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

All right. Thanks, everyone, for joining. Appreciate it. Let's go ahead and get started. My name is Vikram Purohit. I'm one of the biotech analysts with Morgan Stanley Research. Happy to have with me on the stage Theravance Biopharma. Let me read a quick disclosure statement before we get started. 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. With that, happy to have with me Rick Winningham, CEO; Andrew Hindman, CFO; and Rhonda Farnum. Thank you for joining us. Appreciate it.

Happy to be here.

Rick, maybe we could just start with some opening remarks on current state of the business. And at a high level, just kind of walk us through what you think the business has achieved year-to-date.

Sure. Thanks, Vikram, and thanks for the invitation to be here. It's been a transformative year for the company. I think if you look at what we've accomplished over the last year in focusing the business, obviously, around YUPELRI, growing YUPELRI quarter-on-quarter throughout 2022, ampreloxetine data from 170, getting that data into the FDA, reaching agreement with the FDA on what a Phase III design looks like in nOH in MSA patients and then obviously, the large TRELEGY transaction that we announced in July. And after that, following the -- we followed that up with repayment of all the royalty debt, redemption of the convertible notes and now we're on the verge of announcing a return of capital program off of that royalty note or after that royalty sale to Royalty Pharma and then really substantially reducing our expense base and with the eye towards now cash flow positivity in 2023. Just been a transformational year, extraordinary work by the team. And I think we're in a great position to grow from here.

Great. Maybe let's start with the TRELEGY Royalty monetization deal, excuse me. What was the rationale for this transaction? And I guess for people in the audience that may not be familiar with the terms of the deal. Do you want to just recap exactly what you think that deal achieved for Theravance?

Sure. I'll let Andrew to just tee him up on the terms. But for us, it was certainty. Certainty of the value, both certainty in the near term, and then also participation in the longer-term value of TRELEGY. Andrew, do you want to cover that?

Sure. We ran a highly structured process to maximize the value of the asset and we are really happy to partner up with Royalty Pharma in the end. The total deal value is in excess of $1.5 billion by our estimates. That included over $1.1 billion of cash up front that we received in July. And then as Rick mentioned, use that to delever the company entirely. We also -- what we like about the deal structure with Royalty Pharma is it not only maximized the total value including a big chunk upfront, but it also included the ability to continue to have an interest in the performance of TRELEGY, which GSK is doing a great job commercializing globally. So the second major component of the deal is to have milestone payments that would be paid out if sales exceed certain thresholds between 2023 and 2026. And then finally, the third component is that we will receive the return of the royalties back to Theravance Biopharma in the outer years. So basically at the end of this decade. So in total, those 3 components of the deal really -- we, I believe, maximize the benefit for Theravance Biopharma shareholders.

Okay. Got it. And you've alluded to a capital return program previously resulting from this transaction. My first question there is, are there any updates on timelines towards learning more about the capital return program. And then secondly, while we wait for that, what are some of the factors that are influencing your thinking about what form that should take?

Sure. Well, obviously, we paid off finish the convertible note tender on the 26th of August. I think we're still in discussions over the quantum and the mechanism of return with the Board, I think we'll be ready to update that in the near -- update the market and announce it in the near future. These discussions obviously have been going on for a while, but we want to make sure we make the right decision on each, both quantum and mechanism of return. So well, obviously, we've sold a major asset. The company is moving from cash consuming to cash generating. We're in a terrific position overall with the cash that we've got, I believe that some of it should be returned to shareholders as a way of enhancing the return. And there are different ways to do that, obviously, one could think about a special dividend, one could think about share repurchases either in a Dutch tender or open market purchases over time. Obviously, we think our stock is undervalued. So that obviously goes into the calculus of what mechanism we would prefer. But Andrew, any other comments on that?

Yes. Not much more to add other than we have been having a very open dialogue with shareholders and receiving their perspectives as well. So we'll incorporate all that into the final Board decision.

Got it. So looking at your capital reserves post the capital return program for the cash that's going to be left in the company after that, what are the priorities for how to allocate that capital?

Well, the allocation of capital really is around the continued growth in YUPELRI. We see a terrific opportunity there. And then part of the Royalty Pharma deal on TRELEGY included a $25 million payment that Royalty Pharma made for us that will cover a majority of the Phase III cost for ampreloxetine and then we got a $15 million milestone upon approval of ampreloxetine that's down the line a bit, but the growth of YUPELRI, we like what we're seeing with regard to growth, and we'll continue to invest intelligently behind that. We've got a Phase IV study ongoing, the PIFR-2 study, which we update will read out in the second half of next year with PIFR and Rhonda may want to comment on the growth dynamics of YUPELRI.

