Theravance Biopharma, Inc. Q1 FY2021 Earnings Call

Ladies and gentlemen, good afternoon. I'd like to welcome everyone to the Theravance Biopharma First Quarter 2021 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. Also, today's conference call is being recorded. I would now like to turn the call over to Gail Cohen, Vice President, Corporate Communications. Please go ahead.

Good afternoon, and thank you for joining the Theravance Biopharma First Quarter 2021 Conference Call to discuss our business. As always, I remind you that this call will contain forward-looking statements that involve risks and uncertainties, including statements about our development pipeline, expected benefits of our products, anticipated timing of clinical trials, regulatory filings and expected financial results. Information concerning factors that can 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 Rick Graham, Senior Vice President Development; Frank Pasqualone, Chief Business Officer; and Andrew Hindman, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Now, I will hand the call to Rick Winningham for opening remarks.

Thanks, Gail. 2021 is a pivotal year as we progress on the strategy of approaching drug development differently. We're pioneering a new generation of small molecule medicines designed to better meet patients' needs and this year driving several clinical study readouts over the next several months. We believe we can deliver medicines that can make a difference, because of how we approach the drug design process as highlighted on slide 4. By harnessing our deep understanding of chemical design and the intersection of that design with disease biology, our novel compounds are first delivered to an area in which the disease is active. Thinner molecules are uniquely designed to optimize the activity exposure relationship in the organ of interest, while simultaneously minimizing activity outside the targeted disease area. This precise approach aims to expand the therapeutic index of the treatment, which is typically a narrow window for systemic drugs to potentially result in better efficacy and fewer side effects. As I said, the process starts with an understanding of the underlying disease, constructing a molecule in the anti-inflammatory space, to modify inflammation in specific tissue, whether targeting tissues of the lung, the gut, the eye or the skin. We rely on our in-house proven translational science and development expertise complemented by strategic partnerships to create proprietary medicines of unique value to patients, health care professionals, payers and hence investors. We will have three important clinical studies reporting data beginning in the second quarter and throughout the balance of the year. Moving to slide 5, you could see all of our key programs. First, let me address the delay in the Crohn's program. Like many working to deliver better treatments to the Crohn's community, we've experienced recruitment challenges. We're working as expeditiously as possible to complete enrollment in order to deliver top line results for the izencitinib program in Crohn's in late 2021, or early first quarter 2022. Outside the Crohn's program, we're delivering on our strategic priorities and remain focused on creating significant value for our shareholders in three ways. As noted on slide 6, first commercial performance, even during a respiratory pandemic for a COPD treatment like YUPELRI as we shared in the third quarter of 2020 has been contributing to the change of Theravance Biopharma's financial complexion. As we started 2021, YUPELRI market share in retail and durable medical equipment segment moved to its highest level in January 19% since the launch of the brand. As pulmonologists begin to see more moderate to severe COPD patients again, and refocus their practice, YUPELRI is positioned to provide benefit to patients, who require the medicine whether it's through increased hospital admissions, or office visits. Second, we'll deliver on key inflection points for programs that have been a major focus of the company. Ampreloxetine a wholly-owned transformational product in rare disease and symptomatic nOH with Phase 3 data in Study 0169. Delivering on the promise of unique organ-selective medicine for IBD complemented by a partnership with a market leader Janssen for izencitinib in ulcerative colitis and the immediate future Phase 2 data on nezulcitinib an inhaled novel JAK inhibitor targeted at stopping pulmonary hyperinflation of the lung. And third TRELEGY driven by the launch of asthma continues to grow providing a source of capital for our business. Given the importance of the development pipeline delivering on the key data readouts throughout the remainder of 2021, I'll turn the call over to Rick Graham, Senior Vice President of Development. Rick will begin by highlighting the key timelines and reasons why TBPH is excited about the readouts. Following Rick, Frank will review the YUPELRI first quarter commercial results. And finally, Andrew will review our financial results and guidance. Rick?

Thanks, Rick. It's exciting to be part of the quarterly update, especially during such a transformational year for the company. While this is my first time presenting in the quarterly call, I've been part of the Theravance Biopharma team since October 2015 helping the company execute across research and translational science, development and commercial and have had the opportunity to lead the Ampreloxetine and Izencitinib project teams. Scientific excellence and focus on insight and innovation make Theravance Biopharma a special company. I believe it's because of this difference amongst others that we've been able to recruit top talent into our development organization over the last 18 months including Dr. Chin Lee, who recently joined our company as Vice President, Head of Clinical Science and Chief Medical Officer. Chin brings extensive drug development experience having previously been at Genentech, Lilly and Abbott. His prior success in leading novel therapeutic programs across a variety of therapeutic areas will be valuable as we seek to advance our pipeline. Chin obtained his medical degree from the University of North Carolina at Chapel Hill and also has a Master of Public Health from Northwestern University. We're delighted to have Chin join the Theravance Biopharma team. Moving to the pipeline. Let's first discuss Nezulcitinib on slide 7, our nebulized lung-selective pan-JAK inhibitor. We first talked about Nezulcitinib during our R&D Day back in 2018 when we were studying it for the treatment and prevention of lung transplant rejection. Then last year in response to the pandemic, we deliberately chose to expand the clinical development program to begin studying Nezulcitinib as a potential therapy for acute hyperinflammation of the lung as a result of COVID-19. As the pandemic continues to surge in certain communities and parts of the world, treatments are needed for hospitalized patients. Moving to slide 8. Theravance Biopharma is developing Nezulcitinib to inhibit the pulmonary inflammatory cascade triggered in response to viral infection. As a JAK inhibitor, Nezulcitinib intervenes broadly to interrupt immune activation and restore balance. By nature of being an inhaled lung-selective treatment, Nezulcitinib is designed to deliver a therapeutic dose directly to the lung through nebulization with minimal exposure to the bloodstream and other organs. We believe that achieving this immune homeostasis is critical to preventing cytokine release syndrome that has been shown to cause acute lung injury, ventilator use and increased morbidity and mortality in COVID-19 patients. On slide 9, we highlight several important observations from our preclinical work with Nezulcitinib that suggests it may provide a unique therapeutic benefit through three distinct activities. Starting on the left panel, Nezulcitinib is a potent pan-JAK inhibitor. The middle panel shows that Nezulcitinib may protect against virus-induced cell death. And the far right panel demonstrates prevention of cell entry limiting virus dissemination in the lung by potent inhibition of the endogenous machinery for SARS-CoV-2 infection. Our goal is for Nezulcitinib to be the first inhaled treatment to broadly interrupt viral-induced activation and restore immune balance in the lung. We have now fully enrolled a 200-patient Phase 2 study in hospitalized COVID-19 patients and plan to release the top-line results later in the second quarter. Now let's move to Izencitinib, on slide 10, our oral gut-selective pan-JAK inhibitor to treat inflammatory bowel diseases, which is partnered with Janssen. On the next two slides, I'd like to paint a picture for you that should really underscore the value of the organ-selective approach in IBD, the goal of which is to maximize therapeutic benefit to patients while minimizing side effects. We do this by keeping two key design principles at the forefront; first, targeting validated disease biology; and second, designing Izencitinib's novel chemistry to unload active drug directly to the site of action in the gut. For IBD, the biology we are targeting is the JAK pathway. We posit that potent inhibition across all JAK isoforms, that is JAK1, JAK2, JAK3 and Tyk2 within the GI tract is the key to maximizing the therapeutic benefit while minimizing the risk of systemic immunosuppression. We believe a gut-selective JAK inhibitor like Izencitinib has the potential to be a game changer for the treatment of IBD and that it may become a once-daily oral treatment amenable to earlier lines of therapy as well as combination approaches. On slide 11, I'll highlight a few important data points from our preclinical work and support the gut selectivity of Izencitinib. As shown on the left panel, Izencitinib exhibited high margins of systemic safety in non-clinical studies relative to a systemic JAK inhibitor which has little to no safety margin. On the right panel, you'll note that systemic exposure of Izencitinib is low in patients with ulcerative colitis, which aligns with the high safety margins in animal studies. Notably, the oral bioavailability of Izencitinib is only 2%. That compared to other systemic JAK inhibitors, which were designed to distribute throughout the body and are therefore highly bioavailable. Importantly, gut selectivity confers low systemic exposure and offers a potential for an improved side effect profile compared to systemically distributed JAKs. On slide 12, I'll focus on optimization of benefit or efficacy with a gut-selective approach. On the left panel, we have demonstrated a lack of T-cell infiltration into the lamina propria. That's the site of action for JAK inhibition via NanoString technology in a mouse model of IBD. This result suggests that Izencitinib blocks inflammation and penetrates deep within the colonic tissue. As shown on the right panel, this deep tissue penetration at the site of action in the mouse model translated into clinical activity and the sensitive endpoints of rectal bleeding and endoscopic improvements after only four weeks of treatment in patients with ulcerative colitis. These data which were published in the Journal of Crohn's and Colitis provide confidence in the biologic activity of Izencitinib and its potential to treat IBD by maximizing drug concentration where it matters at the site of action in the GI tract. We expect the top-line results from the Phase 2b ulcerative colitis study in the third quarter and top-line results from the Phase 2 Crohn's study in late fourth quarter to early first quarter 2022. Now let's transition to Ampreloxetine on slide 13. Importantly, we're on track to report top-line Phase 3 results in quarter three for Ampreloxetine, a once-daily Norepinephrine reuptake inhibitor to treat symptomatic neurogenic orthostatic hypotension. As slide 14 notes, we're working to break new ground as there's a significant unmet medical need for the treatment of symptomatic nOH. This condition profoundly impacts the quality of life that occurs in people suffering from Parkinson's disease, multiple systems atrophy and pure autonomic failure. Symptoms in these patients include dizziness or lightheadedness, fatigue, difficulty walking and weakness. This results in a high impact on quality of life, high risk of injury from falls and a significant burden to caregivers for these patients. This condition can lead to depression, social isolation, bone fractures and head trauma due to falls and overall morbidity. Slide 15 depicts how Ampreloxetine may target and correct the impaired basal constriction due to dysfunction of the autonomic nervous system in people that are living with symptomatic nOH. The left panel shows that Ampreloxetine inhibits the reuptake of endogenous Norepinephrine, which leads to an increase in levels at the axon terminal of patients that are still producing Norepinephrine, which results in an increase in blood pressure. With a distinct mechanism of action, Ampreloxetine has the potential to be differentiated from current treatment options in the areas of durability of effect, once-daily dosing and a reduced risk of supine hypertension. It's our goal for Ampreloxetine to be the first treatment to demonstrate a sustained impact for patients managing the chronic and debilitating symptoms of nOH. We look forward to sharing results from the first of two pivotal studies in the third quarter. Next let's move to slide 16 and Frank will speak to the commercial team's progress with YUPELRI. Frank?

Thanks, Rick. Turning to slide 17. Remember YUPELRI is indicated for the maintenance treatment of patients with COPD. It's the first and only once-daily nebulized long-acting muscarinic antagonist that provides a full 24 hours of control for patients. In the second full year since its launch, YUPELRI continued to experience solid net sales growth on an annual basis in 2020, which is a trend we expect to continue in 2021 and beyond given the significant patient opportunity for YUPELRI. Theravance Biopharma and Viatris co-promote in the US with our combined sales infrastructure targeting health care professionals who treat COPD patients suitable for YUPELRI. As a reminder, Theravance Biopharma commercial and medical field teams cover the hospital segment for COPD patients and Viatris covers the community pulmonologists. Also remember that Viatris-Theravance Biopharma commercial partnership is a 65/35 profit and loss split, so this only shows our implied 35% of the YUPELRI sales. On slide 18, we present Theravance Biopharma's implied 35% share of net sales for YUPELRI during quarter one of 2021, $12.9 million in revenue in quarter one. Turning to slide 19. We continued to gain share in both the hospital and the community settings. Many patients with COPD experience an acute episode serious enough to require a trip to the hospital for immediate care. The hospital then becomes a key point to assess and to switch a person with COPD from their current medicine to YUPELRI. Data shows that many patients who receive YUPELRI in the hospital are discharged with a prescription to continue treatment allowing for continuity of YUPELRI therapy for patients post-discharge. The Viatris and Theravance Biopharma teams continue to work effectively at converting business from competitive products to YUPELRI during the hospital to outpatient experience. Notwithstanding, the unprecedented nature of 2020, the product continues to effectively manage pandemic-associated headwinds. While YUPELRI picked up momentum throughout the quarter, quarter one 2021 net sales were flat compared to quarter one 2020 and were down 5% from quarter four 2020. In January and February of this year, sales force and HCP interactions remain difficult, which affected our ability to get in front of COPD medicine prescribers. However, the environment improved in March and demand for YUPELRI was up 28% over February. In-person details grew 65% over baseline in March. We've also been encouraged with the prescription activity through late April. Both new-to-brand Rxs and total Rxs have continued the upward growth that was reignited in the late first quarter. In addition, hospitals continue to add YUPELRI to formularies and new accounts are being added weekly. You can see this upward growth on slide 20 progressing beyond the end of quarter one. We continue to track the key performance metrics since launch and these are quarter one 2021 metrics. A total of 719 formulary and non-formulary hospital accounts have ordered YUPELRI and 67% of these accounts have ordered YUPELRI at least twice. Quarter one 2021 formulary wins totaled 11, representing 38 total accounts which equate to 440 formulary accounts launched to date a formulary win rate of 91%. 85% of these formulary accounts purchased to date owing to a lag between formulary approval and ordering commencing. Our Med Affairs team continues to provide timely information to HCPs based on inbound requests and requests for formulary presentations. In fact, the medical science liaisons formulary support for presentations in quarter one 2021 was the highest since quarter one of 2019, when the brand launched. At the end of quarter one, YUPELRI's commercial coverage was 74%. Looking ahead, it's important to understand that according to the gold guidelines alarm that is foundational to COPD maintenance care for appropriate patient types. The execution of our tactical plan will continue to leverage the guidelines in appropriate patient types while we continue to optimize the marketing mix through rigorous and continued measurement of tactics. So now, I'll turn the call over to Andrew to review the financials.

