10-Q 1 tbph-20220930x10q.htm 10-Q UNITED STATES
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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.)

PO Box 309

Ugland House, South Church Street

George Town, Grand Cayman, Cayman Islands

KY1-1104

(Address of Principal Executive Offices)

(Zip Code)

(650) 808-6000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Ordinary Share $0.00001 Par Value

TBPH

The Nasdaq Global Market

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

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

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

Large Accelerated Filer

    

Smaller Reporting Company 

Non-accelerated Filer

Emerging Growth Company

Accelerated Filer 

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

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

As of October 31, 2022, the number of the registrant’s outstanding ordinary shares was 67,365,912.

THERAVANCE BIOPHARMA, INC.

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)

3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (unaudited)

4

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

36

Item 6. Exhibits

69

Signatures

71

2

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

September 30, 

December 31, 

    

2022

    

2021

Assets

Current assets:

Cash and cash equivalents

$

418,538

$

89,959

Short-term marketable securities

 

68,294

 

83,506

Receivables from collaborative arrangements

 

14,114

 

14,065

Prepaid clinical and development services

2,645

10,245

Other prepaid and current assets

8,127

8,561

Amounts due from TRC, LLC (Discontinued operations)

43,534

Total current assets

 

511,718

 

249,870

Property and equipment, net

 

11,884

 

13,657

Operating lease assets

39,992

39,690

Future contingent milestone and royalty assets

194,200

Restricted cash

 

836

 

837

Other assets

4,866

3,228

Equity in net assets of TRC, LLC (Discontinued operations)

67,537

Total assets

$

763,496

$

374,819

Liabilities and Shareholders' Equity (Deficit)

Current liabilities:

Accounts payable

$

5,337

$

3,098

Accrued personnel-related expenses

 

7,560

 

12,796

Accrued clinical and development expenses

 

4,078

 

17,010

Accrued general and administrative expenses

3,749

2,898

Operating lease liabilities

692

503

Deferred revenue

 

24

 

98

Current portion of non-recourse notes due 2035, net

16,940

Accrued interest payable

1,246

Other accrued liabilities

 

142

 

1,304

Income tax payable (Discontinued operations)

120,550

Accrued interest payable (Discontinued operations)

2,694

Total current liabilities

 

142,132

 

58,587

Long-term operating lease liabilities

51,381

52,681

Future royalty payment contingency

24,888

Long-term deferred revenue

199

310

Unrecognized tax benefits

62,661

240

Other long-term liabilities

1,657

2,180

Non-recourse notes due 2035, net

371,359

Convertible senior notes due 2023, net

228,035

Commitments and contingencies

Shareholders’ Equity (Deficit)

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

 

Ordinary shares, $0.00001 par value: 200,000 shares authorized; 67,366 and 74,435 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

1

1

Additional paid-in capital

 

1,324,247

1,387,469

Accumulated other comprehensive loss

 

(121)

 

Accumulated deficit

 

(843,549)

 

(1,726,043)

Total shareholders’ equity (deficit)

 

480,578

 

(338,573)

Total liabilities and shareholders’ equity (deficit)

$

763,496

$

374,819

See accompanying notes to condensed consolidated financial statements.

3

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Revenue:

Viatris collaboration agreement

$

12,445

$

10,397

$

34,010

$

31,716

Collaboration revenue

6

2,797

187

8,649

Licensing revenue

2,500

Total revenue

 

12,451

 

13,194

 

36,697

 

40,365

Expenses:

Research and development (1)

 

9,867

43,739

48,691

162,431

Selling, general and administrative (1)

16,277

21,299

51,105

77,780

Restructuring and related expenses (1)

509

1,771

11,427

1,771

Total expenses

 

26,653

 

66,809

 

111,223

 

241,982

Loss from operations

 

(14,202)

 

(53,615)

 

(74,526)

 

(201,617)

Interest expense

(1,545)

(2,136)

(5,819)

(6,410)

Loss on extinguishment of debt

(3,034)

(3,034)

Interest income and other income (expense), net

 

2,758

(166)

4,823

771

Loss from continuing operations before income taxes

 

(16,023)

 

(55,917)

 

(78,556)

 

(207,256)

Provision for income tax benefit (expense)

 

7

(12)

Net loss from continuing operations

(16,023)

(55,910)

(78,568)

(207,256)

Income from discontinued operations before income taxes

1,115,016

20,602

1,143,930

39,864

Provision for income tax expense

(182,362)

(182,868)

Net income from discontinued operations

932,654

20,602

961,062

39,864

Net income (loss)

$

916,631

$

(35,308)

$

882,494

$

(167,392)

Net unrealized gain (loss) on available-for-sale investments

(76)

6

(121)

(33)

Total comprehensive income (loss)

$

916,555

$

(35,302)

$

882,373

$

(167,425)

Net income (loss) per share:

Continuing operations - basic and diluted

$

(0.21)

$

(0.76)

$

(1.04)

