Innoviva, Inc. (INVA) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. At this time I would like to welcome everyone to the Theravance conference call to review results for the quarter ended March 31, 2012. [Operator Instructions] Today's conference call is being recorded. Now, I would like to turn the call over to Mike Aguiar, Senior Vice President and Chief Financial Officer.

Good afternoon, everyone, and thank you for joining us. With me on the call today is Rick Winningham, our Chief Executive Officer. First, Rick will review highlights in the quarter and then I will cover the financials. Following our comments we will open up the call for questions. Earlier today, Theravance issued a press release detailing first quarter 2012 financial results and recent corporate developments. A copy of the press release can be downloaded from our website or you can call Investor Relations at (650) 808-4100 and we will be happy to assist you. Before we get started we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance. Forward-looking statements include anticipated results and other statements regarding Theravance's goals, expectations, strategies and beliefs. These statements are based upon the information available to the company today and Theravance assumes no obligation to update these statements if circumstances change. Future events and actual results could differ materially from those projected in the company's forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's Form 10-K filed with the SEC. I'll now turn the call over to Rick Winningham our Chief Executive Officer. Rick?

Thanks, Mike. Good afternoon, everyone. I'm pleased to report that Theravance started 2012 with significant progress across our pipeline and particularly in our respiratory programs. Recently, we were pleased to announce an agreement with GSK to increase their ownership in Theravance subject to stockholder approval. This investment reflects confidence in the respiratory collaboration programs. 2012 will be a very exciting year, with a number of significant events across our pipeline and in particular, with respiratory programs with GSK. During the first quarter, GSK and Theravance announced top line results from the COPD and asthma registrational studies of RELOVAIR, as well as 4 non-pivotal, head-to-head Phase III studies. GSK remains on track to submit regulatory filings for RELOVAIR and COPD in the U.S. and Europe and asthma in Europe for mid-2012. In the U.S., GSK and Theravance are reviewing the asthma filing strategy. Also during the first quarter, the first of the real-world effectiveness studies, the Salford Lung Study, was launched by GSK to investigate the potential effects of RELOVAIR versus standards of care in COPD in Europe. The effectiveness studies in COPD and asthma are intended to demonstrate the impact of once-daily dosing on patient outcomes and overall healthcare costs. As a reminder, the results of the IIIB studies will not form a part of the initial regulatory filings. Now, turning to the LAMA/LABA program. There's 7 ongoing Phase III studies evaluating this once-daily combination dual bronchodilator for the treatment of patients with COPD. LAMA/LABA combines 2 once a day investigational bronchodilators 719, a once-daily, long-acting muscarinic antagonist or LAMA, and vilanterol, the once-daily, long-acting beta2 receptor agonist in RELOVAIR. The overall Phase III program is evaluating over 5,000 patients globally. Completion of this program is expected by the end of the year. In our model program, we reported top line results from the Phase IIb efficacy and safety study for the lead asset 081. The results of this study and a number of ongoing non-clinical studies will inform the selection of the most appropriate dose and dosing interval for 081. In addition, progression of Phase III will be based on successful completion of these enabling studies. Next month, GSK will be presenting clinical data from the studies of RELOVAIR and the LAMA/LABA program at the American Thoracic Society in San Francisco, California. These include presentations on the RELOVAIR Phase IIIa lung function study, the Phase I and Phase IIa for 719 and the combination of 719 and vilanterol. Other Phase III respiratory data will be presented at future medical and scientific meetings. We believe that together, these 3 programs, RELOVAIR and LAMA/LABA and MABA have the potential to address the needs of a wide range of COPD and asthma patients suffering from these debilitating diseases. Now, let me turn to the PuMA program and our lead compound TD-1211. Our objective with this program, and with this compound, is to restore patients to normal bowel function by alleviating gastrointestinal side effects of opioid therapy without affecting analgesia. TD-1211 is a once-daily, orally-administered, peripherally selective, multivalent inhibitor of the mu opioid receptor. Our Phase IIb program consists of 3 studies, that together address key questions that will help define the dose and dose regiment for Phase III. Enrollment is now complete in 2 of the 3 studies in the Phase IIb program and we expect to report data from these studies in the next few months. Our other internal programs continue to progress and we look forward to providing updates on these programs later in the year. I'll now turn the conference call over to Mike Aguiar, our Chief Financial Officer. Mike?

