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

Ladies and gentlemen, I'd like to welcome everyone to the Theravance Biopharma conference call. [Operator Instructions] Also, today's conference call is being recorded. And now I would like to turn the call over to Gail Cohen, Vice President, Corporate Communications. Please go ahead.

Good morning, and thank you for joining. As always, I remind you that this call will contain forward-looking statements that involve risks and uncertainties, including statements about our development pipeline, expected benefits of our products, anticipated timing of clinical trials, regulatory filings and expected financial results. Information concerning factors that could cause results to differ materially from our forward-looking statements is described further in our filings with the SEC. Joining us are Rick Winningham, Chief Executive Officer. And following our prepared remarks, we will open the call for questions and Andrew Hindman, Chief Financial Officer; and Rick Graham, Senior Vice President, Development, will join. Now I will hand the call to Rick Winningham.

Good morning, and thank you for joining us. The purpose of this call is to discuss 2 main topics. The first topic is the results -- results of our Phase III study of ampreloxetine and second, the announcement we made today, outlining strategic actions we are taking to restructure the company, to drive shareholder value and to focus on leveraging our expertise in developing and commercializing respiratory therapeutics. I'll begin with the top line results of our Phase III study evaluating 10 milligrams of ampreloxetine administered once daily in patients with symptomatic neurogenic orthostatic hypotension or nOH. The study didn't meet its primary endpoint of OHSA #1 or secondary end points. Ampreloxetine was well tolerated as a single daily dose, administered for 4 weeks at 10 milligrams. There was no safety signal, no clinically meaningful laboratory changes, no supine hypertension. Despite the hard work from our team and dedication of the patients and health care providers involved, obviously, these weren't the results we'd hoped to achieve given the clear unmet need for patients and their families suffering from symptomatic nOH. I'd like to thank the patients, their families, the investigators and Theravance Biopharma employees who worked diligently on this program. We'll analyze the data to better understand the findings as these are only top line findings and determine appropriate next steps for the ongoing REDWOOD trial. We plan on presenting the results in further detail on a future scientific forum. Today, we also announced we made a decision to restructure the company in order to optimize our business model. This follows a comprehensive scenario planning exercise led by the Board and management with the assistance of outside advisers. To implement this plan, we'll immediately initiate a significant cost reduction program. These actions will have the following impact on Theravance Biopharma. The company's headcount will be reduced by approximately 75%, an estimated 270 positions. We expect to complete approximately 75% of these reductions in November of 2021, with the remainder to be completed in February of 2022. The restructuring and other cost savings efforts will result in operating expense savings of approximately $165 million in 2022 compared with our 2021 financial guidance, which means reducing our now revised 2021 R&D expenses from $180 million to $190 million to $55 million to $65 million in 2022. And as a reminder, these costs include the closeout of both Crohn's and REDWOOD studies. And SG&A expenses from a reduced range of $70 million to $80 million to between $30 million and $40 million. By doing so, we expect to become sustainably cash flow positive beginning in the second half of 2022. The go-forward organization will build on our track record of innovation, leading to several approved medicines for COPD and asthma. This includes TRELEGY, a respiratory medicine developed by Glaxo Group in collaboration with the company's predecessor Theravance Inc; and YUPELRI, which was developed by Theravance Biopharma launched in 2019 and is now commercialized in partnership with Viatris. TRELEGY is currently expected to generate peak sales of approximately $3 billion annually. YUPELRI remains early in its product life cycle, has demonstrated market share growth quarter after quarter despite the pandemic. We believe it has the potential to generate U.S. peak sales exceeding $400 million. We believe the strong and growing cash flows of TRELEGY and YUPELRI and the expected future robust revenue, performance for both will generate significant value creation opportunities for our shareholders. Regarding our future capital deployment in R&D, we will significantly narrow our focus to core respiratory programs. These include YUPELRI life cycle management including a clinical study in partnership with Viatris intended to support label expansion in COPD with peak inspiratory flow rate -- low peak inspiratory flow rate. Success in this study would significantly increase YUPELRI's addressable market. We will be responsible for 35% of the cost of this study and plan to initiate the study in the fourth quarter of 2021. Nezulcitinib, our most advanced clinical candidate, and we're finalizing development plans for acute lung injury, building on efficacy and safety data and the potential mortality benefit seen in the Phase II study reported in June. We're also looking forward to participating in government-funded platform studies evaluating the potential role of hospitalized -- treating hospitalized patients with severe lung inflammation. These studies could initiate in late 2021 and come at little cost to the company. We continue to see nezulcitinib potential application in chronic lung inflammation, including prevention of lung transplant rejection. And finally, a small, concentrated research effort aimed at developing a dry powder inhaled form of our pan-JAK inhibitor for asthma, continues internally, and we expect to proceed in the clinic with a next-generation compound after securing a strategic partnership. We will immediately halt development of all nonrespiratory disease programs except that we'll close out the izencitinib Phase II Crohn's disease study, as we referenced earlier and determine the appropriate next step for the ongoing Phase III REDWOOD study. Our estimate -- again, our estimate for these costs are associated with the remaining studies is reflected in the financial guidance provided. The management team is also focused on optimizing our capital structure to maximize total shareholder returns. We'll prioritize initiatives to realize the value of our noncore assets and partnerships as a result -- as part of this process. Before opening the call up to questions, I want to sincerely thank all those who participated in our clinical trials and Theravance Biopharma employees. I'm grateful for the team's significant contributions over the years. And I'm confident the totality of these actions will allow us to continue making medicines aimed at improving the lives of patients suffering from serious respiratory elements, while at the same time, creating value for shareholders. With that, we'd now like to open the call for questions. Operator?

