Theravance Biopharma, Inc. (TBPH)

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.

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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 that make a difference® in people’s lives.

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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.

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Recent Significant Developments

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YUPELRI Net Sales Growth

In 2024, YUPELRI experienced net sales growth and reached launch-to-date highs in annual net sales and brand profitability. Through the combined commercialization efforts with our partner Viatris Inc. (“Viatris”), total YUPELRI net sales increased by 8% to $238.6 million in 2024 compared to 2023. Hospital volumes, which we are directly responsible for, grew 41% in 2024 compared to 2023 and continued to be a meaningful contributor to YUPELRI’s overall net sales growth for the year.

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Continued Enrollment in Ampreloxetine Phase 3 Clinical Study

We continued to make steady progress with the open-label enrollment of our ampreloxetine 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. Current enrollment is in-line with expectations for completion in mid-2025, with data anticipated to be available approximately six months later.

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Achievement of $50.0 Million TRELEGY® Royalty Milestone Payment for 2024

In February 2025, we received a $50.0 million maximum milestone payment from Royalty Pharma Investments associated with the achievement of certain minimum royalty payments related to 2024 TRELEGY global net sales. TRELEGY’s 2024 global net sales of $3.46 billion would exceed the threshold required to achieve $50.0 million of milestones in 2025 (based on $3.41 billion of global net sales) with only 2% growth required to achieve $100.0 million of milestones in 2026 (based on $3.51 billion of global net sales).

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Formation of Strategic Review Committee

In November 2024, the board of directors announced the formation of a Strategic Review Committee composed entirely of independent directors to assess all strategic alternatives to the Company, including those related to YUPELRI, ampreloxetine, and TRELEGY, with the objective of unlocking shareholder value. There can be no assurance that the Company’s strategic review process will result in any transaction. We have not set a timetable for completion of this process, and we do not intend to disclose further developments unless and until we determine that such disclosure is appropriate or necessary.

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See “Item 1. Business” starting on page 4 for a more complete discussion of our business.

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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.

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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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Impairment of Long-Lived Assets

We regularly review our long-lived assets, including operating lease assets, to determine whether indicators of impairment may exist. If indicators of impairment exist, we perform a test of recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset over its useful life to the carrying value of the long-lived asset. If the carrying value of the long-lived asset exceeds such estimated undiscounted cash flows, we would determine the fair value of the long-lived assets using the estimated discounted future cash flow approach. We will recognize an impairment loss for the amount in which the carrying value exceeds the estimated fair value of the long-lived asset. For year ended December 31, 2024, we recognized a non-cash impairment charge of $4.5 million related to our long-lived assets consisting of operating lease assets and leasehold improvements.

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Results of Operations

The following tables set forth our results of operations and management’s commentary for the 2024 period compared to the 2023 period.

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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:

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

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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.

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In 2024 and 2023, we recognized $64.4 million and $57.2 million, respectively, in revenue from the Viatris collaboration agreement, which represented an increase of 13%. The increase was primarily driven 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 another all-time high for 2024 and for the most recent fourth quarter of $238.6 million and $66.7 million, respectively.

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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:

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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:

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Total R&D expenses decreased by $3.0 million in 2024, or 7%, compared to 2023. The decrease was primarily driven by a reduction in share-based compensation of $2.9 million and facilities & other expenses of $2.2 million. These reductions were primarily attributed to (i) our previously announced 2023 strategic actions which included the discontinuation of investment in our research activities resulting in employee departures and (ii) allocated company-wide cost savings initiatives.

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The R&D expense decreases discussed above were partially offset by a $2.6 million increase in external-related expenses. The increase in external-related expenses was primarily driven by the continued progression of the ampreloxetine Phase 3 clinical study (CYPRESS) for MSA patients with symptomatic nOH and was partially offset by decreases in expenses related to the previously announced close-out of our research programs.

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Under certain of our collaborative arrangements, we receive partial reimbursement of external costs, which have been reflected as a reduction of R&D expenses of $0.4 million and $5.7 million for 2024 and 2023, respectively.

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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.

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SG&A expenses, as compared to the prior year period, were as follows:

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Total SG&A expenses were $69.2 million in 2024. Excluding share-based compensation expense (“SBC”), total SG&A expenses were $52.9 million and were comprised of $27.2 million of general and administrative (“G&A”) expenses and $25.7 million of selling, marketing & medical affairs (“SM&M”) expenses. Total SG&A expenses (excluding SBC) was $53.1 million for the prior year period and were comprised of $31.9 million of G&A expenses and $21.2 million of SM&M expenses. The $4.7 million decrease in G&A expenses (excluding SBC) compared to the prior year period represented a 15% reduction and was primarily due to company-wide cost savings initiatives. SM&M expenses (excluding SBC) increased by $4.5 million in 2024 compared to the prior year period and was primarily due pre-launch medical affairs and commercialization expenses associated with ampreloxetine and an increase in employee-related expenses.

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Total SBC related to SG&A expenses was $16.3 million in 2024 compared to $17.0 million in the prior year.

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Impairment of Long-Lived Assets

Impairment of long-lived assets, as compared to the prior year period, was as follows:

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NM: Not Meaningful

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In 2024, we recognized non-cash impairment charges of $4.5 million to impair the carrying value of our operating lease assets associated with our laboratory space and related leasehold improvements located in South San Francisco, California. The laboratory space had been on the sublease market since March 2023. There were no impairment charges related to our long-lived assets in the prior year period.

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Restructuring and Related Expenses

Restructuring and related expenses, as compared to the prior year period, were as follows:

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NM: Not Meaningful

There were no restructuring and related expenses recognized in 2024. The restructuring and related expenses of $2.7 million in 2023 were driven by our 2023 strategic actions that included the discontinuation of our research activities, resulting in a 17% reduction in headcount in March 2023. The restructuring and related expenses were primarily 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.

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Interest Expense

Interest expense, as compared to the prior year period, was as follows:

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Interest expense in 2024 and 2023 represented non-cash interest expense associated with $25.0 million received from Royalty Pharma Investments (“Royalty Pharma”) in July 2022 to partially fund our CYPRESS study. The increase in interest expense was primarily due to the compounding of non-cash interest due to Royalty Pharma. We do not anticipate having any cash interest expense in the foreseeable future.

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Interest Income and Other Income, net

Interest and other income, net, as compared to the prior year period, was as follows:

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Interest and other income, net, decreased by $4.2 million in 2024 compared to 2023. The decrease was primarily due to a reduction in interest income earned on our cash, cash equivalents, and marketable securities driven by

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a significant reduction in such balances over the past year. Our cash, cash equivalents, and marketable securities balances were lower in 2024, compared to the prior year, due to the completion of our previously announced $325.3 million capital return program that began in September 2022 and was completed in early January 2024.

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Provision for Income Tax Expense

The provision for income tax expense, as compared to the prior year period, was as follows:

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In 2024, we recognized income tax expense of $11.8 million compared to $5.9 million in 2023. Our income tax for 2024 was primarily attributed to our uncertain tax positions, including interest on historical positions which we began to accrue in the fourth quarter of 2023, and offset by the realization of tax credits.

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Liquidity and Capital Resources

As of December 31, 2024, we had approximately $88.4 million in cash, cash equivalents, and investments in marketable securities (excluding restricted cash) and no long-term debt.

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In January 2024, we completed our capital return program by repurchasing $0.4 million of our shares. Since the inception of the capital return program in September 2022 through its completion in January 2024, we successfully returned $325.3 million to our shareholders.

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In February 2025, we received a $50.0 million milestone from Royalty Pharma Investments (“Royalty Pharma”), which was the maximum we could have received. This milestone was associated with certain royalty thresholds that were achieved by Royalty Pharma related to 2024 TRELEGY global net sales.

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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.

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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.

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Cash Flows

Cash flows, as compared to the prior year period, were as follows:

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Net cash flows used in operating activities

Net cash used in operating activities was $11.5 million in 2024, consisting of a net loss of $56.4 million, a net increase in cash resulting from adjustments for non-cash and other reconciling items (e.g., share-based compensation expense) of $24.5 million, and a net increase in cash resulting from changes in operating assets and liabilities of $20.4 million.

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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 (e.g., share-based compensation expense) of $36.5 million, and a net decrease in cash resulting from changes in operating assets and liabilities of $8.3 million.

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Net cash flows provided by (used in) investing activities

Net cash provided by investing activities was $12.3 million in 2024, consisting primarily of cash inflows from the net purchase and maturities of marketable securities of $14.9 million.

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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.

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Net cash flows used in financing activities

Net cash used in financing activities was $2.5 million in 2024, consisting primarily of $0.4 million of cash outflows related to the repurchase of ordinary shares as part of completion of our capital return program, $0.5 million of cash inflows related to the sale of shares through our employee share purchase program (“ESPP”) and $2.7 million of cash outflows related to the repurchase of shares to satisfy tax withholding obligations.

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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.

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Contractual Obligations

The table below represents our contractual obligations, including agreements that, while cancelable as of December 31, 2024, we are likely to continue. Some of the amounts are based on management’s estimates and assumptions regarding these obligations, including their duration. As our estimates and assumptions are inherently subjective, the amount of the obligations that we will pay in future periods may differ from the amounts reflected in the table.

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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, 2024. 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.

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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.

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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.

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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 that make a difference® in people’s lives.

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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.

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2023 Significant Developments

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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.

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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.

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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.

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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.

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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.

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See “Item 1. Business” starting on page 4 for a more complete discussion of our business.

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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.

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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.

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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.

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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:

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

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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.

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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.

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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.

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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:

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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:

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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.

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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.

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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.

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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.

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SG&A expenses, as compared to the prior year period, were as follows:

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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.

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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.

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Restructuring and Related Expenses

Restructuring and related expenses, as compared to the prior year period, were as follows:

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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.

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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.

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Interest Expense

Interest expense, as compared to the prior year period, was as follows:

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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

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Loss on extinguishment of debt, as compared to the prior year period, was as follows:

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:

​

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:

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.

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Net Income from Discontinued Operations (After tax)

Net income from discontinued operations, after tax, as compared to the prior year period, was as follows:

​

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:

​

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.

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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 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.

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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 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 expertise, which has led to the development of FDA approved YUPELRI® (revefenacin) inhalation solution indicated for the maintenance treatment of patients with chronic obstructive pulmonary disease (“COPD”). Our pipeline of internally discovered programs is targeted to address significant unmet patient needs.

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Sale of Theravance Respiratory Company, LLC

On July 20, 2022, we completed the sale of all of our equity interests in Theravance Respiratory Company, LLC (“TRC”) representing our 85% economic interest in the sales-based royalty rights on worldwide net sales of GSK's TRELEGY ELLIPTA (“TRELEGY”) to Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) for over $1.5 billion in potential total value (the “TRELEGY Royalty Transaction”). The TRELEGY Royalty Transaction is intended to provide us near-, mid- and long-term value with (i) an upfront cash payment of approximately $1.1 billion received on July 20, 2022, (ii) up to $250.0 million in additional milestone payments contingent on the achievement of certain TRELEGY net sales thresholds between 2023 and 2026 and (iii) outer year royalties.

​

Debt Paydown and Capital Return Program

​

Immediately after announcing the TRELEGY Royalty Transaction, we initiated a multi-step process to eliminate our outstanding debt and return capital to shareholders. The first step in this process was the repayment of our 9.5% non-recourse TRELEGY notes due 2035 for approximately $420.0 million, which was completed on July 20, 2022. The second step of the process was a tender offer to retire $230.0 million in principal amount of our 3.25% convertible senior notes due 2023, at par, which was completed on August 25, 2022. Following the completion of our debt paydown, our board of directors authorized $250.0 million capital return program consisting of three elements as summarized below:

​

GSK Share Repurchase

​

On September 20, 2022, we completed a share repurchase transaction of 9,644,807 of our ordinary shares from GSK Finance (No.3) plc (“GSK Finance”), representing all of the shares owned by GSK Finance or its affiliates. The purchase price under the Share Repurchase Agreement was $9.75 per share, resulting in a total consideration of $94.0 million.

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Modified Dutch Auction Tender Offer

​

On November 22, 2022, we completed our “modified Dutch auction” tender offer (the “Offer”) to purchase up to $95.0 million of our ordinary shares, at a purchase price not greater than $10.50 nor less than $9.75 per share, in cash, less any applicable withholding taxes and without interest. A "modified Dutch auction" tender offer allows shareholders to indicate how many shares and at what price or within the range described above they wish to tender their shares. Based on the number of shares tendered and the prices specified by the tendering shareholders, we determined the lowest per-share price that enabled us to purchase all of the shares that were validly tendered. All shares accepted in the Offer were purchased at the same price even if tendered at a lower price.

​

We accepted a total of 115,967 ordinary shares at a price of $10.50 per share, for an aggregate cost of $1.2 million, excluding fees and expenses relating to the Offer. The total of 115,967 ordinary shares that we accepted for purchase represented approximately 0.2% of the total number of ordinary shares outstanding as of November 21, 2022. We intend to use the unused portion of the Offer to enlarge our previously announced, planned open market share repurchase plan which is described below.

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Open Market Share Repurchase Plan

​

On December 13, 2022, we initiated our open market repurchase plan. As of February 27, 2023, we repurchased 5,439,341 shares on the open market at an average cost of $11.03 per share for an aggregate cost of $60.0 million, excluding fees and expenses.

​

2021- 2022 Corporate Restructuring Completion

As previously announced in September 2021, our board of directors approved a plan to focus our resources on our most promising 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%. A majority of the total reduction in workforce occurred at the end of November 2021, and the remainder was completed at the end of February 2022. Since the Restructuring was announced and through its completion in the third quarter of 2022, we incurred $33.0 million in Restructuring and related expenses, which was consistent with our expectations.

​

As a result of the Restructuring and reduction in workforce, in May 2022, we assigned our Dublin, Ireland, office lease to an unaffiliated company and moved into a smaller office in Dublin, which we estimate will result in approximately $1.4 million cumulative cash savings through March 2027, or approximately $0.3 million annually. In addition, in June 2022, we subleased approximately 78,000 square feet of our South San Francisco office and laboratory space to an unaffiliated company. As a result of the sublease, we expect to realize cumulative cash savings of approximately $52.7 million through May 2030, or approximately $6.7 million annually.

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2023 Strategic Actions

On February 27, 2023, we announced additional strategic actions to sharpen the Company’s focus and deliver on its commitment to create shareholder value:

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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. 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 uncertain and may be impacted by the emergence of new information concerning the COVID-19 pandemic, new variants or sub-variants of the COVID-19 virus, and the actions taken to manage or treat the disease, including vaccine availability, distribution, acceptance and effectiveness. 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.

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Future Contingent Milestone and Royalty Assets

The fair value of consideration received in connection with TRELEGY Royalty Transaction in July 2022 included an estimated $194.2 million in future contingent milestone and royalties that was 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 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 carry 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.

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Results of Operations

The following tables set forth our results of operations for the periods presented. Management’s commentary for the 2022 results compared to 2021 results are presented in the paragraphs below, and management’s commentary for the 2021 results compared to the 2020 results are included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

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Revenue

Our implied 35% YUPELRI revenue, as compared to the prior years, was as follows:

​

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 aggregate net sales of YUPELRI of $70.7 million and $56.7 million for 2022 and 2021, respectively, which represented increases of 25% and 13% over the respective prior year periods. However, under applicable accounting guidance, our Viatris collaboration agreement revenue increased by only 11% in 2022 (see table below). This increase was due to overall lower costs incurred by

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Theravance Biopharma as a result of the Restructuring, which improved YUPELRI profitability, but lowered our Viatris collaboration agreement revenue. Additionally, there were higher costs incurred by Viatris in 2022, which also reduced our Viatris collaboration agreement revenue.

​

Our recognized revenue, as compared to the prior years, was as follows:

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 commercialization of YUPELRI. 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” irrespective of whether the overall collaboration is profitable. Amounts payable to Viatris in connection with the commercialization of YUPELRI, if any, are recorded within the consolidated statements of operations as a collaboration loss within selling, general and administrative expenses. Any reimbursement from Viatris attributed to the 65% cost-sharing of 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 2022 and 2021, we recognized $48.6 million and $43.8 million, respectively, in revenue from the Viatris collaboration agreement, which represented the receivables due from Viatris related to YUPELRI. In addition to a 11% increase in revenue over the period, 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 the fourth quarter of 2022, we recognized our first revenue associated with non-US YUPELRI royalties in the amount of $30,000.

