Theravance Biopharma Inc (TBPH) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the Theravance Biopharma Conference Call. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks. (Operator Instructions) Today's conference call is being recorded.

And now, I would like to turn the call over to Renee Gala, Chief Financial Officer. Please go ahead.

Good afternoon, everyone, and thank you for joining our first quarter 2015 financial results conference call and webcast. Following our prepared remarks, we will open up the call for questions. Joining me on the call today are Rick Winningham, Chief Executive Officer; and Dr. Mathai Mammen, Senior Vice President of Research and Development. A copy of the press release can be downloaded from our website or you can call Investor Relations at 650-808-4045, and we will be happy to assist you.

We would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance Biopharma. Forward-looking statements include anticipated results and other statements regarding the company's goals, expectations, strategies, and beliefs. These statements are based upon the information available to the company today and Theravance Biopharma assumes no obligation to update these statements if circumstances change. Future events and actual results 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-K filed with the Securities and Exchange Commission.

And now, I would like to hand the call over to Rick Winningham. Rick?

Thanks, Renee. Good afternoon, everyone, and thank you for joining us. We are pleased with our progress during the first quarter of 2015 in our core areas of focus. We implemented strategies to support VIBATIV in the U.S. market on a number of important development milestones.

These include progressing 4208 towards a Phase 3 registrational program and establishing a development commercialization collaboration with Mylan, the leader in nebulized respiratory therapies. Importantly, the agreement includes full funding for the Phase -- oops, sorry; skip this. Phase 3 funding provides -- Phase 3 funding for the Phase 3 program and provides Theravance Biopharma with co-promotion rights and other attractive financial terms. In addition, this quarter, we advanced promising late stage research programs towards the clinic, underscoring the productivity of our discovery research platform. Over the next few minutes, we will focus our prepared remarks on the progress in our VIBATIV and 4208 programs and discuss the exciting new product candidates emerging from research and heading towards the clinic.

First VIBATIV, the generic name of which is telavancin. VIBATIV is an important antibiotic with a differentiated set of product attributes, including its dual mechanism of action, bactericidal activity, in vitro potency, ability to be dosed once daily, and no requirement for therapeutic monitoring. Our market research indicates an increasing awareness in expected future use of VIBATIV among physicians.

We have seen steady account growth in new and existing territories in both the outpatient and hospital settings. We have achieved favorable formulary wins year-to-date and number of accounts reordering VIBATIV is continuing to increase. For these reasons, starting in the second quarter, we are implementing a next phase of expansion. We plan to build the total field force this year of 50 sales reps. This expansion should enable us to better reach physicians in our current territories and allow us to expand into new territories.

As we have previously noted, our strategy has been to implement a controlled phased approach to reintroducing VIBATIV to the U.S. market, which started with a small pilot program of six contract sales representatives. Based on the encouraging results from this pilot program, we completed the expansion of the field force to 21 employee sales representatives at the beginning of 2015, with the goal of strengthening the brand and driving market uptake. The expanded team has established its foothold in the market, and we are excited to be entering the next phase of expansion.

In addition, we have undertaken two initiatives designed to generate additional efficacy and utilization data in patients. First, the TOUR study. The importance of the TOUR'S registry study, initiated in February, is that it's designed to enable us to collect data on about 1,000 patients and characterize the real world use of VIBATIV. By broadly collecting and examining real-world data related to VIBATIV treatment patterns, clinical effectiveness and safety outcomes in medical practice, we aim to create an expansive knowledge base to guide optimal clinical use and future development of the drug.

Second, we also initiated in February a Phase 3 registrational study in staph aureus bacteremia. We believe that the therapeutic need and market potential for VIBATIV in bacteremia are significant. Currently, there are only two antibiotics approved in the U.S. for the treatment of staph aureus bacteremia and treatment failure is common. We have seen compelling data across multiple non-clinical and clinical studies supporting the potential of telavancin in bacteremia, particularly those patients with difficult to treat gram-positive infections.

