THERAVANCE BIOPHARMA, INC. 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 endedDecember 31, 2021 . Our forward-looking statements in this report are based on current expectations and we do not assume any obligation to update any forward-looking statements for any reason, even if new information becomes available in the future. In addition, while we expect the effects of COVID-19, including new variants, to 17
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continue to adversely impact our business operations and financial results, the extent of the impact on our ability to generate revenue from YUPELRI® (revefenacin), our clinical development programs, and the value of and market for our ordinary shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. These potential future developments include, but are not limited to, the ultimate duration of the COVID-19 pandemic, travel restrictions, quarantines, vaccination levels, social distancing and business closure requirements inthe United States and in other countries, other measures taken by us and those we work with to help protect individuals from contracting COVID-19, and the effectiveness of actions taken globally to contain and treat the disease, including vaccine availability, distribution, acceptance and effectiveness. When used in this report, all references to "Theravance Biopharma", the "Company", or "we" and other similar pronouns refer toTheravance Biopharma, Inc. collectively with its subsidiaries.
Management Overview
Theravance Biopharma, Inc. ("we," "our," "Theravance Biopharma" or the "Company") is a biopharmaceutical company primarily focused on the discovery, development, and commercialization of respiratory medicines. Our core purpose is to create medicines that make a difference® in people's lives. In pursuit of our purpose, we leverage decades of respiratory expertise to discover and develop transformational medicines that make a difference. These efforts have led to the development ofthe United States ("US")Food and Drug Administration (the "FDA") approved YUPELRI® (revefenacin) inhalation solution indicated for the maintenance treatment of patients with chronic obstructive pulmonary disease ("COPD"). Our respiratory pipeline of internally discovered programs is targeted to address significant patient respiratory needs. We have an economic interest in potential future payments fromGlaxo Group or one of its affiliates ("GSK") pursuant to our agreements with Innoviva, Inc. ("Innoviva") relating primarily to TRELEGY.
Corporate Restructuring
As previously announced inSeptember 2021 , our board of directors approved a plan to focus our resources on our most promising respiratory programs and reduce the size of the Company in order to maximize shareholder value. The corporate restructuring (the "Restructuring") resulted in us reducing headcount by approximately 75%. Approximately 75% of the total reduction in workforce occurred at the end ofNovember 2021 , and the remainder was completed at the end ofFebruary 2022 . Since the Restructuring was announced, we incurred$29.5 million in Restructuring and related expenses through the first quarter of 2022, and we expect to recognize the remaining Restructuring and related expenses of approximately$3.5 million , comprised of$0.8 million in cash-related expenses and$2.7 million in non-cash expenses, by the third quarter of 2022. The remaining Restructuring expense estimates are subject to a number of assumptions, and actual final amounts may differ.
As a result of the Restructuring, we plan to become sustainably cash-flow positive beginning in the second half of 2022 and going forward on an annual basis.
Ongoing Impact of COVID-19 Pandemic
The effects of the COVID-19 pandemic and the related actions by governments,
companies, and individuals around the world in an attempt to contain the spread
of the virus (including new variants of COVID-19) continue to present a
substantial public health and economic challenge and are affecting our
employees, patients, communities, clinical trial sites, suppliers, business
partners and business operations. The full extent to which the COVID-19 pandemic
will continue to directly or indirectly impact our business, results of
operations and financial condition, including revenue, expenses, clinical trials
and research and development costs, will depend on future developments that are
highly uncertain and may be impacted by the emergence of new information
concerning the COVID-19 pandemic, ongoing spread of the disease across the US
and the globe, and the actions taken to contain or treat the disease, including
vaccine availability, distribution, acceptance and effectiveness.
As part of our response to the ongoing COVID-19 pandemic, we have taken steps to
identify and mitigate the adverse impacts on, and risks to, our business posed
by its spread and actions taken by governmental and health authorities to
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address the COVID-19 pandemic. We expect to continue to implement measures as may be required or recommended by government authorities or as we determine are in the best interests of our employees, clinical trial sites and participants, the patients we serve, and other stakeholders in light of COVID-19.
Respiratory Program Highlights
YUPELRI (revefenacin) Inhalation Solution
YUPELRI (revefenacin) inhalation solution is a once-daily, nebulized long-acting
muscarinic antagonist ("LAMA") approved for the maintenance treatment of COPD in
the US. LAMAs are recognized by international COPD treatment guidelines as a
cornerstone of maintenance therapy for COPD, regardless of severity of disease.
Our market research indicates there is an enduring population of COPD patients
in the US that either need or prefer nebulized delivery for maintenance therapy.
The stability of revefenacin in both metered dose inhaler and dry powder inhaler
("MDI/DPI") formulations suggests that revefenacin could also serve as a
foundation for novel handheld combination products.
We co-developed YUPELRI with our collaboration partner, Viatris, and YUPELRI was
approved by the FDA for the maintenance treatment of patients with COPD in
November 2018 . In the US, Viatris is leading the commercialization of YUPELRI,
and we co-promote the product under a profit and loss sharing arrangement (65%
to Viatris; 35% to Theravance Biopharma ). Outside the US (including China and
adjacent territories), Viatris is responsible for development and
commercialization and will pay us a tiered royalty on net sales at percentage
royalty rates ranging from low double-digits to mid-teens.
