ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of our results of operations, as well as our liquidity and capital resources. Additionally, it describes accounting policies and estimates that management has deemed as “critical accounting policies and estimates.” This MD&A should be read in conjunction with our consolidated financial statements and notes included in this Annual Report on Form 10-K. The information contained in this MD&A or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, our operating expenses, and future payments under our collaboration agreements, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Such statements are based upon current expectations that involve risks and uncertainties.You should review the section entitled “Risk Factors” in Item 1A of Part I above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See the section entitled “Special Note regarding Forward-Looking Statements” on page 3 for more information.
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 create medicines thatmake 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.
2023 Significant Developments
YUPELRI Sales Growth
In 2023, YUPELRI experienced sales growth and reached all-time high yearly net sales and profitability. Through the combined commercialization efforts with our partner Viatris Inc. (“Viatris”), total YUPELRI net sales increased by 9% to $221.0 million in 2023 compared to 2022. Hospital volumes, which we are directly responsible for, grew 46% in 2023 compared to 2022 and was a meaningful contributor to YUPELRI’s overall net sales growth for the year.
Initiation of Ampreloxetine New Phase 3 Clinical Study
In the first quarter of 2023, we initiated the ampreloxetine new Phase 3 clinical study (CYPRESS) in MSA patients with symptomatic nOH, using the Orthostatic Hypotension Symptom Assessment Scale (“OHSA”) composite score as the primary endpoint. 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.The study is currently enrolling patients with 42 clinical sites open across 11 countries, as of February 26, 2024.
Capital Return Program
In 2023, we repurchased 18.63 million of our shares on the open market at a weighted average cost of $10.551 per share for an approximate aggregate cost of $196.6 million, excluding fees and expenses. Since the inception of the capital return program in September 2022 through its completion in early January 2024, we repurchased a total of 31.41
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million shares at a weighted average cost of $10.354 per share for an approximate aggregate cost of $325.3 million which reduced our shares by 37% since the inception of the capital return program.
Discontinued Investment in Research
In February 2023, we announced that we discontinued our research activities, including the inhaled Janus kinase (JAK) inhibitor program, and prioritized our R&D resources toward the ampreloxetine Phase 3 study and the completion of the YUPELRI Peak Inspiratory Flow Rate (PIFR-2) Phase 4 study. As a result of halting further investment in research activities, our headcount was reduced by approximately 17% in March 2023. We plan to seek a partnership to continue progression of our inhaled JAK inhibitor program.
Board Governance Changes
In 2023, we appointed three new independent directors reflecting our ongoing commitment to bringing new perspectives and complementary skills to the Company. In addition, we put forth a proposal to declassify the board of the directors over time which was approved at our May 2023 Annual General Meeting of Shareholders.
See “Item 1. Business” starting on page 4 for a more complete discussion of our business.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our 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.
Future Contingent Milestone and Royalty Assets
The fair value of consideration received in connection with the sale of Theravance Respiratory Company, LLC (“TRC”) in July 2022 included an estimated $194.2 million in future contingent milestones and royalties that were recorded as a contingent consideration asset (“Contingent Consideration”) on our consolidated balance sheets on the transaction date. 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 fair value model involved significant unobservable inputs derived using our estimates. Our estimates were based in part on external data and reflected our judgements and forecasts. The primary significant unobservable input was the estimate of forecasted TRELEGY ELLIPTA net revenues which is considered a Level 3 fair value input. We periodically reassess the carrying value of the Contingent Consideration when indicators of impairment are identified, and we will recognize an impairment loss if the carrying value materially exceeds the reassessed fair value. We recognize any increases in the carrying value of the Contingent Consideration only when such contingent gains are realized.
Future Royalty Payment Contingency
We treat contingent liabilities related to sale of future royalties as debt financings, amortized under the effective interest method over the estimated life of the related expected royalty stream. The contingent liabilities related to sale of future royalties and the debt amortization are based on current estimates of the amount and timing of future royalty payments, including the potential for any future funding milestones. We periodically reassess the amount and timing of estimated royalty payments based on internal sales projections and external information from market data sources, which are considered Level 3 inputs. To the extent our estimates of the amount and timing of future royalty payments are materially greater or less than previous estimates, we will prospectively adjust the amortization of the contingent liability and effective interest rate.
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Results of Operations
The following tables set forth our results of operations and management’s commentary for the 2023 period compared to the 2022 period.
Revenue
While Viatris Inc. (“Viatris”) records the total net sales of YUPELRI within its own financial statements, our implied 35% YUPELRI revenue, as compared to the prior year period, was as follows:
Year Ended December 31, Change
Our recognized revenue, as compared to the prior year period, was as follows:
Year Ended December 31, Change
Viatris royalties (Non-US) 7 30 (23) (77)
Collaboration revenue 216 192 24 13
Licensing revenue — 2,500 (2,500) NM
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 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.
In 2023 and 2022, we recognized $57.2 million and $48.6 million, respectively, in revenue from the Viatris collaboration agreement, which represented an increase of 18%. The increase was driven primarily by (i) an increase in net sales as YUPELRI continued to increase its share of the long-acting nebulized COPD market in both the hospital and outpatient settings; and (ii) lower costs incurred by Viatris. YUPELRI continued to be profitable for us on a brand basis, and total YUPELRI net sales recorded by Viatris reached an all-time high for 2023 and for the most recent fourth quarter of $221.0 million and $60.6 million, respectively.
Licensing revenue was $2.5 million in 2022 and was related to a non-recurring development milestone payment from Pfizer Inc. (“Pfizer”) for the first patient dosed in a Phase 1 clinical trial of the skin-selective pan-JAK inhibitor program. In June 2023, we received notice from Pfizer terminating the Pfizer licensing agreement, effective as of October 7, 2023, at which time the skin-selective pan-JAK inhibitor program was returned to us. We did not recognize any licensing revenue in 2023.
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;
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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 period:
Year Ended December 31, Change
R&D expenses decreased by $22.8 million in 2023, or 36%, compared to 2022. The decrease was across all R&D categories and was primarily driven by our 2023 Strategic Actions announced in February 2023 which included the discontinuation of investment in our research activities. The $3.7 million decrease in external-related expenses was partially offset by increases related to the progression of the ampreloxetine Phase 3 clinical study (CYPRESS) for MSA patients with symptomatic nOH, the completion of the YUPELRI Phase 4 study (PIFR-2), and the close out of discontinued programs.
R&D expenses directly attributed to the 2023 Strategic Actions and the restructuring announced in 2021 and completed during the third quarter of 2022 (the “2021 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 $5.7 million and $6.7 million for 2023 and 2022, respectively.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and benefits, facilities and overhead costs, and other costs related to areas such as legal, finance, information technology, sales and marketing, and medical affairs.
SG&A expenses, as compared to the prior year period, were as follows:
Year Ended December 31, Change
In 2023, SG&A expenses increased by $3.0 million compared to 2022 and was primarily due to increases in external-related expenses of $4.9 million and SG&A allocated overhead expenses of $7.4 million. External-related expenses increased by $5.0 million and was primarily attributed to professional and financial advisory services and intellectual property protection services, such as the Hatch Waxman litigation, and the increase in SG&A allocated overhead expenses was driven by the reduction in our research activities which resulted in a larger absorption of such expenses by SG&A. Our cost reduction efforts led to decreases in employee-related expenses of $1.2 million, share-based compensation expenses of $2.9 million and facilities/other expenses of $5.1 million which partially offset the increases in external-related and allocated overhead expenses.
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Share-based compensation expense related to selling, general and administrative expenses was $17.0 million and $19.8 million for 2023 and 2022, respectively.
SG&A expenses that were directly attributed to the 2023 Strategic Actions and the 2021 Restructuring are included in the Restructuring and Related Expenses section below. Following our 2023 Strategic Actions, we placed approximately 42,000 square feet of vacant office and laboratory space in South San Francisco on the market for sublease in March 2023. As of December 31, 2023, we evaluated the carrying value of our operating lease assets and leasehold improvements associated with the sublease space (approximately $10.9 million) and determined that the carrying amount of these assets was fully recoverable. As a result, we did not recognize an impairment charge in 2023. However, as the sublease market continues to evolve, it is possible that we will need to adjust our assumptions and record an impairment charge (non-cash) in a future period.
Restructuring and Related Expenses
Restructuring and related expenses, as compared to the prior year period, were as follows:
Year Ended December 31, Change
Restructuring and related expenses $ 2,386 $ 5,840 $ (3,454) (59) %
Restructuring and related expenses of $2.7 million in 2023 were driven by the 2023 Strategic Actions and were primarily comprised of one-time R&D expenses related to one-time severance payments, employee-related separation costs, and the loss on sale of property and equipment. Cash-related expenses and non-cash related expenses associated with the 2023 Strategic Actions were $1.2 million and $1.5 million in 2023, respectively. We do not expect to recognize any additional restructuring and related expenses related to the 2023 Strategic Actions.
In 2022, we incurred higher restructuring and related expenses of $12.8 million as a result of the much broader reduction in workforce related to the 2021 Restructuring compared to the smaller reduction in workforce associated with the 2023 Strategic Actions.
Interest Expense
Interest expense, as compared to the prior year period, was as follows:
Year Ended December 31, Change
3.25% Convertible senior notes due 2023 — (5,395) 5,395 NM
NM: Not Meaningful
Interest expense was $2.4 million in 2023 compared to $6.4 million in 2022. The $4.0 million decrease in interest expense was due to the retirement of our 3.25% convertible senior notes in 2022. The interest expense in 2023 was non-cash interest expense associated with $25.0 million received from Royalty Pharma in July 2022 to fund the ampreloxetine Phase 3 clinical study (CYPRESS). We do not anticipate having any cash interest expense in the foreseeable future.
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Loss on Extinguishment of Debt
Loss on extinguishment of debt, as compared to the prior year period, was as follows:
Year Ended December 31, Change
Loss on extinguishment of debt $ — $ (3,034) $ 3,034 NM %
NM: Not Meaningful
In 2022, we incurred a $3.0 million loss on the extinguishment of our 3.25% convertible senior notes. The $3.0 million loss was comprised of transaction costs related to the extinguishment and the write-off of the remaining debt issuance cost. We no longer have any long-term debt.
Interest Income and Other Income (Expense), net
Interest and other income (expense), net, as compared to the prior year period, was as follows:
Year Ended December 31, Change
Interest income and other income (expense), net, increased slightly by $0.6 million in 2023 compared 2022. The $0.6 million increase was primarily due to (i) higher interest income related to an increase in investment yields and (ii) higher investment balances resulting from cash proceeds received from the TRELEGY Royalty Transaction in July 2022.
Provision for Income Tax Expense – Continuing Operations
The provision for income tax expense related to continuing operations, as compared to the prior year period, was as follows:
Year Ended December 31, Change
NM: Not Meaningful
In 2022, the provision for income tax expense was largely attributable to the sale of TRC, which was reported as part of discontinued operations (see discussion below). This sale was a non-recurring item, and therefore, all of the provision for income tax expense was recorded in continuing operations in 2023. As a result of the TRC sale in 2022, we released our entire valuation allowance against our federal deferred tax assets as of December 31, 2022. In 2023, this resulted in an increased provision for income tax expense as any changes in deferred tax expense or FIN48 positions were no longer sheltered by the valuation allowance.
Net Income from Discontinued Operations (After tax)
Net income from discontinued operations, after tax, as compared to the prior year period, was as follows:
Year Ended December 31, Change
Net income from discontinued operations $ — $ 964,956 $ (964,956) NM %
NM: Not Meaningful
In 2022, the sale of TRC resulted in (i) income from our investment in TRC; (ii) interest expense related to our Non-Recourse 2035 Notes; and (iii) the net gain from the sale of our equity interests in TRC to be reclassified as net income from discontinued operations for 2022.
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The $965.0 million in net income from discontinued operations for 2022 was primarily attributed to the $1,141.1 million net realized gain from the sale of our equity interests in TRC. This net gain was partially offset by a $24.0 million loss on the extinguishment of our Non-Recourse 2035 Notes and a $179.0 million provision for income tax expense in 2022. The income tax expense was primarily attributed to the net gain from the sale of our equity interests in TRC and was partially offset by the release of our valuation allowance on our US federal deferred tax assets.
We did not recognize any net income from discontinued operations in 2023.
Liquidity and Capital Resources
As of December 31, 2023, we had approximately $102.4 million in cash, cash equivalents, and investments in marketable securities (excluding restricted cash) and no long-term debt. In January 2024, we repurchased $0.4 million of our shares to complete our capital return program. Since the inception of the capital return program in September 2022, we successfully returned $325.3 million to our shareholders.
Our strategic business plan is subject to significant uncertainties and risks as a result of, among other factors, clinical program outcomes, expenses being higher than anticipated, the sales levels of YUPERLI, whether, when and on what terms we are able to enter into new collaboration arrangements, and the need to satisfy contingent liabilities, including tax, 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 our consolidated financial statements based on current operating plans and financial forecasts.
Cash Flows
Cash flows, as compared to the prior year period, were as follows:
Year Ended December 31,
Net cash flows used in operating activities
Net cash used in operating activities was $27.0 million in 2023, consisting of a net loss of $55.2 million, a net increase in cash resulting from adjustments for non-cash and other reconciling items of $36.5 million and a net decrease in cash resulting from changes in operating assets and liabilities of $8.3 million.
Net cash used in operating activities was $187.0 million in 2022, of which $2.4 million was used in continuing operations and $184.6 million was used in discontinued operations, and consisted of net income of $872.1 million, adjustments for non-cash expenses and other reconciling items of ($1,098.8) million, primarily related to the net gain from the sale of our equity interests in TRC, and a net increase in cash resulting from changes in operating assets and liabilities of $39.7 million.
Net cash flows (used in) provided by investing activities
Net cash used in investing activities was $32.7 million in 2023, consisting primarily of cash outflows from the net purchase and maturities of marketable securities of $31.7 million and cash outflows from the net purchase and sale of property and equipment of $1.0 million.
Net cash provided by investing activities was $1,154.0 million in 2022, of which $58.9 million was from continuing operations and $1,095.1 million was from discontinued operations, and consisted primarily of $54.9 million
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in net cash inflow from the purchase and maturities of marketable securities and $1,095.1 million in net proceeds related to the sale of our equity interests in TRC.
Net cash flows used in financing activities
Net cash used in financing activities was $198.9 million in 2023, consisting primarily of $197.1 million of cash outflows related to the repurchase of ordinary shares as part of our capital return program.
Net cash used in financing activities was $758.8 million in 2022, of which $738.6 million was used in continuing operations and $20.2 million was used in discontinued operations, and consisted primarily of a $128.8 million cash outflow related to the repurchase of ordinary shares, a $631.6 million cash outflow related to the extinguishment of our debt, and a $20.2 million cash outflow related to the debt redemption premium associated with our previous non-recourse 2035 Notes. These cash outflows were partially offset by a $24.5 million cash inflow related to the funding of an additional Phase 3 study for the ampreloxetine program.
Contractual Obligations
In the table below, we set forth our significant contractual obligations, as well as obligations related to contracts that we are likely to continue, regardless of the fact that some were cancelable as of December 31, 2023. Some of the amounts that are included in this table are based on management’s estimates and assumptions regarding these obligations, including their duration. Because these estimates and assumptions are necessarily subjective, the amount of the obligations that we will pay in future periods may vary from those reflected in the table.
Years
(In thousands) Total Within 1 1 to 3 3 to 5 After 5
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 of December 31, 2023. 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.
Recent Accounting Pronouncements
The information required by this item is included in “Item 8, Note 1. Organization and Summary of Significant Accounting Policies,” in our consolidated financial statements included in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements can be found in “Item 15, Exhibits and Financial Statement Schedules,” of this Annual Report on Form 10-K.
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Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We conducted an evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act as of December 31, 2023, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act), which are controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. In connection with the preparation of this Annual Report, our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Based on its assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.
As a “smaller reporting company” and “non-accelerated filer” as defined under the rules and regulations of the SEC, we are not required to include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Theravance Biopharma have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act, which occurred during the fourth quarter of the year ended December 31, 2023 which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting despite the fact that many of our employees are working remotely.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
For the information required by this Item, see “Questions and Answers About Procedural Matters”, “Election of Directors”, “Nominees”, “Audit Committee”, “Meetings of the Board of Directors”, “Code of Conduct”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For the information required by this Item, see “Director Compensation”, “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference.
For the information required by this Item, see “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference.
For the information required by this Item, see “Director Independence” and “Policies and Procedures for Related Party Transactions” in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
For the information required by this Item, see “Ratification of the Appointment of Independent Registered Public Accounting Firm” and “Pre-Approval of Audit and Non-Audit Services” in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements:
The following financial statements and schedules of the Registrant have been appended to this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4
Notes to Consolidated Financial Statements F-9
Supplementary Financial Data (unaudited) F-42
2. Financial Statement Schedules:
All schedules have been omitted because of the absence of conditions under which they are required or because the required information, where material, is shown in the financial statements, financial notes or supplementary financial information.
(b) Exhibits required by Item 601 of Regulation S-K
The information required by this Item is set forth on the exhibit index that precedes the signature page of this report.
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Exhibit Index
Incorporated by Reference
Exhibit Number Description Form FilingDate/PeriodEnd Date
3.1 Amended and Restated Memorandum and Articles of Association 8-K May 3, 2023
4.3 Shelf Rights Plan Resolution DEF 14A March 21, 2018
10.4+ Amended and Restated 2013 Equity Incentive Plan 8-K May 3, 2023
10.14+ Theravance Biopharma, Inc. Performance Incentive Plan 8-K May 6, 2016
10.17+ Form of Notice of Restricted Share Unit Award 10-Q May 10, 2023
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Incorporated by Reference
Exhibit Number Description Form FilingDate/PeriodEnd Date
10.39+ Offer Letter with Rhonda Farnum dated July 9, 1018
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Incorporated by Reference
Exhibit Number Description Form FilingDate/PeriodEnd Date
21.1 Subsidiaries of Theravance Biopharma, Inc.
23.1 Consent of Independent Registered Public Accounting Firm
32 Certifications Pursuant to 18 U.S.C. Section 1350
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Item 16. Form 10-K Summary
Not Applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THERAVANCE BIOPHARMA, INC.
Date: March 1, 2024 By: /s/ Rick E Winningham
Rick E Winningham
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rick E Winningham as their true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to the annual report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Laurie S. Alsup, M.D.Laurie S. Alsup, M.D. Director March 1, 2024
/s/ Eran BroshyEran Broshy Director March 1, 2024
/s/ Jeremy T. GrantJeremy T. Grant Director March 1, 2024
/s/ Susannah GraySusannah Gray Director March 1, 2024
/s/ Jim KellyJim Kelly Director March 1, 2024
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Signature Title Date
/s/ Burton G. Malkiel, Ph.D.Burton G. Malkiel, Ph.D. Director March 1, 2024
/s/ Dean J. MitchellDean J. Mitchell Director March 1, 2024
/s/ Donal O’ConnorDonal O’Connor Director March 1, 2024
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F
Theravance Biopharma, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4
Notes to Consolidated Financial Statements F-9
Supplementary Financial Data (unaudited) F-42
F-1
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Theravance Biopharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Theravance Biopharma, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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Management’s Estimates of the Amount and Timing of Ampreloxetine Royalties
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
San Mateo, California
March 1, 2024
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THERAVANCE BIOPHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, December 31,
Assets
Current assets:
Receivables from collaborative arrangements 17,474 16,785
Prepaid clinical and development services 2,038 1,513
Other prepaid and current assets 11,603 7,682
Future contingent milestone and royalty assets 194,200 194,200
Liabilities and Shareholders' Equity
Current liabilities:
Accrued personnel-related expenses 6,443 10,314
Accrued clinical and development expenses 2,246 4,932
Accrued general and administrative expenses 2,900 4,020
Operating lease liabilities 3,923 6,753
Tenant improvement payable to sublessee 6,490 —
Other accrued liabilities 1,241 1,142
Long-term operating lease liabilities 45,236 45,407
Future royalty payment contingency 27,788 25,438
Long-term deferred revenue — 192
Other long-term liabilities 5,919 1,657
Commitments and contingencies
Shareholders’ Equity
Accumulated other comprehensive loss (65) (15)
Total liabilities and shareholders’ equity $ 381,999 $ 607,400
See accompanying notes to consolidated financial statements
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THERAVANCE BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
Revenue:
Viatris collaboration agreement $ 57,201 $ 48,624
Viatris royalties (Non-US) 7 30
Collaboration revenue 216 192
Licensing revenue — 2,500
Expenses:
Selling, general and administrative (1) 70,095 67,073
Restructuring and related expenses (1) 2,743 12,838
Loss on extinguishment of debt — (3,034)
Interest income and other income (expense), net 9,116 8,545
Loss from continuing operations before income taxes (49,269) (92,815)
Provision for income tax expense (5,924) (9)
Net loss from continuing operations (55,193) (92,824)
Income from discontinued operations before income taxes — 1,143,930
Provision for income tax expense — (178,974)
Net income from discontinued operations — 964,956
Net income (loss) per share:
Continuing operations - basic and diluted $ (1.00) $ (1.26)
Discontinued operations - basic and diluted $ — $ 13.11
Net income (loss) - basic and diluted $ (1.00) $ 11.85
(1) Amounts include share-based compensation expense as follows:
Year Ended December 31,
Selling, general and administrative 16,966 19,848
Restructuring and related expenses 357 6,998
Total share-based compensation expense $ 25,371 $ 39,734
See accompanying notes to consolidated financial statements.
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THERAVANCE BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year Ended December 31,
Other comprehensive loss:
Net unrealized loss on available-for-sale investments, net of tax (50) (15)
See accompanying notes to consolidated financial statements.
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THERAVANCE BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Accumulated
Additional Other Total
Ordinary Shares Paid-In Comprehensive Accumulated Shareholders'
Shares Amount Capital Loss Deficit Equity
Proceeds from ESPP purchases 118 — 802 — — 802
Issuance of restricted shares 3,764 — — — — —
Accumulated
Additional Other Total
Ordinary Shares Paid-In Comprehensive Accumulated Shareholders'
Shares Amount Capital Loss Deficit Equity
Proceeds from ESPP purchases 86 — 619 — — 619
Issuance of restricted shares 1,651 — — — — —
Net loss — — — — (55,193) (55,193)
See accompanying notes to consolidated financial statements.
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THERAVANCE BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Operating activities
Less: Net income from discontinued operations — (964,956)
Net loss from continuing operations (55,193) (92,824)
Depreciation and amortization 2,001 3,716
Amortization and accretion income, net (1,897) (681)
Future royalty payment contingency interest accretion 2,350 974
Gain on sale of Velusetrag — (2,709)
(Gain) loss on disposal of property and equipment 1,352 (8)
Amortization of right-of-use assets 4,152 3,989
Deferred income taxes 3,207 —
Loss on extinguishment of debt — 3,034
Changes in operating assets and liabilities:
Receivables from collaborative and licensing arrangements (689) (2,720)
Prepaid clinical and development services (526) 8,733
Other prepaid and current assets (3,921) (704)
Right-of-use lease assets (314) (4,424)
Accounts payable 6 (1,612)
Accrued interest payable — (1,246)
Deferred revenue (216) (192)
Operating lease liabilities (3,001) (1,024)
Unrecognized tax benefits 1,102 63,952
Other long-term liabilities 7,547 (525)
Net cash used in operating activities (26,997) (186,991)
Investing activities
Purchases of property and equipment (2,488) (572)
Sale of short-term investments and marketable securities 71,377 17
Proceeds from the sale of Velusetrag — 2,709
Proceeds from the sale of property and equipment 1,513 1,866
Net cash (used in) provided by investing activities (32,697) 1,154,009
Financing activities
Proceeds from ampreloxetine funding, net — 24,464
Principal payment on 2035 notes — (399,998)
Principal payment on 2023 notes — (231,605)
Proceeds from ESPP purchases 618 802
Repurchase of shares to satisfy tax withholding (2,500) (3,450)
Net cash used in financing activities (198,933) (758,806)
Supplemental disclosure of cash flow information
Cash paid for interest $ — $ 22,244
Cash paid for income taxes, net $ 24 $ 117,966
Recognition of tenant improvement allowance assigned to sublease $ 6,490 $ —
See accompanying notes to consolidated financial statements.
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THERAVANCE BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated financial statements as of December 31, 2023 and 2022, and for the year ended December 31, 2023 and 2022 have been prepared in conformity with United States (“US”) Generally Accepted Accounting Principles ("GAAP"), and the US Securities and Exchange (“SEC”) regulations for annual reporting.
On July 20, 2022, the Company completed a monetization of its ownership interests in a significant equity method investment which had a major effect on the Company’s financial results for the year ended December 31, 2022 (see “Note 9. Sale of Equity Interests in Theravance Respiratory Company, LLC and Discontinued Operations”). In accordance with GAAP, the transaction was accounted for as a sale of a financial asset, and the results of the sale were included as discontinued operations on these consolidated financial statements.
Certain prior period amounts in the “Notes to Consolidated Financial Statements” have been reclassified. The reclassifications had no impact on previously reported aggregate financial position, results of operations, cash flows, or disclosures.
Principles of Consolidation
The consolidated financial statements include the accounts of Theravance Biopharma and its wholly-owned subsidiaries, all of which are denominated in US dollars. All intercompany balances and transactions have been eliminated in consolidation.
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 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 in future periods could differ materially from those estimates.
Segment Reporting
The Company has determined that its chief executive officer is the chief operating decision maker (“CODM”). A single management team reports to the CODM who comprehensively manages the entire business. The Company’s business offerings have similar economics and other characteristics, including the nature of products, types of customers, distribution methods, and regulatory environment. As a result, the Company has concluded that it operates in a single segment which is the development and commercialization of human therapeutics.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with a maturity of three months or less on the date of purchase to be cash equivalents. Cash equivalents are carried at cost which approximates fair value due to their short-term nature.
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Restricted Cash
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. See “Note 5. Cash, Cash Equivalents, and Restricted Cash” for more information.
Investments in Marketable Securities
The Company invests in marketable securities, primarily commercial paper, corporate notes, US government bonds and US government agency bonds. Marketable debt securities with original maturities of greater than three months and remaining maturities of less than 12 months are considered short-term investments. Marketable debt securities with maturities greater than 12 months are considered long-term investments. The Company determines the appropriate classification of the marketable securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as available-for-sale securities and reports them at fair value in cash and cash equivalents or marketable securities on the consolidated balance sheets.
Unrealized gains and losses are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity of the consolidated balance sheets and as a component of total comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included as a component of interest and other income (loss) on the consolidated statements of operations and comprehensive income (loss).
The cost of securities sold is based on the specific identification method. Realized gains and losses and interest and dividends on securities are included in interest and other income (loss). In circumstances where the Company intends to sell, or is more likely than not required to sell, the security before it recovers its amortized cost basis, the difference between fair value and amortized cost is recognized as a loss in the consolidated statements of operations, with a corresponding write-down of the security's amortized cost.
The Company accounts for credit losses on available-for-sale debt securities in accordance with Accounting Standards Codification (“ASC”), Topic 326, Financial Instruments – Credit Losses (“ASC 326”). Under ASC 326, the Company regularly reviews its debt securities in an unrealized loss position to determine if the unrealized loss was credit-related or noncredit-related. The factors considered in determining whether credit losses exist include, but are not limited to, the creditworthiness of the security issuers, the severity and duration of the unrealized losses, any adverse conditions specifically related to the security, an industry, or geographic area, and whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of the security’s amortized cost basis. The Company did not recognize any credit losses on available-for-sale debt securities for either the year ended December 31, 2023 or 2022.
Fair Value of Financial Instruments
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels: