Ladies and gentlemen, good morning. At this time, I'd like to welcome everyone to the Theravance Biopharma Conference Call. [Operator Instructions]. Today's conference call is being recorded. And now I would like to turn the call over to Jessica Stitt, Vice President Finance and Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining our conference call and webcast to discuss our second quarter 2019 financial results and outlook. Joining us are Rick Winningham, Chief Executive Officer; Andrew Hindman, Chief Financial Officer; Brett Haumann, Chief Medical Officer; and Frank Pasqualone, Chief Commercial Operations Officer. Following some prepared remarks, we will open the call for questions. A copy of the press release and the slides accompanying this call can be downloaded from our website, or you can call Investor Relations at 650-808-4045, and we'll be happy to assist you. As always, I will remind you that this conference call will contain forward-looking statements, which involve certain risks and uncertainties, including statements about our product pipeline, expected benefits of our products, the anticipated timing of trial results and regulatory filings and expected financial results. Information concerning factors that could cause results to differ materially from our forward-looking statements is described further in the company's filings with the SEC. And now, I would direct your attention to Slide 3 and hand the call over to Rick.

Thanks, Jessica. Good morning, everyone, and thank you for joining us. 2019 is a critical year of progress that sets the stage for what we believe will be an extraordinary year of data-driven, value-creating milestones in 2020. Our key programs represent opportunities to create transformational medicines: TD-1473, our gut-selective pan-JAK inhibitor for inflammatory intestinal diseases partnered with Janssen; ampreloxetine, our once-daily norepinephrine reuptake inhibitor for symptomatic neurogenic orthostatic hypotension, or nOH; TD-8236, our lung-selective inhaled pan-JAK inhibitor for serious respiratory diseases; and YUPELRI, our recently launched once-daily nebulized long-acting muscarinic antagonist, or LAMA, approved for the maintenance treatment of COPD partnered with Mylan. Each of these programs has the potential to offer transformational value to patients, payers and healthcare providers. Our Phase 2b/3 study of 1473 in ulcerative colitis is actively enrolling, as is the Phase 2 study in Crohn's. Both studies should yield data in late 2020, which could potentially trigger a significant opt-in decision in payment from our partner Janssen. Our registrational Phase 3 program of ampreloxetine in symptomatic nOH is underway with data anticipated in the second half of 2020. Recently, we presented new data from our completed Phase 2 study of ampreloxetine in nOH at 2 leading medical congresses, indicating both the magnitude and durability of effect and the safety of ampreloxetine over 20 weeks of treatment in a small proof of concept study. Brett will discuss these data in more detail later in the call. Considering the well-known limitations of existing therapeutic options in nOH, we believe there's a compelling opportunity to provide patients with a potential medicine that may offer greater durability of effect and safety. Turning to our early stage pipeline, 8236 is progressing in a Phase 1 study in healthy volunteers and asthmatics. This study includes biomarker evaluation in patients with active…

Thanks, Rick. Starting on Slide 4, 1473 is our oral gut-selective pan-JAK inhibitor that's designed to treat inflammatory intestinal disease directly at the site of inflammation in an organ-selective manner with minimal systemic exposure or corresponding immunosuppressive effects. Our objective is to apply our organ-selective approach to the wall of the intestinal tract to enhance therapeutic index, providing greater efficacy and safety over conventional systemic therapies. As Rick noted, 1473 is now in 2 late stage studies: 1 in ulcerative colitis and the other in Crohn's disease. RHEA is a Phase 2b/3 study of 1473 in patients with moderately to severely active ulcerative colitis. The Phase 2b dose finding induction portion of the study assesses the effect of 8 weeks of treatment with 1473 on change from baseline in total Mayo score as the primary endpoint, as well as assessing rates of clinical response and remission, endoscopic mucosal healing and safety. Patients who successfully complete the Phase 2b indication portion of the study are immediately enrolled into the Phase 3 maintenance portion of the study, which assesses the ongoing efficacy and safety of 1473 for an additional 44 weeks. In parallel, DIONE is a Phase 2 12-week randomized, double-blind, placebo-controlled study designed to evaluate 1473's efficacy and safety in patients with Crohn's disease. The primary endpoint in this study is improvement of the Crohn's Disease Activity Index, or CDAI, measured at 12 weeks. Patients who complete the 12-week induction phase will continue into an active treatment extension phase where all patients receive open-label 1473 for up to 12 months to continue to collect safety data. We expect data from the Phase 2b portion of the ulcerative colitis study and the Phase 2 Crohn's disease study in late 2020. Turning to Slide 5, systemically active JAK inhibitors have been shown to…

Thanks, Brett, and good morning everyone. Starting with Slide 10, I'll provide an update on our launch activities for YUPELRI inhalation solution. The second quarter of 2019 represents the first full quarter of promotional activities across the Theravance Biopharma-Mylan alliance, and we continue to be pleased with customer acceptance and brand performance. YUPELRI is the first and only once-daily nebulized bronchodilator approved for the treatment of COPD in the U.S. that provides a full 24 hours of control for patients, having gained FDA approval at the end of last year for the maintenance treatment of patients with COPD. Turning to Slide 11, I'll remind you about our commercial strategy with Mylan. Our combined sales infrastructures target HCPs that treat the universe of appropriate patients for YUPELRI with COPD including physicians, mainly pulmonologists and hospitalists, pharmacists, respiratory therapists and other healthcare providers. The Theravance Biopharma focuses on the institutional setting where there are about 800,000 patients admitted each year to U.S. hospitals for worsening of their COPD. About half of those patients leave the hospital with a prescription for nebulized therapy. Having an established commercial presence in and around acute care centers gives us the opportunity to target and potentially convert large and addressable patient populations at pivotal times, starting in the hospital, and with our partner Mylan, expanding into the outpatient treatment setting. There are additional COPD patients that are routinely hospitalized for other conditions not relating to a worsening of their COPD symptoms, and these patients may represent an additional opportunity for treatment with YUPELRI. Turning to Slide 12, Theravance Biopharma is focusing on the hospital segment, a critical site of care for patients with worsening COPD symptoms. By targeting HCPs at key intersections in the patient's disease management process, our goal is to ensure appropriate patients have access…

Thank you, Frank. Let's begin my section on Slide 15. Revenue for the second quarter of 2019 was $26.2 million comprised of licensing revenue associated with the upfront from Mylan for rights to nebulized revefenacin in China and collaboration revenue primarily related to our global collaboration agreement with Janssen for 1473. Revenue for the second quarter of 2019 represents an increase of approximately $2.7 million over the same period in 2018. The increase in revenue resulted from the upfront from Mylan, which was partially offset by a decrease in product sales which resulted from the sale of VIBATIV to Cumberland Pharmaceuticals in late 2018 and a one-time opt-in payment received from Alfasigma for velusetrag, TD-5108, in the second quarter of 2018. R&D expenses for the second quarter of 2019 were $46.4 million, compared to $48.6 million in the same period in 2018. The decrease was primarily due to lower employee-related expenses due to the reduction in force announced in the first quarter of 2019, as well as a decrease in share-based compensation which were partially offset by an increase in external expenses related to the progression of our key programs. Second quarter 2019 R&D expenses include non-cash share-based compensation of $5.7 million. SG&A expenses for the second quarter of 2019 were $22.2 million, compared to $25 million in the same period in 2018. The decrease was primarily due to lower VIBATIV-related external expenses due to the sale of VIBATIV to Cumberland in late 2018, as well as a decrease in share-based compensation which was partially offset by higher collaboration expenses associated with the commercial launch of YUPELRI. Second quarter SG&A expenses include non-cash share-based compensation of $5.6 million. We ended the quarter in a well-capitalized position with approximately $396 million in cash, cash equivalents and marketable securities. In 2019 --…