Under the terms of the Viatris Development and Commercialization Agreement, as
of March 31, 2022 , we are eligible to receive from Viatris potential global
development, regulatory and sales milestone payments totaling up to
$257.5 million in the aggregate with $205.0 million associated with YUPELRI
monotherapy and $52.5 million associated with future potential combination
products. Of the $205.0 million associated with monotherapy, $187.5 million
relates to sales milestones based on achieving certain levels of net sales and
$17.5 million relates to global development and regulatory actions. The $52.5
million associated with future potential combination products relates solely to
global development and regulatory actions.
Since March 2020 , YUPELRI's growth trajectory has been impacted by the COVID-19
respiratory pandemic. However, in late 2021, we began to observe a return to
growth in YUPELRI sales. We continue to monitor external factors that are
associated with the current healthcare market which may be impacting demand for
YUPELRI due to the ongoing pandemic. These include the duration of use, the rate
of new patients starting on YUPELRI, and the return of customer orders to
pre-pandemic utilization levels. Although some pandemic restrictions have eased
in many regions at this time, we are not able to predict with certainty the
ultimate disruptive impact of the ongoing pandemic on YUPELRI sales, but it is
possible the pandemic may continue to put downward pressure on our sales. As a
result, the observed sales volatility may continue throughout 2022. As we have
throughout the pandemic, we will continue to track key performance metrics to
gauge success in continuing to grow market adoption, including formulary
inclusion success and the various aspects of market access. We and Viatris
continue to supply YUPELRI to our patients and currently do not anticipate any
interruptions in supply.
In August 2021 , we announced that in collaboration with our partner Viatris, we
were initiating a Phase 4 study comparing improvements in lung function in
adults with severe to very severe COPD and suboptimal inspiratory flow rate
following once-daily treatment with either YUPELRI delivered via standard jet
nebulizer or tiotropium delivered via a dry powder inhaler (Spiriva®
HandiHaler®). This study is aimed at helping to better inform decisions when
physicians are designing a personalized COPD treatment plan with patients and is
intended to support a possible label update for YUPELRI, which would capture
more of YUPELRI's addressable market and further strengthen its competitive
advantage. We pay 35% of the Phase 4 study costs, and Viatris pays 65% of the
study costs. In January 2022 , we announced the enrollment of the first patient
in the Phase 4 study.
Lung-selective, Nebulized Pan-Janus Kinase (JAK) Inhibitor (Nezulcitinib)
Nezulcitinib (formerly known as TD-0903) is a lung-selective, nebulized JAK inhibitor, in clinical development for the potential treatment of hospitalized patients with Acute Lung Injury ("ALI") caused by COVID-19. We discovered nezulcitinib, and it has been shown in experimental murine models to have potent, broad inhibition of JAK-STAT signaling
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in the airways following challenges with multiple cytokines. Preclinical studies
suggest that nezulcitinib has a high lung to plasma ratio and rapid metabolic
clearance resulting in low systemic exposure, compatible with its lung
selectivity. Nezulcitinib is administered via nebulized inhalation solution,
which further enhances its lung selectivity. Preclinical pharmacodynamic studies
indicate that nezulcitinib has an extended duration of action that should enable
once daily dosing in humans.
We believe nezulcitinib has the potential to inhibit the cytokine storm
associated with ALI and prevent progression to Acute Respiratory Distress
Syndrome ("ARDS"). The first healthy volunteer was dosed in a Phase 1 study of
nezulcitinib in April 2020 , and in June 2020 , we completed Phase 1 and entered a
two-part Phase 2 study. Phase 2 was designed to evaluate the efficacy, safety,
and tolerability of nezulcitinib in subjects with confirmed symptomatic COVID-19
hospitalized for symptomatic respiratory insufficiency. This study also
evaluated the PK of nezulcitinib in these subjects. To expedite enrollment, we
opened additional sites in other regions including Europe , the US, and South
America .
We completed Phase 2, Part 1, a small sub-study of 25 patients intended to
assess safety, PK and exploratory clinical measures of three doses of
nezulcitinib versus placebo. Data showed that inhaled administration of
nebulized nezulcitinib, once daily over seven days, was generally well-tolerated
and showed a numerical trend towards improved clinical status, reduced hospital
stay and resulted in fewer deaths compared to placebo during a 28-day
observation period. Nezulcitinib also demonstrated evidence of improvements in
several relevant inflammatory biomarkers and low systemic exposure at all doses,
which we believe demonstrates the lung-selective design features of the
molecule.
The Phase 2 Dose Finding study was a randomized, double-blind, parallel-group
study evaluating efficacy and safety of one dose (3 mg) of nezulcitinib
(selected based on the data from Part 1) as compared with placebo in 200
patients. In June 2021 , we announced top-line results from our Phase 2 study of
3 mg once-daily nezulcitinib compared to placebo, each in combination with
standard of care, which generally included steroids. The study did not meet the
primary endpoint of number of Respiratory Failure-Free Days from randomization
through Day 28 in the intent-to-treat population. The study also did not meet
secondary endpoints, with no difference shown in change from baseline at Day 7
in SaO2/FiO2 ratio, proportion of patients in each category of the eight-point
Clinical Status scale, or proportion of patients alive and respiratory
failure-free at Day 28. However, nezulcitinib demonstrated a favorable trend in
improvement when compared to placebo for 28-day all-cause mortality. In
addition, in a post-hoc analysis of patients with C-reactive protein ("CRP")
<150 mg/L, there was an improvement in those treated with nezulcitinib when
compared to placebo in 28-day all-cause mortality and in time to recovery while
there was no difference in these outcomes in patients with CRP >150 mg/L.
Nezulcitinib was generally well-tolerated, and we intend to further investigate
its therapeutic potential as part of our newly focused respiratory portfolio.