Thanks, Frank. Before we discuss Theravance Biopharma's financials, let's begin with an update on GSK's TRELEGY. TRELEGY is the first and only once-daily single inhaler triple combination therapy approved for treating COPD and asthma. Theravance Biopharma will receive tiered royalties on global net sales of TRELEGY through our interest in TRC LLC. Currently, 75% of the income from this interest is allocated to servicing interest and principal payments on our outstanding 2035 non-recourse notes, with the remaining 25% retained by us. In January 2021, we received $21.3 million from TRC LLC, followed by an additional $20.2 million in April 2021. During GSK's first quarter earnings call, they reported that TRELEGY maintained its market leadership as a single-inhaler triple therapy in the first quarter, with sales growth of 37% compared to the same period in 2020, resulting in global net sales of $341 million in Q1 2021. Moving to our financial highlights for the first quarter of 2021 compared to the first quarter of 2020, R&D expenses were $67.6 million, up from $66 million in the same timeframe last year. SG&A expenses for the first quarter totaled $30.6 million, compared to $26.3 million in 2020. For our full year 2021 financial guidance, we are reaffirming our earlier projections. For R&D, excluding share-based compensation, we expect to invest between $195 million and $225 million, compared to an actual R&D investment of $230 million in 2020. For SG&A, excluding share-based compensation, we project a range of $80 million to $90 million compared to actual SG&A of $77 million last year. As mentioned in our previous quarterly call when we provided the 2021 guidance, we anticipated increased spending in the first half of 2021 compared to the latter half, primarily due to annual incentive compensation expenses incurred in the first quarter. Now, I will hand the call back to Rick for closing remarks.

Thanks, Andrew. As we bring our Q1 update to a close, I will share once again our 2021 milestones and value-driving catalysts for what we plan to be a transformational year. The scale and breadth of our development programs are beginning to deliver results and we're eager to see our science come to fruition. While we're excited about the science, we're most enthusiastic about what it can potentially mean for people who need the medicines most, whether it's preventing the person hospitalized with COVID from entering the ICU and disease progression or MSA or Parkinson's patient and their family managing nOH experiencing fewer falls or a young adult trying to live a normal life while navigating the daily pains and challenges of ulcerative colitis or Crohn's disease. We look forward to the day the Theravance Biopharma development organization could pass the baton to our commercial team who can make a difference in these communities as they made a difference in the COPD community with experienced compassionate improved treatments that provide a better quality of life. As a reminder, our near-term catalysts are nezulcitinib Phase 2 top-line results in this second quarter, two critical data readouts in Q3 of 2021; ampreloxetine Phase 3 and izencitinib Phase 2b for ulcerative colitis and Phase 2 Crohn's disease in late Q4 early Q1. I'll now hand the call back to the operator for questions.

Thank you. We'll now take our first question from Liisa Bayko with Evercore ISI. Your line is open.

Hi. Thanks for taking the question. Can you comment on why the trial is enrolling more slowly in Crohn's disease compared to the ulcerative colitis study?

Yes. It's a good question. I think Crohn's traditionally is looked across the industry it's been a little bit slower to enroll generally regardless of the development program. I think second that once you have patients that are on a successful medicine and they begin to get treatment particularly in the period of COVID, they've been slower to switch off. And with that I'll turn it over to Rick for some additional comments.

Yes. Thanks Rick and thanks for the question. Just a couple of things to add. With enrollment complete now for nezulcitinib and izencitinib for ulcerative colitis in the 2b study and nearly complete revefenacin, we've shifted resources over the Crohn's study so that we can further enhance our engagement with clinical trial sites. So we do see the light at the end of the tunnel and we'll deliver the Crohn's data as expeditiously as possible.

Okay. And from Janssen's perspective are they waiting to see data from both studies before kind of making that opt-in decision? Or will it be based on just one is, do you have any sense of how they're thinking about it?

Yes. As I mentioned before, we are consistently collaborating with Janssen on this program, and we have a strong relationship. They are closely monitoring the advancements in the ulcerative colitis program and are excited about the upcoming data. According to our agreement with Janssen, we are required to provide both Crohn's and ulcerative colitis data packages to them for the opt-in. We also need to coordinate with them to prevent any potential delays associated with the differences in data between ulcerative colitis and Crohn's. It's important to remember that we are currently progressing towards a Phase 3 maintenance program in ulcerative colitis. Now, I will have Rick discuss our regulatory plans once we obtain the ulcerative colitis data. Rick?

Yes, sure. So when we receive the Phase 2b data in ulcerative colitis in Q3, we will be planning to have into Phase 2 meetings with both FDA and EMA. So at the end of that Phase 2 study we'll need to select a dose. There are three doses that are ongoing in that study to move forward into the Phase 3 induction study.

Okay. Okay. And then for ampreloxetine, can you maybe just review how you're thinking about the regulatory strategy? I know you're doing two studies yet you kind of look at the field with Northera, this is a much more robust program even with just the one study that really they did. And maybe you can tell us how you're thinking about kind of your next steps after this trial reads out. That's my last question. Thank you.

Rick, go ahead.

Yes. Thanks for that question too. So, just a reminder to everybody about the program that you're referring to. We have two pivotal trials. The first of those is called SEQUOIA. This is a four-week efficacy study randomized placebo-controlled. Patients from SEQUOIA at the end of that four-week treatment period can roll into the next study which is a durability study called REDWOOD. That's a 16-week open-label study. At the end of 16 weeks, there's a randomized withdrawal for another six weeks. So it is a very robust program. We worked closely with the FDA on the design of the study. And what our plan is currently is at the end of the SEQUOIA study, again, top-line results in Q3 for that study, we will be having a conversation with the FDA. Depending on the results, our plan is to engage the FDA especially around the area of Breakthrough Therapy designation. Now we do expect that we'll need to complete the SEQUOIA and the REDWOOD study as part of the filing package. But with Breakthrough Therapy designation there are benefits with regard to an enhanced or expedited NDA review and we'll be exploring those with the FDA.