​

Our other collaboration revenue was $0.2 million in 2022, which represented a $11.3 million decrease from 2021. The decrease was primarily due to the full recognition of the remaining non-cash Janssen collaboration revenue in the fourth quarter of 2021 which resulted from the planned close-out of the izencitinib program in that period.

​

Licensing revenue was $2.5 million in 2022 and was related 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.

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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:

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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 years:

​

R&D expenses decreased significantly by $130.3 million in 2022 compared to 2021, and the decrease was across all R&D categories. External-related expenses decreased by $72.0 million in 2022 and was the largest contributor to the total R&D expense decrease. The decrease in external-related expenses was primarily due to the near completion of expenses related to the izencitinib program and the SEQUOIA and REDWOOD ampreloxetine studies. The decrease in external-related expenses was partially offset by expenses incurred in the fourth quarter of 2022 associated with the new ampreloxetine Phase 3 clinical study (CYPRESS) for MSA patients with symptomatic nOH. The decreases across the remaining R&D categories were primarily due to the Restructuring originally announced in September 2021 and completed in the third quarter of 2022. As anticipated, the Restructuring resulted in significant savings in 2022 R&D expenses, including (i) $30.7 million in employee-related expenses; (ii) $12.7 million in share-based compensation expenses; and (iii) $14.8 million in facilities, depreciation, and other allocated expenses. 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 $6.7 million, $7.9 million, and $10.1 million for 2022, 2021, and 2020, respectively.

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Selling, General and Administrative

Selling, general and administrative expenses, as compared to the prior years, were as follows:

​

Selling, general and administrative expenses also decreased significantly by $32.2 million in 2022 compared to 2021. The decrease was attributed to a (i) $17.7 million reduction in employee-related expenses; (ii) $9.4 million reduction in external-related expenses; (iii) $8.2 million reduction in share-based compensation expense; and (iv) $6.2 million reduction in facilities, depreciation, and other expenses. These decreases were partially offset by a $9.3 million decrease in expenses allocated to research and development primarily related to the Restructuring. 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 $19.8 million, $28.1 million, and $31.7 million in 2022, 2021, and 2020, respectively.

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As a result of our Restructuring and the related reduction in workforce, in May 2022, we assigned our Dublin, Ireland, office lease to an unaffiliated company and moved into a smaller office in Dublin, which we estimate will result in approximately $1.4 million cumulative cash savings through March 2027, or approximately $0.3 million annually. In addition, in June 2022, we subleased approximately 78,000 square feet of our South San Francisco office and laboratory

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space to an unaffiliated company. As a result of the sublease, we expect to realize cumulative cash savings of approximately $52.7 million through May 2030, or approximately $6.7 million annually.

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Restructuring and Related Expenses

Restructuring and related expenses, as compared to the prior years, were as follows:

​

NM: Not Meaningful

The Restructuring and related expenses were primarily comprised of one-time severance payments, employee-related separation costs, retention costs, and other Restructuring-related expenses. Of the total $12.8 million in Restructuring and related expenses recognized in 2022, $5.9 million were related to R&D expenses and $6.9 million were related to selling, general and administrative expenses. The total Restructuring-related expenses of $12.8 million also included non-cash share-based compensation expense of $7.0 million which was primarily related to the modification of equity awards for employees affected by the Restructuring and certain related awards for other employees.

​

Since the Restructuring was announced and through its completion in the third quarter of 2022, we incurred $33.0 million in Restructuring and related expenses, which was consistent with our expectations. The $33.0 million was comprised of $17.4 million in cash expenses associated with employee termination benefits and related costs and $15.6 million in non-cash expenses primarily relating to share-based compensation expense.

​

Interest Expense

Interest expense, as compared to the prior years, was as follows:

​

NM: Not Meaningful

Interest expense, related to continuing operations, was $6.4 million in 2022 compared to $8.5 million in 2021. The $2.2 million decrease in interest expense was due to the retirement of our 3.25% convertible senior notes in August 2022 which was partially offset by the implied (non-cash) interest expense associated with the $25.0 million funding for ampreloxetine received from Royalty Pharma in July 2022. 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 years, was as follows:

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NM: Not Meaningful

In 2022, we incurred a $3.0 million loss on the extinguishment of our 3.25% convertible senior notes due 2023, at par, that was completed in August 2022. The $3.0 million loss was comprised of transaction costs related to the extinguishment and the write-off of the remaining debt issuance cost.

​

Interest and Other Income, net

Interest and other income, net, as compared to the prior years, was as follows:

NM: Not Meaningful

Interest income and other income, net, increased by $7.4 million in 2022 compared to 2021. The increase was primarily due to (i) higher interest income related to an increase in investment yields, as well as investment balances resulting from the TRELEGY Royalty Transaction; and (ii) the sale of velusetrag to Alfasigma in June 2022 which resulted in a net gain of approximately $2.7 million.

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Provision for Income Tax Benefit (Expense) – Continuing Operations

The provision for income tax benefit (expense) related to continuing operations, as compared to the prior years, was as follows:

​

We were recently under Internal Revenue Service (“IRS”) examination for the tax year ended December 31, 2018. The examination was completed in the third quarter of 2022 with minimal adjustments to the 2018 federal tax return.