In addition, while vancomycin and linezolid are used in hospital acquired pneumonia or ventilator-associated pneumonia, treatment failure is common. If we are successful with the Phase 3 study and subsequent regulatory filing, VIBATIV will be the only branded antibiotic to be approved in staph aureus bacteremia, hospital acquired, and ventilator associated pneumonia and complicated skin and skin structure infections. We look forward to data emerging from the TOUR and bacteremia studies as they continue to progress.

Now Mathai will provide an update on 4208 and discuss two exciting programs emerging from research. Mathai?

Thanks very much, Rick. Let me start by updating you on the status of TD-4208, our Phase 3 ready program in chronic obstructive pulmonary disease or COPD, which we partnered with Mylan earlier this year. 4208 is an investigational, once daily, long-acting muscarinic antagonist, or LAMA, for COPD.

What's most valuable and exciting about 4208 is its potential to fill an important therapeutic need for patients with COPD needing or preferring nebulized therapy. 4208 has the potential to become the first once daily nebulized bronchodilator for the treatment of COPD and to become the standard of care in nebulized bronchodilator therapy.

We and our partner Mylan view this as a compelling market opportunity. Our major goal for 4208 is to initiate the full Phase 3 registrational program in the second half of this year. In collaboration with Mylan, we have made significant progress in establishing the clinical infrastructure for the program.

We plan on conducting two replicate three-month efficacy studies, which we anticipate will read out in 2016, and a single twelve-month safety study, which we anticipate will readout in 2017. In total, we expect to enroll approximately 2,200 patients in the Phase 3 program. We're excited by the progress we're making to get the Phase 3 program up and running and believe that 4208 is one of our company's high-value assets, leveraging our significant expertise in respiratory disease and directed towards an important market segment that's largely underserved today.

Next, let me discuss two exciting programs emerging from our research organization. These programs are in transition between research and development and are both headed towards Phase 1 studies late this year or early next year. Both of these programs have the potential to yield transformative medicines.

I will begin with our neprilysin inhibitor program. Neprilysin, or NEP, is an enzyme that degrades natriuretic peptides. These peptides play a role in blood pressure and cardiovascular tissue remodeling. In addition neprilysin potentiates these natriuretic peptides, which can lead to reductions in mortality and morbidity in patients with congestive heart failure or CHF. The mechanisms of this benefit include diuresis, control of blood pressure, and importantly, reversing maladaptive changes in heart and vascular tissue.

Our primary intent is to combine a NEP inhibitor and an angiotensin receptor blocker or ARB to create a combination medicine product for the treatment of CHF. This emerging class of medicine has the potential to represent a paradigm shift for the treatment of CHF. In addition to NEP-ARB, we are actively considering combination of NEP with other mechanisms for treatment of heart failure. We are also considering indications other than CHF and routes of administration other than oral.

Last year, Novartis's LCZ696, which combines their NEP inhibitor sacubitril with an ARB valsartan, demonstrated an impressive 20% reduction in cardiovascular death in hospitalization compared to standard of care enalapril. This result validates our internal hypothesis that modulating both the rennin-angiotensin pathway (via) AT1 blockade and the natriuretic peptide pathway by a NEP inhibition. And doing so simultaneously would confer significant benefit to patients suffering from CHF.

For those with strong interest in this area, eminent cardiologist, Eugene Braunwald, very recently authored an excellent review of this concept in the Journal of the American College of Cardiology. As far as we know, outside of the LCZ696 program, we are the only company making significant progress in this important area.

While the results of the LCZ696 program were groundbreaking, there are some important limitations to sacubitril that we believe we have considerable room for development of a best-in-class product for CHF. First and importantly, LCZ696 is a fixed one-to-one combination of valsartan and sacubitril. This one-to-one fixed ratio limits the ability to optimize the safety and efficacy through independent variation of the two pharmacologies.

Second and equally important is the finding that sacubitril is cleared primary primarily through the kidney. Many patients with CHF have varying degrees of kidney dysfunction slowing the elimination of sacubitril from the circulation. When kidney cleared drugs are given to patients with kidney dysfunction, the doses are typically lowered to maintain therapeutic exposure. But with LCZ696, this strategy is not possible because it is in a fixed combination with valsartan, which importantly is not cleared by the kidney. If one were to lower the dose of this product, one would therefore underexpose patients to valsartan.