Okay great. We're excited for all these upcoming catalysts so thank you for the questions.

Our next question comes from Marc Frahm with Cowen. Your line is now open.

Hey, thanks for taking my questions and the granularity you're able to give on YUPELRI. The market share in the formulary data certainly seems impressive. What do you think needs to happen to the kind of broader nebulized market to kind of allow those metrics to really start translating into greater sales growth? And obviously that will have tremendous impact to the bottom line for you guys.

Yes, I believe that now that COVID is less of a concern, we have pulmonologists available again and COPD patients, who are already a vulnerable group, can start seeking better therapies than what they have been using. This will create a significant shift because, based on any data regarding office visits or new prescriptions from pulmonologists during the pandemic, there has been almost nothing happening in this specialty. Therefore, as we transition out of COVID, our representatives will be able to continue meeting with pulmonologists. As Frank mentioned, we have been quite successful in securing formulary approvals, and now those approvals need to translate into orders, which Frank will explain further.

Yes. No, Rick you touched on a lot of the things that really matter. I mean the primary driver of the results was really the surge in infections particularly in late 2020 and bleeding into 2021 in many parts of the country. This was really a double-edged sword for YUPELRI because our target audience pulmonologists were occupied treating patients with respiratory problems. Also a lot of institutions and hospitals restricted access for our people. And due to that quite frankly both companies kept people home safely at home for quite some time during late 2020 and also 2021. We did see sort of a re-ignition toward the end of first quarter that we were very pleased with. It coincided with other market factors that we thought were going to contribute to the growth of YUPELRI. Just starting off with April the early prescription data we've seen from April shows new-to-brand Rxs and total Rxs are growing nicely. We've now had a chance to evaluate all of our non-personal promotion and digital assets that we put in place during the pandemic. We've taken a look at those. We've refined made improvements in the investment portfolio the weighting of each of those and the prioritization since we know a lot more about the return on investment for those. I would also add we have both companies full complement of sales representatives back in the field for face-to-face interactions. And this is important for obvious reasons but it's also important because our promotional effectiveness is significantly higher when we're in-person in front of a customer. And we also know that our in-person details as a percent of total details continue to increase on a weekly basis. And I guess I would also add that we increased share throughout the pandemic in 2020. So we view all of this as leverage points compared to the pandemic period which allows us to feel pretty positive about the balance of 2021 and beyond.

To conclude, we have discussed this previously, but we believe that patients experiencing low peak inspiratory flow, specifically within the COPD population, can greatly benefit from YUPELRI. This belief is supported by prior clinical research, and we will initiate another clinical study this year aimed at expanding the market to include more patients with low peak respiratory flow.

Okay great. That's helpful. And then maybe just more for Andrew or maybe Rick. Can you give us some more granularity on the financial guidance and kind of how you expect some of the spending to evolve kind of in the back half of the year as some of these later-stage trials kind of start reading out? I guess should we expect spending to kind of drop significantly as those readouts happen? Or because of these rollover studies should we kind of be expecting as we head into 2022 the R&D expenses to stay similar?

Go ahead Andrew.

We are not going to provide additional quantitative details beyond what we've already shared for the full year. However, your observations about the spending composition are valid. With some key studies for ampreloxetine, izencitinib, and nezulcitinib completing their currently designed phases, we do anticipate lower spending for the remainder of the year. Development spending will be the main factor here, as our SG&A expenses are expected to remain steady. I hope this provides some clarity. Additionally, it's important to remember that our cash flow-generating products, YUPELRI and TRELEGY, are continuing to grow, and we expect that growth to increase as the year progresses. This reflects the evolving financial landscape of our business, which has been accelerating in 2021 and is expected to continue into next year and beyond.

Okay. Thank you.

Thank you. Our next question comes from Geoffrey Porges with SVB Leerink. Your line is now open.

Thank you very much. And just first of all to follow up on the cash question. It sounds as though you are planning, if not initiating, a further trial in ulcerative colitis, before you get the Crohn's data and the J&J opt-in. Is that a correct interpretation of your comments? Or is it that you won't start that ulcerative colitis trial until the first part of next year when you get the Crohn's data? The first question...

No, the maintenance Phase 3 study has been ongoing since we began the Phase 2b portion. We negotiated with regulators in both the US and Europe regarding the nature of the 1b and 2b data, allowing us to effectively roll patients and kickstart the Phase 3 program by including those 2b patients in a maintenance study. This has been in progress since we initiated the Phase 2b program.

Okay all right. So is that maintenance study going to be sufficient for approval or do you need to do an additional pivotal trial in ulcerative colitis?

We'll need to add to the number of patients on maintenance, which will come from an additional induction, Phase 3 induction study that will start with the agreed-upon dose with the regulators post the data. Rick?

Yes. And just a reminder to everybody, this is all rolled together in one seamless Phase 2b/III protocol, so it's a very complicated protocol but it's got the 2b portion. Those patients roll into the maintenance study that Rick's talking about. And then at the end of 2b, there's another Phase 3 induction study that also rolls into that same maintenance study. So this is all part of the same protocol.

Okay. So I just want to follow up. So then will costs go down in the back half of the year or will they be maintained for that program because of that transition?

Well, the cost, sorry, Andrew go ahead.

Well, total spending on operating expenses will decrease from Q1 to Q2 and continue into Q3 and Q4, but we are not providing specific guidance on that. It's more of a general indication of spending. However, for the full year range, we assume that we will keep executing the Phase 2b and the Phase 3 maintenance segment of the izencitinib UC program throughout the year and into the next as per protocol design.

Great. I have a question about ampreloxetine. We're having difficulty assessing the revenue potential because the patient numbers you provided are quite large, yet Northera's revenue peaked at around $350 million. Could you help us understand if that's an appropriate benchmark for the commercial potential of ampreloxetine or if you see it differently? Without giving a specific number, what factors could lead to a significantly different outcome compared to Northera? Thank you.

Yes. I believe there are several key differences between the two products. First, our goal with ampreloxetine as a treatment for nOH is to have a greater impact on patients than Northera did at its peak sales. This is partly because ampreloxetine is a once-a-day medication with a long half-life that should help stabilize norepinephrine levels, thereby effectively addressing dizziness in a way we hope is more effective and durable than Northera. The therapeutic index we expect to achieve with ampreloxetine for patients with nOH is actually higher than what was possible with Northera. Additionally, there will be less interruption with Northera due to improved efficacy and safety. Northera required many patients to adjust their dosage to achieve the desired effect, but we believe that with the long half-life of ampreloxetine, we can simplify the dosing regimen. If the small Phase 2 results are any indication, along with the published increases in norepinephrine levels, we expect to see that efficacy demonstrated in the Phase 3 program. I'll let Rick provide further insights since he's closely involved with it.

I want to highlight an important potential differentiator. Droxidopa is a pro-drug for noradrenaline, meaning it introduces norepinephrine directly into the body. In contrast, ampreloxetine acts as a norepinephrine reuptake inhibitor, utilizing the norepinephrine that is already present in the body. Typically, when patients with this condition stand up, norepinephrine levels peak, while they drop when lying down. This leads to concerns about supine hypertension associated with the black box warning. The introduction of external noradrenaline increases the likelihood of supine hypertension. However, by using the body's own norepinephrine, which is at lower levels during the night, we believe the risk for supine hypertension is significantly reduced. This will be a crucial differentiating factor for us.

Perfect. Thank you very much.

Thank you. Our next question comes from Anupam Rama with JPMorgan. Your line is now open.

Hey guys. Thanks so much for taking the question. I was just wanting to follow up on a prior question which is how much site overlap is there between the UC and Crohn's disease studies for izencitinib? And maybe you could expand on when you say you're going to devote more resources down to the Crohn's disease study like what does that mean? And maybe if you can provide some color on that? Thanks so much.

Rick, you want to take that?

Sure. Yeah. There's some overlap as you can imagine because in order to enroll this trial of 160-or-so patients you need 100-or-so sites because the number of patients that you get per site is relatively low. So there's some overlap, but it's not entirely on top of one another for UC and Crohn's. And then just to clarify my point about more resources. Really what this requires to get over the finish line here is constant engagement with sites. I mean, there's patients with Crohn's. In order to be eligible for the trial, they need to be in an active flare. There's a lot of pre-screening activity that goes into this. And this is a labor-intensive enrollment process for these clinical trial sites. So what I mean by resources is just more people within the company actively engaging with our clinical trial sites of which we have a lot. So we're just staying on top of that minute by minute hour by hour to get over the finish line.

Thanks for taking the question.

Thank you. Our next question comes from Douglas Tsao with H.C. Wainwright. Your line is now open.

Hi. Good afternoon. Thanks for taking the questions. Just in terms of YUPELRI when we look at the sort of growth that we've started to see sort of at the end of the first quarter, I'm just curious is that coming from the existing sort of account base those that already have it on formulary or is it coming from the addition of new hospitals to the sort of account base? And I'm just curious I think you said that there have been about 719 hospitals that have ordered. I'm just curious what the ultimate sort of N as far as the target universe of hospitals that you see as appropriate.

Sure, I'll make a few points and then hand it over to Frank. We believe we can exceed 1,000 hospitals. Our focus is on those institutions that treat a high number of COPD patients, making this a targeted effort. Recently, over the last four to six weeks, we've observed an increase in orders from hospitals that are part of our tracked group on a weekly basis. Frank, would you like to...

We are receiving business from both our existing customers and new accounts. Our base business is growing, as shown by the increasing number of hospitals purchasing YUPELRI regularly. Additionally, we continue to add new accounts that purchase YUPELRI every week. In fact, the most recent week for which we have data was the fourth highest since we launched the brand, with the previous three highest weeks occurring before the pandemic. We are successfully expanding our business and gaining traction with new accounts. As I mentioned earlier, there is a delay once a hospital adds YUPELRI to their formulary, as it takes time to integrate it into their electronic medical record systems, making it accessible for physicians and pharmacies. Overall, everything is progressing as we had anticipated.

Okay. Great. Thank you very much.

Yes.

Thank you. Our next question comes from Vikram Purohit with Morgan Stanley. Your line is now open.

Great. Thanks for taking my question. I wanted to go back to ampreloxetine and just wanted to see if you could talk a little bit about what you think would be clinical development outcome from the readout expected in the third quarter. And then, also talk a little bit about how we should think about pricing potential, given the different kinds of commercial dynamic that could be at play, if ampreloxetine is successful and eventually approved.

Sure. The FDA has indicated that a 1-point difference is considered clinically meaningful in the OHSA #1 measurement scale, which we find significant. In the Phase 2 study, we observed an improvement greater than that. But, Rick?

Yes, that's exactly right. A 1-point change in the OHSA #1 reflects the question about whether patients feel dizzy, lightheaded, or at risk of blacking out. Additionally, with this well-designed program, we will be incorporating various other quality of life measures. These include the Orthostatic Hypertension Daily Activity scale and patient global impression scale, as well as scales specifically for MSA and Parkinson's patients. We also have a wearable device in the study to track patients' activity and mobility. Therefore, besides the OHSA #1, concerning the approval endpoint, we'll be examining a wide range of factors that truly assess the quality of life for these patients.

From the commercial perspective, there is a range of patients, including those with multiple systems atrophy and Parkinson's disease, some of whom experience nOH. This will create some overlap between commercial and Medicare payments. We haven't gone into detail about our pricing strategy yet, but that work is currently in progress at the company, along with the market segmentation to identify the specific patient groups we need to target. I'm not sure if Frank has anything to add to this.

Yes. No, I was going to add. I mean, we do view ampreloxetine as potentially a highly differentiated product, given the suite of products that are available today. We are working and quite frankly, have been working for quite some time on the medical strategy, the access strategy and we'll have health economic and outcome research data available when this thing potentially launches. So we plan to be very aggressive. And just qualitatively speaking, we plan to price the product commensurate with how we see the differentiation.

Okay. Got it. Thank you.

Thank you. Our next question comes from Brian Skorney with Baird. Your line is now open.

Good afternoon, everyone. Thank you for taking my question. I have a question for Richard regarding the trial design for SEQUOIA and REDWOOD. In the Phase 2 study, we noticed a considerable dropout rate during the first four weeks of treatment, which continued through week 20. I was wondering if any differences were reviewed in the protocol between the Phase 2 and Phase 3 studies to manage that dropout rate. Additionally, how is the ITT analysis addressing drop-offs in each of these studies? Specifically, in the 16-week lead-in and the withdrawal phase in REDWOOD, how is the accounting for dropouts handled leading into the subsequent formal withdrawal? Thank you.

Yes. Thanks, Brian, for the question. This question has come up a lot with regard to the Phase 2 study and the number of patients that we started with versus what we ended with. We're in the process of writing up a manuscript for that Phase 2 study, so that will be coming out very soon and there will be more details to come. That study, however, was originally designed, really, just to look at the presser effect of ampreloxetine. So it was a three-part study. And part A was really just designed to look at blood pressure. We then moved into a randomized section that we call part B. And the real meat of that study was part C, which was a 20-week study. Now there were patients in that Phase 2 study that were coming to Dysautonomia Center in New York, where it was being assessed, from all parts of the United States and even one patient outside the United States. So patients with MSA over 20 weeks traveling to one center, it's going to be very difficult to maintain those on the study. So we see that as very different than the way that we've designed our Phase 3 program. I can comment that, with regard to discontinuation rate, we're pleased with SEQUOIA study, the four-week study, it's around 5%. And then for REDWOOD, our discontinuation rate has been around 33%. As you might remember, we've also decentralized this trial around the world to make it more patient-centric. So these patients now really don't need to go into the clinic except for their very first screening visit where they have their tilt table assessment. So we've in effect taken the clinical trial to the patient's home. With regard to the ITT analysis, we have completed our statistical analysis plan. We've shared that with the FDA. We've come to an agreement with the FDA, so I won't comment on the specifics of that but we do have an SAP in place.

Thank you. Our next question comes from Joseph Stringer with Needham & Company. Your line is now open.

Hi, everyone. Thanks for taking our questions. I have a quick one about the izencitinib option with Johnson & Johnson. My understanding is that they have the option up to 90 days after the combined Phase 2 results for ulcerative colitis and Crohn's disease. Has anything changed now that Crohn's is projected for late 2021 or early 2022? Would it still be up to 90 days after the Phase 2 readout for Crohn's?

The agreement remains unchanged. Our plans are to deliver the data package on ulcerative colitis to Janssen as soon as possible and then to provide the Crohn's data package as soon as we can as well. Initially, we intended to present both data sets together, but it appears they will be delivered separately. We still aim to deliver the ulcerative colitis data promptly and then follow with the Crohn's package. While it might seem misleading regarding delivery timelines, Janssen is fully informed about our program's status and has collaborated with us on study designs, analyses, and packaging. The communication between our companies is transparent, and they understand our delivery plans. According to the agreement, the delivery is expected 90 days after the complete package, which includes both Crohn's and ulcerative colitis data.

Okay. Thanks for taking the question.

Rick did you want to add anything to that?

No nothing to add Rick.

Thank you. Our next question comes from Tazeen Ahmad with Bank of America. Your line is now open.

Hi, good afternoon. Thank you for taking my question. Regarding izencitinib or any of your JAK inhibitors, have you had any interactions with the agency that suggest any increased concern? I'm asking because the agency has been more active in their inquiries about the safety of the JAK class recently. I would like to know if your interactions with them have changed in any way. Also, concerning the commercial potential for YUPELRI, how much is COVID affecting the actual market opportunity? When do you anticipate a recovery? Thank you.

I'll cover the COVID situation and YUPELRI and then pass it over to Rick to discuss our interactions with agencies. As Frank indicated, pulmonologists have been particularly busy in certain areas of the country handling COVID, and they represent a key target audience for YUPELRI, which has made access challenging. Nonetheless, we have managed to add two formularies during the pandemic. Additionally, as Frank mentioned, we've faced delays in accessing hospitals and offices due to COVID, prioritizing the safety of our employees and customers. We anticipate and have already seen improvements in this area for both our sales teams, Viatris and Theravance Biopharma, as different regions begin to reopen. I'll let Frank elaborate on that, and then we'll move to Rick for the discussion on JAK inhibitors.

That's essentially it, Rick. You can see how our business was affected, closely linked to increases in infections across certain regions of the country, with hospitals and institutions limiting access as pulmonologists and other pulmonary health care providers focused on treating COVID-19 patients. As we've moved past that towards the latter part of the first quarter, our business has responded very positively. This trend has continued into April, along with the initiatives I've mentioned regarding our investments and their reprioritization. We now have both our sales force and Viatris' sales force back in the field, and we know our promotional effectiveness is significantly higher during in-person customer visits. So, we hope that the majority of the pandemic impact is behind us, and we are eager to ramp up as the year progresses.

Yes, we have not received any specific communication from the FDA or other health authorities regarding izencitinib or nezulcitinib in relation to the emerging information on systemic JAK inhibitors. In fact, back in 2014, we decided to develop a selective JAK inhibitor to maximize efficacy while minimizing systemic immunosuppression. We included a couple of slides in the presentation today, specifically slides 11 and 12, to highlight that we have generated and published significant research demonstrating the gut selectivity of izencitinib; low dose efficacy in animal models, very high safety margins in toxicology studies, and low systemic exposure in healthy volunteers and patients with ulcerative colitis. There have been no effects on lipids or other known JAK safety concerns so far, and oral bioavailability is only 2% when we administer an IV dose compared to an oral dose. Currently, there is nothing specific from health authorities, and we are pleased with our position. We believe it is the right time to leverage this opportunity to provide a safer treatment for patients with IBD.

Okay. Thanks very much.

Thank you. Our next question comes from Geoffrey Porges with SVB Leerink. Your line is now open.

Thank you very much. I couldn't let the call go by without asking about 0903. I hesitate to say that the lack of other questions is consistent with low expectations for the trial. But could you remind us what's really needed to show clinically meaningful effectiveness? Do you have to show a mortality benefit or a hospital day benefit? I know there are a variety of endpoints, but what's going to determine whether this is really an important breakthrough for treating advanced COVID patients? Thanks.

Sure. Rick do you want to touch on that?

Yes. Over the past year, we've seen significant changes in this field. It has become evident that the endpoints for these trials are now fairly standardized. In the second part of our Phase 2 study, the primary endpoint is straightforward. It's focused on the number of days without respiratory failure from randomization through day 28. Respiratory failure-free days are defined as days when a subject is alive and does not require invasive mechanical ventilation, non-invasive positive pressure ventilation, or high-flow oxygen devices. It’s a relatively simple endpoint.

Geoff, while mortality is important and agencies worldwide are considering it, the increasing data highlights that morbidity related to this disease is becoming a more significant focus. One of the aspects of 0903 that we are excited about is not just its impact on mortality but also its potential effect on the morbidity of the disease, supported by some of the data Rick presented in today's slides.

Thank you. It appears we have no further questions on the phone. I'd now like to turn the conference back over to Mr. Winningham. Please go ahead sir.

Thanks everyone for joining us today. We've got a very exciting remainder of 2021 in front of the company. We look forward to executing and bringing you up-to-date on the exciting events that we have in store for the rest of the year. Thanks for your time.

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