Theravance Biopharma, Inc. (TBPH) Earnings Call Transcript & Summary

Hi, good morning. My name is Viviana Limon. I'm with the JPMorgan healthcare investment banking team. Thank you all for joining us today. It's my pleasure to introduce to you, Rick Winningham, Chairman and CEO of Theravance Biopharma. He'll be presenting to you today.

Good morning. I'd like to thank JPMorgan for inviting us here to present today, and I look forward to just talking about Theravance and our strategy and objectives going forward. Very simply, while you've listened to a number of companies over the week talk about the treatment for serious diseases, I don't think you'll hear another company talk about transforming the treatment of serious diseases through discovery, development and commercialization of organ-selective medicines. And I don't believe that you'll listen to another company that's actually been successful at discovering and developing, commercializing a medicine for a serious disease that is, in fact, organ selective. Well, that's our strategic objective. And what I'll talk about over the next half an hour is in fact what we've done to date in accomplishing this objective and probably more importantly, the promise of what we can do in the future. If you look at how we go about creating transformational value for our stakeholders, it's really based on an innovative and productive research engine driving a pipeline of organ-selective assets. We've got proven development expertise and an established commercial infrastructure to take advantage of that pipeline. We've got strategic partnerships, which complement our internal capability and, of course, balance the technical execution and financial risks of our programs. And we've got a strong capital position augmented by TRELEGY ELLIPTA royalties as well as our YUPELRI launch, our commercial YUPELRI launch. And importantly, we've got multiple milestones and value-driving catalysts this year and beyond, driven by the research engine, the pipeline, the proven development expertise and the commercial infrastructure. I'm not going to cover these -- this slide in detail because I'll be spending the rest of the presentation talking about it, but there are a couple of takeaways from this. One, a diversified pipeline targeting a number of different serious diseases. A pipeline at different stages of development for the marketed product of YUPELRI and the royalty generating product of TRELEGY through Phase III products, Phase II products as well as Phase I products and products that are just entering the clinical development pathway. You'll see a mix of programs here that we're taking forward alone as well as taking forward with strategic partners, strategic partners like Janssen, Pfizer, et cetera. And programs that are wholly owned by us, that we are driving by ourselves going forward. So these key programs are supported by proven development and commercial expertise and driving a series of key milestones, as I said, in 2020 and beyond. I'll start with the economic interest that we have in TRELEGY ELLIPTA. TRELEGY ELLIPTA is the first and only once-daily, single-inhaler triple therapy for the treatment of COPD. If you look at the product that GSK is marketing and that we were involved in, in the past, this product has had the strongest U.S. Ellipta launch to date with GSK. As the GSK CEO referenced yesterday, it's been a very strong launch, and the strong launch is continuing through expansion of different geographies as well as the expansion of indications. It's got currently a 31% market share in the class. There's no other product like it, a once-a-day, triple therapy comprising a beta2-agonist, a long-acting muscarinic antagonist and inhaled corticosteroid, all once a day in a very patient-friendly device. What we can look forward to this year is resolution of the sNDA that GSK has filed in asthma for TRELEGY. That sNDA was filed last year, sometime around the middle of the year. We should see action on that -- the study that gave rise to the sNDA was the CAPTAIN study, showing significant improvements in FEV1 versus LABA/ICS therapy in asthmatic patients. Progress to date with TRELEGY has been COPD. Now in the future, COPD and asthma. In addition, that GSK filed an sNDA working to highlight the mortality benefit that they saw in studies with TRELEGY versus ANORO. There's not another product that's got a mortality benefit in the COPD class. Should GSK be successful with this sNDA, it would have the only label that would contain a mortality benefit. So we're very excited for us as collecting the royalties off of this product, an effective royalty rate of about 5.5% to 8.5% about the progress of TRELEGY to date and importantly, the progress of TRELEGY in the future because this is a program that bolsters Theravance Biopharma's capital position today and over time. Now I'll move out of the royalty interest into the commercial product that we have with marketing with Mylan in the United States. It's the first and only once-daily nebulized muscarinic antagonist for the treatment of COPD. This product is a once-daily, as I said, LAMA or long-acting muscarinic antagonist. And muscarinic antagonists are first-line therapy for COPD. Prior to the launch of YUPELRI, there was no product that was available for patients that use nebulizers for maintenance therapy that was convenient. YUPELRI is a once-a-day product that can address 9% of COPD patients, 800,000 patients in total that use nebulizers for ongoing maintenance therapy. And keep in mind, although 9% use nebulizers for maintenance therapy, almost 40% of COPD patients use nebulizers some time during the course of the disease. And YUPELRI is the first and only once-daily, long-acting muscarinic antagonist delivered through a nebulizer. Importantly, from a pharmacoeconomic perspective, nebulized therapy is associated with reduced hospital readmissions in low PIFR patients. PIFR is a measure of inspiratory flow, the ability of the COPD patient to breathe in, and this is compromised in advanced disease. And we have seen in later-stage COPD patients, goal 3 and goal 4 patients, where nebulized therapy can provide a better alternative for those patients versus a dry powder inhaler. We're commercializing this product with our partners at Mylan, and the commercial strategy is this. We cover the hospital. Theravance Biopharma commercial organization covers the hospital. This is important because of the number of patients each year that go into the U.S. hospitals because of a sudden worsening of COPD. When they're in the hospital after stabilization, that's the perfect time for a patient to be put on a nebulizer because these patients have low peak inspiratory flow. They can't be properly treated with a dry powder inhaler. Our job at Theravance Biopharma is to, in fact, achieve formulary approvals in these hospitals to get patients on YUPELRI while they're admitted to the hospital. And then, in fact, when they leave the hospital, have them leave with a prescription for YUPELRI for outpatient therapy. Mylan's responsibility, our partner, is to focus on the community physicians to keep the patient on the appropriate therapy. And if that appropriate therapy is a nebulized long-acting muscarinic antagonist, there's only one product that's available that's once a day, and that's YUPELRI. So we cover the hospital. Mylan covers the outpatient, and we work together on the discharge and moving from the hospital to the community. We've got a profit share with Mylan. It's a 65% profit share to Mylan, 35% profits to Theravance Biopharma. The financial dynamics are very good. We're able to get to a high level of commercial precision in the marketing strategy so the financial dynamics to both Theravance and Mylan are very good. And this is a worldwide collaboration. Some of you may know that Mylan licensed the China rights to YUPELRI last year from us and Mylan is developing YUPELRI for China. So we're very excited about the performance to date with YUPELRI. And a couple of key measures of that performance to date is that in about 11 months, we've achieved approval on 220 formularies across the United States. Today, we've got 70 further reviews covering about 400 additional accounts on the books and we've been able to provide medical support to those formularies at 100% rate within 30 days. Our productivity goals in our field force have been exceeded. 30,000 patients have been prescribed YUPELRI since the product was launched in early February of 2019. This was driven by the fact that this is a Part B medicine, reimbursed under Medicare Part B, and we were able to get a permanent J-code 6 months earlier than was scheduled. We were originally expecting a J-code in January of 2020. We were able to get that J-code in July of 2019. And if you follow IMS or IQVIA scripts, you can see a bit of an upturn in the middle of the year because of this designation of the permanent J-code. Now when you're following YUPELRI's progress, while you can follow the trends with IQVIA, the IQVIA scripts don't measure most of the prescriptions written for YUPELRI, and that's because durable medical equipment suppliers are a key component of delivery of drug into the patient's home. And in fact, IMS doesn't pick up those prescriptions. So while you can look at IQVIA or IMS to get an idea for trend of prescriptions, the prescriptions counts themselves are going to be fairly dramatically understated. But what you can see is a significant positive trend month after month, week after week with YUPELRI in the market in the United States. We're very excited about this, excited about what we've done for the launch to date and what, in fact, this product can do over time. If you look at total nebulized, long-acting beta agonist, another category in the nebulized market, that category generates about $600 million in sales in the United States. So we've got significant opportunity ahead of us for YUPELRI, and we look forward to capitalizing on that in 2020. Now I'm going to step back for a moment and look at our science and our organ-selective approach to drug design. YUPELRI is an organ-selective medicine. It goes into the lung. It stays in the lung, does its work in the lung and then is rapidly metabolized by the liver and excreted so that there's not circulating muscarinic antagonist in the body. Well, we've applied that to a series of other targets in trying to improve the efficacy and the safety of medicines to treat serious disease. Now you may think back about 40 years. 40 years ago, when asthma was treated, it was treated by systemic steroids. People took either pills or injections in order to control their asthma. They couldn't tolerate the steroid, oral steroids or injectable steroids for long periods of time, so they had to come off the oral steroids, which led to exacerbations, which led to emergency room visits and hospitalizations for asthma. What eliminated significantly the number of emergency room visits and hospitalizations for asthma was the development of inhaled corticosteroids 40 years ago merely using organ selectivity and inhaled corticosteroid to put the steroid where it was needed in the lung to stop, in fact, the inflammation associated with asthma. Now this is what we're trying -- what we're doing today with a number of therapies. We're trying to capitalize on the idea of organ selectivity to drive efficacy up, safety concerns down and deliver more effective medicines for serious diseases. I'll start by talking about TD-1473, our oral gut selective pan-JAK inhibitor to treat inflammatory intestinal diseases. If you look at sort of the preeminent JAK inhibitor of today, it's tofacitinib or XELJANZ. XELJANZ is a JAK1, 2, 3 inhibitor. It's a systemic drug. It's taken orally twice a day. It does not have high Tyk2 activity. That's important. I'll come back to that in just a second. And again, this is a systemic drug. It's highly orally bioavailable, achieves high concentrations in the blood stream. And what that does is by achieving high concentrations in the blood stream. Obviously, it gets to organs of interest, whether it's an RA or the colon, but there's no separation between the efficacy and the safety concerns. If you will go back to the Phase II data of tofacitinib, you saw better efficacy at higher doses of tofacitinib, but you can't get to those higher doses because you're dose limited because of safety concerns. So what we did in our redesign of what we -- the organ-selective strategy is we maintained that pan-JAK profile. We increased the Tyk2 activity that -- designed into 1473 and we reduced to a very small level the amount of drug that was absorbed in the systemic circulation. However, what we did do was design the drug to be absorbed into the small and large intestine. You see this in a picture on the right-hand panel. In the top picture, you see a mouse colon that's been given colitis. You see the purple dots or infiltrating T cells into the tissue of the colon, and this is an untreated animal. If you look at 14 -- the animal treated with 1473, you see an ablation of those T cells. And that 1473 is blocking, in fact, the inflammatory effects as measured by T cells in this colonic tissue. That's exactly what we are trying to achieve in the clinic with 1473. This is the early data. You see low levels in man and ulcerative colitis patients, you see high level, and this is compared for purposes of comparison to the systemic concentrations of tofacitinib. And even though we have very low levels in the systemic concentration of 1473, what you see in the colonic tissue in humans taken in our Phase I study is in fact, adequate concentrations to block inflammation in that tissue, tissue concentrations of our JAK inhibitor in the colon at or above the IC50, which is the marker of what you have to achieve to stop the inflammation in the colon. And these are some early clinical results. Now this is only 4-week data from our Phase Ib study. But at the 2 highest doses, you saw dramatic reductions in rectal bleeding in only 4 weeks and you saw an improvement in clinical response at only 4 weeks. And I should add the clinical response was in fact measured -- partially measured through blinded endoscopy. So third-party physicians reading the endoscopies and seeing evidence of endoscopic recovery in the colon as well as mucosal healing. We're very excited about this. The 80-milligram data led to the partnership that we have to -- have with GSK and in fact, accelerated the entire clinical program. We moved from a Ib program in ulcerative colitis to a IIb/III program in ulcerative colitis on a global basis. We're enrolling patients today in the IIb/III in Europe, the United States, and Japan. We plan to have this ulcerative colitis data at the end of 2020. Crohn's disease. The J&J relationship enabled us to accelerate the Crohn's program and start the Crohn's program almost simultaneous with the ulcerative colitis program. And in fact, we'll have Crohn's data, 12-week data from the Phase II study in Crohn's at the end of the year this year. This is important because Janssen has the opportunity to continue to work on 1473 with us after they look at this data, that is -- but they are required to make a $200 million option payment to the company based on the data from the Crohn's and the colitis study. So we're very excited this year about this program. We'll be delivering data in Crohn's and ulcerative colitis at the end of the year. Janssen is going to have a decision to make. We're hopeful that what we see in the data, in fact, is the Phase Ib data coming to life at in larger and larger patient populations. And we look forward to updating you through the course of the year on this program and delivering data at the end of the year. Well, that was an organ-selective medicine for the gut. Now I'm going to go back to an organ-selective medicine for the lung, a pan-JAK inhibitor that we've designed to go into the lung, delivered in a dry powder inhaler to treat moderate to severe asthma regardless of T2 phenotype. While most patients are controlled on inhaled corticosteroids, some patients or not. In fact, as many as 30% of patients with asthma are not well controlled on inhaled corticosteroids. This gives us a terrific opportunity for a better anti-inflammatory. And people are trying