Theravance Biopharma, Inc. (TBPH) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. At this time, I like to welcome everyone to the Theravance Biopharma Conference Call. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks. [Operator Instructions] Today's conference call is being recorded. And now, I'd like to turn the call over to Renee Gala, Chief Financial Officer. Please go ahead.

Good afternoon, everyone and thank you for joining our Second Quarter 2016 Financial Results Conference Call and Webcast. With me on the call today are Rick Winningham, our Chief Executive Officer; and Brett Haumann, Senior Vice President, Clinical Development and Chief Medical Officer, who will provide an update on our priority programs and review anticipated upcoming key clinical and regulatory milestones. I will discuss our financial results for the quarter and then we will open up the call for questions. A copy of the press release can be downloaded from our Web site or you can call Investor Relations at 650-808-4045 and we'll be happy to assist you. We'd like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance Biopharma. Forward-looking statements include anticipated results and other statements regarding the company's goals, expectations, strategies and beliefs. These statements are based upon the information available to the company today and Theravance Biopharma assumes no obligation to update these statements as 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 and other filings with the Securities and Exchange Commission. And now, I'd like to hand the call over to Rick Winningham. Rick?

Thanks, Renee. Good afternoon, everyone and thank you for joining us. As we anticipated, 2016 is unfolding as a pivotal year in Theravance Biopharma's growth and development. We are delivering on our goals and milestones, our priority programs are advancing as planned and our performance is on track for the year. We reported positive Phase 1 results for TD-1473, our oral GI targeted pan-JAK Inhibitor joined favorable safety and tolerability of single and multiple ascending oral doses and achieving our target pharmacokinetic profile. We look forward to the important milestone of initiating Phase 1b in patients with active Ulcerative Colitis later this year. We reported positive results including evidence of target engagement, low renal clearance for a single ascending dose study of our next generation NEP Inhibitor TD-714 and expect to complete the multiple ascending dose study later this year. These data advance our efforts to develop a potential best-in-class therapeutic with a differentiating feature of non-renal clearance for cardiovascular and renal diseases. We completed enrollment in three large Phase 3 studies, however, Revefenacin and COPD enrolling a total of more than 2,300 patients in approximately 8 months. The replicate efficacy studies are expected to read-out in the early fourth quarter of this year to be followed by the long-term safety study read-out and planned NDA filing in 2017. We continue to make good progress, implementing our commercial and label expansion strategies for VIBATIV as evidenced by our strong second quarter sales. We have a growing pipeline of partnered assets, which along with our economic interest and certain respiratory programs being developed by GSK and Aviva represent valuable near and mid-term opportunities for our company. Last month, GSK and Aviva announced top positive, top line results from the pivotal Phase 3 FULFIL study of the Closed Triple in COPD patients, in addition to the acceleration of the U.S. regulatory filing from 2018 to 2016. With those strong cash position, maturing product portfolio and full slate of upcoming milestones, we are building a strong foundation to develop differentiated therapies for patients with serious illness and to create value for shareholders. From our mid-year vantage point and looking ahead to the second half of 2016 and beyond, we believe we are delivering an impressive line-up of accomplishments including key clinical and regulatory milestones are continuing to build significant long-term value in our company. I now like to turn the call over Brett, who will provide some additional color on our priority programs.

