UNITED STATES
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from                  to

Commission file number: 001-36033

THERAVANCE BIOPHARMA, INC.

(Exact Name of Registrant as Specified in its Charter)

Cayman Islands

    

98-1226628

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

C/O Theravance Biopharma US, Inc.

901 Gateway Boulevard

South San Francisco, CA

94080

(Address of Principal Executive Offices)

(Zip Code)

(650) 808-6000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Ordinary Share $0.00001 Par Value

TBPH

The Nasdaq Global Market

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

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

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

Large Accelerated Filer

    

Smaller Reporting Company 

Accelerated Filer

Emerging Growth Company

Non-accelerated Filer 

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

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

As of May 3, 2024, the number of the registrant’s outstanding ordinary shares was 48,633,224.

Table of Contents

THERAVANCE BIOPHARMA, INC.

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2024 and 2023

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

6

Notes to Condensed Consolidated Financial Statements

7

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

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

Item 4. Controls and Procedures

25

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

25

Item 1A. Risk Factors

26

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

58

Item 5. Other Information

58

Item 6. Exhibits

59

Signatures

60

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

March 31, 

December 31, 

    

2024

    

2023

Assets

Current assets:

Cash and cash equivalents

$

53,835

$

39,545

Short-term marketable securities

 

46,140

 

62,881

Receivables from collaborative arrangements

 

14,664

 

17,474

Prepaid clinical and development services

2,086

2,038

Other prepaid and current assets

7,569

11,603

Total current assets

 

124,294

 

133,541

Property and equipment, net

 

8,717

 

9,068

Operating lease assets

35,364

36,287

Future contingent milestone and royalty assets

194,200

194,200

Restricted cash

 

836

 

836

Other assets

7,896

8,067

Total assets

$

371,307

$

381,999

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

1,686

$

1,524

Accrued personnel-related expenses

 

4,475

 

6,443

Accrued clinical and development expenses

 

1,399

 

2,246

Accrued general and administrative expenses

2,476

2,900

Operating lease liabilities

4,063

3,923

Tenant improvement payable to sublessee

6,490

6,490

Other accrued liabilities

 

1,073

 

1,241

Total current liabilities

 

21,662

 

24,767

Long-term operating lease liabilities

43,840

45,236

Future royalty payment contingency

28,417

27,788

Unrecognized tax benefits

67,075

65,294

Other long-term liabilities

5,445

5,919

Commitments and contingencies (Note 10)

Shareholders’ Equity

Preferred shares, $0.00001 par value per share: 230 shares authorized, no shares issued or outstanding

 

Ordinary shares, $0.00001 par value per share: 200,000 shares authorized; 48,566 and 48,091 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

Additional paid-in capital

 

1,125,677

1,122,164

Accumulated other comprehensive loss

 

(41)

 

(65)

Accumulated deficit

 

(920,768)

 

(909,104)

Total shareholders’ equity

 

204,868

 

212,995

Total liabilities and shareholders’ equity

$

371,307

$

381,999

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

Three Months Ended March 31, 

    

2024

    

2023

Revenue:

Viatris collaboration agreement

$

14,503

$

10,411

Collaboration revenue

6

Total revenue

 

14,503

 

10,417

Expenses:

Research and development (1)

8,968

14,572

Selling, general and administrative (1)

16,742

19,183

Restructuring and related expenses (1)

1,574

Total expenses

 

25,710

 

35,329

Loss from operations

 

(11,207)

 

(24,912)

Interest expense (non-cash)

(629)

(550)

Interest income and other income (expense), net

1,434

2,979

Loss before income taxes

 

(10,402)

 

(22,483)

Provision for income tax expense (benefit)

1,262

(395)

Net loss

$

(11,664)

$

(22,088)

Net unrealized gain on available-for-sale investments

24

66

Total comprehensive loss

$

(11,640)

$

(22,022)

Net loss per share:

Basic and diluted net loss per share

$

(0.24)

$

(0.35)

Shares used to compute basic and diluted net loss per share

48,283

62,934

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

Three Months Ended March 31, 

(In thousands)