to work on this. If you look at the IL-4 and IL-13 inhibitor, the antibody from Regeneron, DUPIXENT, they're trying to, in fact, modify inflammation associated with asthma. It's -- and that's a pretty good medicine. IL-5 Nucala from GSK, a targeted approach, in fact, to control inflammation in the lung that's not already under control with inhaled corticosteroids. However, what we know about the immune system is that there's redundancies. And the best way to put the brake on the immune system in the lung is in fact to deliver the drug to the lung and block multiple cytokines, multiple cytokines that are, in fact, affected by the JAK/STAT pathway, and that's what we're working to do with 18 -- 8236. We're just about through the Phase I program with 8236. This is some data that we presented in September. This is exhaled nitric oxide in mild asthmatics. So in multiple ascending dose portion of the Phase I study, we enrolled asthmatics for 2 reasons. One, to make sure that our dry powder inhaled formulation didn't create bronchospasms in these patients. It didn't. It was safe and well tolerated. We also wanted to measure in mild asthmatics, were we having an anti-inflammatory effect. And in fact, we were able to see an anti-inflammatory effect through exhaled nitric oxide, and you see this on this particular graph, where the doses of 500 micrograms, 1,500 micrograms and 4,000 micrograms showed reductions in nitric oxide. This was mild asthmatics. The Phase I study is continuing, doing biomarker work on moderate to severe asthmatics. That's ongoing, and we've got data expected in mid-2020 for that. And we started the Phase II lung allergen challenge, where we provoke exacerbation in patients in a controlled setting through exposing them to allergens that they are sensitive to and then rely on 8236 to block the, in fact, bronchospasm caused by the allergen. That data, probably late second quarter, early third quarter this year from this Phase II study and the next step would probably be to go into a larger Phase IIb study. But this is a critical proof-of-concept study for the program for an inhaled pan-JAK inhibitor that's delivered through a commercializable dry powder inhaler. So we're excited to deliver this data in the middle of the year. Now I'm going to go and talk very briefly about our early organ-selective programs because we've got a research engine that will continue to deliver exciting organ-selective programs in the future. And I'll start first with the program furthest to the right. We had a JAK program that was selective for the skin in research, and we out-licensed that. We announced this late last year. We out-licensed that program to Pfizer. Pfizer is in fact the pioneer in JAK biology and chemistry. But they saw something special in this topical skin-selective JAK inhibitor, a topical preparation that could be used safely to hopefully to treat skin inflammatory skin conditions. Why did we partner with Pfizer on this program? Well, we partnered with Pfizer on this program because of everything else that we have coming through the pipeline. 5202 is an irreversible JAK3 inhibitor in Phase I with the potential to treat celiac disease. That's with Janssen. The next 3 programs are ours wholly owned, an inhaled nebulized pan-JAK inhibitor, to treat serious inflammatory conditions of the lung, think about the rejection of lung transplant and lung sarcoidosis, an inhaled nebulized ALK5 inhibitor for idiopathic pulmonary fibrosis. Nothing really modifies the course of disease in idiopathic pulmonary fibrosis, a lung selective ALK5 inhibitor, where we're able to get an ALK5 inhibitor into the lung to affect TGF-beta may be able to, in fact, alter the course of idiopathic pulmonary fibrosis. And then finally, an intravitreal eye-selective JAK inhibitor. This is a program where significant preclinical toxicity has to be done, and we look forward to updating you. It's likely that very early this year, we will be taking the inhaled nebulized lung-selective pan-JAK inhibitor into the clinic and into a Phase I study. I'm going to close very briefly with our Phase III program ampreloxetine. It came out of extraordinary chemistry effort in Theravance Biopharma. Neurogenic orthostatic hypotension, serious condition affects Parkinson's patients and multiple systems. Atrophy in patients is a leading cause of health care costs in these patients. Our medicine, a reuptake inhibitor for norepinephrine, blocks the reuptake of norepinephrine, allowing more norepinephrine available to constrict the blood pressure. This enables, hopefully, to reduce these patients fainting and in fact, enabling their ability to live their lives out of a wheelchair. We've got Phase III data that we're expecting late this year in the 169 study, which is SEQUOIA, that essentially mimics the first 4 weeks of this study on the left-hand panel. The Theravance Biopharma difference is really multiple catalysts pouring out over the next year, whether it's 5202, 8236, the TRELEGY data that I -- and approvals that I talked about, ampreloxetine and critically, 1473 for us. So we look forward to innovative research program continuing to yield assets, leveraging our commercial and development expertise to -- for value-driving catalysts and maintaining our strong capital position as we transform the treatment of serious disease through the development, discovery and commercialization of organ-selective medicines. Thank you.

All right, let's begin.

Yes. Good morning. I'm Rick Winningham, CEO of Theravance Biopharma. I've got Andrew Hindman, CFO, to my left here; Phil Worboys, who is leading the research and translational efforts at Theravance Biopharma; and Brett Haumann, who leads the development efforts of Theravance Biopharma. So as I just finished in the presentation, we're very excited about where we are with 2020. A number of value-driving catalysts this year for the company at every stage of development and be glad to entertain any questions that you have.

The Chinese, YUPELRI, why don't you talk about -- with Mylan. Can you just walk through kind of what needs to get done before that officially launches and [indiscernible] lay that out for us?

Sure. I think what you've heard from the Mylan-Pfizer team sort of post the announcement of the merger is that YUPELRI is a global key brand for them going forward, both in the United States and certainly in China. The opportunity in China, as you know, is quite significant with 100 million people with chronic constructive pulmonary disease. And without a doubt, Mylan will need to do some Phase III work in China. Given the size of the patient population, this should be relatively efficient for them to do. And then they'll be able to leverage a considerable amount of dossier that we compiled in the United States for approval. And based on what I know, they're beginning to work on this now. Does that address your question?

It does. And is there anything that's different than the U.S. in terms of how that would [indiscernible] how you actually get to a patient there, how you get into accounts? I know here we have our custom DME provider but how is it different?

Well, I think it is different in China. I think while you've got an emerging, obviously, durable medical equipment suppliers in China, the other -- one aspect that's different in China is that there's been a significant investment in nebulization centers that are attached to hospitals in order to treat pediatric asthma. These nebulization centers are again attached to hospitals in many different cities. And they enable parents to bring their kids in for nebulization a few times a week of a steroid, primarily. These nebulization in these centers and this infrastructure, of course, could be leveraged for a medicine like YUPELRI, given the long duration of action of YUPELRI. Brett, I don't know whether you want to make any other comments?

Yes. I think the precedent actually was set by AstraZeneca. If you look at the sales of their nebulized steroid for pediatric asthma, PULMICORT nebules have done extraordinarily well in China, and it's because they've been using this infrastructure of community-based nebulization centers. The principle there is that patients are able to access nebulization centers within walking distance of their homes. And that is a different, obviously, mindset and different infrastructure from which we see here in the U.S. But we believe that, that same infrastructure would be well suited to patients with COPD and could very readily be used. Bear in mind that YUPELRI was approved for use with any standard nebulizer, and that was deliberate. We wanted to make sure that we weren't tied to a specific nebulizer in contrast to some of the other products that you see out there. So we think this would sit itself very well and certainly support uptake in China.

And in the U.S., you have your J-code now. So any other kind of roadblocks you see for this year? Or like how do you see uptake kind of progressing?

Well, I think if you look through the course of 2019, the hospital element of the strategy only began to pay off, I'd say, probably in the late fourth quarter, when you had the critical mass of formularies across the country that had accepted it in institutions and, in fact, enabled the discharge. So most -- a lot of the patients that we were picking up in the first 11 months were directly in the community or they were in the outpatient centers of the hospital. I think as we continue to broaden the reach within the hospital systems, 200 potentially going to 500 and 600 this year, I think the hospital part of the strategy is really going to kick in as a growth driver for YUPELRI. Without a doubt, the J-code and the simplicity of reimbursement on the J-code had an impact. You just, as I said in the other room, you just track the -- look at the shape of the IQVIA curve post July, and it's different. So I think this is simply about getting out and making sure that physicians understand the benefits of YUPELRI as a once-daily medicine. I think based on the early market research, if I was to summarize the patient experience on YUPELRI, it's that we like YUPELRI, it helps us feel better longer, and that's exactly related to how the drug works. So we're very excited. This is about breadth and depth of promotional effort and great execution, continued great execution through this year. I think there's an incredible promise for this product.

So you're on 200 formularies now and you want to get to 500?

I'd like to be. We've got 70, I think, 70 reviews scheduled covering something like 400 accounts. So yes, I'd like to be over 500 by the time we close 2020.

And is that -- what would you say like the critical mass of formularies where you have most of patients covered?

Well, I think you're probably in the 300, 400 range. You've got a pretty good critical mass. It's pretty -- it's somewhat easy to understand where these patients are coming from. There's actually a map on the CDC website that measures almost exacerbation intensity by ZIP Code. It's a heat map. So you can see where the most important places are to be. And I made a comment in the other room about the efficiency of the commercial effort. We use information like that to target resources about where we need to make sure people understand the benefits and risks of YUPELRI. It really -- data like that really enables a targeted, very targeted promotional effort.

Perhaps just 2 other points to make on that, and that's that the development program itself supported a very compelling case for patients. 2 success stories that came out of that development program. The first was that FDA encouraged us to test this drug not only on its own, but on top of existing therapies including steroids and beta agonists. And we were able to demonstrate that this drug adds value, not only to those patients who need a single agent, but also in combination with other products as well. So we've seen the benefits there. The second element was that we tested 2 doses in Phase III, and the higher of the 2 was accepted by the FDA as most compelling offering the greatest benefit with no increase in risk. That's unusual. Usually, the agency is motivated to find the lowest dose that is submitted. But we felt very strongly that the higher of the 2 doses was more important, more relevant for patients, and that was supported in the approval.

It was also a rare program in that when the Phase III data came out, it was remarkably similar to work that we'd done in animal models a decade -- over a decade earlier. I mean the models that we've used to understand the drug preclinically, this drug came through in flying colors in the clinic, and that doesn't happen all the time, but it certainly did with YUPELRI. It might be useful for, since we're on the subject of respiratory medicines for Phil, if you could talk a little bit about 8236?

Yes. So 8236 is -- we look at anti-inflammatory as is used in the community and the clinic. As we mentioned, I mean, 40 years ago, corticosteroids became inhaled, and that transformed the treatment of people who had inflammatory lung conditions. But in terms of inhaled medications, there really hasn't been a big leap forward in terms of inhaled medications since then. And the JAK mechanism offers a much broader coverage of the different phenotypes of patients that present. So we're looking to treat people who currently steroids will treat, but really focus on the patients who are not covered by corticosteroids. They're a smaller fraction, but they constitute the majority of the U.S. health care costs. So they are the more severe patients. And obviously, by not being well controlled on steroids, they end up in the emergency room more often and they cost the system a lot more money. The JAK mechanism is broad. It's just had a whole swathe of cytokines. So over many, many years, we've been looking to find lung-selective JAK inhibitors that are exquisitely potent overall the JAK isoforms but have the safety profile that we need to treat these patients. 8236 is one example in a dry powder format. Our nebulized program is a totally different molecule optimized for nebulization. That will go for a different set of conditions, where we're trying to drive really high levels of JAK inhibition to try and shut down the immune system as much as possible. But we're very excited about this mechanism. Clearly, the systemic effects with 1473 of JAK inhibition, tofacitinib, we know what we don't want to have in the circulation. So those molecules are optimized to stay in the lung, give duration, but then be extremely rapidly cleared out of the bloodstream when they do finally permeate out of the lung. So very excited about those. And fingers crossed for data for 8236 during 2020 and the nebulized when it goes into the clinic for the first time this year.

When will the data readout be for 8236?

Sure. The question is when will the data readout for 8236, the Phase -- the 2 sets of data. One is Phase II lung allergen challenge and the second set is the advanced biomarker study in moderate to severe asthmatics. Lung allergen challenge, as I mentioned, is an extremely important study for us. It's a 21-patient crossover study. Really, by using crossover design, it enables to get us the power of studying 80 patients because each patient serves as his or her own control. I think we're -- we -- it's late -- some time midyear, late third or late second, third quarter in there. We're early on in the study. We just began enrolling in the lung allergen challenge in late November. But things are doing quite well. Phil, do you want to add anything?

Yes. I would say midyear for Part C of the Phase I. So Part A was the single ascending dose in healthy volunteers. Part B was the multiple ascending dose, which we did in mild asthmatics, and that generated the FeNO data that Rick showed. Part C is now we move into our target patient population, moderate to severe patients. There, we're doing more invasive biomarkers, so mouth and bronchial brushings. In parallel is the lung allergen challenge again in moderate to severe patients. So both Part C of the Phase I and the lung allergen challenge Phase II should come out around midyear.

Perhaps one last clinical observation is that we really see this as a huge potential for those patients who remain symptomatic on steroids, but to offer them an opportunity to take another inhaled therapy before they consider the move across into biologics. So we see this as being positioned for those patients who remain symptomatic on inhaled corticosteroids. Some of those patients would never respond to biological agents because their drive of the underlying inflammation is not eosinophil-driven. And the beauty of a pan-JAK inhibitor is that it would be able to treat both those patients with eosinophilic drive, so-called Th2 or T2-high disease. But also importantly, those patients with T2-low disease, the ones who may have neutrophil-driven disease or some overlap between asthma and COPD. The pan-JAK inhibitor should be able to treat all of those patients in a way that even the biologicals could not and do so with an inhaled formulation that doesn't require these patients to come in for weekly or monthly injections.

[indiscernible]

We think it's sizable. We know that 10% to 15% of asthmatics remain uncontrolled despite being on the highest doses of steroids. We know that only a proportion of that 10% to 15% of patients have T2-high disease, roughly half of them. And so knowing that there are 600 million asthmatics in the world and doing the math from that, it is, we believe, a significant opportunity, not only directly in terms of accessing patients, but also in being able to demonstrate a significant reduction in health care utilization if their disease is well controlled.

1473. So for J&J to opt in, like what is the clinical -- what are the bars that they're looking for in order to make that decision? We'll see the data. So should we -- I mean, obviously, if it looks amazing maybe a press release at the same time we're all in. But could we expect some time after that before they opt in? Maybe just walk through like how the thought process is working?

Sure. I'll just talk briefly about the data and then maybe have Andrew talk about the opt-in process. I think -- what are we looking? We're looking for the separation between efficacy and safety concerns, a separation that it's difficult to see with tofa. I mean as we've presented before, it's been published, tofacitinib at 10 milligrams and 15 milligrams, that efficacy in ulcerative colitis is better than at 5. 5 is -- 5 of tofa shows efficacy, but it's pretty modest and it just doesn't save on -- for a lot of patients, you can maintain 10 milligrams as maintenance BID. So we're looking for separate -- we're looking to -- for improved therapeutic index just like J&J. Several years ago, it wouldn't have been interesting for us to develop a systemic JAK inhibitor. I mean nothing more to add there. The organ selectivity really provides us the ability to take up the efficacy, reduce the safety concerns, and I think that's what J&J is looking for as evidenced by the Mayo score in ulcerative colitis and CDAI in Crohn's. So Andrew, you want to talk about the opt-in mechanics?

Sure, yes. The -- we owe Janssen a package of data from both of these studies, both of them are well-controlled, placebo-blinded and placebo-controlled studies. So once we unblind them and have the full data set, we will provide a package to our colleagues at Janssen, and they have an opportunity to make a decision based on either the Crohn's or the ulcerative colitis study or both. And there's a 90-day window after they receive the data packages from us upon which they need to make a decision.

Yes, would you have both in hand before the 90-day clock starts or...

Yes. The 90-day clock starts really when they have both data sets in hand. Now it wouldn't be appropriate to sort of think about Janssen being on one side of the wall and Theravance being on the other, and us tossing them a package over. Janssen has just been instrumental in the progress of this program for us. I mean keep in mind, we went from a Phase Ib study in ulcerative colitis to a Phase IIb/III. In that Phase IIb/III, we had to satisfy regulators in both the U.S., Europe and Japan with regard to the safety and the promise of efficacy of the drug. Janssen was critical in helping us with those regulatory discussions and negotiations as well as providing us critical information on the sizing of the Crohn's study because they've obviously worked in Crohn's, we haven't. They've got a lot of data there. It really enabled us to accelerate the Crohn's versus our original plan. That IIb/III design probably accelerated the entire program by 1.5 years. And so somebody from Theravance Biopharma is working with somebody from Janssen every day on this program. It's an incredible collaboration. But these -- those are the terms of the agreement. Hopefully, we get very good data and we continue to work with them going forward. I don't know, Brett or Phil, anything to add on that?

Just a brief update on the progress. We're recruiting into both studies. They're actually tracking very closely to each other. So we don't expect a significant separation between the readout of those 2 programs. And so we expect to be able to be in a position to transfer data across to Janssen on both studies by the end of this year.

Yes. And just on the collaborative nature, I mean, Janssen have been an excellent partner. There's obviously a lot of other things that go into moving a program forward, preclinical work, tox work, supporting clinical pharmacology. The 2 companies are working extremely closely such that when the opt-in comes, there wouldn't be a big pause and tech transfer and retooling. So the 2 companies are working extremely well. And yes, it's been a really good collaboration.

One last piece to mention is that in the unlikely event that there isn't an opt-in, we are conducting the programs at the moment. So the executional running of the programs is with us. And that's important. The ulcerative colitis program actually continues past the current milestone of delivering the Phase IIb portion. We're continuing to treat patients in the maintenance phase. That is relevant because it generates Phase III data, but there will be no downtime or disruption during the time of the opt-in evaluation. Theravance will continue to have ownership for the ongoing pieces of work.

And they will run the Phase IIIs?

For Crohn's disease, that's their intention, and we'll negotiate on the ulcerative colitis program because that's ongoing.

Under the -- going forward, under a cost-sharing agreement, 1/3 of the cost covered by Theravance Biopharma, 2/3 of the cost covered by Janssen. The structure of the milestones and the timing of the milestones going forward were all designed such that effectively, the program becomes cash flow neutral to us. The milestones that Janssen pays us pays for our contributions to the program going forward, so.

And anything you would -- if the data plays out, would the Phase III look any different than we've seen with other UC Crohn's studies? Or is there something else you're going to try to have [indiscernible] difference, given it's a different asset or...

No, I think it should mirror what you have seen in other programs. There's a convention that's tending to be followed at the moment where in Crohn's disease, the expectation is for 12 weeks of induction and then 44 weeks of maintenance treatment. The expectation is often that you'll need to replicate the induction with 2 separate findings and then patients go into a single remission study, the maintenance phase. And so we expect to see that in Phase III. In ulcerative colitis, the expectation is usually for an induction study in Phase II and then 2 separate induction studies in Phase III and a maintenance study. As Rick touched on, though, we've actually already negotiated with agencies around the world to simplify that. The current Phase II induction study is already serving as one of the pivotal sets because it's generating data, and the maintenance portion of this study is the Phase III study. So we think we've simplified already some of the design elements in a way that has not been done with other sponsors in the past.

Can we just talk about our cash position?

Yes. We closed the year 2019 with approximately $300 million, just under $300 million in cash. And we haven't yet given guidance on operating expenses. We will do so on our year-end call, which is coming up in early February. But we're well capitalized. And as Rick mentioned, the $200 million option payment, should that be exercised by Janssen, that'll be an important component of the capital that we will deploy to fully fund the 1473 Phase III program along with Janssen's contributions for their 2/3 portion as well.

[indiscernible]

We'll be providing an update on our full year-end results call in early February.

Yes. I think our guidance, the guidance is, for 2019, of net operating loss less stock-based comp was like 200 to 210, something like that, which is a proxy. It's a proxy for cash use. I think the company is going into it, and I talked about this and began to highlight it in late '18. I talked about it in '19. You're going to look at the cash dynamics of the company, and we're going into a different phase of the company. Obviously, the TRELEGY ELLIPTA royalties are growing substantially. We leveraged that at the end of last year. But in fact, those TRELEGY royalties are far and above the assumptions that went into the debt construct that we did last year. YUPELRI is a product that's going to go from cash flow, using the cash flow generating this year. So the just general cash dynamic of the company is quite different going forward. So that's about it. The time's up. We thank you for your attention and look forward to a great 2020.