Thanks, Andrew. We're excited that you've joined us as a valuable addition to the Theravance Biopharma team. Looking forward and as shown on Slide 17, execution against our key programs is driving us toward value-creating events for the near and long term, and important upcoming milestones include: further progression of our 1473 clinical program with data from the Phase 2b portion of ulcerative colitis and the Phase 2 Crohn's disease study planned for late 2020; progression of our Phase 3 registrational program for ampreloxetine with 4-week efficacy data anticipated in the second half of 2020; completing and reporting out our Phase 1 study of our lung-selective inhaled pan-JAK inhibitor, 8236, in September of 2019; continued advancement of our additional novel, organ-selective research programs towards the clinic; additional commercial metrics for YUPELRI in COPD as the launch progresses throughout 2019; and GSK's submission of a full Phase 3 data set of TRELEGY ELLIPTA in patients with asthma to regulators in the second half of 2019 in support of the asthma indication. We're pleased with our achievements this year, including maintenance of our strong capital position and the promising lineup of value-creating milestones that we anticipate over the next 12 to 18 months. This is an exciting time for Theravance Biopharma, and we appreciate the opportunity to share our progress with you. Now before I turn the call over to the operator for questions, I'll provide you with a brief update on our arbitration against Innoviva. In May 2019, we announced that we had initiated arbitration against Innoviva in connection with their failure to disburse certain royalties to Theravance Biopharma. Innoviva had caused Theravance Respiratory Company, LLC, or TRC LLC, to not make any distributions to Theravance Biopharma with respect to our 85% economic interest in TRC LLC for the quarter ended December 31, 2018. Those distributions were due March 31, 2019. Additionally, Innoviva stated that it intended to cause TRC LLC to withhold making further cash distributions through calendar year 2019. The arbitration hearing commenced on July 23, 2019. Resolution of the arbitration should occur in the third quarter of 2019. And now I'd like to turn the call back to the operator.

[Operator Instructions]. And our first question comes from Louise Chen from Cantor.

My first question here is what type of scientific evidence is there to support the use of inhaled JAKs to treat asthma? And when you report out data in September, what kind of metrics and biomarkers do you expect to report there? And then second question I had here is do you have any timing on the REDWOOD data readout? And last question is back on the Xeljanz black box warning that you talked about earlier in the call. Is there any way to quantify that opportunity to you and just in general physician concern about oral JAKs and even concern about selective oral JAKs? Thank you.

Brett, do you want to take 8236 and then the metrics?

Yes, absolutely. Hi, Louise. Thanks for your questions. So your first question was around the scientific evidence in support of inhaled JAK and what evidence we would demonstrate in September. We know that the mechanistic underpinnings that support pan-JAK inhibition are likely to have an effect across a series or a range of cytokines that trigger both Th2-high and Th2-low asthma. And although we didn't touch on them in this presentation, the slide that I showed lists a range of cytokines that are triggered in both Th2-high and Th2-low disease. And we think that because of the pan-JAK inhibitory elements that we're triggering, we should have an effect on both columns, on the Th2-high and the Th2-low elements. And that contrasts with the way in which inhaled corticosteroids work where predominately their effects are assigned against Th2-high type cytokines. So we believe that we'll be leaning into both of those elements. It's why we think we may be able to benefit a range of patients regardless of their Th2 status, and why in fact we may see some benefits even in those patients who've been treated with steroids and not had full response in the past. One of the key biomarkers we'll be looking at in the readout in September is exhaled nitric oxide. And this historically has been used both as a marker of the severity of disease, as well as a marker of how well patients respond to treatment. So, exhaled nitric oxide is very easily measured in the breath of patients with asthma. It's high, elevated in patients with active disease, and it responds reasonably well to effective anti-inflammatory therapy. Historically patients who are Th2-high and exhale nitric oxide in increased levels have a response, and for example when they take steroids, you see a reduction in their nitric oxide. So that'll be a key point of focus for us. But without giving it all away, we'll also be looking at some other biomarkers and we'll be describing those when the data comes out in September. Certainly NO will be one of the most important ones. You asked about REDWOOD and the readout on that study. We are feeding patients from the SEQUOIA study into REDWOOD, as well as recruiting new patients to supplement those patients. They'll continue to be in the REDWOOD study for longer than in SEQUOIA. As you may recall, REDWOOD is an open-label study for 4 months before patients go into this randomized withdrawal for 6 weeks. So our expectation would be to have a slightly longer execution period or conduct period for that study. At this stage, we're not giving a descriptor on exactly when that study will read out only because we're in an active enrollment phase. So we look forward to updating you on how that continues to enroll, and I think we'll be able to point to the readout on that study with a bit more clarity as this year progresses.

And then Louise's final question was just a question on Xeljanz, the important labeling change that occurred last week, and generally the perspective on oral JAK inhibitors. I'll start with just a couple of comments. Obviously, the primary reason that we began work several years ago in the organ-selective area and initially designing JAK inhibitors to be organ-selective for both the gut and the lung was because that we believed that the full benefit of the JAK mechanism could not be utilized through a systemic delivery. And if we could get -- design the JAK inhibitors that could go into the tissues of interest directly, and in fact then be absorbed and broken down in the bloodstream and cleared quickly, that we would spare the patient from the systemic immune suppression, as well as other potential effects of circulating JAK inhibitors. And I think that's what one of the issues that has arisen with Xeljanz. And in fact, we would expect that it would be likely that issues, similar issues, perhaps not the same but similar issues would in fact affect every systemic JAK inhibitor that's developed because the dosing, it's a careful balance between the dosing that achieves efficacy and then a dosing that in fact triggers untoward effect. I'll let Brett expand on my answer.

Yes. Perhaps just one point to add, Louise, and in fact, we show it on Slide 5. I'll remind you that during the tofacitinib development program, their Phase 2 data showed that as the dose was increased from 3 to 10 and then to 15 that there was evidence of increased benefit to patients, particularly on their clinical response to treatment in ulcerative colitis. So on one hand, systemic JAK inhibitors have been shown to increase efficacy as the dose is pushed up. But unfortunately, as history is now showing, the 15 milligram dose was not able to be supported in Phase 3, and now the 10 milligram dose is not supported for induction in the commercial arena without some very clear caveats and warnings. And really what this is conveying is a reduction in the therapeutic index for these systemic drugs that by design were actually not designed to treat ulcerative colitis. They were designed originally for organ transplant rejection and then for the treatment of rheumatoid arthritis. So they were deliberately designed to get into the systemic circulation. By contrast, our drug does not. By design, it is limited to the organ of interest. It is deliberately focused on the intestinal wall. And we think this actually validates the approach that we are taking. We'll obviously continue to remain vigilant in our own development program, but we do believe we have a very distinct and separate therapeutic index from tofacitinib.

Our next question comes from Tyler Van Buren from Piper Jaffray.

Just wanted to follow up on Louise's question on the 8236 with respect to the readout in September. And specifically on pheno [ph], I see on clinicaltrials.gov that there's a 4-day SAD study and then a 9-day MAD study. And so will we get data from both of those, or what data will we get at what time point will the pheno be? And what's the bar for pheno reduction that if you could remind us that we would typically see with effective therapies, and therefore, what sort of reduction would you hope to see or would be impressive?

Just clarity on the design of that study. The single ascending dose portion was done in healthy volunteers whose exhaled nitric oxide would be within normal limits; less than 15 parts per billion. And so we don't tend to focus on NO in patients with -- in healthy volunteers. The advantage, though, that we really wanted to lean in on was that having assessed single doses in healthy volunteers, we moved immediately to repeat dose administration in patients with active asthma. And in doing so, we're able to gauge a number of things. One is safety. We tend to move quite quickly with our inhaled products into patients with the disease to make sure that the drug is not causing a paradoxical bronchial constriction. In other words, an unexpected bronchial spasm. And we look at that fairly routinely and quite early on. But of course one of the advantages in looking at this patient population is that their nitric oxide is elevated, and so we're able to look also at a reduction in that level. The patients that we were looking to enroll were coming in with levels above 20 to 25 parts per billion. So really marking them as having active disease. And without prejudging the readout, of course, what we're looking to do is demonstrate a return into the normal zone for these patients. A reduction below what they came in with and ideally down to 15 parts per billion or less as a marker of normalization of that inflammation. And so those will be elements that we'll obviously want to evaluate and describe what we read this data out.

That's very helpful clarification. Thank you. And on the next one is on ampreloxetine. It's helpful to see that chart in the deck of OHSA and OHDAS. As we think about the SEQUOIA trial, what -- can you just go over the powering for the primary endpoint and what we need to see so we can judge that based upon what we've seen with the existing data? And then also, is there a possibility, just given the very limited demonstrated efficacy with the treatments on market, is there a possibility that you guys could file after you get that SEQUOIA data and prior to the REDWOOD data and potentially update the filing once you get the REDWOOD data? Thank you.

