Innoviva, Inc.
Q4 2013 Earnings Call Transcript

Published: 7 Feb 2014

[Operator:]

Ladies and gentlemen, good afternoon. At this time I'd like to welcome everyone to the Theravance conference call to review 2013 financial results. 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’d 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 thank you for joining us. With me on the call today is Rick Winningham, our Chief Executive Officer and Mathai Mammen Senior Vice President of Research and Early Development. First Rick and Mathai will review highlights from the quarter and then I will review our financial results. Following our comments, we’ll open up the call for questions. Earlier today Theravance issued a press release detailing fourth quarter and full year ended – full year 2013 financial results and recent corporate developments. A copy of the press release can be downloaded from our website or you call Investor Relations at 650-808-4100 and we will 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, strategies 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 is described in greater detail in the company’s Form 10-Q filed with the SEC. I will now turn the call over to Rick Winningham, our Chief Executive Officer. Rick?

[Rick Winningham:]

Thanks, Mike and good afternoon everyone. 2013 was a transformative year for Theravance with three product approvals, significant advancements in our earlier stage programs and progress towards the separation of the late-stage respiratory assets partnered with GSK from our other biopharmaceutical operations. Let me begin with the planned separation. The Company's plan is to create two highly focused independent publicly-traded companies with unique strategies and risk profiles that have the potential to increase overall shareholder value. The separation is designed to provide investors with the opportunity to unlock potential value from these two different sets of assets to provide capital returns to stockholders and to further our strategy of advancing medicines that address unmet significant medical needs. As a reminder, one company Theravance Inc. Royalty Management Company which we will refer to as Royalty Management Company in the call, will continue to manage all development and commercialization responsibilities under the two GSK agreements and associated royalty revenues from RELVAR, BREO, ELLIPTA which will be referred to in this call as either RELVAR BREO, and ANORO ELLIPTA, which will be referred to in this call as ANORO, and Vilanterol or VI monotherapy. Royalty Management Company will focus on delivering capital returns to stockholders by maximizing the potential value of late-stage respiratory assets partnered with GSK. The other company, Theravance Biopharma will have the R&D capabilities of Theravance today and will focus on discovery, development and commercialization of small molecule medicines by exploiting insights created by our extensive experience in multivalent design and will contain the economic rights to earlier-stage respiratory programs partnered with GSK. The result will be two companies with different business models, enabling investors to align their investment philosophies with the strategic opportunities and financial objectives of the two independent entities. We currently expect to complete the separation early this year. Turning now to our programs partnered with GSK. The respiratory portfolio or inhaled medicines have the potential to be most comprehensive in the industry serving wide range of patients with COPD and asthma who have different needs and different severities of disease with single-mechanism, dual-mechanism and potentially triple-mechanism therapy. First let’s discuss RELVAR BREO. RELVAR BREO is a combination medicine consisting of an inhaled corticosteroid fluticasone furoate or FF and long-acting beta-2 agonist VI or Vilanterol, administered by dry powder inhaler called ELLIPTA, BREO ELLIPTA is the proprietary name in the U.S. and Canada and RELVAR ELLIPTA is the proprietary name outside of those countries. During the fourth quarter of 2013, the European Commission granted marketing authorization for RELVAR for COPD and asthma, which is now licensed across 31 countries. RELVAR BREO has been approved by eight regulatory agencies across the globe for marketing and been launched in seven countries as of February 1. 2014. Recent RELVAR BREO launches include RELVAR for COPD and asthma in the United Kingdom, Germany and Denmark, and RELVAR in Japan for the treatment of asthma as well as the big launch in BREO for COPD in the US and Canada. The total net 2013 revenues for RELVAR BREO were approximately $13 million with resulting royalties payable to Theravance of $1.9 million. It’s still early days in the launch, but GSK noted in their call yesterday that they are encouraged by physicians’ feedback noting the benefits of BREO. And that 90% of surveyed physicians are aware of the product. GSK has continued to buyer payer coverage with recent significant gains in the last two or three weeks and is confident that payer coverage will continue to grow throughout this year. GSK reported that 66% of patients insured