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Executives

Rick E. Winningham - CEO

Michael W. Aguiar - SVP and CFO

Analysts

Analyst for May-Kin Ho - Goldman Sachs

Rachel McMinn - Cowen & Co.

Michael Aberman - Credit Suisse

Ian Somaiya - Thomas Weisel Partners

Biren Amin - Stanford Group

Jim Birchenough - Barclays Capital

Bryan Skorney - SIG

Tom Russo - Robert W. Baird

Matt Duffy - BDR Research Group, LLC

Theravance, Inc. (THRX) Q3 2008 Earnings Call October 23, 2008 5:00 PM ET

Operator

Ladies and gentlemen good afternoon. At this time, I would like to welcome everyone to the Theravance conference call to review results for the quarter ended September 30, 2008. 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 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.

Michael W. Aguiar

Good afternoon everyone and thank you for joining us. With me on the call today is Rick Winningham, our Chief Executive Officer. Today's call will be in three parts. First, Rick will review the highlights in the quarter and provide an update on our clinical programs, and then I will review our financial results and finally we will open up the call for questions.

Earlier today, Theravance issued a press release detailing third quarter 2008 financial results and recent corporate developments. A copy of the press release can be downloaded from our web site or you can 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 information available to the Company today and Theravance assumes no obligation to update these statements as circumstances change. Future events, financial result could differ materially from those projected in the Company's forward-looking statements. Additional information concerning factors that could cause these results to differ materially from our forward-looking statements are described in greater detail in the Company's most recent 10-Q filed with the SEC.

I will now turn the call over to Rick Winningham, our Chief Executive officer.

Rick E. Winningham

Thanks, Mike. Good afternoon everyone.

During the third quarter, we made progress on our clinical and regulatory activities, particularly progress with the US Telavancin program where we believe the FDA complicated skin and skin structure cited inspection issues have been successfully resolved and we are now scheduled to attend the upcoming advisory committee meeting in November. The next US regulatory activity for Telavancin is with the submission of the HAP NDA.

Due to the preparation of the resource shift required to support the complicated skin advisory committee in November, it is possible that the HAP filing may slip from the fourth quarter 2008 to early 2009. Today, we reported that Astellas and Theravance decided to voluntarily withdraw the European application for Telavancin for complicated skin and soft tissue infections and we also noted that Astellas intends to prepare a new MAA with expanded clinical trial data including data from the HAP-base three programs. Finally the Horizon program in collaboration with GSK has now completed enrollment in all the Phase IIb programs with '444 and '698.

I will provide more details on these developments; then Michael will walk you through the financials later in the call. First let me turn to Telavancin. A substantial amount of activity has occurred during the quarter. As previously announced the Anti-Infective Drug Advisory Committee to the FDA will convene on the morning of November 19 to review the NDA for Telavancin for complicated skin and skin structure infections. This is an important positive development for Telavancin program. Based on discussions with the FDA after completion of both Theravance's and the FDA's ATLAS site-audit inspections, we believe the site inspection issues in the ATLAS program have been successfully resolved.

In addition, there will be approximately 50 patient sites the FDA previously requested to be removed from the ATLAS data set, Theravance has identified two additional sites totaling approximately 20 patients where they may have been an ineffective CRO oversight. We believe that this potential oversight did not endanger patient’s safety, there was no evidence of fraud, nor was there any indication of systemic issues in the overall conduct of the study. The FDA requested the data from these three clinical sites out of more than 100 sites to be removed from the ATLAS efficacy analysis.

These sites included a total of 73 patients out of 1867 enrolled in the study. Overall, the removal of these data from the efficacy analysis had no impact on the conclusions of the studies. We remain confident in the quality of the data generated in the ATLAS Telavancin program and as a reminder, we submitted our complete response to the approval letter back in January where we submitted all safety data associated with the hospital-acquired pneumonia program. With regard to the manufacturing issues, the FDA raised in the approvable letter, we believe based on communications with our supplier that the status of the facility has been changed by the FDA to allow approval of NDA's and ANDA's for products that are manufactured by our supplier.

Additionally, we will become aware of the number of products manufactured at the facility that have been approved by the FDA. Astellas and Theravance have decided to voluntarily withdraw the European marketing authorization application for Telavancin for complicated skin and soft tissue infections. We decided to withdraw the MAA based on communications from the committee from additional products for human use of the EMEA but the data provided are not sufficient to allow the committee to conclude a positive benefit risk balance for Telavancin for the sole indication of complicated skin and soft tissue infections at this time.