Lung-selective Pan-JAK Inhibitor Program
TD-8236, an inhaled lung-selective pan-JAK inhibitor, demonstrated a high affinity for each of the JAK family of enzymes (JAK1, JAK2, JAK3 and TYK2) that play a key role in cytokine signaling. Inhibiting these JAK enzymes interferes with the JAK/STAT signaling pathway and, in turn, modulates the activity of a wide range of pro-inflammatory cytokines. While orally-administered JAK inhibitors are currently approved for the treatment of a range of inflammatory diseases, no inhaled JAK inhibitor is approved for the treatment of airway disease, including asthma. The pan-JAK activity of TD-8236 suggests that it may impact a broad range of cytokines that have been associated both T2-high and T2-low asthma. Many moderate to severe asthma patients comprising both T2 phenotypes remain symptomatic despite being compliant on high doses of inhaled steroids. Importantly, TD-8236 was designed to distribute and exert its anti-inflammatory effect within the lungs following dry powder inhalation, with the potential to treat inflammation within that organ while minimizing systemic exposure. In preclinical assessments, TD-8236 has shown to potently inhibit targeted mediators of T2-high and T2-low asthma in human cells. InSeptember 2019 , we announced positive results from a Phase 1 single-ascending dose and multiple-ascending dose clinical trial of TD-8236, an investigational, inhaled lung-selective pan-JAK inhibitor that has demonstrated a high affinity for each of the JAK family of enzymes (JAK1, JAK2, JAK3 and TYK2) that play a key role in cytokine signaling. The Part C extension portion of the Phase 1 trial, assessing additional biomarkers in patients with moderate to severe asthma, demonstrated that biomarkers of JAK target engagement (including exhaled nitric oxide and pSTAT1 and pSTAT6 in cellular fractions of bronchoalveolar lavage fluid) were reduced after 7 days of once-daily dosing at a dose level of 1500 µg. InDecember 2019 , we announced the initiation of a Phase 2 allergen challenge study of TD-8236 in mild allergic asthma patients, and we reported results of the Phase 1C study in the third quarter of 2020. TD-8236 is the
first
JAK inhibitor to be
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studied in a Phase 2a Lung Allergen Challenge ("LAC") study, but inconsistent
with our expectations, it had no impact on decrease in lung function (FEV1)
following allergen inhalation after 14 days of once-daily dosing at dose levels
of 150 µg and 1500 µg compared to placebo and did not meet the primary study
objective. The collective data set (preclinical, Phase 1, Phase 2a) demonstrates
TD-8236 engages the JAK mechanism at a dose of 1500 µg as evidenced by the
reduction in FeNO and reductions in pSTAT, but does not protect against the lung
function decline seen after allergen inhalation.
After completing additional analysis on TD-8236 gene signature and biomarker
data from the Phase 1C study, we found that the data are consistent with target
engagement in the lung. However, based on our current understanding of TD-8236,
we have decided to pause the clinical program for this compound in its current
form and apply our learnings to refining and expanding molecules in our
portfolio of inhaled JAK inhibitors.
Other Pipeline Asset Highlights
Ampreloxetine (TD-9855)
Ampreloxetine is an investigational, once-daily norepinephrine reuptake
inhibitor ("NRI") that we were developing for the treatment of patients with
symptomatic neurogenic orthostatic hypotension ("nOH"). nOH is caused by primary
autonomic failure conditions, including multiple system atrophy, Parkinson's
disease and pure autonomic failure. The compound has high affinity for binding
to norepinephrine transporters. By blocking the action of these transporters,
ampreloxetine causes an increase in extracellular concentrations of
norepinephrine. Ampreloxetine is wholly owned by Theravance Biopharma .
Based on positive top-line four-week results from a small exploratory Phase 2
study in nOH and discussions with the FDA, we advanced ampreloxetine into a
Phase 3 program. We announced the initiation of patient dosing in study in early
2019. The Phase 3 program consisted of two pivotal studies and one non-pivotal
study. The first pivotal study (SEQUOIA), a four-week, randomized double-blind,
placebo-controlled study, was designed to evaluate the efficacy and safety of
ampreloxetine in patients with symptomatic nOH. The second pivotal study
(REDWOOD), a four-month open label study followed by a six-week randomized
withdrawal phase was designed to evaluate the durability of patient response of
ampreloxetine. The third, non-pivotal study (OAK), was designed to allow
patients who completed REDWOOD to have continued access to ampreloxetine for up
to three and half years.
In September 2021 , we reported that the SEQUOIA Phase 3 clinical study did not
meet its primary endpoint. Most treatment-related adverse events were mild or
moderate in severity. Serious adverse events occurred in two patients on placebo
and four on ampreloxetine and none of which were considered related to the study
drug. No deaths were reported, and there was no signal for supine hypertension.
In
autonomic failure ("PAF") and Multiple System Atrophy ("MSA"). The pre-specified
subgroup analysis by disease type suggests the benefit seen in patients
receiving ampreloxetine was largely driven by MSA patients. The benefit to MSA
patients in the study was observed in multiple endpoints including Orthostatic
Hypotension Symptom Assessment Scale ("OHSA") composite, Orthostatic Hypotension
Daily Activities Scale ("OHDAS") composite, Orthostatic Hypotension
Questionnaire ("OHQ") composite and OHSA #1. While the same benefit was not
apparent in patients with PD or PAF, we continue to analyze the data to better
understand this observation. Throughout the study, there was no indication of
worsening of supine hypertension based on 24-hour monitoring. Data suggest that
ampreloxetine was well-tolerated and no new safety signals were identified.
