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

Good afternoon. Welcome, everyone. My name is Vikram Purohit. I'm one of the biotech analysts at Morgan Stanley. And before we get started with Theravance today, need to read a brief disclosure. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. Okay. With that, I'd like to welcome Rick, Andrew and Brett, CEO, CFO and CMO of Theravance Biopharma to our fireside chat. Welcome.

Thank you.

So Rick, I thought that maybe to level set, the best place to start out would be a brief overview from your side about some of the key developments that you feel the company has had over the past several months, and what you think are some of the key inflection points coming up, and then we'll go from there.

Okay, great. Vikram, thank you, and thanks to Morgan Stanley for inviting us here to participate. At Theravance Biopharma, we're committed to the discovery, development and commercialization of really transformational medicines, primarily to treat inflammation. We will apply our organ-selective expertise to target the right disease organ with the right molecular design. And the objective here is to create medicines that widen the therapeutic index versus medicines that are otherwise available, either in the market or in development. We believe that this particular strategy has got the potential to maximize efficacy while limiting systemic exposure and best side effects to optimize patient benefit. As you know and others know, we've got a long -- a rich history and an exciting future in respiratory disease. Just last week, FDA-approved GSK's TRELEGY ELLIPTA, sNDA for asthma, which is an important advance in asthma. This label further strengthens TRELEGY's leadership. And for us at Theravance, generate -- should generate incremental royalty revenue that enhances our already strong financial foundation. As a reminder, we receive an upward tiering 5.5% to 8.5% royalty on worldwide net sales. It's a passive economic interest. And our note transaction earlier this year leveraging those royalties resulted in a private placement of $400 million of nonrecourse notes that augmented our financial strength, where 75% of the royalties are pledged against that, until they're paid off, 25% drops to the bottom line. Now following on from TRELEGY, also in respiratory, YUPELRI marketed product for the maintenance treatment of patients with COPD is the first and only once-daily nebulized therapy that provides a full 24 hours of control for patients with COPD. It's about a year into launch. Despite the pandemic, we're tracking our key performance metrics, formulary reviews, wins, patient uptake. Certainly, the third quarter has been stronger than the second quarter, which was affected by the pandemic. Market access is going extremely well. And this particular product for us will be cash flow positive before the end of the year. But from a pipeline perspective, the value really centers on the execution of our science, and it always has been the science that's created value for us as our approach is as selective as the organs we target. And we harness a deep knowledge of biology, chemistry, pharmacology as well as drug metabolism to design these organ-specific medicines for a range of conditions. Not only that, I think our size and our internal strategy allows for a rapid sharing of information that really enables us to move at warp speed, no pun intended. Today, we've got a limited amount of time, obviously, but we're excited to talk about the inhaled JAK portfolio. Near-term catalysts in the fourth quarter this year, obviously, 8236 for asthma. Also TD-0903 for COVID as well as provide updates for ampreloxetine, which is in Phase III for symptomatic neurogenic orthostatic hypotension, and TD-1473 in Phase II for Crohn's and Phase IIB/III for ulcerative colitis for -- which are inflammatory bowel disease. So just -- that's a brief introduction. Vikram, I'll turn it over to you. I'm glad to have Brett and Andrew with me here today to answer the questions.

Great. No, that's helpful. I was thinking that before we get in any specific product or any specific catalysts and those discussions. Maybe we could take a step back and talk about what you think drives the organ selectivity of your pipeline product candidates? And how that approach could be differentiated from some of the other organ-selective approaches that others in the industry may be taking.

Sure. I think our organ-selective strategy really arises out of the ability to design medicines that work in the lung like YUPELRI. If you look at YUPELRI, which is a muscarinic antagonist, could be delivered via dry powder inhaler, metered dose inhaler, we chose to deliver it via nebulizer because it had the physical properties that enable the formulation of the drug that could be once a day, and when you -- and stable for long-term storage even in conditions that aren't refrigerated. So the molecule itself not only has the right biology. It's got the right physical characteristics that enable it to be delivered in a nebulized form. Well, that understanding of respiratory made us look several years ago, well, where are other diseases where organ selectivity might be of value? And what is a target that we could leverage in multiple organ systems. We answered the target question with JAK -- Janus kinase because it was obviously a target that was robustly powerful but was being underserved in terms of the potential because it was delivered systemically through either injectable or oral routes. We felt that we could design JAK inhibitors that went directly into the organ of inflammation, treated the organ of inflammation, being absorbed in that tissue, but then being rapidly cleared such that we wouldn't get circulating JAK inhibitor to suppress the systemic immune system. This could be a valuable tool, well, in the armamentarium to treat inflammatory diseases. The first 2 programs we undertook. One was in the gut. Another was in the lung. Obviously, 8236 and 0903 are the coming out of the lung work and the pan-JAK inhibitor, 1473, of course, treats -- in clinical trials to treat inflammatory bowel disease. What is it? Well, the part of it is just simply the molecular design that allows for the drug in IBD as an example, to go through the stomach into the small and large intestine. And through the stomach, it's not absorbed, but into the small and large intestine, it is absorbed into that tissue. It reaches steady state, obviously, in the tissue. But when it's absorbed into the blood stream and carried back to the liver, it's eliminated on first pass metabolism. That enables the drug to be in the tissue that's inflamed, namely the small and large intestine, but doesn't subject the body to the rest of the power, really, of JAK inhibition. Same strategy with the lung. Lung is a little bit more constrained in terms of the work that you have to do. I mean you have to get to just exactly the right, not only medicinal chemistry, but physical chemistry of the drug, but it's a drug that goes into the lung, is absorbed into the tissue of the lung, in fact, blocks the inflammation via this mechanism of pan-JAK inhibition and then is absorbed into the bloodstream, and is cleared through the liver. This -- and we -- obviously, we've got other programs like this. Pfizer partnered a skin program that we got -- had a research last year under the same strategy. And all of these, they leverage different parts of organ-selective science, i.e., the structure of the organ that we're trying to block the inflammation, but they all carry with them 60%, 70% of the same strategy. And then 30% we add in molecular design for the organ that we're trying to affect. I'll just ask Brett, if he can add anything to that.

Thanks, Rick. I think just 2 elements, Vikram. You asked about how we separate from others that are claiming organ selectivity. I think 2 key issues. One, Rick has already touched on. We are not just manipulating a formulation in order to achieve organ selectivity. This is an inherent set of characteristics that are designed into the molecule, both chemical and physical. And in fact, we reject a great number of molecules in the early stages that would probably be very well suited for systemic agents, but we deselect those because they don't seed our profile. The second is that there are some mechanisms out there that claim to be selective because they become more specific, for example, JAK1 inhibition versus pan-JAK inhibition. And we've been watching those fairly carefully. Certainly, our view is that it's better to be a broad-based anti-inflammatory, particularly when it comes to JAK inhibition, knocking out all of the JAK mechanism simultaneously but importantly, we're able to do that because we are organ selective. We're not bringing the inherent risks that pan-JAK inhibition would bring if we were active systemically. So other agents have gone into selective mode, for example, JAK1 inhibition, but that tends to underestimate or undervalue the value of inhibiting all of the JAK isoforms. So we think that our approach certainly sets us apart from the competition.

Okay. Great. Appreciate that helpful level setting. Now with that, maybe we can talk about some of the compounds that have some near-term data readouts coming out. Maybe we start with the 8236, if you could remind everyone what we expect to see there by the end of the year, what parameters of data you'll be reporting out and what do you see as the hurdle for success with that initial data?

Sure. Well, I'll just make a couple of comments and turn it over to Brett. I think the 2 biggest pieces of data that we have coming out in the fourth quarter is a Phase Ic study where we're going to be able to look at neutrophilic asthma patients. And the underlying principle of this program is to be able to treat both TH2-high and TH2-low disease, both eosinophilic as well as neutrophilic driven inflammation of the lung. Part Ic or actually in patients, we'll be able to hopefully see biomarkers that provide encouragement of the treatment of that neutrophilic asthma patients. Then the lung allergen challenge is a sort of a short-term exacerbation study where exacerbations are provoked by an allergen and seeing if our 8236 blocks those. Data from both studies at a top line should be available in the fourth quarter.

Thanks, Rick. And just to add to that, Vikram, I think we're really excited by this mechanism. It has the potential to offer control, asthma control to patients whose asthma is not completely controlled by steroids, despite the fact that they may be compliant. We know that compliance is one factor, but even when patients are compliant with their therapy, steroids for some reason don't benefit everybody. And there's still a residual proportion of patients, a large proportion that don't have proper control. At the moment, their treatment options really are to move to biologics. And we see ourselves as being positioned before a patient has to consider biologics or indeed, for those patients in whom biologics are very unlikely to work. We know that eosinophil-driven disease is the main domain that biologics are focused on, but it ignores the fact that there's a heterogenous population, some of whom don't have eosinophil-driven disease. Those patients may have neutrophilic or lymphocytic drivers and a pan-JAK inhibitor should work equally well in that group as with the eosinophilic patients. So we see this positioned as a drug that could be used really across the full spectrum of severe asthmatics.

Great. And what do you think would constitute success for these initial readouts? And assuming these data are positive, what do you see as the development path going forward?

It's a great question, Vikram. I think that as with the gut program, we'd like to take a collective view and holistic view across all of the endpoints that we're looking at. We've, in fact, already got some early indicators from a mild population asthmatics that were really intended to only be a safety population, but we were able to generate some data on nitric oxide as a measure of inflammation. Now these were mild asthmatics and so they didn't have very elevated levels of nitric oxide. But nevertheless, we did see a dose-dependent improvement in nitric oxide reductions even in our -- in Part B of the study that's reported out. Part C takes us to a more severe population, the population we intend to treat in the long term. That will be an important indicator of biology, even though it's not powered for efficacy. The lung allergen challenge is a well precedented mechanism that although a proof-of-concept in small numbers of patients, gives a very good prediction of how this drug may benefit patients in reducing the risk of exacerbation. So I think collectively, with the Part C data from Phase I as well as the lung allergen challenge from Phase II, we -- if we see positive evidence and a safe profile, as we've seen to date, our view there would be to engage regulators on moving to pivotal registrational studies in order to look at endpoints like exacerbation reduction.

Okay. Great, great. Maybe let's move on to the next program, where you may have some data-imminent COVID program. How is that progressing? What have you learned so far? And what do you think the next opportunity will be for you to communicate an update with investors?

Yes. Just to give a couple of comments. One of the things attributes of the SARS-CoV-2 infection early on was this hyperinflammation, severe hyperinflammation of the lungs. TD-0903, which is a nebulized JAK inhibitor, this was designed specifically to be a nebulized JAK inhibitor. The overlap between the cytokines and chemokines blocked by the JAK inhibition mechanism overlay nicely in the elevated cytokines and chemokines that were reported very early on the SARS-CoV-2 pandemic. What was exciting for us is that we were able to mobilize resources at the company and move a preclinical program, which was 0903, move it rapidly through Phase I and into patients because of the sense of urgency and because of this overlap in chemokine cytokines. But it's important for people, everyone to understand, we're using the 903 studies to really understand how this drug works in a severe hyperinflammatory state of the lung. And those occur not simply with SARS-CoV-2 but the progression from acute lung injury to acute respiratory distress syndrome caused by a number of different environmental stimuli. So Brett?

Thanks, Rick. So Vikram, we've been focused on treating patients who are hospitalized with COVID-19 and who demonstrate evidence of low oxygen saturation in the blood, hypoxia. That for us is a marker and a measure of underlying inflammation in the lung. And we -- as Rick has said, we moved very quickly from a healthy volunteer cohort directly into patients and looking to treat those patients. The view and the vision here is if we can intervene early enough in the hospitalization of these patients that we should prevent progression and worsening to the point that we're able to reduce transfer to ICU, a requirement for ventilation and possibly even a reduction in mortality in these patients. We're not alone in believing that JAK inhibition may be of benefit. Just this morning, actually, Lilly reported the benefits that have been reported with baricitinib used in combination with remdesivir. Now their treatment improvement was one day, which you could argue is not a hugely impactful reduction, although these are all important. But we do believe it gives some credence and some credibility to the mechanism that should reduce inflammation. We think we would do better actually than baricitinib, and that's the focus of our current program. We know that baricitinib is more selective. It's a JAK1 and JAK2 inhibitor. Our program or our product is focused on pan-JAK inhibition, including JAK3 and Tik2. We think those are both important in the cytokine storm. The other element is that we're more potent because, again, like the GI program, we're focused on delivering high doses to the organ of interest, to the inflamed organ, in this case, the lung, but without bringing side effects. Baricitinib is already being associated with the risk of immune suppression and blood clots or deep vein thrombosis. Those are both problematic in a COVID-19 population. And so our hypothesis is that with a lung-selective therapy like ours, we may be able to drive for greater efficacy without introducing additional risk.