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Edited Transcript of TBPH earnings conference call or presentation 24-Feb-20 10:00pm GMT

·46 min read

Q4 2019 Theravance Biopharma Inc Earnings Call GEORGE TOWN Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Theravance Biopharma Inc earnings conference call or presentation Monday, February 24, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Asa Hindman Theravance Biopharma, Inc. - Senior VP & CFO * Brett K. Haumann Theravance Biopharma, Inc. - Senior VP of Clinical Development & Chief Medical Officer * Frank Pasqualone Theravance Biopharma, Inc. - Senior VP & Chief Commercial Operations Officer * Gail B. Cohen * Phillip D. Worboys Theravance Biopharma, Inc. - SVP of Research & Translational Science * Rick E. Winningham Theravance Biopharma, Inc. - Chairman & CEO ================================================================================ Conference Call Participants ================================================================================ * Alan Carr Needham & Company, LLC, Research Division - Senior Analyst * Alexander Daniel Duncan Piper Sandler & Co., Research Division - Research Analyst * Andrew Scott Berens SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst * Joshua Elliott Schimmer Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst * Louise Alesandra Chen Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD * Marc Alan Frahm Cowen and Company, LLC, Research Division - VP ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, good afternoon, and I would like to welcome everyone to the Theravance Biopharma conference call. (Operator Instructions) Today's conference call is being recorded. And now I'd like to turn the call over to Gail Cohen, Vice President, Corporate Communications. Please go ahead. -------------------------------------------------------------------------------- Gail B. Cohen, [2] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for joining our conference call and webcast to discuss our fourth quarter and full year 2019 financial results and outlook. Joining us are Rick Winningham, Chief Executive Officer; Andrew Hindman, Chief Financial Officer; Phillip Worboys, Senior Vice President, Research and Translational Science; 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 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 to Rick. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [3] -------------------------------------------------------------------------------- Thanks, Gail and good afternoon, everyone, and thank you for joining us. 2019 was a year of achievement for Theravance Biopharma across our business. We advanced our research and development stage pipeline, building a diversified portfolio of differentiated programs and we strengthened our commercial capabilities. The key differentiators are unique in proprietary expertise in designing organ-selective medicines that have the potential to significantly expand therapeutic index, increased safety, increase efficacy and safety and transform the treatment of serious diseases. Our ability to engineer and optimize drug properties has allowed us to hone in on precise organ selectivity to target the site of disease with the goal of avoiding systemic liabilities. This has driven the discovery and development of lung-selective YUPELRI for COPD; gut-selective TD-1473 and TD-5202, lung-selective TD-8236 for severe asthma and a research pipeline of next-generation organ-selective programs. These innovative differentiated products have the potential to bring meaningful value to patients, providers and payers. Our roster of capability enhancing partnerships continues to strengthen. With ongoing successful collaborations with Mylan for YUPELRI, Janssen for TD-1473 and TD-5202. In addition, we entered into a new agreement with Pfizer to out-license our skin-selective pan-JAK inhibitor. The late 2019 license with Pfizer was quite meaningful as Pfizer pioneered the development of medicines targeting the JAK/ /STAT pathway and is ideally positioned to advance the skin-selective program and unlock its therapeutic potential. These partnerships complement and expand our capabilities and enhance our potential to transform the treatment of serious disease when combined with our research engine, our wholly-owned pipeline, proven development expertise and commercial infrastructure. We've set the stage for data- and catalyst-rich 2020, a year we believe can deliver significant value for stakeholders. 2020 will be an important year for our company in terms of delivering data across all of our key development programs as well as continued execution around YUPELRI. In 2020, we expect data from 1473 to be portion of the Phase IIb/III study in ulcerative colitis and Phase II study in Crohn's disease in late 2020, plus the subsequent potential opt-in decision by Janssen in 2021. Top line results from the ampreloxetine 4-week registrational Phase III efficacy study in symptomatic nOH in late 2020. In mid-2020, data from both Phase I biomarker study of 8236, our lung-selective inhaled pan-JAK inhibitor in moderate-to-severe asthma and from the Phase II lung allergen challenge study. Positive data from these studies would lay the groundwork for advancing to a formal Phase IIb study. Continued development of TD-5202, our irreversible JAK3 inhibitor for inflammatory intestinal diseases is also partnered with Janssen. Today, we are reporting encouraging results from the Phase I trial and plan to collaborate with the Janssen on next steps in development. In addition to our current clinical stage portfolio, we've got numerous early stage organ-selective programs that are looking promising. We are focusing on moving 3 of those programs forward this year. Building on the successful launch and market introduction of YUPELRI over the past year, we and our partner, Mylan forward to continue continuing to execute on our commercialization strategy and strengthen our performance as measured by key market metrics include formulary wins, total patients prescribed YUPELRI and increased access. Finally, we expect continued strong performance by GSK's TRELEGY ELLIPTA, the first and only once-daily single inhaler triple therapy for the treatment of COPD. TRELEGY ELLIPTA has had the strongest launch in the U.S. of any GSK ELLIPTA product to date. And now I'll pass the call over to Phil, who'll provide an update on our clinical programs. Then Frank will discuss YUPELRI commercialization strategy and execution; followed by Andrew, who will report on our financial performance and outlook with commentary on additional items, including our recently completed financing. Phil? -------------------------------------------------------------------------------- Phillip D. Worboys, Theravance Biopharma, Inc. - SVP of Research & Translational Science [4] -------------------------------------------------------------------------------- Thanks, Rick. Starting on Slide 6. TD-1473 is an oral gut-selective pan-JAK inhibitor designed to treat inflammatory intestinal disease directly at the site of inflammation with minimal systemic exposure or corresponding immunosuppressive effects. 1473 is in 2 clinical studies in partnership with Janssen. One, in ulcerative colitis and the other in Crohn's disease. RHEA is a Phase IIb/III study of 1473 in patients with moderately to severely active ulcerative colitis. In parallel, DIONE is a Phase II study in patients with Crohn's disease. Both are these are currently enrolling patients, and we look forward to reading out data from the Phase IIb portion of the ulcerative colitis study and the Phase II Crohn's disease study in late 2020 to support what we believe may become a best-in-class efficacy and safety profile in the treatment of inflammatory bowel disease. Today, we are pleased to report the results from the Phase I first-in-human study of TD-5202, our irreversible JAK3 inhibitor for inflammatory intestinal diseases also partnered with Janssen. This single and multiple ascending dose study evaluated the safety and tolerability of 5202 in healthy subjects. 5202 is generally well tolerated and as a single oral dose up to 2,000 milligrams and as a twice-daily oral dose up to 2,000 milligrams total per day given for 10 consecutive days. There were no severe or serious adverse events reported and all treatment-emergent adverse events in 5202 treated subjects were mild in severity. Vital signs and electrocardiogram assessments did not demonstrate any clinically significant changes from baseline and no clinically significant changes in chemistry or hematology parameters were observed post dosing. The trial also measured the amount of 5202 in the bloodstream. Consistent with our expectations of an oral-selective -- an organ-selective compound, the plasma levels of 5202 in these subjects were very low. In fact, maximal concentrations, even at the highest dose tested, 1,000 milligrams twice daily were at least an order of magnitude below the predicted levels that may be associated with systemic activity. We believe 5202 may provide a promising additional therapeutic approach to addressing a range of inflammatory intestinal diseases, and we plan to collaborate with our partner Janssen on the next steps for development. Let's turn now to Slide 10, on ampreloxetine, our once-daily norepinephrine reuptake inhibitor in development for treatment of patients with symptomatic nOH. The registrational Phase III program for ampreloxetine includes 2 studies as depicted on Slide 11. First, the SEQUOIA study assesses the efficacy and safety of a 10-milligram dose versus placebo over 4 weeks in 188 patients. Second, the REDWOOD study, which assesses the durability of response to ampreloxetine by placing 254 patients, including patients from the SEQUOIA study on open-label treatment for 4 months and then randomizing half of the patients to placebo in a double-blind, 6-week withdrawal phase. Both studies are actively enrolling patients and the 4 weeks SEQUOIA study is expected to report data in late 2020. We believe ampreloxetine could offer distinct advantages over existing nOH therapies, sort of droxidopa, which carries a boxed warning for supine hypertension. Our market research shows there are about 50,000 patients with nOH who could benefit from a safer and more effective therapy and were readily accessible primarily in tertiary centers. Importantly, we plan to commercialize ampreloxetine ourselves in the U.S. Now to Slide 12, on 8236. This is our lung-selective inhaled pan-JAK inhibitor in development for the treatment of inflammatory lung diseases, including steroid-resistant asthma. There's a population of patients particularly with severe asthma, who are so-called T2-low rather than T2-high inflammation. And most of these patients don't benefit from either steroids or from biological agents. We believe there is opportunity with 8236 to treat patients regardless of T2 phenotype. And ideally, 8236 could be used as an inhaled alternative to steroids before these patients progress to biologics. As reported last year, initial results from the Phase I multiple and single ascending dose studies were encouraging. 8236 was generally well tolerated as a single inhaled dose up to 4,500 micrograms in healthy subjects and as a once-daily inhaled dose of up to 4,000 micrograms given for 7 consecutive days in patients with mild asthma. Turning to Slide 14. An additional objective of the Phase I MAD study was to determine biological evidence of an anti-inflammatory effect in the lungs of these mild asthma patients. We achieved this by measuring reductions in fractional exhaled nitric oxide or FeNO and established disease activity biomarker in asthma. Over the 7 days of 8236 administration, these patients experienced reductions in FeNO compared to placebo at all doses above 150 micrograms. Based on these encouraging study results, we are conducting a Part C extension portion of this Phase I trial in patients with moderate-to-severe asthma. These patients represent the population that would ultimately be most likely to benefit from 8236. In addition to providing further opportunity to measure the effect of 8236 on FeNO, these patients are also consenting to having broncoscopies. So we'll be able to sample the cells and fluid in the lungs to look at additional markers of inflation, and we expect to see data mid 2020. In parallel, we are also conducting a lung allergen challenge Phase II study. This is a mechanistic study in which patients inhale an allergen, which provokes an exacerbation like response in the lung under controlled conditions and is often accepted as a strong proof-of-concept in predicting a reduced risk of exacerbations, in patients with asthma. Results of this study are also expected mid-2020. We have numerous early stage organ-selective programs, and we are focusing on moving 3 forward this year. Firstly, our inhaled nebulized lung-selective pan-JAK inhibitor intended for the prevention of lung transplant rejections and other serious inflammatory conditions of the lung, which we hope to bring to clinic by midyear. Secondly, our inhaled nebulized lung-selective ALK5 inhibitor intended for idiopathic pulmonary fibrosis. We are aiming to have this program in clinic towards the end of the year. And thirdly, our Intravitreal eye-selective pan-JAK inhibitor intended for diabetic macular edema. We are currently conducting long-term toxicity studies for this compound, with the goal of advancing it to the clinic upon completion. We look forward to providing updates on these early-stage programs as they progress towards the clinic. So next, Frank will provide an update on the U.S. commercial launch of YUPELRI. -------------------------------------------------------------------------------- Frank Pasqualone, Theravance Biopharma, Inc. - Senior VP & Chief Commercial Operations Officer [5] -------------------------------------------------------------------------------- Thanks, Phil, and good afternoon, everyone. Starting with Slide 19. We are concluding the first full commercial year since launch of YUPELRI, and we are pleased with customer acceptance and brand performance. YUPELRI is the first and only once-daily nebulized long-acting muscarinic antagonist that provides a full 24 hours of control for patients having gained FDA approval at the end of 2018 for the maintenance treatment of patients with COPD. Turning to Slide 20. Remember that in our commercial strategy with Mylan, we focus on the institutional setting, while Mylan covers the outpatient COPD treatment segment. 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, making the hospital a promising setting to convert patients from competitive products to YUPELRI. Importantly, there are additional COPD patients that are routinely hospitalized for other conditions, unrelated to a worsening of their COPD symptoms, but who require maintenance therapy for their COPD while hospitalized. And these patients may represent an additional opportunity for conversion and treatment with YUPELRI. Critical to successful implementation of the strategy is to have the patient remain on YUPELRI for maintenance treatment of their COPD following discharge from the hospital. This is best achieved through a cooperative strategy at the field level between Mylan and Theravance Biopharma representatives. Due to diligence and training and preparation between the 2 companies, this cooperation is working well, and we believe it will continue to play an important role in the future success of YUPELRI. As shown on Slide 21, we are tracking key performance metrics, including formulary reviews and wins, patient uptake and market access. By the end of the fourth quarter, we continued to observe strong customer response and market acceptance. Through the end of the year, we achieved 85 formulary wins, which equates to 220 hospital accounts. 70 reviews are underway or scheduled by the end of the first half of 2020, representing more than 400 potential new hospital accounts, and we've provided exceptional medical information support to the field, with 100% of health care provider requests fulfilled in under 30 days. We estimate that through fourth quarter, more than 30,000 patients have been prescribed YUPELRI since launch. Since launch, our hospital-focused sales team has conducted over 61,000 health care providers sales calls, reaching approximately 90% of our currently targeted institutional accounts. Now turning to our marketing efforts and the impact on marketplace perceptions and prescribing behaviors. Our marketing research data as of October 2019 showed that YUPELRI achieved an 86% share of the nebulized LAMA market and a 10.7% share of the long-acting nebulized market, including the DME market. Based on more recent marketing research, YUPELRI is used primarily in patients with an average age of 68. 3 quarters of YUPELRI patients have a low peak inspiratory flow rate or PIFR and approximately 90% of patients on YUPELRI are in their later years of COPD, about 10 years after diagnosis. This is as expected, as these are classic nebulized patients. We're also pleased with the awareness level of YUPELRI among pulmonologists in both the hospital and community office settings. Over 1/2 of targeted office-based pulmonologists and approximately 40% of targeted hospital pulmonologists currently prescribed YUPELRI. And approximately half of YUPELRI patients are using the product in combination with other long-acting agents. Turning to market and patient access. With respect to Medicare Part B patients, the early granting of a permanent J Code for YUPELRI has made a meaningful difference in facilitating reimbursement in the outpatient setting, and importantly, simplifying the fulfillment process for pharmacists and patients. Traditional Medicare, which represents nearly 80% of the YUPELRI patient population has been filling and reimbursing prescriptions more smoothly since the Permanent J-CODE was awarded. Medicare Part D open enrollment started October 15, 2019 for the 2020 year, and Part D coverage only applies to YUPELRI after 100 days in a long-term care facility setting, making up about 6% of the YUPELRI patient opportunity. Coverage to date from major commercial insurance plans has been positive. Medicaid covers most products in the nebulized class and requires prior authorization, but does not hinder a Medicaid patient from access to YUPELRI. From launch through the end of 2019, YUPELRI is increasingly becoming an accepted source of potential relief for those patients in need of nebulized therapy for the maintenance treatment of their COPD. We believe that YUPELRI is delivering on its brand promise and has significant marketplace potential for growth. We are only 1 year of the life of YUPELRI, but we are pleased with our performance to date and believe we are well positioned to continue to drive adoption and to build upon the strong base of target prescribers and payers that we have established so far. Now, I'll pass the call over to Andrew for a financial update. -------------------------------------------------------------------------------- Andrew Asa Hindman, Theravance Biopharma, Inc. - Senior VP & CFO [6] -------------------------------------------------------------------------------- Thank you, Frank. I'll begin with our financial results for 2019, then cover our financial guidance for 2020 and close with a brief update on our recent financing activities. Starting on Slide 22. Revenue for the fourth quarter of 2019 was $29.5 million, comprised of collaboration revenue of $9.6 million, primarily attributed to the amortization of the upfront payment from Janssen for TD-1473. Licensing revenue of $10 million related to the upfront payment from Pfizer for rights to our skin-selective pan-JAK inhibitor program and revenue from the Mylan collaboration agreement of $9.9 million. Revenue for the fourth quarter represents a $13.8 million increase over the same period in 2018. The increase was primarily due to licensing revenue associated with the upfront payment from Pfizer and an increase in revenue from the Mylan collaboration agreement, partially offset by a decrease in product sales, which resulted from the sale of VIBATIV to Cumberland Pharmaceuticals in late 2018. Full year 2019 revenue was $73.4 million, comprised of collaboration revenue of $31.3 million, primarily associated with our global collaboration with Janssen, licensing revenue of $28.5 million related to upfront from Pfizer and Mylan, and revenue from the Mylan collaboration of $13.7 million. R&D expenses for the fourth quarter of 2019 were $67 million compared to $52.3 million in the same period in 2018. The increase was primarily due to an increase in employee-related costs and share-based compensation related to long-term retention and incentive awards, plus external related costs associated with the progression of our key programs. Full year 2019 R&D expenses were $219.2 million or $190.3 million, excluding noncash share-based compensation. SG&A expenses for the fourth quarter of 2019 were $33 million compared to $25.5 million in the same period in 2018. The increase was primarily due to an increase in share-based compensation related to long-term retention and incentive awards. Full year 2019 SG&A expenses were $106.1 million or $74.6 million, excluding noncash share-based compensation. We ended the year in a well-capitalized position with approximately $285.8 million in cash, cash equivalents and marketable securities. I'll now turn to our financial guidance. For the full year of 2019, we incurred an operating loss, excluding share-based compensation of approximately $192 million, which was below our stated guidance range of $200 million to $210 million. The variance was driven by the $10 million Pfizer upfront, which was not factored into our guidance for the year. Turning to 2020, we expect full year operating loss, excluding share-based compensation in a range of $205 million to $225 million. The operating loss guidance does not include royalty income for TRELEGY ELLIPTA, which we recognized in our statement of operations as income from investment in TRC LLC or potential future business development collaborations, as well as the timing and cost of clinical studies associated with our key programs, among other factors that could impact the financial guidance. I'll now direct your attention to Slide 24 and provide an update on GSK's TRELEGY ELLIPTA, the first and only once-daily single inhaler triple therapy approved for the treatment of COPD, for which Theravance Biopharma holds an economic interest that equates to an upward tiering royalties of approximately 5.5% to 8.5% of worldwide TRELEGY sales, net of expenses. As a reminder, 75% of the income from our investment in TRC is pledged to service outstanding notes and 25% of the income from our investment is retained by Theravance Biopharma. Sales of TRELEGY for COPD continue to grow. The product is now available in 38 markets with additional geographies expected in the fourth quarter, including China. In October, and GSK announced that it had submitted a supplemental NDA for TRELEGY in asthma. Previously, GSK announced it had submitted a regulatory filing in support of the revised labeling for TRELEGY on reduction in risk of all-cause mortality compared with ANORO in COPD patients. There is an FDA advisory committee meeting scheduled for April 21, 2020 related to this application. The addition of an asthma indication as well as a mortality claim in COPD could result in meaningful expansion for the use of TRELEGY over time. Finally, regarding recent financing activities, we announced on February 11, 2020, that we closed our public offering of 5.5 million ordinary shares at a price to the public of $27 per share. The gross proceeds to Theravance Biopharma from the offering are approximately $148.5 million before deducting underwriting discounts and commissions and estimated offering expenses. In addition, we disclosed in February that we were in advanced discussions with a limited number of investors to explore alternative financing strategies with respect to the company's existing $250 million non-recourse 2033 notes. We have recently entered into note purchase agreements with certain lenders to, among other things, issue $400 million in notes on broadly comparable terms, and we have since provided notice of optional redemption to the existing noteholders of the 2033 note, contingent on the closing of the new transaction. Issuance of the notes is subject to the satisfaction of customary closing conditions in the near future. We look forward to providing additional details in the future. And now I will turn the call back over to Rick for closing remarks. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [7] -------------------------------------------------------------------------------- Thanks, Andrew. At Theravance Biopharma, our mission is to create transformational value for all of our stakeholders. Our key assets are a strong search engine, fueling a rich and diversified pipeline of organ-selective assets, backed by a proven development and commercialization expertise and high quality strategic partnerships, all supported by a strong capital position, which includes our economic interest in TRELEGY ELLIPTA royalties and a commercial asset YUPELRI. All this taken together has enabled us to create an exciting lineup of program milestones and value-driving catalysts in 2020 and beyond. Important upcoming milestones include additional U.S. commercial launch metrics for YUPELRI in COPD, progression of our late-stage clinical studies of ampreloxetine in 1473 with important data readouts by the end of 2020. Continued advancement of our earlier-stage compound 8236 plus additional novel organ-selective research programs entering the clinic over the next 12 to 18 months. And finally, further commercial and regulatory progress by GSK for TRELEGY, including FDA decisions on an sNDA for a mortality claim in COPD and an sNDA for asthma indication in 2020. This is a pivotal time for Theravance Biopharma and we appreciate the opportunity to share our progress with you. And now I'd like to hand the call back over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from Geoff Porges with SVB Leerink. -------------------------------------------------------------------------------- Andrew Scott Berens, SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst [2] -------------------------------------------------------------------------------- This is Andrew on for Geoff. And I have a question for 1473. Now you indicated that J&J's decision will be in -- probably in late 2020 or early 2021. So how does that affect your cash burn in the future and also the capital requirements going forward? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [3] -------------------------------------------------------------------------------- Thanks, Andrew. This is Rick Winningham. Well, clearly what we're establishing is a multiyear capital base to enable us to recognize the promise of our pipeline. We've -- in the call today said that we expect data in late 2020 for a 1473, the IIb study in ulcerative colitis and the Phase II study in Crohn's. The way the opt-in works is we deliver the data from those 2 programs to J&J and then they make the decision within a specific period of time about -- around 90 days on whether they want to opt in, not. An opt-in decision by them carries with it a $200 million milestone, which would obviously strengthen our capital base at that particular time. So that's sort of the sequence of events right now. Certainly, with the existing cash balance, with the added cash from the equity deal that we completed this month, and then potentially the completion of the note refinancing, we've got adequate capital for a number of years to, again, to recognize the promise of our pipeline. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Our next question comes from Louise Chen with Cantor. -------------------------------------------------------------------------------- Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [5] -------------------------------------------------------------------------------- I had a few of them. First question I have for you is on TRELEGY ELLIPTA, if you get this mortality benefit and the approval for asthma, how much could this drive incremental upside to sales? It seems like it could be orders of magnitude, but wanted to see if you could elaborate a little bit more here. And then for the upcoming adcom, what are you expecting this to cover? And how are you preparing for it? And the last question is on, you have some important data readout coming out for TD-1473 at the end of the year. And will you report both data sets for UC and Crohn's together or will it just depend on the timing? And if all goes as planned, as Janssen or Janssen have until 2021 or when in 2021 to exercise, and will you -- was that exercise amount still going to be $200 million? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [6] -------------------------------------------------------------------------------- Yes. So this is Rick. I'll just cover very briefly the TRELEGY questions and then let Brett cover the -- who's actually joining us, let Brett cover the 1473 readouts. So TRELEGY, obviously, Louise, we're distant from this on -- relative to GSK. We don't have any information that the market doesn't have. As we look at it just from an outside observation, clearly the asthma indication for the -- in the United States would make a significant difference to the total peak sales of TRELEGY. Whether it's orders of magnitude, I don't know whether asthma alone is orders of magnitude, but it's a fairly significant increase to peak sales is we would just roughly think about 50% to 60% on peak, something like that. Mortality, while there isn't -- in COPD mortality, there isn't another product with a mortality claim in COPD. So you're probably looking at a pretty meaningful upside there. They're coming both from initial treatment, but also from a potentially persistence of treatment with TRELEGY. So needless to say, I think both of these indications would provide certainly quite meaningful upside to baseline projections right now that we have with TRELEGY. The adcom, I don't have any idea, any insight at all and what the adcom will talk about. It's -- obviously, it's on the FDA website that's TRELEGY versus ANORO from the IMPACT study. And I think GSK probably, over time, will have a better perspective on what those discussions will be. So Brett, we bring you in here to talk about the readouts from 1473. -------------------------------------------------------------------------------- Brett K. Haumann, Theravance Biopharma, Inc. - Senior VP of Clinical Development & Chief Medical Officer [7] -------------------------------------------------------------------------------- Thanks, Rick. Louise, just 1 last comment on TRELEGY. Actually, and that's that, I'll remind you that Breo initially was approved only in COPD. And so you may want to go and look at that. In terms of some indication at least of an analog of what happened when the asthma indication was introduced secondarily. Of course, Breo's launch wasn't nearly as successful as TRELEGY. So the absolute magnitude could be different, but at least you'll be able to reference that Breo sales curve in terms of the initial COPD and then the latter [asthma impact]. You asked about 1473, and really it's going to be a function of when each of these studies readout as to whether we report them together or separately. Right now enrollment is tracking neck and neck for the 2 studies. They're very close together in terms of their predicted outcome and readout by the end of this year. Of course, that's always subject to recruiting the very last patient that's needed for each of those studies. So until we have that certainty, I wouldn't be able to directly answer your question. But I think you should expect to see these data sets, either together or very close together in terms of their readout. In terms of when Janssen would sort of make their decision. Contractually, they have a 90-day period after the second of the 2 data sets is available to inform their decision of opt in, and that triggers the $200 million milestone. They do have the opportunity to consider 1 or other of the 2 data sets, so they could make their decision on the first of the 2. Our expectation is they're likely to look at both data sets to inform their decision. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question comes from Alexander Duncan with Piper Sandler. -------------------------------------------------------------------------------- Alexander Daniel Duncan, Piper Sandler & Co., Research Division - Research Analyst [9] -------------------------------------------------------------------------------- The partnership with Pfizer and the skin localized JAK inhibitor is pretty interesting. Could you provide any additional information on how your approach, or mechanism, could be differentiated from Incyte's topical [rubs] program? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [10] -------------------------------------------------------------------------------- Yes, I'll answer that and then maybe ask Phil to comment a bit. Our approach with the skin program was much like our approach with any other organ system, is that we are developing compounds specifically to work in the skin. And this, I think, is different from other topical programs, where compounds may have been repurposed or selected on other programs and then applied to the skin. Phil? -------------------------------------------------------------------------------- Phillip D. Worboys, Theravance Biopharma, Inc. - SVP of Research & Translational Science [11] -------------------------------------------------------------------------------- Yes. I think that's the key feature of how we approach organ selectivity is we designed the compounds from scratch for the organ that we're intending them to go for. So as part of that, we consider the type of patients that we would want to be treating and also how we would then administer that compound. So what is the type of formulation and the breadth of formulations that we'd want that compound to be amenable to. So rather than we purpose in a molecule, where you could be constrained by the features of that molecule probably initially that were intended for all systemic availability, we design our compounds from scratch for it to be organ-selective. So whether it's the physicochemical properties, the metabolic properties, all of that. And that was what really Pfizer were focusing in on is their features that were designed in from the beginning, that would lend itself to the broadest range of skin applications possible. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from Josh Schimmer with Evercore. -------------------------------------------------------------------------------- Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [13] -------------------------------------------------------------------------------- First, on the JAK3 program. It looks like the dose is much higher than the 1473, the pan-JAK, at least that you've explored in the early testing phase. Which dose are you planning to advance? And is there a reason why the dose that you've explored so far is higher than 1473? -------------------------------------------------------------------------------- Phillip D. Worboys, Theravance Biopharma, Inc. - SVP of Research & Translational Science [14] -------------------------------------------------------------------------------- Yes, this is Phil again. So I wouldn't read into the dose range that we described has been predictive of where we think efficacy is. This is a Phase I study in healthy volunteers, where we purposefully pushed the dose. Because here, we're trying to establish the safety window. So we want to explore as high as -- is reasonably possible to understand the sort of dose range we have to then go into a patient efficacy study. So we want a window above where those doses would be in a patient study. So it's not indicative of where we think efficacy is the fact that we went up to 2,000 milligrams. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [15] -------------------------------------------------------------------------------- I think the other point is, as we're looking [potential] conditions, and we've referenced celiac before. I mean, clearly for celiac -- to treat celiac patients, we knew we're going to have a very, very safe program all the way around. We've obviously learned things as we've gone through. I think in Phase I, we test a fairly high dose of 1473 and then backed off that considerably for the efficacy studies. And here, we were just simply -- we were able to get in a very high dose over 10 days with really seeing almost nothing from a safety perspective. But due to the fact that the drug is absorbed into the gut and then it's metabolized through first pass metabolism. So we're pretty excited about where we ended up here with what we would anticipate to be a pretty large window of margin safety. -------------------------------------------------------------------------------- Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [16] -------------------------------------------------------------------------------- And then there was a steep inflection in operating expenses, to a lesser extent to stock-based comp. You gave some sense of these trends in the guidance for 2020, but maybe come from that a little bit more color as to which of these now represent new baseline levels for the (inaudible) future growth or which we might see a pull back in the subsequent quarters? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [17] -------------------------------------------------------------------------------- Well, I'll make a couple of comments and turn it over to Andrew. If you look at sort of where we are in the evolution of cash, cash flow, dynamics for the company, clearly we're looking at right now and what we would see as potentially peak uses of cash coming through expenses through the income statement. And then as we've said before, we would expect YUPELRI to be, in a given quarter, cash flow positive for us this year, and then hopefully with continued success in 2021 turning positive for us. But we really look at the financing that we're -- that we've done as really enabling this multiyear capital base, so that we're -- don't need to come back to the markets for additional capital, given the cash flow characteristics of the company. Andrew? -------------------------------------------------------------------------------- Andrew Asa Hindman, Theravance Biopharma, Inc. - Senior VP & CFO [18] -------------------------------------------------------------------------------- Yes. And specifically, Josh, with respect to questions on trends around noncash comp. Happy to take it off-line to you to go through the historicals there and address any follow-up questions. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question comes from Marc Frahm with Cowen. -------------------------------------------------------------------------------- Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [20] -------------------------------------------------------------------------------- Maybe just first a follow-up on comment you gave to Josh's question on the guidance. You mentioned the idea here with the raise that you did? And I guess, the potential debt offering you've described is to not come back to the market again for additional capital? Is that just in terms of equity? Or is that also inclusive of debt other than the 1 that you talked about on the call earlier. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [21] -------------------------------------------------------------------------------- Well, I think with the capital raises that we're talking about, we think we're in a pretty strong multiyear position with regard to capital base. So certainly this equity raise that we did and was seem to be certainly adequate and should we complete the complete a notes that we've got out under consideration, then we're going to be in a very, very strong cash position for what we would think would be multiple years. So Andrew, anything else to add to that? -------------------------------------------------------------------------------- Andrew Asa Hindman, Theravance Biopharma, Inc. - Senior VP & CFO [22] -------------------------------------------------------------------------------- Yes, it's that capital raise, in addition to the underlying dynamics of YUPELRI going to generate and starting to generate cash on a brand basis, that's including all associated expense related to commercializing YUPELRI. The only other thing I would add is that we wouldn't take off the potential for a strategic transaction-related financing, but those are scenarios where we would come back specifically with a very clear use of proceeds regarding any financing related to that. -------------------------------------------------------------------------------- Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [23] -------------------------------------------------------------------------------- Okay, great. And then in the prepared remarks about YUPELRI, I mean, one of the things you mentioned in earlier times is the importance of kind of transitioning people from that initial experience in the institution with -- institutional setting with your sales force versus once they leave to go to the chronic setting with the Mylan's sales force, is there any metrics you can give us on kind of the conversion rate? And how many people that you get on drug in the -- in a hospital actually convert to a chronic setting? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [24] -------------------------------------------------------------------------------- Well, the only numbers that we've talked about has been total patients prescribed, which is as of the end of 4Q was 30,000 patients prescribed. We don't have any more granularity that we can share. We're hopeful, I think looking at the opportunity here in the hospital, this is 800,000 patients and as Frank mentioned, half of those patients today walk out of the hospital with a prescription for nebulized therapy. I think that choice of nebulized therapy is really often driven by the action that the hospital takes when the patient is there, and it's what market research shows. And we do have -- we do know that we're making substantial progress, and I don't want to quote any numbers, but we do know we're making substantial progress. That once a patient gets prescribed YUPELRI in the hospital that there's a high probability of that patient walking out with an outpatient prescription for YUPELRI. I think overall, the strategy that Frank outlined is working. It's working well, and we just need to keep moving up the efficiency and the effectiveness curve. Frank, is there anything else you want to add to that? -------------------------------------------------------------------------------- Frank Pasqualone, Theravance Biopharma, Inc. - Senior VP & Chief Commercial Operations Officer [25] -------------------------------------------------------------------------------- Yes, Rick, I would just say that this is a critical, critical part of the commercial plan. And it's a part of the commercial plan that we spend an enormous amount of time on. We spent an enormous amount of time on the coordination between head office and head office, but most importantly, there's a lot of coordination that's done in the field in terms of patient journey which physicians are serviced by which hospitals, numbers of patients coming out, patient comments. We know from our marketing research that patients that are prescribed YUPELRI are very satisfied with it, and in some cases, are asking to stay on it once they leave the hospital. I heard that, I was on the field 3 weeks ago, and I heard that for myself as well as just -- I can tell you, while I was in the car riding around with our sales representative. He had 4 different calls with his Mylan counterpart. So this is a very, very important part of the commercial model. It's one that we spend a lot of time and a lot of coordination on. -------------------------------------------------------------------------------- Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [26] -------------------------------------------------------------------------------- All right, great. And then maybe one on the pipeline. We're going to get these data updates for 8236. And would you care to help frame how we should look at the data, where do you think the real comparator is? Do you need to be start looking absolutely every bit as good as the biologics or do you think there's a place for also just maybe a little bit less efficacy, but you've got less systemic safety risk with being lung-restricted and oral. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [27] -------------------------------------------------------------------------------- Brett, do you want to cover that, and then we go back to Phil. -------------------------------------------------------------------------------- Brett K. Haumann, Theravance Biopharma, Inc. - Senior VP of Clinical Development & Chief Medical Officer [28] -------------------------------------------------------------------------------- Yes, sure. So I think we're likely to look at different magnitudes of response in the different population. Phil mentioned earlier on, there's a T2-high population that we're interested in. These are patients who remain symptomatic on steroids or inhaled steroids and then are moved over to biologics with or without oral steroids. In that population, I think what we're really interested in is maximizing the efficacy that can be achieved with an inhaled product before those patients have moved over to biologics. And so really what we're looking to do is enhance and stabilize the more severe patients using an alternative to inhaled corticosteroids that would achieve that control. We know that patients remain poorly controlled despite entirely compliant on inhaled corticosteroids. And so there's an opportunity for more efficacy before we shift those patients over to biologics. For T2-low patients, I think, there's an even greater opportunity. There, their biologics are not known to work. They have the efficacy. And there, those patients really have no alternatives. So again, our aspiration there would be to control them, to get the stability of their symptoms under control knowing that they aren't able to benefit either from steroids or from biologics. In terms of the magnitude of effect, I think the allergen challenge study will give us a very good early indication. Bear in mind that this is an experimental model that tries to provoke a large [insult] in the lung, an inhaled allergen, which stimulates significant outpouring of inflammatory markers. If we're able to see similar attenuation of that allergic response to what is reported with inhaled corticosteroids and with biologics, that will be a very good early indicator that we're likely to reduce exacerbations in the [wild]. Ultimately, what's likely to be the approval endpoints in Phase III will be a reduction in the rate of exacerbations on an annual basis as has been seen and reported with other programs such as dupilumab and tezepelumab. I'll pass over to Phil if he has any additional comments? -------------------------------------------------------------------------------- Phillip D. Worboys, Theravance Biopharma, Inc. - SVP of Research & Translational Science [29] -------------------------------------------------------------------------------- Yes. I think when you look at Slide 13, the panel on the right which has the table of the T2-high and the T2-low JAK/STAT cytokines. That really sums up the proposition we're going for is we should be able to modulate all of those cytokines through the pan-JAK nature of 8236. So we would cover all the phenotypes, hopefully, that exist in asthma. And certainly, those patients on the T2-low side, which aren't well controlled, they carry a large health care burden in terms of utilization of health care. And the hope is to position our molecule, so we can cover the breadth of patients, obviously with the efficacy of biologics or steroids, hopefully beat them. Because we should be able to dose up nicely because we won't be carrying the systemic liabilities that any oral JAK agent inherently carries because of how it's administered through the oral route. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [30] -------------------------------------------------------------------------------- Just 1 more point to add because I've had to just reinforce this with a number of different people. Which is that when you look at the FeNO data that we presented, that FeNO data is in mild asthmatics. I think this was particularly encouraging that we saw a FeNO response in mild asthmatics, and that what we're looking for was simply a lack of bronchospasm. We wanted to make sure that the formulation was adequate for further development and we didn't see bronchospasm in these patients. But we didn't -- we also saw this improvement in FeNO. So this was pretty encouraging us, given that this was in mild asthmatics, and certainly in the range of what you see with other agents when mild asthmatics have been treated historically. So we're pretty excited about 8236. We're looking forward to the middle of the year where we can get the lung allergen challenge as well as the biomarker data in hand. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Our next question comes from Alan Carr with Needham. -------------------------------------------------------------------------------- Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [32] -------------------------------------------------------------------------------- A couple of them here. Can you -- I guess, elaborate on what's next for 5202. Do you have to essentially have to wait until after the 1473 data available from the next 2 trials in J&J makes an opt-in decision on that before you decide with 5202? And then, Frank, can you talk some more about YUPELRI. Can you give us a sense on the relative contribution of inside the hospital versus maintenance setting outside the hospital to sales? And then the last one is around the 3 programs that you're planning to submit INDs for this year. Is it your intention to develop and commercialize those in-house? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [33] -------------------------------------------------------------------------------- Yes, I'll cover 5202 and the INDs, and let Frank cover YUPELRI. 5202, yes, I think what we don't need to wait with Janssen and in terms of mapping a path forward with 5202. It would be kind of inappropriate to think about the Janssen, Theravance Biopharma relationship is again and Janssen somehow waiting for us to throw 1473 data over the wall to them. Really, the Janssen-Theravance partnership today has been extraordinary, collaborative literally on a day-by-day basis. They obviously have the 5202 data now and the 5202 teams are planning what comes next with 5202 independent, really, of what's happening with 1473. On the INDs, I mean, clearly, the first one in the queue is going to be the nebulized JAK inhibitor. We'd look to take that all the way. And the next will be the ALK5 inhibitor for idiopathic pulmonary fibrosis. That's a terrifically exciting program. And I think all the programs going forward, our first option is to carry these programs forward in the U.S. by ourselves. And then the third in the queue is the Intravitreal JAK program. As Phil mentioned, this is in long-term tox studies because of the long half-life of the drug, we really have to complete the long-term tox studies before we go [MAD]. And I think that's probably not an IND this year, but it's probably in 2021. But nonetheless, we're quite excited about it because if we can -- if the compound can survive through the long-term tox study, then it should progress relatively rapidly after that because we won't be having to wait on safety studies as you sometimes do before you progress compounds to the next stage of development. So that's sort of the way we're looking at it. Going forward with these next 3 as well as the answer on 5202, and then I'll turn it over to Frank to talk about the importance of the hospital business as it relates to the outpatient. -------------------------------------------------------------------------------- Frank Pasqualone, Theravance Biopharma, Inc. - Senior VP & Chief Commercial Operations Officer [34] -------------------------------------------------------------------------------- Yes. Thanks, Alan. We do see the hospital segment as very, very critical to the future success of YUPELRI. Again, going back to the 800,000 patients that cycle through the hospital on a yearly basis. I mean, we kind of look at that as similar to a DTC program, where you're trying to drive patients into the hospital. This is a venue where the patients actually come to us and they are there for us to convert them in the hospital and importantly send them back out into the community on YUPELRI. The primary audiences for us are pulmonologists, hospitalists -- and hospitalists, and these pulmonologists, as you know, when they service a community, they'll see patients both in the clinic or outpatient setting as well in the hospitals. And so the increasing level of experience that we're getting -- that these pulmonologists are getting, and I referred to that in my remarks, is increasingly trickling out into the community. So we see the hospital setting as important because it's an important patient capture, both of those -- both for those patients that come in with issues with their COPD and perhaps those that come in for elective procedures or something like that. But we see it as a critical as to the sustainability of the YUPELRI franchise going forward. I mean, YUPELRI is very easy, given in the hospital or given in the community. It's once daily. It provides a full 24-hour coverage. It can be used in a standard jet nebulizer. And really it's the only once-daily neb LAMA right now, and it's going to be the only one for quite some time. So we see this as an investment opportunity, and we see this as a way to send patients back out into the community. When you look at how sales are built, the community is the -- is an important and probably the more important because we'll get patients on YUPELRI for, whatever, 2 days, 3 days, 4 days, whatever. Our goal is to get them back out into the community, keep them on YUPELRI, and they become a bit of an annuity for us. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [35] -------------------------------------------------------------------------------- Just when you're looking at numbers, Alan, COPD is probably -- there's about 16 million U.S. residents that have been diagnosed with COPD. So this is a large, unfortunately, for the help for the patients and for the system, this is a large, large, highly prevalent condition. You -- obviously you've got -- we look at 10% of those patients really being candidates for nebulization, which with -- in fact, if you look at PIFR data, low peak inspiratory flow, it may be more than 10% of patients that could be -- that would be more optimally treated with nebulizers. But then you're down to about 800,000 patients that cycle through the hospital every year and about 400,000 of those patients today routinely leave the hospital with a prescription for nebulization. This is before the YUPELRI launch. So this is a very, very significant opportunity for the company and for Mylan, given that what we're talking about is gold standard therapy in a once-daily nebulized long-acting muscarinic antagonist. So it's -- we've got a lot of work to do, and we're just really getting started. And as Frank said, the ultimate objective, of course, is to have to treat patients in the community with YUPELRI such that they can maintain control of their COPD and, in fact, stay out of more costly places of health care. -------------------------------------------------------------------------------- Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [36] -------------------------------------------------------------------------------- Can you say at this point, what percentage of the revenue is in-patient versus the main outpatient maintenance or no? -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [37] -------------------------------------------------------------------------------- No. No, we can't say. It's -- I think it's probably a relatively small percentage of the total sales, and we would expect, over time, to be a relatively small percentage of the sales. But as Frank said, it's the place where you can catch patients. And we catch the 800,000 coming through. We know where these hospitalizations are. This allows for very targeted work in terms of both medical and commercial work and getting patients who may be on a 4-time a day nebulized or on to once a day nebulizer, really both -- helps their breathing, but also really changes their life. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- It appears we have no further questions on the phone. I'd now like to turn the conference back to Mr. Winningham. Please go ahead, sir. -------------------------------------------------------------------------------- Rick E. Winningham, Theravance Biopharma, Inc. - Chairman & CEO [39] -------------------------------------------------------------------------------- Yes, I'd like to thank everybody for joining us today. It's been a great pleasure to update everyone on the progress that we've made. We've got a very special year ahead of us in 2020, and we look forward to updating you as the year goes on. Thank you very much. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- This concludes today's conference call. We thank you for participation. You may now all disconnect. Everyone, have a great day.