Innoviva, Inc. (INVA) 2013 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon. At this time I'd like to welcome everyone to the Theravance conference call to review results for the quarter ended June 30, 2013. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the Company's formal remarks. (Operator Instructions.) Today's conference call is being recorded.

And now I would like to turn the call over to Mike Aguiar, Senior Vice President and Chief Financial Officer. Please go ahead soon.

Good afternoon everyone and thank you for joining us. With me on the call today is Rick Winningham, our Chief Executive Officer.

First, Rick will review highlights of the quarter and then I will review our financial results. Following our comments, we will open up the call for questions. Earlier today Theravance issued a press release detailing second quarter 2013 financial results and recent corporate developments. A copy of the press release can be downloaded from our website or you can call Investor Relations at 650-808-4100 and we'll be happy to assist you.

Before we get started we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance. Forward-looking statements include anticipated results and other statements regarding Theravance's goals, expectations, strategies, and beliefs. These statements are based upon the information available to the Company today and Theravance assumes no obligation to update these statements as circumstances change. Future events and actual events could differ materially from those projected in the Company's forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the Company's Form 10-Q filed with the SEC.

I'll now turn the call over to Rick Winningham, our Chief Executive Officer. Rick?

Thanks, Mike. Good afternoon everyone. Theravance is off to a strong start in 2013 with three regulatory approvals, BREO ELLIPTA for the treatment of COPD in both the US and Canada and VIBATIV for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia in the United States.

In addition we announced our plan to separate the late-stage respiratory assets partnered with GSK from our biopharmaceutical operations to create two independently publically traded companies and to continue our business in a new structure that's designed to unlock potential value, facilitate return of capital to shareholders, and further our strategy of advancing medicines that address unmet medical needs.

Let me begin with the planned separation. We announced in our last quarter's earnings call that the Company plans to create two highly focused businesses with the potential to increase overall shareholder value. The separation is designed to provide investors with the opportunity to unlock that potential value from two different sets of assets, to facilitate a return of capital to stockholders, and further our strategy, as I said earlier, of advancing medicines that address significant unmet medical need.

As a reminder, one company referred to as Royalty Management Company, will continue to manage all development commercialization responsibilities under the LABA collaboration with GSK and associated potential near-term royalty revenues from RELVAR ELLIPTA, BREO ELLIPTA, ANORO ELLIPTA, and VI monotherapy. Royalty Management Company will focus on returning capital to stockholders.

The other company, referred to as Theravance Biopharma, will focus on discovery, development, and commercialization of small molecule medicines and exploiting insights created by our extensive experience in multivalent drug design.

Importantly, partnering will remain a key strategy, and we will continue to work on our existing partnered programs. The result will be two independent publically traded companies with different business models enabling investors to align their investment philosophies with the strategic opportunities and financial objectives of two independent entities. The Company expects to complete the separation either late this year or in early 2014.

Turning now to the respiratory programs partnered with GSK, starting with BREO ELLIPTA or RELVAR ELLIPTA, a combination inhaled corticosteroid, fluticasone furoate, or FF, and the long-acting beta-2 agonist, vilanterol, or VI. FF/VI is administered by a new dry powder inhaler called the ELLIPTA and was recently approved, as I noted, in both the US and Canada for the treatment of COPD.

The approval of BREO ELLIPTA is great news for patients with COPD as it provides a new therapeutic option, the first once-daily inhaled corticosteroid long-acting beta agonist combination treatment of COPD. COPD is a debilitating and progressive disease. Its symptoms are often severe and have a huge impact on patients' lives. These approvals are important milestones for the collaboration between Theravance and GSK.

As GSK discussed yesterday, everything is progressing in preparation for a BREO launch. From a timing perspective, GSK is tracking a couple of weeks behind the initial schedule in order to ensure that all pieces are in place for a successful launch including tactics such as extra focus by the US sales force on respiratory. As a result, the launch may slip out of Q3 into the beginning of Q4.

From a patient, physician, and payer perspective, we believe that there's strong interest in a new once-a-day COPD product due to, among other reasons, the cost of poor compliance with twice-a-day products. While we are not providing 2013 sales forecast for BREO ELLIPTA, the initial focus of the collaboration is on prescriber education and awareness, reimbursement, formulary access, and as a result we expect initial uptake may be gradual consistent with many other primary care products.

In June 2013, GSK presented a poster on the qualitative assessment of the ELLIPTA device, the dry powder inhaler for COPD and asthma used by BREO as well as ANORO. And this assessment was given by patient's who participated in the phase III clinical trials of FF/VI. The results of the assessment show that the ease, simplicity, and security of use of the ELLIPTA dry powder inhaler were its most frequently commended attributes. In addition, the ELLIPTA dry powder inhaler was preferred over currently used inhalers by a majority of COPD and asthma phase III trial patients who participate in the qualitative interviews.

In September 2013, GSK will be presenting data on the ELLIPTA device from phase III studies of FF/VI at the ERS Annual Congress held in Barcelona.

Now turning to our second respiratory program with GSK, ANORO ELLIPTA. ANORO ELLIPTA is a dual-mechanism investigational medicine for the treatment of COPD that combines two bronchodilators, a long-acting umeclidinium bromide, or UMEC, and a long-acting beta-2 agonist, VI. ANORO ELLIPTA is the proposed proprietary name for this LAMA/LABA combination of UMEC/VI. The PDUFA goal date for UMEC/VI is December 18th. Regulatory filings are currently under review in the US, the EU, and Japan, and regulatory applications have been submitted in a number of other countries worldwide.

In September 2013, GSK will also be presenting data on the phase III and phase I studies of UMEC/VI at ERS in Barcelona.

Turning to our MABA program, GSK recently initiated phase III enabling studies with the combination of '081/FF. We will provide further information on this program when these studies are complete. Recently GSK informed Theravance that the phase III study of '081 monotherapy would not be initiated in 2013. GSK will be communicating with GSK to determine the next steps for MABA monotherapy and we'll update you when we have more information.

The GSK/Theravance respiratory portfolio has the potential to be the most comprehensive in the industry. Our pipeline of investigational products includes single-mechanism, dual-mechanism, and triple-mechanism therapies for the treatment of asthma and COPD, all delivered by a common inhaler. If we're successful, these products will be able to treat a wide range of patients with COPD and asthma who have different needs and different severities of disease.

In addition to the respiratory programs partnered with GSK, Theravance is developing TD-4208, an internally-discovered multivalent long-acting muscarinic antagonist, or LAMA, delivered once a day in a nebulizer for COPD. The phase IIb study of TD-4208 in an aqueous nebulizer to evaluate the safety and efficacy of multiple doses of the compound is ongoing. Enrollment is progressing well and results from this phase IIb study are anticipated to be reported in the third quarter of 2013. We believe that such a medicine could serve as a foundation for several combination nebulized products as well as potential metered-dose inhaler or dry powder inhaler products. We believe that the opportunity for a nebulized product is significant and complementary to that addressed by the GSK collaboration products.

Now let's turn to our bacterial infections program. VIBATIV, or telavancin, is a bactericidal once-daily injectable lipoglycopeptide antibiotic previously approved in the US and Canada for the treatment of adult patients with complicated skin and skin structure infections caused by susceptible Gram-positive bacteria, including Staph aureus, both methicillin-resistant and methicillin-susceptible strains.

In June 2013, the FDA approved VIBATIV for the treatment of adult patients with hospital-acquired and ventilator-associated bacterial pneumonia caused by susceptible isolates of Staph when alternative treatments are not suitable. Hospital-acquired pneumonia is a serious disease associated with one of the highest mortality rates among hospital-acquired infections and increases hospital stay as well as cost of care. MRSA pneumonia in particular is an increasingly challenging infection as there are few approved treatments available today and reduced susceptibility to existing therapies remains a problem.

Our initial plans with VIBATIV are to begin distribution of supplies through the US wholesaler channel in the third quarter of the year and to provide a level of medical support to enable physicians to properly treat patients with VIBATIV. I'm very pleased with the successful work of the Theravance team in achieving approval for this important new indication and in establishing a new source of product supply. Over the coming months we'll continue to evaluate the commercialization alternatives in the US, then seek partnerships for VIBATIV in territories where the product has not already been partnered.

Now let me turn to TD-9855, the lead compound in our norepinephrine and serotonin reuptake inhibitor program for the treatment of central nervous system conditions, such as chronic pain and Attention-Deficit/Hyperactivity Disorder. TD-9855 is being evaluated in an ongoing phase II study, phase II safety and efficacy study in adults with ADHD and then another separate phase II study in patients with fibromyalgia. We believe that there is significant opportunity in fibromyalgia for more efficacious treatments and in ADHD for an efficacious treatment without the risk of abuse associated with stimulants. We have completed enrollment in the phase II study in ADHD with results expected to be reported later this year, while the results of the phase II study in fibromyalgia are expected during the first half of 2014.

We're all very excited about the recent progress in our programs and other upcoming regulatory events and about taking this next step in our corporate strategy. 2013 is a very important year of transformation for Theravance. I'll now turn the conference call over to Mike Aguiar, our Chief Financial Officer. Mike?

Thank you, Rick. Today I'll discuss the results of the quarter ended June 30, 2013, and will review guidance for the full year 2013 expenses.

For the quarter ended June 30, 2013, Theravance had a net loss of $36.4 million or $0.37 per diluted share. Revenues totaled $1.3 million during the second quarter of 2013 compared with $1.4 million for the same period of 2012. For the first six months of 2013, revenue was $2.7 million compared with $128.5 million for the same period last year. The decrease in 2013 was primarily due to the termination of our VIBATIV agreement with Astellas last January that resulted in a one-time recognition of $125.8 million of deferred revenue.

Total R&D expenses for the second quarter of 2013 were $31.7 million compared to $29.5 million for the same period last year. This increase was primarily due to higher external R&D costs resulting from ongoing enrollment in our two phase II clinical studies with TD-9855, one in fibromyalgia and one in ADHD, a phase IIb study of TD-4208 in COPD, as well as costs associated with our preclinical and late-stage discovery programs.

General administrative expenses for the second quarter of 2013 were $11.4 million compared to $7.6 million for the same period in 2012. This increase was primarily due to an increase in external legal and accounting fees in connective with the Company's strategic initiatives as well as an increase in the external costs in connection with commercialization activities related to VIBATIV. Total external expenses included in G&A related to the proposed company separation were $1.8 million for the first three months -- excuse me, for the three months ended June 30, 2013, and $2.3 million for the six months ended June 30, 2013.

Cash, cash equivalents, and marketable securities totaled $533.3 million as of June 30, 2013, a decrease of approximately $25.1 million during the second quarter. Principal uses of cash during the quarter include the $30 million payment to GSK of the BREO ELLIPTA registrational milestone and cash used in operations. These uses were partially offset by $15.4 million net cash received from employee stock transactions, $8.2 million of net cash for the termination of our royalty participation agreement with Elan, and net proceeds of $6.7 million received from the Company's private placements of common stock to an affiliate of GSK.

Now turning to our guidance for 2013. In order to provide comparability with our year-to-date financial guidance metric, we will identify all costs associated with our separation activities each quarter but will exclude these costs from our expense guidance.

For the full year 2013, we are keeping our non-GAAP operating expense guidance in the range of $125 million to $135 million excluding stock-based compensation expense, any potential milestone payments to GSK, and costs associated with the separation of the Company.

