Theravance Biopharma, Inc. Q1 FY2024 Earnings Call

Good afternoon, everyone. I want to welcome you to the Theravance Biopharma First Quarter 2024 Conference Call. Please note that this call is being recorded.

Good afternoon, and welcome to Theravance Biopharma's First Quarter 2024 Earnings Results conference call. On Slide 2, you'll find our safe harbor language. I want to remind everyone that our call today will include forward-looking statements involving risks and uncertainties related to our development pipeline, the expected benefits of our product candidate, anticipated timing of clinical trials, regulatory filings, and expected financial results. Information about factors that could cause results to differ significantly from our forward-looking statements can be found in our SEC filings. Now please turn to Slide 3. Joining me on the call today are Aine Miller, our Head of Development; Rhonda Farnum, Theravance's Chief Business Officer; and Aziz Sawaf, our Chief Financial Officer. Next, on Slide 4, I'll start with a recap of our first quarter highlights before handing over to the rest of the team. As noted on the left side of the slide, we've made good commercial progress with YUPELRI this quarter, achieving $55.2 million in net sales in partnership with Viatris, reflecting an 18% year-on-year growth. Our team at Theravance has had a fantastic start this year in the hospital setting, achieving an all-time high in hospital doses sold this quarter, increasing by 31% from last year. Additionally, we still expect our partners at Viatris to complete a regulatory filing for YUPELRI in China by midyear based on the strong Phase III results announced last November. Moving to Ampreloxetine. We are excited to host a dedicated virtual investor event on May 23 at 10:00 a.m. Eastern. Two experts in the field of autonomic dysfunction and our Theravance team will discuss the compelling science behind ampreloxetine’s potential to address the unmet needs in nOH and MSA patients. We continue to work hard to finalize the registrational Phase III CYPRESS study, with the last patient expected to be enrolled in the second half of this year. We also plan to establish the regulatory and commercial framework that will allow Theravance to quickly and broadly make ampreloxetine available if CYPRESS is successful. Finally, we delivered strong financial performance, driven by solid growth in YUPELRI and prudent expense management. Even with some seasonal transitions from quarter 4 to quarter 1, which is common in the pharmaceutical industry, we experienced limited cash burn, ending the period with $100 million in cash and no debt. Aziz will elaborate on this later, but TRELEGY had an outstanding performance, increasing our optimism about the value that product will deliver to Theravance shareholders in the future. Moving to Slide 5, I will briefly discuss how our strategic priorities position Theravance to provide significant value to shareholders both in the near and long term. We have a comprehensive plan to continue YUPELRI's growth while also achieving expanded profitability and cash returns to the company. Over the last year, U.S. YUPELRI sales grew by 12% to $229 million, while collaboration revenues from Viatris increased by 27%. We anticipate top line data for the CYPRESS study in 2025. If successful, we will act decisively with our regulatory and pre-commercialization strategies to ensure a successful filing and launch for ampreloxetine. Aziz will also discuss how we will execute this strategy while managing our capital to maintain the company's strong financial position. We believe we are well positioned to reach significant milestones in the coming years and to earn meaningful royalties from YUPELRI and TRELEGY in the future. With that, I would like to hand the call over to our Head of Development, Aine Miller, who will share some brief comments on ampreloxetine. Aine?

Thanks, Rick. As Rick indicated, I'm going to keep my comments brief this afternoon, recognizing that in a short 10 days, we'll be providing an extensive overview of the ampreloxetine program, including our ongoing registrational study, CYPRESS and how we are seeking to address the unmet need for MSA patients with symptomatic nOH. In CYPRESS, we continue to activate sites and progress enrollment. We are closely engaged with these sites in order to enroll the right patients and ensure data quality. We continue to be pleased with our progress and maintain the expectation of completing enrollment of the open-label portion of the study during the second half of the year. Also, we continue to prepare for our possible NDA filing shortly on the heels of learning the CYPRESS results. As we have discussed in the past, we have generated much of the data required for other elements of the submission beyond the CYPRESS data and are already in the process of altering the NDA. Finally, given our decision to work directly with these investigators and sites that treat substantial numbers of MSA patients with symptomatic nOH, we are able to coordinate with our analytics and market access teams in order to begin positioning ampreloxetine for broad availability should CYPRESS be positive. On Slide 8, you'll see the details of the upcoming investor event on May 23 to discuss the role Amperloxetine stands to play in addressing the unmet need in MSA patients with nOH. It's a virtual event and it begins at 10 A.M. Eastern. We have prepared remarks for roughly the first 60 minutes before opening it up to a question-and-answer session. I would encourage those listening to participate in the session and come prepared to ask questions of our key opinion leaders, Dr. Horacio Kaufmann and Dr. Italo Biaggioni, who have agreed to share their insights. We believe this will be an informative session that sets the stage for the content of CYPRESS data in 2025.

Thanks, Aine. Beginning on Slide 10. I'm pleased to report that the Theravance Viatris commercial partnership finished the first quarter of 2024 with net sales reaching $55.2 million, having driven YUPELRI year-over-year net sales growth of 18% and a continued increase in profitability. As Rick mentioned earlier, we have traditionally experienced seasonal dips in reported net sales as we transition from the fourth quarter to the first quarter of the following year. Based on the success we are delivering in the hospital channel, and the view of early demand and retail data from April, we remain optimistic for YUPELRI's continued growth in 2024. Moving to Slide 11. I'm also very pleased to share with you the exceptional finish to the quarter, our hospital team was able to deliver. Hospital doses shipped in the first quarter increased 31% year-over-year. This was yet another launch-to-date high-volume quarter for the hospital business. Our goal continues to be to increase the number of patients exposed to YUPELRI during hospitalization who are then discharged on YUPELRI as maintenance patients. This is achieved by continuing to gain support for formulary inclusion, implementing hospital protocols involving all nebulization strategies and therapeutic interchanges, and equally important, our high-touch transition of care programs. Our market research continues to demonstrate that the vast majority of patients who initiate YUPELRI in the hospital setting also receive a prescription for YUPELRI maintenance care when leaving the hospital. It is with the execution of the strategy that our small, targeted and focused commercial organization is able to make a considerable contribution to the overall YUPELRI business, both directly and indirectly. Turning to Slide 12. On the left side, you can see our efforts impact on the hospital market share. During the quarter, our share of the long-acting NIM market in the hospital segment was steady at 16.6%. We are encouraged by the April data, which suggests further growth to roughly 18% share so far in Q2. On the right side of the slide, YUPELRI maintained an approximately 31% share in the community. As a reminder, the total community view has a 3-month lag due to the Med B adjudication process. So we only have Q1 data through January of this year. We continue to gain traction with our concomitant therapy messaging, which taps into the significant number of COPD patients who remain symptomatic on LABA Therapy and could benefit from the addition of a LAMA. LAMA therapy is foundational in the treatment of COPD, and current gold report guidelines recommend dual LABA/LAMA treatment for Category B and E patients. Turning to the retail channel view on Slide 13, where we have our most real-time and current demand view outside of the hospital channel. I will once again remind you that when we share our quarterly results, we do not have a completed data capture of the fulfillment in the DME channel, which accounts for approximately 55% of our total community business. Because retail, which accounts for the other 45% generally correlates with total community fulfillment over time, we have historically offered this view. So looking at the left side of the slide, retail prescriptions declined 9% during the quarter. While we're still in the process of evaluating, we believe that the lower retail volume in Q1 was possibly exacerbated by a cyber incident and Change Healthcare, which is a subsidiary of UnitedHealth Group and a processor for nearly 50% of medical claims in the U.S. Looking to the right side of the slide, we saw a 3% dip in new product starts in Q1. In addition to some expected impact from the Change Healthcare cyber incident. It is not atypical for this metric to experience quarter-to-quarter variability. Similar for both total prescriptions and new product starts, we expect both metrics to return to growth in Q2. Finishing on Slide 14. We think it is important to highlight the unique and compelling value proposition we offer patients and caregivers as the only once-daily nebulized LAMA for maintenance treatment of COPD. YUPELRI has demonstrated consistently meaningful lung function benefits, is typically available at a low out-of-pocket cost, and requires only a few minutes to administer once per day. As such, we believe YUPELRI plays a key role in the COPD market where there remains a substantial opportunity to reach patients who could benefit from YUPELRI. Our go-to-market strategy aligns with this profile, which we believe is why YUPELRI is only one of three branded COPD maintenance therapies in the U.S. delivering consistent growth. Looking ahead, we expect to achieve continued growth and value creation for YUPELRI driven by continued penetration of the U.S. maintenance COPD market and the potential launch of YUPELRI in China. Lastly, in the U.S., where we are eligible to receive a one-time sales milestone of $25 million from Viatris when YUPELRI net sales reach $250 million in any calendar year. In China, where Viatris is planning to file for regulatory approval by the middle of this year, we are eligible to receive a $7.5 million milestone upon approval as well as additional sales milestones and upwardly tiered royalties of between 14% and 20%. That brings us to the end of the YUPELRI update. So I will turn things over to Aziz to cover our financials. Aziz?

Thanks, Rhonda. Starting off with the results for the quarter. Slides 16 and 17 cover the detailed financials. I'll briefly cover the highlights on Slide 18. Starting with collaboration revenue, we reported $14.5 million, representing year-over-year growth of 39%, driven by YUPELRI net sales growth and improved operating margins. For the quarter, both our operating expense and non-GAAP loss metrics were in line with expectations, reflecting meaningful improvement compared with Q1 of 2023. Moving forward into the year, operating expenses will increase slightly over the next couple of quarters as CYPRESS enrollment continues to accelerate, and we begin to incur ampreloxetine pre-launch commercialization costs in the second half of the year. We closed the period with $100 million of cash and approximately 48.6 million shares outstanding. On Slide 19, I'll provide an update on our potential to earn milestones from TRELEGY, noting that GSK delivered another excellent quarter of growth, again beating consensus estimates. Quarterly net sales reached $749 million, up 32% year-over-year. This quarter's results reinforce our belief that we are well positioned to achieve at least one milestone in 2024 with run rate now trending above the first $25 million milestone threshold of approximately $2.9 billion of net sales and run rate approaching the second $25 million milestone threshold of approximately $3.2 billion of net sales. Moving to Slide 20. TRELEGY's performance also strengthens our confidence in achieving milestones in 2025 and 2026. Relative to an annual run rate of approximately $3 billion based on Q1 net sales, we need only minimal growth to achieve the lower end of the milestones shown on the slide in orange, and modest growth to achieve the higher end of the milestones shown on the slide in green, growth rates of TRELEGY is currently exceeding. As a reminder, we have $50 million of potential milestones in 2024 and 2025, which increases to $100 million of potential milestones in 2026 for a total of $200 million of potential milestones. Lastly, turning to financial guidance on Slide 20. We are reiterating all financial guidance metrics. With that, I'll pass it back to Rick to conclude. Rick?

Thanks, Aziz. I'll wrap up our comments on Slide 21 and simply remind you of the company's current strategic focus. We continue to identify and capitalize on YUPELRI's growth opportunities in partnership with Viatris while remaining disciplined with our expense base in order to maximize its value. In the U.S., we look forward to continuing to make a significant contribution through our hospital-based commercial organization while outside the U.S., our model is to rely on Viatris' infrastructure, and we are particularly excited for YUPELRI's potential filing and approval in China. At our May 23 investor event as well as in the coming months, we look forward to sharing much more about this investigational therapy, ampreloxetine and its progress. Finally, we have the resources to deliver. With $100 million in cash, no debt, significant near-term milestones, and modest cash demands, we believe Theravance is positioned for success. With that, I'll thank you for your time and turn the call back to the operator. Operator?

Can you hear me?

Yes, Doug, we can hear you.

So, Rhonda, could you share your perspective on YUPELRI and what you've observed in the retail channel? It's not unusual to experience some sequential challenges. Now that Change Health is operational again, I'm curious to know if all claims are being processed and if you believe any scripts were permanently lost, or if there's a possibility of recovery since Change Health is back up.

Doug, excellent question and certainly one we've been very focused on trying to understand. I think an aspect of the phenomenon associated with Change Health is that we are quite aware that some of our specialty pharmacies determined that they needed to make a switch and make it switch quickly from Change to Relay Health as their processor. So we need to allow for more time for a view into those data to give us a better informed answer to your exact question: Did we lose these patients? Or are they there and it's just an artifact of the data capture right now, which could be highly likely.

You might also comment, Rhonda, just on April. Sorry, Doug.

Yes. And if you're tracking along with us, which I think is highly likely, knowing you, Doug, if you look at the April numbers, you can definitely see a rebound in the TRx and new starts for YUPELRI. Obviously, we'll continue to monitor that extremely closely.

Okay. And again, so in that rebound, you're not sure or at this point, it's not clear to you whether that is just sort of the underlying momentum that the product has enjoyed or whether there might be some catch-up, or maybe it's a little bit of all?

It's just unfortunately a little too early to give that exact answer, which is what we want to be able to give you that confidence in.

Great to see the year-over-year YUPELRI growth and sequential growth on key metrics. I guess thinking about the rest of the year, if YUPELRI revenue is to continue trending upwards, how soon can we expect operating margins to expand from here?

Aziz, you want to comment on that just on what we've seen thus far?

Yes. Julian, thanks for the question. So as we discussed during the last earnings call, as we set the stage regarding guidance for the year, we knew that we were going to hit kind of non-GAAP losses in the first half, which is what we saw in Q1. So Q1 was in line with expectations. As we think about the rest of the year, what we've guided to is that we would approach breakeven in the second half. That's going to be driven by a couple of things. On the expense side, as I had talked about on the call, we're probably going to increase a little in the next couple of quarters, driven by the increased enrollment for CYPRESS. And then we start to spend a little, not much, but a little in the second half around the ampreloxetine prelaunch commercialization spending. But that will be offset largely by the increase we're expecting for YUPELRI net sales, which will increase our collaboration revenue. So we do think that the increase in collaboration revenue will offset the increase in expense so that the non-GAAP loss improves throughout the rest of the year. Is that helpful, Julian?

That's very helpful. And then I had a quick question on CYPRESS. I'm wondering if there's any possibility for data disclosure from the open-label segment that could proceed randomized controlled data, or are you waiting for the second phase to disclose data?

No. Well, this is Rick. We'll wait until we have data from the randomized withdrawal period, the conclusion of that period to disclose the data because the primary endpoint is data in the OHSA questionnaire at the end of the randomized withdrawal. Thanks for the question.

Yes. Thanks very much, and thank you for the various updates. So maybe sort of ignoring the incremental ampreloxetine spend. I'm hoping that Rick or Aziz, that you could sort of paint a picture for how you see YUPELRI's prospects, right, assuming that it plays out on the trajectory that you're expecting, how you see its prospects for driving operating leverage for the company. And then if you could just remind us about the big milestones in coming years, the optionality that would be helpful as well. But I'm particularly interested in how much operating leverage YUPELRI can drive? Obviously, you can't quantify it, but I'm just hoping that you can paint that picture.

Yes. Thanks for the question, Dave. I'll make a brief comment and then turn it over to Aziz. I mean, clearly, with YUPELRI, we see a significant amount of operating leverage going forward and working with Viatris. There are various aspects of continuing to tighten and sharpen execution across the board to hospital to community, which should drive incremental sales off of a similar expense base. The fact that, as Rhonda has mentioned, the concomitant therapy message is, in fact, taking hold, and that particular promotion is quite effective relative to resources employed. So we do expect to pick up operating leverage over time and continue to see YUPELRI grow from where it is. Aziz?

Yes. And you can actually see that in this quarter, David. The collaboration revenue grew 39% when the net sales growth increased 18%. The collaboration revenue year-over-year was up about $4.1 million. $2.9 million of that was due to the net sales growing 8%. And the balance, the $1.2 million was due to efficiencies on the expense line, which improved the overall margin for YUPELRI. So you're already seeing it, I don't know if you'll see this kind of delta being this high in the future, meaning the 39% collaboration revenue versus the net sales, but we should continue to see some efficiencies on the expense side relative to prior years, so that the overall margin continues to improve, not just from the sales growth expectations, but the expense line a little bit as well. The second question you had, I think, was about reminding you of the near-term milestone. So let's start with YUPELRI. Obviously, we have $25 million for achieving $250 million of net sales. And then we have the $7.5 million milestone for the approval of the China equivalent of an NDA. So Rick mentioned earlier, Viatris will be submitting the application mid this year, hopefully, pretty soon. And then whenever that gets approved in the next couple of years or so after that, we'll get $7.5 million. And then I commented on all the TRELEGY milestones over the next 3 years; we have $50 million potential for this year, $50 million potential for 2025, and then that increases to $100 million in 2026. As I noted on the call, we had another excellent quarter, close to $3 billion run rate. So really excited about TRELEGY's progress and expectations of achieving those milestones for TRELEGY.

Can you remind me about the guidance regarding non-GAAP breakeven? That excludes all milestones, right, from YUPELRI or TRELEGY? Also, how are you planning to allocate capital as these milestones start coming in? Should we expect more actions like returning cash to shareholders as you have in the past? Do you need to wait for ampreloxetine data to assess the overall situation, or can those decisions be made beforehand?

Yes. The answer to your first question is, yes, that's correct. When we talk about non-GAAP getting close to breakeven, that excludes any impact for potential milestones. So obviously, if we hit those, we would be significantly over, we would be profitable if we hit any of those.

Yes. When we assess the overall capital situation of the company, we are optimistic about our progress with YUPELRI and its ongoing growth, and we are eager about the ampreloxetine data from CYPRESS. If the CYPRESS results are positive, it will be significant since this is a unique drug aimed at treating a rare neurological condition. We will provide further details on this on the 23rd. We believe the financial outlook for ampreloxetine is quite promising. As you and the Board evaluate the upcoming milestones, it is important to consider the capital required for the business compared to what we currently have. We previously stated our intention to return any excess capital to shareholders that is not needed for the business. We have done this previously; for instance, we initiated a $250 million share repurchase program and, after reviewing our financial standing, decided to add an additional $75 million, bringing the total to $325 million in the repurchase program. The Board will consider the forecasted cash flow and future cash needs, and if there is excess capital, we will return that to shareholders.

This is Jingming on for Liisa. So could you please give us an update on what percentage of your accounts have implemented all that strategy? And what percentage of accounts are therapeutic interchanged accounts?

Rhonda?

Yes. Well, as we continue to grow our base of accounts purchasing within that larger base. We're still roughly around 35% that have therapeutic interchanges in place; for those that do have therapeutic interchanges, predominantly, those are all nebulization accounts because that's what they drive their decision-making off of.

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

Yes. I'd like to thank everyone for joining us today. We look forward to the ampreloxetine investor event on May 23. I encourage everyone to join us for that event; I think it will be an exciting day to review all the data on MSA and nOH and ampreloxetine as well as the idea of projecting the opportunity that's out there for Theravance and the opportunity for this medicine to make a significant difference in patients' lives. So until then, thank you for dialing in today, and thank you for sharing in the first quarter update. We look forward to talking to you in the future and hope to see you on for the virtual event on May 23. Thank you.

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