended March 31, 2023, we repurchased 5.2 million shares on the open market at a weighted average cost of $10.69 per share for an aggregate cost of $55.1 million, excluding fees and expenses. Since inception of the capital return program through March 31, 2023, we repurchased $183.3 million of shares. In April 2023, we repurchased an additional $31.9 million of shares, and we have approximately $109.7 million remaining in the capital return program, as of April 30, 2023, which is expected to be completed by the end of 2023. |
● | Discontinued investment in research – We discontinued our research activities, including the inhaled Janus kinase (JAK) inhibitor program, and prioritized our R&D resources toward the ampreloxetine Phase 3 study and completion of the YUPELRI Peak Inspiratory Flow Rate (PIFR-2) Phase 4 study. As a result of halting further investment in research activities, our headcount was reduced by approximately 17% at the end of March 2023. We also plan to seek a partnership to continue progression of our inhaled JAK inhibitor program. |
As a result of the Company’s discontinued investment in research activities, for the three months ended March 31, 2023, we incurred restructuring and related expenses of $1.6 million primarily related to R&D expenses. Of the total $1.6 million, cash-related expenses were $1.2 million and non-cash expenses were $0.4 million which were primarily related to the modification of equity-based awards for employees affected by the reduction in headcount. We do not expect to recognize any additional employee-related expenses, including share-based compensation, related to the 2023 Strategic Actions after March 31, 2023.
● | Appointed independent director to the board and commit to governance change – We appointed a new independent director as part of our ongoing commitment to board refreshment, and we put forth a proposal to declassify the board of the directors over time at the May 2, 2023 Annual General Meeting of Shareholders. In addition, on April 11, 2023, we appointed another new independent director to further refresh the composition of our board of directors. |
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 manage the spread of the virus (including new variants of COVID-19) continue to present a public health and economic challenge. 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 uncertain and may be impacted by the emergence of new information concerning the COVID-19 pandemic, new variants or sub-variants of the COVID-19 virus, and the actions taken to manage or treat the disease, including vaccine availability, distribution, acceptance and effectiveness.
As part of our response to the ongoing challenges presented by the COVID-19 pandemic, we continue to take steps to identify and mitigate the adverse impacts on, and risks to, our business caused by the COVID-19 pandemic. We plan 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.
Core Program Updates
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
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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 Inc. Under the terms of the Viatris Development and Commercialization Agreement (the “Viatris Agreement”), we led the US Phase 3 development program for YUPELRI in COPD, and Viatris was responsible for reimbursement of our costs related to the registrational program up until the approval of the first new drug application, after which costs were shared. 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 us). Outside the US (excluding 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. We retain worldwide rights to revefenacin delivered through other dosage forms, such as a MDI/DPI.
In June 2019, we announced the expansion of the Viatris Agreement to grant Viatris exclusive development and commercialization rights to nebulized revefenacin in China and adjacent territories, which include Hong Kong SAR, the Macau SAR, and Taiwan. In exchange, we received an upfront payment of $18.5 million (before a required tax withholding) and are eligible to receive additional potential development and sales milestones totaling $54.0 million and low double-digit tiered royalties on net sales of nebulized revefenacin, if approved. In March 2020, we earned a $1.5 million development milestone for the acceptance of a clinical trial application associated with the use of revefenacin monotherapy in China and adjacent territories. Viatris is responsible for all aspects of development and commercialization in the China and adjacent territories, including pre- and post-launch activities and product registration and all associated costs.
Under the terms of the Viatris Agreement, as amended, as of March 31, 2023, we are eligible to receive from Viatris potential global development, regulatory and sales milestone payments (excluding China and adjacent territories) 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 EU.
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. In the future, this study could also be used to support promotional efforts for YUPELRI, which could aid in the capture of more of YUPELRI’s addressable market and further strengthen its competitive advantage. We have agreed to pay 35% of the Phase 4 study costs, and Viatris has agreed to pay 65% of the Phase 4 study costs. In January 2022, we announced the enrollment of the first patient in the Phase 4 study.
While Viatris records total YUPELRI net sales, we are entitled to a 35% share of the net profit (loss). Our implied 35% share of total YUPELRI net sales is presented below:
Three Months Ended March 31, | Change | |||||||||||
(In thousands) |
| 2023 |
| 2022 |
| $ |
| % |
| |||
YUPELRI net sales (100% recorded by Viatris) | $ | 46,955 | $ | 43,666 | $ | 3,289 | 8 | % | ||||
YUPELRI net sales (Theravance Biopharma implied 35%) | 16,434 | 15,283 | 1,151 | 8 |
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Ampreloxetine (TD-9855)
Ampreloxetine is an investigational, once-daily norepinephrine reuptake inhibitor (“NRI”) that we are developing for the treatment of Multiple System Atrophy (“MSA”) patients with symptomatic neurogenic orthostatic hypotension (“nOH”). nOH is caused by primary autonomic failure conditions and the majority of patients with MSA experience symptoms of nOH. Ampreloxetine has high affinity for binding to the norepinephrine (“NE”) transporter. By blocking the action of the NE transporter, ampreloxetine causes an increase in extracellular concentrations of norepinephrine. Ampreloxetine is wholly owned by Theravance Biopharma.