First to the powering and the description of the SEQUOIA study. This is a study run over four weeks' duration with the support and buy-in of the FDA on the design. The study is powered to look at OHSA Question #1, dizziness, which is the sentinel or most critical endpoint that the FDA has previously ruled on, actually, in approval of droxidopa, another product that's used for nOH. nOH patients currently use droxidopa. Unfortunately, the data to support droxidopa's use is not any limited, but demonstrates that efficacy is lost after about a week's worth of treatment. And in fact, even the label for droxidopa reports that evidence has not been shown in clinical studies beyond two weeks. And so our study of four weeks' duration is felt to be important because it may be able to demonstrate sustained benefits for patients beyond what's currently available to them through droxi, for example. So we are powered to look at improvements in OHSA Question #1. There are 94 patients per arm in this 188 patient study. So we have equal randomization to the 10 milligram dose of ampreloxetine or matched placebo. We're looking to see at least a 1 point difference between placebo and active in that study. As I've reported in the prior Phase 2 study, we saw significantly greater than that in the symptomatic patients. And indeed, the way in which we define symptomatic patients is the way in which we're enrolling them into the SEQUOIA study. They must have a minimum score of OHSA 1 of 4 or more out of 11. It's a 0 to 10 scale, and these patients must have a minimum symptomatology coming into the study. If we saw an improvement of 1 point or more, then our pairing would suggest that we see improvements. Actually the evidence that I've shown you from the prior study shows a much greater magnitude at four weeks. Around 3.8, almost 4 points improvement. Your second question was around the filing order. It's a good question. I think we are currently evaluating and working with the FDA on how compelling the evidence base would be. But certainly if we see compelling evidence from the SEQUOIA study even prior to the readout of REDWOOD, we would want to engage the regulators on that data.

Our next question comes from Geoffrey Porges from SVB Leerink.

First, just on the inhaled JAK, Brett, could you talk a little bit about when you might consider studying it in COPD in addition to asthma? Obviously, it would seem to be amenable. Could you describe the deployment of your pivotal trials for ampreloxetine, specifically how you're going in terms of ramping up study sites? And then just a cash question. Could you remind us of the cash obligations that you have for the balance of the year to the bondholders for the TRELEGY royalty, and then what the cumulative -- what your estimate of the cumulative unpaid cash is from Innoviva for that royalty obligation. Thanks.

Sure. Brett, you want to take the first set of questions and I'll--

Yes, of course. I'll take the first two questions. First your question around inhaled JAK and whether there's utility of using this in COPD. It's a great question, Geoff. There are about 1/3 of patients with COPD who have some evidence of underlying eosinophilia or a sensitivity to steroids. In fact, there's an emerging condition now called ACOS, or A-C-O, which is -- really just stands for asthma COPD overlap, and the S is syndrome. So, ACOS is now recognized as an emerging and important population of patients. Certainly, biologicals that have been historically preserved for asthma are now being considered for patients who may have increased eosinophilia and also have COPD. The most recent guidelines for the treatment of COPD recognized that steroids may actually have better efficacy in those patients whose blood eosinophilia is above a certain level. There is no reason to believe that inhaled JAK would not also work in those patients, particularly those patients who may be susceptible. We also recognize that patients with Th2-low disease, whose disease might be driven by neutrophils for example, may also be susceptible. And so I think it's a good question. It certainly is an opportunity that we'd like to explore in the future. You may know that steroids use in COPD is limited really by the risk of pneumonia as a sort of counter to the benefits. And so it'd be really important particularly if we see a favorable therapeutic index, a favorable safety profile to consider the use here. Right now, our focus is very much on severe asthma, but I don't believe it precludes us from considering those populations in the future. And your second question was around ampreloxetine ramp up. And so we're active in actually multiple countries, 19 countries and counting. In terms of opening sites, we are active in the U.S. and Europe and in Australasia. And so activities are going well in both identifying sites and now moving to enrollment.

I think just to complement what Brett's saying, before I get into the royalty related issues, is that generally what we see is that we -- this is a rare disease, somewhat bespoke type of study, and when we open sites, we generally get multiple patients that are in the queue that have the opportunity to go on study. Now to the royalties and the royalty debt, in servicing the royalty debt through the notes, the publicly available information, just to highlight it, is that there's 3 ways that effectively we can do that. We can make a capital contribution in which to service the, any cash requirements under the amortization of the notes. We can use the distributions from the LLC to in fact satisfy those obligations. Or we can PIK, effectively adding the interest to the principal of the notes. So we can do that for the PIK and/or capital contributions for a fairly considerable period of time into late 2020. Now, given that we're in the middle of the arbitration right now, and we expect to finish the arbitration by the end of the third quarter and have a decision from the arbitrator, I think we'll sort of play it by ear relative to how we handle it. But all three options or all three options remain open to us. And hopefully the arbitration is resolved in our favor and the distributions from the LLC will in fact service the notes going forward, because as we've described today, TRELEGY's on a very exciting upward ramp not only in the United States, but globally. So, I think that's sort of a summary of where we stand with the notes, the flexibility and hopeful for positive resolution of the arbitration before the end of the third quarter.

Thanks, Rick. Could you just clarify what the cumulative cash obligation is from the partnership that's unpaid?

I'm happy to do the math for you, Geoff, but we'll have to follow up, because that's based on publicly available information. We can do the math and get back to you offline.

Okay, no problem. Thanks.

[Operator Instructions]. And our next question comes from Alan Carr from Needham.

A couple of them. You mentioned that you'll have data from the 1473 trials next year. Can you go over specifically which sets of data? Is it just the 8-week data from the UC trial, or is it more than that? And then also maybe give you an opportunity to go over around some of the earlier stage pipeline. Back in December you had highlighted some other earlier stage programs. Can you give us an update on those and when they might be moving forward into the clinic? Thanks.

Sure. This is Rick, and then Brett and I'll tag team this a bit. If you look at the earlier stage programs that we highlighted, obviously 8236 was one, and I look forward to sharing that data in asthmatics in the Phase 1 study in the very near future. Another program that we highlighted there was a gut-selective irreversible JAK3 inhibitor that would be used for celiac or potentially other inflammatory disorders of the GI tract. Obviously that program, it continues to move forward and we'll look forward to updating the public quickly on that. The other programs were an inhaled ALK5 inhibitor for IPF, that continues to move forward, as does the eye program, the intravitreal program for direct injection into the eye, which we highlighted has -- looks like very favorable pharmacokinetics in the eye with the opportunity potentially of a relatively limited number of injections over a year's period. Now, I'd highlight the eye program, because when you're doing an eye program, particularly with the pharmacokinetic profile that we have of this medicine, the one benefit is that effectively we'll do the long-term tox studies before we enter the clinic. So the eye program, the sequence that I've just reviewed, the eye program would probably go towards the later end of those drugs entering in the clinic, and probably the way to think about it is the irreversible JAK3 being towards the more near-term end. So that's sort of as summary of the early stage research projects. Relative to the ulcerative colitis and the Crohn's program, our expectations are for both of those data sets next year. Brett?

Yes, so just a bit more color on that, Alan. Referring to Slide 4 in the deck that we presented today, you'll see that in DIONE, that's perhaps the easier one to describe first. DIONE is the Crohn's disease study, and we have 160 patients being evaluated over a 12-week induction period. That study is intended to read out in its entirety next year. So that is the first data set. Crohn's would read out with all 160 patients. In the RHEA program, it's complicated by the fact that we've got both Phase 2b and 3 running simultaneously. But the plan is for the Phase 2b portion of 240 patients to be completed next year and read out. So that's intended to find an optimal dose that can then be hopefully used to simplify the remainder of the program. But just to summarize then, 240 patients in ulcerative colitis reading out next year in the Phase 2b portion and 160 patients reading out in a discrete Phase 2 study in Crohn's.

And I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Rick Winningham for any closing remarks.

Thank you very much. Just to hit on one of the questions that came up from Geoff Porges on the outstanding notes is the total outstanding note balance is $250 million. These are non-recourse notes that carry an interest rate of 9% that is paid off through over time the royalties that we receive in from GSK through the limited liability corporation. So, just a quick note. We're very proud to be able to bring you the progress that we've made to date through 2019 really in commercialization, in development, as well as the continued progression of the research programs that are entering early stage to enter the clinic, again, over the next several months and several to 18 months. So, we're very excited about the progress of the company, we're very excited about where we're going and we look forward to bringing you further updates in the near future. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.