    

2024

    

2023

Research and development

$

1,465

$

2,441

Selling, general and administrative

 

3,764

 

4,223

Restructuring and related expenses

357

Total share-based compensation expense

$

5,229

$

7,021

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(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, 2023

48,091

$

$

1,122,164

$

(65)

$

(909,104)

$

212,995

Repurchase of ordinary shares, net of transaction costs

(38)

(445)

(445)

Employee share-based compensation expense

5,229

5,229

Issuance of restricted shares

658

Repurchase of shares to satisfy tax withholding

(145)

(1,271)

(1,271)

Net unrealized gain on marketable securities

24

24

Net loss

(11,664)

(11,664)

Balances at March 31, 2024

48,566

$

$

1,125,677

$

(41)

$

(920,768)

$

204,868

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

Shares

   

Amount

   

Capital

   

Gain (Loss)

   

Deficit

   

Equity

Balances at December 31, 2022

65,227

$

1

$

1,295,725

$

(15)

$

(853,911)

$

441,800

Repurchase of ordinary shares, net of transaction costs

(5,158)

(55,353)

(55,353)

Employee share-based compensation expense

7,021

7,021

Issuance of restricted shares

557

Repurchase of shares to satisfy tax withholding

(84)

(887)

(887)

Net unrealized gain on marketable securities

66

66

Net loss

(22,088)

(22,088)

Balances at March 31, 2023

60,542

$

1

$

1,246,506

$

51

$

(875,999)

$

370,559

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2024

    

2023

Operating activities

Net loss

$

(11,664)

$

(22,088)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

 

432

 

625

Amortization and accretion income, net

(354)

(678)

Future royalty payment contingency interest accretion

629

550

Share-based compensation

 

5,229

 

7,021

(Gain) loss on disposal of property and equipment

29

Amortization of right-of-use assets

1,101

1,031

Deferred income taxes

(513)

Changes in operating assets and liabilities:

Receivables from collaborative and licensing arrangements

 

2,810

 

4,515

Prepaid clinical and development services

(48)

(13)

Other prepaid and current assets

4,034

1,401

Right-of-use lease assets

(178)

(109)

Other assets

148

1,270

Accounts payable

 

184

 

1,002

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

 

(3,396)

 

(4,337)

Deferred revenue

(6)

Operating lease liabilities

(1,256)

(966)

Unrecognized tax benefits

1,781

Other long-term liabilities

 

39

 

(468)

Net cash used in operating activities

 

(1,022)

 

(11,221)

Investing activities

Purchases of property and equipment

 

(91)

 

(938)

Purchases of marketable securities

 

(26,902)

 

(134,533)

Maturities of marketable securities

 

44,021

 

29,500

Sale of short-term investments and marketable securities

62,715

Proceeds from the sale of property and equipment

210

Net cash provided by (used in) investing activities

 

17,028

 

(43,046)

Financing activities

Ordinary share repurchases

(445)

(55,353)

Repurchase of shares to satisfy tax withholding

(1,271)

(887)

Net cash used in financing activities

 

(1,716)

 

(56,240)

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

 

14,290

 

(110,507)

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

 

40,381

 

299,008

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

$

54,671

$

188,501

Supplemental disclosure of cash flow information

Cash paid (received) for income taxes, net

$

(9)

$

7

Supplemental disclosure of non-cash activities

Recognition of tenant improvement allowance assigned to sublease

$

$

6,490

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

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 statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 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, 2023 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2024.

The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, 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. Due to the inherent uncertainty in making estimates, actual results could differ materially from those estimates.

The Company expects its cash, cash equivalents and marketable securities will be sufficient to fund 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, 2023.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to provide additional information in their tax rate reconciliation and additional disclosures about income taxes paid by jurisdiction. ASU 2023-09 is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements income tax disclosures.