Given the clear unmet need for MSA patients suffering from symptomatic nOH, we
are engaging potential partners and planning health authority interactions to
determine a path forward in hopes of expediting ampreloxetine as a possible
treatment option for MSA patients with symptomatic nOH.
Inhaled ALK5i (TD-1058)
Our ALK5 inhibitor is a potential first-in-class, inhaled anti-fibrotic agent
for the treatment of idiopathic pulmonary fibrosis ("IPF"), a fatal chronic lung
disease with limited treatment options. Despite treatment with the current
standard of care, IPF patients continue to experience disease progression and
exacerbation, and therefore IPF treatment represents a significant unmet medical
need. The compound targets the TGF? pathway, a core signaling pathway that
drives fibrosis. By
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being inhaled, the ALK5i efficiently inhibits TGF? signaling locally in the lung which is expected to maximize its therapeutic effect. We have completed a single and multiple ascending dose study of TD-1058 in healthy subjects.
Economic Interest in GSK-Partnered Respiratory Programs
We hold an 85% economic interest in any future payments that may be made by GSK toTheravance Respiratory Company, LLC ("TRC") pursuant to its agreements with Innoviva (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to theTRC LLC Agreement over the next four fiscal quarters) relating to the GSK-Partnered Respiratory Programs, which Innoviva partnered with GSK and assigned to TRC in connection with Innoviva's separation of its biopharmaceutical operations into its then wholly-owned subsidiaryTheravance Biopharma inJune 2014 . The GSK-Partnered Respiratory Programs consist primarily of the TRELEGY program, which is described in more detail below. We are entitled to this economic interest through our equity ownership in TRC. Our economic interest does not include any payments associated with RELVAR ELLIPTA/BREO ELLIPTA, ANORO ELLIPTA or vilanterol monotherapy. The following information regarding the TRELEGY program is based solely upon publicly available information and may not reflect the most recent developments under the programs.
TRELEGY (the combination of fluticasone furoate/umeclidinium bromide/vilanterol)
TRELEGY provides the activity of an inhaled corticosteroid (FF) plus two bronchodilators (UMEC, a LAMA, and VI, a long-acting beta2 agonist, or LABA) in a single delivery device administered once-daily. TRELEGY is approved for use in the US,European Union ("EU"), and other countries for the long-term, once-daily, maintenance treatment of patients with COPD. We hold an 85% economic interest in the royalties payable by GSK to TRC on worldwide net sales (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to theTRC LLC Agreement over the next four fiscal quarters) through our interest in TRC. Those royalties are upward-tiering from 6.5% to 10%, resulting in cash flows to us of approximately 5.5% to 8.5% of worldwide net sales of TRELEGY (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to theTRC LLC Agreement over the next four fiscal quarters).Theravance Biopharma is not responsible for any of GSK's costs related to the development or commercialization of TRELEGY. Additionally, the FDA approved an sNDA for the use of TRELEGY to treat asthma in adults inSeptember 2020 making TRELEGY the first once-daily single inhaler triple therapy for the treatment of both asthma and COPD in the US. GSK has obtained approval for the asthma indication in ten additional markets. TRELEGY is currently expected to generate global peak sales of$3.5 billion annually according to consensus estimates. Over the past three years, TRELEGY has shown substantial growth, with global net sales increasing from$663 million in 2019 to$1.1 billion in 2020 and to$1.7 billion in 2021.
Prior to theJune 2014 spin-off from Innoviva, our former parent company, Innoviva assigned toTheravance Respiratory Company, LLC ("TRC"), aDelaware limited liability company formed by Innoviva, its strategic alliance agreement with GSK and all of its rights and obligations under its collaboration agreement with GSK, other than with respect to RELVAR ELLIPTA/BREO ELLIPTA, ANORO ELLIPTA and vilanterol monotherapy. Our equity interest in TRC is the mechanism by which we are entitled to the 85% economic interest in any future payments made by GSK under the strategic alliance agreement and under the portion of the collaboration agreement assigned to TRC by Innoviva (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to theTRC LLC Agreement over the next four fiscal quarters). TRELEGY is currently the only commercial product arising out of the GSK agreements assigned by Innoviva to TRC. Royalty payments from GSK to TRC arising from the net sales of Trelegy are presented in our condensed consolidated statements of operations within "Income from investment inTRC, LLC " and is classified as non-operating income. Seventy-five percent of the "Income from investment inTRC, LLC ," as evidenced by the Issuer II ClassC Units (defined below), is available only for payment of the$400.0 million original aggregate amount of 9.5% fixed rate non-recourse term notes due 2035 (the "Non-Recourse 2035 Notes") and is not available to pay our other obligations or the claims of our other creditors. 22
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Our special purpose subsidiaryTriple Royalty Sub II LLC (the "Issuer II") issued the Non-Recourse 2035 Notes inFebruary 2020 , the proceeds of which were used in part to repay the outstanding balance of our 9.0% non-recourse notes, due on or before 2033 (the "Non-Recourse 2033 Notes") that were issued inNovember 2018 . The Non-Recourse 2035 Notes are secured by all of the Issuer II's rights, title and interest as a holder of certain membership interests (the "Issuer II ClassC Units ") in TRC. The Issuer II ClassC Units entitle the Issuer II to receive 63.75% of the economic interest that TRC receives in any future payments made by GSK under the agreements described above, or 75% of the income from our 85% ownership interest in TRC. We initiated an arbitration proceeding inOctober 2020 against Innoviva and TRC, challenging the authority of Innoviva and TRC to pursue a business plan to use TRELEGY royalties to invest in certain privately-held companies, rather than distribute such funds that would otherwise be available for distribution to us under the terms of theTRC LLC Agreement in a manner that we believe is consistent with theTRC LLC Agreement and our 85% economic interest in TRC. OnMarch 30, 2021 , the arbitrator ruled that, we had not shown that at their then current levels of investment, Innoviva and TRC had breached theTRC LLC Agreement as of the date