[Operator Instructions] We'll have our first question from Geoffrey Porges with SVB Leerink.

Sorry to hear about the disappointing results and the need to restructure the company. Three questions, Rick or perhaps Andrew. First, could you clarify the situation with respect to the rights to TRELEGY royalties? You've had the ongoing dispute with Innoviva and it would be really helpful to hear exactly what the situation is with respect to those royalties? Second question, Rick, could you talk a little bit about the overhead of the company? I know you've given us the guidance on R&D and SG&A. But presumably, the cost of governance management oversight is going down, but could you give us a sense of the magnitude of that change? And then lastly, you have significant debt out there. Do you foresee any way to return value to your bondholders or restructure your debt in any way? Because obviously, that's going to be a persistent overhang.

Yes. Thanks, Geoff, for the question. Well, relative to Innoviva royalties and TRELEGY royalties. Our planning going forward is that, obviously, that the Innoviva management, TRC and the distribution of those royalties will be in line with the most recent arbitrator's decision, we'll actively enforce our rights under the LLC agreement. And we've taken those obviously into consideration in our cash flow projections of becoming cash flow positive in 2022 -- second half of 2022. Magnitude of changes and oversight. Obviously, the entire company is affected by the restructuring that we'll do today. And therefore, there are changes at every level of management. We highlighted Board changes today in the press release, and the changes in management will come out over -- over an 8-K for those officers that were required to report. On the debt and -- I'll let Andrew touch on that. Andrew?

Yes, Geoff, we're very aware of the capital structure, both the convertible debt, the $230 million due in October 2023 as well as the nonrecourse TRELEGY note facility at $400 million of principal value. So we are actively involved in looking at opportunities to improve the capital structure of the company. The strategic actions taken today to get to cash flow positivity on a corporate basis by midpoint of next year is a very important first step to allowing us to have the greatest access to different opportunities on the capital structure at the lowest possible cost to shareholders. So we will be working on that in the months to come.

Our next question comes from Marc Frahm with Cowen and Company.

Sorry for the updates. Obviously, a rough day. Maybe just a couple of questions on the pipeline, one with the 2022 guidance. Could you give us a sense of kind of what the spend is on that PIFR trial versus the deeper pipeline, whether it's nezulcitinib or some of the earlier nonclinical assets? And then do you have a sense of the time lines along for that PIFR trial and when we might see data from it?

Yes. Well, I think -- this is Rick. The PIFR study we intend to start in the fourth quarter of this year. This study shouldn't be too long in duration, perhaps a year. The costs, as I highlighted in the -- in my remarks are 35% borne by Theravance Biopharma, 65% borne by Viatris. We don't have a breakout for you today of the cost of the PIFR study relative to the cost of ongoing R&D. I just would like to highlight in my remarks that the 2022 numbers for R&D do include certain closeout expenses with regard to the REDWOOD and the Crohn's program.

Okay. Another pipeline question. Just on nezulcitinib. I recognize you're still kind of in the process of planning some of the trials. But are the next trials likely to be randomized, open label? And again, it's kind of similar to the last question, just time lines for when we might see kind of proof of concept in another inflammatory lung disease from that program.