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

7

Table of Contents

2. Net Loss per Share and Anti-dilutive Securities

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding during the period. Diluted net loss per share is computed by increasing the weighted-average number of shares outstanding for the dilutive effect of potential ordinary shares determined using the treasury stock method. Potential ordinary shares include outstanding share options, ordinary shares expected to be issued under the Company’s employee share purchase plan (“ESPP”), restricted share units (“RSUs”), and performance-contingent RSUs for which the performance or market vesting conditions have been deemed probable. Performance-contingent RSUs with performance or market vesting conditions that have been deemed not probable as of the end of the period are not included in the diluted net loss per share computation.

Three Months Ended March 31, 

(In thousands, except per share data)

    

2024

    

2023

Numerator:

Net loss

$

(11,664)

$

(22,088)

Denominator:

 

Weighted-average ordinary shares outstanding

48,283

62,934

Less: weighted-average ordinary shares subject to forfeiture

Weighted-average ordinary shares outstanding - basic and diluted

48,283

62,934

Net loss per share - basic and diluted

$

(0.24)

$

(0.35)

In accordance with Accounting Standards Codification (“ASC”) 260, Earnings Per Share, if a company incurred a net loss, then potential ordinary shares are considered anti-dilutive for the periods in which the net loss was recognized. As a result, the following potential ordinary shares were not included in the computation of diluted net loss per share because including them would have had an anti-dilutive effect:

Three Months Ended March 31, 

(In thousands)

    

2024

    

2023

Options

2,304

2,467

Restricted share units and performance-contingent RSUs deemed probable

848

1,775

Employee share purchase plan

109

47

Total

 

3,261

4,289

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”).

In the US, Viatris is leading the commercialization of YUPELRI, and the Company co-promotes the product under a profit and loss sharing arrangement (65% to Viatris; 35% to the Company). Outside the US (excluding China and adjacent territories), Viatris is responsible for development and commercialization and will pay the Company a tiered royalty on net sales at percentage royalty rates ranging from low double-digits to mid-teens. Viatris also holds exclusive development and commercialization rights to nebulized revefenacin in China and adjacent territories, which include the Hong Kong SAR, the Macau SAR, and Taiwan, and the Company is eligible to receive low double-digit tiered royalties on net sales of nebulized revefenacin in this region, if approved. Viatris is responsible for all aspects of development and commercialization in the China and adjacent territories, including pre- and post-launch activities and

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product registration and all associated costs. Viatris is the principal in the sales transactions, and as a result, the Company does not reflect the product sales in its condensed consolidated financial statements.

As of March 31, 2024, the Company is eligible to receive from Viatris potential global development, regulatory and sales milestone payments (excluding China and adjacent territories) 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 US net sales and $10.0 million relates to regulatory actions in the European Union (“EU”). The Company is also eligible to receive additional potential development and sales milestones up to $52.5 million related to Viatris’ development and commercialization of nebulized revefenacin in China and adjacent territories with $45.0 million associated with YUPELRI monotherapy and $7.5 million associated with future potential combination products. Of the $45.0 million associated with monotherapy, $37.5 million relates to sales milestones based on achieving certain levels of net sales and $7.5 million relates to regulatory approval in China.

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 original transaction price.

The future potential milestone amounts for the Viatris Agreement were not included in the original 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 65% cost-sharing of the Company’s R&D expenses is characterized as a reduction of R&D expense, as the Company does not consider performing research and development services for reimbursement to be a part of its ordinary activities. For the three months ended March 31, 2024, YUPELRI continued to be profitable for the Company.

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)

2024

2023

Viatris collaboration agreement – Amounts receivable from Viatris

$

14,503

$

10,411

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While Viatris records total YUPELRI net sales within its own consolidated financial statements, Viatris collaboration agreement revenue on the Company’s condensed consolidated statements of operations included the Company’s implied 35% share of total YUPELRI net sales, before deducting shared expenses, as presented below:

Three Months Ended March 31, 

(In thousands)

  

2024

  

2023

YUPELRI net sales (Theravance Biopharma implied 35%)

$

19,329

$

16,434

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)

    

2024

    

2023

Viatris

$

189

$

1,753

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)

2024

2023

Cash and cash equivalents

$

53,835

$

187,665

Restricted cash

836

836

Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows

$

54,671

$

188,501

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 that are reported separately on the condensed consolidated balance sheets.

The decrease in cash, and cash equivalents, and restricted cash compared to the prior year period, was primarily due to the Company’s open market share repurchase program that commenced in December 2022 and was completed in January 2024 (see “Note 7. Completion of Capital Return Program” for more information).

The Company periodically engages in foreign exchange transactions as a part of its operations. The Company recognized net realized and unrealized foreign currency gains (losses) of ($0.1) million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. These amounts are included in the Company’s condensed consolidated statements of operations within “Interest income and other income (expense), net”.

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

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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, 2024

    

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

(In thousands)

Cost

Gains

Losses

Fair Value

US government securities

Level 1

$

22,231

$

$

(3)

$

22,228

US government agency securities

Level 2

 

2,969

(3)

 

2,966

Corporate notes

Level 2

 

11,211

(16)

 

11,195

Commercial paper

Level 2

24,698

(19)

24,679

Marketable securities

61,109

(41)

61,068

Money market funds

Level 1

14,271

14,271

Total

$

75,380

$

$

(41)

$

75,339

December 31, 2023

    

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Estimated

(In thousands)

Cost

Gains

Losses

Fair Value

US government securities

Level 1

$

29,848

$

$

(29)

$

29,819

US government agency securities

Level 2

 

4,428

 

 

(8)

 

4,420

Corporate notes

Level 2

 

28,670

 

4

 

(32)

 

28,642

Marketable securities

62,946

4

(69)

62,881

Money market funds

Level 1

26,179

26,179

Total

$

89,125

$

4

$

(69)

$

89,060

As of March 31, 2024, all of the Company’s available-for-sale securities had contractual maturities within six months, and the weighted-average maturity of marketable securities was approximately two months. There were no transfers between Level 1 and Level 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, 2024.

Available-for-sale debt securities with unrealized losses are summarized below:

March 31, 2024

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

$

10,431

$

(3)

$

$

$

10,431

$

(3)

US government agency securities

2,965

(3)

2,965

(3)

Corporate notes

11,195

(16)

11,195

(16)

Commercial paper

24,680

(19)

24,680

(19)

Total

$

49,271

$

(41)

$

$

$

49,271

$

(41)

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December 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

$

29,819

$

(29)

$

$

$

29,819

$

(29)

US government agency securities

 

4,420

(8)

 

 

4,420

(8)

Corporate notes

23,641

(32)

23,641

(32)

Total

$

57,880

$

(69)

$

$

$

57,880

$

(69)

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 no credit-related losses to be recognized as of March 31, 2024, and there were no individual securities that were in a significant unrealized loss position as of March 31, 2024.

For the three months ended March 31, 2024, the Company did not sell any marketable securities. For the three months ended March 31, 2023, the Company sold marketable securities for total proceeds of $62.9 million and recognized a net realized gain from the sale of $0.2 million based on the specific identification method.

Contingent Consideration Asset

The Company recognizes a contingent consideration asset related to its sale of its equity interests in Theravance Respiratory Company, LLC (“TRC”) to Royalty Pharma Investments 2019 ICAV, an Irish collective asset-management vehicle (“Royalty Pharma”), in July 2022. The contingent consideration asset represents the fair value of potential future milestone payments and royalties (collectively, “Contingent Consideration”) related to worldwide net sales of GSK plc's (“GSK”) TRELEGY® ELLIPTA (“TRELEGY”). 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 7.83%.

The fair value model involved significant unobservable inputs derived using management’s estimates. Management’s estimates were based in part on external data and reflected management’s judgements and forecasts. The primary significant unobservable input was the estimate of forecasted TRELEGY net sales which is considered a Level 3 fair value input. The Company reassesses the carrying value of the Contingent Consideration when indicators of impairment are identified and will recognize any increases in the carrying value of the asset when such contingent gains are realized. As of March 31, 2024, the Contingent Consideration had a carrying value of $194.2 million and is presented on the condensed consolidated balance sheets as future contingent milestone and royalty assets. There have been no changes to the carrying value of the Contingent Consideration since its initial measurement date in July 2022.