of the arbitration. The arbitrator further ruled that Innoviva and TRC had not breached the implied covenant of good faith and fair dealing; or their fiduciary duties. The arbitrator also ruled that (i) Innoviva was entitled to indemnification from TRC for all legal fees and expenses reasonably incurred in the arbitration and (ii) we were entitled to indemnification from TRC for legal fees and costs incurred in defending an action Innoviva brought against us in theDelaware Court of Chancery . The arbitrator noted in the ruling that although we failed to show that Innoviva's investment activities, at the then current levels of investment, have or will have a material and adverse effect on our economic interest in TRC, this does not mean that any future investments or actions will not require our consent. The arbitrator noted in the ruling that we may, in the future, have a consent right over the decision to continue this investment strategy or whether to make a particular investment if, for example, Innoviva develops a track record of poor investments, over allocates royalties to these investment activities, or fails to distribute sufficient investment returns, and such facts cause the strategy or investment to have a material adverse effect on our economic interest in TRC. Pursuant to the terms of theTRC LLC Agreement, Innoviva is required to deliver to us a draft quarterly financial plan 30 days prior to the end of each fiscal quarter covering the next fiscal quarter. While theTRC LLC Agreement provides that Innoviva must consider in good faith any comments the Company provides, an applicable financial plan becomes effective 30 days after the draft plan is provided to the Company. We have objected to the proposed investments in private companies presented in draft TRC quarterly financial plans to date. If TRC identifies and consummates investments and incurs associated fees identified in a TRC quarterly plan, even over the Company's objections, distributions by TRC to its members in subsequent quarters will be reduced. Our objections with regard to a draft TRC quarterly plan or other actions by TRC could result in additional legal proceedings between us, TRC and Innoviva, as was the case when we initiated arbitration proceedings against Innoviva and TRC inMay 2019 and again inOctober 2020 . Any such legal proceedings could divert the attention of management and cause us to incur significant costs, regardless of the outcome, which we cannot predict. If such proceedings were pursued, there can be no assurance that they would result in us receiving additional distributions from TRC. An adverse result could materially and adversely affect the funds that our affiliates would otherwise expect to receive from TRC in the future. See "Risk Factors-We do not control the commercialization of TRELEGY and we do not control TRC; accordingly the amount of royalties we receive will depend on, among other factors, GSK's ability to further commercialize TRELEGY and TRC's decisions concerning use of cash in accordance with theTRC LLC Agreement" for additional information.
Other Economic Interests
Selective 5-HT4 Agonist (TD-8954)
TD-8954 is a selective 5-HT4 receptor agonist being developed for potential use in the treatment of gastrointestinal motility disorders.
Takeda Collaborative Arrangement
InJune 2016 , we entered into a License and Collaboration Agreement (the "Takeda Agreement") withMillennium Pharmaceuticals, Inc. ("Millennium"), in order to establish a collaboration for the development and commercialization of 23
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TD-8954 (TAK-954). Millennium is an indirect wholly-owned subsidiary of Takeda
Pharmaceutical Company Limited ("Takeda"). TD-8954 is currently in a Phase 2
study as a potential treatment for post-operative gastrointestinal dysfunction.
Under the terms of the Takeda Agreement, Takeda is responsible for worldwide
development and commercialization of TD-8954. We received an upfront cash
payment of $15.0 million and will be eligible to receive success-based
development, regulatory and sales milestone payments from Takeda. We will also
be eligible to receive a tiered royalty on worldwide net sales by Takeda at
percentage royalty rates ranging from low double-digits to mid-teens.
Skin-selective Pan-JAK inhibitor Program
InDecember 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 inMarch 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 ofMarch 31, 2022 , we are eligible to receive up to an additional$237.5 million in development and sales milestone payments from Pfizer. In addition, we are eligible to receive a tiered royalty on worldwide net sales of any potential products under the license at percentage royalty rates ranging from middle single-digits to low double-digits.
Research Projects
Our research projects leverage years of experience in developing lung-selective medicines to address the needs of patients suffering from respiratory illness. As a result of our strategic restructuring announced inSeptember 2021 , we intend to streamline and narrow our R&D focus on our highest value core respiratory opportunities. This would include the peak inspiratory flow rate ("PIFR") clinical study, in partnership with Viatris, to support the label update of YUPELRI and continued investment in our investigational inhaled Janus kinase inhibitor portfolio, with focus on the most advanced clinical candidate, nezulcitinib, initially targeting acute lung injury.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
is based on our condensed consolidated financial statements, which have been
prepared in accordance with US Generally Accepted Accounting Principles
("GAAP"). The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of revenues,
expenses, assets, liabilities, and other related disclosures. Our estimates are
based on our historical experience and on various other factors that we believe
are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. The extent to which the COVID-19 pandemic
will continue to directly or indirectly impact our business, results of
operations and financial condition, including these estimates, will depend on
future developments that are highly uncertain and may be impacted by the
emergence of new information concerning the COVID-19 pandemic, ongoing spread of
the disease across the US and the globe, and the actions taken to contain or
treat the disease, including vaccine availability, distribution, acceptance and
effectiveness. Actual results may differ from these estimates under different
assumptions or conditions. There have been no material changes to the critical
accounting policies and estimates discussed in our Annual Report on Form 10-K
for the year ended December 31, 2021 .