Finally, I'd like to provide an update on the redemption of our $172 million 3% notes. As expected, all 2015 notes outstanding on July 5, 2013, were converted into shares of common stock and non were redeemed for cash. This will increase total shares outstanding by approximately 6.8 million shares going forward.

Now I'll turn the call back to Rick for final closing comments. Rick?

Thank you, Mike. We just completed a very productive first half of a very important year of the transformation for Theravance with approvals for BREO ELLIPTA in COPD in the US and Canada and FDA approval for VIBATIV in hospital-acquired and ventilator-associated bacterial pneumonia, as well as announcing the planned separation of Theravance into two companies.

Our focus for the remainder of 2013 will be on the upcoming regulatory events for RELVAR and ANORO, completing the separation of Theravance, and the results from our internal pipeline. In summary, I'm pleased with the progress of Theravance and look forward to keeping you posted as our programs advance.

And now I'd like to turn the call over to the conference facilitator and open the call for questions.

Thank you, sir. (Operator Instructions.) We'll have our first question from Steve Byrne from Bank of America. Steve, please go ahead.

Hi. Can you talk about what are the key gating events that must be resolved before you execute on the company separation, and does it matter to you whether it's in this calendar year or not, whether ANORO is approved or not? Are those meaningful?

Hi, Steve. It's Mike. So I'll talk quickly about the separation, but clearly just from an ANORO perspective, we are very focused on December 18th and hope we're fortunate enough to get an approval on that date. So we're clearly aiming all the corporation activities toward that because that is certainly important.

It's not particularly connected to the separation. The separation is proceeding right according to pace right now. There's a tremendous amount of work required over here to get this completed. The big gating items really are the SEC and the IRS. We have to pass through both of those regulatory agencies before we get to the finish line of this.

With regard to the SEC, we're going to be filing the Form 10 shortly, and then that process will kick off. And we have made a fair amount of progress with regard to the IRS determining the taxability of the spin and how potentially this could be executed.

So sitting here today I'm feeling pretty good about where we are. I would have a slight preference of getting it done this year if possible, but again, I think I'll keep my guidance at either late this year or early next year given that I don't have a lot of control over the timelines by either the SEC or the IRS.

And any comments, Michael, on changing the domicile for either entity?

We're clearly looking at that for Biopharma. Biopharma, again, is the entity that's going to be containing the vast majority of the current Theravance operations. That is the entity that is being dividended off. So of the two, just as a reminder, the Royalty Management Company is the existing Theravance corporation and then again Biopharma is the new entity.

We have clearly looked at the possibility of re-domiciling this into a different location. I think I have some good initial feelings on this one and that potentially we can do this. I would just say stay tuned. It's not a completely done deal yet, so we do need to get through some of our IRS discussions, but that is clearly a direction we're going and hopefully we'll be successful and have the right [fact] pattern for the IRS.

And one clinical question for you, and that is regarding the triples, do you view a market opportunity for both triples? Does it make sense to go ahead with both triples in the phase III? And the closed triple, does that one make sense to wait until after the approval of ANORO is in hand?

Steve, this is Rick. I think we view the triple therapy as an extraordinarily important component of the treatment of COPD, and by triple therapy I'm talking about a long-acting muscarinic antagonist, a long-acting beta agonist, and combined with an inhaled corticosteroid. That triple therapy and that opportunity we view today as in COPD and potentially down the road in asthma given some of the favorable data that's been presented by Pfizer and Boehringer in adding tiotropium to current LABA ICS therapies.

Now to the question of do I view both combinations as valuable, absolutely. I think the triple therapy is moving along at a pace that we've described before, that being UMEC, VI, and FF, and MABA ICS has begun phase III enabling pre-clinical studies. But I view that both programs can deliver a value that are separate and distinct to patients and to Theravance and to GSK.

Thank you.

Thank you. And our next question is from Ronny Gal from Sanford Bernstein. Ronny, please go ahead.

Thank you for taking my questions. I have two. First, Rick, regarding the MABA, is there a question that the MABA will move forward as a monotherapy or I guess a [new] MABA ICS, or is it pretty clear that it will, the question is just when?

Good question, Ronny. The MABA news in terms of not starting the phase III program for monotherapy in 2013 is very new to us, so we'll be discussing this with GSK. On MABA ICS therapy, as I said, that is phase III enabling nonclinical studies have been initiated, so those are progressing forward.

I hear you about the enabling study, but the reason we do studies is to figure out something, but I'm guessing is this actually crossing the T's and dotting the I's or is there something about those trials that might derail the program -- reasonably derail the program so the program will never go into phase III?

At the end of the day, until all studies are complete you never know. But these are standard nonclinical studies that you would need to do to progress into a phase III program.

If you step back for a moment and look at the history here, a lot of the early work with MABA with a steroid was done with FP, the twice-a-day steroid. We then had the phase IIb data come out that was presented at ERS last year clearly indicating that MABA '081 was a once-a-day product, and then that catch-up -- the catch-up work had to begin in combining MABA with FF, and that's really what we're talking about with the phase III enabling work right now.

So that's ongoing. We'll see how those studies go, and I look forward to completing them with a level of optimism.

Great. Now you have a couple of late phase IIb programs. When those things finish the phase II and go into phase III is usually when people put them in their models, so I was wondering if you can help us a little bit in terms of understanding how those products differentiate from a previous generation of products, especially about the SNRI and the MABA nebulizer? Why does the world need another SNRI? How does it differentiate from the previous 10 or 15 or so that exist? I'm just asking this in a provocative way.

And equivalently about the MABA, why should somebody use your branded MABA when glycopyrrolate is generic or tiotropium will be generic by 2018?

Good, Ronny. I'll take the LAMA question. 4208 is a long-acting muscarinic antagonist that we're developing in a nebulizer. Well, I think number one, there's about 5% to 10% of patients that have COPD that we estimate that mechanically are challenged with using a dry powder inhaler or an MDI device. Those patients prefer a nebulizer, and there's some other societal reasons that their preference exists for a nebulizer.

And right now based on the earlier data that we have from the phase IIa study, it looks like the curves will support 4208 as a once-a-day product. But that's a very important -- that will be a very important finding from the ongoing study, is 4208 a once-a-day study? Do the curves resemble the curves of a umeclidinium or a tiotropium, or do the curves represent aclidinium or glycopyrrolate? And we'll know when we get the data, which should be relatively soon. So that's really LAMA.

And I think the other aspect of LAMA is simply LAMA as a platform because if we're fortunate and the drug is a once-a-day product, it can be -- we believe from a physical perspective it provides the ability to be used not only in a nebulizer but in a dry powder inhaler or a metered-dose inhaler, and combined with other products going forward. So there aren't many long-acting muscarinic antagonists that are once-a-day, that can be combined easily with other products, and if MABA is in fact once-a-day, we believe it will be able to be combined easily with other potential products.

And on the NSRI, I have Mathai here with us so I'll let Mathai answer that question on differentiation of 9855.

Hi, Ronny. This is Mathai speaking. So on 9855, I would say the scene that it would go forward into is one where most compounds that have been attempted in the past and exist in the marketplace are SSRIs. They're pure serotonin or serotonin selective reuptake inhibitors.

There is an example in duloxetine of a molecule that carries both serotonin and some norepinephrine, but the profile of that compound is quite different. It's still heavily serotonin even though it brings in some norepinephrine.

Our compound, 9855, brings in a great deal of norepinephrine and is truly an NSRI as opposed to an SNRI. That's how we're referring to it now. And that has numerous advantages, especially potentially on an executive function level that we think is important in a variety of different indications.

So the two trials that are ongoing, one is in ADHD where we feel exactly the profile that I have described as useful relative to alternatives that mostly include stimulants right now, as an alternative to stimulants, as well as in various pain conditions, and right now we have an ongoing study in fibromyalgia. So the norepinephrine to us is key, is critical in fact in pain conditions where pure SSRIs shouldn't work and in fact in trials don't work. So we feel that the NSRI is -- that pharmacological profile is critical.

On top of that, the molecule itself is attractive in that we've shown that it is very CNS penetrant. It's completely CNS penetrant, which is actually in and of itself good and unusual. And importantly it has a very prolonged half-life. We've described it as 30 or 40 hours, which leads to low peak-to-trough and very steady levels in the brain, and sometimes the ups and down of neurotransmitter reuptake inhibitor programs cause problems, so we feel that too is a very attractive feature of this compound apart from its pharmacology.

Have you by any chance looked at the erectile dysfunction aspect of this drug?

Yes. We've talked about that a little bit internally, but it's not one of our focus points right now. There are other CNS indications, other pain conditions, other CNS conditions including anxiety and depression that I personally would put more immediately behind the two indications we're after right now if we were to pursue anything else.

Great. Thank you very much.

Thank you. (Operator Instructions.) We'll take our next question from Kyle Rasbach from Cowen and Company. Kyle, please go ahead.

Great. Thanks for taking the questions. Maybe first if you could give us a little bit more color on what has delayed the BREO launch, what Glaxo relayed to you, and whether or not you believe we should anticipate similar delays in the EU rollout or whether some of these conditions or some of these reasons have been kind of ironed out and we should have a more smooth rollout in the EU relative to what we have seen in the US?

And secondly maybe if you could give us a little bit of color on what phase III data we'll see for ANORO at ERS and whether or not this is new data or a rehash of existing phase III data?

And then maybe lastly a little bit of an update on when we should expect to see the data from the ongoing asthma study here in the United States? Thanks.

Hi, Kyle. It's Michael. I'll just talk very briefly about ANORO. So there's a little bit of additional phase III data coming up. It's certainly nothing earth shattering. I'm not going there, for example. So I would say all of the material data at this point from ANORO is out. So like I said, I wouldn't expect a whole lot of new information coming out on that.

And I'll let Rick talk a little bit about BREO. I certainly have trouble using kind of the delay word that much. I think this is really not a big deal at all, but I'll let Rick talk about that for a second. Rick?

Yes. I think the comments that Andrew Witty made yesterday and Simon Dingemans as I understand, we're talking about a couple of weeks here. I think we're just being conservative and it's slipping out of the third quarter and into the beginning of the fourth quarter, so really no -- we don't see this as any big deal at all.

I think everything is lined up very well in the United States to progress with this launch. And whether you're talking about sales force or managed care, other elements of the strategy are all lined up quite well and it's a matter of just getting going and what looks like now to be in the fourth quarter. So we're very optimistic and very excited about it because the fourth quarter is just around the corner.

And then you had -- did you have one more question, Kyle?

I did have another question. I'm trying to remember myself what exactly it was.

Oh, the BREO asthma study.

The BREO asthma study, correct.

Yes, so the BREO asthma study, right now I think the last patient, last visit in [clinicaltrials.gov] is October. Right now as far as we know that study is going right along with hitting that goal and maybe a little while after that we should have data available.

It's a large study, as you know, 900-plus patients in asthma. It's an important study for us in that if positive I think we'd take that data with the rest of the asthma data that's already been submitted in terms of clinical study reports to support the COPD application, take all that data back into the FDA and have a discussion about going forward in asthma.

Okay. Thanks.

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.

Sure. Thanks very much to all the attendees on the phone call. We're very excited about where we are as a Company as we look forward into the second half of the year with product launch, with the potential for ANORO approval, and the separation of the Company to align hopefully assets with different types of investors to drive value for shareholders.

So thank you for your attention. We look forward to the second half of the year.

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