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.

Ampreloxetine Funding

The Company recognizes a contingent liability related to funding received from Royalty Pharma in exchange for certain future royalty rights to ampreloxetine. The contingent liability consists of an upfront $25.0 million received in July 2022 and management’s estimate of (i) a risk-adjusted future contingent $15.0 million milestone; and (ii) the amount and timing of royalties to be paid to Royalty Pharma and then discounted over the life of the arrangement using an imputed rate of interest. The excess of future estimated royalty payments over the amount of cash funding received is recognized as interest expense using the effective interest method. The balance associated with the contingent liability was initially recorded as $25.0 million, net of allocated transaction costs, in July 2022 and is reported on the condensed consolidated balance sheets as future royalty payment contingency.

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The Company periodically reassesses the amount and timing of estimated royalty payments. To the extent such payments are materially greater or less than the Company’s previous estimates, the Company will prospectively adjust the amortization of the contingent liability and the effective interest rate. The imputed effective rate of interest on the unamortized portion of the contingent liability was approximately 8.8% as of March 31, 2024.

There are a number of factors that could materially affect the amount and timing of the contingent $15.0 million milestone and royalty payments, some of which are not within the Company’s control. Such factors include, but are not limited to, changes in the projected market size, the introduction of competing products, patent protection matters, and regulatory product approval for ampreloxetine. The contingent liability was recognized using significant unobservable inputs. These inputs were derived using internal management estimates and reflect management’s judgements and forecasts. The significant unobservable inputs include the forecasted revenues, the probability and timing of the regulatory milestone, and the expected term of the royalty stream, as well as the overall probability of ampreloxetine’s success. These estimates are considered Level 3 fair value inputs. A significant change in unobservable inputs could result in a material increase or decrease to the effective interest rate of the contingent liability. If ampreloxetine regulatory approval is not achieved or if ampreloxetine sales are never recognized, the contingent liability recognized would be extinguished as the Company would not be obligated to repay any of the funding amounts received from Royalty Pharma.

Changes to the contingent liability were as follows for the three months ended March 31, 2024:

(In thousands)

    

Balance at December 31, 2023

$

27,788

Non-cash interest expense accretion

 

629

Balance at March 31, 2024

$

28,417

6. Subleases

In March 2024, the Company entered into a non-cancelable agreement under which it subleased approximately 8,000 square feet of its South San Francisco office space to an unaffiliated company. The sublease term is for approximately two years expiring in April 2026, and the subtenant has no option to extend the sublease. Under the terms of the sublease, the Company is entitled to receive an initial monthly base rent of $38,000 with a 3% increase after the first year. The Company will recognize approximately $0.9 million in total sublease income on a straight-line basis over the two-year sublease term. Sublease income is recognized as a reduction to the Company’s facilities expense which is then allocated to selling, general and administrative expenses and R&D expenses in the condensed consolidated statements of operations.

As of March 31, 2024, the Company has subleased approximately 107,000 square feet of a total 162,000 square feet of South San Francisco office and laboratory space under three separate subleases with unaffiliated companies. The Company’s sublease income from all three subleases is summarized below:

Three Months Ended March 31, 

(In thousands)

  

2024

  

2023

Sublease income

$

2,090

$

2,090

As of March 31, 2024, the Company has approximately 31,000 square feet of remaining vacant office and laboratory space in South San Francisco on the market for sublease. The Company evaluates the carrying value of its long-lived asset groups, which includes right-of-use assets, for impairment when indicators exist that the carrying amounts of the asset may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset or asset group are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

The Company determined that its vacant office and laboratory space currently marketed for sublease was an indicator of impairment. Based on the Company’s impairment assessment as of March 31, 2024, the Company determined that the estimated undiscounted future cash flows of its identified asset groups exceeded the carrying value of such asset groups, and as a result, the Company did not recognize an impairment charge for the three months ended

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March 31, 2024. The Company will continue to update its long-lived asset impairment assessment each quarterly period, and the Company may record a non-cash impairment charge in future periods as its estimates change.

