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

Welcome, everyone, to the 40th Annual JPMorgan Healthcare Conference. My name is Anupam Rama. I'm one of the senior biotech analysts here at JPMorgan. I'm joined by Caleb Smith, Malcolm Kuno and Priyanka Grover from the team. Our next presenting company is Theravance. And presenting on behalf of the company, we have CEO, Rick Winningham. I just want to remind everyone, there is an ask a question feature in the portal. And if you want me to ask a question on your behalf, I'd be happy to do that. Just put it in the portal. With that, Rick, take it away.

Thank you, Anupam and the broader JPM team. It's great to be a part of the JPMorgan Healthcare Conference in 2022. Turning to the forward-looking statement. I might be making some forward-looking statements. And obviously, information concerning these factors could cause results to be different from -- materially from the statements that we make, so please check with our filings with the SEC. On Slide 3. Last September, we announced a restructuring of the company to optimize our business model. And since then, we've rapidly transitioned to a streamlined respiratory-focused Theravance Biopharma. We will leverage our expertise in developing and commercializing respiratory therapeutics and dedicate our future R&D investments to our highest value respiratory assets. Additionally and importantly, we will continue to explore strategic partnerships for our pipeline assets to unlock additional value. Back in September, we immediately initiated a significant cost reduction program after the announcement of some clinical study results. We've taken actions to reduce the company's headcount by approximately 75% or an estimated 270 positions, and we completed most of these reductions by the end of November 2021, with the remainder to be completed at the end of next month. All of these actions drive towards our goal to maximize shareholder value. Turning to Slide 4. There are 3 pillars of value creation for the go-forward plan that build on our proven record of accomplishment in respiratory innovation, leading to several approved medicines for COPD and asthma. These include YUPELRI, which was discovered and developed by Theravance Biopharma and is now commercialized in partnership with Viatris. YUPELRI has demonstrated market share growth quarter-over-quarter despite the respiratory pandemic. Sell-side analysts covering Theravance Biopharma estimate YUPELRI has the potential to generate U.S. peak sales of approximately $400 million annually. And we announced earlier this week the enrollment of the first patient in the YUPELRI Phase IV PIFR-2 study. If the study is successful, we could potentially increase the addressable market by 20%. This increase in total addressable market is not included in our current peak year analyst estimates. Our core respiratory pipeline includes the most advanced candidate, nezulcitinib, our dry powder inhaled -- and our dry powder inhaled JAK inhibitor that would move into the clinic after securing a partnership. The third pillar is our economic interest in TRELEGY, a respiratory medicine developed by Glaxo Smith Kline, also known as GSK, in collaboration with the company's predecessor Theravance Inc., now known as Innoviva. TRELEGY is the first and only once-daily, single-inhaler, triple combination therapy approved for the treatment of COPD and asthma is owned and controlled and marketed by GSK. Given the strength of the clinical data underlying TRELEGY and its indicated uses and coupled with GSK commercial excellence, TRELEGY continues to experience exceptional revenue growth trends even in the face of the global respiratory pandemic. At present, GSK sell-side analysts project that TRELEGY could generate global peak sales of $3.2 billion annually. In summary, we believe that strong and growing cash flows of YUPELRI and TRELEGY and the expected future robust revenue performance for both, coupled with several sources of potential upside in our development pipeline, can generate significant value creation for our shareholders. On Slide 5, let's review YUPELRI. YUPELRI is the first and only once-daily, nebulized, long-acting muscarinic antagonist that provides a full 24 hours of control for patients and is indicated for the maintenance treatment of patients with COPD. Despite headwinds created by the pandemic, we remain encouraged by the growth of YUPELRI total prescriptions from Q2 to Q3 2021 as well as the addition of new hospital accounts that expand our weekly order book. On Slide 6, as a reminder, Theravance Biopharma and Viatris co-promote in the U.S. with our combined sales infrastructure targeting health care professionals who treat COPD patients suitable for YUPELRI. Theravance Biopharma's commercial and medical teams cover the hospital segment, and Viatris covers the community health care professionals. From a financial perspective, we share profits on YUPELRI in the U.S., 65% going to Viatris, 35% Theravance Biopharma. Turning to Slide 7. YUPELRI launched in early '19, and the growth trajectory for the first year was impressive. In the first quarter YUPELRI was available, 35% of our net sales was $9.1 million and grew to $37 million in the first 12 months. Unfortunately, on so many levels for the global community at large, the pandemic hit the world hard in March 2020, a critical period and point in YUPELRI's launch trajectory. It was difficult for all respiratory products, especially those treating COPD as outpatient visits and COPD admissions to hospitals were limited during the pandemic. But with continued in-hospital COVID-19 demands on pulmonologists, there is still a deficit in overall market growth of about 8% -- negative 8% in total Rx growth and 17% new to Rx growth when comparing Q3 of 2021 to Q3 of 2019, which was prior to the pandemic. So that's the overall market. And despite these challenges, YUPELRI sales continued to grow in 2021. And despite the down market, YUPELRI showed steady market share and volume growth quarter after quarter. Demand doses increased third quarter over second quarter of 2021 and 21% year-over-year Q3 2021 to Q3 2020. Slide 8 shows that YUPELRI market share continues to grow, both in the hospital and the community retail settings. As we previously noted, many patients with COPD experience an acute respiratory episode serious enough to require a hospital visit. The hospital becomes a key point of access to a patient with COPD to consider whether YUPELRI is an appropriate treatment for their condition. Data shows that many patients who received YUPELRI in the hospital are discharged with a prescription to continue treatment, allowing for continuity of care with YUPELRI post discharge. The Viatris and Theravance Biopharma teams continue to work effectively and collaboratively using multiple tools and tactics in coordination to convert appropriate patients to YUPELRI during their hospital visit and then importantly maintain after -- maintain their YUPELRI prescription after they return home. Over the course of the third quarter of 2021, approximately 33% of all COPD-targeted hospitals were physically accessible to our field colleagues, which was a decline from the previous quarter. Despite the evolving institutional and community clinic challenges, we've been encouraged with the growth in total Rxs from Q3 over Q2. New-to-brand Rxs have remained stable over the period. And in addition, new hospital accounts continue to be added regularly. Looking specifically at the Theravance field sales deployment efforts in the Q3 of 2021, doses sold exclusively in the hospital setting represented an 11.7% increase from the previous quarter. September 2021 YUPELRI hospital volume hit a new launch to date high, and we saw a 43% year-over-year growth from September of 2020. This is continuing in the fourth quarter. Looking ahead, it's important to understand to the goal -- that according to goal guidelines, a LAMA or long-acting muscarinic antagonist is foundational to COPD maintenance care. The execution of our tactical plan will continue to leverage these guidelines, focusing on appropriate patient types while we continue to optimize the marketing mix with our partner through the constant measurements of our tactics. Slide 9 visually illustrates YUPELRI's growth trajectory since launch. You can see how the unprecedented demands of pulmonologists in 2020 due to the pandemic changed the growth trajectory. Today, the U.S. YUPELRI hospital volume has returned to growth during the fourth quarter 2021. We achieved a couple of key formulary hospital account placements. We believe these wins will yield significant growth in 2022 as YUPELRI will become the first LAMA of choice in these hospital systems. Shown on Slide 10, with the growth and insights that we have, we recognize we're just scratching the surface in terms of the opportunity for future YUPELRI growth. COPD is -- continues to be underdiagnosed, and we have less than 1% of maintenance patients on YUPELRI. We don't drive these numbers by looking at an average duration of therapy, which varies for several reasons from patient to patient. The execution of our 2022 tactical plans, as I said, continue to leverage the goal guidelines. And again, we will continue to optimize the marketing mix. LAMA is our first-line therapy for somewhere between 75% and 90%, 92% of moderate to very severe COPD patients. And importantly, these subgroups of patients may be -- subgroups may be important for nebulized therapy with YUPELRI. Published studies have indicated that a broad range of patients have suboptimal peak inspiratory flow rate or PIFR. Approximately 1/3 of COPD patients present with cognitive impairment and have inadequate hand strength to utilize inhalers. Consistent with our strategy, these patient populations present an opportunity for YUPELRI. And finally, as a reminder, YUPELRI has almost 100% coverage under Medicare Part B. On Slide 11, the outlook for 2022 and beyond for YUPELRI is favorable. Our medical liaisons have surveyed health care professionals who have shared their observations. And even with the recent COVID-19 surges, nebulization has been reinstated, and YUPELRI's once-daily dosing is proving critically important to alleviate health care provider shortages and systems overwhelmed by COVID-19 cases. As we announced earlier this week, Theravance Biopharma enrolled the first patient in Study 180, a Phase IV study evaluating the performance of YUPELRI compared to SPIRIVA in patients with low PIFR. If successful, the PIFR-2 study would allow us to capture more of YUPELRI's addressable market, in fact, grow the market to further strengthen its competitive advantage. Lastly, Viatris continues to develop YUPELRI for registration in China, and Theravance Biopharma will receive double-digit royalties and milestones from sales in China. On Slide 12, let's look at our -- and turn to our respiratory pipeline. This shows where we're focusing investments on our highest value opportunities, including the YUPELRI's PIFR-2 Phase IV study; nezulcitinib, our nebulized pan-JAK inhibitor; and our preclinical program to develop a dry powder inhaled form of a pan-JAK inhibitor, which we expect to proceed into the clinic after securing a strategic partnership. While a majority of the Theravance Biopharma team will focus on these respiratory pipeline programs, our BD team will explore partnering opportunities for the noncore pipeline assets. Our pipeline slide on Slide 13 has been updated to reflect our respiratory focus. We'll limit our additional capital deployment to noncore assets as we bring in -- bring the key operational activities for izencitinib and ampreloxetine studies to completion by the end of the first quarter 2022. On Slide 14, let's look at how we're allocating capital in R&D in 2022 and beyond. YUPELRI life cycle management, as I've already highlighted, includes a PIFR-2 study in partnership with Viatris. We'll be responsible for 35% of the cost of Study 180, and we expect to report top line results in early 2023. On Slide 15, nezulcitinib, our nebulized lung-selective JAK inhibitor for the development of acute and chronic lung diseases, is our most advanced respiratory clinical candidate. The panel on the left shows that in an environment preclinically that seeks to mimic the hyperinflammation environment of the lung in an animal model, nezulcitinib has a favorable impact on cell membrane permeability and prevents cell death. In addition, nezulcitinib inhibits the production or suppresses the overproduction of cytokines and chemokines in this hyperinflammatory environment. The panel on the right shows that in vivo, nezulcitinib effectively inhibits lung pSTAT1 in a mouse model with an inhaled cytokine stimulated condition. These, along with additional preclinical data, provide the mechanistic rationale for nezulcitinib to be used in the treatment of several acute and chronic lung diseases. Slide 16 summarizes the results of a Phase II study of nezulcitinib in patients hospitalized with severe COVID-19. This was the first randomized, placebo-controlled study with an inhaled, lung-selective JAK inhibitor conducted in more than 200 people. There was a trend for improvement in 28-day, all-cause mortality with a p-value of 0.08 and time to recovery with a p-value of 0.12 in the intent-to-treat population. In a post-hoc analysis, there was a meaningful reduction seen in 28-day, all-cause mortality in p-value of 0.009 and time to recovery of a p-value of 0.02 in patients treated with nezulcitinib with baseline C-reactive protein levels of less than 150. The far right panel is data that we haven't previously shared. In patients with CRP levels of less than 150, nezulcitinib treatment led to an improvement in ventilator-free survival compared to placebo. Now keep in mind, as a reminder, all of these patients were on dexamethasone. These encouraging data provide the rationale to continue to explore nezulcitinib in the acute hospital setting. On Slide 17, we highlight the U.K. CTAP proposal process as managed by the U.K. research and innovation team. This panel reviews scientific evidence, makes recommendations to principal investigators for 7 nationally-funded platform clinical trials. In October 2021, the U.K. CTAP Group recommended a valuation of nezulcitinib in the REMAP-CAP trial, citing the unique inhaled formulation to block lung inflammation and tissue damage directly in the lung while reducing potential side effects caused by systemic administration. Externally-funded platform studies are an efficient way for us to generate additional clinical data with nezulcitinib in patients with COVID-19 that may be applicable to its continued development related indications. We continue to see nezulcitinib as having a potential application in chronic lung inflammation, including prevention of transplant rejection and the treatment of fibrotic diseases in the lung. Now let's look at TRELEGY on Slide 18, the third pillar of our respiratory focused value creation strategy. As a reminder, TRELEGY is owned and marketed by GSK. Through our 85% interest in the Theravance Respiratory Company, LLC, we're entitled to receive upward tiering royalties on global net sales of TRELEGY. At present, 75% of the income received from our economic interest is pledged to service principal and interest payments for our outstanding 2035 nonrecourse notes, and the remaining 25% of the income is retained by us. On Slide 19, we captured the most recent information shared by GSK during their earnings call on October 27. They noted that TRELEGY continues to lead the market as a single inhaler triple therapy with third quarter 2021 sales growth of 77% over third quarter 2020, generating global net sales of nearly $450 million. The growth is driven by the adoption of TRELEGY in asthma. Now moving to Slide 20, our financial guidance. Regarding financial guidance for 2021, we've executed on greater-than-expected cost-cutting initiatives. And as a result, we're revising downward our guidance ranges as follows. For R&D, we're updating the range in 2021 of $170 million to $180 million, down $10 million from the previous range. And for SG&A, we're updating the range of $65 million to $75 million, down $5 million from the previous range. For 2022, as a result of the continued refinement of cost-cutting initiatives, we're also lowering guidance ranges as follows. For R&D, we're updating a range of $45 million to $55 million, down $10 million from initial guidance provided during our September restructuring announcements. And for SG&A, we're updating to a range of $35 million to $45 million, which is up $5 million from the initial September guidance range. We're excited about the steps that we've taken to date on the cost-cutting program, and we're pleased with where we are today with regard to the infrastructure necessary to achieve our goals. Importantly, our operating expense includes approximately $10 million of nonrecurring spend primarily to support the wind down of izencitinib and ampreloxetine programs, and this spend will largely be completed in the first quarter of 2022. As a result of these actions, Theravance Biopharma is projected to be sustainably cash flow positive beginning in the second half of 2022. In closing on Slide 2021 -- Slide 21, 2022 has effectively launched a new respiratory-focused Theravance Biopharma. As we reviewed, we have 3 pillars for value creation: growing YUPELRI commercial performance; realizing the potential of our highest-value R&D clinical programs; and the third pillar is our economic interest in TRELEGY, which is experiencing strong revenue growth based on excellent GSK commercial performance. The new respiratory Theravance Biopharma is moving towards our goal, again, of becoming sustainably cash flow positive beginning in the second half of 2022 to maximize shareholder value. In closing, I want to thank our internal team for their perseverance at the company. I'm grateful for their commitment to our mission of continuing to develop medicines that make a difference in the respiratory area, the progress of our clinical pipeline in YUPELRI as well as the communities we serve. Anupam, thanks for the platform. Andrew and I can take questions at this time.

Sure. presentation, Rick. Maybe a couple of questions for me to start here. Just thinking about YUPELRI, have there been any impacts that are worth noting from the resurgence of the new variant in kind of the latter part of 4Q? And any 1Q seasonality we should be thinking about?

Well, I think you're probably going to see face-to-face visits that have declined a bit in the first -- towards the end of the fourth quarter and perhaps the first month or so in the first quarter. I think what we've been able to do is complement those face-to-face visits, the reduction, and we've been able to complement it with the digital detailing effort that we've had certainly in the hospital. And we would expect that we would sort of rapidly emerge from this particular crisis with Omicron by the time we get into February and March, I think, consistent with what other geographies have seen outside the United States. .

Okay. Some have suggested, hey, perhaps monetizing the TRELEGY royalty would be an interesting strategic move, right? Any thoughts on that?

Andrew?

Sure. Yes. Anupam, it's -- as Rick mentioned, TRELEGY and our economic interest there is 1 of the 3 pillars of the Theravance value creation plan. So we're -- we have a small group on my corporate finance team, along with our corporate strategy team that keeps very close track of TRELEGY's growth trends. And we also have good relationships with all of the players who are in that marketplace, given that we have actually secured a portion of those royalties, as Rick mentioned, relating to the note facility that we closed in 2020 February. So the key -- our goal is to value maximize, as Rick mentioned throughout the presentation several times. And when you do a full sale of a royalty, you really have one shot to get it right, and so timing is critical. And given the growth trends that we see in TRELEGY, both on the well-established COPD script trends as well as the sort of early in -- the first innings of launch in asthma, where Rick -- as Rick mentioned, the growth is predominantly coming from asthma. And we believe that there's quite a ways to go. As a point of context, when TRELEGY launched in 2017, the Street consensus peak sales were $2 billion. And as Rick mentioned in the call, they're up to $3.2 billion now. So that 60% increase has come from a combination of the approval of the asthma indication and just stellar commercial performance by GSK's team. So if we were to monetize this, we would want to make sure that the Theravance Biopharma shareholders get the value of peak sales that could continue to move northward to $3.2 billion as GSK continues to launch that indication in other global markets outside of the U.S. So that's a long-winded way of saying we're looking at it. We would need to find a buyer who recognizes the peak value is probably north of $3.2 billion, and we'd also want to find a buyer who's going to share some of their lower cost of capital when they monetize those cash flow streams. We want to see that reflected in the purchase price.

I think just in closing Andrew's comment because it is so important. The penetration that GSK has made in the moderate-to-severe asthma segment has been solid. But it's quite -- as he points out, it's quite the early innings, and that is a substantial market segment in moderate-to-severe asthma. And TRELEGY, for those patients, the adding of a muscarinic antagonist or LABA ICS, they get an extra benefit of bronchodilation and really without an uptick in side effects. So it's really a terrific proposal for those patients who have moderate-to-severe asthma who need an improved therapy. .

You guys provided some updated guidance here on expenses for next year. But I guess as a longer-term question, how do we think about both R&D and SG&A expenses kind of like, let's call it, in the next 2 to 3 years?

Well, of course, we'll continue to provide regular updates to guidance on a rolling basis during our quarterly calls. But I think the essence of your question is how much lower could spend go or are you going to go back to a growth in spend, and I would say directionally, if you pull out the -- at the midpoint, the $10 million of nonrecurring spend, we're looking at about a total of $85 million of OpEx for 2022. . And one of our other objectives is to manage just about every other element of cost that we can extract from the business. The greatest portion of that would be our overhead. And as you can see in our SEC filings, we do have about $100 million of capitalized lease obligations. So we are in active discussions with parties to sublease our office and lab space in South San Francisco and in Dublin, Ireland. So once those subleases are consummated, there is an opportunity for overhead to be reduced. But beyond that, we're really at sort of a core focus with about 1/3 of our employees focused on commercial and med affairs, about 1/3 of them focused on the research and clinical development and 1/3 on G&A and other overhead -- central corporate functions. So hope that answers your question, but I would focus on the $85 million as being sort of our core base of operating expense, at least for this year and probably for the next few.

Maybe a final question from me here, which is, Rick, you talked about cash flow positivity here beginning in the second half of this year. I guess what keeps you up at night about that guidance? What are the biggest risks?

Well, obviously, we've got to continue to execute on YUPELRI. I think despite the headwinds that we've seen, the fourth quarter in the hospital, which is a gear, an important gear, that drives the rest of the business, we sort of saw weekly increases in hospital usage, and I'm quite encouraged by that. But we need -- we and our partner, Viatris, need to continue to execute on the YUPELRI commercialization because as I note in the slide, we're really just scratching the surface of the opportunity with YUPELRI given -- when you think that where a lot of the growth is going to come from, products that are being used 4 to 6 times a day in a nebulizer that are being shifted to a once-a-day drug with YUPELRI that's being -- YUPELRI being covered by Medicare Part B, this is a terrific advantage in the hospital. It allows much better management of labor, and it's a terrific advantage for patients at home not having to use a nebulizer 4 to 6 times a day and experience the peak to troughs that they do when they have that as opposed to the benefits of YUPELRI. So this is what keeps me up. It's just we've got to continue to execute commercially. And then we've got to deliver -- and relative to value. We've got to deliver on our clinical programs, which I think we're well set and well focused to do.

And I would just add that the sensitivity of the cash flow positivity objective is much greater for how we perform on YUPELRI than it is for the TRELEGY cash flows. Because, again, as Rick mentioned in the script, 75% of cash flows coming out of TRC go to pay down principal and interest on that $400 million facility. So the remaining 25% is not a major driver of our accomplishing that objective this year. Still important, of course, but it's not driving the outcome. .

Understood. Okay, Rick, Andrew, thanks so much for taking the time and walking us through the presentation and giving us some more color here in the Q&A. I hope you guys have a great rest of the day.

Thanks, Anupam. Great to be here.