Through the Company’s 85% equity interest in TRC, the Company is 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.

In May 2014, the Company entered into the TRC LLC Agreement with Innoviva, Inc. (“Innoviva”) that governs the operation of TRC. Under the TRC LLC Agreement, Innoviva is the manager of TRC, and the business and affairs of TRC are managed exclusively by the manager, including (i) day to day management of the drug programs in accordance with the existing GSK agreements; (ii) preparing an annual operating plan for TRC; and (iii) taking all actions necessary to ensure that the formation, structure and operation of TRC complies with applicable law and partner agreements. The Company is responsible for its proportionate share of TRC’s administrative expenses incurred, and communicated to the Company, by Innoviva.

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

For the year ended December 31, 2020, 2019, and 2018, the Company recognized net royalty income of $68.4 million, $33.7 million, and $11.2 million, respectively, within the consolidated statements of operations within “Income from investment in TRC, LLC”. These amounts were recorded net of the Company’s share of TRC’s expenses of $2.2 million, $2.7 million for the year ended December 31, 2020 and 2019, respectively. There were minimal TRC expenses for the year ended December 31, 2018. The Company’s share of TRC expenses for 2020 and 2019 was primarily comprised of TRC legal and related fees associated with the arbitration between Innoviva, TRC and the Company.

As of December 31, 2020, the amounts due from TRC were $53.8 million which were primarily comprised of (i) net royalty income payments for the period from the first quarter of 2020 through the fourth quarter of 2020 and (ii) $8.5 million representing the Company’s share of the one-time fee that GSK paid to TRC upon termination of the inhaled Bifunctional Muscarinic Antagonist-Beta2 Agonist (“MABA”) program in June 2020. The total amounts due, as of December 31, 2020, were net of a $2.5 million payment received from Innoviva in the fourth quarter of 2020 and have been recorded as a current asset in the consolidated balance sheets within “Amounts due from TRC, LLC”. In January 2021, the Company received an additional $21.3 million payment from Innoviva related to the receivable balance as of December 31, 2020.

TRC’s summary financial information was as follows as of or for the year ended December 31:


(In thousands)	2020		2019		2018
Current assets	$	63,027	$	36,737
Non-current assets		16,959		—
Current liabilities		508		3,069
Royalty revenue for the year ended		73,089		42,790	$	13,379
Revenue from collaborative arrangements for the year ended		10,000		—		—
Income from continuing operations and net income for the year ended	$	81,662	$	39,653	$	13,261

On June 10, 2020, the Company disclosed in a Form 8-K that it had formally objected to TRC and Innoviva, as the manager of TRC, regarding their proposed plan to use TRELEGY royalties to invest in certain privately-held companies, funds that would otherwise be available for distribution to the Company under the terms of the TRC LLC Agreement. In October 2020, Innoviva announced that TRC had invested $15.0 million of TRELEGY royalties in the equity securities of a privately held biopharmaceutical company. Consequently, the Company’s share of this investment of $12.8 million has been recorded as a long-term asset in the consolidated balance sheets under “Equity in net assets of TRC, LLC”. However, in October 2020, the Company initiated an arbitration proceeding against Innoviva and TRC challenging the authority of Innoviva and TRC to pursue such a business plan rather than distribute such funds to the Company in a manner consistent with the TRC LLC Agreement and the Company’s 85% economic interest in TRC. The arbitration hearing was held during the week of February 16, 2021, with post-hearing briefing and arguments to take place over the next few weeks. The Company currently anticipates a decision in those proceedings near the end of the first quarter or early in the second quarter of 2021.