Patients with severe kidney dysfunction were excluded from the registrational program for LCZ696. There are over 10 million patients with heart failure in the G7 countries. We have well over a million of these patients also in severe renal dysfunction. It's noteworthy that patients with CHF can experience significant fluctuations in their renal dysfunction.

A key third limitation is that 14% of LCZ696 patients in these studies experienced episodes of symptomatic hypotension versus 9% on standard of care enalapril. For these reasons, we believe there are meaningful limitations of LCZ696 and that our NEP inhibitor product candidates have the potential to be best-in-class. Our NEP inhibitors could be combined with a wide range of ARBs including those with demonstrated benefits in heart failure, for example candesartan and best-in-class efficacy hypertension, for example [eprosartan].

Our plan is to design a combination with our choice of ARB, defined optimal fixed dose combinations based on optimization of both safety and efficacy. Preclinical studies have shown that our neprilysin inhibitors are not cleared through the kidney, and we project that renal clearance will not be clinically significant.

If our preclinical projections prove accurate clinically, our NEP inhibitor could be dosed in patients with all levels of renal dysfunction. We believe that we have the opportunity to create a best-in-class product targeting a broad population of patients with heart failure. Today, we have identified development candidates that are progressing through IND enabling GLP toxicology studies and our target is to advance the most attractive compound in the first (to man) studies either late this year or early next year.

Next, as we discussed at our Investor and Analyst Day in December, we changed the direction of our research efforts several years ago and began to focus on immunology and diseases of the lung and GI tract. Our stated intent was to make localized medicines for localized diseases, designing compounds with the ability distribute adequately to the tissue of the GI tractor lung but without systemic exposure and therefore without the risks and safety liabilities of systemic exposure. The first program to emerge from this new focus is for the treatment of GI disease.

Specifically, we are working on a novel treatment for ulcerative colitis and potentially other gastrointestinal inflammatory conditions. It is estimated that in the U.S., there are 680,000 patients with ulcerative colitis and the current treatments have limited efficacy that can diminish over time or may be inappropriate for long-term use, given their significant safety issues.

Ulcerative colitis, or UC, is a complex, heterogeneous disease for which optimal therapy may require targeting multiple inflammatory pathways at the same time. Anti-TNF antibody therapies are beneficial to patients with UC but leaves substantial room for improvement. Novel agents are needed to treat this severe refractory acute disease and provide a sustained response to maintain patients in remission.

I am pleased to report that we now have a development candidate we are progressing into IND enabling GLP toxicology studies. Our candidate has been selected from an attractive set of lead compounds that have been extensively characterized. Our candidate inhibits a target that we have not yet disclosed, but that affects multiple inflammatory pathways. In preclinical studies in two species, we have shown that our compound is delivered orally, gets into the colon and remains in the colon wall and is efficacious in key models of GI information with minimal systemic exposure. We intend to advance this program into the clinic late this year or early next year if the GLP toxicology studies are supported.

It's definitely an exciting time for R&D at Theravance Biopharma. Rick, now back to you.

Thanks, Mathai. Taken together, the programs we have just discussed represent major value drivers over the near-, medium-, and long-term for Theravance Biopharma. We have a pipeline of high value assets in various stages of development, led by VIBATIV, an approved antibiotic, that's gaining momentum in the market today; 4208 progressing towards a registrational Phase 3 program in COPD; and promising new differentiated therapeutics in major disease areas emerging from our research platform.

We also have additional valuable programs in our development portfolio. These include axelopran for opioid-induced constipation as well as the fixed dose combination of axelopran and an opioid. TD-9855 for pain and fatigue and TD-8954 for the improvement of absorption of nutrition while patients are in the ICU, all of which are potentially partnerable assets. In addition, we also have Velusetrag, partnered with Alfa Wassermann, for which a Phase 2b be trial is underway in gastroparesis.

With this attractive is set of assets, we intend to continue our strategy of determining the appropriate path forward for each program in order to optimize its value as well as our allocation of resources. The breadth of our pipeline allows us to consider all strategic options relative to development and commercialization, and we believe that the strategic optionality is one of our key competitive advantages as a company and value generating advantages.

We anticipate achieving a number of important and exciting milestones in 2015 and over the next couple of years, including major data readouts. Our revenue target for VIBATIV this year is net sales of $20 million. We believe the commercial expansion strategies we are implementing will drive market uptake, enable us to meet this target as the year progresses and have a favorable impact on subsequent years. The TOUR and bacteremia studies are progressing as I noted earlier and we anticipate data from the bacteremia study in 2017.

In the respiratory area, as Mathai indicated, we plan to initiate the Phase 3 4208 program this year and to continue to work collaboratively with Mylan who is fully funding the Phase 3 program. In addition to the reimbursement for all internal and external Phase 3 development costs, we are eligible to receive potential development and commercialization milestone payments totaling $220 million. If approved, we will be entitled to receive 35% of the U.S. profits from this product and low to mid teen double-digit royalty on net sales of products outside the United States. We anticipate data readouts from the two Phase 3 efficacy studies of 4208 in 2016 and the long-term safety study in 2017.

Also in our respiratory portfolio is our economic interest in a closed triple being developed by GSK and Theravance. GSK is conducting two Phase 3 studies in a closed triple. The impact study designed to evaluate efficacy and safety of the closed triple in patients with COPD will enroll 10,000 patients according to clinicaltrials.gov, and it is estimated to read out in 2017.

The FULFIL study designed to measure improvements in lung function will enroll 1,800 patients. And according to clinicaltrials.gov, it's estimated to readout in 2016. We are entitled to receive an 85% economic interest in future royalty payments on worldwide net sales as a closed triple that maybe made by GSK pursuant to its agreements with Theravance Incorporated. The royalty rates are upward tearing from 6.5% to 10%.

In addition, as I mentioned, the Phase 2b study of Velusetrag, which enrolled its first patient in March, is progressing in gastroparesis, and we are excited to advance our early-stage product candidates in heart failure and ulcerative colitis with the goal of advancing both programs to the clinic later this year or in early 2016. Finally, with our strong balance sheet and efficient corporate structure, we laid a continued strong foundation for future value creation here at Theravance Biopharma.

And now, I would like to ask Renee to review our financial results for the quarter and our financial guidance for 2015.

Thank you, Rick. Prior to reviewing the financial results, I'd like to remind you that the financial statements of Theravance Biopharma for periods prior to our spinoff from Theravance on June 2, 2014, were derived from the historical consolidated financial statements of Theravance, Inc. and therefore may not necessarily reflect what the financial profile of Theravance Biopharma would have been had it been an independent, publicly traded, company during those periods.

Now turning to the financials. Revenue for the quarter ending March 31, 2015, totaled $20.4 million, primarily resulting from the recognition of $19.1 million in collaboration revenues associated with the Mylan transaction announced earlier in the quarter. Collaboration revenue is derived from both the $15 million initial payment and the premium paid by Mylan on their equity purchase. Product sales for VIBATIV were $1.3 million in line with the revenue estimate provided in our last quarterly call. As expected, these sales were relatively flat quarter-over-quarter due to training and positioning of our recently expanded field force in the first half of the first quarter. Cost of goods sold for the first quarter of 2015 totaled $0.4 million, in line with expectations.

Research and development expenses for the quarter were $36 million compared with $42.6 million for the same period in 2014. The decrease in R&D expense year-over-year was primarily due to lower costs associated with the long-term retention and incentive awards that were granted in 2011 prior to the spinoff. In addition, net expenses related to our development programs decreased primarily due to the reimbursement of costs in our TD-4208 program as a result of the Mylan collaboration. Total research and development share-based compensation expense was $7.5 million in the first quarter compared with $5.6 million for the same period in 2014. This increase was primarily related to equity awards issued by the company in 2015. As a reminder share-based compensation expense in the first quarter of 2014 prior to the spinoff would have only reflected share-based compensation expense allocated from Theravance, Inc.

Selling, general and administrative expenses for the quarter ended March 31 were $21.7 million, compared with $18.2 million for the same period in 2014. The increase was primarily due to costs associated with VIBATIV commercialization. Total selling, general and administrative share-based compensation expense was $8.1 million, compared with $7.1 million for the same period in 2014, with the increase, again primarily related to new equity awards issued by the company in 2015.

Cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $274.8 million as of March 31, representing a net decrease of $31.2 million in the quarter. Cash outflows in the quarter included $14 million in payments related to the company's long-term retention and incentive program, which was put into place in 2011 prior to the spin and payment of the company's annual cash bonus plan. These amounts were offset by an increase in cash of $30 million associated with the sale of equity to Mylan.

The $15 million initial payment from Mylan will be received in the second quarter of 2015. Thus it is not included in our first quarter cash balance. Furthermore, please note that all reimbursements from Mylan will be received one quarter in arrears, similar to the arrangement we have in place with Alfa Wassermann.

Turning to our financial guidance for 2015. Our prior guidance was $150 million to $160 million in operating loss, excluding share-based compensation. After taking into consideration the Mylan transaction and other investment opportunities in our pipeline, we are lowering operating loss guidance to $120 million to $130 million, excluding share-based compensation. This lower guidance reflects a reduction in operating loss due to revenues and reimbursements received from Mylan, offset by an increase in investment in both VIBATIV commercialization and our early development program. The VIBATIV investment reflects an increase in territories and an expansion of our sales force from 21 to 50 sales representatives. This expansion will commence in the current quarter.

The increased investment in our early development program reflects our decision to advance multiple product candidates from our neprilysin inhibitor and ulcerative colitis programs into IND enabling toxicology studies with an objective of advancing into the clinic by the end of 2015 or early 2016. Embedded in this guidance is a VIBATIV net sales target of approximately $20 million.

As we mentioned in our fourth quarter conference call, we expect VIBATIV sales to build through the second half of the year due to expansion into territories where VIBATIV was not previously sold, periodic formulary reviews, and hospital selling cycles.

Now I would like to turn the call back to Rick for final comments. Rick?

Thanks, Renee. In summary, we achieved our objectives for the first quarter and made good progress in advancing key programs. The expansion of our field force and the initiation of the TOUR and bacteremia studies are helping to build the VIBATIV brand and plans are underway for additional commercial expansion this year to drive further market uptake. We are on track to initiate a Phase 3 registrational program for 4208 in COPD in the second half of the year in collaboration with Mylan. Additional progress this quarter included the initiation of the Phase 2b study of Velusetrag partnered with Alfa Wassermann in gastroparesis and importantly advancing promising research programs towards the clinic.

As a reminder, across our respiratory assets, we have the potential for three Phase 3 completions in 2016 with two 4208 efficacy studies and a Phase 3 FULFIL study of the closed triple. And in 2017, if studies go according to plan, we expect to have three more Phase 3 completions with telavancin and bacteremia, the long-term safety study of 4208 and the larger 10,000 patient study of the closed triple. We believe that we're on target to meet our 2015 milestones and achieve an exciting year of growth for our company.

I'd now like to ask the operator to open the call for questions.

(Operator Instructions) We have our first question from Gena Wang with Leerink Partners. Your line is open.

Thank you for taking my questions. Maybe I'll start with some clarification. Just want to make sure, 50 sales reps, does that include any medical liaisons?

So t that number doesn't include any additional medical liaisons. We may increase our MSLs by a few, but the 21 to 50 includes the sales representatives.

I see. Okay. So I think previously you mentioned you hired 10 medical liaisons. So will hire a few more in 2015?

So, yes -- Gena, I think our strategy has been historically -- since we began the pilot program, that we have had a little bit heavier allocation to medical liaisons than perhaps historically. We would likely continue that. So we have got 10 to 11 now. We would likely take that up by a few in order to accommodate this expansion over time.

Okay, okay. Thank you. And also with additional sales force, should we expect VIBATIV revenue actually exceeding guided $20 million?

So that's a great question, Gena. I think, right now, we are going to keep our guidance at $20 million. We have seen through market research that we have done a significant impact that the sales representatives have had in the territories with regard to the change of behavior in physicians over the course of time that they've been in the territories. So that was clearly an important fact in making the expansion decision. The other important fact, of course, is that we did see sales into the market increase through the course of the first quarter and we are feeling pretty good about that right now. But I am not right now going to take up $20 million guidance. We will see where we are after the expansion. And I do believe, as I said in my notes, the impact certainly will be felt in 2016 and beyond by this additional sales force expansion.

Okay. Will you continue sales expansion beyond 50?

Well, right now, I think our view is that we are pretty comfortable with this level of sales force, given the indications that we have. So I really don't want to go beyond that right now other than with this allocation, we think, is barely gets us into the territories, the new territories that we believe we need to be in as well as enabling an increase in frequency of customer calls in the territories that we are currently in.

Okay. Renee may have mentioned it, I may have missed it, I just wonder, do you have any revenue from ex-U.S. for the first quarter? So that would be for --

(Crosstalk)

No, Gena -- sorry, go ahead, Gena.

Yes. No, I was just wondering the volatility from VIBATIV ex-U.S.?

So in the first quarter, the revenue was related to the collaboration revenue that I mentioned as well as product sales. And as we look forward throughout the year, the $20 million is really focused on U.S. sales, but we do expect to have some approvals of VIBATIV outside the U.S.

Okay. Thank you.

(Operator Instructions) Our next question is from Steve Byrne from Bank of America. Your line is open.

Rick, I missed the beginning the call, and so I apologize if I ask you something that you already covered. But I was always interested in VIBATIV and where are you seeing traction and what is the particular application? Is it more pneumonia driven or skin? Where are you getting that traction that you're seeing?

Well, I would say, based on what we can see in the market right now, we are getting traction both in the outpatient setting as well as the inpatient setting. And the inpatient setting is primarily pneumonia. The outpatient setting is going to be a little bit more tilted probably the complicated skin and skin structure infections. And I think geographically, we see significant deltas between the territories where we have reps in those territories, where we don't have reps and what we have seen, particularly in March and in April, is an uptick in sales as the sales force expansion has taken hold in those territories and began to drive additional volume.

As I mentioned to Gena in the last question, in addition to strengthening sales, what we have also seen from market research that we have done in those territories is you have awareness, familiarity, formulary status, current and projected use of VIBATIV, all increasing in those territories, not surprisingly where we have representatives. And that communicates to us that the messages is taking hold and that the message is meaningful to physicians and is in fact impacting their prescribing behavior. So that's really the underlying rationale for the expansion.

And for the inpatient setting is getting on the hospital formulary, a necessary requirement and for the outpatient setting is the ability of the hospital to be reimbursed directly for the antibiotic in of itself enabling more growth in that setting?

Yes. So we will have reasonably good reimbursement for VIBATIV sort of across the board. As I mentioned, formularies we have achieved a number of formulary wins in the first quarter of this year. Clearly, you don't have to be on formulary in certain institutions for the product to be used, but it certainly makes it makes it easier and certainly where we had the representatives in those territories, we have experienced formulary wins. So those are necessary overall to more efficient, really promotion of the medicine and communication of its benefits.

And in the outpatient setting, is the direct reimbursement for the antibiotic helpful in driving growth there?

It is. As I said, we really haven't seen a significant -- we haven't seen any problem really with reimbursement of the product.

Okay. And then is there any opportunity down the line of getting MABA back as your own asset since it seems to have stalled?

Well, Steve, Mathai is sitting across the table from me, so I think this clearly at this point, that MABA hasn't progressed, it's really under the purview of Theravance Incorporated and GSK, and is a little bit out of our real house. So should GSK choose to not progress the program and terminate it, then we would get the MABA back, but we don't have indication about it at the current time.

Okay. Thank you.

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. Thank you very much, operator. Thanks, everyone, for participating in our first quarter conference call and have a great day.

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