Thanks, Rick. Today I'll review the results of the quarter ended March 31, 2012 and will provide guidance for full year 2012 expenses. For the quarter ended March 31, 2012 Theravance had a net income of $84.6 million or $0.93 per diluted share. Research and development plus general and administrative expense, excluding stock-based compensation, totaled $34.8 million for the first quarter, which was slightly higher than the fourth quarter 2011 expenses as mentioned in a recent investor presentation. Revenue totaled $127.1 million during the first quarter of 2012 and consisted primarily of the recognition of the deferred revenue balance of $125.7 million related to the Astellas collaboration which was terminated in January. Looking forward, we will not be recognizing any further revenues related to our terminated Astellas agreement. Total R&D expenses for Q1 2012 were $33.2 million compared to $20.5 million for the same period last year. This increase was primarily due to higher clinical costs related to our PuMA and MARIN Phase II programs and higher expenses associated with our research and late discovery programs. Excluding stock-based compensation, non-GAAP R&D spending was $29.7 million during the first quarter of 2012 compared to $17.3 million for the same period last year. General and administrative costs were $7.9 million during the first quarter of 2012 compared to $7.2 million for Q1 2011. This increase was primarily due to higher external and employee-related expenses offset by lower facilities-related costs. Excluding stock-based compensation, non-GAAP G&A expense was $5.2 million during the first quarter 2012 compared to $4.8 million in the same period 2011. Cash, cash equivalents and marketable securities totaled $200.2 million as of March 31, 2012. This decrease of approximately $40.7 million during the first quarter is primarily due to cash used in operations. Now, turning to our guidance regarding non-GAAP expenses for 2012. For the full year, we are reiterating our previous guidance for operating expenses to be in the range of $120 million to $130 million. As a reminder, our guidance includes total research and development expense and total general and administrative expense but excludes stock-based compensation. Now, let me turn the call back to Rick for final closing comments. Rick?

Thank you, Mike. In summary, I'm pleased with the progress of our programs in the first quarter 2012. This is a very important year for Theravance, with upcoming key milestone events in the respiratory programs with GSK and other internal programs such as PuMA. Significant events in 2012 include the global filing of the regulatory applications for RELOVAIR, reporting Phase III results from the LAMA/LABA program, presentations of RELOVAIR Phase III data at upcoming scientific and medical conferences and reporting top-line data from our PuMA Phase IIb program in the next few months. We are very excited as Theravance approaches the next phase of growth and development in the respiratory programs and across other exciting therapeutic areas where there are unmet medical needs and significant market opportunities. And now, I'd like to turn the call over to the conference facilitator and open the call for questions.

[Operator Instructions] Your first question comes from Steve Byrne from Bank of America.

In the LAMA, the 62.5 milligram dose, do you have support that, that is your lowest effective dose? There's not been a lot of data on that and what's your comfort level on that?

Yes, I think that GSK has done the necessary work in extensive dose ranging studies. Actually, 2 of them, that we might have referenced in the last quarter's call, ranging from a dose in the teens all the way up to, I think a 1,000 micrograms. I think the analysis of all of the data indicates that the doses of the LAMA that we have in Phase III at 62.5 and 125 are the 2 optimal doses for the COPD program.

Will some of those data be at ATS next month?

The data, Steve, that is going to be at ATS, we mentioned kind of the main studies that are out there. At this point in time, I know there's still one study that some folks were looking to get some information on which was the study that was completed earlier this year, the once a day, twice a day. That is not going to be at ATS. I'm not sure what conference that will ultimately be at, but the data that has been presented so far is sort of what is there as of right now.

And the study that's the real-world efficacy study, what are your expectations there? What support do you have that there is greater compliance with the once a day dosing?