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Results of Operations
Revenue
Revenue, as compared to the comparable period in the prior year, was as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
Viatris collaboration agreement $ 10,687 $ 10,385 $ 302 3 %
Collaboration revenue 9 3,872 (3,863) (100)
Licensing revenue 2,500 - 2,500 NM
Total revenue $ 13,196 $ 14,257 $ (1,061) (7) %
NM: Not Meaningful
Revenue from the Viatris collaboration agreement for YUPELRI was $10.7 million
in the first quarter of 2022 compared to $10.4 million in the first quarter of
2021 and represented the receivables due from Viatris during the periods. In the
first quarter of 2022, YUPELRI continued to increase its share of the
long-acting nebulized COPD market and continued to be profitable for us on a
brand basis. In addition to continued market share gains, year-over-year demand
for YUPELRI increased by 23.4% in the first quarter of 2022 compared to the same
period in 2021.
While Viatris records the total net sales of YUPELRI within its own financial
statements, Viatris collaboration agreement revenue in our financial statements
includes our implied 35% share of net sales of YUPELRI of $15.3 million and
$12.9 million for the first quarters of 2022 and 2021, respectively, which
represented a 19% increase in net sales over the comparable periods. However,
due to applicable accounting guidance, our Viatris collaboration agreement
revenue increased by only 3% due to lower costs incurred by Theravance Biopharma
as a result of the Restructuring, which improved YUPELRI profitability, but
lowered Viatris collaboration agreement revenue.
Other collaboration revenue decreased by $3.9 million in the first quarter of
2022 compared to the same period in 2021. The decrease was primarily due to the
recognition of the remaining non-cash Janssen collaboration revenue in the
fourth quarter of 2021 resulting from the planned close-out of the izencitinib
program.
Licensing revenue increased by $2.5 million in the first quarter of 2022
compared to the same period in 2021. The $2.5 million recognized in the first
quarter of 2022 was due to a development milestone payment from Pfizer for the
first patient dosed in a Phase 1 clinical trial of the skin-selective pan-JAK
inhibitor program.
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
Facilities and other, which include laboratory and office supplies,
4) depreciation and other allocated expenses, which include general and
administrative support functions, insurance and general supplies.
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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) 2022 2021 $ %
Employee-related $ 6,264 $ 17,576 $ (11,312) (64) %
Share-based compensation 4,530 7,921 (3,391) (43)
External-related 7,245 33,532 (26,287) (78)
Facilities, depreciation and other allocated
expenses 5,214 8,570 (3,356) (39)
Total research & development $ 23,253 $ 67,599 $ (44,346) (66) %
R&D expenses decreased by $44.3 million in the first quarter of 2022 compared to
the same period in 2021, and the decrease was across all R&D categories.
External-related expenses decreased by $26.3 million and was the largest
contributor to the total R&D expense decrease. The decrease in external-related
expenses was primarily due to the completion, or near completion, of expenses
related to the izencitinib and ampreloxetine programs. The decreases across the
remaining R&D categories were primarily due to the Restructuring announced in
September 2021 which included a significant reduction in employee-related
expenses of $11.3 million . Severance and other costs that were directly
attributed to the Restructuring are included in the Restructuring and Related
Expenses section below.
Under certain of our collaborative arrangements, we receive partial
reimbursement of employee-related costs and external costs, which have been
reflected as a reduction of R&D expenses of
Selling, General and Administrative
Selling, general and administrative expenses, as compared to the comparable period in the prior year, were as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
Selling, general and administrative
Selling, general and administrative expenses decreased by$11.4 million in the first quarter of 2022 compared to the same period in 2021. The$11.4 million decrease was primarily attributed to a$7.5 million reduction in employee-related expenses and a$2.4 million reduction in share-based compensation expenses resulting from the Restructuring. External-related services also decreased by$2.1 million primarily due to a reduction in legal expenses related to the TRC arbitration in 2021. Severance and other costs that were directly attributed to the Restructuring are included in the Restructuring and Related Expenses section below. Share-based compensation expense related to selling, general and administrative expenses was$5.5 million and$7.9 million for the first quarters of 2022 and 2021, respectively.
Restructuring and Related Expenses
Restructuring and related expenses, as compared to the prior year period, were
as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
Restructuring and related expenses $ 4,807 $ - $ 4,807 NM %
Share-based compensation expense (Non-cash) 4,517 - 4,517 NM
Total restructuring and related expenses $ 9,324 $ - $ 9,324 NM %
NM: Not Meaningful
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Of the total$9.3 million in Restructuring and related expenses recognized in the first quarter of 2022,$4.7 million was related to R&D expenses and$4.6 million was related to selling, general and administrative expenses. The Restructuring and related expenses were primarily comprised of one-time severance payments, employee-related separation costs, retention costs, and other Restructuring-related expenses. The$9.3 million also included non-cash charges of$4.5 million , primarily related to the modification of equity awards for employees affected by the Restructuring and certain related awards for other employees. We estimate that we will incur total Restructuring and related expenses of approximately$33.0 million comprised of$17.1 million in cash expenses associated with employee termination benefits and related costs and$15.9 million in non-cash expenses relating to the acceleration of equity-awards for employees affected by the Restructuring. We expect to recognize the remaining approximate$3.5 million in Restructuring and related expenses, comprised of$0.8 million in cash-related expenses and$2.7 million in non-cash expenses by the third quarter of 2022. The remaining Restructuring expense estimates are subject to a number of assumptions, and actual final amounts may differ. We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the Restructuring.
Income from Investment in
Income from investment in TRC, as compared to the comparable period in the prior
year, was as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
Income from investment in
The income from investment in TRC represented our share of the royalty payments from GSK to TRC on the net sales of TRELEGY (net of our share of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC Agreement over the next four fiscal quarters). Income from investment in TRC increased by$8.6 million in the first quarter of 2022 compared to the same period in 2021. The$25.1 million of TRC income for the first quarter of 2022 was recorded net of our share of TRC expenses of$0.2 million . Our share of TRC expenses was$2.8 million for the first quarter of 2021 and was primarily comprised of TRC's legal and related expenses associated with the arbitration between Innoviva and TRC and us. In connection with the issuance of our$380.0 million net principal amount Non-Recourse 2035 Notes inFebruary 2020 , 75% of the income from our investment in TRC is available only for payment of the Non-Recourse 2035 Notes and is not available to pay other creditor obligations or claims. See "Risk Factors-We do not control the commercialization of TRELEGY and we do not control TRC; accordingly the amount of royalties we receive will depend on, among other factors, GSK's ability to further commercialize TRELEGY and TRC's decisions concerning use of cash in accordance with theTRC LLC Agreement" for additional information regarding our economic interest inTRC, LLC .
Interest Expense
Interest expense primarily consisted of interest payments due on the Convertible
Senior 2023 Notes and the Non-Recourse 2035 Notes, as well as the amortization
of the associated debt issuance costs. Interest expense, as compared to the
comparable period in the prior year, was as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
9.5% Non-recourse notes due 2035
- Total interest expense$ (11,655) $ (11,873) $ 218 (2) % 27 Table of Contents
Interest expense was
Interest Income and Other Income (Expense), net
Interest income and other income (expense), net, as compared to the comparable period in the prior year, was as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021
$ %
Interest income and other income (expense), net
Interest income and other income (expense), net, was($0.4) million in the first quarter of 2022 and was primarily related to foreign currency losses offset by interest income from investment balances. The increase, compared to the same period in 2021, was attributed to various miscellaneous items.
Provision for Income Tax Expense
The provision for income tax expense, as compared to the comparable period in the prior year, was as follows:
Three Months Ended
March 31, Change
(In thousands) 2022 2021 $ %
Provision for income tax expense $ (524) $ (227) $ (297) 131 %
In the first quarter of 2022, the provision for income tax expense increased
$0.3 million compared to the same period in 2021. Although we incurred operating
losses on a consolidated basis, the provision for income taxes was due to the
uncertain tax position taken with respect to transfer pricing. Our provision for
income tax expense differs from the expected statutory rate due to the valuation
allowance on the deferred tax assets.
We are currently under Internal Revenue Service ("IRS") examination for the tax
year ended December 31, 2018 . We believe that an adequate provision has been
made for any adjustments that may result from the tax examination.
Liquidity and Capital Resources
As ofMarch 31, 2022 , we had approximately$147.5 million in cash, cash equivalents, and investments in marketable securities (excluding restricted cash). To date, we have financed our operations primarily through public offerings of equity securities, private placements of equity and debt, revenue from collaboration and licensing arrangements and, to a lesser extent, revenue from product sales. As ofMarch 31, 2022 , we had outstanding (i)$230.0 million in principal Convertible Senior 2023 Notes and (ii)$397.3 million in principal Non-Recourse 2035 Notes which are stated net of a 5.0% retention by us in compliance with Regulation RR - Credit Risk Retention (17C.F.R. Part 246). The Non-Recourse 2035 Notes were issued onFebruary 28, 2020 and are secured by all of theTriple Royalty Sub II LLC's (the "Issuer II") rights, title, and interest as a holder of the Issuer II ClassC Units in TRC. The primary source of funds to make payments on the Non-Recourse 2035 Notes is the 63.75% economic interest of the Issuer (evidenced by the Issuer II ClassC Units ) in any future payments that may be made by GSK to TRC under the strategic alliance agreement and under the portion of the collaboration agreement assigned to TRC by Innoviva (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to theTRC LLC Agreement over the next four fiscal quarters) relating to the GSK-Partnered Respiratory Programs, including the Trelegy program. As a result, the holders of the Non-Recourse 2035 Notes have no recourse againstTheravance Biopharma even if the TRELEGY payments are insufficient to cover the principal and interest payments for the Non-Recourse 2035 Notes. Prior to and including theDecember 5, 2024 payment date, in the event that the distributions received by the Issuer II from TRC in a quarter is less than the interest accrued for that quarter, the principal amount of the Non-Recourse 2035 Notes will increase by the interest shortfall amount for that quarter. While the holders of the Non-Recourse 2035 Notes have no recourse againstTheravance Biopharma , the terms of the Non-Recourse 2035 Notes also provide thatTheravance Biopharma , at its option, may satisfy the quarterly interest payment obligations by making a capital contribution to the Issuer
II.
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A portion of the proceeds from the Non-Recourse 2035 Notes issuance were used to
repay, in full, the remaining outstanding balance of the Non-Recourse 2033
Notes, as well as, a 5% premium on the early redemption of the Non-Recourse 2033
Notes. The Non-Recourse 2033 Notes were issued in November 2018 and were
structured similarly to the Non-Recourse 2035 Notes.
Corporate Restructuring
As previously announced inSeptember 2021 , our board of directors approved a corporate restructuring plan (the "Restructuring") to focus our resources on our most promising respiratory programs and reduce the size of the Company in order to maximize shareholder value. We executed the plan and reduced headcount by approximately 75% by the end ofFebruary 2022 . Since the Restructuring was announced, we incurred$29.5 million in Restructuring and related expenses through the first quarter of 2022, and we expect to recognize the remaining Restructuring and related expenses of approximately$3.5 million , comprised of$0.8 million in cash-related expenses and$2.7 million in non-cash expenses, by the third quarter of 2022. The remaining Restructuring expense estimates are subject to a number of assumptions, and actual final amounts may differ. As a result of the Restructuring, we plan to become sustainably cash flow positive beginning in the second half of 2022, and going forward on an annual basis, primarily achieved through our reduced cash expenditures in light of the Restructuring and the focus on our respiratory assets. Despite expected expense savings from the Restructuring, we may continue to incur net losses over the next several years due to expenditures relating to our continuing drug discovery efforts and preclinical and clinical development of our current product candidates. In particular, to the extent we advance our respiratory product candidates into and through later-stage clinical studies without a partner, we may incur substantial expenses. In addition, we may invest strategically in our research efforts to continue to grow our respiratory development pipeline. In the past, we have received a number of significant payments from collaboration agreements and other significant transactions. In the future, we may continue to receive potential substantial payments from future collaboration transactions if the drug candidates in our pipeline achieve positive clinical or regulatory outcomes or if our product candidates are approved and meet certain milestones. Our new strategic business plan is subject to significant uncertainties and risks as a result of, among other factors, the COVID-19 pandemic, clinical program outcomes, whether, when and on what terms we are able to enter into new collaboration arrangements, expenses being higher than anticipated, the sales levels of our approved products, unplanned expenses, cash receipts being lower than anticipated, and the need to satisfy contingent liabilities, including litigation matters and indemnification obligations.
Adequacy of cash resources to meet future needs
We expect our cash, cash equivalents and marketable securities will be sufficient to fund our 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.
We may seek to obtain additional financing in the form of public or private equity offerings, debt financing or additional collaborations and licensing arrangements. However, future financing may not be available in amounts or on terms acceptable to us.
Without adequate financial resources to fund our expected future operations, we may be required to relinquish rights to our technologies, product candidates or territories, or grant licenses on terms that are not favorable to us, in order to raise additional funds through collaborations or licensing arrangements. We may also have to sequence preclinical and clinical studies as opposed to conducting them concomitantly in order to conserve resources, or, as we announced inSeptember 2021 , we may need to delay, reduce, or eliminate one or more of our research or development programs and reduce overall overhead expenses. In addition, we may have to make reductions in our workforce and may be prevented from continuing our discovery, development and commercialization efforts and exploiting other corporate opportunities. 29 Table of Contents Cash Flows Cash flows, as compared to the comparable period in the prior year, were as follows: Three Months Ended March 31, (In thousands) 2022 2021 Change
Net cash used in operating activities$ (26,069) $ (69,865) $ 43,796 Net cash provided by investing activities 31,924 113,697 (81,773) Net cash used in financing activities (1,448)
(11,288) 9,840
Net cash flows used in operating activities
Net cash used in operating activities was$26.1 million for the first quarter of 2022, consisting of a net loss of$25.9 million , a net increase in cash resulting from adjustments for non-cash and other reconciling items of$1.9 million and a net decrease in cash resulting from changes in operating assets and liabilities of$2.1 million . Net cash used in operating activities was$69.9 million for the first quarter of 2021, consisting of a net loss of$79.7 million , a net increase in cash resulting from adjustments for non-cash and other reconciling items of$22.9 million and a net decrease in cash resulting from changes in operating assets and liabilities of$13.1 million .
Net cash flows provided by investing activities
Net cash provided by investing activities was$31.9 million for the first quarter of 2022, consisting primarily of cash inflows from the net purchase and maturities of marketable securities of$30.3 million and cash inflows from the sale of property and equipment of$1.8 million . Net cash provided by investing activities was$113.7 million for the first quarter of 2021, consisting of cash inflows from the net purchase and maturities of marketable securities of$115.5 million and partially offset by$1.8 million used for the purchase of property and equipment.
Net cash flows used in financing activities
Net cash used in financing activities was
Net cash used in financing activities was$11.3 million for first quarter of 2021, consisting primarily of$5.7 million in principal payments on the Non-Recourse 2035 Notes and$5.6 million related to the repurchase of shares to satisfy tax withholding obligations.
Commitments and Contingencies
We indemnify our officers and directors for certain events or occurrences, subject to certain limits. We maintain insurance policies that may limit our exposure, and therefore, we believe the fair value of these indemnification agreements is minimal. Accordingly, we have not recognized any liabilities relating to these agreements as ofMarch 31, 2022 . However, no assurances can be given regarding the amounts that may ultimately be covered by the insurers, and we may incur substantial liabilities because of these indemnification obligations.
Performance-Contingent Awards
We periodically grant performance-contingent awards to our employees. For the three months endedMarch 31, 2022 , we recognized$0.1 million of aggregate share-based compensation expense and$0.1 million in cash bonus expense related to these types of awards. As ofMarch 31, 2022 , the maximum remaining expense related to outstanding performance-contingent share-based awards was$2.6 million which had performance expiration dates throughDecember 2025 , and the maximum remaining expense related to outstanding performance-contingent cash awards was$0.3 million which had performance expiration dates throughDecember 2022 . 30 Table of Contents
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