Theravance Biopharma, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, good afternoon. I'd like to welcome everyone to the Theravance Biopharma Conference Call. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks. Today's conference call is being recorded. And now I would like to turn the call over to Gail Cohen, Vice President, Corporate Communications and Investor Relations. Thank you. Please go ahead.

Good afternoon and thank you for joining the Theravance Biopharma quarterly conference call to discuss our business. As always, I remind you that this call will contain forward-looking statements, which involve risks and uncertainties, including statements about our development pipeline, expected benefits of our products, the anticipated timing of clinical trials, 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 our filings with the SEC. Now, I would direct your attention to Slide 3. Joining us are Rick Winningham, Chief Executive Officer; followed by Frank Pasqualone, Chief Commercial Operations Officer; Brett Haumann, Chief Medical Officer; and Andrew Hindman, Chief Financial Officer. Following our prepared remarks, we will open the call to questions. Now, I will hand the call to Rick for opening remarks.

Thanks, Gail. Good afternoon and thank you for joining us. To begin, we're pleased to report Theravance Biopharma has reached an important milestone that will drive us forward in the years to come. During this quarter, our commercial product, YUPELRI, achieved stand-alone brand profitability. This measurement is based on accounting for consolidation of our 35% profit split with Mylan, then factoring in additional YUPELRI expenses by Theravance that are not shared with Mylan. The Mylan and Theravance commercial teams accomplished this during an ongoing respiratory pandemic, and while always remaining mindful of the health and safety of our teams and the communities we serve. Frank will share the details on our continued progress with YUPELRI. Regarding our clinical development pipeline, we're updating 2021 timelines for readouts of top-line results. Specifically, we expect ampreloxetine's Phase 3 results for symptomatic neurogenic orthostatic hypotension or NOH, and TD-1473's Phase 2 results for ulcerative colitis and Crohn's disease will read out during the third quarter of 2021, likely in three separate press releases. Brett will share more context on these critical milestones. We completed Part C of the ongoing Phase 1 study for TD-8236 in moderate-to-severe asthmatics, as well as the Phase 2a Lung Allergen Challenge study in mild asthmatics. While we did not meet the primary endpoint in the Lung Allergen Challenge study, we did see significant reductions in FeNO, pSTAT1, pSTAT6 biomarkers in the patients treated with TD-8236. However, we are still consolidating the overall data set to inform the future direction of the 8236 development program. Brett will walk through these initial results in more detail. We continue to work as expeditiously as possible to complete the Phase 2 program for TD-0903 as a potential treatment for COVID-associated lung hyperinflammation, and Brett will provide a status update on this program as well. And finally, Andrew will walk through the financial update at the end of our presentation. So let's get started with Frank for our commercial update.

Thanks, Rick. Let's begin with Slide 5. Remember, YUPELRI is indicated for the maintenance treatment of patients with COPD. It is the first and only once-daily, nebulized, long-acting muscarinic antagonist that provides a full 24 hours of control for patients. While COVID-19 continues to affect the healthcare landscape, our business began to recover from the effects of the pandemic this quarter. In response to the new environment, our promotional strategy quickly pivoted to increased digital marketing investments, leveraging a hybrid selling model with virtual and in-person interactions. This evolution in our commercial model was on target with YUPELRI returning to growth this quarter. Despite the COVID-19 impact on COPD patients and prescribers, increasing numbers of hospitals are purchasing YUPELRI. Prescribers are becoming more familiar with the brand and YUPELRI is seeing increasing use in key patient types. The Theravance Biopharma and Mylan commercial teams were able to generate quarter-over-quarter net sales growth of 22%, making YUPELRI profitable on a brand basis this quarter for Theravance Biopharma. The team has risen to every challenge presented by COVID-19 with innovation and safety always at the forefront for themselves, the healthcare professional, and the patient. Let's move to Slide 6. Theravance Biopharma's implied 35% share of net sales for YUPELRI during Quarter 3 of 2020 was $13 million, up from $5.8 million in Quarter 3 of 2019. Going forward, we will report this metric of our implied 35% share of net sales for YUPELRI. We continue to track key performance metrics, including formulary reviews and wins, patient uptake, and market access. Since launch, a total of 560 formulary and non-formulary accounts have ordered YUPELRI, and more than two-thirds of these accounts have reordered at least once. Launched-to-date, formulary wins totaled 191, covering over 360 of these accounts with a formulary win rate of 90%. 78% of these formulary accounts have purchased to date. The team remains on track to deliver on both strategic imperatives, expanding the formulary access base through the remainder of the year and prioritizing patient demand-pull through efforts in the accounts with YUPELRI already on formulary. We continue to provide exceptional medical information support to our customer base, fulfilling 100% of healthcare provider requests in under 30 days since launch. We estimate that through the third quarter of 2020, approximately 50,000 patients have been prescribed YUPELRI since the US launch in February 2019. Now turning to our marketing efforts and the impact on brand perceptions of prescribing behaviors, data as of July 2020 remain positive, including IQVIA Retail Data, and the Durable Medical Equipment market segment, YUPELRI achieved a 17.4% share of the long-acting nebulized market, up from 16% in April 2020. Daily long-acting nebulized tracking data through the week of October 30, 2020 shows YUPELRI approaching 1,000 retail prescriptions on a 7-day moving average. As the retail segment only accounts for a minority portion of the total patients treated with YUPELRI, this is another milestone metric for the quarter. While we have been successful to date, we believe we're only beginning to realize the opportunity to provide value to patients with COPD. Because it's critical that patients have access to YUPELRI, we continue to work to expand coverage for the medicine. We're pleased to announce that YUPELRI's commercial coverage has increased to 74%. This improving picture for access plays an integral role in the strategic outlook for YUPELRI for the balance of 2020 and beyond. Before COVID-19-related restrictions on our field-based activities, institutional volume was strong and growing in our targeted accounts. Our representatives have returned to site-specific in-person healthcare provider engagements during the quarter with appropriate mandatory safety measures in place. Our focus in the fourth quarter is to accelerate our growth that was reignited in the third quarter. As our careful and selective reentry continues, we will monitor our environment and our investments closely and we're poised to react quickly. And now, I'll turn the call over to Brett for an update on our clinical development programs.

Thanks, Frank. Moving to Slide 7, I'll provide a brief update on our pipeline. Like the commercial team that Frank spoke about, the clinical development teams have adopted innovative approaches in response to the pandemic. For ampreloxetine, our once-daily norepinephrine reuptake inhibitor in development for the treatment of patients with symptomatic NOH, we've worked with the US FDA to decentralize our ongoing trials to allow this fragile patient population to participate in the program without traveling to the clinic. The decentralized approach is now being rolled out across the Phase 3 program in the US and globally in an effort to overcome the challenges that patients face regarding travel, healthcare access, and participation in clinical trials. We continue to see high rates of site activity, screening, and randomization into the program, and we expect to report results from the 4-week SEQUOIA study in the third quarter of 2021. Turning to TD-1473, our gut-selective pan-JAK inhibitor for the treatment of inflammatory bowel disease in partnership with Janssen. We have two studies in progress, RHEA is a Phase 2b/3 study for 1473 in patients with moderately to severely active ulcerative colitis and DIONE is a Phase 2 study in patients with Crohn's disease. These studies are expected to read out in the third quarter of 2021. Moving on to TD-8236, our lung-selective inhaled pan-JAK inhibitor in development for the treatment of inflammatory lung diseases, including steroid-resistant asthma. We completed Part C of the study, enrolling the asthma patients that we believe will benefit most from 8236, namely patients with moderate to severe asthma who remain poorly controlled despite treatment with inhaled steroids. While we did not see a response for the 150-microgram dose in the Lung Allergen Challenge study, we demonstrated target engagement on key biomarkers of lung inflammation, including exhaled nitric oxide. The biomarker effects on pSTAT were consistent in patients with both T2-dominant and non-T2-dominant asthma. The data is still being analyzed, and we'll look closely at the gene expression and cytokine data from Part C to help inform our conclusions and next steps for 8236. Regarding TD-0903, which is currently in development for COVID-19 patients, we've seen promising data so far and expect to update you on our progress in early 2021. I'll now turn the call over to Andrew for the financial update.

Thanks, Brett. Before moving into our financials, let's start with an update on GSK's TRELEGY. As a reminder, TRELEGY is the first and only once-daily single inhaler triple combination therapy approved for the treatment of COPD and recently approved for the treatment of asthma. After the September 9th FDA approval, GSK immediately initiated commercial activities to support the US launch of this additional indication. Also, as a reminder, Theravance Biopharma received upward tiering royalties on global net sales of TRELEGY. At present, 75% of the income from our economic interest is pledged to service principal and interest payments on our outstanding non-recourse notes, and the remaining 25% of income is retained by us. During GSK's recent earnings call, they noted that TRELEGY continued to grow nicely, with quarterly net sales up 45% year-over-year, generating global quarterly net sales of USD252 million. GSK also noted it received a Complete Response Letter from the FDA for their separate supplemental NDA filing that had sought to secure an all-cause mortality benefit claim in COPD. Moving to Slide 19, I'll begin with the financial highlights for the third quarter and then close with our updated 2020 financial guidance. Total revenue for the third quarter 2020 was $18.3 million compared to $12.4 million for Q3 2019. The operating loss was $76.6 million or $61.1 million, excluding share-based compensation expense. This compares to $65.2 million and $52.2 million for the same respective figures during Q3 2019. We ended the quarter with cash, cash equivalents, and marketable securities of $358.3 million. Regarding updated 2020 financial guidance, we are modifying our full year operating loss, excluding share-based compensation to a range of $225 million to $235 million compared to our previous range of $205 million to $225 million. This increase is due predominantly to the acceleration of TD-0903 into the clinic. Our guidance does not include royalty income for TRELEGY, nor does it include benefits from potential future business development activities. Finally, our guidance could change due to factors such as the timing and cost of clinical development programs, ongoing COVID-19 risks and challenges, or other operating factors that could impact our full year 2020 financial results. With that, I'll turn the call back to Rick for closing remarks.

Thanks, Andrew. I sincerely appreciate the work of the Theravance Biopharma team and what they've been able to deliver through their passion, dedication, and their commitment. Our teams focused on execution across all disciplines, continuing to make progress and carrying momentum forward through these last few months of the year and into 2021. With YUPELRI now profitable on a brand basis, and TRELEGY continuing to lead the market as a single inhaler triple therapy, growing market share with the potential to increase growth with the new asthma indication, our financial complexion is changing. Adding to the financial dynamic is a clear pathway that we've now laid out for our late-stage clinical program readouts, advancing our pioneering science that may lead to transformative medicines capable of significantly impacting the lives of patients. With data coming in for NOH, ulcerative colitis, Crohn's disease, and lung hyperinflammation due to COVID-19, over the next few quarters with Janssen's potential opt-in expected in late 2021 for TD-1473, and then Janssen covering the next phase of trial expenditures, the financial outlook is increasingly appealing. Theravance Biopharma presents an attractive combination of future revenue and pioneering science with rare disease and IBD catalysts in 2021, driven by our research development engine that leverages our deep knowledge in chemistry and biology to formulate organ-selective treatments targeting active disease states. I couldn’t be more optimistic and excited about 2021 and beyond. I will now hand the call back to the operator for questions.

Thank you, sir. We have our first question from the line of Marc Frahm with Cowen.

Hey, thanks for taking my questions. First, just to start off with the TD-1473 and refinement of when that data would come. Can you just talk about what assumptions are kind of built into getting to that Q3 data release? And has there been increased COVID impact in the last few months since the last earnings call when you thought things had recovered?

Thanks, Marc. I'll make a couple of comments and shift it over to Brett. I think that over the last few months, we've seen significant continuation of an uptick in the UC study as well as the Crohn's study. Our teams have become much more agile in handling challenges that COVID may pose at any given site around the world. It’s this combination of progress to date, along with the ability to manage the challenges of COVID that justifies our guidance of the third quarter. Again, we'd expect those to be two separate releases. But Brett, do you want to add to that?

Thanks, Rick. And Marc, thanks for the question. Just to add to what Rick was describing, you're right, certainly in the first wave of the pandemic, we did experience disruption from COVID. You may recall that we consciously decided to suspend screening for new patients coming in for about four weeks. However, as we opened individual sites, we saw a resurgence of activity. This didn't happen overnight. It took time, but as summer progressed, we saw levels of activity resembling those we observed pre-pandemic. We are conscious that the upcoming winter may present challenges in isolated pockets globally. We are documenting lockdowns in certain parts of Europe, and we’ve compensated for that in several ways. Sites are better prepared now, with PPE and testing more readily available. We also have a large network of sites in over 20 countries participating in the 1473 program, so we believe isolation in certain regions should not severely detriment our productivity. However, the timeframes leading us to the third quarter data release depend on lead times. Once we enroll the last patient, it takes two months to follow them through the UC study and three months in the Crohn's study, since that's the duration of treatment. Lastly, there are challenges in cleaning and analyzing data, particularly during COVID, affecting data monitoring. However, we emphasize the quality of the data as we finalize that cleaning process.

Okay, great. Thanks for that detail. And then maybe on 8236, you studied some other doses, I believe, in trials tonight as well. Did you see a dose response on FeNO across those other doses? And can you speak to the kind of weight of evidence regarding success in longer-term trials on things like exacerbations for FeNO versus the LAR within this drug?

Brett, do you want to take that?

Thanks, Rick. So Marc, regarding other doses, in Part B of the study, we examined a range from 150 micrograms up to 4,000 micrograms in mild asthmatics. We did observe some dose dependency. The 150-microgram dose did not result in significant changes in nitric oxide, while dosing beyond 150 micrograms started showing improvements. With only minor differences between the 1,500 and 4,000 microgram doses, this informed our dose selection. We’ve seen some reproducibility and with the LAR study in the Lung Allergen Challenge, the 150-microgram dose did not produce notable changes, while the 1,500 microgram dose did. This consistency gives us confidence that we are effectively engaging with the biology but have not targeted the late asthmatic response. As for weighted evidence regarding predictive capacities of nitric oxide or LAR in terms of long-term exacerbations, it is mechanism-dependent. For instance, NUCALA does not modify LAR but has been approved for exacerbation reductions in moderate to severe asthmatics; conversely, inhaled corticosteroids do both.

Okay, thank you.

Your next question comes from the line of Anupam Rama with JPMorgan.

Hey, guys. Thanks for taking our questions. This is Matt Bannon on for Anupam. Following up on your response there, Brett, you mentioned that dose responses kind of taper out between 1,500 and 4,000 micrograms in terms of FeNO response. But is there any reason to believe that there might be some threshold to overcome in terms of the late asthmatic response, in which case you could use one of those higher doses in another follow-on study? I know that some drugs like NUCALA have been approved in the absence of this type of data, but that might be interesting. And secondly, we noticed that GSK received a Complete Response Letter from the FDA for including all-cause mortality on TRELEGY COPD label. So just wondering if GSK has informed you of the nature of the CRL and if they plan on resubmitting? Thanks so much.

Yeah, I'll take the GSK question. No, they haven't informed us on the nature of the CRL. Brett can comment on dose dependency of LAR. Just before Brett does, I'd say you know this is the first inhaled JAK inhibitor that's been in this type of study. And across different mechanisms evaluated, you see a variety of results. Some agents, like an anti-TSLP antibody, show negligible effects at 42 days in the Lung Allergen Challenge study but significant effects at 84 days. There’s probably multiple parameters influencing this outcome. Brett?

Thanks, Rick. I absolutely agree. The lack of precedents in this space was anticipated going into the Lung Allergen Challenge study. The threshold concept is interesting and one we are contemplating. It would be premature to speculate about the root causes right now, as we are reviewing the data closely. We have further data to assess, especially from our moderate-to-severe asthmatics, including cytokine and gene expression data, and I think this analysis will help us understand modulation across various parameters. We expect to report this data publicly through a scientific congress through next year.

Great. We'll look forward to it. Thanks, guys.

Your next question comes from the line of Vikram Purohit with Morgan Stanley.

Hi. Thanks for taking my question. I had a question on the royalty dispute on TRELEGY ELLIPTA royalties with Innoviva. Could you walk us through the current dispute's nature? Also, what might be the central issue to be discussed during the arbitration proceeding that your release mentioned is scheduled for the first quarter of '21?

Sure. The dispute, as we outlined in our early June 8-K, pertains to plans to invest in two private companies with funds from the LLC. We indicated then that we might dispute the proposals based on laid plans, and the LLC agreement calls for arbitration for such matters. The agreement has confidentiality clauses regarding the arbitration, but we expect the arbitration to conclude in the first quarter of the year. I would refer people to the unredacted LLC agreement filed as part of the 2014 separation papers between Theravance Biopharma and Innoviva. We're committed to protecting our rights to the royalty stream.

Okay, understood. Thank you for that. As a follow-up on a separate topic, could you talk about the effects you're seeing from the protocol adjustment you announced last quarter in the ampreloxetine Phase 3 study? Has it been positive for the study so far?

Yes. The protocol adjustments made last quarter are beginning to show impacts. Specifically, we observed significant improvement in the third quarter, driven both by underlying dynamics of the study and the maturation of clinical sites along with our ongoing work—including decentralization—across sites.

Just to expand on that, we've been very pleased with the response of our investigators. Initially, we feared there might be resistance to ideas of taking patients out of clinics, but the opposite happened. Investigators embraced this flexibility in how they could see their patients, both in clinic and at home. This adaptation allows sites to perform better and access patients previously unwilling to participate because they had to come into the clinic, which we see as a major value addition.

Okay, got it. Thanks for that.

Your next question comes from the line of Douglas Tsao with H.C. Wainwright.

Hi. Good afternoon, and thanks for taking the questions. On 8236, although it seems disappointing not to see an effect in the LAR study, the strong FeNO effect has been consistent. Could you clarify your future path regarding milestones or further work for this asset? Is it essential to achieve LAR for approval?

Doug, thanks. As Brett mentioned, we still have a significant amount of analysis on the data, particularly from the Phase 1c moderate to severe patient cohort, which is a primary target for the medicine. Both the data sets from the 1c study and an ongoing larger study of a nebulized JAK inhibitor for hyperinflammation should yield important information on the use of JAK inhibitors in inflammatory states. This unique data obtained from 0903, about how the JAK inhibitors operate in the lungs, should significantly add value to our understanding.

Would it be safe to say that by the time you report 1Q earnings next year, you'd have a more defined roadmap for 8236 and 0903?

Yes, we mentioned we would provide Phase 2 data for 0903 in the second quarter. Depending on the timing of the earnings call, we should also complete our evaluation of the biomarkers in the Phase 1c study and gene expression data. This will help clarify the effects of JAK inhibitors in the lungs. Brett, do you want to add anything?

We're openly looking to rely on external expertise as well. We have a panel of experts externally who can help us interpret various mechanisms, and we plan to integrate their insights during our planning process.

This is an exciting time for us because an inhaled JAK inhibitor hasn't been administered to humans for treating inflammatory conditions. The information we gain is unprecedented. Hence, we believe we stand at the forefront of using JAK inhibitors in inflammatory states in the lung.

Thank you for the additional information.

Your next question comes from the line of Alan Carr with Needham & Company.

Hi, and thanks for taking my questions. Following up on this topic, Brett, what do you need to see from the biomarker and gene expression data to convince you that further development is warranted for this drug?

Brett, do you want to take that?

Thanks, Rick, and hi, Alan. The cytokine data will be especially crucial. We expected to see downregulation of key cytokines implicated in the inflammation of these moderate to severe asthmatics. The limitation with the allergen challenge study is that it's in a milder population. We're effectively trying to mitigate an abnormal insult in the lung, something experimental that doesn't typically happen in real-world moderate and severe cases, where the symptoms manifest differently. We'll be analyzing both the gene expression and cytokine data in moderate to severe asthmatics, which should provide better clarity.

With respect to your COVID trial, what do you hope to see in the second quarter that would justify further development there? Considering competitive programs as well.

The COVID study serves as a measure for addressing acute hyperinflammatory states in the lung. While we use SARS-CoV-2 infections to identify acute hyperinflammatory cases, similar conditions arise in other acute diseases. Our goals are to improve metrics like oxygen levels, reduce hospital stays, avoid mechanical ventilation, and gather exploratory datasets on blood cytokine levels and biomarkers of lung injury—these will be crucial for understanding 0903's capabilities in such conditions.

We're encouraged by signals from other JAK inhibitors like baricitinib used in COVID-19. The recent NIAID study suggested that baricitinib enhanced the benefits of remdesivir for patient recovery and discharge time. Compared to oral doses of baricitinib, we expect 0903 to achieve higher concentrations in the lung, which should positively influence cytokine storm management from its origin. This should provide significant potential for 0903 in COVID-19 treatment.

Thanks for taking my questions.

Thank you. 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.

Thank you, operator, and thanks everyone for participating. Stay safe, stay healthy, and have a great day.

This concludes today's conference call. We thank you for your participation. You may now disconnect.