Innoviva, Inc.
Q2 2013 Earnings Call Transcript

Published: 26 Jul 2013

[Operator:]

Ladies and gentlemen, good afternoon. At this time, I’d like to welcome everyone to the Theravance Conference Call to review result for the quarter ended June 30, 2013. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks. (Operator Instructions) Today's conference call is being recorded. And now, I would like to turn the call over to Mike Aguiar, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

[Mike Aguiar:]

Good afternoon, everyone, and thanks for joining us. With me on the call today is, Rick Winningham, our Chief Executive Officer. First, Rick will review highlights of the quarter and then I will review our financial results. Following our comments, we will open up the call for questions. Earlier today Theravance issued a press release detailing second quarter 2013 financial results and recent corporate developments. A copy of the press release can be downloaded from website or you can call Investor Relations at 650-808-4100 and we’ll be happy to assist you. Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance. Forward-looking statements include anticipated results and other statements regarding Theravance’s goals, expectations, strategy and beliefs. These statements are based upon the 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 detail in the company’s Form 10-Q filed with the SEC. I’ll now turn the call over to Rick Winningham, our Chief Executive Officer.

[Rick Winningham:]

Thanks Mike. Good afternoon, everyone. Theravance is off to a strong start 2013 with three regulatory approvals, BREO ELLIPTA for the treatment of COPD in both the U.S. and Canada, and VIBATIV for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia in the United States. In addition, we announced our plan to separate the late stage respiratory assets partnered with GSK from a biopharmaceutical operations to create two independently publicly traded companies and to continue our business in the new structure that’s designed to unlock potential value, facilitate return of capital to shareholders and further our strategy of advancing medicines that address unmet medical needs. Let me begin with the plan separation, we announced in our last quarter’s earnings call with company plans to create two highly focus businesses with the potential increase overall shareholder value. The separation is designed to provide investors with the opportunity to unlock that potential value from two different sets of assets, to facilities return of capital to stockholders and further our strategy as I said earlier of advancing medicines that address significant unmet medical needs. As a reminder one company referred to as Royalty Management Company will continue to manage all development commercialization, responsibilities under the LABA collaboration with GSK and associated potential near-term royalty revenues from RELVAR, ELLIPTA, BREO ELLIPTA, ANORO ELLIPTA and VI monotherapy. Royalty Management Company will focus on returning capital to stockholders. The other company referred to as Theravance Biopharma will focus on discovery, development and commercialization of small molecule medicines and exploiting insights created by our extensive experience at multivalent drug designed. Importantly, partnering will remain a key strategy and we will continue to work on our existing partnered programs. The result will be two independent publicly traded companies with different business model enabling investors to align their investment philosophies with the strategic opportunities and financial objectives of two independent entities. The company expects to complete the separation either late this year or in early 2014. Turning now to the respiratory programs partnered with GSK starting with BREO ELLIPTA or RELVAR ELLIPTA. The combination inhaled corticosteroid, fluticasone furoate or FF and long acting Long-Acting Beta2 Agonist, vilanterol or VI. FF/VI is administered by new dry powder inhaler called the ELLIPTA and was recently approved as I noted in both the U.S. and Canada for the treatment of COPD. The approval of BREO ELLIPTA is great news for patients with COPD as it provides a new therapeutic option, the first once daily inhaled corticosteroid long-acting beta agonist combination treatment of COPD. COPD is a debilitating and progressive disease. Its symptoms are often severe and have a huge impact on patient’s life. These approvals are important milestones for the collaboration between Theravance and GSK. As GSK discussed yesterday, everything is progressing in preparation for BREO launch. From a timing perspective, GSK is tracking a couple of weeks behind the initial schedule. In order to ensure that all pieces are in place for successful launch including tactic such as extra focus by U.S. sales force, the U.S. sales force on respiratory. As result the launch may slip out of Q3 into the beginning of Q4. From a patient position and payer perspective, we believe that the strong interest in a new once a day COPD product due to among other reasons the cost of core compliance with twice a day product. While we’re not providing 2013 sales forecast for BREO ELLIPTA, the initial focus of the collaborations on prescriber education awareness, reimbursement formulary access and as a result, we expect initial uptake may be gradual consistent with many other primary care product. In June 2013, GSK presented a poster on the qualitative assessment of the ELLIPTA device. The dry powder inhaler for COPD and asthma found the use by BREO as well as ANORO. And this assessment was given by patients who participated in phase 3 clinical trial of FF/VI. The results of the assessment show that the ease, simplicity and security of use of the ELLIPTA dry powder inhaler were its most frequently committed attributes. In addition, the ELLIPTA dry powder inhaler was preferred over currently used inhalers by a majority of COPD and asthma phase 3 trial patients to participated in the qualitative interviews. In September 2013, GSK will be presenting data on the ELLIPTA device from phase 3 studies -- the phase 3 studies of FF/VI at the ERS Annual Congress held in Barcelona. Now, turning to our second respiratory program with GSK ANORO ELLIPTA. ANORO ELLIPTA is a dual mechanism investigational medicine for the treatment of COPD that combines two bronchodilators. A long-acting muscarinic antagonist, umeclidinium bromide or UMEC and Long-Acting Beta2 Agonist, VI. ANORO ELLIPTA is the proposed proprietary name for this LAMA/LABA combination of UMEC/VI. The PDUFA goal date for UMEC/VI is December 18th, regulatory filings are currently under review in the U.S., EU and Japan, and regulatory applications have been submitted in a number of other countries worldwide. In September 2013 GSK will also be presenting data on the Phase 3 and Phase 1 studies of UMEC/VI at ERS in Barcelona. Turning to our MABA program, GSK recently initiated Phase 3 enabling studies with the combination of 081/FF. We will provide further information on this program when these studies are complete. Recently GSK informed Theravance that the Phase 3 study of 081 monotherapy would not be initiated in 2013. GSK will be communicating with GSK to determine the next steps for MABA monotherapy and we’ll update you when we have more information. The GSK, GSK Theravance respiratory portfolio has the potential to be the most comprehensive in the industry. Our pipeline of investigational products include single mechanism, dual mechanism and triple mechanism therapies for the treatment of asthma and COPD, all delivered by a common inhaler. If we are successful, these products will be able to treat a wide range of patients with COPD and asthma, who have different needs and different severities of disease. In addition, to the respiratory -- programs partnered with GSK Theravance is developing TD-4208, an internally discovered multivalent long-acting muscarinic antagonist to LAMA delivered once a day in a nebulizer for COPD. The Phase 2b study of TD-4208 in an [aqueous] nebulizer to evaluate the safety and efficacy of multiple doses of the compound is ongoing, enrollment is progressing well and results from this Phase 2b study are anticipated to be reported in the third quarter of 2013. We believe that such a medicine conserve as a foundation for several combination nebulized products, as well as potential meter dose inhaler or dry powder inhaler products. We believe that the opportunity for nebulized product is significant and complementary to that addressed by the GSK collaboration products. Now lets turn to our bacterial infections program, VIBATIV or telavancin is a bactericidal, once-daily, injectable lipoglycopeptide antibiotic previously approved in the U.S. and Canada for the treatment of adult patients with complicated skin and skin structure infections caused by susceptible Gram-positive bacteria, including Staphylococcus aureus both methicillin-resistant and methicillin-susceptible strains. In June 2013, the FDA approved VIBATIV for the treatment of adult patients with hospital-acquired and ventilator-associated bacterial pneumonia caused by susceptible isolated staff when alternative treatments are not suitable. Hospital-acquired pneumonia is a serious disease associated with one highest mortality rates among hospital-acquired infections. It increases hospital stay as well as cost of care. MRSA pneumonia in particular is an increasingly challenging infection as there are few approved treatments available today and reduced susceptibility to existing therapies remains a problem. Our initial plans with VIBATIV are to begin distribution of supplies through the U.S. wholesaler channel in the third quarter of the year and provide a level of medical support to enable physicians to properly treat patients with VIBATIV. I’m very pleased with the successful work of the Theravance team in achieving approval for this important new indication and an establishing a new source of product supply. Over the coming months we will continue to evaluate the commercialization alternatives in the U.S. then seek partnerships for VIBATIV in territories where the product has not already been partnered. Now let me turn to TD-9855, the lead compound in our norepinephrine and serotonin reuptake inhibitor program for the treatment of central nervous system conditions such as chronic pain and Attention-Deficit/Hyperactivity Disorder. TD-9855 is being evaluated in an ongoing Phase 2 study, Phase 2 safety and efficacy study in adults with ADHD and an another separate Phase 2 study in patients with fibromyalgia. We believe that there is significant opportunity in fibromyalgia for more efficacious treatments and in ADHD from an efficacious treatment without the risk of abuse associated with stimulant. We have completed enrollment in the Phase 2 study in ADHD with result expected to be reported later this year. While the results of the Phase 2 study in fibromyalgia are expected during the first half of 2014. We are all very excited about the recent progress on our programs and other upcoming regulatory events, and about taking our next -- this next step in our corporate strategy. 2013 is a very important year of transformation for Theravance. And I’ll now turn the conference call over to Mike Aguiar, our Chief Financial Officer. Mike?

[Mike Aguiar:]

Thank you, Rick. Today I’ll discuss the results of the quarter ended June 30, 2013, and will review guidance for the full year 2013 expense. For the quarter ended June 30, 2013 Theravance has a net loss of $36.4 million or $0.37 per diluted share. Revenues totaled $1.3 million during the second quarter of 2013 comparable with $1.4 million for the same period of 2012. For the first six months of 2013, revenue was $2.7 million, compared with $128.5 million for the same period last year. The decrease in 2013 was primarily due to the termination of our VIBATIV agreement with Astellas last January that resulted in a one-time recognition of $125.8 million of deferred revenue. Total R&D expenses for the second quarter of 2013 were $31.7 million, compared to $29.5 million for the same period last year. This increase was primarily due to higher external R&D cost resulting from ongoing enrollment in our two Phase 2 clinical studies with TD-9855, one in fibromyalgia and one in ADHD, a Phase 2b study of TD-4208 COPD, as well as cost associated with our preclinical and late-stage discovery programs. General and administrative expenses for the second quarter of 2013 were $11.4 million compared to $7.6 million for the same period in 2012. This increase was primarily due to an increase in external legal and accounting fees in connection with the company’s strategic initiatives, as well as an increase in the external costs in connection with commercialization activities related to VIBATIV. Total external expenses included in G&A related to the proposed company separation or $1.8 million for the first three months, excuse me -- for the three months ended on June 20 -- June 30, 2013 and $2.3 million for the six month end June 30, 2013. Cash, cash equivalent and marketable securities totaled $533.3 million as of June 30, 2013, a decrease of approximately $25.1 million during the second quarter. The principal uses of cash during the quarter, includes the $30 million payment to GSK of BREO ELLIPTA registrational milestone and cash used in operations. These uses were partially offset by $15.4 million net cash received from employee stock transaction, $8.2 million of net cash for the termination of our loyalty participation agreement with Elan and net proceeds of $6.7 million, received from the company's private placements of common stock to an affiliate of GSK. Now, turning to our guidance for 2013, in order to provide comparability with our year-to-date financial guidance metrics, we will identify all costs associated with our separation activities, each quarter but we’ll exclude these costs from our expense guidance. For the full year 2013, we are keeping our non-GAAP operating expense guidance in the range of $125 million to $135 million, excluding stock-based compensation expense and a potential milestone payments to GSK and cost associated with the separation of the company. Finally, I’d line to provide an update on the redemption of our $172 million, 3% notes. As expected, all 2015 notes outstanding on July 5, 2013 were converted into shares of common stock and none were redeemed for cash. This will increase total shares outstanding by approximately 6.8 million shares going forward. Now, I’ll turn the call back to Rick for final closing comments. Rick?

[Rick Winningham:]

Thank you, Mike. We just completed a very productive first half of the very important year of the transformation with their events, with approvals for BREO ELLIPTA and COPD in the U.S. and Canada and FDA approval for VIBATIV in hospital-acquired and ventilator-associated bacterial pneumonia as well as announcing the plant separation of Theravance and the two companies. Our focus for the remainder of 2013 will be on the upcoming regulatory events for RELVAR and ANORO, completing the separation of Theravance and the results from our internal pipeline. In summary, I’m pleased with the progress of Theravance and look forward to keeping you posted as our program advance. And now, I’d like to turn the call over to the conference facilitator and open the call for questions.

[Operator:]

(Operator Instructions) Okay. So now, we’ll have our first question from Steve Byrne of Bank of America. Steve, please go ahead?

[Steve Byrne:]

Hi. Can you talk about what are key gating events that must be resolved before you execute on the separation -- the company’s separation and does it matter to you whether it’s in this calendar year or not, whether ANORO was approved or not. Are those meaningful?

[Mike Aguiar:]

Hey, Steve. It’s Mike. I will talk quickly about the separation but clearly just from an ANORO perspective, we are very focused on December 18 and whole proportion of the approval on that date. So we are clearly aiming at all the corporation activities towards that. That is certainly important. It is not particularly connected to the separations. Separation is proceeding right according to case right now. It has a tremendous amount of work required over here to get this completed. The big gating items really are the SEC and the IRS. We have asked both of those regulatory agencies before we get to the finish line. With regard to the SEC, we are going to be filing the Form 10 shortly and then that process will kick off. And we have made a fair amount of progress with regard to the IRS determining the taxability of the spend and how potentially this could be executed? So sitting here today, I’m feeling pretty good about where we are. I would have slight preference of getting it done this year, if possible. But again, I think I will keep my guidance either late this year or early next year, given that I don’t have a lot of control over the timeline by either the SEC or the IRS.

[Steve Byrne:]

And any comments, Mike on changing the domicile for either entity?

[Mike Aguiar:]

We were clearly looking at that for biopharma. Biopharma again is the entity that’s going to be continued in the vast majority of the current Theravance operation. That is the entity that’s being dividended up. So of the two, this is reminder, the loyalty management company because they are guessing Theravance Corporation and then again Biopharma is the new entity. We have clearly looked at the possibility of re-domiciling this into a different location. I think I have some good initial dealings on this one and potentially we can do this. I would just say, stay tuned if not a complete done deal yet so. We do need to get through some of our IRS discussions but that is clearly a direction we are going and hopefully will be successful and have the right back pattern for the IRS.

[Steve Byrne:]

And one clinical question for you and that is regarding the triples. Do you view a market opportunity for both triples, does it make sense to go ahead with both the triples in the Phase 3? And the closed triple, does that one make sense to wait until after the approval of ANORO is in hand?

[Rick Winningham:]

This is -- Steve, this is Rick. I think we view the triple therapy as an extraordinarily important component of the treatment of COPD. And by triple therapy, I am talking about a long-acting muscarinic antagonist, long-acting beta agonist and combined with an inhale corticosteroids. That triple therapy -- and that opportunity we view today is in COPD and potentially down the road in asthma, given some of the favorable data that has been presented by Pfizer and Boehringer-Ingelheim adding tiotropium, the current LABA ICS therapies. Now, do the question of do I view both the combinations is valuable absolutely. I think the triple therapy is moving along at a pace that we’ve described before, that being UMEC, VI and FF and MABA ICS has begun Phase 3 labeling preclinical studies. But I view that both programs can deliver value that are separate and distinct to patients and to Theravence and to GSK.

[Steve Byrne:]

Thank you.

[Rick Winningham:]

Thanks, Steve.

[Operator:]

Okay. Thank you. And our next question is from Ronny Gal from Sanford Bernstein. So, Ronny, please go ahead.

[Ronny Gal:]

Thank you for taking my questions. I have two. First with regarding the MABA, is there a question that the MABA will move forward as a monotherapy or I guess, a dual MABA ICS, or is it I am pretty clear, that it will, the question is just when?

[Rick Winningham:]

Yeah. I mean, the -- good question, Ronny. The MABA news in terms of not starting the Phase 3 program for MABA therapy in 2013 is very new to us. So we will be discussing this with GSK. On MABA ICS therapy as I said that is Phase 3 enabling non-clinical studies have been initiated, so those are progressing forward.

[Ronny Gal:]

So, I hear you about the enabling study, but you know the reason we do studies is to figure out something. But I am guessing is it actually crossing these involving VIs, or is there something about those trials that might derail the program, reasonably derail the program, so the program will never go into Phase 3?

[Rick Winningham:]

Right. I mean at the end of the day, all studies are complete, you never know, but the -- these are just -- these are standard non-clinical studies that you need to do to go into progress into a Phase 3 program. If you step back for a moment and look at the history here, a lot of the early work MABA with the steroid was done with FP, twice a day steroid. We even have the Phase 2B data come out that was presented at VRS last year clearly indicating that MABA 081 was a once-a-day product and then that catch up work had to begin in combing MABA with FF and that's really what we are talking about with the Phase 3 enabling work right now. So, you know that is ongoing. We will see how those studies go and I look forward to completing them with the level of optimism.

[Ronny Gal:]

Great. But is there a couple of late Phase 2b program launched -- when those things finish the Phase 2, you go on to Phase 3 legally where people put them in their models. So I was wondering if you can help us a little bit in terms of understanding how those products differentiate from a previous generation of product. So especially about the SNRI and the MABA nebulizer, why is that the world needs another SNRI, how does that differentiate from the previous 10 or 15 or so that exists. Iam just asking it in a provocative way and equivalent about the MABA, why should somebody use your brand in MABA when you know Glycopyrrolate is just generic or tiotropium will be generic by 2018?

[Rick Winningham:]

Good one. I will take the LAMA question, 4208 is a long-acting muscarinic antagonist and we are developing it on a nebulizer. Well, I think, number one, there is about 5% to 10% of patients that have COPD that we estimate mechanically, our challenge with using a dry powder inhaler or and MDI device. And those patients prefer a nebulizer and there is some other societal reasons that their preference exists for nebulizer,. I think if -- and right now based on the earlier days that we had from the Phase 2A study, it looks like the curves will support 4208 as a once-a-day product. But that is a very important, that will be a very important finding from the ongoing study as 4208 a once-a-day study because the curves resemble the curves of a Umeclidinium or tiotropium, older the curves represent aclidinium or Glycopyrrolate. And we know when we get the data, which should be relatively soon. And so that's why LAMA and I think the other aspect of LAMA is, is simply LAMA as a platform because if we are fortunate and the drug is a once-a-day drug, it can be -- we believe from a physical perspective, its provides the ability to be not only in a nebulizer but in a dry powder inhaler or a metered-dose inhaler and combined with other products going forward. So, there aren’t many long-acting muscarinic antagonist that are once-a-day that can be combined easily with other products, and if MABA is in fact once a day we believe it will be able to be combined easily with other potential products. And on the NSRI, I have Mathai here with us, so I’ll let Mathai answer that question on differentiation of 9855.

[Mathai Mammen:]

Hi Ronny.

[Ronny Gal:]

Hi.

[Mathai Mammen:]

This is Mathai speaking. So on 9855, I would say the scene that it would go forward into is one where most compounds that have been attempted in the past and exist in the marketplace are SSRIs, selective serotonin reuptake inhibitors. There is an example in duloxetine, a molecule that carries both serotonin and some norepinephrine, but the profile of that compound is quite different. It’s still heavily serotonin, even though brings in some norepinephrine. Our compound 9855 brings in a great deal of norepinephrine and it’s truly a NSRI as opposed to a SSRI that’s how we’re referring to it now, and that has numerous advantages especially on potentially on executive function level that we think is important in a variety of different indication. So the two trials that are ongoing, one is in ADHD where we feel exactly the profile that I’ve described is useful relative to alternatives that mostly includes stimulants right now using alternatives to stimulants, as well as in various pain conditions and right now we have an ongoing study in fibromyalgia. So the norepinephrine to us is key is critical in fact in pain conditions where pure SSRIs shouldn’t work and in fact in trials don’t work. So we feel that the NSRI is that pharmacological profile is critical. On top of that the molecule itself is attractive, in that we’ve shown that it’s very CNS conditions, it’s completely CNS conditions, which is actually in itself good and unusual, and importantly, it has a very prolonged half-life. We’ve described it as 30 or 40 hours which leads to low peak to trough and very steady levels in the brain, and sometimes the ups and downs of neurotransmitter reuptake inhibitor programs cause problems. So we feel that too is a very attractive feature of this compound apart from its pharmacology.

[Ronny Gal:]

We have by any chance looked at the rest of the assumption of effect of this drug?

[Mathai Mammen:]

Yeah. So we’ve talked about that little bit internally but it’s not one of our focus points right now. There are other CNS indications either pain conditions, other CNS conditions, including anxiety and depression that I personally would put more immediately behind the two indications or after right now, if we were to pursue anything else.

[Ronny Gal:]

Great. Thank you very much.

[Rick Winningham:]

Thanks Ronny.

[Operator:]

Okay. Thank you. (Operator Instructions) And we’ll take our next question from Kyle Rasbach from Cowen and Company. Kyle, please go ahead.

[Kyle Rasbach:]

Great. Thanks for taking the questions. Maybe first if you could give us a little bit more color on what has delayed the BREO launch, what Glaxo relate to you and whether or not you believe we should anticipate similar delays in the EU rollout or whether some of these conditions or some of these reasons have been kind of ironed out and we should have a more smooth rollout in the EU relative to what we’ve seen in the U.S.? And secondly, maybe if you could give us a little bit of color on what Phase 3 data will see for ANORO at ERS and whether or not this is new data or a rehash of existing Phase 3 data? And then maybe lastly a little bit of an update on when we should expect to see the data from the ongoing asthma study here in the United States? Thanks.

[Mike Aguiar:]

Hey Kyle. It’s Mike. So, let me -- I’ll just talk very briefly about ANORO. So there is a little bit of additional Phase 3 data coming up and it’s certainly nothing earth shattering. I’m not going here for example. So, I mean, I would say all of the material data at this point from ANORO is out. So like I said, I wouldn’t expect a lot of new information coming out on that and I’ll let Rick talk a little bit about BREO. I certainly have a trouble using kind of the delay word that much. I think this is really not a big deal at all, but I’ll let Rick talk about that perfect. Rick?

[Rick Winningham:]

Yeah. I think is you the comments that Andrew Witty made yesterday and Simon Dingemans as I understand. I mean this is we’re talking about a couple of weeks here and we, it’s -- I think we’re just being conservative and it’s slipping out of the third quarter into the beginning of fourth quarter. So we don’t see this as any big deal, is big deal at all. We’ve -- I think everything is lined up very well in the United States to progress with this launch and whether it’s you’re talking about sales force or manage care other elements of the strategy are all lined up quite well and it’s a matter of just getting going and what looks like to now to be in the fourth quarter. So we’re very optimistic and very excited about it because the fourth quarter is just around the corner. And then you had -- did you have one more question, Kyle?

[Kyle Rasbach:]

I did have another question. I’m trying to remember myself what exactly.

[Rick Winningham:]

Oh! The BREO asthma study?

[Kyle Rasbach:]

BREO asthma study, correct.

[Rick Winningham:]

Yeah. So the BREO asthma study right now I think the last patient last visit in clinicaltrials.gov is October. Right now as far as we know that patient, that study is going right along with hitting that goal and a little while after that we should have data available. It’s a large study as you know, 900 plus patients in asthma. It’s an important study for us and that positive. I think we take that data with the rest of the asthma data that’s already been submitted in terms of clinical study reports to support the COPD application take all that data back into the FDA and have a discussion about going forward in asthma.

[Kyle Rasbach:]

Great. Thanks.

[Mike Aguiar:]

Thanks Kyle.

[Operator:]

Thank you. 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.

[Rick Winningham:]

Sure. Thanks very much to all the attendees on the phone call. We’re very excited about where we are as a company as we look forward into the second half of the year with product launch, with the potential for ANORO approval and the separation of the company to align, hopefully, assets with different types of investors to drive fat value for shareholders. So thank you for your attention. We look forward to the second half of the year.

[Operator:]

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