We believe the CHMP's primary concerns were the potential for renal toxicity and QT prolongation. Astellas currently intends to prepare a new MAA with expanded clinical trial data that was not available at the time of the initial application, including data from the hospital-acquired pneumonia Phase III programs. Now, turning to our Telavancin HAP NDA, we are working diligently toward the submission of the NDA application. We completed the very extensive site-re-monitoring program in which we visited more than 100 sites that together enrolled over 70% of the patients for the study. In each site, we performed a complete re-monitoring of the investigator and CRO activities in these locations to ensure the overall quality of the data generated by the ATLAS or the obtained studies.

I am pleased to say we are satisfied with the results of this monitoring effort and we remained confident of the overall quality of the data generated by the obtained study. Our current objective is to file a HAP NDA with the FDA in the fourth quarter of 2008. However, as I previously noted due to the preparation of the resource shift required to support the skin advisory committee meeting in November, it is possible that the HAP filing may slip in the very early 2009.

As a reminder, the HAP program consists of two large multi-center, multinational, double-blind randomized Phase III study, ATTAIN 1 and ATTAIN 2 in which 1503 patients were enrolled, 464 of whom were infected with MRSA. Patients with HAP suspected or proven to be caused by Gram-positive bacteria were randomized one to one to receive either Telavancin 10 mg/kg dose once daily or vancomycin 1-gram dose twice daily. For patients with suspected or proven polymicrobial infections involving Gram-negative and/or anaerobic bacteria in addition to the Gram-positive organisms for which the study medication therapy was used, aztreonam, piperacillin-tazobactam and/or metronidazole was allowed.

Importantly, oral step down therapy was not included in the protocol. The objective of each study was noninferiority of Telavancin versus vancomycin in clinical cure at test of cure. Determination of clinical cure was based on physician-judged resolution of clinical signs and symptoms of hospital-acquired pneumonia. New Telavancin data will be presented in the next few days at CHEST 2008 on October 27, 2008 and at ICAAC and IBSA from October 25 through October 28. At CHEST, the podium presentation focusing on patients with VAP from the Telavancin Phase III ATTAIN studies will be presented by Dr. Andrew Shorr, Associate Director of Pulmonary and Critical Care Medicine at Washington Hospital Center and Associate Professor of Madison George Town Univesity.

At ICAAC IBSA, Telavancin data will be featured in 25 posters or podium presentation. Two posters in particular will highlight key data from the ATTAIN study. These include Telavancin for the treatment of the hospital-acquired pneumonia in severely ill and older patients and Telavancin for the treatment of the hospital-acquired pneumonia caused by MRSA and MSAA.

Turning to the horizon, I am pleased to report that enrolment is completed in the Phase IIb studies for both '444 and '698, and that we remain on track to report results from these studies later this year and in early 2009. In the asthma program, the Phase IIb study with '444 is completed patient's last visit and we expect to report top line data from this study late this year. All three studies with the lead inhaled corticosteroid '698 and patients with mild, moderate and severe asthma now completed enrolment. We remain on track to report data from all three '698 studies together in early 2009.

In COPD, the Phase IIb study with '444 has now completed enrollment and as it is progressing in line with our expectation, we are releasing data in early 2009. In addition, GSK recently completed Phase I LABA-LAMA combination study as a potential treatment for patients with COPD. The study offsets the safety in pharmacokinetics in single inhaled doses of '444 and GSK's own long-acting muscarinic antagonist compound, GSK 233705 in healthy subjects. I am pleased to report that the combination was generally well tolerated and there were no serious adverse events report in the study. Importantly, Theravance is entitled to receive royalties on products developed in combination with the LABA under the terms of the LABA collaboration agreement.

And finally, we recently began enrolment of Phase II combination study of '444 and '698 in patients with COPD. The small study is targeting approximately 60 patients and is primarily focused on safety and tolerability of the properties of this combination in this particular disease.

Now, we will turn our attention to the model program. We recently reported positive results and approved a concept Phase II study with '801 the lead compound in the third quarter. These results show that '801 dose once daily to COPD patients exhibited 24-hour bronchodilation that was similar to a combination therapy control of salmeterol dosed twice daily plus tiotropium dosed once daily. '801 was generally well tolerated with the similar overall incidents of adverse events compared to the active control and placebo arm except for a low incidence of dry mouth and tremor in the high dose '801 treatment group together with the low incidence of abnormal case in both '801 treatment groups. No serious adverse events were noted in the study.

We are encouraged by these results since '801 is the first bifunctional molecule that serves as both the muscarinic antagonist and the beta two agonist those from patients with COPD. We believe that this compound may provide new treatment options for patients suffering from COPD either as monotherapy or potentially in combination with an anti-inflammatory medication. Based on these positive data we were discussing with GSK the next steps in development, a larger Phase IIb study of '801 in the treatment of COPD to remind you we received the $10 million milestone payment for GSK for the successful achievement approved concept in the Phase II study.