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Net Income from Discontinued Operations (After tax)

Net income from discontinued operations, after tax, as compared to the prior years, was as follows:

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In 2022, the TRELEGY Royalty Transaction 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 all of the periods presented above.

​

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 the Company’s valuation allowance on its US federal deferred tax assets.

​

Liquidity and Capital Resources

As a result of the approximate $1.1 billion in cash proceeds received from the TRELEGY Royalty Transaction completed in July 2022, our cash position increased significantly during the second half of 2022. In connection with TRELEGY Royalty Transaction, we also repaid our Non-Recourse 2035 Notes for approximately $420.0 million and subsequently repaid our convertible senior notes due 2023, at par, for approximately $230.0 million.

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Following the completion of the paydown of all of our long-term debt, our board of directors authorized a $250.0 million capital return program consisting of the three elements listed below:

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​

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As of December 31, 2022, we had approximately $327.5 million in cash, cash equivalents, and investments in marketable securities (excluding restricted cash) and a streamlined balance sheet with no long-term debt.

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2021 – 2022 Corporate Restructuring Completion

As previously announced in September 2021, our board of directors approved a plan to focus our resources on our most promising programs and reduce the size of the Company in order to maximize shareholder value. The Restructuring resulted in us reducing headcount by approximately 75%. A majority of the total reduction in workforce occurred at the end of November 2021, and the remainder was completed at the end of February 2022. Since the Restructuring was announced and through its completion in the third quarter of 2022, we incurred $33.0 million in Restructuring and related expenses, which was consistent with our expectations.

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2023 Strategic Actions

As discussed above, on February 27, 2023, we announced additional strategic actions to sharpen the Company’s focus and deliver on its commitment to create shareholder value. These new strategic actions include a $75.0 million increase to the existing $250.0 million capital return program initiated in September 2022, bringing the total capital return program to $325.0 million. As of February 27, 2023, we have repurchased $155.3 million of shares, including $27.1 million in 2023, and we have approximately $170.0 million remaining in the capital return program which is expected to be completed by the end of 2023.

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Our 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 product, unplanned expenses, cash receipts being lower than anticipated, and the need to satisfy contingent liabilities, including litigation matters and indemnification obligations.

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Adequacy of cash resources to meet future needs

We expect our cash, cash equivalents and marketable securities will be sufficient to fund our capital return program and our operations for at least the next twelve months from the issuance date of these consolidated financial statements based on current operating plans and financial forecasts.

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Cash Flows

Cash flows, as compared to the prior years, were as follows:

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Net cash flows used in operating activities

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, consisting 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 used in operating activities was $207.9 million in 2021, of which $235.8 million was used in continuing operations and $27.9 million was provided by discontinued operations, consisting of a net loss of $199.4 million, a net increase in cash resulting from adjustments for non-cash and other reconciling items of $31.2 million and a net decrease in cash resulting from changes in operating assets and liabilities of $39.6 million.

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Net cash flows provided by investing activities

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, consisting primarily of $54.9 million 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.

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Net cash provided by investing activities was $124.5 million in 2021, all of which was provided by continuing operations, and consisting of cash inflows from the net purchase and maturities of marketable securities of $127.9 million and partially offset by $3.4 million used for the purchase of property and equipment.

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Net cash flows (used in) provided by financing activities

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, consisting 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 the 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.

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Net cash provided by financing activities was $91.9 million in 2021, all of which was provided by continuing operations, and consisting of the sale of 7,705,000 ordinary shares for total net proceeds of $108.2 million and $3.5 million in proceeds from ESPP and share option purchases. These proceeds were partially offset by $10.7 million in principal payments on our formerly outstanding Non-Recourse 2035 Notes and $9.1 million related to the repurchase of shares to satisfy tax withholding obligations.

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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, 2022. Some of the amounts that we include in this table are based on management’s estimate and assumptions about 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.

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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, 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.

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Performance-Contingent Awards

We periodically grant performance-contingent awards to our employees. For the year ended December 31, 2022, we recognized $0.2 million of share-based compensation expense related to these types of awards. As of December 31, 2022, the maximum remaining expense related to outstanding performance-contingent awards was $0.4 million which had performance expiration dates through February 2024.

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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 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.

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Management Overview

Theravance Biopharma 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.

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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 of the US FDA approved YUPELRI® (revefenacin) inhalation solution indicated for the maintenance treatment of patients with COPD. Our respiratory pipeline of internally discovered programs is targeted to address significant patient respiratory needs.

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We have an economic interest in potential future payments from GSK pursuant to our agreements with Innoviva” relating to certain programs, including TRELEGY.

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Strategic Actions to Focus on Respiratory Diseases

Given clinical results from our late-stage development programs, in September 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. At completion, the corporate restructuring (the “Restructuring”) will result in us reducing headcount by approximately 75%, an estimated 270 positions, through a reduction in our workforce. Approximately 75% of the total reduction in workforce occurred at the end November 2021, and the remainder will be completed at the end of February 2022.

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As a result of the Restructuring, we expect to realize estimated operating expense savings (excluding share-based compensation and any one-time restructuring, severance, and termination costs) of approximately $170.0 million. We estimate that we will incur total Restructuring and related expenses of approximately $32.0 million comprised of $17.0 million in cash expenses and $15.0 million in non-cash expenses. These expenses are primarily comprised of severance and other related costs. In 2021, we recognized $20.1 million of the Restructuring expenses comprised of $11.5 million in cash-related expenses and $8.6 million in non-cash expenses.