7. Completion of Capital Return Program

In January 2024, the Company repurchased an additional 38,462 of its shares on the open market at a weighted average cost of $11.551 per share for an approximate aggregate cost of $0.4 million, excluding fees and expenses, to complete its capital return program. Since the initiation of the capital return program in September 2022 through January 2024, the Company repurchased a total of 31.412 million of its shares at a weighted average price of $10.3544 per share for an approximate aggregate cost of $325.3 million, excluding fees and expenses.

8. Restructuring and Related Expenses

In February 2023, the Company announced strategic actions (the “2023 Strategic Actions”) that included the discontinuation of its research activities, resulting in a 17% reduction in headcount in March 2023. As a result of the Company’s discontinued investment in research activities, the Company 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.

9. Income Taxes

For the three months ended March 31, 2024, the Company recognized an income tax expense of $1.3 million. Although the Company incurred net operating losses on a consolidated basis, the income tax expense for the three months ended March 31, 2024 was primarily due to interest expense on uncertain tax positions taken in previous years.

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. As of March 31, 2024, the Company does not believe that a valuation allowance against its deferred tax assets is needed for US federal tax purposes as it is more like than not able to fully utilize such attributes. As of March 31, 2024, the Company continues to maintain a full valuation allowance in other jurisdictions, predominantly in Ireland.

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 related to income tax matters in income tax expense.

The Company’s future income tax expense may be affected by such factors as changes in tax laws, regulations, its business, tax rates, interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations and other transactions, 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. Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company may be subject to legal claims and regulatory actions that could have a material adverse effect on its business or financial position. The Company assesses it potential liability in such situations by analyzing the possible outcomes of various litigation, regulatory, and settlement strategies. If the Company determines that a material loss is probable and its amount can be reasonably estimated, it will accrue an

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amount equal to the estimated loss. As of March 31, 2024, the Company did not accrue any estimated losses related to its ongoing legal proceedings.

Litigation – Patent Infringement

During 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 court, 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 has been imposed by the FDA on the generic companies’ ANDAs pending any adverse court decision. Additional patents covering YUPELRI granted on July 4, 2023 and January 2, 2024 were subsequently listed in FDA’s Orange Book. The Company filed additional patent infringement suits in the U.S. District Court for the District of New Jersey during August 2023 and January 2024. These suits have been consolidated with the above action. Further, the original complaint was amended during December 2023 to include certain patents not listed in the Orange Book.

As of May 14, 2024, the Company has settled all litigation with Accord Healthcare, Inc.; Lupin Pharmaceuticals, Inc.; Orbicular Pharmaceutical Technologies Private Limited; and Teva Pharmaceuticals, Inc. pursuant to individual agreements in which the Company granted these companies a royalty-free, non-exclusive, non-sublicensable, non-transferable license to manufacture and market their respective generic versions of YUPELRI inhalation solution in the US on or after the licensed launch date of April 23, 2039, subject to certain exceptions as is customary in these type of agreements. As required by law, the settlements are subject to review by the U.S. Department of Justice and the Federal Trade Commission. The patent litigation against the three remaining generic companies, along with certain affiliates, remains pending.

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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, 2023. 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. 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 once-daily norepinephrine reuptake inhibitor in development for the treatment of symptomatic neurogenic orthostatic hypotension (“nOH”) in patients with Multiple System Atrophy (“MSA”) has the potential to be a first in class therapy effective in treating a constellation of cardinal symptoms in MSA patients.