We also reported in the third quarter the completion of the Phase 1 study with TD-428, our long-acting muscarinic antagonist for the treatment of COPD, we are pleased with the result of the study which demonstrated the TD-428 was generally well tolerated with an overall incidence of adverse events similar to placebo. In addition, 428 demonstrated evidence in bronchodilation in subjects who were responsive to muscarinic antagonist. Further studies will need to be completed to determine with 4208, its applications in patients with COPD. And as previously disclosed, GSK intends to return to the LAMA program, the Teravancin is the current formulation as incompatible with GSK's proprietary inhaler device.

The transfer of materials and information back to Theravance is underway and we are looking forward to the possibility of licensing the program to another partner. Turning to our GI motility dysfunction program, we recently initiated a Phase 1 drug-drug interaction study with TD-5108 in order to better characterize the PK properties of this compound. We intend to meet with the FDA in 2009 to discuss the results of the DDI study together with an evaluation of the thorough QTc study data. We will discuss the appropriate next steps with the FDA, including whether conducting another thorough ECG study is necessary.

In summary, I am pleased with the progress we have made in the last quarter. We are working diligently for upcoming Advisory Committee for Telavancin and look forward to the opportunity to discuss the results of our skin program in this forum. We looked forward to the presentation of the HAP data of the upcoming conferences in its meeting on HAP NDA later this year or very early next year. We are encouraged by the progress of the respiratory programs and in particular, we are anticipating the results of '444 in asthma.

I would now like to turn the call over to Mike Aguiar, our Chief Financial Officer. Mike?

Michael W. Aguiar

Today, I will discuss the results for the quarter ended September 30 of 2008 and will provide guidance for a full year 2008 expenses. For the quarter ended September 30, 2008, Theravance had a net loss of $20.9 million. As expected, our spending was lower this quarter than during both the prior quarter and the third quarter of 2007, which reduced spending was due to decreased clinical trial activity, lower restructuring cost versus the second quarter 2008 and the impact of our reduction in force announced in April.

Total R&D spending for the third quarter of this year was $20.1 million compared to spending of $32 million during the same period last year, a decrease of $11.9 million. This decrease was driven primarily by lower outside clinical study cost for TD-5108, TD-1792 and Telavancin as well as lower employee related costs due to reduction of force announced in April this year. Excluding stock-based compensation costs, non-GAAP R&D spending was $17.1 million during the third quarter of 2008 compared to $28.5 million for the same period last year. External R&D costs were $5 million for the third quarter of 2008, compared to $11.4 million during Q3 2007.

The third quarter 2008 external R&D costs were primarily associated with Telavancin activities including monitoring and auditing activities for the skin HAP studies and the preparation of the HAP NDA. General and administrative costs were $6.5 million during the third quarter of 2008, down $2 million compared to the same period last year. This decrease was due primarily to lower employee and facilities-related costs related to the reduction in force announced in April 2008. Excluding stock-based compensation, non-GAAP G&A expense was $4.7 million during the third quarter of 2008 compared to $6.1 million during the same period in 2007.

Revenue consisted primarily of the amortization of upfront and milestone payments received from the Company's partnerships with GSK and Astellas and totaled $6 million during the third quarter of 2008. This was up slightly compared to the same quarter last year primarily due to the amortization of the $10 million proof-of-concept milestone we earned in the second quarter for successful completion of the Phase II study with our MABA compound '081.

Net loss for the third quarter this year was $20.9 million or $0.34 per share, compared to a net loss of $32.4 million or $0.53 per share during the third quarter of 2007. Cash, cash equivalents and marketable securities totaled $218.8 million as of September 30, 2008. This is a decrease of approximately $13.5 million during the third quarter of 2008, primarily due to cash used in operations and severance-related payments made during the quarter that were partially offset by a $10 million milestone payments received from GSK.

Our second and third quarter results include $5.1 million of restructuring costs following our actions announced in April, of which approximately $4.7 million has been paid through September 30, 2008. These costs are primarily comprised of employee severance and related items. Over approximately the next 15 months, we expect to incur about $600,000 in additional employee restructuring costs.

Now turning to our guidance regarding expenses for the remainder of 2008, we are reiterating our previous guidance range of $105 million to $115 million. This guidance is for total research and development expense, total general and administrative expense, and all restructuring costs, excluding stock-based compensation.

Now, let me turn the call back to Rick for final closing comments.

Rick E. Winningham

Thanks, Mike. Before inviting you to ask questions, I would like to review our four significant operating milestones for 2008.