through commercial plans, and 25% of Medicare Part D patients now have unrestricted access to BREO. Turning now to our second respiratory program with GSK, ANORO. ANORO is the first once-daily combination medicine in the U.S. for the treatment of COPD that consists of two bronchodilators. Umeclidinium, or UMEC and an anti-cholinergic or long-acting muscarinic antagonist Vilanterol or VI a long-acting beta 2 agonist. Both drugs administered via the ELLIPTA dry powder inhaler. On December the 18th 2013, the U.S. FDA approved the 62.5 microgram, 25 microgram combination doses form of ANORO for the long-term once-daily maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and /or emphysema. ANORO is not indicated for the relief of acute bronchospasm or for the treatment of asthma. GSK plans to begin U.S. launch activities during the first quarter of 2014. In addition, ANORO was approved for COPD in Canada in the late December of 2013. UMEC VI is under review by a number of other regulatory agencies including the European Medicines Agency and the Japanese Ministry of Health, Labor and Welfare. Now, in December 2013, GSK and Theravance announced positive results from a Phase # efficacy and safety study of FF or fluticasone furoate and VI or Vilanterol that combination medicine designed to support a potential filing for an asthma indication for adults in the U.S. As we have stated previously, these results will inform GSK’s discussions with the FDA on a regulatory requirements of an asthma indication for FF VI in the U.S. GSK and Theravance also have the goal of developing triple therapy respiratory medicines. The use of triple therapy is supported by gold guidelines in high risk patients with severe COPD and a high risk of exacerbations. GSK and Theravance are exploring two separate paths to create triple therapy in a single device. One path is UMEC VI and FF, all in a single device and a second path is MABA the bi-functional molecule plus FF. UMEC VI FF is an investigational close triple therapy in a single-device consisting of two bronchodilators, those being UMEC and VI – excuse me, and an inhaled corticosteroid, FF. GSK referred to it as Diamond in their call yesterday. In addition, GSK reported an intention to move the triple into Phase III. MABA is an investigational single-molecule bi-functional bronchodilators with both a muscarinic antagonist and beta-2 receptor agonist activities. Pre-clinical phase III enabling work with MABA FF is ongoing in the ELLIPTA dry powder inhaler. The respiratory markets we are targeting represent a very significant commercial opportunity. For the twelve months ended September 30, 2013, reported sales of medicines containing a long-acting beta agonist totaled approximately $20 billion worldwide. According to DRI, this market is projected to grow 27% by 2020. We believe our portfolio of once a day respiratory medicines partnered with GSK is the most comprehensive in the industry and will provide additional therapeutic options for doctors and patients dealing with these serious diseases. As a reminder, Theravance is entitled to receive a 15% royalty on the first $3 billion of global net sales and 5% thereafter on an annual basis, for the combined sales of RELVAR BREO and Vilanterol monotherapy. For ANORO and UMEC VI FF, each measured independently; we are entitled to receive royalties on global net sales that are upward tearing from 6.5% to 10%. For 081, Theravance is entitled receive a 10% to 20% royalty on global net sales up to $3.5 billion, and 7.5% thereafter. If 081 is commercialized as a combination product such as 081 combined with FF, the royalty rate is 70% of the rate applicable to sales on single-agent 081. Now turning away from the respiratory programs with GSK to GSK to VIBATIV or bactericidal once daily injectable lipoglycopeptide antibiotic approved in the U.S. for the treatment of adult patients with hospital-acquired and ventilator-associated bacterial pneumonia caused by susceptible isolates of staph aureus when treatments are not suitable, alternative treatments are not suitable, as well as indicated for adult patients with complicated skin and skin structure infections caused by susceptible gram-positive bacteria, including staph aureus. Both methicilin-resistant and methicillin-susceptible strains. During the third quarter of 2013, Theravance commenced shipments of VIBATIV into the U.S. wholesaler channel. We are pleased that VIBATIV is now available to treat patients for whom other treatments are not appropriate. Overall, we received a positive reception from physicians on the reintroduction of VIBATIV into the U.S. We believe VIBATIV provides an important additional treatment option for patients suffering from these serious infections including hospital-acquired bacterial pneumonia or ventilator-associated bacterial pneumonia due to MRSA. In Europe, the CHMP has recommended the lifting the suspension of the marketing authorization for VIBATIV and we expect the European Commission to act on their recommendation in the first quarter of 2014. And now I'll turn the call over to Mathai Mammen, our Senior Vice President of Research and Early Development. Mathai?

[Mathai Mammen:]

Thanks, Rick. Good afternoon everyone. Let me begin with TD-4208 our internally-discovered multivalent Long-Acting Muscarinic Antagonist or LAMA, delivered once-a day in a nebulizer for COPD. The current goal of our LAMA program is to develop a once-a day inhaled medicine in a nebulizer that offers improved efficacy and tolerability relative to current therapies and that provides the basis for combination nebulized products with other medicines such as an inhaled corticosteroid. We are very excited about this program. Currently there are no once-a day nebulized LAMA products available in the market or in developments for the treatment of COPD patients. In 2013, Theravance reported positive top-line results from a Phase 2b study of TD-4208 which evaluated the safety and efficacy of multiple doses of TD-4208 in an aqueous nebulizer. Based upon these results, we intend to initiate a larger Phase 2b study during the first half of 2014 to identify a dose to take forward into Phase III. We believe that the nebulized opportunity represents 5% to 10% of the total COPD patient population. And that this population is complementary to that addressed by the GSK Theravance collaboration products. Turning to TD-9855, a dual norepinephrine and serotonin reuptake inhibitor for the treatment of CLF conditions such as chronic pain. We believe that there is a significant opportunity for our product that provides pain relief without the serotonergic side-effects in current SNRI medications such as Cymbalta. TD-9855 is currently being evaluated in an ongoing Phase II safety and efficacy study in patients with fibromyalgia with results expected during the first half of 2014. Now in the area of GI Motility Dysfunction we have two ongoing Phase II programs. First, let me discuss Velusetrag or TD-5108, an oral once-daily investigational 5-HT4 agonist discovered by Theravance and partnered with Alfa Wassermann. Velusetrag is currently in an ongoing Phase II gastrointestinal motility proof-of-concept study in patients with either diabetic or idiopathic gastroparesis. Results from this Phase II study are expected during the first half of this year. The second program is TD-8954, a second selective 5-HT4 receptor agonist. We are investigating the development of a parenteral form of TD-8954 for acute use in patients who require rapid restoration of upper and lower GI motility. We believe that TD-8954 can potentially improve enteral feeding and tolerance or EFI in critically ill patients and potentially other GI disorders. Recently we initiated a Phase II a study to evaluate the safety, tolerability and pharmacodynamics of a single-dose of TD-8954 administered intravenously compared to metoclopramide in critically ill patients with entral feeding and tolerance. This is a randomized double-blind study in 60 critically ill patients who are admitted to the intensive care unit and are intolerant to enteral feeding. The objective of the study is assessment of adverse events and pharmacodynamics, namely acceleration of emptying. I will now turn the conference call back over to Mike. Mike?

[Mike Aguiar:]

Thanks, Mathai. Today I’ll discuss results for the 2013 financial results for the company. Before discussing these results however, I would like to note that due to the expected separation of Theravance into two publicly traded companies, early this year we will not be providing financial guidance at this time. Our current expectation is that each company will provide financial guidance following the separation. Turning back now to Theravance, for the year ended December 31, 2013, Theravance had a net loss of $170.7 or $1.67 per share. Total 2013 non-GAAP operating expenses were $136.9 million. Non-GAAP operating expenses excludes stock-based compensation expense and costs associated with separation activity. Revenue totaled $1.6 million during the fourth quarter of 2013, compared with $5.8 million for the same period in 2012, a decrease of $4.2 million. Revenues in Q4 2012 included a one-time recognition of $4.4 million related to an upfront payment from a previous agreement with Merck. For the full year 2013, revenue was $4.8 million compared to $135.8 million for the full year of 2012. In addition to the Merck payment, full year 2012 revenue included a one-time recognition of $125.8 million of deferred revenue from the termination of our global collaboration arrangement with Astellas. In 2013, we deferred all VIBATIV product revenues in order to generate additional sales and marketing data before finalizing our VIBATIV accounting policy. Total VIBATIV deferred revenue on the balance sheet as of December 31, 2013 was $0.9 million. We currently expect to be able to recognize revenues from VIBATIV sales in 2014 once the sales and market data becomes more complete. Global sales of RELVAR BREO, totaled approximately $13 million during the fourth quarter resulting in gross royalty revenue of $1.9 million from GSK. Recognition of this was partially offset on the income statement by non-cash amortization expense of $0.7 million related to the approval in loss milestones that we have paid to GSK to-date. Total R&D expenses for the full year of 2013 were $125.2 million, compared with $117.9 million for the full year 2012. The increase for the full year of 2013 was primarily due to higher external R&D cost and employee-related expenses. External R&D cost for the full year of 2013 were $46.9 million, compared with $43.2 million during 2012. This increases primarily due to higher costs associated with Phase II studies for TD-9855 and TD-4208 and Phase I studies for TD-1607 which were partially offset by lower cost for TD-1211 which completed Phase II in 2012. Excluding stock-based compensation expense, non-GAAP R&D spending for the full year of 2013 was $109.2 million, compared to $104.2 million for 2012. Selling, general and administrative expenses for the full year of 2013 increased to $48.4 million compared to $30.9 million for the same period in 2012. The largest component of the increase was external costs related to the company’s separation strategy. Total external expenses included an SG&A related to propose company separation for $11 million for the full year of 2013. Cash, cash equivalents and marketable securities totaled $520.5 million as of December 31, 2013, an increase of approximately $176.8 million during the year. The increase was primarily due to net proceeds of $244.8 million, received from the January 2013 issuance of 10 year convertible subordinated notes including the associated cap call and net proceeds of issuances of our common stock of $126 million to an affiliate of GSK. These increases were partially offset by cash used in operations of $129.6 million and RELVAR BREO registration and launch-related milestone payments to GSK of $85 million. Now I’ll turn the call back to Rick for final closing comments. Rick?

[Rick Winningham:]

Thanks, Mike. The 2013 was a terrific and transformative year for Theravance with the significant accomplishments in the past year, the company is well-positioned in 2014 with a number of important key catalysts, which include the separation of Theravance into two companies, further launches in major markets for RELVAR, the potential for further approvals and launches of ANORO and the progression of Theravance’s development pipeline. We plan to advance multiple product candidates through the clinical sheer including taking 4208 into a large Phase 2b dose-ranging study for the treatment of COPD and TD8954 into a Phase 2a study in entral feeding and tolerance. Both of which were referenced in Mathai’s remarks. We are looking forward and we are very excited about the future of Royalty Management Company and Theravance Biopharma. And now I’d like to turn the call over to the conference facilitator and open the call for questions.

[Operator:]

Thank you sir. (Operator Instructions) We have our first question from Ronny Gal of Bernstein. Your line is open.

[Ronny Gal:]

Good afternoon. Thank you for taking the question. I actually have two. First, for both of you guys, do you expect that with the last quarter where you report this call as the CEO and CFO of Theravance, essentially should we predict that this separation will take place by – essentially this time next quarter? And what has been – if you can give us a little bit more details about what's been holding up the separation? Second, the BREO trend line, now I'm just guessing the $13 million with that of market sales right now primarily in channel sales. And when I track the BREO scripts – they're not inspiring. And I know our friends from GSK have been talking positively about that. But I will be felt really a lot more comfortable with it if you can give us an idea about what's been holding the script trend so far and what is going to change as we get deeper into 2014? Thank you.

[Mike Aguiar:]

Let me go ahead and take the timing question and then I’ll pass it to Rick for the BREO question. With regarding to the timing question of the separation, the guidance that we have given on all along this was late in 2013 early in 2014. And generally what we were trying to imply in that was December or Q1. We haven’t changed our guidance on that date. There are a variety of things happening today here I think that the level of activity that’s exceedingly high both internally and externally with third-parties that we will talk certainly publicly about, and the need to work with third-party like the IRS and the SEC, as an example of sets of activities that are still going on out there. So, I think overall, we believe today we are still within our previous guidance. Again, as you deal with third-parties, you never know when you are done with them, but today I am not changing our overall guidance on that. So I think, we remain comfortable in terms of our external guidance.

[Ronny Gal:]

And then what should we see from you guys, before you move on, just if I may follow-up on this very quickly, what do you guys see – what should we see externally in terms of filing on the SEC website that will tell us this – there is progress here?