Based on positive 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 Parkinson’s disease (“PD”), pure autonomic failure (“PAF”) and MSA 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 the same patient groups response to ampreloxetine. The protocol for the pivotal studies stipulated an enrollment threshold of 40% MSA patients based on the hypothesis ampreloxetine would work the best in patients with MSA because they have more intact nerves on which ampreloxetine can exert its effect, relative to the other patient types in the study. 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, 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 did not meet its primary endpoint as the results were not statistically significant for the overall population of patients which included patients with PD, PAF, and MSA. The pre-specified subgroup analysis by disease type suggested that the average benefit seen in patients receiving ampreloxetine was largely driven by a benefit to 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. Throughout the study, there was no indication of worsening of supine hypertension among any of the patient sub-groups. Data suggest that ampreloxetine was well-tolerated and no new safety signals were identified among any of the patient sub-groups.
In June 2022, we held a Type C meeting with the FDA. From this meeting, we aligned on a path to an NDA filing with one additional Phase 3 clinical study in MSA patients with symptomatic nOH, using the OHSA composite score as the primary endpoint. Initiation of this Phase 3 study commenced in the first quarter of 2023 and the study is open to recruitment. On May 9, 2023, we announced that the FDA granted Orphan Drug Designation status to ampreloxetine for the treatment of symptomatic nOH in patients with MSA.
In July 2022, Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) agreed to invest up to $40.0 million to advance the development of ampreloxetine in MSA in exchange for unsecured low single-digit royalties. Royalty Pharma’s $40.0 million investment in ampreloxetine included a $25.0 million upfront payment received in July 2022 and an additional $15.0 million payment upon the first regulatory approval of ampreloxetine. In exchange, Royalty Pharma will receive future unsecured royalties of 2.5% on annual ampreloxetine global net sales up to $500.0 million and 4.5% on annual global net sales over $500.0 million. If ampreloxetine regulatory approval is not achieved or if ampreloxetine sales are never recognized, the amounts invested by Royalty Pharma would not be repaid by us.
Out-Licensed Programs
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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, 2023, 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.
Selective 5-HT4 Agonist (TD-8954)
TD-8954 is a selective 5-HT4 receptor agonist that was being developed for potential use in the treatment of gastrointestinal motility disorders. Pursuant to a License and Collaboration Agreement that we executed in June 2016 with Millennium Pharmaceuticals, Inc., an indirect wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), Takeda conducted a Phase 2 study of TD-8954 as a potential treatment for post-operative gastrointestinal dysfunction. The Phase 2 study did not meet its endpoints, and we mutually agreed with Takeda to discontinue further development of this program and the Collaboration Agreement in February 2023.
Economic Interests and Other Assets
Mid- and Long-Term Economic Interest in GSK-Partnered Respiratory Programs
In July 2022, we completed the sale of all of our equity interests in Theravance Respiratory Company, LLC (“TRC”) representing our 85% economic interest in the sales-based royalty rights on worldwide net sales of GSK's TRELEGY ELLIPTA (“TRELEGY”) to Royalty Pharma for approximately $1.1 billion in upfront cash while retaining future value through the right to receive contingent milestone payments and certain outer year-royalties (the “TRELEGY Royalty Transaction”).
From and after January 1, 2023, for any calendar year starting with the year ending December 31, 2023 and ending with the year December 31, 2026, upon certain milestone minimum royalty amounts for TRELEGY being met, Royalty Pharma is obligated to make certain cash payments to us (the “Milestone Payments”), which may total $250.0 million in the aggregate. The first Milestone Payment of $50.0 million will be triggered if Royalty Pharma receives $240.0 million or more in royalty payments from GSK with respect to 2023 TRELEGY global net sales, which we would expect to occur in the event TRELEGY global net sales reach approximately $2.863 billion. Royalties payable from GSK to Royalty Pharma are upward-tiering from 6.5% to 10%.
Additionally, we will receive from Royalty Pharma 85% of the royalty payments on TRELEGY payable (a) for sales or other activities occurring on and after January 1, 2031 related to TRELEGY in the US, and (b) for sales or other activities occurring on and after July 1, 2029 related to TRELEGY outside of the US. US TRELEGY royalties payable to us by Royalty Pharma are expected to end in late 2032, and ex-US royalties are expected to end in mid-2030s and are country specific.
TRELEGY (the combination of fluticasone furoate/umeclidinium bromide/vilanterol)
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 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
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treatment of patients with COPD. 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 $3.6 billion annually according to consensus estimates. Over the past three years, TRELEGY has shown substantial growth, with global net sales increasing annually from $661.4 million in 2019 to $2.1 billion in 2022.
See “Risk Factors—We do not control the commercialization of TRELEGY; accordingly, our receipt of Milestone Payments and receipt of the value we currently anticipate from the Outer Years Royalty will depend on, among other factors, GSK’s ability to further commercialize TRELEGY” for additional information.
Development Projects
Our development projects are prioritized by those with the highest expected potential value. Our enhanced focus remains on near-term value opportunities which include completion of the YUPELRI Peak Inspiratory Flow Rate (PIFR-2) Phase 4 study and conducting our ampreloxetine Phase 3 study. On February 27, 2023, we announced the decision to discontinue research activities including our inhaled JAK program. This includes nezulcitinib, a nebulized, lung-selective JAK inhibitor positioned for the treatment of acute and chronic lung diseases.
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 COVID-19 may continue to directly or indirectly impact our business, results of operations and financial condition, including these estimates, will depend on future developments that are uncertain and may be impacted by the emergence of new information concerning COVID-19, new variants or sub-variants of the COVID-19 virus, and the actions taken to manage 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, 2022.
Results of Operations
Revenue
While Viatris records the total net sales of YUPELRI within its own financial statements, our implied 35% YUPELRI revenue, as compared to the comparable period in the prior year, was as follows: