Innoviva, Inc.
Q2 2015 Earnings Call Transcript

Published: 30 Jul 2015

[Operator:]

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the Theravance Second Quarter 2015 Financial Results Webcast and Conference Call. During the presentation, all participants will be in listen-only mode. A question-and-answer session will follow the Company's formal remarks. [Operator Instructions] Today's conference is being recorded. And now I would like to turn the call over to Eric D'Esparbes, Chief Financial Officer of Theravance. Please go ahead, sir.

[Eric D'Esparbes:]

Good afternoon, everyone and thank you for joining us. With me on the call today is Mike Aguiar, our Chief Executive Officer. On today's call, Mike will review the highlights from the quarter and I will review our financial results. Following our comments, we will open up the call for questions. Earlier today, Theravance issued a press release announcing recent corporate developments and second quarter financial results. A copy of the press release can be found on our website. Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and future performance of Theravance. Forward-looking statements include anticipated results and other statements regarding Theravance's goals, plans, objectives, expectations, strategies and beliefs. These statements are based upon information available to the Company today and Theravance assumes no obligation to update these statements as circumstances change. Future events and actual results could differ materially from those projected in the Company's forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater details in the Company's press release and Form 10-Q for the quarter ended June 30, 2015 to be filed with the Securities and Exchange Commission. Additionally, adjusted EBITDA, a non-GAAP financial measure will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measure can also be found in our press release. I would now like to turn the call over to Mike Aguiar, our Chief Executive Officer. Mike?

[Michael W. Aguiar:]

Thank you Eric and good afternoon everybody. This has been another successful quarter for Theravance as we continue to make progress toward our 2015 goals. In particular, the recent U.S. approval of BREO for the treatment of asthma in patients 18 years and older was an important milestone that significantly expanded the number of patients that can benefit from this important medicine. While we're still early in the asthma launch we are pleased with the initial results which have increased market share and received a positive reception from allergists an important new target physician group. During the second quarter royalties earned from the sale of BREO and ANORO increased by 37% compared to the first quarter resulting in a corresponding increase in our income from operations of $5.1 million versus $0.7 million in the first quarter. In designing Theravance as a standalone company one of our primary objectives was to create an efficient low expense company with a sure path to profitability. I believe that our proving financial results demonstrate that this strategy is delivering on the subjective. In addition, we are pleased to continue returning capital to the shareholders including a cash dividend of $0.25 per share paid on June 30, 2015 and declaring another dividend today of $0.25 per share payable on September 30, to stockholders of record as of the close of business on September 10, 2015. Recently we announced the hiring of Michael Faerm as Chief Business Officer, an important step in our strategy of building a long-term recurring revenue business. Michael Faerm's brings to us a strong background including significant equity research experience at Wells Fargo and Credit Suisse as well as business development experience at Regeneron and Forest Labs. He is responsible for leading our growth strategy and corporate development initiatives beyond the Company's existing respiratory portfolio. Please join me in welcoming Mike to his new role. I will now turn to our program updates. RELVAR/BREO is our lead respiratory program partnered with GSK for the treatment of patients with chronic obstructive pulmonary disease or COPD and asthma. It is a combination inhaled respiratory medicine consisting of vilanterol, a long-acting beta2 agonist or LABA, and fluticasone furoate, an inhaled corticosteroid, or ICS, both delivered in the ELLIPTA dry powder inhaler. Total net sales for RELVAR/BREO in the second quarter 2015 were $82 million representing a 37% increase compared to the previous quarter. Sales were $28.1 million in the U.S. market driven by 44% increase in TRx prescription volumes compared to the first quarter 2015 and a concurrent increase in market share. Sales were $53.9 million in non-U.S. markets driven by strong performance in Japan and Germany and launches in additional geographies. Our second program ANORO is a combination dual bronchodilator medicine for the treatment of COPD consisting of the LABA vilanterol and the long-acting muscarinic antagonist, or LAMA umeclidinium. Total net sales for ANORO during the second quarter 2015 were approximately $23.7 million compared to $17.7 million in the previous quarter. This represents a quarter-over-quarter sales growth of 34% driven primarily by an increased TRx volume in the U.S. of 49% versus Q1. According to IMS both BREO and ANORO gained market share during the second quarter in key physician groups including primary care, pulmonologists and allergists. For example, through the week ending July 10, IMS reported that BREO in RX growth outperformed the market following the U.S. asthma launch with average week-over-week growth of approximately 3.5% versus a weekly decline of 0.8% for the LABA ICS market as a whole. BREO new to brand performance was even stronger during this timeframe with average week-over-week growth of approximately 2.8% compared with an average weekly contraction of 2.6% for the entire LABA ICS market. Looking to the rest of the year both the ICS LABA and the LAMA, LABA markets are impacted by seasonality with summer months tending to have relatively lower prescription volumes and winter months historically having higher prescription volumes. For example, according to IMS data for the U.S. in 2014 Q3 total scripts for the ICS LABA class were $6.3 million compared to $6.8 million in Q4. As a result we believe that in RX new to brand and market share the important metrics of product performance during this period. Looking forward we have significant data expected later this year from the SUMMIT study and next year from the Salford Lung Study in COPD. SUMMIT is evaluating the impact of RELVAR/BREO and on all-cause mortality in approximately 16,000 COPD patients with pre-existing cardiovascular risk factors. This is an important study for RELVAR/BREO which could demonstrate a significant patient benefit and support future use in this patient population while delivering real differentiation from other LABA ICS products. The Salford Lung Study in COPD evaluates the impact of RELVAR/BREO in a real world setting with the goal of identifying the effectiveness of once a day therapy with RELVAR/BREO versus standard-of-care. We remain optimistic about the long-term potential for both products and look forward to the upcoming clinical study results from SUMMIT and Salford. I'll now turn the call back to Eric to review our second quarter 2015 financial results. Eric?

[Eric D'Esparbes:]

Thanks Mike. Before I present our Q2 financial results, I want to remind you that as a result of the separation of Theravance Biopharma from Theravance, Inc in mid 2014, there have been a number of adjusting entries to prior periods that reflect the financial impact as a discontinued operations accounting. This will result in limited comparability between Q2 financials and our previously reported results. We had a strong financial performance in the second quarter. Total revenues for the first quarter included $13.9 million of royalties earned a 37% increase over the previous quarter and $0.2 million of revenues from collaborative arrangements offset by $3.5 million of amortization of capitalized fees from a related party. Royalty revenues earned include $12.3 million for BREO and $1.5 million for ANORO. As Mike stated earlier, prescriptions in the U.S. increased significantly during the second quarter with BREO up by 40% and ANORO up by 49%. This growth was driven in part by two factors we have previously discussed. First, additional coverage for both products, that began in January at lower net prices and GSK's couponing program, both of which increased the growth to net spread during the second quarter. We view these two factors as important investments in the long term success of BREO and ANORO. In addition non-U.S. markets had a strong performance in the second quarter as Mike mentioned earlier. Total operating expenses in the second quarter of 2015 were $5.5 million compared to $6.2 million in the first quarter of 2015 a decrease of $0.7 million. We maintain our guidance level for operating expenses composed of R&D and G&A costs before stock based compensation accruals in a range of $17 million and $19 million for the full year 2015. For the second quarter of 2015 we generated an income from operation of $5.1 million compared to $0.7 million in the first quarter and generated an adjusted EBITDA of $10.4 million compared to $6.2 million in the previous quarter an increase of 68%. This growth and the cash generating ability of our operations results from the combination of increased royalty revenues and the continued optimization of our cost structure. Cash, cash equivalent, short-term investments, and marketable securities totaled $229.3 million as of June 30, 2015. We believe our financial position is strong and we remain comfortable with our current level of capital return to our shareholders which is why we have announced a third quarter dividend of $0.25 per share payable on September 30, 2015. And now, I'd like to turn the call over to Mike for final closing comments.

[Michael W. Aguiar:]

Okay, thank you Eric. In summary we had a solid second quarter 2015 with increased prescription volume and market share, BREO's approval for the treatment of asthma in the U.S. and continued optimization of commercialization efforts for both products. As a result we remain optimistic about the long-term potentials of our product portfolio. Our primary focus in the second half 2015 will remain on optimizing the commercial success and global rollout of BREO and ANORO, reporting results of the SUMMIT study and continuing with our strategy of providing returns to shareholders. There are many exciting developments happening here at Theravance and we remain optimistic about the future prospects of the company. I'd now like to turn the call over to the conference facilitator and open the call for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Tyler Van Buren with Cowen and Company. Your line is open.

[Tyler Van Buren:]

Hi there, thanks for taking the question. You mentioned that your primary focus clearly is still on BREO and ANORO, but you made a pretty important hire, a Chief Business Officer during the quarter. So I want to get your perspective on as was stated in the release the growth strategy and corporate development initiatives beyond the existing portfolio moving forward what specifically are the initiatives of focus, would this be potential royalty deals for example? How should be think about this in terms of timing? Is it something that we should think about in the relative near term or is this kind of just more longer term planning and if it is something that we should think about more near term kind of what capacity would you have to do such deals? Thank you.

[Michael W. Aguiar:]

Great, thanks Tyler. So first, I'd like to say we are really excited to have Mike on board. This is an important new hire for us. As you know, we have talked about three large areas of focus that we really intended to work on here following the separation; number one was to put together the basis infrastructure to run the company. As everybody knows following the separation all of the basic infrastructure went with Biopharma and we had to recreate a lot of the infrastructure and systems here. Pretty important initial project and I'm pleased to say that is done today. The second big area of focus was working with GSK to really optimize the value of our existing portfolio. These are terrific products we have. As you guys have noticed we are making significant progress here in terms of the overall prescription growth and sales growth. And I think we're feeling pretty good today about the trajectory of that of course. This means commercialization efforts, this will be an ongoing project here. We will continue to work with GSK to respond to the various ebbs and flows of the competition and how things are moving in that front. So I'm certainly pleased with where we are today. There will be more work on that one as you go forward. And then the last piece here we talked about was what we've called terminal value are staring to look at potentially things beyond the range of our current portfolio and that's really where Mike comes in. The good news on the hiring and you talk about timing is we have plenty of time in front of us here. We have 14, 15, years left in front of us in terms of life from these programs. So there is no immediate urgency around doing a deal tomorrow morning. If the right deal came up we would certainly look at it. There have been deals that have come to us in the past and we've taken very close looks at those. Obviously we didn’t choose to pursue any of those deals. But if the right deal did not come up now we would not be in any particular hurry to do it just for the sake of doing a deal that is not on our agenda at all. So, I would just say stay tuned we'll continue to look and be thoughtful about this like we always have in terms of the types of things we look at and the timing and all of that. These projects don’t happen overnight and it does take a period of time to get things up and running. So again I would say we don’t feel any pressure at all about getting a deal done. However if the right thing came up we will certainly take a prudent look at it. So we are pretty excited to have Mike on board and I would just say stay tuned but don’t expect something come out tomorrow morning.

[Tyler Van Buren:]

Great, thanks a lot.

[Michael W. Aguiar:]

Thanks Tyler.

[Operator:]

Thank you. Our next question comes from the line of Matthew Harrison with Morgan Stanley. Your line is open.

[Matthew Harrison:]

Hi, this is Cyrus calling in for Matthew. So as your PVMs put out new formularies over the next few weeks do you expect any changes in the status of BREO or ANORO when those come out?

[Michael W. Aguiar:]

Okay, well thanks for the question. I really wouldn’t want to get in front of anything there. I would just say this is obviously a very important area for us. Reimbursement is one of the key components that we had cited probably starting about a year ago as key to our success. I think we're feeling pretty good about our current position where we are with all of the major PBMs. We will update as that happens here and all the formularies come out, but I really wouldn’t want to get in front of that today. One thing I would say to you is you look at the two programs we have pretty good coverage on both of them. I'll talk about BREO just for a moment. The last update we gave there was in the Part D program, we had something like 75% coverage. On the commercial programs we had something around 65%. So we're in a pretty good position about two years after launch of that. and then in addition to that we do have our couponing program that Eric had mentioned earlier that was a pretty important piece of ensuring the doctors felt very comfortable writing a script for either ANORO, BREO and not running into reimbursement issue. So between the two of those, the existing coverage that's out there and the couponing program I feel very good about all our levels of coverage. And I would say stay tuned we'll provide updates on all the various PBMs and all of that commence. But overall I'm feeling pretty good about our reimbursement status today.

[Matthew Harrison:]

Great, thanks.

[Michael W. Aguiar:]

Thank you.

[Operator:]

[Operator Instructions] our next question comes from the line of Brian Skorney with Baird. Your line is open.

[Brian Skorney:]

Hi this [indiscernible] filling in for Brian Skorney. Do you have any idea how many patients are on free BREO and ANORO or on the sampling program versus the commercial product? And is there any clarity at this time breakdown for COPD versus asthma in U.S. BREO sales?

[Michael W. Aguiar:]

Yes, thanks for the question. So we do have a reasonable view of what the overall level of couponing is. I'm really not unfortunately able to share that. I would say it is not in the low single digits, it's certainly not in the high double-digits. It’s a reasonable percentage here. This was an important program to put in place. And as we had talked earlier in the year and even late last year our expectation with this program was going to expand and continue to grow for a period of time. In particular as you think about asthma patients, asthma patients would be a little more likely to be a commercial patient as opposed to Part D patients. As I mentioned a minute ago the commercial coverage is a little bit lower overall than the Part D, so a reasonable expectation would be that as asthma gets approved and we get more and more asthma patients on the medicine, that you could continue to see an increase of couponing for a period of time and obviously that increase does not go forever and the program at this point is one year free of medicine. So again we'll continue to evaluate that as it goes forward. I would say today I'm pleased with the overall program and I am pleased with the overall level of couponing, but there has definitely been an increase in the overall levels as Eric had mentioned during his prepared commentary. With regard to the specific breakdown of asthma patients versus COPD patients, again since we're so early in the launch I would not want to make a lot of commentary on that. Clearly there was some level of patients who were being prescribed prior to the approval by various doctors in expectation that this was possibly coming and as you expected that number has grown here. We are relatively early in the overall commercialization and I would expect that number to increase, but again I don't have a very specific number that I can provide you today at this point.

[Brian Skorney:]

Great, thank you.

[Michael W. Aguiar:]

Thank you.

[Operator:]

Thank you. It appears we have no further questions on the phone. I'd now like to turn the conference back to Mr. D'Esparbes. Please go ahead sir.

[Eric D'Esparbes:]

All right, well thank you very much operator and thanks everyone for joining us today and have a great day and evening.

[Operator:]

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