Well, I think historically, if you look across therapeutic categories, as you move from more frequent to less frequent dosing, you pick up additional compliance. Compliance is particularly important in respiratory diseases such as asthma and COPD. In asthma, the lack of adherence to a regimen can certainly cause both shortness of breath and inflammation to begin in the lungs, and in COPD clearly, can add to additional breathlessness that the patient may have. So the objective, really, in the real-world studies, the real-world effectiveness studies, are to demonstrate that an improvement in compliance that's made possible by a once a day product can in fact improve health outcomes very broadly, as well as cost effectiveness, healthcare cost effectiveness, and that's really the objective of the ongoing Salford COPD study and will be the objective of the real-world asthma study that will start in the near future.

And when do you expect some of these data?

I don't know that we've actually communicated an end date on that one, Steve. I'll have to get back to you on that one. But the studies have just started here fairly recently so they're not in the immediate future. But again, I don't know that GSK has communicated an end date on that.

Our next question comes from Ronny Gal from Sanford & Bernstein.

Two questions. First, on the PuMA, I had some discussion with a few other companies in that market and it seems like the people are talking about pricing per day of treatment in the high teens. I just want to get, from your own market research, do you think this is realistic or are we probably looking at a price per day of treatment which will be lower? The second question is actually around the LABA/LAMA data, you kind of mentioned that the main piece of the program will complete by year end. The 2 question are: do you still expect to release top-line data from the program before year end, and should we also be looking for submission this year or next year, assuming positive results?

I think we're feeling pretty good right now about where we are in the overall LAMA/LABA program and the guidance we gave again, is that all the results will be in here by the end of the year. What we'll have to see the specific timing on all of that is it feels like a stretch to have a filing this year on that program, but again, we'll see where we are as we get a little closer to the finish line. But it's a pretty comprehensive program, there are 7 studies in total that we've talked about forming part of the IIIa study, and really, obviously it's the last one of those to finish that will determine the ultimate timing of filing, et cetera. With regard to price per day for PuMA, I'm not sure we've given any pricing guidance out there where this might come in. I think, really, at this point what we're trying to do with this program is ensure that we have the most efficacious product out there that really essentially restores patients to normal bowel function. And we'll have that data coming up, as we mentioned in the call, in the next couple of months, but I'm not sure I would get really ahead of ourselves with regard to pricing on that at this point in time.

I would agree. I think our program is really designed for the patient, if they're on opioid therapy, to take a peripheral mu antagonist every day such that they never run into a situation where they have opioid-induced constipation, or if they have it, it's relieved relatively quickly and it doesn't return. Other programs from other companies may have different objectives and those different objectives may in fact have an influence on a different pricing strategy. But Mike's right, we'd like to get the Phase IIb under our belt. Hopefully the data will be favorable and then look forward to designing a Phase III program that really brings out the benefit of returning these patients to normal bowel function.

Our next question comes from David Friedman, Morgan Stanley.

This is Sara filling in for Dave. I just had a question around U.S. asthma. It sounds like filing there is still uncertain and I'm just wondering if you can give any color or some of your thoughts around what else you might need for U.S. asthma filing?

Yes, I think we really can't give any additional color right now. Right now, as was stated in the press release, we're reviewing our U.S. asthma filing strategy with GSK and after that review is done, I'm certain we'll be back with future plans for submission. So that's really all we can say right now.

Sara, I would just add one thing, which is there's been no change in our public disclosure around this at all and if you recall the disclosure we had previously was that we were moving forward with asthma and COPD outside the U.S. and COPD inside the U.S. and the plan was to have our filings starting around the middle of this year. So all of that is on track today, and that we're still looking at the strategy around asthma. So again, I would say there's really no change in regards to our external communications on that. But overall, I think we continue to feel good about the programs and where they are and are looking forward to getting the filings in.

Our next question comes from Jonathan Eckard from Leerink Swann.

So I was just going to ask about LABA/LAMA programs. Could you give us an idea of what the regulatory requirements are for such a combination? Are they similar to a steroid in LAMA where both components need to be superior, or the combination needs to be superior than both the agents? And if that is the case, what population of COPD is this most likely to be shown with 2 agents that are both bronchodilators?