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We expect to recognize the majority of the remaining approximate $12.0 million in Restructuring expenses, comprised of $5.0 million in cash-related expenses and $7.0 million in non-cash expenses, in the first quarter of 2022 and the balance 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.

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The go-forward organization leverages our expertise in developing and commercializing respiratory therapeutics. We intend to significantly narrow our R&D focus on our core respiratory assets, including a clinical study

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with Viatris Inc. (“Viatris”) intended to provide data to support a possible label update for YUPELRI, which would capture more of YUPELRI’s addressable market and further strengthen its competitive advantage, and investment in our inhaled Janus kinase inhibitor portfolio, with focus on our most advanced clinical candidate, nezulcitinib, initially targeting acute lung injury. We will also continue to explore strategic partnerships for both core and non-core assets to unlock value. All of these actions drive towards our goal to maximize shareholder value.

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After implementing these strategic actions, we plan to become sustainably cash flow positive beginning in the second half of 2022, and we will work to optimize our capital structure in order to maximize total shareholder returns.

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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. 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. 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.

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Revenue Recognition

We recognize revenue under Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, an entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

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At contract inception, once the contract is determined to be within the scope of ASC 606, we identify the performance obligations in the contract by assessing whether the goods or services promised within each contract are distinct. We then recognize revenue for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Collaborative Arrangements under ASC 606

We enter into collaborative arrangements with partners that fall under the scope of Accounting Standards Codification, Topic 808, Collaborative Arrangements (“ASC 808”). While these arrangements are in the scope of ASC 808, we may analogize to ASC 606 for some aspects of these arrangements. We analogize to ASC 606 for certain activities within collaborative arrangements for the delivery of a good or service (i.e., a unit of account) that is part of our ongoing major or central operations. Revenue recognized by analogizing to ASC 606 is recorded as “collaboration revenue” or “licensing revenue” whereas, revenue recognized in accordance with ASC 808 is recorded on a separate collaboration revenue line on the consolidated statements of operations.

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The terms of our collaborative arrangements typically include one or more of the following: (i) up-front fees; (ii) milestone payments related to the achievement of development, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; (iv) reimbursements or cost-sharing of research and development expenses; and (v) profit/loss sharing arising from co-promotion arrangements. Each of these payments results in collaboration revenues or an offset

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against research and development expense. Where a portion of non-refundable up-front fees or other payments received is allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as collaboration revenue when (or as) the underlying performance obligation is satisfied.

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As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The estimation of the stand-alone selling price may include such estimates as, forecasted revenues or costs, development timelines, discount rates and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if they can be satisfied at a point in time or over time, and we measure the services delivered to our collaborative partner which are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

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Up-front Fees: If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize collaboration revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing collaboration revenue from the allocated transaction price. For example, when we receive up-front fees for the performance of research and development services, or when research and development services are not considered to be distinct from a license, we recognize collaboration revenue for those units of account over time using a measure of progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue or expense recognition as a change in estimate.

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Milestone Payments: At the inception of each arrangement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the collaborative partner’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or the collaborative partner’s control, such as operational developmental milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and earnings in the period of adjustment.

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Royalties: For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Our income earned related to TRELEGY sales is included within “income from our investment in TRC, LLC” on the consolidated statements of operations.

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Reimbursement, cost-sharing and profit-sharing payments: Under certain collaborative arrangements, we have been reimbursed for a portion of our research and development expenses or participate in the cost-sharing of such research and development expenses. Such reimbursements and cost-sharing arrangements have been reflected as a reduction of research and development expense in our consolidated statements of operations, as we do not consider performing research and development services for reimbursement to be a part of our ongoing major or central operations.

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Research and Development Expenses

We incur substantial expenses associated with our clinical trials. Accounting for clinical trials relating to activities performed by clinical research organizations (“CROs”), contract manufacturing organizations (“CMOs”) and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. We estimate costs of research and development activities conducted by service providers, which include, the conduct of sponsored research, preclinical studies, and contract manufacturing activities. The diverse nature of services being provided under CRO and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs, CMOs and other vendors in connection with clinical trials.

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Research and development (“R&D”) expenses are recorded in the period that services are rendered or goods are received. R&D expenses consist of salaries and benefits, laboratory supplies and facility costs, as well as fees paid to third parties that conduct certain R&D activities on our behalf, net of certain external R&D expenses reimbursed under our collaborative arrangements.

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As part of the process of preparing our consolidated financial statements, we are required to estimate and accrue certain R&D expenses. This process involves the following:

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Examples of estimated R&D expenses that we accrue include:

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We base our expense accruals related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical study milestones. Our service providers typically invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

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To date, we have not experienced significant changes in our estimates of accrued R&D expenses after a reporting period. However, due to the nature of estimates, there is no assurance that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other R&D activities. Such changes in estimates will be recognized as R&D expenses in the period that the change in estimate occurs.

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Theravance Respiratory Company, LLC (“TRC”)

Through our 85% equity interest in TRC, we are entitled to receive an 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 (net of TRC expenses paid and the amount of cash, if any, expected to be used by TRC pursuant to the TRC LLC Agreement over the next four fiscal quarters). The primary drug program assigned to TRC is TRELEGY.

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We analyzed our ownership, contractual and other interests in TRC to determine if TRC is a variable-interest entity (“VIE”), whether we have a variable interest in TRC and the nature and extent of that interest. We determined that TRC is a VIE. The party with the controlling financial interest, the primary beneficiary, is required to consolidate the entity determined to be a VIE. Therefore, we also assessed whether we are the primary beneficiary of TRC based on the power to direct its activities that most significantly impact its economic performance and our obligation to absorb its losses or the right to receive benefits from it that could potentially be significant to TRC. Based on our assessment, we determined that we are not the primary beneficiary of TRC, and, as a result, we do not consolidate TRC in our consolidated financial statements. TRC is recognized in our consolidated financial statements under the equity method of accounting.

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Income related to our equity ownership of TRC is reflected within our consolidated statements of operations and is classified as non-operating income. Amounts due from TRC that we believe to be collectable within one year and our equity in the net assets of TRC are reflected on our consolidated balance sheets as a current asset and a non-current asset, respectively. The portion of the Non-Recourse 2035 Notes classified as a current liability, if any, is based on the amount of royalties received, or receivable, as of December 31, 2021, that are expected to be collected from TRC and used to make a principal repayment on the Non-Recourse 2035 Notes within the next twelve months. The determination of the amounts likely to be received from TRC within the next twelve months requires significant judgement due to the significant variability of the amounts paid to the Company, as compared to the royalties due. Consequently, the actual amount paid to the holders of the 2035 Notes within twelve months of the reporting date may differ significantly from that recorded in the consolidated balance sheets.

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Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are anticipated to be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

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Our total unrecognized tax benefits of $75.0 million and $63.4 million, as of December 31, 2021 and December 31, 2020, respectively, may reduce the effective tax rate in the period of recognition. We currently have a full valuation allowance against our deferred tax assets, which would impact the timing of the effective tax rate benefit should any of our uncertain positions be favorably settled in the future.

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We assess all material positions, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether the factors underlying the sustainability assertion have changed and whether the amount of the recognized tax benefit is still appropriate.

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The recognition and measurement of tax benefits requires significant judgment. We have taken certain positions where we believe that our position is greater than 50% likely to be realized upon ultimate settlement and for which no reserve for uncertain tax positions has been recorded. If we do not ultimately realize the expected benefit of these positions, we will record additional income tax expenses in future periods. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

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Any tax levied or credited by a governmental taxing authority that is not based on our income is outside the scope of accounting for income taxes. Therefore, we record such items as a component in our loss before income taxes.

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Results of Operations

The following tables set forth our results of operations for the periods presented. Management’s commentary for the 2021 results compared to 2020 results are presented in the paragraphs below, and management’s commentary for the 2020 results compared to the 2019 results are included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

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Revenue

Revenue, as compared to the prior years, was as follows:

NM: Not Meaningful

Collaboration revenue was $11.5 million in 2021, which represented a $15.0 million decrease from 2020. Collaboration revenue was primarily comprised of revenue recognized related to the $100.0 million upfront payment received in 2018 pursuant to the Janssen collaboration agreement that was entered into in February 2018. Janssen collaboration revenue is recognized for the R&D services we performed during the period based on a measure of our efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g., costs incurred compared to total budgeted costs). The $15.0 million decrease in collaboration revenue compared to 2020 reflects the reduction of costs incurred to satisfy the remaining performance obligation related to the recently completed izencitinib Phase 2 study in ulcerative colitis and the closeout of the izencitinib Phase 2 study in Crohn’s disease. As of December 31, 2021, we have recognized all of the revenue associated with the Janssen $100.0 million upfront payment.

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Licensing revenue was $1.5 million in 2020 and was attributable to the achievement of a milestone related to the acceptance of a clinical trial application associated with our agreement with Viatris to develop and commercialize nebulized revefenacin in China and adjacent territories. We did not recognize any licensing revenue in 2021.

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We are entitled to a share of US profits and losses (65% to Viatris; 35% to Theravance Biopharma) received in connection with commercialization of YUPELRI. 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” irrespective of whether the overall collaboration is profitable. Amounts payable to Viatris in connection with the commercialization of YUPELRI, if any, are recorded within the consolidated statements of operations as a collaboration loss within selling, general and administrative expenses. Any reimbursement from Viatris attributed to the 65% cost-sharing of 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.

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In 2021 and 2020, we recognized $43.8 million and $43.9 million, respectively, in revenue from the Viatris collaboration agreement, which represented the receivables due from Viatris related to YUPELRI. 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 for 2021 and 2020 of $56.7 million and $50.0 million, respectively. While institutions in some parts of the country are allowing more in-person access, in-person engagements remain below pre-pandemic levels. Total 2021 prescription volumes continue to grow across most specialties with volumes heading toward parity with 2020. However, prescription volumes in pulmonology remain

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below pre-pandemic levels. Despite the challenges of the respiratory pandemic, dose demand for YUPELRI increased 25% in 2021 compared to 2020.

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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:

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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 years:

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R&D expenses decreased by $67.3 million in 2021 compared to 2020, and the decrease was across all R&D categories. External-related expenses decreased by $44.9 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 our late-stage clinical programs, primarily izencitinib and ampreloxetine. The decreases across the remaining R&D categories were primarily due to the Restructuring announced in September 2021 which resulted in significant reductions in employee-related expenses, share-based compensation expenses, and other allocated expenses of $11.9 million, $5.7 million, and $4.8 million, respectively. The reduction in employee-related expenses was primarily due to the reversal of the annual corporate bonus, and the reduction in share-based compensation was primarily due to a reduction in employee headcount. The reduction in other allocated expenses was primarily due to the decrease in allocated overhead costs from selling, general, and administrative expenses due to the Restructuring. Expenses that were directly attributed to the Restructuring are included in the Restructuring and Related Expenses section below.