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 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

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(“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 2019, we granted Viatris exclusive development and commercialization rights to nebulized revefenacin in China and adjacent territories, which include the Hong Kong SAR, the Macau SAR, and Taiwan, (collectively, the “China Region”) and we are eligible to receive low double-digit tiered royalties on net sales of nebulized revefenacin, if approved. As noted above, Viatris is responsible for all aspects of development and commercialization of nebulized revefenacin in the China Region, 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, 2024, we were eligible to receive from Viatris potential global development, regulatory and sales milestone payments (excluding the China Region) of 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, $10.0 million relates to regulatory actions in the EU and $150.0 million relates to sales milestones based on achieving certain levels of annual US net sales as follows:

 YUPELRI US Net Sales

Sales Milestones

(In a Calendar Year)

Due from Viatris

$250.0 million

$25.0 million

$500.0 million

$50.0 million

$750.0 million

$75.0 million

As of March 31, 2024, we were also eligible to receive additional potential development and sales milestones of up to $52.5 million related to Viatris’ development and commercialization of nebulized revefenacin in the China Region with $45.0 million associated with YUPELRI monotherapy and $7.5 million associated with future potential combination products. Of the $45.0 million associated with monotherapy, $7.5 million relates to regulatory approval in the China Region and $37.5 million relates to sales milestones based on achieving certain levels of cumulative net sales in the China Region as follows:

YUPELRI China Region Net Sales

Sales Milestones

(Cumulative)

Due from Viatris

$100.0 million

$2.5 million

$200.0 million

$5.0 million

$400.0 million

$10.0 million

$800.0 million

$20.0 million

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With respect to the China Region royalties, we are eligible to receive tiered royalties on net sales of nebulized revefenacin as follows:

 YUPELRI China Region Net Sales Thresholds

Royalty Rate

(Annual)

Due from Viatris

≤ $75.0 million

14%

> $75.0 million to ≤ $150.0 million

17%

> $150.0 million

20%

In November 2023, we learned that Viatris’ Phase 3 study of YUPELRI in China was positive, and the data were consistent with previous findings of YUPELRI’s strong efficacy. Viatris plans to move forward with a registrational filing for YUPELRI in China in mid-2024.

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 revefenacin (YUPELRI) delivered via standard jet nebulizer or tiotropium delivered via a dry powder inhaler (Spiriva® HandiHaler®). This study was aimed at helping to better inform decisions when physicians are designing a personalized COPD treatment plan with patients. In January 2024, we announced that the Phase 4 study did not show a statistically significant difference between YUPELRI and Spiriva HandiHaler on the primary endpoint, change from baseline in trough forced expiratory volume in one second (FEV1) at day 85. While the primary endpoint in the Phase 4 study was not met, YUPELRI demonstrated an efficacy and safety profile consistent with its performance in other clinical studies.

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)

  

2024

  

2023

  

$

  

%

    

YUPELRI net sales (100% recorded by Viatris)

$

55,226

$

46,955

$

8,271

18

%  

YUPELRI net sales (Theravance Biopharma implied 35%)

19,329

16,434

2,895

18

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 group’s 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 a three and a half year long-term extension study.

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

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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 a New Drug Application (“NDA”) filing with one additional Phase 3 clinical study (CYPRESS) in MSA patients with symptomatic nOH, using the OHSA composite score as the primary endpoint. This Phase 3 study was initiated in the first quarter of 2023, and the study is currently open to recruitment with the expectation of enrolling the final patient into the open label period of the study in the second half of 2024. In May 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.

Economic Interests and Other Assets

Mid- and Long-Term Economic Interest in TRELEGY®

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 plc's (“GSK”) TRELEGY ELLIPTA (“TRELEGY”) to Royalty Pharma for approximately $1.11 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 ended 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 Payment(s)”). As of March 31, 2024, a total of $200.0 million in potential Milestone Payments remain available to us. For the next potential Milestone Payment, we are eligible to receive either (i) $25.0 million if Royalty Pharma receives $240.0 million or more in royalty payments from GSK with respect to 2024 TRELEGY global net sales, which we would expect to occur in the event TRELEGY global net sales are approximately $2.86 billion; or (ii) $50.0 million if Royalty Pharma receives $275.0 million or more in royalty payments from GSK with respect to 2024 TRELEGY global net sales, which we would expect to occur in the event TRELEGY global net sales exceed approximately $3.21 billion.

Total 2023 TRELEGY global net sales were $2.74 billion which represented a 28% year-over-year growth, and TRELEGY’s annual growth rate was 28% and 58% in 2022 and 2021, respectively. TRELEGY global net sales for the first quarter of 2024 were $749 million which represented a 32% year-over-year growth. TRELEGY is expected to generate global peak sales of $3.80 billion in 2027 according to Bloomberg consensus estimates as of early May 2024.