Thanks Rick. I will start with TD-1473, our oral pan-JAK Inhibitor specifically designed for targeted delivery to the gastrointestinal tract for the treatment of inflammatory bowel diseases including ulcerative colitis, a debilitating disease of the lining of the colon that affects roughly 700,000 patients in the U.S. each year. Our goal is to develop a treatment option for UC and other GI diseases with a highly favorable therapeutic index and a clinically meaningful benefit for this differentiated from currently approved and investigational therapy. These include injectable biologicals such as anti-TNF and integrin inhibitors as well as oral medications such as Tofacitinib and oral JAK inhibitor. These systemically active therapies have shown varying degrees of efficacy in UC, but carry the risk of systemic immune suppression, which can lead to serious side effects including infection and tumors that limit their long time use in patients. Our vision for 1473 was to create a drug candidate that could represent a radical change and approach to the treatment of inflammatory bowel disease such as UC not just an incremental improvement of the current approaches. 1473 was purposefully designed for targeted delivery to colonic enclosure where it can act to reduce disease activity at the relevant size of information without being released into the systemic circulation for any significant degree. This targeted approach is one we've employed for many years in the development of inhaled medications of the treatment of diseases of the lung. We designed 1473 to be an orally available small molecule that has an optimized solubility and permeability profile to ensure slow and limited absorption throughout the full length of the intestine. In addition, it has the right dynamics and kinetics to block the immune response at the site of inflammation in the colon with very little systemic exposure, so that the risk of systemic side effects can minimize. In June, we hosted a key opinion leader event for the investment community based on the current standard of care for UC and GI diseases, JAK inhibitor has a class and 1473 is differentiated product profile and potential utility as a targeted local therapeutic option. Preclinical in vitro and x-vivo data showed the 1473 is present in the colon including in the inflamed colonic wall and is having anti-inflammatory effect in the cells of interest. Our in vivo preclinical model have demonstrated the 1473 reducive disease activity to a level that it at least as good as Tofacitinib, but without the associated immuno-suppression. At this event, we reported results from our recently completed Phase 1 program showing that 1473 meta target PK profile with favorable safety and tolerability to support progression of 1473 to a Phase 1Ib trial in patients with UC. The totality of the data generated in the program to-date validate our strategy of targeting JAK inhibition in the affected tissue within the intestine tract in order to achieve designed therapeutic results. While at the same time, minimizing the risk of systemic effects such as immuno-suppression. We believe the 1473 represents a potential breakthrough approach to treating Ulcerative Colitis including the potential to be used in patients earlier in the cause of that disease ahead of injectable biological agents. Later this year, we plan to initiate our Phase 1b dose ranging trial, which will be the first time 1473 will be administered to Ulcerative Colitis patients. This study should yield important additional safety and disease activity data and we are excited to embark upon this important milestone in our efforts to develop a treatment for Ulcerative Colitis and other inflammatory bowel diseases. I would now like to turn to discuss our NIP inhibitor program where our goal is to develop a medicine that has [full of] [ph] potential to be combined with complementary mechanisms to treat chronic heart failure and other serious cardiac and renal diseases. TD-0714 is the most advanced compound in our NIP inhibitor program. Last quarter, we reported favorable safety, PK and biomarker data from the Phase 1 single ascending dose study of 714 in healthy volunteers. This study met our target product profile of sustained 24-hour target engagement based on elevated cyclic GMP, favorable safety and tolerability and non-renal clearance. The finding of non-renal clearance is especially important because a significant number of patients with cardiac and renal disease who may benefit from NIP inhibition, or could have compromised renal function and drugs that relisted such as NEP inhibitor in Entresto have the potential to accumulate increase in the risk of unwanted side effects and/or requiring dose adjustment. Our Phase 1 multiple ascending dose study of 714 in healthy volunteers is ongoing and is schedule to relaunch in the second half of this year. We believe that our NEP inhibitor program has the potential for broader applicability beyond chronic heart failure. But, as the potential to be combined with a range of other mechanisms that may offer advantages over Entresto including once daily dosing by a oral or intravenous root, sustained 24-hour target engagement and importantly non-renal clearance. Achieving non-renal clearance may enable our NEP inhibitor to treat chronic heart failure in a broad range of renally compromised patients without those adjustments as well as in patients with acute heart failure and chronic kidney disease including diabetic nephropathy. A product with this target profile could represent a major advance in treating these diseases. Now turning to our late stage pipeline, the Phase 3 program for Revefenacin our investigational nebulized once daily Long-Acting Muscarinic Antagonist or LAMA for the treatment of COPD has progressed rapidly. We completed enrollment across all three pivotal Phase 3 studies successfully enrolling more than 2,300 patients in just over 200 U.S. clinical sites over an eight month period. The next key milestone will be the rebound from our replicate Phase 3 efficacy studies anticipated early in the fourth quarter of 2016. This will be followed by relaunch of the 12-month safety study slated for completion in 2017. Assuming positive outcome from all three studies we plan to file an NDA for Revefenacin next year. We and our partner Mylan also working together in earnest on the detailed commercial planning for Revefenacin. We believe that there is a large commercial opportunity for Revefenacin as the first once daily nebulized bronchodilator for COPD with an opportunity to become a standard of care in this market segment. Patients who require or prefer nebulized therapy because they may not be able to receive adequate bronchodilation with a handheld device did not currently have any once daily therapeutic option. We believe this COPD patient population is large and underserved encompassing the 9% of COPD patients who use nebulizers for ongoing maintenance therapy and the approximately 41% of COPD patients who use nebulizers intermittently for bronchodilator therapy. We're especially interested and excited by the prospect of co-promoting Revefenacin with Mylan as it aligns well with our commercial focus, capabilities and expertise in the acute care market segments where our sales reps are experienced in calling on pulmonologist and respiratory care physicians for VIBATIV. There are about 800,000 patients admitted each year to U.S. hospitals for worsening of their COPD, about half of these patients leave the hospital with the prescription for nebulized therapy. This is important because having an established commercial presence in and around acute care centers gives us the opportunity to target large and addressable patient populations at pivotal time starting in the hospital and expanding into the outpatient treatment setting. Now, I'd like to turn the call back to Rick.

Thanks Brett. Turning to VIBATIV, we continue to make good progress in implementing our commercial strategy. Net sales were strong in the second quarter approximately 62% higher than the prior quarter. We're pleased to see that we're gaining traction in all target to acute care settings including the hospital and outpatient settings and in fusion centers, which can serve as an important site of care post discharge. Label expansion remains a key strategy for VIBATIV with the goal of optimizing the product's commercial potential. Our 250 patient Phase 3 registrational study and primary Bacteremia is ongoing and expected to complete in 2018. If successful, we would have the only brand of antibiotic, the improver for complicated skin and skin structure infections, hospital acquired ventilator-associated pneumonia and Bacteremia, pretty difficult to treat infections. This broad label could represent a key competitive advantage for VIBATIV as these infections can present at the same time. Furthermore, as we noted last quarter the VIBATIV label now include stated describing the treatment of patients with concurrent Bacteremia in both complicated skin and skin structure infections as well as HAP/VAP. Finally, our TOUR registry program, which has involved approximately 350 patients to-date is progressing well and generating useful data on additional potential indications for VIBATIV. So we look forward to sharing those data at a scientific and medical conference -- scientific and medical conferences later this year. This broad and growing collection of data supports our position that VIBATIV is a key therapeutic option for patients in the indications for which it is approved, in particular when Vancomycin and other therapies are not suitable. VIBATIV is a valuable asset for our company and it's a cornerstone of our acute care business strategy we look forward to continuing to expand its utilization in the marketplace. Now, I'd like to turn the call over to Renee to provide a financial update.

Thank you, Rick. Revenue for the second quarter of 2016 was $5.5 million primarily due to U.S. net product sales of VIBATIV of $5.4 million. This amount represents a $3.3 million increase in U.S. net product sales compared to the same period in 2015. The increase in sales is principally due to the expansion of our VIBATIV sales infrastructure, which was complete by the beginning of the fourth quarter of 2015. As a reminder, our second quarter revenue excludes the $15 million upfront payment from Takeda Pharmaceuticals associated with the TD-8954 license agreement announced in the second quarter. This transaction received HSR clearance in the third quarter thus we expect to recognize and receive a $15 million payment from Takeda in Q3. Research and development expenses for the second quarter of 2016 were $32.1 million representing an increase of $1.7 million compared to the same period in 2015. The increase is primarily attributed to cost associated with the progression of our priority program. Total R&D expenses for the quarter included $5 million in non-cash share based compensation expense. Selling, general and administrative expenses for the second quarter of 2016 were $20.3 million representing a decrease of $1.3 million compared to the same period in 2015. The decrease is largely driven by lower cost associated with share based compensation expenses. SG&A expense for the quarter included $4.9 million in non-cash share based compensation expense. Cash, cash equivalents and marketable securities as of June 30, 2016, totaled $302 million. The quarter end cash balance excludes both $35.1 million in receivables from collaborative arrangements largely related to our Mylan collaboration and the $15 million licensing payment from Takeda. Our financial guidance for 2016 remains unchanged from the guidance communicated in the last quarterly call. In 2016, we expect to incur a full year operating loss excluding share based compensation in the range of $120 million to $130 million. With the cash balance of just over $300 million including proceeds from our recent public offering we are well capitalized going into the second half of 2016. Now, I'd like to turn the call back over to Rick.