First, we are on track to report Phase IIb asthma data with the Horizon program for '444. Our second milestone was to receive US regulatory approval for for Telavancin for the complicated skin and skin structure infections. Third, we achieved the milestone of reporting our positive Phase II MABA top line results in COPD last quarter and finally, our fourth milestone is to submit Telavancin NDA for hospital-acquired pneumonia to the FDA and is on track to be submitted late this year or very early in 2009.

In conclusion, we continue to progress our clinical programs. We are pleased to be presenting clinical profile of Telavancin to the Advisory Committee in November. We dearly anticipate the results of Phase IIb study in asthma with '444 and we are working diligently to submit our HAP NDA to the FDA. We are looking forward to these important events in the upcoming months and now I would like to turn the call over to the conference facilitator and open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question from Analyst for May-Kin Ho – Goldman Sachs.

Analyst for May-Kin Ho – Goldman Sachs

Just quickly, how different is your filing package for skin infections to the FDA versus to the European regulatory agency?

Rick E. Winningham

Yes, this is Rick Winningham. The primary difference between the two submissions is that the US application now contains all of the safety information and some summary of efficacy information from an additional 1503 patients that were in the hospital-acquired pneumonia program. We submitted that data in January of 2008 to the FDA as part of our complete response to the approval letter. In Europe, the hospital-acquired pneumonia data was not submitted as a part of the complicated skin and skin structure package.

Operator

Your next question comes from Rachel McMinn – Cowen & Co.

Rachel McMinn – Cowen & Co.

Just going back to FDA panel, at this point do you have a sense of what will be discussed? Do you have briefing documents for the panel?

Rick E. Winningham

No, we do not have the briefing documents at this point in time. The only indication that we have of what might be discussed is sort of what was potentially on the docket earlier this year. My expectations would be that we discuss the overall benefit risk profile of Telavancin, we would discuss the profile of renal profile of the drug as well as QT and pregnancy category but there could be other subjects that the FDA wants to address and we will not know what. We will have an idea of that until we receive the briefing document.

Rachel McMinn – Cowen & Co.

And I guess just on the topic of risk benefit, based on data that you have presented. You have clearly an increase in renal events relative to vancomycin that overall a low number despite that the EMEA still or is CHMP still could not find it I guess in their hearts to recommend approval? What is I guess, what gives you confidence that FDA would have a different opinion? HAP data is great perhaps but that indication is totally different than CHMP?

Rick E. Winningham

Yes, it is totally different. Clearly an additional 1503 patients would accept roughly 750 on Telavancin in a more serious infection setting with a more serious illness, an important additional piece of information to understand how the drug works. And in the Telavancin skin program, about 12% of the patients in that program have moderate to severe renal insufficiency at baseline. In the HAP program about 33% of the patients in the hospital-acquired pneumonia program had moderate to severe renal insufficiency at baseline. The overall difference of a couple of percent renal adverse events was rough, it was about the same between the two studies but I think clearly the information of the HAP program does in fact shed a light on how the drug works in patients with moderate to severe renal insufficiency at baseline and how to identify, really amplifies how to identify those patients who might be at most risk for a renal adverse events. Mike, you want to add to that?

Michael W. Aguiar

Yes, I think you are right, Rick, on the data that the HAP study provided us really with a much more comprehensive look with more patients. I think in particular we view the renal profile of having a slight improvement particularly just because of the ratio. There is about a 2 points difference between the Telavancin and vanco renal adverse event rate in both studies but there is a higher overall incident happening in the HAP study and so I think if we put that at a slight, and I do want to emphasize the word 'slight' positive for that.

What is important is you kind of look back here looking forward to the Advisory Committee, I do not know that we have any better information data about what potential topics are out there but I do think there has not been any gigantic sea change happening in terms of way of the products are characterized or what is over there. So, we are certainly aware well of that but originally we are looking forward to our briefing documents and looking forward to getting asked by the panel.

Rachel McMinn – Cowen & Co.

The whole emphasis that you have rested on, there is not really that much difference in renal toxicity despite the underlying patient populations being different. I mean, is it really a question when based with your prior interaction with the FDA on this data side that the FDA is concerned about how to deal with this drug period or just do you want to induce any type of serious renal adverse events in patients that just are less sick?

Rick E. Winningham

Well, I think the patients in the complicated skin infection study; I mean these were the patients that had a high probability at baseline of being hospitalized. So, while they were less I mean they were in the ICU as a significant percentage of the patients were in the HAP study, these patients were pretty seriously ill when they were treated with Telavancin. I think like many antibiotics, there are certain parameters that one will need to monitor with the use of Telavancin. For example monitoring serum creatinine with Telavancin, that we would expect that to be in the label similar as monitoring other property for the platelets, CPK elevations, etc are in other labels and in fact, by monitoring serum creatinine with Telavancin, one can monitor the progress of the patient and understand whether the patient is in fact, has the potential to have a renal adverse event. We will go through a fairly extensive review I think of the renal profile of Telavancin during the Advisory Committee and I think we could have a very good handle on suggestions or positions on how to manage the patient such that the patient does not get into and have or exposed to a risk with Telavancin.

Rachel McMinn – Cowen & Co.

Okay, thanks for that and then just last question is on '444, when you give us the top line data later this year, I guess what is it that we should be looking for because clearly we already have this onset data. We know that the drug is at least one of the dose or multiple doses are going to be showing an improvement. There is not an actual comparator so it is clearly going to show improvement over placebo. I guess what kind of other information will you be able to provide to us at that time when we get onset of action data, history timeline and safety and then when do you expect that to be able to see the detail presentation of the data?

Rick E. Winningham

Rachel, I have not seen the data yet. I do not know exactly what the press release is going to look like when we get there. I think if you look back historically about how we displayed the information from the previous Phase IIb study that may be an indication of the types of data that will be presented at the press release. Now that being said, what we are clearly looking for is the minimum effect of dose coming out of the study. This is your classic dose ranging experiment. There are going to be doses in here that are probably too low and there are dose that are probably too high. It appears that this are going to be on a population over about 150 ml who are probably feeling pretty good.

We have to wait to see their data. Certainly, we are going to be looking at things like onset of action and adverse events as well pretty closely. So, I do need to see the data really before I can say what the press release will look like but really the general rule, if you take a look back to what we did in the last couple press release you have in this category there can be a flavor of the type of data we are looking for and really thinking about I mean something in 150 ml plus arena and wherever the lowest effective dose to get there.

Rachel McMinn – Cowen & Co.

And just timeline for you to be able to provide clarity around when Phase II will start coming out of this data or do we have to wait for the other trials to read out first?

Rick E. Winningham

Yes, I think it is a little bit optimistic to guess timeline coming out of this. Our plan right now is to get this data and then forward all the data from the other Phase IIb study so the three studies with '698 which will be reported in early '09 as well as the COPD study with '444. Once we have that data, what we will do is to get together with the FDA for an in the Phase II meeting and I think we are through with that as probably the logical time to talk about next time at a timeframe from next steps here. So, my suspicion will be we will not have it at this particular junction but after we have our meeting with the FDA.

Operator

Your next question comes from Michael Aberman – Credit Suisse.

Michael Aberman – Credit Suisse

How, I was just curious on the process between you and Astellas for making decision to voluntarily withdraw this application? Is that something that requires several meetings? How quickly does that process take to make that decision?

Rick Winningham

I think we talk through the potential options that were in force with the European authorities. The open question is really included urgency on the medical need for alternative drugs and this indication as well the potential for renal toxicity and potential for QT prolongation and we were interested in getting in front of the European authorities the hospital acquired pneumonia study, data from that study as quickly as possible and this particular path seem to be the fastest way to enable us to submit really the entire body of work with Telavancin and to the European authorities the quickest way possible.

Michael Aberman – Credit Suisse

No, I am just trying to get a sense of when the CHMP communicated to you that the data provider not sufficient to allow a positive advance at risk balance?

Rick E. Winningham

Now we have, there was an informal meeting near the end of September. We got some indication coming out of that meeting that we are going to have to make a decision on one or multiple paths in which to go with the application either the submission of substantial amount of data or withdraw. We really talked about it with Astellas really over the past couple of weeks landing on that the quickest way to approval with Telavancin in Europe is the path that we have chosen which will enable the submission of a broader data package with the HAP data.

Michael Aberman – Credit Suisse

Is there a form of communication that takes place with this where they formally communicate to you the statement that we cannot conclude a positive benefit risk balance?

Rick E. Winningham

Well I do not know whether the formal, I do not know how to grade the formalness of the communication, I think clearly we are coming out in the meeting at early September. We thought that the risk existed that this would be the conclusion. There was not a formal what the CHMP considers a formal vote but because we have decided to take this action really on Monday of this week to submit a letter indicating that we would withdraw and that we would comeback in resubmit a network path.

Michael Aberman – Credit Suisse

I am just curious about the timing of when to disclose that but fine, I will take that. You mentioned in your commentary that about the HAP trial that the oral step down was not allowed and you made a point that that was important. Can you help us understand what you are trying to get at? Why is that so important?

Rick E. Winningham

Sure. I think the importance is understanding whether the drug works or whether there are any compelling factors that will complicate ones ability to assess whether your medicine or concomitant medicine is contributing to the efficacy of the drug and there had been studies about that in the past in this particular disease where oral step down therapy and other related infections looking at the serious infections where oral step down therapy has been allowed after a period of time either in the experimental arm or in the control arm in both the ATTAIN studies and the ATLAS studies, there was no oral step down therapy permitted in the study.

Michael Aberman – Credit Suisse

One last question, do you know of any update on the panel on the potential for an additional safety panel on the long-acting beta agonist?

Rick E. Winningham

We were certainly aware that there was one coming up there; I think it is in the December timeframe. Clearly, this is not something we would be participating in as an active participant because we do not have any of those products. GSK clearly is someone who would be on the line for that, it would seem like but we have not seen any agenda, any questions, ending like data out of there like any of the discussions the GSK would have would be related to Advair and not to the Horizon program. So, we are not coming but we do not have any particular insight at this point.

Operator

Your next question comes from Ian Somaiya – Thomas Weisel Partners

Ian Somaiya – Thomas Weisel Partners

A lot of my questions have been answered, just on the financial front. Mike, maybe you could just walk us through the milestones that you expect from either Astellas or Glaxo given the newest milestones that are coming up?

Michael W. Aguiar

Sure. We have not gotten any great detail in regard to the exact size or volume but with regard to our agreement with Astellas is a total of $60 million of potential milestones left. Of the $60 million, $5 million is related to Japanese approval. That is the only discreet item that has been called out of the $60. The remaining $55 is the principal regulatory related activities so approval in the US, approval in the Europe; those types of things. But again we have not really gone through and spoken it out by the specific milestones for each of these activities but you know we thought it would assume there is portion related to CHMP, portion related to HAP, portions related to the US, portions related to the Europe.

And then with regard to GSK, the next logical milestone that we could earn would be related to the MABA program, the initiation of the Phase III program. So, that is probably at least a year off I would suspect that you have to go through a Phase IIb study, most likely to get to a Phase III program. So, that will be the next one at the initiation of the Phase III but again, we would suspect today that is probably a year away or so.

Ian Somaiya – Thomas Weisel Partners

I know you are not ready to give 2009 financial guidelines but if you do get the regulatory approvals in the US and Europe for Telavancin, are we close to neutral and the burn for next year?

Michael W. Aguiar

We are not quite ready to get to 2009 at this point but that will be a January or February conference call when we get there. So, I will have to hold up, we do not have the budget put together at this point but clearly we took some significant activities earlier this year to reduce our burn rate and to really extend out the cash balance we have so we want to succeed really closely and we were thinking about it all the time. I probably should just make one comment on the cash. Our cash is real cash, there is no infinite note to date of any concern probably 75% of our cash balance today is in various government-backed securities so we feel quite comfortable about where we are today and again there is nothing in there of any particular concern today. So, I feel good about where we have our cash sitting.

Rick E. Winningham

Yes, just as a reminder, Ian the cost for commercialization of Telavancin are not borne by Theravance. The costs of commercialization of Telavancin are borne by Astellas .

Operator

Your next question comes from Biren Amin – Stanford Group.

Biren Amin – Stanford Group

I was wondering when you plan on resubmitting the Telavancin application in Europe?

Rick E. Winningham

Right now the guidelines for the Astellas was giving us in 2009 I mean clearly we are going to submit our HAP NDA along with the timeline that I referred to earlier in the call and then there will be some months after that as we convert the US application into the type of application that Astellas wants to submit into Europe.

Biren Amin – Stanford Group

So, I guess specifically it could be anytime in '09, is it more likely to appear in the first half or second half?

Rick E. Winningham

Biren, we have not really got that specific. In every decision that we made here this week, it is a very, very new decision with regards to hauling this so we are still working on this timeline and we work here at the key point here. There is a dependant factor of finance which is getting the US that is going to be submitted first. So, I am not really ready to get any more specific in 2009. I am obviously hoping it is not December 31 or something like that but we will provide some further color probably at our next call.

Biren Amin – Stanford Group

With regards to the US application for skin, I notice that data from 73 patients was discarded from the skin application and the Company mentions that there has been no impact to the data after taking these 73 patients out. But were there any changes with the lower balance of the confidence interval? So, did it reach negative 5% or possibly the negative 10%...

Rick E. Winningham

No.

Biren Amin – Stanford Group

When you remove these 73 patients?

Rick E. Winningham

No. I think when you see the data that has been in the briefing document that all has been posted, you are not going to notice anything changing in the numbers as a result of the inclusion of these patients of any consequence. So, today my overall conclusion, my confidence intervals and all that are pretty good and in good shape. Just to be clear, we remove 73 patients from the efficacy analysis of the study.

Operator

Your next question comes from Jim Birchenough - Barclays Capital.

Jim Birchenough - Barclays Capital

A couple of follow up, just on the renal effects, we have all just seen one kind of the data and you have seen a preliminary briefing document. you have talked to EMEA you have got an approval letter, is there any different cuts that you have seen through that, that accentuates the difference with vancomycin? When EMEA looked at that or the FDA looked at that earlier, did they cut it in different ways where you saw a subsets that might have greater concerns with Telavancin versus vanco?

Rick E. Winningham

Not specifically that the regulatory authorities have looked at. I mean of course we have looked at and in fact described before different cuts of the data of where patients with no risk of no existing baseline risk of renal dysfunction in fact perform equally well in Telavancin or vancomycin. So, those patients that you can actually pre identify with specific risk factors where you get effective with an increase in an observed creatinine with Telavancin and that is about how we describe it that is how we will talk through it in the Advisory Committee because that very much allows the practicing physician to identify patient population who might be at risk for an increase serum creatinine.

Jim Birchenough - Barclays Capital

Is any part of this, Rick about predictability of the pharmacokinetics and specifically peak and trough levels? Often when you are monitoring patients on vanco, you look at trough levels to try and keep them out of problems with renal function. Is there any issue in terms of the predictability of the Telavancin pharmacokinetics? Have you been able to identify consistent trough levels that have predictive renal effects?

Rick E. Winningham

No, they do not necessarily predict, I think the answer to the question is that Telavancin’s pharmacokinetic profile is pretty well behaved. We published data on the pharmacokinetic profile in patients with moderate to severe renal insufficiency and in fact included in the study, those with adjustments for patients with moderate to severe renal insufficiency and this is another difference of some other studies that are developed. As I mentioned earlier 12% of the patients in the skin study had moderate to severe renal insufficiency at baseline. About 33% of the patients in the hospital-acquired pneumonia program had moderate to severe renal insufficiency at baseline.

So, I think based on the data that we have today, we have a pretty good understanding of the pharmacokinetics of the drug and that those will allow us to study to adjust the dose appropriately. Of course, but again Jim, once you get down to subsets of subsets of subsets then you get down the pretty small end values and it is a little bit hard to make sense with it.

Jim Birchenough - Barclays Capital

Just one final question, just on the noninferiority margins that are going to be discussed here. It strikes me that FDA is looking at three different drugs here that may affect in different approaches to the noninferiority design. Iclaprim used Zyvox as a comparator. You guys used vanco, any concern that you have heard from FDA on the comparator that you used versus what was used by Iclaprim?

Michael W. Aguiar

We are not aware of any issues out there. I think we certainly have a view that vanco was the current standard of care and we are feeling pretty comfortable taking deltas off of that. As you start taking deltas of deltas, it potentially could confound some statistics but I think we feel pretty confident on that. We do not really have any insights where the FDA is going on this. I am not sure whether the data that was discussed earlier at the doripenem Advisory Committee means anything or not given that was HAP as oppose to the skin indication. So, all of that being said, I think we feel reasonably good about where we are with non-inferiority margin and we are looking forward to having a discussion with them.

Operator

Your next question comes from Bryan Skorney - SIG.

Bryan Skorney - SIG

Just a couple of quick questions on Telavancin; first, as far as the renal events go, can you kind of give us any color on the average increase in creatinine between Telavancin and vancomycin or the mean decreases in glomerular filtration in the ATLAS study?

Rick E. Winningham

Well, without getting into a lot of detail there, some of the data is published in the CID paper. The ATLAS studies had been published. I think the fact is that the increases that we saw in serum creatinine or decreases in clearance, in fact were reversible in those patients that saw them in almost all the cases.

Bryan Skorney - SIG

Okay, maybe we have not really talked about the QTc, it seems like EMEA was also concerned about that. I mean just looking at your thorough QTc study, it seems kind of apparent that there does not really look like a significant QT prolongation compared to the act of control there. Can you give us some idea on what CHMP is saying seeing there that they would even bring up the QT prolongation as one of the reasons aside for not an adequate risk benefit profile?