I think the FDA combination guidance is probably the best place to look which is that it's largely similar for LAMA/LABA as it is for LABA/ICS. I don't know that it's identical, but I think the top level guidance certainly holds. That being said, I think we have a program that meets this guidance should they come out to be successful. I'm not sure that I want to get too deep into which population is most likely to show a benefit on here. I think it's probably relevant to talk about where this product potentially could fit, which is for patients who need better bronchodilation. I think our view is that 2 bronchodilators are likely to show better bronchodilation than a single one, so that's really the population that potentially could be helped by this. But with regard to who could theoretically show the best benefit in regard to clinical studies, I'm not sure I would go out on that. Rick, any thoughts?

No, but I think Mike sort of hit on it. There's a large number of patients with COPD that would benefit from a greater level of bronchodilation. A large percentage of patients who are on current long-acting muscarinic antagonist that's on the market still report periods of breathlessness such that a product that has 2 mechanisms hopefully will be able to overcome that. So I think we broadly believe that the LAMA/LABA program could benefit a large segment of the COPD population and I would direct you to the 2011 issuance of the Gold Guidelines and sort of the 4 broad different categories that are in there, that where patients might benefit from a combination of bronchodilator therapy.

Let me add just one final thought on there. I think there's a couple of things to think about in the U.S. One is the combination guidance, I would want to point out that the FDA does like to see, we believe, fairly extensive dose ranging work, which we have done, and they are also interested in the once a day, twice a day studies if you're going to go down a path of a once a day medicine. We believe that, that portion of the program has been successful so far. So there are a couple of different pieces, the once a day, twice a day, pretty big dose ranging studies and then the combination rule, probably are the relevant things to think about with regard to what ultimately is approvable. Once final piece is I think there is a slight misnomer sometimes that's used in this market of the lowest efficacious dose. I think probably the right way to think about this is sort of optimum dose, and as a result I think we have what are the optimum doses identified today. GSK had mentioned a similar level of confidence during their call the other day.

As you were indicating earlier for PuMA, it seems like different companies can take different approaches with this kind of class of agents. Is there a data set or a trial that you would point to that would be the hurdle that you would use as the hurdle for your Phase II data? Something that people are going to be stacking this Phase II data up against?

I think if you look at our Phase IIa program, the response rates that we saw in complete spontaneous bowel movements responder rates were -- I'm not sure that anybody has had a higher responder rate by that metric than 1211 had in their Phase IIa programs –- that we had in our Phase IIa programs. So, I think clearly, what we're trying to achieve a level of efficacy in our Phase IIb program that's really somewhere between the 5 and 10 milligram responder rate that we saw in that Phase IIa program and I think if we were to see that, we would be pretty enthusiastic about the potential for 1211 being a best in class peripheral mu antagonist.

[Operator Instructions] Our next question comes from Stephen Willey from Stifel, Nicolaus.

Just quickly on 081, the MABA, is there any update with respect to, in terms of the clarification of timing around when a no-go decision on that gets made? And once that decision is made, will we, I guess at that point, know whether or not this will or will not be moved forward as either a single agent and/or in combination?

I think we remain pretty excited about MABA, based on the Phase IIb data that we released earlier this year. The efficacy and tolerability data of 081 in that Phase IIb study showed that it could be dosed probably either once-daily or twice-daily in patients with moderate to severe COPD. I would expect that we will be completing the Phase III-enabling program over the next few months and hopefully we'll have a decision on progression before the end of the year, before the end of 2012.

Can you just remind us what that Phase III-enabling final study looks like at this point?

These are just a series of non-clinical studies that we do classically with GSK in the respiratory programs prior to advancement of the program into Phase III.

Just to follow up on the Salford Lung study. How large is that study? And then presumably, I'm guessing that is something that you would have results from within the next 15 to 18 months, because I would imagine that would probably provide some important information into the reimbursement and pricing discussions you're going to be having ongoing, hopefully, maybe in Europe?

Stephen, I don't have the exact number here, but my recollection is it is in the 4,000 to 5,000 patient range. But again, I don't believe we've given any guidance on when the study will read out at this particular point in time.

It appears that we have no further questions at this time. I would like to turn the conference back over to Mr. Winningham.

Thank you very much. I appreciate everyone joining us this afternoon on the call. Again, we look forward to a very exciting and event-filled remainder of 2012 and we look forward to updating you on our future progress in the upcoming calls. Have a good day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.