[Mike Aguiar:]

That’s a good question. So, there are a number of Form-10s that have been filed, the Form-10s, as you probably know are not under Theravance, under Theravance Biopharma. The way the process works is we work with the SEC consecutively through the documents when the SEC has no more questions at that point in time they are done and it’s up to Theravance to clear the Form-10 or to ask the SEC to clear the Form-10 effective. Once that happens again it can be a reflection of the filing, but pretty soon thereafter there will be mailing to shareholders announcing dividend dates and separation dates and all of that. So there will be probably a couple weeks’ worth of advance notice before the actual separation happens. In addition, somewhere in that window, there will be an as issued trading starts happening on NASDAQ. We don’t control that. It’s a process that starts up largely outside of our control. So there will be a variety of different public indications when the transaction is – way from actually happening.

[Rick Winningham:]

Okay, Ronny, so let’s now move on to BREO, the BREO launch and I think, I would probably just direct you back to an extensive discussion yet on the GSK conference call from yesterday. But let me just hit a couple of highlights. One of them is, very recent increase in managed care coverage. I think that’s the increased – particularly in Medicare, but really across the board, GSK has been making steady incremental and then some step change coverage for the payers. I think, the continued work by GSK in detailing the product to physicians has resulted very recently in this 90% awareness. But I discussed and GSK discussed in yesterday’s call and I would expect that to just continue to build. I think you got to take awareness to intent and intent to prescribing and prescribing to prescriptions being filled and I think we are well underway there. So, I think, everything is working. I think as Mike and I discussed, probably it’s far back as last April. We thought that the BREO launch would be relatively flat for several weeks post initiation. And because it was going to take time to get payer coverage in line and physician awareness out, given the breadth of the launch, that’s what’s happened and I think, right now, we are very optimistic about the future of BREO in 2014.

[Ronny Gal:]

I hear you that – if I can sharpen it just one bit, if I look at the last three launches in the (inaudible)TUDORZA, Zylera and (inaudible) all of which, I would argue have not blown the door off expectations. BREO is underperforming all three. And the question is, is there something about the strategy GSK is pursuing in terms of samplings of detail and in terms of timing that would explain that or is there something that they are doing differently from the others that makes all this reaction more delayed?

[Rick Winningham:]

Well, I think timing is one. I think the other – again I’m just really referring back to the common theory that GSK, well Simon and Andrew, I think might have made yesterday was – there is a significant sampling going on. Those are probably the two and we are just in a little bit different period where I think for primary care-oriented products it takes a little bit more time even today than perhaps a year or so ago to get momentum going because of certain points of resistance in the system-wide payer coverage. But, as they said yesterday, they made significant progress recently. They believe that they will make significant progress throughout the year and I think what that significant progress the prescriptions will follow.

[Ronny Gal:]

Great. Thank you for much.

[Mike Aguiar:]

Thanks, Ronny.

[Operator:]

Thank you. Our next question comes from David Friedman of Morgan Stanley. Your question please.

[Mike Aguiar:]

Hi, David.

[David Friedman:]

Hello.

[Operator:]

Mr. Friedman your line is open. Please make sure your line is unmute.

[David Friedman:]

Hi, can you hear me?

[Mike Aguiar:]

Yes, we can.

[David Friedman:]

My headset was working. Just two questions, the first is, in terms of the royalty company, given that you are sort of probably within a month or two of the split. Can you confirm that that will stay as a California-based company or is that still a point of some debate among the people that are planning this with you? And then the second question is, in terms of ANORO in Europe, I was wondering if you could comment on the nature of the oral arguments that were given and why – if you can just broadly touch on what issues were of specific in interest to the CHMP?

[Mike Aguiar:]

David, thanks for the questions. It’s Mike. I – unfortunately I can’t provide a lot of insight on to ANORO in the EU right now. Obviously, we keep regulatory discussions confidential. So I wouldn’t unfortunately be able to comment on that. With regard to the other question, the Royalty Co and the domicile as you know, Royalty Management Company is the existing Theravance Corporation. So you are correct, it is the kind of the U.S. Company, but it is in California today. As of today, there are no plans to move outside of California. I know that, for example PDLI had moved out a period of time ago. The tax regime here has changed a little bit since they moved out and today, believe it or not, it’s not a particularly bad place to be for a royalty-based company. So, at least as of today, there are no plans to re-domicile outside of California.

[Rick Winningham:]

I think, David that it’s a good question, I think that’s obviously correct, Mike talked before at conferences about we are expecting Royalty Management Company to be launched with a very significant balance – of net operating losses. The management team at the Royalty Management Company will have a series of objectives and one of them is getting the capital structure right to be able to bring capital back to shareholders in an accelerated fashion. Then at some point in time, clearly, resolving or improving tax jurisdiction is another opportunity and then finally, and in third place is dealing with the terminal value of the company. So, those are things that need to be resolved immediately, particularly the last two, but they are great opportunities for future creation of value at Royalty Management Company.

[David Friedman:]

Great. Thanks very much for the answers, I appreciate it.

[Operator:]

Thank you. Our next question comes from Anant Padmanabhan of Cowen and Company. Your line is open.

[Anant Padmanabhan:]

Thanks for taking my questions. Rick, I believe you had mentioned that the triple might be moving into Phase III, is that correct and is that the ANORO triple?

[Rick Winningham:]

Yes, that’s ANORO plus FF and that was referenced in the GSK call yesterday.

[Anant Padmanabhan:]

So, when might we see an update on the trial itself and could you just give us a sense of the timeline for such a trial?

[Rick Winningham:]

Yes, I think he and I don’t – I can’t remember – whether it was Andrew or somebody else that made this comment. He said, 2014 or 2015, but, I would just say, stay tuned. Stay tuned on the triple as I said, both Theravance and GSK view the triple therapy as a very important component. In our strategy that’s terrific right now that we have two opportunities at triple therapy both with ANORO plus FF that you reference and potentially with MABA plus the inhaled corticosteroid. So, we will certainly be working with GSK to advance that forward and as direct and as quickly as possible. But I’d just say stay tuned.

[Anant Padmanabhan:]

And then just a quick question on BREO and the asthma indication, any sense of when that meeting with the FDA might happen when you might get some clarity on the pathway?

[Mike Aguiar:]

Well, we haven’t made any specific external announcements on this. I think we continue to work with the regulators to discuss the requirements for an asthma filing in the U.S. We – Theravance will continue to be optimistic about this. We have to obviously work through the regulators first. So I would, again echo what Rick has said earlier. I would say stay tuned as we get some more information. We will certainly pass it on.

[Anant Padmanabhan:]

Great, thank you.

[Operator:]

Thank you. Our next question comes from Brian Skorney of Robert Baird. Your line is open.

[Brian Skorney:]

Thanks for taking the question. I guess to start-off, when the Elan deal was originally announced, you had discussed that sales of portions of the royalties were always planned, but that particular bid came in about a year ahead of when you expected. So, we are sort of coming up on a year now and I was just wondering what your thoughts are on timing for certain types of these deals or do you think that might have been pushed back a little bit given the timing of the separation. And I assume you guys are probably much – so focused on that right now they may be doing those discussions are put on the back burner.

[Mike Aguiar:]

Yes, thanks for the question, Brian. This is clearly a strategy we outlined when we announced the separation and it’s something we have front at mind. That being said, I think the majority of the work is happening here is getting to the finish line of the separation. We have absolutely had conversations with folks before the Elan deal, obviously, after the Elan deal. We continue to have conversations with various folks about the possibility of doing some sort of a monetization. Again there is we have a very strong cash position today. It would be great to have the right deal tomorrow and as they came up we will certainly be willing to purse it. We have to wait a little bit that’s okay still. So it is that clearly still in our strategy and again, we have a number of conversations that are ongoing now. But again, I wouldn’t say we are in again a rush to get any deal. It really has to be the right deal when and if we find that.

[Brian Skorney:]

Gotcha, and then I didn't notice any mention of TD-1211 in the press release and I just want to get your thoughts on this program, especially apparently an FDA Ad Com to discuss clinical trial design for these types of drugs that was postponed. And I just wanted to see if you had any thoughts on why the FDA maybe – has put this on hold, and your thoughts on the potential for TD-1211 to move forward in development?

[Mike Aguiar:]

Okay, so let me just make a couple of comments. I don’t think right now we know why the Ad Com was postponed. We are continuing sort of to work in the background of 1211, in particular developing 1211 doing the chemical work to develop 1211 in combination with the other opiates in a combination tablet. That work is going quite well. As we sort of work to bring greater clarity to what is in fact will be required by the regulators in the United States and Europe and just ask Mathai for any further comments.

[Mathai Mammen:]

Yes, we remain enthusiastic about the 1211. It wasn’t mentioned today, because there is nothing to update in particular, but we are actively alongside other sponsors working towards an Advisory Committee Meeting. Our understanding was the delay was scheduling-related and nothing more than that and we are anxiously waiting as a group of companies to go sort out whatever questions that the regulators want to ask us.

[Brian Skorney:]

Great, thanks guys.

[Operator:]

Thank you. Our next question comes from Stephen Willey of Stifel. Your question please.

[Stephen Willey:]

So on triple, I know that we've heard GSK talk quite a bit about close. But I don't think we've really heard much from them in the way of MABA and I know that program has been in Phase III enabling studies for a while now I think, with the once-daily ICS. But maybe if you could just provide some color around the – I guess, GSK's intentions to move this program into Phase III and if they do indeed view this as something as they would be having ongoing in parallel with the close in terms of development?

[Rick Winningham:]

Yes, I’ll make a couple of comments and then turn it over to Mathai. Yes, I think, with the one key change with MABA and MABA plus ICS is we are moving it over to the ELLIPTA platform such that all the respiratory medicines that we are working on with GSK are in a similar device. That’s something that happened last year and unfortunately, we just can’t turn that around immediately. However, the team at GSK is working quite diligently on both MABA and MABA ICS. I think, as I’ve stated before, we meaning GSK and Theravance, view triple therapy as a very, very important component of the therapeutic landscape going forward and the ability to deliver triple therapy in one device as being a really strategic opportunity for our collaboration. So, now we are working quite a bit on it. So, Mathai?

[Mathai Mammen:]

Yes, I’ll note first that in the GSK call yesterday, they certainly include MABA plus or minus ICS as a member of suited products that will be look forward and strong interest in the ELLIPTA device. So, as Rick said, it takes sometime as we communicated in the past to turn from what was a MABA combination with FP in non-ELLIPTA device, all the way to changing the steroid, changing the device and that’s implied into a great deal of work and so GSK right now in this collaboration is working diligently and turning that really it’s a titanic around. And so that work is going well and as this progress, we’ll update.

[Stephen Willey:]

Okay, and then just with respect to ANORO, and I guess, the opportunity that is the existing SPIRIVA market right now. I know that GSK is obviously also pushing single-agent UMEC through the regulatory processes right now. And just kind of wondering if you kind of feel like they would be looking to transition SPIRIVA patients away from SPIRIVA on to UMEC, which maybe delays in ANORO start or do you view their moving forward with UMEC as kind of a way to just pick up some of this residual triple therapy utilization that tends to happen a lot with SPIRIVA? Thanks.

[Rick Winningham:]

Yes, so I’ll let GSK sort of comment on UMEC the UMEC single-agent strategy, because we are not involved in it. I have said before that I view GSK’s progression of UMEC as a strategically important actually for Theravance. So, because it is a component of open triple trials that are ongoing today off of a base of BREO which of course we do have an economic interest in. So, I view the progression of UMEC is important now. Relative to ANORO, I think it’s pretty well defined in the slides of GSK presented yesterday and the studies that we’ve released over the last couple of years, the efficacy of two bronchodilators is very encouraging. It’s been approved now in the United States and we look forward to getting it on to market as GSK said, before the end of last year and the yesterday, launch activities are ongoing here in the first quarter. So, we are super excited about the potential of ANORO to address unmet patient needs that exists today in the market. Mathai, anything to add?

[Mathai Mammen:]

Yes, the only thing I’d add is, I think you said it, if you look at SPIRIVA, it is right now about half of it is alone and half of it is in combination with LABA ICS agents. And we think that the ongoing UMEC plus BREO trials addresses one half and as you’ve seen, we have pretty nice data with SPIRIVA as a comparator and think that ANORO gives a nice option to patients who need bronchodilation.

[Operator:]

Thank you. Our next question comes from Howard Liang of Leerink Partners. Your line is open.