Thanks Renee. I began my comments by saying that 2016 is unfolding as a pivotal year for Theravance Biopharma. We believe that our priority programs represent valuable and differentiated product opportunities with the potential to have a meaningful impact on patient's lives and change how serious disease are treated. These programs are expected to generate potentially transformative milestones over the next six to 18 months strengthening our ability to generate value for patients and shareholders. Our pipeline of priority programs is augmented by a portfolio of partnered or partnerable assets with meaningful financial importance to our company. Including TD-8954, which was recently licensed by Takeda is advancing in internal feeding and tolerance or EFI, TD-9855 which is showing promise in fibromyalgia for which we are exploring utility in neurogenic orthostatic hypotension or NOH. Velusetrag in a Phase 2b study for gastroparesis, which is largely funded by our partner Alfa Wassermann and for which we retained full rights in the United States and our economic interest in certain respiratory assets being developed by GSK and Innoviva including the Closed Triple, should the Closed Triple be successfully developed and commercialized, we are entitled to receive 85% of the royalties ranging from 6.5% to 10% on GSK's worldwide net sales. Additionally, GSK is responsible for all development cost related to the Closed Triple with no cost being born by Theravance Biopharma. If approved the Closed Triple could provide a meaningful revenue stream for our company. In discussing the market opportunity for the Closed Triple, GSK noted in their second quarter call that roughly one third of COPD patients are already utilizing open triple therapy. Given the progressive nature of COPD patients will need access over time to more effective therapies. In May, GSK reported the results from the Salford lung study a ground breaking Phase 3 real world affecting this trail and COPD exacerbations which were strongly supportive of the benefits of once daily therapy taken together these indicators point to a significant market potential for a first in class once daily Closed Triple especially if GSK is successful in establishing the Close Triple as they intend as the triple of choice. The richness of our overall pipeline including programs that we are advancing internally know that we have licensed externally is a testament to the value of having a robust R&D engine. This engine enables us to prioritize programs and how we invest in them versus how we leverage partners to ensure the optimal level of resource allocation and to identify the right indication, the right development commercial strategies and the right way to create the most value for patients and shareholders. Looking ahead, the key clinical and regulatory milestones that we expect to drive value in the company are as follows; completion of our Phase 1 MAD study for 714 in 2016; completion of the two Phase 3 efficacy studies for Revefenacin in 2016; completion of the long-term safety study for Revefenacin in 2017 with a planned NDA filing before the end of 2017; completion of our Phase 1b trial for 1473 and UC patients in 2017; expected EU and U.S. regulatory filings for the Closed Triple by GSK in 2016; completion of the Phase 2b study of velusetrag and gastroparesis in 2017; and completion of the Phase 3 registrational study of VIBATIV and Bacteremia in 2018. In summary, we believe we have a great company with products that can improve outcomes for patients and that represents a unique and compelling opportunity for shareholders. Now, I'd like to turn the call over to the operator for questions.

Thank you, sir. [Operator Instructions] We'll have our first question from Geoffrey Porges [Leerink Swann].

Hi. This is Geoff Porges. Hi, Rick, how are you? Congratulations on the quarter.

Thank you, Geoff.

Couple of questions if I may, first on VIBATIV, a nice trend there, could you give us a little color about whether there are any one-time items that contributed or whether -- and whether this trend looks to be sustainable, do you think that there is additional mileage that you can get out of the sales force? And then, on the JAK Inhibitor, could you talk a little bit more about what do you take away from the recent Xeljanz disclosure on UC, how the study backed your thoughts about the prospects of 1473? Thanks.

Great. So, I'll address the VIBATIV question and then both Brett and I will address the Xeljanz question. So I think we're seeing a nice trend with VIBATIV sales in the market we're clearly expanding the number of accounts that are ordering VIBATIV. What we have seen since we began the introduction of VIBATIV is once that you -- once that a physician uses VIBATIV in a difficult to treat patient they use it again and this is quite out in territory after territory, physician after physician. So I think that we actually are just beginning to get the mileage out of the sales force. We had 50 reps onboard at the beginning of the fourth quarter last year. And now, we're sort of nine months -- we're nine months into that with people in the appropriate territories, appropriate calls being made et cetera. And of course, this is an institutionally based product, so let's not, as if one call results in one sale. But multiple calls need to be made in formularies have to be -- we have to have formulary successes and the outpatient market is very successful. So I would say we are very encouraged by the VIBATIV growth to-date. We believe that there is significant additional mileage that we can get out of the sales force and a bright future for the product. And I would just close out on the VIBATIV sales force in the acute care organization. We do believe that the acute care organization that we have is -- will be very important to the success of Revefenacin when we get to the point of launching that product. Now, in Xeljanz; in Xeljanz is a JAK Inhibitor being developed by Pfizer for ulcerative colitis already approved for RA and Xeljanz is a more typical, I would say approach to the treatment which is an orally absorbed product that is delivered in the disease tissue through the circulatory system. Clearly, it looks as if the Phase 3 program has been a success, but we do believe that we're developing 1473 in a manner that can be substantially differentiated from Xeljanz as well as any other oral or injectable medicine, I'd like Brett to expand on that.

Thanks Rick. Let me add to that, I think on the one hand, we like to thank the Xeljanz or Tofacitinib discharges a proof of principle or a proof of mechanism in establishing the JAK inhibition does work in ulcerative colitis. Unfortunately, though Tofacitinib wasn't designed to treat ulcerative colitis by first intend. The primary focus was initially on organ transplantation and then more laterally in rheumatoid arthritis. And so the design principles where to get as much of the drug into the systematic circulation and in doing so treatment to rheumatoid arthritis unfortunately that brings some systemic liabilities particularly immunosuppression which leads to an increased risk of both opportunistic infections and reduces things available increasing risk of opportunistic tumors as well. So if you were going to design a product that explicitly benefits JAK inhibition, but target just the chronic mucosa, you would take [indiscernible] rather than a systemic one. We've been able to limit the exposure and the penetration of our JAK inhibitor exposing all of the therapeutic benefits, but not getting systemic effects that may limit the opportunity in Tofa. In fact, if you look at the Phase 2 data Tofacitinib, there was greater efficacy seen even with 15 milligram dose than with 10, but 10 going forward into their Phase 3 program. We think that's probably at least in class of the fact that the 15 milligram dose was way more efficacious carried a greater degree of risk. Now, if we were able to limit our exposure, we may well be able to exploit this opportunity and see even greater efficacy with 1473 and with historically seeing a Tofa and with a much more benign safety profile as well.

So Brett, can I just follow-up and ask you, could you remind us of the spectrum of JAK primary inhibition for Tofa compared to 1473?

So, great question, Jeff. Although the Xeljanz's product Tofacitinib is described as a pan-JAK inhibitor, its potency is predominantly against JAK 1 and 3. In contrast our product 1473 has true pan-JAK inhibition that demonstrates much higher degree of potency particularly for [Tek-2] [ph] than Tofacitinib does. That may have relevance and considering the potential utility of 1473 beyond ulcerative colitis in current disease [Tek-2] [ph] may have a more important function. And if we look at products like Stelara, which inhibit for 12 and 23 they play on [Tek-2] [ph] in a demonstrated utility in Crohn. So we may actually being able to see benefits with 1473 that exploit that potential benefits where Tofacitinib has not been able to demonstrate the greater efficacy in current disease as they have in UC.

Great. Thanks very much.

Thank you. Our next question comes from Louise Chen of Guggenheim. Your question please.

Louise, are you there?

Hi, sorry. We're on mute. Hi, this is [Anna] [ph] on for Louise. Thanks for taking the questions and congratulations on the quarter. Could you give us some more color on your partnership with Mylan for Revefenacin specifically the commercial planning that you mentioned earlier on the call? And then also just generally your thoughts on the market opportunity and your economics for that product? And then secondly, how should we think about the $200 million and $400 million peak sales potential for VIBATIV? And what do you think differentiates VIBATIV from its competitors? Thank you.