Yes. I mean, coming off of Q2 being our highest quarter to date, very pleased to see the continued growth in market share in both the community setting as well as the hospital environment, which we're directly responsible for as well as the highest net sales for the product since launch. Also appreciating dynamics that are continuing to evolve. I don't know that we can easily say we reached a new normal in what COVID offers in terms of healthcare and access to healthcare providers. But I will say -- we're incredibly pleased with how our teams have been executing to continue to maximize kind of the hybrid selling approach. So getting back in front of customers has returned to a very fruitful advantage in terms of frequency and reach, but still utilizing virtual selling and being successful doing that where necessary.

Got it. And do you think the recent growth with YUPELRI can solely be attributed to just kind of the unwinding of the impact of COVID? Or have there been specific changes you've made to the commercial infrastructure or specific changes you've made in outreach that have also contributed to that growth?

I think it certainly builds off of coming out of the COVID haste because needing to be in front of the clinicians and certainly seeing patients return to care in person attributed to that, but I think it's getting back to the stalled launch of where we had just begun. We just tapped our top quarter coming into the pandemic. So there's untapped patient potential. The addressable market, I think, is clearly underappreciated for what YUPELRI can certainly provide a benefit for, but to also understand that awareness was halted. When you were just getting into kind of your sweet spot of ensuring your message with landing and your target audience, we have made some tweaks to that to improve upon where we could learn to ensure that our message was being executed as tightly as possible. We had to do that when we're selling virtually because not being in that face-to-face contact already puts a bit of a barrier up and allowed us to do additional training with the team. So the level of communication has not stopped between the 2 sales teams, the medical team is supporting kind of at full bandwidth to ensure that the educational support is there. And we've seen formulary reviews as well as approvals now return back to a level of frequency that we were fortunate with just prior to the pandemic, not at the same level, but we're at a different growth trajectory where we're perhaps a little smarter with how we work that process as well as now we're at a point of conveying value proposition with a product that is administered once a day, specifically in the hospital setting where they're faced with labor challenges of trying to administer products 4 to 6 times a day. The once-a-day obviously makes an economical difference when you're short with staff.

Got it. Got it. Understood. Going to the PIFR-2 study, could you remind us what is that study powered to demonstrate.

So the study is powered to demonstrate a difference in FEV1 in low PIFR patients. That we haven't talked about the powering of the study, but one of the things we pointed out in the presentation that we filed last night, is that we had an interim -- we had a planned interim analysis of variability and what this interim analysis allowed us to do because of -- we had a reasonable data set, but not a large data set on YUPELRI and Spiriva in low PIFR patients. What this data set allowed us to do is look at the variability that existed with the first 100 or so patients in the primary end point. And if variability was what -- exactly what we expected, then we keep the sample size the same at [ 366 ] and if the variability was greater than we expected, but within a range of what our expectations were, i.e., but higher, then we take the sample size up to [ 488 ]. That's what we're going to take the sale -- our plan is to take the sample size up to 488. They announced the data improvement in FEV1 in these low PIFR patients goal 3 primarily, goal 3 or all goal 3 and goal 4 patients in the second half of next year.

Got it. And assuming the study is positive, what could that do for the label? What part of the label could be impacted? And what's the timeline for getting that data in the label?

I can take that. Again, take the opportunity to raise awareness around the YUPELRI. Our label is quite broad when you look at the indication statement. So it certainly is encapsulated within the ability to support discussions, assuming a positive study outcome, where we look at the opportunity to certainly include clinical data in the clinical section, we'll certainly evaluate that. And the ability to start educating and publish the information, we obviously will do that with the expediency.

Got it. Got it. So if you do get the data in the label, how much broader do you think the patient population becomes in the real-world setting for YUPELRI.

Well, just to be clear, we don't necessarily have to get it in the label, we're evaluating that because this could fall in line with FDA guidance for allowance of consistency with label, but if you think about today of where nebulization is used in the COPD maintenance setting, you could estimate like 1 in 10 patients today, but with PIFR that would translate to 1 in 5 patients.

Okay. Got it. And if that all does come to fruition, would you expect a very sharp sales uplift immediately post inclusion of the data in the label from the PIFR-2 study? Or do you think it would be kind of more of a gradual awareness building about this new data set that's out there?