Rick E. Winningham

I really cannot provide, I cannot provide anything else other than that the data that we saw in the thorough QT study was really reflected, it is also reflected in the QT measurements that were taken in the Phase III program where we had relatively few outliers in the Phase III program and in fact I think we are more as I recall, I do not have the information right in front of me, there were more QT measurements gross QT measurements, greater than 500 milliseconds on the vanco arm as opposed to the Telavancin arm. So, I think we have done a pretty good job of characterizing the effect of this and the effect of this is less than the positive control moxifloxicin in the thorough QT study and in fact the elite now understand that not only the 2000 patients that we examined in the skin program with 1500 patients that we examined in the hospital-acquired pneumonia program and in both programs, concomitant medications that in fact prolonged the QT interval were not excluded. So, with the large number of patients you have, no medicines that in fact prolonged the QT interval at baseline throughout the study and I think the data that we published more speak for themselves.

Bryan Skorney - SIG

I agree. It just kind of brings up my confusion as to why; I mean the renal events are clearly at least on a point estimate basis more frequent in Telavancin.

Rick E. Winningham

I agree, right there with you.

Bryan Skorney - SIG

Just one last question looking at the dori panel, J&J argued for 20% and the FDA put their own argument so we will see a similar scenario on the first day of the IDAAC committee. Do you have any feel on what the FDA is going to argue for as far as on the non-inferiority margin?

Rick E. Winningham

I really do not have a feel for what they are going to argue. I mean I think we have developed and clearly we have powered our studies and looked at our study in complicated skin at 10%. We felt like at that time that we had based on precedent a relatively good justification and then I think we will present additional work that we have done on the morning of the 18th that further solidify why a non-inferiority margin in that range is reasonable.

Operator

Your next question comes from Tom Russo – Robert W. Baird.

Tom Russo – Robert W. Baird

Most had been answered but I was hoping that you could comment from the ATTAIN and the HAP site audits that you have done. I think you mentioned that you got to 75% of the sites whether there were any issues you saw, whether you think any data would have to be removed, and things of that nature that you have provided detail on for the skin site?

Michael W. Aguiar

We are not going to go into the gory detail on that. I think the top level conclusion that we feel pretty good about where we are, and the fine issues of course we did. Any study that say that you are going to find a variety of things, which you do not want to find kind of the depth and destruction issue and then really do not want to find any sort of systemic issue and I think what we communicated today is we got here systemic issue that are now present after our review and so we are feeling pretty good about that. But clearly we are able to do a number of…

Rick E. Winningham

We had conservation that we found in the chart that we reported; sure we did but nothing that impacted the conclusions or the results of the study.

Tom Russo – Robert W. Baird

Are you able to say if you will still plan on using all the patients versus excluding a handful? Is that what you did?

Rick E. Winningham

We will submit the entire data package to the FDA.

Tom Russo – Robert W. Baird

Okay and last, not that it matters as much in today's environment, but do you have a new FIDUFA date for skin as the result of the FDA inviting you to the panel meeting or is that still not defined?

Rick E. Winningham

No.

Operator

Your next question comes from Matt Duffy - BDR Research Group, LLC.

Matt Duffy - BDR Research Group, LLC

Most had been asked and answered but just couple of things, on a broader view of things, do the EMEA and the FDA look at QT prolongation differently? Do they look at different thresholds or excursions or outliers?

Rick E. Winningham

Well I think to answer to that, the review process in general is quite different between the FDA and the EMEA, in that you are assigned rapporteurs in the EMEA that really shepherd sort of the review and do the rapporteurs have different perspectives? It just all depends on the rapporteurs. So, not knowing what is specifically going through each of their mind, I do not think I can answer it the question, do they view it exactly the same way. Clearly the overall guidance document with E14 indicates how you should look at that thorough QT studies and in fact the study that we published a number of years ago on the QT interval of Telavancin demonstrates pretty strongly what the QT effect is and that it is in fact less than the positive control of moxifloxicin and I think that is mainly where our focus is with the FDA and what our sort of continuing communication sort of be Astellas is or the EMEA.

Matt Duffy - BDR Research Group, LLC

Okay and for the panel since it is focusing on the skin indication how much of this the HAP safety or for that matter efficacy data can you include in your presentation that sort of bolster the overall risk benefit argument?

Rick E. Winningham

Well I think what we will do where the HAP safety data informs on a particular issue be it renal or what the renal adverse events. We will address the briefing document, address it in the presentation and I do not think we will spend a lot of time on HAP efficacy, and I would doubt if we do but of course if asked what the numbers were, we would state what the numbers were but the really where we believe the HAP study helps the skin study is overall on the safety and tolerability of Telavancin that treat serious infections.

Operator

It appears we have no further questions on the phone. I would now like to turn the conference back over to Mr. Winningham. Please go ahead, sir.

Rick E. Winningham

Yes, I just like to thank everyone for their questions and comments and enjoy the rest of your day.

Operator

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

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Source: Theravance, Inc. Q3 2008 Earnings Call Transcript
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