In addition to potential Milestone Payments, we will receive from Royalty Pharma 85% of the royalty payments on TRELEGY due from GSK for (a) sales or other activities occurring on and after January 1, 2031 related to

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TRELEGY in the US, and (b) 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 the mid-2030s and are country specific. Royalty rates are upward tiering from 6.5% to 10% and based on total annual global net sales as follows:

TRELEGY Global Net Sales Thresholds

Royalty Rate

(Annual)

Due from GSK to Royalty Pharma

≤ $750.0 million

6.5%

> $750.0 million to ≤ $1,250.0 million

8.0%

> $1,250.0 million to ≤ $2,250.0 million

9.0%

> $2,250.0 million

10.0%

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 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.

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 focus remains on near-term value opportunities which consists of executing our ampreloxetine registration Phase 3 study (CYPRESS) and preparing for the NDA filing process.

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. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies and estimates discussed below are essential to understanding our operating results and financial condition, as these policies and estimates relate to the more significant areas involving management’s judgments. 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, 2023.

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 prior year comparable period, was as follows:

Three Months Ended March 31, 

Change

(In thousands)

  

2024

  

2023

  

$

  

%

    

YUPELRI net sales (100% recorded by Viatris)

$

55,226

$

46,955

$

8,271

18

%  

YUPELRI net sales (Theravance Biopharma implied 35%)

19,329

16,434

2,895

18

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Our recognized revenue, as compared to the prior year comparable period, was as follows:

Three Months Ended March 31, 

Change

(In thousands)

  

2024

  

2023

$

  

%

    

Viatris collaboration agreement

$

14,503

$

10,411

$

4,092

39

%  

Collaboration revenue

6

(6)

NM

Total revenue

$

14,503

$

10,417

$

4,086

39

%  

NM: Not Meaningful

We are entitled to a share of US profits and losses (65% to Viatris; 35% to Theravance Biopharma) received in connection with YUPELRI net sales. 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”. Any reimbursement from Viatris attributed to the 65% cost-sharing of our R&D expenses is characterized as a reduction of R&D expense, as we do not consider performing R&D services for reimbursement to be a part of our ordinary operations.

For the three months ended March 31, 2024, we recognized $14.5 million in revenue from the Viatris collaboration agreement which represented a 39% increase compared to the prior year comparable period. The increase was driven primarily by (i) year-over-year net sales growth as the brand achieved year-over-year market share increases in both the hospital and community segments; and (ii) lower costs incurred by Viatris. We traditionally experience seasonal dips in net sales for the year's first quarter as we transition from the fourth quarter to the first quarter of the following year. We believe this may be partially due to ordering patterns at the end of the fourth quarter of the prior year.

Research and Development

Our R&D expenses consist primarily of employee-related costs, external costs, and various allocable expenses. We budget total R&D expenses on an internal department level basis, and we manage and report our R&D activities across the following four cost categories:

1)Employee-related costs, which include salaries, wages, and benefits;

2)Share-based compensation, which includes expenses associated with our equity plans;

3)External-related costs, which include clinical trial related expenses, other contract research fees, consulting fees, and contract manufacturing fees; and

4)Facilities and other, which include office supplies, depreciation, and other allocated expenses, such as general and administrative support functions, office rent, and insurance.

The following table summarizes our R&D expenses incurred, net of any reimbursements from collaboration partners, as compared to the prior year comparable period:

Three Months Ended March 31, 

Change

(In thousands)

  

2024

  

2023

  

$

  

%

    

Employee-related

$

3,305

$

4,377

$

(1,072)

(24)

%  

Share-based compensation

 

1,465

 

2,441

(976)

(40)

External-related

 

3,377

 

5,328

(1,951)

(37)

Facilities, depreciation, and other allocated expenses

 

821

 

2,426

(1,605)

(66)

Total research & development

$

8,968

$