I'm going to say probably somewhere in between, just relative to it takes time to educate on the product, and it's not just conveying these new data, but ensuring that the appropriate patient is understood ensuring that if it's a matter of a patient that's in the hospital setting versus a patient in the community setting de novo, I think those are different timeframe conversations.

Got it. Got it. Okay. Appreciate the context. Maybe we can switch over to ampreloxetine then. Maybe just to start off with recap for the data that you saw in REDWOOD that gave you the confidence that MSA is a good next step for the molecule.

Sure. Well, as we've said when we announced the restructuring last year, we said we were going to look at 170 and then plan forward from that, which we were able to do, we were able to -- we truncated the study. But importantly, when we've written the original SAP for the study, in addition to the evaluation of the primary endpoint, we had planned -- we had stratified for Parkinson's disease, pure autonomic failure in MSA patients and then planned to analyze each of those patient groups independently because priority when we started 170, we thought we would see a greater effect in MSA patients. Well, when we truncated the study and then when we analyzed the data, we saw, in fact, that the MSA patients provided a nominally statistically -- highly statistically significant benefit not in OHSA #1, not only in OHSA #1 and dizziness, but in the OHSA composite score, which is a domain of 6 different symptoms. Well, that was more powerful data than what we had originally anticipated, we might see. So we package that data up into a briefing document. We took it to FDA in the middle of June. And we needed to come out of that meeting with a few conclusions from the FDA. One of them that study 170 would be supportive for MSA patients with nOH. We wanted to, in fact, agree on the composite score as a viable Phase III endpoint for the next study, and we wanted to match the next study that we would do in MSA patients as closely as possible to study 170, which was a randomized withdrawal study. And walking out of that meeting in mid-June with the FDA, we were able to accomplish all 3 of those goals. So the study will be a randomized withdrawal study. It will have much the same design, including inclusion and exclusion criteria that study 170 had. It's going to be relatively efficient study because after all, we saw what we what we saw in MSA patients with about 40 patients. So we'll communicate the exact size of the study and expected duration when we kick off the study in the first quarter of next year. But we really -- we're in a strong position to be able to replicate the results from 170 in the next study.

Got it. And from a mechanistic standpoint, why do you think the ampreloxetine is potentially more viable for MSA versus for Parkinson's or PAF.

Great question, Vikram. And the reason is that -- it is believed to be more sympathetic at reserve, nerve reserve in the peripheral nerves in patients with MSA than with Parkinson's disease or primary autonomic failure. There was a paper in April of 2022, which actually talked about the high likelihood of ampreloxetine being successful in MSA patients because of the sympathetic reserve that existed in the periphery. Now we know that at 10-milligram steady-state ampreloxetine penetrates centrally, but there's enough reserve in those patients where that small increase in blood pressure and that increased perfusion can, in fact, affect the symptoms that are in the nOH composite score. And that's -- it's really down to the basic biology of the disease. That synthetic reserve doesn't exist in the periphery of Parkinson's patients -- and that's why we think we saw the difference in MSA versus Parkinson's.

Got it. Got it. Okay. Going back to your meetings with the FDA then. So you mentioned you recently had a Type C meeting. What were some of the concrete takeaways from that in addition to the conclusion that you just need one pivotal study here.

Well, the FDA since we kicked off the 169 and 170 study a couple of years ago, the FDA division has been very supportive of this program. And I think their support comes from the fact that they saw an opportunity for a new drug that had a therapeutic index, i.e., benefit over any risk that was associated with it. And of course, what we presented and what's in the public is that we -- with a 10-milligram steady state of ampreloxetine. We, in fact, see an increase in blood pressure around -- if you look at the total delta around 8 millimeters of mercury, which is what you need to achieve greater organ perfusion and with that greater organ perfusion, you saw an improvement in the composite score. And it's tied to increase in norepinephrine levels that we were able to see in the patient population that we evaluated an MSA. So what we were able to walk the FDA through was a change in norepinephrine leading to a change in blood pressure, leading to a change in composite score, then it all fit together. And in fact, that what we wanted to do was to do another randomized withdrawal. And the FDA, even in Study 170 originally had pushed us to a randomized withdrawal study because they thought that was the best way to evaluate the drug given that patients would have a hard time remaining on placebo for very long with this particular disease.

Okay. All right. So if this Phase III study succeeds, and what is the total data package that you're going to be submitting to the FDA for MSA?

Sure. Well, the clinical data package will be the 170 study, obviously, is supportive plus the new study. And then the safety results from about 800 patients that we've had on ampreloxetine over the course of its development program. The rest of the package, really, all the preclinical work, all the clinical pharmacology work the CMC work. That work is largely done and ready to go. So I think what we'll certainly be working on is that once we get the clinical study results, we just drop it into an NDA that's largely done and then file it relatively quickly. So that's the 170 study will be supportive of this new study as well as it will be beneficial that we've got 800 more patients with safety data. And again, ampreloxetine is quite well tolerated. We saw no evidence of supine hypertension in the 170 study and wouldn't expect to see at the next study.

Okay. Understood. What do you think is the commercial opportunity in MSA? And how do you think ampreloxetine's potential ability to drive meaningful share of that opportunity is impacted by the recently approved generics for Northera.

Sure. Well, one, it will be important, the ampreloxetine's works in this patient population in MSA. There's no evidence that droxidopa works in the MSA population. There's about 50,000 patients with MSA, about 90% of those have nOH symptoms. So 40,000, let's say, 40,000 or so patients, 40,000, 45,000 patients. And we have to make a relatively -- achieve a relatively small share of that in order to have a very meaningful product. I think what Rhonda and the team have done with YUPELRI in the hospital is an absolutely terrific example of what can be done with ampreloxetine with a very small group. Rhon has been able to lead the group to achieve really extraordinary share growth, but we've got 15 people in the field. And you see the -- both the volume growth and the share growth at the hospital. That's happened in the hospital with YUPELRI with that small level of field force, that's happening because we're targeting the customers that make the most difference in terms of treating patients, and I think that's what we can do with ampreloxetine. Rhonda, any other?

Yes, I think to have a product that has such significant unmet need and really be able to appreciate specifically where the high treaters are of these patients, recognizing that roughly 65% of these patients still are not without their symptoms even after trying these other FDA conditionally-approved products, having a once a day versus a 3 times a day oral administration for patients who have difficulty swallowing, being able to build on that with solid clinical data, data that really support a benefit in a patient population without other opportunities. The team would relish that opportunity.

Got it. Got it. Okay. It might be a bit early to discuss pricing specifics, but what are some bookends people can think about for what could be pricing potential for ampreloxetine if it's approved?

Do you want to take that?

Yes. I mean, we obviously haven't established pricing yet, but doing some initial work with payers to ensure that we can understand what they would hope to see. And I think what we've already been able to glean is they appreciate the transparency and recognizing you would not have to do dose escalation. So the once a day is appealing and having transparency as to kind of the absolute cost for a small patient base is attractive and appreciating where droxi has been in the marketplace and their pricing of about 120 -- I'm sorry, 130 up to 200 on an annual basis gives us a starting point for setting price.

Okay. Understood. Final question on ampreloxetine, what's your IP state on the molecule and how long does it run?

Sure. So the composition of matter with patent term extensions is 2035, and then we've got ampreloxetine for use in nOH method-of-use patent that expires in 2037.

Okay. Understood. Let me break now for the questions from the audience, if there are any. No. All right. Let's close out by talking about I guess your broader priority for the pipeline. But besides ampreloxetine, besides the PIFR-2 study, is there any continued focus on nezulcitinib? And/or are there other pipeline programs that people should keep in mind?

Yes. Do you want to talk about capital allocation, Andrew?

Sure. Yes. Well, in the short term, you've covered it, Rick, and we're laser-focused on PIFR-2 to support YUPELRI growth and ampreloxetine to get it across the finish line in the short to medium term. I think beyond that, we'll be measured in the investments that we make in nezulcitinib and the other earlier stage research programs.

Got it. Got it. Okay. Final question. Over the next 12 to 18 months, what are some of the key milestones people should keep in mind?

Yes. The big milestones for us, obviously, the return of capital program, which will be communicated in the near term, YUPELRI growth quarter after quarter. We look for that to continue and really build upon the growth. The PIFR-2 study in the second half of next year. And then the beginning in the first quarter of next year, ampreloxetine. And at that point in time, we'll obviously communicate the size of the study, how long we think it will take and what sort of a range of filing dates could be for the product. We'll be working in the background, obviously, on other regulatory mechanisms to accelerate the access of the product to patients. And I think those may become milestones as we march into 2023.

Okay. Great. With that, we're out of time. Rick, Andrew, Rhonda, thanks for your time. Appreciate it. Thanks, everyone, for joining. We're going ahead and close out.

Thanks, Vikram. Much appreciated.