[Howard Liang:]

Hi, thanks very much for the question. Can you give – regarding the separation – can you give us your general thoughts about how the balance sheet items will be allocated between the two companies, I guess the probably the more important will be cash and the converts. Should we assume that almost all of the cash will go to biopharma, but the converts will stay with the Royalty Company?

[Rick Winningham:]

Yes, thanks, Howard. The simple way to think about it is the – our Royalty Management Company which again is the current Theravance Corporation has been a key. The assets that we described that are related to GSK, plus the converts, plus some small amount of cash with whatever that number, it depends upon what we expect from upcoming milestone payments to GSK related to the approval and launch of the asset – the respiratory assets and net operating losses. So, really, that’s a more or less although we are saying it’s Royalty Management Company. Everything else will be going to Biopharma. We certainly have an intention of putting as much cash as we possibly can into Biopharma to ensure that it has plenty of cash to what it needs to do and to remove any financing overhang. And in our filings we said, at least $300 million. So we will – I think where we are when we get to that separation date and then, Rick and I will sit down and have a quick discussion about what the right number, that will certainly the final decision. But, the way to think about it again is there is much cash and afford to put it into Biopharma is the goal.

[Howard Liang:]

Then on the BREO launch, it sounds like there's a pretty big sampling program. I don't know if you can comment on to what extent the sampling has affected the scripts. The IMS script data, is it a bigger sampling program than others in the category or in the field?

[Rick Winningham:]

Yes, I don’t know as we can make a relative comment. I do know it is an extensive sampling program and as a result, clearly there are more patients on medication at any particular time in the number of scripts that are out there because there are large number of patients are on samples today. So that is clearly out there. I think that overall we remain pretty confident in terms of where we are. There are other pieces that are out there. I think Rick mentioned a while ago there is clearly with the timing piece launching in the fourth quarter like that. You do have some timing issues related to some of the plans, things like that. So, overall, I think we feel pretty good, another piece that’s coming up here again, I think is going to be a part of the overall strategy is the ANORO launch. We have always viewed portfolio as being important here for the overall programs. And then the final piece I would mention here is as you know direct-to-consumer advertising is not done in the first six months of launch. So that would be coming up at not too distant point. So really it is a matter of getting all the various marketing pieces up and running and going. So there had been some timing pieces. There is some sampling pieces, there is some direct-to-consumer advertising. There is overall portfolio pieces, et cetera that ultimately is going into the overall marketing aspect of the product. So that continues to build over time.

[Howard Liang:]

Okay and then I just have a, sort of housekeeping question on the amortization that is deducted from the royalty revenue. What is the amortization period? Is this simply the – your milestone payment divided by the amortization period?

[Mike Aguiar:]

Yes, I mean, but we are look at the expected life of each of these assets, it continues on where the milestone payment was reflecting. So, that region one, region two, region three et cetera. Each of those have slightly different numbers in there and so, in the time you make the payment until the end period is going to be some variable number in and around 15 years, which as you probably know is the contractual minimum that the royalties are due. So, I can’t – I am not going to go into kind of all of them, but that’s in or around the right range.

[Howard Liang:]

Okay. Thanks very much.

[Mike Aguiar:]

Thanks, Howard.

[Operator:]

Thank you. (Operator Instructions) Our next question comes from Tazeen Ahmad of Bank of America. Your line is open.

[Tazeen Ahmad:]

Hi guys. Most of my questions has been answered already. But looking ahead to the ANORO launch, could there be anything from the BREO launch that could be leveraged there? In general, do you think that we should expect the same type of sampling to occur from GSK in the early portion of the launch and do you think that this being a first-in-class drug could allow it to have a steeper initial trajectory? Thanks.

[Rick Winningham:]

Yes, thanks Tazeen, I mean, I think we will sort of stick with the commentary. We first want to get ANORO out there to the market as Mike said, we believe the portfolio overall is powerful. So, I really don’t want to provide anymore guidance on that. But, clearly we are quite eager to – we and GSK are quite eager to get ANORO out in the marketplace to complement the activities that are ongoing with BREO.

[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:]

Okay, thank you very much operator. Thanks everyone for participating and asking questions. We look forward to a terrific 2014 and please have a great day.

[Operator:]

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