Sure. So I'll take the VIBATIV question first and then try to -- over to Renee and Brett for Mylan. Well, VIBATIV, the differentiating features for VIBATIV biologically or its deal mechanism of action against cell wall and cell membrane of Staph Aureus and then particular MRSA leading to a very potent program that's bactericidal and has terrific tissue penetration so it works in difficult to treat infections. The label is certainly in terms of the indication is a benefit of having complicated skin as well, as well as HAP/VAP, and now having added to that the cases of concurrent bacteremia that were found in both the skin and HAP/VAP clinical studies. So, I think the -- while those provide a nice opportunity clearly the bacteremia Phase 3 -- registrational Phase 3 study would round this out quite nicely and having a product that could be used in a serious of infections that clinicians in the United States and in fact all around the world face that or in many instances lethal to the patient or in fact cause risk of loss of an extremity. So, I think the core biological characteristics of VIBATIV or what provide its advantage and deliver on its efficacy. So relative to Mylan, this is a very important partnership with us. It's a 65:35 profit share and to expand on the characteristics of the partnership, I will turn over to Renee and then will give it over to Brett to further elucidate.

Thanks Rick. So the way that the partnership works as Rick had mentioned, it's a 65:35 percent profit share with Mylan receiving 65% and our company receiving 35%. In addition to the profit share, we are running the development of the program Mylan pays for a 100% of the internal and 100% of the external cost that we incur as part of Phase III development. We also have the ability to earn up to $220 million in milestones on the program. We have earned $15 million of that earlier this year based on enrolling 50% of the long-term safety study. For outside the U.S. sales, excluding China, which we still have the rights to -- we receive double-digit royalty on those sales that they would be leading the commercialization outside the U.S. And then, going back to commercialization in the U.S., the 65:35 percent what is something that we came to because we felt as Rick had mentioned previously that our acute care focus sales force would be ideally positioned to be able to market Revefenacin in the U.S. You have about 800,000 patients that entered the hospital each year for exacerbations of COPD and about half of those patients leave the hospital on nebulized therapy. So the fact that, we are calling on pulmonologist and respiratory therapist already for the pneumonia indication with VIBATIV makes this an ideal sell for us in the U.S. And then, I will just let Brett further comment in terms of the work that we are doing with Mylan and commercialization.

So, I will combine that with the question you about the market opportunity. It may help just to very briefly describe the difference between this segment of the market and the handheld space. In the handheld space for COPD, patients are able to use a wide selection of different bronchodilators. And one of the dominant constant treatment in that segment has been tiotropium a long acting muscarinic antagonist that for many years have defined the cornerstone of primary therapy of these patients. Surprisingly though, in the nebulite space, this is really pretty served and in fact patients have not been able to access LAMA at all in the nebulite segment. The closest they get to are twice daily bronchodilator from the LAMA class or long acting beta agonist class. Of which, there are two, Brovana which is commercialized by Sunovion and Perforomist which is commercialized by our partner Mylan. So they know this space. They had been operating in this space with Perforomist for some years and that the market does exist. So you are asking about market opportunity the beta agonist have been able to establish this market does exist and is enduring. There is an enduring population of patients who require long-term maintenance bronchodilator. In fact, the combined sales across those beta agonist approaches about $600 million per year and that's in the phase of generic short acting agents being available. So this is a sustainable market and I guess one last point to add is that, the introduction of once-daily LAMA like our product Revefenacin would not necessarily displace the use of those beta agonist because there is the precedent of having complementary bronchodilated supply and that's seen in the hands of this. So we did believe that this market opportunity exist and we think that Mylan's existing activity to this segment certainly assist us that Renee as spoken to, we believe that being able to target the acute care setting which is an expertise we will bring to the table to further enhance the opportunity.

Thank you. It's very helpful.

Thank you. [Operator Instructions] Thank you. It appears we have no further questions in the phone. I would now like to turn the conference back to Mr. Winningham. Please go ahead, sir.

Thank you very much operator. I would like to thank everyone for participating in our call today. As I said, we are very excited about the remainder of 2016 as well as 2017 and we look forward to providing future updates for you on the progress of our company. Again, thanks for participating. Have a great day.

Thank you very much. Thank you everyone for attending today's conference. This concludes the program. You may all disconnect. Good day.