On March 2, 2020 Theravance Biopharma, Inc. (NASDAQ: TBPH) ("Theravance Biopharma" and together with its subsidiaries, the "Company"), a diversified biopharmaceutical company primarily focused on the discovery, development and commercialization of organ-selective medicines, reported the closing of a private placement of $400 million of non-recourse Triple II 9.5% fixed rate term notes (Press release, Theravance, MAR 2, 2020, View Source [SID1234555081]). The notes are secured by a portion of the future payments the Company expects to receive related to royalties due on net sales of Trelegy Ellipta. The Company used a portion of the net proceeds from this transaction to repay in full the remaining outstanding balance of the $250 million Triple PhaRMASM 9.0% fixed rate term notes due 2033 and intends to use the remainder of the net proceeds to support continued execution of its key development programs.
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About the Financing
Triple Royalty Sub II LLC (the "Issuer"), a wholly-owned, indirect subsidiary of Theravance Biopharma, issued $400 million in aggregate principal amount of Triple II 9.5% fixed rate term notes due June 5, 2035. The notes are secured by all of the Issuer’s right, title and interest in certain membership interests (the "Issuer Class C Units") in Theravance Respiratory Company, LLC, a Delaware limited liability company ("TRC LLC"). TRC LLC holds the right to receive upward-tiering royalties ranging from 6.5% to 10% on worldwide net sales of Trelegy Ellipta, and the Company holds an 85% economic interest in TRC LLC. The Issuer Class C Units represent 75% of the Company’s 85% economic interest, which equates to 63.75% of the economic interests in TRC LLC.
The primary source of funds to make payments on the notes will be the Issuer’s 63.75% economic interest (evidenced by the Issuer Class C Units) in any future payments made by Glaxo Group Limited ("GSK") under the Collaboration Agreement, dated as of November 14, 2002, by and between Innoviva, Inc. and GSK, as amended from time to time (net of the amount of cash, if any, expected to be used in TRC LLC pursuant to the TRC LLC Agreement over the next four fiscal quarters) relating to the Trelegy Ellipta program. The notes are not convertible into Company equity and have no security interest in nor rights under any agreement with GSK.
The notes may be redeemed at any time after the second year and prior to maturity, in whole or in part, at specified redemption premiums.
The notes bear an annual interest rate of 9.5%, with interest and principal payable quarterly beginning June 5, 2020. Prior to and including the December 5, 2024 payment date, in the event that the distributions received by the Issuer from TRC LLC in a quarter is less than the interest accrued for that quarter, the principal amount of the notes will increase by the interest shortfall amount for that quarter. Because the principal and interest payments on the notes are ultimately based only on royalties from product sales, which will vary from quarter to quarter, the notes may be repaid prior to the final maturity date in 2035. Following the redemption or repayment of the notes, all Trelegy Ellipta-related pledged cash flows will revert back to the Company.
In order to comply with Regulation RR — Credit Risk Retention (17 C.F.R. Part 246), 5% of the notes were retained by Theravance Biopharma R&D, Inc., a wholly-owned subsidiary of Theravance Biopharma. Excluding the $20 million of retained notes and other fees related to the transaction, net proceeds of the offering were approximately $380 million. The notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent an applicable exemption from the registration requirements of the Securities Act. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any security.
Cowen and Company, LLC acted as sole placement agent for the notes.