$

(3.05)

Discontinued operations - basic and diluted

$

12.35

$

0.28

$

12.70

$

0.59

Net income (loss) - basis and diluted

$

12.14

$

(0.48)

$

11.66

$

(2.46)

Shares used to compute basis and diluted net income (loss) per share

 

75,515

73,574

 

75,678

 

67,945

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

(In thousands)

    

2022

    

2021

2022

    

2021

Research and development

$

2,623

$

6,956

$

10,709

$

22,192

Selling, general and administrative

 

5,196

 

7,414

 

16,488

 

22,951

Restructuring and related expenses

711

5,587

Total share-based compensation expense

$

8,530

$

14,370

$

32,784

$

45,143

See accompanying notes to condensed consolidated financial statements.

4

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

Shares

   

Amount

   

Capital

   

Loss

   

Deficit

   

Equity

Balances at June 30, 2022

76,427

$

1

$

1,410,415

$

(45)

$

(1,760,180)

$

(349,809)

Repurchase of ordinary shares

(9,645)

(94,037)

(94,037)

Proceeds from ESPP purchases

1

1

Employee share-based compensation expense

8,530

8,530

Issuance of restricted shares

655

Repurchase of shares to satisfy tax withholding

(71)

(662)

(662)

Net unrealized loss on marketable securities

(76)

(76)

Net income

916,631

916,631

Balances at September 30, 2022

67,366

$

1

$

1,324,247

$

(121)

$

(843,549)

$

480,578

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

Shares

   

Amount

   

Capital

   

Loss

   

Deficit

   

Equity

Balances at December 31, 2021

74,435

$

1

$

1,387,469

$

$

(1,726,043)

$

(338,573)

Repurchase of ordinary shares

(9,645)

(94,037)

(94,037)

Proceeds from ESPP purchases

72

488

488

Employee share-based compensation expense

32,784

32,784

Issuance of restricted shares

2,764

Repurchase of shares to satisfy tax withholding

(260)

(2,457)

(2,457)

Net unrealized loss on marketable securities

(121)

(121)

Net income

882,494

882,494

Balances at September 30, 2022

67,366

$

1

$

1,324,247

$

(121)

$

(843,549)

$

480,578

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income

   

Deficit

   

Deficit

Balances at June 30, 2021

73,470

$

1

$

1,358,318

$

8

$

(1,658,701)

$

(300,374)

Net proceeds from sale of ordinary shares

Proceeds from ESPP purchases

Employee share-based compensation expense

14,370

14,370

Issuance of restricted shares

391

Option exercises

Repurchase of shares to satisfy tax withholding

(163)

(2,286)

(2,286)

Net unrealized gain on marketable securities

6

6

Net loss

(35,308)

(35,308)

Balances at September 30, 2021

73,698

$

1

$

1,370,402

$

14

$

(1,694,009)

$

(323,592)

Accumulated

Additional

Other

Total

Ordinary Shares

Paid-In

Comprehensive

Accumulated

Shareholders'

   

Shares

   

Amount

   

Capital

   

Income (Loss)

   

Deficit

   

Deficit

Balances at December 31, 2020

64,328

$

1

$

1,222,818

$

47

$

(1,526,617)

$

(303,751)

Net proceeds from sale of ordinary shares

7,705

108,180

108,180

Proceeds from ESPP purchases

188

2,862

2,862

Employee share-based compensation expense

45,143

45,143

Issuance of restricted shares

1,978

Option exercises

5

5

Repurchase of shares to satisfy tax withholding

(501)

(8,606)

(8,606)

Net unrealized loss on marketable securities

(33)

(33)

Net loss

(167,392)

(167,392)

Balances at September 30, 2021

73,698

$

1

$

1,370,402

$

14

$

(1,694,009)

$

(323,592)

See accompanying notes to condensed consolidated financial statements.

5

THERAVANCE BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Nine Months Ended September 30, 

    

2022

    

2021

Operating activities

Net income (loss)

$

882,494

$

(167,392)

Less: Net income from discontinued operations

(961,062)

(39,864)

Net loss from continuing operations

(78,568)

(207,256)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

3,057

 

4,551

Amortization and accretion income, net

(342)

9

Ampreloxetine interest accretion

424

Share-based compensation

 

32,784

 

45,143

Gain on disposal of property and equipment

(96)

Gain on sale of Velusetrag

(2,709)

Amortization of right-of-use assets

2,284

2,758

Gain from lease modification

(1,863)

Loss on extinguishment of debt

3,034

Other

35

Changes in operating assets and liabilities:

Receivables from collaborative and licensing arrangements

 

(49)

 

1,867

Prepaid clinical and development services

7,600

7,132

Other prepaid and current assets

(1,148)

(99)

Right-of-use lease assets

(2,587)

Other assets

(1,743)

(1,006)

Accounts payable

 

2,150

 

2,206

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

 

(18,465)

 

(36,573)

Accrued interest payable

(1,246)