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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 $7.9 million, $10.1 million and $5.6 million for 2021, 2020, and 2019, respectively.

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As a result of the Restructuring and our focus on our respiratory programs, we expect R&D expenses to continue to decrease over the next 12 months.

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Selling, General and Administrative

Selling, general and administrative expenses, as compared to the prior years, were as follows:

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Selling, general and administrative expenses decreased by $9.4 million in 2021 compared to 2020. The $9.4 million decrease was primarily attributed to the Restructuring and resulted in reductions in employee-related expenses, share-based compensation expenses, and external-related services. The decrease in employee-related expenses was primarily due to the reversal of the annual corporate bonus, and the reduction in share-based compensation was primarily due to a reduction in employee headcount. The decrease in external-related expenses was primarily due to a reduction in expenses related to the Restructuring. Expenses that were directly attributed to the Restructuring are included in the Restructuring and Related Expenses section below.

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Share-based compensation expense related to selling, general and administrative expenses was $28.1 million, $31.7 million, and $31.5 million, in 2021, 2020, and 2019, respectively.

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Through June 2021, we leased approximately 170,000 square feet of office and laboratory space in two buildings in South San Francisco, California, under a non-cancelable operating lease that ends in May 2030. In July 2021, we terminated approximately 8,000 square feet of office space in one of the buildings and returned the space to the building’s landlord for their use. We determined that the termination would be accounted for as a lease modification under the applicable accounting guidance. As a result of the modification, we adjusted the value of our operating lease assets and liabilities in our consolidated balance sheets that resulted in a gain of $1.9 million in 2021. The $1.9 million gain was offset against facility expenses within selling, general and administrative expenses and then partially allocated to R&D expenses above.

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Effective October 2021, we also subleased approximately 21,000 square feet of our South San Francisco office and laboratory space. Under the terms of the sublease agreement, the Company will receive an initial monthly base rent of $0.1 million, with annual base rent increases of 3%, and the subtenant’s proportionate share of the building’s operating expenses. In October 2021, we began recognizing the sublease income on a straight-line basis over the term of the sublease which ends in September 2028. The sublease income was be reflected as a reduction facility expenses within selling, general and administrative expenses and then partially allocated to R&D expenses above.

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As a result of the Restructuring, we expect our selling, general and administrative expenses to significantly decrease over the next 12 months.

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Restructuring and Related Expenses

Restructuring and related expenses, as compared to the prior years, were as follows:

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NM: Not Meaningful

Of the total $20.1 million in Restructuring and related expenses recognized in 2021, $10.5 million was related to R&D expenses and $9.6 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 $20.1 million also included non-cash charges of $8.6 million

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primarily related to the modification of equity awards for employees affected by the Restructuring and certain related awards for other employees.

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We estimate that we will incur total Restructuring and related expenses of approximately $32.0 million comprised of $17.0 million in cash expenses associated with employee termination benefits and related costs and $15.0 million in non-cash expenses relating to the acceleration of equity-awards for employees affected by the Restructuring. We expect to recognize the majority of the remaining approximate $12.0 million in Restructuring and related expenses, comprised of $5.0 million in cash-related expenses and $7.0 million in non-cash expenses, in the first quarter of 2022 and the balance 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.

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We are also evaluated the impact of the Restructuring on the carrying value of our long-lived assets, such as property and equipment and operating lease assets. This process included evaluating the estimated remaining lives, significant changes in the use, and potential impairment charges related to our long-lived assets. Based on our evaluation, we determined that our long-lived assets were not impaired as of December 31, 2021, and we did not recognize any impairment charges related to the long-lived assets in 2021. However, we may incur additional costs not currently contemplated due to events that may occur because of, or that are associated with, the Restructuring.

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Income from Investment in TRC, LLC

Income from investment in TRC, as compared to the prior years, was as follows:

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The income from investment in TRC, LLC 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 LLC Agreement over the next four fiscal quarters).

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Income from investment in TRC, LLC increased by $35.5 million in 2021 compared to 2020 which included $8.5 million representing our share of the one-time fee that GSK paid to TRC upon termination of the MABA program in June 2020. The $104.0 million and $68.4 million in TRC income for 2021 and 2020, respectively, were recorded net of our share of TRC expenses of $3.4 million and $2.2 million, respectively. Our share of TRC expenses for both years were primarily comprised of TRC’s legal and related expenses associated with the arbitration between Innoviva and TRC and us.

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In connection with the issuance of our $380.0 million net principal amount Non-Recourse 2035 Notes in February 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.

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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 the TRC LLC Agreement” for additional information regarding our economic interest in TRC, LLC.

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Interest Expense

Interest expense primarily consisted of interest payments due on the Convertible Senior 2023 Notes, the redeemed Non-Recourse 2033 Notes, and the Non-Recourse 2035 Notes, as well as, the amortization of the associated debt issuance costs. Interest expense, as compared to the prior year, was as follows:

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NM: Not Meaningful

Interest expense increased by $2.3 million in 2021 compared to 2020 The $2.3 million increase was primarily attributed to additional interest expense incurred in 2021 related to an increase in principal balance of the Non-Recourse 2035 Notes. The increase in principal balance resulted from the February 2020 re-financing of the Non-Recourse 2033 Notes and interest payment shortfalls added to the principal balance as of the applicable interest payment dates.

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Loss on Extinguishment of Debt

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Loss on extinguishment of debt as compared to the comparable periods in the prior year, was as follows:

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