Sure. Well, we've been approached by multiple -- because of the Phase II studies that we reported earlier this year, we've been approached by multiple platform -- government-oriented platform organizations for inclusion of nezulcitinib in platform studies. These platform studies come at relatively minimal cost to the company or the exposures that you receive. So we'll be providing an update on that within and timing within the next quarter. We're early in development of a clinical program in acute lung injury, but one can assume that such a clinical program would be a relatively modest in scope initially.

Okay. Great. And then just one clarification on the guidance. Just -- I believe it excludes onetime expenses from the restructuring. Is that correct? And then if that is correct, do you have a sense of kind of what those costs might be?

Yes, they exclude the onetime costs and the breakdown is in the 8-K for our restructuring expenses, Marc.

Our next question comes from Douglas Tsao with H.C. Wainwright.

And sorry about the disappointing results. I guess, Rick, I'm just curious, just given the strategic shift on the company, how you feel or your confidence in terms of the focus on the inhaled JAK portfolio just given the fact that we obviously saw disappointing results of TD-236 initially, although still some promise in earlier clinical data. And then obviously, the nezulcitinib data was sort of encouraging in some ways but didn't hit the primary endpoint. And so the value of maybe just stepping back and thinking about is sort of an organ-specific approach right for the JAK mechanism. And then also just given the company's history, which has not necessarily been focused on JAKs, is there value in sort of stepping back and just rethinking the portfolio holistically and going back to sort of the broader respiratory roots?

Yes, Doug, thanks for the question. I think with the success of the anti-TSLP program with Amgen has shown is that is that the -- more, let's say, more modern mechanisms obviously work different than inhaled corticosteroids. And I think that the work that we've done thus far on the inhaled JAKs point to using a JAK mechanism in addition to inhaled corticosteroids to treat either acute lung injury or, in fact, more chronic lung inflammatory conditions. Relative to stepping back and looking, part of the ongoing process that -- of management is really looking and watching and monitoring the progress of the ongoing programs and making capital allocations and adjusting accordingly. One of the points I made in my remarks was with regard to the dry powder program progressing into the clinic after the completion of a strategic partnership. So we will obviously keep a very close eye on the capital employed for the inhaled JAK programs, but we do believe that there is a potential medicine in those programs that could provide significant benefit to patients with certain inflammatory conditions in the lung. But our capital allocation decisions will be very carefully made with regard to that -- with regard to those programs. Just finally, YUPELRI, you point to the more historical work. YUPELRI, just as a reminder, was approved in -- or launched in early 2019. And I think that we can still -- we can capitalize on YUPELRI. And certainly, the point that I made with regard to the PIFR study is a way to invest in a relatively lower risk development program that could have a significant effect on the addressable market of YUPELRI.

Our next question comes from Anupam Rama with JPMorgan.

I had a quick clarification point on REDWOOD. You talked about in the press release and the presentation, and you mentioned on this call closing out the study. But in the PR, you also noted determining next steps for the -- so what are the scenarios there? And how could it impact spend?

Sure. We're -- we're over 75% accrued today in REDWOOD. And I'll turn it over to Rick for a quick update on that.

Yes. Anupam, thanks for the question. So with regard to the study we reported out today. As Rick mentioned, these are top line results. So our team is going to be speaking with clinical trial investigators this week to determine what we'd call the appropriate next steps for REDWOOD. We do expect that REDWOOD and OAK will close out by the end of the year. As Rick mentioned, they're 75% enrolled. And importantly, the cost for these studies are included within our 2022 preliminary guidance but these are largely immaterial costs given that they'll be winding down.

Our next question comes from Liisa Bayko with Evercore ISI.

Sorry about the disappointing news. I've been fielding a lot of questions from investors both this morning and prior to this morning just on kind of the focus on TRELEGY and YUPELRI versus continuing to invest in the pipeline. Can you maybe discuss the rationale of why the best course of action would just be to focus on YUPELRI and TRELEGY to maximize value vis-a-vis investing in additional inhaled JAKs and those kind of things. I have a follow-up to that, too.

Sure. Well, I think, number one, we'll continue to monitor the investment that we're making across the portfolio with an eye focused on increasing shareholder value. The investments that I outlined today, I led with the YUPELRI investment in the PIFR study because for our immediate future, that's obviously the most important because it has the potential to increase the addressable market for YUPELRI quite considerably. And I'll let -- we'll, as I said, continue to keep an eye on the other investments with an eye towards increasing shareholder value. Andrew?

Yes, Liisa. So I think the answer is we are really disproportionately focusing on harvesting the value behind TRELEGY and YUPELRI and really focusing on ensuring that YUPELRI's growth rate gets us to the peak sales number that we've articulated at over $400 million. PIFR could take us even further. So that's an important first investment in the pipeline. The others with respect to nezulcitinib, we actually think it's a prudent capital allocation to take that program to the next step, given the safety profile seen in the study we announced in June and given the mortality benefit, which, yes, it was not the primary endpoint of the study, but we believe that, that is a proof of concept of activity of the drug. So the answer to your question is really we are focusing on TRELEGY and YUPELRI with a very focused investment in, we think, the most promising remaining JAK inhibitor in the portfolio for inhalation, that's nezulcitinib. And with respect to the dry powder inhaler JAKs, Rick mentioned that we're looking to move that program forward only in the context of the strategic partnership. So that makes the capital allocation decision there more diversified with respect to going in with a partner that has a lower cost of capital. So I hope that answers your question.

Okay. Could you give us a little bit more color on then how much you intend to spend on the nezulcitinib and the dry powder inhaled JAK inhibitor for asthma and such? Can you discuss kind of how you see spending there with a little bit more clarity sort of in 2022 and maybe 2023 time frame?

At present, we don't break down the R&D expense by program, but we'll -- we've certainly heard that as one question from investors for future transparency in our reporting. So we'll -- we've taken that under advisement and we'll report back when we're able to. But at the current point in time, Liisa, what we've given is guidance for 2022, which is significantly focused compared to past R&D investments. So I think that's an important area to focus from a starting point. Rick mentioned that we incurred 35% of the investment for the PIFR study. Our partners at Viatris incur the rest. So you can imagine that that's not a significant quantum of capital. And then looking at bottoms-up estimates for nezulcitinib, you could use different sizes of trials and expense estimates to get the quantum there. So I think it's -- yes, it's best to go with that approach at this time.

But our focus, Liisa, is quite narrow. And I think the -- the work we would do on nezulcitinib and acute lung injury initially would be quite measured with regard to the study in acute lung injury and anything outside of funded platform studies.

Okay. And then what do you mean by a funded platform studies actually? Could you expand upon that? And then -- yes, go ahead.

No. I mean these are studies that are continued -- continue to be rolled out kind of across the world by governments, both in areas of pneumonia, classic pneumonia driven by viral-based influenza as well as COVID. And as I said, we've been, post the data that we shared in June, we were approached by a number of these entities in the inclusion of nezulcitinib in these platform studies as an inhaled JAK inhibitor to be complementary to the systemic agents that were being used to treat hyperinflammation of the lung. So we're working with those organizations. And again, we'd expect if we proceed to have an announcement on that in the next quarter or so, these studies come at significantly reduced cost to the sponsor.

Okay. Great. And then just final question for me. Can you just go through kind of the scientific rationale, what you saw in nezulcitinib that makes you believe that it could work in a setting of acute lung injury?

Sure. I think the p-value in the ITT population for a relatively small study of 0.08 is a pretty strong indicator of effect. Now we drilled further down in that, obviously, when we presented the -- an inflammatory marker where that benefit was seen to a greater extent. But as we talked with outside advisers since we released that data, I think what the driving -- a driving rationale for continuing to work on nezulcitinib in their minds has been that P-value of 0.08, which happened again on top of systemic corticosteroids like dexamethasone.

Our next question comes from Joseph Stringer with Needham & Company.

Just 2 from us. Wondering if you could maybe expand upon -- I know that these are just top line results, but you mentioned that the safety profile was relatively good, and you saw good APD and target engagement. Some baseline values were relatively balanced. I'm just wondering if maybe say on a high level, your thoughts on potential reasons for the miss here and kind of tie that into the earlier-stage results? And then second question is on TD-1058, the ALK5 inhibitor, sorry if I missed this, but you had initially said that you may look at that in IPF. Are there any plans to bring that -- advance that program forward?

Yes, I'll take the ALK5 inhibitor program. Right now, that program -- on the list of priorities given the capital constraints that we're enforcing on the company, obviously drops -- sort of drops below the line. That program is -- has finished Phase I. And right now, we've talked about the other programs that would get capital before that program would receive any capital. Relative to ampreloxetine, I'll ask Rick to comment in just a second. We did see target engagement, increased levels of norepinephrine. The data in this larger study with regard to OHSA #1 did not mirror the data in the small Phase II study. And obviously, disappointed in that. The key here is getting enough increase in norepinephrine to drive perfusion in the brain to reduce dizziness. This is a difficult end point to hit. Obviously, even the approved agent only hit the endpoint at 1 time point in the first 4 weeks. So Rick?

Yes. Just a little bit to add, Joey. So I mean it's really too early to tell. Like you said, we just reported top line results today. The plasma concentrations and changes in norepinephrine were exactly in line with our expectations. I think the result underscores how difficult it is to treat this condition. And we need to better understand all the factors that go into a fall in blood pressure as well as the symptoms of neurogenic orthostatic hypertension. With regard to the link to Phase II, I mean despite the limitations of that Phase II study, which was small sample size, no placebo control, we did see a signal for treatment effect there. We saw almost a 4-point mean change in dizziness at the end of 4 weeks of open-label treatment. And that's what led us to test the hypothesis in this larger Phase III study. So we're very surprised by the results of the study that we presented today. We're going to continue to analyze the results and really understand the reason for the discrepancy between the two.

Our next question comes from Vikram Purohit with Morgan Stanley.

I just had one on izencitinib. So I know you mentioned that you're planning to close out that study in Crohn's. And I just wanted to clarify if we should still expect to see that Phase II data sometime later this year, early next year. And when that readout is available and if you were to see a positive outcome or even positive trends in certain markets or certain endpoints, could that impact your current plans for R&D spend for 2022 and beyond?

Yes. Thanks for the question, Vikram. We're -- we'll -- we're taking, as we mentioned in an earlier call, the Crohn's program to completion under the partnership with J&J. This is a partnership with -- done under the partnership with J&J. So any work that we would go -- that would go on after the Crohn's study or potential work would be as a part of that partnership. I think right now, what you're -- our focus at our company is focused on driving shareholder value through a focus on both TRELEGY and YUPELRI primarily. And we believe in the strong growing cash flows of each of these assets and with the significant cost reductions that we're talking about getting to cash flow positivity in the second half of '22 and building the company's financial strength from there. So again, any positive Crohn's data would be great and we would handle that in the context of the partnership with J&J.

Our next question is followed from Geoffrey Porges with SVB Leerink.

Thank you very much for allowing the follow-up questions. Just 2 more. First, could I just ask you, Rick and Andrew, is there any scenario in which you do not get to cash flow positivity in the second half of next year? And then secondly, with respect to the nOH study, what was the distribution of patients by MSA, PD and other diagnoses? And how different was that to the distribution of diagnoses in the Phase II? And were there any differences in response by underlying diagnosis?

Yes. I'll take the second question first, Geoff. No, there were no true differences based on a top line analysis of response between -- significant differences of response between PAF patients, MSA patients or Parkinson's disease patients. The distribution of patients was not that different from the earlier Phase II. So there's nothing really in that drove the results because of some imbalance between patient type. Again, this is -- we're sharing with you very top line data on ampreloxetine. So I would expect significantly more detailed data to come out as we progress through the analysis and present these at medical meetings. When you say is there any scenario that would prevent us from being cash flow positive in the second half of next year, while any scenario covers a universe of potential possibilities, both with the company as well as markets in the world in general, our focus and our objective as a company is to become cash flow positive in the second half of 2022. And that's what we'll hold to. Andrew?

Yes. Geoff, what we've done over the last few weeks is a complete bottoms-up revamp of our corporate planning model to take into account the strategic actions that Rick highlighted. So the projection is made based on a number of different planning scenarios, the projection for cash flow positivity beginning in the second half of 2022 is based on a wide range of planning assumptions, but we are conservative in the way that we approach the analytics, and we stand by that guidance.

Sorry. But Andrew, can I just follow up on that? And I appreciate saying any scenario is broad, but let's just say any scenario within the control of the company in which you wouldn't achieve that.

No. I think our objective is cash flow positivity in the second half of 2022, and that's what we'll manage to.

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.

Thank you, operator, and thanks, everyone, for joining us today for the announcements.

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