Deferred revenue

(186)

(8,648)

Operating lease liabilities

(1,111)

443

Other long-term liabilities

 

(421)

 

776

Net cash used in operating activities - continuing operations

(57,338)

(190,525)

Net cash used in operating activities - discontinued operations

(5,598)

25,101

Net cash used in operating activities

 

(62,936)

 

(165,424)

Investing activities

Purchases of property and equipment

 

(306)

 

(2,962)

Purchases of marketable securities

 

(93,260)

 

(104,774)

Maturities of marketable securities

 

108,700

 

221,400

Sale of short-term investments and marketable securities

5

Proceeds from the sale of Velusetrag

2,709

Proceeds from the sale of property and equipment

1,866

6

Net cash provided by investing activities - continuing operations

19,714

113,670

Net cash provided by investing activities - discontinued operations

1,095,134

Net cash provided by investing activities

 

1,114,848

 

113,670

Financing activities

Proceeds from the sale of ordinary shares, net

108,180

Repurchases of ordinary shares

(94,037)

Proceeds from ampreloxetine funding, net

24,464

Principal payment on 2035 notes

(399,998)

(10,730)

Principal payment on 2023 notes

(231,605)

Proceeds from ESPP purchases

488

2,862

Proceeds from option exercises

5

Repurchase of shares to satisfy tax withholding

(2,457)

(8,606)

Net cash (used in) provided by financing activities - continuing operations

(703,145)

91,711

Net cash used in financing activities - discontinued operations

(20,189)

Net cash (used in) provided by financing activities

 

(723,334)

 

91,711

Net increase in cash, cash equivalents, and restricted cash

 

328,578

 

39,957

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

 

90,796

 

82,300

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

$

419,374

$

122,257

Supplemental disclosure of cash flow information

Cash paid for interest

$

22,244

$

26,954

Cash paid (received) for income taxes, net

$

26

$

(3,814)

See accompanying notes to condensed consolidated financial statements.

6

THERAVANCE BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Theravance Biopharma, Inc. (“Theravance Biopharma” or the “Company”) is a biopharmaceutical company primarily focused on the discovery, development, and commercialization of medicines. The Company’s core purpose is to create medicines that make a difference® in people's lives.

Basis of Presentation

The Company’s condensed consolidated financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited but includes all adjustments (consisting only of normal recurring adjustments), which are considered necessary for a fair presentation of the financial position at such date and of the operating results and cash flows for those periods, and have been prepared in accordance with United States (“US”) generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated December 31, 2021 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.

The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any other interim period or for any future period. These condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and intercompany transactions and balances have been eliminated.

On July 20, 2022, the Company completed a monetization of its ownership interests in a significant equity method investment which had a major effect on the Company’s financial results for the three and nine months ended September 30, 2022 (see Note 8. Sale of Equity Interests in Theravance Respiratory Company, LLC). In accordance with GAAP, the transaction was accounted for as a sale of a financial asset. For all periods presented, the results of the sale have been included as discontinued operations on these condensed consolidated financial statements.

Use of Estimates

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

Significant Accounting Policies

There have been no material revisions in the Company’s significant accounting policies described in Note 1 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging: Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity by removing certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. The standard also enhances the consistency of earnings-per-share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings-per-share calculations. ASU 2020-06 became effective for fiscal years and interim periods

7

within those fiscal years beginning after December 15, 2021. The Company evaluated ASU 2020-06 and determined that its adoption did not have an impact on the Company’s condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

2. Net Income (Loss) per Share

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

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

(In thousands, except per share data)

    

2022

    

2021

2022

    

2021

Numerator:

Net loss from continuing operations

$

(16,023)

$

(55,910)

$

(78,568)

$

(207,256)

Net income from discontinued operations

932,654

20,602

961,062

39,864

Net income (loss)

916,631

(35,308)

882,494

(167,392)

Denominator:

 

 

Weighted-average ordinary shares outstanding

75,515

73,574

75,678

68,021

Less: weighted-average ordinary shares subject to forfeiture

(76)

Weighted-average ordinary shares outstanding - basic and diluted

75,515

73,574

75,678

67,945

Net income (loss) per ordinary share:

Continuing operations - basic and diluted

$

(0.21)

$

(0.76)

$

(1.04)

$

(3.05)

Discontinued operations - basic and diluted

$

12.35

$

0.28

$

12.70

$

0.59

Net income (loss) - basic and diluted

$

12.14

$

(0.48)

$

11.66

$

(2.46)

Anti-dilutive Securities

In accordance with ASC 260, Earnings Per Share, if a company incurred a loss related to its continuing operations, then potential ordinary shares are considered anti-dilutive for the periods in which the loss was recognized. For the three and nine months ended September 30, 2022 and 2021, the Company recognized losses from continuing operations. As a result, the following ordinary equivalent shares were not included in the computation of diluted net loss per share for both continuing operations and discontinuing operations: